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Excrept from filing document 2025-03-31

As of September 30 2024 the aggregate market value of the shares of Common Stock held by non affiliates of the Registrant was approximately 977 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 30 2024 For purposes of making this calculation only the Registrant has defined affiliates as including all directors and executive officers
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 occurrence of any event change or other circumstances that could give rise to the termination of the Merger Agreement as defined below inability to complete the Merger as defined below because among other reasons conditions to the closing of the proposed transaction may not be satisfied or waived uncertainty as to the timing of completion of the Merger restrictions or prohibitions under certain covenants in the Merger Agreement during the pendency of the Merger that may impact the Company s ability to pursue certain business opportunities potential adverse effects or changes to relationships with customers employees suppliers or other parties resulting from the announcement or completion of the Merger significant costs associated with the Merger potential litigation relating to the Merger that could be or has been instituted against the Company Parent as defined below or their respective directors and officers including the effects of any outcomes related thereto possible disruptions from the proposed transaction that could harm the Company s or Parent s business including current plans and operations the general economic conditions affecting our business segments severe disruptions to the economy the financial markets and the markets in which we compete including as a result of changes in regulations or tariffs 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
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
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 and regional 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 FADEC fuel systems
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
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
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
Our government and defense contracts consist of both sole source and competitive products 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
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 2025 our backlog was approximately 1 90 billion of which 1 54 billion and 0 36 billion related to Systems Support and Interiors respectively including approximately 0 32 billion of Interiors backlog that is based on expected purchase orders from major customers 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 Of the existing backlog of 1 90 billion we estimate approximately 1 19 billion will be shipped by March 31 2026 Refer to Management s Discussion and Analysis of Financial Condition and Results of Operations for further information on our backlog
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 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
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
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
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 of 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
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 from the known physical effects of climate change or as a result of supporting our environmental social and governance Corporate Citizenship 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
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
Several of our subsidiaries are parties to collective bargaining agreements with labor unions Under those agreements we currently employ approximately 465 full time employees Currently approximately 13 of our 3 696 permanent employees are represented by labor unions and approximately 37 of net sales are derived from the facilities at which at least some employees are unionized Of the 465 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
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
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 This rate is measured on a calendar year basis and the table below reflects our results over the three most recent calendar years
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 2025 the Triumph Group Charitable Foundation allocated approximately 0 5 million to approximately 130 recipient organizations These organizations were principally nominated by our employees The Triumph Group Charitable Foundation makes contributions to organizations that are focused on improving our communities supporting veterans and military families and advancing education particularly in the areas of science technology engineering and mathematics STEM
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
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
On February 2 2025 we entered into an Agreement and Plan of Merger the Merger Agreement with Titan BW Acquisition Holdco Inc a Delaware corporation Parent and Titan BW Acquisition Merger Sub Inc a Delaware corporation and a wholly owned subsidiary of Parent Merger Sub Parent and Merger Sub are affiliates of funds managed by Warburg Pincus LLC Warburg Pincus and Berkshire Partners LLC Berkshire
The Merger Agreement provides that among other things and on the terms and subject to the conditions of the Merger Agreement a Merger Sub will merge with and into the Company the Merger with the Company surviving the Merger as a wholly owned subsidiary of Parent and b at the closing of the Merger the Effective Time each share of common stock par value 0 001 per share of the Company the Common Stock issued and outstanding immediately prior to the Effective Time other than i shares of Common Stock owned directly by Parent or Merger Sub or any direct or indirect wholly owned subsidiary of Parent other than Merger Sub ii shares of Common Stock owned by any direct or indirect subsidiary of the Company and iii shares of Common Stock held by any holder who has not voted in favor of the Merger and who is entitled to demand and properly demands appraisal of such Common Stock pursuant to Section 262 of the Delaware General Corporation Law the DGCL and as of the Effective Time has not failed to perfect or not effectively waived withdrawn or lost rights to appraisal under the DGCL will be converted into the right to receive 26 00 in cash without interest and subject to applicable tax withholdings
On April 16 2025 our stockholders approved the Merger Additionally the required waiting period under the Hart Scott Rodino Antitrust Improvements Act of 1976 as amended with respect to the Merger expired at 11 59 p m Eastern Time on March 10 2025 The Company also received the required regulatory approvals under the foreign investment law in the United Kingdom from the UK Investment Security Unit on April 16 2025 and under the EU Merger Regulation from the European Commission on April 25 2025 The Merger is expected to close before or during the second half of calendar year 2025 subject to customary closing conditions including i receipt of required regulatory approvals under certain regulatory laws including applicable foreign direct investment laws in France and Germany and ii the satisfaction or waiver of customary closing conditions set forth in the Merger Agreement
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
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
On February 3 2025 the Company announced that it entered into a Merger Agreement under which affiliates of Warburg Pincus LLC and Berkshire Partners LLC will acquire the Company through a newly formed co owned entity The transaction is expected to close before or during the second half of calendar year 2025 subject to customary closing conditions including receipt of required regulatory approvals There is no assurance that all of the conditions of the Merger Agreement will be satisfied or that the Merger will be completed on the announced terms within the expected timeframe or at all The closing of the Merger may be delayed or the transaction may not be completed due to a number of factors including as a result of the failure to obtain regulatory approval or to satisfy any other requisite closing conditions
If the transaction does not close we could suffer consequences that may have an adverse effect on our business financial condition operating results cash flows and stock price To the extent that the market price of our common stock reflects the assumption that the Merger will be completed the price of our stock could decline The Company may experience adverse effects or changes to relationships with customers employees suppliers or other parties resulting from the failure to complete the Merger There may be potential litigation relating to the Merger that could be instituted against the Company
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 high inflation or the impact of tariffs has had and may in the future have an adverse impact on our results of operations and liquidity 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
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 and developments in the conflict in the Middle East 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 we expect funding for major military programs to remain stable uncertainty remains because defense budgets in fiscal year 2025 and beyond have not been finalized 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 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
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 pricing 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 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 an 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
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 including the impact of new or changing tariffs 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
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
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
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 aircraft components and subassemblies Our OEM customers which include Boeing Airbus BAE Bell Helicopter Bombardier GE Aerospace Gulfstream Honeywell Lockheed Martin Northrop Grumman RTX Corporation 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
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 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
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
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
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
The ongoing conflicts between Ukraine and Russia and developments in the conflict in the Middle East 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
Since February 2025 the U S government has issued several executive orders imposing tariffs on imports from many countries with whom the U S engages in trade In response to those tariffs certain of the impacted countries have announced and in some cases imposed counter tariffs on goods that are imported from the U S We have operations customers and suppliers in the U S Mexico Canada and other countries and regularly import and export goods and services to and from those countries We are pursuing a variety of actions designed to mitigate the potential impact of tariffs including i utilizing available exemptions or exclusions to tariffs such as trade agreements ii implementing a duty drawback program iii evaluating operational and supply chain changes and iv where feasible increasing the prices of our goods and services Despite these countermeasures if the imposition of current tariff levels is sustained we expect our profitability cash flows and estimates inherent in our financial statements to be negatively affected The uncertainty caused by these tariff developments also could materially adversely affect global economic conditions and the stability of global financial markets which could in turn negatively impact our customers suppliers and us
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 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 For example on July 27 2024 the Company identified a cybersecurity incident involving unauthorized access to certain of its information technology systems The Company has since restored the affected information technology systems resumed normal operations and determined that the cybersecurity incident has not had and is not reasonably likely to have a material impact on the Company s financial condition or results of operations
Additionally 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
We are highly dependent on the availability of essential raw materials such as metallics and composites and purchased machined components 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 including late delivery penalties under contracts with our customers and management distraction and adversely affect production schedules and contract profitability
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 tariffs 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
