Triumph Group, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)


	Three Months Ended September 30,						Six Months Ended September 30,						Three Months Ended June 30,
	2018			2017			2018			2017			2019			2018

Net sales	$	855,108		$	745,156		$	1,688,008		$	1,526,845		$	730,231		$	832,900
Operating costs and expenses:
Cost of sales (exclusive of depreciation and amortization shown separately below)	724,474			598,403			1,494,688			1,244,210			582,233			770,214
Selling, general and administrative	69,551			75,442			151,208			155,689			62,337			81,656
Depreciation and amortization	38,134			40,868			76,945			79,999			44,050			38,812
Restructuring costs	11,832			10,101			15,879			27,602			2,964			4,047
Loss on divestitures	13,118			20,371			17,837			20,371			3,136			4,719
	857,109			745,185			1,756,557			1,527,871			694,720			899,448
Operating loss	(2,001		)	(29		)	(68,549		)	(1,026		)
Operating income (loss)													35,511			(66,548		)
Non-service defined benefit income	(16,524		)	(18,877		)	(33,061		)	(38,283		)	(14,875		)	(16,538		)
Interest expense and other	28,714			25,375			54,206			46,393			27,491			25,493
Loss before income taxes	(14,191		)	(6,527		)	(89,694		)	(9,136		)
Income tax expense (benefit)	485			(1,149		)	1,516			(1,827		)
Net loss	$	(14,676	)	$	(5,378	)	$	(91,210	)	$	(7,309	)
Income (loss) before income taxes													22,895			(75,503		)
Income tax expense													4,807			1,031
Net income (loss)													$	18,088		$	(76,534	)

Loss per share—basic:	$	(0.30	)	$	(0.11	)	$	(1.84	)	$	(0.15	)
Earnings (loss) per share—basic:													$	0.36		$	(1.54	)

Weighted-average common shares outstanding—basic	49,628			49,428			49,590			49,400
Weighted average common shares outstanding—basic													49,854			49,552

Loss per share—diluted:	$	(0.30	)	$	(0.11	)	$	(1.84	)	$	(0.15	)
Earnings (loss) per share—diluted:													$	0.36		$	(1.54	)

Weighted-average common shares outstanding—diluted	49,628			49,428			49,590			49,400
Weighted average common shares outstanding—diluted													50,295			49,552

Dividends declared and paid per common share	$	0.04		$	0.04		$	0.08		$	0.08		$	0.04		$	0.04

SEE ACCOMPANYING NOTES.

Triumph Group, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(dollars in thousands)

(unaudited)

Three Months Ended September 30, Six Months Ended September 30,
2018 2017 2018 2017

Net loss $ (14,676 ) $ (5,378 ) $ (91,210 ) $ (7,309 )
Other comprehensive (loss) income:
Foreign currency translation adjustment 1,038
9,905
(13,486 ) 21,326
Defined benefit pension plans and other postretirement benefits:
Amounts arising during the period - gains (losses), net of tax (expense) benefit:
Prior service loss —
523
—
523
Reclassifications from accumulated other comprehensive income - losses (gains), net of tax expense (benefits):
Amortization of net loss, net of taxes of $0 for the three and six months ended 1,676
1,695
3,351
3,390
Recognized prior service credits, net of taxes of $0 for the three and six months ended (2,075 ) (3,042 ) (4,149 ) (6,084 )
Total defined benefit pension plans and other postretirement benefits, net of taxes (399 ) (824 ) (798 ) (2,171 )
Cash flow hedges:
Unrealized gain (loss) arising during period, net of tax of $(189) and $(2) for the three months ended and $(64) and $(9) for the six months ended, respectively 1,706
(561 ) 742
(19 )
Reclassification of loss included in net earnings, net of tax of $88 and $11 for the three months ended and $123 and $21 for the six months ended, respectively (742 ) (2,021 ) (813 ) (2,380 )
Net unrealized gain (loss) on cash flow hedges, net of tax 964
(2,582 ) (71 ) (2,399 )
Total other comprehensive income (loss) 1,603
6,499
(14,355 ) 16,756
Total comprehensive (loss) income $ (13,073 ) $ 1,121
$ (105,565 ) $ 9,447



	Three Months Ended June 30,
	2019			2018

Net income (loss)	$	18,088		$	(76,534	)
Other comprehensive (loss) income:
Foreign currency translation adjustment	(2,683		)	(14,524		)
Defined benefit pension plans and other postretirement benefits:
Reclassifications from accumulated other comprehensive income - losses (gains), net of tax expense (benefits):
Amortization of net loss, net of taxes of $0 for the three months ended	2,851			1,676
Recognized prior service credits, net of taxes of $0 for the three months ended	(1,442		)	(2,075		)
Total defined benefit pension plans and other postretirement benefits (expense), net of taxes	1,409			(399		)
Cash flow hedges:
Unrealized gain (loss) arising during period, net of tax of $0 and $125 for the three months ended	95			(965		)
Reclassification of loss included in net earnings, net of tax of $0 and $35 for the three months ended	(414		)	(70		)
Net unrealized loss on cash flow hedges, net of tax	(319		)	(1,035		)
Total other comprehensive loss	(1,593		)	(15,958		)
Total comprehensive income (loss)	$	16,495		$	(92,492	)

SEE ACCOMPANYING NOTES.

Triumph Group, Inc.

Condensed Consolidated Statements of Stockholders' (Deficit) Equity

(dollars in thousands)

(unaudited)



	Outstanding Shares		Common Stock All Classes		Capital in Excess of Par Value			Treasury Stock			Accumulated Other Comprehensive Loss			Accumulated Deficit			Total
Balance, March 31, 2019	49,887,268		$	52	$	867,545		$	(159,154	)	$	(487,684	)	$	(794,072	)	$	(573,313	)
Net income	—		—		—			—			—			18,088			18,088
Adoption of ASC 842	—		—		—			—			—			(225		)	(225		)
Foreign currency translation adjustment	—		—		—			—			(2,683		)	—			(2,683		)
Pension liability adjustment, net of income taxes of $0	—		—		—			—			1,409			—			1,409
Change in fair value of foreign currency hedges, net of income taxes of $0	—		—		—			—			(319		)	—			(319		)
Cash dividends ($0.04 per share)	—		—		—			—			—			(1,998		)	(1,998		)
Share-based compensation	154,802		—		(7,631		)	9,534			—			—			1,903
Repurchase of restricted shares for minimum tax obligation	(51,406	)	—		—			(1,043		)	—			—			(1,043		)
Employee stock purchase plan	14,489		—		(634		)	896			—			—			262
Balance, June 30, 2019	50,005,153		$	52	$	859,280		$	(149,767	)	$	(489,277	)	$	(778,207	)	$	(557,919	)



	Outstanding Shares		Common Stock All Classes		Capital in Excess of Par Value			Treasury Stock			Accumulated Other Comprehensive Loss			Retained Earnings (Accumulated Deficit)			Total
Balance, March 31, 2018	49,669,848		$	51	$	851,280		$	(179,082	)	$	(367,870	)	$	146,155		$	450,534
Net loss	—		—		—			—			—			(76,534		)	(76,534		)
Adoption of ASC 606	—		—		—			—			—			(584,951		)	(584,951		)
Foreign currency translation adjustment	—		—		—			—			(14,524		)	—			(14,524		)
Pension liability adjustment, net of income taxes of $0	—		—		—			—			(399		)	—			(399		)
Change in fair value of foreign currency hedges, net of income taxes of $160	—		—		—			—			(1,035		)	—			(1,035		)
Cash dividends ($0.04 per share)	—		—		—			—			—			(1,988		)	(1,988		)
Share-based compensation	102,248		—		(84		)	2,548			—			—			2,464
Repurchase of restricted shares for minimum tax obligation	(23,756	)	—		—			(532		)	—			—			(532		)
Employee stock purchase plan	16,020		—		(644		)	1,028			—			—			384
Balance, June 30, 2018	49,764,360		$	51	$	850,552		$	(176,038	)	$	(383,828	)	$	(517,318	)	$	(226,581	)

Triumph Group, Inc.
Condensed Consolidated Statements of Cash Flows

(dollars in thousands)

(unaudited)


	Six Months Ended September 30,						Three Months Ended June 30,
	2018			2017			2019			2018

Operating Activities
Net loss	$	(91,210	)	$	(7,309	)
Net income (loss)							$	18,088		$	(76,534	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	76,945			79,999			44,050			38,812
Amortization of acquired contract liabilities	(34,038		)	(57,371		)	(16,939		)	(17,234		)
Loss on divestitures	17,837			20,371			3,136			4,719
Other amortization included in interest expense	4,852			7,819			1,958			1,887
Provision for (recovery of) doubtful accounts receivable	212			(568		)	671			(14		)
Benefit for deferred income taxes	—			(422		)	3,307			—
Employee stock-based compensation	5,728			3,418			2,426			2,462
Changes in assets and liabilities, excluding the effects of acquisitions and dispositions of businesses:
Trade and other receivables	(4,722		)	(40,434		)	41,247			27,598
Contract assets	6,129			20,756			2,767			(23,221		)
Inventories	(49,981		)	(29,269		)	(56,623		)	(30,833		)
Prepaid expenses and other current assets	5,918			2,925			12,721			3,898
Accounts payable, accrued expenses and contract liabilities	(101,460		)	(246,118		)	(35,426		)	23,341
Accrued pension and other postretirement benefits	(37,021		)	(46,049		)	(15,792		)	(18,691		)
Other	3,632			(6,813		)	(573		)	(1,904		)
Net cash used in operating activities	(197,179		)	(299,065		)
Net cash provided by (used in) operating activities							5,018			(65,714		)
Investing Activities
Capital expenditures	(24,254		)	(22,775		)	(8,090		)	(12,200		)
Proceeds from sale of assets	41,037			67,882
Net cash provided by investing activities	16,783			45,107
(Payments on) proceeds from sale of assets							(2,570		)	664
Net cash used in investing activities							(10,660		)	(11,536		)
Financing Activities
Net increase in revolving credit facility	219,773			87,393
Proceeds from issuance of long-term debt and capital leases	24,700			510,800
Repayment of debt and capital lease obligations	(58,823		)	(357,046		)
Net (decrease) increase in revolving credit facility							(30,000		)	113,186
Proceeds from issuance of long-term debt and finance leases							5,600			19,046
Repayment of debt and finance lease obligations							(30,572		)	(53,762		)
Payment of deferred financing costs	(1,922		)	(17,120		)	(104		)	(64		)
Dividends paid	(3,981		)	(3,970		)	(1,998		)	(1,988		)
Repurchase of restricted shares for minimum tax obligation	(548		)	(334		)	(1,043		)	(532		)
Net cash provided by financing activities	179,199			219,723
Net cash (used in) provided by financing activities							(58,117		)	75,886
Effect of exchange rate changes on cash	(1,395		)	(1,729		)	(121		)	(1,400		)
Net change in cash	(2,592		)	(35,964		)	(63,880		)	(2,764		)
Cash and cash equivalents at beginning of period	35,819			69,633			92,807			35,819
Cash and cash equivalents at end of period	$	33,227		$	33,669		$	28,927		$	33,055

SEE ACCOMPANYING NOTES.

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

1. BASIS OF PRESENTATION AND ORGANIZATION

The accompanying unaudited condensed consolidated financial statements of Triumph Group, Inc. (the "Company") have been prepared in conformity with accounting principles generally accepted in the United States ("U.S. GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, the interim financial information includes all adjustments of a normal recurring nature necessary for a fair presentation of the results of operations, financial position and cash flows. The results of operations for the three ~~and six~~ months ended ~~September~~June 30, ~~2018~~2019, are not necessarily indicative of results that may be expected for the year ending March 31, ~~2019.~~2020. The accompanying condensed consolidated financial statements are unaudited and should be read in conjunction with the fiscal ~~2018~~2019 audited consolidated financial statements and notes thereto included in the Company's Form 10-K for the year ended March 31, ~~2018,~~2019, filed with the Securities and Exchange Commission (the "SEC") on May ~~22, 2018.~~23, 2019.

The Company designs, engineers, manufactures, repairs and overhauls a broad portfolio of aerostructures, aircraft components, accessories, subassemblies, and systems. The Company serves a broad, worldwide spectrum of the aviation industry, including original equipment manufacturers of commercial, regional, business, and military aircraft and aircraft components, as well as commercial and regional airlines and air cargo carriers.

~~The~~ Triumph and its subsidiaries are organized based on the products and services that they provide. Under this organizational structure, the Company has ~~reclassified certain prior period amounts~~three reportable segments: Integrated Systems, Aerospace Structures, and Product Support.

Integrated Systems 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.

Aerospace Structures consists of the Company’s operations that supply commercial, business, regional and military manufacturers with large metallic and composite structures and aircraft interior systems, including air ducting and thermal acoustic insulations systems. Products include wings; wing boxes; fuselage panels; horizontal and vertical tails; subassemblies such as floor grids; and aircraft interior systems, including air ducting and thermal acoustic insulations systems. Aerospace Structures also has the capability to engineer detailed structural designs in ~~order~~metal and composites. Capabilities include advanced composite and interior structures, joining processes such as welding, autoclave bonding and conventional mechanical fasteners and a variety of special processes, including: super plastic titanium forming, aluminum and titanium chemical milling, surface treatments, and integrated testing and certification services.

Product Support consists of the Company’s operations that provide full life cycle solutions for commercial, regional and military aircraft. The Company’s extensive product and service offerings include full post-delivery value chain services that simplify the MRO supply chain. Through its ground support equipment maintenance, component MRO and post-production supply chain activities, Product Support is positioned to ~~conform~~provide integrated planeside repair solutions globally. Capabilities include metallic and composite aircraft structures; nacelles; thrust reversers; interiors; auxiliary power units; and a wide variety of pneumatic, hydraulic, fuel and mechanical accessories.

Repair services generally involve the replacement and/or remanufacturing of parts, which is similar to the ~~current period presentation.~~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.

Standards Recently Implemented

~~Adoption of ASU 2014-09~~

In ~~May 2014,~~February 2016, the Financial Accounting Standards Board ~~(the “FASB”~~("FASB") issued Accounting Standards Update ~~(“ASU”~~("ASU") ~~No. 2014-09,~~ ~~Revenue from Contracts~~2016-02, Leases (Topic 842). This ASU requires lessees to recognize most leases on their balance sheets as lease liabilities with ~~Customers~~ ~~(“ASU 2014-09”~~corresponding right-of-use ("ROU") that supersedes Accounting Standards Codification ("ASC") Topic 605 (“legacy GAAP”). Subsequently, the FASB issued several updates to ASU 2014-09, which are pending content or otherwise codified in ASC Topic 606 (“ASC 606”). ASU 2014-09 includes new guidance on costs related to a contract, which is codified in ASC Subtopic 340-40 (“ASC 340-40”).assets. The Company adopted ~~ASC 606~~the standard as of April 1, 2019, using the modified retrospective ~~method (“method”) effective as of April 1, 2018 (“date of initial application”). Under this method,~~approach and applying the ~~cumulative effect of~~standard’s transition provisions at the adoption ~~of ASC 606 is recognized as an adjustment to retained earnings~~date. Reporting periods beginning on the date of initial application (“Transition Adjustment”), and the comparative financial statements for prior periods are not adjusted and continue to be reported under legacy GAAP. The Transition Adjustment was a decrease to retained earnings of $584,900. Financial information for fiscal years 2019 and 2018 is presented under ASC 606 and under legacy GAAP, respectively. The tables below reflect adjusted fiscal year 2019 financial statement amounts as if the Company had been reporting under legacy GAAP for items that are materially different.

The adoption of ASC 606 does not impact the Company's cash flows or the underlying economics of the Company's contracts with customers. However, the pattern and timing of revenue and profit recognition, as well as financial statement presentation and disclosures, has changed.

~~The significant changes and the qualitative and quantitative impact of the adoption of ASC 606 are noted below:~~

a.~~Revenue from Contracts with Customers~~

Generally, the Company no longer uses the units-of-delivery method, and the historical use of contract blocks to define contracts for accounting purposes has been replaced by accounting contracts as identified under ASC 606. The Company's accounting contracts under ASC 606 are for the specific number of units for which orders have been received, which is typically for fewer units than what was used to define contract blocks under legacy GAAP. In most of the Company's contracts, the customer has options or requirements to purchase additional products and services that do not represent material rights since the options are at their standalone pricing.

The primary effect of the Company’s adoption of ASC 606 (outside of the Aerospace Structures segment) was to recognize revenue over time for certain of its contracts, which is a change from recognition based on shipping terms under the legacy GAAP accounting policy.

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

b.~~Capitalized Preproduction Costs~~

Under legacy GAAP, certain capitalized preproduction costs were deferred over the life of the contract block; in certain situations this is not permitted under ASC 606. Accordingly, capitalized preproduction costs of $865,843 (pre-tax), net of previously recognized forward loss reserves of $343,983 (pre-tax), were eliminated, resulting in a decrease to retained earnings as ofor after April 1, ~~2018.~~

c.~~Contract Assets and Contract Liabilities~~

~~Contract assets primarily represent revenues recognized for performance obligations that have been satisfied but for which amounts~~2019, are presented in accordance with Accounting Standards Codification ("ASC") 842, Leases. Prior periods have not been ~~billed. Contract assets in the amount of $565,414 were established in the Transition Adjustment.~~

~~Contract liabilities primarily represent cash received that is in excess of revenues recognized~~adjusted and is contingent upon the satisfaction of performance obligations. Contract liabilities in the amount of $288,287 were established in the Transition Adjustment, which reflects consideration received prior to the date of initial application that previously represented customer advances and additional forward losses due to change in block sizes. This liability will be recognized as revenue earlier if the options are not fully exercised, or immediately if the contract is terminated prior to the options being fully exercised.

d.~~Contract Costs~~

The Company’s accounting for preproduction, tooling and certain other costs has not changed since these costs generally do not fall within the scope of ASC 340-40, however certain related assets have been reclassified from inventory to property and equipment as they are costs to fulfill obligations beyond 1 year. Incurred production costs for anticipated contracts (satisfaction of performance obligations, which have commenced because the Company expects the customer to exercise options) continue to be ~~classified as inventory.~~

e.~~Practical Expedients~~

~~The Company has adopted ASC 606 only for contracts that were not substantially completed~~reported in accordance with previous accounting standards. We elected the package of practical expedients permitted under ~~legacy GAAP on~~ the ~~date of initial application. For these contracts,~~transition guidance, which among other things, allows us to carryforward the Company has reflected the aggregate effect of all modifications executed prior to the date of initial application when identifying satisfied and unsatisfied performance obligations, for determining the transaction price and for allocating the transaction price.

~~The following tables summarize the impacts of adopting ASC 606 on the Company’s consolidated financial statements for the three and six months ended September 30, 2018.~~

~~Triumph Group, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(dollars in thousands, except per share data)~~

~~(unaudited)~~

For the Three Months Ended
As Reported September 30, 2018 Impact of Adoption of ASC Topic 606 As Adjusted September 30, 2018
Net sales $ 855,108
$ (59,467 ) $ 795,641
Cost of sales (exclusive of depreciation and amortization) 724,474
62,136
786,610
Selling, general and administrative 69,551
1,900
71,451
Interest expense and other 28,714
(1,756 ) 26,958
Net loss * (14,676 ) (121,747 ) (136,423 )

Loss per share
Basic $ (0.30 ) $ (2.45 ) $ (2.75 )
Diluted $ (0.30 ) $ (2.45 ) $ (2.75 )

For the Six Months Ended
As Reported September 30, 2018 Impact of Adoption of ASC Topic 606 As Adjusted September 30, 2018
Net sales $ 1,688,008
$ (115,704 ) $ 1,572,304
Cost of sales (exclusive of depreciation and amortization) 1,494,688
88,989
1,583,677
Selling, general and administrative 151,208
3,253
154,461
Interest expense and other 54,206
(4,044 ) 50,162
Net loss * (91,210 ) (203,902 ) (295,112 )

Loss per share
Basic $ (1.84 ) $ (4.11 ) $ (5.95 )
Diluted $ (1.84 ) $ (4.11 ) $ (5.95 )

* The Company did not have a net tax effect on the Transition Adjustment due to having a full valuation allowance position.

As Reported September 30, 2018 Impact of Adoption of ASC Topic 606 As Adjusted September 30, 2018
Assets
Trade and other receivables $ 377,138
$ (50,604 ) $ 326,534
Contract assets, short term 569,934
(560,006 ) 9,928
Inventories, net 533,583
741,797
1,275,380
Property and equipment, net 714,022
(34,601 ) 679,421
Total assets 3,375,383
96,586
3,471,969
Liabilities
Contract liabilities 354,963
(291,840 ) 63,123
Other noncurrent liabilities 374,931
7,424
382,355
Stockholders' (deficit) equity
Accumulated other comprehensive loss (382,225 ) 6
(382,219 )
Accumulated (deficit) retained earnings (533,968 ) 380,996
(152,972 )
Total liabilities and stockholders' (deficit) equity 3,375,383
96,586
3,471,969

~~Triumph Group, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(dollars in thousands, except per share data)~~

~~(unaudited)~~

historical lease classification.

Adoption of ~~ASU 2017-07~~

~~In March 2017,~~ the ~~FASB issued ASU 2017-07,~~ ~~Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost~~ ~~("ASU 2017-07"). ASU 2017-07 requires an employer to report the service cost component of net periodic pension benefit cost~~new standard resulted in the ~~same line item or items as other compensation costs arising from services rendered by~~recognition of operating lease ROU assets and lease liabilities of $76,444 and $84,663, respectively, with the ~~pertinent employees during the period, with other cost components presented separately from the service cost component~~difference due to prepaid and outside of income from operations. ASU 2017-07 also allows only the service cost component of net periodic pension benefit cost to be eligible for capitalization when applicable. ASU 2017-07 was effective for years beginning after December 15, 2017. The Company adopted this standard on April 1, 2018, applying the presentation requirements retrospectively. We elected to apply the practical expedient, which allows us to reclassify amounts disclosed previously in the employee benefit plans note as the basis for applying retrospective presentation for comparative periods as it is impracticable to determine the disaggregation of the cost components for amounts capitalized and amortized in those periods. Provisions related to presentation of the service cost component eligibility for capitalizationdeferred rent that were ~~applied prospectively.~~

~~The effect of the retrospective presentation change related~~reclassified to the ~~net periodic benefit cost~~ROU asset value. An adjustment to opening retained earnings of ~~our defined benefit pension and postretirement plans on our condensed consolidated statements of operations~~$225 was ~~as follows:~~

For the Three Months Ended

As Previously Reported
September 30, 2017
Impact of Adoption of ASU 2017-07 As Adjusted September 30, 2017
Cost of sales $ 579,864
$ 18,539
$ 598,403
Selling, general and administrative 74,581
861
75,442
Pension settlement charge 523
(523 ) —
Non-service defined benefit income —
(18,877 ) (18,877 )

For the Six Months Ended

As Previously Reported
September 30, 2017
Impact of Adoption of ASU 2017-07 As Adjusted September 30, 2017
Cost of sales $ 1,207,210
$ 37,000
$ 1,244,210
Selling, general and administrative 153,883
1,806
155,689
Pension settlement charge 523
(523 ) —
Non-service defined benefit income —
(38,283 ) (38,283 )

During the first quarter of the fiscal year ended March 31, 2019, the Company recorded a non-cash charge related to the adoption of ASU 2017-07 of $87,241 due to an inseparable change in estimate from a change in accounting principles. This charge is presented on the accompanying condensed consolidated statements of operations within "Cost of sales."

~~Adoption of ASU 2017-12~~

~~In August 2017, the FASB issued ASU 2017-12,~~ ~~Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities~~ (“ASU 2017-12”), which expands component and fair value hedging, specifies the presentation of the effects of hedging instruments, and eliminates the separate measurement and presentation of hedge ineffectiveness. ASU 2017-12 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted.also recognized. The ~~Company adopted ASU 2017-12 as of April 1, 2018. The adoption of ASU 2017-12~~standard did not ~~have a material impact on the Company’s condensed~~materially affect our consolidated ~~financial statements.~~net income or cash flows. See Note 5 for further details.

~~Standards Issued Not Yet Implemented~~

In February 2018, the FASB issued ASU 2018-02, Income ~~Statement — Reporting~~Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income(“. This ASU ~~2018-02”). The guidance in ASU 2018-02 allows an entity to elect~~permits a company to reclassify the ~~stranded~~income tax effects ~~related to~~of the 2017 Tax Cuts and Jobs Act (“U.S. tax reform”) on items within AOCI to retained earnings. We adopted the provisions of ~~2017 (the “Act”)~~this ASU in the first quarter of 2018 and elected not to reclassify the income tax effects of U.S. tax reform from items in accumulated other comprehensive ~~income into retained earnings.~~income.

Standards Issued Not Yet Implemented

In June 2016, the FASB issued ASU ~~2018-02~~2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU modifies the measurement of expected credit losses of certain financial instruments. ASU 2016-13 is effective for ~~fiscal years~~

~~Triumph Group, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(dollars in thousands, except per share data)~~

~~(unaudited)~~

annual periods beginning after December 15, 2019, and interim periods within those annual periods. The amendments in this ASU should be applied on a modified retrospective basis to all periods presented. We are currently evaluating the effect that ASU 2016-13 will have on our consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. This ASU modifies the disclosure requirements for fair value measurements by removing, modifying or adding certain disclosures. ASU 2018-13 is effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods, with early adoption permitted. The ~~Company does not expect~~amendments on changes in unrealized gains and losses, the ~~adoption~~range and weighted average of ~~this standard~~significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. We are currently evaluating the effect that ASU 2018-13 will have ~~a material effect~~ on ~~the Company’s condensed~~our consolidated financial ~~statements.~~statements and related disclosures.

