A N N U A L
R E P O R T
2 0 1 7
ABO UT TRIUMPH
Triumph Group, Inc. headquartered in Berwyn, Pennyslvania, designs, engineers, manufactures, repairs and overhauls a
broad portfolio of aircraft structures, components, accessories, and systems. The company serves a broad spectrum of
the global 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.
FINAN CIA L HIGHLIGHTS
(in millions, except per share data)
Fiscal year ended March 31
Net sales
Adjusted operating income
Adjusted net income
Adjusted diluted earnings per share
$
6.54
$
5.37
$
Cash flow from operations
282
84
2017
2016
2015
$
3,533
$
3,886
$
3,889
431
323
464
265
$
4,415
$
4,835
$
5,956
1,196
846
1,417
935
1,369
2,136
$
(1,091)
$
435
$
57
-
53
-
266
55
431
(81)
-
350
(19)
-
(8)
323
561
81
5
874
33
464
(68)
-
396
111
146
(388)
265
495
292
5.73
467
152
24
(135)
-
19
495
(85)
23
432
(111)
-
(29)
292
4.68
1.05
5.73
51
$
$
(0.87)
7.41
6.54
49.4
$ (21.29)
$
26.66
5.37
49.3
$
$
$5
4
3
2
1
0
2015
2016
2017
Total assets
Total debt
Total equity
Non-GAAP Reconciliation
Operating (loss) income — GAAP
Forward losses
Restructuring
Legal settlements
Impairments
Other
Adjusted operating income
Interest & other
Less: Financing charges
Adjusted income before income taxes
Income taxes
Valuation allowance
Tax effect of adjustments
Adjusted net income
Diluted earnings per share — GAAP
Per share impact of adjustments
Adjusted diluted earnings per share
Weighted average diluted shares
41%Integrated Systems36%Aerospace Structures 12%Precision Components11%Product SupportSales by End MarketTotal Backlog ($ in billions)Adjusted Segment Operating Income57%Commercial22%Military 18%Business Jet 2% Regional Jet 1% Non-Aviation
TO O UR VA LUED STOCKHOLDERS
As we complete the first year of our One Triumph transformation, we can look back
on fiscal year 2017 as a year of accomplishments, setbacks, and measurable progress
toward our three imperatives of delivering on commitments, becoming predictably
profitable, and driving organic growth. Following last year’s reorganization and
alignment under four business units, the men and women of Triumph Group now
operate as One Team with a strong commitment to our stockholders and customers.
Our sharpened focus on execution, cash management, and new
business capture positions the company for long-term growth and
value creation.
Aligned around our new vision and mission statements, our team is rapidly deploying
the Triumph Operating System to enhance our operational governance and controls
and enable companywide continuous-improvement efforts. In the first year of our
transformation, we exceeded our cost-reduction goals, trained and deployed over 165
Triumph Change Agents in lean principles, conducted over 325 improvement events,
and raised safety, quality, and on-time delivery performance.
For the full fiscal year 2017, sales were $3.5 billion, adjusted earnings per diluted share
were $6.54, and free cash flow was $315.7 million. While we did not achieve the full
financial performance we hoped for, cost reductions, divestitures and consolidations,
and key customer payments allowed us to exceed our debt reduction targets and
close out cash positive for the year. We continue to resolve operational and contractual
issues to better position Triumph for the long term, while maintaining the financial
flexibility to continue executing our transformation plan.
Our efforts to improve performance on troubled Aerospace Structures programs are paying off, as
reflected in customer feedback, requests for proposals, and new wins. In the first quarter of fiscal 2017,
we encountered unanticipated risks which caused us to adjust guidance early in the fiscal year. However,
through hard work and customer engagement, we resolved many contractual disputes that allowed us
to end the fiscal year on a strong note. We look forward to building on these successes in fiscal year 2018.
Daniel J. Crowley
President and Chief
Executive Officer
My senior leadership team and I place a premium on accountability, standardized operating processes, and
performance to better meet the delivery, quality, and affordability expectations of our customers. Our
progress demonstrates a commitment to becoming a stronger, more dependable supplier. This is most
evident in the strengthening of relationships with key customers, which will lead to new business over time.
An Operating Plan Built on Three Imperatives
After a year of full adoption, our transformation plan is in place and we believe we have the right strategy
to achieve long-term success and enhance value for our stockholders. Triumph employees are rallying
around our three key imperatives – becoming predictably profitable, delivering on commitments and
driving organic growth, which shape our daily actions and influence strategic goals and objectives.
Becoming Predictably Profitable
We achieved greater than planned results on cost reduction across our business units, and exceeded
expectations in the first year of Triumph’s transformation. The total savings were $69 million for fiscal
year 2017; we are now almost 25 percent of the way toward our three-year goal of $300 million in cost
savings. Supply chain efforts continue to lead the way as the foundation for affordability.
Realigning into four market-focused business units and 20 operating companies was a critical early step
in our transformation that was well-received by our customers and lowered costs. We are on track to
right-size the company and reshape our portfolio. We reduced our footprint across our 71 facilities by over
450,000 square feet, with additional consolidations planned for fiscal year 2018. Our consolidation
activities help reduce our manufacturing footprint and improve facilities utilization globally while
eliminating overlapping capacity and customer interfaces.
.
1
We completed the sale of Triumph Aerospace Systems – Newport News, Triumph Air Repair and our
APU business in Asia and Tempe, Arizona. These dispositions reflect our objective to divest
non-core businesses, reduce debt and shape our portfolio around businesses that align with our
long-term strategies.
Delivering on Commitments
Focusing on operational excellence enables us to better meet our commitments and remain a
supplier of choice to our customers. Through our “Return to Green” program, we are driving meaningful
improvements in engineering, quality and operations, and rebuilding customer confidence. As we deploy
the Triumph Operating System, we are adopting a common language and standard processes to make
breakthroughs in operating performance that impact our ability to deliver on commitments. This collective
effort to deploy lean principles will reduce costs by controlling inventory and enhancing schedule and
quality performance, and enhances talent mobility and sharing of best practices.
Customers are seeing the results. Gulfstream recognized two Triumph businesses for exceptional
performance. Our Triumph Aerospace Structures – Nashville facility received the Superior Performance
Award for its support of the G450 wing program, and our Triumph Precision Components’ Spokane
Interiors business received the same award for environmental control system ducts it provides for the
G650 program. Boeing honored Triumph Product Support – Aviation Services Asia with the Performance
Excellence Award for work on CFM56-7 reversers. Mitsubishi Heavy Industries presented Triumph Precision
Components – Interiors with the Partner of the Year award at its annual supplier conference for exceptional
performance and delivery on multiple programs.
Driving Organic Growth
As we improve and reduce costs to enhance competitiveness, we hear firsthand the benefits of our
actions in conversations with customers. The performance that enabled the awards above creates the
environment for new partnerships and collaboration. While more work is needed to reduce costs, our
win rates are increasing and cross-selling across our four business units is ramping up. Our backlog
remained at approximately $4 billion throughout fiscal year 2017, and new wins are offsetting the
effects of sunsetting programs. We continue to strive to achieve a 1:1 book to bill ratio.
Plans to invest in innovation and technology will play a major role in organically developing new
business. Efforts to nurture new and innovative technology throughout the company give us a leading
edge in manufacturing the aircraft of tomorrow. This renewed focus on funding innovation and
technology will help stimulate new opportunities.
Looking forward, we seek to rebalance our end markets and expand our presence in the military
market. With U.S. defense spending set to increase, we are positioned to capture a greater share of this
end market. As a supplier to core military aircraft programs, we will benefit from short-term increases in
production. We will continue to work with major OEMs to win second-source opportunities and replace
underperforming suppliers on existing production programs.
2
LEFT PAGE: LEFT TO RIGHT
RIGHT PAGE: LEFT TO RIGHT
Thomas K. Holzthum
Executive Vice President,
Integrated Systems
MaryLou B. Thomas
Executive Vice President,
Aerospace Structures
Michael R. Abram
Executive Vice President,
Product Support
Tony Johnson
Interim Executive Vice President,
Precision Components
Michael J. Holtz
Vice President,
Performance Excellence
Peter Wick
Vice President, Contracts
John B. Wright, II
Senior Vice President,
General Counsel and Secretary
Daniel J. Ostrosky
Vice President,
Supply Chain
Gary V. Tenison
Vice President,
Strategy and Business Development
S. Melissa Scheppele
Vice President,
Chief Information Officer
Richard R. Lovely
Senior Vice President,
Chief Human Resources Officer
James F. McCabe Jr.
Senior Vice President,
Chief Financial Officer
Daniel J. Crowley
President and Chief Executive Officer
We are supporting the major OEMs competing for the new U.S. Air Force trainer and the U.S. Navy’s
unmanned air refueling drones. We are also positioning for longer-term programs such as Future
Vertical Lift (FVL) by earning a place on the Joint Multi Role (JMR) concept demonstrator. We are
winning new work on the F-35 Joint Strike Fighter and have several opportunities with the major
commercial OEMs in the systems area.
In the aftermarket, Triumph recognizes the evolving needs of OEM customers as they expand their
role in the lucrative aircraft lifecycle support segment. Our Product Support business lends its
experience and expertise to the OEMs by offering joint alternative MRO solutions. Under our new
Triumph TLC (Total Life Cycle) Solutions initiative, Triumph is reinventing the current MRO model by
providing services when and where the customers need them in new ways to increase aircraft
reliability and availability.
Plans to Deliver Value in Fiscal Year 2018
Looking ahead, we will continue to raise the bar on execution and achieve higher levels of performance
while reducing costs, converting our pipeline wins to grow backlog and margins, and focusing our
investments on key areas of the business that drive growth and profitability. We have a reenergized
culture through our One Triumph transformation and are seeing the benefits after our first year. The
Transformation Delivery Office will continue to guide our improvement efforts as we prepare
Triumph Group for the next decade of success.
With the support of our Board of Directors, we are excited about the company’s new vision of
becoming the premier design, manufacturing and support company whose comprehensive capabilities,
integrated processes and innovative employees advance the safety and prosperity of the world. Our
recently updated vision, mission, and values statement has been well received by the workforce and will
guide all our actions in the future.
I appreciate our world-class group of talented team members who are committed to working together
to achieve our potential. On behalf of the entire Board and management team, I want to thank our
investors, customers, suppliers and employees for your continued support. We look forward to
sharing our progress as Triumph continues its transformation journey and meets the needs of all
of our stakeholders.
Daniel J. Crowley
President and Chief Executive Officer
3
TRIUMPH
GRO UP
AER OSPACE
LI FE CYCLE
Since 1993, Triumph Group has grown into
one of the most trusted aircraft lifecycle
support providers serving the aerospace
and defense industry . From complete
aircraft suppliers—including premier
OEMs—to top-tier component
manufacturers and military organizations,
we deliver a breadth of highly
specialized flight solutions. Our
capabilities include engineering, testing,
precision manufacturing, systems
integration and aftermarket sales, repair
and service. We take great pride in our
role as a dependable partner at every
stage of the aircraft lifecycle.
We serve an industry with long lifecycles
and varying needs and requirements. Our
wide variety of capabilities and products,
as well as technical expertise, helps our
customers triumph over the most com-
plex challenges in response to evolving
industry requirements. Our enviable
range of offerings includes
systems, products and components,
which uniquely allows us to be a one-stop
shop for customers who seek innovative
large-scale integrated solutions and
single part numbers alike. From proposal
and development—including testing,
assembly and manufacturing—to
maintenance, overhaul, repair and spares,
we objectively evaluate customer needs
and provide the best solution through
ingenuity and entrepreneurship.
Triumph is a trusted supplier for OEMs,
airline carriers, Tier 1 suppliers, militaries,
cargo carriers, aircraft maintenance
providers and industrial manufacturers
around the world. No matter the location,
the process or output, customers have
come to depend on our quality,
performance and the ease of doing
business with us. Whether it’s our
engineering expertise, high machining
and manufacturing capabilities, global
sourcing, innovative on-wing service
options, or in-region lifecycle solutions,
customers value our cooperative
approach and regard us as a reliable
partner who is committed to enabling
their success. Collaboratively, we solve
problems and develop innovative
solutions that will propel the next
generation of aircraft.
The aerospace industry is not “one size
fits all”—literally or figuratively. Our
customers want efficiency and
innovation; they also want flexibility and
customization. For some, that’s higher
performance or a more integrated
solution, while others seek a supplier
to provide a single part or component.
Some simply want easy access to spare
parts for an out of production aircraft,
while others want on-ground support.
Whatever the requirement, we act with
velocity to deliver products and services
that address the critical needs of
our customers.
ENGINEERING
Our highly skilled team
of mechanical, design,
manufacturing and quality
engineering professionals,
paired with our world-class
test lab and advanced
tooling process, bring a
new level of engineering
excellence to the
aerospace industry.
MANUFACTURING &
ASSEMBLY
We manufacture, finish and
assemble components and
sub-assemblies from nearly
every material used in the
industry, with a level of
precision that is unparalleled.
4
SYSTEMS
We design, develop and
support proprietary
components, sub-systems
and systems, and produce
complex assemblies using
external designs.
SUPPORT
Triumph Group can tailor
a solution to best fit any
operator or platform by
providing rotables and
alternate repair solutions
to help mitigate cost risks
for sunset fleets.
In an industry in which every minute,
every mile, every pound counts, our
skilled team remains laser-focused on
meeting our customer commitments —
and our scale, depth and resources
make it possible. We are agile. We are
responsive. And we are there when—and
where—you need us at any stage of the
aircraft lifecycle.
WE ARE TRIUMPH GROUP.
5
IN TE GR ATED SYSTEMS
Superior design, development and support of proprietary
components and systems, as well as production of
complex assemblies using external designs
Triumph Integrated Systems’ capabilities include hydraulic, mechanical
and electro-mechanical actuation; hydraulic valves, pumps and motors;
a complete suite of aerospace gearbox solutions, including engine
accessory gearboxes and helicopter transmissions; mechanical latches,
cables and hold open rods; and fuel pumps, fuel metering units and full
authority digital electronic controls (FADEC).
Integrated Systems’ diverse product offerings and system integration
capabilities are featured on the aircraft that define air travel today,
tomorrow and in the future.
The Airbus A320 aircraft family is one of the best-selling single aisle
offerings in recent history, with over 7,500 deliveries and a strong
backlog of orders. The landing gear on the aircraft features actuators,
valves and uplocks manufactured by Integrated Systems’ Actuation and
Control operating company. Triumph supports both the new engine and
current engine A320 offerings.
Integrated Systems joined Sikorsky and the U.S. Marine Corps in celebrating
the CH-53K King Stallion successfully completing Milestone C in April
2017. Triumph is proud to be the supplier of choice for the design and
manufacture of complex systems on this aircraft.
Looking ahead to the future, Integrated Systems is excited about its role
in support of the JMR (Joint Multi Role) aircraft. Our team has a dynamic
statement of work with both teams in the running.
The CH-53K program continues the great
relationship Triumph has with Sikorsky—
including work on many of the earlier
CH-53 models. Integrated Systems provides
engineered systems and components for
the CH-53K King Stallion, including the
blade fold system and blade dampers,
rotor brake module, electromechanical
and hydraulic actuators and transmission
cooling systems. Now that the program
has moved into the production and
deployment phase, we’ll be partnering
with Sikorsky to begin deliveries of the
four aircraft to the U.S. Marine Corps
in 2018. Integrated Systems employees
in six states will support production of
this heavy-duty cargo helicopter, which
provides three times the lift capability of
its predecessor, the CH-53E.
6
Sales by End Market52%Commercial36%Military6%Business6%Other AER OSPACE STRUCTURES
Extensive capabilities to engineer complex
metallic and composite aerostructures
Triumph Aerospace Structures designs, manufactures, qualifies, certifies,
and assembles large metallic and composite structures for commercial
and military airframe providers. Products include integrated wings, wing
boxes, fuselage panels, horizontal and vertical tails, and sub-assemblies.
Aerospace Structures’ fuselage and structural assemblies contributed
to the successful first flight of Embraer’s new E190-E2 aircraft in May
2016. Aerospace Structures employees across North America who
designed, tested and built integral aerostructures parts for the aircraft
celebrated the milestone with their Brazilian counterparts. The E2 is
scheduled to enter into service the first half of 2018, and the Aerospace
Structures team is looking forward to supporting the aircraft as it ramps
to full production.
Aerospace Structures received an additional delivery order from
Gulfstream for the production of wing and wing components for the
G650 program, extending the work through 2018. The fully integrated
wing structure manufactured by Triumph Group showcases the breadth
of Aerospace Structures’ capabilities and offerings. As part of the original
agreement, Triumph Group provides engineering for the fully integrated
wing design and production for the G650 program.
As a large Tier 1 structures integrator, Aerospace Structures has
wide-ranging capabilities to manufacture large complex structures and
integrate sub-systems for military and commercial OEMs. Our ability
to leverage this scale and partner with our customers to provide both
design-to-specification and build-to-print solutions for aerostructure
applications positions us well for continued profitable growth.
After announcing a memorandum of
understanding with Northrop Grumman
at the 2016 Farnborough International
Airshow, the companies worked together
to meet near-term delivery commitments
and enhance future quality and
affordability for high altitude long
endurance autonomous aircraft
programs. Using the Triumph Operating
System, improvements were made to
the fabrication and assembly processes
for the wings of the aircraft, yielding
enhancements in wing quality and overall
build efficiency. These efforts, along
with numerous continuous improvement
projects undertaken by Triumph Group,
allowed us to double the amount of wing
deliveries as compared to the previous
year. Furthermore, Aerospace Structures’
Red Oak facility is on board to support
production of recently awarded high
altitude long endurance autonomous
aircraft orders.
7
Sales by End Market47%Commercial14%Military39%Business PR E CIS ION CO MPONENTS
Unparalleled precision component capability, including
a wide range of metal and composite structures
Triumph Precision Components produces close-tolerance parts to
customer designs and model-based definition. Capabilities include high
speed complex machining and turning; sheet metal fabrication; forming;
advanced composite structures; insulation, ducting, and thermoplastic
laminates; joining processes such as welding, autoclave bonding and
conventional mechanical fasteners; and special processes that include
super plastic titanium forming, aluminum and titanium chemical milling
and surface treatments.
Precision Components diversified its military portfolio when it was chosen
to provide key engine and structure components for the F-35 Lightning
II aircraft, the next-generation fighter for the United States and its allies.
Lockheed Martin selected Triumph to provide engine mounts, bulkheads,
longerons and wing ribs for the F-35 through 2021.
Precision Components also expanded into adjacent markets. The business
unit finalized long-term contracts with the SNC-Lavalin/Aecon Joint
Venture in 2016 to supply complex safety-critical components for the
nuclear pressure vessels as part of the Ontario Darlington Refurbishment
Retube & Feeder Replacement program.
To accommodate growth plans and expanding technologies, Precision
Components celebrated the opening of a new 156,000 sq. ft. manufacturing
plant in Edgerton, Kansas. The factory is Triumph’s new Small and Medium
Parts Center of Excellence, which excels at the machining and assembly of
aircraft components made from aluminum and various hard metal alloys.
8
When Precision Components finalized
an eight-year agreement with Rolls-
Royce to supply thrust links for the Trent
XWB engine program, it was more than
just a great win for that business unit.
It is a contract that demonstrates how
Triumph Group businesses work together
to meet the needs of our customer as
One Triumph. The Toronto facility of
Precision Components will deliver the
first components to Rolls-Royce in 2019
following a two-year development period
in which Triumph Integrated Systems will
perform structural tests for the thrust
link components. Strength, weight and
reliability are critical features of thrust link
components, and Precision Components’
Toronto facility has been manufacturing
thrust links of various designs for the past
20 years.
Sales by End Market71%Commercial18%Military8%Business3%Other PR O DUCT SUPPORT
Superior lifecycle solutions for commercial, regional
and military aircraft for OEMs and operators
Triumph Product Support’s extensive product and service offerings
include post-delivery value chain services that simplify the maintenance,
repair and operation (MRO) supply chain. Product Support provides
integrated planeside repair solutions for global customers, including line
maintenance, component MRO and postproduction supply-chain activity.
Our MRO services cover fuel tanks, metallic and composite aircraft
structures, nacelles, thrust reversers, interiors and a wide variety of
pneumatic, hydraulic, heat transfer, fuel and mechanical accessories.
For more than a decade, the aftermarket arm of Triumph Group has set
itself apart from competitors by providing airline carriers with superior
customer service, on-site rotable assets and implementing cost-reduction
measures to the benefit of its customers.
Triumph is honored to provide maintenance and operations support
for military fleets through a program with prime contractor L3 Vertex
Aerospace. In August 2016, Product Support marked the shipment of the
100th Aerial Refueling Boom in support of the L3 maintenance program.
Triumph has provided repair and overhaul service on this fleet’s boom
since the program’s inception in 1999, and will continue to maintain the
KC-10 boom and the thrust reverser under its new program with L3.
Product Support plans to align with OEMs as they expand their reach
into the aftermarket. Under Triumph TLC Solutions, we will partner with
OEM airline carriers, lending our third-party expertise to support the
airlines and provide joint alternative MRO solutions.
For more than 12 years, Product Support
has cultivated its relationship with leading
domestic and international carrier Delta Air
Lines. The long-term association began by
providing maintenance support for
significant interior refurbishment and
interior parts manufacturing. Since the
time of the initial agreement for aircraft
refurbishing, Product Support has worked
to expand its relationship and statement of
work for the company. Triumph’s support
for Delta now includes airframe and engine
accessories, as well as service for various
thrust reverser models throughout the
carrier’s fleet. Product Support is proud of
its long history supporting Delta Air Lines
and looks forward to doing business
with the airline company for the
foreseeable future.
9
Sales by End Market77%Commercial15%Military1%Business7%Other Each word in our vision, mission and
values reflects our aspirations of what
we want to be for our customers,
shareholders, and fellow employees.
Daniel J. Crowley
President and Chief Executive Officer
10
VISION
We aspire to be the premier design, manufacturing and
support company whose comprehensive capabilities,
integrated processes and innovative employees advance the
safety and prosperity of the world.
MISS ION
As One Team, we partner with our customers to triumph over
the hardest aerospace, defense and industrial challenges,
enabling us to deliver value to our shareholders.
VALUES
Integrity
- Do the right thing for our stakeholders
- We value safety, honor and respect
Continuous Improvement
- Pursue zero defect quality
- Attack problems and relentlessly raise the bar
Teamwork
- Win as One Team – One Company
- Solicit help and assist others
Innovation
- Passion for growing the business
- Solve problems through ingenuity and entrepreneurship
Act with Velocity
- Partner, communicate and anticipate
- Actively manage risk
11
COR PO RAT E OFFICERS AND DIRECTORS
OFFICERS
DIRECTORS
DANIEL J. CROWLEY
RALPH E. EBERHART
President and Chief Executive Officer
Chairman, Triumph Group
General, U.S. Air Force (Retired)
PAUL BOURGON
President, Aeroengine Division,
SKF USA
DANIEL J. CROWLEY
President and Chief Executive Officer,
Triumph Group
JOHN G. DROSDICK
Chairman, President and Chief Executive Officer,
Sunoco (Retired)
RICHARD C. GOZON
Executive Vice President,
Weyerhauser Company (Retired)
DAWNE S. HICKTON
Former Vice Chair, President and
Chief Executive Officer,
RTI International Metals
RICHARD C. ILL
President and Chief Executive Officer,
Triumph Group (Retired)
WILLIAM L. MANSFIELD
Chairman and Chief Executive Officer,
The Valspar Corporation (Retired)
ADAM J. PALMER
Managing Director,
The Carlyle Group
JOSEPH M. SILVESTRI
Managing Partner,
Court Square Capital
JAMES F. MCCABE JR.
Senior Vice President,
Chief Financial Officer
JOHN B. WRIGHT, II
Senior Vice President,
General Counsel and Secretary
RICHARD R. LOVELY
Senior Vice President,
Human Resources
MICHAEL R. ABRAM
Executive Vice President,
Product Support
THOMAS K. HOLZTHUM
Executive Vice President,
Integrated Systems
MARYLOU B. THOMAS
Executive Vice President,
Aerospace Structures
DANIEL J. OSTROSKY
Vice President,
Supply Chain
THOMAS A. QUIGLEY, III
Vice President and Controller
KEVIN E. KINDIG
Vice President and Treasurer
SHEILA G. SPAGNOLO
Vice President,
Tax and Investor Relations
12
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________________________________
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended March 31, 2017
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 No. 1-12235
Triumph Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
51-0347963
(I.R.S. Employer
Identification Number)
899 Cassatt Road, Suite 210, Berwyn, Pennsylvania 19312
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (610) 251-1000
____________________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $.001 per share
(Title of each class)
New York Stock Exchange
(Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: None
____________________________________________________________________________
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of
1934. Yes
No
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes
No
Indicate by check mark whether the Registrant has submitted electronically and 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
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in
Rule 12b-2 of the Securities Exchange Act of 1934. (Check one)
Large accelerated filer
Accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes
No
As of September 30, 2016, the aggregate market value of the shares of Common Stock held by non-affiliates of the Registrant was approximately $1,244
million. Such aggregate market value was computed by reference to the closing price of the Common Stock as reported on the New York Stock Exchange on
September 30, 2016. For purposes of making this calculation only, the Registrant has defined affiliates as including all directors and executive officers.
The number of outstanding shares of the Registrant's Common Stock, par value $.001 per share, on May 22, 2017 was 49,579,347.
____________________________________________________________________________
Documents Incorporated by Reference
Portions of the following document are incorporated herein by reference:
The Proxy Statement of Triumph Group, Inc. to be filed in connection with our 2017 Annual Meeting of Stockholders is incorporated in part in Part III
hereof, as specified herein.
Table of Contents
Item No.
PART I
Item 1.
Business
General
Products and Services
Proprietary Rights
Raw Materials and Replacement Parts
Sales, Marketing and Engineering
Backlog
Dependence on Significant Customers
United States and International Operations
Competition
Government Regulation and Industry Oversight
Environmental Matters
Employees
Research and Development Expenses
Executive Officers
Available Information
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Properties
Legal Proceedings
Item 4. Mine Safety Disclosures
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Item 6.
Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accountant Fees and Services
PART IV
Item 15. Exhibits, Financial Statement Schedules
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Item 1.
Business
PART I
Cautionary Note Regarding Forward-Looking Statements
This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of
1995 relating to our future operations and prospects, including statements that are based on current projections and expectations
about the markets in which we operate, and management's beliefs concerning future performance and capital requirements
based upon current available information. Actual results could differ materially from management's current expectations.
Additional capital may be required and, if so, may not be available on reasonable terms, if at all, at the times and in the
amounts we need. In addition to these factors and others described elsewhere in this report, other factors that could cause actual
results to differ materially include competitive and cyclical factors relating to the aerospace industry, dependence of some of
our businesses on key customers, requirements of capital, product liabilities in excess of insurance, uncertainties relating to the
integration of acquired businesses, general economic conditions affecting our business segment, technological developments,
limited availability of raw materials or skilled personnel, changes in governmental regulation and oversight, and international
hostilities and terrorism. For a more detailed discussion of these and other factors affecting us, see the Risk Factors described in
Item 1A of this Annual Report on Form 10-K. We do not undertake any obligation to revise these forward-looking statements to
reflect future events.
General
Triumph Group, Inc. ("Triumph", the "Company", "we", "us", or "our") was incorporated in 1993 in Delaware. Our
companies design, engineer, manufacture, repair, overhaul and distribute a broad portfolio of aerostructures, aircraft
components, accessories, subassemblies and systems. We serve a broad, worldwide spectrum of the aviation industry,
including original equipment manufacturers, or OEMs, of commercial, regional, business and military aircraft and aircraft
components, as well as commercial and regional airlines and air cargo carriers.
Products and Services
We offer a variety of products and services to the aerospace industry through four operating segments: (i) Triumph
Integrated Systems, whose companies revenues are derived from the design, development and support of proprietary
components, subsystems and systems, as well as production of complex assemblies using external designs; (ii) Triumph
Aerospace Structures, whose companies supply commercial, business, regional and military manufacturers with large metallic
and composite structures; (iii) Triumph Precision Components, whose companies produce close-tolerance parts primarily to
customer designs and model-based definition, including a wide range of aluminum, hard metal and composite structure
capabilities; and (iv) Triumph Product Support, whose companies provide full life cycle solutions for commercial, regional and
military aircraft.
Integrated Systems 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.
The products that companies within this group design, engineer, build and repair include:
Aircraft and engine mounted accessory drives
Thermal control systems and components
Cargo hooks
Cockpit control levers
High lift actuation
Hydraulic systems and components
Comprehensive processing services
Landing gear actuation systems
Control system valve bodies
Electronic engine controls
Exhaust nozzles and ducting
Landing gear components and assemblies
Main engine gear box assemblies
Main fuel pumps
Geared transmissions and drive train components
Secondary flight control systems
Fuel metering units
Vibration absorbers
3
Aerospace Structures products include wings, wing boxes, fuselage panels, horizontal and vertical tails and sub-assemblies
such as floor grids. Inclusive of most of the former Vought Aircraft Division, Aerospace Structures also has the capability to
engineer detailed structural designs in metal and composites.
The products that companies within this group design, manufacture, build and repair include:
Aircraft wings
Composite and metal bonding
Engine nacelles
Flight control surfaces
Helicopter cabins
Precision machined parts
Comprehensive processing services
Stretch-formed leading edges and fuselage skins
Empennages
Wing spars and stringers
Precision Components 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.
The products that companies within this group design, engineer, build and repair include:
Acoustic and thermal insulation systems
Flight control surfaces
Composite and metal bonding
Composite ducts and floor panels
Helicopter cabins
Precision machined parts
Comprehensive processing services
Stretch-formed leading edges and fuselage skins
Wing spars and stringers
Product Support 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. Companies in Product Support repair and overhaul various components for the
aviation industry including:
Air cycle machines
APUs
Constant speed drives
Engine and airframe accessories
Flight control surfaces
Integrated drive generators
Nacelles
Remote sensors
Thrust reversers
Blades and vanes
Cabin panes, shades, light lenses and other components
Combustors
Stators
Transition ducts
Sidewalls
Light assemblies
Overhead bins
Fuel bladder cells
Certain financial information about our four segments is set forth in Note 21 of "Notes to Consolidated Financial
Statements."
4
Proprietary Rights
We benefit from our proprietary rights relating to designs, engineering and manufacturing processes and repair and
overhaul procedures. For some products, our unique manufacturing capabilities are required by the customer's specifications or
designs, thereby necessitating reliance on us for the production of such specially designed products.
We view our name and trademark as significant to our business as a whole. Our products are protected by a portfolio of
patents, trademarks, licenses or other forms of intellectual property that expire at various dates in the future. We continually
develop and acquire new intellectual property and consider all of our intellectual property to be valuable. However, based on
the broad scope of our product lines, management believes that the loss or expiration of any single intellectual property right
would not have a material adverse effect on our results of operations, our financial position or our business segments. Our
policy is to file applications and obtain patents for our new products as appropriate, including product modifications and
improvements. While patents generally expire 20 years after the patent application filing date, new patents are issued to us on a
regular basis.
In our overhaul and repair businesses, OEMs of equipment that we maintain for our customers often include language in
repair manuals that relate to their equipment, asserting broad claims of proprietary rights to the contents of the manuals used in
our operations. There can be no assurance that OEMs will not try to enforce such claims, including the possible use of legal
proceedings. In the event of such legal proceedings, there can be no assurance that such actions against the Company will be
unsuccessful. However, we believe that our use of manufacture and repair manuals is lawful.
Raw Materials and Replacement Parts
We purchase raw materials, primarily consisting of extrusions, forgings, castings, aluminum and titanium sheets and
shapes and stainless steel alloys, from various vendors. We also purchase replacement parts, which are utilized in our various
repair and overhaul operations. We believe that the availability of raw materials to us is adequate to support our operations.
Sales, Marketing and Engineering
While each of our operating companies maintains responsibility for selling and marketing its specific products, we have
developed two marketing teams at the group level who are focused on cross-selling our broad capabilities. One team supports
Integrated Systems, Aerospace Structures and Precision Components and the other team supports Product Support. These
teams are responsible for selling systems, integrated assemblies and repair and overhaul services, reaching across our operating
companies, to our OEM, military, airline and air cargo customers. In certain limited cases, we use independent, commission-
based representatives to serve our customers' changing needs and the current trends in some of the markets and geographic
regions in which we operate.
The two group-level marketing teams operate as the front-end of the selling process, establishing or maintaining
relationships, identifying opportunities to leverage our brand, and providing service for our customers. Each individual
operating company is responsible for its own technical support, pricing, manufacturing and product support. Also, within the
Product Support, we have created a group engineering function to provide integrated solutions to meet our customer needs by
designing systems that integrate the capabilities of our companies.
A significant portion of our government and defense contracts are awarded on a competitive bidding basis. We generally
do not bid or act as the primary contractor, but will typically bid and act as a subcontractor on contracts on a fixed-price basis.
We generally sell to our other customers on a fixed-price, negotiated contract or purchase order basis.
Backlog
We have a number of long-term agreements with several of our customers. These agreements generally describe the terms
under which the customer may issue purchase orders to buy our products and services during the term of the agreement. These
terms typically include a list of the products or repair services customers may purchase, initial pricing, anticipated quantities
and, to the extent known, delivery dates. In tracking and reporting our backlog, however, we only include amounts for which
we have actual purchase orders with firm delivery dates or contract requirements generally within the next 24 months, which
primarily relate to sales to our OEM customer base. Purchase orders issued by our aftermarket customers are usually
completed within a short period of time. As a result, our backlog data relates primarily to the OEM customers. The backlog
information set forth below does not include the sales that we expect to generate from long-term agreements for which we do
not have actual purchase orders with firm delivery dates.
5
As of March 31, 2017, we had outstanding purchase orders representing an aggregate invoice price of approximately $3.98
billion, of which $1.08 billion, $1.75 billion, $1.12 billion, and $33 million relate to Integrated Systems, Aerospace Structures,
Precision Components, and Product Support, respectively. As of March 31, 2016, our continuing operations had outstanding
purchase orders representing an aggregate invoice price of approximately $4.15 billion, of which $1.07 billion, $1.90 billion,
$1.15 billion, and $37 million related to Integrated Systems, Aerospace Structures, Precision Components, and Product
Support, respectively. The sharp decline in backlog was due to the production rate reductions on key programs such as Boeing
747-8, 777 and G450/G550. Of the existing backlog of $3.98 billion, approximately $1.83 billion will not be shipped by March
31, 2018.
Dependence on Significant Customers
For the fiscal years ended March 31, 2017, 2016 and 2015, the Boeing Company ("Boeing") represented approximately
35%, 38% and 42%, respectively, of our net sales, covering virtually every Boeing plant and product.
For the fiscal years ended March 31, 2017, 2016 and 2015, Gulfstream Aerospace Corporation ("Gulfstream") represented
approximately 12%, 12% and 9%, respectively, of our net sales, covering several of Gulfstream's products.
A significant reduction in sales to Boeing and/or Gulfstream would have a material adverse impact on our financial
position, results of operations and cash flows.
United States and International Operations
Our revenues from customers in the United States for the fiscal years ended March 31, 2017, 2016 and 2015, were
approximately $2,764 million, $3,088 million, and $3,136 million, respectively. Our revenues from customers in all other
countries for the fiscal years ended March 31, 2017, 2016 and 2015, were approximately $769 million, $798 million, and $753
million, respectively.
As of March 31, 2017 and 2016, our long-lived assets located in the United States were approximately $2,326 million and
$2,725 million, respectively. As of March 31, 2017 and 2016, our long-lived assets located in all other countries were
approximately $315 million and $367 million, respectively.
Competition
We compete primarily with Tier 1 and Tier 2 aerostructures manufacturers, systems suppliers and component
manufacturers, some of which are divisions or subsidiaries of other large companies, in the manufacture of aircraft structures,
systems components, subassemblies and detail parts. OEMs are increasingly focusing on assembly and integration activities
while outsourcing more manufacturing and, therefore, are less of a competitive force than in previous years.
Competition for the repair and overhaul of aviation components comes from four primary sources, some of whom possess
greater financial and other resources than we have: OEMs, major commercial airlines, government support depots and other
independent repair and overhaul companies. Some major commercial airlines continue to own and operate their own service
centers, while others have begun to sell or outsource their repair and overhaul services to other aircraft operators or third
parties. Large domestic and foreign airlines that provide repair and overhaul services typically provide these services not only
for their own aircraft but for other airlines as well. OEMs also maintain service centers which provide repair and overhaul
services for the components they manufacture. Many governments maintain aircraft support depots in their military
organizations that maintain and repair the aircraft they operate. Other independent service organizations also compete for the
repair and overhaul business of other users of aircraft components.
Participants in the aerospace industry compete primarily on the basis of breadth of technical capabilities, quality,
turnaround time, capacity and price.
Government Regulation and Industry Oversight
The aerospace industry is highly regulated in the United States by the FAA and in other countries by similar agencies. We
must be certified by the FAA and, in some cases, by individual OEMs, in order to engineer and service parts and components
used in specific aircraft models. If material authorizations or approvals were revoked or suspended, our operations would be
adversely affected. New and more stringent government regulations may be adopted, or industry oversight heightened, in the
future and these new regulations, if enacted, or any industry oversight, if heightened, may have an adverse impact on us.
We must also satisfy the requirements of our customers, including OEMs, that are subject to FAA regulations, and provide
these customers with products and repair services that comply with the government regulations applicable to aircraft
components used in commercial flight operations. The FAA regulates commercial flight operations and requires that aircraft
components meet its stringent standards. In addition, the FAA requires that various maintenance routines be performed on
aircraft components, and we currently satisfy these maintenance standards in our repair and overhaul services. Several of our
operating locations are FAA-approved repair stations.
6
Generally, the FAA only grants licenses for the manufacture or repair of a specific aircraft component, rather than the
broader licenses that have been granted in the past. The FAA licensing process may be costly and time-consuming. In order to
obtain an FAA license, an applicant must satisfy all applicable regulations of the FAA governing repair stations. These
regulations require that an applicant have experienced personnel, inspection systems, suitable facilities and equipment. In
addition, the applicant must demonstrate a need for the license. Because an applicant must procure manufacturing and repair
manuals from third parties relating to each particular aircraft component in order to obtain a license with respect to that
component, the application process may involve substantial cost.
The license approval processes for the European Aviation Safety Agency ("EASA"), which regulates this industry in the
European Union, the Civil Aviation Administration of China, and other comparable foreign regulatory authorities are similarly
stringent, involving potentially lengthy audits. EASA was formed in 2002 and is handling most of the responsibilities of the
national aviation authorities in Europe, such as the United Kingdom Civil Aviation Authority.
Our operations are also subject to a variety of worker and community safety laws. For example, the Occupational Safety
and Health Act of 1970, or OSHA, mandates general requirements for safe workplaces for all employees in the United States. In
addition, OSHA provides special procedures and measures for the handling of hazardous and toxic substances. Specific safety
standards have been promulgated for workplaces engaged in the treatment, disposal or storage of hazardous waste. We believe
that our operations are in material compliance with OSHA's health and safety requirements.
Environmental Matters
Our business, operations and facilities are subject to numerous stringent federal, state, local and foreign environmental
laws and regulation by government agencies, including the Environmental Protection Agency ("EPA"). Among other matters,
these regulatory authorities impose requirements that regulate the emission, discharge, generation, management, transportation
and disposal of hazardous materials, pollutants and contaminants, govern public and private response actions to hazardous or
regulated substances which may be or have been released to the environment, and require us to obtain and maintain licenses
and permits in connection with our operations. This extensive regulatory framework imposes significant compliance burdens
and risks on us. Although management believes that our operations and our facilities are in material compliance with such laws
and regulations, future changes in these laws, regulations or interpretations thereof or the nature of our operations or regulatory
enforcement actions which may arise, may require us to make significant additional capital expenditures to ensure compliance
in the future.
Certain of our facilities, including facilities acquired and operated by us or one of our subsidiaries have at one time or
another been under active investigation for environmental contamination by federal or state agencies when acquired, and at
least in some cases, continue to be under investigation or subject to remediation for potential environmental contamination. We
are frequently indemnified by prior owners or operators and/or present owners of the facilities for liabilities which we incur as
a result of these investigations and the environmental contamination found which pre-dates our acquisition of these facilities,
subject to certain limitations. We also maintain a pollution liability policy that provides coverage for material liabilities
associated with the clean-up of on-site pollution conditions, as well as defense and indemnity for certain third-party suits
(including Superfund liabilities at third-party sites), in each case, to the extent not otherwise indemnified. This policy applies
to all of our manufacturing and assembly operations worldwide. Also, as we proceed with our plans to exit certain facilities as
part of restructuring and related initiatives, the need for remediation for potential environmental contamination could be
identified. If we are required to pay the expenses related to environmental liabilities because neither indemnification nor
insurance coverage is available, these expenses could have a material adverse effect on us.
Employees
As of March 31, 2017, we employed 14,309 persons, of whom 3,990 were management employees, 123 were sales and
marketing personnel, 801 were technical personnel, 660 were administrative personnel and 8,735 were production workers. Our
segments were composed of the following employees: Integrated Systems - 3,060 persons, Aerospace Structures - 4,538
persons, Precision Components - 5,479 persons, Product Support - 1,069 persons, and Corporate - 163 persons.
Several of our subsidiaries are parties to collective bargaining agreements with labor unions. Under those agreements, we
currently employ approximately 1,780 full-time employees. Currently, approximately 12% of our permanent employees are
represented by labor unions and approximately 47% of net sales are derived from the facilities at which at least some
employees are unionized. During the quarter ended June 30, 2016, we settled the strike and agreed to a new collective
bargaining agreement with our union employees with IAM District 751 at our Spokane, Washington facility which had expired
during the quarter, resulting in a charge of $15.7 million due to disruption costs. Of the 1,780 employees represented by
unions, 81 employees are working under contracts that have expired or will expire within one year and 479 employees in our
Red Oak, Texas and 351 employees in our Tulsa, Oklahoma facilities have not yet negotiated initial contracts. Our inability to
7
negotiate an acceptable contract with any of these labor unions could result in strikes by the affected workers and increased
operating costs as a result of higher wages or benefits paid to union members. If the unionized workers were to engage in a
strike or other work stoppage, or other employees were to become unionized, we could experience a significant disruption of
our operations and higher ongoing labor costs, which could have an adverse effect on our business and results of operations.
Research and Development Expenses
Certain information about our research and development expenses for the fiscal years ended March 31, 2017, 2016 and
2015 is available in Note 2 of "Notes to Consolidated Financial Statements."
Executive Officers
Our current executive officers are:
Name
Daniel J. Crowley
James F. McCabe, Jr.
John B. Wright, II
Richard R. Lovely
Thomas A. Quigley, III
Thomas K. Holzthum
MaryLou B. Thomas
Michael R. Abram
Age
Position
54 President and Chief Executive Officer and Director
54 Senior Vice President, Chief Financial Officer
63 Senior Vice President, General Counsel and Secretary
58 Senior Vice President, Human Resources
40 Vice President and Controller
60 Executive Vice President, Integrated Systems
54 Executive Vice President, Aerospace Structures
64 Executive Vice President, Product Support
Daniel J. Crowley was appointed President and Chief Executive Officer and a director of the Company on January 4, 2016.
Previously, Mr. Crowley served as President of two Raytheon Company business areas from 2010 through 2015. Prior to
Raytheon, Mr. Crowley served as Chief Operating Officer of Lockheed Martin Aeronautics after holding a series of
increasingly responsible assignments across its space, electronics, and aeronautics sectors.
James F. McCabe, Jr. has been our Senior Vice President and Chief Financial Officer since August 2016. He joined
Triumph from Steel Partners Holdings where he last served as Senior Vice President and CFO, President, Shared Services, and
SVP and CFO of its affiliates Handy & Harman and Steel Excel. Prior to joining Steel Partners Holdings, McCabe served as
Vice President, Finance and Treasurer of American Water’s Northeast Region, and President and CFO of Teleflex Aerospace,
which served the global aviation industry. He is a certified public accountant and Six Sigma Green Belt, and served as a
member of the Board of Governors and the Civil Aviation Council Executive Committee for the Aerospace Industries
Association.
John B. Wright, II has been a Senior Vice President and our General Counsel and Secretary since April 2016, having served
as Vice President, General Counsel and Secretary from 2004 until April 2016. From 2001 until he joined us, Mr. Wright was a
partner with the law firm of Ballard Spahr LLP, where he practiced corporate and securities law.
Richard R. Lovely was appointed Senior Vice President, Human Resources in April 2016. From 2009 until 2015, Mr.
Lovely served as Senior Vice President, Global Human Resources for Houghton International Inc. and Executive Vice
President, Human Resources for Rohm and Haas Company from 2007 until 2009.
Thomas A. Quigley, III has been our Vice President and Controller since November 2012, and serves as the Company's
principal accounting officer. Mr. Quigley has served as the Company's SEC Reporting Manager since January 2009. From
June 2002 until joining Triumph in 2009, Mr. Quigley held various roles within the audit practice of KPMG LLP, including
Senior Audit Manager.
Thomas K. Holzthum was appointed Executive Vice President, Integrated Systems in April 2016. Prior thereto, Mr.
Holzthum served as Corporate Vice President-Systems beginning in October 2013 with responsibility for eight Triumph Group
companies in Integrated Systems. Mr. Holzthum previously served as President of Triumph Actuation Systems-Connecticut
from 2001 to 2013. Mr. Holtzhum joined Triumph in 1998 with the acquisition of Frisby Aerospace, where he held the position
of Group Director, Hydraulics.
MaryLou B. Thomas was appointed Executive Vice President, Aerospace Structures in April 2016. Since joining Triumph
in 2005, Ms. Thomas has served as Corporate Vice President - Composites, Structures and Interiors business area with
operations in the United States, Mexico, Thailand and U.K. Ms. Thomas has more than thirty years of experience in the
aerospace and defense industry, including service at Lockheed, Boeing and the Company.
8
Michael R. Abram was appointed Executive Vice President, Product Support in April 2016. Since joining Triumph in 2003
as Vice President of Operations for Triumph Airborne Structures, Mr. Abram has served as Vice President of Triumph Product
Support, North America and, most recently, Vice President-Aftermarket Services Group, where he was responsible for the
company’s maintenance, repair and overhaul (MRO) activities supporting commercial, regional, business and military aircraft
worldwide. Before joining Triumph, he was Vice President of Operations for NORDAM Repair Division.
Available Information
For more information about us, visit our website at www.triumphgroup.com. The contents of the website are not part of
this Annual Report on Form 10-K. Our electronic filings with the Securities and Exchange Commission ("SEC") (including all
Forms 10-K, 10-Q and 8-K, and any amendments to these reports) are available free of charge through our website immediately
after we electronically file with or furnish them to the SEC. These filings may also be read and copied at the SEC's Public
Reference Room which is located at 100 F Street, N.E., Washington, D.C. 20549. Information about the operation of the Public
Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains
reports, proxy and information statements, and other information regarding issuers who file electronically with the SEC at
www.sec.gov.
Item 1A. Risk Factors
Factors that have an adverse impact on the aerospace industry may adversely affect our results of operations and liquidity.
A substantial percentage of our gross profit and operating income derives from commercial aviation. Our operations have
been focused on designing, engineering, manufacturing, repairing and overhauling a broad portfolio of aerostructures, aircraft
components, accessories, subassemblies and systems. Therefore, our business is directly affected by economic factors and
other trends that affect our customers in the aerospace industry, including a possible decrease in outsourcing by OEMs and
aircraft operators or projected market growth that may not materialize or be sustainable. We are also significantly dependent on
sales to the commercial aerospace market, which has been cyclical in nature with significant downturns in the past. When these
economic and other factors adversely affect the aerospace industry, they tend to reduce the overall customer demand for our
products and services, which decreases our operating income. Economic and other factors that might affect the aerospace
industry may have an adverse impact on our results of operations and liquidity. We have credit exposure to a number of
commercial airlines, some of which have encountered financial difficulties. In addition, an increase in energy costs and the
price of fuel to the airlines could result in additional pressure on the operating costs of airlines. The market for jet fuel is
inherently volatile and is subject to, among other things, changes in government policy on jet fuel production, fluctuations in
the global supply of crude oil and disruptions in oil production or delivery caused by hostility in oil-producing areas. Airlines
are sometimes unable to pass on increases in fuel prices to customers by increasing fares due to the competitive nature of the
airline industry, and this compounds the pressure on operating costs. Other events of general impact such as natural disasters,
war, terrorist attacks against the industry or pandemic health crises may lead to declines in the worldwide aerospace industry
that could adversely affect our business and financial condition.
