UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2022
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 1-12235
Triumph Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 51-0347963 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |
899 Cassatt Road, Suite 210, Berwyn, Pennsylvania19312
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (610) 251-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, par value $.001 per share | TGI | New York Stock Exchange | ||
Purchase rights | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
NoneIndicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934. Yes
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
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Securities Exchange Act of 1934. (Check one)
Large accelerated filer | ☒ | Accelerated filer | ☐ | |
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its report.☒
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes
As of
September 30,The number of outstanding shares of the Registrant's Common Stock, par value $.001 per share, on
MayPortions of the following document are incorporated herein by reference:
The Proxy Statement of Triumph Group, Inc. to be filed in connection with our
Table of Contents
Item No. | Page | |
4 | ||
4 | ||
5 | ||
5 | ||
5 | ||
5 | ||
6 | ||
9 | ||
9 | ||
Item 1A. | 10 | |
20 | ||
20 | ||
20 | ||
20 | ||
21 | ||
21 | ||
23 | ||
36 | ||
37 | ||
81 | ||
81 | ||
84 | ||
85 | ||
85 | ||
85 | ||
85 | ||
85 | ||
85 | ||
86 | ||
86 |
PART I
Item 1.Business
Cautionary Note Regarding Forward-Looking Statements
This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 relating to our future operations and prospects, including statements that are based on current projections and expectations about the markets in which we operate, and management's beliefs concerning future performance and capital requirements based upon current available information. Such statements are based on management's beliefs as well as assumptions made by and information currently available to management. When used in this document, words like "may," "might," "will," "expect," "anticipate," "plan," "believe," "potential," and similar expressions are intended to identify forward-looking statements. Actual results could differ materially from management's current expectations. AdditionalFor example, there can be no assurance that additional capital maywill not be required, and that such amounts may be material, or that additional capital, if so, may notrequired, will be available on reasonable terms, if at all, at thesuch times and in thesuch amounts we need.as may be needed by us. In addition to these factors, and others described elsewhere in this report,among other factors that could cause actual results to differ materially, include competitive and cyclical factors relating to the aerospace industry, dependence of some of our businesses on key customers, requirements of capital, product liabilities in excess of insurance,are uncertainties relating to the integration of acquired businesses,businesses; general economic conditions affecting our business segment, technological developments, limited availabilitysegments; the continued impact of raw materialsthe coronavirus (“COVID-19”) pandemic; the severe disruptions to the economy, the financial markets, and the markets in which we compete; dependence of certain of our businesses on certain key customers; and the risk that we will not realize all of the anticipated benefits from acquisitions or skilled personnel, changes in governmental regulation and oversight, and international hostilities and terrorism.other efforts to optimize our asset base, as well as competitive factors relating to the aerospace industry. For a more detailed discussion of these and other factors affecting us, see the Risk Factorsrisk factors described in Item 1A"Item 1A. Risk Factors." A prolonged impact of this Annual Report on Form 10-K. We do not undertake any obligation to reviseCOVID-19 could also have the effect of heightening many of these forward-looking statements to reflect future events.
General
Triumph Group, Inc. ("Triumph",Triumph," the "Company", "we", "us","Company," "we," "us," or "our") was incorporated in 1993 in Delaware. Our companies design, engineer, manufacture, repair, overhaul and distributeoverhaul a broad portfolio of aerostructures, aircraftaerospace and defense systems, subsystems, components, accessories, subassemblies and systems.structures. We serve a broad, worldwide spectrum of the global aviation industry, including original equipment manufacturers or OEMs,(“OEMs”) and the full spectrum of military and commercial regional, business and military aircraft andoperators through the aircraft components, as well as commercial and regional airlines and air cargo carriers.
Products and Services
We offer a variety of products and services to the aerospace industry through threetwo operating segments: (i) Triumph Aerostructures Group,Systems & Support, whose companies' revenues are derived from thecompanies design, manufacture, assemblydevelop, and integration ofsupport proprietary components, subsystems, and systems; produce complex assemblies using external designs; and provide full life cycle solutions for commercial, regional, and military aircraft and (ii) Triumph Aerospace Structures, whose companies supply commercial, business, regional, and military manufacturers with large metallic and composite aerostructuresstructures and structural components for the global aerospace OEM market; (ii) Triumph Aerospace Systems Group, whose companies design, engineerproduce close-tolerance parts primarily to customer designs and manufacturemodel-based definition, including a wide range of proprietary and build-to-print components, assemblies and systems also for the OEM market; and (iii) Triumph Aftermarket Services Group, whose companies serve aircraft fleets, notably commercial airlines, the U.S. military and cargo carriers, through the maintenance, repair and overhaul of aircraft components and accessories manufactured by third parties.
Systems Group
The products and military manufacturers with largecapabilities within this group include the design, manufacture, build and repair of:
Aircraft and engine-mounted accessory drives | Thermal control systems and components | |
Cargo hooks | High lift actuation | |
Cockpit control levers | Hydraulic systems and components | |
Control system valve bodies | Landing gear actuation systems | |
Electronic engine controls | Landing gear components and assemblies | |
Exhaust nozzles and ducting | Main engine gear box assemblies | |
Geared transmissions and drive train components | Main fuel pumps | |
Fuel-metering units | Secondary flight control systems | |
Vibration absorbers |
3
Extensive product and service offerings include full post-delivery value chain services that simplify the maintenance, repair, and overhaul ("MRO") supply chain. Through its ground support equipment maintenance, component MRO, and postproduction supply chain activities, Systems & Support is positioned to provide integrated planeside repair solutions globally. Capabilities include metallic and composite structures. Productsaircraft structures; nacelles; thrust reversers; interiors; auxiliary power units; and a wide variety of pneumatic, hydraulic, fuel, and mechanical accessories. Companies in Systems & Support repair and overhaul various components for the aviation industry, including:
Air cycle machines | Blades and vanes | |
APUs | Cabin panes, shades, light lenses and other components | |
Constant speed drives | Combustors | |
Engine and airframe accessories | Stators | |
Flight control surfaces | Transition ducts | |
Integrated drive generators | Sidewalls | |
Nacelles | Light assemblies | |
Remote sensors | Overhead bins | |
Thrust reversers | Fuel bladder cells |
Aerospace Structures' products include wings, wing boxes, fuselage panels, horizontal and vertical tails, and sub-assembliessubassemblies such as floor grids. Inclusive of the former Vought Aircraft Division, Aerospace Structures also has the capability to engineer detailed structural designs in metal and composites.
The products and a variety of special processes including: super plastic titanium forming, aluminumcapabilities within this group include the design, manufacture, build and titanium chemical milling and surface treatments.
Composite and metal bonding | Flight control surfaces | |
Engine nacelles | Integrated testing and certification services | |
Empennages | Wing flaps | |
Acoustic and thermal insulation systems | Composite ducts and floor panels |
Proprietary Rights
We benefit from our proprietary rights relating to designs, engineering and manufacturing processes, and repair and overhaul procedures. For some products, our unique manufacturing capabilities are required by the customer's specifications or designs, thereby necessitating reliance on us for the production of such specially designed products.
We view our name and mark, as well as the Vought and Embee tradenames,trademark as significant to our business as a whole. Our products are protected by a portfolio of patents, trademarks, licenses, or other forms of intellectual property that expire at various dates in the future. We continually develop and acquire new intellectual property and consider all of our intellectual property to be valuable. However, based on the broad scope of our product lines, management believes that the loss or expiration of any single intellectual property right would not have a material adverse effect on our results of operations, our financial position, or our business segments. Our policy is to file applications and obtain patents for our new products as appropriate, including product modifications and improvements. While patents generally expire 20 years after the patent application filing date, new patents are issued to us on a regular basis.
In our overhaul and repair businesses, OEMs of equipment that we maintain for our customers often include language in repair manuals that relate to their equipment, asserting broad claims of proprietary rights to the contents of the manuals used in our operations. There can be no assurance that OEMs will not try to enforce such claims, including the possible use of legal proceedings. In the event of such legal proceedings, there can be no assurance that such actions against the Company will be unsuccessful. However, we believe that our use of manufacture and repair manuals is lawful.
Sales, Marketing, and Engineering
Each of our operating companies maintains responsibility for selling and marketing its specific products, we have developed two marketing teams at the group level who are focused on cross-selling our broad capabilities. One team supports the Aerostructures and Aerospace Systems Groups and the other the Aftermarket Services Group.products. These teamsbusinesses are responsible for selling systems,aerospace engineered products, integrated assemblies, cabin acoustic insulation and repair and overhaul services, reaching across our operating companies, to our OEM, military, airline, and air cargo customers. In certain limited cases, we use independent, commission-based representatives to serve our customers' changing needs and the current trends in some of the markets and geographic regions in which we operate.
Triumph also maintains two group-level marketingaccount executives, for Boeing and Airbus, who coordinate corporate selling activities at these two key customers. Additionally, Triumph has established multiple Customer Focus Teams ("CFT") which are cross functional teams focused on Triumph’s activities, performance, and coordination with large customers.
Our account executives,, business development teams, and CFT’s operate as the front-endfront end of the selling process, establishing or maintaining relationships, identifying opportunities to leverage our brand, and providing service for our customers. Each individual operating company is responsible for its own technical support, pricing, manufacturing and product support. Also, within the Aerospace Systems Group, we have created a group engineering function to provide integrated solutions toWe meet our customercustomers’ needs by designing systems that integrate the capabilities of our companies.
4
A significant portion of our government and defense contracts are awarded on a competitive bidding basis. We generally do not bid or act as the primary contractor but will typically bid and act as a subcontractor on contracts on a fixed-price basis. We generally sell to our other customers on a fixed-price,fixed price, negotiated contract, or purchase order basis.
When subcontracting, there is a risk of nonperformance by our subcontractors, which could lead to disputes regarding quality, cost or impacts to production schedules. Additionally, economic environment changes or natural disasters, trade sanctions, tariffs, budgetary constraints, earthquakes, fires, extreme weather conditions, or pandemics, affecting the prime contractor and our subcontractors may adversely affect their ability to meet or support our performance requirements.
Backlog
We have a number of long-term agreements with several of our customers. These agreements generally describe the terms under which the customer may issue purchase orders to buy our products and services during the term of the agreement. These terms typically include a list of the products or repair services customers may purchase, initial pricing, anticipated quantities and, to the extent known, delivery dates. In tracking and reporting our backlog, however, we only include amounts for which we have actual purchase orders with firm delivery dates or contract requirements generally within the next 24 months, which primarily relate to sales to our OEM customer base. Purchase orders issued by our aftermarket customers are usually completed within a short period of time. As a result, our backlog data relates primarily to the OEM customers. The backlog information set forth below does not include the sales that we expect to generate from long-term agreements for which we do not have actual purchase orders with firm delivery dates.
As of
March 31,Dependence on Significant Customers
As disclosed in Note 19, a significant portion of our net sales covering virtually everyare to the Boeing plant and product.
Competition
We compete primarily with Tier 1 and Tier 2 aerostructures manufacturers, systems suppliers and component manufacturers, some of which are divisions or subsidiaries of other large companies, in the manufacture of aircraft structures, systems components, subassemblies, and detail parts. OEMs are increasingly focusing on assembly and integration activities while outsourcing more manufacturing and, therefore, are less of a competitive force than in previous years.
Competition for the repair and overhaul of aviation components comes from four primary sources, some of whom possess greater financial and other resources than we have:have and, as a result, may be in a better position to handle the current environment: OEMs, major commercial airlines, government support depots, and other independent repair and overhaul companies. Some major commercial airlines continue to own and operate their own service centers, while others have begun to sell or outsource their repair and overhaul services to other aircraft operators or third parties. Large domestic and foreign airlines that provide repair and overhaul services typically provide these services not only for their own aircraft but for other airlines as well. OEMs also maintain service centers whichthat provide repair and overhaul services for the components they manufacture. Many governments maintain aircraft support depots in their military organizations that maintain and repair the aircraft they operate. Other independent service organizations also compete for the repair and overhaul business of other users of aircraft components.
Participants in the aerospace industry compete primarily on the basis of breadth of technical capabilities, quality, turnaround time, capacity, and price.
Government Regulation, Including Environmental Regulations and Industry Oversight
Government Regulation and Industry Oversight
5
The aerospace industry is highly regulated in the United States by the FAAFederal Aviation Administration ("FAA") and in other countries by similar agencies. We must be certified by the FAA and, in some cases, by individual OEMs, in order to engineer and service parts and components used in specific aircraft models. If material authorizations or approvals were revoked or suspended, our operations would be adversely affected. New and more stringent government regulations may be adopted, or industry oversight heightened, in the future, and these new regulations, if enacted, or any industry oversight, if heightened, may have an adverse impact on us.
We must also satisfy the requirements of our customers, including OEMs, that are subject to FAA regulations, and provide these customers with products and repair services that comply with the government regulations applicable to aircraft components used in commercial flight operations. The FAA regulates commercial flight operations and requires that aircraft components meet its stringent standards. In addition, the FAA requires that various maintenance routines be performed on aircraft components, and we currently satisfy these maintenance standards in our repair and overhaul services. Several of our operating locations are FAA-approvedFAA-certificated repair stations.
Generally, the FAA only grants licensesapprovals for the manufacture or repair of a specific aircraft component, rather than the broader licensesapprovals that have been granted in the past. The FAA licensingapproval process may be costly and time-consuming. In order to obtain an FAA license,Air Agency Certificate, an applicant must satisfy all applicable regulations of the FAA governing repair stations. These regulations require that an applicant have experienced personnel, inspection systems, suitable facilities, and equipment. In addition, the applicant must demonstrate a need for the license. Because ancertificate. An applicant must procure manufacturing andmanufacturer’s repair manuals from third partiesdesign approval holders relating to each particular aircraft component in order to obtain a license with respect to that component,component. Because of these regulatory requirements, the application process may involve substantial cost.
The license approvalcertification processes for the European Aviation Safety Agency ("EASA"), which regulates this industry in the European Union,Union; the Civil Aviation Administration of China,China; and other comparable foreign regulatory authorities, are similarly stringent, involving potentially lengthy audits. EASA was formed in 2002 and is handling most of the responsibilities of the national aviation authorities in Europe, such as the United Kingdom Civil Aviation Authority.
Our operations are also subject to a variety of worker and community safety laws. For example, the Occupational Safety and Health Act of 1970 or OSHA,("OSHA") mandates general requirements for safe workplaces for all employees in the United States. In addition, OSHA provides special procedures and measures for the handling of hazardous and toxic substances. Specific safety standards have been promulgated for workplaces engaged in the treatment, disposal, or storage of hazardous waste. We believe that our operations are in material compliance with OSHA's health and safety requirements.
Environmental Matters
Our business, operations, and facilities are subject to numerous stringent federal, state, local, and foreign environmental laws and regulationregulations by government agencies, including the Environmental Protection Agency ("EPA"). Among other matters, these regulatory authorities impose requirements that regulate the emission, discharge, generation, management, transportation and disposal of hazardous materials, pollutants, and contaminants,contaminants; govern public and private response actions to hazardous or regulated substances which may be or have been released to the environment,environment; and require us to obtain and maintain licenses and permits in connection with our operations. This extensive regulatory framework imposes significant compliance burdens and risks on us. Although management believes that our operations and our facilities are in material compliance with such laws and regulations, future changes in these laws, regulations, or interpretations thereof or the nature of our operations or regulatory enforcement actions which may arise may require us to make significant additional capital expenditures to ensure ongoing compliance or engage in the future.
Certain of our facilities, including facilities acquired and operated by us or one of our subsidiaries, have at one time or another been under active investigation for environmental contamination by federal or state agencies when acquired, and at least in some cases, continue to be under investigation or subject to remediation for potential environmental contamination.remediation. We are frequently indemnified by prior owners or operators and/or present owners of the facilities for liabilities whichthat we incur as a result of these investigations and the environmental contamination found which pre-datesthat predates our acquisition of these facilities, subject to certain limitations. We also maintain a pollution liability policy that provides coverage for certain material liabilities associated with the clean-upcleanup of on-site pollution conditions, as well as defense and indemnity for certain third-party suits (including Superfund liabilities at third-party sites), in each case, to the extent not otherwise indemnified. This policy applies to all of our manufacturing and assembly operations worldwide. Also, as we proceed with our plans to exit certain facilities as part of restructuring and related initiatives, the need for remediation for potential environmental contamination could be
Human Capital Resources
Our success greatly depends on identifying, attracting, engaging, developing, and retaining a highly skilled workforce in multiple areas, including engineering, manufacturing, information technology, cybersecurity, business development, finance, and strategy and management. Our human capital management strategy places significant importance on attracting and developing a talented and diverse workforce by creating a workplace that is engaging and inclusive and promotes a culture of
innovation, excellence,6
and continuous improvement. The objectives of our human capital management strategy are aligned with and support our strategic and financial goals.
We use a wide variety of human capital measures in managing our business, including workforce demographics and diversity metrics; talent acquisition, retention, and development metrics; and employee safety and health metrics.
Diversity and Workforce Demographics
We value the diversity of our workforce and believe that the best innovation and business results are achieved when teams are populated with individuals from a diverse set of backgrounds, cultures, genders, and experiences. We have a Diversity & Inclusion Steering Committee (“DISC”) committed to creating an environment in which all employees feel valued, included, and empowered to share their unique experiences, perspectives, and viewpoints. We believe this is critical to the success of our business and the delivery of world class manufacturing, engineering, and aerospace services. We track the diversity of our leadership and workforce and review our progress toward our diversity objectives with the Company’s Board of Directors on a periodic basis. Across our total employee population and based on employees who self-identify, as of March 31, 2016
Several of our subsidiaries are parties to collective bargaining agreements with labor unions. Under those agreements, we currently employ approximately
Our inability to negotiate an acceptable contract with any of theseour labor unions could result in strikes by the affected workers and increased operating costs as a result of higher wages or benefits paid to union members. If the unionized workers were to engage in a strike or other work stoppage, or if other employees were to become unionized, we could experience a significant disruption of our operations and higher ongoing labor costs, which could have an adverse effect on our business and results of operations.
Talent Acquisition, Retention, and Development Expenses
Hiring, developing, and retaining talented employees, particularly in highly technical areas, is an integral part of our researchhuman capital management. In addition to our focus on recruitment, we monitor attrition rates, including with respect to top talent. We believe that the commitment and development expensesconnection of employees to their workplace, what we refer to as employee engagement, is a critical component of retention of top talent. We periodically conduct surveys of our workforce designed to gauge “employee engagement”. Our People & Culture Committee monitors the responses to these surveys in our pursuit of continuously improving our employee engagement metrics. We also continue to invest in technology that supports the effectiveness, efficiency, and engagement of our employees, including advanced communication systems and processes. These investments were particularly valuable as we navigated the challenges presented by the global COVID-19 pandemic.
We also attract and reward our employees by providing market-competitive compensation and benefit practices that cover the many facets of health, including resources and programs designed to support physical, mental, and financial wellness. We also provide tuition reimbursement and other educational and training opportunities to our employees.
Employee Safety and Health
Ensuring the safety of our employees is a top priority for us. Our safety and health program seeks to enhance business value by creating a safe and healthy work environment, promote the
We monitor the effectiveness of our safety and health program by comparing recordable incidents and incident severity to specific performance metrics established annually. We measure the volume of safety incidents through the total recordable incident rate (“TRIR”) metric, and we measure incident severity through the days away restricted and transferred (“DART”) metric across all of our facilities. These rates are measured on a calendar year basis, and the table below reflects our results over the three most recent calendar years:
|
| Calendar year ended |
| |||||||||
Safety Metric |
| 2021 |
|
| 2020 |
|
| 2019 |
| |||
TRIR |
|
| 1.8 |
|
|
| 1.9 |
|
|
| 2.3 |
|
DART |
|
| 1.0 |
|
|
| 1.3 |
|
|
| 1.4 |
|
TRIR = total number of recordable cases x 200,000 / total hours worked |
| |||||||||||
DART = number of cases with days away from work x 200,000 / total hours worked by all employees |
|
In response to the global COVID-19 pandemic, we established a cross-functional team to develop appropriate workplace safety and health policies. We implemented strict protocols aimed at protecting our people and keeping our factories operational and followed Centers for Disease Control and Prevention (“CDC”) guidance. Drawing upon our core value of acting with velocity, Triumph team members responded locally and on a company-wide basis with innovative solutions to limit the spread of the virus
7
and deliver products and services to customers. This included equipping employees with personal protective equipment; sanitizing workspaces more frequently; and investing in technologies, including enhanced rapid communication software and other technologies that enabled many employees to work remotely. We limited travel and adjusted our capacity and staffing levels in response to commercial demands. The Company also produced and distributed over 10,000 masks to local medical facilities. Our COVID-19 response team continues to monitor the impact of the pandemic and will continue to provide guidance to our businesses and employees with regard to appropriate safety measures and policies.
Community Service and Philanthropy
Since 2011, we have demonstrated a deep dedication to corporate citizenship through our Wings community outreach program. Through Wings, based on the needs of their communities, our employees around the world create and implement service projects by partnering with local nonprofit organizations and engage in meaningful volunteer projects that directly benefit local charities committed to serving the needs of others. In 2018, to commemorate our 25th anniversary, the Company committed to 25,000 hours of volunteerism. Through the Wings program and individual acts of volunteerism, employees at our sites have partnered with organizations, including The United Way, The American Red Cross, The Salvation Army, Boys and Girls Club of Middle Tennessee, Ouachita Children’s Center, Los Angeles Regional Food Bank, Second Harvest Food Bank, and many others. The Company enjoys partnering in local communities, and team-based volunteer events help bring our employees together as one team serving its communities.
In 2008, the Triumph Group Charitable Foundation was formed and funded. The Triumph Group Charitable Foundation allocates its approximately $300 thousand annual grant budget to recipient organizations with the missions of advancing education, particularly in the areas of science, technology, engineering, and mathematics (“STEM”), improving our communities, and supporting veterans and military families.
Executive Officers
Our current executive officers are:
Name | Age | Position | ||
Daniel J. Crowley | 59 | Chairman, President and Chief Executive Officer | ||
James F. McCabe, Jr. | 59 | Senior Vice President, Chief Financial Officer | ||
Jennifer H. Allen | 50 | Senior Vice President, Chief Administrative Officer, General Counsel and Secretary | ||
Thomas A. Quigley, III | 45 | Vice President, Investor Relations and Controller | ||
William Kircher | 55 | Executive Vice President, | ||
Daniel J. Crowley
was appointed President and Chief Executive Officer and a director of the Company on January 4, 2016. He was elected Chair of the Board of Directors of the Company on November 17, 2020. Previously, Mr. Crowley served as a corporate vice president and President ofJames F. McCabe, Jr. has been our Senior Vice President and Chief Financial Officer since February 2014.August 2016. He joined the Company from Steel Partners Holdings, where he served in a number of roles from 2007 to 2016, including the following: Senior Vice President and CFO, President, Shared Services, and Senior Vice President and CFO of its affiliates Handy & Harman and Steel Excel. Prior to joining Steel Partners Holdings, Mr. McRae was named President of Triumph Aerostructures – Vought Aircraft Division in October 2013, having previouslyMcCabe served as Vice President, Finance and Treasurer of Triumph Aerostructures – Vought Integrated Programs DivisionAmerican Water’s Northeast Region from 2004 to 2007, and Chief Financial Officer for Triumph Aerostructures – Vought Aircraft Division,President and CFO of Teleflex Aerospace from 1991 to 2003, which served the global aviation industry. He has previously qualified as a position he had assumed upon the completion of Triumph’s acquisition of Vought Aircraft Industries, Inc. in June 2010. Prior to the acquisition, Mr. McRae hadcertified public accountant and Six Sigma Green Belt and served as Vought’s Vice Presidenta member of Business Operations,the Board of Governors and had been employed by the Company since 2007.
Jennifer H. Allen has been a Senior Vice President and our Chief Administrative Officer, General Counsel and Secretary since 2004. From 2001 until heSeptember 2018. She joined us, Mr. WrightTriumph Group from CIRCOR International, Inc., where she was Senior Vice President, General Counsel & Secretary from 2016 to 2018. Previously, she was Vice President & Associate General Counsel – Corporate for BAE Systems, Inc., from 2010 to 2016, a partner withmember of the law firmmergers and acquisition group in the New York office of Ballard SpahrJones Day from 2005 to 2010, and a member of the business and finance group in the Philadelphia office of Morgan, Lewis & Bockius LLP where he practiced corporate and securities law.
Thomas A. Quigley, III
has been our Vice President, Investor Relations and Controller since December 2019. From November 2012 to December 2019, Mr. Quigley served as our Vice President and Controller, and serves as the Company's principal accounting officer. Mr. Quigley8
William Kircher was appointed our Executive Vice President, Integrated SystemsCustomer Solutions & Support in April 2016. Prior thereto, he served as Corporate Vice President-Systems since 2013 with responsibility for eight Triumph Group companies in the Aerospace Systems segment. He joined Triumph in 1998 with the acquisition of Frisby Aerospace, where he held the position of Group Director, Hydraulics. Mr. Holzthum previously served as President of Triumph Actuation Systems-Connecticut and more recently led the successful integration of the hydraulic actuation business of GE Aviation after its acquisition.
Recent Developments
As disclosed in Note 3, we completed the divestiture of Precision Castparts Corp (PCC) aftera number of our assets and operations in the acquisitionyear ended March 31, 2022, the largest of Heroux Devtek Aerostructures in 2012. Before that, Mr. Rosenjack spent 20 years with Textron, Inc., including five years with Bell Helicopter where hewhich was Senior Vice Presidentthe sale of the Commercial Helicopter Business.
Additionally, in February 2022, we entered into a definitive agreement to sell the manufacturing operations located in Stuart, Florida. This transaction is expected to close in the first half of Operationscalendar 2022. This divestiture will substantially complete our exit of the metallic structures business. Refer to the accompanying consolidated financial statements and related notes for Triumph Airborne Structures, Mr. Abram has served as Vice Presidentdescriptions of Triumph Aftermarket Services Group, North America and, most recently, Vice President-Aftermarket Services Group, where he was responsible forother material matters occurring in the company’s maintenance, repair and overhaul (MRO) activities supporting commercial, regional, business and military aircraft worldwide. Before joining Triumph, he was Vice President of Operations for NORDAM Repair Division. Mr. Abram has extensive international business operations experience establishing start-up MRO facilities in Europe and Singapore.
Available Information
For more information about us, visit our website at www.triumphgroup.com. The contents of the website are not part of this Annual Report on Form 10-K. Our electronic filings with the Securities and Exchange Commission ("SEC") (including all Forms 10-K, 10-Q and 8-K, and any amendments to these reports) are available free of charge through our website immediatelyas soon as reasonably practicable after we electronically file with or furnish them to the SEC. These filings may also be read and copied at the SEC's Public Reference Room which is located at 100 F Street, N.E., Washington, D.C. 20549. Information about the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internetinternet site that contains reports, proxy and information statements, and other information regarding issuers who file electronically with the SEC at www.sec.gov.
In addition, electronic copies of the Company’s SEC filings will be made available, free of charge, on written request.
9
Item 1A.Risk Factors
Strategic Risks
Strategic risk relates to our future business plans and strategies, including the risks associated with the global macro-environment; competitive threats; the demand for our products and services; the success of our investments in technology and innovation; our portfolio of businesses and capital allocation decisions; dispositions, acquisitions, joint ventures, and restructuring activity; intellectual property; and other risks.
Factors that have an adverse impact on the aerospace industry may adversely affect our results of operations and liquidity.
A substantial percentage of our gross profit and operating income derivesresults derive from commercial aviation. Our operations have been focused on designing, engineering, manufacturing, repairing and overhauling a broad portfolio of aerostructures, aircraft components, accessories, subassemblies, systems, and systems.aerostructures. Therefore, our business is directly affected by economic factors and other trends that affect our customers in the aerospace industry, including a possible decrease in outsourcing by OEMs and aircraft operators or projected market growth that may not materialize or be sustainable. We are also significantly dependent on sales to the commercial aerospace market, which has been cyclical in nature with significant downturns in the past. When these economic and other factors adversely affect the aerospace industry, they tend to reduce the overall customer demand for our products and services, which decreases our operating income. Economic and other factors that might affect the aerospace industry may have an adverse impact on our results of operations and liquidity. We have credit exposure to a number of
In addition, demand for our maintenance, repair and overhaul services is strongly correlated with worldwide flying activity. A significant portion of the MRO activity required on commercial aircraft is mandated by government regulations that limit the total time or number of flights that may elapse between scheduled MRO events. As a result, although short-term deferrals are possible, MRO activity is ultimately required to continue to operate the aircraft in revenue-producing service. Therefore, over the intermediate and long-term,long term, trends in the MRO market are closely related to the size and utilization level of the worldwide aircraft fleet, as reflected by the number of available seat miles, commonly referred to as ASMs, and cargocargo-ton miles flown. Consequently, conditions or events whichthat contribute to declines in worldwide ASMs and cargo miles flown, such as those mentioned above, could negatively impact our MRO business.
The effects of the COVID-19 pandemic and other potential future public health crises, epidemics, pandemics or similar events on our business, operating results and cash flows are uncertain.
The global outbreak of the coronavirus disease 2019 (“COVID-19”) was declared a pandemic by the World Health Organization and a national emergency by the U.S. Government in March 2020 and has negatively affected the U.S. and global economy; disrupted global supply chains; resulted in significant travel and transport restrictions, including mandated closures and orders to “shelter-in-place”; and created significant disruption of the financial markets. COVID-19 has already impacted the demand for our products and services. The extent of the continued impact of the COVID-19 pandemic on our operational and financial performance, including our ability to execute our programs in the expected time frame, will depend on future developments, including the duration and spread of the pandemic and related actions taken by the U.S. Government, state and local government officials, and international governments to prevent disease spread, all of which are uncertain and cannot be predicted.
In accordance with the U.S. Department of Defense guidance issued in March 2020 designating the Defense Industrial Base as a critical infrastructure workforce, our U.S. production facilities have continued to operate in support of essential products and services required to meet national security commitments to the U.S. Government and the U.S. military, however, facility closures or work slowdowns or temporary stoppages could occur. In addition, other countries have different practices and policies that can affect our international operations and the operations of our suppliers and customers. For example, we had a brief pause in operations located in Mexico in observance of local COVID-19 policies and additional closures could occur, and we are also seeing impacts from travel restrictions both within and outside the U.S. In some cases, facilities are not operating under full staffing as a result of the impact of COVID-19 on our customers, which could have a longer-term impact.
10
If significant portions of our workforce are unable to work effectively, including because of illness, quarantines, absenteeism, government actions, facility closures, travel restrictions, or other restrictions in connection with the COVID-19 pandemic, our operations will be impacted. We may be unable to perform fully on our contracts and our costs may increase as a result of the COVID-19 outbreak. These cost increases, including costs for employees whose jobs cannot be performed remotely, may not be successfulfully recoverable under our contracts, particularly fixed-price contracts, or adequately covered by insurance. The impact of COVID-19 could worsen if there is an extended duration of any COVID-19 outbreak or a resurgence of COVID-19 infection in achieving expected operating efficiencies and sustaining or improving operating expense reductions, and mayaffected regions after they have begun to experience business disruptions associated with restructuring, facility consolidations, realignment, cost reduction and other strategic initiatives.
The continued spread of COVID-19 has also led to disruption and cost reduction initiatives, including facility consolidations, organizational realignmentsvolatility in the global capital markets, which depending on future developments could impact our capital resources and reductionsliquidity in the future. We are also monitoring the impacts of COVID-19 on the fair value of our workforce. Whileassets. In the fourth quarter of fiscal 2020, we have realized some efficiencies from these actions, we may not realizerecognized an impairment of goodwill within the benefits of these initiativesSystems & Support reportable segment that was largely due to the extentimpact of the COVID-19 pandemic on global capital markets as well as certain of the MRO operations within that segment. We cannot assure you that we anticipated. Further, such benefits may be realized later than expected,will not experience future changes in expectations for sales, earnings and the ongoing difficulties in implementing these measures may be greater than anticipated, which could cause uscash flows related to incur additional costs or result in business disruptions. In addition, if these measures are not successful or sustainable, we may be compelled to undertake additional realignmentintangible assets and cost reduction efforts,goodwill below our current projections, which could result in significant additional charges. Moreover, ifimpairment changes.
To the extent the COVID-19 pandemic adversely affects our restructuringbusiness and realignment efforts prove ineffective,financial results, it may also have the effect of heightening many of the other risk factors described in this “Risk Factors” section, such as those relating to our ability to achieve our other strategiclevel of indebtedness, results of operations and business plan goals may be adversely affected.
Changes in levels of U.S. Government defense spending or overall acquisition priorities could negatively impact our financial position and results of operations.
We derive a substantialsignificant portion of our revenue from the U.S. Government, primarily from defense relateddefense-related programs with the U.S. Department of Defense ("U.S. DoD"). Levels of U.S. defense spending in future periods are very difficult to predict and subject to significant risks. In addition, significant budgetary delays and constraints have already resulted in reduced spending levels, and additional reductions may be forthcoming. In August 2011,impacted by numerous factors such as the Budget Control Act (the "Act") established limits onpolitical environment, U.S. foreign policy, macroeconomic conditions and the ability of the U.S. Government discretionary spending, including a reduction of defense spending by approximately $490 billion between the 2012to enact relevant legislation such as authorization and 2021 U.S. Government fiscal years. The Act also provided that the defense budget would face “sequestration” cuts of up to an additional $500 billion during that same period to the extent that discretionary spending limits are exceeded. The impact of sequestration cuts has been reduced with respect to FY2016 and FY2017 following the enactment of The Bipartisan Budget Act of 2015 in November 2015. However,appropriations bills. Accordingly, long-term uncertainty remains with respect to overall levels of defense spending and it is likely that U.S. Government discretionary spending levels will continue to be subject to significant pressure, including risk of future sequestration cuts.
In addition, there continues to be significant uncertainty with respect to program-level appropriations for the U.S. DoD and other government agencies (including NASA) within the overall budgetary framework described above. While the FY2016 appropriations enacted December 2015House and Senate Appropriations committees included funding for Boeing’s major military programs in fiscal year 2022, such as F/A-18,the F-35, CH-47 Chinook, AH-64 Apache, KC-46A Tanker, UH-60 Black Hawk, and P-8V-22 Osprey programs, uncertainty remains about how defense budgets in FY2017fiscal year 2023 and beyond will affect Boeing’sthese programs. We also expect that ongoing concerns regarding the U.S. national debt will continue to place downward pressure on DoD spending levels. Future budget cuts including cuts mandated by sequestration, or future procurement decisions associated with the authorizations and appropriations process could result in reductions, cancellations, and/or delays of existing contracts or programs. Any of these impacts could have a material effect on the results of the Company’sour operations, financial position and/or cash flows.
In addition, as a result of the significant ongoing uncertainty with respect to both U.S. defense spending levels and the nature of the threat environment, we expect the U.S. DoD to continue to emphasize cost-cutting and other efficiency initiatives in its
The profitability of certain development and production programs depends significantly on the assumptions surrounding satisfactory settlement of claims and assertions.
For certain of our new development programs, we regularly commence work or incorporate customer-requested changes prior to negotiating pricing terms for engineering work or the product which has been modified. We typically have the legal right to negotiate pricing for customer-directed changes. In those cases, we assert to our customers our contractual rights to obtain the additional revenue or cost reimbursement we expect to receive upon finalizing pricing terms. An expected recovery value of these assertions is incorporated into our contract profitability estimates when applying contract accounting. Our inability to recover these expected values, among other factors, could result in the recognition of a forward loss on these programs or a lower than expected profit margin and could have a material adverse effect on our results of operations.
Throughout the course of our programs, disputes with suppliers or customers could arise regarding unique contractual requirements, quality, costs or impacts to production schedules. If we are unable to successfully and equitably resolve such claims and assertions, our business, financial condition, results of operations, customer relationships and related transactions could be materially adversely affected.
In addition, negotiations over our claims may lead to disputes with our customers that would result in litigation and its associated costs and risks of damages, penalties and injunctive relief, any of which could have a material, adverse effect on our business and results of operations.
11
We incur risk associated with new programs.
New programs with new technologies typically carry risks associated with design responsibility, development of new production tools, hiring and training of qualified personnel, increased capital and funding commitments, ability to meet customer specifications, delivery schedules and unique contractual requirements, supplier performance, subcontractor performance, ability of the customer to meet its contractual obligations to us, and our ability to accurately estimate costs associated with such programs. In addition, any new aircraft program may not generate sufficient demand or may experience technological problems or significant delays in the regulatory certification or manufacturing and delivery schedule. If we were unable to perform our obligations under new programs to the customer's satisfaction or manufacture products at our estimated costs, if we were to experience unexpected fluctuations in raw material prices or supplier problems leading to cost overruns, if we were unable to successfully perform under revised design and manufacturing plans or successfully and equitably resolve claims and assertions, or if a new program in which we had made a significant investment was terminated or experienced weak demand, delays or technological problems, our business, financial condition and results of operations could be materially adversely affected. This risk includes the potential for
In order to perform on new programs, we may be required to construct or acquire new facilities requiring additional up-front investment costs. In the case of significant program delays and/or program cancellations, we could be required to bear certain unrecoverable construction and maintenance costs and incur potential impairment charges for the new facilities. Also, we may need to expend additional resources to determine an alternate revenue generating use for the facilities. Likewise, significant delays in the construction or acquisition of a plant site could impact production schedules.
Cancellations, reductions or delays in customer orders, or new orders under existing forward loss contracts, may adversely affect our results of operations.
Our overall operating results are affected by many factors, including the timing of orders from large customers and the timing of expenditures to manufacture parts and purchase inventory in anticipation of future sales of products and services. A large portion of our operating expenses is relatively fixed. Because several of our operating locations typically do not obtain long-term purchase orders or commitments from our customers, they must anticipate the future volume of orders based upon the historic purchasing patterns of customers and upon our discussions with customers as to their anticipated future requirements. These historic patterns may be disrupted by many factors, including changing economic conditions, inventory adjustments, or work stoppages or labor disruptions at our customers' locations. Cancellations, reductions or delays in orders by a customer or group of customers could have a material adverse effect on our business, financial condition, and results of operations. Additionally, new orders submitted under long-term contracts that have been determined to be forward loss contracts may result in significant forward loss accruals immediately upon receipt of the new order and have a material adverse effect on our business, financial condition, and results of operations.
A significant decline in business with a key customer could have a material adverse effect on us.
As disclosed in Note 19, a significant portion of our net sales is to Boeing. As a result, a significant reduction in purchases by Boeing could have a material adverse impact on our financial condition, results of operations, and cash flows. In addition, some of our individual companies rely significantly on particular customers, the loss of which could have an adverse effect on those businesses.
Competitive pressures may adversely affect us.
We have numerous competitors in the aerospace industry. We compete primarily with the top-tier systems integrators and the manufacturers that supply them, some of which are divisions or subsidiaries of OEMs and other large companies that manufacture aircraft components and subassemblies. Our OEM customers, which include Boeing, Airbus, Bell Helicopter, Bombardier, Cessna, General Electric, Gulfstream, Honeywell, Lockheed Martin, Northrop Grumman, Raytheon, General Electric, Rolls Royce and Sikorsky, may choose not to outsource production of systems, subsystems, components, or aerostructures due to, among other things, a desire to vertically integrate direct labor and overhead considerations, capacity utilization at their own facilities, or a desire to retain critical or core skills. Consequently, traditional factors affecting competition, such as price and quality of service, may not be significant determinants when OEMs decide whether to produce a part in-house or to outsource. We also face competition from non-OEM component manufacturers, including Parker, Eaton, Honeywell, Transdigm, and UTC Aerospace Systems. Competition for the repair and overhaul of aviation components comes from three primary sources: OEMs, major commercial airlines and other independent repair and overhaul companies.
12
We may need to expend significant capital to keep pace with technological developments in our industry.
The aerospace industry is constantly undergoing development and change, and it is likely that new products, equipment, and methods of repair and overhaul service will be introduced in the future. In order to keep pace with any new developments, such as additive technology or sustainable energy solutions such as sustainable aviation fuels ("SAF"); hydrogen fuel; or blended wing body aircraft, we may need to expend significant capital to purchase new equipment and machines or to train our employees in the new methods of production and service.
We may not realize our anticipated return on capital commitments made to expand our capabilities.
We continually make significant capital expenditures to implement new processes and to increase both efficiency and capacity. Some of these projects require additional training for our employees and not all projects may be implemented as anticipated. If any of these projects do not achieve the anticipated increase in efficiency or capacity, our returns on these capital expenditures may be lower than expected.
We may not be successful in achieving expected operating efficiencies and sustaining or improving operating expense reductions, and may experience business disruptions associated with restructuring, facility consolidations, realignment, cost reduction and other strategic initiatives.
Over the past several years, we have implemented a number of restructuring, realignment and cost-reduction initiatives, including facility consolidations, organizational realignments and reductions in our workforce. While we have realized some efficiencies from these actions, we may not realize the benefits of these initiatives to the extent we anticipated. Further, such benefits may be realized later than expected, and the ongoing difficulties in implementing these measures may be greater than anticipated, which could cause us to incur additional costs or result in business disruptions. In addition, if these measures are not successful or sustainable, we may be compelled or decide to undertake additional realignment and cost-reduction efforts, which could result in significant additional charges. Moreover, if our restructuring and realignment efforts prove ineffective, our ability to achieve our other strategic and business plan goals may be adversely affected. The continued impact of the COVID-19 pandemic could also make it more difficult to realize the benefits and synergies of our actions. We generally do not have the ability to pass on additional costs as a result of the COVID-19 pandemic to our customers under fixed-price contracts.
We do not own certain intellectual property and tooling that is important to our business.
In our overhaul and repair businesses, OEMs of equipment that we maintain for our customers include language in repair manuals relating to their equipment asserting broad claims of proprietary rights to the contents of the manuals used in our operations. Although we believe that our use of manufacture and repair manuals is lawful, there can be no assurance that OEMs will not try to enforce such claims, including through the possible use of legal proceedings, or that any such actions will be unsuccessful.
Our business also depends on using certain intellectual property and tooling that we have rights to use pursuant to license grants under our contracts with our OEM customers. These contracts contain restrictions on our use of the intellectual property and tooling and may be terminated if we violate certain of these restrictions. Our loss of a contract with an OEM customer and the related license rights to use an OEM's intellectual property or tooling would materially adversely affect our business.
Operational Risks
Operational risk relates to risks arising from systems, processes, people, and external events that affect the operation of our businesses. It includes risks related to product and service life cycle and execution; product safety and performance; information management and data protection and security, including cybersecurity; and supply chain and business disruption.
Our business could be negatively affected by cyber or other security threats or other disruptions.
Our businesses depend heavily on information technology and computerized systems to communicate and operate effectively. Our systems and technologies, or those of third parties on which we rely, could fail or become unreliable due to equipment failures, software viruses, cyber threats, terrorist acts, natural disasters, power failures or other causes. These threats arise in some cases as a result of our role as a defense contractor. Our customers, including the U.S. Government, are increasingly requiring cybersecurity protections and mandating cybersecurity standards in our products, and we may incur additional cost to comply with such demands.
Cybersecurity threats are evolving and include, but are not limited to, malicious software; ransomware; attempts to gain unauthorized access to our sensitive information, including that of our customers, suppliers, subcontractors, and joint venture partners; and other electronic security breaches that could lead to disruptions in mission critical systems, unauthorized release of confidential or otherwise protected information and corruption of data.
13
Although we utilize various procedures and controls to monitor and mitigate these threats, there can be no assurance that these procedures and controls will be sufficient to prevent security threats from materializing. If any of these events were to materialize, the costs related to cyber or other security threats or disruptions may not be fully insured or indemnified and could have a material adverse effect on our reputation, operating results and financial condition.
Any significant disruption from key suppliers of raw materials and key components could delay production and decrease revenue.
We are highly dependent on the availability of essential raw materials such as carbon fiber, aluminum and titanium, and purchased engineered component parts from our suppliers, many of which are available only from single customer-approved sources. Moreover, we are dependent upon the ability of our suppliers to provide raw materials and components that meet our specifications, quality standards and delivery schedules. Our suppliers' failure to provide expected raw materials or component parts could require us to identify and enter into contracts with alternate suppliers that are acceptable to both our us and our customers, which could result in significant delays, expenses, increased costs, and management distraction and adversely affect production schedules and contract profitability.
We have from time to time experienced limited interruptions of supply, and we may experience a significant interruption in the future. Our continued supply of raw materials and component parts is subject to a number of risks, including:
In addition, some contracts with our suppliers for raw materials, component parts and other goods are short-term contracts, which are subject to termination on a relatively short-term basis. The prices of our raw materials and component parts fluctuate depending on market conditions, including inflationary pressures, and substantial increases in prices could increase our operating costs, which, as a result of our fixed-price contracts, we may not be able to recoup through increases in the prices of our products.
Due to economic difficulty, we may face pressure to renegotiate agreements resulting in lower margins. Our suppliers may discontinue the provision of products to us at attractive prices or at all, and we may not be able to obtain such products in the future from these or other providers on the scale and within the time periods we require. Furthermore, substitute raw materials or component parts may not meet the strict specifications and quality standards we and our customers demand, or that the U.S. Government requires. If we are not able to obtain key products on a timely basis and at an affordable cost, or we experience significant delays or interruptions of their supply, revenues from sales of products that use these supplies will decrease. The current impact of the COVID-19 pandemic could also result in a larger period of time to find suitable replacements.
Significant consolidation by aerospace industry suppliers could adversely affect our business.
The aerospace industry continues to experience consolidation among suppliers and customers, primarily as it pertains to the airlines. Suppliers have consolidated and formed alliances to broaden their product and integrated system offerings and achieve critical mass. This supplier consolidation is in part attributable to aircraft manufacturers more frequently awarding long-term sole-source or preferred supplier contracts to the most capable suppliers, thus reducing the total number of suppliers. This consolidation could cause us to compete against certain competitors with greater financial resources, market penetration and purchasing power. When we purchase component parts and services from suppliers to manufacture our products, consolidation reduces price competition between our suppliers, which could diminish incentives for our suppliers to reduce prices. If this consolidation continues, our operating costs could increase, and it may become more difficult for us to be successful in obtaining new customers. The COVID-19 pandemic has also put considerable pressure on suppliers, which could exacerbate this consolidation.
Our business could be materially adversely affected by product warranty obligations.
Our operations expose us to potential liability for warranty claims made by customers or third parties with respect to aircraft components that have been designed, manufactured, or serviced by us or our suppliers. Material product warranty obligations could have a material adverse effect on our business, financial condition and results of operations.
14
Any product liability claims in excess of insurance may adversely affect our financial condition.
Our operations expose us to potential liability for personal injury or death as a result of the failure of an aircraft component that has been serviced by us or the failure of an aircraft component designed or manufactured by us. While we believe that our liability insurance is adequate to protect us from these liabilities, our insurance may not cover all liabilities. Additionally, should insurance market conditions change, general aviation product liability, insurance coverage may not be available in the future at a cost acceptable to us. Any material liability not covered by insurance or for which third-party indemnification is not available could have a material adverse effect on our financial condition.
The lack of available skilled personnel may have an adverse effect on our operations.
From time to time, some of our operating locations have experienced difficulties in attracting and retaining skilled personnel to design, engineer, manufacture, repair and overhaul sophisticated aircraft components. Our ability to operate successfully could be jeopardized if we are unable to attract and retain a sufficient number of skilled personnel to conduct our business.
Our fixed-price contracts may commit us to unfavorable terms.
A significant portion of our net sales is derived from fixed-price contracts under which we have agreed to provide components or aerostructures for a price determined on the date we entered into the contract. Several factors may cause the costs we incur in fulfilling these contracts to vary substantially from our original estimates, and we bear the risk that increased or unexpected costs may reduce our profit or cause us to sustain losses on these contracts. In a fixed-price contract, we may be required to fully absorb cost overruns, notwithstanding the difficulty of estimating all of the costs we will incur in performing these contracts. Because our ability to terminate contracts is generally limited, we may not be able to terminate our performance requirements under these contracts at all or without substantial liability and, therefore, in the event we are sustaining reduced profits or losses, we could continue to sustain these reduced profits or losses for the duration of the contract term. Our failure to anticipate technical problems, estimate delivery reductions, estimate costs accurately or control costs during performance of a fixed-price contract may reduce our profitability or cause significant losses on programs.
Due to the size and long-term nature of many of our contracts, we are required by GAAP to estimate sales and expenses relating to these contracts in our financial statements, which may cause actual results to differ materially from those estimated under different assumptions or conditions.
Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States ("GAAP"). These principles require our management to make estimates and assumptions regarding our contracts that affect the reported amounts of revenue and expenses during the reporting period. Accounting for revenue recognized over time requires judgment relative to assessing risks, estimating contract sales and costs, and making assumptions for schedule and technical issues. Due to the size and nature of many of our contracts, the estimation of total sales and cost at completion is complicated and subject to many variables. While we base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances at the time made, actual results may differ materially from those estimated.
Our operations depend on our manufacturing facilities, which are subject to physical and other risks that could disrupt production.
Our manufacturing facilities or our customers' facilities could be damaged or disrupted by a natural disaster, war, or terrorist activity. We maintain property damage and business interruption insurance at the levels typical in our industry or for our customers and suppliers, however, a pandemic or other major catastrophe, such as an earthquake, hurricane, fire, flood, tornado or other natural disaster at any of our sites, or war or terrorist activities in any of the areas where we conduct operations could result in a prolonged interruption of our business. Any disruption resulting from these events could cause significant delays in shipments of products and the loss of sales and customers, and we may not have insurance to adequately compensate us for any of these events. For leased facilities, timely renewal of leases and risk mitigation from the sale of our leased facilities is required to avoid any business interruption.
We may be subject to work stoppages at our facilities or those of our principal customers and suppliers, which could seriously impact the profitability of our business.
Our unionized workforces and those of our customers and suppliers may experience work stoppages during collective bargaining agreement negotiations. If we are unable to negotiate a contract with those workforces, our operations may be disrupted, and we may be prevented from completing production and delivery of products from those facilities, which would negatively impact our results. Contingency plans have been developed that would allow production to continue in the event of a strike.
15
Financial Risks
Financial risk relates to our ability to meet financial obligations and mitigate exposure to broad market risks, including funding and liquidity risks, such as risk related to our credit ratings and our availability and cost of funding; credit risk; and volatility in foreign currency exchange rates, interest rates, and commodity prices. Liquidity risk refers to the potential inability to meet contractual or contingent financial obligations (whether on- or off-balance sheet) as they arise and could potentially impact our financial condition or overall safety and soundness. Credit risk is the risk of financial loss arising from a customer or counterparty failure to meet its contractual obligations to us.
Our substantial debt could adversely affect our financial condition and our ability to operate and grow our business. The terms of our indentures governing our Senior Notes impose significant operating and financial restrictions on us and our subsidiaries, which could also adversely affect our operating flexibility and put us at a competitive disadvantage by preventing us from capitalizing on business opportunities and additional financing may not be available on terms acceptable to us.
The terms of the indentures governing our 7.750% Senior Notes due August 15, 2025 (the “2025 Notes”), our 6.250% Senior Secured Notes due September 15, 2024 (the “2024 Notes”), and our 8.875% Senior Secured First Lien Notes due 2024 (the “First Lien Notes”) (collectively, the "Senior Notes") and our receivables securitization facility (the “Securitization Facility”) impose significant operating and financial restrictions on us and require us to comply with various financial and other covenants, which, among other things, limit our ability to incur additional indebtedness, create liens, dispose of assets, and enter into certain transactions. We are in compliance with all of our debt covenants.
We cannot assure you that we will be able to remain in compliance with such covenants in the future or, if we fail to do so, that we will be able to obtain waivers from the applicable holders of such indebtedness or amend such covenants and other terms of the agreements governing such indebtedness on commercially reasonable terms, if at all. Failure to comply with such covenants will entitle the applicable holders of such indebtedness to exercise remedies, including to require immediate repayment of outstanding amounts and to terminate commitments under such indebtedness, which could have a material adverse effect on our business, operations, and financial condition.
We may need to obtain additional financing in order to meet our debt obligations as they come due, to support our operations and/or to make acquisitions. Our access to the debt capital markets and the cost of borrowings are affected by a number of factors, including market conditions, the strength of our credit ratings, and the impact of the COVID-19 pandemic. If we cannot obtain adequate sources of credit on favorable terms, or at all, our business, operations, and financial condition could be adversely affected. We may also seek transactions to extend the maturity of our debt, reduce leverage or obtain covenant flexibility. Such transactions could result in us incurring additional secured debt or issuing additional equity, which could increase the risks described above.
Volatility in the financial markets may impede our ability to successfully access capital markets and ensure adequate liquidity and may adversely affect our customers and suppliers.
Turmoil in the capital markets may impede our ability to access the capital markets when we would like, or need, to raise capital or may restrict our ability to borrow money on favorable terms. Such market conditions could have an adverse impact on our flexibility to react to changing economic and business conditions and on our ability to fund our operations and capital expenditures in the future. In addition, interest rate fluctuations, financial market volatility, or credit market disruptions may also negatively affect our customers' and our suppliers' ability to obtain credit to finance their businesses on acceptable terms. As a result, our customers' need for and ability to purchase our products or services may decrease, and our suppliers may increase their prices, reduce their output or change their terms of sale. If our customers' or suppliers' operating and financial performance deteriorates, or if they are unable to make scheduled payments or obtain credit, our customers may not be able to pay, or may delay payment of, accounts receivable owed to us, and our suppliers may restrict credit or impose different payment terms. Any inability of customers to pay us for our products and services or any demands by suppliers for different payment terms may adversely affect our earnings and cash flow.
Our expansion into international markets may increase credit, currency and other risks, and our current operations in international markets expose us to such risks.
As we pursue customers in Asia, South America and other less developed aerospace markets throughout the world, our inability to ensure the creditworthiness of our customers in these areas could adversely impact our overall profitability. In addition, with operations in China, France, Germany, Ireland, Mexico, Thailand and the United Kingdom, and customers throughout the world, we are subject to the legal, political, social and regulatory requirements, and economic conditions of other jurisdictions. In the future, we may also make additional international capital investments, including further acquisitions of companies outside the United States or companies having operations outside the United States. Risks inherent to international operations include, but are not limited to, the following:
16
Financial market conditions may adversely affect the benefit plan assets for our defined benefit plans, increase funding requirements and materially impact our statements of financial position and cash flows.
Our benefit plan assets are invested in a diversified portfolio of investments in both the equity and debt categories, as well as limited investments in other alternative investments. The current market values of all of these investments, as well as the related benefit plan liabilities are impacted by the movements and volatility in the financial markets. In accordance with the Compensation—Retirement Benefits topic of the Accounting Standards Codification ("ASC"), we have recognized the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability on our balance sheet, and will recognize changes in that funded status in the year in which the changes occur. The funded status is measured as the difference between the fair value of the plan's assets and the projected benefit obligation. A decrease in the fair value of these plan assets or a decrease in interest rates resulting from movements in the financial markets will increase the underfunded status of the plans recorded on our consolidated balance sheets and result in additional cash funding requirements to meet the minimum required funding levels.
Legal & Compliance Risks
Legal and compliance risk relates to risks arising from the government and regulatory environment and action and from legal proceedings and compliance with integrity policies and procedures, including those relating to financial reporting and environmental, health, and safety matters. Government and regulatory risk includes the risk that the government or regulatory actions will impose additional cost on us or require us to make adverse changes to our business models or practices.
Our international sales and operations are subject to applicable laws relating to trade, export controls and foreign corrupt practices, the violation of which could adversely affect our operations.
We must comply with all applicable export control laws and regulations of the United States and other countries. United States laws and regulations applicable to us include the Arms Export Control Act, the International Traffic in Arms Regulations ("ITAR"), the Export Administration Regulations ("EAR"), and the trade sanctions laws and regulations administered by the United States Department of the Treasury's Office of Foreign Assets Control ("OFAC"). EAR restricts the export of dual-use products and technical data to certain countries, while ITAR restricts the export of defense products, technical data and defense services. The U.S. Government agencies responsible for administering EAR and ITAR have significant discretion in the interpretation and enforcement of these regulations. We cannot provide services to certain countries subject to United States trade sanctions unless we first obtain the necessary authorizations from OFAC. In addition, we are subject to the Foreign Corrupt Practices Act, which generally bars bribes or unreasonable gifts to foreign governments or officials.
Violations of these laws or regulations could result in significant additional sanctions, including fines, more onerous compliance requirements, more extensive debarments from export privileges, loss of authorizations needed to conduct aspects of our international business, and criminal penalties and may harm our ability to enter into contracts with the U.S. Government. A future violation of ITAR or the other regulations enumerated above could materially adversely affect our business, financial condition and results of operations.
17
The construction of aircraft is heavily regulated, and failure to comply with applicable laws could reduce our sales or require us to incur additional costs to achieve compliance, and we may incur significant expenses to comply with new or more stringent governmental regulation.
The aerospace industry is highly regulated in the United States by the FAA and in other countries by similar agencies. We must be certified by the FAA and, in some cases, by individual OEMs in order to engineer and service parts, components and aerostructures used in specific aircraft models. If any of our material authorizations or approvals were revoked or suspended, our operations would be adversely affected. New or more stringent governmental regulations may be adopted, or industry oversight heightened in the future, and we may incur significant expenses to comply with any new regulations or any heightened industry oversight.
Any exposure to environmental liabilities may adversely affect us.
Our business, operations and facilities are subject to numerous stringent federal, state, local, and foreign environmental laws and regulations, and we are subject to potentially significant fines or penalties, including criminal sanctions, if we fail to comply with these requirements. In addition, we could be affected by future laws and regulations, including those imposed in response to climate change concerns and other actions commonly referred to as "green initiatives." Compliance with current and future environmental laws and regulations currently requires, and is expected to continue to require, significant operating and capital costs.
Pursuant to certain environmental laws, a current or previous owner or operator of a contaminated site may be held liable for the entire cost of investigation, removal or remediation of hazardous materials at such property, whether orproperty. Innocent Landowner Regulations require an Environmental Site Assessment prior to acquisition to prevent unknowingly acquiring impaired property. Once identified, if the transaction continues, the impairment is not the owner or operator knew of, or was responsible for, the presence of any hazardous materials.covered by insurance. Although management believes that our operations and facilities are in material compliance with such laws and regulations, future changes in such laws, regulations, or interpretations thereof or the nature of our operations or regulatory enforcement actions, which may arise, may require us to make significant additional capital expenditures to ensure compliance in the future. Certain of our facilities, including facilities acquired and operated by us or one of our subsidiaries, have at one time or another been under active investigation for environmental contamination by federal or state agencies when acquired and, at least in some cases, continue to be under
We could become involved in intellectual property litigation, which could have a material and adverse impact on our profitability.
We and other companies in our industry possess certain proprietary rights relating to designs, engineering, manufacturing processes, and repair and overhaul procedures. In the event that we believe that a third party is infringing upon our proprietary rights, we may bring an action to enforce such rights. In addition, third parties may claim infringement by us with respect to their proprietary rights and may initiate legal proceedings against us in the future. The expense and time of bringing an action to enforce such rights or defending against infringement claims can be significant. Intellectual property litigation involves complex legal and factual questions, which makes the outcome of any such proceedings subject to considerable uncertainty. Not only can such litigation divert management's attention, but it can also expose the Companyus to damages and potential injunctive relief, which, if granted, may preclude the Companyus from making, using, or selling particular products or technology. The expense and time associated with such litigation may have a material and adverse impact on our profitability.
Our reputation; our ability to do business; and our financial position, results of operations, and/or cash flows may be impacted by the improper conduct of employees, agents, subcontractors, suppliers, business partners or joint ventures in which we participate.
We do not own certain intellectual propertyhave implemented policies, procedures, training, and toolingother compliance controls and have negotiated terms designed to prevent misconduct by employees, agents, or others working on our behalf or with us that is importantwould violate the applicable laws of the
18
jurisdictions in which we operate, including laws governing improper payments to our business.
The U.S. Government is a significant customer of our largest customers, and we and they are subject to specific U.S. Government contracting rules and regulations.
The military aircraft manufacturers' business, and by extension, our business, is affected by the U.S. Government's continued commitment to programs under contract with our customers. The terms of defense contracts with the U.S. Government generally permit the government to terminate contracts partially or completely, either for its convenience or if we default by failing to perform under the contract. Termination for convenience provisions provide only for our recovery of unrecovered costs incurred or committed, settlement expenses and profit on the work completed prior to termination. Termination for default provisions provide for the contractor to be liable for excess costs incurred by the U.S. Government in procuring undelivered items from another source. On contracts where the price is based on cost, the U.S. Government may review our costs and performance, as well as our accounting and general business practices. Based on the results of such audits, the U.S. Government may adjust our contract-related costs and fees, including allocated indirect costs. In addition, under U.S. Government purchasing regulations, some of our costs, including most financing costs, portions of research and development costs, and certain marketing expenses may not be subject to reimbursement.
