美國
證券交易委員會
華盛頓特區20549
表格
根據證券交易法案第13或15(d)條條文提交的季度報告 |
截至季度結束日期
或
根據證券交易法案第13或15(d)條條文提交的過渡報告 |
從_________到_________的過渡期間
Commission File Number:
（依憑章程所載的完整登記名稱）
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(成立地或組織其他管轄區) |
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（聯邦稅號） |
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(主要行政辦事處地址) |
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(郵遞區號) |
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(
(註冊公司之電話號碼，包括區號)
根據法案第12(b)條規定註冊的證券：
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每種類別的名稱 |
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交易標的（s） |
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每個註冊交易所的名稱 |
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請勾選以下項目，以判定在過去12個月(或更短期間，該註冊人被要求提交報告)內所有根據1934年證券交易法第13條或第15(d)條要求提供報告的報告是否已經提交，並且該註冊人在過去90天中是否受到提交報告的要求。
請在核對號勾選方塊以指出是否在過去12個月（或註冊人所需提交此類檔案的較短期間內）按照Regulation S-t的405條款的規定，已電子方式提交所需提交的每個互動數據檔案。
請用勾選的方式表明登記方是否為大型加速申報人、加速申報人、非加速申報人、小型報告公司或新興增長公司。請參閱1934年證券交易法第120億2條中對「大型加速申報人」、「加速申報人」、「小型報告公司」和「新興增長公司」的定義。（檢查一項）
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☒ |
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加速歸檔人 |
☐ |
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非加速歸檔人 |
☐ |
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小型報告公司 |
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新興成長型企業 |
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如果一家新興成長型公司，請用勾選標記表示該申報人已選擇不使用根據證交所法案13(a)條款提供的任何新的或修訂過的財務會計準則的延長過渡期。 ☐
請以勾選的方式表示登記人是否為空殼公司（依據1934年證券交易法第120億2條的定義）。 是 ☐ 無
請指示每一類常股的流通股份數目，截至最近實際可行日期。
2024年11月7日，登記公司普通股的領先股數為每股價值$.001美元。
目錄
TRIUMPH GROUP, INC.
目錄
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頁面 數量 |
第一部分. 財務信息 |
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Item 1. |
基本報表（未經審核） |
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1 |
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2 |
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3 |
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4 |
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6 |
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7 |
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項目2。 |
25 |
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項目3。 |
36 |
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項目4。 |
36 |
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37 |
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項目 1。 |
37 |
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项目1A。 |
38 |
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項目 2。 |
未註冊的股權銷售，款項使用及發行人購買股權證券 |
38 |
項目 3. |
38 |
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項目 4. |
38 |
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项目5。 |
38 |
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第6項。 |
38 |
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39 |
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TRIUMPH GROUP, INC.
Condensed Consolidated Balance Sheets
(unaudited)
(Dollars in thousands, except per share data)
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September 30, |
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March 31, |
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2024 |
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2024 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Trade and other receivables, less allowance for credit losses |
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Contract assets |
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Inventory, net |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Goodwill |
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Intangible assets, net |
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Other, net |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS' DEFICIT |
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Current liabilities: |
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Current portion of long-term debt |
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$ |
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Accounts payable |
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Contract liabilities |
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Accrued expenses |
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Total current liabilities |
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Long-term debt, less current portion |
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Accrued pension and other postretirement benefits |
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Deferred income taxes |
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Other noncurrent liabilities |
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Stockholders' deficit: |
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Common stock, $ |
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Capital in excess of par value |
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Accumulated other comprehensive loss |
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( |
) |
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( |
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Accumulated deficit |
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( |
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( |
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Total stockholders' deficit |
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( |
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( |
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Total liabilities and stockholders' deficit |
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$ |
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$ |
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See accompanying notes to condensed consolidated financial statements.
1
TRIUMPH GROUP, INC.
Condensed Consolidated Statements of Operations
(unaudited)
(Dollars in thousands, except per share data)
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Three Months Ended September 30, |
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Six Months Ended September 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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Net sales |
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$ |
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$ |
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$ |
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$ |
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Operating costs and expenses: |
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Cost of sales (exclusive of depreciation shown separately below) |
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Selling, general and administrative |
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Depreciation and amortization |
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Legal contingencies loss |
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— |
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Restructuring |
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(Gain) loss on sale of assets and businesses |
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— |
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( |
) |
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— |
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Operating income |
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Non-service defined benefit expense (income) |
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( |
) |
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( |
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Debt modification and extinguishment (gain) loss |
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— |
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( |
) |
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( |
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Warrant remeasurement gain, net |
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— |
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( |
) |
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— |
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( |
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Interest expense and other, net |
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Income (loss) from continuing operations before income taxes |
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( |
) |
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( |
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( |
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Income tax (benefit) expense |
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( |
) |
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( |
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Income (loss) from continuing operations |
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( |
) |
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( |
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( |
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Income from discontinued operations, net of tax expense of $ |
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— |
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Net income (loss) |
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$ |
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$ |
( |
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$ |
( |
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$ |
( |
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Earnings (loss) per share—basic: |
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Earnings (loss) per share - continuing operations |
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$ |
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$ |
( |
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$ |
( |
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$ |
( |
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Earnings per share - discontinued operations |
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— |
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Earnings (loss) per share |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
( |
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Weighted average common shares outstanding—basic |
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Earnings (loss) per share—diluted: |
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Earnings (loss) per share - continuing operations |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
( |
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Earnings per share - discontinued operations |
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— |
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Earnings (loss) per share |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
( |
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Weighted average common shares outstanding—diluted |
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See accompanying notes to condensed consolidated financial statements.
2
TRIUMPH GROUP, INC.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(unaudited)
(Dollars in thousands)
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Three Months Ended September 30, |
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Six Months Ended September 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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Net income (loss) |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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Other comprehensive income (loss): |
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Foreign currency translation adjustment |
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( |
) |
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( |
) |
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( |
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Defined benefit pension plans and other postretirement benefits: |
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Reclassification to net income (loss) - net of tax expense |
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Amortization of net loss, net of taxes of $ |
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Recognized prior service credits, net of taxes of $ |
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( |
) |
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( |
) |
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( |
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( |
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Total defined benefit pension plans and other postretirement benefits income, net of taxes |
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Cash flow hedges: |
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Unrealized loss arising during the period, net of tax expense of $ |
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( |
) |
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( |
) |
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( |
) |
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Reclassification of loss (gain) included in net earnings, net of tax expense of $ |
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( |
) |
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( |
) |
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Net unrealized loss on cash flow hedges, net of tax |
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( |
) |
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( |
) |
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( |
) |
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( |
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Total other comprehensive income (loss) |
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( |
) |
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Total comprehensive income (loss) |
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$ |
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$ |
( |
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$ |
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$ |
( |
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See accompanying notes to condensed consolidated financial statements.
3
TRIUMPH GROUP, INC.
Condensed Consolidated Statements of Stockholders' Deficit
For the three and six months ended September 30, 2024
(unaudited)
(Dollars in thousands)
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Outstanding |
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Common |
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Capital in |
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Treasury |
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Accumulated |
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Accumulated |
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Total |
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March 31, 2024 |
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$ |
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$ |
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$ |
— |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Foreign currency translation |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
Pension liability adjustment, net of |
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— |
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— |
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— |
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— |
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— |
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Change in fair value of foreign currency |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Share-based compensation |
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— |
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— |
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— |
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— |
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Repurchase of restricted shares for |
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( |
) |
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— |
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— |
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( |
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— |
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— |
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( |
) |
Retirement of treasury shares |
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— |
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— |
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( |
) |
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— |
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— |
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— |
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Employee stock purchase plan |
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— |
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— |
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— |
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— |
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June 30, 2024 |
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— |
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( |
) |
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( |
) |
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( |
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Net income |
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— |
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— |
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— |
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— |
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— |
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Foreign currency translation |
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— |
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— |
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— |
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— |
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— |
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Pension liability adjustment, net of |
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— |
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— |
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— |
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— |
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— |
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Change in fair value of foreign currency |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
Share-based compensation |
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— |
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— |
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— |
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— |
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Repurchase of restricted shares for |
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( |
) |
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— |
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— |
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( |
) |
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— |
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— |
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( |
) |
Retirement of treasury shares |
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— |
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— |
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( |
) |
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— |
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— |
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— |
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Employee stock purchase plan |
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— |
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— |
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— |
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— |
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September 30, 2024 |
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$ |
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$ |
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$ |
— |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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4
TRIUMPH GROUP, INC.
Condensed Consolidated Statements of Stockholders' Deficit
For the three and six months ended September 30, 2023
(unaudited)
(Dollars in thousands)
|
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Outstanding |
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Common |
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Capital in |
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Treasury |
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Accumulated |
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Accumulated |
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Total |
March 31, 2023 |
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$ |
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$ |
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$— |
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$( |
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$( |
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$( |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
Foreign currency translation |
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— |
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— |
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— |
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— |
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— |
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Pension liability adjustment, net of |
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— |
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— |
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— |
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— |
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— |
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Change in fair value of foreign |
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— |
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— |
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— |
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— |
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( |
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— |
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( |
Share-based compensation |
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— |
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— |
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— |
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— |
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Repurchase of shares for share-based |
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( |
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— |
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— |
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( |
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— |
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— |
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( |
Retirement of treasury shares |
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— |
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— |
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( |
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— |
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— |
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— |
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Employee stock purchase plan |
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— |
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— |
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— |
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— |
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Warrant exercises, net of |
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— |
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— |
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— |
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Issuance of shares on pension contribution |
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|
|
|
|
— |
|
— |
|
|||||
June 30, 2023 |
|
|
$ |
|
$ |
|
$— |
|
$( |
|
$( |
|
$( |
|
Net loss |
|
— |
|
— |
|
— |
|
— |
|
— |
|
( |
|
( |
Foreign currency translation |
|
— |
|
— |
|
— |
|
— |
|
( |
|
— |
|
( |
Pension liability adjustment, net of |
|
— |
|
— |
|
— |
|
— |
|
|
— |
|
||
Change in fair value of foreign currency |
|
— |
|
— |
|
— |
|
— |
|
( |
|
— |
|
( |
Share-based compensation |
|
|
— |
|
|
|
— |
|
— |
|
||||
Repurchase of shares for share-based |
|
( |
|
— |
|
— |
|
( |
|
— |
|
— |
|
( |
Employee stock purchase plan |
|
|
— |
|
|
— |
|
— |
|
— |
|
|||
Warrant exercises, net of |
|
|
|
|
— |
|
— |
|
— |
|
||||
September 30, 2023 |
|
|
$ |
|
$ |
|
$— |
|
$( |
|
$( |
|
$( |
5
TRIUMPH GROUP, INC.
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
|
|
Six Months Ended September 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Operating Activities |
|
|
|
|
|
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Adjustments to reconcile net loss to net cash used in |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Amortization of acquired contract liability |
|
|
( |
) |
|
|
( |
) |
(Gain) loss on sale of assets and businesses |
|
|
( |
) |
|
|
|
|
Loss (gain) on modification and extinguishment of debt |
|
|
|
|
|
( |
) |
|
Other amortization included in interest expense |
|
|
|
|
|
|
||
Provision for credit losses |
|
|
|
|
|
|
||
Warrants remeasurement gain |
|
|
— |
|
|
|
( |
) |
Share-based compensation |
|
|
|
|
|
|
||
Changes in other assets and liabilities, excluding the effects of |
|
|
|
|
|
|
||
Trade and other receivables |
|
|
( |
) |
|
|
|
|
Contract assets |
|
|
( |
) |
|
|
( |
) |
Inventories |
|
|
( |
) |
|
|
( |
) |
Prepaid expenses and other current assets |
|
|
|
|
|
( |
) |
|
Accounts payable, accrued expenses, and contract liabilities |
|
|
( |
) |
|
|
( |
) |
Accrued pension and other postretirement benefits |
|
|
( |
) |
|
|
( |
) |
Other, net |
|
|
( |
) |
|
|
|
|
Net cash used in operating activities |
|
|
( |
) |
|
|
( |
) |
Investing Activities |
|
|
|
|
|
|
||
Capital expenditures |
|
|
( |
) |
|
|
( |
) |
Payments on sale of assets and businesses |
|
|
( |
) |
|
|
( |
) |
Investment in joint venture |
|
|
— |
|
|
|
( |
) |
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
Financing Activities |
|
|
|
|
|
|
||
Proceeds from issuance of long-term debt |
|
|
— |
|
|
|
|
|
Retirement of debt and finance lease obligations |
|
|
( |
) |
|
|
( |
) |
Payment of deferred financing costs |
|
|
— |
|
|
|
( |
) |
Proceeds on issuance of common stock, net of issuance costs |
|
|
— |
|
|
|
|
|
Premium on redemption of long-term debt |
|
|
( |
) |
|
|
— |
|
Repurchase of shares for share-based compensation |
|
|
( |
) |
|
|
( |
) |
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 period |
|
|
|
|
|
|
||
Cash and cash equivalents at end of period |
|
$ |
|
|
$ |
|
||
See accompanying notes to condensed consolidated financial statements.
