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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2024

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 No. 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 Number)

 

555 E Lancaster Avenue, Suite 400, Radnor, Pennsylvania 19087

(Address of principal executive offices, including zip code)

Registrant's telephone number, including area code: (610) 251-1000

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

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934. Yes No

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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No

As of September 29, 2023, the aggregate market value of the shares of Common Stock held by non-affiliates of the Registrant was approximately $579 million. Such aggregate market value was computed by reference to the closing price of the Common Stock as reported on the New York Stock Exchange on September 29, 2023. For purposes of making this calculation only, the Registrant has defined affiliates as including all directors and executive officers.

The number of outstanding shares of the Registrant's Common Stock, par value $.001 per share, on May 10, 2024, was 77,027,831.

Documents Incorporated by Reference

Portions of the following document are incorporated herein by reference:

 


The Proxy Statement of Triumph Group, Inc. to be filed in connection with our 2024 Annual Meeting of Stockholders is incorporated in part in Part III hereof, as specified herein.

 

 


Table of Contents

 

Item No.

Page

PART I

4

Item 1.

Business

4

General

4

Products and Services

4

Proprietary Rights

5

Sales, Marketing, and Engineering

5

Backlog

5

Dependence on Significant Customers

6

Competition

6

Government Regulation, including Environmental Regulations and Industry Oversight

6

Human Capital Resources

7

Executive Officers

9

 

Recent Developments

10

Available Information

10

Item 1A.

Risk Factors

11

Item 1B.

Unresolved Staff Comments

21

Item 1C.

Cybersecurity

21

Item 2.

Properties

22

Item 3.

Legal Proceedings

22

Item 4.

Mine Safety Disclosures

23

 

PART II

24

Item 5.

Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities

24

Item 6.

[Reserved]

25

Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations

26

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

40

Item 8.

Financial Statements and Supplementary Data

41

Item 9.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

86

Item 9A.

Controls and Procedures

86

Item 9B.

Other Information

89

Item 9C.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

89

 

PART III

90

Item 10.

Directors, Executive Officers, and Corporate Governance

90

Item 11.

Executive Compensation

90

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

90

Item 13.

Certain Relationships and Related Transactions, and Director Independence

90

Item 14.

Principal Accountant Fees and Services

90

 

PART IV

91

Item 15.

Exhibits, Financial Statement Schedules

91

Item 16.

Form 10-K Summary

95

 

 

 

 


 

PART I

Item 1. Business

Cautionary Note Regarding Forward-Looking Statements

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 relating to our future operations and prospects, including statements that are based on current projections and expectations about the markets in which we operate, and management's beliefs concerning future performance and capital requirements based upon current available information. Such statements are based on management's beliefs as well as assumptions made by and information currently available to management. When used in this document, words like "may," "might," "will," "expect," "anticipate," "plan," "believe," "potential," and similar expressions are intended to identify forward-looking statements. Actual results could differ materially from management's current expectations. For example, there can be no assurance that additional capital will not be required, and that such amounts may be material, or that additional capital, if required, will be available on reasonable terms, if at all, at such times and in such amounts as may be needed by us. In addition to these factors, among other factors that could cause actual results to differ materially, are uncertainties relating to the general economic conditions affecting our business segments; severe disruptions to the economy, the financial markets, and the markets in which we compete; dependence of certain of our businesses on certain key customers; and the risk that we will not realize all of the anticipated benefits from efforts to optimize our asset base, as well as competitive factors relating to the aerospace industry. For a more detailed discussion of these and other factors affecting us, see the risk factors described in "Item 1A. Risk Factors."

General

Triumph Group, Inc. ("Triumph," the "Company," "we," "us," or "our") was incorporated in 1993 in Delaware. Our companies design, engineer, manufacture, repair, and overhaul a broad portfolio of aerospace and defense systems, subsystems, components, and structures. We serve the global aviation industry, including original equipment manufacturers (“OEMs”) and the full spectrum of military and commercial aircraft operators through the aircraft life cycle.

Products and Services

We offer a variety of products and services to the aerospace industry through two operating segments: (i) Triumph Systems & Support, whose companies design, develop, and support proprietary components, subsystems, and systems; produce complex assemblies using external designs; and provide full life cycle solutions for commercial, regional, and military aircraft and (ii) Triumph Interiors, whose companies supply commercial, business, regional, and military manufacturers with insulation parts, interior and composite components to Triumph and customer designs, and the manufacture of thermo-acoustic insulation, environmental control system ducting, and other aircraft interior components for major aerospace OEMs. We also maintain full maintenance, repair, and overhaul capabilities for all Triumph products across Systems & Support and Interiors, including the manufacture of spare parts.

Systems & Support’s capabilities include landing gear-system design; hydraulic, mechanical, and electromechanical actuation; hydraulic power generation and control; a complete suite of aerospace gearbox solutions, including engine accessory gearboxes and helicopter transmissions; active and passive thermal systems including vapor cycle systems and heat exchangers; and fuel pumps, fuel metering units, and full authority digital electronic control fuel systems.

The products and capabilities within this group include the design, manufacture, build and repair of:

 

Aircraft and engine-mounted accessory drives

 

Thermal control systems and components

Cargo hooks

 

High lift and utility actuation

Cockpit control levers

 

Hydraulic systems and components

Control system valve bodies

 

Landing gear actuation systems

Electronic engine controls

 

Landing gear components and assemblies

Cyber protected process controllers

 

Main engine gear box assemblies

Geared transmissions and drive train components

 

Main fuel pumps and afterburner fuel pumps

Fuel-metering units

 

Vibration absorbers

Interiors products include thermo-acoustic insulation systems, environmental control system ducting, and other aircraft interior components.

4


 

Proprietary Rights

We benefit from our proprietary rights relating to designs, engineering and manufacturing processes, and repair and overhaul procedures. For some products, our unique manufacturing capabilities are required by the customer's specifications or designs, thereby necessitating reliance on us for the production of such specially designed products.

We view our name and trademark as significant to our business as a whole. Our products are protected by a portfolio of patents, trademarks, licenses, or other forms of intellectual property that expire at various dates in the future. We continually develop and acquire new intellectual property and consider all of our intellectual property to be valuable. However, based on the broad scope of our product lines, management believes that the loss or expiration of any single intellectual property right would not have a material adverse effect on our results of operations, our financial position, or our business segments. Our policy is to file applications and obtain patents for our new products as appropriate, including product modifications and improvements. While patents generally expire 20 years after the patent application filing date, new patents are issued to us on a regular basis.

Sales, Marketing, and Engineering

Each of our operating companies maintains responsibility for selling and marketing its specific products. These businesses are responsible for selling aerospace engineered products, integrated assemblies, cabin acoustic insulation and repair and overhaul services, reaching across our operating companies, to our OEM, military, airline, and air cargo customers. In certain limited cases, we use independent, commission-based representatives to serve our customers' changing needs in some of the markets and geographic regions in which we operate.

Triumph has established multiple Customer Focus Teams ("CFT"), which are cross functional teams focused on Triumph’s activities, performance, growth plans and coordination with large customers.

Our business development teams and CFTs operate as the front end of the selling process, establishing and maintaining relationships, identifying opportunities to leverage our brand, and providing service for our customers. We meet our customers’ needs by designing systems that integrate the capabilities of our companies.

A significant portion of our government and defense contracts are awarded on a competitive bidding basis. We generally do not bid or act as the primary contractor but will typically bid and act as a subcontractor on contracts on a fixed-price basis. We generally sell to our other customers on a fixed price, negotiated contract, or purchase order basis.

When subcontracting, there is a risk of nonperformance by our subcontractors, which could lead to disputes regarding quality, cost or impacts to production schedules. Additionally, economic environment changes, natural disasters, trade sanctions, tariffs, budgetary constraints, earthquakes, fires, extreme weather conditions, or pandemics, affecting the prime contractor and our subcontractors may adversely affect their ability to meet or support our performance requirements, or may constrain our supply chain.

Backlog

We have a number of long-term agreements with several of our customers. These agreements generally describe the terms under which the customer may issue purchase orders to buy our products and services during the term of the agreement. These terms typically include a list of the products or repair services customers may purchase, initial pricing, anticipated quantities and, to the extent known, delivery dates. In tracking and reporting our backlog, however, we include amounts for which we have actual purchase orders with firm delivery dates or contract requirements within the next 24 months, and, for Interiors, whose sales are driven primarily by long-term agreements with Boeing and Airbus, we also include an estimate of expected purchase orders with anticipated delivery dates or contract requirements within the next 24 months. Our backlog primarily relates to sales to our OEM customer base as purchase orders issued by our aftermarket customers are usually completed within a short period of time. As a result, our backlog data relates primarily to the OEM customers. Other than the estimate of expected purchase orders for Interiors, the backlog information set forth below does not include the sales that we expect to generate from long-term agreements for which we do not have actual purchase orders with firm delivery dates.

As of March 31, 2024, our backlog was approximately $1.90 billion, of which $1.56 billion and $0.34 billion related to Systems & Support and Interiors, respectively, including approximately $0.31 billion of Interiors backlog that is based on expected purchase orders from major customers. As of March 31, 2023, our backlog was approximately $1.55 billion, of which $1.29 billion and $0.26 billion related to Systems & Support and Interiors, respectively, including approximately $0.22 billion of Interiors backlog that is based on expected purchase orders from major customers. Of the existing backlog of $1.90 billion, we estimate approximately $1.15 billion will be shipped by March 31, 2025. Refer to "Management’s Discussion and Analysis of Financial Condition and Results of Operations" for further information on our backlog.

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Dependence on Significant Customers

As disclosed below in Note 18 to the consolidated financial statements, a significant portion of our net sales are to the Boeing Company (“Boeing”). Refer to Note 18 for specific disclosure of the concentration of net sales and accounts receivable to Boeing. A significant reduction in sales to Boeing may have a material adverse impact on our financial position, results of operations, and cash flows.

Competition

We compete primarily with Tier 1 and Tier 2 systems suppliers and component manufacturers, some of which are divisions or subsidiaries of other large companies, in the manufacture of aircraft, systems components, and subassemblies.

Competition for the repair and overhaul of aviation components comes from four primary sources, some of whom possess greater financial and other resources than we have and, as a result, may be in a better position to handle the current environment: OEMs, major commercial airlines, government support depots, and independent repair and overhaul companies. Some major commercial airlines continue to own and operate their own service centers, while others sell or outsource their repair and overhaul services to other aircraft operators or third parties. Large domestic and foreign airlines that provide repair and overhaul services typically provide these services not only for their own aircraft but for other airlines as well. OEMs also maintain service centers that provide repair and overhaul services for the components they manufacture. Many governments maintain aircraft support depots in their military organizations that maintain and repair the aircraft they operate. Independent service organizations also compete for the repair and overhaul business of other users of aircraft components. Due to the proprietary nature of our products, these competitors and other parties often source their component spare parts from us.

Participants in the aerospace industry compete primarily on the basis of breadth of technical capabilities, quality, delivery performance, capacity, and price.

Government Regulation, Including Environmental Regulations and Industry Oversight

Government Regulation and Industry Oversight

The aerospace industry is highly regulated in the United States by the Federal Aviation Administration ("FAA") and in other countries by similar agencies. We must be certified by the FAA and, in some cases, by individual OEMs, in order to engineer and service parts and components used in specific aircraft models. If material authorizations or approvals were revoked or suspended, our operations would be adversely affected. New and more stringent government regulations may be adopted, or industry oversight heightened, in the future, and these new regulations, if enacted, or any industry oversight, if heightened, may have an adverse impact on us.

We must also satisfy the requirements of our customers, including OEMs, that are subject to FAA regulations, and provide these customers with products and repair services that comply with the government regulations applicable to aircraft components used in commercial flight operations. The FAA regulates commercial flight operations and requires that aircraft components meet its stringent standards. In addition, the FAA requires that various maintenance routines be performed on aircraft components, and we currently satisfy these maintenance standards in our repair and overhaul services.

Generally, the FAA only grants approvals for the manufacture or repair of a specific aircraft component. The FAA approval process may be costly and time-consuming. In order to obtain an FAA Air Agency Certificate, an applicant must satisfy all applicable regulations of the FAA governing repair stations. These regulations require that an applicant have experienced personnel, inspection systems, suitable facilities, and equipment. In addition, the applicant must demonstrate a need for the certificate. An applicant must procure manufacturer’s repair manuals from design approval holders, including Triumph when applicable, relating to each particular aircraft component. Because of these regulatory requirements, the application process may involve substantial cost.

The certification processes for the European Aviation Safety Agency ("EASA"), which regulates this industry in the European Union; the Civil Aviation Administration of China; and other comparable foreign regulatory authorities, are similarly stringent, involving potentially lengthy audits. EASA was formed in 2002 and is handling most of the responsibilities of the national aviation authorities in Europe, such as the United Kingdom Civil Aviation Authority.

Our operations are also subject to a variety of worker and community safety laws. For example, the Occupational Safety and Health Act of 1970 ("OSHA") mandates general requirements for safe workplaces for all employees in the United States. In addition, OSHA provides special procedures and measures for the handling of hazardous and toxic substances. Specific safety standards have been promulgated for workplaces engaged in the treatment, disposal, or storage of hazardous waste. We believe that our operations are in material compliance with OSHA's health and safety requirements.

Environmental Regulation

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Our business, operations, and facilities are subject to numerous stringent federal, state, local, and foreign environmental laws and regulations by government agencies, including the Environmental Protection Agency ("EPA"). Among other matters, these regulatory authorities impose requirements that regulate the emission, discharge, generation, management, transportation and disposal of hazardous materials, pollutants, and contaminants; govern public and private response actions to hazardous or regulated substances which may be or have been released to the environment; and require us to obtain and maintain licenses and permits in connection with our operations. This extensive regulatory framework imposes significant compliance burdens and risks on us. Although management believes that our operations and our facilities are in material compliance with such laws and regulations, future changes in these laws, regulations, or interpretations thereof or the nature of our operations or regulatory enforcement actions which may arise may require us to make significant additional capital expenditures to ensure ongoing compliance or engage in remedial actions.

Certain of our facilities, including facilities acquired and operated by us or one of our subsidiaries, have at one time or another been under active investigation for environmental contamination by federal or state agencies when acquired, and at least in some cases, continue to be under investigation or subject to remediation. We are frequently indemnified by prior owners or operators and/or present owners of the facilities for liabilities that we incur as a result of these investigations and the environmental contamination found that predates our acquisition of these facilities, subject to certain limitations. We also maintain a pollution liability policy that provides coverage for certain material liabilities associated with the cleanup of on-site pollution conditions, as well as defense and indemnity for certain third-party suits (including Superfund liabilities at third-party sites), in each case, to the extent not otherwise indemnified. This policy applies to all of our manufacturing and assembly operations worldwide. Also, the need for remediation for potential environmental contamination could be identified at facilities formerly owned by us that have been divested as part of restructuring and related initiatives, and such obligations could be material. If we are required to pay the expenses related to environmental liabilities because neither indemnification nor insurance coverage is available, these expenses could have a material adverse effect on us.

On March 6, 2024, the Securities and Exchange Commission (the "SEC") adopted rules to enhance and standardize climate-related disclosures by public companies and in public offerings. The new rules require disclosures about material climate-related risks, how the board of directors and management oversee and manage the risks, and the actual and potential impact of the risks. The rules also require disclosure about material climate-related targets and goals and Scope 1 and Scope 2 greenhouse gas ("GHG") emissions, among other things. These climate-related disclosures will be required in annual reports and registration statements.

With the exception of Scope 1 and Scope 2 GHG emissions disclosures, we will be required to comply with the new rules beginning in fiscal 2026. We will be required to comply Scope 1 and Scope 2 GHG emissions disclosure requirements beginning in fiscal 2027. Under the new rules, our disclosure of Scope 1 and Scope 2 GHG emissions will initially be subject to limited assurance beginning in fiscal 2030 and reasonable assurance beginning in fiscal 2034. We are not able to predict the full impact these rules will have on our business, operations or financial results.

