United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM10-Q
☒ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Quarterly Period Ended June 30, 20192020
or
☐ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Transition Period From _________ to ________
Commission File Number: 1-12235
TRIUMPH GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware | 51-0347963 | |||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||
899 Cassatt Road, | Suite 210, Berwyn, PA | 19312 | ||||||
(Address of principal executive offices) | (Zip Code) | |||||||
(610)(610) 251-1000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, par value $.001 per share | TGI | New York Stock Exchange | ||
Purchase Rights | New York Stock Exchange | |||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes☒ No ☐Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes☒ No ☐Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Securities Exchange Act of 1934. (Check one)
Large accelerated filer | ☒ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||
Emerging growth company | ☐ | |||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
The number of outstanding shares of the Registrant's Common Stock, par value $0.001$.001 per share, 50,059,308 shares outstanding ason July 31, 2020, was 52,072,825.
Table of August 2, 2019.
TRIUMPH GROUP, INC.
TABLE OF CONTENTS
Page Number | ||||
22 | ||||
31 | ||||
31 | ||||
33 | ||||
Item 1. | 33 | |||
Item 1A. | 33 | |||
Item 2. | 33 | |||
Item 3. | 33 | |||
Item 4. | 33 | |||
Item 5. | 33 | |||
33 | ||||
35 | ||||
TRIUMPH GROUP, INC.
Condensed Consolidated Balance Sheets
(unaudited)
(dollars in thousands, except per share data)
|
| June 30, |
|
| March 31, |
| ||
|
| 2020 |
|
| 2020 |
| ||
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 30,909 |
|
| $ | 485,463 |
|
Trade and other receivables, less allowance for credit losses of $7,181 and $4,293 |
|
| 256,848 |
|
|
| 359,487 |
|
Contract assets |
|
| 203,984 |
|
|
| 244,417 |
|
Inventory, net |
|
| 467,105 |
|
|
| 452,976 |
|
Assets held for sale |
|
| 195,073 |
|
|
| — |
|
Prepaid expenses and other current assets |
|
| 18,708 |
|
|
| 19,289 |
|
Total current assets |
|
| 1,172,627 |
|
|
| 1,561,632 |
|
Property and equipment, net |
|
| 370,820 |
|
|
| 418,141 |
|
Goodwill |
|
| 513,392 |
|
|
| 513,527 |
|
Intangible assets, net |
|
| 120,928 |
|
|
| 381,968 |
|
Other, net |
|
| 88,553 |
|
|
| 105,065 |
|
Total assets |
| $ | 2,266,320 |
|
| $ | 2,980,333 |
|
LIABILITIES AND STOCKHOLDERS' DEFICIT |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Current portion of long-term debt |
| $ | 7,555 |
|
| $ | 7,336 |
|
Accounts payable |
|
| 299,269 |
|
|
| 457,694 |
|
Contract liabilities |
|
| 199,463 |
|
|
| 295,320 |
|
Accrued expenses |
|
| 199,267 |
|
|
| 227,403 |
|
Liabilities related to assets held for sale |
|
| 83,806 |
|
|
| — |
|
Total current liabilities |
|
| 789,360 |
|
|
| 987,753 |
|
Long-term debt, less current portion |
|
| 1,557,066 |
|
|
| 1,800,171 |
|
Accrued pension and other postretirement benefits |
|
| 643,256 |
|
|
| 660,065 |
|
Deferred income taxes |
|
| 7,487 |
|
|
| 7,439 |
|
Other noncurrent liabilities |
|
| 316,532 |
|
|
| 306,169 |
|
Stockholders' deficit: |
|
|
|
|
|
|
|
|
Common stock, $.001 par value, 100,000,000 shares authorized, 52,460,920 and 52,460,920 shares issued; 52,002,210 and 51,858,089 shares outstanding |
|
| 52 |
|
|
| 52 |
|
Capital in excess of par value |
|
| 796,186 |
|
|
| 804,830 |
|
Treasury stock, at cost, 458,710 and 602,831 shares |
|
| (25,188 | ) |
|
| (36,217 | ) |
Accumulated other comprehensive loss |
|
| (710,616 | ) |
|
| (719,428 | ) |
Accumulated deficit |
|
| (1,107,815 | ) |
|
| (830,501 | ) |
Total stockholders' deficit |
|
| (1,047,381 | ) |
|
| (781,264 | ) |
Total liabilities and stockholders' deficit |
| $ | 2,266,320 |
|
| $ | 2,980,333 |
|
| June 30, 2019 | March 31, 2019 | ||||||
| (unaudited) | |||||||
| ASSETS | |||||||
| Current assets: | |||||||
| Cash and cash equivalents | $ | 28,927 | $ | 92,807 | |||
| Trade and other receivables, less allowance for doubtful accounts of $4,315 and $3,646 | 331,509 | 373,590 | |||||
| Contract assets | 323,869 | 326,667 | |||||
| Inventory, net | 470,448 | 413,560 | |||||
| Prepaid expenses and other current assets | 23,907 | 34,446 | |||||
| Total current assets | 1,178,660 | 1,241,070 | |||||
| Property and equipment, net | 515,212 | 543,710 | |||||
| Goodwill | 581,631 | 583,225 | |||||
| Intangible assets, net | 418,494 | 430,954 | |||||
| Other, net | 129,269 | 55,615 | |||||
| Total assets | $ | 2,823,266 | $ | 2,854,574 | |||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | |||||||
| Current liabilities: | |||||||
| Current portion of long-term debt | $ | 8,150 | $ | 8,201 | |||
| Accounts payable | 426,587 | 433,783 | |||||
| Contract liabilities | 309,985 | 293,719 | |||||
| Accrued expenses | 225,666 | 239,572 | |||||
| Total current liabilities | 970,388 | 975,275 | |||||
| Long-term debt, less current portion | 1,427,419 | 1,480,620 | |||||
| Accrued pension and other postretirement benefits | 522,916 | 540,479 | |||||
| Deferred income taxes | 10,989 | 6,964 | |||||
| Other noncurrent liabilities | 449,473 | 424,549 | |||||
| Stockholders’ deficit: | |||||||
| Common stock, $.001 par value, 100,000,000 shares authorized, 52,460,920 and 52,460,920 shares issued; 50,005,153 and 49,887,268 shares outstanding | 52 | 52 | |||||
| Capital in excess of par value | 859,280 | 867,545 | |||||
| Treasury stock, at cost, 2,455,767 and 2,573,652 shares | (149,767 | ) | (159,154 | ) | |||
| Accumulated other comprehensive loss | (489,277 | ) | (487,684 | ) | |||
| Accumulated deficit | (778,207 | ) | (794,072 | ) | |||
| Total stockholders’ deficit | (557,919 | ) | (573,313 | ) | |||
| Total liabilities and stockholders’ deficit | $ | 2,823,266 | $ | 2,854,574 | |||
See accompanying notes to condensed consolidated financial statements.
1
TRIUMPH GROUP, INC.
Condensed Consolidated Statements of Operations
(unaudited)
(In thousands, except per share data)
|
| Three Months Ended June 30, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Net sales |
| $ | 495,077 |
|
| $ | 730,231 |
|
Operating costs and expenses: |
|
|
|
|
|
|
|
|
Cost of sales (exclusive of depreciation shown separately below) |
|
| 393,843 |
|
|
| 582,233 |
|
Selling, general and administrative |
|
| 57,203 |
|
|
| 62,337 |
|
Depreciation and amortization |
|
| 28,602 |
|
|
| 44,050 |
|
Impairment of long-lived assets |
|
| 252,382 |
|
|
| — |
|
Restructuring |
|
| 15,439 |
|
|
| 2,964 |
|
Loss on sale of assets and businesses |
|
| — |
|
|
| 3,136 |
|
|
|
| 747,469 |
|
|
| 694,720 |
|
Operating (loss) income |
|
| (252,392 | ) |
|
| 35,511 |
|
Non-service defined benefit income |
|
| (10,888 | ) |
|
| (14,875 | ) |
Interest expense and other, net |
|
| 34,957 |
|
|
| 27,491 |
|
(Loss) income from continuing operations before income taxes |
|
| (276,461 | ) |
|
| 22,895 |
|
Income tax expense |
|
| 853 |
|
|
| 4,807 |
|
Net (loss) income |
| $ | (277,314 | ) |
| $ | 18,088 |
|
(Loss) earnings per share—basic: |
|
|
|
|
|
|
|
|
Net (loss) income |
| $ | (5.35 | ) |
| $ | 0.36 |
|
Weighted average common shares outstanding—basic |
|
| 51,860 |
|
|
| 49,854 |
|
(Loss) earnings per share—diluted: |
|
|
|
|
|
|
|
|
Net (loss) income |
| $ | (5.35 | ) |
| $ | 0.36 |
|
Weighted average common shares outstanding—diluted |
|
| 51,860 |
|
|
| 50,295 |
|
|
|
|
|
|
|
|
|
|
Dividends declared and paid per common share |
| $ | — |
|
| $ | 0.04 |
|
See accompanying notes to condensed consolidated financial statements.
2
TRIUMPH GROUP, INC.
Condensed Consolidated Statements of Comprehensive (Loss) Income
(unaudited)
(in thousands)
|
| Three Months Ended June 30, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Net (loss) income |
| $ | (277,314 | ) |
| $ | 18,088 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
| 919 |
|
|
| (2,683 | ) |
Defined benefit pension plans and other postretirement benefits: |
|
|
|
|
|
|
|
|
Reclassification to net (loss) income - net of expense (benefit) |
|
|
|
|
|
|
|
|
Amortization of net (gain) loss, net of taxes of $0 and $0, respectively |
|
| 6,826 |
|
|
| 2,851 |
|
Recognized prior service cost (credits), net of taxes of $0 and $0, respectively |
|
| (1,033 | ) |
|
| (1,442 | ) |
Total defined benefit pension plans and other postretirement benefits, net of taxes |
|
| 5,793 |
|
|
| 1,409 |
|
Cash flow hedges: |
|
|
|
|
|
|
|
|
Unrealized gain arising during the period, net of tax benefit of $0 and $0 respectively |
|
| 3,658 |
|
|
| 95 |
|
Reclassification of loss included in net earnings, net of tax expense of $0 and $0 respectively |
|
| (1,558 | ) |
|
| (414 | ) |
Net unrealized gain (loss) on cash flow hedges, net of tax |
|
| 2,100 |
|
|
| (319 | ) |
Total other comprehensive income (loss) |
|
| 8,812 |
|
|
| (1,593 | ) |
Total comprehensive (loss) income |
| $ | (268,502 | ) |
| $ | 16,495 |
|
See accompanying notes to condensed consolidated financial statements.
3
TRIUMPH GROUP, INC.
Condensed Consolidated Statements of Stockholders' Deficit
For the three months ended June 30, 2020
(unaudited)
(Dollars in thousands)
|
| Outstanding Shares |
|
| Common Stock All Classes |
|
| Capital in Excess of Par Value |
|
| Treasury Stock |
|
| Accumulated Other Comprehensive Loss |
|
| Accumulated Deficit |
|
| Total |
| |||||||
March 31, 2020 |
|
| 51,858,089 |
|
| $ | 52 |
|
| $ | 804,830 |
|
| $ | (36,217 | ) |
| $ | (719,428 | ) |
| $ | (830,501 | ) |
| $ | (781,264 | ) |
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (277,314 | ) |
|
| (277,314 | ) |
Foreign currency translation adjustment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 919 |
|
|
| — |
|
|
| 919 |
|
Pension liability adjustment, net of income taxes of $0 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,793 |
|
|
| — |
|
|
| 5,793 |
|
Change in fair value of foreign currency hedges, net of income taxes of $0 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,100 |
|
|
| — |
|
|
| 2,100 |
|
Share-based compensation |
|
| 158,274 |
|
|
| — |
|
|
| (6,670 | ) |
|
| 9,291 |
|
|
| — |
|
|
| — |
|
|
| 2,621 |
|
Repurchase of restricted shares for minimum tax obligation |
|
| (50,955 | ) |
|
| — |
|
|
| — |
|
|
| (474 | ) |
|
| — |
|
|
| — |
|
|
| (474 | ) |
Employee stock purchase plan |
|
| 36,802 |
|
|
| — |
|
|
| (1,974 | ) |
|
| 2,212 |
|
|
| — |
|
|
| — |
|
|
| 238 |
|
June 30, 2020 |
|
| 52,002,210 |
|
| $ | 52 |
|
| $ | 796,186 |
|
| $ | (25,188 | ) |
| $ | (710,616 | ) |
| $ | (1,107,815 | ) |
| $ | (1,047,381 | ) |
|
| Outstanding Shares |
|
| Common Stock All Classes |
|
| Capital in Excess of Par Value |
|
| Treasury Stock |
|
| Accumulated Other Comprehensive Loss |
|
| Accumulated Deficit |
|
| Total |
| |||||||
March 31, 2019 |
|
| 49,887,268 |
|
| $ | 52 |
|
| $ | 867,545 |
|
| $ | (159,154 | ) |
| $ | (487,684 | ) |
| $ | (794,072 | ) |
| $ | (573,313 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 18,088 |
|
|
| 18,088 |
|
Adoption of ASC 842 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (225 | ) |
|
| (225 | ) |
Foreign currency translation adjustment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,683 | ) |
|
| — |
|
|
| (2,683 | ) |
Pension liability adjustment, net of income taxes of ($0) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,409 |
|
|
| — |
|
|
| 1,409 |
|
Change in fair value of foreign currency hedges, net of income taxes of $11 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (319 | ) |
|
| — |
|
|
| (319 | ) |
Cash dividends ($0.04 per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,998 | ) |
|
| (1,998 | ) |
Share-based compensation |
|
| 154,802 |
|
|
| — |
|
|
| (7,631 | ) |
|
| 9,534 |
|
|
| — |
|
|
| — |
|
|
| 1,903 |
|
Repurchase of restricted shares for minimum tax obligation |
|
| (51,406 | ) |
|
| — |
|
|
| — |
|
|
| (1,043 | ) |
|
| — |
|
|
| — |
|
|
| (1,043 | ) |
Employee stock purchase plan |
|
| 14,489 |
|
|
| — |
|
|
| (634 | ) |
|
| 896 |
|
|
| — |
|
|
| — |
|
|
| 262 |
|
June 30, 2019 |
|
| 50,005,153 |
|
| $ | 52 |
|
| $ | 859,280 |
|
| $ | (149,767 | ) |
| $ | (489,277 | ) |
| $ | (778,207 | ) |
| $ | (557,919 | ) |
See accompanying notes to condensed consolidated financial statements.
4
TRIUMPH GROUP, INC.
