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): February 7, 2019
 
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 February 7, 2019, Triumph Group, Inc. issued a press release announcing its financial results for the fiscal quarter ended December 31, 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:
February 7, 2019
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=12681748&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 THIRD QUARTER FISCAL 2019 RESULTS

Reports Third Consecutive Quarter of Organic Sales Growth

Reaffirms Fiscal Year 2019 Net Sales, EPS and Cash Guidance

On Track to Deliver Positive Free Cash Flow in Fourth Quarter


BERWYN, Pa. - February 7, 2019 - Triumph Group, Inc. (NYSE: TGI) (“Triumph” or the “Company”) today reported financial results for its third quarter of fiscal year 2019, which ended December 31, 2018.

Third Quarter 2019 Highlights

Net sales were $807.9 million.
Operating loss was ($16.9) million. On an adjusted basis, operating income was $37.6 million.
Net loss was ($30.9) million, or ($0.62) per share. On an adjusted basis, net income was $21.1 million, or $0.42 per diluted share.
Cash flow from operations was $4.1 million, and free cash use was ($6.5) million.
Management reaffirms guidance for fiscal year 2019 net sales, EPS and cash usage.
“Triumph continues to make strides towards the financial targets and strategic goals we’ve laid out for our fiscal 2019,” stated Daniel J. Crowley, Triumph’s president and chief executive officer. “Similar to the first two quarters of the fiscal year, during the third quarter we generated year-over-year organic sales growth as we ramped up production on several narrow-body and development programs. Additionally, on an adjusted basis, all three segments delivered sequential improvement in operating margins, reflecting the benefits of our ongoing cost optimization initiatives.”
Mr. Crowley continued, “Our cash usage trend remains on track with our previously stated guidance. We generated positive operating cash flow in the third quarter, and reduced our free cash use dramatically, both sequentially and year-over-year. We remain highly confident in our ability to deliver positive free cash flow for the fourth quarter of fiscal 2019. Looking ahead to 2020 and beyond, our recently announced portfolio

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actions enhance line of sight into our prospects for sustained positive free cash flow, and present us opportunities to improve our liquidity position.”
Mr. Crowley concluded, “We continue to reshape our portfolio, reducing our contract manufacturing structures work as evidenced by the divestitures of our Fabrication and Machining operations in our Aerospace Structures business, which represent approximately $310 million combined in sales over the trailing twelve month period. These transactions further our strategic shift towards our higher margin Integrated Systems and Product Support businesses. By becoming a smaller and more focused company, we believe we are on the path to unlocking the full potential of our most attractive business lines. Enhanced cash flow will enable us to deploy resources towards the pursuit of profitable growth and increased value for shareholders.”

Third Quarter Fiscal Year 2019 Overview

Triumph’s sales growth was 4% year over year. After accounting for divestitures and the impact of the adoption of ASC 606, sales for the third quarter of fiscal 2019 were up 7% organically from the comparable prior year period. Sales growth was driven by increased shipments for narrow body programs such as the 737, 787 and A320, military platforms, aftermarket accessory services and development programs transitioning to production.
Third quarter operating loss of ($16.9) million included $2.3 million of restructuring costs, $40.5 million, $9.2 million and $2.5 million related to forward loss charges on the Global 7500, E2 Jet and G280 programs, respectively. Net loss for the third quarter of fiscal year 2019 was ($30.9) million, or ($0.62) per share. On an adjusted basis, net income was $21.1 million, or $0.42 per diluted share. Triumph’s results included the following:

($ millions except EPS)
 
      Pre-tax
 
    After-tax
 
Diluted EPS
 
Loss from Continuing Operations - GAAP
 
$
(29.7
)
 
$
(30.9
)
 
$
(0.62
)
 
 
 
 
 
 
 
 
 
Global 7500 forward loss charge
 
40.5

 
40.5

 
0.81

 
E2 Jet program forward loss charge
 
9.2

 
7.6

 
0.15

 
G280 program forward loss charge
 
2.5

 
2.1

 
0.04

 
Transformation related costs:
 
 
 
 
 
 
 
Restructuring costs (cash)
 
2.3

 
1.9

 
0.04

 
 
 
 
 
 
 
 
 
Adjusted Income from Continuing Operations - non-GAAP
 
$
24.8

 
$
21.1

 
$
0.42

*
  *Difference due to rounding
 
 
 
 
 
 
 

The number of shares used in computing diluted earnings per share for the third quarter of fiscal year 2019 was 50.0 million.
Backlog was $4.3 billion, flat with the prior year period and 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 nine-months ended December 31, 2018, cash flow used in operations was ($193.1) million, reflecting approximately ($176.5) million for the liquidation of customer advances and approximately ($206.5) million of cash used on the Global 7500 program.