On April 4, 2024, the SEC issued a stay on the new rules pending the completion of judicial review.

There have not been, and we do not expect there to be in the near term, material impacts on our business, financial condition or results of operations as a result of compliance with legislation or regulatory rules regarding climate change, including those adopted by the SEC on March 6, 2024; from the known physical effects of climate change; or as a result of supporting our environmental, social, and governance ("ESG") initiatives. Further increases in regulation and other climate change concerns, however, could subject us to additional costs and restrictions, and we are not able to predict how such regulations or concerns would affect our business, operations or financial results.

Human Capital Resources

Our success greatly depends on identifying, attracting, engaging, developing, and retaining a highly skilled workforce in multiple areas, including engineering, manufacturing, information technology, cybersecurity, business development, finance, and strategy and management. Our human capital management strategy places significant importance on attracting and developing a talented and diverse workforce by creating a workplace that is engaging and inclusive and promotes a culture of innovation, excellence, and continuous improvement. The objectives of our human capital management strategy are aligned with and support our strategic and financial goals.

We use a wide variety of human capital measures in managing our business, including workforce demographics and diversity metrics; talent acquisition, retention, and development metrics; and employee safety and health metrics.

Diversity and Workforce Demographics

We value the diversity of our workforce and believe that the best innovation and business results are achieved when teams are populated with individuals from a diverse set of backgrounds, cultures, genders, and experiences. We have a Diversity & Inclusion Steering Committee (“DISC”) committed to creating an environment in which all employees feel valued, included, and empowered

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to share their unique experiences, perspectives, and viewpoints. We believe this is critical to the success of our business and the delivery of world class manufacturing, engineering, and aerospace services. We track the diversity of our leadership and workforce and review our progress toward our diversity objectives with the Company’s Board of Directors on a periodic basis. Across our total employee population and based on employees who self-identify, as of March 31, 2024, approximately 38% of our global workforce are female. Of our employees based in the United States, who have self-identified, approximately 22% are multicultural and 10% are veterans.

Several of our subsidiaries are parties to collective bargaining agreements with labor unions. Under those agreements, we currently employ approximately 469 full-time employees. Currently, approximately 10% of our 4,530 permanent employees are represented by labor unions and approximately 34% of net sales are derived from the facilities at which at least some employees are unionized. Of the 469 employees represented by unions, no employees are working under contracts that have expired.

Our inability to negotiate an acceptable contract with any of our labor unions could result in strikes by the affected workers and increased operating costs as a result of higher wages or benefits paid to union members. If the unionized workers were to engage in a strike or other work stoppage, or if other employees were to become unionized, we could experience a significant disruption of our operations and higher ongoing labor costs, which could have an adverse effect on our business and results of operations.

Talent Acquisition, Retention, and Development

Hiring, developing, and retaining talented employees, particularly in highly technical areas, is an integral part of our human capital management. In addition to our focus on recruitment, we monitor attrition rates, including with respect to top talent. We believe that the commitment and connection of employees to their workplace, what we refer to as employee engagement, is a critical component of retention of top talent. We periodically conduct surveys of our workforce designed to gauge “employee engagement”. Our Employee Engagement Team monitors the responses to these surveys in our pursuit of continuously improving our employee engagement metrics. We also continue to invest in technology that supports the effectiveness, efficiency, and engagement of our employees, including advancement with our human resources information systems, communication tools and processes.

We also attract and reward our employees by providing market-competitive compensation and benefit practices that cover the many facets of health, including resources and programs designed to support physical, mental, and financial wellness. We also provide tuition reimbursement and other educational and training opportunities to our employees.

Employee Safety and Health

Ensuring the safety of our employees is a top priority for us. Our safety and health program seeks to enhance business value by creating a safe and healthy work environment, promote the resiliency of our workforce and engage our employees. We provide health and safety guidance and resources to all of our businesses in order to ensure occupational safety, reduce risk, and prevent incidents. Our values include the commitment of each person to creating a safe work environment for themselves and their team members, and, through various programs and activities, we recognize individuals in our organization who make significant contributions to workplace safety.

We monitor the effectiveness of our safety and health program by comparing recordable incidents and incident severity to specific performance metrics established annually. We measure the volume of safety incidents through the total recordable incident rate (“TRIR”) metric, and we measure incident severity through the days away restricted and transferred (“DART”) metric across all of our facilities. These rates are measured on a calendar year basis, and the table below reflects our results over the three most recent calendar years:

 

 

Calendar year ended

 

Safety Metric

 

2023

 

 

2022

 

 

2021

 

TRIR

 

 

0.8

 

 

 

1.2

 

 

 

1.8

 

DART

 

 

0.2

 

 

 

0.5

 

 

 

1.0

 

TRIR = total number of recordable cases x 200,000 / total hours worked

 

DART = number of cases with days away from work x 200,000 / total hours worked by all employees

 

Community Service and Philanthropy

Since 2011, we have demonstrated a deep dedication to corporate citizenship through our Wings community outreach program. Through Wings, based on the needs of their communities, our employees around the world create and implement service projects by partnering with local nonprofit organizations and engage in meaningful volunteer projects that directly benefit local charities committed to serving the needs of others. The Company enjoys partnering in local communities, and team-based volunteer events help bring our employees together as one team serving its communities. We provide our employees up to 8 hours paid vacation so that they may volunteer with charitable or community-enrichment organizations.

In 2008, the Triumph Group Charitable Foundation was formed and funded. In fiscal year of 2024, the Triumph Group Charitable Foundation allocated approximately $0.3 million to approximately 100 recipient organizations. These organizations were principally nominated by our employees. The Triumph Group Charitable Foundation makes contributions to organizations that are

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focused on improving our communities; supporting veterans and military families; and advancing education, particularly in the areas of science, technology, engineering, and mathematics (“STEM”).

Executive Officers

Our current executive officers are:

 

Name

Age

Position

Daniel J. Crowley

61

Chairman, President and Chief Executive Officer

James F. McCabe, Jr.

61

Senior Vice President, Chief Financial Officer

Jennifer H. Allen

52

Senior Vice President, Chief Administrative Officer, General Counsel and Secretary

Thomas A. Quigley, III

47

Vice President, Investor Relations, Mergers & Acquisitions and Treasurer

Kai W. Kasiguran

38

Vice President, Controller

 

Daniel J. Crowley was appointed President and Chief Executive Officer and a director of the Company on January 4, 2016. He was elected Chair of the Board of Directors of the Company on November 17, 2020. Mr. Crowley was elected as an independent director to Knowles Corporation’s Board of Directors on July 26, 2022. Previously, Mr. Crowley served as a corporate vice president and President of Integrated Defense Systems at Raytheon Company from 2013 until 2015, and as President of Network Centric Systems at Raytheon Company from 2010 until 2013. Prior to joining Raytheon Company, Mr. Crowley served as Chief Operating Officer of Lockheed Martin Aeronautics after holding a series of increasingly responsible assignments across its space, electronics, and aeronautics sectors.

James F. McCabe, Jr. has been our Senior Vice President and Chief Financial Officer since August 2016. He joined the Company from Steel Partners Holdings, where he served in a number of roles from 2007 to 2016, including the following: Senior Vice President and CFO, President, Shared Services, and Senior Vice President and CFO of its affiliates Handy & Harman and Steel Excel. Prior to joining Steel Partners Holdings, Mr. McCabe served as Vice President, Finance and Treasurer of American Water’s Northeast Region from 2004 to 2007, and President and CFO of Teleflex Aerospace from 1991 to 2003, which served the global aviation industry. He has previously qualified as a certified public accountant and Six Sigma Green Belt and served as a member of the Board of Governors and the Civil Aviation Council Executive Committee for the Aerospace Industries Association.

Jennifer H. Allen has been a Senior Vice President and our Chief Administrative Officer, General Counsel and Secretary since September 2018. She joined Triumph Group from CIRCOR International, Inc., where she was Senior Vice President, General Counsel & Secretary from 2016 to 2018. Previously, she was Vice President & Associate General Counsel – Corporate for BAE Systems, Inc., from 2010 to 2016, a member of the mergers and acquisition group in the New York office of Jones Day from 2005 to 2010, and a member of the business and finance group in the Philadelphia office of Morgan, Lewis & Bockius LLP from 1996 to 2001.

Thomas A. Quigley, III has been our Vice President, Investor Relations, Mergers & Acquisitions and Treasurer since September 2022. From December 2019 to September 2022, Mr. Quigley served as our Vice President, Investor Relations and Controller. From November 2012 to December 2019, Mr. Quigley served as our Vice President and Controller, and served as the Company's principal accounting officer. Mr. Quigley previously served as the Company's SEC Reporting Manager from 2009 to 2012. From 2002 until joining Triumph in 2009, Mr. Quigley held various roles within the audit practice of KPMG LLP, including Senior Audit Manager.

Kai W. Kasiguran was appointed our Vice President, Controller and Principal Accounting Officer in September 2022. Mr. Kasiguran previously served in a variety of roles at the Company from 2018 to 2022, most recently as the Company’s Assistant Controller, Corporate. From 2011 until joining the Company in 2018, Mr. Kasiguran held various roles within the audit practice of Ernst & Young, LLP, including Senior Audit Manager.

Recent Developments

As disclosed in Note 3, in December 2023 we entered into a definitive agreement with AAR CORP. (“AAR”), to sell Systems & Support's maintenance, repair, and overhaul operations located in Wellington, Kansas; Grand Prairie, Texas; San Antonio, Texas; Hot Springs, Arkansas; and Chonburi, Thailand (“Product Support”). The capabilities of Product Support included providing maintenance, repair and overhaul ("MRO") services for the global commercial, regional, and military operators of aircraft components. As a result of this transaction, effective in the third quarter of fiscal 2024, we have classified the Product Support results of operations for all periods presented as discontinued operations, have classified the assets and liabilities of the disposal group as held for sale as of March 31, 2023, and these operations are no longer reported as part of the Systems & Support reportable segment. As a result, and unless specifically stated, all discussions within Management's Discussion and Analysis of Financial Condition and Results of Operations regarding results for the fiscal years ended March 31, 2024, 2023, and 2022, reflect

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results from our continuing operations. The divestiture of Product Support closed on March 1, 2024, and the Company recognized a gain of approximately $548.3 million. Refer to Note 3 for further disclosure.

On March 4, 2024, we completed the redemption of $120.0 million of our 2028 First Lien Notes (as defined in Note 10) for approximately $128.7 million, reflecting a redemption price of 103% of the aggregate principal amount plus accrued and unpaid interest. On March 5, 2024, pursuant to an offer made in accordance with the provisions of the indenture governing the 2028 First Lien Notes to purchase 2028 First Lien Notes for cash, we settled the asset sale tender offer of approximately $1.1 million of our 2028 First Lien Notes for $1.2 million reflecting a redemption price of 100% of the aggregate principal amount plus accrued and unpaid interest. On March 6, 2024, we redeemed the remaining outstanding $435.6 million of 2025 Notes (as defined in Note 10) for approximately $437.6 million reflecting a redemption price of 100% of the aggregate principal amount plus accrued and unpaid interest. As a result of these redemptions, we reduced our long-term debt by approximately $556.7 million.

On May 30, 2024, we completed the redemption of $120.0 million of our 2028 First Lien Notes at a redemption price equal to 103.000% of the principal amount redeemed plus accrued and unpaid interest to, but not including, the redemption date.

Available Information

For more information about us, visit our website at www.triumphgroup.com. The contents of the website are not part of this Annual Report on Form 10-K. Our electronic filings with the Securities and Exchange Commission ("SEC") (including Forms 10-K, 10-Q and 8-K, proxy statements, on Schedule 14A, and any amendments to these reports) are available free of charge through our website as soon as reasonably practicable after we electronically file with or furnish them to the SEC. The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers who file electronically with the SEC at www.sec.gov.

In addition, electronic copies of the Company’s SEC filings will be made available, free of charge, on written request.

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Item 1A. Risk Factors

Strategic Risks

Strategic risk relates to our future business plans and strategies, including the risks associated with the global macro-environment; competitive threats; the demand for our products and services; the success of our investments in technology and innovation; our portfolio of businesses and capital allocation decisions; dispositions, acquisitions, joint ventures, and restructuring activity; intellectual property; and other risks.

Factors that have an adverse impact on the aerospace industry may adversely affect our results of operations and liquidity.

A substantial percentage of our gross profit and operating results derive from commercial aviation. Our operations have been focused on designing, engineering, manufacturing, repairing and overhauling a broad portfolio of aircraft components, accessories, subassemblies, and systems. Therefore, our business is directly affected by economic factors and other trends that affect our customers in the aerospace industry, including a possible decrease in outsourcing by OEMs and aircraft operators or projected market growth that may not materialize or be sustainable. We are also significantly dependent on sales to the commercial aerospace market, which has been cyclical in nature with significant downturns in the past. When these economic and other factors adversely affect the aerospace industry, they tend to reduce the overall customer demand for our products and services, which decreases our operating income. Economic and other factors that might affect the aerospace industry such as disruption in the supply chain or high inflation may have an adverse impact on our results of operations and liquidity. In addition, an increase in energy costs and the price of fuel to the airlines could result in additional pressure on the operating costs of airlines. The market for jet fuel is inherently volatile and is subject to, among other things, changes in government policy on jet fuel production; fluctuations in the global supply of crude oil; disruptions in oil production or delivery caused by hostility in oil-producing areas; or potential legislation or strategic initiatives to address climate change by reducing greenhouse gas emissions, creating carbon taxes, or implementing or otherwise participating in cap and trade programs. Airlines are sometimes unable to pass on increases in fuel prices or other costs to customers by increasing fares due to the competitive nature of the airline industry, and this compounds the pressure on operating costs. Other events of general impact such as natural disasters, pandemics, war, terrorist attacks affecting the industry or pandemic health crises may lead to declines in the worldwide aerospace industry that could adversely affect our business and financial condition.

In addition, demand for our maintenance, repair and overhaul services is strongly correlated with worldwide flying activity. A significant portion of the MRO activity required on commercial aircraft is mandated by government regulations that limit the total time or number of flights that may elapse between scheduled MRO events. As a result, although short-term deferrals are possible, MRO activity is ultimately required to continue to operate the aircraft in revenue-producing service. Therefore, over the intermediate and long term, trends in the MRO market are closely related to the size and utilization level of the worldwide aircraft fleet, as reflected by the number of available seat miles, commonly referred to as ASMs, and cargo-ton miles flown. Consequently, conditions or events that contribute to declines in worldwide ASMs and cargo miles flown, such as those mentioned above, could negatively impact our MRO business.

Changes in levels of U.S. Government defense spending or overall acquisition priorities could negatively impact our financial position and results of operations.

We derive a significant portion of our revenue from the U.S. Government, primarily from defense-related programs with the U.S. Department of Defense (“U.S. DoD”). Levels of U.S. defense spending are very difficult to predict and may be impacted by numerous factors such as the political environment, U.S. foreign policy, macroeconomic conditions, ongoing or emerging geopolitical conflicts such as conflict between Russia and Ukraine or Israel and Hamas, and the ability of the U.S. Government to enact relevant legislation such as authorization and appropriations bills. Accordingly, long-term uncertainty remains with respect to overall levels of defense spending and it is likely that U.S. Government discretionary spending levels will continue to be subject to pressure.

