United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM10-Q
☒ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Quarterly Period Ended
December 31,or
☐ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Transition Period From _________ to ________
Commission File Number:1-12235
TRIUMPH GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware | 51-0347963 | |||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
899 Cassatt Road, Suite 210, Berwyn, PA | 19312 | ||||
(Address of principal executive offices) | (Zip Code) |
(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. Yes
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). Yes
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 filer | ☐ | Accelerated filer | ☒ | |
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes
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.
TRIUMPH GROUP, INC.
TABLE OF CONTENTS
Page Number | |||
2021 | |||
- Three and nine months ended December 31, 2020 | |||
Consolidated Statements of Comprehensive Income 2020(Loss) - Three and nine months ended December 31, | |||
4 | |||
Flows - Nine months ended December 31, 2020 | 8 | ||
2021 | 9 | ||
27 | |||
42 | |||
42 | |||
43 | |||
Item 1. | 43 | ||
Item | 43 | ||
Item 2. | 43 | ||
Item 3. | 43 | ||
Item 4. | 43 | ||
Item 5. | 43 | ||
Item | 43 | ||
44 |
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 $4,559 | 320,999 | 311,792 | |||||
Inventories, net of unliquidated progress payments of $409,040 and $222,485 | 1,462,724 | 1,340,175 | |||||
Prepaid and other current assets | 43,500 | 30,064 | |||||
Assets held for sale | — | 21,255 | |||||
Total current assets | 1,891,611 | 1,772,919 | |||||
Property and equipment, net | 749,922 | 805,030 | |||||
Goodwill | 934,500 | 1,142,605 | |||||
Intangible assets, net | 520,820 | 592,364 | |||||
Other, net | 89,079 | 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 payable | 387,081 | 481,243 | |||||
Accrued expenses | 627,411 | 674,379 | |||||
Liabilities related to assets held for sale | — | 18,008 | |||||
Total current liabilities | 1,029,627 | 1,334,260 | |||||
Long-term debt, less current portion | 1,359,476 | 1,035,670 | |||||
Accrued pension and other postretirement benefits | 509,641 | 592,134 | |||||
Deferred income taxes | 41,969 | 68,107 | |||||
Other noncurrent liabilities | 496,705 | 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 outstanding | 51 | 51 | |||||
Capital in excess of par value | 849,806 | 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 earnings | 452,973 | 579,489 | |||||
Total stockholders’ equity | 748,514 | 846,473 | |||||
Total liabilities and stockholders’ equity | $ | 4,185,932 | $ | 4,414,600 |
|
| 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 |
|
| 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 |
|
| 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
TRIUMPH GROUP, INC.
Condensed Consolidated Statements of Operations
(unaudited)
(Dollars in thousands, except per share data)
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 administrative | 62,147 | 66,750 | 213,934 | 205,222 | |||||||||||
Depreciation and amortization | 39,320 | 44,331 | 119,318 | 135,080 | |||||||||||
Impairment of intangible assets | 190,227 | — | 190,227 | — | |||||||||||
Restructuring costs | 6,149 | 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 other | 25,836 | 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—basic | 49,459 | 49,329 | 49,425 | 49,294 | |||||||||||
(Loss) earnings per share—diluted: | $ | (2.29 | ) | $ | 0.59 | $ | (2.44 | ) | $ | 1.70 | |||||
Weighted-average common shares outstanding—diluted | 49,459 | 49,440 | 49,425 | 49,421 | |||||||||||
Dividends declared and paid per common share | $ | 0.04 | $ | 0.04 | $ | 0.12 | $ | 0.12 |
|
| 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
TRIUMPH GROUP, INC.
