Document
Table of Contents

United States
Securities and Exchange Commission
Washington, D.C. 20549

FORM 10-Q


ý
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended June 30, 2018

or

¨    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition Period From _________ to ________

Commission File Number: 1-12235

TRIUMPH GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware
 
51-0347963
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)

899 Cassatt Road, Suite 210, Berwyn, PA
 
19312
(Address of principal executive offices)
 
(Zip Code)

(610) 251-1000
(Registrant's telephone number, including area code)

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 S No £

Indicate by check mark whether the registrant has submitted electronically and has posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes S 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 x
Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)
Smaller reporting company o
Emerging growth company o
 
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. o
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 o    No x
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Common Stock, par value $0.001 per share, 49,812,122 shares outstanding as of August 7, 2018.


Table of Contents

TRIUMPH GROUP, INC.
INDEX
 
 
 
Page Number
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Condensed Consolidated Financial Statements June 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 1.
 
 
 
 
 
Item 1A.
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 3.
 
 
 
 
 
Item 4.
 
 
 
 
 
Item 5.
 
 
 
 
 
 
 
 
 
 
 



Table of Contents

Part I. Financial Information

Item 1. Financial Statements.

Triumph Group, Inc.
Condensed Consolidated Balance Sheets
(dollars in thousands, except per share data)
 
June 30,
2018
 
March 31,
2018
 
(unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
33,055

 
$
35,819

Trade and other receivables, less allowance for doubtful accounts of $4,458 and $4,032
337,245

 
376,612

Contract assets
537,332

 
37,573

Inventories, net of unliquidated progress payments of $0 and $387,146
533,982

 
1,427,169

Prepaid and other current assets
30,753

 
44,428

Assets held for sale
80,719

 
1,324

Total current assets
1,553,086

 
1,922,925

Property and equipment, net
732,300

 
726,003

Goodwill
587,571

 
592,828

Intangible assets, net
493,105

 
507,681

Other, net
53,905

 
57,627

Total assets
$
3,419,967

 
$
3,807,064

LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
 
 
 
Current liabilities:
 
 
 
Current portion of long-term debt
$
16,710

 
$
16,527

Accounts payable
514,907

 
418,367

Contract liabilities
474,644

 
321,191

Accrued expenses
225,093

 
235,914

Liabilities related to assets held for sale
29,588

 
440

Total current liabilities
1,260,942

 
992,439

Long-term debt, less current portion
1,503,664

 
1,421,757

Accrued pension and other postretirement benefits
465,595

 
483,887

Deferred income taxes
16,175

 
16,582

Other noncurrent liabilities
400,172

 
441,865

Stockholders’ (deficit) equity:
 
 
 
Common stock, $.001 par value, 100,000,000 shares authorized, 52,460,920 and 52,460,920 shares issued; 49,764,360 and 49,669,848 shares outstanding
51

 
51

Capital in excess of par value
850,552

 
851,280

Treasury stock, at cost, 2,696,560 and 2,791,072 shares
(176,038
)
 
(179,082
)
Accumulated other comprehensive loss
(383,828
)
 
(367,870
)
(Accumulated deficit) retained earnings
(517,318
)
 
146,155

Total stockholders’ (deficit) equity
(226,581
)
 
450,534

Total liabilities and stockholders’ equity
$
3,419,967

 
$
3,807,064


SEE ACCOMPANYING NOTES.

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Table of Contents

Triumph Group, Inc.
Condensed Consolidated Statements of Operations

(in thousands, except per share data)
(unaudited)

 
 
Three Months Ended June 30,
 
 
2018
 
2017
 
 
 
 
 
Net sales
 
$
832,900

 
$
781,689

Operating costs and expenses:
 
 
 
 
Cost of sales (exclusive of depreciation and amortization shown separately below)
 
770,214

 
645,778

Selling, general and administrative
 
81,656

 
80,248

Depreciation and amortization
 
38,812

 
39,131

Restructuring costs
 
4,047

 
17,500

Loss on assets held for sale
 
4,719

 

 
 
899,448

 
782,657

Operating loss
 
(66,548
)
 
(968
)
Non-service defined benefit income
 
(16,538
)
 
(19,377
)
Interest expense and other
 
25,493

 
21,018

Loss before income taxes
 
(75,503
)
 
(2,609
)
Income tax expense (benefit)
 
1,031

 
(678
)
Net loss
 
$
(76,534
)
 
$
(1,931
)
 
 
 
 
 
Loss per share—basic:
 
$
(1.54
)
 
$
(0.04
)
 
 
 
 
 
Weighted-average common shares outstanding—basic
 
49,552

 
49,341

 
 
 
 
 
Loss per share—diluted:
 
$
(1.54
)
 
$
(0.04
)
 
 
 
 
 
Weighted-average common shares outstanding—diluted
 
49,552

 
49,341

 
 
 
 
 
Dividends declared and paid per common share
 
$
0.04

 
$
0.04



SEE ACCOMPANYING NOTES.

2


Table of Contents

Triumph Group, Inc.
Condensed Consolidated Statements of Comprehensive Income
(dollars in thousands)
(unaudited)

 
 
Three Months Ended June 30,
 
 
2018
 
2017
 
 
 
 
 
Net loss
 
$
(76,534
)
 
$
(1,931
)
Other comprehensive (loss) income:
 
 
 
 
Foreign currency translation adjustment
 
(14,524
)
 
11,421

Defined benefit pension plans and other postretirement benefits:
 
 
 
 
Reclassifications from accumulated other comprehensive income - losses (gains):
 
 
 
 
Amortization of net loss
 
1,676

 
1,695

Recognized prior service credits
 
(2,075
)
 
(3,042
)
Total defined benefit pension plans and other postretirement benefits, net of taxes
 
(399
)
 
(1,347
)
Cash flow hedges:
 
 
 
 
Unrealized (loss) gain arising during period, net of tax of $125 and $0
 
(965
)
 
552

Reclassification of loss included in net earnings, net of tax of $35 and $0
 
(70
)
 
(369
)
Net unrealized (loss) gain on cash flow hedges, net of tax
 
(1,035
)
 
183

Total other comprehensive (loss) income
 
(15,958
)
 
10,257

Total comprehensive (loss) income
 
$
(92,492
)
 
$
8,326


SEE ACCOMPANYING NOTES.

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Table of Contents

Triumph Group, Inc.
Condensed Consolidated Statements of Cash Flows
(dollars in thousands) (unaudited)
 
Three Months Ended June 30,
 
2018
 
2017
 
 
 
 
Operating Activities
 
 
 
Net loss
$
(76,534
)
 
$
(1,931
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation and amortization
38,812

 
39,131

Amortization of acquired contract liabilities
(17,234
)
 
(29,473
)
Loss on assets held for sale
4,719

 

Other amortization included in interest expense
1,887

 
3,263

Recovery of doubtful accounts receivable
(14
)
 
(363
)
(Benefit) provision for deferred income taxes

 
(1,060
)
Employee stock-based compensation
2,462

 
(41
)
Changes in assets and liabilities, excluding the effects of acquisitions and dispositions of businesses:
 
 
 
Trade and other receivables
27,598

 
(54,380
)
Contract assets
(23,221
)
 
24,070

Inventories
(30,833
)
 
118,243

Prepaid expenses and other current assets
3,898

 
751

Accounts payable, accrued expenses and contract liabilities
23,341

 
(172,918
)
Accrued pension and other postretirement benefits
(18,691
)
 
(21,207
)
Other
(1,904
)
 
(3,133
)
Net cash used in operating activities
(65,714
)
 
(99,048
)
Investing Activities
 
 
 
Capital expenditures
(12,200
)
 
(12,085
)
Proceeds from sale of assets
664

 
1,351

Net cash used in investing activities
(11,536
)
 
(10,734
)
Financing Activities
 
 
 
Net increase in revolving credit facility
113,186

 
118,961

Proceeds from issuance of long-term debt and capital leases
19,046

 

Repayment of debt and capital lease obligations
(53,762
)
 
(33,268
)
Payment of deferred financing costs
(64
)
 
(7,160
)
Dividends paid
(1,988
)
 
(1,984
)
Repurchase of restricted shares for minimum tax obligation
(532
)
 
(296
)
Net cash provided by financing activities
75,886

 
76,253

Effect of exchange rate changes on cash
(1,400
)
 
864

Net change in cash
(2,764
)
 
(32,665
)
Cash and cash equivalents at beginning of period
35,819

 
69,633

Cash and cash equivalents at end of period
$
33,055

 
$
36,968


SEE ACCOMPANYING NOTES.