We bear the potential risk that the U.S. Government may unilaterally suspend our customers or us from new contracts pending the resolution of alleged violations of procurement laws or regulations. Sales to the U.S. Government are also subject to changes in the government's procurement policies in advance of design completion. An unexpected termination of, or suspension from, a significant government contract, a reduction in expenditures by the U.S. Government for aircraft using our products, lower margins resulting from increasingly competitive procurement policies, a reduction in the volume of contracts awarded to us, or substantial cost overruns could have a material adverse effect on our financial condition, results of operations and cash flows.
We are subject to the requirements of the National Industrial Security Program Operating Manual for facility security clearance, which is a prerequisite for our ability to perform on classified contracts for the U.S. Government.
U.S. DoD facility security clearance is required in order to be awarded and be able to perform on classified contracts for the U.S. DoD and certain other agencies of the U.S. Government, which is a significant part of our business. We have obtained clearance at
Regulations related to conflict minerals have and will continue to force us to incur additional expenses, may make our supply chain more complex and could adversely impact our business.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 contains provisions to improve transparency and accountability concerning the supply of certain minerals and metals, known as conflict minerals, originating from the Democratic Republic of Congo (the "DRC") and adjoining countries. As a result, in August 2012, the SEC adopted annual investigation, disclosure and reporting requirements for those companies that manufacture or contract to manufacture products that contain conflict minerals that originated from the DRC and adjoining countries. We have and will continue to incur compliance costs, including costs related to determining the sources of conflict minerals used in our products and other potential changes to processes or sources of supply as a consequence of such verification activities. The implementation of these rules could adversely affect the sourcing, supply and pricing of materials used in certain of our products. As there may be only a limited number of suppliers offering "conflict free""conflict-free" minerals, we cannot be sure that we will be able to obtain necessary conflict-free minerals from such suppliers in sufficient quantities or at competitive prices. Also, we may face reputational challenges if we determine that certain of our products contain minerals not determined to be conflict free.
19
Our business is subject to regulation in the United States and internationally.
The manufacturing of our products is subject to numerous federal, state and foreign governmental regulations. The number of laws and regulations that are being enacted or proposed by various governmental bodies and authorities is increasing. Compliance with these regulations is difficult and expensive. If we fail to adhere, or are alleged to have failed to adhere, to any applicable federal, state, or foreign laws or regulations, or if such laws or regulations negatively affect sales of our products, our business, prospects, results of operations, financial condition or cash flows may be adversely affected. In addition, our future results could be adversely affected by changes in applicable federal, state, and foreign laws and regulations, or the interpretation or enforcement thereof, including those relating to manufacturing processes, product liability, government contracts, trade rules and customs regulations, intellectual property, consumer laws, privacy laws, as well as accounting standards and taxation requirements (including tax-rate changes, new tax laws or revised tax law interpretations).
Item 1B.Unresolved Staff Comments
None.
Item 2.Properties
As of
March 31,(Square feet in thousands) | Owned | Leased | Total | |||||
Aerostructures Group | 5,176 | 5,634 | 10,810 | |||||
Aerospace Systems Group | 1,294 | 1,035 | 2,329 | |||||
Aftermarket Services Group | 716 | 628 | 1,344 | |||||
Corporate | — | 17 | 17 | |||||
Total | 7,186 | 7,314 | 14,500 |
We believe that our properties have been adequately maintained, are adequatein good operating condition, and are suitable to support our operations for the foreseeable future.
Item 3.Legal Proceedings
In the ordinary course of our business, we are involved in disputes, claims and lawsuits with employees, suppliers and customers, as well as governmental and regulatory inquiries, that we deemare deemed to be immaterial. Some may involve claims or potential claims of substantial damages, fines, penalties or penalties.injunctive relief regarding unique contractual requirements, quality, costs, or impacts to production schedules. While we cannot predict the outcome of any pending or future litigation or proceeding and no assurances can be given, we do not believe that any pending matter will have a material effect, individually or in the aggregate, on our financial position or results of operations. If we are unable to successfully and equitably resolve such claims and assertions, our business, financial condition, and results of operations although no assurances cancould be given to that effect.
Item 4.Mine Safety Disclosures
Not applicable.
20
PART II
Item 5.Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases |
Our common stock is traded on the New York Stock Exchange under the symbol "TGI." The following table sets forth the range of high and low prices for our common stock for the periods indicated:
High | Low | ||||||
Fiscal 2015 | |||||||
1st Quarter | $ | 72.31 | $ | 61.86 | |||
2nd Quarter | 70.38 | 62.00 | |||||
3rd Quarter | 70.93 | 59.53 | |||||
4th Quarter | 67.84 | 51.15 | |||||
Fiscal 2016 | |||||||
1st Quarter | $ | 70.68 | $ | 57.25 | |||
2nd Quarter | 67.16 | 41.14 | |||||
3rd Quarter | 47.28 | 32.82 | |||||
4th Quarter | 40.36 | 22.94 |
Dividend Policy
During fiscal
Repurchases of Stock
Information about our repurchases during the three months ended March 31, 2022, of our common stock. In February 2008,stock that is registered pursuant to Section 12 of the Company's Board of Directors authorized an increaseExchange Act is disclosed in the Company's existing stock repurchase program by uptable below.
Period |
| Total Number of Shares Purchased (1) |
|
| Average Price Paid Per Share (2) |
|
| Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
|
| Maximum number of shares that may yet be purchased under existing programs |
| ||||
January 1, 2022 - January 31, 2022 |
|
| 17,713 |
|
| $ | 20.64 |
|
|
| — |
|
|
| 2,277,789 |
|
February 1, 2022 - February 28, 2022 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,277,789 |
|
March 1, 2022 - March 31, 2022 |
|
| 821 |
|
|
| 25.24 |
|
|
| — |
|
|
| 2,277,789 |
|
Total |
|
| 18,534 |
|
| $ | 21.35 |
|
|
| — |
|
|
|
|
(1) Represents shares surrendered to an additional 500,000 shares of its common stock. In February 2014, the Company's Board of Directors authorized an increase in the Company's existing stock repurchase program by up to an additional 5,000,000 shares of its common stock. During the fiscal year ended March 31, 2016, we did not repurchase any shares. During the fiscal years ended March 31, 2015 and 2014, we repurchased 2,923,011 and 300,000 shares, respectively, for a purchase price of $184.4 million and $19.1 million, respectively. From the inception of the program through March 31, 2013, we repurchased 499,200 shares (prior to fiscal 2012 stock split) for a purchase price of $19.2 million. Repurchases may be made from time to time in open market transactions, block purchases, privately negotiated transactions or otherwise at prevailing prices. No time limit has been set for completion of the program. As a result, as of May 27, 2016, the Company remains abledue to purchase an additional 2,277,789 shares.
(2) Excludes shares acquired at no cost as a result of restricted share forfeitures.
We currently have an accumulated deficit which, together with certain restrictive covenants imposed by credit agreements or indentures governing debt securities, could limit or restrict our
Performance Graph
21
The following graph compares the cumulative 5-year total return provided stockholders on our common stock relative to the cumulative total returns of the Russell 1000 index, the Russell 2000 index and the S&P Aerospace & Defense index. An investment of $100 (with reinvestment of all dividends) is assumed to have been made in our common stock and in each of the indexes on March 31, 2011,2017, and its relative performance is tracked through March 31, 2016.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN*
Among Triumph Group, Inc., and The Russell 1000 and 2000 Indexes
And The S&P Aerospace & Defense Index
* $100 invested on March 31, 20112017, in stock or index, including reinvestment of dividends.
Fiscal year ended March 31 | |||||||||||
3/11 | 3/12 | 3/13 | 3/14 | 3/15 | 3/16 | ||||||
Triumph Group, Inc. | 100.00 | 142.05 | 178.40 | 147.09 | 136.55 | 72.14 | |||||
Russell 1000 | 100.00 | 107.86 | 123.42 | 151.09 | 170.33 | 171.18 | |||||
S&P Aerospace & Defense | 100.00 | 104.54 | 121.06 | 173.68 | 198.30 | 200.23 |
|
| Fiscal year ended March 31, |
| |||||||||||||||||||||
|
| 2017 |
|
| 2018 |
|
| 2019 |
|
| 2020 |
|
| 2021 |
|
| 2022 |
| ||||||
Triumph Group, Inc. |
|
| 100.00 |
|
|
| 98.40 |
|
|
| 75.01 |
|
|
| 26.80 |
|
|
| 72.88 |
|
|
| 100.24 |
|
Russell 1000 |
|
| 100.00 |
|
|
| 113.98 |
|
|
| 124.58 |
|
|
| 114.58 |
|
|
| 184.00 |
|
|
| 208.42 |
|
Russell 2000 |
|
| 100.00 |
|
|
| 111.79 |
|
|
| 114.09 |
|
|
| 86.72 |
|
|
| 168.96 |
|
|
| 159.19 |
|
S&P Aerospace & Defense |
|
| 100.00 |
|
|
| 142.04 |
|
|
| 141.85 |
|
|
| 104.44 |
|
|
| 145.98 |
|
|
| 166.93 |
|
The stock price performance included in this graph is not necessarily indicative of future stock price performance.
Item 6.[Reserved]
22
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" included herein.
Fiscal Year Ended March 31, | |||||||||||||||||||
2016(1) | 2015(2) | 2014(3) | 2013(4) | 2012(5) | |||||||||||||||
(in thousands, except per share data) | |||||||||||||||||||
Operating Data: | |||||||||||||||||||
Net sales | $ | 3,886,072 | $ | 3,888,722 | $ | 3,763,254 | $ | 3,702,702 | $ | 3,407,929 | |||||||||
Cost of sales | 3,597,299 | 3,141,453 | 2,911,802 | 2,763,488 | 2,564,995 | ||||||||||||||
288,773 | 747,269 | 851,452 | 939,214 | 842,934 | |||||||||||||||
Selling, general and administrative expense | 287,349 | 285,773 | 254,715 | 241,349 | 242,553 | ||||||||||||||
Depreciation and amortization | 177,755 | 158,323 | 164,277 | 129,506 | 119,724 | ||||||||||||||
Impairment of intangible assets | 874,361 | — | — | — | — | ||||||||||||||
Restructuring | 36,182 | 3,193 | 31,290 | 2,665 | 6,342 | ||||||||||||||
Curtailments, settlements and early retirement incentives | (1,244 | ) | — | 1,166 | 34,481 | (40,400 | ) | ||||||||||||
Loss (gain) on legal settlement, net | 5,476 | (134,693 | ) | — | — | — | |||||||||||||
Operating (loss) income | (1,091,106 | ) | 434,673 | 400,004 | 531,213 | 514,715 | |||||||||||||
Interest expense and other | 68,041 | 85,379 | 87,771 | 68,156 | 77,138 | ||||||||||||||
(Loss) income from continuing operations, before income taxes | (1,159,147 | ) | 349,294 | 312,233 | 463,057 | 437,577 | |||||||||||||
Income tax (benefit) expense | (111,187 | ) | 110,597 | 105,977 | 165,710 | 155,955 | |||||||||||||
(Loss) income from continuing operations | (1,047,960 | ) | 238,697 | 206,256 | 297,347 | 281,622 | |||||||||||||
Loss from discontinued operations | — | — | — | — | (765 | ) | |||||||||||||
Net (loss) income | $ | (1,047,960 | ) | $ | 238,697 | $ | 206,256 | $ | 297,347 | $ | 280,857 | ||||||||
Earnings per share: | |||||||||||||||||||
(Loss) income from continuing operations: | |||||||||||||||||||
Basic | $ | (21.29 | ) | $ | 4.70 | $ | 3.99 | $ | 5.99 | $ | 5.77 | ||||||||
Diluted(6) | $ | (21.29 | ) | $ | 4.68 | $ | 3.91 | $ | 5.67 | $ | 5.43 | ||||||||
Cash dividends declared per share | $ | 0.16 | $ | 0.16 | $ | 0.16 | $ | 0.16 | $ | 0.14 | |||||||||
Shares used in computing earnings per share: | |||||||||||||||||||
Basic | 49,218 | 50,796 | 51,711 | 49,663 | 48,821 | ||||||||||||||
Diluted(6) | 49,218 | 51,005 | 52,787 | 52,446 | 51,873 |
As of March 31, | |||||||||||||||||||
2016(1) | 2015(2) | 2014(3) | 2013(4) | 2012(5) | |||||||||||||||
(in thousands) | |||||||||||||||||||
Balance Sheet Data: | |||||||||||||||||||
Working capital | $ | 606,767 | $ | 1,023,144 | $ | 1,141,741 | $ | 892,818 | $ | 741,105 | |||||||||
Total assets | 4,835,093 | 5,956,325 | 5,553,386 | 5,239,179 | 4,597,224 | ||||||||||||||
Long-term debt, including current portion | 1,417,320 | 1,368,600 | 1,550,383 | 1,329,863 | 1,158,862 | ||||||||||||||
Total stockholders' equity | $ | 934,944 | $ | 2,135,784 | $ | 2,283,911 | $ | 2,045,158 | $ | 1,793,369 |
The following discussion should be read in conjunction with the Consolidated Financial Statementsconsolidated financial statements and notes thereto contained elsewhere herein.
OVERVIEW
Business
We are a major supplier to the aerospace industry and have three operatingtwo reportable segments: (i) Triumph Aerostructures Group,Systems & Support, whose companies'companies’ revenues are derived from theintegrated solutions, including design, manufacture, assemblydevelopment and integrationsupport of proprietary components, subsystems and systems, production of complex assemblies using external designs, as well as full life cycle solutions for commercial, regional and military aircraft; and (ii) Aerospace Structures, whose companies supply commercial, business, regional, and military manufacturers with large metallic and composite aerostructuresstructures and structural components for the global aerospace original equipment manufacturers, or OEM, market; (ii) Triumph Aerospace Systems Group, whose companies design, engineerproduce close-tolerance parts primarily to customer designs and manufacturemodel-based definition, including a wide range of proprietaryaluminum, hard metal and build-to-print components, assembliescomposite structure capabilities.
Divestitures
In May 2021, we completed the divestiture of our composites manufacturing operations located in Milledgeville, Georgia, and systems alsoRayong, Thailand, as well as our large structure manufacturing operations located in Red Oak, Texas. The related assets and liabilities associated with these divestitures were classified as held for sale as of March 31, 2021, and we recognized combined net losses of approximately $102.5 million in the OEM market; and (iii) Triumph Aftermarket Services Group, whose companies serve aircraft fleets, notably commercial airlines,year ended March 31, 2021. Upon the U.S. military and cargo carriers, through the maintenance, repair and overhaul of aircraft components and accessories manufactured by third parties.
In February 2022, we entered into a definitive agreement to sell our manufacturing operations located in Stuart, Florida. The Stuart operations specialize in the assembly of large, complex metallic structures such as wing and fuselage assemblies. Upon closing of the sale of the Stuart operations, we will have substantially exited our metallic structures business and reshaped our portfolio of companies to consist of businesses providing systems and aftermarket services. Closing is expected to occur in the first half of calendar 2022. The operating results associated with the Stuart operations are included within Aerospace Structures. During the year ended March 31, 2022, the Stuart operations generated approximately $246.7 million of the $1.46 billion of consolidated net sales (or approximately 16.9% of consolidated net sales).
Refer to Note 3 for a discussion of other less significant divestitures and asset sales occurring in fiscal year 2022. Including the $6.0 million loss referred to above, in the twelve months ended March 31, 2022, the Company recognized total losses on the sale of assets and businesses of approximately $9.3 million.
Summary of Significant Financial Results
Significant financial results for the fiscal year ended
March 31,Restructuring
We have committed to several plans that incorporated the restructuring of certain of our businesses. These plans were substantially completed as of March 31, 2021. For the twelve months ended March 31, 2022 and COVID-19 Pandemic Response While domestic revenue passenger kilometers ("RPK's") are expected to recover to calendar 2019 levels by the 23 pandemic; and the development, availability, and public acceptance of effective treatments and vaccines. These factors are not within our control. As disclosed in Note 1, in November 2021, the Company entered into an agreement with the Department of Transportation (“DOT”) under the Aviation Manufacturing Jobs Protection Program (“AMJP”) and expects to receive funding under this agreement of approximately $18.8 million. The receipt of the full award is primarily conditioned upon the Company committing to not furlough or lay off a defined group of employees during the six-month period of performance between November 2021 and May 2022, and the grant benefit is being recognized over the six-month performance period as a reduction to cost of sales in proportion to the compensation expense that the award is intended to defray. In the year ended March 31, Significant Developments in Key Programs Discussion of significant developments on key programs is included below. Boeing 787 The Boeing 787 program represented approximately 2% and 6% of revenue for the fiscal years ended March 31, 2022 and 2021, respectively. During 2020, Boeing experienced significant reductions in deliveries due to Boeing 767 Boeing's 767 program includes the Boeing 747-8 Production on this program Although none of In the RESULTS OF OPERATIONS The following includes a discussion of our consolidated and business segment results of Non-GAAP Financial Measures We prepare and publicly release annual audited and quarterly unaudited financial statements prepared in accordance with U.S. GAAP. In accordance with 24 before interest, income taxes, amortization of acquired contract liabilities, legal settlements, loss on divestitures, share-based compensation expense, depreciation and amortization; and Adjusted EBITDAP, which is Adjusted EBITDA, before pension expense or benefit, including the effects of curtailments, settlements, and other early retirement We view Adjusted EBITDA and Adjusted EBITDAP as Adjusted EBITDA Set forth below are descriptions of the financial items that have been excluded from our 25 Management compensates for the above-described limitations of using non-GAAP measures The following table shows our Adjusted EBITDA and Adjusted EBITDAP reconciled to our Fiscal year ended March 31, 2022 2021 2020 Net loss (U.S. GAAP measure) $ (42,758 ) $ (450,910 ) $ (29,433 ) Income tax expense 4,923 2,881 5,798 Interest expense and other 135,861 171,397 122,129 Debt extinguishment loss 11,624 Pension settlements, curtailments, and other pension related charges 52,005 — 14,293 Union represented employee incentives — — 7,071 Legal judgment gain, net of expenses — — (9,257 ) Impairment of rotable inventory — 23,689 — Loss on sale of assets and businesses, net 9,294 104,702 56,916 Amortization of acquired contract liabilities (5,871 ) (38,564 ) (75,286 ) Depreciation and amortization* 51,943 345,716 204,289 Adjusted EBITDA (non-GAAP measure) $ 217,021 $ 158,911 $ 296,520 Non-service defined benefit income (excluding settlements) (57,378 ) (49,519 ) (54,880 ) Adjusted EBITDAP (non-GAAP measure), as historically presented $ 159,643 $ 109,392 $ 241,640 Share-based compensation 9,782 12,701 11,062 Adjusted EBITDAP (non-GAAP measure) $ 169,425 $ 122,093 $ 252,702 * Includes impairment charges related to intangible and other long-lived assets The following tables show our Adjusted Fiscal year ended March 31, 2022 Total Systems & Support Aerospace Corporate/ Operating income (loss) $ 104,277 $ 163,450 $ 13,982 $ (73,155 ) Loss on sale of assets and businesses 9,294 — — 9,294 Amortization of acquired contract liabilities (5,871 ) (5,859 ) (12 ) — Depreciation and amortization* 51,943 32,464 16,234 3,245 Adjusted EBITDAP, as historically presented 159,643 190,055 30,204 (60,616 ) Share-based compensation 9,782 — — 9,782 Adjusted EBITDAP $ 169,425 $ 190,055 $ 30,204 $ (50,834 ) 26 Fiscal year ended March 31, 2021 Total Systems & Support Aerospace Corporate/ Operating (loss) income $ (326,151 ) $ 113,517 $ (267,702 ) $ (171,966 ) Loss on sale of assets and businesses 104,702 — — 104,702 Impairment of rotable inventory 23,689 23,689 — — Amortization of acquired contract liabilities (38,564 ) (15,062 ) (23,502 ) — Depreciation and amortization* 345,716 33,549 308,708 3,459 Adjusted EBITDAP, as historically presented 109,392 155,693 17,504 (63,805 ) Share-based compensation 12,701 — — 12,701 Adjusted EBITDAP $ 122,093 $ 155,693 $ 17,504 $ (51,104 ) Fiscal year ended March 31, 2020 Total Systems & Support Aerospace Corporate/ Operating income (loss) $ 57,907 $ 141,341 $ 41,864 $ (125,298 ) Legal judgment gain, net of expenses (9,257 ) — — (9,257 ) Loss (gain) on sale of assets and businesses 56,916 — (10,121 ) 67,037 Union represented employee incentives 7,071 — 7,071 — Amortization of acquired contract liabilities (75,286 ) (34,486 ) (40,800 ) — Depreciation and amortization* 204,289 98,497 102,418 3,374 Adjusted EBITDAP, as historically presented 241,640 205,352 100,432 (64,144 ) Share-based compensation 11,062 — — 11,062 Adjusted EBITDAP $ 252,702 $ 205,352 $ 100,432 $ (53,082 ) * Includes impairment charges related to intangible assets The fluctuations from period to period within the amounts of the components of the reconciliations above are discussed further below within Results of Operations. Fiscal year ended Year Ended March 31, 2022 2021 (in thousands) Net sales $ 1,459,942 $ 1,869,719 Segment operating income (loss) $ 177,432 $ (154,185 ) Corporate expense (73,155 ) (171,966 ) Total operating income (loss) 104,277 (326,151 ) Interest expense and other 135,861 171,397 Debt extinguishment loss 11,624 — Non-service defined benefit income (5,373 ) (49,519 ) Income tax expense 4,923 2,881 Net loss $ (42,758 ) $ (450,910 ) Net Sales Organic sales Segment Operating Income 27 Organic segment operating loss decreased by Gross margin for the year ended March 31, 2022, included net Corporate Expense Corporate expenses decreased primarily due to Interest Expense and Interest expense and other Non-service Defined Benefit Income Non-service defined benefit Income Taxes The income Business Segment Performance We report our financial performance based on the following The results of operations among our reportable segments vary due to differences in competitors, customers, extent of proprietary deliverables and performance. For example, Refer to Item 1 for further details regarding the operations and 28 We currently generate a majority of our revenue from clients in the commercial aerospace industry, the military, the business jet industry and the regional airline industry. Our growth and financial results are largely dependent on continued Year Ended March 31, 2022 2021 2020 Systems & Support Commercial aerospace 28.2 % 22.0 % 26.5 % Military 35.0 29.5 15.0 Business jets 3.4 2.0 2.3 Regional 1.6 1.3 1.5 Non-aviation 2.4 1.7 1.3 Total Systems & Support net sales 70.6 % 56.5 % 46.6 % Aerospace Structures Commercial aerospace 25.8 % 25.8 % 30.3 % Military 1.1 7.4 4.0 Business jets 1.9 9.7 16.0 Regional 0.4 0.6 3.1 Non-aviation 0.1 0.0 0.0 Total Aerospace Structures net sales 29.4 % 43.5 % 53.4 % Total Consolidated net sales 100.0 % 100.0 % 100.0 % In fiscal 2022, the proportion of our sales mix Business Segment Performance—Fiscal year endedMarch 31, Year Ended March 31, % Change % of Total Sales 2022 2021 2022 2021 (in thousands) NET SALES Systems & Support $ 1,030,444 $ 1,060,001 (2.8 )% 70.6 % 56.7 % Aerospace Structures 429,547 814,371 (47.3 )% 29.4 % 43.6 % Elimination of inter-segment sales (49 ) (4,653 ) 99.0 % 0.0 % (0.3 )% Total net sales $ 1,459,942 $ 1,869,719 (21.9 )% 100.0 % 100.0 % Year Ended March 31, % Change % of Segment Sales 2022 2021 2022 2021 (in thousands) SEGMENT OPERATING INCOME (LOSS) Systems & Support $ 163,450 $ 113,517 44.0 % 15.9 % 10.7 % Aerospace Structures 13,982 (267,702 ) 105.2 % 3.3 % (32.9 )% Corporate (73,155 ) (171,966 ) 57.5 % n/a n/a Total segment operating income (loss) $ 104,277 $ (326,151 ) 132.0 % 7.1 % (17.4 )% Year Ended March 31, % Change % of Segment Sales 2022 2021 2022 2021 (in thousands) Adjusted EBITDAP Systems & Support $ 190,055 $ 155,693 22.1 % 18.6 % 14.9 % Aerospace Structures 30,204 17,504 72.6 % 7.0 % 2.2 % Corporate (50,834 ) (51,104 ) 0.5 % n/a n/a $ 169,425 $ 122,093 38.8 % 11.7 % 6.7 % Systems & Support: Net Sales Organic net sales decreased by $13.5 million, or 1.3%, with additional declines from the Staverton, United Kingdom, divestiture of approximately $16.1 million. Organic net sales decreased primarily due to 29 announced production pause and the impact of the COVID-19 pandemic on other commercial wide body platform production rates, partially offset by increased commercial narrow body production, increased repair and overhaul services, and approximately $4.0 million recognized as a result of a nonrecurring licensing transaction. Operating Income and Adjusted EBITDAP Organic operating income increased by $52.5 million, or 47.0%, partially offset by declines from the Staverton, United Kingdom, divestiture of $2.5 million. Organic gross margin for the year ended March 31, Operating Margin and Adjusted EBITDAP Margin Systems & Support operating income and Adjusted EBITDAP as a percentage of segment sales both increased due to the factors described above, with the exception of the prior year rotable inventory asset impairment, which is excluded from Adjusted EBITDAP. Aerospace Structures: Net Sales Organic net sales increased by $13.4 million, offset by declines from the composites and large structure manufacturing operations and G650 divestitures of $283.9 million and sunsetting programs (i.e., 747-8 and G280) of $114.4 million. Organic net sales increased due to initial recoveries from the impacts of the COVID-19 pandemic mainly reflected in increased volumes on 767 and increased volume on 737 MAX as production rates have gradually increased since 2020. These increases were partially offset by decreased volume on the 787 as a result of the announced production pause. Net sales for the year ended March 31, 2022, included $18.4 million in total nonrecurring revenues, as compared with $43.8 million for the year ended March 31, 2021. Operating Income and Adjusted EBITDAP Organic operating loss decreased by Fiscal 2022 organic operating loss decreased as compared with fiscal 2021 primarily due to the prior period long-lived asset impairment of $252.4 million, decreased depreciation and amortization expense of approximately $40.1 million, decreased restructuring costs of $22.3 million, decreased administrative compensation cost on lower headcount of approximately $12.4 million, and decreased bad debt expense of approximately $3.4 million. The decrease in organic operating loss and the increase in Adjusted EBITDAP are the result of these changes in gross margin, with the exception of the long-lived asset impairment and depreciation and amortization expense, which are excluded from Adjusted EBITDAP. Gross margin for the year ended March 31, 2022, included net favorable cumulative catch-up adjustments on long-term contracts of $16.2 million. The favorable cumulative catch-up adjustments to operating income included gross favorable adjustments of $30.6 million and gross unfavorable adjustments of $14.3 million. Gross margins for the year ended March 31, 2021, included net favorable cumulative catch-up adjustments of $11.5 million. Operating Margin and Adjusted EBITDAP Margin Aerospace Structures operating income and Adjusted EBITDAP as a percentage of segment sales both increased due to the increase in operating income as noted above, with the exception of the long-lived asset impairment and depreciation and amortization expense, which are excluded from Adjusted EBITDAP. Liquidity and Capital Resources Operating Cash flows Our working capital needs are generally funded through our current cash and cash equivalents, cash flows from operations, and proceeds from the Securitization Facility. For the fiscal year ended March 31, 30 On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was signed into law. The CARES Act provided for, among other things, deferred payment of the employer portion of social security taxes through the end of 2020, with 50% of the deferred amount due December 31, 2021, and the remaining 50% due December 31, 2022. Of the approximately $17.8 million of these deferred payments, we paid approximately $8.9 million in December 2021. The remaining $8.9 million will be repaid in December 2022 in accordance with the provisions of the CARES Act described above. The deferred amounts are recorded within accrued expenses on our consolidated balance sheet as of March 31, 2022. As disclosed in Note 1, in November 2021 the Company entered into an agreement with the DOT under the AMJP. The Company received the first installment payment under this agreement of $10.6 million in the year ended March 31, 2022, and expects to receive approximately $8.2 million in additional funds in the first half of fiscal 2023. These cash receipts are classified within cash from operations. Refer to Note 1 for Investing Cash Flows Cash flows provided by investing activities for the fiscal year ended March 31, Financing Cash Cash flows used in financing activities for the fiscal year ended March 31, The remainder of financing cash flows pertains primarily to borrowings and payments under finance leases and the repurchase of common stock to satisfy employee tax withholding obligations resulting from equity compensation. As of March 31, 2022, As disclosed in Note 17, the exit of our composites manufacturing operations in Spokane, Washington could trigger a While we 31 increase our total amount of secured indebtedness or be dilutive to stockholders. There can be no assurances if or when we will consummate any such transactions or the timing thereof. The Senior Notes are our senior obligations and rank equally in right of payment with all of our other existing and future senior indebtedness and senior in right of payment to all of our existing and future subordinated indebtedness. The First Lien Notes are (a) effectively senior to all existing and future second lien obligations (including the 2024 Notes) and all existing and future unsecured indebtedness of the Company and the Guarantor Subsidiaries, but only to the extent of the value of the Collateral (as defined below), and after giving effect to any permitted additional first lien secured obligations and other permitted liens of senior or equal priority; (b) secured by the Collateral on a pari passu basis with any future permitted additional first lien secured obligations, subject to a collateral trust agreement; (c) effectively subordinated to any existing and future obligations of the Company and the Guarantor Subsidiaries that are secured by assets that do not constitute the Collateral, in each case, to the extent of the value of the assets securing such obligations; and (d) structurally subordinated to all existing and future indebtedness and other liabilities of the Company’s existing and future subsidiaries that do not guarantee the First Lien Notes, including the Securitization Facility. The 2024 Notes are (a)effectively subordinated to all obligations of the Company and its subsidiary guarantors that are either (1) secured by a lien on the Collateral (as defined below) that is senior or prior to the second-priority liens securing the 2024 Notes, including the first-priority liens securing the First Lien Notes and certain cash management and hedging obligations, or (2) secured by assets that do not constitute the Collateral, in each case to the extent of the value of the assets securing such obligations; (b) effectively senior to all existing and future unsecured debt of the Company and its subsidiary guarantors, but only to the extent of the value of the Collateral (after giving effect to any senior liens on the Collateral); and (c) are structurally subordinated in right of payment to all indebtedness and other liabilities of the Company’s existing and future subsidiaries that do not guarantee the 2024 Notes, including the Receivables Securitization Facility. The 2025 Notes are effectively subordinated to all obligations of the Company and its subsidiary guarantors that are (A) secured by a lien on the Collateral (including the First Lien Notes and the 2024 Notes) and certain cash management and hedging obligations, or (B) secured by assets that do not constitute the Collateral, in each case to the extent of the value of the assets securing such obligations. The Senior Notes are guaranteed on a full, joint and several basis certain of the Company’s domestic restricted subsidiaries (the “Guarantor Subsidiaries”). Currently, our only consolidated subsidiaries that are not guarantors of the Senior Notes (the "Non-Guarantor Subsidiaries") are: (i) the receivables securitization special purpose entity, and (ii) the foreign operating subsidiaries. The First Lien Notes and the related guarantees are secured by first-priority liens on substantially all of our assets and our subsidiary guarantors, whether now owned or hereafter acquired (the “Collateral”). The 2024 Notes, and the related guarantees are secured, subject to permitted liens, by second-priority liens on the Collateral. The Senior Notes and the related guarantees are not secured by the assets of Non-Guarantor Subsidiaries. Some of our assets are excluded from the Collateral, including certain real property assets. Pursuant to the documentation governing the Senior Notes, we may redeem some or all of the Senior Notes prior to their stated maturities, subject to certain limitations set forth in the indenture governing the applicable Senior Notes and, in certain cases, subject to significant prepayment premiums. We are obligated to offer to repurchase the Senior Notes at specified prices as a result of certain change-of-control events and a sale of all or substantially all of our assets. These restrictions and prohibitions are subject to certain qualifications and exceptions. The indentures governing the Senior Notes, as well as Securitization Facility, contain covenants and restrictions that, among other things, limit our ability and the ability of any of the Guarantor Subsidiaries to (i) grant liens on our assets; (ii) make dividend payments, other distributions or other restricted payments; (iii) incur restrictions on the ability of the Guarantor Subsidiaries to pay dividends or make other payments or investments; (iv) enter into sale and leaseback transactions; (v) merge, consolidate, transfer or dispose of substantially all of their assets; (vi) incur additional indebtedness; (vii) use the proceeds from sales of assets, including capital stock of restricted subsidiaries (in the case of the Senior Notes); and (viii) enter into transactions with affiliates. We are currently in compliance with all covenants under our debt documents and expect In November 2021, the Company amended the Securitization Facility, increasing the purchase limit from $75.0 million to $100.0 million, modifying certain other terms to increase eligible receivables and The following tables present summarized financial information of the Company and the Guarantor Subsidiaries on a combined basis. The combined summarized financial information eliminates intercompany balances and transactions among the Company and the Guarantor Subsidiaries and equity in earnings and investments in 32 Parent and Guarantor Summarized Financial Information March 31, Summarized Balance Sheet 2022 in thousands Assets Due from non-guarantor subsidiaries $ 1,034 Current assets 705,662 Noncurrent assets 661,160 Noncurrent receivable from non-guarantor subsidiaries 92,865 Liabilities Due to non-guarantor subsidiaries 15,079 Current liabilities 562,731 Noncurrent liabilities 1,938,864 Year Ended Summarized Statement of Operations March 31, 2022 in thousands Net sales to non-guarantor subsidiaries $ 3,032 Net sales to unrelated parties 1,344,957 Gross profit 347,226 Loss from continuing operations before income taxes (47,119 ) Net loss (47,906 ) Our expected future cash flows for the next five years for long-term debt, leases and other obligations are as follows: Payments Due by Period Contractual Obligations Total Less than 1 - 3 Years 4 - 5 Years After (in thousands) Debt principal $ 1,604,663 $ 3,268 $ 1,092,761 $ 502,652 $ 5,982 Debt interest(1) 322,776 121,732 184,176 15,522 1,346 Operating leases 23,545 7,449 7,164 4,836 4,096 Purchase obligations 773,166 544,087 227,881 1,083 115 Total 2,724,150 676,536 1,511,982 524,093 11,539 In addition to the financial obligations detailed in the table above, we also had obligations related to our benefit plans at March 31, Pension (in thousands) Projected benefit obligation at March 31, 2022 $ 1,946,201 Plan assets at March 31, 2022 1,649,241 Projected contributions by fiscal year 2023 1,310 2024 1,303 2025 1,294 2026 1,272 2027 1,246 Total 2023 - 2027 $ 6,425 Current plan documents reserve our right to amend or terminate the plans at any time, subject to applicable collective bargaining requirements for represented employees. 33 CRITICAL ACCOUNTING POLICIES Critical accounting policies are those accounting policies that can have a significant impact on the presentation of our financial condition and results of operations, and that require the use of complex and subjective estimates based upon past experience and management's judgment. Because of the uncertainty inherent in such estimates, actual results may differ from these estimates. Below are those policies applied in preparing our consolidated financial statements that management believes are the most dependent on the application of estimates and assumptions. For additional accounting policies, Revenue Recognition and Contract Balances Our accounting policy regarding revenue recognition is disclosed in Note 2 to the consolidated financial statements. As described in Note 2, for certain contracts and performance obligations, we are required to exercise judgment when developing assumptions regarding expected total costs to fulfill performance obligations, variable consideration, and the standalone selling price of Goodwill and Intangible Assets Refer to Note 2 and Note 7 for details on our goodwill and intangible asset accounting policies. As disclosed in Note 7, as of March 31, 2022, Aerospace Structures had goodwill of $475.3 million which was fully impaired during fiscal year 2018. The goodwill of one of the reporting units within Systems & Support had goodwill of $66.1 million which was fully impaired during fiscal year 2020. No reporting units have goodwill with a material carrying value that is at risk of impairment as of March 31, 2022. We review identified intangible assets with definite lives and subject to amortization for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Determining whether an impairment loss has occurred requires the use of our internal forecast to estimate future cash flows and the useful life over which these cash flows will occur. As disclosed in Note 2, in May 2020, we concluded that the planned divestitures of our composites manufacturing operations located in Milledgeville, Georgia and Rayong, Thailand, represented a significant change in the manner in which the related asset group was expected to be used and that the asset group therefore needed to be tested for recoverability and impairment. We applied a discount rate of 15.0% to the estimated future excess earnings and cash flows of the asset group in order to estimate the fair value of the asset group as of the measurement date and recognized a total noncash impairment charge of $252.4 million, primarily allocated to definite-lived intangible assets. Postretirement Plans Certain of our current and former employees participate in defined benefit pension and other postretirement defined benefit plans (collectively, referred to as “defined benefit plans”) in the United States and the United Kingdom, which we sponsor. The determination of projected benefit obligations and the recognition of expenses related to defined benefit pension plans are dependent on various assumptions. The most significant of these assumptions are the discount rates and the long-term expected rates of return on plan assets. Actual results that differ from our assumptions are accumulated and amortized for each plan to the extent required over the estimated future life expectancy of plan participants. Significant Assumptions We develop assumptions using relevant experience, in conjunction with market-related data for each plan. Assumptions are reviewed annually with third party consultants and adjusted as appropriate. Refer to Note 15 for details regarding the assumptions used to estimate projected benefit obligations and net periodic benefit cost as they pertain to our defined benefit pension plans. Expected Return on Plan Assets We determine our expected return on plan assets by evaluating both historical returns and estimates of future returns. Specifically, we consider the plan’s actual historical annual return on assets and historical broad market returns over long-term time frames based on our strategic allocation, which is detailed in Note 15. Future returns are based on independent estimates of long-term asset class returns. Based on this approach, the weighted average long-term expected annual rate of return on assets was estimated at 7.91% and 7.94% for fiscal years 2022 and 2021, respectively. 34 Discount Rate The discount rate is used to calculate the present value of expected future benefit payments at the measurement date. A decrease in the discount rate increases the present value of benefit obligations and generally decreases pension expense. The discount rate assumption is based on current investment yields of high-quality fixed income investments during the retirement benefits maturity period. The pension discount rate is determined by considering an interest rate yield curve comprising AAA/AA bonds, with maturities between zero and thirty years, developed by the plan’s actuaries. Annual benefit payments are then discounted to present value using this yield curve to develop a single discount rate matching the plan’s characteristics. The discount rate assumption will change from measurement date to measurement date as market yields on high quality corporate bonds change. Sensitivity Analysis Pension Expense A 25 basis point change in each of the long-term expected rate of return on plan assets and discount rate would have the following effect on the combined U.S. defined benefit pension plans’ pension income for the next 12 months: (Decrease)/Increase in Pension Income 25 Basis Point Increase 25 Basis Point Decrease (In thousands) Expected long-term rate of return on plan assets $ 3,826 $ (3,826 ) Discount rate $ (369 ) $ 407 Projected Benefit Obligation Funded status is derived by subtracting the respective year-end values of the projected benefit obligations (“PBO”) from the fair value of plan assets. The sensitivity of the PBO to changes in the discount rate varies depending on the magnitude and direction of the change in the discount rate. Refer to Note 15 for a quantitative sensitivity analysis for the PBO. Income Tax We follow ASC 740, Income Taxes, which prescribes a recognition threshold and measurement attribute criteria for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, as well as guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. We recognize deferred tax assets and liabilities based on the differences between the financial statement basis and the tax basis of assets, liabilities, net operating losses and tax carryforwards. A valuation allowance is required to be recognized to reduce the recorded deferred tax asset to the amount that will more likely than not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income by jurisdiction during the periods in which those temporary differences become deductible or when carryforwards can be utilized. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in this assessment. As of March 31, 2022, we have a valuation allowance against substantially all of our net deferred tax assets given the insufficient positive evidence to support the realization of our deferred tax assets. A reduction in the valuation allowance could result in a significant decrease in income tax expense in the period that the reduction is recorded. However, the exact timing and amount of the reduction in our valuation allowance are unknown at this time and will be subject to the earnings level we achieve as well as our projected income in future periods. Recently Issued Accounting Pronouncements Refer to Note 1 for disclosure of the effects of any recently issued accounting guidance that are significant to our financial reporting. 35 Item 7A.Quantitative and Qualitative Disclosures About Market Risk Foreign Exchange Risk We are subject to foreign currency exchange rate risk relating to receipts from customers and payments to suppliers in foreign currencies. We use foreign currency forward contracts to hedge the price risk associated with forecasted foreign denominated payments related to our ongoing business. Foreign currency forward contracts are sensitive to changes in foreign currency exchange rates. At March 31, 2022, a 10% change in the exchange rate in our portfolio of foreign currency contracts would not have a material impact on the unrecognized gains or losses recognized within operating income. Consistent with the use of these contracts to neutralize the effect of exchange rate fluctuations, such unrealized losses or gains would be offset by corresponding gains or losses, respectively, in the remeasurement of the underlying transactions being hedged. When taken together, these forward currency contracts and the offsetting underlying commitments do not create material market risk. Interest Rate Risk Our exposure to market risk for changes in interest rates relates primarily to our long-term debt. Our long-term debt is carried at amortized cost and fluctuations in interest rates do not impact our consolidated financial statements. However, the fair value of our outstanding debt, which pays interest at a fixed rate, will generally fluctuate with movements of interest rates, increasing in periods of declining rates of interest and declining in periods of increasing rates of interest. The information below summarizes our market risks associated with debt obligations and should be read in conjunction with Note 10 of the notes to the accompanying consolidated financial statements. The following table presents principal cash flows and the related interest rates. Fixed interest rates disclosed represent the weighted average rate as of March 31, 2022. Expected Years of Maturity Next 13 - 24 25 - 36 37 - 48 49 - 60 Thereafter Total Fixed rate cash flows (in thousands) $ 3,268 $ 2,695 $ 1,090,066 $ 501,173 $ 1,479 $ 5,982 $ 1,604,663 Weighted average interest rate (%) 7.59 % 7.60 % 5.94 % 5.83 % 6.95 % 7.33 % There are no other significant market risk exposures. 36 Item 8.Financial Statements and Supplementary Data Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Triumph Group, Inc.: Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Triumph Group, Inc. (the Company) as of March 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income (loss), stockholders' deficit and cash flows for each of the three years in the period ended March 31, 2022, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at March 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 2022, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of March 31, 2022, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated May 23, 2022, expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. 37 Realizability of Deferred Tax Assets Description of the Matter As described in Note 12 of the consolidated financial statements, at March 31, 2022 the Company had deferred tax assets for deductible temporary differences and tax attributes of $41 million (net of a $512 million valuation allowance). Deferred tax assets are reduced by a valuation allowance if, based upon the weight of all available evidence, it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. Auditing the Company’s analysis of the realizability of its deferred tax assets required complex auditor judgment because the amounts are material to the financial statements and the assessment process involves significant judgment to apply changes in the tax law, determine the future reversal pattern of existing taxable temporary differences and other assumptions of future taxable income that may be affected by future market or economic conditions. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls that address the risks of material misstatement relating to the realizability of deferred tax assets. This included controls over management’s evaluation and application of the effects of changes in the tax law and the scheduling of the future reversal pattern of existing taxable temporary differences that have been identified as a source of future taxable income. To test the Company’s assessment of the realizability of deferred tax assets and the resulting valuation allowance, our audit procedures included, among others, testing the Company’s calculation of future taxable income from the reversal of existing temporary taxable differences and evaluating the scheduling of the reversal patterns. In addition, we compared taxable income in prior carryback years, if any, to the Company’s income tax returns; considered the feasibility of tax planning strategies; and, evaluated projected future taxable income exclusive of reversing temporary differences and carryforwards. We involved our tax professionals to assist in evaluating the application of tax law, including any changes in the tax law, in the Company’s consideration of the sources of future taxable income. 38 Defined Benefit Pension Obligations Description of the Matter At March 31, 2022, the Company’s aggregate defined benefit pension obligation was $1.9 billion and the net periodic benefit expense was $4.8 million. As described in Note 15 of the consolidated financial statements, the Company updates the estimates used to measure the defined benefit pension obligation and plan assets in the fourth quarter and upon a remeasurement event to reflect the actual return on plan assets and updated actuarial assumptions. Auditing the defined benefit pension obligations and the related net periodic benefit income required complex auditor judgment and technical expertise due to the highly judgmental nature of the actuarial assumptions (e.g., discount rate, mortality rate, expected return on plan assets) used in the measurement process. These assumptions had a significant effect on the projected benefit obligation and the net periodic benefit income. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over management’s determination of the defined benefit pension obligation calculations, the significant actuarial assumptions described above and the data inputs provided to the Company’s actuarial specialists. To test the defined benefit pension benefit obligation, and the related net periodic benefit income, our audit procedures included, among others, evaluating the methodology used, the significant actuarial assumptions described above, the underlying data used by management and its actuaries and the appropriateness of management’s judgments in applying the authoritative accounting literature. We compared the actuarial assumptions used by management to historical trends and evaluated the change in the defined benefit pension from prior year resulting from the change in service cost, interest cost, benefit payments, actuarial gains and losses, participant contributions, special termination benefits plan amendments, and settlements. In addition, we involved our actuarial specialists to assist in evaluating management’s methodology for determining the actuarial assumptions. For example, we evaluated management’s methodology for determining the discount rate that reflects the maturity and duration of the benefit payments and is used to measure the defined benefit pension obligation. As part of this assessment, we compared the projected defined benefit pension cash flows to prior year amounts and compared the current year benefits paid to the prior year projected cash flows. To evaluate the mortality rate, we assessed whether the information is consistent with publicly available information, and whether any market data adjusted for entity-specific adjustments were applied. We also tested the completeness and accuracy of the underlying data, including the participant data provided to the Company’s actuarial specialists. Lastly, to evaluate the expected return on plan assets, we assessed whether management’s assumptions were consistent with a range of returns for a portfolio of comparative investments. We have served as the Company’s auditor since 1993. /s/ Ernst & Young LLP Philadelphia, Pennsylvania May 23, 2022 39 TRIUMPH GROUP, INC. Consolidated Balance Sheets (Dollars in thousands, except per share data) March 31, 2022 2021 ASSETS Current assets: Cash and cash equivalents $ 240,878 $ 589,882 Trade and other receivables, less allowance for credit losses 178,663 194,066 Contract assets 101,828 134,638 Inventory, net 361,692 400,366 Prepaid expenses and other current assets 19,903 19,206 Assets held for sale 60,104 216,276 Total current assets $ 963,068 1,554,434 Property and equipment, net 169,050 211,369 Goodwill 513,722 521,638 Intangible assets, net 84,850 102,453 Other, net 30,476 61,041 Total assets $ 1,761,166 $ 2,450,935 LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Current portion of long-term debt $ 3,268 $ 5,247 Accounts payable 161,534 179,473 Contract liabilities 171,763 204,379 Accrued expenses 208,059 271,160 Liabilities related to assets held for sale 57,519 58,108 Total current liabilities $ 602,143 718,367 Long-term debt, less current portion 1,586,222 1,952,296 Accrued pension and other postretirement benefits 301,303 384,256 Deferred income taxes 7,213 7,491 Other noncurrent liabilities 51,708 207,378 Stockholders' deficit: Common stock, $.001 par value, 100,000,000 shares authorized, 64,629,279 64 64 Capital in excess of par value 973,112 978,272 Treasury stock, at cost, 14,897 and 303,673 shares (96 ) (12,606 ) Accumulated other comprehensive loss (463,354 ) (530,192 ) Accumulated deficit (1,297,149 ) (1,254,391 ) Total stockholders' deficit (787,423 ) (818,853 ) Total liabilities and stockholders' deficit $ 1,761,166 $ 2,450,935 See accompanying notes to consolidated financial statements. 40 TRIUMPH GROUP, INC. Consolidated Statements of Operations (Dollars in thousands, except per share data) Year ended March 31, 2022 2021 2020 Net sales $ 1,459,942 $ 1,869,719 $ 2,900,117 Operating costs and expenses: Cost of sales (exclusive of depreciation shown separately below) 1,073,063 1,476,266 2,307,393 Selling, general and administrative 202,070 215,962 257,529 Depreciation and amortization 49,635 93,334 138,168 Legal judgment gain, net of expenses — — (9,257 ) Impairment of long-lived assets 2,308 252,382 — Impairment of goodwill — — 66,121 Restructuring 19,295 53,224 25,340 Loss on sale of assets and businesses 9,294 104,702 56,916 1,355,665 2,195,870 2,842,210 Operating income (loss) 104,277 (326,151 ) 57,907 Non-service defined benefit income (5,373 ) (49,519 ) (40,587 ) Debt extinguishment loss 11,624 — — Interest expense and other, net 135,861 171,397 122,129 Loss from continuing operations before income taxes (37,835 ) (448,029 ) (23,635 ) Income tax expense 4,923 2,881 5,798 Net loss $ (42,758 ) $ (450,910 ) $ (29,433 ) Loss per share—basic: Net loss $ (0.66 ) $ (8.55 ) $ (0.58 ) Weighted average common shares outstanding—basic 64,538 52,739 50,494 Loss per share—diluted: Net loss $ (0.66 ) $ (8.55 ) $ (0.58 ) Weighted average common shares outstanding—diluted 64,538 52,739 50,494 See accompanying notes to consolidated financial statements. 41 TRIUMPH GROUP, INC. Consolidated Statements of Comprehensive Income (Loss) (Dollars in thousands) Year ended March 31, 2022 2021 2020 Net loss $ (42,758 ) $ (450,910 ) $ (29,433 ) Other comprehensive income (loss): Foreign currency translation adjustment (5,772 ) 19,884 (13,439 ) Defined benefit pension plans and other postretirement benefits: Amounts arising during the period - net of tax (expense) benefit Prior service credit, net of taxes of $0, $0, and $0, respectively 2,902 — 94,182 Actuarial gain (loss), net of taxes of $0, $0, and $0, respectively 41,756 168,701 (303,017 ) Reclassification to net loss - net of expense (benefit) Amortization of net loss, net of taxes of $0, $0, and $0, respectively 34,082 26,483 49,290 Recognized prior service credits, net of taxes of $0, $0, and $0, respectively (4,845 ) (4,130 ) (54,280 ) Total defined benefit pension plans and other postretirement benefits, net 73,895 191,054 (213,825 ) Cash flow hedges: Unrealized (loss) gain arising during the period, net of tax benefit of $0, $0, and $0, respectively (2,244 ) 5,891 (1,611 ) Reclassification of gain (loss) included in net earnings, net of tax expense of $0, $0, and $0, respectively 959 (573 ) (1,562 ) Net unrealized (loss) gain on cash flow hedges, net of tax (1,285 ) 5,318 (3,173 ) Total other comprehensive income (loss) 66,838 216,256 (230,437 ) Total comprehensive income (loss) $ 24,080 $ (234,654 ) $ (259,870 ) See accompanying notes to consolidated financial statements. 42 TRIUMPH GROUP, INC. Consolidated Statements of Stockholders' Deficit (Dollars in thousands) Outstanding Common Capital in Treasury Accumulated Retained Total March 31, 2019 49,887,268 $ 52 $ 867,545 $ (159,154 ) $ (516,011 ) $ (765,745 ) $ (573,313 ) Net loss — — — — — (29,433 ) (29,433 ) Adoption of ASC 842 — — — — — (225 ) (225 ) Foreign currency translation — — — — (13,439 ) — (13,439 ) Pension liability adjustment, net of — — — — (213,825 ) — (213,825 ) Change in fair value of foreign currency — — — — (3,173 ) — (3,173 ) Cash dividends ($0.16 per share) — — — — (8,078 ) (8,078 ) Share-based compensation 264,658 — (5,508 ) 16,222 — — 10,714 Repurchase of restricted shares for (69,601 ) — — (1,442 ) — — (1,442 ) Employee stock purchase plan 45,061 — (1,811 ) 2,761 — — 950 Contribution of treasury shares to 1,730,703 — (55,396 ) 105,396 — — 50,000 March 31, 2020 51,858,089 52 804,830 (36,217 ) (746,448 ) (803,481 ) (781,264 ) Net loss — — — — — (450,910 ) (450,910 ) Foreign currency translation — — — — 19,884 — 19,884 Pension liability adjustment, net of — — — — 191,054 — 191,054 Change in fair value of foreign currency — — — — 5,318 — 5,318 Share-based compensation 288,350 — (6,250 ) 18,695 — — 12,445 Repurchase of restricted shares for (99,082 ) — — (1,285 ) — — (1,285 ) Employee stock purchase plan 109,890 — (5,344 ) 6,201 — — 857 Contribution of common stock to 2,849,002 3 39,662 — — — 39,665 Issuance of common stock - at the 9,178,752 9 145,374 — — — 145,383 March 31, 2021 64,185,001 64 978,272 (12,606 ) $ (530,192 ) (1,254,391 ) (818,853 ) Net loss — — — — — (42,758 ) (42,758 ) Foreign currency translation — — — — (5,772 ) — (5,772 ) Pension liability adjustment, net of — — — — 73,895 — 73,895 Change in fair value of foreign currency — — — — (1,285 ) — (1,285 ) Share-based compensation 565,168 — (5,332 ) 15,266 — — 9,934 Repurchase of restricted shares for (173,009 ) — — (3,249 ) — — (3,249 ) Employee stock purchase plan 37,222 — 172 493 — — 665 March 31, 2022 64,614,382 $ 64 $ 973,112 $ (96 ) $ (463,354 ) $ (1,297,149 ) $ (787,423 ) See accompanying notes to consolidated financial statements. 43 TRIUMPH GROUP, INC. Consolidated Statements of Cash Flows (Dollars in thousands) Fiscal Year Ended March 31 2022 2021 2020 Operating Activities Net loss $ (42,758 ) $ (450,910 ) $ (29,433 ) Adjustments to reconcile net loss to net cash used in Depreciation and amortization 49,635 93,334 138,168 Impairment of long-lived assets 2,308 252,382 66,121 Amortization of acquired contract liability (5,871 ) (38,564 ) (75,286 ) Loss on sale of assets and businesses 9,294 104,702 56,916 Curtailments, settlements, and special termination benefits loss, net 52,005 — 14,293 Other amortization included in interest expense 9,047 23,759 11,157 Provision for credit losses 452 4,853 1,554 Provision (benefit) for deferred income taxes 25 (176 ) 2,823 Share-based compensation 9,782 12,701 11,062 Changes in other assets and liabilities, excluding the effects of Trade and other receivables 2,822 126,294 5,001 Contract assets 702 46,841 50,440 Inventories 25,642 35,412 (48,802 ) Prepaid expenses and other current assets (1,122 ) (310 ) 16,376 Accounts payable, accrued expenses, and contract liabilities (189,412 ) (330,992 ) (61,338 ) Accrued pension and other postretirement benefits (58,597 ) (51,692 ) (66,519 ) Other, net (970 ) (753 ) 4,133 Net cash used in operating activities (137,016 ) (173,119 ) 96,666 Investing Activities Capital expenditures (19,660 ) (25,178 ) (39,834 ) Proceeds from sale of assets and businesses 224,518 15,888 47,229 Investment in joint venture (2,101 ) — — Purchase of facility related to divested businesses (21,550 ) — — Net cash provided by (used in) investing activities 181,207 (9,290 ) 7,395 Financing Activities Net decrease in revolving credit facility — (400,000 ) 185,000 Proceeds from issuance of long-term debt 107 713,900 585,580 Retirement of debt and finance lease obligations (380,009 ) (160,035 ) (449,650 ) Payment of deferred financing costs (400 ) (20,716 ) (17,718 ) Sales of common stock, net of issuance costs — 145,383 — Premium on redemption of First Lien Notes (9,108 ) — — Dividends paid — — (8,078 ) Repurchase of shares for share-based compensation (3,249 ) (1,285 ) (1,442 ) Net cash (used in) provided by financing activities (392,659 ) 277,247 293,692 Effect of exchange rate changes on cash (536 ) 9,581 (5,097 ) Net change in cash and cash equivalents (349,004 ) 104,419 392,656 Cash and cash equivalents at beginning of period 589,882 485,463 92,807 Cash and cash equivalents at end of period $ 240,878 $ 589,882 $ 485,463 See accompanying notes to consolidated financial statements. 44 Triumph Group, Inc. Notes to Consolidated Financial (Dollars in thousands, except per share data) 1. BACKGROUND AND BASIS OF PRESENTATION Triumph Group, Inc. ("Triumph" or the "Company") is a Delaware corporation which, through its operating subsidiaries, designs, engineers, manufactures and sells products for the global aerospace OEMs of aircraft and aircraft components and repairs and overhauls aircraft components and accessories for commercial airline, air cargo carrier and military customers on a worldwide basis. Triumph and its subsidiaries (collectively, the "Company") are organized based on the products and services that they provide. The Company has 2 reportable segments: Systems & Support and Aerospace Structures. Systems & Support consists of the Company’s operations that provide integrated solutions, including design; development; and support of proprietary components, subsystems and systems, as well as production of complex assemblies using external designs. Capabilities include hydraulic, mechanical and electromechanical actuation, power and control; a complete suite of aerospace gearbox solutions, including engine accessory gearboxes and helicopter transmissions; active and passive heat exchange technology; fuel pumps, fuel metering units, and Full Authority Digital Electronic Control fuel systems; and hydromechanical and electromechanical primary and secondary flight controls. Systems & Support also provides full life cycle solutions for commercial, regional, and military aircraft. The Company’s extensive product and service offerings include full post-delivery value chain services that simplify the maintenance, repair, and overhaul (“MRO”) supply chain. Through its ground support equipment maintenance, component MRO, and post-production supply chain activities, Systems & Support is positioned to provide integrated planeside repair solutions globally. Capabilities include repair services for metallic and composite aircraft structures; nacelles; thrust reversers; interiors; auxiliary power units; and a wide variety of pneumatic, hydraulic, fuel, and mechanical accessories. Repair services generally involve the replacement and/or remanufacturing of parts, which is similar to the original manufacture of the part. The processes that the Company performs related to repair and overhaul services are essentially the repair of wear parts or replacement of parts that are beyond economic repair. The repair service generally involves remanufacturing a complete part or a component of a part. Aerospace Structures consists of the Company’s operations that supply commercial, business, and regional manufacturers with large metallic and composite structures and aircraft interior systems, including air ducting and thermal acoustic insulations systems. Products include wings; wing boxes; fuselage panels; horizontal and vertical tails; subassemblies such as floor grids; and aircraft interior systems, including air ducting and thermal acoustic insulation systems. Aerospace Structures also has the capability to engineer detailed structural designs in metal and composites. Capabilities include advanced composite and interior structures, joining processes such as welding, and conventional mechanical fasteners. The accompanying consolidated financial statements include the accounts of Triumph and its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated from the consolidated financial statements. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Standards Recently Implemented Adoption of ASU 2021-10 In November 2021, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2021-10, Government Assistance, which requires annual disclosures of transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy. These required disclosures include information on the nature of such transactions, the related accounting policies used to account for the transactions, detail on the line items on the balance sheet and income statement affected by these transactions, including amounts applicable to each line, and significant terms and conditions of the transactions including relevant commitments and contingencies. The ASU is effective for fiscal years beginning after December 15, 2021, and early adoption is permitted. The Company elected to early adopt ASU 2021-10 effective March 31, 2022. In November 2021, the Company entered into an agreement with the DOT under the AMJP for a grant of up to $21,259. The receipt of the full award is primarily conditioned upon the Company committing to not furlough or lay off a defined group of employees during the six-month period of performance between November 2021 and May 2022, and the Company currently expects the total amount to be received under the agreement to be approximately $18,800. The grant benefit is being recognized over the six-month performance period as a reduction to cost of sales in proportion to the compensation expense that the award is intended to defray. 45 Triumph Group, Inc. Notes to Consolidated Financial Statements (Dollars in thousands, except per share data) As of March 31, 2022, the Company has received the first installment of approximately $10,630, and the remaining balance of approximately $8,200 is included within trade and other receivables, net on the accompanying consolidated balance sheet. The full amount that the Company expects to receive under the agreement less approximately $14,064 that has been recognized as a reduction in cost of sales in the year ended March 31, 2022, is presented in accrued expenses on the accompanying consolidated balance sheet as of March 31, 2022. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cash and Cash Equivalents Cash equivalents consist of highly liquid investments with a maturity of three months or less at the time of purchase. Fair value of cash equivalents approximates carrying value. Trade and Other Receivables, net Trade and other receivables are Trade and other March 31, 2022 2021 Total trade receivables $ 169,978 $ 192,888 Other receivables 16,625 9,273 Total trade and other receivables 186,603 202,161 Less: Allowance for credit losses (7,940 ) (8,095 ) Total trade and other receivables, net $ 178,663 $ 194,066 Goodwill and The Company The Company assesses whether goodwill impairment exists using both the qualitative and quantitative assessments. The qualitative assessment involves determining whether events or circumstances exist that indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. If based on this qualitative assessment the Company determines it is The 46 Triumph Group, Inc. Notes to Consolidated Financial Statements (Dollars in thousands, except per share data) When performing the During the In fiscal 2020, at March 31, 2020, the Company identified indicators of impairment due to the decline in the Company’s share price as well as potential negative impacts due to the uncertainty of the impact of the COVID-19 pandemic. As a result of these indicators, the Company performed an interim assessment of goodwill, which included using a combination of both market and income approaches to estimate the fair value Finite-lived intangible assets are amortized over their useful lives ranging from In fiscal 2021, the Company's Board of Directors committed to a plan (i) to sell its composites manufacturing operations located in Milledgeville, Georgia, and Rayong, Thailand, and (ii) to transfer the assets and certain liabilities associated with its Gulfstream G650 wing supply chain activities (as disclosed in Note 3, this transaction closed in August 2020). These planned divestitures represented the divestiture of certain assets and liabilities of an operating business within the Aerospace Structures segment that the Company had identified as an asset group pursuant to the provisions of ASC 360, Property, Plant, and Equipment. As a result, as of May 31, 2020, the Company concluded that the planned divestitures represented a significant change in the manner in which the related asset group was expected to be used, and that the asset group therefore needed to be tested for recoverability. The asset group primarily consists of working capital, fixed assets and definite-lived intangible assets. The Company first determined that the relevant long-lived asset group was not recoverable by comparing the undiscounted cash flows expected to be generated by the long-lived asset group to the carrying value of the asset group. As a result, the Company estimated the fair value of the long-lived asset group and concluded that the asset group was impaired. The Company used a multi-period excess earnings approach to estimate the fair value of the long-lived asset group for purposes of testing the asset group for impairment. This method estimates fair value based on the expected future excess earnings stream attributable to the asset group. This method requires the use of several key assumptions, including revenue projections that consider historical and estimated future results, general economic and market conditions, as well as the impact of planned business and operational strategies. A discount rate of 15.0% was applied to the estimated future excess earnings and cash flows in order to estimate the fair value of the asset group as of the measurement date. The Company has determined that the lowest level of the inputs that are significant to the fair value measurement are unobservable inputs that fall within Level 3 of the fair value hierarchy. 