Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549
 
FORM 8-K
 
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
 
Date of Report (Date of earliest event reported): November 8, 2018
 
TRIUMPH GROUP, INC.
(Exact name of registrant as specified in its charter)
 
Delaware
 
1-12235
 
51-0347963
(State or other jurisdiction of
incorporation)
 
(Commission File Number)
 
(IRS Employer Identification
No.)
 
 
 
 
 
899 Cassatt Road, Suite 210
 
19312
Berwyn, Pennsylvania
 
(Zip Code)
(Address of principal executive offices)
 
 
 
(610) 251-1000
(Registrant's telephone number, including area code)
 
Not Applicable
(Former name or former address, if changed since last report.)
 
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
 
o     Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o     Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o     Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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







Item 2.02
 
Results of Operations and Financial Condition.
 
On November 8, 2018, Triumph Group, Inc. issued a press release announcing its financial results for the fiscal quarter ended September 30, 2018, and will conduct a conference call to further discuss the financial results.  The full text of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K.

The information in this Item 2.02 of this Current Report on Form 8-K and Exhibit 99.1 attached hereto shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.
Item 7.01
 
Regulation FD Disclosure

On the conference call referenced in Item 2.02 above, certain information will be presented. The information to be presented during such conference call is attached as Exhibit 99.2 to this Current Report on Form 8-K.
The information in this Item 7.01 of this Current Report on Form 8-K and Exhibit 99.2 attached hereto shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.

 `
Item 9.01
 
Financial Statements and Exhibits.
 
 
 
(d)       
 
Exhibits.
 
Exhibit No.
 
Description
 
 
 
 
 








Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
Date:
November 8, 2018
TRIUMPH GROUP, INC.
 
 
 
 
 
 
By:
/s/ Thomas A. Quigley, III
 
 
 
Thomas A. Quigley, III
 
 
 
Vice President and Controller




Exhibit


Exhibit 99.1
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12537993&doc=4    

NEWS RELEASE
Media Contact:
Michele Long
Phone (610) 251-1000
mmlong@triumphgroup.com
 
 
 
Investor Relations Contact:
Mike Pici
Phone (610) 251-1000
mpici@triumphgroup.com


TRIUMPH GROUP REPORTS SECOND QUARTER FISCAL 2019 RESULTS

Reaffirms Fiscal Year 2019 Net Sales, EPS and Cash Guidance

Reports Second Consecutive Quarter of Organic Sales Growth

Completes Divestiture of Long and Large Operations

BERWYN, Pa. - November 8, 2018 - Triumph Group, Inc. (NYSE: TGI) (“Triumph” or the “Company”) today reported financial results for its second quarter of fiscal year 2019, which ended September 30, 2018.

Second Quarter 2019 Highlights

Net sales were $855.1 million.
Operating loss was ($2.0) million. On an adjusted basis, operating income was $35.2 million
Net loss was ($14.7) million, or ($0.30) per share. On an adjusted basis, net income was $20.2 million, or $0.40 per diluted share.
Cash used in operations was ($131.5) million, and free cash use was ($143.5) million.
Management reaffirms guidance for fiscal year 2019 net sales, EPS and cash usage.
“Triumph made important progress against key operational and financial objectives during the second quarter and results were consistent with our expectations, keeping us on track to achieve our fiscal 2019 financial targets,” stated Daniel J. Crowley, Triumph’s president and chief executive officer. “All three of our segments generated organic sales growth on both a year-over-year and sequential basis as we ramped up production on various development and narrow-body programs. As expected, several new, high-quality wins fueled order momentum during the quarter, positioning us to maintain our top-line growth trajectory.”
Mr. Crowley continued, “While our second quarter cash usage increased relative to the first quarter as anticipated, we expect to reverse this trend in the second half of the fiscal year as we advance further towards resolutions on certain cash-intensive Aerospace Structures programs. We reaffirm cash guidance for fiscal 2019, reflecting our confidence that Triumph will meet its stated goal of being cash flow positive in the fourth quarter.”
  

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Mr. Crowley continued, “We remain focused on de-risking the portfolio and strengthening our backlog. During the quarter we closed on a previously announced divestiture in Aerospace Structures and identified other potential opportunities and we are on track to meet our goal of divesting businesses with approximately $300 million of revenue across the portfolio. We are confident that these actions will position Triumph for improved profitability and cash flow during the second half of the fiscal year. With momentum building and a clear path forward, we are well positioned to complete our turnaround and accelerate our objectives of delivering profitable growth and positive cash flow for shareholders.”


Second Quarter Fiscal Year 2019 Overview

After accounting for divestitures and the impact of the adoption of ASC 606, sales for the second quarter of fiscal 2019 were up 12% organically from the comparable prior year period. Sales growth was driven by increased shipments for narrow body programs such as the 737 and A320, military platforms such as aftermarket services on the KC-10 and C-17 and, development programs transitioning to production.
Second quarter operating loss of ($2.0) million included a $13.1 million loss on divestitures, $11.8 million of restructuring costs and $19.9 million related to a forward loss charge on the Global 7500 program, partially offset by a $7.6 million forward loss reduction related to a Gulfstream program in Aerospace Structures. Net loss for the second quarter of fiscal year 2019 was ($14.7) million, or ($0.30) per share. On an adjusted basis, net income was $20.2 million, or $0.40 per diluted share. Triumph’s results included the following:

($ millions except EPS)
 
      Pre-tax
 
    After-tax
 
Diluted EPS
 
Loss from Continuing Operations - GAAP
 
$
(14.2
)
 
$
(14.7
)
 
