Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto contained elsewhere herein.
OVERVIEW
Business
We are a major supplier to the aerospace industry and have two reportable segments: (i) Systems & Support, whose companies’ revenues are derived from integrated solutions, including design, development and support of proprietary components, subsystems and systems, production of complex assemblies using external designs, as well as full life cycle solutions for commercial, regional, and military aircraft; and (ii) Aerospace Structures, whose companies supply commercial, business, and regional manufacturers with large metallic structures and produce close-tolerance parts primarily to customer designs and model-based definition, including a wide range of aluminum, hard metal, and composite structure capabilities.
Divestitures
During the fiscal year ended March 31, 2021, we divested of a number of our assets and operations, including the transfer of the assets and certain liabilities associated with our Gulfstream G650 wing supply chain activities. The operating results associated with the G650 wing supply chain activities were included within Aerospace Structures through the date of transfer. We recognized a net loss of approximately $0.8 million upon the completion of the transfer of the G650 wing supply chain activities in the fiscal year ended March 31, 2021.
As disclosed in Note 3, in May 2021 we completed the divestiture of our composites manufacturing operations located in Milledgeville, Georgia, and Rayong, Thailand, as well as our large structure manufacturing operations located in Red Oak, Texas. The related assets and liabilities associated with these divestitures were classified as held for sale as of March 31, 2021, and we recognized combined net losses of approximately $102.5 million in the year ended March 31, 2021. Upon the completion of the divestiture, we recognized an additional loss of approximately $6.0 million primarily as a result of changes in working capital balances. These losses are presented on the accompanying consolidated statements of operations within loss on sale of assets and businesses. The operating results associated with the composites and large structure manufacturing operations were included within Aerospace Structures through the date of divestiture.
Summary of Significant Financial Results
Significant financial results for the first quarter of the fiscal year ending March 31, 2022, include:
Net sales were $396.6 million compared with $495.1 million for the prior year period.
Operating income was $20.8 million compared with operating loss of $252.4 million for the prior year period.
Net loss was $30.4 million, or ($0.47) per common share, compared with net loss of $275.8 million, or $5.32 per diluted common share, for the prior year period.
Backlog as of June 30, 2021, was $1.85 billion. Of our existing backlog, we estimate that approximately $0.81 billion will not be shipped by June 30, 2022.
We used $149.5 million of cash in operating activities for the three months ended June 30, 2021, as compared with cash used from operations of $197.5 million in the comparable prior year period.
Restructuring
We have committed to several plans that incorporated the restructuring of certain of our businesses. As of March 31, 2021, with the exception of two pending facility closures to be completed in fiscal 2022 or 2023, we have substantially completed these plans. For the three months ended June 30, 2021 and 2020, we incurred $4.5 million and $15.4 million in restructuring costs, respectively. Full fiscal 2022 restructuring costs are expected to be in the range of $15.0 million.
COVID-19 Pandemic Response
We are unable at this time to reasonably estimate potential future additional financial impacts or a range of loss, if any, due to continued uncertainties related to the impacts of COVID-19 on our operations, supply chain and customers, Any such impacts, including any changes in our estimates, could have a material adverse effect on our financial position, results of operations, and cash flows. Key factors determining the potential impacts include the severity and duration of the pandemic which could be impacted by the emergence and circulation of new variants of SARS-CoV-2, the virus that causes COVID-19; governmental, business, and individuals' actions in response to the pandemic; and the development, availability, and public acceptance of effective treatments and vaccines. These factors are not within our control. In response to the continued uncertainties arising from the impact of the COVID-19 pandemic, we have maintained certain of the cost reduction initiatives originally implemented in late fiscal 2020.
21
Significant Developments in Key Programs
Discussion of significant developments on key programs is included below.
Boeing 787
The Boeing 787 program represented approximately 6% of revenue for the fiscal year ended March 31, 2021. During 2020, Boeing experienced significant reductions in deliveries due to the impacts of COVID-19 as well as production issues and associated rework. Boeing expanded the scope of its production inspections, and those inspections and associated rework have and continue to delay scheduled deliveries. While Boeing resumed deliveries of the 787 aircraft in March, Boeing announced in July 2021 that additional rework requirements on undelivered 787 aircraft had been identified and that, based on their assessment of the time required to complete the rework, the 787 production rate would temporarily be lower than five per month, gradually returning to that rate. Boeing also disclosed that China is a significant market for the 787 program, and if the program is unable to obtain orders from China in future quarters, Boeing may be required to adjust production rate assumptions further.