Condensed Consolidated Statements of Comprehensive Income
(unaudited)
(dollarsDollars 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 | ||||||
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 |
|
| 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
For the three and nine months ended December 31, 2021
(unaudited)
(Dollars in thousands)
|
| Outstanding |
| Common |
| Capital in |
| Treasury |
| Accumulated |
| Accumulated |
| Total |
March 31, |
| 64,185,001 |
| $64 |
| $978,272 |
| $(12,606) |
| $(530,192) |
| $(1,254,391) |
| $(818,853) |
Net loss |
| — |
| — |
| — |
| — |
| — |
| (30,351) |
| (30,351) |
Foreign currency translation |
| — |
| — |
| — |
| — |
| 2,749 |
| — |
| 2,749 |
Pension liability adjustment, net of |
| — |
| — |
| — |
| — |
| 20,629 |
| — |
| 20,629 |
Change in fair value of foreign |
| — |
| — |
| — |
| — |
| (706) |
| — |
| (706) |
Share-based compensation |
| 355,821 |
| — |
| (11,505) |
| 13,975 |
| — |
| — |
| 2,470 |
Repurchase of shares for share-based |
| (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 |
| — |
| — |
| — |
| — |
| (5,692) |
| — |
| (5,692) |
Pension liability adjustment, net of |
| — |
| — |
| — |
| — |
| 11,206 |
| — |
| 11,206 |
Change in fair value of foreign currency |
| — |
| — |
| — |
| — |
| (1,199) |
| — |
| (1,199) |
Share-based compensation |
| 196,674 |
| 1 |
| 1,480 |
| 1,256 |
| — |
| — |
| 2,737 |
Repurchase of shares for share-based compensation |
| (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 |
| — |
| — |
| — |
| — |
| (776) |
| — |
| (776) |
Pension liability adjustment, net of |
| — |
| — |
| — |
| — |
| 7,264 |
| — |
| 7,264 |
Change in fair value of foreign currency |
| — |
| — |
| — |
| — |
| 411 |
| — |
| 411 |
Share-based compensation |
| 2,749 |
| — |
| 2,537 |
| 7 |
| — |
| — |
| 2,544 |
Repurchase of shares for share-based compensation |
| (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 |
| Common |
| Capital in |
| Treasury |
| Accumulated |
| Accumulated |
| 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 |
| — |
| — |
| — |
| — |
| 919 |
| — |
| 919 |
Pension liability adjustment, net of |
| — |
| — |
| — |
| — |
| 4,265 |
| — |
| 4,265 |
Change in fair value of foreign |
| — |
| — |
| — |
| — |
| 2,100 |
| — |
| 2,100 |
Share-based compensation |
| 158,274 |
| — |
| (6,670) |
| 9,291 |
| — |
| — |
| 2,621 |
Repurchase of shares for share-based |
| (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 |
| — |
| — |
| — |
| — |
| 7,282 |
| — |
| 7,282 |
Pension liability adjustment, net of |
| — |
| — |
| — |
| — |
| 4,265 |
| — |
| 4,265 |
Change in fair value of foreign currency |
| — |
| — |
| — |
| — |
| 2,231 |
| — |
| 2,231 |
Share-based compensation |
| 54,313 |
| — |
| (446) |
| 2,982 |
| — |
| — |
| 2,536 |
Repurchase of shares for share-based compensation |
| (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 |
| — |
| — |
| — |
| — |
| 12,637 |
| — |
| 12,637 |
Pension liability adjustment, net of |
| — |
| — |
| — |
| — |
| 4,265 |
| — |
| 4,265 |
Change in fair value of foreign currency |
| — |
| — |
| — |
| — |
| 2,315 |
| — |
| 2,315 |
Share-based compensation |
| 31,967 |
| — |
| 2,457 |
| 1,158 |
| — |
| — |
| 3,615 |
Repurchase of shares for share-based compensation |
| (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 amortization | 119,318 | 135,080 | |||||
Impairment intangible assets | 190,227 | — | |||||
Amortization of acquired contract liabilities | (91,862 | ) | (89,031 | ) | |||
Loss on divestiture | 20,371 | 19,124 | |||||
Curtailment and settlement gain, net | (14,576 | ) | — | ||||
Other amortization included in interest expense | 9,791 | 4,070 | |||||
Provision for doubtful accounts receivable | (365 | ) | 14 | ||||
(Benefit) provision for deferred income taxes | (24,432 | ) | 18,703 | ||||
Employee stock-based compensation | 6,137 | 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 assets | 68,412 | 23,185 | |||||
Acquisitions, net of cash acquired | — | 9 | |||||
Net cash provided by (used in) investing activities | 36,480 | (9,929 | ) | ||||
Financing Activities | |||||||
Net increase in revolving credit facility | 20,000 | 316,121 | |||||
Proceeds from issuance of long-term debt and capital leases | 531,500 | 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 activities | 158,185 | 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 period | 69,633 | 20,984 | |||||
Cash and cash equivalents at end of period | $ | 64,388 | $ | 35,461 |
|
| 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 |
|
|
|
|
|
| ||
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 |
|
|
|
|
|
| ||
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 |
|
| (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)
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
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.