In addition, there continues to be uncertainty with respect to program-level appropriations for the U.S. DoD and other government agencies within the overall budgetary framework described above. While the House and Senate Appropriations committees included funding for major military programs in fiscal year 2025, such as the F-35, CH-47 Chinook, AH-64 Apache, KC-46A Tanker, UH-60 Black Hawk, and V-22 Osprey programs, uncertainty remains about how defense budgets in fiscal year 2026 and beyond will affect these programs. Future budget cuts associated with the authorizations and appropriations process could result in reductions, cancellations, and/or delays of existing contracts or programs. Any of these impacts could have a material effect on the results of our operations, financial position and/or cash flows.

In addition, as a result of the significant ongoing uncertainty with respect to both U.S. defense spending levels and the nature of the threat environment, we expect the U.S. DoD to continue to emphasize cost-cutting and other efficiency initiatives in its

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procurement processes. If we can no longer adjust successfully to these changing acquisition priorities and/or fail to meet affordability targets set by the U.S. DoD customer, our revenues and market share would be further impacted.

The profitability of certain development and production programs depends significantly on the assumptions surrounding satisfactory settlement of claims and assertions.

For certain of our new development programs, we regularly commence work or incorporate customer-requested changes prior to negotiating pricing terms for engineering work or the product which has been modified. We typically have the contractual right to negotiate pricing for customer-directed changes. In those cases, we assert to our customers our contractual rights to obtain the additional revenue or cost reimbursement we expect to receive upon finalizing pricing terms. An expected recovery value of these assertions is incorporated into our contract profitability estimates when applying contract accounting. Our inability to recover these expected values, among other factors, could result in the recognition of a forward loss on these programs or a lower than expected profit margin and could have a material adverse effect on our results of operations.

Throughout the course of our programs, disputes with suppliers or customers could arise regarding unique contractual requirements, quality, costs or impacts to production schedules. If we are unable to successfully and equitably resolve such claims and assertions, our business, financial condition, results of operations, customer relationships and related transactions could be materially adversely affected.

In addition, negotiations over our claims may lead to disputes with our customers that would result in litigation and its associated costs and risks of damages, penalties and injunctive relief, any of which could have a material, adverse effect on our business and results of operations.

Implementing new programs and technologies subjects us to operational uncertainty.

New programs with new technologies typically carry risks associated with design responsibility, development of new production tools, hiring and training of qualified personnel, increased capital and funding commitments, ability to meet customer specifications, delivery schedules and unique contractual requirements, supplier performance, subcontractor performance, ability of the customer to meet its contractual obligations to us, and our ability to accurately estimate costs associated with such programs. In addition, any new aircraft program may not generate sufficient demand or may experience technological problems or significant delays in the regulatory certification or manufacturing and delivery schedule. If we were unable to perform our obligations under new programs to the customer's satisfaction or manufacture products at our estimated costs, if we were to experience unexpected fluctuations in raw material prices or other fluctuations in supplier costs leading to cost overruns, if we were unable to successfully perform under revised design and manufacturing plans or successfully and equitably resolve claims and assertions, or if a new program in which we had made a significant investment was terminated or experienced weak demand, delays or technological problems, our business, financial condition and results of operations could be materially adversely affected. This risk includes the potential for default, quality problems, or inability to meet weight requirements and could result in low margin or forward loss contracts, and the risk of having to write-off inventory or contract assets if they were deemed to be unrecoverable over the life of the program. In addition, beginning new work on existing programs also carries risks associated with the transfer of technology, knowledge and tooling.

Cancellations, reductions or delays in customer orders may adversely affect our results of operations.

Our overall operating results are affected by many factors, including the timing of orders from large customers and the timing of expenditures to manufacture parts and purchase inventory in anticipation of future sales of products and services. A large portion of our operating expenses is relatively fixed. Because several of our operating locations typically do not obtain long-term purchase orders or commitments from our customers, they must anticipate the future volume of orders based upon the historic purchasing patterns of customers and upon our discussions with customers as to their anticipated future requirements. These historic patterns may be disrupted by many factors, including changing economic conditions, inventory adjustments, or work stoppages or labor disruptions at our customers' locations. Cancellations, reductions or delays in orders by a customer or group of customers could have a material adverse effect on our business, financial condition, and results of operations.

A significant decline in business with a key customer could have a material adverse effect on us.

As disclosed in Note 18, a significant portion of our net sales is to Boeing. As a result, a significant reduction in purchases by Boeing could have a material adverse impact on our financial condition, results of operations, and cash flows. In addition, some of our individual companies rely significantly on particular customers, the loss of which could have an adverse effect on those businesses.

Competitive pressures may adversely affect us.

We have numerous competitors in the aerospace industry. We compete primarily with the top-tier systems integrators and the manufacturers that supply them, some of which are divisions or subsidiaries of OEMs and other large companies that manufacture

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aircraft components and subassemblies. Our OEM customers, which include Boeing, Airbus, BAE, Bell Helicopter, Bombardier, Collins Aerospace, GE Aerospace, Gulfstream, Honeywell, Lockheed Martin, Northrop Grumman, Raytheon, Rolls Royce and Sikorsky, may choose not to outsource production of systems, subsystems, components, or aerostructures due to, among other things, a desire to vertically integrate direct labor and overhead considerations, capacity utilization at their own facilities, or a desire to retain critical or core skills. Consequently, traditional factors affecting competition, such as price and quality of service, may not be significant determinants when OEMs decide whether to produce a part in-house or to outsource. We also face competition from non-OEM component manufacturers, including Parker, Eaton, Honeywell, Transdigm, and Safran. Competition for the repair and overhaul of aviation components comes from three primary sources: OEMs, major commercial airlines and independent repair and overhaul companies.

We may need to expend significant capital to keep pace with technological or climate change related developments in our industry.

The aerospace industry is constantly undergoing development and change, and it is likely that new products, equipment, and methods of repair and overhaul service will be introduced in the future. For example, demand for products that are less carbon-intensive or that align with customers’ sustainability goals is expected to increase as a result of market demand, investor preferences, government legislation, and the aerospace industry’s response risks created by climate change. Failure to react timely to these trends and manage the Company’s product portfolio and innovation activities responsively could decrease the competitiveness of the Company’s products and result in the de-selection of the Company as a partner of choice. In order to keep pace with any new developments, such as sustainable energy solutions like the accommodation and integration of sustainable aviation fuels (“SAF”); hydrogen fuel; blended wing body aircraft; or other technological developments in our industry, including open rotor concepts and electrification, we may need to expend significant capital to purchase new equipment and machines or to train our employees in the new methods of production and service. In addition, the failure to set goals, take actions, make progress and report against, commensurate with relevant market competitors, our sustainability strategy, could harm our reputation, and our ability to compete and to attract top talent or the deselection of the Company as a partner or supplier of choice.

We may not realize our anticipated return on capital commitments made to expand our capabilities.

We continually make significant capital expenditures to implement new processes and to increase both efficiency and capacity. Some of these projects require additional training for our employees and not all projects may be implemented as anticipated. If any of these projects do not achieve the anticipated increase in efficiency or capacity, our returns on these capital expenditures may be lower than expected.

We may not be successful in achieving expected operating efficiencies and sustaining or improving operating expense reductions from restructuring, facility consolidations, realignment, cost reduction and other strategic initiatives.

Over the past several years, we have implemented a number of restructuring, realignment and cost-reduction initiatives, including facility consolidations, organizational realignments and reductions in our workforce. While we have realized some efficiencies from these actions, we may not realize the benefits and synergies of these initiatives to the extent we anticipated. Further, such benefits may be realized later than expected, and the ongoing difficulties in implementing these measures may be greater than anticipated, which could cause us to incur additional costs or result in business disruptions. In addition, if these measures are not successful or sustainable, we may be compelled or decide to undertake additional realignment and cost-reduction efforts, which could result in significant additional charges. Moreover, if our restructuring and realignment efforts prove ineffective, our ability to achieve our other strategic and business plan goals may be adversely affected.

We do not own certain intellectual property and tooling that is important to our business.

Our business also depends on using certain intellectual property and tooling that we have rights to use pursuant to license grants under our contracts with our OEM customers. These contracts contain restrictions on our use of the intellectual property and tooling and may be terminated if we violate certain of these restrictions. Our loss of a contract with an OEM customer and the related license rights to use an OEM's intellectual property or tooling could materially adversely affect our business.

The effects of potential future public health crises, epidemics, pandemics or similar events on our business, operating results and cash flows are uncertain.

A pandemic or other health crisis could have a significant negative impact on the U.S. and global economy; disrupt global supply chains; result in significant travel and transport restrictions, including mandated closures and orders to “shelter-in-place”; and create significant disruption of the financial markets, all of which affect the demand for our products and services and could materially impact our financial condition or results of operations.

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Our business and results of operations could be adversely affected by disruptions in the global economy caused by geopolitical conflicts, related sanctions and other developments.

The ongoing conflicts between Ukraine and Russia or Israel and Hamas, and related political and economic consequences, such as sanctions and other measures imposed by the European Union, the U.S., and other countries and organizations in response, may continue to cause disruption and instability in global markets, supply chains, and industries that directly or indirectly affect the aerospace industry. As a result of these geopolitical conflicts, businesses in the U.S. and globally have experienced shortages in materials and increased costs for transportation, energy, and raw materials, as well as increased risk of cyber attacks, inflationary pressures, and market volatility. The extent and duration of the war, sanctions, and resulting market disruptions are impossible to predict, and our business and results of operations could be adversely affected.

Operational Risks

Operational risk relates to risks arising from systems, processes, people, and external events that affect the operation of our businesses. It includes risks related to product and service life cycle and execution; product safety and performance; information management and data protection and security, including cybersecurity; and supply chain and business disruption.

Our business could be negatively affected by cyber or other security threats or other disruptions.

Our businesses depend heavily on information technology and computerized systems to communicate and operate effectively. Our systems and technologies, or those of third parties on which we rely, could fail or become unreliable due to equipment failures, software viruses, cyber threats, terrorist acts, natural disasters, power failures or other causes. These threats arise in some cases as a result of our role as a defense contractor. Our customers, including the U.S. Government, are increasingly requiring cybersecurity protections and mandating cybersecurity standards in our products, and we may incur additional cost to comply with such demands.

We have faced and may continue to face cybersecurity threats. These cybersecurity threats are evolving and include, but are not limited to, malicious software; ransomware; attempts to gain unauthorized access to our sensitive information, including that of our customers, suppliers, subcontractors, and joint venture partners; and other electronic security breaches that could lead to disruptions in mission critical systems, unauthorized release of confidential or otherwise protected information and corruption of data.

Our systems are decentralized, which presents various risks, including the risk that we may be slower or less able to identify or react to problems affecting a business function than we would be in a more centralized, enhanced environment. In addition, “company-wide” business initiatives, such as the integration of information technology systems, carry a higher risk of failure. Depending on the nature of the initiative, such failure could result in loss of revenues, product development delays, compromise, corruption or loss of confidential, proprietary or sensitive information (including personal information or technical business information), remediation costs, indemnity obligations and other potential liabilities, regulatory or government action, breach of contract claims, contract termination, class action or individual lawsuits from affected parties, negative media attention, reputational damage, and loss of confidence from our government clients.

If any of these events were to materialize, the costs related to cyber or other security threats or disruptions may not be fully insured or indemnified and could have a material adverse effect on our reputation, operating results and financial condition.

Any significant disruption from key suppliers of raw materials and key components could delay production and decrease revenue.

We are highly dependent on the availability of essential raw materials such as metallics and composites, and purchased engineered component parts and special processes from our suppliers, many of which are available only from single customer-approved sources. Moreover, we are dependent upon the ability of our suppliers to provide raw materials and components that meet our specifications, quality standards and delivery schedules. Our suppliers' failure to provide expected raw materials or component parts could require us to identify and enter into contracts with alternate suppliers that are acceptable to both us and our customers, which could result in significant delays, expenses, increased costs, and management distraction and adversely affect production schedules and contract profitability.

We have from time to time experienced limited interruptions of supply, and we may experience a significant interruption in the future. Our continued supply of raw materials and component parts is subject to a number of risks, including:

availability of capital to our suppliers;
workforce shortages at our suppliers;

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the destruction of our suppliers' facilities or their distribution infrastructure;
a work stoppage or strike by our suppliers' employees;
the failure of our suppliers to provide raw materials or component parts of the requisite quality;
the failure of essential equipment at our suppliers' plants;
the failure or shortage of supply of raw materials to our suppliers;
contractual amendments and disputes with our suppliers;
reduction to credit terms; and
geopolitical conditions in the global supply base.

In addition, some contracts with our suppliers for raw materials, component parts and other goods are short-term contracts, which are subject to termination on a relatively short-term basis. The prices of our raw materials and component parts fluctuate depending on market conditions, including inflationary pressures, and substantial increases in prices could increase our operating costs, which, as a result of our fixed-price contracts, we may not be able to recoup through increases in the prices of our products.

Due to economic difficulty, we may face pressure to renegotiate agreements resulting in lower margins. Our suppliers may discontinue the provision of products to us at attractive prices or at all, and we may not be able to obtain such products in the future from these or other providers on the scale and within the time periods we require. Furthermore, substitute raw materials or component parts may not meet the strict specifications and quality standards we and our customers demand, or that the U.S. Government requires. Additionally, climate change increases the risk of potential supply chain and operational disruptions from weather events and natural disasters. The chronic physical impacts associated with climate change, for example, increased temperatures, changes in weather patterns, and rising sea levels, could significantly increase costs and expenses and create additional supply chain and operational disruption risks. If we are not able to obtain key products on a timely basis and at an affordable cost, or we experience significant delays or interruptions of their supply, revenues from sales of products that use these supplies will decrease.

Significant consolidation by aerospace industry suppliers could adversely affect our business.

The aerospace industry continues to experience consolidation among suppliers and customers. The supplier consolidation is in part attributable to aircraft manufacturers more frequently awarding long-term sole-source or preferred supplier contracts to the most capable suppliers, thus reducing the total number of suppliers. This consolidation could cause us to compete against certain competitors with greater financial resources, market penetration and purchasing power. When we purchase component parts and services from suppliers to manufacture our products, consolidation reduces price competition between our suppliers, which could diminish incentives for our suppliers to reduce prices. If this consolidation continues, our operating costs could increase, and it may become more difficult for us to be successful in retaining key customers.

Our business could be materially adversely affected by product warranty obligations or disposition related obligations.

Our operations expose us to potential liability for warranty claims made by customers or third parties with respect to aircraft components that have been designed, manufactured, or serviced by us or our suppliers. We have in the past and from time to time have ongoing dialogue with our customers regarding warranty claims. Material product warranty obligations could have a material adverse effect on our business, financial condition and results of operations.

As part of the transformation of our business over the last decade, we have engaged in a number of dispositions. Dispositions involve a number of risks and present financial, managerial and operational challenges, including diversion of management attention from running our core businesses, increased expense associated with the dispositions, potential disputes with the customers or suppliers of the disposed businesses, potential disputes with the acquirers of the disposed businesses and potential losses, write-downs or other adverse impacts on our financial statements or results of operations. As a result, we may not realize some or all of the anticipated benefits of our dispositions. For further information on commitments and contingencies, see Note 17.

Any product liability claims in excess of insurance may adversely affect our financial condition.

Our operations expose us to potential liability for personal injury or death as a result of the failure of an aircraft component that has been serviced by us or the failure of an aircraft component designed or manufactured by us. While we believe that our liability insurance is adequate to protect us from these liabilities, our insurance may not cover all liabilities. Additionally, should insurance market conditions change, general aviation product liability, insurance coverage may not be available in the future at a cost acceptable to us. Any material liability not covered by insurance or for which third-party indemnification is not available could have a material adverse effect on our financial condition.

The lack of available skilled personnel may have an adverse effect on our operations.

From time to time, some of our operating locations have experienced difficulties in attracting and retaining skilled personnel to design, engineer, manufacture, repair and overhaul sophisticated aircraft components, and this risk can be higher during periods

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of high inflation due to resulting pressure on wages. Our ability to operate successfully could be jeopardized if we are unable to attract and retain a sufficient number of skilled personnel to conduct our business.