6
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
1. BACKGROUND AND BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of Triumph Group, Inc. ("Triumph") have been prepared in conformity with accounting principles generally accepted in the United States ("U.S. GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, the interim financial information includes all adjustments of a normal recurring nature necessary for a fair presentation of the results of operations, financial position, and cash flows. The results of operations for the three and six months ended September 30, 2024 and 2023, are not necessarily indicative of results that may be expected for the year ending March 31, 2025. The accompanying condensed consolidated financial statements are unaudited and should be read in conjunction with the fiscal 2024 audited consolidated financial statements and notes thereto included in the Company's Form 10-K for the fiscal year ended March 31, 2024, filed with the Securities and Exchange Commission (the "SEC") on May 31, 2024.
Triumph Group, Inc. ("Triumph" or the "Company") 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 they provide. The Company has
Systems & Support consists of the Company’s operations that provide integrated solutions, including design; development; and support of proprietary components, subsystems and systems, as well as production of complex assemblies using external designs. Capabilities include hydraulic, mechanical and electromechanical actuation, power, and control; a complete suite of aerospace gearbox solutions, including engine accessory gearboxes and helicopter transmissions; active and passive heat exchange technology; fuel pumps, fuel metering units, and Full Authority Digital Electronic Control fuel systems; and hydromechanical and electromechanical primary and secondary flight controls. As disclosed in Note 3, in December 2023 the Company entered into a definitive agreement with AAR Corp. (“AAR”), to sell Systems & Support's maintenance, repair, and overhaul operations located in Wellington, Kansas; Grand Prairie, Texas; San Antonio, Texas; Hot Springs, Arkansas; and Chonburi, Thailand (“Product Support”). As a result of this agreement, the Company has classified the Product Support results of operations for all periods presented as discontinued operations, and these operations are no longer reported as part of the Systems & Support reportable segment.
Interiors consists of the Company’s operations that have historically supplied commercial, business, and regional manufacturers with large metallic structures and continues to supply aircraft interior systems, including air ducting and thermal acoustic insulations systems. Subsequent to the divestitures disclosed in Note 3, the remaining operations of Interiors are those that supply commercial and regional manufacturers with aircraft interior systems.
The accompanying condensed consolidated financial statements include the accounts of Triumph and its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated from the accompanying condensed 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 condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Recent Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which requires disclosure of significant segment expenses and other segment items on an annual and interim basis. ASU 2023-07 is effective for annual periods beginning after December 15, 2023, and for interim periods beginning after December 15, 2024. Early adoption is permitted and the amendments in this ASU must be applied on a retrospective basis to all periods presented. The Company has not determined the impact ASU 2023-07 may have on the Company’s financial statement disclosures.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures ("ASU 2023-09"), which improves income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. ASU 2023-09 is effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The ASU indicates that all entities will apply its guidance prospectively with an
7
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
option for retroactive application to each period in the financial statements. The Company has not determined the impact ASU 2023-09 may have on the Company’s financial statement disclosures.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition and Contract Balances
The Company's revenue is principally from contracts with customers to provide design, development, manufacturing, and support services associated with specific customer programs. The Company regularly enters into long-term master supply agreements that establish general terms and conditions and may define specific program requirements. Many agreements include clauses that provide sole supplier status to the Company for the duration of the program’s life. Purchase orders (or authorizations to proceed) are issued pursuant to the master supply agreements. Additionally, a majority of the Company’s agreements with customers include options for future purchases. Such options primarily reduce the administrative effort of issuing subsequent purchase orders and generally do not represent material rights granted to customers. The Company generally enters into agreements directly with its customers and is the principal in substantially all current contracts.
The identification of a contract with a customer for purposes of accounting and financial reporting requires an evaluation of the terms and conditions of agreements to determine whether presently enforceable rights and obligations exist. Management considers a number of factors when making this evaluation that include, but are not limited to, the nature and substance of the business exchange, the specific contractual terms and conditions, the promised products and services, the termination provisions in the contract, as well as the nature and execution of the customer’s ordering process and how the Company is authorized to perform work. Generally, presently enforceable rights and obligations are not created until a purchase order is issued by a customer for a specified number of units of product or services. Therefore, the issuance of a purchase order is generally the point at which a contract is identified for accounting and financial reporting purposes.
Management identifies the promises to the customer. Promises are generally explicitly stated in each contract, but management also evaluates whether any promises are implied based on the terms of the agreement, past business practice, or other facts and circumstances. Each promise is evaluated to determine if it is a performance obligation. A performance obligation is a promise in a contract to transfer a distinct good or service. The Company considers a number of factors when determining whether a promise is a distinct performance obligation, including whether the customer can benefit from the good or service on its own or together with other resources that are readily available to the customer, whether the Company provides a significant service of integrating goods or services to deliver a combined output to the customer, or whether the goods or services are highly interdependent. The Company’s performance obligations consist of a wide range of engineering design services and manufactured components, as well as spare parts and repairs for OEMs.
The transaction price for a contract reflects the consideration the Company expects to receive for fully satisfying the performance obligations in the contract. Typically, the transaction price consists solely of fixed consideration but may include variable consideration for contractual provisions such as unpriced contract modifications, claims (when a legal basis exists), cost-sharing provisions, and other receipts or payments to customers. The Company identifies and estimates variable consideration, typically at the most likely amount the Company expects to receive from its customers. Variable consideration is only included in the transaction price to the extent that the Company has determined that it is probable that a significant reversal of cumulative revenue recognized for the contract will not occur when the uncertainty associated with the variable consideration is resolved, and any excess variable consideration above such included amount is considered constrained. Consideration paid or payable to a customer is reflected as a reduction in net revenues when the amounts paid are not related to a distinct good or service at the later of when the related revenue is recognized or when the Company pays or promises to pay the consideration to the customer. The Company's contracts with customers generally require payment under normal commercial terms after delivery with payment typically required within
The Company generally is not subject to collecting sales tax and has made an accounting policy election to exclude from the transaction price any sales and other similar taxes collected from customers. As a result, any such collections are accounted for on a net basis.
8
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
The total transaction price is allocated to each of the identified performance obligations using the relative stand-alone selling price. The objective of the allocation is to reflect the consideration that the Company expects to receive in exchange for the products or services associated with each performance obligation. Stand-alone selling price is the price at which the Company would sell a promised good or service separately to a customer. Stand-alone selling prices are established at contract inception, and subsequent changes in transaction price are allocated on the same basis as at contract inception. When stand-alone selling prices for the Company’s products and services are not observable, the Company uses either the “Expected Cost Plus a Margin” or "Adjusted Market Assessment" approaches to estimate stand-alone selling price. Expected costs are typically derived from the available periodic forecast information.
Revenue is recognized when or as control of promised products or services transfers to a customer and is recognized at the amount allocated to each performance obligation associated with the transferred products or services. Service sales, principally representing repair, maintenance, and engineering activities are recognized over the contractual period or as services are rendered. Sales under long-term contracts with performance obligations satisfied over time are recognized using either an input or output method. The Company recognizes revenue over time as it performs on these contracts because of the continuous transfer of control to the customer as represented by contractual terms that entitle the Company to the reimbursement of costs plus a reasonable profit for work performed to manufacture products for which the Company has no alternate use or for work performed on a customer-owned asset.
With control transferring over time, revenue is recognized based on the extent of progress toward completion of the performance obligation. The Company generally uses the cost-to-cost input method of progress for its contracts because it best depicts the transfer of control to the customer that occurs as work progresses. Under the cost-to-cost method, the extent of progress toward completion is measured based on the proportion of costs incurred to date to the total estimated costs at completion of the performance obligation. The Company reviews its cost estimates on contracts on a periodic basis, or when circumstances change and warrant a modification to a previous estimate. Cost estimates are largely based on negotiated or estimated purchase contract terms, historical performance trends, and other economic projections. Significant factors that influence these estimates include inflationary trends, technical and schedule risk, internal and subcontractor performance trends, business volume assumptions and asset utilization. Revenue and cost estimates are regularly monitored and revised based on changes in circumstances. Impacts from changes in estimates of net sales and cost of sales are recognized on a cumulative catch-up basis, which recognizes in the current period the cumulative effect of the changes on current and prior periods based on a performance obligation’s percentage of completion. Forward loss reserves for anticipated losses on long-term contracts are recorded in full when such losses become evident, to the extent required, and are included in contract liabilities on the accompanying condensed consolidated balance sheets. The Company believes that the accounting estimates and assumptions made by management are appropriate; however, actual results could differ materially from those estimates.
Revenues for performance obligations that are not recognized over time are recognized at the point in time when control transfers to the customer. For performance obligations that are satisfied at a point in time, the Company evaluates the point in time when the customer can direct the use of and obtain the benefits from the products and services. Generally, the shipping terms determine the point in time when control transfers to customers. Shipping and handling activities are not considered performance obligations and related costs are included in cost of sales as incurred.
The Company updates the estimated transaction price, including its assessment of whether an estimate of variable consideration is constrained, at the end of each reporting period to represent faithfully the circumstances present at the end of the reporting period and the changes in circumstances during the reporting period. Any portion of the change in transaction price that is allocated to satisfied and partially satisfied (when control transfers over time) performance obligations is recognized as revenue in the period of the transaction price change as a cumulative catch-up adjustment.
Differences in the timing of revenue recognition and contractual billing and payment terms result in the recognition of contract assets and liabilities. Refer to Note 4 for further discussion.
Concentration of Credit Risk
The Company’s trade and other accounts receivable are exposed to credit risk. However, the risk is limited due to the diversity of the customer base and the customer base’s wide geographical area. Trade accounts receivable from The Boeing Company ("Boeing") (representing commercial, military, and space) represented approximately
Sales to Boeing for the six months ended September 30, 2024 were $
9
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
No other single customer accounted for more than 10% of the Company’s net sales. However, the loss of any significant customer, including Boeing, could have a material adverse effect on the Company and its operating subsidiaries.
Warrants
On December 1, 2022, the Company’s board of directors declared a distribution to holders of the Company’s shares of common stock in the form of warrants to purchase shares of common stock (the “Warrants”). Holders of common stock received
Each Warrant represented the right to purchase initially
The common stock warrants were accounted for as derivative liabilities in accordance with ASC 815-40 and included within accrued liabilities on the accompanying condensed consolidated balance sheets. The Company measured the Warrants at fair value as of the issuance date using a Monte Carlo pricing model, a Level 3 fair value measurement (as described below), due to the level of market activity. Inherent in the option pricing simulation are assumptions related to expected stock-price volatility, expected life and risk-free interest rate. The Company estimated the volatility of the Warrants based on implied and historical volatility of the Company’s common stock. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining life of the Warrants. The expected life of the Warrants was based on the Company’s ability to redeem the Warrants, subject to a 20 calendar-day notice period, as well as the automatic acceleration of the Expiration Date following the Price Condition Date. During the three months ended December 31, 2022, due to increased trading volume, the Company began remeasuring outstanding Warrants using the Warrants trading price, a Level 1 fair value measurement (as described below). The Warrants were remeasured at each balance sheet date. Warrants remeasurement adjustments were recognized in warrant remeasurement gain, net on the accompanying condensed consolidated statements of operations.
