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 nine months ended December 31, 2020 and 2019, are not necessarily indicative of results that may be expected for the year ending March 31, 2021. The accompanying condensed consolidated financial statements are unaudited and should be read in conjunction with the fiscal 2020 audited consolidated financial statements and notes thereto included in the Company's Form 10-K for the fiscal year ended March 31, 2020, filed with the Securities and Exchange Commission (the "SEC") on May 28, 2020.
Triumph is a Delaware corporation which, through its operating subsidiaries, designs, engineers, manufactures, and sells products for the global aerospace original equipment manufacturers ("OEMs") of aircraft and aircraft components and repairs and overhauls aircraft components and accessories for commercial airline, air cargo carrier and military customers on a worldwide basis. Triumph and its subsidiaries (collectively, the "Company") are organized based on the products and services that they provide. The Company has two reportable segments: Systems & Support and Aerospace Structures.
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; hydromechanical and electromechanical primary and secondary flight controls. Systems & Support also provides full life cycle solutions for commercial, regional and military aircraft. The Company’s extensive product and service offerings include full post-delivery value chain services that simplify the maintenance, repair, and overhaul (“MRO”) supply chain. Through its ground support equipment maintenance, component MRO and post-production supply chain activities, Systems & Support is positioned to provide integrated planeside repair solutions globally. Capabilities include metallic and composite aircraft structures; nacelles; thrust reversers; interiors; auxiliary power units; and a wide variety of pneumatic, hydraulic, fuel and mechanical accessories. Repair services generally involve the replacement and/or remanufacturing of parts, which is similar to the original manufacture of the part. The processes that the Company performs related to repair and overhaul services are essentially the repair of wear parts or replacement of parts that are beyond economic repair. The repair service generally involves remanufacturing a complete part or a component of a part.
Aerospace Structures consists of the Company’s operations that supply commercial, business, regional and military manufacturers with large metallic and composite structures and aircraft interior systems, including air ducting and thermal acoustic insulations systems. Products include wings; wing boxes; fuselage panels; horizontal and vertical tails; subassemblies such as floor grids; and aircraft interior systems, including air ducting and thermal acoustic insulations systems. Aerospace Structures also has the capability to engineer detailed structural designs in metal and composites. Capabilities include advanced composite and interior structures, joining processes such as welding, autoclave bonding, and conventional mechanical fasteners.
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.
Standards Recently Implemented
Adoption of ASU 2016-13
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU modifies the measurement of expected credit losses of certain financial instruments. ASU 2016-13 is effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods. The amendments in this ASU should be applied on a modified retrospective basis to all periods presented. The Company adopted ASU 2016-13 effective April 1, 2020, and the impact on our consolidated financial statements of adoption was not significant.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. This ASU modifies the disclosure requirements for fair value measurements by removing, modifying or adding certain disclosures. ASU 2018-13 is effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods, with early adoption permitted. The amendments on changes
7
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The Company adopted ASU 2018-13 effective April 1, 2020, and the adoption did not have a significant impact on its consolidated financial statement disclosures.
Standards Issued Not Yet Implemented
In August 2018, the FASB issued ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans, which modifies the annual disclosure requirements for defined benefit pension plans and other postretirement plans. The ASU does not modify interim disclosure requirements. ASU 2018-14 is effective for annual periods ending after December 15, 2020, with early adoption permitted. The amendments in this ASU should be applied on a retrospective basis to all periods presented. As the ASU does not modify interim disclosure requirements, the Company is currently evaluating the effect that ASU 2018-14 will have on its annual consolidated financial statements and related disclosures.
Impact of Change in Accounting Principle
Effective April 1, 2020, the Company changed its method of accounting for the determination of the market-related value of assets (“MRVA”) for a class of assets (fixed income securities) within the qualified U.S. defined benefit plan (the “Plan”) which is used in determining the expected return on asset component of net periodic benefit income. This class of assets is comprised solely of the fixed income securities asset class held in the portfolio for the Plan, which provides a natural hedge (liability-hedging assets) against the changes in the recorded amount of net periodic pension cost. Refer to Note 15 in the Company’s Form 10-K for the fiscal year ended March 31, 2020, for its fair value disclosure by asset classification. The Company’s previous method of accounting was to calculate the MRVA for all the Plan’s assets recognizing investment gains and losses into the MRVA over a five-year period. The Company has changed its method of accounting and elected to use the fair value of our fixed income assets, which represent approximately 44% of the Plan’s assets, to determine the MRVA beginning in the second quarter of fiscal 2021. This change in accounting principle is preferable as it results in an expected return on asset component of net periodic benefit income that more accurately reflects the changes in the fair values of the fixed income securities. No change is being made to the accounting principle for the other classes of pension assets, which represent the remaining 56% of the pension asset portfolio for the Plan. The gains and losses for these other plan assets will continue to be amortized into the MRVA over a five-year period.
The change in accounting principle requires retrospective application and prospective disclosure. The Company applied the change effective April 1, 2020, and recorded a cumulative adjustment to equity as of the earliest period presented. The tables below represent the impact of this change on the condensed consolidated statements of operations (including earnings per share) and the condensed consolidated statements of comprehensive (loss) income for the periods presented below. The change in accounting principle had no impact on the condensed consolidated statements of cash flows for these periods.
The tables below represent the impact of the change in accounting principle on the condensed consolidated statement of operations and the condensed consolidated statements of comprehensive loss for the three and nine months ended December 31, 2020.
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
As Reported (With Change), December 31, 2020
|
|
Impact of Change
|
|
Without Change, December 31, 2020
|
|
As Reported (With Change), December 31, 2020
|
|
Impact of Change
|
|
Without Change, December 31, 2020
|
|
|
Non-service defined benefit income
|
$
|
(12,432
|
)
|
$
|
(1,528
|
)
|
$
|
(13,960
|
)
|
$
|
(37,275
|
)
|
$
|
(4,584
|
)
|
$
|
(41,859
|
)
|
|
Loss before income taxes
|
|
(67,418
|
)
|
|
1,528
|
|
|
(65,890
|
)
|
|
(375,008
|
)
|
|
4,584
|
|
|
(370,424
|
)
|
|
Income tax expense
|
|
698
|
|
|
-
|
|
|
698
|
|
|
2,383
|
|
|
-
|
|
|
2,383
|
|
|
Net loss
|
$
|
(68,116
|
)
|
$
|
1,528
|
|
$
|
(66,588
|
)
|
$
|
(377,391
|
)
|
$
|
4,584
|
|
$
|
(372,807
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss per share - basic & diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
(1.30
|
)
|
$
|
0.03
|
|
$
|
(1.27
|
)
|
$
|
(7.24
|
)
|
$
|
0.09
|
|
$
|
(7.15
|
)
|
|
Diluted
|
$
|
(1.30
|
)
|
$
|
0.03
|
|
$
|
(1.27
|
)
|
$
|
(7.24
|
)
|
$
|
0.09
|
|
$
|
(7.15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit pension plans and other postretirement benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total defined benefit pension plans and other postretirement benefits, net of taxes
|
$
|
4,265
|
|
$
|
(1,528
|
)
|
$
|
2,737
|
|
$
|
12,795
|
|
$
|
(4,584
|
)
|
$
|
8,211
|
|
|
Total other comprehensive income
|
$
|
19,217
|
|
$
|
(1,528
|
)
|
$
|
17,689
|
|
$
|
40,279
|
|
$
|
(4,584
|
)
|
$
|
35,695
|
|
|
Comprehensive loss
|
$
|
(48,899
|
)
|
$
|
-
|
|
$
|
(48,899
|
)
|
$
|
(337,112
|
)
|
$
|
-
|
|
$
|
(337,112
|
)
|
8
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
The table below represents the impact of the change in accounting principle on the condensed consolidated balance sheet as of December 31, 2020.
|
Stockholders' deficit:
|
|
|
|
As Reported (With Change), December 31, 2020
|
|
Impact of Change
|
|
Without Change, December 31, 2020
|
|
|
Accumulated other comprehensive loss
|
|
|
|
$
|
(706,169
|
)
|
$
|
(31,604
|
)
|
$
|
(737,773
|
)
|
|
Accumulated deficit
|
|
|
|
$
|
(1,180,872
|
)
|
$
|
31,604
|
|
$
|
(1,149,268
|
)
|
|
Total stockholders' deficit
|
|
|
|
$
|
(1,069,830
|
)
|
$
|
-
|
|
$
|
(1,069,830
|
)
|
The tables below represent the impact of the change in accounting principle on the condensed consolidated statement of operations and the condensed consolidated statements of comprehensive income (loss) for the three and nine months ended December 31, 2019.
