Table of Contents

United States

Securities and Exchange Commission

Washington, D.C. 20549


FORM10-Q



ý

☒

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934


For the Quarterly Period EndedDecember 31, 2017


2021

or


¨Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

☐

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition Period From _________ to ________


Commission File Number:1-12235


TRIUMPH GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware51-0347963

Delaware

51-0347963

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)


899 Cassatt Road, Suite 210, Berwyn, PA

19312

(Address of principal executive offices)

(Zip Code)


(610)

(610)251-1000

(Registrant's telephone number, including area code)


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

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. YesS☒ No £


☐

Indicate by check mark whether the registrant has submitted electronically and has 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). YesS☒ No £

☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Securities Exchange Act of 1934. (Check one)

Large accelerated filerx

☐

Accelerated filero

☒

Non-accelerated filero (Do not check if a smaller reporting company)

☐

Smaller reporting companyo

☐

Emerging growth companyo

☐

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. o

☐

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 o☐ No x

☒

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

The number of outstanding shares of the Registrant's Common Stock, par value $0.001$.001 per share, 49,672,041 shares outstanding ason February 7, 2022, was 64,630,111.

Table of February 6, 2018.


Contents

TRIUMPH GROUP, INC.

INDEX

TABLE OF CONTENTS

Page

Number

Part I. Financial Information

Item 1.

Financial Statements (Unaudited)

Condensed ConsolidatedConsolidated Balance Sheets at December 31, 20172021 and March 31, 2017

2021

1

Condensed Consolidated Statements of Operations

- Three and nine months ended December 31, 20172021 and 2016
2020

2

Condensed Consolidated Statements of Comprehensive Income
(Loss) - Three and nine months ended December 31, 20172021 and 2016

2020

3

Condensed Consolidated Statements of Stockholders' Deficit - Three and nine months ended December 31, 2021 and 2020

4

Condensed Consolidated Statements of Cash Flows

Flows - Nine months ended December 31, 20172021 and 2016
2020

4

8

Notes to Condensed Consolidated Financial Statements -December 31, 2017

2021

5

9

Item 2.

Management's Discussion and Analysis of Financial
Condition and Results of Operations

34

27

Item 3.

Quantitative and Qualitative Disclosures About
Market Risk

54

42

Item 4.

Controls and Procedures

54

42

Part II. Other Information

43

Item 1.

Legal Proceedings

43

Item 1.1A.

Risk Factors

Legal Proceedings
55

43

Item 1A.
Risk Factors
55

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

55

43

Item 3.

DefaultDefaults Upon Senior Securities

55

43

Item 4.

Mine Safety Disclosures

55

43

Item 5.

Other Information

43

Item 5.6.

Exhibits

Other Information
55

43

Signatures

Item 6.
Exhibits
56
Signatures
57

44



Part I. Financial Information

Item 1. Financial Statements.

Triumph Group, Inc.

TRIUMPH GROUP, INC.

Condensed Consolidated Balance Sheets

(unaudited)

(dollarsDollars in thousands, except per share data)

 December 31,
2017		 March 31,
2017
 (unaudited)  
ASSETS   
Current assets:   
Cash and cash equivalents$64,388
 $69,633
Trade and other receivables, less allowance for doubtful accounts of $4,028 and $4,559320,999
 311,792
Inventories, net of unliquidated progress payments of $409,040 and $222,4851,462,724
 1,340,175
Prepaid and other current assets43,500
 30,064
Assets held for sale—
 21,255
Total current assets1,891,611
 1,772,919
Property and equipment, net749,922
 805,030
Goodwill934,500
 1,142,605
Intangible assets, net520,820
 592,364
Other, net89,079
 101,682
Total assets$4,185,932
 $4,414,600
LIABILITIES AND STOCKHOLDERS’ EQUITY   
Current liabilities:   
Current portion of long-term debt$15,135
 $160,630
Accounts payable387,081
 481,243
Accrued expenses627,411
 674,379
Liabilities related to assets held for sale—
 18,008
Total current liabilities1,029,627
 1,334,260
Long-term debt, less current portion1,359,476
 1,035,670
Accrued pension and other postretirement benefits509,641
 592,134
Deferred income taxes41,969
 68,107
Other noncurrent liabilities496,705
 537,956
Stockholders’ equity:   
Common stock, $.001 par value, 100,000,000 shares authorized, 52,460,920 and 52,460,920 shares issued; 49,662,507 and 49,573,029 shares outstanding51
 51
Capital in excess of par value849,806
 846,807
Treasury stock, at cost, 2,798,413 and 2,887,891 shares(179,692) (183,696)
Accumulated other comprehensive loss(374,624) (396,178)
Retained earnings452,973
 579,489
Total stockholders’ equity748,514
 846,473
Total liabilities and stockholders’ equity$4,185,932
 $4,414,600

SEE ACCOMPANYING NOTES.

 

 

December 31,

 

 

March 31,

 

 

 

2021

 

 

2021

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

206,139

 

 

$

589,882

 

Trade and other receivables, less allowance for credit losses
   of $7,785 and $8,095

 

 

158,871

 

 

 

194,066

 

Contract assets

 

 

150,755

 

 

 

134,638

 

Inventory, net

 

 

394,532

 

 

 

400,366

 

Prepaid expenses and other current assets

 

 

14,922

 

 

 

19,206

 

Assets held for sale

 

 

3,029

 

 

 

216,276

 

Total current assets

 

 

928,248

 

 

 

1,554,434

 

Property and equipment, net

 

 

178,663

 

 

 

211,369

 

Goodwill

 

 

515,773

 

 

 

521,638

 

Intangible assets, net

 

 

87,679

 

 

 

102,453

 

Other, net

 

 

42,176

 

 

 

61,041

 

Total assets

 

$

1,752,539

 

 

$

2,450,935

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Current portion of long-term debt

 

$

3,534

 

 

$

5,247

 

Accounts payable

 

 

168,894

 

 

 

179,473

 

Contract liabilities

 

 

160,982

 

 

 

204,379

 

Accrued expenses

 

 

229,750

 

 

 

271,160

 

Liabilities related to assets held for sale

 

 

—

 

 

 

58,108

 

Total current liabilities

 

 

563,160

 

 

 

718,367

 

Long-term debt, less current portion

 

 

1,584,989

 

 

 

1,952,296

 

Accrued pension and other postretirement benefits

 

 

322,874

 

 

 

384,256

 

Deferred income taxes

 

 

7,426

 

 

 

7,491

 

Other noncurrent liabilities

 

 

86,128

 

 

 

207,378

 

Stockholders' deficit:

 

 

 

 

 

 

Common stock, $.001 par value, 100,000,000 shares authorized, 64,613,402
   and 64,488,674 shares issued; 64,613,232 and 64,185,001
   shares outstanding

 

 

65

 

 

 

64

 

Capital in excess of par value

 

 

970,787

 

 

 

978,272

 

Treasury stock, at cost, 170 and 303,673 shares

 

 

(10

)

 

 

(12,606

)

Accumulated other comprehensive loss

 

 

(496,306

)

 

 

(530,192

)

Accumulated deficit

 

 

(1,286,574

)

 

 

(1,254,391

)

Total stockholders' deficit

 

 

(812,038

)

 

 

(818,853

)

Total liabilities and stockholders' deficit

 

$

1,752,539

 

 

$

2,450,935

 

See accompanying notes to condensed consolidated financial statements.

1


Table of Contents

Triumph Group, Inc.

TRIUMPH GROUP, INC.

Condensed Consolidated Statements of Operations

(unaudited)

(Dollars in thousands, except per share data)

(unaudited)

 Three Months Ended December 31, Nine Months Ended December 31,
 2017 2016 2017 2016
        
Net sales$775,246
 $844,863
 $2,302,091
 $2,612,885
Operating costs and expenses:       
Cost of sales (exclusive of depreciation and amortization shown separately below)612,206
 653,199
 1,821,513
 2,052,900
Selling, general and administrative62,147
 66,750
 213,934
 205,222
Depreciation and amortization39,320
 44,331
 119,318
 135,080
Impairment of intangible assets190,227
 —
 190,227
 —
Restructuring costs6,149
 11,067
 33,751
 28,180
Loss on divestitures—
 14,350
 20,371
 19,124
Curtailment and settlement gain, net(15,099) —
 (14,576) —
 894,950
 789,697
 2,384,538
 2,440,506
Operating (loss) income(119,704) 55,166
 (82,447) 172,379
Interest expense and other25,836
 19,698
 72,229
 55,721
(Loss) income before income taxes(145,540) 35,468
 (154,676) 116,658
Income tax (benefit) expense(32,288) 6,136
 (34,115) 32,786
Net (loss) income$(113,252) $29,332
 $(120,561) $83,872
        
(Loss) earnings per share—basic:$(2.29) $0.59
 $(2.44) $1.70
        
Weighted-average common shares outstanding—basic49,459
 49,329
 49,425
 49,294
        
(Loss) earnings per share—diluted:$(2.29) $0.59
 $(2.44) $1.70
        
Weighted-average common shares outstanding—diluted49,459
 49,440
 49,425
 49,421
        
Dividends declared and paid per common share$0.04
 $0.04
 $0.12
 $0.12


SEE ACCOMPANYING NOTES.

 

 

Three Months Ended December 31,

 

 

Nine Months Ended December 31,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net sales

 

$

319,249

 

 

$

425,994

 

 

$

1,073,291

 

 

$

1,402,886

 

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales (exclusive of depreciation shown separately below)

 

 

232,328

 

 

 

340,753

 

 

 

788,341

 

 

 

1,116,668

 

Selling, general and administrative

 

 

42,416

 

 

 

48,747

 

 

 

152,775

 

 

 

162,189

 

Depreciation and amortization

 

 

11,659

 

 

 

22,119

 

 

 

40,035

 

 

 

72,819

 

Impairment of long-lived assets

 

 

—

 

 

 

—

 

 

 

—

 

 

 

252,382

 

Restructuring

 

 

4,649

 

 

 

4,071

 

 

 

13,031

 

 

 

32,747

 

Loss on sale of assets and businesses

 

 

—

 

 

 

45,273

 

 

 

13,629

 

 

 

46,020

 

 

 

 

291,052

 

 

 

460,963

 

 

 

1,007,811

 

 

 

1,682,825

 

Operating income (loss)

 

 

28,197

 

 

 

(34,969

)

 

 

65,480

 

 

 

(279,939

)

Non-service defined benefit income

 

 

(14,400

)

 

 

(12,432

)

 

 

(23,127

)

 

 

(37,275

)

Debt extinguishment loss

 

 

1,935

 

 

 

—

 

 

 

11,624

 

 

 

—

 

Interest expense and other, net

 

 

32,319

 

 

 

44,881

 

 

 

105,060

 

 

 

132,344

 

Income (loss) from continuing operations before income taxes

 

 

8,343

 

 

 

(67,418

)

 

 

(28,077

)

 

 

(375,008

)

Income tax expense

 

 

1,105

 

 

 

698

 

 

 

4,106

 

 

 

2,383

 

Net income (loss)

 

$

7,238

 

 

$

(68,116

)

 

$

(32,183

)

 

$

(377,391

)

Earnings (loss) per share—basic:

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

0.11

 

 

$

(1.30

)

 

$

(0.50

)

 

$

(7.24

)

Weighted average common shares outstanding—basic

 

 

64,621

 

 

 

52,488

 

 

 

64,486

 

 

 

52,126

 

Earnings (loss) per share—diluted:

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

0.11

 

 

$

(1.30

)

 

$

(0.50

)

 

$

(7.24

)

Weighted average common shares outstanding—diluted

 

 

65,096

 

 

 

52,488

 

 

 

64,486

 

 

 

52,126

 

See accompanying notes to condensed consolidated financial statements.

2


Table of Contents

Triumph Group, Inc.

TRIUMPH GROUP, INC.

Condensed Consolidated Statements of Comprehensive Income

(Loss)

(unaudited)

(dollarsDollars in thousands)

(unaudited)

  Three Months Ended December 31, Nine Months Ended December 31,
  2017 2016 2017 2016
         
Net (loss) income $(113,252) $29,332
 $(120,561) $83,872
Other comprehensive income (loss):        
Foreign currency translation adjustment (1,824) (15,066) 19,502
 (36,684)
Defined benefit pension plans and other postretirement benefits:        
Amounts arising during the period - gains (losses), net of tax (expense) benefit:        
Prior service loss —
 —
 523
 —
Actuarial gain, net of taxes of $0 23,378
 —
 23,378
 —
Reclassifications from accumulated other comprehensive income - losses (gains), net of tax expense (benefits):        
Amortization of net loss, net of taxes of $0 and ($489) for the three months ended and $0 and ($1,466) for the nine months ended, respectively 1,690
 834
 5,080
 2,507
Recognized prior service credits, net of taxes of $0 and $1,408 for the three months ended and $0 and $4,225 for the nine months ended, respectively (17,833) (2,407) (23,917) (7,226)
Total defined benefit pension plans and other postretirement benefits, net of taxes 7,235
 (1,573) 5,064
 (4,719)
Cash flow hedges:        
Unrealized (loss) gain arising during period, net of tax of $0 and ($1,047) for the three months ended and $9 and ($1,285) for the nine months ended, respectively (816) 1,726
 (835) 2,100
Reclassification of (loss) gain included in net earnings, net of tax of $0 and ($3) for the three months ended and $21 and $2 for the nine months ended, respectively 203
 5
 (2,177) (6)
Net unrealized (loss) gain on cash flow hedges, net of tax (613) 1,731
 (3,012) 2,094
Total other comprehensive income (loss) 4,798
 (14,908) 21,554
 (39,309)
Total comprehensive (loss) income $(108,454) $14,424
 $(99,007) $44,563

SEE ACCOMPANYING NOTES.

 

 

Three Months Ended December 31,

 

 

Nine Months Ended December 31,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net income (loss)

 

$

7,238

 

 

$

(68,116

)

 

$

(32,183

)

 

$

(377,391

)

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(776

)

 

 

12,637

 

 

 

(3,719

)

 

 

20,838

 

Defined benefit pension plans and other postretirement benefits:

 

 

 

 

 

 

 

 

 

 

 

 

Amounts arising during the period - net of tax expense

 

 

 

 

 

 

 

 

 

 

 

 

Actuarial gain, net of taxes of $0, $0, $0, and $0, respectively

 

 

—

 

 

 

—

 

 

 

10,440

 

 

 

—

 

Reclassification to net income (loss) - net of expense

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of net loss, net of taxes of $0, $0, $0, and $0, respectively

 

 

8,514

 

 

 

5,298

 

 

 

25,525

 

 

 

15,894

 

Recognized prior service (credits) cost, net of taxes of $0, $0, $0, and $0, respectively

 

 

(1,250

)

 

 

(1,033

)

 

 

3,134

 

 

 

(3,099

)

Total defined benefit pension plans and other postretirement benefits, net of taxes

 

 

7,264

 

 

 

4,265

 

 

 

39,099

 

 

 

12,795

 

Cash flow hedges:

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) arising during the period, net of tax expense of $0, $0, $0, and $0, respectively

 

 

662

 

 

 

1,878

 

 

 

(2,670

)

 

 

8,308

 

Reclassification of (loss) gain included in net earnings, net of tax expense of $0, $0, $0, and $0, respectively

 

 

(251

)

 

 

437

 

 

 

1,176

 

 

 

(1,662

)

Net unrealized gain (loss) on cash flow hedges, net of tax

 

 

411

 

 

 

2,315

 

 

 

(1,494

)

 

 

6,646

 

Total other comprehensive income

 

 

6,899

 

 

 

19,217

 

 

 

33,886

 

 

 

40,279

 

Total comprehensive income (loss)

 

$

14,137

 

 

$

(48,899

)

 

$

1,703

 

 

$

(337,112

)

See accompanying notes to condensed consolidated financial statements.

3


Table

TRIUMPH GROUP, INC.

Condensed Consolidated Statements of Contents


Triumph Group, Inc.
Stockholders' Deficit

For the three and nine months ended December 31, 2021

(unaudited)

(Dollars in thousands)

 

 

Outstanding
Shares

 

Common
Stock
All Classes

 

Capital in
Excess of
Par Value

 

Treasury
Stock

 

Accumulated
Other
Comprehensive
Loss

 

Accumulated
Deficit

 

Total

March 31,
2021

 

64,185,001

 

$64

 

$978,272

 

$(12,606)

 

$(530,192)

 

$(1,254,391)

 

$(818,853)

Net loss

 

                           —

 

                      —

 

                      —

 

                      —

 

                      —

 

              (30,351)

 

              (30,351)

Foreign currency translation
   adjustment

 

                           —

 

                      —

 

                      —

 

                      —

 

2,749

 

                      —

 

2,749

Pension liability adjustment, net of
   income taxes of $0

 

                           —

 

                      —

 

                      —

 

                      —

 

20,629

 

                      —

 

20,629

Change in fair value of foreign
   currency hedges, net of income
   taxes of $0

 

                           —

 

                      —

 

                      —

 

                      —

 

                   (706)

 

                      —

 

                   (706)

Share-based compensation

 

355,821

 

                      —

 

              (11,505)

 

13,975

 

                      —

 

                      —

 

2,470

Repurchase of shares for share-based
   compensation minimum tax
   obligation

 

                  (116,796)

 

                      —

 

                      —

 

                (2,336)

 

                      —

 

                      —

 

                (2,336)

Employee stock purchase plan

 

9,794

 

                      —

 

                   (235)

 

407

 

                      —

 

                      —

 

172

June 30, 2021

 

64,433,820

 

$64

 

$966,532

 

$(560)

 

$(507,520)

 

$(1,284,742)

 

$(826,226)

Net loss

 

                           —

 

                      —

 

                      —

 

                      —

 

                      —

 

                (9,070)

 

                (9,070)

Foreign currency translation
   adjustment

 

                           —

 

                      —

 

                      —

 

                      —

 

                (5,692)

 

                      —

 

                (5,692)

Pension liability adjustment, net of
   income taxes of $0

 

                           —

 

                      —

 

                      —

 

                      —

 

11,206

 

                      —

 

11,206

Change in fair value of foreign currency
   hedges, net of income taxes of $0

 

                           —

 

                      —

 

                      —

 

                      —

 

                (1,199)

 

                      —

 

                (1,199)

Share-based compensation

 

196,674

 

1

 

1,480

 

1,256

 

                      —

 

                      —

 

2,737

Repurchase of shares for share-based compensation
   minimum tax obligation

 

                   (36,824)

 

                      —

 

                      —

 

                   (782)

 

                      —

 

                      —

 

                   (782)

Employee stock purchase plan

 

7,683

 

                      —

 

78

 

79

 

                      —

 

                      —

 

157

September 30, 2021

 

64,601,353

 

$65

 

$968,090

 

$(7)

 

$(503,205)

 

$(1,293,812)

 

$(828,869)

Net income

 

                           —

 

                      —

 

                      —

 

                      —

 

                      —

 

7,238

 

7,238

4

Foreign currency translation
   adjustment

 

                           —

 

                      —

 

                      —

 

                      —

 

                   (776)

 

                      —

 

                   (776)

Pension liability adjustment, net of
   income taxes of $0

 

                           —

 

                      —

 

                      —

 

                      —

 

7,264

 

                      —

 

7,264

Change in fair value of foreign currency
   hedges, net of income taxes of $0

 

                           —

 

                      —

 

                      —

 

                      —

 

411

 

                      —

 

411

Share-based compensation

 

2,749

 

                      —

 

2,537

 

7

 

                      —

 

                      —

 

2,544

Repurchase of shares for share-based compensation
   minimum tax obligation

 

                        (855)

 

                      —

 

                      —

 

                    (17)

 

                      —

 

                      —

 

                    (17)

Employee stock purchase plan

 

9,985

 

                      —

 

160

 

7

 

                      —

 

                      —

 

167

December 31, 2021

 

64,613,232

 

$65

 

$970,787

 

$(10)

 

$(496,306)

 

$(1,286,574)

 

$(812,038)

5

TRIUMPH GROUP, INC.

Condensed Consolidated Statements of Stockholders' Deficit

For the three and nine months ended December 31, 2020

(unaudited)

(Dollars in thousands)

 

 

Outstanding
Shares

 

Common
Stock
All Classes

 

Capital in
Excess of
Par Value

 

Treasury
Stock

 

Accumulated
Other
Comprehensive
Loss

 

Accumulated
Deficit

 

Total

March 31, 2020

 

51,858,089

 

$52

 

$804,830

 

$(36,217)

 

$(746,448)

 

$(803,481)

 

$(781,264)

Net loss

 

                           —

 

                      —

 

                      —

 

                      —

 

                      —

 

            (275,786)

 

            (275,786)

Foreign currency translation
   adjustment

 

                           —

 

                      —

 

                      —

 

                      —

 

919

 

                      —

 

919

Pension liability adjustment, net of
   income taxes of $0

 

                           —

 

                      —

 

                      —

 

                      —

 

4,265

 

                      —

 

4,265

Change in fair value of foreign
   currency hedges, net of income
   taxes of $0

 

                           —

 

                      —

 

                      —

 

                      —

 

2,100

 

                      —

 

2,100

Share-based compensation

 

158,274

 

                      —

 

                (6,670)

 

9,291

 

                      —

 

                      —

 

2,621

Repurchase of shares for share-based
   compensation minimum tax
   obligation

 

                   (50,955)

 

                      —

 

                      —

 

                   (474)

 

                      —

 

                      —

 

                   (474)

Employee stock purchase plan

 

36,802

 

                      —

 

                (1,974)

 

2,212

 

                      —

 

                      —

 

238

June 30, 2020

 

52,002,210

 

$52

 

$796,186

 

$(25,188)

 

$(739,164)

 

$(1,079,267)

 

$(1,047,381)

Net loss

 

                           —

 

                      —

 

                      —

 

                      —

 

                      —

 

              (33,489)

 

              (33,489)

Foreign currency translation
   adjustment

 

                           —

 

                      —

 

                      —

 

                      —

 

7,282

 

                      —

 

7,282

Pension liability adjustment, net of
   income taxes of $0

 

                           —

 

                      —

 

                      —

 

                      —

 

4,265

 

                      —

 

4,265

Change in fair value of foreign currency
   hedges, net of income taxes of $0

 

                           —

 

                      —

 

                      —

 

                      —

 

2,231

 

                      —

 

2,231

Share-based compensation

 

54,313

 

                      —

 

                   (446)

 

2,982

 

                      —

 

                      —

 

2,536

Repurchase of shares for share-based compensation
   minimum tax obligation

 

                     (2,246)

 

                      —

 

                      —

 

                    (21)

 

                      —

 

                      —

 

                    (21)

6

Employee stock purchase plan

 

24,413

 

                      —

 

                (1,122)

 

1,341

 

                      —

 

                      —

 

219

September 30, 2020

 

52,078,690

 

$52

 

$794,619

 

$(20,886)

 

$(725,386)

 

$(1,112,756)

 

$(1,064,357)

Net loss

 

                           —

 

                      —

 

                      —

 

                      —

 

                      —

 

              (68,116)

 

              (68,116)

Foreign currency translation
   adjustment

 

                           —

 

                      —

 

                      —

 

                      —

 

12,637

 

                      —

 

12,637

Pension liability adjustment, net of
   income taxes of $0

 

                           —

 

                      —

 

                      —

 

                      —

 

4,265

 

                      —

 

4,265

Change in fair value of foreign currency
   hedges, net of income taxes of $0

 

                           —

 

                      —

 

                      —

 

                      —

 

2,315

 

                      —

 

2,315

Share-based compensation

 

31,967

 

                      —

 

2,457

 

1,158

 

                      —

 

                      —

 

3,615

Repurchase of shares for share-based compensation
   minimum tax obligation

 

                     (5,876)

 

                      —

 

                      —

 

                    (57)

 

                      —

 

                      —

 

                    (57)

Employee stock purchase plan

 

21,276

 

                      —

 

                (1,545)

 

1,748

 

                      —

 

                      —

 

203

Contribution of common stock to pension plan, net of issuance costs

 

2,849,002

 

3

 

39,662

 

                      —

 

                      —

 

                      —

 

39,665

December 31, 2020

 

54,975,059

 

$55

 

$835,193

 

$(18,037)

 

$(706,169)

 

$(1,180,872)

 

$(1,069,830)

See accompanying notes to condensed consolidated financial statements.

7

TRIUMPH GROUP, INC.

Condensed Consolidated Statements of Cash Flows

(dollarsDollars in thousands) (unaudited)

 Nine Months Ended December 31,
 2017 2016
    
Operating Activities   
Net (loss) income$(120,561) $83,872
Adjustments to reconcile net (loss) income to net cash used in operating activities:   
Depreciation and amortization119,318
 135,080
Impairment intangible assets190,227
 —
Amortization of acquired contract liabilities(91,862) (89,031)
Loss on divestiture20,371
 19,124
Curtailment and settlement gain, net(14,576) —
Other amortization included in interest expense9,791
 4,070
Provision for doubtful accounts receivable(365) 14
(Benefit) provision for deferred income taxes(24,432) 18,703
Employee stock-based compensation6,137
 6,140
Changes in assets and liabilities, excluding the effects of acquisitions and dispositions of businesses:   
Trade and other receivables(10,554) 102,915
Inventories(154,090) (323,389)
Prepaid expenses and other current assets(1,376) 15,876
Accounts payable and accrued expenses(53,208) (71,232)
Accrued pension and other postretirement benefits(67,368) (72,813)
Other(5,731) (1,980)
Net cash used in operating activities(198,279) (172,651)
Investing Activities   
Capital expenditures(31,932) (33,123)
Proceeds from sale of assets68,412
 23,185
Acquisitions, net of cash acquired—
 9
Net cash provided by (used in) investing activities36,480
 (9,929)
Financing Activities   
Net increase in revolving credit facility20,000
 316,121
Proceeds from issuance of long-term debt and capital leases531,500
 12,901
Repayment of debt and capital lease obligations(369,261) (95,744)
Payment of deferred financing costs(17,729) (14,012)
Dividends paid(5,956) (5,944)
Repayment of government grant—
 (14,570)
Repurchase of restricted shares for minimum tax obligation(369) (182)
Net cash provided by financing activities158,185
 198,570
Effect of exchange rate changes on cash(1,631) (1,513)
Net change in cash(5,245) 14,477
Cash and cash equivalents at beginning of period69,633
 20,984
Cash and cash equivalents at end of period$64,388
 $35,461

SEE ACCOMPANYING NOTES.

4

 

 

Nine Months Ended December 31,

 

 

 

2021

 

 

2020

 

Operating Activities

 

 

 

 

 

 

Net loss

 

$

(32,183

)

 

$

(377,391

)

Adjustments to reconcile net loss to net cash used in
   operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

40,035

 

 

 

72,819

 

Impairment of long-lived assets

 

 

—

 

 

 

252,382

 

Amortization of acquired contract liability

 

 

(3,645

)

 

 

(35,017

)

Loss on sale of assets and businesses

 

 

13,629

 

 

 

46,020

 

Curtailments, settlements, and special termination benefits loss, net

 

 

20,046

 

 

 

—

 

Other amortization included in interest expense

 

 

7,502

 

 

 

21,912

 

Provision for credit losses

 

 

247

 

 

 

4,890

 

Share-based compensation

 

 

7,664

 

 

 

9,086

 

Changes in other assets and liabilities, excluding the effects of
   acquisitions and divestitures:

 

 

 

 

 

 

Trade and other receivables

 

 

30,060

 

 

 

169,744

 

Contract assets

 

 

(7,538

)

 

 

55,170

 

Inventories

 

 

(5,165

)

 

 

(2,152

)

Prepaid expenses and other current assets

 

 

3,716

 

 

 

1,041

 

Accounts payable, accrued expenses, and contract liabilities

 

 

(201,476

)

 

 

(375,967

)

Accrued pension and other postretirement benefits

 

 

(42,195

)

 

 

(36,838

)

Other, net

 

 

(678

)

 

 

(1,570

)

Net cash used in operating activities

 

 

(169,981

)

 

 

(195,871

)

Investing Activities

 

 

 

 

 

 

Capital expenditures

 

 

(15,817

)

 

 

(18,988

)

Proceeds from sale of assets and businesses

 

 

220,550

 

 

 

2,380

 

Investment in joint venture

 

 

(2,101

)

 

 

—

 

Purchase of facility related to divested businesses

 

 

(21,550

)

 

 

—

 

Net cash provided by (used in) investing activities

 

 

181,082

 

 

 

(16,608

)

Financing Activities

 

 

 

 

 

 

Net decrease in revolving credit facility

 

 

—

 

 

 

(400,000

)

Proceeds from issuance of long-term debt

 

 

107

 

 

 

713,900

 

Retirement of debt and finance lease obligations

 

 

(379,021

)

 

 

(95,439

)

Payment of deferred financing costs

 

 

(400

)

 

 

(20,215

)

Premium on redemption of First Lien Notes

 

 

(9,108

)

 

 

—

 

Repurchase of shares for share-based compensation
   minimum tax obligation

 

 

(3,135

)

 

 

(552

)

Net cash (used in) provided by financing activities

 

 

(391,557

)

 

 

197,694

 

Effect of exchange rate changes on cash

 

 

(3,287

)

 

 

6,598

 

Net change in cash and cash equivalents

 

 

(383,743

)

 

 

(8,187

)

Cash and cash equivalents at beginning of period

 

 

589,882

 

 

 

485,463

 

Cash and cash equivalents at end of period

 

$

206,139

 

 

$

477,276

 

See accompanying notes to condensed consolidated financial statements.

8


Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollarsDollars in thousands, except per share data)

(unaudited)

1. BACKGROUND AND BASIS OF PRESENTATION AND ORGANIZATION


The accompanying unaudited condensed consolidated financial statements of Triumph Group, Inc. (the "Company"("Triumph") have been prepared in conformity with accounting principles generally accepted in the United States ("U.S. GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, the interim financial information includes all adjustments of a normal recurring nature necessary for a fair presentation of the results of operations, financial position, and cash flows. The results of operations for the three and nine months ended December 31, 20172021 and 2020, are not necessarily indicative of results that may be expected for the year ending March 31, 2018.2022. The accompanying condensed consolidated financial statements are unaudited and should be read in conjunction with the fiscal 20172021 audited condensed consolidated financial statements and notes thereto included in the Company's Form 10-K for the fiscal year ended March 31, 20172021, filed with the Securities and Exchange Commission (the "SEC") on May 24, 2017.


The Company20, 2021.

Triumph is a Delaware corporation that, through its operating subsidiaries, designs, engineers, manufactures, repairs and overhauls a broad portfolio of aerostructures, aircraft components, accessories, subassemblies and systems. The Company serves a broad, worldwide spectrum ofsells products for the aviation industry, includingglobal aerospace original equipment manufacturers ("OEMs") of commercial, regional, business and military aircraft and aircraft components as well asand repairs and overhauls aircraft components and accessories for commercial and regional airlines andairline, air cargo carriers.