Boeing 767
Boeing's 767 program includes the commercial program and a derivative to support the related tanker program. The 767 currently has a production rate of 3 aircraft per month. Of our $1.85 billion in backlog as of June 30, 2021, approximately 21% relates to the 767 program, the significant majority of which is Aerospace Structures backlog.
Boeing 747-8
As of March 31, 2020, Triumph’s production on this program has completed from its Hawthorne, California, facility, with the remaining production from its Grand Prairie, Texas, facility expected to be completed in early to mid-fiscal 2022. Facility exit plans are underway at both locations and are expected to result in additional cost to exit of approximately $6.0 million through mid-fiscal 2022 and result in projected cash uses.
Although none of the programs noted above individually are expected to have a material impact on our net revenues, they do have the potential, either individually or in the aggregate, to materially and negatively impact our consolidated results of operations if future changes in estimates result in the need for a forward loss provision. Absent any such loss provisions, we do not anticipate that any of these programs will significantly dilute our future consolidated margins, although a prolonged impact of COVID-19 could result in changes in expectations.
RESULTS OF OPERATIONS
The following includes a discussion of our consolidated and business segment results of operations. Our diverse structure and customer base do not provide for precise comparisons of the impact of price and volume changes to our results. However, we have disclosed the significant variances between the respective periods.
Non-GAAP Financial Measures
We prepare and publicly release annual audited and quarterly unaudited financial statements prepared in accordance with U.S. GAAP. In accordance with Securities and Exchange Commission (the "SEC") rules, we also disclose and discuss certain non-GAAP financial measures in our public filings and earning releases. Currently, the non-GAAP financial measures that we disclose are Adjusted EBITDA, which is our net loss before interest, income taxes, amortization of acquired contract liabilities, legal settlements, loss on divestitures, depreciation and amortization; and Adjusted EBITDAP, which is Adjusted EBITDA, before pension expense or benefit, including the effects of curtailments, settlements, and other early retirement incentives. We disclose Adjusted EBITDA on a consolidated and Adjusted EBITDAP on a consolidated and a reportable segment basis in our earnings releases, investor conference calls and filings with the SEC. The non-GAAP financial measures that we use may not be comparable to similarly titled measures reported by other companies. Also, in the future, we may disclose different non-GAAP financial measures in order to help our investors more meaningfully evaluate and compare our future results of operations with our previously reported results of operations.
22
We view Adjusted EBITDA and Adjusted EBITDAP as operating performance measures and, as such, we believe that the U.S. GAAP financial measure most directly comparable to such measures is net loss. In calculating Adjusted EBITDA and Adjusted EBITDAP, we exclude from net loss the financial items that we believe should be separately identified to provide additional analysis of the financial components of the day-to-day operation of our business. We have outlined below the type and scope of these exclusions and the material limitations on the use of these non-GAAP financial measures as a result of these exclusions. Adjusted EBITDA and Adjusted EBITDAP are not measurements of financial performance under U.S. GAAP and should not be considered as a measure of liquidity, as an alternative to net loss, or as an indicator of any other measure of performance derived in accordance with U.S. GAAP. Investors and potential investors in our securities should not rely on Adjusted EBITDA or Adjusted EBITDAP as a substitute for any U.S. GAAP financial measure, including net loss. In addition, we urge investors and potential investors in our securities to carefully review the reconciliation of Adjusted EBITDA and Adjusted EBITDAP to net loss set forth below, in our earnings releases, and in other filings with the SEC and to carefully review the U.S. GAAP financial information included as part of our Quarterly Reports on Form 10-Q and our Annual Reports on Form 10-K that are filed with the SEC, as well as our quarterly earnings releases, and compare the U.S. GAAP financial information with our Adjusted EBITDA and Adjusted EBITDAP.
Adjusted EBITDA and Adjusted EBITDAP are used by management to internally measure our operating and management performance and by investors as a supplemental financial measure to evaluate the performance of our business that, when viewed with our U.S. GAAP results and the accompanying reconciliation, we believe provides additional information that is useful to gain an understanding of the factors and trends affecting our business. We have spent more than 20 years expanding our product and service capabilities, partially through acquisitions of complementary businesses. Due to the expansion of our operations, which included acquisitions, our net loss has included significant charges for depreciation and amortization. Adjusted EBITDA and Adjusted EBITDAP exclude these charges and provide meaningful information about the operating performance of our business, apart from charges for depreciation and amortization. We believe the disclosure of Adjusted EBITDA and Adjusted EBITDAP helps investors meaningfully evaluate and compare our performance from quarter to quarter and from year to year. We also believe Adjusted EBITDA and Adjusted EBITDAP are measures of our ongoing operating performance because the isolation of noncash charges, such as depreciation and amortization, and nonoperating items, such as interest, income taxes, pension and other postretirement benefits, provides additional information about our cost structure and, over time, helps track our operating progress. In addition, investors, securities analysts, and others have regularly relied on Adjusted EBITDA and Adjusted EBITDAP to provide financial measures by which to compare our operating performance against that of other companies in our industry.
