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
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.) |
555 E Lancaster Avenue, Suite 400, Radnor, Pennsylvania | 19087 | ||||||
(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 August 7, 2023, was 76,713,281.
Table of February 6, 2018.
TRIUMPH GROUP, INC.
TABLE OF CONTENTS
Page Number | |||
2023 | |||
- Three 2022 | |||
Consolidated Statements of Comprehensive 2022Loss - Three | |||
4 | |||
6 | |||
7 | |||
22 | |||
32 | |||
32 | |||
33 | |||
Item 1. | 33 | ||
Item | 33 | ||
Item 2. | 33 | ||
Item 3. | 33 | ||
Item 4. | 33 | ||
Item 5. | 33 | ||
Item | 33 | ||
34 |
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 |
|
| June 30, |
|
| March 31, |
| ||
|
| 2023 |
|
| 2023 |
| ||
ASSETS |
|
|
|
|
|
| ||
Current assets: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 146,318 |
|
| $ | 227,403 |
|
Trade and other receivables, less allowance for credit losses |
|
| 158,637 |
|
|
| 196,775 |
|
Contract assets |
|
| 112,657 |
|
|
| 103,027 |
|
Inventory, net |
|
| 429,386 |
|
|
| 389,245 |
|
Prepaid expenses and other current assets |
|
| 19,716 |
|
|
| 17,062 |
|
Total current assets |
|
| 866,714 |
|
|
| 933,512 |
|
Property and equipment, net |
|
| 168,437 |
|
|
| 166,800 |
|
Goodwill |
|
| 510,855 |
|
|
| 509,449 |
|
Intangible assets, net |
|
| 71,737 |
|
|
| 73,898 |
|
Other, net |
|
| 32,115 |
|
|
| 31,185 |
|
Total assets |
| $ | 1,649,858 |
|
| $ | 1,714,844 |
|
LIABILITIES AND STOCKHOLDERS' DEFICIT |
|
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
|
| ||
Current portion of long-term debt |
| $ | 3,313 |
|
| $ | 3,162 |
|
Accounts payable |
|
| 152,905 |
|
|
| 197,932 |
|
Contract liabilities |
|
| 47,882 |
|
|
| 44,482 |
|
Accrued expenses |
|
| 144,266 |
|
|
| 151,348 |
|
Total current liabilities |
|
| 348,366 |
|
|
| 396,924 |
|
Long-term debt, less current portion |
|
| 1,674,389 |
|
|
| 1,688,620 |
|
Accrued pension and other postretirement benefits |
|
| 314,154 |
|
|
| 359,375 |
|
Deferred income taxes |
|
| 7,444 |
|
|
| 7,268 |
|
Other noncurrent liabilities |
|
| 57,369 |
|
|
| 60,053 |
|
Stockholders' deficit: |
|
|
|
|
|
| ||
Common stock, $.001 par value, 100,000,000 shares authorized, 69,964,040 |
|
| 70 |
|
|
| 65 |
|
Capital in excess of par value |
|
| 1,019,891 |
|
|
| 964,741 |
|
Accumulated other comprehensive loss |
|
| (546,106 | ) |
|
| (554,646 | ) |
Accumulated deficit |
|
| (1,225,719 | ) |
|
| (1,207,556 | ) |
Total stockholders' deficit |
|
| (751,864 | ) |
|
| (797,396 | ) |
Total liabilities and stockholders' deficit |
| $ | 1,649,858 |
|
| $ | 1,714,844 |
|
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 June 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Net sales |
| $ | 327,145 |
|
| $ | 349,384 |
|
Operating costs and expenses: |
|
|
|
|
|
| ||
Cost of sales (exclusive of depreciation shown separately below) |
|
| 240,733 |
|
|
| 272,400 |
|
Selling, general and administrative |
|
| 55,653 |
|
|
| 51,745 |
|
Depreciation and amortization |
|
| 8,118 |
|
|
| 9,806 |
|
Restructuring |
|
| — |
|
|
| 699 |
|
Loss on sale of assets and businesses |
|
| 12,617 |
|
|
| — |
|
|
|
| 317,121 |
|
|
| 334,650 |
|
Operating income |
|
| 10,024 |
|
|
| 14,734 |
|
Non-service defined benefit income |
|
| (820 | ) |
|
| (8,586 | ) |
Debt modification and extinguishment gain |
|
| (3,391 | ) |
|
| — |
|
Warrant remeasurement gain, net |
|
| (8,001 | ) |
|
| — |
|
Interest expense and other, net |
|
| 38,649 |
|
|
| 31,912 |
|
Loss from continuing operations before income taxes |
|
| (16,413 | ) |
|
| (8,592 | ) |
Income tax expense |
|
| 1,750 |
|
|
| 1,750 |
|
Net loss |
| $ | (18,163 | ) |
| $ | (10,342 | ) |
Loss per share—basic: |
|
|
|
|
|
| ||
Net loss |
| $ | (0.27 | ) |
| $ | (0.16 | ) |
Weighted average common shares outstanding—basic |
|
| 66,347 |
|
|
| 64,820 |
|
Loss per share—diluted: |
|
|
|
|
|
| ||
Net loss |
| $ | (0.27 | ) |
| $ | (0.16 | ) |
Weighted average common shares outstanding—diluted |
|
| 66,347 |
|
|
| 64,820 |
|
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 June 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Net loss |
| $ | (18,163 | ) |
| $ | (10,342 | ) |
Other comprehensive income (loss): |
|
|
|
|
|
| ||
Foreign currency translation adjustment |
|
| 3,704 |
|
|
| (10,382 | ) |
Defined benefit pension plans and other postretirement benefits: |
|
|
|
|
|
| ||
Reclassification to net loss - net of tax expense |
|
|
|
|
|
| ||
Amortization of net loss, net of taxes of $0 and $0, respectively |
|
| 6,424 |
|
|
| (1,251 | ) |
Recognized prior service credits, net of taxes of $0 and $0, respectively |
|
| (1,251 | ) |
|
| 6,574 |
|
Total defined benefit pension plans and other postretirement benefits, net of taxes |
|
| 5,173 |
|
|
| 5,323 |
|
Cash flow hedges: |
|
|
|
|
|
| ||
Unrealized loss arising during the period, net of tax expense of $0 and $0, respectively |
|
| (1,254 | ) |
|
| (470 | ) |
Reclassification of gain (loss) included in net earnings, net of tax expense of $0 and $0, respectively |
|
| 917 |
|
|
| (368 | ) |
Net unrealized loss on cash flow hedges, net of tax |
|
| (337 | ) |
|
| (838 | ) |
Total other comprehensive income (loss) |
|
| 8,540 |
|
|
| (5,897 | ) |
Total comprehensive loss |
| $ | (9,623 | ) |
| $ | (16,239 | ) |
See accompanying notes to condensed consolidated financial statements.
3
For the three months ended June 30, 2023
(unaudited)
(Dollars in thousands)
|
| Outstanding |
|
| Common |
|
| Capital in |
|
| Treasury |
|
| Accumulated |
|
| Accumulated |
|
| Total |
| |||||||
March 31, 2023 |
|
| 65,432,589 |
|
| $ | 65 |
|
| $ | 964,741 |
|
| $ | - |
|
| $ | (554,646 | ) |
| $ | (1,207,556 | ) |
| $ | (797,396 | ) |
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (18,163 | ) |
|
| (18,163 | ) |
Foreign currency translation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,704 |
|
|
| — |
|
|
| 3,704 |
|
Pension liability adjustment, net of |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,173 |
|
|
| — |
|
|
| 5,173 |
|
Change in fair value of foreign currency |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (337 | ) |
|
| — |
|
|
| (337 | ) |
Share-based compensation |
|
| 300,102 |
|
|
| — |
|
|
| 3,622 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,622 |
|
Repurchase of restricted shares for |
|
| (103,996 | ) |
|
| — |
|
|
| — |
|
|
| (1,235 | ) |
|
| — |
|
|
| — |
|
|
| (1,235 | ) |
Retirement of treasury shares |
|
| — |
|
|
| — |
|
|
| (414 | ) |
|
| 414 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Employee stock purchase plan |
|
| 12,907 |
|
|
| — |
|
|
| 150 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 150 |
|
Warrant exercises, net of |
|
| 1,122,438 |
|
|
| 1 |
|
|
| 13,481 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 13,482 |
|
Issuance of shares on pension contribution |
|
| 3,200,000 |
|
|
| 4 |
|
|
| 38,311 |
|
|
| 821 |
|
|
| — |
|
|
| — |
|
|
| 39,136 |
|
June 30, 2023 |
|
| 69,964,040 |
|
| $ | 70 |
|
| $ | 1,019,891 |
|
| $ | — |
|
| $ | (546,106 | ) |
| $ | (1,225,719 | ) |
| $ | (751,864 | ) |
4
TRIUMPH GROUP, INC.
