Triumph Group, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)

(unaudited)


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

Net sales	$	730,231		$	832,900		$	772,110		$	855,108		$	1,502,341		$	1,688,008
Operating costs and expenses:
Cost of sales (exclusive of depreciation and amortization shown separately below)	582,233			770,214			622,236			724,474			1,204,469			1,494,688
Selling, general and administrative	62,337			81,656			66,201			69,551			128,538			151,208
Depreciation and amortization	44,050			38,812			30,219			38,134			74,269			76,945
Restructuring costs	2,964			4,047			5,782			11,832			8,746			15,879
Loss on divestitures	3,136			4,719
Legal judgment gain, net of expenses							(5,400		)	—			(5,400		)	—
(Gain) loss on sale of assets and businesses							(7,965		)	13,118			(4,829		)	17,837
	694,720			899,448			711,073			857,109			1,405,793			1,756,557
Operating income (loss)	35,511			(66,548		)	61,037			(2,001		)	96,548			(68,549		)
Non-service defined benefit income	(14,875		)	(16,538		)	(28,416		)	(16,524		)	(43,291		)	(33,061		)
Interest expense and other	27,491			25,493			35,400			28,714			62,891			54,206
Income (loss) before income taxes	22,895			(75,503		)	54,053			(14,191		)	76,948			(89,694		)
Income tax expense	4,807			1,031			11,352			485			16,159			1,516
Net income (loss)	$	18,088		$	(76,534	)	$	42,701		$	(14,676	)	$	60,789		$	(91,210	)

Earnings (loss) per share—basic:	$	0.36		$	(1.54	)	$	0.85		$	(0.30	)	$	1.22		$	(1.84	)

Weighted average common shares outstanding—basic	49,854			49,552			49,987			49,628			49,927			49,590

Earnings (loss) per share—diluted:	$	0.36		$	(1.54	)	$	0.85		$	(0.30	)	$	1.21		$	(1.84	)

Weighted average common shares outstanding—diluted	50,295			49,552			50,460			49,628			50,385			49,590

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

SEE ACCOMPANYING NOTES.

Triumph Group, Inc.

Condensed Consolidated Statements of Comprehensive ~~Income (Loss)~~Loss

(dollars in thousands)

(unaudited)

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 )



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

Net income (loss)	$	42,701		$	(14,676	)	$	60,789		$	(91,210	)
Other comprehensive (loss) income:
Foreign currency translation adjustment	(6,227		)	1,038			(8,910		)	(13,486		)
Defined benefit pension plans and other postretirement benefits:
Amounts arising during the period - gains (losses), net of tax (expense) benefit:
Prior service gain, net of taxes of $0	(4,898		)	—			(4,898		)	—
Actuarial loss, net of taxes of $0	(118,073		)	—			(118,073		)	—
Reclassifications from accumulated other comprehensive income - losses (gains), net of tax expense (benefits):
Amortization of net loss, net of taxes of $0 and $0 for the three months ended and $0 and $0 for the six months ended, respectively	4,707			1,676			7,558			3,351
Recognized prior service credits, net of taxes of $0 and $0 for the three months ended and $0 and $0 for the six months ended, respectively	48,945			(2,075		)	47,503			(4,149		)
Total defined benefit pension plans and other postretirement expense, net of taxes	(69,319		)	(399		)	(67,910		)	(798		)
Cash flow hedges:
Unrealized gain arising during period, net of tax of $0 and $(189) for the three months ended and $0 and $(64) for the six months ended, respectively	245			1,706			340			742
Reclassification of loss included in net earnings, net of tax of $0 and $88 for the three months ended and $0 and $123 for the six months ended, respectively	(1,323		)	(742		)	(1,737		)	(813		)
Net unrealized (loss) gain on cash flow hedges, net of tax	(1,078		)	964			(1,397		)	(71		)
Total other comprehensive (loss) income	(76,624		)	1,603			(78,217		)	(14,355		)
Total comprehensive loss	$	(33,923	)	$	(13,073	)	$	(17,428	)	$	(105,565	)

SEE ACCOMPANYING NOTES.

Triumph Group, Inc.

Condensed Consolidated Statements of Stockholders' (Deficit) Equity

For the three and six months ended September 30, 2019

(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			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	)	49,887,268		$	52	$	867,545		$	(159,154	)	$	(487,684	)	$	(794,072	)	$	(573,313	)
Net income	—		—		—			—			—			18,088			18,088			—		—		—			—			—			18,088			18,088
Adoption of ASC 842	—		—		—			—			—			(225		)	(225		)	—		—		—			—			—			(225		)	(225		)
Foreign currency translation adjustment	—		—		—			—			(2,683		)	—			(2,683		)	—		—		—			—			(2,683		)	—			(2,683		)
Pension liability adjustment, net of income taxes of $0	—		—		—			—			1,409			—			1,409			—		—		—			—			1,409			—			1,409
Change in fair value of foreign currency hedges, net of income taxes of $0	—		—		—			—			(319		)	—			(319		)	—		—		—			—			(319		)	—			(319		)
Cash dividends ($0.04 per share)	—		—		—			—			—			(1,998		)	(1,998		)	—		—		—			—			—			(1,998		)	(1,998		)
Share-based compensation	154,802		—		(7,631		)	9,534			—			—			1,903			154,802		—		(7,631		)	9,534			—			—			1,903
Repurchase of restricted shares for minimum tax obligation	(51,406	)	—		—			(1,043		)	—			—			(1,043		)	(51,406	)	—		—			(1,043		)	—			—			(1,043		)
Employee stock purchase plan	14,489		—		(634		)	896			—			—			262			14,489		—		(634		)	896			—			—			262
Balance, June 30, 2019	50,005,153		$	52	$	859,280		$	(149,767	)	$	(489,277	)	$	(778,207	)	$	(557,919	)	50,005,153		$	52	$	859,280		$	(149,767	)	$	(489,277	)	$	(778,207	)	$	(557,919	)
Net income																				—		—		—			—			—			42,701			42,701
Foreign currency translation adjustment																				—		—		—			—			(6,227		)	—			(6,227		)
Pension liability adjustment, net of income taxes of $0																				—		—		—			—			(69,319		)	—			(69,319		)
Change in fair value of foreign currency hedges, net of income taxes of $0																				—		—		—			—			(1,078		)	—			(1,078		)
Cash dividends ($0.04 per share)																				—		—		—			—			—			(2,003		)	(2,003		)
Share-based compensation																				59,938		—		(850		)	3,654			—			—			2,804
Repurchase of restricted shares for minimum tax obligation																				(764	)	—		—			(5		)	—			—			(5		)
Employee stock purchase plan																				10,196		—		(400		)	622			—			—			222
Balance, September 30, 2019																				50,074,523		$	52	$	858,030		$	(145,496	)	$	(565,901	)	$	(737,509	)	$	(590,824	)

Triumph Group, Inc.

Condensed Consolidated Statements of Stockholders' (Deficit) Equity

For the three and six months ended September 30, 2018

(dollars in thousands)

(unaudited)


	Outstanding Shares		Common Stock All Classes		Capital in Excess of Par Value			Treasury Stock			Accumulated Other Comprehensive Loss			Retained Earnings (Accumulated Deficit)			Total			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		49,669,848		$	51	$	851,280		$	(179,082	)	$	(367,870	)	$	146,155		$	450,534
Net loss	—		—		—			—			—			(76,534		)	(76,534		)	—		—		—			—			—			(76,534		)	(76,534		)
Adoption of ASC 606	—		—		—			—			—			(584,951		)	(584,951		)	—		—		—			—			—			(584,951		)	(584,951		)
Foreign currency translation adjustment	—		—		—			—			(14,524		)	—			(14,524		)	—		—		—			—			(14,524		)	—			(14,524		)
Pension liability adjustment, net of income taxes of $0	—		—		—			—			(399		)	—			(399		)	—		—		—			—			(399		)	—			(399		)
Change in fair value of foreign currency hedges, net of income taxes of $160	—		—		—			—			(1,035		)	—			(1,035		)	—		—		—			—			(1,035		)	—			(1,035		)
Cash dividends ($0.04 per share)	—		—		—			—			—			(1,988		)	(1,988		)	—		—		—			—			—			(1,988		)	(1,988		)
Share-based compensation	102,248		—		(84		)	2,548			—			—			2,464			102,248		—		(84		)	2,548			—			—			2,464
Repurchase of restricted shares for minimum tax obligation	(23,756	)	—		—			(532		)	—			—			(532		)	(23,756	)	—		—			(532		)	—			—			(532		)
Employee stock purchase plan	16,020		—		(644		)	1,028			—			—			384			16,020		—		(644		)	1,028			—			—			384
Balance, June 30, 2018	49,764,360		$	51	$	850,552		$	(176,038	)	$	(383,828	)	$	(517,318	)	$	(226,581	)	49,764,360		$	51	$	850,552		$	(176,038	)	$	(383,828	)	$	(517,318	)	$	(226,581	)
Net loss																				—		—		—			—			—			(14,676		)	(14,676		)
Other																				—		—		—			—			—			19			19
Foreign currency translation adjustment																				—		—		—			—			1,038			—			1,038
Pension liability adjustment, net of income taxes of $0																				—		—		—			—			(399		)	—			(399		)
Change in fair value of foreign currency hedges, net of income taxes of $(101)																				—		—		—			—			964			—			964
Cash dividends ($0.04 per share)																				—		—		—			—			—			(1,993		)	(1,993		)
Share-based compensation																				31,596		—		2,671			595			—			—			3,266
Repurchase of restricted shares for minimum tax obligation																				(857	)	—		—			(16		)	—			—			(16		)
Employee stock purchase plan																				17,618		—		(821		)	1,148			—			—			327
Balance, September 30, 2018																				49,812,717		$	51	$	852,402		$	(174,311	)	$	(382,225	)	$	(533,968	)	$	(238,051	)

Triumph Group, Inc.
Condensed Consolidated Statements of Cash Flows
(dollars in thousands)

(unaudited)


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

Operating Activities
Net income (loss)	$	18,088		$	(76,534	)	$	60,789		$	(91,210	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	44,050			38,812			74,269			76,945
Amortization of acquired contract liabilities	(16,939		)	(17,234		)	(39,556		)	(34,038		)
Loss on divestitures	3,136			4,719
(Gain) loss on divestitures and transfers							(4,829		)	17,837
Curtailment and special termination benefits gain, net							(14,373		)	—
Other amortization included in interest expense	1,958			1,887			6,955			4,852
Provision for (recovery of) doubtful accounts receivable	671			(14		)
Benefit for deferred income taxes	3,307			—
Provision for doubtful accounts receivable							1,140			212
Provision for deferred income taxes							15,159			—
Employee stock-based compensation	2,426			2,462			5,290			5,728
Changes in assets and liabilities, excluding the effects of acquisitions and dispositions of businesses:
Trade and other receivables	41,247			27,598			29,436			(4,722		)
Contract assets	2,767			(23,221		)	33,930			6,129
Inventories	(56,623		)	(30,833		)	(41,807		)	(49,981		)
Prepaid expenses and other current assets	12,721			3,898			16,209			5,918
Accounts payable, accrued expenses and contract liabilities	(35,426		)	23,341			(121,112		)	(101,460		)
Accrued pension and other postretirement benefits	(15,792		)	(18,691		)	(32,114		)	(37,021		)
Other	(573		)	(1,904		)	21			3,632
Net cash provided by (used in) operating activities	5,018			(65,714		)
Net cash used in operating activities							(10,593		)	(197,179		)
Investing Activities
Capital expenditures	(8,090		)	(12,200		)	(16,995		)	(24,254		)
(Payments on) proceeds from sale of assets	(2,570		)	664			(574		)	41,037
Net cash used in investing activities	(10,660		)	(11,536		)
Net cash (used in) provided by investing activities							(17,569		)	16,783
Financing Activities
Net (decrease) increase in revolving credit facility	(30,000		)	113,186			(147,615		)	219,773
Proceeds from issuance of long-term debt and finance leases	5,600			19,046			546,000			24,700
Repayment of debt and finance lease obligations	(30,572		)	(53,762		)	(415,447		)	(58,823		)
Payment of deferred financing costs	(104		)	(64		)	(16,275		)	(1,922		)
Dividends paid	(1,998		)	(1,988		)	(4,001		)	(3,981		)
Repurchase of restricted shares for minimum tax obligation	(1,043		)	(532		)	(1,048		)	(548		)
Net cash (used in) provided by financing activities	(58,117		)	75,886			(38,386		)	179,199
Effect of exchange rate changes on cash	(121		)	(1,400		)	(1,407		)	(1,395		)
Net change in cash	(63,880		)	(2,764		)	(67,955		)	(2,592		)
Cash and cash equivalents at beginning of period	92,807			35,819			92,807			35,819
Cash and cash equivalents at end of period	$	28,927		$	33,055		$	24,852		$	33,227

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 ~~June~~September 30, 2019, are not necessarily indicative of results that may be expected for the year ending March 31, 2020. The accompanying condensed consolidated financial statements are unaudited and should be read in conjunction with the fiscal 2019 audited consolidated financial statements and notes thereto included in the Company's Form 10-K for the year ended March 31, 2019, filed with the Securities and Exchange Commission (the "SEC") on May 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. Triumph and its subsidiaries are organized based on the products and services that they provide. Under this organizational structure, the Company has 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 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~~maintenance, repair, and overhaul ("MRO") supply chain. Through its ground support equipment maintenance, component MRO and post-production supply chain activities, Product Support is positioned to provide integrated planeside repair solutions globally. Capabilities include metallic and composite aircraft structures; nacelles; thrust reversers; interiors; auxiliary power units; and a wide variety of pneumatic, hydraulic, fuel and mechanical accessories.

Repair services generally involve the replacement and/or remanufacturing of parts, which is similar to the original manufacture of the part. The processes that the Company performs related to repair and overhaul services are essentially the repair of wear parts or replacement of parts that are beyond economic repair. The repair service generally involves remanufacturing a complete part or a component of a part.

Standards Recently Implemented

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842). This ASU requires lessees to recognize most leases on their balance sheets as lease liabilities with corresponding right-of-use ("ROU") assets. The Company adopted the standard as of April 1, 2019, using the modified retrospective approach and applying the standard’s transition provisions at the adoption date. Reporting periods beginning on

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

or after April 1, 2019, are presented in accordance with Accounting Standards Codification ("ASC") 842, Leases. Prior periods have not been adjusted and continue to be reported in accordance with previous accounting standards. WeThe Company elected the package of practical expedients permitted under the transition guidance, which among other things, allows us to carryforward the historical lease classification.

