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Section 1: 10-Q (10-Q)

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Table of Contents

United States
Securities and Exchange Commission
Washington, D.C. 20549

FORM 10-Q


Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended June 30, 2019

or

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition Period From _________ to ________

Commission File Number: 1-12235

TRIUMPH GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware
 
51-0347963
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)

899 Cassatt Road,
Suite 210,
Berwyn,
PA
 
19312
(Address of principal executive offices)
 
(Zip Code)

(610) 251-1000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $.001 per share
TGI
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Securities Exchange Act of 1934. (Check one)
Large accelerated filer
Accelerated filer
Non-accelerated filer 
Smaller reporting company
Emerging growth company
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes     No 
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Common Stock, par value $0.001 per share, 50,059,308 shares outstanding as of August 2, 2019.


Table of Contents

TRIUMPH GROUP, INC.
INDEX
 
 
 
Page Number
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 1.
 
 
 
 
 
Item 1A.
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 3.
 
 
 
 
 
Item 4.
 
 
 
 
 
Item 5.
 
 
 
 
 
 
 
 
 
 
 



Table of Contents

Part I. Financial Information

Item 1. Financial Statements.

Triumph Group, Inc.
Condensed Consolidated Balance Sheets
(dollars in thousands, except per share data)
 
June 30,
2019
 
March 31,
2019
 
(unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
28,927

 
$
92,807

Trade and other receivables, less allowance for doubtful accounts of $4,315 and $3,646
331,509

 
373,590

Contract assets
323,869

 
326,667

Inventory, net
470,448

 
413,560

Prepaid expenses and other current assets
23,907

 
34,446

Total current assets
1,178,660

 
1,241,070

Property and equipment, net
515,212

 
543,710

Goodwill
581,631

 
583,225

Intangible assets, net
418,494

 
430,954

Other, net
129,269

 
55,615

Total assets
$
2,823,266

 
$
2,854,574

LIABILITIES AND STOCKHOLDERS’ DEFICIT
 
 
 
Current liabilities:
 
 
 
Current portion of long-term debt
$
8,150

 
$
8,201

Accounts payable
426,587

 
433,783

Contract liabilities
309,985

 
293,719

Accrued expenses
225,666

 
239,572

Total current liabilities
970,388

 
975,275

Long-term debt, less current portion
1,427,419

 
1,480,620

Accrued pension and other postretirement benefits
522,916

 
540,479

Deferred income taxes
10,989

 
6,964

Other noncurrent liabilities
449,473

 
424,549

Stockholders’ deficit:
 
 
 
Common stock, $.001 par value, 100,000,000 shares authorized, 52,460,920 and 52,460,920 shares issued; 50,005,153 and 49,887,268 shares outstanding
52

 
52

Capital in excess of par value
859,280

 
867,545

Treasury stock, at cost, 2,455,767 and 2,573,652 shares
(149,767
)
 
(159,154
)
Accumulated other comprehensive loss
(489,277
)
 
(487,684
)
Accumulated deficit
(778,207
)
 
(794,072
)
Total stockholders’ deficit
(557,919
)
 
(573,313
)
Total liabilities and stockholders’ deficit
$
2,823,266

 
$
2,854,574


SEE ACCOMPANYING NOTES.

1


Table of Contents

Triumph Group, Inc.
Condensed Consolidated Statements of Operations

(in thousands, except per share data)
(unaudited)

 
Three Months Ended June 30,
 
2019
 
2018
 
 
 
 
Net sales
$
730,231

 
$
832,900

Operating costs and expenses:
 
 
 
Cost of sales (exclusive of depreciation and amortization shown separately below)
582,233

 
770,214

Selling, general and administrative
62,337

 
81,656

Depreciation and amortization
44,050

 
38,812

Restructuring costs
2,964

 
4,047

Loss on divestitures
3,136

 
4,719

 
694,720

 
899,448

Operating income (loss)
35,511

 
(66,548
)
Non-service defined benefit income
(14,875
)
 
(16,538
)
Interest expense and other
27,491

 
25,493

Income (loss) before income taxes
22,895

 
(75,503
)
Income tax expense
4,807

 
1,031

Net income (loss)
$
18,088

 
$
(76,534
)
 
 
 
 
Earnings (loss) per share—basic:
$
0.36

 
$
(1.54
)
 
 
 
 
Weighted average common shares outstanding—basic
49,854

 
49,552

 
 
 
 
Earnings (loss) per share—diluted:
$
0.36

 
$
(1.54
)
 
 
 
 
Weighted average common shares outstanding—diluted
50,295

 
49,552

 
 
 
 
Dividends declared and paid per common share
$
0.04

 
$
0.04


SEE ACCOMPANYING NOTES.