4



Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)

1.     BASIS OF PRESENTATION AND ORGANIZATION

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

The Company designs, engineers, manufactures, repairs and overhauls a broad portfolio of aerostructures, aircraft components, accessories, subassemblies and systems. The Company serves a broad, worldwide spectrum of the aviation industry, including original equipment manufacturers of commercial, regional, business, and military aircraft and aircraft components, as well as commercial and regional airlines and air cargo carriers.
For the fiscal year ended March 31, 2018, the Company has reclassified certain assets and liabilities within the condensed consolidated balance sheets for comparability purposes with the presentation for the period ended June 30, 2018.
Standards Recently Implemented
Adoption of ASU 2014-09
In May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”) that supersedes ASC 605 (“legacy GAAP”). Subsequently, the FASB issued several updates to ASU 2014-09, which are pending content or otherwise codified in Accounting Standards Codification (“ASC”) Topic 606 (“ASC 606”). ASU 2014-09 includes new guidance on costs related to a contract, which is codified in ASC Subtopic 340-40 (“ASC 340-40”). The Company adopted ASC 606 using the modified retrospective method (“method”) effective as of April 1, 2018 (“date of initial application”). Under this method, the cumulative effect of the adoption of ASC 606 is recognized as an adjustment to retained earnings on the date of initial application (“Transition Adjustment”), and the comparative financial statements for prior periods are not adjusted and continue to be reported under legacy GAAP. The Transition Adjustment was a decrease to retained earnings of $584,900. Financial information for fiscal years 2019 and 2018 is presented under ASC 606 and under legacy GAAP, respectively. The tables below reflect adjusted fiscal year 2019 financial statement amounts as if the Company had been reporting under legacy GAAP for items that are materially different.
The adoption of ASC 606 does not impact the Company's cash flows or the underlying economics of the Company's contracts with customers. However, the pattern and timing of revenue and profit recognition, as well as financial statement presentation and disclosures, has changed.
The significant changes and the qualitative and quantitative impact of the adoption of ASC 606 are noted below:
a.Revenue from Contracts with Customers
Generally, the Company no longer uses the units-of-delivery method, and the historical use of contract blocks to define contracts for accounting purposes has been replaced by accounting contracts as identified under ASC 606. The Company's accounting contracts under ASC 606 are for the specific number of units for which orders have been received, which is typically for fewer units than what was used to define contract blocks under legacy GAAP. In most of the Company's contracts, the customer has options or requirements to purchase additional products and services that do not represent material rights since the options are at their stand alone pricing.
The primary effect of the Company’s adoption of ASC 606 (outside of the Aerospace Structures segment) was to recognize revenue over time for certain of its contracts, which is a change from recognition based on shipping terms under the legacy GAAP accounting policy.

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Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)


b.Capitalized Pre-Production Costs
Under legacy GAAP, certain capitalized pre-production costs were deferred over the life of the contract block, in certain situations this is not permitted under ASC 606. Accordingly, capitalized pre-production costs of $865,843 (pre-tax), net of previously recognized forward loss reserves of $343,983 (pre-tax), were eliminated, resulting in a decrease to retained earnings in the Transition Adjustment.
c.Contract Assets and Contract Liabilities
Contract assets primarily represent revenues recognized for performance obligations that have been satisfied but for which amounts have not been billed. Contract assets in the amount of $565,414 were established in the Transition Adjustment.
Contract liabilities primarily represent cash received that is in excess of revenues recognized and is contingent upon the satisfaction of performance obligations. Contract liabilities in the amount of $288,287 were established in the Transition Adjustment, which reflects consideration received prior to the date of initial application that previously represented customer advances and additional forward losses due to change in block sizes. This liability will be recognized as revenue earlier if the options are not fully exercised, or immediately if the contract is terminated prior to the options being fully exercised.
d.Contract Costs
The Company’s accounting for pre-production, tooling and certain other costs has not changed since these costs generally do not fall within the scope of ASC 340-40, however certain related assets have been reclassified from inventory to property and equipment as they are costs to fulfill obligations beyond 1 year. Incurred production costs for anticipated contracts (satisfaction of performance obligations, which have commenced because the Company expects the customer to exercise options) continue to be classified as inventory.
e.Practical expedients
The Company has adopted ASC 606 only for contracts that were not substantially completed under legacy GAAP on the date of initial application. For these contracts, the Company has reflected the aggregate effect of all modifications executed prior to the date of initial application when identifying satisfied and unsatisfied performance obligations, for determining the transaction price and for allocating the transaction price.
The following tables summarize the impacts of adopting ASC 606 on the Company’s consolidated financial statements for the three months and period ended June 30, 2018.
 
For the Three Months Ended
 
As Reported June 30, 2018
 
Impact of Adoption of ASC Topic 606
 
As Adjusted June 30, 2018
Net Sales
$
832,900

 
$
(56,238
)
 
$
776,662

Cost of sales (exclusive of depreciation and amortization)
770,214

 
26,853

 
797,067

Selling, general and administrative
81,656

 
1,352

 
83,008

Interest expense and other
25,493

 
(2,288
)
 
23,205

Net loss *
(76,534
)
 
(82,155
)
 
(158,689
)
 
 
 
 
 
 
(Loss) earnings per share
 
 
 
 
 
Basic
$
(1.54
)
 
$
(1.66
)
 
$
(3.20
)
Diluted
$
(1.54
)
 
$
(1.66
)
 
$
(3.20
)
* The Company did not have a net tax effect on the Transition Adjustment due to its valuation allowance position.

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Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)

 
As Reported June 30, 2018
 
Impact of Adoption of ASC Topic 606
 
As Adjusted June 30, 2018
Assets
 
 
 
 
 
Trade and other receivables
$
337,245

 
$
(23,667
)
 
$
313,578

Contract assets, short term
537,332

 
(512,258
)
 
25,074

Inventories, net
533,982

 
797,105

 
1,331,087

Property and equipment, net
732,300

 
(37,850
)
 
694,450

Total assets
3,419,967

 
223,330

 
3,643,297

Liabilities
 
 
 
 
 
Contract liabilities
474,644

 
(288,747
)
 
185,897

Other noncurrent liabilities
400,172

 
9,327

 
409,499

Stockholders' (Deficit) Equity
 
 
 
 
 
Accumulated other comprehensive loss
(383,828
)
 
6

 
(383,822
)
Accumulated (deficit) retained earnings
(517,318
)
 
502,744

 
(14,574
)
Total liabilities and stockholders' (deficit) equity
3,419,967

 
223,330

 
3,643,297

Adoption of ASU 2017-07
In March 2017, the FASB issued ASU 2017-07, Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost ("ASU 2017-07"). ASU 2017-07 requires an employer to report the service cost component of net periodic pension benefit cost in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period, with other cost components presented separately from the service cost component and outside of income from operations. ASU 2017-07 also allows only the service cost component of net periodic pension benefit cost to be eligible for capitalization when applicable. ASU 2017-07 was effective for years beginning after December 15, 2017. The Company adopted this standard on April 1, 2018, applying the presentation requirements retrospectively. We elected to apply the practical expedient, which allows us to reclassify amounts disclosed previously in the employee benefit plans note as the basis for applying retrospective presentation for comparative periods as it is impracticable to determine the disaggregation of the cost components for amounts capitalized and amortized in those periods. Provisions related to presentation of the service cost component eligibility for capitalization were applied prospectively.
The effect of the retrospective presentation change related to the net periodic benefit cost of our defined benefit pension and postretirement plans on our condensed consolidated statements of operations was as follows:
 
For the Three Months Ended
 
As Previously Reported
June 30, 2017
 
Impact of Adoption of ASU 2017-07
 
As Adjusted June 30, 2017
Cost of sales
$
627,346

 
$
18,432

 
$
645,778

Selling, general and administrative
79,303

 
945

 
80,248

Non-service defined benefit income

 
(19,377
)
 
(19,377
)
For the three months ended June 30, 2018, the Company recorded a non-cash charge related to the adoption of ASU 2017-07 of $87,241 due to an inseparable change in estimate from a change in accounting principles, which is presented on the accompanying condensed consolidated statements of operations within "Cost of sales."
Adoption of ASU 2017-12
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”), which expands component and fair value hedging, specifies the presentation of the effects of hedging instruments, and eliminates the separate measurement and presentation of hedge

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Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)

ineffectiveness. ASU 2017-12 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company adopted ASU 2017-12 as of April 1, 2018. The adoption of ASU 2017-12 did not have a material impact on the Company’s condensed consolidated financial statements.
Standards Issued Not Yet Implemented
In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (“ASU 2018-02”). The guidance in ASU 2018-02 allows an entity to elect to reclassify the stranded tax effects related to the Tax Cuts and Jobs Act of 2017 (the “Act”) from accumulated other comprehensive income into retained earnings. ASU 2018-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company does not expect the adoption of this standard to have a material effect on the Company’s condensed consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) ("ASU 2016-02"). This update requires recognition of lease right of use assets and lease liabilities on the balance sheet of lessees. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and interim reporting periods within those years. Early adoption is permitted. ASU 2016-02 requires a modified retrospective transition approach and provides certain optional transition relief. The Company is currently evaluating the guidance to determine the impact it will have on the Company's condensed consolidated financial statements.