At distribution, the fair value of the Warrants was $
Contingencies
Contingencies are existing conditions, situations or circumstances involving uncertainty as to possible gain or loss that will ultimately be resolved when future events occur or fail to occur. Such contingencies include, but are not limited to environmental obligations, litigation, regulatory investigations and proceedings, product quality, and gains or losses resulting from other events and developments. Liabilities for loss contingencies are accrued in the amount of the Company's best estimate for the ultimate loss when a loss is considered probable of having been incurred and is reasonably estimable. When there appears to be a range of possible costs with equal likelihood, liabilities are based on the low-end of such range. Disclosure is provided for material loss contingencies when a loss is probable but a reasonable estimate cannot be made, and when it is reasonably possible that a loss will be incurred or the amount of a loss will exceed the recorded provision. The Company regularly reviews contingencies to determine whether the likelihood of loss has changed and to assess whether a reasonable estimate of the loss or range of loss can be made. Contingencies that might result in gains are generally not accrued until the contingencies are resolved and the gain is realized or realizable. Refer to Note 12 for further disclosure.
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
10
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
are not active, or inputs other than quoted prices that are observable for the asset or liability; and Level 3—Unobservable inputs for the asset or liability. The Company has applied fair value measurements when measuring the warrants (refer to the above disclosure), when disclosing the fair value of its long-term debt not recorded at fair value (see Note 6), and to its pension and postretirement plan assets (see Note 9).
Supplemental Cash Flow Information
For the six months ended September 30, 2024 and 2023 the Company paid $
3. DIVESTED OPERATIONS AND ASSETS HELD FOR SALE
Fiscal 2024 Divestiture and Discontinued Operations
In December 2023, the Company’s Board of Directors committed to a plan, and the Company entered into a definitive agreement with AAR, to sell Product Support for cash proceeds of $
Product Support companies provided aftermarket maintenance, repair, and overhaul solutions for commercial, regional and military aircraft. As a result of this transaction, effective in the third quarter of fiscal 2024, we classified our results of operations for all periods presented to reflect Product Support as discontinued operations. Under the terms of the purchase agreement, we will continue to guarantee the performance of certain of the divested legal entities pursuant to pre-existing performance guarantee agreements covering existing contracts with specific customers that are expected to be fully satisfied within the next twelve months. There is no limitation to the maximum potential future liabilities under these guarantee agreements; however, we are fully indemnified by the buyer, AAR, against such losses that may arise from their failure to perform under the related contracts. The Company has also indemnified the buyer for a period of
The following table shows the results of Product Support within discontinued operations for the three and six months ended September 30, 2023. Income from discontinued operations in the six months ended September 30, 2024 pertains to the purchase price adjustments described above.
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||
|
|
September 30, 2023 |
|
|
September 30, 2023 |
|
||
Major line items constituting pretax income of discontinued operations |
|
|
|
|
|
|
||
Net sales |
|
$ |
|
|
$ |
|
||
Operating costs and expenses: |
|
|
|
|
|
|
||
Cost of sales (exclusive of depreciation shown separately below) |
|
|
|
|
|
|
||
Selling, general and administrative |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Operating income |
|
|
|
|
|
|
||
Interest expense and other, net |
|
|
|
|
|
|
||
Income from discontinued operations before income taxes |
|
|
|
|
|
|
||
Income tax expense |
|
|
|
|
|
|
||
Income from discontinued operations |
|
$ |
|
|
$ |
|
||
The Company's accounting policy to allocate to discontinued operations other consolidated interest that is not directly attributable to or related to other operations of the entity based on the ratio of net assets to be sold or discontinued less debt that is required to be paid as a result of the disposal transaction to the sum of total net assets of the consolidated group plus consolidated debt,
11
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
adjusted for debt that will be assumed by the buyer; debt that is required to be paid as a result of the disposal transaction; and debt that can be directly attributed to other operations of the entity. In applying the above policy, the Company allocated interest expense to discontinued operations of approximately $
The accompanying condensed consolidated statements of cash flows do not present cash flows from discontinued operations separately from cash flows from continuing operations. Capital expenditures and other operating and investing noncash items of the discontinued operations for the six months ended September 30, 2023 were immaterial.
Fiscal 2023 Divestitures
In January 2022, the Company’s Board of Directors committed to a plan to sell its manufacturing operations located in Stuart, Florida. In February 2022, the Company entered into a definitive agreement with the buyer of these manufacturing operations. This transaction closed in July 2022. The Company recognized a gain of approximately $
4. REVENUE RECOGNITION AND CONTRACTS WITH CUSTOMERS
Disaggregation of Revenue
The Company disaggregates revenue based on the method of measuring satisfaction of the performance obligation either over time or at a point in time. Additionally, the Company disaggregates revenue based on the end market where products and services are transferred to the customer. The Company’s principal operating segments and related revenue are discussed in Note 11.
The following table shows disaggregated net sales satisfied overtime and at a point in time (excluding intercompany sales) for the three and six months ended September 30, 2024 and 2023:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Systems & Support |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Satisfied over time |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Satisfied at a point in time |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revenue from contracts with customers |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Amortization of acquired contract liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total Systems & Support revenue |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interiors |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Satisfied over time |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Satisfied at a point in time |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revenue from contracts with customers |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total Interiors revenue |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
12
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
The following table shows disaggregated net sales by end market (excluding intercompany sales) for the three and six months ended September 30, 2024 and 2023:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Systems & Support |
|
|
|
|
|
|
|
|
|
|
|
|
||||
OEM Commercial |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
OEM Military |
|
|
|
|
|
|
|
|
|
|
|
|
||||
MRO Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
||||
MRO Military |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Non-aviation |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revenue from contracts with customers |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Amortization of acquired contract liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total Systems & Support revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interiors |
|
|
|
|
|
|
|
|
|
|
|
|
||||
OEM Commercial |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
||||
MRO Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Non-aviation |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revenue from contracts with customers |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total Interiors revenue |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
||||
Contract Assets and Liabilities
Contract assets primarily represent revenues recognized for performance obligations that have been satisfied or partially satisfied but for which amounts have not been billed. This typically occurs when revenue is recognized over time but the Company's contractual right to bill the customer and receive payment is conditional upon the satisfaction of additional performance obligations in the contract, such as final delivery of the product. Contract assets are typically derecognized when billed in accordance with the terms of the contract. The Company pools contract assets that share underlying risk characteristics and records an allowance for expected credit losses based on a combination of prior experience, current economic conditions and management’s expectations of future economic conditions, and specific collectibility matters when they arise. Contract assets are presented net of this reserve on the condensed consolidated balance sheets. For the three and six months ended September 30, 2024 and 2023, credit loss expense and write-offs related to contract assets were immaterial.
Contract liabilities are recorded when customers remit contractual cash payments in advance of the Company satisfying performance obligations under contractual arrangements, including those with performance obligations to be satisfied over a period of time. Contract liabilities other than those pertaining to forward loss reserves are derecognized when or as revenue is recognized.
Contract modifications can also impact contract asset and liability balances. When contracts are modified to account for changes in contract specifications and requirements, the Company considers whether the modification either creates new or changes the existing enforceable rights and obligations. When contract modifications include additional performance obligations that are distinct and at relative stand-alone selling price, they are accounted for as a new contract and performance obligation and are recognized prospectively. Contract modifications that are for goods or services that are not distinct from the existing contract due to the significant integration with the original good or service provided are accounted for as if they were part of that existing contract. For such contracts, the effect of a contract modification on the transaction price and the Company's measure of progress for the performance obligations is recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative catch-up basis. When contract modifications do not include additional performance obligations but the remaining goods and services are distinct from those already provided, the Company treats the modification as the termination of the existing contract and the creation of a new contract, and the total remaining transaction price is allocated to the remaining performance obligations using the relative stand-alone selling price as of the date of the modification and is recognized prospectively.
13
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
Contract balances are classified as assets or liabilities on a contract-by-contract basis at the end of each reporting period. The following table summarizes the Company's contract assets and liabilities balances:
|
|
September 30, 2024 |
|
|
March 31, 2024 |
|
|
Change |
|
|||
Contract assets |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Contract liabilities |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
Net contract asset |
|
$ |
|
|
$ |
|
|
$ |
|
|||
The change in contract assets is the result of revenue recognized in excess of amounts billed during the six months ended September 30, 2024. The change in contract liabilities is the result of revenue recognized in excess of receipt of additional customer advances during the six months ended September 30, 2024. For the six months ended September 30, 2024, the Company recognized $
Performance Obligations
Customers generally contract with the Company for requirements in a segment relating to a specific program, and the Company’s performance obligations consist of a wide range of engineering design services and manufactured components, as well as spare parts and repairs. A single contract may contain multiple performance obligations consisting of both recurring and nonrecurring elements.
As of September 30, 2024, the Company has the following unsatisfied, or partially unsatisfied, performance obligations that are expected to be recognized in the future as noted in the table below. The Company expects options to be exercised in addition to the amounts presented below.
|
|
Total |
|
|
|
|
|
|
|
|
More than |
|
||||||||
Unsatisfied performance obligations |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
5. INVENTORIES
Inventories are carried at the lower of cost (average-cost or specific-identification methods) or net realizable value. The Company expenses general and administrative costs related to products and services provided under commercial terms and conditions as incurred. The Company determines the cost of inventory sold by the first-in, first-out or average cost methods.
|
|
September 30, |
|
|
March 31, |
|
||
|
|
2024 |
|
|
2024 |
|
||
Raw materials |
|
$ |
|
|
$ |
|
||
Work-in-process, including manufactured and purchased components |
|
|
|
|
|
|
||
Finished goods |
|
|
|
|
|
|
||
Total inventories |
|
$ |
|
|
$ |
|
||
6. LONG-TERM DEBT
Long-term debt consists of the following:
|
|
September 30, |
|
|
March 31, |
|
||
|
|
2024 |
|
|
2024 |
|
||
Finance leases |
|
$ |
|
|
$ |
|
||
Senior secured first lien notes due 2028 |
|
|
|
|
|
|
||
Other notes |
|
|
|
|
|
|
||
Less: debt issuance costs |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
||
Less: current portion |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
14
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
Receivables Securitization Program
In connection with the Company's receivables securitization facility (the "Securitization Facility"), the Company sells on a revolving basis certain eligible accounts receivable to Triumph Receivables, LLC, a wholly-owned special-purpose entity, which in turn sells a percentage ownership interest in the receivables to commercial paper conduits sponsored by financial institutions. The Company is the servicer of the trade accounts receivable under the Securitization Facility. Interest rates are based on the ("BSBY"), plus a
As of September 30, 2024, the maximum amount available under the Securitization Facility was $
At September 30, 2024, there were $
The agreements governing the Securitization Facility contain restrictions and covenants, including limitations on the making of certain restricted payments; creation of certain liens; and certain corporate acts such as mergers, consolidations and the sale of all or substantially all the Company's assets.
Senior Secured First Lien Notes due 2028
On March 14, 2023, the Company issued $
The 2028 First Lien Notes and the guarantees are first lien secured obligations of the Company and the Guarantor Subsidiaries. The 2028 First Lien Notes:
15
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
The 2028 First Lien Notes are guaranteed on a full, senior, joint and several basis by each of the Guarantor Subsidiaries. In the future, each of the Company’s domestic restricted subsidiaries (other than any domestic restricted subsidiary that is a receivable subsidiary) that (1) is not an immaterial subsidiary, (2) becomes a borrower under any of its material debt facilities or (3) guarantees (a) any of the Company’s indebtedness or (b) any indebtedness of the Company’s domestic restricted subsidiaries, in the case of either (a) or (b), incurred under any of the Company’s material debt facilities, will guarantee the 2028 First Lien Notes. Under certain circumstances, the guarantees may be released without action by, or consent of, the holders of the 2028 First Lien Notes.