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Outlook

Based on anticipated aircraft production rates and excluding the impacts of pending 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 ($1.55) to ($2.10), 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 completed 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, February 7th at 8:30 a.m. (ET) to discuss the third 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 February 7th to February 14th by calling (855) 859-2056 (Domestic) or (404) 537-3406 (International), passcode #9986125.

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
 
Nine Months Ended
 
 
December 31,
 
December 31,
CONDENSED STATEMENTS OF INCOME
 
2018
 
2017*
 
2018
 
2017*
 
 
 
 
 
 
 
 
 
Net sales
 
$
807,895

 
$
775,246

 
$
2,495,903

 
$
2,302,091

 
 
 
 
 
 
 
 
 
Cost of sales (exclusive of depreciation shown below)
 
713,274

 
630,870

 
2,207,962

 
1,877,179

Selling, general and administrative
 
71,823

 
62,886

 
223,031

 
216,479

Depreciation and amortization
 
37,404

 
39,320

 
114,349

 
119,318

Impairment of intangible assets
 

 
190,227

 

 
190,227

Restructuring
 
2,327

 
6,149

 
18,206

 
33,751

Loss on divestiture
 

 

 
17,837

 
20,371

Operating loss
 
(16,933
)
 
(154,206
)
 
(85,482
)
 
(155,234
)
 
 
 
 
 
 
 
 
 
Interest expense and other
 
29,309

 
25,836

 
83,515

 
72,229

Non-service defined benefit income
 
(16,520
)
 
(34,502
)
 
(49,581
)
 
(72,787
)
Income tax expense (benefit)
 
1,223

 
(32,288
)
 
2,739

 
(34,115
)
 
 
 
 
 
 
 
 
 
Net loss
 
$
(30,945
)
 
$
(113,252
)
 
$
(122,155
)
 
$
(120,561
)
 
 
 
 
 
 
 
 
 
Earnings per share - basic:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss
 
$
(0.62
)
 
$
(2.29
)
 
$
(2.46
)
 
$
(2.44
)
 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding - basic
 
49,668

 
49,459

 
49,616

 
49,425

 
 
 
 
 
 
 
 
 
Earnings per share - diluted:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss
 
$
(0.62
)
 
$
(2.29
)
 
$
(2.46
)
 
$
(2.44
)
 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding - diluted
 
49,668

 
49,459

 
49,616

 
49,425

 
 
 
 
 
 
 
 
 
Dividends declared and paid per common share
 
$
0.04

 
$
0.04

 
$
0.12

 
$
0.12

* 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
 
 
December 31,
 
March 31,
 
 
2018
 
2018
Assets
 
 
 
 
Cash and cash equivalents
 
$
28,664

 
$
35,819

Accounts receivable, net
 
355,620

 
376,612

Contract assets
 
572,543

 
37,573

Inventories, net of unliquidated progress payments of $0 and $387,146
 
543,718

 
1,427,169

Prepaid and other current assets
 
30,529

 
44,428

Assets held for sale
 
1,744

 
1,324

   Current assets
 
1,532,818

 
1,922,925

 
 
 
 
 
Property and equipment, net
 
697,492

 
726,003

Goodwill
 
584,515

 
592,828

Intangible assets, net
 
465,619

 
507,681

Other, net
 
50,070

 
57,627

 
 
 
 
 
Total assets
 
$
3,330,514

 
$
3,807,064

 
 
 
 
 
Liabilities & Stockholders' (Deficit) Equity
 
 
 