Systems & Support consists of the FASB issued ASU 2016-09,
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 ImplementedIn 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.5Triumph 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 a6Triumph 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
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
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.
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
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.
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
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
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.
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.
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
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%.Sales to Boeing for the
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.
December 31, 2017 | |||||||||||||
Weighted- Average Life | Gross Carrying Amount | Accumulated Amortization | Net | ||||||||||
Customer relationships | 17.0 | $ | 621,524 | $ | (247,058 | ) | $ | 374,466 | |||||
Product rights, technology and licenses | 11.4 | 55,104 | (41,241 | ) | 13,863 | ||||||||
Non-compete agreements and other | 16.3 | 2,756 | (921 | ) | 1,835 | ||||||||
Tradenames | 10.0 | 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 relationships | 16.6 | $ | 663,165 | $ | (241,124 | ) | $ | 422,041 | |||||
Product rights, technology and licenses | 11.4 | 54,347 | (39,486 | ) | 14,861 | ||||||||
Non-compete agreements and other | 16.3 | 2,756 | (786 | ) | 1,970 | ||||||||
Tradenames | 10.3 | 163,000 | (9,508 | ) | 153,492 | ||||||||
Total intangibles, net | $ | 883,268 | $ | (290,904 | ) | $ | 592,364 |
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).
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
For the nine months ended December 31, 2017 and 2016, respectively.
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.
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 |
|
| Nine Months Ended |
| ||||||||||
|
| 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 |
|
| Nine Months Ended |
| ||||||||||
|
| 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, |
|
| 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 |
|
| 1-3 years |
|
| 4-5 years |
|
| More than 5 |
| |||||
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)
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, |
|
| March 31, |
| ||
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 components | 1,613,881 | 1,297,989 | |||||
Finished goods | 117,820 | 118,265 | |||||
Rotable assets | 57,295 | 57,337 | |||||
Less: unliquidated progress payments | (409,040 | ) | (222,485 | ) | |||
Total inventories | $ | 1,462,724 | $ | 1,340,175 |
6.LONG-TERM DEBT
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:
|
| December 31, |
|
| March 31, |
| ||
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 | ||||||
Embraer | 33,669 | 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 | ||||||
Embraer | 14,987 | 173,169 | (5,800 | ) | 182,356 | ||||||||||
Total | $ | 104,637 | $ | 762,618 | $ | (405,558 | ) | $ | 461,697 |
16
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollarsDollars in thousands, except per share data)
December 31, 2017 | March 31, 2017 | ||||||
Revolving line of credit | $ | 50,000 | $ | 29,999 | |||
Term loan | — | 309,375 | |||||
Receivable securitization facility | 109,200 | 112,900 | |||||
Capital leases | 58,297 | 72,800 | |||||
Senior notes due 2021 | 375,000 | 375,000 | |||||
Senior notes due 2022 | 300,000 | 300,000 | |||||
Senior notes due 2025 | 500,000 | — | |||||
Other debt | — | 7,978 | |||||
Less: Debt issuance costs | (17,886 | ) | (11,752 | ) | |||
1,374,611 | 1,196,300 | ||||||
Less: Current portion | 15,135 | 160,630 | |||||
$ | 1,359,476 | $ | 1,035,670 |
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 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
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.