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 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
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
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 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
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 or global instability including tariff implementation 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 losses on programs
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 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
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 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
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
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
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 France Germany Mexico 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
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
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 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
We must comply with all applicable export control laws and regulations of the United States and other countries Rising threats of international tariffs including tariffs applied to goods traded between the U S and jurisdictions in which we do business could materially and adversely affect our business and results of operations
Additionally 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
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
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
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
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 Improper actions by those with whom or through whom we do business including our employees agents subcontractors suppliers or business partners 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 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
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
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 or revised tax law interpretations
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 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
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
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
As of March 31 2025 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
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 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 0 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 75
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 Company believes that the likelihood of further loss is remote and 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 On July 11 2024 TAS and the Company filed a motion to dismiss Qarbon s complaint in its entirety On October 16 2024 Qarbon filed an amended complaint rather than an answering brief On November 22 2024 TAS and the Company filed a motion to dismiss Qarbon s amended complaint The Court of Chancery has not yet ruled on the motion to dismiss
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 Company believes that the likelihood of loss is remote and 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 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
During fiscal 2025 and 2024 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 Pursuant to the terms of the Merger Agreement without the prior written consent of Parent we are prohibited from declaring or paying any dividends on or making any other distributions whether in cash stock or property or any combination thereof in respect of any of our capital stock other equity interests or voting securities other than dividends and distributions by a direct or indirect wholly owned subsidiary of the Company to its parent
In December 1998 we announced a program to repurchase up to 500 000 shares of our common stock In February 2008 the our Board of Directors authorized an increase in our existing stock repurchase program by up to an additional 500 000 shares of its common stock In February 2014 our Board of Directors authorized an increase in our 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 28 2025 we remain 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
Pursuant to the terms of the Merger Agreement without the prior written consent of Parent we are prohibited from repurchasing redeeming or otherwise acquiring or offering to repurchase redeem or otherwise acquire any of our common stock except for acquisitions or deemed acquisitions of our common stock in connection with i the withholding of taxes in connection with the exercise vesting and settlement of equity awards in accordance with the terms thereof as in effect as of the date of the Merger Agreement granted to employees and non employee directors under our stock incentive plans disclosed in Note 16 and ii forfeitures of such equity awards
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 2020 and its relative performance is tracked through March 31 2025
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
On February 2 2025 we entered into a definitive agreement under which affiliates of Warburg Pincus LLC and Berkshire Partners LLC will acquire the Company through a newly formed co owned entity The transaction is expected to close before or during the second half of calendar year 2025 subject to customary closing conditions including receipt of required regulatory approvals Refer to Note 1 for further disclosure
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 ii under certain circumstances Designated Notes as defined in Note 2 Approximately 8 1 million warrants were exercised between 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
The Boeing 737 program represented approximately 9 and 14 of net sales for the fiscal years ended March 31 2025 and 2024 respectively inclusive of both OEM production and aftermarket sales Of the total revenue recognized on the 737 program OEM production revenue represented approximately 70 and 88 for the years ended March 31 2025 and 2024 respectively In January 2025 Boeing publicly disclosed that it had finalized the International Association of Machinists and Aerospace Workers IAM agreement and that production of the 737 had resumed with plans to gradually increase the production rate In April 2025 Boeing publicly disclosed 737 production rates had gradually increased in Boeing s first fiscal quarter and production was still expected to reach 38 per month by the end of calendar year 2025 While the temporary work stoppage had a short term impact on our fiscal 2025 results we do not expect the impact to be material to our results of operations or financial condition in fiscal 2026 and beyond
program OEM production revenue represented approximately 69 and 80 for the years ended March 31 2025 and 2024 respectively We expect net sales on the 787 program to increase in fiscal 2026 and represent more than 10 of net sales In April 2025 Boeing publicly disclosed the 787 program continued to stabilize production at five per month and reaffirmed expectations of an increase to seven per month in calendar 2025 In May 2025 Boeing announced that it had entered into an agreement with Qatar Airways in which the carrier will purchase 130 787 Dreamliners the largest order to date for the 787 program
In March 2024 we completed the sale of third party maintenance repair and overhaul operations located in Wellington Kansas Grand Prairie Texas San Antonio Texas Hot Springs Arkansas and Chonburi Thailand Product Support and recognized a gain in the fourth quarter of fiscal 2024 As a result of this transaction we have classified the Product Support results of operations for all periods presented as discontinued operations and these operations are no longer reported as part of the Systems Support reportable segment As a result and unless specifically stated all discussions regarding results for years ended March 31 2025 and 2024 reflect results from our continuing operations In July 2024 the Company finalized certain purchase price adjustments principally related to the transferred working capital of the divested Product Support operations and recognized a gain of approximately 5 0 million in the year ended March 31 2025 The gain is included within discontinued operations on the accompanying consolidated statement of operations
The following includes a discussion of our consolidated and business segment results of operations for the year ended March 31 2025 compared with the year ended March 31 2024 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 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 can be found under Item 7 in our Annual Report on Form 10 K for the fiscal year ended March 31 2024 filed with the Securities and Exchange Commission the SEC on May 31 2024 and is incorporated by reference
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 income loss from continuing operations before interest and gains or losses on debt modification or extinguishment income taxes amortization of acquired contract liabilities costs incurred pertaining to shareholder cooperation agreements consideration payable to customers related to divestitures legal contingency losses including legal judgments and settlements gains loss on divestitures merger transaction costs 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 income loss from continuing operations In calculating Adjusted EBITDA and Adjusted EBITDAP we exclude from income loss 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 income loss from continuing operations or as an indicator of any other measure of performance derived in accordance with U S GAAP Investors and potential investors in our securities should not rely on Adjusted EBITDA or Adjusted EBITDAP as a substitute for any U S GAAP financial measure including income loss 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 income loss 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 income loss 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 income loss 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 income loss from continuing operations
Commercial OEM sales decreased 7 9 million or 1 5 primarily due to decreased sales volume on the Boeing 737 program and other commercial fixed wing platforms which were partially offset by increased sales on the Boeing 787 program increased business jets volume and a favorable settlement resulting in near term improved pricing in Interiors across multiple programs for fiscal 2025 deliveries
Commercial Aftermarket sales increased 41 3 million or 25 2 primarily due to increased spares sales on Boeing commercial platforms as well as a spare parts intellectual property transaction of approximately 4 6 million in the current year partially offset by decreased spares volumes on the Bell 429 Cessna 525 and the Global G500 platforms as well as a prior year intellectual property transaction of approximately 4 2 million
Military aftermarket sales increased 27 6 million or 15 0 primarily due to increased spares sales across several platforms including the C 130 E 2C CH 47 and CH 53 and a military spare parts intellectual property transaction of approximately 5 0 million Repair and overhaul sales were up modestly primarily due to increased volumes on CH 47 AH 64 and F 15
Consolidated gross profit margin increased to 31 5 for the year ended March 31 2025 from 27 1 for the year ended March 31 2024 The increased mix in aftermarket sales as a percentage of total sales including the net year over year effect of spare parts intellectual property transactions disclosed above and the favorable settlement and increased pricing in Interiors offset challenges from continued inflationary increases in labor and material costs and lower production rates on the Boeing 737 Operating income increased approximately 52 9 million primarily due to the increased margins as well as the prior year divestiture loss of 12 2 million related to the sale of our Stuart Florida manufacturing operations partially offset by the 13 7 million legal contingencies loss disclosed in Note 17 approximately 11 9 million in merger transaction costs related to the Merger Agreement and increased incentive compensation and research and development expenses
Debt modification and extinguishment losses were approximately 5 4 million in the year ended March 31 2025 as compared to 1 7 million in the year ended March 31 2024 The current period extinguishment losses were the result of the redemption of 120 0 million in 2028 First Lien Notes in the three months ended June 30 2024
The income tax expense was 5 6 million for the fiscal year ended March 31 2025 reflecting an effective tax rate of 13 5 During the fiscal year ended March 31 2025 we adjusted the valuation allowance against the consolidated net deferred tax asset by 0 5 million primarily due to utilization of net operating loss carryforwards disallowed interest expense deductions research and development cost amortization and pension and other postretirement benefit plans As of March 31 2025 management determined that it was necessary to maintain a valuation allowance against principally all of our net deferred tax assets