In ~~February 2016,~~August 2018, the FASB issued ASU ~~2016-02,~~ ~~Leases~~ ("2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Topic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans, which modifies the disclosure requirements for defined benefit pension plans and other postretirement plans. ASU 2016-02"). The guidance in ASU 2016-02 aims to increase transparency and comparability across organizations by requiring lease assets and lease liabilities to be recognized on the balance sheet as well as key information to be disclosed regarding lease arrangements. The amendments in ASU 2016-02 are2018-14 is effective for annual ~~reporting~~ periods beginning after December 15, ~~2018. Early~~2020, with early adoption is permitted. ~~Lessees must apply~~The amendments in this ASU should be applied on a ~~modified~~ retrospective ~~transition approach for leases existing at, or entered into after,~~basis to all periods presented. We are currently evaluating the ~~beginning of the earliest comparative period presented in the~~effect that ASU 2018-14 will have on our consolidated financial ~~statements.~~ statements and related disclosures.

In ~~July~~August 2018, the FASB issued ASU ~~2018-11,~~ ~~Leases: Targeted Improvements~~2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ~~Among other things,~~This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). ASU 2018-15 is effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods, with early adoption permitted. The amendments in this ASU ~~provides entities with a transition option~~should be applied either retrospectively or prospectively to ~~recognize~~all implementation costs incurred after the ~~cumulative-effect adjustment from~~date of adoption. We are currently evaluating the ~~modified retrospective application to the opening balance of retained earnings in the period of adoption rather than the earliest period presented in the~~effect that ASU 2018-15 will have on our consolidated financial statements. We currently expect to adopt ASU 2016-02, as updated, effective April 1, 2019. The Company has not yet selected a transition method. The adoption of this new accounting standard will result in an increase in the recognition of right-of-use assetsstatements and lease liabilities. However, the Company is continuing to evaluate the impact of adopting this new accounting guidance and, therefore, cannot reasonably estimate the impact on the results of operations or cash flows at this time.

related disclosures.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

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

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

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 ~~makes estimates~~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 ~~cost~~program’s life. Purchase orders (or authorizations to proceed) are issued pursuant to the master supply agreements. Additionally, a majority of ~~satisfying~~ the Company’s agreements with customers include options for future purchases. Such options primarily reduce the administrative effort of issuing subsequent purchase orders and do not represent material rights granted to customers. The Company generally enters into agreements directly with its customers and is the principal in all current contracts.

The identification of a contract with a customer for purposes of accounting and financial reporting requires an evaluation of the terms and conditions of agreements to determine whether presently enforceable rights and obligations exist. Management considers a number of factors when making this evaluation that include, but are not limited to, the nature and substance of the business exchange, the specific contractual terms and conditions, the promised products and services, the termination provisions in the contract, as well as the nature and execution of the customer’s ordering process and how the Company is authorized to perform work. Generally, presently enforceable rights and obligations are not created until a purchase order is issued by a customer for a specified number of units of product or services. Therefore, the issuance of a purchase order is generally the point at which a contract is identified for accounting and financial reporting purposes.

Management identifies the promises to the customer. Promises are generally explicitly stated in each contract, but management also evaluates whether any promises are implied based on the terms of the agreement, past business practice, or other facts and circumstances. Each promise is evaluated to determine if it is a performance obligation. A performance obligation is a promise in a contract to transfer a distinct good or service. The Company considers a number of factors when determining whether a promise is contractual 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 ~~in its contracts that may extend over many years. Cost estimates reflect currently available information~~consist of a wide range of engineering design services and ~~the impact of any changes to cost estimates, based upon the facts~~manufactured components, as well as spare parts and ~~circumstances, are recorded in the period in which they become known.~~repairs for original equipment manufacturers (OEMs).

The transaction price for a contract reflects the consideration the Company expects to receive for fully satisfying the performance obligations in the contract. ~~The Company’s contracts with customers are typically for products and services to be provided at~~Typically, the transaction price consists solely of fixed ~~stated prices~~consideration but may ~~also~~ include variable ~~consideration. Variable~~ consideration ~~may include, but is not limited to,~~for contractual provisions such as unpriced contract ~~modifications; cost sharing provisions; incentives~~modifications, cost-sharing provisions, and ~~awards; non-warranty claims and assertions; provisions for non-conformance and rights to return;~~other receipts or ~~other~~ payments to ~~or receipts from,~~ customers. The Company identifies and estimates ~~the~~ variable consideration, ~~using the expected value or~~typically at the most likely amount ~~based upon~~ the ~~facts~~Company expects to receive from its customers. Variable consideration is only included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized for the contract will not occur, or when the uncertainty associated with the variable consideration is resolved. The Company's contracts with customers generally require payment under normal commercial terms after delivery with payment typically required within 30 to 120 days of delivery. However, a subset of the Company’s current contracts includes significant financing components because the timing of the transfer of the underlying products and ~~circumstances, available data and trends, and~~services under contract are at the ~~history~~customers’ discretion. For these contracts, the Company adjusts the transaction price to reflect the effects of ~~resolving variability with specific customers.~~the time value of money.

The Company ~~regularly commences work~~generally is not subject to collecting sales tax and ~~incorporates customer-directed changes prior~~has made an accounting policy election to ~~negotiating pricing terms for engineering work, product modifications,~~exclude from the transaction price any sales and other ~~statements~~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 ~~work. The Company's contractual terms typically provide for price negotiations after certain customer-directed changes have been accepted by~~ the Company. Prices are estimated and related costs are deferred until they are contractually agreed upon with the customer. When a contract is modified, the Company evaluates whether additional distinct products and services have been promised and whether allocation of consideration is necessary. If not, the modification is treated as a change to theidentified performance obligations ~~within~~using the ~~existing contract, or otherwise accounted for as a new contract prospectively.~~

~~The Company allocates the consideration for a contract to the performance obligations on the basis of their~~ relative ~~standalone~~stand-alone selling price. The ~~Company estimates the likelihood~~objective of the ~~amount of options~~allocation is to reflect the consideration that the ~~customer is going~~Company expects to ~~exercise when assessing the existence of performance obligations with respect to this allocation or~~receive in exchange for assessing the impact of loss contracts. The Company typically provides warranties on all of the Company's products and services. Warranties are typically not priced separately and customers cannot purchase them independently of the products or services ~~under contract; therefore, warranties do not create~~associated with each performance ~~obligations. Triumph's warranties generally provide assurance to~~obligation. Stand-alone selling price is the ~~Company's customers that the products or services meet the specifications in the contract. In the event that there is a warranty claim because of a covered material or workmanship issue,~~price at which the Company ~~may be required~~would sell a promised good or service separately to ~~pay~~a customer. Stand-alone selling prices are established at contract inception, and subsequent changes in transaction price are allocated on the ~~customer~~same basis as at contract inception. When stand-alone selling prices for ~~repairs~~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 ~~perform the repair. Provisions for estimated expenses related to service and product warranties and certain extraordinary rework are made at the time products are sold. These~~estimate stand-alone selling price. Expected costs are ~~accrued at~~typically derived from the ~~time of the sale and are recorded as cost of sales. These estimates are established using historical information on the nature, frequency, and the cost experience of warranty~~available periodic forecast information.

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

~~claims. In the case~~Revenue is recognized when or as control of ~~new development~~promised products or ~~new customers,~~services transfers to a customer and is recognized at the amount allocated to each performance obligation associated with the transferred products or services. Service sales, principally representing repair, maintenance, and engineering activities are recognized over the contractual period or as services are rendered. Sales under long-term contracts with performance obligations satisfied over time are recognized using either an input or output method. The Company recognizes revenue over time as it performs on these contracts because of the continuous transfer of control to the customer as represented by contractual terms that entitle the Company ~~also considers other factors such as~~to the ~~type and nature~~reimbursement of costs plus a reasonable profit for work performed to manufacture products for which the Company has no alternate use or for work performed on a customer-owned asset.

With control transferring over time, revenue is recognized based on the extent of progress toward completion of the ~~new product~~performance obligation. The Company generally uses the cost-to-cost input method of progress for our contracts because it best depicts the transfer of control to the customer that occurs as work progresses. Under the cost-to-cost method, the extent of progress toward completion is measured based on the proportion of costs incurred to date to the total estimated costs at completion of the performance obligation. The Company reviews its cost estimates on significant contracts on a periodic basis, or ~~new customer, among others;~~when circumstances change and warrant a modification to a previous estimate. Cost estimates are largely based on negotiated or estimated purchase contract terms, historical performance trends and other economic projections. Significant factors that influence these ~~considerations involve~~estimates include inflationary trends, technical and schedule risk, internal and subcontractor performance trends, business volume assumptions, asset utilization, and anticipated labor agreements.

Revenue and cost estimates are regularly monitored and revised based on changes in circumstances. Impacts from changes in estimates of net sales and cost of sales are recognized on a cumulative catch-up basis, which recognizes in the ~~use~~current period the cumulative effect of ~~management judgment. Actual results could differ from those estimates~~the changes on current and ~~assumptions.~~prior periods based on a performance obligation’s percentage of completion. Forward loss reserves for anticipated losses on long-term contracts are recorded in full when such losses become evident, to the extent required, and are included in contract liabilities on the accompanying consolidated balance sheets.

For the three months ended ~~September~~June 30, 2018, cumulative catch-up adjustments from changes in estimates, including changes in forward loss estimates, increased net sales, operating loss, net loss, and loss per share by approximately $3,459, $(10,191), $(10,191) and $(0.21), net of tax, respectively. For the three months ended September 30, 2017, cumulative catch-up adjustments from changes in estimates decreased operating loss, net loss and loss per share by approximately $8,416, $6,733 and $0.14, net of tax, respectively.

~~For the six months ended September 30, 2018,~~2019, cumulative catch-up adjustments from changes in estimates, including changes in forward loss estimates, decreased net sales, operating income, net income, and ~~increased~~earnings per share by approximately $(1,149), $(4,967), $(3,924) and $(0.08), net of tax, respectively. For the three months ended June 30, 2018, cumulative catch-up adjustments from changes in estimates decreased net sales, operating loss, net loss and loss per share by approximately ~~$(3,292)~~$(6,423), ~~$(12,968)~~$(3,626), ~~$(12,968)~~$(3,626) and ~~$(0.26)~~$(0.07), net of tax, respectively. ~~In addition,~~These cumulative catch-up adjustments do not include a non-cash charge the Company recorded as a ~~non-cash charge related to~~result of the adoption of ASU 2017-07 of $87,241 due to a change in estimate from a change in accounting principles, which is presented on the accompanying ~~condensed~~ consolidated statements of operations within ~~"Cost~~cost of sales.~~" For the six months ended September 30, 2017, cumulative catch-up adjustments from changes in estimates~~ ~~decreased~~ ~~operating loss, net loss and loss per share by approximately~~ ~~$7,916~~, ~~$6,333~~ ~~and~~ ~~$0.13, net of tax, respectively.~~

~~Revenue Recognition~~

A significant majority of the Company’s revenues are from long-term supply agreements with various aerospace manufacturers. The Company participates in its customers’ programs by providing design, development, manufacturing, and support services across its various segments. During the early stages of a program, this frequently involves non-recurring design and development services, including tooling. As the program matures, the Company provides recurring manufacturing of products in accordance with customer design and schedule requirements. Many contracts include clauses that provide sole supplier status to the Company for the duration of the program’s life. The Company's long-term supply agreements typically include fixed price volume-based terms and require the satisfaction of performance obligations for the duration of the program’s life.

The identification of an accounting contract with a customer and the related promises requires an assessment of each party’s rights and obligations regarding the products or services to be transferred, including an evaluation of termination clauses and presently enforceable rights and obligations. In general, these long-term supply agreements are legally governed by Master Supply Agreements (or General Terms & Agreement) under which special business provisions (or work package agreements) define specific program requirements. Purchase orders (or authorizations to proceed) are issued under these agreements to reflect presently enforceable rights and obligations for the units of products and services being purchased. The units for accounting purposes (“accounting contract”) are typically determined by the purchase orders. Customers generally contract with the Company for requirements in a segment relating to a specific program, and the Company’s performance obligations consist of a wide range of engineering design services and manufactured components, as well as spare parts and repairs for OEMs. A single program may result in multiple contracts for accounting purposes, and within the respective contracts, non-recurring work elements and recurring work elements may result in multiple performance obligations. The Company generally contracts directly with its customers and is the principal in all current contracts.

Management considers a number of factors when determining the existence of a contract and the related performance obligations that include, but are not limited to: the nature and substance of the business exchange; the contractual terms and conditions; the promised products and services; the termination provisions in the contract; the presently enforceable rights and obligations of the parties to the contract; the nature and execution of the customer’s ordering process and how the Company is authorized to perform work; whether the promised products and services are capable of being distinct and are distinct within the context of the contract; as well as how and when products and services are transferred to the customer.

Revenue is recognized when, or as, control of promised products or services transfers to a customer and is recognized in an amount that reflects the consideration that the Company expects to receive in exchange for those products or services. Revenue is recognized over time as work progresses when the Company is entitled to the reimbursement of costs plus a reasonable profit for work performed for which the Company has no alternate use or when performing work on a customer-owned asset. For these performance obligations that are satisfied over time, the Company generally recognizes revenue using an input method with revenue amounts being recognized proportionately as costs are incurred relative to the total expected costs to satisfy the performance obligation. The Company believes that costs incurred as a portion of total estimated costs is an appropriate

~~Triumph Group, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(dollars in thousands, except per share data)~~

~~(unaudited)~~

~~measure of progress toward satisfaction of the performance obligation since this measure reasonably depicts the progress of the work effort.~~

Revenues for performance obligations that are not recognized over time are recognized at the point in time when control transfers to the ~~customer (which is generally based on shipping terms).~~customer. For performance obligations that are satisfied at a point in time, the Company evaluates the point in time when the customer can direct the use of and obtain the benefits from the products and services. Generally, the shipping terms determine the point in time when control transfers to customers. Shipping and handling ~~costs~~activities are not considered performance obligations and related costs are included in cost of sales as incurred.

~~The transaction price for a contract reflects the consideration the Company expects to receive for fully satisfying the performance obligations~~Differences in ~~the contract. A subset of the Company’s current contracts include significant financing components because~~ the timing of revenue recognition and contractual billing and payment terms result in the ~~transfer~~recognition contract assets and liabilities. Refer to Note 4 for further discussion.

The portion of the ~~underlying products and services under contract are at the customers’ discretion. The~~ Company's revenue resulting from transactions other than contracts with customers ~~generally require payment under normal commercial terms after delivery. Payment terms are typically within 30~~pertains to 120 days of delivery. The total transaction price is allocated to each of the identified performance obligations using the relative standalone selling price to reflect the amount the Company expects to be entitled for transferring the promised products and services to the customer. A majority of the Company’s agreements with customers include options for future purchases. As allowed by ASC 606, for all of its contracts the Company has elected to exclude sales and other similar taxes from the transaction price since the Company generally is not subject to collecting sales tax. As a result, the Company's collections from customers for these taxes are on a net basis.

Standalone selling price is the price at which the Company would sell a promised good or service separately to a customer. Standalone selling prices are established at contract inception, and subsequent changes in transaction price are allocated on the same basis as at contract inception. When standalone selling prices for the Company’s products and services are generally not observable, the Company uses either the “Expected Cost plus a Margin” or "Adjusted Market Assessment" approaches to determine standalone selling price. Expected costs are typically derived from the available periodic forecast information. If a contract modification changes the overall transaction price of an existing contract, the Company allocates the new transaction price on the basis of the relative standalone selling prices of the performance obligations, and cumulative adjustments, if any, are recorded in the current period.

The Company also identifies and estimates variable consideration for contractual provisions such as unpriced contract modifications, cost sharing provisions, and other receipts or payments to customers. The timing of satisfaction of performance obligations and actual receipt of payment from a customer may differ and affects the balances of the contract assets and liabilities.

For contracts that are deemed to be loss contracts, the Company establishes forward loss reserves for total estimated costs that are in excess of total estimated consideration in the period in which they become known. The Company records forward loss reserves for all performance obligations in the aggregate for the accounting contract.

~~Included in net sales of Integrated Systems and Aerospace Structures is~~ the non-cash amortization of acquired contract liabilities that were recognized as fair value adjustments through purchase accounting from various acquisitions. For the three months ended September 30, 2018 and 2017, the Company recognized $16,804 and $27,898 of non-cash amortization, respectively, into net sales on the accompanying condensed consolidated statements of operations. For the six months ended September 30, 2018 and 2017, the Company recognized $34,038 and $57,371 of non-cash amortization, respectively, into net sales on the accompanying condensed consolidated statements of operations.

~~Disaggregation of Revenue~~Leases

The Company ~~disaggregates revenue based on~~leases office space, manufacturing facilities, land, vehicles, and equipment. The Company determines if an agreement is or contains a lease at the ~~method~~lease inception date and recognizes right-of-use assets and lease liabilities at the lease commencement date. A ROU asset and corresponding lease liability are not recorded for leases with an initial term of ~~measuring satisfaction~~12 months or less (short term leases).

ROU assets represent the Company's right to use an underlying asset during the lease term, and lease liabilities represent the Company's obligation to make lease payments arising from the lease. The determination of the ~~performance obligation either over time~~length of lease terms is affected by options to extend or ~~at a point in time. Additionally,~~terminate the lease when it is reasonably certain that the Company ~~disaggregates revenue based upon~~will exercise that option. The existence of significant economic incentive is the ~~end market where products~~primary consideration when assessing whether the Company is reasonably certain of exercising an option in a lease. Both finance and ~~services~~operating lease ROU assets and liabilities are ~~transferred to the customer. The Company’s principal operating segments and related revenue are noted in Note 13, Segments.~~recognized

119

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

at commencement date and measured as the present value of lease payments to be made over the lease term. As the interest rate implicit in the lease is not readily available for most of the Company's leases, the Company uses its estimated incremental borrowing rate in determining the present value of lease payments. The ~~following table shows disaggregated net sales satisfied overtime~~estimated incremental borrowing rate is derived from information available at the lease commencement date. The lease ROU asset recognized at commencement is adjusted for any lease payments related to initial direct costs, prepayments, and atlease incentives.

For operating leases, lease expense is recognized on a ~~point~~straight-line basis over the lease term. For finance leases, lease expense comprises the amortization of the ROU assets recognized on a straight-line basis generally over the shorter of the lease term or the estimated useful life of the underlying asset and interest on the lease liability. Variable lease payments not dependent on a rate or index are recognized when the event, activity, or circumstance in ~~time (excluding intercompany sales)~~the lease agreement upon which those payments are contingent is probable of occurring and are presented in the same line of the consolidated balance sheet as the rent expense arising from fixed payments. The Company has lease agreements with lease and non-lease components. Non-lease components are combined with the related lease components and accounted for ~~the three and six months ended September 30, 2018:~~

Integrated Systems Aerospace Structures Product Support Total
For the Three Months Ended September 30, 2018
Satisfied over time $ 72,188
$ 448,315
$ 64,807
$ 585,310
Satisfied at a point in time 177,626
70,059
5,309
252,994
               Revenue from contracts with customers 249,814
518,374
70,116
838,304
     Amortization of acquired contract liabilities 8,768
8,036
$ —
$ 16,804
               Total revenue $ 258,582
$ 526,410
$ 70,116
$ 855,108

For the Six Months Ended September 30, 2018
Satisfied over time $ 136,547
$ 901,594
$ 124,232
$ 1,162,373
Satisfied at a point in time 342,804
138,743
10,050
491,597
               Revenue from contracts with customers 479,351
1,040,337
134,282
1,653,970
     Amortization of acquired contract liabilities 17,617
16,421
—
34,038
               Total revenue $ 496,968
$ 1,056,758
$ 134,282
$ 1,688,008

~~The following table shows disaggregated net sales by end market (excluding intercompany sales)~~as lease components for ~~the three and six months ended September 30, 2018:~~

Integrated Systems Aerospace Structures Product Support Total
For the Three Months Ended September 30, 2018
Commercial aerospace $ 133,103
$ 244,636
$ 55,093
$ 432,832
Military 87,735
66,482
11,869
166,086
Business jets 15,297
191,866
399
207,562
Regional 7,339
10,132
2,755
20,226
Non-aviation 6,340
5,258
—
11,598
               Revenue from contracts with customers 249,814
518,374
70,116
838,304
     Amortization of acquired contract liabilities 8,768
8,036
—
16,804
               Total revenue $ 258,582
$ 526,410
$ 70,116
$ 855,108

For the Six Months Ended September 30, 2018
Commercial aerospace $ 253,680
$ 526,799
$ 104,563
$ 885,042
Military 170,427
124,404
21,254
316,085
Business jets 28,133
359,313
1,793
389,239
Regional 13,956
16,534
6,672
37,162
Non-aviation 13,155
13,287
—
26,442
               Revenue from contracts with customers 479,351
1,040,337
134,282
1,653,970
     Amortization of acquired contract liabilities 17,617
16,421
—
34,038
               Total revenue $ 496,968
$ 1,056,758
$ 134,282
$ 1,688,008

~~Table~~all classes of ~~Contents~~

~~Triumph Group, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(dollars in thousands, except per share data)~~

~~(unaudited)~~

underlying assets.

Concentration of Credit Risk

The Company’s trade 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 ~~15%~~14% and ~~10%~~18% of total trade accounts receivable as of ~~September~~June 30, ~~2018~~2019 and March 31, ~~2018~~,2019, respectively. Trade accounts receivable from Gulfstream Aerospace Corporation ("Gulfstream") represented approximately 7%12% and ~~16%~~11% of total trade accounts receivable as of ~~September~~June 30, ~~2018~~2019 and March 31, ~~2018,~~2019, respectively. Trade accounts receivable from Bombardier Inc. ("Bombardier") represented approximately ~~12%~~13% and 1%13% as of ~~September~~June 30, ~~2018~~2019 and March 31, ~~2018,~~2019, respectively. The Company had no other concentrations of credit risk of more than 10%.

Sales to Boeing for the ~~six~~three months ended ~~September~~June 30, ~~2018,~~2019, were ~~$527,896,~~$245,315, or ~~31%~~34% of net sales, of which ~~$110,971, $410,133,~~$55,785, $184,282, and ~~$6,792~~$5,248 were from the Integrated Systems, Aerospace Structures and Product Support, respectively. Sales to Boeing for the ~~six~~three months ended ~~September~~June 30, ~~2017~~,2018, were ~~$507,330,~~$274,296, or 33% of net sales, of which ~~$105,304, $397,817~~$51,593, $219,461 and ~~$4,209~~$3,242 were from the Integrated Systems, Aerospace Structures and Product Support, respectively.

Sales to Gulfstream for the ~~six~~three months ended ~~September~~June 30, ~~2018,~~2019, were ~~$174,805,~~$102,315, or ~~10%~~14% of net sales, of which ~~$1,065, $173,437,~~$626, $101,459, and ~~$303~~$230 were from the Integrated Systems, Aerospace Structures and Product Support, respectively. Sales to Gulfstream for the ~~six~~three months ended ~~September~~June 30, ~~2017,~~2018, were ~~$198,525,~~$90,771, or ~~13%~~11% of net sales, of which ~~$654, $197,674,~~$595, $90,128, and ~~$197~~$48 were from the Integrated Systems, Aerospace Structures and Product Support, respectively.

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

~~Stock-Based Compensation~~

The Company recognizes compensation expense for share-based awards based on the fair value of those awards at the date of grant. Stock-based compensation expense for the three months ended September 30, 2018 and 2017, was $3,266 and $3,459, respectively. Stock-based compensation expense for the six months ended September 30, 2018 and 2017, was $5,728 and $3,418, respectively. The Company has classified share-based compensation within selling, general and administrative expenses to correspond with the same line item as the majority of the cash compensation paid to employees. Upon the exercise of stock options or vesting of restricted stock, the Company first transfers treasury stock, then issues new shares.

Intangible Assets

The components of intangible assets, net, are as follows:


	September 30, 2018								June 30, 2019
	Weighted- Average Life	Gross Carrying Amount		Accumulated Amortization			Net		Weighted Average Life	Gross Carrying Amount		Accumulated Amortization			Net

Customer relationships	17.2	$	604,313	$	(258,214	)	$	346,099	17.7	$	550,584	$	(253,379	)	$	297,205
Product rights, technology and licenses	11.4	54,976		(42,927		)	12,049		11.4	54,758		(44,512		)	10,246
Non-compete agreements and other	16.3	2,756		(1,056		)	1,700		16.3	2,656		(1,082		)	1,574
Tradenames	10.0	150,000		(29,938		)	120,062		10.0	150,000		(40,531		)	109,469
Total intangibles, net		$	812,045	$	(332,135	)	$	479,910		$	757,998	$	(339,504	)	$	418,494

March 31, 2018

Weighted-
Average Life

Gross Carrying
Amount

Accumulated
Amortization
Net

Customer relationships 17.3 $ 606,148
$ (240,779 ) $ 365,369
Product rights, technology and licenses 11.4 55,253
(41,858 ) 13,395
Non-compete agreements and other 16.3 2,756
(965 ) 1,791
Tradenames 10.0 150,000
(22,874 ) 127,126
Total intangibles, net $ 814,157
$ (306,476 ) $ 507,681

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)



	March 31, 2019
	Weighted Average Life	Gross Carrying Amount		Accumulated Amortization			Net

Customer relationships	17.7	$	551,093	$	(245,626	)	$	305,467
Product rights, technology and licenses	11.4	54,850		(43,978		)	10,872
Non-compete agreements and other	16.7	2,656		(1,041		)	1,615
Tradenames	10.0	150,000		(37,000		)	113,000
Total intangibles, net		$	758,599	$	(327,645	)	$	430,954

Amortization expense for the three months ended ~~September~~June 30, 2019 and 2018, was $12,083 and ~~2017, was $13,203 and $14,550,~~$13,233, respectively. ~~Amortization expense for~~Significant changes in expected cash flows generated by long-lived assets could result in the ~~six months ended September~~recognition of impairment losses; no such changes or losses were identified as of June 30, ~~2018 and 2017, was $26,436 and $29,375, respectively.~~2019.

Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. When determining fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and also considers assumptions that market participants would use when pricing an asset or liability. The fair value hierarchy has three levels of inputs that may be used to measure fair value: Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities; Level 2—Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability; and Level 3—Unobservable inputs for the asset or liability. The Company has applied fair value measurements to its divestitures (see Note 3).

Warranty Reserves

A reserve has been established to provide for the estimated future cost of warranties on our delivered products. The Company periodically reviews the reserves and adjustments are made accordingly. A provision for warranty on products delivered is made on the basis of historical experience and identified warranty issues. Warranties cover such factors as non-conformance to specifications and defects in material and workmanship. The majority of the Company's agreements include a ~~three-year~~three-year warranty, although certain programs have warranties up to twenty years. The warranty reserves as of ~~September~~June 30, ~~2018~~2019 and March 31, ~~2018,~~2019, were ~~$65,158~~$61,035 and ~~$69,588,~~$58,395, respectively.

Supplemental Cash Flow Information

The Company made income tax payments, net of refunds of $1,280 during the three months ended June 30, 2019. The Company received income tax refunds, net of payments of ~~$7,120 and paid $5,133 for income taxes, net of refunds, for~~$7,715 during the ~~six~~three months ended ~~September~~June 30, ~~2018 and 2017, respectively.~~

~~The Company made interest payments of~~ ~~$38,587~~ ~~and~~ ~~$31,507~~ ~~for the~~ ~~six~~ ~~months ended~~ ~~September 30, 2018 and 2017, respectively.~~

~~During the six months ended September 30, 2018 and 2017, the Company financed $372 and $1,153, respectively, of property and equipment additions through capital leases.~~2018.

As of ~~September~~June 30, ~~2018,~~2019, the Company remains able to purchase an additional 2,277,789 shares under the existing stock repurchase program. However, there are certain restrictions placed on the repurchase program by the Company's lenders that prevent any repurchases at this time.

3. DIVESTED OPERATIONS AND ASSETS HELD FOR SALE

In ~~July 2018 and August 2018, respectively,~~March 2019, the Company sold all of the shares of Triumph Structures ~~- East Texas,~~– Kansas City, Inc. ~~as well as all~~; Triumph Structures – Wichita, Inc.; Triumph Gear Systems – Toronto; ULC; and Triumph Northwest (The Triumph Group Operations, Inc.) (together, "Machining"). Total cash proceeds net of transaction costs for the sale of Machining was approximately $43,000. A portion of the ~~shares~~proceeds associated with the sale of ~~Triumph Structures - Los Angeles, Inc., and Triumph Processing, Inc. (collectively,~~Machining included consideration in the ~~"fiscal 2019 divestitures") for combined cash proceeds~~form of ~~$40,000 and~~ a note receivable of ~~$7,000. The note receivable~~$10,000. Upon closing, the Company recognized a loss of approximately $116,000. An additional loss of approximately $3,000 was ~~collected subsequent to September~~recognized during the three months ended June 30, ~~2018. As~~2019, as a result of ~~these sales, the Company recognized losses of $17,202 which are~~working capital adjustments and is presented within loss on divestitures on the accompanying condensed consolidated statements of ~~operations within "Loss on divestitures." The operating results for the fiscal 2019 divestitures are included in Aerospace Structures through the date of divestiture.~~operations.

In March ~~2018,~~2019, the Company sold all of the shares of (i) Triumph ~~Structures~~Fabrications - ~~Long Island, LLC ("TS-LI") for cash proceeds of $9,500~~San Diego, Inc. and a note receivable of $1,400. The note receivable was collected subsequent to September 30, 2018. As a result of the sale of TS-LI, the Company recognized a loss of $10,370. The operating results of TS-LI were included in Aerospace Structures through the date of divestiture.

~~In September 2017, the Company sold all of the shares of~~ Triumph ~~Processing~~Fabrications - ~~Embee~~Ft. Worth, Inc. (together, "Fabrications"), and (ii) Triumph Aviation Services - NAAS Division, Inc. ("~~Embee"~~NAAS") ~~for total~~. Total cash ~~proceeds of $64,986. As a result of the sale of Embee, the Company recognized a loss of $17,857. The operating results of Embee were included in Integrated Systems through the date of divestiture.~~

1411

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

proceeds net of transaction costs for the sales of Fabrications and NAAS were approximately $133,000 and $18,000, respectively. As a result of the sales of Fabrications, the Company recognized a gain of approximately $54,000. The sale of NAAS resulted in an immaterial gain.

In ~~December 2016,~~February 2019, the Company transitioned responsibility for the Global 7500 wing program manufacturing operations of Aerospace Structures to Bombardier at which point Bombardier assumed the program’s assets and obligations. As a result of this transfer, the Company recognized a loss of approximately $169,000. The Company continues to provide transition services related to infrastructure support reducing in scope over the next several months, as well as a lease of the building in Red Oak, Texas, dedicated to the manufacturer of the Global 7500 wing to Bombardier.

In May 2018, the Company entered into a definitive agreement to divest ~~the assets and business of~~ Triumph ~~Air Repair, the Auxiliary Power Unit Overhaul Operations of Triumph Aviation Services~~Structures - ~~Asia, Ltd.~~Los Angeles, Inc. ("TS-LA") and Triumph ~~Engines - Tempe~~Processing, Inc. ("~~Engines and APU"~~TPI") for ~~total~~combined cash proceeds net of ~~$60,364. As~~transactions costs of approximately $37,000 and a ~~result,~~note receivable of $7,000. At that time, the Company ~~recognized~~recorded a loss ~~of $14,263~~ on the sale. The operating results of Engines and APU were included in Product Support through the date of divestiture. The transaction closed during the quarter ended June 30, 2017. An option to purchase the repair part line of Triumph Aviation Services - Asia, Ltd. was executed by the buyer of Engines and APU in May 2018 for total cash proceeds of $17,794. This transaction is expected to close during the second half of fiscal 2019 and is expected to result in a gain. The related assets and liabilities are shown as held for sale on the accompanying condensed consolidated balance sheets.

~~The divestitures of these entities does not represent a strategic shift and is not expected to have a major effect on the Company's operations or financial results, as defined by ASC 205-20,~~ ~~Discontinued Operations; as a result, the divestitures do not meet the criteria to be classified as discontinued operations.~~

To measure the amount of impairment related to the divestitures, the Company compared the fair values of assets and liabilities at the evaluation dates with the carrying amounts at the end of the month prior to the respective evaluation dates. The assets and liabilities of the above divestitures and assets held for sale ~~are categorized as Level 2 within~~of $4,719. The transaction closed in August 2018, and upon final sale the ~~fair value hierarchy.~~Company recorded an additional loss of $7,663, bringing the total loss on divestiture to $12,382. The ~~key assumption included the negotiated sales price of the assets and the assumptions of the liabilities (see Note 2 above for the definition of levels).~~note receivable was collected in October 2018.

4. ~~CONTRACT ASSETS~~REVENUE RECOGNITION AND ~~CONTRACT LIABILITIES~~CONTRACTS WITH CUSTOMERS

Disaggregation of Revenue

The Company disaggregates revenue based on the method of measuring satisfaction of the performance obligation either over time or at a point in time. Additionally, the Company disaggregates revenue based upon the end market where products and services are transferred to the customer. The Company’s principal operating segments and related revenue are discussed in Note 13, 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, 2019:



	Three Months Ended June 30, 2019
	Integrated Systems		Aerospace Structures		Product Support		Total
Satisfied over time	$	72,304	$	372,237	$	56,938	$	501,479
Satisfied at a point in time	170,628		36,412		4,773		211,813
Revenue from contracts with customers	242,932		408,649		61,711		713,292
Amortization of acquired contract liabilities	8,125		8,814		—		16,939
Total revenue	$	251,057	$	417,463	$	61,711	$	730,231

	Three Months Ended June 30, 2018
Satisfied over time	$	64,359	$	453,279	$	59,425	$	577,063
Satisfied at a point in time	165,178		68,684		4,741		238,603
Revenue from contracts with customers	229,537		521,963		64,166		815,666
Amortization of acquired contract liabilities	8,849		8,385		—		17,234
Total revenue	$	238,386	$	530,348	$	64,166	$	832,900

The following table shows disaggregated net sales by end market (excluding intercompany sales) for the three months ended June 30, 2019:

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)



	Three Months Ended June 30, 2019
	Integrated Systems		Aerospace Structures		Product Support		Total
Commercial aerospace	$	128,420	$	229,640	$	46,899	$	404,959
Military	84,065		27,600		11,292		122,957
Business jets	15,707		121,149		440		137,296
Regional	7,322		30,255		3,051		40,628
Non-aviation	7,418		5		29		7,452
Revenue from contracts with customers	242,932		408,649		61,711		713,292
Amortization of acquired contract liabilities	8,125		8,814		—		16,939
Total revenue	$	251,057	$	417,463	$	61,711	$	730,231

	Three Months Ended June 30, 2018
Commercial aerospace	$	120,576	$	282,164	$	49,468	$	452,208
Military	82,693		57,922		9,385		150,000
Business jets	12,836		167,447		1,395		181,678
Regional	6,617		6,402		3,918		16,937
Non-aviation	6,815		8,028		—		14,843
Revenue from contracts with customers	229,537		521,963		64,166		815,666
Amortization of acquired contract liabilities	8,849		8,385		—		17,234
Total revenue	$	238,386	$	530,348	$	64,166	$	832,900

Contract Assets and Liabilities

Contract assets primarily represent revenues recognized for performance obligations that have been satisfied or partially satisfied but for which amounts have not been billed. This typically occurs when revenue is recognized over time but the Company's contractual right to bill the customer and receive payment is conditional upon the satisfaction of additional performance obligations in the contract, such as final delivery of the product. Contract assets are recognized when the revenue associated with the contract is recognized prior to billing and derecognized when billed in accordance with the terms of the contract. The Company performs ongoing evaluations of the potential impairment of its contract assets based on prior experience and specific matters when they arise. No impairments to contract assets were recorded for the period ended ~~September~~June 30, ~~2018.~~2019.

Contract liabilities are ~~established~~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 ~~cash received that is~~changes in ~~excess of revenues recognized~~contract specifications and ~~are contingent upon~~requirements, we consider whether the ~~satisfaction of performance~~modification either creates new or changes the existing enforceable rights and obligations. Contract ~~liabilities primarily consist~~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 ~~cash received~~that existing contract. The effect of a contract modification to an existing contract on ~~contracts~~the transaction price and our measure of progress for ~~which revenue has been deferred since~~ the ~~Company has not fulfilled its~~performance obligation to which it relates, is recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative catch-up basis. When the ~~customer, along with provisions~~modifications include additional performance obligations that are distinct and at relative stand-alone selling price, they are accounted for ~~forward losses~~as a new contract and performance obligation, which are recognized prospectively.

Contract balances are classified as assets or liabilities on a contract-by-contract basis at the end of each reporting period. The following table summarizes our contract assets and liabilities balances:

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)



	June 30, 2019			March 31, 2019			Change
Contract assets	$	358,497		$	326,667		$	31,830
Contract liabilities	(450,837		)	(450,051		)	(786		)
Net contract liability	$	(92,340	)	$	(123,384	)	$	31,044

The Company recorded reductions to revenue due to changes in ~~block size and~~estimates associated with performance ~~obligations.~~

September 30, 2018 March 31, 2018 Change
Contract assets $ 569,934
$ 37,573
$ 532,361
Contract liabilities (354,963 ) (321,191 ) (33,772 )
Net contract asset $ 214,971
$ (283,618 ) $ 498,589

~~The increase in contract assets reflects the effect of the adoption of ASC 606 of approximately $565,000,~~obligations satisfied or partially ~~offset by revenue recognized during the period from performance obligations~~ satisfied in previous periods of ~~$3,292 and the net impact of additional unbilled revenues recorded in excess of revenue recognized during the period.~~$(1,149). The increase in contract liabilities reflects the ~~effect of the adoption of ASC 606 of approximately $288,000 and the net impact~~receipt of additional ~~deferred revenues recorded~~customer advances in excess of revenue recognized during the period. For the period ended ~~September~~June 30, ~~2018,~~2019, the Company recognized ~~$87,394~~$28,507 of revenue that was included in the contract liability balance at the beginning of the period. Noncurrent contract assets presented in other, net on the accompanying consolidated balance sheets as of June 30, 2019 and March 31, 2019, were $34,628 and $34,185, respectively. Noncurrent contract liabilities presented in other noncurrent liabilities on the accompanying consolidated balance sheets as of June 30, 2019 and March 31, 2019, were $140,852 and $156,332, respectively.

Performance Obligations

~~5. PERFORMANCE OBLIGATIONS~~Customers generally contract with the Company for requirements in a segment relating to a specific program, and the Company’s performance obligations consist of a wide range of engineering design services and manufactured components, as well as spare parts and repairs for OEMs. A single contract may contain multiple performance obligations consisting of both recurring and nonrecurring elements.

As of ~~September~~June 30, ~~2018,~~2019, the Company has the following unsatisfied, or partially unsatisfied, performance obligations that are expected to be recognized in the future as noted in the table below. The Company expects options to be exercised in addition to the amounts presented below.



	Total		Less than 1 year		1-3 years		4-5 years		More than 5 years
Unsatisfied performance obligations	$	4,275,887	$	2,134,556	$	1,379,910	$	309,508	$	451,913

Total Less than
1 year 1-3 years 4-5 years More than 5
years
Unsatisfied performance obligations $ 4,997,125
$ 2,563,022
$ 1,543,950
$ 328,552
$ 561,601

~~6. INVENTORIES~~5. LEASES

The components of lease expense for the three months ended June 30, 2019, are disclosed in the table below.



Lease cost	Financial Statement Classification	Three Months Ended June 30, 2019
Operating lease cost	Cost of sales or Selling, general and administrative expense	$	6,502
Variable lease cost	Cost of sales or Selling, general and administrative expense	1,842

Financing Lease Cost:
Amortization of right-of-use assets	Depreciation and amortization	1,349
Interest on lease liability	Interest expense and other	170
Total lease cost (1)		$	9,863

(1) Total lease cost does not include short-term leases or sublease income, both of which are immaterial.

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

Supplemental cash flow information for the three months ended June 30, 2019, is disclosed in the table below.



	Three Months Ended June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows used in operating leases	$	4,849
Operating cash flows used in finance leases	171
Financing cash flows used in finance leases	2,673

ROU assets obtained in exchange for lease liabilities
Operating leases	$	1,831
Finance leases	767

Supplemental balance sheet information related to leases as of June 30, 2019, is disclosed in the table below.



Leases	Classification	June 30, 2019
Assets
Operating lease ROU assets	Other, net	$	73,643

Finance lease ROU assets, cost	Property and equipment, net	54,216
Accumulated amortization	Property and equipment, net	(22,532		)
Finance lease ROU assets, net		31,684
Total lease assets		$	105,327

Liabilities
Current
Operating	Accrued expenses	$	15,718
Finance	Current portion of long-term debt	8,150
Non-current
Operating	Other noncurrent liabilities	67,895
Finance	Long-term debt, less current portion	21,238
Total lease liabilities		$	113,001

Information related to lease terms and discount rates as of June 30, 2019, is disclosed in the table below:



	June 30, 2019
Weighted average remaining lease term (years)
Operating leases	7.6
Finance leases	6.5

Weighted average discount rate
Operating leases	6.4	%
Finance leases	5.6	%

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

The maturity of the Company's lease liabilities as of June 30, 2019, is disclosed in the table below.



	Operating leases			Finance leases			Total
FY2020 (remaining of year)	$	16,206		$	7,196		$	23,402
FY2021	16,451			8,915			25,366
FY2022	14,978			5,911			20,889
FY2023	11,647			2,861			14,508
FY2024	9,023			2,110			11,133
Thereafter	38,100			11,263			49,363
Total lease payments	106,405			38,256			144,661
Less: Imputed interest	(22,792		)	(8,868		)	(31,660		)
Total lease liabilities	$	83,613		$	29,388		$	113,001

6. 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, 2019		March 31, 2019
Raw materials	$	38,868	$	35,883
Work-in-process, including manufactured and purchased components	320,147		277,996
Finished goods	53,643		42,399
Rotable assets	57,790		57,282
Total inventories	$	470,448	$	413,560

September 30, 2018 March 31, 2018
Raw materials $ 61,987
$ 69,069
Work-in-process, including manufactured and purchased components 351,748
1,591,952
Finished goods 63,716
95,234
Rotable assets 56,132
58,060
Less: unliquidated progress payments —
(387,146 )
Total inventories $ 533,583
$ 1,427,169

At March 31, 2018, work-in-process inventory previously included capitalized preproduction costs on newer development programs. Capitalized preproduction costs include non-recurring engineering, planning and design, including applicable overhead, incurred before production is manufactured on a regular basis. Significant customer-directed work changes can also cause preproduction costs to be incurred. These costs are typically recovered over a contractually determined number of ship set deliveries.

Following the adoption of ASU 2014-09, the capitalized preproduction costs and forward loss provisions associated with these programs were recognized in the transition adjustment. At March 31, 2018, the balance of development program inventory, composed principally of capitalized preproduction costs, excluding progress payments related to the Company's contracts with Bombardier for the Global 7500 program ("Bombardier") and Embraer for the second generation E-Jet program ("Embraer") was as follows:

7. LONG-TERM DEBT

March 31, 2018
Inventory Capitalized Preproduction Forward Loss Provision Total Inventory, net
Bombardier $ 321,780
$ 685,503
$ (343,000 ) $ 664,283
Embraer 38,125
180,340
(983 ) 217,482
Total $ 359,905
$ 865,843
$ (343,983 ) $ 881,765

During the fiscal year ended March 31, 2016, the Company recorded a $399,758 forward loss charge for the Bombardier Global 7500 wing program ("Global 7500"). Under our contract for the Bombardier Global 7500, the Company has the right to design, develop and manufacture wing components for the Global 7500 program. The Global 7500 contract provides for fixed pricing and requires the Company to fund certain up-front development expenses, with certain milestone payments made by Bombardier.

The Global 7500 program charge resulted in the impairment of previously capitalized preproduction costs due to the combination of cost recovery uncertainty, higher than anticipated non-recurring costs and increased forecasted costs on recurring production. The increases in costs were driven by several factors, including changing technical requirements, increased spending on the design and engineering phaseLong-term debt consists of the ~~program, and uncertainty regarding cost reduction and cost recovery initiatives with our customer and suppliers.~~following:

~~The Global 7500 program has continued to incur costs since March 2016 in support of the development and transition to production.~~



	June 30, 2019			March 31, 2019

Revolving line of credit	$	185,000		$	215,000
Receivable securitization facility	58,400			80,700
Capital leases	29,388			31,292
Senior notes due 2021	375,000			375,000
Senior notes due 2022	300,000			300,000
Senior notes due 2025	500,000			500,000
Less: Debt issuance costs	(12,219		)	(13,171		)
	1,435,569			1,488,821
Less: Current portion	8,150			8,201
	$	1,427,419		$	1,480,620

In May 2017, Triumph Aerostructures and Bombardier entered into a comprehensive settlement agreement that resolved all outstanding commercial disputes between them, including all pending litigation, related to the design, manufacture and supply of wing components for the Global 7500 business aircraft. The settlement reset the commercial relationship between the companies and allowed each company to better achieve its business objectives going forward.

Further cost increases or an inability to meet revised recurring cost forecasts on the Global 7500 program may result in additional forward loss reserves in future periods, while improvements in future costs compared with current estimates may result in favorable adjustments if forward loss reserves are no longer required.

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

~~7. LONG-TERM DEBT~~

~~Long-term debt consists of the following:~~

September 30, 2018 March 31, 2018

Revolving line of credit $ 332,661
$ 112,887
Receivable securitization facility 85,700
107,800
Capital leases 49,740
59,546
Senior notes due 2021 375,000
375,000
Senior notes due 2022 300,000
300,000
Senior notes due 2025 500,000
500,000
Less: Debt issuance costs (15,062 ) (16,949 )
1,628,039
1,438,284
Less: Current portion 14,993
16,527
$ 1,613,046
$ 1,421,757

Revolving Credit Facility

In July 2018, the Company, its subsidiary co-borrowers and guarantors entered into a Tenth Amendment to the Credit Agreement (the “Tenth Amendment” and the existing Credit Agreement as amended by the Tenth Amendment, the "Credit Agreement") and with the Administrative Agent and the Lenders party thereto. Among other things, the Tenth Amendment modifies certain financial covenants and other terms and ~~lowers~~lowered the capacity ~~upon completion~~to $700,000 as a result of certain asset sales ~~and will automatically reduce to $700,000 at~~occurring in the fiscal year ended March 31, 2019. The Tenth Amendment also adds an additional mandatory prepayment provision requiring that the Company prepay the outstanding revolving credit loans as set forth in the Tenth Amendment. ~~The recent divestitures resulted in a reduction of the capacity under the Credit Agreement from $800,000 to $750,000 during the three months ended September 30, 2018.~~

In connection with the Tenth Amendment to the Credit Agreement, the Company incurred $1,694 of financing costs. These costs, along with the $8,961 of unamortized financing costs subsequent to the Ninth 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 existing prior to the Tenth Amendment.

In July 2017, the Company entered into a Ninth Amendment to the Credit Agreement (the “Ninth Amendment” and the existing Credit Agreement, as amended by the Ninth Amendment, the “Credit Agreement”) with the Administrative Agent and the Lenders party thereto to, among other things: (i) permit the Company to incur High Yield Indebtedness (as defined in the Credit Agreement) in an aggregate principal amount of up to $500,000, subject to the Company’s obligations to apply the net proceeds from an offering to repay the outstanding principal amount of the term loans in full; (ii) limit the mandatory prepayment provisions to eliminate the requirement that net proceeds received from the incurrence of Permitted Indebtedness (as defined in the Credit Agreement), including the High Yield Indebtedness, be applied to reduce the revolving credit commitments once the revolving credit commitments have been reduced to $800,000; (iii) amend certain covenants and other terms; and (iv) modify the current interest rate and letter of credit pricing tiers.

In May 2017, the Company entered into an Eighth Amendment to the Credit Agreement, among the Company and its lenders to, among other things: (i) eliminate the total leverage ratio financial covenant; (ii) increase the maximum permitted senior secured leverage ratio financial covenant applicable to each fiscal quarter, commencing with the fiscal quarter ended March 31, 2017, and to revise the step-downs applicable to such financial covenant; (iii) reduce the aggregate principal amount

~~Triumph Group, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(dollars in thousands, except per share data)~~

~~(unaudited)~~

of commitments under the revolving line of credit to $850,000 from $1,000,000; (iv) modify the maturity date of the term loans so that all of the term loans will mature on March 31, 2019; and (v) establish a new higher pricing tier for the interest rate, commitment fee and letter of credit fee pricing provisions.

The obligations under the Credit Agreement and related documents are secured by liens on substantially all assets of the Company and its domestic subsidiaries pursuant to a Second Amended and Restated Guarantee and Collateral Agreement, dated as of November 19, 2013, among the administrative agent, the Company and the subsidiaries of the Company party thereto.

Pursuant to the Credit Agreement, the Company can borrow, repay and re-borrow revolving credit loans, and cause to be issued letters of credit, in an aggregate principal amount not to exceed ~~$750,000~~$700,000 outstanding at any time. The Credit Agreement bears interest at either: (i) London Interbank Offered Rate ~~(LIBOR)~~("LIBOR") plus between 1.50% and 3.50%; (ii) the prime rate; or (iii) an overnight rate at the option of the Company. The applicable interest rate is based upon the Company’s ratio of total indebtedness to earnings before interest, taxes, depreciation and amortization. In addition, the Company is required to pay a commitment fee of 0.50% on the unused portion of the Credit Agreement. The Company’s obligations under the Credit Agreement are guaranteed by the Company’s domestic subsidiaries.

At ~~September~~June 30, ~~2018,~~2019, there were ~~$332,661~~$185,000 in borrowings and ~~$31,156~~$23,897 in letters of credit outstanding under the Revolving Line of Credit provisions of the Credit Agreement, primarily to support insurance policies. At March 31, ~~2018,~~2019, there were ~~$112,887~~$215,000 in outstanding borrowings and ~~$30,641~~$30,773 in letters of credit outstanding under the Revolving Line of Credit provisions of the Credit Agreement, primarily to support insurance policies. The level of unused borrowing capacity under the Revolving Line of Credit provisions of the Credit Agreement varies from time to time depending in part upon its compliance with financial and other covenants set forth in the related agreement. The Credit Agreement contains certain affirmative and negative covenants, including limitations on specified levels of indebtedness to earnings before interest, taxes, depreciation and amortization, and interest coverage requirements, and includes limitations on, among other things, liens, mergers, consolidations, sales of assets, and incurrence of debt. If an event of default were to occur under the Credit Agreement, the lenders would be entitled to declare all amounts borrowed under it immediately due and payable. The occurrence of an event of default under the Credit Agreement could also cause the acceleration of obligations under certain other agreements. The Company is currently in compliance with all such covenants. ~~Although the Company does not anticipate any violations of the financial covenants, its ability to comply with these covenants is dependent upon achieving earnings and cash flow projections.~~ As of ~~September~~June 30, ~~2018,~~2019, the Company had borrowing capacity under this agreement of ~~$386,183~~$491,103 after reductions for borrowings, letters of credit outstanding under the facility and consideration of covenant limitations.