Set forth below are descriptions of the financial items that have been excluded from our net income to calculate Adjusted EBITDA and Adjusted EBITDAP and the material limitations associated with using these non-GAAP financial measures as compared with net loss from continuing operations:
Gains or losses from sale of assets and businesses may be useful for investors to consider because they reflect gains or losses from sale of operating units or other assets. We do not believe these earnings necessarily reflect the current and ongoing cash earnings related to our operations.
Legal judgments and settlements, when applicable, may be useful for investors to consider because it reflects gains or losses from disputes with third parties. We do not believe these earnings necessarily reflect the current and ongoing cash earnings related to our operations.
Non-service defined benefit income or expense from our pension and other postretirement benefit plans (inclusive of certain pension related transactions such as curtailments, settlements, early retirement or other incentives) may be useful for investors to consider because they represent the cost of postretirement benefits to plan participants, net of the assumption of returns on the plan's assets and are not indicative of the cash paid for such benefits. We do not believe these earnings (expenses) necessarily reflect the current and ongoing cash earnings related to our operations.
Amortization of acquired contract liabilities may be useful for investors to consider because it represents the noncash earnings on the fair value of off-market contracts acquired through acquisitions. We do not believe these earnings necessarily reflect the current and ongoing cash earnings related to our operations.
Amortization expense and nonrecurring asset impairments (including goodwill, intangible asset impairments, and nonrecurring rotable inventory impairments) may be useful for investors to consider because it represents the estimated attrition of our acquired customer base and the diminishing value of tradenames, product rights, licenses, or, in the case of goodwill, other assets that are not individually identified and separately recognized under U.S. GAAP, or, in the case of nonrecurring asset impairments, the impact of unusual and nonrecurring events affecting the estimated recoverability of existing assets. We do not believe these charges necessarily reflect the current and ongoing cash charges related to our operating cost structure.
Depreciation may be useful for investors to consider because it generally represents the wear and tear on our property and equipment used in our operations. We do not believe these charges necessarily reflect the current and ongoing cash charges related to our operating cost structure.
23
The amount of interest expense and other we incur may be useful for investors to consider and may result in current cash inflows or outflows. However, we do not consider the amount of interest expense and other to be a representative component of the day-to-day operating performance of our business.
Income tax expense may be useful for investors to consider because it generally represents the taxes which may be payable for the period and the change in deferred income taxes during the period and may reduce the amount of funds otherwise available for use in our business. However, we do not consider the amount of income tax expense to be a representative component of the day-to-day operating performance of our business.
Management compensates for the above-described limitations by using non-GAAP measures only to supplement our U.S. GAAP results and to provide additional information that is useful to gain an understanding of the factors and trends affecting our business.
The following table shows our Adjusted EBITDA and Adjusted EBITDAP reconciled to our net loss for the indicated periods (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Net loss (U.S. GAAP measure)
|
|
$
|
(30,351
|
)
|
|
$
|
(275,786
|
)
|
|
Income tax expense
|
|
|
1,214
|
|
|
|
853
|
|
|
Interest expense and other
|
|
|
38,558
|
|
|
|
34,957
|
|
|
Debt extinguishment loss
|
|
|
9,689
|
|
|
|
—
|
|
|
Curtailments and special termination benefits loss, net
|
|
|
16,078
|
|
|
|
—
|
|
|
Loss on sale of assets and businesses, net
|
|
|
5,969
|
|
|
|
—
|
|
|
Amortization of acquired contract liabilities
|
|
|
(1,214
|
)
|
|
|
(10,987
|
)
|
|
Depreciation and amortization*
|
|
|