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
|
| Three Months Ended June 30, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Operating Activities |
|
|
|
|
|
|
|
|
Net (loss) income |
| $ | (277,314 | ) |
| $ | 18,088 |
|
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 28,602 |
|
|
| 44,050 |
|
Impairment of long-lived assets |
|
| 252,382 |
|
|
| — |
|
Amortization of acquired contract liability |
|
| (10,987 | ) |
|
| (16,939 | ) |
Loss on sale of assets and businesses |
|
| — |
|
|
| 3,136 |
|
Other amortization included in interest expense |
|
| 2,191 |
|
|
| 1,958 |
|
Provision for credit losses |
|
| 3,280 |
|
|
| 671 |
|
Provision for deferred income taxes |
|
| — |
|
|
| 3,307 |
|
Share-based compensation |
|
| 2,786 |
|
|
| 2,426 |
|
Changes in other assets and liabilities, excluding the effects of acquisitions and divestitures: |
|
|
|
|
|
|
|
|
Trade and other receivables |
|
| 86,004 |
|
|
| 41,247 |
|
Contract assets |
|
| (63,391 | ) |
|
| 2,767 |
|
Inventories |
|
| (33,330 | ) |
|
| (56,623 | ) |
Prepaid expenses and other current assets |
|
| 549 |
|
|
| 12,721 |
|
Accounts payable, accrued expenses, and contract liabilities |
|
| (184,114 | ) |
|
| (35,426 | ) |
Accrued pension and other postretirement benefits |
|
| (3,526 | ) |
|
| (15,792 | ) |
Other |
|
| (665 | ) |
|
| (573 | ) |
Net cash (used in) provided by operating activities |
|
| (197,533 | ) |
|
| 5,018 |
|
Investing Activities |
|
|
|
|
|
|
|
|
Capital expenditures |
|
| (7,723 | ) |
|
| (8,090 | ) |
Proceeds from (payments on) sale of assets and businesses |
|
| 792 |
|
|
| (2,570 | ) |
Net cash used in investing activities |
|
| (6,931 | ) |
|
| (10,660 | ) |
Financing Activities |
|
|
|
|
|
|
|
|
Net decrease in revolving credit facility |
|
| (225,000 | ) |
|
| (30,000 | ) |
Proceeds from issuance of long-term debt |
|
| 6,300 |
|
|
| 5,600 |
|
Retirement of debt and finance lease obligations |
|
| (27,468 | ) |
|
| (30,572 | ) |
Payment of deferred financing costs |
|
| (4,277 | ) |
|
| (104 | ) |
Dividends paid |
|
| — |
|
|
| (1,998 | ) |
Repurchase of restricted shares for minimum tax obligations |
|
| (474 | ) |
|
| (1,043 | ) |
Net cash used in financing activities |
|
| (250,919 | ) |
|
| (58,117 | ) |
Effect of exchange rate changes on cash |
|
| 829 |
|
|
| (121 | ) |
Net change in cash and cash equivalents |
|
| (454,554 | ) |
|
| (63,880 | ) |
Cash and cash equivalents at beginning of period |
|
| 485,463 |
|
|
| 92,807 |
|
Cash and cash equivalents at end of period |
| $ | 30,909 |
|
| $ | 28,927 |
|
See accompanying notes to condensed consolidated financial statements.
5
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
| Three Months Ended June 30, | |||||||
| 2019 | 2018 | ||||||
| Net sales | $ | 730,231 | $ | 832,900 | |||
| Operating costs and expenses: | |||||||
| Cost of sales (exclusive of depreciation and amortization shown separately below) | 582,233 | 770,214 | |||||
| Selling, general and administrative | 62,337 | 81,656 | |||||
| Depreciation and amortization | 44,050 | 38,812 | |||||
| Restructuring costs | 2,964 | 4,047 | |||||
| Loss on divestitures | 3,136 | 4,719 | |||||
| 694,720 | 899,448 | ||||||
| Operating income (loss) | 35,511 | (66,548 | ) | ||||
| Non-service defined benefit income | (14,875 | ) | (16,538 | ) | |||
| Interest expense and other | 27,491 | 25,493 | |||||
| Income (loss) before income taxes | 22,895 | (75,503 | ) | ||||
| Income tax expense | 4,807 | 1,031 | |||||
| Net income (loss) | $ | 18,088 | $ | (76,534 | ) | ||
| Earnings (loss) per share—basic: | $ | 0.36 | $ | (1.54 | ) | ||
| Weighted average common shares outstanding—basic | 49,854 | 49,552 | |||||
| Earnings (loss) per share—diluted: | $ | 0.36 | $ | (1.54 | ) | ||
| Weighted average common shares outstanding—diluted | 50,295 | 49,552 | |||||
| Dividends declared and paid per common share | $ | 0.04 | $ | 0.04 | |||
| 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 | ) | ||
Outstanding Shares | Common Stock All Classes | Capital in Excess of Par Value | Treasury Stock | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total | ||||||||||||||||||||
| Balance, March 31, 2019 | 49,887,268 | $ | 52 | $ | 867,545 | $ | (159,154 | ) | $ | (487,684 | ) | $ | (794,072 | ) | $ | (573,313 | ) | |||||||||
| Net income | — | — | — | — | — | 18,088 | 18,088 | |||||||||||||||||||
| Adoption of ASC 842 | — | — | — | — | — | (225 | ) | (225 | ) | |||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | (2,683 | ) | — | (2,683 | ) | |||||||||||||||||
| Pension liability adjustment, net of income taxes of $0 | — | — | — | — | 1,409 | — | 1,409 | |||||||||||||||||||
| Change in fair value of foreign currency hedges, net of income taxes of $0 | — | — | — | — | (319 | ) | — | (319 | ) | |||||||||||||||||
| Cash dividends ($0.04 per share) | — | — | — | — | — | (1,998 | ) | (1,998 | ) | |||||||||||||||||
| Share-based compensation | 154,802 | — | (7,631 | ) | 9,534 | — | — | 1,903 | ||||||||||||||||||
| Repurchase of restricted shares for minimum tax obligation | (51,406 | ) | — | — | (1,043 | ) | — | — | (1,043 | ) | ||||||||||||||||
| Employee stock purchase plan | 14,489 | — | (634 | ) | 896 | — | — | 262 | ||||||||||||||||||
| Balance, June 30, 2019 | 50,005,153 | $ | 52 | $ | 859,280 | $ | (149,767 | ) | $ | (489,277 | ) | $ | (778,207 | ) | $ | (557,919 | ) | |||||||||
Outstanding Shares | Common Stock All Classes | Capital in Excess of Par Value | Treasury Stock | Accumulated Other Comprehensive Loss | Retained Earnings (Accumulated Deficit) | Total | ||||||||||||||||||||
| Balance, March 31, 2018 | 49,669,848 | $ | 51 | $ | 851,280 | $ | (179,082 | ) | $ | (367,870 | ) | $ | 146,155 | $ | 450,534 | |||||||||||
| Net loss | — | — | — | — | — | (76,534 | ) | (76,534 | ) | |||||||||||||||||
| Adoption of ASC 606 | — | — | — | — | — | (584,951 | ) | (584,951 | ) | |||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | (14,524 | ) | — | (14,524 | ) | |||||||||||||||||
| Pension liability adjustment, net of income taxes of $0 | — | — | — | — | (399 | ) | — | (399 | ) | |||||||||||||||||
| Change in fair value of foreign currency hedges, net of income taxes of $160 | — | — | — | — | (1,035 | ) | — | (1,035 | ) | |||||||||||||||||
| Cash dividends ($0.04 per share) | — | — | — | — | — | (1,988 | ) | (1,988 | ) | |||||||||||||||||
| Share-based compensation | 102,248 | — | (84 | ) | 2,548 | — | — | 2,464 | ||||||||||||||||||
| Repurchase of restricted shares for minimum tax obligation | (23,756 | ) | — | — | (532 | ) | — | — | (532 | ) | ||||||||||||||||
| Employee stock purchase plan | 16,020 | — | (644 | ) | 1,028 | — | — | 384 | ||||||||||||||||||
| Balance, June 30, 2018 | 49,764,360 | $ | 51 | $ | 850,552 | $ | (176,038 | ) | $ | (383,828 | ) | $ | (517,318 | ) | $ | (226,581 | ) | |||||||||
| Three Months Ended June 30, | |||||||
| 2019 | 2018 | ||||||
| Operating Activities | |||||||
| Net income (loss) | $ | 18,088 | $ | (76,534 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | |||||||
| Depreciation and amortization | 44,050 | 38,812 | |||||
| Amortization of acquired contract liabilities | (16,939 | ) | (17,234 | ) | |||
| Loss on divestitures | 3,136 | 4,719 | |||||
| Other amortization included in interest expense | 1,958 | 1,887 | |||||
| Provision for (recovery of) doubtful accounts receivable | 671 | (14 | ) | ||||
| Benefit for deferred income taxes | 3,307 | — | |||||
| Employee stock-based compensation | 2,426 | 2,462 | |||||
| Changes in assets and liabilities, excluding the effects of acquisitions and dispositions of businesses: | |||||||
| Trade and other receivables | 41,247 | 27,598 | |||||
| Contract assets | 2,767 | (23,221 | ) | ||||
| Inventories | (56,623 | ) | (30,833 | ) | |||
| Prepaid expenses and other current assets | 12,721 | 3,898 | |||||
| Accounts payable, accrued expenses and contract liabilities | (35,426 | ) | 23,341 | ||||
| Accrued pension and other postretirement benefits | (15,792 | ) | (18,691 | ) | |||
| Other | (573 | ) | (1,904 | ) | |||
| Net cash provided by (used in) operating activities | 5,018 | (65,714 | ) | ||||
| Investing Activities | |||||||
| Capital expenditures | (8,090 | ) | (12,200 | ) | |||
| (Payments on) proceeds from sale of assets | (2,570 | ) | 664 | ||||
| Net cash used in investing activities | (10,660 | ) | (11,536 | ) | |||
| Financing Activities | |||||||
| Net (decrease) increase in revolving credit facility | (30,000 | ) | 113,186 | ||||
| Proceeds from issuance of long-term debt and finance leases | 5,600 | 19,046 | |||||
| Repayment of debt and finance lease obligations | (30,572 | ) | (53,762 | ) | |||
| Payment of deferred financing costs | (104 | ) | (64 | ) | |||
| Dividends paid | (1,998 | ) | (1,988 | ) | |||
| Repurchase of restricted shares for minimum tax obligation | (1,043 | ) | (532 | ) | |||
| Net cash (used in) provided by financing activities | (58,117 | ) | 75,886 | ||||
| Effect of exchange rate changes on cash | (121 | ) | (1,400 | ) | |||
| Net change in cash | (63,880 | ) | (2,764 | ) | |||
| Cash and cash equivalents at beginning of period | 92,807 | 35,819 | |||||
| Cash and cash equivalents at end of period | $ | 28,927 | $ | 33,055 | |||
1. BACKGROUND AND BASIS OF PRESENTATION AND ORGANIZATION
The accompanying unaudited condensed consolidated financial statements of Triumph Group, Inc. (the "Company"("Triumph") have been prepared in conformity with accounting principles generally accepted in the United States ("U.S. GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, the interim financial information includes all adjustments of a normal recurring nature necessary for a fair presentation of the results of operations, financial position and cash flows. The results of operations for the
Triumph is a Delaware corporation which, through its operating subsidiaries, designs, engineers, manufactures repairs and overhauls a broad portfolio of aerostructures, aircraft components, accessories, subassemblies, and systems. The Company serves a broad, worldwide spectrum ofsells products for the aviation industry, includingglobal aerospace original equipment manufacturers ("OEMs") of commercial, regional, business, and military aircraft and aircraft components as well asand repairs and overhauls aircraft components and accessories for commercial and regional airlines andairline, air cargo carriers.carrier and military customers on a worldwide basis. Triumph and its subsidiaries (collectively, the "Company") are organized based on the products and services that they provide. Under this organizational structure, theThe Company has three2 reportable segments: Integrated Systems & Support and Aerospace Structures, and Product Support.
Systems & Support consists of the Company’s operations that provide integrated solutions, including design, development, and support of proprietary components, subsystems and systems, as well as production of complex assemblies using external designs. Capabilities include hydraulic, mechanical and electromechanical actuation, power and control; a complete suite of aerospace gearbox solutions, including engine accessory gearboxes and helicopter transmissions; active and passive heat exchange technology; fuel pumps, fuel metering units and Full Authority Digital Electronic Control fuel systems; and hydromechanical and electromechanical primary and secondary flight controls.
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 fastenersfasteners.
The accompanying consolidated financial statements include the accounts of Triumph and a variety of special processes, including: super plastic titanium forming, aluminumits wholly-owned subsidiaries. Intercompany accounts and titanium chemical milling, surface treatments, and integrated testing and certification services.
Standards Recently Implemented
Adoption of ASU 2016-13
In FebruaryJune 2016, the Financial Accounting Standards Board ("FASB"(“FASB”) issued Accounting Standards Update ("ASU"(“ASU”) 2016-02,
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 value6
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
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 thatThe Company adopted ASU 2018-13 willeffective April 1, 2020, and the adoption did not have a significant impact on ourits consolidated financial statements and relatedstatement disclosures.
Standards Issued Not Yet Implemented
In August 2018, the FASB issued ASU 2018-14,
Compensation—Retirement Benefits—Defined Benefit Plans—General2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Revenue Recognition
The Company's revenue is principally from contracts with customers to provide design, development, manufacturing, and support services associated with specific customer programs. The Company regularly enters into long-term master supply agreements 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 contractuala distinct performance obligation, including whether the customer can benefit from the good or service on its own or together with other resources that are readily available to the customer, whether the Company provides a significant service of integrating goods or services to deliver a combined output to the customer, or whether the goods or services are highly interdependent. The Company’s performance obligations consist of a wide range of engineering design services and manufactured components, as well as spare parts and repairs for original equipment manufacturers (OEMs).
The transaction price for a contract reflects the consideration the Company expects to receive for fully satisfying the performance obligations in the contract. 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.
7
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
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.
Revenue is recognized when or as control of promised products or services transfers to a customer and is recognized at the amount allocated to each performance obligation associated with the transferred products or services. Service sales, principally representing repair, maintenance, and engineering activities are recognized over the contractual period or as services are rendered. Sales under long-term contracts with performance obligations satisfied over time are recognized using either an input or output method. The Company recognizes revenue over time as it performs on these contracts because of the 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 ourits 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 30, 2020, cumulative catch-up adjustments resulting from changes in contract values and estimated costs that arose during the fiscal year increased revenue and decreased operating loss, net loss and loss per share by approximately $1,560, $3,326, $3,326, and $0.06, respectively.
For the three months ended June 30, 2019, cumulative catch-up adjustments resulting from changes in estimates, including changes in forward loss estimates decreased net sales, operating income, net income, and earnings per share by approximately $(1,149)($1,149), $(4,967)($4,967), $(3,924)($3,924), and $(0.08)($0.08), net of tax, respectively. For the three months ended June 30, 2018, cumulative catch-up adjustments from changes in estimates decreased net sales, operating loss, net loss and loss per share by approximately $(6,423), $(3,626), $(3,626) and $(0.07), 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 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.
8
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
In connection with several prior acquisitions, the Company assumed existing long-term contracts. Based on review of these contracts at the acquisition date, the Company concluded that the terms of certain contracts were either more or less favorable than could be realized in market transactions as of the date of the acquisition. As a result, the Company recognized acquired contract liabilities, net of acquired contract assets as of the acquisition date of each respective acquisition, based on the present value of the difference between the contractual cash flows of the executory contracts and the estimated cash flows had the contracts been executed at the acquisition date. The liabilities principally relate to long-term contracts that were initially executed several years prior to the respective acquisition. The Company measured these net liabilities in the year they were acquired under the measurement provisions of Accounting Standards Codification (“ASC”) 820, Fair Value Measurement, which is based on the price to transfer the obligation to a market participant at the measurement date, assuming that the net liabilities will remain outstanding in the marketplace. The portion of the Company's revenue resulting from transactions other than contracts with customers pertains to the non-cash amortization of these acquired contract liabilitiesliabilities.