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
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
Net sales increased 90 0 million or 8 7 due to growth across all aviation sales channels Commercial OEM primarily increased due to volumes on 787 business jets and other narrowbody aircraft sales which were partially offset by decreased sales on the 737 program Military OEM grew primarily due to increased volume on F A 18 and multiple military rotorcraft platforms including AH 64 CH 47 CH 53 and UH 60 Commercial aftermarket grew primarily due to increased spares sales on Boeing commercial platforms partially offset by reduced volumes on Bell 429 and Cessna 525 platforms Military aftermarket
grew primarily on increased spares volumes on the E 2 C 130 CH 47 CH 53 UH 60 and other military rotorcraft platforms as well as a spare parts intellectual property transaction of approximately 5 0 million in the current year which were partially offset by reduced spares and repair and overhaul sales on the V 22 and lower spares volume on the AH 64 platform
Adjusted EBITDAP increased by 50 8 million or 25 4 primarily due to the increased mix in aftermarket sales as a percentage of total sales including the net year over year effect of spare parts intellectual property transactions disclosed above These margin benefits were partially offset by continued inflationary increases in labor and material costs increased research and development expense and increased incentive compensation expense
Adjusted EBITDAP increased by approximately 12 8 million primarily due to the favorable settlement and price increases disclosed above partially offset by decreased sales volume and continued inflationary increases in labor and material costs These factors also drove the increase in Adjusted EBITDAP as a percentage of segment sales
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 2025 2024 and 2023 were immaterial
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 2025 we generated cash of 37 9 million from operating activities compared with a net cash inflow of 9 4 million for the fiscal year ended March 31 2024 an improvement of 28 5 million Cash flows were primarily driven by timing of receivables and payables including an increase of approximately 22 2 million in customer advances as of March 31 2025 as compared with March 31 2024 In both fiscal 2025 and 2024 operating cash outflows were used to support inventory increases in response to anticipated increasing demand Interest payments were approximately 90 6 million for the twelve months ended March 31 2025 as compared to approximately 148 0 million for the twelve months ended March 31 2024 with the decrease due to lower debt levels Other significant operating cash flow transactions included
Cash flows used in investing activities for the fiscal year ended March 31 2025 decreased by 711 3 million from the cash flows provided by investing activities for the fiscal year ended March 31 2024 Cash flows used in investing activities for the fiscal year ended March 31 2025 were principally related to capital expenditures of approximately 19 1 million Cash flows provided by investing activities for the year ended March 31 2024 included net proceeds from the sale of assets and businesses of approximately 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 Cash flows used in investing activities for the fiscal year ended March 31 2024 also included capital expenditures of 21 8 million We currently expect capital expenditures in fiscal 2026 to be in the range of 30 0 35 0 million The majority of our planned fiscal 2026 capital expenditures are capital investments designed to improve our manufacturing efficiency and expand our capabilities
Cash flows used in financing activities for the fiscal year ended March 31 2025 were 129 7 million compared with cash flows used in financing activities for the fiscal year ended March 31 2024 of 534 3 million Financing cash flows for the year ended March 31 2025 pertain primarily to our redemption of approximately 120 0 million of our 2028 First Lien Notes at a redemption price equal to 103 of the principal amount redeemed resulting in a premium upon redemption of 3 6 million and draws and subsequent redemption under our securitization facility of 40 0 million Financing cash flows for the year ended March 31 2024 were principally the result of approximately 80 0 million in proceeds net of related transaction costs from Warrant exercises and approximately 608 7 million in debt redemptions As of March 31 2025 we had 277 2 million of cash on hand and approximately 54 2 million was available under the Securitization Facility after giving effect to approximately 20 8 million in outstanding letters of credit all of which were accruing interest at 0 125 per annum
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 to adopt this global minimum tax We have 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 2026 operations to result in net cash inflows however due to cyclicality we anticipate using cash over the first half of fiscal 2026 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 2025 as well as current market conditions that cash flows from operations will be sufficient to meet anticipated cash requirements for our current operations for at least the next 12 months with additional liquidity available under the Securitization Facility or any similar replacement facility we may establish We also believe based on our current cash our fiscal 2026 operating cash flow expectations and the expected expansion of cash flows from operations subsequent to fiscal 2026 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 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 by certain of the Company s domestic restricted subsidiaries the Guarantor Subsidiaries Currently our only domestic 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
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
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 income loss 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
In addition to the financial obligations detailed in the table above we also had obligations related to our benefit plans at March 31 2025 as detailed in the following table Our other postretirement benefits are not required to be funded in advance so benefit payments are paid as they are incurred Our expected net contributions and payments are included in the table below
Our total expected remaining net contributions to our qualified U S defined benefit pension plans in years beyond fiscal 2030 are approximately 20 4 million Current plan documents reserve our right to amend or terminate the plans at any time subject to applicable collective bargaining requirements for represented employees
Critical accounting policies are those accounting policies that can have a significant impact on the presentation of our financial condition and results of operations and that require the use of complex and subjective estimates based upon past experience and management s judgment Because of the uncertainty inherent in such estimates actual results may differ from these estimates Below are those policies applied in preparing our consolidated financial statements that management believes are the most dependent on the application of estimates and assumptions For additional accounting policies refer to Note 2 to the accompanying consolidated financial statements
Our accounting policy regarding revenue recognition is disclosed in Note 2 to the consolidated financial statements As described in Note 2 for certain contracts and performance obligations we are required to exercise judgment when developing assumptions regarding expected total costs to fulfill performance obligations variable consideration and the standalone selling price of a performance obligation Specifically assumptions regarding the total costs require judgment with regard to materials labor and overhead costs that are affected by our ability to achieve technical requirements and schedule requirements as well as our estimation of internal and subcontractor performance projections anticipated volume asset utilization and inflation trends We continually review and update our assumptions based on market trends and program performance When we satisfy a performance obligation and recognize revenue over time material changes in assumptions may result in positive or negative cumulative catch up adjustments related to revenues previously recognized or in some cases forward loss contract reserves
Our results of operations could be affected by significant litigation adverse to the Company including product liability claims patent infringement and claims for third party property damage or personal injury stemming from alleged environmental torts We record accruals for legal matters or other potential loss contingencies when the information available indicates that it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated We make adjustments to these accruals to reflect the impact and status of negotiations settlements rulings advice of counsel and other information or events that may pertain to a particular matter Predicting the outcome of claims and lawsuits and estimating related costs and exposure involves substantial uncertainties that could cause actual costs to vary materially from estimates In making determinations of likely outcomes of litigation matters management considers many factors These factors include but are not limited to the nature of specific claims including unasserted claims our experience with similar types of claims the jurisdiction in which the matter is filed input from outside legal counsel the likelihood of resolving the matter through alternative dispute resolution mechanisms or commercial negotiations and the matter s status Considerable judgment is required in determining whether to establish a contingent loss accrual when an adverse judgment is rendered against the Company in a court proceeding In such situations we will not recognize a loss if based upon a thorough review of all relevant facts and information management believes that it is probable that the pending judgment will be successfully overturned on appeal Refer to Note 17 for further disclosure regarding commitments and contingencies
Certain of our current and former employees participate in defined benefit pension and other postretirement defined benefit plans collectively referred to as defined benefit plans in the United States and the United Kingdom which we sponsor The determination of projected benefit obligations and the recognition of expenses related to defined benefit pension plans are dependent on various assumptions The most significant of these assumptions are the discount rates and the long term expected rates of return on plan assets Actual results that differ from our assumptions are accumulated and amortized for each plan to the extent required over the estimated future life expectancy of plan participants We could be required to make future contributions to our defined benefit pension and postretirement benefit plans as a result of adverse changes in interest rates and the capital markets Adverse changes in the securities markets or interest rates changes in actuarial assumptions and legislative or other regulatory actions could substantially increase the costs of these plans and could result in a requirement to contribute additional funds to the plans The Company regularly explores alternative solutions to meet its global pension obligations in the most cost effective manner possible as demographics life expectancy and country specific pension funding rules change
We develop assumptions using relevant experience in conjunction with market related data for each plan Assumptions are reviewed annually with third party consultants and adjusted as appropriate Refer to Note 15 for details regarding the assumptions used to estimate projected benefit obligations and net periodic benefit cost as they pertain to our defined benefit pension plans
We determine our expected return on plan assets by evaluating both historical returns and estimates of future returns Specifically we consider the plan s actual historical annual return on assets and historical broad market returns over long term time frames based on our strategic allocation which is detailed in Note 15 Future returns are based on independent estimates of long term asset class returns Based on this approach the weighted average long term expected annual rate of return on assets was estimated at 7 93 and 7 94 for fiscal years 2025 and 2024 respectively