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed financial statements and accompanying notes. Actual results could differ from those estimates.
Management may make significant judgments when assessing the standalone selling prices of the Company’s products and services, the estimated amounts of variable consideration and related constraints, and the number of options likely to be exercised. The Company also estimates the cost of satisfying the performance obligations in its contracts and options that may extend over many years. Cost estimates reflect currently available information and the impact of any changes to cost estimates, based upon the facts and circumstances, are recorded in the period in which they become known.
The transaction price for a contract reflects the consideration the Company expects to receive for fully satisfying the performance obligations in the contract. The Company’s contracts with customers are typically for products and services to be provided at fixed stated prices but may also include variable consideration. Variable consideration may include, but is not limited to, unpriced contract modifications; cost sharing provisions; incentives and awards; non-warranty claims and assertions; provisions for non-conformance and rights to return; or other payments to, or receipts from, customers. The Company estimates the variable consideration using the expected value or the most likely amount based upon the facts and circumstances, available data and trends, and the history of resolving variability with specific customers.
The Company regularly commences work and incorporates customer-directed changes prior to negotiating pricing terms for engineering work, product modifications, and other statements of work. The Company's contractual terms typically provide for price negotiations after certain customer-directed changes have been accepted by the Company. Prices are estimated and related costs are deferred until they are contractually agreed upon with the customer. When a contract is modified, the Company evaluates whether additional distinct products and services have been promised and whether allocation of consideration is necessary. If not, the modification is treated as a change to the performance obligations within the existing contract, or otherwise accounted for as a new contract prospectively.
The Company allocates the consideration for a contract to the performance obligations on the basis of their relative standalone selling price. The Company estimates the likelihood of the amount of options that the customer is going to exercise when assessing the existence of performance obligations with respect to this allocation or for assessing the impact of loss contracts. The Company typically provides warranties on all the Company's products and services. Warranties are typically not priced separately, since customers cannot purchase them independently of the products or services under contract so they do not create performance obligations. Triumph's warranties generally provide assurance to the Company's customers that the products or services meet the specifications in the contract. In the event that there is a warranty claim because of a covered

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Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)

material or workmanship issue, the Company may be required to pay the customer for repairs or perform the repair. Provisions for estimated expenses related to service and product warranties and certain extraordinary rework are made at the time products are sold. These costs are accrued at the time of the sale and are recorded as cost of sales. These estimates are established using historical information on the nature, frequency, and the cost experience of warranty claims. In the case of new development products or new customers, the Company also considers factors, including management judgment and the type and nature of the new product or new customer, among others. Actual results could differ from those estimates and assumptions.
For the three months ended June 30, 2018, cumulative catch-up adjustments from changes in estimates, including changes in forward loss estimates, decreased net sales, operating income, net income and earnings per share by approximately $(6,423), $(3,626), $(3,626) and $(0.07), net of tax, respectively. In addition, the Company recorded a non-cash charge related to the adoption of ASU 2017-07 of $87,241 due to a change in estimate from a change in accounting principles, which is presented on the accompanying condensed consolidated statements of operations within "Cost of sales." For the three months ended June 30, 2017, cumulative catch-up adjustments from changes in estimates decreased operating income, net income and earnings per share by approximately $(5,289), $(3,915) and $(0.08), net of tax, respectively.
Revenue Recognition
A significant majority of the Company’s revenues are from long-term supply agreements with various aerospace manufacturers. The Company participates in its customers’ programs by providing design, development, manufacturing, and support services across its various segments. During the early stages of a program, this frequently involves non-recurring design and development services, including tooling. As the program matures, the Company provides recurring manufacturing of products in accordance with customer design and schedule requirements. Many contracts include clauses that provide sole supplier status to the Company for the duration of the program’s life. The Company's long-term supply agreements typically include fixed price volume-based terms and require the satisfaction of performance obligations for the duration of the program’s life.
The identification of an accounting contract with a customer and the related promises requires an assessment of each party’s rights and obligations regarding the products or services to be transferred, including an evaluation of termination clauses and presently enforceable rights and obligations. In general, these long-term supply agreements are legally governed by Master Supply Agreements (or General Terms & Agreement) under which special business provisions (or work package agreements) define specific program requirements. Purchase orders (or authorizations to proceed) are issued under these agreements to reflect presently enforceable rights and obligations for the units of products and services being purchased. The units for accounting purposes (“accounting contract”) are typically determined by the purchase orders. Revenue is recognized when the Company has a contract with presently enforceable rights and obligations, including an enforceable right to payment for work performed. Customers generally contract with the Company for requirements in a segment relating to a specific program, and the Company’s performance obligations consist of a wide range of engineering design services and manufactured components, as well as spare parts and repairs for OEMs. A single program may result in multiple contracts for accounting purposes, and within the respective contracts, non-recurring work elements and recurring work elements may result in multiple performance obligations. The Company generally contracts directly with its customers and is the principal in all current contracts.
Management considers a number of factors when determining the existence of a contract and the related performance obligations that include, but are not limited to, the nature and substance of the business exchange; the contractual terms and conditions; the promised products and services; the termination provisions in the contract; including the presently enforceable rights and obligations of the parties to the contract; the nature and execution of the customer’s ordering process and how the Company is authorized to perform work; whether the promised products and services are capable of being distinct and are distinct within the context of the contract; as well as how and when products and services are transferred to the customer.
Revenue is recognized when, or as, control of promised products or services transfers to a customer and is recognized in an amount that reflects the consideration that the Company expects to receive in exchange for those products or services. Revenue is recognized over time as work progresses, when the Company is entitled to the reimbursement of costs plus a reasonable profit for work performed for which the Company has no alternate use or when performing work on a customer-owned asset. For these performance obligations that are satisfied over time, the Company generally recognizes revenue using an input method with revenue amounts being recognized proportionately as costs are incurred relative to the total expected costs to satisfy the performance obligation. The Company believes that costs incurred as a portion of total estimated costs is an appropriate measure of progress toward satisfaction of the performance obligation since this measure reasonably depicts the progress of the work effort.

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Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)

Revenues for performance obligations that are not recognized over time are recognized at the point in time when control transfers to the customer (which is generally based on shipping terms). 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. Shipping and handling costs are not considered performance obligations and are included in cost of sales as incurred.
The transaction price for a contract reflects the consideration the Company expects to receive for fully satisfying the performance obligations in the contract. A subset of the Company’s current contracts include significant financing components because the timing of the transfer of the underlying products and services under contract are at the customers’ discretion. The Company's contracts with customers generally require payment under normal commercial terms after delivery. Payment terms are typically within 30 to 120 days of delivery. The total transaction price is allocated to each of the identified performance obligations using the relative standalone selling price to reflect the amount the Company expects to be entitled for transferring the promised products and services to the customer. A majority of the Company’s agreements with customers include options for future purchases. As allowed by ASC 606, for all of its contracts the Company has elected to exclude sales and other similar taxes from the transaction price, since the Company generally is not subject to collecting sales tax. As a result, the Company collections from customers for these taxes are on a net basis.
Standalone selling price is the price at which the Company would sell a promised good or service separately to a customer. Standalone selling prices are established at contract inception, and subsequent changes in transaction price are allocated on the same basis as at contract inception. When standalone selling prices for the Company’s products and services are generally not observable, the Company uses either the “Expected Cost plus a Margin” or "Adjusted Market Assessment" approaches to determine standalone selling price. Expected costs are typically derived from the available periodic forecast information. If a contract modification changes the overall transaction price of an existing contract, the Company allocates the new transaction price on the basis of the relative standalone selling prices of the performance obligations and cumulative adjustments, if any, are recorded in the current period.
The Company also identifies and estimates variable consideration for contractual provisions such as unpriced contract modifications, cost sharing provisions, and other receipts or payments to customers. The timing of satisfaction of performance obligations and actual receipt of payment from a customer may differ and affects the balances of the contract assets and liabilities.
For contracts that are deemed to be loss contracts, the Company establishes forward loss reserves for total estimated costs that are in excess of total estimated consideration in the period in which they become known. The Company records forward loss reserves for all performance obligations in the aggregate for the accounting contract.
Included in net sales of Integrated Systems and Aerospace Structures, is the non-cash amortization of acquired contract liabilities that were recognized as fair value adjustments through purchase accounting from various acquisitions. For the three months ended June 30, 2018 and 2017, the Company recognized $17,234 and $29,473 of non-cash amortization, respectively, into net sales on the accompanying condensed consolidated statements of operations.
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 noted in Note 13, Segments.