Trade and Other Receivables, net
Trade and other receivables are recorded net of an allowance for expected credit losses. Trade and other receivables include amounts billed and currently due from customers and amounts retained by the customer pending contract completion. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company pools receivables that share underlying risk characteristics and records the allowance for expected credit losses based on a combination of prior experience, current economic conditions and management’s expectations of future economic conditions, and specific collectibility matters when they arise. The Company writes off balances against the allowance for expected credit losses when collectibility is deemed remote. The Company's trade and other receivables are exposed to credit risk; however, the risk is limited due to the diversity of the customer base. For the three months ended June 30, 2020 and 2019, credit loss expense and write offs 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 (“ROU”) 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 leases)(“short-term leases”).
ROU assets represent the Company's right to use an underlying asset during the lease term, and lease liabilities represent the Company's obligation to make lease payments arising from the lease. The determination of the 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
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 and other accounts receivable are exposed to credit risk. However, the risk is limited due to the diversity of the customer base and the customer base’s wide geographical area. Trade accounts receivable from The Boeing Company ("Boeing") (representing commercial, military and space) represented approximately 14%17% and 18%21% of total trade accounts receivable as of June 30, 20192020 and March 31, 2019,2020, respectively. Trade accounts receivable from Gulfstream Aerospace Corporation ("Gulfstream") represented approximately 12% and 11% of total trade accounts receivable as of June 30, 2019 and March 31, 2019, respectively. Tradeother accounts receivable from Bombardier Inc. ("Bombardier") include receivables from transition services and represented approximately 13%19% and 13%16% as of June 30, 20192020 and March 31, 2019,2020, respectively. The Company had no other concentrations of credit risk of more than 10%.
Sales to Boeing for the three months ended June 30, 2020, were $188,137, or 38% of net sales, of which $52,022 and $136,114 were from the Systems & Support and Aerospace Structures, respectively. Sales to Boeing for the three months ended June 30, 2019, were $245,315, or 34% of net sales, of which $55,785,$61,032 and $184,282 and $5,248 were from the Integrated Systems & Support and Aerospace Structures, and Product Support, respectively. The percentage increase in sales to Boeing as compared with the prior period is driven entirely by military sales.
9
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
Sales to BoeingGulfstream Aerospace Corporation (“Gulfstream”) for the three months ended June 30, 2018,2020, were $274,296,$53,710, or 33%11% of net sales, of which $51,593, $219,461$843 and $3,242$52,867 were from the Integrated Systems & Support and 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.
| 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 | ||||||
| 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 | ||||||
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 when measuring long-lived asset impairment in the current period (see Note 10), and to its divestiturespension and postretirement plan assets (see Note 3)11).
Supplemental Cash Flow Information
For the three months ended June 30, 2019. The2020, the Company receivedpaid $360 for income taxes, net of income tax refunds net of payments of $7,715 duringreceived. For the three months ended June 30, 2018.
3. DIVESTED OPERATIONS AND ASSETS HELD FOR SALE
Assets Held for Sale
In March 2019,May 2020, the Company sold allCompany’s Board of Directors committed to a plan (i) to sell its composites manufacturing operations located in Milledgeville, Georgia and Rayong, Thailand and (ii) to transfer the shares of Triumph Structures – Kansas City, Inc.; Triumph Structures – Wichita, Inc.; Triumph Gear Systems – Toronto; ULC;assets 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 proceedscertain liabilities 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 was recognized during the three months ended June 30, 2019, as a result of working capital adjustments and is presented within loss on divestitures on the accompanying condensed consolidated statements of operations.
Fiscal 2020 Divestitures
In December 2019, the Company completed the sale of its manufacturing operations at its Nashville, TN, facility for cash proceeds net of transactionstransaction costs of approximately $37,000$58,000, including approximately $7,000 allocated as a premium paid by the buyer in exchange for a specified performance guarantee. The Company recognized a loss of approximately $64,000, which is presented on the accompanying consolidated statements of operations within loss on sale of assets and a note receivablebusinesses. The operating results of $7,000. At that time,the Nashville manufacturing operations are included in Aerospace Structures through the date of divestiture. Additionally, as part of the transaction, the Company recordedagreed to transfer to the buyer, within 120 days from the date of closing, certain defined benefit pension assets and obligations of approximately $55,000 associated with the Nashville manufacturing operations. In accordance with applicable defined benefit pension plan accounting guidance, the transfer was treated as a settlement for purposes of the Company’s financial statements and resulted in accelerated recognition of previously unrecognized actuarial losses. The Company completed the transfer of the defined benefit pension assets and obligations in March 2020 and recognized a one-time settlement loss of approximately $28,000.
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 loss on assets held for sale of $4,719.assets and businesses. The transaction closedassets and liabilities transferred were included within Aerospace Structures through the date of divestiture.
10
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars 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.
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, 2020 and 2019:
|
| Three Months Ended June 30, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Systems & Support |
|
|
|
|
|
|
|
|
Satisfied over time |
| $ | 103,348 |
|
| $ | 129,242 |
|
Satisfied at a point in time |
|
| 130,948 |
|
|
| 175,401 |
|
Revenue from contracts with customers |
|
| 234,296 |
|
|
| 304,643 |
|
Amortization of acquired contract liabilities |
|
| 3,719 |
|
|
| 8,125 |
|
Total revenue |
|
| 238,015 |
|
|
| 312,768 |
|
|
|
|
|
|
|
|
|
|
Aerospace Structures |
|
|
|
|
|
|
|
|
Satisfied over time |
| $ | 243,639 |
|
| $ | 372,237 |
|
Satisfied at a point in time |
|
| 6,155 |
|
|
| 36,412 |
|
Revenue from contracts with customers |
|
| 249,794 |
|
|
| 408,649 |
|
Amortization of acquired contract liabilities |
|
| 7,268 |
|
|
| 8,814 |
|
Total revenue |
|
| 257,062 |
|
|
| 417,463 |
|
|
| $ | 495,077 |
|
| $ | 730,231 |
|
| 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, 2020 and 2019:
|
| Three Months Ended June 30, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Systems & Support |
|
|
|
|
|
|
|
|
Commercial aerospace |
| $ | 92,180 |
|
| $ | 175,319 |
|
Military |
|
| 120,384 |
|
|
| 95,357 |
|
Business jets |
|
| 10,374 |
|
|
| 16,147 |
|
Regional |
|
| 5,875 |
|
|
| 10,373 |
|
Non-aviation |
|
| 5,483 |
|
|
| 7,447 |
|
Revenue from contracts with customers |
|
| 234,296 |
|
|
| 304,643 |
|
Amortization of acquired contract liabilities |
|
| 3,719 |
|
|
| 8,125 |
|
Total revenue |
| $ | 238,015 |
|
| $ | 312,768 |
|
|
|
|
|
|
|
|
|
|
Aerospace Structures |
|
|
|
|
|
|
|
|
Commercial aerospace |
| $ | 140,971 |
|
| $ | 229,640 |
|
Military |
|
| 38,256 |
|
|
| 27,600 |
|
Business jets |
|
| 65,952 |
|
|
| 121,149 |
|
Regional |
|
| 4,611 |
|
|
| 30,255 |
|
Non-aviation |
|
| 4 |
|
|
| 5 |
|
Revenue from contracts with customers |
|
| 249,794 |
|
|
| 408,649 |
|
Amortization of acquired contract liabilities |
|
| 7,268 |
|
|
| 8,814 |
|
Total revenue |
|
| 257,062 |
|
|
| 417,463 |
|
|
| $ | 495,077 |
|
| $ | 730,231 |
|
| Three Months Ended June 30, 2019 | |||||||||||||||
| Integrated Systems | Aerospace Structures | Product Support | Total | ||||||||||||
| Commercial aerospace | $ | 128,420 | $ | 229,640 | $ | 46,899 | $ | 404,959 | |||||||
| Military | 84,065 | 27,600 | 11,292 | 122,957 | |||||||||||
| Business jets | 15,707 | 121,149 | 440 | 137,296 | |||||||||||
| Regional | 7,322 | 30,255 | 3,051 | 40,628 | |||||||||||
| Non-aviation | 7,418 | 5 | 29 | 7,452 | |||||||||||
| Revenue from contracts with customers | 242,932 | 408,649 | 61,711 | 713,292 | |||||||||||
| Amortization of acquired contract liabilities | 8,125 | 8,814 | — | 16,939 | |||||||||||
| Total revenue | $ | 251,057 | $ | 417,463 | $ | 61,711 | $ | 730,231 | |||||||
| Three Months Ended June 30, 2018 | |||||||||||||||
| Commercial aerospace | $ | 120,576 | $ | 282,164 | $ | 49,468 | $ | 452,208 | |||||||
| Military | 82,693 | 57,922 | 9,385 | 150,000 | |||||||||||
| Business jets | 12,836 | 167,447 | 1,395 | 181,678 | |||||||||||
| Regional | 6,617 | 6,402 | 3,918 | 16,937 | |||||||||||
| Non-aviation | 6,815 | 8,028 | — | 14,843 | |||||||||||
| Revenue from contracts with customers | 229,537 | 521,963 | 64,166 | 815,666 | |||||||||||
| Amortization of acquired contract liabilities | 8,849 | 8,385 | — | 17,234 | |||||||||||
| Total revenue | $ | 238,386 | $ | 530,348 | $ | 64,166 | $ | 832,900 | |||||||
Contract Assets and Liabilities
Contract assets primarily represent revenues recognized for performance obligations that have been satisfied or partially satisfied but for which amounts have not been billed. This typically occurs when revenue is recognized over time but the Company's contractual right to bill the customer and receive payment is conditional upon the satisfaction of additional performance obligations in
11
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
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 itspools contract assets that share underlying risk characteristics and records an allowance for expected credit losses based on a combination of prior experience, current economic conditions and management’s expectations of future economic conditions, and specific collectibility matters when they arise. No impairmentsContract assets are presented net of this reserve on the consolidated balance sheets. For the three months ended June 30, 2020 and 2019, credit loss expense and write-offs related to contract assets were recorded for the period ended June 30, 2019.
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 considerthe 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:
|
| June 30, 2020 |
|
| March 31, 2020 |
|
| Change |
| |||
Contract assets |
| $ | 223,157 |
|
| $ | 267,079 |
|
| $ | (43,922 | ) |
Contract liabilities |
|
| (342,604 | ) |
|
| (386,585 | ) |
|
| 43,981 |
|
Net contract liability |
| $ | (119,447 | ) |
| $ | (119,506 | ) |
| $ | 59 |
|
| June 30, 2019 | March 31, 2019 | Change | |||||||||
| Contract assets | $ | 358,497 | $ | 326,667 | $ | 31,830 | |||||
| Contract liabilities | (450,837 | ) | (450,051 | ) | (786 | ) | |||||
| Net contract liability | $ | (92,340 | ) | $ | (123,384 | ) | $ | 31,044 | |||
The Company recorded reductions torecognized revenue due to changes in estimates associated with performance obligations satisfied or partially satisfied in previous periods of $(1,149).$1,560. The increasechange in contract assets is the result of revenue recognized in excess of amounts billed during the three months ended June 30, 2020. The change in contract liabilities reflectsis the result of revenue recognized in excess of the receipt of additional customer advances in excess of revenue recognized during the period. For the periodthree months ended June 30, 2019,2020. Additionally, approximately $104,829 of contract assets and $20,517 of contract liabilities are classified as held for sale on the accompanying condensed consolidated balance sheets of June 30, 2020. For the three months ended June 30, 2020, the Company recognized $28,507$49,974 of revenue that was included in the contract liability balance at the beginning of the period. Noncurrent contract assets presented in other, net on the accompanying consolidated balance sheets as of June 30, 20192020 and March 31, 2019,2020, were $34,628$19,173 and $34,185,$22,662, respectively. Noncurrent contract liabilities presented in other noncurrent liabilities on the accompanying consolidated balance sheets as of June 30, 20192020 and March 31, 2019,2020, were $140,852$143,141 and $156,332,$91,265, 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 30, 2019,2020, 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 |
| $ | 3,527,122 |
|
| $ | 1,517,354 |
|
| $ | 1,357,902 |
|
| $ | 363,626 |
|
| $ | 288,240 |
|
| 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 | |||||||||
12
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
5. LEASES
The components of lease expense for the three months ended June 30, 2020 and 2019, are disclosed in the table below.
|
|
|
| Three Months Ended June 30, |
| |||||
Lease Cost |
| Financial Statement Classification |
| 2020 |
|
| 2019 |
| ||
Operating lease cost |
| Cost of sales or Selling, general and administrative expense |
| $ | 5,623 |
|
| $ | 6,502 |
|
Variable lease cost |
| Cost of sales or Selling, general and administrative expense |
|
| 2,097 |
|
|
| 1,842 |
|
Financing Lease Cost: |
|
|
|
|
|
|
|
|
|
|
Amortization of right-of-use assets |
| Depreciation and amortization |
|
| 1,376 |
|
|
| 1,349 |
|
Interest on lease liability |
| Interest expense and other |
|
| 406 |
|
|
| 170 |
|
Total lease cost (1) |
|
|
| $ | 9,502 |
|
| $ | 9,863 |
|
| Lease cost | Financial Statement Classification | Three Months Ended June 30, 2019 | ||
| Operating lease cost | Cost of sales or Selling, general and administrative expense | $ | 6,502 | |
| Variable lease cost | Cost of sales or Selling, general and administrative expense | 1,842 | ||
| Financing Lease Cost: | ||||
| Amortization of right-of-use assets | Depreciation and amortization | 1,349 | ||
| Interest on lease liability | Interest expense and other | 170 | ||
| Total lease cost (1) | $ | 9,863 | ||
(1) | Total lease cost does not include short-term leases or sublease income, both of which are immaterial. |
Supplemental cash flow information for the three months ended June 30, 2020 and 2019, is disclosed in the table below.
|
| Three Months Ended June 30, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Cash paid for amounts included in the measurement of lease liabilities |
|
|
|
|
|
|
|
|
Operating cash flows used in operating leases |
| $ | 4,539 |
|
| $ | 4,849 |
|
Operating cash flows used in finance leases |
|
| 407 |
|
|
| 171 |
|
Financing cash flows used in finance leases |
|
| 2,040 |
|
|
| 2,673 |
|
ROU assets obtained in exchange for lease liabilities |
|
|
|
|
|
|
|
|
Operating leases |
|
| 4,858 |
|
|
| 1,831 |
|
Finance leases |
|
| 352 |
|
|
| 767 |
|
| 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, 2019,2020 and March 31, 2020, is disclosed in the table below.