The discount rate is used to calculate the present value of expected future benefit payments at the measurement date A decrease in the discount rate increases the present value of benefit obligations and generally decreases pension expense The discount rate assumption is based on current investment yields of high quality fixed income investments during the retirement benefits maturity period The pension discount rate is determined by considering an interest rate yield curve comprising AAA AA bonds with maturities between zero and thirty years developed by the plan s actuaries Annual benefit payments are then discounted to present value using this yield curve to develop a single discount rate matching the plan s characteristics The discount rate assumption will change from measurement date to measurement date as market yields on high quality corporate bonds change
Funded status is derived by subtracting the respective year end values of the projected benefit obligations PBO from the fair value of plan assets The sensitivity of the PBO to changes in the discount rate varies depending on the magnitude and direction of the change in the discount rate Refer to Note 15 for a quantitative sensitivity analysis for the PBO
We follow ASC 740 Income Taxes which prescribes a recognition threshold and measurement attribute criteria for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return as well as guidance on derecognition classification interest and penalties accounting in interim periods disclosure and transition
We recognize deferred tax assets and liabilities based on the differences between the financial statement basis and the tax basis of assets liabilities net operating losses and tax carryforwards A valuation allowance is required to be recognized to reduce the recorded deferred tax asset to the amount that will more likely than not be realized The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income by jurisdiction during the periods in which those temporary differences become deductible or when carryforwards can be utilized We consider the scheduled reversal of deferred tax liabilities projected future taxable income and tax planning strategies in this assessment As of March 31 2025 we have a valuation allowance against substantially all of our net deferred tax assets given the insufficient positive evidence to support the realization of our deferred tax assets A reduction in the valuation allowance could result in a significant decrease in income tax expense in the period that the reduction is recorded However the exact timing and amount of the reduction in our valuation allowance are unknown at this time and will be subject to the earnings level we achieve as well as our projected income in future periods
We are subject to foreign currency exchange rate risk relating to receipts from customers and payments to suppliers in foreign currencies We use foreign currency forward contracts to hedge the price risk associated with forecasted foreign denominated payments related to our ongoing business Foreign currency forward contracts are sensitive to changes in foreign currency exchange rates At March 31 2025 a 10 change in the exchange rate in our portfolio of foreign currency contracts would not have a material impact on the unrecognized gains or losses recognized within operating income Consistent with the use of these contracts to neutralize the effect of exchange rate fluctuations such unrealized losses or gains would be offset by corresponding gains or losses respectively in the remeasurement of the underlying transactions being hedged When taken together these forward currency contracts and the offsetting underlying commitments do not create material market risk
Our exposure to market risk for changes in interest rates relates primarily to our long term debt Our long term debt is carried at amortized cost and fluctuations in interest rates do not impact our consolidated financial statements However the fair value of our outstanding debt which pays interest at a fixed rate will generally fluctuate with movements of interest rates increasing in periods of declining rates of interest and declining in periods of increasing rates of interest The information below summarizes our market risks associated with debt obligations and should be read in conjunction with Note 10 of the notes to the accompanying consolidated financial statements
We have audited the accompanying consolidated balance sheets of Triumph Group Inc the Company as of March 31 2025 and 2024 the related consolidated statements of operations comprehensive income loss stockholders deficit and cash flows for each of the three years in the period ended March 31 2025 and the related notes and financial statement schedule listed in the Index at Item 15 a 2 collectively referred to as the consolidated financial statements In our opinion the consolidated financial statements present fairly in all material respects the financial position of the Company at March 31 2025 and 2024 and the results of its operations and its cash flows for each of the three years in the period ended March 31 2025 in conformity with U S generally accepted accounting principles
We also have audited in accordance with the standards of the Public Company Accounting Oversight Board United States PCAOB the Company s internal control over financial reporting as of March 31 2025 based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission 2013 framework and our report dated May 28 2025 expressed an unqualified opinion thereon
These financial statements are the responsibility of the Company s management Our responsibility is to express an opinion on the Company s financial statements based on our audits We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audits in accordance with the standards of the PCAOB Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement whether due to error or fraud Our audits included performing procedures to assess the risks of material misstatement of the financial statements whether due to error or fraud and performing procedures that respond to those risks Such procedures included examining on a test basis evidence regarding the amounts and disclosures in the financial statements Our audits also included evaluating the accounting principles used and significant estimates made by management as well as evaluating the overall presentation of the financial statements We believe that our audits provide a reasonable basis for our opinion
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that 1 relate to accounts or disclosures that are material to the financial statements and 2 involved our especially challenging subjective or complex judgments The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements taken as a whole and we are not by communicating the critical audit matters below providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate
As described in Note 12 of the consolidated financial statements at March 31 2025 the Company had deferred tax assets for deductible temporary differences and tax attributes of 44 3 million net of a 399 7 million valuation allowance Deferred tax assets are reduced by a valuation allowance if based upon the weight of all available evidence it is more likely than not that some portion or all of the deferred tax assets will not be realized
Auditing the Company s analysis of the realizability of its deferred tax assets required complex auditor judgment because the amounts are material to the financial statements and the assessment process involves significant judgment to determine the future reversal pattern of existing taxable temporary differences and other assumptions of future taxable income that may be affected by future market or economic conditions
We obtained an understanding evaluated the design and tested the operating effectiveness of controls that address the risks of material misstatement relating to the realizability of deferred tax assets This included controls over the scheduling of the future reversal pattern of existing taxable temporary differences that have been identified as a source of future taxable income
To test the Company s assessment of the realizability of deferred tax assets and the resulting valuation allowance our audit procedures included among others testing the Company s calculation of future taxable income from the reversal of existing temporary taxable differences and evaluating the scheduling of the reversal patterns In addition we compared taxable income in prior carryback years if any to the Company s income tax returns considered the feasibility of tax planning strategies and evaluated projected future taxable income exclusive of reversing temporary differences and carryforwards We involved our tax professionals to assist in evaluating the application of tax law including any changes in the tax law in the Company s consideration of the sources of future taxable income
At March 31 2025 the Company s aggregate defined benefit pension obligation was 1 4 billion and the net periodic benefit expense was 13 3 million As described in Note 15 of the consolidated financial statements the Company updates the estimates used to measure the defined benefit pension obligation and plan assets in the fourth quarter and upon a remeasurement event
Auditing the defined benefit pension obligations and the related net periodic benefit expense associated with certain of the Company s defined benefit pension plans required complex auditor judgment and technical expertise due to the judgmental nature of the actuarial assumptions e g discount rate mortality rate expected return on plan assets used in the measurement process These assumptions had a significant effect on the projected benefit obligation and the net periodic benefit expense
We obtained an understanding evaluated the design and tested the operating effectiveness of controls over management s determination of the defined benefit pension obligation calculations the significant actuarial assumptions described above and the data inputs provided to the Company s actuarial specialists associated with certain of the Company s defined benefit pension plans
To test the defined benefit pension benefit obligation and the related net periodic benefit expense associated with certain of the Company s defined benefit pension plans our audit procedures included among others evaluating the methodology used the significant actuarial assumptions described above the underlying data used by management and its actuaries and the appropriateness of management s judgments in applying the authoritative accounting literature We compared the actuarial assumptions used by management to historical trends and evaluated the change in the defined benefit pension from prior year resulting from the change in service cost interest cost benefit payments and actuarial gains and losses In addition we involved our actuarial specialists to assist in evaluating management s methodology for determining the actuarial assumptions For example we evaluated management s methodology for determining the discount rate that reflects the maturity and duration of the benefit payments and is used to measure the defined benefit pension obligation As part of this assessment we compared the projected defined benefit pension cash flows to prior year amounts and compared the current year benefits paid to the prior year projected cash flows To evaluate the mortality rate we assessed whether the information is consistent with publicly available information and whether any market data adjusted for entity specific adjustments were applied We also tested the completeness and accuracy of the underlying data including the participant data provided to the Company s actuarial specialists Lastly to evaluate the expected return on plan assets we assessed whether management s assumptions were consistent with a range of returns for a portfolio of comparative investments
Triumph Group Inc Triumph or the Company is a Delaware corporation which through its operating subsidiaries designs engineers manufactures and sells products for the global aerospace original equipment manufacturers OEMs of aircraft and aircraft components and repairs and overhauls aircraft components and accessories for commercial airline air cargo carrier and military customers on a worldwide basis Triumph and its subsidiaries collectively the Company are organized based on the products and services that they provide The Company has two reportable segments Systems Support and Interiors
Systems Support consists of the Company s operations that provide integrated solutions including design development and support of proprietary components subsystems and systems as well as production of complex assemblies using external designs Capabilities include hydraulic mechanical and electromechanical actuation power and control a complete suite of aerospace gearbox solutions including engine accessory gearboxes and helicopter transmissions active and passive heat exchange technology fuel pumps fuel metering units and Full Authority Digital Electronic Control fuel systems and hydromechanical and electromechanical primary and secondary flight controls As disclosed in Note 3 in December 2023 the Company 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 As a result of this agreement the Company has classified the Product Support results of operations for all periods presented as discontinued operations and these operations are no longer reported as part of the Systems Support reportable segment This transaction closed in March 2024 refer to Note 3 for further disclosure