15,431
|
|
|
|
280,984
|
|
|
Adjusted EBITDA (non-GAAP measure)
|
|
$
|
55,374
|
|
|
$
|
30,021
|
|
|
Non-service defined benefit income (excluding curtailments and special termination benefits)
|
|
|
(14,356
|
)
|
|
|
(12,416
|
)
|
|
Adjusted EBITDAP (non-GAAP measure)
|
|
$
|
41,018
|
|
|
$
|
17,605
|
|
* Includes impairment charges related to long-lived assets in the first quarter of fiscal 2021
The following tables show our Adjusted EBITDAP by reportable segment reconciled to our operating income (loss) for the indicated periods (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2021
|
|
|
|
|
Total
|
|
|
Systems & Support
|
|
|
Aerospace
Structures
|
|
|
Corporate/
Eliminations
|
|
|
Operating income (loss)
|
|
$
|
20,832
|
|
|
$
|
35,546
|
|
|
$
|
11,223
|
|
|
$
|
(25,937
|
)
|
|
Loss on sale of assets and businesses
|
|
|
5,969
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,969
|
|
|
Amortization of acquired contract liabilities
|
|
|
(1,214
|
)
|
|
|
(1,202
|
)
|
|
|
(12
|
)
|
|
|
—
|
|
|
Depreciation and amortization
|
|
|
15,431
|
|
|
|
8,504
|
|
|
|
6,159
|
|
|
|
768
|
|
|
Adjusted EBITDAP
|
|
$
|
41,018
|
|
|
$
|
42,848
|
|
|
$
|
17,370
|
|
|
$
|
(19,200
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2020
|
|
|
|
|
Total
|
|
|
Systems & Support
|
|
|
Aerospace
Structures
|
|
|
Corporate/
Eliminations
|
|
|
Operating (loss) income
|
|
$
|
(252,392
|
)
|
|
$
|
25,431
|
|
|
$
|
(256,120
|
)
|
|
$
|
(21,703
|
)
|
|
Amortization of acquired contract liabilities
|
|
|
(10,987
|
)
|
|
|
(3,719
|
)
|
|
|
(7,268
|
)
|
|
|
—
|
|
|
Depreciation and amortization*
|
|
|
280,984
|
|
|
|
8,356
|
|
|
|
271,772
|
|
|
|
856
|
|
|
Adjusted EBITDAP
|
|
$
|
17,605
|
|
|
$
|
30,068
|
|
|
$
|
8,384
|
|
|
$
|
(20,847
|
)
|
* Includes impairment charges related to long-lived assets
24
The fluctuations from period to period within the amounts of the components of the reconciliations above are discussed further below within Results of Operations.
Three months ended June 30, 2021, compared with three months ended June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
(in thousands)
|
|
|
Net sales
|
|
$
|
396,646
|
|
|
$
|
495,077
|
|
|
Segment operating income (loss)
|
|
$
|
46,769
|
|
|
$
|
(230,689
|
)
|
|
Corporate expense
|
|
|
(25,937
|
)
|
|
|
(21,703
|
)
|
|
Total operating income (loss)
|
|
|
20,832
|
|
|
|
(252,392
|
)
|
|
Interest expense and other
|
|
|
38,558
|
|
|
|
34,957
|
|
|
Debt extinguishment loss
|
|
|
9,689
|
|
|
|
—
|
|
|
Non-service defined benefit loss (income)
|
|
|
1,722
|
|
|
|
(12,416
|
)
|
|
Income tax expense
|
|
|
1,214
|
|
|
|
853
|
|
|
Net loss
|
|
$
|
(30,351
|
)
|
|
$
|
(275,786
|
)
|
Net Sales
Organic sales adjusted for intersegment sales increased $35.4 million, or 10.7%, offset by declines from the composites and large structure manufacturing operations and G650 divestitures of $91.9 million and sunsetting programs (i.e., 747-8 and G280) of $42.0 million . Organic sales increased primarily from increased sales of rotorcraft as well as initial recoveries from the impacts of the COVID-19 pandemic partially offset by decreased volume on the 787 as a result of announced production rate decreases. Net sales for the three months ended June 30, 2021, included $8.7 million in total nonrecurring revenues, as compared with $22.0 million in total nonrecurring revenues for the three months ended June 30, 2020.
Cost of Sales and Gross Margin
Organic cost of sales adjusted for intersegment sales increased $21.1 million, or 8.5% offset by declines from the composites and large structure manufacturing operations and G650 divestitures of $78.7 million and sunsetting programs of $42.6 million. Organic cost of sales increased primarily due to the increased volumes described above. Organic gross margin for the three months ended June 30, 2021, was 26.2% compared with 24.5% for the three months ended June 30, 2020. The gross margin for the three months ended June 30, 2021, increased primarily as a result of changes in sales mix.
Gross margin for the three months ended June 30, 2021, included net favorable cumulative catch-up adjustments on long-term contracts of $14.9 million. The favorable cumulative catch-up adjustments to operating income included gross favorable adjustments of $19.4 million and gross unfavorable adjustments of $4.5 million. Gross margins for the three months ended June 30, 2020, included net favorable cumulative catch-up adjustments of $3.3 million.