Leases |
| Classification |
| June 30, 2020 |
|
| March 31, 2020 |
| ||
Assets |
|
|
|
|
|
|
|
|
|
|
Operating lease ROU assets |
| Other, net Assets held for sale |
| $ | 62,562 |
|
| $ | 61,461 |
|
|
|
|
|
|
|
|
|
|
|
|
Finance lease ROU assets, cost |
| Property and equipment, net Assets held for sale |
|
| 41,565 |
|
|
| 39,461 |
|
Accumulated amortization |
| Property and equipment, net Assets held for sale |
|
| (19,997 | ) |
|
| (18,650 | ) |
Finance lease ROU assets, net |
|
|
|
| 21,568 |
|
|
| 20,811 |
|
Total lease assets |
|
|
| $ | 84,130 |
|
| $ | 82,272 |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
|
Operating |
| Accrued expenses Liabilities related to assets held for sale |
| $ | 13,256 |
|
| $ | 13,139 |
|
Finance |
| Current portion of long-term debt Liabilities related to assets held for sale |
|
| 7,558 |
|
|
| 7,336 |
|
Noncurrent |
|
|
|
|
|
|
|
|
|
|
Operating |
| Other noncurrent liabilities Liabilities related to assets held for sale |
|
| 57,374 |
|
|
| 54,687 |
|
Finance |
| Long-term debt, less current portion Liabilities related to assets held for sale |
|
| 16,589 |
|
|
| 16,597 |
|
Total lease liabilities |
|
|
| $ | 94,777 |
|
| $ | 91,759 |
|
| Leases | Classification | June 30, 2019 | ||
| Assets | ||||
| Operating lease ROU assets | Other, net | $ | 73,643 | |
| Finance lease ROU assets, cost | Property and equipment, net | 54,216 | ||
| Accumulated amortization | Property and equipment, net | (22,532 | ) | |
| Finance lease ROU assets, net | 31,684 | |||
| Total lease assets | $ | 105,327 | ||
| Liabilities | ||||
| Current | ||||
| Operating | Accrued expenses | $ | 15,718 | |
| Finance | Current portion of long-term debt | 8,150 | ||
| Non-current | ||||
| Operating | Other noncurrent liabilities | 67,895 | ||
| Finance | Long-term debt, less current portion | 21,238 | ||
| Total lease liabilities | $ | 113,001 | ||
13
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
Information related to lease terms and discount rates as of June 30, 2019,2020 and March 31, 2020, is disclosed in the table below:below.
|
| June 30, 2020 |
|
| March 31, 2020 |
| ||
Weighted average remaining lease term (years) |
|
|
|
|
|
|
|
|
Operating leases |
|
| 7.2 |
|
|
| 7.2 |
|
Finance leases |
|
| 6.7 |
|
|
| 6.9 |
|
|
|
|
|
|
|
|
|
|
Weighted average discount rate |
|
|
|
|
|
|
|
|
Operating leases |
|
| 6.2 | % |
|
| 6.2 | % |
Finance leases |
|
| 6.1 | % |
|
| 5.9 | % |
The maturity of the Company's lease liabilities as of June 30, 2019,2020, is disclosed in the table below.
|
| Operating leases |
|
| Finance leases |
|
| Total |
| |||
FY2021 (remaining of year) |
| $ | 13,015 |
|
| $ | 6,759 |
|
| $ | 19,774 |
|
FY2022 |
|
| 15,632 |
|
|
| 6,308 |
|
|
| 21,940 |
|
FY2023 |
|
| 12,190 |
|
|
| 3,354 |
|
|
| 15,544 |
|
FY2024 |
|
| 9,364 |
|
|
| 2,702 |
|
|
| 12,066 |
|
FY2025 |
|
| 8,100 |
|
|
| 1,356 |
|
|
| 9,456 |
|
Thereafter |
|
| 30,099 |
|
|
| 9,905 |
|
|
| 40,004 |
|
Total lease payments |
|
| 88,400 |
|
|
| 30,384 |
|
|
| 118,784 |
|
Less: Imputed interest |
|
| (17,770 | ) |
|
| (6,237 | ) |
|
| (24,007 | ) |
Total lease liabilities |
| $ | 70,630 |
|
| $ | 24,147 |
|
| $ | 94,777 |
|
| Operating leases | Finance leases | Total | |||||||||
| FY2020 (remaining of year) | $ | 16,206 | $ | 7,196 | $ | 23,402 | |||||
| FY2021 | 16,451 | 8,915 | 25,366 | ||||||||
| FY2022 | 14,978 | 5,911 | 20,889 | ||||||||
| FY2023 | 11,647 | 2,861 | 14,508 | ||||||||
| FY2024 | 9,023 | 2,110 | 11,133 | ||||||||
| Thereafter | 38,100 | 11,263 | 49,363 | ||||||||
| Total lease payments | 106,405 | 38,256 | 144,661 | ||||||||
| Less: Imputed interest | (22,792 | ) | (8,868 | ) | (31,660 | ) | |||||
| Total lease liabilities | $ | 83,613 | $ | 29,388 | $ | 113,001 | |||||
6.
Inventories are stated at the lower of cost (average-cost or specific-identification methods) or market. The components of inventories are as follows:
|
| June 30, 2020 |
|
| March 31, 2020 |
| ||
Raw materials |
| $ | 58,724 |
|
| $ | 32,552 |
|
Work-in-process, including manufactured and purchased components |
|
| 295,874 |
|
|
| 312,953 |
|
Finished goods |
|
| 56,331 |
|
|
| 50,011 |
|
Rotable assets |
|
| 56,176 |
|
|
| 57,460 |
|
Total inventories |
| $ | 467,105 |
|
| $ | 452,976 |
|
| June 30, 2019 | March 31, 2019 | ||||||
| Raw materials | $ | 38,868 | $ | 35,883 | |||
| Work-in-process, including manufactured and purchased components | 320,147 | 277,996 | |||||
| Finished goods | 53,643 | 42,399 | |||||
| Rotable assets | 57,790 | 57,282 | |||||
| Total inventories | $ | 470,448 | $ | 413,560 | |||
7.
Long-term debt consists of the following:
|
| June 30, 2020 |
|
| March 31, 2020 |
| ||
Revolving credit facility |
| $ | 175,000 |
|
| $ | 400,000 |
|
Receivable securitization facility |
|
| 55,800 |
|
|
| 75,000 |
|
Finance leases |
|
| 24,141 |
|
|
| 23,933 |
|
Senior secured notes due 2024 |
|
| 525,000 |
|
|
| 525,000 |
|
Senior notes due 2022 |
|
| 300,000 |
|
|
| 300,000 |
|
Senior notes due 2025 |
|
| 500,000 |
|
|
| 500,000 |
|
Less: debt issuance costs |
|
| (15,320 | ) |
|
| (16,426 | ) |
|
|
| 1,564,621 |
|
|
| 1,807,507 |
|
Less: current portion |
|
| 7,555 |
|
|
| 7,336 |
|
|
| $ | 1,557,066 |
|
| $ | 1,800,171 |
|
| June 30, 2019 | March 31, 2019 | ||||||
| Revolving line of credit | $ | 185,000 | $ | 215,000 | |||
| Receivable securitization facility | 58,400 | 80,700 | |||||
| Capital leases | 29,388 | 31,292 | |||||
| Senior notes due 2021 | 375,000 | 375,000 | |||||
| Senior notes due 2022 | 300,000 | 300,000 | |||||
| Senior notes due 2025 | 500,000 | 500,000 | |||||
| Less: Debt issuance costs | (12,219 | ) | (13,171 | ) | |||
| 1,435,569 | 1,488,821 | ||||||
| Less: Current portion | 8,150 | 8,201 | |||||
| $ | 1,427,419 | $ | 1,480,620 | ||||
14
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollarsDollars in thousands, except per share data)
Revolving Credit Facility
On May 22, 2020, the Company and its subsidiary co-borrowers and guarantors entered into a TenthTwelfth Amendment to the Third Amended and Restated Credit Agreement (the “Tenth“Twelfth Amendment” and the existing Credit Agreement as amended by the TenthTwelfth Amendment, the "Credit Agreement"“Amended Credit Agreement”) and with the Administrative Agent and the Lenders party thereto. Among other things, the Tenth Amendment modifiesTwelfth Amendment:
(i) limits the amount of cash and cash equivalents in the United States the Company can hold on its balance sheet to $50,000, subject to certain financial covenants and other terms and loweredlimited exceptions;
(ii) authorizes the capacity to $700,000 as a resultcompletion of certain asset sales occurringwith respect to previously identified Specified TAS Business Units (as defined in the fiscal year ended March 31, 2019. The Tenth Amendment also adds an additional mandatory prepayment provision requiring thatAmended Credit Agreement);
(iii) provides for a reserve against the Company prepayavailability of up to 75% of the outstandingproceeds of Specified Asset Sales (as defined in the Amended Credit Agreement);
(iv) increases the interest rate margins applicable to the revolving credit loans as set forth inby 0.50%;
(v) modifies the Tenth Amendment.
(vi) suspends the senior secured leverage ratio covenant through the fiscal quarter ending March 31, 2021 and modifies the senior secured leverage ratio for subsequent fiscal quarters to require the senior secured leverage ratio not to exceed (i) 4.50 to 1.00 for the fiscal quarter ending June 30, 2021, (ii) 3.75 to 1.00 for the fiscal quarter ending September 30, 2021, (iii) 3.50 to 1.00 for the fiscal quarters ending December 31, 2021 and March 31, 2022, and (iv) 3.25 to 1.00 for each fiscal quarter ending thereafter and;
(vii) modifies the first lien secured leverage ratio covenant so that the maximum permitted first lien leverage ratio steps down from 2.50 to 1.00 to 2.00 to 1.00, commencing with the Tenth Amendmentfiscal quarter ending March 31, 2021.
Pursuant to the Credit Agreement, the Company incurred $1,694 of financing costs. These costs, along with the $8,961 of unamortized financing costs subsequent to the Ninth Amendment, are being amortized over the remaining term of the Credit Agreement. In accordance with the reduction in the capacity of the Credit Agreement, the Company wrote off a proportional amount of unamortized financing fees existing prior to the Tenth Amendment.
The obligations under the Amended Credit Agreement and related documents are secured by liens on substantially all assets of the Company and its domestic subsidiaries pursuant to a Third Amended and Restated Guarantee and Collateral Agreement, dated as of September 23, 2019, among the administrative agent, the Company and the subsidiaries of the Company party thereto.
At June 30, 2019,2020, there were $185,000$175,000 in borrowings and $23,897$21,995 in letters of credit outstanding under the Revolving Line of Credit provisions of the Credit Agreement,Facility, primarily to support insurance policies. At March 31, 2019,2020, there were $215,000$400,000 in outstanding borrowings and $30,773$22,338 in letters of credit outstanding under the Revolving Line of Credit provisions of the Credit Agreement,Facility, primarily to support insurance policies. The level of unused borrowing capacity under the Revolving Line of Credit provisions of the Credit AgreementFacility varies from time to time depending in part upon its compliance with financial and other covenants set forth in the related agreement.therein. The Amended 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 Amended Credit Agreement, the lenders would be entitled to declare all amounts borrowed under it immediately due and payable. The occurrence of an event of default under the Credit AgreementFacility could also cause the acceleration of obligations under certain other agreements. The Company is currently in compliance with all such covenants. As of June 30, 2019,2020, the Company had borrowing capacity under this agreement of $491,103$323,058 after reductions for borrowings, letters of credit outstanding under the facility and consideration of covenant limitations.
In connection with the Twelfth Amendment to the Credit Agreement, the Company incurred $4,266 of financing costs. These costs, along with the $10,830 of unamortized financing costs subsequent to the Eleventh Amendment, are being amortized over the remaining term of the Amended Credit Agreement on a lender-by-lender basis.
15
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
Receivables Securitization Facility
In November 2017,December 2019, the Company amended its receivable securitization facility (the "Securitization Facility") decreasing the purchase limit from $225,000$125,000 to $125,000$75,000 and extending the term through November 2020.December 2022. 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 30, 2019,2020, the maximum amount available under the Securitization Facility was $125,000.$75,000. 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.Servicing
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
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 2021September 15, 2024 (the "2021"2024 Notes"). The 20212024 Notes were sold at 100% of principal amount and have an effective interest yield of 4.875%6.250%. Interest on the 20212024 Notes accrues at the rate of 4.875% per annum and is payable semiannually in cash in arrears on April 1March 15 and October 1September 15 of each year, commencingyear. The 2024 Notes are secured by second-priority liens on October 1, 2013.
Senior Notes Duedue 2021
On September 23, 2019, the Company called all outstanding 4.875% Senior Notes due 2021 (the "2021 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 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 June 1, 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 August 15, 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
Carrying amounts and the related estimated fair values of the Company’s financial instrumentsCompany's long-term debt not recorded at fair value in the condensed consolidated financial statements are as follows:
June 30, 2020 |
|
| March 31, 2020 |
| ||||||||||
Carrying Value |
|
| Fair Value |
|
| Carrying Value |
|
| Fair Value |
| ||||
$ | 1,564,621 |
|
| $ | 1,347,151 |
|
| $ | 1,807,507 |
|
| $ | 1,559,455 |
|
| 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 | |||||||
The fair value of the long-term debt was calculated based on either interest rates available for debt with terms and maturities similar to the Company’sCompany's existing debt arrangements or broker quotes on our existing debt (Level 2 inputs), unless quoted market prices were available.
Interest paid on indebtedness during the
three months ended June 30, 2020 and 2019, amounted to $13,464 and16
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollarsDollars in thousands, except per share data)
8. EARNINGS PER SHARE
The following is a reconciliation between the weighted average outstanding shares used in the calculation of basic and diluted earnings per share:
| Three Months Ended June 30, | |||||
| (in thousands) | |||||
| 2019 | 2018 | ||||
| Weighted average common shares outstanding – basic | 49,854 | 49,552 | |||
| Net effect of dilutive stock options and non-vested stock (1) | 441 | — | |||
| Weighted average common shares outstanding – diluted | 50,295 | 49,552 | |||
|
| Three Months Ended June 30, |
| |||||
|
| (in thousands) |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Weighted average common shares outstanding – basic |
|
| 51,860 |
|
|
| 49,854 |
|
Net effect of dilutive stock options and non-vested stock (1) |
|
| — |
|
|
| 441 |
|
Weighted average common shares outstanding – diluted |
|
| 51,860 |
|
|
| 50,295 |
|
(1) | For the three months ended June 30, 2020 and 2019, the shares that could potentially dilute earnings per share in the future but were not included in diluted weighted average common shares outstanding because to do so would have been anti-dilutive were immaterial. |
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's policy is to release the tax effects from accumulated other comprehensive income when the all of the related assets or liabilities that gave rise to the accumulated other comprehensive income have been derecognized.The Company has classified uncertain tax positions as noncurrent income tax liabilities unless expected to be paid in one year. Penalties and tax-related interest expense are reported as a component of income tax expense and are not significant.
As of June 30, 20192020 and March 31, 2019,2020, the total amount of unrecognized tax benefits was $19,346$18,971 and $19,152,$18,965, 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 30, 2019,2020, 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 in2021 and future periods.
The effective income tax rate for the three months ended June 30, 2019,2020, was 21.0%(0.3)% as compared with (1.4)%21.0% for the three months ended June 30, 2018.2019. For the three months ended June 30, 2018,2020, 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 30,10. GOODWILL
17
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollarsDollars in thousands, except per share data)
The following is a summarythe lowest level of the changes ininputs that are significant to the fair value measurement are unobservable inputs that fall within Level 3 of the fair value hierarchy.