$
(0.30
)
 
 
 
 
 
 
 
 
 
Loss on divestitures
 
13.1

 
13.1

 
0.26

 
Global 7500 forward loss charge
 
19.9

 
17.6

 
0.35

 
Gulfstream forward loss reduction
 
(7.6
)
 
(6.7
)
 
(0.14
)
 
Refinancing costs
 
1.3

 
1.1

 
0.02

 
Transformation related costs:
 
 
 
 
 
 
 
Restructuring costs (cash)
 
11.8

 
9.8

 
0.20

 
 
 
 
 
 
 
 
 
Adjusted Income from Continuing Operations - non-GAAP
 
$
24.3

 
$
20.2

 
$
0.40

*
  *Difference due to rounding
 
 
 
 
 
 
 

The number of shares used in computing diluted earnings per share for the second quarter of fiscal year 2019 was 49.6 million.
Backlog was $4.3 billion, a 1% increase from the prior year period and down slightly on a sequential basis reflecting increased selectivity in pursuing new awards based on projected profitability and cash flow and the impact of divestitures in Aerospace Structures.

For the six-months ended September 30, 2018, cash flow used in operations was ($197.2) million, reflecting approximately ($132.0) million for the liquidation of customer advances and approximately ($173.0) million of cash used on the Global 7500 program.



2




Outlook

Based on anticipated aircraft production rates and completed divestitures, the Company continues to expect that net sales for fiscal year 2019 will be approximately $3.3 to $3.4 billion, up from fiscal 2018 as development programs enter production, and sales from continuing programs along with new wins offset waning programs.

The Company expects fiscal year 2019 earnings per share to be ($0.55) to $0.15, or $1.50 to $2.10 per diluted share, adjusted for pension accounting changes, certain forward loss charges (reductions), transformation related costs and loss on divestitures.

The Company expects fiscal year 2019 cash used in operations of ($150.0) to ($190.0) million, and free cash flow use of ($200.0) to ($250.0) million.

The Company’s current outlook reflects adjustments detailed in the attached tables but excludes the impact of any potential future divestitures.

Conference Call

Triumph Group will hold a conference call today, November 8th at 8:30 a.m. (ET) to discuss the second quarter fiscal year 2019 results. The conference call will be available live and archived on the Company’s website at http://www.triumphgroup.com. A slide presentation will be included with the audio portion of the webcast. An audio replay will be available from November 8th to November 15th by calling (855) 859-2056 (Domestic) or (404) 537-3406 (International), passcode #2154579.

About Triumph Group

Triumph Group, Inc., headquartered in Berwyn, Pennsylvania, designs, engineers, manufactures, repairs and overhauls a broad portfolio of aerospace and defense systems, components and structures. The company serves the global aviation industry, including original equipment manufacturers and the full spectrum of military and commercial aircraft operators.

More information about Triumph can be found on the Company’s website at www.triumphgroup.com.

Forward Looking Statements

Statements in this release which are not historical facts are forward-looking statements under the provisions of the Private Securities Litigation Reform Act of 1995, including statements of expectations of or assumptions about financial and operational performance, revenues, earnings per share, cash flow or use, cost savings and operational efficiencies and organizational restructurings. All forward-looking statements involve risks and uncertainties which could affect the Company’s actual results and could cause its actual results to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company. Further information regarding the important factors that could cause actual results to differ from projected results can be found in Triumph Group’s reports filed with the SEC, including our Annual Report on Form 10-K for the fiscal year ended March 31, 2018.

FINANCIAL DATA (UNAUDITED) ON FOLLOWING PAGES

3



FINANCIAL DATA (UNAUDITED)

TRIUMPH GROUP, INC. AND SUBSIDIARIES
(in thousands, except per share data)

 
 
Three Months Ended
 
Six Months Ended
 
 
September 30,
 
September 30,
CONDENSED STATEMENTS OF INCOME
 
2018
 
2017*
 
2018
 
2017*
 
 
 
 
 
 
 
 
 
Net sales
 
$
855,108

 
$
745,156

 
$
1,688,008

 
$
1,526,845

 
 
 
 
 
 
 
 
 
Cost of sales (exclusive of depreciation shown below)
 
724,474

 
598,403

 
1,494,688

 
1,244,210

Selling, general and administrative
 
69,551

 
75,442

 
151,208

 
155,689

Depreciation and amortization
 
38,134

 
40,868

 
76,945

 
79,999

Restructuring
 
11,832

 
10,101

 
15,879

 
27,602

Loss on divestiture
 
13,118

 
20,371

 
17,837

 
20,371

Operating loss
 
(2,001
)
 
(29
)
 
(68,549
)
 
(1,026
)
 
 
 
 
 
 
 
 
 
Interest expense and other
 
28,714

 
25,375

 
54,206

 
46,393

Non-service defined benefit income
 
(16,524
)
 
(18,877
)
 
(33,061
)
 
(38,283
)
Income tax expense (benefit)
 
485

 
(1,149
)
 
1,516

 
(1,827
)
 
 
 
 
 
 
 
 
 
Net loss
 
$
(14,676
)
 
$
(5,378
)
 
$
(91,210
)
 
$
(7,309
)
 
 
 
 
 
 
 
 
 
Earnings per share - basic:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss
 
$
(0.30
)
 
$
(0.11
)
 
$
(1.84
)
 
$
(0.15
)
 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding - basic
 
49,628

 
49,428

 
49,590

 
49,400

 
 
 
 
 
 
 
 
 
Earnings per share - diluted:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss
 
$
(0.30
)
 