Our fixed-price contracts may commit us to unfavorable terms.

A significant portion of our net sales is derived from fixed-price contracts under which we have agreed to supply components systems or services for a price determined on the date we entered into the contract. Contract terms vary but are generally less than five years in length. Several factors may cause the costs we incur in fulfilling these contracts to vary substantially from our original estimates, and we generally bear the majority of risk that increased or unexpected costs may reduce our profit or cause us to sustain losses on these contracts. In a fixed-price contract, we may be required to fully absorb cost overruns, notwithstanding the difficulty of estimating all of the costs we will incur in performing these contracts. This risk is greater in periods of high inflation. Because our ability to terminate contracts is generally limited, we may not be able to terminate our performance requirements under these contracts at all or without substantial liability and, therefore, in the event we are sustaining reduced profits or losses, we could continue to sustain these reduced profits or losses for the duration of the contract term. Our failure to anticipate technical problems, estimate delivery reductions, estimate costs accurately or control costs during performance of a fixed-price contract may reduce our profitability or cause significant losses on programs.

Due to the size and long-term nature of many of our contracts, we are required by GAAP to estimate sales and expenses relating to these contracts in our financial statements, which may cause actual results to differ materially from those estimated under different assumptions or conditions.

Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States ("GAAP"). These principles require our management to make estimates and assumptions regarding our contracts that affect the reported amounts of revenue and expenses during the reporting period. Accounting for revenue recognized over time requires judgment relative to assessing risks, estimating contract sales and costs, and making assumptions for schedule and technical issues. Due to the nature of certain of our contracts, the estimation of total sales and cost at completion is complicated and subject to many variables. While we base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances at the time made, actual results may differ materially from those estimated.

Our operations depend on our manufacturing facilities, which are subject to physical and other risks that could disrupt production.

Our manufacturing facilities or our customers' facilities could be damaged or disrupted by a natural disaster, war, or terrorist activity. We maintain property damage and business interruption insurance at the levels typical in our industry or for our customers and suppliers, however, a pandemic or other major catastrophe, such as an earthquake, hurricane, fire, flood, tornado or other natural disaster at any of our sites, or war or terrorist activities in any of the areas where we conduct operations could result in a prolonged interruption of our business. Any disruption resulting from these events could cause significant delays in shipments of products and the loss of sales and customers, and we may not have insurance to adequately compensate us for any of these events. For leased facilities, timely renewal of leases and risk mitigation from the sale of our leased facilities is required to avoid any business interruption.

We may be subject to work stoppages at our facilities or those of our principal customers and suppliers, which could seriously impact the profitability of our business.

Our unionized workforces and those of our customers and suppliers may experience work stoppages during collective bargaining agreement negotiations. If we are unable to negotiate a contract with those workforces, our operations may be disrupted, and we may be prevented from completing production and delivery of products from those facilities, which would negatively impact our results. Contingency plans have been developed that would allow production to continue in the event of a strike.

Financial Risks

Financial risk relates to our ability to meet financial obligations and mitigate exposure to broad market risks, including funding and liquidity risks, such as risk related to our credit ratings and our availability and cost of funding; credit risk; inflation risk, and volatility in foreign currency exchange rates, interest rates, and commodity prices. Liquidity risk refers to the potential inability to meet contractual or contingent financial obligations (whether on- or off-balance sheet) as they arise and could potentially impact

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our financial condition or overall safety and soundness. Credit risk is the risk of financial loss arising from a customer or counterparty failure to meet its contractual obligations to us.

Our debt could adversely affect our financial condition and our ability to operate and grow our business. The terms of the indenture governing our 9.000% Senior Secured First Lien Notes due 2028 (the "2028 First Lien Notes") impose significant operating and financial restrictions on us and our subsidiaries, which could also adversely affect our operating flexibility and put us at a competitive disadvantage by preventing us from capitalizing on business opportunities and additional financing may not be available on terms acceptable to us.

The terms of the indenture governing our 2028 First Lien Notes and our receivables securitization facility (the "Securitization Facility") impose significant operating and financial restrictions on us and require us to comply with various financial and other covenants, which, among other things, limit our ability to incur additional indebtedness, create liens, dispose of assets, and enter into certain transactions. We are in compliance with all of our debt covenants.

We cannot assure you that we will be able to remain in compliance with such covenants in the future or, if we fail to do so, that we will be able to obtain waivers from the applicable holders of such indebtedness or amend such covenants and other terms of the agreements governing such indebtedness on commercially reasonable terms, if at all. Failure to comply with such covenants will entitle the applicable holders of such indebtedness to exercise remedies, including to require immediate repayment of outstanding amounts and to terminate commitments under such indebtedness, which could have a material adverse effect on our business, operations, and financial condition.

We may need to obtain additional financing in order to meet our debt obligations as they come due, to support our operations and/or to make acquisitions. Our access to the debt capital markets and the cost of borrowings are affected by a number of factors, including market conditions and the strength of our credit ratings. If we cannot obtain adequate sources of credit on favorable terms, or at all, our business, operations, and financial condition could be adversely affected. We may also seek transactions to extend the maturity of our debt, reduce leverage or obtain covenant flexibility. Such transactions could result in us incurring additional secured debt or issuing additional equity, which could increase the risks described above.

Volatility in the financial markets may impede our ability to successfully access capital markets and ensure adequate liquidity and may adversely affect our customers and suppliers.

Turmoil in the capital markets may impede our ability to access the capital markets when we would like, or need, to raise capital or may restrict our ability to borrow money on favorable terms. Such market conditions could have an adverse impact on our flexibility to react to changing economic and business conditions and on our ability to fund our operations and capital expenditures in the future. In addition, interest rate fluctuations, financial market volatility, or credit market disruptions may also negatively affect our customers' and our suppliers' ability to obtain credit to finance their businesses on acceptable terms. As a result, our customers' need for and ability to purchase our products or services may decrease, and our suppliers may increase their prices, reduce their output or change their terms of sale. If our customers' or suppliers' operating and financial performance deteriorates, or if they are unable to make scheduled payments or obtain credit, our customers may not be able to pay, or may delay payment of, accounts receivable owed to us, and our suppliers may restrict credit or impose different payment terms. Any inability of customers to pay us for our products and services or any demands by suppliers for different payment terms may adversely affect our earnings and cash flow.

Our expansion into international markets may increase credit, currency and other risks, and our current operations in international markets expose us to such risks.

As we pursue customers in Asia, South America and other less developed aerospace markets throughout the world, our inability to ensure the creditworthiness of our customers in these areas could adversely impact our overall profitability. In addition, with operations in China, France, Germany, Mexico, Thailand and the United Kingdom, and customers throughout the world, we are subject to the legal, political, social and regulatory requirements, and economic conditions of other jurisdictions. In the future, we may also make additional international capital investments, including further acquisitions of companies outside the United States or companies having operations outside the United States. Risks inherent to international operations include, but are not limited to, the following:

difficulty in enforcing agreements in some legal systems outside the United States;
imposition of additional withholding taxes or other taxes on our foreign income, tariffs or other restrictions on foreign trade and investment, including currency exchange controls;
fluctuations in exchange rates which may affect demand for our products and services and may adversely affect our profitability in U.S. dollars;
inability to obtain, maintain or enforce intellectual property rights;

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changes in general economic and political conditions in the countries in which we operate;
unexpected adverse changes in the laws or regulatory requirements outside the United States, including those with respect to environmental protection, disclosure of social and environmental risks, opportunities, and impact, export duties and quotas;
failure by our employees or agents to comply with U.S. laws affecting the activities of U.S. companies abroad;
difficulty with staffing and managing widespread operations; and
difficulty of and costs relating to compliance with the different commercial and legal requirements of the countries in which we operate.

Financial market conditions may adversely affect the benefit plan assets for our defined benefit plans, increase funding requirements and materially impact our statements of financial position and cash flows.

Our benefit plan assets are invested in a diversified portfolio of investments in both the equity and debt categories, as well as limited investments in other alternative investments. The current market values of all of these investments, as well as the related benefit plan liabilities are impacted by the movements and volatility in the financial markets. In accordance with the Compensation—Retirement Benefits topic of the Accounting Standards Codification ("ASC"), we have recognized the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability on our balance sheet, and will recognize changes in that funded status in the year in which the changes occur. The funded status is measured as the difference between the fair value of the plan's assets and the projected benefit obligation. A decrease in the fair value of these plan assets or a decrease in interest rates resulting from movements in the financial markets will increase the underfunded status of the plans recorded on our consolidated balance sheets and result in additional cash funding requirements to meet the minimum required funding levels.

Prolonged periods of inflation where we do not have adequate inflation protections in our customer contracts could have a material adverse effect on our results of operations.

A majority of our sales are conducted pursuant to medium- or long-term contracts that set fixed unit prices. Certain, but not all, of these contracts provide for price adjustments for index-based inflation or adjustments related to updated or final product cost for certain components. Ongoing inflationary pressures have caused and may continue to cause certain of our material and labor costs to increase, which can adversely affect our profitability and cash flows, particularly when we are unable to increase customer contract values or pricing to offset those pressures. Although we have attempted to minimize the effect of inflation on our business through contractual protections, our contracts that are medium- to long-term fixed price contracts increase our exposure to sustained or higher than anticipated increases in costs of labor or material. Prolonged global inflationary pressures have also impacted energy, freight, raw material, interest rates, labor, and other costs, and we may experience reduced levels of profitability as a result of ongoing inflationary pressures.

Legal & Compliance Risks

Legal and compliance risk relates to risks arising from the government and regulatory environment and action and from legal proceedings and compliance with integrity policies and procedures, including those relating to financial reporting and environmental, health, and safety matters. Government and regulatory risk includes the risk that the government or regulatory actions will impose additional cost on us or require us to make adverse changes to our business models or practices.

Our international sales and operations are subject to applicable laws relating to trade, export controls and foreign corrupt practices, the violation of which could adversely affect our operations.

We must comply with all applicable export control laws and regulations of the United States and other countries. United States laws and regulations applicable to us include the Arms Export Control Act, the International Traffic in Arms Regulations ("ITAR"), the Export Administration Regulations ("EAR"), and the trade sanctions laws and regulations administered by the United States Department of the Treasury's Office of Foreign Assets Control ("OFAC"). EAR restricts the export of dual-use products and technical data to certain countries, while ITAR restricts the export of defense products, technical data and defense services. The U.S. Government agencies responsible for administering EAR and ITAR have significant discretion in the interpretation and enforcement of these regulations. We cannot provide services to certain countries subject to United States trade sanctions unless we first obtain the necessary authorizations from OFAC. In addition, we are subject to the Foreign Corrupt Practices Act, which generally bars bribes or unreasonable gifts to foreign governments or officials.

Violations of these laws or regulations could result in significant additional sanctions, including fines, more onerous compliance requirements, more extensive debarments from export privileges, loss of authorizations needed to conduct aspects of our international business, and criminal penalties and may harm our ability to enter into contracts with the U.S. Government. A future

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violation of ITAR or the other regulations enumerated above could materially adversely affect our business, financial condition and results of operations.

The construction of aircraft is heavily regulated, and failure to comply with applicable laws could reduce our sales or require us to incur additional costs to achieve compliance, and we may incur significant expenses to comply with new or more stringent governmental regulation.

The aerospace industry is highly regulated in the United States by the FAA and in other countries by similar agencies. We must be certified by the FAA and, in some cases, by individual OEMs in order to engineer and service parts, components and aerostructures used in specific aircraft models. If any of our material authorizations or approvals were revoked or suspended, our operations would be adversely affected. New or more stringent governmental regulations may be adopted, or industry oversight heightened in the future, and we may incur significant expenses to comply with any new regulations or any heightened industry oversight.

Any exposure to environmental liabilities may adversely affect us.

Our business, operations and facilities are subject to numerous stringent federal, state, local, and foreign environmental laws and regulations, and we are subject to potentially significant fines or penalties, including criminal sanctions, if we fail to comply with these requirements. In addition, we could be affected by future laws and regulations, including those imposed in response to climate change concerns and other actions commonly referred to as "green initiatives." Compliance with current and future environmental laws and regulations currently requires, and is expected to continue to require, significant operating and capital costs.

Pursuant to certain environmental laws, a current or previous owner or operator of a contaminated site may be held liable for the entire cost of investigation, removal or remediation of hazardous materials at such property. Innocent Landowner Regulations require an Environmental Site Assessment prior to acquisition to prevent unknowingly acquiring impaired property. Once identified, if the transaction continues, the impairment is not covered by insurance. Although management believes that our operations and facilities are in material compliance with such laws and regulations, future changes in such laws, regulations, or interpretations thereof or the nature of our operations or regulatory enforcement actions, which may arise, may require us to make significant additional capital expenditures to ensure compliance in the future. Certain of our facilities, including facilities acquired and operated by us or one of our subsidiaries, have at one time or another been under active investigation for environmental contamination by federal or state agencies when acquired and, at least in some cases subject to remediation. Lawsuits, claims and costs involving sites undergoing remediation efforts and other environmental matters exist and may arise in the future. Individual facilities of ours have also been subject to investigation on occasion for possible past waste disposal practices which might have contributed to contamination at or from remote third-party waste disposal sites. In some instances, we are indemnified by prior owners or operators and/or present owners of the facilities for liabilities that we incur as a result of these investigations and the environmental contamination found that predates our acquisition of these facilities, subject to certain limitations, including, but not limited to, specified exclusions, deductibles and limitations on the survival period of the indemnity. We also maintain a pollution liability policy that provides coverage, subject to specified limitations, for specified material liabilities associated with the cleanup of certain on-site pollution conditions, as well as defense and indemnity for certain third-party suits (including Superfund liabilities at third-party sites), in each case, to the extent not otherwise indemnified. However, if we are required to pay the

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expenses related to environmental liabilities because neither indemnification nor insurance coverage is available, these expenses could have a material adverse effect on our financial position, results of operations, and cash flows.

We could become involved in intellectual property litigation, which could have a material and adverse impact on our profitability.

We and other companies in our industry possess certain proprietary rights relating to designs, engineering, manufacturing processes, and repair and overhaul procedures. In the event that we believe that a third party is infringing upon our proprietary rights, we may bring an action to enforce such rights. In addition, third parties may claim infringement by us with respect to their proprietary rights and may initiate legal proceedings against us in the future. The expense and time of bringing an action to enforce such rights or defending against infringement claims can be significant. Intellectual property litigation involves complex legal and factual questions, which makes the outcome of any such proceedings subject to considerable uncertainty. Not only can such litigation divert management's attention, but it can also expose us to damages and potential injunctive relief, which, if granted, may preclude us from making, using, or selling particular products or technology. The expense and time associated with such litigation may have a material and adverse impact on our profitability.

Our reputation; our ability to do business; and our financial position, results of operations, and/or cash flows may be impacted by the improper conduct of employees, agents, subcontractors, suppliers, business partners or joint ventures in which we participate.

We have implemented policies, procedures, training, and other compliance controls and have negotiated terms designed to prevent misconduct by employees, agents, or others working on our behalf or with us that would violate the applicable laws of the jurisdictions in which we operate, including laws governing improper payments to government officials, the protection of export controlled or classified information, cost accounting and billing, competition and data privacy. However, we cannot ensure that we will prevent all such misconduct committed by our employees, agents, subcontractors, suppliers, business partners, or others working on our behalf or with us, and this risk of improper conduct may increase as we expand globally. We may be unable to prevent misconduct or other violations of applicable laws by these joint ventures (including their officers, directors and employees) or our partners. Improper actions by those with whom or through whom we do business (including our employees, agents, subcontractors, suppliers, business partners and joint ventures) could subject us to administrative, civil or criminal investigations and monetary and non-monetary penalties, including suspension and debarment, which could negatively impact our reputation and ability to conduct business and could have a material adverse effect on our financial position, results of operations and/or cash flows.

