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, 2020
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, Pennsylvania 19312
(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
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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, general economic conditions affecting our business segment, technological developments, limited availabilitysegments, the continued impact of raw materials or skilled personnel, changesthe coronavirus pandemic (COVID-19), the severe disruptions to the economy, the financial markets and the markets in governmental regulation and oversight, and international hostilities and terrorism.which we compete, 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 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, components, accessories, subassemblies and systems.structures. We serve a broad, worldwide spectrum of the global aviation industry, including original equipment manufacturers, or OEMs, and the full spectrum of military and commercial regional, business and military aircraft and aircraft components, as well as commercial and regional airlines and air cargo carriers.
Products and Services
Effective February 17, 2020, the Company combined its Integrated Systems and Product Support operating segments into one operating segment, Systems & Support. The Company believes that it is well-positioned to supply both critical OEM components and full life cycle aftermarket support and that this combination will allow the Company to accelerate its aftermarket growth rate while simplifying its structure. As a result, effective February 17, 2020, the Company has two reporting segments for financial reporting purposes – Systems & Support and Aerospace Structures.
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 the design, manufacture, assembly and integration of metallic and composite aerostructures and structural components for the global aerospace OEM market; (ii) Triumph Aerospace Systems Group, whose companies design, engineer and manufacture 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 & Support’s capabilities include hydraulic, mechanical and electro-mechanicalelectromechanical 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; hydro-mechanicalhydromechanical and electromechanical primary and secondary flight controls; and a broad spectrum of surface treatment options.
The products that companies within this group design, engineer, build and military manufacturers with largerepair include:
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 |
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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 that companies within this group design, manufacture, build and a variety of special processes including: super plastic titanium forming, aluminum and titanium chemical milling and surface treatments.
Aircraft wings | Flight control surfaces | |
Composite and metal bonding | Integrated testing and certification services | |
Engine nacelles | Stretch-formed leading edges and fuselage skins | |
Comprehensive processing services | Wing spars and stringers | |
Empennages | Composite ducts and floor panels | |
Acoustic and thermal insulation systems |
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.
Raw Materials and Replacement Parts
We purchase raw materials, primarily consisting of extrusions, forgings, castings, aluminum and titanium sheets and shapes, and stainless steel alloys, from various vendors. We also purchase replacement parts, which are utilized in our various repair and overhaul operations. We believe that the availability of raw materials to us is adequate to support our operations.
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Sales, Marketing and Engineering
While each of our operating companies maintains responsibility for selling and marketing its specific products, we have developed two marketing teams at the groupoperating segment level who are focused on business development and cross-selling our broad capabilities. One team supports the Aerostructures and Aerospaceis dedicated to Systems Groups& Support, and the other the Aftermarket Services Group.team supports Aerospace Structures. These teams are responsible for selling aerospace structures, systems, integrated assemblies, 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.
The two group-level marketing teams operate as the front-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,& Support, we have created a group engineering function to provide integrated solutions to meet our customercustomers’ needs by designing systems that integrate the capabilities of our companies.
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, 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 plantCompany (“Boeing”) 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 which 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.
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Participants in the aerospace industry compete primarily on the basis of breadth of technical capabilities, quality, turnaround time, capacity and price.
Government Regulation and Industry Oversight
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 which we incur as a result of these investigations and the environmental contamination found which pre-dates 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
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Employees
As of
March 31,Several of our subsidiaries are parties to collective bargaining agreements with labor unions. Under those agreements, we currently employ approximately
During the fiscal year ended March 31, 2019, the Stuart, Florida facility production and 475maintenance employees elected the United Autoworkers of America, Local #2505, to represent them in our Red Oak, Texascollective bargaining with the Company. As of March 31, 2020, the union and 386 employees in our Tulsa, Oklahoma facilitiesthe Company have not yet negotiated initial contracts. reached an agreement.
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 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.
Executive Officers
Our current executive officers are:
Name | Age | Position | ||
Daniel J. Crowley | 57 | President and Chief Executive Officer and Director | ||
James F. McCabe, Jr. | 57 | Senior Vice President, Chief Financial Officer | ||
Jennifer H. Allen | 48 | Senior Vice President, General Counsel and Secretary | ||
Lance R. Turner | 49 | Senior Vice President, Chief Human Resources Officer | ||
Thomas A. Quigley, III | 43 | Vice President, Investor Relations and Controller | ||
Peter K.A. Wick | 50 | |||
Executive Vice President, Aerospace Structures | ||||
William Kircher | 53 | Executive Vice President, | ||
Daniel J. Crowley
was appointed President and Chief Executive Officer and a director of the Company on January 4, 2016. 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 General Counsel and Secretary since 2004.September 2018. She joined Triumph 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 member of the mergers and acquisition group in the New York office of Jones Day from 2005 to 2010, and a member of the business and finance group in the Philadelphia office of Morgan, Lewis & Bockius LLP from 1996 to 2001.
Lance R. Turner was appointed our Senior Vice President and Chief Human Resources Officer in September 2017. From 20012013 until he joined us,September 2017, Mr. Wright was a partner with the law firmTurner served as Vice President of Ballard Spahr LLP, where he practiced corporateHuman Resources for CenturyLink, Inc.; 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. Quigley7
Peter K.A. Wick was appointed Executive Vice President, Integrated Systems 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.
William Kircher was appointed our Executive Vice President, Product Support in September 2018. Prior to joining the Company, he served as Chief Operating Officer of HM Dunn AeroSystems,MB Aerospace, a Blackstone portfolio company, from 2016 to 2017 and as CEO of VAS Aero Services, a HIG portfolio company, in 2015. Mr. Kircher also spent 18 years with United Technologies Corporation in various domestic and international leadership roles including President, UTC Aerospace Singapore, and Vice President, Singapore Overhaul and General ManagerRepair for Pratt and Whitney.
Recent Developments
On May 22, 2020, the Company and its subsidiary co-borrowers and guarantors entered into a Twelfth Amendment to Credit Agreement (the “Twelfth Amendment” and the Credit Agreement as amended by the Twelfth Amendment, the “Amended Credit Agreement”) with the Administrative Agent and the Lenders party thereto. Among other things, the Twelfth Amendment:
(i) limits the amount of Precision Castparts Corp (PCC) aftercash and cash equivalents in the acquisitionUnited States the Company can hold on its balance sheet to $50.0 million, subject to certain limited exceptions;
(ii) authorizes the completion of Heroux Devtek Aerostructuresasset sales with respect to previously identified Specified TAS Business Units (as defined in 2012. Before that, Mr. Rosenjack spent 20 years with Textron, Inc., including five years with Bell Helicopter where he was Senior Vice Presidentthe Amended Credit Agreement);
(iii) provides for a reserve against the availability of up to 75% of the Commercial Helicopter Business.
(iv) increases the interest rate margins applicable to the revolving credit loans by 0.50%;
(v) modifies the interest coverage ratio covenant to require a minimum interest coverage ratio of Operations for Triumph Airborne Structures, Mr. Abram has served as Vice President of Triumph Aftermarket Services Group, North America and, most recently, Vice President-Aftermarket Services Group, where he was responsible(i) 1.85 to 1.00 for the company’s maintenance, repairfiscal quarter ending June 30, 2020, (ii) 1.35 to 1.00 for the fiscal quarter ending September 30, 2020, (iii) 1.00 to 1.00 for the fiscal quarter ending December 31, 2020, (iv) 1.15 to 1.00 for the fiscal quarter ending March 31, 2021, (v) 1.75 to 1.00 for the fiscal quarter ending June 30, 2021, (vi) 2.00 to 1.00 for the fiscal quarter ending September 30, 2021, (vii) 2.25 to 1.00 for the fiscal quarters ending December 31, 2021 and overhaul (MRO) activities supporting commercial, regional, businessMarch 31, 2022, and military aircraft worldwide. Before joining Triumph, he was Vice President(viii) 2.75 to 1.00 for each fiscal quarter ending thereafter;
(vi) suspends the senior secured leverage ratio covenant through the fiscal quarter ending March 31, 2021 and modifies the senior secured leverage ratio for subsequent fiscal quarters to require the senior secured leverage ratio not to exceed (i) 4.50 to 1.00 for the fiscal quarter ending June 30, 2021, (ii) 3.75 to 1.00 for the fiscal quarter ending September 30, 2021, (iii) 3.50 to 1.00 for the fiscal quarters ending December 31, 2021 and March 31, 2022, and (iv) 3.25 to 1.00 for each fiscal quarter ending thereafter;
(vii) modifies the first lien secured leverage ratio covenant so that the maximum permitted first lien leverage ratio steps down from 2.50 to 1.00 to 2.00 to 1:00, commencing with the fiscal quarter ending March 31, 2021; and
(v) modifies certain other covenants and terms.
Pursuant to the Amended Credit Agreement, the Company can borrow, repay and re-borrow revolving credit loans, and cause to be issued letters of Operations for NORDAM Repair Division. Mr. Abram has extensive international business operations experience establishing start-up MRO facilitiescredit, in European aggregate principal amount not to exceed $600.0 million outstanding at any time. The loans borrowed under the Amended Credit Agreement bear interest at the Company’s option, at a base rate plus a margin of 2.50% to 3.00%, or a eurodollar rate, plus a margin of 3.50% to 4.00%. The applicable interest rate is based upon the Company’s ratio of total indebtedness to earnings before interest, taxes, depreciation and Singapore.
In connection with entering into the Twelfth Amendment, the Company repaid certain of the outstanding revolving loans under the Credit Facility (as defined below).
The obligations under the Amended Credit Agreement and related documents are secured by liens on substantially all assets of the Company and its domestic subsidiaries pursuant to a Third Amended and Restated Guarantee and Collateral Agreement, dated as Senior Vice President, Global Human Resources for Houghton Internationalof September 23, 2019, among the administrative agent, the Company and Executive Vice President, Human Resources for Rohmthe subsidiaries of the Company party thereto.
Approximately $193.0 million of revolving credit commitments under the Amended Credit Agreement expire on May 3, 2021. As a result, the Company will have to pay accrued interest and Haas.
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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 immediately 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.
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Item 1A.Risk Factors
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 and systems. 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 cargo miles flown. Consequently, conditions or events which contribute to declines in worldwide ASMs and cargo miles flown, such as those mentioned above, could negatively impact our MRO business.
The effects of COVID-19 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 or our customers, which could have a longer-term impact.
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.
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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. While we have realized some efficiencies from these actions, we may not realizeassets. As described in Note 2, the benefitsCompany recognized an impairment of these initiativesgoodwill within the Systems & Support reportable segment that was largely due to the extentimpact of COVID-19 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 subjectmay be impacted by numerous factors such as the political environment, U.S. foreign policy, macroeconomic conditions and the ability of the U.S. Government to significant risks. enact relevant legislation such as authorization and appropriations bills.
In addition, significant budgetary delays and constraints have already resulted in reduced spending levels, and additional reductions may be forthcoming. In August 2011, theThe Budget Control Act (the "Act")of 2011 established limits on U.S. Government discretionary spending, including a reduction of defense spending by approximately $490 billion between the 2012 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,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 2020, such as F/A-18, CH-47 Chinook, AH-64 Apache, KC-46A Tanker, UH-60 Black Hawk, Northrop Grumman Global Hawk and P-8V-22 Osprey programs, uncertainty remains about how defense budgets in FY2017fiscal year 2021 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’s 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
Our overall operating results arebusiness could be negatively affected by many factors,cyber or other security threats or other disruptions.
Our businesses depend heavily on information technology and computerized systems to communicate and operate effectively. The Company's 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 timing of orders from large customersU.S. Government, are increasingly requiring cybersecurity protections and the timing of expenditures to manufacture parts and purchase inventorymandating cybersecurity standards in anticipation of future sales ofour products, and services. A large portionwe may incur additional cost to comply with such demands.
Cybersecurity threats are evolving and include, but are not limited to, malicious software; attempts to gain unauthorized access to our sensitive information, including that of our operating expenses are relatively fixed. Because severalcustomers, suppliers, subcontractors, and joint venture partners; and other electronic security breaches that could lead to disruptions in mission critical systems, unauthorized release of our operating locations typically doconfidential or otherwise protected information and corruption of data.
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 obtain long-term purchase ordersbe fully insured or commitments from our customers, they must anticipate the future volume of orders based upon the historic purchasing patterns of customersindemnified 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,reputation, operating results and financial condition and results of operations.
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Our acquisition strategy exposes us to risks, including the risk that we may not be able to successfully integrate acquired businesses.
The terms of our indentures governing our Senior Notes, Amended Credit Agreement and Securitization Facility (each as defined in Note 10 impose significant operating and financial restrictions on us, which limit our ability to incur liens, sell assets and enter into certain transactions, among other things. In addition, our debt documents require us to comply with various financial and other covenants set forth in the related agreement, and our Amended Credit Agreement requires us to maintain certain financial ratios, including an interest coverage ratio, a senior secured leverage ratio covenant, and a first lien secured leverage ratio. We are in compliance with all of our debt covenants.
We cannot assure you that we will be able to consummate acquisitions on satisfactory termsmaintain compliance with the covenants in the agreements governing our indebtedness in the future or, if we fail to do so, that we will be able to obtain waivers from the holders of such indebtedness or amend the covenants and other terms of the agreements governing such indebtedness on commercially reasonable terms, if at all. Failure to maintain compliance with these covenants may allow the holders of such indebtedness to require immediate repayment of the indebtedness owed to them and to terminate any acquisitions are consummated, successfully integrate these acquired businesses.
We may periodically need to obtain additional financing in order to meet our debt obligations as they come due, to support our operations and/or Boeing Commercial, Militaryto make acquisitions. Our access to the debt capital markets and Space, represented approximately 38%the cost of borrowings are affected by a number of factors, including market conditions and the strength of our net sales forcredit ratings and the fiscal year ended March 31, 2016, covering virtually every Boeing plantimpact of COVID-19 on our markets. If we cannot obtain adequate sources of credit on favorable terms, or at all, our business, operating results, and product. Gulfstream represented approximately 12%financial condition could be adversely affected. We may also seek transactions to extend the maturity of our net sales for the fiscal year ended March 31, 2016, covering several Gulfstream plantsdebt, reduce leverage or obtain covenant flexibility. Such transactions could result in us incurring additional secured debt or equity and products. As a result, a significant reductionthere can be no assurance that we will be successful in purchases by Boeing and/or Gulfstream could have a material adverse impact on our financial position, results of operations, and cash flows. In addition, some of our other group companies rely significantly on particular customers, the loss of which could have an adverse effect on those businesses.
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.
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.
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
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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.
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 are 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 are to Boeing and Gulfstream. As a result, a significant reduction in purchases by Boeing and/or Gulfstream 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.
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.
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 us and our customers, which could result in significant delays, expenses, increased costs and management distraction and adversely affect production schedules and contract profitability.
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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 are subject to a number of risks, including:
• | availability of capital to our suppliers; |
• | the destruction of our suppliers' facilities or their distribution infrastructure; |
• | a work stoppage or strike by our suppliers' employees; |
• | the failure of our suppliers to provide raw materials or component parts of the requisite quality; |
• | the failure of essential equipment at our suppliers' plants; |
• | the failure or shortage of supply of raw materials to our suppliers; |
• | contractual amendments and disputes with our suppliers; |
• | reduction to credit terms; and |
• | geopolitical conditions in the global supply base. |
In addition, some contracts with our suppliers for raw materials, component parts and other risks, and our current operations in international markets expose usgoods are short-term contracts, which are subject to such risks.
Due to be, internal growth supplemented by growth through the acquisition of additional aerospace companies and product lines. In order to grow internally,economic difficulty, we may needface pressure to make significant capital expenditures, such as investingrenegotiate agreements resulting in facilities in low-cost countries, andlower margins. Our suppliers may need additional capitaldiscontinue provision of products to do so. Our ability to grow is dependent upon, and may be limited by, among other things, access to markets and conditions of markets, availability under the Credit Facility and the Securitization Facility (each as defined in Note 10 of the "Notes to Consolidated Financial Statements") and by particular restrictions contained in the Credit Facility and our other financing arrangements. In that case, additional funding sources may be needed,us at attractive prices or at all, and we may not be able to obtain such products in the additional capital necessary to pursue our internal growthfuture from these or other providers on the scale and acquisition strategywithin the time periods we require. Furthermore, substitute raw materials or if we can obtain additional financing, the additional financingcomponent 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 COVID-19 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. COVID-19 has also put considerable pressure on financial terms that are satisfactory to us.
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 competitors, which include Boeing, Airbus, Bell Helicopter, Bombardier, Cessna, General Electric, Gulfstream, Honeywell, Lockheed Martin, Northrop Grumman, Raytheon, Rolls Royce and Sikorsky, may choose not to outsource production of aerostructures or other components due to, among other things, their own direct labor and overhead considerations, capacity utilization at their own facilities, and 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 Alenia Aeronautica, Fokker Technologies, Fuji Heavy Industries, GKN Westland Aerospace (U.K.), Kawasaki Heavy Industries, Mitsubishi Heavy Industries, Spirit AeroSystems 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.
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, 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.
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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.
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.
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
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 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 COVID-19 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 COVID-19 to our customers under fixed-price contracts.
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, as the number ofshould insurance companies providingmarket conditions change, general aviation product liability, insurance coverage has decreased in recent years, 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.
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Our fixed-price contracts may commit us to unfavorable terms.
A significant portion of our net sales are 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 must 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 similar in nature to the forward losses incurred on the Boeing 747-8 ("747-8 program") and Bombardier Global 7000/80007500 contracts.
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
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:
• | difficulty in enforcing agreements in some legal systems outside the United States; |
• | imposition of additional withholding taxes or other taxes on our foreign income, tariffs or other restrictions on foreign trade and investment, including currency exchange controls; |
• | fluctuations in exchange rates which may affect demand for our products and services and may adversely affect our profitability in U.S. dollars; |
• | inability to obtain, maintain or enforce intellectual property rights; |
• | changes in general economic and political conditions in the countries in which we operate; |
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• | unexpected adverse changes in the laws or regulatory requirements outside the United States, including those with respect to environmental protection, export duties and quotas; |
• | failure by our employees or agents to comply with U.S. laws affecting the activities of U.S. companies abroad; |
• | difficulty with staffing and managing widespread operations; and |
• | difficulty of and costs relating to compliance with the different commercial and legal requirements of the countries in which we operate. |
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.
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 Company to damages and potential injunctive relief which, if granted, may preclude the Company 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.
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.
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.
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 couldpartners or joint ventures in which we participate.
We have implemented policies, procedures, training and other compliance controls, and have negotiated terms designed to prevent misconduct by employees, agents or others working on our behalf or with us that would violate the applicable laws of the jurisdictions in which we operate, including laws governing improper payments to government officials, the protection of export controlled or
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classified information, cost accounting and billing, competition and data privacy. However, we cannot ensure that we will prevent all such misconduct committed by our employees, agents, subcontractors, suppliers, business partners or others working on our behalf or with us, and this risk of improper conduct may increase as we expand globally. In the ordinary course of our business we form and are members of joint ventures. We may be negatively affected by cyberunable to prevent misconduct or other security threatsviolations of applicable laws by these joint ventures (including their officers, directors and employees) or other disruptions.
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. For example, Thestoppages during collective bargaining agreement with our union employees with the IAM District 751 at our Spokane, Washington facility has expired. As of May 11, 2016, the workforce in Spokane of approximately 400 employee 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 Local 848 at our Red Oak, Texas and Local 952 at our Tulsa, Oklahoma, facilities of the United Auto Workers ("UAW") are currently working without a contract.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.
Many aircraft manufacturers, airlines and aerospace suppliers have unionized workforces. Strikes, work stoppages or slowdowns experienced by aircraft manufacturers, airlines or aerospace suppliers could reduce our customers' demand for our products or prevent us from completing production. In turn, this may have a material adverse effect on our financial condition, results of operations and cash flows.
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 theThe 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
18
cannot assure you that we will be able to maintain our security clearance. If for some reason our security clearance is invalidated or terminated, we may not be able to continue to perform our present classified contracts or be able to enter into new classified contracts, which could affect our ability to compete for and capture new business.
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" 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.
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 are 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).
Brexit may have short-term and long-term adverse impacts on the Company's operations in the United Kingdom.
The Company’s United Kingdom operations represented approximately 4% of consolidated net sales for the 12 months ended March 31, 2020. The impact of Brexit could adversely affect our business, results of operations, and financial condition. In the short-term, volatility in the British pound sterling could continue as the United Kingdom negotiates its anticipated exit from the European Union. In the longer term, any impact from Brexit on the Company’s United Kingdom operations will depend, in part, on the outcome of tariff, trade, regulatory, and other negotiations.
Item 1B.Unresolved Staff Comments
None.
Item 2.Properties
As of
March 31,(Square feet in thousands) |
| Owned |
|
| Leased |
|
| Total |
| |||
Systems & Support |
|
| 1,444 |
|
|
| 563 |
|
|
| 2,007 |
|
Aerospace Structures |
|
| 2,812 |
|
|
| 2,845 |
|
|
| 5,657 |
|
Corporate |
|
| — |
|
|
| 22 |
|
|
| 22 |
|
Total |
|
| 4,256 |
|
|
| 3,430 |
|
|
| 7,686 |
|
(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 |
At
March 31,• | Systems & Support: West Hartford, Connecticut; Park City, Utah; and Hot Springs, Arkansas |
• | Aerospace Structures: Milledgeville, Georgia; Hawthorne, California; Red Oak, Texas; Grand Prairie, Texas; |
We believe that our properties are adequate to support our operations for the foreseeable future.
19
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. 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 ourits financial position or results of operations, although no assurances can 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
In December 1998, we announced a program to repurchase up to 500,000 shares of our common stock. In February 2008, the Company's Board of Directors authorized an increase in the Company's existing stock repurchase program by up 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. DuringThough no purchases have been made in recent years, to the fiscal year ended March 31, 2016, we did not repurchase any shares. During the fiscal years ended March 31, 2015extent permitted by our Amended Credit Agreement 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. Repurchasesother documentation governing our indebtedness, 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 and the terms of our Amended Credit Agreement do not currently permit us to repurchase shares under the program. As a result, as of May 27, 2016,28, 2020, the Company remains able to purchase an additional 2,277,789 shares.
Equity Compensation Plan Information
The information required regarding equity compensation plan information will be included in our 2020 Proxy Statement in connection with our
21
The following graph compares the cumulative 5-year total return provided stockholders on our common stock relative towith 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, 2011,2015, 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, 20112015, in stock or index, including reinvestment of dividends.
|
| Fiscal year ended March 31, |
| |||||||||||||||||||||
|
| 2015 |
|
| 2016 |
|
| 2017 |
|
| 2018 |
|
| 2019 |
|
| 2020 |
| ||||||
Triumph Group, Inc. |
|
| 100.00 |
|
|
| 52.91 |
|
|
| 43.51 |
|
|
| 42.81 |
|
|
| 32.63 |
|
|
| 11.66 |
|
Russell 1000 |
|
| 100.00 |
|
|
| 100.50 |
|
|
| 118.02 |
|
|
| 134.52 |
|
|
| 147.03 |
|
|
| 135.23 |
|
Russell 2000 |
|
| 100.00 |
|
|
| 90.24 |
|
|
| 113.90 |
|
|
| 127.33 |
|
|
| 129.94 |
|
|
| 98.77 |
|
S&P Aerospace & Defense |
|
| 100.00 |
|
|
| 100.97 |
|
|
| 128.44 |
|
|
| 182.43 |
|
|
| 182.20 |
|
|
| 134.14 |
|
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 |
The stock price performance included in this graph is not necessarily indicative of future stock price performance.