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.
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.
Financial Instruments Not Recorded at Fair Value
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 |
|
| Fair |
|
| Carrying |
|
| Fair |
| ||||
$ | 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.
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 – basic | 49,459 | 49,329 | 49,425 | 49,294 | |||||||
Net effect of dilutive stock options and nonvested stock | — | 111 | — | 127 | |||||||
Weighted-average common shares outstanding – diluted | 49,459 | 49,440 | 49,425 | 49,421 |
8. INCOME TAXES
The Company follows the
IncomeThe 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,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.
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.
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.
As of
December 31,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 changes | 7,126 | 2,810 | (105 | ) | 9,831 | ||||||||||
Balance, December 31, 2017 | $ | 520,572 | $ | 345,001 | $ | 68,927 | $ | 934,500 |
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 lastNet 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 cost | 18,803 | 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 loss | 3,478 | 3,027 | 10,403 | 9,088 | |||||||||||
Settlement charge | — | — | 523 | — | |||||||||||
Net periodic benefit income | $ | (15,393 | ) | $ | (16,612 | ) | $ | (45,665 | ) | $ | (49,869 | ) |
20
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. |
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 cost | 1,219 | 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 | ) |
21
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in the tables above:
10. STOCKHOLDERS' EQUITY
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 | Unrealized Gains | Defined Benefit | 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 | ) |
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 | ) |
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 | ) |
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.
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.
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 Structures | 282,495 | 304,235 | 807,754 | 956,114 | |||||||||||
Precision Components | 219,675 | 226,294 | 685,701 | 740,354 | |||||||||||
Product Support | 68,039 | 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 |
|
| Three Months Ended December 31, 2021 |
| |||||||||||||
|
| Total |
|
| Corporate & |
|
| Systems & |
|
| Aerospace |
| ||||
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 & |
|
| Systems & |
|
| Aerospace |
| ||||
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
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollarsDollars in thousands, except per share data)
|
| Nine Months Ended December 31, 2021 |
| |||||||||||||
|
| Total |
|
| Corporate & |
|
| Systems & |
|
| Aerospace |
| ||||
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 & |
|
| Systems & |
|
| Aerospace |
| ||||
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 |
|
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 Structures | 12,022 | 23,867 | 23,253 | 57,898 | |||||||||||
Precision Components | (186,225 | ) | 2,942 | (191,100 | ) | 7,223 | |||||||||
Product Support | 12,399 | 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 other | 25,836 | 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 Structures | 19,048 | 17,942 | 57,484 | 54,289 | |||||||||||
Precision Components | 9,850 | 13,999 | 27,858 | 42,344 | |||||||||||
Product Support | 1,663 | 2,294 | 5,068 | 7,230 | |||||||||||
Corporate | 441 | 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 Structures | 21,352 | 21,105 | 60,315 | 60,190 | |||||||||||
Precision Components | 1,506 | 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 Structures | 9,718 | 20,704 | 20,422 | 51,997 | |||||||||||
Precision Components | 12,346 | 16,468 | 23,673 | 47,827 | |||||||||||
Product Support | 14,062 | 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 Structures | 2,384 | 2,228 | 9,503 | 9,820 | |||||||||||
Precision Components | 3,407 | 2,636 | 12,563 | 11,040 | |||||||||||
Product Support | 599 | 687 | 1,629 | 2,020 | |||||||||||
Corporate | 864 | 843 | 2,314 | 1,657 | |||||||||||
$ | 9,157 | $ | 9,157 | $ | 31,932 | $ | 33,123 |
December 31, 2017 | March 31, 2017 | ||||||
Total Assets: | |||||||
Integrated Systems | $ | 1,220,259 | $ | 1,281,828 | |||
Aerospace Structures | 1,573,942 | 1,548,239 | |||||
Precision Components | 1,056,015 | 1,262,691 | |||||
Product Support | 285,302 | 284,231 | |||||
Corporate | 50,414 | 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.