2


Table of Contents

Triumph Group, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(dollars in thousands)
(unaudited)

 
Three Months Ended June 30,
 
2019
 
2018
 
 
 
 
Net income (loss)
$
18,088

 
$
(76,534
)
Other comprehensive (loss) income:
 
 
 
Foreign currency translation adjustment
(2,683
)
 
(14,524
)
Defined benefit pension plans and other postretirement benefits:
 
 
 
Reclassifications from accumulated other comprehensive income - losses (gains), net of tax expense (benefits):
 
 
 
Amortization of net loss, net of taxes of $0 for the three months ended
2,851

 
1,676

Recognized prior service credits, net of taxes of $0 for the three months ended
(1,442
)
 
(2,075
)
Total defined benefit pension plans and other postretirement benefits (expense), net of taxes
1,409

 
(399
)
Cash flow hedges:
 
 
 
Unrealized gain (loss) arising during period, net of tax of $0 and $125 for the three months ended
95

 
(965
)
Reclassification of loss included in net earnings, net of tax of $0 and $35 for the three months ended
(414
)
 
(70
)
Net unrealized loss on cash flow hedges, net of tax
(319
)
 
(1,035
)
Total other comprehensive loss
(1,593
)
 
(15,958
)
Total comprehensive income (loss)
$
16,495

 
$
(92,492
)

SEE ACCOMPANYING NOTES.

3


Table of Contents

Triumph Group, Inc.
Condensed Consolidated Statements of Stockholders' (Deficit) Equity
(dollars in thousands)
(unaudited)

 
Outstanding
Shares
 
Common
Stock
All Classes
 
Capital in
Excess of
Par Value
 
Treasury
Stock
 
Accumulated
Other
Comprehensive
Loss
 
Accumulated Deficit
 
Total
Balance, March 31, 2019
49,887,268

 
$
52

 
$
867,545

 
$
(159,154
)
 
$
(487,684
)
 
$
(794,072
)
 
$
(573,313
)
Net income

 

 

 

 

 
18,088

 
18,088

Adoption of ASC 842

 

 

 

 

 
(225
)
 
(225
)
Foreign currency translation adjustment

 

 

 

 
(2,683
)
 

 
(2,683
)
Pension liability adjustment, net of income taxes of $0

 

 

 

 
1,409

 

 
1,409

Change in fair value of foreign currency hedges, net of income taxes of $0

 

 

 

 
(319
)
 

 
(319
)
Cash dividends ($0.04 per share)

 

 

 

 

 
(1,998
)
 
(1,998
)
Share-based compensation
154,802

 

 
(7,631
)
 
9,534

 

 

 
1,903

Repurchase of restricted shares for minimum tax obligation
(51,406
)
 

 

 
(1,043
)
 

 

 
(1,043
)
Employee stock purchase plan
14,489

 

 
(634
)
 
896

 

 

 
262

Balance, June 30, 2019
50,005,153

 
$
52

 
$
859,280

 
$
(149,767
)
 
$
(489,277
)
 
$
(778,207
)
 
$
(557,919
)

 
Outstanding
Shares
 
Common
Stock
All Classes
 
Capital in
Excess of
Par Value
 
Treasury
Stock
 
Accumulated
Other
Comprehensive
Loss
 
Retained
Earnings (Accumulated Deficit)
 
Total
Balance, March 31, 2018
49,669,848

 
$
51

 
$
851,280

 
$
(179,082
)
 
$
(367,870
)
 
$
146,155

 
$
450,534

Net loss

 

 

 

 

 
(76,534
)
 
(76,534
)
Adoption of ASC 606

 

 

 

 

 
(584,951
)
 
(584,951
)
Foreign currency translation adjustment

 

 

 

 
(14,524
)
 

 
(14,524
)
Pension liability adjustment, net of income taxes of $0

 

 

 

 
(399
)
 

 
(399
)
Change in fair value of foreign currency hedges, net of income taxes of $160

 

 

 

 
(1,035
)
 

 
(1,035
)
Cash dividends ($0.04 per share)

 

 

 

 

 
(1,988
)
 
(1,988
)
Share-based compensation
102,248

 

 
(84
)
 
2,548

 

 

 
2,464

Repurchase of restricted shares for minimum tax obligation
(23,756
)
 

 

 
(532
)
 

 

 
(532
)
Employee stock purchase plan
16,020

 

 
(644
)
 
1,028

 

 

 
384

Balance, June 30, 2018
49,764,360

 
$
51

 
$
850,552

 
$
(176,038
)
 
$
(383,828
)
 
$
(517,318
)
 
$
(226,581
)

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Table of Contents



Triumph Group, Inc.
Condensed Consolidated Statements of Cash Flows
(dollars in thousands)
(unaudited)
 
Three Months Ended June 30,
 
2019
 
2018
 
 
 