Adoption of the new standard resulted in the recognition of operating lease ROU assets and lease liabilities of $76,444 and $84,663, respectively, with the difference due to prepaid and deferred rent that were reclassified to the ROU asset value. An adjustment to opening retained earnings of $225 was also recognized. The standard did not materially affect our consolidated net income or cash flows. See Note 5 for further details.

In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This ASU permits a company to reclassify the income tax effects of the 2017 Tax Cuts and Jobs Act (“U.S. tax reform”) on items within AOCI to retained earnings. We adopted the provisions of this ASU in the first quarter of ~~2018~~2019 and elected not to reclassify the income tax effects of U.S. tax reform from items in accumulated other comprehensive income.

Standards Issued Not Yet Implemented

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU modifies the measurement of expected credit losses of certain financial instruments. ASU 2016-13 is effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods. The amendments in this ASU should be applied on a modified retrospective basis to all periods presented. 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 amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. We are currently evaluating the effect that ASU 2018-13 will have on our consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General ~~(Topic~~(Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans, which modifies the disclosure requirements for defined benefit pension plans and other postretirement plans. ASU 2018-14 is effective for annual periods beginning after December 15, 2020, with early adoption permitted. The amendments in this ASU should be applied on a retrospective basis to all periods presented. We are currently evaluating the effect that ASU 2018-14 will have on our consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). ASU 2018-15 is effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods, with early adoption permitted. The amendments in this ASU should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. We are currently evaluating the effect that ASU 2018-15 will have on our consolidated financial statements and 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 regularly enters into long-term master supply agreements that establish general terms and conditions and may define specific program requirements. Many agreements include clauses that provide sole supplier status to the Company for the duration of the program’s life. Purchase orders (or authorizations to proceed) are issued pursuant to the master supply agreements. Additionally, a majority of the Company’s agreements with customers include options for future purchases. Such options primarily reduce the administrative effort of issuing subsequent purchase orders and do not represent material rights granted to customers. The Company generally enters into agreements directly with its customers and is the principal in all current contracts.

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

Management identifies the promises to the customer. Promises are generally explicitly stated in each contract, but management also evaluates whether any promises are implied based on the terms of the agreement, past business practice, or other facts and circumstances. Each promise is evaluated to determine if it is a performance obligation. A performance obligation is a promise in a contract to transfer a distinct good or service. The Company considers a number of factors when determining whether a promise is a 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 consist of a wide range of engineering design services and manufactured components, as well as spare parts and repairs for original equipment manufacturers ~~(OEMs)~~("OEMs").

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

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

The total transaction price is allocated to each of the identified performance obligations using the relative stand-alone selling price. The objective of the allocation is to reflect the consideration that the Company expects to receive in exchange for the products or services associated with each performance obligation. Stand-alone selling price is the price at which the Company would sell a promised good or service separately to a customer. Stand-alone selling prices are established at contract inception, and subsequent changes in transaction price are allocated on the same basis as at contract inception. When stand-alone selling prices for the Company’s products and services are not observable, the Company uses either the “Expected Cost Plus a Margin” or "Adjusted Market Assessment" approaches to estimate stand-alone selling price. Expected costs are typically derived from the available periodic forecast information.

~~Triumph Group, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

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

~~(unaudited)~~

Revenue is recognized when or as control of promised products or services transfers to a customer and is recognized at the amount allocated to each performance obligation associated with the transferred products or services. Service sales, principally

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

representing repair, maintenance, and engineering activities are recognized over the contractual period or as services are rendered. Sales under long-term contracts with performance obligations satisfied over time are recognized using either an input or output method. The Company recognizes revenue over time as it performs on these contracts because of the continuous transfer of control to the customer as represented by contractual terms that entitle the Company to the reimbursement of costs plus a reasonable profit for work performed to manufacture products for which the Company has no alternate use or for work performed on a customer-owned asset.

With control transferring over time, revenue is recognized based on the extent of progress toward completion of the performance obligation. The Company generally uses the cost-to-cost input method of progress for 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 when circumstances change and warrant a modification to a previous estimate. Cost estimates are largely based on negotiated or estimated purchase contract terms, historical performance trends and other economic projections. Significant factors that influence these estimates include inflationary trends, technical and schedule risk, internal and subcontractor performance trends, business volume assumptions, asset utilization, and anticipated labor agreements.

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

For the three months ended ~~June~~September 30, 2019, cumulative catch-up adjustments from changes in estimates, including changes in forward loss estimates, ~~decreased~~increased net sales by approximately $3,189 and decreased operating income, net income, and earnings per share by approximately ~~$(1,149)~~$(5,127), ~~$(4,967), $(3,924)~~$(4,050) and $(0.08), net of tax, respectively. For the three months ended ~~June~~September 30, 2018, cumulative catch-up adjustments from changes in estimates increased net sales by approximately $3,459 and decreased operating loss, net loss and loss per share by approximately $(10,191), $(10,191) and $(0.21), net of tax, respectively.

For the six months ended September 30, 2019, cumulative catch-up adjustments from changes in estimates, including changes in forward loss estimates, increased net sales by approximately $1,245 and decreased operating income, net income, and earnings per share by approximately $(12,270), $(9,693) and $(0.19), net of tax, respectively. For the six months ended September 30, 2018, cumulative catch-up adjustments from changes in estimates decreased net sales, operating loss, net loss and loss per share by approximately ~~$(6,423)~~$(3,292), ~~$(3,626)~~$(12,968), ~~$(3,626)~~$(12,968) and ~~$(0.07)~~$(0.26), net of tax, respectively. These cumulative catch-up adjustments do not include a non-cash charge the Company recorded as a result of the adoption of ASU 2017-07 of $87,241 due to a change in estimate inseparable from a change in accounting principles, which is presented on the accompanying consolidated statements of operations within cost of sales.

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

Differences in the timing of revenue recognition and contractual billing and payment terms result in the recognition contract assets and liabilities. Refer to Note 4 for further discussion.

The portion of the Company's revenue resulting from transactions other than contracts with customers pertains to the non-cash amortization of acquired contract liabilities that were recognized as fair value adjustments through purchase accounting from various acquisitions.

Leases

The Company leases office space, manufacturing facilities, land, vehicles, and equipment. The Company determines if an agreement is or contains a lease at the 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 12 months or less ~~(short term~~(short-term leases).

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

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 length of lease terms is affected by options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. The existence of significant economic incentive is the primary consideration when assessing whether the Company is reasonably certain of exercising an option in a lease. Both finance and operating lease ROU assets and liabilities are recognized

~~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 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 lease incentives.

For operating leases, lease expense is recognized on a 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 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 as lease components for all classes of 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 ~~14%~~17% and 18% of total trade accounts receivable as of ~~June~~September 30, 2019 and March 31, 2019, respectively. Trade accounts receivable from Gulfstream Aerospace Corporation ("Gulfstream") represented approximately ~~12%~~7% and 11% of total trade accounts receivable as of ~~June~~September 30, 2019 and March 31, 2019, respectively. Trade accounts receivable from Bombardier Inc. ("Bombardier") represented approximately ~~13%~~14% and 13% as of ~~June~~September 30, 2019 and March 31, 2019, respectively. The Company had no other concentrations of credit risk of more than 10%.

Sales to Boeing for the ~~three~~six months ended ~~June~~September 30, 2019, were ~~$245,315,~~$510,934, or 34% of net sales, of which ~~$55,785, $184,282,~~$117,938, $382,457, and ~~$5,248~~$10,539 were from the Integrated Systems, Aerospace Structures and Product Support, respectively. Sales to Boeing for the ~~three~~six months ended ~~June~~September 30, 2018, were ~~$274,296,~~$527,896, or ~~33%~~31% of net sales, of which ~~$51,593, $219,461~~$110,971, $410,133 and ~~$3,242~~$6,792 were from the Integrated Systems, Aerospace Structures and Product Support, respectively.

Sales to Gulfstream for the ~~three~~six months ended ~~June~~September 30, 2019, were ~~$102,315,~~$187,689, or ~~14%~~12% of net sales, of which ~~$626, $101,459,~~$1,168, $185,973, and ~~$230~~$548 were from the Integrated Systems, Aerospace Structures and Product Support, respectively. Sales to Gulfstream for the ~~three~~six months ended ~~June~~September 30, 2018, were ~~$90,771,~~$174,805, or ~~11%~~10% of net sales, of which ~~$595, $90,128,~~$1,065, $173,437, and ~~$48~~$303 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.

~~Intangible Assets~~

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

June 30, 2019

Weighted
Average Life

Gross Carrying
Amount

Accumulated
Amortization
Net

Customer relationships 17.7 $ 550,584
$ (253,379 ) $ 297,205
Product rights, technology and licenses 11.4 54,758
(44,512 ) 10,246
Non-compete agreements and other 16.3 2,656
(1,082 ) 1,574
Tradenames 10.0 150,000
(40,531 ) 109,469
Total intangibles, net $ 757,998
$ (339,504 ) $ 418,494

1011

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

Intangible Assets

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



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

Customer relationships	17.7	$	549,965	$	(261,063	)	$	288,902
Product rights, technology and licenses	11.4	54,646		(45,035		)	9,611
Non-compete agreements and other	16.7	2,656		(1,124		)	1,532
Tradenames	10.0	150,000		(44,063		)	105,937
Total intangibles, net		$	757,267	$	(351,285	)	$	405,982



	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 ~~June~~September 30, 2019 and 2018, was ~~$12,083~~$12,063 and ~~$13,233,~~$13,203, respectively. Amortization expense for the six months ended September 30, 2019 and 2018, was $24,146 and $26,436, respectively. Significant changes in expected cash flows generated by long-lived assets could result in the recognition of impairment losses; no such changes or losses were identified as of ~~June~~September 30, 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~~3-year warranty, although certain programs have warranties up to twenty years. The warranty reserves as of ~~June~~September 30, 2019 and March 31, 2019, were ~~$61,035~~$60,207 and $58,395, respectively.

Supplemental Cash Flow Information

The Company made income tax payments, net of refunds of ~~$1,280~~$2,724 during the ~~three~~six months ended ~~June~~September 30, 2019. The Company received income tax refunds, net of payments of ~~$7,715~~$7,120 during the ~~three~~six months ended ~~June~~September 30, 2018.

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

As of ~~June~~September 30, 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 October 2019, the Company entered into a definitive agreement to sell its manufacturing operations at its Nashville, TN, facility. The Company expects to record a loss during the third fiscal quarter of approximately $50,000 to $60,000 from the sale of approximately $125,000 in net assets at this facility. As of September 30, 2019, the Board of Directors had not approved the transaction due to uncertainty pertaining to specific terms and conditions, and therefore the transaction did not meet the requirements for the related assets and liabilities to be classified as held for sale on the accompanying condensed consolidated balance sheets.

In September 2019, the Company completed the assignment of its E-2 Jets contract with Embraer for the manufacture of structural components for their program to AeroSpace Technologies of Korea Inc. ("ASTK"). As part of this transaction, the Company transferred certain assets and liabilities to ASTK and recognized a gain of approximately $10,000 which is presented on the accompanying consolidated statements of operations within (gain) loss on sale of assets and businesses.

In March 2019, the Company sold 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"). Total cash proceeds net of transaction costs for the sale of Machining was approximately $43,000. A portion of the proceeds associated with the sale of Machining included consideration in the form of a note receivable of $10,000. Upon closing, the Company recognized a loss of approximately $116,000. An additional loss of approximately ~~$3,000~~$5,000 was recognized during the ~~three~~six months ended ~~June~~September 30, 2019, as a result of working capital adjustments and additional transaction costs and is presented within loss on divestitures on the accompanying condensed consolidated statements of operations.

In March 2019, the Company sold all of the shares of (i) Triumph Fabrications - San Diego, Inc. and Triumph Fabrications - Ft. Worth, Inc. (together, "Fabrications"), and (ii) Triumph Aviation Services - NAAS Division, Inc. ("NAAS"). Total cash

~~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 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~~July 2018 and August 2018, respectively, the Company ~~entered into a definitive agreement to divest~~sold all of the shares of Triumph Structures - East Texas, Inc. as well as all of the shares of Triumph Structures - Los Angeles, Inc. ~~("TS-LA")~~, and Triumph Processing, Inc. ~~("TPI")~~ for combined cash proceeds net of transactions costs of approximately ~~$37,000~~$43,000 and a note receivable of $7,000. At that time, the Company recorded a loss on assets held for sale of $4,719. The transaction closed in August 2018, and upon final sale the Company recorded an additional loss of $7,663, bringing the total loss on divestiture to $12,382. The note receivable was collected in October 2018. As a result of these sales, the Company recognized losses of approximately $17,000 which are presented on the accompanying consolidated statements of operations within (gain) loss on sale of assets and businesses.

4. REVENUE RECOGNITION AND CONTRACTS WITH CUSTOMERS

Disaggregation of Revenue

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

1213

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

The following table shows disaggregated net sales satisfied overtime and at a point in time (excluding intercompany sales) for the three and six months ended September 30, 2019:



	Three Months Ended September 30,				Six Months Ended September 30,
	2019		2018		2019		2018
Integrated Systems
Satisfied over time	$	75,871	$	72,188	$	148,176	$	136,547
Satisfied at a point in time	198,648		177,626		369,275		342,804
Revenue from contracts with customers	274,519		249,814		517,451		479,351
Amortization of acquired contract liabilities	9,624		8,768		17,749		17,617
Total revenue	284,143		258,582		535,200		496,968

Aerospace Structures
Satisfied over time	$	372,247	$	448,315	$	744,484	$	901,594
Satisfied at a point in time	35,462		70,059		71,874		138,743
Revenue from contracts with customers	407,709		518,374		816,358		1,040,337
Amortization of acquired contract liabilities	12,992		8,036		21,807		16,421
Total revenue	420,701		526,410		838,165		1,056,758

Product Support
Satisfied over time	$	63,483	$	64,807	$	120,420	$	124,232
Satisfied at a point in time	3,783		5,309		8,556		10,050
Revenue from contracts with customers	67,266		70,116		128,976		134,282
Amortization of acquired contract liabilities	—		—		—		—
Total revenue	67,266		70,116		128,976		134,282
	$	772,110	$	855,108	$	1,502,341	$	1,688,008

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

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



	Three Months Ended September 30,				Six Months Ended September 30,
	2019		2018		2019		2018
Integrated Systems
Commercial aerospace	$	139,819	$	133,103	$	268,238	$	253,680
Military	99,538		87,735		183,603		170,427
Business jets	17,832		15,297		33,539		28,133
Regional	8,537		7,339		15,860		13,956
Non-aviation	8,793		6,340		16,211		13,155
Revenue from contracts with customers	274,519		249,814		517,451		479,351
Amortization of acquired contract liabilities	9,624		8,768		17,749		17,617
Total revenue	$	284,143	$	258,582	$	535,200	$	496,968

Aerospace Structures
Commercial aerospace	$	242,888	$	244,636	$	472,529	$	526,799
Military	28,778		66,482		56,378		124,404
Business jets	110,660		191,866		231,809		359,313
Regional	25,377		10,132		55,632		16,534
Non-aviation	6		5,258		10		13,287
Revenue from contracts with customers	407,709		518,374		816,358		1,040,337
Amortization of acquired contract liabilities	12,992		8,036		21,807		16,421
Total revenue	$	420,701	$	526,410	$	838,165	$	1,056,758

Product Support
Commercial aerospace	$	54,447	$	55,093	$	101,347	$	104,563
Military	8,978		11,869		20,271		21,254
Business jets	525		399		964		1,793
Regional	3,214		2,755		6,264		6,672
Non-aviation	102		—		130		—
Revenue from contracts with customers	67,266		70,116		128,976		134,282
Amortization of acquired contract liabilities	—		—		—		—
Total revenue	67,266		70,116		128,976		134,282
	$	772,110	$	855,108	$	1,502,341	$	1,688,008

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 ~~June~~September 30, 2019.