The 2028 First Lien Notes and the guarantees are secured, subject to permitted liens, by first-priority liens on substantially all of the Company’s and the Guarantor Subsidiaries’ assets (including certain of the Company’s real estate assets), whether now owned or hereafter acquired, other than certain excluded property, which liens will secure permitted additional first lien obligations on a pari passu basis, subject to the Collateral Trust Agreement (the “Collateral”). Under certain circumstances, the Collateral may be released without action by, or the consent of, the holders of the 2028 First Lien Notes. The 2028 First Lien Notes and the guarantees will not be secured by the assets of Non-Guarantor Subsidiaries, which include the unrestricted subsidiaries to whom certain of the Company’s accounts receivables are and may in the future be sold to support borrowing under the Securitization Facility.
A collateral trust agreement (the “Collateral Trust Agreement”) among the Company, the Guarantor Subsidiaries, the Collateral Trustee and U.S. Bank National Association, in its capacity as the trustee for the 2028 First Lien Notes, sets forth therein the relative rights with respect to the Collateral as among the trustee for the 2028 First Lien Notes and certain subsequent holders of first lien obligations and covering certain other matters relating to the administration of security interests. The Collateral Trust Agreement generally controls substantially all matters related to the Collateral, including with respect to decisions, distribution of proceeds or enforcement. Pursuant to the Collateral Trust Agreement, on the issue date of the 2028 First Lien Notes the Collateral Trustee will control certain matters related to the Collateral that the Collateral Trust Agreement specifies are in its discretion. If the Company incurs certain types of additional first lien obligations, the Controlling First Lien Holders (as defined in the Collateral Trust Agreement) will have the right to control decisions relating to the Collateral that are outside the Collateral Trustee’s discretion under the Collateral Trust Agreement and the 2028 Note holders may no longer be in control of such decisions.
The Company may redeem the 2028 First Lien Notes, in whole or in part, at any time or from time to time on or after March 15, 2025, at specified redemption prices, plus accrued and unpaid interest, if any, to the redemption date. At any time or from time to time prior to March 15, 2025, the Company may redeem the 2028 First Lien Notes, in whole or in part, at a redemption price equal to
If the Company experiences specific kinds of changes of control, the Company is required to offer to purchase all of the 2028 First Lien Notes at a purchase price of
The 2028 First Lien Notes Indenture contains covenants that, among other things, limit the ability of the Company and its restricted subsidiaries to: (i) incur additional indebtedness; (ii) pay dividends or make other distributions; (iii) make other restricted payments and investments; (iv) create liens; (v) incur restrictions on the ability of restricted subsidiaries to pay dividends or make certain other payments; (vi) sell assets, including capital stock of restricted subsidiaries; (vii) enter into sale and leaseback transactions; (viii) merge or consolidate with other entities; and (ix) enter into transactions with affiliates. In addition, the 2028 First Lien Notes Indenture requires, among other things, the Company to provide financial and current reports to holders of the 2028 First Lien Notes or file such reports electronically with the SEC. These covenants are subject to a number of exceptions, limitations and qualifications set forth in the Indenture, as well as suspension periods in certain circumstances.
In March 2024, using approximately $
In May 2024, the Company redeemed an additional $
16
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
Senior Notes Due 2025
On August 17, 2017, the Company issued $
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 accompanying condensed consolidated financial statements are as follows:
September 30, 2024 |
|
|
March 31, 2024 |
|
||||||||||
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
||||
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
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 the Company's existing debt (Level 2 inputs).
Interest paid on indebtedness during the six months ended September 30, 2024 and 2023, amounted to $
7. EARNINGS (LOSS) PER SHARE
The calculation of basic earnings per share is based on income (loss) from continuing operations, income from discontinued operations, or net income (loss) divided by the weighted average number of common shares considered outstanding during the periods. The calculation of diluted earnings per share reflects the effect of all potentially dilutive securities (principally outstanding restricted stock units and, in prior year periods, outstanding warrants) and is based on income (loss) from continuing operations, income from discontinued operations, or net income (loss) divided by the diluted weighted average number of common shares considered outstanding during the periods. The Company applies the treasury stock method when calculating diluted earnings per share.
|
|
Three Months Ended September 30, |
|
Six Months Ended September 30, |
||||
|
|
(in thousands) |
||||||
|
|
2024 |
|
2023 |
|
2024 |
|
2023 |
Weighted average common shares outstanding - basic |
|
|
|
|
||||
Dilutive potential common shares |
|
|
|
|
||||
Weighted average common shares outstanding - diluted |
|
|
|
|
||||
(1) For the six months ended September 30, 2024, approximately
17
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
8. INCOME TAXES
The Company follows the Income Taxes topic of ASC 740, which prescribes a recognition threshold and measurement attribute criteria for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, as well as guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company's policy is to release the tax effects from accumulated other comprehensive income when all of the related assets or liabilities that gave rise to the accumulated other comprehensive income have been derecognized.
The Company has classified uncertain tax positions as noncurrent income tax liabilities unless expected to be paid in one year. Penalties and tax-related interest expense are reported as a component of income tax expense and are not significant.
As of September 30, 2024 and March 31, 2024, the total amount of unrecognized tax benefits was $
As of September 30, 2024, the Company has a valuation allowance against principally all of its net deferred tax assets given insufficient positive evidence to support the realization of the Company’s deferred tax assets. The Company intends to continue maintaining a valuation allowance on its deferred tax assets until there is sufficient positive evidence to support the reversal of all or some portion of this allowance. A reduction in the valuation allowance could result in a significant decrease in income tax expense in the period that the release is recorded. However, the exact timing and amount of the reduction in its valuation allowance is unknown at this time and will be subject to the earnings level the Company achieves during fiscal 2025 and future periods.
The effective income tax rate for the three months ended September 30, 2024 was (
With few exceptions, the Company is no longer subject to U.S. federal, state, or local income tax examinations for fiscal years ended before March 31, 2014, or foreign income tax examinations by tax authorities for fiscal years ended before March 31, 2014. The Company believes appropriate provisions for all outstanding issues have been made for all jurisdictions and all open years.
9. 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 based upon their service to the Company or years of service accrued under the defined benefit pension plans. Benefits under the defined benefit plans are based on years of service and, for most non-represented employees, on average compensation for certain years. It is the Company’s policy to fund at least the minimum amount required for all qualified plans, using actuarial cost methods and assumptions acceptable under applicable government regulations, by making payments into a separate trust. The Company has in the past contributed and may in the future contribute shares of its common stock to this separate trust which would reduce cash contributions required by the Company.
In addition to the defined benefit pension plans, the Company provides other postretirement benefits ("OPEB") in the form of certain healthcare benefits for eligible retired employees. Such benefits are unfunded. No active employees are eligible for these benefits. The vast majority of eligible retirees receive a fixed-dollar benefit they can use to purchase healthcare services. A small number of eligible retirees receive traditional retiree medical benefits for which the Company pays all premiums. All retirees who are eligible for these traditional benefits are Medicare-eligible. Current plan documents reserve the right to amend or terminate the plans at any time, subject to applicable collective bargaining requirements for represented employees.
In accordance with the Compensation – Retirement Benefits topic of ASC 715, the Company has recognized the funded status of the benefit obligation as of the date of the last re-measurement, on the accompanying condensed consolidated balance sheets. The funded status is measured as the difference between the fair value of the plan’s assets and the pension benefit obligation or accumulated postretirement benefit obligation, of the plan. The majority of the plan assets are publicly traded investments, which were valued based on the market price as of the date of re-measurement. Investments that are not publicly traded were valued based on the estimated fair value of those investments based on the Company's evaluation of data from fund managers and comparable market data or using the net asset value as a practical expedient.
18
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
Net Periodic Benefit Plan Costs
The components of net periodic benefit expense for the Company's postretirement benefit plans are shown in the following table:
|
|
Pension Benefits |
|
|||||||||||||
|
|
Three Months Ended September 30, |
|
|
Six Months Ended September 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Components of net periodic benefit income: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Service cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Interest cost |
|
|
|
|
$ |
|
|
|
|
|
|
|
||||
Expected return on plan assets |
|
|
( |
) |
|
$ |
( |
) |
|
|
( |
) |
|
|
( |
) |
Amortization of prior service credits |
|
|
|
|
$ |
|
|
|
|
|
|
|
||||
Amortization of net loss |
|
|
|
|
$ |
|
|
|
|
|
|
|
||||
Net periodic benefit expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The Company recognized net periodic benefit income from its other postretirement benefits plan of approximately $ |
19
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
10. STOCKHOLDERS' DEFICIT
Accumulated Other Comprehensive Loss
Changes in accumulated other comprehensive loss ("AOCI") by component for the three and six months ended September 30, 2024 and 2023 were as follows:
|
|
Currency |
Unrealized Gains |
Defined Benefit |
Total (1) |
|
||||||||||
June 30, 2024 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Other comprehensive loss before reclassifications |
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
|
||
Amounts reclassified from AOCI |
|
|
— |
|
|
|
|
|
|
|
(2) |
|
|
|||
Net current period OCI |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||
September 30, 2024 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
June 30, 2023 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Other comprehensive income (loss) before reclassifications |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Amounts reclassified from AOCI |
|
|
— |
|
|
|
( |
) |
|
|
|
(2) |
|
|
||
Net current period OCI |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
September 30, 2023 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
March 31, 2024 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Other comprehensive (loss) income before reclassifications |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Amounts reclassified from AOCI |
|
|
— |
|
|
|
|
|
|
|
(2) |
|
|
|||
Net current period OCI |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
||
September 30, 2024 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
March 31, 2023 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Other comprehensive income before reclassifications |
|
|
( |
) |
|
|
|
|
|
— |
|
|
|
( |
) |
|
Amounts reclassified from AOCI |
|
|
— |
|
|
|
( |
) |
|
|
|
(2) |
|
|
||
Net current period OCI |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
||
September 30, 2023 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
11. SEGMENTS
The Company reports financial performance based on the following
Segment Adjusted EBITDAP is total segment revenue reduced by operating expenses (less depreciation and amortization) identifiable with that segment. Corporate includes general corporate administrative costs and any other costs not identifiable with one of the Company’s segments.
The Company does not accumulate net sales information by product or service or groups of similar products and services, and therefore the Company does not disclose net sales by product or service because to do so would be impracticable.
20
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
Selected financial information for each reportable segment is as follows:
|
|
Three Months Ended September 30, 2024 |
|
|||||||||||||||||
|
|
Total |
|
|
Discontinued Operations |
|
|
Corporate & |
|
|
Systems & |
|
|
Interiors |
|
|||||
Net sales to external customers |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Intersegment sales (eliminated in consolidation) |
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
|||
Segment profit and reconciliation to consolidated income before income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Adjusted EBITDAP |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Reconciliation of segment profit to income before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Depreciation and amortization |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Interest expense and other, net |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate expenses |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Share-based compensation expense |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Amortization of acquired contract liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Non-service defined benefit expense |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income from continuing operations before income taxes |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total capital expenditures |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Total assets |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
Three Months Ended September 30, 2023 |
|
|||||||||||||||||
|
|
Total |
|
|
Discontinued Operations |
|
|
Corporate & |
|
|
Systems & |
|
|
Interiors |
|
|||||
Net sales to external customers |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Intersegment sales (eliminated in consolidation) |
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
|||
Segment profit and reconciliation to consolidated income before income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Adjusted EBITDAP |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
( |
) |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Reconciliation of segment profit to loss before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Depreciation and amortization |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Interest expense and other, net |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate expenses |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Share-based compensation expense |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gain on sale of assets and businesses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Amortization of acquired contract liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Non-service defined benefit income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Legal contingencies loss |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Debt modification and extinguishment gain |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Warrant remeasurement gain, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Loss from continuing operations before income taxes |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total capital expenditures |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
21
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
|
|
Six Months Ended September 30, 2024 |
|
|||||||||||||||||
|
|
Total |
|
|
Discontinued Operations |
|
|
Corporate & |
|
|
Systems & |
|
|
Interiors |
|
|||||
Net sales to external customers |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Intersegment sales (eliminated in consolidation) |
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
|||
Segment profit and reconciliation to consolidated income before income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Adjusted EBITDAP |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
( |
) |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Reconciliation of segment profit to loss before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Depreciation and amortization |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Interest expense and other, net |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate expenses |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Share-based compensation expense |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Amortization of acquired contract liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Non-service defined benefit loss |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Legal contingencies loss |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Debt extinguishment loss |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Loss from continuing operations before income taxes |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total capital expenditures |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
Six Months Ended September 30, 2023 |
|
|||||||||||||||||
|
|
Total |
|
|
Discontinued Operations |
|
|
Corporate & |
|
|
Systems & |
|
|
Interiors |
|
|||||
Net sales to external customers |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Intersegment sales (eliminated in consolidation) |
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
|||
Segment profit and reconciliation to consolidated income before income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Adjusted EBITDAP |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
( |
) |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Reconciliation of segment profit to loss before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Depreciation and amortization |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Interest expense and other, net |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate expenses |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Share-based compensation expense |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Loss on sale of assets and businesses |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Amortization of acquired contract liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Non-service defined benefit income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Legal contingencies loss |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Debt modification and extinguishment gain |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Warrant remeasurement gain, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Loss from continuing operations before income taxes |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total capital expenditures |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
22
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
12. COMMITMENTS AND CONTINGENCIES
Environmental Matters
Certain of the Company's current or former operations and facilities are subject to a number of federal, state, local and foreign environmental laws and regulations. In July 2024, a panel of three arbitrators made a decision in an arbitration between Triumph Aerostructures, LLC (“TAS”), a wholly owned subsidiary of the Company, and Northrop Grumman Systems Corporation (“Northrop”) related to responsibility for environmental remediation costs at certain formerly occupied properties that had been previously operated by Northrop. The decision indicated that TAS would be liable to reimburse Northrop for remediation costs incurred at the properties through September 2023 in the amount of approximately $
Commercial Disputes and Litigation
Throughout the course of the Company’s programs, disputes with suppliers or customers have arisen and could arise in the future regarding unique contractual requirements, quality, costs or impacts to production schedules. If the Company is unable to successfully and equitably resolve such claims and assertions, its business, financial condition, results of operations, customer relationships and related transactions could be materially adversely affected.