47 Triumph Group, Inc. Notes to Consolidated Financial Statements (Dollars in thousands, except per share data) In accordance with ASC 360, the Company allocated the resulting impairment to the specific long-lived assets within the asset group on a pro rata basis, except that the loss allocated to an individual long-lived asset of the group did not reduce the carrying amount of that asset below its estimated fair value. As a result, the Company recognized a total noncash impairment charge of $252,382 in the first quarter, primarily allocated to definite-lived intangible assets, which is presented as “Impairment of long-lived assets” on the accompanying consolidated statements of operations. In January 2021, the Company’s Board of Directors committed to a plan to sell its manufacturing operations located in Red Oak, Texas. As a result of this decision and the resulting classification of this disposal group as held for sale, the Company fully impaired the remaining customer relationship intangible asset within the Aerospace Structures segment and recognized a noncash impairment charge of $6,696, which has been included in the impairment on the assets held for sale as disclosed in Note 3 and is presented within “Loss on sale of assets and businesses” on the accompanying consolidated statement of operations. See below for the Company's accounting policy regarding fair value measurements and the definition of fair value levels. Revenue Recognition and Contract The Company's revenue is principally from contracts with customers to provide design, development, manufacturing, and support services associated with specific customer programs. The Company regularly enters into long-term master supply agreements that establish general terms and conditions and may define specific program requirements. Many agreements include clauses that provide sole supplier status to the Company for the duration of the program’s life. Purchase orders (or authorizations to proceed) are issued pursuant to the master supply agreements. Additionally, a majority of the Company’s agreements with customers include options for future purchases. Such options primarily reduce the administrative effort of issuing subsequent purchase orders and do not represent material rights granted to customers. The Company generally enters into agreements directly with its customers and is the principal in all current contracts. The identification of a contract with a customer for purposes of accounting and financial reporting requires an evaluation of the terms and conditions of agreements to determine whether presently enforceable rights and obligations exist. Management considers a number of factors when making this evaluation that include, but are not limited to, the nature and substance of the business exchange, the specific contractual terms and conditions, the promised products and services, the termination provisions in the contract, as well as the nature and execution of the customer’s ordering process and how the Company is authorized to perform work. Generally, presently enforceable rights and obligations are not created until a purchase order is issued by a customer for a specified number of units of product or services. Therefore, the issuance of a purchase order is generally the point at which a contract is identified for accounting and financial reporting purposes. Management identifies the promises to the customer. Promises are generally explicitly stated in each contract, but management also evaluates whether any promises are implied based on the terms of the agreement, past business practice, or other facts and circumstances. Each promise is evaluated to determine if it is a performance obligation. A performance obligation is a promise in a contract to transfer a distinct good or service. The Company considers a number of factors when determining whether a promise is a distinct performance obligation, including whether the customer can benefit from the good or service on its own or together with other resources that are readily available to the customer, whether the Company provides a significant service of integrating goods or services to deliver a combined output to the customer, or whether the goods or services are highly interdependent. The Company’s performance obligations consist of a wide range of engineering design services and manufactured components, as well as spare parts and repairs for OEMs. The transaction price for a contract reflects the consideration the Company expects to receive for fully satisfying the performance obligations in the contract. Typically, the transaction price consists solely of fixed consideration but may include variable consideration for contractual provisions such as unpriced contract modifications, cost-sharing provisions, and other receipts or payments to customers. The Company identifies and estimates variable consideration, typically at the most likely amount the Company expects to receive from its customers. Variable consideration is only included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized for the contract will not occur, or when the uncertainty associated with the variable consideration is resolved. The Company's contracts with customers generally require payment under normal commercial terms after delivery with payment typically required within 30 to 120 days of delivery. However, a subset of the Company’s current contracts includes significant financing components because the timing of the transfer of the underlying products and services under contract are at the customers’ discretion. For these contracts, the Company adjusts the transaction price to reflect the effects of the time value of money. The Company generally is not subject to collecting sales tax and has made an accounting policy election to exclude from the transaction price any sales and other similar taxes collected from customers. As a result, any such collections are accounted for on a net 48 Triumph Group, Inc. Notes to Consolidated Financial Statements (Dollars in thousands, except per share data) The total transaction price is allocated to each of the identified performance obligations using the relative stand-alone selling price. The objective of the allocation is to reflect the consideration that the Company expects to receive in exchange for the products or services associated with each performance obligation. Stand-alone selling price is the price at which the Company would sell a promised good or service separately to a customer. Stand-alone selling prices are established at contract inception, and subsequent changes in transaction price are allocated on the same basis as at contract inception. When stand-alone selling prices for the Company’s products and services are not observable, the Company uses either the “Expected Cost Plus a Margin” or "Adjusted Market Assessment" approaches to estimate stand-alone selling price. Expected costs are typically derived from the available periodic forecast information. Revenue is recognized when or as control of promised products or services transfers to a customer and is recognized at the amount allocated to each performance obligation associated with the transferred products or services. Service sales, principally representing repair, maintenance, and engineering activities are recognized over the contractual period or as services are rendered. Sales under long-term contracts with performance obligations satisfied over time are recognized using either an input or output method. The Company recognizes revenue over time as it performs on these contracts because of the continuous transfer of control to the customer as represented by contractual terms that entitle the Company to the reimbursement of costs plus a reasonable profit for work performed to manufacture products for which the Company has no alternate use or for work performed on a customer-owned asset. With control transferring over time, revenue is recognized based on the extent of progress toward completion of the performance obligation. The Company generally uses the cost-to-cost input method of progress for its contracts because it best depicts the transfer of control to the customer that occurs as work progresses. Under the cost-to-cost method, the extent of progress toward completion is measured based on the proportion of costs incurred to date to the total estimated costs at completion of the performance obligation. The Company reviews its cost estimates on contracts on a periodic basis, or when circumstances change and warrant a modification to a previous estimate. Cost estimates are largely based on negotiated or estimated purchase contract terms, historical performance trends and other economic projections. Significant factors that influence these estimates include inflationary trends, technical and schedule risk, internal and subcontractor performance trends, business volume assumptions, asset utilization, and anticipated labor agreements. Revenue and cost estimates are regularly monitored and revised based on changes in circumstances. Impacts from changes in estimates of net sales and cost of sales are recognized on a cumulative catch-up basis, which recognizes in the current period the cumulative effect of the changes on current and prior periods based on a performance obligation’s percentage of completion. Forward loss reserves for anticipated losses on long-term contracts are recorded in full when such losses become evident, to the extent required and are included in contract liabilities on the accompanying consolidated balance sheets. The Company believes that the accounting estimates and assumptions made by management are appropriate given the increased uncertainties surrounding the severity and duration of the impacts of the COVID-19 pandemic, however actual results could differ materially from those estimates. For the fiscal year ended March 31, 2022, cumulative catch-up adjustments resulting from changes in contract values and estimated costs that arose during the fiscal year increased revenue and operating income and decreased net loss, and loss per share by approximately $6,884, $16,042, $16,042, and $0.25, respectively. The cumulative catch-up adjustments to operating income for the fiscal year ended March 31, 2022, included gross favorable adjustments of approximately $30,560 and gross unfavorable adjustments of approximately $14,518. For the fiscal year ended March 31, 2021, cumulative catch-up adjustments resulting from changes in estimates increased revenue and decreased operating loss, net loss, and loss per share by approximately $4,796, $12,332, $12,332, and $0.23, respectively. The cumulative catch-up adjustments to operating income for the fiscal year ended March 31, 2021, included gross favorable adjustments of approximately $55,180 and gross unfavorable adjustments of approximately $42,848. For the fiscal year ended March 31, 2020, cumulative catch-up adjustments resulting from changes in estimates increased revenue, operating loss, net loss, and loss per share by approximately $12,011, ($22,844), ($22,844), and ($0.45), respectively. The cumulative catch-up adjustments to operating income for the fiscal year ended March 31, 2020, included gross favorable adjustments of approximately $43,405 and gross unfavorable adjustments of approximately $66,249. Revenues for performance obligations that are not recognized over time are recognized at the point in time when control transfers to the customer. For performance obligations that are satisfied at a point in time, the Company evaluates the point in time when the customer can direct the use of and obtain the benefits from the products and services. Generally, the shipping terms determine the point in time when control transfers to customers. Shipping and handling activities are not considered performance obligations and related costs are included in cost of sales as incurred. 49 Triumph Group, Inc. Notes to Consolidated Financial Statements (Dollars in thousands, except per share data) Differences in the timing of revenue recognition and contractual billing and payment terms result in the recognition contract assets and liabilities. Refer to Note 4 for further discussion. In connection with several The balance of the liability as of Leases The Company leases office space, manufacturing facilities, land, vehicles, and equipment. The Company determines if an agreement is or contains a lease at the ROU assets represent the Company's right to use an underlying asset during the lease term, and lease liabilities represent the Company's obligation to make lease payments arising from the lease. The determination of the For operating leases, lease expense is recognized on a Retirement Benefits Defined benefit pension plans are recognized in the consolidated financial statements on an actuarial basis. A significant element in determining the Company's pension income (expense) is the expected long-term rate of return on plan assets. This expected return is an assumption as to the average rate of earnings expected on the funds invested or to be invested to provide for the benefits included in the projected pension benefit obligation. The Company applies this assumed long-term rate of return to a calculated value of plan assets, which recognizes changes in the fair value of plan assets in a systematic manner over five years. This produces the expected return on plan assets that is included in pension income (expense). The difference between this expected return and the actual return on plan assets is deferred. The net deferral of past asset gains (losses) affects the calculated value of plan assets and, ultimately, future pension income (expense). The Company periodically experiences events or makes changes to its benefit plans that result in curtailment or special charges. Curtailments are recognized when events occur that significantly reduce the expected years of future service of present employees or eliminates the benefits for a significant number of employees for some or all of their future service. 50 Triumph Group, Inc. Notes to Consolidated Financial Statements (Dollars in thousands, except per share data) Curtailment losses are recognized when it is probable the curtailment will occur and the effects are reasonably estimable. Curtailment gains are recognized when the related employees are terminated or a plan amendment is adopted, whichever is applicable. From time to time, the Company may enter into transactions that relieve it of primary responsibility for all or more than a minor portion of certain of its pension benefit obligations. When these transactions are effected through an irrevocable action that relieves the Company of primary responsibility for its pension or other postretirement benefit obligations and eliminates significant risks related to the obligation and the related assets used to effect the transaction, they are considered settlements, as defined by ASC 715, Compensation – Retirement Benefits. When a transaction meets the definition of a settlement, at the time of settlement the Company recognizes as a gain or loss the pro rata amount of the net gain or loss in accumulated other comprehensive income based on the proportion of the projected benefit obligation settled to the total projected benefit obligation. As required under ASC 715, At March 31 of each year, the Company determines the fair value of its pension plan assets as well as the discount rate to be used to calculate the present value of plan liabilities. The discount rate is an estimate of the interest rate at which the pension benefits could be effectively settled. In estimating the discount rate, the Company looks to rates of return on high-quality, fixed-income investments currently available and expected to be available during the period to maturity of the pension benefits. The Company uses a portfolio of fixed-income securities, which receive at least the second-highest rating given by a recognized ratings agency. Fair Value Measurements Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. When determining fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and also considers assumptions that market participants would use when pricing an asset or liability. The fair value hierarchy has three levels of inputs that may be used to measure fair value: Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities; Level 2—Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability; and Level 3—Unobservable inputs for the asset or liability. The Company has applied fair value measurements when comparing the carrying value of assets held for sale with the related fair value less cost to Income Taxes The Company accounts for income taxes using the asset and liability method. The asset and liability method requires recognition of deferred tax assets and liabilities for expected future tax consequences of temporary differences that currently exist between tax bases and financial reporting bases of the Company's assets and liabilities. A valuation allowance is provided on deferred taxes if it is determined that it is more likely than not that the asset will not be realized. Management judgment is required to determine the amount of benefit to be recognized in relation to an uncertain tax position. The Company uses a two-step process to evaluate tax positions. The first step requires an entity to determine whether it is more likely than not (greater than 50% chance) that the tax position will be sustained. The second step requires an entity to recognize in the financial statements the benefit of a tax position that meets the more-likely-than-not recognition criterion. The amounts ultimately paid upon resolution of issues raised by taxing authorities may differ materially from the amounts accrued and may materially impact the financial statements of the Company in future periods. Supplemental Cash Flow Information For the 51 Triumph Group, Inc. Notes to (Dollars in thousands, except per share data) 3. DIVESTED OPERATIONS AND ASSETS HELD FOR SALE Assets Held for Sale In Fiscal 2022 Divestitures In May 2020, the Company’s Board of Directors committed to a plan to sell its composites manufacturing operations located in Milledgeville, Georgia and Rayong, Thailand. In August 2020, the In May 2021, upon the completion of the sale of composites and large structure manufacturing operations, the Company received proceeds of approximately $155,000 net of the purchase of a facility related to the divestiture and other transaction costs and recognized an additional loss of approximately $6,000, which is presented on the accompanying condensed consolidated statements of operations within loss on sale of assets and businesses. The additional loss was primarily the result of changes in the working capital balances of the disposal group from March 31, 2021, to the date of divestiture, the final amount of which will be subject to any adjustments in the purchase price as a result of routine closing working capital adjustments and may be further adjusted as a result of closing working capital settlement. The operating results of these related operations are included within the Aerospace Structures reportable segment through the date of divestiture. As disclosed in Note In January 2021, the Company announced the shutdown of its composites manufacturing operations located in Spokane, Washington, and began to execute the strategic exit of these facilities. In the year ended March 31, 2022, the Company sold certain asset groups within the related manufacturing operations. The total purchase price associated with these transactions is approximately $11,000, all of which has been received as of March 31, 2022. The resulting losses on the sale of these assets were insignificant. In August 2021, the Company's Board of Directors committed to a plan to sell and license certain legacy product lines of the Company's Staverton, United Kingdom operations. The transaction includes the existing facility and select product lines associated with the site. The transaction closed in October 2021 for As a result of the transactions described above, including routine closing working capital adjustments, the Company recognized approximately $9,294 in additional net losses on divestiture of assets and businesses in the twelve months ended March 31, 2022, largely comprising changes in working capital balances of disposal groups and related routine working capital adjustments that could be further adjusted as a result of closing working capital settlements. 52 Triumph Group, Inc. Notes to Consolidated Financial Statements (Dollars in thousands, except per share data) Fiscal 2021 Divestitures In August 2020, the Company completed the transfer of the assets and certain liabilities associated with its Gulfstream G650 wing supply chain activities for cash proceeds net of transaction costs of approximately $51,000. This transaction also resulted in the derecognition of approximately $18,157 in accrued warranties related to these activities. The Company recognized a loss of approximately $819, which is presented on the accompanying consolidated statements of operations within loss on sale of assets and businesses. The operating results associated with the G650 wing supply chain activities were included within Aerospace Structures through the date of transfer. Fiscal 2020 Divestitures In December 2019, the Company completed the sale of its manufacturing operations at its Nashville, Tennessee, facility for cash proceeds net of transaction costs of approximately $58,000, including approximately $7,000 allocated as a premium paid by the buyer in exchange for a specified performance guarantee. The Company recognized a loss of approximately $64,000, which is presented on the accompanying consolidated statements of operations within loss on sale of assets and businesses. The operating results of the Nashville manufacturing operations were included in Aerospace Structures through the date of divestiture. Additionally, as part of the transaction, the Company agreed to transfer to the buyer, within 120 days from the date of closing, certain defined benefit pension assets and obligations of approximately $55,000 associated with the Nashville manufacturing operations. In accordance with applicable defined benefit pension plan accounting guidance, the transfer was treated as a settlement for purposes of the Company’s consolidated financial statements and resulted in accelerated recognition of previously unrecognized actuarial losses. The Company completed the transfer of the defined benefit pension assets and obligations in March 2020 and recognized a one-time settlement loss of approximately $28,000. In September 2019, the Company completed the assignment of its E-2 Jets contract with Embraer for the manufacture of structural components for their program to AeroSpace Technologies of Korea Inc. ("ASTK"). As part of this transaction, the Company transferred certain assets and liabilities to ASTK and recognized a gain of approximately $10,000, which is presented on the accompanying consolidated statements of operations within loss on sale of assets and businesses. The assets and liabilities transferred were included within Aerospace Structures through the date of divestiture. 4. REVENUE RECOGNITION AND CONTRACTS WITH CUSTOMERS Disaggregation of Revenue The Company disaggregates revenue based on the method of measuring satisfaction of the performance obligation either over time or at a point in time. Additionally, the Company disaggregates revenue based on the end market where products and services are transferred to the customer. The Company’s principal operating segments and related revenue are discussed in Note 21, Segments. The following table shows disaggregated net sales satisfied over time and at a point in time (excluding intercompany sales) for the years ended March 31, 2022, 2021, and 2020: Year Ended 2022 2021 2020 Systems & Support Satisfied over time $ 490,082 $ 464,874 $ 578,117 Satisfied at a point in time 534,472 576,886 738,158 Revenue from contracts with customers 1,024,554 1,041,760 1,316,275 Amortization of acquired contract liabilities 5,859 15,062 34,486 Total revenue 1,030,413 1,056,822 1,350,761 Aerospace Structures Satisfied over time $ 402,194 $ 746,545 $ 1,378,866 Satisfied at a point in time 27,323 42,850 129,690 Revenue from contracts with customers 429,517 789,395 1,508,556 Amortization of acquired contract liabilities 12 23,502 40,800 Total revenue 429,529 812,897 1,549,356 $ 1,459,942 $ 1,869,719 $ 2,900,117 53 Triumph Group, Inc. Notes to Consolidated Financial Statements (Dollars in thousands, except per share data) The following table shows disaggregated net sales by end market (excluding intercompany sales) for the years ended March 31, 2022 and 2021: Year Ended 2022 2021 2020 Systems & Support Commercial aerospace $ 406,151 $ 396,841 $ 737,885 Military 511,455 552,323 436,166 Business jets 49,165 36,701 61,338 Regional 22,956 24,862 43,761 Non-aviation 34,827 31,033 37,125 Revenue from contracts with customers 1,024,554 1,041,760 1,316,275 Amortization of acquired contract liabilities 5,859 15,062 34,486 Total revenue $ 1,030,413 $ 1,056,822 $ 1,350,761 Aerospace Structures Commercial aerospace $ 376,936 $ 481,845 $ 879,690 Military 16,481 137,466 116,846 Business jets 28,255 158,156 422,681 Regional 6,445 11,558 89,318 Non-aviation 1,400 370 21 Revenue from contracts with customers 429,517 789,395 1,508,556 Amortization of acquired contract liabilities 12 23,502 40,800 Total revenue 429,529 812,897 1,549,356 $ 1,459,942 $ 1,869,719 $ 2,900,117 Contract Assets and Liabilities Contract assets primarily represent revenues recognized for performance obligations that have been satisfied or partially satisfied but for which amounts have not been billed. This typically occurs when revenue is recognized over time but the Company's contractual right to bill the customer and receive payment is conditional upon the satisfaction of additional performance obligations in the contract, such as final delivery of the product. Contract assets are typically derecognized when billed in accordance with the terms of the contract. The Company pools contract assets that share underlying risk characteristics and records an allowance for expected credit losses based on a combination of prior experience, current economic conditions and management’s expectations of future economic conditions, and specific collectibility matters when they arise. Contract assets are presented net of this reserve on the accompanying consolidated balance sheets. For the years ended March 31, 2022 and 2021, credit loss expense and write-offs related to contract assets were immaterial. Contract liabilities are recorded when customers remit contractual cash payments in advance of the Company satisfying performance obligations under contractual arrangements, including those with performance obligations to be satisfied over a period of time. Contract liabilities other than those pertaining to forward loss reserves are derecognized when or as revenue is recognized. Contract modifications can also impact contract asset and liability balances. When contracts are modified to account for changes in contract specifications and requirements, the Company considers whether the modification either creates new or changes the existing enforceable rights and obligations. Contract modifications that are for goods or services that are not distinct from the existing contract, due to the significant integration with the original good or service provided, are accounted for as if they were part of that existing contract. The effect of a contract modification to an existing contract on the transaction price and the Company’s measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative catch-up basis. When the modifications include additional performance obligations that are distinct and at relative stand-alone selling price, they are accounted for as a new contract and performance obligation, which are recognized prospectively. 54 Triumph Group, Inc. Notes to Consolidated Financial Statements (Dollars in thousands, except per share data) Contract balances are classified as assets or liabilities on a contract-by-contract basis at the end of each reporting period. The following table summarizes the Company’s contract assets and liabilities balances: March 31, 2022 March 31, 2021 Change Contract assets $ 101,893 $ 139,937 $ (38,044 ) Contract liabilities (172,862 ) (305,116 ) 132,254 Net contract liability $ (70,969 ) $ (165,179 ) $ 94,210 The Company recognized revenue due to changes in estimates associated with performance obligations satisfied or partially satisfied in previous periods of $6,884. The change in contract assets is the result of revenue recognized in excess of amounts billed during the year ended March 31, 2022, as well as the reclassification of approximately $43,189 of contract assets as held for sale on the accompanying consolidated balance sheet as of March 31, 2022. The change in contract liabilities is the result of revenue recognized in excess of the receipt of additional customer advances during the period, as well as certain customer advance repayments settled during the year ended March 31, 2022, and the reclassification of approximately $2,551 of contract liabilities as held for sale on the accompanying consolidated balance sheet as of March 31, 2022. For the period ended March 31, 2022, the Company recognized $76,223 of revenue that was included in the contract liability balance at the beginning of the period. Noncurrent contract assets presented in other, net on the accompanying consolidated balance sheets as of March 31, 2022 and 2021, were $65 and $5,299, respectively. Noncurrent contract liabilities presented in other noncurrent liabilities on the accompanying consolidated balance sheets as of March 31, 2022 and 2021, were $1,099 and $100,737, respectively. Performance Obligations Customers generally contract with the Company for requirements in a segment relating to a specific program, and the Company’s performance obligations consist of a wide range of engineering design services and manufactured components, as well as spare parts and repairs for OEMs. A single contract may contain multiple performance obligations consisting of both recurring and nonrecurring elements. As of March 31, 2022, the Company has the following unsatisfied, or partially unsatisfied, performance obligations that are expected to be recognized in the future as noted in the table below. The Company expects options to be exercised in addition to the amounts presented below. Total Less than 1-3 years 4-5 years More than 5 Unsatisfied performance obligations $ 1,805,723 $ 1,049,616 $ 739,662 $ 16,443 $ 2 Of the total unsatisfied performance obligations included in the table above as of March 31, 2022, approximately $622,018 related to the assets held for sale as of March 31, 2022, as disclosed in Note 3. 5. INVENTORIES The Company records inventories at the lower of cost (average-cost or specific-identification methods) or market. The Company expenses general and administrative costs related to products and services provided essentially under commercial terms and conditions as incurred. The Company determines the costs of inventories sold by the first-in, first-out or average cost methods. The components of inventories are as follows: March 31, 2022 2021 Raw materials $ 44,841 $ 45,211 Work-in-process, including manufactured and purchased components 269,368 277,729 Finished goods 19,472 51,221 Rotable assets 28,011 26,205 Total inventories $ 361,692 $ 400,366 6. PROPERTY AND EQUIPMENT Property and equipment, which include equipment under finance lease and leasehold improvements, are recorded at cost and depreciated over the 55 Triumph Group, Inc. Notes to (Dollars in thousands, except per share data) improvements, using the Net property and equipment March 31, 2022 2021 Land $ 18,109 $ 17,814 Construction-in-process 13,691 11,368 Buildings and improvements 117,284 144,756 Machinery and equipment 464,141 594,542 613,224 768,480 Less: accumulated depreciation 444,174 557,111 $ 169,050 $ 211,369 Depreciation expense for the 7. GOODWILL AND OTHER INTANGIBLE ASSETS The following is a summary of the changes in the carrying value of goodwill by reportable segment, for the fiscal years ended Systems & Support March 31, 2021 $ 521,638 Effect of exchange rate changes (3,899 ) Goodwill associated with dispositions (4,017 ) March 31, 2022 $ 513,722 Systems & Support March 31, 2020 $ 513,527 Effect of exchange rate changes 8,111 March 31, 2021 $ 521,638 As of Intangible Assets The components of intangible assets, net are as follows: March 31, 2022 Weighted- Gross Carrying Accumulated Net Customer relationships 18.5 155,284 (73,806 ) 81,478 Product rights, technology and licenses 11.4 53,099 (49,820 ) 3,279 Other 30.0 300 (207 ) 93 Total intangibles, net $ 208,683 $ (123,833 ) $ 84,850 56 Triumph Group, Inc. Notes to (Dollars in thousands, except per share data) March 31, 2021 Weighted- Gross Carrying Accumulated Net Customer relationships 17.9 170,198 (74,253 ) 95,945 Product rights, technology and licenses 11.4 55,050 (48,645 ) 6,405 Other 30.0 300 (197 ) 103 Total intangibles, net $ 225,548 $ (123,095 ) $ 102,453 Amortization expense for the 8. ACCRUED EXPENSES Accrued expenses March 31, 2022 2021 Accrued pension $ 801 $ 1,097 Accrued other postretirement benefits 2,715 3,371 Accrued compensation and benefits 74,014 97,021 Accrued interest 22,880 31,036 Accrued warranties 20,739 24,492 Accrued workers' compensation 13,547 15,601 Accrued income tax 4,205 5,084 Operating lease liabilities 6,318 11,605 All other 62,840 81,853 Total accrued expenses $ 208,059 $ 271,160 9. LEASES The components of lease expense for the year ended March 31, 2022, 2021, and 2020, are disclosed in the table below. Year Ended March 31, Lease Cost Financial Statement Classification 2022 2021 2020 Operating lease cost Cost of sales or Selling, general and administrative expense $ 9,473 $ 22,976 $ 24,539 Variable lease cost Cost of sales or Selling, general and administrative expense 9,359 9,344 8,382 Financing Lease Cost: Amortization of right-of-use assets Depreciation and amortization 3,785 4,673 5,317 Interest on lease liability Interest expense and other 1,590 1,580 2,307 Total lease cost (1) $ 24,207 $ 38,573 $ 40,545 57 Triumph Group, Inc. Notes to Consolidated Financial Statements (Dollars in thousands, except per share data) Supplemental cash flow information for the Year Ended March 31, 2022 2021 2020 Cash paid for amounts included in the measurement of lease liabilities Operating cash flows used in operating leases $ 14,133 $ 21,008 $ 21,430 Operating cash flows used in finance leases 1,602 1,583 2,327 Financing cash flows used in finance leases 5,161 7,774 8,370 ROU assets obtained in exchange for lease liabilities Operating leases 666 6,547 3,826 Finance leases 725 2,909 1,039 Supplemental balance sheet information related to leases as of March 31, 2022 and 2021, is disclosed in the March 31, Leases Classification 2022 2021 Assets Operating lease ROU assets Other, net $ 18,312 $ 46,643 Finance lease ROU assets, cost Property and equipment, net 32,406 44,128 Accumulated amortization Property and equipment, net (20,299 ) (23,344 ) Finance lease ROU assets, net 12,107 20,784 Total lease assets $ 30,419 $ 67,427 Liabilities Current Operating Accrued expenses $ 6,624 $ 12,885 Finance Current portion of long-term debt 3,268 5,972 Noncurrent Operating Other noncurrent liabilities 13,324 42,385 Finance Long-term debt, less current portion 13,224 14,878 Total lease liabilities $ 36,440 $ 76,120 Information related to March 31, 2022 2021 Weighted average remaining lease term (years) Operating leases 3.2 7.3 Finance leases 7.9 6.9 �� Weighted average discount rate Operating leases 6.1 % 6.3 % Finance leases 6.8 % 6.8 % 58 Triumph Group, Inc. Notes to (Dollars in thousands, except per share data) The Operating Finance Total FY2023 $ 7,449 $ 3,720 $ 11,169 FY2024 4,041 3,082 7,123 FY2025 3,123 2,130 5,253 FY2026 2,502 1,307 3,809 FY2027 2,334 1,261 3,595 Thereafter 4,096 7,395 11,491 Total lease payments 23,545 18,895 42,440 Less: Imputed interest (3,597 ) (2,403 ) (6,000 ) Total lease liabilities $ 19,948 $ 16,492 $ 36,440 10. LONG-TERM DEBT Long-term debt consists of the March 31, 2022 2021 Finance leases 16,492 20,125 Senior secured first lien notes due 2024 563,171 700,000 Senior secured notes due 2024 525,000 525,000 Senior notes due 2022 — 236,471 Senior notes due 2025 500,000 500,000 Less: debt issuance costs (15,173 ) (24,053 ) 1,589,490 1,957,543 Less: current portion 3,268 5,247 $ 1,586,222 $ 1,952,296 Receivables Securitization Program In November In connection with the Securitization Facility, the Company sells on a revolving basis certain eligible accounts receivable to Triumph Receivables, LLC, a At March 31, 2022, there were $0 in borrowings and $23,339 in letters of credit outstanding under the Securitization Facility, primarily to support insurance policies. As disclosed above, the Securitization Facility expires in November 2024. 59 Triumph Group, Inc. Notes to Consolidated Financial Statements (Dollars in thousands, except per share data) The Senior Secured First Lien Notes due On The First Lien Notes and the guarantees are first lien secured obligations of the Company and the Guarantor Subsidiaries. The First Lien Notes: The First Lien Notes are guaranteed on a full, senior secured, joint and several basis by each of the Company’s domestic restricted subsidiaries (the “Guarantor Subsidiaries”) that guarantees any of the Company’s Existing Notes. In the future, each of the Company’s domestic restricted subsidiaries (other than any domestic restricted subsidiary that is a receivable subsidiary) that (1) is not an immaterial subsidiary, (2) becomes a borrower under any of its material debt facilities or (3) guarantees (a) any of the Company’s indebtedness or (b) any indebtedness of the Company’s domestic restricted subsidiaries, in the case of either (a) or (b), incurred under any of the Company’s material debt facilities, will guarantee the First Lien Notes. Under certain circumstances, the guarantees may be released without action by, or consent of, the holder of the First Lien Notes. 60 Triumph Group, Inc. Notes to Consolidated Financial Statements (Dollars in thousands, except per share data) The First Lien Notes and the guarantees will be secured, subject to permitted liens, by first-priority liens on substantially all of the Company’s and the Guarantor Subsidiaries’ assets (including certain of the Company’s real estate assets), whether now owned or hereafter acquired, other than certain excluded property, which liens will secure permitted additional first lien obligations on a pari passu basis, subject to the Collateral Trust Agreement and will rank senior to those that secure the 2024 Notes (the “Collateral”). Under certain circumstances, the Collateral may be released without action by, or the consent of, the holders of the First Lien Notes. The First Lien Notes and the guarantees will not be secured by the assets of Non-Guarantor Subsidiaries (as defined below), which include the unrestricted subsidiaries to whom certain of the Company’s accounts receivables are and may in the future be sold to support borrowing under the Receivables Securitization Facility. Pursuant to an intercreditor agreement (the “Intercreditor Agreement”) between Wilmington Trust, National Association, in its capacity as the collateral trustee (the “Collateral Trustee”) and U.S. Bank National Association, in its capacity as second lien collateral agent for the 2024 Notes, the liens on the A collateral trust agreement (the “Collateral Trust Agreement”) among the Company, the Guarantor Subsidiaries, the Collateral Trustee and U.S. Bank National Association, in its capacity as the trustee for the First Lien Notes, will set forth therein the relative rights with respect to the Collateral as among the trustee for the First Lien Notes and certain subsequent holders of first lien obligations and covering certain other matters relating to the administration of security interests. The Collateral Trust Agreement will generally control substantially all matters related to the Collateral, including with respect to decisions, distribution of proceeds or enforcement. Pursuant to the Collateral Trust Agreement, on the issue date of the First Lien Notes the Collateral Trustee will control certain matters related to the Collateral that the Collateral Trust Agreement specifies are in its discretion. If the Company incurs certain types of additional first lien obligations, the Controlling First Lien Holders (as defined in the Collateral Trust Agreement) will have the right to control decisions relating to the Collateral that are outside the Collateral Trustee’s discretion under the Collateral Trust Agreement and the First Lien Note holders may no longer be in control of such decisions. The Company may redeem the First Lien Notes, in whole or in part, at any time or from time to time on or after February 1, 2023, at specified redemption prices, plus accrued and unpaid interest, if any, to the If the Company experiences specific kinds of changes of control, the Company is required to offer to purchase all of the First Lien Notes at a purchase price of 101% of their principal amount, plus accrued and unpaid interest, if any, to the date of purchase. The First Lien Notes Indenture contains covenants that, among other things, limit the ability of the Company and its restricted subsidiaries to: (i) incur additional indebtedness; (ii) pay dividends or make other distributions; (iii) make other restricted payments and investments; (iv) create liens; (v) incur restrictions on the ability of restricted subsidiaries to pay dividends or make certain other payments; (vi) sell assets, including capital stock of restricted subsidiaries; (vii) enter into sale and leaseback transactions; (viii) merge or consolidate with other entities; and (ix) enter into transactions with affiliates. In addition, the First Lien Notes Indenture requires, among other things, the Company to provide financial and current reports to holders of the First Lien Notes or file such reports electronically with the SEC. Furthermore, the First Lien Notes Indenture requires that the future net proceeds from certain asset sales will be required to repay the First Lien Notes at a premium of 106.656%, until the aggregate principal amount of Notes outstanding is $350,000 or less, provided that the Company may retain the first $100,000 of such net proceeds (subject to compliance with the asset sale covenants in the Company’s other outstanding indentures) or use it for certain other permitted purposes. These covenants are subject to a number of exceptions, limitations and qualifications set forth in the Indenture, as well as suspension periods in certain circumstances. 61 Triumph Group, Inc. Notes to Consolidated Financial Statements (Dollars in thousands, except per Upon the completion of the sale of the composites and large structure manufacturing operations as disclosed in Note 3, the Company surpassed the $100,000 threshold of net proceeds from certain asset sales resulting in a required redemption of $112,511 of the outstanding principal balance and a premium of approximately $7,489. As a result of the completion of the sale and license of certain legacy product lines of the Company's Staverton, United Kingdom operations, the Company was required to pay an additional required redemption of $24,318 of the outstanding principal balance and a premium of approximately $1,619. Senior Secured Notes Due 2024 On September 23, 2019, the Company issued $525,000 principal amount of 6.250% Senior Secured Notes due September 15, 2024. The 2024 Notes were sold at 100% of the principal amount and have an effective interest yield of 6.250%. Interestis payable semiannually in cash in arrears on The 2024 Notes are second lien secured obligations of the Company and its subsidiary guarantors. The 2024 Notes: The 2024 Notes are guaranteed on a full, senior secured, joint and several basis by, subject to certain customary exceptions, each of the Company’s domestic restricted subsidiaries (the "Guarantor Subsidiaries"). The Company may redeem the 2024 Notes, in whole or in part, at any time or from time to time on or after September 15, 2020, at specified redemption prices, plus accrued and unpaid interest, if any, to the redemption date. At any time or from time to time prior to September 15, 2020, the Company may redeem the 2024 Notes, in whole or in part, at a redemption price equal to 100% of their principal amount plus a make whole premium, together with accrued and unpaid interest, if any, to the redemption date. In addition, the Company may redeem up to 40% of the aggregate principal amount of the outstanding 2024 Notes prior to September 15, 2020, with the net cash proceeds from certain equity offerings at a redemption price equal to 106.250% of their principal amount, together with accrued and unpaid interest, if any, to the redemption date. If the Company experiences specific kinds of changes of control, the Company is required to offer to purchase all of the 2024 Notes at a purchase price of 101% of their principal amount, plus accrued and unpaid interest, if any, to the date of purchase. The 2024 Notes were issued pursuant to an indenture dated as of September 23, 2019 (the “Indenture”). The Indenture contains covenants that, among other things, limit the ability of the Company and its restricted subsidiaries to: (i) incur additional indebtedness; (ii) pay dividends or make other distributions; (iii) make other restricted payments and investments; (iv) create liens; (v) incur restrictions on the ability of restricted subsidiaries to pay dividends or make certain other payments; (vi) sell assets, including capital stock of restricted subsidiaries; (vii) enter into sale and leaseback transactions; (viii) merge or consolidate with other entities; and (ix) enter into certain transactions with affiliates. Senior Notes due 2022 On May 19, 2021, the Company called all outstanding 5.250% Senior Notes due June 1, 2022 (the "2022 Notes"). On June 18, 2021, the Company redeemed $236,471 principal amount of the 2022 Notes. 62 Triumph Group, Inc. Notes to Consolidated Financial Statements (Dollars in thousands, except per share data) Senior Notes Due 2025 On August 17, 2017, the Company issued $500,000 principal amount of 7.75% Senior Notes due August 15, 2025. The 2025 Notes were sold at 100% of the principal amount and have an effective interest yield of 7.75%. Interestis payable semiannually in cash in arrears on February 15 and August 15 of each year, commencing on February 15, 2018. In connection with the issuance of the 2025 Notes, the Company incurred approximately $8,779 of costs, which were deferred and are being amortized on the effective interest method over the term of the The The Company may redeem some or all of the The Company is obligated to offer to repurchase the The Financial Instruments Not Recorded at Fair Value Carrying amounts and the related estimated fair values of the Company's long-term debt not recorded at fair value in the accompanying consolidated financial statements are as follows: March 31, 2022 March 31, 2021 Carrying Fair Carrying Fair $ 1,589,490 $ 1,639,248 $ 1,957,543 $ 2,085,204 The fair value of the long-term debt was calculated based on either interest rates available for debt with terms and maturities similar to the Company's existing debt arrangements or broker quotes on Interest paid on indebtedness during the As of 63 Triumph Group, Inc. Notes to Consolidated Financial Statements (Dollars in thousands, except per share data) 11. OTHER NONCURRENT LIABILITIES Other noncurrent liabilities are composed of the following items: March 31, 2022 2021 $ 12,862 $ 43,888 Accrued warranties 6,317 9,519 9,024 11,226 Noncurrent contract liabilities 1,099 100,737 Operating lease liabilities 12,920 26,060 5,336 9,185 300 300 3,850 6,463 $ 51,708 $ 207,378 12. INCOME TAXES The components of Year ended March 31, 2022 2021 2020 Foreign $ 14,962 $ (1,518 ) $ 33,399 Domestic (52,797 ) (446,511 ) (57,034 ) $ (37,835 ) $ (448,029 ) $ (23,635 ) The components of income tax (benefit) expense are as follows: Year ended March 31, 2022 2021 2020 Current: Federal $ — $ — $ (654 ) State (157 ) (315 ) 27 Foreign 5,055 3,372 3,602 4,898 3,057 2,975 Deferred: Federal — — 2,748 State — — 73 Foreign 25 (176 ) 2 25 (176 ) 2,823 $ 4,923 $ 2,881 $ 5,798 64 Triumph Group, Inc. Notes to Consolidated Financial Statements (Dollars in thousands, except per share data) A reconciliation of the statutory federal income tax rate to the effective tax rate is as follows: Year ended March 31, 2022 2021 2020 Statutory federal income tax rate 21.0 % 21.0 % 21.0 % State and local income taxes, net of federal tax benefit 15.9 2.7 (12.1 ) Section 162(m) (5.1 ) (0.2 ) (2.1 ) Goodwill impairment — �� — (37.4 ) Miscellaneous permanent items and nondeductible accruals (0.9 ) (0.5 ) 6.0 Research and development tax credit 6.0 0.7 30.4 Impact of foreign operations (including rate differential, rate change, and settlement with tax authorities 14.0 (0.3 ) (24.1 ) Valuation allowance (61.9 ) (25.5 ) 29.3 Tax reform and CARES Act — — (12.3 ) Global Intangible Low-Taxed Income (2.0 ) — (20.4 ) Other (including FIN 48) (0.5 ) 1.4 (2.8 ) Effective income tax rate (13.5 )% (0.7 )% (24.5 )% The components of deferred tax assets and liabilities are as follows: March 31, 2022 2021 Deferred tax assets: Net operating loss and other credit carryforwards $ 337,361 $ 345,071 Inventory 21,065 21,484 Accruals and reserves 32,138 34,379 Interest carryforward 80,593 62,893 Pension and other postretirement benefits 74,271 89,952 Lease right-of-use assets 4,199 6,890 Acquired contract liabilities, net 3,686 7,504 553,313 568,173 Valuation allowance (512,357 ) (512,554 ) Net deferred tax assets 40,956 55,619 Deferred tax liabilities: Deferred revenue 4,160 22,342 Property and equipment 14,172 12,581 Goodwill and other intangible assets 24,655 21,701 Lease liabilities 3,787 5,848 Prepaid expenses and other 1,395 588 48,169 63,060 Net deferred tax liabilities $ 7,213 $ 7,441 The Company follows ASC 740, Income Taxes, which prescribes a recognition threshold and measurement attribute criteria for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, as well as guidance on derecognition, classification, interest and penalties, disclosure and transition.The Company's policy is to release the tax effects from accumulated other comprehensive income when all of the related assets or liabilities that gave rise to the accumulated other comprehensive income have been derecognized. The Company has elected to treat global intangible low-taxed income (“GILTI”) as a period expense. 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 assesses all available positive and negative evidence. This evidence includes, but is not limited to, prior earnings history, expected future earnings, carry-back and carry-forward periods and the feasibility of ongoing tax strategies that could potentially enhance the likelihood of the realization of a deferred tax asset. The weight given to the positive and negative evidence is commensurate with the extent the evidence may be objectively verified. As such, it is generally difficult for positive evidence regarding projected future taxable income exclusive of reversing taxable temporary differences to outweigh objective negative evidence of recent financial reporting losses. 65 Triumph Group, Inc. Notes to Consolidated Financial Statements (Dollars in thousands, except per share data) Based on these criteria and the relative weighting of both the positive and negative evidence available, and in particular the activity surrounding the Company's prior earnings history, including the forward losses and intangible impairments previously recognized, management determined that it was necessary to establish a valuation allowance against principally all of its net deferred tax During fiscal year 2022, the Company adjusted the valuation allowance against the consolidated net deferred tax asset As of March 31, 2022, the Company has net operating loss carryforwards of $638,311, $1,405,635, and $151,125 for U.S. federal, state, and foreign jurisdictions, respectively. Approximately $176,664 of U.S. federal net operating losses begin to expire in The effective income tax rate for the fiscal year ended March 31, The Company has been granted income tax holiday as an incentive to attract foreign investment by the Government of Thailand. The tax holidays continue to expire in various years through 2026. At March 31, The Company has classified uncertain tax positions as noncurrent income tax liabilities unless expected to be paid in one year. As of As of A reconciliation of the liability for uncertain tax positions, which are included in Year ended March 31, 2022 2021 2020 Beginning balance $ 11,750 $ 19,127 $ 19,373 Adjustments for tax positions related to the current year 228 311 1,057 Adjustments for tax positions of prior years — (7,688 ) (1,303 ) Ending balance $ 11,978 $ 11,750 $ 19,127 13. STOCKHOLDERS' DEFICIT In March 2022, the Company adopted a tax benefits preservation plan (the " Plan") designed to preserve Triumph’s ability to utilize its net operating loss carryforwards and other tax attributes (collectively, "Tax Benefits"). The Plan replaces a similar plan 66 Triumph Group, Inc. Notes to Consolidated Financial Statements (Dollars in thousands, except per share data) that was adopted in March 2019 and which expired in March 2022. The Company intends to submit the Plan for stockholder approval at the Company’s next annual meeting of stockholders. Under the Plan, Triumph declared a dividend distribution of one right (a “Right”) for each share of its common stock outstanding at the close of business on March 21, 2022. The Plan will expire on March 13, 2025, if the Company stockholders approve the Plan at the next annual meeting of stockholders; if the Company stockholders do not approve the Plan, then the Plan will automaticallly expire on March 13, 2023. The Rights also will expire: (i) if the Rights are redeemed or exchanged as provided in the Plan; (ii) if the Board determines that the Plan is no longer necessary or desirable for the preservation of the Tax Benefits; or (iii) if the Board determines that no Tax Benefits, once realized, as applicable, may be carried forward (in which case, the Rights will expire on the first date of the relevant taxable year for which such determination is made). Pursuant to the Plan, if a stockholder (or group) becomes a 4.9% stockholder without meeting certain customary exceptions, the Rights become exercisable and entitle stockholders (other than the 4.9% stockholder or group causing the rights to become exercisable) to purchase additional shares of Triumph at a significant discount, resulting in significant dilution in the economic interest and voting power of the 4.9% stockholder or group causing the Rights to become exercisable. Stockholders owning 4.9% or more of Triumph’s outstanding shares at the time the Plan was adopted were grandfathered and will only cause the Rights to distribute and become exercisable if they acquire an additional one percent or more of Triumph’s outstanding shares. Under the Plan, the Board has the ability to determine in its sole discretion that any person shall not be deemed an acquiring person and therefore that the Rights shall not become exercisable if such person becomes a 4.9% stockholder. The adoption of the Plan and the dividend distribution did not have an impact on the Company’s consolidated financial statements. On February 4, 2021, the Company implemented an “at the market” stock issuance program by entering into an Equity Distribution Agreement (the “Equity Distribution Agreement”) with Citigroup Global Markets Inc. (the “Manager”). Under the terms of the Equity Distribution Agreement, the Company may from time to time to or through the Manager, acting as agent and/or principal, offer and sell shares of its common stock having a gross sales price of up to $150,000. From the date the program was implemented through March 31, 2021, the Company completed the program, selling 9,178,752 shares with a gross sales price of $150,000 for total proceeds net of stock issuance costs of $145,383. In The holders of the common stock are entitled to one vote per share on all matters to be voted upon by the stockholders of Triumph. The Company has preferred stock of Accumulated Other Comprehensive Loss Changes in accumulated other comprehensive loss ("AOCI") by component for the years ended March 31, Currency Unrealized Gains Defined Benefit Total (1) March 31, 2020 $ (62,045 ) $ (4,303 ) $ (680,100 ) $ (746,448 ) AOCI before reclassifications 19,884 5,891 168,701 194,476 Amounts reclassified from AOCI — (573 ) 22,353 (2) 21,780 Net current period OCI 19,884 5,318 191,054 216,256 March 31, 2021 (42,161 ) 1,015 (489,046 ) (530,192 ) AOCI before reclassifications (5,772 ) (2,244 ) 44,658 36,642 Amounts reclassified from AOCI — 959 29,237 (2) 30,196 Net current period OCI (5,772 ) (1,285 ) 73,895 66,838 March 31, 2022 $ (47,933 ) $ (270 ) $ (415,151 ) $ (463,354 ) 67 Triumph Group, Inc. Notes to Consolidated Financial Statements (Dollars in thousands, except per share data) 14. LOSS PER SHARE The following is a reconciliation between the Year ended March 31, 2022 2021 2020 (thousands) Weighted average common shares outstanding—basic 64,538 52,739 50,494 Net effect of dilutive stock options and non-vested stock(1) 0 0 0 Weighted average common shares outstanding—diluted 64,538 52,739 50,494 15. EMPLOYEE BENEFIT PLANS Defined Contribution Pension Plan The Company sponsors a defined contribution 401(k) plan, under which salaried and certain hourly employees may defer a portion of their compensation. Eligible participants may contribute to the plan up to the allowable amount as determined by the plan of their regular compensation before taxes. Defined Benefit Pension and Other Postretirement Benefit Plans The Company sponsors several defined benefit pension plans covering some of its employees. Most employees are ineligible to participate in the plans or have ceased to accrue additional benefits under the plans. Benefits under the defined benefit plans are based on years of service and, for most non-represented employees, on average compensation for certain years. It is the Company's policy to fund at least the minimum amount required for all qualified plans, using actuarial cost methods and assumptions acceptable under applicable government regulations, by making payments into a trust separate from us. In addition to the defined benefit pension plans, the Company provides other postretirement benefits ("OPEB") in the form of certain health care In accordance with ASC 715, the Company has recognized the funded status of the benefit obligation as of The following 68 Triumph Group, Inc. Notes to Consolidated Financial Statements (Dollars in thousands, except per share data) assets. Benefit payments reflect the total benefits paid from the plans and the Company's assets. Information on the plans includes both the domestic qualified and nonqualified plans and the foreign qualified plans. Pension Benefits Year ended March 31, 2022 2021 Change in projected benefit obligations Projected benefit obligation at beginning of year $ 2,230,248 $ 2,254,985 Service cost 745 1,537 Interest cost 46,891 64,599 Actuarial (gain) loss (82,483 ) 83,263 Plan amendments 141 — Curtailments 12,980 — Participant contributions 146 164 Settlements (104,991 ) — Special termination benefits 54 — Benefits paid (155,518 ) (179,956 ) Currency translation adjustment (2,012 ) 5,656 Projected benefit obligation at end of year $ 1,946,201 $ 2,230,248 Accumulated benefit obligation at end of year $ 1,904,104 $ 2,228,830 Assumptions used to determine benefit Discount rate 2.73 - 3.85% 2.05 - 3.17% Rate of compensation increase 3.50 - 4.22% 2.80 - 3.50% Pension Benefits Year ended March 31, 2022 2021 Change in fair value of plan assets Fair value of plan assets at beginning of year $ 1,853,963 $ 1,598,045 Actual return on plan assets 56,796 388,392 Settlements (104,991 ) — Participant contributions 147 164 Company contributions 1,057 41,201 Benefits paid (155,519 ) (179,956 ) Currency translation adjustment (2,212 ) 6,117 Fair value of plan assets at end of year $ 1,649,241 $ 1,853,963 Funded status (underfunded) Funded status $ (296,960 ) $ (376,285 ) Reconciliation of amounts recognized on the Pension asset—noncurrent $ 3,814 $ 7,515 Accrued benefit liability—current (801 ) (1,097 ) Accrued benefit liability—noncurrent (299,973 ) (382,703 ) Net amount recognized $ (296,960 ) $ (376,285 ) Pension Benefits Other Postretirement Benefits Year ended March 31, Year ended March 31, 2022 2021 2022 2021 Reconciliation of amounts recognized in Prior service credits $ 1,458 $ 4,621 $ (49,005 ) $ (54,109 ) Actuarial losses (gains) 674,720 755,234 (49,305 ) (53,542 ) Income tax (benefits) expenses related to above (204,594 ) (204,594 ) 42,016 42,016 Unamortized benefit plan costs (gains) $ 471,584 $ 555,261 $ (56,294 ) $ (65,635 ) 69 Triumph Group, Inc. Notes to Consolidated Financial Statements (Dollars in thousands, except per share data) The components of net periodic benefit cost for Pension Benefits Year Ended March 31, 2022 2021 2020 Components of net periodic pension Service cost $ 745 $ 1,537 $ 2,336 Interest cost 46,891 64,599 68,446 Expected return on plan assets (133,540 ) (136,581 ) (141,972 ) Amortization of prior service credit cost 260 974 (874 ) Amortization of net loss 38,407 31,248 28,288 Curtailment loss 16,024 — 23,690 Settlements 35,927 — 29,313 Special termination benefits 54 — 11,642 Total net periodic benefit expense $ 4,768 $ (38,223 ) $ 20,869 Assumptions used to determine net Discount rate 1.75% - 3.47% 2.47 - 3.32% 2.54 - 3.88% Expected long-term rate of return on plan assets 1.41 - 8.00% 5.00 - 8.00% 5.00 - 8.00% Rate of compensation increase 2.80 - 3.50% 3.50 - 4.50% 3.50 - 4.50% The Company recognized net periodic benefit income from its OPEB plan of approximately $9,396, $9,759, and $59,103 for the fiscal years ended March 31, 2022, 2021, and 2020, respectively. The discount rate is determined annually as of each measurement date, based on a review of yield rates associated with long-term, high-quality corporate bonds. At the end of each year, the discount rate is primarily determined using the results of bond yield curve models based on a portfolio of high-quality bonds matching notional cash inflows with the expected benefit payments for each significant benefit plan. The expected return on plan assets is determined based on a market-related value of The Company During the fiscal year ended March 31, The projected benefit obligation assumptions impacting net actuarial loss (gain) consist of changes in discount and mortality rates, as well as changes in plan experience. A significant component of the decrease in the pension plans’ actuarial losses in fiscal 2021 was the change in discount rates. The Company periodically experiences events or makes changes to its benefit plans that result in curtailment or special charges. Curtailments are recognized when events occur that significantly reduce the expected years of future service of present employees or eliminates the benefits for a significant number of employees for some or all of their future service. 70 Triumph Group, Inc. Notes to Consolidated Financial Statements (Dollars in thousands, except per share data) Curtailment losses are recognized when it is probable the curtailment will occur and the effects are reasonably estimable. Curtailment gains are recognized when the related employees are terminated or a plan amendment is adopted, whichever is applicable. As required under ASC 715, the Company remeasures plan assets and obligations during an interim period whenever a significant event occurs that results in a material change in the net periodic pension cost. The determination of significance is based on judgment and consideration of events and circumstances impacting the pension costs. The following summarizes the key events whose effects on net periodic benefit cost and obligations are included in the tables above: 71 Triumph Group, Inc. Notes to Consolidated Financial Statements (Dollars in thousands, except per share data) Expected Pension Benefit Payments The total estimated future benefit payments for the pension plans are expected to be paid from the plan assets and company funds. The Year Pension 2023 $ 176,472 2024 155,260 2025 148,530 2026 144,495 2027 140,415 2028 - 2032 634,225 Plan Assets, Investment Policy and Strategy The table below sets forth the Company's target asset allocation for fiscal Actual Allocation Target Allocation March 31, Asset Category Fiscal 2022 2022 2021 Equity securities 40% - 50% 58 % 50 % Fixed income securities 40% - 50% 33 39 Alternative investment funds 0% - 10% 7 5 Other 0% - 5% 2 6 Total 100 % 100 % Pension plan assets are invested in various asset classes that are expected to produce a sufficient level of diversification and investment return over the long-term. The investment goals are to exceed the assumed actuarial rate of return over the long-term within reasonable and prudent levels of risks and to meet future obligations. Asset/liability studies are conducted on a regular basis to provide guidance in setting investment goals for the pension portfolio and its asset allocation. The asset allocation aims to prudently achieve a strong, risk-adjusted return while seeking to minimize funding level volatility and improve the funded status of the plans. The pension plans currently employ a liability-driven investment ("LDI") approach, where assets and liabilities move in the same direction. The goal is to limit the volatility of the funding status and cover part, but not all, of the changes in liabilities. Most of the liabilities' changes are due to interest rate movements. To balance expected risk and return, allocation targets are established and monitored against acceptable ranges. All investment policies and procedures are designed to ensure that the plans' investments are in compliance with the Employee Retirement Income Security Act of 1974 ("ERISA"). Guidelines are established defining permitted investments within each asset class. Each investment manager has contractual guidelines to ensure that investments are made within the parameters of their asset class or in the case of multi-asset class managers, the parameters of their multi-asset class strategy. Certain investments are not permitted at any time, including investment directly in employer securities and uncovered short sales. 72 Triumph Group, Inc. Notes to Consolidated Financial Statements (Dollars in thousands, except per share data) The tables below provide the fair values of the Company's plan assets at March 31, 2022 Level 1 Level 2 Level 3 Total Assets Cash and cash equivalents $ 21,015 $ — $ — $ 21,015 Equity securities International 135,824 — — 135,824 U.S. equity 5,757 — — 5,757 U.S. commingled fund 573,015 — — 573,015 International commingled fund 51,559 — — 51,559 Fixed income securities Corporate bonds — 10,007 — 10,007 Government securities — 462,829 — 462,829 Other Insurance contracts — — 842 842 Total investment in securities—assets $ 787,170 $ 472,836 $ 842 $ 1,260,848 U.S. equity commingled fund 15,554 International equity commingled fund 180,138 U.S. fixed income commingled fund 48,537 International fixed income commingled fund 7,239 Government securities commingled fund 9,604 Private equity and infrastructure 120,537 Other 5,483 Total investment measured at NAV as a $ 387,092 Receivables 1,416 Payables (117 ) Total plan assets $ 1,649,239 73 Triumph Group, Inc. Notes to Consolidated Financial Statements (Dollars in thousands, except per share data) March 31, 2021 Level 1 Level 2 Level 3 Total Assets Cash and cash equivalents $ 42,003 $ — $ — $ 42,003 Equity securities International 164,298 — — 164,298 U.S. equity 7,410 — — 7,410 U.S. commingled fund 537,813 — — 537,813 International commingled fund 42,944 — — 42,944 Fixed income securities Corporate bonds — 12,231 — 12,231 Government securities — 103,853 — 103,853 U.S. commingled fund 509,760 — — 509,760 Other Insurance contracts — — 9,813 9,813 Total investment in securities—assets $ 1,304,228 $ 116,084 $ 9,813 $ 1,430,125 U.S. equity commingled fund 17,289 International equity commingled fund 158,447 U.S. fixed income commingled fund 59,203 International fixed income commingled fund 1,599 Government securities commingled fund 24,384 Private equity and infrastructure 95,880 Other 1,549 Total investment measured at NAV as a $ 358,351 Receivables 67,378 Payables (1,892 ) Total plan assets $ 1,853,962 Cash equivalents and other short-term investments are primarily held in registered short-term investment vehicles which are valued using a market approach based on quoted market prices of similar instruments. Public equity securities, including common stock, are primarily valued using a market approach based on the closing fair market prices of identical instruments in the principal market on which they are traded. Commingled funds that are open-ended mutual funds for which the fair value per share is determined and published by the respective mutual fund sponsor and is the basis for current observable transactions are categorized as Level 1 fair value measures. Investments in commingled Corporate, government agency bonds and mortgage-backed securities are primarily valued using a market approach with inputs that include broker quotes, benchmark yields, base spreads and reported observable trades for identical or comparable instruments. Other investments include Assumptions and Sensitivities 74 Triumph Group, Inc. Notes to Consolidated Financial Statements (Dollars in thousands, except per share data) The discount rate is determined as of each measurement date, based on a review of yield rates associated with long-term, high-quality corporate bonds. The calculation separately discounts benefit payments using the spot rates from a long-term, high-quality corporate bond yield curve. The effect of a 25 basis-point change in discount rates as of March 31, Pension Increase of 25 basis points Obligation * $ (44,345 ) Net periodic expense 369 Decrease of 25 basis points Obligation * $ 46,232 Net periodic expense (407 ) * Excludes impact to plan assets due to the LDI investment approach discussed above under "Plan Assets, Investment Policy and Strategy." The long-term rate of return assumption represents the expected average rate of earnings on the funds invested to provide for the benefits included in the benefit obligations. The long-term rate of return assumption is determined based on a number of factors, including historical market index returns, the anticipated long-term asset allocation of the plans, historical plan return data, plan expenses and the potential to outperform market index returns. For fiscal Anticipated Contributions to Defined Benefit The Company 16.STOCK COMPENSATION PLANS The Company has stock incentive plans under which employees and non-employee directors may be granted equity awards in the form of stock options with an exercise price equal to Management and the compensation committee have utilized restricted stock and restricted stock units as its primary form of share-based 75 Triumph Group, Inc. Notes to Consolidated Financial Statements (Dollars in thousands, except per share data) 2022, 2021, and 2020, respectively. The fair value of restricted stock and restricted stock unit awards is expensed on a straight-line basis over the requisite service period At Shares Weighted- Non-vested restricted awards and deferred stock units at March 31, 2021 1,698,759 $ 15.46 Granted 693,765 20.37 Vested (574,076 ) 12.98 Forfeited (457,293 ) 17.56 Non-vested restricted awards and deferred stock units at March 31, 2022 1,361,155 $ 18.00 The fair value of employee restricted stock which vested during fiscal 17. COMMITMENTS AND CONTINGENCIES Certain of the Company's business operations and facilities are subject to a number of federal, state, local and foreign environmental laws and regulations. Former owners generally indemnify the Company for environmental liabilities related to the assets and businesses acquired which existed prior to the acquisition dates. In the opinion of management, there are no significant environmental contingent liabilities which would have a material effect on the financial condition or operating results of the Company which are not covered by such indemnification. The Company's risk related to pension projected obligations as of Some raw materials and operating supplies are subject to price and supply fluctuations caused by market dynamics. Recently, inflationary pressures have had a more significant impact on the market for raw materials than in recent years. The Company's strategic sourcing initiatives seek to find ways of mitigating the inflationary pressures of the marketplace. The Company's suppliers' failure to provide acceptable raw materials, components, kits and subassemblies would adversely affect production schedules and contract profitability. The Company maintains an extensive qualification and performance surveillance system to control risk associated with such supply base reliance. The Company is dependent on third parties for certain information technology services. To a lesser extent, the Company is also exposed to fluctuations in the prices of certain utilities and services, such as electricity, natural gas, chemical processing and freight. The Company utilizes a range of long-term agreements and strategic aggregated sourcing to optimize procurement expense and supply risk in these categories. Throughout the course of the Company’s programs, disputes with suppliers or customers could arise regarding unique contractual requirements, quality, costs or impacts to production schedules. If the Company is unable to successfully and equitably resolve such claims and assertions, its business, financial condition, results of operations, customer relationships and related transactions could be materially adversely affected. In the ordinary course of business, the Company is 76 Triumph Group, Inc. Notes to Consolidated Financial Statements (Dollars in thousands, except per share data) or future litigation or proceeding and no assurances can be given, the Company does not believe that any pending matter will have a material effect, individually or in the aggregate, on its financial position or results of operations. As the Company completes its restructuring plans as disclosed in Note 18, including the disposal of certain facilities, the Company may be exposed to additional costs such as environmental remediation obligations, lease termination costs, or supplier claims which may have a material effect on its financial position or results of operations when such matters arise and a reasonable estimate of the costs can be made. For example, the Company participates in a multiemployer pension plan for the benefit of certain represented employees at its Spokane, Washington, composites manufacturing operations. Under the terms of the multiemployer pension plan, it is reasonably possible that the Company will trigger a withdrawal liability related to the exit of the related facilities and termination of the affected employees. The amount of this potential liability is determined based on the funded status of the plan at the time of withdrawal from the plan. The funded status of the plan is measured by estimating the value of the plan's assets and liabilities, and these values can change significantly based on market conditions and changes in actuarial assumptions made by the plan sponsor. If a withdrawal liability is triggered, the obligation would likely be satisfied through annual payments over a period of at least ten years. 18.RESTRUCTURING COSTS During the fiscal The majority of restructuring plans are substantially complete and 19. CUSTOMER CONCENTRATION Trade and Sales to Boeing for Sales to Gulfstream for No other single customer accounted for more than The Company currently generates a majority of its revenue from clients in the commercial aerospace industry, the business jet industry and the military. The Company's growth and financial results are largely dependent on continued demand for its products and services from clients in these industries. 