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Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)

The following table shows disaggregated revenues satisfied overtime and point in time (excluding intercompany sales) for the three months ended June 30, 2018:
 
Integrated Systems
 
Aerospace Structures
 
Product Support
 
Total
Revenue from contracts with performance obligations:
 
 
 
 
 
 
 
Satisfied over time
$
64,359

 
$
461,664

 
$
59,425

 
$
585,448

Satisfied at a point in time
174,027

 
68,684

 
4,741

 
247,452

 
$
238,386

 
$
530,348

 
$
64,166

 
$
832,900

The following tables shows disaggregated revenues by end market (excluding intercompany sales) for the three months ended June 30, 2018:
 
Integrated Systems
 
Aerospace Structures
 
Product Support
 
Total
Sales by end market:
 
 
 
 
 
 
 
Commercial aerospace
$
127,876

 
$
282,164

 
$
49,468

 
$
459,508

Military
83,054

 
57,922

 
9,385

 
150,361

Business jets
13,243

 
175,832

 
1,395

 
190,470

Regional
7,398

 
6,402

 
3,918

 
17,718

Non-aviation
6,815

 
8,028

 

 
14,843

Total
$
238,386

 
$
530,348

 
$
64,166

 
$
832,900

Concentration of Credit Risk
The Company’s trade accounts receivable are exposed to credit risk. However, the risk is limited due to the diversity of the customer base and the customer base’s wide geographical area. Trade accounts receivable from Boeing (representing commercial, military and space) represented approximately 21% and 10% of total trade accounts receivable as of June 30, 2018 and March 31, 2018, respectively. Trade accounts receivable from Gulfstream (representing commercial, military and space) represented approximately 8% and 16% of total trade accounts receivable as of June 30, 2018 and March 31, 2018, respectively. The Company had no other concentrations of credit risk of more than 10%.
Sales to Boeing for the three months ended June 30, 2018, were $274,296, or 33% of net sales, of which $51,593, $219,461, and $3,242 were from the Integrated Systems, Aerospace Structures and Product Support, respectively. Sales to Boeing for the three months ended June 30, 2017, were $257,311, or 33% of net sales, of which $53,530, $201,688 and $2,093 were from the Integrated Systems, Aerospace Structures and Product Support, respectively.
Sales to Gulfstream for the three months ended June 30, 2018, were $90,771, or 11% of net sales, of which $595, $90,128, and $48 were from the Integrated Systems, Aerospace Structures and Product Support, respectively. Sales to Gulfstream for the three months ended June 30, 2017, were $116,026, or 15% of net sales, of which $306, $115,710, and $10 were from the Integrated Systems, Aerospace Structures and Product Support, respectively.
No other single customer accounted for more than 10% of the Company’s net sales. However, the loss of any significant customer, including Boeing and Gulfstream, could have a material adverse effect on the Company and its operating subsidiaries.
Stock-Based Compensation
The Company recognizes compensation expense for share-based awards based on the fair value of those awards at the date of grant. Stock-based compensation expense for the three months ended June 30, 2018 and 2017, was $2,462 and $(41), respectively. The Company has classified share-based compensation within selling, general and administrative expenses to correspond with the same line item as the majority of the cash compensation paid to employees. Upon the exercise of stock options or vesting of restricted stock, the Company first transfers treasury stock, then issues new shares.

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Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)

Intangible Assets
The components of intangible assets, net, are as follows:
 
June 30, 2018
 
Weighted-
Average Life
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net
 
 
 
 
 
 
 
 
Customer relationships
17.2
 
$
604,266

 
$
(249,157
)
 
$
355,109

Product rights, technology and licenses
11.4
 
55,025

 
(42,369
)
 
12,656

Non-compete agreements and other
16.3
 
2,756

 
(1,010
)
 
1,746

Tradenames
10.0
 
150,000

 
(26,406
)
 
123,594

Total intangibles, net
 
 
$
812,047

 
$
(318,942
)
 
$
493,105

 
March 31, 2018
 
Weighted-
Average Life
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net
 
 
 
 
 
 
 
 
Customer relationships
17.3
 
$
606,148

 
$
(240,779
)
 
$
365,369

Product rights, technology and licenses
11.4
 
55,253

 
(41,858
)
 
13,395

Non-compete agreements and other
16.3
 
2,756

 
(965
)
 
1,791

Tradenames
10.3
 
150,000

 
(22,874
)
 
127,126

Total intangibles, net
 
 
$
814,157

 
$
(306,476
)
 
$
507,681

Amortization expense for the three months ended June 30, 2018 and 2017, was $13,233 and $14,847, respectively.
Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. When determining fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and also considers assumptions that market participants would use when pricing an asset or liability. The fair value hierarchy has three levels of inputs that may be used to measure fair value: Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities; Level 2—Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability; and Level 3—Unobservable inputs for the asset or liability. The Company has applied fair value measurements to its divestitures (see Note 3).
Warranty Reserves
A reserve has been established to provide for the estimated future cost of warranties on our delivered products. The Company periodically reviews the reserves and adjustments are made accordingly. A provision for warranty on products delivered is made on the basis of historical experience and identified warranty issues. Warranties cover such factors as non-conformance to specifications and defects in material and workmanship. The majority of the Company's agreements include a three-year warranty, although certain programs have warranties up to 20 years. The warranty reserves as of June 30, 2018 and March 31, 2018, were $66,433 and $69,588, respectively.
Supplemental Cash Flow Information
The Company received income tax refunds, net of payments of $7,715 and paid $2,749 for income taxes, net of refunds, for the three months ended June 30, 2018 and 2017, respectively.
The Company made interest payments of $12,734 and $24,007 for the three months ended June 30, 2018 and 2017, respectively.
During the three months ended June 30, 2018, the Company financed $1,846 of property and equipment additions through capital leases.

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Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)

As of June 30, 2018, the Company remains able to purchase an additional 2,277,789 shares under the existing stock repurchase program. However, there are certain restrictions placed on the repurchase program by the Company's lenders that prevent any repurchases at this time.
3.     DIVESTED OPERATIONS AND ASSETS HELD FOR SALE
In May 2018, the Company entered into a definitive agreement to divest Triumph Structures - Los Angeles, Inc. ("TS-LA") and Triumph Processing, Inc. ("TPI"). As a result of the sale of TS-LA and TPI, the Company recognized a loss of $4,719 which is presented on the accompanying condensed consolidated statements of operations as "Loss on assets held for sale." The transaction is subject to customary closing conditions and is expected to close in the first half of fiscal 2019. The operating results for TSLA and TPI are included in Aerospace Structures for the period ended June 30, 2018. The related assets and liabilities are shown as held for sale on the accompanying condensed consolidated balance sheets.
In March 2018, the Company sold all of the shares of Triumph Structures Long Island, LLC ("TS-LI") for cash proceeds of $9,500, and a note receivable of $1,400. As a result of the sale of TS-LI, the Company recognized a loss of $10,370. The operating results of TS-LI were included in Aerospace Structures through the date of divestiture.
In September 2017, the Company sold all of the shares of Triumph Processing - Embee Division, Inc. ("Embee") for total cash proceeds of $64,986. As a result of the sale of Embee, the Company recognized a loss of $17,857. The operating results of Embee were included in Integrated Systems through the date of divestiture.
In December 2016, the Company entered into a definitive agreement to divest Triumph Air Repair, the Auxiliary Power Unit Overhaul Operations of Triumph Aviation Services - Asia, Ltd. and Triumph Engines - Tempe ("Engines and APU") for total cash proceeds of $60,364. As a result, the Company recognized a loss of $14,263 on the sale. The operating results of Engines and APU were included in Product Support through the date of divestiture. The transaction closed during the quarter ended June 30, 2017. An option to purchase the repair part line of Triumph Aviation Services - Asia, Ltd. was executed by the buyer of Engines and APU in May 2018 for total cash proceeds of $17,794. This transaction is expected to close during the first half of fiscal 2019 and is expected to result in a gain. The related assets and liabilities are shown as held for sale on the accompanying condensed consolidated balance sheets.
The divestitures of these entities does not represent a strategic shift and is not expected to have a major effect on the Company's operations or financial results, as defined by ASC 205-20, Discontinued Operations; as a result, the divestitures do not meet the criteria to be classified as discontinued operations.
To measure the amount of impairment related to the divestitures, the Company compared the fair values of assets and liabilities at the evaluation dates with the carrying amounts at the end of the month prior to the respective evaluation dates. The assets and liabilities of the above divestitures and assets held for sale are categorized as Level 2 within the fair value hierarchy. The key assumption included the negotiated sales price of the assets and the assumptions of the liabilities (see Note 2 above for the definition of levels).
4.    CONTRACT ASSETS AND CONTRACT LIABILITIES
Contract assets primarily represent revenues recognized for performance obligations that have been satisfied but for which amounts have not been billed. No impairments to contract assets were recorded for the period ended June 30, 2018.
Contract liabilities are established for cash received that is in excess of revenues recognized and are contingent upon the satisfaction of performance obligations. Contract liabilities primarily consist of cash received on contracts for which revenue has been deferred since the Company has not fulfilled its obligation to the customer, along with provisions for forward losses due to changes in block size and performance obligations.
 