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

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

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

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

~~Triumph Group, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

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

~~(unaudited)~~


	June 30, 2019			March 31, 2019			Change			September 30, 2019			March 31, 2019			Change
Contract assets	$	358,497		$	326,667		$	31,830		$	334,843		$	326,667		$	8,176
Contract liabilities	(450,837		)	(450,051		)	(786		)	(390,704		)	(450,051		)	59,347
Net contract liability	$	(92,340	)	$	(123,384	)	$	31,044		$	(55,861	)	$	(123,384	)	$	67,523

The Company ~~recorded reductions to~~recognized revenue due to changes in estimates associated with performance obligations satisfied or partially satisfied in previous periods of ~~$(1,149).~~$1,245. The increase in contract assets is the result of revenue recognized in excess of amounts billed during the quarter partially offset by $76,667 in contract assets liquidated as part of the assignment of the E2-Jets contract to ASTK. The decrease in contract liabilities ~~reflects~~is the result of revenue recognized in excess of the receipt of additional customer advances ~~in excess of revenue recognized~~ during the ~~period.~~period as well as $12,641 in contract liabilities liquidated as part of the assignment of the E2-Jets contract to ASTK. For the period ended ~~June~~September 30, 2019, the Company recognized ~~$28,507~~$48,555 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~~September 30, 2019 and March 31, 2019, were ~~$34,628~~$34,173 and $34,185, respectively. Noncurrent contract liabilities presented in other noncurrent liabilities on the accompanying consolidated balance sheets as of ~~June~~September 30, 2019 and March 31, 2019, were ~~$140,852~~$113,737 and $156,332, respectively.

Performance Obligations

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

As of ~~June~~September 30, 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	$	4,426,826	$	2,167,822	$	1,348,222	$	458,893	$	451,889

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

5. LEASES

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


Lease cost	Financial Statement Classification	Three Months Ended June 30, 2019
Lease Cost				Financial Statement Classification	Six Months Ended September 30, 2019
Operating lease cost	Cost of sales or Selling, general and administrative expense	$	6,502	Cost of sales or Selling, general and administrative expense	$	12,760
Variable lease cost	Cost of sales or Selling, general and administrative expense	1,842		Cost of sales or Selling, general and administrative expense	3,722

Financing Lease Cost:
Amortization of right-of-use assets	Depreciation and amortization	1,349		Depreciation and amortization	2,730
Interest on lease liability	Interest expense and other	170		Interest expense and other	1,192
Total lease cost (1)		$	9,863		$	20,404

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

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



	Six Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows used in operating leases	$	9,300
Operating cash flows used in finance leases	1,196
Financing cash flows used in finance leases	4,647

ROU assets obtained in exchange for lease liabilities
Operating leases	$	2,455
Finance leases	795

1417

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

Supplemental ~~cash flow~~balance sheet information ~~for the three months ended June~~related to leases as of September 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			Classification	September 30, 2019
Assets
Operating lease ROU assets	Other, net	$	73,643		Other, net	$	70,050

Finance lease ROU assets, cost	Property and equipment, net	54,216			Property and equipment, net	45,269
Accumulated amortization	Property and equipment, net	(22,532		)	Property and equipment, net	(19,251		)
Finance lease ROU assets, net		31,684				26,018
Total lease assets		$	105,327			$	96,068

Liabilities
Current
Operating	Accrued expenses	$	15,718		Accrued expenses	$	16,804
Finance	Current portion of long-term debt	8,150			Current portion of long-term debt	7,759
Non-current
Noncurrent
Operating	Other noncurrent liabilities	67,895			Other noncurrent liabilities	63,753
Finance	Long-term debt, less current portion	21,238			Long-term debt, less current portion	20,360
Total lease liabilities		$	113,001			$	108,676

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



	~~June~~September 30, 2019
Weighted average remaining lease term (years)
Operating leases	~~7.6~~7.4
Finance leases	~~6.5~~6.7

Weighted average discount rate
Operating leases	6.4	%
Finance leases	~~5.6~~5.7	%

1518

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~~September 30, 2019, is disclosed in the table below.


	Operating leases			Finance leases			Total			Operating leases			Finance leases			Total
FY2020 (remaining of year)	$	16,206		$	7,196		$	23,402		$	12,174		$	4,689		$	16,863
FY2021	16,451			8,915			25,366			17,028			8,773			25,801
FY2022	14,978			5,911			20,889			14,735			5,738			20,473
FY2023	11,647			2,861			14,508			11,344			2,862			14,206
FY2024	9,023			2,110			11,133			8,696			2,110			10,806
Thereafter	38,100			11,263			49,363			37,931			11,263			49,194
Total lease payments	106,405			38,256			144,661			101,908			35,435			137,343
Less: Imputed interest	(22,792		)	(8,868		)	(31,660		)	(21,351		)	(7,316		)	(28,667		)
Total lease liabilities	$	83,613		$	29,388		$	113,001		$	80,557		$	28,119		$	108,676

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		September 30, 2019		March 31, 2019
Raw materials	$	38,868	$	35,883	$	37,128	$	35,883
Work-in-process, including manufactured and purchased components	320,147		277,996		306,634		277,996
Finished goods	53,643		42,399		53,776		42,399
Rotable assets	57,790		57,282		56,864		57,282
Total inventories	$	470,448	$	413,560	$	454,402	$	413,560

7. LONG-TERM DEBT

Long-term debt consists of the following:


	June 30, 2019			March 31, 2019			September 30, 2019			March 31, 2019

Revolving line of credit	$	185,000		$	215,000		$	67,385		$	215,000
Receivable securitization facility	58,400			80,700			65,900			80,700
Capital leases	29,388			31,292
Finance leases							28,119			31,292
Senior secured notes due 2024							525,000			—
Senior notes due 2021	375,000			375,000			—			375,000
Senior notes due 2022	300,000			300,000			300,000			300,000
Senior notes due 2025	500,000			500,000			500,000			500,000
Less: Debt issuance costs	(12,219		)	(13,171		)	(17,871		)	(13,171		)
	1,435,569			1,488,821			1,468,533			1,488,821
Less: Current portion	8,150			8,201			7,759			8,201
	$	1,427,419		$	1,480,620		$	1,460,774		$	1,480,620

1619

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

Revolving Credit Facility

~~In July 2018,~~On September 23, 2019, the Company and its subsidiary co-borrowers and guarantors entered into ~~a Tenth~~an Eleventh Amendment to the Credit Agreement (the ~~“Tenth~~“Eleventh Amendment” and the existing Credit Agreement as amended by the ~~Tenth~~Eleventh Amendment, the ~~"Credit Agreement"~~“Credit Agreement”) ~~and~~ with the Administrative Agent and the Lenders party thereto. Among other things, the ~~Tenth Amendment modifies certain financial covenants and other~~Eleventh Amendment:

(i) permits the Company to incur indebtedness in respect of the Senior Secured Notes due 2024 (the "2024 Notes") in an aggregate principal amount of up to $525,000 , subject to the terms and ~~lowered~~conditions of the ~~capacity~~Intercreditor Agreement;

(ii) lowers the aggregate amount of revolving credit commitments from $700,000 to ~~$700,000 as a result~~$600,000 upon the earlier of (a) the completion by the Company of $100,000 in certain asset sales ~~occurring in the fiscal year ended~~or divestitures or (b) March 31, ~~2019. The Tenth Amendment also~~2020;

(iii) extends, with respect to extending banks representing approximately $406,500 of $600,000 total commitments outstanding as of March 31, 2020, the expiration date for the revolving line of credit available to the Company pursuant to the Credit Agreement to March 15, 2024; and retains an accordion feature that permits the Company to request an increase to the revolving credit commitments by up to $200,000;

(iv) adds an additional mandatory prepayment provision requiring that the Company prepay ~~the~~any outstanding revolving credit loans ~~as set forth~~in an amount equal to (a) with respect to an Identified Asset Sale (as defined in the ~~Tenth Amendment.~~Credit Agreement) the greater of (x) $50,000 and (y) 100% of the net asset sale proceeds received in connection therewith, and (b) with respect to other Specified Asset Sales (as defined in the Credit Agreement), 100% of the net asset proceeds received from such other Specified Asset Sales;

(v) modifies certain financial covenants and other terms

In connection with the ~~Tenth~~Eleventh Amendment to the Credit Agreement, the Company incurred ~~$1,694~~$6,944 of financing costs. These costs, along with the ~~$8,961~~$6,222 of unamortized financing costs subsequent to the ~~Ninth~~Tenth Amendment, are being amortized over the remaining term of the Credit ~~Agreement.~~Agreement on a lender-by-lender basis. 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~~Eleventh Amendment.

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 $700,000 outstanding at any ~~time.~~time as such revolving credit commitments are reduced as discussed above. The Credit Agreement bears interest at either: (i) London Interbank Offered Rate ("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.~~amortization provided, however, that during the Pricing Restriction Period (as defined in the Credit Agreement), the loans will bear interest at the highest rate above LIBOR. 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 ~~June~~September 30, 2019, there were ~~$185,000~~$67,385 in borrowings and ~~$23,897~~$23,878 in letters of credit outstanding under the Revolving Line of Credit provisions of the Credit Agreement, primarily to support insurance policies. At March 31, 2019, there were $215,000 in outstanding borrowings and $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

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

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. As of ~~June~~September 30, 2019, the Company had borrowing capacity under this agreement of ~~$491,103~~$393,314 after reductions for borrowings, letters of credit outstanding under the facility and consideration of covenant limitations.

Receivables Securitization Facility

In November 2017, the Company amended 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 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 ~~June~~September 30, 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,~~non-interest-bearing, in transactions that are accounted for as borrowings pursuant to ASC 860, Transfers and Servicing.

~~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 Secured Notes Due ~~2021~~2024

On ~~February 26, 2013,~~September 23, 2019, the Company issued ~~$375,000~~$525,000 principal amount of ~~4.875%~~6.250% Senior Secured Notes due ~~2021 (the "2021 Notes").~~2024. The ~~2021~~2024 Notes were sold at 100% of principal amount and have an effective interest yield of ~~4.875%~~6.250%. Interest on the ~~2021~~2024 Notes accrues at the rate of ~~4.875%~~6.250% per annum and is payable semiannually in cash in arrears on ~~April 1~~March 15 and ~~October 1~~September 15 of each year, commencing on March 15, 2020. In connection with the issuance of the 2024 Notes, the Company incurred approximately $9,300 of costs, which were deferred and are being amortized over the term of the 2024 Notes.

The 2024 Notes are second lien secured obligations of the Company and its subsidiary guarantors. The 2024 Notes:

rank equal in right of payment to existing and future senior indebtedness of the Company and its subsidiary guarantors, including the obligations of the Company and its subsidiary guarantors under the Company’s credit facility;

are effectively subordinated to all obligations of the Company and its subsidiary guarantors that are either (A) secured by a lien on the Collateral (as defined below) that is senior or prior to the second-priority liens securing the 2024 Notes, including the first-priority liens securing borrowings under the Company’s credit facility and certain cash management and hedging obligations, or (B) secured by assets that do not constitute the Collateral, in each case to the extent of the value of the assets securing such obligations;

are senior in right of payment to existing and future subordinated indebtedness of the Company and its subsidiary guarantors;

are effectively senior to all existing and future unsecured debt of the Company and its subsidiary guarantors, but only to the extent of the value of the Collateral (after giving effect to any senior liens on the Collateral); and

are structurally subordinated in right of payment to all indebtedness and other liabilities of the Company’s existing and future subsidiaries that do not guarantee the 2024 Notes.

The 2024 Notes are guaranteed on a full, senior secured, joint and several basis by each of the Company’s domestic restricted subsidiaries that is a borrower under the Company’s credit facility or that guarantees any of the Company’s debt or that of any of the Company’s domestic restricted subsidiaries under the Company’s credit facility and in the future by any of the Company’s domestic restricted subsidiaries that are borrowers under any credit facility or that guarantee any debt of the Company or any of its domestic restricted subsidiaries incurred under any credit facility (the "Guarantor Subsidiaries").

The Company may redeem the 2024 Notes, in whole or in part, at any time or from time to time on or after September 15, 2020, at specified redemption prices, plus accrued and unpaid interest, if any, to the redemption date. At any time or from time to time prior to September 15, 2020, the Company may redeem the 2024 Notes, in whole or in part, at a redemption price equal

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

to 100% of their principal amount plus a make whole premium, together with accrued and unpaid interest, if any, to the redemption date. In addition, the Company may redeem up to 40% of the aggregate principal amount of the outstanding 2024 Notes prior to September 15, 2020, with the net cash proceeds from certain equity offerings at a redemption price equal to 106.250% of their principal amount, together with accrued and unpaid interest, if any, to the redemption date.

If the Company experiences specific kinds of changes of control, the Company is required to offer to purchase all of the 2024 Notes at a purchase price of 101% of their principal amount, plus accrued and unpaid interest, if any, to the date of purchase.

The 2024 Notes were issued pursuant to an indenture dated as of September 23, 2019 (the “Indenture”). The Indenture contains covenants that, among other things, limit the ability of the Company and its restricted subsidiaries to: (i) incur additional indebtedness; (ii) pay dividends or make other distributions; (iii) make other restricted payments and investments; (iv) create liens; (v) incur restrictions on the ability of restricted subsidiaries to pay dividends or make certain other payments; (vi) sell assets, including capital stock of restricted subsidiaries; (vii) enter into sale and leaseback transactions; (viii) merge or consolidate with other entities; and (ix) enter into transactions with affiliates.