Effective January 1, 2018,carrier, and military customers on a worldwide basis. Triumph and its subsidiaries (collectively, the "Company") are organized based on the products and services that they provide. The Company combined its Aerospace Structures and Precision Components reporting segments into one reporting segment, Aerospace Structures. Aerospace Structures and Precision Components share many of the same customers and suppliers and have substantial inter-company work on common programs. As a single operating segment, the Company believes it will be able to leverage their combined resources to make it more cost competitive and to enhance performance. The newly formed operating segment will also be ahas 2 reportable segment. As a result, effective January 1, 2018, the Company will have three reporting segments for future financial reporting purposes - Integratedsegments: Systems Product& Support and Aerospace Structures.
Standards Recently Implemented
In March 2016,

Systems & Support consists of the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09"). ASU 2016-09 identifies areas for simplification involving several aspectsCompany’s operations that provide integrated solutions, including design; development; and support of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur,proprietary components, subsystems and systems, as well as certain classifications onproduction of complex assemblies using external designs. Capabilities include hydraulic, mechanical and electromechanical actuation, power and control; a complete suite of aerospace gearbox solutions, including engine accessory gearboxes and helicopter transmissions; active and passive heat exchange technology; fuel pumps, fuel metering units, and Full Authority Digital Electronic Control fuel systems; and hydromechanical and electromechanical primary and secondary flight controls. Systems & Support also provides full life cycle solutions for commercial, regional, and military aircraft. The Company’s extensive product and service offerings include full post-delivery value chain services that simplify the statementmaintenance, repair, and overhaul (“MRO”) supply chain. Through its ground support equipment maintenance, component MRO, and post-production supply chain activities, Systems & Support is positioned to provide integrated planeside repair solutions globally. Capabilities include repair services for metallic and composite aircraft structures; nacelles; thrust reversers; interiors; auxiliary power units; and a wide variety of cash flows.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 adopted ASU 2016-09 effective April 1, 2017.performs related to repair and overhaul services are essentially the repair of wear parts or replacement of parts that are beyond economic repair. The adoptionrepair service generally involves remanufacturing a complete part or a component of ASU 2016-09 did not have a material impact onpart.

Aerospace Structures consists of the Company'sCompany’s operations that supply commercial, business, and regional manufacturers with large metallic and composite structures and aircraft interior systems, including air ducting and thermal acoustic insulations systems. Products include wings; wing boxes; fuselage panels; horizontal and vertical tails; subassemblies such as floor grids; and aircraft interior systems, including air ducting and thermal acoustic insulation systems. Aerospace Structures also has the capability to engineer detailed structural designs in metal and composites. Capabilities include advanced composite and interior structures, joining processes such as welding, and conventional mechanical fasteners.

The accompanying condensed consolidated financial statements.

Standards Issued Not Yet Implemented
In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”, “ASC 606”), which requires recognition of revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The FASB has issued several updates to ASU 2014-09 which must be adopted concurrently with ASU 2014-09.
Under ASC 606, revenue is recognized when control of promised goods or services transfers to a customer and is recognized in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. The major provisions include determining enforceable rights and obligation between parties, defining performance obligations as the units of accounting under contract, accounting for variable consideration, and determining whether performance obligations are satisfied over time or at a point of time. Additionally, ASC 606 requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.
ASC 606 will be effective for the Company beginning April 1, 2018. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (the “full retrospective method”), or retrospectively with the cumulative effect of initially applying ASC 606 recognized at the date of initial application (the "modified retrospective method”). The Company is adopting ASC 606 effective April 1, 2018 and the Company expects to do so using the modified retrospective method.

5

Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)

During the fiscal year ended March 31, 2016, we established a cross-functional team to assess and prepare for implementation of the new standard. We are analyzing the impact of the new standard on the Company’s revenue contracts, comparing our current accounting policies and practices to the requirements of the new standard, and identifying potential differences that would result from applying the new standard to our contracts, as well as any potential impacts.
While further analysis of ASC 606 and a review of all material contracts is underway, the adoption of ASC 606 will impact the amount and timing of revenue recognition and the accounting treatment of capitalized pre-production costs for certain of our contracts. Under ASC 606, the units-of-delivery method is no longer viable and some performance obligations may be satisfied over time which will change the timing of recognition of revenue and associated production costs for certain contracts.
ASC 606 is applied by analyzing each contract, or a combination of contracts, to determine if revenue is recognized over time or at a point in time. The Company has determined that some of its contracts will have performance obligations that are satisfied over time and some at a point in time based on when control of goods and services transfers to the customer.
For performance obligations that are satisfied over time, the Company will most likely use an input method as the basis for recognizing revenue. Input methods recognize revenue on the basis of an entity’s efforts or inputs toward satisfying a performance obligation (for example, resources consumed, labor hours expended, costs incurred, time lapsed, or machine hours used) relative to the total expected inputs to satisfy the performance obligation. Performance obligations that are not recognized over time will be recognized at a point in time.
ASC 606 requires the Company to record performance obligations for material rights granted to the customer when contracts offer the customer future purchase options at an incremental discount. The Company is evaluating whether performance obligations for material rights exist for certain contracts which may result in deferral of revenues attributable to such rights. When the material rights are identified, the revenue recognized under ASC 606 results in a different revenue recognition pattern when compared to the revenue recognized under legacy GAAP. However, the Company’s operating cash flows from our contracts with customers will not change. The Transition Adjustment willstatements include the establishmentaccounts of contract assetsTriumph and liabilities for billings that are lower than, or in excess of, revenue that hasits wholly-owned subsidiaries. Intercompany accounts and transactions have been recognized.
The adoption of ASC 606 will not changeeliminated from the Company's accounting method for forward losses. Forward losses relating to unfulfilled contracts and options will continue to be recorded consistent with historical accounting policies.
Under ASC 606, production costs are generally expensed as incurred and not deferred. Additionally, ASC 340-40 is to be applied if existing guidance is not applicable. The Company’s accounting for preproduction, tooling, and certain other costs is expected to continue under existing guidance since they generally do not fall within the scope of ASC 340-40. The Company typically does not incur costs for obtaining contracts that would be capitalized under ASC 340-40.
In March 2017, the FASB issued ASU No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (“ASU 2017-07”). ASU 2017-07 amends ASC 715, Compensation — Retirement Benefits, to require employers that present a measure of operating income in their statement of income to include only the service cost component of net periodic pension cost and net periodic postretirement benefit cost in operating expenses (together with other employee compensation costs). The other components of net benefit cost, including amortization of prior service cost/credit, and settlement and curtailment effects, are to be included in nonoperating expenses. Employers that do not present a measure of operating income are required to include the service cost component in the same line item as other employee compensation costs. Employers are required to include all other components of net benefit cost in a separate line item(s). The line item(s) in which the components of net benefit cost other than the service cost are included need to be identified as such on the income statement or in the disclosures. ASU 2017-07 also stipulates that only the service cost component of net benefit cost is eligible for capitalization. ASU 2017-07 is effective for reporting periods beginning after December 15, 2017, with early adoption permitted. The Company is currently performing its assessment of the impact of adopting the guidance; however based on its expectations for the fiscal year ending March 31, 2018, the Company believes it will likely have a material impact due to the reclassification of certain components of pension and OPEB income from capitalized costs (Operating Income) to Other Income. The Company will adopt the new standard on April 1, 2018. Upon adoption, the cumulative affect, approximately $130,000 to $150,000 will be recorded as a current period charge to earnings in our fiscal year ended March 31, 2019. Excluding the service costs, the net periodic pension benefit for the fiscal year ending March 31, 2018 is expected to be $67,000.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) ("ASU 2016-02"). This update requires recognition of lease assets and lease liabilities on the balance sheet of lessees. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 and interim reporting periods within those years. Early adoption is permitted. ASU 2016-02 requires a

6

Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)

modified retrospective transition approach and provides certain optional transition relief. The Company is currently evaluating the guidance to determine the impact it will have to the Company'saccompanying condensed consolidated financial statements.


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


Use of Estimates


The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Revenue Recognition


Revenues and Contract Balances

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

9

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, except per share data)

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 generally recognized in accordance withissued pursuant to the contract terms when products are shipped, delivery has occurred or services have been rendered, pricing is fixed and determinable, and collection is reasonably assured. A significant portionmaster supply agreements. Additionally, a majority of the Company’s contracts are withinagreements with customers include options for future purchases. Such options primarily reduce the scopeadministrative 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 Revenue Recognition - Construction-Typeterms and Production-Type Contracts topicconditions 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 Accounting Standards Codification ("ASC") 605-35business exchange, the specific contractual terms and conditions, the promised products and services, the termination provisions in the contract, as well as the nature and execution of the customer’s ordering process and how the Company is authorized to perform work. Generally, presently enforceable rights and obligations are not created until a purchase order is issued by a customer for a specified number of units of product or services. Therefore, the issuance of a purchase order is generally the point at which a contract is identified for accounting and financial reporting purposes.

Management identifies the promises to the customer. Promises are generally explicitly stated in each contract, but management also evaluates whether any promises are implied based on the terms of the agreement, past business practice, or other facts and circumstances. Each promise is evaluated to determine if it is a performance obligation. A performance obligation is a promise in a contract to transfer a distinct good or service. The Company considers a number of factors when determining whether a promise is a distinct performance obligation, including whether the customer can benefit from the good or service on its own or together with other resources that are readily available to the customer, whether the Company provides a significant service of integrating goods or services to deliver a combined output to the customer, or whether the goods or services are highly interdependent. The Company’s performance obligations consist of a wide range of engineering design services and manufactured components, as well as spare parts and repairs for OEMs.

The transaction price for a contract reflects the consideration the Company expects to receive for fully satisfying the performance obligations in the contract. Typically, the transaction price consists solely of fixed consideration but may include variable consideration for contractual provisions such as unpriced contract modifications, cost-sharing provisions, and other receipts or payments to customers. The Company identifies and estimates variable consideration, typically at the most likely amount the Company expects to receive from its customers. Variable consideration is only included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized for the contract will not occur, or when the uncertainty associated with the variable consideration is resolved. The Company's contracts with customers generally require payment under normal commercial terms after delivery with payment typically required within 30 to 120 days of delivery. However, a subset of the Company’s current contracts includes significant financing components because the timing of the transfer of the underlying products and services under contract are at the customers’ discretion. For these contracts, the Company adjusts the transaction price to reflect the effects of the time value of money.

The Company generally is not subject to collecting sales tax and has made an accounting policy election to exclude from the transaction price any sales and other similar taxes collected from customers. As a result, any such collections are accounted for on a net basis.

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 onare 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 percentage-of-completion methodcontinuous transfer of accounting. Accountingcontrol 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 revenue and profitCompany has no alternate use or for work performed on a contract requires estimates of (1) the contract value or total contractcustomer-owned asset.

10

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, except per share data)

With control transferring over time, revenue (2) the total costs at completion, which is equal to the sum of the actual incurred costs to daterecognized based on the contract and the estimated costs to complete the contract’s scope of work, and (3) the measurementextent of progress toward completion. Depending oncompletion of the contract, theperformance obligation. The Company measures progress toward completion using eithergenerally uses the cost-to-cost method or the units-of-deliveryinput method of accounting, withprogress for its contracts because it best depicts the great majority measured undertransfer of control to the units-of-delivery method of accounting.


customer that occurs as work progresses. Under the cost-to-cost method, the extent of accounting, progress toward completion is measured asbased on the ratioproportion of total costs incurred to estimated total costs at completion. Costs are recognized as incurred. Profit is determined based on estimated profit margin on the contract multiplied by the progress toward completion. Revenue represents the sum of costs and profit on the contract for the period.
Under the units-of-delivery method of accounting, revenue on a contract is recorded as the units are delivered and accepted during the period at an amount equaldate to the contractual selling price of those units. The costs recorded on a contract under the units-of-delivery method of accounting are equal to the total costs at completion divided by the total units to be delivered. As contracts can span multiple years, the Company often segments the contracts into production lots for the purposes of accumulating and allocating cost. Profit is recognized as the difference between revenue for the units delivered and the estimated costs for the units delivered.

Adjustments to original estimates for a contract’s revenues, estimated costs at completion of the performance obligation. The Company reviews its cost estimates on contracts on a periodic basis, or when circumstances change and estimated total profit are often required as work progresses underwarrant a contract, as experience is gained and as more information is obtained, even though the scope of work required under the contract may not change, or if contract modifications occur. Thesemodification to a previous estimate. Cost estimates are also sensitive to the assumed rate of production. Generally, the longer it takes to complete thelargely based on negotiated or estimated purchase contract quantity, the more relative overheadterms, historical performance trends, and other economic projections. Significant factors that contract will absorb. The impact of revisions ininfluence 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 isare 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 in which the revisions are made. Provisionscumulative 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 the period in which theyfull when such losses become evident, (‘‘forward losses’’)to the extent required, and are first offset against costs that are included in inventory, with any remaining amount reflected in accrued contract liabilities in accordance with the Revenue Recognition - Construction-Type and Production-Type Contracts topic. 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 the Revenue Recognition - Construction-Type and Production-Type Contracts topic.

During the quarter ended September 30, 2016, the Company discovered an immaterial error in its percentage-of-completion accounting for one of its contracts, which understated cost of sales and overstated net income for the three months ended June 30, 2016, in the amount of $11,800 and $8,142, respectively, and overstated retained earnings as of March 31, 2016 in the amount of $12,700. The Company assessed the materiality of this error on previously issued financial statements in accordance with the ASC 250, Presentation of Financial Statements, and Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. 99, Materiality. The Company concluded, based on a review of the quantitative and qualitative factors of the materiality of the amount, that the error was not material to any previously issued financial statements and that the correction of the error in the three months ended September 30, 2016 was not material to that period’s financial statements.

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Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)

Accordingly, in order to correct this immaterial error, the Company recorded a charge to "Cost of sales" in the amount of $24,500, which is presented on the accompanying Condensed Consolidated Statementscondensed 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 Income during the nine months ended December 31, 2016.
impacts of the COVID-19 pandemic; however, actual results could differ materially from those estimates.

For the three months ended December 31, 2017,2021, cumulative catch-up adjustments resulting from changes in estimates, inclusive of changes in forward loss estimates, increasedcontract values and estimated costs that arose during the fiscal year decreased net sales, operating income, net income, and earnings per diluted share by approximately $5,319, $4,255($1,791), ($4,599), ($4,599), and $0.09, net of tax,($0.07), respectively. For the three months ended December 31, 20162020, cumulative catch-up adjustments were balanced between positiveresulting from changes in estimates decreased revenue by approximately ($37) and negative variances.

decreased operating loss, net loss, and loss per share by approximately $3,688, $3,688, and $0.07, respectively.

For the nine months ended December 31, 2017,2021, cumulative catch-up adjustments resulting from changes in contract values and estimated costs that arose during the fiscal year increased net sales by approximately $5,340, and decreased operating loss, net loss, and loss per share by approximately $13,115, $13,115, and $0.20, respectively. For the nine months ended December 31, 2020, cumulative catch-up adjustments resulting from changes in estimates inclusive of changes in forwardincreased revenue by approximately $4,577, and decreased operating loss, estimates, increased operating income, net incomeloss, and earningsloss per share by approximately $11,97919,349, $9,58319,349, and $0.190.37, net of tax, respectively.

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 nine months ended December 31, 2016, cumulative catch-up adjustments from changesCompany evaluates the point in estimates decreased operating income, net income and earnings per share by approximately $(6,290), $(4,522) and $(0.09), net of tax, respectively.

Amounts representing contract change orders or claims are only included in revenuetime when such change orders or claims have been settled with 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 the extent that units have been delivered. Additionally, some contracts may contain provisions for revenue sharing, price re-determination, requests for equitable adjustments, change orders or cost and/orcustomers. Shipping and handling activities are not considered performance incentives. Such amounts or incentivesobligations 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 value when the amounts can be reliably estimatedassets and their realization is reasonably assured.

Although fixed-price contracts, which extendliabilities. Refer to Note 4 for further discussion.

In connection with several years into the future, generally permitprior acquisitions, the Company to keep unexpected profits if costs are less than projected,assumed existing long-term contracts. Based on review of these contracts at the acquisition date, the Company also bearsconcluded that the risk that increasedterms of certain contracts were either more or unexpected costs may reduce profit or cause the Company to sustain losses on the contract. In a fixed-price contract, the Company must fully absorb cost overruns, notwithstanding the difficulty of estimating allless favorable than could be realized in market transactions as of the costsdate of the Company will incur in performing these contracts and in projecting the ultimate level of revenue that may otherwise be achieved.

acquisition. As previously disclosed,a result, the Company recognized provisions for forward losses associated with our long-term contracts on the 747-8 and Bombardier programs. There is still risk similar to what the Company has experienced on the 747-8 and Bombardier programs. Particularly, the Company's ability to manage risks related to supplier performance, execution of cost reduction strategies, hiring and retaining skilled production and management personnel, quality and manufacturing execution, program schedule delays, potential need to negotiate facility lease extensions or alternatively relocate work and many other risks, will determine the ultimate performance of these programs.
Included inacquired contract liabilities, net sales of Integrated Systems, Aerospace Structures and Precision Components, is the non-cash amortization of acquired contract liabilities that were recognizedassets as fair value adjustments through purchase accounting from various acquisitions. Forof the three months ended December 31, 2017 and 2016, the Company recognized $34,492 and $29,206, respectively, into net sales on the accompanying Condensed Consolidated Statementsacquisition date of Income. For the nine months ended December 31, 2017 and 2016, the Company recognized $91,862 and $89,031, respectively, into net sales on the accompanying Condensed Consolidated Statements of Income.
Product Support provides repair and overhaul services, of which a small portion of services are provided under long-term power-by-the-hour contracts. The Company applies the proportional performance method of accounting to recognize revenue under these contracts. Revenue is recognized over the contract period as units are deliveredeach respective acquisition, based on the relativepresent 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 contracts that were initially executed several years prior to the respective acquisition. The Company measured these net liabilities in proportionthe year they were acquired under the measurement provisions of Accounting Standards Codification (“ASC”) 820, Fair Value Measurement, which is based on the price to transfer the obligation to a market participant at the measurement date, assuming that the net liabilities will remain outstanding in the marketplace. The portion of the Company's revenue resulting from transactions other than contracts with customers pertains to the amortization of these acquired contract liabilities as the related contractual performance obligations are satisfied. Adjustments to these liabilities due to significant changes in the total estimated contract consideration. In estimating the total contract consideration, management evaluates the projected utilization of its customers’ fleet over the termcosts of the contract are accounted for in connectiona manner consistent with the related estimated repair and overhaul servicing requirements to the fleet based onother loss contract reserves, with such utilization. Changesadjustments recognized in utilizationcost of the fleet by customers, among other factors, may have an impact on these estimates and require adjustments to estimates of revenue to be realized.sales.

Concentration of Credit Risk

The Company’s trade and other accounts receivable are exposed to credit risk. However, the risk is limited due to the diversity of the customer base and the customer base’s wide geographical area. Trade accounts receivable from The Boeing Company ("Boeing") (representing commercial, military, and space) represented approximately 11%17% and 5% of total trade accounts receivable as of December 31, 2017 and March 31, 2017, respectively. Trade accounts receivable from Gulfstream (representing commercial, military and space) represented approximately 14% and 3%23% of total trade accounts receivable as of December 31, 20172021 and March 31, 2017,2021, respectively. Trade and other accounts receivable from Qarbon Aerospace Inc. include receivables that largely correspond with payables associated with transition services and represented

11

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, except per share data)

approximately 10% and 0% of total trade accounts receivable as of December 31, 2021 and March 31, 2021, respectively. The Company had no other concentrations of credit risk of more than 10%.


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Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)

Sales to Boeing for the nine months ended December 31, 2017, were $743,271, or 32% of net sales, of which $151,803, $302,980, $282,068 and $6,420 were from the Integrated Systems, Aerospace Structures, Precision Components and Product Support, respectively. Sales to Boeing for the nine months ended December 31, 2016, were $928,020, or 36% of net sales, of which $157,772, $427,960, $317,426 and $24,862 were from the Integrated Systems, Aerospace Structures, Precision Components and Product Support, respectively.

Sales to Gulfstream for the nine months ended December 31, 2017,2021, were $304,157,$376,413, or 13%35% of net sales, of which $897, $293,749, $9,203$121,057 and $308$255,357 were from the Integrated Systems & Support and Aerospace Structures, Precision Components and Product Support, respectively. Sales to GulfstreamBoeing for the nine months ended December 31, 2016,2020, were $321,671,$528,263, or 12%38% of net sales, of which $1,418, $311,207, $8,855$164,520 and $191$363,743 were from the Integrated Systems & Support and Aerospace Structures, Precision Components and Product Support, respectively.

No other single customer accounted for more than 10% of the Company’s net sales. However, the loss of any significant customer, including Boeing, and Gulfstream, could have a material adverse effect on the Company and its operating subsidiaries.

Stock-Based Compensation
The Company recognizes compensation expense for share-based awards based on the fair value of those awards at the date of grant. Stock-based compensation expense for the three months ended December 31, 2017 and 2016, was $2,719 and $2,163, respectively. Stock-based compensation expense for the nine months ended December 31, 2017 and 2016, was $6,137 and $6,140, respectively. The Company has classified share-based compensation within selling, general and administrative expenses to correspond with the same line item as the majority of the cash compensation paid to employees. Upon the exercise of stock options or vesting of restricted stock, the Company first transfers treasury stock, then issues new shares.
Intangible Assets
The components of intangible assets, net, are as follows:
 December 31, 2017
 
Weighted-
Average Life
 
Gross Carrying
Amount
 
Accumulated
Amortization
 Net
        
Customer relationships17.0 $621,524
 $(247,058) $374,466
Product rights, technology and licenses11.4 55,104
 (41,241) 13,863
Non-compete agreements and other16.3 2,756
 (921) 1,835
Tradenames10.0 150,000
 (19,344) 130,656
Total intangibles, net  $829,384
 $(308,564) $520,820

 March 31, 2017
 
Weighted-
Average Life
 
Gross Carrying
Amount
 
Accumulated
Amortization
 Net
        
Customer relationships16.6 $663,165
 $(241,124) $422,041
Product rights, technology and licenses11.4 54,347
 (39,486) 14,861
Non-compete agreements and other16.3 2,756
 (786) 1,970
Tradenames10.3 163,000
 (9,508) 153,492
Total intangibles, net  $883,268
 $(290,904) $592,364
Amortization expense for the three months ended December 31, 2017 and 2016, was $13,618 and $13,348, respectively. Amortization expense for the nine months ended December 31, 2017 and 2016, was $42,993 and $40,565, respectively.




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Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)

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 or disclosed at fair value, the Company considers the principal or most advantageous market in which it would transact and also considers assumptions that market participants would use when pricing an asset or liability. The fair value hierarchy has three levels of inputs that may be used to measure fair value: Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities; Level 2—Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability; and Level 3—Unobservable inputs for the asset or liability. The Company has applied fair value measurements when comparing the carrying value of assets held for sale with the related fair value less cost to sell (see Note 3) and to its divestiturespension and interest rate swappostretirement plan assets (see Note 3 and Note 5)9).

Warranty Reserves
A reserve has been established

Supplemental Cash Flow Information

In November 2021, the Company entered into an agreement with the Department of Transportation (“DOT”) under the Aviation Manufacturing Jobs Protection Program (“AMJP”) for a grant of up to provide for the estimated future cost of warranties on our delivered products.$21,259. The Company periodically reviewsreceived the reserves and adjustmentsfirst installment of $10,630 under the grant in November 2021. The Company expects to receive additional funds from the DOT as costs are made accordingly. A provision for warranty on products delivered is made onincurred over the basisremainder of historical experience and identified warranty issues. Warranties cover such factors as non-conformancethe service period with final installment to specifications and defects in material and workmanship. The majoritybe received upon final confirmation from the DOT of the Company's agreements includecompliance with the terms of the agreement. The receipt of the full award is primarily conditioned upon the Company committing to not furlough or lay off a three-year warranty, although certain programs have warranties updefined group of employees during the six-month period of performance between November 2021 and May 2022. The grant benefit will be recognized over the six-month performance period as a reduction to 20 years. The warranty reservescost of sales in proportion to the compensation expense that the award is intended to defray. During the quarter ended December 31, 2021, the Company recognized approximately $2,670 as a reduction in cost of sales with the remaining $7,960 of the initial installment presented in accrued expenses on the accompanying condensed consolidated balance sheet as of December 31, 2017 and March 31, 2017, were $85,516 and $107,088, respectively. The decrease in warranty reserves during the first nine months of the fiscal year ended March 31, 2018, were offset by a corresponding decrease to the related indemnification asset, which is included in other assets on the accompanying Condensed Consolidated Balance Sheets.2021.

Supplemental Cash Flow Information
The Company paid $11,013 and $5,936 for income taxes, net of refunds, for

For the nine months ended December 31, 2017 and 2016, respectively.

The2021, the Company made interest paymentspaid $3,065 for income taxes, net of $54,013 and $61,251 for the nine months ended December 31, 2017 and 2016, respectively.
Duringincome tax refunds received. For the nine months ended December 31, 2017 and 2016,2020, the Company financed $2,206paid $2,474 for income taxes, net of income tax refunds received.

12

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, except per share data)

3. DIVESTED OPERATIONS AND ASSETS HELD FOR SALE

Fiscal 2022 Divestitures and $11,504, respectively,Assets Held for Sale

In May 2020, the Company’s Board of propertyDirectors committed to a plan to sell its composites manufacturing operations located in Milledgeville, Georgia and equipment additions through capital leases.

As of December 31, 2017,Rayong, Thailand. In August 2020, the Company remains able to purchase an additional 2,277,789 shares underentered into a definitive agreement with the existing stock repurchase program. However, there are certain restrictions placed on the repurchase program by the Company's lenders that prevent any repurchases at this time.
3.     DIVESTED OPERATIONS
In September 2017, the Company sold allbuyer of the shares of Triumph Processing - Embee Division, Inc. ("Embee") for total cash proceeds of $64,986. As a result of the sale of Embee, the Company recognized a loss of $17,857 which is presented on the accompanying Condensed Consolidated Statements of Operations as "Loss on divestiture." The operating results of Embee were includedcomposites manufacturing operations in Integrated Systems through the date of disposal.
Georgia and Thailand. In September 2016, the Company sold all of the shares of Triumph Aerospace Systems-Newport News, Inc. ("Newport News") for total cash proceeds of $9,000. As a result of the sale of Newport News, the Company recognized a loss of $4,774 which is presented on the accompanying Condensed Consolidated Statements of Operations as "Loss on divestiture." The operating results of Newport News were included in Integrated Systems through the date of disposal.
In December 2016,February 2021, the Company entered into a definitive agreement to divest Triumph Air Repair,sell its large structure manufacturing operations in Red Oak, Texas, to the Auxiliary Power Unit Overhaul Operationssame buyer of Triumph Aviation Services - Asia, Ltd.the Milledgeville and Triumph Engines - Tempe ("Engines and APU"). As a result,Rayong composites manufacturing operations. These transactions closed in May 2021. In the year ended March 31, 2021, the Company adjusted the carrying amount of these assets held for sale to its estimated fair value less cost to sell and recognized a loss of $14,263 on the sale.approximately $102,500. The operating resultsestimate of Engines and APU were included in Product Support through the date of disposal. The transaction closed during the quarter ended June 30, 2017.

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Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)

The disposal of these entities does not represent a strategic shift andfair value is not expected to have a major effect on the Company's operations or financial results, as defined by ASC 205-20, Discontinued Operations; as a result, the disposals do not meet the criteria to be classified as discontinued operations.
To measure the amount of impairment related to the divestitures, the Company compared the fair values of assets and liabilities at the evaluation dates to the carrying amounts at the end of the month prior to the respective evaluation dates. The sale of Embee, Newport News and Engines and APU assets and liabilities are categorized as Level 2 within the fair value hierarchy. The key assumption includedassumptions used in the estimate of fair value were the negotiated sales price of the assets and the assumptionsassumption of the disposal group’s liabilities.

In May 2021, upon the completion of the sale of composites and large structure manufacturing operations, the Company received proceeds of approximately $155,000 net of the purchase of a facility related to the divestiture and other transaction costs and recognized an additional loss of approximately $6,000, which is presented on the accompanying condensed consolidated statements of operations within loss on sale of assets and businesses. The additional loss was primarily the result of changes in the working capital balances of the disposal group from March 31, 2021, to the date of divestiture, the final amount of which will be subject to any adjustments in the purchase price as a result of routine closing working capital adjustments and may be further adjusted as a result of closing working capital settlement. The operating results of these related operations are included within the Aerospace Structures reportable segment through the date of divestiture. As disclosed in Note 9, as a result of the completed sale of these manufacturing operations, the Company recognized a curtailment loss of approximately $16,000.

In January 2021, the Company announced the shutdown of its composites manufacturing operations located in Spokane, Washington, and began to execute the strategic exit of these facilities. The Company has entered into agreements to sell certain asset groups within the related manufacturing operations. These transactions have not been completed and certain of the related asset groups have not yet met the relevant criteria for derecognition and therefore have been classified as held for sale as of the balance sheet date. Losses for some asset groups arising from adjustments to the carrying amounts to their estimated fair value less cost to sell were insignificant, and other asset groups are expected to result in insignificant gains upon derecognition. The total purchase price associated with these transactions is approximately $11,000, of which approximately $7,500 has been received as of December 31, 2021.

In August 2021, the Company's Board of Directors committed to a plan to sell and license certain legacy product lines of the Company's Staverton, United Kingdom operations. The transaction includes the existing facility and select product lines associated with the site. The transaction closed in October 2021 for net proceeds of approximately $34,000, and the effect on earnings was insignificant. The operating results of the Staverton, United Kingdom, manufacturing operations were included within the Systems & Support reportable segment through the date of divestiture.

As a result of the transactions described above, including routine closing working capital adjustments, the Company recognized approximately $13,600 in additional net losses on divestiture of assets and businesses in the nine months ended December 31, 2021, largely comprising changes in working capital balances of disposal groups and related routine working capital adjustments that could be further adjusted as a result of closing working capital settlements.

Fiscal 2021 Divestitures

In August 2020, the Company completed the transfer of the assets and certain liabilities (seeassociated with its Gulfstream G650 wing supply chain activities for cash proceeds net of transaction costs of approximately $51,000. The Company recognized a loss of approximately $819. The operating results associated with the G650 wing supply chain activities were included within Aerospace Structures through the date of transfer.

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 transferred to the customer. The Company’s principal operating segments and related revenue are discussed in Note 2 above11, Segments.

