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Section 1: 8-K (8-K, DATED NOVEMBER 7, 2019)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549
 
FORM 8-K
 
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
 
Date of Report (Date of earliest event reported): November 7, 2019
 
TRIUMPH GROUP, INC.
(Exact name of registrant as specified in its charter)
 
Delaware
 
1-12235
 
51-0347963
(State or other jurisdiction of
incorporation)
 
(Commission File Number)
 
(IRS Employer Identification
No.)
 
 
 
 
 
899 Cassatt Road,
Suite 210,
 
 
Berwyn,
Pennsylvania
 
19312
(Address of principal executive offices)
 
(Zip Code)

 
(610) 251-1000
(Registrant's telephone number, including area code)
 
Not Applicable
(Former name or former address, if changed since last report.)
 
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
 
     Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
     Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
     Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
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
Purchase Rights

New York Stock Exchange
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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.





Item 2.02
 
Results of Operations and Financial Condition.
 
On November 7, 2019, Triumph Group, Inc. issued a press release announcing its financial results for the fiscal quarter ended September 30, 2019, and conducted a conference call to further discuss the financial results. The full text of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K.

The information in this Item 2.02 of this Current Report on Form 8-K and Exhibit 99.1 attached hereto shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.

Item 9.01
 
Financial Statements and Exhibits.
 
 
 
(d)       
 
Exhibits.
 
Exhibit No.
 
Description
 
 
 
 








Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
Date:
November 7, 2019
TRIUMPH GROUP, INC.
 
 
 
 
 
 
By:
/s/ Thomas A. Quigley, III
 
 
 
Thomas A. Quigley, III
 
 
 
Vice President and Controller




(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1 - EARNINGS RELEASE DATED NOVEMBER 7, 2019)

Exhibit


Exhibit 99.1
400888819_imageq4fya17.jpg    

NEWS RELEASE
Media Contact:
Michele Long
Phone (610) 251-1000
 
 
 
Investor Relations Contact:
Michael Pici
Phone (610) 251-1000


TRIUMPH GROUP REPORTS SECOND QUARTER FISCAL 2020 RESULTS

Reports Organic Revenue Growth of 13%
Margin Expansion Across All Segments
Maintains Fiscal Year 2020 Guidance including Positive Free Cash Flow


BERWYN, Pa. - November 7, 2019 - Triumph Group, Inc. (NYSE: TGI) (“Triumph” or the “Company”) today reported financial results for its second quarter of fiscal year 2020, which ended September 30, 2019.

Second Quarter Fiscal 2020

Net sales of $772.1 million
Operating income of $61.0 million with operating margin of 8%; adjusted operating income of $59.1 million with adjusted operating margin of 8%
Net income of $42.7 million, or $0.85 per share; adjusted net income of $32.2 million, or $0.64 per diluted share
Cash flow used in operations of ($15.6) million, and free cash flow use of ($24.5) million

Outlook for Fiscal 2020

Net sales guidance of between $2.8 billion to $2.9 billion
GAAP earnings per diluted share of between $1.34 and $2.35
Adjusted earnings per diluted share of between $2.35 to $2.95
Positive free cash flow of between $0 to $50.0 million
“Triumph Group delivered solid second quarter results, demonstrating momentum as we head into the back half of the year,” stated Daniel J. Crowley, Triumph’s president and chief executive officer. “During our fiscal second quarter, all three of our business segments delivered year-over-year organic growth in net sales. We also drove significant margin expansion in Integrated Systems both sequentially and year-over-year as customers continued to demand our unique value proposition. Product Support and Aerospace Structures also generated year-over-year organic improvement in operating margin.”

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Mr. Crowley continued, “Our second quarter cash usage includes seasonal working capital build and we expect to be cash flow positive in the second half of the year. Given our solid first half results and improving operational performance, we remain confident that Triumph is on track to deliver on our full-year commitments and guidance.”
Mr. Crowley concluded, “Triumph is stronger, more focused and predictable as a result of our comprehensive portfolio and operational actions which we expect to generate increased value for our customers and shareholders.”


Second Quarter Fiscal Year 2020 Overview

After accounting for divestitures, sales for the second quarter of fiscal 2020 were up 12.8% organically from the comparable prior year period. Growth was driven by increased volumes on engine and military rotorcraft components, aftermarket accessory services, legacy structures programs and new engineering services.
Second quarter operating income of $61.0 million included a $5.7 million adjustment for Union incentives, ($8.0) million for gain on previous divestitures, ($5.4) million for a legal settlement and $5.8 million of restructuring costs. Net income for the second quarter of fiscal year 2020 was $42.7 million, or $0.85 per share. On an adjusted basis, net income was $32.2 million, or $0.64 per diluted share.
Triumph’s results included the following:
 
($ millions except EPS)
 
      Pre-tax
 
    After-tax
 
Diluted EPS
 
Income from Continuing Operations - GAAP
 
$
54.1

 
$
42.7

 
$
0.85

 
 
 
 
 
 
 
 
 
Gain on sale of assets and businesses
 
(8.0
)
 
(6.3
)
 
(0.12
)
 
Curtailment gain & settlement, net
 
(14.4
)
 
(11.4
)
 
(0.22
)
 
Legal settlement gain, net
 
(5.4
)
 
(4.3
)
 
(0.08
)
 
Union incentives
 
5.7

 
4.5

 
0.09

 
Refinancing cost
 
3.0

 
2.4

 
0.05

 
Transformation related costs:
 
 
 
 
 
 
 
Restructuring costs (cash)
 
5.8

 
4.6

 
0.09

 
 
 
 
 
 
 
 
 
Adjusted Income from Continuing Operations - non-GAAP
 
$
40.8

 
$
32.2

 
$
0.64

 
 
 
 
 
 
 
 
 

The number of shares used in computing diluted earnings per share for the second quarter of 2020 was 50.5 million.