 
Operating Activities
 
 
 
Net income (loss)
$
18,088

 
$
(76,534
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation and amortization
44,050

 
38,812

Amortization of acquired contract liabilities
(16,939
)
 
(17,234
)
Loss on divestitures
3,136

 
4,719

Other amortization included in interest expense
1,958

 
1,887

Provision for (recovery of) doubtful accounts receivable
671

 
(14
)
Benefit for deferred income taxes
3,307

 

Employee stock-based compensation
2,426

 
2,462

Changes in assets and liabilities, excluding the effects of acquisitions and dispositions of businesses:
 
 
 
Trade and other receivables
41,247

 
27,598

Contract assets
2,767

 
(23,221
)
Inventories
(56,623
)
 
(30,833
)
Prepaid expenses and other current assets
12,721

 
3,898

Accounts payable, accrued expenses and contract liabilities
(35,426
)
 
23,341

Accrued pension and other postretirement benefits
(15,792
)
 
(18,691
)
Other
(573
)
 
(1,904
)
Net cash provided by (used in) operating activities
5,018

 
(65,714
)
Investing Activities
 
 
 
Capital expenditures
(8,090
)
 
(12,200
)
(Payments on) proceeds from sale of assets
(2,570
)
 
664

Net cash used in investing activities
(10,660
)
 
(11,536
)
Financing Activities
 
 
 
Net (decrease) increase in revolving credit facility
(30,000
)
 
113,186

Proceeds from issuance of long-term debt and finance leases
5,600

 
19,046

Repayment of debt and finance lease obligations
(30,572
)
 
(53,762
)
Payment of deferred financing costs
(104
)
 
(64
)
Dividends paid
(1,998
)
 
(1,988
)
Repurchase of restricted shares for minimum tax obligation
(1,043
)
 
(532
)
Net cash (used in) provided by financing activities
(58,117
)
 
75,886

Effect of exchange rate changes on cash
(121
)
 
(1,400
)
Net change in cash
(63,880
)
 
(2,764
)
Cash and cash equivalents at beginning of period
92,807

 
35,819

Cash and cash equivalents at end of period
$
28,927

 
$
33,055


SEE ACCOMPANYING NOTES.

5


Table of Contents

Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)

1.     BASIS OF PRESENTATION AND ORGANIZATION

The accompanying unaudited condensed consolidated financial statements of Triumph Group, Inc. (the "Company") 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 months ended June 30, 2019, are not necessarily indicative of results that may be expected for the year ending March 31, 2020. The accompanying condensed consolidated financial statements are unaudited and should be read in conjunction with the fiscal 2019 audited consolidated financial statements and notes thereto included in the Company's Form 10-K for the year ended March 31, 2019, filed with the Securities and Exchange Commission (the "SEC") on May 23, 2019.

The Company designs, engineers, manufactures, repairs and overhauls a broad portfolio of aerostructures, aircraft components, accessories, subassemblies, and systems. The Company serves a broad, worldwide spectrum of the aviation industry, including original equipment manufacturers of commercial, regional, business, and military aircraft and aircraft components, as well as commercial and regional airlines and air cargo carriers. Triumph and its subsidiaries are organized based on the products and services that they provide. Under this organizational structure, the Company has three reportable segments: Integrated Systems, Aerospace Structures, and Product Support.
Integrated Systems consists of the Company’s operations that provide integrated solutions, including design, development, and support of proprietary components, subsystems and systems, as well as production of complex assemblies using external designs.  Capabilities include hydraulic, mechanical and electromechanical actuation, power and control; a complete suite of aerospace gearbox solutions, including engine accessory gearboxes and helicopter transmissions; active and passive heat exchange technology; fuel pumps, fuel metering units and Full Authority Digital Electronic Control fuel systems; and hydromechanical and electromechanical primary and secondary flight controls.
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 and a variety of special processes, including: super plastic titanium forming, aluminum and titanium chemical milling, surface treatments, and integrated testing and certification services.
Product Support consists of the Company’s operations that provide full life cycle solutions for commercial, regional and military aircraft. The Company’s extensive product and service offerings include full post-delivery value chain services that simplify the MRO supply chain. Through its ground support equipment maintenance, component MRO and post-production supply chain activities, Product 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.
Standards Recently Implemented
In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842). This ASU requires lessees to recognize most leases on their balance sheets as lease liabilities with corresponding right-of-use ("ROU") assets.  The Company adopted the standard as of April 1, 2019, using the modified retrospective approach and applying the standard’s transition provisions at the adoption date. Reporting periods beginning on