In addition, demand for our maintenance, repair and overhaul services is strongly correlated with worldwide flying activity.
A significant portion of the MRO activity required on commercial aircraft is mandated by government regulations that limit the
total time or number of flights that may elapse between scheduled MRO events. As a result, although short-term deferrals are
possible, MRO activity is ultimately required to continue to operate the aircraft in revenue-producing service. Therefore, over
the intermediate and long-term, trends in the MRO market are closely related to the size and utilization level of the worldwide
aircraft fleet, as reflected by the number of available seat miles, commonly referred to as ASMs, and cargo miles flown.
Consequently, conditions or events which contribute to declines in worldwide ASMs and cargo miles flown, such as those
mentioned above, could negatively impact our MRO business.
We may not be successful in achieving expected operating efficiencies and sustaining or improving operating expense
reductions, and may experience business disruptions associated with restructuring, facility consolidations, realignment, cost
reduction and other strategic initiatives.
Over the past several years we have implemented a number of restructuring, realignment and cost reduction initiatives,
including facility consolidations, organizational realignments and reductions in our workforce. While we have realized some
efficiencies from these actions, we may not realize the benefits of these initiatives to the extent we anticipated. Further, such
benefits may be realized later than expected, and the ongoing difficulties in implementing these measures may be greater than
anticipated, which could cause us to incur additional costs or result in business disruptions. In addition, if these measures are
not successful or sustainable, we may be compelled to undertake additional realignment and cost reduction efforts, which could
9
result in significant additional charges. Moreover, if our restructuring and realignment efforts prove ineffective, our ability to
achieve our other strategic and business plan goals may be adversely affected.
We derive a significant portion of our revenue from the U.S. government, primarily from defense related programs with the
U.S. DoD . Levels of U.S. defense spending are very difficult to predict and may be impacted by numerous factors such as the
political environment, U.S. foreign policy, macroeconomic conditions and the ability of the U.S. government to enact relevant
legislation such as authorization and appropriations bills.
In addition, significant budgetary delays and constraints have already resulted in reduced spending levels, and additional
reductions may be forthcoming. The Budget Control Act of 2011 (The Act) established limits on U.S. government discretionary
spending, including a reduction of defense spending between the 2012 and 2021 U.S. government fiscal years. Accordingly,
long-term uncertainty remains with respect to overall levels of defense spending and it is likely that U.S. government
discretionary spending levels will continue to be subject to pressure.
In addition, there continues to be significant uncertainty with respect to program-level appropriations for the U.S. DoD and
other government agencies within the overall budgetary framework described above. While the House and Senate
Appropriations committees included funding for major military programs in fiscal year 2018, such as CH-47 Chinook, AH-64
Apache, KC-46A Tanker, UH-60 Black Hawk, Northrop Grumman Global Hawk and V-22 Osprey programs, uncertainty
remains about how defense budgets in fiscal year 2018 and beyond will affect these programs. Future budget cuts, including
cuts mandated by sequestration, or future procurement decisions associated with the authorizations and appropriations process
could result in reductions, cancellations, and/or delays of existing contracts or programs. Any of these impacts could have a
material effect on the results of the Company’s operations, financial position and/or cash flows.
In addition, as a result of the significant ongoing uncertainty with respect to both U.S. defense spending levels and the
nature of the threat environment, we expect the U.S. DoD to continue to emphasize cost-cutting and other efficiency initiatives
in its procurement processes. If we can no longer adjust successfully to these changing acquisition priorities and/or fail to meet
affordability targets set by the U.S. DoD customer, our revenues and market share would be further impacted.
The profitability of certain development programs depends significantly on the assumptions surrounding satisfactory
settlement of claims and assertions.
For certain of our new development programs, we regularly commence work or incorporate customer-requested changes
prior to negotiating pricing terms for engineering work or the product which has been modified. We typically have the legal
right to negotiate pricing for customer-directed changes. In those cases, we assert to our customers our contractual rights to
obtain the additional revenue or cost reimbursement we expect to receive upon finalizing pricing terms. An expected recovery
value of these assertions is incorporated into our contract profitability estimates when applying contract accounting. Our
inability to recover these expected values, among other factors, could result in the recognition of a forward loss on these
programs or a lower than expected profit margin and could have a material adverse effect on our results of operations.
Future volatility in the financial markets may impede our ability to successfully access capital markets and ensure adequate
liquidity and may adversely affect our customers and suppliers.
Future turmoil in the capital markets may impede our ability to access the capital markets when we would like, or need, to
raise capital or may restrict our ability to borrow money on favorable terms. Such market conditions could have an adverse
impact on our flexibility to react to changing economic and business conditions and on our ability to fund our operations and
capital expenditures in the future. In addition, interest rate fluctuations, financial market volatility or credit market disruptions
may also negatively affect our customers' and our suppliers' ability to obtain credit to finance their businesses on acceptable
terms. As a result, our customers' need for and ability to purchase our products or services may decrease, and our suppliers
may increase their prices, reduce their output or change their terms of sale. If our customers' or suppliers' operating and
financial performance deteriorates, or if they are unable to make scheduled payments or obtain credit, our customers may not
be able to pay, or may delay payment of, accounts receivable owed to us, and our suppliers may restrict credit or impose
different payment terms. Any inability of customers to pay us for our products and services or any demands by suppliers for
different payment terms may adversely affect our earnings and cash flow.
We incur risk associated with new programs.
New programs with new technologies typically carry risks associated with design responsibility, development of new
production tools, hiring and training of qualified personnel, increased capital and funding commitments, ability to meet
customer specifications, delivery schedules and unique contractual requirements, supplier performance, ability of the customer
10
to meet its contractual obligations to us, and our ability to accurately estimate costs associated with such programs. In addition,
any new aircraft program may not generate sufficient demand or may experience technological problems or significant delays
in the regulatory certification or manufacturing and delivery schedule. If we were unable to perform our obligations under new
programs to the customer's satisfaction or manufacture products at our estimated costs, if we were to experience unexpected
fluctuations in raw material prices or supplier problems leading to cost overruns, if we were unable to successfully perform
under revised design and manufacturing plans or successfully resolve claims and assertions, or if a new program in which we
had made a significant investment was terminated or experienced weak demand, delays or technological problems, our
business, financial condition and results of operations could be materially adversely affected. This risk includes the potential for
default, quality problems, or inability to meet weight requirements and could result in low margin or forward loss contracts, and
the risk of having to write-off inventory if it were deemed to be unrecoverable over the life of the program. In addition,
beginning new work on existing programs also carries risks associated with the transfer of technology, knowledge and tooling.
In order to perform on new programs we may be required to construct or acquire new facilities requiring additional up-
front investment costs. In the case of significant program delays and/or program cancellations, we could be required to bear
certain unrecoverable construction and maintenance costs and incur potential impairment charges for the new facilities. Also,
we may need to expend additional resources to determine an alternate revenue generating use for the facilities. Likewise,
significant delays in the construction or acquisition of a plant site could impact production schedules.
Our business could be negatively affected by cyber or other security threats or other disruptions.
Our businesses depend heavily on information technology and computerized systems to communicate and operate
effectively. The Company's systems and technologies, or those of third parties on which we rely, could fail or become
unreliable due to equipment failures, software viruses, cyber threats, terrorist acts, natural disasters, power failures or other
causes. These threats arise in some cases as a result of our role as a defense contractor.
Cybersecurity threats are evolving and include, but are not limited to, malicious software, attempts to gain unauthorized
access to our sensitive information, including that of our customers, suppliers, subcontractors, and joint venture partners, and
other electronic security breaches that could lead to disruptions in mission critical systems, unauthorized release of confidential
or otherwise protected information, and corruption of data.
Although we utilize various procedures and controls to monitor and mitigate these threats, there can be no assurance that
these procedures and controls will be sufficient to prevent security threats from materializing. If any of these events were to
materialize, the costs related to cyber or other security threats or disruptions may not be fully insured or indemnified and could
have a material adverse effect on our reputation, operating results, and financial condition.
Cancellations, reductions or delays in customer orders may adversely affect our results of operations.
Our overall operating results are affected by many factors, including the timing of orders from large customers and the
timing of expenditures to manufacture parts and purchase inventory in anticipation of future sales of products and services. A
large portion of our operating expenses are relatively fixed. Because several of our operating locations typically do not obtain
long-term purchase orders or commitments from our customers, they must anticipate the future volume of orders based upon
the historic purchasing patterns of customers and upon our discussions with customers as to their anticipated future
requirements. These historic patterns may be disrupted by many factors, including changing economic conditions, inventory
adjustments, or work stoppages or labor disruptions at our customers' locations. Cancellations, reductions or delays in orders
by a customer or group of customers could have a material adverse effect on our business, financial condition and results of
operations.
In the event that certain of the Company's subsidiaries commence voluntary insolvency proceedings, it could cause a
material adverse effect on the Company.
Pursuant to a recent amendment to the Credit Facility (as defined below), the Company’s Vought Aircraft Division
(Triumph Aerostructures, LLC) and certain affiliated entities (collectively, the “Vought entities”) have the option, if necessary,
to commence voluntary insolvency proceedings within 90 days of the effective date of the amendment, subject to certain
conditions set forth in the Credit Facility. Upon the commencement of such proceedings, the Vought entities would no longer be
Subsidiary Co-Borrowers under the Credit Facility, and transactions between any of the Vought entities, on the one hand, and
the Company and any of the Subsidiary Co-Borrowers, on the other hand, will be restricted. While the commencement of such
proceedings would not cause a cross default under the Credit Facility, such a filing could have a material adverse effect on the
Company's obligations to and relationships with customers, suppliers, lenders and financing sources.
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Our acquisition strategy exposes us to risks, including the risk that we may not be able to successfully integrate acquired
businesses.
We have a consistent strategy to grow, in part, through the acquisition of additional businesses in the aerospace industry
and are continuously evaluating various acquisition opportunities, including those outside the United States and those that may
have a material impact on our business. Our ability to grow by acquisition is dependent upon, among other factors, the
availability of suitable acquisition candidates. Growth by acquisition involves risks that could adversely affect our operating
results, including difficulties in integrating the operations and personnel of acquired companies, the risk of diverting the
attention of senior management from our existing operations, the potential amortization of acquired intangible assets, the
potential impairment of goodwill and the potential loss of key employees of acquired companies. We may not be able to
consummate acquisitions on satisfactory terms or, if any acquisitions are consummated, successfully integrate these acquired
businesses.
A significant decline in business with a key customer could have a material adverse effect on us.
Boeing, or Boeing Commercial, Military and Space, represented approximately 35% of our net sales for the fiscal year
ended March 31, 2017, covering virtually every Boeing plant and product. Gulfstream represented approximately 12% of our
net sales for the fiscal year ended March 31, 2017, covering several Gulfstream plants and products. As a result, a significant
reduction in purchases by Boeing and/or Gulfstream could have a material adverse impact on our financial condition, results of
operations, and cash flows. In addition, some of our individual companies rely significantly on particular customers, the loss of
which could have an adverse effect on those businesses.
Our international sales and operations are subject to applicable laws relating to trade, export controls and foreign corrupt
practices, the violation of which could adversely affect our operations.
We must comply with all applicable export control laws and regulations of the United States and other countries. United
States laws and regulations applicable to us include the Arms Export Control Act, the International Traffic in Arms Regulations
("ITAR"), the Export Administration Regulations ("EAR") and the trade sanctions laws and regulations administered by the
United States Department of the Treasury's Office of Foreign Assets Control ("OFAC"). EAR restricts the export of dual-use
products and technical data to certain countries, while ITAR restricts the export of defense products, technical data and defense
services. The U.S. Government agencies responsible for administering EAR and ITAR have significant discretion in the
interpretation and enforcement of these regulations. We cannot provide services to certain countries subject to United States
trade sanctions unless we first obtain the necessary authorizations from OFAC. In addition, we are subject to the Foreign
Corrupt Practices Act which generally bars bribes or unreasonable gifts to foreign governments or officials.
Violations of these laws or regulations could result in significant additional sanctions, including fines, more onerous
compliance requirements, more extensive debarments from export privileges, loss of authorizations needed to conduct aspects
of our international business and criminal penalties and may harm our ability to enter into contracts with the U.S. Government.
A future violation of ITAR or the other regulations enumerated above could materially adversely affect our business, financial
condition and results of operations.
Our expansion into international markets may increase credit, currency and other risks, and our current operations in
international markets expose us to such risks.
As we pursue customers in Asia, South America and other less developed aerospace markets throughout the world, our
inability to ensure the creditworthiness of our customers in these areas could adversely impact our overall profitability. In
addition, with operations in Canada, China, France, Germany, Ireland, Mexico, Thailand and the United Kingdom, and
customers throughout the world, we will be subject to the legal, political, social and regulatory requirements and economic
conditions of other jurisdictions. In the future, we may also make additional international capital investments, including further
acquisitions of companies outside the United States or companies having operations outside the United States. Risks inherent
to international operations include, but are not limited to, the following:
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difficulty in enforcing agreements in some legal systems outside the United States;
imposition of additional withholding taxes or other taxes on our foreign income, tariffs or other restrictions on foreign
trade and investment, including currency exchange controls;
fluctuations in exchange rates which may affect demand for our products and services and may adversely affect our
profitability in U.S. dollars;
inability to obtain, maintain or enforce intellectual property rights;
changes in general economic and political conditions in the countries in which we operate;
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unexpected adverse changes in the laws or regulatory requirements outside the United States, including those with
respect to environmental protection, export duties and quotas;
failure by our employees or agents to comply with U.S. laws affecting the activities of U.S. companies abroad;
difficulty with staffing and managing widespread operations; and
difficulty of and costs relating to compliance with the different commercial and legal requirements of the countries in
which we operate.
We may need additional financing for internal growth and acquisitions and capital expenditures and additional financing
may not be available on terms acceptable to us.
A key element of our strategy has been, and continues to be, internal growth supplemented by growth through the
acquisition of additional aerospace companies and product lines. In order to grow internally, we may need to make significant
capital expenditures, such as investing in facilities in low-cost countries, and may need additional capital to do so. Our ability
to grow is dependent upon, and may be limited by, among other things, access to markets and conditions of markets,
availability under the Credit Facility and the Securitization Facility (each as defined in Note 10 of the "Notes to Consolidated
Financial Statements") and by particular restrictions contained in the Credit Facility and our other financing arrangements. In
that case, additional funding sources may be needed, and we may not be able to obtain the additional capital necessary to
pursue our internal growth and acquisition strategy or, if we can obtain additional financing, the additional financing may not
be on financial terms that are satisfactory to us.
Competitive pressures may adversely affect us.
We have numerous competitors in the aerospace industry. We compete primarily with the top-tier systems integrators and
the manufacturers that supply them, some of which are divisions or subsidiaries of OEMs and other large companies that
manufacture aircraft components and subassemblies. Our OEM competitors, which include Boeing, Airbus, Bell Helicopter,
Bombardier, Cessna, General Electric, Gulfstream, Honeywell, Lockheed Martin, Northrop Grumman, Raytheon, Rolls Royce
and Sikorsky, may choose not to outsource production of aerostructures or other components due to, among other things, their
own direct labor and overhead considerations, capacity utilization at their own facilities and desire to retain critical or core
skills. Consequently, traditional factors affecting competition, such as price and quality of service, may not be significant
determinants when OEMs decide whether to produce a part in-house or to outsource. We also face competition from non-OEM
component manufacturers, including Alenia Aeronautica, Fokker Technologies, Fuji Heavy Industries, GKN Westland
Aerospace (U.K.), Kawasaki Heavy Industries, Mitsubishi Heavy Industries, Spirit AeroSystems and UTC Aerospace Systems.
Competition for the repair and overhaul of aviation components comes from three primary sources: OEMs, major commercial
airlines and other independent repair and overhaul companies.
We may need to expend significant capital to keep pace with technological developments in our industry.
The aerospace industry is constantly undergoing development and change and it is likely that new products, equipment and
methods of repair and overhaul service will be introduced in the future. In order to keep pace with any new developments,
such as additive technology, we may need to expend significant capital to purchase new equipment and machines or to train our
employees in the new methods of production and service.
The construction of aircraft is heavily regulated and failure to comply with applicable laws could reduce our sales or
require us to incur additional costs to achieve compliance, and we may incur significant expenses to comply with new or
more stringent governmental regulation.
The aerospace industry is highly regulated in the United States by the FAA and in other countries by similar agencies. We
must be certified by the FAA and, in some cases, by individual OEMs in order to engineer and service parts, components and
aerostructures used in specific aircraft models. If any of our material authorizations or approvals were revoked or suspended,
our operations would be adversely affected. New or more stringent governmental regulations may be adopted, or industry
oversight heightened in the future, and we may incur significant expenses to comply with any new regulations or any
heightened industry oversight.
Our business could be materially adversely affected by product warranty obligations.
Our operations expose us to potential liability for warranty claims made by customers or third parties with respect to
aircraft components that have been designed, manufactured, or serviced by us or our suppliers. Material product warranty
obligations could have a material adverse effect on our business, financial condition and results of operations.
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We may not realize our anticipated return on capital commitments made to expand our capabilities.
We continually make significant capital expenditures to implement new processes and to increase both efficiency and
capacity. Some of these projects require additional training for our employees and not all projects may be implemented as
anticipated. If any of these projects do not achieve the anticipated increase in efficiency or capacity, our returns on these
capital expenditures may be lower than expected.
Any product liability claims in excess of insurance may adversely affect our financial condition.
Our operations expose us to potential liability for personal injury or death as a result of the failure of an aircraft component
that has been serviced by us or the failure of an aircraft component designed or manufactured by us. While we believe that our
liability insurance is adequate to protect us from these liabilities, our insurance may not cover all liabilities. Additionally,
should insurance market conditions change, general aviation product liability, insurance coverage may not be available in the
future at a cost acceptable to us. Any material liability not covered by insurance or for which third-party indemnification is not
available could have a material adverse effect on our financial condition.
The lack of available skilled personnel may have an adverse effect on our operations.
From time to time, some of our operating locations have experienced difficulties in attracting and retaining skilled
personnel to design, engineer, manufacture, repair and overhaul sophisticated aircraft components. Our ability to operate
successfully could be jeopardized if we are unable to attract and retain a sufficient number of skilled personnel to conduct our
business.
Our fixed-price contracts may commit us to unfavorable terms.
A significant portion of our net sales are derived from fixed-price contracts under which we have agreed to provide
components or aerostructures for a price determined on the date we entered into the contract. Several factors may cause the
costs we incur in fulfilling these contracts to vary substantially from our original estimates, and we bear the risk that increased
or unexpected costs may reduce our profit or cause us to sustain losses on these contracts. In a fixed-price contract, we must
fully absorb cost overruns, notwithstanding the difficulty of estimating all of the costs we will incur in performing these
contracts. Because our ability to terminate contracts is generally limited, we may not be able to terminate our performance
requirements under these contracts at all or without substantial liability and, therefore, in the event we are sustaining reduced
profits or losses, we could continue to sustain these reduced profits or losses for the duration of the contract term. Our failure
to anticipate technical problems, estimate delivery reductions, estimate costs accurately or control costs during performance of
a fixed-price contract may reduce our profitability or cause significant losses on programs similar in nature to the forward
losses incurred on the Boeing 747-8 ("747-8 program") and Bombardier Global 7000/8000 contracts.
Due to the size and long-term nature of many of our contracts, we are required by GAAP to estimate sales and expenses
relating to these contracts in our financial statements, which may cause actual results to differ materially from those
estimated under different assumptions or conditions.
Our financial statements are prepared in conformity with accounting principles generally accepted in the United States
("GAAP"). These principles require our management to make estimates and assumptions regarding our contracts that affect the
reported amounts of revenue and expenses during the reporting period. Contract accounting requires judgment relative to
assessing risks, estimating contract sales and costs, and making assumptions for schedule and technical issues. Due to the size
and nature of many of our contracts, the estimation of total sales and cost at completion is complicated and subject to many
variables. While we base our estimates on historical experience and on various assumptions that we believe to be reasonable
under the circumstances at the time made, actual results may differ materially from those estimated.
Any exposure to environmental liabilities may adversely affect us.
Our business, operations and facilities are subject to numerous stringent federal, state, local and foreign environmental
laws and regulations, and we are subject to potentially significant fines or penalties, including criminal sanctions, if we fail to
comply with these requirements. In addition, we could be affected by future laws and regulations, including those imposed in
response to climate change concerns and other actions commonly referred to as "green initiatives." Compliance with current
and future environmental laws and regulations currently requires and is expected to continue to require significant operating
and capital costs.
Pursuant to certain environmental laws, a current or previous owner or operator of a contaminated site may be held liable
for the entire cost of investigation, removal or remediation of hazardous materials at such property, whether the owner or
operator knew of, or was responsible for, the presence of any hazardous materials. Although management believes that our
operations and facilities are in material compliance with such laws and regulations, future changes in such laws, regulations or
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interpretations thereof or the nature of our operations or regulatory enforcement actions which may arise, may require us to
make significant additional capital expenditures to ensure compliance in the future. Certain of our facilities, including facilities
acquired and operated by us or one of our subsidiaries, have at one time or another been under active investigation for
environmental contamination by federal or state agencies when acquired and, at least in some cases, continue to be under
investigation or subject to remediation for potential or identified environmental contamination. Lawsuits, claims and costs
involving environmental matters are likely to continue to arise in the future. Individual facilities of ours have also been subject
to investigation on occasion for possible past waste disposal practices which might have contributed to contamination at or
from remote third-party waste disposal sites. In some instances, we are indemnified by prior owners or operators and/or
present owners of the facilities for liabilities which we incur as a result of these investigations and the environmental
contamination found which pre-dates our acquisition of these facilities, subject to certain limitations, including, but not limited
to specified exclusions, deductibles and limitations on the survival period of the indemnity. We also maintain a pollution
liability policy that provides coverage, subject to specified limitations, for specified material liabilities associated with the
clean-up of certain on-site pollution conditions, as well as defense and indemnity for certain third-party suits (including
Superfund liabilities at third-party sites), in each case, to the extent not otherwise indemnified. Also, as we proceed with our
plans to exit certain facilities as part of restructuring and related initiatives, the need for remediation for potential
environmental contamination could be identified. However, if we are required to pay the expenses related to environmental
liabilities because neither indemnification nor insurance coverage is available, these expenses could have a material adverse
effect on our financial position, results of operations, and cash flows.
We could become involved in intellectual property litigation, which could have a material and adverse impact on our
profitability.
We and other companies in our industry possess certain proprietary rights relating to designs, engineering, manufacturing
processes and repair and overhaul procedures. In the event that we believe that a third party is infringing upon our proprietary
rights, we may bring an action to enforce such rights. In addition, third parties may claim infringement by us with respect to
their proprietary rights and may initiate legal proceedings against us in the future. The expense and time of bringing an action
to enforce such rights or defending against infringement claims can be significant. Intellectual property litigation involves
complex legal and factual questions which makes the outcome of any such proceedings subject to considerable uncertainty.
Not only can such litigation divert management's attention, but it can also expose the Company to damages and potential
injunctive relief which, if granted, may preclude the Company from making, using or selling particular products or technology.
The expense and time associated with such litigation may have a material and adverse impact on our profitability.
We do not own certain intellectual property and tooling that is important to our business.
In our overhaul and repair businesses, OEMs of equipment that we maintain for our customers include language in repair
manuals relating to their equipment asserting broad claims of proprietary rights to the contents of the manuals used in our
operations. Although we believe that our use of manufacture and repair manuals is lawful, there can be no assurance that
OEMs will not try to enforce such claims, including through the possible use of legal proceedings, or that any such actions will
be unsuccessful.
Our business also depends on using certain intellectual property and tooling that we have rights to use pursuant to license
grants under our contracts with our OEM customers. These contracts contain restrictions on our use of the intellectual property
and tooling and may be terminated if we violate certain of these restrictions. Our loss of a contract with an OEM customer and
the related license rights to use an OEM's intellectual property or tooling would materially adversely affect our business.
Any significant disruption from key suppliers of raw materials and key components could delay production and decrease
revenue.
We are highly dependent on the availability of essential raw materials such as carbon fiber, aluminum and titanium, and
purchased engineered component parts from our suppliers, many of which are available only from single customer-approved
sources. Moreover, we are dependent upon the ability of our suppliers to provide raw materials and components that meet our
specifications, quality standards and delivery schedules. Our suppliers' failure to provide expected raw materials or component
parts could require us to identify and enter into contracts with alternate suppliers that are acceptable to both us and our
customers, which could result in significant delays, expenses, increased costs and management distraction and adversely affect
production schedules and contract profitability.
We have from time to time experienced limited interruptions of supply, and we may experience a significant interruption in
the future. Our continued supply of raw materials and component parts are subject to a number of risks including:
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availability of capital to our suppliers;
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the destruction of our suppliers' facilities or their distribution infrastructure;
a work stoppage or strike by our suppliers' employees;
the failure of our suppliers to provide raw materials or component parts of the requisite quality;
the failure of essential equipment at our suppliers' plants;
the failure or shortage of supply of raw materials to our suppliers;
contractual amendments and disputes with our suppliers;
reduction to credit terms; and
geopolitical conditions in the global supply base.
In addition, some contracts with our suppliers for raw materials, component parts and other goods are short-term contracts,
which are subject to termination on a relatively short-term basis. The prices of our raw materials and component parts fluctuate
depending on market conditions, and substantial increases in prices could increase our operating costs, which, as a result of our
fixed-price contracts, we may not be able to recoup through increases in the prices of our products.
Due to economic difficulty, we may face pressure to renegotiate agreements resulting in lower margins. Our suppliers may
discontinue provision of products to us at attractive prices or at all, and we may not be able to obtain such products in the future
from these or other providers on the scale and within the time periods we require. Furthermore, substitute raw materials or
component parts may not meet the strict specifications and quality standards we and our customers demand, or that the U.S.
Government requires. If we are not able to obtain key products on a timely basis and at an affordable cost, or we experience
significant delays or interruptions of their supply, revenues from sales of products that use these supplies will decrease.
Our operations depend on our manufacturing facilities, which are subject to physical and other risks that could disrupt
production.
Our manufacturing facilities or our customers' facilities could be damaged or disrupted by a natural disaster, war, or
terrorist activity. We maintain property damage and business interruption insurance at the levels typical in our industry or for
our customers and suppliers, however, a major catastrophe, such as an earthquake, hurricane, fire, flood, tornado or other
natural disaster at any of our sites, or war or terrorist activities in any of the areas where we conduct operations could result in a
prolonged interruption of our business. Any disruption resulting from these events could cause significant delays in shipments
of products and the loss of sales and customers and we may not have insurance to adequately compensate us for any of these
events. For leased facilities, timely renewal of leases and risk mitigation from the sale of our leased facilities is required to
avoid any business interruption.
Our reputation, our ability to do business and our financial position, results of operations and/or cash flows may be
impacted by the improper conduct of employees, agents, subcontractors, suppliers, business partners or joint ventures in
which we participate.
We have implemented policies, procedures, training and other compliance controls, and have negotiated terms designed to
prevent misconduct by employees, agents or others working on our behalf or with us that would violate the applicable laws of
the jurisdictions in which we operate, including laws governing improper payments to government officials, the protection of
export controlled or classified information, cost accounting and billing, competition and data privacy. However, we cannot
ensure that we will prevent all such misconduct committed by our employees, agents, subcontractors, suppliers, business
partners or others working on our behalf or with us, and this risk of improper conduct may increase as we expand globally. In
the ordinary course of our business we form and are members of joint ventures. We may be unable to prevent misconduct or
other violations of applicable laws by these joint ventures (including their officers, directors and employees) or our partners.
Improper actions by those with whom or through whom we do business (including our employees, agents, subcontractors,
suppliers, business partners and joint ventures) could subject us to administrative, civil or criminal investigations and monetary
and non-monetary penalties, including suspension and debarment, which could negatively impact our reputation and ability to
conduct business and could have a material adverse effect on our financial position, results of operations and/or cash flows.
Significant consolidation by aerospace industry suppliers could adversely affect our business.
The aerospace industry continues to experience consolidation among suppliers and customers, primarily the airlines.
Suppliers have consolidated and formed alliances to broaden their product and integrated system offerings and achieve critical
mass. This supplier consolidation is in part attributable to aircraft manufacturers more frequently awarding long-term sole-
source or preferred supplier contracts to the most capable suppliers, thus reducing the total number of suppliers. This
consolidation could cause us to compete against certain competitors with greater financial resources, market penetration and
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purchasing power. When we purchase component parts and services from suppliers to manufacture our products, consolidation
reduces price competition between our suppliers, which could diminish incentives for our suppliers to reduce prices. If this
consolidation continues, our operating costs could increase and it may become more difficult for us to be successful in
obtaining new customers.
We may be subject to work stoppages at our facilities or those of our principal customers and suppliers, which could
seriously impact the profitability of our business.
At March 31, 2017, we employed 14,309 people, of which 12.4% belonged to unions. Our unionized workforces and
those of our customers and suppliers may experience work stoppages. For example, during the quarter ended June 30, 2016, we
settled the strike and agreed to a new collective bargaining agreement with our union employees with IAM District 751 at our
Spokane, Washington facility which had expired during the quarter. While we were in negotiations with the workforce, we
were able to implement plans that allowed us to continue production in Spokane with the support from our other locations. Our
union employees with Local 848 at our Red Oak, Texas and Local 952 at our Tulsa, Oklahoma, facilities of the United Auto
Workers ("UAW") are currently working without a contract. If we are unable to negotiate a contract with those workforces, our
operations may be disrupted and we may be prevented from completing production and delivery of products from those
facilities, which would negatively impact our results. Contingency plans have been developed that would allow production to
continue in the event of a strike.
Many aircraft manufacturers, airlines and aerospace suppliers have unionized workforces. Strikes, work stoppages or
slowdowns experienced by aircraft manufacturers, airlines or aerospace suppliers could reduce our customers' demand for our
products or prevent us from completing production. In turn, this may have a material adverse effect on our financial condition,
results of operations and cash flows.
Financial market conditions may adversely affect the benefit plan assets for our defined benefit plans, increase funding
requirements and materially impact our statements of financial position and cash flows.
Our benefit plan assets are invested in a diversified portfolio of investments in both the equity and debt categories, as well
as limited investments in other alternative investments. The current market values of all of these investments, as well as the
related benefit plan liabilities are impacted by the movements and volatility in the financial markets. In accordance with the
Compensation—Retirement Benefits topic of the Accounting Standards Codification ("ASC"), we have recognized the over-
funded or under-funded status of a defined benefit postretirement plan as an asset or liability on our balance sheet, and will
recognize changes in that funded status in the year in which the changes occur. The funded status is measured as the difference
between the fair value of the plan's assets and the projected benefit obligation. A decrease in the fair value of these plan assets
or a decrease in interest rates resulting from movements in the financial markets will increase the under-funded status of the
plans recorded on our Consolidated Balance Sheet and result in additional cash funding requirements to meet the minimum
required funding levels.
The U.S. government is a significant customer of our largest customers, and we and they are subject to specific U.S.
Government contracting rules and regulations.
The military aircraft manufacturers' business, and by extension, our business, is affected by the U.S. government's
continued commitment to programs under contract with our customers. The terms of defense contracts with the U.S.
government generally permit the government to terminate contracts partially or completely, either for its convenience or if we
default by failing to perform under the contract. Termination for convenience provisions provide only for our recovery of
unrecovered costs incurred or committed, settlement expenses and profit on the work completed prior to termination.
Termination for default provisions provide for the contractor to be liable for excess costs incurred by the U.S. government in
procuring undelivered items from another source. On contracts where the price is based on cost, the U.S. government may
review our costs and performance, as well as our accounting and general business practices. Based on the results of such
audits, the U.S. government may adjust our contract-related costs and fees, including allocated indirect costs. In addition,
under U.S. government purchasing regulations, some of our costs, including most financing costs, portions of research and
development costs, and certain marketing expenses may not be subject to reimbursement.
We bear the potential risk that the U.S. government may unilaterally suspend our customers or us from new contracts
pending the resolution of alleged violations of procurement laws or regulations. Sales to the U.S. government are also subject
to changes in the government's procurement policies in advance of design completion. An unexpected termination of, or
suspension from, a significant government contract, a reduction in expenditures by the U.S. government for aircraft using our
products, lower margins resulting from increasingly competitive procurement policies, a reduction in the volume of contracts
awarded to us, or substantial cost overruns could have a material adverse effect on our financial condition, results of operations
and cash flows.
17
We are subject to the requirements of the National Industrial Security Program Operating Manual for facility security
clearance, which is a prerequisite for our ability to perform on classified contracts for the U.S. Government.
DoD facility security clearance is required in order to be awarded and perform on classified contracts for the DoD and
certain other agencies of the U.S. Government, which is a significant part of our business. We have obtained clearance at
appropriate levels that require stringent qualifications, and we may be required to seek higher level clearances in the future. We
cannot assure you that we will be able to maintain our security clearance. If for some reason our security clearance is
invalidated or terminated, we may not be able to continue to perform our present classified contracts or be able to enter into
new classified contracts, which could affect our ability to compete for and capture new business.
Regulations related to conflict minerals have and will continue to force us to incur additional expenses, may make our
supply chain more complex, and could adversely impact our business.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 contains provisions to improve transparency
and accountability concerning the supply of certain minerals and metals, known as conflict minerals, originating from the
Democratic Republic of Congo (the "DRC") and adjoining countries. As a result, in August 2012, the SEC adopted annual
investigation, disclosure and reporting requirements for those companies that manufacture or contract to manufacture products
that contain conflict minerals that originated from the DRC and adjoining countries. We have and will continue to incur
compliance costs, including costs related to determining the sources of conflict minerals used in our products and other
potential changes to processes or sources of supply as a consequence of such verification activities. The implementation of
these rules could adversely affect the sourcing, supply and pricing of materials used in certain of our products. As there may be
only a limited number of suppliers offering "conflict free" minerals, we cannot be sure that we will be able to obtain necessary
conflict-free minerals from such suppliers in sufficient quantities or at competitive prices. Also, we may face reputational
challenges if we determine that certain of our products contain minerals not determined to be conflict free.
Our business is subject to regulation in the United States and internationally.
The manufacturing of our products is subject to numerous federal, state and foreign governmental regulations. The number
of laws and regulations that are being enacted or proposed by various governmental bodies and authorities are increasing.
Compliance with these regulations is difficult and expensive. If we fail to adhere, or are alleged to have failed to adhere, to any
applicable federal, state or foreign laws or regulations, or if such laws or regulations negatively affect sales of our products, our
business, prospects, results of operations, financial condition or cash flows may be adversely affected. In addition, our future
results could be adversely affected by changes in applicable federal, state and foreign laws and regulations, or the interpretation
or enforcement thereof, including those relating to manufacturing processes, product liability, government contracts, trade rules
and customs regulations, intellectual property, consumer laws, privacy laws, as well as accounting standards and taxation
requirements (including tax-rate changes, new tax laws, revised tax law interpretations, or other potential impacts outlined in
proposals on U.S. Tax Reform)
Item 1B.
Unresolved Staff Comments
None.
Item 2.
Properties
As of March 31, 2017, our segments owned or leased the following facilities with the following square footage:
(Square feet in thousands)
Integrated Systems
Aerospace Structures
Precision Components
Product Support
Corporate
Total
Owned
Leased
Total
1,141
3,373
1,777
562
—
6,853
823
3,475
2,611
540
22
7,471
1,964
6,848
4,388
1,102
22
14,324
At March 31, 2017, our segments occupied 7.3 million square feet of floor space at the following major locations:
•
Integrated Systems: West Hartford, Connecticut; and Park City, Utah
18
• Aerospace Structures: Nashville, Tennessee; Hawthorne, California; Red Oak, Texas; Grand Prairie, Texas; and Stuart,
Florida
•
•
Precision Components: Milledgeville, Georgia; and Spokane, Washington
Product Support: Hot Springs, Arkansas
We believe that our properties are adequate to support our operations for the foreseeable future.
Item 3.
Legal Proceedings
On December 22, 2016, Triumph Aerostructures, LLC, a wholly owned subsidiary of the Company (“Triumph
Aerostructures”), initiated litigation against Bombardier, Inc. (“Bombardier”) in the Quebec Superior Court, District of
Montreal. The lawsuit related to Bombardier’s failure to pay to Triumph Aerostructures certain non-recurring expenses
incurred by Triumph Aerostructures during the development phase of a program pursuant to which Triumph Aerostructures
agreed to design, manufacture, and supply the wing and related components for Bombardier’s Global 7000 business aircraft.
In May 2017, Triumph Aerostructures and Bombardier entered into a comprehensive settlement agreement that resolves
all outstanding commercial disputes between them, including all pending litigation, related to the design, manufacture and
supply of wing components for Bombardier’s Global 7000 business aircraft. The settlement resets the commercial relationship
between the companies and allows each company to better achieve its business objectives going forward.
In the ordinary course of business, we are involved in disputes, claims and lawsuits with employees, suppliers and
customers, as well as governmental and regulatory inquiries, that are deemed to be immaterial. Some may involve claims or
potential claims of substantial damages, fines, penalties or injunctive relief. While we cannot predict the outcome of any
pending or future litigation or proceeding and no assurances can be given, we do not believe that any pending matter will have
a material effect, individually or in the aggregate, on its financial position or results of operations.
Item 4.
Mine Safety Disclosures
Not applicable.
19
PART II
Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Range of Market Price
Our common stock is traded on the New York Stock Exchange under the symbol "TGI." The following table sets forth the
range of high and low prices for our common stock for the periods indicated:
Fiscal 2016
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Fiscal 2017
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
High
Low
$
70.68
$
67.16
47.28
40.36
$
40.09
$
39.88
31.00
29.00
57.25
41.14
32.82
22.94
29.97
26.31
22.40
23.00
On May 22, 2017, the reported closing price for our common stock was $24.30. As of May 22, 2017, there were
approximately 102 holders of record of our common stock and we believe that our common stock was beneficially owned by
approximately 30,000 persons.
Dividend Policy
During fiscal 2017 and 2016, we paid cash dividends of $0.16 per share and $0.16 per share, respectively. However, our
declaration and payment of cash dividends in the future and the amount thereof will depend upon our results of operations,
financial condition, cash requirements, future prospects, limitations imposed by credit agreements or indentures governing debt
securities and other factors deemed relevant by our Board of Directors. No assurance can be given that cash dividends will
continue to be declared and paid at historical levels or at all. Certain of our debt arrangements, including the Credit Facility,
restrict our paying dividends and making distributions on our capital stock, except for the payment of stock dividends and
redemptions of an employee's shares of capital stock upon termination of employment. On April 28, 2017, the Company
announced that its Board of Directors declared a regular quarterly dividend of $0.04 per share on its outstanding common stock.
The dividend is payable on June 15, 2017, to stockholders of record as of June 1, 2017.
Repurchases of Stock
In December 1998, we announced a program to repurchase up to 500,000 shares of our common stock. In February 2008,
the Company's Board of Directors authorized an increase in the Company's existing stock repurchase program by up to an
additional 500,000 shares of its common stock. In February 2014, the Company's Board of Directors authorized an increase in
the Company's existing stock repurchase program by up to an additional 5,000,000 shares of its common stock. During the
fiscal years ended March 31, 2017 and 2016, we did not repurchase any shares. During the fiscal years ended March 31, 2015
and 2014, we repurchased 2,923,011 and 300,000 shares, respectively, for a purchase price of $184.4 million and $19.1 million,
respectively. From the inception of the program through March 31, 2013, we repurchased 499,200 shares (prior to fiscal 2012
stock split) for a purchase price of $19.2 million. Repurchases may be made from time to time in open market transactions,
block purchases, privately negotiated transactions or otherwise at prevailing prices. No time limit has been set for completion of
the program. As a result, as of May 24, 2017, the Company remains able to purchase an additional 2,277,789 shares.
20
Equity Compensation Plan Information
The information required regarding equity compensation plan information will be included in our Proxy Statement in
connection with our 2017 Annual Meeting of Stockholders to be held on July 20, 2017, under the heading "Equity
Compensation Plan Information" and is incorporated herein by reference.
The following graph compares the cumulative 5-year total return provided stockholders on our common stock relative to
the cumulative total returns of the Russell 1000 index and the S&P Aerospace & Defense index. An investment of $100 (with
reinvestment of all dividends) is assumed to have been made in our common stock and in each of the indexes on March 31,
2012, and its relative performance is tracked through March 31, 2017.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN*
Among Triumph Group, Inc., and The Russell 1000 Indexes
And The S&P Aerospace & Defense Index
* $100 invested on March 31, 2012 in stock or index, including reinvestment of dividends.
Triumph Group, Inc.
Russell 1000
S&P Aerospace & Defense
Fiscal year ended March 31
2011
100.00
100.00
100.00
2012
142.05
107.86
104.54
2013
178.40
123.42
121.06
2014
147.09
151.09
173.68
2015
136.55
170.33
198.30
2016
72.14
171.18
200.23
The stock price performance included in this graph is not necessarily indicative of future stock price performance.
21
Item 6.
Selected Financial Data
The following selected financial data should be read in conjunction with the Consolidated Financial Statements and related
Notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included herein.
(Loss) income from continuing operations, before income taxes
(23,612)
(1,159,147)
Income tax expense (benefit)
19,340
(111,187)
Operating Data:
Net sales
Cost of sales
Selling, general and administrative expense
Depreciation and amortization
Impairment of intangible assets
Restructuring
Loss on divestitures
Curtailments, settlements and early retirement incentives
Loss (gain) on legal settlement, net
Operating income (loss)
Interest expense and other
Net (loss) income
Earnings per share:
(Loss) income from continuing operations:
Basic
Diluted(6)
Cash dividends declared per share
Shares used in computing earnings per share:
Fiscal Year Ended March 31,
2017(1)
2016(2)
2015(3)
2014(4)
2013(5)
(in thousands, except per share data)
$
3,532,799
$
3,886,072
$
3,888,722
$
3,763,254
$
3,702,702
2,689,818
3,597,299
3,141,453
2,911,802
2,763,488
842,981
281,547
176,946
266,298
42,177
19,124
—
—
288,773
287,349
177,755
874,361
36,182
—
(1,244)
5,476
56,889
80,501
(1,091,106)
68,041
747,269
285,773
158,323
—
3,193
—
—
(134,693)
434,673
85,379
349,294
110,597
851,452
254,715
164,277
—
31,290
—
1,166
—
400,004
87,771
312,233
105,977
939,214
241,349
129,506
—
2,665
—
34,481
—
531,213
68,156
463,057
165,710
$
(42,952) $ (1,047,960) $
238,697
$
206,256
$
297,347
$
$
$
(0.87) $
(0.87) $
0.16
$
(21.29) $
(21.29) $
0.16
$
4.70
4.68
0.16
$
$
$
3.99
3.91
0.16
$
$
$
5.99
5.67
0.16
49,663
52,446
Basic
Diluted(6)
49,303
49,303
49,218
49,218
50,796
51,005
51,711
52,787
Balance Sheet Data:
Working capital
Total assets
Long-term debt, including current portion
Total stockholders' equity
2017(1)
2016(2)
2015(3)
2014(4)
2013(5)
As of March 31,
(in thousands)
$
438,659
$
606,767
$
1,023,144
$
1,141,741
$
892,818
4,414,600
1,196,300
4,835,093
1,417,320
5,956,325
1,368,600
5,553,386
1,550,383
5,239,179
1,329,863
$
846,473
$
934,944
$
2,135,784
$
2,283,911
$
2,045,158
(1)
(2)
(3)
(4)
Includes the divestitures of Triumph Aerospace Systems-Newport News, Inc. (September 2016) and Triumph Air Repair, the Auxiliary Power Unit
Overhaul Operations of Triumph Aviations Services - Asia, Ltd. and Triumph Engines - Tempe (December 2016). See Notes to the Consolidated
Financial Statements.
Includes the acquisition of Fairchild Controls Corporation (October 2015) from the date of acquisition, forward losses on the Bombardier and 747-8
programs of $561,158 (March 2016). See Notes to the Consolidated Financial Statements.
Includes the acquisitions of Spirit AeroSystems Holdings, Inc. - Gulfstream G650 and G280 Wings Programs and forward losses on the 747-8
program of $151,992 (December 2014), North American Aircraft Services, Inc. (October 2014) and GE Aviation - Hydraulic Actuation (June 2014)
from the date of each respective acquisition. See Notes to the Consolidated Financial Statements.
Includes the acquisitions of Insulfab Product Line (Chase Corporation) (October 2013), General Donlee Canada, Inc. (October 2013) and Primus
Composites (May 2013) from the date of each respective acquisition. Includes the divestitures of Triumph Aerospace Systems - Wichita (January
22
2014) and Triumph Instruments (April 2013) from the date of respective divestiture. See Note 3 and 4 to the Consolidated Financial Statements,
respectively.
(5)
(6)
Includes the acquisitions of Goodrich Pump & Engine Control Systems, Inc. (March 2013) and Embee, Inc. (December 2012) from the date of each
respective acquisition.
Diluted earnings per share for the fiscal years ended March 31, 2015, 2014 and 2013, included 40,177, 811,083 and 2,400,439 shares, respectively,
related to the dilutive effects of the Company's Convertible Notes.
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the Consolidated Financial Statements and notes thereto
contained elsewhere herein.
OVERVIEW
We are a major supplier to the aerospace industry and have four operating segments: (i) Integrated Systems, whose
companies’ revenues are derived from integrated solutions including design, development and support of proprietary
components, subsystems and systems, as well as production of complex assemblies using external designs; (ii) Aerospace
Structures, whose companies supply commercial, business, regional and military manufacturers with large metallic and
composite structures; (iii) Precision Components, whose companies produce close-tolerance parts primarily to customer designs
and model based definition, including a wide range of aluminum, hard metal and composite structure capabilities; and (iv)
Product Support, whose companies provide full life cycle solutions for commercial, regional and military aircraft.
In February 2017, the Company sold Triumph Air Repair, the Auxiliary Power Unit Overhaul Operations of Triumph
Aviations Services - Asia, Ltd. and Triumph Engines - Tempe ("Engines and APU") for total cash proceeds of $60.4 million. As
a result, the Company recognized a loss of $14.3 million on the sale which is presented on the accompanying Consolidated
Statements of Operations as "Loss on divestitures" and is included in Corporate. For financial statement purposes, the assets
and liabilities of these business have been segregated from those of the continuing operations and are presented on the
accompanying Consolidated Balance Sheets as "Assets held for sale" and "Liabilities related to assets held for sale",
respectively. The operating results of Engines and APU will be included in Product Support through the date of disposal. The
transaction is expected to close in stages by the end of the fiscal year ending March 31, 2018.
In September 2016, the Company sold all of the shares of Triumph Aerospace Systems-Newport News, Inc. ("TAS-
Newport News) for total cash proceeds of $9.0 million. As a result of the sale of TAS-Newport News, the Company recognized
a loss of $4.9 million on the sale which is presented on the accompanying Consolidated Statements of Operations as "Loss on
divestitures" and is included in Corporate. The operating results of TAS-Newport News were included in Integrated Systems
through the date of disposal.
Significant financial results for the fiscal year ended March 31, 2017 include:
• Net sales for fiscal 2017 decreased 9.1% to $3.53 billion, including a 8.9% decrease in organic sales.
• Operating income for fiscal 2017 was $56.9 million.