Backlog, excluding the impact of divestitures was flat at $3.7 billion compared to the prior year period and on a sequential basis. This reflects growth in Integrated Systems offset by sunsetting legacy Aerospace Structures programs.
For the six-months ended September 30, 2019, cash flow used in operations was ($11.3) million, reflecting continued investment in ramping programs and liquidation of approximately $40.0 million in prior period advances against current period deliveries.
    


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Outlook

As noted previously, the Boeing 737 MAX program historically has contributed a single-digit percentage of annual revenue. The Company continues to expect the FY20 revenue impact to be less than 2% of sales with similar impacts to operating income and cash. As such, the Company does not anticipate any changes to its guidance and maintains its guidance below.

Based on anticipated aircraft production rates and including the impacts of pending program transfers, the Company continues to expect that net sales for fiscal year 2020 will be approximately $2.8 billion to $2.9 billion.

The Company expects GAAP fiscal year 2020 earnings per diluted share to be $1.34 to $2.35 and adjusted earning per diluted share to be $2.35 to $2.95.

The Company expects fiscal year 2020 cash provided from operations of $50.0 million to $110.0 million, and positive free cash flow of $0 to $50.0 million.

The Company’s current outlook reflects adjustments detailed in the attached tables but excludes the impact of any potential future divestitures.

Conference Call

Triumph Group will hold a conference call today, November 7th, at 8:00 a.m. (ET) to discuss the second quarter fiscal year 2020 results. The conference call will be available live and archived on the Company’s website at http://www.triumphgroup.com. A slide presentation will be included with the audio portion of the webcast, which presentation has been posted on the Company’s website at http://ir.triumphgroup.com/QuarterlyResults. An audio replay will be available from November 7th to November 15th by calling (855) 859-2056 (Domestic) or (404) 537-3406 (International), passcode #5489726.

About Triumph Group

Triumph Group, Inc., headquartered in Berwyn, Pennsylvania, designs, engineers, manufactures, repairs and overhauls a broad portfolio of aerospace and defense systems, components and structures. The company serves the global aviation industry, including original equipment manufacturers and the full spectrum of military and commercial aircraft operators.

More information about Triumph can be found on the Company’s website at www.triumphgroup.com.

Forward Looking Statements

Statements in this release which are not historical facts are forward-looking statements under the provisions of the Private Securities Litigation Reform Act of 1995, including statements of expectations of or assumptions about financial and operational performance, revenues, earnings per share, cash flow or use, cost savings and operational efficiencies and organizational restructurings. All forward-looking statements involve risks and uncertainties which could affect the Company’s actual results and could cause its actual results to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company. Further information regarding the important factors that could cause actual results to differ from projected results can be found in Triumph Group’s reports filed with the SEC, including our Annual Report on Form 10-K for the fiscal year ended March 31, 2019.

FINANCIAL DATA (UNAUDITED) ON FOLLOWING PAGES

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FINANCIAL DATA (UNAUDITED)

TRIUMPH GROUP, INC. AND SUBSIDIARIES
(in thousands, except per share data)

 
 
Three Months Ended
 
Six Months Ended
 
 
September 30,
 
September 30,
CONDENSED STATEMENTS OF INCOME
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
Net sales
 
$
772,110

 
$
855,108

 
$
1,502,341

 
$
1,688,008

 
 
 
 
 
 
 
 
 
Cost of sales (excluding depreciation shown below)
 
622,236

 
724,474

 
1,204,469

 
1,494,688

Selling, general & administrative expenses
 
66,201

 
69,551

 
128,538

 
151,208

Depreciation & amortization expense
 
30,219

 
38,134

 
74,269

 
76,945

Restructuring expenses
 
5,782

 
11,832

 
8,746

 
15,879

Legal settlement, net
 
(5,400
)
 

 
(5,400
)
 

(Gain) loss on sale of assets and businesses
 
(7,965
)
 
13,118

 
(4,829
)
 
17,837

Operating income (loss)
 
61,037

 
(2,001
)
 
96,548

 
(68,549
)
 
 
 
 
 
 
 
 
 
Interest expense and other
 
35,400

 
28,714

 
62,891

 
54,206

Non-service defined benefit income
 
(28,416
)
 
(16,524
)
 
(43,291
)
 
(33,061
)
Income tax expense
 
11,352

 
485

 
16,159

 
1,516

 
 
 
 
 
 
 
 
 
Net income (loss)
 
$
42,701

 
$
(14,676
)
 
$
60,789

 
$
(91,210
)
 
 
 
 
 
 
 
 
 
Earnings per share - basic:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 
$
0.85

 
$
(0.30
)
 
$
1.22

 
$
(1.84
)
 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding - basic
 
49,987

 
49,628

 
49,927

 
49,590

 
 
 
 
 
 
 
 
 
Earnings per share - diluted:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 
$
0.85

 
$
(0.30
)
 
$
1.21

 
$
(1.84
)
 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding - diluted
 
50,460

 
49,628

 
50,385

 
49,590

 
 