June 30, 2018
 
March 31, 2018
 
Change
Contract assets
$
537,332

 
$
37,573

 
$
499,759

Contract liabilities
(474,644
)
 
(321,191
)
 
(153,453
)
Net contract asset
$
62,688

 
$
(283,618
)
 
$
346,306


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Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)

The increase in contract assets reflects the effect of the adoption of ASC 606 of approximately $565,000, partially offset by revenue recognized during the period from performance obligations satisfied in previous periods of $6,423 and the net impact of additional unbilled revenues recorded in excess of revenue recognized during the period. The increase in contract liabilities reflects the effect of the adoption of ASC 606 of approximately $288,000 and the net impact of additional deferred revenues recorded in excess of revenue recognized during the period. For the period ended June 30, 2018, the Company recognized $46,504 of revenue that was included in the contract liability balance at the beginning of the period.

5.    PERFORMANCE OBLIGATIONS
As of June 30, 2018, the Company has the following unsatisfied, or partially unsatisfied, performance obligations that are expected to be recognized in the future as noted in the table below. The Company expects options to be exercised in addition to the amounts presented below.
 
Total
 
Less than
1 year
 
1-3 years
 
4-5 years
 
More than 5
years
Unsatisfied performance obligations
$
4,438,940

 
$
2,406,559

 
$
1,865,190

 
$
166,289

 
$
902


6.    INVENTORIES
Inventories are stated at the lower of cost (average-cost or specific-identification methods) or market. The components of inventories are as follows:
 
June 30, 2018
 
March 31, 2018
Raw materials
$
61,358

 
$
69,069

Work-in-process, including manufactured and purchased components
359,292

 
1,591,952

Finished goods
55,042

 
95,234

Rotable assets
58,290

 
58,060

Less: unliquidated progress payments

 
(387,146
)
Total inventories
$
533,982

 
$
1,427,169

At March 31, 2018, work-in-process inventory previously included capitalized pre-production costs on newer development programs. Capitalized pre-production costs include non-recurring engineering, planning and design, including applicable overhead, incurred before production is manufactured on a regular basis. Significant customer-directed work changes can also cause pre-production costs to be incurred. These costs are typically recovered over a contractually determined number of ship set deliveries.
Following the adoption of ASU 2014-09, the capitalized pre-production costs and forward loss provisions associated with these programs were recognized in the transition adjustment. At March 31, 2018, the balance of development program inventory, composed principally of capitalized pre-production costs, excluding progress payments related to the Company's contracts with Bombardier for the Global 7500 program ("Bombardier") and Embraer for the second generation E-Jet program ("Embraer") was as follows:
 
March 31, 2018
 
Inventory
 
Capitalized Pre-Production
 
Forward Loss Provision
 
Total Inventory, net
Bombardier
$
321,780

 
$
685,503

 
$
(343,000
)
 
$
664,283

Embraer
38,125

 
180,340

 
(983
)
 
217,482

Total
$
359,905

 
$
865,843

 
$
(343,983
)
 
$
881,765


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Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)

Under our contract for the Bombardier Global 7500 wing program ("Global 7500"), the Company has the right to design, develop and manufacture wing components for the Global 7500 program. The Global 7500 contract provides for fixed pricing and requires the Company to fund certain up-front development expenses, with certain milestone payments made by Bombardier.
The Global 7500 program charge resulted in the impairment of previously capitalized pre-production costs due to the combination of cost recovery uncertainty, higher than anticipated non-recurring costs and increased forecasted costs on recurring production. The increases in costs were driven by several factors, including: changing technical requirements, increased spending on the design and engineering phase of the program, and uncertainty regarding cost reduction and cost recovery initiatives with our customer and suppliers.
The Global 7500 program has continued to incur costs since March 2016 in support of the development and transition to production.
In May 2017, Triumph Aerostructures and Bombardier entered into a comprehensive settlement agreement that resolved all outstanding commercial disputes between them, including all pending litigation, related to the design, manufacture and supply of wing components for the Global 7500 business aircraft. The settlement resets the commercial relationship between the companies and allows each company to better achieve its business objectives going forward.
Further cost increases or an inability to meet revised recurring cost forecasts on the Global 7500 program may result in additional forward loss reserves in future periods, while improvements in future costs compared with current estimates may result in favorable adjustments if forward loss reserves are no longer required.
The Company is still in the early production stages for the Bombardier and Embraer programs, as these aircrafts are scheduled to enter service in fiscal 2019. Transition of these programs from development to recurring production levels is dependent upon the success of the programs achieving flight testing and certification, as well as the ability of the Bombardier and Embraer programs to generate acceptable levels of aircraft sales. The failure to achieve these milestones and level of sales or significant cost overruns may result in additional forward losses.

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Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)


7.    LONG-TERM DEBT
Long-term debt consists of the following:
 
June 30, 2018
 
March 31, 2018
 
 
 
 
Revolving line of credit
$
226,073

 
$
112,887

Receivable securitization facility
78,200

 
107,800

Capital leases
57,108

 
59,546

Senior notes due 2021
375,000

 
375,000

Senior notes due 2022
300,000

 
300,000

Senior notes due 2025
500,000

 
500,000

Less: Debt issuance costs
(16,007
)
 
(16,949
)
 
1,520,374

 
1,438,284

Less: Current portion
16,710

 
16,527

 
$
1,503,664

 
$
1,421,757

Revolving Credit Facility
In July 2017, the Company entered into a Ninth Amendment to the Credit Agreement (the “Ninth Amendment” and the existing Credit Agreement, as amended by the Ninth Amendment, the “Credit Agreement”) with the Administrative Agent and the Lenders party thereto to, among other things: (i) permit the Company to incur High Yield Indebtedness (as defined in the Credit Agreement) in an aggregate principal amount of up to $500,000, subject to the Company’s obligations to apply the net proceeds from an offering to repay the outstanding principal amount of the term loans in full; (ii) limit the mandatory prepayment provisions to eliminate the requirement that net proceeds received from the incurrence of Permitted Indebtedness (as defined in the Credit Agreement), including the High Yield Indebtedness, be applied to reduce the revolving credit commitments once the revolving credit commitments have been reduced to $800,000; (iii) amend certain covenants and other terms; and (iv) modify the current interest rate and letter of credit pricing tiers.
In connection with the Ninth Amendment to the Credit Agreement, the Company incurred $633 of financing costs. These costs, along with the $13,226 of unamortized financing costs subsequent to the 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 prior to the Ninth Amendment.
In May 2017, the Company entered into an Eighth Amendment to the Credit Agreement, among the Company and its lenders to, among other things: (i) eliminate the total leverage ratio financial covenant; (ii) increase the maximum permitted senior secured leverage ratio financial covenant applicable to each fiscal quarter, commencing with the fiscal quarter ended March 31, 2017, and to revise the step-downs applicable to such financial covenant; (iii) reduce the aggregate principal amount of commitments under the revolving line of credit to $850,000 from $1,000,000; (iv) modify the maturity date of the term loans so that all of the term loans will mature on March 31, 2019; and (v) establish a new higher pricing tier for the interest rate, commitment fee and letter of credit fee pricing provisions.
The obligations under the Credit Agreement and related documents are secured by liens on substantially all assets of the Company and its domestic subsidiaries pursuant to a Second Amended and Restated Guarantee and Collateral Agreement, dated as of November 19, 2013, among the administrative agent, the Company and the subsidiaries of the Company party thereto.
Pursuant to the Credit Agreement, the Company can borrow, repay and re-borrow revolving credit loans, and cause to be issued letters of credit, in an aggregate principal amount not to exceed $800,000 outstanding at any time. The Credit Agreement bears interest at either: (i) LIBOR plus between 1.50% and 3.50%; (ii) the prime rate; or (iii) an overnight rate at the option of the Company. The applicable interest rate is based upon the Company’s ratio of total indebtedness to earnings before interest, taxes, depreciation and amortization. In addition, the Company is required to pay a commitment fee of 0.50% on the