22
Item 6.Selected Financial Data
The following selected financial data should be read in conjunction with the Consolidated Financial Statementsconsolidated financial statements and related Notesnotes thereto and "Management's Discussionmanagement's discussion and Analysisanalysis of Financial Conditionfinancial condition and Resultsresults of Operations"operations included herein.
|
| Fiscal Year Ended March 31, |
| |||||||||||||||||
|
| 2020(1) |
|
| 2019(2) |
|
| 2018(3) |
|
| 2017(4) |
|
| 2016(5) |
| |||||
|
| (in thousands, except per share data) |
| |||||||||||||||||
Operating Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | 2,900,117 |
|
| $ | 3,364,930 |
|
| $ | 3,198,951 |
|
| $ | 3,532,799 |
|
| $ | 3,886,072 |
|
Cost of sales |
|
| 2,307,393 |
|
|
| 2,924,920 |
|
|
| 2,607,556 |
|
|
| 2,774,449 |
|
|
| 3,671,684 |
|
|
|
| 592,724 |
|
|
| 440,010 |
|
|
| 591,395 |
|
|
| 758,350 |
|
|
| 214,388 |
|
Selling, general and administrative |
|
| 257,529 |
|
|
| 298,386 |
|
|
| 292,630 |
|
|
| 285,001 |
|
|
| 290,338 |
|
Depreciation and amortization |
|
| 138,168 |
|
|
| 149,904 |
|
|
| 158,368 |
|
|
| 176,946 |
|
|
| 177,755 |
|
Impairment of intangible assets |
|
| 66,121 |
|
|
| — |
|
|
| 535,227 |
|
|
| 266,298 |
|
|
| 874,361 |
|
Restructuring |
|
| 25,340 |
|
|
| 31,098 |
|
|
| 40,069 |
|
|
| 42,177 |
|
|
| 36,182 |
|
Loss on sale of assets and businesses |
|
| 56,916 |
|
|
| 235,301 |
|
|
| 30,741 |
|
|
| 19,124 |
|
|
| — |
|
(Gain) loss on legal judgment or settlement, net of expenses |
|
| (9,257 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,476 |
|
Operating income (loss) |
|
| 57,907 |
|
|
| (274,679 | ) |
|
| (465,640 | ) |
|
| (31,196 | ) |
|
| (1,169,724 | ) |
Non-service defined benefit income |
|
| (41,894 | ) |
|
| (62,105 | ) |
|
| (103,234 | ) |
|
| (88,085 | ) |
|
| (78,618 | ) |
Interest expense and other |
|
| 122,129 |
|
|
| 114,619 |
|
|
| 99,442 |
|
|
| 80,501 |
|
|
| 68,041 |
|
Loss from continuing operations, before income taxes |
|
| (22,328 | ) |
|
| (327,193 | ) |
|
| (461,848 | ) |
|
| (23,612 | ) |
|
| (1,159,147 | ) |
Income tax expense (benefit) |
|
| 5,798 |
|
|
| (5,426 | ) |
|
| (36,457 | ) |
|
| 19,340 |
|
|
| (111,187 | ) |
Net loss |
| $ | (28,126 | ) |
| $ | (321,767 | ) |
| $ | (425,391 | ) |
| $ | (42,952 | ) |
| $ | (1,047,960 | ) |
Loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | (0.56 | ) |
| $ | (6.47 | ) |
| $ | (8.60 | ) |
| $ | (0.87 | ) |
| $ | (21.29 | ) |
Diluted (6) |
| $ | (0.56 | ) |
| $ | (6.47 | ) |
| $ | (8.60 | ) |
| $ | (0.87 | ) |
| $ | (21.29 | ) |
Cash dividends declared per share |
| $ | 0.16 |
|
| $ | 0.16 |
|
| $ | 0.16 |
|
| $ | 0.16 |
|
| $ | 0.16 |
|
Shares used in computing earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 50,494 |
|
|
| 49,698 |
|
|
| 49,442 |
|
|
| 49,303 |
|
|
| 49,218 |
|
Diluted (6) |
|
| 50,494 |
|
|
| 49,698 |
|
|
| 49,442 |
|
|
| 49,303 |
|
|
| 49,218 |
|
|
| As of March 31, |
| |||||||||||||||||
|
| 2020(1) |
|
| 2019(2) |
|
| 2018(3) |
|
| 2017(4) |
|
| 2016(5) |
| |||||
|
| (in thousands) |
| |||||||||||||||||
Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital |
| $ | 573,879 |
|
| $ | 265,795 |
|
| $ | 930,486 |
|
| $ | 438,659 |
|
| $ | 606,767 |
|
Total assets |
|
| 2,980,333 |
|
|
| 2,854,574 |
|
|
| 3,807,064 |
|
|
| 4,414,600 |
|
|
| 4,835,093 |
|
Long-term debt, including current portion |
|
| 1,807,507 |
|
|
| 1,488,821 |
|
|
| 1,438,284 |
|
|
| 1,196,300 |
|
|
| 1,417,320 |
|
Total stockholders' (deficit) equity |
| $ | (781,264 | ) |
| $ | (573,313 | ) |
| $ | 450,534 |
|
| $ | 846,473 |
|
| $ | 934,944 |
|
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 |
(1) | Includes the divestiture of Triumph Aerospace Structures’ manufacturing operations in Nashville, Tennessee, as well as the gain recognized as a result of the transfer of certain assets and liabilities to AeroSpace Technologies of Korea Inc. |
(2) | Includes the divestitures of Triumph Fabrications - San Diego, Inc.; Triumph Fabrications - Ft. Worth, Inc.; Triumph Structures – Kansas City, Inc.; Triumph Structures – Wichita, Inc.; Triumph Gear Systems – Toronto, ULC and Triumph Northwest (The Triumph Group Operations, Inc.); Triumph Aviation Services - NAAS Division, Inc.; Triumph Structures - East Texas, Inc. as well as all of the shares of Triumph Structures - Los Angeles, Inc.; and Triumph Processing, Inc.; as well as the loss recognized as a result of the transition of the Global 7500 program to Bombardier. |
(3) | Includes the divestitures of Triumph Processing- Embee Division (September 2017) and Triumph Structures- Long Island (March 2018). Additionally, the fiscal 2018 and prior period operating data has been adjusted as a result of Accounting Standards Update ("ASU") 2017-07, Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost ("ASU 2017-07"). The fiscal 2018 and prior period operating data has not been adjusted as a result of ASU 2014-09, Revenue From Contracts with Customers ("ASU 2014-09"); this affects the comparability of the information reflected in the selected financial data for this year. See Notes to the Consolidated Financial Statements. |
(4) | Includes the divestitures of Triumph Aerospace Systems-Newport News, Inc. (September 2016) and Triumph Air Repair, the Auxiliary Power Unit Overhaul Operations of Triumph Aviations Services - Asia, Ltd. and Triumph Engines - Tempe (December 2016). Additionally, the fiscal 2018 and prior period operating data has been adjusted as a result of ASU 2017-07. The fiscal 2018 and prior period operating data has not been adjusted as a result of ASU 2014-09; this affects the comparability of the information reflected in the selected financial data for this year. See Notes to the Consolidated Financial Statements. |
(5) | Includes the acquisition of Fairchild Controls Corporation (October 2015) from the date of acquisition, forward losses on the Bombardier and 747-8 programs of $561,158 |
(6) | |
Diluted earnings per share for the fiscal years ended March 31, 2015, |
23
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the Consolidated Financial Statementsconsolidated financial statements and notes thereto contained elsewhere herein.
OVERVIEW
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.
During the fiscal year ended March 31, 2020, the Company divested of a number of its assets and systems alsooperations, including the sale of its manufacturing operations at its Nashville, TN, facility and the assignment of its E-2 Jets contract with Embraer 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 overhaulmanufacture of aircraftstructural components and accessories manufactured by third parties.
Significant financial results for the fiscal year ended
March 31,• | Net sales for fiscal 2020 decreased 13.8% to $2.90 billion. |
• | Operating income for fiscal 2020 was $57.9 million. |
• | Included in operating income for fiscal 2020 was loss on sale of assets and businesses of $56.9 million and restructuring charges of $25.3 million. |
• | Net loss for fiscal 2020 was $28.1 million or $0.56 per diluted common share. |
• | Backlog decreased 14.5% over the prior year to $3.2 billion due to divestitures. |
Our working capital needs are generally funded through cash flows from operations and borrowings under our credit arrangements. For the fiscal year ended
March 31,The Company has committed to aseveral plans (which were initiated in fiscal 2016) that incorporated the restructuring of certain of its businesses as well as the consolidation of certain of its facilities ("2016 Restructuring Plan"). facilities. As of March 31, 2020, with the exception of three pending facility closures to be completed in fiscal 2021 or 2022, the Company has substantially completed these plans.
On March 18, 2020, in response to anticipated market headwinds primarily arising from the impact of COVID-19, the Company committed to new restructuring and cost reduction activities to align capacity with expected demand. These plans and related activities are expected to generate savings of approximately $120.0 million in fiscal 2021 on a consolidated basis, primarily from headcount and other human resource related cost reductions. While the long-term outlook for the aerospace industry remains positive due the fundamental drivers of air travel demand, current expectations are that it will take 2-3 years for travel to return to calendar 2019 levels and a few years beyond that for the industry to return to long-term trend growth, although there can be no assurance that such period will not be longer. To balance the supply and demand given the COVID-19 shock and to preserve long-term potential and competitiveness, our customers have decided to reduce the production rates of several of their commercial aircraft programs. These rate decisions were based on assessments of the demand environment. There is significant uncertainty with respect to when commercial air traffic levels will begin to recover, and whether and at what point capacity will return to and/or exceed pre-COVID-19 levels. The Company will work with its customers to closely monitor the key factors that affect backlog and future demand including customers’ evolving manufacturing plans, the widebody replacement cycle and the cargo market, but such impact could be material and make it difficult to compare periods.
The Company expects COVID-19 to reduce its footprint by approximately 3.5 million square feet anddemand for commercial aviation aftermarket due to the recent sharp decreases in flights; as well as reduce head count by 1,200 employees. Over the next few fiscal years, the Company estimates that it will record aggregate pre-tax charges of $150.0 million to $160.0 milliondemand for commercial aviation production as OEMs have lowered their related to these programs, which represent employee termination benefits, contract termination costs, accelerated depreciation and facility closure and other exit costs, anddelivery rate assumptions. The COVID-19 related reduction in OEM production rates will result in additional costs to produce and deliver our products, which may not be mitigated through our cost reduction initiatives and could negatively impact earnings and cash flows, particularly with respect to our fixed-price contracts.
The Company is 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 COVID-19 on our operations, supply chain and customers, future changes to OEM production rates, supply chain impacts, and/or the results of negotiations with particular customers. Any such impacts, including any changes in our estimates, could have a material adverse effect on our financial position, results of operations, and/or cash outlays. flows.
24
For the fiscal year ended March 31, 2016,example, the Company recorded chargesexpects that, in the event that its customers are unable to resume aircraft deliveries consistent with provided assumptions, the continued absence of $81.0 millionrevenue, earnings, and cash flows associated with those deliveries would continue to have a material impact on our operating results. In the event that future OEM production rate increases occur at a slower rate or take longer than the Company is currently assuming, the Company expects that the growth in inventory and other cash flow impacts associated with production would decrease. However, while any prolonged delays in planned OEM production rate increases could mitigate the impact on our liquidity, it could significantly increase the overall expected costs to manufacture our products, which would reduce operating margins and/or increase abnormal production costs in the future. Additionally, the declines in global air travel are expected to result in reduced demand for MRO services and uncertainty exists related to this program, including accelerated depreciationthe length of $22.4 milliontime until air travel returns to historical levels.
From fiscal 2014 through fiscal 2020, our Aerospace Structures business unit had been performing design, development and severance of $16.3 million.
Boeing 737 MAX
The Boeing 737 MAX program represents approximately 5% of revenue for the fiscal year ended March 31, 2020. The temporary suspension of 737 MAX production by Boeing in “ResultsJanuary 2020 and subsequent temporary suspension of Operations”, we recordedproduction operations in the Puget Sound area as a $399.8 million forward lossresult of the COVID-19 crisis in March 2020, had minimal unfavorable effect on our Bombardier Global 7000/8000 wing contract inresults through March 31, 2020. Boeing has since resumed production operations during the fourthweek of April 20, 2020 and updated the delivery rate assumptions. Boeing’s assumptions include the return of 737 MAX aircraft production during the second calendar quarter of 2016.2020 as timing and conditions of return to service and COVID-19 impacts are better understood; as well as the timing of regulatory approvals will enable 737 MAX deliveries to resume during the third calendar quarter of 2020.
Boeing has stated it has approximately 450 airplanes in inventory at March 31, 2020, and has also assumed that the majority of 737 MAX airplanes produced during the grounding and included within inventory will be delivered during the first year after the resumption of deliveries, although at a slower pace than our previous assumptions due to COVID-19. The Global 7000/8000 contract provides for fixed pricingslower production 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 costsdelivery rate ramp-ups reflect commercial airline industry uncertainty due to the combinationimpact 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 spendingCOVID-19. Based on the design and engineering phaseabove assumption, Triumph expects to see declines in revenue across both of its operating segments in its fiscal 2021. A resurgence of COVID-19 that results in additional delays or shut downs could further exacerbate this expectation.
Boeing 747-8
As disclosed during fiscal 2016, Boeing announced a rate reduction to the 747-8 program, which lowered production to one plane every two months. The impact of the program and uncertainty regarding costrate 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 resultresulted in additional forward loss reservesduring the fiscal year ended March 31, 2016.
In March 2017, the Company settled several outstanding change orders and open pricing on a number of its programs with Boeing. The agreement included pricing settlements, advanced payments, delivery schedule adjustments and the opportunity to extend the mutual relationship on future programs. The agreement also provided for continued build ahead on the 747-8 program through the end of the existing contract, resulting in future periods, while improvementsa reduction to the previously recognized forward losses on the 747-8 program.
As of March 31, 2020, Triumph’s production on this program has substantially completed from its Hawthorne, CA facility, with the remaining production from its Grand Prairie, TX, facility expected to complete in future costs comparedlate fiscal 2021. Facility exit plans are underway at both locations and are expected to current estimates may result in favorable adjustments ifadditional cost to exit of approximately $20.0 million through mid-fiscal 2022 and result in projected cash uses.
G280
We acquired both the G280 and G650 wing programs in fiscal 2015 and received proceeds for $160.0 million as both contracts were operating at a loss. While operations have improved on the G650 since acquisition as noted further below, the cost profile of the G280 wing program has continued to result in forward loss reservescharges, including $29.1 million in the fiscal year ended March 31, 2019.
25
In April 2019, the Company and IAI reached an agreement to transition the manufacture of the G280 wing to IAI. The two companies have developed detailed transition plans to enable a transition of work. Our contract with IAI will terminate upon completion of the transition of work. Our forward loss recognized in the fiscal year ended March 31, 2019, noted above includes the cost to transition, which is estimated to be completed in mid-fiscal 2021 and include projected cash uses. Changes to the forward loss associated with this program were immaterial in the year ended March 31, 2020.
In May 2020, the Company reached a letter of intent to the accelerated transfer of the G280 wing program to Israel Aerospace Industries and Korean Aerospace Industries by mid-2020 at which point the leased Tulsa factory will be closed.
G650
In the first quarter of fiscal 2019, the Company reached an agreement with Gulfstream to optimize the supply chain on the Company's G650 work scope. The G650 wing box and wing completion work, which had been co-produced across three facilities at both companies, are no longer required.
E2-Jets
Under our contract with Embraer, we havehad 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 providesprovided for funding on a fixed amount of non-recurringnonrecurring costs, which willto be paid over a specified number of production units. Higher than expected spending on the E2-Jets program has resulted in a low single digitnear break-even 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, risksRisks related to additional engineering on the retained component manufacturing as well as the recurring cost profile remainsremain on this program.
During the fiscal year ended March 31, 2018, the Company reached an agreement with AeroSpace Technologies of Korea Inc. ("ASTK") to optimize the supply chain under our portion of the E2 program. Under this agreement, ASTK will build and transport fuselage shipsets to Embraer and establish a facility in Brazil to manage stock and repairs locally. At the time, the Company maintained its role as the supply chain integrator on the program.
In April 2019, we announced an agreement to assign our contract with Embraer for the manufacture of structural components for their program to ASTK. Under this program enters flight testing.
T-7 Red Hawk
In September 2017, the Company reached an agreement with Boeing to supply the wing, vertical tail and horizontal tail structures for customer work statement changes throughout the new T-7 Red Hawk, originally known as the Boeing T-X, for the U.S. Air Force. In September 2018, the U.S. Air Force awarded the contract to Boeing. In fiscal 2020, the Company continued supply chain analysis in support of Boeing's preliminary design. Risks related to 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 impactrecurring productions costs are possible and could result in future profitability.
Although none of these newthe development or production 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.
During the fourth quarter of the fiscal year ended March 31, 2016, consistent with our policy described herein, we performed our annual assessment2019, the Company divested of a number of its assets and operations, including (i) selling all of the fair valueshares of our goodwill for each of our three reporting units. We concluded that the goodwill of our Aerostructures reporting unit was impaired asTriumph Structures - East Texas, Inc. and all of the annual testing date. We concluded thatshares of Triumph Structures - Los Angeles, Inc. and Triumph Processing, Inc. (collectively, the goodwill had an implied fair value"Long & Large"), (ii) transitioning the responsibility for the Bombardier Global 7500 ("Global 7500") wing program manufacturing operations of $822.8Aerospace Structures to Bombardier, (iii) selling all of the shares of Triumph Fabrications - San Diego, Inc. and Triumph Fabrications - Ft. Worth, Inc. (together, "Fabrications"), (iv) selling all of the shares of Triumph Structures – Kansas City, Inc., Triumph Structures – Wichita, Inc., Triumph Gear Systems – Toronto, ULC and Triumph Northwest (The Triumph Group Operations, Inc.) (together, "Machining"), and (v) selling all of the shares of Triumph Aviation Services - NAAS Division, Inc. ("NAAS"). Collectively, these transactions are referred to as the "fiscal 2019 divestitures". The Company recognized combined net losses of $235.3 million (Level 3) compared to a carrying value of $1.42 billion. Accordingly, we recorded a non-cash impairment charge duringassociated with the fourth quarter of fiscal 2016 of $597.6 million,2019 divestitures, which isare presented on the accompanying Consolidated Statementsconsolidated statements of Operations as "Impairmentoperations within loss on divestitures. With the exception of intangible assets".NAAS, the operating results for the fiscal 2019 divestitures are included in Aerospace Structures ("fiscal 2019 Aerospace Structures Divestitures") through the respective dates of divestiture. The declineoperating results for NAAS are included in fair value isSystems & Support through the resultdate of continued declines in stock price and related market multiples for stock price to EBITDA of bothdivestiture.
26
During fiscal 2018, 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.
RESULTS OF OPERATIONS
The following includes a discussion of our consolidated and business segment results of operations. The Company's 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.
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 Securities and Exchange Commission (the "SEC") guidance on Compliance and Disclosure Interpretations,rules, we also disclose and discuss certain non-GAAP financial measures in our public filings and earning releases. Currently, the non-GAAP financial measuremeasures that we disclose isare Adjusted EBITDA, which is our (loss) income from continuing operationsnet loss before interest, income taxes, amortization of acquired contract liabilities, legal settlements, loss on divestitures, 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 incentives 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.
We view Adjusted EBITDA and Adjusted EBITDAP as 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 from
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.
Set forth below are descriptions of the financial items that have been excluded from our (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:
• | Gains or losses from sale of assets and businesses may be useful for investors to consider because they reflect gains or losses from sale of operating units or other assets. We do not believe these earnings necessarily reflect the current and ongoing cash earnings related to our operations. |
• | Legal judgments and settlements, when applicable, may be useful for investors to consider because it reflects gains or losses from disputes with third parties. We do not believe these earnings necessarily reflect the current and ongoing cash earnings related to our operations. |
27
• | Non-service defined benefit income or expense from our pension and other postretirement benefit plans (inclusive of the adoption of ASU 2017-07 and certain pension related transactions such as curtailments, settlements, early retirement or other incentives) may be useful for investors to consider because they represent the cost of postretirement benefits to plan participants, net of the assumption of returns on the plan's assets and are not indicative of the cash paid for such benefits. We do not believe these earnings (expenses) necessarily reflect the current and ongoing cash earnings related to our operations. |
• | Amortization of acquired contract liabilities may be useful for investors to consider because it represents the non-cash 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. |
• | Amortization expense (including goodwill and intangible asset impairments) may be useful for investors to consider because it represents the estimated attrition of our acquired customer base and the diminishing value of tradenames, product rights, licenses, or, in the case of goodwill, other assets that are not individually identified and separately recognized under U.S. GAAP. We do not believe these charges necessarily reflect the current and ongoing cash charges related to our operating cost structure. |
• | Depreciation may be useful for investors to consider because it generally represents the wear and tear on our property and equipment used in our operations. We do not believe these charges necessarily reflect the current and ongoing cash charges related to our operating cost structure. |
• | The amount of interest expense and other we incur may be useful for investors to consider and may result in current cash inflows or outflows. However, we do not consider the amount of interest expense and other to be a representative component of the day-to-day operating performance of our business. |
• | Income tax expense may be useful for investors to consider because it generally represents the taxes which 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 |
Management compensates for the above-described limitations of using non-GAAP measures 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.
The following table shows our Adjusted EBITDA and Adjusted EBITDAP reconciled to our (loss) income from continuing operationsnet loss for the indicated periods (in thousands):
|
| Fiscal year ended March 31, |
| |||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Net loss (U.S. GAAP measure) |
| $ | (28,126 | ) |
| $ | (321,767 | ) |
| $ | (425,391 | ) |
Legal judgment gain, net of expenses |
|
| (9,257 | ) |
|
| — |
|
|
| — |
|
Loss on sale of assets and businesses, net |
|
| 56,916 |
|
|
| 235,301 |
|
|
| 30,741 |
|
Adoption of ASU 2017-07 |
|
| — |
|
|
| 87,241 |
|
|
| — |
|
Amortization of acquired contract liabilities |
|
| (75,286 | ) |
|
| (67,314 | ) |
|
| (125,148 | ) |
Depreciation and amortization* |
|
| 204,289 |
|
|
| 149,904 |
|
|
| 693,595 |
|
Interest expense and other |
|
| 122,129 |
|
|
| 114,619 |
|
|
| 99,442 |
|
Curtailments, settlements and early retirement incentives |
|
| 14,293 |
|
|
| 4,032 |
|
|
| (25,722 | ) |
Union represented employee incentives |
|
| 7,071 |
|
|
| — |
|
|
| — |
|
Income tax expense (benefit) |
|
| 5,798 |
|
|
| (5,426 | ) |
|
| (36,457 | ) |
Adjusted EBITDA (non-GAAP measure) |
| $ | 297,827 |
|
| $ | 196,590 |
|
| $ | 211,060 |
|
Non-service defined benefit income (excluding settlements) |
|
| (56,187 | ) |
|
| (66,137 | ) |
|
| (77,512 | ) |
Adjusted EBITDAP (non-GAAP measure) |
| $ | 241,640 |
|
| $ | 130,453 |
|
| $ | 133,548 |
|
* | Includes impairment charges related to intangible assets |
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 | ) | |||||
Depreciation and amortization * | 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 |
The following tables show our Adjusted EBITDAEBITDAP by reportable segment reconciled to our operating (loss) income for the indicated periods (in thousands):
Fiscal year ended March 31, 2016 | |||||||||||||||||||
Total | Aerostructures | Aerospace Systems | Aftermarket Services | Corporate/ Eliminations | |||||||||||||||
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 | ) | — | — | |||||||||||
Depreciation and amortization * | 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 | Aerospace Systems | Aftermarket Services | Corporate/ Eliminations | |||||||||||||||
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 | Aerospace Systems | Aftermarket Services | Corporate/ Eliminations | |||||||||||||||
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 | ) |
|
| Fiscal year ended March 31, 2020 |
| |||||||||||||
|
| Total |
|
| Systems & Support |
|
| Aerospace Structures |
|
| Corporate/ Eliminations |
| ||||
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 |
| $ | 241,640 |
|
| $ | 205,352 |
|
| $ | 100,432 |
|
| $ | (64,144 | ) |
|
| Fiscal year ended March 31, 2019 |
| |||||||||||||
|
| Total |
|
| Systems & Support |
|
| Aerospace Structures |
|
| Corporate/ Eliminations |
| ||||
Operating (loss) income |
| $ | (274,679 | ) |
| $ | 201,094 |
|
| $ | (152,407 | ) |
| $ | (323,366 | ) |
Loss on sale of assets and businesses |
|
| 235,301 |
|
|
| — |
|
|
| — |
|
|
| 235,301 |
|
Adoption of ASU 2017-07 |
|
| 87,241 |
|
|
| — |
|
|
| 87,241 |
|
|
| — |
|
Amortization of acquired contract liabilities |
|
| (67,314 | ) |
|
| (34,121 | ) |
|
| (33,193 | ) |
|
| — |
|
Depreciation and amortization |
|
| 149,904 |
|
|
| 35,373 |
|
|
| 111,431 |
|
|
| 3,100 |
|
Adjusted EBITDAP |
| $ | 130,453 |
|
| $ | 202,346 |
|
| $ | 13,072 |
|
| $ | (84,965 | ) |
|
| Fiscal year ended March 31, 2018 |
| |||||||||||||
|
| Total |
|
| Systems & Support |
|
| Aerospace Structures |
|
| Corporate/ Eliminations |
| ||||
Operating (loss) income |
| $ | (465,640 | ) |
| $ | 231,103 |
|
| $ | (568,164 | ) |
| $ | (128,579 | ) |
Loss on sale of assets and businesses |
|
| 30,741 |
|
|
| — |
|
|
| — |
|
|
| 30,741 |
|
Amortization of acquired contract liabilities |
|
| (125,148 | ) |
|
| (38,293 | ) |
|
| (86,855 | ) |
|
| — |
|
Depreciation and amortization* |
|
| 693,595 |
|
|
| 42,730 |
|
|
| 649,013 |
|
|
| 1,852 |
|
Adjusted EBITDAP |
| $ | 133,548 |
|
| $ | 235,540 |
|
| $ | (6,006 | ) |
| $ | (95,986 | ) |
* | 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
March 31,
|
| Year Ended March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
|
| (in thousands) |
| |||||
Net sales |
| $ | 2,900,117 |
|
| $ | 3,364,930 |
|
Segment operating income |
| $ | 183,205 |
|
| $ | 48,687 |
|
Corporate expense |
|
| (125,298 | ) |
|
| (323,366 | ) |
Total operating income (loss) |
|
| 57,907 |
|
|
| (274,679 | ) |
Interest expense and other |
|
| 122,129 |
|
|
| 114,619 |
|
Non-service defined benefit income |
|
| (41,894 | ) |
|
| (62,105 | ) |
Income tax expense (benefit) |
|
| 5,798 |
|
|
| (5,426 | ) |
Net loss |
| $ | (28,126 | ) |
| $ | (321,767 | ) |
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 |
Net sales
decreased byCost of sales
Gross margin included net unfavorable cumulative catch-up adjustments on long-term contracts and provisions for forward losses as noted above (
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 |
29
Segment operating income decreasedincreased by $87.7$134.5 million, or 19.9%276.3%, to $353.0$183.2 million for the fiscal year ended March 31, 20152020, from $440.6$48.7 million for the fiscal year ended March 31, 2014. The organic2019. Organic segment operating income decreased $100.9increased by $45.1 million, or 22.6%31.7%, primarily due to the increased margins above as well as decreases in administrative compensation cost of $13.7 million and was a resultresearch and development of the decreased organic sales, the provision for forward losses and gross margin changes noted above,$8.5 million, were partially offset by decreased moving costs relateda $66.1 million goodwill impairment charge under Systems & Support. The fiscal 2019 divestitures and fiscal 2020 divestitures contributed $89.4 million in increased operating income in the current year primarily due to incurring operating losses of the relocation from our Jefferson Street facilities ($28.1 million), and legal fees ($4.5 million).