 
 
 
 
 
 
 
Dividends declared and paid per common share
 
$
0.04

 
$
0.04

 
$
0.08

 
$
0.08








4



(Continued)
 FINANCIAL DATA (UNAUDITED)
 
TRIUMPH GROUP, INC. AND SUBSIDIARIES
(dollars in thousands, except share data)
 
BALANCE SHEET
 
Unaudited
 
Audited
 
 
September 30,
 
March 31,
 
 
2019
 
2019
Assets
 
 
 
 
Cash and cash equivalents
 
$
24,852

 
$
92,807

Accounts receivable, net
 
342,306

 
373,590

Contract assets
 
300,670

 
326,667

Inventory, net
 
454,402

 
413,560

Prepaid and other current assets
 
20,854

 
34,446

   Current assets
 
1,143,084

 
1,241,070

 
 
 
 
 
Property and equipment, net
 
502,990

 
543,710

Goodwill
 
578,916

 
583,225

Intangible assets, net
 
405,982

 
430,954

Other, net
 
130,831

 
55,615

 
 
 
 
 
Total assets
 
$
2,761,803

 
$
2,854,574

 
 
 
 
 
Liabilities & Stockholders' Deficit
 
 
 
 
Current portion of long-term debt
 
$
7,759

 
$
8,201

Accounts payable
 
418,706

 
433,783

Contract liabilities
 
276,967

 
293,719

Accrued expenses
 
221,966

 
239,572

Current liabilities
 
925,398

 
975,275

 
 
 
 
 
Long-term debt, less current portion
 
1,460,774

 
1,480,620

Accrued pension and post-retirement benefits, noncurrent
 
554,400

 
540,479

Deferred income taxes, noncurrent
 
21,116

 
6,964

Other noncurrent liabilities
 
390,939

 
424,549

 
 
 
 
 
Stockholders' Deficit:
 
 
 
 
Common stock, $.001 par value, 100,000,000 shares authorized, 52,460,920 and 52,460,920 shares issued
 
52

 
52

Capital in excess of par value
 
858,030

 
867,545

Treasury stock, at cost, 2,386,397 and 2,573,652 shares
 
(145,496
)
 
(159,154
)
Accumulated other comprehensive loss
 
(565,901
)
 
(487,684
)
Accumulated deficit
 
(737,509
)
 
(794,072
)
Total stockholders' deficit
 
(590,824
)
 
(573,313
)
 
 
 
 
 
Total liabilities and stockholders' deficit
 
$
2,761,803

 
$
2,854,574




5



(Continued)
 FINANCIAL DATA (UNAUDITED)
 
TRIUMPH GROUP, INC. AND SUBSIDIARIES
(dollars in thousands, except share data)
 
CASH FLOWS
Six Months Ended September 30,
 
2019
 
2018
 
 
 
 
Operating Activities
 
 
 
Net income (loss)
$
60,789

 
$
(91,210
)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
 
 
 
Depreciation & amortization
74,269

 
76,945

Amortization of acquired contract liabilities
(39,556
)
 
(34,038
)
Loss on divestitures & assets held for sale
(4,829
)
 
17,837

Curtailment and settlement gain, net
(14,373
)
 

Other amortization included in interest expense
6,955

 
4,852

Provision for doubtful accounts receivable
1,140

 
212

Provision for deferred income taxes
15,159

 

Employee stock compensation
5,290

 
5,728

Changes in assets and liabilities, excluding the effects of acquisitions/divestitures:
 
 
 
Trade and other receivables
29,436

 
(4,722
)
Contract assets
33,930

 
6,129

Inventories
(41,807
)
 
(49,981
)
Prepaid expenses and other current assets
16,209

 
5,918

Accounts payable, accrued expenses and contract liabilities
(121,112
)
 
(101,460
)
Accrued pension and other postretirement benefits
(32,114
)
 
(37,021
)
Other
21

 
3,632

Net cash used in operating activities
(10,593
)
 
(197,179
)
Investing Activities
 
 
 
Capital expenditures
(16,995
)
 
(24,254
)
Proceeds from sale of assets
(574
)
 
41,037

Net cash used in investing activities
(17,569
)
 
16,783

Financing Activities
 
 
 
Net increase in revolving credit facility
(147,615
)
 
219,773

Proceeds from issuance of long-term debt and capital leases
546,000

 
24,700

Repayment of debt and capital lease obligations
(415,447
)
 
(58,823
)
Payment of deferred financing costs
(16,275
)
 
(1,922
)
Dividends paid
(4,001
)
 
(3,981
)
Repurchase of restricted shares for minimum tax obligation
(1,048
)
 
(548
)
Net cash (used in) provided by financing activities
(38,386
)
 
179,199

Effect of exchange rate changes on cash
(1,407
)
 
(1,395
)
Net change in cash
(67,955
)
 
(2,592
)
Cash and equivalents at beginning of period
92,807

 
35,819

Cash and equivalents at end of period
$
24,852

 
$
33,227


6








(Continued)
 FINANCIAL DATA (UNAUDITED)
 
TRIUMPH GROUP, INC. AND SUBSIDIARIES
(dollars in thousands)
SEGMENT DATA
 
Three Months Ended
 
Six Months Ended
 
 
September 30,
 
September 30,
 
 
2019
 
2018
 
2019
 
2018
Net sales:
 
 
 
 
 
 
 