77 Triumph Group, Inc. Notes to Consolidated Financial Statements (Dollars in thousands, except per share data) 20. COLLECTIVE BARGAINING AGREEMENTS Approximately During the fiscal year ending March 31, 2022, a collective bargaining agreement was negotiated and ratified for the West Hartford, Connecticut, location. In addition, the Company negotiated an effects bargaining agreement associated with 21.SEGMENTS The Company reports financial performance based on the following Segment Adjusted The Company does not accumulate net sales information by product or service or groups of similar products and services, and therefore the Company does not disclose net sales by product or service because to do so would be impracticable. Selected financial information for each reportable segment is as follows: Year Ended March 31, 2022 Total Corporate & Systems & Aerospace Net sales to external customers $ 1,459,942 $ — $ 1,030,413 $ 429,529 Intersegment sales (eliminated in consolidation) — (49 ) 31 18 Segment profit and reconciliation to consolidated income before Adjusted EBITDAP 220,259 — 190,055 30,204 Reconciliation of segment profit to income (loss) before income Depreciation and amortization (49,635 ) (3,245 ) (32,464 ) (13,926 ) Interest expense and other, net (135,861 ) Corporate expenses (50,834 ) Share-based compensation expense (9,782 ) Loss on sale of assets and businesses (9,294 ) Amortization of acquired contract liabilities 5,871 Non-service defined benefit income 5,373 Impairment of long-lived assets (2,308 ) Debt extinguishment loss (11,624 ) Income before income taxes (37,835 ) Total capital expenditures $ 19,660 $ 711 $ 15,716 $ 3,233 Total assets $ 1,761,166 $ 200,100 $ 1,377,348 $ 183,718 78 Triumph Group, Inc. Notes to Consolidated Financial Statements (Dollars in thousands, except per share data) Year Ended March 31, 2021 Total Corporate & Systems & Aerospace Net sales to external customers $ 1,869,719 $ — $ 1,056,822 $ 812,897 Intersegment sales (eliminated in consolidation) — (4,653 ) 3,179 1,474 Segment profit and reconciliation to consolidated income before Adjusted EBITDAP 173,197 — 155,693 17,504 Reconciliation of segment profit to income (loss) before income Depreciation and amortization (93,334 ) (3,459 ) (33,549 ) (56,326 ) Interest expense and other, net (171,397 ) Corporate expenses (51,104 ) Share-based compensation expense (12,701 ) Loss on sale of assets and businesses (104,702 ) Amortization of acquired contract liabilities 38,564 Non-service defined benefit income 49,519 Impairment of rotable inventory (23,689 ) Impairment of long-lived assets (252,382 ) Income before income taxes (448,029 ) Total capital expenditures $ 25,178 $ 1,030 $ 15,239 $ 8,909 Total assets $ 2,450,935 $ 536,003 $ 1,469,593 $ 445,339 Year Ended March 31, 2020 Total Corporate & Systems & Aerospace Net sales to external customers $ 2,900,117 $ — $ 1,350,761 $ 1,549,356 Intersegment sales (eliminated in consolidation) — (13,334 ) 6,803 6,531 Segment profit and reconciliation to consolidated income before Adjusted EBITDAP 305,784 — 205,352 100,432 Reconciliation of segment profit to income (loss) before income Depreciation and amortization (138,168 ) (3,374 ) (32,376 ) (102,418 ) Interest expense and other, net (122,129 ) Corporate expenses (53,082 ) Share-based compensation expense (11,062 ) Loss on sale of assets and businesses (56,916 ) Amortization of acquired contract liabilities 75,286 Non-service defined benefit income 40,587 Union represented employee incentives (7,071 ) Legal judgment gain, net 9,257 Impairment of goodwill (66,121 ) Income before income taxes (23,635 ) Total capital expenditures $ 39,834 $ 1,502 $ 17,141 $ 21,191 During 79 TRIUMPH GROUP, INC. SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS ( Balance at Additions Other (1) Balance at For year ended March 31, 2022: Deferred tax assets valuation allowance $ 512,554 18,062 (18,259 ) $ 512,357 For year ended March 31, 2021: Deferred tax assets valuation allowance $ 438,667 117,088 (43,201 ) $ 512,554 For year ended March 31, 2020: Deferred tax assets valuation allowance $ 399,013 (3,474 ) 43,128 $ 438,667 80 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. As of 81 MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING The management of Triumph Group, Inc. ("Triumph") is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Triumph's internal control system over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. The Company's internal control over financial reporting includes those policies and procedures that: Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in condition, or that the degree of compliance with the policies or procedures may deteriorate. Triumph's management assessed the effectiveness of Triumph's internal control over financial reporting as of Triumph's independent registered public accounting firm, Ernst & Young LLP, has audited Triumph's effectiveness of /s/ Daniel J. Crowley Daniel J. Crowley Chairman, President, and Chief Executive Officer /s/ James F. McCabe, Jr. Senior Vice President and Chief Financial Officer /s/ Thomas A. Quigley, III Thomas A. Quigley, III Vice President and Controller May 82 Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Triumph Group, Inc. Opinion on Internal Control Over Financial Reporting We have audited Triumph Group, Inc. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Triumph Group, Inc. as of March 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income (loss), stockholders’ deficit and cash flows for each of the three years in the period ended March 31, 2022, and the related notes and financial statement schedule listed in the Index at Item 15(a) and our report dated May 23, 2022, expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying We conducted our audit in accordance with the standards of the Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP Philadelphia, Pennsylvania May 83 Changes in Internal Control Over Financial Reporting In addition to management's evaluation of disclosure controls and procedures as discussed above, we continue to review and enhance our policies and procedures for internal control over financial reporting. We have developed and implemented a formal set of internal controls and procedures for financial reporting in accordance with the SEC's rules regarding management's report on internal controls. As a result of continued review and testing by management and by our internal and independent auditors, or as a result of newly adopted accounting standards, additional changes may be made to our internal controls and procedures. However, we did not make any changes to our internal control over financial reporting in the fourth quarter of fiscal Item 9B. Other Information None. 84 PART III Item 10. Directors, Executive Officers and Corporate Governance The information required for directors and executive officers is incorporated herein by reference to our definitive 2022 Proxy Statement for our Delinquent Section 16(a) None. Code of Business Conduct The information required regarding our Code of Business Conduct is incorporated herein by reference to the Stockholder Nominations The information required with respect to any material changes to the procedures by which stockholders may recommend nominees to the Company's board of directors is incorporated herein by reference to the Audit Committee and Audit Committee Financial Expert The information required with respect to the Audit Committee and Audit Committee financial experts is incorporated herein by reference to the Item 11. Executive Compensation The information required under this item is incorporated herein by reference to the Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required under this item is incorporated herein by reference to the The information required under this item is incorporated herein by reference to the Item 14. Principal Accountant Fees and Services The information required under this item is incorporated herein by reference to the 2022 Proxy Statement. 85 PART IV Item 15. Exhibits, Financial Statement Schedules (a) Financial Statements (1) The following consolidated financial statements are included in Item 8 of this report: Triumph Group, Inc. Page 40 41 42 43 44 45 83 (2) The following financial statement schedule is included in this report: All other schedules have been omitted as not applicable or because the information is included elsewhere in the (3) The following is a list of exhibits. Where so indicated, 86 87 Exhibit Number Exhibit Description Incorporated by Reference to Form File No. Exhibit(s) Filing Date 10-K 001-12235 4.8 May 23, 2019 8-K 001-12235 4.1 August 18, 2020 8-K 001-12235 4.2 August 18, 2020 8-K 001-12235 4.3 August 18, 2020 8-K 001-12235 4.4 August 18, 2020 8-K 001-12235 4.1 October 5, 2020 8-K 001-12235 4.2 October 5, 2020 8-K 001-12235 4.3 October 5, 2020 10-Q 001-12235 10.1 February 8, 2022 10-Q 001-12235 10.2 February 8, 2022 10-Q 001-12235 10.3 February 8, 2022 10-Q 001-12235 10.4 February 8, 2022 10-Q 001-12235 10.5 February 8, 2022 8-K 001-12235 4.1 March 11, 2022 88 Exhibit Number Exhibit Description Incorporated by Reference to Form File No. Exhibit(s) Filing Date 10-K 001-12235 10.1 May 29, 2012 10-K 001-12235 10.2 May 30, 2013 10-K 001-12235 10.3 May 30, 2013 Form of Stock Award Agreement under the 2004 Stock Incentive Plan* 10-K 001-12235 10.7 May 22, 2009 Form of letter confirming Stock Award Agreement under the 2004 Stock Incentive Plan* 10-K 001-12235 10.8 May 22, 2009 Triumph Group, Inc. Supplemental Executive Retirement Plan effective January 1, 2003* 10-K 001-12235 10.17 June 12, 2003 Compensation for the non-employee members of the Board of Directors of Triumph Group, Inc. 8-K 001-12235 10.1 November 15, 2016 8-K 001-12235 10.1 August 12, 2008 8-K 001-12235 10.1 June 25, 2010 Triumph Group, Inc. Executive Incentive Plan, effective September 28, 2010 * 10-Q 001-12235 10.1 November 5, 2010 10-K 001-12235 10.22 May 18, 2011 10-K 001-12235 10.23 May 18, 2011 89 90 91 Exhibit Number Exhibit Description Incorporated by Reference to Form File No. Exhibit(s) Filing Date 8-K 001-12235 10.2 August 18, 2020 8-K 001-12235 10.1 November 18, 2020 8-K 001-12235 10.1 April 13, 2021 8-K 001-12235 1.1 February 4, 2021 Form of Offer Letter between Triumph Group, Inc. and Thomas Quigley dated as of December 2, 2019 # # # # 10-Q 001-12235 18.1 November 5, 2020 # # # # List of Subsidiary Guarantors and Issuers of Guaranteed Securities. # # # # Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm # # # # # # # # # # # # ## ## ## ## 8-K 001-12235 99.1 December 17, 2020 8-K 001-12235 99.2 December 17, 2020 92 101 The following financial information from Triumph Group, Inc.’s Annual Report on Form 10-K for the fiscal year ended March 31, 2022 formatted in iXBRL: (i) Consolidated Balance Sheets as of March 31, 2022 and 2021; (ii) Consolidated Statements of Operations for the fiscal years ended March 31, 2022, 2021, and 2020; (iii) Consolidated Statements of Stockholders’ Deficit for the fiscal years ended March 31, 2022, 2021, and 2020; (iv) Consolidated Statements of Cash Flows for the fiscal years ended March 31, 2022, 2021, and 2020; (v) Consolidated Statements of Comprehensive Loss for the fiscal years ended March 31, 2022, 2021, and 2020; and (vi) Notes to the Consolidated Financial Statements # # # # 104 Cover Page Interactive Data File, formatted in iXBRL and contained in Exhibit 101. # # # # In accordance with Item 601(b)(4)(iii)(A) of Regulations S-K, copies of specific instruments defining the rights of holders of long-term debt of the Company or its subsidiaries are not filed herewith. Pursuant to this regulation, we hereby agree to furnish a copy of any such instrument to the SEC upon request * Indicates management contract or compensatory plan or arrangement # Filed herewith ## Furnished herewith Item 16. Form 10-K Summary The Registrant has elected not to include a summary. 93 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed by the undersigned, thereunto duly authorized. TRIUMPH GROUP, INC. /s/ Daniel J. Crowley Dated: May By: Daniel J. Crowley Chairman, President, Chief Executive Officer and Director (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Chairman, President, Chief Executive Officer and Director May 23, 2022 /s/ Daniel J. Crowley (Principal Executive Officer) Daniel J. Crowley Senior Vice President and Chief Financial Officer May 23, 2022 /s/ James F. McCabe, Jr. (Principal Financial Officer) James F. McCabe, Jr. Vice President, Investor Relations and Controller May 23, 2022 /s/ Thomas A. Quigley III (Principal Accounting Officer) Thomas A. Quigley III /s/ William L. Mansfield Lead Independent Director May 23, 2022 William L. Mansfield /s/ Paul Bourgon Director May 23, 2022 Paul Bourgon /s/ Ralph E. Eberhart Director May Ralph E. Eberhart /s/ Daniel P. Garton Director May 23, 2022 Daniel P. Garton /s/ Director May Barbara Humpton /s/ Neal J. Keating Director May 23, 2022 Neal J. Keating /s/ Director May Colleen C. Repplier /s/ Larry O. Spencer Director May 23, 2022 Larry O. Spencer 94received$32.5 million in financing activities. Cash flows from operating activities in fiscal year 2015 was $467.32021, we incurred approximately $21.6 million and included $112.3$53.2 million in pension contributions.Duringrestructuring costs, respectively.fiscalend of calendar 2022, non-domestic markets recovery remains uncertain. As a result, we are unable at this time to reasonably estimate potential future additional financial impacts or a range of loss, if any, due to continued uncertainties related to the impacts of the COVID-19 pandemic on our operations, supply chain, and customers. Any such impacts, including any changes in our estimates, could have a material adverse effect on our financial position, results of operations, and cash flows. Key factors determining the potential impacts include the severity and duration of the pandemic which could be impacted by the emergence and circulation of new variants of SARS-CoV-2, the virus that causes COVID-19; governmental, business, and individuals' actions in response to the2016,2022, approximately $14.1 million of the Company committedgrant benefit has been recognized as a reduction in cost of sales.a restructuringthe impacts of certain its businessesthe COVID-19 pandemic as well as production issues and associated rework. Boeing expanded the consolidation of certainscope of its facilities ("2016 Restructuring Plan"). The Company expectsproduction inspections, and those inspections and associated rework have and continue to reduce its footprint by approximately 3.5 million square feetdelay scheduled deliveries. While Boeing resumed deliveries of the 787 aircraft in March 2021, Boeing announced in July 2021 that additional rework requirements on undelivered 787 aircraft had been identified and that, based on their assessment of the time required to reduce head count by 1,200 employees. Overcomplete the next few fiscal years,rework, the Company estimates787 production rate would temporarily be reduced and gradually return to a higher rate. In October 2021, Boeing announced that itthe 787 production was being reduced to two per month, gradually returning to five per month over time. In January 2022, Boeing announced that the rework activities will record aggregate pre-tax charges of $150.0 milliontake longer than previously expected and that program production rates remain low. Boeing also disclosed that China is a significant market for the 787 program, and if the program is unable to $160.0 million related to these programs, which represent employee termination benefits, contract termination costs, accelerated depreciation and facility closure and other exit costs, and will resultobtain orders from China in future cash outlays. Forquarters, Boeing may be required to adjust production rate assumptions further.fiscal year endedcommercial program and a derivative to support the related tanker program. The 767 currently has a production rate of three aircraft per month. Of our $1.42 billion in backlog as of March 31, 2016,2022, approximately 2% relates to 767 production. 767 purchase orders associated with 767 production at our Stuart, Florida, operations have been excluded from reported backlog due to the Company recorded chargesexpected divestiture of $81.0 million related tothese operations as described above.including accelerated depreciationhas substantially completed as of $22.4 millionSeptember 30, 2021. Production facility exit plans are complete and severance of $16.3 million.Wecertain storage facility exit plans are currently performing work on several new programs, which are in various stages of development. Several of the these programs are expected to enter flight testing during our fiscal 2017, including the Bombardier Global 7000/8000,nearing completion and Embraer second generation E-Jet ("E2-Jets") and we expect to deliver revenue generating production units for these programs in late fiscal 2017, or early fiscal 2018. Historically, low-rate production commences during flight testing, followed by anincrease to full-rate production, assuming that successful testing and certification are achieved. Accordingly, we anticipate that each of these programs will begin generating full-rate production level revenues between fiscal 2019 and fiscal 2021. We are still in the early development stages for the Gulfstream G500/G600 programs, as these aircraftremaining costs are not expected to enter service until fiscal 2019. Transition of each of these programs from development to recurring production levels is dependent upon the success of each program at achieving flight testing and certification, as well as the ability of the OEM to generate acceptable levels of aircraft sales.Fiscal 2016 was a challenging year for certain of our new programs. While work progressed on these development programs, we experienced difficulties in achieving estimated cost targets particularly in the areas of engineering and estimated recurring costs. As described in more detail in “Results of Operations”, we recorded a $399.8 million forward loss on our Bombardier Global 7000/8000 wing contract in the fourth quarter of 2016. The Global 7000/8000 contract provides for fixed pricing and requires us to fund certain up-front development expenses, with certain milestone payments made by Bombardier. The Global 7000/8000 program charge resulted in the impairment of previously capitalized pre-production costs due to the combination of cost recovery uncertainty, higher than anticipated non-recurring costs and increased forecasted costs on recurring production. The increases in costs were driven by several factors, including: changing technical requirements, increased spending on the design and engineering phase of the program and uncertainty regarding cost reduction and cost recovery initiatives with our customer and suppliers. Further cost increases or an inability to meet revised recurring cost forecasts on the Global 7000/8000 program may result in additional forward loss reserves in future periods, while improvements in future costs compared to current estimates may result in favorable adjustments if forward loss reserves are no longer required. Under our contract with Embraer, we have the exclusive right to design, develop and manufacture the center fuselage section III, rear fuselage section and various tail section components (rudder and elevator) for the E2-Jets over the initial 600 ship sets. The contract provides for funding on a fixed amount of non-recurring costs, which will be paid over a specified number of production units. Higher than expected spending on the E2-Jets program has resulted in a low single digit estimated profit margin percentage, with additional potential future cost pressures as well as opportunities for improved performance. While we still estimate positive margins for this contract, risks related to additional engineering as well as the recurring cost profile remains as this program enters flight testing. We seek additional consideration for customer work statement changes throughout the development process as a standard course of business. The ability to recover or negotiate additional consideration is not certain and varies by contract. Varying market conditions for these products may also impact future profitability.these newthe programs noted above individually are expected to have a material impact on our net revenues, they do have the potential, either individually or in the aggregate, to materially and negatively impact our consolidated results of operations if future changes in estimates result in the need for a forward loss provision. Absent any such loss provisions, we do not anticipate that any of these new programs will significantly dilute our future consolidated margins.In January 2016, Boeing announcedmargins, although a rate reduction to the 747-8 program, which lowers production to one plane every two months. We have assessed theprolonged impact of the rate reduction and have recorded an additional $161.4 million forward loss duringCOVID-19 pandemic could result in changes in expectations.quarteryears ended March 31, 2016. This announcement follows the September 2015 decision by Boeing2021 and 2020, we completed several strategic divestitures. Refer to in-source production of the 747-8 program beginning in the second half of fiscal 2019, effectively terminating this program with us after our current contract. Additional costs associated with exiting the facilities where the 747-8 program is manufactured, such as asset impairment, supplier and lease termination charges, as well as severance and retention payments to employees and contractors have been included in the 2016 Restructuring Plan.As disclosed during fiscal 2015, we also recognized a provisionNote 3 for forward losses associated with our long-term contract on the 747-8 program. There is still risk similar to what we have experienced on the 747-8 program. Particularly, our ability to manage risks related to supplier performance, execution of cost reduction strategies, hiring and retaining skilled production and management personnel, quality and manufacturing execution, program schedule delays and many other risks, will determine the ultimate performancefurther discussion of these long-term programs.Consistent with our policy described in our Critical Accounting Policies here within, we performed Step 1 of the goodwill impairment test on an interim basis upon the occurrence of events or substantive changes in circumstances that indicate a reporting unit's fair value may be less than its carrying value. During the third quarter of fiscal 2016, we performed an interim assessment of the fair value of our goodwill and indefinite-lived intangible assets due to potential indicators of impairment related to the continued decline in our stock price during the third quarter.Our assessment focused on the Aerostructures reporting unit since it had significant changes in its economic indicators and adjusted for select changes in the risk adjusted discount rate to consider both the current return requirements of the market and the risks inherent in the reporting unit, expected long-term growth rate and cash flow projections to determine if any decline in the estimated fair value of a reporting unit could result in a goodwill impairment. We concluded that the goodwill was not impaired as of the interim impairment assessment date. However, the excess of the fair value over the carrying value was within 5% for the Company's Aerostructures reporting unit. The amount of goodwill for our Aerostructures reporting unit amounted to $1.42 billion as of the interim testing date.During the fourth quarter of the fiscal year ended March 31, 2016, consistent with our policy described herein, we performed our annual assessment of the fair value of our goodwill for each of our three reporting units. We concluded that the goodwill of our Aerostructures reporting unit was impaired as of the annual testing date. We concluded that the goodwill had an implied fair value of $822.8 million (Level 3) compared to a carrying value of $1.42 billion. Accordingly, we recorded a non-cash impairment charge during the fourth quarter of fiscal 2016 of $597.6 million, which is presented on the accompanying Consolidated Statements of Operations as "Impairment of intangible assets". The decline in fair value is the result of continued declines in stock price and related market multiples for stock price to EBITDA of both the Company and our peer group. Going forward, we will continue to monitor the performance of this reporting unit in relation to the key assumptions in our analysis.In the event that market multiples for stock price to EBITDA in the aerospace and defense markets decrease, or the expected EBITDA and cash flows for our reporting units decreases, an additional goodwill impairment charge may be required, which would adversely affect our operating results and financial condition. If management determines that impairment exists, the impairment will be recognized in the period in which it is identified.During the third quarter of the fiscal year ended March 31, 2016, we performed an interim assessment of fair value on our indefinite-lived intangible assets due to potential indicators of impairment related to the continued decline in our stock price during the fiscal third quarter. We estimated the fair value of the tradenames using the relief-from-royalty method, which uses several significant assumptions, including revenue projections that consider historical and estimated future results, general economic and market conditions, as well as the impact of planned business and operational strategies. The following estimates and assumptions were also used in the relief-from-royalty method:•Royalty rates between 2% and 4% based on market observed royalty rates and profit split analysis; and•Discount rates between 12% and 13% based on the required rate of return for the tradename assets.Based on our evaluation, we concluded that the Vought tradename had a fair value of $195.8 million (Level 3) compared to a carrying value of $425.0 million. Accordingly, we recorded a non-cash impairment charge during the quarter ended December 31, 2015, of $229.2 million, which is presented on the accompanying Consolidated Statements of Operations as "Impairment of intangible assets". The decline in fair value compared to carrying value of the Vought tradename is the result of declining revenues from production rate reductions and the slower than previously projected ramp in Bombardier Global 7000/8000 and the timing of associated earnings.During the fourth quarter of the fiscal year ended March 31, 2016, we performed our annual assessment of fair value on our indefinite-lived intangible assets. We estimated the fair value of the tradenames using the relief-from-royalty method, which uses several significant assumptions, including revenue projections that consider historical and estimated future results, general economic and market conditions, as well as the impact of planned business and operational strategies. The following estimates and assumptions were also used in the relief-from-royalty method:•Royalty rates between 2% and 4% based on market observed royalty rates and profit split analysis; and•Discount rate of 14% based on the required rate of return for the tradename assets, which increased from our interim assessment driven by increased risk due to continued declines in stock price and related market multiples for stock price to EBITDA of both the Company and our peer group and increased interest rates.Based on our evaluation of indefinite-lived assets, including the tradenames, we concluded that the Vought and Embee tradenames had a fair value of $163.0 million (Level 3) compared to a carrying value of $209.2 million. The decline in fair value compared to carrying value of the tradenames is the result of the increase in discount rate during the fourth quarter, which required the Company to assess whether events and/or circumstances have changed regarding the indefinite-life conclusion. Accordingly, we revalued both the tradenames as if these intangible assets were no longer indefinite and recorded a non-cash impairment charge during the fiscal year ended March 31, 2016, of $46.2 million, which is presented on the accompanying Consolidated Statements of Operations as "Impairment of intangible assets". Additionally, we determined that the tradenames will be amortized over their remaining estimated useful life of 20 years.In the event of significant loss of revenues and related earnings associated with the Vought and Embee tradenames, further impairment charges may be required, which would adversely affect our operating results.The collective bargaining agreement with our union employees with IAM District 751 at our Spokane, Washington facility has expired. As of May 11, 2016, the workforce in Spokane of approximately 400 employees has elected to strike. While we are currently in negotiations with the workforce, we have implemented plans to continue production in Spokane with support from other locations. Our union employees with UAW Local 848 at our Red Oak, Texas facility and UAW Local 952 at our Tulsa, Oklahoma facility are currently working without a contract. If we are unable to negotiate a contract with each of those workforces, our operations may be disrupted and we may be prevented from completing production and delivery of products from those facilities, which would negatively impact our results. Contingency plans have been developed that would allow production to continue in the event of an additional strike.Effective December 30, 2014, a wholly-owned subsidiary of the Company, Triumph Aerostructures-Tulsa LLC, doing business as Triumph Aerostructures-Vought Aircraft Division-Tulsa, completed the acquisition of the Gulfstream G650 and G280 wing programs (the "Tulsa Programs") located in Tulsa, Oklahoma, from Spirit AeroSystems, Inc. The acquisition of the Tulsa Programs establishes the Company as a leader in fully integrated wing design, engineering and production and advances its standing as a strategic Tier One Capable aerostructures supplier. The acquired business operates as Triumph Aerostructures-Vought Aircraft Division-Tulsa and its results are included in the Aerostructures Group from the date of acquisition.Effective October 17, 2014, the Company acquired the ownership of all of the outstanding shares of North American Aircraft Services, Inc. and its affiliates ("NAAS"). NAAS is based in San Antonio, Texas, with fixed-based operator units throughout the United States as well as international locations and delivers line maintenance and repair, fuel leak detection and fuel bladder cell repair services. The acquired business operates as Triumph Aviation Services-NAAS Division and its results are included in Aftermarket Services Group from the date of acquisition.Effective June 27, 2014, the Company acquired the hydraulic actuation business of GE Aviation ("GE"). GE's hydraulic actuation business consists of three facilities located in Yakima, Washington, Cheltenham, England and the Isle of Man and is a technology leader in actuation systems. GE's key product offerings include complete landing gear actuation systems, door actuation, nose-wheel steerings, hydraulic fuses, manifolds flight control actuation and locking mechanisms for the commercial, military and business jet markets. The acquired business operates as Triumph Actuation Systems-Yakima and Triumph Actuation Systems-UK & IOM and its results are included in Aerospace Systems Group from the date of acquisition.operations. The Company'soperations for the year ended March 31, 2022, compared with the year ended March 31, 2021. Our diverse structure and customer base do not provide for precise comparisons of the impact of price and volume changes to our results. However, we have disclosed the significant variances between the respective periods.Securities and Exchange Commission (the "SEC") guidance on Compliance and Disclosure Interpretations,SEC rules, we also disclose and discuss certain non-GAAP financial measures in our public filings and earnings releases. Currently, the non-GAAP financial measuremeasures that we disclose isare Adjusted EBITDA, which is our (loss) income from continuing operations net lossincentives and depreciation and amortization.incentives. We disclose Adjusted EBITDA on a consolidated and Adjusted EBITDAP on a consolidated and a reportable segment basis in our earnings releases, investor conference calls and filings with the SEC. The non-GAAP financial measures that we use may not be comparable to similarly titled measures reported by other companies. Also, in the future, we may disclose different non-GAAP financial measures in order to help our investors more meaningfully evaluate and compare our future results of operations towith our previously reported results of operations. an operating performance measuremeasures and, as such, we believe that the U.S. GAAP financial measure most directly comparable to itsuch measures is income from continuing operations.net loss. In calculating Adjusted EBITDA and Adjusted EBITDAP, we exclude from (loss) income from continuing operationsnet loss the financial items that we believe should be separately identified to provide additional analysis of the financial components of the day-to-day operation of our business. We have outlined below the type and scope of these exclusions and the material limitations on the use of these non-GAAP financial measures as a result of these exclusions. Adjusted EBITDA isand Adjusted EBITDAP are not a measurementmeasurements of financial performance under U.S. GAAP and should not be considered as a measure of liquidity, as an alternative to net (loss) income, (loss) income from continuing operations,loss, or as an indicator of any other measure of performance derived in accordance with U.S. GAAP. Investors and potential investors in our securities should not rely on Adjusted EBITDA or Adjusted EBITDAP as a substitute for any U.S. GAAP financial measure, including net (loss) income or (loss) income fromcontinuing operations.loss. In addition, we urge investors and potential investors in our securities to carefully review the reconciliation of Adjusted EBITDA and Adjusted EBITDAP to (loss) income from continuing operationsnet loss set forth below, in our earnings releases, and in other filings with the SEC and to carefully review the U.S. GAAP financial information included as part of our Quarterly Reports on Form 10-Q and our Annual Reports on Form 10-K that are filed with the SEC, as well as our quarterly earnings releases, and compare the U.S. GAAP financial information with our Adjusted EBITDA.isand Adjusted EBITDAP are used by management to internally measure our operating and management performance and by investors as a supplemental financial measure to evaluate the performance of our business that, when viewed with our U.S. GAAP results and the accompanying reconciliation, we believe provides additional information that is useful to gain an understanding of the factors and trends affecting our business. We have spent more than 20 years expanding our product and service capabilities, partially through acquisitions of complementary businesses. Due to the expansion of our operations, which included acquisitions, our (loss) income from continuing operationsnet loss has included significant charges for depreciation and amortization. Adjusted EBITDA excludesand Adjusted EBITDAP exclude these charges and providesprovide meaningful information about the operating performance of our business, apart from charges for depreciation and amortization. We believe the disclosure of Adjusted EBITDA and Adjusted EBITDAP helps investors meaningfully evaluate and compare our performance from quarter to quarter and from year to year. We also believe Adjusted EBITDA is a measureand Adjusted EBITDAP are measures of our ongoing operating performance because the isolation of non-cashnoncash charges, such as depreciation and amortization, and non-operatingnonoperating items, such as interest, and income taxes, pension and other postretirement benefits, provides additional information about our cost structure and, over time, helps track our operating progress. In addition, investors, securities analysts, and others have regularly relied on Adjusted EBITDA and Adjusted EBITDAP to provide a financial measuremeasures by which to compare our operating performance against that of other companies in our industry.(loss)net income from continuing operations to calculate Adjusted EBITDA and Adjusted EBITDAP and the material limitations associated with using thisthese non-GAAP financial measuremeasures as compared to (loss) incomewith net loss from continuing operations:Curtailments,• and early retirement incentivesor other incentives) may be useful for investors to consider because it representsthey represent the current period impactcost of postretirement benefits to plan participants, net of the change inassumption of returns on the defined benefit obligation due toplan's assets and are not indicative of the reduction in future service costs as well as the incremental cost of retirement incentive benefitscash paid to participants.for such benefits. We do not believe these earnings necessarily reflect the current and ongoing cash earnings related to our operations.non-cashnoncash earnings on the fair value of off-market contracts acquired through acquisitions. We do not believe these earnings necessarily reflect the current and ongoing cash earnings related to our operations.licenses.separately recognized under U.S. GAAP, or, in the case of nonrecurring asset impairments, the impact of unusual and nonrecurring events affecting the estimated recoverability ofwhichthat may be payable for the period and the change in deferred income taxes during the period and may reduce the amount of funds otherwise available for use in our business. However, we do not consider the amount of income tax expense to be a representative component of the day-to-day operating performance of our business.by using a non-GAAP measure only to supplement our U.S. GAAP results and to provide additional information that is useful to gain an understanding of the factors and trends affecting our business.(loss) income from continuing operationsnet loss for the indicated periods (in thousands): Fiscal year ended March 31, 2016 2015 2014 (Loss) income from continuing operations $ (1,047,960 ) $ 238,697 $ 206,256 Legal settlement charge (gain), net of expenses 5,476 (134,693 ) — Amortization of acquired contract liabilities (132,363 ) (75,733 ) (42,629 ) 1,052,116 158,323 164,277 Curtailments, settlements and early retirement incentives (1,244 ) — 1,166 Interest expense and other 68,041 85,379 87,771 Income tax (benefit) expense (111,187 ) 110,597 105,977 Adjusted EBITDA $ (167,121 ) $ 382,570 $ 522,818 * - Includes Impairment charges related to intangible assets EBITDAEBITDAP by reportable segment reconciled to our operating (loss) income for the indicated periods (in thousands): Fiscal year ended March 31, 2016 Total Aerostructures Operating (loss) income $ (1,091,106 ) $ (1,274,777 ) $ 216,520 $ 24,977 $ (57,826 ) Legal settlement charge, net 5,476 12,070 (8,494 ) 1,900 — Curtailments, settlements and early retirement incentives (1,244 ) — — — (1,244 ) Amortization of acquired contract liabilities (132,363 ) (90,778 ) (41,585 ) — — 1,052,116 988,947 50,518 11,009 1,642 Adjusted EBITDA $ (167,121 ) $ (364,538 ) $ 216,959 $ 37,886 $ (57,428 ) * - Includes Impairment impairment charges related to intangible assets. Fiscal year ended March 31, 2015 Total Aerostructures Operating income $ 434,673 $ 120,985 $ 184,042 $ 47,931 $ 81,715 Legal settlement (gain), net (134,693 ) — — — (134,693 ) Amortization of acquired contract liabilities (75,733 ) (38,719 ) (37,014 ) — — Depreciation and amortization 158,323 102,296 45,200 8,559 2,268 Adjusted EBITDA $ 382,570 $ 184,562 $ 192,228 $ 56,490 $ (50,710 ) Fiscal year ended March 31, 2014 Total Aerostructures Operating income $ 400,004 $ 248,637 $ 149,721 $ 42,265 $ (40,619 ) Curtailments, settlements and early retirement incentives 1,166 — — — 1,166 Amortization of acquired contract liabilities (42,629 ) (25,207 ) (17,422 ) — — Depreciation and amortization 164,277 116,514 37,453 7,529 2,781 Adjusted EBITDA $ 522,818 $ 339,944 $ 169,752 $ 49,794 $ (36,672 )
Structures
Eliminations
Structures
Eliminations
Structures
Eliminations20162022, compared towith fiscal year endedMarch 31, 2015 Year Ended March 31, 2016 2015 (in thousands) Net sales $ 3,886,072 $ 3,888,722 Segment operating (loss) income $ (1,033,280 ) $ 352,958 Corporate (expense) income (57,826 ) 81,715 Total operating (loss) income (1,091,106 ) 434,673 Interest expense and other 68,041 85,379 Income tax (benefit) expense (111,187 ) 110,597 Net (loss) income $ (1,047,960 ) $ 238,697 decreased by $2.7adjusted for inter-segment sales increased $4.5 million, or 0.3%, or (0.1)%with additional declines from the composites and large structure manufacturing operations, G650, and Staverton, United Kingdom, divestitures of $299.9 million and sunsetting programs (i.e., to $3.9 billion for the fiscal year ended March 31, 2016, from $3.9 billion for the fiscal year ended March 31, 2015. The acquisition747-8 and G280) of Fairchild and the fiscal 2015 acquisitions contributed $355.3$114.4 million. Organic sales decreased $352.7 million, or (9.8)%,increased primarily due to production rate cuts increased sales volume on commercial narrow body platforms and increased repair and overhaul services, partially offset by our customersdecreased volume on the 747-8, V-22, G450/G550787 as a result of an announced production pause and C-17 programs. The prior fiscal year was negatively impacted by our customers' decreased production rates on existing programs and decreased military sales.In the fourth quarter of fiscal 2016, we recorded a $399.8 million forward loss charge for the Bombardier Global 7000/8000 wing program. Under our contract for this program, we have the right to design, develop and manufacture wing components over the initial 300 ship sets. The Global 7000/8000 contract provides for fixed pricing and requires us to fund certain up-front development expenses, with certain milestone payments made by Bombardier. The Global 7000/8000 program charge resulted in the impairment of previously capitalized pre-production costs due to the combination of cost recovery uncertainty, higher than anticipated non-recurring costs and increased forecasted costs on recurring production. The increases in costs were driven by several factors, including: changing technical requirements, increased spending on the design and engineering phase of the program and uncertainty regarding cost reduction and cost recovery initiatives with our customer and suppliers. Further cost increases or an inability to meet revised recurring cost forecasts on the Global 7000/8000 program may result in additional forward loss reserves in future periods, while improvements in future costs compared to current estimates may result in favorable adjustments if forward loss reserves are no longer required.In January 2016, Boeing announced a rate reduction to the 747-8 program, which lowers production to one plane every two months. We have assessed the impact of the rate reduction and have recorded an additional $161.4COVID-19 pandemic on other commercial wide body platform production rates. Net sales for the year ended March 31, 2022, included $22.4 million forward loss. This announcement followsin total nonrecurring revenues, as compared with $43.8 million for the September 2015 decisionyear ended March 31, 2021.Boeing to in-source production of the 747-8 program beginning in the second half of fiscal 2019, effectively terminating this program with us after our current contract. Additional costs associated with exiting the facilities where the 747-8 program is manufactured, such as asset impairment, supplier and lease termination charges, as well as severance and retention payments to employees and contractors have been included in the 2016 Restructuring Plan.Recognition of additional forward losses in the future periods continues to be a risk and will depend upon several factors, including the impact of the above discussed production rate change, our ability to successfully perform under current design and manufacturing plans, achievement of forecasted cost reductions as we continue production, our ability to successfully resolve claims and assertions with our customers and suppliers and our customers' ability to sell their products.Cost of sales increased by $455.8$368.9 million,, or 14.5%174.6%, to $3.6 billion foroperating income, partially offset by declines from the fiscal year ended March 31, 2016, from $3.1 billion for the fiscal year ended March 31, 2015. The acquisitiondivestitures and sunsetting programs of Fairchild and the fiscal 2015 acquisitions contributed $274.5$37.2 million. The organic cost of sales included provisions for forward losses of $561.2 million on the Bombardier and 747-8 programs (as discussed above). Organic gross margin for the fiscal year ended March 31, 2016,2022, was 3.9%26.0% compared with 19.1%22.5% for the fiscal year ended March 31, 2015.2021. The gross margin for the year ended March 31, 2022, increased primarily as a result of the prior year was impacted by additional costs onperiod impairment of rotable inventory of approximately $23.7 million, the 747-8 program and disruption and accelerated depreciation associatedrecognition of grant benefits under the AMJP agreement with the relocationDOT of approximately $14.1 million, approximately $4.0 million recognized as a result of a nonrecurring licensing transaction, and changes in sales mix, partially offset by decreased profit of approximately $10.8 million resulting from the exit of our Jefferson Street Facilities.unfavorablefavorable cumulative catch-up adjustments on long-term contracts and provisions for forward losses as noted above ($596.2 million).of $16.0 million. The unfavorable cumulative catch-up adjustments to operating income included gross adjustments of $33.0 million and gross unfavorable adjustments of $629.2 million, of which $561.2 million was related to forward losses associated with the Bombardier and 747-8 programs. Excluding the aforementioned forward losses, the cumulative catch-up adjustments for the fiscal year ended March 31, 2016, reflected increased labor and supplier costs on other programs. Gross margins for fiscal 2015 included net unfavorable cumulative catch-up adjustments of $156.0 million, of which $152.0 million was related to the forward losses on the 747-8 program.Segment operating (loss) income decreased by $1,386.2 million, or (392.7)%, to $(1,033.3) million for the fiscal year ended March 31, 2016, from $353.0 million for the fiscal year ended March 31, 2015. The decreased operating income is directly related to the provisions for forward losses and gross margin changes noted above and the previously mentioned goodwill and tradename impairment charges.Corporate operations incurred expenses of $57.8 million for the fiscal year ended March 31, 2016, as opposed to income of $81.7 million for the fiscal year ended March 31, 2015. The fiscal year ended March 31, 2015, included the legal settlement between the Company and Eaton, which resulted in a net gain of $134.7 million.Interest expense and other decreased by $17.3 million, or 20.3%, to $68.0 million for the fiscal year ended March 31, 2016 compared to $85.4 million for the prior year. Interest expense and other for the fiscal year ended March 31, 2016, included foreign exchange losses of $2.4 million versus foreign exchange gains of $5.0 million for the fiscal year ended March 31, 2015. Interest expense and other for the fiscal year ended March 31, 2015 included the redemption of the 2018 Notes, which included $22.6 million for pre-tax losses associated with the 4.79% redemption premium, and write-off of the remaining related unamortized discount and deferred financing fees.The effective income tax rate was 9.6% for the fiscal year ended March 31, 2016, and reflected the establishment of a valuation allowance of $155.8 million against net deferred tax assets. Based on an evaluation of both the positive and negative evidence available, we determined that it was necessary to establish a valuation allowance against substantially all of our net deferred tax assets for the fiscal year ended March 31, 2016.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 assesses all available positive and negative evidence. This evidence includes, but is not limited to, prior earnings history, expected future earnings, carry-back and carry-forward periods and the feasibility of ongoing tax strategies that could potentially enhance the likelihood of the realization of a deferred tax asset. The weight given to the positive and negative evidence is commensurate with the extent the evidence may be objectively verified. As such, it is generally difficult for positive evidence regarding projected future taxable income exclusive of reversing taxable temporary differences to outweigh objective negative evidence of recent financial reporting losses.Based on these criteria and the relative weighting of both the positive and negative evidence available, and in particular the activity surrounding the Company's prior earnings history, including the forward losses and intangible impairments previously recognized, management determined that it was necessary to establish a valuation allowance against principally all of its net deferred tax assets at March 31, 2016. Given the objectively verifiable negative evidence of a three-year cumulative loss and the weighting of all available positive evidence, the Company excluded projected taxable income (aside from reversing taxable temporary differences) from the assessment of income that could be used as a source of taxable income to realize the deferred tax assets.The effective tax rate for the fiscal year ended March 31, 2015, was 31.7% and included the release of previously reserved for unrecognized tax benefits of $1.1 million, the benefit of $2.8 million from a decrease of the state deferred tax rate and the benefit of $6.0 million from the retroactive reinstatement of the R&D tax credit to January 1, 2014.Fiscal year ended March 31, 2015 compared to fiscal year ended March 31, 2014 Year Ended March 31, 2015 2014 (in thousands) Net sales $ 3,888,722 $ 3,763,254 Segment operating income $ 352,958 $ 440,623 Corporate income (expenses) 81,715 (40,619 ) Total operating income 434,673 400,004 Interest expense and other 85,379 87,771 Income tax expense 110,597 105,977 Net income $ 238,697 $ 206,256 Net sales increased by $125.5 million, or 3.3%, to $3.9 billion for the fiscal year ended March 31, 2015, from $3.8 billion for the fiscal year ended March 31, 2014. The fiscal 2015 and fiscal 2014 acquisitions, net of prior year divestitures, contributed $306.1 million. Organic sales decreased $180.6 million, or 4.6%, due to production rate cuts by our customers on the 747-8, V-22, G450/G550 and C-17 programs. The prior fiscal year was negatively impacted by our customers' decreased production rates on existing programs and decreased military sales.Cost of sales increased by $229.7 million, or 7.9%, to $3.1 billion for the fiscal year ended March 31, 2015, from $2.9 billion for the fiscal year ended March 31, 2014. The fiscal 2015 and fiscal 2014 acquisitions, net of prior year divestitures, contributed $264.2 million. Despite the decrease in organic cost of sales, the organic cost of sales included a provision for forward losses of $152.0 million on the 747-8 program in addition to losses as a result of losing NADCAP certification at one of our facilities. Organic gross margin for the fiscal year ended March 31, 2015, was 20.1% compared with 23.1% for the fiscal year ended March 31, 2014. The prior year was impacted by additional programs costs on the 747-8 program and disruption and accelerated depreciation associated with the relocation from our Jefferson Street facilities. Excluding these charges, the comparable gross margin would have been 25.4% and 26.5%, respectively.Gross margin included net unfavorable cumulative catch-up adjustments on long-term contracts and a provision for forward losses as noted above ($156.0 million). The unfavorable cumulative catch-up adjustments to operating income included gross favorable adjustments of $4.7$30.6 million and gross unfavorable adjustments of $160.7 million, of which $152.0 million was related to forward losses associated with the 747-8 program. The cumulative catch-up adjustments$14.5 million. Gross margins for the fiscal year ended March 31, 2015, were due primarily to labor cost growth, partially offset by other minor improvements. Gross margins for fiscal 20142021, included net unfavorablefavorable cumulative catch-up adjustments of $53.2 million, which $29.8 million was related$12.3 million.the additional 747-8 program costs from reductions to profitability estimatesdecreased loss on the 747-8 production lots that were completed during fiscal 2014sale of assets and $15.6 millionbusinesses of disruption$95.4 million.accelerated depreciation costs related to our exit from the Jefferson Street facilities which reduced profitability estimates on production lots completed during fiscal 2014. These decreases were partially offset by lower pensionOtherpostretirementdecreased due to lower relative debt levels as a result of current period redemptions as well as favorable changes in foreign currency exchange rates of approximately $5.6 million. expense of $12.7 million.Segment operating income decreased by $87.7$44.1 million, or 19.9%89.1%, to $353.0$5.4 million for the fiscal year ended March 31, 2015 from $440.62022, compared with $49.5 million for the fiscal year ended March 31, 2014.2021. The organic operating income decreased $100.9decrease was primarily due to the recognition of curtailment and settlement losses of approximately $52.0 million or 22.6%, and was a resultin the aggregate upon the completion of the decreased organic sales,composites and large structure manufacturing divestitures, the provision for forward lossessettlement of the fully-funded pension obligation we had retained subsequent to our fiscal year 2019 divestiture of Triumph Geared Solutions - Toronto, and gross margin changes noted above,the settlement of pension obligations of certain retired participants in our qualified U.S. pension plan. These decreases were partially offset by decreased moving costs relatedincreases due to changes in actuarial assumptions and experience that increased income for the relocation from our Jefferson Street facilities ($28.1 million), and legal fees ($4.5 million).Corporate operations yieldedyear ended March 31, 2022, by $8.2 million.of $81.7tax expense was $4.9 million for the fiscal year ended March 31, 2015, as opposed to expenses2022, reflecting an effective tax rate of $40.6 million for(13.5)%. During the fiscal year ended March 31, 2014. This result is2022, we adjusted the valuation allowance against the consolidated net deferred tax asset by ($0.2) million primarily due a utilization of net operating loss carryforward, the expiration of a portion of the company’s capital loss carryforwards and changes to temporary differences related to the legal settlement between the Companyimpairment of long-lived intangible assets, interest disallowance, and Eaton, which created a net gain of $134.7 million, partially offset by increased due diligence and acquisition related expenses ($9.8 million).Interest expensepension and other decreased by $2.4 million, or 2.7%, to $85.4 million for the fiscal year endedpostretirement benefit plans. As of March 31, 2015 compared2022, management determined that it was necessary to $87.8 million for the prior year. Interest expense and other for the fiscal year ended March 31, 2015 decreased due to lower average debt outstanding during the period as compared to the fiscal year ended March 31, 2014. Interest expense and other for the fiscal year ended March 31, 2015, included the redemptionmaintain a valuation allowance against principally all of the 2018 Notes, which included $22.6 million for pre-tax losses associated with the 4.79% redemption premium, and write-off of the remaining related unamortized discount and deferred financing fees. The fiscal year ended March 31, 2014, included the redemption of the 2017 Notes, which included$11.0 million of pre-tax losses associated with the 4% redemption premium, and the write-off of the remaining related unamortized discount and deferred financing fees.The effective income tax rate was 31.7% for the fiscal year ended March 31, 2015, and 33.9% for the fiscal year ended March 31, 2014. The income tax provision for the fiscal year ended March 31, 2015, was reduced to reflect the release of previously reserved for unrecognized tax benefits of $1.1 million, the benefit of $2.8 million from a decrease of the stateour net deferred tax rate and the benefit of $6.0 million from the retroactive reinstatement of the R&D tax credit to January 1, 2014. For the fiscal year ended March 31, 2014, the income tax provision was reduced to reflect the release of previously reserved for unrecognized tax benefits of $0.7 million and additional research and development tax credit carryforward and NOL carryforward of $2.3 million.In January 2014, the Company sold all of its shares of Triumph Aerospace Systems-Wichita, Inc. for total cash proceeds of $23.0 million, which resulted in no gain or loss from the sale.In April 2013, the Company sold the assets and liabilities of Triumph Instruments-Burbank and Triumph Instruments-Ft. Lauderdale for total proceeds of $11.2 million, resulting in a loss of $1.5 million.The Company expects to have significant continuing involvement in the businesses and markets of the disposed entities and therefore the disposal groups did not meet the criteria to be classified as discontinued operations.threetwo reportable segments: the Aerostructures Group, theSystems & Support and Aerospace Systems Group and the Aftermarket Services Group. The Company'sStructures. Our Chief Operating Decision Maker ("CODM") utilizes Adjusted EBITDAEBITDAP as a primary measure of profitability to evaluate the performance of itsour segments and allocate resources.our Aerostructures segment generally includes long-term sole-source or preferred supplier contracts and the success of these programs provides a strong foundation for our business and positions us well for future growth on new programs and new derivatives. This compares to our Aerospace Systems segment& Support, which generally includes proprietary products and/or arrangements where we become the primary source or one of a few primary sources to our customers, where our unique manufacturing capabilities command a higher margin. Also, OEMs are increasingly focusing on assembly activities while outsourcing more manufacturing and repair to third parties, and as a result, are less of a competitive force than in previous years. In contrast,This compares to Aerospace Structures, which generally includes long-term sole-source or preferred supplier contracts and the success of these programs provides a strong foundation for our Aftermarket Services segment provides MRO servicesbusiness and positions us well for future growth on componentsnew programs and accessories manufactured by third parties, with more diverse competition, including airlines, OEMsnew derivatives.other third-party service providers. In addition, variability in the timing and extentcapabilities of customer requests performed in the Aftermarket Services segment can provide for greater volatility and less predictability in revenue and earnings than that experienced in the Aerostructures and Aerospace Systemseach of our reportable segments.The Aerostructures segment consists of the Company's operations that manufacture products primarily for the aerospace OEM market. The Aerostructures segment's revenues are derived from the design, manufacture, assembly and integration of both build-to-print and proprietary metallic and composite aerostructures and structural components, including aircraft wings, fuselage sections, tail assemblies, engine nacelles, flight control surfaces as well as helicopter cabins. Further, the segment's operations also design and manufacture composite assemblies for floor panels and environmental control system ducts. These products are sold to various aerospace OEMs on a global basis.The Aerospace Systems segment consists of the Company's operations that also manufacture products primarily for the aerospace OEM market. The segment's operations design a wide range of proprietary and build-to-print components and engineer mechanical and electromechanical controls, such as hydraulic systems, main engine gearbox assemblies, engine control systems, accumulators, mechanical control cables, non-structural cockpit components and metal processing. These products are sold to various aerospace OEMs on a global basis.The Aftermarket Services segment consists of the Company's operations that provide maintenance, repair and overhaul services to both commercial and military markets on components and accessories manufactured by third parties. Maintenance, repair and overhaul revenues are derived from services on auxiliary power units, airframe and engine accessories, including constant-speed drives, cabin compressors, starters and generators, and pneumatic drive units. In addition, the segment's operations repair and overhaul thrust reversers, nacelle components and flight control surfaces. The segment's operations also perform repair and overhaul services and supply spare parts for various types of gauges for a broad range of commercial airlines on a worldwide basis. Year Ended March 31, 2016 2015 2014 Aerostructures Commercial aerospace 35.6 % 38.5 % 42.4 % Military 10.5 14.0 16.1 Business Jets 15.6 11.0 10.0 Regional 0.4 0.4 0.4 Non-aviation 0.1 0.4 0.5 Total Aerostructures net sales 62.2 % 64.3 % 69.4 % Aerospace Systems Commercial aerospace 14.6 % 13.2 % 8.4 % Military 11.1 10.6 11.4 Business Jets 2.0 1.4 1.0 Regional 0.9 1.0 1.0 Non-aviation 1.3 1.7 1.3 Total Aerospace Systems net sales 29.9 % 27.9 % 23.1 % Aftermarket Services Commercial aerospace 6.0 % 6.3 % 6.3 % Military 1.4 1.0 0.7 Regional 0.5 0.5 0.2 Non-aviation — — 0.3 Total Aftermarket Services net sales 7.9 % 7.8 % 7.5 % Total Consolidated net sales 100.0 % 100.0 % 100.0 % We continue to experience a higherinarising from the commercial aerospace end market. We recently have experienced an increasemarket increased as a result of initial recoveries from the impact of the COVID-19 pandemic as well as the reduction in our sales mix arising from the business jetjets end market due to the acquisitionas a result of the Tulsa Programs and a decrease in our military end market due to the wind-down of the C-17 program.20162022, compared with fiscal year endedMarch 31, 2021fiscaldecreased volume on the 787 as a result of an2015 Year Ended March 31, % of Total Sales 2016 2015 2016 2015 (in thousands) NET SALES Aerostructures $ 2,427,809 $ 2,510,371 (3.3 )% 62.5 % 64.6 % Aerospace Systems 1,166,795 1,089,117 7.1 % 30.0 % 28.0 % Aftermarket Services 311,394 304,013 2.4 % 8.0 % 7.8 % Elimination of inter-segment sales (19,926 ) (14,779 ) 34.8 % (0.5 )% (0.4 )% Total net sales $ 3,886,072 $ 3,888,722 (0.1 )% 100.0 % 100.0 % Year Ended March 31, 2016 2015 2016 2015 (in thousands) SEGMENT OPERATING INCOME Aerostructures $ (1,274,777 ) $ 120,985 (1,153.7 )% (52.5 )% 4.8 % Aerospace Systems 216,520 184,042 17.6 % 18.6 % 16.9 % Aftermarket Services 24,977 47,931 (47.9 )% 8.0 % 15.8 % Corporate (57,826 ) 81,715 (170.8 )% n/a n/a Total segment operating income $ (1,091,106 ) $ 434,673 (351.0 )% (28.1 )% 11.2 % Year Ended March 31, 2016 2015 2016 2015 (in thousands) Adjusted EBITDA Aerostructures $ (364,538 ) $ 184,562 (297.5 )% (15.0 )% 7.4 % Aerospace Systems 216,959 192,228 12.9 % 18.6 % 17.6 % Aftermarket Services 37,886 56,490 (32.9 )% 12.2 % 18.6 % Corporate (57,428 ) (50,710 ) 13.2 % n/a n/a $ (167,121 ) $ 382,570 (143.7 )% (4.3 )% 9.8 % Aerostructures:2022, was 32.0% compared with 26.5% for the year ended March 31, 2021. The Aerostructuresorganic gross margin for the year ended March 31, 2022, increased primarily as a result of the prior period impairment of rotable inventory of approximately $23.7 million, the recognition of grant benefits under the AMJP agreement with the DOT of approximately $14.0 million, approximately $4.0 million recognized as a result of a nonrecurring licensing transaction, and changes in sales mix. The increase in organic operating income and Adjusted EBITDAP are the result of these changes in gross margin, with the exception of the prior year rotable inventory asset impairment, which is excluded from Adjusted EBITDAP.$82.6$316.4 million, or 3.3%,98.0%. This improvement was partially offset by declines from the divestitures and sunsetting programs of $34.7 million. Organic gross margin for the year ended March 31, 2022, was 9.8% compared with 11.2% for the year ended March 31, 2021. The organic gross margin for the year ended March 31, 2022, decreased primarily due to $2.4 billiondecreased profit of approximately $10.8 million resulting from the exit of our Spokane, Washington, operations.2016,2022, we had a net cash outflow of $137.0 million from $2.5 billion for the fiscal year ended March 31, 2015. Organic sales decreased by $326.7 million or 13.5%, due to decreased production rate cuts by our customers on the 747-8, Gulfstream G450/G550, A330 and C-17 programs. The acquisitionoperating activities, compared with a net cash outflow of the Tulsa Programs contributed $244.1 million to net sales.Aerostructures cost of sales increased by $382.5 million, or 17.4%, to $2.6 billion for the fiscal year ended March 31, 2016, from $2.2 billion for the fiscal year ended March 31, 2015. The acquisition of the Tulsa Programs contributed $200.6$173.1 million for the fiscal year ended March 31, 20162021, an improvement of $36.1 million. Cash flows included reduced inventory levels and organic costlower accounts payable and contract liabilities, including approximately $83.2 million in the liquidation of sales increased by $200.6prior period customer advances. Reflecting the change in our portfolio of businesses that is a result of our strategic divestitures, working capital stability has improved in the twelve months ended March 31, 2022, compared with the twelve months ended March 31, 2021. Including $9.1 million or 9.5%in redemption premiums, interest payments were approximately $147.0 million for the twelve months ended March 31, 2022, as compared with approximately $116.5 million for the twelve months ended March 31, 2021. The organic costincrease in interest payments was the specific timing of sales includedinterest payments under the First Lien Notes and the 2022 Notes as compared with the related redemptions disclosed in Note 10.forward losses of $561.2 million on the Bombardier and 747-8 programs (as discussed above). Excluding the aforementioned forward losses, the cumulative catch-up adjustmentsfurther discussion.2016, included2022, increased labor and supplier costs on other programs. The$190.5 million from the fiscal year ended March 31, 2015, included a provision for forward losses of $152.0 million on the 747-8 program and losses as a result of losing NADCAP certification at one of our facilities.Organic gross margin for the fiscal year ended March 31, 2016, was (10.8)% compared with 12.4% for the fiscal year ended March 31, 2015. The organic gross margin included net unfavorable cumulative catch-up adjustments and provisions for forward losses of $561.2 million. The net unfavorable cumulative catch-up adjustments included gross favorable adjustments of $33.0 million and gross unfavorable adjustments of $629.2 million, which includes forward losses of $561.2 million associated with the Bombardier and 747-8 programs. The net unfavorable cumulative catch-up adjustment2021. Cash flows provided by investing activities for the fiscal year ended March 31, 2015, was $156.02022, included cash from the sale of assets and businesses of $224.5 million which included $152.0 million of forward losses related to the 747-8 program.Aerostructures segment operating (loss) income decreased by $1,395.8 million, or 1,153.7%, to $(1,274.8) million for the fiscal year ended March 31, 2016, from $121.0 million for the fiscal year ended March 31, 2015. The decreased operating income is directly related to the provision for forward losses and gross margin changes noted above and the previously mentioned goodwill and tradename impairment charges and included restructuring charges ($62.7 million). Additionally, the provision for forward losses and gross margin changes noted above contributed to the decrease in Adjusted EBITDA year over year.Aerostructures segment operating income as a percentage of segment sales decreased to (52.5)% for the fiscal year ended March 31, 2016, as compared with 4.8% for the fiscal year ended March 31, 2015, due to the decrease in gross margin as discussed above, which also caused the decline in the Adjusted EBITDA margin.Aerospace Systems: The Aerospace Systems segment net sales increased by $77.7 million, or 7.1%, to $1.17 billion for the fiscal year ended March 31, 2016, from $1.09 billion for the fiscal year ended March 31, 2015. The acquisitions of Fairchild and GE contributed $93.5 million of net sales. Organic net sales decreased by $15.8 million, or 1.8%, primarily due to slower commercial rotocraft demand and lower aftermarket revenue.Aerospace Systems cost of sales increased by $53.7 million, or 7.3%, to $792.2 million for the fiscal year ended March 31, 2016, from $738.5 million for the fiscal year ended March 31, 2015. Organic cost of sales decreased by $8.4 million, or 1.5%, while the acquisitions of Fairchild and GE contributed $62.7 million in cost of sales. Organic gross margin for the fiscal year ended March 31, 2016, was 34.2% compared with 34.4% for the fiscal year ended March 31, 2015.Aerospace Systems segment operating income increased by $32.5 million, or 17.6%, to $216.5 million for the fiscal year ended March 31, 2016, from $184.0 million for the fiscal year ended March 31, 2015. Operating income increased primarily due to the acquisitions of Fairchild and GE ($22.5 million) and the net favorable settlement of a contingent liability ($8.5 million), partially offset by restructuring charges ($4.6 million). These same factors contributed to the increase in Adjusted EBITDA year over year.Aerospace Systems segment operating income as a percentage of segment sales increased to 18.6% for the fiscal year ended March 31, 2016, as compared with 16.9% for the fiscal year ended March 31, 2015, due to the effects of the acquisitions of Fairchild and GE. The same factors contributed to the increase in Adjusted EBITDA margin year over year.Aftermarket Services: The Aftermarket Services segment net sales increased by $7.4 million, or 2.4%, to $311.4 million for the fiscal year ended March 31, 2016, from $304.0 million for the fiscal year ended March 31, 2015. Organic sales decreased $10.3 million, or 3.5%, and the acquisition of NAAS contributed $17.7 million. Organic sales decreased due to a decreased demand from commercial customers.Aftermarket Services cost of sales increased by $23.6 million, or 10.7%, to $243.7 million for the fiscal year ended March 31, 2016, from $220.1 million for the fiscal year ended March 31, 2015. The organic cost of sales increased $12.5 million, or 5.9%, and the acquisition of NAAS contributed $11.1 million to cost of sales. Organic gross margin for the fiscal year ended March 31, 2016, was 20.2% compared with 27.3% for the fiscal year ended March 31, 2015. The decrease in gross margin was impacted by the impairment of excess and obsolete inventory associated with certain slow moving programs we have decided to no longer support ($21.1 million).Aftermarket Services segment operating income decreased by $23.0 million, or 47.9%, to $25.0 million for the fiscal year ended March 31, 2016, from $47.9 million for the fiscal year ended March 31, 2015. Operating income decreased primarily due to the decreased organic sales and the decline in gross margins noted above. These same factors contributed to the decrease in Adjusted EBITDA year over year.Aftermarket Services segment operating income as a percentage of segment sales decreased to 8.0% for the fiscal year ended March 31, 2016, as compared with 15.8% for the fiscal year ended March 31, 2015, due to the decreased organic sales and the decline in gross margins noted above. The same factors contributed to the decrease in Adjusted EBITDA margin year over year.Business Segment Performance—Fiscal year ended March 31, 2015 compared to fiscal year ended March 31, 2014 Year Ended March 31, % of Total Sales 2015 2014 2015 2014 (in thousands) NET SALES Aerostructures $ 2,510,371 $ 2,622,917 (4.3 )% 64.6 % 69.7 % Aerospace Systems 1,089,117 871,750 24.9 % 28.0 % 23.2 % Aftermarket Services 304,013 287,343 5.8 % 7.8 % 7.6 % Elimination of inter-segment sales (14,779 ) (18,756 ) (21.2 )% (0.4 )% (0.5 )% Total net sales $ 3,888,722 $ 3,763,254 3.3 % 100.0 % 100.0 % Year Ended March 31, 2015 2014 2015 2014 (in thousands) SEGMENT OPERATING INCOME Aerostructures $ 120,985 $ 248,637 (51.3)% 4.8% 9.5% Aerospace Systems 184,042 149,721 22.9% 16.9% 17.2% Aftermarket Services 47,931 42,265 13.4% 15.8% 14.7% Corporate 81,715 (40,619 ) (301.2)% n/a n/a Total segment operating income $ 434,673 $ 400,004 8.7% 11.2% 10.6% Year Ended March 31, 2015 2014 2015 2014 (in thousands) Adjusted EBITDA Aerostructures $ 184,562 $ 339,944 (45.7 )% 7.4 % 13.0 % Aerospace Systems 192,228 169,752 13.2 % 17.6 % 19.5 % Aftermarket Services 56,490 49,794 13.4 % 18.6 % 17.3 % Corporate (50,710 ) (36,672 ) 38.3 % n/a n/a $ 382,570 $ 522,818 (26.8 )% 9.8 % 13.9 % Aerostructures: The Aerostructures segment net sales decreased by $112.6 million, or 4.3%, to $2.5 billion for the fiscal year ended March 31, 2015, from $2.6 billion for the fiscal year ended March 31, 2014. Organic sales decreased by $181.2 million, or 6.9%, and the acquisitions of the Tulsa Programs and Primus, net of prior year divestiture contributed $68.6 million in net sales. Organic sales decreased due to production rate cuts by our customers on the 747-8, V-22, G450/G550 and C-17 programs.Aerostructures cost of sales increased by $60.9 million, or 2.9%, to $2.2 billion for the fiscal year ended March 31, 2015, from $2.1 billion for the fiscal year ended March 31, 2014. The fiscal 2015 and fiscal 2014 acquisitions, net of prior year divestiture, contributed $79.9 million. Despite the decrease in organic cost of sales, the organic cost of sales included a provision for forward losses of $152.0 million on the 747-8 program and losses as a result of losing NADCAP certification at onethe completion of the divestiture of our facilities, as discussed above. Excludingcomposites and large structure manufacturing operations, the aforementioned forward losses, the organic cost ofasset sales decreased due to the decrease in net sales noted above. The cost of sales for the fiscal year ended March 31, 2014, included reductions in profitability estimates on the 747-8 programs, driven largely by the identification of additional program costs ($85.0 million) identified during the year and additional program costs resulting from disruption and accelerated depreciation associated with the relocation fromexit of our Jefferson Street facilities ($38.4 million).Organic gross margin forSpokane, Washington, manufacturing operations, and the fiscal year ended March 31, 2015, was 13.7% compared with 18.9% for the fiscal year ended March 31, 2014. The organic gross margin included net unfavorable cumulative catch-up adjustments and a provision for forward lossessale of $152.0 million. The net unfavorable cumulative catch-up adjustments included gross favorable adjustmentscertain legacy product lines of $4.7 million and gross unfavorable adjustments of $160.7 million, which includes forward losses of $152.0 million associated with the 747-8 program. The cumulative catch-up adjustments for the fiscal year ended March 31, 2015, excluding the effectsour Staverton, United Kingdom, operations as described in Note 3. As part of the forward losses, were due primarilyactivities necessary to labor cost growths, partially offset by other minor improvements. Thebring the composites and large structure manufacturing operations divestiture to completion, we used approximately $21.6 million net unfavorable cumulative catch-up adjustment forof transaction related costs to acquire the fiscal year ended March 31, 2014,manufacturing facility in our Rayong, Thailand, operations. This facility was $53.2 million, which included $29.8 million related to additional 747-8 program costs from reductions to profitability estimates onin the 747-8 production lots that were completed duringassets transferred in the fiscal year ended March 31, 2014, and $15.6 million of disruption and accelerated depreciation costs related to our exit from the Jefferson Street facilities which reduced profitability estimates on production lots completed during fiscal year ended March 31, 2014. Excluding these charges, the comparable gross margin would have been 21.0% and 