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Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)

unused portion of the Credit Agreement. The Company’s obligations under the Credit Agreement are guaranteed by the Company’s domestic subsidiaries.
At June 30, 2018, there were $226,073 in borrowings and $30,768 in letters of credit outstanding under the Revolving Line of Credit provisions of the Credit Agreement, primarily to support insurance policies. At March 31, 2018, there were $112,887 in borrowings and $30,641 in letters of credit outstanding under the Revolving Line of Credit provisions of the Credit Agreement, primarily to support insurance policies. The level of unused borrowing capacity under the Revolving Line of Credit provisions of the Credit Agreement varies from time to time depending in part upon its compliance with financial and other covenants set forth in the related agreement. The Credit Agreement contains certain affirmative and negative covenants, including limitations on specified levels of indebtedness to earnings before interest, taxes, depreciation and amortization, and interest coverage requirements, and includes limitations on, among other things, liens, mergers, consolidations, sales of assets, and incurrence of debt. If an event of default were to occur under the Credit Agreement, the lenders would be entitled to declare all amounts borrowed under it immediately due and payable. The occurrence of an event of default under the Credit Agreement could also cause the acceleration of obligations under certain other agreements. The Company is currently in compliance with all such covenants. Although the Company does not anticipate any violations of the financial covenants, its ability to comply with these covenants is dependent upon achieving earnings and cash flow projections. As of June 30, 2018, the Company had borrowing capacity under this agreement of $543,159 after reductions for borrowings, letters of credit outstanding under the facility and consideration of covenant limitations.
The Credit Agreement also provided for a variable rate term loan (the "2013 Term Loan"). The Company repaid the outstanding principal amount of the 2013 Term Loan in quarterly installments, on the first business day of each January, April, July and October. During August 2017, the 2013 Term Loan was paid in full with the proceeds from the Senior Notes due 2025 (see below).
The Company previously maintained an interest rate swap agreement to reduce its exposure to interest on the variable rate portion of its long-term debt. In conjunction with the repayment of the 2013 Term Loan, the Company terminated the interest rate swap receiving $280 upon settlement.
In July 2018, the Company, its subsidiary co-borrowers and guarantors entered into a Tenth Amendment to the Credit Agreement (the “Tenth Amendment”) and with the Administrative Agent and the Lenders party thereto. Among other things, the Tenth Amendment modifies certain financial covenants and other terms and lowers the capacity upon completion of certain asset sales and will automatically reduce to $700,000 at March 31, 2019.
Receivables Securitization Facility
In November 2017, the Company amended the Securitization Facility decreasing the purchase limit from $225,000 to $125,000 and extending the term through November 2020. In connection with the Securitization Facility, the Company sells on a revolving basis certain trade 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, 2018, the maximum amount available under the Securitization Facility was $125,000. Interest rates are based on LIBOR plus a program fee and a commitment fee. The program fee is 0.13% on the amount outstanding under the Securitization Facility. Additionally, the commitment fee is 0.50% on 100.00% of the maximum amount available under the Securitization Facility. The Company secures its trade accounts receivable, which are generally non-interest bearing, in transactions that are accounted for as borrowings pursuant to the Transfers and Servicing topic of the ASC 860.
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.




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Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)

Senior Notes Due 2021
On February 26, 2013, the Company issued $375,000 principal amount of 4.875% Senior Notes due 2021 (the "2021 Notes"). The 2021 Notes were sold at 100% of principal amount and have an effective interest yield of 4.875%. Interest on the 2021 Notes accrues at the rate of 4.875% per annum and is payable semiannually in cash in arrears on April 1 and October 1 of each year, commencing on October 1, 2013.
Senior Notes Due 2022
On June 3, 2014, the Company issued $300,000 principal amount of 5.250% Senior Notes due 2022 (the "2022 Notes"). The 2022 Notes were sold at 100% of principal amount and have an effective interest yield of 5.250%. Interest on the 2022 Notes accrues at the rate of 5.250% per annum and is payable semiannually in cash in arrears on June 1 and December 1 of each year, commencing on December 1, 2014.
Senior Notes Due 2025
On August 17, 2017, the Company issued $500,000 principal amount of 7.750% Senior Notes due 2025 (the "2025 Notes"). The 2025 Notes were sold at 100% of principal amount and have an effective interest yield of 7.750%. Interest on the 2025 Notes accrues at the rate of 7.750% per annum and is payable semiannually in cash in arrears on February 15 and August 15 of each year, commencing on February 15, 2018.
Financial Instruments Not Recorded at Fair Value
The carrying amounts of certain of our financial instruments, including cash and cash equivalents, accounts receivable and accounts payable, approximate fair value because of their short maturities (Level 1 inputs). Carrying amounts and the related estimated fair values of the Company’s financial instruments not recorded at fair value in the condensed consolidated financial statements are as follows:
 
June 30, 2018
 
March 31, 2018
 
Carrying
Value
 
Fair Value
 
Carrying
Value
 
Fair Value
Long-term debt
$
1,520,374

 
$
1,508,053

 
$
1,438,284

 
$
1,446,151

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

8.    LOSS PER SHARE
The following is a reconciliation between the weighted-average outstanding shares used in the calculation of basic and diluted loss per share:
 
 
Three Months Ended June 30,
 
 
(in thousands)
 
 
2018
 
2017
Weighted-average common shares outstanding – basic
 
49,552

 
49,341

Net effect of dilutive stock options and nonvested stock
 

 

Weighted-average common shares outstanding – diluted
 
49,552

 
49,341


18


Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)

 

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.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation referred to as the Tax Cuts and Jobs Act (the “Act”). The Act introduced tax reform that reduced the current corporate federal income tax rate from 35% to 21%, among other changes. The Act makes broad and complex changes to the U.S. tax code and it will take time to fully evaluate the impact of these changes on the Company. The Company has prepared a reasonable estimate around the impact of the Act and has recorded a provisional impact (as described in the SEC's Staff Accounting Bulletin 118) to the tax provision in the period ended March 31, 2018. While the Company has computed and recorded these provisional amounts, these will be finalized within the established measurement period (not to exceed one year) as additional data and information is gathered. The Company determined that the amounts recorded are provisional as adjustments may occur due to additional guidance from the Internal Revenue Service and as certain tax positions are finalized when the Company files its fiscal 2018 tax returns. As of June 30, 2018, the Company has not made revisions to the provisional tax impact of the Act. Any revisions will be included as an adjustment to the tax expense in the period in which the amounts are determined.
The Company is still evaluating the effects of the Act’s Global Intangible Low-Taxed Income (“GILTI”) provisions and has not adopted an accounting policy on whether the Company will account for GILTI as a period expense or record deferred taxes on temporary basis differences expected to reverse as GILTI in future years. The Company's accounting for the effects of the GILTI provision is incomplete; however, the Company has included estimated GILTI tax related to current year operations in the Company's annualized effective tax rate and has not provided additional GILTI on deferred items.
The Act also introduces base erosion and anti-abuse tax provisions (“BEAT”) for companies that meet certain thresholds by effectively excluding deductions on certain payments to foreign related entities. Although the Company's analysis of the tax effects of the BEAT provision is incomplete, the Company does not expect to be subject to the tax.
The Company has classified uncertain tax positions as noncurrent income tax liabilities unless expected to be paid in one year. Penalties and tax-related interest expense are reported as a component of income tax expense. As of June 30, 2018 and March 31, 2018, the total amount of accrued income tax-related interest and penalties was $341 and $327, respectively.