 
Integrated Systems
 
$
285,980

 
$
260,717

 
$
538,206

 
$
501,756

Aerospace Structures
 
422,579

 
528,367

 
841,757

 
1,060,753

Product Support
 
67,394

 
72,199

 
129,149

 
138,414

Elimination of inter-segment sales
 
(3,843
)
 
(6,175
)
 
(6,771
)
 
(12,915
)
 
 
$
772,110

 
$
855,108

 
$
1,502,341

 
$
1,688,008

 
 
 
 
 
 
 
 
 
Operating income (loss):
 
 
 
 
 
 
 
 
Integrated Systems
 
$
51,472

 
$
39,866

 
$
86,244

 
$
75,275

Aerospace Structures
 
13,608

 
(22,744
)
 
25,891

 
(102,331
)
Product Support
 
10,865

 
11,514

 
20,142

 
19,183

Corporate
 
(12,044
)
 
(27,371
)
 
(30,439
)
 
(54,948
)
Share-based compensation expense
 
(2,864
)
 
(3,266
)
 
(5,290
)
 
(5,728
)
 
 
$
61,037

 
$
(2,001
)
 
$
96,548

 
$
(68,549
)
 
 
 
 
 
 
 
 
 
Operating Margin %
 
 
 
 
 
 
 
 
Integrated Systems
 
18.0
%
 
15.3
 %
 
16.0
%
 
15.0
 %
Aerospace Structures
 
3.2
%
 
(4.3
)%
 
3.1
%
 
(9.6
)%
Product Support
 
16.1
%
 
15.9
 %
 
15.6
%
 
13.9
 %
Consolidated
 
7.9
%
 
(0.2
)%
 
6.4
%
 
(4.1
)%
 
 
 
 
 
 
 
 
 
Depreciation and amortization:
 
 
 
 
 
 
 
 
Integrated Systems
 
$
6,983

 
$
7,384

 
$
14,050

 
$
14,939

Aerospace Structures
 
21,285

 
28,294

 
56,344

 
57,214

Product Support
 
1,099

 
1,664

 
2,189

 
3,334

Corporate
 
852

 
792

 
1,686

 
1,458

 
 
$
30,219

 
$
38,134

 
$
74,269

 
$
76,945

 
 
 
 
 
 
 
 
 
Amortization of acquired contract liabilities:
 
 
 
 
 
 
 
 
Integrated Systems
 
$
(9,624
)
 
$
(8,768
)
 
$
(17,749
)
 
$
(17,617
)
Aerospace Structures
 
(12,992
)
 
(8,036
)
 
(21,807
)
 
(16,421
)
 
 
$
(22,616
)
 
$
(16,804
)
 
$
(39,556
)
 
$
(34,038
)
 
 
 
 
 
 
 
 
 
Capital expenditures:
 
 
 
 
 
 
 
 
Integrated Systems
 
$
3,909

 
$
3,828

 
$
6,760

 
$
5,437

Aerospace Structures
 
4,032

 
7,077

 
8,005

 
17,215

Product Support
 
633

 
671

 
1,666

 
1,019

Corporate
 
331

 
478

 
564

 
583

 
 
$
8,905

 
$
12,054

 
$
16,995

 
$
24,254



7



(Continued)
 FINANCIAL DATA (UNAUDITED)
 
TRIUMPH GROUP, INC. AND SUBSIDIARIES
(dollars in thousands)
 
Non-GAAP Financial Measure Disclosures
 
We prepare and publicly release quarterly unaudited financial statements prepared in accordance with GAAP. In accordance with Securities and Exchange Commission (the “SEC”) guidance on Compliance and Disclosure Interpretations, we also disclose and discuss certain non-GAAP financial measures in our public releases. Currently, the non-GAAP financial measure that we disclose is Adjusted EBITDA and Adjusted EBITDAP, which is our net income before interest, income taxes, amortization of acquired contract liabilities, curtailments, settlements and early retirement incentives, legal settlements, depreciation and amortization and Adjusted EBITDA, less pension & other postretirement benefits. We disclose Adjusted EBITDA and Adjusted EBITDAP on a consolidated and Adjusted EBITDAP an operating segment basis in our earnings releases, investor conference calls and filings with the SEC. The non-GAAP financial measures that we use may not be comparable to similarly titled measures reported by other companies. Also, in the future, we may disclose different non-GAAP financial measures in order to help our investors more meaningfully evaluate and compare our future results of operations to our previously reported results of operations.

We view Adjusted EBITDA and Adjusted EBITDAP as operating performance measure and as such we believe that the GAAP financial measure most directly comparable to it is net income. In calculating Adjusted EBITDA and Adjusted EBITDAP, we exclude from net income 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 GAAP and should not be considered as a measure of liquidity, as an alternative to net income (loss), income from continuing operations, or as an indicator of any other measure of performance derived in accordance with GAAP. Investors and potential investors in our securities should not rely on Adjusted EBITDA or Adjusted EBITDAP as substitutes for any GAAP financial measure, including net income (loss) or income from continuing operations. In addition, we urge investors and potential investors in our securities to carefully review the reconciliation of Adjusted EBITDA and Adjusted EBITDAP to net income set forth below, in our earnings releases and in other filings with the SEC and to carefully review the GAAP financial information included as part of our Quarterly Reports on Form 10-Q and our Annual Reports on Form 10-K that are filed with the SEC, as well as our quarterly earnings releases, and compare the GAAP financial information with our Adjusted EBITDA and Adjusted EBITDAP.
 