Condensed Consolidated Statements of Stockholders' Deficit
For the three months ended June 30, 2022
(unaudited)
(Dollars in thousands)
|
| Outstanding |
| Common |
| Capital in |
| Treasury |
| Accumulated |
| Accumulated |
| Total |
March 31, 2022 |
| 64,614,382 |
| $64 |
| $973,112 |
| $(96) |
| $(463,354) |
| $(1,297,149) |
| $(787,423) |
Net loss |
| — |
| — |
| — |
| — |
| — |
| (10,342) |
| (10,342) |
Foreign currency translation |
| — |
| — |
| — |
| — |
| (10,382) |
| — |
| (10,382) |
Pension liability adjustment, net of |
| — |
| — |
| — |
| — |
| 5,323 |
| — |
| 5,323 |
Change in fair value of foreign |
| — |
| — |
| — |
| — |
| (838) |
| — |
| (838) |
Share-based compensation |
| 471,676 |
| 1 |
| 1,656 |
| — |
| — |
| — |
| 1,657 |
Repurchase of shares for share-based |
| (172,282) |
| — |
| — |
| (3,442) |
| — |
| — |
| (3,442) |
Retirement of treasury shares |
| — |
| — |
| (3,538) |
| 3,538 |
| — |
| — |
| — |
Employee stock purchase plan |
| 6,605 |
| — |
| 160 |
| — |
| — |
| — |
| 160 |
June 30, 2022 |
| 64,920,381 |
| $65 |
| $971,390 |
| $— |
| $(469,251) |
| $(1,307,491) |
| $(805,287) |
5
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 |
|
| Three Months Ended June 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Operating Activities |
|
|
|
|
|
| ||
Net loss |
| $ | (18,163 | ) |
| $ | (10,342 | ) |
Adjustments to reconcile net loss to net cash used in |
|
|
|
|
|
| ||
Depreciation and amortization |
|
| 8,118 |
|
|
| 9,806 |
|
Amortization of acquired contract liability |
|
| (575 | ) |
|
| (523 | ) |
Loss on sale of assets and businesses |
|
| 12,617 |
|
|
| — |
|
Gain on modification and extinguishment of debt |
|
| (3,391 | ) |
|
| — |
|
Other amortization included in interest expense |
|
| 1,506 |
|
|
| 1,562 |
|
Provision for credit losses |
|
| 534 |
|
|
| 200 |
|
Warrants remeasurement gain |
|
| (8,001 | ) |
|
| — |
|
Share-based compensation |
|
| 3,622 |
|
|
| 1,578 |
|
Changes in other assets and liabilities, excluding the effects of |
|
|
|
|
|
| ||
Trade and other receivables |
|
| 32,532 |
|
|
| 4,474 |
|
Contract assets |
|
| (10,180 | ) |
|
| (8,638 | ) |
Inventories |
|
| (39,818 | ) |
|
| (19,190 | ) |
Prepaid expenses and other current assets |
|
| (1,830 | ) |
|
| (7,538 | ) |
Accounts payable, accrued expenses, and contract liabilities |
|
| (42,588 | ) |
|
| (56,352 | ) |
Accrued pension and other postretirement benefits |
|
| (1,262 | ) |
|
| (8,322 | ) |
Other, net |
|
| 3,155 |
|
|
| 255 |
|
Net cash used in operating activities |
|
| (63,724 | ) |
|
| (93,030 | ) |
Investing Activities |
|
|
|
|
|
| ||
Capital expenditures |
|
| (6,401 | ) |
|
| (3,044 | ) |
Payments on sale of assets and businesses |
|
| (6,848 | ) |
|
| (2,322 | ) |
Investment in joint venture |
|
| (1,515 | ) |
|
| — |
|
Net cash used in investing activities |
|
| (14,764 | ) |
|
| (5,366 | ) |
Financing Activities |
|
|
|
|
|
| ||
Proceeds from issuance of long-term debt |
|
| 2,000 |
|
|
| — |
|
Retirement of debt and finance lease obligations |
|
| (763 | ) |
|
| (990 | ) |
Payment of deferred financing costs |
|
| (1,438 | ) |
|
| — |
|
Payment of common stock issuance costs, net of proceeds |
|
| (803 | ) |
|
| — |
|
Repurchase of shares for share-based compensation |
|
| (1,235 | ) |
|
| (3,442 | ) |
Net cash used in financing activities |
|
| (2,239 | ) |
|
| (4,432 | ) |
Effect of exchange rate changes on cash |
|
| (358 | ) |
|
| (3,414 | ) |
Net change in cash and cash equivalents |
|
| (81,085 | ) |
|
| (106,242 | ) |
Cash and cash equivalents at beginning of period |
|
| 227,403 |
|
|
| 240,878 |
|
Cash and cash equivalents at end of period |
| $ | 146,318 |
|
| $ | 134,636 |
|
See accompanying notes to condensed consolidated financial statements.
6
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 Group, Inc. ("Triumph" or the "Company") is a Delaware corporation which, 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 and repairs and overhauls aircraft components and accessories for commercial airline, air cargo carrier, and military customers on a worldwide basis. Triumph and its subsidiaries (collectively, the "Company") are organized based on the products and services that they provide. The Company has two reportable segments: Systems & Support and Interiors (formerly Aerospace Structures).
Systems & Support consists of the Company’s operations that provide integrated solutions, including design; development; and support of proprietary components, subsystems and systems, as well as production of complex assemblies using external designs. Capabilities include hydraulic, mechanical and electromechanical actuation, power and control; a complete suite of aerospace gearbox solutions, including engine accessory gearboxes and helicopter transmissions; active and passive heat exchange technology; fuel pumps, fuel metering units, and Full Authority Digital Electronic Control fuel systems; and hydromechanical and electromechanical primary and secondary flight controls. Systems & Support also provides full life cycle solutions for commercial, regional, and military aircraft. The Company’s extensive product and service offerings include full post-delivery value chain services that simplify the maintenance, repair, and overhaul (“MRO”) supply chain. Through its ground support equipment maintenance, component MRO, and post-production supply chain activities, Systems & Support is positioned to provide integrated planeside repair solutions globally. Capabilities include repair services for metallic and composite aircraft structures; nacelles; thrust reversers; interiors; auxiliary power units; and a wide variety of pneumatic, hydraulic, fuel, and mechanical accessories. Repair services generally involve the replacement and/or remanufacturing of parts, which is similar to the original manufacture of the part. The processes that the Company performs related to repair and overhaul services are essentially the repair of wear parts or replacement of parts that are beyond economic repair. The repair service generally involves remanufacturing a complete part or a component of a part.
Interiors (formerly Aerospace Structures) consists of the Company’s operations that have historically supplied commercial, business, and regional manufacturers with large metallic structures and continues to supply aircraft interior systems, including air ducting and thermal acoustic insulations systems. Subsequent to the divestitures disclosed in Note 3, the remaining operations of Interiors are those that supply commercial and regional airlines and air cargo carriers.
The newly formed operating segment will also be a reportable segment. As a result, effective January 1, 2018, the Company will have three reporting segments for future financial reporting purposes - Integrated Systems, Product Support and Aerospace Structures.
The preparation of the financial statements in conformity with U.S. GAAPaccounting principles generally accepted in the United States 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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 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
7
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
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. Consideration paid or payable to a customer is reflected as a reduction in net revenues when the amounts paid are not related to a distinct good or service at the later of when the related revenue is recognized or when the Company pays or promises to pay the consideration to the customer. 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.
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.
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.
8
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
and estimated total profit are often required as work progresses underwarrant a contract, as experience is gained and as more information is obtained, even though the scope of work required under the contract may not change, or if contract modifications occur. Thesemodification to a previous estimate. Cost estimates are also sensitive to the assumed rate of production. Generally, the longer it takes to complete thelargely based on negotiated or estimated purchase contract quantity, the more relative overheadterms, historical performance trends, and other economic projections. Significant factors that contract will absorb. The impact of revisions ininfluence these estimates include inflationary trends, technical and schedule risk, internal and subcontractor performance trends, business volume assumptions, asset utilization, and anticipated labor agreements.
Revenue and cost estimates isare regularly monitored and revised based on changes in circumstances. Impacts from changes in estimates of net sales and cost of sales are recognized on a cumulative catch-up basis, which recognizes in the current period in which the revisions are made. Provisionscumulative effect of the changes on current and prior periods based on a performance obligation’s percentage of completion. Forward loss reserves for anticipated losses on long-term contracts are recorded in the period in which theyfull when such losses become evident, (‘‘forward losses’’)to the extent required, and are first offset against costs that are included in inventory, with any remaining amount reflected in accrued contract liabilities in accordance withon the
For the three months ended June 30, 2016,2023, cumulative catch-up adjustments resulting from changes in the amount of $11,800estimated contract values and $8,142, respectively, and overstated retained earnings as of March 31, 2016 in the amount of $12,700. The Company assessed the materiality of this error on previously issued financial statements in accordance with the ASC 250,
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 three months ended December 31, 2016 cumulative catch-up adjustments were balanced between positive and negative variances.
Differences in the amounts can be reliably estimated and their realization is reasonably assured.
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
Sales to Boeing for the
No other single customer accounted for more than 10%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.
Warrants
On December 1, 2022, the Company’s board of directors declared a distribution to holders of the Company’s shares of common stock in the form of warrants to purchase shares of common stock (the “Warrants”). Holders of common stock received three Warrants for every ten shares of common stock held as of December 12, 2022 (the "Record Date"). The Company recognizes compensation expenseissued approximately 19.5 million Warrants on December 19, 2022, to holders of record of common stock as of the close of business on the Record Date.
Each Warrant represented the right to purchase initially one share of common stock, at an exercise price of $12.35 per Warrant, subject to certain anti-dilution adjustments. Payment for share-based awardsshares of common stock on exercise of Warrants could have been made in (i) cash or (ii) under certain circumstances, certain of the Company's outstanding notes (the "Designated Notes"). If all Warrants had been exercised and settled as of June 30, 2023, the Company would have been required to issue approximately 18.1 million shares (assuming no over-exercise options, as described below, were exercised). The closing price of the Company’s shares of common stock was $12.37 as of June 30, 2023.
9
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
“Designated Notes” means, collectively, any of the issued and outstanding notes of the Company as designated or undesignated by the Company from time to time; provided that any designation by the Company of a particular series of notes as “Designated Notes” shall retain such designation for a minimum of 20 consecutive business days from (and including) the date of publication of notice of the same by press release. The Company also has the right, but not obligation, to remove one or more series of its notes from being “Designated Notes,” but such redesignation shall only be effective 20 consecutive business days from (and including) the date of publication of notice of the same by press release. The Company initially designated the following notes as “Designated Notes”: the 8.875% Senior Secured First Lien Notes due 2024 (the “2024 First Lien Notes”), the 6.250% Senior Secured Notes due 2024 (the “2024 Second Lien Notes”), and the 7.750% Senior Notes due August 15, 2025 (the “2025 Notes”). On February 3, 2023, the Company published a press release announcing the de-designation of the 2024 First Lien Notes and the 2024 Second Lien Notes.
The common stock warrants are accounted for as derivative liabilities in accordance with ASC 815-40 and included within accrued liabilities on the accompanying condensed consolidated balance sheets. The Company measured the Warrants at fair value as of the issuance date using a Monte Carlo pricing model, a Level 3 fair value measurement (as described below), due to the level of market activity. Inherent in the option pricing simulation are assumptions related to expected stock-price volatility, expected life and risk-free interest rate. The Company estimates the volatility of the Warrants based on implied and historical volatility of the Company’s common stock. The risk-free interest rate is based on the fair valueU.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining life of those awards at the dateWarrants. The expected life of grant. Stock-based compensation expense forthe Warrants is based on the Company’s ability to redeem the Warrants, subject to a 20 calendar-day notice period, as well as the automatic acceleration of the Expiration Date following the Price Condition Date. During the three months ended December 31, 2017 and 2016, was $2,719 and $2,163, respectively. Stock-based compensation expense for2022, due to increased trading volume, the
At distribution, the majorityfair value of the cash compensation paid to employees. UponWarrants was $19,500. As of June 30, 2023, the exercisefair value of stock options or vestingthe Warrants was approximately $1,456 and $8,001 of restricted stock, the Company first transfers treasury stock, then issues new shares.