The U.S. Government is a significant customer of our largest customers, and we and they are subject to specific U.S. Government contracting rules and regulations.

The military aircraft manufacturers' business, and by extension, our business, is affected by the U.S. Government's continued commitment to programs under contract with our customers. The terms of defense contracts with the U.S. Government generally permit the government to terminate contracts partially or completely, either for its convenience or if we default by failing to perform under the contract. Termination for convenience provisions provide only for our recovery of unrecovered costs incurred or committed, settlement expenses and profit on the work completed prior to termination. Termination for default provisions provide for the contractor to be liable for excess costs incurred by the U.S. Government in procuring undelivered items from another source. On contracts where the price is based on cost, the U.S. Government may review our costs and performance, as well as our accounting and general business practices. Based on the results of such audits, the U.S. Government may adjust our contract-related costs and fees, including allocated indirect costs. In addition, under U.S. Government purchasing regulations, some of our costs, including most financing costs, portions of research and development costs, and certain marketing expenses may not be subject to reimbursement.

We bear the potential risk that the U.S. Government may unilaterally suspend our customers or us from new contracts pending the resolution of alleged violations of procurement laws or regulations. Sales to the U.S. Government are also subject to changes in the government's procurement policies in advance of design completion. An unexpected termination of, or suspension from, a significant government contract, a reduction in expenditures by the U.S. Government for aircraft using our products, lower margins resulting from increasingly competitive procurement policies, a reduction in the volume of contracts awarded to us, or substantial cost overruns could have a material adverse effect on our financial condition, results of operations and cash flows.

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We are subject to the requirements of the National Industrial Security Program Operating Manual for facility security clearance, which is a prerequisite for our ability to perform on classified contracts for the U.S. Government.

U.S. DoD facility security clearance is required in order to be awarded and be able to perform on classified contracts for the U.S. DoD and certain other agencies of the U.S. Government, which is a significant part of our business. We have obtained clearance at appropriate levels that require stringent qualifications, and we may be required to seek higher level clearances in the future. We cannot assure you that we will be able to maintain our security clearance. If for some reason our security clearance is invalidated or terminated, we may not be able to continue to perform our present classified contracts or be able to enter into new classified contracts, which could affect our ability to compete for and capture new business.

Our business is subject to regulation in the United States and internationally.

The manufacturing of our products is subject to numerous federal, state and foreign governmental regulations. The number of laws and regulations that are being enacted or proposed by various governmental bodies and authorities is increasing. Compliance with these regulations is difficult and expensive. If we fail to adhere, or are alleged to have failed to adhere, to any applicable federal, state, or foreign laws or regulations, or if such laws or regulations negatively affect sales of our products, our business, prospects, results of operations, financial condition or cash flows may be adversely affected. In addition, our future results could be adversely affected by changes in applicable federal, state, and foreign laws and regulations, or the interpretation or enforcement thereof, including those relating to manufacturing processes, product liability, government contracts, trade rules and customs regulations, intellectual property, consumer laws, privacy laws, environmental protection, climate change, as well as accounting standards and taxation requirements (including tax-rate changes, new tax laws such as the proposed 15% global minimum tax under the Organisation for Economic Co-operation and Development (the “OECD”) Pillar Two, Global Anti-Base Erosion Rules (the “Pillar Two Rules”), or revised tax law interpretations).

 

Item 1B. Unresolved Staff Comments

None.

 

Item 1C. Cybersecurity

Risk management and strategy

Our cybersecurity program is designed to safeguard our information systems and protect confidentiality, integrity, and availability of those information systems and the information residing therein. Our cybersecurity risk management program is integrated with our broader enterprise risk management programs under the oversight of our Chief Administrative Officer ("CAO") and the Enterprise Risk Management Committee. The CAO reports to the CEO and is responsible for our overall information and data security strategy, cybersecurity risk policies and procedures, as well as evaluating and managing any material risks from cyber threats. Our Chief Information Security Officer ("CISO") reports directly to our CAO and leads our cybersecurity and compliance department.

The cybersecurity and compliance department, in conjunction with our Computer Security Incident Response Team ("CSIRT"), designs, implements, and executes continuous monitoring processes for our information systems. Our monitoring programs include the deployment of advanced security measures and regular system audits to identify potential vulnerabilities. The CSIRT is responsible for the detection and assessment of cybersecurity threats and incidents in accordance with a formal risk assessment matrix established in cooperation with our Cybersecurity Disclosure Committee. This risk assessment matrix establishes a framework for notification of an incident to the Cybersecurity Disclosure Committee and, if appropriate, the Audit Committee or Board of Directors. The CISO also partners with internal functions such as finance, legal, and internal audit, as well as third-party consultants who perform risk-based assessments against the National Institute of Standards and Technology (“NIST”) 800-171 Rev2 and Cybersecurity Maturity Model Certification with recommendations, in designing, implementing, executing, monitoring, and improving our cybersecurity risk management program and strategy, helping ensure such programs and strategy align with our business and operational objectives. Results of third-party assessments are shared with the Audit Committee or Board of Directors.

In the event of a cybersecurity incident, the CSIRT has an Incident Response Plan that outlines the steps that are designed to help ensure regulatory requirements are met and cyber vulnerabilities, if any, are addressed. We periodically conduct "tabletop" exercises to simulate cybersecurity incidents and help ensure that we are prepared to respond to such incidents in accordance with our internal policies and programs, as well as applicable laws and regulations. In addition, tabletop exercises allow us to identify areas for potential improvement and maturation of our Incident Response Plan, or other aspects of our cybersecurity risk

21


 

management program. These exercises have included participation by members of our Cybersecurity Disclosure Committee, including our CAO and Chief Financial Officer.

We have established a supply chain risk management program, which is a cross-functional program that forms part of our Enterprise Risk Management program and is supported by our security, compliance, and supply chain organizations. Through this evolving program, we assess the risks from cybersecurity threats that impact suppliers and third-party service providers with whom we share personal identifying and confidential information. We continue to assess and evolve our oversight processes to mature how we manage cybersecurity risks associated with the products and services we procure. We generally require our suppliers to adopt security practices based on industry-recognized standards.

We have experienced, and may experience in the future, either directly or through our supply chain or other channels, cybersecurity incidents. To date, we are not aware of risks from cybersecurity threats, including as a result of any previous cybersecurity incidents, that have materially affected or are reasonably likely to materially affect the Company, including its business strategy, results of operations or financial condition. For additional information about risks associated with cybersecurity, refer to “Our business could be negatively affected by cyber or other security threats or other disruptions” in Item 1A. Risk Factors.

Governance

Our Board of Directors has overall responsibility for risk oversight and has delegated oversight of cybersecurity risks to the Audit Committee. The Audit Committee reports on its activities, findings, and other matters to the full Board of Directors quarterly, or more frequently as events or circumstances may require. The Audit Committee is charged with reviewing our cybersecurity processes for assessing key strategic, operational, and compliance risks. The CAO and CISO present an update to the Audit Committee on our cybersecurity risks and risk management strategies and processes at each regularly scheduled, quarterly meeting. These presentations include assessments on the threat landscape; emerging risks, threats, or vulnerabilities; updates on our risk management activities, including investments in risk mitigation and governance; compliance with laws and regulations; internal controls; and updates on incidents.

At the management level, we have established two committees that are directly involved in managing and responding to cybersecurity risks and incidents: the Enterprise Risk Management Committee and the Cybersecurity Disclosure Committee. The Enterprise Risk Management Committee is responsible for assessing enterprise risk and overseeing our enterprise risk management programs, including the cybersecurity risk management programs described above. The Cybersecurity Disclosure Committee is a subcommittee of our Disclosure Committee and is responsible for assessing the materiality of identified cybersecurity incidents resulting from our monitoring programs described above and informing the Chair of the Audit Committee, the Audit Committee, or the Board of Directors, as appropriate. The CISO has responsibility for notifying the CAO and the Cybersecurity Disclosure Committee of potentially material cybersecurity incidents based on an established policy and risk assessment matrix that incorporates an evaluation of quantitative and qualitative factors such as potential impact on results of operations and financial condition, compliance with laws and regulations, and impact on key stakeholders such as employees and business partners. The CISO has over fifteen years of cybersecurity risk management experience and has served the Company for over twenty years in various roles involving managing information technology, security and compliance functions, including developing key enterprise capabilities such as security engineering and strategies on information security risk management.

The CAO and Chief Financial Officer are members of both the Enterprise Risk Management Committee and the Cybersecurity Disclosure Committee and are supported by our information security, compliance, contracts, treasury, investor relations, operations, and supply chain organizations so that identified issues can be addressed in a timely manner and incidents are reported to the appropriate regulatory bodies as required.

Item 2. Properties

As of March 31, 2024, we conducted business from office and operating facilities throughout the United States and select global markets, with our largest international facilities being located in the United Kingdom and Mexico. We also lease a facility in Radnor, Pennsylvania, for our corporate headquarters.

We believe that our properties have been adequately maintained, are in good operating condition, and are suitable to support our operations for the foreseeable future.

On December 12, 2023, a complaint was filed in the Supreme Court of the State of New York by Daher, the buyer of the Stuart facility, against TAS and the Company, alleging claims for breach of contract and fraudulent inducement of contract arising out of

22


 

the sale of the Stuart facility. The Complaint alleges that TAS failed to disclose known and widespread paint issues, as well as certain supplier and production issues at the facility, which rendered certain representations and warranties about the financial condition of the Stuart facility and the products manufactured by the Stuart facility false. The Complaint seeks damages of approximately $130.0 million consisting of (a) approximately $60.0 million Daher agreed to pay Boeing for alleged non-conformities in products Daher manufactured and/or sold to Boeing after the closing; (b) approximately $30.0 million for future opportunities Daher claims to have lost; and (c) approximately $40 million for internal costs Daher claims to have incurred in fixing alleged non-conformities in products. The divestiture agreement relating to the sale of the Stuart facility contains an $18.8 million general cap on breaches of representations (other than certain specified representations) and a $25.0 million cap on breaches of certain specified representations related to contracts and product warranties, in each case absent certain circumstances, including fraud or breaches of fundamental or tax representations. Previously, on June 16, 2023, the Company entered into a settlement agreement with the buyer of the Stuart facility resolving a working capital dispute with the buyer resulting in an amount of $2.4 million payable to the Company and resolving claims by the buyer related to the accounts payable representation and warranty under the purchase agreement resulting in an amount of $9.2 million payable to the buyer, with such amount applicable to the general cap referred to above. The amounts were settled on a net basis by the Company paying $6.8 million to the buyer.

TAS and the Company dispute that they engaged in any fraudulent conduct, dispute that they breached the representations and warranties in the divestiture agreement, dispute the damages claimed (and that Daher could, in any event, recover any damages in excess of the liability caps set forth in the divestiture agreement) and intend to vigorously defend this matter. The amount of potential loss, if any, cannot be reasonably estimated at this time.

On May 7, 2024, a complaint was filed in the Court of Chancery of the State of Delaware by Qarbon, the buyer of the Red Oak facility, against TAS and the Company, alleging claims for breach of contract, fraudulent inducement of contract, and unjust enrichment arising out of the sale of the Red Oak facility. The Complaint alleges that TAS failed to disclose potential future losses associated with the Boeing T-7A trainer program, which rendered certain representations and warranties about the financial condition of the Red Oak facility false. The Complaint seeks partial rescission of the divestiture agreement as it relates to assignment of the T-7A contract and damages for past and future losses in an unspecified amount under the T-7A contract.

TAS and the Company dispute that they engaged in any fraudulent conduct, dispute that they breached the representations and warranties in the divestiture agreement (all of which expired more than two years ago under the terms of the divestiture agreement and with respect to which buyer had procured a representations and warranties insurance policy), dispute the damages claimed (and that Qarbon could, in any event, recover any damages in excess of the liability caps set forth in the divestiture agreement), dispute that unjust enrichment and partial rescission would be legally appropriate remedies, and intend to vigorously defend this matter. The amount of potential loss, if any, cannot be reasonably estimated at this time.

In the ordinary course of business, we are involved in other disputes, claims and lawsuits with employees, suppliers and customers, as well as governmental and regulatory inquiries, that are deemed to be immaterial. Some may involve claims or potential claims of substantial damages, fines, penalties or injunctive relief regarding unique contractual requirements, quality, costs, or impacts to production schedules. In addition, in connection with certain other divestitures made by the Company, we have received claims relating to closing working capital adjustments to purchase prices as well as claims regarding alleged violations of contractual terms, representations, and warranties of the sale agreements and demands for honoring guarantee or indemnification obligations.

While we cannot predict the outcome of any pending or future litigation, proceeding or claim and no assurances can be given, we intend to vigorously defend claims brought against the Company and do not believe that any other pending matters will have a material effect, individually or in the aggregate, on our financial position or results of operations. If we are unable to successfully and equitably resolve such claims and assertions, our business, financial condition, and results of operations could be materially adversely affected.

Item 4. Mine Safety Disclosures

Not applicable.

23


 

PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is traded on the New York Stock Exchange under the symbol "TGI." As of May 10, 2024, there were approximately 120 holders of record of our common stock and we believe that our common stock was beneficially owned by approximately 18,443 persons.

Dividend Policy

During fiscal 2024 and 2023, we made no declaration or payments of dividends due to the March 2020 suspension of our dividend program. This suspension is still in place. Our declaration and payment of cash dividends in the future and the amount thereof will depend upon our results of operations, financial condition, cash requirements, future prospects, limitations imposed by credit agreements or indentures governing debt securities and other factors deemed relevant by our Board of Directors. No assurance can be given that cash dividends will be declared and paid at historical levels or at all. Certain of our debt arrangements restrict our paying dividends and making distributions on our capital stock, except for the payment of stock dividends and redemptions of an employee's shares of capital stock upon termination of employment. We currently have an accumulated deficit which could limit or restrict our ability to pay dividends in the future.

Repurchases of Stock

In December 1998, we announced a program to repurchase up to 500,000 shares of our common stock. In February 2008, the Company's Board of Directors authorized an increase in the Company's existing stock repurchase program by up to an additional 500,000 shares of its common stock. In February 2014, the Company's Board of Directors authorized an increase in the Company's existing stock repurchase program by up to an additional 5,000,000 shares of its common stock. Though no purchases have been made in recent years, to the extent permitted by documentation governing our indebtedness, repurchases may be made from time to time in open market transactions, block purchases, privately negotiated transactions or otherwise at prevailing prices. No time limit has been set for completion of the program. As of May 31, 2024, the Company remains able to purchase an additional 2,277,789 shares under such program. We currently have an accumulated deficit which, together with certain restrictive covenants imposed by credit agreements or indentures governing debt securities, could limit or restrict our ability to repurchase stock in the future.

 

 

24


 

Performance Graph

The following graph compares the cumulative 5-year total return provided stockholders on our common stock relative to the cumulative total returns of the Russell 1000 index, the Russell 2000 index and the S&P Aerospace & Defense index. An investment of $100 (with reinvestment of all dividends) is assumed to have been made in our common stock and in each of the indexes on March 31, 2019, and its relative performance is tracked through March 31, 2024.

COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN*

Among Triumph Group, Inc., and The Russell 1000 and 2000 Indexes

And The S&P Aerospace & Defense Index

 

img68505656_0.jpg 

 

* $100 invested on March 31, 2019, in stock or index, including reinvestment of dividends.

 

 

 

Fiscal year ended March 31,

 

 

 

2019

 

 

2020

 

 

2021

 

 

2022

 

 

2023

 

 

2024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Triumph Group, Inc.