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 commercial dispute, 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.
Divestitures, Disposals, Guarantees, and Indemnifications
As disclosed in Note 3, we have engaged in a number of divestitures. In connection with divestitures and related transactions, the Company from time to time has indemnified and has been indemnified by third parties against certain liabilities that may arise in connection with, among other things, business activities prior to the completion of the respective transactions. The term of these indemnifications, which typically pertain to environmental, tax and product liabilities, is generally indefinite. As of September 30, 2024, no indemnification assets or liabilities have been recorded.
As it relates to certain divestitures, disputes have arisen or may continue to arise between the Company and the acquirer subsequent to the completion and closing of the divestiture transaction. Such disputes have included or may include amounts payable to or from the buyer for closing working capital adjustments to the purchase price as well as claims regarding alleged violations of contractual terms, representations, and warranties of the sale agreements, among other matters. The outcome of such disputes typically involve negotiations between the Company and the acquirer, but could also lead to litigation between the parties, including as disclosed further below, and the ultimate claims made by the parties against each other could be material.
The Company has received notification of claims which allege certain bases for indemnification and damages relating to certain divestitures. The relevant agreements generally contain limits on certain damages that may be payable under the relevant agreements. For example, the divestiture agreement relating to the sale of the Red Oak facility specified that representations and warranties insurance would be the sole and exclusive remedy for breach of representations and warranties except in the case of fraud. By way of further example, the divestiture agreement relating to the sale of the Stuart facility contains an $
23
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
cap referred to above. The amounts were settled on a net basis by the Company paying $
Additionally, in connection with certain divestitures, the Company has obtained customer consent to assign specified long-term contracts to the acquirer of the divested business by entering into consent-to-assignment agreements among the customer, the acquirer, and the Company. Pursuant to certain of these agreements, the Company remains a guarantor pursuant to guarantee agreements with the customer that predate the divestiture transaction. The term of these obligations typically covers a period of
Also, in connection with certain divestitures, the Company has assigned lease facility agreements to the acquirers and entered into guarantee agreements with respect to the lease agreement in the event of non-performance under the lease by the assignee. The Company typically has a right to indemnification from the assignee or other third party to the transaction. On May 2, 2023, the Company received a letter from a lessor associated with one such transaction to assert the lessor’s rights against the Company as guarantor. The lease payment associated with the lease is approximately $
In the year ended March 31, 2023, the Company withdrew from the IAM National Pension Fund (the “Fund), which is a multiemployer pension plan to which the Company previously contributed on behalf of certain of its represented employees. Such withdrawal occurred as part of the Company’s exit of its Spokane, Washington, composites manufacturing operations. In April 2023, the Company received a letter from the Fund confirming the Company’s complete withdrawal from the Fund and indicating that the Company’s portion of the unfunded vested benefits (the “Withdrawal Liability”) was estimated to be approximately $
24
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto contained elsewhere herein.
OVERVIEW
Business
We are a major supplier to the aerospace industry and have two reportable segments: (i) Systems & Support, whose companies’ revenues are derived from integrated solutions, including design, development and support of proprietary components, subsystems and systems, production of complex assemblies using external designs; and (ii) Interiors, whose companies' revenues are primarily derived from supplying commercial and regional manufacturers with thermo-acoustic insulation, composite components, ducting and primarily to customer designs and model-based definition.
Discontinued Operations
As disclosed in Note 3, in March 2024, we completed the sale of third-party maintenance, repair, and overhaul operations located in Wellington, Kansas; Grand Prairie, Texas; San Antonio, Texas; Hot Springs, Arkansas; and Chonburi, Thailand (“Product Support”) and recognized a gain in the fourth quarter of fiscal 2024. As a result of this transaction, we have classified the Product Support results of operations for all periods presented as discontinued operations and these operations are no longer reported as part of the Systems & Support reportable segment. As a result, and unless specifically stated, all discussions regarding results for the three and six months ended September 30, 2024 and 2023, reflect results from our continuing operations. Refer to Note 3 for further discussion of this divestiture.
Summary of Significant Financial Results
Significant financial results for the second quarter of the fiscal year ending March 31, 2025, include:
Warrants Distribution
As disclosed in Note 2, on December 19, 2022, we issued approximately 19.5 million Warrants to holders of record of common stock as of the Record Date. Each Warrant represented the right to purchase initially one share of common stock at an exercise price of $12.35 per Warrant. Payment for shares of common stock on exercise of Warrants could have been made in (i) cash or (ii) under certain circumstances, Designated Notes (as defined in Note 2). Approximately 8.1 million warrants were exercised since the date of the Warrants initial distribution on December 19, 2022, through July 6, 2023. In the year ended March 31, 2024, approximately 7.7 million warrants were exercised for total cash proceeds, net of transaction costs, of approximately $80.0 million. On July 6, 2023, the Company redeemed all of the approximately 11.4 million outstanding Warrants for a total redemption price of less than $0.1 million. In total, as a result of the Warrant exercises, from the date of issuance on December 19, 2022, through redemption on July 6, 2023, the Company increased its cash by approximately $84.1 million and reduced debt by approximately $14.4 million.
Significant Developments in Key Programs
Discussion of significant developments on key programs is included below.
25
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Boeing 737
The Boeing 737 program represented approximately 10% of revenue for the six months ended September 30, 2024, compared with 13% for the six months ended September 30, 2023 inclusive of both OEM production and aftermarket sales. Of the total revenue recognized on the 737 program, OEM production revenue represented approximately 73% and 88% for the six months ended September 30, 2024 and 2023, respectively. In October 2024, Boeing publicly disclosed that the timing of 737 production rate recovery was uncertain but that expectations remained for an eventual return to 38 per month. With the November 4, 2024, resolution of the strike by Boeing employees represented by the International Association of Machinists and Aerospace Workers at the Boeing facility that produces the 737, we do not expect the impact of the work stoppage to be material to our results of operations or financial condition.
No other programs are expected to represent more than 10% of our consolidated net sales.
RESULTS OF OPERATIONS
The following includes a discussion of our consolidated and business segment results of operations. Our 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 annual audited and quarterly unaudited financial statements prepared in accordance with U.S. GAAP. In accordance with Securities and Exchange Commission (the "SEC") rules, we also disclose and discuss certain non-GAAP financial measures in our public filings and earning releases. Currently, the non-GAAP financial measures that we disclose are Adjusted EBITDA, which is our income (loss) from continuing operations before interest and gains or losses on debt modification and extinguishment, income taxes, amortization of acquired contract liabilities, costs incurred pertaining to shareholder cooperation agreements, consideration payable to customer related to divestitures, legal contingency losses (including legal judgments and settlements), gains/loss on divestitures, gains/losses on warrant remeasurements and warrant-related transaction costs, share-based compensation expense, depreciation and amortization (including impairment of long-lived assets), other non-recurring impairments, and the effects of certain pension charges such as curtailments, settlements, withdrawals, and other early retirement incentives; and Adjusted EBITDAP, which is Adjusted EBITDA, before pension expense or benefit (excluding pension charges already adjusted in Adjusted EBITDA). We disclose Adjusted EBITDA on a consolidated and Adjusted EBITDAP on a consolidated and a reportable segment basis in our earnings releases, investor conference calls and filings with the SEC. The non-GAAP financial measures that we use may not be comparable to similarly titled measures reported by other companies. Also, in the future, we may disclose different non-GAAP financial measures in order to help our investors more meaningfully evaluate and compare our future results of operations with our previously reported results of operations.
We view Adjusted EBITDA and Adjusted EBITDAP as operating performance measures and, as such, we believe that the U.S. GAAP financial measure most directly comparable to such measures is income (loss) from continuing operations. In calculating Adjusted EBITDA and Adjusted EBITDAP, we exclude from income (loss) 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 continuing business. We have outlined below the type and scope of these exclusions and the material limitations on the use of these non-GAAP financial measures as a result of these exclusions. Adjusted EBITDA and Adjusted EBITDAP are not measurements of financial performance under U.S. GAAP and should not be considered as a measure of liquidity, as an alternative to income (loss) from continuing operations, or as an indicator of any other measure of performance derived in accordance with U.S. GAAP. Investors and potential investors in our securities should not rely on Adjusted EBITDA or Adjusted EBITDAP as a substitute for any U.S. GAAP financial measure, including income (loss) from continuing operations. In addition, we urge investors and potential investors in our securities to carefully review the reconciliation of Adjusted EBITDA and Adjusted EBITDAP to income (loss) from continuing operations set forth below, in our earnings releases, and in other filings with the SEC and to carefully review the U.S. GAAP financial information included as part of our Quarterly Reports on 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 U.S. GAAP financial information with our Adjusted EBITDA and Adjusted EBITDAP.
Adjusted EBITDA and Adjusted EBITDAP are used by management to internally measure our operating and management performance and by investors as a supplemental financial measure to evaluate the performance of our business that, when viewed with our U.S. GAAP results and the accompanying reconciliation, we believe provides additional information that is useful to gain an understanding of the factors and trends affecting our business. We have spent more than 20 years expanding our product and service capabilities, partially through acquisitions of complementary businesses. Due to the expansion of our operations, which included acquisitions, our income (loss) from continuing operations has included significant charges for
26
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
depreciation and amortization. Adjusted EBITDA and Adjusted EBITDAP exclude these charges and provide meaningful information about the operating performance of our business, apart from charges for depreciation and amortization. We believe the disclosure of Adjusted EBITDA and Adjusted EBITDAP helps investors meaningfully evaluate and compare our performance from quarter to quarter and from year to year. We also believe Adjusted EBITDA and Adjusted EBITDAP are measures of our ongoing operating performance because the isolation of noncash charges, such as depreciation and amortization, and nonoperating items, such as interest, income taxes, pension and other postretirement benefits, provides additional information about our cost structure and, over time, helps track our operating progress. In addition, investors, securities analysts, and others have regularly relied on Adjusted EBITDA and Adjusted EBITDAP to provide financial measures by which to compare our operating performance against that of other companies in our industry.