Interiors consists of the Company s operations that have historically supplied commercial business and regional manufacturers with large metallic structures and continues to supply aircraft interior systems including air ducting and thermal acoustic insulations systems Subsequent to the divestitures disclosed in Note 3 the remaining operations of Interiors are those that supply commercial and regional manufacturers with aircraft interior systems
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes Actual results could differ from those estimates
On February 2 2025 the Company entered into an Agreement and Plan of Merger the Merger Agreement with Titan BW Acquisition Holdco Inc a Delaware corporation Parent and Titan BW Acquisition Merger Sub Inc a Delaware corporation and a wholly owned subsidiary of Parent Merger Sub Parent and Merger Sub are affiliates of funds managed by Warburg Pincus LLC Warburg Pincus and Berkshire Partners LLC Berkshire
The Merger Agreement provides that among other things and on the terms and subject to the conditions of the Merger Agreement a Merger Sub will merge with and into the Company the Merger with the Company surviving the Merger as a wholly owned subsidiary of Parent and b at the closing of the Merger the Effective Time each share of common stock par value 0 001 per share of the Company the Common Stock issued and outstanding immediately prior to the Effective Time other than i shares of Common Stock owned directly by Parent or Merger Sub or any direct or indirect wholly owned subsidiary of Parent other than Merger Sub ii shares of Common Stock owned by any direct or indirect subsidiary of the Company and iii shares of Common Stock held by any holder who has not voted in favor of the Merger and who is entitled to demand and properly demands appraisal of such Common Stock pursuant to Section 262 of the Delaware General Corporation Law the DGCL and as of the Effective Time has not failed to perfect or not effectively waived withdrawn or lost rights to appraisal under the DGCL will be converted into the right to receive 26 00 in cash without interest and subject to applicable tax withholdings
The Merger is expected to close before or during the second half of calendar year 2025 subject to customary closing conditions including among other things receipt of certain regulatory approvals Pursuant to the terms of the Merger Agreement without the prior written consent of Parent we are prohibited from declaring or paying any dividends on or making any other distributions whether in cash stock or property or any combination thereof in respect of any of our capital stock other equity interests or voting securities other than dividends and distributions by a direct or indirect wholly owned subsidiary of the Company to its parent
In November 2023 the Financial Accounting Standards Board FASB issued Accounting Standards Update ASU No 2023 07 Segment Reporting Topic 280 Improvements to Reportable Segment Disclosures ASU 2023 07 which requires disclosure of significant segment expenses and other segment items on an annual and interim basis The Company adopted ASU 2023 07 applying it retrospectively The adoption resulted in additional disclosures in Note 20
In December 2023 the FASB issued ASU No 2023 09 Income Taxes Topic 740 Improvements to Income Tax Disclosures ASU 2023 09 which improves income tax disclosures by requiring 1 consistent categories and greater disaggregation of information in the rate reconciliation and 2 income taxes paid disaggregated by jurisdiction It also includes certain other amendments to improve the effectiveness of income tax disclosures ASU 2023 09 is effective for annual periods beginning after December 15 2024 Early adoption is permitted The ASU indicates that all entities will apply its guidance prospectively with an option for retroactive application to each period in the financial statements ASU 2023 09 is applicable to the Company beginning with the fiscal 2026 Annual Report on Form 10 K and the Company is currently evaluating the impact to its interim and annual report disclosures
In November 2024 the FASB issued ASU No 2024 03 Income Statement Reporting Comprehensive Income Expense Disaggregation Disclosures ASU 2024 03 ASU 2024 03 requires the disclosure of certain cost and expense information included on the consolidated statements of operations on a disaggregated basis The updated guidance is effective for fiscal years beginning after December 15 2026 and interim reporting periods within annual reporting periods beginning after December 15 2027 with early adoption permitted ASU 2024 03 is applicable to the Company beginning with the fiscal 2028 Annual Report on Form 10 K and the Company is currently evaluating the impact to its interim and annual report disclosures
Trade and other receivables are recorded net of an allowance for expected credit losses Trade and other receivables include amounts billed and currently due from customers The Company performs ongoing credit evaluations of its customers and generally does not require collateral The Company pools receivables that share underlying risk characteristics and records the allowance for expected credit losses based on a combination of prior experience current economic conditions and management s expectations of future economic conditions and specific collectibility matters when they arise The Company writes off balances against the allowance for expected credit losses when collectibility is deemed remote The Company s trade and other receivables are exposed to credit risk however the risk is limited due to the diversity of the customer base For the years ended March 31 2025 2024 and 2023 credit loss expense and write offs were immaterial
The Company accounts for goodwill and intangible assets in accordance with ASC 350 Intangibles Goodwill and Other Under ASC 350 goodwill and intangible assets with indefinite lives are not amortized rather they are tested for impairment on at least an annual basis Intangible assets with finite lives are amortized over their useful lives
The Company assesses whether goodwill impairment exists using both the qualitative and quantitative assessments The qualitative assessment involves determining whether events or circumstances exist that indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount including goodwill If based on this qualitative assessment the Company determines it is more likely than not that the fair value of a reporting unit is less than its carrying amount or if the Company elects not to perform a qualitative assessment a quantitative assessment is performed as required by ASC 350 to determine whether a goodwill impairment exists at the reporting unit
The quantitative test is used to compare the carrying amount of the reporting unit s assets to the fair value of the reporting unit If the fair value exceeds the carrying value no further evaluation is required and no impairment loss is recognized If the carrying amount exceeds the fair value then an impairment loss occurs The impairment is measured by using the amount by which the carrying value exceeds the fair value not to exceed the amount of recorded goodwill The determination of the fair value of its reporting units is based among other things on estimates of future operating performance of the reporting unit being valued The Company is required to complete an impairment test for goodwill and record any resulting impairment losses at least annually Changes in market conditions among other factors may have an impact on these estimates and require interim impairment assessments
When performing the quantitative impairment test the Company s methodology includes the use of an income approach which discounts future net cash flows to their present value at a rate that reflects the Company s cost of capital otherwise known as the discounted cash flow method DCF These estimated fair values are based on estimates of future cash flows of the businesses Factors affecting these future cash flows include the continued market acceptance of the products and services offered by the businesses the development of new products and services by the businesses and the underlying cost of development the future cost structure of the businesses and future technological changes The Company also incorporates market multiples for comparable companies in determining the fair value of its reporting units Any such impairment would be recognized in full in the reporting period in which it has been identified The fair value estimates resulting from the application of these methodologies are based on inputs classified within Level 3 of the fair value hierarchy as described below
Finite lived intangible assets are amortized over their useful lives ranging from 10 to 30 years The Company continually evaluates whether events or circumstances have occurred that would indicate that the remaining estimated useful lives of long lived assets including intangible assets may warrant revision or that the remaining balance may not be recoverable Long lived assets are evaluated for indicators of impairment When factors indicate that long lived assets including intangible assets should be evaluated for possible impairment an estimate of the related undiscounted cash flows over the remaining life of the long lived assets including intangible assets is used to measure recoverability based on the primary asset of the asset group Some of the more important factors management considers include the Company s financial performance relative to expected and historical performance significant changes in the way the Company manages its operations negative events that have occurred and negative industry and economic trends If the estimated undiscounted cash flows are less than the carrying amount measurement of the impairment will be based on the difference between the carrying value and fair value of the asset group generally determined based on the present value of expected future cash flows associated with the use of the asset
The Company s revenue is principally from contracts with customers to provide design development manufacturing and support services associated with specific customer programs The Company regularly enters into long term master supply agreements that establish general terms and conditions and may define specific program requirements Many agreements include clauses that provide sole supplier status to the Company for the duration of the program s life Purchase orders or authorizations to proceed are issued pursuant to the master supply agreements Additionally a majority of the Company s agreements with customers include options for future purchases Such options primarily reduce the administrative effort of issuing subsequent purchase orders and generally do not represent material rights granted to customers The Company generally enters into agreements directly with its customers and is the principal in substantially all current contracts
The identification of a contract with a customer for purposes of accounting and financial reporting requires an evaluation of the terms and conditions of agreements to determine whether presently enforceable rights and obligations exist Management considers a number of factors when making this evaluation that include but are not limited to the nature and substance of the business exchange the specific contractual terms and conditions the promised products and services the termination provisions in the contract as well as the nature and execution of the customer s ordering process and how the Company is authorized to perform work Generally presently enforceable rights and obligations are not created until a purchase order is issued by a
Management identifies the promises to the customer Promises are generally explicitly stated in each contract but management also evaluates whether any promises are implied based on the terms of the agreement past business practice or other facts and circumstances Each promise is evaluated to determine if it is a performance obligation A performance obligation is a promise in a contract to transfer a distinct good or service The Company considers a number of factors when determining whether a promise is a distinct performance obligation including whether the customer can benefit from the good or service on its own or together with other resources that are readily available to the customer whether the Company provides a significant service of integrating goods or services to deliver a combined output to the customer or whether the goods or services are highly interdependent The Company s performance obligations consist of a wide range of engineering design services and manufactured components as well as spare parts and repairs for OEMs