Senior Notes Due 2021

On September 23, 2019, the Company called all outstanding 4.875% Senior Notes due 2021 (the "2021 Notes") Notes and discharged the 2021 Notes by irrevocably depositing with the 2021 Notes trustee sufficient funds to pay all principal and accrued interest through October ~~1, 2013.~~23, 2019. On October 23, 2019, the Company redeemed $375,000 principal amount of the 2021 Notes with the proceeds of the 2024 Notes.

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, 2019				March 31, 2019
	Carrying Value		Fair Value		Carrying Value		Fair Value
Long-term debt	$	1,468,533	$	1,510,145	$	1,488,821	$	1,568,037

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~~$48,972 and ~~$12,734~~$38,587 for the ~~three~~six months ended ~~June~~September 30, 2019 and 2018, respectively.

1822

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

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,		Three Months Ended September 30,		Six Months Ended September 30,
	(in thousands)		(in thousands)		(in thousands)
	2019	2018	2019	2018	2019	2018
Weighted average common shares outstanding – basic	49,854	49,552	49,987	49,628	49,927	49,590
Net effect of dilutive stock options and non-vested stock (1)	441	—	473	—	458	—
Weighted average common shares outstanding – diluted	50,295	49,552	50,460	49,628	50,385	49,590

(1) For the three and six months ended ~~June~~September 30, 2019 and 2018, the shares ~~of 7 and 206, respectively,~~that could potentially dilute ~~EPS~~earnings per share in the future but were not included in diluted weighted average common shares outstanding because to do so would have been ~~anti-dilutive.~~anti-dilutive were immaterial.

9. INCOME TAXES

The Company follows the Income 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.

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 and are not significant.

As of ~~June~~September 30, 2019 and March 31, 2019, the total amount of unrecognized tax benefits was ~~$19,346~~$19,446 and $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 ~~June~~September 30, 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 2020 as well as the Company's income in future periods.

The effective income tax rate for the three months ended ~~June~~September 30, 2019, was 21.0% as compared with ~~(1.4)~~(2.2)% for the three months ended ~~June~~September 30, 2018. For the three months ended ~~June~~September 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, 2019, was 21.0% as compared with (1.6)% for the six months ended September 30, 2018. 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.

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, 2013.

As of ~~June~~September 30, 2019, the Company is subject to examination in ~~one~~1 state jurisdiction. The Company has filed appeals in a prior state examination related to fiscal years ended March 31, 1999 through March 31, 2005. Because of net operating losses acquired as part of the acquisition of Vought, the Company is subject to U.S. federal income tax examinations and various state jurisdictions for the period ended 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~~

1923

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

10. GOODWILL

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


	Integrated Systems			Product Support		Total			Integrated Systems			Product Support		Total
Balance, March 31, 2019	$	517,104		$	66,121	$	583,225		$	517,104		$	66,121	$	583,225
Effect of exchange rate changes	(1,594		)	—		(1,594		)	(4,309		)	—		(4,309		)
Balance, June 30, 2019	$	515,510		$	66,121	$	581,631
Balance, September 30, 2019									$	512,795		$	66,121	$	578,916

As of ~~June~~September 30, 2019 and March 31, 2019, Aerospace Structures had goodwill of $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 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.

2024

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						Pension Benefits
	Three Months Ended June 30,						Three Months Ended September 30,						Six Months Ended September 30,
	2019			2018			2019			2018			2019			2018
Components of net periodic benefit costs:
Service cost	$	581		$	830		$	600		$	824		$	1,181		$	1,654
Interest cost	18,661			19,921			17,427			19,909			36,089			39,830
Expected return on plan assets	(35,739		)	(37,107		)	(35,618		)	(37,074		)	(71,356		)	(74,181		)
Amortization of prior service credits	(278		)	(907		)	(233		)	(907		)	(512		)	(1,815		)
Amortization of net loss	5,359			4,180			6,333			4,179			11,692			8,360
Net periodic benefit income	$	(11,416	)	$	(13,083	)
Curtailment loss							23,476			—			23,476			—
Special termination benefits							11,642			—			11,642			—
Net periodic benefit expense (income)							$	23,627		$	(13,069	)	$	12,212		$	(26,152	)


	Other Postretirement Benefits						Other Postretirement Benefits
	Three Months Ended June 30,						Three Months Ended September 30,						Six Months Ended September 30,
	2019			2018			2019			2018			2019			2018
Components of net periodic benefit costs:
Service cost	$	44		$	57		$	18		$	57		$	62		$	113
Interest cost	863			1,010			614			1,010			1,478			2,019
Amortization of prior service credits	(1,164		)	(1,164		)	(1,156		)	(1,164		)	(2,320		)	(2,327		)
Amortization of gain	(2,442		)	(2,463		)	(1,547		)	(2,463		)	(3,989		)	(4,926		)
Curtailment gain							(49,491		)	—			(49,491		)	—
Net periodic benefit income	$	(2,699	)	$	(2,560	)	$	(51,562	)	$	(2,560	)	$	(54,260	)	$	(5,121	)

The following summarizes the key events whose effects on net periodic benefit cost and obligations are included in the tables above:

In September 2019, the Company ratified amendments to its pension and retiree welfare plans with a group of union-represented employees at the Company’s Grand Prairie, TX, facility in conjunction with an announced shutdown of this facility. Effective April 1, 2020, all current retiree welfare benefits for the union-represented retirees and active employees will cease. A new benefit consisting of a one-time credit to Heath Reimbursement Accounts for the current retirees will be provided. The Company and the union also agreed to increased pension benefits which are effective with the ratification of the agreement. This agreement resulted in a decrease of the projected other post-employment benefits ("OPEB") benefit obligation of $61,766. It also resulted in a one-time OPEB curtailment gain of $41,128. As a result of the planned shutdown, subsidized early retirement provisions within the retirement plan and the agreed-to pension benefit increases, a pension curtailment loss of $23,476 was recognized, along with a one-time charge of $11,642 for special termination benefits. The net curtailment gain and charge for special termination benefits are included in "Non-service defined benefit income" on the condensed consolidated statement of operations for the three and six months ended September 30, 2019.

In August 2019, the Company ratified amendments to its pension and retiree welfare plans with a group of union-represented employees at the Company’s Nashville, TN, facility. Effective January 1, 2020, all current retiree welfare benefits for the union-represented retirees and active employees will cease. A new benefit consisting of a one-time credit to Heath Reimbursement Accounts for the current retirees will be provided. The Company and the union also agreed to increased pension benefits which are effective on February 1, 2020, and the union also agreed to increased pension benefits which are effective with the ratification of the agreement. This agreement resulted in a decrease of the

2125

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

projected OPEB benefit obligation of $34,731. It also resulted in a one-time OPEB curtailment gain of $8,363. The agreed-to pension benefit increases resulted in an increase of the projected pension benefit obligation of $4,898. The curtailment gain is included in "Non-service defined benefit income" on the condensed consolidated statement of operations for the three and three months ended September 30, 2019.

12. STOCKHOLDERS' EQUITY

Accumulated Other Comprehensive Loss

Changes in accumulated other comprehensive income (loss) ("AOCI") by component for the three and six months ended ~~June~~September 30, 2019 and 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, 2019	(51,289		)	(1,449		)	(436,539		)	(489,277		)
AOCI before reclassifications	(6,227		)	245			(122,971		)	(128,953		)
Amounts reclassified from AOCI	—			(1,323		)	53,652			52,329
Net current period AOCI	$	(6,227	)	$	(1,078	)	$	(69,319	)	$	(76,624	)
Balance, September 30, 2019	$	(57,516	)	$	(2,527	)	$	(505,858	)	$	(565,901	)



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, March 31, 2019	(48,606		)	(1,130		)	(437,948		)	(487,684		)
AOCI before reclassifications	(8,910		)	340			(122,971		)	(131,541		)
Amounts reclassified from AOCI	—			(1,737		)	55,061			53,324
Net current period AOCI	$	(8,910	)	$	(1,397	)	$	(67,910	)	$	(78,217	)
Balance, September 30, 2019	$	(57,516	)	$	(2,527	)	$	(505,858	)	$	(565,901	)


Balance, March 31, 2018	$	(58,683	)	$	122		$	(309,309	)	$	(367,870	)	$	(58,683	)	$	122		$	(309,309	)	$	(367,870	)
AOCI before reclassifications	(14,524		)	(965		)	—			(15,489		)	(13,486		)	742			(798		)	(13,542		)
Amounts reclassified from AOCI	—			(70		)	(399		)	(469		)	—			(813		)	—			(813		)
Net current period AOCI	(14,524		)	(1,035		)	(399		)	(15,958		)	(13,486		)	(71		)	(798		)	(14,355		)
Balance, June 30, 2018	$	(73,207	)	$	(913	)	$	(309,708	)	$	(383,828	)
Balance, September 30, 2018													$	(72,169	)	$	51		$	(310,107	)	$	(382,225	)

(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 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”) 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.

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.

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.

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

Selected financial information for each reportable segment is as follows:



	Three Months Ended September 30,						Six Months Ended September 30,
	2019			2018			2019			2018
Net sales:
Integrated Systems	$	285,980		$	260,717		$	538,206		$	501,756
Aerospace Structures	422,579			528,367			841,757			1,060,753
Product Support	67,394			72,199			129,149			138,414
Elimination of inter-segment sales	(3,843		)	(6,175		)	(6,771		)	(12,915		)
	$	772,110		$	855,108		$	1,502,341		$	1,688,008

Income (loss) before income taxes:
Operating income (loss):
Integrated Systems	$	51,472		$	39,866		$	86,244		$	75,275
Aerospace Structures	13,608			(22,744		)	25,891			(102,331		)
Product Support	10,865			11,514			20,142			19,183
Corporate	(12,044		)	(27,371		)	(30,439		)	(54,948		)
Share-based compensation expense	(2,864		)	(3,266		)	(5,290		)	(5,728		)
	61,037			(2,001		)	96,548			(68,549		)
Non-service defined benefit income	(28,416		)	(16,524		)	(43,291		)	(33,061		)
Interest expense and other	35,400			28,714			62,891			54,206
	$	54,053		$	(14,191	)	$	76,948		$	(89,694	)

Depreciation and amortization:
Integrated Systems	$	6,983		$	7,384		$	14,050		$	14,939
Aerospace Structures	21,285			28,294			56,344			57,214
Product Support	1,099			1,664			2,189			3,334
Corporate	852			792			1,686			1,458
	$	30,219		$	38,134		$	74,269		$	76,945

Amortization of acquired contract liabilities, net:
Integrated Systems	$	9,624		$	8,768		$	17,749		$	17,617
Aerospace Structures	12,992			8,036			21,807			16,421
	$	22,616		$	16,804		$	39,556		$	34,038

Adjusted EBITDAP:
Integrated Systems	$	48,831		$	38,482		$	82,545		$	72,597
Aerospace Structures	17,451			(2,486		)	55,978			25,703
Product Support	11,964			13,178			22,331			22,517
Corporate and share-based compensation	(17,300		)	(16,727		)	(34,151		)	(41,381		)
	$	60,946		$	32,447		$	126,703		$	79,436

Capital expenditures:
Integrated Systems	$	3,909		$	3,828		$	6,760		$	5,437
Aerospace Structures	4,032			7,077			8,005			17,215
Product Support	633			671			1,666			1,019
Corporate	331			478			564			583
	$	8,905		$	12,054		$	16,995		$	24,254

2228

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

~~Triumph Group, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

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

~~(unaudited)~~


	June 30, 2019		3/31/2019		September 30, 2019		March 31, 2019
Total Assets:
Integrated Systems	$	1,259,117	$	1,215,350	$	1,273,816	$	1,215,350
Aerospace Structures	1,239,484		1,257,039		1,167,096		1,257,039
Product Support	273,714		271,813		275,955		271,813
Corporate	50,951		110,372		44,936		110,372
	$	2,823,266	$	2,854,574	$	2,761,803	$	2,854,574

During the three months ended ~~June~~September 30, 2019 and 2018, the Company had international sales of ~~$175,340~~$185,957 and ~~$226,571,~~$264,526, respectively.

During the six months ended September 30, 2019 and 2018, the Company had international sales of $361,297 and $491,096, respectively.


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

The ~~2021~~2022 Notes, the ~~2022~~2024 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~~2022 Notes, the ~~2022~~2024 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 ~~June~~September 30, 2019 and March 31, 2019, condensed consolidating statements of comprehensive income for the three and six months ended ~~June~~September 30, 2019 and 2018, and condensed consolidating statements of cash flows for the ~~three~~six months ended ~~June~~September 30, 2019 and 2018.