13

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, except per share data)

The following table shows disaggregated net sales satisfied overtime and at a point in time (excluding intercompany sales) for definitionthe three and nine months ended December 31, 2021 and 2020:

 

 

Three Months Ended
December 31,

 

 

Nine Months Ended
December 31,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Systems & Support

 

 

 

 

 

 

 

 

 

 

 

 

Satisfied over time

 

$

108,343

 

 

$

118,813

 

 

$

342,007

 

 

$

324,968

 

Satisfied at a point in time

 

 

127,000

 

 

 

140,519

 

 

 

397,804

 

 

 

418,753

 

Revenue from contracts with customers

 

 

235,343

 

 

 

259,332

 

 

 

739,811

 

 

 

743,721

 

Amortization of acquired contract liabilities

 

 

938

 

 

 

4,306

 

 

 

3,633

 

 

 

11,569

 

Total revenue

 

 

236,281

 

 

 

263,638

 

 

 

743,444

 

 

 

755,290

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aerospace Structures

 

 

 

 

 

 

 

 

 

 

 

 

Satisfied over time

 

$

81,511

 

 

$

148,526

 

 

$

308,667

 

 

$

596,145

 

Satisfied at a point in time

 

 

1,457

 

 

 

11,269

 

 

 

21,168

 

 

 

28,003

 

Revenue from contracts with customers

 

 

82,968

 

 

 

159,795

 

 

 

329,835

 

 

 

624,148

 

Amortization of acquired contract liabilities

 

 

0

 

 

 

2,561

 

 

 

12

 

 

 

23,448

 

Total revenue

 

 

82,968

 

 

 

162,356

 

 

 

329,847

 

 

 

647,596

 

 

 

$

319,249

 

 

$

425,994

 

 

$

1,073,291

 

 

$

1,402,886

 

The following table shows disaggregated net sales by end market (excluding intercompany sales) for the three and nine months ended December 31, 2021 and 2020:

 

 

Three Months Ended
December 31,

 

 

Nine Months Ended
December 31,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Systems & Support

 

 

 

 

 

 

 

 

 

 

 

 

Commercial aerospace

 

$

99,762

 

 

$

92,529

��

 

$

290,347

 

 

$

280,102

 

Military

 

 

113,343

 

 

 

145,168

 

 

 

375,671

 

 

 

396,672

 

Business jets

 

 

11,148

 

 

 

7,802

 

 

 

34,026

 

 

 

26,884

 

Regional

 

 

5,706

 

 

 

5,231

 

 

 

16,294

 

 

 

18,218

 

Non-aviation

 

 

5,384

 

 

 

8,602

 

 

 

23,473

 

 

 

21,845

 

Revenue from contracts with customers

 

 

235,343

 

 

 

259,332

 

 

 

739,811

 

 

 

743,721

 

Amortization of acquired contract liabilities

 

 

938

 

 

 

4,306

 

 

 

3,633

 

 

 

11,569

 

Total revenue

 

$

236,281

 

 

$

263,638

 

 

$

743,444

 

 

$

755,290

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aerospace Structures

 

 

 

 

 

 

 

 

 

 

 

 

Commercial aerospace

 

$

75,624

 

 

$

109,929

 

 

$

288,153

 

 

$

372,249

 

Military

 

 

454

 

 

 

31,670

 

 

 

15,367

 

 

 

105,365

 

Business jets

 

 

5,078

 

 

 

18,039

 

 

 

21,588

 

 

 

138,141

 

Regional

 

 

1,544

 

 

 

0

 

 

 

4,441

 

 

 

8,025

 

Non-aviation

 

 

268

 

 

 

157

 

 

 

286

 

 

 

368

 

Revenue from contracts with customers

 

 

82,968

 

 

 

159,795

 

 

 

329,835

 

 

 

624,148

 

Amortization of acquired contract liabilities

 

 

0

 

 

 

2,561

 

 

 

12

 

 

 

23,448

 

Total revenue

 

 

82,968

 

 

 

162,356

 

 

 

329,847

 

 

 

647,596

 

 

 

$

319,249

 

 

$

425,994

 

 

$

1,073,291

 

 

$

1,402,886

 

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 levels)additional performance obligations in the contract, such as final delivery of the product. Contract assets are typically derecognized when billed in accordance with the terms of the contract. The Company pools contract assets that share underlying risk characteristics and records an allowance for expected credit losses based on a combination of prior experience, current economic conditions and management’s expectations of future economic conditions, and specific collectibility matters when they arise. Contract assets are presented net of this reserve

14

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, except per share data)

on the condensed consolidated balance sheets. For the three and nine months ended December 31, 2021 and 2020, credit loss expense and write-offs related to contract assets were immaterial.

Contract liabilities are recorded when customers remit contractual cash payments in advance of the Company satisfying performance obligations under contractual arrangements, including those with performance obligations to be satisfied over a period of time. Contract liabilities other than those pertaining to forward loss reserves are derecognized when or as revenue is recognized.

Contract modifications can also impact contract asset and liability balances. When contracts are modified to account for changes in contract specifications and requirements, the Company considers whether the modification either creates new or changes the existing enforceable rights and obligations. Contract modifications that are for goods or services that are not distinct from the existing contract, due to the significant integration with the original good or service provided, are accounted for as if they were part of that existing contract. The effect of a contract modification to an existing contract on the transaction price and the Company's measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative catch-up basis. When the modifications include additional performance obligations that are distinct and at relative stand-alone selling price, they are accounted for as a new contract and performance obligation and 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 the Company's contract assets and liabilities balances:

 

 

December 31, 2021

 

 

March 31,
2021

 

 

Change

 

Contract assets

 

$

155,284

 

 

$

139,937

 

 

$

15,347

 

Contract liabilities

 

 

(186,972

)

 

 

(305,116

)

 

 

118,144

 

Net contract liability

 

$

(31,688

)

 

$

(165,179

)

 

$

133,491

 

During the nine months ended December 31, 2021, the Company recognized revenue due to changes in estimates associated with performance obligations satisfied or partially satisfied in previous periods of $5,340. The change in contract assets is the result of revenue recognized in excess of amounts billed during the nine months ended December 31, 2021. The change in contract liabilities is the result of revenue recognized in excess of the receipt of additional customer advances as well as certain customer advance repayments settled during the nine months ended December 31, 2021. For the nine months ended December 31, 2021, the Company recognized $68,083 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 condensed consolidated balance sheets as of December 31, 2021 and March 31, 2021, were $4,529 and $5,299, respectively. Noncurrent contract liabilities presented in other noncurrent liabilities on the accompanying condensed consolidated balance sheets as of December 31, 2021 and March 31, 2021, were $25,990 and $100,737, respectively.

Performance Obligations

Customers generally contract with the Company for requirements in a segment relating to a specific program, and the Company’s performance obligations consist of a wide range of engineering design services and manufactured components, as well as spare parts and repairs for OEMs. A single contract may contain multiple performance obligations consisting of both recurring and nonrecurring elements.

As of December 31, 2021, 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

 

$

1,853,956

 

 

$

1,085,257

 

 

$

750,259

 

 

$

18,311

 

 

$

129

 

15

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, except per share data)



4.

5. INVENTORIES

Inventories are stated at the lower of cost (average-cost or specific-identification methods) or market. The components of inventories are as follows:

 

 

December 31,
2021

 

 

March 31,
2021

 

Raw materials

 

$

46,823

 

 

$

45,211

 

Work-in-process, including manufactured and purchased components

 

 

300,547

 

 

 

277,729

 

Finished goods

 

 

18,706

 

 

 

51,221

 

Rotable assets

 

 

28,456

 

 

 

26,205

 

Total inventories

 

$

394,532

 

 

$

400,366

 

 December 31, 2017 March 31, 2017
Raw materials$82,768
 $89,069
Work-in-process, including manufactured and purchased components1,613,881
 1,297,989
Finished goods117,820
 118,265
Rotable assets57,295
 57,337
Less: unliquidated progress payments(409,040) (222,485)
Total inventories$1,462,724
 $1,340,175

6.LONG-TERM DEBT

Work-in-process inventory includes capitalized pre-production costs on newer development programs. Capitalized pre-production costs include nonrecurring engineering, planning and design, including applicable overhead, incurred before production is manufactured on a regular basis. Significant customer-directed work changes can also cause pre-production costs to be incurred. These costs are typically recovered over a contractually determined number

Long-term debt consists of ship set deliveries. The balance of development program inventory, comprised principally of capitalized pre-production costs, excluding progress payments related to the Company's contracts with Bombardier for the Global 7000/8000 program ("Bombardier") and Embraer for the second generation E-Jet program ("Embraer") are as follows:

following:

 

 

December 31,
2021

 

 

March 31,
2021

 

Finance leases

 

$

17,023

 

 

$

20,125

 

Senior secured first lien notes due 2024

 

 

563,171

 

 

 

700,000

 

Senior secured notes due 2024

 

 

525,000

 

 

 

525,000

 

Senior notes due 2022

 

 

—

 

 

 

236,471

 

Senior notes due 2025

 

 

500,000

 

 

 

500,000

 

Less: debt issuance costs

 

 

(16,671

)

 

 

(24,053

)

 

 

 

1,588,523

 

 

 

1,957,543

 

Less: current portion

 

 

3,534

 

 

 

5,247

 

 

 

$

1,584,989

 

 

$

1,952,296

 

 December 31, 2017
 Inventory Capitalized Pre-Production Forward Loss Provision Total Inventory, net
Bombardier$265,137
 $670,010
 $(352,900) $582,247
Embraer33,669
 179,121
 (5,762) 207,028
Total$298,806
 $849,131
 $(358,662) $789,275
        
 March 31, 2017
 Inventory Capitalized Pre-Production Forward Loss Provision Total Inventory, net
Bombardier$89,650
 $589,449
 $(399,758) $279,341
Embraer14,987
 173,169
 (5,800) 182,356
Total$104,637
 $762,618
 $(405,558) $461,697
Under our contract for the Bombardier Global 7000/8000 wing program ("Global 7000"), the Company has the right to design, develop and manufacture wing components for the Global 7000 program. The Global 7000 contract provides for fixed pricing and requires the Company to fund certain up-front development expenses, with certain milestone payments made by Bombardier.

11

16

Table of Contents

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollarsDollars in thousands, except per share data)

(unaudited)

The Global 7000 program charge resulted in the impairment of previously capitalized pre-production costs due to the combination of cost recovery uncertainty, higher than anticipated non-recurring costs and increased forecasted costs on recurring production. The increases in costs were driven by several factors, including: changing technical requirements, increased spending on the design and engineering phase of the program, and uncertainty regarding cost reduction and cost recovery initiatives with our customer and suppliers.
The Global 7000 program has continued to incur costs since March 2016 in support of the development and transition to production.
In May 2017, Triumph Aerostructures and Bombardier entered into a comprehensive settlement agreement that resolved all outstanding commercial disputes between them, including all pending litigation, related to the design, manufacture and supply of wing components for the Global 7000 business aircraft. The settlement resets the commercial relationship between the companies and allows each company to better achieve its business objectives going forward.
Further cost increases or an inability to meet revised recurring cost forecasts on the Global 7000 program may result in additional forward loss reserves in future periods, while improvements in future costs compared to current estimates may result in favorable adjustments if forward loss reserves are no longer required.
The Company is still in the pre-production stages for the Bombardier and Embraer programs, as these aircrafts are not scheduled to enter service until calendar year 2018, or later. Transition of these programs from development to recurring production levels is dependent upon the success of the programs achieving flight testing and certification, as well as the ability of the Bombardier and Embraer programs to generate acceptable levels of aircraft sales. The failure to achieve these milestones and level of sales or significant cost overruns may result in additional forward losses.

5.    LONG-TERM DEBT
Long-term debt consists of the following:
 December 31, 2017 March 31, 2017
    
Revolving line of credit$50,000
 $29,999
Term loan—
 309,375
Receivable securitization facility109,200
 112,900
Capital leases58,297
 72,800
Senior notes due 2021375,000
 375,000
Senior notes due 2022300,000
 300,000
Senior notes due 2025500,000
 —
Other debt—
 7,978
Less: Debt issuance costs(17,886) (11,752)
 1,374,611
 1,196,300
Less: Current portion15,135
 160,630
 $1,359,476
 $1,035,670
Revolving Credit Facility
In July 2017, the Company entered into a Ninth Amendment to the Credit Agreement (the “Ninth Amendment” and the Existing Credit Agreement as amended by the Ninth Amendment, the “Credit Agreement”) with the Administrative Agent and the Lenders party thereto to, among other things, (i) permit the Company to incur High Yield Indebtedness (as defined in the Credit Agreement) in an aggregate principal amount of up to $500,000, subject to the Company’s obligations to apply the net proceeds from this offering to repay the outstanding principal amount of the term loans in full, (ii) limit the mandatory prepayment provisions to eliminate the requirement that net proceeds received from the incurrence of Permitted Indebtedness (as defined in the Credit Agreement), including the High Yield Indebtedness, be applied to reduce the revolving credit

12

Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)

commitments once the revolving credit commitments have been reduced to $800,000, (iii) amend certain covenants and other terms and (iv) modify the current interest rate and letter of credit pricing tiers.

Receivables Securitization Program

In connection with the amendment to the Credit Agreement, the Company incurred $633 of financing costs. These costs, along with the $13,226 of unamortized financing costs subsequent to the amendment, are being amortized over the remaining term of the Credit Agreement. In accordance with the reduction in the capacity of the Credit Agreement, the Company wrote-off a proportional amount of unamortized financing fees prior to the amendment.

In May 2017, the Company entered into an Eighth Amendment to the Third Amended and Restated Credit Agreement, among the Company and its lenders to, among other things, (i) eliminate the total leverage ratio financial covenant, (ii) increase the maximum permitted senior secured leverage ratio financial covenant applicable to each fiscal quarter, commencing with the fiscal quarter ended March 31, 2017, and to revise the step-downs applicable to such financial covenant, (iii) reduce the aggregate principal amount of commitments under the revolving line of credit to $850,000 from $1,000,000, (iv) modify the maturity date of the term loans so that all of the term loans will mature on March 31, 2019, and (v) establish a new higher pricing tier for the interest rate, commitment fee and letter of credit fee pricing provisions.
The obligations under the Credit Facility and related documents are secured by liens on substantially all assets of the Company and its domestic subsidiaries pursuant to a 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.
Pursuant to the Credit Facility, the Company can borrow, repay and re-borrow revolving credit loans, and cause to be issued letters of credit, in an aggregate principal amount not to exceed $800,000 outstanding at any time. The Credit Facility bears interest at either: (i) LIBOR plus between 1.50% and 3.50%; (ii) the prime rate; or (iii) an overnight rate at the option of the Company. The applicable interest rate is based upon the Company’s ratio of total indebtedness to earnings before interest, taxes, depreciation and amortization. In addition, the Company is required to pay a commitment fee of 0.50% on the unused portion of the Credit Facility. The Company’s obligations under the Credit Facility are guaranteed by the Company’s domestic subsidiaries.
At December 31, 2017, there were $50,000 in borrowings and $30,152 in letters of credit outstanding under the Revolving Line of Credit provisions of the Credit Facility, primarily to support insurance policies. At March 31, 2017, there were $29,999 in borrowings and $27,240 in letters of credit outstanding under the Revolving Line of Credit provisions of the Credit Facility, primarily to support insurance policies. The level of unused borrowing capacity under the Revolving Line of Credit provisions of the Credit Facility varies from time to time depending in part upon its compliance with financial and other covenants set forth in the related agreement. The Credit Facility contains certain affirmative and negative covenants, including limitations on specified levels of indebtedness to earnings before interest, taxes, depreciation and amortization, and interest coverage requirements, and includes limitations on, among other things, liens, mergers, consolidations, sales of assets, and incurrence of debt. If an event of default were to occur under the Credit Facility, the lenders would be entitled to declare all amounts borrowed under it immediately due and payable. The occurrence of an event of default under the Credit Facility could also cause the acceleration of obligations under certain other agreements. The Company is currently in compliance with all such covenants. Although the Company does not anticipate any violations of the financial covenants, its ability to comply with these covenants is dependent upon achieving earnings and cash flow projections. As of December 31, 2017, the Company had borrowing capacity under thisCompany's receivables securitization facility of $719,848 after reductions for borrowings, letters of credit outstanding under the facility and consideration of covenant limitations.
The Credit Facility also provided for a variable rate term loan (the "2013 Term Loan""Securitization Facility"). The Company repaid the outstanding principal amount of the 2013 Term Loan in quarterly installments, on the first business day of each January, April, July and October. The 2013 Term Loan was paid in full with the proceeds from the Senior Notes due 2025 (see below).
The Company previously maintained an interest rate swap agreement to reduce its exposure to interest on the variable rate portion of its long-term debt. In conjunction with the repayment of the 2013 Term Loan, the Company terminated the interest rate swap receiving $280 upon settlement which is included in Interest expense and other on the accompanying Condensed Consolidated Statements of Operations.


13

Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)

Receivables Securitization Facility
In November 2017, the Company amended the Securitization Facility decreasing the purchase limit from $225,000 to $125,000 and extending the term through November 2020. In connection with the Securitization Facility,, the Company sells on a revolving basis certain tradeeligible accounts receivable to Triumph Receivables, LLC, a wholly-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 December 31, 2017, the maximum amount available under the Securitization Facility was $125,000. Interest rates are based on LIBORthe Bloomberg Short Term Bank Yield Index ("BSBY"), plus a program2.25% fee on the drawn portion and a commitment fee. The program fee is 0.13%ranging from 0.45% to 0.50% on the amount outstanding underundrawn portion of the Securitization Facility. Additionally,The drawn fee may be reduced to 2.00% depending on the commitment fee is 0.50% on 100.00%credit rating of the maximum amount available under the Securitization Facility.Company. Collateralized letters of credit incur fees at a rate of 1.25%. The Company secures its trade accounts receivable, which are generally non-interest bearing,non-interest-bearing, in transactions that are accounted for as borrowings pursuant to theASC 860, Transfers and Servicing topic. The Company has established a letter of credit facility under the Securitization Facility. Under the provisions of the ASC 860.
letter of credit facility, the Company may request the Securitization Facility’s administrator to issue one or more letters of credit that will expire no later than 12 months after the date of issuance, extension or renewal, as applicable.

In November 2021, the Company amended the Securitization Facility, increasing the purchase limit from $75,000 to $100,000, modifying certain other terms to increase eligible receivables and availability, and extending the term through November 2024. The agreementactual amount available under the Securitization Facility at any point in time is dependent upon the balance of eligible accounts receivable as well as the amount of letters of credit outstanding.

At December 31, 2021, there were $0 in borrowings and $24,562 in letters of credit outstanding under the Securitization Agreement, primarily to support insurance policies.

The agreements governing the Securitization Facility containscontain restrictions and covenants, including 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 of the Company's assets.

17

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, except per share data)

Senior Secured First Lien Notes Due 2021

due 2024

On February 26, 2013,August 17, 2020, the Company issued $375,000$700,000 principal amount of 4.875%8.875% Senior Secured First Lien Notes due 2021June 1, 2024 (the "2021 Notes"“First Lien Notes”). The 2021First Lien Notes were sold at 100%100% of the principal amount and have an effective interest yield of 4.875%8.875%. Interest on the 2021 Notes accrues at the rate of 4.875% per annum and is payable semiannually in cash in arrears on April 1 and October 1 of each year, commencing on October 1, 2013.

Senior Notes Due 2022
On June 3, 2014, the Company issued $300,000 principal amount of 5.250% Senior Notes due 2022 (the "2022 Notes"). The 2022 Notes were sold at 100% of principal amount and have an effective interest yield of 5.250%. Interest on the 2022 Notes accrues at the rate of 5.250% per annum and is payable semiannually in cash in arrears on June 1 and December 1 of each year, commencingyear. The First Lien Notes are first lien secured obligations of the Company. The First Lien Notes are guaranteed on Decembera full, senior secured, joint and several basis by each of the Company’s domestic restricted subsidiaries that guarantees either of the Company’s 2024 Notes and 2025 Notes, as defined below (the “Guarantor Subsidiaries”). In the future, each of the Company’s domestic restricted subsidiaries (other than any domestic restricted subsidiary that is a receivable subsidiary) that (1) is not an immaterial subsidiary, (2) becomes a borrower under any of its material debt facilities or (3) guarantees (a) any of the Company’s indebtedness or (b) any indebtedness of the Company’s domestic restricted subsidiaries, in the case of either (a) or (b), incurred under any of the Company’s material debt facilities, will guarantee the First Lien Notes. Under certain circumstances, the guarantees may be released without action by, or consent of, any holder of the First Lien Notes.

The Company may redeem the First Lien Notes, in whole or in part, at any time or from time to time on or after February 1, 2014.

2023, at specified redemption prices, plus accrued and unpaid interest, if any, to the redemption date. At any time or from time to time prior to February 1, 2023, the Company may redeem the First Lien Notes, in whole or in part, at a redemption price equal to 100% of their principal amount plus a make whole premium, together with accrued and unpaid interest, if any, to the redemption date. In addition, the Company may redeem up to 40% of the aggregate principal amount of the outstanding First Lien Notes prior to June 1, 2023, with the net cash proceeds from certain equity offerings at a redemption price equal to 108.875% of their principal amount, together with accrued and unpaid interest, if any, to the redemption date.

If the Company experiences specific kinds of changes of control, the Company is required to offer to purchase all of the First Lien Notes at a purchase price of 101% of their principal amount, plus accrued and unpaid interest, if any, to the date of purchase.

The First Lien Notes Indenture contains covenants that, among other things, limit the ability of the Company and its restricted subsidiaries to: (i) incur additional indebtedness; (ii) pay dividends or make other distributions; (iii) make other restricted payments and investments; (iv) create liens; (v) incur restrictions on the ability of restricted subsidiaries to pay dividends or make certain other payments; (vi) sell assets, including capital stock of restricted subsidiaries; (vii) enter into sale and leaseback transactions; (viii) merge or consolidate with other entities; and (ix) enter into transactions with affiliates. In addition, the First Lien Notes Indenture requires, among other things, the Company to provide financial and current reports to holders of the First Lien Notes or file such reports electronically with the SEC. Furthermore, the First Lien Notes Indenture requires that the future net proceeds from certain asset sales will be required to repay the First Lien Notes at a premium of 106.656%, until the aggregate principal amount of Notes outstanding is $350,000 or less, provided that the Company may retain the first $100,000 of such net proceeds (subject to compliance with the asset sale covenants in the Company’s other outstanding indentures) or use it for certain other permitted purposes. These covenants are subject to a number of exceptions, limitations and qualifications set forth in the Indenture, as well as suspension periods in certain circumstances. Upon the completion of the sale of the composites and large structure manufacturing operations as disclosed in Note 3, the Company surpassed the $100,000 threshold of net proceeds from certain asset sales resulting in a required redemption of $112,511 of the outstanding principal balance and a premium of approximately $7,489. As a result of the completion of the sale and license of certain legacy product lines of the Company's Staverton, United Kingdom operations, the Company was required to pay an additional required redemption of $24,318 of the outstanding principal balance and a premium of approximately $1,619.

Senior Secured Notes Due 2024

On September 23, 2019, the Company issued $525,000 principal amount of 6.250% Senior Secured Notes due September 15, 2024 (the "2024 Notes"). The 2024 Notes were sold at 100% of principal amount and have an effective interest yield of 6.250%. Interest on the 2024 Notes is payable semiannually in cash in arrears on March 15 and September 15 of each year. The 2024 Notes are secured by second-priority liens on all of the Company's and the Guarantor Subsidiaries' assets that secure all of the indebtedness under the First Lien Notes and certain hedging and cash management obligations. The Company has the ability to incur additional first and/or second lien debt under certain circumstances.

Senior Notes Due 2022

On May 19, 2021, the Company called all outstanding 5.250% Senior Notes due June 1, 2022 (the "2022 Notes"). On June 18, 2021, the Company redeemed $236,471 principal amount of the 2022 Notes.

18

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, except per share data)

Senior Notes Due 2025

On August 17, 2017, the Company issued $500,000$500,000 principal amount of 7.750%7.750% Senior Notes due August 15, 2025 (the "2025 Notes"). The 2025 Notes were sold at 100%100% of principal amount and have an effective interest yield of 7.750%7.750%. Interest on the 2025 Notes accrues at the rate of 7.750%7.750% per annum and is payable semiannually in cash in arrears on February 15 and August 15 of each year, commencing on February 15, 2018. In connection with the issuance of the 2025 Notes, the Company incurred approximately $8,779 of costs, which were deferred and are being amortized on the effective interest method over the term of the 2025 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, 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 may redeem up to 35% of the 2025 Notes with the net proceeds of certain equity offerings at a redemption price equal to 107.750% of the aggregate principal amount plus accrued and unpaid interest, if any, subject to certain limitations set forth in the indenture governing the 2025 Notes (the "2025 Indenture").
The Company is obligated to offer to repurchase the 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 event 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 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

14

Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)

payments, (iii) incur restrictions on the ability of the Guarantor Subsidiaries to pay dividends or make other payments, (iv) enter into sale and leaseback transactions, (v) merge, consolidate, transfer or dispose of substantially all of their assets, (vi) incur additional indebtedness, (vii) use the proceeds from sales of assets, including capital stock of restricted subsidiaries, and (viii) enter into transactions with affiliates.
Receivables Purchase Agreement
On March 28, 2016, the Company entered into a Purchase Agreement ("Receivables Purchase Agreement") to sell certain accounts receivables to a financial institution without recourse. The Company is the servicer of the accounts receivable under the Receivables Purchase Agreement. As of December 31, 2017, the maximum amount available under the Receivables Purchase Agreement was $90,000. Interest rates are based on LIBOR plus 0.65% - 0.70%. As of December 31, 2017 and March 31, 2017, the Company sold $0 and $78,006, respectively, worth of eligible accounts receivable.
year.

Financial Instruments Not Recorded at Fair Value

The carrying amounts of certain of our financial instruments, including cash and cash equivalents, accounts receivable and accounts payable, approximate fair value because of their short maturities (Level 1 inputs).

Carrying amounts and the related estimated fair values of the Company’s financial instrumentsCompany's long-term debt not recorded at fair value in the consolidated financial statements are as follows:

December 31, 2021

 

 

March 31, 2021

 

Carrying
Value

 

 

Fair
Value

 

 

Carrying
Value

 

 

Fair
Value

 

$

1,588,523

 

 

$

1,666,314

 

 

$

1,957,543

 

 

$

2,085,204

 

 December 31, 2017 March 31, 2017
 
Carrying
Value
 Fair Value 
Carrying
Value
 Fair Value
Long-term debt$1,374,611
 $1,432,240
 $1,196,300
 $1,178,968

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’sCompany's existing debt arrangements or broker quotes on the Company's existing debt (Level 2 inputs).

Interest paid on indebtedness during the nine months ended December 31, 2021 and 2020, amounted to $110,488 and $79,382, unless quoted market prices were available.respectively. The interest paid during the nine months ended December 31, 2021, includes the redemption premiums on the First Lien Notes of $9,108.


6.    (LOSS)

7. EARNINGS PER SHARE

The following is a reconciliation between the weighted-averageweighted average outstanding shares used in the calculation of basic and diluted earnings per share:

 

 

Three Months Ended December 31,

 

 

Nine Months Ended December 31,

 

 

 

(in thousands)

 

 

(in thousands)

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Weighted average common shares outstanding – basic

 

 

64,621

 

 

 

52,488

 

 

 

64,486

 

 

 

52,126

 

Net effect of dilutive stock options and non-vested stock (1)

 

 

475

 

 

 

0

 

 

 

0

 

 

 

0

 

Weighted average common shares outstanding – diluted

 

 

65,096

 

 

 

52,488

 

 

 

64,486

 

 

 

52,126

 

(1) For the three and nine months ended December 31, 2021 and 2020, 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.

 Three Months Ended December 31, Nine Months Ended December 31,
 (in thousands) (in thousands)
 2017 2016 2017 2016
Weighted-average common shares outstanding – basic49,459
 49,329
 49,425
 49,294
Net effect of dilutive stock options and nonvested stock—
 111
 —
 127
Weighted-average common shares outstanding – diluted49,459
 49,440
 49,425
 49,421

7.

8. INCOME TAXES

The Company follows the Income TaxesTaxes topic of ASC 740, 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.


On December 22, 2017,The Company's policy is to release the U.S. government enactedtax effects from accumulated other comprehensive tax legislation referred to asincome when all of the Tax Cuts and Jobs Act (the “Act”). The Act introduces tax reformrelated assets or liabilities that reduces the current corporate federal income tax rate from 35% to 21%, among other changes. The Act makes broad and complex changesgave rise to the U.S. tax code and it will take time to fully evaluate the

15

Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)

impact of these changes on the Company. The Company has recorded a provisional tax benefit of $24,573 related to the impact of the Act’s reduction in the statutory tax rate on its net deferred tax liability, as well as a provisional tax liability of $2,175 imposed on unremitted foreign earnings under the Act’s mandatory repatriation provisions. The Company has prepared a reasonable estimate around the impact of the Act and has recorded the provisional impact (as described in SAB 118)as discrete adjustments noted above to the tax provision for the three months ended December 31, 2017. While the Company believes these are reasonable estimates of the impact of the Act, additional time is needed to finalize these estimates. While the Company has computed and recorded these provisional amounts, these will be finalized within the established measurement period (not to exceed one year) as additional data and information is gathered. The Company determined that the amounts recorded are provisional as adjustments may occur due to additional guidance from the IRS, the earnings and profit at March 31, 2018, and as certain tax positions are finalized when the Company files its 2018 tax returns.

Due to the legislative changes aforementioned, companies need to continually reevaluate their indefinite assertion. Additional withholding taxes and/or deferred tax liability associated with basis differences may be required, but due to the legislative uncertainty around the withholding taxes on distributions under the act, no estimate hasaccumulated other comprehensive income have been recorded as of December 31, 2017. This will be analyzed within the proscribed measurement period. The Company continues to review the anticipated impacts around the base erosion anti-abuse tax (“BEAT”) and the global intangible low taxed income (“GILTI”) which are not effective until the year ended March 31, 2019. The Company has not recorded any impact of these provisions as of December 31, 2017, but plans to perform a full analysis within the proscribed measurement period.
derecognized.

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. expense and are not significant.

As of December 31, 20172021 and March 31, 2017,2021, the total amount of accrued income tax-related interest and penalties was $312 and $282, respectively.


As of December 31, 2017 and March 31, 2017, the total amount of unrecognizedunrecognized tax benefits was $11,40311,688 and $10,26611,536, respectively, most of which$11,403 and $10,266, respectively, would impact the effective rate, if recognized. The Company does not anticipate that total unrecognized tax benefits will be reduced in the next 12 months.

As of December 31, 2017,2021, the Company has a valuation allowance against principally all of its net deferred tax assets given insufficient positive evidence to support the realization of the Company’s deferred tax assets. The Company intends to continue maintaining a valuation allowance on its deferred tax assets until there is sufficient positive evidence to support the reversal of all or some portion of these allowances. A reduction in the valuation allowance could result in a significant decrease in income tax expense in the period that the release is recorded. However, the exact timing and amount of the reduction in its valuation allowance is unknown at this time and will be subject to the earnings level the Company achieves during fiscal 2018 as well as the Company's income2022 and future periods.

19

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(Dollars in future periods.

thousands, except per share data)

The effective income tax rate for the three months ended December 31, 2017,2021, was 22.2%13.2% as compared to 17.3%with (1.0)% for the three months ended December 31, 2016. For the three months ended December 31, 2017, the effective tax rate reflected a $22,398 tax benefit related to the Act, a $4,758 tax benefit related to the return to provision true up adjustment, the impact of the non-deductible portion of the goodwill impairment, and the partial reversal of previously established valuation allowance related to the current year activity. For the three months ended December 31, 2016, the income tax provision reflected the partial reversal of previously established valuation allowance related to the capital loss generated from the divestiture of TAS-Newport News.