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 |
On July 6, 2023, the Company redeemed all of the approximately 11.4 million remaining outstanding Warrants for a total redemption price of approximately $11 pursuant to its June 16, 2023, notice of redemption.
Contingencies
Contingences are existing conditions, situations or circumstances involving uncertainty as to possible gain or loss that will ultimately be resolved when future events occur or fail to occur. Such contingencies include, but are not limited to environmental obligations, litigation, regulatory investigations and 2016, was $13,618proceedings, product quality, and $13,348, respectively. Amortization expensegains or losses resulting from other events and developments. Liabilities for loss contingencies are accrued in the amount of its best estimate for the nine months ended December 31, 2017ultimate loss when a loss is considered probable of having been incurred and 2016, was $42,993is reasonably estimable. When there appears to be a range of possible costs with equal likelihood, liabilities are based on the low-end of such range. Disclosure is provided for material loss contingencies when a loss is probable but a reasonable estimate cannot be made, and $40,565, respectively.when it is reasonably possible that a loss will be incurred or the amount of a loss will exceed the recorded provision. The Company regularly reviews contingencies to determine whether the likelihood of loss has changed and to assess whether a reasonable estimate of the loss or range of loss can be made. Contingencies that might result in gains are generally not accrued until the contingencies are resolved and the gain is realized or realizable. Refer to Note 12 for further disclosure.
Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. When determining fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and also considers assumptions that market participants would use when pricing an asset or liability. The fair value hierarchy has three levels of inputs that may be used to measure fair value: Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities; Level 2—Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability; and Level 3—Unobservable inputs
10
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
for the asset or liability. The Company has applied fair value measurements when measuring the Warrants (refer to the above disclosure), when disclosing the fair value of its long-term debt not recorded at fair value (see Note 6), and to its divestiturespension and interest rate swappostretirement plan assets (see Note 3 and Note 5)9).
Supplemental Cash Flow Information
For the three months ended June 30, 2023, the Company paid $11,013 and $5,936$369 for income taxes, net of income tax refunds forreceived. For the ninethree months ended December 31, 2017 and 2016, respectively.
3. DIVESTED OPERATIONS
Fiscal 2023 Divestitures
In September 2017,January 2022, the Company sold allCompany’s Board of the shares of Triumph Processing - Embee Division, Inc. ("Embee") for total cash proceeds of $64,986. AsDirectors committed to a result of the sale of Embee, the Company recognized a loss of $17,857 which is presented on the accompanying Condensed Consolidated Statements of Operations as "Loss on divestiture." The operating results of Embee were includedplan to sell its manufacturing operations located in Integrated Systems through the date of disposal.
4. REVENUE RECOGNITION AND CONTRACTS WITH CUSTOMERS
Disaggregation of Revenue
The transaction closed duringCompany disaggregates revenue based on the quartermethod 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 11, Segments.
The following table shows disaggregated net sales satisfied overtime and at a point in time (excluding intercompany sales) for the three months ended June 30, 2017.
|
| Three Months Ended |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Systems & Support |
|
|
|
|
|
| ||
Satisfied over time |
| $ | 134,176 |
|
| $ | 120,718 |
|
Satisfied at a point in time |
|
| 155,824 |
|
|
| 133,402 |
|
Revenue from contracts with customers |
|
| 290,000 |
|
|
| 254,120 |
|
Amortization of acquired contract liabilities |
|
| 575 |
|
|
| 523 |
|
Total Systems & Support revenue |
|
| 290,575 |
|
|
| 254,643 |
|
|
|
|
|
|
|
| ||
Interiors |
|
|
|
|
|
| ||
Satisfied over time |
| $ | 30,929 |
|
| $ | 89,592 |
|
Satisfied at a point in time |
|
| 5,641 |
|
|
| 5,149 |
|
Revenue from contracts with customers |
|
| 36,570 |
|
|
| 94,741 |
|
Total Interiors revenue |
|
| 36,570 |
|
|
| 94,741 |
|
Total revenue |
| $ | 327,145 |
|
| $ | 349,384 |
|
11
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollarsDollars in thousands, except per share data)
The disposalfollowing table shows disaggregated net sales by end market (excluding intercompany sales) for the three months ended June 30, 2023 and 2022:
|
| Three Months Ended |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Systems & Support |
|
|
|
|
|
| ||
OEM Commercial |
| $ | 81,555 |
|
| $ | 78,020 |
|
OEM Military |
|
| 65,796 |
|
|
| 56,936 |
|
MRO Commercial |
|
| 86,939 |
|
|
| 60,039 |
|
MRO Military |
|
| 47,602 |
|
|
| 50,946 |
|
Non-aviation |
|
| 8,108 |
|
|
| 8,179 |
|
Revenue from contracts with customers |
|
| 290,000 |
|
|
| 254,120 |
|
Amortization of acquired contract liabilities |
|
| 575 |
|
|
| 523 |
|
Total Systems & Support revenue |
| $ | 290,575 |
|
| $ | 254,643 |
|
|
|
|
|
|
|
| ||
Interiors |
|
|
|
|
|
| ||
OEM Commercial |
| $ | 35,658 |
|
| $ | 90,519 |
|
OEM Military |
|
| — |
|
|
| 28 |
|
MRO Commercial |
|
| 704 |
|
|
| 3,144 |
|
Non-aviation |
|
| 208 |
|
|
| 1,050 |
|
Revenue from contracts with customers |
|
| 36,570 |
|
|
| 94,741 |
|
Total Interiors revenue |
|
| 36,570 |
|
|
| 94,741 |
|
Total revenue |
| $ | 327,145 |
|
| $ | 349,384 |
|
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 these entities does not representadditional 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 strategic shiftcombination of prior experience, current economic conditions and is not expected to have a major effectmanagement’s expectations of future economic conditions, and specific collectibility matters when they arise. Contract assets are presented net of this reserve on the condensed consolidated balance sheets. For the three months ended June 30, 2023 and 2022, 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 operationsmeasure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue (either as an increase in or financial results, as defined by ASC 205-20, Discontinued Operations;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 result, the disposals do not meet the criteria to benew contract and performance obligation and are recognized prospectively.
Contract balances are classified as discontinued operations.
|
| June 30, 2023 |
|
| March 31, 2023 |
|
| Change |
| |||
Contract assets |
| $ | 112,657 |
|
| $ | 103,027 |
|
| $ | 9,630 |
|
Contract liabilities |
|
| (48,096 | ) |
|
| (44,945 | ) |
|
| (3,151 | ) |
Net contract asset |
| $ | 64,561 |
|
| $ | 58,082 |
|
| $ | 6,479 |
|
12
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
The change in contract assets is the fair value hierarchy.result of revenue recognized in excess of amounts billed during the three months ended June 30, 2023. The key assumptionchange in contract liabilities is the result of receipt of additional customer advances in excess of revenue recognized during the three months ended June 30, 2023. For the three months ended June 30, 2023, the Company recognized $8,747 of revenue that was included in the negotiated sales pricecontract liability balance at the beginning of the assetsperiod.
Performance Obligations
Customers generally contract with the Company for requirements in a segment relating to a specific program, and the assumptionsCompany’s performance obligations consist of a wide range of engineering design services and manufactured components, as well as spare parts and repairs. A single contract may contain multiple performance obligations consisting of both recurring and nonrecurring elements.
As of June 30, 2023, the liabilities (see Note 2 above for definition of levels).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 |
| $ | 1,465,111 |
|
| $ | 865,932 |
|
| $ | 559,346 |
|
| $ | 37,938 |
|
| $ | 1,895 |
|
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:
|
|
|
|
|
|
| ||
|
| June 30, |
|
| March 31, 2023 |
| ||
Raw materials |
| $ | 53,904 |
|
| $ | 44,834 |
|
Work-in-process, including manufactured and purchased components |
|
| 341,915 |
|
|
| 304,874 |
|
Finished goods |
|
| 11,323 |
|
|
| 17,000 |
|
Rotable assets |
|
| 22,244 |
|
|
| 22,537 |
|
Total inventories |
| $ | 429,386 |
|
| $ | 389,245 |
|
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, 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 |
|
| June 30, |
|
| March 31, |
|
| ||
|
| 2023 |
|
| 2023 |
|
| ||
Finance leases |
|
| 14,070 |
|
|
| 14,816 |
|
|
Senior secured first lien notes due 2028 |
|
| 1,200,000 |
|
|
| 1,200,000 |
|
|
Senior notes due 2025 |
|
| 485,621 |
|
|
| 499,024 |
|
|
Other notes |
|
| 2,000 |
|
|
| — |
|
|
Less: debt issuance costs |
|
| (23,989 | ) |
|
| (22,058 | ) |
|
|
|
| 1,677,702 |
|
|
| 1,691,782 |
|
|
Less: current portion |
|
| 3,313 |
|
|
| 3,162 |
|
|
|
| $ | 1,674,389 |
|
| $ | 1,688,620 |
|
|
13
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.
As of June 30, 2023, the maximum amount available under the Securitization Facility was $100,000. 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 June 30, 2023, there were $0 in borrowings and $19,743 in letters of credit outstanding under the Securitization Agreement, primarily to support insurance policies. The Securitization Facility expires in November 2024.
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.
Senior Secured First Lien Notes Due 2021
On February 26, 2013,March 14, 2023, the Company issued $375,000$1,200,000 principal amount of 4.875%9.000% Senior Secured First Lien Notes due 2021March 15, 2028, pursuant to an indenture among the Company, the Guarantor Subsidiaries, and U.S. Bank National Association, as trustee (the "2021 Notes"“2028 First Lien Notes”). The 20212028 First Lien Notes were sold at 100%100% of the principal amount and have an effective interest yield of 4.875%9.000%. Interest on the 2021 Notes accrues at the rate of 4.875% per annum and is payable semiannually in cash in arrears on April 1March 15 and October 1September 15 of each year, commencing on October 1, 2013.September 15, 2023. In the three months ended June 30, 2023, the Company recognized a gain of approximately $3,400 related to an adjustment to its deferred debt issuance costs, a portion of which related to fiscal 2023. The total issuance costs incurred in connection with the issuance of the 2028 First Lien Notes are now approximately $23,000 and are being amortized over the term of the 2028 First Lien Notes.