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 other | 20,027 | 10,469 | 13,004 | — | 43,500 | ||||||||||||||
Total current assets | 32,655 | 1,430,781 | 428,175 | — | 1,891,611 | ||||||||||||||
Property and equipment, net | 10,920 | 618,925 | 120,077 | — | 749,922 | ||||||||||||||
Goodwill and other intangible assets, net | — | 1,321,175 | 134,145 | — | 1,455,320 | ||||||||||||||
Other, net | 21,496 | 45,329 | 22,254 | — | 89,079 | ||||||||||||||
Intercompany investments and advances | 2,354,461 | 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 payable | 3,324 | 340,106 | 43,651 | — | 387,081 | ||||||||||||||
Accrued expenses | 49,520 | 531,133 | 46,758 | — | 627,411 | ||||||||||||||
Total current liabilities | 53,418 | 885,800 | 90,409 | — | 1,029,627 | ||||||||||||||
Long-term debt, less current portion | 1,317,662 | 41,814 | — | — | 1,359,476 | ||||||||||||||
Intercompany advances | 283,926 | 2,080,159 | 488,955 | (2,853,040 | ) | — | |||||||||||||
Accrued pension and other postretirement benefits, noncurrent | 6,608 | 503,033 | — | — | 509,641 | ||||||||||||||
Deferred income taxes and other | 9,404 | 495,634 | 33,636 | — | 538,674 | ||||||||||||||
Total stockholders’ equity | 748,514 | (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 |
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, net | 546 | 34,874 | 276,372 | — | 311,792 | ||||||||||||||
Inventories | — | 1,243,461 | 96,714 | — | 1,340,175 | ||||||||||||||
Prepaid expenses and other | 7,763 | 11,678 | 10,623 | — | 30,064 | ||||||||||||||
Assets held for sale | — | 3,250 | 18,005 | — | 21,255 | ||||||||||||||
Total current assets | 28,251 | 1,317,400 | 427,268 | — | 1,772,919 | ||||||||||||||
Property and equipment, net | 8,315 | 673,153 | 123,562 | — | 805,030 | ||||||||||||||
Goodwill and other intangible assets, net | — | 1,560,050 | 174,919 | — | 1,734,969 | ||||||||||||||
Other, net | 17,902 | 67,955 | 15,825 | — | 101,682 | ||||||||||||||
Intercompany investments and advances | 2,057,534 | 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 payable | 17,291 | 426,646 | 37,306 | — | 481,243 | ||||||||||||||
Accrued expenses | 53,829 | 578,457 | 42,093 | — | 674,379 | ||||||||||||||
Liabilities related to assets held for sale | — | — | 18,008 | — | 18,008 | ||||||||||||||
Total current liabilities | 104,418 | 1,019,535 | 210,307 | — | 1,334,260 | ||||||||||||||
Long-term debt, less current portion | 974,693 | 60,977 | — | — | 1,035,670 | ||||||||||||||
Intercompany advances | 178,381 | 1,754,529 | 370,907 | (2,303,817 | ) | — | |||||||||||||
Accrued pension and other postretirement benefits, noncurrent | 6,633 | 585,501 | — | — | 592,134 | ||||||||||||||
Deferred income taxes and other | 1,403 | 564,358 | 40,302 | — | 606,063 | ||||||||||||||
Total stockholders’ equity | 846,474 | (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 |
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 administrative | 27,914 | 27,331 | 6,902 | — | 62,147 | ||||||||||||||
Depreciation and amortization | 441 | 34,606 | 4,273 | — | 39,320 | ||||||||||||||
Impairment of intangible assets | — | 135,013 | 55,214 | — | 190,227 | ||||||||||||||
Restructuring | 2,382 | 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 other | 23,686 | 2,796 | (646 | ) | — | 25,836 | |||||||||||||
Income (loss) before income taxes | 62 | (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 | ) |
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 administrative | 16,955 | 41,991 | 7,804 | — | 66,750 | ||||||||||||||
Depreciation and amortization | 331 | 39,850 | 4,150 | — | 44,331 | ||||||||||||||
Restructuring | 6,231 | 4,449 | 387 | — | 11,067 | ||||||||||||||
Loss on divestiture and assets held for sale | 14,350 | — | — | — | 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 other | 18,542 | 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) income | 1,731 | (1,573 | ) | (15,066 | ) | — | (14,908 | ) | |||||||||||