6


Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)

or after April 1, 2019, are presented in accordance with Accounting Standards Codification ("ASC") 842, Leases. Prior periods have not been adjusted and continue to be reported in accordance with previous accounting standards. We elected the package of practical expedients permitted under the transition guidance, which among other things, allows us to carryforward the historical lease classification.
Adoption of the new standard resulted in the recognition of operating lease ROU assets and lease liabilities of $76,444 and $84,663, respectively, with the difference due to prepaid and deferred rent that were reclassified to the ROU asset value. An adjustment to opening retained earnings of $225 was also recognized. The standard did not materially affect our consolidated net income or cash flows. See Note 5 for further details.
In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This ASU permits a company to reclassify the income tax effects of the 2017 Tax Cuts and Jobs Act (“U.S. tax reform”) on items within AOCI to retained earnings. We adopted the provisions of this ASU in the first quarter of 2018 and elected not to reclassify the income tax effects of U.S. tax reform from items in accumulated other comprehensive income.
Standards Issued Not Yet Implemented
In June 2016, the FASB issued 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. We are currently evaluating the effect that ASU 2016-13 will have on our consolidated financial statements and related disclosures.
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 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. We are currently evaluating the effect that ASU 2018-13 will have on our consolidated financial statements and related disclosures.
In August 2018, the FASB issued ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Topic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans, which modifies the disclosure requirements for defined benefit pension plans and other postretirement plans. ASU 2018-14 is effective for annual periods beginning after December 15, 2020, with early adoption permitted. The amendments in this ASU should be applied on a retrospective basis to all periods presented. We are currently evaluating the effect that ASU 2018-14 will have on our consolidated financial statements and related disclosures.
In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). ASU 2018-15 is effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods, with early adoption permitted. The amendments in this ASU should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. We are currently evaluating the effect that ASU 2018-15 will have on our consolidated financial statements and related disclosures.
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.

7


Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)


Revenue Recognition
The Company's revenue is principally from contracts with customers to provide design, development, manufacturing, and support services associated with specific customer programs. The Company regularly enters into long-term master supply agreements that establish general terms and conditions and may define specific program requirements. Many agreements include clauses that provide sole supplier status to the Company for the duration of the program’s life. Purchase orders (or authorizations to proceed) are issued pursuant to the master supply agreements. Additionally, a majority of the Company’s agreements with customers include options for future purchases. Such options primarily reduce the administrative effort of issuing subsequent purchase orders and 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 contractual 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 original equipment manufacturers (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.

8


Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)

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 our 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 significant contracts on a periodic basis, or when circumstances change and warrant a modification to a previous estimate. Cost estimates are largely based on negotiated or estimated purchase contract terms, historical performance trends and other economic projections. Significant factors that influence these estimates include inflationary trends, technical and schedule risk, internal and subcontractor performance trends, business volume assumptions, 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 consolidated balance sheets.
For the three months ended June 30, 2019, cumulative catch-up adjustments from changes in estimates, including changes in forward loss estimates, decreased net sales, operating income, net income, and earnings per share by approximately $(1,149), $(4,967), $(3,924) and $(0.08), net of tax, respectively. For the three months ended June 30, 2018, cumulative catch-up adjustments from changes in estimates decreased net sales, operating loss, net loss and loss per share by approximately $(6,423), $(3,626), $(3,626) and $(0.07), net of tax, respectively. These cumulative catch-up adjustments do not include a non-cash charge the Company recorded as a result of the adoption of ASU 2017-07 of $87,241 due to a change in estimate from a change in accounting principles, which is presented on the accompanying consolidated statements of operations within cost of sales.
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.
The portion of the Company's revenue resulting from transactions other than contracts with customers pertains to the non-cash amortization of acquired contract liabilities that were recognized as fair value adjustments through purchase accounting from various acquisitions.
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 assets and lease liabilities at the 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

9


Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)

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 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 14% and 18% of total trade accounts receivable as of June 30, 2019 and March 31, 2019, respectively. Trade accounts receivable from Gulfstream Aerospace Corporation ("Gulfstream") represented approximately 12% and 11% of total trade accounts receivable as of June 30, 2019 and March 31, 2019, respectively. Trade accounts receivable from Bombardier Inc. ("Bombardier") represented approximately 13% and 13% as of June 30, 2019 and March 31, 2019, respectively. The Company had no other concentrations of credit risk of more than 10%.
Sales to Boeing for the three months ended June 30, 2019, were $245,315, or 34% of net sales, of which $55,785, $184,282, and $5,248 were from the Integrated Systems, Aerospace Structures and Product Support, respectively. Sales to Boeing for the three months ended June 30, 2018, were $274,296, or 33% of net sales, of which $51,593, $219,461 and $3,242 were from the Integrated Systems, Aerospace Structures and Product Support, respectively.
Sales to Gulfstream for the three months ended June 30, 2019, were $102,315, or 14% of net sales, of which $626, $101,459, and $230 were from the Integrated Systems, Aerospace Structures and Product Support, respectively. Sales to Gulfstream for the three months ended June 30, 2018, were $90,771, or 11% of net sales, of which $595, $90,128, and $48 were from the Integrated Systems, Aerospace Structures and Product Support, respectively.
No other single customer accounted for more than 10% of the Company’s net sales. However, the loss of any significant customer, including Boeing and Gulfstream, could have a material adverse effect on the Company and its operating subsidiaries.
Intangible Assets
The components of intangible assets, net, are as follows:
 