$
(0.11
)
 
$
(1.84
)
 
$
(0.15
)
 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding - diluted
 
49,628

 
49,428

 
49,590

 
49,400

 
 
 
 
 
 
 
 
 
Dividends declared and paid per common share
 
$
0.04

 
$
0.04

 
$
0.08

 
$
0.08

* Adjusted for ASU 2017-07 (Pension)
 
 
 
 
 
 
 
 







4



(Continued)
 FINANCIAL DATA (UNAUDITED)
 
TRIUMPH GROUP, INC. AND SUBSIDIARIES
(dollars in thousands, except share data)
 
BALANCE SHEET
 
Unaudited
 
Audited
 
 
September 30,
 
March 31,
 
 
2018
 
2018
Assets
 
 
 
 
Cash and cash equivalents
 
$
33,227

 
$
35,819

Accounts receivable, net
 
377,138

 
376,612

Contract assets
 
569,934

 
37,573

Inventories, net of unliquidated progress payments of $0 and $387,146
 
533,583

 
1,427,169

Prepaid and other current assets
 
28,773

 
44,428

Assets held for sale
 
1,198

 
1,324

   Current assets
 
1,543,853

 
1,922,925

 
 
 
 
 
Property and equipment, net
 
714,022

 
726,003

Goodwill
 
586,518

 
592,828

Intangible assets, net
 
479,910

 
507,681

Other, net
 
51,080

 
57,627

 
 
 
 
 
Total assets
 
$
3,375,383

 
$
3,807,064

 
 
 
 
 
Liabilities & Stockholders' (Deficit) Equity
 
 
 
 
Current portion of long-term debt
 
$
14,993

 
$
16,527

Accounts payable
 
561,473

 
418,367

Contract liabilities
 
354,963

 
321,191

Accrued expenses
 
230,088

 
235,914

Liabilities related to assets held for sale
 
244

 
440

Current liabilities
 
1,161,761

 
992,439

 
 
 
 
 
Long-term debt, less current portion
 
1,613,046

 
1,421,757

Accrued pension and post-retirement benefits, noncurrent
 
447,684

 
483,887

Deferred income taxes, noncurrent
 
16,012

 
16,582

Other noncurrent liabilities
 
374,931

 
441,865

 
 
 
 
 
Stockholders' (Deficit) Equity:
 
 
 
 
Common stock, $.001 par value, 100,000,000 shares authorized, 52,460,920 and 52,460,920 shares issued
 
51

 
51

Capital in excess of par value
 
852,402

 
851,280

Treasury stock, at cost, 2,648,203 and 2,791,072 shares
 
(174,311
)
 
(179,082
)
Accumulated other comprehensive loss
 
(382,225
)
 
(367,870
)
(Accumulated deficit) retained earnings
 
(533,968
)
 
146,155

Total stockholders' (deficit) equity
 
(238,051
)
 
450,534

 
 
 
 
 
Total liabilities and stockholders' (deficit) equity
 
$
3,375,383

 
$
3,807,064








(Continued)
 FINANCIAL DATA (UNAUDITED)
 
TRIUMPH GROUP, INC. AND SUBSIDIARIES
(dollars in thousands, except share data)
 
 
Six Months Ended September 30,
 
2018
 
2017
 
 
 
 
Operating Activities
 
 
 
Net loss
$
(91,210
)
 
$
(7,309
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation and amortization
76,945

 
79,999

Amortization of acquired contract liabilities
(34,038
)
 
(57,371
)
Loss on divestitures
17,837

 
20,371

Other amortization included in interest expense
4,852

 
7,819

Provision for (recovery of) doubtful accounts receivable
212

 
(568
)
Benefit for deferred income taxes

 
(422
)
Employee stock-based compensation
5,728

 
3,418

Changes in assets and liabilities, excluding the effects of acquisitions and dispositions of businesses:
 
 
 
Trade and other receivables
(4,722
)
 
(40,434
)
Contract assets
6,129

 
20,756

Inventories
(49,981
)
 
(29,269
)
Prepaid expenses and other current assets
5,918

 
2,925

Accounts payable, accrued expenses and contract liabilities
(101,460
)
 
(246,118
)
Accrued pension and other postretirement benefits
(37,021
)
 
(46,049
)
Other
3,632

 
(6,813
)
Net cash used in operating activities
(197,179
)
 
(299,065
)
Investing Activities
 
 
 
Capital expenditures
(24,254
)
 
(22,775
)
Proceeds from sale of assets
41,037

 
67,882

Net cash provided by investing activities
16,783

 
45,107

Financing Activities
 
 
 
Net increase in revolving credit facility
219,773

 
87,393

Proceeds from issuance of long-term debt and capital leases
24,700

 
510,800

Repayment of debt and capital lease obligations
(58,823
)
 
(357,046
)
Payment of deferred financing costs
(1,922
)
 
(17,120
)
Dividends paid
(3,981
)
 
(3,970
)
Repurchase of restricted shares for minimum tax obligation
(548
)
 
(334
)
Net cash provided by financing activities
179,199

 
219,723

Effect of exchange rate changes on cash
(1,395
)
 
(1,729
)
Net change in cash
(2,592
)
 
(35,964
)
Cash and cash equivalents at beginning of period
35,819

 
69,633

Cash and cash equivalents at end of period
$
33,227

 
$
33,669



(Continued)
 FINANCIAL DATA (UNAUDITED)
 
TRIUMPH GROUP, INC. AND SUBSIDIARIES
(dollars in thousands)