 
Current portion of long-term debt
 
$
14,460

 
$
16,527

Accounts payable
 
540,265

 
418,367

Contract liabilities
 
314,994

 
321,191

Accrued expenses
 
241,167

 
235,914

Liabilities related to assets held for sale
 
231

 
440

Current liabilities
 
1,111,117

 
992,439

 
 
 
 
 
Long-term debt, less current portion
 
1,619,233

 
1,421,757

Accrued pension and post-retirement benefits, noncurrent
 
429,952

 
483,887

Deferred income taxes, noncurrent
 
17,338

 
16,582

Other noncurrent liabilities
 
429,371

 
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
 
852,843

 
851,280

Treasury stock, at cost, 2,612,847 and 2,791,072 shares
 
(171,771
)
 
(179,082
)
Accumulated other comprehensive loss
 
(390,629
)
 
(367,870
)
(Accumulated deficit) retained earnings
 
(566,991
)
 
146,155

Total stockholders' (deficit) equity
 
(276,497
)
 
450,534

 
 
 
 
 
Total liabilities and stockholders' (deficit) equity
 
$
3,330,514

 
$
3,807,064




5



(Continued)
 FINANCIAL DATA (UNAUDITED)
 
TRIUMPH GROUP, INC. AND SUBSIDIARIES
(dollars in thousands, except share data)
 
 
Nine Months Ended December 31,
 
2018
 
2017
 
 
 
 
Operating Activities
 
 
 
Net loss
$
(122,155
)
 
$
(120,561
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation and amortization
114,349

 
119,318

Impairment intangible assets

 
190,227

Amortization of acquired contract liabilities
(48,769
)
 
(91,862
)
Loss on divestitures
17,837

 
20,371

Curtailment and settlement gain, net

 
(14,576
)
Other amortization included in interest expense
6,811

 
9,791

Provision for (recovery of) doubtful accounts receivable
622

 
(365
)
Benefit for deferred income taxes

 
(24,432
)
Employee stock-based compensation
8,509

 
6,137

Changes in assets and liabilities, excluding the effects of acquisitions and dispositions of businesses:
 
 
 
Trade and other receivables
8,669

 
(26,508
)
Contract assets
6,240

 
15,954

Inventories
(61,563
)
 
(154,090
)
Prepaid expenses and other current assets
1,615

 
(1,376
)
Accounts payable, accrued expenses and contract liabilities
(72,639
)
 
(53,208
)
Accrued pension and other postretirement benefits
(55,150
)
 
(67,368
)
Other
2,508

 
(5,731
)
Net cash used in operating activities
(193,116
)
 
(198,279
)
Investing Activities
 
 
 
Capital expenditures
(34,824
)
 
(31,932
)
Proceeds from sale of assets
41,417

 
68,412

Net cash provided by investing activities
6,593

 
36,480

Financing Activities
 
 
 
Net increase in revolving credit facility
218,066

 
20,000

Proceeds from issuance of long-term debt and capital leases
45,000

 
531,500

Repayment of debt and capital lease obligations
(73,011
)
 
(369,261
)
Payment of deferred financing costs
(1,941
)
 
(17,729
)
Dividends paid
(5,975
)
 
(5,956
)
Repurchase of restricted shares for minimum tax obligation
(645
)
 
(369
)
Net cash provided by financing activities
181,494

 
158,185

Effect of exchange rate changes on cash
(2,126
)
 
(1,631
)
Net change in cash
(7,155
)
 
(5,245
)
Cash and cash equivalents at beginning of period
35,819

 
69,633

Cash and cash equivalents at end of period
$
28,664

 
$
64,388







6



(Continued)
 FINANCIAL DATA (UNAUDITED)
 
TRIUMPH GROUP, INC. AND SUBSIDIARIES
(dollars in thousands)
SEGMENT DATA
 
Three Months Ended
 
Nine Months Ended
 
 
December 31,
 
December 31,
 
 
2018
 
2017*
 
2018
 
2017*
Net Sales:
 
 
 
 
 
 
 
 
Integrated Systems
 
$
252,437

 
$
239,198

 
$
754,193

 
$
711,099

Aerospace Structures
 
490,337

 
473,273

 
1,551,090

 
1,404,359

Product Support
 
71,446

 
68,039

 
209,860

 
202,839

Elimination of inter-segment sales
 
(6,325
)
 