June 30, 2019
 
Weighted
Average Life
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net
 
 
 
 
 
 
 
 
Customer relationships
17.7
 
$
550,584

 
$
(253,379
)
 
$
297,205

Product rights, technology and licenses
11.4
 
54,758

 
(44,512
)
 
10,246

Non-compete agreements and other
16.3
 
2,656

 
(1,082
)
 
1,574

Tradenames
10.0
 
150,000

 
(40,531
)
 
109,469

Total intangibles, net
 
 
$
757,998

 
$
(339,504
)
 
$
418,494


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Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)

 
March 31, 2019
 
Weighted
Average Life
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net
 
 
 
 
 
 
 
 
Customer relationships
17.7
 
$
551,093

 
$
(245,626
)
 
$
305,467

Product rights, technology and licenses
11.4
 
54,850

 
(43,978
)
 
10,872

Non-compete agreements and other
16.7
 
2,656

 
(1,041
)
 
1,615

Tradenames
10.0
 
150,000

 
(37,000
)
 
113,000

Total intangibles, net
 
 
$
758,599

 
$
(327,645
)
 
$
430,954


Amortization expense for the three months ended June 30, 2019 and 2018, was $12,083 and $13,233, respectively. Significant changes in expected cash flows generated by long-lived assets could result in the recognition of impairment losses; no such changes or losses were identified as of June 30, 2019.
Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. When determining fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and also considers assumptions that market participants would use when pricing an asset or liability. The fair value hierarchy has three levels of inputs that may be used to measure fair value: Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities; Level 2—Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability; and Level 3—Unobservable inputs for the asset or liability. The Company has applied fair value measurements to its divestitures (see Note 3).
Warranty Reserves
A reserve has been established to provide for the estimated future cost of warranties on our delivered products. The Company periodically reviews the reserves and adjustments are made accordingly. A provision for warranty on products delivered is made on the basis of historical experience and identified warranty issues. Warranties cover such factors as non-conformance to specifications and defects in material and workmanship. The majority of the Company's agreements include a three-year warranty, although certain programs have warranties up to twenty years. The warranty reserves as of June 30, 2019 and March 31, 2019, were $61,035 and $58,395, respectively.
Supplemental Cash Flow Information
The Company made income tax payments, net of refunds of $1,280 during the three months ended June 30, 2019. The Company received income tax refunds, net of payments of $7,715 during the three months ended June 30, 2018.
As of June 30, 2019, the Company remains able to purchase an additional 2,277,789 shares under the existing stock repurchase program. However, there are certain restrictions placed on the repurchase program by the Company's lenders that prevent any repurchases at this time.
3.     DIVESTED OPERATIONS AND ASSETS HELD FOR SALE
In March 2019, the Company sold all of the shares of Triumph Structures – Kansas City, Inc.; Triumph Structures – Wichita, Inc.; Triumph Gear Systems – Toronto; ULC; and Triumph Northwest (The Triumph Group Operations, Inc.) (together, "Machining"). Total cash proceeds net of transaction costs for the sale of Machining was approximately $43,000. A portion of the proceeds associated with the sale of Machining included consideration in the form of a note receivable of $10,000. Upon closing, the Company recognized a loss of approximately $116,000. An additional loss of approximately $3,000 was recognized during the three months ended June 30, 2019, as a result of working capital adjustments and is presented within loss on divestitures on the accompanying condensed consolidated statements of operations.
In March 2019, the Company sold all of the shares of (i) Triumph Fabrications - San Diego, Inc. and Triumph Fabrications - Ft. Worth, Inc. (together, "Fabrications"), and (ii) Triumph Aviation Services - NAAS Division, Inc. ("NAAS"). Total cash