•
Included in operating income for fiscal 2017 was a non-cash impairment charge of $266.3 million related to goodwill
associated with the Aerospace Structures reporting unit and restructuring charges of $53.0 million, partially offset by
the reduction to the previously recognized forward losses on the 747-8 program of $131.4 million.
• Net loss for fiscal 2017 was $43.0 million.
• Backlog decreased 4.2% over the prior year to $3.98 billion.
For the fiscal year ended March 31, 2017, net sales totaled $3.53 billion, a 9.1% decrease from fiscal year 2016 net sales of
$3.89 billion. The net loss for fiscal year 2017 decreased 95.9% to $43.0 million, or $0.87 per diluted common share, versus
the net loss of $1,048.0 million, or $21.29 per diluted common share, for fiscal year 2016.
Our working capital needs are generally funded through cash flows from operations and borrowings under our credit
arrangements. For the fiscal year ended March 31, 2017, we generated $281.5 million of cash flows from operating activities,
received $34.4 million from investing activities and used $266.5 million from financing activities. Cash flows from operating
activities in fiscal year 2016 was $83.9 million.
23
The Company has committed to several plans that incorporate the restructuring of certain its businesses as well as the
consolidation of certain of its facilities. The Company expects to reduce its footprint by approximately 4.5 million square feet
and to reduce head count by 1,300 employees approximately 1,000 of which have exited as of March 31, 2017. Over the course
of programs (which were initiated in fiscal 2016), the Company estimates that it will record aggregate pre-tax charges of $195.0
million to $210.0 million related to these programs, which represent employee termination benefits, contract termination costs,
accelerated depreciation and facility closure and other exit costs, and will result in future cash outlays. For the fiscal years
ended March 31, 2017 and 2016, the Company recorded charges of $53.0 million and $81.0 million, respectively, related to
these programs.
We are currently performing work on several new programs, which are in various stages of development. Several of the
these programs have entered flight testing, including the Bombardier Global 7000/8000 ("Global 7000/8000") and Embraer
second generation E-Jet ("E2-Jets") and we expect to deliver revenue generating production units for these programs in fiscal
2018. Historically, low-rate production commences during flight testing, followed by an increase to full-rate production,
assuming that successful testing and certification are achieved. Accordingly, we anticipate that each of these programs will
begin generating full-rate production level revenues between fiscal 2019 and fiscal 2021. We are still in the early development
stages for the Gulfstream G500/G600 programs, as these aircraft are not expected to enter service until fiscal 2019. Transition
of each of these programs from development to recurring production levels is dependent upon the success of each program at
achieving flight testing and certification, as well as the ability of the OEM to generate acceptable levels of aircraft sales.
While work progressed on these development programs, we have experienced difficulties in achieving estimated cost
targets particularly in the areas of engineering and estimated recurring costs. In the fourth quarter of fiscal 2016, we recorded a
$399.8 million forward loss on our Global 7000/8000 wing contract. The Global 7000/8000 contract provides for fixed pricing
and requires us to fund certain up-front development expenses, with certain milestone payments made by Bombardier.
The provision for forward losses on the Global 7000/8000 program 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 program has continued to incur costs since March 2016 in support of development and transition to production.
On December 22, 2016, Triumph Aerostructures, LLC, the wholly owned subsidiary of the Company that is party to the
Global 7000/8000 contract with Bombardier (“Triumph Aerostructures”), initiated litigation against Bombardier in the Quebec
Superior Court, District of Montreal. The lawsuit related to Bombardier’s failure to pay to Triumph Aerostructures certain non-
recurring expenses incurred by Triumph Aerostructures during the development phase of a program pursuant to which Triumph
Aerostructures agreed to design, manufacture, and supply the wing and related components for Bombardier’s Global 7000
business aircraft.
In May 2017, Triumph Aerostructures and Bombardier entered into a comprehensive settlement agreement that resolves all
outstanding commercial disputes between them, including all pending litigation, related to the design, manufacture and supply
of wing components for Bombardier’s Global 7000 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 7000/8000 program will likely
result in additional forward loss reserves in future periods, while improvements in future costs compared to current estimates or
additional cost recovery may result in favorable adjustments if forward loss reserves are no longer required.
Under our contract with Embraer, we have the exclusive right to design, develop and manufacture the center fuselage
section III, rear fuselage section and various tail section components (rudder and elevator) for the E2-Jets over the initial 600
ship sets. The contract provides for funding on a fixed amount of non-recurring costs, which will be paid over a specified
number of production units. Higher than expected spending on the E2-Jets program has resulted in a near breakeven estimated
profit margin percentage, with additional potential future cost pressures as well as opportunities for improved performance.
Risks related to additional engineering as well as the recurring cost profile remains as this program completes flight testing.
We seek additional consideration for customer work statement changes throughout the development process as a
standard course of business. The ability to recover or negotiate additional consideration is not certain and varies by contract.
Varying market conditions for these products may also impact future profitability.
24
Although none of these new programs individually are expected to have a material impact on our net revenues, they do
have the potential, either individually or in the aggregate, to materially and negatively impact our consolidated results of
operations if future changes in estimates result in the need for a forward loss provision. Absent any such loss provisions, we do
not anticipate that any of these new programs will significantly dilute our future consolidated margins.
In March 2017, the Company settled several outstanding change orders and open pricing on a number of its programs with
Boeing. The agreement included pricing settlements, advanced payments, delivery schedule adjustments and the opportunity to
extend the mutual relationship on future programs. The agreement also provides for continued build ahead on the 747-8
program through the end of the existing contract, resulting in a reduction to the previously recognized forward losses on the
747-8 program.
As disclosed during fiscal 2016, Boeing announced a rate reduction to the 747-8 program, which lowered production to one
plane every two months, the impact of the rate reduction resulted in an additional $161.4 million forward loss during the fiscal
year ended March 31, 2016. This announcement follows the September 2015 decision by Boeing to in-source production of the
747-8 program beginning in the second half of fiscal 2019, effectively terminating this program with us after our current
contract. Additional costs associated with exiting the facilities where the 747-8 program is manufactured, such as asset
impairment, supplier and lease termination charges, as well as severance and retention payments to employees and contractors
have been included in the 2016 Restructuring Plan.
During fiscal 2015, we also recognized a provision for forward losses associated with our long-term contract on the 747-8
program. There is still risk similar to what we have experienced on the 747-8 program. Particularly, our ability to manage risks
related to supplier performance, execution of cost reduction strategies, hiring and retaining skilled production and management
personnel, quality and manufacturing execution, program schedule delays and many other risks, will determine the ultimate
performance of these long-term programs.
In the fourth quarter of the fiscal year ended March 31, 2017, consistent with the Company's policy described here within,
the Company performed its annual assessment of the fair value of goodwill. The Company concluded that the goodwill related
to the Aerospace Structures reporting unit was impaired as of the annual testing date. The Company concluded that the
reporting unit had a fair value that was lower than its carrying value by an amount that exceeded the remaining goodwill for the
reporting unit. Accordingly, the Company recorded a non-cash impairment charge during the fourth quarter of the fiscal year
ending March 31, 2017, of $266.3 million, which is presented on the accompanying Consolidated Statements of Operations as
"Impairment of intangible assets”. The decline in fair value is the result of declining revenues from production rate reductions
on sun-setting programs and the slower than previously projected ramp in our development programs and the timing of
associated earnings and cash flows. (See Note 2 of our Consolidated Financial Statements for definition of fair value levels).
The Company’s assessment of the Precision Components reporting unit concluded that the goodwill was not impaired as of
the annual impairment assessment date. However, the excess of the fair value over the carrying value for the reporting unit was
less than 5%. The decline in fair value is the result of declining revenues from production rate reductions on sunsetting
programs and the start-up costs related to new programs and the timing of associated earnings and cash flows. Going forward,
the Company will continue to monitor the performance of this reporting unit in relation to the key assumptions in our analysis.
In the event that market multiples for stock price to EBITDA in the aerospace and defense markets decrease, or the
expected EBITDA and cash flows for our reporting units decreases, an additional goodwill impairment charge may be required,
which would adversely affect our operating results and financial condition. If management determines that impairment exists,
the impairment will be recognized in the period in which it is identified.
During the fourth quarter of the fiscal year ended March 31, 2016, we performed our annual assessment of the fair value of
our goodwill for each of our three reporting units. We concluded that the goodwill of our Aerostructures reporting unit was
impaired as of the annual testing date. We concluded that the goodwill had an implied fair value of $822.8 million (Level 3)
compared to a carrying value of $1.42 billion. Accordingly, we recorded a non-cash impairment charge during the fourth
quarter of fiscal 2016 of $597.6 million, which is presented on the accompanying Consolidated Statements of Operations as
"Impairment of intangible assets". The decline in fair value is the result of continued declines in stock price and related market
multiples for stock price to EBITDA of both the Company and our peer group.
During the third quarter of the fiscal year ended March 31, 2016, we performed an interim assessment of fair value on our
indefinite-lived intangible assets due to potential indicators of impairment related to the continued decline in our stock price
during the fiscal third quarter. We estimated the fair value of the tradenames using the relief-from-royalty method, which uses
several significant assumptions, including revenue projections that consider historical and estimated future results, general
25
economic and market conditions, as well as the impact of planned business and operational strategies. The following estimates
and assumptions were also used in the relief-from-royalty method:
• Royalty rates between 2% and 4% based on market observed royalty rates and profit split analysis; and
• Discount rates between 12% and 13% based on the required rate of return for the tradename assets.
Based on our evaluation, we concluded that the Vought tradename had a fair value of $195.8 million (Level 3) compared
to a carrying value of $425.0 million. Accordingly, we recorded a non-cash impairment charge during the quarter ended
December 31, 2015, of $229.2 million, which is presented on the accompanying Consolidated Statements of Operations as
"Impairment of intangible assets". The decline in fair value compared to carrying value of the Vought tradename is the result of
declining revenues from production rate reductions and the slower than previously projected ramp in Bombardier Global
7000/8000 and the timing of associated earnings.
During the fourth quarter of the fiscal year ended March 31, 2016, we performed our annual assessment of fair value on
our indefinite-lived intangible assets. We estimated the fair value of the tradenames using the relief-from-royalty method,
which uses several significant assumptions, including revenue projections that consider historical and estimated future results,
general economic and market conditions, as well as the impact of planned business and operational strategies. The following
estimates and assumptions were also used in the relief-from-royalty method:
•
Royalty rates between 2% and 4% based on market observed royalty rates and profit split analysis; and
•
Discount rate of 14% based on the required rate of return for the tradename assets, which increased from our
interim assessment driven by increased risk due to continued declines in stock price and related market multiples for
stock price to EBITDA of both the Company and our peer group and increased interest rates.
Based on our evaluation of indefinite-lived assets, including the tradenames, we concluded that the Vought and Embee
tradenames had a fair value of $163.0 million (Level 3) compared to a carrying value of $209.2 million. The decline in fair
value compared to carrying value of the tradenames is the result of the increase in discount rate during the fourth quarter, which
required the Company to assess whether events and/or circumstances have changed regarding the indefinite-life conclusion.
Accordingly, we revalued both the tradenames as if these intangible assets were no longer indefinite and recorded a non-cash
impairment charge during the fiscal year ended March 31, 2016, of $46.2 million, which is presented on the accompanying
Consolidated Statements of Operations as "Impairment of intangible assets".
During the fiscal year ended March 31, 2017, as part of the Company's annual assessment, the Company determined that
the remaining estimated useful life for the Vought tradename should be reduced from a useful life of 20 years to a useful life of
10 years, as it better represents the expected period of benefit to the Company's financial performance.
In the event of significant loss of revenues and related earnings associated with the Vought and Embee tradenames, further
impairment charges may be required, which would adversely affect our operating results.
During the quarter ended June 30, 2016, we settled the strike and agreed to a new collective bargaining agreement with our
union employees with IAM District 751 at our Spokane, Washington facility which had expired during the quarter, resulting in
a charge of $15.7 million due to disruption costs. Our union employees with UAW Local 848 at our Red Oak, Texas facility
and UAW Local 952 at our Tulsa, Oklahoma facility are currently working without a contract. If we are unable to negotiate a
contract with each of those workforces, our operations may be disrupted and we may be prevented from completing production
and delivery of products from those facilities, which would negatively impact our results. Contingency plans have been
developed that would allow production to continue in the event of an additional strike.
Effective October 21, 2015, the Company acquired the ownership of all of the outstanding shares of Fairchild Controls
Corporation ("Fairchild"). Fairchild is a leading provider of proprietary thermal management systems, auxiliary power
generation systems and related aftermarket spares and repairs. The acquired business operates as Triumph Thermal Systems-
Maryland, Inc. and its results are included in Integrated Systems from the date of acquisition.
26
RESULTS OF OPERATIONS
The following includes a discussion of our consolidated and business segment results of operations. The Company's
diverse structure and customer base do not provide for precise comparisons of the impact of price and volume changes to our
results. However, we have disclosed the significant variances between the respective periods.
Non-GAAP Financial Measures
We prepare and publicly release quarterly unaudited financial statements prepared in accordance with GAAP. In
accordance with the SEC guidance and the SEC's Compliance and Disclosure Interpretations, we also disclose and discuss
certain non-GAAP financial measures in our public releases. Currently, the non-GAAP financial measure that we disclose is
Adjusted EBITDA, which is our (loss) income from continuing operations before interest, income taxes, amortization of
acquired contract liabilities, curtailments, settlements and early retirement incentives and depreciation and amortization. We
disclose Adjusted EBITDA on a consolidated and a reportable segment basis in our earnings releases, investor conference calls
and filings with the SEC. The non-GAAP financial measures that we use may not be comparable to similarly titled measures
reported by other companies. Also, in the future, we may disclose different non-GAAP financial measures in order to help our
investors more meaningfully evaluate and compare our future results of operations to our previously reported results of
operations.
We view Adjusted EBITDA as an operating performance measure and, as such, we believe that the GAAP financial
measure most directly comparable to it is (loss) income from continuing operations. In calculating Adjusted EBITDA, we
exclude from (loss) income from continuing operations 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 is not a measurement of financial performance under GAAP and should not be
considered as a measure of liquidity, as an alternative to net (loss) 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 as a substitute for any GAAP financial measure, including net (loss) income or
(loss) income from continuing operations. In addition, we urge investors and potential investors in our securities to carefully
review the reconciliation of Adjusted EBITDA to (loss) income from continuing operations 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 is 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 (loss) income from continuing operations has included significant charges for depreciation and
amortization. Adjusted EBITDA excludes these charges and provides meaningful information about the operating performance
of our business, apart from charges for depreciation and amortization. We believe the disclosure of Adjusted EBITDA helps
investors meaningfully evaluate and compare our performance from quarter to quarter and from year to year. We also believe
Adjusted EBITDA is a measure of our ongoing operating performance because the isolation of non-cash charges, such as
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 (loss) income from continuing
operations to calculate Adjusted EBITDA and the material limitations associated with using this non-GAAP financial measure
as compared to (loss) income from continuing operations:
• Divestitures may be useful for investors to consider because they reflect gains or losses from sale of operating units.
We do not believe these earnings necessarily reflect the current and ongoing cash earnings related to our operations.
• Legal settlements may be useful for investors to consider because it reflects gains or losses from disputes with third
parties. We do not believe these earnings necessarily reflect the current and ongoing cash earnings related to our
operations.
27
• Curtailments, settlements and early retirement incentives may be useful for investors to consider because it represents
the current period impact of the change in the defined benefit obligation due to the reduction in future service costs as
well as the incremental cost of retirement incentive benefits paid to participants. We do not believe these earnings
necessarily reflect the current and ongoing cash earnings related to our operations.
• Amortization of acquired contract liabilities may be useful for investors to consider because it represents the non-cash
earnings on the fair value of off-market contracts acquired through acquisitions. We do not believe these earnings
necessarily reflect the current and ongoing cash earnings related to our operations.
• Amortization expense (including intangible asset impairments) may be useful for investors to consider because it
represents the estimated attrition of our acquired customer base and the diminishing value of product rights and
licenses. We do not believe these charges necessarily reflect the current and ongoing cash charges related to our
operating cost structure.
• Depreciation may be useful for investors to consider because it generally represents the wear and tear on our property
and equipment used in our operations. We do not believe these charges necessarily reflect the current and ongoing
cash charges related to our operating cost structure.
• The amount of interest expense and other we incur may be useful for investors to consider and may result in current
cash inflows or outflows. However, we do not consider the amount of interest expense and other to be a representative
component of the day-to-day operating performance of our business.
•
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.
The following table shows our Adjusted EBITDA reconciled to our (loss) income from continuing operations for the
indicated periods (in thousands):
(Loss) income from continuing operations
Legal settlement charge (gain), net of expenses
Loss on divestitures
Amortization of acquired contract liabilities
Depreciation and amortization *
Curtailments, settlements and early retirement incentives
Interest expense and other
Income tax expense (benefit)
Adjusted EBITDA
* - Includes Impairment charges related to intangible assets
Fiscal year ended March 31,
2017
(42,952) $ (1,047,960) $
2016
$
—
5,476
19,124
(121,004)
443,244
—
80,501
19,340
$
398,253
$
—
(132,363)
1,052,116
(1,244)
68,041
(111,187)
(167,121) $
2015
238,697
(134,693)
—
(75,733)
158,323
—
85,379
110,597
382,570
28
The following tables show our Adjusted EBITDA by reportable segment reconciled to our operating income (loss) for the
indicated periods (in thousands):
Fiscal year ended March 31, 2017
Operating income (loss)
Loss on divestitures
Amortization of acquired contract
liabilities
Depreciation and amortization *
Total
Integrated
Systems
Aerospace
Structures
$
56,889
$
201,294
$ (108,811) $
Precision
Components
18,322
19,124
—
—
—
(121,004)
443,244
(36,760)
40,332
(81,805)
338,525
(2,439)
53,889
Product
Support
$
55,801
—
—
9,037
Adjusted EBITDA
$
398,253
$
204,866
$
147,909
$
69,772
$
64,838
$
* - Includes Impairment charges related to intangible assets.
Fiscal year ended March 31, 2016
Corporate/
Eliminations
$ (109,717)
19,124
—
1,461
(89,132)
Operating (loss) income
$(1,091,106) $
Legal settlement charge (gain), net
5,476
220,649
(8,494)
$(1,354,640) $
10,500
Total
Integrated
Systems
Aerospace
Structures
Precision
Components
75,734
Product
Support
$
24,977
1,570
1,900
Corporate/
Eliminations
$
(57,826)
—
Curtailments, settlements and early
retirement incentives
Amortization of acquired contract
liabilities
Depreciation and amortization *
Adjusted EBITDA
(1,244)
—
—
—
(132,363)
1,052,116
(41,585)
42,486
$ (167,121) $
213,056
(87,524)
937,877
$ (493,787) $
(3,254)
59,102
133,152
$
37,886
$
—
—
11,009
(1,244)
—
1,642
(57,428)
* - Includes Impairment charges related to intangible assets.
Fiscal year ended March 31, 2015
Operating income (loss)
Legal settlement gain, net
Amortization of acquired contract
liabilities
Depreciation and amortization
Total
434,673
$
Integrated
Systems
Aerospace
Structures
$
183,558
$
(25,257) $
Precision
Components
146,726
Product
Support
$
47,931
Corporate/
Eliminations
81,715
$
(134,693)
—
—
—
(75,733)
158,323
(37,014)
37,528
(33,704)
63,492
(5,015)
46,476
—
—
8,559
(134,693)
—
2,268
(50,710)
Adjusted EBITDA
$
382,570
$
184,072
$
4,531
$
188,187
$
56,490
$
The fluctuations from period to period within the amounts of the components of the reconciliations above are discussed
further below within Results of Operations.
29
Fiscal year ended March 31, 2017 compared to fiscal year ended March 31, 2016
Year Ended March 31,
2017
2016
(in thousands)
Net sales
Segment operating income (loss)
Corporate expense
Total operating income (loss)
Interest expense and other
Income tax expense (benefit)
Net loss
$ 3,532,799
166,606
(109,717)
56,889
$ 3,886,072
$ (1,033,280)
(57,826)
(1,091,106)
68,041
(111,187)
19,340
(42,952) $ (1,047,960)
80,501
$
$
Net sales decreased by $353.3 million, or 9.1%, to $3.5 billion for the fiscal year ended March 31, 2017, from $3.9 billion
for the fiscal year ended March 31, 2016. Organic sales decreased $359.9 million, or 8.9%. The acquisition of Fairchild offset
by the divestitures of TAS-Newport News and Engines and APU contributed $6.6 million to net sales. Organic sales decreased
due to production rate reductions by our customers on the 747-8, Gulfstream G450/G550, C-17 and A330 programs.
Cost of sales decreased by $907.5 million, or 25.2%, to $2.7 billion for the fiscal year ended March 31, 2017, from $3.6
billion for the fiscal year ended March 31, 2016. Organic cost of sales decreased $916.6 million or 25.0%. The acquisition of
Fairchild offset by the divestitures of TAS-Newport News and Engines and APU contributed $9.1 million to cost of sales.
Organic gross margin for the fiscal year ended March 31, 2017, was 23.0% compared with 6.5% for the fiscal year ended
March 31, 2016. The gross margin for the fiscal year ended March 31, 2017 increased in part due to the aforementioned
settlement with Boeing, compared to the prior year which was impacted by provisions for forward losses of $561.2 million on
the Bombardier and 747-8 programs.
Gross margin included net favorable cumulative catch-up adjustments on long-term contracts and provisions for forward
losses as noted above ($57.2 million). The favorable cumulative catch-up adjustments to operating income included gross
favorable adjustments of $163.3 million and gross unfavorable adjustments of $106.1 million, of which $131.4 million was
related to the reduction of the previously recorded forward losses associated with the 747-8 program and partially offset by the
correction of an immaterial error in the amount of $12.7 million. Gross margins for fiscal 2016 included net unfavorable
cumulative catch-up adjustments of $596.2 million, of which $561.2 million was related to provisions for forward losses on
the Bombardier and 747-8 programs.
Segment operating income (loss) increased by $1.2 billion, or 116.1%, to $166.6 million of operating income for the fiscal
year ended March 31, 2017, from a $1.0 billion operating loss for the fiscal year ended March 31, 2016. Organic operating
income increased $1.18 billion million or 114.8%. The acquisition of Fairchild offset by the divestitures of TAS-Newport News
and Engines and APU contributed $18.5 million to operating income. The organic operating income increased for the fiscal
year ended March 31, 2017 since the comparative prior year included the provisions for forward losses and gross margin
changes noted above and the previously mentioned goodwill and tradename impairment charges.
Corporate operations incurred expenses of $109.7 million for the fiscal year ended March 31, 2017, as compared to $57.8
million for the fiscal year ended March 31, 2016. The increase in corporate expenses of $54.8 million or 99.6%, was due to the
restructuring charges of $22.2 million and loss on the divestitures of $19.1 million.
Interest expense and other increased by $12.5 million, or 18.3%, to $80.5 million for the fiscal year ended March 31, 2017
compared to $68.0 million for the prior year due to increased average debt levels and higher interest rates.
The income tax expense was $19.3 million for the fiscal year ended March 31, 2017, reflecting an effective tax rate of
(81.9)%. The rate reflects an adjustment associated with the impairment charge recognized related to Aerospace Structures
which was not deductible for tax purposes. During the fiscal year ended March 31, 2017, the Company reduced the valuation
allowance against certain of its net deferred tax assets resulting in a benefit of $16.0 million. The reduction resulted from the
net deferred tax liabilities generated from the current year temporary differences and the utilization of deferred tax assets
associated with NOL carryforwards and R&D credit carryforwards.
The income tax benefit for the fiscal year ended March 31, 2016, was $111.2 million and reflected the establishment of a
valuation allowance of $155.8 million against net deferred tax assets
30
As of March 31, 2017, we have a valuation allowance against substantially all of our net deferred tax assets given the
insufficient positive evidence to support the realization of our deferred tax assets. We intend to continue maintaining a
valuation allowance on our 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 our valuation allowance are
unknown at this time and will be subject to the earnings level we achieve as well as our projected income in future periods.
Fiscal year ended March 31, 2016 compared to fiscal year ended March 31, 2015
Year Ended March 31,
2016
2015
(in thousands)
Net sales
Segment operating (loss) income
Corporate (expenses) income
Total operating income
Interest expense and other
Income tax (benefit) expense
Net (loss) income
$ 3,888,722
$ 3,886,072
$ (1,033,280) $
(57,826)
(1,091,106)
68,041
(111,187)
$ (1,047,960) $
352,958
81,715
434,673
85,379
110,597
238,697
Net sales decreased by $2.7 million, or 0.1%, to $3.9 billion for the fiscal year ended March 31, 2016, from $3.9 billion for
the fiscal year ended March 31, 2015. The acquisition of Fairchild and the fiscal 2015 acquisitions contributed $355.3 million.
Organic sales decreased $352.7 million, or 9.8%, due to production rate cuts by our customers on the 747-8, V-22, G450/G550
and C-17 programs. The prior fiscal year was negatively impacted by our customers' decreased production rates on existing
programs and decreased military sales.
In the fourth quarter of fiscal 2016, we recorded a $399.8 million forward loss charge for the Bombardier Global
7000/8000 wing program. Under our contract for this program, we have the right to design, develop and manufacture wing
components over the initial 300 ship sets. The Global 7000/8000 contract provides for fixed pricing and requires us to fund
certain up-front development expenses, with certain milestone payments made by Bombardier. The Global 7000/8000 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. Further cost increases or an inability to meet revised recurring cost forecasts on the Global 7000/8000 program may
result in additional forward loss reserves in future periods, while improvements in future costs compared to current estimates
may result in favorable adjustments if forward loss reserves are no longer required.
In January 2016, Boeing announced a rate reduction to the 747-8 program, which lowers production to one plane every
two months. We have assessed the impact of the rate reduction and have recorded an additional $161.4 million forward loss.
This announcement follows the September 2015 decision by Boeing to in-source production of the 747-8 program beginning in
the second half of fiscal 2019, effectively terminating this program with us after our current contract. Additional costs
associated with exiting the facilities where the 747-8 program is manufactured, such as asset impairment, supplier and lease
termination charges, as well as severance and retention payments to employees and contractors have been included in the 2016
Restructuring Plan.
Recognition of additional forward losses in the future periods continues to be a risk and will depend upon several factors,
including the impact of the above discussed production rate change, our ability to successfully perform under current design
and manufacturing plans, achievement of forecasted cost reductions as we continue production, our ability to successfully
resolve claims and assertions with our customers and suppliers and our customers' ability to sell their products.
Cost of sales increased by $455.8 million, or 14.5%, to $3.6 billion for the fiscal year ended March 31, 2016, from $3.1
billion for the fiscal year ended March 31, 2015. The acquisition of Fairchild and the fiscal 2015 acquisitions contributed
$274.5 million. The organic cost of sales included provisions for forward losses of $561.2 million on the Bombardier and
747-8 programs (as discussed above). Organic gross margin for the fiscal year ended March 31, 2016, was 3.9% compared
31
with 19.1% for the fiscal year ended March 31, 2015. The prior year was impacted by additional costs on the 747-8 program
and disruption and accelerated depreciation associated with the relocation from our Jefferson Street Facilities.
Gross margin included net unfavorable cumulative catch-up adjustments on long-term contracts and provisions for forward
losses as noted above ($596.2 million). The unfavorable cumulative catch-up adjustments to operating income included gross
favorable adjustments of $33.0 million and gross unfavorable adjustments of $629.2 million, of which $561.2 million was
related to forward losses associated with the Bombardier and 747-8 programs. Excluding the aforementioned forward losses,
the cumulative catch-up adjustments for the fiscal year ended March 31, 2016, reflected increased labor and supplier costs on
other programs. Gross margins for fiscal 2015 included net unfavorable cumulative catch-up adjustments of $156.0 million, of
which $152.0 million was related to the forward losses on the 747-8 program.
Segment operating (loss) income decreased by $1,386.2 million, or (392.7)%, to $(1,033.3) million for the fiscal year
ended March 31, 2016, from $353.0 million for the fiscal year ended March 31, 2015. The decreased operating income is
directly related to the provisions for forward losses and gross margin changes noted above and the previously mentioned
goodwill and tradename impairment charges.
Corporate operations incurred expenses of $57.8 million for the fiscal year ended March 31, 2016, as opposed to income of
$81.7 million for the fiscal year ended March 31, 2015. The fiscal year ended March 31, 2015, included the legal settlement
between the Company and Eaton, which resulted in a net gain of $134.7 million.
Interest expense and other decreased by $17.3 million, or 20.3%, to $68.0 million for the fiscal year ended March 31, 2016
compared to $85.4 million for the prior year. Interest expense and other for the fiscal year ended March 31, 2016, included
foreign exchange losses of $2.4 million versus foreign exchange gains of $5.0 million for the fiscal year ended March 31, 2015.
Interest expense and other for the fiscal year ended March 31, 2015 included the redemption of the 2018 Notes, which included
$22.6 million for pre-tax losses associated with the 4.79% redemption premium, and write-off of the remaining related
unamortized discount and deferred financing fees.
The effective income tax rate was 9.6% for the fiscal year ended March 31, 2016, and reflected the establishment of a
valuation allowance of $155.8 million against net deferred tax assets. Based on an evaluation of both the positive and negative
evidence available, we determined that it was necessary to establish a valuation allowance against substantially all of our net
deferred tax assets for the fiscal year ended March 31, 2016.
A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. When determining the
amount of net deferred tax assets that are more likely than not to be realized, the Company assesses all available positive and
negative evidence. This evidence includes, but is not limited to, prior earnings history, expected future earnings, carry-back
and carry-forward periods and the feasibility of ongoing tax strategies that could potentially enhance the likelihood of the
realization of a deferred tax asset. The weight given to the positive and negative evidence is commensurate with the extent the
evidence may be objectively verified. As such, it is generally difficult for positive evidence regarding projected future taxable
income exclusive of reversing taxable temporary differences to outweigh objective negative evidence of recent financial
reporting losses.
Based on these criteria and the relative weighting of both the positive and negative evidence available, and in particular the
activity surrounding the Company's prior earnings history, including the forward losses and intangible impairments previously
recognized, management determined that it was necessary to establish a valuation allowance against principally all of its net
deferred tax assets at March 31, 2016. Given the objectively verifiable negative evidence of a three-year cumulative loss and
the weighting of all available positive evidence, the Company excluded projected taxable income (aside from reversing taxable
temporary differences) from the assessment of income that could be used as a source of taxable income to realize the deferred
tax assets.
The effective tax rate for the fiscal year ended March 31, 2015, was 31.7% and included the release of previously reserved
for unrecognized tax benefits of $1.1 million, the benefit of $2.8 million from a decrease of the state deferred tax rate and the
benefit of $6.0 million from the retroactive reinstatement of the R&D tax credit to January 1, 2014.
32
Business Segment Performance
We report our financial performance based on the following four reportable segments: Integrated Systems, Aerospace
Structures, Precision Components and Product Support. The Company's Chief Operating Decision Maker ("CODM") utilizes
Adjusted EBITDA as a primary measure of profitability to evaluate performance of its segments and allocate resources.
The results of operations among our reportable segments vary due to differences in competitors, customers, extent of
proprietary deliverables and performance. The results of operations among our operating segments vary due to differences in
competitors, customers, extent of proprietary deliverables and performance. For example, Integrated Systems, which generally
includes proprietary products and/or arrangements where we become the primary source or one of a few primary sources to our
customers, our unique manufacturing capabilities command a higher margin. Also OEMs are increasingly focusing on
assembly activities while outsourcing more manufacturing and repair to third parties, and as a result, are less of a competitive
force than in previous years. This compares to Aerospace Structures, which generally includes long-term sole-source or
preferred supplier contracts and the success of these programs provides a strong foundation for our business and positions us
well for future growth on new programs and new derivatives. In contrast, Product Support provides MRO services on
components and accessories manufactured by third parties, with more diverse competition, including airlines, OEMs and other
third-party service providers. In addition, variability in the timing and extent of customer requests performed in Product
Support can provide for greater volatility and less predictability in revenue and earnings than that experienced in Integrated
Systems, Aerospace Structures and Precision Components segments.
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. Inclusive of most of the former Vought Aircraft Division, Aerospace
Structures also has the capability to engineer detailed structural designs in metal and composites.
Precision Components consists of 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 provides 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.
We currently generate a majority of our revenue from clients in the commercial aerospace industry, the military, the
business jet industry and the regional airline industry. Our growth and financial results are largely dependent on continued
demand for our products and services from clients in these industries. If any of these industries experiences a downturn, our
clients in these sectors may conduct less business with us. The following table summarizes our net sales by end market by
business segment. The loss of one or more of our major customers or an economic downturn in the commercial airline or the
military and defense markets could have a material adverse effect on our business.
33
Integrated Systems
Commercial aerospace
Military
Business Jets
Regional
Non-aviation
Total Integrated Systems net sales
Aerospace Structures
Commercial aerospace
Military
Business Jets
Regional
Non-aviation
Year Ended March 31,
2017
2016
2015
15.1%
10.2
1.7
1.0
1.0
13.8%
10.3
1.8
0.9
1.0
12.2%
10.5
1.2
1.0
1.1
29.0%
27.8%
26.0%
16.7%
22.5%
26.1%
5.5
13.6
—
—
6.1
15.1
—
—
9.7
7.4
—
—
Total Aerospace Structures net sales
35.8%
43.7%
43.2%
Precision Components
Commercial aerospace
Military
Business Jets
Regional
Non-aviation
17.9%
13.7%
15.2%
4.7
2.0
0.5
0.4
4.5
1.5
0.4
0.4
4.5
1.8
0.4
1.1
Total Precision Components net sales
25.5%
20.5%
23.0%
Product Support
Commercial aerospace
Military
Regional
Non-aviation
Total Product Support net sales
Total Consolidated net sales
7.5%
6.1%
6.3%
1.5
0.7
—
1.4
0.5
—
0.9
0.5
0.1
9.7%
8.0%
7.8%
100.0%
100.0%
100.0%
We continue to experience a higher proportion of our sales mix in the commercial aerospace end market for Integrated
Systems and Precision Components due to the 737, 777 and 787 programs. We have experienced a decline in the commercial
aerospace end market for Aerospace Structures due to lower production rates of the 747-8 and a decrease in our military end
market due to the wind-down of the C-17 program.
34
Business Segment Performance—Fiscal year ended March 31, 2017 compared to fiscal year ended March 31, 2016
NET SALES
Integrated Systems
Aerospace Structures
Precision Components
Product Support
Elimination of inter-segment sales
Total net sales
SEGMENT OPERATING INCOME (LOSS)
Integrated Systems
Aerospace Structures
Precision Components
Product Support
Corporate
Total segment operating income (loss)
Adjusted EBITDA
Integrated Systems
Aerospace Structures
Precision Components
Product Support
Corporate
Year Ended March 31,
2017
2016
(in thousands)
%
Change
% of Total Sales
2017
2016
$ 1,040,805
$ 1,094,703
1,294,865
1,550,850
987,919
1,061,607
338,325
(129,115)
3,532,799
311,394
(132,482)
3,886,072
(4.9)%
(16.5)%
(6.9)%
8.6 %
(2.5)%
29.5 %
36.7 %
28.0 %
9.6 %
(3.7)%
28.2 %
39.9 %
27.3 %
8.0 %
(3.4)%
(9.1)% 100.0 %
100.0 %
Year Ended March 31,
2017
2016
(in thousands)
%
Change
% of Segment
Sales
2017
2016
$
201,294
(108,811)
18,322
55,801
(109,717)
56,889
$ 220,649
(1,354,640)
75,734
24,977
(57,826)
(1,091,106)
(8.8)%
92.0 %
(75.8)%
123.4 %
(89.7)%
105.2 %
19.3 %
(8.4)%
1.9 %
16.5 %
n/a
20.2 %
(87.3)%
7.1 %
8.0 %
n/a
1.6 %
(28.1)%
Year Ended March 31,
2017
2016
(in thousands)
%
Change
% of Segment
Sales
2017
2016
$
$
204,866
147,909
69,772
64,838
(89,132)
398,253
$ 213,056
(493,787)
133,152
37,886
(57,428)
$ (167,121)
(3.8)%
130.0 %
(47.6)%
71.1 %
(55.2)%
338.3 %
19.7%
11.4%
7.1%
19.2%
n/a
19.5 %
(31.8)%
12.5 %
12.2 %
n/a
11.3%
(4.3)%
Integrated Systems: Integrated Systems net sales decreased by $53.9 million, or 4.9%, to $1.04 billion for the fiscal
year ended March 31, 2017, from $1.1 billion for the fiscal year ended March 31, 2016. Organic sales decreased by $66.8
million, or 6.3%, due to decreased sales in the rotocraft market and the spares aftermarket and were impacted by fluctuations in
foreign currency exchange rates primarily due to changes in the British pound sterling of approximately $16.2 million. The
acquisition of Fairchild offset by the divestiture of TAS-Newport News contributed $12.9 million in sales.
Integrated Systems cost of sales decreased by $40.3 million, or 5.5%, to $688.7 million for the fiscal year ended March 31,
2017, from $729.1 million for the fiscal year ended March 31, 2016. Organic cost of sales decreased by $48.5 million, or 6.9%.
While the acquisition of Fairchild offset by the divestiture of TAS-Newport News contributed $8.2 million to cost of sales.
35
Organic gross margin for the fiscal year ended March 31, 2017, was 33.9% compared with 33.5% for the fiscal year ended
March 31, 2016.
Integrated Systems operating income decreased by $19.4 million, or 8.8%, to $201.3 million for the fiscal year ended
March 31, 2017, from $220.6 million for the fiscal year ended March 31, 2016. Organic operating income decreased $22.0
million, or 10.1%, while the acquisition of Fairchild offset by the divestiture of TAS-Newport News contributed $2.6 million to
operating income. Operating income decreased due to the decreased sales noted above and the prior year included the net
favorable settlement of a contingent liability of $8.5 million. These same factors contributed to the decrease in Adjusted
EBITDA year over year.
Integrated Systems operating income as a percentage of segment sales decreased to 19.3% for the fiscal year ended
March 31, 2017, as compared with 20.2% for the fiscal year ended March 31, 2016.
Aerospace Structures: Aerospace Structures net sales decreased by $256.0 million, or 16.5%, to $1.3 billion for the
fiscal year ended March 31, 2017, from $1.6 billion for the fiscal year ended March 31, 2016. Sales decreased primarily due to
production rate reductions by our customers on the 747-8, Gulfstream G450/550, A330 and C-17 programs and partially offset
by rate increases on 767/Tanker program.
Aerospace Structures cost of sales decreased by $869.7 million, or 45.7%, to $1.03 billion for the fiscal year ended
March 31, 2017, from $1.90 billion for the fiscal year ended March 31, 2016. The cost of sales were impacted by the reduction
to the previously recognized forward losses on the 747-8 program of $131.4 million, offset by the decreased sales as noted
above and by a provision for forward losses of $38.6 million mainly on the high altitude long endurance unmanned aircraft
system (UAS) and A350 programs. The fiscal year ended March 31, 2016, included a provision for forward losses of $561.2
million on the Bombardier and 747-8 programs.
Gross margin for the fiscal year ended March 31, 2017, was 20.3% compared with (23.9)% for the fiscal year ended
March 31, 2016. The gross margin included net favorable cumulative catch-up adjustments including reductions to previously
recorded provisions for forward losses of $131.4 million. The net favorable cumulative catch-up adjustments included gross
favorable adjustments of $163.3 million and gross unfavorable adjustments of $106.1 million. The net unfavorable cumulative
catch-up adjustment for the fiscal year ended March 31, 2016, was $596.2 million.
Aerospace Structures operating loss improved by $1.25 billion, or 92.0%, to $108.8 million for the fiscal year ended
March 31, 2017, from $1.35 billion for the fiscal year ended March 31, 2016. Operating loss improved for the year ended
March 31, 2017, since the prior year included a provision for forward losses and the gross margin changes noted above and the
previously mentioned goodwill and tradename impairment charges. Additionally, the provision for forward losses and gross
margin changes noted above contributed to the increase in Adjusted EBITDA year over year.
Aerospace Structures operating loss as a percentage of segment sales improved to 8.4% for the fiscal year ended March 31,
2017, as compared with (87.3)% for the fiscal year ended March 31, 2016, due to the increase in gross margin as discussed
above, which also caused the improvement in the Adjusted EBITDA margin.
Precision Components: Precision Components net sales decreased by $73.7 million, or 6.9%, to $987.9 million for the
fiscal year ended March 31, 2017, from $1.06 billion for the fiscal year ended March 31, 2016. The decline in sales was
primarily driven by production rate reductions on Boeing Commercial and Gulfstream G450/550 and price reductions due to
changes in model mix, partially offset by increased production rates on the A350 program.
Precision Components cost of sales decreased by $3.0 million, or 0.4%, to $852.1 million for the fiscal year ended
March 31, 2017, from $855.1 million for the fiscal year ended March 31, 2016. The cost of sales did not decrease in proportion
to the decrease in sales noted above due to the strike at our Spokane, Washington facility ($15.7 million), start-up costs related
to the A350 and other new programs, provisions for forward losses of $10.0 million on an engine program, and changes in sales
mix. Gross margin for the fiscal year ended March 31, 2017, was 13.7% compared with 19.5% for the fiscal year ended
March 31, 2016.
Precision Components operating income decreased by $57.4 million, or 75.8%, to $18.3 million for the fiscal year ended
March 31, 2017, from $75.7 million for the fiscal year ended March 31, 2016. Operating income decreased due to the
decreased sales as well as the decreased gross margins as noted above and restructuring charges of $8.9 million. These same
factors contributed to the decrease in Adjusted EBITDA year over year.
Precision Components operating income as a percentage of sales decreased to 1.9% for the fiscal year ended March 31,
2017, as compared with 7.1% for the fiscal year ended March 31, 2016, due to the sales and cost of sales factors as noted
above. The same factors contributed to the decrease in Adjusted EBITDA margin year over year.
36
Product Support: Product Support net sales increased by $26.9 million, or 8.6%, to $338.3 million for the fiscal year
ended March 31, 2017, from $311.4 million for the fiscal year ended March 31, 2016. Organic sales increased $33.2 million
or 13.1% and the divestiture of the Engines and APU contributed $6.3 million to the prior year period. Organic sales increased
due to key wins with regional jet and commercial operators for components and accessories.
Product Support cost of sales increased by $2.2 million, or 0.9%, to $245.9 million for the fiscal year ended March 31,
2017, from $243.7 million for the fiscal year ended March 31, 2016. Organic cost of sales increased $19.4 million, or 10.4%
and the divestiture of the Engines and APU contributed $17.2 million to the prior year period. Organic cost of sales increased
for the current year period due to the increased sales noted above compared to the prior year period which was impacted by the
impairment of excess and obsolete inventory associated with certain slow moving programs we decided to no longer support
($21.1.million). Organic gross margin for the fiscal year ended March 31, 2017, was 27.7% compared with 25.9% for the fiscal
year ended March 31, 2016.
Product Support operating income increased by $30.8 million, or 123.4%, to $55.8 million for the fiscal year ended
March 31, 2017, from $25.0 million for the fiscal year ended March 31, 2016. Organic operating income increased $15.0
million, or 46.8% and the divestiture of the Engines and APU contributed $15.8 million compared to the prior year period.
Organic operating income increased due to sales factors as noted above and the prior year period included an increase to the
bad debt reserve resulting from an international customer's declaration of bankruptcy ($1.1 million). These same factors
contributed to the increase in Adjusted EBITDA year over year.
Product Support operating income as a percentage of segment sales increased to 16.5% for the fiscal year ended March 31,
2017, as compared with 8.0% for the fiscal year ended March 31, 2016, due to the increased sales and changes to gross margin
noted above. The same factors contributed to the increase in Adjusted EBITDA margin year over year.
Business Segment Performance—Fiscal year ended March 31, 2016 compared to fiscal year ended March 31, 2015
NET SALES
Integrated Systems
Aerospace Structures
Precision Components
Product Support
Elimination of inter-segment sales
Total net sales
SEGMENT OPERATING INCOME (LOSS)
Integrated Systems
Aerospace Structures
Precision Components
Product Support
Corporate
Total segment operating (loss) income
Year Ended March 31,
2016
2015
(in thousands)
%
Change
% of Total Sales
2016
2015
$ 1,094,703
$ 1,014,267
1,550,850
1,061,607
1,521,635
1,161,592
311,394
(132,482)
$ 3,886,072
304,013
(112,785)
$ 3,888,722
7.9 %
1.9 %
(8.6)%
2.4 %
17.5 %
28.2 %
39.9 %
27.3 %
8.0 %
(3.4)%
26.1 %
39.1 %
29.9 %
7.8 %
(2.9)%
(0.1)% 100.0 % 100.0 %
Year Ended March 31,
2016
2015
(in thousands)
%
Change
% of Segment
Sales
2016
2015
$
$
220,649
(1,354,640)
75,734
24,977
(57,826)
$ (1,091,106) $
183,558
(25,257)
146,726
20.2%
N/M
(48.4)%
47,931
(47.9)%
20.2%
(87.3)%
7.1%
8.0%
81,715
434,673
(170.8)%
(351.0)%
n/a
(28.1)%
18.1%
(1.7)%
12.6%
15.8%
n/a
11.2%
37
Year Ended March 31,
2016
2015
(in thousands)
%
Change
% of Segment
Sales
2016
2015
Adjusted EBITDA
Integrated Systems
Aerospace Structures
Precision Components
Product Support
Corporate
$
$
$ 184,072
15.7 %
213,056
(493,787)
133,152
4,531
188,187
56,490
37,886
(57,428)
(50,710)
(167,121) $ 382,570
N/M
(29.2)%
(32.9)%
13.2 %
19.5 %
(31.8)%
12.5 %
12.2 %
n/a
18.1 %
0.3 %
16.2 %
18.6 %
n/a
(143.7)%
11.4 %
(4.3)%
Integrated Systems: Integrated Systems net sales increased by $80.4 million, or 7.9%, to $1.09 billion for the fiscal year
ended March 31, 2016, from $1.01 billion for the fiscal year ended March 31, 2015. The acquisitions of Fairchild and GE
contributed $89.1 million of net sales. Organic net sales decreased by $8.5 million, or 1.1%, primarily due to slower
commercial rotocraft demand and lower aftermarket revenue.
Integrated Systems cost of sales increased by $50.9 million, or 7.5%, to $729.1 million for the fiscal year ended March 31,
2016, from $678.2 million for the fiscal year ended March 31, 2015. Organic cost of sales decreased by $8.7 million, or 1.7%,
while the acquisitions of Fairchild and GE contributed $59.6 million in cost of sales. Organic gross margin for the fiscal year
ended March 31, 2016, was 34.2% compared with 34.4% for the fiscal year ended March 31, 2015.
Integrated Systems segment operating income increased by $37.1 million, or 20.2%, to $220.6 million for the fiscal year
ended March 31, 2016, from $183.6 million for the fiscal year ended March 31, 2015. Operating income increased primarily
due to the acquisitions of Fairchild and GE ($21.3 million) and the net favorable settlement of a contingent liability ($8.5
million). These same factors contributed to the increase in Adjusted EBITDA year over year.
Integrated Systems segment operating income as a percentage of segment sales increased to 20.2% for the fiscal year
ended March 31, 2016, as compared with 18.1% for the fiscal year ended March 31, 2015, due to the effects of the acquisitions
of Fairchild and GE. The same factors contributed to the increase in Adjusted EBITDA margin year over year.
Aerospace Structures: Aerospace Structures net sales increased by $29.2 million, or 1.9%, to $1.55 billion for the fiscal
year ended March 31, 2016, from $1.52 billion for the fiscal year ended March 31, 2015. Organic sales decreased by $214.9
million or 15.0%, due to decreased production rate cuts by our customers on the 747-8, Gulfstream G450/G550, A330 and C-17
programs. The acquisition of the Tulsa Programs contributed $244.1 million to net sales.