Segment Operating Income
Organic segment operating income increased by $288.7 million, or 116.1%, primarily due to long-lived asset impairment charges of $252.4 million in the three months ended June 30, 2020, the increased margins described above, as well as decreased administrative compensation costs of approximately $6.6 million, decreased credit losses of $3.3 million, and decreased consulting costs of $2.7 million. The divestitures and sunsetting programs resulted in additional decreases to operating income of approximately $11.3 million.
Corporate Expense
The corporate expenses increased primarily due to increased loss on sale of assets and businesses of $6.0 million, partially offset by approximately $3.0 million in reduced administrative compensation costs.
Interest Expense and Other
Interest expense and other increased due to higher interest rates and relative debt levels. These increases were partially offset by a $3.4 million decrease in the net unfavorable change in foreign currency exchange rate losses.
Non-service Defined Benefit Income
Non-service defined benefit income decreased primarily due the recognition of a curtailment loss of approximately $16.0 million upon the completion of the composites and large structure manufacturing divestitures.
Income Taxes
The effective income tax rate for the three months ended June 30, 2021, was (4.2)% compared with (0.3)% for the three months ended June 30, 2020. For the three months ended June 30, 2021, the effective tax rate reflected a limitation on the recognition of tax benefits due to the full valuation allowance.
25
Business Segment Performance — Three months ended June 30, 2021, compared with three months ended June 30, 2020
We report our financial performance based on the following two reportable segments: Systems & Support and Aerospace Structures. Our Chief Operating Decision Maker ("CODM") utilizes Adjusted EBITDAP as a primary measure of profitability to evaluate performance of its segments and allocate resources.
The results of operations among our reportable segments vary due to differences in competitors, customers, extent of proprietary deliverables and performance. For example, Systems & Support, which generally includes proprietary products and/or arrangements where we become the primary source or one of a few primary sources to our customers, our unique engineering and manufacturing capabilities command a higher margin. Also, OEMs are increasingly focusing on assembly activities while outsourcing more manufacturing and repair to third parties, and as a result, are less of a competitive force than in previous years. This compares with Aerospace Structures, which generally includes long-term sole-source or preferred supplier contracts.
Refer to Note 1 for further details regarding the operations and capabilities of each of our reportable segments.
We currently generate a majority of our revenue from clients in the commercial aerospace industry, the military, the business jet industry, and the regional airline industry. Our growth and financial results are largely dependent on continued demand for our products and services from clients in these industries. If any of these industries experiences a downturn, our clients in these sectors may conduct less business with us. The loss of one or more of our major customers or an economic downturn in the commercial airline or the military and defense markets could have a material adverse effect on our business.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
% Change
|
|
|
% of Total Sales
|
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
NET SALES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Systems & Support
|
|
$
|
258,413
|
|
|
$
|
239,887
|
|
|
|
7.7
|
%
|
|
|
65.2
|
%
|
|
|
48.5
|
%
|
|
Aerospace Structures
|
|
|
138,252
|
|
|
|
257,877
|
|
|
|
(46.4
|
)%
|
|
|
34.9
|
%
|
|
|
52.1
|
%
|
|
Elimination of intersegment sales
|
|
|
(19
|
)
|
|
|
(2,687
|
)
|
|
|
99.3
|
%
|
|
|
—
|
|
|
|
(0.5
|
)%
|
|
Total net sales
|
|
$
|
396,646
|
|
|
$
|
495,077
|
|
|
|
(19.9
|
)%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
% Change
|
|
|
% of Segment Sales
|
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
SEGMENT OPERATING (LOSS) INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Systems & Support
|
|
$
|
35,546
|
|
|
$
|
25,431
|
|
|
|
39.8
|
%
|
|
|
13.8
|
%
|
|
|
10.6
|
%
|
|
Aerospace Structures
|
|
|
11,223
|
|
|
|
(256,120
|
)
|
|
|
104.4
|
%
|
|
|
8.1
|
%
|
|
|
(99.3
|
)%
|
|
Corporate
|
|
|
(25,937
|
)
|
|
|
(21,703
|
)
|
|
|
(19.5
|
)%
|
|
n/a
|
|
|
n/a
|
|
|
Total segment operating (loss) income
|
|
$
|
20,832
|
|
|
$
|
(252,392
|
)
|
|
|
108.3
|
%
|
|
|
5.3
|
%
|
|
|
(51.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
% Change
|
|
|
% of Segment Sales
|
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDAP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Systems & Support
|
|
$
|
42,848
|
|
|
$
|
30,068
|
|
|
|
42.5
|
%
|
|
|
16.7
|
%
|
|
|
12.7
|
%
|
|
Aerospace Structures
|
|
|
17,370
|
|
|
|
8,384
|
|
|
|
107.2
|
%
|
|
|
12.6
|
%
|
|
|
3.4
|
%
|
|
Corporate
|
|
|
(19,200
|
)
|
|
|
(20,847
|
)
|
|
|
7.9
|
%
|
|
n/a
|
|
|
n/a
|
|
|
|
|
$
|
41,018
|
|
|
$
|
17,605
|
|
|
|
133.0
|
%
|
|
|
10.3
|
%
|
|
|
3.6
|
%
|
Systems & Support:
Net Sales
Net sales increased primarily from increased sales of rotorcraft as well as initial recoveries from the impacts of the COVID-19 pandemic partially offset by decreased volume on the 787 as a result of announced production rate decreases.