(5,264
)
 
(19,240
)
 
(16,206
)
 
 
$
807,895

 
$
775,246

 
$
2,495,903

 
$
2,302,091

 
 
 
 
 
 
 
 
 
Operating (Loss) Income:
 
 
 
 
 
 
 
 
Integrated Systems
 
$
39,947

 
$
42,216

 
$
115,221

 
$
130,839

Aerospace Structures
 
(49,813
)
 
(193,155
)
 
(152,143
)
 
(224,726
)
Product Support
 
11,421

 
12,399

 
30,604

 
32,069

Corporate
 
(18,488
)
 
(15,666
)
 
(79,164
)
 
(93,416
)
 
 
$
(16,933
)
 
$
(154,206
)
 
$
(85,482
)
 
$
(155,234
)
 
 
 
 
 
 
 
 
 
Operating Margin %
 
 
 
 
 
 
 
 
Integrated Systems
 
15.8
 %
 
17.6
 %
 
15.3
 %
 
18.4
 %
Aerospace Structures
 
(10.2
)%
 
(40.8
)%
 
(9.8
)%
 
(16.0
)%
Product Support
 
16.0
 %
 
18.2
 %
 
14.6
 %
 
15.8
 %
Consolidated
 
(2.1
)%
 
(19.9
)%
 
(3.4
)%
 
(6.7
)%
 
 
 
 
 
 
 
 
 
Depreciation and Amortization:
 
 
 
 
 
 
 
 
Integrated Systems
 
$
7,376

 
$
8,318

 
$
22,316

 
$
27,857

Aerospace Structures
 
27,673

 
28,898

 
84,888

 
85,342

Product Support
 
1,611

 
1,663

 
4,944

 
5,068

Corporate
 
744

 
441

 
2,201

 
1,051

 
 
$
37,404

 
$
39,320

 
$
114,349

 
$
119,318

 
 
 
 
 
 
 
 
 
Amortization of Acquired Contract Liabilities:
 
 
 
 
 
 
 
 
Integrated Systems
 
$
(8,172
)
 
$
(11,634
)
 
$
(25,789
)
 
$
(28,235
)
Aerospace Structures
 
(6,559
)
 
(22,858
)
 
(22,980
)
 
(63,627
)
 
 
$
(14,731
)
 
$
(34,492
)
 
$
(48,769
)
 
$
(91,862
)
 
 
 
 
 
 
 
 
 
Capital Expenditures:
 
 
 
 
 
 
 
 
Integrated Systems
 
$
3,951

 
$
1,903

 
$
9,388

 
$
5,923

Aerospace Structures
 
5,722

 
5,791

 
22,937

 
22,066

Product Support
 
852

 
599

 
1,871

 
1,629

Corporate
 
45

 
864

 
628

 
2,314

 
 
$
10,570

 
$
9,157

 
$
34,824

 
$
31,932

 
 
 
 
 
 
 
 
 
* 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 earnings 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
 
Nine Months Ended
 
 
December 31,
 
December 31,
 
 
2018
 
2017
 
2018
 
2017
Adjusted Earnings before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA):
 
 
 
 
 
 
 
 
Net Loss
 
$
(30,945
)
 
$
(113,252
)
 
$
(122,155
)
 
$
(120,561
)
 
 
 
 
 
 
 
 
 
Add-back:
 
 
 
 
 
 
 
 
     Income tax expense (benefit)
 
1,223

 
(32,288
)
 
2,739

 
(34,115
)
     Interest expense and other
 
29,309

 
25,836

 
83,515

 
72,229

   Loss on divestitures
 

 

 
17,837

 
20,371

   Pension settlement charge
 

 
(15,099
)
 

 
(14,576
)
Adoption of ASU 2017-07
 

 

 
87,241

 

     Amortization of acquired contract liabilities
 
(14,731
)
 
(34,492
)
 
(48,769
)
 
(91,862
)
     Depreciation and amortization
 
37,404

 
229,547

 
114,349

 
309,545

 
 
 
 
 
 
 
 
 
Adjusted Earnings before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA")
 
$
22,260

 
$
60,252

 
$
134,757

 
$
141,031

 
 
 
 
 
 
 
 