Aerostructures cost of sales increased by $433.3 million, or 29.5%, to $1.90 billion for the fiscal year ended March 31,
2016, from $1 billion for the fiscal year ended March 31, 2015. The acquisition of the Tulsa Programs contributed $200.6
million for the fiscal year ended March 31, 2016 and organic cost of sales increased by $252.1 million, or 18.1%. The organic
cost of sales included provisions for forward losses of $561.2 million on the Bombardier and 747-8 programs (as discussed
above). Excluding the aforementioned forward losses, the cumulative catch-up adjustments for the fiscal year ended March 31,
2016, included increased labor and supplier costs on other programs. The fiscal year ended March 31, 2015, included a
provision for forward losses of $152.0 million on the 747-8 program.
Organic gross margin for the fiscal year ended March 31, 2016, was (35.0)% compared with 2.9% for the fiscal year ended
March 31, 2015. The organic gross margin included net unfavorable cumulative catch-up adjustments and provisions for
forward losses of $596.2 million. The net unfavorable cumulative catch-up adjustments included gross favorable adjustments
of $33.0 million and gross unfavorable adjustments of $629.2 million, which includes forward losses of $561.2 million
associated with the Bombardier and 747-8 programs. The net unfavorable cumulative catch-up adjustment for the fiscal year
ended March 31, 2015, was $156.0 million, which included $152.0 million of forward losses related to the 747-8 program.
Aerospace Structures operating loss decreased by $1.33 billion, or 5,263.4%, to $1.35 billion for the fiscal year ended
March 31, 2016, from $25.3 million for the fiscal year ended March 31, 2015. The decreased operating income is directly
related to the provision for forward losses and gross margin changes noted above and the previously mentioned goodwill and
tradename impairment charges and included restructuring charges ($45.3 million). Additionally, the provision for forward
losses and gross margin changes noted above contributed to the decrease in Adjusted EBITDA year over year.
38
Aerospace Structures operating loss as a percentage of segment sales decreased to (87.3)% for the fiscal year ended
March 31, 2016, as compared with (1.7)% for the fiscal year ended March 31, 2015, due to the decrease in gross margin as
discussed above, which also caused the decline in the Adjusted EBITDA margin.
Precision Components: Precision Components net sales decreased by $100.0 million, or 8.6%, to $1.06 billion for the
fiscal year ended March 31, 2016, from $1.16 billion for the fiscal year ended March 31, 2015, due to decreased production
rate cuts by our customers on the 747-8, Gulfstream G450/G550 and C-17 programs
Precision Components cost of sales decreased by $32.2 million, or 3.6%, to $855.1 million for the fiscal year ended
March 31, 2016, from $887.3 million for the fiscal year ended March 31, 2015, due to the decreased sales noted above. The
gross margin for the fiscal year ended March 31, 2016, was 19.5% compared with 23.6% for the fiscal year ended March 31,
2015, the gross margin decline is partially due to losing NADCAP certification at one of our facilities.
Precision Components operating income decreased by $71.0 million, or 48.4%, to $75.7 million for the fiscal year ended
March 31, 2016, from $146.7 million for the fiscal year ended March 31, 2015. Operating income decreased primarily due to
decreased sales and gross margins noted above and the restructuring charges ($25.3 million). These same factors contributed to
the increase in Adjusted EBITDA year over year.
Precision Components operating income as a percentage of segment sales decreased to 7.1% for the fiscal year ended
March 31, 2016, as compared with 12.6% for the fiscal year ended March 31, 2015, due to the effects of the gross margins and
restructuring charges noted above. The same factors contributed to the decrease in Adjusted EBITDA margin year over year.
Product Support: Product Support net sales increased by $7.4 million, or 2.4%, to $311.4 million for the fiscal year
ended March 31, 2016, from $304.0 million for the fiscal year ended March 31, 2015. Organic sales decreased $10.3 million,
or 3.5%, and the acquisition of NAAS contributed $17.7 million. Organic sales decreased due to a decreased demand from
commercial customers.
Product Support cost of sales increased by $19.0 million, or 8.5%, to $243.7 million for the fiscal year ended March 31,
2016, from $224.7 million for the fiscal year ended March 31, 2015. The organic cost of sales increased $7.9 million, or 3.6%,
and the acquisition of NAAS contributed $11.1 million to cost of sales. Organic gross margin for the fiscal year ended
March 31, 2016, was 20.2% compared with 27.3% for the fiscal year ended March 31, 2015. The decrease in gross margin was
impacted by the impairment of excess and obsolete inventory associated with certain slow moving programs we have decided
to no longer support ($21.1 million).
Product Support operating income decreased by $23.0 million, or 47.9%, to $25.0 million for the fiscal year ended
March 31, 2016, from $47.9 million for the fiscal year ended March 31, 2015. Operating income decreased primarily due to
the decreased organic sales and the decline in gross margins noted above. These same factors contributed to the decrease in
Adjusted EBITDA year over year.
Product Support operating income as a percentage of segment sales decreased to 8.0% for the fiscal year ended March 31,
2016, as compared with 15.8% for the fiscal year ended March 31, 2015, due to the decreased organic sales and the decline in
gross margins noted above. The same factors contributed to the decrease in Adjusted EBITDA margin year over year.
Liquidity and Capital Resources
Our working capital needs are generally funded through cash flow from operations and borrowings under our credit
arrangements. During the year ended March 31, 2017, we generated approximately $281.5 million of cash flow from operating
activities, received approximately $34.4 million from investing activities and used approximately $266.5 million in financing
activities.
For the fiscal year ended March 31, 2017, we had a net cash inflow of $281.5 million from operating activities, an increase
of $197.7 million, compared to a net cash inflow of $83.9 million for the fiscal year ended March 31, 2016. During fiscal
2017, the net cash provided by operating activities was primarily attributable to increased receipts from customers ($440.6
million), offset by the timing of payments on accounts payable and other accrued expenses driven by pre-production costs, net
spending on the G280 and G650 Programs discussed below ($286.2 million) and a $5.5 million payment related to a previously
resolved legal settlement.
We continue to invest in inventory for new programs which impacts our cash flows from operating activities. During fiscal
2017 expenditures for inventory costs on new programs, excluding progress payments, including the Bombardier Global
7000/8000 and the Embraer E-Jet programs, were $183.3 million and $26.4 million, respectively. Net spend on the Tulsa
Programs during fiscal 2017 was approximately $76.5 million. Additionally, inventory for mature programs declined due to
39
decreased production rates, by approximately $82.9 million. Unliquidated progress payments netted against inventory increased
$99.3 million due to timing of receipts.
Cash flows provided by investing activities for the fiscal year ended March 31, 2017, increased $162.4 million from the
fiscal year ended March 31, 2016. Cash flows provided by investing activities for the fiscal year ended March 31, 2017,
included cash from the divestitures of TAS - Newport News and Engines and APU ($86.2 million) offset by capital
expenditures ($51.8 million). Cash flows used in investing activities for the fiscal year ended March 31, 2016, included cash
used to fund the acquisition of Fairchild ($57.1 million), and a payment to settle a working capital adjustment related to the
acquisition of GE ($6.0 million) and capital expenditures ($80.0 million).
Cash flows used in financing activities for the fiscal year ended March 31, 2017, were $266.5 million, compared to cash
flows provided by financing activities for the fiscal year ended March 31, 2016, of $32.5 million. Cash flows used in financing
activities for the fiscal year ended March 31, 2017, included payments funded by our operations to our Credit Facility (as
defined below).
As of March 31, 2017, $483.8 million was available under the Company's existing credit agreement ("Credit Facility").
On March 31, 2017, an aggregate amount of approximately $30.0 million in outstanding borrowings and approximately $27.2
million in letters of credit were outstanding under the Credit Facility, all of which were accruing interest at LIBOR plus
applicable basis points totaling 2.00% per annum. Amounts repaid under the Credit Facility may be reborrowed.
In October 2016, we entered into a Seventh Amendment to the Third Amended and Restated Credit Agreement, among the
Company and its lenders to, among other things, (i) modify certain financial covenants to allow for the add-back of certain cash
and non-cash charges, (ii) increase the maximum permitted total leverage ratio and senior secured leverage ratio financial
covenants commencing with the fiscal quarter ended September 30, 2016 through the fiscal quarter ending June 30, 2017, (iii)
permit the sale of certain specified assets so long as the Company applies 65.0% of the net proceeds received from such sales to
the outstanding term loan, pro rata across all maturities, (iv) establish a new higher pricing tier for the interest rate, commitment
fee and letter of credit fee pricing provisions, (v) increase the interest rate and letter of credit fee pricing provisions for several
of the lower tiers of the pricing grid, (vi) establish the interest rate, commitment fee and letter of credit fee pricing at the highest
pricing tier until we deliver our compliance certificate for its fiscal quarter ending September 30, 2017, and (vii) extend the
period during which the increased minimum revolver availability threshold test and the decreased maximum senior secured
leverage ratio threshold test are in effect in connection with us making certain permitted investments, certain additional
permitted dividends, permitted acquisitions and permitted payments of certain types of indebtedness to the date we deliver our
compliance certificate for the fiscal quarter ending September 30, 2017.
In May 2016, we entered into a Sixth Amendment to the Third Amended and Restated Credit Agreement, among the
Company and its lenders, pursuant to which those lenders electing to enter into the Sixth Amendment extended the expiration
date for the revolving line of credit and the maturity date for the term loan by five years to May 3, 2021. Lenders holding
revolving credit commitments aggregating $940.0 million elected to extend the expiration date for the revolving line of credit,
and Lenders holding approximately $324.5 million of term loans (out of an aggregate outstanding term loan balance of
approximately $330.0 million) elected to extend the term loan maturity date.
In March 2016, we entered into a Purchase Agreement ("Receivables Purchase Agreement") to sell certain accounts
receivables to a financial institution without recourse. We are the servicer of the accounts receivable under the Receivables
Purchase Agreement. As of March 31, 2016, the maximum amount available under the Receivables Purchase Agreement was
$90.0 million. Interest rates are based on LIBOR plus 0.65% -0.70%. As of March 31, 2017 and 2016, the Company sold
$78.0 million and $89.9 million, respectively, worth of eligible accounts receivable.
In November 2014, the Company amended its receivable securitization facility (the “Securitization Facility”), increasing
the purchase limit from $175.0 million to $225.0 million and extending the term through November 2017.
In May 2014, the Company amended its existing Credit Facility with its lenders to (i) to increase the maximum amount
allowed for the Securitization Facility and (ii) amend certain other terms and covenants.
In November 2013, the Company amended the Credit Facility with its lenders to (i) provide for a $375.0 million Term
Loan with a maturity date of May 14, 2019, (ii) maintain a Revolving Line of Credit under the Credit Facility to $1.0 billion
and increase the accordion feature to $250.0 million, and (iii) amend certain other terms and covenants. The amendment
resulted in a more favorable pricing grid and a more streamlined package of covenants and restrictions.
The level of unused borrowing capacity under the Credit Facility varies from time to time depending in part upon its
compliance with financial and other covenants set forth in the related agreement. The Credit Facility contains certain
40
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, payment of dividends and incurrence of debt. As of March 31, 2017, the Company was
in compliance with all such covenants.
In June 2014, the Company issued the 2022 Notes for $300.0 million in principal amount. The 2022 Notes were sold at
100% of principal amount and have an effective yield of 5.25%. Interest on the 2022 Notes is payable semiannually in cash in
arrears on June 1 and December 1 of each year. We used the net proceeds to redeem the 2018 Notes and pay related fees and
expenses. In connection with the issuance of the 2022 Notes, the Company incurred approximately $5.0 million of costs,
which were deferred and are being amortized on the effective interest method over the term of the notes.
In February 2013, the Company issued the 2021 Notes for $375.0 million in principal amount. The 2021 Notes were sold
at 100% of principal amount and have an effective interest yield of 4.875%. Interest on the 2021 Notes is payable
semiannually in cash in arrears on April 1 and October 1 of each year. We used the net proceeds to repay borrowings under our
Credit Facility and pay related fees and expenses, and for general corporate purposes. In connection with the issuance of the
2021 Notes, the Company incurred approximately $6.3 million of costs, which were deferred and are being amortized on the
effective interest method over the term of the notes.
For further information on the Company's long-term debt, see Note 10 of "Notes to Consolidated Financial Statements".
For the fiscal year ended March 31, 2016, we had a net cash inflow of $83.9 million from operating activities, a decrease
of $383.5 million, compared to a net cash inflow of $467.3 million for the fiscal year ended March 31, 2015. During fiscal
2016, the net cash provided by operating activities was primarily attributable to the timing of payments on accounts payable
and other accrued expenses ($251.5 million) driven by pre-production costs and net spending on the Tulsa Programs discussed
below, offset by increased receipts from customers and others related to increased collection efforts ($40.9 million). During
fiscal 2015, the net increase in cash provided by operating activities was primarily due to the cash received from a legal
settlement ($134.7 million), and an income tax refund ($26.0 million).
We continue to invest in inventory for new programs which impacts our cash flows operating activities. During fiscal
2016 expenditures for inventory costs on new programs, excluding progress payments, including the Bombardier Global
7000/8000 and the Embraer E-Jet programs, were $146.1 million and $83.8 million, respectively. Net spend on the Tulsa
Programs during fiscal 2016 was approximately $57.3 million. Additionally, inventory for mature programs declined due to
decreased production rates, by approximately $67.8 million. Unliquidated progress payments netted against inventory
decreased $66.8 million due to timing of receipts.
Cash flows used in investing activities for the fiscal year ended March 31, 2016, decreased $60.1 million from the fiscal
year ended March 31, 2015. Cash flows used in investing activities for the fiscal year ended March 31, 2016, included the
acquisition of Fairchild ($57.1 million), and a payment to settle a working capital adjustment related to the acquisition of GE
($6.0 million) and capital expenditures ($80.0 million). Cash flows used in investing activities for the fiscal year ended March
31, 2015 included the cash received from the acquisition of the Tulsa Programs ($160.0 million) offset by the acquisitions of
GE ($65.0 million) and NAAS ($43.7 million) and the working capital finalization of the acquisition of Primus ($13.0 million).
Cash flows provided by financing activities for the fiscal year ended March 31, 2016, were $32.5 million, compared to
cash flows used in financing activities for the fiscal year ended March 31, 2015, of $395.2 million. Cash flows provided by
financing activities for the fiscal year ended March 31, 2016, included additional borrowings on the Credit Facility to fund the
acquisition of Fairchild and to fund operations. Cash flows used in financing activities for the fiscal year ended March 31,
2015, included the redemption of the 2018 Notes, settlement of the Convertible Senior Subordinated Notes ("Convertible
Notes") redemptions and the purchase of our common stock ($184.4 million), offset by the issuance of the 2022 Notes.
In May 2017, the Company entered into an Eighth Amendment to the Third Amended and Restated Credit Agreement (the
“Eighth Amendment Effective Date”), with its the 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 $850.0 million from
$1.0 billion, (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 and provide
that the highest pricing tier will apply until the maximum senior secured leverage ratio financial covenant is 2.50 to 1.00 and
the Company delivers a compliance certificate demonstrating compliance with such financial covenant.
41
The Eighth Amendment also provides the Company’s Vought Aircraft Division (Triumph Aerostructures, LLC) and certain
affiliated entities (collectively, the “Vought entities”) with the option, if necessary, to commence voluntary insolvency
proceedings within 90 days of the Eighth Amendment Effective Date, subject to certain conditions set forth in the Credit
Agreement. Upon the commencement of such proceedings, the Vought entities would no longer be Subsidiary Co-Borrowers
under the Credit Agreement, and transactions between any of the Vought entities, on the one hand, and the Company and any of
the Subsidiary Co-Borrowers, on the other hand, will be restricted.
The Company entered into the Eighth Amendment, among other reasons, in order to provide the Vought entities with
greater financial flexibility to address their significant cash utilization relative to certain contracts. While the commencement
of such proceedings would not cause a cross default under the Credit Facility, and the Company has taken steps to minimize the
impact of such a filing on the rest of its business, there can be no assurance that such a filing would not have a material adverse
effect on the Company's obligations to and relationships with customers, suppliers, lenders and financing sources. The
Company does not anticipate and believes it is highly unlikely that it will voluntarily file insolvency proceedings with respect
to the Vought entities, despite having the ability to do so. The Company expects that any actions it may take regarding the
Vought entities will improve the Company’s credit profile and equity value. The Company continues to execute its
transformation strategy to strengthen its operations, enhance its liquidity and drive profitable growth.
Capital expenditures were $51.8 million for the fiscal year ended March 31, 2017. We funded these expenditures through
cash from operations and borrowings under the Credit Facility. We expect capital expenditures of approximately $80.0 million
to $100.0 million for our fiscal year ending March 31, 2018. The expenditures are expected to be used mainly to expand
capacity or replace old equipment at several facilities.
Our expected future cash flows for the next five years for long-term debt, leases and other obligations are as follows:
Contractual Obligations
Debt principal (1)
Debt-interest (2)
Operating leases
Purchase obligations
Total
Payments Due by Period
Total
Less than
1 Year
1 - 3 Years
4 - 5 Years
After
5 Years
$ 1,208,052
$ 160,630
(in thousands)
$ 102,877
$ 634,991
$ 309,554
236,652
152,117
47,337
27,636
93,160
44,564
1,441,925
1,045,808
381,284
74,649
29,734
14,665
21,506
50,183
168
$ 3,038,746
$1,281,411
$ 621,885
$ 754,039
$ 381,411
_______________________________________________
(1)
(2)
The maturities of the Term Loan reflected above are based on the maturities dates prior to the May 2017 amendment
to the Credit Facility.
Includes fixed-rate interest only.
The above table excludes unrecognized tax benefits of $10.7 million as of March 31, 2017, since we cannot predict with
reasonable certainty the timing of cash settlements with the respective taxing authorities.
42
In addition to the financial obligations detailed in the table above, we also had obligations related to our benefit plans at
March 31, 2017, as detailed in the following table. Our other postretirement benefits are not required to be funded in advance,
so benefit payments are paid as they are incurred. Our expected net contributions and payments are included in the table below:
Projected benefit obligation at March 31, 2017
Plan assets at March 31, 2017
Projected contributions by fiscal year
2018
2019
2020
2021
2022
Total 2018 - 2022
Pension
Benefits
Other
Postretirement
Benefits
(in thousands)
$ 2,346,990
$
164,128
1,900,372
—
—
—
17,000
35,900
48,000
100,900
$
$
16,099
15,757
15,161
14,578
13,860
75,455
Current plan documents reserve our right to amend or terminate the plans at any time, subject to applicable collective
bargaining requirements for represented employees.
We believe that cash generated by operations and borrowings under the Credit Facility will be sufficient to meet
anticipated cash requirements for our current operations for the foreseeable future.
Loans under the Credit Facility bear interest, at the Company's option, by reference to a base rate or a rate based on
LIBOR, in either case plus an applicable margin determined quarterly based on the Company's Total Leverage Ratio (as defined
in the Credit Facility) as of the last day of each fiscal quarter. The Company is also required to pay a quarterly commitment fee
on the average daily unused portion of the Credit Facility for each fiscal quarter and fees in connection with the issuance of
letters of credit. All outstanding principal and interest under the Credit Facility will be due and payable on the maturity date.
The Credit Facility contains representations, warranties, events of default and covenants customary for financings of this
type including, without limitation, financial covenants under which the Company is obligated to maintain on a consolidated
basis, as of the end of each fiscal quarter, a certain minimum Interest Coverage Ratio, maximum Total Leverage Ratio and
maximum Senior Leverage Ratio (in each case as defined in the Credit Facility).
CRITICAL ACCOUNTING POLICIES
Critical accounting policies are those accounting policies that can have a significant impact on the presentation of our
financial condition and results of operations, and that require the use of complex and subjective estimates based upon past
experience and management's judgment. Because of the uncertainty inherent in such estimates, actual results may differ from
these estimates. Below are those policies applied in preparing our financial statements that management believes are the most
dependent on the application of estimates and assumptions. For additional accounting policies, see Note 2 of "Notes to
Consolidated Financial Statements."
Allowance for Doubtful Accounts
Trade receivables are presented net of an allowance for doubtful accounts. In determining the appropriate allowance, we
consider a combination of factors, such as industry trends, our customers' financial strength and credit standing, and payment
and default history. The calculation of the required allowance requires a judgment as to the impact of these and other factors on
the ultimate realization of our trade receivables. We believe that these estimates are reasonable and historically have not
resulted in material adjustments in subsequent periods when the estimates are adjusted to actual amounts.
Inventories
The Company records inventories at the lower of cost or estimated net realizable value. Costs on long-term contracts and
programs in progress represent recoverable costs incurred for production or contract-specific facilities and equipment, allocable
operating overhead and advances to suppliers. Pursuant to contract provisions, agencies of the U.S. Government and certain
other customers have title to, or a security interest in, inventories related to such contracts as a result of advances, performance-
based payments, and progress payments. The Company reflects those advances and payments as an offset against the related
43
inventory balances. The Company expenses general and administrative costs related to products and services provided
essentially under commercial terms and conditions as incurred. The Company determines the costs of inventories by the first-
in, first-out or average cost methods.
Advance payments and progress payments received on contracts-in-process are first offset against related contract costs
that are included in inventory, with any remaining amount reflected in current liabilities.
Work-in-process inventory includes capitalized pre-production costs. Company policy allows for the capitalization of pre-
production costs after it establishes a contractual arrangement with a customer that explicitly states that the cost of recovery of
pre-production costs is allowed.
Capitalized pre-production costs include nonrecurring 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 (see Note 5 of "Notes to Consolidated Financial Statements" for further discussion).
Revenue and Profit Recognition
Revenues are recognized in accordance with the contract terms when products are shipped, delivery has occurred or
services have been rendered, pricing is fixed or determinable, and collection is reasonably assured.
A significant portion of our contracts are within the scope of Accounting Standards Codification ("ASC") 605-35, Revenue
Recognition —Construction-Type and Production-Type Contracts, and revenue and costs on contracts are recognized using the
percentage-of-completion method of accounting. Accounting for the revenue and profit on a contract requires estimates of
(1) the contract value or total contract revenue, (2) the total costs at completion, which is equal to the sum of the actual incurred
costs to date on the contract and the estimated costs to complete the contract's scope of work and (3) the measurement of
progress towards completion. Depending on the contract, we measure progress toward completion using either the cost-to-cost
method or the units-of-delivery method, with the great majority measured under the units-of-delivery method.
• Under the cost-to-cost method, progress toward completion is measured as the ratio of total costs incurred to our
estimate of total costs at completion. We recognize costs as incurred. Profit is determined based on our estimated
profit margin on the contract multiplied by our progress toward completion. Revenue represents the sum of our costs
and profit on the contract for the period.
• Under the units-of-delivery method, revenue on a contract is recorded as the units are delivered and accepted during
the period at an amount equal to the contractual selling price of those units. The costs recorded on a contract under the
units-of-delivery method are equal to the total costs at completion divided by the total units to be delivered. As our
contracts can span multiple years, we often segment the contracts into production lots for the purposes of
accumulating and allocating cost. Profit is recognized as the difference between revenue for the units delivered and
the estimated costs for the units delivered.
Adjustments to original estimates for a contract's revenues, estimated costs at completion and estimated total profit are
often required as work progresses under a contract, as experience is gained and as more information is obtained, even though
the scope of work required under the contract may not change, or if contract modifications occur. These estimates are also
sensitive to the assumed rate of production. Generally, the longer it takes to complete the contract quantity, the more relative
overhead that contract will absorb. The impact of revisions in cost estimates is recognized on a cumulative catch-up basis in
the period in which the revisions are made. Provisions for anticipated losses on contracts are recorded in the period in which
they become evident ("forward losses") and are first offset against costs that are included in inventory, with any remaining
amount reflected in accrued contract liabilities in accordance with ASC 605-35. Revisions in contract estimates, if significant,
can materially affect our results of operations and cash flows, as well as our valuation of inventory. Furthermore, certain
contracts are combined or segmented for revenue recognition in accordance with ASC 605-35.
For the fiscal year ended March 31, 2017, cumulative catch-up adjustments resulting from changes in contract values and
estimated costs that arose during the fiscal year increased operating loss, net loss and earnings per share by approximately
$57.2 million, $52.6 million and $1.07, respectively. The cumulative catch-up adjustments to operating income for the fiscal
year ended March 31, 2017, included gross favorable adjustments of approximately $163.3 million and gross unfavorable
adjustments of approximately $106.1 million, which includes a reduction to the previously recognized forward losses of $131.4
million for the 747-8 program.
For the fiscal year ended March 31, 2016, cumulative catch-up adjustments resulting from changes in estimates decreased
operating loss, net loss and earnings per share by approximately $596.2 million, $539.0 million and $10.95, respectively. The
cumulative catch-up adjustments to operating income for the fiscal year ended March 31, 2016, included gross favorable
adjustments of approximately $33.0 million and gross unfavorable adjustments of approximately $629.2 million, which
44
includes a provision for forward losses of $561.2 million on the Bombardier Global 7000/8000 ("Bombardier") and 747-8
programs.
For the fiscal year ended March 31, 2015, cumulative catch-up adjustments resulting from changes in estimates decreased
operating income, net income and earnings per share by approximately $156.0 million, $106.6 million and $2.09, respectively.
The cumulative catch-up adjustments to operating income for the fiscal year ended March 31, 2015, included gross favorable
adjustments of approximately $4.7 million and gross unfavorable adjustments of approximately $160.7 million which includes
a provision for forward losses of $152.0 million on the 747-8 program.
Amounts representing contract change orders or claims are only included in revenue when such change orders or claims
have been settled with our customer and to the extent that units have been delivered. Additionally, some contracts may contain
provisions for revenue sharing, price re-determination, requests for equitable adjustments, change orders or cost and/or
performance incentives. Such amounts or incentives are included in contract value when the amounts can be reliably estimated
and their realization is reasonably assured.
Although fixed-price contracts, which extend several years into the future, generally permit us to keep unexpected profits if
costs are less than projected, we also bear the risk that increased or unexpected costs may reduce our profit or cause the
Company to sustain losses on the contract. In a fixed-price contract, we must fully absorb cost overruns, notwithstanding the
difficulty of estimating all of the costs we will incur in performing these contracts and in projecting the ultimate level of
revenue that may otherwise be achieved.
As previously disclosed, we recognized a provision for forward losses associated with our long-term contract on the 747-8
and Bombardier programs. There is still risk similar to what we have experienced on the 747-8 and Bombardier programs.
Particularly, our ability to manage risks related to supplier performance, execution of cost reduction strategies, hiring and
retaining skilled production and management personnel, quality and manufacturing execution, program schedule delays and
many other risks, will determine the ultimate performance of these long-term programs.
Product Support provides repair and overhaul services, certain of which are provided under long-term power-by-the-hour
contracts, comprising approximately 3% of the segment's fiscal 2017 net sales. The Company applies the proportional
performance method to recognize revenue under these contracts. Revenue is recognized over the contract period as units are
delivered based on the relative value in proportion to the total estimated contract consideration. In estimating the total contract
consideration, management evaluates the projected utilization of its customer's fleet over the term of the contract, in connection
with the related estimated repair and overhaul servicing requirements to the fleet based on such utilization. Changes in
utilization of the fleet by customers, among other factors, may have an impact on these estimates and require adjustments to
estimates of revenue to be realized.
Goodwill and Intangible Assets
The Company accounts for purchased goodwill and intangible assets in accordance with Accounting Standards
Codification ("ASC") 350, Intangibles—Goodwill and Other. Under ASC 350, purchased goodwill and intangible assets with
indefinite lives are not amortized; rather, they are tested for impairment on at least an annual basis. Intangible assets with finite
lives are amortized over their useful lives. Upon acquisition, critical estimates are made in valuing acquired intangible assets,
which include but are not limited to: future expected cash flows from customer contracts, customer lists, and estimating cash
flows from projects when completed; tradename and market position, as well as assumptions about the period of time that
customer relationships will continue; and discount rates. Management's estimates of fair value are based upon assumptions
believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from
the assumptions used in determining the fair values.
The Company's operating segments of Integrated Systems, Aerospace Structures, Precision Components and Product
Support are also its reporting units. The Chief Executive Officer is the Company's Chief Operating Decision Maker
("CODM"). The Company's CODM evaluates performance and allocates resources based upon review of segment information.
Each of the operating segments is comprised of a number of operating units which are considered to be components. The
components, for which discrete financial information exists, are aggregated for purposes of goodwill impairment testing. The
Company's acquisition strategy is to acquire companies that complement and enhance the capabilities of the operating segments
of the Company. Each acquisition is assigned to either the Integrated Systems reporting unit, the Aerospace Structures reporting
unit, the Precision Components reporting unit or the Product Support reporting unit. The goodwill that results from each
acquisition is also assigned to the reporting unit to which the acquisition is allocated, because it is that reporting unit which is
intended to benefit from the synergies of the acquisition.
45
The Company assesses whether goodwill impairment exists using both the qualitative and quantitative assessments. The
qualitative assessment involves determining whether events or circumstances exist that indicate it is more likely than not that
the fair value of a reporting unit is less than its carrying amount, including goodwill. If based on this qualitative assessment the
Company determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount or if the
Company elects not to perform a qualitative assessment, a quantitative assessment is performed as required by ASC 350 to
determine whether a goodwill impairment exists at the reporting unit.
The quantitative test is used to compare the carrying amount of the reporting unit's assets to the fair value of the reporting
unit. If the fair value exceeds the carrying value, no further evaluation is required and no impairment loss is recognized. If the
carrying amount exceeds the fair value, then an impairment loss occurs. The impairment is measured by using the amount by
which the carrying value exceeds the fair value not to exceed the amount of recorded goodwill. The determination of the fair
value of our reporting units is based, among other things, on estimates of future operating performance of the reporting unit
being valued. We are required to complete an impairment test for goodwill and record any resulting impairment losses at least
annually. Changes in market conditions, among other factors, may have an impact on these estimates and require interim
impairment assessments.
When performing the quantitative impairment test, the Company's methodology includes the use of an income approach
which discounts future net cash flows to their present value at a rate that reflects the Company's cost of capital, otherwise
known as the discounted cash flow method ("DCF"). These estimated fair values are based on estimates of future cash flows of
the businesses. Factors affecting these future cash flows include the continued market acceptance of the products and services
offered by the businesses, the development of new products and services by the businesses and the underlying cost of
development, the future cost structure of the businesses, and future technological changes. The Company also incorporates
market multiples for comparable companies in determining the fair value of our reporting units. Any such impairment would
be recognized in full in the reporting period in which it has been identified. The Company early adopted ASU 2017-04, which
eliminates Step 2 of the goodwill impairment analysis (see Recently Issued Accounting Pronouncements below).
In the fourth quarter of the fiscal year ended March 31, 2017, consistent with the Company's policy described here within,
the Company performed its annual assessment of the fair value of goodwill. The Company concluded that the goodwill related
to the Aerospace Structures reporting unit was impaired as of the annual testing date. The Company concluded that the
reporting unit had a fair value that was lower than its carrying value by an amount that exceed the remaining goodwill for the
reporting unit. Accordingly, the Company recorded a non-cash impairment charge during the fourth quarter of the fiscal year
ending March 31, 2017, of $266.3 million, which is presented on the accompanying Consolidated Statements of Operations as
"Impairment of intangible assets”. The decline in fair value is the result of declining revenues from production rate reductions
on sun-setting programs and the slower than previously projected ramp in our development programs and the timing of
associated earnings and cash flows (see Note 2 of the Notes to Consolidated Financial Statements for definition of fair value
levels).
The Company’s assessment of the Precision Components reporting unit concluded that the goodwill was not impaired as of
the annual impairment assessment date. However, the excess of the fair value over the carrying value for the reporting unit was
less than 5%. The decline in fair value is the result of declining revenues from production rate reductions on sun-setting
programs and the start-up costs related to new programs and the timing of associated earnings and cash flows. Going forward,
the Company will continue to monitor the performance of this reporting unit in relation to the key assumptions in our analysis.
In the event that market multiples for stock price to EBITDA in the aerospace and defense markets decrease, or the
expected EBITDA and cash flows for our reporting units decreases, an additional goodwill impairment charge may be required,
which would adversely affect our operating results and financial condition. If management determines that impairment exists,
the impairment will be recognized in the period in which it is identified.
Prior to adoption of ASU 2017-04, the Company used the quantitative assessment to perform the two-step approach
required by ASC 350 to determine whether a goodwill impairment exists at the reporting unit.
The first step of the quantitative test is to compare the carrying amount of the reporting unit's assets to the fair value of the
reporting unit. If the fair value exceeds the carrying value, no further work is required and no impairment loss is recognized. If
the carrying amount exceeds the fair value, then the second step is required to be completed, which involves allocating the fair
value of the reporting unit to each asset and liability, with the excess being applied to goodwill. An impairment loss occurs if
the amount of the recorded goodwill exceeds the implied goodwill. The determination of the fair value of our reporting units is
based, among other things, on estimates of future operating performance of the reporting unit being valued. We are required to
46
complete an impairment test for goodwill and record any resulting impairment losses at least annually. Changes in market
conditions, among other factors, may have an impact on these estimates and require interim impairment assessments.
When performing the two-step quantitative impairment test, the Company's methodology includes the use of an income
approach which discounts future net cash flows to their present value at a rate that reflects the Company's cost of capital,
otherwise known as the discounted cash flow method ("DCF"). These estimated fair values are based on estimates of future
cash flows of the businesses. Factors affecting these future cash flows include the continued market acceptance of the products
and services offered by the businesses, the development of new products and services by the businesses and the underlying cost
of development, the future cost structure of the businesses, and future technological changes. The Company also incorporates
market multiples for comparable companies in determining the fair value of our reporting units. Any such impairment would
be recognized in full in the reporting period in which it has been identified.
In the fourth quarter of fiscal 2016, the Company performed the quantitative assessment for all three of the Company's
former reporting units, which indicated that the fair value of goodwill for the former Aerostructures reporting unit did not
exceed its carrying amount. After evaluating whether other assets within the reporting unit were impaired in accordance with
ASC 350, we concluded on the implied goodwill under Step 2 resulting in a $597.6 million impairment of goodwill to the
former Aerostructures reporting unit. The assessment for the Company's reporting units formerly known as Aerospace Systems
and Aftermarket Services indicated that the fair value of their respective goodwill exceeded the carrying amount. We incurred
no impairment of goodwill as a result of our annual goodwill impairment tests in fiscal 2015 (see Note 7 for further discussion).
As of March 31, 2016, the Company had a $163.0 million indefinite-lived intangible asset associated with the tradenames
acquired in the acquisitions of Vought Aircraft Industries, Inc. ("Vought") and Embee, Inc. ("Embee"). The Company assesses
whether indefinite-lived intangible assets impairment exists using both the qualitative and quantitative assessments. The
qualitative assessment involves determining whether events or circumstances exist that indicate it is more likely than not that
the fair value of an indefinite-lived intangible asset is less than its carrying amount. If based on this qualitative assessment, the
Company determines it is not more likely than not that the fair value of an indefinite-lived intangible asset is less than its
carrying amount or if the Company elects not to perform a qualitative assessment, a quantitative assessment is performed to
determine whether an indefinite-lived intangible asset impairment exists. We test the indefinite-lived intangible assets for
impairment by comparing the carrying value to the fair value based on current revenue projections of the related operations,
under the relief from royalty method. Any excess of the carrying value over the amount of fair value is recognized as an
impairment.
During the third quarter of the fiscal year ended March 31, 2016, the Company performed an interim assessment of fair
value on our indefinite-lived intangible assets due to indicators of impairment related to the continued decline in our stock price
during the fiscal third quarter. Based on the Company's evaluation, the Company concluded that the Vought tradename had a
fair value of $195.8 million (Level 3) compared to a carrying value of $425.0 million. Accordingly, the Company recorded a
non-cash impairment charge during the fiscal year ended March 31, 2016, of $229.2 million, which is presented on the
accompanying Consolidated Statements of Operations as "Impairment of intangible assets". The decline in fair value compared
to the carrying value of the Vought tradename is the result of declining revenues from production rate reductions and the
slower than previously projected ramp in Bombardier Global 7000/8000 and the timing of associated earnings.
In the fourth quarter of fiscal 2016, the Company performed its annual impairment test for each of the Company's
indefinite-lived intangible assets, which indicated that the Vought and Embee tradenames had a fair value of $163.0 million
(Level 3) compared to a carrying value of $209.2 million. The decline in fair value of the tradenames is the result of the
increase in discount rate during the fourth quarter of fiscal 2016, which required the Company to assess whether events and/or
circumstances have changed regarding the indefinite-life conclusion. As a result the Company incurred a non-cash impairment
charge of $46.2 million presented on the accompanying Consolidated Statements of Operations as "Impairment of intangible
assets" to the Vought and Embee tradenames. The Company incurred no impairment of indefinite-lived assets as a result of our
annual indefinite-lived assets impairment tests in fiscal 2015.
During the fiscal year ended March 31, 2017, as part of the Company's annual assessment, the Company determined that
the remaining estimated useful life for the Vought tradename should be reduced from a useful life of 20 years to a useful life of
10 years, as it better represents the financial performance relative to the expected performance.
Finite-lived intangible assets are amortized over their useful lives ranging from 3 to 32 years. The Company continually
evaluates whether events or circumstances have occurred that would indicate that the remaining estimated useful lives of long-
lived assets, including intangible assets, may warrant revision or that the remaining balance may not be recoverable. Intangible
assets are evaluated for indicators of impairment. When factors indicate that long-lived assets, including intangible assets,
should be evaluated for possible impairment, an estimate of the related undiscounted cash flows over the remaining life of the
47
long-lived assets, including intangible assets, is used to measure recoverability based on the primary asset of the asset group.
Some of the more important factors management considers include the Company's financial performance relative to expected
and historical performance, significant changes in the way the Company manages its operations, negative events that have
occurred, and negative industry and economic trends. If the estimated fair value is less than the carrying amount, measurement
of the impairment will be based on the difference between the carrying value and fair value of the asset group, generally
determined based on the present value of expected future cash flows associated with the use of the asset.
Acquired Contract Liabilities, net
In connection with several of our acquisitions, we assumed existing long-term contracts. Based on our review of these
contracts, we concluded that the terms of certain contracts to be either more or less favorable than could be realized in market
transactions as of the date of the acquisition. As a result, we recognized acquired contract liabilities, net of acquired contract
assets as of the acquisition date of each respective acquisition, based on the present value of the difference between the
contractual cash flows of the executory contracts and the estimated cash flows had the contracts been executed at the
acquisition date. The liabilities principally relate to long-term contracts that were initially executed at several years prior to the
respective acquisition (see Note 3 of "Notes to Consolidated Financial Statements" for further discussion).
The acquired contract liabilities, net, are being amortized as non-cash revenues over the terms of the respective contracts.
The Company recognized net amortization of contract liabilities of approximately $121.0 million, $132.4 million and $75.7
million in the fiscal years ended March 31, 2017, 2016 and 2015, respectively, and such amounts have been included in
revenues in our results of operations. The balance of the liability as of March 31, 2017, is approximately $394.9 million and,
based on the expected delivery schedule of the underlying contracts, the Company estimates annual amortization of the liability
as follows 2018—$112.1 million; 2019—$77.0 million; 2020—$55.4 million; 2021—$51.1 million; 2022—$51.1 million;
Thereafter—$48.2 million.
Postretirement Plans
The liabilities and net periodic cost of our pension and other postretirement plans are determined using methodologies that
involve several actuarial assumptions, the most significant of which are the discount rate, the expected long-term rate of asset
return and rate of growth for medical costs. The actuarial assumptions used to calculate these costs are reviewed annually or
when a remeasurement is necessary. Assumptions are based upon management's best estimates, after consulting with outside
investment advisors and actuaries, as of the measurement date.
During the fourth quarter of the fiscal year ended March 31, 2016, we changed the method we use to estimate the service
and interest components of net periodic benefit cost for our pension and other postretirement benefit plans. This new
estimation approach discounts the individual expected cash flows underlying the service cost and interest cost by applying the
specific spot rates derived from the yield curve used to discount the cash flows reflected in the measurement of the benefit
obligation. Historically, we estimated these service and interest cost components utilizing a single weighted-average discount
rate derived from the yield curve used to measure the benefit obligation at the beginning of the period.
We made this change to provide a more precise measurement of service and interest costs by improving the correlation
between projected benefit cash flows to the corresponding spot yield curve rates. We have accounted for this change as a
change in accounting estimate that is inseparable from a change in accounting principle pursuant to ASC 250, Accounting
Changes and Error Corrections and accordingly have accounted for it prospectively. While the benefit obligation measured
under this approach is unchanged from that determined under the prior approach, the more granular application of the spot rates
reduced the service and interest cost for the pension and OPEB plans for the fiscal year ended March 31, 2017, by
approximately $20.0 million. The spot rates used to determine service and interest costs for the U.S. plans ranged from 0.60%
to 9.75%. Under the Company’s prior methodology, these rates would have resulted in weighted-average rates for service cost
and interest cost of 3.86% for the U.S. pension plans and 3.73% for the OPEB plans. The new approach will be used to measure
the service cost and interest cost for our pension and OPEB plans for the fiscal year ended March 31, 2017.
Effective April 1, 2015, the Company changed the period over which actuarial gains and losses are being amortized for its
U.S. pension plans from the average remaining future service period of active plan participants to the average life expectancy
of inactive plan participants. This change was made because the Company has determined that as of that date almost all plan
participants are inactive.
The accounting corridor is a defined range within which amortization of net gains and losses is not required. The discount
rates at March 31, 2017, ranged from 2.87 - 4.06% compared to a weighted-average of 3.25 - 3.93% at March 31, 2016.
The assumed expected long-term rate of return on assets is the weighted-average rate of earnings expected on the funds
invested or to be invested to provide for the benefits included in the Projected Benefit Obligation ("PBO"). The expected
48
average long-term rate of return on assets is based on several factors, including actual historical market index returns,
anticipated long-term performance of individual asset classes with consideration given to the related investment strategy, plan
expenses and the potential to outperform market index returns. This rate is utilized principally in calculating the expected
return on plan assets component of the annual pension expense. To the extent the actual rate of return on assets realized over
the course of a year differs from the assumed rate, that year's annual pension expense is not affected. The gain or loss reduces
or increases future pension expense over the average remaining life expectancy of inactive plan participants. The expected
long-term rate of return for fiscal 2017, 2016 and 2015, was 6.50 - 8.00%. The expected long-term rate of return for fiscal
2017 will be 8.00%.
In addition to our defined benefit pension plans, we provide certain healthcare and life insurance benefits for some retired
employees. Such benefits are unfunded as of March 31, 2017. 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 eligible 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 our right to amend or terminate the plans at any time,
subject to applicable collective bargaining requirements for represented employees. From time to time, we have made changes
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 ASC 715, Compensation—Retirement Benefits, we recognized the funded status of our benefit
obligation. This funded status is remeasured as of our annual remeasurement date. The funded status is measured as the
difference between the fair value of the plan's assets and the PBO or accumulated postretirement benefit obligation of the plan.
In order to recognize the funded status, we determined the fair value of the plan assets. The majority of our 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 as of the remeasurement date based on
our evaluation of data from fund managers and comparable market data.
The Company periodically experiences events or makes changes to its benefit plans that result in curtailment or special
charges. Curtailments are recognized when events occur that significantly reduce the expected years of future service of present
employees or eliminates the benefits for a significant number of employees for some or all of their future service.
Curtailment losses are recognized when it is probable the curtailment will occur and the effects are reasonably estimable.
Curtailment gains are recognized when the related employees are terminated or a plan amendment is adopted, whichever is
applicable.
As required under ASC 715, the Company remeasures plan assets and obligations during an interim period whenever a
significant event occurs that results in a material change in the net periodic pension cost. The determination of significance is
based on judgment and consideration of events and circumstances impacting the pension costs.
See Note 15 of "Notes to Consolidated Financial Statements" for a summary of the key events that affected our net
periodic benefit cost and obligations that occurred during the fiscal years ended March 31, 2017, 2016 and 2015.
Pension income, excluding curtailments, settlements and special termination benefits (early retirement incentives) for the
fiscal year ended March 31, 2017, was $66.5 million compared with pension income of $57.2 million for the fiscal year ended
March 31, 2016, and $52.4 million for the fiscal year ended March 31, 2015. For the fiscal year ending March 31, 2018, the
Company expects to recognize pension income of approximately $66.5 million.
Recently Issued Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”, “ASC 606”),
which requires recognition of revenue to depict the transfer of goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in exchange for those goods or services. The FASB has issued several
updates to ASU 2014-09 which must be adopted concurrently with ASU 2014-09.
Under ASC 606, revenue is recognized when control of promised goods or services transfers to a customer and is
recognized in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or
services. The major provisions include determining enforceable rights and obligation between parties, defining performance
obligations as the units of accounting under contract, accounting for variable consideration, and determining whether
49
performance obligations are satisfied over time or at a point of time. Additionally, ASC 606 requires disclosure of the nature,
amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.
ASC 606 will be effective for us beginning April 1, 2018 and early adoption as of April 1, 2017 is permitted. The guidance
permits two methods of adoption: retrospectively to each prior reporting period presented (“full retrospective method”), or
retrospectively with the cumulative effect of initially applying ASC 606 recognized at the date of initial application (“the
modified retrospective method”). The Company is adopting ASC 606 effective April 1, 2018 and the Company expects to do so
using the modified retrospective method.
During the fiscal year ended March 31, 2016, we established a cross-functional team to assess and prepare for
implementation of the new standard. We are analyzing the impact of the new standard on the Company’s revenue contracts,
comparing our current accounting policies and practices to the requirements of the new standard, and identifying potential
differences that would result from applying the new standard to our contracts.
While further analysis of ASC 606 and a review of all material contracts is underway the adoption of ASC 606 may impact
the amounts and timing of revenue recognition and the accounting treatment of certain deferred production costs. Under ASC
606, the units-of-delivery method is no longer viable and some performance obligations may be satisfied over time which may
change the timing of recognition of revenue and associated production costs for certain contracts.
In March 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2017-07,
Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (“ASU 2017-07”). ASU
2017-07 amends ASC 715, Compensation — Retirement Benefits, to require employers that present a measure of operating
income in their statement of income to include only the service cost component of net periodic pension cost and net periodic
postretirement benefit cost in operating expenses (together with other employee compensation costs). The other components of
net benefit cost, including amortization of prior service cost/credit, and settlement and curtailment effects, are to be included in
nonoperating expenses. Employers that do not present a measure of operating income are required to include the service cost
component in the same line item as other employee compensation costs. Employers are required to include all other
components of net benefit cost in a separate line item(s). The line item(s) in which the components of net benefit cost other
than the service cost are included need to be identified as such on the income statement or in the disclosures. ASU 2017-07
also stipulates that only the service cost component of net benefit cost is eligible for capitalization. ASU 2017-07 is effective
for reporting periods beginning after December 15, 2017, with early adoption permitted. The Company is currently performing
its assessment of the impact of adopting the guidance; however based on its expectations for the fiscal year ended March 31,
2018, the Company believes the it will likely have a material impact due to the reclassification of pension and OPEB income
from capitalized costs (Operating Income) to Other Income. Excluding the service costs, the net periodic pension benefit for
the fiscal year ended March 31, 2018 is expected to be $67.0 million.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350), Simplifying the Test for
Goodwill Impairment (“ASU 2017-04). ASU 2017-04 removes Step 2 of the goodwill impairment test, which requires a
hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying
value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for reporting periods
beginning after December 15, 2019, with early adoption permitted for annual and interim goodwill impairment testing dates
after January 1, 2017. The Company early adopted ASU 2017-04, which reduced the cost and complexity of the impairment
testing.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash
Receipts and Cash Payments (“ASU 2016-15”). ASU 2016-15 provides guidance on eight specific cash flow classification
issues. Current GAAP does not include specific guidance on these eight cash flow classification issues. ASU 2016-15 is
effective for reporting periods beginning after December 15, 2017, with early adoption permitted. The adoption of ASU
2016-15 is not expected to have a material impact on the Company's consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to
Employee Share-Based Payment Accounting ("ASU 2016-09"). ASU 2016-09 identifies areas for simplification involving
several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of
awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures
recognized as they occur, as well as certain classifications on the statement of cash flows. ASU 2016-09 will be effective for
annual periods beginning after December 15, 2016. Early adoption is permitted. The adoption of ASU 2016-15 is not expected
to have a material impact on the Company's consolidated financial statements.