Cost of Sales and Gross Margin
Cost of sales increased due to the sales increases described above. Gross margin for the three months ended June 30, 2021, was 29.6% compared with 28.7% for the three months ended June 30, 2020. Gross margin increased primarily as a result of a shift in sales mix to more profitable programs as well as a $5.3 million partial reversal of prior loss reserves.
Operating Income and Adjusted EBITDAP
Operating income increased primarily due to the increased sales and margins described above as well as a decrease in restructuring and credit losses of approximately $1.8 million and $1.7 million, respectively. The increase in Adjusted EBITDAP year over year is due to the same factors that decreased operating income.
26
Operating Margin and Adjusted EBITDAP Margin
Systems & Support operating income and Adjusted EBITDAP as a percentage of segment sales both increased due to the factors described above.
Aerospace Structures:
Net Sales
Organic net sales increased by $14.2 million, or 15.2%, offset by declines from the composites and large structure manufacturing operations and G650 divestitures of $91.9 million and sunsetting programs (i.e., 747-8 and G280) of $42.0 million . Organic net sales increased due initial recoveries from the impacts of the COVID-19 pandemic. Net sales for the three months ended June 30, 2021, included $8.7 million in total nonrecurring revenues, as compared with $22.0 million in total nonrecurring revenues for the three months ended June 30, 2020.
Cost of Sales and Gross Margin
Organic cost of sales increased by $7.6 million, or 9.4%, offset by declines from the composites and large structure manufacturing operations and G650 divestitures of $78.7 million and sunsetting programs of $42.6 million. The increase in organic cost of sales is due to increase in sales described above. Organic gross margin for the three months ended June 30, 2021, was 18.0% compared with 13.7% for the three months ended June 30, 2020 largely reflecting a change in sales mix. The gross margin included net favorable cumulative catch-up adjustments of $14.8 million. The net favorable cumulative catch-up adjustments included gross favorable adjustments of $19.2 million and gross unfavorable adjustments of $4.4 million. The net favorable cumulative catch-up adjustment for the three months ended June 30, 2020, was $3.3 million.
Operating Income and Adjusted EBITDAP
Organic operating income increased by $267.3 million, or 104.4%, primarily due to long-lived asset impairment charges of $252.4 million in the three months ended June 30, 2020, the increased margins described above, as well as decreased administrative compensation costs of approximately $4.2 million and decreased credit losses of $1.7 million. The divestitures and sunsetting programs resulted in additional decreases to operating income of approximately $11.3 million. The increase in Adjusted EBITDAP year over year is due to the same factors that increased operating income except for the increase resulting from the long-lived asset impairment, which is excluded from Adjusted EBITDAP.
Operating Margin and Adjusted EBITDAP Margin
Operating income as a percentage of segment sales increased due to the increase in operating income as noted above. These same factors affecting Adjusted EBITDAP contributed to the increase in Adjusted EBITDAP margin to 12.6% from 3.4% year over year.
Liquidity and Capital Resources
Operating Cash Flows
Our working capital needs are generally funded through our current cash and cash equivalents, cash flows from operations, and the availability of proceeds from the Securitization Facility. During the three months ended June 30, 2021, we had a net cash outflow of $149.5 million from operating activities compared with a net cash outflow of $197.5 million for the three months ended June 30, 2020, an improvement of $48.0 million. Cash flows from operations were unfavorably impacted by increased disbursements to our suppliers relative to the receipts from our customers. Cash flows included steady inventory levels and lower accounts payable. Reflecting the change in our portfolio of businesses that is a result of our strategic divestitures, working capital stability has improved in the three months ended June 30, 2021, compared with the three months ended June 30, 2020, with the exception of the fluctuations in certain liability accounts as a result of the timing of disbursements. Cash flows from operations are expected to improve over the balance of the fiscal year assuming there are no additional extended shut-downs of operations due to the pandemic. Cash flows from operations also included approximately $42.0 million in the liquidation of prior period customer advances. Interest payments were approximately $38.5 million for three months ended June 30, 2021, as compared with $13.5 million for the three months ended June 30, 2020. The increase in interest payments was the result of higher interest rates and debt levels, as well as the specific timing of interest payments under the First Lien Notes.