Set forth below are descriptions of the financial items that have been excluded from our income (loss) from continuing operations to calculate Adjusted EBITDA and Adjusted EBITDAP and the material limitations associated with using these non-GAAP financial measures as compared with income (loss) from continuing operations:
27
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
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 and Adjusted EBITDAP reconciled to our income (loss) from continuing operations for the indicated periods (in thousands):
|
|
Three Months Ended September 30, |
|
|
Six Months Ended September 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Income (loss) from continuing operations (U.S. GAAP measure) |
|
$ |
11,867 |
|
|
$ |
(6,309 |
) |
|
$ |
(6,904 |
) |
|
$ |
(28,017 |
) |
Income tax (benefit) expense |
|
|
(2,776 |
) |
|
|
1,019 |
|
|
|
(1,277 |
) |
|
|
2,279 |
|
Interest expense and other |
|
|
21,869 |
|
|
|
29,833 |
|
|
|
40,853 |
|
|
|
61,935 |
|
Debt modification and extinguishment loss (gain) |
|
|
— |
|
|
|
(688 |
) |
|
|
5,369 |
|
|
|
(4,079 |
) |
Warrant remeasurement gain, net |
|
|
— |
|
|
|
(544 |
) |
|
|
— |
|
|
|
(8,545 |
) |
Legal contingencies loss |
|
|
— |
|
|
|
1,338 |
|
|
|
7,464 |
|
|
|
1,338 |
|
Shareholder cooperation expenses |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,905 |
|
Loss on sale of assets and businesses, net |
|
|
— |
|
|
|
(409 |
) |
|
|
— |
|
|
|
12,208 |
|
Share-based compensation |
|
|
3,350 |
|
|
|
3,724 |
|
|
|
6,365 |
|
|
|
7,346 |
|
Amortization of acquired contract liabilities |
|
|
(622 |
) |
|
|
(590 |
) |
|
|
(1,213 |
) |
|
|
(1,165 |
) |
Depreciation and amortization |
|
|
7,487 |
|
|
|
7,314 |
|
|
|
14,854 |
|
|
|
14,679 |
|
Adjusted EBITDA (non-GAAP measure) |
|
$ |
41,175 |
|
|
$ |
34,688 |
|
|
$ |
65,511 |
|
|
$ |
59,884 |
|
Non-service defined benefit loss (income) (excluding pension related charges) |
|
|
1,468 |
|
|
|
(820 |
) |
|
|
2,501 |
|
|
|
(1,640 |
) |
Adjusted EBITDAP (non-GAAP measure) |
|
$ |
42,643 |
|
|
$ |
33,868 |
|
|
$ |
68,012 |
|
|
$ |
58,244 |
|
Three months ended September 30, 2024, compared with three months ended September 30, 2023
|
|
Three months ended September 30, |
|
|||||
(In thousands) |
|
2024 |
|
|
2023 |
|
||
Commercial OEM |
|
$ |
118,943 |
|
|
$ |
130,575 |
|
Military OEM |
|
|
64,045 |
|
|
|
61,058 |
|
Total OEM Revenue |
|
|
182,988 |
|
|
|
191,633 |
|
|
|
|
|
|
|
|
||
Commercial Aftermarket |
|
|
50,151 |
|
|
|
39,728 |
|
Military Aftermarket |
|
|
43,766 |
|
|
|
43,558 |
|
Total Aftermarket Revenue |
|
|
93,917 |
|
|
|
83,286 |
|
|
|
|
|
|
|
|
||
Non-Aviation Revenue |
|
|
9,968 |
|
|
|
9,169 |
|
Amortization of acquired contract liabilities |
|
|
622 |
|
|
|
590 |
|
Total Net Sales |
|
$ |
287,495 |
|
|
$ |
284,678 |
|
Net Sales
Commercial OEM sales decreased $11.6 million, or 8.9%, primarily due to decreased sales volume on the Boeing 737, 767, and 777 programs which were partially offset by increased sales on the Boeing 787 program and a favorable settlement in Interiors for deliveries occurring between July 1, 2024 and September 30, 2024 across multiple programs. We expect this Interiors agreement will also benefit our results of operations over the remainder of fiscal 2025 as we continue to perform on these programs.
Military OEM sales increased $3.0 million, or 4.9%, as increased sales volume on CH-47 and AH-64 helped to offset expected decreases sales on the V-22 program.
Commercial Aftermarket sales increased $10.4 million, or 26.2%, primarily due to a combination of increased spares and repairs sales volume across several platforms including the Boeing 787 program.
28
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Military aftermarket sales increased $0.2 million, or 0.5%, as increased repairs volume on the CH-47 platform and a spare parts intellectual property transaction of approximately $5.0 million in the current year period were partially offset by decreased rotorcraft repair and overhaul sales on the V-22 program.
Non-aviation sales were stable on steady demand.
|
|
Three Months Ended September 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
(in thousands) |
|
|||||
Operating income |
|
$ |
32,428 |
|
|
$ |
22,491 |
|
Non-service defined benefit expense (income) |
|
|
1,468 |
|
|
|
(820 |
) |
Debt modification and extinguishment gain |
|
|
— |
|
|
|
(688 |
) |
Warrant remeasurement gain, net |
|
|
— |
|
|
|
(544 |
) |
Interest expense and other |
|
|
21,869 |
|
|
|
29,833 |
|
Income tax (benefit) expense |
|
|
(2,776 |
) |
|
|
1,019 |
|
Income (loss) from continuing operations |
|
$ |
11,867 |
|
|
$ |
(6,309 |
) |
Operating Income
Consolidated gross profit margin increased year over year to 32.9% for the three months ended September 30, 2024, from 26.3% for the three months ended September 30, 2023. The margin benefits from the increased mix in aftermarket sales as a percentage of total sales, including the spare parts intellectual property transaction disclosed above, and the favorable settlement in Interiors were partially offset by decreased OEM volume and continued inflationary increases in labor and material costs. Operating income increased approximately $9.9 million due to the increased margins.
Non-service Defined Benefit Expense (Income)
Non-service defined benefit expense was approximately $1.5 million, a decrease of approximately $2.3 million from non-service defined benefit income in the prior year period. The decrease was primarily due to changes in actuarial assumptions and experience.
Debt Modification and Extinguishment
No debt extinguishment gains occurred in the three months ended September 30, 2024. Debt extinguishment gains of $0.7 million for the three months ended September 30, 2023, were the result of the repurchase of our debt on the open market.
Warrant Remeasurement Gain
No warrant remeasurement gains were recognized in the three months ended September 30, 2024, because of the fiscal 2024 redemption of all outstanding Warrants on July 6, 2023, for a total redemption price of less than $0.1 million.
Interest Expense and Other
Interest expense and other decreased due to lower debt levels primarily due to the redemption of approximately $556.7 million of long-term debt in the fourth quarter of fiscal 2024 and an additional $120.0 million of redemption of long-term debt in the first quarter of fiscal 2025.
Income Taxes
Income tax benefit was $2.8 million for the three months ended September 30, 2024, reflecting an effective tax rate of (30.5)%. compared with (19.3)% for the three months ended September 30, 2023.
Business Segment Performance — Three months ended September 30, 2024, compared with three months ended September 30, 2023
We report our financial performance based on the following two reportable segments: Systems & Support and Interiors. Our Chief Operating Decision Maker ("CODM") utilizes Adjusted EBITDAP as a primary measure of profitability to evaluate performance of its segments and allocate resources.
The results of operations among our reportable segments vary due to differences in competitors, customers, extent of proprietary deliverables and performance. For example, Systems & Support, which generally includes proprietary products and/or arrangements where we become the primary source or one of a few primary sources to our customers, our unique engineering and manufacturing capabilities command a higher margin.
29
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Refer to Note 1 for further details regarding the operations and capabilities of each of our reportable segments.
We currently generate a majority of our revenue from sales to OEMs and aftermarket MRO services in the commercial airline and military and defense markets. Our growth and financial results are largely dependent on continued demand for our products and services within these markets. If any of the related industries experiences a downturn, our clients in these sectors may conduct less business with us. The loss of one or more of our major customers or an economic downturn in the commercial airline or the military and defense markets could have a material adverse effect on our business.
|
|
Three Months Ended September 30, |
|
|
% Change |
|
|
% of Total Sales |
|
|||||||||||
|
|
2024 |
|
|
2023 |
|
|
|
|
|
2024 |
|
|
2023 |
|
|||||
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
||||||||
NET SALES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Systems & Support |
|
$ |
249,954 |
|
|
$ |
249,796 |
|
|
|
0.1 |
% |
|
|
86.9 |
% |
|
|
87.8 |
% |
Interiors |
|
|
37,544 |
|
|
|
35,293 |
|
|
|
6.4 |
% |
|
|
13.1 |
% |
|
|
12.4 |
% |
Elimination of inter-segment sales |
|
|
(3 |
) |
|
|
(411 |
) |
|
|
99.3 |
% |
|
(0.0)% |
|
|
|
(0.2 |
)% |
|
Total net sales |
|
$ |
287,495 |
|
|
$ |
284,678 |
|
|
|
1.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Systems & Support:
Net sales were stable as strong aftermarket spares volume on Boeing commercial platforms and a military spare parts intellectual property transaction of approximately $5.0 million offset decreased OEM sales volume on the Boeing 737 program.
Interiors
Net sales increased by $2.2 million, or 6.4%, due to a favorable settlement for deliveries occurring between July 1, 2024 and September 30, 2024 across multiple programs which was partially offset by reduced volume on lower production. We expect this agreement will also benefit our results of operations over the remainder of fiscal 2025 as we continue to perform on these programs.
|
|
Three Months Ended September 30, |
|
|
% Change |
|
|
% of Segment Sales |
|
|||||||||||
|
|
2024 |
|
|
2023 |
|
|
|
|
|
2024 |
|
|
2023 |
|
|||||
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
||||||||
Adjusted EBITDAP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Systems & Support |
|
$ |
54,823 |
|
|
$ |
48,487 |
|
|
|
13.1 |
% |
|
|
22.0 |
% |
|
|
19.5 |
% |
Interiors |
|
|
1,891 |
|
|
|
(2,704 |
) |
|
|
169.9 |
% |
|
|
5.0 |
% |
|
|
(7.7 |
)% |
Total Segment Adjusted EBITDAP |
|
|
56,714 |
|
|
|
45,783 |
|
|
|
23.9 |
% |
|
|
19.8 |
% |
|
|
16.1 |
% |
Less: Unallocated Corporate EBITDAP |
|
|
(14,071 |
) |
|
|
(11,915 |
) |
|
|
(18.1 |
)% |
|
n/a |
|
|
n/a |
|
||
Total Consolidated Adjusted EBITDAP |
|
$ |
42,643 |
|
|
$ |
33,868 |
|
|
|
25.9 |
% |
|
|
14.9 |
% |
|
|
11.9 |
% |
Systems & Support
Adjusted EBITDAP increased by $6.3 million, or 13.1%, primarily due to increased mix in aftermarket sales as a percentage of total sales, including the spare parts intellectual property transaction disclosed above. These margin benefits were partially offset by continued inflationary increases in labor and material costs.
Interiors
Adjusted EBITDAP increased by $4.6 million due to the favorable settlement which was partially offset by decreased volume and continued inflationary increases in labor and material costs. The settlement also drove the increase in Adjusted EBITDAP as a percentage of sales.
Unallocated Corporate EBITDAP
Unallocated Corporate EBITDAP consists primarily of compensation, benefits, professional services and other administrative corporate costs and increased by approximately $2.2 million primarily due to increased third-party consulting costs.
30
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Six months ended September 30, 2024, compared with six months ended September 30, 2023
|
|
Six Months Ended September 30, |
|
|||||
(In thousands) |
|
2024 |
|
|
2023 |
|
||
Commercial OEM |
|
$ |
237,630 |
|
|
$ |
247,677 |
|
Military OEM |
|
|
125,820 |
|
|
|
126,854 |
|
Total OEM Revenue |
|
|
363,450 |
|
|
|
374,531 |
|
|
|
|
|
|
|
|
||
Commercial Aftermarket |
|
|
100,327 |
|
|
|
74,908 |
|
Military Aftermarket |
|
|
84,899 |
|
|
|
80,476 |
|
Total Aftermarket Revenue |
|
|
185,226 |
|
|
|
155,384 |
|
|
|
|
|
|
|
|
||
Non-Aviation Revenue |
|
|
18,622 |
|
|
|
17,421 |
|
Amortization of acquired contract liabilities |
|
|
1,213 |
|
|
|
1,165 |
|
Total Net Sales |
|
$ |
568,511 |
|
|
$ |
548,501 |
|
Net Sales
Commercial OEM sales decreased $10.0 million, or 4.1% primarily due to decreased sales volume on the Boeing 737 program and other commercial fixed wing platforms which were partially offset by increased sales on the Boeing 787 program, increased business jets volume, and a favorable settlement in Interiors for deliveries occurring between July 1, 2024 and September 30, 2024 across multiple programs. We expect this Interiors agreement will also benefit our results of operations over the remainder of fiscal 2025 as we continue to perform on these programs
Military OEM sales decreased $1.0 million, or 0.8%, primarily due to decreased sales on the V-22 program, as expected, which were partially offset by increased sales on UH-60, CH-47, and the F-18 platforms.