Corporate operations yielded incomeincurred expenses of $81.7$125.3 million for the fiscal year ended March 31, 2015,2020, as opposed to expenses of $40.6compared with $323.4 million for the fiscal year ended March 31, 2014. This result is due to2019. The corporate expenses included decreased loss on sale of assets and businesses of $168.3 million, decreased compensation cost of $12.3 million, with additional benefit from the legal settlement between the Company and Eaton, which created a netjudgment gain of $134.7 million, partially offset by increased due diligence and acquisition related expenses ($9.8 million).
Interest expense and other decreasedincreased by $2.4$7.5 million, or 2.7%6.6%, to $85.4$122.1 million for the fiscal year ended March 31, 20152020, compared to $87.8with $114.6 million for the prior year. Interest expense and other for the fiscal year ended March 31, 2015 decreased2019, due to lower averagehigher interest rates and relative debt outstanding during the period as comparedlevels.
Non-service defined benefit income decreased by $20.2 million, or 32.5%, to the fiscal year ended March 31, 2014. Interest expense and other$41.9 million for the fiscal year ended March 31, 2015, included the redemption of the 2018 Notes, which included $22.62020, compared with $62.1 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
The income tax expense was $5.8 million for the fiscal year ended March 31, 2014. The income2020, reflecting an effective tax provisionrate of (26.0)%. During the fiscal year ended March 31, 2020, the Company adjusted the valuation allowance against the consolidated net deferred tax asset by $36.9 million primarily due to an increase in the net operating loss and changes to temporary differences related to pension and other postretirement benefit plans. As of March 31, 2020, management determined that it was necessary to maintain a valuation allowance against principally all of its net deferred tax assets.
Fiscal year endedMarch 31, 2019, compared with fiscal year endedMarch 31, 2018
|
| Year Ended March 31, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
|
| (in thousands) |
| |||||
Net sales |
| $ | 3,364,930 |
|
| $ | 3,198,951 |
|
Segment operating income (loss) |
| $ | 48,687 |
|
| $ | (337,061 | ) |
Corporate expenses |
|
| (323,366 | ) |
|
| (128,579 | ) |
Total operating loss |
|
| (274,679 | ) |
|
| (465,640 | ) |
Interest expense and other |
|
| 114,619 |
|
|
| 99,442 |
|
Non-service defined benefit income |
|
| (62,105 | ) |
|
| (103,234 | ) |
Income tax benefit |
|
| (5,426 | ) |
|
| (36,457 | ) |
Net loss |
| $ | (321,767 | ) |
| $ | (425,391 | ) |
Net sales increased by $166.0 million, or 5.2%, to $3.36 billion for the fiscal year ended March 31, 2015, was reduced to reflect the release of previously reserved2019, from $3.20 billion 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. For the fiscal year ended March 31, 2014,2018. Net sales increases included the production ramp on Global 7500 of $232.5 million prior to transition. Organic sales adjusted for inter-segment sales increased $34.9 million, or 1.3%. The fiscal 2018 divestitures and fiscal 2019 divestitures, excluding the Global 7500 transition contributed $101.4 million to the net sales decrease as compared with the prior fiscal year. Organic sales increased primarily due to the rate increases on key commercial programs and higher volumes on military programs in Systems & Support as well as increased demand for structural component repair offset by decreased business jet sales from reduced scope of the G650 wing.
Cost of sales increased by $317.4 million, or 12.2%, to $2.92 billion for the fiscal year ended March 31, 2019, from $2.61 billion for the fiscal year ended March 31, 2018. Net sales increases from the production ramp on Global 7500 contributed $343.9 million increase in cost of sales prior to transition, including $60.4 million in forward loss charges. Organic cost of sales adjusted for inter-segment sales increased $121.3 million or 4.6% and included additional forward loss provisions from the adoption of ASU 2017-07 of $87.2 million, as well as $29.1 million on the G280 wing program. The fiscal 2018 divestitures and fiscal 2019 divestitures, excluding the Global 7500 transition contributed $94.8 million to the cost of sales variance compared with the prior fiscal year. Organic gross margin for the fiscal year ended March 31, 2019, was 17.2% compared with 20.8% for the fiscal year ended March 31, 2018. The gross margin for the fiscal year ended March 31, 2019, decreased compared with the comparable prior year period due to the additional forward loss provisions noted above.
Gross margin included net unfavorable cumulative catch-up adjustments on long-term contracts of $68.7 million. The favorable cumulative catch-up adjustments to operating income included gross favorable adjustments of $46.1 million and gross unfavorable adjustments of $114.8 million. Additionally, the adoption of ASU 2017-07 resulted in a change in estimates due to a change in accounting principles of $87.2 million. Gross margins for fiscal 2018 included net favorable cumulative catch-up adjustments of $19.7 million.
30
Segment operating income increased by $385.7 million, or 114.4%, to an operating income of $48.7 million for the fiscal year ended March 31, 2019, from $337.1 million of operating loss for the fiscal year ended March 31, 2018. Organic operating income increased due to a prior year goodwill impairment charge of $535.2 million. The fiscal 2018 divestitures and fiscal 2019 divestitures contributed $16.7 million to an operating income decrease compared with the prior fiscal year.
Corporate operations incurred expenses of $323.4 million for the fiscal year ended March 31, 2019, as compared with $128.6 million for the fiscal year ended March 31, 2018. The corporate expenses included increased loss on divestitures of $204.6 million, partially offset by $13.0 million in decreased restructuring expenses.
Interest expense and other increased by $15.2 million, or 15.3%, to $114.6 million for the fiscal year ended March 31, 2019, compared with $99.4 million for the fiscal year ended March 31, 2018, due to higher interest rates and relative debt levels and the favorable net change in foreign exchange rate gain/loss of approximately $6.8 million compared with the prior year period.
Non-service defined benefit income decreased by $41.1 million, or 39.8%, to $62.1 million for the fiscal year ended March 31, 2019, compared with $103.2 million for the fiscal year ended March 31, 2018. The decrease was primarily due to nonrecurring income recognized in fiscal year 2018 from a curtailment of other post-employment benefits of $26.3 million and changes in actuarial assumptions and experience which reduced income for fiscal year 2019 by $6.0 million.
The income tax provisionbenefit was reduced to reflect$5.4 million for the releasefiscal year ended March 31, 2019, reflecting an effective tax rate 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.
Business Segment Performance
We report our financial performance based on the following threetwo reportable segments: the Aerostructures Group, theSystems & Support and Aerospace Systems Group and the Aftermarket Services Group.Structures. The Company's Chief Operating Decision Maker ("CODM") utilizes Adjusted EBITDAEBITDAP as a primary measure of profitability to evaluate performance of its segments and allocate resources.
The results of operations among our reportable segments vary due to differences in competitors, customers, extent of proprietary deliverables and performance. For example, 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.
Refer to Item 1 for further details regarding the operations and 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.
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, |
| |||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Systems & Support |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial aerospace |
|
| 26.5 | % |
|
| 22.6 | % |
|
| 23.8 | % |
Military |
|
| 15.0 |
|
|
| 12.2 |
|
|
| 11.5 |
|
Business Jets |
|
| 2.3 |
|
|
| 1.9 |
|
|
| 1.7 |
|
Regional |
|
| 1.5 |
|
|
| 1.4 |
|
|
| 1.5 |
|
Non-aviation |
|
| 1.3 |
|
|
| 0.8 |
|
|
| 0.8 |
|
Total Integrated Systems net sales |
|
| 46.6 | % |
|
| 38.9 | % |
|
| 39.3 | % |
Aerospace Structures |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial aerospace |
|
| 30.3 | % |
|
| 30.4 | % |
|
| 33.9 | % |
Military |
|
| 4.0 |
|
|
| 7.1 |
|
|
| 8.6 |
|
Business Jets |
|
| 16.0 |
|
|
| 21.7 |
|
|
| 16.8 |
|
Regional |
|
| 3.1 |
|
|
| 1.1 |
|
|
| 0.7 |
|
Non-aviation |
|
| 0.0 |
|
|
| 0.8 |
|
|
| 0.7 |
|
Total Aerospace Structures net sales |
|
| 53.4 | % |
|
| 61.1 | % |
|
| 60.7 | % |
Total Consolidated net sales |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
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 higher proportion of our sales mix in the commercial aerospace end market. We recently havemarket across both of our segments due to the 737, 767/Tanker, 777, 787, A320, A321, and G650 programs. Systems & Support has experienced an increase in our business jetits military end market due to the acquisition of the Tulsa Programsprimarily from volume on military rotorcraft, and Aerospace Structures has experienced a decrease in ourits military end market due to reduced volume in the wind-down of the C-17 program.
Business Segment Performance—Fiscal year endedMarch 31, 20162020, compared towith fiscal year endedMarch 31, 2015
|
| Year Ended March 31, |
|
| % Change |
|
| % of Total Sales |
| |||||||||||
|
| 2020 |
|
| 2019 |
|
|
|
|
|
| 2020 |
|
| 2019 |
| ||||
|
| (in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
NET SALES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Systems & Support |
| $ | 1,357,564 |
|
| $ | 1,325,011 |
|
|
| 2.5 | % |
|
| 46.8 | % |
|
| 39.4 | % |
Aerospace Structures |
|
| 1,555,887 |
|
|
| 2,062,404 |
|
|
| (24.6 | )% |
|
| 53.7 | % |
|
| 61.3 | % |
Elimination of inter-segment sales |
|
| (13,334 | ) |
|
| (22,485 | ) |
|
| 40.7 | % |
|
| (0.5 | )% |
|
| (0.7 | )% |
Total net sales |
| $ | 2,900,117 |
|
| $ | 3,364,930 |
|
|
| (13.8 | )% |
|
| 100.0 | % |
|
| 100.0 | % |
|
| Year Ended March 31, |
|
| % Change |
|
| % of Segment Sales |
| |||||||||||
|
| 2020 |
|
| 2019 |
|
|
|
|
|
| 2020 |
|
| 2019 |
| ||||
|
| (in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
SEGMENT OPERATING (LOSS) INCOME |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Systems & Support |
| $ | 141,341 |
|
| $ | 201,094 |
|
|
| (29.7 | )% |
|
| 10.4 | % |
|
| 15.2 | % |
Aerospace Structures |
|
| 41,864 |
|
|
| (152,407 | ) |
|
| 127.5 | % |
|
| 2.7 | % |
|
| (7.4 | )% |
Corporate |
|
| (125,298 | ) |
|
| (323,366 | ) |
|
| 61.3 | % |
| n/a |
|
| n/a |
| ||
Total segment operating (loss) income |
| $ | 57,907 |
|
| $ | (274,679 | ) |
|
| 121.1 | % |
|
| 2.0 | % |
|
| (8.2 | )% |
|
| Year Ended March 31, |
|
| % Change |
|
| % of Segment Sales |
| |||||||||||
|
| 2020 |
|
| 2019 |
|
|
|
|
|
| 2020 |
|
| 2019 |
| ||||
|
| (in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Adjusted EBITDAP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Systems & Support |
| $ | 205,352 |
|
| $ | 202,346 |
|
|
| 1.5 | % |
|
| 15.5 | % |
|
| 15.7 | % |
Aerospace Structures |
|
| 100,432 |
|
|
| 13,072 |
|
|
| 668.3 | % |
|
| 6.6 | % |
|
| 0.6 | % |
Corporate |
|
| (64,144 | ) |
|
| (84,965 | ) |
|
| 24.5 | % |
| n/a |
|
| n/a |
| ||
|
| $ | 241,640 |
|
| $ | 130,453 |
|
|
| 85.2 | % |
|
| 8.6 | % |
|
| 4.0 | % |
Year Ended March 31, | % Change | % 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, | % Change | % of Segment Sales | |||||||||||||||
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, | % Change | % of Segment Sales | |||||||||||||||
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 | % |
Systems & Support: Systems & Support net sales decreasedincreased by $82.6$32.6 million, or 3.3%2.5%, to $2.4$1.36 billion for the fiscal year ended March 31, 2016,2020, from $2.5$1.33 billion for the fiscal year ended March 31, 2015.2019. Organic sales decreasedincreased by $326.7$63.3 million, or 13.5%4.9%, offset by declines of $30.8 million from the fiscal 2019 divestitures within Systems & Support. Organic sales increased due to increased volumes on engine components, Airbus commercial programs, aftermarket demand for military rotorcraft components, and aftermarket spare part sales and accessory component repairs. These increases were partially offset by decreased production rate cuts by our customersvolumes on the 747-8, Gulfstream G450/G550, A330 and C-17 programs. The acquisition of the Tulsa Programs contributed $244.1 million to net sales.
Systems & Support cost of sales
increased bySystems & Support operating income decreased by $59.8 million, or 29.7%, to $141.3 million for the fiscal year ended March 31, 2020, from $201.1 million for the fiscal year ended March 31, 2019. Organic operating income decreased by $57.2 million, or 28.8% primarily due to the goodwill impairment charge of $66.1 million and increased restructuring costs of $8.3 million, partially offset by decreased research and development costs of $5.9 million and the increased gross margin described above. The fiscal 2019 divestitures resulted in $2.6 million in decreased operating income in the current year primarily due to operating income earned in the fiscal year ended March 31, 2019.
Systems & Support operating income as a percentage of segment sales decreased to 10.4% for the fiscal year ended March 31, 2020, as compared with 15.2% for the fiscal year ended March 31, 2019, due to the factors described above. These same factors contributed to the decrease in Adjusted EBITDAP margin year over year.
32
Aerospace Structures: Aerospace Structures net sales decreased by $506.5 million, or 24.6%, to $1.56 billion for the fiscal year ended March 31, 2020, from $2.06 billion for the fiscal year ended March 31, 2019. Organic net sales increased by $68.0 million, offset by declines of $574.5 million from the fiscal 2019 and fiscal 2020 divestitures within Aerospace Structures. Organic net sales increased due to increased volumes for the G280, G550, 767, and M100 programs, as well as increased volumes and pricing related to the E-2 Jets and 787 programs. These increases were partially offset by decreased volumes on 737.
Aerospace Structures cost of sales decreased by $637.2 million, or 31.9%, to $1.36 billion for the fiscal year ended March 31, 2020, from $2.00 billion for the fiscal year ended March 31, 2019. Organic cost of sales decreased by $16.0 million, with an additional reduction in cost of sales of $621.3 million from the fiscal 2019 and fiscal 2020 divestitures within Aerospace Structures. Organic gross margin for the fiscal year ended March 31, 2020, was 13.0% compared with 7.7% for the fiscal year ended March 31, 2019. The decrease in organic cost of sales is due to the nonrecurring forward loss provisions from the adoption of ASU 2017-07 in the year ended March 31, 2019, of $87.2 million and a reduction in unfavorable cumulative catch-up adjustments of $45.8 million partially offset by increases related to the increased net sales above. The gross margin included net unfavorable cumulative catch-up adjustments and provisions for forward losses of $561.2 million.$22.9 million due in large part to the estimated effects of COVID-19. The net unfavorable cumulative catch-up adjustments included gross favorable adjustments of
Aerospace Structures operating income increased by $194.3 million, which included $152.0 million of forward losses related to the 747-8 program.
Aerospace Systems segmentStructures operating income as a percentage of segment sales increased to
Business Segment Performance—Fiscal year ended
March 31,
|
| Year Ended March 31, |
|
| % Change |
|
| % of Total Sales |
| |||||||||||
|
| 2019 |
|
| 2018 |
|
|
|
|
|
| 2019 |
|
| 2018 |
| ||||
|
| (in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
NET SALES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Systems & Support |
| $ | 1,325,011 |
|
| $ | 1,267,508 |
|
|
| 4.5 | % |
|
| 39.4 | % |
|
| 39.6 | % |
Aerospace Structures |
|
| 2,062,404 |
|
|
| 1,954,729 |
|
|
| 5.5 | % |
|
| 61.3 | % |
|
| 61.1 | % |
Elimination of inter-segment sales |
|
| (22,485 | ) |
|
| (23,286 | ) |
|
| 3.4 | % |
|
| (0.7 | )% |
|
| (0.7 | )% |
Total net sales |
| $ | 3,364,930 |
|
| $ | 3,198,951 |
|
|
| 5.2 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| Year Ended March 31, |
|
| % Change |
|
| % of Segment Sales |
| |||||||||||
|
| 2019 |
|
| 2018 |
|
|
|
|
|
| 2019 |
|
| 2018 |
| ||||
|
| (in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
SEGMENT OPERATING INCOME (LOSS) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Systems & Support |
| $ | 201,094 |
|
| $ | 231,103 |
|
|
| (13.0 | )% |
|
| 15.2 | % |
|
| 18.2 | % |
Aerospace Structures |
|
| (152,407 | ) |
|
| (568,164 | ) |
|
| 73.2 | % |
|
| (7.4 | )% |
|
| (29.1 | )% |
Corporate |
|
| (323,366 | ) |
|
| (128,579 | ) |
|
| (151.5 | )% |
| n/a |
|
| n/a |
| ||
Total segment operating income (loss) |
| $ | (274,679 | ) |
| $ | (465,640 | ) |
|
| 41.0 | % |
|
| (8.2 | )% |
|
| (14.6 | )% |
|
| Year Ended March 31, |
|
| % Change |
|
| % of Segment Sales |
| |||||||||||
|
| 2019 |
|
| 2018 |
|
|
|
|
|
| 2019 |
|
| 2018 |
| ||||
|
| (in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Adjusted EBITDAP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Systems & Support |
| $ | 202,346 |
|
| $ | 235,540 |
|
|
| (14.1 | )% |
|
| 15.7 | % |
|
| 19.2 | % |
Aerospace Structures |
|
| 13,072 |
|
|
| (6,006 | ) |
|
| 317.7 | % |
|
| 0.6 | % |
|
| (0.3 | )% |
Corporate |
|
| (84,965 | ) |
|
| (95,986 | ) |
|
| 11.5 | % |
| n/a |
|
| n/a |
| ||
|
| $ | 130,453 |
|
| $ | 133,548 |
|
|
| (2.3 | )% |
|
| 4.0 | % |
|
| 4.3 | % |
Year Ended March 31, | % Change | % 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, | % Change | % of Segment Sales | ||||||||||||
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, | % Change | % of Total Sales | |||||||||||||||
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 | % |
33
Systems & Support: Systems & Support net sales decreasedincreased by $112.6$57.5 million, or 4.3%4.5%, to $2.5$1.33 billion for the fiscal year ended March 31, 2015,2019, from $2.6$1.27 billion for the fiscal year ended March 31, 2014.2018. Organic sales decreasedincreased by $181.2$87.9 million, or 6.9%,7.3%. The divestitures of NAAS, RPL, Embee, Engines and APU (“TSS divestures”) contributed ($30.4 million) to the acquisitions of the Tulsa Programs and Primus, net of prior year divestiture contributed $68.6 million in net sales.sales variance. Organic sales decreasedincreased primarily due to production rate cuts by our customersincreases on the 747-8, V-22, G450/G550key commercial programs, higher volumes on certain military programs and C-17 programs.
Systems & Support cost of sales increased by $60.9$86.3 million, or 2.9%10.0%, 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 one of our facilities, as discussed above. Excluding the aforementioned forward losses, the organic cost of 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 from our Jefferson Street facilities ($38.4 million).
Systems & Support operating income increaseddecreased by $5.7$30.0 million, or 13.4%13.0%, to $47.9$201.1 million for the fiscal year ended March 31, 2015,2019, from $42.3$231.1 million for the fiscal year ended March 31, 2014. Operating2018. Organic operating income increased primarilydecreased ($26.6 million), or (11.8)%, while divestitures contributed ($3.4 million) to operating income in the prior year period.
Organic operating income decreased due to the increased sales anddecreased gross margin noted above and the acquisitionincreased restructuring expenses of NAAS net of the previously divested Triumph Instruments companies ($1.6 million).$5.3 million. These same factors contributed to the increasedecrease in Adjusted EBITDAEBITDAP year over year.
Systems & Support operating income as a percentage of segment sales increaseddecreased to 15.8%15.2% for the fiscal year ended March 31, 2015,2019, as compared with 14.7%18.2% for the fiscal year ended March 31, 2014,2018, due to the improved gross margin noted above.
Aerospace Structures: Aerospace Structures net sales increased by $107.7 million, or 5.5%, to $2.06 billion for the fiscal year ended March 31, 2016, we generated approximately $83.92019, from $1.95 billion for the fiscal year ended March 31, 2018. Net sales increases included the production ramp on Global 7500 of $232.5 million prior to transition. Organic net sales decreased $54.8 million due to declines in business jet, primarily on our change in scope on the G650 program. The fiscal 2019 Aerospace Structures divestitures, excluding the Global 7500 transition contributed $71.1 million to the net sales variance.
Aerospace Structures cost of cash flowsales increased by $232.0 million, or 13.1%, to $2.00 billion for the fiscal year ended March 31, 2019, from operating activities, used approximately $128.0$1.77 billion for the fiscal year ended March 31, 2018. The cost of sales increase was driven by the increased sales and included additional forward loss provisions from the adoption of ASU 2017-07 of $87.2 million, in investing activitiesas well as from the Bombardier Global 7500 program of $60.4 million prior to transition and received approximately $32.5$29.1 million in financing activities.on the G280 wing program.
Gross margin for the fiscal year ended March 31, 2019, was 3.1% compared with 9.7% for the fiscal year ended March 31, 2018. The decreased gross margin is due to additional forward loss charges noted above. In fiscal 2015, cash flowsaddition to the forward loss provision from operating activitiesthe adoption of ASU 2017-07 noted above, the gross margin included pension contributionsnet unfavorable cumulative catch-up adjustments of $112.3$68.7 million.
Aerospace Structures operating loss decreased by $415.8 million, from operating activities, a decrease of $383.5 million, comparedor 73.2%, to a net cash inflow of $467.3$152.4 million for the fiscal year ended March 31,
Aerospace Structures operating loss as a percentage of segment sales improved to 7.4% for the fiscal year ended March 31, 2019, as compared with 29.1% for the fiscal year ended March 31, 2018, due to the goodwill impairment charge in the prior year period discussed above. The Adjusted EBITDAP margin improvement was also affected by the increased sales noted above.
Liquidity and Capital Resources
For the fiscal year ended March 31, 2020, we had a net cash receivedinflow of $96.7 million from operating activities, an increase of $271.1 million, compared with a legal settlement ($134.7 million), and an income tax refund ($26.0 million).
In March 2020, in response to anticipated headwinds resulting from the impact of COVID-19 on the aerospace industry, including the impact on global air travel, we implemented certain cost reduction actions to improve our financial health, align capacity with expected demand, and ensure our long-term competitiveness. This has included the reduction of overhead and indirect staff and temporary workers and the selective implementation of furloughs across our business to reduce costs while delivering on customer commitments. When combined with reductions in travel, corporate events, and other expenses, Triumph expects annual savings to operating cash flows operating activities. Duringof approximately $120.0 million beginning in fiscal 20162021, although there can be no assurance that we will achieve such synergy in the anticipated amounts and timeline. Unrelated to COVID-19, the Company currently expects certain material cash outflows related to the completion of certain previously announced consolidation and shutdown costs with sunsetting programs within Aerospace Structures.