The transaction price for a contract reflects the consideration the Company expects to receive for fully satisfying the performance obligations in the contract Typically the transaction price consists solely of fixed consideration but may include variable consideration for contractual provisions such as unpriced contract modifications claims when a legal basis exists cost sharing provisions and other receipts or payments to customers The Company identifies and estimates variable consideration typically at the most likely amount the Company expects to receive from its customers Variable consideration is only included in the transaction price to the extent that the Company has determined that it is probable that a significant reversal of cumulative revenue recognized for the contract will not occur when the uncertainty associated with the variable consideration is resolved and any excess variable consideration above such included amount is considered constrained Consideration paid or payable to a customer is reflected as a reduction in net revenues when the amounts paid are not related to a distinct good or service at the later of when the related revenue is recognized or when the Company pays or promises to pay the consideration to the customer The Company s contracts with customers generally require payment under normal commercial terms after delivery with payment typically required within 30 to 120 days of delivery
The total transaction price is allocated to each of the identified performance obligations using the relative stand alone selling price The objective of the allocation is to reflect the consideration that the Company expects to receive in exchange for the products or services associated with each performance obligation Stand alone selling price is the price at which the Company would sell a promised good or service separately to a customer Stand alone selling prices are established at contract inception and subsequent changes in transaction price are allocated on the same basis as at contract inception When stand alone selling prices for the Company s products and services are not observable the Company uses either the Expected Cost Plus a Margin or Adjusted Market Assessment approaches to estimate stand alone selling price Expected costs are typically derived from the available periodic forecast information
Revenue is recognized when or as control of promised products or services transfers to a customer and is recognized at the amount allocated to each performance obligation associated with the transferred products or services Service sales principally representing repair maintenance and engineering activities are recognized over the contractual period or as services are rendered Sales under long term contracts with performance obligations satisfied over time are recognized using either an input or output method The Company recognizes revenue over time as it performs on these contracts because of the continuous transfer of control to the customer as represented by contractual terms that entitle the Company to the reimbursement of costs plus a reasonable profit for work performed to manufacture products for which the Company has no alternate use or for work performed on a customer owned asset
With control transferring over time revenue is recognized based on the extent of progress toward completion of the performance obligation The Company generally uses the cost to cost input method of progress for its contracts because it best depicts the transfer of control to the customer that occurs as work progresses Under the cost to cost method the extent of progress toward completion is measured based on the proportion of costs incurred to date to the total estimated costs at completion of the performance obligation The Company reviews its cost estimates on contracts on a periodic basis or when circumstances change and warrant a modification to a previous estimate Cost estimates are largely based on negotiated or estimated purchase contract terms historical performance trends and other economic projections Significant factors that influence these estimates include inflationary trends technical and schedule risk internal and subcontractor performance trends business volume assumptions and asset utilization
cumulative effect of the changes on current and prior periods based on a performance obligation s percentage of completion Forward loss reserves for anticipated losses on long term contracts are recorded in full when such losses become evident to the extent required and are included in contract liabilities on the accompanying consolidated balance sheets The Company believes that the accounting estimates and assumptions made by management are appropriate however actual results could differ materially from those estimates
For the fiscal year ended March 31 2023 cumulative catch up adjustments resulting from changes in estimates increased revenue operating income income from continuing operations before income taxes net income and diluted earnings per share continuing operations by approximately 21 208 27 963 27 963 27 963 and 0 39 respectively The cumulative catch up adjustments to operating income for the fiscal year ended March 31 2023 included gross favorable adjustments of approximately 32 699 and gross unfavorable adjustments of approximately 4 736
Revenues for performance obligations that are not recognized over time are recognized at the point in time when control transfers to the customer For performance obligations that are satisfied at a point in time the Company evaluates the point in time when the customer can direct the use of and obtain the benefits from the products and services Generally the shipping terms determine the point in time when control transfers to customers Shipping and handling activities are not considered performance obligations and related costs are included in cost of sales as incurred
The Company updates the estimated transaction price including its assessment of whether an estimate of variable consideration is constrained at the end of each reporting period to represent faithfully the circumstances present at the end of the reporting period and the changes in circumstances during the reporting period Any portion of the change in transaction price that is allocated to satisfied and partially satisfied when control transfers over time performance obligations is recognized as revenue in the period of the transaction price change as a cumulative catch up adjustment
On December 1 2022 the Company s board of directors declared a distribution to holders of the Company s shares of common stock in the form of warrants to purchase shares of common stock the Warrants Holders of common stock received three Warrants for every ten shares of common stock held as of December 12 2022 the Record Date The Company issued approximately 19 5 million Warrants on December 19 2022 to holders of record of common stock as of the close of business on 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 subject to certain anti dilution adjustments Payment for shares of common stock on exercise of Warrants could have been made in i cash or ii under certain circumstances certain of the Company s outstanding notes the Designated Notes
The common stock warrants were accounted for as derivative liabilities in accordance with ASC 815 40 and included within accrued liabilities on the accompanying consolidated balance sheets The Company measured the Warrants at fair value as of the issuance date using a Monte Carlo pricing model a Level 3 fair value measurement as described below due to the level of market activity Inherent in the option pricing simulation are assumptions related to expected stock price volatility expected life and risk free interest rate The Company estimated the volatility of the Warrants based on implied and historical volatility of the Company s common stock The risk free interest rate is based on the U S Treasury zero coupon yield curve on the grant date for a maturity similar to the expected remaining life of the Warrants The expected life of the Warrants was based on the Company s ability to redeem the Warrants subject to a 20 calendar day notice period as well as the automatic acceleration of the Expiration Date following the Price Condition Date During the three months ended December 31 2022 due to increased trading volume the Company began remeasuring outstanding Warrants using the Warrants trading price a Level 1 fair value measurement as described below The Warrants were remeasured at each balance sheet date Warrants remeasurement adjustments were recognized in warrant remeasurement gain net on the accompanying consolidated statements of operations
At distribution the fair value of the Warrants was 19 500 Approximately 7 7 million Warrants were exercised in the year ended March 31 2024 resulting in total cash proceeds net of transaction costs of approximately 79 961 and 8 532 of warrants remeasurement gain was recognized in the year ended March 31 2024 On July 6 2023 the Company redeemed all of the approximately 11 4 million remaining outstanding Warrants for a total redemption price of approximately 11 pursuant to its June
The Company leases office space manufacturing facilities land vehicles and equipment The Company determines if an agreement is or contains a lease at the lease inception date and recognizes right of use assets ROU and lease liabilities at the lease commencement date A ROU asset and corresponding lease liability are not recorded for leases with an initial term of 12 months or less short term leases
ROU assets represent the Company s right to use an underlying asset during the lease term and lease liabilities represent the Company s obligation to make lease payments arising from the lease The determination of the length of lease terms is affected by options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option The existence of significant economic incentive is the primary consideration when assessing whether the Company is reasonably certain of exercising an option in a lease Both finance and operating lease ROU assets and liabilities are recognized at commencement date and measured as the present value of lease payments to be made over the lease term As the interest rate implicit in the lease is not readily available for most of the Company s leases the Company uses its estimated incremental borrowing rate in determining the present value of lease payments The estimated incremental borrowing rate is derived from information available at the lease commencement date The lease ROU asset recognized at commencement is adjusted for any lease payments related to initial direct costs prepayments and lease incentives
For operating leases lease expense is recognized on a straight line basis over the lease term For finance leases lease expense comprises the amortization of the ROU assets recognized on a straight line basis generally over the shorter of the lease term or the estimated useful life of the underlying asset and interest on the lease liability Variable lease payments not dependent on a rate or index are recognized when the event activity or circumstance in the lease agreement upon which those payments are contingent is probable of occurring and are presented in the same line of the consolidated balance sheet as the rent expense arising from fixed payments The Company has lease agreements with lease and non lease components Non lease components are combined with the related lease components and accounted for as lease components for all classes of underlying assets
Defined benefit pension plans are recognized in the consolidated financial statements on an actuarial basis A significant element in determining the Company s pension expense income is the expected long term rate of return on plan assets This expected return is an assumption as to the average rate of earnings expected on the funds invested or to be invested to provide for the benefits included in the projected pension benefit obligation The Company applies this assumed long term rate of return to a calculated value of plan assets which recognizes changes in the fair value of plan assets in a systematic manner over five years This produces the expected return on plan assets that is included in pension expense income The difference between this expected return and the actual return on plan assets is deferred The net deferral of past asset gains losses affects the calculated value of plan assets and ultimately future pension expense income
The Company periodically experiences events or makes changes to its benefit plans that result in curtailment or special charges Curtailments are recognized when events occur that significantly reduce the expected years of future service of present employees or eliminates the benefits for a significant number of employees for some or all of their future service
From time to time the Company may enter into transactions that relieve it of primary responsibility for all or more than a minor portion of certain of its pension benefit obligations When these transactions are effected through an irrevocable action that relieves the Company of primary responsibility for its pension or other postretirement benefit obligations and eliminates significant risks related to the obligation and the related assets used to effect the transaction they are considered settlements as defined by ASC 715 Compensation Retirement Benefits When a transaction meets the definition of a settlement at the time of settlement the Company recognizes as a gain or loss the pro rata amount of the net gain or loss in accumulated other comprehensive loss based on the proportion of the projected benefit obligation settled to the total projected benefit obligation
As required under ASC 715 the Company remeasures plan assets and obligations during an interim period whenever a significant event occurs that results in a material change in the net periodic pension cost The determination of significance is based on judgment and consideration of events and circumstances impacting the pension costs
At March 31 of each year the Company determines the fair value of its pension plan assets as well as the discount rate to be used to calculate the present value of plan liabilities The discount rate is an estimate of the interest rate at which the pension benefits could be effectively settled In estimating the discount rate the Company looks to rates of return on high quality fixed income investments currently available and expected to be available during the period to maturity of the pension benefits The Company uses a portfolio of fixed income securities which receive at least the second highest rating given by a recognized ratings agency
Contingencies are existing conditions situations or circumstances involving uncertainty as to possible gain or loss that will ultimately be resolved when future events occur or fail to occur Such contingencies include but are not limited to environmental obligations litigation regulatory investigations and proceedings product quality and gains or losses resulting from other events and developments Liabilities for loss contingencies are accrued in the amount of the Company s best estimate for the ultimate loss when a loss is considered probable of having been incurred and is reasonably estimable When there appears to be a range of possible costs with equal likelihood liabilities are based on the low end of such range Disclosure is provided for material loss contingencies when a loss is probable but a reasonable estimate cannot be made and when it is reasonably possible that a loss will be incurred or the amount of a loss will exceed the recorded provision The Company regularly reviews contingencies to determine whether the likelihood of loss has changed and to assess whether a reasonable estimate of the loss or range of loss can be made Contingencies that might result in gains are generally not accrued until the contingencies are resolved and the gain is realized or realizable Refer to Note 17 for further disclosure
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date When determining fair value measurements for assets and liabilities required to be recorded at fair value the Company considers the principal or most advantageous market in which it would transact and also considers assumptions that market participants would use when pricing an asset or liability The fair value hierarchy has three levels of inputs that may be used to measure fair value Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities Level 2 Unadjusted quoted prices in active markets for similar assets or liabilities or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active or inputs other than quoted prices that are observable for the asset or liability and Level 3 Unobservable inputs for the asset or liability The Company has applied fair value measurements when measuring the warrants refer to the above disclosure when disclosing the fair value of its long term debt not recorded at fair value see Note 10 and when measuring its pension and postretirement plan assets see Note 15
The Company accounts for income taxes using the asset and liability method The asset and liability method requires recognition of deferred tax assets and liabilities for expected future tax consequences of temporary differences that currently exist between tax bases and financial reporting bases of the Company s assets and liabilities A valuation allowance is provided on deferred taxes if it is determined that it is more likely than not that the asset will not be realized
Management judgment is required to determine the amount of benefit to be recognized in relation to an uncertain tax position The Company uses a two step process to evaluate tax positions The first step requires an entity to determine whether it is more likely than not greater than 50 chance that the tax position will be sustained The second step requires an entity to recognize in the financial statements the benefit of a tax position that meets the more likely than not recognition criterion The amounts ultimately
paid upon resolution of issues raised by taxing authorities may differ materially from the amounts accrued and may materially impact the financial statements of the Company in future periods The Company recognizes penalties and interest accrued related to income tax liabilities in the provision for income taxes on its consolidated statements of operations
A reserve has been established to provide for the estimated future cost of assurance type warranties on our delivered products The Company periodically reviews the reserves and adjustments are made accordingly A provision for warranty on products delivered is made on the basis of historical experience and identified warranty issues Warranties cover such factors as non conformance to specifications and defects in material and workmanship The majority of the Company s agreements include a three year warranty although certain programs have warranties up to 20 years Warranty provisions and expenditures were immaterial for the years ended March 31 2025 2024 and 2023 Warranty reserves are included in accrued expenses and other noncurrent liabilities on the consolidated balance sheets Refer to Note 8 and Note 11 for warranty reserve balances as of March 31 2025 and 2024
In November 2021 the Company entered into an agreement with the DOT under the AMJP for a grant of up to 21 259 The receipt of the full award was primarily conditioned upon the Company committing to not furlough or lay off a defined group of employees during the six month period of performance between November 2021 and May 2022 The Company received approximately 19 400 under the agreement of which approximately 8 770 was received in the year ended March 31 2023 In July 2022 the Company received a letter from the DOT confirming that the Company had satisfied the reporting requirements under the AMJP In the year ended March 31 2023 the Company recognized as a reduction in cost of sales approximately 4 700 resulting from this grant
In December 2023 the Company s Board of Directors committed to a plan and the Company entered into a definitive agreement with AAR to sell Product Support for cash proceeds of 725 000 subject to adjustments related to the closing balance sheet and certain transaction expenses This transaction closed on March 1 2024 and the Company recognized a gain of approximately 548 250 net of transaction costs and certain other purchase price adjustments In July 2024 the Company finalized certain purchase price adjustments principally related to the transferred working capital of the divested operations and recognized a gain of approximately 5 018 in the year ended March 31 2025 The gain is included within discontinued operations on the accompanying consolidated statement of operations
Product Support companies provided aftermarket maintenance repair and overhaul solutions for commercial regional and military aircraft As a result of this transaction effective in the third quarter of fiscal 2024 we classified our results of operations for all periods presented to reflect Product Support as discontinued operations Under the terms of the purchase agreement we guaranteed the performance of certain of the divested legal entities pursuant to pre existing performance guarantee agreements covering contracts with specific customers existing at the closing date With the exception of a small number of contracts these contracts have been fully satisfied as of March 31 2025 and any remaining contracts associated with pre existing performance guarantee agreements are expected to be 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 such claims exceed an aggregate amount of 1 000 Other than these guarantees a short term transition services agreement commercial purchases and sales which are not significant and are entered into in the ordinary course of business and other customary short term transitional activities the Company has had no further continuing involvement with Product Support
The Company s accounting policy to allocate to discontinued operations other consolidated interest that is not directly attributable to or related to other operations of the entity based on the ratio of net assets to be sold or discontinued less debt that is required to be paid as a result of the disposal transaction to the sum of total net assets of the consolidated group plus consolidated debt adjusted for debt that will be assumed by the buyer debt that is required to be paid as a result of the disposal transaction and debt that can be directly attributed to other operations of the entity In applying the above policy the Company allocated interest expense to discontinued operations of approximately 21 857 and 21 619 in the years ended March 31 2024 and 2023 respectively
The accompanying consolidated statements of cash flows do not present cash flows from discontinued operations separately from cash flows from continuing operations Capital expenditures and other operating and investing noncash items of the discontinued operations for the years ended March 31 2025 2024 and 2023 were immaterial
In January 2022 the Company s Board of Directors committed to a plan to sell its manufacturing operations located in Stuart Florida In February 2022 the Company entered into a definitive agreement with the buyer of these manufacturing operations This transaction closed in July 2022 The Company recognized a gain of approximately 96 800 net of transaction costs in fiscal year 2023 which is presented on the accompanying consolidated statements of operations within loss gain on sale of assets and businesses for the year ended March 31 2023 In the year ended March 31 2024 the Company paid 6 800 to the buyer of the Stuart manufacturing operations and recognized a loss of approximately 3 900 due to 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 Additionally in the year ended March 31 2024 the Company recognized a loss on sale of approximately 8 300 related to an adjustment that would have reduced the fiscal 2023 gain on sale Other claims for indemnification with the Buyer of the Stuart facility refer to Note 17 remain outstanding The operating results of the Stuart Florida manufacturing operations are included within the Interiors reportable segment through the date of divestiture
The Company disaggregates revenue based on the method of measuring satisfaction of the performance obligation either over time or at a point in time Additionally the Company disaggregates revenue based on the end market where products and services are transferred to the customer The Company s principal operating segments and related revenue are discussed in Note 20 Segments
Contract assets primarily represent revenues recognized for performance obligations that have been satisfied or partially satisfied but for which amounts have not been billed This typically occurs when revenue is recognized over time but the Company s contractual right to bill the customer and receive payment is conditional upon the satisfaction of additional performance obligations in the contract such as final delivery of the product Contract assets are typically derecognized when billed in accordance with the terms of the contract The Company pools contract assets that share underlying risk characteristics and records an allowance for expected credit losses based on a combination of prior experience current economic conditions and management s expectations of future economic conditions and specific collectibility matters when they arise Contract assets are presented net of this reserve on the accompanying consolidated balance sheets For the years ended March 31 2025 2024 and 2023 credit loss expense and write offs related to contract assets were immaterial
Contract liabilities are recorded when customers remit contractual cash payments in advance of the Company satisfying performance obligations under contractual arrangements including those with performance obligations to be satisfied over a period of time Contract liabilities other than those pertaining to forward loss reserves are derecognized when or as revenue is recognized