The Credit Agreement also provided for a variable rate term loan (the "2013 Term Loan"). The Company repaid the outstanding principal amount of the 2013 Term Loan in quarterly installments, on the first business day of each January, April, July and October. During August 2017, the 2013 Term Loan was paid in full with the proceeds from the Senior Notes due 2025.

The Company previously maintained an interest rate swap agreement to reduce its exposure to interest on the variable rate portion of its long-term debt. In conjunction with the repayment of the 2013 Term Loan, the Company terminated the interest rate swap receiving $280 upon settlement.

Receivables Securitization Facility

In November 2017, the Company amended ~~the Securitization Facility~~its receivable securitization facility (the "Securitization Facility") decreasing the purchase limit from $225,000 to $125,000 and extending the term through November 2020. In connection with the Securitization Facility, the Company sells on a revolving basis certain ~~trade~~eligible accounts receivable to Triumph Receivables, LLC, a wholly-owned special-purpose entity, which in turn sells a percentage ownership interest in the receivables to commercial paper conduits sponsored by financial institutions. The Company is the servicer of the trade accounts receivable under the Securitization Facility. As of ~~September~~June 30, ~~2018,~~2019, the maximum amount available under the Securitization Facility was $125,000. Interest rates are based on LIBOR plus a program fee and a commitment fee. The program fee is 0.13% on the amount outstanding under the Securitization Facility. Additionally, the commitment fee is 0.50% on 100.00% of the maximum amount available under the Securitization Facility. The Company secures its trade accounts receivable, which are generally non-interest bearing, in transactions that are accounted for as borrowings pursuant to ~~the~~ASC 860, Transfers and ~~Servicing~~ ~~topic of the ASC 860.~~Servicing.

1817

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

The agreement governing the Securitization Facility contains restrictions and covenants, including limitations on the making of certain restricted payments; creation of certain liens; and certain corporate acts such as mergers, consolidations and the sale of all or substantially all of the Company's assets.

Senior Notes Due 2021

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

Senior Notes Due 2022

On June 3, 2014, the Company issued $300,000 principal amount of 5.250% Senior Notes due 2022 (the "2022 Notes"). The 2022 Notes were sold at 100% of principal amount and have an effective interest yield of 5.250%. Interest on the 2022 Notes accrues at the rate of 5.250% per annum and is payable semiannually in cash in arrears on June 1 and December 1 of each year, commencing on December 1, 2014.

Senior Notes Due 2025

On August 17, 2017, the Company issued $500,000 principal amount of 7.750% Senior Notes due 2025 (the "2025 Notes"). The 2025 Notes were sold at 100% of principal amount and have an effective interest yield of 7.750%. Interest on the 2025 Notes accrues at the rate of 7.750% per annum and is payable semiannually in cash in arrears on February 15 and August 15 of each year, commencing on February 15, 2018.

Financial Instruments Not Recorded at Fair Value

The carrying amounts of certain of our financial instruments, including cash and cash equivalents, accounts receivable and accounts payable, approximate fair value because of their short maturities (Level 1 inputs). Carrying amounts and the related estimated fair values of the Company’s financial instruments not recorded at fair value in the condensed consolidated financial statements are as follows:



	June 30, 2019				March 31, 2019
	Carrying Value		Fair Value		Carrying Value		Fair Value
Long-term debt	$	1,435,569	$	1,430,330	$	1,488,821	$	1,568,037

September 30, 2018 March 31, 2018

Carrying
Value
Fair Value
Carrying
Value
Fair Value
Long-term debt $ 1,628,039
$ 1,596,710
$ 1,438,284
$ 1,446,151

The fair value of the long-term debt was calculated based on interest rates available for debt with terms and maturities similar to the Company’s existing debt arrangements (Level 2 inputs), unless quoted market prices were available.

The Company made interest payments of $12,896 and $12,734 for the three months ended June 30, 2019 and 2018, respectively.

~~8. LOSS PER SHARE~~

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

Three Months Ended September 30, Six Months Ended September 30,
(in thousands) (in thousands)
2018 2017 2018 2017
Weighted-average common shares outstanding – basic 49,628
49,428
49,590
49,400
Net effect of dilutive stock options and nonvested stock (a) —
—
—
—
Weighted-average common shares outstanding – diluted 49,628
49,428
49,590
49,400

1918

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

~~(a)~~8. EARNINGS PER SHARE

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



	Three Months Ended June 30,
	(in thousands)
	2019	2018
Weighted average common shares outstanding – basic	49,854	49,552
Net effect of dilutive stock options and non-vested stock (1)	441	—
Weighted average common shares outstanding – diluted	50,295	49,552

(1) For the three months ended ~~September~~June 30, ~~2018~~2019 and ~~2017, incremental~~2018, shares of ~~303~~7 and ~~172~~206, respectively, could potentially dilute EPS in the future but were not included in diluted weighted average common shares outstanding because to do so would have been ~~excluded due to the net loss for the period. For the six months ended September 30, 2018 and 2017, incremental shares of 254 and 154 have been excluded due to the net loss in each period.~~anti-dilutive.

9. INCOME TAXES

The Company follows the Income ~~Taxes~~Taxes topic of ASC 740, which prescribes a recognition threshold and measurement attribute criteria for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, as well as guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation referred to as the Tax Cuts and Jobs Act (the “Act”). The Act introduced tax reform that reduced the current corporate federal income tax rate from 35% to 21%, among other changes. The Act makes broad and complex changes to the U.S. tax code, and it will take time to fully evaluate the impact of these changes on the Company. The Company has prepared a reasonable estimate around the impact of the Act and has recorded a provisional impact (as described in the SEC's Staff Accounting Bulletin 118) to the tax provision in the period ended March 31, 2018. While the Company has computed and recorded these provisional amounts, these will be finalized within the established measurement period (not to exceed one year) as additional data and information is gathered. The Company determined that the amounts recorded are provisional as adjustments may occur due to additional guidance from the Internal Revenue Service and as certain tax positions are finalized when the Company files its fiscal 2018 tax returns. As of September 30, 2018, the Company has not made material revisions to the provisional tax impact of the Act. Any revisions will be included as an adjustment to the tax expense in the period in which the amounts are determined.

The Company is still evaluating the effects of the Act’s global intangible low-taxed income (“GILTI”) provisions and has not adopted an accounting policy on whether the Company will account for GILTI as a period expense or record deferred taxes on temporary basis differences expected to reverse as GILTI in future years. The Company's accounting for the effects of the GILTI provision is incomplete; however, the Company has included estimated GILTI tax related to current year operations in the Company's annualized effective tax rate and has not provided additional GILTI on deferred items.

The Act also introduces base erosion and anti-abuse tax provisions (“BEAT”) for companies that meet certain thresholds by effectively excluding deductions on certain payments to foreign related entities. Although the Company's analysis of the tax effects of the BEAT provision is incomplete, the Company does not expect to be subject to the tax.

The Company has classified uncertain tax positions as noncurrent income tax liabilities unless expected to be paid in one year. Penalties and tax-related interest expense are reported as a component of income tax ~~expense.~~ expense and are not significant.

As of ~~September~~June 30, ~~2018~~2019 and March 31, ~~2018, the total amount of accrued income tax-related interest and penalties was $356 and $327, respectively.~~

~~As of September 30, 2018 and March 31, 2018,~~2019, the total amount of unrecognized tax benefits was ~~$17,374~~$19,346 and ~~$11,532,~~$19,152, respectively, most of which would impact the effective rate, if recognized. The Company does not anticipate that total unrecognized tax benefits will be reduced in the next 12 months.

As of ~~September~~June 30, ~~2018,~~2019, the Company has a valuation allowance against principally all of its net deferred tax assets given insufficient positive evidence to support the realization of the Company’s deferred tax assets. The Company intends to continue maintaining a valuation allowance on its deferred tax assets until there is sufficient positive evidence to support the reversal of all or some portion of these allowances. A reduction in the valuation allowance could result in a significant decrease in income tax expense in the period that the release is recorded. However, the exact timing and amount of the reduction in its valuation allowance is unknown at this time and will be subject to the earnings level the Company achieves during fiscal ~~2019~~2020 as well as the Company's income in future periods.

The effective income tax rate for the three months ended ~~September~~June 30, ~~2018,~~2019, was ~~(2.2)%~~21.0% as compared with ~~17.6%~~(1.4)% for the three months ended ~~September~~June 30, ~~2017.~~2018. For the three months ended ~~September~~June 30, 2018, the effective tax rate reflected a limitation on the recognition of tax benefits due to the full valuation allowance.

The effective income tax rate for the six months ended September 30, 2018, was (1.6)% as compared with 20.0% for the six months ended September 30, 2017. For the six months ended September 30, 2018, the effective tax rate reflected a limitation on the recognition of tax benefits due to the full valuation allowance.

~~Triumph Group, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(dollars in thousands, except per share data)~~

~~(unaudited)~~

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, 2014, or foreign income tax examinations by tax authorities for fiscal years ended before March 31, ~~2011.~~2013.

As of ~~September~~June 30, ~~2018~~2019, the Company is subject to examination in one state ~~jurisdiction and one foreign~~ jurisdiction. The Company has filed appeals in a prior state examination related to fiscal years ended March 31, 1999 through March 31, 2005. Because of net operating losses acquired as part of the acquisition of Vought, the Company is subject to U.S. federal income tax examinations and various state jurisdictions for the ~~years~~period ended ~~December 31, 2001~~June 16, 2010 and after, related to previously filed Vought tax returns. The Company believes appropriate provisions for all outstanding issues have been made for all jurisdictions and all open years.

10. GOODWILL

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

The following is a summary of the changes in the carrying value of goodwill by reportable segment, from March 31, ~~2018~~2019 through ~~September~~June 30, ~~2018~~2019:



	Integrated Systems			Product Support		Total
Balance, March 31, 2019	$	517,104		$	66,121	$	583,225
Effect of exchange rate changes	(1,594		)	—		(1,594		)
Balance, June 30, 2019	$	515,510		$	66,121	$	581,631

Integrated Systems Product Support Total
Balance, March 31, 2018 $ 523,893
$ 68,935
$ 592,828
Effect of exchange rate changes (6,291 ) (19 ) (6,310 )
Balance, September 30, 2018 $ 517,602
$ 68,916
$ 586,518

As of June 30, 2019 and March 31, ~~2018 and September 30, 2018,~~2019, Aerospace Structures had goodwill of ~~$1,275,134,~~$1,246,454, which was fully impaired.

11. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS

The Company sponsors several defined benefit pension plans covering some of its employees. Certain employee groups 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. government 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 from 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~~may also be eligible for medical coverage. Current plan documents reserve the right to amend or terminate the plans at any time, subject to applicable collective bargaining requirements for represented employees. From time to time, changes have been made to the benefits provided to various groups of plan participants. Premiums charged to most retirees for medical coverage prior to age 65 are based on years of service and are adjusted annually for changes in the cost of the plans as determined by an independent actuary. In addition to this medical inflation cost-sharing feature, the plans also have provisions for deductibles, co-payments, coinsurance percentages, out-of-pocket limits, schedules of reasonable fees, preferred provider networks, coordination of benefits with other plans and a Medicare carve-out.

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

2120

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

Net Periodic Benefit Plan Costs

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



	Pension Benefits
	Three Months Ended June 30,
	2019			2018
Components of net periodic benefit costs:
Service cost	$	581		$	830
Interest cost	18,661			19,921
Expected return on plan assets	(35,739		)	(37,107		)
Amortization of prior service credits	(278		)	(907		)
Amortization of net loss	5,359			4,180
Net periodic benefit income	$	(11,416	)	$	(13,083	)

Pension benefits
Three Months Ended September 30, Six Months Ended September 30,
2018 2017 2018 2017
Components of net periodic benefit costs:
Service cost $ 824
$ 1,124
$ 1,654
$ 2,244
Interest cost 19,909
18,801
39,830
37,589
Expected return on plan assets (37,074 ) (38,084 ) (74,181 ) (76,132 )
Amortization of prior service credits (907 ) (710 ) (1,815 ) (1,421 )
Amortization of net loss 4,179
3,477
8,360
6,925
Settlement charge —
523
—
523
Net periodic benefit income $ (13,069 ) $ (14,869 ) $ (26,152 ) $ (30,272 )



	Other Postretirement Benefits
	Three Months Ended June 30,
	2019			2018
Components of net periodic benefit costs:
Service cost	$	44		$	57
Interest cost	863			1,010
Amortization of prior service credits	(1,164		)	(1,164		)
Amortization of gain	(2,442		)	(2,463		)
Net periodic benefit income	$	(2,699	)	$	(2,560	)

Other postretirement benefits
Three Months Ended September 30, Six Months Ended September 30,
2018 2017 2018 2017
Components of net periodic benefit costs:
Service cost $ 57
$ 102
$ 113
$ 203
Interest cost 1,010
1,219
2,019
2,438
Amortization of prior service credits (1,164 ) (2,328 ) (2,327 ) (4,656 )
Amortization of gain (2,463 ) (1,775 ) (4,926 ) (3,549 )
Net periodic benefit income $ (2,560 ) $ (2,782 ) $ (5,121 ) $ (5,564 )

2221

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

12. STOCKHOLDERS' EQUITY

Accumulated Other Comprehensive Loss

Changes in accumulated other comprehensive income (loss) ("AOCI") by component for the three ~~and six~~ months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, respectively, were as follows:



	Currency Translation Adjustment			Unrealized Gains and Losses on Derivative Instruments			Defined Benefit Pension Plans and Other Postretirement Benefits			Total (1)
Balance, March 31, 2019	(48,606		)	(1,130		)	(437,948		)	(487,684		)
AOCI before reclassifications	(2,683		)	95			—			(2,588		)
Amounts reclassified from AOCI	—			(414		)	1,409			995
Net current period AOCI	$	(2,683	)	$	(319	)	$	1,409		$	(1,593	)
Balance, June 30, 2019	$	(51,289	)	$	(1,449	)	$	(436,539	)	$	(489,277	)

Currency Translation Adjustment Unrealized Gains and Losses on Derivative Instruments Defined Benefit Pension Plans and Other Postretirement Benefits
Total⁽¹⁾
Balance June 30, 2018 $ (73,207 ) $ (913 ) $ (309,708 ) $ (383,828 )
AOCI before reclassifications 1,038
1,706
(399 ) 2,345
Amounts reclassified from AOCI —
(742 ) —
(742 )
Net current period AOCI 1,038
964
(399 ) 1,603
Balance September 30, 2018 $ (72,169 ) $ 51
$ (310,107 ) $ (382,225 )

Balance June 30, 2017 $ (75,791 ) $ 2,336
$ (312,466 ) $ (385,921 )
AOCI before reclassifications 9,905
(561 ) 523
9,867
Amounts reclassified from AOCI —
(2,021 ) (1,347 ) (3,368 )
Net current period AOCI 9,905
(2,582 ) (824 ) 6,499
Balance September 30, 2017 $ (65,886 ) $ (246 ) $ (313,290 ) $ (379,422 )

Balance March 31, 2018 $ (58,683 ) $ 122
$ (309,309 ) $ (367,870 )
AOCI before reclassifications (13,486 ) 742
(798 ) (13,542 )
Amounts reclassified from AOCI —
(813 ) —
(813 )
Net current period AOCI (13,486 ) (71 ) (798 ) (14,355 )
Balance September 30, 2018 $ (72,169 ) $ 51
$ (310,107 ) $ (382,225 )


Balance March 31, 2017	$	(87,212	)	$	2,153		$	(311,119	)	$	(396,178	)
Balance, March 31, 2018													$	(58,683	)	$	122		$	(309,309	)	$	(367,870	)
AOCI before reclassifications	21,326			(19		)	523			21,830			(14,524		)	(965		)	—			(15,489		)
Amounts reclassified from AOCI	—			(2,380		)	(2,694		)	(5,074		)	—			(70		)	(399		)	(469		)
Net current period AOCI	21,326			(2,399		)	(2,171		)	16,756			(14,524		)	(1,035		)	(399		)	(15,958		)
Balance September 30, 2017	$	(65,886	)	$	(246	)	$	(313,290	)	$	(379,422	)
Balance, June 30, 2018													$	(73,207	)	$	(913	)	$	(309,708	)	$	(383,828	)

(1) Net of tax.

~~Triumph Group, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(dollars in thousands, except per share data)~~

~~(unaudited)~~

13. SEGMENTS

The Company ~~has~~reports financial performance based on the following three reportable segments: Integrated Systems, Aerospace Structures and Product Support. The Company’s reportable segments are aligned with how the business is managed, and the Company's views of the markets it serves. The Chief Operating Decision Maker (the ~~"CODM"~~“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 EBITDAP”) as a primary measure of segment profitability to evaluate performance of its segments and allocate resources.

Integrated Systems consists of the Company’s operations that 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; hydro-mechanical and electromechanical primary and secondary flight controls; and a broad spectrum of surface treatment options.

Aerospace Structures consists of the Company’s operations that supply commercial, business, regional and military manufacturers with large metallic and composite structures. Products include wings, wing boxes, fuselage panels, horizontal and vertical tails and sub-assemblies such as floor grids. Aerospace Structures also has the capability to engineer detailed structural designs in metal and composites. It also includes the Company’s operations that produce close-tolerance parts primarily to customer designs and model-based definition, including a wide range of aluminum, hard metal and composite structure capabilities. Capabilities include complex machining; gear manufacturing; sheet metal fabrication; forming; advanced composite and interior structures; joining processes such as welding, autoclave bonding and conventional mechanical fasteners; and a variety of special processes, including super plastic titanium forming, aluminum and titanium chemical milling, and surface treatments. As described in Note 1, during the first quarter of the fiscal year ended March 31, 2019, the Company recorded a non-cash charge related to the adoption of ASU 2017-07 of $87,241 due to an inseparable change in estimate from a change in accounting principles. This charge is included in Aerospace Structures operating income and is excluded from Segment Adjusted EBITDAP.

Product Support consists of the Company’s operations that provide full life cycle solutions for commercial, regional and military aircraft. The Company’s extensive product and service offerings include full post-delivery value chain services that simplify the MRO supply chain. Through its line maintenance, component MRO and postproduction supply chain activities, Product Support is positioned to provide integrated planeside repair solutions globally. Capabilities include fuel tank repair, metallic and composite aircraft structures, nacelles, thrust reversers, interiors, auxiliary power units and a wide variety of pneumatic, hydraulic, fuel and mechanical accessories.

Segment Adjusted EBITDAP 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 loss on divestitures of $17,837 for the six months ended September 30, 2018.~~segments.

The Company does not accumulate net sales information by product or service or groups of similar products and services and, therefore, the Company does not disclose net sales by product or service because to do so would be impracticable.

Selected financial information for each reportable segment is as follows:

2422

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)



	Three Months Ended June 30,
	2019			2018
Net sales:
Integrated Systems	$	252,226		$	241,039
Aerospace Structures	419,178			532,387
Product Support	61,756			66,215
Elimination of inter-segment sales	(2,929		)	(6,741		)
	$	730,231		$	832,900

Income (loss) before income taxes:
Operating income (loss):
Integrated Systems	$	34,772		$	35,409
Aerospace Structures	12,283			(79,587		)
Product Support	9,276			7,669
Corporate	(18,394		)	(27,577		)
Share-based compensation expense	(2,426		)	(2,462		)
	35,511			(66,548		)
Non-service defined benefit income	(14,875		)	(16,538		)
Interest expense and other	27,491			25,493
	$	22,895		$	(75,503	)

Depreciation and amortization:
Integrated Systems	$	7,067		$	7,555
Aerospace Structures	35,059			28,920
Product Support	1,090			1,670
Corporate	834			667
	$	44,050		$	38,812

Amortization of acquired contract liabilities, net:
Integrated Systems	$	8,125		$	8,849
Aerospace Structures	8,814			8,385
	$	16,939		$	17,234

Adjusted EBITDAP:
Integrated Systems	$	33,714		$	34,115
Aerospace Structures	38,528			28,189
Product Support	10,366			9,339
Corporate & share-based compensation	(16,850		)	(24,653		)
	$	65,758		$	46,990

Capital expenditures:
Integrated Systems	$	2,851		$	1,609
Aerospace Structures	3,973			10,138
Product Support	1,033			348
Corporate	233			105
	$	8,090		$	12,200

Three Months Ended September 30, Six Months Ended September 30,
2018 2017 2018 2017
Net sales:
Integrated Systems $ 260,717
$ 233,765
$ 501,756
$ 471,900
Aerospace Structures 528,367
447,772
1,060,753
931,088
Product Support 72,199
68,366
138,414
134,799
Elimination of inter-segment sales (6,175 ) (4,747 ) (12,915 ) (10,942 )
$ 855,108
$ 745,156
$ 1,688,008
$ 1,526,845

(Loss) income before income taxes:
Operating income (loss):
Integrated Systems ⁽¹⁾
$ 39,866
$ 41,641
$ 75,275
$ 88,624
Aerospace Structures ⁽¹⁾
(22,744 ) (9,052 ) (102,331 ) (31,570 )
Product Support 11,514
11,233
19,183
19,670
Corporate (30,637 ) (43,851 ) (60,676 ) (77,750 )
(2,001 ) (29 ) (68,549 ) (1,026 )
Non-service defined benefit income (16,524 ) (18,877 ) (33,061 ) (38,283 )
Interest expense and other 28,714
25,375
54,206
46,393
$ (14,191 ) $ (6,527 ) $ (89,694 ) $ (9,136 )

Depreciation and amortization:
Integrated Systems $ 7,384
$ 9,588
$ 14,939
$ 19,539
Aerospace Structures 28,294
29,305
57,214
56,445
Product Support 1,664
1,667
3,334
3,405
Corporate 792
308
1,458
610
$ 38,134
$ 40,868
$ 76,945
$ 79,999

Amortization of acquired contract liabilities, net:
Integrated Systems $ 8,768
$ 9,299
$ 17,617
$ 16,602
Aerospace Structures 8,036
18,599
16,421
40,769
$ 16,804
$ 27,898
$ 34,038
$ 57,371

Adjusted EBITDAP:
Integrated Systems ⁽¹⁾
$ 38,482
$ 41,930
$ 72,597
$ 91,561
Aerospace Structures ⁽¹⁾
(2,486 ) 1,654
25,703
(15,894 )
Product Support 13,178
12,900
22,517
23,075
Corporate (16,727 ) (23,172 ) (41,381 ) (56,769 )
$ 32,447
$ 33,312
$ 79,436
$ 41,973

Capital expenditures:
Integrated Systems $ 3,828
$ 1,455
$ 5,437
$ 4,020
Aerospace Structures 7,077
7,796
17,215
16,275
Product Support 671
769
1,019
1,030
Corporate 478
670
583
1,450
$ 12,054
$ 10,690
$ 24,254
$ 22,775

2523

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

~~__________________~~



	June 30, 2019		3/31/2019
Total Assets:
Integrated Systems	$	1,259,117	$	1,215,350
Aerospace Structures	1,239,484		1,257,039
Product Support	273,714		271,813
Corporate	50,951		110,372
	$	2,823,266	$	2,854,574

⁽¹⁾ ~~Prior period information has been reclassified as a result of~~During the ~~Company's adoption of ASU 2017-07 on a retrospective basis in the fiscal year ended~~ ~~March 31, 2019~~. In accordance with the adoption of this guidance, prior year amounts related to the components of net periodic pension and postretirement benefit cost other than service costs have been reclassified from cost of sales and selling, general and administrative expense to non-service pension (benefit) on the condensed consolidated statements of operations for all periods presented. Accordingly, income of $446 and $18,954 for Integrated Systems and Aerospace Structures, respectively, was reclassified into other income for the three months ended ~~September~~June 30, ~~2017. Accordingly, income of $880~~2019 and $37,926 for Integrated Systems and Aerospace Structures, respectively, was reclassified into other income for the six months ended September 30, 2017. The Company also recorded a non-cash charge related to the adoption of ASU 2017-07 of $87,241 due to an inseparable change in estimate from a change in accounting principles, which is presented on the accompanying condensed consolidated statements of operations within "Cost of sales."

September 30, 2018 March 31, 2018
Total Assets:
Integrated Systems $ 1,244,138
$ 1,225,770
Aerospace Structures 1,812,835
2,260,416
Product Support 283,938
281,101
Corporate 34,472
39,777
$ 3,375,383
$ 3,807,064

~~During the three months ended September 30,~~ 2018, ~~and 2017,~~ the Company had international sales of ~~$264,526~~$175,340 and ~~$166,637,~~$226,571, respectively.

~~During the~~ ~~six~~ ~~months ended September 30, 2018 and 2017, the Company had international sales of $491,096 and $345,044, respectively.~~


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

The 2021 Notes, the 2022 Notes and the 2025 Notes are fully and unconditionally guaranteed on a joint and several basis by the Guarantor Subsidiaries. The total assets, stockholders' equity, revenue, earnings and cash flows from operating activities of the Guarantor Subsidiaries exceeded a majority of the consolidated total of such items as of and for the periods reported. The only consolidated subsidiaries of the Company that are not guarantors of the 2021 Notes, the 2022 Notes and the 2025 Notes (the “Non-Guarantor Subsidiaries”) are (a) the receivables securitization special-purpose entity and (b) the foreign operating subsidiaries. The following tables present condensed consolidating financial statements, including the Company (the “Parent”), the Guarantor Subsidiaries, and the Non-Guarantor Subsidiaries. Such financial statements include summary condensed consolidating balance sheets as of ~~September~~June 30, ~~2018~~2019 and March 31, ~~2018~~2019, condensed consolidating statements of comprehensive income for the three ~~and six~~ months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018, and condensed consolidating statements of cash flows for the ~~six~~three months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018.