11


Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)

proceeds net of transaction costs for the sales of Fabrications and NAAS were approximately $133,000 and $18,000, respectively. As a result of the sales of Fabrications, the Company recognized a gain of approximately $54,000. The sale of NAAS resulted in an immaterial gain.
In February 2019, the Company transitioned responsibility for the Global 7500 wing program manufacturing operations of Aerospace Structures to Bombardier at which point Bombardier assumed the program’s assets and obligations. As a result of this transfer, the Company recognized a loss of approximately $169,000. The Company continues to provide transition services related to infrastructure support reducing in scope over the next several months, as well as a lease of the building in Red Oak, Texas, dedicated to the manufacturer of the Global 7500 wing to Bombardier.
In May 2018, the Company entered into a definitive agreement to divest Triumph Structures - Los Angeles, Inc. ("TS-LA") and Triumph Processing, Inc. ("TPI") for combined cash proceeds net of transactions costs of approximately $37,000 and a note receivable of $7,000. At that time, the Company recorded a loss on assets held for sale of $4,719. The transaction closed in August 2018, and upon final sale the Company recorded an additional loss of $7,663, bringing the total loss on divestiture to $12,382. The note receivable was collected in October 2018.
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.
The following table shows disaggregated net sales satisfied overtime and at a point in time (excluding intercompany sales) for the three months ended June 30, 2019:
 
Three Months Ended June 30, 2019
 
Integrated Systems
 
Aerospace Structures
 
Product Support
 
Total
Satisfied over time
$
72,304

 
$
372,237

 
$
56,938

 
$
501,479

Satisfied at a point in time
170,628

 
36,412

 
4,773

 
211,813

               Revenue from contracts with customers
242,932

 
408,649

 
61,711

 
713,292

     Amortization of acquired contract liabilities
8,125

 
8,814

 

 
16,939

               Total revenue
$
251,057

 
$
417,463

 
$
61,711

 
$
730,231

 
 
 
 
 
 
 
 
 
Three Months Ended June 30, 2018
Satisfied over time
$
64,359

 
$
453,279

 
$
59,425

 
$
577,063

Satisfied at a point in time
165,178

 
68,684

 
4,741

 
238,603

               Revenue from contracts with customers
229,537

 
521,963

 
64,166

 
815,666

     Amortization of acquired contract liabilities
8,849

 
8,385

 

 
17,234

               Total revenue
$
238,386

 
$
530,348

 
$
64,166

 
$
832,900


The following table shows disaggregated net sales by end market (excluding intercompany sales) for the three months ended June 30, 2019:


12


Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)

 
Three Months Ended June 30, 2019
 
Integrated Systems
 
Aerospace Structures
 
Product Support
 
Total
Commercial aerospace
$
128,420

 
$
229,640

 
$
46,899

 
$
404,959

Military
84,065

 
27,600

 
11,292

 
122,957

Business jets
15,707

 
121,149

 
440

 
137,296

Regional
7,322

 
30,255

 
3,051

 
40,628

Non-aviation
7,418

 
5

 
29

 
7,452

               Revenue from contracts with customers
242,932

 
408,649

 
61,711

 
713,292

     Amortization of acquired contract liabilities
8,125

 
8,814

 

 
16,939

               Total revenue
$
251,057

 
$
417,463

 
$
61,711

 
$
730,231

 
 
 
 
 
 
 
 
 
Three Months Ended June 30, 2018
Commercial aerospace
$
120,576

 
$
282,164

 
$
49,468

 
$
452,208

Military
82,693

 
57,922

 
9,385

 
150,000

Business jets
12,836

 
167,447

 
1,395

 
181,678

Regional
6,617

 
6,402

 
3,918

 
16,937

Non-aviation
6,815

 
8,028

 

 
14,843

               Revenue from contracts with customers
229,537

 
521,963

 
64,166

 
815,666

     Amortization of acquired contract liabilities
8,849

 
8,385

 

 
17,234

               Total revenue
$
238,386

 
$
530,348

 
$
64,166

 
$
832,900


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 performs ongoing evaluations of the potential impairment of its contract assets based on prior experience and specific matters when they arise. No impairments to contract assets were recorded for the period ended June 30, 2019.
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, we consider 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:

13


Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)

 
June 30, 2019
 
March 31, 2019
 
Change
Contract assets
$
358,497

 
$
326,667

 
$
31,830

Contract liabilities
(450,837
)
 
(450,051
)
 
(786
)
Net contract liability
$
(92,340
)
 
$
(123,384
)
 
$
31,044


The Company recorded reductions to revenue due changes in estimates associated with performance obligations satisfied or partially satisfied in previous periods of $(1,149). The increase in contract liabilities reflects the receipt of additional customer advances in excess of revenue recognized during the period. For the period ended June 30, 2019, the Company recognized $28,507 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 consolidated balance sheets as of June 30, 2019 and March 31, 2019, were $34,628 and $34,185, respectively. Noncurrent contract liabilities presented in other noncurrent liabilities on the accompanying consolidated balance sheets as of June 30, 2019 and March 31, 2019, were $140,852 and $156,332, 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 June 30, 2019, 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
$
4,275,887

 
$
2,134,556

 
$
1,379,910

 
$
309,508

 
$
451,913



5.    LEASES
The components of lease expense for the three months ended June 30, 2019, are disclosed in the table below.
Lease cost
Financial Statement Classification
Three Months Ended June 30, 2019
Operating lease cost
Cost of sales or
Selling, general and administrative expense
$
6,502

Variable lease cost
Cost of sales or
Selling, general and administrative expense
1,842

 
 
 
Financing Lease Cost:
 
 
     Amortization of right-of-use assets
Depreciation and amortization
1,349

     Interest on lease liability
Interest expense and other
170

Total lease cost (1)
 
$
9,863


(1) Total lease cost does not include short-term leases or sublease income, both of which are immaterial.