In accordance with ASC 360, the Company allocated the resulting impairment to the specific long-lived assets within the asset group on a pro rata basis, except that the loss allocated to an individual long-lived asset of the group did not reduce the carrying valueamount of goodwill by reportable segment, from March 31, 2019 through June 30, 2019:
| Integrated Systems | Product Support | Total | |||||||||
| Balance, March 31, 2019 | $ | 517,104 | $ | 66,121 | $ | 583,225 | |||||
| Effect of exchange rate changes | (1,594 | ) | — | (1,594 | ) | ||||||
| Balance, June 30, 2019 | $ | 515,510 | $ | 66,121 | $ | 581,631 | |||||
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.Net Periodic Benefit Plan Costs
The components of net periodic benefit costs (income) for our postretirement benefit plans are shown in the following table:
|
| Pension Benefits |
| |||||
|
| Three Months Ended June 30, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Components of net periodic benefit costs: |
|
|
|
|
|
|
|
|
Service cost |
| $ | 377 |
|
| $ | 581 |
|
Interest cost |
|
| 16,087 |
|
|
| 18,661 |
|
Expected return on plan assets |
|
| (33,002 | ) |
|
| (35,739 | ) |
Amortization of prior service credits |
|
| 243 |
|
|
| (278 | ) |
Amortization of net loss |
|
| 8,223 |
|
|
| 5,359 |
|
Net periodic benefit income |
| $ | (8,072 | ) |
| $ | (11,416 | ) |
| Pension Benefits | |||||||
| Three Months Ended June 30, | |||||||
| 2019 | 2018 | ||||||
| Components of net periodic benefit costs: | |||||||
| Service cost | $ | 581 | $ | 830 | |||
| Interest cost | 18,661 | 19,921 | |||||
| Expected return on plan assets | (35,739 | ) | (37,107 | ) | |||
| Amortization of prior service credits | (278 | ) | (907 | ) | |||
| Amortization of net loss | 5,359 | 4,180 | |||||
| Net periodic benefit income | $ | (11,416 | ) | $ | (13,083 | ) | |
| Other Postretirement Benefits | |||||||
| Three Months Ended June 30, | |||||||
| 2019 | 2018 | ||||||
| Components of net periodic benefit costs: | |||||||
| Service cost | $ | 44 | $ | 57 | |||
| Interest cost | 863 | 1,010 | |||||
| Amortization of prior service credits | (1,164 | ) | (1,164 | ) | |||
| Amortization of gain | (2,442 | ) | (2,463 | ) | |||
| Net periodic benefit income | $ | (2,699 | ) | $ | (2,560 | ) | |
18
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollarsDollars in thousands, except per share data)
|
| Other Postretirement Benefits |
| |||||
|
| Three Months Ended June 30, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Components of net periodic benefit costs: |
|
|
|
|
|
|
|
|
Service cost |
| $ | — |
|
| $ | 44 |
|
Interest cost |
|
| 28 |
|
|
| 863 |
|
Amortization of prior service credits |
|
| (1,276 | ) |
|
| (1,164 | ) |
Amortization of gain |
|
| (1,191 | ) |
|
| (2,442 | ) |
Net periodic benefit income |
| $ | (2,439 | ) |
| $ | (2,699 | ) |
12. STOCKHOLDERS' EQUITY
Accumulated Other Comprehensive Loss
Changes in accumulated other comprehensive income (loss)loss ("AOCI") by component for the three months ended June 30, 20192020 and 2018, respectively,2019, were as follows:
|
| Currency Translation Adjustment | Unrealized Gains and Losses on Derivative Instruments | Defined Benefit Pension Plans and Other Postretirement Benefits | Total (1) |
| ||||||||||
March 31, 2020 |
| $ | (62,045 | ) |
| $ | (4,303 | ) |
| $ | (653,080 | ) |
| $ | (719,428 | ) |
AOCI before reclassifications |
|
| 919 |
|
|
| 3,658 |
|
|
| — |
|
|
| 4,577 |
|
Amounts reclassified from AOCI |
|
| — |
|
|
| (1,558 | ) |
|
| 5,793 |
| (2) |
| 4,235 |
|
Net current period OCI |
|
| 919 |
|
|
| 2,100 |
|
|
| 5,793 |
|
|
| 8,812 |
|
June 30, 2020 |
|
| (61,126 | ) |
|
| (2,203 | ) |
|
| (647,287 | ) |
|
| (710,616 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
| (2) |
| 995 |
|
Net current period OCI |
|
| (2,683 | ) |
|
| (319 | ) |
|
| 1,409 |
|
|
| (1,593 | ) |
June 30, 2019 |
|
| (51,289 | ) |
|
| (1,449 | ) |
|
| (436,539 | ) |
|
| (489,277 | ) |
(1) | Net of tax. |
| 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 | ) | ||||
(2) | Includes amortization of actuarial losses and recognized prior service (credits) costs, which are included in the net periodic pension cost of which a portion is allocated to production as inventoried costs. |
13.
| Balance, March 31, 2018 | $ | (58,683 | ) | $ | 122 | $ | (309,309 | ) | $ | (367,870 | ) | |||||
| AOCI before reclassifications | (14,524 | ) | (965 | ) | — | (15,489 | ) | |||||||||
| Amounts reclassified from AOCI | — | (70 | ) | (399 | ) | (469 | ) | |||||||||
| Net current period AOCI | (14,524 | ) | (1,035 | ) | (399 | ) | (15,958 | ) | ||||||||
| Balance, June 30, 2018 | $ | (73,207 | ) | $ | (913 | ) | $ | (309,708 | ) | $ | (383,828 | ) | ||||
The Company reports financial performance based on the following three2 reportable segments: Integrated Systems & Support and Aerospace Structures and Product Support.Structures. The Company’s reportable segments are aligned with how the business is managed, and the Company's views of the markets it serves. The Chief Operating Decision Maker (the “CODM”"CODM") evaluates performance and allocates resources based upon review of segment information. The CODM utilizes earnings before interest, income taxes, depreciation and amortization, and pension (“Adjusted EBITDAP”) as a primary measure of segment profitability to evaluate performance of its segments and allocate resources.
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.
19
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
Selected financial information for each reportable segment is as follows:
|
| Three Months Ended June 30, 2020 |
| |||||||||||||
|
| Total |
|
| Corporate & Eliminations |
|
| Systems & Support |
|
| Aerospace Structures |
| ||||
Net sales to external customers |
| $ | 495,077 |
|
| $ | — |
|
| $ | 238,015 |
|
| $ | 257,062 |
|
Intersegment sales (eliminated in consolidation) |
|
| — |
|
|
| (2,687 | ) |
|
| 1,872 |
|
|
| 815 |
|
Segment profit and reconciliation to consolidated income before income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDAP |
|
| 38,452 |
|
|
| — |
|
|
| 30,068 |
|
|
| 8,384 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of segment profit to income (loss) before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| (28,602 | ) |
|
| (856 | ) |
|
| (8,356 | ) |
|
| (19,390 | ) |
Interest expense and other, net |
|
| (34,957 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
Corporate expenses |
|
| (18,061 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense |
|
| (2,786 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of acquired contract liabilities |
|
| 10,987 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-service defined benefit income |
|
| 10,888 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of long-lived assets |
|
| (252,382 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
| (276,461 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures |
| $ | 7,723 |
|
| $ | 411 |
|
| $ | 6,283 |
|
| $ | 1,029 |
|
Total assets |
| $ | 2,266,320 |
|
| $ | 118,849 |
|
| $ | 1,436,980 |
|
| $ | 710,491 |
|
|
| Three Months Ended June 30, 2019 |
| |||||||||||||
|
| Total |
|
| Corporate & Eliminations |
|
| Systems & Support |
|
| Aerospace Structures |
| ||||
Net sales to external customers |
| $ | 730,231 |
|
| $ | — |
|
| $ | 312,768 |
|
| $ | 417,463 |
|
Intersegment sales (eliminated in consolidation) |
|
| — |
|
|
| (2,553 | ) |
|
| 838 |
|
|
| 1,715 |
|
Segment profit and reconciliation to consolidated income before income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDAP |
|
| 82,608 |
|
|
| — |
|
|
| 44,080 |
|
|
| 38,528 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of segment profit to income (loss) before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| (44,050 | ) |
|
| (834 | ) |
|
| (8,157 | ) |
|
| (35,059 | ) |
Interest expense and other, net |
|
| (27,491 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
Corporate expenses |
|
| (14,424 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense |
|
| (2,426 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
Loss on sale of assets and businesses |
|
| (3,136 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of acquired contract liabilities |
|
| 16,939 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-service defined benefit income |
|
| 14,875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
| 22,895 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures |
| $ | 8,090 |
|
| $ | 233 |
|
| $ | 3,884 |
|
| $ | 3,973 |
|
| 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 | ||||
| June 30, 2019 | 3/31/2019 | ||||||
| Total Assets: | |||||||
| Integrated Systems | $ | 1,259,117 | $ | 1,215,350 | |||
| Aerospace Structures | 1,239,484 | 1,257,039 | |||||
| Product Support | 273,714 | 271,813 | |||||
| Corporate | 50,951 | 110,372 | |||||
| $ | 2,823,266 | $ | 2,854,574 | ||||
During the
three months ended June 30,14. |
| June 30, 2019 | |||||||||||||||||||
| Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated Total | |||||||||||||||
| Current assets: | |||||||||||||||||||
| Cash and cash equivalents | $ | 6,825 | $ | 10 | $ | 22,092 | $ | — | $ | 28,927 | |||||||||
| Trade and other receivables, net | 11,593 | 102,306 | 217,610 | — | 331,509 | ||||||||||||||
| Contract assets | — | 319,742 | 4,127 | — | 323,869 | ||||||||||||||
| Inventories | — | 389,958 | 80,490 | — | 470,448 | ||||||||||||||
| Prepaid expenses and other | 10,485 | 7,977 | 5,445 | — | 23,907 | ||||||||||||||
| Total current assets | 28,903 | 819,993 | 329,764 | — | 1,178,660 | ||||||||||||||
| Property and equipment, net | 11,163 | 422,697 | 81,352 | — | 515,212 | ||||||||||||||
| Goodwill and other intangible assets, net | — | 900,689 | 99,436 | — | 1,000,125 | ||||||||||||||
| Other, net | 23,079 | 74,200 | 31,990 | — | 129,269 | ||||||||||||||
| Intercompany investments and advances | 1,219,331 | 150,673 | 85,836 | (1,455,840 | ) | — | |||||||||||||
| Total assets | $ | 1,282,476 | $ | 2,368,252 | $ | 628,378 | $ | (1,455,840 | ) | $ | 2,823,266 | ||||||||
| Current liabilities: | |||||||||||||||||||
| Current portion of long-term debt | $ | 2,153 | $ | 5,997 | $ | — | $ | — | $ | 8,150 | |||||||||
| Accounts payable | 4,648 | 390,559 | 31,380 | — | 426,587 | ||||||||||||||
| Accrued expenses | 49,987 | 455,749 | 29,915 | — | 535,651 | ||||||||||||||
| Total current liabilities | 56,788 | 852,305 | 61,295 | — | 970,388 | ||||||||||||||
| Long-term debt, less current portion | 1,417,595 | 9,824 | — | — | 1,427,419 | ||||||||||||||
| Intercompany advances | 342,132 | 1,961,427 | 350,645 | (2,654,204 | ) | — | |||||||||||||
| Accrued pension and other postretirement benefits, noncurrent | 6,090 | 516,826 | — | — | 522,916 | ||||||||||||||
| Deferred income taxes and other | 17,790 | 408,416 | 34,256 | — | 460,462 | ||||||||||||||
| Total stockholders’ (deficit) equity | (557,919 | ) | (1,380,546 | ) | 182,182 | 1,198,364 | (557,919 | ) | |||||||||||
| Total liabilities and stockholders’ (deficit) equity | $ | 1,282,476 | $ | 2,368,252 | $ | 628,378 | $ | (1,455,840 | ) | $ | 2,823,266 | ||||||||
| 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 | ||||||||
| For the Three Months Ended June 30, 2019 | |||||||||||||||||||
| Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated Total | |||||||||||||||
| Net sales | $ | — | $ | 675,030 | $ | 75,042 | $ | (19,841 | ) | $ | 730,231 | ||||||||
| Operating costs and expenses: | |||||||||||||||||||
| Cost of sales | — | 543,147 | 58,927 | (19,841 | ) | 582,233 | |||||||||||||
| Selling, general and administrative | 16,258 | 39,134 | 6,945 | — | 62,337 | ||||||||||||||
| Depreciation and amortization | 834 | 40,401 | 2,815 | — | 44,050 | ||||||||||||||
| Restructuring costs | 540 | 2,424 | — | — | 2,964 | ||||||||||||||
| Loss on divestitures | 3,136 | — | — | — | 3,136 | ||||||||||||||
| 20,768 | 625,106 | 68,687 | (19,841 | ) | 694,720 | ||||||||||||||
| Operating (loss) income | (20,768 | ) | 49,924 | 6,355 | — | 35,511 | |||||||||||||
| Intercompany interest and charges | (35,503 | ) | 33,754 | 1,749 | — | — | |||||||||||||
| Non-service defined benefit income | — | (14,372 | ) | (503 | ) | — | (14,875 | ) | |||||||||||
| Interest expense and other | 23,214 | 5,306 | (1,029 | ) | — | 27,491 | |||||||||||||
| (Loss) income before income taxes | (8,479 | ) | 25,236 | 6,138 | — | 22,895 | |||||||||||||
| Income tax (benefit) expense | (2,609 | ) | 6,442 | 974 | — | 4,807 | |||||||||||||
| Net (loss) income | (5,870 | ) | 18,794 | 5,164 | — | 18,088 | |||||||||||||
| Other comprehensive loss | (319 | ) | 1,497 | (2,771 | ) | — | (1,593 | ) | |||||||||||
| Total comprehensive (loss) income | $ | (6,189 | ) | $ | 20,291 | $ | 2,393 | $ | — | $ | 16,495 | ||||||||
| For the Three Months Ended June 30, 2018 | |||||||||||||||||||
| Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated Total | |||||||||||||||
| Net sales | $ | — | $ | 764,895 | $ | 88,140 | $ | (20,135 | ) | $ | 832,900 | ||||||||
| Operating costs and expenses: | |||||||||||||||||||
| Cost of sales | — | 716,921 | 73,428 | (20,135 | ) | 770,214 | |||||||||||||
| Selling, general and administrative | 24,560 | 49,182 | 7,914 | — | 81,656 | ||||||||||||||
| Depreciation and amortization | 667 | 33,917 | 4,228 | — | 38,812 | ||||||||||||||
| Restructuring costs | — | 4,047 | — | — | 4,047 | ||||||||||||||
| Loss on divestiture and assets held for sale | 4,719 | — | — | — | 4,719 | ||||||||||||||
| 29,946 | 804,067 | 85,570 | (20,135 | ) | 899,448 | ||||||||||||||
| Operating (loss) income | (29,946 | ) | (39,172 | ) | 2,570 | — | (66,548 | ) | |||||||||||
| Intercompany interest and charges | (40,219 | ) | 38,075 | 2,144 | — | — | |||||||||||||
| Non-service defined benefit income | — | (16,188 | ) | (350 | ) | — | (16,538 | ) | |||||||||||
| Interest expense and other | 23,555 | 4,018 | (2,080 | ) | — | 25,493 | |||||||||||||
| (Loss) income before income taxes | (13,282 | ) | (65,077 | ) | 2,856 | — | (75,503 | ) | |||||||||||
| Income tax expense (benefit) | 24,482 | (24,351 | ) | 900 | — | 1,031 | |||||||||||||
| Net (loss) income | (37,764 | ) | (40,726 | ) | 1,956 | — | (76,534 | ) | |||||||||||
| Other comprehensive loss | (1,035 | ) | (399 | ) | (14,524 | ) | — | (15,958 | ) | ||||||||||
| Total comprehensive loss | $ | (38,799 | ) | $ | (41,125 | ) | $ | (12,568 | ) | $ | — | $ | (92,492 | ) | |||||
| Three Months Ended June 30, 2019 | |||||||||||||||||||
| Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated Total | |||||||||||||||
| Net (loss) income | $ | (5,870 | ) | $ | 18,794 | $ | 5,164 | $ | — | $ | 18,088 | ||||||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities | (31,298 | ) | 6,740 | 11,488 | — | (13,070 | ) | ||||||||||||
| Net cash (used in) provided by operating activities | (37,168 | ) | 25,534 | 16,652 | — | 5,018 | |||||||||||||
| Capital expenditures | (232 | ) | (6,584 | ) | (1,274 | ) | (8,090 | ) | |||||||||||
| (Payments on) proceeds from sale of assets | (2,794 | ) | 46 | 178 | — | (2,570 | ) | ||||||||||||
| Net cash (used in) provided by investing activities | (3,026 | ) | (6,538 | ) | (1,096 | ) | — | (10,660 | ) | ||||||||||
| Net increase in revolving credit facility | (30,000 | ) | — | — | — | (30,000 | ) | ||||||||||||
| Proceeds on issuance of debt | — | — | 5,600 | — | 5,600 | ||||||||||||||
| Retirements and repayments of debt | (839 | ) | (1,833 | ) | (27,900 | ) | — | (30,572 | ) | ||||||||||
| Payments of deferred financing costs | (104 | ) | — | — | — | (104 | ) | ||||||||||||
| Dividends paid | (1,998 | ) | — | — | — | (1,998 | ) | ||||||||||||
| Repurchase of restricted shares for minimum tax obligation | (1,043 | ) | — | — | — | (1,043 | ) | ||||||||||||
| Intercompany financing and advances | 10,811 | (17,582 | ) | 6,771 | — | — | |||||||||||||
| Net cash used in financing activities | (23,173 | ) | (19,415 | ) | (15,529 | ) | — | (58,117 | ) | ||||||||||
| Effect of exchange rate changes on cash | — | — | (121 | ) | — | (121 | ) | ||||||||||||
| Net change in cash and cash equivalents | (63,367 | ) | (419 | ) | (94 | ) | — | (63,880 | ) | ||||||||||
| Cash and cash equivalents at beginning of period | 70,192 | 429 | 22,186 | — | 92,807 | ||||||||||||||
| Cash and cash equivalents at end of period | $ | 6,825 | $ | 10 | $ | 22,092 | $ | — | $ | 28,927 | |||||||||
| Three Months Ended June 30, 2018 | |||||||||||||||||||
| Parent | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated Total | |||||||||||||||
| Net (loss) income | $ | (37,764 | ) | $ | (40,726 | ) | $ | 1,956 | $ | — | $ | (76,534 | ) | ||||||
| Adjustments to reconcile net income to net cash (used in) provided by operating activities | 46,831 | (76,449 | ) | 40,941 | (503 | ) | 10,820 | ||||||||||||
| Net cash provided by (used in) operating activities | 9,067 | (117,175 | ) | 42,897 | (503 | ) | (65,714 | ) | |||||||||||
| Capital expenditures | (105 | ) | (10,524 | ) | (1,571 | ) | — | (12,200 | ) | ||||||||||
| Reimbursed capital expenditures | — | — | — | — | — | ||||||||||||||
| Proceeds from sale of assets | — | 118 | 546 | — | 664 | ||||||||||||||
| Net cash used in investing activities | (105 | ) | (10,406 | ) | (1,025 | ) | — | (11,536 | ) | ||||||||||
| Net increase in revolving credit facility | 113,186 | — | — | — | 113,186 | ||||||||||||||
| Proceeds on issuance of debt | 1,214 | 632 | 17,200 | — | 19,046 | ||||||||||||||
| Retirements and repayments of debt | (365 | ) | (6,597 | ) | (46,800 | ) | — | (53,762 | ) | ||||||||||
| Payments of deferred financing costs | (64 | ) | — | — | — | (64 | ) | ||||||||||||
| Dividends paid | (1,988 | ) | — | — | — | (1,988 | ) | ||||||||||||
| Repurchase of restricted shares for minimum tax obligations | (532 | ) | — | — | — | (532 | ) | ||||||||||||
| Intercompany financing and advances | (120,373 | ) | 133,966 | (14,096 | ) | 503 | — | ||||||||||||
| Net cash (used in) provided by financing activities | (8,922 | ) | 128,001 | (43,696 | ) | 503 | 75,886 | ||||||||||||
| Effect of exchange rate changes on cash | — | — | (1,400 | ) | — | (1,400 | ) | ||||||||||||
| Net change in cash and cash equivalents | 40 | 420 | (3,224 | ) | — | (2,764 | ) | ||||||||||||
| Cash and cash equivalents at beginning of period | 44 | — | 35,775 | — | 35,819 | ||||||||||||||
| Cash and cash equivalents at end of period | $ | 84 | $ | 420 | $ | 32,551 | $ | — | $ | 33,055 | |||||||||
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.