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
As Previously Reported,
December 31, 2019
|
|
Impact of Change
|
|
As Reported,
December 31, 2019
|
|
As Previously Reported,
December 31, 2019
|
|
Impact of Change
|
|
As Reported,
December 31, 2019
|
|
|
Non-service defined benefit income
|
$
|
(13,989
|
)
|
|
(810
|
)
|
$
|
(14,799
|
)
|
$
|
(57,280
|
)
|
|
1,255
|
|
$
|
(56,025
|
)
|
|
(Loss) income before income taxes
|
|
(17,528
|
)
|
|
810
|
|
|
(16,718
|
)
|
|
59,420
|
|
|
(1,255
|
)
|
|
58,165
|
|
|
Income tax (benefit) expense
|
|
(3,682
|
)
|
|
170
|
|
|
(3,512
|
)
|
|
12,477
|
|
|
(264
|
)
|
|
12,213
|
|
|
Net (loss) income
|
$
|
(13,846
|
)
|
$
|
640
|
|
$
|
(13,206
|
)
|
$
|
46,943
|
|
$
|
(991
|
)
|
$
|
45,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (Loss) Income per share - basic & diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.27
|
)
|
$
|
0.01
|
|
$
|
(0.26
|
)
|
$
|
0.94
|
|
$
|
(0.02
|
)
|
$
|
0.92
|
|
|
Diluted
|
$
|
(0.27
|
)
|
$
|
0.01
|
|
$
|
(0.26
|
)
|
$
|
0.93
|
|
$
|
(0.02
|
)
|
$
|
0.91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit pension plans and other postretirement benefits (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total defined benefit pension plans and other postretirement benefits (expense), net of taxes
|
$
|
5,027
|
|
$
|
(640
|
)
|
$
|
4,387
|
|
$
|
(62,883
|
)
|
$
|
991
|
|
$
|
(61,892
|
)
|
|
Total other comprehensive income (loss)
|
$
|
20,602
|
|
$
|
(640
|
)
|
$
|
19,962
|
|
$
|
(57,615
|
)
|
$
|
991
|
|
$
|
(56,624
|
)
|
|
Comprehensive income (loss)
|
$
|
6,756
|
|
$
|
-
|
|
$
|
6,756
|
|
$
|
(10,672
|
)
|
$
|
-
|
|
$
|
(10,672
|
)
|
The table below represents the impact of the change in accounting principle on the condensed consolidated balance sheet as of March 31, 2020.
|
|
As Previously Reported,
March 31, 2020
|
|
Impact of Change
|
|
As Reported,
March 31, 2020
|
|
|
Stockholders' deficit:
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss
|
$
|
(719,428
|
)
|
$
|
(27,020
|
)
|
$
|
(746,448
|
)
|
|
Accumulated deficit
|
|
(830,501
|
)
|
|
27,020
|
|
|
(803,481
|
)
|
|
Total stockholders' deficit
|
$
|
(781,264
|
)
|
$
|
-
|
|
$
|
(781,264
|
)
|
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
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
9
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
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 do not represent material rights granted to customers. The Company generally enters into agreements directly with its customers and is the principal in 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, 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 it is probable that a significant reversal of cumulative revenue recognized for the contract will not occur, or when the uncertainty associated with the variable consideration is resolved. The Company's contracts with customers generally require payment under normal commercial terms after delivery with payment typically required within 30 to 120 days of delivery. However, a subset of the Company’s current contracts includes significant financing components because the timing of the transfer of the underlying products and services under contract are at the customers’ discretion. For these contracts, the Company adjusts the transaction price to reflect the effects of the time value of money.
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.
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
10
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
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, asset utilization, and anticipated labor agreements.
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 given the increased uncertainties surrounding the severity and duration of the impacts of the COVID-19 pandemic; however, actual results could differ materially from those estimates.
For the three months ended December 31, 2020, cumulative catch-up adjustments resulting from changes in contract values and estimated costs that arose during the fiscal year decreased revenue, operating loss, net loss and loss per share by approximately ($37), $3,688, $3,688, and $0.07, respectively. For the three months ended December 31, 2019, cumulative catch-up adjustments resulting from changes in estimates increased net sales by approximately $4,722 and decreased operating income, net income, and earnings per share by approximately ($210), ($166), and $0.00, respectively.
For the nine months ended December 31, 2020, cumulative catch-up adjustments resulting from changes in contract values and estimated costs that arose during the fiscal year increased revenue and decreased operating loss, net loss and loss per share by approximately $4,577, $19,349, $19,349, and $0.37, respectively. For the nine months ended December 31, 2019, cumulative catch-up adjustments resulting from changes in estimates increased net sales by approximately $2,347 and decreased operating income, net income, and earnings per share by approximately ($16,393), ($12,950), and ($0.26), respectively.
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.
Differences in the timing of revenue recognition and contractual billing and payment terms result in the recognition contract assets and liabilities. Refer to Note 4 for further discussion.
In connection with several prior acquisitions, the Company assumed existing long-term contracts. Based on review of these contracts at the acquisition date, the Company concluded that the terms of certain contracts were either more or less favorable than could be realized in market transactions as of the date of the acquisition. As a result, the Company recognized acquired contract liabilities, net of acquired contract assets as of the acquisition date of each respective acquisition, based on the present value of the difference between the contractual cash flows of the executory contracts and the estimated cash flows had the contracts been executed at the acquisition date. The liabilities principally relate to long-term contracts that were initially executed several years prior to the respective acquisition. The Company measured these net liabilities in the year they were acquired under the measurement provisions of Accounting Standards Codification (“ASC”) 820, Fair Value Measurement, which is based on the price to transfer the obligation to a market participant at the measurement date, assuming that the net liabilities will remain outstanding in the marketplace. The portion of the Company's revenue resulting from transactions other than contracts with customers pertains to the amortization of these acquired contract liabilities as the related contractual performance obligations are satisfied. Adjustments to these liabilities due to significant changes in the total estimated costs of the contract are accounted for in a manner consistent with other loss contract reserves, with such adjustments recognized in cost of sales.
Trade and Other Receivables, net
Trade and other receivables are recorded net of an allowance for expected credit losses. Trade and other receivables include amounts billed and currently due from customers and amounts retained by the customer pending contract completion. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company pools receivables that share underlying risk characteristics and records the 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. The Company writes off balances against the allowance for expected credit losses when collectibility is deemed remote. The Company's trade and other receivables are exposed to credit risk; however, the risk is limited due to the diversity of the customer base. For the three and nine months ended December 31, 2020 and 2019, credit loss expense and write-offs were immaterial.
Leases
The Company leases office space, manufacturing facilities, land, vehicles, and equipment. The Company determines if an agreement is or contains a lease at the lease inception date and recognizes right-of-use (“ROU”) assets and lease liabilities at the
11
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
lease commencement date. A ROU asset and corresponding lease liability are not recorded for leases with an initial term of 12 months or less (“short-term leases”).
ROU assets represent the Company's right to use an underlying asset during the lease term, and lease liabilities represent the Company's obligation to make lease payments arising from the lease. The determination of the length of lease terms is affected by options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. The existence of significant economic incentive is the primary consideration when assessing whether the Company is reasonably certain of exercising an option in a lease. Both finance and operating lease ROU assets and liabilities are recognized at commencement date and measured as the present value of lease payments to be made over the lease term. As the interest rate implicit in the lease is not readily available for most of the Company's leases, the Company uses its estimated incremental borrowing rate in determining the present value of lease payments. The estimated incremental borrowing rate is derived from information available at the lease commencement date. The lease ROU asset recognized at commencement is adjusted for any lease payments related to initial direct costs, prepayments, and lease incentives.
For operating leases, lease expense is recognized on a straight-line basis over the lease term. For finance leases, lease expense comprises the amortization of the ROU assets recognized on a straight-line basis generally over the shorter of the lease term or the estimated useful life of the underlying asset and interest on the lease liability. Variable lease payments not dependent on a rate or index are recognized when the event, activity, or circumstance in the lease agreement upon which those payments are contingent is probable of occurring and are presented in the same line of the consolidated balance sheet as the rent expense arising from fixed payments. The Company has lease agreements with lease and non-lease components. Non-lease components are combined with the related lease components and accounted for as lease components for all classes of underlying assets.