 

 

100.00

 

 

 

35.73

 

 

 

97.15

 

 

 

133.63

 

 

 

61.26

 

 

 

79.50

 

Russell 1000

 

 

100.00

 

 

 

91.97

 

 

 

147.70

 

 

 

167.30

 

 

 

153.26

 

 

 

199.03

 

Russell 2000

 

 

100.00

 

 

 

76.01

 

 

 

148.10

 

 

 

139.53

 

 

 

123.34

 

 

 

147.65

 

S&P Aerospace & Defense

 

 

100.00

 

 

 

73.62

 

 

 

102.91

 

 

 

117.68

 

 

 

122.55

 

 

 

135.51

 

 

 

The stock price performance included in this graph is not necessarily indicative of future stock price performance.

Item 6. [Reserved]

Not Applicable.

25


 

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the consolidated financial statements and notes thereto contained elsewhere herein.

OVERVIEW

Business

We are a major supplier to the aerospace industry and have two reportable segments: (i) Systems & Support, whose companies’ revenues are derived from integrated solutions, including design, development, production and support of proprietary components, subsystems and systems, production of complex assemblies using external designs; and (ii) Interiors, whose companies' revenues are primarily derived from supplying commercial and regional manufacturers with thermo-acoustic insulation, composite components, ducting and primarily to customer designs and model-based definition.

Discontinued Operations

As disclosed in Note 3, in December 2023 we entered into a definitive agreement with AAR Corp. (“AAR”), to sell Product Support. As a result of this agreement, beginning in the third quarter of fiscal 2024, we classified the Product Support results of operations for all periods presented as a discontinued operations and classified the assets and liabilities of the disposal group as held for sale. As a result, these operations are no longer reported as part of the Systems & Support reportable segment. Unless specifically stated, all discussions regarding results for the years ended March 31, 2024, 2023, and 2022, reflect results from our continuing operations. The sale closed on March 1, 2024, and we recognized a gain of approximately $548.3 million.

Income from discontinued operations in the year ended March 31, 2024, was approximately $546.9 million as compared with income from discontinued operations in the year ended March 31, 2023, of approximately $17.2 million. This increase was primarily driven by the gain recognized upon the sale of Product Support as well as increased earnings on higher sales due to the continued recovery of the Commercial MRO market from the COVID-19 pandemic. These increases were partially offset by transaction costs and applicable taxes directly related to the divestiture transaction.

Under the terms of the purchase agreement, we will continue to guarantee the performance of certain of the divested legal entities pursuant to pre-existing performance guarantee agreements covering existing contracts with specific customers that are expected to be fully satisfied within the next twelve months. There is no limitation to the maximum potential future liabilities under these guarantee agreements; however, we are fully indemnified by the buyer, AAR, against such losses that may arise from their failure to perform under the related contracts. The Company has also indemnified the buyer for a period of three years from the date of the transaction on product liability or warranty claims related to Product Support products and operations prior to the transaction date to the extent exceeding an aggregate amount of $1.0 million. As of March 31, 2024, no indemnification assets or liabilities or guarantee liabilities have been recognized nor are any expected to be recognized at or subsequent to the closing of this divestiture.

Summary of Significant Financial Results

Significant financial results for the fiscal year ended March 31, 2024, include:

Net sales increased 5.4% to $1.19 billion.
Operating income was $86.5 million.
Loss from continuing operations was $34.5 million, or $(0.46) per diluted common share.
Net income, including income from discontinued operations, was $512.4 million or $6.92 per diluted common share.
Backlog of our continuing operations increased 22% over the prior year to $1.90 billion.
We generated $9.4 million of cash flows from operating activities.

 

Aviation Manufacturing Jobs Protection Program

In November 2021, we entered into an agreement with the Department of Transportation (“DOT”) under the Aviation Manufacturing Jobs Protection Program (“AMJP”). We received total proceeds under this program of $19.4 million, of which approximately $8.8 million was received in the three months ended June 30, 2022. In July 2022, we received a letter from the DOT confirming that we had satisfied the reporting requirements under the AMJP. In the years ended March 31, 2023 and 2022, we recognized approximately $4.7 million and $12.4 million, respectively, of the grant benefit as a reduction in cost of sales.

 

Warrants Distribution

As disclosed in Note 2, on December 19, 2022, we issued approximately 19.5 million Warrants to holders of record of common stock as of the Record Date. Each Warrant represented the right to purchase initially one share of common stock at an exercise price of $12.35 per Warrant. Payment for shares of common stock on exercise of Warrants could have been made in (i) cash or

26


 

(ii) under certain circumstances, Designated Notes (as defined in Note 2). Approximately 8.1 million warrants were exercised since the date of the Warrants initial distribution on December 19, 2022, through July 6, 2023. In the year ended March 31, 2024, approximately 7.7 million warrants were exercised for total cash proceeds, net of transaction costs, of approximately $80.0 million. On July 6, 2023, the Company redeemed all of the approximately 11.4 million outstanding Warrants for a total redemption price of less than $0.1 million. In total, as a result of the Warrant exercises, from the date of issuance on December 19, 2022, through redemption on July 6, 2023, the Company increased its cash by approximately $84.1 million and reduced debt by approximately $14.4 million.

Significant Developments in Key Programs

Discussion of significant developments on key programs is included below.

Boeing 737

The Boeing 737 program represented approximately 14% and 10% of net sales for the fiscal years ended March 31, 2024 and 2023, respectively, inclusive of both OEM production and aftermarket sales. Of the total revenue recognized on the 737 program, OEM production revenue represented approximately 88% and 90% for the years ended March 31, 2024 and 2023, respectively. In April 2024, Boeing publicly disclosed that it had slowed the 737 program production below 38 per month to incorporate improvements to its quality management system and expected production to increase in the second half of calendar year 2024 as rates return to 38 per month.

No other programs are expected to represent more than 10% of our consolidated net sales.

In the years ended March 31, 2023, we completed the strategic divestiture of our manufacturing operations located in Stuart, Florida. Refer to Note 3 for further discussion of these transactions.

RESULTS OF OPERATIONS

The following includes a discussion of our consolidated and business segment results of operations for the year ended March 31, 2024, compared with the year ended March 31, 2023. Our diverse structure and customer base do not allow for precise comparisons between periods of the impact of price and volume changes to specific line items in our results of operations. However, we have disclosed the significant variances between the respective periods. As a result of the classifying the Product Support results of operations for all periods presented as discontinued operations, we have also included an updated discussion of our consolidated and business segment results of operations for the year ended March 31, 2023, compared with the year ended March 31, 2022.

Non-GAAP Financial Measures

We prepare and publicly release annual audited and quarterly unaudited financial statements prepared in accordance with U.S. GAAP. In accordance with Securities and Exchange Commission (the "SEC") rules, we also disclose and discuss certain non-GAAP financial measures in our public filings and earnings releases. Currently, the non-GAAP financial measures that we disclose are Adjusted EBITDA, which is our net (loss) income from continuing operations before interest and gains or losses on debt extinguishment, income taxes, amortization of acquired contract liabilities, costs incurred pertaining to shareholder cooperation agreements, consideration payable to customer related to divestitures, legal contingency losses (including legal judgments and settlements), gains/loss on divestitures, gains/losses on warrant remeasurements and warrant-related transaction costs, share-based compensation expense, depreciation and amortization (including impairment of long-lived assets), and the effects of certain pension charges such as curtailments, settlements, withdrawals, and other early retirement incentives; and Adjusted EBITDAP, which is Adjusted EBITDA, before pension expense or benefit (excluding pension charges already adjusted in Adjusted EBITDA). We disclose Adjusted EBITDA on a consolidated and Adjusted EBITDAP on a consolidated and a reportable segment basis in our earnings releases, investor conference calls and filings with the SEC. The non-GAAP financial measures that we use may not be comparable to similarly titled measures reported by other companies. Also, in the future, we may disclose different non-GAAP financial measures in order to help our investors more meaningfully evaluate and compare our future results of operations with our previously reported results of operations.

We view Adjusted EBITDA and Adjusted EBITDAP as operating performance measures and, as such, we believe that the U.S. GAAP financial measure most directly comparable to such measures is (loss) income from continuing operations. In calculating Adjusted EBITDA and Adjusted EBITDAP, we exclude from (loss) income from continuing operations the financial items that we believe should be separately identified to provide additional analysis of the financial components of the day-to-day operation of our continuing business. We have outlined below the type and scope of these exclusions and the material limitations on the use of these non-GAAP financial measures as a result of these exclusions. Adjusted EBITDA and Adjusted EBITDAP are not measurements of financial performance under U.S. GAAP and should not be considered as a measure of liquidity, as an alternative to (loss) income from continuing operations, or as an indicator of any other measure of performance derived in

27


 

accordance with U.S. GAAP. Investors and potential investors in our securities should not rely on Adjusted EBITDA or Adjusted EBITDAP as a substitute for any U.S. GAAP financial measure, including (loss) 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 (loss) income from continuing operations set forth below, in our earnings releases, and in other filings with the SEC and to carefully review the U.S. GAAP financial information included as part of our Quarterly Reports on Form 10-Q and our Annual Reports on Form 10-K that are filed with the SEC, as well as our quarterly earnings releases, and compare the U.S. GAAP financial information with our Adjusted EBITDA and Adjusted EBITDAP.

Adjusted EBITDA and Adjusted EBITDAP are used by management to internally measure our operating and management performance and by investors as a supplemental financial measure to evaluate the performance of our business that, when viewed with our U.S. GAAP results and the accompanying reconciliation, we believe provides additional information that is useful to gain an understanding of the factors and trends affecting our business. We have spent more than 20 years expanding our product and service capabilities, partially through acquisitions of complementary businesses. Due to the expansion of our operations, which included acquisitions, our net (loss) income from continuing operations has included significant charges for depreciation and amortization. Adjusted EBITDA and Adjusted EBITDAP exclude these charges and provide meaningful information about the operating performance of our business, apart from charges for depreciation and amortization. We believe the disclosure of Adjusted EBITDA and Adjusted EBITDAP helps investors meaningfully evaluate and compare our performance from quarter to quarter and from year to year. We also believe Adjusted EBITDA and Adjusted EBITDAP are measures of our ongoing operating performance because the isolation of noncash charges, such as depreciation and amortization, and nonoperating items, such as interest, income taxes, pension and other postretirement benefits, provides additional information about our cost structure and, over time, helps track our operating progress. In addition, investors, securities analysts, and others have regularly relied on Adjusted EBITDA and Adjusted EBITDAP to provide financial measures by which to compare our operating performance against that of other companies in our industry.

Set forth below are descriptions of the financial items that have been excluded from our (loss) income from continuing operations to calculate Adjusted EBITDA and Adjusted EBITDAP and the material limitations associated with using these non-GAAP financial measures as compared with (loss) income from continuing operations:

Gains or losses from sale of assets and businesses may be useful for investors to consider because they reflect gains or losses from sale of operating units or other assets. We do not believe these earnings necessarily reflect the current and ongoing cash earnings related to our operations.
Warrants remeasurement gains or losses and warrant-related transaction costs may be useful for investors to consider because they reflect the mark-to-market changes in the fair value of our warrants and the costs associated with warrants issuance. We do not believe these earnings necessarily reflect the current and ongoing cash earnings related to our operations.
Consideration payable to a customer related to a divestiture may be useful for investors to consider because it reflects consideration paid to facilitate the ultimate sale of operating units. We do not believe these charges necessarily reflect the current and ongoing cash earnings related to our operations.
Shareholder cooperation expenses may be useful for investors to consider because they represent certain costs that may be incurred periodically when reaching cooperative agreements with shareholders. We do not believe these charges necessarily reflect the current and ongoing cash earnings related to our operations.
Legal contingencies loss, when applicable, may be useful for investors to consider because it reflects gains or losses from legal disputes with third parties. We do not believe these gains or losses reflect the current and ongoing earnings related to our operations.
Non-service defined benefit income or expense from our pension and other postretirement benefit plans (inclusive of certain pension related transactions such as curtailments, settlements, withdrawals, and early retirement or other incentives) may be useful for investors to consider because they represent the cost of postretirement benefits to plan participants, net of the assumption of returns on the plan's assets and are not indicative of the cash paid for such benefits. We do not believe these earnings necessarily reflect the current and ongoing cash earnings related to our operations.
Amortization of acquired contract liabilities may be useful for investors to consider because it represents the noncash earnings on the fair value of off-market contracts acquired through acquisitions. We do not believe these earnings necessarily reflect the current and ongoing cash earnings related to our operations.
Amortization expense and nonrecurring asset impairments (including goodwill and intangible asset impairments) may be useful for investors to consider because it represents the estimated attrition of our acquired customer base and the diminishing value of trade names, product rights, licenses, or, in the case of goodwill, other assets that are not individually identified and separately recognized under U.S. GAAP. We do not believe these charges necessarily reflect the current and ongoing cash charges related to our operating cost structure.
Depreciation may be useful for investors to consider because it generally represents the wear and tear on our property and equipment used in our operations. We do not believe these charges necessarily reflect the current and ongoing cash charges related to our operating cost structure.

28


 

Share-based compensation may be useful for investors to consider because it represents a portion of the total compensation to management and the board of directors. 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, as well as debt modification and extinguishment gains or losses, 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 and debt extinguishment gains or losses 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.

 

The following table shows our Adjusted EBITDA and Adjusted EBITDAP reconciled to our (loss) income from continuing operations for the indicated periods (in thousands):

 

 

 

Fiscal year ended March 31,

 

 

 

2024

 

 

2023

 

 

2022

 

(Loss) income from continuing operations (U.S. GAAP measure)

 

$

(34,467

)

 

$

72,417

 

 

$

(50,377

)

Income tax expense

 

 

7,123

 

 

 

3,360

 

 

 

4,526

 

Interest expense and other

 

 

123,021

 

 

 

115,211

 

 

 

113,080

 

Debt modification and extinguishment loss

 

 

1,694

 

 

 

33,044

 

 

 

11,624

 

Warrant remeasurement gain, net

 

 

(8,545

)

 

 

(8,683

)

 

 

 

Legal contingencies loss

 

 

7,338

 

 

 

 

 

 

 

Pension settlements, curtailments, withdrawals, and other pension related charges

 

 

 

 

 

 

 

 

52,005

 

Consideration payable to customer related to divestiture

 

 

 

 

 

17,185

 

 

 

 

Shareholder cooperation expenses

 

 

1,905

 

 

 

 

 

 

 

Loss (gain) on sale of assets and businesses, net

 

 

12,208

 

 

 

(101,523

)

 

 

9,294

 

Share-based compensation

 

 

9,445

 

 

 

8,913

 

 

 

9,782

 

Amortization of acquired contract liabilities

 

 

(2,721

)

 

 

(2,500

)

 

 

(5,871

)

Depreciation and amortization*

 

 

29,625

 

 

 

32,259

 

 

 

47,817

 

Adjusted EBITDA (non-GAAP measure)

 

 

146,626

 

 

 

169,683

 

 

 

191,880

 

Non-service defined benefit loss (income) (excluding pension related charges)

 

 

(2,372

)

 

 

(19,664

)

 

 

(57,378

)

Adjusted EBITDAP (non-GAAP measure)

 

$

144,254

 

 

$

150,019

 

 

$

134,502

 

 

* Includes impairment charges related to intangible and other long-lived assets

 

Fiscal year ended March 31, 2024, compared with fiscal year ended March 31, 2023

 

 

 

Fiscal Year Ended March 31,

 

(In thousands)

 

2024

 

 

2023

 

Commercial OEM

 

$

530,263

 

 

$

541,481

 

Military OEM

 

 

261,918

 

 

 

261,051

 

Total OEM Revenue

 

 

792,181

 

 

 

802,532

 

 

 

 

 

 

 

 

Commercial Aftermarket

 

 

164,014

 

 

 

126,148

 

Military Aftermarket

 

 

183,108

 

 

 

165,814

 

Total Aftermarket Revenue

 

 

347,122

 

 

 

291,962

 

 

 

 

 

 

 

 

Non-Aviation Revenue

 

 

50,019

 

 

 

33,568

 

Amortization of acquired contract liabilities

 

 

2,721

 

 

 

2,500

 

Total Net Sales

 

$

1,192,043

 

 

$

1,130,562

 

 

29


 

Net Sales

Commercial OEM sales decreased $11.2 million, or 2.1% due to divestitures and exited or sunsetting programs, which represented approximately $74.0 million in net changes. Excluding impacts from divestitures and exited or sunsetting programs, Commercial OEM sales increased $62.8 million, or 13.5% due to increased production volumes on Boeing 737, 777, and 787 programs, partially offset by lower sales volume on commercial rotorcraft and a decrease in revenue from a prior year commercial OEM nonrecurring intellectual property transaction of approximately $16.3 million.