 
Non-service defined benefit income (excluding settlements)
 
(16,520
)
 
(19,403
)
 
(49,581
)
 
(58,211
)
 
 
 
 
 
 
 
 
 
Adjusted Earnings before Interest, Taxes, Depreciation and Amortization, and Pension ("Adjusted EBITDAP")
 
$
5,740

 
$
40,849

 
$
85,176

 
$
82,820

 
 
 
 
 
 
 
 
 
Net Sales
 
$
807,895

 
$
775,246

 
$
2,495,903

 
$
2,302,091

 
 
 
 
 
 
 
 
 
Net Loss Margin
 
(3.8
)%
 
(14.6
)%
 
(4.9
)%
 
(5.2
)%
 
 
 
 
 
 
 
 
 
Adjusted EBITDAP Margin
 
0.7
 %
 
5.5
 %
 
3.5
 %
 
3.7
 %




10



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

Non-GAAP Financial Measure Disclosures (continued)
 
 
Three Months Ended December 31, 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
 
$
(30,945
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Add-back:
 
 
 
 
 
 
 
 
 
 
 
Non-service defined benefit income
 
(16,520
)
 
 
 
 
 
 
 
 
 
Income tax expense
 
1,223

 
 
 
 
 
 
 
 
 
Interest expense and other
 
29,309

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating (Loss) Income
 
$
(16,933
)
 
$
39,947

 
$
(49,813
)
 
$
11,421

 
$
(18,488
)
 
Amortization of acquired contract liabilities
 
(14,731
)
 
(8,172
)
 
(6,559
)
 

 

 
Depreciation and amortization
 
37,404

 
7,376

 
27,673

 
1,611

 
744

 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Earnings (Losses) before Interest, Taxes, Depreciation and Amortization, and Pension ("Adjusted EBITDAP")
 
$
5,740

 
$
39,151

 
$
(28,699
)
 
$
13,032

 
$
(17,744
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Sales
 
$
807,895

 
$
252,437

 
$
490,337

 
$
71,446

 
$
(6,325
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDAP Margin
 
0.7
%
 
16.0
%
 
(5.9
)%
 
18.2
%
 
n/a
 

 
 
Nine Months Ended December 31, 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
 
$
(122,155
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Add-back:
 
 
 
 
 
 
 
 
 
 
 
Non-service defined benefit income
 
(49,581
)
 
 
 
 
 
 
 
 
 
Income tax expense
 
2,739

 
 
 
 
 
 
 
 
 
Interest expense and other
 
83,515

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating (Loss) Income
 
$
(85,482
)
 
$
115,221

 
$
(152,143
)
 
$
30,604

 
$
(79,164
)
 
Loss on divestitures
 
17,837

 

 

 

 
17,837

 
Adoption of ASU 2017-07
 
87,241

 

 
87,241

 

 

 
Amortization of acquired contract liabilities
 
(48,769
)
 
(25,789
)
 
(22,980
)
 

 

 
Depreciation and amortization
 
114,349

 
22,316

 
84,888

 
4,944

 
2,201

 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Earnings (Losses) before Interest, Taxes, Depreciation and Amortization, and Pension ("Adjusted EBITDAP")
 
$
85,176

 
$
111,748

 
$
(2,994
)
 
$
35,548

 
$
(59,126
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Sales
 
$
2,495,903

 
$
754,193

 
$
1,551,090

 
$
209,860

 
$
(19,240
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDAP Margin
 
3.5
%
 
15.3
%
 
(0.2
)%
 
16.9
%
 
n/a
 


11



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

Non-GAAP Financial Measure Disclosures (continued)
 
 
Three Months Ended December 31, 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
 
$
(113,252
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Add-back:
 
 
 
 
 
 
 
 
 
 
 
Non-service defined benefit income
 
(34,502
)
 
 
 
 
 
 
 
 
 
Income tax benefit
 
(32,288
)
 
 
 
 
 
 
 
 
 
Interest expense and other
 
25,836

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating (Loss) Income
 
$
(154,206
)
 
$
42,216

 
$
(193,155
)
 
$
12,399

 
$
(15,666
)
 
Amortization of acquired contract liabilities
 
(34,492
)
 
(11,634
)
 