23.8%, respectively.Aerostructures segment operating income decreased by $127.7 million, or 51.3%, to $121.0divestiture. We also used approximately $19.7 million for the fiscal year ended March 31, 2015, from $248.6capital expenditures and approximately $2.1 million for the fiscal year ended March 31, 2014. Operating income was directly affected by the decrease in organic sales, the decreased organic gross margins noted above, offset by decreased moving costs related tothe relocation from our Jefferson Street facilities ($28.1 million). Additionally, these same factors contributed to the decrease in Adjusted EBITDA year over year.Aerostructures segment operating income as a percentage of segment sales decreased to 4.8% for the fiscal year ended March 31, 2015, as compared with 9.5% for the fiscal year ended March 31, 2014, due to the decrease in sales and gross margin as discussed above, which also caused the decline in the Adjusted EBITDA margin.Aerospace Systems: The Aerospace Systems segment net sales increased by $217.4 million, or 24.9%, to $1.09 billion for the fiscal year ended March 31, 2015, from $871.8 million for the fiscal year ended March 31, 2014. The GE and General Donlee acquisitions contributed $225.4 million of net sales. Organic net sales decreased by $8.0 million, or 0.9%, primarily due to decreased production associated with the V-22 program.Aerospace Systems cost of sales increased by $166.7 million, or 29.2%, to $738.5 million for the fiscal year ended March 31, 2015, from $571.8 million for the fiscal year ended March 31, 2014. Organic cost of sales decreased by $9.7 million, or 1.8%, while the acquisitions of GE and General Donlee contributed $176.5 million in cost of sales. Organic gross margin for the fiscal year ended March 31, 2015, was 35.3% compared with 34.7% for the fiscal year ended March 31, 2014 due to changes in sales mix.Aerospace Systems segment operating income increased by $34.3 million, or 22.9%, to $184.0 million for the fiscal year ended March 31, 2015, from $149.7 million for the fiscal year ended March 31, 2014. Operating income increased primarily due to the acquisitions of GE and General Donlee and by decreased legal fees ($7.1 million). These same factors contributed to the increase in Adjusted EBITDA year over year.Aerospace Systems segment operating income as a percentage of segment sales decreased to 16.9% for the fiscal year ended March 31, 2015, as compared with 17.2% for the fiscal year ended March 31, 2014, due to the effectspart of the acquisitionsformation of GEa joint venture to which future cash and General Donlee. The same factors contributednon-cash contributions are expected to the decrease in Adjusted EBITDA margin year over year.Aftermarket Services: The Aftermarket Services segment net sales increased by $16.7 million, or 5.8%, to $304.0 million for the fiscal year ended March 31, 2015, from $287.3 million for the fiscal year ended March 31, 2014. Organic sales increased by $4.6 million, or 1.6%, and the acquisition of NAAS offset by the previously divested Triumph Instruments companies contributed $12.1 million.Aftermarket Services cost of sales increased by $6.2 million, or 2.9%, to $220.1 million for the fiscal year ended March 31, 2015, from $213.9 million for the fiscal year ended March 31, 2014. The organic cost of sales decreased by $1.7 million, or 0.8%, and the acquisition of NAAS net of the previously divested Triumph Instruments companies contributed $7.9 million to cost of sales. Organic gross margin for the fiscal year ended March 31, 2015, was 27.3% compared with 25.6% for the fiscal year ended March 31, 2014. The increase in gross margin was impacted by the increase in efficiencies in production associated with the higher volume of work.Aftermarket Services segment operating income increased by $5.7 million, or 13.4%, to $47.9 million for the fiscal year ended March 31, 2015, from $42.3 million for the fiscal year ended March 31, 2014. Operating income increased primarily due to the increased sales and gross margin noted above and the acquisition of NAAS net of the previously divested Triumph Instruments companies ($1.6 million). These same factors contributed to the increase in Adjusted EBITDA year over year.Aftermarket Services segment operating income as a percentage of segment sales increased to 15.8% for the fiscal year ended March 31, 2015, as compared with 14.7% for the fiscal year ended March 31, 2014, due to the improved gross margin noted above.Liquidity and Capital ResourcesOur working capital needs are generally funded through cash flow from operations and borrowings under our credit arrangements. During the year ended March 31, 2016, we generated approximately $83.9 million of cash flow from operating activities, used approximately $128.0 million in investing activities and received approximately $32.5 million in financing activities. In fiscal 2015, cash flows from operating activities included pension contributions of $112.3 million.For the fiscal year ended March 31, 2016, we had a net cash inflow of $83.9 million from operating activities, a decrease of $383.5 million, compared to a net cash inflow of $467.3 million for the fiscal year ended March 31, 2015. During fiscal 2016, the net cash provided by operating activities was primarily attributable to the timing of payments on accounts payable and other accrued expenses ($251.5 million) driven by pre-production costs and net spending on the Tulsa Programs discussed below, offset by increased receipts from customers and others related to increased collection efforts ($40.9 million). During fiscal 2015, the net increase in cash provided by operating activities was primarily due to the cash received from a legal settlement ($134.7 million), and an income tax refund ($26.0 million).We continue to invest in inventory for new programs which impacts our cash flows operating activities. During fiscal 2016 expenditures for inventory costs on new programs, excluding progress payments, including the Bombardier Global 7000/8000 and the Embraer E-Jet programs, were $146.1 million and $83.8 million, respectively. Net spend on the Tulsa Programs during fiscal 2016 was approximately $57.3 million. Additionally, inventory for mature programs declined due to decreased production rates, by approximately $67.8 million. Unliquidated progress payments netted against inventory decreased $66.8 million due to timing of receipts.2016, decreased $60.1 million2021, included cash from the fiscal year ended March 31, 2015. Cash flows used in investing activities for the fiscal year ended March 31, 2016, included the acquisitionsale of Fairchild ($57.1 million),assets and a payment to settle a working capital adjustment related to the acquisitionbusinesses of GE ($6.0 million) andapproximately $15.9 million offset by capital expenditures ($80.0 million).of $25.2 million. We currently expect capital expenditures in fiscal 2023 to be in the range of $32.0 million, of which approximately $26.0 million pertains to our core Systems & Support operating segment. The majority of our fiscal 2023 capital expenditures are capital investments designed to improve our manufacturing efficiency and expand our capabilities.flows used in investing activities for the fiscal year ended March 31, 2015 included the cash received from the acquisition of the Tulsa Programs ($160.0 million) offset by the acquisitions of GE ($65.0 million) and NAAS ($43.7 million) and the working capital finalization of the acquisition of Primus ($13.0 million).Cash flows provided by financing activities for the fiscal year ended March 31, 2016, were $32.5 million, compared to cash flows used in financing activities for the fiscal year ended March 31, 2015, of $395.2 million. Cash flows provided by financing activities for the fiscal year ended March 31, 2016, included additional borrowings on our Credit Facility (as defined below) to fund the acquisition of Fairchild and to fund operations. Flows2015, included the redemption of the 2018 Notes, settlement of the Convertible Senior Subordinated Notes ("Convertible Notes") redemptions and the purchase of our common stock ($184.4 million), offset by the issuance of the 2022, Notes.As of March 31, 2016, $834.3 million was available under the Company's existing credit agreement ("Credit Facility"). On March 31, 2016, an aggregate amount of approximately $140.0 million in outstanding borrowing and approximately $25.7 million in letters of credit were outstanding under the Credit Facility, all of which were accruing interest at LIBOR plus applicable basis points totaling 2.00% per annum. Amounts repaid under the Credit Facility may be reborrowed.On March 28, 2016, we entered into a Purchase Agreement ("Receivables Purchase Agreement") to sell certain accounts receivables to a financial institution without recourse. We are the servicer of the accounts receivable under the Receivables Purchase Agreement. As of March 31, 2016, the maximum amount available under the Receivables Purchase Agreement was $90.0 million. Interest rates are based on LIBOR plus 0.65% -0.70%. As of March 31, 2016, we sold $89.9 million worth of eligible accounts receivable.In November 2014, the Company amended its receivable securitization facility (the “Securitization Facility”), increasing the purchase limit from $175.0 million to $225.0 million and extending the term through November 2017.In May 2014, the Company amended its existing Credit Facility with its lenders to (i) to increase the maximum amount allowed for the Securitization Facility and (ii) amend certain other terms and covenants.In November 2013, the Company amended the Credit Facility with its lenders to (i) provide for a $375.0 million Term Loan with a maturity date of May 14, 2019, (ii) maintain a Revolving Line of Credit under the Credit Facility to $1,000.0 million and increase the accordion feature to $250.0 million, and (iii) amend certain other terms and covenants. The amendment resulted in a more favorable pricing grid and a more streamlined package of covenants and restrictions.The level of unused borrowing capacity under the Company's Revolving Credit Facility varies from time to time depending in part upon its compliance with financial and other covenants set forth in the related agreement. The Credit Facility contains certain affirmative and negative covenants, including limitations on specified levels of indebtedness to earnings before interest, taxes, depreciation and amortization, and interest coverage requirements, and includes limitations on, among other things, liens, mergers, consolidations, sales of assets, payment of dividends and incurrence of debt. As of March 31, 2016, the Company was in compliance with all such covenants.In June 2014, the Company issued the 2022 Notes for $300.0 million in principal amount. The 2022 Notes were sold at 100% of principal amount and have an effective yield of 5.25%. Interest on the 2022 Notes is payable semiannually in cash in arrears on June 1 and December 1 of each year. We used the net proceeds to redeem the 2018 Notes and pay related fees and expenses. In connection with the issuance of the 2022 Notes, the Company incurred approximately $5.0 million of costs, which were deferred and are being amortized on the effective interest method over the term of the notes.In February 2013, the Company issued the 2021 Notes for $375.0 million in principal amount. The 2021 Notes were sold at 100% of principal amount and have an effective interest yield of 4.875%. Interest on the 2021 Notes is payable semiannually in cash in arrears on April 1 and October 1 of each year. We used the net proceeds to repay borrowings under ourCredit Facility and pay related fees and expenses, and for general corporate purposes. In connection with the issuance of the 2021 Notes, the Company incurred approximately $6.3 million of costs, which were deferred and are being amortized on the effective interest method over the term of the notes.For further information on the Company's long-term debt, see Note 10 of "Notes to Consolidated Financial Statements".For the fiscal year ended March 31, 2015, we had a net cash inflow of $467.3 million from operating activities, an inflow increase of $332.2$392.7 million, compared to a net cash inflow of $135.1 million for the fiscal year ended March 31, 2014. During fiscal 2015, the increase in net cash provided by operating activities was primarily due to the cash received from legal settlement ($134.7 million), increased receipts from customers and others relating to additional sales from fiscal 2015 and fiscal 2014 acquisitions ($110.4 million), an income tax refund ($26.0 million), and decreased disbursements to employees, suppliers and others ($114.9 million) due to timing, offset by increased pension contributions ($66.0 million).We invested in inventory for new programs and additional production costs for ramp-up activities in support of increasing build rates on several programs and build ahead for the relocation from our largest facilities. During fiscal 2015, inventory build for capitalized pre-production costs on new programs, including the Bombardier Global 7000/8000 and the Embraer E-Jet programs, were $127.0 million and $48.7 million, respectively. Offsetting this inventory build was a provision for forward losses on our long-term contract on the 747-8 program of $152.0 million. Unliquidated progress payments netted against inventory increased $24.9 million due to timing of receipts. Capitalized pre-production costs are expected to continue to increase, while our production is expected to remain consistent over the next few quarters.Cash flows used in investing activities for the fiscal year ended March 31, 2015, decreased by $178.8 million from the fiscal year ended March 31, 2014. Cash flows used in investing activities included the cash received from the acquisition of Tulsa Programs ($160.0 million) offset by the acquisitions of GE ($65.0 million) and NAAS ($43.7 million) and the working capital finalization of the acquisition of Primus ($13.0 million). The fiscal year ended March 31, 2014, included the fiscal 2014 acquisitions of $94.5 million and capital expenditures of $86.6 million associated with our new facilities in Red Oak, Texas.Cash flows used in financing activities for the fiscal year ended March 31, 2015, were $395.2 million, compared to cash flows provided by financing activities for the fiscal year ended March 31, 2014,2021, of $103.2$277.2 million. Cash flows used in financing activities forIn the fiscal year ended March 31, 2015, included2022, the redemptionfollowing significant financing cash flow events occurred:2018outstanding principal balance under the 5.25% Senior Notes settlement of the Convertible Senior Subordinated Notes ("Convertibledue June 1, 2022 (the "2022 Notes") redemptions and the purchase of our common stock ($184.4 million), offset by the issuance of the 2022 Notes..At March 31, 2016, $19.2 million of cash and cash equivalents were held by foreign subsidiaries and were primarily denominated•foreign currencies. If these amounts would be remitted as dividends, the Company may be subject to additional U.S. taxes, net of allowable foreign tax credits. We currently expect to utilize the balances to fund our foreign operations.Subsequent to year end, to ensure that we had full access to our Revolving Credit Facility (the "Credit Facility") during fiscal 2017, we obtained approval from the holders of the 2021 Notes to amendNote 10, under the terms of the First Lien Notes indenture, we were required to conform withuse approximately $145.9 million to redeem approximately $136.8 million of the outstanding principal balance and pay a redemption premium of approximately $9.1 million.Noteswe had $240.9 million of cash on hand and approximately $76.7 million was available under our receivable securitization facility (the “Securitization Facility”) (subject to any additional constraints arising from the balance of eligible receivables at that time) after giving effect to approximately $23.3 million in outstanding letters of credit, all of which allows forwere accruing interest at 1.25% per annum.higher levelmultiemployer pension plan withdrawal obligation that, if incurred, would likely be satisfied through annual payments over a period of secured debt. Absent this consent,at least ten years.would have been restricted ascurrently expect fiscal 2023 operations to result in net cash outflows due to the levelcontinued impact of new borrowings under the Credit Facility during fiscal 2017.Further, to mitigateCOVID-19 pandemic on sales volume, the riskimpact of failing to obtain the consent787 rate reductions described above, and to ensure we had adequate liquidity through fiscal 2017, we chose to make a significant drawcash use on the Credit Facility in early April 2016, taking the outstanding balance to approximately $800,000. We paid down substantially allfinal steps of our exit of the draw to747-8 program, we believe, based on an assessment of our current cash holdings as presented on the Credit Facility upon receiving consent from the holdersaccompanying consolidated balance sheet as of the 2021 Notes in May 2016.In May 2016, the Company entered into a Sixth Amendment to the Third Amended and Restated Credit Agreement, among the Company, the Subsidiary Co-Borrowers, the lenders party thereto and the Administrative Agent (the “Sixth Amendment” and the Credit Facility, as amended by the Sixth Amendment, the “Credit Agreement”), pursuant to which those lenders electing to enter into the Sixth Amendment extended the expiration date for the revolving line of credit and the maturity date for the term loan by five years to May 3, 2021. Lenders holding revolving credit commitments aggregating $940.0 million elected to extend the expiration date for the revolving line of credit, and Lenders holding approximately $324.5 million of term loans (out of an aggregate outstanding term loan balance of approximately $330.0 million) elected to extend the term loan maturity date.In addition, the Sixth Amendment amended the Credit Facility to, among other things, (i) modify certain financial covenants to allow for the add-back of certain cash and non-cash charges, (ii) amend the total leverage ratio financial covenant to provide for a gradual reduction in the maximum permitted total leverage ratio commencing with the fiscal year ending March 31, 2018, (iii) increase the interest rate, commitment fee and letter of credit fee pricing provisions for the highest pricing tier, (iv) establish the interest rate, commitment fee and letter of credit fee pricing at the highest pricing tier until the Companydelivers its compliance certificate for its fiscal year ending March 31, 2017, (v) increase the minimum revolver availability threshold test in connection with the Company making certain permitted investments, certain additional permitted dividends, permitted acquisitions and permitted payments of certain types of indebtedness, and (vi) decrease the maximum senior secured leverage ratio threshold test in connection with the Company making certain permitted investments, certain permitted dividends, permitted acquisitions and permitted payments of certain types of indebtedness during the period from the date of the Sixth Amendment until the Company delivers its compliance certificate for the fiscal year ending March 31, 2017.Capital expenditures were $80.0 million for the fiscal year ended March 31, 2016. We funded these expenditures through2022, as well as current market conditions, that cash flows from operations and borrowings under our receivable securitization facility (the “Securitization Facility”) will be sufficient to meet anticipated cash requirements for our current operations for at least the Creditnext 12 months. We also believe, based on our current cash, our fiscal 2023 operating cash flow expectations, the expected recovery of cash flows from operations subsequent to fiscal 2023, and, upon the closing of the Stuart, Florida, manufacturing operations transactions, the completion of our multiyear reshaping of our program and business portfolio through strategic divestiture, that we have the ability to generate and obtain adequate amounts of cash to meet anticipated cash requirements for the foreseeable future, including cash requirements to liquidate approximately $103.8 million in customer advances in fiscal 2023. We are evaluating additional funding options from the U.S. government via the U.S. Treasury and various Federal Reserve programs. We are also considering various opportunities to access credit and capital markets. There can be no assurance that such funding sources will be available to us on terms favorable to us, if at all. We may also seek transactions to extend the maturity of our indebtedness, reduce leverage, or decrease interest expense. Such transactions could include one or more repurchases or exchanges of our outstanding indebtedness. These transactions couldcapital expenditures of approximately $80.0to remain in compliance for the foreseeable future.netavailability, and extending the term through November 2024. For further information on our long-term debt, see Note 10.new major programsany Guarantor Subsidiaries or Non-Guarantor Subsidiaries. The summarized financial information is provided in accordance with the reporting requirements of $50.0 million to $60.0 million of which will be reflected in inventoryRule 13-01 under SEC Regulation S-X for our fiscal year ending March 31, 2017. The expenditures are expected to be used mainly to expand capacity or replace old equipment at several facilities.
1 Year
5 Years Payments Due by Period Contractual Obligations Total 1 - 3 Years 4 - 5 Years (in thousands) Debt principal $ 1,426,116 $ 42,383 $ 430,042 $ 273,409 $ 680,282 Debt-interest(1) 233,121 46,071 91,767 77,167 18,116 Operating leases 168,305 27,904 46,218 33,643 60,540 Purchase obligations 1,965,090 1,457,022 471,967 35,215 886 Total $ 3,792,632 $ 1,573,380 $ 1,039,994 $ 419,434 $ 759,824 (1)Includes fixed-rate interest only.$9.7$12.0 million as of MarchMarch 31, 2016,2022, since we cannot predict with reasonable certainty the timing of cash settlements with the respective taxing authorities.2016,2022, as detailed in the following table. Our other postretirement benefits are not required to be funded in advance, so benefit payments are paid as they are incurred. Our expected net contributions and payments are included in the table below: (in thousands) Projected benefit obligation at March 31, 2016 $ 2,430,315 $ 179,901 Plan assets at March 31, 2016 1,925,685 — Projected contributions by fiscal year 2017 40,000 16,547 2018 40,000 15,973 2019 — 15,550 2020 — 14,953 2021 — 14,432 Total 2017 - 2021 $ 80,000 $ 77,455
BenefitsWe believe that cash generated by operations and borrowings under the Credit Facility will be sufficient to meet anticipated cash requirements for our current operations for the foreseeable future.Loans under the Credit Facility bear interest, at the Company's option, by reference to a base rate or a rate based on LIBOR, in either case plus an applicable margin determined quarterly based on the Company's Total Leverage Ratio (as defined in the Credit Facility) as of the last day of each fiscal quarter. The Company is also required to pay a quarterly commitment fee on the average daily unused portion of the Credit Facility for each fiscal quarter and fees in connection with the issuance of letters of credit. All outstanding principal and interest under the Credit Facility will be due and payable on the maturity date.The Credit Facility contains representations, warranties, events of default and covenants customary for financings of this type including, without limitation, financial covenants under which the Company is obligated to maintain on a consolidated basis, as of the end of each fiscal quarter, a certain minimum Interest Coverage Ratio, maximum Total Leverage Ratio and maximum Senior Leverage Ratio (in each case as defined in the Credit Facility).seerefer to Note 2 to the accompanying consolidated financial statements."Notesa performance obligation. These assumptions are most significant within the Aerospace Structures business segment because the size and long-term nature of our contracts with customers. Specifically, assumptions regarding the total costs require significant judgment with regard to materials, labor, and overhead costs that are affected by our ability to achieve technical requirements and schedule requirements, as well as our estimation of internal and subcontractor performance projections, anticipated volume, asset utilization, labor agreements, and inflation trends. We continually review and update our assumptions based on market trends and program performance. When we satisfy a performance obligation and recognize revenue over time, material changes in assumptions may result in positive or negative cumulative catch-up adjustments related to revenues previously recognized or, in some cases, forward loss contract reserves.
12 Months
Months
Months
Months
Months
of $7,940 and $8,095
and 64,488,674 shares issued; 64,614,382 and 64,185,001
shares outstanding
of taxes
Shares
Stock
All Classes
Excess of
Par Value
Stock
Other
Comprehensive
Loss
Earnings
(Accumulated
Deficit)
adjustment
income taxes of ($656)
hedges, net of income taxes of $228
minimum tax obligation
pension plan
adjustment
income taxes of $0
hedges, net of income taxes of $0
minimum tax obligation
pension plan, net of issuance costs
market offering, net of issuance
costs
adjustment
income taxes of $0
hedges, net of income taxes of $0
minimum tax obligation
operating activities:
acquisitions and divestitures:
minimum tax obligationStatements."StatementsAllowance for Doubtful Accountspresentedrecorded net of an allowance for doubtful accounts. In determiningexpected credit losses. Trade and other receivables include amounts billed and currently due from customers and amounts retained by the appropriatecustomer pending contract completion. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company pools receivables that share underlying risk characteristics and records the allowance we considerfor expected credit losses based on a combination of factors, such as industry trends, our customers' financial strengthprior experience, current economic conditions and management’s expectations of future economic conditions, and specific collectibility matters when they arise. The Company writes off balances against the allowance for expected credit standing,losses when collectibility is deemed remote. The Company's trade and payment and default history. The calculationother receivables are exposed to credit risk; however, the risk is limited due to the diversity of the required allowance requires a judgment as tocustomer base. For the impact of theseyears ended March 31, 2022 and 2021, credit loss expense and write-offs were immaterial.factors onreceivables, net composed of the ultimate realization of our trade receivables. We believe that these estimates are reasonablefollowing:historically have not resulted in material adjustments in subsequent periods when the estimates are adjusted to actual amounts.Inventoriesrecords inventories at the lower of cost or estimated net realizable value. Costs on long-term contractsaccounts for goodwill and programs in progress represent recoverable costs incurred for production or contract-specific facilities and equipment, allocable operating overhead and advances to suppliers. Pursuant to contract provisions, agencies of the U.S. Government and certain other customers have title to, or a security interest in, inventories related to such contracts as a result of advances, performance-based payments, and progress payments. The Company reflects those advances and payments as an offset against the relatedinventory balances. The Company expenses general and administrative costs related to products and services provided essentially under commercial terms and conditions as incurred. The Company determines the costs of inventories by the first-in, first-out or average cost methods.Advance payments and progress payments received on contracts-in-process are first offset against related contract costs that are included in inventory, with any remaining amount reflected in current liabilities.Work-in-process inventory includes capitalized pre-production costs. Company policy allows for the capitalization of pre-production costs after it establishes a contractual arrangement with a customer that explicitly states that the cost of recovery of pre-production costs is allowed.Capitalized pre-production costs include nonrecurring engineering, planning and design, including applicable overhead, incurred before production is manufactured on a regular basis. Significant customer-directed work changes can also cause pre-production costs to be incurred (see Note 5 of "Notes to Consolidated Financial Statements" for further discussion).Revenue and Profit RecognitionRevenues are recognized in accordance with the contract terms when products are shipped, delivery has occurred or services have been rendered, pricing is fixed or determinable, and collection is reasonably assured.A significant portion of our contracts are within the scope of Accounting Standards Codification ("ASC") 605-35, Revenue Recognition —Construction-Type and Production-Type Contracts, and revenue and costs on contracts are recognized using the percentage-of-completion method of accounting. Accounting for the revenue and profit on a contract requires estimates of (1) the contract value or total contract revenue, (2) the total costs at completion, which is equal to the sum of the actual incurred costs to date on the contract and the estimated costs to complete the contract's scope of work and (3) the measurement of progress towards completion. Depending on the contract, we measure progress toward completion using either the cost-to-cost method or the units-of-delivery method, with the great majority measured under the units-of-delivery method.Under the cost-to-cost method, progress toward completion is measured as the ratio of total costs incurred to our estimate of total costs at completion. We recognize costs as incurred. Profit is determined based on our estimated profit margin on the contract multiplied by our progress toward completion. Revenue represents the sum of our costs and profit on the contract for the period.Under the units-of-delivery method, revenue on a contract is recorded as the units are delivered and accepted during the period at an amount equal to the contractual selling price of those units. The costs recorded on a contract under the units-of-delivery method are equal to the total costs at completion divided by the total units to be delivered. As our contracts can span multiple years, we often segment the contracts into production lots for the purposes of accumulating and allocating cost. Profit is recognized as the difference between revenue for the units delivered and the estimated costs for the units delivered.Adjustments to original estimates for a contract's revenues, estimated costs at completion and estimated total profit are often required as work progresses under a contract, as experience is gained and as more information is obtained, even though the scope of work required under the contract may not change, or if contract modifications occur. These estimates are also sensitive to the assumed rate of production. Generally, the longer it takes to complete the contract quantity, the more relative overhead that contract will absorb. The impact of revisions in cost estimates is recognized on a cumulative catch-up basis in the period in which the revisions are made. Provisions for anticipated losses on contracts are recorded in the period in which they become evident ("forward losses") and are first offset against costs that are included in inventory, with any remaining amount reflected in accrued contract liabilitiesintangible assets in accordance with ASC 605-35. Revisions in contract estimates, if significant, can materially affect our results of operations and cash flows, as well as our valuation of inventory. Furthermore, certain contracts are combined or segmented for revenue recognition in accordance with ASC 605-35.For the fiscal year ended March 31, 2016, cumulative catch-up adjustments resulting from changes in contract values and estimated costs that arose during the fiscal year decreased operating (loss) income, net (loss) income and earnings per share by approximately $(596.2) million, $(539.0) million and $(10.95), respectively. The cumulative catch-up adjustments to operating income for the fiscal year ended March 31, 2016, included gross favorable adjustments of approximately $33.0 million and gross unfavorable adjustments of approximately $629.2 million, which includes provisions of $561.2 million for forward losses on the Bombardier and 747-8 programs.For the fiscal year ended March 31, 2015, cumulative catch-up adjustments resulting from changes in estimates decreased operating income, net income and earnings per share by approximately $(156.0) million, $(106.6) million and $(2.09), respectively. The cumulative catch-up adjustments to operating income for the fiscal year ended March 31, 2015, includedgross favorable adjustments of approximately $4.7 million and gross unfavorable adjustments of approximately $160.7 million, which includes a provision of $152.0 million for forward losses on the 747-8 program.For the fiscal year ended March 31, 2014, cumulative catch-up adjustments resulting from changes in estimates decreased operating income, net income and earnings per share by approximately $(53.2) million, $(35.1) million and $(0.67), respectively. The cumulative catch-up adjustments to operating income for the fiscal year ended March 31, 2014, included gross favorable adjustments of approximately $14.3 million and gross unfavorable adjustments of approximately $67.5 million.Amounts representing contract change orders or claims are only included in revenue when such change orders or claims have been settled with our customer and to the extent that units have been delivered. Additionally, some contracts may contain provisions for revenue sharing, price re-determination, requests for equitable adjustments, change orders or cost and/or performance incentives. Such amounts or incentives are included in contract value when the amounts can be reliably estimated and their realization is reasonably assured.Although fixed-price contracts, which extend several years into the future, generally permit us to keep unexpected profits if costs are less than projected, we also bear the risk that increased or unexpected costs may reduce our profit or cause the Company to sustain losses on the contract. In a fixed-price contract, we must fully absorb cost overruns, notwithstanding the difficulty of estimating all of the costs we will incur in performing these contracts and in projecting the ultimate level of revenue that may otherwise be achieved.As previously disclosed, we recognized a provision for forward losses associated with our long-term contract on the 747-8 and Bombardier programs. There is still risk similar to what we have experienced on the 747-8 and Bombardier programs. Particularly, our ability to manage risks related to supplier performance, execution of cost reduction strategies, hiring and retaining skilled production and management personnel, quality and manufacturing execution, program schedule delays and many other risks, will determine the ultimate performance of these long-term programs.The Aftermarket Services Group provides repair and overhaul services, certain of which are provided under long-term power-by-the-hour contracts, comprising approximately 6% of the segment's fiscal 2016 net sales. The Company applies the proportional performance method to recognize revenue under these contracts. Revenue is recognized over the contract period as units are delivered based on the relative value in proportion to the total estimated contract consideration. In estimating the total contract consideration, management evaluates the projected utilization of its customer's fleet over the term of the contract, in connection with the related estimated repair and overhaul servicing requirements to the fleet based on such utilization. Changes in utilization of the fleet by customers, among other factors, may have an impact on these estimates and require adjustments to estimates of revenue to be realized.Intangible AssetsGoodwillOther. Under ASC 350, goodwill and intangible assets with indefinite lives are not amortized; rather, they are tested for impairment on at least an annual basis. Additionally, intangibleIntangible assets with finite lives continue to beare amortized over their useful lives. Upon acquisition, critical estimates are made in valuing acquired intangible assets, which include, but are not limited to: future expected cash flows from customer contracts, customer lists, and estimating cash flows from projects when completed; tradename and market position, as well as assumptions about the period of time that customer relationships will continue; and discount rates. Management's estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from the assumptions used in determining fair values.The Company's operating segments of Aerostructures, Aerospace Systems and Aftermarket Services are also its reporting units under ASC 350, Intangibles—Goodwill and Other. The Chief Executive Officer is the Company's CODM. The Company's CODM evaluates performance and allocates resources based upon review of segment information. Each of the operating segments is comprised of a number of operating units which are considered to be components under ASC 350. The components, for which discrete financial information exists, are aggregated for purposes of goodwill impairment testing. The Company's acquisition strategy is to acquire companies that complement and enhance the capabilities of the operating segments of the Company. Each acquisition is assigned to either the Aerostructures reporting unit, the Aerospace Systems reporting unit or the Aftermarket Services reporting unit. The goodwill that results from each acquisition is also assigned to the reporting unit to which the acquisition is allocated, because it is that reporting unit which is intended to benefit from the synergies of the acquisition.not more likely than not that the fair value of a reporting unit is less than its carrying amount or ifusing a two-step approachas required by ASC 350 to determine whether a goodwill impairment exists at the reporting unit. first step of the quantitative test is used to compare the carrying amount of the reporting unit's assets to the fair value of the reporting unit. If the fair value exceeds the carrying value, no further workevaluation is required, and no impairment loss is recognized. If the carrying amount exceeds the fair value, then an impairment loss occurs. The impairment is measured by using the second step is required to be completed,amount by which involves allocatingthe carrying value exceeds the fair value of the reporting unitnot to each asset and liability, with the excess being applied to goodwill. An impairment loss occurs ifexceed the amount of the recorded goodwill exceeds the implied goodwill. The determination of the fair value of ourits reporting units is based, among other things, on estimates of future operating performance of the reporting unit being valued. We areThe Company is required to complete an impairment test for goodwill and record any resulting impairment losses at least annually. Changes in market conditions, among other factors, may have an impact on these estimates and require interim impairment assessments. two-step quantitative impairment test, the Company's methodology includes the use of an income approach which discounts future net cash flows to their present value at a rate that reflects the Company's cost of capital, otherwise known as the discounted cash flow method ("DCF"). These estimated fair values are based on estimates of future cash flows of the businesses. Factors affecting these future cash flows include the continued market acceptance of the products and services offered by the businesses, the development of new products and services by the businesses and the underlying cost of development, the future cost structure of the businesses and future technological changes. The Company also incorporates market multiples for comparable companies in determining the fair value of ourits reporting units. Any such impairment would be recognized in full in the reporting period in which it has been identified.In The fair value estimates resulting from the fourth quarterapplication of fiscal 2016, the Company performed the quantitative assessment, in lieuthese methodologies are based on inputs classified within Level 3 of the qualitative assessment for each of the Company's three reporting units, which indicated that the fair value of goodwill for the Aerostructures reporting unit did not exceed its carrying amount. As a result we incurred an $597.6 million impairment of goodwill to the Aerostructures reporting unit. The assessment for the Company's Aerospace Systems and Aftermarket Services reporting units indicated that the fair value of their respective goodwill exceeded the carrying amount. We incurred no impairment of goodwillhierarchy, as a result of our annual goodwill impairment tests in fiscal 2015 or 2014 (see Note 7 of "Notes to Consolidated Financial Statements" for further discussion).As of March 31, 2015, the Company had a $438.4 million indefinite-lived intangible asset associated with the Vought and Embee tradenames. The Company assesses whether indefinite-lived intangible assets impairment exists using both the qualitative and quantitative assessments. The qualitative assessment involves determining whether events or circumstances exist that indicate it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount. If based on this qualitative assessment the Company determines it is not more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount or if the Company elects not to perform a qualitative assessment, a quantitative assessment is performed to determine whether an indefinite-lived intangible asset impairment exists. We test the indefinite-lived intangible assets for impairment by comparing the carrying value to the fair value based on current revenue projections of the related operations, under the relief from royalty method. Any excess carry value over the amount of fair value is recognized as an impairment.thirdfourth quarter of the fiscal year ended March 31, 2016,2022, the Company performed its annual goodwill impairment assessment for each of its reporting units with no impairment identified.on our indefinite-lived intangible assets due to potential indicators of impairment related to the continued decline in our stock price during the fiscal third quarter. Based on the Company's evaluation of indefinite-lived assets, including the tradenames, theeach reporting unit. The Company concluded that the Vought tradenameits Product Support reporting unit had a fair value of $195.8 million (Level 3) compared to athat was lower than its carrying value of $425.0 million. Accordingly,by an amount that exceeded the remaining goodwill for the reporting unit. Therefore, the Company recorded a non-cashnoncash impairment charge during the fiscal quarter ended March 31, 2020, of $66,121, which is presented on the consolidated statements of operations as “Impairment of goodwill” for the fiscal year ended March 31, 2016, of $229.2 million, which is presented on the accompanying Consolidated Statements of Operations as "Impairment of intangible assets".In the fourth quarter of fiscal 2016, the Company performed its annual impairment test for each of the Company's indefinite-lived intangible assets, which indicated that the Vought and Embee tradenames had a fair value of $163.0 million (Level 3) compared to a carrying value of $209.2 million.2020. The decline in fair value of the tradenames iswas the result of expected declines in revenues from MRO services and the increaseuncertainty in discountthe rate duringand timing of recovery and therefore the fourth quarter, which required the Company to assess whether events and/or circumstances have changed regarding the indefinite-life conclusion. As a result we incurred a non-cash impairment chargetiming of $46.2 million presented on the accompanying Consolidated Statements of Operations as "Impairment of intangible assets" to the Voughtassociated earnings and Embee tradenames. Additionally, it was determined that the tradenames will be amortized over their remaining estimated useful life of 20 years. We incurred no impairment of indefinite-lived assets as a result of our annual indefinite-lived assets impairment tests in fiscal 2015 or 2014 (see Note 7 of "Notes to Consolidated Financial Statements" for further discussion).37 to 32 years. We30 years. The Company continually evaluateevaluates whether events or circumstances have occurred that would indicate that the remaining estimated useful lives of our long-livedIntangibleLong-lived assets are evaluated for indicators of impairment. When factors indicate that long-lived assets, including intangible assets, should be evaluated for possible impairment, an estimate of the related undiscounted cash flows over the remaining life of the long-lived assets, including intangible assets, is used to measure recoverability.recoverability based on the primary asset of the asset group. Some of the more important factors we considermanagement considers include ourthe Company's financial performance relative to our expected and historical performance, significant changes in the way we manage ourthe Company manages its operations, negative events that have occurred, and negative industry and economic trends. If the estimated fair value isundiscounted cash flows are less than the carrying value,amount, measurement of the impairment will be based on the difference between the carrying value and fair value of the asset group, generally determined based on the present value of expected future cash flows associated with the use of the asset.AcquiredLiabilities,Balancesof ourprior acquisitions, wethe Company assumed existing long-term contracts. Based on our review of these contracts weat the acquisition date, the Company concluded that the terms of certain contracts to bewere either more or less favorable than could be realized in market transactions as of the date of the acquisition. As a result, wethe Company recognized acquired contract liabilities, net of acquired contract assets as of the acquisition date of each respective acquisition, based on the present value of the difference between the contractual cash flows of the executory contracts and the estimated cash flows had the contracts been executed at the acquisition date. The liabilities principally relate to long-term life of program contracts that were initially executed at several years prior to the respective acquisition (see Note 3 of "Notes to Consolidated Financial Statements" for further discussion).The acquired contract liabilities, net, are being amortized as non-cash revenues over the terms of the respective contracts. The Company recognized net amortization of contract liabilities of approximately $132.4 million, $75.7 million and $42.6 million in the fiscal years ended March 31, 2016, 2015 and 2014, respectively, and such amounts have been included in revenues in our results of operations. The balance of the liability as of March 31, 2016, is approximately $522.7 million and, based on the expected delivery schedule of the underlying contracts, the Company estimates annual amortization of the liability as follows 2017—$125.2 million; 2018—$117.5 million; 2019—$78.0 million; 2020—$59.7 million; 2021—$59.7 million; Thereafter—$82.6 million.Postretirement PlansThe liabilities and net periodic cost of our pension and other postretirement plans are determined using methodologies that involve several actuarial assumptions, the most significant of which are the discount rate, the expected long-term rate of asset return and rate of growth for medical costs. The actuarial assumptions used to calculate these costs are reviewed annually or when a remeasurement is necessary. Assumptions are based upon management's best estimates, after consulting with outside investment advisors and actuaries, as of the measurement date.During the fourth quarter of the fiscal year ended March 31, 2016, we changed the method we use to estimate the service and interest components of net periodic benefit cost for our pension and other postretirement benefit plans. This new estimation approach discounts the individual expected cash flows underlying the service cost and interest cost by applying the specific spot rates derived from the yield curve used to discount the cash flows reflected in the measurement of the benefit obligation. Historically, we estimated these service and interest cost components utilizing a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period.We made this change to provide a more precise measurement of service and interest costs by improving the correlation between projected benefit cash flows to the corresponding spot yield curve rates. We have accounted for this change as a change in accounting estimate that is inseparable from a change in accounting principle pursuant to ASC 250, Accounting Changes and Error Corrections and accordingly have accounted for it prospectively. While the benefit obligation measured under this approach is unchanged from that determined under the prior approach, the more granular application of the spot rates will reduce the service and interest cost for the pension and OPEB plans for the fiscal year ended March 31, 2017, by approximately $20.0 million. The spot rates used to determine service and interest costs for the U.S. plans ranged from 0.60% to 9.75%. Under the Company’s prior methodology, these rates would have resulted in weighted-average rates for service cost and interest cost of 3.86% for the U.S. pension plans and 3.73% for the OPEB plans. The new approach will be used to measure the service cost and interest cost for our pension and OPEB plans for the fiscal year ended March 31, 2017.Effective April 1, 2015, the Company changed the period over which actuarial gains and losses are being amortized for its U.S. pension plans from the average remaining future service period of active plan participants to the average life expectancy of inactive plan participants. This change was made because the Company has determined that as of that date almost all plan participants are inactive.The accounting corridor is a defined range within which amortization of net gains and losses is not required. The discount rates at March 31, 2016, ranged from 3.25 - 3.93% compared to a weighted-average of 3.78% at March 31, 2015.The assumed expected long-term rate of return on assets is the weighted-average rate of earnings expected on the funds invested or to be invested to provide for the benefits included in the Projected Benefit Obligation ("PBO"). The expected average long-term rate of return on assets is based on several factors, including actual historical market index returns, anticipated long-term performance of individual asset classes with consideration given to the related investment strategy, plan expenses and the potential to outperform market index returns. This rate is utilized principally in calculating the expected return on plan assets component of the annual pension expense. To the extent the actual rate of return on assets realized over the course of a year differs from the assumed rate, that year's annual pension expense is not affected. The gain or loss reduces or increases future pension expense over the average remaining life expectancy of inactive plan participants. The expected long-term rate of return for fiscal 2016, 2015 and 2014, was 6.50 - 8.25%. The expected long-term rate of return for fiscal 2017 will be 8.00%.In addition to our defined benefit pension plans, we provide certain healthcare and life insurance benefits for some retired employees. Such benefits are unfunded as of March 31, 2016. Employees achieve eligibility to participate in these contributory plans upon retirement from active service if they meet specified age and years of service requirements. Election to participate for eligible employees must be made at the date of retirement. Qualifying dependents at the date of retirement are also eligible for medical coverage. Current plan documents reserve our right to amend or terminate the plans at any time, subject to applicable collective bargaining requirements for represented employees. From time to time, we have made changes to the benefits provided to various groups of plan participants. Premiums charged to most retirees for medical coverage prior to age 65 are based on years of service and are adjusted annually for changes in the cost of the plans as determined by an independent actuary. In addition to this medical inflation cost-sharing feature, the plans also have provisions for deductibles, co-payments, coinsurance percentages, out-of-pocket limits, schedules of reasonable fees, preferred provider networks, coordination of benefits with other plans, and a Medicare carve-out.In accordance with ASC 715, Compensation—Retirement Benefits, we recognized the funded status of our benefit obligation. This funded status is remeasured as of our annual remeasurement date. The funded status is measured as the difference between the fair value of the plan's assets and the PBO or accumulated postretirement benefit obligation of the plan. In order to recognize the funded status, we determined the fair value of the plan assets. The majority of our plan assets are publicly traded investments which were valued based on the market price as of the date of remeasurement. Investments that are not publicly traded were valued based on the estimated fair value of those investments as of the remeasurement date based on our evaluation of data from fund managers and comparable market data.The Company periodically experiences events or makes changes to its benefit plans that result in curtailment or special charges. Curtailments are recognized when events occur that significantly reduce the expected years of future service of present employees or eliminates the benefits for a significant number of employees for some or all of their future service.Curtailment losses are recognized when it is probable the curtailment will occur and the effects are reasonably estimable. Curtailment gains are recognized when the related employees are terminated or a plan amendment is adopted, whichever is applicable.As required under ASC 715, the Company remeasures plan assets and obligations during an interim period whenever a significant event occurs that results in a material change in the net periodic pension cost. The determination of significance is based on judgment and consideration of events and circumstances impacting the pension costs.See Note 15 of "Notes to Consolidated Financial Statements" for a summary of the key events that affected our net periodic benefit cost and obligations that occurred during the fiscal years ended March 31, 2016, 2015 and 2014.Pension income, excluding curtailments, settlements and special termination benefits (early retirement incentives) for the fiscal year ended March 31, 2016, was $57.2 million compared with pension income of $52.4 million for the fiscal year ended March 31, 2015, and $35.0 million for the fiscal year ended March 31, 2014. For the fiscal year ending March 31, 2017, the Company expects to recognize pension income of approximately $66.5 million.Recently Issued Accounting PronouncementsIn February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842). ASU 2016-02 requires lessees to recognize assets and liabilities for most leases. ASU 2016-02 is effective for annual periods beginning after December 15, 2018. Early adoption is permitted. Full retrospective application is prohibited. ASU 2016-02's transition provision are applied using a modified retrospective approach at the beginning of the earliest comparative period presented in the financial statements. The Company is currently evaluating ASU 2016-02 and hasnot determined the impact it may have on the Company’s consolidated results of operations, financial position or cash flows nor decided on the method of adoption.In November 2015, the FASB issued ASU 2015-17, Income Taxes (Subtopic 740-10): Balance Sheet Classification of Deferred Taxes. ASU 2015-17 requires companies to classify all deferred tax assets and liabilities as noncurrent on the balance sheet instead of separating deferred taxes into current and noncurrent amounts. ASU 2015-17 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is allowed for financial statements that have not been previously issued. Entities may elect to adopt the guidance either prospectively or retrospectively to all prior periods (i.e., the balance sheet for each period is adjusted). During fiscal 2016, the Company adopted this standard retrospectively to all prior periods and resulting in a reclass of $145.4 million from a current deferred tax asset to a noncurrrent deferred tax liability on the Consolidated Balance Sheet. The adoption did not have a material impact on the Company’s financial position, results of operations or cash flows.In September 2015, the FASB issued ASU 2015-16, Business Combinations(Topic 805):Simplifying the Accounting for Measurement-Period Adjustments. ASU 2015-16 eliminates the requirement that an acquirer in a business combination account for measurement-period adjustments retrospectively. Instead, an acquirer will recognize a measurement-period adjustment during the period in which it determines the amount of the adjustment. ASU 2015-16 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. The Company adopted this standard effective January 1, 2016. The adoption did not have a material impact on the Company's financial position, results of operations or cash flows.In April 2015, the FASB issued ASU 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. ASU 2015-03 requires companies to present debt issuance costs as a direct deduction from the carrying value of that debt liability. ASU 2015-03 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is allowed for financial statements that have not been previously issued. Entities would apply the new guidance retrospectively to all prior periods. Effective April 1, 2015, the Company adopted this standard. The adoption did not have a material impact on the Company’s financial position, results of operations or cash flows. In accordance with ASC 2015-15, the Company has excluded debt issuance costs relating to revolving debt instruments as a direct deduction to debt.In May 2014, the FASB issued guidance codified in Accounting Standards Codification ("ASC") 606, Revenue Recognition - Revenue from Contracts with Customers, which amends the guidance in former ASC 605, Revenue Recognition. The objective of ASC 606 is to establish a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most of the existing revenue recognition guidance. The principle of ASC 606 is that an entity will recognize revenue at the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled. ASC 606 is effective for interim and annual reporting periods beginning after December 15, 2016, and can be adopted by the Company using either a full retrospective or modified retrospective approach, with early adoption prohibited. The Company is currently evaluating ASC 606 and has not determined the impact it may have on the Company’s consolidated results of operations, financial position or cash flows nor decided on the method of adoption.Forward-Looking StatementsThis report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 relating to our future operations and prospects, including statements that are based on current projections and expectations about the markets in which we operate, and management's beliefs concerning future performance and capital requirements based upon current available information. Such statements are based on management's beliefs as well as assumptions made by and information currently available to management. When used in this document, words like "may," "might," "will," "expect," "anticipate," "believe," "potential," and similar expressions are intended to identify forward-looking statements. Actual results could differ materially from management's current expectations. For example, there can be no assurance that additional capital will not be required or that additional capital, if required, will be available on reasonable terms, if at all, at such times and in such amounts as may be needed by us. In addition to these factors, among other factors that could cause actual results to differ materially, are uncertainties relating to the integration of acquired businesses, general economic conditions affecting our business segments, dependence of certain of our businesses on certain key customers, the risk that we will not realize all of the anticipated benefits from acquisitions as well as competitive factors relating to the aerospace industry. For a more detailed discussion of these and other factors affecting us, see the risk factors described in "Item 1A. Risk Factors."Item 7A.Quantitative and Qualitative Disclosures About Market RiskCommodity Price RiskSome contracts with our suppliers for raw materials, component parts and other goods are short-term contracts, which are subject to termination on a relatively short-term basis. The prices of our raw materials and component parts fluctuate depending on market conditions, and substantial increases in prices could increase our operating costs, which, as a result of our fixed-price contracts, we may not be able to recoup through increases in the prices of our products. We generally do not employ forward contracts or other financial instruments to hedge commodity price risk, although we continue to review a full range of business options focused on strategic risk management for all 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.Foreign Exchange RiskIn addition, even when revenues and expenses are matched, we must translate foreign 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 respective foreign currencies 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 stockholders' equity.We are subject to foreign currency exchange rate risk relating to receipts from customers and payments to suppliers in foreign currencies. We use foreign currency forward contracts to hedge the price risk associated with forecasted foreign denominated payments related to our ongoing business. Foreign currency forward contracts are sensitive to changes in foreign currency exchange rates. At March 31, 2016, a 10% change in the exchange rate in our portfolio of foreign currency contracts would not have material impact on our unrealized gains. Consistent with the use of these contracts to neutralize the effect of exchange rate fluctuations, such unrealized losses or gains would be offset by corresponding gains or losses, respectively, in the remeasurement of the underlying transactions being hedged. When taken together, these forward currency contracts and the offsetting underlying commitments do not create material market risk.Interest Rate RiskOur primary exposure to market risk consists of changes in interest rates on borrowings. An increase in interest rates would adversely affect our operating results and the cash flow available after debt service to fund operations and expansion. In addition, an increase in interest rates would adversely affect our ability to pay dividends on our common stock, if permitted to do so under certain of our debt arrangements, including the Credit Facility. We manage exposure to interest rate fluctuations by optimizing the use of fixed and variable rate debt. As of March 31, 2016, approximately 77% of our debt was fixed-rate debt. Our financing policy states that we generally maintain between 50% and 75% of our debt as fixed-rate debt, however, a portion of our variable debt is fixed through an interest rate swap. The information below summarizes our market risks associated with debt obligations and should be read in conjunction with Note 10 of "Notes to Consolidated Financial Statements."The following table presents principal cash flows and the related interest rates. Fixed interest rates disclosed represent the weighted-average rate as of March 31, 2016. Variable interest rates disclosed fluctuate with the LIBOR, federal funds rates and other weekly rates and represent the weighted-average rate at March 31, 2016.Expected Years of Maturity Thereafter Total Fixed-rate cash flows (in thousands) $ 42,383 $ 46,904 $ 51,832 $ 255,707 $ 15,527 $ 680,285 $ 1,092,638 Weighted-average interest rate (%) 4.31 % 4.36 % 4.41 % 4.68 % 5.02 % 2.18 % Variable-rate cash flows (in thousands) $ — $ 191,300 $ 140,000 $ — $ 2,178 $ — $ 333,478 Weighted-average interest rate (%) — % 1.29 % 0.95 % — % 0.06 % — % There are no other significant market risk exposures.Item 8.Financial Statements and Supplementary DataReport of Independent Registered Public Accounting FirmThe Board of Directors and Stockholders of Triumph Group, Inc.We have audited the accompanying consolidated balance sheets of Triumph Group, Inc. as of March 31, 2016 and 2015, and the related consolidated statements of operations, comprehensive (loss) income, stockholders' equity, and cash flows for each of the three years in the period ended March 31, 2016. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Triumph Group, Inc. at March 31, 2016 and 2015, and the consolidated results of its operations and its cash flows for each of the three years in the period ended March 31, 2016, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Triumph Group, Inc.'s internal control over financial reporting as of March 31, 2016, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated May 27, 2016, expressed an unqualified opinion thereon./s/ Ernst & Young LLPPhiladelphia, PennsylvaniaMay 27, 2016TRIUMPH GROUP, INC.CONSOLIDATED BALANCE SHEETS(Dollars in thousands, except per share data) March 31, 2016 2015 ASSETS Current assets: Cash and cash equivalents $ 20,984 $ 32,617 Trade and other receivables, less allowance for doubtful accounts of $6,492 and $6,475 444,208 521,601 Inventories, net of unliquidated progress payments of $123,155 and $189,923 1,184,238 1,280,274 Rotable assets 51,952 48,820 Prepaid expenses and other 41,259 23,069 Total current assets 1,742,641 1,906,381 Property and equipment, net 889,734 950,734 Goodwill 1,444,254 2,024,846 Intangible assets, net 649,612 966,365 Other, net 108,852 107,999 Total assets $ 4,835,093 $ 5,956,325 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 42,441 $ 42,255 Accounts payable 410,225 429,134 Accrued expenses 683,208 411,848 Total current liabilities 1,135,874 883,237 Long-term debt, less current portion 1,374,879 1,326,345 Accrued pension and other postretirement benefits, noncurrent 664,664 538,381 Deferred income taxes, noncurrent 62,453 261,100 Other noncurrent liabilities 662,279 811,478 Stockholders' equity: Common stock, $.001 par value, 100,000,000 shares authorized, 52,460,020 and 52,460,020 shares issued; 49,328,999 and 49,273,053 shares outstanding 51 51 Capital in excess of par value 851,102 851,940 Treasury stock, at cost, 3,131,921 and 3,187,867 shares (199,415 ) (203,514 ) Accumulated other comprehensive loss (347,162 ) (198,910 ) Retained earnings 630,368 1,686,217 Total stockholders' equity 934,944 2,135,784 Total liabilities and stockholders' equity $ 4,835,093 $ 5,956,325 See notes to consolidated financial statements.TRIUMPH GROUP, INC.CONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except per share data) Year ended March 31, 2016 2015 2014 Net sales $ 3,886,072 $ 3,888,722 $ 3,763,254 Operating costs and expenses: Cost of sales (exclusive of depreciation shown separately below) 3,597,299 3,141,453 2,911,802 Selling, general and administrative 287,349 285,773 254,715 Depreciation and amortization 177,755 158,323 164,277 Impairment of intangible assets 874,361 — — Restructuring 36,182 3,193 31,290 Curtailments, settlements and early retirement incentives (1,244 ) — 1,166 Legal settlement charge (gain), net 5,476 (134,693 ) — 4,977,178 3,454,049 3,363,250 Operating (loss) income (1,091,106 ) 434,673 400,004 Interest expense and other 68,041 85,379 87,771 (Loss) income from continuing operations before income taxes (1,159,147 ) 349,294 312,233 Income tax (benefit) expense (111,187 ) 110,597 105,977 Net (loss) income $ (1,047,960 ) $ 238,697 $ 206,256 Earnings per share—basic: Net (loss) income $ (21.29 ) $ 4.70 $ 3.99 Weighted-average common shares outstanding—basic 49,218 50,796 51,711 Earnings per share—diluted: Net (loss) income $ (21.29 ) $ 4.68 $ 3.91 Weighted-average common shares outstanding—diluted 49,218 51,005 52,787 See notes to consolidated financial statements.TRIUMPH GROUP, INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME(Dollars in thousands) Year ended March 31, 2016 2015 2014 Net (loss) income $ (1,047,960 ) $ 238,697 $ 206,256 Other comprehensive (loss) income: Foreign currency translation adjustment (12,065 ) (46,949 ) (3,315 ) Defined benefit pension plans and other postretirement benefits: Amounts arising during the period - gains (losses), net of tax (expense) benefit: Prior service credit, net of taxes $14,725, $19 and $21, respectively 27,392 (31 ) (37 ) Actuarial gain (loss), net of taxes $86,261, $71,060, and ($27,546), respectively (154,659 ) (122,636 ) 45,995 Reclassification from net income - (gains) losses, net of tax expense (benefit): Amortization of net loss, net of taxes of ($1,263), $0 and ($5,647), respectively 2,119 — 9,402 Recognized prior service credits, net of taxes of $5,937, $3,864 and $6,814, respectively (10,876 ) (6,133 ) (11,346 ) Total defined benefit pension plans and other postretirement benefits, net of taxes (136,024 ) (128,800 ) 44,014 Cash flow hedges: Unrealized (loss) gain arising during period, net of tax benefit (expense) of $384, $2,463 and ($884), respectively (527 ) (4,098 ) 1,384 Reclassification of gain included in net earnings, net of tax expense of ($173), $42 and $11, respectively 364 (155 ) (19 ) Net unrealized (loss) gain on cash flow hedges, net of tax (163 ) (4,253 ) 1,365 Total other comprehensive income (loss) (148,252 ) (180,002 ) 42,064 Total comprehensive (loss) income $ (1,196,212 ) $ 58,695 $ 248,320 See notes to consolidated financial statements.TRIUMPH GROUP, INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY(Dollars in thousands) Total Balance at March 31, 2013 50,123,035 $ 50 $ 848,372 $ — $ (60,972 ) $ 1,257,708 $ 2,045,158 Net income — — — — — 206,256 206,256 Foreign currency translation adjustment — — — — (3,315 ) — (3,315 ) Pension liability adjustment, net of income taxes of $26,358 — — — — 44,014 — 44,014 Change in fair value of interest rate swap, net of income taxes of ($945) — — — — 1,481 — 1,481 Change in fair value of foreign currency hedges, net of income taxes of $72 — — — — (116 ) — (116 ) Issuance of stock upon conversion of convertible notes 2,290,755 2 14,000 — — — 14,002 Purchase of 300,000 shares of common stock (300,000 ) — — (19,134 ) — — (19,134 ) Exercise of stock options 18,170 — 290 — — — 290 Cash dividends ($0.16 per share) — — — — — (8,344 ) (8,344 ) Share-based compensation 61,413 — 6,306 — — — 6,306 Repurchase of restricted shares for minimum tax obligation (34,353 ) — (2,726 ) — — — (2,726 ) Excess tax benefit from exercise of stock options — — 39 — — — 39 Balance at March 31, 2014 52,159,020 52 866,281 (19,134 ) (18,908 ) 1,455,620 2,283,911 Net income — — — — — 238,697 238,697 Foreign currency translation adjustment — — — — (46,949 ) — (46,949 ) Pension liability adjustment, net of income taxes of ($74,763) — — — — (128,800 ) — (128,800 ) Change in fair value of interest rate swap, net of taxes, $2,014 — — — — (3,156 ) — (3,156 ) Change in fair value of foreign currency hedges, net of income taxes, $490 — — — — (1,097 ) — (1,097 ) Settlement of convertible notes — (1 ) (19,386 ) — — — (19,387 ) Deferred tax impact of convertible debt redemption — — 2,725 — — — 2,725 Purchase of 2,923,011 shares of common stock (2,923,011 ) — — (184,380 ) — — (184,380 ) Exercise of stock options 45,782 — 720 — — — 720 Cash dividends ($0.16 per share) — — — — — (8,100 ) (8,100 ) Share-based compensation 1,600 — 1,272 — — — 1,272 Repurchase of restricted shares for minimum tax obligation (10,338 ) — (673 ) — — — (673 ) Excess tax benefit from exercise of stock options — — 1,001 — — — 1,001 Balance at March 31, 2015 49,273,053 51 851,940 (203,514 ) (198,910 ) 1,686,217 2,135,784 Net loss — — — — — (1,047,960 ) (1,047,960 ) Foreign currency translation adjustment — — — — (12,065 ) (12,065 ) Pension liability adjustment, net of income taxes of $76,210 — — — — (136,024 ) — (136,024 ) Change in fair value of interest rate swap, net of taxes, $636 — — — — (1,146 ) — (1,146 ) Change in fair value of foreign currency hedges, net of income taxes of ($425) — — — — 983 — 983 Cash dividends ($0.16 per share) — — — — — (7,889 ) (7,889 ) Share-based compensation 36,598 — (590 ) 3,247 — — 2,657 Repurchase of restricted shares for minimum tax obligation (1,528 ) — (96 ) — — — (96 ) Employee stock purchase plan 20,876 — (152 ) 852 — — 700 Balance at March 31, 2016 49,328,999 $ 51 $ 851,102 $ (199,415 ) $ (347,162 ) $ 630,368 $ 934,944 See notes to consolidated financial statements.TRIUMPH GROUP, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(Dollars in thousands) Year ended March 31, 2016 2015 2014 Operating Activities Net (loss) income $ (1,047,960 ) $ 238,697 $ 206,256 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 177,755 158,323 164,277 Impairment of intangible assets 874,361 — — Amortization of acquired contract liability (132,363 ) (75,733 ) (42,629 ) Curtailments, settlements and early retirement incentives (1,244 ) — 1,166 Accretion of debt discount — 1,577 1,946 Other amortization included in interest expense 3,904 8,135 6,702 Provision for doubtful accounts receivable 1,996 172 2,191 Provision (benefit) for deferred income taxes (118,302 ) 105,277 102,869 Employee stock compensation 2,657 1,272 4,653 Changes in other current assets and liabilities, excluding the effects of acquisitions: Accounts receivable 73,083 69,500 (46,378 ) Inventories 294,360 49,536 (94,341 ) Rotable assets (843 ) (7,153 ) (6,813 ) Prepaid expenses and other current assets (6,958 ) 1,589 (406 ) Accounts payable, accrued expenses and income taxes payable 53,914 95,167 (60,209 ) Accrued pension and other postretirement benefits (87,559 ) (180,569 ) (100,929 ) Other (2,938 ) 1,542 (3,218 ) Net cash provided by operating activities 83,863 467,332 135,137 Investing Activities Capital expenditures (80,047 ) (110,004 ) (206,414 ) Reimbursements of capital expenditures from insurance and other — 653 9,086 Proceeds from sale of assets 6,069 3,167 45,047 Acquisitions, net of cash acquired (54,051 ) 38,281 (94,456 ) Net cash used in investing activities (128,029 ) (67,903 ) (246,737 ) Financing Activities Net (decrease) increase in revolving credit facility (8,256 ) (46,150 ) 98,557 Proceeds from issuance of long-term debt 134,797 508,960 451,003 Retirement of debt and capital lease obligations (80,917 ) (655,860 ) (416,645 ) Payment of deferred financing costs (185 ) (6,487 ) (3,297 ) Purchase of common stock — (184,380 ) (19,134 ) Dividends paid (7,889 ) (8,100 ) (8,344 ) Net (repayment) proceeds of government grant (5,000 ) (3,198 ) 3,456 Repurchase of restricted shares for minimum tax obligations (96 ) (673 ) (2,726 ) Proceeds from exercise of stock options, including excess tax benefit of $0, $1,001, and $39 in 2016, 2015, and 2014 — 720 329 Net cash provided by (used in) financing activities 32,454 (395,168 ) 103,199 Effect of exchange rate changes on cash 79 (642 ) 5,362 Net change in cash and cash equivalents (11,633 ) 3,619 (3,039 ) Cash and cash equivalents at beginning of year 32,617 28,998 32,037 Cash and cash equivalents at end of year $ 20,984 $ 32,617 $ 28,998 See notes to consolidated financial statements.TRIUMPH GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Dollars in thousands, except per share data)1.BACKGROUND AND BASIS OF PRESENTATIONTriumph Group, Inc. ("Triumph") is a Delaware corporation which, through its operating subsidiaries, designs, engineers, manufactures and sells products for the global aerospace original equipment manufacturers ("OEMs") of aircraft and aircraft components and repairs and overhauls aircraft components and accessories for commercial airline, air cargo carrier and military customers on a worldwide basis. Triumph and its subsidiaries (collectively, the "Company") is organized based on the products and services that it provides. Under this organizational structure, the Company has three reportable segments: the Aerostructures Group, the Aerospace Systems Group and the Aftermarket Services Group.The Aerostructures segment consists of the Company's operations that manufacture products primarily for the aerospace OEM market. The Aerostructures segment's revenues are derived from the design, manufacture, assembly and integration of metallic and composite aerostructures and structural components, including aircraft wings, fuselage sections, tail assemblies, engine nacelles, flight control surfaces, and helicopter cabins. Further, the segment's operations also design and manufacture composite assemblies for floor panels and environmental control system ducts. These products are sold to various aerospace OEMs on a global basis.The Aerospace Systems segment consists of the Company's operations that also manufacture products primarily for the aerospace OEM market. The segment's operations design and engineer mechanical and electromechanical controls, such as hydraulic systems, main engine gearbox assemblies, engine control systems, accumulators, mechanical control cables and non-structural cockpit components. These products are sold to various aerospace OEMs on a global basis.The Aftermarket Services segment consists of the Company's operations that provide maintenance, repair and overhaul services to both commercial and military markets on components and accessories manufactured by third parties. Maintenance, repair and overhaul revenues are derived from services on auxiliary power units, airframe and engine accessories, including constant-speed drives, cabin compressors, starters and generators, and pneumatic drive units. In addition, the segment's operations repair and overhaul thrust reversers, nacelle components and flight control surfaces. The segment's operations also perform repair and overhaul services and supply spare parts for various types of cockpit instruments and gauges for a broad range of commercial airlines on a worldwide basis.Repair services generally involve the replacement of parts and/or the remanufacture of parts, which is similar to the original manufacture of the part. The processes that the Company performs related to repair and overhaul services are essentially the repair of wear parts or replacement of parts that are beyond economic repair. The repair service generally involves remanufacturing a complete part or a component of a part.The accompanying consolidated financial statements include the accounts of Triumph and its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated from the consolidated financial statements.The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.55TRIUMPH GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(Dollars in thousands, except per share data)2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESCash EquivalentsCash equivalents consist of highly liquid investments with a maturity of three months or less at the time of purchase. Fair value of cash equivalents approximates carrying value.Trade and Other Receivables, netTrade and other receivables are recorded net of an allowance for doubtful accounts. Trade and other receivables include amounts billed and currently due from customers, amounts currently due but unbilled, certain estimated contract changes and amounts retained by the customer pending contract completion. Unbilled amounts are generally billed and collected within one year. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company records the allowance for doubtful accounts based on prior experience and for specific collectibility matters when they arise. The Company writes off balances against the reserve when collectibility is deemed remote. The Company's trade and other receivables are exposed to credit risk; however, the risk is limited due to the diversity of the customer base.Trade and other receivables, net comprised of the following: March 31, 2016 2015 Billed $ 407,275 $ 475,668 Unbilled 25,742 39,222 Total trade receivables 433,017 514,890 Other receivables 17,683 13,186 Total trade and other receivables 450,700 528,076 Less: Allowance for doubtful accounts (6,492 ) (6,475 ) Total trade and other receivables, net $ 444,208 $ 521,601 InventoriesThe Company records inventories at the lower of cost (average-cost or specific-identification methods) or market. Costs on long-term contracts and programs in progress represent recoverable costs incurred for production or contract-specific facilities and equipment, allocable operating overhead and advances to suppliers. Pursuant to contract provisions, agencies of the U.S. Government and certain other customers have title to, or a security interest in, inventories related to such contracts as a result of advances, performance-based payments, and progress payments. The Company reflects those advances and payments as an offset against the related inventory balances. The Company expenses general and administrative costs related to products and services provided essentially under commercial terms and conditions as incurred. The Company determines the costs of inventories by the first-in, first-out or average cost methods.Work-in-process inventory includes capitalized pre-production costs. Company policy allows for the capitalization of pre-production costs after it establishes a contractual arrangement with a customer that explicitly states that the cost of recovery of pre-production costs is allowed.Capitalized pre-production costs include nonrecurring engineering, planning and design, including applicable overhead, incurred before production is manufactured on a regular basis. Significant customer-directed work changes can also cause pre-production costs to be incurred (see Note 5 for further discussion).Advance Payments and Progress PaymentsAdvance payments and progress payments received on contracts-in-process are first offset against related contract costs that are included in inventory, with any excess amount reflected in current liabilities under the Accrued expenses caption within the accompanying Consolidated Balance Sheets.56TRIUMPH GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(Dollars in thousands, except per share data)Property and EquipmentProperty and equipment, which includes equipment under capital lease and leasehold improvements, are recorded at cost and depreciated over the estimated useful lives of the related assets, or the lease term if shorter in the case of leasehold improvements, by the straight-line method. Buildings and improvements are depreciated over a period of 15 to 39.5 years, and machinery and equipment are depreciated over a period of 7 to 15 years (except for furniture, fixtures and computer equipment which are depreciated over a period of 3 to 10 years).Goodwill and Intangible AssetsThe Company accounts for purchased goodwill and intangible assets in accordance with Accounting Standards Codification ("ASC") 350, Intangibles—Goodwill and Other. Under ASC 350, purchased goodwill and intangible assets with indefinite lives are not amortized; rather, they are tested for impairment on at least an annual basis. Intangible assets with finite lives are amortized over their useful lives. Upon acquisition, critical estimates are made in valuing acquired intangible assets, which include but are not limited to: future expected cash flows from customer contracts, customer lists, and estimating cash flows from projects when completed; tradename and market position, as well as assumptions about the period of time that customer relationships will continue; and discount rates. Management's estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from the assumptions used in determining the fair values.The Company's operating segments of Aerostructures, Aerospace Systems and Aftermarket Services are also its reporting units. The Chief Executive Officer is the Company's Chief Operating Decision Maker ("CODM"). The Company's CODM evaluates performance and allocates resources based upon review of segment information. Each of the operating segments is comprised of a number of operating units which are considered to be components. The components, for which discrete financial information exists, are aggregated for purposes of goodwill impairment testing. The Company's acquisition strategy is to acquire companies that complement and enhance the capabilities of the operating segments of the Company. Each acquisition is assigned to either the Aerostructures reporting unit, the Aerospace Systems reporting unit or the Aftermarket Services reporting unit. The goodwill that results from each acquisition is also assigned to the reporting unit to which the acquisition is allocated, because it is that reporting unit which is intended to benefit from the synergies of the acquisition.The Company assesses whether goodwill impairment exists using both the qualitative and quantitative assessments. The qualitative assessment involves determining whether events or circumstances exist that indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. If based on this qualitative assessment the Company determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount or if the Company elects not to perform a qualitative assessment, a quantitative assessment is performed using a two-step approach required by ASC 350 to determine whether a goodwill impairment exists at the reporting unit.The first step of the quantitative test is to compare the carrying amount of the reporting unit's assets to the fair value of the reporting unit. If the fair value exceeds the carrying value, no further evaluation is required and no impairment loss is recognized. If the carrying amount exceeds the fair value, then the second step is required to be completed, which involves allocating the fair value of the reporting unit to each asset and liability using the guidance in ASC 805, with the excess being applied to goodwill. An impairment loss occurs if the amount of the recorded goodwill exceeds the implied goodwill. The determination of the fair value of our reporting units is based, among other things, on estimates of future operating performance of the reporting unit being valued. We are required to complete an impairment test for goodwill and record any resulting impairment losses at least annually. Changes in market conditions, among other factors, may have an impact on these estimates and require interim impairment assessments.When performing the two-step quantitative impairment test, the Company's methodology includes the use of an income approach which discounts future net cash flows to their present value at a rate that reflects the Company's cost of capital, otherwise known as the discounted cash flow method ("DCF"). These estimated fair values are based on estimates of future cash flows of the businesses. Factors affecting these future cash flows include the continued market acceptance of the products and services offered by the businesses, the development of new products and services by the businesses and the underlying cost of development, the future cost structure of the businesses, and future technological changes. The Company also incorporates market multiples for comparable companies in determining the fair value of our reporting units. Any such impairment would be recognized in full in the reporting period in which it has been identified.During the third quarter of fiscal 2016, the Company performed an interim assessment of the fair value of our goodwill and indefinite-lived intangible assets due to potential indicators of impairment related to the continued decline in our stock price during the third quarter. The Company's assessment focused on the Aerostructures reporting unit since it had significant57TRIUMPH GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(Dollars in thousands, except per share data)changes in its economic indicators and adjusted for select changes in the risk adjusted discount rate to consider both the current return requirements of the market and the risks inherent in the reporting unit, expected long-term growth rate and cash flow projections to determine if any decline in the estimated fair value of a reporting unit could result in a goodwill impairment. We concluded that the goodwill was not impaired as of the interim impairment assessment date. However, the excess of the fair value over the carrying value was within 5% for the Company's Aerostructures reporting unit. The amount of goodwill for our Aerostructures reporting unit amounted to $1,420,195 as of the interim testing date.In the fourth quarter of fiscal 2016, the Company performed the quantitative assessment for each of the Company's three reporting units, which indicated that the fair value of goodwill for the Aerostructures reporting unit did not exceed its carrying amount. After evaluating whether other assets within the reporting unit were impaired in accordance with ASC 350, we concluded on the implied goodwill under Step 2 resulting in a $597,603 impairment of goodwill to Aerostructures reporting unit. The assessment for the Company's Aerospace Systems and Aftermarket Services reporting units indicated that the fair value of their respective goodwill exceeded the carrying amount. We incurred no impairment of goodwill as a result of our annual goodwill impairment tests in fiscal 2015 or 2014 (see Note 7 for further discussion).As of March 31, 2015, the Company had a $438,400 indefinite-lived intangible asset associated with the tradenames acquired in the acquisitions of Vought Aircraft Industries, Inc. ("Vought") and Embee, Inc. ("Embee"). The Company assesses whether indefinite-lived intangible assets impairment exists using both the qualitative and quantitative assessments. The qualitative assessment involves determining whether events or circumstances exist that indicate it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount. If based on this qualitative assessment, the Company determines it is not more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount or if the Company elects not to perform a qualitative assessment, a quantitative assessment is performed to determine whether an indefinite-lived intangible asset impairment exists. We test the indefinite-lived intangible assets for impairment by comparing the carrying value to the fair value based on current revenue projections of the related operations, under the relief from royalty method. Any excess of the carrying value over the amount of fair value is recognized as an impairment.During the third quarter of the fiscal year ended March 31, 2016, the Company performed an interim assessment of fair value on our indefinite-lived intangible assets due to indicators of impairment related to the continued decline in our stock price during the fiscal third quarter. Based on the Company's evaluation,the Company concluded that the Vought tradename had a fair value of $195,800 (Level 3) compared to a carrying value of $425,000. Accordingly, the Company recorded a non-cash impairment charge during the fiscal year ended March 31, 2016, of $229,200, which is presented on the accompanying Consolidated Statements of Operations as "Impairment of intangible assets". The decline in fair value compared to the carrying value of the Vought tradename is the result of declining revenues from production rate reductions and the slower than previously projected ramp in Bombardier Global 7000/8000 and the timing of associated earnings.In the fourth quarter of fiscal 2016, the Company performed its annual impairment test for each of the Company's indefinite-lived intangible assets, which indicated that the Vought and Embee tradenames had a fair value of $163,000 (Level 3) compared to a carrying value of $209,200. The decline in fair value of the tradenames is the result of the increase in discount rate during the fourth quarter, which required the Company to assess whether events and/or circumstances have changed regarding the indefinite-life conclusion. As a result the Company incurred a non-cash impairment charge of $46,200 presented on the accompanying Consolidated Statements of Operations as "Impairment of intangible assets" to the Vought and Embee tradenames. Additionally, it was determined that the tradenames will be amortized over their remaining estimated useful life of 20 years. The Company incurred no impairment of indefinite-lived assets as a result of our annual indefinite-lived assets impairment tests in fiscal 2015 or 2014.Finite-lived intangible assets are amortized over their useful lives ranging from 3 to 32 years. The Company continually evaluates whether events or circumstances have occurred that would indicate that the remaining estimated useful lives of long-lived assets, including intangible assets, may warrant revision or that the remaining balance may not be recoverable. Intangible assets are evaluated for indicators of impairment. When factors indicate that long-lived assets, including intangible assets, should be evaluated for possible impairment, an estimate of the related undiscounted cash flows over the remaining life of the long-lived assets, including intangible assets, is used to measure recoverability. Some of the more important factors management considers include the Company's financial performance relative to expected and historical performance, significant changes in the way the Company manages its operations, negative events that have occurred, and negative industry and economic trends. If the estimated fair value is less than the carrying amount, measurement of the impairment will be based on the difference between the carrying value and fair value of the asset group, generally determined based on the present value of expected future cash flows associated with the use of the asset.58TRIUMPH GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(Dollars in thousands, except per share data)Deferred Financing CostsFinancing costs are deferred and amortized to Interest expense and other in the accompanying Consolidated Statements of Operations over the related financing period using the effective interest method or the straight-line method when it does not differ materially from the effective interest method. The Company records deferred financing costs as a direct deduction from the carrying value of that debt liability; however, the policy does exclude deferred financing costs relating to revolving debt instruments. These deferred financing costs are recorded in Other, net in the accompanying Consolidated Balance Sheets as of March 31, 2016 and 2015. Total deferred financing costs, net of accumulated amortization of $14,131 and $17,850, respectively, are recorded as of March 31, 2016 and 2015. Make-whole payments in connection with early debt retirements are classified as cash flows used in financing activities.Acquired Contract Liabilities, netIn connection with several of our acquisitions, we assumed existing long-term contracts. Based on our review of these contracts, we concluded that the terms of certain contracts to be either more or less favorable than could be realized in market transactions as of the date of the acquisition. As a result, we recognized acquired contract liabilities, net of acquired contract assets as of the acquisition date of each respective acquisition, based on the present value of the difference between the contractual cash flows of the executory contracts and the estimated cash flows had the contracts been executed at the acquisition date. The liabilities principally relate to long-term life of program contracts that were initially executed at several years prior to the respective acquisition (see Note 3 for further discussion).MeasurementsMeasurement, which is based on the price to transfer the obligation to a market participant at the measurement date, assuming that the net liabilities will remain outstanding in the marketplace. Fair value estimates are based on a complex series of judgments about future events and uncertainties and rely heavily on estimates and assumptions. The judgments used to determine the estimated fair value assigned to each long-term contracts can materially impact our results of operations.Included in the net salesportion of the Aerostructure and Aerospace Systems groups isCompany's revenue resulting from transactions other than contracts with customers pertains to the non-cash amortization of these acquired contract liabilities recognized as fair value adjustments through purchase accounting from various acquisitions. The Company recognized net amortization of contractthe related contractual performance obligations are satisfied. Adjustments to these liabilities of $132,363, $75,733 and $42,629due to significant changes in the fiscal years ended March 31, 2016, 2015 and 2014, respectively, andtotal estimated costs of the contract are accounted for in a manner consistent with other loss contract reserves, with such amounts have been includedadjustments recognized in revenues in resultscost of operations. sales.20162022, is $522,68012,862 and based onexpected to amortize over a period of 5 to 10 years.expected delivery schedulelease inception date and recognizes right-of-use assets (“ROU”) and lease liabilities at the lease commencement date. A ROU asset and corresponding lease liability are not recorded for leases with an initial term of 12 months or less (“short-term leases”).underlying contracts,length of lease terms is affected by options to extend or terminate the lease when it is reasonably certain that the Company estimates annual amortizationwill exercise that option. The existence of significant economic incentive is the liability as follows: 2017—$125,241; 2018—$117,544; 2019—$77,990; 2020—$59,660; and 2021—$59,659.Revenue RecognitionRevenues are generally recognized in accordance withprimary consideration when assessing whether the contract terms when products are shipped, delivery has occurred or services have been rendered, pricing is fixed or determinable, and collectionCompany is reasonably assured. The Company's policy with respectcertain of exercising an option in a lease. Both finance and operating lease ROU assets and liabilities are recognized at commencement date and measured as the present value of lease payments to sales returns and allowances generally provides thatbe made over the customer maylease term. As the interest rate implicit in the lease is not return products or be given allowances, except at the Company's option. Accrualsreadily available for sales returns, other allowances and estimated warranty costs are provided at the time of shipment based upon past experience.A significant portionmost of the Company's contracts are within the scope of ASC 605-35, Revenue Recognition —Construction-Type and Production-Type Contracts, and revenue and costs on contracts are recognized using the percentage-of-completion method of accounting. Accounting for the revenue and profit on a contract requires estimates of (1) the contract value or total contract revenue, (2) the total costs at completion, which is equal to the sum of the actual incurred costs to date on the contract and the estimated costs to complete the contract's scope of work and (3) the measurement of progress towards completion. Depending on the contract,leases, the Company measures progress toward completion using eitheruses its estimated incremental borrowing rate in determining the cost-to-cost method orpresent value of lease payments. The estimated incremental borrowing rate is derived from information available at the units-of-delivery method, with the great majority measured under the units-of-delivery method.Under the cost-to-cost method, progress toward completionlease commencement date. The lease ROU asset recognized at commencement is measured as the ratio of totaladjusted for any lease payments related to initial direct costs, incurred to estimated total costs at completion. Costs are recognized as incurred. Profit is determined based on estimated profit margin on the contract multiplied by progress toward completion. Revenue represents the sum of costsprepayments, and profit on the contract for the period.59TRIUMPH GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(Dollars in thousands, except per share data)Under the units-of-delivery method, revenue on a contract is recorded as the units are delivered and accepted during the period at an amount equal to the contractual selling price of those units. The costs recorded on a contract under the units-of-delivery method are equal to the total costs at completion divided by the total units to be delivered. As contracts can span multiple years, the Company often segments the contracts into production lots for the purposes of accumulating and allocating cost. Profit is recognized as the difference between revenue for the units delivered and the estimated costs for the units delivered.Adjustments to original estimates for a contract's revenues, estimated costs at completion and estimated total profit are often required as work progresses under a contract, as experience is gained and as more information is obtained, even though the scope of work required under the contract may not change, or if contract modifications occur. These estimates are also sensitive to the assumed rate of production. Generally, the longer it takes to complete the contract quantity, the more relative overhead that contract will absorb. The impact of revisions in cost estimateslease incentives.cumulative catch-upstraight-line basis over the lease term. For finance leases, lease expense comprises the amortization of the ROU assets recognized on a straight-line basis generally over the shorter of the lease term or the estimated useful life of the underlying asset and interest on the lease liability. Variable lease payments not dependent on a rate or index are recognized when the event, activity, or circumstance in the period inlease agreement upon which the revisionsthose payments are made. Provisions for anticipated losses on contractscontingent is probable of occurring and are recordedpresented in the period in which they become probable ("forward losses") and are first offset against costs that are included in inventory, with any remaining amount reflected in accrued contract liabilities in accordance with ASC 605-35. Revisions in contract estimates, if significant, can materially affect results of operations and cash flows, as well as valuation of inventory. Furthermore, certain contracts are combined or segmented for revenue recognition in accordance with ASC 605-35.For the fiscal year ended March 31, 2016, cumulative catch-up adjustments resulting from changes in contract values and estimated costs that arose during the fiscal year decreased operating (loss) income, net (loss) income and earnings per share by approximately $(596,213), $(539,023) and $(10.95), respectively. The cumulative catch-up adjustments to operating income for the fiscal year ended March 31, 2016 included gross favorable adjustments of approximately $32,954 and gross unfavorable adjustments of approximately $(629,167), which includes provisions for forward losses of $561,158 on the Bombardier Global 7000/8000 ("Bombardier") and 747-8 programs.For the fiscal year ended March 31, 2015, cumulative catch-up adjustments resulting from changes in estimates decreased operating income, net income and earnings per share by approximately $(156,048), $(106,639) and $(2.09), respectively. The cumulative catch-up adjustments to operating income for the fiscal year ended March 31, 2015 included gross favorable adjustments of approximately $4,653 and gross unfavorable adjustments of approximately $(160,701) which includes a provision for forward losses of $151,992 on the 747-8 program.For the fiscal year ended March 31, 2014, cumulative catch-up adjustments resulting from changes in estimates decreased operating income, net income and earnings per share by approximately $(53,166) $(35,121) and $(0.67), respectively. The cumulative catch-up adjustments to operating income for the fiscal year ended March 31, 2014 included gross favorable adjustments of approximately $14,341 and gross unfavorable adjustments of approximately $(67,507).Amounts representing contract change orders or claims are only included in revenue when such change orders or claims have been settled with the customer and to the extent that units have been delivered. Additionally, some contracts may contain provisions for revenue sharing, price re-determination, requests for equitable adjustments, change orders or cost and/or performance incentives. Such amounts or incentives are included in contract value when the amounts can be reliably estimated and their realization is reasonably assured.Although fixed-price contracts, which extend several years into the future, generally permit the Company to keep unexpected profits if costs are less than projected, the Company also bears the risk that increased or unexpected costs may reduce profit or cause the Company to sustain losses on the contract. In a fixed-price contract, the Company must fully absorb cost overruns, notwithstanding the difficulty of estimating allsame line of the costsconsolidated balance sheet as the Company will incur in performing these contracts and in projecting the ultimate level of revenue that may otherwise be achieved.recognized a provision for forward losses associatedhas lease agreements with our long-term contracts on the 747-8lease and Bombardier programs. There is still risk similar to what we have experienced on the 747-8 and Bombardier programs. Particularly, our ability to manage risks related to supplier performance, execution of cost reduction strategies, hiring and retaining skilled production and management personnel, quality and manufacturing execution, program schedule delays and many other risks, will determine the ultimate performance of these long-term programs.The Aftermarket Services Group provides repair and overhaul services, certain of which servicesnon-lease components. Non-lease components are provided under long-term power-by-the-hour contracts, comprising approximately 6% of the segment's net sales. The Company applies the proportional performance method to recognize revenue under these contracts. Revenue is recognized over the contract period as units are delivered based on the relative value in proportion to the total estimated contract consideration. In estimating the total contract consideration, management evaluates the projected utilization of its customer's fleet over the term of the contract,60TRIUMPH GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(Dollars in thousands, except per share data)in connectioncombined with the related estimated repairlease components and overhaul servicing requirements to the fleet based on such utilization. Changes in utilizationaccounted for as lease components for all classes of the fleet by customers, among other factors, may have an impact on these estimates and require adjustments to estimates of revenue to be realized.underlying assets.Shipping and Handling CostsThe cost of shipping and handling products is included in cost of products sold.Research and Development ExpenseResearch and development ("R&D") expense (which includes certain amounts subject to reimbursement from customers) was approximately $103,031, $108,062 and $82,494 for the fiscal years ended March 31, 2016, 2015 and 2014, respectively.Compensation — Retirement Benefits, the Company remeasures plan assets and obligations during an interim period whenever a significant event occurs that results in a material change in the net periodic pension cost. The determination of significance is based on judgment and consideration of events and circumstances impacting the pension costs.its interest rate swapsell (see Note 3), when measuring long-lived asset impairment in fiscal 2021 (see above within the disclosure of the Company’s goodwill and intangible asset accounting policies), when disclosing the fair value of its long-term debt not recorded at fair value (see Note 10), and to its pension and postretirement plan assets (see Note 15).Foreign Currency TranslationThe determination of the functional currency for the Company's foreign subsidiaries is made based on appropriate economic factors. The functional currency of the Company's subsidiaries Triumph Aviation Services—Asia and Triumph Structures—Thailand is the U.S. dollar since that is the currency in which that entity primarily generates and expends cash. The functional currency of the Company's remaining subsidiaries is the local currency, since that is the currency in which those61TRIUMPH GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(Dollars in thousands, except per share data)entities primarily generate and expend cash. Assets and liabilities of these subsidiaries are translated at the rates of exchange at the balance sheet date. Income and expense items are translated at average monthly rates of exchange. The resultant translation adjustments are included in accumulated other comprehensive income (see Note 13). Gains and losses arising from foreign currency transactions of these subsidiaries are included in net (loss) income. The Company recognizes penalties and interest accrued related to income tax liabilities in the provision for income taxes in its Consolidated Statements of Operations.Significant managementRecently Issued Accounting PronouncementsIn February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842). ASU 2016-02 requires lessees The Company recognizes penalties and interest accrued related to recognize assets andincome tax liabilities for most leases. ASU 2016-02 is effective for annual periods beginning after December 15, 2018. Early adoption is permitted. Full retrospective application is prohibited. ASU 2016-02's transition provision are applied using a modified retrospective approach at the beginning of the earliest comparative period presented in the financial statements. The Company is currently evaluating ASU 2016-02 and has not determinedprovision for income taxes on its consolidated statements of operations. impact it may have on the Company’s consolidated results of operations, financial position or cash flows nor decided on the method of adoption.In November 2015, the FASB issued ASU 2015-17, Income Taxes (Subtopic 740-10): Balance Sheet Classification of Deferred Taxes. ASU 2015-17 requires companies to classify all deferred tax assets and liabilities as noncurrent on the balance sheet instead of separating deferred taxes into current and noncurrent amounts. ASU 2015-17 is effective for fiscal years ended March 31, 2022, 2021, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is allowed for financial statements that have not been previously issued. Entities may elect to adopt the guidance either prospectively or retrospectively to all prior periods (i.e., the balance sheet for each period is adjusted). Effective December 1, 2015,2020, the Company adopted this standard retrospectivelypaid $5,382, $2,297, and $4,005, respectively, for income taxes, net of income tax refunds received.all prior periods and resulting in a reclass of $145,352 from a current deferred tax asset to a noncurrrent deferred tax liability on the Consolidated Balance Sheet. The adoption did not have a material impact on the Company’s financial position, results of operations or cash flows.In September 2015, the FASB issued ASU 2015-16, Business Combinations(Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. ASU 2015-16 eliminates the requirement that an acquirer in a business combination account for measurement-period adjustments retrospectively. Instead, an acquirer will recognize a measurement-period adjustment during the period in which it determines the amount of the adjustment. ASU 2015-16 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. The Company adopted this standard effective January 1, 2016. The adoption did not have a material impact on the Company's financial position, results of operations or cash flows.In April 2015, the FASB issued ASU 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. ASU 2015-03 requires companies to present debt issuance costs as a direct deduction from the carrying value of that debt liability. ASU 2015-03 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is allowed for financial statements that have not been previously issued. Entities would apply the new guidance retrospectively to all prior periods. Effective April 1, 2015, the Company adopted this standard. The adoption did not have a material impact on the Company’s financial position, results of operations or cash flows. In accordance with ASC 2015-15, the Company has excluded debt issuance costs relating to revolving debt instruments as a direct deduction to debt.62TRIUMPH GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)May 2014,January 2022, the FASB issued guidance codifiedCompany’s Board of Directors committed to a plan to sell its manufacturing operations located in Accounting Standards Codification ("ASC") 606, Revenue Recognition - Revenue from Contracts with Customers, which amends the guidance in former ASC 605, Revenue Recognition. The objective of ASC 606 is to establish a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most of the existing revenue recognition guidance. The principle of ASC 606 is that an entity will recognize revenue at the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled. ASC 606 is effective for interim and annual reporting periods beginning after December 15, 2017 and can be adopted byStuart, Florida. In February 2022, the Company using eitherentered into a full retrospective or modified retrospective approach, with early adoption prohibited. The Company is currently evaluating ASC 606 and has not determined the impact it may have on the Company’s consolidated results of operations, financial position or cash flows nor decided on the method of adoption.Stock-Based CompensationThe Company recognizes compensation expense for share-based awards based on the fair value of those awards at the date of grant. Stock-based compensation expense for fiscal years ended March 31, 2016, 2015 and 2014 was $2,657, $1,272 and $4,653, respectively. The Company has classified share-based compensation within selling, general and administrative expenses to corresponddefinitive agreement with the same line item as the majoritybuyer of the cash compensation paidthese manufacturing operations. The transaction is subject to employees. Upon the exercise of stock options or vesting of restricted stock, the Company first transfers treasury stock, then will issue new shares (see Note 16 for further details).Supplemental Cash Flow InformationFor the fiscal years ended March 31, 2016customary closing conditions and 2014, the Company paid $4,887 and $4,157, respectively, for income tax, net of income tax refunds received. For the fiscal year ended March 31, 2015, the Company received $22,241 for income tax refunds, net of payments. The Company made interest payments of $62,325, $82,425 and $81,100 for fiscal years ended March 31, 2016, 2015 and 2014, respectively.During the fiscal years ended March 31, 2016, 2015 and 2014, the Company financed $188, $52 and $36 of property and equipment additions through capital leases, respectively. During the fiscal year ended March 31, 2014, the Company issued 2,290,755 shares in connection with certain redemptions of convertible senior subordinated notes (see Note 10).Warranty ReservesA reserve has been establishedis expected to provide for the estimated future cost of warranties on our delivered products. The Company periodically reviews the reserves and adjustments are made accordingly. A provision for warranty on products delivered is made on the basis of historical experience and identified warranty issues. Warranties cover such factors as non-conformance to specifications and defects in material and workmanship. The majority of the Company's agreements include a three-year warranty, although certain programs have warranties up to 20 years. Warranty reserves are included in accrued expenses and other noncurrent liabilities on the Consolidated Balance Sheet. The warranty reserves for the fiscal years ended March 31, 2016 and 2015, were $112,937 and $112,140, respectively, of which a significant portion is offset by an indemnification asset.63TRIUMPH GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(Dollars in thousands, except per share data)3.ACQUISITIONSAcquisition of Fairchild Controls CorporationEffective October 21, 2015, the Company acquired all of the outstanding shares of Fairchild Controls Corporation ("Fairchild"). Fairchild is a leading provider of proprietary thermal management systems, auxiliary power generation systems and related aftermarket spares and repairs. The acquired business operates as Triumph Thermal Systems-Maryland, Inc. and its results are included in Aerospace Systems Group from the date of acquisition.The purchase price for Fairchild was $57,130, including a working capital adjustments. Goodwillclose in the amountfirst half of $16,529 was provisionally recognized for this acquisitioncalendar 2022 and is calculated as the excess of consideration transferred over the net assets recognized and represents future economic benefits arising from other assets acquired that could not be individually identified and separately recognized such as assembled workforce. The goodwill is not deductible for tax purposes. The Company has also identified an intangible asset related to customer relationships valued at $18,000 withresult in a weighted-average life of 12.0 years.The accounting for the business combination is provisional and dependent upon valuations and other information for certain assets and liabilities which have not yet been identified, completed or obtained to a point where definitive estimates can be made. The process for estimating the fair values of identified intangible assets, certain tangible assets and assumed liabilities requires the use of judgment to determine the appropriate assumptions.As the Company finalizes estimates of the fair value of certain assets acquired and liabilities assumed, the purchase price allocation for Fairchild is provisional. Additional purchase price adjustments will be recorded during the measurement period, not to exceed one year beyond the acquisition date. These adjustments may have a material impact on the Company's results of operations and financial position.The table below presents the provisional estimated fair value of assets acquired and liabilities assumed on the acquisition date based on the best information the Company has received to date, in accordance with Accounting Standards Codification Topic 805, Business Combinations ("ASC 805"). These estimates will be revised as the Company finalizes valuations of tangible and intangible assets, certain liabilities assumed and other information related to the Fairchild acquisition. Accordingly, the amounts below report the Company's best estimate of fair value based on the information available at this time: October 21, 2015 Cash $ 9,065 Accounts receivable 8,859 Inventory 15,069 Prepaid expenses 263 Property and equipment 6,632 Goodwill 16,529 Intangible assets 18,000 Deferred taxes 3,992 Total assets $ 78,409 Accounts payable $ 1,284 Accrued expenses 12,128 Other noncurrent liabilities 7,867 Total liabilities $ 21,279 The provisional amounts recognized are based on the Company's best estimate using information that it has obtained as of the reporting date. The Company will finalize its estimate once it is able to determine that it has obtained all necessary information that existed as of the acquisition date related to this matter or one year following the acquisition of Fairchild, whichever is earlier.64TRIUMPH GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(Dollars in thousands, except per share data)The Fairchild acquisition has been accounted for under the acquisition method and, accordingly, is included in the consolidated financial statements from the effective date of acquisition. The Company incurred $569 in acquisition-related costs in connection with the Fairchild acquisition.The following table presents information for the Fairchild acquisition which are included in the Company's Consolidated Statements of Operations from its date of acquisition through the end of fiscal 2016: For the Year Ended March 31, 2016 Net sales $ 17,698 Operating income 1,792 FISCAL 2015 ACQUISITIONSAssumption of Spirit AeroSystems Holdings, Inc. - Gulfstream G650 and G280 Wing ProgramsEffective December 30, 2014, a wholly-owned subsidiary of the Company, Triumph Aerostructures - Tulsa LLC, doing business as Triumph Aerostructures-Vought Aircraft Division-Tulsa, completed the acquisition of the Gulfstream G650 and G280 wing programs (the "Tulsa Programs") located in Tulsa, Oklahoma, from Spirit AeroSystems, Inc. The acquisition of the Tulsa Programs establishes the Company as a leader in fully integrated wing design, engineering and production and advances its standing as a strategic Tier One Capable aerostructures supplier. The acquired business operates as Triumph Aerostructures-Vought Aircraft Division-Tulsa and its results are included in the Aerostructures Group from the date of acquisition.The Company received $160,000 in cash plus assets required to run the business from Spirit-Tulsa to cover the anticipated future cash flow needs of the programs. Goodwill in the amount of $80,122 was recognized for this acquisition and is calculated as the excess of consideration transferred over the net assets recognized and represents future economic benefits arising from other assets acquired that could not be individually identified and separately recognized such as assembled workforce. The goodwill is not deductible for tax purposes.The following condensed balance sheet represents the amounts assigned to each major asset and liability caption in the aggregate from the acquisition for the Tulsa Programs, in accordance with ASC 805: December 30, 2014 Inventory $ 78,660 Property and equipment 15,409 Goodwill 80,122 Deferred taxes 52,777 Other noncurrent assets 68,941 Total assets $ 295,909 Accounts payable $ 1,782 Accrued expenses 17,588 Acquired contract liabilities 368,448 Other noncurrent liabilities 68,091 Total liabilities $ 455,909 Based on the information accumulated during the measurement period, the Company has recognized an accrued warranty liability of $74,132 and a related indemnification asset of $68,941 for amounts reimbursed by the seller. The Company finalized its estimates after it was able to determine that it had obtained all necessary information that existed as of the acquisition date related to these matters.65TRIUMPH GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(Dollars in thousands, except per share data)The Tulsa Programs acquisition has been accounted for under the acquisition method and, accordingly, is included in the consolidated financial statements from the effective date of acquisition. The Company incurred $5,000 in acquisition-related costs in connection with the Tulsa Programs acquisition, which is recorded in selling, general and administrative expenses in the accompanying Consolidated Statements of Operations.Acquisition of North American Aircraft Services, Inc.Effective October 17, 2014, the Company acquired the ownership of all of the outstanding shares of North American Aircraft Services, Inc. and its affiliates ("NAAS"). NAAS is based in San Antonio, Texas, with fixed-based operator units throughout the United States as well as international locations and delivers line maintenance and repair, fuel leak detection and fuel bladder cell repair services. The acquired business operates as Triumph Aviation Services - NAAS Division and its results are included in Aftermarket Services Group from the date of acquisition.The purchase price for the NAAS acquisition was $44,520, net of working capital adjustment of $167. Goodwill in the amount of $25,217 was recognized for this acquisition and is calculated as the excess of consideration transferred over the net assets recognized and represents future economic benefits arising from other assets acquired that could not be individually identified and separately recognized such as assembled workforce. The goodwill is not deductible for tax purposes. The Company has also identified an intangible asset related to customer relationships valued at $17,000 with a weighted-average life of 11.0 years.The following condensed balance sheet represents the amounts assigned to each major asset and liability caption in the aggregate from the acquisition of NAAS, in accordance with ASC 805: October 17, 2014 Cash $ 818 Accounts receivable 4,939 Inventory 848 Property and equipment 216 Goodwill 25,217 Intangible assets 17,000 Other assets 225 Total assets $ 49,263 Accounts payable $ 232 Accrued expenses 911 Other noncurrent liabilities 3,600 Total liabilities $ 4,743 The Company finalized its estimates after it was able to determine that it had obtained all necessary information that existed as of the acquisition date related to these matters.The NAAS acquisition has been accounted for under the acquisition method and, accordingly, is included in the consolidated financial statements from the effective date of acquisition. The NAAS acquisition was funded by the Company's long-term borrowings in place at the date of acquisition. The Company incurred $654 in acquisition-related costs in connection with the NAAS acquisition, which is recorded in selling, general and administrative expenses in the accompanying Consolidated Statements of Operations.Acquisition of GE Aviation - Hydraulic ActuationEffective June 27, 2014, the Company acquired the hydraulic actuation business of GE Aviation ("GE"). GE's hydraulic actuation business consists of three facilities located in Yakima, Washington, Cheltenham, England and the Isle of Man and is a technology leader in actuation systems. GE's key product offerings include complete landing gear actuation systems, door actuation, nose-wheel steerings, hydraulic fuses, manifolds flight control actuation and locking mechanisms for the commercial,66TRIUMPH GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(Dollars in thousands, except per share data)military and business jet markets. The acquired business operates as Triumph Actuation Systems-Yakima and Triumph Actuation Systems-UK & IOM and its results are included in Aerospace Systems Group from the date of acquisition.The purchase price for the GE acquisition was $75,609, which included cash paid at closing, working capital adjustments, and deferred payments of $6,000 paid in fiscal 2016. Goodwill in the amount of $150,772 was recognized for this acquisition and is calculated as the excess of consideration transferred over the net assets recognized and represents future economic benefits arising from other assets acquired that could not be individually identified and separately recognized such as assembled workforce. The goodwill is deductible for tax purposes. The Company has also identified an intangible asset related to customer relationships and technology valued at $26,472 with a weighted-average life of 12.0 years.The following condensed balance sheet represents the amounts assigned to each major asset and liability caption in the aggregate from the acquisition of GE, in accordance with ASC 805: June 27, 2014 Cash $ 4,608 Accounts receivable 35,376 Inventory 49,585 Property and equipment 30,985 Goodwill 150,772 Intangible assets 26,472 Deferred taxes 63,341 Other assets 2,023 Total assets $ 363,162 Accounts payable $ 17,734 Accrued expenses 37,483 Acquired contract liabilities 232,336 Total liabilities $ 287,553 Based on the information accumulated through the measurement period and the Company's assessment of the probable outcome of warranty claims, the Company has recognized a liability of $24,514. The provisional amounts recognized are based on the Company's best estimate using information that it has obtained as of the reporting date. The Company finalized its estimates after it was able to determine that it had obtained all necessary information that existed as of the acquisition date related to these matters.The GE acquisition has been accounted for under the acquisition method and, accordingly, is included in the consolidated financial statements from the effective date of acquisition. The GE acquisition was funded by the Company's long-term borrowings in place at the date of acquisition. The Company incurred $1,834 in acquisition-related costs in connection with the GE acquisition, which is recorded in selling, general and administrative expenses in the accompanying Consolidated Statements of Operations.The acquisitions of the Tulsa Programs, NAAS and GE are referred to in this report as the "fiscal 2015 acquisitions."FISCAL 2014 ACQUISITIONSAcquisition of Insulfab Product Line (Chase Corporation)Effective October 7, 2013, the Company's wholly-owned subsidiary, Triumph Insulation Systems, LLC, acquired substantially all of the assets comprising the Insulfab product line from Chase Corporation ("Insulfab"). Insulfab primarily focuses on manufacturing high-quality, engineered barrier laminates used in aerospace applications. The purchase price for the Insulfab acquisition was $7,394 in cash at closing and in January 2014, after the working capital was finalized the Company67TRIUMPH GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(Dollars in thousands, except per share data)paid $2,516 in cash. The results for Triumph Insulation Systems, LLC will continue to be included in the Aerostructures Group.Acquisition of General Donlee Canada, Inc.Effective October 4, 2013, the Company acquired all of the issued and outstanding shares of General Donlee Canada, Inc. ("General Donlee"). General Donlee is based in Toronto, Canada, and is a leading manufacturer of precision machined products for the aerospace, nuclear and oil and gas industries. The purchase price for the General Donlee acquisition was $56,622 plus assumed debt of $32,382, which was settled at closing. Additionally, on October 7, 2013, the Company, at its option, called General Donlee's Convertible Notes for $26,000, which were paid on November 12, 2013. The Company incurred $766 in acquisition-related costs in connection with the General Donlee acquisition, which is recorded in selling, general and administrative expenses in the accompanying Consolidated Statements of Operations. The acquired business now operates as Triumph Gear Systems-Toronto ULC and its results are included in the Aerospace Systems Group.Acquisition of Primus CompositesEffective May 6, 2013, the Company acquired four related entities collectively comprising the Primus Composites ("Primus") business from Precision Castparts Corp. The acquired business, which includes two manufacturing facilities in Farnborough, England and Rayong, Thailand, operates as Triumph Structures - Farnborough and Triumph Structures - Thailand and is included in the Aerostructures Group. Together, Triumph Structures - Farnborough and Triumph Structures - Thailand constitute a global supplier of composite and metallic propulsion and structural composites and assemblies. In addition to its composite operations, the Thailand operation also machines and processes metal components. The purchase price for the Primus acquisition was $33,530 in cash and $30,000 in assumed debt settled at closing. The Company incurred $743 in acquisition-related costs in connection with the Primus acquisition, which is recorded in selling, general and administrative expenses in the accompanying Consolidated Statements of Operations.The acquisitions of Insulfab, General Donlee and Primus are referred to in this report as the "fiscal 2014 acquisitions."4.DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALESale of Triumph Aerospace Systems - WichitaIn January 2014, the Company sold all of the shares of Triumph Aerospace Systems-Wichita, Inc. ("TAS-Wichita") for total cash proceeds of $23,000. As a result of the sale of TAS-Wichita, the Company recognized no gain or loss.gain. The operating results of TAS-Wichita werethe Stuart, Florida, operations are included within the Aerospace Structures reportable segment.Aerostructures Group throughCompany entered into a definitive agreement with the date of disposal.The Company expects to have significant continuing involvement in the business and marketsbuyer of the disposed entities, as defined by ASC 250-20, Discontinued Operations;composites manufacturing operations in Georgia and therefore as a result,the disposal group does not meet the criteria to be classified as discontinued operations.Sale of Triumph Instruments - Burbank and Triumph Instruments - Ft. LauderdaleApril 2013,February 2021, the Company soldentered into a definitive agreement to sell its large structure manufacturing operations in Red Oak, Texas, to the assetssame buyer of the Milledgeville and liabilities of Triumph Instruments - Burbank and Triumph Instruments - Ft. Lauderdale ("Triumph Instruments") for total proceeds of $11,200, including cash received at closing of $9,676 a note of $1,500, and the remaining amount heldRayong composites manufacturing operations. These transactions closed in escrow and received in the second quarter of fiscal 2014, resulting in a loss of $1,462 recognized duringMay 2021. In the year ended March 31, 2013. The operating results are included in the Aftermarket Services Group through the date of disposal.The Company expects to have significant continuing involvement in the business and markets of the disposed entities, as defined by ASC 250-20, Discontinued Operations; and therefore as a result,the disposal group does not meet the criteria to be classified as discontinued operations.To measure the amount of loss related to Triumph Instruments,2021, the Company compared the fair value of assets and liabilities at the evaluation date toadjusted the carrying amount at the end of the month priorthese assets held for sale to the evaluation date.its estimated fair value less cost to sell and recognized a loss of approximately $102,500. The saleestimate of the Triumph Instruments assets and liabilities arefair value is categorized as Level 2 within the fair value hierarchy. The key assumption includedassumptions used in the estimate of fair value were the negotiated sales price of the assets and the assumptionsassumption of the liabilities (seedisposal group’s liabilities.215, as a result of the completed sale of these manufacturing operations, the Company recognized a curtailment loss of approximately $16,000.definitionnet proceeds of levels).68TRIUMPH GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31,
March 31,
1 year
years5.INVENTORIESInventories are stated March 31, 2016 2015 Raw materials $ 81,989 $ 73,168 Work-in-process 1,100,660 1,305,390 Finished goods 124,744 91,639 Less: unliquidated progress payments (123,155 ) (189,923 ) Total inventories $ 1,184,238 $ 1,280,274 According toprovisions of U.S. Government contracts, the customer has title to, or a security interest in, substantially all inventories related to such contracts. Included above is total net inventory on government contracts of $27,635 and $70,121, respectively, at March 31, 2016 and 2015.Work-in-process inventory includes capitalized pre-production costs on newer development programs. Capitalized pre-production costs include nonrecurring engineering, planning and design, including applicable overhead, incurred before production is manufactured on a regular basis. Significant customer-directed work changes can also cause pre-production costs to be incurred. These costs are typically recovered over a contractually determined number of ship set deliveries. The balance of development program inventory, comprised principally of capitalized pre-production costs, excluding progress payments related to the Company's contracts with Bombardier for the Global 7000/8000 program ("Bombardier") and Embraer for the second generation E-Jet ("Embraer") are as follows: March 31, 2016 Inventory Forward Loss Provision Total Inventory, net Bombardier $ 412,809 $ (399,758 ) $ 13,051 Embraer 151,904 — 151,904 Total $ 564,713 $ (399,758 ) $ 164,955 March 31, 2015 Inventory Forward Loss Provision Total Inventory, net Bombardier $ 266,739 $ — $ 266,739 Embraer 68,112 — 68,112 Total $ 334,851 $ — $ 334,851 In the fourth quarterestimated useful lives of the fiscal year ended March 31, 2016, we recorded a $399,758 forward loss charge forrelated assets, or the Bombardier Global 7000/8000 wing program. Under our contract for this program, we have the right to design, develop and manufacture wing components over the initial 300 ship sets . The Global 7000/8000 contract provides for fixed pricing and requires us to fund certain up-front development expenses, with certain milestone payments made by Bombardier. The Global 7000/8000 program charge resultedlease term if shorter in the impairmentcase of previously capitalized pre-production costs dueleaseholdthe combination of cost recovery uncertainty, higher than anticipated non-recurring costs and increased forecasted costs on recurring production. The increases in costs were driven by several factors, including: changing technical requirements, increased spending on the design and engineering phase of the program and uncertainty regarding cost reduction and cost recovery initiatives with our customer and suppliers. Further cost increases or an inability to meet revised recurring cost forecasts on the Global 7000/8000 program may result in additional forward loss reserves in future periods, while improvements in future costs compared to current estimates may result in favorable adjustments if forward loss reserves are no longer required.The Company is still in the pre-production stages for the Bombardier and Embraer programs, as these aircrafts are not scheduled to enter service until 2018, or later. Transition of these programs from development to recurring production levels is69TRIUMPH GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)dependent uponsuccessstraight-line method. Buildings and improvements are depreciated over a period of the programs at achieving flight testing15 to 40 years, and certification, as well as the abilitymachinery and equipment are depreciated over a period of the Bombardier7 to 15 years (except for furniture, fixtures and Embraer programscomputer equipment, which are depreciated over a period of 3 to generate acceptable levels of aircraft sales. The failure to achieve these milestones and level of sales or significant cost overruns may result in additional forward losses.6.PROPERTY AND EQUIPMENTat March 31, 2016 and 2015, is: March 31, 2016 2015 Land $ 72,204 $ 72,893 Construction in process 40,772 53,475 Buildings and improvements 371,336 374,763 Furniture, fixtures and computer equipment 159,511 146,834 Machinery and equipment 989,423 947,149 1,633,246 1,595,114 Less: accumulated depreciation 743,512 644,380 $ 889,734 $ 950,734 2016, 20152022, 2021, and 20142020, was $122,19740,282, $108,34771,651 and $117,55389,857, respectively, which includes depreciation of assets under capitalfinance lease. Included in furniture, fixtures and computer equipment above is $93,047 and $84,098, respectively, of capitalized software at March 31, 2016 and 2015, which were offset by accumulated depreciation of $66,760 and $55,304, respectively.7.GOODWILL AND OTHER INTANGIBLE ASSETS20162022 and 2015:2021: Aerostructures Total Balance, March 31, 2015 $ 1,420,208 $ 523,253 $ 81,385 $ 2,024,846 Goodwill recognized in connection with acquisitions — 16,529 — 16,529 Impairment of goodwill (597,603 ) — — (597,603 ) Effect of exchange rate changes 196 216 70 482 Balance, March 31, 2016 $ 822,801 $ 539,998 $ 81,455 $ 1,444,254 Aerostructures Total Balance, March 31, 2014 $ 1,339,993 $ 395,912 $ 55,986 $ 1,791,891 Goodwill recognized in connection with acquisitions 79,345 150,772 25,291 255,408 Effect of exchange rate changes 870 (23,431 ) 108 (22,453 ) Balance, March 31, 2015 $ 1,420,208 $ 523,253 $ 81,385 $ 2,024,846 Consistent with the Company's policy described here within, the Company performs Step 1theMarch 31, 2022 and 2021, Aerospace Structures had gross goodwill of $475,302 and $871,387, respectively, which was fully impaired. As of March 31, 2022 and 2021, Systems & Support had gross goodwill of $579,843 and $587,759, respectively, and accumulated goodwill impairment test on an interim basis upon the occurrence of events or substantive changes in circumstances that indicate a reporting unit's carrying value may be less than its fair value. During the third quarter of the fiscal year ended March 31, 2016, the Company performed an interim assessment of the fair value of its goodwill$66,121 and indefinite-lived intangible assets due to indicators of impairment related to the continued decline in the Company's stock price during the third quarter. The Company performed Step 1 of the goodwill impairment test which included using a combination of both the market and income approaches to estimate the fair value of each reporting unit.70TRIUMPH GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(Dollars in thousands, except per share data)The Company's assessment focused on the Aerostructures reporting unit since it had significant changes in its economic indicators and adjusted for select changes in the risk adjusted discount rate to consider both the current return requirements of the market and the risks inherent in the reporting unit, expected long-term growth rate and cash flow projections to determine if any decline in the estimated fair value of a reporting unit could result in a goodwill impairment. The decline in fair value compared to carrying value of the goodwill is the result of declining revenues from production rate reductions and the slower than previously projected ramp in Bombardier Global 7000/8000 and the timing of associated earnings. The Company concluded that the goodwill was not impaired as of the interim impairment assessment date. However, the excess of the fair value over the carrying value was within 5% for the Aerostructures reporting unit. The amount of goodwill for the Aerostructures reporting unit amounted to $1,420,195 at December 31, 2015.During the fourth quarter of the fiscal year ended March 31, 2016, consistent with the Company's policy described here within, the Company performed its annual assessment of the fair value of goodwill. The Company concluded that the goodwill related to the Aerostructures reporting unit was impaired as of the annual testing date. The Company concluded that the goodwill had an implied fair value of $822,801 (Level 3) compared to a carrying value of $1,420,195. Accordingly, the Company recorded a non-cash impairment charge during the fourth quarter of the fiscal year ending March 31, 2016, of $597,603, which is presented on the accompanying Consolidated Statements of Operations as "Impairment of intangible assets". The decline in fair value is the result of continued declines in stock price and related market multiples for stock price to EBITDA of both the Company and our peer group. Going forward, the Company will continue to monitor the performance of this reporting unit in relation to the key assumptions in our analysis.In the event that market multiples for stock price to EBITDA in the aerospace and defense markets decrease, or the expected EBITDA and cash flows for the Company's reporting units decreases, an additional goodwill impairment charge may be required, which would adversely affect the Company's operating results and financial condition. If management determines that impairment exists, the impairment will be recognized in the period in which it is identified. March 31, 2016 Net Customer relationships 16.4 $ 683,309 $ (215,546 ) $ 467,763 Product rights, technology and licenses 11.7 55,739 (37,695 ) 18,044 Noncompete agreements and other 16.1 2,881 (718 ) 2,163 Tradenames 20.0 163,000 (1,358 ) 161,642 Total intangibles, net $ 904,929 $ (255,317 ) $ 649,612 March 31, 2015 Net Customer relationships 16.5 $ 683,272 $ (180,765 ) $ 502,507 Product rights, technology and licenses 11.8 56,302 (33,208 ) 23,094 Noncompete agreements and other 15.9 2,929 (565 ) 2,364 Tradenames Indefinite-lived 438,400 — 438,400 Total intangibles, net $ 1,180,903 $ (214,538 ) $ 966,365 During the third quarter of the fiscal year ended March 31, 2016, the Company performed an interim assessment of fair value on our indefinite-lived intangible assets due
Average Life
(in Years)
Amount
Amortizationindicators of impairment related to the continued decline in our stock price during the fiscal third quarter. The Company estimated the fair value of the tradenames using the relief-from-royalty method, which uses several significant assumptions, including revenue projections that consider historical and estimated future results, general economic and market conditions, as well as the impact of planned business and operational strategies. The following estimates and assumptions were also used in the relief-from-royalty method:71TRIUMPH GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Average Life
(in Years)
Amount
Amortization•Royalty rates between 2% and 4% based on market observed royalty rates and profit split analysis; and•Discount rates between 12% and 13% based on the required rate of return for the tradename assets.Based on the Company's evaluation of indefinite-lived assets, including the tradenames, the Company concluded that the Vought tradename had a fair value of $195,800 (Level 3) compared to a carrying value of $425,000. Accordingly, the Company recorded a non-cash impairment charge during the third quarter of the fiscal year ended March 31, 2016, of $229,200, which is presented on the accompanying Consolidated Statements of Operations as "Impairment of intangible assets". The decline in fair value compared to carrying value of the Vought tradename is the result of declining revenues from production rate reductions and the slower than previously projected ramp in Bombardier Global 7000/8000 and the timing of associated earnings.During the fourth quarter of the fiscal year ended March 31, 2016, the Company performed its annual assessment of fair value on our indefinite-lived intangible assets. The Company estimated the fair value of the tradenames using the relief-from-royalty method, which uses several significant assumptions, including revenue projections that consider historical and estimated future results, general economic and market conditions, as well as the impact of planned business and operational strategies. The following estimates and assumptions were also used in the relief-from-royalty method:•Royalty rates between 2% and 4% based on market observed royalty rates and profit split analysis; and•Discount rate of 14% based on the required rate of return for the tradename assets,which increased from our interim assessment driven by increased risk due to continued declines in stock price and related market multiples for stock price to EBITDA of both the Company and our peer group and increased interest rates.Based on the Company's evaluation of indefinite-lived assets, including the tradenames, the Company concluded that the Vought and Embee tradenames had a fair value of $163,000 (Level 3) compared to a carrying value of $209,200. Accordingly, the Company recorded a non-cash impairment charge during the fiscal year ended March 31, 2016 of $46,200, which is presented on the accompanying Consolidated Statements of Operations as "Impairment of intangible assets". The decline in fair value of the Vought and Embee tradenames is the result of declining revenues from production rate reductions and the slower than previously projected ramp in Bombardier Global 7000/8000 and the timing of associated earnings. Additionally, it was determined that the tradenames will be amortized over their remaining estimated useful life of 20 years.In the event of significant loss of revenues and related earnings associated with the Vought and Embee tradenames, further impairment charges may be required, which would adversely affect our operating results.2016, 20152022, 2021, and 20142020, was $11,660, was $54,62022,551, $49,976and $46,72448,311, respectively. Amortization expense for the five fiscal years succeeding March 31, 2016,2022, by year is expected to be as follows: 2017: 2023: $55,38610,769; 2018: 2024: $53,8538,931; 2019: 2025: $52,2788,931; 2020: 2026: $49,9228,931; 2021: 2027: $49,9007,978, and thereafter: $388,27339,310.8.ACCRUED EXPENSESare composedconsist of the following items: March 31, 2016 2015 Accrued pension $ 3,621 $ 3,940 Deferred revenue, advances and progress billings 78,932 33,463 Accrued other postretirement benefits 16,246 20,116 Accrued compensation and benefits 114,149 114,777 Accrued interest 16,933 16,624 Warranty reserve 31,975 34,521 Accrued workers' compensation 17,033 16,500 Accrued income tax 2,469 2,516 Loss contract reserve 307,934 99,559 All other 93,916 68,860 Total accrued expenses $ 683,208 $ 411,848 72Total lease cost does not include short-term leases or sublease income, both of which are immaterial.TRIUMPH GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)9.LEASESAt March 31, 2016, future minimum payments under noncancelable operating leases with initial or remaining terms of more than one year were as follows: 2017—$27,904; 2018—$24,541; 2019—$21,677; 2020—$17,931; 2021—$15,712 and thereafter—$60,540 through 2031. In the normal course of business, operating leases are generally renewed or replaced by other leases.Total rental expense was $33,279, $34,762 and $41,508fiscal years ended March 31, 2016, 20152022, 2021, and 2014, respectively.2020, is disclosed in the table below.10.LONG-TERM DEBTLong-term debt consistsfollowing:table below.