Total comprehensive (loss) income | $ | (101 | ) | $ | 24,577 | $ | (10,052 | ) | $ | — | $ | 14,424 |
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 administrative | 69,820 | 118,006 | 26,108 | — | 213,934 | ||||||||||||||
Depreciation and amortization | 1,050 | 105,781 | 12,487 | — | 119,318 | ||||||||||||||
Impairment of intangible assets | — | 135,013 | 55,214 | — | 190,227 | ||||||||||||||
Restructuring | 17,089 | 13,883 | 2,779 | — | 33,751 | ||||||||||||||
Loss on divestiture | 20,371 | — | — | — | 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 other | 63,092 | 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 | ) |
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 administrative | 45,052 | 137,609 | 22,561 | — | 205,222 | ||||||||||||||
Depreciation and amortization | 989 | 121,412 | 12,679 | — | 135,080 | ||||||||||||||
Restructuring | 15,831 | 11,735 | 614 | — | 28,180 | ||||||||||||||
Loss on divestiture and assets held for sale | 19,124 | — | — | — | 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 other | 53,657 | 8,729 | (6,665 | ) | — | 55,721 | |||||||||||||
Income before income taxes | 10,013 | 88,365 | 18,280 | — | 116,658 | ||||||||||||||
Income tax (benefit) expense | (7,359 | ) | 35,783 | 4,362 | — | 32,786 | |||||||||||||
Net income | 17,372 | 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 |
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 facility | 20,000 | — | — | — | 20,000 | ||||||||||||||
Proceeds on issuance of debt | 500,000 | — | 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 activities | 19,144 | 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 period | 19,942 | 24,137 | 25,554 | — | 69,633 | ||||||||||||||
Cash and cash equivalents at end of period | $ | 12,628 | $ | 8,396 | $ | 43,364 | $ | — | $ | 64,388 |
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 activities | 14,953 | (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 facility | 316,121 | — | — | — | 316,121 | ||||||||||||||
Proceeds on issuance of debt | 201 | — | 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 period | 1,544 | 201 | 19,239 | — | 20,984 | ||||||||||||||
Cash and cash equivalents at end of period | $ | 661 | $ | 8,480 | $ | 26,320 | $ | — | $ | 35,461 |
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)
13.RESTRUCTURING COSTS
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.
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.
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 |
26
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 | |||||||||||||||||
Other | 929 | 980 | 218 | 19 | 2,382 | 4,528 | |||||||||||||||||
Total Restructuring | 955 | 980 | 1,813 | 19 | 2,382 | 6,149 | |||||||||||||||||
Depreciation and amortization | 382 | — | — | — | — | 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 | |||||||||||||||||
Other | 49 | 2,296 | 133 | 121 | 6,231 | 8,830 | |||||||||||||||||
Total Restructuring | 49 | 2,593 | 1,836 | 358 | 6,231 | 11,067 | |||||||||||||||||
Depreciation and amortization | 46 | — | 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 costs | 70 | 3,504 | 4,761 | — | — | 8,335 | |||||||||||||||||
Other | 1,673 | 980 | 3,001 | 779 | 17,089 | 23,522 | |||||||||||||||||
Total Restructuring | 1,769 | 4,484 | 9,630 | 779 | 17,089 | 33,751 | |||||||||||||||||
Depreciation and amortization | 1,909 | — | 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 | |||||||||||||||||
Other | 49 | 6,307 | 2,185 | 191 | 15,831 | 24,563 | |||||||||||||||||
Total Restructuring | 335 | 6,854 | 4,607 | 553 | 15,831 | 28,180 | |||||||||||||||||
Depreciation and amortization | 139 | — | 9,854 | 303 | — | 10,296 | |||||||||||||||||
Total | $ | 474 | $ | 6,854 | $ | 14,461 | $ | 856 | $ | 15,831 | $ | 38,476 |
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.