34
Cash flows provided by investing activities for the fiscal year ended March 31, 2020, decreased $193.2 million from the fiscal year ended March 31, 2019. Cash flows provided by investing activities for the fiscal year ended March 31, 2020, included cash from the fiscal 2020 sales of assets and businesses of $47.2 million offset by capital 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 $57.3of $39.8 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.
Cash flows provided by financing activities for the fiscal year ended March 31, 2016,2020, were $32.5$293.7 million, compared towith cash flows used inprovided by financing activities for the fiscal year ended March 31, 2015,2019, of $395.2$32.5 million. Cash flows provided by financing activities for the fiscal year ended March 31, 2016,2020, included additional borrowingsthe issuance of our Senior Secured Notes due 2024 of $525.0 million, offset by repayment of the Senior Notes due 2021 of $375.0 million, and payment of financing fees of approximately $17.7 million. Additionally, the Company drew on ourits Credit Facility (as defined below), bringing the outstanding balance as of March 31, 2020, to fund$400.0 million. This was done as part of a comprehensive precautionary approach to increase the acquisitionCompany’s cash position and maximize its financial flexibility, in light of Fairchildthe current volatility in the global markets resulting from the COVID-19 pandemic. We have since repaid approximately $200.0 million of the borrowings, and cash continues to fund operations.be used to repay the borrowings through an automated cash sweep mechanism implemented with our lenders. Cash flows used inprovided by financing activities for the fiscal year ended March 31, 2015,2019, 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, $834.32020, we had $485.5 million of cash on hand and $70.3 million was available under the Company's existing credit agreement ("Credit(the "Credit Facility"). On March 31, 2016, an aggregate amount of2020, approximately $140.0 million in outstanding borrowing and approximately $25.7$22.3 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%approximately 3.50% per annum. Amounts repaid under the Credit Facility may be reborrowed.
We are taking a number of actions to improve liquidity. In March 2020, we suspended the servicerdeclaration and/or payment of dividends until further notice. We have furloughed certain employees and recently announced reductions in force which we have implemented in the accounts receivablefirst quarter of fiscal 2021. We are reducing discretionary spending as well as reducing or deferring research and development and capital expenditures. We are also working with our customers and supply chain to accelerate receipts and conserve cash. We are also deferring certain employer payroll tax payments pursuant to the Coronavirus Aid, Relief, and Economic Security (CARES) Act. We expect to take advantage of additional programs if passed by the federal government.
We believe, based on an assessment of current market conditions, that cash flows from operations and borrowings under the Receivables Purchase Agreement. As of March 31, 2016,Amended Credit Agreement will be sufficient to meet anticipated cash requirements for our current operations for at least the maximum amount availablenext 12 months. 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 divestiture opportunities that should provide liquidity. However, the COVID-19 crisis is constraining the credit and capital markets and our ability to access credit and capital markets may be reduced. In the event that the overall aviation market experiences delayed recoveries and divesture opportunities do not occur, the availability under the Receivables PurchaseAmended Credit Agreement was $90.0 million. Interest rates are basedmay change or be fully utilized and additional funding sources may be needed. There can be no assurance that such funding sources will be available to us on LIBOR plus 0.65% -0.70%. Asterms favorable to us, if at all. We may also seek transactions to extend the maturity of March 31, 2016,our indebtedness, reduce leverage, decrease interest expense or obtain covenant flexibility. Such transactions could include one or more repurchases or exchanges of our outstanding indebtedness. These transactions could increase our total amount of secured indebtedness or be dilutive to stockholders. There can be no assurances if or when we sold $89.9 million worth of eligible accounts receivable.
In November 2014,December 2019, the Company amended its receivable securitization facility (the “Securitization Facility”"Securitization Facility"), increasing decreasing the purchase limit from $175.0$125.0 million to $225.0$75.0 million and extendingextended the term through November 2017.
The 5.25% Senior Notes due June 1, 2022 (the “2022 Notes”), the 6.250% Senior Secured Notes due September 15, 2024 (the “2024 Notes”), and the 7.750% Senior Notes due August 15, 2025 (the “2025 Notes”) (collectively, the "Senior Notes") are the Company's senior unsecured obligations and rank equally in right of payment with all of its other termsexisting and covenants.
Pursuant to the documentation governing the Senior Notes, the Company amended the Credit Facility withmay redeem some or all of its lendersSenior Notes prior 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 Facilitytheir stated maturities, subject 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 indentures governing the Senior Notes, as well as the Amended Credit Agreement and Securitization Facility, contains certain affirmativecontain covenants 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,restrictions that, among other things, limit the Company's ability and the ability of any of the Guarantor Subsidiaries to (i) grant liens mergers, consolidations,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 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, paymentincluding capital stock of dividendsrestricted subsidiaries (in the case of the Senior Notes); and incurrence of debt. As of March 31, 2016, the
35
(viii) enter into transactions with affiliates. The Company wasis currently in compliance with all such covenants.
For further information on the Company's long-term debt, see Note 1010.
On May 22, 2020, the Company and its subsidiary co-borrowers and guarantors entered into an Twelfth Amendment to the Credit Agreement with the Administrative Agent and the Lenders party thereto. Among other things, the Twelfth Amendment (i) limits the amount of "Notescash in the United States the Company can hold on its balance sheet to Consolidated Financial Statements".$50.0 million, (ii) authorizes the sale of any Specified TAS Business Unit (as defined in the Amended Credit Agreement); (iii) provides for a reserve against the availability of up to 75% of the proceeds of Specified Asset Sales; and (iv) modifies certain financial covenants and other terms over the quarterly periods ending June 2020 through March 2022. Refer to Item 1 – Recent Developments for further details regarding the Twelfth Amendment.
On September 23, 2019, the Company issued $525.0 million principal amount of 6.250% Senior Secured Notes due September 15, 2024. The 2024 Notes are guaranteed on a full, senior secured, joint and several basis by each of the Company’s domestic restricted subsidiaries that is a borrower under the Company’s Credit Facility or that guarantees any of the Company’s debt or that of any of the Company’s domestic restricted subsidiaries under the Company’s Credit Facility and in the future by any of the Company’s domestic restricted subsidiaries that are borrowers under any credit facility or that guarantee any debt of the Company or any of its domestic restricted subsidiaries incurred under any credit facility. Under certain circumstances, the guarantees may be released without action by, or the consent of, the holders of the 2024 Notes.
The 2022 Notes and 2025 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 2021 Notes and 2025 Notes are guaranteed on a full, joint and several basis by each of the Company’s existing and future domestic restricted subsidiaries that is a borrower under any of the Company’s credit facilities or that guarantees any of the Company’s debt or that of any of its restricted subsidiaries, in each case incurred under any of the Company’s credit facilities.
The only consolidated subsidiaries of the Company that are not guarantors of the 2022 Notes, the 2024 Notes and the 2025 Notes (the "Non-Guarantor Subsidiaries") are: (i) the receivables securitization special purpose entity, and (ii) the foreign operating subsidiaries.
The 2024 Notes and the guarantees are secured, subject to permitted liens, by second-priority liens on all assets of the Company and its subsidiary guarantors (the “Collateral”) that secure all of the indebtedness under the Company’s Credit Facility and certain hedging and cash management obligations. The 2024 Notes and the guarantees are not secured by the assets of Non-Guarantor Subsidiaries. Some of the Company’s assets are excluded from the Collateral, including the Company’s real property assets.
|
| As of and for the fiscal year ended |
| |
Parent and Guarantor Summarized Financial Information |
| March 31, 2020 |
| |
Current assets |
| $ | 1,177,461 |
|
Noncurrent assets |
|
| 1,248,525 |
|
Current liabilities |
|
| 920,414 |
|
Noncurrent liabilities |
|
| 2,514,760 |
|
Due to/from Non-Guarantor Subsidiaries |
|
| 14,624 |
|
|
|
|
|
|
Net sales |
|
| 2,572,806 |
|
Gross profit |
|
| 520,096 |
|
Loss from continuing operations |
|
| (50,842 | ) |
Net loss |
|
| (54,048 | ) |
For the fiscal year ended March 31, 2015,2019, we had a net cash inflowoutflow of $467.3$174.4 million from operating activities, an inflow increasea decrease of $332.2$114.5 million, compared towith a net cash inflowoutflow of $135.1$288.9 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).
36
Cash flows provided by investing activities for forward losses on our long-term contract on the 747-8 programfiscal year ended March 31, 2019, increased $162.3 million from the fiscal year ended March 31, 2018. Cash flows provided by investing activities for the fiscal year ended March 31, 2019, included cash from the fiscal 2019 divestitures of $152.0$247.6 million offset by capital expenditures of $47.1 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.
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 |
| Payments Due by Period |
| ||||||||||||||||||||||||||||||||||||
Contractual Obligations | Total | Less than 1 Year | 1 - 3 Years | 4 - 5 Years | After 5 Years |
| Total |
|
| Less than 1 Year |
|
| 1 - 3 Years |
|
| 4 - 5 Years |
|
| After 5 Years |
| |||||||||||||||||||
(in thousands) |
| (in thousands) |
| ||||||||||||||||||||||||||||||||||||
Debt principal | $ | 1,426,116 | $ | 42,383 | $ | 430,042 | $ | 273,409 | $ | 680,282 |
| $ | 1,823,933 |
|
| $ | 7,336 |
|
| $ | 381,611 |
|
| $ | 927,216 |
|
| $ | 507,770 |
| |||||||||
Debt-interest(1) | 233,121 | 46,071 | 91,767 | 77,167 | 18,116 | ||||||||||||||||||||||||||||||||||
Debt interest(1) |
|
| 469,489 |
|
|
| 110,386 |
|
|
| 191,996 |
|
|
| 147,009 |
|
|
| 20,098 |
| |||||||||||||||||||
Operating leases | 168,305 | 27,904 | 46,218 | 33,643 | 60,540 |
|
| 84,983 |
|
|
| 16,843 |
|
|
| 25,595 |
|
|
| 15,353 |
|
|
| 27,192 |
| ||||||||||||||
Purchase obligations | 1,965,090 | 1,457,022 | 471,967 | 35,215 | 886 |
|
| 1,374,122 |
|
|
| 950,626 |
|
|
| 390,305 |
|
|
| 15,128 |
|
|
| 18,064 |
| ||||||||||||||
Total | $ | 3,792,632 | $ | 1,573,380 | $ | 1,039,994 | $ | 419,434 | $ | 759,824 |
|
| 3,752,527 |
|
|
| 1,085,191 |
|
|
| 989,506 |
|
|
| 1,104,706 |
|
|
| 573,124 |
|
(1) | |
Includes fixed-rate interest only. |
The above table excludes unrecognized tax benefits of $9.7$19.1 million as of March 31, 2016,2020, since we cannot predict with reasonable certainty the timing of cash settlements with the respective taxing authorities.
In addition to the financial obligations detailed in the table above, we also had obligations related to our benefit plans at March 31, 2016,2020, 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:
|
| Pension Benefits |
|
| Other Postretirement Benefits |
| ||
|
| (in thousands) |
| |||||
Projected benefit obligation at March 31, 2020 |
| $ | 2,254,985 |
|
| $ | 7,150 |
|
Plan assets at March 31, 2020 |
|
| 1,598,045 |
|
|
| — |
|
Projected contributions by fiscal year |
|
|
|
|
|
|
|
|
2021 |
|
| — |
|
|
| 4,824 |
|
2022 |
|
| 81,800 |
|
|
| 813 |
|
2023 |
|
| 90,600 |
|
|
| 182 |
|
2024 |
|
| 85,800 |
|
|
| 171 |
|
2025 |
|
| 70,100 |
|
|
| 162 |
|
Total 2021 - 2025 |
| $ | 328,300 |
|
| $ | 6,152 |
|
Pension Benefits | Other Postretirement Benefits | ||||||
(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 |
Current plan documents reserve our right to amend or terminate the plans at any time, subject to applicable collective bargaining requirements for represented employees.
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, see Note 2 of "Notes to Consolidated Financial Statements."
Revenue Recognition and Contract Balances
The Company’s accounting policy regarding revenue recognition is disclosed in Note 2 to the consolidated financial statements. As described in Note 2, for Doubtful Accountscertain contracts and performance obligations, the Company is required to exercise judgment when developing assumptions regarding expected total costs to fulfill performance obligations, variable consideration, and the standalone selling price of a performance obligation. These assumptions are most significant within the Company’s Aerospace Structures business segment because the size and long-term nature of its contracts with customers. Specifically, assumptions regarding the total costs require significant judgment with regard to materials, labor, and overhead costs that are affected by the Company’s ability to achieve technical requirements and schedule requirements, as well as the Company’s estimation of internal and subcontractor performance projections, anticipated volume, asset utilization, labor agreements, and inflation trends. The Company continually reviews and update its assumptions based on market trends and experience. 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.
37
Goodwill and Intangible Assets
Refer to Note 2 and Note 7 for details on our goodwill and intangible asset accounting policies. We test goodwill for impairment on an annual basis during the fourth quarter or whenever events or circumstances change between annual tests that could more likely than not reduce the fair value of a reporting unit below its carrying amount. When such events or circumstances are identified, the Company performs a quantitative test to assess whether goodwill is impaired.
When applying the quantitative approach to testing goodwill for impairment, we determine fair value for reporting units using a combination of the income approach and the market approach, applying appropriate weighting based on events and circumstances existing at the valuation date.
Valuations using the market approach are derived from metrics of publicly traded companies. We consider risk profiles, size, geography, and diversity of products and services when selecting comparable businesses in the markets in which our reporting units operate. The market approach is only used when there are publicly traded companies that have the characteristics similar to our businesses.
Under the income approach, fair value is determined based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. We use our internal forecasts to estimate future cash flows and include an estimate of long-term future growth rates based on our most recent views of the long-term outlook for each business. Actual results may differ from those assumed in our forecasts. The discount rate applied to the cash flows is based upon a market-derived weighted average cost of capital (“WACC”) that takes into account the required rate of return for both debt and equity investors. We use discount rates that are commensurate with the risks and uncertainty inherent in the respective businesses and in our internally developed forecasts. Discount rates used in our annual reporting unit valuations ranged from 14.5% to 16.0%.
Estimating the fair value of reporting units requires the exercise of judgment to develop various assumptions used in the valuation approaches. The most significant area of judgment pertains to the development of our internal forecasts regarding future operating results. Internal forecasts and other key assumptions used to estimate the fair value of reporting units are based on judgments that consider actual operating results, market observable pricing multiples of similar businesses and comparable transactions, possible control premiums, determining the appropriate discount rate and long-term growth rate assumptions, and, if multiple approaches are being used, determining the appropriate weighting applied to each approach. It is reasonably possible that the judgments and estimates described above could change in future periods.
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 7, as of March 31, 2020, Aerospace Structures had goodwill of $1.2 billion which was fully impaired during fiscal year 2018. In the year ended March 31, 2020, Systems & Support recognized a goodwill impairment charge of $66.1 million.
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, Canada, and the United Kingdom, which are sponsored by the Company. 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 7.94% for fiscal year 2020.
38
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:
|
| Increase/(Decrease) in Pension Income |
| |||||
|
| 25 Basis Point Increase |
|
| 25 Basis Point Decrease |
| ||
|
| (In thousands) |
| |||||
Expected long-term rate of return on plan assets |
| $ | 4,167 |
|
| $ | (4,167 | ) |
Discount rate |
| $ | (104 | ) |
| $ | 235 |
|
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 12 for a quantitative sensitivity analysis for the PBO.
Income Tax
The Company follows Accounting Standards Codification (“ASC”) 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, 2020, 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 2 for disclosure of the effects of recently issued accounting guidance.
Item 7A.Quantitative and Qualitative Disclosures About Market Risk
Commodity Price Risk
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, 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.
39
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 Risk
In 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 with the respective foreign currencies will affect our reported results of operations and the value of our assets and liabilities on our consolidated balance sheets, 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, 2020, 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 Risk
Our 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 Amended Credit Agreement. We manage exposure to interest rate fluctuations by optimizing the use of fixed and variable rate debt. As of March 31, 2020, approximately 74% 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 on a fully leveraged basis. 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, 2020. Variable interest rates disclosed fluctuate with the LIBOR, federal funds rates, and other weekly rates and represent the weighted average rate at March 31, 2020.
Expected Years of Maturity
|
| Next 12 Months |
|
| 13 - 24 Months |
|
| 25 - 36 Months |
|
| 37 - 48 Months |
|
| 49 - 60 Months |
|
| Thereafter |
|
| Total |
| |||||||
Fixed rate cash flows (in thousands) |
| $ | 7,336 |
|
| $ | 4,659 |
|
| $ | 301,952 |
|
| $ | 1,486 |
|
| $ | 525,730 |
|
| $ | 507,770 |
|
| $ | 1,348,933 |
|
Weighted average interest rate (%) |
|
| 6.58 | % |
|
| 5.71 | % |
|
| 6.10 | % |
|
| 6.98 | % |
|
| 7.23 | % |
|
| 7.92 | % |
|
|
|
|
Variable rate cash flows (in thousands) |
| $ | — |
|
| $ | — |
|
| $ | 75,000 |
|
| $ | 400,000 |
|
| $ | — |
|
| $ | — |
|
| $ | 475,000 |
|
Weighted average interest rate (%) |
|
| 4.61 | % |
|
| 4.61 | % |
|
| 4.69 | % |
|
| 4.97 | % |
|
| — | % |
|
| — | % |
|
|
|
|
There are no other significant market risk exposures.
40
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, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, stockholders' (deficit) equity and cash flows for each of the three years in the period ended March 31, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 2020, in conformity with U.S. generally accepted accounting principles.
We also have also 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, 2020, 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 28, 2020, expressed an unqualified opinion thereon.
Adoption of New Accounting Standards
As discussed in Note 2 to the consolidated financial statements, the Company changed its method for accounting for revenue in the year ended March 31, 2019.
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.
Revenue Recognition for Performance Obligations Satisfied Over Time
Description of the Matter | As described in Notes 2 and 4 of the consolidated financial statements, the Company’s Aerospace Structures reportable segment recognizes revenue for performance obligations that are satisfied over time using an input method with revenue recognized proportionately as costs are incurred relative to the total expected costs to satisfy the performance obligation (“estimate-at-completion”). This method of revenue recognition requires management to continuously update estimate-at-completion costs, changes to which affect the amount of profit and loss recognized each period. During fiscal year 2020, approximately $1.4 billion of the revenue for Aerospace Structures represent revenues from performance obligations that have been satisfied over time. | |
41
Auditing the revenue recognition for performance obligations satisfied over time within the Aerospace Structures reportable segment, including its estimate-at-completion analyses, was especially challenging due to the significant judgment involved in evaluating the key assumptions, including materials, labor and overhead costs, made by management in its estimates of the total expected costs to satisfy the performance obligations. The estimate-at-completion analyses and resultant forecasted profit or loss of each performance obligation are sensitive to assumptions surrounding the Company’s ability to achieve the technical requirements, schedule requirements, internal and subcontractor performance projections, anticipated business volume, anticipated asset utilization, and anticipated labor agreements, as well as the accuracy of estimated inflation trends, each of which can materially change the key cost assumptions. | ||
How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s process to recognize revenue for performance obligations that are satisfied over time within the Aerospace Structures reportable segment. In particular, we tested controls over management’s review of the key assumptions in the estimate-at-completion analyses, which are describe above. We also tested management’s controls over the completeness and accuracy of the data used in the estimate-at-completion analyses. To test the recognition of revenue for performance obligations that are satisfied over time within the Aerospace Structures reportable segment, our audit procedures included, among others, evaluating the key assumptions used to develop the estimate-at-completion analyses and the completeness and accuracy of the underlying data used in management’s calculations. For example, we compared estimated costs to satisfy performance obligations in the estimate-at-completion analyses to historical results and source documentation including supplier agreements, current and projected labor rates, expected inflation rates, as well as overhead costs including rent expense and depreciation of long-lived assets. We recalculated the revenue recognized and resulting profit or loss based on actual costs and estimate-at-completion assumptions. When testing the significant assumptions, we involved our engineering specialists to assist in evaluating key judgments including cost projections related to management’s determination of estimate-at-completion costs. In addition, we assessed the accuracy of the Company's historical estimates by comparing them to actual costs incurred. When there was a significant change in estimate, we inspected underlying evidence for the reason for the change in the estimate and the timing of the change in estimate. |
Realizability of Deferred Tax Assets
Description of the Matter | As described in Note 12 of the consolidated financial statements, at March 31, 2020 the Company had deferred tax assets for deductible temporary differences and tax attributes of $162 million (net of a $439 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. |
42
Defined Benefit Pension and Other Postretirement Benefit Obligations
Description of the Matter | At March 31, 2020, the Company’s aggregate defined benefit pension and other postretirement benefit obligation was $2.3 billion and the net periodic benefit income was $39 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. The Company had a remeasurement event in the second quarter of fiscal year 2020. Auditing the defined benefit pension and other postretirement benefit 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. Further, the accounting guidance for remeasurement events, including plan amendments, curtailments, and special termination benefits was complex and required significant judgment. | |
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 and other post-retirement benefit obligation calculations, the significant actuarial assumptions described above and the data inputs provided to the Company’s actuarial specialists, as well as management’s evaluation of the relevant authoritative accounting literature to recognize the effects of plan amendments, curtailments and special termination benefits. To test the defined benefit pension and other postretirement 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 with historical trends and evaluated the change in the defined benefit pension and other postretirement obligation from prior year resulting from the change in service cost, interest cost, benefit payments, actuarial gains and losses, participant contributions, special termination benefits and plan amendments. 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 and other postretirement obligation cash flows with 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 28, 2020
43
TRIUMPH GROUP, INC.
Consolidated Balance Sheets
(Dollars in thousands, except per share data)
|
| March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 485,463 |
|
| $ | 92,807 |
|
Trade and other receivables, less allowance for doubtful accounts of $4,293 and $3,646 |
|
| 359,487 |
|
|
| 373,590 |
|
Contract assets |
|
| 244,417 |
|
|
| 326,667 |
|
Inventory, net |
|
| 452,976 |
|
|
| 413,560 |
|
Prepaid expenses and other current assets |
|
| 19,289 |
|
|
| 34,446 |
|
Total current assets |
|
| 1,561,632 |
|
|
| 1,241,070 | �� |
Property and equipment, net |
|
| 418,141 |
|
|
| 543,710 |
|
Goodwill |
|
| 513,527 |
|
|
| 583,225 |
|
Intangible assets, net |
|
| 381,968 |
|
|
| 430,954 |
|
Other, net |
|
| 105,065 |
|
|
| 55,615 |
|
Total assets |
| $ | 2,980,333 |
|
| $ | 2,854,574 |
|
LIABILITIES AND STOCKHOLDERS' DEFICIT |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Current portion of long-term debt |
| $ | 7,336 |
|
| $ | 8,201 |
|
Accounts payable |
|
| 457,694 |
|
|
| 433,783 |
|
Contract liabilities |
|
| 295,320 |
|
|
| 293,719 |
|
Accrued expenses |
|
| 227,403 |
|
|
| 239,572 |
|
Total current liabilities |
|
| 987,753 |
|
|
| 975,275 |
|
Long-term debt, less current portion |
|
| 1,800,171 |
|
|
| 1,480,620 |
|
Accrued pension and other postretirement benefits |
|
| 660,065 |
|
|
| 540,479 |
|
Deferred income taxes |
|
| 7,439 |
|
|
| 6,964 |
|
Other noncurrent liabilities |
|
| 306,169 |
|
|
| 424,549 |
|
Stockholders' deficit: |
|
|
|
|
|
|
|
|
Common stock, $.001 par value, 100,000,000 shares authorized, 52,460,920 and 52,460,920 shares issued; 51,858,089 and 49,887,268 shares outstanding |
|
| 52 |
|
|
| 52 |
|
Capital in excess of par value |
|
| 804,830 |
|
|
| 867,545 |
|
Treasury stock, at cost, 602,831 and 2,573,652 shares |
|
| (36,217 | ) |
|
| (159,154 | ) |
Accumulated other comprehensive loss |
|
| (719,428 | ) |
|
| (487,684 | ) |
Accumulated deficit |
|
| (830,501 | ) |
|
| (794,072 | ) |
Total stockholders' deficit |
|
| (781,264 | ) |
|
| (573,313 | ) |
Total liabilities and stockholders' deficit |
| $ | 2,980,333 |
|
| $ | 2,854,574 |
|
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
44
TRIUMPH GROUP, INC.
Consolidated Statements of Operations
(In thousands, except per share data)
|
| Year ended March 31, |
| |||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Net sales |
| $ | 2,900,117 |
|
| $ | 3,364,930 |
|
| $ | 3,198,951 |
|
Operating costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (exclusive of depreciation shown separately below) |
|
| 2,307,393 |
|
|
| 2,924,920 |
|
|
| 2,607,556 |
|
Selling, general and administrative |
|
| 257,529 |
|
|
| 298,386 |
|
|
| 292,630 |
|
Depreciation and amortization |
|
| 138,168 |
|
|
| 149,904 |
|
|
| 158,368 |
|
Legal judgment gain, net of expenses |
|
| (9,257 | ) |
|
| — |
|
|
| — |
|
Impairment of goodwill |
|
| 66,121 |
|
|
| — |
|
|
| 535,227 |
|
Restructuring |
|
| 25,340 |
|
|
| 31,098 |
|
|
| 40,069 |
|
Loss on sale of assets and businesses |
|
| 56,916 |
|
|
| 235,301 |
|
|
| 30,741 |
|
|
|
| 2,842,210 |
|
|
| 3,639,609 |
|
|
| 3,664,591 |
|
Operating income (loss) |
|
| 57,907 |
|
|
| (274,679 | ) |
|
| (465,640 | ) |
Non-service defined benefit income |
|
| (41,894 | ) |
|
| (62,105 | ) |
|
| (103,234 | ) |
Interest expense and other, net |
|
| 122,129 |
|
|
| 114,619 |
|
|
| 99,442 |
|
Loss from continuing operations before income taxes |
|
| (22,328 | ) |
|
| (327,193 | ) |
|
| (461,848 | ) |
Income tax expense (benefit) |
|
| 5,798 |
|
|
| (5,426 | ) |
|
| (36,457 | ) |
Net loss |
| $ | (28,126 | ) |
| $ | (321,767 | ) |
| $ | (425,391 | ) |
Loss per share—basic: |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (0.56 | ) |
| $ | (6.47 | ) |
| $ | (8.60 | ) |
Weighted average common shares outstanding—basic |
|
| 50,494 |
|
|
| 49,698 |
|
|
| 49,442 |
|
Loss per share—diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (0.56 | ) |
| $ | (6.47 | ) |
| $ | (8.60 | ) |
Weighted average common shares outstanding—diluted |
|
| 50,494 |
|
|
| 49,698 |
|
|
| 49,442 |
|
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
45
TRIUMPH GROUP, INC.
Consolidated Statements of Comprehensive Loss
(in thousands)
|
| Year ended March 31, |
| |||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Net loss |
| $ | (28,126 | ) |
| $ | (321,767 | ) |
| $ | (425,391 | ) |
Other comprehensive (loss) income: |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
| (13,439 | ) |
|
| 10,077 |
|
|
| 28,529 |
|
Defined benefit pension plans and other postretirement benefits: |
|
|
|
|
|
|
|
|
|
|
|
|
Amounts arising during the period - net of tax (expense) benefit |
|
|
|
|
|
|
|
|
|
|
|
|
Prior service credit (cost), net of taxes of $0, $0, and $0, respectively |
|
| 94,182 |
|
|
| (1,139 | ) |
|
| 21,980 |
|
Actuarial (loss) gain, net of taxes of $0, $0, and $(283), respectively |
|
| (304,324 | ) |
|
| (125,540 | ) |
|
| 10,306 |
|
Reclassification to net loss - net of expense (benefit) |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net loss, net of taxes of $0, $(656), and $(5), respectively |
|
| 49,290 |
|
|
| 6,314 |
|
|
| 7,147 |
|
Recognized prior service credits, net of taxes of $0, $0, and $0, respectively |
|
| (54,280 | ) |
|
| (8,274 | ) |
|
| (37,623 | ) |
Total defined benefit pension plans and other postretirement benefits, net of taxes |
|
| (215,132 | ) |
|
| (128,639 | ) |
|
| 1,810 |
|
Cash flow hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized (loss) gain arising during the period, net of tax benefit of $0, $(228), and $(25), respectively |
|
| (1,611 | ) |
|
| 30 |
|
|
| 133 |
|
Reclassification of loss included in net earnings, net of tax expense of $0, $228, and $14, respectively |
|
| (1,562 | ) |
|
| (1,282 | ) |
|
| (2,164 | ) |
Net unrealized loss on cash flow hedges, net of tax |
|
| (3,173 | ) |
|
| (1,252 | ) |
|
| (2,031 | ) |
Total other comprehensive (loss) income |
|
| (231,744 | ) |
|
| (119,814 | ) |
|
| 28,308 |
|
Total comprehensive loss |
| $ | (259,870 | ) |
| $ | (441,581 | ) |
| $ | (397,083 | ) |
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
46
TRIUMPH GROUP, INC.
Consolidated Statements of Stockholders' (Deficit) Equity
(Dollars in thousands)
|
| Outstanding Shares |
|
| Common Stock All Classes |
|
| Capital in Excess of Par Value |
|
| Treasury Stock |
|
| Accumulated Other Comprehensive Loss |
|
| Retained Earnings (Accumulated Deficit) |
|
| Total |
| |||||||
March 31, 2017 |
|
| 49,573,029 |
|
| $ | 51 |
|
| $ | 846,807 |
|
| $ | (183,696 | ) |
| $ | (396,178 | ) |
| $ | 579,489 |
|
| $ | 846,473 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (425,391 | ) |
|
| (425,391 | ) |
Foreign currency translation adjustment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 28,529 |
|
|
| — |
|
|
| 28,529 |
|
Pension liability adjustment, net of income taxes of ($288) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,810 |
|
|
| — |
|
|
| 1,810 |
|
Change in fair value of derivatives |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,013 | ) |
|
| — |
|
|
| (2,013 | ) |
Change in fair value of foreign currency hedges, net of income taxes of $11 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (18 | ) |
|
| — |
|
|
| (18 | ) |
Cash dividends ($0.16 per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (7,943 | ) |
|
| (7,943 | ) |
Share-based compensation |
|
| 56,548 |
|
|
| — |
|
|
| 6,662 |
|
|
| 1,287 |
|
|
| — |
|
|
| — |
|
|
| 7,949 |
|
Repurchase of restricted shares for minimum tax obligation |
|
| (19,361 | ) |
|
| — |
|
|
| — |
|
|
| (483 | ) |
|
| — |
|
|
| — |
|
|
| (483 | ) |
Employee stock purchase plan |
|
| 59,632 |
|
|
| — |
|
|
| (2,189 | ) |
|
| 3,810 |
|
|
| — |
|
|
| — |
|
|
| 1,621 |
|
March 31, 2018 |
|
| 49,669,848 |
|
|
| 51 |
|
|
| 851,280 |
|
|
| (179,082 | ) |
|
| (367,870 | ) |
|
| 146,155 |
|
|
| 450,534 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (321,767 | ) |
|
| (321,767 | ) |
Adoption of ASC 606 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (585,015 | ) |
|
| (585,015 | ) |
Foreign currency translation adjustment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 10,077 |
|
|
| — |
|
|
| 10,077 |
|
Pension liability adjustment, net of income taxes of ($656) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (128,639 | ) |
|
| — |
|
|
| (128,639 | ) |
Change in fair value of foreign currency hedges, net of income taxes of $228 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,252 | ) |
|
| — |
|
|
| (1,252 | ) |
Cash dividends ($0.16 per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
|
|
| — |
|
|
| (7,971 | ) |
|
| (7,971 | ) |
Share-based compensation |
|
| 186,572 |
|
|
| — |
|
|
| (1,448 | ) |
|
| 11,707 |
|
|
| — |
|
|
| — |
|
|
| 10,259 |
|
Repurchase of restricted shares for minimum tax obligation |
|
| (42,146 | ) |
|
| — |
|
|
| — |
|
|
| (860 | ) |
|
| — |
|
|
| — |
|
|
| (860 | ) |
Employee stock purchase plan |
|
| 72,994 |
|
|
| — |
|
|
| (3,354 | ) |
|
| 4,675 |
|
|
| — |
|
|
| — |
|
|
| 1,321 |
|
Other |
|
| — |
|
|
| 1 |
|
|
| 21,067 |
|
|
| 4,406 |
|
|
| — |
|
|
| (25,474 | ) |
|
| — |
|
March 31, 2019 |
|
| 49,887,268 |
|
|
| 52 |
|
|
| 867,545 |
|
|
| (159,154 | ) |
|
| (487,684 | ) |
|
| (794,072 | ) |
|
| (573,313 | ) |
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (28,126 | ) |
|
| (28,126 | ) |
Adoption of ASC 842 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (225 | ) |
|
| (225 | ) |
Foreign currency translation adjustment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (13,439 | ) |
|
| — |
|
|
| (13,439 | ) |
Pension liability adjustment, net of income taxes of $0 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (215,132 | ) |
|
| — |
|
|
| (215,132 | ) |
Change in fair value of foreign currency hedges, net of income taxes of $0 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (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 minimum tax obligation |
|
| (69,601 | ) |
|
| — |
|
|
| — |
|
|
| (1,442 | ) |
|
| — |
|
|
| — |
|
|
| (1,442 | ) |
Employee stock purchase plan |
|
| 45,061 |
|
|
| — |
|
|
| (1,811 | ) |
|
| 2,761 |
|
|
| — |
|
|
| — |
|
|
| 950 |
|
Contribution of treasury shares to pension plan |
|
| 1,730,703 |
|
|
| — |
|
|
| (55,396 | ) |
|
| 105,396 |
|
|
| — |
|
|
| — |
|
|
| 50,000 |
|
March 31, 2020 |
|
| 51,858,089 |
|
| $ | 52 |
|
| $ | 804,830 |
|
| $ | (36,217 | ) |
| $ | (719,428 | ) |
| $ | (830,501 | ) |
| $ | (781,264 | ) |
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
47
TRIUMPH GROUP, INC.
Consolidated Statements of Cash Flows
(Dollars in thousands)
|
| Year ended March 31, |
| |||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (28,126 | ) |
| $ | (321,767 | ) |
| $ | (425,391 | ) |
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 138,168 |
|
|
| 149,904 |
|
|
| 158,368 |
|
Impairment of goodwill |
|
| 66,121 |
|
|
| — |
|
|
| 535,227 |
|
Amortization of acquired contract liability |
|
| (75,286 | ) |
|
| (67,314 | ) |
|
| (125,148 | ) |
Loss on sale of assets and businesses |
|
| 56,916 |
|
|
| 235,301 |
|
|
| 30,741 |
|
Curtailments, settlements and early retirement incentives |
|
| 14,293 |
|
|
| 4,032 |
|
|
| (25,722 | ) |
Other amortization included in interest expense |
|
| 11,157 |
|
|
| 8,770 |
|
|
| 11,677 |
|
Provision (recovery) for doubtful accounts receivable |
|
| 1,554 |
|
|
| (495 | ) |
|
| (242 | ) |
Provision (benefit) for deferred income taxes |
|
| 2,823 |
|
|
| (7,939 | ) |
|
| (43,108 | ) |
Share-based compensation |
|
| 11,062 |
|
|
| 10,259 |
|
|
| 7,949 |
|
Changes in other assets and liabilities, excluding the effects of acquisitions and divestitures: |
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other receivables |
|
| 5,001 |
|
|
| (89,728 | ) |
|
| (99,620 | ) |
Contract assets |
|
| 50,440 |
|
|
| 65,191 |
|
|
| (5,484 | ) |
Inventories |
|
| (48,802 | ) |
|
| (15,930 | ) |
|
| (163,417 | ) |
Prepaid expenses and other current assets |
|
| 16,376 |
|
|
| (3,144 | ) |
|
| (4,239 | ) |
Accounts payable, accrued expenses and income taxes payable |
|
| (61,338 | ) |
|
| (71,767 | ) |
|
| (43,696 | ) |
Accrued pension and other postretirement benefits |
|
| (67,826 | ) |
|
| (79,911 | ) |
|
| (88,464 | ) |
Other |
|
| 4,133 |
|
|
| 10,118 |
|
|
| (8,325 | ) |
Net cash provided by (used in) operating activities |
|
| 96,666 |
|
|
| (174,420 | ) |
|
| (288,894 | ) |
Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
| (39,834 | ) |
|
| (47,099 | ) |
|
| (42,050 | ) |
Proceeds from sale of assets and businesses |
|
| 47,229 |
|
|
| 247,647 |
|
|
| 83,082 |
|
Acquisitions, net of cash acquired |
|
| — |
|
|
| — |
|
|
| (2,818 | ) |
Net cash provided by investing activities |
|
| 7,395 |
|
|
| 200,548 |
|
|
| 38,214 |
|
Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in revolving credit facility |
|
| 185,000 |
|
|
| 102,113 |
|
|
| 82,888 |
|
Proceeds from issuance of long-term debt |
|
| 585,580 |
|
|
| 54,600 |
|
|
| 544,243 |
|
Retirement of debt and capital lease obligations |
|
| (449,650 | ) |
|
| (113,425 | ) |
|
| (387,373 | ) |
Payment of deferred financing costs |
|
| (17,718 | ) |
|
| (1,982 | ) |
|
| (17,729 | ) |
Dividends paid |
|
| (8,078 | ) |
|
| (7,971 | ) |
|
| (7,943 | ) |
Repurchase of restricted shares for minimum tax obligations |
|
| (1,442 | ) |
|
| (860 | ) |
|
| (483 | ) |
Net cash provided by financing activities |
|
| 293,692 |
|
|
| 32,475 |
|
|
| 213,603 |
|
Effect of exchange rate changes on cash |
|
| (5,097 | ) |
|
| (1,615 | ) |
|
| 3,263 |
|
Net change in cash and cash equivalents |
|
| 392,656 |
|
|
| 56,988 |
|
|
| (33,814 | ) |
Cash and cash equivalents at beginning of year |
|
| 92,807 |
|
|
| 35,819 |
|
|
| 69,633 |
|
Cash and cash equivalents at end of year |
| $ | 485,463 |
|
| $ | 92,807 |
|
| $ | 35,819 |
|
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
48
Triumph Group, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
1. BACKGROUND AND BASIS OF PRESENTATION
Triumph 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") are organized based on the products and services that they provide. Effective February 17, 2020, the Company combined its Integrated Systems and Product Support operating segments into one operating segment, Systems & Support. Under this organizational structure, the Company has 2 reportable segments: Systems & Support and Aerospace Structures. Segment information for prior periods has been recast to conform to this organizational structure.
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; 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 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 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, regional and military 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 insulations 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, autoclave bonding, 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 2016-02
In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842). This ASU requires lessees to recognize most leases on their balance sheets as lease liabilities with corresponding right-of-use ("ROU") assets. The Company adopted the standard as of April 1, 2019, using the modified retrospective approach and applying the standard’s transition provisions at the adoption date. Reporting periods beginning on or after April 1, 2019, are presented in accordance with Accounting Standards Codification ("ASC") 842, Leases. Prior periods have not been adjusted and continue to be reported in accordance with previous accounting standards. The Company elected the package of practical expedients permitted under the transition guidance, which among other things, allows the Company to not reassess the historical lease classification.
Adoption of the new standard resulted in the recognition of operating lease ROU assets and lease liabilities of $76,444 and $84,663, respectively, with the difference due to prepaid and deferred rent that were reclassified to the ROU asset value. An adjustment to opening retained earnings of $225 was also recognized. The standard did not materially affect the Company's consolidated statements of operations or cash flows. See Note 9 for further details.
49
Triumph Group, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Adoption of ASU 2018-02
In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This ASU permits a company to reclassify the income tax effects of the 2017 Tax Cuts and Jobs Act (“U.S. tax reform”) on items within AOCI to retained earnings. The Company adopted the provisions of this ASU in the first quarter of 2019 and elected not to reclassify the income tax effects of U.S. tax reform from items in accumulated other comprehensive income. The Company's policy is to release the tax effects from accumulated other comprehensive income when the all of the related assets or liabilities that gave rise to the accumulated other comprehensive income have been derecognized.
Standards Issued Not Yet Implemented
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU modifies the measurement of expected credit losses of certain financial instruments. ASU 2016-13 is effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods. The amendments in this ASU should be applied on a modified retrospective basis to all periods presented. The Company adopted ASU 2016-13 effective April 1, 2020, and the impact on our consolidated financial statements of adoption was not significant.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. This ASU modifies the disclosure requirements for fair value measurements by removing, modifying or adding certain disclosures. ASU 2018-13 is effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods, with early adoption permitted. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The Company adopted ASU 2018-13 effective April 1, 2020, and does not expect the adoption to have a significant impact on its consolidated financial statement disclosures.
In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). ASU 2018-15 is effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods, with early adoption permitted. The amendments in this ASU should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company adopted ASU 2018-15 effective April 1, 2020, electing to apply the standard prospectively. As a result of applying the standard prospectively, there was no impact on the Company’s consolidated financial statements and disclosures upon adoption.
In August 2018, the FASB issued ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans, which modifies the disclosure requirements for defined benefit pension plans and other postretirement plans. ASU 2018-14 is effective for annual periods beginning after December 15, 2020, with early adoption permitted. The amendments in this ASU should be applied on a retrospective basis to all periods presented. The Company is currently evaluating the effect that ASU 2018-14 will have on its consolidated financial statements and related disclosures.
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 presentedrecorded net of an allowance for doubtful accounts. In determining the appropriate allowance, we consider a combination of factors, such as industry trends, our customers' financial strength and credit standing, and payment and default history. The calculation of the required allowance requires a judgment as to the impact of theseTrade and other factors onreceivables include amounts billed and currently due from customers and amounts retained by the ultimate realizationcustomer pending contract completion. The Company performs ongoing credit evaluations of our trade receivables. We believe that these estimates are reasonableits customers and historically havegenerally does not resulted in material adjustments in subsequent periods when the estimates are adjusted to actual amounts.
50
Triumph Group, Inc.
Notes to Consolidated Financial Statements"Statements
(Dollars in thousands, except per share data)
Trade and other receivables, net composed of the following:
|
| March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Total trade receivables |
| $ | 314,007 |
|
| $ | 336,888 |
|
Other receivables |
|
| 49,773 |
|
|
| 40,348 |
|
Total trade and other receivables |
|
| 363,780 |
|
|
| 377,236 |
|
Less: Allowance for doubtful accounts |
|
| (4,293 | ) |
|
| (3,646 | ) |
Total trade and other receivables, net |
| $ | 359,487 |
|
| $ | 373,590 |
|
Goodwill and Intangible Assets
The Company accounts for further discussion).
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 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.
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 ourits reporting units. Any such impairment would be recognized in full in the reporting period in which it has been identified.
During the thirdfourth quarter of the fiscal year ended March 31, 2016,2020, the Company performed its annual goodwill impairment assessment for each of its reporting units with no impairment identified.
Subsequent to its annual testing date and 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 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".
51
Triumph Group, Inc.
Notes to Consolidated Financial Statements" for further discussion).
(Dollars in thousands, except per share data)
Finite-lived intangible assets are amortized over their useful lives ranging from 37 to 3230 years. WeThe Company continually evaluateevaluates whether events or circumstances have occurred that would indicate that the remaining estimated useful lives of our long-lived
Refer to below for the Company's accounting policy regarding fair value measurements and the definition of fair value levels.
Revenue Recognition and Contract Liabilities,Balances
The Company adopted ASC 606 on April 1, 2018. 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 original equipment manufacturers (“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
52
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, 2020, cumulative catch-up adjustments resulting from changes in contract values and estimated costs that arose during the fiscal year 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.
For the fiscal year ended March 31, 2019, cumulative catch-up adjustments resulting from changes in estimates increased net sales, decreased operating loss, net loss and earnings per share by approximately $7,944, ($68,694), ($68,694), and ($1.38), respectively. The cumulative catch-up adjustments to operating income for the fiscal year ended March 31, 2019, included gross favorable adjustments of approximately $46,074 and gross unfavorable adjustments of approximately $114,768. These cumulative catch-up adjustments do not include a noncash charge the Company recorded as a result of the adoption of ASU 2017-07 of $87,241 due to a change in estimate from a change in accounting principles, which is presented on the accompanying consolidated statements of operations within cost of sales.
For the fiscal year ended March 31, 2018, cumulative catch-up adjustments resulting from changes in estimates decreased operating loss, net loss and decreased loss per share by approximately $19,677, $13,479, and $0.27, respectively. The cumulative catch-up adjustments to operating income for the fiscal year ended March 31, 2018, included gross favorable adjustments of approximately $85,844 and gross unfavorable adjustments of approximately $66,167.
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.
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.
53
Triumph Group, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
In connection with several of ourprior acquisitions, wethe Company assumed existing long-term contracts. Based on our review of these contracts, wethe Company 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, 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).
Next 12 Months | 13 - 24 Months | 25 - 36 Months | 37 - 48 Months | 49 - 60 Months | 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 | % | — | % |
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 |
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 |
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 |
Outstanding Shares | Common Stock All Classes | Capital in Excess of Par Value | Treasury Stock | Accumulated Other Comprehensive (Loss) Income | Retained Earnings | 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 |
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 |
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 |
The balance of the liability as of
March 31,Leases
The Company leases office space, manufacturing facilities, land, vehicles, and
ROU assets represent the contractCompany'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 length of lease terms is affected by options to extend or terminate the lease when products are shipped, delivery has occurred or services have been rendered, pricing is fixed or determinable, and collectionit is reasonably assured. The Company's policy with respect to sales returns and allowances generally providescertain that the customer mayCompany will exercise that option. The existence of significant economic incentive is the primary consideration when assessing whether the Company is reasonably certain 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 be made over the lease 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.
For operating leases, lease expense is recognized on a 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.
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.
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.
54
Triumph Group, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
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 to its interest rate swapwhen measuring goodwill impairment in fiscal year 2018 and fiscal year 2020 (see Note 10)7), and to its pension and postretirement plan assets (see Note 15).
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. The Company recognizes penalties and interest accrued related to income tax liabilities in the provision for income taxes in its Consolidated Statements of Operations.
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 fiscal yearsyear ended March 31, 2016 and 2014,2020, the Company paid $4,887 and $4,157, respectively, $4,005for income tax,taxes, net of income tax refunds received. For the fiscal year ended March 31, 2015,2019, the Company received $22,241 for$4,701 as 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.
55
Triumph Group, Inc.
Notes 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.
(Dollars in thousands, except per share data)
3. DIVESTED OPERATIONS AND ASSETS HELD FOR SALE
Fiscal 2020 Divestitures
In December 2019, the Company acquired allcompleted the sale of its manufacturing operations at its Nashville, TN, 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 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 resultsNashville manufacturing operations are included in Aerospace Systems GroupStructures 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 acquisition.
In September 2019, the Company completed the assignment of its E-2 Jets contract with a weighted-average life of 12.0 years.
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 |
For the Year Ended March 31, 2016 | ||||
Net sales | $ | 17,698 | ||
Operating income | 1,792 |
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 |
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 |
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 |
Fiscal 2019 Divestitures
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.
In March 2019, the Company sold all of the shares of (i) Triumph Fabrications - San Diego, Inc. and Triumph Fabrications - Ft. Worth, Inc. (together, "Fabrications"), and (ii) Triumph Aviation Services - NAAS Division, Inc. ("TAS-Wichita"NAAS"). Total cash proceeds net of transaction costs for the sales of Fabrications and NAAS were approximately $133,000 and $18,000, respectively. As a result of the sales of Fabrications, the Company recognized a gain of approximately $54,000. The sale of NAAS resulted in an immaterial gain.
In February 2019, the Company transitioned responsibility for the Global 7500 wing program manufacturing operations of Aerospace Structures to Bombardier at which point Bombardier assumed the program’s assets and obligations. As a result of this transfer, the Company recognized a loss of approximately $169,000. The Company continues to provide transition services related to infrastructure support reducing in scope over the next several months, as well as a lease of the building in Red Oak, Texas, dedicated to the manufacturer of the Global 7500 wing to Bombardier.
In July and August 2018, respectively, the Company sold all of the shares of Triumph Structures - East Texas, Inc. as well as all of the shares of Triumph Structures - Los Angeles, Inc., and Triumph Processing, Inc. for combined cash proceeds net of transactions costs of approximately $43,000 and a note receivable of $7,000. The note receivable was collected in October 2018. As a result of these sales, the Company recognized losses of approximately $17,000, which are presented on the accompanying consolidated statements of operations within loss on sale of assets and businesses.
Fiscal 2018 Divestitures
In March 2018, the Company sold all of the shares of Triumph Structures - Long Island, LLC ("TS-LI") for total cash proceeds of $23,000.$9,500 and a note receivable of $1,400. The note receivable was collected in July 2018. As a result of the sale of TAS-Wichita,TS-LI, the Company recognized no gain or loss.a loss of $10,370. The operating results of TAS-WichitaTS-LI were included in the Aerostructures GroupAerospace Structures through the date of disposal.
In April 2013,September 2017, the Company sold all of the assets and liabilitiesshares of Triumph InstrumentsProcessing - Burbank and Triumph Instruments - Ft. LauderdaleEmbee Division, Inc. ("Triumph Instruments"Embee") for total cash proceeds of $11,200, including cash received at closing$64,986. As a result of $9,676 a notethe sale of $1,500, andEmbee, the remaining amount held in escrow and received in the second quarter of fiscal 2014, resulting inCompany recognized a loss of $1,462 recognized during the year ended March 31, 2013.$17,857. The operating results areof Embee were included in the Aftermarket Services GroupIntegrated Systems through the date of disposal.
56
Triumph Group, Inc.
Notes to have significant continuing involvement in the business and markets of the disposed entities, as defined by ASC 250-20,
(Dollars in thousands, except per share data)
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 upon the end market where products and services are statedtransferred to the customer. The Company’s principal operating segments and related revenue are discussed in Note 13, Segments.
The following table shows disaggregated net sales satisfied overtime and at a point in time (excluding intercompany sales) for the year ended March 31, 2020 and 2019:
|
| Year Ended March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Systems & Support |
|
|
|
|
|
|
|
|
Satisfied over time |
| $ | 578,117 |
|
| $ | 548,562 |
|
Satisfied at a point in time |
|
| 738,158 |
|
|
| 726,791 |
|
Revenue from contracts with customers |
|
| 1,316,275 |
|
|
| 1,275,353 |
|
Amortization of acquired contract liabilities |
|
| 34,486 |
|
|
| 34,121 |
|
Total revenue |
|
| 1,350,761 |
|
|
| 1,309,474 |
|
|
|
|
|
|
|
|
|
|
Aerospace Structures |
|
|
|
|
|
|
|
|
Satisfied over time |
| $ | 1,378,866 |
|
| $ | 1,832,422 |
|
Satisfied at a point in time |
|
| 129,690 |
|
|
| 189,841 |
|
Revenue from contracts with customers |
|
| 1,508,556 |
|
|
| 2,022,263 |
|
Amortization of acquired contract liabilities |
|
| 40,800 |
|
|
| 33,193 |
|
Total revenue |
|
| 1,549,356 |
|
|
| 2,055,456 |
|
|
| $ | 2,900,117 |
|
| $ | 3,364,930 |
|
The following table shows disaggregated net sales by end market (excluding intercompany sales) for the year ended March 31, 2020 and 2019:
|
| Year Ended March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Systems & Support |
|
|
|
|
|
|
|
|
Commercial aerospace |
| $ | 737,885 |
|
| $ | 730,562 |
|
Military |
|
| 436,166 |
|
|
| 409,027 |
|
Business jets |
|
| 61,338 |
|
|
| 63,649 |
|
Regional |
|
| 43,761 |
|
|
| 45,397 |
|
Non-aviation |
|
| 37,125 |
|
|
| 26,718 |
|
Revenue from contracts with customers |
|
| 1,316,275 |
|
|
| 1,275,353 |
|
Amortization of acquired contract liabilities |
|
| 34,486 |
|
|
| 34,121 |
|
Total revenue |
| $ | 1,350,761 |
|
| $ | 1,309,474 |
|
|
|
|
|
|
|
|
|
|
Aerospace Structures |
|
|
|
|
|
|
|
|
Commercial aerospace |
| $ | 879,690 |
|
| $ | 1,020,649 |
|
Military |
|
| 116,846 |
|
|
| 237,501 |
|
Business jets |
|
| 422,681 |
|
|
| 699,747 |
|
Regional |
|
| 89,318 |
|
|
| 36,038 |
|
Non-aviation |
|
| 21 |
|
|
| 28,328 |
|
Revenue from contracts with customers |
|
| 1,508,556 |
|
|
| 2,022,263 |
|
Amortization of acquired contract liabilities |
|
| 40,800 |
|
|
| 33,193 |
|
Total revenue |
|
| 1,549,356 |
|
|
| 2,055,456 |
|
|
| $ | 2,900,117 |
|
| $ | 3,364,930 |
|
57
Triumph Group, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
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 recognized when the revenue associated with the contract is recognized prior to billing and derecognized when billed in accordance with the terms of the contract. The Company performs ongoing evaluations of the potential impairment of its contract assets based on prior experience and specific matters when they arise. No impairments to contract assets were recorded for the years ended March 31, 2020 or 2019.
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 our 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.
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 our contract assets and liabilities balances:
|
| March 31, 2020 |
|
| March 31, 2019 |
|
| Change |
| |||
Contract assets |
| $ | 267,079 |
|
| $ | 326,667 |
|
| $ | (59,588 | ) |
Contract liabilities |
|
| (386,585 | ) |
|
| (450,051 | ) |
|
| 63,466 |
|
Net contract liability |
| $ | (119,506 | ) |
| $ | (123,384 | ) |
| $ | 3,878 |
|
The Company recognized revenue due to changes in estimates associated with performance obligations satisfied or partially satisfied in previous periods of $12,011. The decrease in contract assets is the result of $76,667 and $39,753 in contract assets liquidated as part of the assignment of the E2-Jets contract to ASTK and the sale of the Nashville manufacturing operations, respectively, partially offset by revenue recognized in excess of amounts billed during the year ended March 31, 2020. The decrease in contract liabilities is the result of revenue recognized in excess of the receipt of additional customer advances during the period as well as $12,641 in contract liabilities liquidated as part of the assignment of the E2-Jets contract to ASTK. For the period ended March 31, 2020, the Company recognized $89,012 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, 2020 and 2019, were $22,662 and $34,185, respectively. Noncurrent contract liabilities presented in other noncurrent liabilities on the accompanying consolidated balance sheets as of March 31, 2020 and 2019, were $91,265 and $156,332, 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, 2020, 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 year |
|
| 1-3 years |
|
| 4-5 years |
|
| More than 5 years |
| |||||
Unsatisfied performance obligations |
| $ | 3,875,679 |
|
| $ | 1,956,289 |
|
| $ | 1,104,754 |
|
| $ | 441,808 |
|
| $ | 372,828 |
|
5. INVENTORIES
The Company records inventories at the lower of cost (average-cost or specific-identification methods) or market. The componentsCompany 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 are as follows:
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 |
58
Triumph Group, Inc.
Notes to the provisions 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
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 |
(Dollars in thousands, except per share data)
The components of inventories are as follows:
|
| March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Raw materials |
| $ | 32,552 |
|
| $ | 35,883 |
|
Work-in-process, including manufactured and purchased components |
|
| 312,953 |
|
|
| 277,996 |
|
Finished goods |
|
| 50,011 |
|
|
| 42,399 |
|
Rotable assets |
|
| 57,460 |
|
|
| 57,282 |
|
Total inventories |
| $ | 452,976 |
|
| $ | 413,560 |
|
6. PROPERTY AND EQUIPMENT
Property and equipment, which include equipment under finance lease and leasehold improvements, are recorded at cost and depreciated over the successestimated useful lives of the programs at achieving flight testingrelated assets, or the lease term if shorter in the case of leasehold improvements, using the straight-line method. Buildings and certification, as well as the abilityimprovements are depreciated over a period of the Bombardier15 to 39.5 years, and Embraer programsmachinery and equipment are depreciated over a period of 7 to generate acceptable levels15 years (except for furniture, fixtures and computer equipment which are depreciated over a period of aircraft sales. The failure3 to achieve these milestones and level of sales or significant cost overruns may result in additional forward losses.
Net property and equipment at
|
| March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Land |
| $ | 42,438 |
|
| $ | 52,333 |
|
Construction-in-process |
|
| 19,231 |
|
|
| 25,310 |
|
Buildings and improvements |
|
| 285,407 |
|
|
| 320,289 |
|
Machinery and equipment |
|
| 701,018 |
|
|
| 814,040 |
|
|
|
| 1,048,094 |
|
|
| 1,211,972 |
|
Less: accumulated depreciation |
|
| 629,953 |
|
|
| 668,262 |
|
|
| $ | 418,141 |
|
| $ | 543,710 |
|
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 |
Depreciation expense for the
fiscal years ended March 31,7. 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
March 31,
|
|
|
|
|
|
|
| Systems & Support |
| |
March 31, 2019 |
|
|
|
|
|
|
| $ | 583,225 |
|
Effect of exchange rate changes |
|
|
|
|
|
|
|
| (3,577 | ) |
Impairment of goodwill |
|
|
|
|
|
|
|
| (66,121 | ) |
March 31, 2020 |
|
|
|
|
|
|
| $ | 513,527 |
|
|
|
|
|
|
|
|
| Systems & Support |
| |
March 31, 2018 |
|
|
|
|
|
|
| $ | 592,828 |
|
Goodwill associated with dispositions |
|
|
|
|
|
|
|
| (2,788 | ) |
Effect of exchange rate changes |
|
|
|
|
|
|
|
| (6,815 | ) |
March 31, 2019 |
|
|
|
|
|
|
| $ | 583,225 |
|
Aerostructures | Aerospace Systems | Aftermarket Services | 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 | Aerospace Systems | Aftermarket Services | 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 |
As of theMarch 31, 2020 and 2019, Aerospace Structures had gross goodwill of $1,166,773 and $1,246,454, respectively, which was fully impaired. As of March 31, 2020 and 2019, Systems & Support had gross goodwill of $579,649 and $583,225, 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$0, respectively.
59
Triumph Group, Inc.
Notes 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.
(Dollars in thousands, except per share data)
Intangible Assets
The components of intangible assets, net are as follows:
|
| March 31, 2020 |
| |||||||||||||
|
| Weighted- Average Life (in Years) |
|
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Net |
| ||||
Customer relationships |
|
| 17.7 |
|
| $ | 550,131 |
|
| $ | (276,980 | ) |
| $ | 273,151 |
|
Product rights, technology and licenses |
|
| 11.4 |
|
|
| 54,676 |
|
|
| (46,180 | ) |
|
| 8,496 |
|
Noncompete agreements and other |
|
| 16.7 |
|
|
| 2,656 |
|
|
| (1,208 | ) |
|
| 1,448 |
|
Tradenames |
|
| 10.0 |
|
|
| 150,000 |
|
|
| (51,127 | ) |
|
| 98,873 |
|
Total intangibles, net |
|
|
|
|
| $ | 757,463 |
|
| $ | (375,495 | ) |
| $ | 381,968 |
|
|
| March 31, 2019 |
| |||||||||||||
|
| Weighted- Average Life (in Years) |
|
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Net |
| ||||
Customer relationships |
|
| 17.7 |
|
| $ | 551,093 |
|
| $ | (245,626 | ) |
| $ | 305,467 |
|
Product rights, technology and licenses |
|
| 11.4 |
|
|
| 54,850 |
|
|
| (43,978 | ) |
|
| 10,872 |
|
Noncompete agreements and other |
|
| 16.7 |
|
|
| 2,656 |
|
|
| (1,041 | ) |
|
| 1,615 |
|
Tradenames |
|
| 10.0 |
|
|
| 150,000 |
|
|
| (37,000 | ) |
|
| 113,000 |
|
Total intangibles, net |
|
|
|
|
| $ | 758,599 |
|
| $ | (327,645 | ) |
| $ | 430,954 |
|
March 31, 2016 | |||||||||||||
Weighted- Average Life (in Years) | Gross Carrying Amount | Accumulated Amortization | 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 | |||||||||||||
Weighted- Average Life (in Years) | Gross Carrying Amount | Accumulated Amortization | 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 |
Amortization expense for the
fiscal years ended March 31,8. ACCRUED EXPENSES
Accrued expenses are composedconsist of the following items:
|
| March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Accrued pension |
| $ | 753 |
|
| $ | 742 |
|
Accrued other postretirement benefits |
|
| 4,775 |
|
|
| 10,758 |
|
Accrued compensation and benefits |
|
| 84,404 |
|
|
| 102,009 |
|
Accrued interest |
|
| 13,252 |
|
|
| 12,374 |
|
Accrued warranties |
|
| 30,079 |
|
|
| 18,977 |
|
Accrued workers' compensation |
|
| 16,583 |
|
|
| 17,635 |
|
Accrued income tax |
|
| 3,796 |
|
|
| 5,974 |
|
Operating lease liabilities |
|
| 13,139 |
|
|
| — |
|
All other |
|
| 60,622 |
|
|
| 71,103 |
|
Total accrued expenses |
| $ | 227,403 |
|
| $ | 239,572 |
|
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 |
9. LEASES
The components of Contents
Lease Cost |
| Financial Statement Classification |
| Year ended March 31, 2020 |
| |
Operating lease cost |
| Cost of sales or Selling, general and administrative expense |
| $ | 24,539 |
|
Variable lease cost |
| Cost of sales or Selling, general and administrative expense |
|
| 8,382 |
|
Financing Lease Cost: |
|
|
|
|
|
|
Amortization of right-of-use assets |
| Depreciation and amortization |
|
| 5,317 |
|
Interest on lease liability |
| Interest expense and other |
|
| 2,307 |
|
Total lease cost (1) |
|
|
| $ | 40,545 |
|
(1) | Total lease cost does not include short-term leases or sublease income, both of which are immaterial. |
60
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, 2020, is disclosed in the table below.
|
| Year ended March 31, 2020 |
| |
Cash paid for amounts included in the measurement of lease liabilities |
|
|
|
|
Operating cash flows used in operating leases |
| $ | 21,430 |
|
Operating cash flows used in finance leases |
|
| 2,327 |
|
Financing cash flows used in finance leases |
|
| 8,370 |
|
ROU assets obtained in exchange for lease liabilities |
|
|
|
|
Operating leases |
|
| 3,826 |
|
Finance leases |
| $ | 1,039 |
|
Supplemental balance sheet information related to leases as of March 31, 2020, is disclosed in the table below.
Leases |
| Classification |
| March 31, 2020 |
| |
Assets |
|
|
|
|
|
|
Operating lease ROU assets |
| Other, net |
| $ | 61,461 |
|
|
|
|
|
|
|
|
Finance lease ROU assets, cost |
| Property and equipment, net |
|
| 39,461 |
|
Accumulated amortization |
| Property and equipment, net |
|
| (18,650 | ) |
Finance lease ROU assets, net |
|
|
|
| 20,811 |
|
Total lease assets |
|
|
| $ | 82,272 |
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
Current |
|
|
|
|
|
|
Operating |
| Accrued expenses |
| $ | 13,139 |
|
Finance |
| Current portion of long-term debt |
|
| 7,336 |
|
Noncurrent |
|
|
|
|
|
|
Operating |
| Other noncurrent liabilities |
|
| 54,687 |
|
Finance |
| Long-term debt, less current portion |
|
| 16,597 |
|
Total lease liabilities |
|
|
| $ | 91,759 |
|
Information related to lease terms and discount rates as of March 31, 2020, is disclosed in the table below.
March 31, 2020 | ||||
Weighted average remaining lease term (years) | ||||
Operating leases | 7.2 | |||
Finance leases | 6.9 | |||
Weighted average discount rate | ||||
Operating leases | 6.2 | % | ||
Finance leases | 5.9 | % |
The maturity of the Company's lease liabilities as of March 31, 2016,2020, is disclosed in the table below.
|
| Operating leases |
|
| Finance leases |
|
| Total |
| |||
FY2021 |
| $ | 16,843 |
|
| $ | 8,545 |
|
| $ | 25,388 |
|
FY2022 |
|
| 14,523 |
|
|
| 5,571 |
|
|
| 20,094 |
|
FY2023 |
|
| 11,072 |
|
|
| 2,707 |
|
|
| 13,779 |
|
FY2024 |
|
| 8,311 |
|
|
| 2,138 |
|
|
| 10,449 |
|
FY2025 |
|
| 7,042 |
|
|
| 1,308 |
|
|
| 8,350 |
|
Thereafter |
|
| 27,192 |
|
|
| 9,954 |
|
|
| 37,146 |
|
Total lease payments |
|
| 84,983 |
|
|
| 30,223 |
|
|
| 115,206 |
|
Less: Imputed interest |
|
| (17,157 | ) |
|
| (6,290 | ) |
|
| (23,447 | ) |
Total lease liabilities |
| $ | 67,826 |
|
| $ | 23,933 |
|
| $ | 91,759 |
|
61
Triumph Group, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
At March 31, 2019, future minimum payments under noncancelable operating leases with initial or remaining terms of more than one year were as follows: 2017—2020—$27,904; 2018—21,543; 2021—$24,541; 2019—18,516; 2022—$21,677; 2020—14,394; 2023—$17,931; 2021—11,037; 2024—$15,7128,409 and thereafter—$60,54034,828 through 2031.2031. In the normal course of business, operating leases are generally renewed or replaced by other leases.
10. LONG-TERM DEBT
Long-term debt consists of the following:
|
| March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Revolving credit facility |
| $ | 400,000 |
|
| $ | 215,000 |
|
Receivable securitization facility |
|
| 75,000 |
|
|
| 80,700 |
|
Finance leases |
|
| 23,933 |
|
|
| 31,292 |
|
Senior secured notes due 2024 |
|
| 525,000 |
|
|
| — |
|
Senior notes due 2021 |
|
| — |
|
|
| 375,000 |
|
Senior notes due 2022 |
|
| 300,000 |
|
|
| 300,000 |
|
Senior notes due 2025 |
|
| 500,000 |
|
|
| 500,000 |
|
Less: debt issuance costs |
|
| (16,426 | ) |
|
| (13,171 | ) |
|
|
| 1,807,507 |
|
|
| 1,488,821 |
|
Less: current portion |
|
| 7,336 |
|
|
| 8,201 |
|
|
| $ | 1,800,171 |
|
| $ | 1,480,620 |
|
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 Facility
On September 23, 2019, the Company and its subsidiary co-borrowers and guarantors entered into an Eleventh Amendment to the Credit Agreement (the “Eleventh Amendment” and the existing Credit Agreement as amended and restated its existing credit agreement (theby the Eleventh Amendment, the “Credit Facility”Agreement”) with its lenders to (i) increase the maximum amount allowed forAdministrative Agent and the receivable securitization facility (the "Securitization Facility") and (ii) amend certainLenders party thereto. Among other terms and covenants.things, the Eleventh Amendment:
(i) | permits the Company to incur indebtedness in respect of the Senior Secured Notes due 2024 (the "2024 Notes") in an aggregate principal amount of up to $525,000, subject to the terms and conditions of the Intercreditor Agreement; |
(ii) | lowers the aggregate amount of revolving credit commitments from $700,000 to $600,000 upon the earlier of (a) the completion by the Company of $100,000 in certain asset sales or divestitures or (b) March 31, 2020; |
(iii) | extends, with respect to extending banks representing approximately $406,500 of $600,000 total commitments outstanding as of March 31, 2020, the expiration date for the revolving line of credit available to the Company pursuant to the Credit Agreement to March 15, 2024; and retains an accordion feature that permits the Company to request an increase to the revolving credit commitments by up to $200,000; |
(iv) | adds an additional mandatory prepayment provision requiring that the Company prepay any outstanding revolving credit loans in an amount equal to (a) with respect to an Identified Asset Sale (as defined in the Credit Agreement) the greater of (x) $50,000 and (y) 100% of the net asset sale proceeds received in connection therewith, and (b) with respect to other Specified Asset Sales (as defined in the Credit Agreement), 100% of the net asset proceeds received from such other Specified Asset Sales; and |
(v) | modifies certain financial covenants and other terms. |
In connection with the amendmentEleventh Amendment to the Credit Facility,Agreement, the Company incurred approximately $2,795$6,944 of financing costs. These costs, along with the $6,507$6,222 of unamortized financing costs priorsubsequent to the amendment,Tenth Amendment, are being amortized over the remaining term of the Credit Facility.
The obligationobligations under the Credit FacilityAgreement and related documents are secured by liens on substantially all assets of the Company and its domestic subsidiaries pursuant to ana Second Amended and Restated Guarantee and Collateral Agreement, dated as of November 19, 2013, among the administrative agent, the Company and the subsidiaries of the Company party thereto.
62
Triumph Group, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Pursuant to the Credit Facility,Agreement, 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
At
March 31,On May 22, 2020, the Company amending and restating the Credit Facility to add the 2013 Term Loan, the Company alsoits subsidiary co-borrowers and guarantors 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.
Receivables Securitization Program
In November 2014,December 2019, the Company amended its receivable securitization facility (the "Securitization Facility"), increasing decreasing the purchase limit from $175,000$125,000 to $225,000$75,000 and extending the term through November 2017.December 2022. In connection with the Securitization Facility, the Company sells on a revolving basis certain eligible accounts receivable to Triumph Receivables, LLC, a 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
The agreement governing the Securitization Facility contains 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
Senior Secured Notes due 2021
On February 26, 2013,September 23, 2019, the Company issued
The 20212024 Notes are second lien secured obligations of the Company's senior unsecured obligationsCompany and rank equallyits subsidiary guarantors. The 2024 Notes:
(i) | rank equal in right of payment to existing and future senior indebtedness of the Company and its subsidiary guarantors, including the obligations of the Company and its subsidiary guarantors under the Company’s credit facility; |
(ii) | are effectively subordinated to all obligations of the Company and its subsidiary guarantors that are either (A) 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 |
63
Triumph Group, Inc.
Notes to Consolidated Financial Statements
(Dollars 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. thousands, except per share data)
the first-priority liens securing borrowings under the Company’s credit facility 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; |
(iii) | are senior in right of payment to existing and future subordinated indebtedness of the Company and its subsidiary guarantors; |
(iv) | are 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 |
(v) | 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. |
The 20212024 Notes are guaranteed on a full, senior secured, joint and several basis by each of the Guarantor Subsidiaries.
The Company may redeem somethe 2024 Notes, in whole or all ofin 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 2021 Notesredemption date. At any time or from time to time prior to April 1, 2017, by paying a "make-whole" premium. TheSeptember 15, 2020, the Company may redeem somethe 2024 Notes, in whole or allin 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 2021 Notes on or after April 1, 2017, at specified redemption prices.date. In addition, prior to April 1, 2016, the Company may redeem up to
If the 2021 Notes (the "2021 Indenture").
The 2024 Notes were issued pursuant to an indenture dated as a result of certain change of control events and (ii)
Senior Notes due 2021
On September 23, 2019, the Company had full accesscalled all outstanding 4.875% Senior Notes due 2021 (the "2021 Notes") and discharged the 2021 Notes by irrevocably depositing with the 2021 Notes trustee sufficient funds to our Revolving Credit Facility (the "Credit Facility") during fiscal 2017,pay all principal and accrued interest through October 23, 2019. On October 23, 2019, the Company obtained approval from the holdersredeemed $375,000 principal amount of the 2021 Notes to amendwith the termsproceeds 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.
Senior Notes Duedue 2022
On June 3, 2014, the Company issued $300,000 principal amount of 5.250%5.25% Senior Notes due June 1, 2022 (the "2022 Notes"). The 2022 Notes were sold at 100% of principal amount and have an effective interest yield of 5.250%5.25%. Interest on the 2022
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 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.
64
Triumph Group, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
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.
Senior Subordinated Notes Due 2017
On November 16, 2009,August 17, 2017, the Company issued $175,000$500,000 principal amount of 8.00%7.75% Senior Subordinated Notes due 2017August 15, 2025 (the "2017"2025 Notes"). The 20172025 Notes were sold at 98.56%100% of principal amount and hadhave an effective interest yield of 8.25%7.75%. Interest on the 2017 Notes wasis payable semiannually in cash in arrears on MayFebruary 15 and NovemberAugust 15 of each year.year, commencing on February 15, 2018. In connection with the issuance of the 20172025 Notes, the Company incurred approximately $4,390$8,779 of costs, which were deferred and are being amortized on the effective interest method over the term of the 20172025 Notes.
The 2025 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 2025 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 2025 Notes prior to August 15, 2013,2020, by paying a "make-whole" premium. The Company may redeem some or all of the 2025 Notes on or after August 15, 2020, at specified redemption prices. In addition, prior to August 15, 2020, the Company completed the redemptionmay redeem up to 35% of the 2017 Notes. The2025 Notes with the net proceeds of certain equity offerings at a redemption price equal to 107.75% of the aggregate 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.
The Company is obligated to offer to repurchase the periods from January 1, 2011 through June 23, 2014,2025 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 Convertible Notes were eligible for conversion. Duringevent of certain asset sales. These restrictions and prohibitions are subject to certain qualifications and exceptions.
The 2025 Indenture contains covenants that, among other things, limit the fiscal year ended March 31, 2015,Company's ability and the Company settled the conversionability of
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 consolidated financial statements are as follows:
March 31, 2020 |
|
| March 31, 2019 |
| ||||||||||
Carrying Value |
|
| Fair Value |
|
| Carrying Value |
|
| Fair Value |
| ||||
$ | 1,807,507 |
|
| $ | 1,559,455 |
|
| $ | 1,488,821 |
|
| $ | 1,568,037 |
|
March 31, 2016 | March 31, 2015 | |||||||||||||
Carrying Value | Fair Value | Carrying Value | Fair Value | |||||||||||
$ | 1,417,320 | $ | 1,354,961 | $ | 1,368,600 | $ | 1,358,306 |
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 our existing debt (Level 2 inputs).
Interest paid on indebtedness during the
fiscal years ended March 31,As of March 31, 2016, 2015 and 2014
65
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, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Acquired contract liabilities, net |
| $ | 92,962 |
|
| $ | 184,612 |
|
Accrued warranties |
|
| 31,036 |
|
|
| 39,418 |
|
Accrued workers' compensation |
|
| 13,603 |
|
|
| 13,501 |
|
Noncurrent contract liabilities |
|
| 91,265 |
|
|
| 156,332 |
|
Operating lease liabilities |
|
| 54,687 |
|
|
| — |
|
Environmental contingencies |
|
| 18,060 |
|
|
| 16,040 |
|
Income tax reserves |
|
| 594 |
|
|
| 551 |
|
All other |
|
| 3,962 |
|
|
| 14,095 |
|
Total other noncurrent liabilities |
| $ | 306,169 |
|
| $ | 424,549 |
|
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 TAXES
The components of pretax (loss)loss from continuing operations before income taxes are as follows:
|
| Year ended March 31, |
| |||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Foreign |
| $ | 33,399 |
|
| $ | (18,336 | ) |
| $ | (57,673 | ) |
Domestic |
|
| (55,727 | ) |
|
| (308,857 | ) |
|
| (404,175 | ) |
|
| $ | (22,328 | ) |
| $ | (327,193 | ) |
| $ | (461,848 | ) |
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 |
The components of income tax (benefit) expense are as follows:
|
| Year ended March 31, |
| |||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
| $ | (654 | ) |
| $ | (1,253 | ) |
| $ | 1,130 |
|
State |
|
| 27 |
|
|
| 431 |
|
|
| 88 |
|
Foreign |
|
| 3,602 |
|
|
| 3,335 |
|
|
| 5,433 |
|
|
|
| 2,975 |
|
|
| 2,513 |
|
|
| 6,651 |
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
| 2,748 |
|
|
| (9,076 | ) |
|
| (44,262 | ) |
State |
|
| 73 |
|
|
| 1,593 |
|
|
| (14,672 | ) |
Foreign |
|
| 2 |
|
|
| (456 | ) |
|
| 15,826 |
|
|
|
| 2,823 |
|
|
| (7,939 | ) |
|
| (43,108 | ) |
|
| $ | 5,798 |
|
| $ | (5,426 | ) |
| $ | (36,457 | ) |
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 |
A reconciliation of the statutory federal income tax rate to the effective tax rate is as follows:
|
| Year ended March 31, |
| |||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Statutory federal income tax rate |
|
| 21.0 | % |
|
| 21.0 | % |
|
| 31.5 | % |
State and local income taxes, net of federal tax benefit |
|
| (12.1 | ) |
|
| 4.6 |
|
|
| 3.2 |
|
Goodwill impairment |
|
| (37.4 | ) |
|
| — |
|
|
| (29.6 | ) |
Disposition of business |
|
| — |
|
|
| 3.2 |
|
|
| (0.3 | ) |
Miscellaneous permanent items and nondeductible accruals |
|
| 3.9 |
|
|
| (1.2 | ) |
|
| (0.2 | ) |
Research and development tax credit |
|
| 30.4 |
|
|
| 3.3 |
|
|
| 3.2 |
|
Foreign tax credits |
|
| (24.1 | ) |
|
| (0.7 | ) |
|
| 1.2 |
|
Valuation allowance |
|
| 27.9 |
|
|
| (28.5 | ) |
|
| (3.4 | ) |
Tax reform and CARES |
|
| (12.3 | ) |
|
| 0.4 |
|
|
| 5.1 |
|
Global Intangible Low-Taxed Income |
|
| (20.4 | ) |
|
| (1.3 | ) |
|
| — |
|
Other (including foreign rate differential and FIN 48) |
|
| (2.8 | ) |
|
| 0.9 |
|
|
| (2.8 | ) |
Effective income tax rate |
|
| (26.0 | )% |
|
| 1.7 | % |
|
| 7.9 | % |
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 | % |
66
Triumph Group, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The components of deferred tax assets and liabilities are as follows:
|
| March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Deferred tax assets: |
|
|
|
|
|
|
|
|
Net operating loss and other credit carryforwards |
| $ | 318,341 |
|
| $ | 309,961 |
|
Inventory |
|
| 17,521 |
|
|
| 17,849 |
|
Accruals and reserves |
|
| 40,492 |
|
|
| 41,091 |
|
Interest carryforward |
|
| 38,383 |
|
|
| 24,457 |
|
Pension and other postretirement benefits |
|
| 152,048 |
|
|
| 126,337 |
|
Lease right-of-use assets |
|
| 11,495 |
|
|
| — |
|
Prepaid expenses and other |
|
| 241 |
|
|
| — |
|
Acquired contract liabilities, net |
|
| 21,771 |
|
|
| 45,479 |
|
|
|
| 600,292 |
|
|
| 565,174 |
|
Valuation allowance |
|
| (438,667 | ) |
|
| (399,013 | ) |
Net deferred tax assets |
|
| 161,625 |
|
|
| 166,161 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Deferred revenue |
|
| 38,458 |
|
|
| 27,159 |
|
Property and equipment |
|
| 34,939 |
|
|
| 46,538 |
|
Goodwill and other intangible assets |
|
| 80,740 |
|
|
| 93,272 |
|
Lease liabilities |
|
| 14,928 |
|
|
| — |
|
Prepaid expenses and other |
|
| — |
|
|
| 6,156 |
|
|
|
| 169,065 |
|
|
| 173,125 |
|
Net deferred tax liabilities |
| $ | 7,440 |
|
| $ | 6,964 |
|
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 |
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.
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.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 taxable
During fiscal year 2020, the Company adjusted the valuation allowance against the consolidated net deferred tax asset by $39,654 primarily due to an increase in fiscal 2016 were $155,774.
As of March 31, 2020, the Company has federal and state net operating loss carryforwards of
The effective income tax rate for the fiscal year ended March 31, 2016,2020, was
67
Triumph Group, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The Company has been granted income tax holiday as an incentive to attract foreign investment by the Government of Thailand. The tax holidays expire in various years through 2026. We do not have any other tax holidays in the jurisdictions in which we operate. The income tax benefit attributable to the tax status of our subsidiaries in Thailand was approximately
At March 31, 2016,2020, cumulative undistributed earnings of foreign subsidiaries, for which no U.S. income or foreign withholding taxes have been recorded is
On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) which is aimed at providing emergency assistance and health care for individuals, families, and businesses affected by the COVID-19 pandemic and generally supporting the U.S. economy. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss rules, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. Our income tax expense was increased by $2,747 due to certain provisions relating to net operating loss carryforward periods.
The Company has classified uncertain tax positions as noncurrent income tax liabilities unless expected to be paid in one year. Penalties and tax-related interest expense are reported as a component of income tax expense.
As of
March 31,As of
March 31,A reconciliation of the liability for uncertain tax positions, which are included in noncurrent liabilitiesdeferred taxes for the fiscal years ended
|
| Year ended March 31, |
| |||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Beginning balance |
| $ | 19,373 |
|
| $ | 11,759 |
|
| $ | 10,696 |
|
Adjustments for tax positions related to the current year |
|
| 1,057 |
|
|
| 7,364 |
|
|
| 1,032 |
|
Adjustments for tax positions of prior years |
|
| (1,303 | ) |
|
| 250 |
|
|
| 31 |
|
Ending balance |
| $ | 19,127 |
|
| $ | 19,373 |
|
| $ | 11,759 |
|
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 |
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 25, 2019. The Rights trade with Triumph’s common shares and will expire on March 13, 2022. 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 5% stockholder without meeting certain customary exceptions, the Rights become exercisable and entitle stockholders (other than the 5% 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 5% stockholder or group causing the Rights to become exercisable. Stockholders owning five percent 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 5% stockholder. The adoption of the Plan and the dividend distribution did not have an impact on our consolidated financial statements.
68
Triumph Group, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
In February 2014, the Company's Board of Directors authorized an increase in the Company's existing stock repurchase program by up to
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 $0.01 par value, 250,000 shares authorized. At March 31, 20162020 and 2015, zero2019, 0 shares of preferred stock were outstanding.
Accumulated Other Comprehensive Loss
Changes in accumulated other comprehensive loss ("AOCI") by component for the years ended March 31, 20162020 and 20152019, were as follows:
|
| Currency Translation Adjustment | Unrealized Gains and Losses on Derivative Instruments | Defined Benefit Pension Plans and Other Postretirement Benefits | Total (1) |
| ||||||||||
March 31, 2018 |
| $ | (58,683 | ) |
| $ | 122 |
|
| $ | (309,309 | ) |
| $ | (367,870 | ) |
AOCI before reclassifications |
|
| (15,770 | ) |
|
| 30 |
|
|
| (126,679 | ) |
|
| (142,419 | ) |
Amounts reclassified from AOCI | (3) |
| 25,847 |
|
|
| (1,282 | ) |
|
| (1,960 | ) | (2) |
| 22,605 |
|
Net current period OCI |
|
| 10,077 |
|
|
| (1,252 | ) |
|
| (128,639 | ) |
|
| (119,814 | ) |
March 31, 2019 |
|
| (48,606 | ) |
|
| (1,130 | ) |
|
| (437,948 | ) |
|
| (487,684 | ) |
AOCI before reclassifications |
|
| (13,439 | ) |
|
| (1,611 | ) |
|
| (210,142 | ) |
|
| (225,192 | ) |
Amounts reclassified from AOCI |
|
| — |
|
|
| (1,562 | ) |
|
| (4,990 | ) | (2) |
| (6,552 | ) |
Net current period OCI |
|
| (13,439 | ) |
|
| (3,173 | ) |
|
| (215,132 | ) |
|
| (231,744 | ) |
March 31, 2020 |
| $ | (62,045 | ) |
| $ | (4,303 | ) |
| $ | (653,080 | ) |
| $ | (719,428 | ) |
Currency Translation Adjustment | Unrealized Gains and Losses on Derivative Instruments | Defined Benefit Pension Plans and Other Postretirement Benefits | Total (1) | ||||||||||||
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. |
(2) | Includes amortization of actuarial losses and recognized prior service (credits) costs, which are included in the net periodic pension cost of which a portion is allocated to production as inventoried costs. |
(3) | Includes amounts transferred from cumulative translation adjustments as a result of the sale of Triumph Gear Systems – Toronto. |
14. LOSS PER SHARE
The following is a reconciliation between the weighted-averageweighted average common shares outstanding used in the calculation of basic and diluted earningsloss per share:
|
| Year ended March 31, |
| |||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
|
| (thousands) |
| |||||||||
Weighted average common shares outstanding—basic |
|
| 50,494 |
|
|
| 49,698 |
|
|
| 49,442 |
|
Net effect of dilutive stock options and non-vested stock(1) |
|
| — |
|
|
| — |
|
|
| — |
|
Weighted average common shares outstanding—diluted |
|
| 50,494 |
|
|
| 49,698 |
|
|
| 49,442 |
|
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 |
(1) | |
For the fiscal years ended March 31, 2020, 2019, and 2018, the shares that could potentially dilute earnings per 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. |
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.
The Company generally matches contributions up to69
Triumph Group, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
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 certain health care and life insurance benefits for eligible retired employees. Such benefits are unfunded as of
In accordance with ASC 715, the Company has recognized the funded status of the benefit obligation as of
March 31,The following table sets forth the Company's consolidated defined benefit pension plans for its union and non-union employees and its SERP as of
|
| Pension Benefits |
|
| Other Postretirement Benefits |
| ||||||||||
|
| Year ended March 31, |
|
| Year ended March 31, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Change in projected benefit obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at beginning of year |
| $ | 2,234,734 |
|
| $ | 2,277,816 |
|
| $ | 109,455 |
|
| $ | 119,164 |
|
Service cost |
|
| 2,336 |
|
|
| 3,292 |
|
|
| 62 |
|
|
| 227 |
|
Interest cost |
|
| 68,446 |
|
|
| 79,446 |
|
|
| 1,559 |
|
|
| 4,039 |
|
Actuarial loss (gain) |
|
| 138,652 |
|
|
| 48,931 |
|
|
| 3,472 |
|
|
| (2,576 | ) |
Plan amendments |
|
| 4,898 |
|
|
| 1,138 |
|
|
| (99,080 | ) |
|
| — |
|
Curtailments |
|
| 22,732 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Divestitures |
|
| (55,354 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Participant contributions |
|
| 204 |
|
|
| 196 |
|
|
| 252 |
|
|
| 833 |
|
Settlements |
|
| (14,579 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Special termination benefits |
|
| 11,642 |
|
|
| 4,032 |
|
|
| — |
|
|
| — |
|
Benefits paid |
|
| (156,084 | ) |
|
| (176,398 | ) |
|
| (8,570 | ) |
|
| (12,232 | ) |
Currency translation adjustment |
|
| (2,642 | ) |
|
| (3,719 | ) |
|
| — |
|
|
| — |
|
Projected benefit obligation at end of year |
| $ | 2,254,985 |
|
| $ | 2,234,734 |
|
| $ | 7,150 |
|
| $ | 109,455 |
|
Accumulated benefit obligation at end of year |
| $ | 2,252,126 |
|
| $ | 2,229,188 |
|
| $ | 7,150 |
|
| $ | 109,455 |
|
Assumptions used to determine benefit obligations at end of year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
| 2.47 - 3.32% |
|
| 2.54 - 3.88% |
|
|
| 3.00 | % |
|
| 3.77 | % | ||
Rate of compensation increase |
| 3.50 - 4.50% |
|
| 3.50 - 4.50% |
|
| N/A |
|
| N/A |
|
70
Triumph Group, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
|
| Pension Benefits |
|
| Other Postretirement Benefits |
| ||||||||||
|
| Year ended March 31, |
|
| Year ended March 31, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Change in fair value of plan assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year |
| $ | 1,796,111 |
|
| $ | 1,903,901 |
|
| $ | — |
|
| $ | — |
|
Actual return on plan assets |
|
| (20,869 | ) |
|
| 67,753 |
|
|
| — |
|
|
| — |
|
Settlements |
|
| (14,579 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Participant contributions |
|
| 204 |
|
|
| 196 |
|
|
| 252 |
|
|
| 833 |
|
Divestitures |
|
| (55,354 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Company contributions |
|
| 51,372 |
|
|
| 4,580 |
|
|
| 8,319 |
|
|
| 11,399 |
|
Benefits paid |
|
| (156,084 | ) |
|
| (176,398 | ) |
|
| (8,571 | ) |
|
| (12,232 | ) |
Currency translation adjustment |
|
| (2,756 | ) |
|
| (3,921 | ) |
|
| — |
|
|
| — |
|
Fair value of plan assets at end of year |
| $ | 1,598,045 |
|
| $ | 1,796,111 |
|
| $ | — |
|
| $ | — |
|
Funded status (underfunded) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status |
| $ | (656,940 | ) |
| $ | (438,623 | ) |
| $ | (7,150 | ) |
| $ | (109,455 | ) |
Reconciliation of amounts recognized on the consolidated balance sheets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension asset—noncurrent |
| $ | 1,503 |
|
| $ | 3,900 |
|
| $ | — |
|
| $ | — |
|
Accrued benefit liability—current |
|
| (753 | ) |
|
| (742 | ) |
|
| (4,775 | ) |
|
| (10,758 | ) |
Accrued benefit liability—noncurrent |
|
| (657,690 | ) |
|
| (441,781 | ) |
|
| (2,375 | ) |
|
| (98,697 | ) |
Net amount recognized |
| $ | (656,940 | ) |
| $ | (438,623 | ) |
| $ | (7,150 | ) |
| $ | (109,455 | ) |
Reconciliation of amounts recognized in accumulated other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service credits |
| $ | 5,595 |
|
| $ | 780 |
|
| $ | (59,214 | ) |
| $ | (14,497 | ) |
Actuarial losses (gains) |
|
| 926,893 |
|
|
| 682,226 |
|
|
| (58,151 | ) |
|
| (67,985 | ) |
Income tax (benefits) expenses related to above items |
|
| (204,594 | ) |
|
| (204,594 | ) |
|
| 42,016 |
|
|
| 42,016 |
|
Unamortized benefit plan costs (gains) |
| $ | 727,894 |
|
| $ | 478,412 |
|
| $ | (75,349 | ) |
| $ | (40,466 | ) |
Pension Benefits | Other Postretirement 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 |
Pension Benefits | Other Postretirement 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 | ) |
The components of net periodic benefit cost for
fiscal years ended March 31,
|
| Pension Benefits |
|
| Other Postretirement Benefits |
| ||||||||||||||||||
|
| Year Ended March 31, |
|
| Year Ended March 31, |
| ||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2018 |
| ||||||
Components of net periodic pension cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
| $ | 2,336 |
|
| $ | 3,292 |
|
| $ | 4,505 |
|
| $ | 62 |
|
| $ | 227 |
|
| $ | 391 |
|
Interest cost |
|
| 68,446 |
|
|
| 79,446 |
|
|
| 75,189 |
|
|
| 1,559 |
|
|
| 4,039 |
|
|
| 4,393 |
|
Expected return on plan assets |
|
| (141,329 | ) |
|
| (147,411 | ) |
|
| (152,346 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Amortization of prior service credit cost |
|
| (874 | ) |
|
| (3,619 | ) |
|
| (2,841 | ) |
|
| (4,872 | ) |
|
| (4,655 | ) |
|
| (8,537 | ) |
Amortization of net loss |
|
| 27,199 |
|
|
| 16,822 |
|
|
| 13,905 |
|
|
| (6,361 | ) |
|
| (9,851 | ) |
|
| (7,275 | ) |
Curtailment loss (gain) |
|
| 23,690 |
|
|
| — |
|
|
| 29 |
|
|
| (49,491 | ) |
|
| — |
|
|
| (26,274 | ) |
Settlements |
|
| 28,452 |
|
|
| — |
|
|
| 523 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Special termination benefits |
|
| 11,642 |
|
|
| 4,032 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total net periodic benefit (income) expense |
| $ | 19,562 |
|
| $ | (47,438 | ) |
| $ | (61,036 | ) |
| $ | (59,103 | ) |
| $ | (10,240 | ) |
| $ | (37,302 | ) |
Assumptions used to determine net periodic pension cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
| 2.54 - 3.88% |
|
| 2.65 - 4.01% |
|
| 2.87 - 4.06% |
|
| 2.68 - 3.77% |
|
|
| 3.93 | % |
| 3.62 - 3.93% |
| |||||
Expected long-term rate of return on plan assets |
| 5.00 - 8.00% |
|
| 5.00 - 8.00% |
|
| 6.50 - 8.00% |
|
| N/A |
|
| N/A |
|
| N/A |
| ||||||
Rate of compensation increase |
| 3.50 - 4.50% |
|
| 3.50 - 4.50% |
|
| 3.50 - 4.50% |
|
| N/A |
|
| N/A |
|
| N/A |
|
Pension Benefits | Other Postretirement 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 |
71
Triumph Group, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
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 plan assets, which is a smoothed asset value. The market-related value of assets 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% of the greater of the projected benefit obligation or market-related value of assets.
The Company changed 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.
During the fiscal year ended March 31, 2015,2020, the Society of Actuaries released new base mortality tables that reflect increased life expectancy for participants of U.S. pension plans.and an updated projection scale. The Company has reflected these new tables, along with an updated projection scale of mortality improvements,releases in the measurement of our U.S. pension and other postretirement benefitOPEB plans as of March 31, 2015.2020. This change resulted in an increasea decrease in the benefit obligation.
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.
The following summarizes the key events whose effects on net periodic benefit cost and obligations are included in the tables above:
• | As disclosed in Note 3, in March 2020, the Company transferred approximately $55,354 of pension assets and liabilities to the buyer of its Nashville manufacturing operations. The divestiture transaction and resulting transfer resulted in a settlement charge of approximately $28,452 and a curtailment charge of approximately $214. These amounts are included in non-service defined benefit income on the consolidated statements of operations for the year ended March 31, 2020. |
• | In September 2019, the Company and the union which represents a portion of the workforce at the Company’s Grand Prairie, TX, facility, in conjunction with an announced shutdown of this facility, agreed to changes to the pension and retiree welfare plans for represented plan members. 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 are effective with the ratification of the agreement. This agreement 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. |
• | In August 2019, the Company and the union which represents a portion of the workforce at the Company’s Nashville, TN, facility agreed to changes to the pension and retiree welfare plans for represented plan members. Effective January 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 are effective on February 1, 2020, and the union also agreed to increased pension benefits which are effective with the ratification of the agreement. This agreement resulted in a decrease of the projected OPEB benefit obligation of $34,731. It also resulted in a one-time OPEB curtailment gain of $8,363. The agreed-to pension benefit increases resulted in an increase of the projected pension benefit obligation of $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. |
72
Triumph Group, Inc.
Notes to the other postretirement benefits plan, for which participants will no longer receive a benefit after the fiscal year ended March 31, 2016. This change resulted in the termination of the plan and as a result, the plan's liability was eliminated as of March 31, 2016 and the Company recognized a credit of approximately $2,297. Additionally, the agreement includes an amendment to the pension plan, under which participants will no longer continue to accrue a benefit after 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 Financial Statements of Operations within "Curtailments, settlements and early retirement incentives."
(Dollars in thousands, except per share data)
• | In February 2019, the Company transferred its Global 7500 wing manufacturing operations to Bombardier. In conjunction with this transaction, the Company provided special termination pension benefits to certain pension participants who transferred employment from Triumph to Bombardier. This change resulted in the recognition of a charge of $4,032 for special termination benefits. The special termination benefits charge is included in non-service defined benefit income on the consolidated statements of operations for the year ended March 31, 2019. |
• | In March 2018, the Company ratified a new collective bargaining agreement with a group of union-represented employees, who were working without an agreement. The agreement resulted in plan amendments for one of our pension plans and our postretirement welfare benefit plan. These amendments eliminated future service under the plans and generated curtailments, which accelerated $11,146 of prior service credits for the postretirement welfare benefits plan and accelerates $29 of prior service costs for the pension plan. These amounts are included in non-service defined benefit income on the consolidated statements of operations for the year ended March 31, 2018. |
• | In November 2017, the Company announced an amendment to the postretirement welfare benefits plan for its non-represented employee participants. Effective January 1, 2018, the Company eliminated and reduced certain welfare benefits for non-represented retirees and active participants. Those changes resulted in a decrease in the OPEB obligation of $17,652 and a curtailment gain of $15,099 included in non-service defined benefit income on the consolidated statements of operations for the year ended March 31, 2018. |
The following table shows those amounts expected to be recognized in net periodic benefit costs during the fiscal year ending March 31, 2017:2021:
|
| Pension Benefits |
|
| Other Postretirement Benefits |
| ||
Amounts expected to be recognized in FY 2021 net periodic benefit costs |
|
|
|
|
|
|
|
|
Prior service credit |
| $ | 974 |
|
| $ | (5,105 | ) |
Actuarial loss |
| $ | 32,899 |
|
| $ | (4,766 | ) |
Pension Benefits | Other Postretirement Benefits | ||||||
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 |
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 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
Year |
| Pension Benefits |
|
| Other Postretirement Benefits* |
| ||
2021 |
| $ | 200,097 |
|
| $ | 4,824 |
|
2022 |
|
| 163,389 |
|
|
| 813 |
|
2023 |
|
| 159,963 |
|
|
| 182 |
|
2024 |
|
| 155,123 |
|
|
| 171 |
|
2025 |
|
| 150,985 |
|
|
| 162 |
|
2026 – 2030 |
|
| 690,383 |
|
|
| 666 |
|
* | Net of expected Medicare Part D subsidies of $400 and $70 in the years ended March 31, 2021 and 2022, respectively. |
Year | Pension Benefits | Other Postretirement Benefits* | |||||
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 |
Plan Assets, Investment Policy and Strategy
The table below sets forth the Company's target asset allocation for fiscal 20162020 and the actual asset allocations at
|
|
|
| Actual Allocation |
| |||||
|
| Target Allocation |
| March 31, |
| |||||
Asset Category |
| Fiscal 2020 |
| 2020 |
|
| 2019 |
| ||
Equity securities |
| 40% - 50% |
|
| 42 | % |
|
| 45 | % |
Fixed income securities |
| 40% - 50% |
|
| 50 |
|
|
| 48 |
|
Alternative investment funds |
| 0% - 10% |
|
| 6 |
|
|
| 5 |
|
Other |
| 0% - 5% |
|
| 2 |
|
|
| 2 |
|
Total |
|
|
|
| 100 | % |
|
| 100 | % |
Actual Allocation | |||||||
Target Allocation | |||||||
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 | % |
73
Triumph Group, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
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.
The tables below provide the fair values of the Company's plan assets at
March 31,
| March 31, 2020 |
| ||||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 35,110 |
|
| $ | — |
|
| $ | — |
|
| $ | 35,110 |
|
Equity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International |
|
| 155,389 |
|
|
| — |
|
|
| — |
|
|
| 155,389 |
|
U.S. equity |
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
U.S. commingled fund |
|
| 400,131 |
|
|
| — |
|
|
| — |
|
|
| 400,131 |
|
International commingled fund |
|
| 34,014 |
|
|
| — |
|
|
| — |
|
|
| 34,014 |
|
Fixed income securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds |
|
| — |
|
|
| 23,672 |
|
|
| — |
|
|
| 23,672 |
|
Government securities |
|
| — |
|
|
| 93,677 |
|
|
| — |
|
|
| 93,677 |
|
U.S. commingled fund |
|
| 605,487 |
|
|
| — |
|
|
| — |
|
|
| 605,487 |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance contracts |
|
| — |
|
|
| — |
|
|
| 910 |
|
|
| 910 |
|
Total investment in securities—assets |
| $ | 1,230,133 |
|
| $ | 117,349 |
|
| $ | 910 |
|
| $ | 1,348,392 |
|
U.S. equity commingled fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 8,180 |
|
International equity commingled fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 67,101 |
|
U.S. fixed income commingled fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 73,838 |
|
International fixed income commingled fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,380 |
|
Government securities commingled fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 8,333 |
|
Private equity and infrastructure |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 89,797 |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,534 |
|
Total investment measured at NAV as a practical expedient |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 250,163 |
|
Receivables |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3,292 |
|
Payables |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (3,802 | ) |
Total plan assets |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 1,598,045 |
|
74
Triumph Group, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
|
| March 31, 2019 |
| |||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 25,798 |
|
| $ | 6,189 |
|
| $ | — |
|
| $ | 31,987 |
|
Equity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International |
|
| 161,132 |
|
|
| — |
|
|
| — |
|
|
| 161,132 |
|
U.S. equity |
|
| 8,464 |
|
|
| — |
|
|
| — |
|
|
| 8,464 |
|
U.S. commingled fund |
|
| 489,463 |
|
|
| — |
|
|
| — |
|
|
| 489,463 |
|
International commingled fund |
|
| 39,797 |
|
|
| — |
|
|
| — |
|
|
| 39,797 |
|
Fixed income securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds |
|
| — |
|
|
| 24,942 |
|
|
| — |
|
|
| 24,942 |
|
Government securities |
|
| — |
|
|
| 109,306 |
|
|
| — |
|
|
| 109,306 |
|
U.S. commingled fund |
|
| 654,269 |
|
|
| — |
|
|
| — |
|
|
| 654,269 |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance contracts |
|
| — |
|
|
| — |
|
|
| 1,021 |
|
|
| 1,021 |
|
Total investment in securities—assets |
| $ | 1,378,923 |
|
| $ | 140,437 |
|
| $ | 1,021 |
|
| $ | 1,520,381 |
|
U.S. equity commingled fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 4,690 |
|
International equity commingled fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 96,867 |
|
U.S. fixed income commingled fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 76,766 |
|
Private equity and infrastructure |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 95,760 |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,693 |
|
Total investment measured at NAV as a practical expedient |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 275,776 |
|
Receivables |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,238 |
|
Payables |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1,284 | ) |
Total plan assets |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 1,796,111 |
|
March 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 |
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 |
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. All other
Investments in commingled investment 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.
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 private equity and infrastructure funds and insurance contracts. Investments in private equity and infrastructure funds are carried at estimated fair value 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 valuations of the underlying investments derived using inputs such as cost, operating results, discounted future cash flows, and market-based comparable data.
March 31, 2015, Balance | Acquisitions | Net Purchases (Sales) | Net Realized Appreciation (Depreciation) | Net Unrealized Appreciation (Depreciation) | 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 | Net Purchases (Sales) | Net Realized Appreciation (Depreciation) | Net Unrealized Appreciation (Depreciation) | 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 Sensitivities
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.
75
Triumph Group, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The effect of a 25 basis-point change in discount rates as of March 31, 2016,2020, is shown below:
|
| Pension Benefits |
|
| Other Postretirement Benefits |
| ||
Increase of 25 basis points |
|
|
|
|
|
|
|
|
Obligation | * | $ | (56,208 | ) |
| $ | (44 | ) |
Net periodic expense |
|
| 104 |
|
|
| (144 | ) |
Decrease of 25 basis points |
|
|
|
|
|
|
|
|
Obligation | * | $ | 58,058 |
|
| $ | 46 |
|
Net periodic expense |
|
| (235 | ) |
|
| 149 |
|
* | Excludes impact to plan assets due to the LDI investment approach discussed above under "Plan Assets, Investment Policy and Strategy." |
Pension Benefits | Other Postretirement 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 |
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 20116, the expected long-term rate of return on assets was 6.50 - 8.25%. For fiscal 2017,2021, the expected long-term rate of return is 6.50 5.00%- 8.00%.
Other Postretirement Benefits | |||||||
One-Percentage- Point Increase | One-Percentage- Point Decrease | ||||||
Net periodic expense | $ | 515 | $ | (439 | ) | ||
Obligation | 7,698 | (6,943 | ) |
Anticipated Contributions to Defined Benefit and Postretirement Welfare Benefit Plans
The Company does not expect to contribute to its qualified U.S. defined benefit pension plans during fiscal 2021. The Company expects to contribute
16.STOCK COMPENSATION PLANS
The Company has stock incentive plans under which employees and non-employee directors may be granted optionsequity awards to purchaseacquire shares of the Company's common stock at the fair value at the time of the grant. Employee optionsThe stock incentive and compensation plans under which outstanding equity awards have been granted to employees, officers and non-employee director optionsdirectors are fully vestedthe 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 of
Management and the compensation committee have utilized restricted stock and restricted stock units as its primary form of share-based incentive.incentive compensation. The restricted sharesstock and restricted stock units are subject to graded vesting, generally over a three year period and are subject to forfeiture should the grantee's employment be terminated prior to the third or fourth anniversary of the date of grant,an applicable vesting date. 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's restricted stock plans is determined by the product of the number of shares granted and the grant date market price of the Company's common stock. CertainThe fair value of theseshare-based compensation granted to employees was $13,249, $15,911, and $18,122 during the fiscal years ended March 31, 2020, 2019, and 2018, respectively. The awards contain service conditions and may also contain performance or market conditions in addition to service conditions.that affect the number of shares that vest. The fair value of restricted sharesstock and restricted stock unit awards is expensed on a straight-line basis over the requisite service period of three or four years.
Options | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term (in Years) | Aggregate Intrinsic Value | |||||||||
Outstanding at March 31, 2015 | 3,936 | $ | 15.37 | |||||||||
Exercised | — | — | ||||||||||
Forfeited | (3,936 | ) | 15.37 | |||||||||
Outstanding at March 31, 2016 | — | $ | — | 0 | $ | — |
76
Triumph Group, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
At
March 31,
|
| Shares |
|
| Weighted- Average Grant Date Fair Value |
| ||
Non-vested restricted awards and deferred stock units at March 31, 2019 |
|
| 1,081,379 |
|
| $ | 26.01 |
|
Granted |
|
| 598,879 |
|
|
| 22.12 |
|
Vested |
|
| (282,330 | ) |
|
| 24.98 |
|
Forfeited |
|
| (238,298 | ) |
|
| 22.18 |
|
Non-vested restricted awards and deferred stock units at March 31, 2020 |
|
| 1,159,630 |
|
| $ | 24.40 |
|
Shares | Weighted- Average Grant Date Fair Value | |||||
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 |
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
March 31,Some raw materials and operating supplies are subject to price and supply fluctuations caused by market dynamics. The Company's strategic sourcing initiatives seek to find ways of mitigating the inflationary pressures of the marketplace. 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 20172021 and after that, experience increases that are in line with inflation. Additionally, the Company generally does not employ forward contracts or other financial instruments to hedge commodity price risk.
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.
In the ordinary course of business, the Company is 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 no
77
Triumph Group, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
18.RESTRUCTURING COSTS
The Company committed to avarious restructuring ofplans involving certain of its businesses, as well as the consolidation of certain of its facilities ("2016 Restructuring Plan"). The Company expectsover the past several years. With the exception of certain consolidations to reduce its footprint by approximately 3.5 million square feet and to reduce head count by 1,200 employees. Over 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 resultbe completed in future cash outlays. For the fiscal year endedyears, these plans were substantially complete as of March 31, 2016, the Company recorded charges of $80,956 related to this program including, accelerated depreciation of $22,392 and severance of $16,300.
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 |
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 |
19. CUSTOMER CONCENTRATION
Trade 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.
Sales to Boeing for
fiscalSales to Gulfstream for
fiscalNo other single customer accounted for more than
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.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. If any of these industries experiences a downturn, clients in these sectors may conduct less business with the Company.
20. COLLECTIVE BARGAINING AGREEMENTS
Approximately
During the fiscal year ended March 31, 2018, the Company ratified a collective bargaining agreement with ourits union employees with United Autoworkers of America and its Local Union 848 at its Red Oak, Texas, facility.
During the fiscal year ended March 31, 2019, the Company ratified a collective bargaining agreement with its union employees with United Autoworkers of America and its Local Union 952 at its Tulsa, Oklahoma facility. Also occurring during the fiscal year ended March 31, 2019, the Stuart Florida facility production and maintenance employees elected the United Autoworkers of America, Local #2505, to represent them in collective bargaining with the Company. As of the March 31, 2020, the union and the Company have not reached an agreement.
During the fiscal year ended March 31, 2020, effects and closure agreements were made for the Tulsa, Oklahoma, and Grand Prairie, Texas, locations. In addition, the Company and leadership of Aero Lodge No.735 of the International Association of Machinists and Aerospace Workers ("IAM"(“IAM”) District 751 at our Spokane, Washington facility has expired. Asagreed to negotiate a Memorandum of May 11, 2016,Agreement to sunset the workforce in Spokane of approximately 400 employees has electedretiree medical plans. Both the Company and the IAM leadership full endorsed this agreement, and local IAM members voted to strike. While we are currently in negotiations with the workforce, we have implemented plansratify it on August 10, 2019.
78
Triumph Group, Inc.
Notes to continue production in Spokane with support from other locations.
(Dollars in thousands, except per share data)
21.SEGMENTS
The Company reports financial performance based on the following
Segment Adjusted 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 $67,037 for the fiscal year ended March 31, 2016.
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, 2020 |
| |||||||||||||
|
| Total |
|
| Corporate & Eliminations |
|
| Systems & Support |
|
| Aerospace Structures |
| ||||
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 income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDAP |
|
| 305,784 |
|
|
| — |
|
|
| 205,352 |
|
|
| 100,432 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of segment profit to income (loss) before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
| 41,894 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Union represented employee incentives |
|
| (7,071 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
Legal judgment gain, net |
|
| 9,257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of goodwill |
|
| (66,121 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
| (22,328 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures |
| $ | 39,834 |
|
| $ | 1,502 |
|
| $ | 17,141 |
|
| $ | 21,191 |
|
Total assets |
| $ | 2,980,333 |
|
| $ | 481,162 |
|
| $ | 1,478,679 |
|
| $ | 1,020,492 |
|
79
Triumph Group, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
|
| Year Ended March 31, 2019 |
| |||||||||||||
|
| Total |
|
| Corporate & Eliminations |
|
| Systems & Support |
|
| Aerospace Structures |
| ||||
Net sales to external customers |
| $ | 3,364,930 |
|
| $ | — |
|
| $ | 1,309,474 |
|
| $ | 2,055,456 |
|
Intersegment sales (eliminated in consolidation) |
|
| — |
|
|
| (22,485 | ) |
|
| 15,537 |
|
|
| 6,948 |
|
Segment profit and reconciliation to consolidated income before income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDAP |
|
| 215,418 |
|
|
| — |
|
|
| 202,346 |
|
|
| 13,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of segment profit to income (loss) before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| (149,904 | ) |
|
| (3,100 | ) |
|
| (35,373 | ) |
|
| (111,431 | ) |
Interest expense and other, net |
|
| (114,619 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
Corporate expenses |
|
| (74,706 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense |
|
| (10,259 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
Loss on sale of assets and businesses |
|
| (235,301 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of acquired contract liabilities |
|
| 67,314 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-service defined benefit income |
|
| 62,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on adoption of ASU 2017-07 |
|
| (87,241 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
| (327,193 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures |
| $ | 47,099 |
|
| $ | 784 |
|
| $ | 15,734 |
|
| $ | 30,581 |
|
Total assets |
| $ | 2,854,574 |
|
| $ | 110,372 |
|
| $ | 1,487,163 |
|
| $ | 1,257,039 |
|
|
| Year Ended March 31, 2018 |
| |||||||||||||
|
| Total |
|
| Corporate & Eliminations |
|
| Systems & Support |
|
| Aerospace Structures |
| ||||
Net sales to external customers |
| $ | 3,198,951 |
|
| $ | — |
|
| $ | 1,253,640 |
|
| $ | 1,945,311 |
|
Intersegment sales (eliminated in consolidation) |
|
| — |
|
|
| (23,286 | ) |
|
| 13,868 |
|
|
| 9,418 |
|
Segment profit and reconciliation to consolidated income before income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDAP |
|
| 229,534 |
|
|
| — |
|
|
| 235,540 |
|
|
| (6,006 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of segment profit to income (loss) before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| (158,368 | ) |
|
| (1,852 | ) |
|
| (42,730 | ) |
|
| (113,786 | ) |
Interest expense and other, net |
|
| (99,442 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
Corporate expenses |
|
| (88,037 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense |
|
| (7,949 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
Loss on sale of assets and businesses |
|
| (30,741 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of acquired contract liabilities |
|
| 125,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-service defined benefit income |
|
| 103,234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of goodwill |
|
| (535,227 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
| (461,848 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures |
| $ | 42,050 |
|
| $ | 4,179 |
|
| $ | 8,352 |
|
| $ | 29,519 |
|
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 |
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 |
During
fiscal years ended March 31,80
Triumph Group, Inc. (the "Parent"), the Guarantor Subsidiaries, and the Non-Guarantor Subsidiaries. Such financial statements include balance sheets as of
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
March 31, 2016 | |||||||||||||||||||
Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated Total | |||||||||||||||
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 |
22. QUARTERLY FINANCIAL STATEMENTS (Continued)INFORMATION (UNAUDITED)
|
| Fiscal 2020 |
|
| Fiscal 2019 |
| ||||||||||||||||||||||||||
|
| June 30 |
|
| Sept. 30 |
|
| Dec. 31 |
|
| Mar. 31 |
|
| June 30 |
|
| Sept. 30 |
|
| Dec. 31 |
|
| Mar. 31 |
| ||||||||
BUSINESS SEGMENT SALES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Systems & Support |
| $ | 313,605 |
|
| $ | 352,969 |
|
| $ | 338,924 |
|
| $ | 352,066 |
|
| $ | 306,632 |
|
| $ | 332,562 |
|
| $ | 323,619 |
|
| $ | 362,198 |
|
Aerospace Structures |
|
| 419,178 |
|
|
| 422,579 |
|
|
| 368,972 |
|
|
| 345,158 |
|
|
| 532,387 |
|
|
| 528,366 |
|
|
| 490,337 |
|
|
| 511,314 |
|
Inter-segment Elimination |
|
| (2,552 | ) |
|
| (3,438 | ) |
|
| (3,230 | ) |
|
| (4,114 | ) |
|
| (6,119 | ) |
|
| (5,820 | ) |
|
| (6,061 | ) |
|
| (4,485 | ) |
TOTAL SALES |
| $ | 730,231 |
|
| $ | 772,110 |
|
| $ | 704,666 |
|
| $ | 693,110 |
|
| $ | 832,900 |
|
| $ | 855,108 |
|
| $ | 807,895 |
|
| $ | 869,027 |
|
GROSS PROFIT (1) |
| $ | 119,461 |
|
| $ | 131,456 |
|
| $ | 142,200 |
|
| $ | 116,085 |
|
| $ | 38,742 |
|
| $ | 107,357 |
|
| $ | 72,007 |
|
| $ | 131,239 |
|
OPERATING INCOME (LOSS) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Systems & Support |
| $ | 44,048 |
|
| $ | 62,337 |
|
| $ | 57,434 |
|
| $ | (22,478 | ) |
| $ | 43,078 |
|
| $ | 51,380 |
|
| $ | 51,368 |
|
| $ | 55,270 |
|
Aerospace Structures |
|
| 12,283 |
|
|
| 13,608 |
|
|
| 18,039 |
|
|
| (2,066 | ) |
|
| (79,587 | ) |
|
| (22,744 | ) |
|
| (49,813 | ) |
|
| (264 | ) |
Corporate |
|
| (20,820 | ) |
|
| (14,908 | ) |
|
| (73,812 | ) |
|
| (15,758 | ) |
|
| (30,039 | ) |
|
| (30,637 | ) |
|
| (18,488 | ) |
|
| (244,203 | ) |
TOTAL OPERATING INCOME (LOSS) |
| $ | 35,511 |
|
| $ | 61,037 |
|
| $ | 1,661 |
|
| $ | (40,302 | ) |
| $ | (66,548 | ) |
| $ | (2,001 | ) |
| $ | (16,933 | ) |
| $ | (189,197 | ) |
NET LOSS |
| $ | 18,088 |
|
| $ | 42,701 |
|
| $ | (13,846 | ) |
| $ | (75,069 | ) |
| $ | (76,534 | ) |
| $ | (14,676 | ) |
| $ | (30,945 | ) |
| $ | (199,612 | ) |
Basic Income (Loss) per share |
| $ | 0.36 |
|
| $ | 0.85 |
|
| $ | (0.27 | ) |
| $ | (1.45 | ) |
| $ | (1.54 | ) |
| $ | (0.30 | ) |
| $ | (0.62 | ) |
| $ | (4.01 | ) |
Diluted Income (Loss) per share |
| $ | 0.36 |
|
| $ | 0.85 |
|
| $ | (0.27 | ) |
| $ | (1.45 | ) |
| $ | (1.54 | ) |
| $ | (0.30 | ) |
| $ | (0.62 | ) |
| $ | (4.01 | ) |
March 31, 2015 | |||||||||||||||||||
Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated Total | |||||||||||||||
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 |
Fiscal year ended March 31, 2016 | |||||||||||||||||||
Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated Total | |||||||||||||||
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 | ) |
Fiscal year ended March 31, 2015 | |||||||||||||||||||
Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated Total | |||||||||||||||
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 |
Fiscal year ended March 31, 2014 | |||||||||||||||||||
Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated Total | |||||||||||||||
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 |
Fiscal year ended March 31, 2016 | |||||||||||||||||||
Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated Total | |||||||||||||||
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 |
Fiscal year ended March 31, 2015 | |||||||||||||||||||
Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated Total | |||||||||||||||
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 |
Fiscal year ended March 31, 2014 | |||||||||||||||||||
Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated Total | |||||||||||||||
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 |
* | |
Fiscal 2016 | Fiscal 2015 | ||||||||||||||||||||||||||||||
June 30 | Sept. 30 | Dec. 31 (7) | Mar. 31 (8) | June 30 (3) (4) | Sept. 30 | Dec. 31 (5) (6) | 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 | |||||||||||||||
GROSS PROFIT (1) | $ | 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 | ||||||||||||
Diluted Earnings (Loss) per share (2) | $ | 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) | |
Includes impairment of |
TRIUMPH GROUP, INC.
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
|
| Balance at beginning of year |
|
| Additions charged to (income) expense |
|
| Other (1) |
|
| Balance at end of year |
| ||||
For year ended March 31, 2020: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets valuation allowance |
| $ | 399,013 |
|
|
| (3,474 | ) |
|
| 43,128 |
|
| $ | 438,667 |
|
For year ended March 31, 2019: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets valuation allowance |
| $ | 146,770 |
|
|
| 93,311 |
|
|
| 158,932 |
|
| $ | 399,013 |
|
For year ended March 31, 2018: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets valuation allowance |
| $ | 141,214 |
|
|
| 6,885 |
|
|
| (1,329 | ) |
| $ | 146,770 |
|
Balance at beginning of year | Additions charged to expense | Additions(1) | (Deductions)(2) | Balance at end of year | |||||||||||||
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) | |
Adjustments relate to changes in defined benefit pension plan and other |
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
March 31,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:
(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. |
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
March 31,Triumph's independent registered public accounting firm, Ernst & Young LLP, has audited Triumph's effectiveness of Triumph's internal control over financial reporting. This report appears on the following page.
/s/ Daniel J. Crowley | |
Daniel J. Crowley President, Chief Executive Officer and Director | |
/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 27, 2016
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.'s’s internal control over financial reporting as of
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, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, stockholders’ (deficit) equity and cash flows for each of the three years in the period ended March 31, 2020, and the related notes and financial statement schedule listed in the Index at Item 15(a) and our report dated May 28, 2020, 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 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.
We conducted our audit in accordance with the standards of the 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.
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 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.
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 28, 2020
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.
86
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 2020 Proxy Statement for our
Delinquent Section 16(a) Beneficial Ownership Reporting Compliance
The information required regarding Section 16(a) beneficial ownership reporting compliance is incorporated herein by reference to the
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
Item 13. Certain Relationships and Related Transactions and Director Independence
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 2020 Proxy Statement.
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 |
44 | |
45 | |
46 | |
47 | |
48 | |
49 | |
| 85 |
(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 Consolidated Financial Statements or notes thereto.
(3) The following is a list of exhibits. Where so indicated, 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 | Second Supplemental Indenture dated as of May 18, 2016 by and among Triumph Group, Inc., the guarantors signatory thereto and U.S. Bank National Association, as trustee, relating to the 4.875% Senior Notes due 2021 | # | # | # | # | ||
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 | Triumph Group, Inc. 2004 Stock Incentive Plan* | 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-K | 001-12235 | 4.8 | May 23, 2019 | ||
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 | ||
8-K | 001-12235 | 10.1 | March 1, 2013 | ||
8-K | 001-12235 | 10.1 | November 25, 2013 | ||
8-K | 001-12235 | 10.2 | November 25, 2013 | ||
Triumph Group, Inc. 2013 Equity and Cash Incentive Plan, as amended and restated as of June 7, 2017* | 8-K | 001-12235 | 99.1 | June 12, 2017 | |
10-K | 001-12235 | 10.24 | May 19, 2014 | ||
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 | ||||
10.4 | 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. | # | # | # | # |
Exhibit Number | Exhibit Description | Incorporated by Reference to | |||
|
| Form | File No. | Exhibit(s) | Filing Date |
Triumph Group, Inc. Executive Change in Control Severance Plan, effective February 19, 2019* | 10-K | 001-12235 | 10.33.1 | May 23, 2019 | |
Eleventh Amendment to the Third Amended and Restated Credit Agreement, dated September 23, 2019 | 10-Q | 001-12235 | 10.1 | November 7, 2019 | |
Twelfth Amendment to the Third Amended and Restated Credit Agreement, dated May 22, 2020 | # | # | # | # | |
8-K | 001-12235 | 10.1 | December 9, 2019 | ||
Employment Letter between Triumph Group, Inc. and Jennifer Allen, dated August 14, 2018 | # | # | # | # | |
# | # | # | # | ||
Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm | # | # | # | # | |
# | # | # | # | ||
# | # | # | # | ||
## | ## | ## | ## | ||
## | ## | ## | ## | ||
# | # | # | # | ||
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.
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 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.
President, Chief Executive Officer and Director | May 28, 2020 | |||
/s/ Daniel J. Crowley | (Principal Executive Officer) | |||
Daniel J. Crowley | ||||
Senior Vice President and Chief Financial Officer | May 28, 2020 | |||
/s/ James F. McCabe, Jr. | (Principal Financial Officer) | |||
James F. McCabe, Jr. | ||||
Vice President, Investor Relations and Controller | May 28, 2020 | |||
/s/ Thomas A. Quigley III | (Principal Accounting Officer) | |||
Thomas A. Quigley III | ||||
/s/ Ralph E. Eberhart | Chairman and Director | May | ||
Ralph E. Eberhart | ||||
/s/ Paul Bourgon | Director | May | ||
Paul Bourgon | ||||
/s/ Daniel P. Garton | Director | May 28, 2020 | ||
Daniel P. Garton | ||||
/s/ Richard | Director | May | ||
Richard | ||||
/s/ Barbara Humpton | Director | May 28, 2020 | ||
Barbara Humpton | ||||
/s/ William L. Mansfield | Director | May | ||
William L. Mansfield | ||||
/s/ Adam J. Palmer | Director | May | ||
Adam J. Palmer | ||||
/s/ Colleen C. Repplier | Director | May 28, 2020 | ||
Colleen C. Repplier | ||||
/s/ Larry O. Spencer | Director | May 28, 2020 | ||
Larry O. Spencer | ||||
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 | ||
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 | Second Supplemental Indenture dated as of May 18, 2016 by and among Triumph Group, Inc., the guarantors signatory thereto and U.S. Bank National Association, as trustee, relating to the 4.875% Senior Notes due 2021 | # | # | # | # | ||
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 | Triumph Group, Inc. 2004 Stock Incentive Plan* | 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 | 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. | # | # | # | # |
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