SEGMENT DATA
 
Three Months Ended
 
Six Months Ended
 
 
September 30,
 
September 30,
 
 
2018
 
2017*
 
2018
 
2017*
Net Sales:
 
 
 
 
 
 
 
 
Integrated Systems
 
$
260,717

 
$
233,765

 
$
501,756

 
$
471,900

Aerospace Structures
 
528,367

 
447,772

 
1,060,753

 
931,088

Product Support
 
72,199

 
68,366

 
138,414

 
134,799

Elimination of inter-segment sales
 
(6,175
)
 
(4,747
)
 
(12,915
)
 
(10,942
)
 
 
$
855,108

 
$
745,156

 
$
1,688,008

 
$
1,526,845

 
 
 
 
 
 
 
 
 
Operating (Loss) Income:
 
 
 
 
 
 
 
 
Integrated Systems
 
$
39,866

 
$
41,641

 
$
75,275

 
$
88,624

Aerospace Structures
 
(22,744
)
 
(9,052
)
 
(102,331
)
 
(31,570
)
Product Support
 
11,514

 
11,233

 
19,183

 
19,670

Corporate
 
(30,637
)
 
(43,851
)
 
(60,676
)
 
(77,750
)
 
 
$
(2,001
)
 
$
(29
)
 
$
(68,549
)
 
$
(1,026
)
 
 
 
 
 
 
 
 
 
Operating Margin %
 
 
 
 
 
 
 
 
Integrated Systems
 
15.3
 %
 
17.8
 %
 
15.0
 %
 
18.8
 %
Aerospace Structures
 
(4.3
)%
 
(2.0
)%
 
(9.6
)%
 
(3.4
)%
Product Support
 
15.9
 %
 
16.4
 %
 
13.9
 %
 
14.6
 %
Consolidated
 
(0.2
)%
 
 %
 
(4.1
)%
 
(0.1
)%
 
 
 
 
 
 
 
 
 
Depreciation and Amortization:
 
 
 
 
 
 
 
 
Integrated Systems
 
$
7,384

 
$
9,588

 
$
14,939

 
$
19,539

Aerospace Structures
 
28,294

 
29,305

 
57,214

 
56,445

Product Support
 
1,664

 
1,667

 
3,334

 
3,405

Corporate
 
792

 
308

 
1,458

 
610

 
 
$
38,134

 
$
40,868

 
$
76,945

 
$
79,999

 
 
 
 
 
 
 
 
 
Amortization of Acquired Contract Liabilities:
 
 
 
 
 
 
 
 
Integrated Systems
 
$
(8,768
)
 
$
(9,299
)
 
$
(17,617
)
 
$
(16,602
)
Aerospace Structures
 
(8,036
)
 
(18,599
)
 
(16,421
)
 
(40,769
)
 
 
$
(16,804
)
 
$
(27,898
)
 
$
(34,038
)
 
$
(57,371
)
 
 
 
 
 
 
 
 
 
Capital Expenditures:
 
 
 
 
 
 
 
 
Integrated Systems
 
$
3,828

 
$
1,455

 
$
5,437

 
$
4,020

Aerospace Structures
 
7,077

 
7,796

 
17,215

 
16,275

Product Support
 
671

 
769

 
1,019

 
1,030

Corporate
 
478

 
670

 
583

 
1,450

 
 
$
12,054

 
$
10,690

 
$
24,254

 
$
22,775

 
 
 
 
 
 
 
 
 
* Adjusted for ASU 2017-7 (Pension)
 
 
 
 
 
 
 
 


7



(Continued)
 FINANCIAL DATA (UNAUDITED)
 
TRIUMPH GROUP, INC. AND SUBSIDIARIES
(dollars in thousands)
 
Non-GAAP Financial Measure Disclosures
 
We prepare and publicly release quarterly unaudited financial statements prepared in accordance with GAAP. In accordance with the Securities and Exchange Commission (“SEC”) guidance on Compliance and Disclosure Interpretations, we also disclose and discuss certain non-GAAP financial measures in our public releases. Currently, the non-GAAP financial measures that we disclose are Adjusted EBITDA and Adjusted EBITDAP. Adjusted EBITDA is our net income before interest, income taxes, amortization of acquired contract liabilities, curtailments, settlements and early retirement incentives, legal settlements, depreciation and amortization. Adjusted EBITDAP is Adjusted EBITDA less pension & other post-retirement benefits. We disclose Adjusted EBITDA and Adjusted EBITDAP on a consolidated basis and Adjusted EBITDAP on an operating segment basis in our earnings releases, investor conference calls, and filings with the SEC. The non-GAAP financial measures that we use may not be comparable to similarly titled measures reported by other companies. Also, in the future, we may disclose different non-GAAP financial measures in order to help our investors more meaningfully evaluate and compare our future results of operations to our previously reported results of operations.

We view Adjusted EBITDA and Adjusted EBITDAP as operating performance measures and, as such, we believe that the GAAP financial measure most directly comparable to it is net income. In calculating Adjusted EBITDA and Adjusted EBITDAP, we exclude from net income the financial items that we believe should be separately identified to provide additional analysis of the financial components of the day-to-day operation of our business. We have outlined below the type and scope of these exclusions and the material limitations on the use of these non-GAAP financial measures as a result of these exclusions. Adjusted EBITDA and Adjusted EBITDAP are not measurements of financial performance under GAAP and should not be considered as a measure of liquidity, as an alternative to net income (loss), income from continuing operations, or as an indicator of any other measure of performance derived in accordance with GAAP. Investors and potential investors in our securities should not rely on Adjusted EBITDA or Adjusted EBITDAP as substitutes for any GAAP financial measures, including net income (loss) or income from continuing operations. In addition, we urge investors and potential investors in our securities to carefully review the reconciliation of Adjusted EBITDA and Adjusted EBITDAP to net income set forth below, in our earnings releases and in other filings with the SEC and to carefully review the GAAP financial information included as part of our Quarterly Reports on Form 10-Q and our Annual Reports on Form 10-K that are filed with the SEC, as well as our quarterly earnings releases, and compare the GAAP financial information with our Adjusted EBITDA.
 