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.
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.
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.
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.
27
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
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.
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.
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.
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.
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
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.
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:
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.
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 other | 25,836 | 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 |
|
| Three Months Ended December 31, 2021 |
| |||||||||||||
|
| Total |
|
| Systems & Support |
|
| Aerospace |
|
| Corporate/ |
| ||||
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 |
|
| Corporate/ |
| ||||
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
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 divestitures | 14,350 | — | — | — | — | 14,350 | |||||||||||||||||
Amortization of acquired contract liabilities, net | (29,206 | ) | (7,628 | ) | (21,105 | ) | (473 | ) | — | — | |||||||||||||
Depreciation and amortization | 44,331 | 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 divestitures | 20,371 | — | — | — | — | 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 EBITDA | 141,031 | $ | 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 divestitures | 19,124 | — | — | — | — | 19,124 | |||||||||||||||||
Amortization of acquired contract liabilities, net | (89,031 | ) | (27,101 | ) | (60,190 | ) | (1,740 | ) | — | — | |||||||||||||
Depreciation and amortization | 135,080 | 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 |
|
| Corporate/ |
| ||||
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 |
|
| Corporate/ |
| ||||
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 other | 25,836 | 19,698 | |||||
Income tax expense | (32,288 | ) | 6,136 | ||||
Net (loss) income | $ | (113,252 | ) | $ | 29,332 |
|
| 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.
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 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.
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.
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.
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.
(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.
|
| 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
Cost of Sales and ResultsGross Margin
Organic cost of Operations
Three Months Ended December 31, | |||||
2017 | 2016 | ||||
Integrated Systems | |||||
Commercial aerospace | 16.4 | % | 14.8 | % | |
Military | 10.7 | % | 11.7 | % | |
Business Jets | 2.0 | % | 2.2 | % | |
Regional | 1.1 | % | 0.9 | % | |
Non-aviation | 0.5 | % | 0.6 | % | |
Total Integrated Systems net sales | 30.7 | % | 30.2 | % | |
Aerospace Structures | |||||
Commercial aerospace | 15.7 | % | 15.2 | % | |
Military | 4.0 | % | 5.8 | % | |
Business Jets | 15.7 | % | 14.1 | % | |
Total Aerospace Structures net sales | 35.7 | % | 35.2 | % | |
Precision Components | |||||
Commercial aerospace | 16.4 | % | 16.7 | % | |
Military | 5.4 | % | 4.6 | % | |
Business Jets | 2.0 | % | 2.1 | % | |
Regional | 0.5 | % | 0.4 | % | |
Non-aviation | 0.8 | % | 0.4 | % | |
Total Precision Components net sales | 25.1 | % | 24.2 | % | |
Product Support | |||||
Commercial aerospace | 7.0 | % | 7.9 | % | |
Military | 0.9 | % | 1.8 | % | |
Regional | 0.6 | % | 0.7 | % | |
Total Product Support net sales | 8.5 | % | 10.4 | % | |
Total Consolidated net sales | 100.0 | % | 100.0 | % |
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 Structures | 282,495 | 304,235 | (7.1 | )% | 36.4 | % | 36.0 | % | ||||||||
Precision Components | 219,675 | 226,294 | (2.9 | )% | 28.3 | % | 26.8 | % | ||||||||
Product Support | 68,039 | 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 | % |
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 Structures | 12,022 | 23,867 | (49.6 | )% | 4.3 | % | 7.8 | % | ||||||||
Precision Components | (186,225 | ) | 2,942 | (6,429.9 | )% | (84.8 | )% | 1.3 | % | |||||||
Product Support | 12,399 | 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 Structures | 9,718 | 20,704 | (53.1 | )% | 3.4 | % | 6.8 | % | ||||||||
Precision Components | 12,346 | 16,468 | (25.0 | )% | 5.6 | % | 7.3 | % | ||||||||
Product Support | 14,062 | 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 | % |
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.