(22,858
)
 

 

 
Depreciation and amortization
 
229,547

 
8,318

 
219,125

 
1,663

 
441

 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Earnings (Losses) before Interest, Taxes, Depreciation and Amortization, and Pension ("Adjusted EBITDAP")
 
$
40,849

 
$
38,900

 
$
3,112

 
$
14,062

 
$
(15,225
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Sales
 
$
775,246

 
$
239,198

 
$
473,273

 
$
68,039

 
$
(5,264
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDAP Margin
 
5.5%
 
17.1%
 
0.7%
 
20.7%
 
n/a
 

 
 
Nine Months Ended December 31, 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
 
$
(120,561
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Add-back:
 
 
 
 
 
 
 
 
 
 
 
Non-service defined benefit income
 
(72,787
)
 
 
 
 
 
 
 
 
 
Income tax benefit
 
(34,115
)
 
 
 
 
 
 
 
 
 
Interest expense and other
 
72,229

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating (Loss) Income
 
$
(155,234
)
 
$
130,839

 
$
(224,726
)
 
$
32,069

 
$
(93,416
)
 
Loss on divestitures
 
20,371

 

 

 

 
20,371

 
Amortization of acquired contract liabilities
 
(91,862
)
 
(28,235
)
 
(63,627
)
 

 

 
Depreciation and amortization
 
309,545

 
27,857

 
275,569

 
5,068

 
1,051

 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Earnings (Losses) before Interest, Taxes, Depreciation and Amortization, and Pension ("Adjusted EBITDAP")
 
$
82,820

 
$
130,461

 
$
(12,784
)
 
$
37,137

 
$
(71,994
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Sales
 
$
2,302,091

 
$
711,099

 
$
1,404,359

 
$
202,839

 
$
(16,206
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDAP Margin
 
3.7%
 
19.1%
 
(1.0)%
 
18.3%
 
n/a
 


12



(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
 
 
 
December 31, 2018
 
 
 
Pre-Tax
 
After-Tax
 
Diluted EPS
 
Loss from Continuing Operations - GAAP
 
$
(29,722
)
 
$
(30,945
)
 
$
(0.62
)
 
Adjustments:
 
 
 
 
 
 
 
Global 7500 forward loss charge
 
40,498

 
40,498

 
0.81

 
E2 Jet program forward loss charge
 
9,162

 
7,604

 
0.15

 
G280 program forward loss charge
 
2,516

 
2,088

 
0.04

 
Restructuring costs
 
2,327

 
1,891

 
0.04

 
Adjusted Income from Continuing Operations - non-GAAP
 
$
24,781

 
$
21,136

 
$
0.42

 

 
 
Nine Months Ended
 
 
 
 
December 31, 2018
 
 
 
 
Pre-Tax
 
After-Tax
 
Diluted EPS
 
FY19 EPS Guidance Range
Loss from Continuing Operations - GAAP
 
$
(119,416
)
 
$
(122,155
)
 
$
(2.46
)
 
$(1.55) - $(2.10)
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
 
60,424

 
57,664

 
1.16

 
$1.16
E2 Jet program forward loss charge
 
9,162

 
7,604

 
0.15

 
$0.15
G280 program forward loss charge
 
2,516

 
2,088

 
0.04

 
$0.04
Reduction of prior Gulfstream forward loss
 
(7,624
)
 
(6,328
)
 
(0.13
)
 
$(0.13)
Restructuring costs
 
18,206

 
15,111

 
0.30

 
$0.45 - $0.50
Refinancing costs
 
1,281

 
1,063

 
0.02

 
$0.02
Adjusted Income from Continuing Operations - non-GAAP
 
$
69,627

 
$
58,359

 
$
1.17

*
$1.50 - $2.10
         * Difference due to rounding
 
 
 
 
 
 
 
 


13



(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
 
 
 
December 31, 2017
 
 
 
Pre-Tax
 
After-Tax
 
Diluted EPS
 
Loss from Continuing Operations - GAAP
 
$
(145,540
)
 
$
(113,252
)
 
$
(2.29
)
 
Adjustments:
 
 
 
 
 
 
 
Goodwill impairment
 
190,227

 
181,540

 
3.65

 
Curtailment & settlement, net
 
(15,099
)
 