Adjusted EBITDA and Adjusted EBITDAP is used by management to internally measure our operating and management performance and by investors as a supplemental financial measure to evaluate the performance of our business that, when viewed with our GAAP results and the accompanying reconciliation, we believe provides additional information that is useful to gain an understanding of the factors and trends affecting our business. We have spent more than 20 years expanding our product and service capabilities partially through acquisitions of complementary businesses. Due to the expansion of our operations, which included acquisitions, our net income has included significant charges for depreciation and amortization. Adjusted EBITDA and Adjusted EBITDAP exclude these charges and provides meaningful information about the operating performance of our business, apart from charges for depreciation and amortization. We believe the disclosure of Adjusted EBITDA 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 is a measure of our ongoing operating performance because the isolation of non-cash income and expenses, such as amortization of acquired contract liabilities, depreciation and amortization, and non-operating items, such as interest and income taxes, provides additional information about our cost structure, and, over time, helps track our operating progress. In addition, investors, securities analysts and others have regularly relied on Adjusted EBITDA and Adjusted EBITDAP to provide a financial measure by which to compare our operating performance against that of other companies in our industry.
 
Set forth below are descriptions of the financial items that have been excluded from our net income to calculate Adjusted EBITDA and Adjusted EBITDAP and the material limitations associated with using this non-GAAP financial measure as compared to net income:
Divestitures may be useful for investors to consider because they reflect gains or losses from sale of operating units. We do not believe these earnings necessarily reflect the current and ongoing cash earnings related to our operations.



8



(Continued)
FINANCIAL DATA (UNAUDITED)
 
TRIUMPH GROUP, INC. AND SUBSIDIARIES
(dollars in thousands)
 
Non-GAAP Financial Measure Disclosures (continued)

Legal settlements may be useful to investors to consider because they reflect gains or losses from disputes with third parties. We do not believe that these earnings necessarily reflect the current and ongoing cash earnings related to our operations.
Non-service defined benefit income (inclusive of the adoption of ASU 2017-07) may be useful to investors to consider because they represent the cost of post retirement 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 non-cash earnings on the fair value of below market contracts acquired through acquisitions. We do not believe these earnings necessarily reflect the current and ongoing cash earnings related to our operations.
Amortization expenses may be useful for investors to consider because it represents the estimated attrition of our acquired customer base and the diminishing value of product rights and licenses. We do not believe these charges necessarily reflect the current and ongoing cash charges related to our operating cost structure.
Depreciation may be useful for investors to consider because they generally represent the wear and tear on our property and equipment used in our operations. We do not believe these charges necessarily reflect the current and ongoing cash charges related to our operating cost structure.
The amount of interest expense and other we incur may be useful for investors to consider and may result in current cash inflows or outflows. However, we do not consider the amount of interest expense and other to be a representative component of the day-to-day operating performance of our business.
Income tax expense may be useful for investors to consider because it generally represents the taxes which may be payable for the period and the change in deferred income taxes during the period and may reduce the amount of funds otherwise available for use in our business. However, we do not consider the amount of income tax expense to be a representative component of the day-to-day operating performance of our business.
 
Management compensates for the above-described limitations of using non-GAAP measures by using a non-GAAP measure only to supplement our GAAP results and to provide additional information that is useful to gain an understanding of the factors and trends affecting our business.



9



(Continued)
FINANCIAL DATA (UNAUDITED)
 
TRIUMPH GROUP, INC. AND SUBSIDIARIES
(dollars in thousands)


The following table shows our Adjusted EBITDA and Adjusted EBITDAP reconciled to our net income for the indicated periods (in thousands):
 
 
Three Months Ended
 
Six Months Ended
 
 
September 30,
 
September 30,
 
 
2019
 
2018
 
2019
 
2018
Adjusted Earnings before Interest, Taxes, Depreciation, Amortization, and Pension (Adjusted EBITDAP):
 
 
 
 
 
 
 
 
Net Income (Loss)
 
$
42,701

 
$
(14,676
)
 
$
60,789

 
$
(91,210
)
 
 
 
 
 
 
 
 
 
Add-back:
 
 
 
 
 
 
 
 
     Income tax expense
 
11,352

 
485

 
16,159

 
1,516

     Interest expense and other
 
35,400

 
28,714

 
62,891

 
54,206

   Curtailment gain & special termination, net
 
(14,373
)
 

 
(14,373
)
 

   Union represented employee incentives
 
5,671

 

 
5,671

 

   (Gain) loss on sales of assets and businesses
 
(7,965
)
 
13,118

 
(4,829
)
 
17,837

   Legal settlement gain, net
 
(5,400
)
 

 
(5,400
)
 

Adoption of ASU 2017-07
 

 

 

 
87,241

     Amortization of acquired contract liabilities
 
(22,616
)
 
(16,804
)
 
(39,556
)
 
(34,038
)
     Depreciation and amortization
 
30,219

 
38,134

 
74,269

 
76,945

 
 
 
 
 
 
 
 
 
Adjusted Earnings before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA")
 
$
74,989

 
$
48,971

 
$
155,621

 
$
112,497

 
 
 
 
 
 
 
 
 
Non-service defined benefit income (excluding settlements)
 
(14,043
)
 
(16,524
)
 
(28,918
)
 
(33,061
)
 
 
 
 
 
 
 
 
 