50
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) ("ASU 2016-02"). This update requires recognition
of lease 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 new guidance to determine the impact it may have to the Company's consolidated financial statements.
In May 2015, the FASB issued ASU 2015-05, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain
Entities That Calculate Net Asset Value per Share (or Its Equivalent) ("ASU 2015-05"). This update eliminates the requirement
to categorize within the fair value hierarchy investments whose fair values are measured at net asset value (NAV) using the
practical expedient in Accounting Standards Codification (ASC 820). ASU 2015-05 is effective for fiscal years beginning after
December 15, 2015 and interim reporting periods within those years. ASU 2015-05 requires retrospective application.
Forward-Looking Statements
This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of
1995 relating to our future operations and prospects, including statements that are based on current projections and expectations
about the markets in which we operate, and management's beliefs concerning future performance and capital requirements
based upon current available information. Such statements are based on management's beliefs as well as assumptions made by
and information currently available to management. When used in this document, words like "may," "might," "will," "expect,"
"anticipate," "believe," "potential," and similar expressions are intended to identify forward-looking statements. Actual results
could differ materially from management's current expectations. For example, there can be no assurance that additional capital
will not be required or that additional capital, if required, will be available on reasonable terms, if at all, at such times and in
such amounts as may be needed by us. In addition to these factors, among other factors that could cause actual results to differ
materially, are uncertainties relating to the integration of acquired businesses, general economic conditions affecting our
business segments, dependence of certain of our businesses on certain key customers, the risk that we will not realize all of the
anticipated benefits from acquisitions as well as competitive factors relating to the aerospace industry. For a more detailed
discussion of these and other factors affecting us, see the risk factors described in "Item 1A. Risk Factors."
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Commodity Price Risk
Some contracts with our suppliers for raw materials, component parts and other goods are short-term contracts, which are
subject to termination on a relatively short-term basis. The prices of our raw materials and component parts fluctuate
depending on market conditions, and substantial increases in prices could increase our operating costs, which, as a result of our
fixed-price contracts, we may not be able to recoup through increases in the prices of our products. We generally do not
employ forward contracts or other financial instruments to hedge commodity price risk, although we continue to review a full
range of business options focused on strategic risk management for all material commodities.
Any failure by our suppliers to provide acceptable raw materials, components, kits or subassemblies could adversely affect
our production schedules and contract profitability. We assess qualification of suppliers and continually monitor them to
control risk associated with such supply base reliance.
To a lesser extent, we also are exposed to fluctuations in the prices of certain utilities and services, such as electricity,
natural gas, chemicals and freight. We utilize a range of long-term agreements to minimize procurement expense and supply
risk in these areas.
Foreign Exchange Risk
In addition, even when revenues and expenses are matched, we must translate foreign denominated results of operations,
assets and liabilities for our foreign subsidiaries to U.S. dollars in our consolidated financial statements. Consequently,
increases and decreases in the value of the U.S. dollar as compared to the respective foreign currencies will affect our reported
results of operations and the value of our assets and liabilities on our consolidated balance sheet, even if our results of
operations or the value of those assets and liabilities has not changed in its original currency. These transactions could
significantly affect the comparability of our results between financial periods and/or result in significant changes to the carrying
value of our assets, liabilities and stockholders' equity.
We are subject to foreign currency exchange rate risk relating to receipts from customers and payments to suppliers in
foreign currencies. We use foreign currency forward contracts to hedge the price risk associated with forecasted foreign
denominated payments related to our ongoing business. Foreign currency forward contracts are sensitive to changes in foreign
currency exchange rates. At March 31, 2017, a 10% change in the exchange rate in our portfolio of foreign currency contracts
51
would not have material impact on our unrealized gains. Consistent with the use of these contracts to neutralize the effect of
exchange rate fluctuations, such unrealized losses or gains would be offset by corresponding gains or losses, respectively, in the
remeasurement of the underlying transactions being hedged. When taken together, these forward currency contracts and the
offsetting underlying commitments do not create material market risk.
Interest Rate Risk
Our primary exposure to market risk consists of changes in interest rates on borrowings. An increase in interest rates
would adversely affect our operating results and the cash flow available after debt service to fund operations and expansion. In
addition, an increase in interest rates would adversely affect our ability to pay dividends on our common stock, if permitted to
do so under certain of our debt arrangements, including the Credit Facility. We manage exposure to interest rate fluctuations by
optimizing the use of fixed and variable rate debt. As of March 31, 2017, approximately 88% of our debt was fixed-rate debt.
Our financing policy states that we generally maintain between 50% and 75% of our debt as fixed-rate debt, however, a portion
of our variable debt is fixed through an interest rate swap. Our fixed-rate debt was unusually high as of March 31, 2017,
because we received a significant amount of customer advances in our fiscal fourth quarter, which was used to pay down our
variable debt. The information below summarizes our market risks associated with debt obligations and should be read in
conjunction with Note 10 of "Notes to Consolidated Financial Statements."
The following table presents principal cash flows and the related interest rates. Fixed interest rates disclosed represent
the weighted-average rate as of March 31, 2017. Variable interest rates disclosed fluctuate with the LIBOR, federal funds rates
and other weekly rates and represent the weighted-average rate at March 31, 2017.
Expected Years of Maturity
Next
12 Months
13 - 24
Months
25 - 36
Months
37 - 48
Months
49 - 60
Months
Thereafter
Total
Fixed-rate cash flows (in thousands)
$
47,694
$ 52,655
$ 50,217
$ 53,760
$ 549,054
$309,456
$ 1,062,836
Weighted-average interest rate (%)
4.58%
4.63%
4.68%
4.74%
4.91%
4.13%
Variable-rate cash flows (in thousands) $ 112,900
$
— $
— $
2,178
$ 30,000
$
— $ 145,078
Weighted-average interest rate (%)
2.70%
—%
—%
4.46%
4.20%
—%
There are no other significant market risk exposures.
52
Item 8.
Financial Statements and Supplementary Data
The Board of Directors and Stockholders of Triumph Group, Inc.
Report of Independent Registered Public Accounting Firm
We have audited the accompanying consolidated balance sheets of Triumph Group, Inc. as of March 31, 2017 and 2016,
and the related consolidated statements of operations, comprehensive (loss) income, stockholders' equity, and cash flows for
each of the three years in the period ended March 31, 2017. Our audits also included the financial statement schedule listed in
the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial
position of Triumph Group, Inc. at March 31, 2017 and 2016, and the consolidated results of its operations and its cash flows
for each of the three years in the period ended March 31, 2017, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), Triumph Group, Inc.'s internal control over financial reporting as of March 31, 2017, based on criteria established in
Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework) and our report dated May 24, 2017, expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
May 24, 2017
53
TRIUMPH GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
Current assets:
Cash and cash equivalents
ASSETS
March 31,
2017
2016
$
69,633
$
20,984
Trade and other receivables, less allowance for doubtful accounts of $4,559 and $6,492
311,792
444,208
Inventories, net of unliquidated progress payments of $222,485 and $123,155
Prepaid expenses and other
Assets held for sale
Total current assets
Property and equipment, net
Goodwill
Intangible assets, net
Other, net
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt
Accounts payable
Accrued expenses
Liabilities related to assets held for sale
Total current liabilities
Long-term debt, less current portion
Accrued pension and other postretirement benefits, noncurrent
Deferred income taxes, noncurrent
Other noncurrent liabilities
Stockholders' equity:
Common stock, $.001 par value, 100,000,000 shares authorized, 52,460,920 and 52,460,920
shares issued; 49,573,029 and 49,328,999 shares outstanding
Capital in excess of par value
Treasury stock, at cost, 2,887,891 and 3,131,921 shares
Accumulated other comprehensive loss
Retained earnings
Total stockholders' equity
Total liabilities and stockholders' equity
See notes to consolidated financial statements.
1,340,175
1,236,190
30,064
21,255
41,259
—
1,772,919
1,742,641
805,030
889,734
1,142,605
1,444,254
592,364
101,682
649,612
108,852
$ 4,414,600
$ 4,835,093
$
160,630
$
42,441
481,243
674,379
18,008
410,225
683,208
—
1,334,260
1,135,874
1,035,670
1,374,879
592,134
68,107
537,956
664,664
62,453
662,279
51
846,807
(183,696)
(396,178)
579,489
846,473
51
851,102
(199,415)
(347,162)
630,368
934,944
$ 4,414,600
$ 4,835,093
54
TRIUMPH GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Net sales
Operating costs and expenses:
Year ended March 31,
2017
2016
2015
$ 3,532,799
$ 3,886,072
$ 3,888,722
Cost of sales (exclusive of depreciation shown separately below)
2,689,818
3,597,299
3,141,453
Selling, general and administrative
Depreciation and amortization
Impairment of intangible assets
Restructuring
Loss on divestitures
Curtailments, settlements and early retirement incentives
Legal settlement charge (gain), net
Operating income (loss)
Interest expense and other
(Loss) income from continuing operations before income taxes
Income tax expense (benefit)
Net (loss) income
Earnings per share—basic:
Net (loss) income
Weighted-average common shares outstanding—basic
Earnings per share—diluted:
Net (loss) income
Weighted-average common shares outstanding—diluted
$
$
$
287,349
177,755
874,361
36,182
—
(1,244)
5,476
281,547
176,946
266,298
42,177
19,124
—
—
3,475,910
56,889
4,977,178
(1,091,106)
68,041
(1,159,147)
(111,187)
80,501
(23,612)
19,340
(42,952) $ (1,047,960) $
285,773
158,323
—
3,193
—
—
(134,693)
3,454,049
434,673
85,379
349,294
110,597
238,697
(0.87) $
49,303
(21.29) $
49,218
4.70
50,796
(0.87) $
49,303
(21.29) $
49,218
4.68
51,005
See notes to consolidated financial statements.
55
TRIUMPH GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(Dollars in thousands)
Net (loss) income
Other comprehensive (loss) income:
Foreign currency translation adjustment
Year ended March 31,
2017
(42,952) $ (1,047,960) $
2016
2015
238,697
$
(28,396)
(12,065)
(46,949)
Defined benefit pension plans and other postretirement benefits:
Amounts arising during the period - gains (losses), net of tax (expense) benefit:
Prior service credit, net of taxes $0, ($14,725) and $19, respectively
Actuarial loss, net of taxes $394, $86,261 and $71,060, respectively
(121)
(15,977)
27,392
(154,659)
(31)
(122,636)
Reclassification from net income - losses (gains), net of tax expense
(benefit):
Amortization of net loss, net of taxes of ($40), ($1,263) and $0, respectively
5,651
2,119
—
Recognized prior service credits, net of taxes of $0, $5,937 and $3,864,
respectively
Total defined benefit pension plans and other postretirement benefits, net of
taxes
(15,246)
(10,876)
(6,133)
(25,693)
(136,024)
(128,800)
Cash flow hedges:
Unrealized gain (loss) arising during period, net of tax benefit (expense) of
$0, $384 and $2,463, respectively
Reclassification of loss included in net earnings, net of tax expense of $0,
($173) and $42, respectively
Net unrealized gain (loss) on cash flow hedges, net of tax
Total other comprehensive loss
Total comprehensive (loss) income
6,582
(527)
(4,098)
(1,509)
364
(155)
5,073
(49,016)
(91,968) $ (1,196,212) $
(163)
(148,252)
(4,253)
(180,002)
58,695
$
See notes to consolidated financial statements.
56
TRIUMPH GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
Outstanding
Shares
Common
Stock
All Classes
Capital in
Excess of
Par Value
Treasury
Stock
Accumulated
Other
Comprehensive
(Loss) Income
Retained
Earnings
Total
$
866,281
$
(19,134)
$
(18,908)
$
1,455,620
$
2,283,911
Balance at March 31, 2014
52,159,020
$
Net income
Foreign currency translation adjustment
Pension liability adjustment, net of
income taxes of ($74,763)
Change in fair value of interest rate swap,
net of income taxes, $2,014
Change in fair value of foreign currency
hedges, net of income taxes of $490
Settlement of convertible notes
Deferred tax impact of convertible debt
redemption
Purchase of 2,923,011 shares of common
stock
Exercise of stock options
Cash dividends ($0.16 per share)
Share-based compensation
Repurchase of restricted shares for
minimum tax obligation
Excess tax benefit from exercise of stock
options
Balance, March 31, 2015
Net loss
Foreign currency translation adjustment
Pension liability adjustment, net of
income taxes of $76,210
Change in fair value of interest rate swap,
net of taxes, $2,014
Change in fair value of derivatives, net of
income taxes of $636
Cash dividends ($0.16 per share)
Share-based compensation
Repurchase of restricted shares for
minimum tax obligation
Employee stock purchase plan
—
—
—
—
—
—
—
(2,923,011)
45,782
—
1,600
(10,338)
—
49,273,053
—
—
—
—
—
—
36,598
(1,528)
20,876
Balance, March 31, 2016
49,328,999
Net loss
Foreign currency translation adjustment
Pension liability adjustment, net of
income taxes of $434
Change in fair value of derivatives
Change in fair value of foreign currency
hedges
Cash dividends ($0.16 per share)
Share-based compensation
Repurchase of restricted shares for
minimum tax obligation
Excess tax benefit from exercise of stock
options
Employee stock purchase plan
—
—
—
—
—
—
191,127
(5,926)
—
58,829
Balance, March 31, 2017
49,573,029
$
52
—
—
—
—
—
(1)
—
—
—
—
—
—
—
51
—
—
—
—
—
—
—
—
—
51
—
—
—
—
—
—
—
—
—
—
51
—
—
—
—
—
(19,386)
2,725
—
720
—
1,272
(673)
1,001
851,940
—
—
—
—
—
—
(590)
(96)
(152)
—
—
—
—
—
—
3,247
—
852
851,102
(199,415)
—
—
—
—
—
—
—
—
—
—
—
—
(4,279)
12,201
42
2,007
(2,065)
(224)
—
3,742
—
—
—
—
—
—
—
(184,380)
—
—
—
—
—
—
(46,949)
(128,800)
(3,156)
(1,097)
—
—
—
—
—
—
—
—
238,697
—
—
—
—
—
—
—
—
(8,100)
—
—
—
238,697
(46,949)
(128,800)
(3,156)
(1,097)
(19,387)
2,725
(184,380)
720
(8,100)
1,272
(673)
1,001
(203,514)
(198,910)
1,686,217
2,135,784
—
(1,047,960)
(1,047,960)
(12,065)
(136,024)
(1,146)
983
—
—
—
—
(347,162)
—
(28,396)
(25,693)
4,834
239
—
—
—
—
—
—
—
—
—
(7,889)
—
—
—
630,368
(42,952)
—
—
—
—
(7,927)
—
—
—
—
(12,065)
(136,024)
(1,146)
983
(7,889)
2,657
(96)
700
934,944
(42,952)
(28,396)
(25,693)
4,834
239
(7,927)
7,922
(182)
2,007
1,677
$
846,807
$
(183,696)
$
(396,178)
$
579,489
$
846,473
See notes to consolidated financial statements.
57
TRIUMPH GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Operating Activities
Net (loss) income
Adjustments to reconcile net (loss) income to net cash provided by operating
activities:
Depreciation and amortization
Impairment of intangible assets
Amortization of acquired contract liability
Loss on divestiture and assets held for sale
Curtailments, settlements and early retirement incentives
Accretion of debt discount
Other amortization included in interest expense
Provision for doubtful accounts receivable
Provision (benefit) for deferred income taxes
Employee stock compensation
Changes in other current assets and liabilities, excluding the effects of
acquisitions:
Accounts receivable
Inventories
Prepaid expenses and other current assets
Accounts payable, accrued expenses and income taxes payable
Accrued pension and other postretirement benefits
Other
Net cash provided by operating activities
Investing Activities
Capital expenditures
Reimbursements of capital expenditures from insurance and other
Proceeds from sale of assets
Acquisitions, net of cash acquired
Net cash provided by (used in) investing activities
Financing Activities
Net decrease in revolving credit facility
Proceeds from issuance of long-term debt
Retirement of debt and capital lease obligations
Payment of deferred financing costs
Purchase of common stock
Dividends paid
Net repayment of government grant
Repurchase of restricted shares for minimum tax obligations
Proceeds from exercise of stock options, including excess tax benefit of $1,001 in
2015
Net cash (used in) provided by financing activities
Effect of exchange rate changes on cash
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Year ended March 31,
2017
2016
2015
$
(42,952) $ (1,047,960) $
238,697
176,946
266,298
(121,004)
19,124
—
—
5,553
202
9,480
7,922
112,196
(272,653)
11,756
211,560
(100,012)
(2,894)
281,522
(51,832)
—
86,187
9
34,364
(110,000)
24,400
(144,144)
(14,034)
—
(7,927)
(14,570)
(182)
—
(266,457)
(780)
48,649
20,984
69,633
$
177,755
874,361
(132,363)
—
(1,244)
—
3,904
1,996
(118,302)
2,657
73,083
293,517
(6,958)
53,914
(87,559)
(2,938)
83,863
(80,047)
—
6,069
(54,051)
(128,029)
(8,256)
134,797
(80,917)
(185)
—
(7,889)
(5,000)
(96)
—
32,454
79
(11,633)
32,617
20,984
$
158,323
—
(75,733)
—
—
1,577
8,135
172
105,277
1,272
69,500
42,383
1,589
95,167
(180,569)
1,542
467,332
(110,004)
653
3,167
38,281
(67,903)
(46,150)
508,960
(655,860)
(6,487)
(184,380)
(8,100)
(3,198)
(673)
720
(395,168)
(642)
3,619
28,998
32,617
$
See notes to consolidated financial statements.
58
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
1.
BACKGROUND AND BASIS OF PRESENTATION
Triumph Group, Inc. ("Triumph") is a Delaware corporation which, through its operating subsidiaries, designs, engineers,
manufactures and sells products for the global aerospace original equipment manufacturers ("OEMs") of aircraft and aircraft
components and repairs and overhauls aircraft components and accessories for commercial airline, air cargo carrier and military
customers on a worldwide basis. Triumph and its subsidiaries (collectively, the "Company") are organized based on the
products and services that it provides. Under this organizational structure, the Company has four reportable segments:
Integrated Systems, Aerospace Structures, Precision Components and Product Support.
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. Inclusive of most of the former Vought Aircraft Division, Aerospace
Structures also has the capability to engineer detailed structural designs in metal and composites.
Precision Components consists of 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.
Repair services generally involve the replacement of parts and/or the remanufacture of parts, which is similar to the
original manufacture of the part. The processes that the Company performs related to repair and overhaul services are
essentially the repair of wear parts or replacement of parts that are beyond economic repair. The repair service generally
involves remanufacturing a complete part or a component of a part.
The accompanying consolidated financial statements include the accounts of Triumph and its wholly-owned subsidiaries.
Intercompany accounts and transactions have been eliminated from the consolidated financial statements.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
59
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents
Cash equivalents consist of highly liquid investments with a maturity of three months or less at the time of purchase. Fair
value of cash equivalents approximates carrying value.
Trade and Other Receivables, net
Trade and other receivables are recorded net of an allowance for doubtful accounts. Trade and other receivables include
amounts billed and currently due from customers, amounts currently due but unbilled, certain estimated contract changes and
amounts retained by the customer pending contract completion. Unbilled amounts are generally billed and collected within one
year. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The
Company records the allowance for doubtful accounts based on prior experience and for specific collectibility matters when
they arise. The Company writes off balances against the reserve when collectibility is deemed remote. The Company's trade
and other receivables are exposed to credit risk; however, the risk is limited due to the diversity of the customer base.
Trade and other receivables, net comprised of the following:
Billed
Unbilled
Total trade receivables
Other receivables
Total trade and other receivables
Less: Allowance for doubtful accounts
Total trade and other receivables, net
Inventories
March 31,
2017
268,711
$
2016
407,275
32,089
300,800
15,551
316,351
(4,559)
311,792
$
25,742
433,017
17,683
450,700
(6,492)
444,208
$
$
The Company records inventories at the lower of cost (average-cost or specific-identification methods) or market. Costs
on long-term contracts and programs in progress represent recoverable costs incurred for production or contract-specific
facilities and equipment, allocable operating overhead and advances to suppliers. Pursuant to contract provisions, agencies of
the U.S. Government and certain other customers have title to, or a security interest in, inventories related to such contracts as a
result of advances, performance-based payments, and progress payments. The Company reflects those advances and payments
as an offset against the related inventory balances. The Company expenses general and administrative costs related to products
and services provided essentially under commercial terms and conditions as incurred. The Company determines the costs of
inventories by the first-in, first-out or average cost methods.
Work-in-process inventory includes capitalized pre-production costs. Company policy allows for the capitalization of pre-
production costs after it establishes a contractual arrangement with a customer that explicitly states that the cost of recovery of
pre-production costs is allowed.
Capitalized pre-production costs include nonrecurring 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 (see Note 5 for further discussion).
Advance Payments and Progress Payments
Advance payments and progress payments received on contracts-in-process are first offset against related contract costs
that are included in inventory, with any excess amount reflected in current liabilities under the Accrued expenses caption on the
accompanying Consolidated Balance Sheets.
60
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
Property and Equipment
Property and equipment, which includes equipment under capital lease and leasehold improvements, are recorded at cost
and depreciated over the estimated useful lives of the related assets, or the lease term if shorter in the case of leasehold
improvements, by the straight-line method. Buildings and improvements are depreciated over a period of 15 to 39.5 years, and
machinery and equipment are depreciated over a period of 7 to 15 years (except for furniture, fixtures and computer equipment
which are depreciated over a period of 3 to 10 years).
Goodwill and Intangible Assets
The Company accounts for purchased goodwill and intangible assets in accordance with Accounting Standards
Codification ("ASC") 350, Intangibles—Goodwill and Other. Under ASC 350, purchased goodwill and intangible assets with
indefinite lives are not amortized; rather, they are tested for impairment on at least an annual basis. Intangible assets with finite
lives are amortized over their useful lives. Upon acquisition, critical estimates are made in valuing acquired intangible assets,
which include but are not limited to: future expected cash flows from customer contracts, customer lists, and estimating cash
flows from projects when completed; tradename and market position, as well as assumptions about the period of time that
customer relationships will continue; and discount rates. Management's estimates of fair value are based upon assumptions
believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from
the assumptions used in determining the fair values.
The Company's operating segments of Integrated Systems, Aerospace Structures, Precision Components and Product
Support are also its reporting units. The Chief Executive Officer is the Company's Chief Operating Decision Maker
("CODM"). The Company's CODM evaluates performance and allocates resources based upon review of segment information.
Each of the operating segments is comprised of a number of operating units which are considered to be components. The
components, for which discrete financial information exists, are aggregated for purposes of goodwill impairment testing. The
Company's acquisition strategy is to acquire companies that complement and enhance the capabilities of the operating segments
of the Company. Each acquisition is assigned to one of the Company's reporting units. The goodwill that results from each
acquisition is also assigned to the reporting unit to which the acquisition is allocated, because it is that reporting unit which is
intended to benefit from the synergies of the acquisition.
The Company assesses whether goodwill impairment exists using both the qualitative and quantitative assessments. The
qualitative assessment involves determining whether events or circumstances exist that indicate it is more likely than not that
the fair value of a reporting unit is less than its carrying amount, including goodwill. If based on this qualitative assessment the
Company determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount or if the
Company elects not to perform a qualitative assessment, a quantitative assessment is performed as required by ASC 350 to
determine whether a goodwill impairment exists at the reporting unit.
The quantitative test is used to compare the carrying amount of the reporting unit's assets to the fair value of the reporting
unit. If the fair value exceeds the carrying value, no further evaluation is required and no impairment loss is recognized. If the
carrying amount exceeds the fair value, then an impairment loss occurs. The impairment is measured by using the amount by
which the carrying value exceeds the fair value not to exceed the amount of recorded goodwill. The determination of the fair
value of our reporting units is based, among other things, on estimates of future operating performance of the reporting unit
being valued. The Company is required to complete an impairment test for goodwill and record any resulting impairment
losses at least annually. Changes in market conditions, among other factors, may have an impact on these estimates and require
interim impairment assessments.
When performing the quantitative impairment test, the Company's methodology includes the use of an income approach
which discounts future net cash flows to their present value at a rate that reflects the Company's cost of capital, otherwise
known as the discounted cash flow method ("DCF"). These estimated fair values are based on estimates of future cash flows of
the businesses. Factors affecting these future cash flows include the continued market acceptance of the products and services
offered by the businesses, the development of new products and services by the businesses and the underlying cost of
development, the future cost structure of the businesses, and future technological changes. The Company also incorporates
market multiples for comparable companies in determining the fair value of our reporting units. Any such impairment would
be recognized in full in the reporting period in which it has been identified.
In the fourth quarter of the fiscal year ended March 31, 2017, consistent with the Company's policy described here, the
Company performed its annual assessment of the fair value of goodwill. The Company concluded that the goodwill related to
the Aerospace Structures reporting unit was impaired as of the annual testing date. The Company concluded that the goodwill
had a fair value that was lower then its carrying value by an amount that exceeded the remaining goodwill for the reporting unit.
61
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
Accordingly, the Company recorded a non-cash impairment charge during the fourth quarter of the fiscal year ending March 31,
2017 of $266,298, which is presented on the accompanying Consolidated Statements of Operations as "Impairment of
intangible assets”. The decline in fair value is the result of declining revenues from production rate reductions on sun-setting
programs and the slower than previously projected ramp in our development programs and the timing of associated earnings
and cash flows (See Note 2 for definition of fair value levels).
The Company’s assessment of the Precision Components reporting unit concluded that the goodwill was not impaired as of
the annual impairment assessment date. However, the excess of the fair value over the carrying value was less than 5%. The
decline in fair value is the result of declining revenues from production rate reductions on sun-setting programs and the start-up
costs related to new programs and the timing of associated earnings and cash flows. Going forward, the Company will continue
to monitor the performance of this reporting unit in relation to the key assumptions in our analysis.
In the event that market multiples for stock price to EBITDA in the aerospace and defense markets decrease, or the
expected EBITDA and cash flows for the Company's reporting units decreases, an additional goodwill impairment charge may
be required, which would adversely affect the Company's operating results and financial condition. If management determines
that impairment exists, the impairment will be recognized in the period in which it is identified.
Prior to adoption of ASU 2017-04, the Company used the quantitative assessment to perform the two-step approach
required by ASC 350 to determine whether a goodwill impairment exists at the reporting unit.
The first step of the quantitative test is to compare the carrying amount of the reporting unit's assets to the fair value of the
reporting unit. If the fair value exceeds the carrying value, no further work is required and no impairment loss is recognized. If
the carrying amount exceeds the fair value, then the second step is required to be completed, which involves allocating the fair
value of the reporting unit to each asset and liability, with the excess being applied to goodwill. An impairment loss occurs if
the amount of the recorded goodwill exceeds the implied goodwill. The determination of the fair value of our reporting units is
based, among other things, on estimates of future operating performance of the reporting unit being valued. We are required to
complete an impairment test for goodwill and record any resulting impairment losses at least annually. Changes in market
conditions, among other factors, may have an impact on these estimates and require interim impairment assessments.
When performing the two-step quantitative impairment test, the Company's methodology includes the use of an income
approach which discounts future net cash flows to their present value at a rate that reflects the Company's cost of capital,
otherwise known as the discounted cash flow method ("DCF"). These estimated fair values are based on estimates of future
cash flows of the businesses. Factors affecting these future cash flows include the continued market acceptance of the products
and services offered by the businesses, the development of new products and services by the businesses and the underlying cost
of development, the future cost structure of the businesses, and future technological changes. The Company also incorporates
market multiples for comparable companies in determining the fair value of our reporting units. Any such impairment would
be recognized in full in the reporting period in which it has been identified.
In the fourth quarter of fiscal 2016, the Company performed the quantitative assessment for all three of the Company's
former reporting units, which indicated that the fair value of goodwill for the former Aerostructures reporting unit did not
exceed its carrying amount. After evaluating whether other assets within the reporting unit were impaired in accordance with
ASC 350, we concluded on the implied goodwill under Step 2 resulting in a $597,603 impairment of goodwill to the former
Aerostructures reporting unit. The assessment for the Company's reporting units formerly known as Aerospace Systems and
Aftermarket Services indicated that the fair value of their respective goodwill exceeded the carrying amount. We incurred no
impairment of goodwill as a result of our annual goodwill impairment tests in fiscal 2015 (see Note 7 for further discussion).
As of March 31, 2016, the Company had a $163,000 intangible asset associated with the tradenames acquired in the
acquisitions of Vought Aircraft Industries, Inc. ("Vought") and Embee, Inc. ("Embee"). The Company assesses whether
indefinite-lived intangible assets impairment exists using both the qualitative and quantitative assessments. The qualitative
assessment involves determining whether events or circumstances exist that indicate it is more likely than not that the fair value
of an indefinite-lived intangible asset is less than its carrying amount. If based on this qualitative assessment, the Company
determines it is not more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount
or if the Company elects not to perform a qualitative assessment, a quantitative assessment is performed to determine whether
an indefinite-lived intangible asset impairment exists. We test the indefinite-lived intangible assets for impairment by
comparing the carrying value to the fair value based on current revenue projections of the related operations, under the relief
from royalty method. Any excess of the carrying value over the amount of fair value is recognized as an impairment.
62
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
During the third quarter of the fiscal year ended March 31, 2016, the Company performed an interim assessment of fair
value on our indefinite-lived intangible assets due to indicators of impairment related to the continued decline in our stock price
during the fiscal third quarter. Based on the Company's evaluation, the Company concluded that the Vought tradename had a
fair value of $195,800 (Level 3) compared to a carrying value of $425,000. Accordingly, the Company recorded a non-cash
impairment charge during the fiscal year ended March 31, 2016, of $229,200, which is presented on the accompanying
Consolidated Statements of Operations as "Impairment of intangible assets". The decline in fair value compared to the carrying
value of the Vought tradename is the result of declining revenues from production rate reductions and the slower than
previously projected ramp in Bombardier Global 7000/8000 and the timing of associated earnings.
In the fourth quarter of fiscal 2016, the Company performed its annual impairment test for each of the Company's
indefinite-lived intangible assets, which indicated that the Vought and Embee tradenames had a fair value of $163,000 (Level 3)
compared to a carrying value of $209,200. The decline in fair value of the tradenames is the result of the increase in discount
rate during the fourth quarter of fiscal 2016, which required the Company to assess whether events and/or circumstances have
changed regarding the indefinite-life conclusion. As a result the Company incurred a non-cash impairment charge of $46,200
presented on the accompanying Consolidated Statements of Operations as "Impairment of intangible assets" to the Vought and
Embee tradenames. The Company incurred no impairment of indefinite-lived assets as a result of our annual indefinite-lived
assets impairment tests in fiscal 2015.
During the fiscal year ended March 31, 2017, as part of the Company's annual assessment, the Company determined that
the remaining estimated useful life for the Vought tradename should be reduced from a useful life of 20 years to a useful life of
10 years, as it better represents the financial performance relative to the expected performance.
Finite-lived intangible assets are amortized over their useful lives ranging from 3 to 32 years. The Company continually
evaluates whether events or circumstances have occurred that would indicate that the remaining estimated useful lives of long-
lived assets, including intangible assets, may warrant revision or that the remaining balance may not be recoverable. Intangible
assets are evaluated for indicators of impairment. When factors indicate that long-lived assets, including intangible assets,
should be evaluated for possible impairment, an estimate of the related undiscounted cash flows over the remaining life of the
long-lived assets, including intangible assets, is used to measure recoverability based on the primary asset of the asset group.
Some of the more important factors management considers include the Company's financial performance relative to expected
and historical performance, significant changes in the way the Company manages its operations, negative events that have
occurred, and negative industry and economic trends. If the estimated fair value is less than the carrying amount, measurement
of the impairment will be based on the difference between the carrying value and fair value of the asset group, generally
determined based on the present value of expected future cash flows associated with the use of the asset.
Deferred Financing Costs
Financing costs are deferred and amortized to Interest expense and other on the accompanying Consolidated Statements of
Operations over the related financing period using the effective interest method or the straight-line method when it does not
differ materially from the effective interest method. The Company records deferred financing costs as a direct deduction from
the carrying value of that debt liability; however, the policy does exclude deferred financing costs relating to revolving debt
instruments. These deferred financing costs are recorded in Other, net on the accompanying Consolidated Balance Sheets as of
March 31, 2017 and 2016. Total deferred financing costs, net of accumulated amortization of $22,692 and $14,131,
respectively, are recorded as of March 31, 2017 and 2016. Make-whole payments in connection with early debt retirements are
classified as cash flows used in financing activities.
Acquired Contract Liabilities, net
In connection with several of our acquisitions, we assumed existing long-term contracts. Based on our review of these
contracts, we concluded that the terms of certain contracts to be either more or less favorable than could be realized in market
transactions as of the date of the acquisition. As a result, we recognized acquired contract liabilities, net of acquired contract
assets as of the acquisition date of each respective acquisition, based on the present value of the difference between the
contractual cash flows of the executory contracts and the estimated cash flows had the contracts been executed at the
acquisition date. The liabilities principally relate to long-term contracts that were initially executed at several years prior to the
respective acquisition (see Note 3 for further discussion).
The Company measured these net liabilities under the measurement provisions of ASC 820, Fair Value Measurement,
which is based on the price to transfer the obligation to a market participant at the measurement date, assuming that the net
liabilities will remain outstanding in the marketplace. Fair value estimates are based on a complex series of judgments about
future events and uncertainties and rely heavily on estimates and assumptions. The judgments used to determine the estimated
fair value assigned to each long-term contracts can materially impact our results of operations.
63
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
Included in the net sales of the Integrated Systems, Aerospace Structures and Precision Components is the non-cash
amortization of acquired contract liabilities recognized as fair value adjustments through purchase accounting from various
acquisitions. The Company recognized net amortization of contract liabilities of $121,004, $132,363 and $75,733 in the fiscal
years ended March 31, 2017, 2016 and 2015, respectively, and such amounts have been included in revenues in results of
operations. The balance of the liability as of March 31, 2017 is $394,883 and, based on the expected delivery schedule of the
underlying contracts, the Company estimates annual amortization of the liability as follows: 2018—$112,063; 2019—$77,004;
2020—$55,401; 2021—$51,101; and 2022—$51,101.
Revenue Recognition
Revenues are generally recognized in accordance with the contract terms when products are shipped, delivery has occurred
or services have been rendered, pricing is fixed or determinable, and collection is reasonably assured. The Company's policy
with respect to sales returns and allowances generally provides that the customer may not return products or be given
allowances, except at the Company's option. Accruals for sales returns, other allowances and estimated warranty costs are
provided at the time of shipment based upon past experience.
A significant portion of the Company's contracts are within the scope of ASC 605-35, Revenue Recognition —
Construction-Type and Production-Type Contracts, and revenue and costs on contracts are recognized using the percentage-of-
completion method of accounting. Accounting for the revenue and profit on a contract requires estimates of (1) the contract
value or total contract revenue, (2) the total costs at completion, which is equal to the sum of the actual incurred costs to date on
the contract and the estimated costs to complete the contract's scope of work and (3) the measurement of progress towards
completion. Depending on the contract, the Company measures progress toward completion using either the cost-to-cost
method or the units-of-delivery method, with the great majority measured under the units-of-delivery method.
• Under the cost-to-cost method, progress toward completion is measured as the ratio of total costs incurred to estimated
total costs at completion. Costs are recognized as incurred. Profit is determined based on estimated profit margin on
the contract multiplied by progress toward completion. Revenue represents the sum of costs and profit on the contract
for the period.
• Under the units-of-delivery method, revenue on a contract is recorded as the units are delivered and accepted during
the period at an amount equal to the contractual selling price of those units. The costs recorded on a contract under the
units-of-delivery method are equal to the total costs at completion divided by the total units to be delivered. As
contracts can span multiple years, the Company often segments the contracts into production lots for the purposes of
accumulating and allocating cost. Profit is recognized as the difference between revenue for the units delivered and
the estimated costs for the units delivered.
Adjustments to original estimates for a contract's revenues, estimated costs at completion and estimated total profit are
often required as work progresses under a contract, as experience is gained and as more information is obtained, even though
the scope of work required under the contract may not change, or if contract modifications occur. These estimates are also
sensitive to the assumed rate of production. Generally, the longer it takes to complete the contract quantity, the more relative
overhead that contract will absorb. The impact of revisions in cost estimates is recognized on a cumulative catch-up basis in the
period in which the revisions are made. Provisions for anticipated losses on contracts are recorded in the period in which they
become probable ("forward losses") and are first offset against costs that are included in inventory, with any remaining amount
reflected in accrued contract liabilities in accordance with ASC 605-35. Revisions in contract estimates, if significant, can
materially affect results of operations and cash flows, as well as valuation of inventory. Furthermore, certain contracts are
combined or segmented for revenue recognition in accordance with ASC 605-35.
For the fiscal year ended March 31, 2017, cumulative catch-up adjustments resulting from changes in contract values and
estimated costs that arose during the fiscal year increased operating (loss) income, net (loss) income and earnings per share by
approximately $57,153, $52,598 and $1.07, respectively. The cumulative catch-up adjustments to operating income for the
fiscal year ended March 31, 2017 included gross favorable adjustments of approximately $163,274 and gross unfavorable
adjustments of approximately $106,121, which includes a reduction to the previously recognized forward losses of $131,400 on
the 747-8 program.
For the fiscal year ended March 31, 2016, cumulative catch-up adjustments resulting from changes in estimates decreased
operating income, net income and earnings per share by approximately $596,213, $539,023 and $10.95, respectively. The
cumulative catch-up adjustments to operating income for the fiscal year ended March 31, 2016 included gross favorable
adjustments of approximately $32,954 and gross unfavorable adjustments of approximately $629,167 which includes a
provision for forward losses of $561,158 on the Bombardier Global 7000/8000 ("Bombardier") and 747-8 programs.
64
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
For the fiscal year ended March 31, 2015, cumulative catch-up adjustments resulting from changes in estimates decreased
operating income, net income and earnings per share by approximately $156,048, $106,639 and $2.09, respectively. The
cumulative catch-up adjustments to operating income for the fiscal year ended March 31, 2015 included gross favorable
adjustments of approximately $4,653 and gross unfavorable adjustments of approximately $160,701 which includes a provision
for forward losses of $151,992 on the 747-8 program.
Amounts representing contract change orders or claims are only included in revenue when such change orders or claims
have been settled with the customer and to the extent that units have been delivered. Additionally, some contracts may contain
provisions for revenue sharing, price re-determination, requests for equitable adjustments, change orders or cost and/or
performance incentives. Such amounts or incentives are included in contract value when the amounts can be reliably estimated
and their realization is reasonably assured.
Although fixed-price contracts, which extend several years into the future, generally permit the Company to keep
unexpected profits if costs are less than projected, the Company also bears the risk that increased or unexpected costs may
reduce profit or cause the Company to sustain losses on the contract. In a fixed-price contract, the Company must fully absorb
cost overruns, notwithstanding the difficulty of estimating all of the costs the Company will incur in performing these contracts
and in projecting the ultimate level of revenue that may otherwise be achieved.
As disclosed during fiscal 2016, the Company recognized a provision for forward losses associated with our long-term
contract on the 747-8 and Bombardier programs. There is still risk similar to what the Company has experienced on the 747-8
and Bombardier programs. Particularly, the Company's ability to manage risks related to supplier performance, execution of
cost reduction strategies, hiring and retaining skilled production and management personnel, quality and manufacturing
execution, program schedule delays, potential need to negotiate facility lease extensions or alternatively relocate work and
many other risks, will determine the ultimate performance of these programs.
Product Support provides repair and overhaul services, certain of which services are provided under long-term power-by-
the-hour contracts, comprising approximately 3% of the segment's net sales. The Company applies the proportional
performance method to recognize revenue under these contracts. Revenue is recognized over the contract period as units are
delivered based on the relative value in proportion to the total estimated contract consideration. In estimating the total contract
consideration, management evaluates the projected utilization of its customer's fleet over the term of the contract, in connection
with the related estimated repair and overhaul servicing requirements to the fleet based on such utilization. Changes in
utilization of the fleet by customers, among other factors, may have an impact on these estimates and require adjustments to
estimates of revenue to be realized.
Shipping and Handling Costs
The cost of shipping and handling products is included in cost of products sold.
Research and Development Expense
Research and development ("R&D") expense (which includes certain amounts subject to reimbursement from customers)
was approximately $112,418, $103,031 and $108,062 for the fiscal years ended March 31, 2017, 2016 and 2015, respectively.
Retirement Benefits
Defined benefit pension plans are recognized in the consolidated financial statements on an actuarial basis. A significant
element in determining the Company's pension income (expense) is the expected long-term rate of return on plan assets. This
expected return is an assumption as to the average rate of earnings expected on the funds invested or to be invested to provide
for the benefits included in the projected pension benefit obligation. The Company applies this assumed long-term rate of
return to a calculated value of plan assets, which recognizes changes in the fair value of plan assets in a systematic manner over
five years. This produces the expected return on plan assets that is included in pension income (expense). The difference
between this expected return and the actual return on plan assets is deferred. The net deferral of past asset gains (losses) affects
the calculated value of plan assets and, ultimately, future pension income (expense).
The Company periodically experiences events or makes changes to its benefit plans that result in curtailment or special
charges. Curtailments are recognized when events occur that significantly reduce the expected years of future service of present
employees or eliminates the benefits for a significant number of employees for some or all of their future service.
Curtailment losses are recognized when it is probable the curtailment will occur and the effects are reasonably estimable.
Curtailment gains are recognized when the related employees are terminated or a plan amendment is adopted, whichever is
applicable.
65
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
As required under ASC 715, Compensation — Retirement Benefits, the Company remeasures plan assets and obligations
during an interim period whenever a significant event occurs that results in a material change in the net periodic pension cost.
The determination of significance is based on judgment and consideration of events and circumstances impacting the pension
costs.
At March 31 of each year, the Company determines the fair value of its pension plan assets as well as the discount rate to
be used to calculate the present value of plan liabilities. The discount rate is an estimate of the interest rate at which the pension
benefits could be effectively settled. In estimating the discount rate, the Company looks to rates of return on high-quality,
fixed-income investments currently available and expected to be available during the period to maturity of the pension benefits.
The Company uses a portfolio of fixed-income securities, which receive at least the second-highest rating given by a recognized
ratings agency.
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 4), to its goodwill and intangible impairment tests (see Note 7), to its interest rate swap (see Note 10) and to its
pension and postretirement plan assets (see Note 15).
Foreign Currency Translation
The determination of the functional currency for the Company's foreign subsidiaries is made based on appropriate
economic factors. The functional currency of the Company's subsidiaries Triumph Aviation Services—Asia and Triumph
Structures—Thailand is the U.S. dollar since that is the currency in which that entity primarily generates and expends cash.
The functional currency of the Company's remaining subsidiaries is the local currency, since that is the currency in which those
entities primarily generate and expend cash. Assets and liabilities of these subsidiaries are translated at the rates of exchange at
the balance sheet date. Income and expense items are translated at average monthly rates of exchange. The resultant translation
adjustments are included in accumulated other comprehensive income (see Note 13). Gains and losses arising from foreign
currency transactions of these subsidiaries are included in earnings.
Income Taxes
The Company accounts for income taxes using the asset and liability method. The asset and liability method requires
recognition of deferred tax assets and liabilities for expected future tax consequences of temporary differences that currently
exist between tax bases and financial reporting bases of the Company's assets and liabilities. A valuation allowance is provided
on deferred taxes if it is determined that it is more likely than not that the asset will not be realized. The Company recognizes
penalties and interest accrued related to income tax liabilities in the provision for income taxes on its Consolidated Statements
of Operations.
Significant management judgment is required to determine the amount of benefit to be recognized in relation to an
uncertain tax position. The Company uses a two-step process to evaluate tax positions. The first step requires an entity to
determine whether it is more likely than not (greater than 50% chance) that the tax position will be sustained. The second step
requires an entity to recognize in the financial statements the benefit of a tax position that meets the more-likely-than-not
recognition criterion. The amounts ultimately paid upon resolution of issues raised by taxing authorities may differ materially
from the amounts accrued and may materially impact the financial statements of the Company in future periods.
Recently Issued Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”, “ASC 606”),
which requires recognition of revenue to depict the transfer of goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in exchange for those goods or services. The FASB has issued several
updates to ASU 2014-09 which must be adopted concurrently with ASU 2014-09.
66
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
Under ASC 606, revenue is recognized when control of promised goods or services transfers to a customer and is
recognized in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or
services. The major provisions include determining enforceable rights and obligation between parties, defining performance
obligations as the units of accounting under contract, accounting for variable consideration, and determining whether
performance obligations are satisfied over time or at a point of time. Additionally, ASC 606 requires disclosure of the nature,
amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.
ASC 606 will be effective for us beginning April 1, 2018 and early adoption as of April 1, 2017 is permitted. The guidance
permits two methods of adoption: retrospectively to each prior reporting period presented (“full retrospective method”), or
retrospectively with the cumulative effect of initially applying ASC 606 recognized at the date of initial application (“the
modified retrospective method”). The Company is adopting ASC 606 effective April 1, 2018 and the Company expects to do so
using the modified retrospective method.
During the fiscal year ended March 31, 2016, we established a cross-functional team to assess and prepare for
implementation of the new standard. We are analyzing the impact of the new standard on the Company’s revenue contracts,
comparing our current accounting policies and practices to the requirements of the new standard, and identifying potential
differences that would result from applying the new standard to our contracts.
While further analysis of ASC 606 and a review of all material contracts is underway the adoption of ASC 606 may impact
the amounts and timing of revenue recognition and the accounting treatment of deferred production costs. Under ASC 606, the
units-of-delivery method is no longer viable and some performance obligations may be satisfied over time which may change
the timing of recognition of revenue and associated production costs for certain contracts.
In March 2017, the Financial Accounting Standards Board ("FASB") issued ASU No. 2017-07, Improving the Presentation
of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (“ASU 2017-07”). ASU 2017-07 amends ASC
715, Compensation — Retirement Benefits, to require employers that present a measure of operating income in their statement
of income to include only the service cost component of net periodic pension cost and net periodic postretirement benefit cost
in operating expenses (together with other employee compensation costs). The other components of net benefit cost, including
amortization of prior service cost/credit, and settlement and curtailment effects, are to be included in nonoperating expenses.
Employers that do not present a measure of operating income are required to include the service cost component in the same
line item as other employee compensation costs. Employers are required to include all other components of net benefit cost in a
separate line item(s). The line item(s) in which the components of net benefit cost other than the service cost are included need
to be identified as such on the income statement or in the disclosures. ASU 2017-07 also stipulates that only the service cost
component of net benefit cost is eligible for capitalization. ASU 2017-07 is effective for -reporting periods beginning after
December 15, 2017, with early adoption permitted. The Company is currently performing its assessment of the impact of
adopting the guidance; however based on its expectations for the fiscal year ended March 31, 2018, the Company believes the it
will likely have a material impact due to the reclassification of pension and OPEB income from capitalized costs (Operating
Income) to Other Income. Excluding the service costs, the net periodic pension benefit for the fiscal year ended March 31,
2018 is expected to be $67,000.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350), Simplifying the Test for
Goodwill Impairment (“ASU 2017-04). ASU 2017-04 removes Step 2 of the goodwill impairment test, which requires a
hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying
value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for reporting periods
beginning after December 15, 2019, with early adoption permitted for annual and interim goodwill impairment testing dates
after January 1, 2017. The Company early adopted ASU 2017-04, which reduced the cost and complexity of the impairment
testing.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash
Receipts and Cash Payments (“ASU 2016-15”). ASU 2016-15 provides guidance on eight specific cash flow classification
issues. Current GAAP does not include specific guidance on these eight cash flow classification issues. ASU 2016-15 is
effective for reporting periods beginning after December 15, 2017, with early adoption permitted. The adoption of ASU
2016-15 is not expected to have a material impact on the Company's consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to
Employee Share-Based Payment Accounting ("ASU 2016-09"). ASU 2016-09 identifies areas for simplification involving
several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of
67
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures
recognized as they occur, as well as certain classifications on the statement of cash flows. ASU 2016-09 will be effective for
annual periods beginning after December 15, 2016. Early adoption is permitted. The adoption of ASU 2016-15 is not expected
to have a material impact on the Company's consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) ("ASU 2016-02"). This update requires recognition
of lease 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 new guidance to determine the impact it may have to the Company's consolidated financial statements.