The 2028 First Lien Notes and the guarantees are first lien secured obligations of the Company and the Guarantor Subsidiaries. The 2028 First Lien Notes:
14
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
The 2028 First Lien Notes are guaranteed on a full, senior, joint and several basis by each of the Company’s domestic restricted subsidiaries (the “Guarantor Subsidiaries”) that guarantees the 2025 Notes. In the future, each of the Company’s domestic restricted subsidiaries (other than any domestic restricted subsidiary that is a receivable subsidiary) that (1) is not an immaterial subsidiary, (2) becomes a borrower under any of its material debt facilities or (3) guarantees (a) any of the Company’s indebtedness or (b) any indebtedness of the Company’s domestic restricted subsidiaries, in the case of either (a) or (b), incurred under any of the Company’s material debt facilities, will guarantee the 2028 First Lien Notes. Under certain circumstances, the guarantees may be released without action by, or consent of, the holders of the 2028 First Lien Notes.
The 2028 First Lien Notes and the guarantees are secured, subject to permitted liens, by first-priority liens on substantially all of the Company’s and the Guarantor Subsidiaries’ assets (including certain of the Company’s real estate assets), whether now owned or hereafter acquired, other than certain excluded property, which liens will secure permitted additional first lien obligations on a pari passu basis, subject to the Collateral Trust Agreement (the “Collateral”). Under certain circumstances, the Collateral may be released without action by, or the consent of, the holders of the 2028 First Lien Notes. The 2028 First Lien Notes and the guarantees will not be secured by the assets of Non-Guarantor Subsidiaries (as defined below), which include the unrestricted subsidiaries to whom certain of the Company’s accounts receivables are and may in the future be sold to support borrowing under the Receivables Securitization Facility.
A collateral trust agreement (the “Collateral Trust Agreement”) among the Company, the Guarantor Subsidiaries, the Collateral Trustee and U.S. Bank National Association, in its capacity as the trustee for the 2028 First Lien Notes, sets forth therein the relative rights with respect to the Collateral as among the trustee for the 2028 First Lien Notes and certain subsequent holders of first lien obligations and covering certain other matters relating to the administration of security interests. The Collateral Trust Agreement generally controls substantially all matters related to the Collateral, including with respect to decisions, distribution of proceeds or enforcement. Pursuant to the Collateral Trust Agreement, on the issue date of the 2028 First Lien Notes the Collateral Trustee will control certain matters related to the Collateral that the Collateral Trust Agreement specifies are in its discretion. If the Company incurs certain types of additional first lien obligations, the Controlling First Lien Holders (as defined in the Collateral Trust Agreement) will have the right to control decisions relating to the Collateral that are outside the Collateral Trustee’s discretion under the Collateral Trust Agreement and the 2028 Note holders may no longer be in control of such decisions.
The Company may redeem the 2028 First Lien Notes, in whole or in part, at any time or from time to time on or after March 15, 2025, at specified redemption prices, plus accrued and unpaid interest, if any, to the redemption date. At any time or from time to time prior to March 15, 2025, the Company may redeem the 2028 First Lien Notes, in whole or in part, at a redemption price equal to 100% of their principal amount plus a make whole premium, together with accrued and unpaid interest, if any, to the redemption date. In addition, the Company may redeem up to 40% of the aggregate principal amount of the outstanding 2028 First Lien Notes prior to March 15, 2025, with the net cash proceeds from certain equity offerings at a redemption price equal to 109.000% of their principal amount, together with accrued and unpaid interest, if any, to the redemption date. The Company may redeem, at any time from time to time before March 15, 2025, up to 10% of the aggregate principal amount of the notes per annum, at a redemption price equal to 103% of the aggregate principal amount plus accrued and unpaid interest, if any, to the redemption date.
If the Company experiences specific kinds of changes of control, the Company is required to offer to purchase all of the 2028 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 2028 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 2028 First Lien Notes Indenture requires, among other things, the Company to provide financial and current reports to holders of the 2028 First Lien Notes or file such reports electronically with the SEC. 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.
Senior Notes Due 2022
On June 3, 2014,August 17, 2017, the Company issued $300,000$500,000 principal amount of 5.250%7.750% Senior Notes due 2022August 15, 2025 (the "2022“2025 Notes" and, together with the 2028 First Lien Notes, the “Senior Notes”). The 20222025 Notes were sold at 100%100% of the principal amount and have an effective interest yield of 5.250%7.750%. Interest on the 2022 Notes accrues at the rate of 5.250% per annum and is payable semiannually in cash in arrears on June 1 and December 1 of each year, commencing on December 1, 2014.
15
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
The 2025 Notes are the Company's senior unsecured obligations and rank equally in right of payment with all of its other existing and future senior unsecured indebtedness and senior in right of payment to all of its existing and future subordinated indebtedness. The 2025 Notes are guaranteed on a full, joint and several basis by each of the Guarantor Subsidiaries.
The Company may redeem some or all of the 2025 Notes on or after August 15, 2020, at specified redemption prices. In addition, prior to August 15, 2020, the Company may redeem up to 35% of the 2025 Notes with the net proceeds of certain equity offerings at a redemption price equal to 107.750% of the aggregate principal amount plus accrued and unpaid interest, if any, subject to certain limitations set forth in the indenture governing the 2025 Notes (the "2025 Indenture").
The Company is obligated to offer to repurchase the 2025 Notes at a price of (i) 101%101% of their principal amount plus accrued and unpaid interest, if any, as a result of certain change-of-control events and (ii) 100%100% of their principal amount plus accrued and unpaid interest, if any, in the event of certain asset sales. These restrictions and prohibitions are subject to certain qualifications and exceptions.
The indenture governing the 2025 IndentureNotes (the "2025 Indenture") contains covenants that, among other things, limit the Company's ability and the ability of any of the guarantor subsidiaries to (i) grant liens on its assets, (ii) make dividend payments, other distributions or other restricted
In the Company entered into a Purchase Agreement ("Receivables Purchase Agreement")three months ended June 30, 2023, approximately $13,404 in principal amount of 2025 Notes were used to sell certain accounts receivables to a financial institution without recourse. The Company ispay the servicerexercise price for approximately 0.9 million Warrants, and resulting extinguishment losses from the write-off of the accounts receivable under the Receivables Purchase Agreement. As of December 31, 2017, the maximum amount available under the Receivables Purchase Agreement was $90,000. Interest rates are based on LIBOR plus 0.65% - 0.70%. As of December 31, 2017 and March 31, 2017, the Company sold $0 and $78,006, respectively, worth of eligible accounts receivable.
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:
June 30, 2023 |
|
| March 31, 2023 |
| ||||||||||
Carrying |
|
| Fair |
|
| Carrying |
|
| Fair |
| ||||
$ | 1,677,702 |
|
| $ | 1,711,070 |
|
| $ | 1,691,782 |
|
| $ | 1,676,879 |
|
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 three months ended June 30, 2023 and 2022, amounted to $454 and $25,869, unless quoted market prices were available.respectively.
7. EARNINGS PER SHARE
The calculation of basic earnings per share is based on the weighted average number of common shares considered outstanding during the periods. The calculation of diluted earnings per share reflects the effect of all potentially dilutive securities (principally outstanding Warrants and outstanding restricted stock units). As disclosed in Note 2, the Warrants permitted the tendering of Designated Notes in payment of the exercise price. In computing diluted EPS, the Company applies the if-converted method to the Warrants and such Warrants are assumed to be exercised and the Designated Notes are assumed to be tendered unless tendering cash would be more advantageous to the Warrant holder. Interest (net of tax) on any Designated Notes assumed to be tendered is added back as an adjustment to the numerator. The numerator also is adjusted for any nondiscretionary adjustments based on income (net of tax) including, for example, Warrant remeasurement gains and losses recognized in the period. If cash exercise is more advantageous, the Company applies the treasury stock method to the Warrants when calculating diluted EPS. 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 June 30, |
| |||||
|
| (in thousands) |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Weighted average common shares outstanding - basic |
|
| 66,347 |
|
|
| 64,820 |
|
Net effect of dilutive warrants, stock options and non-vested stock (1) |
|
| — |
|
|
| — |
|
Weighted average common shares outstanding - diluted |
|
| 66,347 |
|
|
| 64,820 |
|
(1) For the three months ended June 30, 2023, approximately 21.8 million shares that could potentially dilute earnings per share as a result of warrants exercises in the future were not included in diluted weighted average common shares outstanding because to do so would be anti-dilutive. For the three months ended June 30, 2023 and 2022, the shares that could potentially dilute earnings per share in the future related to stock options and non-vested share-based
16
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
compensation that 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
As of December 31, 2017,June 30, 2023, 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.this allowance. 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 income in2024 and future periods.
The effective income tax rate for the three months ended December 31, 2017,June 30, 2023, was 22.2%(10.7)% as compared to 17.3%with (20.4)% for the three months ended December 31, 2016.June 30, 2022. For the three months ended December 31, 2017,June 30, 2023, the effective income tax rate reflected a $22,398limitation on the recognition of tax benefit relatedbenefits due 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 establishedfull 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
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 last17
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
value of those investments based on ourthe Company's evaluation of data from fund managers and comparable market data.
Net Periodic Benefit Plan Costs
The components of net periodic benefit costs (income)income for ourthe Company's postretirement benefit plans are shown in the following table:
|
| Pension Benefits |
| |||||
|
| Three Months Ended June 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Components of net periodic benefit income: |
|
|
|
|
|
| ||
Service cost |
| $ | 100 |
|
| $ | 179 |
|
Interest cost |
|
| 20,117 |
|
|
| 16,278 |
|
Expected return on plan assets |
|
| (26,252 | ) |
|
| (30,324 | ) |
Amortization of prior service credits |
|
| 26 |
|
|
| 26 |
|
Amortization of net loss |
|
| 7,523 |
|
|
| 7,719 |
|
Net periodic benefit expense (income) |
| $ | 1,514 |
|
| $ | (6,122 | ) |
The Company recognized net periodic benefit income from its other postretirement benefits plan of approximately $2,234 and $2,291 for the three months ended June 30, 2023 and 2022, respectively. |
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 | ) |
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 | ) |
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, 2017June 30, 2023 and 2016, respectively,2022, were as follows:
|
| Currency | Unrealized Gains | Defined Benefit | Total (1) |
| ||||||||||
March 31, 2023 |
| $ | (49,206 | ) |
| $ | 1,217 |
|
| $ | (506,657 | ) |
| $ | (554,646 | ) |
Other comprehensive (loss) income before reclassifications |
|
| 3,704 |
|
|
| (1,254 | ) |
|
| — |
|
|
| 2,450 |
|
Amounts reclassified from AOCI |
|
| — |
|
|
| 917 |
|
|
| 5,173 |
| (2) |
| 6,090 |
|
Net current period OCI |
|
| 3,704 |
|
|
| (337 | ) |
|
| 5,173 |
|
|
| 8,540 |
|
June 30, 2023 |
| $ | (45,502 | ) |
| $ | 880 |
|
| $ | (501,484 | ) |
| $ | (546,106 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
March 31, 2022 |
| $ | (47,933 | ) |
| $ | (270 | ) |
| $ | (415,151 | ) |
| $ | (463,354 | ) |
Other comprehensive income before reclassifications |
|
| (10,382 | ) |
|
| (470 | ) |
|
| — |
|
|
| (10,852 | ) |
Amounts reclassified from AOCI |
|
| — |
|
|
| (368 | ) |
|
| 5,323 |
| (2) |
| 4,955 |
|
Net current period OCI |
|
| (10,382 | ) |
|
| (838 | ) |
|
| 5,323 |
|
|
| (5,897 | ) |
June 30, 2022 |
| $ | (58,315 | ) |
| $ | (1,108 | ) |
| $ | (409,828 | ) |
| $ | (469,251 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
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 | ) |
18
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollarsDollars in thousands, except per share data)
11.SEGMENTS
The Company has fourreports financial performance based on the following two reportable segments: Integrated Systems Aerospace Structures, Precision Components& Support and Product Support.Interiors. 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.