Adjusted Earnings before Interest, Taxes, Depreciation and Amortization, and Pension ("Adjusted EBITDAP")
 
$
60,946

 
$
32,447

 
$
126,703

 
$
79,436

 
 
 
 
 
 
 
 
 
Net Sales
 
$
772,110

 
$
855,108

 
$
1,502,341

 
$
1,688,008

 
 
 
 
 
 
 
 
 
Net Income (Loss) Margin
 
5.5
%
 
(1.7
)%
 
4.0
%
 
(5.4
)%
 
 
 
 
 
 
 
 
 
Adjusted EBITDAP Margin
 
8.1
%
 
3.9
 %
 
8.7
%
 
4.8
 %




10



(Continued)
 FINANCIAL DATA (UNAUDITED)
 
TRIUMPH GROUP, INC. AND SUBSIDIARIES
(dollars in thousands)

Non-GAAP Financial Measure Disclosures (continued)
 
 
Three Months Ended September 30, 2019
 
 
 
 
Segment Data
Adjusted Earnings before Interest, Taxes, Depreciation, Amortization, and Pension (EBITDAP):
 
Total
 
Integrated Systems
 
Aerospace Structures
 
Product Support
 
Corporate/Eliminations*
 
 
 
 
 
 
 
 
 
 
 
Net Income
 
$
42,701

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Add-back:
 
 
 
 
 
 
 
 
 
 
Non-service defined benefit income
 
(28,416
)
 
 
 
 
 
 
 
 
Income tax expense
 
11,352

 
 
 
 
 
 
 
 
Interest expense and other
 
35,400

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Income (Loss)
 
$
61,037

 
$
51,472

 
$
13,608

 
$
10,865

 
$
(14,908
)
(Gain) loss on sales of assets & businesses
 
(7,965
)
 

 
(10,121
)
 

 
2,156

Legal settlement gain, net
 
(5,400
)
 

 

 

 
(5,400
)
Union represented employee incentives
 
5,671

 

 
5,671

 

 

Amortization of acquired contract liabilities
 
(22,616
)
 
(9,624
)
 
(12,992
)
 

 

Depreciation and amortization
 
30,219

 
6,983

 
21,285

 
1,099

 
852

 
 
 
 
 
 
 
 
 
 
 
Adjusted Earnings (Losses) before Interest, Taxes, Depreciation and Amortization, and Pension ("Adjusted EBITDAP")
 
$
60,946

 
$
48,831

 
$
17,451

 
$
11,964

 
$
(17,300
)
 
 
 
 
 
 
 
 
 
 
 
Net Sales
 
$
772,110

 
$
285,980

 
$
422,579

 
$
67,394

 
$
(3,843
)
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDAP Margin
 
8.1
%
 
17.7
%
 
4.3
%
 
17.8
%
 
n/a

11



 
 
Six Months Ended September 30, 2019
 
 
 
 
Segment Data
Adjusted Earnings before Interest, Taxes, Depreciation, Amortization, and Pension (EBITDAP):
 
Total
 
Integrated Systems
 
Aerospace Structures
 
Product Support
 
Corporate/Eliminations*
 
 
 
 
 
 
 
 
 
 
 
Net Income
 
$
60,789

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Add-back:
 
 
 
 
 
 
 
 
 
 
Non-service defined benefit income
 
(43,291
)
 
 
 
 
 
 
 
 
Income tax expense
 
16,159

 
 
 
 
 
 
 
 
Interest expense and other
 
62,891

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Income (Loss)
 
$
96,548

 
$
86,244

 
$
25,891

 
$
20,142

 
$
(35,729
)
(Gain) loss on sales of assets & businesses
 
(4,829
)
 

 
(10,121
)
 

 
5,292

Legal settlement gain, net
 
(5,400
)
 

 

 

 
(5,400
)
Union represented employee incentives
 
5,671

 

 
5,671

 

 

Amortization of acquired contract liabilities
 
(39,556
)
 
(17,749
)
 
(21,807
)
 

 

Depreciation and amortization
 
74,269

 
14,050

 
56,344

 
2,189

 
1,686

 
 
 
 
 
 
 
 
 
 
 
Adjusted Earnings (Losses) before Interest, Taxes, Depreciation and Amortization, and Pension ("Adjusted EBITDAP")
 
$
126,703

 
$
82,545

 
$
55,978

 
$
22,331

 
$
(34,151
)
 
 
 
 
 
 
 
 
 
 
 
Net Sales
 
$
1,502,341

 
$
538,206

 
$
841,757

 
$
129,149

 
$
(6,771
)
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDAP Margin
 
8.7
%
 
15.9
%
 
6.8
%
 
17.3
%
 
n/a









12



 
 
Three Months Ended September 30, 2018
 
 
 
 
Segment Data
Adjusted Earnings before Interest, Taxes, Depreciation, Amortization, and Pension (EBITDAP):
 
Total
 
Integrated Systems
 
Aerospace Structures
 
Product Support
 
Corporate/Eliminations*
 
 
 
 
 
 
 
 
 
 
 
Net Loss
 
$
(14,676
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Add-back:
 
 
 
 
 
 
 
 
 
 
Non-service defined benefit income
 
(16,524
)
 
 
 
 
 
 
 
 
Income Tax Expense
 
485

 
 
 
 
 
 
 
 
Interest Expense and Other
 
28,714

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating (Loss) Income
 
$
(2,001
)
 
$
39,866

 
$
(22,744
)
 