In May 2015, the FASB issued ASU 2015-05, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain
Entities That Calculate Net Asset Value per Share (or Its Equivalent) ("ASU 2015-05"). This update eliminates the requirement
to categorize within the fair value hierarchy investments whose fair values are measured at net asset value (NAV) using the
practical expedient in Accounting Standards Codification (ASC 820). ASU 2015-05 is effective for fiscal years beginning after
December 15, 2015 and interim reporting periods within those years. ASU 2015-05 requires retrospective application.
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 fiscal years ended March 31, 2017, 2016 and 2015 was $7,922, $2,657 and
$1,272, 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 will issue new shares (see
Note 16 for further details).
Supplemental Cash Flow Information
For the fiscal years ended March 31, 2017 and 2016, the Company paid $7,930 and $4,887, respectively, for income tax,
net of income tax refunds received. For the fiscal year ended March 31, 2015, the Company received $22,241 for income tax
refunds, net of payments. The Company made interest payments of $72,533, $62,325 and $82,425 for fiscal years ended March
31, 2017, 2016 and 2015, respectively.
During the fiscal years ended March 31, 2017, 2016 and 2015, the Company financed $13,066, $188 and $52 of property
and equipment additions through capital leases, respectively.
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. Warranty reserves are included in accrued
expenses and other noncurrent liabilities on the Consolidated Balance Sheet. The warranty reserves for the fiscal years ended
March 31, 2017 and 2016, were $107,088 and $112,937, respectively, of which a significant portion is offset by an
indemnification asset.
3.
ACQUISITIONS
Acquisition of Fairchild Controls Corporation
Effective October 21, 2015, the Company acquired all of the outstanding shares of Fairchild Controls Corporation
("Fairchild"). Fairchild is a leading provider of proprietary thermal management systems, auxiliary power generation systems
and related aftermarket spares and repairs. The acquired business operates as Triumph Thermal Systems-Maryland, Inc. and its
results are included in Integrated Systems from the date of acquisition.
The purchase price for Fairchild was $57,130, including a working capital adjustment. Goodwill in the amount of $14,695
was recognized for this acquisition and is calculated as the excess of consideration transferred over the net assets recognized
and represents future economic benefits arising from other assets acquired that could not be individually identified and
68
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
separately recognized such as assembled workforce. The goodwill is not deductible for tax purposes. The Company has also
identified an intangible asset related to customer relationships valued at $18,000 with a weighted-average life of 12.0 years.
The following consolidated balance sheet represents the amounts assigned to each major asset and liability caption in the
aggregate from the acquisition of Fairchild, in accordance with ASC 805:
Cash
Accounts receivable
Inventory
Prepaid expenses
Property and equipment
Goodwill
Intangible assets
Deferred taxes
Total assets
Accounts payable
Accrued expenses
Other noncurrent liabilities
Total liabilities
October 21, 2015
9,075
8,841
15,069
263
6,632
14,695
18,000
5,889
78,464
1,284
12,183
7,867
21,334
$
$
$
$
The Company finalized its estimates after it was able to determine that it had obtained all necessary information that
existed as of the acquisition date related to these matters.
The Fairchild acquisition has been accounted for under the acquisition method and, accordingly, is included in the
consolidated financial statements from the effective date of acquisition. The Company incurred $569 in acquisition-related
costs in connection with the Fairchild acquisition.
FISCAL 2015 ACQUISITIONS
Assumption of Spirit AeroSystems Holdings, Inc. - Gulfstream G650 and G280 Wing Programs
Effective December 30, 2014, a wholly-owned subsidiary of the Company, Triumph Aerostructures - Tulsa LLC, doing
business as Triumph Aerostructures-Vought Aircraft Division-Tulsa, completed the acquisition of the Gulfstream G650 and
G280 wing programs (the "Tulsa Programs") located in Tulsa, Oklahoma, from Spirit AeroSystems, Inc. The acquisition of the
Tulsa Programs establishes the Company as a leader in fully integrated wing design, engineering and production and advances
its standing as a strategic Tier One Capable aerostructures supplier. The Company received $160,000 in cash plus assets
required to run the business from Spirit-Tulsa to cover the anticipated future cash flow needs of the programs. The Company
incurred $5,000 in acquisition-related costs in connection with the Tulsa Programs acquisition, which is recorded in selling,
general and administrative expenses on the accompanying Consolidated Statements of Operations. The acquired business
operates as Triumph Aerostructures-Vought Aircraft Division-Tulsa and its results are included in Aerospace Structures from the
date of acquisition.
Acquisition of North American Aircraft Services, Inc.
Effective October 17, 2014, the Company acquired the ownership of all of the outstanding shares of North American
Aircraft Services, Inc. and its affiliates ("NAAS"). NAAS is based in San Antonio, Texas, with fixed-based operator units
throughout the United States as well as international locations and delivers line maintenance and repair, fuel leak detection and
fuel bladder cell repair services. The purchase price for the NAAS acquisition was $44,520, net of working capital adjustment
of $167. The Company incurred $654 in acquisition-related costs in connection with the NAAS acquisition, which is recorded
in selling, general and administrative expenses on the accompanying Consolidated Statements of Operations. The acquired
69
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
business operates as Triumph Aviation Services - NAAS Division and its results are included in Product Services from the date
of acquisition.
Acquisition of GE Aviation - Hydraulic Actuation
Effective June 27, 2014, the Company acquired the hydraulic actuation business of GE Aviation ("GE"). GE's hydraulic
actuation business consists of three facilities located in Yakima, Washington, Cheltenham, England and the Isle of Man and is a
technology leader in actuation systems. GE's key product offerings include complete landing gear actuation systems, door
actuation, nose-wheel steerings, hydraulic fuses, manifolds flight control actuation and locking mechanisms for the commercial,
military and business jet markets. The purchase price for the GE acquisition was $75,609, which included cash paid at closing,
working capital adjustments, and deferred payments of $6,000 paid in fiscal 2016. The Company incurred $1,834 in
acquisition-related costs in connection with the GE acquisition, which is recorded in selling, general and administrative
expenses in the accompanying Consolidated Statements of Operations. The acquired business operates as Triumph Actuation
Systems-Yakima and Triumph Actuation Systems-UK & IOM and its results are included in Integrated Systems from the date
of acquisition.
The acquisitions of the Tulsa Programs, NAAS and GE are referred to in this report as the "fiscal 2015 acquisitions."
4.
DIVESTED OPERATIONS AND ASSETS HELD FOR SALE
Sale of Triumph Aerospace Systems-Newport News
In September 2016, the Company sold all of the shares of Triumph Aerospace Systems-Newport News, Inc. ("TAS-
Newport News") for total cash proceeds of $9,000. As a result of the sale of TAS-Newport News, the Company recognized a
loss of $4,861 which is presented on the accompanying Consolidated Statements of Income as "Loss on divestitures." The
operating results of TAS-Newport News were included in Integrated Systems through the date of disposal.
Sale of Triumph Air Repair, the Auxiliary Power Unit Overhaul Operations of Triumph Aviations Services - Asia, Ltd. and
Triumph Engines - Tempe
In December 2016, the Company entered into a definitive agreement to divest Triumph Air Repair, the Auxiliary Power
Unit Overhaul Operations of Triumph Aviations Services - Asia, Ltd. and Triumph Engines - Tempe ("Engines and APU"). As a
result, the Company recognized a loss of $14,263 on the expected sale which is presented on the accompanying Consolidated
Statements of Income as "Loss on divestitures." For financial statement purposes, the assets and liabilities of these business
have been segregated from those of the continuing operations and are presented on the accompanying Consolidated Balance
Sheets as "Assets held for sale" and "Liabilities related to assets held for sale", respectively. The operating results of Engines
and APU will be included in Product Support through the date of disposal. The transaction is expected to close in stages by the
end of the fiscal year ending March 31, 2018.
The disposal 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 disposals do not
meet the criteria to be classified as discontinued operations.
To measure the amount of loss on divestiture, the Company compared the fair values of assets and liabilities at the
evaluation dates to the carrying amounts at the end of the month prior to the respective evaluation dates. The sale of TAS-
Newport News and Engines and APU assets and liabilities 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
definition of levels).
70
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
5.
INVENTORIES
Inventories are stated at the lower of cost (average-cost or specific-identification methods) or market. The components of
inventories are as follows:
Raw materials
Work-in-process, including manufactured and purchased components
Finished goods
Rotable assets
Less: unliquidated progress payments
Total inventories
March 31,
2017
2016
$
89,069
$
81,989
1,297,989
118,265
57,337
(222,485)
1,340,175
$
1,100,660
124,744
51,952
(123,155)
1,236,190
$
According to the provisions of U.S. Government contracts, the customer has title to, or a security interest in, substantially
all inventories related to such contracts. Included above is total net inventory on government contracts of $34,392 and $27,635,
respectively, at March 31, 2017 and 2016.
Work-in-process inventory includes capitalized pre-production costs on newer development programs. Capitalized pre-
production costs include nonrecurring 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. The balance
of development program inventory, comprised principally of capitalized pre-production costs, excluding progress payments
related to the Company's contracts with Bombardier for the Global 7000/8000 program ("Bombardier") and Embraer for the
second generation E-Jet ("Embraer") are as follows:
March 31, 2017
Bombardier
Embraer
Total
Bombardier
Embraer
Total
$
$
$
$
Inventory
89,650
14,987
104,637
$
Capitalized
Pre-Production
589,449
$
173,169
762,618
Forward Loss
Provision
$
$
(399,758)
(5,800)
(405,558)
Total
Inventory, net
279,341
$
182,356
461,697
$
March 31, 2016
Inventory
6,662
5,139
11,801
$
Capitalized
Pre-Production
406,147
$
146,765
552,912
Forward Loss
Provision
$
$
(399,758)
—
(399,758)
Total
Inventory, net
13,051
$
151,904
164,955
$
During the fiscal year ended March 31, 2016, the Company recorded a $399,758 forward loss charge for the Bombardier
Global 7000/8000 wing program. Under our contract for this program, the Company has the right to design, develop and
manufacture wing components for the Global 7000 program. The Global 7000/8000 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 7000/8000 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 program has continued to incur costs since March 2016 in support of the development and transition to production.
71
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
In May 2017, Triumph Aerostructures and Bombardier entered into a comprehensive settlement agreement that resolves all
outstanding commercial disputes between them, including all pending litigation, related to the design, manufacture and supply
of wing components for Bombardier’s Global 7000 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 7000/8000 program will likely
result in additional forward loss reserves in future periods, while improvements in future costs compared to current estimates
may result in favorable adjustments if forward loss reserves are no longer required.
The Company is still in the pre-production stages for the Bombardier and Embraer programs, as these aircrafts are not
scheduled to enter service until 2018, or later. 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.
6.
PROPERTY AND EQUIPMENT
Net property and equipment is:
Land
Construction in process
Buildings and improvements
Furniture, fixtures and computer equipment
Machinery and equipment
Less: accumulated depreciation
March 31,
2017
2016
$
65,338
$
31,808
378,193
160,298
982,240
1,617,877
812,847
$
805,030
$
72,204
40,772
371,336
159,511
989,423
1,633,246
743,512
889,734
Depreciation expense for the fiscal years ended March 31, 2017, 2016 and 2015 was $123,199, $122,197 and $108,347,
respectively, which includes depreciation of assets under capital lease. Included in furniture, fixtures and computer equipment
above is $91,557 and $93,047, respectively, of capitalized software at March 31, 2017 and 2016, which were offset by
accumulated depreciation of $76,847 and $66,760, respectively.
7.
GOODWILL AND OTHER INTANGIBLE ASSETS
The following is a summary of the changes in the carrying value of goodwill by reportable segment, for the fiscal years
ended March 31, 2017 and 2016:
Balance, March 31, 2016
Goodwill recognized in connection with
acquisitions
Impairment of goodwill
Goodwill associated with disposition
Effect of exchange rate changes
Balance, March 31, 2017
Integrated
Systems
Aerospace
Structures
$
560,696
$
266,298
Precision
Components
535,804
$
Product
Support
$
81,456
Total
$ 1,444,254
(1,834)
—
(6,600)
(11,107)
541,155
$
$
—
(266,298)
—
—
— $
—
—
—
(3,386)
532,418
—
—
(12,665)
241
$
69,032
(1,834)
(266,298)
(19,265)
(14,252)
$ 1,142,605
72
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
Balance, March 31, 2015
Goodwill recognized in connection with
acquisitions
Impairment of goodwill
Effect of exchange rate changes
Balance, March 31, 2016
Integrated
Systems
Aerospace
Structures
$
550,407
$
861,270
Precision
Components
531,784
$
Product
Support
$
81,385
Total
$ 2,024,846
16,529
—
(6,240)
560,696
$
—
(597,603)
2,631
—
—
4,020
—
—
71
16,529
(597,603)
482
$
266,298
$
535,804
$
81,456
$ 1,444,254
In the fourth quarter of the fiscal year ended March 31, 2017, consistent with the Company's policy described here, the
Company performed its annual assessment of the fair value of goodwill. The Company concluded that the goodwill had a fair
value that was lower then its carrying value by an amount that exceeded the remaining goodwill for the reporting unit.
Accordingly, the Company recorded a non-cash impairment charge during the fourth quarter of the fiscal year ending March 31,
2017 of $266,298, which is presented on the accompanying Consolidated Statements of Operations as "Impairment of
intangible assets”. The decline in fair value is the result of declining revenues from production rate reductions on sun-setting
programs and the slower than previously projected ramp in our development programs and the timing of associated earnings
and cash flows (See Note 2 for definition of fair value levels).
The Company’s assessment of the Precision Components reporting unit concluded that the goodwill was not impaired as of
the annual impairment assessment date. However, the excess of the fair value over the carrying value was less than 5%. The
decline in fair value is the result of declining revenues from production rate reductions on sun-setting programs and the start-up
costs related to new programs and the timing of associated earnings and cash flows. Going forward, the Company will continue
to monitor the performance of this reporting unit in relation to the key assumptions in our analysis.
In the event that market multiples for stock price to EBITDA in the aerospace and defense markets decrease, or the
expected EBITDA and cash flows for the Company's reporting units decreases, an additional goodwill impairment charge may
be required, which would adversely affect the Company's operating results and financial condition. If management determines
that impairment exists, the impairment will be recognized in the period in which it is identified.
During the fourth quarter of the fiscal year ended March 31, 2016, consistent with the Company's policy described here
within, the Company performed its annual assessment of the fair value of goodwill. The Company concluded that the goodwill
related to the reporting unit formerly know as Aerostructures was impaired as of the annual testing date. The Company
concluded that the goodwill had an implied fair value of $822,801 (Level 3) compared to a carrying value of $1,420,195.
Accordingly, the Company recorded a non-cash impairment charge during the fourth quarter of the fiscal year ending March 31,
2016, of $597,603, which is presented on the accompanying Consolidated Statements of Operations as "Impairment of
intangible assets". The decline in fair value is the result of continued declines in stock price and related market multiples for
stock price to EBITDA of both the Company and our peer group.
Intangible Assets
The components of intangible assets, net are as follows:
Customer relationships
Product rights, technology and licenses
Noncompete agreements and other
Tradenames
Total intangibles, net
March 31, 2017
Weighted-
Average Life (in
Years)
Gross Carrying
Amount
Accumulated
Amortization
16.6
11.4
16.3
10.3
$
$
663,165
$
54,347
2,756
163,000
883,268
$
(241,124) $
(39,486)
(786)
(9,508)
(290,904) $
Net
422,041
14,861
1,970
153,492
592,364
73
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
Customer relationships
Product rights, technology and licenses
Noncompete agreements and other
Tradenames
Total intangibles, net
March 31, 2016
Weighted-
Average Life (in
Years)
Gross Carrying
Amount
Accumulated
Amortization
16.4
11.7
16.1
20.0
$
$
683,309
$
55,739
2,881
163,000
904,929
$
(215,546) $
(37,695)
(718)
(1,358)
(255,317) $
Net
467,763
18,044
2,163
161,642
649,612
During the third quarter of the fiscal year ended March 31, 2016, the Company performed an interim assessment of fair
value on our indefinite-lived intangible assets due to indicators of impairment related to the continued decline in our stock price
during the fiscal third quarter. The Company estimated the fair value of the tradenames using the relief-from-royalty method,
which uses several significant assumptions, including revenue projections that consider historical and estimated future results,
general economic and market conditions, as well as the impact of planned business and operational strategies. The following
estimates and assumptions were also used in the relief-from-royalty method:
• Royalty rates between 2% and 4% based on market observed royalty rates and profit split analysis; and
• Discount rates between 12% and 13% based on the required rate of return for the tradename assets.
Based on the Company's evaluation of indefinite-lived assets, including the tradenames, the Company concluded that the
Vought tradename had a fair value of $195,800 (Level 3) compared to a carrying value of $425,000. Accordingly, the
Company recorded a non-cash impairment charge during the third quarter of the fiscal year ended March 31, 2016, of $229,200,
which is presented on the accompanying Consolidated Statements of Operations as "Impairment of intangible assets". The
decline in fair value compared to carrying value of the Vought tradename is the result of declining revenues from production
rate reductions and the slower than previously projected ramp in Bombardier Global 7000/8000 and the timing of associated
earnings.
During the fourth quarter of the fiscal year ended March 31, 2016, the Company performed its annual assessment of fair
value on our indefinite-lived intangible assets. The Company estimated the fair value of the tradenames using the relief-from-
royalty method, which uses several significant assumptions, including revenue projections that consider historical and estimated
future results, general economic and market conditions, as well as the impact of planned business and operational strategies.
The following estimates and assumptions were also used in the relief-from-royalty method:
• Royalty rates between 2% and 4% based on market observed royalty rates and profit split analysis; and
• Discount rate of 14% based on the required rate of return for the tradename assets, which increased from our
interim assessment driven by increased risk due to continued declines in stock price and related market multiples for
stock price to EBITDA of both the Company and our peer group and increased interest rates.
Based on the Company's evaluation of indefinite-lived assets, including the tradenames, the Company concluded that the
Vought and Embee tradenames had a fair value of $163,000 (Level 3) compared to a carrying value of $209,200. Accordingly,
the Company recorded a non-cash impairment charge during the fiscal year ended March 31, 2016 of $46,200, which is
presented on the accompanying Consolidated Statements of Operations as "Impairment of intangible assets". The decline in
fair value of the Vought and Embee tradenames is the result of declining revenues from production rate reductions and the
slower than previously projected ramp in Bombardier Global 7000/8000 and the timing of associated earnings.
During the fiscal year ended March 31, 2017, as part of the Company's annual assessment, the Company determined that
the remaining estimated useful life for the Vought tradename should be reduced from a useful life of 20 years to a useful life of
10 years, as it better represents the financial performance relative to the expected performance.
In the event of significant loss of revenues and related earnings associated with the Vought and Embee tradenames, further
impairment charges may be required, which would adversely affect our operating results.
Amortization expense for the fiscal years ended March 31, 2017, 2016 and 2015, was $53,746, $54,620 and $49,976,
respectively. Amortization expense for the five fiscal years succeeding March 31, 2017, by year is expected to be as follows:
2018: $59,491; 2019: $57,898; 2020: $56,379; 2021: $55,532; 2022: $55,540 and thereafter: $307,524.
74
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
8.
ACCRUED EXPENSES
Accrued expenses consist of the following items:
Accrued pension
Deferred revenue, advances and progress billings
Accrued other postretirement benefits
Accrued compensation and benefits
Accrued interest
Warranty reserve
Accrued workers' compensation
Accrued income tax
Loss contract reserve
All other
Total accrued expenses
9.
LEASES
March 31,
2017
2016
$
4,094
$
256,275
15,983
89,419
17,911
29,110
17,354
3,873
172,416
67,944
$
674,379
$
3,621
78,932
16,246
114,149
16,933
31,975
17,033
2,469
307,934
93,916
683,208
At March 31, 2017, future minimum payments under noncancelable operating leases with initial or remaining terms of
more than one year were as follows: 2018—$27,636; 2019—$24,539; 2020—$20,025; 2021—$16,931; 2022—$12,803 and
thereafter—$50,183 through 2031. In the normal course of business, operating leases are generally renewed or replaced by
other leases.
Total rental expense was $39,114, $33,279 and $34,762 for the fiscal years ended March 31, 2017, 2016 and 2015,
respectively.
75
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
10.
LONG-TERM DEBT
Long-term debt consists of the following:
Revolving credit facility
Term loan
Receivable securitization facility
Capital leases
Senior notes due 2021
Senior notes due 2022
Other debt
Less: debt issuance costs
Less: current portion
Revolving Credit Facility
March 31,
2017
2016
$
29,999
$
309,375
112,900
72,800
375,000
300,000
7,978
(11,752)
1,196,300
160,630
140,000
337,500
191,300
74,513
375,000
300,000
7,978
(8,971)
1,417,320
42,441
$
1,035,670
$
1,374,879
In October 2016, the Company entered into a Seventh Amendment to the Third Amended and Restated Credit Agreement,
among the Company and its lenders to, among other things, (i) modify certain financial covenants to allow for the add-back of
certain cash and non-cash charges, (ii) increase the maximum permitted total leverage ratio and senior secured leverage ratio
financial covenants commencing with the fiscal quarter ended September 30, 2016 through the fiscal quarter ending June 30,
2017, (iii) permit the sale of certain specified assets so long as the Company applies 65.0% of the net proceeds received from
such sales to the outstanding term loan, pro rata across all maturities, (iv) establish a new higher pricing tier for the interest rate,
commitment fee and letter of credit fee pricing provisions, (v) increase the interest rate and letter of credit fee pricing provisions
for several of the lower tiers of the pricing grid, (vi) establish the interest rate, commitment fee and letter of credit fee pricing at
the highest pricing tier until the Company delivers its compliance certificate for its fiscal quarter ending September 30, 2017,
and (vii) extend the period during which the increased minimum revolver availability threshold test and the decreased
maximum senior secured leverage ratio threshold test are in effect in connection with the Company making certain permitted
investments, certain additional permitted dividends, permitted acquisitions and permitted payments of certain types of
indebtedness to the date the Company delivers its compliance certificate for the fiscal quarter ending September 30, 2017
In May 2016, the Company entered into a Sixth Amendment to the Third Amended and Restated Credit Agreement, among
the Company and its lenders, pursuant to which those lenders electing to enter into the Sixth Amendment extended the
expiration date for the revolving line of credit and the maturity date for the term loan by five years to May 3, 2021. Lenders
holding revolving credit commitments aggregating $940,000 elected to extend the expiration date for the revolving line of
credit, and Lenders holding approximately $324,500 of term loans (out of an aggregate outstanding term loan balance of
approximately $330,000) elected to extend the term loan maturity date.
In addition, the Sixth Amendment amended the Credit Facility to, among other things, (i) modify certain financial
covenants to allow for the add-back of certain cash and non-cash charges, (ii) amend the total leverage ratio financial covenant
to provide for a gradual reduction in the maximum permitted total leverage ratio commencing with the fiscal year ending March
31, 2018, (iii) increase the interest rate, commitment fee and letter of credit fee pricing provisions for the highest pricing tier,
(iv) establish the interest rate, commitment fee and letter of credit fee pricing at the highest pricing tier until the Company
delivers its compliance certificate for its fiscal year ending March 31, 2017, (v) increase the minimum revolver availability
threshold test in connection with the Company making certain permitted investments, certain additional permitted dividends,
permitted acquisitions and permitted payments of certain types of indebtedness, and (vi) decrease the maximum senior secured
leverage ratio threshold test in connection with the Company making certain permitted investments, certain permitted
dividends, permitted acquisitions and permitted payments of certain types of indebtedness during the period from the date of the
Sixth Amendment until the Company delivers its compliance certificate for the fiscal year ending March 31, 2017.
In May 2014, the Company amended and restated the Credit Facility with its lenders to (i) increase the maximum amount
allowed for the receivable securitization facility (the "Securitization Facility") and (ii) amend certain other terms and covenants.
76
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
In November 2013, the Company amended and restated its Credit Facility with its lenders to (i) provide for a $375,000
term loan with a maturity date of May 14, 2019 (the "2013 Term Loan"), (ii) maintain a revolving line of credit under the Credit
Facility of $1,000,000, with a $250,000 accordion feature, (iii) extend the maturity date to November 19, 2018, and (iv) amend
certain other terms and covenants.
The Company will repay the outstanding principal amount of the 2013 Term Loan in quarterly installments, on the first
business day of each January, April, July and October, commencing April 2014.
The obligation under the Credit Facility and related documents are secured by liens on substantially all assets of the
Company and its domestic subsidiaries pursuant to an 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 Facility, 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 $1,000,000 outstanding at any time. The Credit Facility
bears interest at either: (i) LIBOR plus between 1.38% and 2.50%; (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 between 0.25% and
0.45% on the unused portion of the Credit Facility. The Company’s obligations under the Credit Facility are guaranteed by the
Company’s domestic subsidiaries.
At March 31, 2017, there were $29,999 in outstanding borrowings and $27,240 in letters of credit under the Credit Facility
primarily to support insurance policies. At March 31, 2016, there were $140,000 in borrowings and $25,709 in letters of credit
outstanding. The level of unused borrowing capacity under the Credit Facility varies from time to time depending in part upon
the Company's compliance with financial and other covenants set forth in the related agreement. The Credit Facility 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, payment of dividends and incurrence of debt. If an event of default were to occur
under the Credit Facility, 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 Facility could also cause the acceleration of obligations under certain
other agreements. The Company is in compliance with all such covenants as of March 31, 2017. As of March 31, 2017, the
Company had borrowing capacity under the Credit Facility of $483,809 after reductions for borrowings and letters of credit
outstanding under the Credit Facility.
In connection with the Company amending and restating the Credit Facility to add the 2013 Term Loan, the Company also
entered into an interest rate swap agreement through November 2018 to reduce its exposure to interest on the variable rate
portion of its long-term debt. On the date of inception, the Company designated the interest rate swap as a cash flow hedge in
accordance with FASB guidance on accounting for derivatives and hedges and linked the interest rate swap to the 2013 Term
Loan. The Company formally documented the hedging relationship between 2013 Term Loan and the interest rate swap, as
well as its risk-management objective and strategy for undertaking the hedge, the nature of the risk being hedged, how the
hedging instrument's effectiveness will be assessed and a description of the method of measuring the ineffectiveness. The
Company also formally assesses, both at the hedge's inception and on a quarterly basis, whether the derivative item is highly
effective offsetting changes in cash flows.
As of March 31, 2017 and 2016, the interest rate swap agreement had a notional amount of $309,375 and $337,500,
respectively, and a fair value of $309 and $(4,526), respectively, which is recorded in other comprehensive income net of
applicable taxes (Level 2). The interest rate swap settles on a monthly basis when interest payments are made. These
settlements occur through the maturity date.
In May 2017, the Company entered into an Eighth Amendment to the Third Amended and Restated Credit Agreement (the
“Eighth Amendment Effective Date”), 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 and provide that the highest pricing tier will apply until the maximum senior secured leverage ratio financial
covenant is 2.50 to 1.00 and the Company delivers a compliance certificate demonstrating compliance with such financial
covenant.
77
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
The Eighth Amendment also provides the Company’s Vought Aircraft Division (Triumph Aerostructures, LLC) and certain
affiliated entities (collectively, the “Vought entities”) with the option, if necessary, to commence voluntary insolvency
proceedings within 90 days of the Eighth Amendment Effective Date, subject to certain conditions set forth in the Credit
Agreement. Upon the commencement of such proceedings, the Vought entities would no longer be Subsidiary Co-Borrowers
under the Credit Agreement, and transactions between any of the Vought entities, on the one hand, and the Company and any of
the Subsidiary Co-Borrowers, on the other hand, will be restricted.
The Company entered into the Eighth Amendment, among other reasons, in order to provide the Vought entities with
greater financial flexibility to address their significant cash utilization relative to certain contracts. The Company expects that
any actions it may take regarding the Vought entities will improve the Company’s credit profile and equity value. The Company
continues to execute its transformation strategy to strengthen its operations, enhance its liquidity and drive profitable growth.
Receivables Securitization Program
In November 2014, the Company amended its receivable securitization facility (the "Securitization Facility"), increasing
the purchase limit from $175,000 to $225,000 and extending the term through November 2017. In connection with the
Securitization Facility, the Company sells on a revolving basis certain eligible accounts receivable to Triumph
Receivables, LLC, a wholly owned special-purpose entity, which in turn sells a percentage ownership interest in the receivables
to commercial paper conduits sponsored by financial institutions. The Company is the servicer of the accounts receivable under
the Securitization Facility. As of March 31, 2017, the maximum amount available under the Securitization Facility was
$225,000. Interest rates are based on prevailing market rates for short-term commercial paper plus a program fee and a
commitment fee. The program fee is 0.40% on the amount outstanding under the Securitization Facility. Additionally, the
commitment fee is 0.40% on 100% of the maximum amount available under the Securitization Facility. At March 31, 2017,
$112,900 was outstanding under the Securitization Facility. In connection with amending the Securitization Facility, the
Company incurred approximately $252 of financing costs. These costs, along with the $341 of unamortized financing costs
prior to the amendment, are being amortized over the life of the Securitization Facility. The Company securitizes its 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.
The agreement governing the Securitization Facility contains restrictions and covenants which include limitations on the
making of certain restricted payments, creation of certain liens, and certain corporate acts such as mergers, consolidations and
the sale of substantially all assets. The Company was in compliance with all such covenants as of March 31, 2017.
Capital Leases
During the fiscal years ended March 31, 2017, 2016 and 2015, the Company entered into new capital leases in the amounts
of $13,066, $188 and $52, respectively, to finance a portion of the Company's capital additions for the respective years. During
the fiscal years ended March 31, 2017, 2016 and 2015, the Company obtained financing for existing fixed assets in the amount
of $0, $6,497 and $37,608, respectively.
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. In connection with the issuance of the 2021 Notes, the Company incurred
approximately $6,327 of costs, which were deferred and are being amortized on the effective interest method over the term of
the 2021 Notes.
The 2021 Notes are the Company's senior unsecured obligations and rank equally in right of payment with all of its other
existing and future senior unsecured indebtedness and senior in right of payment to all of its existing and future subordinated
indebtedness. The 2021 Notes are guaranteed on a full, joint and several basis by each of the Guarantor Subsidiaries.
The Company may redeem some or all of the 2021 Notes prior to April 1, 2017, by paying a "make-whole" premium. The
Company may redeem some or all of the 2021 Notes on or after April 1, 2017, at specified redemption prices. In addition, prior
to April 1, 2016, the Company could have redeemed up to 35% of the 2021 Notes with the net proceeds of certain equity
offerings at a redemption price equal to 104.875% of the aggregate principal amount plus accrued and unpaid interest, if any,
subject to certain limitations set forth in the indenture governing the 2021 Notes (the "2021 Indenture").
The Company is obligated to offer to repurchase the 2021 Notes at a price of (i) 101% of their principal amount plus
accrued and unpaid interest, if any, as a result of certain change of control events and (ii) 100% of their principal amount plus
78
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
accrued and unpaid interest, if any, in the event of certain asset sales. These restrictions and prohibitions are subject to certain
qualifications and exceptions.
The 2021 Indenture contains covenants that, among other things, limit the Company's ability and the ability of any of the
Guarantor Subsidiaries to (i) grant liens on its assets, (ii) make dividend payments, other distributions or other restricted
payments, (iii) incur restrictions on the ability of the Guarantor Subsidiaries to pay dividends or make other payments, (iv) enter
into sale and leaseback transactions, (v) merge, consolidate, transfer or dispose of substantially all of their assets, (vi) incur
additional indebtedness, (vii) use the proceeds from sales of assets, including capital stock of restricted subsidiaries, and
(viii) enter into transactions with affiliates.
During May 2016, to ensure that the Company had full access to the Credit Facility during fiscal 2017, the Company
obtained approval from the holders of the 2021 Notes to amend the terms of the indenture to conform with the 2022 Notes (as
defined below) which allows for a higher level of secured debt. Absent this consent, the Company would have been restricted
as to the level of new borrowings under the Credit Facility during fiscal 2017.
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. In connection with the issuance of the 2022 Notes, the Company incurred
approximately $4,990 of costs, which were deferred and are being amortized on the effective interest method over the term of
the 2022 Notes.
The 2022 Notes are the Company's senior unsecured obligations and rank equally in right of payment with all of its other
existing and future senior unsecured indebtedness and senior in right of payment to all of its existing and future subordinated
indebtedness. The 2022 Notes are guaranteed on a full, joint and several basis by each of the Guarantor Subsidiaries.
The Company may redeem some or all of the 2022 Notes prior to June 1, 2017, by paying a "make-whole" premium. The
Company may redeem some or all of the 2022 Notes on or after June 1, 2017, at specified redemption prices. In addition, prior
to June 1, 2017, the Company may redeem up to 35% of the 2022 Notes with the net proceeds of certain equity offerings at a
redemption price equal to 105.250% of the aggregate principal amount plus accrued and unpaid interest, if any, subject to
certain limitations set forth in the indenture governing the 2022 Notes (the "2022 Indenture").
The Company is obligated to offer to repurchase the 2022 Notes at a price of (i) 101% of their principal amount plus
accrued and unpaid interest, if any, as a result of certain change-of-control events and (ii) 100% of their principal amount plus
accrued and unpaid interest, if any, in the event of certain asset sales. These restrictions and prohibitions are subject to certain
qualifications and exceptions.
The 2022 Indenture contains covenants that, among other things, limit the Company's ability and the ability of any of the
Guarantor Subsidiaries to (i) grant liens on its assets, (ii) make dividend payments, other distributions or other restricted
payments, (iii) incur restrictions on the ability of the Guarantor Subsidiaries to pay dividends or make other payments, (iv) enter
into sale and leaseback transactions, (v) merge, consolidate, transfer or dispose of substantially all of their assets, (vi) incur
additional indebtedness, (vii) use the proceeds from sales of assets, including capital stock of restricted subsidiaries, and
(viii) enter into transactions with affiliates.
Receivables Purchase Agreement
On March 28, 2016, the Company entered into a Purchase Agreement ("Receivables Purchase Agreement") to sell certain
accounts receivables to a financial institution without recourse. The Company is the servicer of the accounts receivable under
the Receivables Purchase Agreement. As of March 31, 2017, the maximum amount available under the Receivables Purchase
Agreement was $90,000. Interest rates are based on LIBOR plus 0.65% - 0.70%. As of March 31, 2017 and 2016, the
Company sold $78,006 and $89,900, respectively, worth of eligible accounts receivable.
Senior Notes due 2018
On June 16, 2010, in connection with the acquisition of Vought, the Company issued $350,000 principal amount of 8.63%
Senior Notes due 2018 (the "2018 Notes"). The 2018 Notes were sold at 99.27% of principal amount and had effective interest
yield of 8.75%. Interest on the 2018 Notes accrued at the rate of 8.63% per annum and was payable semiannually in cash in
arrears on January 15 and July 15 of each year, commencing on January 15, 2011. In connection with the issuance of the 2018
79
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
Notes, the Company incurred approximately $7,307 of costs, which were deferred and amortized on the effective interest
method over the term of the 2018 Notes.
On June 23, 2014, the Company completed the redemption of the 2018 Notes. The principal amount of $350,000 was
redeemed at a price of 104.79% plus accrued and unpaid interest. As a result of the redemption, the Company recognized a pre-
tax loss on redemption of $22,615, consisting of early termination premium, write-off of unamortized discount and deferred
financing fees and was recorded on the Consolidated Statements of Operations as a component of "Interest expense and other"
for the fiscal year ended March 31, 2015.
Convertible Senior Subordinated Notes
On May 22, 2014, the Company announced the redemption of the Convertible Notes. The redemption price for the
Convertible Notes was equal to the sum of 100% of the principal amount of the Convertible Notes outstanding, plus accrued
and unpaid interest on the Convertible Notes up to, but not including, the redemption date of June 23, 2014. The Convertible
Notes were able to be converted at the option of the holder.
The Convertible Notes were eligible for conversion upon meeting certain conditions as provided in the indenture governing
the Convertible Notes. For the periods from January 1, 2011 through June 23, 2014, the Convertible Notes were eligible for
conversion. During the fiscal year ended March 31, 2015, the Company settled the conversion of $12,834 in principal value of
the Convertible Notes, with the principal and the conversion benefit settled in cash.
To be included in the calculation of diluted earnings per share, the average price of the Company's common stock for the
fiscal year must exceed the conversion price per share of $27.12. The average price of the Company's common stock for the
fiscal years ended March 31, 2015, was $65.11, respectively. Therefore, 40,177 additional shares, were included in the diluted
earnings per share calculation for the fiscal years ended March 31, 2015.
Financial Instruments Not Recorded at Fair Value
Carrying amounts and the related estimated fair values of the Company's long-term debt not recorded at fair value in the
consolidated financial statements are as follows:
March 31, 2017
March 31, 2016
Carrying
Value
1,196,300
$
$
Fair
Value
1,178,968
$
Carrying
Value
1,417,320
$
Fair
Value
1,354,961
The fair value of the long-term debt was calculated based on either interest rates available for debt with terms and
maturities similar to the Company's existing debt arrangements or broker quotes on our existing debt (Level 2 inputs).
Interest paid on indebtedness during the fiscal years ended March 31, 2017, 2016 and 2015 amounted to $72,533, $62,325
and $82,425, respectively. Interest capitalized during the fiscal years ended March 31, 2017, 2016 and 2015 was $158, $668
and $284, respectively.
As of March 31, 2017, the maturities of long-term debt are as follows: 2018—$160,630; 2019—$52,660; 2020—$50,217;
2021—$55,937; 2022—$579,054; and thereafter—$309,554 through 2021.
80
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
11.
OTHER NONCURRENT LIABILITIES
Other noncurrent liabilities are composed of the following items:
Acquired contract liabilities, net
Accrued warranties
Accrued workers' compensation
Deferred grant income
Environmental contingencies
Income tax reserves
All other
Total other noncurrent liabilities
12.
INCOME TAXES
The components of pretax (loss) income are as follows:
Foreign
Domestic
The components of income tax expense are as follows:
Current:
Federal
State
Foreign
Deferred:
Federal
State
Foreign
March 31,
2017
2016
$
394,883
$
522,680
77,978
16,881
3,985
5,495
527
38,207
$
537,956
$
80,898
15,942
4,670
7,613
4,798
25,678
662,279
Year ended March 31,
2017
2016
2015
$
$
$
23,398
(47,010)
(23,612) $
(13,673) $
(1,145,474)
(1,159,147) $
(429)
349,723
349,294
Year ended March 31,
2017
2016
2015
$
5,074
$
2,074
$
445
4,341
9,860
9,782
(3,166)
2,864
9,480
$
19,340
$
615
4,426
7,115
(148,069)
29,020
747
(118,302)
(111,187) $
391
178
4,751
5,320
114,260
(1,857)
(7,126)
105,277
110,597
81
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
A reconciliation of the statutory federal income tax rate to the effective tax rate is as follows:
Statutory federal income tax rate
State and local income taxes, net of federal tax benefit
Goodwill impairment
Disposition of business
Domestic production activities deduction
Miscellaneous permanent items and nondeductible accruals
Research and development tax credit
Foreign tax credits
Valuation allowance
Other (including foreign rate differential and FIN 48)
Effective income tax rate
The components of deferred tax assets and liabilities are as follows:
Year ended March 31,
2017
2016
2015
35.0 %
35.0%
35.0%
12.2
(394.7)
40.8
9.6
(18.0)
43.5
40.9
106.3
42.5
1.8
(15.8)
—
—
(0.2)
0.7
0.2
(13.4)
1.3
(81.9)%
9.6%
0.5
—
—
—
(0.7)
(1.9)
(0.2)
—
(1.0)
31.7%
March 31,
2017
2016
Deferred tax assets:
Net operating loss and other credit carryforwards
$
113,440
$
Inventory
Accruals and reserves
Pension and other postretirement benefits
Acquired contract liabilities, net
Valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Deferred revenue
Property and equipment
Goodwill and other intangible assets
Prepaid expenses and other
92,718
53,264
227,487
143,443
630,352
(141,214)
489,138
207,966
123,250
211,981
2,236
545,433
Net deferred tax liabilities
$
56,295
$
105,731
139,006
45,343
252,234
191,061
733,375
(157,246)
576,129
253,705
140,781
219,120
6,754
620,360
44,231
A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. When determining the
amount of net deferred tax assets that are more likely than not to be realized, the Company assesses all available positive and
negative evidence. This evidence includes, but is not limited to, prior earnings history, expected future earnings, carry-back and
carry-forward periods and the feasibility of ongoing tax strategies that could potentially enhance the likelihood of the
realization of a deferred tax asset. The weight given to the positive and negative evidence is commensurate with the extent the
evidence may be objectively verified. As such, it is generally difficult for positive evidence regarding projected future taxable
income exclusive of reversing taxable temporary differences to outweigh objective negative evidence of recent financial
reporting losses.
Based on these criteria and the relative weighting of both the positive and negative evidence available, and in particular the
82
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
activity surrounding the Company's prior earnings history, including the forward losses and intangible impairments previously
recognized, management determined that it was necessary to establish a valuation allowance against principally all of its net
deferred tax assets at March 31, 2016. Given the objectivity verifiable negative evidence of a three-year cumulative loss and
the weighting of all available positive evidence, the Company excluded projected taxable income (aside from reversing taxable
temporary differences) from the assessment of income that could be used as a source of taxable income to realize the deferred
tax assets. Valuation allowances recorded against the consolidated net deferred tax asset in fiscal 2016 were $155,774.
During the fiscal year ended March 31, 2017, the Company reduced the valuation allowance against the consolidated net
deferred tax asset by $16,032. The reduction resulted from the net deferred tax liabilities generated from the current year book/
tax differences and the utilization of the deferred tax assets of NOL carryforward and R&D credit carryforward. As of
March 31, 2017, management determined that it was necessary to maintain a valuation allowance against principally all of its
net deferred tax assets.
As of March 31, 2017, the Company has state net operating loss carryforwards of $650,734 expiring in various years
through 2037. The Company also has a foreign net operating loss carryforward of $109,165.
The effective income tax rate for the fiscal year ended March 31, 2017, was (81.9)% as compared to 9.6% for the fiscal
year ended March 31, 2016. The effective income tax rate for the fiscal year ended March 31, 2017, included the benefit of the
R&D tax credit of $10,269, the benefit of the foreign tax credit of $9,667 and the benefit of the reduction of the valuation
allowance of $25,086. The effective tax rate was also impacted by the non-deductible portion of the goodwill impairment of
$93,204. Due to the current year pre-tax loss, the effective tax rate drivers on a percentage basis are amplified. Accordingly, a
year over year comparison of the effective tax rate may not be indicative of changes in the Company's tax position.
The Company has been granted income tax holiday as an incentive to attract foreign investment by the Government of
Thailand. The tax holidays expire in various years through 2026. We do not have any other tax holidays in the jurisdictions in
which we operate. The income tax benefit attributable to the tax status of our subsidiaries in Thailand was approximately $928
or $0.02 per diluted share in fiscal 2017, $(439) or $(0.01) per diluted share in fiscal 2016 and $1,930 or $0.04 per diluted share
in fiscal 2015.
At March 31, 2017, cumulative undistributed earnings of foreign subsidiaries, for which no U.S. income or foreign
withholding taxes have been recorded is $74,270. As the Company currently intends to indefinitely reinvest all such earnings,
no provision has been made for income taxes that may become payable upon distribution of such earnings, and it is not
practicable to determine the amount of the related unrecognized deferred income tax liability.
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 March 31, 2017 and
2016, the total amount of accrued income tax-related interest and penalties was $282 and $239, respectively.
During the fiscal years ended March 31, 2017, 2016 and 2015, the Company added $43, $32 and $4 of interest and
penalties related to activity for identified uncertain tax positions, respectively.
As of March 31, 2017 and 2016, the total amount of unrecognized tax benefits was $10,266 and $9,212, respectively, all of
which would impact the effective rate, if recognized. The Company anticipates that total unrecognized tax benefits may be
reduced by zero in the next 12 months.
With a few exceptions, the Company is no longer subject to U.S. federal income tax examinations for fiscal years ended
before March 31, 2011, 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.
As of March 31, 2017, the Company is subject to examination in one state and no foreign jurisdictions. 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 jurisdiction examinations 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.
83
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
A reconciliation of the liability for uncertain tax positions, which are included in noncurrent liabilities for the fiscal years
ended March 31, 2017 and 2016 follows:
Beginning balance
Additions for tax positions related to the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Ending Balance
Year ended March 31,
2017
2016
2015
$
$
9,670
$
8,826
$
730
296
—
669
175
—
10,696
$
9,670
$
9,293
962
178
(1,607)
8,826
13.
STOCKHOLDERS' EQUITY
In February 2014, the Company's Board of Directors authorized an increase in the Company's existing stock repurchase
program by up to 5,000,000 shares of its common stock in addition to the 500,800 shares authorized under prior authorizations.
During the fiscal year ended March 31, 2015, the Company repurchased 2,923,011 of its common stock for $184,380. As a
result, as of March 31, 2017, the Company remains able to purchase an additional 2,277,789 shares. Repurchases may be made
from time to time in open market transactions, block purchases, privately negotiated transactions or otherwise at prevailing
prices. No time limit has been set for completion of the program.
During the fiscal year ended March 31, 2015, the Company settled the conversion of $12,834, in principal value of the
Convertible Notes, as requested by the respective holders, with the principal and the conversion benefit settled in cash.
The holders of the common stock are entitled to one vote per share on all matters to be voted upon by the stockholders of
Triumph.
The Company has preferred stock of $0.01 par value, 250,000 shares authorized. At March 31, 2017 and 2016, zero shares
of preferred stock were outstanding.
Accumulated Other Comprehensive Loss
Changes in accumulated other comprehensive loss ("AOCI") by component for the years ended March 31, 2017 and 2016 were
as follows:
Balance March 31, 2015
OCI before reclassifications
Amounts reclassified from AOCI
Net current period OCI
Balance March 31, 2016
OCI before reclassifications
Amounts reclassified from AOCI
Net current period OCI
Balance March 31, 2017
Currency
Translation
Adjustment
Unrealized
Gains and
Losses on
Derivative
Instruments
Defined Benefit
Pension Plans
and Other
Postretirement
Benefits
$
$
(46,751) $
(12,065)
—
(12,065)
(58,816)
(28,396)
—
(28,396)
(87,212) $
(2,757) $
(527)
364
(163)
(2,920)
6,582
(1,509)
5,073
2,153 $
(149,402)
(127,267)
(8,757) (2)
(136,024)
(285,426)
(16,098)
(9,595)
(25,693)
(311,119)
(2)
Total (1)
$ (198,910)
(139,859)
(8,393)
(148,252)
(347,162)
(37,912)
(11,104)
(49,016)
$ (396,178)
(1) Net of tax.
(2) Includes amortization of actuarial losses and recognized prior service (credits) costs, which are included in the net periodic pension cost of which a portion
is allocated to production as inventoried costs.
84
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
14.
EARNINGS PER SHARE
The following is a reconciliation between the weighted-average common shares outstanding used in the calculation of
basic and diluted earnings per share:
Weighted-average common shares outstanding—basic
49,303
49,218
Net effect of dilutive stock options and nonvested stock
Net effect of convertible debt
—
—
—
—
Weighted-average common shares outstanding—diluted
49,303
49,218
50,796
169
40
51,005
2017
Year ended March 31,
2016
(thousands)
2015
15.