Adjusted EBITDA and Adjusted EBITDAP are used by management to internally measure our operating and management performance and by investors as a supplemental financial measure to evaluate the performance of our business that, when viewed with our GAAP results and the accompanying reconciliation, we believe provides additional information that is useful to gain an understanding of the factors and trends affecting our business. We have spent more than 20 years expanding our product and service capabilities partially through acquisitions of complementary businesses. Due to the expansion of our operations, which included acquisitions, our net income has included significant charges for depreciation and amortization. Adjusted EBITDA and Adjusted EBITDAP exclude these charges and provide meaningful information about the operating performance of our business, apart from charges for depreciation and amortization. We believe the disclosures of Adjusted EBITDA and Adjusted EBITDAP help investors meaningfully evaluate and compare our performance from quarter to quarter and from year to year. We also believe Adjusted EBITDA and Adjusted EBITDAP are measures of our ongoing operating performance because the isolation of non-cash income and expenses, such as amortization of acquired contract liabilities, depreciation and amortization, and non-operating items, such as interest and income taxes, provides additional information about our cost structure, and, over time, helps track our operating progress. In addition, investors, securities analysts and others have regularly relied on Adjusted EBITDA to provide a financial measure by which to compare our operating performance against that of other companies in our industry.
 
Set forth below are descriptions of the financial items that have been excluded from our net income to calculate Adjusted EBITDA and Adjusted EBITDAP and the material limitations associated with using this non-GAAP financial measure as compared to net income:
Divestitures may be useful for investors to consider because they reflect gains or losses from sale of operating units. We do not believe these earnings necessarily reflect the current and ongoing cash earnings related to our operations.



8



(Continued)
FINANCIAL DATA (UNAUDITED)
 
TRIUMPH GROUP, INC. AND SUBSIDIARIES
(dollars in thousands)
 
Non-GAAP Financial Measure Disclosures (continued)

Legal settlements may be useful to investors to consider because they reflect gains or losses from disputes with third parties. We do not believe that these gains or losses necessarily reflect the current and ongoing cash earnings related to our operations.
Non-service defined benefit income (inclusive of the adoption of ASU 2017-07) may be useful to investors to consider because they represent the cost of post-retirement benefits to plan participants, net of the assumption of returns on the plan's assets and are not indicative of the cash paid for such benefits. We do not believe these earnings (expenses) necessarily reflect the current and ongoing cash earnings related to our operations.
Amortization of acquired contract liabilities may be useful for investors to consider because it represents the non-cash earnings on the fair value of below market contracts acquired through acquisitions. We do not believe these earnings necessarily reflect the current and ongoing cash earnings related to our operations.
Amortization expenses may be useful for investors to consider because it represents the estimated attrition of our acquired customer base and the diminishing value of product rights and licenses. We do not believe these charges necessarily reflect the current and ongoing cash charges related to our operating cost structure.
Depreciation may be useful for investors to consider because they generally represent the wear and tear on our property and equipment used in our operations. We do not believe these charges necessarily reflect the current and ongoing cash charges related to our operating cost structure.
The amount of interest expense and other we incur may be useful for investors to consider and may result in current cash inflows or outflows. However, we do not consider the amount of interest expense and other to be a representative component of the day-to-day operating performance of our business.
Income tax expense may be useful for investors to consider because it generally represents the taxes which may be payable for the period and the change in deferred income taxes during the period and may reduce the amount of funds otherwise available for use in our business.  However, we do not consider the amount of income tax expense to be a representative component of the day-to-day operating performance of our business.
 
Management compensates for the above-described limitations of using non-GAAP measures by using a non-GAAP measure only to supplement our GAAP results and to provide additional information that is useful to gain an understanding of the factors and trends affecting our business.



9



(Continued)
FINANCIAL DATA (UNAUDITED)
 
TRIUMPH GROUP, INC. AND SUBSIDIARIES
(dollars in thousands)


The following table shows our Adjusted EBITDA and Adjusted EBITDAP reconciled to our net income for the indicated periods (in thousands):
 
 
Three Months Ended
 
Six Months Ended
 
 
September 30,
 
September 30,
 
 
2018
 
2017
 
2018
 
2017
Adjusted Earnings before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA):
 
 
 
 
 
 
 
 
Net Loss
 
$
(14,676
)
 
$
(5,378
)
 
$
(91,210
)
 
$
(7,309
)
 
 
 
 
 
 
 
 
 
Add-back:
 
 
 
 
 
 
 
 
     Income tax expense (benefit)
 
485

 
(1,149
)
 
1,516

 
(1,827
)
     Interest expense and other
 
28,714

 
25,375

 
54,206

 
46,393

   Loss on divestitures
 
13,118

 
20,371

 
17,837

 
20,371

   Pension settlement charge
 

 
523

 

 
523

Adoption of ASU 2017-07
 

 

 
87,241

 

     Amortization of acquired contract liabilities
 
(16,804
)
 
(27,898
)
 
(34,038
)
 
(57,371
)
     Depreciation and amortization
 
38,134

 
40,868

 
76,945

 
79,999

 
 