$
11,514

 
$
(30,637
)
(Gain) loss on sales of assets & businesses
 
13,118

 

 

 

 
13,118

Amortization of acquired contract liabilities
 
(16,804
)
 
(8,768
)
 
(8,036
)
 

 

Depreciation and amortization
 
38,134

 
7,384

 
28,294

 
1,664

 
792

 
 
 
 
 
 
 
 
 
 
 
Adjusted Earnings (Losses) before Interest, Taxes, Depreciation and Amortization, and Pension ("Adjusted EBITDAP")
 
$
32,447

 
$
38,482

 
$
(2,486
)
 
$
13,178

 
$
(16,727
)
 
 
 
 
 
 
 
 
 
 
 
Net Sales
 
$
855,108

 
$
260,717

 
$
528,367

 
$
72,199

 
$
(6,175
)
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDAP Margin
 
3.9
%
 
15.3
%
 
(0.5
)%
 
18.3
%
 
n/a
 
 
Six Months Ended September 30, 2018
 
 
 
 
Segment Data
Adjusted Earnings before Interest, Taxes, Depreciation, Amortization, and Pension (EBITDAP):
 
Total
 
Integrated Systems
 
Aerospace Structures
 
Product Support
 
Corporate/Eliminations*
 
 
 
 
 
 
 
 
 
 
 
Net Loss
 
$
(91,210
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Add-back:
 
 
 
 
 
 
 
 
 
 
Non-service defined benefit income
 
(33,061
)
 
 
 
 
 
 
 
 
Income Tax Expense
 
1,516

 
 
 
 
 
 
 
 
Interest Expense and Other
 
54,206

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating (Loss) Income
 
$
(68,549
)
 
$
75,275

 
$
(102,331
)
 
$
19,183

 
$
(60,676
)
(Gain) loss on sales of assets & businesses
 
17,837

 

 

 

 
17,837

Adoption of ASU 2017-07
 
87,241

 

 
87,241

 

 

Amortization of acquired contract liabilities
 
(34,038
)
 
(17,617
)
 
(16,421
)
 

 

Depreciation and amortization
 
76,945

 
14,939

 
57,214

 
3,334

 
1,458

 
 
 
 
 
 
 
 
 
 
 
Adjusted Earnings (Losses) before Interest, Taxes, Depreciation and Amortization, and Pension ("Adjusted EBITDAP")
 
$
79,436

 
$
72,597

 
$
25,703

 
$
22,517

 
$
(41,381
)
 
 
 
 
 
 
 
 
 
 
 
Net Sales
 
$
1,688,008

 
$
501,756

 
$
1,060,753

 
$
138,414

 
$
(12,915
)
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDAP Margin
 
4.8
%
 
15.0
%
 
2.5
%
 
16.3
%
 
n/a
* Operating loss at Corporate includes share-based compensation expense.


13



(Continued)
 FINANCIAL DATA (UNAUDITED)
 
TRIUMPH GROUP, INC. AND SUBSIDIARIES
(dollars in thousands, except per share data)
 
Non-GAAP Financial Measure Disclosures (continued)

Adjusted income from continuing operations, before income taxes, adjusted income from continuing operations and adjusted income from continuing operations per diluted share, before non-recurring costs have been provided for consistency and comparability. These measures should not be considered in isolation or as alternatives to income from continuing operations before income taxes, income from continuing operations and income from continuing operations per diluted share presented in accordance with GAAP. The following tables reconcile income from continuing operations before income taxes, income from continuing operations, and income from continuing operations per diluted share, before non-recurring costs.

 
 
Three Months Ended
 
 
September 30, 2019
 
 
Pre-Tax
 
After-Tax
 
Diluted EPS
Income from Continuing Operations - GAAP
 
$
54,053

 
$
42,701

 
$
0.85

Adjustments:
 
 
 
 
 
 
(Gain) loss on sale of assets and businesses
 
(7,965
)
 
(6,292
)
 
(0.12
)
Curtailment gain & special termination, net
 
(14,373
)
 
(11,355
)
 
(0.23
)
Legal settlement gain, net
 
(5,400
)
 
(4,266
)
 
(0.08
)
Union incentives
 
5,671

 
4,480

 
0.09

Restructuring costs
 
5,782

 
4,568

 
0.09

Refinancing cost
 
3,030

 
2,394

 
0.05

Adjusted Income from Continuing Operations - non-GAAP
 
$
40,798

 
$
32,230

 
$
0.64

 
 
Six Months Ended
 
 
 
 
September 30, 2019
 
 
 
 
Pre-Tax
 
After-Tax
 
Diluted EPS
 
FY20 EPS
Guidance Range
Income from Continuing Operations - GAAP
 
$
76,948

 
$
60,789

 
$
1.21

 
$1.34 - $2.35
Adjustments:
 
 
 
 
 
 
 
 
(Gain) loss on sale of assets and businesses
 
(4,829
)
 
(3,815
)
 
(0.08
)
 
0.69 - 1.09
Curtailment gain & special termination, net
 
(14,373
)
 
(11,355
)
 
(0.23
)
 
(0.23)
Legal settlement gain, net
 
(5,400
)
 
(4,266
)
 
(0.08
)
 
(0.13) - (0.14)
Union incentives
 
5,671

 
4,480

 
0.09

 
0.09
Restructuring costs
 
8,746

 
6,909

 
0.14

 
0.14
Refinancing cost
 
3,030

 
2,394

 
0.05

 
0.05
Adjusted Income from Continuing Operations - non-GAAP
 
$
69,793

 
$
55,136

 
$
1.09

 
$2.35 - $2.95





14



 
 