2624

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

SUMMARY CONDENSED CONSOLIDATING BALANCE SHEETS:


	September 30, 2018														June 30, 2019
	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries		Eliminations			Consolidated Total			Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries		Eliminations			Consolidated Total
Current assets:
Cash and cash equivalents	$	79		$	237		$	32,911	$	—		$	33,227		$	6,825		$	10		$	22,092	$	—		$	28,927
Trade and other receivables, net	7,098			96,809			273,231		—			377,138			11,593			102,306			217,610		—			331,509
Contract assets	—			559,141			10,793		—			569,934			—			319,742			4,127		—			323,869
Inventories	—			428,618			104,965		—			533,583			—			389,958			80,490		—			470,448
Prepaid expenses and other	8,043			7,256			13,474		—			28,773			10,485			7,977			5,445		—			23,907
Assets held for sale	—			3			1,195		—			1,198
Total current assets	15,220			1,092,064			436,569		—			1,543,853			28,903			819,993			329,764		—			1,178,660
Property and equipment, net	12,573			590,714			110,735		—			714,022			11,163			422,697			81,352		—			515,212
Goodwill and other intangible assets, net	—			949,414			117,014		—			1,066,428			—			900,689			99,436		—			1,000,125
Other, net	20,900			23,694			6,486		—			51,080			23,079			74,200			31,990		—			129,269
Intercompany investments and advances	1,515,272			79,716			74,622		(1,669,610		)	—			1,219,331			150,673			85,836		(1,455,840		)	—
Total assets	$	1,563,965		$	2,735,602		$	745,426	$	(1,669,610	)	$	3,375,383		$	1,282,476		$	2,368,252		$	628,378	$	(1,455,840	)	$	2,823,266

Current liabilities:
Current portion of long-term debt	$	1,240		$	13,753		$	—	$	—		$	14,993		$	2,153		$	5,997		$	—	$	—		$	8,150
Accounts payable	6,150			510,024			45,299		—			561,473			4,648			390,559			31,380		—			426,587
Accrued expenses	53,317			493,375			38,359		—			585,051			49,987			455,749			29,915		—			535,651
Liabilities related to assets held for sale	—			3			241		—			244
Total current liabilities	60,707			1,017,155			83,899		—			1,161,761			56,788			852,305			61,295		—			970,388
Long-term debt, less current portion	1,580,974			32,072			—		—			1,613,046			1,417,595			9,824			—		—			1,427,419
Intercompany advances	145,357			2,117,167			504,939		(2,767,463		)	—			342,132			1,961,427			350,645		(2,654,204		)	—
Accrued pension and other postretirement benefits, noncurrent	6,370			441,314			—		—			447,684			6,090			516,826			—		—			522,916
Deferred income taxes and other	8,608			366,550			15,785		—			390,943			17,790			408,416			34,256		—			460,462
Total stockholders’ (deficit) equity	(238,051		)	(1,238,656		)	140,803		1,097,853			(238,051		)	(557,919		)	(1,380,546		)	182,182		1,198,364			(557,919		)
Total liabilities and stockholders’ (deficit) equity	$	1,563,965		$	2,735,602		$	745,426	$	(1,669,610	)	$	3,375,383		$	1,282,476		$	2,368,252		$	628,378	$	(1,455,840	)	$	2,823,266

2725

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

SUMMARY CONDENSED CONSOLIDATING BALANCE SHEETS:



	March 31, 2019
	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries		Eliminations			Consolidated Total
Current assets:
Cash and cash equivalents	$	70,192		$	429		$	22,186	$	—		$	92,807
Trade and other receivables, net	10,150			123,153			240,287		—			373,590
Contract assets	—			322,698			3,969		—			326,667
Inventories	—			339,038			74,522		—			413,560
Prepaid expenses and other	22,152			7,611			4,683		—			34,446
Total current assets	102,494			792,929			345,647		—			1,241,070
Property and equipment, net	11,276			449,489			82,945		—			543,710
Goodwill and other intangible assets, net	—			912,279			101,900		—			1,014,179
Other, net	14,630			34,664			6,321		—			55,615
Intercompany investments and advances	1,112,100			230,437			88,697		(1,431,234		)	—
Total assets	$	1,240,500		$	2,419,798		$	625,510	$	(1,431,234	)	$	2,854,574

Current liabilities:
Current portion of long-term debt	$	1,904		$	6,297		$	—	$	—		$	8,201
Accounts payable	6,571			396,542			30,670		—			433,783
Accrued expenses	58,301			445,542			29,448		—			533,291
Total current liabilities	66,776			848,381			60,118		—			975,275
Long-term debt, less current portion	1,469,543			11,077			—		—			1,480,620
Intercompany advances	262,718			2,017,003			372,888		(2,652,609		)	—
Accrued pension and other postretirement benefits, noncurrent	6,067			534,412			—		—			540,479
Deferred income taxes and other	8,709			408,838			13,966		—			431,513
Total stockholders’ (deficit) equity	(573,313		)	(1,399,913		)	178,538		1,221,375			(573,313		)
Total liabilities and stockholders’ (deficit) equity	$	1,240,500		$	2,419,798		$	625,510	$	(1,431,234	)	$	2,854,574

March 31, 2018
Parent
Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries
Eliminations
Consolidated
Total
Current assets:
Cash and cash equivalents $ 44
$ —
$ 35,775
$ —
$ 35,819
Trade and other receivables, net 1,686
77,924
297,002
—
376,612
Contract assets —
37,573
—
—
37,573
Inventories —
1,312,747
114,422
—
1,427,169
Prepaid expenses and other 17,513
15,712
11,203
—
44,428
Assets held for sale —
—
1,324
—
1,324
Total current assets 19,243
1,443,956
459,726
—
1,922,925
Property and equipment, net 11,984
594,437
119,582
—
726,003
Goodwill and other intangible assets, net —
973,954
126,555
—
1,100,509
Other, net 21,930
29,904
5,793
—
57,627
Intercompany investments and advances 1,987,599
81,542
73,184
(2,142,325 ) —
Total assets $ 2,040,756
$ 3,123,793
$ 784,840
$ (2,142,325 ) $ 3,807,064

Current liabilities:
Current portion of long-term debt $ 903
$ 15,624
$ —
$ —
$ 16,527
Accounts payable 12,088
356,236
50,043
—
418,367
Accrued expenses 46,679
467,674
42,752
—
557,105
Liabilities related to assets held for sale —
—
440
—
440
Total current liabilities 59,670
839,534
93,235
—
992,439
Long-term debt, less current portion 1,380,867
40,890
—
—
1,421,757
Intercompany advances 134,590
1,952,042
524,788
(2,611,420 ) —
Accrued pension and other postretirement benefits, noncurrent 6,484
477,403
—
—
483,887
Deferred income taxes and other 8,611
427,724
22,112
—
458,447
Total stockholders’ equity (deficit) 450,534
(613,800 ) 144,705
469,095
450,534
Total liabilities and stockholders’ (deficit) equity $ 2,040,756
$ 3,123,793
$ 784,840
$ (2,142,325 ) $ 3,807,064

2826

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME:



	For the Three Months Ended June 30, 2019
	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated Total
Net sales	$	—		$	675,030		$	75,042		$	(19,841	)	$	730,231

Operating costs and expenses:
Cost of sales	—			543,147			58,927			(19,841		)	582,233
Selling, general and administrative	16,258			39,134			6,945			—			62,337
Depreciation and amortization	834			40,401			2,815			—			44,050
Restructuring costs	540			2,424			—			—			2,964
Loss on divestitures	3,136			—			—			—			3,136
	20,768			625,106			68,687			(19,841		)	694,720
Operating (loss) income	(20,768		)	49,924			6,355			—			35,511
Intercompany interest and charges	(35,503		)	33,754			1,749			—			—
Non-service defined benefit income	—			(14,372		)	(503		)	—			(14,875		)
Interest expense and other	23,214			5,306			(1,029		)	—			27,491
(Loss) income before income taxes	(8,479		)	25,236			6,138			—			22,895
Income tax (benefit) expense	(2,609		)	6,442			974			—			4,807
Net (loss) income	(5,870		)	18,794			5,164			—			18,088
Other comprehensive loss	(319		)	1,497			(2,771		)	—			(1,593		)
Total comprehensive (loss) income	$	(6,189	)	$	20,291		$	2,393		$	—		$	16,495

For the Three Months Ended September 30, 2018
Parent
Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries
Eliminations
Consolidated
Total
Net sales $ —
$ 786,284
$ 89,140
$ (20,316 ) $ 855,108

Operating costs and expenses:
Cost of sales —
675,502
69,288
(20,316 ) 724,474
Selling, general and administrative 14,931
45,835
8,785
—
69,551
Depreciation and amortization 791
32,743
4,600
—
38,134
Restructuring costs 2,767
9,065
—
—
11,832
Loss on divestitures 12,171
947
—
—
13,118
30,660
764,092
82,673
(20,316 ) 857,109
Operating (loss) income (30,660 ) 22,192
6,467
—
(2,001 )
Intercompany interest and charges (38,620 ) 36,722
1,898
—
—
Non-service defined benefit income —
(16,188 ) (336 ) —
(16,524 )
Interest expense and other 24,823
5,201
(1,310 ) —
28,714
(Loss) income before income taxes (16,863 ) (3,543 ) 6,215
—
(14,191 )
Income tax expense (benefit) 6,063
(5,735 ) 157
—
485
Net (loss) income (22,926 ) 2,192
6,058
—
(14,676 )
Other comprehensive income (loss) 964
(371 ) 1,010
—
1,603
Total comprehensive (loss) income $ (21,962 ) $ 1,821
$ 7,068
$ —
$ (13,073 )

2927

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME:


	For the Three Months Ended September 30, 2017															For the Three Months Ended June 30, 2018
	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated Total			Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated Total
Net sales	$	—		$	676,026		$	89,750		$	(20,620	)	$	745,156		$	—		$	764,895		$	88,140		$	(20,135	)	$	832,900

Operating costs and expenses:
Cost of sales	—			545,956			73,067			(20,620		)	598,403			—			716,921			73,428			(20,135		)	770,214
Selling, general and administrative	18,921			48,159			8,362			—			75,442			24,560			49,182			7,914			—			81,656
Depreciation and amortization	308			36,402			4,158			—			40,868			667			33,917			4,228			—			38,812
Restructuring costs	4,159			4,800			1,142			—			10,101			—			4,047			—			—			4,047
Loss on divestiture and assets held for sale	20,371			—			—			—			20,371			4,719			—			—			—			4,719
	43,759			635,317			86,729			(20,620		)	745,185			29,946			804,067			85,570			(20,135		)	899,448
Operating (loss) income	(43,759		)	40,709			3,021			—			(29		)	(29,946		)	(39,172		)	2,570			—			(66,548		)
Intercompany interest and charges	(39,713		)	37,726			1,987			—			—			(40,219		)	38,075			2,144			—			—
Non-service defined benefit income	523			(18,771		)	(629		)	—			(18,877		)	—			(16,188		)	(350		)	—			(16,538		)
Interest expense and other	22,364			2,606			405			—			25,375			23,555			4,018			(2,080		)	—			25,493
(Loss) income before income taxes	(26,933		)	19,148			1,258			—			(6,527		)	(13,282		)	(65,077		)	2,856			—			(75,503		)
Income tax (benefit) expense	(8,675		)	9,936			(2,410		)	—			(1,149		)
Income tax expense (benefit)																24,482			(24,351		)	900			—			1,031
Net (loss) income	(18,258		)	9,212			3,668			—			(5,378		)	(37,764		)	(40,726		)	1,956			—			(76,534		)
Other comprehensive (loss) income	(2,582		)	(824		)	9,905			—			6,499
Total comprehensive (loss) income	$	(20,840	)	$	8,388		$	13,573		$	—		$	1,121
Other comprehensive loss																(1,035		)	(399		)	(14,524		)	—			(15,958		)
Total comprehensive loss																$	(38,799	)	$	(41,125	)	$	(12,568	)	$	—		$	(92,492	)

3028

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

CONDENSED CONSOLIDATING STATEMENTS OF ~~COMPREHENSIVE INCOME:~~

CASH FLOWS:



	Three Months Ended June 30, 2019
	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations		Consolidated Total
Net (loss) income	$	(5,870	)	$	18,794		$	5,164		$	—	$	18,088

Adjustments to reconcile net income to net cash provided by (used in) operating activities	(31,298		)	6,740			11,488			—		(13,070		)
Net cash (used in) provided by operating activities	(37,168		)	25,534			16,652			—		5,018
Capital expenditures	(232		)	(6,584		)	(1,274		)			(8,090		)
(Payments on) proceeds from sale of assets	(2,794		)	46			178			—		(2,570		)
Net cash (used in) provided by investing activities	(3,026		)	(6,538		)	(1,096		)	—		(10,660		)
Net increase in revolving credit facility	(30,000		)	—			—			—		(30,000		)
Proceeds on issuance of debt	—			—			5,600			—		5,600
Retirements and repayments of debt	(839		)	(1,833		)	(27,900		)	—		(30,572		)
Payments of deferred financing costs	(104		)	—			—			—		(104		)
Dividends paid	(1,998		)	—			—			—		(1,998		)
Repurchase of restricted shares for minimum tax obligation	(1,043		)	—			—			—		(1,043		)
Intercompany financing and advances	10,811			(17,582		)	6,771			—		—
Net cash used in financing activities	(23,173		)	(19,415		)	(15,529		)	—		(58,117		)
Effect of exchange rate changes on cash	—			—			(121		)	—		(121		)
Net change in cash and cash equivalents	(63,367		)	(419		)	(94		)	—		(63,880		)
Cash and cash equivalents at beginning of period	70,192			429			22,186			—		92,807
Cash and cash equivalents at end of period	$	6,825		$	10		$	22,092		$	—	$	28,927

For the Six Months Ended September 30, 2018
Parent
Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries
Eliminations
Consolidated
Total
Net sales $ —
$ 1,551,179
$ 177,280
$ (40,451 ) $ 1,688,008

Operating costs and expenses:
Cost of sales —
1,392,424
142,715
(40,451 ) 1,494,688
Selling, general and administrative 39,490
95,006
16,712
—
151,208
Depreciation and amortization 1,458
66,659
8,828
—
76,945
Restructuring costs 2,766
13,113
—
—
15,879
Loss on divestitures 16,891
946
—
—
17,837
60,605
1,568,148
168,255
(40,451 ) 1,756,557
Operating (loss) income (60,605 ) (16,969 ) 9,025
—
(68,549 )
Intercompany interest and charges (78,838 ) 74,797
4,041
—
—
Non-service defined benefit income —
(32,375 ) (686 ) —
(33,061 )
Interest expense and other 48,378
9,282
(3,454 ) —
54,206
Income (loss) before income taxes (30,145 ) (68,673 ) 9,124
—
(89,694 )
Income tax expense (benefit) 30,546
(30,087 ) 1,057
—
1,516
Net (loss) income (60,691 ) (38,586 ) 8,067
—
(91,210 )
Other comprehensive loss (70 ) (435 ) (13,850 ) —
(14,355 )
Total comprehensive loss $ (60,761 ) $ (39,021 ) $ (5,783 ) $ —
$ (105,565 )

3129

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

CONDENSED CONSOLIDATING STATEMENTS OF ~~COMPREHENSIVE INCOME:~~

CASH FLOWS:



	Three Months Ended June 30, 2018
	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated Total
Net (loss) income	$	(37,764	)	$	(40,726	)	$	1,956		$	—		$	(76,534	)

Adjustments to reconcile net income to net cash (used in) provided by operating activities	46,831			(76,449		)	40,941			(503		)	10,820
Net cash provided by (used in) operating activities	9,067			(117,175		)	42,897			(503		)	(65,714		)
Capital expenditures	(105		)	(10,524		)	(1,571		)	—			(12,200		)
Reimbursed capital expenditures	—			—			—			—			—
Proceeds from sale of assets	—			118			546			—			664
Net cash used in investing activities	(105		)	(10,406		)	(1,025		)	—			(11,536		)
Net increase in revolving credit facility	113,186			—			—			—			113,186
Proceeds on issuance of debt	1,214			632			17,200			—			19,046
Retirements and repayments of debt	(365		)	(6,597		)	(46,800		)	—			(53,762		)
Payments of deferred financing costs	(64		)	—			—			—			(64		)
Dividends paid	(1,988		)	—			—			—			(1,988		)
Repurchase of restricted shares for minimum tax obligations	(532		)	—			—			—			(532		)
Intercompany financing and advances	(120,373		)	133,966			(14,096		)	503			—
Net cash (used in) provided by financing activities	(8,922		)	128,001			(43,696		)	503			75,886
Effect of exchange rate changes on cash	—			—			(1,400		)	—			(1,400		)
Net change in cash and cash equivalents	40			420			(3,224		)	—			(2,764		)
Cash and cash equivalents at beginning of period	44			—			35,775			—			35,819
Cash and cash equivalents at end of period	$	84		$	420		$	32,551		$	—		$	33,055

For the Six Months Ended September 30, 2017
Parent
Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries
Eliminations
Consolidated
Total
Net sales $ —
$ 1,391,100
$ 177,659
$ (41,914 ) $ 1,526,845

Operating costs and expenses:
Cost of sales —
1,139,803
146,321
(41,914 ) 1,244,210
Selling, general and administrative 41,906
93,344
20,439
—
155,689
Depreciation and amortization 610
71,175
8,214
—
79,999
Restructuring costs 14,707
11,246
1,649
—
27,602
Loss on divestitures 20,371
—
—
—
20,371
77,594
1,315,568
176,623
(41,914 ) 1,527,871
Operating (loss) income (77,594 ) 75,532
1,036
—
(1,026 )
Intercompany interest and charges (82,953 ) 78,746
4,207
—
—
Non-service defined benefit income 523
(37,571 ) (1,235 ) —
(38,283 )
Interest expense and other 39,404
5,386
1,603
—
46,393
(Loss) income before income taxes (34,568 ) 28,971
(3,539 ) —
(9,136 )
(Benefit) income tax expense (15,748 ) 15,699
(1,778 ) —
(1,827 )
Net (loss) income (18,820 ) 13,272
(1,761 ) —
(7,309 )
Other comprehensive income (loss) (2,399 ) (2,171 ) 21,326
—
16,756
Total comprehensive (loss) income $ (21,219 ) $ 11,101
$ 19,565
$ —
$ 9,447

3230

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

~~CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS:~~

For the Six Months Ended September 30, 2018
Parent
Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries
Eliminations
Consolidated
Total
Net (loss) income $ (60,691 ) $ (38,586 ) $ 8,067
$ —
$ (91,210 )

Adjustments to reconcile net income to net cash provided by (used in) operating activities 53,818
(180,109 ) 11,498
8,824
(105,969 )
Net cash (used in) provided by operating activities (6,873 ) (218,695 ) 19,565
8,824
(197,179 )
Capital expenditures (583 ) (21,145 ) (2,526 ) —
(24,254 )
Proceeds from sale of assets —
40,189
848
—
41,037
Net cash (used in) provided by investing activities (583 ) 19,044
(1,678 ) —
16,783
Net increase in revolving credit facility 219,773
—
—
—
219,773
Proceeds on issuance of debt —
—
24,700
—
24,700
Retirements and repayments of debt (703 ) (11,320 ) (46,800 ) —
(58,823 )
Payments of deferred financing costs (1,922 ) —
—
—
(1,922 )
Dividends paid (3,981 ) —
—
—
(3,981 )
Repurchase of restricted shares for minimum tax obligation (548 ) —
—
—
(548 )
Intercompany financing and advances (205,128 ) 211,208
2,744
(8,824 ) —
Net cash provided (used in) by financing activities 7,491
199,888
(19,356 ) (8,824 ) 179,199
Effect of exchange rate changes on cash —
—
(1,395 ) —
(1,395 )
Net change in cash and cash equivalents 35
237
(2,864 ) —
(2,592 )
Cash and cash equivalents at beginning of period 44
—
35,775
—
35,819
Cash and cash equivalents at end of period $ 79
$ 237
$ 32,911
$ —
$ 33,227

~~Triumph Group, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(dollars in thousands, except per share data)~~

~~(unaudited)~~

~~CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS:~~

For the Six Months Ended September 30, 2017
Parent
Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries
Eliminations
Consolidated
Total
Net (loss) income $ (18,820 ) $ 13,272
$ (1,761 ) $ —
$ (7,309 )

Adjustments to reconcile net income to net cash (used in) provided by operating activities (1,865 ) (317,020 ) 25,710
1,419
(291,756 )
Net cash (used in) provided by operating activities (20,685 ) (303,748 ) 23,949
1,419
(299,065 )
Capital expenditures (1,449 ) (19,215 ) (2,111 ) —
(22,775 )
Proceeds from sale of assets —
67,633
249
—
67,882
Net cash (used in) provided by investing activities (1,449 ) 48,418
(1,862 ) —
45,107
Net increase in revolving credit facility 87,393
—
—
—
87,393
Proceeds on issuance of debt 500,000
—
10,800
—
510,800
Retirements and repayments of debt (314,485 ) (7,661 ) (34,900 ) —
(357,046 )
Payments of deferred financing costs (17,120 ) —
—
—
(17,120 )
Dividends paid (3,970 ) —
—
—
(3,970 )
Repurchase of restricted shares for minimum tax obligations (334 ) —
—
—
(334 )
Intercompany financing and advances (248,638 ) 238,896
11,161
(1,419 ) —
Net cash provided by (used in) financing activities 2,846
231,235
(12,939 ) (1,419 ) 219,723
Effect of exchange rate changes on cash —
—
(1,729 ) —
(1,729 )
Net change in cash and cash equivalents (19,288 ) (24,095 ) 7,419
—
(35,964 )
Cash and cash equivalents at beginning of period 19,942
24,137
25,554
—
69,633
Cash and cash equivalents at end of period $ 654
$ 42
$ 32,973
$ —
$ 33,669

~~Triumph Group, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(dollars in thousands, except per share data)~~

~~(unaudited)~~

15. COMMITMENTS AND CONTINGENCIES

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.

16. RESTRUCTURING COSTS

~~During~~As disclosed in the Company's Form 10-K for the year ended March 31, 2019, during the fiscal years ended March 31, 2017 and 2016, the Company committed to restructuring plans involving certain of its businesses, as well as the consolidation of certain of its facilities. ~~These~~With the exception of certain consolidations to be completed in future years, these plans ~~are nearing completion, and~~were substantially complete as ~~a result, the Company will have reduced its footprint by approximately 4.3 million square feet, will have reduced head count by approximately 2,500 employees and will have amended certain contracts.~~of March 31, 2019. The Company ~~originally estimated that it would record aggregate pre-tax charges~~incurred costs of $195,000 to $210,000 related to these programs, which represent employee termination benefits, contract termination costs, accelerated depreciation, and facility closure and other exit costs. These charges have resulted in cash outlays and will continue to do so until the completion of the related programs. As of September 30, 2018, the Company has updated its estimate of the expected aggregate pre-tax charge to $204,400 upon completion of the restructuring and is considering whether additional programs, which could impact the estimated aggregate pre-tax charge estimate, may further support the achievement of the overall strategic objective of the restructuring plans. From the initiation of the plans through the six months ended September 30, 2018, the Company has incurred approximately $193,000, and expects to incur approximately $11,400 of additional pre-tax charges primarily from remaining employee termination benefits and facility consolidations.

~~The following table provides a summary of the Company's current aggregate cost estimates by major type of expense~~$2,964 associated with ~~the~~new restructuring plans ~~noted above:~~

Type of expense: Total estimated amount expected to be incurred
Termination benefits $ 39,000
Facility closure and other exit costs ⁽¹⁾
32,200
Contract termination costs 20,700
Accelerated depreciation charges ⁽²⁾
36,200
Other⁽³⁾
76,300
$ 204,400

~~(1)~~ I~~ncludes~~during the first quarter of fiscal year 2020. These costs, which are being incurred within the Integrated Systems segment, pertain to ~~transfer product lines among facilities and outplacement and employee relocation costs.~~

~~(2) Accelerated depreciation charges are recorded as part of depreciation and amortization on the consolidated statements of operations.~~

~~(3) Consists of other costs directly related to the plan, including project management, legal, regulatory~~third-party consulting costs and ~~other transformation related costs, such as costs~~are estimated to ~~amend certain contracts.~~

~~The restructuring charges recognized~~be approximately $8,000 to $10,000 for the ~~three and six months~~year ended ~~September 30, 2018 and 2017, by type and by segment consisted of the following:~~March 31, 2020.