Investing Cash Flows
27
Cash flows provided by investing activities for the three months ended June 30, 2021, increased $163.7 million from the three months ended June 30, 2020. Cash flows provided by investing activities for the three months ended June 30, 2021, included cash from the sales of assets and businesses of $180.5 million as a result of the completion of the divestiture of our composites and large structure manufacturing operations described in Note 3. As part of the activities necessary to bring the divestiture to completion, we used approximately $21.6 million net of transaction related costs to acquire the manufacturing facility in our Rayong, Thailand, operations. This facility was included in the assets transferred in the divestiture. We also used approximately $2.1 million for capital expenditures. Cash flows used in investing activities for the three months ended June 30, 2020, included cash from the sale of assets and businesses of $0.8 million with additional investing outflows from capital expenditures of $7.7 million. We currently expect full year capital expenditures in fiscal 2022 to be in the range of $25.0 million, of which approximately $22.0 million pertains to our core Systems & Support operating segment. The majority of our fiscal 2022 capital expenditures are capital investments designed to improve our manufacturing efficiency and expand our capabilities.
Financing Cash Flows
Cash flows used in financing activities for the three months ended June 30, 2021, were $360.5 million, compared with cash flows used in financing activities for the three months ended June 30, 2020, of $250.9 million. In the three months ended June 30, 2021, the following significant financing cash flow events occurred:
We used approximately $236.5 million to redeem 100% of the outstanding principal balance under the 2022 Notes
As disclosed in Note 3, under the terms of the First Lien Notes indenture, we were required to use approximately $120.0 million to redeem approximately $112.5 million of the outstanding principle balance and pay a redemption premium of approximately $7.5 million.
The remainder of financing cash flows pertain primarily to borrowings and payments under finance leases and the repurchase of common stock to satisfy employee tax withholding obligations resulting from equity compensation. As of June 30, 2021, we had $237.5 million of cash on hand and $50.1 million was available under our Securitization Facility (subject to any additional constraints arising from the balance of eligible receivables at that time) after giving effect to approximately $24.9 million in outstanding letters of credit, all of which were accruing interest at LIBOR plus applicable basis points totaling approximately 3.50% per annum.
With the redemption of the 2022 Notes in the three months ended June 30, 2021, the 2025 Notes are our senior unsecured obligations and rank equally in right of payment with all of our other existing and future senior unsecured indebtedness and senior in right of payment to all of our existing and future subordinated indebtedness. The 2025 Notes are guaranteed on a full, joint and several basis by each of our existing and future domestic restricted subsidiaries that is a borrower under any of our credit facilities or that guarantees any of our debt or that of any of our restricted subsidiaries, in each case incurred under any of our credit facilities.
Pursuant to the documentation governing the 2025 Notes, we may redeem, at specified redemption prices, some or all of the 2025 Notes prior to their stated maturities, subject to certain limitations set forth in the indenture governing the 2025 Notes. We are obligated to offer to repurchase the Senior Notes at specified prices as a result of certain change-of-control events and a sale of all or substantially all of our assets. These restrictions and prohibitions are subject to certain qualifications and exceptions.
The indentures governing the 2025 Notes, as well as Securitization Facility, contain covenants and restrictions that, among other things, limit our ability and the ability of any of the Guarantor Subsidiaries to (i) grant liens on our assets; (ii) make dividend payments, other distributions or other restricted payments; (iii) incur restrictions on the ability of the Guarantor Subsidiaries to pay dividends or make other payments or investments; (iv) enter into sale and leaseback transactions; (v) merge, consolidate, transfer or dispose of substantially all of their assets; (vi) incur additional indebtedness; (vii) use the proceeds from sales of assets, including capital stock of restricted subsidiaries (in the case of the 2025 Notes); and (viii) enter into transactions with affiliates. We are currently in compliance with all covenants under our debt documents and expect to remain in compliance for the foreseeable future.