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 19% and 21% of total trade accounts receivable as of December 31, 2020 and March 31, 2020, respectively. Trade and other accounts receivable from Bombardier Inc. ("Bombardier") include receivables from transition services and represented approximately 2% and 16% as of December 31, 2020 and March 31, 2020, respectively. The Company had no other concentrations of credit risk of more than 10%.
Sales to Boeing for the nine months ended December 31, 2020, were $528,263, or 38% of net sales, of which $164,520 and $363,743 were from Systems & Support and Aerospace Structures, respectively. Sales to Boeing for the nine months ended December 31, 2019, were $742,495, or 34% of net sales, of which $189,854 and $552,641 were from Systems & Support and Aerospace Structures, respectively. The percentage increase in sales to Boeing as compared with the prior period is driven entirely by military sales.
Sales to Gulfstream Aerospace Corporation (“Gulfstream”) for the nine months ended December 31, 2020, were $100,364, or 7% of net sales, of which $2,166 and $98,197 were from Systems & Support and Aerospace Structures, respectively. Sales to Gulfstream for the nine months ended December 31, 2019, were $268,917, or 12% of net sales, of which $2,497 and $266,421 were from Systems & Support and Aerospace Structures, respectively.
No other single customer accounted for more than 10% of the Company’s net sales. However, the loss of any significant customer, including Boeing and Gulfstream, could have a material adverse effect on the Company and its operating subsidiaries.
Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. When determining fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and also considers assumptions that market participants would use when pricing an asset or liability. The fair value hierarchy has three levels of inputs that may be used to measure fair value: Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities; Level 2—Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability; and Level 3—Unobservable inputs for the asset or liability. The Company has applied fair value measurements when measuring the impairment of assets held for sale (see Note 3), when measuring the long-lived asset impairment in the current period (see Note 10), and to its pension and postretirement plan assets (see Note 11).
Supplemental Cash Flow Information
For the nine months ended December 31, 2020, the Company paid $2,474 for income taxes, net of income tax refunds received. For the nine months ended December 31, 2019, the Company paid $4,370 for income taxes, net of income tax refunds received.
12
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
3. DIVESTED OPERATIONS AND ASSETS HELD FOR SALE
Assets Held for Sale
In May 2020, the Company’s Board of Directors committed to a plan to sell its composites manufacturing operations located in Milledgeville, Georgia and Rayong, Thailand. In August 2020, the Company entered into a definitive agreement with the buyer of the composites manufacturing operations in Georgia and Thailand. The transaction is expected to close in the fourth quarter of fiscal year 2021. In the three months ended December 31, 2020, the Company recognized an impairment on the assets held for sale of $45,201 due to decreases in actual and expected performance of certain widebody programs within the disposal group that affected its estimated fair value less cost to sell. The impairment is presented on the accompanying consolidated statements of operations within loss on sale of assets and businesses. To measure the amount of the impairment, the Company compared the carrying value of the assets and liabilities of the disposal group with their estimated fair value less cost to sell as of the balance sheet date. The estimate of fair value is categorized as Level 2 within the fair value hierarchy. The key assumptions used in the estimate of fair value is the negotiated sales price of the assets and the assumption of the disposal group’s liabilities. As of December 31, 2020, the operating results of the composites manufacturing operations are included within the Aerospace Structures reportable segment, and the related assets and liabilities are classified as held for sale on the accompanying condensed consolidating balance sheets.
Fiscal 2020 Divestitures
In August 2020, the Company completed the transfer of the assets and certain liabilities associated with its Gulfstream G650 wing supply chain activities for cash proceeds net of transaction costs of approximately $52,000. The Company recognized a loss of approximately $747, which is presented on the accompanying condensed consolidated statements of operations within loss on sale of assets and businesses. The operating results associated with the G650 wing supply chain activities were included within Aerospace Structures through the date of transfer.
In December 2019, the Company completed the sale of its manufacturing operations at its Nashville, TN, facility for cash proceeds net of transaction costs of approximately $58,000, including approximately $7,000 allocated as a premium paid by the buyer in exchange for a specified performance guarantee. The Company recognized a loss of approximately $64,000, which is presented on the consolidated statements of operations within loss on sale of assets and businesses. The operating results of the Nashville manufacturing operations are included in Aerospace Structures through the date of divestiture. Additionally, as part of the transaction, the Company agreed to transfer to the buyer, within 120 days from the date of closing, certain defined benefit pension assets and obligations of approximately $55,000 associated with the Nashville manufacturing operations. In accordance with applicable defined benefit pension plan accounting guidance, the transfer was treated as a settlement for purposes of the Company’s consolidated financial statements and resulted in accelerated recognition of previously unrecognized actuarial losses. The Company completed the transfer of the defined benefit pension assets and obligations in March 2020 and recognized a one-time settlement loss of approximately $28,000.
In September 2019, the Company completed the assignment of its E-2 Jets contract with Embraer for the manufacture of structural components for their program to AeroSpace Technologies of Korea Inc. ("ASTK"). As part of this transaction, the Company transferred certain assets and liabilities to ASTK and recognized a gain of approximately $10,000, which is presented on the accompanying condensed consolidated statements of operations within loss on sale of assets and businesses. The assets and liabilities transferred were included within Aerospace Structures through the date of divestiture.
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 upon 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 13, Segments.
13
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
The following table shows disaggregated net sales satisfied overtime and at a point in time (excluding intercompany sales) for the three and nine months ended December 31, 2020 and 2019:
|
|
|
Three Months Ended
December 31,
|
|
|
Nine Months Ended
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
Systems & Support
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Satisfied over time
|
|
$
|
118,813
|
|
|
$
|
135,229
|
|
|
$
|
324,968
|
|
|
$
|
403,825
|
|
|
Satisfied at a point in time
|
|
|
140,519
|
|
|
|
193,601
|
|
|
|
418,753
|
|
|
|
571,433
|
|
|
Revenue from contracts with customers
|
|
|
259,332
|
|
|
|
328,830
|
|
|
|
743,721
|
|
|
|
975,258
|
|
|
Amortization of acquired contract liabilities
|
|
|
4,306
|
|
|
|
8,377
|
|
|
|
11,569
|
|
|
|
26,126
|
|
|
Total revenue
|
|
|
263,638
|
|
|
|
337,207
|
|
|
|
755,290
|
|
|
|
1,001,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace Structures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Satisfied over time
|
|
$
|
148,526
|
|
|
$
|
330,657
|
|
|
$
|
596,145
|
|
|
$
|
1,075,141
|
|
|
Satisfied at a point in time
|
|
|
11,269
|
|
|
|
28,582
|
|
|
|
28,003
|
|
|
|
100,455
|
|
|
Revenue from contracts with customers
|
|
|
159,795
|
|
|
|
359,239
|
|
|
|
624,148
|
|
|
|
1,175,596
|
|
|
Amortization of acquired contract liabilities
|
|
|
2,561
|
|
|
|
8,220
|
|
|
|
23,448
|
|
|
|
30,027
|
|
|
Total revenue
|
|
|
162,356
|
|
|
|
367,459
|
|
|
|
647,596
|
|
|
|
1,205,623
|
|
|
|
|
$
|
425,994
|
|
|
$
|
704,666
|
|
|
$
|
1,402,886
|
|
|
$
|
2,207,007
|
|
The following table shows disaggregated net sales by end market (excluding intercompany sales) for the three and nine months ended December 31, 2020 and 2019:
|
|
|
Three Months Ended
December 31,
|
|
|
Nine Months Ended
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
Systems & Support
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial aerospace
|
|
$
|
92,529
|
|
|
$
|
192,232
|
|
|
$
|
280,102
|
|
|
$
|
561,815
|
|
|
Military
|
|
|
145,168
|
|
|
|
105,860
|
|
|
|
396,672
|
|
|
|
309,735
|
|
|
Business jets
|
|
|
7,802
|
|
|
|
10,776
|
|
|
|
26,884
|
|
|
|
45,280
|
|
|
Regional
|
|
|
5,231
|
|
|
|
11,310
|
|
|
|
18,218
|
|
|
|
33,434
|
|
|
Non-aviation
|
|
|
8,602
|
|
|
|
8,652
|
|
|
|
21,845
|
|
|
|
24,994
|
|
|
Revenue from contracts with customers
|
|
|
259,332
|
|
|
|
328,830
|
|
|
|
743,721
|
|
|
|
975,258
|
|
|
Amortization of acquired contract liabilities
|
|
|
4,306
|
|
|
|
8,377
|
|
|
|
11,569
|
|
|
|
26,126
|
|
|
Total revenue
|
|
$
|
263,638
|
|
|
$
|
337,207
|
|
|
$
|
755,290
|
|
|
$
|
1,001,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace Structures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial aerospace
|
|
$
|
109,929
|
|
|
$
|
208,943
|
|
|
$
|
372,249
|
|
|
$
|
681,471
|
|
|
Military
|
|
|
31,670
|
|
|
|
27,394
|
|
|
|
105,365
|
|
|
|
83,773
|
|
|
Business jets
|
|
|
18,039
|
|
|
|
98,370
|
|
|
|
138,141
|
|
|
|
330,178
|
|
|
Regional
|
|
|
—
|
|
|
|
24,523
|
|
|
|
8,025
|
|
|
|
80,155
|
|
|
Non-aviation
|
|
|
157
|
|
|
|
9
|
|
|
|
368
|
|
|
|
19
|
|
|
Revenue from contracts with customers
|
|
|
159,795
|
|
|
|
359,239
|
|
|
|
624,148
|
|
|
|
1,175,596
|
|
|
Amortization of acquired contract liabilities
|
|
|
2,561
|
|
|
|
8,220
|
|
|
|
23,448
|
|
|
|
30,027
|
|
|
Total revenue
|
|
|
162,356
|
|
|
|
367,459
|
|
|
|
647,596
|
|
|
|
1,205,623
|
|
|
|
|
$
|
425,994
|
|
|
$
|
704,666
|
|
|
$
|
1,402,886
|
|
|
$
|
2,207,007
|
|
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 recognized when the revenue associated with the contract is recognized prior to billing and 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
14
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
the three and nine months ended December 31, 2020 and 2019, 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. 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. The effect of a contract modification to an existing contract on the transaction price and our measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative catch-up basis. When the 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, which are recognized prospectively.
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 our contract assets and liabilities balances:
|
|
|
December 31, 2020
|
|
|
March 31,
2020
|
|
|
Change
|
|
|
Contract assets
|
|
$
|
175,099
|
|
|
$
|
267,079
|
|
|
$
|
(91,980
|
)
|
|
Contract liabilities
|
|
|
(278,690
|
)
|
|
|
(386,585
|
)
|
|
|
107,895
|
|
|
Net contract liability
|
|
$
|
(103,591
|
)
|
|
$
|
(119,506
|
)
|
|
$
|
15,915
|
|
The Company recognized revenue due to changes in estimates associated with performance obligations satisfied or partially satisfied in previous periods of $4,577. The change in contract assets is the result of the settlement of approximately $60,802 of contract assets associated with the Gulfstream G650 wing supply chain transfer which was partially offset by revenue recognized in excess of amounts billed during the nine months ended December 31, 2020. The change in contract liabilities is the result of revenue recognized in excess of the receipt of additional customer advances during the nine months ended December 31, 2020. Additionally, approximately $33,568 of contract assets and $13,670 of contract liabilities are classified as held for sale on the accompanying condensed consolidated balance sheet as of December 31, 2020. For the nine months ended December 31, 2020, the Company recognized $71,433 of revenue that was included in the contract liability balance at the beginning of the period. Noncurrent contract assets presented in other, net on the accompanying condensed consolidated balance sheets as of December 31, 2020 and March 31, 2020, were $16,810 and $22,662, respectively. Noncurrent contract liabilities presented in other noncurrent liabilities on the accompanying condensed consolidated balance sheets as of December 31, 2020 and March 31, 2020, were $110,918 and $91,265, respectively.
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 for OEMs. A single contract may contain multiple performance obligations consisting of both recurring and nonrecurring elements.
As of December 31, 2020, the Company has the following unsatisfied, or partially unsatisfied, performance obligations that are expected to be recognized in the future as noted in the table below. The Company expects options to be exercised in addition to the amounts presented below.
|
|
|
Total
|
|
|
Less than
1 year
|
|
|
1-3 years
|
|
|
4-5 years
|
|
|
More than 5
years
|
|
|
Unsatisfied performance obligations
|
|
$
|
2,465,352
|
|
|
$
|
1,330,301
|
|
|
$
|
1,063,968
|
|
|
$
|
71,055
|
|
|
$
|
28
|
|
15
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
5. LEASES
The components of lease expense for the three and nine months ended December 31, 2020 and 2019, are disclosed in the table below.
|
|
|
|
|
Three Months Ended
December 31,
|
|
|
Nine Months Ended
December 31,
|
|
|
Lease Cost
|
|
Financial Statement Classification
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
Operating lease cost
|
|
Cost of sales or Selling, general and administrative expense
|
|
$
|
4,343
|
|
|
$
|
5,069
|
|
|
$
|
17,980
|
|
|
$
|
17,829
|
|
|
Variable lease cost
|
|
Cost of sales or Selling, general and administrative expense
|
|
|
2,452
|
|
|
|
2,170
|
|
|
|
7,156
|
|
|
|
5,892
|
|
|
Financing Lease Cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of right-of-use assets
|
|
Depreciation and amortization
|
|
|
1,117
|
|
|
|
1,494
|
|
|
|
3,546
|
|
|
|
4,224
|
|
|
Interest on lease liability
|
|
Interest expense and other
|
|
|
410
|
|
|
|
387
|
|
|
|
1,162
|
|
|
|
1,579
|
|
|
Total lease cost (1)
|
|
|
|
$
|
8,322
|
|
|
$
|
9,120
|
|
|
$
|
29,844
|
|
|
$
|
29,524
|
|
|
(1)
|
Total lease cost does not include short-term leases or sublease income, both of which are immaterial.
|
Supplemental cash flow information for the nine months ended December 31, 2020 and 2019, is disclosed in the table below.
|
|
|
Nine Months Ended
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
|
|
|
|
|
|
|
|
Operating cash flows used in operating leases
|
|
$
|
13,056
|
|
|
$
|
14,046
|
|
|
Operating cash flows used in finance leases
|
|
|
1,164
|
|
|
|
1,600
|
|
|
Financing cash flows used in finance leases
|
|
|
6,170
|
|
|
|
6,516
|
|
|
ROU assets obtained in exchange for lease liabilities
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
5,506
|
|
|
|
2,569
|
|
|
Finance leases
|
|
|
538
|
|
|
|
811
|
|
16
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
Supplemental balance sheet information related to leases as of December 31, 2020 and March 31, 2020, is disclosed in the table below.
|
Leases
|
|
Classification
|
|
December 31,
2020
|
|
|
March 31,
2020
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease ROU assets
|
|
Other, net
Assets held for sale
|
|
$
|
50,434
|
|
|
$
|
61,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance lease ROU assets, cost
|
|
Property and equipment, net
Assets held for sale
|
|
|
41,757
|
|
|
|
39,461
|
|
|
Accumulated amortization
|
|
Property and equipment, net
Assets held for sale
|
|
|
(22,217
|
)
|
|
|
(18,650
|
)
|
|
Finance lease ROU assets, net
|
|
|
|
|
19,540
|
|
|
|
20,811
|
|
|
Total lease assets
|
|
|
|
$
|
69,974
|
|
|
$
|
82,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
Accrued expenses
Liabilities related to assets held for sale
|
|
$
|
16,249
|
|
|
$
|
13,139
|
|
|
Finance
|
|
Current portion of long-term debt
Liabilities related to assets held for sale
|
|
|
6,093
|
|
|
|
7,336
|
|
|
Noncurrent
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
Other noncurrent liabilities
Liabilities related to assets held for sale
|
|
|
46,313
|
|
|
|
54,687
|
|
|
Finance
|
|
Long-term debt, less current portion
Liabilities related to assets held for sale
|
|
|
14,048
|
|
|
|
16,597
|
|
|
Total lease liabilities
|
|
|
|
$
|
82,703
|
|
|
$
|
91,759
|
|
Information related to lease terms and discount rates as of December 31, 2020 and March 31, 2020, is disclosed in the table below.
|
|
|
December 31,
2020
|
|
|
March 31,
2020
|
|
|
Weighted average remaining lease term (years)
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
7.0
|
|
|
|
7.2
|
|
|
Finance leases
|
|
|
7.0
|
|
|
|
6.9
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average discount rate
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
6.3
|
%
|
|
|
6.2
|
%
|
|
Finance leases
|
|
|
6.4
|
%
|
|
|
5.9
|
%
|
The maturity of the Company's lease liabilities as of December 31, 2020, is disclosed in the table below.
|
|
|
Operating
leases
|
|
|
Finance
leases
|
|
|
Total
|
|
|
FY2021 (remaining of year)
|
|
$
|
7,074
|
|
|
$
|
2,106
|
|
|
$
|
9,180
|
|
|
FY2022
|
|
|
15,766
|
|
|
|
6,367
|
|
|
|
22,133
|
|
|
FY2023
|
|
|
10,602
|
|
|
|
3,413
|
|
|
|
14,015
|
|
|
FY2024
|
|
|
7,601
|
|
|
|
2,734
|
|
|
|
10,335
|
|
|
FY2025
|
|
|
6,909
|
|
|
|
1,361
|
|
|
|
8,270
|
|
|
Thereafter
|
|
|
31,115
|
|
|
|
9,959
|
|
|
|
41,074
|
|
|
Total lease payments
|
|
|
79,067
|
|
|
|
25,940
|
|
|
|
105,007
|
|
|
Less: Imputed interest
|
|
|
(16,505
|
)
|
|
|
(5,799
|
)
|
|
|
(22,304
|
)
|
|
Total lease liabilities
|
|
$
|
62,562
|
|
|
$
|
20,141
|
|
|
$
|
82,703
|
|
17
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
6. INVENTORIES
Inventories are stated at the lower of cost (average-cost or specific-identification methods) or market. The components of inventories are as follows:
|
|
|
December 31,
2020
|
|
|
March 31,
2020
|
|
|
Raw materials
|
|
$
|
53,250
|
|
|
$
|
32,552
|
|
|
Work-in-process, including manufactured and purchased components
|
|
|
306,589
|
|
|
|
312,953
|
|
|
Finished goods
|
|
|
55,628
|
|
|
|
50,011
|
|
|
Rotable assets
|
|
|
30,741
|
|
|
|
57,460
|
|
|
Total inventories
|
|
$
|
446,208
|
|
|
$
|
452,976
|
|
The Company recognized an impairment loss of approximately $23,689 on certain rotable inventory that primarily arose as a result of customer fleet retirement announcements resulting from the COVID-19 pandemic. The impairment loss is included in cost of sales on the accompanying condensed consolidated statements of operations for the three and nine months ended December 31, 2020.
7. LONG-TERM DEBT
Long-term debt consists of the following:
|
|
|
December 31,
2020
|
|
|
March 31,
2020
|
|
|
Revolving credit facility
|
|
$
|
—
|
|
|
$
|
400,000
|
|
|
Receivable securitization facility
|
|
|
—
|
|
|
|
75,000
|
|
|
Finance leases
|
|
|
20,137
|
|
|
|
23,933
|
|
|
Senior secured first lien notes due 2024
|
|
|
700,000
|
|
|
|
—
|
|
|
Senior secured notes due 2024
|
|
|
525,000
|
|
|
|
525,000
|
|
|
Senior notes due 2022
|
|
|
300,000
|
|
|
|
300,000
|
|
|
Senior notes due 2025
|
|
|
500,000
|
|
|
|
500,000
|
|
|
Less: debt issuance costs
|
|
|
(25,792
|
)
|
|
|
(16,426
|
)
|
|
|
|
|
2,019,345
|
|
|
|
1,807,507
|
|
|
Less: current portion
|
|
|
6,090
|
|
|
|
7,336
|
|
|
|
|
$
|
2,013,255
|
|
|
$
|
1,800,171
|
|
18
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
Revolving Credit Facility
On August 17, 2020, the Company repaid the loans and other amounts outstanding under its revolving credit facility (the “Revolving Credit Facility”), which was governed by the Third Amended and Restated Credit Agreement, dated as of November 19, 2013 (as amended, the “Revolving Credit Agreement”) and terminated all commitment thereunder. The payment of $335,240 was made using a portion of the proceeds from the issuance of the Senior Secured First Lien Notes due 2024. The Company initially cash collateralized the letters of credit issued under the Revolving Credit Agreement but now have the ability to issue letters of credit under the Receivables Securitization Facility (as defined below).
Receivables Securitization Program
On August 17, 2020, the Company entered into amendments to its receivables securitization facility (the “Receivables Securitization Facility”). The August amendments removed the covenants that required the Company to maintain certain financial ratios. As of December 31, 2020, the maximum amount available under the Receivables Securitization Facility was $75,000, and the Company has the ability to reduce the facility amount to not less than $50,000. The actual amount available under the Receivables Securitization Facility at any point in time is dependent upon the balance of eligible accounts receivables as well as the amount of letters of credit outstanding.
On September 29, 2020, the Company entered into additional amendments to the Receivables Securitization Facility. The September amendments provide the Company with enhanced liquidity options by establishing a letter of credit facility under the Receivables Securitization Facility which effectively replaces a similar limited letter of credit facility under the Revolving Credit Facility Amendment. Pursuant to the letter of credit facility, the Company may request the Receivables Securitization Facility’s administrator to issue one or more letters of credit that will expire no later than 12 months after the date of issuance, extension or renewal, as applicable.
In connection with the Receivables 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 Receivables Securitization Facility. Interest rates are based on the lesser of 0.75% or the London Interbank Offered Rate (“LIBOR”), plus a 2.50% fee on the drawn portion and 0.60% fee on the undrawn portion of the Receivables Securitization Facility. The Company secures its trade accounts receivable, which are generally non-interest-bearing, in transactions that are accounted for as borrowings pursuant to ASC 860, Transfers and Servicing. At December 31, 2020, there were $0 in borrowings and $27,779 in letters of credit outstanding under the Receivables Securitization Agreement, primarily to support insurance policies. The Receivables Securitization Facility expires in December 2022.
The agreements governing the Receivables 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.
19
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
Senior Secured First Lien Notes due 2024
On August 17, 2020, the Company issued $700,000 principal amount of 8.875% Senior Secured First Lien Notes due 2024 (the “First Lien Notes”) pursuant to an indenture among the Company, the Guarantor Subsidiaries (as defined below) and U.S. Bank National Association, as trustee (the “First Lien Notes Indenture”). The First Lien Notes were sold at 100% of the principal amount and have an effective interest yield of 8.875%. Interest is payable semi-annually in cash in arrears on June 1 and December 1 of each year, commencing on December 1, 2020. In connection with the issuance of the First Lien Notes, the Company incurred approximately $13,000 of costs, which were deferred and are being amortized over the term of the First Lien Notes.
The First Lien Notes and the guarantees are first lien secured obligations of the Company and the Guarantor Subsidiaries. The First Lien Notes:
|
|
•
|
rank equally in right of payment to any existing and future senior indebtedness of the Company and Guarantor Subsidiaries, including the 2022 Notes, the 2024 Notes, and the 2025 Notes, (each as defined below and collectively, the “Existing Notes”);
|
|
|
•
|
are effectively senior to all existing and future second lien obligations (including the 2024 Notes) 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);
|
|
|
•
|
are senior in right of payment to all future subordinated indebtedness of the Company and the Guarantor Subsidiaries;
|
|
|
•
|
are secured by the Collateral on a pari passu basis with any future permitted additional first lien secured obligations, subject to the Collateral Trust Agreement (as defined below);
|
|
|
•
|
are 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
|
|
|
•
|
are structurally subordinated to all existing and future indebtedness and other liabilities of the Company’s existing and future subsidiaries that do not guarantee the First Lien Notes, including the Receivables Securitization Facility.
|
The First Lien Notes are guaranteed on a full, senior secured, joint and several basis by each of the Company’s domestic restricted subsidiaries (the “Guarantor Subsidiaries”) that guarantees any of the Company’s Existing Notes. 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 First Lien Notes. Under certain circumstances, the guarantees may be released without action by, or consent of, the holder of the First Lien Notes.
The First Lien Notes and the guarantees will be 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 and will rank senior to those that secure the 2024 Notes (the “Collateral”). Under certain circumstances, the Collateral may be released without action by, or the consent of, the holders of the First Lien Notes. The First Lien Notes and the guarantees will not be secured by the assets of Non-Guarantor Subsidiaries (as defined below), 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 Receivables Securitization Facility.
Pursuant to an intercreditor agreement (the “Intercreditor Agreement”) between Wilmington Trust, National Association, in its capacity as the collateral trustee (the “Collateral Trustee”) and U.S. Bank National Association, in its capacity as second lien collateral agent for the 2024 Notes, the liens on the Collateral securing the First Lien Notes and all future first lien obligations will be made expressly senior to the liens securing the 2024 Notes.