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 June 30, 2023 |
| |||||||||||||
|
| Total |
|
| Corporate & |
|
| Systems & |
|
| Interiors |
| ||||
Net sales to external customers |
| $ | 327,145 |
|
| $ | — |
|
| $ | 290,575 |
|
| $ | 36,570 |
|
Intersegment sales (eliminated in consolidation) |
|
| — |
|
|
| (13 | ) |
|
| — |
|
|
| 13 |
|
Segment profit and reconciliation to consolidated income before income taxes: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Adjusted EBITDAP |
|
| 50,256 |
|
|
| — |
|
|
| 52,149 |
|
|
| (1,893 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Reconciliation of segment profit to loss before income taxes |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Depreciation and amortization |
|
| (8,118 | ) |
|
| (495 | ) |
|
| (6,940 | ) |
|
| (683 | ) |
Interest expense and other, net |
|
| (38,649 | ) |
|
|
|
|
|
|
|
|
| |||
Corporate expenses |
|
| (16,450 | ) |
|
|
|
|
|
|
|
|
| |||
Share-based compensation expense |
|
| (3,622 | ) |
|
|
|
|
|
|
|
|
| |||
Loss on sale of assets and businesses |
|
| (12,617 | ) |
|
|
|
|
|
|
|
|
| |||
Amortization of acquired contract liabilities |
|
| 575 |
|
|
|
|
|
|
|
|
|
| |||
Non-service defined benefit income |
|
| 820 |
|
|
|
|
|
|
|
|
|
| |||
Debt modification and extinguishment gain |
|
| 3,391 |
|
|
|
|
|
|
|
|
|
| |||
Warrant remeasurement gain, net |
|
| 8,001 |
|
|
|
|
|
|
|
|
|
| |||
Loss before income taxes |
|
| (16,413 | ) |
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total capital expenditures |
| $ | 6,401 |
|
| $ | 1,832 |
|
| $ | 4,060 |
|
| $ | 509 |
|
Total assets |
| $ | 1,649,858 |
|
| $ | 113,744 |
|
| $ | 1,430,325 |
|
| $ | 105,789 |
|
19
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollarsDollars in thousands, except per share data)
|
| Three Months Ended June 30, 2022 |
| |||||||||||||
|
| Total |
|
| Corporate & |
|
| Systems & |
|
| Interiors |
| ||||
Net sales to external customers |
| $ | 349,384 |
|
| $ | — |
|
| $ | 254,643 |
|
| $ | 94,741 |
|
Intersegment sales (eliminated in consolidation |
|
| — |
|
|
| (12 | ) |
|
| — |
|
|
| 12 |
|
Segment profit and reconciliation to consolidated income before income taxes: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Adjusted EBITDAP |
|
| 56,729 |
|
|
| — |
|
|
| 40,149 |
|
|
| 16,580 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Reconciliation of segment profit to loss before income taxes |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Depreciation and amortization |
|
| (9,806 | ) |
|
| (589 | ) |
|
| (7,521 | ) |
|
| (1,696 | ) |
Interest expense and other, net |
|
| (31,912 | ) |
|
|
|
|
|
|
|
|
| |||
Corporate expenses |
|
| (13,949 | ) |
|
|
|
|
|
|
|
|
| |||
Share-based compensation expense |
|
| (1,578 | ) |
|
|
|
|
|
|
|
|
| |||
Amortization of acquired contract liabilities |
|
| 523 |
|
|
|
|
|
|
|
|
|
| |||
Non-service defined benefit income |
|
| 8,586 |
|
|
|
|
|
|
|
|
|
| |||
Consideration payable to customer related to divestiture |
|
| (17,185 | ) |
|
|
|
|
|
|
|
|
| |||
Loss before income taxes |
|
| (8,592 | ) |
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total capital expenditures |
| $ | 3,044 |
|
| $ | 109 |
|
| $ | 2,879 |
|
| $ | 56 |
|
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, 2017June 30, 2023 and 2016,2022, the Company had internationalforeign sales of $184,182$78,914 and $198,052,$70,104, respectively.
12.COMMITMENTS AND CONTINGENCIES
Environmental Matters
Certain of the
Commercial Disputes and Litigation
Throughout the course of the 2021 Notes, the 2022 Notes and the 2025 Notes (the “Non-Guarantor Subsidiaries”) are: (a) the receivables securitization special-purpose entity; and (b) the foreign operating subsidiaries. The following tables present condensed consolidating financial statements includingCompany’s programs, disputes with suppliers or customers could arise regarding unique contractual requirements, quality, costs or impacts to production schedules. If the Company (the “Parent”), the Guarantor Subsidiaries,is unable to successfully and the Non-Guarantor Subsidiaries. Suchequitably resolve such claims and assertions, its business, financial statements include summary Condensed Consolidating Balance Sheets ascondition, results of
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 |
In the ordinary course of business, the Company is involved in disputes, claims and lawsuits with employees, suppliers and customers, as well as governmental and regulatory inquiries, that it deems to be immaterial. Some may involve claims or potential claims of substantial damages, fines, penalties or injunctive relief. While the Company cannot predict the outcome of any pending 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.
Divestitures, Disposals, Guarantees, and Indemnifications
As disclosed in Note 3, we have engaged in a number of divestitures. In connection with divestitures and related transactions, the Company committedfrom time to a restructuringtime has indemnified and has been indemnified by third parties against certain liabilities that may arise in connection with, among other things, business activities prior to the completion of the respective transactions. The term of these indemnifications, which typically pertain to environmental, tax and product liabilities, is generally indefinite. As of June 30, 2023, no indemnification assets or liabilities have been recorded.
As it relates to certain divestitures, disputes have arisen or may continue to arise between the Company and the acquirer subsequent to the completion and closing of its businessesthe divestiture transaction. Such disputes have included or may include amounts payable to or from the buyer for closing working capital adjustments to the purchase price as well as claims regarding alleged violations of contractual terms, representations, and warranties of the consolidationsale agreements, among other matters. The outcome of certain of its facilities ("2017 Restructuring Plan"). The Company expects to reduce its footprint by approximately 1.0 million square feet, to reduce head count by approximately 100 employees and to amend certain contracts. Over the next few fiscal years,such disputes typically involve negotiations between the Company estimates that it will record aggregate pre-tax charges of $55,000and the acquirer, but could also lead 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.
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 |
20
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollarsDollars in thousands, except per share data)
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 |
parties, and benefit paymentsthe ultimate claims made by the parties against each other could be material. As of June 30, 2023, we have accrued for terminated employees. Facility closureour estimate of probable losses associated with such disputes, but losses in excess of those currently accrued could be incurred and may be material. The Company has received notification of claims which allege certain bases for indemnification and damages relating to certain divestitures, including a May 17, 2023, letter relating to the sale of the Stuart facility. The relevant agreements generally contain limits on certain damages that may be payable under the relevant agreements. For example, the divestiture agreement relating to the sale of the Stuart facility contains an $18,750 general cap on breaches of representations (other than certain specified representations) and a $25,000 cap on breaches of certain specified representations related to contracts and product warranties, in each case absent certain circumstances, including fraud or breaches of fundamental or tax representations. As disclosed in Note 3, on June 16, 2023, the Company entered into a settlement agreement with the buyer of the Stuart facility resolving a working capital dispute with the buyer resulting in an amount of $2,400 payable to the Company and resolving claims by the buyer related to the accounts payable representation and warranty under the purchase agreement resulting in an amount of $9,200 payable to the buyer, with such amount applicable to the general cap referred to above. The amounts were settled on a net basis by the Company paying $6,800 to the buyer. Other claims for indemnification with the Buyer of the Stuart facility remain outstanding. While the Company cannot predict the outcome of any pending or future litigation, proceeding, or claim and no assurances can be given, the Company intends to vigorously defend claims brought against it and 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. If the Company is unable to successfully and equitably resolve such claims and assertions, its business, financial condition, and results of operations could be materially adversely affected.
Additionally, in connection with certain divestitures, the Company has obtained customer consent to assign specified long-term contracts to the acquirer of the divested business by entering into consent-to-assignment agreements among the customer, the acquirer, and the Company. Pursuant to certain of these agreements, the Company remains a co-obligor under the contract pursuant to guarantee agreements with the customer that predate the divestiture transaction. The term of these obligations typically covers a period of 2 to 5 years from the date of divestiture. There is no limitation to the maximum potential future liabilities under these contracts; however, the Company is typically indemnified by acquirers against such losses that may arise from the acquirers’ failure to perform under the assigned contracts. As of June 30, 2023, no related indemnification assets or liabilities or guarantee liabilities have been recorded, and the Company has not been called upon to act as co-obligor under such arrangements through that date. Also, in connection with certain divestitures, the Company has assigned lease facility lease agreements to the acquirers and entered into agreements to act as a co-obligor under the lease agreement in the event of non-performance under the lease by the assignee. The Company is generally indemnified by the assignee or other third party to the transaction. On May 2, 2023, the Company received a letter from a lessor associated with one such transaction to assert the lessor’s rights against the Company as guarantor. The lease payment associated with the lease is approximately $130 per month over a lease term ending December 31, 2031, although the landlord has acknowledged its duty to mitigate damages by re-leasing the property. The Company expects to be fully indemnified for any amounts payable under such guarantee.