2429

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

SUMMARY CONDENSED CONSOLIDATING BALANCE SHEETS:


	June 30, 2019														September 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	$	6,825		$	10		$	22,092	$	—		$	28,927		$	55		$	167		$	24,630	$	—		$	24,852
Trade and other receivables, net	11,593			102,306			217,610		—			331,509			9,159			103,937			229,210		—			342,306
Contract assets	—			319,742			4,127		—			323,869			—			294,773			5,897		—			300,670
Inventories	—			389,958			80,490		—			470,448			—			375,848			78,554		—			454,402
Prepaid expenses and other	10,485			7,977			5,445		—			23,907			9,116			6,829			4,909		—			20,854
Total current assets	28,903			819,993			329,764		—			1,178,660			18,330			781,554			343,200		—			1,143,084
Property and equipment, net	11,163			422,697			81,352		—			515,212			10,642			414,005			78,343		—			502,990
Goodwill and other intangible assets, net	—			900,689			99,436		—			1,000,125			—			889,099			95,799		—			984,898
Other, net	23,079			74,200			31,990		—			129,269			28,162			72,511			30,158		—			130,831
Intercompany investments and advances	1,219,331			150,673			85,836		(1,455,840		)	—			1,274,684			65,297			89,061		(1,429,042		)	—
Total assets	$	1,282,476		$	2,368,252		$	628,378	$	(1,455,840	)	$	2,823,266		$	1,331,818		$	2,222,466		$	636,561	$	(1,429,042	)	$	2,761,803

Current liabilities:
Current portion of long-term debt	$	2,153		$	5,997		$	—	$	—		$	8,150		$	1,735		$	6,024		$	—	$	—		$	7,759
Accounts payable	4,648			390,559			31,380		—			426,587			2,972			383,213			32,521		—			418,706
Accrued expenses	49,987			455,749			29,915		—			535,651			40,933			429,312			28,688		—			498,933
Total current liabilities	56,788			852,305			61,295		—			970,388			45,640			818,549			61,209		—			925,398
Long-term debt, less current portion	1,417,595			9,824			—		—			1,427,419			1,386,539			8,307			65,928		—			1,460,774
Intercompany advances	342,132			1,961,427			350,645		(2,654,204		)	—			467,160			1,891,936			293,157		(2,652,253		)	—
Accrued pension and other postretirement benefits, noncurrent	6,090			516,826			—		—			522,916			5,923			548,477			—		—			554,400
Deferred income taxes and other	17,790			408,416			34,256		—			460,462			17,380			363,681			30,994		—			412,055
Total stockholders’ (deficit) equity	(557,919		)	(1,380,546		)	182,182		1,198,364			(557,919		)	(590,824		)	(1,408,484		)	185,273		1,223,211			(590,824		)
Total liabilities and stockholders’ (deficit) equity	$	1,282,476		$	2,368,252		$	628,378	$	(1,455,840	)	$	2,823,266		$	1,331,818		$	2,222,466		$	636,561	$	(1,429,042	)	$	2,761,803

2530

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

2631

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															For the Three Months Ended September 30, 2019
	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated Total			Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated Total
Net sales	$	—		$	675,030		$	75,042		$	(19,841	)	$	730,231		$	—		$	706,422		$	88,449		$	(22,761	)	$	772,110

Operating costs and expenses:
Cost of sales	—			543,147			58,927			(19,841		)	582,233			—			576,999			67,998			(22,761		)	622,236
Selling, general and administrative	16,258			39,134			6,945			—			62,337			17,300			41,680			7,221			—			66,201
Depreciation and amortization	834			40,401			2,815			—			44,050			852			26,619			2,748			—			30,219
Restructuring costs	540			2,424			—			—			2,964			—			5,782			—			—			5,782
Loss on divestitures	3,136			—			—			—			3,136
Loss (gain) on sale of assets and businesses																2,156			(10,121		)	—			—			(7,965		)
Legal judgment gain, net																(5,400		)	—			—			—			(5,400		)
	20,768			625,106			68,687			(19,841		)	694,720			14,908			640,959			77,967			(22,761		)	711,073
Operating (loss) income	(20,768		)	49,924			6,355			—			35,511			(14,908		)	65,463			10,482			—			61,037
Intercompany interest and charges	(35,503		)	33,754			1,749			—			—			(34,081		)	32,540			1,541			—			—
Non-service defined benefit income	—			(14,372		)	(503		)	—			(14,875		)	—			(27,931		)	(485		)	—			(28,416		)
Interest expense and other	23,214			5,306			(1,029		)	—			27,491			30,440			6,243			(1,283		)	—			35,400
(Loss) income before income taxes	(8,479		)	25,236			6,138			—			22,895			(11,267		)	54,611			10,709			—			54,053
Income tax (benefit) expense	(2,609		)	6,442			974			—			4,807			(2,959		)	13,638			673			—			11,352
Net (loss) income	(5,870		)	18,794			5,164			—			18,088			(8,308		)	40,973			10,036			—			42,701
Other comprehensive loss	(319		)	1,497			(2,771		)	—			(1,593		)	(1,077		)	(69,109		)	(6,438		)	—			(76,624		)
Total comprehensive (loss) income	$	(6,189	)	$	20,291		$	2,393		$	—		$	16,495		$	(9,385	)	$	(28,136	)	$	3,598		$	—		$	(33,923	)

2732

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, 2018															For the Three Months Ended September 30, 2018
	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated Total			Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated Total
Net sales	$	—		$	764,895		$	88,140		$	(20,135	)	$	832,900		$	—		$	786,284		$	89,140		$	(20,316	)	$	855,108

Operating costs and expenses:
Cost of sales	—			716,921			73,428			(20,135		)	770,214			—			675,502			69,288			(20,316		)	724,474
Selling, general and administrative	24,560			49,182			7,914			—			81,656			14,931			45,835			8,785			—			69,551
Depreciation and amortization	667			33,917			4,228			—			38,812			791			32,743			4,600			—			38,134
Restructuring costs	—			4,047			—			—			4,047			2,767			9,065			—			—			11,832
Loss on divestiture and assets held for sale	4,719			—			—			—			4,719			12,171			947			—			—			13,118
	29,946			804,067			85,570			(20,135		)	899,448			30,660			764,092			82,673			(20,316		)	857,109
Operating (loss) income	(29,946		)	(39,172		)	2,570			—			(66,548		)	(30,660		)	22,192			6,467			—			(2,001		)
Intercompany interest and charges	(40,219		)	38,075			2,144			—			—			(38,620		)	36,722			1,898			—			—
Non-service defined benefit income	—			(16,188		)	(350		)	—			(16,538		)	—			(16,188		)	(336		)	—			(16,524		)
Interest expense and other	23,555			4,018			(2,080		)	—			25,493			24,823			5,201			(1,310		)	—			28,714
(Loss) income before income taxes	(13,282		)	(65,077		)	2,856			—			(75,503		)	(16,863		)	(3,543		)	6,215			—			(14,191		)
Income tax expense (benefit)	24,482			(24,351		)	900			—			1,031			6,063			(5,735		)	157			—			485
Net (loss) income	(37,764		)	(40,726		)	1,956			—			(76,534		)	(22,926		)	2,192			6,058			—			(14,676		)
Other comprehensive loss	(1,035		)	(399		)	(14,524		)	—			(15,958		)
Other comprehensive income (loss)																964			(371		)	1,010			—			1,603
Total comprehensive loss	$	(38,799	)	$	(41,125	)	$	(12,568	)	$	—		$	(92,492	)	$	(21,962	)	$	1,821		$	7,068		$	—		$	(13,073	)

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 Six Months Ended September 30, 2019
	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated Total
Net sales	$	—		$	1,381,451		$	163,492		$	(42,602	)	$	1,502,341

Operating costs and expenses:
Cost of sales	—			1,120,147			126,924			(42,602		)	1,204,469
Selling, general and administrative	33,555			80,811			14,172			—			128,538
Depreciation and amortization	1,685			67,021			5,563			—			74,269
Restructuring costs	540			8,206			—			—			8,746
Legal judgment gain, net of expenses	(5,400		)	—			—			—			(5,400		)
Loss (gain) on sale of assets and businesses	5,292			(10,121		)	—			—			(4,829		)
	35,672			1,266,064			146,659			(42,602		)	1,405,793
Operating (loss) income	(35,672		)	115,387			16,833			—			96,548
Intercompany interest and charges	(69,584		)	66,293			3,291			—			—
Non-service defined benefit income	—			(42,303		)	(988		)	—			(43,291		)
Interest expense and other	53,654			11,550			(2,313		)	—			62,891
(Loss) income before income taxes	(19,742		)	79,847			16,843			—			76,948
Income tax (benefit) expense	(5,568		)	20,079			1,648			—			16,159
Net (loss) income	(14,174		)	59,768			15,195			—			60,789
Other comprehensive loss	(1,396		)	(67,612		)	(9,209		)	—			(78,217		)
Total comprehensive (loss) income	$	(15,570	)	$	(7,844	)	$	5,986		$	—		$	(17,428	)

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 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 divestiture and assets held for sale	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
(Loss) income 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	)

2835

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS:


	Three Months Ended June 30, 2019														For the Six Months Ended September 30, 2019
	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations		Consolidated Total			Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations		Consolidated Total
Net (loss) income	$	(5,870	)	$	18,794		$	5,164		$	—	$	18,088		$	(14,174	)	$	59,768		$	15,195		$	—	$	60,789

Adjustments to reconcile net income to net cash provided by (used in) operating activities	(31,298		)	6,740			11,488			—		(13,070		)	(63,313		)	(11,245		)	3,176			—		(71,382		)
Net cash (used in) provided by operating activities	(37,168		)	25,534			16,652			—		5,018			(77,487		)	48,523			18,371			—		(10,593		)
Capital expenditures	(232		)	(6,584		)	(1,274		)			(8,090		)	(564		)	(14,330		)	(2,101		)	—		(16,995		)
(Payments on) proceeds from sale of assets	(2,794		)	46			178			—		(2,570		)	(4,950		)	4,078			298			—		(574		)
Net cash (used in) provided by investing activities	(3,026		)	(6,538		)	(1,096		)	—		(10,660		)
Net cash used in investing activities															(5,514		)	(10,252		)	(1,803		)	—		(17,569		)
Net increase in revolving credit facility	(30,000		)	—			—			—		(30,000		)	(147,615		)	—			—			—		(147,615		)
Proceeds on issuance of debt	—			—			5,600			—		5,600			525,000			—			21,000			—		546,000
Retirements and repayments of debt	(839		)	(1,833		)	(27,900		)	—		(30,572		)	(376,327		)	(3,322		)	(35,798		)	—		(415,447		)
Payments of deferred financing costs	(104		)	—			—			—		(104		)	(16,275		)	—			—			—		(16,275		)
Dividends paid	(1,998		)	—			—			—		(1,998		)	(4,001		)	—			—			—		(4,001		)
Repurchase of restricted shares for minimum tax obligation	(1,043		)	—			—			—		(1,043		)	(1,048		)	—			—			—		(1,048		)
Intercompany financing and advances	10,811			(17,582		)	6,771			—		—			33,130			(35,211		)	2,081			—		—
Net cash used in financing activities	(23,173		)	(19,415		)	(15,529		)	—		(58,117		)
Net cash provided by (used in) financing activities															12,864			(38,533		)	(12,717		)	—		(38,386		)
Effect of exchange rate changes on cash	—			—			(121		)	—		(121		)	—			—			(1,407		)	—		(1,407		)
Net change in cash and cash equivalents	(63,367		)	(419		)	(94		)	—		(63,880		)	(70,137		)	(262		)	2,444			—		(67,955		)
Cash and cash equivalents at beginning of period	70,192			429			22,186			—		92,807			70,192			429			22,186			—		92,807
Cash and cash equivalents at end of period	$	6,825		$	10		$	22,092		$	—	$	28,927		$	55		$	167		$	24,630		$	—	$	24,852

2936

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS:


	Three Months Ended June 30, 2018															For the Six Months Ended September 30, 2018
	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated Total			Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated Total
Net (loss) income	$	(37,764	)	$	(40,726	)	$	1,956		$	—		$	(76,534	)	$	(60,691	)	$	(38,586	)	$	8,067		$	—		$	(91,210	)

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		)
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	(105		)	(10,524		)	(1,571		)	—			(12,200		)	(583		)	(21,145		)	(2,526		)	—			(24,254		)
Reimbursed capital expenditures	—			—			—			—			—
Proceeds from sale of assets	—			118			546			—			664			—			40,189			848			—			41,037
Net cash used in investing activities	(105		)	(10,406		)	(1,025		)	—			(11,536		)
Net cash (used in) provided by investing activities																(583		)	19,044			(1,678		)	—			16,783
Net increase in revolving credit facility	113,186			—			—			—			113,186			219,773			—			—			—			219,773
Proceeds on issuance of debt	1,214			632			17,200			—			19,046			—			—			24,700			—			24,700
Retirements and repayments of debt	(365		)	(6,597		)	(46,800		)	—			(53,762		)	(703		)	(11,320		)	(46,800		)	—			(58,823		)
Payments of deferred financing costs	(64		)	—			—			—			(64		)	(1,922		)	—			—			—			(1,922		)
Dividends paid	(1,988		)	—			—			—			(1,988		)	(3,981		)	—			—			—			(3,981		)
Repurchase of restricted shares for minimum tax obligations	(532		)	—			—			—			(532		)	(548		)	—			—			—			(548		)
Intercompany financing and advances	(120,373		)	133,966			(14,096		)	503			—			(205,128		)	211,208			2,744			(8,824		)	—
Net cash (used in) provided by financing activities	(8,922		)	128,001			(43,696		)	503			75,886
Net cash provided by (used in) financing activities																7,491			199,888			(19,356		)	(8,824		)	179,199
Effect of exchange rate changes on cash	—			—			(1,400		)	—			(1,400		)	—			—			(1,395		)	—			(1,395		)
Net change in cash and cash equivalents	40			420			(3,224		)	—			(2,764		)	35			237			(2,864		)	—			(2,592		)
Cash and cash equivalents at beginning of period	44			—			35,775			—			35,819			44			—			35,775			—			35,819
Cash and cash equivalents at end of period	$	84		$	420		$	32,551		$	—		$	33,055		$	79		$	237		$	32,911		$	—		$	33,227

3037

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. In the three months ended September 30, 2019, the Company was awarded $5,400 in a legal judgment associated with a longstanding litigation matter arising from a prior acquisition. The Company expects to receive an additional $3,000 to $5,000 from this matter as reimbursement of legal expenses.

As the Company completes its restructuring plans as disclosed in Note 16, including the disposal of certain facilities, the Company may be exposed to additional costs such as environmental remediation obligations, lease termination costs, or supplier claims which may have a material effect on its financial position or results of operations when such matters arise and a reasonable estimate of the costs can be made.

16. RESTRUCTURING COSTS

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. With the exception of certain consolidations to be completed in future years, these plans were substantially complete as of March 31, 2019. The Company incurred costs of ~~$2,964~~$8,746 associated with new restructuring plans during the ~~first quarter of fiscal year 2020.~~six months ended September 30, 2019. These costs, which are being incurred primarily within the Integrated Systems segment, pertain to third-party consulting costs and are estimated to be approximately ~~$8,000~~$10,000 to ~~$10,000~~$12,000 for the year ended March 31, 2020.

3138

Triumph Group, Inc.

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.

During the fiscal year ended March 31, 2019, the Company divested of a number of its assets and operations, including (i) selling all of the shares of Triumph Structures - East Texas, Inc. 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." The Company recognized combined net losses of $235.3 million associated with the fiscal 2019 divestitures, which are presented on the accompanying consolidated statements of operations within loss on divestitures. 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 ~~first~~second quarter of the fiscal year ending March 31, 2020, included:

Net sales for the ~~first~~second quarter of the fiscal year ending March 31, 2020, were ~~$730.2~~$772.1 million, compared with ~~$832.9~~$855.1 million for the prior year period.

Operating income in the ~~first~~second quarter of fiscal 2020 was ~~$35.5~~$61.0 million, compared with operating loss of ~~$66.5~~$2.0 million for the ~~first~~second quarter of fiscal 2019.

Net income for the ~~first~~second quarter of fiscal 2020 was ~~$18.1~~$42.7 million, compared with a net loss of ~~$76.5~~$14.7 million for the ~~first~~second quarter of fiscal 2019.