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 First Lien Notes, will set forth therein the relative rights with respect to the Collateral as among the trustee for the 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 will generally control 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 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 First Lien Note holders may no longer be in control of such decisions.
20
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
The Company may redeem the First Lien Notes, in whole or in part, at any time or from time to time on or after February 1, 2023, 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 February 1, 2023, the Company may redeem the First Lien Notes, in whole or in part, at a redemption price equal to 100% of their principal amount plus a make whole premium, together with accrued and unpaid interest, if any, to the redemption date. In addition, the Company may redeem up to 40% of the aggregate principal amount of the outstanding First Lien Notes prior to June 1, 2023, with the net cash proceeds from certain equity offerings at a redemption price equal to 108.875% of their principal amount, together with accrued and unpaid interest, if any, to the redemption date.
If the Company experiences specific kinds of changes of control, the Company is required to offer to purchase all of the First Lien Notes at a purchase price of 101% of their principal amount, plus accrued and unpaid interest, if any, to the date of purchase.
The 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 First Lien Notes Indenture requires, among other things, the Company to provide financial and current reports to holders of the First Lien Notes or file such reports electronically with the SEC. Furthermore, the First Lien Notes Indenture requires that the future net proceeds from certain asset sales will be required to repay the First Lien Notes at a premium of 106.656%, until the aggregate principal amount of Notes outstanding is $350,000 or less, provided that the Company may retain the first $100,000 of such net proceeds (subject to compliance with the asset sale covenants in the Company’s other outstanding indentures) or use it for certain other permitted purposes. 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.
21
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
Senior Secured Notes Due 2024
On September 23, 2019, the Company issued $525,000 principal amount of 6.250% Senior Secured Notes due September 15, 2024 (the "2024 Notes"). The 2024 Notes were sold at 100% of principal amount and have an effective interest yield of 6.250%. Interest on the 2024 Notes is payable semiannually in cash in arrears on March 15 and September 15 of each year. The 2024 Notes are secured by second-priority liens on all of the Company's and the Guarantor Subsidiaries' assets that secure all of the indebtedness under the Credit Facility and certain hedging and cash management obligations.
Senior Notes due 2021
On September 23, 2019, the Company called all outstanding 4.875% Senior Notes due 2021 (the "2021 Notes") and discharged the 2021 Notes by irrevocably depositing with the 2021 Notes trustee sufficient funds to pay all principal and accrued interest through October 23, 2019. On October 23, 2019, the Company redeemed $375,000 principal amount of the 2021 Notes with the proceeds of the 2024 Notes.
Senior Notes due 2022
On June 3, 2014, the Company issued $300,000 principal amount of 5.250% Senior Notes due June 1, 2022 (the "2022 Notes"). The 2022 Notes were sold at 100% of principal amount and have an effective interest yield of 5.250%. Interest on the 2022 Notes accrues at the rate of 5.250% per annum and is payable semiannually in cash in arrears on June 1 and December 1 of each year.
Senior Notes Due 2025
On August 17, 2017, the Company issued $500,000 principal amount of 7.750% Senior Notes due August 15, 2025 (the "2025 Notes"). The 2025 Notes were sold at 100% of principal amount and have an effective interest yield of 7.750%. Interest on the 2025 Notes accrues at the rate of 7.750% per annum and is payable semiannually in cash in arrears on February 15 and August 15 of each year.
Financial Instruments Not Recorded at Fair Value
Carrying amounts and the related estimated fair values of the Company's long-term debt not recorded at fair value in the consolidated financial statements are as follows:
|
December 31, 2020
|
|
|
March 31, 2020
|
|
|
Carrying
Value
|
|
|
Fair
Value
|
|
|
Carrying
Value
|
|
|
Fair
Value
|
|
|
$
|
2,019,345
|
|
|
$
|
2,053,717
|
|
|
$
|
1,807,507
|
|
|
$
|
1,559,455
|
|
The fair value of the long-term debt was calculated based on either interest rates available for debt with terms and maturities similar to the Company's existing debt arrangements or broker quotes on our existing debt (Level 2 inputs).
Interest paid on indebtedness during the nine months ended December 31, 2020 and 2019, amounted to $79,382 and $60,885, respectively.
8. EARNINGS PER SHARE
The following is a reconciliation between the weighted average outstanding shares used in the calculation of basic and diluted earnings per share:
|
|
|
Three Months Ended December 31,
|
|
|
Nine Months Ended December 31,
|
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
Weighted average common shares outstanding – basic
|
|
|
52,488
|
|
|
|
50,395
|
|
|
|
52,126
|
|
|
|
50,074
|
|
|
Net effect of dilutive stock options and non-vested stock (1)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
517
|
|
|
Weighted average common shares outstanding – diluted
|
|
|
52,488
|
|
|
|
50,395
|
|
|
|
52,126
|
|
|
|
50,591
|
|
|
(1)
|
For the three and nine months ended December 31, 2020 and 2019, the shares that could potentially dilute earnings per share in the future but were not included in diluted weighted average common shares outstanding because to do so would have been anti-dilutive were immaterial.
|
22
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
9. INCOME TAXES
The Company follows the Income Taxes topic of ASC 740, which prescribes a recognition threshold and measurement attribute criteria for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, as well as guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company's policy is to release the tax effects from accumulated other comprehensive income when the 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 December 31, 2020 and March 31, 2020, the total amount of unrecognized tax benefits was $18,908 and $18,965, respectively, most of which would impact the effective rate, if recognized. The Company does not anticipate that total unrecognized tax benefits will be reduced in the next 12 months.
As of December 31, 2020, the Company has a valuation allowance against principally all of its net deferred tax assets given insufficient positive evidence to support the realization of the Company’s deferred tax assets. The Company intends to continue maintaining a valuation allowance on its deferred tax assets until there is sufficient positive evidence to support the reversal of all or some portion of these allowances. A reduction in the valuation allowance could result in a significant decrease in income tax expense in the period that the release is recorded. However, the exact timing and amount of the reduction in its valuation allowance is unknown at this time and will be subject to the earnings level the Company achieves during fiscal 2021 and future periods.
The effective income tax rate for the three months ended December 31, 2020, was (1.0)% as compared with 21.0% for the three months ended December 31, 2019. For the three months ended December 31, 2020, the effective tax rate reflected a limitation on the recognition of tax benefits due to the full valuation allowance. The effective income tax rate for the nine months ended December 31, 2020, was (0.6)% as compared with 21.0% for the nine months ended December 31, 2019. For the nine months ended December 31, 2020, the effective tax rate reflected a limitation on the recognition of tax benefits due to the full valuation allowance.
With few exceptions, the Company is no longer subject to U.S. federal, 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, 2013.
As of December 31, 2020, the Company is not subject to any ongoing income tax examinations. The Company has settled appeals for a prior state examination related to fiscal years ended March 31, 1999 through March 31, 2005. The Company believes appropriate provisions for all outstanding issues have been made for all jurisdictions and all open years.
10. LONG-LIVED ASSETS
As disclosed in Note 3, in May 2020, the Company’s Board of Directors committed to a plan (i) to sell its composites manufacturing operations located in Milledgeville, Georgia and Rayong, Thailand and (ii) to transfer the assets and certain liabilities associated with its Gulfstream G650 wing supply chain activities (as disclosed in Note 3, this transaction closed in August 2020). These planned divestitures represent the divestiture of certain assets and liabilities of an operating business within the Aerospace Structures segment that the Company has identified as an asset group pursuant to the provisions of ASC 360, Property, Plant, and Equipment. As a result, as of May 31, 2020, the Company concluded that the planned divestitures represented a significant change in the manner in which the related asset group was expected to be used, and that the asset group therefore needed to be tested for recoverability. The asset group primarily consists of working capital, fixed assets and definite-lived intangible assets. The Company first determined that the relevant long-lived asset group was not recoverable by comparing the undiscounted cash flows expected to be generated by the long-lived asset group to the carrying value of the asset group. As a result, the Company estimated the fair value of the long-lived asset group and concluded that the asset group was impaired. The Company used a multi-period excess earnings approach to estimate the fair value of the long-lived asset group for purposes of testing the asset group for impairment. This method estimates fair value based on the expected future excess earnings stream attributable to the asset group. This method requires the use of several key assumptions, including revenue projections that consider historical and estimated future results, general economic and market conditions, as well as the impact of planned business and operational strategies. A discount rate of 15.0% was applied to the estimated future excess earnings and cash flows in order to estimate the fair value of the asset group as of the measurement date. The Company has determined that the lowest level of the inputs that are significant to the fair value measurement are unobservable inputs that fall within Level 3 of the fair value hierarchy.