EMPLOYEE BENEFIT PLANS
Defined Contribution Pension Plan
The Company sponsors a defined contribution 401(k) plan, under which salaried and certain hourly employees may defer a
portion of their compensation. Eligible participants may contribute to the plan up to the allowable amount as determined by the
plan of their regular compensation before taxes. The Company generally matches contributions up to 50% of the first 6% of
compensation contributed by the participant. All contributions and Company matches are invested at the direction of the
employee in one or more investment options offered under the plan. Company matching contributions vest immediately and
aggregated $14,163, $17,462 and $20,020 for the fiscal years ended March 31, 2017, 2016 and 2015, respectively.
Defined Benefit Pension and Other Postretirement Benefit Plans
The Company sponsors several defined benefit pension plans covering some of its employees. Most employees are
ineligible to participate in the plans or have ceased to accrue additional benefits under the 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 applicable government regulations, by making payments into a trust separate from
us.
In addition to the defined benefit pension plans, the Company provides certain health care and life insurance benefits for
eligible retired employees. Such benefits are unfunded as of March 31, 2017. 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 of eligible retirees 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 paid by the Company for
most retirees for medical coverage prior to age 65 are capped and are based on years of service. Overall premiums 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.
The Company also sponsors an unfunded supplemental executive retirement plan ("SERP") that provides retirement
benefits to certain key employees.
In accordance with ASC 715, the Company has recognized the funded status of the benefit obligation as of March 31, 2017
and 2015, on the accompanying Consolidated Balance Sheets. The funded status is measured as the difference between the fair
value of the plans' assets and the PBO or accumulated postretirement benefit obligation of the plan. The majority of the plan
assets are publicly traded investments which were valued based on the market price as of the measurement date. 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.
85
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
The following table sets forth the Company's consolidated defined benefit pension plans for its union and non-union
employees and its SERP as of March 31, 2017 and 2016, and the amounts recorded on the Consolidated Balance Sheets at
March 31, 2017 and 2016. Company contributions include amounts contributed directly to plan assets and indirectly as benefits
are paid from the Company's assets. Benefit payments reflect the total benefits paid from the plans and the Company's assets.
Information on the plans includes both the domestic qualified and nonqualified plans and the foreign qualified plans.
Pension Benefits
Year ended March 31,
Other
Postretirement
Benefits
Year ended March 31,
2017
2016
2017
2016
Change in projected benefit obligations
Projected benefit obligation at beginning of year
$
2,430,315
$
2,479,319
$
179,901
$
239,267
Service cost
Interest cost
Actuarial loss (gain)
Plan amendments
Participant contributions
Special termination benefits
Benefits paid
Currency translation adjustment
Projected benefit obligation at end of year
Accumulated benefit obligation at end of year
Assumptions used to determine benefit
obligations at end of year
Discount rate
Rate of compensation increase
6,538
72,638
14,104
121
184
10,902
88,708
37,342
7,395
212
—
(170,900)
(6,010)
2,346,990
2,336,062
$
$
724
(192,652)
(1,635)
2,430,315
2,419,305
$
$
$
$
716
4,987
(4,865)
—
1,379
—
(17,990)
—
164,128
164,128
$
$
1,186
7,669
2,030
(49,512)
2,323
—
(23,062)
—
179,901
179,901
2.87 - 4.06%
3.25 - 3.93%
3.50 - 4.50%
3.50 - 4.50%
3.86%
N/A
3.73%
N/A
86
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
Pension Benefits
Year ended March 31,
Other
Postretirement
Benefits
Year ended March 31,
2017
2016
2017
2016
Change in fair value of plan assets
Fair value of plan assets at beginning of year
$
1,925,685
$
Actual return on plan assets
Settlements
Participant contributions
Company contributions
Benefits paid
Currency translation adjustment
Fair value of plan assets at end of year
Funded status (underfunded)
Funded status
Reconciliation of amounts recognized in the
consolidated balance sheets
Pension asset—noncurrent
Accrued benefit liability—current
Accrued benefit liability—noncurrent
Net amount recognized
Reconciliation of amounts recognized in
accumulated other comprehensive income
Prior service credits
Actuarial losses (gains)
Income tax (benefits) expenses related to above
items
Unamortized benefit plan costs (gains)
$
$
$
$
$
$
149,103
—
184
2,146
(170,900)
(5,846)
1,900,372
$
$
2,156,148
(39,482)
—
212
3,021
(192,652)
(1,562)
1,925,685
— $
—
—
1,379
16,611
(17,990)
—
$
— $
—
—
—
2,323
20,739
(23,062)
—
—
(446,618) $
(504,630) $
(164,128) $
(179,901)
$
1,465
(4,094)
(443,989)
(446,618) $
— $
— $
(3,621)
(501,009)
(504,630) $
(15,983)
(148,145)
(164,128) $
—
(16,246)
(163,655)
(179,901)
(4,852) $
(6,755) $
577,605
569,435
(209,696)
363,057
$
(205,406)
357,274
$
(33,920) $
(64,756)
36,412
(62,264) $
(47,384)
(66,480)
42,016
(71,848)
87
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
The components of net periodic benefit cost for fiscal years ended March 31, 2017, 2016 and 2015 are as follows:
Pension Benefits
Year Ended March 31,
Other
Postretirement Benefits
Year Ended March 31,
2017
2016
2015
2017
2016
2015
Expected return on plan assets
(155,991)
(162,285)
$
6,538
$
10,902
$
12,902
$
716
$
72,638
88,708
(1,782)
12,115
—
—
(4,038)
9,488
(1,968)
724
90,576
(150,565)
(5,288)
—
—
—
4,987
—
(13,464)
(6,588)
—
—
$
1,186
7,669
—
(10,810)
(6,106)
—
—
2,868
12,332
—
(4,529)
—
—
—
$
(66,482) $
(58,469) $
(52,375)
$
(14,349)
$
(8,061)
$
10,671
Components of net periodic
pension cost
Service cost
Interest cost
Amortization of prior service
credit cost
Amortization of net loss
Curtailment gain
Special termination benefits
Total net periodic benefit
(income) expense
Assumptions used to
determine net periodic
pension cost
Discount rate
3.25 - 3.93% 3.31 - 4.11%
3.73%
3.73%
3.66%
4.14%
Expected long-term rate on
assets
6.50 - 8.00% 6.50 - 8.25%
Rate of compensation increase
3.50 - 4.50% 3.50 - 4.50%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
The discount rate is determined annually as of each measurement date, based on a review of yield rates associated with
long-term, high-quality corporate bonds. At the end of each year, the discount rate is primarily determined using the results of
bond yield curve models based on a portfolio of high-quality bonds matching notional cash inflows with the expected benefit
payments for each significant benefit plan.
The expected return on plan assets is determined based on a market-related value of plan assets, which is a smoothed asset
value. The market-related value of assets is calculated by recognizing investment performance that is different from that
expected on a straight-line basis over five years. Actuarial gains and losses are amortized over the average remaining life
expectancy of inactive participants for plans that are predominantly inactive and over the expected future service for active
participants for other plans, but only to the extent unrecognized gains or losses exceed a corridor equal to 10% of the greater of
the projected benefit obligation or market-related value of assets.
During the fourth quarter of the fiscal year ended March 31, 2016, the Company changed the method it uses to estimate the
service and interest components of net periodic benefit cost for the Company’s pension and other postretirement benefit plans.
This new estimation approach discounts the individual expected cash flows underlying the service cost and interest cost by
applying the specific spot rates derived from the yield curve used to discount the cash flows reflected in the measurement of the
benefit obligation. Historically, the Company estimated these service and interest cost components utilizing a single weighted-
average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period.
The Company made this change to provide a more precise measurement of service and interest costs by improving the
correlation between projected benefit cash flows to the corresponding spot yield curve rates. The Company has accounted for
this change as a change in accounting estimate that is inseparable from a change in accounting principle pursuance to ASC 250,
Accounting Changes and Error Corrections and accordingly have accounted for it prospectively. While the benefit obligation
measured under this approach is unchanged from that determined under the prior approach, the more granular application of the
spot rates reduced the service and interest cost for the pension and OPEB plans for the fiscal year ending March 31, 2017, by
approximately $20,000. The spot rates used to determine service and interest costs the U.S. plans ranged from 0.60% to 9.75%.
Under the Company’s prior methodology, these rates would have resulted in weighted-average rates for service cost and interest
88
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
cost of 3.86% for the U.S. Pension plans and 3.73% for the OPEB plans. The new approach was used to measure the service
cost and interest cost for our pension and OPEB plans beginning with the fiscal year ending March 31, 2017.
Effective April 1, 2015, the Company changed the period over which actuarial gains and losses are being amortized for its
U.S. pension plans from the average remaining future service period of active plan participants to the average life expectancy of
inactive plan participants. This change was made because the Company has determined that as of that date almost all plan
participants are inactive.
During the fiscal year ended March 31, 2017, the Society of Actuaries released new mortality tables that reflect increased
life expectancy for participants of U.S. pension plans. The Company has reflected these new tables, along with an updated
projection scale of mortality improvements, in the measurement of our U.S. pension and other postretirement benefit plans as of
March 31, 2017. This change resulted in a decrease in the benefit obligation.
The Company periodically experiences events or makes changes to its benefit plans that result in curtailment or special
charges. Curtailments are recognized when events occur that significantly reduce the expected years of future service of present
employees or eliminates the benefits for a significant number of employees for some or all of their future service.
Curtailment losses are recognized when it is probable the curtailment will occur and the effects are reasonably estimable.
Curtailment gains are recognized when the related employees are terminated or a plan amendment is adopted, whichever is
applicable.
As required under ASC 715, the Company remeasures plan assets and obligations during an interim period whenever a
significant event occurs that results in a material change in the net periodic pension cost. The determination of significance is
based on judgment and consideration of events and circumstances impacting the pension costs.
The following summarizes the key events whose effects on net periodic benefit cost and obligations are included in the
tables above:
•
•
•
•
In March 2016, one of the Company's union-represented groups of employees ratified a new collective bargaining
agreement. The agreement includes an amendment to the other postretirement benefits plan, for which participants
will no longer receive a benefit after the fiscal year ended March 31, 2016. This change resulted in the termination of
the plan and as a result, the plan's liability was eliminated as of March 31, 2016 and the Company recognized a credit
of approximately $2,297. Additionally, the agreement includes an amendment to the pension plan, under which
participants will no longer continue to accrue a benefit after the fiscal year ending March 31, 2021. This change
resulted in a curtailment gain of approximately $1,516 and is presented on the accompanying Consolidated Statements
of Operations within "Curtailments, settlements and early retirement incentives."
In February 2016, one of the Company's union-represented groups of employees ratified a new collective bargaining
agreement. The agreement includes an amendment to the pension plan, under which effective January 1, 2017,
actively accruing participants will no longer accrue benefits once they reach 30 years of service under the plan. This
change resulted in a curtailment gain of approximately $3,314 and is presented on the accompanying Consolidated
Statements of Operations within "Curtailments, settlements and early retirement incentives."
In May 2015 and February 2016 the Company offered enhanced retirement benefits to employees of one of its union-
represented groups. In order to receive these enhanced benefits, eligible employees had to agree to retire within a
special window period. This change resulted in a special termination charge of approximately $724 and is presented
on the accompanying Consolidated Statements of Operations within "Curtailments, settlements and early retirement
incentives."
In April 2015, the Company's largest union-represented group of employees ratified a new collective bargaining
agreement. The agreement includes an amendment to the pension plan, under which participants will no longer accrue
benefits after 30 years of service under the plan. This change resulted in a curtailment gain of approximately $2,863
and is presented on the accompanying Consolidated Statements of Operations within "Curtailments, settlements and
early retirement incentives."
89
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
The following table shows those amounts expected to be recognized in net periodic benefit costs during the fiscal year
ending March 31, 2018:
Amounts expected to be recognized in FY 2018 net periodic benefit costs
Prior service credit
Actuarial loss
Expected Pension Benefit Payments
Pension
Benefits
Other
Postretirement
Benefits
$
$
(2,841) $
(13,909) $
(9,312)
(7,099)
The total estimated future benefit payments for the pension plans are expected to be paid from the plan assets and company
funds. The other postretirement plan benefit payments reflect the Company's portion of the funding. Estimated future benefit
payments from plan assets and Company funds for the next ten years are as follows:
Year
2018
2019
2020
2021
2022
2022 - 2026
Pension
Benefits
Other
Postretirement
Benefits*
$
177,231
$
170,971
167,975
164,999
162,048
763,380
16,099
15,757
15,161
14,578
13,860
56,777
* Net of expected Medicare Part D subsidies of $690 to $730 per year.
Plan Assets, Investment Policy and Strategy
The table below sets forth the Company's target asset allocation for fiscal 2017 and the actual asset allocations at March 31,
2017 and 2016.
Asset Category
Equity securities
Fixed income securities
Alternative investment funds
Total
Target
Allocation
Fiscal 2016
40 - 50%
40 - 50%
0 - 10%
Actual
Allocation
March 31,
2017
2016
48%
47
5
100%
48%
48
4
100%
Pension plan assets are invested in various asset classes that are expected to produce a sufficient level of diversification and
investment return over the long-term. The investment goals are to exceed the assumed actuarial rate of return over the long-term
within reasonable and prudent levels of risks and to meet future obligations.
Asset/liability studies are conducted on a regular basis to provide guidance in setting investment goals for the pension
portfolio and its asset allocation. The asset allocation aims to prudently achieve a strong, risk-adjusted return while seeking to
minimize funding level volatility and improve the funded status of the plans. The pension plans currently employ a liability-
driven investment ("LDI") approach, where assets and liabilities move in the same direction. The goal is to limit the volatility of
the funding status and cover part, but not all, of the changes in liabilities. Most of the liabilities' changes are due to interest rate
movements.
To balance expected risk and return, allocation targets are established and monitored against acceptable ranges. All
investment policies and procedures are designed to ensure that the plans' investments are in compliance with the Employee
Retirement Income Security Act of 1974 ("ERISA"). Guidelines are established defining permitted investments within each
asset class. Each investment manager has contractual guidelines to ensure that investments are made within the parameters of
90
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
their asset class or in the case of multi-asset class managers, the parameters of their multi-asset class strategy. Certain
investments are not permitted at any time, including investment directly in employer securities and uncovered short sales.
The tables below provide the fair values of the Company's plan assets at March 31, 2017 and 2016, by asset category. The
table also identifies the level of inputs used to determine the fair value of assets in each category (see Note 2 for definition of
levels).
Assets
Cash and cash equivalents
Equity securities
International
U.S. equity
U.S. commingled fund
International commingled fund
Fixed income securities
Corporate bonds
Government securities
U.S. commingled fund
International commingled fund
Other fixed income
Other
Insurance contracts
March 31, 2017
Level 1
Level 2
Level 3
Total
$
25,537
$
3,343
$
— $
28,880
173,898
68,454
548,760
44,330
—
—
597,340
10,028
—
—
—
—
—
8,605
27,273
149,295
—
3,651
5,644
—
—
—
—
—
—
—
—
—
173,898
68,454
548,760
52,935
27,273
149,295
597,340
13,679
5,644
—
1,173
1,173
Total investment in securities—assets
$
1,468,347
$
197,811
$
1,173
$
1,667,331
US equity commingled fund
International equity commingled fund
Government fixed income securities
US fixed income commingled fund
International fixed income commingled fund
Private equity and infrastructure
Other
Total investment measured at NAV as a practical
expedient
Receivables
Payables
Total plan assets
5,475
54,512
1,262
85,682
5,828
76,200
1,564
$
230,523
2,623
(105)
1,900,372
$
91
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
Assets
Cash and cash equivalents
Equity securities
International
U.S. equity
U.S. commingled fund
International commingled fund
Fixed income securities
Corporate bonds
Government securities
U.S. commingled fund
International commingled fund
Other fixed income
Other
Private equity and infrastructure
Insurance contracts
March 31, 2016
Level 1
Level 2
Level 3
Total
$
24,302
$
3,151
$
— $
27,453
162,168
78,155
570,500
44,613
—
—
622,605
9,555
—
—
—
—
—
—
7,416
25,121
158,228
—
3,146
7,286
—
—
—
—
—
—
—
—
—
—
—
—
1,349
162,168
78,155
570,500
52,029
25,121
158,228
622,605
12,701
7,286
—
1,349
Total investment in securities—assets
$
1,511,898
$
204,348
$
1,349
$
1,717,595
US equity commingled fund
International equity commingled fund
Government fixed income securities
US fixed income commingled fund
International fixed income commingled fund
Private equity and infrastructure
Other
Total investment measured at NAV as a practical
expedient
Receivables
Payables
Total plan assets
5,226
45,751
1,204
74,447
5,563
71,571
1,493
$
$
205,255
3,249
(414)
1,925,685
Cash equivalents and other short-term investments are primarily held in registered short-term investment vehicles which
are valued using a market approach based on quoted market prices of similar instruments.
Public equity securities, including common stock, are primarily valued using a market approach based on the closing fair
market prices of identical instruments in the principal market on which they are traded. Commingled funds that are open-ended
mutual funds for which the fair value per share is determined and published by the respective mutual fund sponsor and is the
basis for current observable transactions are categorized as Level 1 fair value measures.
Investments in commingled funds and private equity and infrastructure funds are carried at NAV as a practical expedient to
estimate fair value. The NAV is the total value of the fund divided by the number of shares outstanding. Adjustments to NAV,
if any, are determined based on evaluation of data provided by fund managers, including valuation of the underlying
investments derived using inputs such as cost, operating results, discounted future cash flows and market-based comparable
data. In accordance with Subtopic 820-10, investments that are measured at NAV practical expedient are not classified in the
fair value hierarchy; however, their fair value amounts are presented in these tables to permit reconciliation of the fair value
hierarchy to the total plan assets disclosed in this footnote.
92
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
Corporate, government agency bonds and mortgage-backed securities are primarily valued using a market approach with
inputs that include broker quotes, benchmark yields, base spreads and reported observable trades for identical or comparable
instruments.
Other investments include private equity and infrastructure funds and insurance contracts. Investments in private equity
and infrastructure funds are carried at estimated fair value based on NAV as a practical expedient and other appropriate
adjustments to NAV as determined based on an evaluation of data provided by fund managers, including valuations of the
underlying investments derived using inputs such as cost, operating results, discounted future cash flows, and market-based
comparable data.
The following table represents a rollforward of the balances of our pension plan assets that are valued using Level 3 inputs:
March 31, 2016,
Balance
Insurance contracts
1,349
Acquisitions
—
Total
$
1,349
$
— $
Net Purchases
(Sales)
Net Realized
Appreciation
(Depreciation)
Net Unrealized
Appreciation
(Depreciation)
March 31, 2017,
Balance
—
— $
—
— $
(176)
(176) $
1,173
1,173
March 31, 2015,
Balance
Insurance contracts
Total
$
920
920
Acquisitions
—
$
— $
Net Purchases
(Sales)
Net Realized
Appreciation
(Depreciation)
Net Unrealized
Appreciation
(Depreciation)
March 31, 2016,
Balance
—
— $
—
— $
429
429
$
1,349
1,349
Assumptions and Sensitivities
The discount rate is determined as of each measurement date, based on a review of yield rates associated with long-term,
high-quality corporate bonds. The calculation separately discounts benefit payments using the spot rates from a long-term,
high-quality corporate bond yield curve.
The effect of a 25 basis-point change in discount rates as of March 31, 2017, is shown below:
Increase of 25 basis points
Obligation
Net periodic expense
Decrease of 25 basis points
Obligation
Net periodic expense
Pension Benefits
Other
Postretirement
Benefits
* $
(60,500) $
57
* $
63,300
$
65
(3,173)
(226)
3,298
234
* Excludes impact to plan assets due to the LDI investment approach discussed above under "Plan Assets, Investment
Policy and Strategy."
The long-term rate of return assumption represents the expected average rate of earnings on the funds invested to provide
for the benefits included in the benefit obligations. The long-term rate of return assumption is determined based on a number of
factors, including historical market index returns, the anticipated long-term asset allocation of the plans, historical plan return
data, plan expenses and the potential to outperform market index returns. For fiscal 2017, the expected long-term rate of return
on assets was 6.50 - 8.00%. For fiscal 2018, the expected long-term rate of return is 6.50 - 8.00%.
A significant factor used in estimating future per capita cost of covered health care benefits for our retirees and us is the
health care cost trend rate assumption. The rate used at March 31, 2017, was 6.40% and is assumed to decrease gradually to
4.50% by fiscal 2027 and remain at that level thereafter. The effect of a one-percentage-point change in the healthcare cost
trend rate in each year is shown below:
93
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
Net periodic expense
Obligation
Anticipated Contributions to Defined Benefit Plans
Other Postretirement Benefits
One-Percentage-
Point Increase
One-Percentage-
Point Decrease
$
407
$
6,601
(157)
(5,987)
Assuming a normal retirement age of 65, the Company does not expect to contribute to its defined benefit pension plans
and expects to $16,099 to its OPEB during fiscal 2018. No plan assets are expected to be returned to the Company in fiscal
2018.
16.
STOCK COMPENSATION PLANS
The Company has stock incentive plans under which employees and non-employee directors may be granted equity awards
to acquire shares of the Company's common stock at the fair value at the time of the grant. The stock incentive and
compensation plans under which outstanding equity awards have been granted to employees, officers and non-employee
directors are the Triumph Group 2013 Equity and Cash Incentive Plan (the “2013 Plan”), the 2016 Directors’ Equity
Compensation Plan, as amended (the “Directors’ Plan”), the Triumph Group 2004 Stock Incentive Plan (the “2004 Plan”), and
the Amended and Restated Directors’ Stock Incentive Plan (the “Prior Directors’ Plan”). No new awards have been made under
the 2004 Plan after the 2013 Plan was approved by the Board and the stockholders. The Prior Directors’ Plan expired by its
terms during fiscal 2017. The current stock incentive and compensation plans used for future awards are the 2013 Plan for
employees, officers and consultants, and the Directors’ Plan, provided, that the Directors’ Plan remains subject to stockholder
approval at the 2017 annual meeting. In addition, in April 2016, the Board approved a separate employment inducement plan
under which stock options and restricted stock awards were granted to Daniel J. Crowley as new hire and retention awards (the
“Crowley Plan”). The 2013 Plan, the Directors’ Plan, the 2004 Plan and the Prior Directors’ Plan are collectively referred to in
this note as the plans.
Since fiscal 2006, the management and compensation committee has utilized restricted stock and restricted stock units as
its primary form of share-based incentive compensation. The restricted shares are subject to forfeiture should the grantee's
employment be terminated prior to the third or fourth anniversary of the date of grant, and are included in capital in excess of
par value. Restricted shares generally vest in full after three or four years. The fair value of restricted shares under the
Company's restricted stock plans is determined by the product of the number of shares granted and the grant date market price
of the Company's common stock. Most of these awards contain performance conditions, in addition to service conditions. The
fair value of restricted shares is expensed on a straight-line basis over the requisite service period of three or four years.
The Company recognized $7,922, $2,657 and $1,272 of share-based compensation expense during the fiscal years ended
March 31, 2017, 2016 and 2015, respectively. The total income tax benefit recognized for share-based compensation
arrangements for fiscal years ended March 31, 2017, 2016 and 2015, was $2,851, $930 and $445, respectively.
A summary of the Company's stock option activity and related information for its option plans for the fiscal year ended
March 31, 2017, was as follows:
Outstanding at March 31, 2016
Granted
Outstanding at March 31, 2017
Weighted-
Average
Exercise
Price per share
Weighted-
Average
Remaining
Contractual
Term (in Years)
Aggregate
Intrinsic Value
—
30.86
30.86
9
$
94
Options
— $
150,000
150,000
$
During the fiscal year ended March 31, 2016, the balance of then outstanding stock options expired. The intrinsic value of
stock options exercised during the fiscal year ended March 31, 2015 was $2,234.
At March 31, 2017 and 2016, 4,355,185 shares and 5,006,109 shares of common stock, respectively, were available for
issuance under the plans. A summary of the status of the Company's nonvested shares/units of restricted stock and deferred
stock units as of March 31, 2017, and changes during the fiscal year ended March 31, 2017, is presented below:
94
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
Nonvested restricted awards and deferred stock units at March 31, 2016
Granted
Vested
Forfeited
Nonvested restricted awards and deferred stock units at March 31, 2017
Shares
Weighted-
Average Grant
Date Fair Value
169,891
$
502,081
(57,902)
(1,157)
612,913
$
57.88
33.70
66.47
65.08
37.24
The fair value of restricted stock which vested during fiscal 2017 was $1,967. The tax benefit from vested restricted stock
was $182, $96 and $673 during the fiscal years ended March 31, 2017, 2016 and 2015, respectively. The weighted-average
grant date fair value of share-based grants in the fiscal years ended March 31, 2017, 2016 and 2015, was $33.70, $63.68 and
$64.44, respectively. Expected future compensation expense on restricted stock net of expected forfeitures, is approximately
$9,534, which is expected to be recognized over the remaining weighted-average vesting period of 2.3 years.
During the fiscal years ended March 31, 2016 and 2015, 15,200 and 8,800 deferred stock units were granted to the non-
employee members of the Board of Directors, respectively, under the prior Directors' Plan. Each deferred stock unit represents
the contingent right to receive one share of the Company's common stock. The deferred stock units vest over a three or four-
year period and the shares of common stock underlying vested deferred stock units will be delivered on January 1 of the year
following the year in which the non-employee director terminates service as a Director of the Company.
During fiscal 2017, 45,315 restricted stock units were granted to the non-employee members of the Board of Directors’
under the Directors’ Plan. Each restricted stock unit represents the contingent right to receive one share of the Company’s
common stock. The restricted stock units vest on the first anniversary of the date of grant. The restricted stock unit awards are
subject to approval by the stockholders of the Directors’ Plan at the 2017 annual meeting; if such approval is not obtained, the
awards will be void.
17.
COMMITMENTS AND CONTINGENCIES
On December 22, 2016, Triumph Aerostructures, LLC, a wholly owned subsidiary of the Company (“Triumph
Aerostructures”), initiated litigation against Bombardier, Inc. (“Bombardier”) in the Quebec Superior Court, District of
Montreal. The lawsuit related to Bombardier’s failure to pay to Triumph Aerostructures certain non-recurring expenses
incurred by Triumph Aerostructures during the development phase of a program pursuant to which Triumph Aerostructures
agreed to design, manufacture, and supply the wing and related components for Bombardier’s Global 7000 business aircraft.
In May 2017, Triumph Aerostructures and Bombardier entered into a comprehensive settlement agreement that resolves all
outstanding commercial disputes between them, including all pending litigation, related to the design, manufacture and supply
of wing components for Bombardier’s Global 7000 business aircraft. The settlement resets the commercial relationship
between the companies and allows each company to better achieve its business objectives going forward.
Other
Certain of the Company's business operations and facilities are subject to a number of federal, state, local and foreign
environmental laws and regulations. Former owners generally indemnify the Company for environmental liabilities related to
the assets and businesses acquired which existed prior to the acquisition dates. In the opinion of management, there are no
significant environmental contingent liabilities which would have a material effect on the financial condition or operating
results of the Company which are not covered by such indemnification.
The Company's risk related to pension projected obligations as of March 31, 2017, is significant. This amount is currently
in excess of the related plan assets. Benefit plan assets are invested in a diversified portfolio of investments in both the equity
and debt categories, as well as limited investments in real estate and other alternative investments. The market value of all of
these investment categories may be adversely affected by external events and the movements and volatility in the financial
markets, including such events as the current credit and real estate market conditions. Declines in the market values of our plan
assets could expose the total asset balance to significant risk which may cause an increase to future funding requirements. The
Company's potential risk related to OPEB projected obligations as of March 31, 2017, is also significant.
Some raw materials and operating supplies are subject to price and supply fluctuations caused by market dynamics. The
Company's strategic sourcing initiatives seek to find ways of mitigating the inflationary pressures of the marketplace. In recent
years, these inflationary pressures have affected the market for raw materials. However, the Company believes that raw
95
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
material prices will remain stable through the remainder of fiscal 2018 and after that, experience increases that are in line with
inflation. Additionally, the Company generally does not employ forward contracts or other financial instruments to hedge
commodity price risk.
The Company's suppliers' failure to provide acceptable raw materials, components, kits and subassemblies would adversely
affect production schedules and contract profitability. The Company maintains an extensive qualification and performance
surveillance system to control risk associated with such supply base reliance. The Company is dependent on third parties for
certain information technology services. To a lesser extent, the Company is also exposed to fluctuations in the prices of certain
utilities and services, such as electricity, natural gas, chemical processing and freight. The Company utilizes a range of long-
term agreements and strategic aggregated sourcing to optimize procurement expense and supply risk in these categories.
In the ordinary course of business, the Company is involved in disputes, claims and lawsuits with employees, suppliers and
customers, as well as governmental and regulatory inquiries, that it deems to be immaterial. Some may involve claims or
potential claims of substantial damages, fines, penalties or injunctive relief. While the Company cannot predict the outcome of
any pending or future litigation or proceeding and no assurances can be given, the Company does not believe that any pending
matter will have a material effect, individually or in the aggregate, on its financial position or results of operations.
18.
RESTRUCTURING COSTS
During the fiscal year ended March 31, 2017, the Company committed to a restructuring of certain of its businesses as well
as the consolidation of certain of its facilities ("2017 Restructuring Plan"). The Company expects to reduce its footprint by
approximately 1.0 million square feet and to reduce head count by 100 employees. Over the next few fiscal years, the
Company estimates that it will record aggregate pre-tax charges of $55,000 to $60,000 related to these programs, which
represent employee termination benefits, contract termination costs, accelerated depreciation and facility closure and other exit
costs, and will result in future cash outlays.
During the fiscal year ended March 31, 2016, the Company committed to a restructuring of certain of its businesses as well
as the consolidation of certain of its facilities ("2016 Restructuring Plan"). The Company expects to reduce its footprint by
approximately 3.5 million square feet and to reduce head count by 1,200 employees. Over the next few fiscal years, the
Company estimates that it will record aggregate pre-tax charges of $140,000 to $150,000 related to these programs, which
represent employee termination benefits, contract termination costs, accelerated depreciation and facility closure and other exit
costs, and will result in future cash outlays.
The following table provides a summary of the Company's current aggregate cost estimates by major type of expense
associated with the restructuring plans noted above:
Type of expense
Termination benefits
Facility closure and other exit costs (1)
Contract termination costs
Accelerated depreciation charges (2)
Other (3)
$
$
Total estimated amount
expected to be incurred
21,000
44,000
18,000
37,000
89,000
209,000
(1) Includes costs to transfer product lines among facilities and outplacement and employee relocation costs.
(2) Accelerated depreciation charges are recorded as part of Depreciation and amortization on the Consolidated Statement
of Operations.
(3) Consists of other costs directly related to the plan, including project management, legal and regulatory costs.
The restructuring charges recognized by type and by segment consisted of the following:
96
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
Fiscal year ended March 31, 2017
Integrated
Systems
Aerospace
Structures
Precision
Components
Product
Support
Corporate
Total
Termination benefits
$
1,449 $
250 $
1,419 $
147 $
— $
3,265
Facility closure and other
exit costs
Other
Total restructuring
Depreciation and
amortization
Total
—
49
1,498
732
1,648
6,775
8,673
—
3,637
3,801
8,857
9,886
526
280
953
180
—
22,196
22,196
—
$
2,230 $
8,673 $
18,743 $
1,133 $
22,196 $
5,811
33,101
42,177
10,798
52,975
Fiscal year ended March 31, 2016
Integrated
Systems
Aerospace
Structures
Precision
Components
Product
Support
Corporate
Total
Termination benefits
$
100 $
6,496 $
5,246 $
397 $
4,061 $
16,300
Facility closure and other
exit costs
Other
Total restructuring
Depreciation and
amortization
Included in Cost of sales:
Contract termination
costs
Accelerated
depreciation
Other
Total
—
—
100
46
—
—
—
12,908
—
19,404
1,387
—
6,633
1,741
10,442
12,100
10,018
2,037
—
—
8,245
—
—
397
145
—
—
—
—
5,587
9,648
14,295
5,587
36,182
—
12,374
—
—
—
12,100
10,018
10,282
80,956
$
146 $
45,300 $
25,320 $
542 $
9,648 $
Termination benefits include employee retention, severance and benefit payments for terminated employees. Facility
closure costs include general operating costs incurred subsequent to production shutdown as well as equipment relocation and
other associated costs. Contract termination costs include costs associated with terminating existing leases and supplier
agreements. Other costs include legal, outplacement and employee relocation costs, and other employee-related costs.
Relocation to Red Oak
During the fiscal year ended March 31, 2013, the Company committed to relocate the operations of its largest facility in
Dallas, Texas and to expand its Red Oak, Texas ("Red Oak") facility to accommodate this relocation. The Company incurred
approximately $86,640 in capital expenditures during the fiscal years ended March 31, 2014, associated with this plan. The
Company incurred $3,193 and $31,290 of moving expenses related to the relocation during the fiscal year ended March 31,
2015 and 2014, shown separately on the Consolidated Statements of Operations. The relocation was substantially completed
during the fiscal year ended March 31, 2014.
19.
CUSTOMER CONCENTRATION
Trade accounts receivable from The Boeing Company ("Boeing") represented approximately 5% and 18% of total accounts
receivable as of March 31, 2017 and 2016, respectively. The Company had no other significant concentrations of credit risk.
Sales to Boeing for fiscal 2017 were $1,243,981, or 35% of net sales, of which $209,669, $575,623, $428,452 and $30,237
were from Integrated Systems, Aerospace Structures, Precision Components and Product Support, respectively. Sales to Boeing
for fiscal 2016 were $1,472,641, or 38% of net sales, of which $199,826, $906,488, $331,229 and $35,098 were from
Integrated Systems, Aerospace Structures, Precision Components and Product Support, respectively. Sales to Boeing for fiscal
97
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
2015 were $1,634,367, or 42% of net sales, of which $160,907, $1,046,564, $395,616 and $31,280 were from Integrated
Systems, Aerospace Structures, Precision Components and Product Support, respectively.
Sales to Gulfstream for fiscal 2017 were $440,998, or 12% of net sales, of which $1,881, $426,879, $12,001 and $237 were
from Integrated Systems, Aerospace Structures, Precision Components and Product Support, respectively. Sales to Gulfstream
for fiscal 2016 were $476,327, or 12% of net sales, of which $3,492, $465,791, $6,836 and $208 were from Integrated Systems,
Aerospace Structures, Precision Components and Product Support, respectively. Sales to Gulfstream for fiscal 2015 were
$338,719, or 9% of net sales, of which $3,745, $325,622, $9,326 and $26 were from Integrated Systems, Aerospace Structures,
Precision Components 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/or Gulfstream, could have a material adverse effect on the Company and its operating
subsidiaries.
The Company currently generates a majority of its revenue from clients in the commercial aerospace industry, the business
jet industry and the military. The Company's growth and financial results are largely dependent on continued demand for its
products and services from clients in these industries. If any of these industries experiences a downturn, clients in these sectors
may conduct less business with the Company.
20.
COLLECTIVE BARGAINING AGREEMENTS
Approximately 12% of the Company's labor force is covered under collective bargaining agreements. As of March 31,
2017, approximately 5% of the Company's collectively bargained workforce are working under contracts that have expired or
are set to expire within one year.
The collective bargaining agreement with our union employees with International Association of Machinists and
Aerospace Workers ("IAM") District 751 at our Spokane, Washington facility expired May 11, 2016, subsequently, the
Company settled the strike and agreed to a new collective bargaining agreement with its union employees with IAM District
751, resulting in a charge of $15,700 due to disruption costs.
21.
SEGMENTS
The Company reports financial performance based on the following four reportable segments: Integrated Systems,
Aerospace Structures, Precision Components and Product Support. The Company's CODM utilizes Adjusted EBITDA as a
primary measure of 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. Inclusive of most of the former Vought Aircraft Division, Aerospace
Structures also has the capability to engineer detailed structural designs in metal and composites.
Precision Components consists of 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 provides 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,
98
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
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 EBITDA 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 restructuring of $22,196 for the fiscal year ended March 31, 2017.
Effective April 2016, the Company announced that it is realigning into four business units to better meet the evolving needs
of its customers. The new structure better supports our go-to-market strategies and will allow us to more effectively satisfy the
needs of our customers while continuing to deliver on our commitments, accelerate organic growth and drive predictable
profitability.
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 EBITDA to operating income
before interest is as follows:
Net sales:
Integrated Systems
Aerospace Structures
Precision Components
Product Support
Elimination of inter-segment sales
(Loss) income before income taxes:
Operating (loss) income:
Integrated Systems
Aerospace Structures
Precision Components
Product Support
Corporate
Interest expense and other
Depreciation and amortization:
Integrated Systems
Aerospace Structures
Precision Components
Product Support
Corporate
Impairment charge of intangible assets:
Integrated Systems
Aerospace Structures
Year Ended March 31,
2017
2016
2015
$
1,040,805
$
1,094,703
$
1,014,267
1,294,865
987,919
338,325
(129,115)
3,532,799
$
1,550,850
1,061,607
311,394
(132,482)
3,886,072
$
1,521,635
1,161,592
304,013
(112,785)
3,888,722
201,294
$
220,649
$
(108,811)
18,322
55,801
(109,717)
56,889
80,501
(23,612) $
(1,354,640)
75,734
24,977
(57,826)
(1,091,106)
68,041
(1,159,147) $
40,332
$
42,086
$
72,227
53,889
9,037
1,461
63,916
59,102
11,009
1,642
183,558
(25,257)
146,726
47,931
81,715
434,673
85,379
349,294
37,528
63,492
46,476
8,559
2,268
176,946
$
177,755
$
158,323
— $
266,298
266,298
$
400
873,961
874,361
$
$
—
—
—
$
$
$
$
$
$
$
99
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
Amortization of acquired contract liabilities, net:
Integrated Systems
Aerospace Structures
Precision Components
Adjusted EBITDA:
Integrated Systems
Aerospace Structures
Precision Components
Product Support
Corporate
Capital expenditures:
Integrated Systems
Aerospace Structures
Precision Components
Product Support
Corporate
Total Assets:
Integrated Systems
Aerospace Structures
Precision Components
Product Support
Corporate
Year Ended March 31,
2017
2016
2015
36,760
$
41,585
$
81,805
2,439
87,524
3,254
121,004
$
132,363
$
37,014
33,704
5,015
75,733
204,866
$
147,909
69,772
64,838
(89,132)
398,253
$
213,056
(493,787)
133,152
37,886
(57,428)
(167,121) $
$
184,072
4,531
188,187
56,490
(50,710)
382,570
$
$
$
$
Year Ended March 31,
2017
2016
2015
$
16,487
$
28,142
$
14,607
15,827
2,630
2,281
27,596
20,623
2,700
986
26,434
27,829
49,191
5,645
905
$
51,832
$
80,047
$
110,004
March 31,
2017
2016
$
1,281,828
$
1,371,178
1,548,239
1,262,691
284,231
37,611
1,792,805
1,297,886
350,674
22,550
$
4,414,600
$
4,835,093
During fiscal years ended March 31, 2017, 2016 and 2015, the Company had foreign sales of $768,703, $797,976 and
$753,075, respectively. The Company reports as foreign sales those sales with delivery points outside of the United States. As
of March 31, 2017 and 2016, the Company had foreign long-lived assets of $315,224 and $346,924, respectively.
100
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
22.
SELECTED CONSOLIDATING FINANCIAL STATEMENTS OF PARENT, GUARANTORS AND NON-
GUARANTORS
The 2021 Notes and the 2022 Notes are fully and unconditionally guaranteed on a joint and several basis by Guarantor
Subsidiaries. The total assets, stockholder's 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 and the 2022 Notes (the "Non-Guarantor
Subsidiaries") are: (i) the receivables securitization special purpose entity, and (ii) the foreign operating subsidiaries. The
following tables present condensed consolidating financial statements including Triumph Group, Inc. (the "Parent"), the
Guarantor Subsidiaries, and the Non-Guarantor Subsidiaries. Such financial statements include balance sheets as of March 31,
2017 and 2016, statements of operations and comprehensive income for the fiscal years ended March 31, 2017, 2016 and 2015,
and statements of cash flows for the fiscal years ended March 31, 2017, 2016 and 2015.
SUMMARY CONSOLIDATING BALANCE SHEETS:
Parent
Guarantor
Subsidiaries
March 31, 2017
Non-Guarantor
Subsidiaries
Eliminations
Consolidated
Total
Current assets:
Cash and cash equivalents
$
19,942
$
24,137
$
25,554
$
— $
Trade and other receivables, net
Inventories
Prepaid expenses and other
Assets held for sale
Total current assets
Property and equipment, net
Goodwill and other intangible
assets, net
Other, net
Intercompany investments and
advances
Total assets
Current liabilities:
Current portion of long-term
debt
Accounts payable
Accrued expenses
Liabilities related to assets held
for sale
$
$
Long-term debt, less current
portion
Intercompany debt
Accrued pension and other
postretirement benefits,
noncurrent
Deferred income taxes and other
Total stockholders' equity
Total liabilities and
stockholders' equity
546
—
7,763
—
28,251
8,315
—
17,902
34,874
1,243,461
11,678
3,250
1,317,400
673,153
1,560,050
67,955
276,372
96,714
10,623
18,005
427,268
123,562
174,919
15,825
—
—
—
—
—
—
—
—
2,057,534
81,541
77,090
2,112,002
$
3,700,099
$
818,664
$
(2,216,165)
(2,216,165) $
—
4,414,600
33,298
$
14,432
$
112,900
$
— $
17,291
53,829
—
426,646
578,457
—
974,693
178,381
6,633
1,403
846,474
60,977
1,754,529
585,501
564,358
(284,801)
37,306
42,093
18,008
210,307
—
370,907
—
40,302
197,148
—
—
—
—
—
(2,303,817)
—
—
87,652
$
2,112,002
$
3,700,099
$
818,664
$
(2,216,165) $
4,414,600
101
69,633
311,792
1,340,175
30,064
21,255
1,772,919
805,030
1,734,969
101,682
160,630
481,243
674,379
18,008
1,334,260
1,035,670
—
592,134
606,063
846,473
Total current liabilities
104,418
1,019,535
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
SUMMARY CONSOLIDATING BALANCE SHEETS:
Parent
Guarantor
Subsidiaries
March 31, 2016
Non-Guarantor
Subsidiaries
Eliminations
Consolidated
Total
Current assets:
Cash and cash equivalents
$
1,544
$
201
$
19,239
$
— $
Trade and other receivables, net
Inventories
Prepaid and other
Total current assets
Property and equipment, net
Goodwill and other intangible
assets, net
Other, net
Intercompany investments and
advances
Total assets
Current liabilities:
Current portion of long-term
debt
Accounts payable
Accrued expenses
Total current liabilities
Long-term debt, less current
portion
Intercompany debt
Accrued pension and other
postretirement benefits,
noncurrent
Deferred income taxes and other
Total stockholders' equity
Total liabilities and
stockholders' equity
2,057
—
6,524
10,125
7,324
—
11,878
127,968
1,127,275
26,433
1,281,877
746,455
1,898,401
76,262
314,183
108,915
8,302
450,639
135,955
195,465
20,712
—
—
—
—
—
—
—
20,984
444,208
1,236,190
41,259
1,742,641
889,734
2,093,866
108,852
$
$
2,301,054
81,540
82,930
2,330,381
$
4,084,535
$
885,701
$
(2,465,524)
(2,465,524) $
—
4,835,093
28,473
$
13,968
$
— $
— $
11,154
44,856
84,483
346,602
599,921
960,491
1,120,570
171,480
63,009
1,972,729
7,315
11,589
934,944
654,201
658,873
(224,768)
52,469
38,431
90,900
191,300
330,176
3,148
54,270
215,907
—
—
—
—
(2,474,385)
—
—
8,861
42,441
410,225
683,208
1,135,874
1,374,879
—
664,664
724,732
934,944
$
2,330,381
$
4,084,535
$
885,701
$
(2,465,524) $
4,835,093
102
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME:
Net sales
$
— $
3,229,136
$
379,960
$
(76,297) $
Parent
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Eliminations
Fiscal year ended March 31, 2017
Consolidated
Total
3,532,799
Operating costs and expenses:
Cost of sales
Selling, general and
administrative
Depreciation and amortization
Impairment of intangible assets
Restructuring
Loss on divestitures
Operating (loss) income
Intercompany interest and charges
Interest expense and other
Loss (income) from continuing
operations, before income taxes
Income tax expense (benefit)
Net (loss) income
Other comprehensive income
(loss)
—
2,462,270
303,845
(76,297)
2,689,818
66,822
1,461
—
22,196
19,124
109,603
(109,603)
(183,115)
75,483
(1,971)
23,729
(25,700)
182,805
158,757
266,298
19,076
—
3,089,206
139,930
174,240
11,689
(45,999)
(8,962)
(37,037)
31,920
16,728
—
905
—
353,398
26,562
8,875
(6,671)
24,358
4,573
19,785
5,073
(25,693)
(28,396)
—
—
—
—
—
(76,297)
—
—
—
—
—
—
—
281,547
176,946
266,298
42,177
19,124
3,475,910
56,889
—
80,501
(23,612)
19,340
(42,952)
(49,016)
Total comprehensive loss
$
(20,627) $
(62,730) $
(8,611) $
— $
(91,968)
103
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME:
Net sales
$
— $
3,577,733
$
369,954
$
(61,615) $
Parent
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Eliminations
Fiscal year ended March 31, 2016
Consolidated
Total
3,886,072
Operating costs and expenses:
Cost of sales
Selling, general and
administrative
Depreciation and amortization
Restructuring charge
Legal settlement gain, net
Impairment charge
Curtailments, settlements and
early retirement incentives
Operating loss
Intercompany interest and charges
Interest expense and other
Income (loss) from continuing
operations, before income taxes
Income tax expense (benefit)
Net income (loss)
Other comprehensive loss
Total comprehensive income
(loss)
$
—
3,343,038
315,876
(61,615)
3,597,299
43,969
1,642
10,347
—
—
(1,244)
54,714
(54,714)
(206,998)
60,950
91,334
17,161
74,173
(163)
206,815
154,740
25,835
5,476
874,361
—
4,610,265
(1,032,532)
194,188
10,239
(1,236,959)
(132,648)
(1,104,311)
(136,024)
36,565
21,373
—
—
—
—
373,814
(3,860)
12,810
(3,148)
(13,522)
4,300
(17,822)
(12,065)
—
—
—
—
—
—
(61,615)
—
—
—
—
—
—
—
287,349
177,755
36,182
5,476
874,361
(1,244)
4,977,178
(1,091,106)
—
68,041
(1,159,147)
(111,187)
(1,047,960)
(148,252)
74,010
$
(1,240,335) $
(29,887) $
— $
(1,196,212)
104
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS):
Net sales
$
— $
3,592,062
$
320,907
$
(24,247) $
Parent
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Eliminations
Fiscal year ended March 31, 2015
Consolidated
Total
3,888,722
—
2,900,408
265,292
(24,247)
3,141,453
Operating costs and expenses:
Cost of sales
Selling, general and
administrative
Depreciation and amortization
Restructuring charge
Legal settlement gain, net
Operating income
Intercompany interest and charges
Interest expense and other
Income from continuing
operations, before income taxes
Income tax expense (benefit)
Income from continuing
operations
Net income
50,562
2,269
—
(134,693)
(81,862)
81,862
(205,075)
85,555
201,382
58,049
143,333
143,333
199,569
141,561
3,193
—
3,244,731
347,331
196,394
10,438
140,499
54,359
86,140
86,140
35,642
14,493
—
—
315,427
5,480
8,681
(10,614)
7,413
(1,811)
9,224
9,224
—
—
—
—
(24,247)
—
—
—
—
—
—
—
—
285,773
158,323
3,193
(134,693)
3,454,049
434,673
—
85,379
349,294
110,597
238,697
238,697
(180,002)
Other comprehensive loss
(4,253)
(128,800)
(46,949)
Total comprehensive income
(loss)
$
139,080
$
(42,660) $
(37,725) $
— $
58,695
105
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS:
Net (loss) income
$
(25,700) $
(37,037) $
19,785
$
— $
(42,952)
Parent
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Eliminations
Consolidated
Total
Fiscal year ended March 31, 2017
Adjustments to reconcile net (loss)
income to net cash provided by
operating activities
Net cash provided by operating
activities
Capital expenditures
Proceeds from sale of assets and
businesses
Cash used for businesses and
intangible assets acquired
Net cash provided by (used in)
investing activities
Net decrease in revolving credit
facility
Proceeds on issuance of debt
Retirements and repayments of
debt
Payments of deferred financing
costs
Dividends paid
Repayment of governmental grant
Repurchase of restricted shares for
minimum tax obligation
Intercompany financing and
advances
Net cash used in financing
activities
Effect of exchange rate changes
on cash and cash equivalents
Net change in cash and cash
equivalents
Cash and cash equivalents at
beginning of year
Cash and cash equivalents at end
of year
36,295
260,469
12,443
10,595
(2,281)
223,432
(37,436)
32,228
(12,115)
45,288
23,316
17,583
—
9
43,007
(14,111)
(110,000)
—
—
—
—
5,468
—
24,400
(28,473)
(12,871)
(102,800)
(14,034)
(7,927)
—
—
—
(14,570)
(182)
—
—
—
—
—
15,267
15,267
—
—
—
—
—
—
—
—
—
—
—
125,412
(157,944)
47,799
(15,267)
324,474
281,522
(51,832)
86,187
9
34,364
(110,000)
24,400
(144,144)
(14,034)
(7,927)
(14,570)
(182)
—
(35,204)
(185,385)
(30,601)
(15,267)
(266,457)
—
18,398
1,544
—
23,936
(780)
6,315
201
19,239
—
—
—
(780)
48,649
20,984
$
19,942
$
24,137
$
25,554
$
— $
69,633
106
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS:
Net income (loss)
$
74,173
$
(1,104,311) $
(17,822) $
— $
Parent
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Eliminations
Fiscal year ended March 31, 2016
Consolidated
Total
(1,047,960)
1,131,823
83,863
(80,047)
6,069
(54,051)
(128,029)
(8,256)
134,797
(80,917)
(185)
(7,889)
(5,000)
(96)
—
6,181
6,181
—
—
—
—
—
—
—
—
—
—
—
Adjustments to reconcile net
income (loss) to net cash (used in)
provided by operating activities
Net cash (used in) provided by
operating activities
Capital expenditures
Proceeds from sale of assets and
businesses
Cash used for businesses and
intangible assets acquired
Net cash used in investing
activities
Net increase in revolving credit
facility
Proceeds on issuance of debt
Retirements and repayments of
debt
Payments of deferred financing
costs
Dividends paid
Repayment of governmental grant
Repurchase of restricted shares for
minimum tax obligation
Intercompany financing and
advances
Net cash provided by (used in)
financing activities
Effect of exchange rate changes
on cash and cash equivalents
Net change in cash and cash
equivalents
Cash and cash equivalents at
beginning of year
(106,837)
1,207,850
24,629
(32,664)
(986)
103,539
(57,503)
6,807
(21,558)
—
—
5,877
192
(48,051)
(6,000)
(986)
(99,677)
(27,366)
(8,256)
—
—
6,497
—
128,300
(19,024)
(24,893)
(37,000)
—
—
(5,000)
—
—
—
—
—
(185)
(7,889)
—
(96)
70,024
34,574
—
924
620
19,316
(83,159)
(6,181)
(4,080)
—
(218)
419
8,141
79
(12,339)
31,578
(6,181)
32,454
—
—
—
79
(11,633)
32,617
Cash and cash equivalents at end
of year
$
1,544
$
201
$
19,239
$
— $
20,984
107
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS:
Net income
$
143,333
$
86,140
$
9,224
$
— $
238,697
Parent
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Eliminations
Consolidated
Total
Fiscal year ended March 31, 2015
Adjustments to reconcile net
income to net cash provided by
operating activities
Net cash (used in) provided by
operating activities
Capital expenditures
Reimbursements of capital
expenditures
Proceeds from sale of assets and
businesses
Cash used for businesses and
intangible assets acquired
Net cash (used in) provided by
investing activities
Net increase in revolving credit
facility
Proceeds on issuance of debt
Retirements and repayments of
debt
Purchase of common stock
Payments of deferred financing
costs
Dividends paid
Proceeds from governmental grant
Repurchase of restricted shares for
minimum tax obligation
Proceeds from exercise of stock
options, including excess tax
benefit
Intercompany financing and
advances
Net cash provided by (used in)
financing activities
Effect of exchange rate changes
on cash and cash equivalents
Net change in cash and cash
equivalents
Cash and cash equivalents at
beginning of year
Cash and cash equivalents at end
of year
$
(154,295)
397,607
(25,590)
(10,962)
(905)
483,747
(92,686)
(16,366)
(16,413)
—
—
—
(905)
(46,150)
300,000
(401,232)
(184,380)
(6,487)
(8,100)
—
(673)
720
653
3,092
—
75
112,110
(73,829)
23,169
—
37,660
(20,928)
—
—
—
(3,198)
—
—
(90,167)
—
171,300
(233,700)
—
—
—
—
—
—
10,913
10,913
—
—
—
—
—
—
—
—
—
—
—
—
—
—
355,969
(521,180)
176,124
(10,913)
228,635
467,332
(110,004)
653
3,167
38,281
(67,903)
(46,150)
508,960
(655,860)
(184,380)
(6,487)
(8,100)
(3,198)
(673)
720
—
9,667
(507,646)
113,724
(10,913)
(395,168)
—
(2,200)
2,820
—
(730)
(642)
6,549
1,149
25,029
—
—
—
(642)
3,619
28,998
620
$
419
$
31,578
$
— $
32,617
108
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
23.