Backlog as of ~~June~~September 30, 2019, was ~~$3.71~~$3.66 billion. Of our existing backlog of ~~$3.71~~$3.66 billion, we estimate that approximately ~~$1.46~~$1.41 billion will not be shipped by ~~June~~September 30, 2020.

Net income for the ~~first~~second quarter of fiscal 2020 was ~~$0.36~~$0.85 per diluted common share, as compared with a net loss of ~~$1.54~~$0.30 per diluted share in the prior year period.

We ~~generated $5.0~~used $10.6 million of cash flow from operating activities for the ~~three~~six months ended ~~June~~September 30, 2019, as compared with cash used in operations of ~~$65.7~~$197.2 million in the comparable prior year period.

The Company has committed to several plans (which were initiated in fiscal 2016) that incorporated the restructuring of certain of its businesses as well as the consolidation of certain of its facilities. With the exception of certain consolidations and related shutdowns to be completed in future years, these plans were substantially complete as of March 31, 2019. For the ~~three~~six months ended ~~June~~September 30, 2019 and 2018, the Company incurred ~~$3.0~~$8.7 million and ~~$4.0~~$15.9 million in restructuring costs, respectively.

As disclosed in Note 15, the Company may be exposed to additional costs that are not yet known or reasonably estimable which may have a material effect on its financial position or results of operations when such matters are identified and become reasonably estimable.

3239

Triumph Group, Inc.

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 recently, the Gulfstream G500/G600 programs. Historically, low-rate production commences during flight testing, followed by an increase to full-rate production, assuming that successful testing and certification are achieved. While work progressed on these development programs, we have experienced difficulties in achieving estimated cost targets particularly in the areas of engineering and estimated recurring costs 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 Boeing 747-8 fuselage for Boeing, Gulfstream G280 wing for Israel Aerospace Industries, Ltd ("IAI") and Gulfstream G650 wing for Gulfstream. Further discussion is included below regarding each program's impact on operations over the past three fiscal years.

E2-Jets

Under our contract with Embraer, we 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 over the initial 600 ship sets. The contract provided for funding on a fixed amount of nonrecurring costs, to be paid over a specified number of production units. Higher than expected spending on the E2-Jets program resulted in a near 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 on this program.

During the fiscal year ended March 31, 2018, the Company reached an agreement with AeroSpace Technologies of Korea Inc. ("ASTK") to optimize the supply chain under our portion of the E2 program. Under this agreement, ASTK will build and transport fuselage shipsets to Embraer and establish a facility in Brazil to manage stock and repairs locally. At the time, the Company maintained its role as the supply chain integrator on the program.

In April 2019, we announced an agreement to assign our contract with Embraer for the manufacture of structural components for their program to ASTK. Under this agreement, we will remain a supplier to ASTK for the rudder and elevator components. We ~~remain on target for completion of~~completed the assignment ~~to ASTK~~of our contract during the three months ended September 30, 2019, and recognized a gain of approximately $10,000 included in ~~the third quarter of fiscal 2020.~~our Aerospace Structures operating income.

G500/G600

We are in the final development stages for the Gulfstream G500/G600 programs, 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 towith 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.

Triumph Group, Inc.

Management's Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

G280

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

~~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 IAI will terminate upon completion of the transition of work. Our forward loss recognized in the fiscal year ended March 31, 2019, noted above includes the cost to transition, which is estimated to be completed in mid-fiscal 2021.

G650

In the first quarter of fiscal 2019, the Company reached an agreement with Gulfstream to optimize the supply chain on the Company's G650 work scope. The G650 wing box and wing completion work, which had been co-produced across three facilities at both companies, are being consolidated into Gulfstream’s facilities in Savannah, Georgia. The Company completed the manufacturing of its final wing box in July 2019. The Company maintains its role as the supply chain integrator on the program and 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 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 the development or production programs noted above individually are expected to have a material impact on our net revenues, they do have the potential, either individually or in the aggregate, to materially and negatively impact our consolidated results of operations if future changes in estimates result in the need for a forward loss provision. Absent any such loss provisions, we do not anticipate that any of these programs will significantly dilute our future consolidated margins.

RESULTS OF OPERATIONS

The following includes a discussion of our consolidated and business segment results of operations. The Company'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"), 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 (loss) before interest, income taxes, amortization of acquired contract liabilities, legal settlements, loss on divestitures, depreciation and amortization; and Adjusted EBITDAP, which is Adjusted EBITDA, before pension expense or benefit, including the effects of curtailments, settlements, and other early retirement incentives. 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 such measures is net income (loss). In calculating Adjusted EBITDA and Adjusted EBITDAP, we exclude from net 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), 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

Triumph Group, Inc.

Management's Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

not rely on Adjusted EBITDA or Adjusted EBITDAP as a substitute for any U.S. GAAP financial measure, including net income (loss). In addition, we urge investors and potential investors in our securities to carefully review the reconciliation of Adjusted EBITDA and Adjusted EBITDAP to net income (loss) set forth below, in our earnings releases and in other filings with the SEC and to carefully review the U.S. GAAP financial information included as part of our Quarterly Reports on

~~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 (loss) has included significant charges for depreciation and amortization. Adjusted EBITDA and Adjusted EBITDAP exclude these charges and 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 (loss) to calculate Adjusted EBITDA and Adjusted EBITDAP and the material limitations associated with using these non-GAAP financial measures as compared with net income (loss) or income from continuing operations:

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 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 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.

Triumph Group, Inc.

Management's Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

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.

~~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 June 30,						Three Months Ended September 30,						Six Months Ended September 30,
	2019			2018			2019			2018			2019			2018
Net income (loss)	$	18,088		$	(76,534	)	$	42,701		$	(14,676	)	$	60,789		$	(91,210	)
Loss on divestitures	3,136			4,719
Legal judgment gain, net of expenses							(5,400		)	—			(5,400		)	—
(Gain) loss on sale of assets and businesses							(7,965		)	13,118			(4,829		)	17,837
Adoption of ASU 2017-07	—			87,241			—			—			—			87,241
Amortization of acquired contract liabilities, net	(16,939		)	(17,234		)	(22,616		)	(16,804		)	(39,556		)	(34,038		)
Depreciation and amortization	44,050			38,812			30,219			38,134			74,269			76,945
Interest expense and other	27,491			25,493			35,400			28,714			62,891			54,206
Curtailment gain and special termination benefits charges, net							(14,373		)	—			(14,373		)	—
Union represented employee incentives							5,671			—			5,671			—
Income tax expense	4,807			1,031			11,352			485			16,159			1,516
Adjusted EBITDA	$	80,633		$	63,528		74,989			48,971			155,621			112,497
Non-service defined benefit income (excluding settlements)	(14,875		)	(16,538		)
Non-service defined benefit income (excluding curtailment and special termination benefits)							(14,043		)	(16,524		)	(28,918		)	(33,061		)
Adjusted EBITDAP	$	65,758		$	46,990		$	60,946		$	32,447		$	126,703		$	79,436

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


	Three Months Ended June 30, 2019														Three Months Ended September 30, 2019
	Total			Integrated Systems			Aerospace Structures			Product Support		Corporate/ Eliminations			Total			Integrated Systems			Aerospace Structures			Product Support		Corporate/ Eliminations
Operating income (loss)	$	35,511		$	34,772		$	12,283		$	9,276	$	(20,820	)	$	61,037		$	51,472		$	13,608		$	10,865	$	(14,908	)
Loss on divestitures	3,136			—			—			—		3,136
Legal judgment gain, net of expenses															(5,400		)	—			—			—		(5,400		)
(Gain) loss on sale of assets and businesses															(7,965		)	—			(10,121		)	—		2,156
Amortization of acquired contract liabilities, net	(16,939		)	(8,125		)	(8,814		)	—		—			(22,616		)	(9,624		)	(12,992		)	—		—
Depreciation and amortization	44,050			7,067			35,059			1,090		834			30,219			6,983			21,285			1,099		852
Union represented employee incentives															5,671			—			5,671			—		—
Adjusted EBITDAP	$	65,758		$	33,714		$	38,528		$	10,366	$	(16,850	)	$	60,946		$	48,831		$	17,451		$	11,964	$	(17,300	)

Triumph Group, Inc.

Management's Discussion and Analysis of

Financial Condition and Results of Operations

(continued)


	Three Months Ended June 30, 2018														Three Months Ended September 30, 2018
	Total			Integrated Systems			Aerospace Structures			Product Support		Corporate/ Eliminations			Total			Integrated Systems			Aerospace Structures			Product Support		Corporate/ Eliminations
Operating (loss) income	$	(66,548	)	$	35,409		$	(79,587	)	$	7,669	$	(30,039	)	$	(2,001	)	$	39,866		$	(22,744	)	$	11,514	$	(30,637	)
Loss on divestitures	4,719			—			—			—		4,719
Adoption of ASU 2017-07	87,241			—			87,241			—		—
Loss on sale of assets and businesses															13,118			—			—			—		13,118
Amortization of acquired contract liabilities, net	(17,234		)	(8,849		)	(8,385		)	—		—			(16,804		)	(8,768		)	(8,036		)	—		—
Depreciation and amortization	38,812			7,555			28,920			1,670		667			38,134			7,384			28,294			1,664		792
Adjusted EBITDAP	$	46,990		$	34,115		$	28,189		$	9,339	$	(24,653	)	$	32,447		$	38,482		$	(2,486	)	$	13,178	$	(16,727	)



	Six Months Ended September 30, 2019
	Total			Integrated Systems			Aerospace Structures			Product Support		Corporate/ Eliminations
Operating income (loss)	$	96,548		$	86,244		$	25,891		$	20,142	$	(35,729	)
Legal settlement gain, net of expenses	(5,400		)	—			—			—		(5,400		)
(Gain) loss on sale of assets and businesses	(4,829		)	—			(10,121		)	—		5,292
Amortization of acquired contract liabilities, net	(39,556		)	(17,749		)	(21,807		)	—		—
Depreciation and amortization	74,269			14,050			56,344			2,189		1,686
Union represented employee incentives	5,671			—			5,671			—		—
Adjusted EBITDAP	$	126,703		$	82,545		$	55,978		$	22,331	$	(34,151	)



	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 sale of assets and businesses	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	)

Corporate operating loss includes share-based compensation expense of ~~$2.4~~$2.9 million and ~~$2.5~~$3.3 million for the three months ended ~~June~~September 30, 2019 and 2018, and $5.3 million and $5.7 million for the six months ended September 30, 2019 and 2018, respectively.

3644

Triumph Group, Inc.

Management's Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

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


	Three Months Ended June 30,						Three Months Ended September 30,
	2019			2018			2019			2018
	(dollars in thousands)						(dollars in thousands)
Net sales	$	730,231		$	832,900		$	772,110		$	855,108
Segment operating income (loss)	$	56,331		$	(36,509	)
Segment operating income							$	75,945		$	28,636
Corporate expense	(18,394		)	(27,577		)	(12,044		)	(27,371		)
Share-based compensation expense	(2,426		)	(2,462		)	(2,864		)	(3,266		)
Total operating income (loss)	35,511			(66,548		)	61,037			(2,001		)
Interest expense and other	27,491			25,493			35,400			28,714
Non-service defined benefit income	(14,875		)	(16,538		)	(28,416		)	(16,524		)
Income tax expense	4,807			1,031			11,352			485
Net income (loss)	$	18,088		$	(76,534	)	$	42,701		$	(14,676	)

Net sales decreased by ~~$102.7~~$83.0 million, or ~~12.3%~~9.7%, to ~~$730.2~~$772.1 million for the three months ended ~~June~~September 30, 2019, from ~~$832.9~~$855.1 million for the three months ended ~~June~~September 30, 2018. Organic sales adjusted for inter-segment sales increased ~~$43.1~~$87.5 million, or ~~5.8%~~12.8%, offset by declines from divestitures of ~~$145.7~~$170.5 million. Organic sales increased primarily due to increased volumes on G280, G550, ~~Global Hawk~~767, and 787 programs, a new statement of work under the Mitsubishi M100 program, increases in engine components and military rotorcraft components as well as increased demand for accessory components. Net sales for the three months ended ~~June~~September 30, 2019, included ~~$7.9~~$17.3 million in total nonrecurring revenues, as compared with ~~$39.4~~$4.9 million in nonrecurring revenues for the three months ended ~~June~~September 30, 2018.

Cost of sales decreased ~~$188.0~~$102.2 million, or ~~24.4%~~14.1%, to ~~$582.2~~$622.2 million for the three months ended ~~June~~September 30, 2019, from ~~$770.2~~$724.5 million for the three months ended ~~June~~September 30, 2018. Organic cost of sales ~~decreased $35.1~~adjusted for inter-segment sales increased $84.4 million, or ~~5.7%. Cost~~15.7%, offset by declines from divestitures of $186.6 million. Organic cost of sales ~~for~~increased primarily due to the ~~three months ended June 30, 2018 included $87.2~~higher volumes in the above programs partially offset by a reduction of cost of sales as a result of a $5.3 million ~~charge from the adoption of ASU 2017-07 and net unfavorable cumulative catch-up adjustments on long-term contracts of $3.6 million.~~reduction in an acquired contract reserves. The organic gross margin for the three months ended ~~June~~September 30, 2019 was ~~20.3%~~19.3%, as compared with ~~10.2%~~21.2%, for the three months ended ~~June~~September 30, 2018.

Gross margin included net unfavorable cumulative catch-up adjustments on long-term contracts of ~~$5.0~~$5.1 million. The cumulative catch-up adjustments to gross margin included gross favorable adjustments of ~~$19.7~~$18.3 million and gross unfavorable adjustments of ~~$24.7~~$23.4 million. Gross margin for the three months ended ~~June~~September 30, 2018, included net unfavorable cumulative catch-up adjustments of ~~$3.6~~$10.2 million.

Segment operating income increased by ~~$92.8~~$47.3 million, or ~~254.3%~~165.2%, to ~~an operating income of $56.3~~$75.9 million for the three months ended ~~June~~September 30, 2019, from ~~an operating loss of $36.5~~$28.6 million for the three months ended ~~June~~September 30, 2018. Organic segment operating income increased by ~~$72.1~~$18.3 million primarily due to the ~~prior period charge from~~approximately $10.0 million gain recognized as a result of the ~~adoption~~transfer of ~~ASU 2017-07.~~the E-2 Jets program to ASTK. Divestitures contributed ~~$20.7~~$29.0 million improvement to operating ~~income.~~income due to operating losses in the prior period, including $38.4 million on the Global 7500 program. Organic operating income for the three months ended ~~June~~September 30, 2019 also increased due ~~the gross margin improvement noted above as well as lower~~to a decrease in compensation cost ~~($3.5 million)~~of $5.4 million and ~~lower~~ research &and development ~~costs ($3.8 million).~~cost of $3.8 million partially offset by the incentives paid to union represented employees of $5.7 million.