In accordance with ASC 360, the Company allocated the resulting impairment to the specific long-lived assets within the asset group on a pro rata basis, except that the loss allocated to an individual long-lived asset of the group did not reduce the carrying amount of that asset below its estimated fair value. As a result, the Company recognized a total noncash impairment charge of $252,382 in the first quarter, primarily allocated to definite-lived intangible assets, which is presented as “Impairment of long-lived assets” on the condensed consolidated statements of operations.
23
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
11. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
The Company sponsors several defined benefit pension plans covering some of its employees. Certain employee groups are ineligible to participate in the plans or have ceased to accrue additional benefits under the plans based upon their service to the Company or years of service accrued under the defined benefit pension plans. Benefits under the defined benefit plans are based on years of service and, for most non-represented employees, on average compensation for certain years. It is the Company’s policy to fund at least the minimum amount required for all qualified plans, using actuarial cost methods and assumptions acceptable under U.S. Government regulations (and for non-U.S. plans, acceptable under local regulations), by making payments into a separate trust. The Company contributed 2,849,002 shares of common stock to this separate trust with an aggregate contribution value of approximately $40,000 on the contribution date. As a result of the contribution, the Company expects the approximately $58,000 required cash contribution for the fiscal year ending March 31, 2022, to be reduced to approximately $18,000.
In addition to the defined benefit pension plans, the Company provides 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 handful 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. In order to recognize the funded status, the Company determined the fair value of the plan assets. The majority of the plan assets are publicly traded investments, which were valued based on the market price as of the date of re-measurement. Investments that are not publicly traded were valued based on the estimated fair value of those investments based on our evaluation of data from fund managers and comparable market data.
Net Periodic Benefit Plan Costs
The components of net periodic benefit costs (income) for our postretirement benefit plans are shown in the following table:
|
|
|
Pension Benefits
|
|
|
|
|
Three Months Ended December 31,
|
|
|
Nine Months Ended December 31,
|
|
|
|
|
2020
|
|
|
2019 (1)
|
|
|
2020
|
|
|
2019 (1)
|
|
|
Components of net periodic benefit costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
386
|
|
|
$
|
577
|
|
|
$
|
1,146
|
|
|
$
|
1,758
|
|
|
Interest cost
|
|
|
16,107
|
|
|
|
16,073
|
|
|
|
48,294
|
|
|
|
52,162
|
|
|
Expected return on plan assets
|
|
|
(34,154
|
)
|
|
|
(35,900
|
)
|
|
|
(102,395
|
)
|
|
|
(106,518
|
)
|
|
Amortization of prior service credits
|
|
|
243
|
|
|
|
(183
|
)
|
|
|
728
|
|
|
|
(695
|
)
|
|
Amortization of net loss
|
|
|
7,812
|
|
|
|
7,632
|
|
|
|
23,417
|
|
|
|
20,651
|
|
|
Curtailment loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
23,476
|
|
|
Special termination benefits
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11,642
|
|
|
Net periodic benefit income
|
|
$
|
(9,606
|
)
|
|
$
|
(11,801
|
)
|
|
$
|
(28,810
|
)
|
|
$
|
2,476
|
|
|
(1)
|
As adjusted; refer to Note 1.
|
|
|
|
Other Postretirement Benefits
|
|
|
|
|
Three Months Ended December 31,
|
|
|
Nine Months Ended December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
Components of net periodic benefit costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
62
|
|
|
Interest cost
|
|
|
28
|
|
|
|
41
|
|
|
|
84
|
|
|
|
1,519
|
|
|
Amortization of prior service credits
|
|
|
(1,276
|
)
|
|
|
(1,276
|
)
|
|
|
(3,828
|
)
|
|
|
(3,596
|
)
|
|
Amortization of gain
|
|
|
(1,191
|
)
|
|
|
(1,186
|
)
|
|
|
(3,574
|
)
|
|
|
(5,175
|
)
|
|
Curtailment gain
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(49,491
|
)
|
|
Net periodic benefit income
|
|
$
|
(2,439
|
)
|
|
$
|
(2,421
|
)
|
|
$
|
(7,318
|
)
|
|
$
|
(56,681
|
)
|
|
(1)
|
As adjusted; refer to Note 1.
|
24
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
12. STOCKHOLDERS' DEFICIT
Accumulated Other Comprehensive Loss
Changes in accumulated other comprehensive loss ("AOCI") by component for the three and nine months ended December 31, 2020 and 2019, were as follows:
|
|
|
Currency
Translation
Adjustment
|
Unrealized Gains
and Losses on
Derivative
Instruments
|
Defined Benefit
Pension Plans
and Other
Postretirement
Benefits
|
Total (2)
|
|
|
September 30, 2020
|
|
$
|
(53,844
|
)
|
|
$
|
28
|
|
|
$
|
(671,570
|
)
|
|
$
|
(725,386
|
)
|
|
AOCI before reclassifications
|
|
|
12,637
|
|
|
|
1,878
|
|
|
|
—
|
|
|
|
14,515
|
|
|
Amounts reclassified from AOCI
|
|
|
—
|
|
|
|
437
|
|
|
|
4,265
|
|
(3)
|
|
4,702
|
|
|
Net current period OCI
|
|
|
12,637
|
|
|
|
2,315
|
|
|
|
4,265
|
|
|
|
19,217
|
|
|
December 31, 2020
|
|
$
|
(41,207
|
)
|
|
$
|
2,343
|
|
|
$
|
(667,305
|
)
|
|
$
|
(706,169
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019 (1)
|
|
$
|
(57,516
|
)
|
|
$
|
(2,527
|
)
|
|
$
|
(532,554
|
)
|
|
$
|
(592,597
|
)
|
|
AOCI before reclassifications
|
|
|
11,074
|
|
|
|
4,581
|
|
|
|
—
|
|
|
|
15,655
|
|
|
Amounts reclassified from AOCI
|
|
|
—
|
|
|
|
(80
|
)
|
|
|
4,387
|
|
(3)
|
|
4,307
|
|
|
Net current period OCI
|
|
|
11,074
|
|
|
|
4,501
|
|
|
|
4,387
|
|
|
|
19,962
|
|
|
December 31, 2019 (1)
|
|
$
|
(46,442
|
)
|
|
$
|
1,974
|
|
|
$
|
(528,167
|
)
|
|
$
|
(572,635
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020 (1)
|
|
$
|
(62,045
|
)
|
|
$
|
(4,303
|
)
|
|
$
|
(680,100
|
)
|
|
$
|
(746,448
|
)
|
|
AOCI before reclassifications
|
|
|
20,838
|
|
|
|
8,308
|
|
|
|
—
|
|
|
|
29,146
|
|
|
Amounts reclassified from AOCI
|
|
|
—
|
|
|
|
(1,662
|
)
|
|
|
12,795
|
|
(3)
|
|
11,133
|
|
|
Net current period OCI
|
|
|
20,838
|
|
|
|
6,646
|
|
|
|
12,795
|
|
|
|
40,279
|
|
|
December 31, 2020
|
|
$
|
(41,207
|
)
|
|
$
|
2,343
|
|
|
$
|
(667,305
|
)
|
|
$
|
(706,169
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019 (1)
|
|
$
|
(48,606
|
)
|
|
$
|
(1,130
|
)
|
|
$
|
(466,275
|
)
|
|
$
|
(516,011
|
)
|
|
AOCI before reclassifications
|
|
|
2,164
|
|
|
|
4,921
|
|
|
|
(122,971
|
)
|
|
|
(115,886
|
)
|
|
Amounts reclassified from AOCI
|
|
|
—
|
|
|
|
(1,817
|
)
|
|
|
61,079
|
|
(3)
|
|
59,262
|
|
|
Net current period OCI
|
|
|
2,164
|
|
|
|
3,104
|
|
|
|
(61,892
|
)
|
|
|
(56,624
|
)
|
|
December 31, 2019 (1)
|
|
$
|
(46,442
|
)
|
|
$
|
1,974
|
|
|
$
|
(528,167
|
)
|
|
$
|
(572,635
|
)
|
|
(1)
|
As adjusted; refer to Note 1.
|
|
(3)
|
Includes amortization of actuarial losses and recognized prior service (credits) costs, which are included in net periodic pension cost of which a portion is allocated to production as inventoried costs. Net periodic pension cost is presented in cost of sales and non-service defined benefit income on the accompanying condensed consolidated statements of operations. Refer to Note 11 for additional disclosure regarding our postretiremend benefit plans.
|
13. SEGMENTS
The Company reports financial performance based on the following two reportable segments: Systems & Support and Aerospace Structures. The Company’s reportable segments are aligned with how the business is managed, and the Company's views of the markets it serves. The Chief Operating Decision Maker (the "CODM") evaluates performance and allocates resources based upon review of segment information. The CODM utilizes earnings before interest, income taxes, depreciation and amortization, and pension (“Adjusted EBITDAP”) as a primary measure of segment profitability to evaluate performance of its segments and allocate resources.