The First Lien Notes, the 6.250% Senior Secured Notes due September 15, 2024 (the “2024 Notes”),and the guarantees related to the foregoing are secured, subject to permitted liens, by first-priority or second-priority liens (as applicable) on substantially all of our assets and the assets of our subsidiary guarantors (the “Collateral”). The First Lien Notes and the 2024 Notes and the related guarantees are not secured by the assets of Non-Guarantor Subsidiaries (as defined below). Some of our assets are excluded from the Collateral, including certain real property assets. Currently, our only consolidated subsidiaries that are not guarantors of the First Lien Notes, 2022 Notes, the 2024 Notes and the 2025 Notes (the "Non-Guarantor Subsidiaries") are: (i) the receivables securitization special purpose entity, and (ii) the foreign operating subsidiaries.
For further information on our long-term debt, see Note 6.
The following tables present summarized financial information of the Company and the Guarantor Subsidiaries on a combined basis. The combined summarized financial information eliminates intercompany balances and transactions among the Company and the Guarantor Subsidiaries and equity in earnings and investments in any Guarantor Subsidiaries or Non-Guarantor Subsidiaries. The summarized financial information is provided in accordance with the reporting requirements of Rule 13-01 under SEC Regulation S-X for the issuer and Guarantor Subsidiaries.
28
|
|
|
|
|
|
|
|
|
|
|
Parent and Guarantor Summarized Financial Information
|
|
June 30,
|
|
|
March 31,
|
|
|
Summarized Balance Sheet
|
|
2021
|
|
|
2021
|
|
|
|
|
in thousands
|
|
|
Assets
|
|
|
|
|
|
|
|
Due from non-guarantor subsidiaries
|
|
$
|
2,463
|
|
|
$
|
487
|
|
|
Current assets
|
|
|
757,946
|
|
|
|
1,211,754
|
|
|
Noncurrent assets
|
|
|
703,240
|
|
|
|
1,228,855
|
|
|
Noncurrent receivable from non-guarantor subsidiaries
|
|
|
76,956
|
|
|
|
89,959
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Due to non-guarantor subisidiaries
|
|
|
51,889
|
|
|
|
15,112
|
|
|
Current liabilities
|
|
|
521,033
|
|
|
|
920,412
|
|
|
Noncurrent liabilities
|
|
|
2,137,085
|
|
|
|
2,668,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Summarized Statement of Operations
|
|
|
|
|
June 30, 2021
|
|
|
|
|
|
|
|
in thousands
|
|
|
Net sales to non-guarantor subsidiaries
|
|
|
|
|
|
1,070
|
|
|
Net sales to unrelated parties
|
|
|
|
|
|
364,312
|
|
|
Gross profit
|
|
|
|
|
|
92,813
|
|
|
Loss from continuing operations before income taxes
|
|
|
|
|
|
(30,766
|
)
|
|
Net loss
|
|
|
|
|
|
(30,608
|
)
|
Critical Accounting Policies
Our critical accounting policies are discussed in Management's Discussion and Analysis of Financial Condition and Results of Operations and notes accompanying the consolidated financial statements that appear in the Annual Report on Form 10-K for the fiscal year ended March 31, 2021. Except as otherwise disclosed in the condensed consolidated financial statements and accompanying notes included in this report, there were no material changes subsequent to the filing of the Annual Report on Form 10-K for the fiscal year ended March 31, 2021, in our critical accounting policies or in the assumptions or estimates used to prepare the financial information appearing in this report.
Forward-Looking Statements
This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 relating to our future operations and prospects, including statements that are based on current projections and expectations about the markets in which we operate, and our beliefs concerning future performance and capital requirements based upon current available information. Such statements are based on our beliefs as well as assumptions made by and information currently available to us. When used in this document, words like “may,” “might,” “will,” “expect,” “anticipate,” “believe,” “potential,” "plan," "estimate," and similar expressions are intended to identify forward-looking statements. Actual results could differ materially from our current expectations. For example, there can be no assurance that additional capital will not be required or that additional capital, if required, will be available on reasonable terms, if at all, at such times and in such amounts as may be needed by us. In addition to these factors, among other factors that could cause actual results to differ materially are uncertainties relating to our ability to execute on our restructuring plans, the integration of acquired businesses, divestitures of our business, general economic conditions affecting our business, dependence of certain of our businesses on certain key customers as well as competitive factors relating to the aviation industry. For a more detailed discussion of these and other factors affecting us, see the risk factors described in our Annual Report on Form 10-K for the fiscal year ended March 31, 2021, filed with the SEC on May 20, 2021, and in our quarterly reports on Form 10-Q.