Corporate expenses were ~~$18.4~~$12.0 million for the three months ended ~~June~~September 30, 2019, as compared with ~~$27.6~~$27.4 million for the three months ended ~~June~~September 30, 2018. The decrease in corporate expenses was ~~$9.2~~$15.3 million, or ~~33.3%~~56.0%, and was primarily the result of decreased ~~compensation expense~~loss on ~~lower overall headcount~~sale of assets and ~~lower~~businesses as well as the current period gain on a legal ~~expenses.~~judgment.

Interest expense and other increased by ~~$2.0~~$6.7 million, or ~~7.8%~~23.3%, to ~~$27.5~~$35.4 million for the three months ended ~~June~~September 30, 2019, compared with ~~$25.5~~$28.7 million for the three months ended ~~June~~September 30, 2018, due to ~~$2.6~~a write-off of deferred financing costs of approximately $3.0 million ~~change~~as a result of the debt transactions disclosed in ~~foreign exchange transactional gains in loss, partially offset by lower~~Note 7 and higher interest expense due to differences in relative debt ~~levels.~~levels and higher interest rates.

Triumph Group, Inc.

Management's Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

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

Business Segment Performance - Three months ended ~~June~~September 30, 2019, compared with three months ended ~~June~~September 30, 2018

~~Management's Discussion and Analysis of~~

~~Financial Condition and Results of Operations~~

~~(continued)~~

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 where we become the primary source or one of a few primary sources to our customers, our unique manufacturing capabilities command a higher margin. 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; 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 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 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.

We currently generate a majority of our revenue from ~~clients~~customers 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~~customers in these industries. If any of these industries experiences a downturn, our ~~clients~~customers 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.

3846

Triumph Group, Inc.

Management's Discussion and Analysis of

Financial Condition and Results of Operations

(continued)


	Three Months Ended June 30,								% of Total Sales				Three Months Ended September 30,								% of Total Sales
	2019			2018			% Change		2019		2018		2019			2018			% Change		2019		2018
	(in thousands)												(in thousands)
NET SALES
Integrated Systems	$	252,226		$	241,039		4.6	%	34.5	%	28.9	%	$	285,980		$	260,717		9.7	%	37.0	%	30.5	%
Aerospace Structures	419,178			532,387			(21.3	)%	57.4	%	63.9	%	422,579			528,367			(20.0	)%	54.7	%	61.8	%
Product Support	61,756			66,215			(6.7	)%	8.5	%	7.9	%	67,394			72,199			(6.7	)%	8.7	%	8.4	%
Elimination of inter-segment sales	(2,929		)	(6,741		)	(56.5	)%	(0.4	)%	(0.7	)%	(3,843		)	(6,175		)	(37.8	)%	(0.5	)%	(0.7	)%
Total Net Sales	$	730,231		$	832,900		(12.3	)%	100.0	%	100.0	%	$	772,110		$	855,108		(9.7	)%	100.0	%	100.0	%


	Three Months Ended June 30,								% of Segment Sales				Three Months Ended September 30,								% of Segment Sales
	2019			2018			% Change		2019		2018		2019			2018			% Change		2019		2018
	(in thousands)												(in thousands)
SEGMENT OPERATING INCOME (LOSS)
Integrated Systems	$	34,772		$	35,409		(1.8	)%	13.8	%	14.7	%	$	51,472		$	39,866		29.1	%	18.0	%	15.3	%
Aerospace Structures	12,283			(79,587		)	(115.4	)%	2.9	%	(14.9	)%	13,608			(22,744		)	(159.8	)%	3.2	%	(4.3	)%
Product Support	9,276			7,669			21.0	%	15.0	%	11.6	%	10,865			11,514			(5.6	)%	16.1	%	15.9	%
Corporate	(18,394		)	(27,577		)	33.3	%	n/a		n/a		(12,044		)	(27,371		)	56.0	%	n/a		n/a
Share-based compensation expense	(2,426		)	(2,462		)	1.5	%	n/a		n/a		(2,864		)	(3,266		)	12.3	%	n/a		n/a
Total Operating Income (Loss)	$	35,511		$	(66,548	)			4.9	%	(8.0	)%	$	61,037		$	(2,001	)			7.9	%	(0.2	)%


	Three Months Ended June 30,								% of Segment Sales				Three Months Ended September 30,								% of Segment Sales
	2019			2018			% Change		2019		2018		2019			2018			% Change		2019		2018
	(in thousands)												(in thousands)
Adjusted EBITDAP
Integrated Systems	$	33,714		$	34,115		(1.2	)%	13.8	%	14.7	%	$	48,831		$	38,482		26.9	%	17.7	%	15.3	%
Aerospace Structures	38,528			28,189			36.7	%	9.4	%	5.4	%	17,451			(2,486		)	(802.0	)%	4.3	%	(0.5	)%
Product Support	10,366			9,339			11.0	%	16.8	%	14.1	%	11,964			13,178			(9.2	)%	17.8	%	18.3	%
Corporate & share-based compensation	(16,850		)	(24,653		)	31.7	%	n/a		n/a
Corporate and share-based compensation													(17,300		)	(16,727		)	(3.4	)%	n/a		n/a
	$	65,758		$	46,990		39.9	%	9.2	%	5.8	%	$	60,946		$	32,447		87.8	%	8.1	%	3.9	%

Integrated Systems: Integrated Systems net sales increased by ~~$11.2~~$25.3 million, or ~~4.6%~~9.7%, to ~~$252.2~~$286.0 million for the three months ended ~~June~~September 30, 2019, from ~~$241.0~~$260.7 million for the three months ended ~~June~~September 30, 2018. The increase ~~was entirely organic and~~ was primarily due to increased volumes on ~~engine components and military rotorcraft components.~~aftermarket spare part sales as well as approximately $5.0 million in a nonrecurring licensing transaction.

Integrated Systems cost of sales increased by ~~$11.5~~$7.8 million, or ~~6.8%~~4.2%, to ~~$181.5~~$192.7 million for the three months ended ~~June~~September 30, 2019, from ~~$170.0~~$184.9 million for the three months ended ~~June~~September 30, 2018. The increase was ~~entirely organic and~~ driven by the increased sales volume ~~on engine components and rotorcraft components and higher costs incurred~~noted above partially offset by the reversal of $5.3 million in acquired contract reserves due to ~~drive future operational improvements.~~contract modifications.

The ~~organic~~ gross margin for the three months ended ~~June~~September 30, 2019, was ~~28.0%~~32.6% compared with ~~29.5%~~29.1% for the three months ended ~~June~~September 30, 2018. The ~~decrease~~increase in gross margin for the three months ended ~~June~~September 30, 2019, is the result of a change in sales mix, ~~as well as~~ the ~~higher costs incurred to drive future operational improvements noted~~nonrecurring licensing transaction, and the reversal of the acquired contract reserve note above.

3947

Triumph Group, Inc.

Management's Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

Integrated Systems operating income ~~decreased~~increased by ~~$0.6~~$11.6 million, or ~~1.8%~~29.1%, to ~~$34.8~~$51.5 million for the three months ended ~~June~~September 30, 2019, from ~~$35.4~~$39.9 million for the three months ended ~~June~~September 30, ~~2018~~.2018. Adjusted EBITDAP increased by $10.3 million, or 26.9%, to $48.8 million for the three months ended September 30, 2019, from $38.5 million for the three months ended September 30, 2018. The ~~decrease~~increase of both operating income and Adjusted EBITDAP was due to the ~~decreased~~increased gross margin as noted ~~above. The decrease in Adjusted EBITDAP was not significant.~~above, partially offset by increased restructuring costs of $3.4 million.

Integrated Systems operating income as a percentage of segment sales ~~decreased~~increased to ~~13.8%~~18.0% for the three months ended ~~June~~September 30, 2019, as compared with ~~14.7%~~15.3% for the three months ended ~~June~~September 30, 2018. ~~These~~The same factors noted above affecting the Adjusted EBITDAP contributed to the ~~decreased~~increased Adjusted EBITDAP margin year over year.

Aerospace Structures: Aerospace Structures net sales decreased by ~~$113.2~~$105.8 million, or ~~21.3%~~20.0%, to ~~$419.2~~$422.6 million for the three months ended ~~June~~September 30, 2019, from ~~$532.4~~$528.4 million for the three months ended ~~June~~September 30, 2018. Organic sales increased ~~$24.0~~$57.1 million, or ~~6.1%~~15.6%. Net sales decreased as a result of the fiscal 2019 Aerostructures divestitures by ~~$137.2~~$162.9 million. The organic sales increased ~~primarily~~ due to ~~volume increases~~increased volumes on G280, G550, ~~Global Hawk~~767, and 787 programs, ~~and~~as well as a new ~~engineering services.~~statement of work under the Mitsubishi M100 program. Net sales for the three months ended ~~June~~September 30, 2019, included ~~$7.9~~$12.3 million in total nonrecurring revenues, as compared with ~~$39.4~~$4.9 million in total nonrecurring revenues for the three months ended ~~June~~September 30, 2018.

Aerospace Structures cost of sales decreased by ~~$197.2~~$107.7 million, or ~~35.5%~~21.9%, to ~~$358.2~~$384.3 million for the three months ended ~~June~~September 30, 2019, from ~~$555.4~~$492.1 million for the three months ended ~~June~~September 30, 2018. Organic cost of sales ~~decreased $51.2~~increased $72.9 million, or ~~12.5%~~23.4%. Cost of sales decreased as a result of the fiscal 2019 Aerostructures divestitures by ~~$146.0~~$180.7 million. ~~Cost~~The increase in organic cost of sales ~~for~~was primarily due to the ~~three months ended June 30, 2018~~increased volumes noted above as well as $5.7 million of current period charges included ~~$87.2 million charge~~in cost of sales associated with incentives paid to union represented employees. Additionally, in the prior period the Company benefited from a reduction in the ~~adoption~~forward loss reserve on a Gulfstream program of ~~ASU 2017-07 and net unfavorable cumulative catch-up adjustments on long-term contracts of $3.6~~$7.6 million. The organic gross margin for the three months ended ~~June~~September 30, 2019, was ~~14.5%~~9.1% compared with ~~(3.6)%~~14.8% for the three months ended ~~June~~September 30, 2018.

Aerospace Structures cost of sales for the three months ended ~~June~~September 30, 2019, included net unfavorable cumulative catch-up adjustments on long-term contracts of ~~$4.3~~$5.3 million. The cumulative catch-up adjustments to gross margin for the three months ended ~~June~~September 30, 2019, included gross favorable adjustments of ~~$19.6~~$17.6 million and gross unfavorable adjustments of ~~$24.0~~$23.0 million. Segment cost of sales for the three months ended ~~June~~September 30, 2018, included net unfavorable cumulative catch-up adjustments of ~~$3.6~~$12.4 million.

Aerospace Structures operating income increased by ~~$91.9~~$36.4 million, or ~~115.4%~~159.8%, to ~~$12.3~~$13.6 million for the three months ended ~~June~~September 30, 2019, from ~~$79.6~~$22.7 million for the three months ended ~~June~~September 30, 2018. The organic operating income increased ~~$70.6~~$6.7 million, or ~~121.1%~~96.6%. Operating income increased as a result of the fiscal 2019 Aerostructures divestitures by ~~$21.3~~$29.7 million. Organic operating income increased for the three months ended ~~June~~September 30, 2019, primarily due to ~~a the gross margin variances noted above and~~ lower overall compensation costs due to ~~lower headcount.~~decreased severance charges and headcount as well as the approximately $10.0 million gain recognized as a result of the transfer of the E-2 Jets program to ASTK. The increase in Adjusted EBITDAP year over year is due to the increased ~~gross margins~~operating income noted above.

Aerospace Structures operating income as a percentage of segment sales was ~~2.9%~~3.2% for the three months ended ~~June~~September 30, 2019, as compared with operating loss as a percentage of segment sales of ~~(14.9)~~(4.3)% for the three months ended ~~June~~September 30, 2018. The Adjusted EBITDAP margin year over year has ~~decreased~~increased for the same reasons noted above for ~~gross margin.~~operating income.

Product Support: Product Support net sales decreased by ~~$4.5~~$4.8 million, or 6.7%, to ~~$61.8~~$67.4 million for the three months ended ~~June~~September 30, 2019, from ~~$66.2~~$72.2 million for the three months ended ~~June~~September 30, 2018. The decrease was primarily the result of the divestiture of NAAS partially offset by increases due to improvement in demand for accessory component repairs.

Product Support cost of sales decreased by ~~$6.1~~$4.7 million, or ~~11.8%~~8.7%, to ~~$45.4~~$49.1 million for the three months ended ~~June~~September 30, 2019, from ~~$51.5~~$53.7 million for the three months ended ~~June~~September 30, 2018. The decrease was driven ~~entirely~~ by the divestiture of ~~NAAS. Gross~~NAAS partially offset by the increased sales noted above. Organic gross margin for the three months ended ~~June~~September 30, 2019, was ~~26.4%~~27.2% compared with ~~22.2%~~25.9% for the three months ended ~~June~~September 30, 2018.

Product Support operating income ~~increased~~decreased by ~~$1.6~~$0.6 million, or ~~21.0%~~5.6%, to ~~$9.3~~$10.9 million for the three months ended ~~June~~September 30, 2019, from ~~$7.7~~$11.5 million for the three months ended ~~June~~September 30, 2018. The ~~increase~~decrease was driven by the ~~increased gross margin noted above.~~divestiture of NAAS.

Triumph Group, Inc.

Management's Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

Product Support operating income as a percentage of segment sales increased to ~~15.0%~~16.1% for the three months ended ~~June~~September 30, 2019, as compared with ~~11.6%~~15.9% for the three months ended ~~June~~September 30, 2018. The Adjusted EBITDAP margin was ~~16.8%~~17.8% for the three months ended ~~June~~September 30, 2019, as compared with ~~14.1%~~18.3% for the three months ended ~~June~~September 30, 2018.