2020. The effective income tax rate for the nine months ended December 31, 2017,2021, was 22.1%(14.6)% as compared to 28.1%with (0.6)% for the nine months ended December 31, 2016. For the nine months ended December 31, 2017, the effective tax rate reflected a $22,398 tax benefit from the Tax Act, a $4,758 tax benefit from the return to provision true up adjustment, the impact of the non-deductible portion of the goodwill impairment, the partial reversal of previously established valuation allowance related to the current year activity, as well as the disallowed capital loss generated from the divestiture of Embee. For the nine months ended December 31, 2016,2020. For the three and nine months ended December 31, 2021, the effective income tax provisionrate reflected a limitation on the disallowedrecognition of tax benefit of $1,277 relatedbenefits due to the capital loss generated from the divestiture of Newport News.
full valuation allowance.

With few exceptions, the Company is no longer subject to U.S. federal, state, or local income tax examinations for fiscal years ended before March 31, 2011, U.S. federal income tax examinations for fiscal years ended March 31, 2012 and 2013, state or local examinations for fiscal years ended before March 31, 2013,2014, or foreign income tax examinations by tax authorities for fiscal years ended before March 31, 2011.



16

Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)

2013.

As of December 31, 2017,2021, the Company is subject to examination in one state jurisdiction. The Company has filed appeals in a prior state examination related to fiscal years ended March 31, 1999 through March 31, 2005. Because of net operating losses acquired as part of the acquisition of Vought, the Company is subject to U.S. federalsettled its only foreign income tax examinations and various state jurisdictions for the years ended December 31, 2001 and after related to previously filed Vought tax returns.examination. The Company believes appropriate provisions for all outstanding issues have been made for all jurisdictions and all open years.


8.    GOODWILL
The following is a summary of the changes in the carrying value of goodwill by reportable segment, from March 31, 2017 through December 31, 2017:
 Integrated Systems Precision Components Product Support Total
Balance, March 31, 2017$541,155
 $532,418
 $69,032
 $1,142,605
Impairment of goodwill—
 (190,227) —
 (190,227)
Goodwill derecognized in connection with divestitures and assets held for sale(27,709) —
 —
 (27,709)
Effect of exchange rate changes7,126
 2,810
 (105) 9,831
Balance, December 31, 2017$520,572
 $345,001
 $68,927
 $934,500

The Company's most recent annual goodwill impairment test was performed for all reporting units as of February 1, 2017. The Company also performs the 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. The Company performed an interim assessment of the fair value of its goodwill due to the Company's decision to combine the Aerospace Structures and Precision Components reporting segments into one reporting segment as noted above. In accordance with ASC 350-20-35-3C, there are several potential events and circumstances that could be indicators of goodwill impairment. A change in a company's reporting unit structure is one of these events, and when this does occur, a company must perform a "before and after" test of the reporting units (see Note 1). Additionally, the Company's enhanced visibility into its future cash flows based on its annual planning process was also an indicator. Consistent with the Company's policy described in the Form 10-K for the fiscal year ended March 31, 2017, the Company performed the goodwill impairment test which includes using a combination of both the market and income approaches to estimate the fair value of each reporting unit.
After performing the "before" portion of the test of the reporting units and concluded that the Precision Component's reporting unit had a fair value that was lower then its carrying value by an amount of $(190,227). Accordingly, the Company recorded a non-cash impairment charge during the quarter ended December 31, 2017 of $(190,227), which is presented on the accompanying Consolidated Statements of Operations as "Impairment of intangible assets”. The decline in fair value is the result of declining revenues from production rate reductions on sun-setting programs and the slower than previously projected ramp in our development programs and the timing of associated earnings and cash flows.
The Company then performed the "after" portion of the test of the reporting units and concluded that the new reporting unit of Aerospace Structure's goodwill had a fair value that was lower then its carrying value by an amount that exceeded the remaining goodwill for the reporting unit. Following the applicable accounting guidance, this impairment charge is deemed to have occurred during the Company's fiscal fourth quarter. Therefore, the Company will record a non-cash impairment charge during the quarter ended March 31, 2018 of $345,001, which will be presented on the Consolidated Statements of Operations as "Impairment of intangible assets” for the fiscal year ended March 31, 2018. The decline in fair value is the result of declining revenues from production rate reductions on sun-setting programs and the slower than previously projected ramp in our development programs and the timing of associated earnings and cash flows (See Note 2 for definition of fair value levels).
As of December 31, 2017, Aerospace Structures has goodwill of $863,901, which was fully impaired and the Precision Components' impairment charge noted above represents its accumulated impairment charges.

17

Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)


9. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS

The Company sponsors several defined benefit pension plans covering some of its employees. Certain employee groupsMost employees are ineligible to participate in the plans or have ceased to accrue additional benefits under the plans based upon their service to the Company or years of service accrued under the defined benefit pension 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 U.S. governmentGovernment regulations (and for non-U.S. plans, acceptable under local regulations), by making payments into a separate trust.

In addition to the defined benefit pension plans, the Company provides certain healthcare and life insurance benefits for eligible retired employees. Such benefits are unfunded. Employees achieve eligibility to participate in these contributory plans upon retirement fromNo active service if they meet specified age and years of service requirements. Election to participate for some employees must be made at the date of retirement. Qualifying dependents at the date of retirement are also eligible for these benefits. The vast majority of eligible retirees receive a fixed-dollar benefit they can use to purchase healthcare services. A small number of eligible retirees receive traditional retiree medical coverage.benefits for which the company pays all premiums. All retirees who are eligible for these traditional benefits are Medicare-eligible. Current plan documents reserve the right to amend or terminate the plans at any time, subject to applicable collective bargaining requirements for represented employees. From time to time, changes have been made to the benefits provided to various groups of plan participants. Premiums charged to most retirees for medical coverage prior to age 65 are based on years of service and are adjusted annually for changes in the cost of the plans as determined by an independent actuary. In addition to this medical inflation cost-sharing feature, the plans also have provisions for deductibles, co-payments, coinsurance percentages, out-of-pocket limits, schedules of reasonable fees, preferred provider networks, coordination of benefits with other plans and a Medicare carve-out.

In accordance with the Compensation – Retirement Benefits topic of ASC 715, the Company has recognized the funded status of the benefit obligation as of the date of the last remeasurement,re-measurement, on the accompanying Condensed Consolidated Balance Sheets.condensed consolidated balance sheets. The funded status is measured as the difference between the fair value of the plan’s assets and the pension benefit obligation or accumulated postretirement benefit obligation, of the plan. In order to recognize the funded status, the Company determined the fair value of the plan assets. The majority of the plan assets are publicly traded investments, which were valued based on the market price as of the date of remeasurement.re-measurement. Investments that are not publicly traded were valued based on the estimated fair value of those investments based on ourthe Company's evaluation of data from fund managers and comparable market data.

Net Periodic Benefit Plan Costs

The components of net periodic benefit costs (income)income for ourthe Company's postretirement benefit plans are shown in the following table:

 

 

Pension Benefits

 

 

 

Three Months Ended December 31,

 

 

Nine Months Ended December 31,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Components of net periodic benefit income:

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

183

 

 

$

386

 

 

$

562

 

 

$

1,146

 

Interest cost

 

 

11,695

 

 

 

16,107

 

 

 

35,207

 

 

 

48,294

 

Expected return on plan assets

 

 

(33,361

)

 

 

(34,154

)

 

 

(100,188

)

 

 

(102,395

)

Amortization of prior service credits

 

 

26

 

 

 

243

 

 

 

93

 

 

 

728

 

Amortization of net loss

 

 

9,614

 

 

 

7,812

 

 

 

28,803

 

 

 

23,417

 

Curtailment loss

 

 

—

 

 

 

—

 

 

 

16,024

 

 

 

—

 

Settlement loss

 

 

—

 

 

 

—

 

 

 

3,826

 

 

 

—

 

Special termination benefits

 

 

—

 

 

 

—

 

 

 

196

 

 

 

—

 

Net periodic benefit income

 

$

(11,843

)

 

$

(9,606

)

 

$

(15,477

)

 

$

(28,810

)

 Pension benefits
 Three Months Ended December 31, Nine Months Ended December 31,
 2017 2016 2017 2016
Components of net periodic benefit costs:       
Service cost$1,126
 $1,628
 $3,371
 $4,911
Interest cost18,803
 18,144
 56,391
 54,494
Expected return on plan assets(38,090) (38,966) (114,222) (117,025)
Amortization of prior service credits(710) (445) (2,131) (1,337)
Amortization of net loss3,478
 3,027
 10,403
 9,088
Settlement charge—
 —
 523
 —
Net periodic benefit income$(15,393) $(16,612) $(45,665) $(49,869)


18

20

Table of Contents

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollarsDollars in thousands, except per share data)

The Company recognized net periodic benefit income from its other postretirement benefits plan of approximately $2,349 and $7,047 for the three and nine months ended December 31, 2021, respectively.

Upon the completion of the sale of the composites and large structure manufacturing operations as disclosed in Note 3, the expected future service of certain defined benefit pension plan participants was curtailed and certain participants became eligible for subsidized early retirement benefits under the terms of the relevant plan. As a result, the Company performed an interim remeasurement and recognized a onetime pension curtailment charge of approximately $16,024 which is presented in non-service defined benefit income on the accompanying condensed consolidated statement of operations for nine months ended December 31, 2021

Effective August 31, 2021, the Company settled the fully-funded pension obligation it had retained subsequent to its fiscal year 2019 divestiture of Triumph Geared Solutions - Toronto. The settlement resulted in the recognition of prior noncash actuarial losses of approximately $3,826 in the three months ended September 30, 2021. The settlement's impact on the accompanying condensed consolidated balance sheets was insignificant as the plan's assets were materially consistent with the pension obligation.

(unaudited)

 Other postretirement benefits
 Three Months Ended December 31, Nine Months Ended December 31,
 2017 2016 2017 2016
Components of net periodic benefit costs:       
Service cost$102
 $179
 $305
 $537
Interest cost1,219
 1,247
 3,656
 3,740
Amortization of prior service credits(2,328) (3,366) (6,984) (10,097)
Amortization of gain(1,775) (1,647) (5,324) (4,941)
Settlement gain(15,099) —
 (15,099) —
Net periodic benefit income$(17,881) $(3,587) $(23,446) $(10,761)
The following summarizes the key events whose effects on net periodic benefit cost and obligations are included

21

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(Dollars in the tables above:

thousands, except per share data)

In November 2017, the Company announced an amendment to the retirement plan of its non-represented employee participants. Effective November 30, 2017, the Company eliminated and reduced certain welfare benefits for retirees. Those changes resulted in a decrease in the projected OPEB obligation of $17,652 and a related curtailment gain of $15,099 included in "Curtailment and settlement gain, net" on the Consolidated Statement of Operations for the three and nine months ended December 31, 2017.


10. STOCKHOLDERS' EQUITY

DEFICIT

Accumulated Other Comprehensive Loss

Changes in accumulated other comprehensive income (loss)loss ("AOCI") by component for the three and nine months ended December 31, 20172021 and 2016, respectively,2020, were as follows:

 

 

Currency
Translation
Adjustment

Unrealized Gains
and Losses on
Derivative
Instruments

Defined Benefit
Pension Plans
and Other
Postretirement
Benefits

Total (1)

 

September 30, 2021

 

$

(45,104

)

 

$

(890

)

 

$

(457,211

)

 

$

(503,205

)

Other comprehensive (loss) income before reclassifications

 

 

(776

)

 

 

662

 

 

 

—

 

 

 

(114

)

Amounts reclassified from AOCI

 

 

—

 

 

 

(251

)

 

 

7,264

 

(2)

 

7,013

 

Net current period OCI

 

 

(776

)

 

 

411

 

 

 

7,264

 

 

 

6,899

 

December 31, 2021

 

$

(45,880

)

 

$

(479

)

 

$

(449,947

)

 

$

(496,306

)

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2020

 

$

(53,844

)

 

$

28

 

 

$

(671,570

)

 

$

(725,386

)

Other comprehensive income before reclassifications

 

 

12,637

 

 

 

1,878

 

 

 

—

 

 

 

14,515

 

Amounts reclassified from AOCI

 

 

—

 

 

 

437

 

 

 

4,265

 

(2)

 

4,702

 

Net current period OCI

 

 

12,637

 

 

 

2,315

 

 

 

4,265

 

 

 

19,217

 

December 31, 2020

 

$

(41,207

)

 

$

2,343

 

 

$

(667,305

)

 

$

(706,169

)

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2021

 

$

(42,161

)

 

$

1,015

 

 

$

(489,046

)

 

$

(530,192

)

Other comprehensive (loss) income before reclassifications

 

 

(3,719

)

 

 

(2,670

)

 

 

10,440

 

 

 

4,051

 

Amounts reclassified from AOCI

 

 

—

 

 

 

1,176

 

 

 

28,659

 

(2)

 

29,835

 

Net current period OCI

 

 

(3,719

)

 

 

(1,494

)

 

 

39,099

 

 

 

33,886

 

December 31, 2021

 

$

(45,880

)

 

$

(479

)

 

$

(449,947

)

 

$

(496,306

)

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2020

 

$

(62,045

)

 

$

(4,303

)

 

$

(680,100

)

 

$

(746,448

)

Other comprehensive income before reclassifications

 

 

20,838

 

 

 

8,308

 

 

 

—

 

 

 

29,146

 

Amounts reclassified from AOCI

 

 

—

 

 

 

(1,662

)

 

 

12,795

 

(2)

 

11,133

 

Net current period OCI

 

 

20,838

 

 

 

6,646

 

 

 

12,795

 

 

 

40,279

 

December 31, 2020

 

$

(41,207

)

 

$

2,343

 

 

$

(667,305

)

 

$

(706,169

)

(1)
  Currency Translation Adjustment Unrealized Gains and Losses on Derivative Instruments Defined Benefit Pension Plans and Other Postretirement Benefits 
Total (1)
Balance September 30, 2017 $(65,886) $(246) $(313,290) $(379,422)
   AOCI before reclassifications (1,824) (816) 23,378
 20,738
   Amounts reclassified from AOCI —
 203
 (16,143)(2)(15,940)
 Net current period AOCI (1,824) (613) 7,235
 4,798
Balance December 31, 2017 $(67,710) $(859) $(306,055) $(374,624)
Balance September 30, 2016 $(80,434) $(2,557) $(288,572) $(371,563)
   AOCI before reclassifications (15,066) 1,726
 ��
 (13,340)
   Amounts reclassified from AOCI —
 5
 (1,573)(2)(1,568)
 Net current period AOCI (15,066) 1,731
 (1,573) (14,908)
Balance December 31, 2016 $(95,500) $(826) $(290,145) $(386,471)

19

Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)

Balance March 31, 2017 $(87,212) $2,153
 $(311,119) $(396,178)
   AOCI before reclassifications 19,502
 (835) 23,901
 42,568
   Amounts reclassified from AOCI —
 (2,177) (18,837)(2)(21,014)
 Net current period AOCI 19,502
 (3,012) 5,064
 21,554
Balance December 31, 2017 $(67,710) $(859) $(306,055) $(374,624)
Balance March 31, 2016 $(58,816) $(2,920) $(285,426) $(347,162)
   AOCI before reclassifications (36,684) 2,100
 —
 (34,584)
   Amounts reclassified from AOCI —
 (6) (4,719)(2)(4,725)
 Net current period AOCI (36,684) 2,094
 (4,719) (39,309)
Balance December 31, 2016 $(95,500) $(826) $(290,145) $(386,471)

(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 allocatedincome. Refer to production as inventoried costs.
Issuance of Restricted Stock Awards and Stock Options
Included in the employment agreementNote 9 for additional disclosure regarding the Company's CEO were restricted stock awards totaling 179,134 shares. The awards generally vest in full after four to seven years. The fair value of the awards is determined by the product of the number of shares granted, the grant date market price of the Company's stock and adjusted for the market conditions necessary to achieve the awards. Certain of these awards contain performance conditions, in addition to service conditions. The fair value of the awards is expensed over a graded vesting period of the requisite service period of four to seven years. In addition the employment agreement included 150,000 stock options with an exercise price of $30.86, a contractual term of 10 years and vesting over a 4-year period.


20

postretirement benefit plans.
Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)

11.SEGMENTS

The Company has fourreports financial performance based on the following 2 reportable segments: Integrated Systems & Support and Aerospace Structures, Precision Components and Product Support.Structures. The Company’s reportable segments are aligned with how the business is managed, and the Company's views of the markets that the Companyit serves. The Chief Operating Decision Maker (the "CODM") evaluates performance and allocates resources based upon review of segment information. The CODM utilizes earnings before interest, income taxes, depreciation and amortization, and pension (“Adjusted EBITDA”EBITDAP”) as a primary measure of segment profitability to evaluate performance of its segments and allocate resources.

Integrated Systems consists of the Company’s operations that provides 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 electro-mechanical 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-mechanical and electromechanical primary and secondary flight controls; and a broad spectrum of surface treatment options.
Aerospace Structures consists of the Company’s operations that supply commercial, business, regional and military manufacturers with large metallic and composite structures. Products include wings, wing boxes, fuselage panels, horizontal and vertical tails and sub-assemblies such as floor grids. Inclusive of most of the former Vought Aircraft Division, Aerospace Structures also has the capability to engineer detailed structural designs in metal and composites.
Precision Components consists of the Company’s operations that produce close-tolerance parts primarily to customer designs and model-based definition, including a wide range of aluminum, hard metal and composite structure capabilities. Capabilities include complex machining, gear manufacturing, sheet metal fabrication, forming, advanced composite and interior structures, joining processes such as welding, autoclave bonding and conventional mechanical fasteners and a variety of special processes including: super plastic titanium forming, aluminum and titanium chemical milling and surface treatments.
Product Support consists of the Company’s operations that provide 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 line maintenance, component MRO and postproduction supply chain activities, Product Support is positioned to provide integrated planeside repair solutions globally. Capabilities include fuel tank repair, metallic and composite aircraft structures, nacelles, thrust reversers, interiors, auxiliary power units and a wide variety of pneumatic, hydraulic, fuel and mechanical accessories.

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’s segments, including restructuring of $17,089 for the nine months ended December 31, 2017.

segments.

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.

22

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, except per share data)

Selected financial information for each reportable segment and the reconciliation of Adjusted EBITDA to operating income is as follows:

 Three Months Ended December 31, Nine Months Ended December 31,
 2017 2016 2017 2016
Net sales:       
Integrated Systems$239,198
 $256,080
 $711,099
 $758,803
Aerospace Structures282,495
 304,235
 807,754
 956,114
Precision Components219,675
 226,294
 685,701
 740,354
Product Support68,039
 87,292
 202,839
 257,317
Elimination of inter-segment sales(34,161) (29,038) (105,302) (99,703)
 $775,246
 $844,863
 $2,302,091
 $2,612,885

21

 

 

Three Months Ended December 31, 2021

 

 

 

Total

 

 

Corporate &
Eliminations

 

 

Systems &
Support

 

 

Aerospace
Structures

 

Net sales to external customers

 

$

319,249

 

 

$

—

 

 

$

236,281

 

 

$

82,968

 

Segment profit and reconciliation to consolidated income before income taxes:

 

 

 

 

 

 

 

 

 

 

 

 

     Adjusted EBITDAP

 

 

47,043

 

 

 

—

 

 

 

47,450

 

 

 

(407

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of segment profit to income before income taxes

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

(11,659

)

 

 

(733

)

 

 

(7,821

)

 

 

(3,105

)

Interest expense and other, net

 

 

(32,319

)

 

 

 

 

 

 

 

 

 

Corporate expenses

 

 

(5,533

)

 

 

 

 

 

 

 

 

 

Share-based compensation expense

 

 

(2,592

)

 

 

 

 

 

 

 

 

 

Amortization of acquired contract liabilities

 

 

938

 

 

 

 

 

 

 

 

 

 

Non-service defined benefit income

 

 

14,400

 

 

 

 

 

 

 

 

 

 

     Debt extinguishment loss

 

 

(1,935

)

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

8,343

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total capital expenditures

 

$

8,336

 

 

$

4

 

 

$

7,984

 

 

$

348

 

Total assets

 

$

1,752,539

 

 

$

167,893

 

 

$

1,394,608

 

 

$

190,038

 

 

 

Three Months Ended December 31, 2020

 

 

 

Total

 

 

Corporate &
Eliminations

 

 

Systems &
Support

 

 

Aerospace
Structures

 

Net sales to external customers

 

$

425,994

 

 

$

—

 

 

$

263,638

 

 

$

162,356

 

Intersegment sales (eliminated in consolidation)

 

 

—

 

 

 

(536

)

 

 

482

 

 

 

54

 

Segment profit and reconciliation to consolidated income before income taxes:

 

 

 

 

 

 

 

 

 

 

 

 

     Adjusted EBITDAP

 

 

61,407

 

 

 

—

 

 

 

46,746

 

 

 

14,661

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of segment profit to loss before income taxes

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

(22,119

)

 

 

(989

)

 

 

(8,353

)

 

 

(12,777

)

Interest expense and other, net

 

 

(44,881

)

 

 

 

 

 

 

 

 

 

Corporate expenses

 

 

(8,483

)

 

 

 

 

 

 

 

 

 

Share-based compensation expense

 

 

(3,679

)

 

 

 

 

 

 

 

 

 

Loss on sale of assets and businesses

 

 

(45,273

)

 

 

 

 

 

 

 

 

 

Amortization of acquired contract liabilities

 

 

6,867

 

 

 

 

 

 

 

 

 

 

Non-service defined benefit income

 

 

12,432

 

 

 

 

 

 

 

 

 

 

     Impairment of rotable inventory

 

 

(23,689

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

 

(67,418

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total capital expenditures

 

$

6,184

 

 

$

158

 

 

$

2,308

 

 

$

3,718

 

23

Table of Contents

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollarsDollars in thousands, except per share data)

 

 

Nine Months Ended December 31, 2021

 

 

 

Total

 

 

Corporate &
Eliminations

 

 

Systems &
Support

 

 

Aerospace
Structures

 

Net sales to external customers

 

$

1,073,291

 

 

$

—

 

 

$

743,444

 

 

$

329,847

 

Intersegment sales (eliminated in consolidation)

 

 

—

 

 

 

(47

)

 

 

31

 

 

 

16

 

Segment profit and reconciliation to consolidated income before income taxes:

 

 

 

 

 

 

 

 

 

 

 

 

     Adjusted EBITDAP

 

 

159,327

 

 

 

—

 

 

 

135,345

 

 

 

23,982

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of segment profit to loss before income taxes

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

(40,035

)

 

 

(2,592

)

 

 

(24,765

)

 

 

(12,678

)

Interest expense and other, net

 

 

(105,060

)

 

 

 

 

 

 

 

 

 

Corporate expenses

 

 

(36,164

)

 

 

 

 

 

 

 

 

 

Share-based compensation expense

 

 

(7,664

)

 

 

 

 

 

 

 

 

 

Loss on sale of assets and businesses

 

 

(13,629

)

 

 

 

 

 

 

 

 

 

Amortization of acquired contract liabilities

 

 

3,645

 

 

 

 

 

 

 

 

 

 

Non-service defined benefit income

 

 

23,127

 

 

 

 

 

 

 

 

 

 

Debt extinguishment loss

 

 

(11,624

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

 

(28,077

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total capital expenditures

 

$

15,817

 

 

$

518

 

 

$

11,741

 

 

$

3,558

 

 

 

Nine Months Ended December 31, 2020

 

 

 

Total

 

 

Corporate &
Eliminations

 

 

Systems &
Support

 

 

Aerospace
Structures

 

Net sales to external customers

 

$

1,402,886

 

 

$

—

 

 

$

755,290

 

 

$

647,596

 

Intersegment sales (eliminated in consolidation)

 

 

—

 

 

 

(4,357

)

 

 

2,888

 

 

 

1,469

 

Segment profit and reconciliation to consolidated income before income taxes:

 

 

 

 

 

 

 

 

 

 

 

 

     Adjusted EBITDAP

 

 

131,067

 

 

 

—

 

 

 

110,983

 

 

 

20,084

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of segment profit to loss before income taxes

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

(72,819

)

 

 

(2,652

)

 

 

(24,830

)

 

 

(45,337

)

Interest expense and other, net

 

 

(132,344

)

 

 

 

 

 

 

 

 

 

Corporate expenses

 

 

(42,027

)

 

 

 

 

 

 

 

 

 

Share-based compensation expense

 

 

(9,086

)

 

 

 

 

 

 

 

 

 

Loss on sale of assets and businesses

 

 

(46,020

)

 

 

 

 

 

 

 

 

 

Amortization of acquired contract liabilities

 

 

35,017

 

 

 

 

 

 

 

 

 

 

Non-service defined benefit income

 

 

37,275

 

 

 

 

 

 

 

 

 

 

Impairment of rotable inventory

 

 

(23,689

)

 

 

 

 

 

 

 

 

 

Impairment of long-lived assets

 

 

(252,382

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

 

(375,008

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total capital expenditures

 

$

18,988

 

 

$

801

 

 

$

11,819

 

 

$

6,368

 

(unaudited)

 Three Months Ended December 31, Nine Months Ended December 31,
 2017 2016 2017 2016
        
(Loss) income before income taxes:       
Operating income (expense):       
Integrated Systems$42,667
 $51,596
 $132,171
 $145,379
Aerospace Structures12,022
 23,867
 23,253
 57,898
Precision Components(186,225) 2,942
 (191,100) 7,223
Product Support12,399
 14,662
 32,069
 42,986
Corporate(567) (37,901) (78,840) (81,107)
 (119,704) 55,166
 (82,447) 172,379
Interest expense and other25,836
 19,698
 72,229
 55,721
 $(145,540) $35,468
 $(154,676) $116,658
        
Depreciation and amortization:       
Integrated Systems$8,318
 $9,766
 $27,857
 $30,228
Aerospace Structures19,048
 17,942
 57,484
 54,289
Precision Components9,850
 13,999
 27,858
 42,344
Product Support1,663
 2,294
 5,068
 7,230
Corporate441
 330
 1,051
 989
 $39,320
 $44,331
 $119,318
 $135,080
        
Impairment charge of intangible assets:       
Precision Components$190,227
 $—
 $190,227
 $—
        
Amortization of acquired contract liabilities, net:       
Integrated Systems$11,634
 $7,628
 $28,235
 $27,101
Aerospace Structures21,352
 21,105
 60,315
 60,190
Precision Components1,506
 473
 3,312
 1,740
 $34,492
 $29,206
 $91,862
 $89,031
        
Adjusted EBITDA:       
Integrated Systems$39,351
 $53,734
 $131,793
 $148,506
Aerospace Structures9,718
 20,704
 20,422
 51,997
Precision Components12,346
 16,468
 23,673
 47,827
Product Support14,062
 16,956
 37,137
 50,216
Corporate(15,225) (23,221) (71,994) (60,994)
 $60,252
 $84,641
 $141,031
 $237,552
        
        
Capital expenditures:       
Integrated Systems$1,903
 $2,763
 $5,923
 $8,586
Aerospace Structures2,384
 2,228
 9,503
 9,820
Precision Components3,407
 2,636
 12,563
 11,040
Product Support599
 687
 1,629
 2,020
Corporate864
 843
 2,314
 1,657
 $9,157
 $9,157
 $31,932
 $33,123

22

Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)

 December 31, 2017 March 31, 2017
Total Assets:   
Integrated Systems$1,220,259
 $1,281,828
Aerospace Structures1,573,942
 1,548,239
Precision Components1,056,015
 1,262,691
Product Support285,302
 284,231
Corporate50,414
 37,611
 $4,185,932
 $4,414,600

During the three months ended December 31, 20172021 and 2016,2020, the Company had internationalforeign sales of $184,182$73,093 and $198,052,$78,440, respectively.

During the nine months ended December 31, 20172021 and 2016,2020, the Company had internationalforeign sales of $529,226$231,136 and $561,177,$267,370, respectively.



12.SELECTED CONDENSED CONSOLIDATING FINANCIAL STATEMENTS OF PARENT, GUARANTORS AND NON-GUARANTORS

The 2021 Notes, the 2022 Notes and the 2025 Notes are fully and unconditionally guaranteed on a joint and several basis by the Guarantor Subsidiaries. The total assets, stockholders' equity, revenue, earnings and cash flows from operating activities of the Guarantor Subsidiaries exceeded a majority of the consolidated total of such items as of and for the periods reported. The only consolidated subsidiaries of the Company that are not guarantors of the 2021 Notes, the 2022 Notes and the 2025 Notes (the “Non-Guarantor Subsidiaries”) are: (a) the receivables securitization special-purpose entity; and (b) the foreign operating subsidiaries. The following tables present condensed consolidating financial statements including the Company (the “Parent”), the Guarantor Subsidiaries, and the Non-Guarantor Subsidiaries. Such financial statements include summary Condensed Consolidating Balance Sheets as of December 31, 2017 and March 31, 2017, Condensed Consolidating Statements of Comprehensive Income for the three and nine months ended December 31, 2017 and 2016, and Condensed Consolidating Statements of Cash Flows for the nine months ended December 31, 2017 and 2016.