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Fiscal 2017
Fiscal 2016
June 30
Sept. 30
Dec. 31
Mar. 31 (5)
June 30
Sept. 30
Dec. 31 (3) Mar. 31 (4)
BUSINESS SEGMENT
SALES
Integrated Systems
$ 257,356
$ 245,367
$
256,080
$
282,002
$ 258,571
$ 261,481
$
271,849
$
302,802
Aerospace Structures
Precision Components
Product Support
Inter-segment
Elimination
331,596
254,602
84,199
320,283
259,458
85,826
304,235
226,294
87,292
338,751
247,565
81,008
395,120
265,141
74,745
385,471
265,825
73,777
346,639
250,284
78,127
423,620
280,357
84,745
(34,500)
(36,165)
(29,038)
(29,412)
(33,939)
(31,780)
(33,033)
(33,730)
TOTAL SALES
$ 893,253
$ 874,769
GROSS PROFIT (1)
$ 136,836
$ 171,427
$
$
844,863
162,001
$
$
919,914
$ 959,638
$ 954,774
256,929
$ 201,732
$ 197,742
$
$
913,866
$ 1,057,794
195,405
$
(420,767)
OPERATING INCOME
(LOSS)
Integrated Systems
$
47,986
$
45,797
$
51,596
$
55,915
$
50,557
$
51,100
$
52,321
$
66,671
Aerospace Structures
Precision Components
Product Support
Corporate
TOTAL OPERATING
INCOME (LOSS)
NET INCOME (LOSS)
Basic Earnings (Loss) per
share
Diluted Earnings (Loss)
per share (2)
$
$
$
$
9,163
(7,782)
14,059
24,867
12,063
14,265
23,867
2,942
14,662
(166,708)
11,099
12,815
41,798
24,905
9,987
36,682
25,457
9,125
(16,700)
(26,506)
(37,901)
(28,610)
(19,381)
(12,317)
(210,938)
(1,222,182)
24,106
12,402
(4,141)
1,266
(6,537)
(21,987)
46,726
19,734
$
$
70,486
34,807
$
$
55,166
$ (115,489) $ 107,866
$ 110,047
(126,250) $ (1,182,769)
29,332
$ (126,825) $
62,732
$
61,612
(88,649) $ (1,083,655)
0.40
$
0.71
$
0.59
$
(2.57) $
1.28
$
1.25
$
(1.80) $
(22.01)
0.40
$
0.70
$
0.59
$
(2.57) $
1.27
$
1.25
$
(1.80) $
(22.01)
*
(1)
(2)
(3)
(4)
Difference due to rounding.
Gross profit includes depreciation.
The sum of the diluted earnings per share for the four quarters does not necessarily equal the total year diluted earnings
per share due to the dilutive effect of the potential common shares related to the convertible debt.
Includes the results of Fairchild from October 21, 2015 (date of acquisition) through March 31, 2016 and impairment of
intangible assets of $229,200.
Includes impairment of intangible assets of $645,161, forward losses on the Bombardier and 747-8 programs of
$131,400 and restructuring of $80,956.
(5)
Includes impairment of goodwill of $266,298 in Aerospace Structures.
109
TRIUMPH GROUP, INC.
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
Balance at
beginning of
year
Additions
charged to
expense
Additions(1)
(Deductions)(2)
Balance at
end of year
For year ended March 31, 2017:
Allowance for doubtful
accounts receivable
For year ended March 31, 2016:
Allowance for doubtful
accounts receivable
For year ended March 31, 2015:
Allowance for doubtful
accounts receivable
$
$
$
6,492
202
307
(2,442) $
4,559
6,475
2,028
(47)
(1,964) $
6,492
6,535
171
85
(316) $
6,475
(1)
(2)
Additions consist of trade and other receivable recoveries and miscellaneous adjustments.
Deductions represent write-offs of related account balances.
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our
Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and
forms, and that such information is accumulated and communicated to our management, including our principal executive
officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and
evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how
well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and
management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and
procedures.
As of March 31, 2017, we completed an evaluation, under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our
disclosure controls and procedures. Based on the foregoing, our principal executive officer and principal financial officer
concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2017.
110
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Triumph Group, Inc. ("Triumph") is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934.
Triumph's internal control system over financial reporting is designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally
accepted accounting principles. The Company's internal control over financial reporting includes those policies and procedures
that:
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition
of the company's assets that could have a material effect on the financial statements.
Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial
statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to risk
that controls may become inadequate because of changes in condition, or that the degree of compliance with the policies or
procedures may deteriorate.
Triumph's management assessed the effectiveness of Triumph's internal control over financial reporting as of March 31,
2017. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) ("COSO") in Internal Control—Integrated Framework. Based on management's
assessment and those criteria, management believes that Triumph maintained effective internal control over financial reporting
as of March 31, 2017.
Triumph's independent registered public accounting firm, Ernst & Young LLP, has audited Triumph's effectiveness of
internal control over financial reporting. This report appears on the following page.
/s/ Daniel J. Crowley
Daniel J. Crowley
President, Chief Executive Officer and Director
/s/ James F. McCabe, Jr.
James F. McCabe, Jr.
Senior Vice President and
Chief Financial Officer
/s/ Thomas A. Quigley, III
Thomas A. Quigley, III
Vice President and Controller
May 24, 2017
111
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Triumph Group, Inc.
We have audited Triumph Group, Inc.'s internal control over financial reporting as of March 31, 2017, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) (the COSO criteria). Triumph Group, Inc.'s management is responsible for maintaining
effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial
reporting included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility
is to express an opinion on the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding
of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design
and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Triumph Group, Inc. maintained, in all material respects, effective internal control over financial reporting
as of March 31, 2017, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated balance sheets of Triumph Group, Inc., as of March 31, 2017 and 2016, and the related consolidated
statements of operations, comprehensive (loss) income, stockholders' equity, and cash flows for each of the three years in the
period ended March 31, 2017, of Triumph Group, Inc. and our report dated May 24, 2017, expressed an unqualified opinion
thereon.
Philadelphia, Pennsylvania
May 24, 2017
/s/ Ernst & Young LLP
112
Changes in Internal Control Over Financial Reporting
In addition to management's evaluation of disclosure controls and procedures as discussed above, we continue to review
and enhance our policies and procedures for internal control over financial reporting.
We have developed and implemented a formal set of internal controls and procedures for financial reporting in accordance
with the SEC's rules regarding management's report on internal controls. As a result of continued review and testing by
management and by our internal and independent auditors, additional changes may be made to our internal controls and
procedures. However, we did not make any changes to our internal control over financial reporting in the fourth quarter of
fiscal 2017 that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.
Item 9B. Other Information
None.
Item 10.
Directors, Executive Officers and Corporate Governance
PART III
The information required for directors is incorporated herein by reference to our definitive Proxy Statement for our 2017
Annual Meeting of Stockholders, which shall be filed within 120 days after the end of our fiscal year (the "2017 Proxy
Statement"). Information required by this item concerning executive officers is included in Part I of this Annual Report on
Form 10-K.
Section 16(a) Beneficial Ownership Reporting Compliance
The information required regarding Section 16(a) beneficial ownership reporting compliance is incorporated herein by
reference to the 2017 Proxy Statement.
The information required regarding our Code of Business Conduct is incorporated herein by reference to the 2017 Proxy
Statement.
Code of Business Conduct
Stockholder Nominations
The information required with respect to any material changes to the procedures by which stockholders may recommend
nominees to the Company's board of directors is incorporated herein by reference to the 2017 Proxy Statement.
The information required with respect to the Audit Committee and Audit Committee financial experts is incorporated
Audit Committee and Audit Committee Financial Expert
herein by reference to the 2017 Proxy Statement.
Item 11.
Executive Compensation
The information required regarding executive compensation is incorporated herein by reference to the 2017 Proxy
Statement.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required under this item is incorporated herein by reference to the 2017 Proxy Statement.
Item 13.
Certain Relationships and Related Transactions and Director Independence
The information required under this item is incorporated herein by reference to the 2017 Proxy Statement.
Item 14.
Principal Accountant Fees and Services
The information required under this item is incorporated herein by reference to the 2017 Proxy Statement.
113
Item 15. Exhibits, Financial Statement Schedules
(a) Financial Statements
PART IV
(1) The following consolidated financial statements are included in Item 8 of this report:
Triumph Group, Inc.
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of March 31, 2017 and 2016
Consolidated Statement of Operations for the Fiscal Years Ended March 31, 2017, 2016 and 2015
Consolidated Statement of Comprehensive (Loss) Income for the Fiscal Years Ended March 31, 2017, 2016 and 2015
Consolidated Statements of Stockholders' Equity for the Fiscal Years Ended March 31, 2017, 2016 and 2015
Consolidated Statements of Cash Flows for the Fiscal Years Ended March 31, 2017, 2016 and 2015
Notes to Consolidated Financial Statements
(2) The following financial statement schedule is included in this report:
Schedule II—Valuation and Qualifying Accounts
Page
53
54
55
56
57
58
59
Page
109
All other schedules have been omitted as not applicable or because the information is included elsewhere in the
Consolidated Financial Statements or notes thereto.
(3) The following is a list of exhibits. Where so indicated, exhibits which were previously filed are incorporated by
reference.
Exhibit
Number
2.1
3.1
3.1.1
3.2
4.1
4.2
4.2.1
4.3
Exhibit Description
Agreement and Plan of Merger, dated as of
March 23, 2010, by and among Triumph Group,
Inc., Vought Aircraft Industries, Inc., Spitfire
Merger Corporation and TC Group, L.L.C., as
the Holder Representative
Amended and Restated Certificate of
Incorporation of Triumph Group, Inc.
Certificate of Amendment of Amended and
Restated Certificate of Incorporation of Triumph
Group, Inc.
Amended and Restated By-Laws of Triumph
Group, Inc.
Form of certificate evidencing Common Stock
of Triumph Group, Inc.
Indenture, dated as of September 18, 2006,
between Triumph Group, Inc. and The Bank of
New York Trust Company, N.A. relating to the
2.625% Convertible Senior Subordinated Notes
Due 2026
Form of the 2.625% Convertible Senior
Subordinated Note Due 2026 (included as
Exhibit A to Exhibit 4.1)
Registration Rights Agreement, dated as of
September 18, 2006, between Triumph Group,
Inc. and Banc of America Securities LLC
114
Incorporated by Reference to
Form
8-K
File No.
001-12235
Exhibit(s)
2.1
Filing Date
March 23,
2010
10-K
001-12235
8-K
001-12235
8-K/A
001-12235
S-1
333-10777
8-K
001-12235
8-K
001-12235
8-K
001-12235
3.1
3.1
3.2
4
4.1
4.2
4.3
May 22,
2009
July 20,
2012
August 2,
2012
August 23,
1996
September
22, 2006
September
22, 2006
September
22, 2006
Exhibit
Number
4.4
4.4.1
4.5
4.6
4.7
4.8
4.8.1
4.9
4.10
4.10.1
4.11
4.12
10.1
10.1.1
10.2
10.2.1
10.2.2
10.3
Exhibit Description
Indenture, dated as of November 16, 2009,
between Triumph Group, Inc. and U.S. Bank
National Association, as trustee, relating to the
8% Senior Subordinated Notes due 2017.
Form of 8% Senior Subordinated Notes due
2017 (included as Exhibit A to Indenture filed as
Exhibit 4.1)
Registration Rights Agreement, dated November
16, 2009, by and among Triumph Group, Inc.,
the Guarantors party thereto, and the other
parties thereto.
Indenture, dated as of June 16, 2010, between
Triumph Group, Inc. and U.S. Bank National
Association, as trustee, relating to the 8.625%
Senior Subordinated Notes Due 2018
Registration Rights Agreement, dated as of June
16, 2010, by and among Triumph Group, Inc.,
the Guarantors party thereto and the other
parties thereto
Indenture, dated as of February 26, 2013,
between Triumph Group, Inc. and U.S. Bank
National Association, as trustee
Form of 4.875% Senior Subordinated Notes due
2021(included as Exhibit A to Exhibit 4.1)
Registration Rights Agreement, dated February
26, 2013 between Triumph Group, Inc. and the
parties named therein
Indenture, dated as of June 3, 2014, between
Triumph Group, Inc. and U.S. Bank National
Association, as trustee
Form of 5.250% Senior Notes due 2022
(included as Exhibit A to the Indenture filed as
Exhibit 4.1)
Registration Rights Agreement, dated June 3,
2014, between Triumph Group, Inc. and parties
named therein
Second Supplemental Indenture dated as of May
18, 2016 by and among Triumph Group, Inc.,
the guarantors signatory thereto and U.S. Bank
National Association, as trustee, relating to the
4.875% Senior Notes due 2021
Amended and Restated Directors’ Stock
Incentive Plan
Form of Deferred Stock Unit Award Agreement
under the Amended and Restated Directors’
Stock Incentive Plan
Triumph Group, Inc. 2004 Stock Incentive Plan*
Form of Stock Award Agreement under the 2004
Stock Incentive Plan*
Form of letter confirming Stock Award
Agreement under the 2004 Stock Incentive
Plan*
Triumph Group, Inc. Supplemental Executive
Retirement Plan effective January 1, 2003*
115
Incorporated by Reference to
Form
8-K
File No.
001-12235
Exhibit(s)
4.1
8-K
001-12235
8-K
001-12235
4.2
4.3
8-K
001-12235
4.1
8-K
001-12235
4.3
8-K
001-12235
8-K
8-K
001-12235
001-12235
4.1
4.2
4.3
Filing Date
November
19, 2009
November
19, 2009
November
19, 2009
June 22,
2010
June 22,
2010
March 1,
2013
March 1,
2013
March 1,
2013
8-K
001-12235
4.1
June 5, 2014
8-K
001-12235
4.2
June 5, 2014
8-K
001-12235
4.3
June 5, 2014
#
#
#
#
10-K
001-12235
10-K
001-12235
10-K
001-12235
10-K
001-12235
10-K
001-12235
10.1
10.2
10.3
10.7
10.8
10-K
001-12235
10.17
May 29,
2012
May 30,
2013
May 30,
2013
May 22,
2009
May 22,
2009
June 12,
2003
Exhibit
Number
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
Exhibit Description
Compensation for the non-employee members
of the Board of Directors of Triumph Group,
Inc.
Description of the Triumph Group, Inc. Annual
Cash Bonus Plan*
Change of Control Employment Agreements
with: Richard C. Ill and John B. Wright, II.
Form of Receivables Purchase Agreement, dated
August 7, 2008, by and among the Triumph
Group, Inc., as Initial Servicer, Triumph
Receivables, LLC, as Seller, the various
Purchasers and Purchase Agents from time to
time party thereto and PNC National
Association, as Administrative Agent.
Stockholders Agreement, dated as of March 23,
2010, among Triumph Group, Inc., Carlyle
Partners III, L.P., Carlyle Partners II, L.P.,
Carlyle International Partners II, L.P., Carlyle-
Aerostructures Partners, L.P., CHYP Holdings,
L.L.C., Carlyle-Aerostructures Partners II, L.P.,
CP III Coinvestment, L.P., C/S International
Partners, Carlyle-Aerostructures International
Partners, L.P., Carlyle-Contour Partners, L.P.,
Carlyle SBC Partners II, L.P., Carlyle
International Partners III, L.P., Carlyle-
Aerostructures Management, L.P., Carlyle-
Contour International Partners, L.P., Carlyle
Investment Group, L.P. and TC Group, L.L.C
Third Amendment to Receivables Purchase
Agreement, dated as of June 21, 2010, by and
among Triumph Receivables LLC, Triumph
Group, Inc., Market Street Funding LLC and
PNC Bank, National Association
Triumph Group, Inc. Executive Incentive Plan,
effective September 28, 2010 *
Form of letter informing Triumph Group, Inc.
executives they are eligible to participate in the
Company’s Long Term Incentive Plan *
Form of letter informing Triumph Group, Inc.
executives they have earned an award under the
Company’s Long Term Incentive Plan and the
amount of the award *
Sixth Amendment to Receivables Purchase
Agreement, dated as of February 26, 2013, by
and among Triumph Receivables LLC, Triumph
Group, Inc., Market Street Funding LLC and
PNC Bank, National Association
Incorporated by Reference to
Form
8-K
File No.
001-12235
Exhibit(s)
10.1
8-K
001-12235
10.1
8-K
8-K
001-12235
001-12235
10.1 and
10.3
10.1
Filing Date
November
15, 2016
July 31,
2007
March 13,
2008
August 12,
2008
8-K
001-12235
10.1
March 23,
2010
8-K
001-12235
10.1
10-Q
001-12235
10.1
10-K
001-12235
10.22
10-K
001-12235
10.23
8-K
001-12235
10.1
June 25,
2010
November
5, 2010
May 18,
2011
May 18,
2011
March 1,
2013
116
Exhibit
Number
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
Exhibit Description
Form of Third Amended and Restated Credit
Agreement, dated as of November 19, 2013, by
and among Triumph Group, Inc., and the other
Borrowers party thereto and the Guarantors
party thereto and the Banks party thereto and
PNC Bank, National Association, as
Administrative Agent, PNC Capital Markets
LLC, J.P. Morgan Securities, LLC, RBC Capital
Markets, RBS Citizens, N.A., and Santander
Bank, N.A., as Joint Lead Arrangers and Joint
Bookrunners, JPMorgan Chase Bank N.A.,
Royal Bank of Canada, Citizens Bank of
Pennsylvania, and Santander Bank, N.A., as
Syndication Agents, the Bank of Tokyo-
Mitsubishi UFJ, Ltd, U.S. Bank National
Association, TD Bank, N.A., and Manufacturers
and Traders Trust Company, as Documentation
Agents
Form of Second Amended and Restated
Guarantee and Collateral Agreement made by
Triumph Group, Inc., and certain of its
Subsidiaries in favor of PNC Bank, National
Association, as Administrative Agent and as
Collateral Agent for the other Secured Parties
identified herein, dated as of November 19,
2013
Triumph Group, Inc. 2013 Equity and Cash
Incentive Plan*
Form of letter regarding eligibility to participate
in the Triumph Group, Inc. Restricted Stock
Plan*
Form of letter regarding grant of award under
the Triumph Group, Inc. Executive Incentive
Plan*
Tenth Amendment to Receivables Purchase
Agreement dated as of November 25, 2014
Third Amendment to Third Amended and
Restated Credit Agreement, dated as of February
3, 2015, by and among Triumph Group, Inc. and
the other Borrowers party thereto and the
Guarantors party thereto and the Banks party
thereto and PNC Bank, National Association, as
Administrative Agent
Separation letter agreement between Triumph
Group, Inc. and Jeffry D. Frisby, dated April 7,
2015 *
The First Amendment of the Triumph Group,
Inc. Supplemental Executive Retirement Plan,
effective as of May 1, 2015 *
First Amendment to Triumph Group, Inc. 2013
Employee Stock Purchase Plan *
Consulting Agreement between Triumph Group,
Inc. and Richard C. Ill, dated as of January 4,
2016 *
Employment agreement between Triumph
Group, Inc. and Daniel J. Crowley, dated as of
April 1, 2016*
117
Incorporated by Reference to
Form
8-K
File No.
001-12235
Exhibit(s)
10.1
Filing Date
November
25, 2013
8-K
001-12235
10.2
November
25, 2013
10-K
001-12235
10-K
001-12235
10.23
10.24
10-K
001-12235
10.25
May 19,
2014
May 19,
2014
May 19,
2014
8-K
001-12235
10-Q
001-12235
10.1
10.1
November
26, 2014
February 9,
2015
8-K
001-12235
10.1
April 8,
2015
8-K
001-12235
10.1
May 7, 2015
10-Q 001-12235
8-K
001-12235
10.1
10.1
8-K
001-12235
10.1
August 4,
2015
January 7,
2016
April 7,
2016
Exhibit
Number
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
21.1
23.1
31.1
31.2
32.1
32.2
Exhibit Description
Form of Sixth Amendment to Third Amended
and Restated Credit Agreement, dated May 3,
2016
Separation Letter between Triumph Group, Inc.
and Jeffrey McRae dated May 26, 2016 *
Employment letter between Triumph Group, Inc.
and James F. McCabe dated July 26, 2016 *
Form of Seventh Amendment to Third Amended
and Restated Credit Agreement, dated October
21, 2016
Triumph Group, Inc. Non-employee Director
Compensation Program, effective July 21, 2016
Triumph Group, Inc. Directors' Deferred
Compensation Plan, effective January 1, 2017
Eighth Amendment to the Third Amended and
Restated Credit Agreement, dated May 1, 2017
Form of the 2016 Directors' Equity
Compensation Plan, as amended
Form of Restricted Stock Unit Agreement under
the 2016 Directors' Equity Compensation Plan,
as amended
Triumph Group, Inc. Directors' Deferred
Compensation Plan, effective January 1, 2017
Employment letter between Triumph Group, Inc.
and Richard R. Lovely dated April 12, 2016 *
Subsidiaries of Triumph Group, Inc.
Consent of Ernst & Young LLP, Independent
Registered Public Accounting Firm
Principal Executive Officer Certification
Required by Rule 13a-14(a) or Rule 15d-14(a)
under the Securities Exchange Act of 1934, as
amended.
Principal Financial Officer Certification
Required by Rule 13a-14(a) or Rule 15d-14(a)
under the Securities Exchange Act of 1934, as
amended.
Principal Executive Officer Certification
Required by Rule 13a-14(b) or Rule 15d-14(b)
under the Securities Exchange Act of 1934, as
amended, and 18 U.S.C. Section 1350.
Principal Financial Officer Certification
Required by Rule 13a-14(b) or Rule 15d-14(b)
under the Securities Exchange Act of 1934, as
amended, and 18 U.S.C. Section 1350.
Incorporated by Reference to
Form
8-K
File No.
001-12235
Exhibit(s)
10.1
Filing Date
May 4, 2016
8-K
001-12235
10.1
June 1, 2016
8-K
001-12235
10-Q 001-12235
8-K
001-12235
8-K
001-12235
8-K
001-12235
#
#
#
#
10.1
10.1
10.1
10.2
10.1
#
#
8-K
001-12235
10.2
#
#
#
#
#
##
##
#
#
#
#
#
##
##
#
#
#
#
#
##
##
July 27,
2016
November
9, 2016
November
15, 2016
November
15, 2016
May 10,
2017
#
#
November
15, 2016
#
#
#
#
#
##
##
118
Incorporated by Reference to
Form
#
File No.
#
Exhibit(s)
#
Filing Date
#
Exhibit
Number
101
Exhibit Description
The following financial information from
Triumph Group, Inc.’s Annual Report on Form
10-K for the fiscal year ended March 31, 2016
formatted in XBRL: (i) Consolidated Balance
Sheets as of March 31, 2016 and 2015; (ii)
Consolidated Statements of Income for the fiscal
years ended March 31, 2016, 2015 and 2014;
(iii) Consolidated Statements of Stockholders’
Equity for the fiscal years ended March 31,
2016, 2015 and 2014; (iv) Consolidated
Statements of Cash Flows for the fiscal years
ended March 31, 2016, 2015 and 2014; (v)
Consolidated Statements of Comprehensive
Income for the fiscal years ended March 31,
2016, 2015 and 2014; and (vi) Notes to the
Consolidated Financial Statements.
________________________________
In accordance with Item 601(b)(4)(iii)(A) of Regulations S-K, copies of specific instruments defining the rights of holders of
long-term debt of the Company or its subsidiaries are not filed herewith. Pursuant to this regulation, we hereby agree to furnish
a copy of any such instrument to the SEC upon request
*
#
Indicates management contract or compensatory plan or arrangement
Filed herewith
##
Furnished herewith
Item 16. Form 10-K Summary
The Registrant has elected not to include a summary.
119
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant
has duly caused this report to be signed by the undersigned, thereunto duly authorized.
SIGNATURES
Dated: May 24, 2017
TRIUMPH GROUP, INC.
/s/ Daniel J. Crowley
By: Daniel J. Crowley
President, Chief Executive Officer and Director
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
/s/ Daniel J. Crowley
Daniel J. Crowley
/s/ James F. McCabe, Jr.
James F. McCabe, Jr.
/s/ Thomas A. Quigley III
Thomas A. Quigley III
/s/ Ralph E. Eberhart
Ralph E. Eberhart
/s/ Paul Bourgon
Paul Bourgon
/s/ John G. Drosdick
John G. Drosdick
/s/ Richard C. Gozon
Richard C. Gozon
/s/ Dawne S. Hickton
Dawne S. Hickton
/s/ Richard C. Ill
Richard C. Ill
/s/ William L. Mansfield
William L. Mansfield
/s/ Adam J. Palmer
Adam J. Palmer
/s/ Joseph M. Silvestri
Joseph M. Silvestri
President, Chief Executive Officer and Director
(Principal Executive Officer)
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
Vice President and Controller (Principal
Accounting Officer)
Chairman and Director
Director
Director
Director
Director
Director
Director
Director
Director
May 24, 2017
May 24, 2017
May 24, 2017
May 24, 2017
May 24, 2017
May 24, 2017
May 24, 2017
May 24, 2017
May 24, 2017
May 24, 2017
May 24, 2017
May 24, 2017
120
EXHIBIT INDEX
Exhibit
Number
2.1
3.1
3.1.1
3.2
4.1
4.2
4.2.1
4.3
4.4
4.4.1
4.5
4.6
4.7
4.8
4.8.1
4.9
Exhibit Description
Agreement and Plan of Merger, dated as of
March 23, 2010, by and among Triumph Group,
Inc., Vought Aircraft Industries, Inc., Spitfire
Merger Corporation and TC Group, L.L.C., as
the Holder Representative
Amended and Restated Certificate of
Incorporation of Triumph Group, Inc.
Certificate of Amendment of Amended and
Restated Certificate of Incorporation of Triumph
Group, Inc.
Amended and Restated By-Laws of Triumph
Group, Inc.
Form of certificate evidencing Common Stock
of Triumph Group, Inc.
Indenture, dated as of September 18, 2006,
between Triumph Group, Inc. and The Bank of
New York Trust Company, N.A. relating to the
2.625% Convertible Senior Subordinated Notes
Due 2026
Form of the 2.625% Convertible Senior
Subordinated Note Due 2026 (included as
Exhibit A to Exhibit 4.1)
Registration Rights Agreement, dated as of
September 18, 2006, between Triumph Group,
Inc. and Banc of America Securities LLC
Indenture, dated as of November 16, 2009,
between Triumph Group, Inc. and U.S. Bank
National Association, as trustee, relating to the
8% Senior Subordinated Notes due 2017.
Form of 8% Senior Subordinated Notes due
2017 (included as Exhibit A to Indenture filed as
Exhibit 4.1)
Registration Rights Agreement, dated November
16, 2009, by and among Triumph Group, Inc.,
the Guarantors party thereto, and the other
parties thereto.
Indenture, dated as of June 16, 2010, between
Triumph Group, Inc. and U.S. Bank National
Association, as trustee, relating to the 8.625%
Senior Subordinated Notes Due 2018
Registration Rights Agreement, dated as of June
16, 2010, by and among Triumph Group, Inc.,
the Guarantors party thereto and the other
parties thereto
Indenture, dated as of February 26, 2013,
between Triumph Group, Inc. and U.S. Bank
National Association, as trustee
Form of 4.875% Senior Subordinated Notes due
2021 (included as Exhibit A to Exhibit 4.1)
Registration Rights Agreement, dated February
26, 2013, between Triumph Group, Inc. and the
parties named therein
121
Incorporated by Reference to
Form
8-K
File No.
001-12235
Exhibit(s)
2.1
Filing Date
March 23,
2010
10-K
001-12235
8-K
001-12235
8-K/A
001-12235
S-1
333-10777
8-K
001-12235
8-K
001-12235
8-K
001-12235
8-K
001-12235
8-K
001-12235
8-K
001-12235
3.1
3.1
3.2
4
4.1
4.2
4.3
4.1
4.2
4.3
8-K
001-12235
4.1
8-K
001-12235
4.3
8-K
001-12235
8-K
8-K
001-12235
001-12235
4.1
4.2
4.3
May 22,
2009
July 20,
2012
August 2,
2012
August 23,
1996
September
22, 2006
September
22, 2006
September
22, 2006
November
19, 2009
November
19, 2009
November
19, 2009
June 22,
2010
June 22,
2010
March 1,
2013
March 1,
2013
March 1,
2013
Incorporated by Reference to
Form
8-K
File No.
001-12235
Exhibit(s)
4.1
Filing Date
June 5, 2014
8-K
001-12235
4.2
June 5, 2014
8-K
001-12235
4.3
June 5, 2014
#
#
#
#
10-K
001-12235
10-K
001-12235
10-K
001-12235
10-K
001-12235
10-K
001-12235
10.1
10.2
10.3
10.7
10.8
10-K
001-12235
10.17
8-K
001-12235
10.1
8-K
001-12235
10.1
May 29,
2012
May 30,
2013
May 30,
2013
May 22,
2009
May 22,
2009
June 12,
2003
November
15, 2016
July 31,
2007
8-K
001-12235
10.1 and
10.3
March 13,
2008
8-K
001-12235
10.1
August 12,
2008
8-K
001-12235
10.1
March 23,
2010
Exhibit
Number
4.10
4.10.1
4.11
4.12
10.1
10.1.1
10.2
10.2.1
10.2.2
10.3
10.4
10.5
10.6
10.7
10.8
Exhibit Description
Indenture, dated as of June 3, 2014, between
Triumph Group, Inc. and U.S. Bank National
Association, as trustee
Form of 5.250% Senior Notes due 2022
(included as Exhibit A to the Indenture filed as
Exhibit 4.1)
Registration Rights Agreement, dated June 3,
2014, between Triumph Group, Inc. and parties
named therein
Second Supplemental Indenture dated as of May
18, 2016 by and among Triumph Group, Inc.,
the guarantors signatory thereto and U.S. Bank
National Association, as trustee, relating to the
4.875% Senior Notes due 2021
Amended and Restated Directors’ Stock
Incentive Plan
Form of Deferred Stock Unit Award Agreement
under the Amended and Restated Directors’
Stock Incentive Plan
Triumph Group, Inc. 2004 Stock Incentive Plan*
Form of Stock Award Agreement under the 2004
Stock Incentive Plan*
Form of letter confirming Stock Award
Agreement under the 2004 Stock Incentive
Plan*
Triumph Group, Inc. Supplemental Executive
Retirement Plan effective January 1, 2003*
Compensation for the non-employee members
of the Board of Directors of Triumph Group,
Inc.
Description of the Triumph Group, Inc. Annual
Cash Bonus Plan*
Change of Control Employment Agreements
with: Richard C. Ill and John B. Wright, II.
Form of Receivables Purchase Agreement, dated
August 7, 2008, by and among the Triumph
Group, Inc., as Initial Servicer, Triumph
Receivables, LLC, as Seller, the various
Purchasers and Purchase Agents from time to
time party thereto and PNC National
Association, as Administrative Agent.
Stockholders Agreement, dated as of March 23,
2010, among Triumph Group, Inc., Carlyle
Partners III, L.P., Carlyle Partners II, L.P.,
Carlyle International Partners II, L.P., Carlyle-
Aerostructures Partners, L.P., CHYP Holdings,
L.L.C., Carlyle-Aerostructures Partners II, L.P.,
CP III Coinvestment, L.P., C/S International
Partners, Carlyle-Aerostructures International
Partners, L.P., Carlyle-Contour Partners, L.P.,
Carlyle SBC Partners II, L.P., Carlyle
International Partners III, L.P., Carlyle-
Aerostructures Management, L.P., Carlyle-
Contour International Partners, L.P., Carlyle
Investment Group, L.P. and TC Group, L.L.C
122
Incorporated by Reference to
Form
8-K
File No.
001-12235
Exhibit(s)
10.1
Filing Date
June 25,
2010
10-Q
001-12235
10.1
10-K
001-12235
10.22
10-K
001-12235
10.23
8-K
001-12235
10.1
November
5, 2010
May 18,
2011
May 18,
2011
March 1,
2013
8-K
001-12235
10.1
November
25, 2013
8-K
001-12235
10.2
November
25, 2013
10-K
001-12235
10-K
001-12235
10.23
10.24
10-K
001-12235
10.25
8-K
001-12235
10.1
May 19,
2014
May 19,
2014
May 19,
2014
November
26, 2014
Exhibit
Number
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
Exhibit Description
Third Amendment to Receivables Purchase
Agreement, dated as of June 21, 2010, by and
among Triumph Receivables LLC, Triumph
Group, Inc., Market Street Funding LLC and
PNC Bank, National Association
Triumph Group, Inc. Executive Incentive Plan,
effective September 28, 2010*
Form of letter informing Triumph Group, Inc.
executives they are eligible to participate in the
Company’s Long Term Incentive Plan *
Form of letter informing Triumph Group, Inc.
executives they have earned an award under the
Company’s Long Term Incentive Plan and the
amount of the award *
Sixth Amendment to Receivables Purchase
Agreement, dated as of February 26, 2013, by
and among Triumph Receivables LLC, Triumph
Group, Inc., Market Street Funding LLC and
PNC Bank, National Association *
Form of Third Amended and Restated Credit
Agreement, dated as of November 19, 2013, by
and among Triumph Group, Inc., and the other
Borrowers party thereto and the Guarantors
party thereto and the Banks party thereto and
PNC Bank, National Association, as
Administrative Agent, PNC Capital Markets
LLC, J.P. Morgan Securities, LLC, RBC Capital
Markets, RBS Citizens, N.A., and Santander
Bank, N.A., as Joint Lead Arrangers and Joint
Bookrunners, JPMorgan Chase Bank N.A.,
Royal Bank of Canada, Citizens Bank of
Pennsylvania, and Santander Bank, N.A., as
Syndication Agents, the Bank of Tokyo-
Mitsubishi UFJ, Ltd, U.S. Bank National
Association, TD Bank, N.A., and Manufacturers
and Traders Trust Company, as Documentation
Agents
Form of Second Amended and Restated
Guarantee and Collateral Agreement made by
Triumph Group, Inc., and certain of its
Subsidiaries in favor of PNC Bank, National
Association, as Administrative Agent and as
Collateral Agent for the other Secured Parties
identified herein, dated as of November 19,
2013
Triumph Group, Inc. 2013 Equity and Cash
Incentive Plan*
Form of letter regarding eligibility to participate
in the Triumph Group, Inc. Restricted Stock
Plan*
Form of letter regarding grant of award under
the Triumph Group, Inc. Executive Incentive
Plan*
Tenth Amendment to Receivables Purchase
Agreement dated as of November 25, 2014
123
Incorporated by Reference to
Form
10-Q
File No.
001-12235
Exhibit(s)
10.1
Filing Date
February 9,
2015
8-K
001-12235
10.1
April 8,
2015
8-K
001-12235
10.1
May 7, 2015
10-Q 001-12235
8-K
001-12235
10.1
10.1
8-K
001-12235
10.1
August 4,
2015
January 7,
2016
April 7,
2016
8-K
001-12235
10.1
May 4, 2016
8-K
001-12235
10.1
June 1, 2016
8-K
001-12235
10-Q 001-12235
8-K
001-12235
8-K
001-12235
8-K
001-12235
#
#
#
#
10.1
10.1
10.1
10.2
10.1
#
#
8-K
001-12235
10.2
#
#
#
#
#
#
#
#
#
#
#
#
July 27,
2016
November
9, 2016
November
15, 2016
November
15, 2016
May 10,
2017
#
#
November
15, 2016
#
#
#
#
Exhibit
Number
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
21.1
23.1
31.1
Exhibit Description
Third Amendment to Third Amended and
Restated Credit Agreement, dated as of February
3, 2015, by and among Triumph Group, Inc. and
the other Borrowers party thereto and the
Guarantors party thereto and the Banks party
thereto and PNC Bank, National Association, as
Administrative Agent
Separation letter agreement between Triumph
Group, Inc. and Jeffry D. Frisby, dated April 7,
2015 *
The First Amendment of the Triumph Group,
Inc. Supplemental Executive Retirement Plan,
effective as of May 1, 2015 *
First Amendment to Triumph Group, Inc. 2013
Employee Stock Purchase Plan *
Consulting Agreement between Triumph Group,
Inc. and Richard C. Ill, dated as of January 4,
2016*
Employment agreement between Triumph
Group, Inc. and Daniel J. Crowley, dated as of
April 1, 2016*
Form of Sixth Amendment to Third Amended
and Restated Credit Agreement, dated May 3,
2016
Separation Letter between Triumph Group, Inc.
and Jeffrey McRae dated May 26, 2016 *
Employment letter between Triumph Group, Inc.
and James F. McCabe dated July 26, 2016 *
Form of Seventh Amendment to Third Amended
and Restated Credit Agreement, dated October
21, 2016
Triumph Group, Inc. Non-employee Director
Compensation Program, effective July 21, 2016
Triumph Group, Inc. Directors' Deferred
Compensation Plan, effective January 1, 2017
Eighth Amendment to the Third Amended and
Restated Credit Agreement, dated May 1, 2017
Form of the 2016 Directors' Equity
Compensation Plan, as amended
Form of Restricted Stock Unit Agreement under
the 2016 Directors' Equity Compensation Plan,
as amended
Triumph Group, Inc. Directors' Deferred
Compensation Plan, effective January 1, 2017
Employment letter between Triumph Group, Inc.
and Richard R. Lovely dated April 12, 2016 *
Subsidiaries of Triumph Group, Inc.
Consent of Ernst & Young LLP, Independent
Registered Public Accounting Firm
Principal Executive Officer Certification
Required by Rule 13a-14(a) or Rule 15d-14(a)
under the Securities Exchange Act of 1934, as
amended.
124
Incorporated by Reference to
Form
#
File No.
#
Exhibit(s)
#
Filing Date
#
##
##
#
##
##
#
##
##
#
##
##
#
Exhibit
Number
31.2
32.1
32.2
101
Exhibit Description
Principal Financial Officer Certification
Required by Rule 13a-14(a) or Rule 15d-14(a)
under the Securities Exchange Act of 1934, as
amended.
Principal Executive Officer Certification
Required by Rule 13a-14(b) or Rule 15d-14(b)
under the Securities Exchange Act of 1934, as
amended, and 18 U.S.C. Section 1350.
Principal Financial Officer Certification
Required by Rule 13a-14(b) or Rule 15d-14(b)
under the Securities Exchange Act of 1934, as
amended, and 18 U.S.C. Section 1350.
The following financial information from
Triumph Group, Inc.’s Annual Report on Form
10-K for the fiscal year ended March 31, 2016
formatted in XBRL: (i) Consolidated Balance
Sheets as of March 31, 2016 and 2015; (ii)
Consolidated Statements of Income for the fiscal
years ended March 31, 2016, 2015 and 2014;
(iii) Consolidated Statements of Stockholders’
Equity for the fiscal years ended March 31,
2016, 2015 and 2014; (iv) Consolidated
Statements of Cash Flows for the fiscal years
ended March 31, 2016, 2015 and 2014; (v)
Consolidated Statements of Comprehensive
Income for the fiscal years ended March 31,
2016, 2015 and 2014; and (vi) Notes to the
Consolidated Financial Statements.
________________________________
In accordance with Item 601(b)(4)(iii)(A) of Regulations S-K, copies of specific instruments defining the rights of holders of
long-term debt of the Company or its subsidiaries are not filed herewith. Pursuant to this regulation, we hereby agree to furnish
a copy of any such instrument to the SEC upon request
*
#
Indicates management contract or compensatory plan or arrangement
Filed herewith
##
Furnished herewith
125
(This page has been left blank intentionally.)
STO C KHOLDER INFORMATION
Triumph Group
Corporate Headquarters
Triumph Group, Inc.
899 Cassatt Road
Suite 210
Berwyn, PA 19312
610-251-1000
www.triumphgroup.com
Annual Meeting
July 20, 2017 at 9:00 a.m.
Triumph Group, Inc.
899 Cassatt Road
Suite 210
Berwyn, PA 19312
Financial Information
A copy of the Company’s Form 10-K
filed with the Securities and Exchange
Commission may be obtained without
charge upon written request. Requests for
Triumph Group’s 10-K or other stockholder
inquiries should be directed to:
Sheila G. Spagnolo
Vice President, Tax and Investor Relations
Triumph Group
899 Cassatt Road
Suite 210
Berwyn, PA 19312
610-251-1000
Fiscal 2017 Stock Prices
Per Common Share
High $39.77
Low $23.15
Year-End $25.75
Common Stock
Triumph Group Common Stock
is listed on the NYSE.
Ticker symbol: TGI
Independent Auditors
Ernst & Young LLP
2005 Market Street
Suite 700
Philadelphia, PA 19103
Transfer Agent
Computershare, Inc.
PO Box 30170
College Station, TX 77842-3170
Within the U.S., Canada and
Puerto Rico: 800-622-6757
Outside the U.S., Canada and
Puerto Rico: 781-575-4735
TDD/TTY for hearing impaired:
800-952-9245
E-mail: web.queries@computershare.com
www.computershare.com/investor
Equal Opportunity at Triumph Group
Triumph Group is committed to providing equal
opportunities in the workplace.
Forward–Looking Statements
In accordance with the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995, the
company notes that certain statements contained
in this report are forward-looking in nature. These
forward- looking statements include matters such as
our expectations for our industry, our markets, our
company’s business strategy and potential, and other
future-oriented matters. Such matters inherently involve
many risks and uncertainties that may cause actual
results to differ materially from expected results. For
additional information, please refer to the company’s
Securities and Exchange Commission filings, including its
Form 10-K for the fiscal year ended March 31, 2017.
Certifications
The certifications by the Chief Executive Officer and
Chief Financial Officer of Triumph Group, Inc. required
under Section 302 of the Sarbanes-Oxley Act of 2002
have been filed as exhibits to Triumph Group’s 2017
Annual Report on Form 10-K. In addition, on July 22,
2016, the Chief Executive Officer of Triumph Group, Inc.
certified to the New York Stock Exchange (NYSE) that
he is not aware of any violation by the Company of NYSE
corporate governance listing standards, as required by
Section 303A.12(a) of the NYSE Corporate Governance
Rules.
899 Cassatt Road
Suite 210
Berwyn, PA 19312
610-251-1000
www.triumphgroup.com