Military OEM sales increased $0.9 million, or 0.3%, primarily due to increased sales related to the CH-53K and F35 platforms partially offset by decreased sales on the V-22 and CH-47 military rotorcraft platforms.

Commercial Aftermarket sales increased $37.9 million, or 30.0%. Excluding impacts from divestitures, Commercial Aftermarket sales increased $39.9 million, or 32.3%, driven by the continued improvement in overall air travel metrics, favorably impacting both repair and overhaul services and spare part sales. Commercial Aftermarket also benefited from a spare parts intellectual property transaction of approximately $4.2 million in the current year.

Military aftermarket sales increased $17.3 million, or 10.4%, driven by increased sales across several rotorcraft and fixed wing platforms including V-22, CH-47, and AH-64 partially offset by decreased sales on the UH-60 and C-5 programs.

Non-aviation sales increased approximately $16.5 million, or 49.0%, primarily driven by increased sales of non-aircraft military components.

 

 

Year Ended March 31,

 

 

 

2024

 

 

2023

 

 

 

(in thousands)

 

Operating income

 

$

86,454

 

 

$

195,685

 

Non-service defined benefit income

 

 

(2,372

)

 

 

(19,664

)

Debt modification and extinguishment loss

 

 

1,694

 

 

 

33,044

 

Warrant remeasurement gain, net

 

 

(8,545

)

 

 

(8,683

)

Interest expense and other

 

 

123,021

 

 

 

115,211

 

Income tax expense

 

 

7,123

 

 

 

3,360

 

(Loss) income from continuing operations

 

$

(34,467

)

 

$

72,417

 

Operating Income

Consolidated gross profit margin decreased to 27.1% for the year ended March 31, 2024, from 28.4% for the year ended March 31, 2023 This decrease was primarily due to inflationary increases in labor and material costs, including unfavorable foreign exchange effects from a strong Mexican peso; the net decrease in margin benefit of nonrecurring intellectual property transactions; the prior year AMJP grant benefits disclosed above; and certain favorable adjustments associated with sunsetting programs, partially offset by the increased mix in Aftermarket sales as a percentage of total sales. Excluding impacts from divestitures and exited or sunsetting programs, gross margin for the year ended March 31, 2024, was 27.2% compared with 28.5% for the year ended March 31, 2023.

Operating income decreased approximately $109.2 million, or 55.8%. Excluding impacts from divestitures, significant exited or sunsetting programs, and the decrease in gain recognized on sale of assets of business of $113.7 million, operating income increased approximately $20.7 million. This increase was primarily driven by the changes in sales and margins described above and decreased general and administrative human capital costs of approximately $8.1 million, partially offset by approximately $7.3 million in legal judgment loss recognized in the year ended March 31, 2024 (refer to Note 17 for further disclosure).

Debt Modification and Extinguishment

Debt modification and extinguishment losses decreased in the current year as a result of approximately $31.6 million in prior period losses recognized in the year ended March 31, 2023, upon the March 2023 issuance of $1.20 billion aggregate principal amount of the 2028 First Lien Notes and redemption of $1.07 billion of the then outstanding 8.875% Senior Secured First Lien Notes due 2024 (the “2024 First Lien Notes”) and 6.250% Senior Secured Notes due 2024 (the “2024 Second Lien Notes”).

Warrant Remeasurement Gain

Warrant remeasurement gain, which represents mark-to-market changes in the fair value of our warrants, were consistent with the prior year period. As disclosed in above, we redeemed all of the approximately 11.4 million outstanding Warrants on July 6, 2023, for a total redemption price of less than $0.1 million.

Interest Expense and Other

Interest expense and other increased due to higher interest rates compared to the prior year.

30


 

Non-service Defined Benefit Income

Non-service defined benefit income decreased by $17.3 million, primarily due to changes in actuarial assumptions and experience that decreased income for the year ended March 31, 2024, by $30.8 million, partially offset by the approximately $14.6 million of pension cost recognized in the prior year as a result of our withdrawal from a multiemployer pension plan.

Income Taxes

The income tax expense was $7.1 million for the fiscal year ended March 31, 2024, reflecting an effective tax rate of (26.0)%. During the fiscal year ended March 31, 2024, we adjusted the valuation allowance against the consolidated net deferred tax asset by $113.4 million primarily due to utilization of net operating loss carryforward, deduction of previously disallowed interest expense deductions, utilization of research and development credits previously carried forward, research and development cost amortization, and pension and other postretirement benefit plans. As of March 31, 2024, management determined that it was necessary to maintain a valuation allowance against principally all of our net deferred tax assets.

Business Segment Performance

We report our financial performance based on the following two reportable segments: Systems & Support and Interiors. Our Chief Operating Decision Maker ("CODM") utilizes Adjusted EBITDAP as a primary measure of profitability to evaluate the performance of our segments and allocate resources.

The results of operations among our reportable segments vary due to differences in competitors, customers, extent of proprietary deliverables and performance. For example, Systems & Support, which generally includes proprietary products and/or arrangements where we become the primary source or one of a few primary sources to our customers, our unique manufacturing capabilities command a higher margin.

Refer to Item 1 for further details regarding the operations and capabilities of each of our reportable segments.

We currently generate a majority of our revenue from sales to OEMs and aftermarket MRO services in the commercial airline and military and defense markets. Our growth and financial results are largely dependent on continued demand for our products and services within these markets. If any of the related industries experiences a downturn, our clients in these sectors may conduct less business with us. The loss of one or more of our major customers or an economic downturn in the commercial airline or the military and defense markets could have a material adverse effect on our business.

 

Business Segment Performance—Fiscal year ended March 31, 2024, compared with fiscal year ended March 31, 2023

 

 

 

Year Ended March 31,

 

 

% Change

 

 

% of Total Sales

 

 

 

2024

 

 

2023

 

 

 

 

 

2024

 

 

2023

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

Net sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Systems & Support

 

$

1,028,425

 

 

$

919,351

 

 

 

11.9

%

 

 

86.3

%

 

 

81.3

%

Interiors

 

 

164,440

 

 

 

211,647

 

 

 

(22.3

)%

 

 

13.8

%

 

 

18.7

%

Elimination of inter-segment sales

 

 

(822

)

 

 

(436

)

 

 

(88.5

)%

 

 

(0.1

)%

 

(0.0)%

 

Total net sales

 

$

1,192,043

 

 

$

1,130,562

 

 

 

5.4

%

 

 

100.0

%

 

 

100.0

%

Systems & Support:

Net sales increased $109.1 million, or 11.9%, and included growth across all end markets. Net sales increased primarily as a result of the continued market recovery driving volumes for both commercial OEM and aftermarket sales as well as the CH-53K and F35 platforms, partially offset by decreased sales on the V-22 and CH-47 military rotorcraft platforms, other commercial rotorcraft, and a decrease in revenue from nonrecurring intellectual property transactions of approximately $12.1 million.

Interiors

Excluding the sales decreases from divestitures and significant exited or sunsetting programs of $76.0 million, net sales increased by $28.8 million, or 22%, primarily due to increased OEM volume on the 737, 777, and 787 programs.

 

 

 

Year Ended March 31,

 

 

% Change

 

 

% of Segment Sales

 

 

 

2024

 

 

2023

 

 

 

 

 

2024

 

 

2023

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDAP

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Systems & Support

 

$

200,074

 

 

$

172,415

 

 

 

16.0

%

 

 

19.5

%

 

 

18.8

%

Interiors

 

 

(5,000

)

 

 

31,937

 

 

 

(115.7

)%

 

 

(3.0

)%

 

 

14.0

%

Total Segment Adjusted EBITDAP

 

 

195,074

 

 

 

204,352

 

 

 

(4.5

)%

 

 

16.4

%

 

 

17.8

%

Less: Unallocated Corporate EBITDAP

 

 

(50,820

)

 

 

(54,333

)

 

 

6.5

%

 

n/a

 

 

n/a

 

Total Consolidated Adjusted EBITDAP

 

$

144,254

 

 

$

150,019

 

 

 

(3.8

)%

 

 

12.1

%

 

 

13.1

%

 

31


 

Systems & Support

Adjusted EBITDAP increased by $27.7 million, or 16.0%, primarily due to the gross profit on increased sales described above as well as a $3.5 million reduction in general and administrative human capital costs, partially offset by the net decrease in margin benefit of nonrecurring intellectual property transactions, and the prior period AMJP grant benefit of $4.7 million.

Adjusted EBITDAP as a percentage of segment sales increased as a result of the factors described above. Additionally, increases in Aftermarket sales as a percentage of total sales and overall volume efficiencies offset the impact on margin of rising material costs.

Interiors

Excluding Adjusted EBITDAP decreases from divestitures and significant exited or sunsetting programs of $34.1 million, Adjusted EBITDAP decreased by $2.8 million primarily due to the inflationary increases in labor and material costs, including unfavorable foreign exchange effects from a strong Mexican peso, partially offset by the increased volumes disclosed above. Excluding impacts from divestitures and significant exited or sunsetting programs, Adjusted EBITDAP as a percentage of segment sales decreased as a result of these factors to (1.3)% as compared with 0.6% in the prior year.

Unallocated Corporate EBITDAP

Corporate expenses consist primarily of compensation, benefits, professional services and other administrative costs incurred by the corporate offices and decreased approximately $3.5 million or 6.5%, primarily due to reduced general and administrative human capital costs.

Fiscal year ended March 31, 2023, compared with fiscal year ended March 31, 2022

 

 

Fiscal Year Ended March 31,

 

(In thousands)

 

2023

 

 

2022

 

Commercial OEM

 

$

541,481

 

 

$

645,118

 

Military OEM

 

 

261,051

 

 

 

292,376

 

Total OEM Revenue

 

 

802,532

 

 

 

937,494

 

 

 

 

 

 

 

 

Commercial Aftermarket

 

 

126,148

 

 

 

103,453

 

Military Aftermarket

 

 

165,814

 

 

 

177,125

 

Total Aftermarket Revenue

 

 

291,962

 

 

 

280,578

 

 

 

 

 

 

 

 

Non-Aviation Revenue

 

 

33,568

 

 

 

38,761

 

Amortization of acquired contract liabilities

 

 

2,500

 

 

 

5,871

 

Total Net Sales

 

$

1,130,562

 

 

$

1,262,704

 

Net Sales

Commercial OEM sales decreased $103.6 million, or 16.1% due to divestitures and exited or sunsetting programs, which represented approximately $206.9 million in net changes. Excluding impacts from divestitures and significant exited or sunsetting programs, Commercial OEM sales increased $103.2 million, or 28.4% with over half the improvement driven by increased production volumes on the Boeing 737 program, as well as on increases across other commercial fixed wing and rotorcraft programs and an increase in revenue from nonrecurring intellectual property transactions of approximately $12.3 million.

Military OEM sales decreased $31.3 million, or 10.7% primarily due to divestitures, as well as lower sales related to the E2-D and AH-64 programs, partially offset by increased sales related to the CH-53K and CH-47 programs.

Commercial Aftermarket sales increased $22.7 million, or 21.9%. Excluding impacts from divestitures, Commercial Aftermarket sales increased $29.0 million, or 30.7%, driven by the continued pandemic recovery, including improvement in overall air travel metrics, with the primary increase on 737 volumes.

Military aftermarket sales decreased $11.3 million, or 4.1% driven by reduced repairs and spares across several rotorcraft platforms relative to the prior year.

 

32


 

 

 

Year Ended March 31,

 

 

 

2023

 

 

2022

 

 

 

(in thousands)

 

Operating income

 

$

195,685

 

 

$

73,480

 

Non-service defined benefit expense

 

 

(19,664

)

 

 

(5,373

)

Debt modification and extinguishment loss

 

 

33,044

 

 

 

11,624

 

Warrant remeasurement gain, net

 

 

(8,683

)

 

 

 

Interest expense and other

 

 

115,211

 

 

 

113,080

 

Income tax

 

 

3,360

 

 

 

4,526

 

Income (loss) from continuing operations

 

$

72,417

 

 

$

(50,377

)

Operating Income

Consolidated gross profit margin increased to 28.4% for the year ended March 31, 2023, from 26.5% for the year ended March 31, 2022 Excluding impacts from divestitures and significant exited or sunsetting programs, gross margin for the year ended March 31, 2023, was 28.4% compared with 32.5% for the year ended March 31, 2022. This decrease was primarily the result of approximately $24.9 million in reductions in acquired contract reserves recognized in the year ended March 31, 2022, and a net decrease in AMJP benefits of approximately $7.7 million, as well as an increased mix in OEM sales as a percentage of total sales. These decreases were partially offset by the net margin benefit on nonrecurring intellectual property transactions described above of $12.3 million and increased volumes and related efficiencies.

Operating income increased approximately $122.2 million, or 166.3%. Excluding impacts from divestitures, significant exited or sunsetting programs, and the increase in gain recognized on sale of assets of business of $110.8 million, operating income increased approximately $31.5 million. This increase was primarily driven by the changes in sales and margins described above and decreased general and administrative human capital costs of approximately $6.8 million and $4.1 million in decreased depreciation and amortization, partially offset by approximately $7.2 million in increased legal and consulting expense.

Debt Modification and Extinguishment

We recognized debt extinguishment losses of $33.0 million for fiscal year ended March 31, 2023, compared with $11.6 million for fiscal year ended March 31, 2022. In March 2023, we issued $1.20 billion aggregate principal amount of the 2028 First Lien Notes and redeemed the 2024 First Lien Notes ($543.8 million aggregate principal amount) and the 2024 Second Lien Notes ($525.0 million aggregate principal amount) resulting in prepayment premiums and write off of prior deferred financing cost of $31.6 million in the aggregate. The remaining debt extinguishment losses in fiscal 2023 and fiscal 2022 were related to mandatory redemptions under our 2024 First Lien Notes related to proceeds from prior asset sales.

Warrant Remeasurement Gain

Warrant remeasurement gain, which represents mark-to-market changes in the fair value of our warrants, were the result of decreases in fair value from the date of issuance on December 19, 2022, through March 31, 2023.

Interest Expense and Other

Interest expense and other increased due to unfavorable changes in foreign currency exchange rates of approximately $6.6 million offset by lower interest on lower relative debt balances compared to the prior year period.

Non-service Defined Benefit Income

Non-service defined benefit income increased by $14.3 million, to $19.7 million for the fiscal year ended March 31, 2023, compared with $5.4 million for the fiscal year ended March 31, 2022. The increase was primarily due to the recognition of curtailment and settlement losses of approximately $52.0 million in the aggregate upon the completion of the composites and large structure manufacturing divestitures, the settlement of a legacy fully-funded pension obligation, and the settlement of pension obligations of certain retired participants in our qualified U.S. pension plan all in the fiscal year ended March 31, 2022, partially offset by approximately $14.6 million of pension cost recognized in the fiscal year ended March 31, 2023, as a result of our withdrawal from a multiemployer pension plan.