(14,374
)
 
(0.29
)
 
Restructuring costs (non-cash - included in depreciation)
 
382

 
364

 
0.01

 
Restructuring costs (cash)
 
6,149

 
5,854

 
0.12

 
Estimated impact of tax reform
 

 
(22,398
)
 
(0.45
)
 
Adjusted Income from Continuing Operations - non-GAAP
 
$
36,119

 
$
37,734

 
$
0.76

*
 
 
Nine Months Ended
 
 
 
December 31, 2017
 
 
 
Pre-Tax
 
After-Tax
 
Diluted EPS
 
Loss from Continuing Operations - GAAP
 
$
(154,676
)
 
$
(120,561
)
 
$
(2.44
)
 
Adjustments:
 
 
 
 
 
 
 
Loss on divestiture
 
20,371

 
20,371

 
0.41

 
Goodwill impairment
 
190,227

 
181,540

 
3.66

 
Curtailment & settlement, net
 
(14,576
)
 
(13,876
)
 
(0.28
)
 
Refinancing costs
 
1,986

 
1,891

 
0.04

 
Restructuring costs (non-cash - included in depreciation)
 
2,538

 
2,416

 
0.05

 
Restructuring costs (cash)
 
33,751

 
32,131

 
0.65

 
Estimated impact of tax reform
 

 
(22,398
)
 
(0.45
)
 
Adjusted Income from Continuing Operations - non-GAAP
 
$
79,621

 
$
81,514

 
$
1.64

*
* Difference due to rounding
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
 
 
December 31, 2018
 
December 31, 2017
 
December 31, 2018
 
December 31, 2017
Operating Income - GAAP
 
$
(16,933
)
 
(154,206
)
 
$
(85,482
)
 
$
(155,234
)
 
 
 
 
 
 
 
 
 
Adjustments:
 
 
 
 
 
 
 
 
Adoption of ASU 2017-07
 

 

 
87,241

 

Loss on divestitures
 

 

 
17,837

 
20,371

Global 7500 forward loss charge
 
40,498

 

 
60,424

 

E2 Jet program forward loss
 
9,162

 

 
9,162

 

G280 program forward loss
 
2,516

 

 
2,516

 

Reduction of prior Gulfstream forward loss
 

 

 
(7,624
)
 

Goodwill impairment
 

 
190,227

 

 
190,227

Restructuring costs (non-cash - included in depreciation)
 

 
382

 

 
2,538

Restructuring costs (cash)
 
2,327

 
6,149

 
18,206

 
33,751

Adjusted Operating Income - non-GAAP
 
$
37,570

 
$
42,552

 
$
102,280

 
$
91,653


14



(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.

 
 
Three Months Ended
 
 
Nine Months Ended
 
 
December 31,
 
December 31,
 
 
2018
 
2017
 
 
2018
 
2017
Cash flow from operations
 
$
4,063

 
$
100,786

 
 
$
(193,116
)
 
$
(198,279
)
Less:
 
 
 
 
 
 
 
 
 
Capital expenditures
 
(10,570
)
 
(9,157
)
 
 
(34,824
)
 
(31,932
)
Free cash flow
 
$
(6,507
)
 
$
91,629

 
 
$
(227,940
)
 
$
(230,211
)
 
 
 
 
 
 
 
 
 
 
 
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:
 
 
December 31,
 
March 31,
 
 
2018
 
2018
Calculation of Net Debt
 
 
 
 
Current portion
 
$
14,460

 
$
16,527

Long-term debt
 
1,619,233

 
1,421,757

Total debt
 
1,633,693

 
1,438,284

Plus: Deferred debt issuance costs
 
14,117

 
16,949

Less: Cash
 
(28,664
)
 
(35,819
)
Net debt
 
$
1,619,146

 
$
1,419,414

 
 
 
 
 
Calculation of Capital
 
 
 
 
Net debt
 
$
1,619,146

 
$
1,419,414

Stockholders' (deficit) equity
 
(276,497
)
 
450,534

Total capital
 
$
1,342,649

 
$
1,869,948

 
 
 
 
 
Percent of net debt to capital
 
120.6
%
 
75.9
%

15