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Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)

Supplemental cash flow information for the three months ended June 30, 2019, is disclosed in the table below.
 
Three Months Ended June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities
 
     Operating cash flows used in operating leases
$
4,849

     Operating cash flows used in finance leases
171

     Financing cash flows used in finance leases
2,673

 
 
ROU assets obtained in exchange for lease liabilities
 
     Operating leases
$
1,831

     Finance leases
767


Supplemental balance sheet information related to leases as of June 30, 2019, is disclosed in the table below.
Leases
Classification
June 30, 2019
Assets
 
 
     Operating lease ROU assets
Other, net
$
73,643

     
 
 
     Finance lease ROU assets, cost
Property and equipment, net
54,216

     Accumulated amortization
Property and equipment, net
(22,532
)
     Finance lease ROU assets, net
 
31,684

Total lease assets
 
$
105,327

 
 
 
Liabilities
 
 
     Current
 
 
          Operating
Accrued expenses
$
15,718

          Finance
Current portion of long-term debt
8,150

     Non-current
 
 
          Operating
Other noncurrent liabilities
67,895

          Finance
Long-term debt, less current portion
21,238

Total lease liabilities
 
$
113,001


Information related to lease terms and discount rates as of June 30, 2019, is disclosed in the table below:
 
June 30, 2019
Weighted average remaining lease term (years)
 
     Operating leases
7.6

     Finance leases
6.5

 
 
Weighted average discount rate
 
     Operating leases
6.4
%
     Finance leases
5.6
%


15


Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)

The maturity of the Company's lease liabilities as of June 30, 2019, is disclosed in the table below.
 
Operating leases
 
Finance leases
 
Total
FY2020 (remaining of year)
$
16,206

 
$
7,196

 
$
23,402

FY2021
16,451

 
8,915

 
25,366

FY2022
14,978

 
5,911

 
20,889

FY2023
11,647

 
2,861

 
14,508

FY2024
9,023

 
2,110

 
11,133

Thereafter
38,100

 
11,263

 
49,363

     Total lease payments
106,405

 
38,256

 
144,661

Less: Imputed interest
(22,792
)
 
(8,868
)
 
(31,660
)
     Total lease liabilities
$
83,613

 
$
29,388

 
$
113,001



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:
 
June 30, 2019
 
March 31, 2019
Raw materials
$
38,868

 
$
35,883

Work-in-process, including manufactured and purchased components
320,147

 
277,996

Finished goods
53,643

 
42,399

Rotable assets
57,790

 
57,282

Total inventories
$
470,448

 
$
413,560



7.    LONG-TERM DEBT
Long-term debt consists of the following:
 
June 30, 2019
 
March 31, 2019
 
 
 
 
Revolving line of credit
$
185,000

 
$
215,000

Receivable securitization facility
58,400

 
80,700

Capital leases
29,388

 
31,292

Senior notes due 2021
375,000

 
375,000

Senior notes due 2022
300,000

 
300,000

Senior notes due 2025
500,000

 
500,000

Less: Debt issuance costs
(12,219
)
 
(13,171
)
 
1,435,569

 
1,488,821

Less: Current portion
8,150

 
8,201

 
$
1,427,419

 
$
1,480,620



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Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)