20
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
As the Company completes its restructuring plans as disclosed in Note 15, 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.
15.RESTRUCTURING COSTS
As disclosed in the Company's Form 10-K for the fiscal year ended March 31, 2019,2020, 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, 2019.2020. The Company incurred costs of $2,964$15,439 associated with new restructuring plans during the first quarterthree months ended June 30, 2020. We estimate that we will incur costs in each of fiscal year 2020. These costs, which are being incurred within the Integrated Systems segment, pertain toour segments for third-party consulting costs and are estimatedseverance, primarily related to beour cost-reductions, of approximately $8,000$25,000 to $10,000$27,000 for the fiscal year ended March 31, 2020.
21
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 and notes thereto contained elsewhere herein.)
OVERVIEW
We are a major supplier to the aerospace industry and have three operatingtwo reportable segments: (i) Integrated Systems & Support, whose companies’ revenues are derived from integrated solutions, including design, development and support of proprietary components, subsystems and systems, as well as production of complex assemblies using external designs;designs, as well as full life cycle solutions for commercial, regional and military aircraft; and (ii) Aerospace Structures, whose companies supply commercial, business, regional, and military manufacturers with large metallic and composite structures and produce close-tolerance parts primarily to customer designs and model basedmodel-based definition, including a wide range of aluminum,aluminium, 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, 2019,2020, the Company divested of a number of its assets and operations, including (i) selling allthe sale of its manufacturing operations at its Nashville, TN, facility (the “Nashville divestiture”) and 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"). The operating results 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 programNashville manufacturing operations ofare included in Aerospace Structures to Bombardier, (iii) selling allthrough the date 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").divestiture or assignment. Collectively, these transactions are referred to as the "fiscal 2019“fiscal 2020 divestitures."” The Company recognized combined net losses of $235.3$56.9 million associated with the fiscal 20192020 divestitures, which are presented within loss on sale of assets and businesses, net on the accompanying consolidated statements of operations within lossincluded on divestitures. With the exception of NAAS, the operating resultsCompany's Form 10-K for the fiscal 2019 divestitures are included in Aerospace Structures ("fiscal 2019 Aerospace Structures Divestitures") throughyear ended March 31, 2020, filed with the respective dates of divestiture. The operatingSEC on May 28, 2020.
Significant financial results for NAAS are included in Product Support through the date of divestiture.
• | Net sales were $495.1 million compared with $730.2 million for the prior year period. |
• | Operating loss was $252.4 million compared with operating income of $35.5 million for the prior year period. |
• | Net loss was $277.3 million, or ($5.35) per common share, compared with net income of $18.1 million, or $0.36 per diluted common share, for the prior year period. |
• | Backlog as of June 30, 2020, was $2.67 billion. Of our existing backlog, we estimate that approximately $1.18 billion will not be shipped by June 30, 2021. |
• | We used $197.5 million of cash in operating activities for the three months ended June 30, 2020, as compared with cash generated from operations of $5.0 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. WithAs of March 31, 2020, with the exception of certain consolidationsthree pending facility closures to be completed in future years,fiscal 2021 or 2022 and the COVID-19 pandemic related actions discussed below, the Company has substantially completed these plans were substantially complete as of March 31, 2019.plans. For the three months ended June 30, 20192020 and 2018,2019, the Company incurred $3.0$15.4 million and $4.0$3.0 million in restructuring costs, respectively.
While the long-term outlook for the aerospace industry remains positive due to the fundamental drivers of air travel demand, current expectations are that it will take 3-4 years for travel to return to calendar 2019 levels and a few years beyond that for the industry to return to long-term trend growth, although there can be no assurance that such period will not be longer. To balance the supply and demand given the COVID-19 shock and to preserve long-term potential and competitiveness, our customers have decided to reduce the production rates of several of their commercial aircraft programs. These rate decisions were based on assessments of the demand environment. There is significant uncertainty with respect to when commercial air traffic levels will begin to recover, and whether and at what point capacity will return to and/or exceed pre-COVID-19 levels. The Company will work with its customers to closely monitor the key factors that affect backlog and future demand, including customers’ evolving manufacturing plans, the widebody replacement cycle and the cargo market, but such impact could be material and make it difficult to compare periods.
The Company expects COVID-19 to reduce demand for commercial aviation aftermarket due to the recent sharp decreases in flights; as well as reduce demand for commercial aviation production as OEMs have lowered their related delivery rate assumptions.
The COVID-19-related reduction in OEM production rates may result in additional costs to produce and deliver our products, which may not be mitigated through our cost-reduction initiatives and could negatively impact earnings and cash flows, particularly with respect to our fixed-price contracts.
The Company is unable at this time to reasonably estimate potential future additional financial impacts or a range of loss, if any, due to continued uncertainties related to the impacts of COVID-19 on our operations, supply chain and customers, future changes to OEM production rates, supply chain impacts, and/or the results of negotiations with particular customers. Any such impacts, including any changes in our estimates, could have a material adverse effect on our financial position, results of operations, and/or cash flows.
For example, the Company expects that, in the event that its customers are unable to resume aircraft deliveries consistent with provided assumptions, the continued absence of revenue, earnings, and cash flows associated with those deliveries would continue to have a material impact on our operating results. In the event that future OEM production rate increases occur at a slower rate or take longer than the Company is currently assuming, the Company expects that the growth in inventory and other cash flow impacts associated with production would decrease. However, while any prolonged delays in planned OEM production rate increases could mitigate the impact on our liquidity, it could significantly increase the overall expected costs to manufacture our products, which would reduce operating margins and/or increase abnormal production costs in the future. Additionally, the declines in global air travel are expected to result in reduced demand for MRO services and uncertainty exists related to the length of time until air travel returns to historical levels.
From fiscal 2014 through fiscal 2019,2020, 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 the significant developments of each program's impact on operations over the past three fiscal years.
Boeing 737 MAX
The Boeing 737 MAX program represented approximately 5% of revenue 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.
Boeing has stated it has approximately 450 airplanes in inventory at March 31, 2020, and has also assumed that the OEMmajority of 737 MAX airplanes produced during the grounding and included within inventory will be delivered during the first year after the resumption of deliveries, although at a slower pace than our previous assumptions due to generate acceptable levelsCOVID-19. The slower production and delivery rate ramp-ups reflect commercial airline industry uncertainty due to the impact of aircraft sales.
Boeing 747-8
As of March 31, 2020, Triumph’s production on this program mayhas substantially completed from its Hawthorne, California, facility, with the remaining production from its Grand Prairie, Texas, facility expected to complete in late fiscal 2021. Facility exit plans are underway at both locations and are expected to result in additional forward loss reserves in future periods, while improvements in future costs comparedcost to current estimates or additional cost recovery mayexit of approximately $20.0 million through mid-fiscal 2022 and result in favorable adjustments if forward loss reserves are no longer required.
G280
In May 2020, the Company reached agreement 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.
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-producedcoproduced 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. TheIn August 2020, the Company maintainsentered into a definitive agreement to sell its role as theremaining G650 wing supply chain integrator onactivity and engineering services to Gulfstream. This transaction is expected to close in the program and has since returned this contract to modest profitability.
T-7 Red Hawk
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 programT-7 Red Hawk, originally known as the Boeing T-X, for the U.S. Air Force. In September 2018, the U.S. Air Force awarded the contract to Boeing. In fiscal 2019,2020, the Company initiatedcontinued 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.
In May 2020, the Company’s Board of Directors committed to a plan (i) to sell its composites manufacturing operations located in
Milledgeville, Georgia and Rayong, Thailand and (ii) to transfer the assets and certain liabilities associated with its Gulfstream
G650 wing supply chain activities. In August 2020, the Company entered into a definitive agreement with the buyer of the composites manufacturing operations in Georgia and Thailand. Also in August 2020, the Company entered into a definitive agreement with Gulfstream to sell its G650 program scope of work. During the three months ended June 30, 2020, the assets that are the subject of these transactions represented, in the aggregate, approximately $52.5 million of the $495.1 million of consolidated net sales (or approximately 10.6% of consolidated net sales), entirely within Aerospace Structures. The transactions are expected to close in mid-fiscal 2021 and result in gains. We expect to generate aggregate proceeds from these transactions in the range of $100.0 million.
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 allowprovide for precise comparisons of the impact of price and volume changes to our results. However, we have disclosed the significant variances between the respective periods.
Non-GAAP Financial Measures
We prepare and publicly release annual audited and quarterly unaudited financial statements prepared in accordance with U.S. GAAP. In accordance with the rules of the Securities and Exchange Commission (the "SEC"), rules, 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)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).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),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 not rely on Adjusted EBITDA or Adjusted EBITDAP as a substitute for any U.S. GAAP financial measure, including net income (loss).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)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
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)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-cashnoncash charges, such as depreciation and amortization, and non-operatingnonoperating items, such as interest, income taxes, pension and other postretirement benefits, provides additional information about our cost structure and, over time, helps track our operating progress. In addition, investors, securities analysts, and others have regularly relied on Adjusted EBITDA and Adjusted EBITDAP to provide financial measures by which to compare our operating performance against that of other companies in our industry.