 
 
 
 
 
 
 
Adjusted Earnings before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA")
 
$
48,971

 
$
52,712

 
$
112,497

 
$
80,779

 
 
 
 
 
 
 
 
 
Non-service defined benefit income (excluding settlements)
 
(16,524
)
 
(19,400
)
 
(33,061
)
 
(38,806
)
 
 
 
 
 
 
 
 
 
Adjusted Earnings before Interest, Taxes, Depreciation and Amortization, and Pension ("Adjusted EBITDAP")
 
$
32,447

 
$
33,312

 
$
79,436

 
$
41,973

 
 
 
 
 
 
 
 
 
Net Sales
 
$
855,108

 
$
745,156

 
$
1,688,008

 
$
1,526,845

 
 
 
 
 
 
 
 
 
Net Loss Margin
 
(1.7
)%
 
(0.7
)%
 
(5.4
)%
 
(0.5
)%
 
 
 
 
 
 
 
 
 
Adjusted EBITDAP Margin
 
3.9
 %
 
4.6
 %
 
4.8
 %
 
2.9
 %




10



(Continued)
 FINANCIAL DATA (UNAUDITED)
 
TRIUMPH GROUP, INC. AND SUBSIDIARIES
(dollars in thousands)

Non-GAAP Financial Measure Disclosures (continued)

 
 
Three Months Ended September 30, 2018
 
 
 
 
 
Segment Data
 
Adjusted Earnings before Interest, Taxes, Depreciation and Amortization, and Pension (EBITDAP):
 
Total
 
Integrated Systems
 
Aerospace Structures
 
Product Support
 
Corporate/Eliminations
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Loss
 
$
(14,676
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Add-back:
 
 
 
 
 
 
 
 
 
 
 
Non-service defined benefit income
 
(16,524
)
 
 
 
 
 
 
 
 
 
Income tax expense
 
485

 
 
 
 
 
 
 
 
 
Interest expense and other
 
28,714

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating (Loss) Income
 
$
(2,001
)
 
$
39,866

 
$
(22,744
)
 
$
11,514

 
$
(30,637
)
 
Loss on divestitures
 
13,118

 

 

 

 
13,118

 
Amortization of acquired contract liabilities
 
(16,804
)
 
(8,768
)
 
(8,036
)
 

 

 
Depreciation and amortization
 
38,134

 
7,384

 
28,294

 
1,664

 
792

 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Earnings (Losses) before Interest, Taxes, Depreciation and Amortization, and Pension ("Adjusted EBITDAP")
 
$
32,447

 
$
38,482

 
$
(2,486
)
 
$
13,178

 
$
(16,727
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Sales
 
$
855,108

 
$
260,717

 
$
528,367

 
$
72,199

 
$
(6,175
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDAP Margin
 
3.9
%
 
15.3
%
 
(0.5
)%
 
18.3
%
 
n/a
 


















11



(Continued)
 FINANCIAL DATA (UNAUDITED)
 
TRIUMPH GROUP, INC. AND SUBSIDIARIES
(dollars in thousands)


Non-GAAP Financial Measure Disclosures (continued)

 
 
For the Six Months Ended September 30, 2018
 
 
 
 
 
Segment Data
 
Adjusted Earnings before Interest, Taxes, Depreciation and Amortization, and Pension (EBITDAP):
 
Total
 
Integrated Systems
 
Aerospace Structures
 
Product Support
 
Corporate/Eliminations
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Loss
 
$
(91,210
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Add-back:
 
 
 
 
 
 
 
 
 
 
 
Non-service defined benefit income
 
(33,061
)
 
 
 
 
 
 
 
 
 
Income tax expense
 
1,516

 
 
 
 
 
 
 
 
 
Interest expense and other
 
54,206

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating (Loss) Income
 
$
(68,549
)
 
$
75,275

 
$
(102,331
)
 
$
19,183

 
$
(60,676
)
 
Loss on divestitures
 
17,837

 

 

 

 
17,837

 
Adoption of ASU 2017-07
 
87,241

 

 
87,241

 

 

 
Amortization of acquired contract liabilities
 
(34,038
)
 
(17,617
)
 
(16,421
)
 

 

 
Depreciation and amortization
 
76,945

 
14,939

 
57,214

 
3,334

 
1,458

 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Earnings (Losses) before Interest, Taxes, Depreciation and Amortization, and Pension ("Adjusted EBITDAP")
 
$
79,436

 
$
72,597

 
$
25,703

 
$
22,517

 
$
(41,381
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Sales
 
$
1,688,008

 
$
501,756

 
$
1,060,753

 
$
138,414

 
$
(12,915
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDAP Margin
 
4.8
%
 
15.0
%
 
2.5
%
 
16.3
%
 
n/a
 


12



(Continued)
 FINANCIAL DATA (UNAUDITED)
 
TRIUMPH GROUP, INC. AND SUBSIDIARIES
(dollars in thousands)
 
Non-GAAP Financial Measure Disclosures (continued)
 
 
Three Months Ended September 30, 2017
 
 
 
 
 
Segment Data
 
Adjusted Earnings before Interest, Taxes, Depreciation and Amortization, and Pension (EBITDAP):
 
Total
 
Integrated Systems
 
Aerospace Structures
 
Product Support
 
Corporate / Eliminations
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss
 
$
(5,378
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Add-back:
 
 
 
 
 
 
 
 
 
 
 
Non-service defined benefit income
 
(18,877
)
 
 
 
 
 
 
 
 
 
Income tax benefit
 
(1,149
)
 