3531

~~Triumph Group, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(dollars in thousands, except per share data)~~

~~(unaudited)~~

For the Three Months Ended September 30, 2018
Integrated Systems Aerospace Structures Product Support Corporate Total
Termination benefits $ 1,168
$ 6,627
$ 163
$ 2,767
$ 10,725
Facility closure and other exit costs 825
—
—
—
825
Other 282
—
—
—
282
Total restructuring costs 2,275
6,627
163
2,767
11,832
Depreciation and amortization —
—
—
—
—
Total $ 2,275
$ 6,627
$ 163
$ 2,767
$ 11,832

For the Three Months Ended September 30, 2017
Integrated Systems Aerospace Structures Product Support Corporate Total
Termination benefits $ —
$ 491
$ —
$ —
$ 491
Facility closure and other exit costs 70
4,486
—
—
4,556
Other 129
766
—
4,159
5,054
Total restructuring costs 199
5,743
—
4,159
10,101
Depreciation and amortization 981
314
—
—
1,295
Total $ 1,180
$ 6,057
$ —
$ 4,159
$ 11,396

For the Six Months Ended September 30, 2018
Integrated Systems Aerospace Structures Product Support Corporate Total
Termination benefits $ 1,168
$ 9,893
$ 163
$ 2,767
$ 13,991
Facility closure and other exit costs 1,384
—
—
—
1,384
Other 504
—
—
—
504
Total restructuring costs 3,056
9,893
163
2,767
15,879
Depreciation and amortization —
—
—
—
—
Total $ 3,056
$ 9,893
$ 163
$ 2,767
$ 15,879

For the Six Months Ended September 30, 2017
Integrated Systems Aerospace Structures Product Support Corporate Total
Termination benefits $ —
$ 747
$ —
$ —
$ 747
Facility closure and other exit costs 70
7,790
—
—
7,860
Other 744
2,783
760
14,708
18,995
Total restructuring costs 814
11,320
760
14,708
27,602
Depreciation and amortization 1,527
629
—
—
2,156
Total $ 2,341
$ 11,949
$ 760
$ 14,708
$ 29,758

Termination benefits include employee retention, severance and benefit payments for terminated employees. Facility closure costs include general operating costs incurred subsequent to production shutdown as well as equipment relocation and other associated costs. Contract termination costs include costs associated with terminating existing leases and supplier agreements. Other transformation costs include legal, outplacement and employee relocation costs, and other employee-related costs and costs to amend certain contracts.

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 statements contained elsewhere herein.)

OVERVIEW

We are a major supplier to the aerospace industry and have three operating segments: (i) Integrated Systems, 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 and 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 (iii) Product Support, whose companies provide full life cycle solutions for commercial, regional and military aircraft.

~~In July 2018 and August 2018, respectively,~~During the fiscal year ended March 31, 2019, the Company ~~sold~~divested of a number of its assets and operations, including (i) selling all of the shares of Triumph Structures - East Texas, Inc. ~~as well as~~and all of the shares of Triumph Structures - Los Angeles, Inc., and Triumph Processing, Inc. (collectively, the "Long & Large"), (ii) transitioning the responsibility for the Bombardier Global 7500 ("Global 7500") wing program manufacturing operations of Aerospace Structures to Bombardier, (iii) selling all of the shares of Triumph Fabrications - San Diego, Inc. and Triumph Fabrications - Ft. Worth, Inc. (together, "Fabrications"), (iv) selling all of the shares of Triumph Structures – Kansas City, Inc., Triumph Structures – Wichita, Inc., Triumph Gear Systems – Toronto, ULC and Triumph Northwest (The Triumph Group Operations, Inc.) (together, "Machining"), and (v) selling all of the shares of Triumph Aviation Services - NAAS Division, Inc. ("NAAS"). Collectively, these transactions are referred to as the "fiscal 2019 ~~divestitures") for combined cash proceeds of $40.0 million and a note receivable of $7.0 million. As a result of these sales, the~~divestitures." The Company recognized combined net losses of ~~$17.2~~$235.3 million associated with the fiscal 2019 divestitures, which isare presented on the accompanying ~~condensed~~ consolidated statements of operations within ~~"Loss~~loss on divestitures.~~" The~~ With the exception of NAAS, the operating results for the fiscal 2019 divestitures are included in Aerospace Structures ("fiscal 2019 Aerospace Structures Divestitures") through the respective dates of divestiture. The operating results for NAAS are included in Product Support through the date of divestiture.

Highlights for the ~~second~~first quarter of the fiscal year ending March 31, ~~2019,~~2020, included:

Net sales for the ~~second~~first quarter of the fiscal year ending March 31, ~~2019,~~2020, were ~~$855.1~~$730.2 million, compared with ~~$745.2~~$832.9 million for the prior year period.

Operating ~~loss~~income in the ~~second~~first quarter of fiscal ~~2019~~2020 was ~~$2.0~~$35.5 million, compared with operating loss of ~~$29.0 thousand~~$66.5 million for the ~~second~~first quarter of fiscal ~~2018.~~2019.

Net ~~loss~~income for the ~~second~~first quarter of fiscal ~~2019~~2020 was ~~$14.7~~$18.1 million, compared with a net loss of ~~$5.4~~$76.5 million for the ~~second~~first quarter of fiscal ~~2018.~~2019.

Backlog as of ~~September~~June 30, ~~2018,~~2019, was ~~$4.34~~$3.71 billion. Of our existing backlog of ~~$4.34~~$3.71 billion, we estimate that approximately ~~$1.63~~$1.46 billion will not be shipped by ~~September~~June 30, ~~2019.~~2020.

Net ~~loss~~income for the ~~second~~first quarter of fiscal ~~2019~~2020 was ~~$0.30~~$0.36 per diluted common share, as compared with a net loss of ~~$0.11~~$1.54 per diluted share in the prior year period.

We ~~used $197.2~~generated $5.0 million of cash flow from operating activities for the ~~six~~three months ended ~~September~~June 30, ~~2018,~~2019, as compared with cash used in operations of ~~$299.1~~$65.7 million in the comparable prior year period.

WeThe Company has committed to several plans (which were initiated in fiscal 2016) that ~~incorporate~~incorporated the restructuring of certain of ~~our~~its businesses as well as the consolidation of certain of ~~our~~its facilities. ~~We expect~~With the exception of certain consolidations to ~~reduce our footprint by approximately 4.3 million square feet and to reduce head count by 2,500 employees. Over the course of the plans (which were initiated~~be completed in ~~fiscal 2016), we estimate that we will record aggregate pre-tax charges of $195.0 million to $210.0 million related to~~future years, these plans ~~which represent employee termination benefits, contract termination costs, accelerated depreciation, and facility closure and other exit costs and will result in future cash outlays.~~were substantially complete as of March 31, 2019. For the ~~six~~three months ended ~~September~~June 30, 2019 and 2018, ~~and 2017, we recorded pre-tax charges of $15.9~~the Company incurred $3.0 million and ~~$29.8~~$4.0 million ~~respectively, related to these plans.~~in restructuring costs, respectively.

Our restructuring plans and related activities were anticipated to generate annualized savings of approximately $300 million per year on a consolidated basis by fiscal year 2019 from facility consolidations, headcount reductions, operational efficiencies, and supply chain optimization. These anticipated savings were expected to come from our reportable segments approximately as follows: Integrated Systems - 23%; Aerospace Structures - 72% and Product Support - 5%. A significant portion of the anticipated savings are expected to be reinvested in business development, research and development, and capital improvements to help drive organic growth or to support previously negotiated contractual price step-downs. The Company remains on target for its consolidated anticipated savings goals; however, the nature of those savings has shifted over time to be

3732

Management's Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

From fiscal 2014 through fiscal 2019, our Aerospace Structures business unit had been performing design, development and initial manufacturing on several new programs, including the Embraer second generation E-Jet ("E2-Jets") and more ~~weighted toward our supply chain optimization and operational efficiencies than previously anticipated, offset~~recently, the Gulfstream G500/G600 programs. Historically, low-rate production commences during flight testing, followed by ~~reduced expectations associated with the facility consolidations and headcount reductions.~~

~~On December 22, 2017, the U.S. government enacted comprehensive tax legislation referred~~an increase to ~~as the Tax Cuts and Jobs Act (the “Act”). The Act introduced tax reform~~full-rate production, assuming that reduced the current corporate federal income tax rate from 35% to 21%, among other changes. The Act makes broad and complex changes to the U.S. tax code and it will take time to fully evaluate the impact of these changes on the Company. The Company has prepared a reasonable estimate around the impact of the Act and has recorded a provisional impact (as described in Staff Accounting Bulletin 118) to the tax provision in the period ended March 31, 2018. While the Company has computed and recorded these provisional amounts, these will be finalized within the established measurement period (not to exceed one year) as additional data and information is gathered. The Company determined that the amounts recorded are provisional as adjustments may occur due to additional guidance from the Internal Revenue Service and as certain tax positions are finalized when the Company files its fiscal 2018 tax returns. As of September 30, 2018, the Company has not made revisions to the provisional tax impact of the Act. Any revisions will be included as an adjustment to the tax expense in the period in which the amounts are determined.

The Company is still evaluating the effects of the GILTI provisions; an accounting policy on whether the Company will account for GILTI as a period expense or record deferred taxes for anticipated GILTI has not been made. The Company's accounting for the effects of the GILTI provision is incomplete; however, the Company has included estimated GILTI tax related to current year operations in the Company's annualized effective tax rate and has not provided additional GILTI on deferred items.

The Company is still in the early production stages for the Bombardier and Embraer programs, as these aircrafts are scheduled to enter service in fiscal 2019. Transition of these programs from development to recurring production levels is dependent upon the success of the programs achieving flightsuccessful testing and certification ~~as well as~~are achieved. While work progressed on these development programs, we have experienced difficulties in achieving estimated cost targets particularly in the ~~ability~~areas of engineering and estimated recurring costs which resulted in forward losses. Additionally, from fiscal 2015 to fiscal 2019, our Aerospace Structures business unit experienced operating and forward losses on its production of the ~~Bombardier~~Boeing 747-8 fuselage for Boeing, Gulfstream G280 wing for Israel Aerospace Industries, Ltd ("IAI") and ~~Embraer programs to generate acceptable levels of aircraft sales. The failure to achieve these milestones and level of sales or significant cost overruns may result in additional forward losses.~~Gulfstream G650 wing for Gulfstream. Further discussion is included below regarding each program's impact on operations over the past three fiscal years.

In May 2017, Triumph Aerostructures and Bombardier entered into a comprehensive settlement agreement that resolved all then-outstanding commercial disputes between them, including all pending litigation, related to the design, manufacture and supply of wing components for Bombardier’s Global 7000/8000 business aircraft. The settlement reset the commercial relationship between the companies and allowed each company to better achieve its business objectives going forward. The Company and Bombardier continue to have programmatic and commercial discussions on the wing scope of work and are jointly analyzing the most cost-efficient supply chain arrangement to ensure continuity of supply and the long-term success of the program and both companies.E2-Jets

Under our contract with Embraer, we ~~have~~had the exclusive right to design, develop and manufacture the center fuselage section III, rear fuselage section and various tail section components (rudder and elevator) for the ~~E2-Jets.~~E2-Jets over the initial 600 ship sets. The contract ~~provides~~provided for funding on a fixed amount of ~~non-recurring~~nonrecurring costs, ~~which will~~to be paid over a specified number of production units. Higher than expected spending on the E2-Jets program ~~has~~ resulted in a near ~~breakeven~~break-even estimated profit margin percentage, with additional potential future cost pressures as well as opportunities for improved performance. Risks related to additional engineering as well as the recurring cost profile remain ason this ~~program completes flight testing.~~program.

~~We seek additional consideration for customer work statement changes throughout our contract life as a standard course of business. We recently~~During the fiscal year ended March 31, 2018, the Company reached an agreement with AeroSpace Technologies of Korea Inc. ("ASTK") to optimize the supply chain under our portion of the E2 program. Under this agreement, ASTK will build and transport fuselage shipsets to Embraer and establish a facility in Brazil to manage stock and repairs locally. At the time, the Company maintained its role as the supply chain integrator on the program.

In April 2019, we announced an agreement to assign our contract with Embraer for the manufacture of structural components for their program to ASTK. Under this agreement, we will remain a supplier to ASTK for the rudder and elevator components. We remain on target for completion of the assignment to ASTK in the third quarter of fiscal 2020.

G500/G600

We are in the final development stages for the Gulfstream ~~across many~~G500/G600 programs, ~~we support including, but not limited~~as these aircraft are expected to enter service in fiscal 2020. Transition of each of these programs from development to recurring production levels is dependent upon the success of each program at achieving flight testing and certification, as well as the ability of the OEM to generate acceptable levels of aircraft sales.

Further cost increases or an inability to meet revised recurring cost forecasts on the G500/G600 program may result in additional forward loss reserves in future periods, while improvements in future costs compared to current estimates or additional cost recovery may result in favorable adjustments if forward loss reserves are no longer required.

Boeing 747-8

As disclosed during fiscal 2016, Boeing announced a rate reduction to the 747-8 program, which lowered production to one plane every two months. The impact of the rate reduction resulted in additional forward loss during the fiscal year ended March 31, 2016.

In March 2017, the Company settled several outstanding change orders and open pricing on a number of its programs with Boeing. The agreement included pricing settlements, advanced payments, delivery schedule adjustments and the opportunity to extend the mutual relationship on future programs. The agreement also provided for continued build ahead on the 747-8 program through the end of the existing contract, resulting in a reduction to the previously recognized forward losses on the 747-8 program.

This program has stabilized with no additional forward losses being recognized and is anticipated to complete production by mid-fiscal 2021.

G280

We acquired both the G280 and G650 wing ~~program. We are also currently engaged~~programs in fiscal 2015 and received proceeds for $160.0 million as both contracts were operating at a loss. While operations have improved on the G650 since acquisition as noted further below,

Management's Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

the cost profile of the G280 wing program has continued to result in forward loss charges, including $29.1 million in the fiscal year ended March 31, 2019.

In April 2019, the Company and IAI reached an agreement to transition the manufacture of the G280 wing to IAI. The two companies have developed detailed transition plans to enable a seamless transition of work. Our contract with ~~other customers~~IAI will terminate upon completion of the transition of work. Our forward loss recognized in ~~similar negotiations. The ability~~the fiscal year ended March 31, 2019, noted above includes the cost to ~~recover or negotiate additional consideration~~transition, which is ~~not certain and varies by contract. Varying market conditions for these products may also impact future profitability.~~estimated to be completed in mid-fiscal 2021.

~~During April 2018,~~G650

In the first quarter of fiscal 2019, the Company reached an agreement with Gulfstream to optimize the supply chain on the Company's G650 work scope. The G650 wing box and wing completion work, which ~~are now~~had been co-produced across three facilities at both companies, are ~~planned for consolidation~~being consolidated into ~~Gulfstream's structures center of excellence~~Gulfstream’s facilities in Savannah, Georgia. The Company ~~will maintain~~completed the manufacturing of its final wing box in July 2019. The Company maintains its role as the supply chain integrator on the ~~program.~~

~~Management's Discussion~~program and ~~Analysis of~~

~~Financial Condition and Results of Operations~~

~~(continued)~~

has since returned this contract to modest profitability.

In September 2017, the Company reached an agreement with Boeing to supply the wing, vertical tail and horizontal tail structures for the new ~~T-X pilot training~~Advanced Pilot Training program for the U.S. Air Force. In September 2018, the U.S. Air Force awarded the contract to Boeing. In fiscal 2019, the Company initiated supply chain analysis in support of Boeing's preliminary design. Risks related to development and recurring productions costs are possible and could result in future forward losses.

Although none of ~~these new~~the development or production 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.

In September 2017, the Company sold all of the shares of Triumph Processing - Embee Division, Inc. ("Embee") for total cash proceeds of $65.0 million. As a result of the sale of Embee, the Company recognized a loss of $17.9 million, which is included in Corporate. The operating results of Embee were included in Integrated Systems through the date of divestiture.

In March 2018, the Company sold all of the shares of Triumph Structures Long Island, LLC ("TS-LI") for cash proceeds of $9.5 million, and a note receivable of $1.4 million. As a result of the sale of TS-LI, the Company recognized a loss of $10.4 million which is presented on the accompanying condensed consolidated statements of operations as "Loss on divestitures." The operating results of TS-LI were included in Aerospace Structures through the date of divestiture.

In December 2016, the Company entered into a definitive agreement to divest Triumph Air Repair, the Auxiliary Power Unit Overhaul Operations of Triumph Aviation Services - Asia, Ltd. and Triumph Engines - Tempe ("Engines and APU"). As a result, the Company recognized a loss of $14.3 million on the sale. The operating results of Engines and APU were included in Product Support through the date of divestiture. The transaction closed during the quarter ended June 30, 2017. An option to purchase the repair part line of Triumph Aviation Services - Asia, Ltd. was executed by the buyer of Engines and APU in May 2018 for total cash proceeds of $17.8 million. This transaction is expected to close during the second half of fiscal 2019 and is expected to result in a gain. The related assets and liabilities are shown as held for sale on the accompanying condensed consolidated balance sheets.

RESULTS OF OPERATIONS

The following includes a discussion of our consolidated and business segment results of operations. The Company's diverse structure and customer base do not allow 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 the rules of the Securities and Exchange Commission (the "SEC") ~~guidance on Compliance and Disclosure Interpretations,~~, we also disclose and discuss certain non-GAAP financial measures in our public filings and earning releases. Currently, the non-GAAP financial measures that we disclose are Adjusted EBITDA, which is our net income ~~from continuing operations~~(loss) before interest, income taxes, amortization of acquired contract liabilities, legal settlements, loss on divestitures, depreciation and amortization; and Adjusted EBITDAP, which is Adjusted EBITDA, before ~~pension.~~pension expense or benefit, including the effects of curtailments, settlements, and other early retirement incentives. We disclose Adjusted EBITDA on a consolidated and Adjusted EBITDAP on a consolidated and a reportable segment basis in our earnings releases, investor conference calls and filings with the SEC. The non-GAAP financial measures that we use may not be comparable to similarly titled measures reported by other companies. Also, in the future, we may disclose different non-GAAP financial measures in order to help our investors more meaningfully evaluate and compare our future results of operations with our previously reported results of operations.

We view Adjusted EBITDA and Adjusted EBITDAP as operating performance measures 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 (loss)~~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 and Adjusted EBITDAP are not measurements 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

~~Management's Discussion and Analysis of~~

~~Financial Condition and Results of Operations~~

~~(continued)~~

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

Management's Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

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 and Adjusted EBITDAP.

Adjusted EBITDA and 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. Adjusted EBITDA and Adjusted EBITDAP exclude these charges and ~~provides~~provide 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 and Adjusted EBITDAP are measures of our ongoing operating performance because the isolation of non-cash charges, such as depreciation and amortization, and non-operating items, such as interest, 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 financial measures 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 these non-GAAP financial measures as compared towith net income (loss) or income from continuing operations:

~~Divestitures~~Gains or losses from divestitures may be useful for investors to consider because they reflect gains or losses from sale of operating units. We do not believe these earnings necessarily reflect the current and ongoing cash earnings related to our operations.

Legal settlements, when applicable, may be useful for investors to consider because it reflects gains or losses from disputes with third parties. We do not believe these earnings necessarily reflect the current and ongoing cash earnings related to our operations.

Non-service defined benefit income or expense from our pension and other postretirement benefit plans (inclusive of the adoption of ASU ~~2017-07)~~2017-07 and certain pension related transactions such as curtailments, settlements, and early retirement incentives) may be useful for investors to consider because they represent the cost of ~~post retirement~~postretirement benefits to plan participants, net of the assumption of returns on the plan's assets and are not indicative of the cash paid for such benefits. We do not believe these earnings (expenses) necessarily reflect the current and ongoing cash earnings related to our operations.

Amortization of acquired contract liabilities may be useful for investors to consider because it represents the non-cash earnings on the fair value of off-market contracts acquired through acquisitions. We do not believe these earnings necessarily reflect the current and ongoing cash earnings related to our operations.

Amortization expense (including intangible asset impairments) may be useful for investors to consider because it represents the estimated attrition of our acquired customer base and the diminishing value of product rights and licenses. We do not believe these charges necessarily reflect the current and ongoing cash charges related to our operating cost structure.

Depreciation may be useful for investors to consider because it generally represents the wear and tear on our property and equipment used in our operations. We do not believe these charges necessarily reflect the current and ongoing cash charges related to our operating cost structure.

The amount of interest expense and other we incur may be useful for investors to consider and may result in current cash inflows or outflows. However, we do not consider the amount of interest expense and other to be a representative component of the day-to-day operating performance of our business.

Income tax expense may be useful for investors to consider because it generally represents the taxes which may be payable for the period and the change in deferred income taxes during the period and may reduce the amount of funds otherwise available for use in our business. However, we do not consider the amount of income tax expense to be a representative component of the day-to-day operating performance of our business.

4035

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 only to supplement our U.S. GAAP results and to provide additional information that is useful to gain an understanding of the factors and trends affecting our business.

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


	Three Months Ended September 30,						Six Months Ended September 30,						Three Months Ended June 30,
	2018			2017			2018			2017			2019			2018
Net loss	$	(14,676	)	$	(5,378	)	$	(91,210	)	$	(7,309	)
Net income (loss)													$	18,088		$	(76,534	)
Loss on divestitures	13,118			20,371			17,837			20,371			3,136			4,719
Adoption of ASU 2017-07	—			—			87,241			—			—			87,241
Amortization of acquired contract liabilities, net	(16,804		)	(27,898		)	(34,038		)	(57,371		)	(16,939		)	(17,234		)
Depreciation and amortization	38,134			40,868			76,945			79,999			44,050			38,812
Interest expense and other	28,714			25,375			54,206			46,393			27,491			25,493
Pension settlement charge	—			523			—			523
Income tax expense (benefit)	485			(1,149		)	1,516			(1,827		)
Income tax expense													4,807			1,031
Adjusted EBITDA	$	48,971		$	52,712		$	112,497		$	80,779		$	80,633		$	63,528
Non-service defined benefit income (excluding settlements)	(16,524		)	(19,400		)	(33,061		)	(38,806		)	(14,875		)	(16,538		)
Adjusted EBITDAP	$	32,447		$	33,312		$	79,436		$	41,973		$	65,758		$	46,990

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


	Three Months Ended September 30, 2018														Three Months Ended June 30, 2019
	Total			Integrated Systems			Aerospace Structures			Product Support		Corporate/ Eliminations			Total			Integrated Systems			Aerospace Structures			Product Support		Corporate/ Eliminations
Operating (loss) income	$	(2,001	)	$	39,866		$	(22,744	)	$	11,514	$	(30,637	)
Operating income (loss)															$	35,511		$	34,772		$	12,283		$	9,276	$	(20,820	)
Loss on divestitures	13,118			—			—			—		13,118			3,136			—			—			—		3,136
Amortization of acquired contract liabilities, net	(16,804		)	(8,768		)	(8,036		)	—		—			(16,939		)	(8,125		)	(8,814		)	—		—
Depreciation and amortization *	38,134			7,384			28,294			1,664		792
Depreciation and amortization															44,050			7,067			35,059			1,090		834
Adjusted EBITDAP	$	32,447		$	38,482		$	(2,486	)	$	13,178	$	(16,727	)	$	65,758		$	33,714		$	38,528		$	10,366	$	(16,850	)


	Three Months Ended September 30, 2017														Three Months Ended June 30, 2018
	Total			Integrated Systems			Aerospace Structures			Product Support		Corporate/ Eliminations			Total			Integrated Systems			Aerospace Structures			Product Support		Corporate/ Eliminations
Operating (loss) income	$	(29	)	$	41,641		$	(9,052	)	$	11,233	$	(43,851	)	$	(66,548	)	$	35,409		$	(79,587	)	$	7,669	$	(30,039	)
Loss on divestitures	20,371			—			—			—		20,371			4,719			—			—			—		4,719
Adoption of ASU 2017-07															87,241			—			87,241			—		—
Amortization of acquired contract liabilities, net	(27,898		)	(9,299		)	(18,599		)	—		—			(17,234		)	(8,849		)	(8,385		)	—		—
Depreciation and amortization	40,868			9,588			29,305			1,667		308			38,812			7,555			28,920			1,670		667
Adjusted EBITDAP	$	33,312		$	41,930		$	1,654		$	12,900	$	(23,172	)	$	46,990		$	34,115		$	28,189		$	9,339	$	(24,653	)

Corporate operating loss includes share-based compensation expense of $2.4 million and $2.5 million for the three months ended June 30, 2019 and 2018, respectively.

4136

Management's Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

Six Months Ended September 30, 2018
Total Integrated Systems Aerospace Structures Product Support
Corporate/
Eliminations
Operating (loss) income $ (68,549 ) $ 75,275
$ (102,331 ) $ 19,183
$ (60,676 )
Loss on divestitures 17,837
—
—
—
17,837
Adoption of ASU 2017-07 87,241
—
87,241
—
—
Amortization of acquired contract liabilities, net (34,038 ) (17,617 ) (16,421 ) —
—
Depreciation and amortization * 76,945
14,939
57,214
3,334
1,458
Adjusted EBITDAP 79,436
$ 72,597
$ 25,703
$ 22,517
$ (41,381 )

Six Months Ended September 30, 2017
Total Integrated Systems Aerospace Structures Product Support
Corporate/
Eliminations
Operating (loss) income $ (1,026 ) 88,624
$ (31,570 ) $ 19,670
$ (77,750 )
Loss on divestitures 20,371
—
—
—
20,371
Amortization of acquired contract liabilities, net (57,371 ) (16,602 ) (40,769 ) —
—
Depreciation and amortization 79,999
19,539
56,445
3,405
610
Adjusted EBITDAP $ 41,973
$ 91,561
$ (15,894 ) $ 23,075
$ (56,769 )

Three months ended ~~September~~June 30, ~~2018~~2019 compared with three months ended ~~September~~June 30, ~~2017~~

2018


	Three Months Ended September 30,						Three Months Ended June 30,
	2018			2017			2019			2018
	(dollars in thousands)						(dollars in thousands)
Net sales	$	855,108		$	745,156		$	730,231		$	832,900
Segment operating income	$	28,636		$	43,822
Segment operating income (loss)							$	56,331		$	(36,509	)
Corporate expense	(30,637		)	(43,851		)	(18,394		)	(27,577		)
Total operating income	(2,001		)	(29		)
Share-based compensation expense							(2,426		)	(2,462		)
Total operating income (loss)							35,511			(66,548		)
Interest expense and other	28,714			25,375			27,491			25,493
Non-service defined benefit income	(16,524		)	(18,877		)	(14,875		)	(16,538		)
Income tax expense	485			(1,149		)	4,807			1,031
Net loss	$	(14,676	)	$	(5,378	)
Net income (loss)							$	18,088		$	(76,534	)

Net sales ~~increased~~decreased by ~~$110.0~~$102.7 million, or ~~14.8%~~12.3%, to ~~$855.1~~$730.2 million for the three months ended ~~September~~June 30, ~~2018,~~2019, from ~~$745.2~~$832.9 million for the three months ended ~~September~~June 30, ~~2017.~~2018. Organic sales adjusted for inter-segment sales increased ~~$144.3~~$43.1 million, or ~~20.8%~~5.8%, ~~partially~~ offset by declines from divestitures of ~~$34.3~~$145.7 million. Organic sales increased ~~increased~~ primarily due to ~~shipments~~increased volumes on G550, Global Hawk and 787 programs, increases in engine components and military rotorcraft components as well as increased demand for ~~narrow body programs such as the 737 and A320, military platforms aftermarket repairs for the KC-10 and C-17 and, the ramp on development programs.~~accessory components. Net sales for the three months ended ~~September~~June 30, ~~2018,~~2019, included ~~$4.9~~$7.9 million in total ~~non-recurring~~nonrecurring revenues, as compared with ~~$1.7~~$39.4 million in ~~non-recurring~~nonrecurring revenues for the three months ended ~~September~~June 30, ~~2017.~~2018.