As of June 30, 2018 and March 31, 2018, the total amount of unrecognized tax benefits was $17,212 and $11,532, respectively, all 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, 2018, the Company has a valuation allowance against principally all of its net deferred tax assets given insufficient positive evidence to support the realization of the Company’s deferred tax assets.  The Company intends to continue maintaining a valuation allowance on its deferred tax assets until there is sufficient positive evidence to support the reversal of all or some portion of these allowances.  A reduction in the valuation allowance could result in a significant decrease in income tax expense in the period that the release is recorded.  However, the exact timing and amount of the reduction in its valuation allowance is unknown at this time and will be subject to the earnings level the Company achieves during fiscal 2019 as well as the Company's income in future periods.
The effective income tax rate for the three months ended June 30, 2018, was (1.4)% as compared to 26.0% for the three months ended June 30, 2017. For the three months ended June 30, 2018, the effective tax rate reflected a limitation on the recognition of tax benefits due to the full valuation allowance.
With few exceptions, the Company is no longer subject to U.S. federal income tax examinations for fiscal years ended before March 31, 2011, U.S. federal income tax examinations for fiscal years ended March 31, 2012 and 2013, state or local examinations for fiscal years ended before March 31, 2013, or foreign income tax examinations by tax authorities for fiscal years ended before March 31, 2011.


19


Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)

As of June 30, 2018, the Company is subject to examination in one state jurisdiction and one foreign jurisdiction. The Company has filed appeals in a prior state examination related to fiscal years ended March 31, 1999 through March 31, 2005. Because of net operating losses acquired as part of the acquisition of Vought, the Company is subject to U.S. federal income tax examinations and various state jurisdictions for the years ended December 31, 2001 and after, related to previously filed Vought tax returns. The Company believes appropriate provisions for all outstanding issues have been made for all jurisdictions and all open years.
10.    GOODWILL
The following is a summary of the changes in the carrying value of goodwill by reportable segment, from March 31, 2018 through June 30, 2018:
 
Integrated Systems
 
Product Support
 
Total
Balance, March 31, 2018
$
523,893

 
$
68,935

 
$
592,828

Effect of exchange rate changes
(5,240
)
 
(17
)
 
(5,257
)
Balance, June 30, 2018
$
518,653

 
$
68,918

 
$
587,571

As of March 31, 2018 and June 30, 2018, Aerospace Structures had goodwill of $1,399,128, which was fully impaired.

11.     PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
The Company sponsors several defined benefit pension plans covering some of its employees. Certain employee groups are ineligible to participate in the plans or have ceased to accrue additional benefits under the plans based upon their service to the Company or years of service accrued under the defined benefit pension plans. Benefits under the defined benefit plans are based on years of service and, for most non-represented employees, on average compensation for certain years. It is the Company’s policy to fund at least the minimum amount required for all qualified plans, using actuarial cost methods and assumptions acceptable under U.S. government regulations, by making payments into a separate trust.
In addition to the defined benefit pension plans, the Company provides certain healthcare and life insurance benefits for eligible retired employees. Such benefits are unfunded. Employees achieve eligibility to participate in these contributory plans upon retirement from active service if they meet specified age and years of service requirements. Election to participate for some employees must be made at the date of retirement. Qualifying dependents at the date of retirement are also 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 remeasurement, 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 remeasurement. 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.

20


Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)

Net Periodic Benefit Plan Costs
The components of net periodic benefit costs (income) for our postretirement benefit plans are shown in the following table:
 
Pension benefits
 
 
Three Months Ended June 30,
 
 
2018
 
2017
Components of net periodic benefit costs:
 
 
 
 
Service cost
 
$
830

 
$
1,120

Interest cost
 
19,921

 
18,788

Expected return on plan assets
 
(37,107
)
 
(38,048
)
Amortization of prior service credits
 
(907
)
 
(710
)
Amortization of net loss
 
4,180

 
3,477

Net periodic benefit income
 
$
(13,083
)
 
$
(15,373
)
 
Other postretirement benefits
 
 
Three Months Ended June 30,
 
 
2018
 
2017
Components of net periodic benefit costs:
 
 
 
 
Service cost
 
$
57

 
$
102

Interest cost
 
1,010

 
1,219

Amortization of prior service credits
 
(1,164
)
 
(2,328
)
Amortization of gain
 
(2,463
)
 
(1,775
)
Net periodic benefit income
 
$
(2,560
)
 
$
(2,782
)

21


Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)


12.     STOCKHOLDERS' EQUITY
Accumulated Other Comprehensive Loss
Changes in accumulated other comprehensive income (loss) ("AOCI") by component for the three months ended June 30, 2018 and 2017, respectively, were as follows:
 
 
Currency Translation Adjustment
 
Unrealized Gains and Losses on Derivative Instruments
 
Defined Benefit Pension Plans and Other Postretirement Benefits
 
Total (1)
Balance March 31, 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
)
Balance March 31, 2017
 
$
(87,212
)
 
$
2,153

 
$
(311,119
)
 
$
(396,178
)
   AOCI before reclassifications
 
11,421

 
552

 

 
11,973

   Amounts reclassified from AOCI
 

 
(369
)
 
(1,347
)
 
(1,716
)
 Net current period AOCI
 
11,421

 
183

 
(1,347
)
 
10,257

Balance June 30, 2017
 
$
(75,791
)
 
$
2,336

 
$
(312,466
)
 
$
(385,921
)

(1) Net of tax.


22


Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)


13.     SEGMENTS
The Company has three reportable segments: Integrated Systems, Aerospace Structures and Product Support. The Company’s reportable segments are aligned with how the business is managed and views the markets that the Company serves. The Chief Operating Decision Maker (the "CODM") evaluates performance and allocates resources based upon review of segment information. The CODM utilizes earnings before interest, income taxes, depreciation and amortization and pension (“Adjusted EBITDAP”) as a primary measure of segment profitability to evaluate performance of its segments and allocate resources.
Integrated Systems consists of the Company’s operations that provides 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 electro-mechanical actuation, power and control; a complete suite of aerospace gearbox solutions, including engine accessory gearboxes and helicopter transmissions; active and passive heat exchange technology; fuel pumps, fuel metering units and Full Authority Digital Electronic Control fuel systems; hydro-mechanical and electromechanical primary and secondary flight controls; and a broad spectrum of surface treatment options.
Aerospace Structures consists of the Company’s operations that supply commercial, business, regional and military manufacturers with large metallic and composite structures. Products include wings, wing boxes, fuselage panels, horizontal and vertical tails and sub-assemblies such as floor grids. Aerospace Structures also has the capability to engineer detailed structural designs in metal and composites. It also includes the Company’s operations that produce close-tolerance parts primarily to customer designs and model-based definition, including a wide range of aluminum, hard metal and composite structure capabilities. Capabilities include complex machining; gear manufacturing; sheet metal fabrication; forming; advanced composite and interior structures; joining processes such as welding, autoclave bonding and conventional mechanical fasteners; and a variety of special processes, including: super plastic titanium forming, aluminum and titanium chemical milling, and surface treatments.
Product Support consists of the Company’s operations that provide full life cycle solutions for commercial, regional and military aircraft. The Company’s extensive product and service offerings include full post-delivery value chain services that simplify the MRO supply chain. Through its line maintenance, component MRO and postproduction supply chain activities, Product Support is positioned to provide integrated planeside repair solutions globally. Capabilities include fuel tank repair, metallic and composite aircraft structures, nacelles, thrust reversers, interiors, auxiliary power units and a wide variety of pneumatic, hydraulic, fuel and mechanical accessories.
Segment Adjusted EBITDAP is total segment revenue reduced by operating expenses (less depreciation and amortization) identifiable with that segment. Corporate includes general corporate administrative costs and any other costs not identifiable with one of the Company’s segments, including loss on assets held for sale of $4,719 for the three months ended June 30, 2018.
The Company does not accumulate net sales information by product or service or groups of similar products and services and, therefore, the Company does not disclose net sales by product or service because to do so would be impracticable. Selected financial information for each reportable segment and the reconciliation of Adjusted EBITDAP, a non-GAAP financial measure, to operating income (loss) is as follows:

23


Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)

 
Three Months Ended June 30,
 
2018
 
2017
Net sales:
 
 
 
Integrated Systems
$
241,039

 
$
238,136

Aerospace Structures
532,387

 
483,314

Product Support
66,215

 
66,433

Elimination of inter-segment sales
(6,741
)
 
(6,194
)
 
$
832,900

 
$
781,689

 
 
 
 
(Loss) income before income taxes:
 
 
 
Operating income (loss):
 
 
 
Integrated Systems
$
35,409

 
$
46,982

Aerospace Structures (1)
(79,587
)
 
(22,488
)
Product Support
7,669

 
8,437

Corporate
(30,039
)
 
(33,899
)
 
(66,548
)
 