 
 
 
 
 
 
 
 
Interest expense and other
 
25,375

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating (Loss) Income
 
$
(29
)
 
$
41,641

 
$
(9,052
)
 
$
11,233

 
$
(43,851
)
 
Loss on divestitures
 
20,371

 

 

 

 
20,371

 
Amortization of acquired contract liabilities
 
(27,898
)
 
(9,299
)
 
(18,599
)
 

 

 
Depreciation and amortization
 
40,868

 
9,588

 
29,305

 
1,667

 
308

 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Earnings (Losses) before Interest, Taxes, Depreciation and Amortization, and Pension ("Adjusted EBITDAP")
 
$
33,312

 
$
41,930

 
$
1,654

 
$
12,900

 
$
(23,172
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Sales
 
$
745,156

 
$
233,765

 
$
447,772

 
$
68,366

 
$
(4,747
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDAP Margin
 
4.6%
 
18.7%
 
0.4%
 
18.9%
 
n/a
 










13



(Continued)
 FINANCIAL DATA (UNAUDITED)
 
TRIUMPH GROUP, INC. AND SUBSIDIARIES
(dollars in thousands)
 
Non-GAAP Financial Measure Disclosures (continued)
 
 
For the Six Months Ended September 30, 2017
 
 
 
 
 
Segment Data
 
Adjusted Earnings before Interest, Taxes, Depreciation and Amortization, and Pension (EBITDAP):
 
Total
 
Integrated Systems
 
Aerospace Structures
 
Product Support
 
Corporate / Eliminations
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss
 
$
(7,309
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Add-back:
 
 
 
 
 
 
 
 
 
 
 
Non-service defined benefit income
 
(38,283
)
 
 
 
 
 
 
 
 
 
Income tax benefit
 
(1,827
)
 
 
 
 
 
 
 
 
 
Interest expense and other
 
46,393

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating (Loss) Income
 
$
(1,026
)
 
$
88,624

 
$
(31,570
)
 
$
19,670

 
$
(77,750
)
 
Loss on divestitures
 
20,371

 

 

 

 
20,371

 
Amortization of acquired contract liabilities
 
(57,371
)
 
(16,602
)
 
(40,769
)
 

 

 
Depreciation and amortization
 
79,999

 
19,539

 
56,445

 
3,405

 
610

 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Earnings (Losses) before Interest, Taxes, Depreciation and Amortization, and Pension ("Adjusted EBITDAP")
 
$
41,973

 
$
91,561

 
$
(15,894
)
 
$
23,075

 
$
(56,769
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Sales
 
$
1,526,845

 
$
471,900

 
$
931,088

 
$
134,799

 
$
(10,942
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDAP Margin
 
2.9%
 
20.1%
 
(1.8)%
 
17.1%
 
n/a
 


14



(Continued)
 FINANCIAL DATA (UNAUDITED)
 
TRIUMPH GROUP, INC. AND SUBSIDIARIES
(dollars in thousands, except per share data)
 
Non-GAAP Financial Measure Disclosures (continued)

Adjusted income from continuing operations, before income taxes, adjusted income from continuing operations and adjusted income from continuing operations per diluted share, before non-recurring costs have been provided for consistency and comparability. These measures should not be considered in isolation or as alternatives to income from continuing operations before income taxes, income from continuing operations and income from continuing operations per diluted share presented in accordance with GAAP. The following tables reconcile income from continuing operations before income taxes, income from continuing operations, and income from continuing operations per diluted share, before non-recurring costs.

 
 
Three Months Ended
 
 
 
September 30, 2018
 
 
 
Pre-Tax
 
After-Tax
 
Diluted EPS
 
Loss from Continuing Operations - GAAP
 
$
(14,191
)
 
$
(14,676
)
 
$
(0.30
)
 
Adjustments:
 
 
 
 
 
 
 
Loss on divestitures
 
13,118

 
13,118

 
0.26

 
Global 7500 forward loss charge
 
19,926

 
17,621

 
0.35

 
Reduction of prior Gulfstream forward loss
 
(7,624
)
 
(6,742
)
 
(0.14
)
 
Restructuring costs
 
11,832

 
9,821

 
0.20

 
Refinancing costs
 
1,281

 
1,063

 
0.02

 
Adjusted Income from Continuing Operations - non-GAAP
 
$
24,342

 
$
20,204

 
$
0.40

*

 
 
For the Six Months Ended
 
 
 
 
September 30, 2018
 
 
 
 
Pre-Tax
 
After-Tax
 
Diluted EPS
 
FY19 EPS Guidance Range
Loss from Continuing Operations - GAAP
 
$
(89,694
)
 
$
(91,210
)
 
$
(1.84
)
 
$(1.20) - $(0.50)
Adjustments:
 
 
 
 
 
 
 
 
Adoption of ASU 2017-07
 
87,241

 
85,474

 
1.71

 
$1.71
Loss on divestitures
 
17,837

 
17,837

 
0.36

 
$0.36
Global 7500 forward loss charge
 
19,926

 
17,621

 
0.35

 
$0.35
Reduction of prior Gulfstream forward loss
 
(7,624
)
 
(6,742
)
 
(0.14
)
 
$(0.14)
Restructuring costs
 
15,879

 
13,180

 
0.26

 
$0.30 - $0.40
Refinancing costs
 
1,281

 
1,063

 
0.02

 
$0.02
Adjusted Income from Continuing Operations - non-GAAP
 
$
44,846

 
$
37,222

 
$
0.75

*
$1.50 - $2.10
         * Difference due to rounding
 
 
 