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.
25
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 December 31, 2020
|
|
|
|
|
Total
|
|
|
Corporate &
Eliminations
|
|
|
Systems &
Support
|
|
|
Aerospace
Structures
|
|
|
Net sales to external customers
|
|
$
|
425,994
|
|
|
$
|
—
|
|
|
$
|
263,638
|
|
|
$
|
162,356
|
|
|
Intersegment sales (eliminated in consolidation)
|
|
|
—
|
|
|
|
(536
|
)
|
|
|
482
|
|
|
|
54
|
|
|
Segment profit and reconciliation to consolidated income before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDAP
|
|
|
61,407
|
|
|
|
—
|
|
|
|
46,746
|
|
|
|
14,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of segment profit to income (loss) before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(22,119
|
)
|
|
|
(989
|
)
|
|
|
(8,353
|
)
|
|
|
(12,777
|
)
|
|
Interest expense and other, net
|
|
|
(44,881
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate expenses
|
|
|
(8,483
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense
|
|
|
(3,679
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on sale of assets and businesses
|
|
|
(45,273
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of acquired contract liabilities
|
|
|
6,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-service defined benefit income
|
|
|
12,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of rotable inventory
|
|
|
(23,689
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(67,418
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures
|
|
$
|
6,184
|
|
|
$
|
158
|
|
|
$
|
2,308
|
|
|
$
|
3,718
|
|
|
Total assets
|
|
$
|
2,401,922
|
|
|
$
|
451,824
|
|
|
$
|
1,463,017
|
|
|
$
|
487,081
|
|
|
|
|
Three Months Ended December 31, 2019 (1)
|
|
|
|
|
Total
|
|
|
Corporate &
Eliminations
|
|
|
Systems &
Support
|
|
|
Aerospace
Structures
|
|
|
Net sales to external customers
|
|
$
|
704,666
|
|
|
$
|
—
|
|
|
$
|
337,207
|
|
|
$
|
367,459
|
|
|
Intersegment sales (eliminated in consolidation)
|
|
|
—
|
|
|
|
(3,230
|
)
|
|
|
1,717
|
|
|
|
1,513
|
|
|
Segment profit and reconciliation to consolidated income before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDAP
|
|
|
89,272
|
|
|
|
—
|
|
|
|
57,132
|
|
|
|
32,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of segment profit to income (loss) before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(29,843
|
)
|
|
|
(847
|
)
|
|
|
(8,075
|
)
|
|
|
(20,921
|
)
|
|
Interest expense and other, net
|
|
|
(33,178
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate expenses
|
|
|
(13,848
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense
|
|
|
(2,955
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on sale of assets and businesses
|
|
|
(60,019
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of acquired contract liabilities
|
|
|
16,597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-service defined benefit income
|
|
|
14,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Union represented employee incentives
|
|
|
(1,400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legal judgment gain, net
|
|
|
3,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(16,718
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures
|
|
$
|
10,255
|
|
|
$
|
416
|
|
|
$
|
3,929
|
|
|
$
|
5,910
|
|
26
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
|
|
|
Nine Months Ended December 31, 2020
|
|
|
|
|
Total
|
|
|
Corporate &
Eliminations
|
|
|
Systems &
Support
|
|
|
Aerospace
Structures
|
|
|
Net sales to external customers
|
|
$
|
1,402,886
|
|
|
$
|
—
|
|
|
$
|
755,290
|
|
|
$
|
647,596
|
|
|
Intersegment sales (eliminated in consolidation)
|
|
|
—
|
|
|
|
(4,357
|
)
|
|
|
2,888
|
|
|
|
1,469
|
|
|
Segment profit and reconciliation to consolidated income before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDAP
|
|
|
131,067
|
|
|
|
—
|
|
|
|
110,983
|
|
|
|
20,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of segment profit to income (loss) before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(72,819
|
)
|
|
|
(2,652
|
)
|
|
|
(24,830
|
)
|
|
|
(45,337
|
)
|
|
Interest expense and other, net
|
|
|
(132,344
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate expenses
|
|
|
(42,027
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense
|
|
|
(9,086
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on sale of assets and businesses
|
|
|
(46,020
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of acquired contract liabilities
|
|
|
35,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-service defined benefit income
|
|
|
37,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of rotable inventory
|
|
|
(23,689
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of long-lived assets
|
|
|
(252,382
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(375,008
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures
|
|
$
|
18,988
|
|
|
$
|
801
|
|
|
$
|
11,819
|
|
|
$
|
6,368
|
|
|
|
|
Nine Months Ended December 31, 2019 (1)
|
|
|
|
|
Total
|
|
|
Corporate &
Eliminations
|
|
|
Systems &
Support
|
|
|
Aerospace
Structures
|
|
|
Net sales to external customers
|
|
$
|
2,207,007
|
|
|
$
|
—
|
|
|
$
|
1,001,384
|
|
|
$
|
1,205,623
|
|
|
Intersegment sales (eliminated in consolidation)
|
|
|
—
|
|
|
|
(9,224
|
)
|
|
|
4,118
|
|
|
|
5,106
|
|
|
Segment profit and reconciliation to consolidated income before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDAP
|
|
|
250,126
|
|
|
|
—
|
|
|
|
162,008
|
|
|
|
88,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of segment profit to income (loss) before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(104,112
|
)
|
|
|
(2,533
|
)
|
|
|
(24,314
|
)
|
|
|
(77,265
|
)
|
|
Interest expense and other, net
|
|
|
(96,069
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate expenses
|
|
|
(42,709
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense
|
|
|
(8,245
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on sale of assets and businesses
|
|
|
(55,190
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of acquired contract liabilities
|
|
|
56,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-service defined benefit income
|
|
|
56,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Union represented employee incentives
|
|
|
(7,071
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legal judgment gain, net
|
|
|
9,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
58,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures
|
|
$
|
27,250
|
|
|
$
|
980
|
|
|
$
|
12,355
|
|
|
$
|
13,915
|
|
|
(1)
|
As adjusted; refer to Note 1.
|
During the three months ended December 31, 2020 and 2019, the Company had foreign sales of $78,440 and $164,832, respectively. During the nine months ended December 31, 2020 and 2019, the Company had foreign sales of $267,370 and $526,130, respectively.
14. COMMITMENTS AND CONTINGENCIES
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
27
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share data)
future litigation or proceeding and no assurances can be given, the Company does not believe that any pending matter will have a material effect, individually or in the aggregate, on its financial position or results of operations.
As the Company completes its restructuring plans as disclosed in Note 15, including the disposal of certain facilities, the Company may be exposed to additional costs such as environmental remediation obligations, lease termination costs, or supplier claims which may have a material effect on its financial position or results of operations when such matters arise and a reasonable estimate of the costs can be made.
15. RESTRUCTURING
As disclosed in the Company's Form 10-K for the fiscal year ended March 31, 2020, during the fiscal years ended March 31, 2017 and 2016, the Company committed to restructuring plans involving certain of its businesses, as well as the consolidation of certain of its facilities. With the exception of certain consolidations to be completed in future years, these plans were substantially complete as of March 31, 2020. During the nine months ended December 31, 2020, the Company incurred costs of $5,725, $20,580, and $6,442, within Systems & Support, Aerospace Structures, and its corporate headquarters, respectively, for total restructuring costs of $32,747 associated with new restructuring plans. Of the restructuring costs within Aerospace Structures, approximately $13,097 pertained to facility closures with the remainder primarily related to postemployment benefits arising from reductions in force and third-party consulting costs. The restructuring costs within Systems & Support and Corporate are primarily related to postemployment benefits arising from reductions in force and third-party consulting costs. We estimate that we will incur consolidated restructuring costs of approximately $34,000 for the fiscal year ended March 31, 2021, with costs being incurred in each of our segments for third-party consulting costs and severance, primarily related to our cost-reduction initiatives.
28