Revolving Credit Facility
In July 2018, the Company, its subsidiary co-borrowers and guarantors entered into a Tenth Amendment to the Credit Agreement (the “Tenth Amendment” and the existing Credit Agreement as amended by the Tenth Amendment, the "Credit Agreement") and with the Administrative Agent and the Lenders party thereto. Among other things, the Tenth Amendment modifies certain financial covenants and other terms and lowered the capacity to $700,000 as a result of certain asset sales occurring in the fiscal year ended March 31, 2019. The Tenth Amendment also adds an additional mandatory prepayment provision requiring that the Company prepay the outstanding revolving credit loans as set forth in the Tenth Amendment.
In connection with the Tenth Amendment to the Credit Agreement, the Company incurred $1,694 of financing costs. These costs, along with the $8,961 of unamortized financing costs subsequent to the Ninth Amendment, are being amortized over the remaining term of the Credit Agreement. In accordance with the reduction in the capacity of the Credit Agreement, the Company wrote off a proportional amount of unamortized financing fees existing prior to the Tenth Amendment.
The obligations under the Credit Agreement and related documents are secured by liens on substantially all assets of the Company and its domestic subsidiaries pursuant to a Second Amended and Restated Guarantee and Collateral Agreement, dated as of November 19, 2013, among the administrative agent, the Company and the subsidiaries of the Company party thereto.
Pursuant to the Credit Agreement, the Company can borrow, repay and re-borrow revolving credit loans, and cause to be issued letters of credit, in an aggregate principal amount not to exceed $700,000 outstanding at any time. The Credit Agreement bears interest at either: (i) London Interbank Offered Rate ("LIBOR") plus between 1.50% and 3.50%; (ii) the prime rate; or (iii) an overnight rate at the option of the Company. The applicable interest rate is based upon the Company’s ratio of total indebtedness to earnings before interest, taxes, depreciation and amortization. In addition, the Company is required to pay a commitment fee of 0.50% on the unused portion of the Credit Agreement. The Company’s obligations under the Credit Agreement are guaranteed by the Company’s domestic subsidiaries.
At June 30, 2019, there were $185,000 in borrowings and $23,897 in letters of credit outstanding under the Revolving Line of Credit provisions of the Credit Agreement, primarily to support insurance policies. At March 31, 2019, there were $215,000 in outstanding borrowings and $30,773 in letters of credit outstanding under the Revolving Line of Credit provisions of the Credit Agreement, primarily to support insurance policies. The level of unused borrowing capacity under the Revolving Line of Credit provisions of the Credit Agreement varies from time to time depending in part upon its compliance with financial and other covenants set forth in the related agreement. The Credit Agreement contains certain affirmative and negative covenants, including limitations on specified levels of indebtedness to earnings before interest, taxes, depreciation and amortization, and interest coverage requirements, and includes limitations on, among other things, liens, mergers, consolidations, sales of assets, and incurrence of debt. If an event of default were to occur under the Credit Agreement, the lenders would be entitled to declare all amounts borrowed under it immediately due and payable. The occurrence of an event of default under the Credit Agreement could also cause the acceleration of obligations under certain other agreements. The Company is currently in compliance with all such covenants. As of June 30, 2019, the Company had borrowing capacity under this agreement of $491,103 after reductions for borrowings, letters of credit outstanding under the facility and consideration of covenant limitations.
Receivables Securitization Facility
In November 2017, the Company amended its receivable securitization facility (the "Securitization Facility") decreasing the purchase limit from $225,000 to $125,000 and extending the term through November 2020. In connection with the Securitization Facility, the Company sells on a revolving basis certain eligible accounts receivable to Triumph Receivables, LLC, a wholly-owned special-purpose entity, which in turn sells a percentage ownership interest in the receivables to commercial paper conduits sponsored by financial institutions. The Company is the servicer of the trade accounts receivable under the Securitization Facility. As of June 30, 2019, the maximum amount available under the Securitization Facility was $125,000. Interest rates are based on LIBOR plus a program fee and a commitment fee. The program fee is 0.13% on the amount outstanding under the Securitization Facility. Additionally, the commitment fee is 0.50% on 100.00% of the maximum amount available under the 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.

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Table of Contents
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)

The agreement governing the Securitization Facility contains 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 of the Company's assets.
Senior Notes Due 2021
On February 26, 2013, the Company issued $375,000 principal amount of 4.875% Senior Notes due 2021 (the "2021 Notes"). The 2021 Notes were sold at 100% of principal amount and have an effective interest yield of 4.875%. Interest on the 2021 Notes accrues at the rate of 4.875% per annum and is payable semiannually in cash in arrears on April 1 and October 1 of each year, commencing on October 1, 2013.
Senior Notes Due 2022
On June 3, 2014, the Company issued $300,000 principal amount of 5.250% Senior Notes due 2022 (the "2022 Notes"). The 2022 Notes were sold at 100% of principal amount and have an effective interest yield of 5.250%. Interest on the 2022 Notes accrues at the rate of 5.250% per annum and is payable semiannually in cash in arrears on June 1 and December 1 of each year, commencing on December 1, 2014.
Senior Notes Due 2025
On August 17, 2017, the Company issued $500,000 principal amount of 7.750% Senior Notes due 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, commencing on February 15, 2018.
Financial Instruments Not Recorded at Fair Value
The carrying amounts of certain of our financial instruments, including cash and cash equivalents, accounts receivable and accounts payable, approximate fair value because of their short maturities (Level 1 inputs). Carrying amounts and the related estimated fair values of the Company’s financial instruments not recorded at fair value in the condensed consolidated financial statements are as follows:
 
June 30, 2019
 
March 31, 2019
 
Carrying
Value
 
Fair Value
 
Carrying
Value
 
Fair Value
Long-term debt
$
1,435,569

 
$
1,430,330

 
$
1,488,821