Set forth below are descriptions of the financial items that have been excluded from our net income to calculate Adjusted EBITDA and Adjusted EBITDAP and the material limitations associated with using these non-GAAP financial measures as compared with net income (loss) or incomeloss from continuing operations:
• | Gains or losses from sale of assets and businesses may be useful for investors to consider because they reflect gains or losses from sale of operating units or other assets. We do not believe these earnings necessarily reflect the current and ongoing cash earnings related to our operations. |
• | Legal judgments and settlements, when applicable, may be useful for investors to consider because it reflects gains or losses from disputes with third parties. We do not believe these earnings necessarily reflect the current and ongoing cash earnings related to our operations. |
• | 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, early retirement or other 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 |
• | Amortization expense (including goodwill and 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 tradenames, product rights, licenses, or, in the case of goodwill, other assets that are not individually identified and separately recognized under U.S. GAAP. We do not believe these charges necessarily reflect the current and ongoing cash charges related to our operating cost structure. |
• | Depreciation may be useful for investors to consider because it generally represents the wear and tear on our property and equipment used in our operations. We do not believe these charges necessarily reflect the current and ongoing cash charges related to our operating cost structure. |
• | The amount of interest expense and other we incur may be useful for investors to consider and may result in current cash inflows or outflows. However, we do not consider the amount of interest expense and other to be a representative component of the day-to-day operating performance of our business. |
• | Income tax expense may be useful for investors to consider because it generally represents the taxes which may be payable for the period and the change in deferred income taxes during the period and may reduce the amount of funds otherwise available for use in our business. However, we do not consider the amount of income tax expense |
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)loss for the indicated periods (in thousands):
|
| Three Months Ended June 30, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Net (loss) income (U.S. GAAP measure) |
| $ | (277,314 | ) |
| $ | 18,088 |
|
Loss on sale of assets and businesses, net |
|
| — |
|
|
| 3,136 |
|
Amortization of acquired contract liabilities |
|
| (10,987 | ) |
|
| (16,939 | ) |
Depreciation and amortization* |
|
| 280,984 |
|
|
| 44,050 |
|
Interest expense and other |
|
| 34,957 |
|
|
| 27,491 |
|
Income tax expense |
|
| 853 |
|
|
| 4,807 |
|
Adjusted EBITDA (non-GAAP measure) |
| $ | 28,493 |
|
| $ | 80,633 |
|
Non-service defined benefit income (excluding settlements) |
|
| (10,888 | ) |
|
| (14,875 | ) |
Adjusted EBITDAP (non-GAAP measure) |
| $ | 17,605 |
|
| $ | 65,758 |
|
* | Includes impairment charges related to long-lived assets |
| Three Months Ended June 30, | ||||||||
| 2019 | 2018 | |||||||
| Net income (loss) | $ | 18,088 | $ | (76,534 | ) | |||
| Loss on divestitures | 3,136 | 4,719 | ||||||
| Adoption of ASU 2017-07 | — | 87,241 | ||||||
| Amortization of acquired contract liabilities, net | (16,939 | ) | (17,234 | ) | ||||
| Depreciation and amortization | 44,050 | 38,812 | ||||||
| Interest expense and other | 27,491 | 25,493 | ||||||
| Income tax expense | 4,807 | 1,031 | ||||||
| Adjusted EBITDA | $ | 80,633 | $ | 63,528 | ||||
| Non-service defined benefit income (excluding settlements) | (14,875 | ) | (16,538 | ) | ||||
| Adjusted EBITDAP | $ | 65,758 | $ | 46,990 | ||||
The following tables show our Adjusted EBITDAP by reportable segment reconciled to our operating (loss) income for the indicated periods (in thousands):
|
| Three Months Ended June 30, 2020 |
| |||||||||||||
|
| Total |
|
| Systems & Support |
|
| Aerospace Structures |
|
| Corporate/ Eliminations |
| ||||
Operating (loss) income |
| $ | (252,392 | ) |
| $ | 25,431 |
|
| $ | (256,120 | ) |
| $ | (21,703 | ) |
Amortization of acquired contract liabilities |
|
| (10,987 | ) |
|
| (3,719 | ) |
|
| (7,268 | ) |
|
| — |
|
Depreciation and amortization* |
|
| 280,984 |
|
|
| 8,356 |
|
|
| 271,772 |
|
|
| 856 |
|
Adjusted EBITDAP |
| $ | 17,605 |
|
| $ | 30,068 |
|
| $ | 8,384 |
|
| $ | (20,847 | ) |
|
| Three Months Ended June 30, 2019 |
| |||||||||||||
|
| Total |
|
| Systems & Support |
|
| Aerospace Structures |
|
| Corporate/ Eliminations |
| ||||
Operating income (loss) |
| $ | 35,511 |
|
| $ | 44,048 |
|
| $ | 12,283 |
|
| $ | (20,820 | ) |
Loss on sale of assets and businesses |
|
| 3,136 |
|
|
| — |
|
|
| — |
|
|
| 3,136 |
|
Amortization of acquired contract liabilities |
|
| (16,939 | ) |
|
| (8,125 | ) |
|
| (8,814 | ) |
|
| — |
|
Depreciation and amortization |
|
| 44,050 |
|
|
| 8,157 |
|
|
| 35,059 |
|
|
| 834 |
|
Adjusted EBITDAP |
| $ | 65,758 |
|
| $ | 44,080 |
|
| $ | 38,528 |
|
| $ | (16,850 | ) |
* | Includes impairment charges related to long-lived assets |
| Three Months Ended June 30, 2019 | |||||||||||||||||||
| Total | Integrated Systems | Aerospace Structures | Product Support | Corporate/ Eliminations | |||||||||||||||
| Operating income (loss) | $ | 35,511 | $ | 34,772 | $ | 12,283 | $ | 9,276 | $ | (20,820 | ) | ||||||||
| Loss on divestitures | 3,136 | — | — | — | 3,136 | ||||||||||||||
| Amortization of acquired contract liabilities, net | (16,939 | ) | (8,125 | ) | (8,814 | ) | — | — | |||||||||||
| Depreciation and amortization | 44,050 | 7,067 | 35,059 | 1,090 | 834 | ||||||||||||||
| Adjusted EBITDAP | $ | 65,758 | $ | 33,714 | $ | 38,528 | $ | 10,366 | $ | (16,850 | ) | ||||||||
| Three Months Ended June 30, 2018 | |||||||||||||||||||
| Total | Integrated Systems | Aerospace Structures | Product Support | Corporate/ Eliminations | |||||||||||||||
| Operating (loss) income | $ | (66,548 | ) | $ | 35,409 | $ | (79,587 | ) | $ | 7,669 | $ | (30,039 | ) | ||||||
| Loss on divestitures | 4,719 | — | — | — | 4,719 | ||||||||||||||
| Adoption of ASU 2017-07 | 87,241 | — | 87,241 | — | — | ||||||||||||||
| Amortization of acquired contract liabilities, net | (17,234 | ) | (8,849 | ) | (8,385 | ) | — | — | |||||||||||
| Depreciation and amortization | 38,812 | 7,555 | 28,920 | 1,670 | 667 | ||||||||||||||
| Adjusted EBITDAP | $ | 46,990 | $ | 34,115 | $ | 28,189 | $ | 9,339 | $ | (24,653 | ) | ||||||||
The fluctuations from period to period within the amounts of $2.4the components of the reconciliations above are discussed further below within Results of Operations.
Three months ended June 30, 2020, compared with three months ended June 30, 2019
|
| Three Months Ended June 30, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
|
| (in thousands) |
| |||||
Net sales |
| $ | 495,077 |
|
| $ | 730,231 |
|
Segment operating (loss) income |
| $ | (230,689 | ) |
| $ | 56,331 |
|
Corporate expense |
|
| (21,703 | ) |
|
| (20,820 | ) |
Total operating (loss) income |
|
| (252,392 | ) |
|
| 35,511 |
|
Interest expense and other |
|
| 34,957 |
|
|
| 27,491 |
|
Non-service defined benefit income |
|
| (10,888 | ) |
|
| (14,875 | ) |
Income tax expense |
|
| 853 |
|
|
| 4,807 |
|
Net loss |
| $ | (277,314 | ) |
| $ | 18,088 |
|
Net sales decreased by $235.2 million, and $2.5or 32.2%, to $495.1 million for the three months ended June 30, 2019 and 2018, respectively.
| Three Months Ended June 30, | |||||||
| 2019 | 2018 | ||||||
| (dollars in thousands) | |||||||
| Net sales | $ | 730,231 | $ | 832,900 | |||
| Segment operating income (loss) | $ | 56,331 | $ | (36,509 | ) | ||
| Corporate expense | (18,394 | ) | (27,577 | ) | |||
| Share-based compensation expense | (2,426 | ) | (2,462 | ) | |||
| Total operating income (loss) | 35,511 | (66,548 | ) | ||||
| Interest expense and other | 27,491 | 25,493 | |||||
| Non-service defined benefit income | (14,875 | ) | (16,538 | ) | |||
| Income tax expense | 4,807 | 1,031 | |||||
| Net income (loss) | $ | 18,088 | $ | (76,534 | ) | ||
Cost of sales decreased by $188.4 million, or 32.4%, to $393.8 million for the three months ended June 30, 2018.2020, from $582.2 million for the three months ended June 30, 2019. Organic cost of sales adjusted for inter-segment sales increased $43.1decreased $160.9 million, or 5.8%, offset by29.0% with additional declines from divestituresthe Nashville divestiture of $145.7$27.4 million. Organic cost of sales increaseddecreased primarily due to the lower volumes described above. Organic gross margin for the three months ended June 30, 2020, was 20.3% compared with 20.7% for the three months ended June 30, 2019. The gross margin for the three months ended June 30, 2020, decreased primarily as a result of increased product costs due to the lower sales volumes partially offset by the results of the Company’s restructuring and cost-reduction activities.
Gross margin for the three months ended June 30, 2020, included net favorable cumulative catch-up adjustments on G550, Global Hawklong-term contracts of $3.3 million. The favorable cumulative catch-up adjustments to operating income included gross favorable adjustments of $28.0 million and 787 programs, increases in engine components and military rotorcraft components as well as increased demand for accessory components. Net salesgross unfavorable adjustments of $24.7 million. Gross margins for the three months ended June 30, 2019, included $7.9 million in total nonrecurring revenues, as compared with $39.4 million in nonrecurring revenues for the three months ended June 30, 2018.
Segment operating loss decreased $188.0by $287.0 million, or 24.4%509.5%, to $582.2$230.7 million for the three months ended June 30, 2019,2020, from $770.2 million for the three months ended June 30, 2018. Organic cost of sales decreased $35.1 million, or 5.7%. Cost of sales for the three months ended June 30, 2018 included $87.2 million charge from the adoption of ASU 2017-07 and net unfavorable cumulative catch-up adjustments on long-term contracts of $3.6 million. The organic gross margin for the three months ended June 30, 2019 was 20.3%, as compared with 10.2%, for the three months ended June 30, 2018.
Corporate operations incurred expenses of $21.7 million for the three months ended June 30, 2018. Organic segment operating income increased by $72.1 million due to the prior period charge from the adoption of ASU 2017-07. Divestitures contributed $20.7 million improvement to operating income. Organic operating income for the three months ended June 30, 2019 increased due the gross margin improvement noted above2020, as well as lower compensation cost ($3.5 million) and lower research & development costs ($3.8 million).
Interest expense and other increased by $7.5 million, or 27.2%, to $35.0 million for the three months ended June 30, 2018. The decrease in corporate expenses was $9.2 million, or 33.3%, and was primarily the result of decreased compensation expense on lower overall headcount and lower legal expenses.
Non-service defined benefit income decreased by $4.0 million, or 26.8%, to $10.9 million for the three months ended June 30, 2018,2020, compared with $14.9 million for the three months ended June 30, 2019. The decrease was primarily due to $2.6 million changechanges in foreign exchange transactional gains in loss, partially offset by lower interest expense due to differences in relative debt levels.
The effective income tax rate for the three months ended June 30, 2019,2020, was 21.0%(0.3)% compared with (1.4)%21.0% for the three months ended June 30, 2018.2019. For the three months ended June 30, 2019,2020, 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 30, 20192020, compared with three months ended June 30, 2018
We report our financial performance based on the following threetwo reportable segments: Integrated Systems & Support and Aerospace Structures, and Product Support.Structures. 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 & Support, 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. Also, OEMs are increasingly focusing on assembly activities while outsourcing more manufacturing and repair to third parties, and as a result, are less of a competitive force than in previous years. This compares to Aerospace Structures, which generally includes long-term sole-source or preferred supplier contracts and the success of these programs provides a strong foundation for our business and positions us well for future growth on new programs and new derivatives. In contrast, Product Support provides MRO services on components
Refer to Note 1 for further details regarding the operations 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 extentcapabilities 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 Structureseach of our reportable segments.
We currently generate a majority of our revenue from clients in the commercial aerospace industry, the military, the business jet industry and the regional airline industry. Our growth and financial results are largely dependent on continued demand for our products and services from clients in these industries. If any of these industries experiences a downturn, our clients in these sectors may conduct less business with us. The following table summarizes our net sales by end market by business segment. The loss of one or more of our major customers or an economic downturn in the commercial airline or the military and defense markets could have a material adverse effect on our business.
|
| Three Months Ended June 30, |
|
| % Change |
|
| % of Total Sales |
| |||||||||||
|
| 2020 |
|
| 2019 |
|
|
|
|
|
| 2020 |
|
| 2019 |
| ||||
|
| (in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
NET SALES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Systems & Support |
| $ | 239,887 |
|
| $ | 313,606 |
|
|
| (23.5 | )% |
|
| 48.5 | % |
|
| 43.0 | % |
Aerospace Structures |
|
| 257,877 |
|
|
| 419,178 |
|
|
| (38.5 | )% |
|
| 52.1 | % |
|
| 57.4 | % |
Elimination of inter-segment sales |
|
| (2,687 | ) |
|
| (2,553 | ) |
|
| (5.3 | )% |
|
| (0.5 | )% |
|
| (0.4 | )% |
Total net sales |
| $ | 495,077 |
|
| $ | 730,231 |
|
|
| (32.2 | )% |
|
| 100.0 | % |
|
| 100.0 | % |
|
| Three Months Ended June 30, |
|
| % Change |
|
| % of Segment Sales |
| |||||||||||
|
| 2020 |
|
| 2019 |
|
|
|
|
|
| 2020 |
|
| 2019 |
| ||||
|
| (in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
SEGMENT OPERATING (LOSS) INCOME |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Systems & Support |
| $ | 25,431 |
|
| $ | 44,048 |
|
|
| (42.3 | )% |
|
| 10.6 | % |
|
| 14.1 | % |
Aerospace Structures |
|
| (256,120 | ) |
|
| 12,283 |
|
|
| (2185.2 | )% |
|
| (99.3 | )% |
|
| 2.9 | % |
Corporate |
|
| (21,703 | ) |
|
| (20,820 | ) |
|
| (4.2 | )% |
| n/a |
|
| n/a |
| ||
Total segment operating (loss) income |
| $ | (252,392 | ) |
| $ | 35,511 |
|
|
| (810.7 | )% |
|
| (51.0 | )% |
|
| 4.9 | % |
|
| Three Months Ended June 30, |
|
| % Change |
|
| % of Segment Sales |
| |||||||||||
|
| 2020 |
|
| 2019 |
|
|
|
|
|
| 2020 |
|
| 2019 |
| ||||
|
| (in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Adjusted EBITDAP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Systems & Support |
| $ | 30,068 |
|
| $ | 44,080 |
|
|
| (31.8 | )% |
|
| 12.7 | % |
|
| 14.4 | % |
Aerospace Structures |
|
| 8,384 |
|
|
| 38,528 |
|
|
| (78.2 | )% |
|
| 3.4 | % |
|
| 9.4 | % |
Corporate |
|
| (20,847 | ) |
|
| (16,850 | ) |
|
| (23.7 | )% |
| n/a |
|
| n/a |
| ||
|
| $ | 17,605 |
|
| $ | 65,758 |
|
|
| (73.2 | )% |
|
| 3.6 | % |
|
| 9.2 | % |
| Three Months Ended June 30, | % of Total Sales | |||||||||||||||
| 2019 | 2018 | % Change | 2019 | 2018 | ||||||||||||
| (in thousands) | ||||||||||||||||
| NET SALES | ||||||||||||||||
| Integrated Systems | $ | 252,226 | $ | 241,039 | 4.6 | % | 34.5 | % | 28.9 | % | ||||||
| Aerospace Structures | 419,178 | 532,387 | (21.3 | )% | 57.4 | % | 63.9 | % | ||||||||
| Product Support | 61,756 | 66,215 | (6.7 | )% | 8.5 | % | 7.9 | % | ||||||||
| Elimination of inter-segment sales | (2,929 | ) | (6,741 | ) | (56.5 | )% | (0.4 | )% | (0.7 | )% | ||||||
| Total Net Sales | $ | 730,231 | $ | 832,900 | (12.3 | )% | 100.0 | % | 100.0 | % | ||||||
| Three Months Ended June 30, | % of Segment Sales | |||||||||||||||
| 2019 | 2018 | % Change | 2019 | 2018 | ||||||||||||
| (in thousands) | ||||||||||||||||
| SEGMENT OPERATING INCOME (LOSS) | ||||||||||||||||
| Integrated Systems | $ | 34,772 | $ | 35,409 | (1.8 | )% | 13.8 | % | 14.7 | % | ||||||
| Aerospace Structures | 12,283 | (79,587 | ) | (115.4 | )% | 2.9 | % | (14.9 | )% | |||||||
| Product Support | 9,276 | 7,669 | 21.0 | % | 15.0 | % | 11.6 | % | ||||||||
| Corporate | (18,394 | ) | (27,577 | ) | 33.3 | % | n/a | n/a | ||||||||
| Share-based compensation expense | (2,426 | ) | (2,462 | ) | 1.5 | % | n/a | n/a | ||||||||
| Total Operating Income (Loss) | $ | 35,511 | $ | (66,548 | ) | 4.9 | % | (8.0 | )% | |||||||
| Three Months Ended June 30, | % of Segment Sales | |||||||||||||||
| 2019 | 2018 | % Change | 2019 | 2018 | ||||||||||||
| (in thousands) | ||||||||||||||||
| Adjusted EBITDAP | ||||||||||||||||
| Integrated Systems | $ | 33,714 | $ | 34,115 | (1.2 | )% | 13.8 | % | 14.7 | % | ||||||
| Aerospace Structures | 38,528 | 28,189 | 36.7 | % | 9.4 | % | 5.4 | % | ||||||||
| Product Support | 10,366 | 9,339 | 11.0 | % | 16.8 | % | 14.1 | % | ||||||||
| Corporate & share-based compensation | (16,850 | ) | (24,653 | ) | 31.7 | % | n/a | n/a | ||||||||
| $ | 65,758 | $ | 46,990 | 39.9 | % | 9.2 | % | 5.8 | % | |||||||
Systems & Support: Integrated Systems & Support net sales increaseddecreased by $11.2$73.7 million, or 4.6%23.5%, to $252.2$239.9 million for the three months ended June 30, 2019,2020, from $241.0$313.6 million for the three months ended June 30, 2018. The increase was entirely organic and was2019. Sales decreased primarily due to increasedthe impact of the COVID-19 pandemic and decreased sales volumes on engine componentscommercial narrowbody and widebody programs, partially offset by increases in military rotorcraft components.platforms.