Three Months Ended
 
 
September 30, 2018
 
 
Pre-Tax
 
After-Tax
 
Diluted EPS
Loss from Continuing Operations - GAAP
 
$
(14,191
)
 
$
(14,676
)
 
$
(0.30
)
Adjustments:
 
 
 
 
 
 
(Gain) loss on sale of assets and businesses
 
13,118

 
13,118

 
0.26

Global 7500 forward loss charge
 
19,926

 
17,621

 
0.35

Reduction of prior Gulfstream forward loss
 
(7,624
)
 
(6,742
)
 
(0.14
)
Restructuring costs
 
11,832

 
9,821

 
0.20

Refinancing costs
 
1,281

 
1,063

 
0.02

Adjusted Income from Continuing Operations - non-GAAP
 
$
24,342

 
$
20,205

 
$
0.40

 
 
Six Months Ended
 
 
September 30, 2018
 
 
Pre-Tax
 
After-Tax
 
Diluted EPS
Loss from Continuing Operations - GAAP
 
$
(89,694
)
 
$
(91,210
)
 
$
(1.84
)
Adjustments:
 
 
 
 
 
 
Adoption of ASU 2017-07
 
87,241

 
85,474

 
1.71

(Gain) loss on sale of assets and businesses
 
17,837

 
17,837

 
0.36

Global 7500 forward loss charge
 
19,926

 
17,621

 
0.35

Reduction of prior Gulfstream forward loss
 
(7,624
)
 
(6,742
)
 
(0.14
)
Restructuring costs
 
15,879

 
13,180

 
0.26

Refinancing costs
 
1,281

 
1,063

 
0.02

Adjusted Income from Continuing Operations - non-GAAP
 
$
44,846

 
$
37,222

 
$
0.75



15



(Continued)
 FINANCIAL DATA (UNAUDITED)
 
TRIUMPH GROUP, INC. AND SUBSIDIARIES
(dollars in thousands, except per share data)
 
Non-GAAP Financial Measure Disclosures (continued)

Adjusted Operating Income is defined as GAAP Operating Income, less expenses/gains associated with the Company's transformation, such as restructuring expenses, gains/losses on divestitures, defined benefit plan gains/losses from curtailments, settlements, etc; impairments of goodwill and other assets. Management believes that this is useful in evaluating operating performance, but this measure should not be used in isolation. The following table reconciles our Operating income to Adjusted Operating income as noted above.

 
 
Three Months Ended
 
Six Months Ended
 
 
September 30, 2019
 
September 30, 2018
 
September 30, 2019
 
September 30, 2018
Operating Income - GAAP
 
$
61,037

 
(2,001
)
 
$
96,548

 
$
(68,549
)
 
 
 
 
 
 
 
 
 
Adjustments:
 
 
 
 
 
 
 
 
Adoption of ASU 2017-07
 

 

 

 
87,241

(Gain) Loss on sale of assets and businesses
 
(7,965
)
 
13,118

 
(4,829
)
 
17,837

Global 7500 forward loss charge
 

 
19,926

 

 
19,926

Reduction of prior Gulfstream forward loss
 

 
(7,624
)
 

 
(7,624
)
Restructuring costs
 
5,782

 
11,832

 
8,746

 
15,879

Legal settlement gain, net
 
(5,400
)
 

 
(5,400
)
 

Union incentives
 
5,671

 

 
5,671

 

Adjusted Operating Income - non-GAAP
 
$
59,125

 
$
35,251

 
$
100,736

 
$
64,710


16



(Continued)
 FINANCIAL DATA (UNAUDITED)
 
TRIUMPH GROUP, INC. AND SUBSIDIARIES
(dollars in thousands, except per share data)
 
Non-GAAP Financial Measure Disclosures (continued)

Cash provided by operations, is provided for consistency and comparability. We also use free cash flow as a key factor in planning for and consideration of strategic acquisitions and the repayment of debt. This measure should not be considered in isolation, as a measure of residual cash flow available for discretionary purposes, or as an alternative to operating results presented in accordance with GAAP. The following table reconciles cash provided by operations to free cash flow.

 
 
Three Months Ended
 
 
Six Months Ended
 
 
September 30,
 
September 30,
 
 
2019
 
2018
 
 
2019
 
2018
Cash flow used in operations
 
$
(15,611
)
 
$
(131,464
)
 
 
$
(10,593
)
 
$
(197,179
)
Less:
 
 
 
 
 
 
 
 
 
Capital expenditures
 
(8,905
)
 
(12,054
)
 
 
(16,995
)
 
(24,254
)
Free cash use
 
$
(24,516
)
 
$
(143,518
)
 
 
$
(27,588
)
 
$
(221,433
)
 
 
 
 
 
 
 
 
 
 


The Company provides cash flow guidance on non-GAAP basis adjusting capital expenditures from cash from operations to arrive at free cash flow. The following table reconciles cash from operations on a GAAP basis to free cash flow guidance.
 
 
 
 
 
 
 
 
 
 
 
 
 
FY19 Cash Flow Guidance Range
Cash flow from operations
$50,000 - $110,000
Less:
 
 
 
 
 
Capital expenditures
$50,000 - $60,000
Free cash flow
$0 - $50,000

17
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