As the Company has completed the disposal of certain facilities, it may be exposed to additional costs include general operating costs incurred subsequent to production shutdownsuch as well as equipment relocation and other associated costs. Contractenvironmental remediation obligations, lease termination costs, includeor customer 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 associated with terminating existing leasescan be made. For example, in the year ended March 31, 2023, the Company withdrew from the IAM National Pension Fund (the “Fund), which is a multiemployer pension plan to which the Company previously contributed on behalf of certain of its represented employees. Such withdrawal occurred as part of the Company’s exit of its Spokane, Washington, composites manufacturing operations. In April 2023, the Company received a letter from the Fund confirming the Company’s complete withdrawal from the Fund and supplier agreements. Other transformation costs include legal, outplacementindicating that the Company’s portion of the unfunded vested benefits (the “Withdrawal Liability”) was estimated to be approximately $14,644, payable in quarterly installments of approximately $400 over a period of approximately thirteen years. The Withdrawal Liability is subject to further adjustment based on the finalization of the Fund’s actuarial valuation for the plan year ending December 31, 2021, (i.e., the applicable plan year preceding the date of the Company’s withdrawal). As of June 30, 2023, the Company's liability for this obligation is included on the accompanying condensed consolidated balance sheets is approximately $14,235, representing its estimate of the remaining obligation based on the letter received from the Fund. The Company is in the process of reviewing and employee relocation costs,responding to the withdrawal liability assessment, and other employee-related costs and costs to amend certain contracts.it is possible the Withdrawal Liability could be reduced during that process.
21
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; (ii) Aerospace Structures, whose companies supply commercial, business, regional and military manufacturers with large metallic 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; and (iv) Product Support, whose companies provideas well as full life cycle solutions for commercial, regional, and military aircraft.
Divestitures
As disclosed in Note 3, in July 2022, we combinedcompleted the sale of our Aerospace Structuresmanufacturing operations located in Stuart, Florida, and Precision Components reporting segments into one reporting segment, Aerospace Structures. Aerospace Structuresrecognized a gain in the second quarter of fiscal 2023. The Stuart operations specialized 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.
Summary of Significant Financial Results
Significant financial results for the
Aviation Manufacturing Jobs Protection Program
In November 2021, we entered into an agreement with the Department of Transportation (“DOT”) under the Aviation Manufacturing Jobs Protection Program (“AMJP”). We committed to several plansreceived total proceeds under this program of $19.4 million, of which approximately $8.8 million was received in the three months ended June 30, 2022. In July 2022, we received a letter from the DOT confirming that incorporatewe had satisfied the restructuring of certain of our businesses as well asreporting requirements under the consolidation of certain of our facilities. We expect to reduce our footprint byAMJP. In the three months ended June 30, 2022, we recognized approximately 4.5$5.0 million square feet and to reduce head count by 1,300 employees. Over the course of the plans (whichgrant benefit as a reduction in cost of sales.
Warrants Distribution
As disclosed in Note 2, on December 19, 2022, we issued approximately 19.5 million Warrants to holders of record of common stock as of the Record Date. Each Warrant represented the right to purchase initially one share of common stock at an exercise price of $12.35 per Warrant. Payment for shares of common stock on exercise of Warrants could have been made in (i) cash or (ii) under certain circumstances, Designated Notes (as defined in Note 2). Approximately 1.4 million warrants have been exercised since the date of the Warrants initial distribution on December 19, 2022, through June 30, 2023. Subsequent to June 30, 2023, approximately 6.7 million warrants were initiatedexercised for total cash proceeds, net of transaction costs, of approximately $81.5 million. On July 6, 2023, the Company redeemed all of the approximately 11.4 million outstanding Warrants for a total redemption price of less than $0.1 million.
Significant Developments in fiscal 2016), we estimate that we will record aggregate pre-tax chargesKey Programs
Discussion of $195.0 million to $210.0 million related to these plans, which represent employee termination benefits, contract termination costs, accelerated depreciationsignificant developments on key programs is included below.
Boeing 737
The Boeing 737 program represented approximately 12% and facility closure and other exit costs, and will result in future cash outlays. For11% of revenue for the ninethree months ended December 31, 2017June 30, 2023 and 2016, we recorded charges2022, respectively, inclusive of $33.8 millionboth OEM production and $28.2 million, respectively, related to these plans.
22
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
respectively. In July 2023, Boeing publicly disclosed that the 737 program is transitioning production to 38 per month and Product Support - 5%. A significant portion ofplans to reach 50 per month in 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 is on target for its consolidated anticipated savings goals, however the nature of those savings has shifted over time to be more weighted towards our supply chain optimization and operational efficiencies than previously anticipated, offset by reduced expectations associated with the facility consolidations and headcount reductions.
Boeing 767
Approximately 14% of our goodwill due to our decision to combine the Aerospace Structures and Precision Components reporting segments into one reporting segment as noted above. In accordance with ASC 350-20-35-3C, there are several potential events and circumstances that could be indicators of goodwill impairment. A changerevenue in a company's reporting unit structure is one of these events, and when this does occur, a company must perform a 'before and after" test of the reporting units. 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-K for the fiscal year ended March 31, 2017, we performed the goodwill impairment test, which includes using a combination of both the market and income approaches to estimate the fair value of each reporting unit.
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 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.income (loss). In calculating Adjusted EBITDA and Adjusted EBITDAP, we exclude from net income from continuing operations(loss) the financial items that we believe should be separately identified to provide additional analysis of the financial components of the day-to-day operation of our business. We have outlined below the type and scope of these exclusions and the material limitations on the use of these non-GAAP financial measures as a result of these exclusions. Adjusted EBITDA isand Adjusted EBITDAP are not a measurementmeasurements of financial performance under U.S. GAAP and should not be considered as a measure of liquidity, as an alternative to net 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.. 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 (loss) set forth below, in our earnings releases, and in other filings with the SEC and to carefully review the U.S. GAAP financial information included as part of our Quarterly Reports on Form 10-Q and our Annual Reports on Form 10-K that are filed with the SEC, as well as our quarterly earnings releases, and compare the U.S. GAAP financial information with our Adjusted EBITDA.
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(loss) has included significant charges for depreciation and amortization.
23
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Adjusted EBITDA excludesand Adjusted EBITDAP exclude these charges and providesprovide meaningful information about the operating performance of our business, apart from charges for depreciation and amortization. We believe the disclosure of Adjusted EBITDA and Adjusted EBITDAP helps investors meaningfully evaluate and compare our performance from quarter to quarter and from year to year. We also believe Adjusted EBITDA is a measureand Adjusted EBITDAP are measures of our ongoing operating performance because the isolation of non-cashnoncash charges, such as depreciation and amortization, and non-operatingnonoperating items, such as interest, and income taxes, pension and other postretirement benefits, provides additional information about our cost structure and, over time, helps track our operating progress. In addition, investors, securities analysts, and others have regularly relied on Adjusted EBITDA and Adjusted EBITDAP to provide a financial measuremeasures by which to compare our operating performance against that of other companies in our industry.
Set forth below are descriptions of the financial items that have been excluded from our 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:
24
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Management compensates for the above-described limitations of using non-GAAP measures by using a non-GAAP measure only to supplement our U.S. GAAP results and to provide additional information that is useful to gain an understanding of the factors and trends affecting our business.
The following table shows our Adjusted EBITDA and Adjusted EBITDAP reconciled to our net incomeloss 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 June 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Net loss (U.S. GAAP measure) |
| $ | (18,163 | ) |
| $ | (10,342 | ) |
Income tax expense |
|
| 1,750 |
|
|
| 1,750 |
|
Interest expense and other |
|
| 38,649 |
|
|
| 31,912 |
|
Debt modification and extinguishment gain |
|
| (3,391 | ) |
|
| — |
|
Warrant remeasurement gain, net |
|
| (8,001 | ) |
|
| — |
|
Consideration payable to customer related to divestiture |
|
| — |
|
|
| 17,185 |
|
Shareholder cooperation expenses |
|
| 1,905 |
|
|
| — |
|
Loss on sale of assets and businesses, net |
|
| 12,617 |
|
|
| — |
|
Share-based compensation |
|
| 3,622 |
|
|
| 1,578 |
|
Amortization of acquired contract liabilities |
|
| (575 | ) |
|
| (523 | ) |
Depreciation and amortization |
|
| 8,118 |
|
|
| 9,806 |
|
Adjusted EBITDA (non-GAAP measure) |
| $ | 36,531 |
|
| $ | 51,366 |
|
Non-service defined benefit income (excluding pension related charges) |
|
| (820 | ) |
|
| (8,586 | ) |
Adjusted EBITDAP (non-GAAP measure) |
| $ | 35,711 |
|
| $ | 42,780 |
|
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 June 30, 2023 |
| |||||||||||||
|
| Total |
|
| Systems & Support |
|
| Interiors |
|
| Corporate/ |
| ||||
Operating income (loss) |
| $ | 10,024 |
|
| $ | 45,784 |
|
| $ | (2,576 | ) |
| $ | (33,184 | ) |
Loss on sale of assets and businesses |
|
| 12,617 |
|
|
| — |
|
|
| — |
|
|
| 12,617 |
|
Shareholder cooperation expenses |
|
| 1,905 |
|
|
| — |
|
|
| — |
|
|
| 1,905 |
|
Share-based compensation |
|
| 3,622 |
|
|
| — |
|
|
| — |
|
|
| 3,622 |
|
Amortization of acquired contract liabilities |
|
| (575 | ) |
|
| (575 | ) |
|
| — |
|
|
| — |
|
Depreciation and amortization |
|
| 8,118 |
|
|
| 6,940 |
|
|
| 683 |
|
|
| 495 |
|
Adjusted EBITDAP |
| $ | 35,711 |
|
| $ | 52,149 |
|
| $ | (1,893 | ) |
| $ | (14,545 | ) |
|
| Three Months Ended June 30, 2022 |
| |||||||||||||
|
| Total |
|
| Systems & Support |
|
| Interiors |
|
| Corporate/ |
| ||||
Operating income (loss) |
| $ | 14,734 |
|
| $ | 33,151 |
|
| $ | (2,301 | ) |
| $ | (16,116 | ) |
Consideration payable to customer related to divestiture |
|
| 17,185 |
|
|
| — |
|
|
| 17,185 |
|
|
| — |
|
Share-based compensation |
|
| 1,578 |
|
|
| — |
|
|
| — |
|
|
| 1,578 |
|
Amortization of acquired contract liabilities |
|
| (523 | ) |
|
| (523 | ) |
|
| — |
|
|
| — |
|
Depreciation and amortization |
|
| 9,806 |
|
|
| 7,521 |
|
|
| 1,696 |
|
|
| 589 |
|
Adjusted EBITDAP |
| $ | 42,780 |
|
| $ | 40,149 |
|
| $ | 16,580 |
|
| $ | (13,949 | ) |
25
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 | ) | ||||||||||
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, 2017June 30, 2023, 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 June 30, |
| |||||
(In thousands) |
| 2023 |
|
| 2022 |
| ||
Commercial OEM |
| $ | 117,213 |
|
| $ | 168,539 |
|
Military OEM |
|
| 65,796 |
|
|
| 56,964 |
|
Total OEM Revenue |
|
| 183,009 |
|
|
| 225,503 |
|
|
|
|
|
|
|
| ||
Commercial Aftermarket |
|
| 87,643 |
|
|
| 63,183 |
|
Military Aftermarket |
|
| 47,602 |
|
|
| 50,946 |
|
Total Aftermarket Revenue |
|
| 135,245 |
|
|
| 114,129 |
|
|
|
|
|
|
|
| ||
Non-Aviation Revenue |
|
| 8,316 |
|
|
| 9,229 |
|
Amortization of acquired contract liabilities |
|
| 575 |
|
|
| 523 |
|
Total Net Sales |
| $ | 327,145 |
|
| $ | 349,384 |
|
Commercial OEM sales decreased $51.3 million, or 30.5% due to divestitures and exited or sunsetting programs, which represented approximately $60.0 million in net changes. Excluding impacts from divestitures and exited or sunsetting programs, organic Commercial OEM sales increased $8.7 million, or 8.1%, on increased production volumes on Boeing 787 and 737 programs, offset by reductions across other commercial rotorcraft programs.