Cost of sales ~~increased $126.1~~decreased $188.0 million, or ~~21.1%~~24.4%, to ~~$724.5~~$582.2 million for the three months ended ~~September~~June 30, ~~2018,~~2019, from ~~$598.4~~$770.2 million for the three months ended ~~September~~June 30, ~~2017.~~2018. Organic cost of sales ~~increased $158.8~~decreased $35.1 million, or ~~29.0%~~5.7%. ~~Organic cost~~Cost of sales ~~increases were partially offset by decreases from divestitures of $32.7 million. Organic cost of sales increased due to~~for the ~~increase in organic sales mentioned above, changes in sales mix, and additional forward loss provisions, primarily~~three months ended June 30, 2018 included $87.2 million charge from the ~~Bombardier Global 7500 program~~adoption of ~~$19.9 million that was partially offset by a reduction in the forward loss reserve~~ASU 2017-07 and net unfavorable cumulative catch-up adjustments on ~~a Gulfstream program~~long-term contracts of ~~$7.6~~$3.6 million. The organic gross margin for the three months ended ~~September~~June 30, ~~2018~~2019 was ~~15.3%~~20.3%, as compared with ~~19.7%~~10.2%, for the three months ended ~~September~~June 30, ~~2017.~~

~~Management's Discussion and Analysis of~~

~~Financial Condition and Results of Operations~~

~~(continued)~~

2018.

Gross margin included net unfavorable cumulative catch-up adjustments on long-term contracts of ~~$10.2~~$5.0 million. The cumulative catch-up adjustments to gross margin included gross favorable adjustments of ~~$55.6~~$19.7 million and gross unfavorable adjustments of ~~$65.8~~$24.7 million. Gross margin for the three months ended ~~September~~June 30, ~~2017,~~2018, included net ~~favorable~~unfavorable cumulative catch-up adjustments of ~~$8.4~~$3.6 million.

Segment operating income ~~decreased~~increased by ~~$15.2~~$92.8 million, or ~~34.7%~~254.3%, to an operating ~~loss~~income of ~~$28.6~~$56.3 million for the three months ended ~~September~~June 30, ~~2018,~~2019, from an operating ~~income~~loss of ~~$43.8~~$36.5 million for the three months ended ~~September~~June 30, ~~2017.~~2018. Organic segment operating income ~~decreased $19.4~~increased by $72.1 million ~~or 39.1%. Organic~~due to the prior period charge from the adoption of ASU 2017-07. Divestitures contributed $20.7 million improvement to operating ~~income decreases were partially offset by increases from divestitures of $4.2 million.~~income. Organic operating income for the three months ended ~~September~~June 30, ~~2018 decreased~~2019 increased due to the ~~decreased~~ gross ~~margins.~~margin improvement noted above as well as lower compensation cost ($3.5 million) and lower research & development costs ($3.8 million).

Corporate expenses were ~~$30.6~~$18.4 million for the three months ended ~~September~~June 30, ~~2018,~~2019, as compared with ~~$43.9~~$27.6 million for the three months ended ~~September~~June 30, ~~2017.~~2018. The decrease in corporate expenses ~~of $13.2~~was $9.2 million, or ~~30.1%~~33.3%, ~~included~~and was primarily the result of decreased compensation expense on lower ~~workers' compensation expenses of $5.9 million. Losses on divestitures for the three months ended September 30, 2018~~overall headcount and ~~2017, were $13.1 million and $20.4 million, respectively.~~lower legal expenses.

Interest expense and other increased by ~~$3.3~~$2.0 million, or ~~13.2%~~7.8%, to ~~$28.7~~$27.5 million for the three months ended ~~September~~June 30, ~~2018,~~2019, compared with ~~$25.4~~$25.5 million for the three months ended ~~September~~June 30, ~~2017,~~2018, due to ~~higher interest rates and relative debt levels offset by the favorable net~~$2.6 million change in foreign exchange ~~rate changes of approximately $1.0 million compared with the prior year period.~~transactional gains in loss, partially offset by lower interest expense due to differences in relative debt levels.

The effective income tax rate for the three months ended ~~September~~June 30, ~~2018,~~2019, was ~~(2.2)%~~21.0% compared with ~~17.6%~~(1.4)% for the three months ended ~~September~~June 30, ~~2017.~~2018. For the three months ended ~~September~~June 30, ~~2018,~~2019, the effective tax rate reflected a limitation on the recognition of tax benefits due to the full valuation allowance.

~~For the fiscal year ending March 31,~~

Business Segment Performance - Three months ended June 30, 2019 ~~the Company expects tax expense to be approximately $3 to $4 million~~compared with ~~opportunity to be reduced further through the release of the valuation allowance that is discussed further in Note 9.~~three months ended June 30, 2018

4337

Management's Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

~~Business Segment Performance - Three months ended September 30, 2018 compared with three months ended September 30, 2017~~

We report our financial performance based on the following three reportable segments: Integrated Systems, Aerospace Structures, and Product Support. The Company's 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 reportable segments, as well as our operating segments, vary due to differences in competitors, customers, extent of proprietary deliverables and performance. For example, Integrated Systems, which generally includes proprietary products and/or arrangements ~~in which~~where we become the primary source or one of a few primary sources to our customers, ~~whereby~~ our unique manufacturing capabilities command a higher margin. ~~Also, OEMs are increasingly focusing on assembly activities while outsourcing more manufacturing and repair to third parties, and as a result, are less of a competitive force than in previous years.~~ This compares to Aerospace Structures, which generally includes long-term sole-source or preferred supplier contracts and the success of these programs provides a strong foundation for our 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 and Aerospace Structures segments.

Integrated Systems 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; ~~hydro-mechanical~~hydromechanical and electromechanical primary and secondary flight ~~controls; and a broad spectrum of surface treatment options.~~controls.

Aerospace Structures consists of the Company’s operations that supply commercial, business, regional and military manufacturers with large metallic and composite ~~structures.~~structures and aircraft interior systems, including air ducting and thermal acoustic insulations systems. Products include wings, wing boxes, fuselage panels, horizontal and vertical tails, ~~and sub-assemblies~~subassemblies such as floor ~~grids.~~grids, and aircraft interior systems, including air ducting and thermal acoustic insulations systems. Aerospace Structures also has the capability to engineer detailed structural designs in metal and composites. It also includes the Company’s operations that produce close-tolerance parts primarily to customer designs and model-based definition, including a wide range of aluminum, hard metal and composite structure capabilities. Capabilities include ~~complex machining; gear manufacturing; sheet metal fabrication; forming;~~ advanced composite and interior ~~structures;~~structures, joining processes such as welding, autoclave bonding and conventional mechanical ~~fasteners;~~fasteners and a variety of special processes, ~~including~~including: super plastic titanium forming, aluminum and titanium chemical milling, surface treatments, and ~~surface treatments.~~integrated testing and certification services.

Product Support consists of the Company’s operations that provide full life cycle solutions for commercial, regional and military aircraft. The Company’s extensive product and service offerings include full post-delivery value chain services that simplify the MRO supply chain. Through its ~~line~~ground support equipment maintenance, component MRO and ~~postproduction~~post-production supply chain activities, Product Support is positioned to provide integrated planeside repair solutions globally. Capabilities include ~~fuel tank repair,~~ metallic and composite aircraft ~~structures, nacelles,~~structures; nacelles; thrust ~~reversers, interiors,~~reversers; interiors; auxiliary power ~~units~~units; and a wide variety of pneumatic, hydraulic, fuel and mechanical accessories.

We currently generate a majority of our revenue from clients in the commercial aerospace industry, the military, the business jet industry and the regional airline industry. Our growth and financial results are largely dependent on continued demand for our products and services from clients in these industries. If any of these industries experiences a downturn, our clients in these sectors may conduct less business with us. The following table summarizes our net sales by end market by business segment. The loss of one or more of our major customers or an economic downturn in the commercial airline or the military and defense markets could have a material adverse effect on our business.

4438

Management's Discussion and Analysis of

Financial Condition and Results of Operations

(continued)


	Three Months Ended September 30,								% of Total Sales				Three Months Ended June 30,								% of Total Sales
	2018			2017			% Change		2018		2017		2019			2018			% Change		2019		2018
	(in thousands)												(in thousands)
NET SALES
Integrated Systems	$	260,717		$	233,765		11.5	%	30.5	%	31.4	%	$	252,226		$	241,039		4.6	%	34.5	%	28.9	%
Aerospace Structures	528,367			447,772			18.0	%	61.8	%	60.0	%	419,178			532,387			(21.3	)%	57.4	%	63.9	%
Product Support	72,199			68,366			5.6	%	8.4	%	9.2	%	61,756			66,215			(6.7	)%	8.5	%	7.9	%
Elimination of inter-segment sales	(6,175		)	(4,747		)	30.1	%	(0.7	)%	(0.6	)%	(2,929		)	(6,741		)	(56.5	)%	(0.4	)%	(0.7	)%
Total Net Sales	$	855,108		$	745,156		14.8	%	100.0	%	100.0	%	$	730,231		$	832,900		(12.3	)%	100.0	%	100.0	%


	Three Months Ended September 30,								% of Segment Sales				Three Months Ended June 30,								% of Segment Sales
	2018			2017			% Change		2018		2017		2019			2018			% Change		2019		2018
	(in thousands)												(in thousands)
SEGMENT OPERATING INCOME
SEGMENT OPERATING INCOME (LOSS)
Integrated Systems	$	39,866		$	41,641		(4.3	)%	15.3	%	17.8	%	$	34,772		$	35,409		(1.8	)%	13.8	%	14.7	%
Aerospace Structures	(22,744		)	(9,052		)	151.3	%	(4.3	)%	(2.0	)%	12,283			(79,587		)	(115.4	)%	2.9	%	(14.9	)%
Product Support	11,514			11,233			2.5	%	15.9	%	16.4	%	9,276			7,669			21.0	%	15.0	%	11.6	%
Corporate	(30,637		)	(43,851		)	30.1	%	n/a		n/a		(18,394		)	(27,577		)	33.3	%	n/a		n/a
Total Operating Income	$	(2,001	)	$	(29	)			(0.2	)%	—	%
Share-based compensation expense													(2,426		)	(2,462		)	1.5	%	n/a		n/a
Total Operating Income (Loss)													$	35,511		$	(66,548	)			4.9	%	(8.0	)%


	Three Months Ended September 30,								% of Segment Sales				Three Months Ended June 30,								% of Segment Sales
	2018			2017			% Change		2018		2017		2019			2018			% Change		2019		2018
	(in thousands)												(in thousands)
Adjusted EBITDAP
Integrated Systems	$	38,482		$	41,930		(8.2	)%	14.8	%	17.9	%	$	33,714		$	34,115		(1.2	)%	13.8	%	14.7	%
Aerospace Structures	(2,486		)	1,654			(250.3	)%	(0.5	)%	0.4	%	38,528			28,189			36.7	%	9.4	%	5.4	%
Product Support	13,178			12,900			2.2	%	18.3	%	18.9	%	10,366			9,339			11.0	%	16.8	%	14.1	%
Corporate	(16,727		)	(23,172		)	27.8	%	n/a		n/a
Corporate & share-based compensation													(16,850		)	(24,653		)	31.7	%	n/a		n/a
	$	32,447		$	33,312		(2.6	)%	3.8	%	4.5	%	$	65,758		$	46,990		39.9	%	9.2	%	5.8	%

Integrated Systems: Integrated Systems net sales increased by ~~$27.0~~$11.2 million, or ~~11.5%~~4.6%, to ~~$260.7~~$252.2 million for the three months ended ~~September~~June 30, ~~2018,~~2019, from ~~$233.8~~$241.0 million for the three months ended ~~September~~June 30, ~~2017. Organic sales increased $34.7 million, or 15.3%.~~2018. The ~~Embee divestiture contributed $7.7 million to the net sales for the three months ended September 30, 2017. Organic sales increased~~increase was entirely organic and was primarily due to ~~rate increases on key commercial programs and higher~~increased volumes on ~~certain~~engine components and military ~~programs.~~rotorcraft components.

Integrated Systems cost of sales increased by ~~$30.3~~$11.5 million, or ~~19.6%~~6.8%, to ~~$184.9~~$181.5 million for the three months ended ~~September~~June 30, ~~2018,~~2019, from ~~$154.6~~$170.0 million for the three months ended ~~September~~June 30, ~~2017. Organic cost of~~2018. The increase was entirely organic and driven by increased sales ~~increased $36.3 million, or 24.4%. The Embee divestiture contributed $6.0 million~~volume on engine components and rotorcraft components and higher costs incurred to the cost of sales for the three months ended September 30, 2017. The organic cost of sales increased due to the net sales increase, changes in sales mix, as well as increased program development costs. drive future operational improvements.

The organic gross margin for the three months ended ~~September~~June 30, ~~2018~~2019 was ~~29.1%~~28.0% compared with ~~34.3%~~29.5% for the three months ended ~~September~~June 30, ~~2017.~~2018. The decrease in gross margin for the three months ended June 30, ~~2018,~~2019, is the result of a change in sales mix ~~and~~as well as the higher ~~cost associated with~~costs incurred to drive future operational ~~improvements.~~improvements noted above.

Integrated Systems operating income decreased by $1.8 million, or 4.3%, to $39.9 million for the three months ended September 30, 2018, from $41.6 million for the three months ended September 30, 2017. Organic operating income decreased $2.3 million, or 5.6%. The Embee divestiture generated a $0.6 million operating loss for the three months ended September 30,

4539

Management's Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

~~2017. Operating~~Integrated Systems operating income decreased by $0.6 million, or 1.8%, to $34.8 million for the three months ended ~~September~~June 30, 2019, from $35.4 million for the three months ended June 30, 2018. The decrease was due to the decreased gross margin as noted ~~above as well as increased restructuring costs of $1.1 million.~~above. The decrease in Adjusted EBITDAP ~~year over year is due to the same factors that decreased operating income.~~was not significant.

Integrated Systems operating income as a percentage of segment sales decreased to ~~15.3%~~13.8% for the three months ended ~~September~~June 30, ~~2018,~~2019, as compared with ~~17.8%~~14.7% for the three months ended ~~September~~June 30, ~~2017.~~2018. These same factors noted above affecting the Adjusted EBITDAP contributed to the decreased Adjusted EBITDAP margin year over year.

Aerospace Structures: Aerospace Structures net sales ~~increased~~decreased by ~~$80.6~~$113.2 million, or ~~18.0%~~21.3%, to ~~$528.4~~$419.2 million for the three months ended ~~September~~June 30, ~~2018,~~2019, from ~~$447.8~~$532.4 million for the three months ended ~~September~~June 30, ~~2017.~~2018. Organic sales increased ~~$107.2~~$24.0 million, or ~~26.6%~~6.1%. Net sales decreased as a result of the ~~TS-LI and~~ fiscal 2019 Aerostructures divestitures by ~~$26.6~~$137.2 million. The organic sales increased primarily due to ~~shipments for narrow body~~volume increases on G550, Global Hawk and 787 programs ~~such as the 737~~ and ~~A320, military platforms aftermarket repairs for the KC-10 and C-17 and, the ramp on development programs.~~new engineering services. Net sales for the three months ended ~~September~~June 30, ~~2018,~~2019, included ~~$4.9~~$7.9 million in total ~~non-recurring~~nonrecurring revenues, as compared with ~~$1.7~~$39.4 million in total ~~non-recurring~~nonrecurring revenues for the three months ended ~~September~~June 30, ~~2017.~~2018.

Aerospace Structures cost of sales ~~increased~~decreased by ~~$94.0~~$197.2 million, or ~~23.6%~~35.5%, to ~~$492.1~~$358.2 million for the three months ended ~~September~~June 30, ~~2018,~~2019, from ~~$398.1~~$555.4 million for the three months ended ~~September~~June 30, ~~2017.~~2018. Organic cost of sales ~~increased $120.7~~decreased $51.2 million, or ~~34.2%~~12.5%. Cost of sales decreased as a result of the ~~TS-LI and~~ fiscal 2019 Aerostructures divestitures by ~~$26.7~~$146.0 million. ~~The cost~~Cost of sales ~~increased due to the increase in organic sales mentioned above as well as a result of an increase in the forward loss reserve~~ for the ~~Bombardier Global 7500 program~~three months ended June 30, 2018 included $87.2 million charge from the adoption of ~~$19.9 million that was partially offset by a reduction in the forward loss reserve~~ASU 2017-07 and net unfavorable cumulative catch-up adjustments on ~~a Gulfstream program~~long-term contracts of ~~$7.6~~$3.6 million. The organic gross margin for the three months ended ~~September~~June 30, ~~2018,~~2019, was ~~7.1%~~14.5% compared with ~~12.3% for the three months ended September 30, 2017. The decrease in gross margin~~(3.6)% for the three months ended June 30, ~~2018, is the result of the increase in forward loss reserves.~~2018.

Aerospace Structures cost of sales for the three months ended ~~September~~June 30, ~~2018,~~2019, included net unfavorable cumulative catch-up adjustments on long-term contracts of ~~$12.4~~$4.3 million. The cumulative catch-up adjustments to gross margin for the three months ended ~~September~~June 30, ~~2018,~~2019, included gross favorable adjustments of ~~$53.1~~$19.6 million and gross unfavorable adjustments of ~~$65.5~~$24.0 million. Segment cost of sales for the three months ended ~~September~~June 30, ~~2017,~~2018, included net ~~favorable~~unfavorable cumulative catch-up adjustments of ~~$8.4~~$3.6 million.

Aerospace Structures operating ~~loss~~income increased by ~~$13.7~~$91.9 million, or ~~151.3%~~115.4%, to ~~$22.7~~$12.3 million for the three months ended ~~September~~June 30, ~~2018,~~2019, from ~~$9.1~~$79.6 million for the three months ended ~~September~~June 30, ~~2017.~~2018. The organic operating ~~loss~~income increased ~~$17.3~~$70.6 million, or ~~444.7%~~121.1%. Operating income increased as a result of the ~~TS-LI and~~ fiscal 2019 Aerostructures divestitures by ~~$3.6~~$21.3 million. Organic operating ~~loss~~income increased for the three months ended ~~September~~June 30, ~~2018,~~2019, due to a the ~~decreased~~ gross margin variances noted above ~~as well as increased research~~ and ~~development expense ($2.1 million).~~lower overall compensation costs due to lower headcount. The ~~decrease~~increase in Adjusted EBITDAP year over year is due to the ~~same factors that decreased operating income.~~increased gross margins noted above.

Aerospace Structures operating income as a percentage of segment sales was 2.9% for the three months ended June 30, 2019, as compared with operating loss as a percentage of segment sales ~~increased to (4.3)~~of (14.9)% for the three months ended ~~September~~June 30, ~~2018, as compared with (2.0)% for the three months ended September 30, 2017, due to the increase in operating loss as noted above.~~2018. The Adjusted EBITDAP margin year over year has decreased for the same reasons noted above for gross margin.

Product Support: Product Support net sales ~~increased~~decreased by ~~$3.8~~$4.5 million, or ~~5.6%~~6.7%, to ~~$72.2~~$61.8 million for the three months ended ~~September~~June 30, ~~2018,~~2019, from ~~$68.4~~$66.2 million for the three months ended ~~September~~June 30, ~~2017.~~2018. The ~~increase~~decrease was ~~entirely organic and driven~~primarily the result of the divestiture of NAAS partially offset by ~~increased~~increases due to improvement in demand for ~~structural~~accessory component repairs.

Product Support cost of sales ~~increased~~decreased by ~~$3.2~~$6.1 million, or ~~6.4%~~11.8%, to ~~$53.7~~$45.4 million for the three months ended ~~September~~June 30, ~~2018,~~2019, from ~~$50.5~~$51.5 million for the three months ended ~~September~~June 30, ~~2017.~~2018. The ~~increase~~decrease was driven entirely by the ~~organic sales above.~~divestiture of NAAS. Gross margin for the three months ended ~~September~~June 30, ~~2018,~~2019, was ~~25.6%~~26.4% compared with ~~26.2%~~22.2% for the three months ended ~~September~~June 30, ~~2017.~~2018.

Product Support operating income increased by ~~$0.3~~$1.6 million, or ~~2.5%~~21.0%, to ~~$11.5~~$9.3 million for the three months ended ~~September~~June 30, ~~2018,~~2019, from ~~$11.2~~$7.7 million for the three months ended ~~September~~June 30, ~~2017.~~2018. The increase was driven ~~entirely~~ by the increased ~~organic sales~~gross margin noted above.

Product Support operating income as a percentage of segment sales ~~decreased~~increased to ~~15.9%~~15.0% for the three months ended ~~September~~June 30, ~~2018,~~2019, as compared with ~~16.4%~~11.6% for the three months ended ~~September~~June 30, ~~2017.~~2018. The Adjusted EBITDAP margin was 16.8% for the three months ended June 30, 2019, as compared with 14.1% for the three months ended June 30, 2018. The increase was driven by the increased gross margin noted above.

4640

Management's Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

~~was 18.3% for the three months ended September 30, 2018, as compared with 18.9% for the three months ended September 30, 2017.~~

~~Six months ended~~ ~~September 30, 2018, compared with~~ ~~six~~ ~~months ended~~ ~~September 30, 2017~~

Six Months Ended September 30,
2018 2017
(dollars in thousands)
Net sales $ 1,688,008
$ 1,526,845
Segment operating (loss) income $ (7,873 ) $ 76,724
Corporate expense (60,676 ) (77,750 )
Total operating loss (68,549 ) (1,026 )
Interest expense and other 54,206
46,393
Non-service defined benefit income (33,061 ) (38,283 )
Income tax expense (benefit) 1,516
(1,827 )
Net loss $ (91,210 ) $ (7,309 )

~~Net sales~~ ~~increased~~ by ~~$161.2 million, or~~ ~~10.6%, to~~ ~~$1.69 billion~~ ~~for the~~ ~~six~~ ~~months ended~~ ~~September 30, 2018, from~~ ~~$1.53 billion~~ ~~for the~~ ~~six~~ ~~months ended~~ ~~September 30, 2017~~. Organic sales adjusted for inter-segment sales increased by $222.3 million, or 15.7%. Organic sales increases were partially offset by decreases from divestitures of $61.1 million. Organic sales increased primarily due to the initial ramp up of production and deliveries on the Bombardier Global 7500 and the settlement of outstanding assertions. Net sales for the six months ended September 30, 2018, included $44.3 million in total non-recurring revenues, as compared with $4.2 million in non-recurring revenues for the six months ended September 30, 2017. Net sales for the ~~six~~ months ended September 30, 2018, included net unfavorable cumulative catch-up adjustments on long-term contracts of $3.3 million. The cumulative catch-up adjustments to net sales included gross favorable adjustments of $10.9 million and gross unfavorable adjustments of $14.2 million.

~~Cost of sales~~ ~~increased~~ by ~~$250.5 million, or~~ ~~20.1%, to~~ ~~$1.49 billion~~ ~~for the~~ ~~six~~ ~~months ended~~ ~~September 30, 2018, from~~ ~~$1.24 billion~~ ~~for the~~ ~~six~~ ~~months ended~~ ~~September 30, 2017~~. Organic cost of sales increased $308.3 million, or 27.1%. Organic cost of sales increases were partially offset by decreases from divestitures of $57.8 million. Organic cost of sales increased due to the increase in organic sales mentioned above and due to additional forward loss provisions, including from the adoption of ASU 2017-07 of $87.2 million and the Bombardier Global 7500 program of $19.9 million that was partially offset by a reduction in the forward loss reserve on a Gulfstream program of $7.6 million. The organic gross margin for the ~~six~~ ~~months ended September 30, 2018, was 11.6%, as compared to 19.5% for the six months ended September 30, 2017.~~

~~Gross margin for the~~ ~~six~~ months ended September 30, 2018, included net unfavorable cumulative catch-up adjustments on long-term contracts of $13.0 million. The cumulative catch-up adjustments to gross margin included gross favorable adjustments of $35.0 million and gross unfavorable adjustments of $47.9 million. Additionally, the adoption of ASU 2017-07 resulted in a change in estimates due to a change in accounting principles of $87.2 million. Gross margin for the six months ended September 30, 2017, included net unfavorable cumulative catch-up adjustments of ~~$7.9 million~~.