Commercial Aftermarket sales increased $25.4 million, or 33.9% primarily due to increased spares sales on Boeing commercial platforms as well as a spare parts intellectual property transaction of approximately $4.6 million in the current year. Repairs sales volume also increased primarily on widebody platforms.
Military aftermarket sales increased $4.4 million, or 5.5%, primarily due to increased spares sales across several platforms including CH-47 and CH-53 and a military spare parts intellectual property transaction of approximately $5.0 million partially offset by decreased rotorcraft repair and overhaul sales.
Non-aviation sales increased by $1.2 million on increased demand.
|
|
Six Months Ended September 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
(in thousands) |
|
|||||
Operating income |
|
$ |
40,542 |
|
|
$ |
21,933 |
|
Non-service defined benefit expense (income) |
|
|
2,501 |
|
|
|
(1,640 |
) |
Debt modification and extinguishment loss (gain) |
|
|
5,369 |
|
|
|
(4,079 |
) |
Warrant remeasurement gain, net |
|
|
— |
|
|
|
(8,545 |
) |
Interest expense and other |
|
|
40,853 |
|
|
|
61,935 |
|
Income tax (benefit) expense |
|
|
(1,277 |
) |
|
|
2,279 |
|
Loss from continuing operations |
|
$ |
(6,904 |
) |
|
$ |
(28,017 |
) |
Operating Income
Consolidated gross profit margin was increased year over year to 29.6% for the six months ended September 30, 2024, from 26.4% for the six months ended September 30, 2023. The increased mix in aftermarket sales as a percentage of total sales, including the spare parts intellectual property transactions disclosed above, and the favorable settlement in Interiors offset challenges from continued inflationary increases in labor and material costs and lower production rates on the Boeing 737. Operating income increased approximately $18.6 million primarily due to the increased margins as well as the prior year divestiture loss of $12.6 million related to the sale of our Stuart, Florida manufacturing operations, partially offset by the $7.5 million legal contingencies loss disclosed in Note 12.
31
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Non-service Defined Benefit Expense (Income)
Non-service defined benefit expense was approximately $2.5 million, a decrease of approximately $4.1 million from non-service defined benefit income in the prior year period. The decrease was primarily due to changes in actuarial assumptions and experience.
Debt Modification and Extinguishment
Debt modification and extinguishment losses were approximately $5.4 million in the six months ended September 30, 2024, as compared with debt modification and extinguishment gains of approximately $4.1 million in the prior year period. The current period extinguishment losses were the result of the redemption of $120.0 million in 2028 First Lien Notes in the three months ended June 30, 2024.
Warrant Remeasurement Gain
No warrant remeasurement gains were recognized in the six months ended September 30, 2024, because of the fiscal 2024 redemption of all outstanding Warrants on July 6, 2023, for a total redemption price of less than $0.1 million.
Interest Expense and Other
Interest expense and other decreased due to lower debt levels primarily due to the redemption of approximately $556.7 million of long-term debt in the fourth quarter of fiscal 2024 and an additional $120.0 million of redemption of long-term debt in the first quarter of fiscal 2025.
Income Taxes
Income tax benefit was $1.3 million for the six months ended September 30, 2024, reflecting an effective tax rate of 15.6%. compared with (8.9)% for the six months ended September 30, 2023.
Business Segment Performance — Six months ended September 30, 2024, compared with six months ended September 30, 2023
|
|
Six Months Ended September 30, |
|
|
% Change |
|
|
% of Total Sales |
|
|||||||||||
|
|
2024 |
|
|
2023 |
|
|
|
|
|
2024 |
|
|
2023 |
|
|||||
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
||||||||
Net sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Systems & Support |
|
$ |
501,942 |
|
|
$ |
477,128 |
|
|
|
5.2 |
% |
|
|
88.3 |
% |
|
|
87.0 |
% |
Interiors |
|
|
66,588 |
|
|
|
71,876 |
|
|
|
(7.4 |
)% |
|
|
11.7 |
% |
|
|
13.1 |
% |
Elimination of inter-segment sales |
|
|
(19 |
) |
|
|
(503 |
) |
|
|
96.2 |
% |
|
(0.0)% |
|
|
|
(0.1 |
)% |
|
Total net sales |
|
$ |
568,511 |
|
|
$ |
548,501 |
|
|
|
3.7 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Systems & Support:
Net sales increased $24.8 million, or 5.2%, due to growth in commercial and military aftermarket sales. Commercial aftermarket grew primarily due to increased spares sales on Boeing commercial platforms as well as a spare parts intellectual property transaction of approximately $4.6 million in the current year. Commercial repair and overhaul sales volume also increased primarily on widebody platforms. Military aftermarket grew primarily on spares sales as well as a spare parts intellectual property transaction of approximately $5.0 million in the current year. These increases were were partially offset by reduced repair and overhaul sales on the V-22 and UH-60 platforms. Commercial OEM sales decreased modestly as reduced sales on the Boeing 737 program were partially offset by increased volumes on the 787 program.
Interiors
Net sales decreased by $5.3 million, or 7.4%, as reduced volume on the 737 program was partially offset by increased sales volume on the Boeing 787 program and a favorable settlement for deliveries occurring between July 1, 2024 and September 30, 2024 across multiple programs. We expect this agreement will also benefit our results of operations over the remainder of fiscal 2025 as we continue to perform on these programs.
32
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
|
|
Six Months Ended September 30, |
|
|
% Change |
|
|
% of Segment Sales |
|
|||||||||||
|
|
2024 |
|
|
2023 |
|
|
|
|
|
2024 |
|
|
2023 |
|
|||||
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
||||||||
Adjusted EBITDAP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Systems & Support |
|
$ |
102,220 |
|
|
$ |
89,301 |
|
|
|
14.5 |
% |
|
|
20.4 |
% |
|
|
18.8 |
% |
Interiors |
|
|
(5,386 |
) |
|
|
(4,597 |
) |
|
|
(17.2 |
)% |
|
|
(8.1 |
)% |
|
|
(6.4 |
)% |
Total Segment Adjusted EBITDAP |
|
|
96,834 |
|
|
|
84,704 |
|
|
|
14.3 |
% |
|
|
17.1 |
% |
|
|
15.5 |
% |
Less: Unallocated Corporate EBITDAP |
|
|
(28,822 |
) |
|
|
(26,460 |
) |
|
|
(8.9 |
)% |
|
n/a |
|
|
n/a |
|
||
Total Consolidated Adjusted EBITDAP |
|
$ |
68,012 |
|
|
$ |
58,244 |
|
|
|
16.8 |
% |
|
|
12.0 |
% |
|
|
10.6 |
% |
Systems & Support
Adjusted EBITDAP increased by $12.9 million, or 14.5%, primarily due to the increased mix in aftermarket sales as a percentage of total sales, including the spare parts intellectual property transactions disclosed above. These margin benefits were partially offset by reduced commercial OEM volumes and continued inflationary increases in labor and material costs.
Interiors
Adjusted EBITDAP decreased by $0.8 million, primarily due to decreased sales volume and continued inflationary increases in labor and material costs which were partially offset by the favorable settlement disclosed above. These factors also drove the decrease in Adjusted EBITDAP as a percentage of segment sales.
Unallocated Corporate EBITDAP
Unallocated Corporate EBITDAP increased primarily due to increased third-party consulting costs.
Liquidity and Capital Resources
Discontinued Operations
The accompanying condensed consolidated statements of cash flows do not present the cash flows from discontinued operations separately from cash flow from continuing operations. Capital expenditures and other operating and investing noncash items of the discontinued operations for the six months ended September 30, 2023, were immaterial.
Operating Cash Flows
Our working capital needs are generally funded through our current cash and cash equivalents, cash flows from operations, and the availability of proceeds from the Securitization Facility. During the six months ended September 30, 2024, we had a net cash outflow of $142.9 million from operating activities compared with a net cash outflow of $95.9 million for the six months ended September 30, 2023, a decrease of $47.0 million. Cash flows were primarily driven by timing of receivables and payables, including the liquidation of approximately $20.5 million of customer advances received as of March 31, 2024, as well as increases in inventory as a result of anticipated increasing demand and supply chain challenges which we expect to improve in the second half of fiscal 2025. Cash flows from operations are consistent with seasonal working capital needs, and we expect continued improvement in the remainder of fiscal 2025. Interest payments were approximately $46.4 million for the six months ended September 30, 2024, as compared with $74.2 million for the six months ended September 30, 2023, with the decrease due to lower debt levels.
Investing Cash Flows
Cash flows used in investing activities for the six months ended September 30, 2024, decreased $2.6 million from the six months ended September 30, 2023. Cash flows used in investing activities for the six months ended September 30, 2024, were principally related to capital expenditures of approximately $14.5 million. Cash flows used in investing activities for the six months ended September 30, 2023, included payments on the sale of assets and businesses of $6.8 million with additional investing outflows from capital expenditures of $11.0 million. We currently expect full year capital expenditures in fiscal 2025 to be in the range of $20.0 million to $25.0 million. The majority of our planned fiscal 2025 capital expenditures are capital investments designed to improve our manufacturing efficiency and expand our capabilities.
Financing Cash Flows
Cash flows used in financing activities for the six months ended September 30, 2024, were $127.5 million, compared with cash flows provided by financing activities for the six months ended September 30, 2023, of $59.2 million. Current period financing cash flows pertain primarily to our redemption of approximately $120.0 million of our 2028 First Lien Notes at a redemption price equal to 103.000% of the principal amount redeemed, resulting in a premium upon redemption of $3.6 million. We may from time to time pursue other redemptions or repurchases, but we cannot make assurances of if or when any such activity may take place, or the terms thereof. As of September 30, 2024, we had $104.9 million of cash on hand and $43.6 million was available under our Securitization Facility after giving effect to approximately $20.8 million in outstanding letters of credit, all of which were accruing
33
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
interest at 0.125% per annum, and the current outstanding balance. In October 2024, the Company drew $20,000 in borrowings under the Securitization Facility.
Refer to Note 12 for disclosures related to certain indemnifications, consent-to-assignment agreements, and guarantee agreements associated with our divestiture activities.
The 2028 First Lien Notes are our senior obligations and rank equally in right of payment with all of our other future senior indebtedness and senior in right of payment to all of our existing and future subordinated indebtedness.
The 2028 First Lien Notes are (a) effectively senior to all existing and future second lien obligations and all existing and future unsecured indebtedness of the Company and the Guarantor Subsidiaries, but only to the extent of the value of the Collateral (as defined below), and after giving effect to any permitted additional first lien secured obligations and other permitted liens of senior or equal priority; (b) secured by the Collateral on a pari passu basis with any future permitted additional first lien secured obligations, subject to a Collateral Trust Agreement (as defined below); (c) effectively subordinated to any existing and future obligations of the Company and the Guarantor Subsidiaries that are secured by assets that do not constitute the Collateral, in each case, to the extent of the value of the assets securing such obligations; and (d) structurally subordinated to all existing and future indebtedness and other liabilities of the Company’s existing and future subsidiaries that do not guarantee the 2028 First Lien Notes, including the Securitization Facility.