(968
)
Non-service defined benefit income
(16,538
)
 
(19,377
)
Interest expense and other
25,493

 
21,018

 
$
(75,503
)
 
$
(2,609
)
 
 
 
 
Depreciation and amortization:
 
 
 
Integrated Systems
$
7,555

 
$
9,951

Aerospace Structures
28,920

 
27,140

Product Support
1,670

 
1,738

Corporate
667

 
302

 
$
38,812

 
$
39,131

 
 
 
 
Amortization of acquired contract liabilities, net:
 
 
 
Integrated Systems
$
8,849

 
$
7,303

Aerospace Structures
8,385

 
22,170

 
$
17,234

 
$
29,473

 
 
 
 
Adjusted EBITDAP:
 
 
 
Integrated Systems (1)
$
34,115

 
$
49,630

Aerospace Structures (1)
28,189

 
(17,518
)
Product Support
9,339

 
10,175

Corporate
(24,653
)
 
(33,597
)
 
$
46,990

 
$
8,690

 
 
 
 
Capital expenditures:
 
 
 
Integrated Systems
$
1,609

 
$
2,565

Aerospace Structures
10,138

 
8,479

Product Support
348

 
261

Corporate
105

 
780

 
$
12,200

 
$
12,085





24


Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)

__________________
(1) Prior period information has been reclassified as a result of the Company's adoption of ASU 2017-07 on a retrospective basis in the fiscal year ended March 31, 2019. In accordance with the adoption of this guidance, prior year amounts related to the components of net periodic pension and postretirement benefit cost other than service costs have been reclassified from cost of sales and selling, general and administrative expense to non-service pension (benefit) on the condensed consolidated statements of operations for all periods presented. Accordingly, income of $435 and $18,942 for Integrated Systems and Aerospace Structures, respectively, was reclassified into other income for the three months ended June 30, 2017. The Company also recorded a non-cash charge related to the adoption of ASU 2017-07 of $87,241 due to an inseparable change in estimate from a change in accounting principles, which is presented on the accompanying condensed consolidated statements of operations within "Cost of sales."
 
June 30, 2018
 
March 31, 2018
Total Assets:
 
 
 
Integrated Systems
$
1,228,456

 
$
1,225,770

Aerospace Structures
1,874,924

 
2,260,416

Product Support
281,311

 
281,101

Corporate
35,276

 
39,777

 
$
3,419,967

 
$
3,807,064

During the three months ended June 30, 2018 and 2017, the Company had international sales of $226,571 and $178,407, respectively.

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

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





25


Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)


SUMMARY CONDENSED CONSOLIDATING BALANCE SHEETS:

 
June 30, 2018
 
Parent
 
Guarantor
 Subsidiaries
 
Non-Guarantor
 Subsidiaries
 
Eliminations
 
Consolidated
 Total
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
84

 
$
420

 
$
32,551

 
$

 
$
33,055

Trade and other receivables, net
1,885

 
85,591

 
249,769

 

 
337,245

Contract assets

 
524,524

 
12,808

 

 
537,332

Inventories

 
430,872

 
103,110

 

 
533,982

Prepaid expenses and other
10,041

 
8,231

 
12,481

 

 
30,753

Assets held for sale

 
79,366

 
1,353

 

 
80,719

Total current assets
12,010

 
1,129,004

 
412,072

 

 
1,553,086

Property and equipment, net
12,637

 
607,251

 
112,412

 

 
732,300

Goodwill and other intangible assets, net

 
961,684

 
118,992

 

 
1,080,676

Other, net
21,704

 
26,137

 
6,064

 

 
53,905

Intercompany investments and advances
1,453,808

 
81,541

 
72,889

 
(1,608,238
)
 

Total assets
$
1,500,159

 
$
2,805,617

 
$
722,429

 
$
(1,608,238
)
 
$
3,419,967

 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Current portion of long-term debt
$
1,139

 
$
15,571

 
$

 
$

 
$
16,710

Accounts payable
9,581

 
456,825

 
48,501

 

 
514,907

Accrued expenses
58,058

 
601,775

 
39,904

 

 
699,737

Liabilities related to assets held for sale

 
29,316

 
272

 

 
29,588

Total current liabilities
68,778

 
1,103,487

 
88,677

 

 
1,260,942

Long-term debt, less current portion
1,466,009

 
37,655

 

 

 
1,503,664

Intercompany advances
176,806

 
2,057,675

 
482,354

 
(2,716,835
)
 

Accrued pension and other postretirement benefits, noncurrent
6,531

 
459,064

 

 

 
465,595

Deferred income taxes and other
8,616

 
389,455

 
18,276

 

 
416,347

Total stockholders’ (deficit) equity
(226,581
)
 
(1,241,719
)
 
133,122

 
1,108,597

 
(226,581
)
Total liabilities and stockholders’ (deficit) equity
$
1,500,159

 
$
2,805,617

 
$
722,429

 
$
(1,608,238
)
 
$
3,419,967








26


Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)



SUMMARY CONDENSED CONSOLIDATING BALANCE SHEETS:
 
March 31, 2018
 
Parent
 
Guarantor
 Subsidiaries
 
Non-Guarantor
 Subsidiaries
 
Eliminations
 
Consolidated
 Total
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
44

 
$

 
$
35,775

 
$

 
$
35,819

Trade and other receivables, net
1,686

 
77,924

 
297,002

 

 
376,612

Contract assets

 
37,573

 

 

 
37,573

Inventories

 
1,312,747

 
114,422

 

 
1,427,169

Prepaid expenses and other
17,513

 
15,712

 
11,203

 

 
44,428

Assets held for sale

 

 
1,324

 

 
1,324

Total current assets
19,243

 
1,443,956

 
459,726

 

 
1,922,925

Property and equipment, net
11,984

 
594,437

 
119,582

 

 
726,003

Goodwill and other intangible assets, net

 
973,954

 
126,555

 

 
1,100,509

Other, net
21,930

 
29,904

 
5,793

 

 
57,627

Intercompany investments and advances
1,987,599

 
81,542

 
73,184

 
(2,142,325
)
 

Total assets
$
2,040,756

 
$
3,123,793

 
$
784,840

 
$
(2,142,325
)
 
$
3,807,064

 
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Current portion of long-term debt
$
903

 
$
15,624

 
$

 
$

 
$
16,527

Accounts payable
12,088

 
356,236

 
50,043

 

 
418,367

Accrued expenses
46,679

 
467,674

 
42,752

 

 
557,105

Liabilities related to assets held for sale

 

 
440

 

 
440

Total current liabilities
59,670

 
839,534

 
93,235

 

 
992,439

Long-term debt, less current portion
1,380,867

 
40,890

 

 

 
1,421,757

Intercompany advances
134,590

 
1,952,042

 
524,788

 
(2,611,420
)
 

Accrued pension and other postretirement benefits, noncurrent
6,484

 
477,403

 

 

 
483,887

Deferred income taxes and other
8,611

 
427,724

 
22,112

 

 
458,447

Total stockholders’ equity
450,534

 
(613,800
)
 
144,705

 
469,095

 
450,534

Total liabilities and stockholders’ equity
$
2,040,756

 
$
3,123,793

 
$
784,840

 
$
(2,142,325
)
 
$
3,807,064






27


Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)


CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME:

 
For the Three Months Ended June 30, 2018
 
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 divestitures
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

Income (loss) before income taxes
(13,282
)
 
(65,077
)
 
2,856

 

 
(75,503
)
Income (benefit) tax expense
24,482

 
(24,351
)
 
900

 

 
1,031

Net income (loss)
(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
)







28


Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME:

 
For the Three Months Ended June 30, 2017
 
Parent
 
Guarantor
 Subsidiaries
 
Non-Guarantor
 Subsidiaries
 
Eliminations
 
Consolidated
 Total
Net sales
$

 
$
715,090

 
$
87,911

 
$
(21,312
)
 
$
781,689

 
 
 
 
 
 
 
 
 
 
Operating costs and expenses:
 
 
 
 
 
 
 
 
 
Cost of sales

 
575,404

 
91,686

 
(21,312
)
 
645,778

Selling, general and administrative
22,989

 
44,853

 
12,406

 

 
80,248

Depreciation and amortization
302

 
34,773

 
4,056

 

 
39,131

Restructuring costs
10,547

 
6,446

 
507

 

 
17,500

 
33,838

 
661,476

 
108,655

 
(21,312
)
 
782,657

Operating (loss) income
(33,838
)
 
53,614

 
(20,744
)
 

 
(968
)
Intercompany interest and charges
(43,242
)