Systems & Support cost of sales increaseddecreased by $11.5$55.5 million, or 6.8%24.5%, to $181.5$171.1 million for the three months ended June 30, 2019,2020, from $170.0$226.5 million for the three months ended June 30, 2018. The increase was entirely organic and driven by increased sales volume on engine components and rotorcraft components and higher costs incurred to drive future operational improvements.
Systems & Support operating income decreased by $0.6$18.6 million, or 1.8%42.3%, to $34.8$25.4 million for the three months ended June 30, 2019,2020, from $35.4$44.0 million for the three months ended June 30, 2018. The decrease was2019. Operating income decreased primarily due to the decreased gross marginsales noted above as noted above. The decrease in Adjusted EBITDAP was not significant.
Systems & Support operating income as a percentage of segment sales decreased to 13.8%10.6% for the three months ended June 30, 2019, as compared with 14.7% for the three months ended June 30, 2018. These same factors noted above affecting the Adjusted EBITDAP contributed to the decreased Adjusted EBITDAP margin year over year.
Aerospace Structures: Aerospace Structures net sales decreased by $161.3 million, or 38.5%, to $257.9 million for the increasedthree months ended June 30, 2020, from $419.2 million for the three months ended June 30, 2019. Organic net sales decreased by $131.6 million, with additional declines from the Nashville divestiture of $29.7 million. Organic net sales decreased due to the planned reductions on sunsetting programs (i.e., 747-8, G280, G550), the transitioned workscopes on the E-2 Jets and G650 programs, as well as the impacts of the COVID-19 pandemic and resulting production rate decreases primarily on commercial narrowbody and widebody programs.
Aerospace Structures cost of sales decreased by $132.8 million, or 37.1%, to $225.5 million for the three months ended June 30, 2020, from $358.2 million for the three months ended June 30, 2019. Organic cost of sales decreased by $105.3 million, with an additional reduction in cost of sales from the Nashville divestiture of $27.4 million. Organic gross margin for the three months ended June 30, 2020, was 12.6% compared with 15.1% for the three months ended June 30, 2019. The decrease in organic cost of sales is due to decrease in sales noted above.
Aerospace Structures operating loss decreased by $268.4 million, or 2185.2%, to $256.1 million for the three months ended June 30, 2020, from operating income of $12.3 million for the three months ended June 30, 2019. The decreased operating loss was nearly all organic and Resultsprimarily the result of Operations
Aerospace Structures operating loss as a percentage of segment sales decreased to (99.3)% for the three months ended June 30, 2020, as compared with 2.9% for the three months ended June 30, 2019, due to the decrease in operating income as noted above. These same factors as noted above for the Adjusted EBITDAP contributed to the decrease in Adjusted EBITDAP margin year over year.
Liquidity and Capital Resources
Our working capital needs are generally funded through cash flows from operations and borrowings under our credit arrangements. During the three months ended June 30, 2019,2020, we generated approximately $5.0had a net cash outflow of $197.5 million of cash flows from operating activities, useda decrease of $202.6 million, compared with a net cash inflow of $5.0 million for the three months ended June 30, 2019. Cash flows from operations were unfavorably impacted by increased disbursements to our suppliers relative to the receipts from our customers, as we were unable to reduce volumes of our material purchases at the same rates that our sales declined from the impacts of COVID-19. Cash flows included increased inventory and contract asset levels and lower accounts payable. We anticipate that this trend will continue, but to a lesser degree in our second quarter, and we expect it to recover somewhat in the second half of the fiscal year assuming there are no additional extended shut-downs of operations due to the pandemic. Cash flows from operations also included approximately $10.7$10.0 million in the liquidation of prior period customer advances against current period deliveries.
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. As of March 31, 2020, with the exception of three pending facility closures to be completed in fiscal 2021 or 2022 and the COVID-19 pandemic related actions discussed below, the Company has substantially completed these plans.
In March 2020, in response to anticipated headwinds resulting from the impact of COVID-19 on the aerospace industry, including the impact on global air travel, we implemented certain cost-reduction actions to improve our financial health, align capacity with expected demand, and ensure our long term competitiveness. This has included, amongst others, the reduction of indirect staff and temporary workers, reduction of overtime and the selective implementation of furloughs across our business to reduce costs while delivering on customer commitments. The actions taken to reduce headcount and reduce base pay are estimated to result in approximately $85.0 million of savings for fiscal 2021, net of severance costs. We are also reducing discretionary spending as well as reducing or deferring research and development and capital expenditures. In March 2020, we also suspended the declaration and/or payment of dividends until further notice. When combined with reductions in travel, corporate events, and other expenses, Triumph expects savings to operating cash flows of approximately $120.0 million in investing activitiesfiscal 2021, which does not reflect the restructuring charges described above. There can be no assurance that we will achieve such savings in the anticipated amounts and usedtimeline. As of June 30, 2020, we have realized approximately $58.1$33.0 million of the $120.0 million in financing activities.
Cash flows generated from operatingused in investing activities for the three months ended June 30, 2019, were $5.02020, decreased $3.7 million compared with cashfrom the three months ended June 30, 2019. Cash flows used in operatinginvesting activities for the three months ended June 30, 2018,2020, included cash from the sales of $65.7assets and businesses of $0.8 million offset by capital expenditures of $7.7 million. We continue to invest in inventory and contract assets for 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 Company liquidated approximately $20.0 million in prior period advances against current period deliveries.
Cash flows used in financing activities for the three months ended June 30, 2018. Cash2020, were $250.9 million, compared with cash flows provided by investingused in financing activities for the three months ended June 30, 2019, included capital expenditures of $8.1 million$58.1 million. In March, the Company drew on its Credit
Facility (as defined below), bringing the outstanding balance as of March 31, 2020, to $400.0 million. This was done as part of a comprehensive precautionary approach to increase the Company’s cash position and payments on a working capital true-upmaximize its financial flexibility, in light of the current volatility in the global markets resulting from the prior period sale of assets of $2.6 million. Cash used in investing activities forCOVID-19 pandemic. In the three months ended June 30, 2018, included capital expenditures2020, we repaid approximately $225.0 million of $12.2 million and proceeds from the sale of assets of $0.7 million.
As of June 30, 2019, $491.12020, we had $30.9 million of cash on hand and $323.1 million was available under our revolvingthe Company's existing credit facilityagreement (the “Credit Facility”"Credit Facility") after consideration of covenant limitations.. On June 30, 2019, an aggregate amount2020, approximately $22.0 million in letters of $185.0 million wascredit were outstanding under the Credit Facility, all of which waswere accruing interest at LIBOR plus applicable basis points totalingtotalling approximately 3.50% per annum. Amounts repaid under the Credit Facility may be re-borrowed.
We have taken a number of actions to improve liquidity. We have implemented cost reduction actions as described above. We are also working with our customers and supply chain to accelerate receipts and conserve cash. We are also deferring certain employer payroll tax payments pursuant to the Coronavirus Aid, Relief, and Economic Security (CARES) Act. We will evaluate additional programs if passed by the federal government. Additionally, as disclosed in Note 7, on May 22, 2020, the Company and its subsidiary co-borrowers and guarantors entered into a Twelfth Amendment to Credit Agreement which, among other things, adjusted certain financial covenants within the agreement to provide additional flexibility to the Company with regard to meetings its financial obligations.
We believe, based on an assessment of current market conditions, that cash flows from operations and borrowings under the Amended Credit FacilityAgreement, or other sources of liquidity, will be sufficient to meet anticipated cash requirements for our current operations for at least the foreseeable future. However, wenext 12 months. We are continuously evaluating additional funding options from the U.S. government via the U.S. Treasury and various acquisitionFederal Reserve programs. We have in the past and divestiture opportunities. Inexpect to continue to evaluate the event that suchdebt and other capital markets and may seek to consummate one or more transactions including a transaction occurs,refinancing of a portion of our outstanding indebtedness, the availability underissuance of equity (including convertible securities), the Credit Facilityrepurchase or redemption of outstanding indebtedness, or may changeotherwise seek transactions to extend debt maturities or obtain additional flexibility. Any of these transactions could impact our financial results. We may also use asset sale proceeds for one or more of these purposes in accordance with our outstanding agreements. These transactions could increase our total amount of secured indebtedness or be fully utilizeddilutive to stockholders. However, the COVID-19 crisis may constrain the debt and additional funding sourcesother capital markets and our ability to access the debt and other capital markets may be needed.reduced. There can be no assurance that such funding sources will be available to us on terms favorable to us, if at all.
At June 30, 2019,2020, there was $58.4$55.8 million outstanding under our receivable securitization facility ("Securitization Facility").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 Amended Credit Facility.
The 5.25% Senior Notes due June 1, 2022 (the “2022 Notes”), the Company's long-term debt arrangements, including the 20216.250% Senior Secured Notes the 2022 Notes,due September 15, 2024 (the “2024 Notes”), and the 7.750% Senior Notes due August 15, 2025 Notes(the “2025 Notes”) (collectively, the "Senior Notes"), refer to Note 7.
Pursuant to the documentation governing the Senior Notes, 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.premiums; however, the Amended Credit Agreement restricts us from doing so. The Company is obligated to offer to repurchase the Senior Notes at specified prices as a result of certain change-of-controlchange-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.
For further information on the Company's long-term debt, see Note 7.
The indentures governing the Senior Notes, as well as the Amended Credit FacilityAgreement and Securitization Facility, contain covenants and restrictions 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
The only consolidated subsidiaries of the Company doesthat are not anticipate any violationsguarantors of the financial covenants,2022 Notes, the 2024 Notes and the 2025 Notes (the "Non-Guarantor Subsidiaries") are: (i) the receivables securitization special purpose entity, and (ii) the foreign operating subsidiaries.
The 2024 Notes and the guarantees are secured, subject to permitted liens, by second-priority liens on all assets of the Company and its ability to comply with these covenants is depended upon achieving earningssubsidiary guarantors (the “Collateral”) that secure all of the indebtedness under the Company’s Credit Facility and certain hedging and cash flow projections.
|
| As of and for the three months ended |
| |
Parent and Guarantor Summarized Financial Information |
| June 30, 2020 |
| |
Current assets |
| $ | 837,566 |
|
Noncurrent assets |
|
| 940,591 |
|
Current liabilities |
|
| 756,863 |
|
Noncurrent liabilities |
|
| 2,256,674 |
|
Due to/from Non-Guarantor Subsidiaries |
|
| 12,350 |
|
|
|
|
|
|
Net sales |
|
| 452,295 |
|
Gross profit |
|
| 94,968 |
|
Loss from continuing operations |
|
| (269,687 | ) |
Net loss |
|
| (269,689 | ) |
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, 2019.2020. 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, 2019,2020, 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, 2019,2020, 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, 2019.2020. There has been no material change in this information during the period covered by this report.
Item 4. Controls and Procedures.
(a) Evaluation of disclosure controls and procedures.
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports pursuant to the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As of June 30, 2019,2020, we completed an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 20192020..
(b) Changes in internal control over financial reporting.
There were no changes that occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
32
Part II. Other Information
Item 1. Legal Proceedings.
Not applicable.
Item 1A. Risk Factors.
Except as set forth below, there have been no material changes in our risk factors from those disclosed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the fiscal year ended March 31, 2019.
Our international sales and operations are subject to applicable laws relating to trade, export controls and foreign corrupt practices, the violation of which could adversely affect our operations.
We must comply with all applicable export control laws and regulations of the United States and other countries. United States laws and regulations applicable to us include the Arms Export Control Act, the International Traffic in Arms Regulations ("ITAR"), the Export Administration Regulations ("EAR") and the trade sanctions laws and regulations administered by the United States Department of the Treasury's Office of Foreign Assets Control ("OFAC"). EAR restricts the export of dual-use products and technical data to certain countries, while ITAR restricts the export of defense products, technical data and defense services. The U.S. Government agencies responsible for administering EAR and ITAR have significant discretion in the interpretation and enforcement of these regulations. We cannot provide services to certain countries subject to United States trade sanctions unless we first obtain the necessary authorizations from OFAC. In addition, we are subject to the Foreign Corrupt Practices Act, which generally bars bribes or unreasonable gifts to foreign governments or officials. We become subject to claims, investigations, and assessments related to these matters from time to time in the ordinary course of business. The investigation of possible violations of these laws, including internal investigations and compliance reviews that we may conduct from time to time, and the results of those investigations could be costly and disruptive, and may have a material adverse effect on our business.Violations of these laws or regulations could result in significant additional sanctions, including fines, more onerous compliance requirements, more extensive debarments from export privileges, loss of authorizations needed to conduct aspects of our international business and criminal penalties and may harm our ability to enter into contracts with the U.S. Government. A future violation of ITAR or the other regulations enumerated above could materially adversely affect our business, financial condition and results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Not applicable
.Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits.
Exhibit 104 | Cover Page Interactive Data File, formatted in iXBRL and contained in Exhibit 101. |
* Indicates management contract or compensatory plan or arrangement.
TRIUMPH GROUP, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Triumph Group, Inc. | ||||||||
(Registrant) | ||||||||
President and Chief Executive Officer | August 4, 2020 | |||||||
/s/ Daniel J. Crowley | (Principal Executive Officer) | |||||||
Daniel J. Crowley | ||||||||
Senior Vice President and Chief Financial Officer | August 4, 2020 | |||||||
/s/ James F. McCabe, Jr. | (Principal Financial Officer) | |||||||
James F. McCabe, Jr. | ||||||||
Vice President, Investor Relations and Controller | ||||||||
/s/ Thomas A. Quigley, III | (Principal Accounting Officer) | August | 4, 2020 | |||||
Thomas A. Quigley, III | ||||||||
35