Military OEM sales increased $8.8 million, or 15.5%, all of which were organic, primarily due to increased sales related to the CH-53K, V-22, and UH-60 programs.
Aftermarket sales include both repair and overhaul services as well as the sales of spare parts. Commercial Aftermarket sales increased $24.5 million, or 38.7%. Excluding impacts from divestitures, organic Commercial Aftermarket sales increased $25.9 million, or 42.5%, driven by the continued improvement in overall air travel metrics, favorably impacting both repair and overhaul services and spare part sales on an equal basis.
Military aftermarket sales decreased $3.3 million, or 6.6%, all of which was organic, driven by reduced sales across several fixed wing platforms and reduced spares on rotorcraft platforms relative to the prior year, partially offset by increased repairs on rotorcraft platforms.
|
| Three Months Ended June 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Segment operating income |
| $ | 43,208 |
|
| $ | 30,850 |
|
Corporate expense |
|
| (33,184 | ) |
|
| (16,116 | ) |
Total operating income |
|
| 10,024 |
|
|
| 14,734 |
|
Non-service defined benefit plan income |
|
| (820 | ) |
|
| (8,586 | ) |
Interest expense & other |
|
| 38,649 |
|
|
| 31,912 |
|
Debt modification and extinguishment gain |
|
| (3,391 | ) |
|
| - |
|
Warrant remeasurement gain |
|
| (8,001 | ) |
|
| - |
|
Income tax expense |
|
| 1,750 |
|
|
| 1,750 |
|
Net loss |
| $ | (18,163 | ) |
| $ | (10,342 | ) |
26
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Segment Operating Income
Segment operating income increased $12.4 million, or 40.1%. Excluding impacts from divestitures and exited or sunsetting programs, organic segment operating income increased $17.4 million, or 60.3%, driven by the increased volume disclosed above along with reduced general and administrative human capital costs $0.7 million, lower depreciation and amortization $1.1 million, and reduced professional services costs $0.5 million.
Cost of OEM Sales decreased primarily due to divestitures and exited or sunsetting programs, which represented approximately $54.6 million in net changes. Organic gross profit margin percentage on OEM sales decreased by $69.6 million, or 8.2%, to $775.2 million13.0% for the three months ended December 31, 2017,June 30, 2023 from $844.9 million14.1% for the three months ended December 31, 2016. OrganicJune 30, 2022 due to inflationary increases in labor and material costs and the prior period AMJP grant benefit of approximately $5.0 million.
Cost of Aftermarket sales adjusted for inter-segment sales decreased $34.1 million, or 4.2%. The fiscal 2017 and Embee divestitures contributed $35.5 million in net sales to the comparative prior year period. Organic sales decreasedincreased primarily due to the completion of and continued rate reductionsincreased Commercial Aftermarket sales noted above. Organic gross profit margin on certain Boeing and Airbus programs. NetAftermarket sales increased to 41.0% for the three months ended December 31, 2017, included $2.8 million in total non-recurring revenues, as compared to $5.6 million in non-recurring revenuesJune 30, 2023 from 35.9% for the three months ended December 31, 2016.
Consolidated gross profit margin improved to $612.2 million26.4% for the three months ended December 31, 2017,June 30, 2023, from $653.2 million22.0% for the three months ended December 31, 2016. Organic costJune 30, 2022. This improvement was driven by the increased mix in Aftermarket sales as a percentage of sales decreased $15.4 million,total sales.
Excluding impacts from divestitures and exited 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 decreased due to the decrease in organic sales mentioned above and changes in sales mix. The comparablesunsetting programs, organic gross margin for the three months ended December 31, 2017June 30, 2023, was 21.0%, as26.9% compared to 22.4%,with 25.5% for the three months ended December 31, 2016.
Corporate Expense
Corporate expense increased $17.1 million, or 18.9%. The fiscal 2017 and Embee divestitures contributed $5.4 million to operating income for the three months ended December 31, 2016. Organic operating income for the three months ended December 31, 2017 decreased105.9%, primarily due to the decline$12.6 million in organic sales noted abovelosses on sale of assets and the previously mentioned goodwill impairment charge of $190.2business and $3.7 million in professional services costs, including $1.9 million in professional and included costslegal fees related to our restructuring plans of $3.8 million.
Interest Expense and restructuring charges of $3.8 million. The prior year period included the loss on divestiture of the Engines and APU business of $14.4 million.
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, due to higher interest on increased interest rates partially offsetcompared to the prior year period.
Non-service Defined Benefit Income
Non-service defined benefit income decreased by lower relative debt levels.
Income Taxes
The effective income tax rate for the three months ended December 31, 2017June 30, 2023 was 22.1%(10.7)%, compared to 17.3%with (20.4)% for the three months ended December 31, 2016. For the three months ended December 31, 2017, theJune 30, 2022. 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 June 30, 2023, 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 Aerospace Structures, Precision Components& Support and Product Support. Interiors. Our Chief Operating Decision Maker ("CODM") utilizes Adjusted EBITDAP as a primary measure of profitability to evaluate performance of its segments and 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
Refer to Note 1 for further details regarding the operations and repair to third parties, and as a result, are lesscapabilities of a competitive force than in previous years. This compares to Aerospace Structures, which generally includes long-term sole-source or preferred supplier contracts and the successeach of these programs provides a strong foundation for our business and positions us well for future growth on new programs 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 extent 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 Componentsreportable segments.
We currently generate a majority of our revenue from clientssales to OEMs and aftermarket MRO services in the commercial aerospace industry, theairline and military the business jet industry and the regional airline industry.defense markets. Our growth and financial results are largely dependent on continued demand for our products and services from clients inwithin these industries.markets. If any of thesethe related 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.
27
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
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 June 30, |
|
| % Change |
|
| % of Total Sales |
| |||||||||||
|
| 2023 |
|
| 2022 |
|
|
|
|
| 2023 |
|
| 2022 |
| |||||
|
| (in thousands) |
|
|
|
|
|
|
|
|
|
| ||||||||
NET SALES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Systems & Support |
| $ | 290,575 |
|
| $ | 254,643 |
|
|
| 14.1 | % |
|
| 88.8 | % |
|
| 72.9 | % |
Interiors |
|
| 36,583 |
|
|
| 94,753 |
|
|
| (61.4 | )% |
|
| 11.2 | % |
|
| 27.1 | % |
Elimination of inter-segment sales |
|
| (13 | ) |
|
| (12 | ) |
|
| (8.3 | )% |
|
| — |
|
|
| — |
|
Total net sales |
| $ | 327,145 |
|
| $ | 349,384 |
|
|
| (6.4 | )% |
|
| 100.0 | % |
|
| 100.0 | % |
|
| Three Months Ended June 30, |
|
| % Change |
|
| % of Segment Sales |
| |||||||||||
|
| 2023 |
|
| 2022 |
|
|
|
|
| 2023 |
|
| 2022 |
| |||||
|
| (in thousands) |
|
|
|
|
|
|
|
|
|
| ||||||||
SEGMENT OPERATING INCOME (LOSS) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Systems & Support |
| $ | 45,784 |
|
| $ | 33,151 |
|
|
| 38.1 | % |
|
| 15.7 | % |
|
| 13.0 | % |
Interiors |
|
| (2,576 | ) |
|
| (2,301 | ) |
|
| (12.0 | )% |
|
| (7.0 | )% |
|
| (2.4 | )% |
Corporate |
|
| (33,184 | ) |
|
| (16,116 | ) |
|
| (105.9 | )% |
| n/a |
|
| n/a |
| ||
Total segment operating income |
| $ | 10,024 |
|
| $ | 14,734 |
|
|
| (32.0 | )% |
|
| 3.1 | % |
|
| 4.2 | % |
|
| Three Months Ended June 30, |
|
| % Change |
|
| % of Segment Sales |
| |||||||||||
|
| 2023 |
|
| 2022 |
|
|
|
|
| 2023 |
|
| 2022 |
| |||||
|
| (in thousands) |
|
|
|
|
|
|
|
|
|
| ||||||||
Adjusted EBITDAP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Systems & Support |
| $ | 52,149 |
|
| $ | 40,149 |
|
|
| 29.9 | % |
|
| 18.0 | % |
|
| 15.8 | % |
Interiors |
|
| (1,893 | ) |
|
| 16,580 |
|
|
| (111.4 | )% |
|
| (5.2 | )% |
|
| 14.8 | % |
Corporate |
|
| (14,545 | ) |
|
| (13,949 | ) |
|
| (4.3 | )% |
| n/a |
|
| n/a |
| ||
|
| $ | 35,711 |
|
| $ | 42,780 |
|
|
| (16.5 | )% |
|
| 10.9 | % |
|
| 11.7 | % |
Systems & Support:
Net Sales
Net sales adjusted for intersegment sales increased by $35.9 million, or 14.1%, all of which was organic, and included growth across all end markets, with the exception of Military Aftermarket, which declined slightly due to experiencetiming of orders. Net sales increased primarily as a higher proportionresult of our sales mix in the continued market recovery driving volume for both commercial aerospace end market for Integrated SystemsOEM and Precision Componentsaftermarket sales.