23

Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)


SUMMARY CONDENSED CONSOLIDATING BALANCE SHEETS:

 December 31, 2017
 Parent 
Guarantor
 Subsidiaries
 
Non-Guarantor
 Subsidiaries
 Eliminations 
Consolidated
 Total
Current assets:         
Cash and cash equivalents$12,628
 $8,396
 $43,364
 $—
 $64,388
Trade and other receivables, net—
 69,305
 251,694
 —
 320,999
Inventories—
 1,342,611
 120,113
 —
 1,462,724
Prepaid expenses and other20,027
 10,469
 13,004
 —
 43,500
Total current assets32,655
 1,430,781
 428,175
 —
 1,891,611
Property and equipment, net10,920
 618,925
 120,077
 —
 749,922
Goodwill and other intangible assets, net—
 1,321,175
 134,145
 —
 1,455,320
Other, net21,496
 45,329
 22,254
 —
 89,079
Intercompany investments and advances2,354,461
 81,541
 72,512
 (2,508,514) —
Total assets$2,419,532
 $3,497,751
 $777,163
 $(2,508,514) $4,185,932
     
Current liabilities:         
Current portion of long-term debt$574
 $14,561
 $—
 $—
 $15,135
Accounts payable3,324
 340,106
 43,651
 —
 387,081
Accrued expenses49,520
 531,133
 46,758
 —
 627,411
Total current liabilities53,418
 885,800
 90,409
 —
 1,029,627
Long-term debt, less current portion1,317,662
 41,814
 —
 —
 1,359,476
Intercompany advances283,926
 2,080,159
 488,955
 (2,853,040) —
Accrued pension and other postretirement benefits, noncurrent6,608
 503,033
 —
 —
 509,641
Deferred income taxes and other9,404
 495,634
 33,636
 —
 538,674
Total stockholders’ equity748,514
 (508,689) 164,163
 344,526
 748,514
Total liabilities and stockholders’ equity$2,419,532
 $3,497,751
 $777,163
 $(2,508,514) $4,185,932







24

Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)



SUMMARY CONDENSED CONSOLIDATING BALANCE SHEETS:
 March 31, 2017
 Parent 
Guarantor
 Subsidiaries
 
Non-Guarantor
 Subsidiaries
 Eliminations 
Consolidated
 Total
Current assets:         
Cash and cash equivalents$19,942
 $24,137
 $25,554
 $—
 $69,633
Trade and other receivables, net546
 34,874
 276,372
 —
 311,792
Inventories—
 1,243,461
 96,714
 —
 1,340,175
Prepaid expenses and other7,763
 11,678
 10,623
 —
 30,064
Assets held for sale—
 3,250
 18,005
 —
 21,255
Total current assets28,251
 1,317,400
 427,268
 —
 1,772,919
Property and equipment, net8,315
 673,153
 123,562
 —
 805,030
Goodwill and other intangible assets, net—
 1,560,050
 174,919
 —
 1,734,969
Other, net17,902
 67,955
 15,825
 —
 101,682
Intercompany investments and advances2,057,534
 81,541
 77,090
 (2,216,165) —
Total assets$2,112,002
 $3,700,099
 $818,664
 $(2,216,165) $4,414,600
          
Current liabilities:         
Current portion of long-term debt$33,298
 $14,432
 $112,900
 $—
 $160,630
Accounts payable17,291
 426,646
 37,306
 —
 481,243
Accrued expenses53,829
 578,457
 42,093
 —
 674,379
Liabilities related to assets held for sale—
 —
 18,008
 —
 18,008
Total current liabilities104,418
 1,019,535
 210,307
 —
 1,334,260
Long-term debt, less current portion974,693
 60,977
 —
 —
 1,035,670
Intercompany advances178,381
 1,754,529
 370,907
 (2,303,817) —
Accrued pension and other postretirement benefits, noncurrent6,633
 585,501
 —
 —
 592,134
Deferred income taxes and other1,403
 564,358
 40,302
 —
 606,063
Total stockholders’ equity846,474
 (284,801) 197,148
 87,652
 846,473
Total liabilities and stockholders’ equity$2,112,002
 $3,700,099
 $818,664
 $(2,216,165) $4,414,600





25

Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)


CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME:

 For the Three Months Ended December 31, 2017
 Parent 
Guarantor
 Subsidiaries
 
Non-Guarantor
 Subsidiaries
 Eliminations 
Consolidated
 Total
Net sales$—
 $705,792
 $88,443
 $(18,989) $775,246
          
Operating costs and expenses:         
Cost of sales—
 563,033
 68,162
 (18,989) 612,206
Selling, general and administrative27,914
 27,331
 6,902
 —
 62,147
Depreciation and amortization441
 34,606
 4,273
 —
 39,320
Impairment of intangible assets—
 135,013
 55,214
 —
 190,227
Restructuring2,382
 2,637
 1,130
 —
 6,149
Curtailment and settlement gain, net

(15,099) —
 —
 —
 (15,099)
 15,638
 762,620
 135,681
 (18,989) 894,950
Operating (loss) income(15,638) (56,828) (47,238) —
 (119,704)
Intercompany interest and charges(39,386) 38,877
 509
 —
 —
Interest expense and other23,686
 2,796
 (646) —
 25,836
Income (loss) before income taxes62
 (98,501) (47,101) —
 (145,540)
Income (benefit) tax expense(49,074) 15,715
 1,071
 —
 (32,288)
Net income (loss)49,136
 (114,216) (48,172) —
 (113,252)
Other comprehensive (loss) income(613) 7,235
 (1,824) —
 4,798
Total comprehensive (loss) income$48,523
 $(106,981) $(49,996) $—
 $(108,454)







26

Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME:

 For the Three Months Ended December 31, 2016
 Parent 
Guarantor
 Subsidiaries
 
Non-Guarantor
 Subsidiaries
 Eliminations 
Consolidated
 Total
Net sales$—
 $772,916
 $90,526
 $(18,579) $844,863
          
Operating costs and expenses:         
Cost of sales—
 599,381
 72,397
 (18,579) 653,199
Selling, general and administrative16,955
 41,991
 7,804
 —
 66,750
Depreciation and amortization331
 39,850
 4,150
 —
 44,331
Restructuring6,231
 4,449
 387
 —
 11,067
Loss on divestiture and assets held for sale14,350
 —
 —
 —
 14,350
 37,867
 685,671
 84,738
 (18,579) 789,697
Operating (loss) income(37,867) 87,245
 5,788
 —
 55,166
Intercompany interest and charges(45,597) 43,466
 2,131
 —
 —
Interest expense and other18,542
 3,963
 (2,807) —
 19,698
(Loss) income before income taxes(10,812) 39,816
 6,464
 —
 35,468
Income (benefit) tax expense(8,980) 13,666
 1,450
 —
 6,136
Net (loss) income(1,832) 26,150
 5,014
 —
 29,332
Other comprehensive (loss) income1,731
 (1,573) (15,066) —
 (14,908)
Total comprehensive (loss) income$(101) $24,577
 $(10,052) $—
 $14,424


27

Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME:

 For the Nine Months Ended December 31, 2017
 Parent 
Guarantor
 Subsidiaries
 
Non-Guarantor
 Subsidiaries
 Eliminations 
Consolidated
 Total
Net sales$—
 $2,096,894
 $266,101
 $(60,904) $2,302,091
          
Operating costs and expenses:         
Cost of sales—
 1,667,935
 214,482
 (60,904) 1,821,513
Selling, general and administrative69,820
 118,006
 26,108
 —
 213,934
Depreciation and amortization1,050
 105,781
 12,487
 —
 119,318
Impairment of intangible assets—
 135,013
 55,214
 —
 190,227
Restructuring17,089
 13,883
 2,779
 —
 33,751
Loss on divestiture20,371
 —
 —
 —
 20,371
Curtailment and settlement gain, net(14,576) —
 —
 —
 (14,576)
 93,754
 2,040,618
 311,070
 (60,904) 2,384,538
Operating (loss) income(93,754) 56,276
 (44,969) —
 (82,447)
Intercompany interest and charges(122,339) 116,076
 6,263
 —
 —
Interest expense and other63,092
 8,181
 956
 —
 72,229
(Loss) income before income taxes(34,507) (67,981) (52,188) —
 (154,676)
Income tax (benefit) expense(64,823) 31,414
 (706) —
 (34,115)
Net income (loss)30,316
 (99,395) (51,482) —
 (120,561)
Other comprehensive (loss) income(3,012) 5,064
 19,502
 —
 21,554
Total comprehensive income (loss)$27,304
 $(94,331) $(31,980) $—
 $(99,007)























28

Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)



CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME:
 For the Nine Months Ended December, 2016
 Parent 
Guarantor
 Subsidiaries
 
Non-Guarantor
 Subsidiaries
 Eliminations 
Consolidated
 Total
Net sales$—
 $2,388,881
 $281,978
 $(57,974) $2,612,885
          
Operating costs and expenses:         
Cost of sales—
 1,883,122
 227,752
 (57,974) 2,052,900
Selling, general and administrative45,052
 137,609
 22,561
 —
 205,222
Depreciation and amortization989
 121,412
 12,679
 —
 135,080
Restructuring15,831
 11,735
 614
 —
 28,180
Loss on divestiture and assets held for sale19,124
 —
 —
 —
 19,124
 80,996
 2,153,878
 263,606
 (57,974) 2,440,506
Operating (loss) income(80,996) 235,003
 18,372
 —
 172,379
Intercompany interest and charges(144,666) 137,909
 6,757
 —
 —
Interest expense and other53,657
 8,729
 (6,665) —
 55,721
Income before income taxes10,013
 88,365
 18,280
 —
 116,658
Income tax (benefit) expense(7,359) 35,783
 4,362
 —
 32,786
Net income17,372
 52,582
 13,918
 —
 83,872
Other comprehensive income (loss)2,094
 (4,719) (36,684) —
 (39,309)
Total comprehensive income (loss)$19,466
 $47,863
 $(22,766) $—
 $44,563






















29

Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)


CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS:
 For the Nine Months Ended December 31, 2017
 Parent 
Guarantor
 Subsidiaries
 
Non-Guarantor
 Subsidiaries
 Eliminations 
Consolidated
 Total
Net income (loss)$30,316
 $(99,395) $(51,482) $—
 $(120,561)
          
Adjustments to reconcile net income to net cash (used in) operating activities provided by(54,460) (139,525) 73,560
 42,707
 (77,718)
Net cash (used in) provided by operating activities(24,144) (238,920) 22,078
 42,707
 (198,279)
Capital expenditures(2,314) (25,507) (4,111) —
 (31,932)
Proceeds from sale of assets—
 68,009
 403
 —
 68,412
Net cash (used in) provided by investing activities(2,314) 42,502
 (3,708) —
 36,480
Net increase in revolving credit facility20,000
 —
 —
 —
 20,000
Proceeds on issuance of debt500,000
 —
 31,500
 —
 531,500
Retirements and repayments of debt(314,628) (19,333) (35,300) —
 (369,261)
Payments of deferred financing costs(17,729) —
 —
 —
 (17,729)
Dividends paid(5,956) —
 —
 —
 (5,956)
Repurchase of restricted shares for minimum tax obligation(369) —
 —
 —
 (369)
Intercompany financing and advances(162,174) 200,010
 4,871
 (42,707) —
Net cash provided by (used in)financing activities19,144
 180,677
 1,071
 (42,707) 158,185
Effect of exchange rate changes on cash—
 —
 (1,631) —
 (1,631)
Net change in cash and cash equivalents(7,314) (15,741) 17,810
 —
 (5,245)
Cash and cash equivalents at beginning of period19,942
 24,137
 25,554
 —
 69,633
Cash and cash equivalents at end of period$12,628
 $8,396
 $43,364
 $—
 $64,388












30

Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)



CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS:
 For the Nine Months Ended December, 2016
 Parent 
Guarantor
 Subsidiaries
 
Non-Guarantor
 Subsidiaries
 Eliminations 
Consolidated
 Total
Net income$17,372
 $52,582
 $13,918
 $—
 $83,872
          
Adjustments to reconcile net income to net cash provided by (used in) operating activities(2,419) (294,036) 27,922
 12,010
 (256,523)
Net cash provided by (used in) operating activities14,953
 (241,454) 41,840
 12,010
 (172,651)
Capital expenditures(1,657) (22,442) (9,024) —
 (33,123)
Proceeds from sale of assets—
 22,253
 932
 —
 23,185
Acquisitions, net of cash acquired—
 9
 —
 —
 9
Net cash used in investing activities(1,657) (180) (8,092) —
 (9,929)
Net increase in revolving credit facility316,121
 —
 —
 —
 316,121
Proceeds on issuance of debt201
 —
 12,700
 —
 12,901
Retirements and repayments of debt(21,368) (10,676) (63,700) —
 (95,744)
Payments of deferred financing costs(14,012) —
 —
 —
 (14,012)
Dividends paid(5,944) —
 —
 —
 (5,944)
Repayment of government grant—
 (14,570) —
 —
 (14,570)
Repurchase of restricted shares for minimum tax obligations(182) —
 —
 —
 (182)
Intercompany financing and advances(288,995) 275,159
 25,846
 (12,010) —
Net cash (used in) provided by financing activities(14,179) 249,913
 (25,154) (12,010) 198,570
Effect of exchange rate changes on cash—
 —
 (1,513) —
 (1,513)
Net change in cash and cash equivalents(883) 8,279
 7,081
 —
 14,477
Cash and cash equivalents at beginning of period1,544
 201
 19,239
 —
 20,984
Cash and cash equivalents at end of period$661
 $8,480
 $26,320
 $—
 $35,461


31

Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)


13.    

12.COMMITMENTS AND CONTINGENCIES

In the ordinary course of business, the Company is involved in disputes, claimsdisputes; claims; and lawsuits with employees, suppliers, and customers,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 injunctive relief. While the Company cannot predict the outcome of any pending

24

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, except per share data)

or future litigation or proceeding and no assurances can be given, the Company does not believe that any pending matter will have a material effect, individually or in the aggregate, on its financial position or results of operations.

As the Company completes its restructuring plans as disclosed in Note 13, including the disposal of certain facilities, the Company may be exposed to additional costs such as environmental remediation obligations, lease termination costs, or supplier claims which may have a material effect on its financial position or results of operations when such matters arise and a reasonable estimate of the costs can be made. For example, the Company participates in a multiemployer pension plan for the benefit of certain represented employees at its Spokane, Washington, composites manufacturing operations. Under the terms of the multiemployer pension plan, it is reasonably possible that the Company will trigger a withdrawal liability related to the exit of the related facilities and termination of the affected employees. The amount of this potential liability is determined based on the funded status of the plan at the time of withdrawal from the plan. The funded status of the plan is measured by estimating the value of the plan's assets and liabilities, and these values can change significantly based on market conditions and changes in actuarial assumptions made by the plan sponsor. If a withdrawal liability is triggered, the obligation would likely be satisfied through annual payments over a period of at least ten years.

25

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, except per share data)


14.    

13.RESTRUCTURING COSTS

During

As disclosed in the Company's Form 10-K for the fiscal year ended March 31, 2020, during the fiscal years ended March 31, 2017 and 2016, the Company committed to a restructuring ofplans involving certain of its businesses, as well as the consolidation of certain of its facilities ("2017 Restructuring Plan")facilities. With the exception of certain consolidations to be completed in future years, these plans were substantially complete as of March 31, 2020. During the nine months ended December 31, 2021, the Company incurred costs of $1,153, $11,447, and $432, within Systems & Support, Aerospace Structures, and its corporate headquarters, respectively, for total restructuring costs of $13,031. The Company expects to reduce its footprint by approximately 1.0 million square feet, to reduce head count by approximately 100 employeesrestructuring costs represent third-party facility closures, third-party consulting costs, and to amend certain contracts. Over the next few fiscal years, theseverance. The Company estimates that it will record aggregate pre-tax chargesincur consolidated restructuring costs of $55,000 to $60,000 related to these programs, which represent employee termination benefits, contract termination costs, accelerated depreciation and facility closure and other exit costs, and will result in future cash outlays.

Duringapproximately $15,000 for the fiscal year ended March 31, 2016,2022, with the majority of the remaining costs associated with Aerospace Structures facility closures.

14.SUBSEQUENT EVENTS

Subsequent to December 31, 2021, the Company entered into a definitive agreement to sell its manufacturing operations located in Stuart, Florida. The Stuart operations specialize in the assembly of large, complex metallic structures such as wing and fuselage assemblies. Specific terms and conditions of the sale are still being finalized. The transaction is subject to customary closing conditions and is expected to close in the first half of calendar year 2022 and result in a gain. The operating results of the Stuart, Florida, operations are included within the Aerospace Structures reportable segment. As of December 31, 2021, the Board of Directors had not committed to a restructuring of certain of its businessesplan to sell the Stuart operations due to uncertainty pertaining to specific terms and conditions, and therefore the transaction did not meet the requirements for the related assets and liabilities to be classified as well as the consolidation of certain of its facilities ("2016 Restructuring Plan"). The Company expects to reduce its footprint by approximately 3.5 million square feet and to reduce head count by approximately 1,200 employees. Over the next few fiscal years, the Company estimates that it will record aggregate pre-tax charges of $140,000 to $150,000 related to these programs, which represent employee termination benefits, contract termination costs, accelerated depreciation and facility closure and other exit costs, and will result in future cash outlays.

The following table provides a summary of the Company's current aggregate cost estimates by major type of expense associated with the restructuring plans noted above:
Type of expense: Total estimated amount expected to be incurred
Termination benefits $21,000
Facility closure and other exit costs (1) 44,000
Contract termination costs 18,000
Accelerated depreciation charges (2) 37,000
Other (3) 89,000
  $209,000
(1) Includes costs to transfer product lines among facilities and outplacement and employee relocation costs.
(2) Accelerated depreciation charges are recorded as part of Depreciation and amortizationheld for sale on the Consolidated Statement of Operations.accompanying condensed consolidated balance sheets.

(3) Consists of other costs directly related to the plan, including project management, legal, regulatory costs and other transformation related costs, such as costs to amend certain contracts.
The restructuring charges recognized for the three and nine months ended December 31, 2017 and 2016, by type and by segment consisted of the following:

32

26

Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)

 For the Three Months Ended December 31, 2017
 Integrated Systems Aerospace Structures Precision Components Product Support Corporate Total
Termination benefits$26
 $—
 $1,121
 $—
 $—
 $1,147
Facility closure and other exit costs—
 —
 474
 —
 —
 474
Other929
 980
 218
 19
 2,382
 4,528
    Total Restructuring955
 980
 1,813
 19
 2,382
 6,149
Depreciation and amortization382
 —
 —
 —
 —
 382
Total$1,337
 $980
 $1,813
 $19
 $2,382
 $6,531
 For the Three Months Ended December 31, 2016
 Integrated Systems Aerospace Structures Precision Components Product Support Corporate Total
Termination benefits$—
 $—
 $494
 $57
 $—
 $551
Facility closure and other exit costs—
 297
 1,209
 180
 —
 1,686
Other49
 2,296
 133
 121
 6,231
 8,830
    Total Restructuring49
 2,593
 1,836
 358
 6,231
 11,067
Depreciation and amortization46
 —
 3,006
 13
 —
 3,065
Total$95
 $2,593
 $4,842
 $371
 $6,231
 $14,132
 For the Nine Months Ended December 31, 2017
 Integrated Systems Aerospace Structures Precision Components Product Support Corporate Total
Termination benefits$26
 $—
 $1,868
 $—
 $—
 $1,894
Facility closure and other exit costs70
 3,504
 4,761
 —
 —
 8,335
Other1,673
 980
 3,001
 779
 17,089
 23,522
    Total Restructuring1,769
 4,484
 9,630
 779
 17,089
 33,751
Depreciation and amortization1,909
 —
 629
 —
 —
 2,538
Total$3,678
 $4,484
 $10,259
 $779
 $17,089
 $36,289
 For the Nine Months Ended December, 2016
 Integrated Systems Aerospace Structures Precision Components Product Support Corporate Total
Termination benefits$286
 $250
 $966
 $147
 $—
 $1,649
Facility closure and other exit costs—
 297
 1,456
 215
 —
 1,968
Other49
 6,307
 2,185
 191
 15,831
 24,563
    Total Restructuring335
 6,854
 4,607
 553
 15,831
 28,180
Depreciation and amortization139
 —
 9,854
 303
 —
 10,296
Total$474
 $6,854
 $14,461
 $856
 $15,831
 $38,476
Termination benefits include employee retention, severance and benefit payments for terminated employees. Facility closure costs include general operating costs incurred subsequent to production shutdown as well as equipment relocation and other associated costs. Contract termination costs include costs associated with terminating existing leases and supplier agreements. Other transformation costs include legal, outplacement and employee relocation costs, and other employee-related costs and costs to amend certain contracts.



33

Table Of Contents

Management's Discussion and Analysis of

Financial Condition and Results of Operations




Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.


(Operations

The following discussion should be read in conjunction with the Condensed Consolidated Financial Statementscondensed consolidated financial statements and notes thereto contained elsewhere herein.)


OVERVIEW

Business

We are a major supplier to the aerospace industry and have four operatingtwo reportable segments: (i) Integrated Systems & Support, whose companies’ revenues are derived from integrated solutions, including design, development and support of proprietary components, subsystems and systems, as well as production of complex assemblies using external designs;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 militaryregional manufacturers with large metallic structures and composite structures; (iii) Precision Components, whose companies produce close-tolerance parts primarily to customer designs and model-based definition, including a wide range of aluminum, hard metal, and composite structure capabilities;capabilities.

Divestitures

During the fiscal year ended March 31, 2021, we divested of a number of our assets and (iv) Product Support, whose companies provide full life cycle solutions for commercial, regionaloperations, including the transfer of the assets and military aircraft.

Effective January 1, 2018, we combinedcertain liabilities associated with our Gulfstream G650 wing supply chain activities. The operating results associated with the G650 wing supply chain activities were included within Aerospace Structures through the date of transfer. We recognized a net loss of approximately $0.8 million upon the completion of the transfer of the G650 wing supply chain activities in the fiscal year ended March 31, 2021.

As disclosed in Note 3, in May 2021 we completed the divestiture of our composites manufacturing operations located in Milledgeville, Georgia, and Precision Components reporting segments into one reporting segment, Aerospace Structures.Rayong, Thailand, as well as our large structure manufacturing operations located in Red Oak, Texas. The related assets and liabilities associated with these divestitures were classified as held for sale as of March 31, 2021, and we recognized combined net losses of approximately $102.5 million in the year ended March 31, 2021. Upon the completion of the divestiture, we recognized an additional loss of approximately $6.0 million primarily as a result of changes in working capital balances. These losses are presented on the accompanying condensed consolidated statements of operations within loss on sale of assets and businesses. The operating results associated with the composites and large structure manufacturing operations were included within Aerospace Structures through the date of divestiture.

As disclosed in Note 14, subsequent to December 31, 2021, we entered into a definitive agreement to sell our manufacturing operations located in Stuart, Florida. The Stuart operations specialize in the assembly of large, complex metallic structures such as wing and Precision Components share many of the same customers and suppliers and have substantial inter-company work on common programs. As a single operating segment, we believe we will be able to leverage their combined resources to make it more cost competitive and enhance performance. The newly formed operating segment will also be a reportable segment. As a result, effective January 1, 2018, we will have three reporting segments for future financial reporting purposes - Integrated Systems, Product Support and Aerospace Structures.

In September 2017, the Company sold all of the shares of Triumph Processing - Embee Division, Inc. ("Embee") for total cash proceeds of $64,986. As a resultfuselage assemblies. Upon closing of the sale of Embee,the Stuart operations, we will have exited our structures business and reshaped our portfolio of companies to consist of businesses providing systems and aftermarket services. Closing is expected to occur in the first half of calendar year 2022. The operating results associated with the Stuart operations are included within Aerospace Structures.

Refer to Note 3 for a discussion of other less significant divestitures occurring through December 31, 2021. Including the $6.0 million loss referred to above, in the nine months ended December 31, 2021, the Company recognized a losstotal losses on the sale of $17,857, which is included in Corporate. The operatingassets and businesses of approximately $13.6 million.

Summary of Significant Financial Results

Significant financial results of Embee were included in Integrated Systems through the date of disposal.

Highlights for the third quarter of the fiscal year ending March 31, 2018 included:
Net sales for the third quarter of the fiscal year ending March 31, 20182022, include:

•
Net sales were $775.2$319.2 million compared to $844.9with $426.0 million for the prior year period.
•
Operating loss in the third quarter of fiscal 2018income was $(119.7) million and included a non-cash impairment charge of $190.2$28.2 million compared to $55.2with an operating loss of $35.0 million for the third quarterprior year period.
•
Net income was $7.2 million, or $0.11 per diluted common share, compared with a net loss of fiscal 2017.
Net loss$68.1 million, or ($1.30) per diluted common share, for the third quarter of fiscal 2018 was $113.3 million, compared to net income of $29.3 million for the third quarter of fiscal 2017.prior year period.
•
Backlog as of December 31, 20172021, was $4.36 billion. Of our existing backlog$1.95 billion, of $4.36 billion,which, we estimate that approximately $1.72$1.13 billion will not be shipped by December 31, 2018.2022.
Net loss for the third quarter of fiscal 2018 was $2.29 per diluted common share, as compared to net income of $0.59 per diluted share in the prior year period.
•
We used $198.3$170.0 million of cash flow fromin operating activities for the nine months ended December 31, 2017,2021, as compared towith cash used in operations of $172.7$195.9 million in the comparable prior year period.

Restructuring

We have committed to several plans that incorporateincorporated the restructuring of certain of our businesses as well asbusinesses. As of March 31, 2021, with the consolidationexception of certain of our facilities. We expecttwo pending facility closures to reduce our footprint by approximately 4.5 million square feet and to reduce head count by 1,300 employees. Over the course of the plans (which were initiatedbe completed in fiscal 2016),2022 or 2023, we estimate that we will record aggregate pre-tax charges of $195.0 million to $210.0 million related tohave substantially completed these plans, which represent employee termination benefits, contract termination costs, accelerated depreciation and facility closure and other exit costs, and will result in future cash outlays.plans. For the nine months ended December 31, 20172021 and 2016,2020, we recorded charges of $33.8incurred $13.0 million and $28.2$32.7 million respectively, related to these plans.

Our 2016 and 2017in restructuring plans and related activities were anticipated to generate annualized savings of approximately $300 million per year on a consolidated basis bycosts, respectively. Full fiscal year 2019 from facility consolidations, headcount reductions, operational efficiencies, and supply chain optimization. These anticipated savings were2022 restructuring costs are expected to come from our reportable segments approximately as follows: Integrated Systems - 23%; Aerospace Structures - 46%; Precision Components -

34

be in the range of $15.0 million.

27

Table Of Contents

Management's Discussion and Analysis of

Financial Condition and Results of Operations

(continued)


26% and Product Support - 5%. A significant portion

COVID-19 Pandemic Response

We are unable at this time to reasonably estimate potential future additional financial impacts or a range of loss, if any, due to continued uncertainties related to the impacts of the anticipated savings are expected to be reinvested in business development, research & development and capital improvements to help drive organic growth. Through December 31, 2017, the Company isCOVID-19 pandemic on target for its consolidated anticipated savings goals, however the nature of those savings has shifted over time to be more weighted towards our operations, supply chain, optimization and operational efficiencies than previously anticipated, offsetcustomers. Any such impacts, including any changes in our estimates, could have a material adverse effect on our financial position, results of operations, and cash flows. Key factors determining the potential impacts include the severity and duration of the pandemic which could be impacted by reduced expectations associatedthe emergence and circulation of new variants of SARS-CoV-2, the virus that causes COVID-19; governmental, business, and individuals' actions in response to the pandemic; and the development, availability, and public acceptance of effective treatments and vaccines. These factors are not within our control. In response to the continued uncertainties arising from the impact of the COVID-19 pandemic, we have maintained certain of the cost reduction initiatives originally implemented in late fiscal 2020.

Pursuant to the Biden Administration’s Executive Order 14042, all U.S. based employees of Triumph and certain of its suppliers, industry partners, and contractors working directly or indirectly on covered government contracts, or working at a facility where those contracts are performed, administered, or otherwise supported, must be fully vaccinated, or have an approved medical or religious accommodation. This includes employees who telework. A majority of our workforce is already fully vaccinated. While we are in the process of complying with the facility consolidationsrequirements of this executive order across our workforce and headcount reductions.

Our most recent annual goodwill impairment test was performed for all reporting units as of February 1, 2017. We also perform the 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. We performed an interim assessmentactively taking steps to assess and mitigate risks arising from vaccine requirements, we continue to monitor court rulings with regard to certain of the fair value oflegal challenges that have been raised in response to Executive Order 14042. If the vaccine mandate is upheld by court ruling, it is uncertain to what extent compliance with the vaccine mandate may result in workforce attrition for us or our goodwill duecustomers and suppliers. If attrition is significant, our operations and ability to execute on our decision to combine the Aerospace Structures and Precision Components reporting segments into one reporting segment as noted above. In accordance with ASC 350-20-35-3C, there are several potential events and circumstances thatcontracts could be indicatorsadversely affected.

Significant Developments in Key Programs

Discussion of goodwill impairment. A change in a company's reporting unit structuresignificant developments on key programs is oneincluded below.

Boeing 787

The Boeing 787 program represented approximately 6% of these events, and when this does occur, a company must perform a 'before and after" test of the reporting units. Additionally, the Company's enhanced visibility into its future cash flows based on its annual planning process was also an indicator. Consistent with our policy described in the Form 10-Krevenue for the fiscal year ended March 31, 2017, we performed2021. During 2020, Boeing experienced significant reductions in deliveries due to the goodwill impairment test, which includes using a combination of both the market and income approaches to estimate the fair value of each reporting unit.

After performing the "before" portionimpacts of the test of the reporting units and concluded that the Precision Component's goodwill had a fair value that was lower then its carrying value by an amount of $190.2 million. Accordingly, we recorded a non-cash impairment charge during the quarter ended December 31, 2017 of $190.2 million, which is presented on the accompanying Consolidated Statements of Operations as "Impairment of intangible assets”. The decline in fair value is the result of declining revenues from production rate reductions on sun-setting programs and the slower than previously projected ramp in our development programs and the timing of associated earnings and cash flows
The Company then performed the "after" portion of the test of the reporting units and concluded that the new reporting unit of Aerospace Structure's goodwill had a fair value that was lower then its carrying value by an amount that exceeded the remaining goodwill for the reporting unit. Following the applicable accounting guidance, this impairment charge is deemed to have occurred during the Company's fiscal fourth quarter. Therefore, we will record a non-cash impairment charge during the quarter ended March 31, 2018 of $345.0 million, which will be presented on the Consolidated Statements of Operations as "Impairment of intangible assets” for the fiscal year ended March 31, 2018. The decline in fair value is the result of declining revenues from production rate reductions on sun-setting programs and the slower than previously projected ramp in our development programs and the timing of associated earnings and cash flows (See Note 2 for definition of fair value levels).
On December 22, 2017, the U.S. government enacted comprehensive tax legislation referred to as the Tax Cuts and Jobs Act (the “Act”). The Act introduces tax reform that reduces the current corporate federal income tax rate from 35% to 21%, among other changes. The Act makes broad and complex changes to the U.S. tax code and it will take time to fully evaluate the impact of these changes on the Company. The Company has recorded a provisional tax benefit of $24.6 million related to the impact of the Act’s reduction in the statutory tax rate on its net deferred tax liability,COVID-19 pandemic as well as a provisional tax liabilityproduction issues and associated rework. Boeing expanded the scope of $2.2 million imposed on unremitted foreign earnings under the Act’s mandatory repatriation provisions. The Company has prepared a reasonable estimate around the impactits production inspections, and those inspections and associated rework have and continue to delay scheduled deliveries. While Boeing resumed deliveries of the Act787 aircraft in March, Boeing announced in July 2021 that additional rework requirements on undelivered 787 aircraft had been identified and has recordedthat, based on their assessment of the provisional impact (SAB 118) as discrete adjustments noted abovetime required to complete the tax provisionrework, the 787 production rate would temporarily be reduced to two per month, gradually returning to a higher rate. In January 2022, Boeing announced that the rework activities will take longer than previously expected and that program production rates remain low. Boeing also disclosed that China is a significant market for the three months ended December 31, 2017. While787 program, and if the Company believes these are reasonable estimates of the impact of the Act, additional timeprogram is neededunable to finalize these estimates. While the Company has computed and recorded these provisional amounts, these will be finalized within the established measurement period (not to exceed one year) as additional data and information is gathered. The Company determined that the amounts recorded are provisional as adjustments may occur due to additional guidanceobtain orders from the IRS, the earnings and profit at March 31, 2018, and as certain tax positions are finalized when the Company files its 2018 tax returns.

Due to the legislative changes aforementioned, companies need to continually reevaluate their indefinite assertion. Additional withholding taxes and/or deferred tax liability associated with basis differencesChina in future quarters, Boeing may be required but due to adjust production rate assumptions further.

Boeing 767

Boeing's 767 program includes the legislative uncertainty aroundcommercial program and a derivative to support the withholding taxes on distributions under the act, no estimaterelated tanker program. The 767 currently has been recordeda production rate of three aircraft per month. Of our $1.95 billion in backlog as of December 31, 2017. This will be analyzed within2021, approximately 22% relates to the proscribed measurement period. The Company continues to review767 production from our Stuart, Florida, operations, the anticipated impacts around the base erosion anti-abuse tax (“BEAT”) and the global intangible low taxed income (“GILTI”)results of which are not effective until the year ended March 31, 2019. The Companyincluded in Aerospace Structures.