 
 
 
 
 


15



(Continued)
 FINANCIAL DATA (UNAUDITED)
 
TRIUMPH GROUP, INC. AND SUBSIDIARIES
(dollars in thousands, except per share data)
 
Non-GAAP Financial Measure Disclosures (continued)
 
 
Three Months Ended
 
 
 
September 30, 2017
 
 
 
Pre-Tax
 
After-Tax
 
Diluted EPS
 
Loss from Continuing Operations - GAAP
 
$
(6,527
)
 
$
(5,378
)
 
$
(0.11
)
 
Adjustments:
 
 
 
 
 
 
 
Loss on divestitures
 
20,371

 
20,371

 
0.41

 
Restructuring costs (non-cash - included in depreciation)
 
1,295

 
1,036

 
0.02

 
Restructuring costs (cash)
 
10,101

 
8,081

 
0.16

 
Refinancing costs
 
1,986

 
1,589

 
0.03

 
Adjusted Income from Continuing Operations - non-GAAP
 
$
27,226

 
$
25,699

 
$
0.52

*
 
 
For the Six Months Ended
 
 
 
September 30, 2017
 
 
 
Pre-Tax
 
After-Tax
 
Diluted EPS
 
Loss from Continuing Operations - GAAP
 
$
(9,136
)
 
$
(7,309
)
 
$
(0.15
)
 
Adjustments:
 
 
 
 
 
 
 
Loss on divestiture
 
20,371

 
20,371

 
0.41

 
Restructuring costs (non-cash - included in depreciation)
 
2,156

 
1,725

 
0.03

 
Restructuring costs (cash)
 
27,602

 
22,082

 
0.45

 
Refinancing costs
 
1,986

 
1,589

 
0.03

 
Adjusted Income from Continuing Operations - non-GAAP
 
$
42,979

 
$
38,458

 
$
0.78

*
* Difference due to rounding
 
 
 
 
 
 
 


The following table reconciles our Operating income to Adjusted Operating income as noted above.
 
 
Three Months Ended
 
For the Six Months Ended
 
 
September 30, 2018
 
September 30, 2017
 
September 30, 2018
 
September 30, 2017
Operating Loss - GAAP
 
$
(2,001
)
 
(29
)
 
$
(68,549
)
 
$
(1,026
)
 
 
 
 
 
 
 
 
 
Adjustments:
 
 
 
 
 
 
 
 
Adoption of ASU 2017-07
 

 

 
87,241

 

Loss on divestitures
 
13,118

 
20,371

 
17,837

 
20,371

Global 7500 forward loss charge
 
19,926

 

 
19,926

 

Reduction of prior Gulfstream forward loss
 
(7,624
)
 

 
(7,624
)
 

Restructuring costs (non-cash - included in depreciation)
 

 
1,295

 

 
2,156

Restructuring costs (cash)
 
11,832

 
10,101

 
15,879

 
27,602

Adjusted Operating Income - non-GAAP
 
$
35,251

 
$
31,738

 
$
64,710

 
$
49,103



16



(Continued)
 FINANCIAL DATA (UNAUDITED)
 
TRIUMPH GROUP, INC. AND SUBSIDIARIES
(dollars in thousands, except per share data)
 
Non-GAAP Financial Measure Disclosures (continued)

Cash provided by operations, is provided for consistency and comparability. We also use free cash flow as a key factor in planning for and consideration of strategic acquisitions and the repayment of debt. This measure should not be considered in isolation, as a measure of residual cash flow available for discretionary purposes, or as an alternative to operating results presented in accordance with GAAP. The following table reconciles cash provided by operations to free cash flow.

 
 
For the Three Months Ended
 
For the Six Months Ended
 
 
September 30,
 
September 30,
 
 
2018
 
2017
 
 
2018
 
2017
Cash flow from operations
 
$
(131,464
)
 
$
(200,017
)
 
 
$
(197,179
)
 
$
(299,065
)
Less:
 
 
 
 
 
 
 
 
 
Capital expenditures
 
(12,054
)
 
(10,690
)
 
 
(24,254
)
 
(22,775
)
Free cash flow
 
$
(143,518
)
 
$
(210,707
)
 
 
$
(221,433
)
 
$
(321,840
)
 
 
 
 
 
 
 
 
 
 
 
FY19 Cash Flow Guidance Range
 
 
 
 
Cash flow from operations
$(150,000) - $(190,000)
 
 
 
 
Less:
 
 
 
 
 
 
 
 
 
Capital expenditures
(50,000) - (60,000)
 
 
 
 
Free cash flow
$(200,000) - $(250,000)
 
 
 
 


We use "Net Debt to Capital" as a measure of financial leverage.  The following table sets forth the computation of Net Debt to Capital:
 
 
September 30,
 
March 31,
 
 
2018
 
2018
Calculation of Net Debt
 
 
 
 
Current portion
 
$
14,993

 
$
16,527

Long-term debt
 
1,613,046

 
1,421,757

Total debt
 
1,628,039

 
1,438,284

Plus: Deferred debt issuance costs
 
15,062

 
16,949

Less: Cash
 
(33,227
)
 
(35,819
)
Net debt
 
$
1,609,874

 
$
1,419,414

 
 
 
 
 
Calculation of Capital
 
 
 
 
Net debt
 
$
1,609,874

 
$
1,419,414

Stockholders' (deficit) equity
 
(238,051
)
 
450,534

Total capital
 
$
1,371,823

 
$
1,869,948

 
 
 
 
 
Percent of net debt to capital
 
117.4
%
 
75.9
%

17