Income Taxes

The income tax expense was $3.4 million for the fiscal year ended March 31, 2023, reflecting an effective tax rate of 4.4%. During the fiscal year ended March 31, 2023, we adjusted the valuation allowance against the consolidated net deferred tax asset by $0.2 million primarily due to a utilization of net operating loss carryforward, utilization of capital loss carryforward, and changes to temporary differences related to interest disallowance, amortization of research and development costs, and pension and other postretirement benefit plans. As of March 31, 2023, management determined that it was necessary to maintain a valuation allowance against principally all of our net deferred tax assets.

33


 

Business Segment Performance—Fiscal year ended March 31, 2023, compared with fiscal year ended March 31, 2022

 

 

Year Ended March 31,

 

 

% Change

 

 

% of Total Sales

 

 

 

2023

 

 

2022

 

 

 

 

 

2023

 

 

2022

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

Net sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Systems & Support

 

$

919,351

 

 

$

833,630

 

 

 

10.3

%

 

 

81.3

%

 

 

66.0

%

Interiors

 

 

211,647

 

 

 

429,547

 

 

 

(50.7

)%

 

 

18.7

%

 

 

34.0

%

Elimination of inter-segment sales

 

 

(436

)

 

 

(473

)

 

 

7.8

%

 

(0.0)%

 

 

(0.0)%

 

Total net sales

 

$

1,130,562

 

 

$

1,262,704

 

 

 

(10.5

)%

 

 

100.0

%

 

 

100.0

%

Systems & Support:

Net sales increased $85.7 million, or 10.3%, primarily as a result of the continued recovery from the pandemic driving volume for both commercial OEM and aftermarket sales, as noted above, and an increase in revenue from nonrecurring intellectual property transactions of approximately $12.3 million. The prior year period included $11.7 million in sales from our since divested operations in Staverton, United Kingdom.

Interiors

Excluding impacts from divestitures and exited or sunsetting programs, which resulted in $226.2 million in decreased sales, net sales increased by $8.3 million, or 6.7%, primarily due to increased commercial OEM volume on the 737 program, partially offset by decreased volume on certain commercial widebody programs.

 

 

 

Year Ended March 31,

 

 

% Change

 

 

% of Segment Sales

 

 

 

2023

 

 

2022

 

 

 

 

 

2023

 

 

2022

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDAP

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Systems & Support

 

$

172,415

 

 

$

155,132

 

 

 

11.1

%

 

 

18.8

%

 

 

18.7

%

Interiors

 

 

31,937

 

 

 

30,204

 

 

 

5.7

%

 

 

14.0

%

 

 

7.0

%

Total Segment Adjusted EBITDAP

 

 

204,352

 

 

 

185,336

 

 

 

10.3

%

 

 

17.8

%

 

 

14.8

%

Less: Unallocated Corporate EBITDAP

 

 

(54,333

)

 

 

(50,834

)

 

 

(6.9

)%

 

n/a

 

 

n/a

 

Total Consolidated Adjusted EBITDAP

 

$

150,019

 

 

$

134,502

 

 

 

11.5

%

 

 

13.1

%

 

 

10.7

%

Systems & Support

Adjusted EBITDAP increased by $17.3 million, or 11.1%, primarily due to gross profit on increased sales described above as well as the net margin benefit on nonrecurring intellectual property transactions described above of $12.3 million and approximately $4.0 million in decreased administrative human capital related costs, partially offset by decreased AMJP grant benefits of $7.7 million, and the approximately $24.9 million in reductions in acquired contract reserves recognized in the prior year period. As a result of these factors, Adjusted EBITDAP as a percentage of segment sales was consistent with the prior year period.

Interiors

Excluding impacts from divestitures and exited or sunsetting programs, Adjusted EBITDAP increased by $13.5 million. This improvement was partially offset by declines from the divestitures and sunsetting programs of $11.8 million. Excluding the impacts from divestitures and exited or sunsetting programs, Adjusted EBITDAP as a percentage of segment sales for the year ended March 31, 2023, was 0.6% compared with (10.1)% for the year ended March 31, 2022, primarily driven by increased commercial OEM production volumes and related overhead absorption benefits.

Unallocated Corporate EBITDAP

Corporate expenses consist primarily of compensation, benefits, professional services and other administrative costs incurred by the corporate offices and increased approximately $3.5 million or 6.9%, primarily due to increased legal and consulting expenses.

Liquidity and Capital Resources

Discontinued Operations

The accompanying consolidated statements of cash flows do not present the cash flows from discontinued operations separately from cash flow from continuing operations. Capital expenditures and other operating and investing noncash items of the discontinued operations for the years ended March 31, 2024, 2023, and 2022, were immaterial.

As disclosed above, using the proceeds from the Product Support divestiture, on March 4, 2024, we completed the redemption of $120.0 million of our 2028 First Lien Notes (as defined in Note 10) for approximately $128.7 million, reflecting a redemption price of 103% of the aggregate principal amount plus accrued and unpaid interest. On March 5, 2024, pursuant to an offer made in accordance with the provisions of the indenture governing the 2028 First Lien Notes to purchase 2028 First Lien Notes for cash,

34


 

we settled the asset sale tender offer of approximately $1.1 million of our 2028 First Lien Notes for $1.2 million, reflecting a redemption price of 100% of the aggregate principal amount plus accrued and unpaid interest. On March 6, 2024, we redeemed the remaining outstanding $435.6 million of 2025 Notes (as defined in Note 10) for approximately $437.6 million, reflecting a redemption price of 100% of the aggregate principal amount plus accrued and unpaid interest. As a result of these redemptions, we reduced our long-term debt by approximately $556.7 million. These actions will result in reduced interest expense of approximately $44.7 million in fiscal 2025.

The following discussion of our liquidity and capital resources includes cash flows from discontinued operations.

Operating Cash flows

Our working capital needs are generally funded through our current cash and cash equivalents, cash flows from operations, and proceeds from the Securitization Facility. For the fiscal year ended March 31, 2024, we generated cash of $9.4 million from operating activities, compared with a net cash outflow of $52.3 million for the fiscal year ended March 31, 2023, an improvement of $61.7 million. Cash flows were primarily driven by timing of receivables and payables, including an increase of approximately $20.4 million in customer advances as of March 31, 2024, as compared with March 31, 2023. In both fiscal 2024 and 2023, operating cash outflows were used to support inventory increases in response to anticipated increasing demand. Interest payments were approximately $148.0 million for the twelve months ended March 31, 2024, as compared with approximately $138.5 million for the twelve months ended March 31, 2023, with the increase principally driven by higher interest rates on outstanding debt. Additionally, operating cash outflows included approximately $12.5 million in Product Support divestiture transactions costs, and we paid approximately $11.8 million in income taxes in fiscal 2024 as compared with approximately $4.6 million in fiscal 2023, such increase primarily being the result of income taxes paid in connection with the taxable income generated upon the divestiture of Product Support.

In November 2021, the Company entered into an agreement with the DOT under the AMJP. We received total proceeds under this program of $19.4 million, of which approximately $8.8 million was received in the year ended March 31, 2023. These cash receipts are classified within cash from operations.

Investing Cash Flows

Cash flows used in investing activities for the fiscal year ended March 31, 2024, increased $717.1 million from the cash flows provided by investing activities for the fiscal year ended March 31, 2023. Cash flows used in investing activities for the fiscal year ended March 31, 2024, included net proceeds from the sale of assets and businesses, including working capital settlements, of $713.4 million, principally from approximately $720.3 million of proceeds from the sale of Product Support, partially offset by payments related to sale of assets and businesses of approximately $6.8 million as a result of the resolution of claims by the buyer related to the accounts payable representation and warranty under the purchase agreement and the finalization of certain purchase price adjustments related to the transferred working capital of the divested operations, as described in Note 3 and Note 17. We also used approximately $21.8 million for capital expenditures. Cash flows used in investing activities for the fiscal year ended March 31, 2023, included payments on the sale of assets and businesses of approximately $6.2 million with additional investing outflows from capital expenditures of $20.7 million. We currently expect capital expenditures in fiscal 2025 to be in the range of $20.0 - $25.0 million. The majority of our planned fiscal 2025 capital expenditures are capital investments designed to improve our manufacturing efficiency and expand our capabilities.

Financing Cash Flows

Cash flows used in financing activities for the fiscal year ended March 31, 2024, were $534.3 million, compared with cash flows provided by financing activities for the fiscal year ended March 31, 2023, of $65.8 million. In the year ended March 31, 2024, the following significant financing cash flow events occurred:

We generated approximately $80.0 million in proceeds, net of related transaction costs, from approximately 6.8 million in Warrant exercises in the first half of fiscal 2024, which resulted in the issuance of approximately 6.8 million shares.
We used cash to redeem approximately $483.7 million in principal amount of 2025 Notes, including approximately $48.1 million of which was used to redeem $50.0 million in principal amount under the 10b5-1 repurchase plan agreement disclosed in Note 10.
We redeemed or repurchased approximately $121.1 million of the 2028 First Lien Notes and paid a premium upon redemption of $3.6 million.

The remainder of financing cash flows pertains primarily to payments of financing costs incurred in conjunction with our March 2023 refinancing, borrowings and payments under finance leases, and the repurchase of common stock to satisfy employee tax withholding obligations resulting from equity compensation. As of March 31, 2024, we had $392.5 million of cash on hand and approximately $44.1 million was available under the Securitization Facility after giving effect to approximately $19.6 million in outstanding letters of credit, all of which were accruing interest at 0.125% per annum.

On May 30, 2024, we redeemed $120.0 million of our 2028 First Lien Notes at a redemption price equal to 103.000% of the principal amount redeemed plus accrued and unpaid interest to, but not including, the redemption date.

Refer to Note 12 for disclosures related to certain indemnifications, consent-to-assignment agreements, and guarantee agreements associated with our divestiture activities.

35


 

In December 2021, The Organization for Economic Cooperation and Development adopted rules for a global minimum tax framework to serve as a model to member nations (“BEPS Pillar Two”). In response, various governments have enacted, are in the process of enacting, or are considering legislation adopt this global minimum tax. We have preliminarily assessed the impact of Pillar Two on our operations and currently do not expect that it will result in substantial tax costs to us. As legislation is not final in many jurisdictions and is subject to change, it is possible that later developments will present a greater cost than those currently expected.

We currently expect fiscal 2025 operations to result in net cash inflows, however, due to cyclicality we anticipate using cash over the first half of fiscal 2025 and generating in the second half. We believe, based on an assessment of our current cash holdings as presented on the accompanying consolidated balance sheet as of March 31, 2024, as well as current market conditions, that cash flows from operations and borrowings under the Securitization Facility will be sufficient to meet anticipated cash requirements for our current operations for at least the next 12 months. We also believe, based on our current cash, our fiscal 2025 operating cash flow expectations, and the expected expansion of cash flows from operations subsequent to fiscal 2025, that we have the ability to generate and obtain adequate amounts of cash to meet anticipated cash requirements for the foreseeable future. We continually evaluate opportunities to access the credit and capital markets. We may also seek transactions to extend the maturity of our indebtedness, reduce leverage, or decrease interest expense. Such transactions could include one or more repurchases or exchanges of our outstanding indebtedness. These transactions could increase our total amount of secured indebtedness or be dilutive to stockholders. There can be no assurances if or when we will consummate any such transactions or the timing thereof.

The 2028 First Lien Notes are our senior obligations and rank equally in right of payment with all of our other future senior indebtedness and senior in right of payment to all of our existing and future subordinated indebtedness.

The 2028 First Lien Notes are (a) effectively senior to all existing and future second lien obligations and all existing and future unsecured indebtedness of the Company and the Guarantor Subsidiaries, but only to the extent of the value of the Collateral (as defined below), and after giving effect to any permitted additional first lien secured obligations and other permitted liens of senior or equal priority; (b) secured by the Collateral on a pari passu basis with any future permitted additional first lien secured obligations, subject to a Collateral Trust Agreement (as defined below); (c) effectively subordinated to any existing and future obligations of the Company and the Guarantor Subsidiaries that are secured by assets that do not constitute the Collateral, in each case, to the extent of the value of the assets securing such obligations; and (d) structurally subordinated to all existing and future indebtedness and other liabilities of the Company’s existing and future subsidiaries that do not guarantee the 2028 First Lien Notes, including the Securitization Facility.

The 2028 First Lien Notes are guaranteed on a full, senior, joint and several basis certain of the Company’s domestic restricted subsidiaries (the “Guarantor Subsidiaries”). Currently, our only consolidated subsidiaries that are not guarantors of the 2028 First Lien Notes (the "Non-Guarantor Subsidiaries") are: (i) the receivables securitization special purpose entity, and (ii) charitable foundation entity. The 2028 First Lien Notes and the related guarantees are secured by first-priority liens on substantially all of our assets and our subsidiary guarantors, whether now owned or hereafter acquired (the “Collateral”).

Pursuant to the documentation governing the 2028 First Lien Notes, we may redeem some or all of the 2028 First Lien Notes prior to their stated maturities, subject to certain limitations set forth in the indenture governing the 2028 First Lien Notes and, in certain cases, subject to significant prepayment premiums. We are obligated to offer to repurchase the 2028 First Lien Notes at specified prices as a result of certain change-of-control events and a sale of all or substantially all of our assets. These restrictions and prohibitions are subject to certain qualifications and exceptions.

The indenture governing the 2028 First Lien Notes, as well as Securitization Facility, contain covenants and restrictions that, among other things, limit our ability and the ability of any of the Guarantor Subsidiaries to (i) grant liens on our assets; (ii) make dividend payments, other distributions or other restricted payments; (iii) incur restrictions on the ability of the Guarantor Subsidiaries to pay dividends or make other payments or investments; (iv) enter into sale and leaseback transactions; (v) merge, consolidate, transfer or dispose of substantially all of their assets; (vi) incur additional indebtedness; (vii) use the proceeds from sales of assets, including capital stock of restricted subsidiaries (in the case of the 2028 First Lien Notes); and (viii) enter into transactions with affiliates. We are currently in compliance with all covenants under our debt documents and expect to remain in compliance for the foreseeable future.

For further information on our long-term debt, see Note 10.

The following tables present summarized financial information of the Company and the Guarantor Subsidiaries on a combined basis. Consistent with the presentation of discontinued operations on the accompanying consolidated statements of operations as a separate line below (loss) income from continuing operations, the operating results of Guarantor Subsidiaries that are part of discontinued operations are only included in the table below within net income. The combined summarized financial information eliminates intercompany balances and transactions among the Company and the Guarantor Subsidiaries and equity in earnings and investments in any Guarantor Subsidiaries or Non-Guarantor Subsidiaries. The summarized financial information is provided in accordance with the reporting requirements of Rule 13-01 under SEC Regulation S-X for the issuer and Guarantor Subsidiaries.

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Parent and Guarantor Summarized Financial Information

 

March 31,

 

Summarized Balance Sheet

 

2024

 

 

 

in thousands

 

Assets

 

 

 

Due from non-guarantor subsidiaries

 

$

316

 

Current assets

 

 

721,953

 

Noncurrent assets

 

 

625,768

 

Noncurrent receivable from non-guarantor subsidiaries

 

 

78,435

 

 

 

 

 

Liabilities

 

 

 

Due to non-guarantor subsidiaries

 

 

36,721

 

Current liabilities

 

 

307,837

 

Noncurrent liabilities

 

 

1,429,101

 

 

 

 

 

 

 

Year Ended

 

Summarized Statement of Operations

 

March 31, 2024

 

 

 

in thousands

 

Net sales to non-guarantor subsidiaries

 

$

1,663

 

Net sales to unrelated parties

 

 

1,111,289

 

Gross profit

 

 

291,578

 

Loss from continuing operations before income taxes

 

 

(40,484

)

Net income

 

 

495,302

 

 

Our expected future cash flows for the next five years for long-term debt, leases and other obligations are as follows: