Triumph (US:TGI)2024-05-31 20:45Part I Business Triumph Group designs, manufactures, and repairs aerospace and defense systems, significantly reducing debt after a major divestiture Products and Services - The company operates through two segments: Triumph Systems & Support (proprietary components, subsystems, complex assemblies) and Triumph Interiors (insulation, ducting, interior components)10 Systems & Support Product Examples | Category | Products | | :--- | :--- | | Drives & Controls | Aircraft and engine-mounted accessory drives, Geared transmissions, Main engine gear box assemblies | | Actuation & Power | High lift and utility actuation, Hydraulic systems and components, Landing gear actuation systems | | Fuel & Thermal | Electronic engine controls, Main fuel pumps, Thermal control systems and components | Backlog Backlog Comparison (in billions) | Date | Systems & Support | Interiors | Total Backlog | | :--- | :--- | :--- | :--- | | March 31, 2024 | $1.56 | $0.34 | $1.90 | | March 31, 2023 | $1.29 | $0.26 | $1.55 | - The total backlog increased by 22.6% year-over-year. Of the $1.90 billion backlog at March 31, 2024, approximately $1.15 billion is expected to be shipped by March 31, 202521 Dependence on Significant Customers - A significant portion of the company's net sales are to The Boeing Company. A significant reduction in sales to Boeing could materially and adversely impact Triumph's financial position and results22 Human Capital Resources - As of March 31, 2024, approximately 10% of the company's 4,530 permanent employees are represented by labor unions42 Employee Safety Metrics (Calendar Year) | Safety Metric | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | TRIR | 0.8 | 1.2 | 1.8 | | DART | 0.2 | 0.5 | 1.0 | Recent Developments - In December 2023, Triumph agreed to sell its Product Support MRO business to AAR CORP. The sale closed on March 1, 2024, resulting in a recognized gain of approximately $548.3 million. The results of this business are now classified as discontinued operations5657 - Following the divestiture, the company used the proceeds to reduce long-term debt by approximately $556.7 million in March 2024 through redemptions of its 2028 First Lien Notes and 2025 Notes58 - On May 30, 2024, the company completed an additional redemption of $120.0 million of its 2028 First Lien Notes59 Risk Factors The company faces strategic, operational, financial, and legal risks including industry cyclicality, customer dependence, debt, and regulatory compliance - Strategic Risks: The business is highly dependent on the commercial aerospace market, which is cyclical, and on U.S. government defense spending, which can be unpredictable. A significant portion of net sales is to Boeing, making the company vulnerable to reductions in Boeing's purchases636574 - Operational Risks: The company is exposed to cybersecurity threats, relies on single-source suppliers for some essential raw materials, and faces potential liabilities from product warranties and claims related to past divestitures869095 - Financial Risks: The company's debt imposes significant operating and financial restrictions. Market volatility could impede access to capital, and high inflation poses a risk to profitability on fixed-price contracts107110113 - Legal & Compliance Risks: The aerospace industry is highly regulated by the FAA and other agencies. The company must also comply with U.S. export control laws (ITAR, EAR) and faces potential liabilities from environmental regulations115118119 Cybersecurity Triumph's cybersecurity program, overseen by the Audit Committee, integrates into enterprise risk management, with no material incidents reported to date - The Board of Directors has delegated oversight of cybersecurity risks to the Audit Committee, which receives quarterly updates from the CAO and CISO135 - The company utilizes a Computer Security Incident Response Team (CSIRT) and an Incident Response Plan, conducting periodic "tabletop" exercises to test preparedness130131 - The company has not identified any cybersecurity threats or incidents that have materially affected or are reasonably likely to materially affect the company134 Legal Proceedings Triumph is vigorously defending two significant lawsuits from divestiture buyers, seeking damages for alleged breach of contract and undisclosed issues - Daher, buyer of the Stuart facility, is suing for approximately $130.0 million in damages, alleging failure to disclose paint, supplier, and production issues139140 - Qarbon, buyer of the Red Oak facility, is suing for breach of contract and fraudulent inducement related to alleged undisclosed future losses on the Boeing T-7A program142 - The company disputes the claims in both lawsuits and intends to vigorously defend itself, noting that potential losses cannot be reasonably estimated at this time141143 Part II Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities Triumph's common stock trades on NYSE, with its dividend program suspended since March 2020 and no recent share repurchases - The company's dividend program was suspended in March 2020 and remains suspended, with no dividends paid in fiscal 2024 or 2023149 5-Year Cumulative Total Return Comparison | Index | 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 | | S&P Aerospace & Defense | $100.00 | $73.62 | $102.91 | $117.68 | $122.55 | $135.51 | Management's Discussion and Analysis of Financial Condition and Results of Operations FY2024 net sales rose 5.4% to $1.19 billion, driven by aftermarket growth, while net income reached $512.4 million due to a divestiture gain and improved cash flow Overview - The sale of the Product Support business closed on March 1, 2024, resulting in a gain of approximately $548.3 million. This business is now reported as discontinued operations158 FY 2024 Key Financial Results | Metric | Value | | :--- | :--- | | Net Sales | $1.19 billion (+5.4% YoY) | | Operating Income | $86.5 million | | Loss from Continuing Operations | $(34.5) million | | Net Income (incl. discontinued ops) | $512.4 million | | Backlog (continuing ops) | $1.90 billion (+22% YoY) | | Cash Flow from Operations | $9.4 million | - The Boeing 737 program represented approximately 14% of net sales for fiscal year 2024, up from 10% in fiscal 2023165 Results of Operations Net Sales by End Market (FY2024 vs. FY2023, in thousands) | End Market | FY 2024 | FY 2023 | | :--- | :--- | :--- | | Commercial OEM | $530,263 | $541,481 | | Military OEM | $261,918 | $261,051 | | Commercial Aftermarket | $164,014 | $126,148 | | Military Aftermarket | $183,108 | $165,814 | | Total Net Sales | $1,192,043 | $1,130,562 | - Commercial Aftermarket sales grew 30.0% in FY2024, driven by the continued recovery in air travel. Military Aftermarket sales increased 10.4%177178 - Operating income for FY2024 decreased to $86.5 million from $195.7 million in FY2023, largely due to a $113.7 million decrease in the gain recognized on the sale of assets and businesses compared to the prior year179181 Business Segment Performance Segment Net Sales (FY2024 vs. FY2023, in thousands) | Segment | FY 2024 | FY 2023 | % Change | | :--- | :--- | :--- | :--- | | Systems & Support | $1,028,425 | $919,351 | +11.9% | | Interiors | $164,440 | $211,647 | -22.3% | Segment Adjusted EBITDAP (FY2024 vs. FY2023, in thousands) | Segment | FY 2024 | FY 2023 | % Change | | :--- | :--- | :--- | :--- | | Systems & Support | $200,074 | $172,415 | +16.0% | | Interiors | $(5,000) | $31,937 | -115.7% | - Systems & Support sales grew across all end markets, driven by commercial OEM and aftermarket recovery. Its Adjusted EBITDAP increased 16.0% due to higher sales volume192196 - Interiors sales declined primarily due to divestitures and exited programs. Excluding these, sales increased 22%. The segment's Adjusted EBITDAP turned negative due to inflationary cost pressures and unfavorable foreign exchange effects193198 Liquidity and Capital Resources - Cash from operating activities was $9.4 million in FY2024, a $61.7 million improvement from a $52.3 million use of cash in FY2023, driven by timing of receivables and payables224 - Net proceeds from the sale of assets and businesses were $713.4 million in FY2024, principally from the sale of Product Support226 - The company used proceeds from the Product Support divestiture to reduce long-term debt by approximately $556.7 million in March 2024, which is expected to reduce interest expense by approximately $44.7 million in fiscal 2025222 - As of March 31, 2024, the company had $392.5 million of cash on hand and approximately $44.1 million available under its Securitization Facility227 Quantitative and Qualitative Disclosures About Market Risk The company manages foreign currency risk with forward contracts, while its primary market risk stems from interest rate changes affecting fixed-rate debt - The company uses foreign currency forward contracts to hedge price risk associated with foreign-denominated payments256 - The primary market risk is from interest rate changes affecting the fair value of the company's fixed-rate long-term debt, though this does not impact the financial statements as the debt is carried at amortized cost257 Financial Statements and Supplementary Data This section presents consolidated financial statements and Ernst & Young's unqualified audit opinion, highlighting critical audit matters on deferred tax assets and pension obligations - The independent auditor, Ernst & Young LLP, issued an unqualified opinion on the consolidated financial statements and the company's internal control over financial reporting as of March 31, 2024261262 - The audit identified two Critical Audit Matters: the realizability of deferred tax assets due to significant judgment in assessing future taxable income, and the measurement of defined benefit pension obligations due to the judgmental nature of actuarial assumptions like discount rates266270 Controls and Procedures Management and Ernst & Young concluded that the company's disclosure controls and internal control over financial reporting were effective as of March 31, 2024 - Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2024517 - Based on the COSO framework, management believes the company maintained effective internal control over financial reporting as of March 31, 2024520 - No changes were made to internal control over financial reporting in the fourth quarter of fiscal 2024 that materially affected, or are reasonably likely to materially affect, internal controls534 Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2024 Proxy Statement - All information required for this item is incorporated by reference from the company's 2024 Proxy Statement539 Executive Compensation Executive compensation information is incorporated by reference from the 2024 Proxy Statement - All information required for this item is incorporated by reference from the company's 2024 Proxy Statement544 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information for beneficial owners and management is incorporated by reference from the 2024 Proxy Statement - All information required for this item is incorporated by reference from the company's 2024 Proxy Statement545 Certain Relationships and Related Transactions, and Director Independence Information on related party transactions and director independence is incorporated by reference from the 2024 Proxy Statement - All information required for this item is incorporated by reference from the company's 2024 Proxy Statement546 Principal Accountant Fees and Services Principal accountant fees and services information is incorporated by reference from the 2024 Proxy Statement - All information required for this item is incorporated by reference from the company's 2024 Proxy Statement547 Part IV Exhibits, Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed with or incorporated by reference into the Form 10-K report - This section contains a list of all financial statements, schedules, and exhibits included with or incorporated by reference into the Form 10-K filing549550