~~Segment operating income~~ ~~decreased~~ by ~~$84.6 million, or~~ ~~(110.3)%, to a loss of~~ ~~$(7.9) million~~ ~~for the~~ ~~six~~ ~~months ended~~ ~~September 30, 2018, from income of~~ ~~$76.7 million~~ ~~for the~~ ~~six~~ ~~months ended~~ ~~September 30, 2017. Organic segment operating income decreased $93.1 million. Organic operating income decreases were partially offset by increases from divestitures of $8.5 million. Organic operating income for the~~ ~~six~~ ~~months ended September 30, 2018, decreased due to the decreased gross margins, including the impact of the adoption of ASU 2017-07.~~

~~Corporate expenses were~~ ~~$60.7 million~~ ~~for the~~ ~~six~~ ~~months ended~~ ~~September 30, 2018, as compared with $77.8 million for the~~ ~~six~~ ~~months ended~~ ~~September 30, 2017. The decrease in corporate expenses of $17.1 million, or 22.0%, was due to decreased restructuring charges of $11.9 million and losses on divestitures of $2.6 million.~~

~~Management's Discussion and Analysis of~~

~~Financial Condition and Results of Operations~~

~~(continued)~~

~~Interest expense and other~~ ~~increased~~ by ~~$7.8 million, or~~ ~~16.8%, to~~ ~~$54.2 million~~ ~~for the~~ ~~six~~ ~~months ended~~ ~~September 30, 2018~~, compared with $46.4 million for the six months ended September 30, 2017, due to higher interest rates and relative debt levels offset by the favorable net change in foreign exchange rate gains of approximately $5.7 million compared with the prior year period.

~~The effective income tax rate for the six months ended September 30, 2018, was (1.6)% compared with 20.0% for the six months ended September 30, 2017. For the~~ ~~six~~ ~~months ended September 30, 2018, the effective tax rate reflected a limitation on the recognition of tax benefits due to the full valuation allowance.~~

For the fiscal year ending March 31, 2019, the Company expects tax expense to be approximately $3 to $4 million with opportunity to be reduced further through the release of the valuation allowance that is discussed further in Note 9.

~~Business Segment Performance - Six months ended September 30, 2018 compared with six months ended September 30, 2017:~~

Six Months Ended September 30, % of Total
Sales
2018 2017 % Change 2018 2017
(in thousands)
NET SALES
Integrated Systems $ 501,756
$ 471,900
6.3 % 29.7 % 30.9 %
Aerospace Structures 1,060,753
931,088
13.9 % 62.8 % 61.0 %
Product Support 138,414
134,799
2.7 % 8.2 % 8.8 %
Elimination of inter-segment sales (12,915 ) (10,942 ) 18.0 % (0.7 )% (0.7 )%
Total Net Sales $ 1,688,008
$ 1,526,845
10.6 % 100.0 % 100.0 %

Six Months Ended September 30, % of Segment
Sales
2018 2017 % Change 2018 2017
(in thousands)
SEGMENT OPERATING INCOME
Integrated Systems $ 75,275
$ 88,624
(15.1 )% 15.0 % 18.8 %
Aerospace Structures (102,331 ) (31,570 ) 224.1 % (9.6 )% (3.4 )%
Product Support 19,183
19,670
(2.5 )% 13.9 % 14.6 %
Corporate (60,676 ) (77,750 ) 22.0 % n/a
n/a
Total Operating Loss $ (68,549 ) $ (1,026 ) (4.1 )% (0.1 )%

Six Months Ended September 30, % of Segment
Sales
2018 2017 % Change 2018 2017
(in thousands)
Adjusted EBITDAP
Integrated Systems $ 72,597
$ 91,561
(20.7 )% 14.5 % 19.4 %
Aerospace Structures 25,703
(15,894 ) (261.7 )% 2.4 % (1.7 )%
Product Support 22,517
23,075
(2.4 )% 16.3 % 17.1 %
Corporate (41,381 ) (56,769 ) 27.1 % n/a
n/a
$ 79,436
$ 41,973
89.3 % 4.7 % 2.7 %

~~Management's Discussion and Analysis of~~

~~Financial Condition and Results of Operations~~

~~(continued)~~

~~Integrated Systems:~~ ~~Integrated Systems net sales increased by $29.9 million, or 6.3%, to $501.8 million for the~~ ~~six~~ ~~months ended September 30, 2018, from $471.9 million for the~~ ~~six~~ ~~months ended September 30, 2017. Organic sales increased $47.9 million, or 10.6%. The Embee divestiture contributed $18.1 million to the net sales for the~~ ~~six~~ ~~months ended September 30, 2017. Organic sales increased primarily due to rate increases on key commercial programs.~~

Integrated Systems cost of sales increased by $47.4 million, or 15.4%, to $354.9 million for the six months ended September 30, 2018, from $307.5 million for the six months ended September 30, 2017. Organic cost of sales increased $60.5 million, or 20.6%. The Embee divestiture contributed $13.2 million to the cost of sales for the ~~six~~ months ended September 30, 2017. The organic cost of sales increased due to the net sales increase noted above and due to sales mix. The organic gross margin for the six months ended September 30, 2018, was 29.3% compared with 35.1% for the six months ended September 30, 2017. The decrease in gross margin for the six months ended September 30, 2018, is the result of sales mix, higher cost associated with operational improvements and a settlement of customer assertions in the comparable prior period.

Integrated Systems operating income decreased by $13.3 million, or 15.1%, to $75.3 million for the six months ended September 30, 2018, from $88.6 million for the six months ended September 30, 2017. Organic operating income decreased $13.1 million, or 14.9%. The Embee divestiture contributed $0.2 million to the operating income for the ~~six~~ months ended September 30, 2017. Operating income decreased for the six months ended September 30, 2018, due to the decreased gross margin as noted above. The decrease in Adjusted EBITDAP year over year is due to the same factors that decreased operating income.

Integrated Systems operating income as a percentage of segment sales decreased to 15.0% for the six months ended September 30, 2018, as compared with 18.8% for the six months ended September 30, 2017, due to the decreased gross margin as noted above. These same factors noted above affecting the Adjusted EBITDAP contributed to the decreased Adjusted EBITDAP margin year over year.

~~Aerospace Structures:~~ ~~Aerospace Structures net sales increased by $129.7 million, or 13.9%, to $1.06 billion for the~~ ~~six~~ ~~months ended September 30, 2018, from $931.1 million for the~~ ~~six~~ months ended September 30, 2017. Organic sales increased $164.8 million, or 19.6%. Net sales decreased as a result of the TS-LI and fiscal 2019 divestitures by $35.1 million. The organic sales increased due to the initial ramp up of production and deliveries on the Bombardier Global 7500 program and the favorable settlement on open assertions with other customers, partially offset by a decrease in revenue recognized from the amortization of acquired contract liabilities of $24.3 million. Net sales for the six months ended September 30, 2018, included $44.3 million in total non-recurring revenues, as compared with $2.5 million in total non-recurring revenues for the six months ended September 30, 2017.

Aerospace Structures cost of sales increased by $200.5 million, or 23.7%, to $1.05 billion for the six months ended September 30, 2018, from $847.0 million for the six months ended September 30, 2017. The organic cost of sales increased $238.7 million, or 31.5%. Cost of sales decreased as a result of the TS-LI and fiscal 2019 divestitures by $38.1 million. The cost of sales increased due to the increase in organic sales mentioned above and due to additional forward loss provisions from the adoption of ASU 2017-07 of $87.2 million as well as from the Bombardier Global 7500 program of $19.9 million that was partially offset by a reduction in the forward loss reserve on a Gulfstream program of $7.6 million. The organic gross margin for the six months ended September 30, 2018, was 1.1% compared with 10.1% for the six months ended September 30, 2017.

Aerospace Structures cost of sales for the six months ended September 30, 2018, included net unfavorable cumulative catch-up adjustments of $12.8 million. The cumulative catch-up adjustments to gross margin for the six months ended September 30, 2018, included gross favorable adjustments of $34.0 million and gross unfavorable adjustments of $46.8 million. Additionally, the adoption of ASU 2017-07 resulted in a change in estimates due to a change in accounting principles of $87.2 million. Segment cost of sales for the six months ended September 30, 2017, included net unfavorable cumulative catch-up adjustments of $7.9 million.

Aerospace Structures operating loss increased by $70.8 million, or 224.1%, to $102.3 million for the six months ended September 30, 2018, compared with an operating loss of $31.6 million for the six months ended September 30, 2017. The organic operating loss increased $80.5 million or 413.1%. Operating income increased as a result of the TS-LI and fiscal 2019 divestitures by $9.8 million. Organic operating loss increased for the six months ended September 30, 2018, due to the decreased gross margin noted above. The increase in Adjusted EBITDAP year over year is primarily due to improvement in operating performance and margins and changes in sales mix.

Aerospace Structures operating loss as a percentage of segment sales increased to 9.6% for the six months ended September 30, 2018, as compared with 3.4% for the six months ended September 30, 2017, due to the increase in operating loss

~~Management's Discussion and Analysis of~~

~~Financial Condition and Results of Operations~~

~~(continued)~~

~~as noted above. These same factors as noted above for the Adjusted EBITDAP contributed to the increased Adjusted EBITDAP margin year over year.~~

~~Product Support:~~ ~~Product Support net sales increased by $3.6 million, or 2.7%, to $138.4 million for the~~ ~~six~~ ~~months ended September 30, 2018, from~~ ~~$134.8 million~~ ~~for the~~ ~~six~~ ~~months ended~~ ~~September 30, 2017. Organic sales increased $11.5 million, or 9.1%, due to increased demand in structural component repairs. The divestiture of Engines and APU contributed $7.9 million to net sales for the~~ ~~six~~ ~~months ended September 30, 2017.~~

~~Product Support cost of sales increased by $4.6 million, or 4.5%, to $105.2 million for the~~ ~~six~~ ~~months ended~~ ~~September 30, 2018~~, from $100.6 million for the six months ended September 30, 2017. Organic cost of sales increased $11.1 million, or 11.7%. Organic cost of sales increased due to increased volumes. The divestiture of Engines and APU contributed $6.5 million in cost of sales to the ~~six~~ ~~months ended September 30, 2017. Organic gross margin for the~~ ~~six~~ ~~months ended~~ ~~September 30, 2018, was 24.0% compared with 25.8% for the~~ ~~six~~ ~~months ended~~ ~~September 30, 2017, and was impacted by learning curves on new programs.~~

~~Product Support operating income~~ ~~decreased~~ by ~~$0.5 million, or~~ ~~2.5%, to~~ ~~$19.2 million~~ ~~for the~~ ~~six~~ ~~months ended~~ ~~September 30, 2018, from~~ ~~$19.7 million~~ ~~for the~~ ~~six~~ ~~months ended~~ ~~September 30, 2017. Organic operating income increased $0.5 million, or 3.1%, due to the increased organic sales noted above. The divestiture of Engines and APU contributed $1.1 million operating income for the~~ ~~six~~ ~~months ended September 30, 2017. The decreased gross margins contributed to the decrease in Adjusted EBITDAP year over year.~~

~~Product Support operating income as a percentage of segment sales decreased to~~ ~~13.9%~~ ~~for the~~ ~~six~~ ~~months ended~~ ~~September 30, 2018, as compared with 14.6% for the~~ ~~six~~ ~~months ended~~ ~~September 30, 2017, due to the decreased gross profit noted above. These same factors contributed to the decreased Adjusted EBITDAP margin year over year.~~

Liquidity and Capital Resources

Our working capital needs are generally funded through cash flows from operations and borrowings under our credit arrangements. During the ~~six~~three months ended ~~September~~June 30, ~~2018,~~2019, we ~~used~~generated approximately ~~$197.2~~$5.0 million of cash flows from operating activities, ~~received~~used approximately ~~$16.8~~$10.7 million in investing activities and ~~received~~used approximately ~~$179.2~~$58.1 million in financing activities.

Cash flows ~~used in~~generated from operating activities for the ~~six~~three months ended ~~September~~June 30, ~~2018,~~2019, were ~~$197.2~~$5.0 million, compared with cash flows used in operating activities for the ~~six~~three months ended ~~September~~June 30, ~~2017~~2018, of ~~$299.1~~$65.7 million. We continue to invest in inventory and contract assets for ~~new~~ramping programs which impacts our cash flows from operating activities. During the ~~six~~three months ended ~~September~~June 30, 2019, cash flows used on inventory and contract assets of approximately $53.9 million due to support expected increases in revenues in the balance of the fiscal year. During the three months ended June 30, 2018, cash flows used on new programs, ~~included approximately $173.0 million and $16.0 million pertaining to~~including the Bombardier Global 7500 program and the Embraer E-Jet, were approximately $81.0 million and $8.0 million, respectively. During the ~~six~~three months ended ~~September~~June 30, ~~2018,~~2019, the ~~company received~~Company liquidated approximately ~~$111.0~~$20.0 million in ~~excess payments~~prior period advances against current period deliveries.

Cash flows used in investing activities for the three months ended June 30, 2019, decreased $0.9 million from ~~customers resulting in increased accounts payable balances.~~

the three months ended June 30, 2018. Cash flows provided by investing activities for the ~~six~~three months ended ~~September~~June 30, ~~2018, decreased $28.3~~2019, included capital expenditures of $8.1 million and payments on a working capital true-up from the ~~six months ended September 30, 2017.~~prior period sale of assets of $2.6 million. Cash ~~flows provided by~~used in investing activities for the ~~six~~three months ended ~~September~~June 30, 2018, included capital expenditures of ~~$24.3~~$12.2 million and proceeds from the sale of assets of ~~$41.0 million. Cash provided by investing activities for the six months ended September 30, 2017, included capital expenditures of $22.8 million and proceeds from the sale of assets of $67.9~~$0.7 million.

Cash flows ~~provided by~~used in financing activities for the ~~six~~three months ended ~~September~~June 30, ~~2018,~~2019, were ~~$179.2~~$58.1 million, compared with cash flows provided by financing activities for the ~~six~~three months ended ~~September~~June 30, ~~2017,~~2018 of ~~$219.7~~$75.9 million.

As of ~~September~~June 30, ~~2018~~, ~~$386.2~~2019, $491.1 million was available under our revolving credit facility (the “Credit Facility”) after consideration of covenant limitations. On ~~September~~June 30, ~~2018~~,2019, an aggregate amount of ~~approximately~~ ~~$332.7~~$185.0 million was outstanding under the Credit Facility, all of which was accruing interest at LIBOR plus applicable basis points totaling 3.50% per annum. Amounts repaid under the Credit Facility may be re-borrowed.

We believe that cash flows from operations and borrowings under the Credit Facility will be sufficient to meet anticipated cash requirements for our current operations for the foreseeable future. However, we are continuously evaluating various acquisition and divestiture opportunities. In the event that such a transaction occurs, the availability under the Credit Facility may change or be fully utilized and additional funding sources may be needed. There can be no assurance that such funding sources will be available to us on terms favorable to us, if at all.

At ~~September~~June 30, ~~2018~~,2019, there was ~~$85.7~~$58.4 million outstanding under our receivable securitization facility ("Securitization Facility"). Interest rates on the Securitization Facility are based on prevailing market rates for short-term commercial paper,

~~Management's Discussion and Analysis of~~

~~Financial Condition and Results of Operations~~

~~(continued)~~

plus a program fee and a commitment fee. The Securitization Facility's net availability is not ~~impacted~~affected by the borrowing capacity of the Credit Facility.

~~In July 2018,~~For further details regarding the Company, its subsidiary co-borrowers and guarantors entered into a Tenth Amendment to the Credit Agreement (the “Tenth Amendment” and the existing Credit Agreement as amended by the Tenth Amendment, the "Credit Agreement") and with the Administrative Agent and the Lenders party thereto. Among other things, the Tenth Amendment modifies certain financial covenants and other terms and lowers the capacity upon completion of certain asset sales and will automatically reduce to $700,000 at March 31, 2019. The Tenth Amendment also adds an additional mandatory prepayment provision requiring that the Company prepay the outstanding revolving credit loans as set forth in the Tenth Amendment. The recent divestitures resulted in a reduction of the capacity under the Credit Agreement from $800,000 to $750,000 during the three months ended September 30, 2018.

In July 2017, the Company entered into a Ninth Amendment to the Credit Agreement (the “Ninth Amendment” and the existing Credit Agreement, as amended by the Ninth Amendment, the “Credit Agreement”) with the Administrative Agent and the Lenders party thereto to, among other things, (i) permit the Company to incur High Yield Indebtedness (as defined in the Credit Agreement) in an aggregate principal amount of up to $500.0 million, subject to the Company’s obligations to apply the net proceeds from an offering to repay the outstanding principal amount of the term loans in full; (ii) limit the mandatory prepayment provisions to eliminate the requirement that net proceeds received from the incurrence of Permitted Indebtedness (as defined in the Credit Agreement),Company's long-term debt arrangements, including the ~~High Yield Indebtedness, be applied to reduce~~2021 Notes, the ~~revolving credit commitments once the revolving credit commitments have been reduced to $800.0 million; (iii) amend certain covenants~~2022 Notes, and ~~other terms; and (iv) modify the current interest rate and letter of credit pricing tiers.~~

The Credit Agreement also provided for a variable rate term loan (the "2013 Term Loan"). The Company repaid the outstanding principal amount of the 2013 Term Loan in quarterly installments, on the first business day of each January, April, July and October. The 2013 Term Loan was paid in full with the proceeds from the Senior Notes due 2025 (see below).

In May 2017, the Company entered into an Eighth Amendment to the Third Amended and Restated Credit Agreement (the “Eighth Amendment Effective Date”), among the Company and its lenders to, among other things, (i) eliminate the total leverage ratio financial covenant; (ii) increase the maximum permitted senior secured leverage ratio financial covenant applicable to each fiscal quarter, commencing with the fiscal quarter ended March 31, 2017, and to revise the step-downs applicable to such financial covenant; (iii) reduce the aggregate principal amount of commitments under the revolving line of credit to $850.0 million from $1.0 billion; (iv) modify the maturity date of the term loans so that all of the term loans will mature on March 31, 2019; and (v) establish a new higher pricing tier for the interest rate, commitment fee and letter of credit fee pricing provisions.

The Company is currently in compliance with all financial covenants under the Credit Agreement. Although the Company does not anticipate any violations of the financial covenants, its ability to comply with these covenants is dependent upon achieving earnings and cash flow projections.

On August 17, 2017, the Company issued $500.0 million principal amount of 7.750% Senior Notes due 2025 (the "2025 Notes"). The 2025 Notes were sold at 100% of principal amount and have an effective interest yield of 7.750%. Interest on the 2025 Notes ~~accrues at~~(collectively, the ~~rate of 7.750% per annum and is payable semiannually in cash in arrears on February 15 and August 15 of each year, commencing on February 15, 2018.~~"Senior Notes"), refer to Note 7.

The ~~2025~~Senior 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~~Senior 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~~its Senior Notes prior to August 15, 2020, by paying a "make-whole" premium. The Company may redeem some or all of the 2025 Notes on or after August 15, 2020, at specified redemption prices. In addition, prior to August 15, 2020, the Company may redeem up to 35% of the 2025 Notes with the net proceeds of certain equity offerings at a redemption price equal to 107.750% of the aggregate principal amount plus accrued and unpaid interest, if any,their stated maturities, subject to certain limitations set forth in the indenture governing the ~~2025~~applicable Senior Notes ~~(the "2025 Indenture").~~

and, in certain cases, subject to significant prepayment premiums. The Company is obligated to offer to repurchase the ~~2025~~Senior Notes at ~~a price of (i) 101% of their principal amount plus accrued and unpaid interest, if any,~~specified prices as a result of certain change-of-control events and ~~(ii) 100%~~a sale of ~~their principal amount plus~~

~~Management's Discussion and Analysis~~all or substantially all of

~~Financial Condition and Results of Operations~~

~~(continued)~~

~~accrued and unpaid interest, if any, in the event of certain asset sales.~~ its assets. These restrictions and prohibitions are subject to certain qualifications and exceptions.

The ~~2025 Indenture contains~~indentures governing the Senior Notes, as well as the Credit Facility and Securitization Facility, contain covenants that, among other things, limit the Company's ability and the ability of any of the Guarantor Subsidiaries to (i) grant liens on its assets; (ii) make dividend payments, other distributions or other restricted payments; (iii) incur restrictions on the ability of the

Management's Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

Guarantor Subsidiaries to pay dividends or make other ~~payments;~~payments or investments; (iv) enter into sale and leaseback transactions; (v) merge, consolidate, transfer or dispose of substantially all of their assets; (vi) incur additional indebtedness; (vii) use the proceeds from sales of assets, including capital stock of restricted ~~subsidiaries;~~subsidiaries (in the case of the Senior Notes); and (viii) enter into transactions with affiliates. The Company is currently in compliance with all financial covenants under its debt agreements. Although the Company does not anticipate any violations of the financial covenants, its ability to comply with these covenants is depended upon achieving earnings and cash flow projections.

~~The expected future cash flows for~~For further details regarding the ~~next five years for~~Company's long-term debt ~~leases and other obligations are as follows:~~

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⁾
$ 1,643,101
$ 14,993
$ 814,382
$ 305,410
$ 508,316
Debt interest⁽²⁾
324,339
74,360
138,140
85,964
25,875
Operating leases 114,203
25,485
35,514
19,332
33,872
Purchase obligations 1,770,547
1,356,729
306,330
80,542
26,946
Total $ 3,852,190
$ 1,471,567
$ 1,294,366
$ 491,248
$ 595,009

~~(1) Included in the Company’s condensed consolidated balance sheet at~~ ~~September 30, 2018~~.

~~(2) Includes fixed-rate interest only.~~

~~The above table excludes unrecognized tax benefits of $17.4 million as of~~ ~~September 30, 2018, since we cannot predict with reasonable certainty the timing of cash settlements with the respective taxing authorities.~~arrangements, refer to Note 7.

For the fiscal year ending March 31, ~~2019,~~2020, the Company is not required to make minimum contributions to its U.S. defined benefit pension plans under the minimum funding requirements of the Employee Retirement Income Security Act of 1974 and the Pension Protection Act of 2006.

We believe that cash flows from operations and borrowings under the Credit Facility will be sufficient to meet anticipated cash requirements for our current operations for the foreseeable future. However, we are continuously evaluating various acquisition and divestiture opportunities. As a result, we currently are pursuing the potential purchase of a number of candidates. In the event that more than one 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.

Critical Accounting Policies

The Company's 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, ~~2018.~~2019. 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, ~~2018,~~2019, in the Company's 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

~~Management's Discussion and Analysis of~~

~~Financial Condition and Results of Operations~~

~~(continued)~~

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, 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, ~~2018,~~2019, filed with the SEC on May ~~22, 2018.~~23, 2019.

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, ~~2018.~~2019. 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.

Management's Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

As of ~~September~~June 30, ~~2018~~2019, we completed an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of ~~September~~June 30, ~~2018~~2019.

(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.

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, ~~2018.~~2019.

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.

5443

Item 6. Exhibits.



	Exhibit ~~10.1~~3.1		~~Tenth Amendment to Third~~ Amended and Restated ~~Credit Agreement~~Bylaws of Triumph Group, Inc. as amended on April 24, 2019 (incorporated by reference to Exhibit ~~10.1~~3.1 to the ~~Company's~~Company’s Form 8-K filed on ~~July 19, 2018)~~April 26, 2019).
	Exhibit ~~31.1~~3.2		Form of Certificate of Designations, Preferences and Rights of Series B Junior Participating Preferred Stock of Triumph Group, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed on March 13, 2019).
	Exhibit 3.3		Certificate of Amendment to Amended and Restated Certificate of Incorporation of Triumph Group, Inc. as amended on August 5 2019 (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K/A filed with the Commission on August 5, 2019 amending the Form 8-K filed on March 13, 2019).
	Exhibit 4.1		Tax Benefits Preservation Plan, dated as of March 13, 2019, between Triumph Group, Inc. and Computershare Trust Company, N.A. (incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed on March 13, 2019).
	Exhibit 4.2		Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.2 to the Company’s Form 8-K filed on March 13, 2019).
	Exhibit 31.1		Certification by President and Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a).
	Exhibit 31.2		Certification by Senior Vice President and Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a).
	Exhibit 32.1		Certification of Periodic Report by President and Chief Executive Officer Furnished Pursuant to 18 U.S.C. Section 1350 Adopted Pursuant to Section 906 Sarbanes-Oxley Act of 2002.
	Exhibit 32.2		Certification of Periodic Report by Senior Vice President and Chief Financial Officer Furnished Pursuant to 18 U.S.C. Section 1350 Adopted Pursuant to Section 906 Sarbanes-Oxley Act of 2002.
	Exhibit 101		The following financial information from Triumph Group, Inc.’s Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2018~~2019 formatted in XBRL: (i) Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2018~~2019 and March 31, ~~2018;~~2019; (ii) Condensed Consolidated Statements of Income for the three ~~and six~~ months ended ~~September~~June 30, ~~2018~~2019 and ~~2017;~~2018; (iii) Condensed Consolidated Statements of Comprehensive Income for the three ~~and six~~ months ended ~~September~~June 30, ~~2018~~2019 and ~~2017;~~2018; (iv) Condensed Consolidated Statements of Stockholders' (Deficit) Equity for the three months ended June 30, 2019 and 2018; (v) Condensed Consolidated Statements of Cash Flows for the ~~six~~three months ended ~~September~~June 30, ~~2018~~2019 and ~~2017;~~2018; and ~~(v)~~(vi) Notes to Condensed Consolidated Financial Statements.

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