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.
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.
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.
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 other | 72,229 | 55,721 | |||||
Income tax (benefit) expense | (34,115 | ) | 32,786 | ||||
Net (loss) income | $ | (120,561 | ) | $ | 83,872 |
Nine Months Ended December 31, | |||||
2017 | 2016 | ||||
Integrated Systems | |||||
Commercial aerospace | 16.6 | % | 15.0 | % | |
Military | 10.6 | % | 10.2 | % | |
Business Jets | 1.7 | % | 1.7 | % | |
Regional | 1.0 | % | 1.0 | % | |
Non-aviation | 0.8 | % | 1.0 | % | |
Total Integrated Systems net sales | 30.7 | % | 28.9 | % | |
Aerospace Structures | |||||
Commercial aerospace | 16.1 | % | 16.7 | % | |
Military | 3.1 | % | 5.5 | % | |
Business Jets | 14.9 | % | 13.6 | % | |
Total Aerospace Structures net sales | 34.2 | % | 35.9 | % | |
Precision Components | |||||
Commercial aerospace | 17.8 | % | 17.9 | % | |
Military | 5.5 | % | 4.7 | % | |
Business Jets | 1.9 | % | 2.0 | % | |
Regional | 0.6 | % | 0.5 | % | |
Non-aviation | 0.7 | % | 0.4 | % | |
Total Precision Components net sales | 26.5 | % | 25.5 | % | |
Product Support | |||||
Commercial aerospace | 7.2 | % | 7.5 | % | |
Military | 0.9 | % | 1.5 | % | |
Business Jets | — | % | — | % | |
Total Product Support net sales | 8.6 | % | 9.7 | % | |
Total Consolidated net sales | 100.0 | % | 100.0 | % |
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 Structures | 807,754 | 956,114 | (15.5 | )% | 35.1 | % | 36.6 | % | ||||||||
Precision Components | 685,701 | 740,354 | (7.4 | )% | 29.8 | % | 28.3 | % | ||||||||
Product Support | 202,839 | 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 Structures | 23,253 | 57,898 | (59.8 | )% | 2.9 | % | 6.1 | % | ||||||||
Precision Components | (191,100 | ) | 7,223 | (2,745.7 | )% | (27.9 | )% | 1.0 | % | |||||||
Product Support | 32,069 | 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 Structures | 20,422 | 51,997 | (60.7 | )% | 2.5 | % | 5.4 | % | ||||||||
Precision Components | 23,673 | 47,827 | (50.5 | )% | 3.5 | % | 6.5 | % | ||||||||
Product Support | 37,137 | 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 | % |
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.
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.
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.
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.
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.
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).
Pursuant to the Guarantor Subsidiaries.
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.
Payments Due by Period (in thousands) | |||||||||||||||||||
Contractual Obligations | Total | 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 leases | 138,051 | 26,155 | 41,417 | 25,933 | 44,546 | ||||||||||||||
Purchase obligations | 1,533,563 | 1,197,322 | 275,163 | 46,720 | 14,358 | ||||||||||||||
Total | $ | 3,369,860 | $ | 1,313,813 | $ | 531,363 | $ | 884,530 | $ | 640,154 |
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.
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
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.
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.
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,(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.
42
Part II. Other Information
Item 1. Legal Proceedings.
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.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Not applicable
.Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits.
. | |||
List of Subsidiary Guarantors and Issuers of Guaranteed Securities. | |||
Exhibit 104 | |||
Cover Page Interactive Data File, formatted as Inline XBRL and contained in Exhibit 101. |
43
TRIUMPH GROUP, INC.
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) | ||||||||
President and Chief Executive Officer | February 8, 2022 | |||||||
/s/ Daniel J. Crowley | ||||||||
(Principal Executive Officer) | ||||||||
Daniel J. Crowley | ||||||||
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 | 8, 2022 | |||||
Thomas A. Quigley, III | ||||||||
44