Six months ended September 30, 2019, compared with six months ended September 30, 2018



	Six Months Ended September 30,
	2019			2018
	(dollars in thousands)
Net sales	$	1,502,341		$	1,688,008
Segment operating income (loss)	$	132,277		$	(7,873	)
Corporate expense	(30,439		)	(54,948		)
Share-based compensation expense	(5,290		)	(5,728		)
Total operating income (loss)	96,548			(68,549		)
Interest expense and other	62,891			54,206
Non-service defined benefit income	(43,291		)	(33,061		)
Income tax expense	16,159			1,516
Net income (loss)	$	60,789		$	(91,210	)

Net sales decreased by $185.7 million, or 11.0%, to $1.50 billion for the six months ended September 30, 2019, from $1.69 billion for the six months ended September 30, 2018. Organic sales adjusted for inter-segment sales increased by $130.6 million, or 9.5%, offset by declines from divestitures of $316.3 million. Organic sales increased primarily due to increased volumes on G280, G550, 767, and 787 programs, a new statement of work under the Mitsubishi M100 program, increased volume and pricing on E-2 Jets sales to ASTK, increases in engine components and military rotorcraft components as well as increased demand for accessory components. Net sales for the six months ended September 30, 2019, included $25.2 million in total nonrecurring revenues, as compared with $44.3 million in nonrecurring revenues for the six months ended September 30, 2018.

Cost of sales decreased by $290.2 million, or 19.4%, to $1.20 billion for the six months ended September 30, 2019, from $1.49 billion for the six months ended September 30, 2018. Organic cost of sales adjusted for inter-segment sales increased $49.2 million, or 4.3%, offset by declines from divestitures of $339.4 million. The increase in organic cost of sales increased due to the increase in organic sales mentioned above partially offset by the nonrecurring charge of $87.2 million in the six months ended September 30, 2018, arising from the adoption of ASU 2017-07. The organic gross margin for the six months ended September 30, 2019, was 19.7%, as compared with 15.6% for the six months ended September 30, 2018.

Gross margin for the six months ended September 30, 2019, included net unfavorable cumulative catch-up adjustments on long-term contracts of $12.3 million. The cumulative catch-up adjustments to gross margin included gross favorable adjustments of $24.6 million and gross unfavorable adjustments of $36.9 million. Gross margin for the six months ended September 30, 2018, included the previously mentioned net unfavorable cumulative catch-up adjustments of $13.0 million.

Segment operating income increased by $140.2 million, or 1,780.1%, to operating income of $132.3 million for the six months ended September 30, 2019, from an operating loss of $(7.9) million for the six months ended September 30, 2018. Organic segment operating income increased $90.5 million. Divestitures contributed additional increases to operating income of $49.7 million. Organic operating income for the six months ended September 30, 2019, primarily increased due to the factors noted above, as well as the $10.0 million gain recognized upon the assignment of the E-2 Jets contract to ASTK in the current year. Additionally, research and development expenses were higher in the prior year by approximately $7.6 million.

Corporate expenses were $30.4 million for the six months ended September 30, 2019, as compared with $54.9 million for the six months ended September 30, 2018. The decrease in corporate expenses of $24.5 million, or 44.6%, was primarily due to

Triumph Group, Inc.

Management's Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

decreases in losses on divestitures of $12.5 million and compensation costs of $5.4 million as well as the current period gain on a legal judgment of $5.4 million.

Interest expense and other increased by $8.7 million, or 16.0%, to $62.9 million for the six months ended September 30, 2019, compared with $54.2 million for the six months ended September 30, 2018, due to a write-off of deferred financing costs of approximately $3.0 million as a result of the debt transactions disclosed in Note 7 and higher interest expense due to differences in relative debt levels and higher interest rates.

The effective income tax rate for the six months ended September 30, 2019, was 21.0% compared with (1.6)% for the six months ended September 30, 2018. For the six months ended September 30, 2019, the effective tax rate reflected a limitation on the recognition of tax benefits due to the full valuation allowance.

Business Segment Performance - Six months ended September 30, 2019, compared with six months ended September 30, 2018:



	Six Months Ended September 30,								% of Total Sales
	2019			2018			% Change		2019		2018
	(in thousands)
NET SALES
Integrated Systems	$	538,206		$	501,756		7.3	%	35.8	%	29.7	%
Aerospace Structures	841,757			1,060,753			(20.6	)%	56.0	%	62.8	%
Product Support	129,149			138,414			(6.7	)%	8.6	%	8.2	%
Elimination of inter-segment sales	(6,771		)	(12,915		)	(47.6	)%	(0.5	)%	(0.8	)%
Total Net Sales	$	1,502,341		$	1,688,008		(11.0	)%	100.0	%	100.0	%



	Six Months Ended September 30,								% of Segment Sales
	2019			2018			% Change		2019		2018
	(in thousands)
SEGMENT OPERATING INCOME (LOSS)
Integrated Systems	$	86,244		$	75,275		14.6	%	16.0	%	15.0	%
Aerospace Structures	25,891			(102,331		)	(125.3	)%	3.1	%	(9.6	)%
Product Support	20,142			19,183			5.0	%	15.6	%	13.9	%
Corporate	(30,439		)	(54,948		)	44.6	%	n/a		n/a
Share-based compensation	(5,290		)	(5,728		)	7.6	%
Total Operating Income (Loss)	$	96,548		$	(68,549	)			6.4	%	(4.1	)%

Triumph Group, Inc.

Management's Discussion and Analysis of

Financial Condition and Results of Operations

(continued)



	Six Months Ended September 30,								% of Segment Sales
	2019			2018			% Change		2019		2018
	(in thousands)
Adjusted EBITDAP
Integrated Systems	$	82,545		$	72,597		13.7	%	15.9	%	15.0	%
Aerospace Structures	55,978			25,703			117.8	%	6.8	%	2.5	%
Product Support	22,331			22,517			(0.8	)%	17.3	%	16.3	%
Corporate and share-based compensation	(34,151		)	(41,381		)	17.5	%	n/a		n/a
	$	126,703		$	79,436		59.5	%	8.7	%	4.8	%

Integrated Systems: Integrated Systems net sales increased by $36.5 million, or 7.3%, to $538.2 million for the six months ended September 30, 2019, from $501.8 million for the six months ended September 30, 2018. The increase was ~~driven~~due to increased volumes on engine components, military rotorcraft components, and aftermarket spare part sales as well as $5.0 million in a nonrecurring licensing transaction.

Integrated Systems cost of sales increased by $19.3 million, or 5.4%, to $374.2 million for the six months ended September 30, 2019, from $354.9 million for the six months ended September 30, 2018. Cost of sales increased due to the sales increase noted above and sales mix, partially offset by a reduction of cost of sales as a result of a $5.3 million reduction in acquired contract reserves.

The gross margin for the six months ended September 30, 2019, was 30.5% compared with 29.3% for the six months ended September 30, 2018. The increase in gross margin for the six months ended September 30, 2019, is the result of sales mix as well as the favorable impact on margin from the nonrecurring licensing transaction and reduction in acquired contract reserves.

Integrated Systems operating income increased by $11.0 million, or 14.6%, to $86.2 million for the six months ended September 30, 2019, from $75.3 million for the six months ended September 30, 2018. Operating income increased due to the increased gross margin as noted above, partially offset by increased restructuring costs of $3.4 million. The increase in Adjusted EBITDAP year over year is due to the same factors that increased operating income.

Integrated Systems operating income as a percentage of segment sales increased to 16.0% for the six months ended September 30, 2019, as compared with 15.0% for the six months ended September 30, 2018, due to the increased gross margin as noted above. These same factors noted above affecting the Adjusted EBITDAP contributed to the increased Adjusted EBITDAP margin year over year.

Aerospace Structures: Aerospace Structures net sales decreased by $219.0 million, or 20.6%, to $841.8 million for the six months ended September 30, 2019, from $1.06 billion for the six months ended September 30, 2018. Organic sales increased $81.1 million, or 10.7%. Net sales decreased as a result of the fiscal 2019 Aerostructures divestitures by $300.1 million. The organic sales increased due to the increased volumes and pricing related to the E-2 Jets and 787 programs and increased volumes for the G280, G550, and 777 programs, and a new statement of work under the Mitsubishi M100 program. Net sales for the six months ended September 30, 2019, included $20.2 million in total nonrecurring revenues, as compared with $44.3 million in total nonrecurring revenues for the six months ended September 30, 2018.

Aerospace Structures cost of sales decreased by $304.9 million, or 29.1%, to $742.6 million for the six months ended September 30, 2019, from $1.05 billion for the six months ended September 30, 2018. The organic cost of sales increased $21.8 million, or 3.0%. Cost of sales decreased as a result of the fiscal 2019 Aerostructures divestitures by $326.7 million. The organic cost of sales increased due to the increase in organic sales mentioned above offset by the nonrecurring charge of $87.2 million in the six months ended September 30, 2018, arising from the adoption of ASU 2017-07. The organic gross margin for the six months ended September 30, 2019, was 11.8% compared with 5.2% for the six months ended September 30, 2018.

Aerospace Structures cost of sales for the six months ended September 30, 2019, included net unfavorable cumulative catch-up adjustments of $11.8 million. The cumulative catch-up adjustments to gross margin for the six months ended September 30, 2019, included gross favorable adjustments of $24.6 million and gross unfavorable adjustments of $36.4 million. Segment cost of sales for the six months ended September 30, 2018, included net unfavorable cumulative catch-up adjustments of $12.8 million.

Triumph Group, Inc.

Management's Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

Aerospace Structures operating increased by $128.2 million, or 125.3%, to $25.9 million for the six months ended September 30, 2019, compared with an operating loss of $102.3 million for the six months ended September 30, 2018. The organic operating income increased $77.3 million or 150.4%. Operating income increased as a result of the fiscal 2019 Aerostructures divestitures prior period operating losses of $51.0 million. Organic operating income increased for the same reasons noted above for gross margin as well as lower compensation due to decreased severance and headcount and the approximately $10.0 million gain recognized as a result of the transfer of the E-2 Jets program to ASTK. The increase in Adjusted EBITDAP year over year is due to the same factors that increased operating income.

Aerospace Structures operating income as a percentage of segment sales increased to 3.1% for the six months ended September 30, 2019, as compared with (9.6)% for the six months ended September 30, 2018, due to the increase in operating income 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 decreased by $9.3 million, or 6.7%, to $129.1 million for the six months ended September 30, 2019, from $138.4 million for the six months ended September 30, 2018. The decrease was primarily the result of the divestiture of NAAS partially offset by increases due to improvement in demand for accessory component repairs.

Product Support cost of sales decreased by $10.7 million, or 10.2%, to $94.5 million for the six months ended September 30, 2019, from $105.2 million for the six months ended September 30, 2018. The decrease was driven by the divestiture of NAAS partially offset by the increased sales noted above. Organic gross margin for the six months ended September 30, 2019, was 26.8% compared with 24.4% for the six months ended September 30, 2018.

Product Support operating income increased by $1.0 million, or 5.0%, to $20.1 million for the six months ended September 30, 2019, from $19.2 million for the six months ended September 30, 2018. The increased gross margins contributed to the increase in operating income and Adjusted EBITDAP year over year.

Product Support operating income as a percentage of segment sales increased to 15.6% for the six months ended September 30, 2019, as compared with 13.9% for the six months ended September 30, 2018, due to the increased gross profit noted above and the lower sales due to the divestiture of NAAS. These same factors contributed to the increased Adjusted EBITDAP margin year over year.

4052

Triumph Group, Inc.

Management's Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

Liquidity and Capital Resources

Our working capital needs are generally funded through cash flows from operations and borrowings under our credit arrangements. During the ~~three~~six months ended ~~June~~September 30, 2019, we ~~generated~~used approximately ~~$5.0~~$10.6 million of cash flows from operating activities, used approximately ~~$10.7~~$17.6 million in investing activities and used approximately ~~$58.1~~$38.4 million in financing activities.

Cash flows ~~generated from~~used in operating activities for the ~~three~~six months ended ~~June~~September 30, 2019, were ~~$5.0~~$10.6 million, compared with cash flows used in operating activities for the ~~three~~six months ended ~~June~~September 30, 2018, of ~~$65.7~~$197.2 million. We continue to invest in inventory ~~and contract assets for~~to support ramping programs ~~which impacts our cash flows from operating activities. During the three months ended 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, including the Bombardier Global 7500 program and the Embraer E-Jet, were approximately $81.0 million and $8.0 million, respectively. During the three months ended June 30, 2019, the Companyalso liquidated approximately ~~$20.0~~$40.0 million in prior period customer advances against current period deliveries.

Cash flows used in investing activities for the ~~three~~six months ended ~~June~~September 30, 2019, decreased ~~$0.9~~$34.4 million from the ~~three~~six months ended ~~June~~September 30, 2018. Cash flows ~~provided by~~used in investing activities for the ~~three~~six months ended ~~June~~September 30, 2019, included capital expenditures of ~~$8.1~~$17.0 million and payments on a working capital true-up from the prior period sale of assets net of ~~$2.6~~current period proceeds from sales of assets of $0.6 million. Cash ~~used in~~provided by investing activities for the ~~three~~six months ended ~~June~~September 30, 2018, included capital expenditures of ~~$12.2~~$24.3 million and proceeds from the sale of assets of ~~$0.7~~$41.0 million.

Cash flows used in financing activities for the ~~three~~six months ended ~~June~~September 30, 2019, were ~~$58.1~~$38.4 million, compared with cash flows provided by financing activities for the ~~three~~six months ended ~~June~~September 30, 2018, of ~~$75.9~~$179.2 million.

As of ~~June~~September 30, 2019, ~~$491.1~~$393.3 million was available under our revolving credit facility (the “Credit Facility”) after consideration of covenant limitations. On ~~June~~September 30, 2019, an aggregate amount of ~~$185.0~~$67.4 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 ~~June~~September 30, 2019, there was ~~$58.4~~$65.9 million outstanding under our receivable securitization facility ("Securitization Facility"). Interest rates on the Securitization Facility are based on prevailing market rates for short-term commercial paper, plus a program fee and a commitment fee. The Securitization Facility's net availability is not affected by the borrowing capacity of the Credit Facility.

~~For further details regarding the Company's long-term debt arrangements, including the 2021 Notes, the 2022 Notes, and the 2025 Notes (collectively, the "Senior Notes"), refer to Note 7.~~

The 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 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 its Senior Notes prior to their stated maturities, subject to certain limitations set forth in the indenture governing the applicable Senior Notes and, in certain cases, subject to significant prepayment premiums. The Company is obligated to offer to repurchase the Senior Notes at specified prices as a result of certain change-of-control events and a sale of all or substantially all of its assets. These restrictions and prohibitions are subject to certain qualifications and exceptions.

The 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 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 (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.

Triumph Group, Inc.

Management's Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

For further details regarding the Company's long-term debt arrangements, including the 2021 Notes, the 2022 Notes, 2024 Notes, and the 2025 Notes (collectively, the "Senior Notes"), including current period transactions, refer to Note 7.

For the fiscal year ending March 31, 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.

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, 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, 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 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, 2019, filed with the SEC on May 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, 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 ~~June~~September 30, 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