Operating Income and Adjusted EBITDAP
Operating income increased by $12.6 million , or 38.1%, all of which was organic. Operating income increased primarily due to the 737, 777, 787, A320 and A350 programs. We have experienced a decline in the commercial aerospace end market for Aerospace Structures due to lower production rates of the 747-8 and a decrease in our military end market due to the wind-down of the C-17 program, although there can be no assurance to that effect.
Three Months Ended December 31, | % of Total Sales | |||||||||||||||
2017 | 2016 | % Change | 2017 | 2016 | ||||||||||||
(in thousands) | ||||||||||||||||
NET SALES | ||||||||||||||||
Integrated Systems | $ | 239,198 | $ | 256,080 | (6.6 | )% | 30.9 | % | 30.3 | % | ||||||
Aerospace 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 Margin and Adjusted EBITDAP Margin
Operating income as a percentage of sales and Adjusted EBITDAP 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 contributedboth increased due to the decreased Adjusted EBITDA margin year over year.
Interiors:
Net Sales
Organic net sales decreasedincreased by $21.7$3.3 million, or 7.1%10.4%, excluding the sales decreases from divestitures and exited or sunsetting programs of $61.4 million. Organic net sales increased primarily due to $282.5increased OEM volume on the 737 and 787 programs.
Operating Income and Adjusted EBITDAP
Organic operating income increased by $4.8 million, for the three months ended December 31, 2017, from $304.2 million for the three months ended December 31, 2016. Sales decreased primarily due to the completion of and continued rate reductionsincreased gross margins on certain Boeing programs and partiallythe organic sales increases noted above. The increased organic operating income was offset by rate increases on 767/Tanker program. Net sales fordecreased operating income from divestitures and exited or sunsetting programs by approximately $5.0 million. The decrease in Adjusted EBITDAP year over year is driven by the three months ended December 31, 2017 included $2.8 milliondecreased Adjusted EBITDAP from divestitures and exited or sunsetting programs of approximately $22.8 million. Adjusted EBITDAP increased organically in total non-recurring revenues, as compared to $5.6 millionline with the increase in total non-recurring revenues for the three months ended December 31, 2016.
Operating Margin and Adjusted EBITDAP Margin
28
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Operating income decreased for the three months ended December 31, 2017, due to the decreased sales noted above, increased net customer financing fees of $1.2 million, increased research and development of $1.3 million and increased amortization expense of $1.7 million due to the change in estimated useful life of certain intangible assets. The decrease in Adjusted EBITDA year over year is due to the same factors that decreased operating income.
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 | % |
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 borrowings under our credit arrangements.the availability of proceeds from the Securitization Facility. During the ninethree months ended December 31, 2017,June 30, 2023, we used approximately $198.3had a net cash outflow of $63.7 million of cash flows from operating activities received approximately $36.5compared with a net cash outflow of $93.0 million in investing activities and received approximately $158.2 million in financing activities.
As disclosed in Note 2, in November 2021 the Company entered into an agreement with the DOT under the AMJP. We received total proceeds under this program of $19.4 million, of which approximately $8.8 million was received in the three months ended June 30, 2022. These cash receipts and resolution of open assertions.
Investing Cash Flows
Cash flows used in investing activities for the ninethree months ended December 31, 2017June 30, 2023, increased $46.4$9.4 million from the ninethree months ended December 31, 2016.June 30, 2022. Cash flows used in investing activities for the ninethree months ended December 31, 2017,June 30, 2023, included payments related to the sales of assets and businesses of $6.8 million as a result of the resolution of claims by the buyer related to the accounts payable representation and warranty under the purchase agreement and the finalization of certain purchase price adjustments related to the transferred working capital of the divested operations, as described in Note 3 and Note 12. We also used approximately $6.4 million for capital expenditures of $31.9and $1.5 million and proceeds from the sale of assets of $68.4 million.related to capital contributions to a joint venture. Cash flows used in investing activities for the ninethree months ended December 31, 2016,June 30, 2022, included capital expenditures of $33.1 million and proceeds frompayments on the sale of assets and businesses of $23.2$2.3 million with additional investing outflows from capital expenditures of $3.0 million.
Financing Cash Flows
Cash flows provided byused in financing activities for the ninethree months ended December 31, 2017June 30, 2023, were $158.2$2.2 million, compared towith cash flows used in financing activities for the ninethree months ended December 31, 2016June 30, 2022, of $198.6$4.4 million. CashCurrent period financing cash flows
As disclosed in Note 9, we contributed 3.2 million shares of common stock to the trust of our U.S. defined benefit plan. As a result of the contribution, we expect the approximately $14.7 million required cash contribution to our U.S. defined benefit pension plans for the nine months ended Decemberfiscal year ending March 31, 20172024, to be reduced to zero, and 2016, respectively, included the excess contribution value will reduce future required cash contributions.
As disclosed in Note 2, subsequent to June 30, 2023, approximately 6.7 million warrants were exercised for total cash proceeds, net of transaction costs, of approximately $81,500. On July 6, 2023, the Company redeemed all of the approximately 11.4 million remaining outstanding Warrants for a total redemption price of less than $0.1 million pursuant to its June 16, 2023 notice of redemption. In total, from the issuance of the Warrants on December 19, 2022, through redemption on July 6, 2023, the Company increased its cash by approximately $85.0 million and reduced debt by approximately $14.0 million.
Refer to Note 12 for disclosures related to certain indemnifications, consent-to-assignment agreements, and guarantee agreements associated with our divestiture activities.
The 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 onare our Credit Facility (as defined below).
The 2028 First Lien Notes are (a) effectively senior to all existing and future second lien obligations (including the 2025 Notes) and all existing and future unsecured indebtedness of the Company and the Guarantor Subsidiaries, but only to the extent of the value of the Collateral, and after giving effect to any permitted additional first lien secured obligations and other permitted liens of senior or equal priority; (b) secured by the Collateral on a pari passu basis with any future permitted additional first lien secured obligations, subject to a Collateral Trust Agreement; (c) effectively subordinated to any existing and future obligations of the
29
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Company and the Guarantor Subsidiaries that are secured by assets that do not constitute the Collateral, in each case, to the extent of the value of the assets securing such obligations; and (d) structurally subordinated to all existing and future indebtedness and other liabilities of the Company’s existing and future subsidiaries that do not guarantee the 2028 First Lien Notes, including the Securitization Facility.
The 2025 Notes are effectively subordinated to all obligations of the Company and the Guarantor Subsidiaries that are (a) secured by a lien on the Collateral (including the 2028 First Lien Notes) and certain cash management and hedging obligations, or (b) secured by assets that do not constitute the Collateral, in each case to the extent of the value of the assets securing such obligations.
The Senior Notes are guaranteed on a full, senior, joint and several basis by eachcertain of the Guarantor Subsidiaries.
Pursuant to the documentation governing the Senior Notes, we may redeem some or all of the 2025Senior Notes prior to August 15, 2020 by paying a "make-whole" premium. The Company may redeem some or all of the 2025 Notes on or after August 15, 2020, at specified redemption prices. In addition, prior to August 15, 2020, the Company may redeem up to 35% of the 2025 Notes with the net proceeds of certain equity offerings at a redemption price equal to 107.750% of the aggregate principal amount plus accrued and unpaid interest, if any,their stated maturities, subject to certain limitations set forth in the indenture governing the 2025applicable Senior Notes (the "2025 Indenture").
The 2025 Indenture containsindentures governing the Senior Notes, 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 Senior 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 |
For further information on our long-term debt, see Note 6.
The following tables present summarized financial information of the Company and divestiture opportunities. Asthe 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 numberRule 13-01 under SEC Regulation S-X for the issuer and Guarantor Subsidiaries.
30
Management's Discussion and Analysis of candidates. In the event that more than one
Financial Condition and Results of these transactions are successfully consummated, the availability under the Credit Facility might be fully utilized and additional funding sources may be needed. There can be no assurance that such funding sources will be available to us on terms favorable to us, if at all.
(continued)
Parent and Guarantor Summarized Financial Information |
| June 30, |
|
| March 31, |
| ||
Summarized Balance Sheet |
| 2023 |
|
| 2023 |
| ||
|
| in thousands |
| |||||
Assets |
|
|
|
|
|
| ||
Due from non-guarantor subsidiaries |
| $ | 3,874 |
|
| $ | 1,048 |
|
Current assets |
|
| 604,703 |
|
|
| 659,991 |
|
Noncurrent assets |
|
| 644,956 |
|
|
| 648,608 |
|
Noncurrent receivable from non-guarantor subsidiaries |
|
| 89,102 |
|
|
| 104,956 |
|
|
|
|
|
|
|
| ||
Liabilities |
|
|
|
|
|
| ||
Due to non-guarantor subsidiaries |
|
| 28,566 |
|
|
| 26,793 |
|
Current liabilities |
|
| 306,339 |
|
|
| 352,270 |
|
Noncurrent liabilities |
|
| 2,045,709 |
|
|
| 2,107,535 |
|
|
|
|
|
|
|
| ||
|
|
|
|
| Three Months Ended |
| ||
Summarized Statement of Operations |
|
|
|
| June 30, 2023 |
| ||
|
|
|
|
| in thousands |
| ||
Net sales to non-guarantor subsidiaries |
|
|
|
| $ | 489 |
| |
Net sales to unrelated parties |
|
|
|
|
| 296,782 |
| |
Gross profit |
|
|
|
|
| 75,737 |
| |
Loss from continuing operations before income taxes |
|
|
|
|
| (20,149 | ) | |
Net loss |
|
|
|
|
| (20,380 | ) |
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, 2017.2023. 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, 2017,2023, 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 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, efforts to optimize our asset base, 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, 2017,2023, filed with the SEC on May 24, 2017.
31
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
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, 2017.2023. 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
(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.
32
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. |
* Schedules (as similar attachments) have been omitted from this filing pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule will be furnished to the Securities and Exchange Commission upon request
33
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 | August 11, 2023 | |||||||
/s/ Daniel J. Crowley | ||||||||
(Principal Executive Officer) | ||||||||
Daniel J. Crowley | ||||||||
Senior Vice President and Chief Financial Officer | August 11, 2023 | |||||||
/s/ James F. McCabe, Jr. | (Principal Financial Officer) | |||||||
James F. McCabe, Jr. | ||||||||
Vice President, | ||||||||
/s/ Kai W. Kasiguran | (Principal Accounting Officer) | August 11, 2023 | ||||||
Kai W. Kasiguran |
34