The 2028 First Lien Notes are guaranteed on a full, senior, joint and several basis certain of the Company’s domestic restricted subsidiaries (the “Guarantor Subsidiaries”). Currently, our only consolidated subsidiaries that are not guarantors of the 2028 First Lien Notes (the "Non-Guarantor Subsidiaries") are: (i) the receivables securitization special purpose entity, and (ii) charitable foundation entity. The 2028 First Lien Notes and the related guarantees are secured by first-priority liens on substantially all of our assets and our subsidiary guarantors, whether now owned or hereafter acquired (the “Collateral”).
Pursuant to the documentation governing the 2028 First Lien Notes, we may redeem some or all of the 2028 First Lien Notes prior to their stated maturities, subject to certain limitations set forth in the indenture governing the 2028 First Lien Notes and, in certain cases, subject to significant prepayment premiums. We are obligated to offer to repurchase the 2028 First Lien Notes at 101% of their principal amount, plus accrued and unpaid interest, if any, to the date of purchase as a result of certain change-of-control events and a sale of all or substantially all of our assets. These restrictions and prohibitions are subject to certain qualifications and exceptions.
The indenture governing the 2028 First Lien Notes, as well as Securitization Facility, contain covenants and restrictions that, among other things, limit our ability and the ability of any of the Guarantor Subsidiaries to (i) grant liens on our 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 or investments; (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 (in the case of the 2028 First Lien Notes); and (viii) enter into transactions with affiliates. We are currently in compliance with all covenants under our debt documents and expect to remain in compliance for the foreseeable future.
For further information on our long-term debt, see Note 6.
The following tables present summarized financial information of the Company and the Guarantor Subsidiaries on a combined basis. The combined summarized financial information eliminates intercompany balances and transactions among the Company and the Guarantor Subsidiaries and equity in earnings and investments in any Guarantor Subsidiaries or Non-Guarantor Subsidiaries. The summarized financial information is provided in accordance with the reporting requirements of Rule 13-01 under SEC Regulation S-X for the issuer and Guarantor Subsidiaries.
34
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Parent and Guarantor Summarized Financial Information |
|
September 30, |
|
|
March 31, |
|
||
Summarized Balance Sheet |
|
2024 |
|
|
2024 |
|
||
|
|
in thousands |
|
|||||
Assets |
|
|
|
|
|
|
||
Due from non-guarantor subsidiaries |
|
$ |
8,222 |
|
|
$ |
316 |
|
Current assets |
|
|
540,615 |
|
|
|
721,953 |
|
Noncurrent assets |
|
|
629,261 |
|
|
|
625,768 |
|
Noncurrent receivable from non-guarantor subsidiaries |
|
|
76,471 |
|
|
|
78,435 |
|
|
|
|
|
|
|
|
||
Liabilities |
|
|
|
|
|
|
||
Due to non-guarantor subsidiaries |
|
|
32,279 |
|
|
|
36,721 |
|
Current liabilities |
|
|
264,625 |
|
|
|
307,837 |
|
Noncurrent liabilities |
|
|
1,292,515 |
|
|
|
1,429,101 |
|
|
|
|
|
|
|
|
||
|
|
|
|
|
Six Months Ended |
|
||
Summarized Statement of Operations |
|
|
|
|
September 30, 2024 |
|
||
|
|
|
|
|
in thousands |
|
||
Net sales to non-guarantor subsidiaries |
|
|
|
|
$ |
891 |
|
|
Net sales to unrelated parties |
|
|
|
|
|
528,858 |
|
|
Gross profit |
|
|
|
|
|
152,439 |
|
|
Loss from continuing operations before income taxes |
|
|
|
|
|
(17,761 |
) |
|
Net loss |
|
|
|
|
|
(9,175 |
) |
|
Critical Accounting Policies
Our critical accounting policies are discussed in Management's Discussion and Analysis of Financial Condition and Results of Operations and notes accompanying the consolidated financial statements that appear in the Annual Report on Form 10-K for the fiscal year ended March 31, 2024. Except as otherwise disclosed in the condensed consolidated financial statements and accompanying notes included in this report, there were no material changes subsequent to the filing of the Annual Report on Form 10-K for the fiscal year ended March 31, 2024, in our critical accounting policies or in the assumptions or estimates used to prepare the financial information appearing in this report.
Forward-Looking Statements
This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 relating to our future operations and prospects, including statements that are based on current projections and expectations about the markets in which we operate, and our beliefs concerning future performance and capital requirements based upon current available information. Such statements are based on our beliefs as well as assumptions made by and information currently available to us. When used in this document, words like “may,” “might,” “will,” “expect,” “anticipate,” “believe,” “potential,” "plan," "estimate," and similar expressions are intended to identify forward-looking statements. Actual results could differ materially from our current expectations. For example, there can be no assurance that additional capital will not be required, and that such amounts may be material, or that additional capital, if required, will be available on reasonable terms, if at all, at such times and in such amounts as may be needed by us. In addition to these factors, among other factors that could cause actual results to differ materially are uncertainties relating to our ability to execute on our restructuring plans, the integration of acquired businesses, divestitures of our business, efforts to optimize our asset base, general economic conditions affecting our business segments, severe disruptions to the economy, the financial markets, and the markets in which we compete, dependence of certain of our businesses on certain key customers, and the risk that we will not realize all of the anticipated benefits from efforts to optimize our asset base, 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 our Annual Report on Form 10-K for the fiscal year ended March 31, 2024, filed with the SEC on May 31, 2024, and in our quarterly reports on Form 10-Q.
35
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
For information regarding our exposure to certain market risks, see “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2024. There has been no material change in this information during the period covered by this report.
Item 4. Controls and Procedures.
(a) Evaluation of disclosure controls and procedures.
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports pursuant to the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As of September 30, 2024, we completed an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2024.
(b) Changes in internal control over financial reporting.
There were no changes that occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
36
Part II. Other Information
Item 1. Legal Proceedings.
On December 12, 2023, a complaint was filed in the Supreme Court of the State of New York by Daher, the buyer of the Stuart facility, against TAS and the Company, alleging claims for breach of contract and fraudulent inducement of contract arising out of the sale of the Stuart facility. The Complaint alleges that TAS failed to disclose known and widespread paint issues, as well as certain supplier and production issues at the facility, which rendered certain representations and warranties about the financial condition of the Stuart facility and the products manufactured by the Stuart facility false. The Complaint seeks damages of approximately $130.0 million consisting of (a) approximately $60.0 million Daher agreed to pay Boeing for alleged non-conformities in products Daher manufactured and/or sold to Boeing after the closing; (b) approximately $30.0 million for future opportunities Daher claims to have lost; and (c) approximately $40.0 million for internal costs Daher claims to have incurred in fixing alleged non-conformities in products. The divestiture agreement relating to the sale of the Stuart facility contains an $18.75 million general cap on breaches of representations (other than certain specified representations) and a $25.0 million cap on breaches of certain specified representations related to contracts and product warranties, in each case absent certain circumstances, including fraud or breaches of fundamental or tax representations. Previously, on June 16, 2023, the Company entered into a settlement agreement with the buyer of the Stuart facility resolving a working capital dispute with the buyer resulting in an amount of $2.4 million payable to the Company and resolving claims by the buyer related to the accounts payable representation and warranty under the purchase agreement resulting in an amount of $9.2 million payable to the buyer, with such amount applicable to the general cap referred to above. The amounts were settled on a net basis by the Company paying $6.8 million to the buyer.
TAS and the Company dispute that they engaged in any fraudulent conduct, dispute that they breached the representations and warranties in the divestiture agreement, dispute the damages claimed (and that Daher could, in any event, recover any damages in excess of the liability caps set forth in the divestiture agreement) and intend to vigorously defend this matter. The Company believes that the likelihood of further loss is remote, and the amount of potential loss, if any, cannot be reasonably estimated at this time.
On May 7, 2024, a complaint was filed in the Court of Chancery of the State of Delaware by Qarbon, the buyer of the Red Oak facility, against TAS and the Company, alleging claims for breach of contract, fraudulent inducement of contract, and unjust enrichment arising out of the sale of the Red Oak facility. The complaint alleges that TAS failed to disclose potential future losses associated with the Boeing T-7A trainer program, which rendered certain representations and warranties about the financial condition of the Red Oak facility false. The complaint seeks partial rescission of the divestiture agreement as it relates to assignment of the T-7A contract and damages for past and future losses in an unspecified amount under the T-7A contract.
TAS and the Company dispute that they engaged in any fraudulent conduct, dispute that they breached the representations and warranties in the divestiture agreement (all of which expired more than two years ago under the terms of the divestiture agreement and with respect to which buyer had procured a representations and warranties insurance policy), dispute the damages claimed (and that Qarbon could, in any event, recover any damages in excess of the liability caps set forth in the divestiture agreement), dispute that unjust enrichment and partial rescission would be legally appropriate remedies, and intend to vigorously defend this matter. The Company believes that the likelihood of loss is remote, and the amount of potential loss, if any, cannot be reasonably estimated at this time.
In the ordinary course of business, we are involved in other 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 regarding unique contractual requirements, quality, costs, or impacts to production schedules. In addition, in connection with certain other divestitures made by the Company, we have received claims relating to closing working capital adjustments to purchase prices as well as claims regarding alleged violations of contractual terms, representations, and warranties of the sale agreements and demands for honoring guarantee or indemnification obligations.
While we cannot predict the outcome of any pending or future litigation, proceeding or claim and no assurances can be given, we intend to vigorously defend claims brought against the Company and do not believe that any other pending matters will have a material effect, individually or in the aggregate, on our financial position or results of operations. If we are unable to successfully and equitably resolve such claims and assertions, our business, financial condition, and results of operations could be materially adversely affected.
37
Item 1A. Risk Factors.
There have been no material changes in our risk factors from those disclosed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the fiscal year ended March 31, 2024.
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
On November 11, 2024, the Human Capital and Compensation Committee of the Board of Directors of Triumph Group, Inc. (the “Company”) authorized entry into a retention agreement with each of the following named executive officers of the Company: (i) James F. McCabe, the Company’s Senior Vice President and Chief Financial Officer, (ii) Jennifer H. Allen, the Company’s Senior Vice President, Chief Administrative Officer, General Counsel, and Secretary, (iii) Thomas A. Quigley, III, the Company’s Vice President, Investor Relations, Mergers and Acquisitions, and Treasurer and (iv) Kai W. Kasiguran, the Company’s Vice President and Controller (the “Participants”).
These retention awards are intended to incentivize the continued service of highly qualified executives during a period in which it is critical for the Company to meet its strategic and financial objectives. Each Participant’s retention award equals to one times the Participant’s base salary. Under the retention agreement, 50% of the retention award will vest and become payable nine (9) months following the grant date and the remaining 50% of the retention award will vest and become payable eighteen (18) months following the grant date, in each case, generally subject to the Participant’s continued employment with the Company through the applicable vesting date. Upon vesting, the retention awards may be settled in cash or in common stock of the Company, at the sole discretion of the Company.
The foregoing description of the retention agreements is only a summary and is qualified in its entirety by reference to the form of retention agreement. The Company intends to file a copy of the form of retention agreement as an exhibit to the Company’s next regularly scheduled quarterly report on Form 10-Q for the fiscal quarter ended December 31, 2024.
Item 6. Exhibits.
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List of Subsidiary Guarantors and Issuers of Guaranteed Securities |
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Certification by the Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) |
|
|
Certification by the Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) |
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||
101.INS |
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Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the inline XBRL document |
101.SCH |
|
Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents |
Exhibit 104 |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
# Indicates management contract or compensatory plan or arrangement
38
TRIUMPH GROUP, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Triumph Group, Inc. |
|
|
|
|
(Registrant) |
|
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|
|
|
|
|
|
President and Chief Executive Officer |
|
November 12, 2024 |
/s/ Daniel J. Crowley |
|
(Principal Executive Officer) |
|
|
Daniel J. Crowley |
|
|
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|
|
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|
|
Senior Vice President and Chief Financial Officer |
|
November 12, 2024
|
/s/ James F. McCabe, Jr. |
|
(Principal Financial Officer) |
|
|
James F. McCabe, Jr. |
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|
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|
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|
|
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|
|
Vice President, Controller |
|
|
/s/ Kai W. Kasiguran |
|
(Principal Accounting Officer) |
|
November 12, 2024
|
Kai W. Kasiguran |
|
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|
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39