Boeing 747-8

Production on this program has not recorded any impact of these provisionssubstantially completed as of December 31, 2017, butSeptember 30, 2021. Production facility exit plans to perform a full analysis within the proscribed measurement period.


35

Table Of Contents
Management's Discussionare complete. Certain storage facility exit plans are underway and Analysis of
Financial Condition and Results of Operations
(continued)

We are currently performing work on several new programs, which are in various stages of development. Several of the these programs are expected to enter flight testing during calendar 2018, including the Bombardier Global 7000/8000 ("Bombardier"), and Embraer second generation E-Jet ("E2-Jets") and we expect to deliver revenue generating production units for these programs in calendar 2018. Historically, low-rate production commences during flight testing, followed by an increase to full-rate production, assuming that successful testing and certification are achieved. Accordingly, we anticipate that each of these programs will begin generating full-rate production level revenues between calendar 2019 and fiscal 2021. We are still in the early development stages for the Gulfstream G500/G600 programs, as these aircraft are not expected to enter service until fiscal 2019. Transition of each of these programs from development to recurring production levels is dependent upon the success of each program at achieving flight testing and certification, as well as the ability of the OEM to generate acceptable levels of aircraft sales.
During the nine months ended December 31, 2017, we incurred approximately $86.5 million in capitalized pre-production costs associated with the Bombardier Global 7000/8000 and the Embraer second generation E-Jet programs, for which we have not yet begun deliveries. We expect to incur additional costs related to these programs as they continue to develop. Inventory costs are evaluated for recoverability through their inclusion in the total costs used in the calculation of each contract's estimated profit margin. When the estimated total contract costs exceed total estimated contract revenues, a forward loss is established. We may incur additional costs related to these programs if there are further delays due to our customer or our capability to execute timely.
While work progressed on these development programs, we have experienced difficulties in achieving estimated cost targets, particularly in the areas of engineering and estimated recurring costs resulting in previously recorded forward loss provisions. In the fourth quarter of fiscal 2016, we recorded a $399.8 million forward loss on our Global 7000/8000 wing contract. The Global 7000/8000 contract provides for fixed pricing and requires us to fund certain up-front development expenses, with certain milestone payments made by Bombardier.
The provision for forward losses on the Global 7000/8000 program resulted in the impairment of previously capitalized pre-production costs due to the combination of cost recovery uncertainty, higher than anticipated non-recurring costs and increased forecasted costs on recurring production. The increases in costs were driven by several factors, including: changing technical requirements, increased spending on the design and engineering phase of the program and uncertainty regarding cost reduction and cost recovery initiatives with our customer and suppliers.
The program has continued to incur costs since March 2016 in support of development and transition to production.
On December 22, 2016, Triumph Aerostructures, LLC, the wholly owned subsidiary of the Company that is party to the Global 7000/8000 contract with Bombardier (“Triumph Aerostructures”), initiated litigation against Bombardier in the Quebec Superior Court, District of Montreal. The lawsuit related to Bombardier’s failure to pay to Triumph Aerostructures certain non-recurring expenses incurred by Triumph Aerostructures during the development phase of a program pursuant to which Triumph Aerostructures agreed to design, manufacture, and supply the wing and related components for Bombardier’s Global 7000 business aircraft.        
In May 2017, Triumph Aerostructures and Bombardier entered into a comprehensive settlement agreement that resolved all outstanding commercial disputes between them, including all pending litigation, related to the design, manufacture and supply of wing components for Bombardier’s Global 7000/8000 business aircraft. The settlement resets the commercial relationship between the companies and allows each company to better achieve its business objectives going forward.
 Under our contract with Embraer, we have the exclusive right to design, develop and manufacture the center fuselage section III, rear fuselage section and various tail section components (rudder and elevator) for the E2-Jets. The contract provides for funding on a fixed amount of non-recurring costs, which will be paid over a specified number of production units. Higher than expected spending on the E2-Jets program has resulted in a near breakeven estimated profit margin percentage, with additional potential future cost pressures as well as opportunities for improved performance. Risks related to additional engineering as well as the recurring cost profile remains as this program completes flight testing.
Further cost increases or an inability to meet revised recurring cost forecasts on the Global 7000/8000 and Embraer programs may result in additional forward loss reserves in future periods, while improvements in future costs comparedcost to current estimates or additional cost recovery may result in favorable adjustments if forward loss reserves are no longer required.

36

Table Of Contents
Management's Discussion and Analysisexit of
Financial Condition and Resultsapproximately $1.0 million through the first fiscal quarter of Operations
(continued)

We seek additional consideration for customer work statement changes throughout our contract life as a standard course of business.  We recently reached a preliminary agreement with Gulfstream across many programs we support, including but not limited to, the G650 wing program. We are also currently engaged with other customers in similar negotiations.  The ability to recover or negotiate additional consideration is not certain and varies by contract.  Varying market conditions for these products may also impact future profitability.
2023.

Although none of these newthe programs noted above individually isare 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

28

Management's Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

that any of these new programs will significantly dilute our future consolidated margins.

In March 2017, the Company settled several outstanding change orders and open pricing onmargins, although 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 provides for continued build ahead on the 747-8 program through the end of the existing contract, resulting in a reduction to the previously recognized forward losses on the 747-8 program.
As disclosed during fiscal 2016, Boeing announced a rate reduction to the 747-8 program, which lowers production to one plane every two months. We assessed theprolonged impact of the rate reduction and recorded an additional $161.4 million forward loss during the fiscal year ended March 31, 2016. Additional costs associated with exiting the facilities where the 747-8 program is manufactured, such as asset impairment, supplier and lease termination charges, as well as severance and retention payments to employees and contractors have been includedCOVID-19 pandemic could result in the 2016 Restructuring Plan.
As previously disclosed, we recognized a provision for forward losses associated with our long-term contract on the 747-8 and Bombardier programs. There is still risk similar to what we have experienced on the 747-8 and Bombardier programs. Particularly, our ability to manage risks related to supplier performance, execution of cost reduction strategies, hiring and retaining skilled production and management personnel, quality and manufacturing execution, program schedule delays, potential need to negotiate facility lease extensions or alternatively relocate work and many other risks, will determine the ultimate performance of these long-term programs.
Recognition of additional forward losseschanges in the future periods continues to be a risk and will depend upon several factors, including the impact of the above discussed production rate change, our ability to successfully perform under current design and manufacturing plans, achievement of forecasted cost reductions as we continue production and our ability to successfully resolve claims and assertions with our customers and suppliers.
In December 2016, the Company entered into a definitive agreement to divest Triumph Air Repair, the Auxiliary Power Unit Overhaul Operations of Triumph Aviation Services - Asia, Ltd. and Triumph Engines - Tempe ("Engines and APU"). As a result, the Company recognized a loss of $14,263 on the sale. The operating results of Engines and APU were included in Product Support through the date of disposal. The transaction closed during the quarter ended June 30, 2017.
In September 2016, the Company sold all of the shares of Triumph Aerospace Systems-Newport News, Inc. ("Newport News) for total cash proceeds of $9,000. As a result of the sale of Newport News, the Company recognized a loss of $4,774, which is included in Corporate. The operating results of Newport News were included in Integrated Systems through the date of disposal.
The divestitures of Engines and APU and Newport News are subsequently referred to as the "fiscal 2017 divestitures."
expectations.

RESULTS OF OPERATIONS

The following includes a discussion of our consolidated and business segment results of operations. The Company'sOur diverse structure and customer base do not allowprovide 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


37

Table Of Contents
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)

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 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, legal settlements 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 net income. In calculating Adjusted EBITDA and Adjusted EBITDAP, we exclude from net income from continuing operations 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 income, (loss), income from continuing operations, 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 income (loss) or income from continuing operations.income. In addition, we urge investors and potential investors in our securities to carefully review the reconciliation of Adjusted EBITDA and Adjusted EBITDAP to net income set forth below, in our earnings releases, and in other filings with the SEC and to carefully review the U.S. GAAP financial information included as part of our Quarterly Reports on Form 10-Q and our Annual Reports on Form 10-K that are filed with the SEC, as well as our quarterly earnings releases, and compare the U.S. GAAP financial information with our Adjusted EBITDA.

EBITDA and Adjusted EBITDAP.

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 net income from continuing operations 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.

29

Management's Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

Set forth below are descriptions of the financial items that have been excluded from our net income to calculate Adjusted EBITDA and Adjusted EBITDAP and the material limitations associated with using thisthese non-GAAP financial measuremeasures as compared towith net income from continuing operations:

Divestitures•
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.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.
Curtailments,•
Non-service defined benefit income or expense from our pension and other postretirement benefit plans (inclusive of certain pension related transactions such as curtailments, settlements, and early retirement incentivesor other incentives) may be useful for investors to consider because they represent the current period impactcost of postretirement benefits to plan participants, net of the change inassumption of returns on the defined benefit obligation due toplan's assets and are not indicative of the reduction in future service costs as well as the incremental cost of retirement incentive benefitscash paid to participants.for such benefits. We do not believe these earnings necessarily reflect the current and ongoing cash earnings related to our operations.
•
Amortization of acquired contract liabilities may be useful for investors to consider because it represents the non-cashnoncash earnings on the fair value of off-market contracts acquired through acquisitions. We do not believe these earnings necessarily reflect the current and ongoing cash earnings related to our operations.

38

Table Of Contents
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)

•
Amortization expense and nonrecurring asset impairments (including goodwill, intangible asset impairments, and nonrecurring rotable inventory impairments) may be useful for investors to consider because it represents the estimated attrition of our acquired customer base and the diminishing value of trade names, product rights, licenses, or, in the case of goodwill, other assets that are not individually identified and licenses.separately recognized under U.S. GAAP, or, in the case of nonrecurring asset impairments, the impact of unusual and nonrecurring events affecting the estimated recoverability of existing assets. 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.
•
Share-based compensation may be useful for investors to consider because it represents a portion of the total compensation to management and the board of directors. 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 to be a representative component of the day-to-day operating performance of our business.

30

Management's Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

Management compensates for the above-described limitations ofby using non-GAAP measures 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.

Beginning in the current quarter, we began excluding share-based compensation from net income when calculating Adjusted EBITDAP in order to improve comparability with certain of our peers that have similar adjustments and measurements and to more closely align the calculation with Adjusted EBITDAP as defined in certain of our debt agreements.

The following table shows our Adjusted EBITDA and Adjusted EBITDAP reconciled to our net income (loss) for the indicated periods (in thousands):

 Three Months Ended December 31, Nine Months Ended December 31,
 2017 2016 2017 2016
Net (loss) income$(113,252) $29,332
 $(120,561) $83,872
Loss on divestitures—
 14,350
 20,371
 19,124
Pension settlement charge(15,099) —
 (14,576) —
Amortization of acquired contract liabilities, net(34,492) (29,206) (91,862) (89,031)
Depreciation and amortization *229,547
 44,331
 309,545
 135,080
Interest expense and other25,836
 19,698
 72,229
 55,721
Income tax expense(32,288) 6,136
 (34,115) 32,786
Adjusted EBITDA$60,252
 $84,641
 $141,031
 $237,552
  * - Includes Impairment charges related to intangible assets       

 

 

Three Months Ended December 31,

 

 

Nine Months Ended December 31,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net income (loss) (U.S. GAAP measure)

 

$

7,238

 

 

$

(68,116

)

 

$

(32,183

)

 

$

(377,391

)

Income tax expense

 

 

1,105

 

 

 

698

 

 

 

4,106

 

 

 

2,383

 

Interest expense and other

 

 

32,319

 

 

 

44,881

 

 

 

105,060

 

 

 

132,344

 

Debt extinguishment loss

 

 

1,935

 

 

 

—

 

 

 

11,624

 

 

 

—

 

Pension settlement, curtailment, and special termination benefit charges

 

 

—

 

 

 

—

 

 

 

20,046

 

 

 

—

 

Impairment of rotable inventory

 

 

—

 

 

 

23,689

 

 

 

—

 

 

 

23,689

 

Loss on sale of assets and businesses, net

 

 

—

 

 

 

45,273

 

 

 

13,629

 

 

 

46,020

 

Amortization of acquired contract liabilities

 

 

(938

)

 

 

(6,867

)

 

 

(3,645

)

 

 

(35,017

)

Depreciation and amortization*

 

 

11,659

 

 

 

22,119

 

 

 

40,035

 

 

 

325,201

 

Adjusted EBITDA (non-GAAP measure)

 

$

53,318

 

 

$

61,677

 

 

$

158,672

 

 

$

117,229

 

Non-service defined benefit income (excluding curtailments and special termination benefits)

 

 

(14,400

)

 

 

(12,432

)

 

 

(43,173

)

 

 

(37,275

)

Adjusted EBITDAP (non-GAAP measure), as historically presented

 

 

38,918

 

 

 

49,245

 

 

 

115,499

 

 

 

79,954

 

Share-based compensation

 

 

2,592

 

 

 

3,679

 

 

 

7,664

 

 

 

9,086

 

Adjusted EBITDAP (non-GAAP measure)

 

$

41,510

 

 

$

52,924

 

 

$

123,163

 

 

$

89,040

 

* Includes impairment charges related to long-lived assets in the first quarter of fiscal 2021

The following tables show our Adjusted EBITDAEBITDAP by reportable segment reconciled to our operating income (loss) for the indicated periods (in thousands):

 Three Months Ended December 31, 2017
 Total Integrated Systems Aerospace Structures Precision Components Product Support 
Corporate/
Eliminations
Operating income (loss)$(119,704) $42,667
 $12,022
 $(186,225) $12,399
 $(567)
Loss on divestitures—
 —
 —
 —
 —
 —
Curtailment & settlement gain, net(15,099) —
 —
 —
 —
 (15,099)
Amortization of acquired contract liabilities, net(34,492) (11,634) (21,352) (1,506) —
 —
Depreciation and amortization *229,547
 8,318
 19,048
 200,077
 1,663
 441
Adjusted EBITDA$60,252
 $39,351
 $9,718
 $12,346
 $14,062
 $(15,225)
 
* - Includes Impairment charges related to intangible assets

        

39

 

 

Three Months Ended December 31, 2021

 

 

 

Total

 

 

Systems & Support

 

 

Aerospace
Structures

 

 

Corporate/
Eliminations

 

Operating income (loss)

 

$

28,197

 

 

$

40,567

 

 

$

(3,512

)

 

$

(8,858

)

Amortization of acquired contract liabilities

 

 

(938

)

 

 

(938

)

 

 

—

 

 

 

—

 

Depreciation and amortization

 

 

11,659

 

 

 

7,821

 

 

 

3,105

 

 

 

733

 

Adjusted EBITDAP, as historically presented

 

 

38,918

 

 

 

47,450

 

 

 

(407

)

 

 

(8,125

)

Share-based compensation

 

 

2,592

 

 

 

—

 

 

 

—

 

 

 

2,592

 

Adjusted EBITDAP

 

$

41,510

 

 

$

47,450

 

 

$

(407

)

 

$

(5,533

)

 

 

Three Months Ended December 31, 2020

 

 

 

Total

 

 

Systems & Support

 

 

Aerospace
Structures

 

 

Corporate/
Eliminations

 

Operating (loss) income

 

$

(34,969

)

 

$

19,010

 

 

$

4,445

 

 

$

(58,424

)

Loss on sale of assets and businesses

 

 

45,273

 

 

 

—

 

 

 

—

 

 

 

45,273

 

Impairment of rotable inventory

 

 

23,689

 

 

 

23,689

 

 

 

—

 

 

 

—

 

Amortization of acquired contract liabilities

 

 

(6,867

)

 

 

(4,306

)

 

 

(2,561

)

 

 

—

 

Depreciation and amortization

 

 

22,119

 

 

 

8,353

 

 

 

12,777

 

 

 

989

 

Adjusted EBITDAP, as historically presented

 

 

49,245

 

 

 

46,746

 

 

 

14,661

 

 

 

(12,162

)

Share-based compensation

 

 

3,679

 

 

 

—

 

 

 

—

 

 

 

3,679

 

Adjusted EBITDAP

 

$

52,924

 

 

$

46,746

 

 

$

14,661

 

 

$

(8,483

)

31

Table Of Contents

Management's Discussion and Analysis of

Financial Condition and Results of Operations

(continued)


 Three Months Ended December 31, 2016
 Total Integrated Systems Aerospace Structures Precision Components Product Support 
Corporate/
Eliminations
Operating income (loss)$55,166
 $51,596
 $23,867
 $2,942
 $14,662
 $(37,901)
Loss on divestitures14,350
 —
 —
 —
 —
 14,350
Amortization of acquired contract liabilities, net(29,206) (7,628) (21,105) (473) —
 —
Depreciation and amortization44,331
 9,766
 17,942
 13,999
 2,294
 330
Adjusted EBITDA$84,641
 $53,734
 $20,704
 $16,468
 $16,956
 $(23,221)
            
 Nine Months Ended December 31, 2017
 Total Integrated Systems Aerospace Structures Precision Components Product Support 
Corporate/
Eliminations
Operating income (loss)$(82,447) $132,171
 $23,253
 $(191,100) $32,069
 $(78,840)
Loss on divestitures20,371
 —
 —
 —
 —
 20,371
Curtailment & settlement gain, net(14,576) —
 —
 —
 —
 (14,576)
Amortization of acquired contract liabilities, net(91,862) (28,235) (60,315) (3,312) —
 —
Depreciation and amortization *309,545
 27,857
 57,484
 218,085
 5,068
 1,051
Adjusted EBITDA141,031
 $131,793
 $20,422
 $23,673
 $37,137
 $(71,994)

* - Includes Impairment charges related to intangible assets

        

 Nine Months Ended December 31, 2016
 Total Integrated Systems Aerospace Structures Precision Components Product Support 
Corporate/
Eliminations
Operating income (loss)$172,379
 145,379
 $57,898
 $7,223
 $42,986
 $(81,107)
Loss on divestitures19,124
 —
 —
 —
 —
 19,124
Amortization of acquired contract liabilities, net(89,031) (27,101) (60,190) (1,740) —
 —
Depreciation and amortization135,080
 30,228
 54,289
 42,344
 7,230
 989
Adjusted EBITDA$237,552
 $148,506
 $51,997
 $47,827
 $50,216
 $(60,994)
            

 

 

Nine Months Ended December 31, 2021

 

 

 

Total

 

 

Systems & Support

 

 

Aerospace
Structures

 

 

Corporate/
Eliminations

 

Operating income (loss)

 

$

65,480

 

 

$

114,213

 

 

$

11,316

 

 

$

(60,049

)

Loss on sale of assets and businesses

 

 

13,629

 

 

 

—

 

 

 

—

 

 

 

13,629

 

Amortization of acquired contract liabilities

 

 

(3,645

)

 

 

(3,633

)

 

 

(12

)

 

 

—

 

Depreciation and amortization

 

 

40,035

 

 

 

24,765

 

 

 

12,678

 

 

 

2,592

 

Adjusted EBITDAP, as historically presented

 

 

115,499

 

 

 

135,345

 

 

 

23,982

 

 

 

(43,828

)

Share-based compensation

 

 

7,664

 

 

 

—

 

 

 

—

 

 

 

7,664

 

Adjusted EBITDAP

 

$

123,163

 

 

$

135,345

 

 

$

23,982

 

 

$

(36,164

)

 

 

Nine Months Ended December 31, 2020

 

 

 

Total

 

 

Systems & Support

 

 

Aerospace
Structures

 

 

Corporate/
Eliminations

 

Operating (loss) income

 

$

(279,939

)

 

$

74,033

 

 

$

(254,187

)

 

$

(99,785

)

Loss on sale of assets and businesses

 

 

46,020

 

 

 

—

 

 

 

—

 

 

 

46,020

 

Impairment of rotable inventory

 

 

23,689

 

 

 

23,689

 

 

 

—

 

 

 

—

 

Amortization of acquired contract liabilities

 

 

(35,017

)

 

 

(11,569

)

 

 

(23,448

)

 

 

—

 

Depreciation and amortization*

 

 

325,201

 

 

 

24,830

 

 

 

297,719

 

 

 

2,652

 

Adjusted EBITDAP, as historically presented

 

 

79,954

 

 

 

110,983

 

 

 

20,084

 

 

 

(51,113

)

Share-based compensation

 

 

9,086

 

 

 

—

 

 

 

—

 

 

 

9,086

 

Adjusted EBITDAP

 

$

89,040

 

 

$

110,983

 

 

$

20,084

 

 

$

(42,027

)

* Includes impairment charges related to long-lived 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.

Three months ended December 31, 20172021, compared towith three months ended December 31, 2016


 Three Months Ended December 31,
 2017 2016
 (dollars in thousands)
Net sales$775,246
 $844,863
Segment operating income$(119,137) $93,067
Corporate expense(567) (37,901)
Total operating income(119,704) 55,166
Interest expense and other25,836
 19,698
Income tax expense(32,288) 6,136
Net (loss) income$(113,252) $29,332

40

Table Of Contents
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)

2020

 

 

Three Months Ended December 31,

 

 

 

2021

 

 

2020

 

 

 

(in thousands)

 

Net sales

 

$

319,249

 

 

$

425,994

 

Segment operating income

 

$

37,055

 

 

$

23,455

 

Corporate expense

 

 

(8,858

)

 

 

(58,424

)

Total operating income (loss)

 

 

28,197

 

 

 

(34,969

)

Interest expense and other

 

 

32,319

 

 

 

44,881

 

Debt extinguishment loss

 

 

1,935

 

 

 

—

 

Non-service defined benefit income

 

 

(14,400

)

 

 

(12,432

)

Income tax expense

 

 

1,105

 

 

 

698

 

Net loss

 

$

7,238

 

 

$

(68,116

)

Net sales decreased by $69.6 million, or 8.2%, to $775.2 million for the three months ended December 31, 2017, from $844.9 million for the three months ended December 31, 2016. Sales

Organic sales adjusted for inter-segmentintersegment sales decreased $34.1$16.7 million, or 4.2%. The fiscal 20175.0%, with additional declines from the composites and Embeelarge structure manufacturing operations, G650, and Staverton, United Kingdom, divestitures contributed $35.5of $66.1 million in net sales to the comparative prior year period.and sunsetting programs (i.e., 747-8 and G280) of $23.9 million. Organic sales decreased primarily due to decreased volume on the completion787 as a result of an announced production pause, decreased rotorcraft volume, and continued rate reductions on certain Boeingdecreased volume as a result of the exit of our Spokane, Washington, operations. These decreases were partially offset by increased commercial narrow body production and Airbus programs.$4.0 million recognized as a result of a nonrecurring licensing transaction. Net sales for the three months ended December 31, 2017,2021, included $2.8$4.5 million in total non-recurringnonrecurring revenues, as compared to $5.6with $4.6 million in non-recurringtotal nonrecurring revenues for the three months ended December 31, 2016.

2020.

32

Management's Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

Cost of Sales and Gross Margin

Organic cost of sales adjusted for intersegment sales decreased $41.0$32.6 million, or 6.3%, to $612.212.2% with additional declines from the composites and large structure manufacturing operations, G650, and Staverton, United Kingdom, divestitures of $51.1 million for the three months ended December 31, 2017, from $653.2 million for the three months ended December 31, 2016.and sunsetting programs of $24.7 million. Organic cost of sales decreased $15.4 million, or 2.2%. The fiscal 2017 and Embee divestitures contributed $25.6 million to cost of sales in the comparative prior year period. Organic cost of sales decreasedprimarily due to the decrease in organic sales mentioneddecreased volumes described above and changes in sales mix. The comparable organicas well as a prior period impairment of rotable inventory of $23.7 million impairment. Organic gross margin for the three months ended December 31, 20172021, was 21.0%, as25.7% compared to 22.4%,with 19.6% for the three months ended December 31, 2016.

Gross margin included net favorable cumulative catch-up adjustments on long-term contracts of $5.3 million.2020. The cumulative catch-up adjustments to gross margin included gross favorable adjustmentsfor the three months ended December 31, 2021, increased primarily as a result of $26.4 millionthe prior period impairment of rotable inventory and gross unfavorable adjustments of $21.1 million. the licensing transaction described above.

Gross margin for the three months ended December 31, 20162021, included net unfavorable cumulative catch-up adjustments on long-term contracts of $4.6 million. The unfavorable cumulative catch-up adjustments to operating income included gross favorable adjustments of $6.4 million and gross unfavorable adjustments of $11.0 million. Gross margins for the three months ended December 31, 2020, included net favorable cumulative catch-up adjustments of $2.1$3.7 million.

Segment operating income decreased by $212.2 million, or 228.0%, to an operating loss of $(119.1) million for the three months ended December 31, 2017, from operating income of $93.1 million for the three months ended December 31, 2016. Operating Income

Organic segment operating income decreased $16.6increased by $22.9 million, or 18.9%.264.2%, primarily due to the increased margins described above, as well as decreased depreciation and amortization expense of approximately $2.0 million and decreased administrative compensation cost of $2.0 million. The fiscal 2017divestitures and Embee divestitures contributed $5.4 millionsunsetting programs resulted in decreases to operating income for the three months ended December 31, 2016. Organic operating income for the three months ended December 31, 2017of approximately $9.3 million.

Corporate Expense

Corporate expenses decreased primarily due to the decline in organic sales noted above and the previously mentioned goodwill impairment charge of $190.2 million and included costs related to our restructuring plans of $3.8 million.

Corporate expenses were $0.6 million for the three months ended December 31, 2017, as compared to $37.9 million for the three months ended December 31, 2016. The decrease in corporate expenses of $37.3 million, or 98.5%, was impacted by the OPEB settlement gain of $15.1 million, decreased consulting costs of $6.0 million and restructuring charges of $3.8 million. The prior year period included the loss on divestituresale of the Enginesassets and APU businessbusinesses of $14.4$45.3 million.

Interest Expense and Other

Interest expense and other increased by $6.1 million, or 31.2%, to $25.8 million for the three months ended December 31, 2017, compared to $19.7 million for the three months ended December 31, 2016,decreased due to higher interest rates partially offset by lower relative debt levels.

levels as a result of current period redemptions as well as favorable changes in foreign currency exchange rates of approximately $3.0 million.

Non-service Defined Benefit Income

Non-service defined benefit income increased primarily due to changes in actuarial assumptions and experience.

Income Taxes

The effective income tax rate for the three months ended December 31, 20172021, was 22.1%13.2% compared to 17.3%with (1.0)% for the three months ended December 31, 2016.2020. For the three months ended December 31, 2017,2021, the effective tax rate reflected a $22.4 millionlimitation on the recognition of tax benefit relatedbenefits due to the Act, a $4.8 million tax benefit related to the return to provision true up adjustment, the impact of the non-deductible portion of the goodwill impairment, and the partial reversal of previously establishedfull valuation allowance related to the current year activity. For theallowance.

Business Segment Performance — Three months ended December 31, 2021, compared with three months ended December 31, 2016, the income tax provision reflected the partial reversal of previously established valuation allowance related to the capital loss generated from the divestiture of TAS-Newport News.

For the fiscal year ending March 31, 2018, the Company expects its effective tax rate to be approximately 1.0% with opportunity to be reduced further through the release of the valuation allowance that is discussed further in Note 7.

41

Table Of Contents
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)


Business Segment Performance - Three months ended December 31, 2017 compared to three months ended December 31, 2016
2020

We report our financial performance based on the following fourtwo reportable segments: Integrated Systems & Support and Aerospace Structures, Precision ComponentsStructures. Our Chief Operating Decision Maker ("CODM") utilizes Adjusted EBITDAP as a primary measure of profitability to evaluate performance of its segments and Product Support. allocate resources.

The results of operations among our operatingreportable segments vary due to differences in competitors, customers, extent of proprietary deliverables and performance. For example, Integrated Systems & Support, which generally includes proprietary products and/or arrangements in whichwhere we become the primary source or one of a few primary sources to our customers, whereby our unique engineering and 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. This compares towith Aerospace Structures, which generally includes long-term sole-source or preferred supplier contractscontracts.

Refer to Note 1 for further details regarding the operations and the successcapabilities of these programs provides a strong foundation foreach of our businessreportable segments.

33

Management's Discussion and positions us well for future growth on new programsAnalysis of

Financial Condition and new derivatives. In contrast, Product Support provides MRO services on components and accessories manufactured by third parties, with more diverse competition, including airlines, OEMs and other third-party service providers. In addition, variability in the timing and extentResults of customer requests performed in Product Support can provide for greater volatility and less predictability in revenue and earnings than that experienced in Integrated Systems, Aerospace Structures and Precision Components segments.

Integrated Systems consists of the Company’s operations that provides 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 electro-mechanical 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-mechanical and electromechanical primary and secondary flight controls; and a broad spectrum of surface treatment options.
Aerospace Structures consists of the Company’s operations that supply commercial, business, regional and military manufacturers with large metallic and composite structures. Products include wings, wing boxes, fuselage panels, horizontal and vertical tails and sub-assemblies such as floor grids. Inclusive of most of the former Vought Aircraft Division, Aerospace Structures also has the capability to engineer detailed structural designs in metal and composites.
Precision Components consists of the Company’s operations that produce close-tolerance parts primarily to customer designs and model-based definition, including a wide range of aluminum, hard metal and composite structure capabilities. Capabilities include complex machining, gear manufacturing, sheet metal fabrication, forming, advanced composite and interior structures, joining processes such as welding, autoclave bonding and conventional mechanical fasteners and a variety of special processes including: super plastic titanium forming, aluminum and titanium chemical milling and surface treatments.
Product Support consists of the Company’s operations that 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 line maintenance, component MRO and postproduction supply chain activities, Product Support is positioned to provide integrated planeside repair solutions globally. Capabilities include fuel tank repair, metallic and composite aircraft structures, nacelles, thrust reversers, interiors, auxiliary power units and a wide variety of pneumatic, hydraulic, fuel and mechanical accessories.
Operations

(continued)

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 demand for our products and services from clients in these industries. If any of these industries experiences a downturn, our clients in these sectors may conduct less business with us. The following table summarizes our net sales by end market by business segment. The loss of one or more of our major customers or an economic downturn in the commercial airline or the military and defense markets could have a material adverse effect on our business.


42

Table Of Contents
Management's Discussion

 

 

Three Months Ended December 31,

 

 

% Change

 

 

% of Total Sales

 

 

 

2021

 

 

2020

 

 

 

 

 

2021

 

 

2020

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

NET SALES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Systems & Support

 

$

236,281

 

 

$

264,120

 

 

 

(10.5

)%

 

 

74.0

%

 

 

62.0

%

Aerospace Structures

 

 

82,968

 

 

 

162,410

 

 

 

(48.9

)%

 

 

26.0

%

 

 

38.1

%

Elimination of intersegment sales

 

 

—

 

 

 

(536

)

 

 

100.0

%

 

 

—

 

 

 

(0.1

)%

Total net sales

 

$

319,249

 

 

$

425,994

 

 

 

(25.1

)%

 

 

100.0

%

 

 

100.0

%

 

 

Three Months Ended December 31,

 

 

% Change

 

 

% of Segment Sales

 

 

 

2021

 

 

2020

 

 

 

 

 

2021

 

 

2020

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

SEGMENT OPERATING (LOSS) INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Systems & Support

 

$

40,567

 

 

$

19,010

 

 

 

113.4

%

 

 

17.2

%

 

 

7.2

%

Aerospace Structures

 

 

(3,512

)

 

 

4,445

 

 

 

(179.0

)%

 

 

(4.2

)%

 

 

2.7

%

Corporate

 

 

(8,858

)

 

 

(58,424

)

 

 

84.8

%

 

n/a

 

 

n/a

 

Total segment operating (loss) income

 

$

28,197

 

 

$

(34,969

)

 

 

180.6

%

 

 

8.8

%

 

 

(8.2

)%

 

 

Three Months Ended December 31,

 

 

% Change

 

 

% of Segment Sales

 

 

 

2021

 

 

2020

 

 

 

 

 

2021

 

 

2020

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDAP

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Systems & Support

 

$

47,450

 

 

$

46,746

 

 

 

1.5

%

 

 

20.2

%

 

 

18.0

%

Aerospace Structures

 

 

(407

)

 

 

14,661

 

 

 

(102.8

)%

 

 

(0.5

)%

 

 

9.2

%

Corporate

 

 

(5,533

)

 

 

(8,483

)

 

 

34.8

%

 

n/a

 

 

n/a

 

 

 

$

41,510

 

 

$

52,924

 

 

 

(21.6

)%

 

 

13.0

%

 

 

12.6

%

Systems & Support:

Net Sales

Organic net sales adjusted for intersegment sales decreased by $19.3 million, or 7.6%, with additional declines from the Staverton, United Kingdom, divestiture of $8.5 million. Organic sales decreased primarily due to decreased volume on the 787 as a result of an announced production pause and Analysisdecreased rotorcraft volume partially offset by increased commercial narrow body production and $4.0 million recognized as a result of

Financial Condition a nonrecurring licensing transaction.

Cost of Sales and ResultsGross Margin

Organic cost of Operations

(continued)

 Three Months Ended December 31,
 2017 2016
Integrated Systems   
Commercial aerospace16.4% 14.8%
Military10.7% 11.7%
Business Jets2.0% 2.2%
Regional1.1% 0.9%
Non-aviation0.5% 0.6%
Total Integrated Systems net sales30.7% 30.2%
Aerospace Structures   
Commercial aerospace15.7% 15.2%
Military4.0% 5.8%
Business Jets15.7% 14.1%
Total Aerospace Structures net sales35.7% 35.2%
Precision Components   
Commercial aerospace16.4% 16.7%
Military5.4% 4.6%
Business Jets2.0% 2.1%
Regional0.5% 0.4%
Non-aviation0.8% 0.4%
Total Precision Components net sales25.1% 24.2%
Product Support   
Commercial aerospace7.0% 7.9%
Military0.9% 1.8%
Regional0.6% 0.7%
Total Product Support net sales8.5% 10.4%
Total Consolidated net sales100.0% 100.0%
We continue to experience a higher proportionsales adjusted for intersegment sales decreased by $42.1 million, or 21.1%, with additional declines from the Staverton, United Kingdom, divestiture of our$6.6 million. Organic cost of sales mix in the commercial aerospace end market for Integrated Systems and Precision Componentsdecreased primarily due to the 737, 777, 787, A320 and A350 programs. We have experienceddecreased volumes described above as well as a decline in the commercial aerospace end market for Aerospace Structures due to lower production ratesprior period impairment of the 747-8 and a decrease in our military end market due to the wind-downrotable inventory of the C-17 program, although there can be no assurance to that effect.


 Three Months Ended December 31,   % of Total
Sales
 2017 2016 % Change 2017 2016
 (in thousands)      
NET SALES         
Integrated Systems$239,198
 $256,080
 (6.6)% 30.9 % 30.3 %
Aerospace Structures282,495
 304,235
 (7.1)% 36.4 % 36.0 %
Precision Components219,675
 226,294
 (2.9)% 28.3 % 26.8 %
Product Support68,039
 87,292
 (22.1)% 8.8 % 10.3 %
Elimination of inter-segment sales(34,161) (29,038) 17.6 % (4.4)% (3.4)%
Total Net Sales$775,246
 $844,863
 (8.2)% 100.0 % 100.0 %


43

Table Of Contents
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)

 Three Months Ended December 31,   % of Segment
Sales
 2017 2016 % Change 2017 2016
 (in thousands)      
SEGMENT OPERATING INCOME         
Integrated Systems$42,667
 $51,596
 (17.3)% 17.8 % 20.1%
Aerospace Structures12,022
 23,867
 (49.6)% 4.3 % 7.8%
Precision Components(186,225) 2,942
 (6,429.9)% (84.8)% 1.3%
Product Support12,399
 14,662
 (15.4)% 18.2 % 16.8%
Corporate(567) (37,901) 98.5 % n/a
 n/a
Total Operating Income$(119,704) $55,166
 (317.0)% (15.4)% 6.5%

 Three Months Ended December 31,   % of Segment
Sales
 2017 2016 % Change 2017 2016
 (in thousands)      
Adjusted EBITDA         
Integrated Systems$39,351
 $53,734
 (26.8)% 16.5% 21.0%
Aerospace Structures9,718
 20,704
 (53.1)% 3.4% 6.8%
Precision Components12,346
 16,468
 (25.0)% 5.6% 7.3%
Product Support14,062
 16,956
 (17.1)% 20.7% 19.4%
Corporate(15,225) (23,221) 34.4 % n/a
 n/a
 $60,252
 $84,641
 (28.8)% 7.8% 10.0%

Integrated Systems: Integrated Systems net sales decreased by $16.9 million, or 6.6%, to $239.2 million$23.7 million. Gross margin for the three months ended December 31, 2017, from $256.1 million2021, was 33.2% compared with 21.8% for the three months ended December 31, 2016. 2020. Gross margin increased primarily as a result of the prior period impairment of rotable inventory and the licensing transaction described above.

Operating Income and Adjusted EBITDAP

Organic sales decreased $6.4operating income increased by $22.7 million, or 2.6%. The Embee divestiture contributed $10.5 million to the net sales decrease127.2%, with additional declines from the three months ended December 31, 2016.Staverton, United Kingdom, divestiture of $1.2 million. Organic sales declinedoperating income increased primarily due to rate reductions on 777the increased margins described above. The increase in Adjusted EBITDAP year over year is due to the same factors that increased operating income except for the increase resulting from the prior period impairment of rotable inventory, which is excluded from Adjusted EBITDAP.

Operating Margin and A380Adjusted EBITDAP Margin

Systems & Support operating income and Adjusted EBITDAP as a percentage of segment sales both increased due to the factors described above except for the increase resulting from the prior period impairment of rotable inventory, which is excluded from Adjusted EBITDAP.

34

Management's Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

Aerospace Structures:

Net Sales

Organic net sales increased by $2.1 million, or 2.7%, offset by declines from the composites and large structure manufacturing operations and G650 divestitures of $57.6 million and sunsetting programs (i.e., 747-8 and timingG280) of deliveries on other key commercial and military programs.

Integrated Systems cost of$23.9 million. Net sales decreased by $5.9 million, or 3.5%, to $163.6 million for the three months ended December 31, 2017, from $169.52021, included $0.5 million in total nonrecurring revenues, as compared with $4.6 million in total nonrecurring revenues for the three months ended December 31, 2016. 2020.

Cost of Sales and Gross Margin

Organic cost of sales increased $1.0by $8.9 million, or 0.6%. The Embee divestitures contributed $6.9 million to the decrease cost of sales13.0%, offset by declines from the comparative prior year period. The organic costcomposites and large structure manufacturing operations and G650 divestitures of sales inclined due to the decrease in net sales, as noted above. The comparable organic$44.5 million and sunsetting programs of $24.7 million. Organic gross margin for the three months ended December 31, 20172021, was 31.6%3.7% compared with 33.8%12.5% for the three months ended December 31, 2016.

Integrated Systems operating income decreased by $8.92020. The gross margin included net unfavorable cumulative catch-up adjustments of $4.9 million. The net unfavorable cumulative catch-up adjustments included gross favorable adjustments of $6.1 million or 17.3%, to $42.7 millionand gross unfavorable adjustments of $11.0 million. The net favorable cumulative catch-up adjustment for the three months ended December 31, 2017, from $51.6 million for the three months ended December 31, 2016. 2020, was $4.0 million.

Operating Income and Adjusted EBITDAP

Organic operating income decreased $8.0increased by $0.2 million, or 15.9%.2.1%, primarily due to decreased depreciation and amortization expense and decreased administrative compensation costs of approximately $2.7 million on lower headcount. The Embee divestiture contributed $0.9 milliondivestitures and sunsetting programs resulted in decreases to the operating income decrease to the comparative prior year period. Operating income decreased for the three months ended December 31, 2017, due to theof approximately $8.2 million. The decrease in net sales, as noted above and increased restructuring costs of $0.6 million. The decreased Adjusted EBITDAEBITDAP year over year is due to the same factors that decreased operating income.

Integrated Systems operating income except for the decrease from depreciation and amortization, which is excluded from Adjusted EBITDAP.

Operating Margin and Adjusted EBITDAP Margin

Operating loss as a percentage of segment sales decreased to 17.8% for the three months ended December 31, 2017, as compared to 20.1% for the three months ended December 31, 2016. These same factors noted above affecting the Adjusted EBITDA contributed to the decreased Adjusted EBITDA margin year over year.

Aerospace Structures: Aerospace Structures net sales decreased by $21.7 million, or 7.1%, to $282.5 million for the three months ended December 31, 2017, from $304.2 million for the three months ended December 31, 2016. Sales decreased primarily due to the completion of and continued rate reductions on certain Boeing programs and partially offset by rate increases on 767/Tanker program. Net sales for the three months ended December 31, 2017 included $2.8 million in total non-recurring revenues, as compared to $5.6 million in total non-recurring revenues for the three months ended December 31, 2016.

44

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Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)

Aerospace Structures cost of sales decreased by $10.3 million, or 4.0%, to $244.7 million for the three months ended December 31, 2017, from $254.9 million for the three months ended December 31, 2016. The comparable gross margin for the three months ended December 31, 2017 was 13.4% compared with 16.2% for the three months ended December 31, 2016, the decline in gross margin was affected by the decreased sales noted above.
Aerospace Structures cost of sales for the three months ended December 31, 2017 included net favorable cumulative catch-up adjustments on long-term contracts of $5.3 million. The cumulative catch-up adjustments to gross margin for the three months ended December 31, 2017 included gross favorable adjustments of $26.4 million and gross unfavorable adjustments of $21.1 million. Segment cost of sales for the three months ended December 31, 2016 included net favorable cumulative catch-up adjustments of $2.1 million.
Aerospace Structures operating income decreased by $11.8 million, or 49.6%, to $12.0 million for the three months ended December 31, 2017, from $23.9 million for the three months ended December 31, 2016. Operating income decreased for the three months ended December 31, 2017, due to the decreased sales noted above, increased net customer financing fees of $1.2 million, increased research and development of $1.3 million and increased amortization expense of $1.7 million due to the change in estimated useful life of certain intangible assets. The decrease in Adjusted EBITDA year over year is due to the same factors that decreased operating income.
Aerospace Structures operating income as a percentage of segment sales decreased to 4.3% for the nine months ended December 31, 2017, as compared to 7.8% for the nine months ended December 31, 2016, due to the decrease in operating income as noted above. The Adjusted EBITDA margin year over year is comparable to the prior year period.
Precision Components: Precision Components net sales decreased by $6.6 million, or 2.9%, to $219.7 million for the three months ended December 31, 2017, from $226.3 million for the three months ended December 31, 2016. The decline in sales was primarily driven by production rate.
Precision Components cost of sales decreased by $5.9 million, or 3.0%, to $189.2 million for the three months ended December 31, 2017, from $195.1 million for the three months ended December 31, 2016. Gross margin for the three months ended December 31, 2017 was 13.9%, compared with 13.8% for the three months ended December 31, 2016.
Precision Components operating income decreased by $189.2 million, or 6,429.9%, to an operating loss of $186.2 million for the three months ended December 31, 2017, from operating income of $2.9 million for the three months ended December 31, 2016, due to the previously mentioned goodwill impairment charge of $190.2 million, partially offset decreased restructuring charges of $1.2 million compared to the prior year period. The Adjusted EBITDA decreased year over year due to the decreased sales as noted above.
Precision Components operating income as a percentage of segment sales decreased to (84.8)% for the three months ended December 31, 2017, as compared to 1.3% for the three months ended December 31, 2016, due to the goodwill impairment charge as noted above. The Adjusted EBITDA margin year over year was affected by the same factors that decreased the Adjusted EBITDA.

Product Support: Product Support net sales decreased by $19.3 million, or 22.1%, to $68.0 million for the three months ended December 31, 2017, from $87.3 million for the three months ended December 31, 2016. Organic sales increased $5.8 million, or 9.4%, due to increased demand from OEM customers. The divestiture of Engines and APU contributed $25.1 million to net sales for the three months ended December 31, 2016.
Product Support cost of sales decreased by $14.4 million, or 22.8%, to $48.9 million for the three months ended December 31, 2017, from $63.4 million for the three months ended December 31, 2016. Organic cost of sales increased $4.3 million, or 9.5%. The divestiture of Engines and APU contributed $18.7 million in cost of sales to the three months ended December 31, 2016. Gross margin for the three months ended December 31, 2017 was 28.1% compared to 28.2% for the three months ended December 31, 2016.
Product Support operating income decreased by $2.3 million, or 15.4%, to $12.4 million for the three months ended December 31, 2017, from $14.7 million for the three months ended December 31, 2016. Organic operating income increased $2.2 million or 22.0%, due to the increased organic sales noted above. The divestiture of Engines and APU contributed $4.5 million operating income for the three months ended December 31, 2016. The decrease in Adjusted EBITDA year over year is due to the divestiture of Engines and APU.

45

Table Of Contents
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)

Product Support operating income as a percentage of segment sales increased to 18.2% for the three months ended December 31, 2017, as compared to 16.8% for the three months ended December 31, 2016. The Adjusted EBITDA margin was 20.7% for the three months ended December 31, 2017, as compared to 19.4% for the three months ended December 31, 2016.

Nine months ended December 31, 2017 compared to nine months ended December 31, 2016

 Nine Months Ended December 31,
 2017 2016
 (dollars in thousands)
Net sales$2,302,091
 $2,612,885
Segment operating income$(3,607) $253,486
Corporate expense(78,840) (81,107)
Total operating income(82,447) 172,379
Interest expense and other72,229
 55,721
Income tax (benefit) expense(34,115) 32,786
Net (loss) income$(120,561) $83,872


Net sales decreased by $310.8 million, or 11.9%, to $2.3 billion for the nine months ended December 31, 2017, from $2.6 billion for the nine months ended December 31, 2016. Organic sales adjusted for inter-segment sales decreased $226.2 million, or 9.0%. The fiscal 2017 and Embee divestitures contributed $84.6 million to the net sales decrease as compared to the nine months ended December 31, 2016. Organic sales decreased primarily due to the completion of and continued rate reductions on certain Boeing and Gulfstream programs, along with the timing of deliveries on certain programs. These factors were partially offset by increased production on the 767/Tanker program. Net sales for the nine months ended December 31, 2017, included $7.0 million in total non-recurring revenues, as compared to $15.9 million in non-recurring revenues for the nine months ended December 31, 2016.
Cost of sales decreased$231.4 million, or 11.3%, to $1.8 billion for the nine months ended December 31, 2017, from $2.1 billion for the nine months ended December 31, 2016. Organic cost of sales decreased $169.3 million, or 8.1%. The fiscal 2017 and Embee divestitures contributed $62.1 million to the cost of sales decrease as compared to the nine months ended December 31, 2016. Organic cost of sales decreased due to the decrease in organic sales mentioned above. The organic gross margin for the nine months ended December 31, 2017 was 20.8%, as compared to 21.2% for the nine months ended December 31, 2016. The organic gross margin for the nine months ended December 31, 2017, decreased compared to the comparable prior year period due to the completion of certain Boeing and Gulfstream programs as noted above.
Gross margin included net favorable cumulative catch-up adjustments on long-term contracts of $12.0 million. The cumulative catch-up adjustments to gross margin included gross favorable adjustments of $65.7 million and gross unfavorable adjustments of $53.7 million. Gross margin for the nine months ended December 31, 2016 included net unfavorable cumulative catch-up adjustments of $6.3 million.

Segment operating income decreased by $257.1 million, or 101.4%, to $3.6 million for the nine months ended December 31, 2017, from $253.5 million for the nine months ended December 31, 2016. Organic segment operating income decreased $53.7 million, or 22.4%. The fiscal 2017 and Embee divestitures contributed $13.2 million to the operating income decrease as compared to the nine months ended December 31, 2016. Organic operating income for the nine months ended December 31, 2017 decreased due to the decline in sales noted above as well as the previously mentioned goodwill impairment charge of $190.2 million and increased restructuring of $4.3 million.
Corporate expenses were $78.8 million for the nine months ended December 31, 2017, as compared to $81.1 million for the nine months ended December 31, 2016. The increase in corporate expenses of $2.3 million, or 2.8%, was due to the loss on divestitures of $20.4 million, restructuring charges of $1.3 million and an increase in compensation accruals as compared to the prior year period of $6.7 million, partially offset by an OPEB settlement gain of $15.1 million.

46

Table Of Contents
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)

Interest expense and other increased by $16.5 million, or 29.6%, to $72.2 million for the nine months ended December 31, 2017, compared to $55.7 million for the nine months ended December 31, 2016, due to higher interest rates, the impairment of deferred financing fees due to the amendment to the Credit Facility and the extinguishment of the Term Loan of approximately $5.2 million and the unfavorable net change in foreign exchange rate gain/loss of approximately $8.1 million compared to the prior year period.
The effective income tax rate for the nine months ended December 31, 2017 was 22.1% compared to 28.1% for the nine months ended December 31, 2016. For the nine months ended December 31, 2017, the effective tax rate reflected a $22.4 million tax benefit from the Tax Act, a $4.8 million tax benefit from the return to provision true up adjustment, the impact of the non-deductible portion of the goodwill impairment, the partial reversal of previously established valuation allowance related to the current year activity, as well as the disallowed capital loss generated from the divestiture of Embee. For the nine months ended December 31, 2016, the income tax provision reflected the disallowed tax benefit of $1.3 million related to the capital loss generated from the divestiture of Newport News.
For the fiscal year ending March 31, 2018, the Company expects its effective tax rate to be approximately 1.0% with opportunity to be reduced further through the release of the valuation allowance that is discussed further in Note 7.

47

Table Of Contents
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)


Business Segment Performance - Nine months ended December 31, 2017 compared to nine months ended December 31, 2016
 Nine Months Ended December 31,
 2017 2016
Integrated Systems   
Commercial aerospace16.6% 15.0%
Military10.6% 10.2%
Business Jets1.7% 1.7%
Regional1.0% 1.0%
Non-aviation0.8% 1.0%
Total Integrated Systems net sales30.7% 28.9%
Aerospace Structures   
Commercial aerospace16.1% 16.7%
Military3.1% 5.5%
Business Jets14.9% 13.6%
Total Aerospace Structures net sales34.2% 35.9%
Precision Components   
Commercial aerospace17.8% 17.9%
Military5.5% 4.7%
Business Jets1.9% 2.0%
Regional0.6% 0.5%
Non-aviation0.7% 0.4%
Total Precision Components net sales26.5% 25.5%
Product Support   
Commercial aerospace7.2% 7.5%
Military0.9% 1.5%
Business Jets—% —%
Total Product Support net sales8.6% 9.7%
Total Consolidated net sales100.0% 100.0%
We continue to experience a higher proportion of our sales mix in the commercial aerospace end market for Integrated Systems and Precision Components due to the 737, 777, 787, A320 and A350 programs. We have experienced a decline in the commercial aerospace end market for Aerospace Structures due to lower production rates of the 747-8 and a decrease in our military end market due to the wind-down of the C-17 program. We expect to see continued growth in our Business Jet end market sales as the Bombardier Global 7000 program begins to deliver production units, although there can be no assurance to that effect.


48

Table Of Contents
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)

 Nine Months Ended December 31,   % of Total
Sales
 2017 2016 % Change 2017 2016
 (in thousands)      
NET SALES         
Integrated Systems$711,099
 $758,803
 (6.3)% 30.9 % 29.0 %
Aerospace Structures807,754
 956,114
 (15.5)% 35.1 % 36.6 %
Precision Components685,701
 740,354
 (7.4)% 29.8 % 28.3 %
Product Support202,839
 257,317
 (21.2)% 8.8 % 9.8 %
Elimination of inter-segment sales(105,302) (99,703) 5.6 % (4.6)% (3.8)%
Total Net Sales$2,302,091
 $2,612,885
 (11.9)% 100.0 % 100.0 %

 Nine Months Ended December 31,   % of Segment
Sales
 2017 2016 % Change 2017 2016
 (in thousands)      
SEGMENT OPERATING INCOME         
Integrated Systems$132,171
 $145,379
 (9.1)% 18.6 % 19.2%
Aerospace Structures23,253
 57,898
 (59.8)% 2.9 % 6.1%
Precision Components(191,100) 7,223
 (2,745.7)% (27.9)% 1.0%
Product Support32,069
 42,986
 (25.4)% 15.8 % 16.7%
Corporate(78,840) (81,107) 2.8 % n/a
 n/a
Total Operating Income$(82,447) $172,379
 (147.8)% (3.6)% 6.6%

 Nine Months Ended December 31,   % of Segment
Sales
 2017 2016 % Change 2017 2016
 (in thousands)      
Adjusted EBITDA         
Integrated Systems$131,793
 $148,506
 (11.3)% 18.5% 19.6%
Aerospace Structures20,422
 51,997
 (60.7)% 2.5% 5.4%
Precision Components23,673
 47,827
 (50.5)% 3.5% 6.5%
Product Support37,137
 50,216
 (26.0)% 18.3% 19.5%
Corporate(71,994) (60,994) (18.0)% n/a
 n/a
 $141,031
 $237,552
 (40.6)% 6.1% 9.1%

Integrated Systems: Integrated Systems net sales decreased by $47.7 million, or 6.3%, to $711.1 million for the nine months ended December 31, 2017, from $758.8 million for the nine months ended December 31, 2016. Organic sales decreased $25.7 million, or 3.6%. The Newport News and Embee divestitures contributed $22.0 million to the net sales decrease as compared to the nine months ended December 31, 2016. Organic sales declined primarily due to rate reductions on A380 and 777 programs and timing of deliveries on other key commercial and military programs, partially offset by increased sales on 737 program.
Integrated Systems cost of sales decreased by $30.2 million, or 6.0%, to $471.2 million for the nine months ended December 31, 2017, from $501.3 million for the nine months ended December 31, 2016. Organic cost of sales decreased $15.8 million, or 3.3%. The Newport News and Embee divestitures contributed $14.4 million to the cost of sales decrease as compared to the nine months ended December 31, 2016. The organic cost of sales decreased due to the net sales decrease noted above. The organic gross margin for the nine months ended December 31, 2017 was 33.9% compared with 34.1% for the nine

49

Table Of Contents
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)

months ended December 31, 2016. The decrease in gross margin for the nine months ended December 31, 2017 is due to product mix.
Integrated Systems operating income decreased by $13.2 million, or 9.1%, to $132.2 million for the nine months ended December 31, 2017, from $145.4 million for the nine months ended December 31, 2016. Organic operating income decreased $10.3 million, or 7.2%. The Newport News and Embee divestitures contributed $2.9 million to the operating income decrease for the nine months ended December 31, 2016. Operating income decreased for the nine months ended December 31, 2017, due to the decline in sales and gross margin as noted above. The decrease in Adjusted EBITDA year over year is due to the same factors that decreased operating income.
Integrated Systems operating income as a percentage of segment sales decreased to 18.6% for the nine months ended December 31, 2017, as compared to 19.2% for the nine months ended December 31, 2016, due to the decreased gross margin as noted above. These same factors noted above affecting the Adjusted EBITDA contributed to the decreased Adjusted EBITDA margin year over year.
Aerospace Structures: Aerospace Structures net sales decreased by $148.4 million, or 15.5%, to $807.8 million for the nine months ended December 31, 2017, from $956.1 million for the nine months ended December 31, 2016. Sales decreased primarily due to the completion of and continued rate reductions on certain Boeing and Gulfstream programs and partially offset by rate increases on 767/Tanker and Global Hawk/Triton programs. Net sales for the nine months ended December 31, 2017 included $7.0 million in total non-recurring revenues, as compared to $15.9 million in total non-recurring revenues for the nine months ended December 31, 2016.
Aerospace Structures cost of sales decreased by $117.4 million, or 14.3%, to $703.5 million for the nine months ended December 31, 2017, from $820.8 million for the nine months ended December 31, 2016. The cost of sales were negatively impacted by the decreased sales as noted above. The comparable gross margin for the nine months ended December 31, 2017 was 12.9% compared with 14.2% for the nine months ended December 31, 2016. The decreased gross margin for the nine months ended December 31, 2017 is due to the change in product mix.
Aerospace Structures cost of sales for the nine months ended December 31, 2017 included net favorable cumulative catch-up adjustments of $12.0 million. The cumulative catch-up adjustments to gross margin for the nine months ended December 31, 2017 included gross favorable adjustments of $65.7 million and gross unfavorable adjustments of $53.7 million. Segment cost of sales for the nine months ended December 31, 2016 included net unfavorable cumulative catch-up adjustments of $6.3 million.
Aerospace Structures operating income decreased by $34.6 million, or 59.8%, to $23.3 million for the nine months ended December 31, 2017, compared to $57.9 million for the nine months ended December 31, 2016. Operating income decreased for the nine months ended December 31, 2017, due to the decline in sales as noted above, increased net customer financing fees of $1.2 million, increased legal expenses of $1.8 million and increased amortization expense of $5.0 million due to the change in estimated useful life of certain intangible assets. The decrease in Adjusted EBITDA year over year is due to the same factors that decreased operating income.
Aerospace Structures operating income as a percentage of segment sales decreased to 2.9% for the nine months ended December 31, 2017, as compared to 6.1% for the nine months ended December 31, 2016, due to the decrease in operating income as noted above. These same factors affecting Adjusted EBITDAP contributed to the decrease in Adjusted EBITDAP margin except for the decrease from depreciation and amortization, which is excluded from Adjusted EBITDAP.

Nine months ended December 31, 2021, compared with nine months ended December 31, 2020

 

 

Nine Months Ended December 31,

 

 

 

2021

 

 

2020

 

 

 

(in thousands)

 

Net sales

 

$

1,073,291

 

 

$

1,402,886

 

Segment operating income (loss)

 

$

125,529

 

 

$

(180,154

)

Corporate expenses

 

 

(60,049

)

 

 

(99,785

)

Total operating income (loss)

 

 

65,480

 

 

 

(279,939

)

Interest expense and other

 

 

105,060

 

 

 

132,344

 

Debt extinguishment loss

 

 

11,624

 

 

 

—

 

Non-service defined benefit income

 

 

(23,127

)

 

 

(37,275

)

Income tax expense

 

 

4,106

 

 

 

2,383

 

Net loss

 

$

(32,183

)

 

$

(377,391

)

Net Sales

Organic sales adjusted for intersegment sales increased $12.7 million, or 1.3%, offset by declines from the composites and large structure manufacturing operations, G650, and Staverton, United Kingdom, divestitures of $242.3 million and sunsetting programs (i.e., 747-8 and G280) of $100.0 million. Organic sales increased primarily due to increased repair and overhaul services, increased production rates on commercial narrow body platforms, and $4.0 million recognized as a result of a nonrecurring licensing transaction, partially offset by decreased Adjusted EBITDAvolume on the 787 as a result of an announced production pause and decreased volume as a result of the exit of our Spokane, Washington, operations. Net sales for the nine months ended December 31, 2021, included $21.1 million in total nonrecurring revenues, as compared with $38.5 million in total nonrecurring revenues for the nine months ended December 31, 2020.

35

Management's Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

Cost of Sales and Gross Margin

Organic cost of sales adjusted for intersegment sales decreased $34.6 million, or 4.4%, with additional declines from the composites and large structure manufacturing operations, G650, and Staverton, United Kingdom, divestitures of $194.8 million and sunsetting programs of $98.9 million. Organic cost of sales decreased primarily due to the prior period impairment of rotable inventory of $23.7 million impairment, decreased volume as a result of the exit of our Spokane, Washington, operations, and changes in sales mix. Organic gross margin for the nine months ended December 31, 2021, was 25.9% compared with 21.4% for the nine months ended December 31, 2020. The gross margin for the nine months ended December 31, 2021, increased primarily as a result of the prior period impairment of rotable inventory and the licensing transaction described above and the change in sales mix.

Gross margin for the nine months ended December 31, 2021, included net favorable cumulative catch-up adjustments on long-term contracts of $13.1 million. The favorable cumulative catch-up adjustments to operating income included gross favorable adjustments of $24.0 million and gross unfavorable adjustments of $10.9 million. Gross margins for the nine months ended December 31, 2020, included net favorable cumulative catch-up adjustments of $19.3 million.

Segment Operating Income

Organic segment operating income increased by $341.6 million, or 145.0%, primarily due to long-lived asset impairment charges of $252.4 million in the nine months ended December 31, 2021, the increased margins described above, as well as decreased depreciation and amortization expense of approximately $32.8 million, decreased credit losses of approximately $4.7 million, decreased rent expense of approximately $3.5 million, and decreased administrative compensation cost of approximately $3.0 million. The divestitures and sunsetting programs resulted in additional decreases to operating income of approximately $35.9 million.

Corporate Expense

The corporate expenses increased primarily due to decreased loss on sale of assets and businesses of $32.4 million, decreased legal and consulting expense of approximately $5.1 million, and decreased compensation cost of approximately $3.0 million on lower headcount.

Interest Expense and Other

Interest expense and other decreased due to lower relative debt levels as a result of current period redemptions as well as favorable changes in foreign currency exchange rates of approximately $8.0 million.

Non-service Defined Benefit Income

Non-service defined benefit income decreased primarily due the recognition of curtailment and settlement losses of approximately $20.0 million in the aggregate upon the completion of the composites and large structure manufacturing divestitures and the settlement of the fully-funded pension obligation it had retained subsequent to its fiscal year over year.

Precision Components: Precision Components2019 divestiture of Triumph Geared Solutions - Toronto, partially offset by increases due to changes in actuarial assumptions and experience.

Income Taxes

The effective income tax rate for the nine months ended December 31, 2021, was (14.6)% compared with (0.6)% for the nine months ended December 31, 2020. For the nine months ended December 31, 2021, the effective tax rate reflected a limitation on the recognition of tax benefits due to the full valuation allowance.

Business Segment Performance — Nine months ended December 31, 2021, compared with nine months ended December 31, 2020

 

 

Nine Months Ended December 31,

 

 

% Change

 

 

% of Total Sales

 

 

 

2021

 

 

2020

 

 

 

 

 

2021

 

 

2020

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

NET SALES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Systems & Support

 

$

743,475

 

 

$

758,178

 

 

 

(1.9

)%

 

 

69.3

%

 

 

54.0

%

Aerospace Structures

 

 

329,863

 

 

 

649,065

 

 

 

(49.2

)%

 

 

30.7

%

 

 

46.3

%

Elimination of intersegment sales

 

 

(47

)

 

 

(4,357

)

 

 

98.9

%

 

 

—

 

 

 

(0.3

)%

Total net sales

 

$

1,073,291

 

 

$

1,402,886

 

 

 

(23.5

)%

 

 

100.0

%

 

 

100.0

%

36

Management's Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

 

 

Nine Months Ended December 31,

 

 

% Change

 

 

% of Segment Sales

 

 

 

2021

 

 

2020

 

 

 

 

 

2021

 

 

2020

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

SEGMENT OPERATING INCOME (LOSS)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Systems & Support

 

$

114,213

 

 

$

74,033

 

 

 

54.3

%

 

 

15.4

%

 

 

9.8

%

Aerospace Structures

 

 

11,316

 

 

 

(254,187

)

 

 

104.5

%

 

 

3.4

%

 

 

(39.2

)%

Corporate

 

 

(60,049

)

 

 

(99,785

)

 

 

39.8

%

 

n/a

 

 

n/a

 

Total segment operating income (loss)

 

$

65,480

 

 

$

(279,939

)

 

 

123.4

%

 

 

6.1

%

 

 

(20.0

)%

 

 

Nine Months Ended December 31,

 

 

% Change

 

 

% of Segment Sales

 

 

 

2021

 

 

2020

 

 

 

 

 

2021

 

 

2020

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDAP

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Systems & Support

 

$

135,345

 

 

$

110,983

 

 

 

22.0

%

 

 

18.3

%

 

 

14.9

%

Aerospace Structures

 

 

23,982

 

 

 

20,084

 

 

 

19.4

%

 

 

7.3

%

 

 

3.2

%

Corporate

 

 

(36,164

)

 

 

(42,027

)

 

 

14.0

%

 

n/a

 

 

n/a

 

 

 

$

123,163

 

 

$

89,040

 

 

 

38.3

%

 

 

11.5

%

 

 

6.5

%

Systems & Support:

Net Sales

Organic net sales adjusted for intersegment sales decreased by $5.5 million, or 0.8%, with additional declines from the Staverton, United Kingdom, divestiture of $9.2 million. Organic sales decreased primarily due to decreased volume on the 787 as a result of an announced production pause and decreased rotorcraft volume partially offset by increased commercial narrow body production, increased repair and overhaul services, and approximately $4.0 million recognized as a result of a nonrecurring licensing transaction.

Cost of Sales and Gross Margin

Organic cost of sales adjusted for intersegment sales decreased by $54.7$48.5 million, or 7.4%8.9%, with additional declines from the Staverton, United Kingdom, divestiture of $7.8 million. Organic cost of sales decreased primarily due to $685.7the decreased volumes described above as well as a prior period impairment of rotable inventory of $23.7 million. Gross margin for the nine months ended December 31, 2021, was 32.0% compared with 25.9% for the nine months ended December 31, 2020. Gross margin increased primarily as a result of the prior period impairment of rotable inventory, the licensing transaction described above, and changes in sales mix.

Operating Income and Adjusted EBITDAP

Organic operating income increased by $41.3 million, or 56.3%, with additional declines from the Staverton, United Kingdom, divestiture of $1.2 million. Organic operating income increased primarily due to the increased margins described above as well as decreased consulting costs of approximately $1.7 million and decreased credit losses of $0.8 million, partially offset by an increase in compensation cost of approximately $5.4 million. The increase in Adjusted EBITDAP year over year is due to the same factors that increased operating income except for the increase resulting from the prior period impairment of rotable inventory, which is excluded from Adjusted EBITDAP.

Operating Margin and Adjusted EBITDAP Margin

Systems & Support operating income and Adjusted EBITDAP as a percentage of segment sales both increased due to the factors described above except for the increase resulting from the prior period impairment of rotable inventory, which is excluded from Adjusted EBITDAP.

37

Management's Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

Aerospace Structures:

Net Sales

Organic net sales increased by $14.0 million, or 5.3%, offset by declines from the composites and large structure manufacturing operations and G650 divestitures of $233.1 million and sunsetting programs (i.e., 747-8 and G280) of $100.0 million. Organic net sales increased due to initial recoveries from the impacts of the COVID-19 pandemic mainly reflected in increased volumes on 767. Net sales for the nine months ended December 31, 2021, included $17.1 million in total nonrecurring revenues, as compared with $38.5 million in total nonrecurring revenues for the nine months ended December 31, 2020.

Cost of Sales and Gross Margin

Organic cost of sales increased by $9.6 million, or 3.9%, offset by declines from the composites and large structure manufacturing operations and G650 divestitures of $187.0 million and sunsetting programs of $98.9 million. The increase in organic cost of sales is due to increase in sales described above. Organic gross margin for the nine months ended December 31, 2021, was 9.9% compared with 8.7% for the nine months ended December 31, 2020, largely reflecting a change in sales mix. The gross margin included net favorable cumulative catch-up adjustments of $12.9 million. The net favorable cumulative catch-up adjustments included gross favorable adjustments of $23.7 million and gross unfavorable adjustments of $10.9 million. The net favorable cumulative catch-up adjustment for the nine months ended December 31, 2020, was $18.7 million.

Operating Income and Adjusted EBITDAP

Organic operating income increased by $300.2 million, or 97.2%, primarily due to long-lived asset impairment charges of $252.4 million in the nine months ended December 31, 2020, the increased margins described above, as well as decreased depreciation and amortization expense of approximately $32.6 million, decreased compensation costs of approximately $8.6 million, decreased credit losses of approximately $3.8 million, decreased rent expense of approximately $3.5 million, decreased research and development costs of approximately $2.0 million, and decreased information technology costs of approximately $2.9 million. The divestitures and sunsetting programs resulted in additional decreases to operating income of approximately $34.7 million. The increase in Adjusted EBITDAP year over year is due to the same factors that increased operating income except for the increase resulting from the long-lived asset impairment and depreciation and amortization expense, which are excluded from Adjusted EBITDAP.

Operating Margin and Adjusted EBITDAP Margin

Operating income as a percentage of segment sales increased due to the increase in operating income as noted above. These same factors affecting Adjusted EBITDAP contributed to the increase in Adjusted EBITDAP margin.

Liquidity and Capital Resources

Operating Cash Flows

Our working capital needs are generally funded through our current cash and cash equivalents, cash flows from operations, and the availability of proceeds from the Securitization Facility. During the nine months ended December 31, 2021, we had a net cash outflow of $170.0 million from operating activities compared with a net cash outflow of $195.9 million for the nine months ended December 31, 2017, from $740.4 million for2020, an improvement of $25.9 million. Cash flows included stable inventory levels and lower accounts payable. Reflecting the change in our portfolio of businesses that is a result of our strategic divestitures, working capital stability has improved in the nine months ended December 31, 2016. The decline in sales was primarily driven by production rate and step down pricing on 777 program and step down pricing on the 787 program, partially offset by increased production on the A350 program.

Precision Components cost of sales decreased by $41.7 million, or 6.5%, to $602.6 million for the nine months ended December 31, 2017, from $644.3 million for the nine months ended December 31, 2016. The cost of sales decreased due to the decline in sales as noted above. The gross margin for the nine months ended December 31, 2017 was 12.1%,2021, compared with 13.0% for the nine months ended December 31, 2016. The gross margin declined for the nine months ended December 31, 2017, due to the decline in sales noted above.
Precision Components operating income decreased by $198.3 million, or 2,745.7%, to an operating loss of $191.1 million for the nine months ended December 31, 2017, from operating income of $7.2 million for the nine months ended December 31, 2016. The operating loss nine months ended December 31, 2017, was the result of the decreased sales, as noted above, the

50

Table Of Contents
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)

previously mentioned goodwill impairment charge of $190.2 million and by increased restructuring costs of $5.0 million. The Adjusted EBITDA decreased year over year due to the decreased sales noted above.
Precision Components operating loss as a percentage of segment sales declined to (27.9)% for the nine months ended December 31, 2017, as compared to 1.0% for the nine months ended December 31, 2016, due to the goodwill impairment noted above. The Adjusted EBITDA margin year over year was affected by the same factors that decreased the Adjusted EBITDA.

Product Support: Product Support net sales decreased by $54.5 million, or 21.2%, to $202.8 million for the nine months ended December 31, 2017, from $257.3 million for the nine months ended December 31, 2016. Organic sales increased $8.0 million, or 4.3%, due to increased demand from OEM customers. The divestiture of Engines and APU contributed $62.5 million to net sales for the nine months ended December 31, 2016.
Product Support cost of sales decreased by $37.3 million, or 20.0%, to $149.6 million for the nine months ended December 31, 2017, from $186.9 million for the nine months ended December 31, 2016. Organic cost of sales increased $10.4 million, or 7.8%. Organic cost of sales did not increase in proportion to the increase in sales due to sales mix. The divestiture of Engines and APU contributed $47.7 million in cost of sales to the nine months ended December 31, 2016. Organic gross margin for the nine months ended December 31, 2017 was 26.6% compared to 29.0% for the nine months ended December 31, 2016.
Product Support operating income decreased by $10.9 million, or 25.4%, to $32.1 million for the nine months ended December 31, 2017, from $43.0 million for the nine months ended December 31, 2016. Organic operating income decreased $0.6 million or 2.0%, due to the decreased gross profit noted above. The divestiture of Engines and APU contributed $10.3 million operating income for the nine months ended December 31, 2016. These same factors contributed to the decrease in Adjusted EBITDA year over year.
Product Support operating income as a percentage of segment sales decreased to 15.8% for the nine months ended December 31, 2017, as compared to 16.7% for the nine months ended December 31, 2016, due to the decreased gross profit noted above. These same factors contributed to the decreased Adjusted EBITDA margin year over year.

Liquidity and Capital Resources
Our working capital needs are generally funded through cash2020. Cash flows from operations improved in the third fiscal quarter, and borrowings under our credit arrangements. Duringwe expect that trend to continue in the fourth fiscal quarter. Cash flows from operations also included approximately $62.4 million in the liquidation of prior period customer advances. Including $9.1 million in redemption premiums, interest payments were approximately $110.5 million for the nine months ended December 31, 2017, we used2021, as compared with $79.4 million for the nine months ended December 31, 2020. The increase in interest payments was the specific timing of interest payments under the First Lien Notes and the 2022 Notes as compared with the related redemptions disclosed in Note 6.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was signed into law. The CARES Act provided for, among other things, deferred payment of the employer portion of social security taxes through the end of 2020, with 50% of the deferred amount due December 31, 2021, and the remaining 50% due December 31, 2022. Of the approximately $198.3$17.8 million of cash flows from operating activities, receivedthese deferred payments, we paid approximately $36.5$8.9 million in investing activitiesDecember 2021. The remaining $8.9 million will be repaid in December 2022 in accordance with the provisions of the CARES Act described above. The deferred amounts are recorded within accrued expenses on our condensed consolidated balance sheet as of December 31, 2021.

As disclosed in Note 2, in November 2021 the Company entered into an agreement with the Department of Transportation (“DOT”) under the Aviation Manufacturing Jobs Protection Program (“AMJP”) for a grant of up to $21.3 million. The Company received the first installment of $10.6 million under the grant in November 2021 and classified the cash receipt within cash from operations. The Company expects to receive additional funds from the DOT as costs are incurred over the remainder of the

38

Management's Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

service period with final installment to be received approximately $158.2 million in financing activities.

upon final confirmation from the DOT of the Company's compliance with the terms of the agreement. Refer to Note 2 for further discussion.

Investing Cash Flows

Cash flows used in operatingprovided by investing activities for the nine months ended December 31, 2017 were $198.32021, increased $197.7 million compared to cashfrom the nine months ended December 31, 2020. Cash flows used in operatingprovided by investing activities for the nine months ended December 31, 20162021, included cash from the sales of $172.7 million. During the nine months ended December 31, 2017, net cash used in operating activities was primarily due the timingassets and businesses of payments on accounts payable and other accrued expenses of $373.4$220.6 million driven by timing of payables to suppliers, offset by decreased receipts from customers of $321.4 million due to decreased utilizationas a result of the receivables purchase agreementcompletion of the divestiture of our composites and decreased sales.

We continue to invest in inventory for new programs which impactslarge structure manufacturing operations, the asset sales associated with the exit of our cash flows from operating activities. During the nine months ended December 31, 2017, inventory build for capitalized pre-production costs on new programs excluding progress payments, including the Bombardier Global 7000/8000 programSpokane, Washington, manufacturing operations, and the Embraer E-Jet, were $80.6sale of certain legacy product lines of our Staverton, United Kingdom, operations as described in Note 3. As part of the activities necessary to bring the composites and large structure manufacturing operations divestiture to completion, we used approximately $21.6 million and $6.0 million, respectively. Additionally,net of transaction related costs to acquire the cash utilization for production inventory build, including build ahead on several programs subject to relocation,manufacturing facility in our Rayong, Thailand, operations. This facility was approximately $286.9 million. Total customer advances, including unliquidated progress payments netted against inventory which are included in the assets transferred in the divestiture. We also used approximately $15.8 million for capital expenditures and $2.1 million as part of the formation of a joint venture to which future cash flows from operations, increased $251.1 million, primarily dueand non-cash contributions are expected to timing of receipts and resolution of open assertions.
be insignificant. Cash flows used in investing activities for the nine months ended December 31, 2017 increased $46.4 million2020, included cash from the nine months ended December 31, 2016. sale of assets and businesses of $2.4 million with additional investing outflows from capital expenditures of $19.0 million. We currently expect full year capital expenditures in fiscal 2022 to be in the range of $25.0 million, of which approximately $21.0 million pertains to our core Systems & Support operating segment. The majority of our fiscal 2022 capital expenditures are capital investments designed to improve our manufacturing efficiency and expand our capabilities.

Financing Cash Flows

Cash flows used in investingfinancing activities for the nine months ended December 31, 2017, included capital expenditures of $31.92021, were $391.6 million, and proceeds from the sale of assets of $68.4 million. Cash used in investing activities for the nine months ended December 31, 2016, included capital expenditures of $33.1 million and proceeds from the sale of assets of $23.2 million.

Cashcompared with cash flows provided by financing activities for the nine months ended December 31, 2017 were $158.2 million, compared to cash flows used in financing activities for2020, of $197.7 million. In the nine months ended December 31, 20162021, the following significant financing cash flow events occurred:

•
We used approximately $236.5 million to redeem 100% of $198.6 million. Cash flows

51

Table Of Contents
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)the outstanding principal balance under the 2022 Notes

•
As disclosed in Note 3, under the terms of the First Lien Notes indenture, we were required to use approximately $120.0 million to redeem approximately $136.8 million of the outstanding principle balance and pay a redemption premium of approximately $9.1 million.
provided by

The remainder of financing activities forcash flows pertain primarily to borrowings and payments under finance leases and the repurchase of common stock to satisfy employee tax withholding obligations resulting from equity compensation. As of December 31, 2021, we had $206.1 million of cash on hand and $75.4 million was available under our Securitization Facility (subject to any additional constraints arising from the balance of eligible receivables at that time) after giving effect to approximately $24.6 million in outstanding letters of credit, all of which were accruing interest at 1.25% per annum.

As disclosed in Note 12, the exit of our composites manufacturing operations in Spokane, Washington could trigger a multiemployer pension plan withdrawal obligation that, if incurred, would likely be satisfied through annual payments over a period of at least ten years.

With the redemption of the 2022 Notes in the nine months ended December 31, 2017 and 2016, respectively, included the proceeds from the issuance of our Senior Notes due 2025 of $500.0 million, offset by repayment of the 2013 Term Loan of $302.3 million, payment of financing fees $17.7 million and additional borrowings on our Credit Facility (as defined below).

As of December 31, 2017, $719.8 million was available under our revolving credit facility (the “Credit Facility”) after consideration of covenant limitations.  On December 31, 2017, an aggregate amount of approximately $50.0 million was outstanding under the Credit Facility, all of which was accruing interest at LIBOR plus applicable basis points totaling 3.50% per annum. Amounts repaid under the Credit Facility may be reborrowed.
At December 31, 2017, there was $109.2 million outstanding under our receivable securitization facility ("Securitization Facility"). Interest rates on the Securitization Facility are based on prevailing market rates for short-term commercial paper, plus a program fee and a commitment fee. The Securitization Facility's net availability is not impacted by the borrowing capacity of the Credit Facility.
In July 2017, the Company entered into a Ninth Amendment to the Credit Agreement (the “Ninth Amendment” and the Existing Credit Agreement as amended by the Ninth Amendment, the “Credit Agreement”) with the Administrative Agent and the Lenders party thereto to, among other things, (i) permit the Company to incur High Yield Indebtedness (as defined in the Credit Agreement) in an aggregate principal amount of up to $500.0 million, subject to the Company’s obligations to apply the net proceeds from this offering to repay the outstanding principal amount of the term loans in full, (ii) limit the mandatory prepayment provisions to eliminate the requirement that net proceeds received from the incurrence of Permitted Indebtedness (as defined in the Credit Agreement), including the High Yield Indebtedness, be applied to reduce the revolving credit commitments once the revolving credit commitments have been reduced to $800.0 million, (iii) amend certain covenants and other terms and (iv) modify the current interest rate and letter of credit pricing tiers.
The Credit Facility also provided for a variable rate term loan (the "2013 Term Loan"). The Company repaid the outstanding principal amount of the 2013 Term Loan in quarterly installments, on the first business day of each January, April, July and October. The 2013 Term Loan was paid in full with the proceeds from the Senior Notes due 2025 (see below).
In May 2017, the Company entered into an Eighth Amendment to the Third Amended and Restated Credit Agreement (the “Eighth Amendment Effective Date”), among the Company and its lenders to, among other things, (i) eliminate the total leverage ratio financial covenant, (ii) increase the maximum permitted senior secured leverage ratio financial covenant applicable to each fiscal quarter, commencing with the fiscal quarter ended March 31, 2017, and to revise the step-downs applicable to such financial covenant, (iii) reduce the aggregate principal amount of commitments under the revolving line of credit to $800.0 million from $1.0 billion, (iv) modify the maturity date of the term loans so that all of the term loans will mature on March 31, 2019, and (v) establish a new higher pricing tier for the interest rate, commitment fee and letter of credit fee pricing provisions.
The Company is currently in compliance with all such covenants. Although the Company does not anticipate any violations of the financial covenants, its ability to comply with these covenants is dependent upon achieving earnings and cash flow projections.
On August 17, 2017, the Company issued $500.0 million principal amount of 7.750% Senior Notes due 2025 (the "2025 Notes"). The 2025 Notes were sold at 100% of principal amount and have an effective interest yield of 7.750%. Interest on2021, the 2025 Notes accrues at the rate of 7.750% per annum and is payable semiannually in cash in arrears on February 15 and August 15 of each year, commencing on February 15, 2018.
The 2025 Notes are the Company'sour senior unsecured obligations and rank equally in right of payment with all of itsour other existing and future senior unsecured indebtedness and senior in right of payment to all of itsour existing and future subordinated indebtedness. The 2025 Notes are guaranteed on a full, joint and several basis by each of our existing and future domestic restricted subsidiaries that is a borrower under any of our credit facilities or that guarantees any of our debt or that of any of our restricted subsidiaries, in each case incurred under any of our credit facilities.

Pursuant to the Guarantor Subsidiaries.

The Companydocumentation governing the 2025 Notes, we may redeem, at specified redemption prices, some or all of the 2025 Notes prior to August 15, 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 may redeem up to 35% of the 2025 Notes with the net proceeds of certain equity offerings at a redemption price equal to 107.750% of the aggregate principal amount plus accrued and unpaid interest, if any,their stated maturities, subject to certain limitations set forth in the indenture governing the 2025 Notes (the "2025 Indenture").

52

Table Of Contents
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)

The Company isNotes. We are obligated to offer to repurchase the 2025Senior Notes at a price of (i) 101% of their principal amount plus accrued and unpaid interest, if any,specified prices as a result of certain change-of-control events and (ii) 100%a sale of their principal amount plus accrued and unpaid interest, if any, in the eventall or substantially all of certain asset sales.our assets. These restrictions and prohibitions are subject to certain qualifications and exceptions.

The indentures governing the 2025 Indenture containsNotes, as well as Securitization Facility, contain covenants and restrictions that, among other things, limit the Company'sour ability and the ability of any of the Guarantor Subsidiaries to (i) grant liens on its assets,our assets; (ii) make dividend payments, other distributions or other restricted payments,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,transactions; (v) merge, consolidate, transfer or dispose of substantially all of their assets,assets; (vi) incur additional indebtedness,indebtedness; (vii) use the proceeds from sales of assets, including capital stock of restricted subsidiaries (in the case of the 2025 Notes); and (viii) enter into transactions with affiliates.

The expected future cash flows for the next five years for long-term We are currently in compliance with all covenants under our debt leasesdocuments and other obligations are as follows:
 
Payments Due by Period
(in thousands)
Contractual ObligationsTotal 
Less than
1 year
 1-3 years 4-5 years 
More than 5
years
Debt principal (1)$1,392,497
 $15,135
 $135,072
 $733,777
 $508,513
Debt interest (2)305,749
 75,201
 79,711
 78,100
 72,737
Operating leases138,051
 26,155
 41,417
 25,933
 44,546
Purchase obligations1,533,563
 1,197,322
 275,163
 46,720
 14,358
Total$3,369,860
 $1,313,813
 $531,363
 $884,530
 $640,154

(1) Includedexpect to remain in the Company’s balance sheet at December 31, 2017.
(2) Includes fixed-rate interest only.
The above table excludes unrecognized tax benefits of $11.4 million as of December 31, 2017, since we cannot predict with reasonable certainty the timing of cash settlements with the respective taxing authorities.
For the fiscal year ending March 31, 2018, the Company is not required to make minimum contributions to its U.S. defined benefit pension plans under the minimum funding requirements of the Employee Retirement Income Security Act of 1974 and the Pension Protection Act of 2006.
We believe that cash flows from operations and borrowings under the Credit Facility will be sufficient to meet anticipated cash requirements for our current operationscompliance for the foreseeable future. However, we

The First Lien Notes, the 6.250% Senior Secured Notes due September 15, 2024 (the “2024 Notes”),and the guarantees related to the foregoing are continuously evaluating various acquisitionsecured, subject to permitted liens, by first-priority or second-priority liens (as applicable) on substantially all of our assets and divestiture opportunities. Asthe assets of our subsidiary guarantors (the “Collateral”). The First Lien Notes and the 2024 Notes and the

39

Management's Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

related guarantees are not secured by the assets of Non-Guarantor Subsidiaries (as defined below). Some of our assets are excluded from the Collateral, including certain real property assets. Currently, our only consolidated subsidiaries that are not guarantors of the First Lien Notes, 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.

In November 2021, the Company amended the Securitization Facility, increasing the purchase limit from $75.0 million to $100.0 million, modifying certain other terms to increase eligible receivables and availability, and extending the term through November 2024.

For further information on our long-term debt, see Note 6.

The following tables present summarized financial information of the Company and the Guarantor Subsidiaries on a result, we currently are pursuingcombined basis. The combined summarized financial information eliminates intercompany balances and transactions among the potential purchaseCompany and the Guarantor Subsidiaries and equity in earnings and investments in any Guarantor Subsidiaries or Non-Guarantor Subsidiaries. The summarized financial information is provided in accordance with the reporting requirements of a number of candidates. InRule 13-01 under SEC Regulation S-X for the event that more than one of these transactions are successfully consummated, the availability under the Credit Facility might be fully utilizedissuer and additional funding sources may be needed. There can be no assurance that such funding sources will be available to us on terms favorable to us, if at all.



Guarantor Subsidiaries.

Parent and Guarantor Summarized Financial Information

 

December 31,

 

 

March 31,

 

Summarized Balance Sheet

 

2021

 

 

2021

 

 

 

(in thousands)

 

Assets

 

 

 

 

 

 

Due from Non-Guarantor Subsidiaries

 

$

3,394

 

 

$

441

 

Current assets

 

 

697,947

 

 

 

1,232,055

 

Noncurrent assets

 

 

679,489

 

 

 

748,480

 

Noncurrent receivable from Non-Guarantor Subsidiaries

 

 

67,903

 

 

 

107,059

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Due to Non-Guarantor Subsidiaries

 

 

85,326

 

 

 

14,556

 

Current liabilities

 

 

525,033

 

 

 

664,260

 

Noncurrent liabilities

 

 

1,992,721

 

 

 

2,556,915

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

Summarized Statement of Operations

 

 

 

 

December 31, 2021

 

 

 

 

 

 

(in thousands)

 

Net sales to Non-Guarantor Subsidiaries

 

 

 

 

 

2,539

 

Net sales to unrelated parties

 

 

 

 

 

985,053

 

Gross profit

 

 

 

 

 

254,644

 

Loss from continuing operations before income taxes

 

 

 

 

 

(33,798

)

Net loss

 

 

 

 

 

(34,501

)

Critical Accounting Policies


The Company's

Our critical accounting policies are discussed in Management's Discussion and Analysis of Financial Condition and Results of Operations and notes accompanying the condensed consolidated financial statements that appear in the Annual Report on Form 10-K for the fiscal year ended March 31, 2017.2021. Except as otherwise disclosed in the condensed consolidated financial statements and accompanying notes included in this report, there were no material changes subsequent to the filing of the Annual Report on Form 10-K for the fiscal year ended March 31, 2017,2021, in the Company'sour critical accounting policies or in the assumptions or estimates used to prepare the financial information appearing in this report.




53

Table Of Contents
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)


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 our beliefs concerning future performance and capital requirements based upon current available information. Such statements are based on our beliefs as well as assumptions made by and information currently available to us. When used in this document, words like “may,” “might,” “will,” “expect,” “anticipate,” “believe,” “potential,” "plan," "estimate," and similar expressions are intended to identify forward-looking statements. Actual results could differ materially from our current expectations. For example, there can be no assurance that additional capital will not be required or that additional

40

Management's Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

capital, if required, will be available on reasonable terms, if at all, at such times and in such amounts as may be needed by us. In addition to these factors, among other factors that could cause actual results to differ materially are uncertainties relating to our ability to execute on our restructuring plans, the integration of acquired businesses, divestitures of our business, general economic conditions affecting our business, dependence of certain of our businesses on certain key customers as well as competitive factors relating to the aviation industry. For a more detailed discussion of these and other factors affecting us, see the risk factors described in our Annual Report on Form 10-K for the fiscal year ended March 31, 2017,2021, filed with the SEC on May 24, 2017.


20, 2021, and in our quarterly reports on Form 10-Q.

41

Item 3. Quantitative and Qualitative Disclosures About Market Risk.


For information regarding our exposure to certain market risks, see “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2017.2021. There has been no material change in this information during the period covered by this report.


Item 4. Controls and Procedures.


(a) 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 reports pursuant to the Securities Exchange Act of 1934, as amended, 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 chief executive officer and chief 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 December 31, 2017,2021, we completed an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2017.

2021.

(b) Changes in internal control over financial reporting.

There were no changes that occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.


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TRIUMPH GROUP, INC.

Part II. Other Information


Not applicable.


Item 1A. Risk Factors.

There have been no material changes in our risk factors from those disclosed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the fiscal year ended March 31, 2017.


2021.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Not applicable.


Issuer Purchases of Equity Securities.
Not applicable.

Item 3. Defaults Upon Senior Securities

Securities.

Not applicable.


Item 4. Mine Safety Disclosures.

Not applicable.


Item 5. Other Information

Information.

Not applicable.


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Item 6. Exhibits.


Exhibit 10.1

Twentieth Amendment No. 14 to the Recievable PurchaseBlocked Account Agreement, datedeffective as of November 30, 2017 (Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on November 7, 2017)5, 2021, between Triumph Receivables LLC, Triumph Group, Inc., and PNC Bank, National Association.

Exhibit 10.2

Twelfth Amended and Restated Purchaser Group Fee Letter, Agreement betweeneffective as of November 5, 2021, among Triumph Receivables, LLC, Triumph Group, Inc., the Companyvarious purchasers and Peter Wick dated January 20, 2018purchaser agents from time to time party thereto, PNC Capital Markets LLC, and PNC Bank, National Association

.

Exhibit 10.3

Second Amended and Restated Performance Guaranty, effective as of November 5, 2021, by Triumph Group, Inc., in favor of PNC Bank, National Association.

Exhibit 10.4

First Amendment to Amended and Restated Purchase and Sale Agreement, effective as of November 5, 2021, among Triumph Group, Inc., Triumph Receivables, LLC, and each of the entities listed on the signature pages hereto as an Originator.

Exhibit 10.5

Second Amendment to Amended and Restated Receivables Purchase Agreement, effective as of November 5, 2021, among Triumph Group, Inc., Triumph Receivables, LLC, and PNC Bank, National Association.

Exhibit 22.1

List of Subsidiary Guarantors and Issuers of Guaranteed Securities.

Exhibit 31.1

Certification by President and Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a).


Exhibit 31.2

Certification by Senior Vice President and Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a).


Exhibit 32.1

Certification of Periodic Report by President and Chief Executive Officer Furnished Pursuant to 18 U.S.C. Section 1350 Adopted Pursuant to Section 906 Sarbanes-Oxley Act of 2002.


Exhibit 32.2

Certification of Periodic Report by Senior Vice President and Chief Financial Officer Furnished Pursuant to 18 U.S.C. Section 1350 Adopted Pursuant to Section 906 Sarbanes-Oxley Act of 2002.


Exhibit 101

The following financial information from Triumph Group, Inc.’s Quarterly Report on Form 10-Q for the quarter ended December 31, 20172021, formatted in XBRL:iXBRL: (i) Condensed Consolidated Balance Sheets as of December 31, 20172021 and March 31, 2017;2021; (ii) Condensed Consolidated Statements of IncomeOperations for the three and nine months ended December 31, 20172021 and 2016;2020; (iii) Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended December 31, 20172021 and 2016;2020; (iv) Condensed Consolidated Statements of Stockholders' Deficit for the three and nine months ended December 31, 2021 and 2020; (v) Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 20172021 and 2016;2020; and (1)(vi) Notes to Condensed Consolidated Financial Statements.

Exhibit 104

*Indicates management contract or compensatory plan or arrangement

Cover Page Interactive Data File, formatted as Inline XBRL and contained in Exhibit 101.














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TRIUMPH GROUP, INC.


Signatures

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Triumph Group, Inc.

(Registrant)

(Registrant)

President and Chief Executive Officer

February 8, 2022

/s/ Daniel J. Crowley

February 7, 2018
Daniel J. Crowley, President, Chief Executive Officer and Director

(Principal Executive Officer)

Daniel J. Crowley

/s/ James F. McCabe, Jr.

February 7, 2018

James F. McCabe, Jr.,

Senior Vice President and Chief Financial Officer

February 8, 2022

/s/ James F. McCabe, Jr.

(Principal Financial Officer)

James F. McCabe, Jr.

Vice President, Investor Relations and Controller

/s/ Thomas A. Quigley, III

(Principal Accounting Officer)

February 7, 2018

8, 2022

Thomas A. Quigley, III Vice President and Controller

(Principal Accounting Officer)



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