Assets held for sale
Liabilities related to assets held for sale
Liabilities related to assets held for sale March 31, 2016 2015 Revolving credit facility $ 140,000 $ 148,255 Term loan 337,500 356,250 Receivable securitization facility 191,300 100,000 Capital leases 74,513 91,913 Senior notes due 2021 375,000 375,000 Senior notes due 2022 300,000 300,000 Other debt 7,978 7,978 Less: Debt issuance costs (8,971 ) (10,796 ) 1,417,320 1,368,600 Less: current portion 42,441 42,255 $ 1,374,879 $ 1,326,345 Revolving Credit FacilityIn May 2014, the Company amended and restated its existing credit agreement (the “Credit Facility”) with its lenders(i) increase the maximum amount allowed for the receivable securitization facility (the "Securitization Facility") and (ii) amend certain otherlease terms and covenants.In November 2013, the Company amended and restated its Credit Facility with its lenders to (i) provide for a $375,000 term loan with a maturity date of May 14, 2019 (the "2013 Term Loan"), (ii) maintain a Revolving Line of Credit under the Credit Facility of $1,000,000, with a $250,000 accordion feature, (iii) extend the maturity date to November 19, 2018, and (iv) amend certain other terms and covenants. In connection with the amendment to the Credit Facility, the Company incurred approximately $2,795 of financing costs. These costs, along with the $6,507 of unamortized financing costs prior to the amendment, are being amortized over the remaining term of the Credit Facility.The Company will repay the outstanding principal amount of the 2013 Term Loan in quarterly installments, on the first business day of each January, April, July and October, commencing April 2014.The obligation under the Credit Facility and related documents are secured by liens on substantially all assets of the Company and its domestic subsidiaries pursuant to an Amended and Restated Guarantee and Collateral Agreement, dateddiscount rates as of November 19, 2013, amongMarch 31, 2022 and 2021, is disclosed in the administrative agent, the Company and the subsidiaries of the Company party thereto.table below.Pursuantthe Credit Facility, the Company can borrow, repay and re-borrow revolving credit loans, and cause to be issued letters of credit, in an aggregate principal amount not to exceed $1,000,000 outstanding at any time. The Credit Facility bears interest at either: (i) LIBOR plus between 1.38% and 2.50%; (ii) the prime rate; or (iii) an overnight rate at the option of the Company. The applicable interest rate is based upon the Company’s ratio of total indebtedness to earnings before interest, taxes, depreciation and amortization. In addition, the Company is required to pay a commitment fee of between 0.25% and 0.45% on the unused portion of the Credit Facility. The Company’s obligations under the Credit Facility are guaranteed by the Company’s domestic subsidiaries.73TRIUMPH GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)At March 31, 2016, there were $140,000 in outstanding borrowings and $25,709 in letters of credit under the Credit Facility primarily to support insurance policies. At March 31, 2015, there were $148,255 in borrowings and $35,384 in letters of credit outstanding. levelmaturity of unused borrowing capacity under the Credit Facility varies from time to time depending in part upon the Company's compliance with financial and other covenants set forth in the related agreement. The Credit Facility contains certain affirmative and negative covenants including limitations on specified levels of indebtedness to earnings before interest, taxes, depreciation and amortization, and interest coverage requirements, and includes limitations on, among other things, liens, mergers, consolidations, sales of assets, payment of dividends and incurrence of debt. If an event of default were to occur under the Credit Facility, the lenders would be entitled to declare all amounts borrowed under it immediately due and payable. The occurrence of an event of default under the Credit Facility could also cause the acceleration of obligations under certain other agreements. The Company is in compliance with all such covenantslease liabilities as of March 31, 2016. As of March 31, 2016, the Company had borrowing capacity under the Credit Facility of $834,291 after reductions for borrowings and letters of credit outstanding under the Credit Facility.In connection with the Company amending and restating the Credit Facility to add the 2013 Term Loan, the Company also entered into an interest rate swap agreement through November 2018 to reduce its exposure to interest on the variable rate portion of its long-term debt. On the date of inception, the Company designated the interest rate swap as a cash flow hedge in accordance with FASB guidance on accounting for derivatives and hedges and linked the interest rate swap to the 2013 Term Loan. The Company formally documented the hedging relationship between 2013 Term Loan and the interest rate swap, 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 will be assessed and a description of the method of measuring the ineffectiveness. The Company also formally assesses, both at the hedge's inception and on a quarterly basis, whether the derivative item is highly effective offsetting changes in cash flows.As of March 31, 2016 and 2015, the interest rate swap agreement had a notional amount of $337,500 and $356,250, respectively, and a fair value of $4,526 and $2,743, respectively, which2022, is recorded in other comprehensive income net of applicable taxes (Level 2). The interest rate swap settles on a monthly basis when interest payments are made. These settlements occur through the maturity date.In May 2016, the Company entered into a Sixth Amendment to the Third Amended and Restated Credit Agreement, among the Company, the Subsidiary Co-Borrowers, the lenders party thereto and the Administrative Agent (the “Sixth Amendment” and the Credit Facility, as amended by the Sixth Amendment, the “Credit Facility”), pursuant to which those lenders electing to enter into the Sixth Amendment extended the expiration date for the revolving line of credit and the maturity date for the term loan by five years to May 3, 2021. Lenders holding revolving credit commitments aggregating $940,000 elected to extend the expiration date for the revolving line of credit, and Lenders holding approximately $324,500 of term loans (out of an aggregate outstanding term loan balance of approximately $330,000) elected to extend the term loan maturity date.In addition, the Sixth Amendment amended the Credit Facility to, among other things, (i) modify certain financial covenants to allow for the add-back of certain cash and non-cash charges, (ii) amend the total leverage ratio financial covenant to provide for a gradual reductiondisclosed in the maximum permitted total leverage ratio commencing with the fiscal year ending March 31, 2018, (iii) increase the interest rate, commitment fee and letter of credit fee pricing provisions for the highest pricing tier, (iv) establish the interest rate, commitment fee and letter of credit fee pricing at the highest pricing tier until the Company delivers its compliance certificate for its fiscal year ending March 31, 2017, (v) increase the minimum revolver availability threshold test in connection with the Company making certain permitted investments, certain additional permitted dividends, permitted acquisitions and permitted payments of certain types of indebtedness, and (vi) decrease the maximum senior secured leverage ratio threshold test in connection with the Company making certain permitted investments, certain permitted dividends, permitted acquisitions and permitted payments of certain types of indebtedness during the period from the datetable below.
leases
leasesSixth Amendment until the Company delivers its compliance certificate for the fiscal year ending March 31, 2017.following:2014,2021, the Company amended its receivable securitization facility (the "Securitization Facility"),the Securitization Facility, increasing the purchase limit from $175,000$75,000 to $225,000$100,000, modifying certain other terms to increase eligible receivables and availability, and extending the term through November 2017. 2024. The actual amount available under the Securitization Facility at any point in time is dependent upon the balance of eligible accounts receivable as well as the amount of letters of credit outstanding.wholly ownedwholly-owned special-purpose entity, which in turn sells a percentage ownership interest in the receivables to commercial paper conduits sponsored by financial institutions. The Company is the servicer of the trade accounts receivable under the Securitization Facility. As of March 31, 2016, the maximum amount available under the Securitization Facility was $225,000. Interest rates are based on prevailing market rates for short-term commercial paperthe Bloomberg Short Term Bank Yield Index ("BSBY"), plus a program2.25% fee on the drawn portion and a commitment fee. The program fee is 0.40%ranging from 0.45% to 0.50% on the amount outstanding under the Securitization Facility. Additionally, the commitment fee is 0.40% on 100% of the maximum amount available under the Securitization Facility. At March 31, 2016,74TRIUMPH GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(Dollars in thousands, except per share data)$191,300 was outstanding under the Securitization Facility. In connection with amending the Securitization Facility, the Company incurred approximately $252 of financing costs. These costs, along with the $341 of unamortized financing costs prior to the amendment, are being amortized over the lifeundrawn portion of the Securitization Facility. The drawn fee may be reduced to 2.00% depending on the credit rating of the Company. Collateralized letters of credit incur fees at a rate of 1.25%. The Company securitizessecures its trade accounts receivable, which are generally non-interest bearing,non-interest-bearing, in transactions that are accounted for as borrowings pursuant to the ASC 860, Transfers and Servicing topic. The Company has established a letter of credit facility under the Securitization Facility. Under the provisions of the ASC.agreementagreements governing the Securitization Facility containscontain restrictions and covenants, which includeincluding limitations on the making of certain restricted payments,payments; creation of certain liens,liens; and certain corporate acts such as mergers, consolidations and the sale of all or substantially all assets. The Company was in compliance with all such covenants as of March 31, 2016.Capital LeasesDuring the fiscal years ended March 31, 2016, 2015 and 2014, the Company entered into new capital leases in the amounts of $188, $52 and $36, respectively, to finance a portion of the Company's capital additions for the respective years. During the fiscal years ended March 31, 2016, 2015 and 2014, the Company obtained financing for existing fixed assets in the amount of $6,497, $37,608 and $30,503, respectively.2021February 26, 2013,August 17, 2020, the Company issued 375,000700,000 principal amount of 4.875%8.875% Senior Secured First Lien Notes due 2021June 1, 2024, pursuant to an indenture among the Company, the Guarantor Subsidiaries (as defined below) and U.S. Bank National Association, as trustee (the "2021 Notes"“First Lien Notes Indenture”). The 2021First Lien Notes were sold at 100%100% of the principal amount and have an effective interest yield of 4.875%8.875%. Interest is payable semi-annually in cash in arrears on June 1 and December 1 of each year, commencing on December 1, 2020. In connection with the issuance of the First Lien Notes, the Company incurred approximately $13,000 of costs, which were deferred and are being amortized over the term of the First Lien Notes.2021Collateral securing the First Lien Notes accruesand all future first lien obligations will be made expressly senior to the liens securing the 2024 Notes.rateredemption date. At any time or from time to time prior to February 1, 2023, the Company may redeem the First Lien Notes, in whole or in part, at a redemption price equal to 100% of 4.875%their principal amount plus a make whole premium, together with accrued and unpaid interest, if any, to the redemption date. In addition, the Company may redeem up to 40% of the aggregate principal amount of the outstanding First Lien Notes prior to June 1, 2023, with the net cash proceeds from certain equity offerings at a redemption price equal to 108.875% of their principal amount, together with accrued and unpaid interest, if any, to the redemption date.annumshare data)April 1March 15 and October 1September 15 of each year, commencing on October 1, 2013.March 15, 2020. In connection with the issuance of the 20212024 Notes, the Company incurred approximately $6,3279,300 of costs, which were deferred and are being amortized over the term of the 2024 Notes.20212025 Notes.20212025 Notes are the Company's senior unsecured obligations and rank equally in right of payment with all of its other existing and future senior unsecured indebtedness and senior in right of payment to all of its existing and future subordinated indebtedness. The 20212025 Notes are guaranteed on a full, joint and several basis by each of the Guarantor Subsidiaries.20212025 Notes prior to April 1, 2017,August 15, 2020, by paying a "make-whole" premium. The Company may redeem some or all of the 20212025 Notes on or after April 1, 2017,August 15, 2020, at specified redemption prices. In addition, prior to April 1, 2016,August 15, 2020, the Company may redeem up to 35%35% of the 20212025 Notes with the net proceeds of certain equity offerings at a redemption price equal to 104.875%107.75% of the aggregate principal amount plus accrued and unpaid interest, if any, subject to certain limitations set forth in the indenture governing the 20212025 Notes (the "2021"2025 Indenture").20212025 Notes at a price of (i) 101%101% of their principal amount plus accrued and unpaid interest, if any, as a result of certain change of controlchange-of-control events and (ii) 100%100% of their principal amount plus accrued and unpaid interest, if any, in the event of certain asset sales. These restrictions and prohibitions are subject to certain qualifications and exceptions.20212025 Indenture contains covenants that, among other things, limit the Company's ability and the ability of any of the Guarantor Subsidiariesguarantor subsidiaries to (i) grant liens on its assets, (ii) make dividend payments, other distributions or other restricted payments, (iii) incur restrictions on the ability of the Guarantor Subsidiaries to pay dividends or make other payments, (iv) enter into sale and leaseback transactions, (v) merge, consolidate, transfer or dispose of substantially all of their assets, (vi) incur additional indebtedness, (vii) use the proceeds from sales of assets, including capital stock of restricted subsidiaries, and (viii) enter into certain transactions with affiliates.Subsequent to year end, to ensure that the Company had full access to our Revolving Credit Facility (the "Credit Facility") during fiscal 2017, the Company obtained approval from the holders of the 2021 Notes to amend the terms of the indenture to conform with the 2022 Notes (as defined below) which allows for a higher level of secured debt. Absent this consent, the Company would have been restricted as to the level of new borrowings under the Credit Facility during fiscal 2017.Further, to mitigate the risk of failing to obtain the consent and to ensure the Company had adequate liquidity through fiscal 2017, the Company chose to make a significant draw on the Credit Facility in early April 2016, taking the outstanding balance to approximately $800,000. The Company paid down substantially all of the draw to the Credit Facility upon receiving consent from the holders of the 2021 Notes in May 2016.Senior Notes Due 2022On June 3, 2014, the Company issued $300,000 principal amount of 5.250% Senior Notes due 2022 (the "2022 Notes"). The 2022 Notes were sold at 100% of principal amount and have an effective interest yield of 5.250%. Interest on the 202275TRIUMPH GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(Dollars in thousands, except per share data)Notes accrues at the rate of 5.250% per annum and is payable semiannually in cash in arrears on June 1 and December 1 of each year, commencing on December 1, 2014. In connection with the issuance of the 2022 Notes, the Company incurred approximately $4,990 of costs, which were deferred and are being amortized on the effective interest method over the term of the 2022 Notes.The 2022 Notes are the Company's senior unsecured obligations and rank equally in right of payment with all of its other existing and future senior unsecured indebtedness and senior in right of payment to all of its existing and future subordinated indebtedness. The 2022 Notes are guaranteed on a full, joint and several basis by each of the Guarantor Subsidiaries.The Company may redeem some or all of the 2022 Notes prior to June 1, 2017, by paying a "make-whole" premium. The Company may redeem some or all of the 2022 Notes on or after June 1, 2017, at specified redemption prices. In addition, prior to June 1, 2017, the Company may redeem up to 35% of the 2022 Notes with the net proceeds of certain equity offerings at a redemption price equal to 105.250% of the aggregate principal amount plus accrued and unpaid interest, if any, subject to certain limitations set forth in the indenture governing the 2022 Notes (the "2022 Indenture").The Company is obligated to offer to repurchase the 2022 Notes at a price of (i) 101% of their principal amount plus accrued and unpaid interest, if any, as a result of certain change-of-control events and (ii) 100% of their principal amount plus accrued and unpaid interest, if any, in the event of certain asset sales. These restrictions and prohibitions are subject to certain qualifications and exceptions.The 2022 Indenture contains covenants that, among other things, limit the Company's ability and the ability of any of the Guarantor Subsidiaries to (i) grant liens on its assets, (ii) make dividend payments, other distributions or other restricted payments, (iii) incur restrictions on the ability of the Guarantor Subsidiaries to pay dividends or make other payments, (iv) enter into sale and leaseback transactions, (v) merge, consolidate, transfer or dispose of substantially all of their assets, (vi) incur additional indebtedness, (vii) use the proceeds from sales of assets, including capital stock of restricted subsidiaries, and (viii) enter into transactions with affiliates.Receivables Purchase AgreementOn March 28, 2016, the Company entered into a Purchase Agreement ("Receivables Purchase Agreement") to sell certain accounts receivables to a financial institution without recourse. The Company is the servicer of the accounts receivable under the Receivables Purchase Agreement. As of March 31, 2016, the maximum amount available under the Receivables Purchase Agreement was $90,000. Interest rates are based on LIBOR plus 0.65% - 0.70%. As of March 31, 2016, the Company sold $89,900 worth of eligible accounts receivable.Senior Subordinated Notes Due 2017On November 16, 2009, the Company issued $175,000 principal amount of 8.00% Senior Subordinated Notes due 2017 (the "2017 Notes"). The 2017 Notes were sold at 98.56% of principal amount and had effective interest yield of 8.25%. Interest on the 2017 Notes was payable semiannually in cash in arrears on May 15 and November 15 of each year. In connection with the issuance of the 2017 Notes, the Company incurred approximately $4,390 of costs, which were deferred and amortized on the effective interest method over the term of the 2017 Notes.On November 15, 2013, the Company completed the redemption of the 2017 Notes. The principal amount of $175,000 was redeemed at a price of 104% plus accrued and unpaid interest. As a result of the redemption, the Company recognized a pre-tax loss on redemption of $11,069, consisting of early termination premium, unamortized discount and deferred financing fees and is presented on the accompanying Consolidated Statements of Operations as a component of "Interest expense and other" for the year ended March 31, 2014.Senior Notes due 2018On June 16, 2010, in connection with the acquisition of Vought, the Company issued $350,000 principal amount of 8.63% Senior Notes due 2018 (the "2018 Notes"). The 2018 Notes were sold at 99.27% of principal amount and had effective interest yield of 8.75%. Interest on the 2018 Notes accrued at the rate of 8.63% per annum and was payable semiannually in cash in arrears on January 15 and July 15 of each year, commencing on January 15, 2011. In connection with the issuance of the 2018 Notes, the Company incurred approximately $7,307 of costs, which were deferred and amortized on the effective interest method over the term of the 2018 Notes.On June 23, 2014, the Company completed the redemption of the 2018 Notes. The principal amount of $350,000 was redeemed at a price of 104.79% plus accrued and unpaid interest. As a result of the redemption, the Company recognized a pre-tax loss on redemption of $22,615, consisting of early termination premium, write-off of unamortized discount and deferred76TRIUMPH GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(Dollars in thousands, except per share data)financing fees and was recorded on the Consolidated Statements of Operations as a component of "Interest expense and other" for the fiscal year ended March 31, 2015.Convertible Senior Subordinated NotesOn May 22, 2014, the Company announced the redemption of the Convertible Notes. The redemption price for the Convertible Notes was equal to the sum of 100% of the principal amount of the Convertible Notes outstanding, plus accrued and unpaid interest on the Convertible Notes up to, but not including, the redemption date of June 23, 2014. The Convertible Notes were able to be converted at the option of the holder.The Convertible Notes were eligible for conversion upon meeting certain conditions as provided in the indenture governing the Convertible Notes. For the periods from January 1, 2011 through June 23, 2014, the Convertible Notes were eligible for conversion. During the fiscal year ended March 31, 2015, the Company settled the conversion of $12,834 in principal value of the Convertible Notes, with the principal and the conversion benefit settled in cash. During the fiscal year ended March 31, 2014, the Company settled the conversion of $96,535 in principal value of the Convertible Notes, as requested by the respective holders, with the principal settled in cash and the conversion benefit settled through the issuance of 2,290,755 shares.To be included in the calculation of diluted earnings per share, the average price of the Company's common stock for the fiscal year must exceed the conversion price per share of $27.12. The average price of the Company's common stock for the fiscal years ended March 31, 2015 and 2014, was $65.11 and $73.94, respectively. Therefore, 40,177 and 811,083 additional shares, respectively, were included in the diluted earnings per share calculation for the fiscal years ended March 31, 2015 and 2014, respectively.
Value
Value
Value
ValueMarch 31, 2016 March 31, 2015 $ 1,417,320 $ 1,354,961 $ 1,368,600 $ 1,358,306 ourits existing debt (Level 2 inputs).2016, 20152022, 2021, and 20142020, amounted to $62,325147,030, $82,425116,515 and $81,10099,438, respectively. Interest capitalizedThe interest paid during the fiscal yearsyear ended March 31, 2016, 2015 and 2014 was 2022, includes the redemption premiums on the First Lien Notes of $668, $284 and $4,246, respectively.2016,2022, the fiscal year maturities of long-term debt are as follows: 20172023 —$42,4413,268; 20182024 —$238,2682,695; 20192025 —$191,8911,090,066; 20202026 —$255,704501,173; 20212027 —$17,7051,479; and thereafter—$680,2825,982 through 2021.2032.77TRIUMPH GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)11.OTHER NONCURRENT LIABILITIES March 31, 2016 2015 Acquired contract liabilities, net $ 522,680 $ 656,524 Deferred grant income 4,670 20,354 Accrued workers' compensation 15,942 15,657 Environmental contingencies 7,613 8,638 Accrued warranties 80,898 77,620 Income tax reserves 4,798 3,690 Legal contingencies — 9,500 All other 25,678 19,495 Total other noncurrent liabilities $ 662,279 $ 811,478 12.INCOME TAXESpretax (loss)loss from continuing operations before income taxes are as follows: Year ended March 31, 2016 2015 2014 Foreign $ (13,673 ) $ (429 ) $ 3,482 Domestic (1,145,474 ) 349,723 308,751 $ (1,159,147 ) $ 349,294 $ 312,233 Year ended March 31, 2016 2015 2014 Current: Federal $ 2,074 $ 391 $ 672 State 615 178 1,346 Foreign 4,426 4,751 1,090 7,115 5,320 3,108 Deferred: Federal (148,069 ) 114,260 100,191 State 29,020 (1,857 ) 3,102 Foreign 747 (7,126 ) (424 ) (118,302 ) 105,277 102,869 $ (111,187 ) $ 110,597 $ 105,977 78TRIUMPH GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended March 31, 2016 2015 2014 Statutory federal income tax rate 35.0 % 35.0 % 35.0 % State and local income taxes, net of federal tax benefit 1.8 0.5 0.9 Goodwill impairment (15.8 ) — — Miscellaneous permanent items and nondeductible accruals (0.2 ) (0.7 ) 0.5 Research and development tax credit 0.7 (1.9 ) (1.8 ) Foreign tax credits 0.2 (0.2 ) — Valuation allowance (13.4 ) — — Other 1.3 (1.0 ) (0.7 ) Effective income tax rate 9.6 % 31.7 % 33.9 % The March 31, 2016 2015 Deferred tax assets: Net operating loss and other credit carryforwards $ 105,731 $ 186,172 Inventory 139,006 4,171 Accruals and reserves 45,343 43,989 Pension and other postretirement benefits 252,234 186,806 Acquired contract liabilities, net 191,061 241,077 Other — — 733,375 662,215 Valuation allowance (157,246 ) (1,472 ) Net deferred tax assets 576,129 660,743 Deferred tax liabilities: Deferred revenue 253,705 411,947 Property and equipment 140,781 144,641 Goodwill and other intangible assets 219,120 342,785 Prepaid expenses and other 6,754 4,812 620,360 904,185 Net deferred tax liabilities $ 44,231 $ 243,442 assets at March 31, 2016.assets. Given the objectivityobjective verifiable negative evidence of a three-year cumulative loss and the weighting of all available positive evidence, the Company excluded projected taxable income (aside from reversing taxable79TRIUMPH GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(Dollars in thousands, except per share data) Valuation allowances recordedin fiscal 2016 were $155,774.Asby ($197) primarily due to an aggregate utilization ofMarch 31, 2016, the Company has federal and state net operating loss carryforwards of approximately $589,548 expiring105,815, the expiration of a portion of the Company's capital loss carryforwards, and changes to temporary differences related to the impairment of long-lived intangible assets, interest disallowance, and pension and other postretirement benefit plans. As of March 31, 2022, management determined that it was necessary to maintain a valuation allowance against principally all of its net deferred tax assets.various years through 2035. The Company also has a2034, and $459,997 have an indefinite carryforward period. State net operating losses begin to expire in 2023, with an immaterial portion classified as indefinite. Approximately $38,532 of foreign net operating losslosses begin to expire in 2027, and $112,593 have an indefinite carryforward of $109,532.2016,2022, was 9.6%(13.5)% as compared to 31.7%with (0.7)% for the fiscal year ended March 31, 2015.2021. The effective income tax rate for the fiscal year ended March 31, 2016,2022, included the benefit of $5,592 from a decrease to the state deferred tax rate, the benefit from the retroactive reinstatement of the R&D tax credit of $8,443$2,280, the expense of the foreign tax rate differences of $1,380, and the change in the valuation allowance of $155,774. The$23,487. Due to the current year pretax loss, the effective tax rate was also impacted by the non-deductible portiondrivers on a percentage basis are amplified. Accordingly, a year-over-year comparison of the goodwill impairmenteffective tax rate may not be indicative of $183,067.We doThe Company does not have any other tax holidays in the jurisdictions in which we operate.it operates. The income tax benefit attributable to the tax status of our subsidiaries in Thailand was approximately (439)0 or $(0.01)$0.00 per diluted share in fiscal 2016, 2022, $1,9300 or $0.040.00 per diluted share in fiscal 20152021 and $3471,932 or $0.010.04 per diluted share in fiscal 2014.2016,2022, cumulative undistributed earnings of foreign subsidiaries, for which no U.S. income or foreign withholding taxes have been recorded is 74,363194,522. As the Company currently intends to indefinitely reinvest all such earnings, no provision has been made for income taxes that may become payable upon distribution of such earnings, and it is not practicable to determine the amount of the related unrecognized deferred income tax liability. Penalties and tax-related interest expense are reported as a component of income tax expense. 20162022 and 2015, the total amount of accrued income tax-related interest and penalties was $239 and $207, respectively.During the fiscal years ended March 31, 2016, 2015 and 2014, the Company added $32, $4 and $32 of interest and penalties related to activity for identified uncertain tax positions, respectively.As of March 31, 2016 and 2015,2021, the total amount of unrecognized tax benefits was $9,21211,800 and $8,34811,536, respectively, all of which would impact the effective rate, if recognized. The Company anticipates that total unrecognized tax benefits may be reduced by $0 in the next 12 months.income tax examinations for fiscal years ended before March 31, 2011, state, or local income tax examinations, for fiscal years ended before March 31, 2012, or foreign income tax examinations by tax authorities, for fiscal years ended before March 31, 2010.2016,2022, the Company is not subject to examination in 1 state and no foreign jurisdictions. The Company has filed appeals in a prior state examination related to fiscal years ended March 31, 1999 through March 31, 2005. Because of net operating losses acquired as part of the acquisition of Vought, the Company is subject to U.S. federalany income tax examinations and various state jurisdiction examinations for the years ended December 31, 2001, and after related to previously filed Vought tax returns.examinations. The Company believes appropriate provisions for all outstanding issues have been made for all jurisdictions and all open years.noncurrent liabilitiesdeferred taxes for the fiscal years ended 20162022 and 20152021, follows: Year ended March 31, 2016 2015 2014 Beginning balance $ 8,826 $ 9,293 $ 7,710 Additions for tax positions related to the current year 669 962 774 Additions for tax positions of prior years 175 178 1,475 Reductions for tax positions of prior years — (1,607 ) (666 ) Ending Balance $ 9,670 $ 8,826 $ 9,293 80TRIUMPH GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)13.STOCKHOLDERS' EQUITY February 2014, the Company's Board of Directors authorized an increase in the Company's existing stock repurchase program by up to During the fiscal years endedAs of March 31, 2015, the Company repurchased 2,923,011 of its common stock for $184,380. As a result, as of May 27, 2016,2022, the Company remains able to purchase an additional 2,277,789 shares. Repurchases may be made from time to time in open market transactions, block purchases, privately negotiated transactions or otherwise at prevailing prices. No time limit has been set for completion of the program.During the fiscal year ended March 31, 2015, the Company settled the conversion of $12,834, in principal value of the Convertible Notes, as requested by the respective holders, with the principal and the conversion benefit settled in cash.$0.01$0.01 par value, 250,000 shares authorized. At March 31, 20162022 and 2015, zero2021, 0 shares of preferred stock were outstanding.20162022 and 20152021, were as follows:
Translation
Adjustment
and Losses on
Derivative
Instruments
Pension Plans
and Other
Postretirement
Benefits Currency Translation Adjustment Unrealized Gains and Losses on Derivative Instruments Defined Benefit Pension Plans and Other Postretirement Benefits Balance March 31, 2014 $ 198 $ 1,496 $ (20,602 ) $ (18,908 ) OCI before reclassifications (46,949 ) (4,098 ) (122,667 ) (173,714 ) Amounts reclassified from AOCI — (155 ) (6,133 ) (2) (6,288 ) Net current period OCI (46,949 ) (4,253 ) (128,800 ) (180,002 ) Balance March 31, 2015 (46,751 ) (2,757 ) (149,402 ) (198,910 ) OCI before reclassifications (12,065 ) (527 ) (127,267 ) (139,859 ) Amounts reclassified from AOCI — 364 (8,757 ) (2 ) (8,393 ) Net current period OCI (12,065 ) (163 ) (136,024 ) (148,252 ) Balance March 31, 2016 $ (58,816 ) $ (2,920 ) $ (285,426 ) $ (347,162 ) (1) Net of tax. of which a portion is allocated to production as inventoried costs.14.EARNINGS PER SHAREweighted-averageweighted average common shares outstanding used in the calculation of basic and diluted loss per share:share:share in the future but were not included in diluted weighted average common shares outstanding because to do so would have been anti-dilutive were immaterial. Year ended March 31, 2016 2015 2014 (thousands) Weighted-average common shares outstanding—basic 49,218 50,796 51,711 Net effect of dilutive stock options and nonvested stock — 169 265 Net effect of convertible debt — 40 811 Weighted-average common shares outstanding—diluted 49,218 51,005 52,787 81TRIUMPH GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(Dollars in thousands, except per share data)15.EMPLOYEE BENEFIT PLANSup to 50%at a rate of 75% of the first 6%6% of compensation contributed by the participant. All contributions and Company matches are invested at the direction of the employee in one or more investment options offered under the plan. Company matching contributions vest immediately and aggregated to $17,4622,998, $20,0201,665, and $21,20814,763 for the fiscal years ended March 31, 2016, 20152022, 2021, and 2014,2020, respectively. and life insurance benefits for eligible retired employees. Such benefits are unfunded as of 2016. Employees achieve eligibility to participate in these contributory plans upon retirement from active service if they meet specified age and years2022. During the year ended March 31, 2020, the Company reached agreement with two unions whose members make up the vast majority of service requirements. Election to participate for some employees must be made at the date of retirement. Qualifying dependents of eligible retirees at the date of retirement are alsoparticipants eligible for medical coverage. Current plan documents reserveretiree healthcare benefits. Under the terms of these agreements, the right to amend or terminatebenefits under the plans at any time, subject to applicable collective bargaining requirementscurrent program ceased for all represented employees. From time to time, changes have been made to the benefitsparticipants (actively employed and retired) by April 1, 2020. Company-funded notional health reimbursement accounts were provided to various groups ofretired participants (and their dependents) whose eligibility for current benefits ended under the new agreement. As a result, the Company's OPEB liability is no longer material. Actuarial gains associated with the OPEB plan participants. Premiums paid by the Company for most retirees for medical coverage prior to age 65are capped and are based on years of service. Overall premiums are adjusted annually for changescarried within AOCI as shown in the cost of the plans as determined by an independent actuary. In addition to this medical inflation cost-sharing feature, the plans also have provisions for deductibles, co-payments, coinsurance percentages, out-of-pocket limits, schedules of reasonable fees, preferred provider networks, coordination of benefits with other plans and a Medicare carve-out.The Company also sponsors an unfunded supplemental executive retirement plan ("SERP") that provides retirement benefits to certain key employees.20162022 and 2015, in2021, on the accompanying Consolidated Balance Sheets.consolidated balance sheets. The funded status is measured as the difference between the fair value of the plans' assets and the PBO or accumulated postretirement benefit obligation of the plan. The majority of the plan assets are publicly traded investments which were valued based on the market price as of the measurement date. Investments that are not publicly traded were valued based on the estimated fair value of those investments based on ourthe Company’s evaluation of data from fund managers and comparable market data.table setstables set forth the Company's consolidated defined benefit pension plans for its union and non-union employees and its SERP as of 20162022 and 2015,2021, and the amounts recorded inon the Consolidated Balance Sheetsconsolidated balance sheets at March 31, 20162022 and 2015.2021. Company contributions include amounts contributed directly to plan assets and indirectly as benefits are paid from the Company's
obligations at end of year82
consolidated balance sheets
accumulated other comprehensive income
itemsTRIUMPH GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Pension Benefits Year ended March 31, Year ended March 31, 2016 2015 2016 2015 Change in projected benefit obligations Projected benefit obligation at beginning of year $ 2,479,319 $ 2,160,708 $ 239,267 $ 311,012 Service cost 10,902 12,902 1,186 2,868 Interest cost 88,708 90,576 7,669 12,332 Actuarial loss (gain) 37,342 341,719 2,030 (61,261 ) Acquisitions — 39,575 — — Plan amendments 7,395 50 (49,512 ) — Participant contributions 212 145 2,323 3,339 Special termination benefits 724 — — — Benefits paid (192,652 ) (158,638 ) (23,062 ) (29,023 ) Currency translation adjustment (1,635 ) (7,718 ) — — Projected benefit obligation at end of year $ 2,430,315 $ 2,479,319 $ 179,901 $ 239,267 Accumulated benefit obligation at end of year $ 2,419,305 $ 2,464,418 $ 179,901 $ 239,267 Assumptions used to determine benefit obligations at end of year Discount rate 3.25 - 3.93% 3.78 % 3.73 % 3.66 % Rate of compensation increase 3.50 - 4.50% 3.50 % N/A N/A 83TRIUMPH GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(Dollars in thousands, except per share data) Pension Benefits Year ended March 31, Year ended March 31, 2016 2015 2016 2015 Change in fair value of plan assets Fair value of plan assets at beginning of year $ 2,156,148 $ 1,933,269 $ — $ — Actual return on plan assets (39,482 ) 236,782 — — Settlements — — — — Participant contributions 212 145 2,323 3,339 Company contributions 3,021 112,338 20,739 25,684 Acquisitions — 39,651 — — Benefits paid (192,652 ) (158,638 ) (23,062 ) (29,023 ) Currency translation adjustment (1,562 ) (7,399 ) — — Fair value of plan assets at end of year $ 1,925,685 $ 2,156,148 $ — $ — Funded status (underfunded) Funded status $ (504,630 ) $ (323,171 ) $ (179,901 ) $ (239,267 ) Reconciliation of amounts recognized in the consolidated balance sheets Pension asset—noncurrent $ — $ — $ — $ — Accrued benefit liability—current (3,621 ) (3,940 ) (16,246 ) (20,116 ) Accrued benefit liability—noncurrent (501,009 ) (319,231 ) (163,655 ) (219,151 ) Net amount recognized $ (504,630 ) $ (323,171 ) $ (179,901 ) $ (239,267 ) Reconciliation of amounts recognized in accumulated other comprehensive income Prior service credits $ (6,755 ) $ (20,155 ) $ (47,384 ) $ (8,682 ) Actuarial losses (gains) 569,435 340,034 (66,480 ) (74,615 ) Income tax (benefits) expenses related to above items (205,406 ) (118,445 ) 42,016 31,265 Unamortized benefit plan costs (gains) $ 357,274 $ 201,434 $ (71,848 ) $ (52,032 ) 84TRIUMPH GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(Dollars in thousands, except per share data)2016, 20152022, 2021, and 20142020, are as follows:
cost
(income)
periodic pension cost Pension Benefits Year Ended March 31, Year Ended March 31, 2016 2015 2014 2016 2015 2014 Components of net periodic pension cost Service cost $ 10,902 $ 12,902 $ 12,854 $ 1,186 $ 2,868 $ 3,060 Interest cost 88,708 90,576 92,938 7,669 12,332 12,552 Expected return on plan assets (162,285 ) (150,565 ) (147,545 ) — — — Amortization of prior service credit cost (4,038 ) (5,288 ) (6,731 ) (10,810 ) (4,529 ) (4,529 ) Amortization of net loss 9,488 — 13,487 (6,106 ) — — Curtailment gain (1,968 ) — (395 ) — — — Settlements — — 1,561 — — — Special termination benefits 724 — — — — — Total net periodic benefit (income) expense $ (58,469 ) $ (52,375 ) $ (33,831 ) $ (8,061 ) $ 10,671 $ 11,083 Assumptions used to determine net periodic pension cost Discount rate 3.31 - 4.11% 4.32 % 4.07 % 3.66 % 4.14 % 3.79 % Expected long-term rate on assets 6.50 - 8.25% 8.25 % 8.25 % N/A N/A N/A Rate of compensation increase 3.50 - 4.50% 3.50 % 3.50 % N/A N/A N/A plan assets ("MRVA"), which is a smoothed asset value. The market-relatedFor fixed income securities, the MRVA is determined using the fair value of the fixed income assets. For all other classes of pension assets, the MRVA is calculated by recognizing investment performance that is different from that expected on a straight-line basis over five years. Actuarial gains and losses are amortized over the average remaining life expectancy of inactive participants for plans that are predominantly inactive and over the expected future service for active participants for other plans, but only to the extent unrecognized gains or losses exceed a corridor equal to 10%10% of the greater of the projected benefit obligation or market-related value of assets.During the fourth quarter of the fiscal year ended March 31, 2016, thechanged the method it uses to estimateestimates the service and interest componentscost of net periodic benefit cost for the Company’sits pension and other postretirement benefit plans. This new estimation approach discounts the individual expected cash flows underlying the service cost and interest costOPEB plans by applyingusing the specific spot rates derived from the yield curve used to discount the cash flows reflected in the measurement of the benefit obligation. Historically, the Company estimated these service and interest cost components utilizing a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period.madebelieves this change to provideapproach provides a more precise measurement of service and interest costs by improvingdue to the correlation between projected benefit cash flows to the corresponding spot yield curve rates. The Company has accounted for this change as a change in accounting estimate that is inseparable from a change in accounting principle pursuance to ASC 250, Accounting Changes and Error Corrections and accordingly have accounted for it prospectively. While the benefit obligation measured under this approach is unchanged from that determined under the prior approach, the more granular application of the spot rates will reduce the service and interest cost for the pension and OPEB plans for the fiscal year ending March 31, 2017, by approximately $20,000. The spot rates used to determine service and interest costs the U.S. plans ranged from 0.60%to 9.75%. Under the Company’s prior methodology, these rates would have resulted in weighted-average rates for service cost and interest85TRIUMPH GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(Dollars in thousands, except per share data)cost of 3.86% for the U.S. Pension plans and 3.73% for the OPEB plans. The new approach will be used to measure the service cost and interest cost for our pension and OPEB plans for the fiscal year ending March 31, 2017.Effective April 1, 2015, the Company changed the period over which actuarial gains and losses are being amortized for its U.S. pension plans from the average remaining future service period of active plan participants to the average life expectancy of inactive plan participants. This change was made because the Company has determined that as of that date almost all plan participants are inactive.2015,2022, the Society of Actuaries released a new and updated mortality tables that reflect increased life expectancy for participants of U.S. pension plans.projection scale. The Company has reflected thesethis new tables, along with an updated projection scale of mortality improvements,release in the measurement of ourits U.S. pension and other postretirement benefitOPEB plans as of March 31, 2015.2022. This change resulted in an increasea decrease in the benefit obligation.In•2016, one21, 2022, the Company elected to purchase annuities and settle the pension obligations for approximately 2,500 retired participants in its qualified U.S. pension plan. As a result of the Company's union-represented groupsthis transaction approximately $52,256 of employees ratified a new collective bargaining agreement. The agreement includes an amendmentplan assets and $51,418 of plan liabilities were transferred to the other postretirement benefits plan, for which participants will no longer receive a benefit afterNationwide Life and Annuity Insurance Company. The settlement resulted in the fiscalrecognition of prior noncash actuarial losses of approximately $32,116 in the year ended March 31, 2016. This change2022. The settlement's impact on the accompanying consolidated balance sheets was insignificant as the plan's assets were materially consistent with the settled pension obligation.terminationrecognition of prior noncash actuarial losses of approximately $3,826 in the year ended March 31, 2022. The settlement's impact on the accompanying consolidated balance sheets was insignificant as the plan's assets were materially consistent with the settled pension obligation.ascertain participants became eligible for subsidized early retirement benefits under the terms of the relevant plan. As a result, the plan's liability was eliminated asCompany performed an interim remeasurement and recognized a onetime pension curtailment charge of approximately $16,024 which is presented in non-service defined benefit income on the accompanying condensed consolidated statement of operations for year ended March 31, 20162022.Company recognizedunion which represents a creditportion of approximately $2,297. Additionally, the agreement includesworkforce at the Company’s Grand Prairie, TX, facility, in conjunction with an amendmentannounced shutdown of this facility, agreed to changes to the pension and retiree welfare plans for represented plan undermembers. Effective April 1, 2020, all current retiree welfare benefits for the union-represented retirees and active employees will cease. A new benefit consisting of a one-time credit to Heath Reimbursement Accounts for the current retirees and their covered dependents will be provided. The Company and the union also agreed to increased pension benefits which participants will no longer continue to accrue a benefit afterare effective with the fiscal year ending March 31, 2021. This change resulted in a curtailment gain of approximately $1,516 and is presented on the accompanying Consolidated Statements of Operations within "Curtailments, settlements and early retirement incentives."In February 2016, oneratification of the Company's union-represented groups of employees ratified a new collective bargaining agreement. TheThis agreement includes an amendment to the pension plan, under which effective January 1, 2017, actively accruing participants will no longer accrue benefits once they reach 30 years of service under the plan. This change resulted in a curtailment gain of approximately $3,314 and is presented on the accompanying Consolidated Statements of Operations within "Curtailments, settlements and early retirement incentives."In May 2015 and February 2016 the Company offered enhanced retirement benefits to employees of one of its union-represented groups. In order to receive these enhanced benefits, eligible employees had to agree to retire within a special window period. This change resulted in a special termination charge of approximately $724 and is presented on the accompanying Consolidated Statements of Operations within "Curtailments, settlements and early retirement incentives."In April 2015, the Company's largest union-represented group of employees ratified a new collective bargaining agreement. The agreement includes an amendment to the pension plan, under which participants will no longer accrue benefits after 30 years of service under the plan. This change resulted in a curtailment gain of approximately $2,863 and is presented on the accompanying Consolidated Statements of Operations within "Curtailments, settlements and early retirement incentives."In March 2014, the Company announced an amendment to the retirement plan of its non-represented employee participants. Effective March 1, 2015, actively accruing participants with 30 years of service will no longer continue to accrue a benefit. Those changes resulted in a decrease of the projected other post-employment benefits ("OPEB") benefit obligation of $61,766. It also resulted in a one-time OPEB curtailment gain of $41,128. As a result of the planned shutdown, subsidized early retirement provisions within the retirement plan and the agreed-to pension benefit increases, a pension curtailment loss of $23,476 was recognized, along with a one-time charge of $11,642 for special termination benefits. The net curtailment gain and charge for special termination benefits are included in non-service defined benefit income on the consolidated statements of operations for the year ended March 31, 2020.$14,355 and a related86$4,898. The curtailment gain is included in non-service defined benefit income on the consolidated statements of operations for the year ended March 31, 2020.TRIUMPH GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)curtailment gain of $8,427 and is presented on the accompanying Consolidated Statements of Operations as "Curtailments, settlements and early retirement incentives".In March 2014, in connection with the Company's relocation plan, the Company has restructured the remaining workforce resulting in the termination of a number of defined benefit plan participants. The Company concluded that these terminations will result in a significant reduction in the remaining service period and recorded a curtailment loss of $8,031 and is presented on the accompanying Consolidated Statements of Operations as "Curtailment, settlements and early retirement incentives". This curtailment loss included an increase in the projected pension obligation of $6,503. Additionally, as part of the layoffs, the Company recorded an early retirement incentive severance charge of $916 and is presented on the accompanying Consolidated Statements of Operations in "Curtailments, settlements and early retirement incentives."In December 2013, the Company completed an incentive offer in the form of lump-sum payments to non-represented deferred vested employees who were not of retirement age in lieu of any future benefits. In addition, cumulative lump-sum payments to union-represented plan participants for previously offered early retirement incentives exceeded the service and interest costs of the respective plan. The aforementioned changes led to a remeasurement of the affected plan's assets and obligations as of December 2013, which resulted in a $118,391 decrease in projected benefit obligation. Additionally, these distributions resulted in settlement charges of $1,561 and are presented on the accompanying Consolidated Statements of Operations within "Curtailments, settlements and early retirement incentives."The following table shows those amounts expected to be recognized in net periodic benefit costs during the fiscal year ending March 31, 2017: Amounts expected to be recognized in FY 2017 net periodic benefit costs Prior service cost (credit) $ (1,782 ) $ (13,464 ) Actuarial (loss) gain $ (11,985 ) $ 6,588 other postretirement plan benefitOPEB payments reflect the Company's portion of the funding. Estimated future benefit payments from plan assets and Company funds for the next
BenefitsYear 2017 $ 187,571 $ 16,547 2018 172,446 15,973 2019 167,732 15,550 2020 165,695 14,953 2021 162,720 14,432 2022 - 2026 773,657 61,392 * Net of expected Medicare Part D subsidies of $730 to $1,220 per year.87TRIUMPH GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(Dollars in thousands, except per share data)20162022 and the actual asset allocations at 20162022 and 2015.2021. March 31, Asset Category Fiscal 2016 2016 2015 Equity securities 40 - 50% 48 % 45 % Fixed income securities 40 - 50% 48 51 Alternative investment funds 0 - 10% 4 4 Total 100 % 100 % 20162022 and 2015,2021, by asset category. The table also identifies the level of inputs used to determine the fair value of assets in each category (see(refer to Note 2 for definition of levels).88
practical expedientTRIUMPH GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
practical expedientMarch 31, 2016 Level 1 Level 2 Level 3 Total Assets Cash and cash equivalents $ 24,302 $ 3,151 $ — $ 27,453 Equity securities International 162,168 — — 162,168 U.S. equity 78,155 — — 78,155 U.S. commingled fund 570,500 5,226 — 575,726 International commingled fund 44,613 53,167 — 97,780 Fixed income securities Corporate bonds — 25,121 — 25,121 Government securities — 159,432 — 159,432 U.S. commingled fund 622,605 74,447 — 697,052 International commingled fund 9,555 8,709 — 18,264 Other fixed income — 7,286 — 7,286 Other Private equity and infrastructure — — 71,571 71,571 Insurance contracts — — 1,349 1,349 Other — 1,493 — 1,493 Total investment in securities—assets $ 1,511,898 $ 338,032 $ 72,920 $ 1,922,850 Receivables 3,249 Payables (414 ) Total plan assets $ 1,925,685 89TRIUMPH GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(Dollars in thousands, except per share data)March 31, 2015 Level 1 Level 2 Level 3 Total Assets Cash and cash equivalents $ 91,499 $ 1,562 $ — $ 93,061 Equity securities International 181,061 — — 181,061 U.S. equity 72,911 — — 72,911 U.S. commingled fund 619,297 — — 619,297 International commingled fund 47,366 68,165 — 115,531 Fixed income securities Corporate bonds — 25,604 — 25,604 Government securities — 182,456 — 182,456 U.S. commingled fund 676,557 90,341 — 766,898 International commingled fund 10,174 3,512 — 13,686 Other fixed income — 8,415 — 8,415 Other Private equity and infrastructure — — 79,692 79,692 Insurance contracts — — 920 920 Total investment in securities—assets $ 1,698,865 $ 380,055 $ 80,612 $ 2,159,532 Receivables 2,609 Payables (5,993 ) Total plan assets $ 2,156,148 All otherinvestment funds for which the Company uses NAVand private equity and infrastructure funds are carried at net asset value ("NAV") as a practical expedient to estimate fair value per unit are categorized as Level 2 as long as they do not have redemption restrictions as of the measurement date. All commingled investment funds with redemption restrictions as of the measurement date are categorized as Level 3, if any.value. The NAV is the total value of the fund divided by the number of shares outstanding.private equity and infrastructure funds and insurance contracts. Investments in private equity and infrastructure funds are carried at estimated fair valuecontracts primarily valued based on NAV as a practical expedient and other appropriate adjustments to NAV as determined based on an evaluation of data provided by fund managers, including valuationsestimates of the underlying investments derivedpremium required to acquire similar insurance contracts using inputs such as cost, operating results, discounted future cash flows, and market-based comparable data.90TRIUMPH GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)The following table represents a rollforward of the balances of our pension plan assets that are valued using Level 3 inputs: March 31, 2015, Balance Acquisitions March 31, 2016, Balance Private equity funds $ 79,692 $ — $ (15,184 ) $ (15,223 ) $ 22,286 $ 71,571 Insurance contracts 920 — — — 429 1,349 Total $ 80,612 $ — $ (15,184 ) $ (15,223 ) $ 22,715 $ 72,920 March 31, 2014, Balance Acquisitions March 31, 2015, Balance Private equity funds $ 89,113 $ — $ (20,757 ) $ (1,002 ) $ 12,338 $ 79,692 Insurance contracts — 920 — — — 920 Total $ 89,113 $ 920 $ (20,757 ) $ (1,002 ) $ 12,338 $ 80,612 Assumptions and Sensitivities2016,2022, is shown below: Pension Benefits Increase of 25 basis points Obligation * $ (66,900 ) $ (3,685 ) Net periodic expense (300 ) (292 ) Decrease of 25 basis points Obligation * $ 70,100 $ 3,837 Net periodic expense 300 303
Benefits20116, the expected long-term rate of return on assets was 6.50 - 8.25%. For fiscal 2017,2023, the expected long-term rate of return is 6.505.75% - 8.00%8.00%.A significant factor used in estimating future per capita cost of covered health care benefits for our retirees and us is the health care cost trend rate assumption. The rate used at March 31, 2016, was 6.60% and is assumed to decrease gradually to 4.50% by fiscal 2027 and remain at that level thereafter. The effect of a one-percentage-point change in the healthcare cost trend rate in each year is shown below: Other Postretirement Benefits Net periodic expense $ 515 $ (439 ) Obligation 7,698 (6,943 ) PlansAssuming a normal retirement age of 65, theexpectsdoes 0t expect to contribute $40,000to its qualified U.S. defined benefit pension plans and $16,500 to its OPEB during fiscal 2017. No2023. NaN plan assets are expected to be returned to the Company in fiscal 2017.2023.91TRIUMPH GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(Dollars in thousands, except per share data)16.STOCK COMPENSATION PLANS purchase shares of the Company's common stock at the fair value at the time of the grant. Employee options and non-employee director options are fully vested as of March 31, 2016. There were no employeeCompany’s stock on the grant date or non-employee director options granted during fiscal years ended March 31, 2016, 2015 and 2014.Since fiscal 2006,in the Company approved the grantingform of restricted stock or restricted stock units that vest pursuant to service conditions and, in some cases, performance or market conditions. The stock incentive and compensation plans under which outstanding equity awards have been granted to employees, officers and non-employee directors are the Triumph Group 2018 Equity Plan (the "2018 Plan"), the Triumph Group 2013 Equity and Cash Incentive Plan (the “2013 Plan”), the 2016 Directors’ Equity Compensation Plan, as amended (the “Directors’ Plan”), and the Amended and Restated Directors’ Stock Incentive Plan (the “Prior Directors’ Plan”). The Prior Directors’ Plan expired by its terms during fiscal 2017. The current stock incentive and compensation plans used for future awards are the 2013 Plan for employees, officers and consultants, the Directors’ Plan, and the 2018 Plan. The 2018 Plan, the 2013 Plan, the Directors’ Plan, and the Prior Directors’ Plan are collectively referred to in this note as the plans.incentive. Theincentive compensation. Restricted stock and restricted sharesstock units that vest solely pursuant to service conditions generally vest on a graded basis over a three year period and are subject to forfeiture should the grantee'sgrantee’s employment be terminated prior to an applicable vesting date. Management and the thirdcompensation committee have also granted restricted stock and restricted stock units, referred to herein as performance restricted stock awards, that vest pursuant to a combination of service conditions as well as market and performance conditions. Such awards generally vest on a cliff vesting basis at the end of a three year performance period, subject to specific market or fourth anniversaryperformance conditions. The market and performance conditions may result in the awards vesting below target, including 0 vesting awards if certain threshold vesting conditions are not met, or up to 200% of the datenumber of grant,awards granted, if certain vesting conditions are exceeded. The share-based payment expense arising from restricted stock and arerestricted stock unit expense is included in capital in excess of par value. Restricted shares generally vest in full after three or four years. The fair value of restricted shares under the Company'sstock or restricted stock plansunits awards subject only to service conditions or service and performance conditions is determined by the product of the number of shares granted and the grant date market price of the Company's common stock. Certainstock, adjusted for material non-public information that the Company may be aware of these awards contain performance conditions, in addition to service conditions.as of the grant date, if any. The fair value of restricted stock or restricted stock units awards that contain market conditions is determined by the product of the number of shares granted and the grant date fair value of such an award value using a Monte Carlo valuation methodology. The fair value of share-based compensation granted to employees was $14,129, $13,103, and $13,249 during the fiscal years ended March 31,of three or four years.2,6579,782, $1,27212,701 and $4,65311,062 of share-based compensation expense during the fiscal years ended March 31, 2016, 2015 and 2014, respectively. The total income tax benefit recognized for share-based compensation arrangements for fiscal years ended March 31, 2016, 2015 and 2014, was $930, $445 and $1,629, respectively.A summary of the Company's stock option activity and related information for its option plans for the fiscal year ended March 31, 2016, was as follows: Options Outstanding at March 31, 2015 3,936 $ 15.37 Exercised — — Forfeited (3,936 ) 15.37 Outstanding at March 31, 2016 — $ — 0 $ — During the fiscal year ended March 31, 2016, the balance of outstanding stock options expired. The intrinsic value of stock options exercised during the fiscal years ended March 31, 20152022, 2021, and 2014, was $2,2342020, respectively. The Company has classified share-based compensation within selling, general and $1,043, respectively.20162022 and 2015, 5,006,1092021, 1,706,634 shares and 5,070,4092,019,502 shares of common stock, respectively, were available for issuance under the plans. A summary of the status of the Company's nonvested sharesnon-vested shares/units of restricted stock and deferred stock units as of March 31, 2016,2022, and changes during the fiscal year ended March 31, 2016,2022, is presented below:below.
Average Grant
Date Fair Value Shares Nonvested restricted stock and deferred stock units at March 31, 2015 175,382 $ 61.79 Granted 66,800 63.68 Vested (55,289 ) 71.39 Forfeited (17,002 ) 76.99 Nonvested restricted stock and deferred stock units at March 31, 2016 169,891 $ 57.88 20162022, 2021 and 2020 was $3,297. The tax benefit from vested7,453, $8,037, and $7,052, respectively. Upon the vesting of restricted stock was $96, $673 and $2,726 duringunits, the fiscal years ended March 31, 2016, 2015 and 2014, respectively. The weighted-average grant date fair value of share-based grants in the fiscal years ended March 31, 2016, 2015 and 2014, was $63.68, $64.44 and $79.80, respectively.Company first transfers treasury stock, then will issue new shares. Expected future compensation expense on restricted stock net of expected forfeitures, is approximately $2,5908,167, which is expected to be recognized over the remaining weighted-averageweighted average vesting period of 2.11.5 years.During the fiscal years ended March 31, 2016, 2015 and 2014, 15,200, 8,800 and 7,875 deferred stock units were granted to the non-employee members of the Board of Directors, respectively, under the Directors' Plan. Each deferred stock unit represents the contingent right to receive one share of the Company's common stock. The deferred stock units vest over a three or four-year period and the shares of common stock underlying vested deferred stock units will be delivered on January 1 of the year following the year in which the non-employee director terminates service as a Director of the Company.92TRIUMPH GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(Dollars in thousands, except per share data)17.COMMITMENTS AND CONTINGENCIESReal Estate Lease Litigation over Claims of American Brownfield MCIC, LLCAs previously disclosed, on June 13, 2013, American Brownfield MCIC, LLC (“American Brownfield”) filed suit (the “Lawsuit”) in the 298th Judicial District Court of Dallas County, Texas against Triumph Aerostructures, LLC (“Triumph Aerostructures”), a wholly-owned subsidiary of the Company, for amounts allegedly owed pursuant to a lease dated October 24, 2007, covering the use and occupancy of approximately 314 acres of land and improvements in Dallas, Texas, previously known as the Naval Weapons Industrial Reserve Plant (the “Jefferson Street Facility”). Triumph Aerostructures, the Company, and American Brownfield agreed to a mediated settlement of the Lawsuit, effective November 18, 2015. Under the terms of the settlement, American Brownfield was paid $5,000 on November 23, 2015, which is included in Legal settlement charge (gain), net, on the Consolidated Statements of Operations and is entitled to a second payment of $5,500 on or before May 20, 2016. The Lawsuit has been administratively closed, and will be dismissed with prejudice upon receipt by American Brownfield of the second payment. Also as part of the settlement, the Company has leased 272,683 square feet of space at the Jefferson Street Facility for a 15 year term beginning December 1, 2015, for annual base rent of $1,250.Trade Secret Litigation over Claims of Eaton CorporationOn June 18, 2014, the Company announced it had settled all pending litigation involving the Company, its subsidiary, the employees and Eaton Corporation and several of its subsidiaries ("Eaton"). As it pertained to the lawsuit by Eaton claiming alleged misappropriation of trade secrets and intellectual property allegedly belonging to Eaton relating to the design and manufacture of hydraulic pumps and motors used in military and commercial aviation. As part of the settlement, Eaton agreed to pay the Company $135,300 in cash. During the fiscal year ended March 31, 2015, the Company received payment representing a gain on legal settlement, net of expense, of $134,693, which is included on the Consolidated Statements of Operations.Other2016,2022, is significant. This amount is currently in excess of the related plan assets. Benefit plan assets are invested in a diversified portfolio of investments in both the equity and debt categories, as well as limited investments in real estate and other alternative investments. The market value of all of these investment categories may be adversely affected by external events and the movements and volatility in the financial markets, including such events as the current credit and real estate market conditions. Declines in the market values of ourthe Company’s plan assets could expose the total asset balance to significant risk which may cause an increase to future funding requirements. The Company's potential risk related to OPEB projected obligations as of March 31, 2016, is also significant.In recent years, these inflationary pressures have affected the market for raw materials. However, the Company believes that raw material prices will remain stable through the remainder of fiscal 2017 and after that, experience increases that are in line with inflation. Additionally, theThe Company generally does not employ forward contracts or other financial instruments to hedge commodity price risk.also involved in disputes, claims and lawsuits with employees, suppliers and customers, as well as governmental and regulatory inquiries, that it deems to be immaterial. Some may involve claims or potential claims of substantial damages, fines, penalties or penalties.injunctive relief. While the Company cannot predict the outcome of any pending or future litigation or proceeding and no93TRIUMPH GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)18.RESTRUCTURING COSTSFiscal 2016 Restructuringyearyears ended March 31, 2017 and 2016, the Company committed to a restructuring ofplans involving certain of its businesses, as well as the consolidation of certain of its facilities ("2016 Restructuring Plan"). The Company expectsfacilities. With the exception of two remaining facility closures to reduce its footprint by approximately 3.5 million square feet and to reduce head count by 1,200 employees. Overbe completed in fiscal year 2023, these plans were substantially complete as of March 31, 2020. During the next few fiscal years, the Company estimates that it will record aggregate pre-tax charges of $150,000 to $160,000 related to these programs, which represent employee termination benefits, contract termination costs, accelerated depreciation and facility closure and other exit costs, and will result in future cash outlays. For the fiscal year ended March 31, 2016,2022, the Company recorded chargesincurred costs of $80,956 related to this program including, accelerated depreciation$3,769, $16,663, and $1,171, within Systems & Support, Aerospace Structures, and its corporate headquarters, respectively, for total restructuring costs of $22,392 and severance of $16,300.The following table provides a summary$21,603 associated with new restructuring plans. Approximately $2,308 of the Company's current aggregate cost estimates by major typerestructuring costs are presented within impairment of expense associated with the 2016 Restructuring Plan:Type of expense Total estimated amount expected to be incurred Termination benefits $ 26,000 Facility closure and other exit costs (1) 40,000 Contract termination costs 25,000 Accelerated depreciation charges (2) 34,000 Other (3) 30,000 $ 155,000 (1) Includes costs to transfer product lines among facilities and outplacement and employee relocation costs.(2) Accelerated depreciation charges are recorded as part of Depreciation and amortizationlong-lived assets on the Consolidated Statement of Operations.(3) Consists of other costs directly related to the plan, including project management, legal and regulatory costs.The restructuring charges recognizedaccompanying consolidated income statement for the fiscal year ended March 31, 2016, by type and by segment consisted2022, with the remaining $19,295 presented within restructuring. Approximately $14,897 of the following: Aerostructures Aerospace Systems Aftermarket Services Corporate Total Termination benefits $ 11,379 $ 463 $ 397 $ 4,061 $ 16,300 Facility closure and other exit costs 14,295 — — — 14,295 Other — — — 5,587 5,587 Total Restructuring 25,674 463 397 9,648 36,182 Depreciation and Amortization 8,861 3,368 145 — 12,374 Included in Cost of sales Contract termination costs 12,100 — — — 12,100 Accelerated depreciation 10,018 — — — 10,018 Other 6,032 4,250 — — 10,282 Total $ 62,685 $ 8,081 $ 542 $ 9,648 $ 80,956 Terminationrestructuring costs within Aerospace Structures pertained to the two remaining facility closures described above. The remaining approximately $6,706 of restructuring costs primarily represent a mix of third-party consulting costs and postemployment benefits include employee retention, severancearising from current period reductions in force.benefit payments for terminated employees. Facility closurethe related costs include general operating costs incurred subsequent to production shutdownhave been settled as well as equipment relocation and other associated costs. Contract termination costs include costsof March 31, 2022. The Company has approximately $9,986 of postemployment benefits associated with terminating existing leases and supplier agreements. Other costs include legal, outplacement and employee relocation costs and other employee-related costs.94TRIUMPH GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(Dollars in thousands, except per share data)Relocation to Red OakDuring the fiscal year ended March 31, 2013, the Company committed to relocate the operations of its largest facility in Dallas, Texas2022. to expand its Red Oak, Texas ("Red Oak") facility to accommodate this relocation. The Company incurred approximately $86,640 in capital expenditures during the fiscal years ended March 31, 2014, associated with this plan. The Company incurred $3,193 and $31,290 of moving expenses related to the relocation during the fiscal year ended March 31, 2015 and 2014, shown separately on the Consolidated Statements of Operations. The relocation was substantially completed during the fiscal year ended March 31, 2014.19.CUSTOMER CONCENTRATIONTradeother accounts receivable from The Boeing Company ("Boeing") represented approximately 18%17% and 13%23% of total accounts receivable as of March 31, 20162022 and 2015,2021, respectively. Trade and other accounts receivable from GulfstreamQarbon Aerospace Corporation ("Gulfstream")Inc. include receivables that largely correspond with payables associated with transition services and represented approximately 6%11% and 16%0% of total trade accounts receivable as of March 31, 20162022 and 2015,2021, respectively. The Company had no other significant concentrations of credit risk.20162022 were $1,472,641491,606, or 38%34% of net sales, of which $1,237,523, $200,020157,686 and $35,098333,920 were from the Aerostructures segment, theSystems & Support and Aerospace Systems segment and the Aftermarket Services segment, respectively. Sales to Boeing for fiscal 2015 were $1,634,367, or 42% of net sales, of which $1,441,892, $161,196 and $31,279 were from the Aerostructures segment, the Aerospace Systems segment and the Aftermarket Services segment,Structures, respectively. Sales to Boeing for fiscal 20142021 were $1,689,635698,372, or 45%37% of net sales, of which $1,576,113, $87,374225,027 and $26,148473,346 were from the Aerostructures segment, theSystems & Support and Aerospace Systems segment and the Aftermarket Services segment,Structures, respectively.GulfstreamBoeing for fiscal 20162020 were $476,327,$983,762, or 12%34% of net sales, of which $472,627, $3,492$254,659 and $208$729,103 were from the Aerostructures segment, theSystems & Support and Aerospace Systems segment and the Aftermarket Services segment,Structures, respectively.20152022 and fiscal 2021 were $338,719,less than 10% of net sales. Sales to Gulfstream for fiscal 2020 were $337,173, or 9%12% of net sales, of which $334,948, $3,745$3,250 and $26$333,924 were from the Aerostructures segment, theSystems & Support and Aerospace Systems segment and the Aftermarket Services segment,Structures, respectively. Sales to Gulfstream for fiscal 2014 were $290,028, or 8% of net sales, of which $285,252, $4,279 and $497 were from the Aerostructures segment, the Aerospace Systems segment and the Aftermarket Services segment, respectively.10%10% of the Company's net sales; however, the loss of any significant customer, including Boeing, and/or Gulfstream, could have a material adverse effect on the Company and its operating subsidiaries.If any ofWhen these industries experiencesexperience a downturn, clientsit is possible that customers in these sectors may conduct less business with the Company.20.COLLECTIVE BARGAINING AGREEMENTS13%13% of the Company's labor force is covered under collective bargaining agreements. As of March 31, 2016, approximately 31%2022, none of the Company's collectively bargained workforce is working under contracts that have expired, and 33% of the Company’s collectively bargained workforce are working under contracts that have expired or are set to expire within one year.Theour union employees with International Associationthe divestiture of Machiniststhe Red Oak, Texas, facility, as well as effects and Aerospace Workers ("IAM") District 751 at ourclosure agreement agreements for the Spokane, Washington facility has expired. As of May 11, 2016, the workforce in Spokane of approximately 400 employees has elected to strike. While we are currently in negotiations with the workforce, we have implemented plans to continue production in Spokane with support from other locations.facility.95TRIUMPH GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(Dollars in thousands, except per share data)21.SEGMENTSthree2 reportable segments: Systems & Support and Aerospace Structures. The Company’s reportable segments are aligned with how the Aerostructures Group, the Aerospace Systems Groupbusiness is managed, and the Aftermarket Services Group.Company's views of the markets it serves. The Company'sChief Operating Decision Maker (the "CODM") evaluates performance and allocates resources based upon review of segment information. The CODM utilizes earnings before interest, income taxes, depreciation and amortization, and pension (“Adjusted EBITDAEBITDAP”) as a primary measure of segment profitability to evaluate the performance of its segments and allocate resources.The Aerostructures segment consists of the Company's operations that manufacture products primarily for the aerospace OEM market. The Aerostructures segment's revenues are derived from the design, manufacture, assembly and integration of metallic and composite aerostructures and structural components, including aircraft wings, fuselage sections, tail assemblies, engine nacelles, flight control surfaces as well as helicopter cabins. Further, the segment's operations also design and manufacture composite assemblies for floor panels and environmental control system ducts. These products are sold to various aerospace OEMs on a global basis. Effective April 1, 2015, the results for Triumph Group Mexico are included in the Aerostructures segment, as doing so better represents the type of work Triumph Group Mexico is performing. Previously, Triumph Group Mexico's results were included in Corporate.The Aerospace Systems segment consists of the Company's operations that also manufacture products primarily for the aerospace OEM market. The segment's operations design and engineer mechanical and electromechanical controls, such as hydraulic systems, main engine gearbox assemblies, engine control systems, accumulators, mechanical control cables and non-structural cockpit components. These products are sold to various aerospace OEMs on a global basis.The Aftermarket Services segment consists of the Company's operations that provide maintenance, repair and overhaul services to both commercial and military markets on components and accessories manufactured by third parties. Maintenance, repair and overhaul revenues are derived from services on auxiliary power units, airframe and engine accessories, including constant-speed drives, cabin compressors, starters and generators, and pneumatic drive units. In addition, the segment's operations repair and overhaul thrust reversers, nacelle components and flight control surfaces. The segment's operations also perform repair and overhaul services and supply spare parts for various types of cockpit instruments and gauges for a broad range of commercial airlines on a worldwide basis.EBITDAEBITDAP is total segment revenue reduced by operating expenses (less depreciation and amortization) identifiable with that segment. Corporate includes general corporate administrative costs and any other costs not identifiable with one of the Company'sCompany’s segments, including restructuringloss on sale of $10,347assets and businesses of $9,294 for the fiscal year ended March 31, 2016.Effective April 2016, the Company announced that it is realigning into four business units to better meet the evolving needs of its customers. The new structure better supports our go-to-market strategies and will allow us to more effectively satisfy the needs of our customers while continuing to deliver on our commitments, accelerate organic growth and drive predictable profitability.96
Eliminations
Support
Structures
income taxes:
taxesTRIUMPH GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Eliminations
Support
Structures
income taxes:
taxes
Eliminations
Support
Structures
income taxes:
taxesSelected financial information for each reportable segment and the reconciliation of Adjusted EBITDA to operating income before interest is as follows: Year Ended March 31, 2016 2015 2014 Net sales: Aerostructures $ 2,427,809 $ 2,510,371 $ 2,622,917 Aerospace systems 1,166,795 1,089,117 871,750 Aftermarket services 311,394 304,013 287,343 Elimination of inter-segment sales (19,926 ) (14,779 ) (18,756 ) $ 3,886,072 $ 3,888,722 $ 3,763,254 (Loss) income before income taxes: Operating (loss) income: Aerostructures $ (1,274,777 ) $ 120,985 $ 248,637 Aerospace systems 216,520 184,042 149,721 Aftermarket services 24,977 47,931 42,265 Corporate (57,826 ) 81,715 (40,619 ) (1,091,106 ) 434,673 400,004 Interest expense and other 68,041 85,379 87,771 $ (1,159,147 ) $ 349,294 $ 312,233 Depreciation and amortization: Aerostructures $ 114,986 $ 102,296 $ 116,514 Aerospace systems 50,118 45,200 37,453 Aftermarket services 11,009 8,559 7,529 Corporate 1,642 2,268 2,781 $ 177,755 $ 158,323 $ 164,277 Impairment charge of intangible assets: Aerostructures $ 873,961 $ — $ — Aerospace systems 400 — — $ 874,361 $ — $ — Amortization of acquired contract liabilities, net: Aerostructures $ 90,778 $ 38,719 $ 25,207 Aerospace systems 41,585 37,014 17,422 $ 132,363 $ 75,733 $ 42,629 Adjusted EBITDA: Aerostructures $ (364,538 ) $ 184,562 $ 339,944 Aerospace systems 216,959 192,228 169,752 Aftermarket services 37,886 56,490 49,794 Corporate (57,428 ) (50,710 ) (36,672 ) $ (167,121 ) $ 382,570 $ 522,818 97TRIUMPH GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(Dollars in thousands, except per share data) Year Ended March 31, 2016 2015 2014 Capital expenditures: Aerostructures $ 45,478 $ 72,681 $ 168,715 Aerospace systems 30,883 30,531 21,935 Aftermarket services 2,700 5,645 13,940 Corporate 986 1,147 1,824 $ 80,047 $ 110,004 $ 206,414 March 31, 2016 2015 Total Assets: Aerostructures $ 3,023,892 $ 4,097,397 Aerospace systems 1,437,977 1,460,142 Aftermarket services 350,674 375,752 Corporate 22,550 23,034 $ 4,835,093 $ 5,956,325 2016, 20152022, 2021, and 2014,2020, the Company had foreign sales of $797,976309,961, $753,075359,406, and $621,625724,193, respectively. The Company reports as foreign sales those sales with delivery points outside of the United States. As of March 31, 20162022 and 2015,2021, the Company had foreign long-lived assets of $346,924143,272 and $366,846213,919, respectively.22.SELECTED CONSOLIDATING FINANCIAL STATEMENTS OF PARENT, GUARANTORS AND NON-GUARANTORSThe 2021 Notes and the 2022 Notes are fully and unconditionally guaranteed on a joint and several basis by Guarantor Subsidiaries. The total assets, stockholder's equity, revenue, earnings and cash flows from operating activities of the Guarantor Subsidiaries exceeded a majority of the consolidated total of such items as of and for the periods reported. The only consolidated subsidiaries of the Company that are not guarantors of the 2021 Notes and the 2022 Notes (the "Non-Guarantor Subsidiaries") are: (i) the receivables securitization special purpose entity, and (ii) the foreign operating subsidiaries. The following tables present condensed consolidating financial statements including Triumph Group, Inc. (the "Parent"), the Guarantor Subsidiaries, and the Non-Guarantor Subsidiaries. Such financial statements include balance sheets as of March 31, 2016 and 2015, statements of operations and comprehensive income for the fiscal years ended March 31, 2016, 2015 and 2014, and statements of cash flows for the fiscal years ended March 31, 2016, 2015 and 2014.98NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(Dollars in thousands, except per share data)SUMMARY CONSOLIDATING BALANCE SHEETS: March 31, 2016 Parent Eliminations Current assets: Cash and cash equivalents $ 1,544 $ 201 $ 19,239 $ — $ 20,984 Trade and other receivables, net 2,057 127,968 314,183 — 444,208 Inventories — 1,091,824 92,414 — 1,184,238 Rotable assets — 35,451 16,501 — 51,952 Prepaid expenses and other 6,524 26,433 8,302 — 41,259 Total current assets 10,125 1,281,877 450,639 — 1,742,641 Property and equipment, net 7,324 746,455 135,955 — 889,734 Goodwill and other intangible assets, net — 1,898,401 195,465 — 2,093,866 Other, net 11,878 76,262 20,712 — 108,852 Intercompany investments and advances 2,301,054 81,540 82,930 (2,465,524 ) — Total assets $ 2,330,381 $ 4,084,535 $ 885,701 $ (2,465,524 ) $ 4,835,093 Current liabilities: Current portion of long-term debt $ 28,473 $ 13,968 $ — $ — $ 42,441 Accounts payable 11,154 346,602 52,469 — 410,225 Accrued expenses 44,856 599,921 38,431 — 683,208 Total current liabilities 84,483 960,491 90,900 — 1,135,874 Long-term debt, less current portion 1,120,570 63,009 191,300 — 1,374,879 Intercompany debt 171,480 1,972,729 330,176 (2,474,385 ) — Accrued pension and other postretirement benefits, noncurrent 7,315 654,201 3,148 — 664,664 Deferred income taxes and other 11,589 658,873 54,270 — 724,732 Total stockholders' equity 934,944 (224,768 ) 215,907 8,861 934,944 Total liabilities and stockholders' equity $ 2,330,381 $ 4,084,535 $ 885,701 $ (2,465,524 ) $ 4,835,093 99TRIUMPH GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(Dollars in thousands, except per share data)SUMMARY CONSOLIDATING BALANCE SHEETS: March 31, 2015 Parent Eliminations Current assets: Cash and cash equivalents $ 620 $ 419 $ 31,578 $ — $ 32,617 Trade and other receivables, net 3,578 180,874 337,149 — 521,601 Inventories — 1,200,941 79,333 — 1,280,274 Rotable assets — 35,248 13,572 — 48,820 Prepaid and other 6,509 10,549 6,011 — 23,069 Total current assets 10,707 1,428,031 467,643 — 1,906,381 Property and equipment, net 8,209 807,070 135,455 — 950,734 Goodwill and other intangible assets, net — 2,786,400 204,811 — 2,991,211 Other, net 13,805 80,806 13,388 — 107,999 Intercompany investments and advances 4,062,058 81,540 63,897 (4,207,495 ) — Total assets $ 4,094,779 $ 5,183,847 $ 885,194 $ (4,207,495 ) $ 5,956,325 Current liabilities: Current portion of long-term debt $ 19,024 $ 23,231 $ — $ — $ 42,255 Accounts payable 8,919 382,143 38,072 — 429,134 Accrued expenses 38,275 326,694 46,879 — 411,848 Total current liabilities 66,218 732,068 84,951 — 883,237 Long-term debt, less current portion 1,155,299 71,046 100,000 — 1,326,345 Intercompany debt 719,525 1,769,564 407,722 (2,896,811 ) — Accrued pension and other postretirement benefits, noncurrent 7,517 527,741 3,123 — 538,381 Deferred income taxes and other 10,435 998,841 63,302 — 1,072,578 Total stockholders' equity 2,135,785 1,084,587 226,096 (1,310,684 ) 2,135,784 Total liabilities and stockholders' equity $ 4,094,779 $ 5,183,847 $ 885,194 $ (4,207,495 ) $ 5,956,325 100TRIUMPH GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(Dollars in thousands, except per share data)CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME: Fiscal year ended March 31, 2016 Parent Eliminations Net sales $ — $ 3,577,733 $ 369,954 $ (61,615 ) $ 3,886,072 Operating costs and expenses: Cost of sales — 3,343,038 315,876 (61,615 ) 3,597,299 Selling, general and administrative 43,969 206,815 36,565 — 287,349 Depreciation and amortization 1,642 154,740 21,373 — 177,755 Impairment of intangible assets — 874,361 — — 874,361 Restructuring 10,347 25,835 — — 36,182 Curtailments, settlements and early retirement incentives (1,244 ) — — — (1,244 ) Legal settlement charge, net — 5,476 — — 5,476 54,714 4,610,265 373,814 (61,615 ) 4,977,178 Operating loss (54,714 ) (1,032,532 ) (3,860 ) — (1,091,106 ) Intercompany interest and charges (206,998 ) 194,188 12,810 — — Interest expense and other 60,950 10,239 (3,148 ) — 68,041 Income (loss) from continuing operations, before income taxes 91,334 (1,236,959 ) (13,522 ) — (1,159,147 ) Income tax expense (income) 17,161 (132,648 ) 4,300 — (111,187 ) Net income (loss) 74,173 (1,104,311 ) (17,822 ) — (1,047,960 ) Other comprehensive (loss) income (163 ) (136,024 ) (12,065 ) — (148,252 ) Total comprehensive income (loss) $ 74,010 $ (1,240,335 ) $ (29,887 ) $ — $ (1,196,212 ) 101TRIUMPH GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(Dollars in thousands, except per share data)CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME: Fiscal year ended March 31, 2015 Parent Eliminations Net sales $ — $ 3,592,062 $ 320,907 $ (24,247 ) $ 3,888,722 Operating costs and expenses: Cost of sales — 2,900,408 265,292 (24,247 ) 3,141,453 Selling, general and administrative 50,562 199,569 35,642 — 285,773 Depreciation and amortization 2,269 141,561 14,493 — 158,323 Restructuring charge — 3,193 — — 3,193 Legal settlement gain, net (134,693 ) — — — (134,693 ) (81,862 ) 3,244,731 315,427 (24,247 ) 3,454,049 Operating (loss) income 81,862 347,331 5,480 — 434,673 Intercompany interest and charges (205,075 ) 196,394 8,681 — — Interest expense and other 85,555 10,438 (10,614 ) — 85,379 Income from continuing operations, before income taxes 201,382 140,499 7,413 — 349,294 Income tax expense (benefit) 58,049 54,359 (1,811 ) — 110,597 Net income 143,333 86,140 9,224 — 238,697 Other comprehensive (loss) (4,253 ) (128,800 ) (46,949 ) — (180,002 ) Total comprehensive income (loss) $ 139,080 $ (42,660 ) $ (37,725 ) $ — $ 58,695 102TRIUMPH GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(Dollars in thousands, except per share data)CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME: Fiscal year ended March 31, 2014 Parent Eliminations Net sales $ — $ 3,569,094 $ 197,987 $ (3,827 ) $ 3,763,254 Operating costs and expenses: Cost of sales — 2,760,627 155,002 (3,827 ) 2,911,802 Selling, general and administrative 36,670 192,422 25,623 — 254,715 Depreciation and amortization 2,782 152,593 8,902 — 164,277 Restructuring charge — 31,290 — — 31,290 Curtailments, settlements and early retirement incentives 1,166 — — — 1,166 40,618 3,136,932 189,527 (3,827 ) 3,363,250 Operating (loss) income (40,618 ) 432,162 8,460 — 400,004 Intercompany interest and charges (215,079 ) 207,397 7,682 — — Interest expense and other 86,094 6,103 (4,426 ) — 87,771 Income from continuing operations, before income taxes 88,367 218,662 5,204 — 312,233 Income tax expense 20,478 85,061 438 — 105,977 Net income 67,889 133,601 4,766 — 206,256 Other comprehensive income (loss) 1,481 43,898 (3,315 ) — 42,064 Total comprehensive income $ 69,370 $ 177,499 $ 1,451 $ — $ 248,320 103TRIUMPH GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(Dollars in thousands, except per share data)CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS: Fiscal year ended March 31, 2016 Parent Eliminations Net income (loss) $ 74,173 $ (1,104,311 ) $ (17,822 ) $ — $ (1,047,960 ) Adjustments to reconcile net income to net cash (used in) provided by operating activities (106,837 ) 1,207,850 24,629 6,181 1,131,823 Net cash (used in) provided by operating activities (32,664 ) 103,539 6,807 6,181 83,863 Capital expenditures (986 ) (57,503 ) (21,558 ) — (80,047 ) Proceeds from sale of assets and businesses — 5,877 192 — 6,069 Cash used for businesses and intangible assets acquired — (48,051 ) (6,000 ) — (54,051 ) Net cash used in investing activities (986 ) (99,677 ) (27,366 ) — (128,029 ) Net increase in revolving credit facility (8,256 ) — — — (8,256 ) Proceeds on issuance of debt — 6,497 128,300 — 134,797 Retirements and repayments of debt (19,024 ) (24,893 ) (37,000 ) — (80,917 ) Payments of deferred financing costs (185 ) — — — (185 ) Dividends paid (7,889 ) — — — (7,889 ) Repayment of governmental grant — (5,000 ) — — (5,000 ) Repurchase of restricted shares for minimum tax obligation (96 ) — — — (96 ) Intercompany financing and advances 70,024 19,316 (83,159 ) (6,181 ) — Net cash provided by (used in) financing activities 34,574 (4,080 ) 8,141 (6,181 ) 32,454 Effect of exchange rate changes on cash and cash equivalents — — 79 — 79 Net change in cash and cash equivalents 924 (218 ) (12,339 ) — (11,633 ) Cash and cash equivalents at beginning of year 620 419 31,578 — 32,617 Cash and cash equivalents at end of year $ 1,544 $ 201 $ 19,239 $ — $ 20,984 104TRIUMPH GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(Dollars in thousands, except per share data)CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS: Fiscal year ended March 31, 2015 Parent Eliminations Net income $ 143,333 $ 86,140 $ 9,224 $ — $ 238,697 Adjustments to reconcile net income to net cash (used by)provided by operating activities (154,295 ) 397,607 (25,590 ) 10,913 228,635 Net cash (used in) provided by operating activities (10,962 ) 483,747 (16,366 ) 10,913 467,332 Capital expenditures (905 ) (92,686 ) (16,413 ) — (110,004 ) Reimbursements of capital expenditures — 653 — — 653 Proceeds from sale of assets and businesses — 3,092 75 — 3,167 Cash used for businesses and intangible assets acquired — 112,110 (73,829 ) — 38,281 Net cash (used in) provided by investing activities (905 ) 23,169 (90,167 ) — (67,903 ) Net increase in revolving credit facility (46,150 ) — — — (46,150 ) Proceeds on issuance of debt 300,000 37,660 171,300 — 508,960 Retirements and repayments of debt (401,232 ) (20,928 ) (233,700 ) — (655,860 ) Purchase of common stock (184,380 ) — — — (184,380 ) Payments of deferred financing costs (6,487 ) — — — (6,487 ) Dividends paid (8,100 ) — — — (8,100 ) Repayment of governmental grant — (3,198 ) — — (3,198 ) Repurchase of restricted shares for minimum tax obligation (673 ) — — — (673 ) Proceeds from exercise of stock options, including excess tax benefit 720 — — — 720 Intercompany financing and advances 355,969 (521,180 ) 176,124 (10,913 ) — Net cash provided by (used in) financing activities 9,667 (507,646 ) 113,724 (10,913 ) (395,168 ) Effect of exchange rate changes on cash and cash equivalents — — (642 ) — (642 ) Net change in cash and cash equivalents (2,200 ) (730 ) 6,549 — 3,619 Cash and cash equivalents at beginning of year 2,820 1,149 25,029 — 28,998 Cash and cash equivalents at end of year $ 620 $ 419 $ 31,578 $ — $ 32,617 105TRIUMPH GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(Dollars in thousands, except per share data)CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS: Fiscal year ended March 31, 2014 Parent Eliminations Net income $ 67,889 $ 133,601 $ 4,766 $ — $ 206,256 Adjustments to reconcile net income to net cash provided by operating activities 108,816 (170,631 ) (3,502 ) (5,802 ) (71,119 ) Net cash provided by (used in) operating activities 176,705 (37,030 ) 1,264 (5,802 ) 135,137 Capital expenditures (2,381 ) (185,794 ) (18,239 ) — (206,414 ) Reimbursements of capital expenditures — 9,086 — — 9,086 Proceeds from sale of assets and businesses — 45,038 9 — 45,047 Cash used for businesses and intangible assets acquired — (6,505 ) (87,951 ) — (94,456 ) Net cash used in investing activities (2,381 ) (138,175 ) (106,181 ) — (246,737 ) Net increase in revolving credit facility 98,557 — — — 98,557 Proceeds on issuance of debt 375,000 30,503 45,500 — 451,003 Retirements and repayments of debt (271,812 ) (27,218 ) (117,615 ) — (416,645 ) Purchase of common stock (19,134 ) — — — (19,134 ) Payments of deferred financing costs (3,297 ) — — — (3,297 ) Dividends paid (8,344 ) — — — (8,344 ) Proceeds from governmental grant — 3,456 — — 3,456 Repurchase of restricted shares for minimum tax obligation (2,726 ) — — — (2,726 ) Proceeds from exercise of stock options, including excess tax benefit 329 — — — 329 Intercompany financing and advances (343,187 ) 168,076 169,309 5,802 — Net cash (used in) provided by financing activities (174,614 ) 174,817 97,194 5,802 103,199 Effect of exchange rate changes on cash and cash equivalents — — 5,362 — 5,362 Net change in cash and cash equivalents (290 ) (388 ) (2,361 ) — (3,039 ) Cash and cash equivalents at beginning of year 3,110 1,537 27,390 — 32,037 Cash and cash equivalents at end of year $ 2,820 $ 1,149 $ 25,029 $ — $ 28,998 106TRIUMPH GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(Dollars in thousands, except per share data)23.QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Fiscal 2016 Fiscal 2015 June 30 Sept. 30 Mar. 31 (8) Sept. 30 Mar. 31 BUSINESS SEGMENT SALES Aerostructures $ 611,838 $ 604,874 $ 553,627 $ 657,470 $ 612,160 $ 632,510 $ 560,346 $ 705,355 Aerospace Systems 277,647 280,155 288,288 320,705 219,852 288,902 279,198 301,165 Aftermarket Services 74,745 73,777 78,127 84,745 67,608 74,343 80,690 81,372 Inter-segment Elimination (4,592 ) (4,032 ) (6,176 ) (5,126 ) (2,715 ) (1,632 ) (2,817 ) (7,615 ) TOTAL SALES $ 959,638 $ 954,774 $ 913,866 $ 1,057,794 $ 896,905 $ 994,123 $ 917,417 $ 1,080,277 $ 201,732 $ 197,742 $ 195,405 $ (420,767 ) $ 188,112 $ 197,566 $ 24,068 $ 237,071 OPERATING INCOME Aerostructures $ 66,007 $ 67,099 $ (187,265 ) $ (1,220,618 ) $ 68,819 $ 70,008 $ (104,231 ) $ 86,389 Aerospace Systems 51,253 46,140 52,754 66,373 37,352 46,214 41,863 58,613 Aftermarket Services 9,987 9,125 12,402 (6,537 ) 10,504 11,620 12,490 13,317 Corporate (19,381 ) (12,317 ) (4,141 ) (21,987 ) 123,849 (13,144 ) (11,388 ) (17,602 ) TOTAL OPERATING INCOME $ 107,866 $ 110,047 $ (126,250 ) $ (1,182,769 ) $ 240,524 $ 114,698 (61,266 ) $ 140,717 NET INCOME $ 62,732 $ 61,612 $ (88,649 ) $ (1,083,655 ) $ 128,243 $ 67,446 (39,832 ) $ 82,840 Basic Earnings (Loss) per share $ 1.28 $ 1.25 $ (1.80 ) $ (22.01 ) $ 2.48 $ 1.32 $ (0.79 ) $ 1.66 $ 1.27 $ 1.25 $ (1.80 ) $ (22.01 ) $ 2.46 $ 1.32 $ (0.79 ) $ 1.66 *Difference due to rounding.(1)Gross profit includes depreciation.(2)The sum of the diluted earnings per share for the four quarters does not necessarily equal the total year diluted earnings per share due to the dilutive effect of the potential common shares related to the convertible debt.(3)Includes the results of GE from June 27, 2014 (date of acquisition) through March 31, 2015.(4)Includes the Gain on Legal Settlement, net ($134,693).(5)Includes the results of NAAS from October 17, 2014 (date of acquisition) through March 31, 2015.(6)Includes the results of Tulsa Programs from December 30, 2014 (date of acquisition) through March 31, 2015, and a provision for forward losses of approximately $151,992 associated with our long-term contract on the 747-8 program.(7)Includes the results of Fairchild from October 21, 2015 (date of acquisition) through March 31, 2016 and impairment of intangible assets of $229,200.(8)Includes impairment of intangible assets of $645,161, forward losses on the Bombardier and 747-8 programs of $561,158 and restructuring of $80,956.TRIUMPH GROUP, INC.Dollars in thousands)
beginning of
year
charged to
(income) expense
end of year Additions(1) (Deductions)(2) For year ended March 31, 2016: Allowance for doubtful accounts receivable $ 6,475 2,028 (47 ) (1,964 ) $ 6,492 For year ended March 31, 2015: Allowance for doubtful accounts receivable $ 6,535 171 85 (316 ) $ 6,475 For year ended March 31, 2014: Allowance for doubtful accounts receivable $ 5,372 2,191 6 (1,034 ) $ 6,535 (1)Additions consist of trade and other receivable recoveries and miscellaneous adjustments.(2)Deductions represent write-offs of related account balances.Item 9.Changes in and Disagreements With Accountants on Accounting and Financial DisclosureItem 9A.Controls and Procedures2016,2022, we completed an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2016.(i)pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;(ii)provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and(iii)provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.2016.2022. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) ("COSO") in Internal Control—Integrated Framework. Based on management's assessment and those criteria, management believes that Triumph maintained effective internal control over financial reporting as of March 31, 2016.Management's assessment of and conclusion on the effectiveness of Triumph's internal control over financial reporting did not include the internal controls of Triumph Thermal Systems - Maryland, which was acquired in the fiscal year ended March 31, 2016. The acquisition, which is more fully discussed in Note 3 to the consolidated financial statements for fiscal 2016, is included in the fiscal 2016 consolidated financial statements of Triumph Group, Inc. and represented total assets of approximately $61 million or 1% at March 31, 2016, and revenues of approximately $18 million or 0.5% for the year ended March 31, 2016. Under guidelines established by the SEC, companies are allowed to exclude acquisitions from their first assessment of internal control over financial reporting following the date of acquisition.Triumph's internal control over financial reporting. This report appears on the following page. and DirectorJeffrey L. McRaeJames F. McCabe, Jr.Jeffrey L. McRae27, 2016The's’s internal control over financial reporting as of 2016,2022, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) ("the(the COSO criteria")criteria). In our opinion, Triumph Group, Inc.'s (the Company) maintained, in all material respects, effective internal control over financial reporting as of March 31, 2022, based on the COSO criteria.Management'sManagement’s Report on Internal Control Over Financial Reporting.Reporting. Our responsibility is to express an opinion on the Company'sCompany’s internal control over financial reporting based on our audit.Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.company'scompany’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company'scompany’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company'scompany’s assets that could have a material effect on the financial statements.As indicated in the accompanying Management's Report on Internal Control Over Financial Reporting, management's assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Triumph Thermal Systems - Maryland, which is included in the fiscal year 2016 consolidated financial statements of Triumph Group, Inc. and constituted $61 million and $0.1 million of total and net assets, respectively, as of March 31, 2016, and $18 million and $0.1 million of revenues and net loss, respectively, for the year then ended. Our audit of internal control over financial reporting of Triumph Group, Inc. also did not include an evaluation of the internal control over financial reporting of Triumph Thermal Systems - Maryland.In our opinion, Triumph Group, Inc. maintained, in all material respects, effective internal control over financial reporting as of March 31, 2016, based on the COSO criteria.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Triumph Group, Inc., as of March 31, 2016 and 2015, and the related consolidated statements of operations, comprehensive (loss) income, stockholders' equity, and cash flows for each of the three years in the period ended March 31, 2016, of Triumph Group, Inc. and our report dated May 27, 2016, expressed an unqualified opinion thereon.27, 201620162022 that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.Item 9B.Other InformationItem 10.Directors, Executive Officers and Corporate Governance20162022 Annual Meeting of Stockholders, which shall be filed within 120 days after the end of our fiscal year (the "2016 Proxy Statement"). Information required by this item concerning executive officers is included in Part I of this Annual Report on Form 10-K.Beneficial Ownership Reporting ComplianceThe information required regarding Section 16(a) beneficial ownership reporting compliance is incorporated herein by reference to the 2016 Proxy Statement.20162022 Proxy Statement.20162022 Proxy Statement.20162022 Proxy Statement.Item 11.Executive CompensationThe information required regarding executive compensation is incorporated herein by reference to the 2016 Proxy Statement.Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters20162022 Proxy Statement.Item 13.Certain Relationships and Related Transactions and Director Independence20162022 Proxy Statement.Item 14.Principal Accountant Fees and Services20162022 Proxy Statement.55Report of Ernst & Young LLP, Independent Registered Public Accounting Firm - PCAOB ID #42Consolidated Financial Statementsconsolidated financial statements or notes thereto.by footnote, exhibits which were previously filed are incorporated by reference.Exhibit Number Exhibit Description Incorporated by Reference to Form File No. Exhibit(s) Filing Date 2.1 Agreement and Plan of Merger, dated as of March 23, 2010, by and among Triumph Group, Inc., Vought Aircraft Industries, Inc., Spitfire Merger Corporation and TC Group, L.L.C., as the Holder Representative 8-K 001-12235 2.1 March 23, 2010 3.1 Amended and Restated Certificate of Incorporation of Triumph Group, Inc. 10-K 001-12235 3.1 May 22, 2009 3.1.1 Certificate of Amendment of Amended and Restated Certificate of Incorporation of Triumph Group, Inc. 8-K 001-12235 3.1 July 20, 2012 3.2 Amended and Restated By-Laws of Triumph Group, Inc. 8-K/A 001-12235 3.2 August 2, 2012 4.1 Form of certificate evidencing Common Stock of Triumph Group, Inc. S-1 333-10777 4 August 23, 1996 4.2 Indenture, dated as of September 18, 2006, between Triumph Group, Inc. and The Bank of New York Trust Company, N.A. relating to the 2.625% Convertible Senior Subordinated Notes Due 2026 8-K 001-12235 4.1 September 22, 2006 4.2.1 Form of the 2.625% Convertible Senior Subordinated Note Due 2026 (included as Exhibit A to Exhibit 4.1) 8-K 001-12235 4.2 September 22, 2006 4.3 Registration Rights Agreement, dated as of September 18, 2006, between Triumph Group, Inc. and Banc of America Securities LLC 8-K 001-12235 4.3 September 22, 2006 Exhibit Number Exhibit Description Incorporated by Reference to Form File No. Exhibit(s) Filing Date 4.4 Indenture, dated as of November 16, 2009, between Triumph Group, Inc. and U.S. Bank National Association, as trustee, relating to the 8% Senior Subordinated Notes due 2017. 8-K 001-12235 4.1 November 19, 2009 4.4.1 Form of 8% Senior Subordinated Notes due 2017 (included as Exhibit A to Indenture filed as Exhibit 4.1) 8-K 001-12235 4.2 November 19, 2009 4.5 Registration Rights Agreement, dated November 16, 2009, by and among Triumph Group, Inc., the Guarantors party thereto, and the other parties thereto. 8-K 001-12235 4.3 November 19, 2009 4.6 Indenture, dated as of June 16, 2010, between Triumph Group, Inc. and U.S. Bank National Association, as trustee, relating to the 8.625% Senior Subordinated Notes Due 2018 8-K 001-12235 4.1 June 22, 2010 4.7 Registration Rights Agreement, dated as of June 16, 2010, by and among Triumph Group, Inc., the Guarantors party thereto and the other parties thereto 8-K 001-12235 4.3 June 22, 2010 4.8 Indenture, dated as of February 26, 2013, between Triumph Group, Inc. and U.S. Bank National Association, as trustee 8-K 001-12235 4.1 March 1, 2013 4.8.1 Form of 4.875% Senior Subordinated Notes due 2021(included as Exhibit A to Exhibit 4.1) 8-K 001-12235 4.2 March 1, 2013 4.9 Registration Rights Agreement, dated February 26, 2013 between Triumph Group, Inc. and the parties named therein 8-K 001-12235 4.3 March 1, 2013 4.10 Indenture, dated as of June 3, 2014, between Triumph Group, Inc. and U.S. Bank National Association, as trustee 8-K 001-12235 4.1 June 5, 2014 4.10.1 Form of 5.250% Senior Notes due 2022 (included as Exhibit A to the Indenture filed as Exhibit 4.1) 8-K 001-12235 4.2 June 5, 2014 4.11 Registration Rights Agreement, dated June 3, 2014, between Triumph Group, Inc. and parties named therein 8-K 001-12235 4.3 June 5, 2014 4.12 # # # # 10.1 Amended and Restated Directors’ Stock Incentive Plan 10-K 001-12235 10.1 May 29, 2012 10.1.1 Form of Deferred Stock Unit Award Agreement under the Amended and Restated Directors’ Stock Incentive Plan 10-K 001-12235 10.2 May 30, 2013 10.2 10-K 001-12235 10.3 May 30, 2013 10.2.1 Form of Stock Award Agreement under the 2004 Stock Incentive Plan* 10-K 001-12235 10.7 May 22, 2009 10.2.2 Form of letter confirming Stock Award Agreement under the 2004 Stock Incentive Plan* 10-K 001-12235 10.8 May 22, 2009 10.3 Triumph Group, Inc. Supplemental Executive Retirement Plan effective January 1, 2003* 10-K 001-12235 10.17 June 12, 2003 Exhibit Number Exhibit Description Incorporated by Reference to Form File No. Exhibit(s) Filing Date 10.4 Compensation for the non-employee members of the Board of Directors of Triumph Group, Inc. 10-K 001-12235 10.6 May 30, 2013 10.5 Description of the Triumph Group, Inc. Annual Cash Bonus Plan* 8-K 001-12235 10.1 July 31, 2007 10.6 Change of Control Employment Agreements with: Richard C. Ill and John B. Wright, II. 8-K 001-12235 10.1 and 10.3 March 13, 2008 10.7 Form of Receivables Purchase Agreement, dated August 7, 2008, by and among the Triumph Group, Inc., as Initial Servicer, Triumph Receivables, LLC, as Seller, the various Purchasers and Purchase Agents from time to time party thereto and PNC National Association, as Administrative Agent. 8-K 001-12235 10.1 August 12, 2008 10.8 Stockholders Agreement, dated as of March 23, 2010, among Triumph Group, Inc., Carlyle Partners III, L.P., Carlyle Partners II, L.P., Carlyle International Partners II, L.P., Carlyle-Aerostructures Partners, L.P., CHYP Holdings, L.L.C., Carlyle-Aerostructures Partners II, L.P., CP III Coinvestment, L.P., C/S International Partners, Carlyle-Aerostructures International Partners, L.P., Carlyle-Contour Partners, L.P., Carlyle SBC Partners II, L.P., Carlyle International Partners III, L.P., Carlyle-Aerostructures Management, L.P., Carlyle-Contour International Partners, L.P., Carlyle Investment Group, L.P. and TC Group, L.L.C 8-K 001-12235 10.1 March 23, 2010 10.9 Third Amendment to Receivables Purchase Agreement, dated as of June 21, 2010, by and among Triumph Receivables LLC, Triumph Group, Inc., Market Street Funding LLC and PNC Bank, National Association 8-K 001-12235 10.1 June 25, 2010 10.10 Triumph Group, Inc. Executive Incentive Plan, effective September 28, 2010 * 10-Q 001-12235 10.1 November 5, 2010 10.11 Form of letter informing Triumph Group, Inc. executives they are eligible to participate in the Company’s Long Term Incentive Plan * 10-K 001-12235 10.22 May 18, 2011 10.12 Form of letter informing Triumph Group, Inc. executives they have earned an award under the Company’s Long Term Incentive Plan and the amount of the award * 10-K 001-12235 10.23 May 18, 2011 10.13 Sixth Amendment to Receivables Purchase Agreement, dated as of February 26, 2013, by and among Triumph Receivables LLC, Triumph Group, Inc., Market Street Funding LLC and PNC Bank, National Association 8-K 001-12235 10.1 March 1, 2013 Exhibit Number Exhibit Description Incorporated by Reference to Form File No. Exhibit(s) Filing Date 10.14 Form of Third Amended and Restated Credit Agreement, dated as of November 19, 2013, by and among Triumph Group, Inc., and the other Borrowers party thereto and the Guarantors party thereto and the Banks party thereto and PNC Bank, National Association, as Administrative Agent, PNC Capital Markets LLC, J.P. Morgan Securities, LLC, RBC Capital Markets, RBS Citizens, N.A., and Santander Bank, N.A., as Joint Lead Arrangers and Joint Bookrunners, JPMorgan Chase Bank N.A., Royal Bank of Canada, Citizens Bank of Pennsylvania, and Santander Bank, N.A., as Syndication Agents, the Bank of Tokyo-Mitsubishi UFJ, Ltd, U.S. Bank National Association, TD Bank, N.A., and Manufacturers and Traders Trust Company, as Documentation Agents 8-K 001-12235 10.1 November 25, 2013 10.15 Form of Second Amended and Restated Guarantee and Collateral Agreement made by Triumph Group, Inc., and certain of its Subsidiaries in favor of PNC Bank, National Association, as Administrative Agent and as Collateral Agent for the other Secured Parties identified herein, dated as of November 19, 2013 8-K 001-12235 10.2 November 25, 2013 10.16 Triumph Group, Inc. 2013 Equity and Cash Incentive Plan* 10-K 001-12235 10.23 May 19, 2014 10.17 Form of letter regarding eligibility to participate in the Triumph Group, Inc. Restricted Stock Plan* 10-K 001-12235 10.24 May 19, 2014 10.18 Form of letter regarding grant of award under the Triumph Group, Inc. Executive Incentive Plan* 10-K 001-12235 10.25 May 19, 2014 10.19 Tenth Amendment to Receivables Purchase Agreement dated as of November 25, 2014 8-K 001-12235 10.1 November 26, 2014 10.20 Third Amendment to Third Amended and Restated Credit Agreement, dated as of February 2015, by and among Triumph Group, Inc. and the other Borrowers party thereto and the Guarantors party thereto and the Banks party thereto and PNC Bank, National Association, as Administrative Agent 10-Q 001-12235 10.1 February 9, 2015 10.21 Separation letter agreement between Triumph Group, Inc. and Jeffry D. Frisby, dated April 7, 2015* 8-K 001-12235 10.1 April 8, 2015 10.22 The First Amendment of the Triumph Group, Inc. Supplemental Executive Retirement Plan, effective as of May 1, 2015* 8-K 001-12235 10.1 May 7, 2015 10.23 First Amendment to Triumph Group, Inc. 2013 Employee Stock Purchase Plan* 10-Q 001-12235 10.1 August 4, 2015 10.24 Consulting Agreement between Triumph Group, Inc. and Richard C. Ill, dated as of January 4, 2016* 8-K 001-12235 10.1 January 7, 2016 10.25 Employment agreement between Triumph Group, Inc. and Daniel J. Crowley, dated as of April 1, 2016* 8-K 001-12235 10.1 April 7, 2016 Exhibit Number Exhibit Description Incorporated by Reference to Form File No. Exhibit(s) Filing Date 10.26 Form of Sixth Amendment to Third Amended and Restated Credit Agreement, dated May 3, 2016 8-K 001-12235 10.1 May 4, 2016 21.1 Subsidiaries of Triumph Group, Inc. # # # # 23.1 Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm # # # # 31.1 Principal Executive Officer Certification Required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended. # # # # 31.2 Principal Financial Officer Certification Required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended. # # # # 32.1 Principal Executive Officer Certification Required by Rule 13a-14(b) or Rule 15d-14(b) under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350. ## ## ## ## 32.2 Principal Financial Officer Certification Required by Rule 13a-14(b) or Rule 15d-14(b) under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350. ## ## ## ## 101 The following financial information from Triumph Group, Inc.’s Annual Report on Form 10-K for the fiscal year ended March 31, 2016 formatted in XBRL: (i) Consolidated Balance Sheets as of March 31, 2016 and 2015; (ii) Consolidated Statements of Income for the fiscal years ended March 31, 2016, 2015 and 2014; (iii) Consolidated Statements of Stockholders’ Equity for the fiscal years ended March 31, 2016, 2015 and 2014; (iv) Consolidated Statements of Cash Flows for the fiscal years ended March 31, 2016, 2015 and 2014; (v) Consolidated Statements of Comprehensive Income for the fiscal years ended March 31, 2016, 2015 and 2014; and (vi) Notes to the Consolidated Financial Statements. # # # # *Indicates management contract or compensatory plan or arrangement#Filed herewith##Furnished herewith /s/27, 201623, 2022/s/ Daniel J. CrowleyMay 27, 2016/s/ Jeffrey L. McRaeMay 27, 2016Jeffrey L. McRaeVice President and Controller (PrincipalMay 27, 2016Chairman and 27, 201623, 2022/s/ Paul BourgonDirectorMay 27, 2016 Paul Bourgon/s/ John G. DrosdickDirectorMay 27, 2016John G. DrosdickRichard C. GozonBarbara Humpton27, 201623, 2022Richard C. Gozon/s/ Dawne S. HicktonDirectorMay 27, 2016Dawne S. Hickton/s/ Richard C. IllDirectorMay 27, 2016Richard C. IllWilliam L. MansfieldColleen C. Repplier27, 201623, 2022William L. Mansfield/s/ Adam J. PalmerDirectorMay 27, 2016Adam J. Palmer/s/ Joseph M. SilvestriDirectorMay 27, 2016Joseph M. Silvestri/s/ George SimpsonDirectorMay 27, 2016George SimpsonEXHIBIT INDEXExhibit Number Exhibit Description Incorporated by Reference to Form File No. Exhibit(s) Filing Date 2.1 Agreement and Plan of Merger, dated as of March 23, 2010, by and among Triumph Group, Inc., Vought Aircraft Industries, Inc., Spitfire Merger Corporation and TC Group, L.L.C., as the Holder Representative 8-K 001-12235 2.1 March 23, 2010 3.1 Amended and Restated Certificate of Incorporation of Triumph Group, Inc. 10-K 001-12235 3.1 May 22, 2009 3.1.1 Certificate of Amendment of Amended and Restated Certificate of Incorporation of Triumph Group, Inc. 8-K 001-12235 3.1 July 20, 2012 3.2 Amended and Restated By-Laws of Triumph Group, Inc. 8-K/A 001-12235 3.2 August 2, 2012 4.1 Form of certificate evidencing Common Stock of Triumph Group, Inc. S-1 333-10777 4 August 23, 1996 4.2 Indenture, dated as of September 18, 2006, between Triumph Group, Inc. and The Bank of New York Trust Company, N.A. relating to the 2.625% Convertible Senior Subordinated Notes Due 2026 8-K 001-12235 4.1 September 22, 2006 4.2.1 Form of the 2.625% Convertible Senior Subordinated Note Due 2026 (included as Exhibit A to Exhibit 4.1) 8-K 001-12235 4.2 September 22, 2006 4.3 Registration Rights Agreement, dated as of September 18, 2006, between Triumph Group, Inc. and Banc of America Securities LLC 8-K 001-12235 4.3 September 22, 2006 4.4 Indenture, dated as of November 16, 2009, between Triumph Group, Inc. and U.S. Bank National Association, as trustee, relating to the 8% Senior Subordinated Notes due 2017. 8-K 001-12235 4.1 November 19, 2009 4.4.1 Form of 8% Senior Subordinated Notes due 2017 (included as Exhibit A to Indenture filed as Exhibit 4.1) 8-K 001-12235 4.2 November 19, 2009 4.5 Registration Rights Agreement, dated November 16, 2009, by and among Triumph Group, Inc., the Guarantors party thereto, and the other parties thereto. 8-K 001-12235 4.3 November 19, 2009 4.6 Indenture, dated as of June 16, 2010, between Triumph Group, Inc. and U.S. Bank National Association, as trustee, relating to the 8.625% Senior Subordinated Notes Due 2018 8-K 001-12235 4.1 June 22, 2010 4.7 Registration Rights Agreement, dated as of June 16, 2010, by and among Triumph Group, Inc., the Guarantors party thereto and the other parties thereto 8-K 001-12235 4.3 June 22, 2010 4.8 Indenture, dated as of February 26, 2013, between Triumph Group, Inc. and U.S. Bank National Association, as trustee 8-K 001-12235 4.1 March 1, 2013 4.8.1 Form of 4.875% Senior Subordinated Notes due 2021(included as Exhibit A to Exhibit 4.1) 8-K 001-12235 4.2 March 1, 2013 4.9 Registration Rights Agreement, dated February 26, 2013 between Triumph Group, Inc. and the parties named therein 8-K 001-12235 4.3 March 1, 2013 Exhibit Number Exhibit Description Incorporated by Reference to Form File No. Exhibit(s) Filing Date 4.10 Indenture, dated as of June 3, 2014, between Triumph Group, Inc. and U.S. Bank National Association, as trustee 8-K 001-12235 4.1 June 5, 2014 4.10.1 Form of 5.250% Senior Notes due 2022 (included as Exhibit A to the Indenture filed as Exhibit 4.1) 8-K 001-12235 4.2 June 5, 2014 4.11 Registration Rights Agreement, dated June 3, 2014, between Triumph Group, Inc. and parties named therein 8-K 001-12235 4.3 June 5, 2014 4.12 # # # # 10.1 Amended and Restated Directors’ Stock Incentive Plan 10-K 001-12235 10.1 May 29, 2012 10.1.1 Form of Deferred Stock Unit Award Agreement under the Amended and Restated Directors’ Stock Incentive Plan 10-K 001-12235 10.2 May 30, 2013 10.2 10-K 001-12235 10.3 May 30, 2013 10.2.1 Form of Stock Award Agreement under the 2004 Stock Incentive Plan* 10-K 001-12235 10.7 May 22, 2009 10.2.2 Form of letter confirming Stock Award Agreement under the 2004 Stock Incentive Plan* 10-K 001-12235 10.8 May 22, 2009 10.3 Triumph Group, Inc. Supplemental Executive Retirement Plan effective January 1, 2003* 10-K 001-12235 10.17 June 12, 2003 10.4 Compensation for the non-employee members of the Board of Directors of Triumph Group, Inc. 10-K 001-12235 10.6 May 30, 2013 10.5 Description of the Triumph Group, Inc. Annual Cash Bonus Plan* 8-K 001-12235 10.1 July 31, 2007 10.6 Change of Control Employment Agreements with: Richard C. Ill and John B. Wright, II. 8-K 001-12235 10.1 and 10.3 March 13, 2008 10.7 Form of Receivables Purchase Agreement, dated August 7, 2008, by and among the Triumph Group, Inc., as Initial Servicer, Triumph Receivables, LLC, as Seller, the various Purchasers and Purchase Agents from time to time party thereto and PNC National Association, as Administrative Agent. 8-K 001-12235 10.1 August 12, 2008 10.8 Stockholders Agreement, dated as of March 23, 2010, among Triumph Group, Inc., Carlyle Partners III, L.P., Carlyle Partners II, L.P., Carlyle International Partners II, L.P., Carlyle-Aerostructures Partners, L.P., CHYP Holdings, L.L.C., Carlyle-Aerostructures Partners II, L.P., CP III Coinvestment, L.P., C/S International Partners, Carlyle-Aerostructures International Partners, L.P., Carlyle-Contour Partners, L.P., Carlyle SBC Partners II, L.P., Carlyle International Partners III, L.P., Carlyle-Aerostructures Management, L.P., Carlyle-Contour International Partners, L.P., Carlyle Investment Group, L.P. and TC Group, L.L.C 8-K 001-12235 10.1 March 23, 2010 Exhibit Number Exhibit Description Incorporated by Reference to Form File No. Exhibit(s) Filing Date 10.9 Third Amendment to Receivables Purchase Agreement, dated as of June 21, 2010, by and among Triumph Receivables LLC, Triumph Group, Inc., Market Street Funding LLC and PNC Bank, National Association 8-K 001-12235 10.1 June 25, 2010 10.10 Triumph Group, Inc. Executive Incentive Plan, effective September 28, 2010* 10-Q 001-12235 10.1 November 5, 2010 10.11 Form of letter informing Triumph Group, Inc. executives they are eligible to participate in the Company’s Long Term Incentive Plan * 10-K 001-12235 10.22 May 18, 2011 10.12 Form of letter informing Triumph Group, Inc. executives they have earned an award under the Company’s Long Term Incentive Plan and the amount of the award * 10-K 001-12235 10.23 May 18, 2011 10.13 Sixth Amendment to Receivables Purchase Agreement, dated as of February 26, 2013, by and among Triumph Receivables LLC, Triumph Group, Inc., Market Street Funding LLC and PNC Bank, National Association * 8-K 001-12235 10.1 March 1, 2013 10.14 Form of Third Amended and Restated Credit Agreement, dated as of November 19, 2013, by and among Triumph Group, Inc., and the other Borrowers party thereto and the Guarantors party thereto and the Banks party thereto and PNC Bank, National Association, as Administrative Agent, PNC Capital Markets LLC, J.P. Morgan Securities, LLC, RBC Capital Markets, RBS Citizens, N.A., and Santander Bank, N.A., as Joint Lead Arrangers and Joint Bookrunners, JPMorgan Chase Bank N.A., Royal Bank of Canada, Citizens Bank of Pennsylvania, and Santander Bank, N.A., as Syndication Agents, the Bank of Tokyo-Mitsubishi UFJ, Ltd, U.S. Bank National Association, TD Bank, N.A., and Manufacturers and Traders Trust Company, as Documentation Agents 8-K 001-12235 10.1 November 25, 2013 10.15 Form of Second Amended and Restated Guarantee and Collateral Agreement made by Triumph Group, Inc., and certain of its Subsidiaries in favor of PNC Bank, National Association, as Administrative Agent and as Collateral Agent for the other Secured Parties identified herein, dated as of November 19, 2013 8-K 001-12235 10.2 November 25, 2013 10.16 Triumph Group, Inc. 2013 Equity and Cash Incentive Plan* 10-K 001-12235 10.23 May 19, 2014 10.17 Form of letter regarding eligibility to participate in the Triumph Group, Inc. Restricted Stock Plan* 10-K 001-12235 10.24 May 19, 2014 10.18 Form of letter regarding grant of award under the Triumph Group, Inc. Executive Incentive Plan* 10-K 001-12235 10.25 May 19, 2014 10.19 Tenth Amendment to Receivables Purchase Agreement dated as of November 25, 2014 8-K 001-12235 10.1 November 26, 2014 Exhibit Number Exhibit Description Incorporated by Reference to Form File No. Exhibit(s) Filing Date 10.20 Third Amendment to Third Amended and Restated Credit Agreement, dated as of February 2015, by and among Triumph Group, Inc. and the other Borrowers party thereto and the Guarantors party thereto and the Banks party thereto and PNC Bank, National Association, as Administrative Agent 10-Q 001-12235 10.1 February 9, 2015 10.21 Separation letter agreement between Triumph Group, Inc. and Jeffry D. Frisby, dated April 7, 2015* 8-K 001-12235 10.1 April 8, 2015 10.22 The First Amendment of the Triumph Group, Inc. Supplemental Executive Retirement Plan, effective as of May 1, 2015* 8-K 001-12235 10.1 May 7, 2015 10.23 First Amendment to Triumph Group, Inc. 2013 Employee Stock Purchase Plan* 10-Q 001-12235 10.1 August 4, 2015 10.24 Consulting Agreement between Triumph Group, Inc. and Richard C. Ill, dated as of January 4, 2016* 8-K 001-12235 10.1 January 7, 2016 10.25 Employment agreement between Triumph Group, Inc. and Daniel J. Crowley, dated as of April 1, 2016* 8-K 001-12235 10.1 April 7, 2016 10.26 Form of Sixth Amendment to Third Amended and Restated Credit Agreement, dated May 3, 2016 8-K 001-12235 10.1 May 4, 2016 21.1 Subsidiaries of Triumph Group, Inc. # # # # 23.1 Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm # # # # 31.1 Principal Executive Officer Certification Required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended. # # # # 31.2 Principal Financial Officer Certification Required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended. # # # # 32.1 Principal Executive Officer Certification Required by Rule 13a-14(b) or Rule 15d-14(b) under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350. ## ## ## ## 32.2 Principal Financial Officer Certification Required by Rule 13a-14(b) or Rule 15d-14(b) under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350. ## ## ## ## 101 # # # # In accordance with Item 601(b)(4)(iii)(A) of Regulations S-K, copies of specific instruments defining the rights of holders of long-term debt of the Company or its subsidiaries are not filed herewith. Pursuant to this regulation, we hereby agree to furnish a copy of any such instrument to the SEC upon request*Indicates management contract or compensatory plan or arrangement#Filed herewith##Furnished herewith122