Contract modifications can also impact contract asset and liability balances When contracts are modified to account for changes in contract specifications and requirements the Company considers whether the modification either creates new or changes the existing enforceable rights and obligations When contract modifications include additional performance obligations that are distinct and at relative stand alone selling price they are accounted for as a new contract and performance obligation and are recognized prospectively Contract modifications that are for goods or services that are not distinct from the existing contract due to the significant integration with the original good or service provided are accounted for as if they were part of that existing contract For such contracts the effect of a contract modification on the transaction price and the Company s measure of progress for the performance obligations is recognized as an adjustment to revenue either as an increase in or a reduction of revenue on a cumulative catch up basis When contract modifications do not include additional performance obligations but the remaining goods and services are distinct from those already provided the Company treats the modification as the termination of the existing contract and the creation of a new contract and the total remaining transaction price is allocated to the remaining performance obligations using the relative stand alone selling price as of the date of the modification and is recognized prospectively
The change in contract assets is the result of amounts billed in excess of revenue recognized during the year ended March 31 2025 The change in contract liabilities was the result of the receipt of additional customer advances in excess of revenue recognized during the year ended March 31 2025 For the period ended March 31 2025 the Company recognized 29 630 of revenue that was included in the contract liability balance at the beginning of the period
Customers generally contract with the Company for requirements in a segment relating to a specific program and the Company s performance obligations consist of a wide range of engineering design services and manufactured components as well as spare parts and repairs A single contract may contain multiple performance obligations consisting of both recurring and nonrecurring elements
As of March 31 2025 the Company has the following unsatisfied or partially unsatisfied performance obligations that are expected to be recognized in the future as noted in the table below Such amounts do not include contract consideration that is excluded from the estimated transaction price of contracts due to constraints of variable consideration as described in Note 2 The Company expects options to be exercised in addition to the amounts presented below
Inventories are carried at the lower of cost average cost or specific identification methods or net realizable value The Company expenses general and administrative costs related to products and services provided under commercial terms and conditions as incurred The Company determines the cost of inventories sold by the first in first out or average cost methods
Property and equipment which include equipment under finance lease and leasehold improvements are recorded at cost and depreciated over the estimated useful lives of the related assets or the lease term if shorter in the case of leasehold improvements using the straight line method Buildings and improvements are depreciated over a period of 15 to 40 years and machinery and equipment are depreciated over a period of 7 to 15 years except for furniture fixtures and computer equipment which are depreciated over a period of 3 to 10 years
Amortization expense for the fiscal years ended March 31 2025 2024 and 2023 was 8 908 8 893 and 10 692 respectively Amortization expense for the five fiscal years succeeding March 31 2025 by year is expected to be as follows 2026 8 916 2027 7 967 2028 7 304 2029 6 429 2030 6 429 and thereafter 19 146
In connection with the Securitization Facility the Company sells on a revolving basis certain eligible accounts receivable to Triumph Receivables LLC a wholly owned special purpose entity which in turn sells a percentage ownership interest in the receivables to commercial paper conduits sponsored by financial institutions The Company is the servicer of the trade accounts receivable under the Securitization Facility Interest rates are based on the Bloomberg Short Term Bank Yield Index BSBY plus a 2 25 fee on the drawn portion and a fee ranging from 0 45 to 0 50 on the undrawn portion of the Securitization Facility The drawn fee may be reduced to 2 00 depending on the credit rating of the Company Collateralized letters of credit incur fees at a rate of 0 125 The Company secures its trade accounts receivable which are generally non interest bearing in transactions that are accounted for as borrowings pursuant to ASC 860 Transfers and Servicing The Company has established a letter of credit facility under the Securitization Facility Under the provisions of the letter of credit facility the Company may request the Securitization Facility s administrator to issue one or more letters of credit that will expire no later than 12 months after the date of issuance extension or renewal as applicable
On March 14 2023 the Company issued 1 200 000 principal amount of 9 000 Senior Secured First Lien Notes due March 15 2028 pursuant to an indenture among the Company the Guarantor Subsidiaries and U S Bank National Association as trustee the 2028 First Lien Notes The 2028 First Lien Notes were sold at 100 of the principal amount and have an effective interest yield of 9 000 Interest is payable semi annually in cash in arrears on March 15 and September 15 of each year commencing on September 15 2023 In the twelve months ended March 31 2024 the Company recognized a gain of approximately 3 400 related to an adjustment to its deferred debt issuance costs a portion of which related to fiscal 2023 The total issuance costs incurred in connection with the issuance of the 2028 First Lien Notes were approximately 23 000 which were deferred and are being amortized over the term of the 2028 First Lien Notes
The 2028 First Lien Notes are guaranteed on a full senior joint and several basis by each of the Guarantor Subsidiaries In the future each of the Company s domestic restricted subsidiaries other than any domestic restricted subsidiary that is a receivable subsidiary that 1 is not an immaterial subsidiary 2 becomes a borrower under any of its material debt facilities or 3 guarantees a any of the Company s indebtedness or b any indebtedness of the Company s domestic restricted subsidiaries in the case of either a or b incurred under any of the Company s material debt facilities will guarantee the 2028 First Lien Notes Under certain circumstances the guarantees may be released without action by or consent of the holders of the 2028 First Lien Notes
The 2028 First Lien Notes and the guarantees are secured subject to permitted liens by first priority liens on substantially all of the Company s and the Guarantor Subsidiaries assets including certain of the Company s real estate assets whether now owned or hereafter acquired other than certain excluded property which liens will secure permitted additional first lien obligations on a pari passu basis subject to the Collateral Trust Agreement the Collateral Under certain circumstances the Collateral may be released without action by or the consent of the holders of the 2028 First Lien Notes The 2028 First Lien Notes and the guarantees will not be secured by the assets of Non Guarantor Subsidiaries which include the unrestricted subsidiaries to whom certain of the Company s accounts receivables are and may in the future be sold to support borrowing under the Securitization Facility
A collateral trust agreement the Collateral Trust Agreement among the Company the Guarantor Subsidiaries the Collateral Trustee and U S Bank National Association in its capacity as the trustee for the 2028 First Lien Notes sets forth therein the relative rights with respect to the Collateral as among the trustee for the 2028 First Lien Notes and certain subsequent holders of first lien obligations and covering certain other matters relating to the administration of security interests The Collateral Trust Agreement generally controls substantially all matters related to the Collateral including with respect to decisions distribution of proceeds or enforcement Pursuant to the Collateral Trust Agreement on the issue date of the 2028 First Lien Notes the Collateral Trustee will control certain matters related to the Collateral that the Collateral Trust Agreement specifies are in its discretion If the Company incurs certain types of additional first lien obligations the Controlling First Lien Holders as defined in the Collateral Trust Agreement will have the right to control decisions relating to the Collateral that are outside the Collateral Trustee s discretion under the Collateral Trust Agreement and the 2028 Note holders may no longer be in control of such decisions
The Company may redeem the 2028 First Lien Notes in whole or in part at any time or from time to time on or after March 15 2025 at specified redemption prices plus accrued and unpaid interest if any to the redemption date At any time or from time to time prior to March 15 2025 the Company may redeem the 2028 First Lien Notes in whole or in part at a redemption price equal to 100 of their principal amount plus a make whole premium together with accrued and unpaid interest if any to the redemption date In addition the Company may redeem up to 40 of the aggregate principal amount of the outstanding 2028 First Lien Notes prior to March 15 2025 with the net cash proceeds from certain equity offerings at a redemption price equal to 109 000 of their principal amount together with accrued and unpaid interest if any to the redemption date
The 2028 First Lien Notes Indenture contains covenants that among other things limit the ability of the Company and its restricted subsidiaries to i incur additional indebtedness ii pay dividends or make other distributions iii make other restricted payments and investments iv create liens v incur restrictions on the ability of restricted subsidiaries to pay dividends or make certain other payments vi sell assets including capital stock of restricted subsidiaries vii enter into sale and leaseback transactions viii merge or consolidate with other entities and ix enter into transactions with affiliates In addition the 2028 First Lien Notes Indenture requires among other things the Company to provide financial and current reports to holders of the 2028 First Lien Notes or file such reports electronically with the SEC These covenants are subject to a number of exceptions limitations and qualifications set forth in the Indenture as well as suspension periods in certain circumstances
In March 2024 using approximately 129 827 of the proceeds from the sale of Product Support the Company redeemed 120 000 principal amount of 2028 First Lien Notes at a purchase price of 103 of the aggregate principal amount plus accrued and unpaid interest and repurchased in an asset sale tender offer 1 110 principal amount of 2028 First Lien Notes at a purchase price of 100 of the aggregate principal amount plus accrued and unpaid interest This redemption resulted in a debt extinguishment loss of approximately 5 463 in the year ended March 31 2024
In May 2024 the Company redeemed an additional 120 000 of its 2028 First Lien Notes at a redemption price equal to 103 of the principal amount redeemed plus accrued and unpaid interest to but not including the redemption date This redemption resulted in a debt extinguishment loss of approximately 5 369 in the year ended March 31 2025
On August 17 2017 the Company issued 500 000 principal amount of 7 750 Senior Notes due August 15 2025 the 2025 Notes In the year ended March 31 2023 following the Warrants issuance on December 19 2022 976 in principal amount of 2025 Notes were used to pay the exercise price for approximately 0 1 million Warrants Resulting extinguishment losses from the write off of deferred debt issuance costs in the year ended March 31 2023 were immaterial
In the year ended March 31 2024 approximately 13 404 in principal amount of the 2025 Notes were used to pay the exercise price for approximately 0 9 million Warrants In August 2023 the Company executed a 10b5 1 repurchase plan agreement with a third party the Agent granting the Agent the authority to repurchase on the open market up to 50 000 in principal amount of the 2025 Notes subject to specific conditions including daily volume and market prices Pursuant to this agreement in the year ended March 31 2024 the Company used approximately 48 062 to redeem 50 000 principal amount of the 2025 Notes In March 2024 using approximately 437 590 of the proceeds from the sale of Product Support the Company redeemed the remaining outstanding 435 621 principal amount of 2025 Notes plus accrued and unpaid interest The extinguishment gains on these transactions totaled approximately 500 in the year ended March 31 2024
During the year ended March 31 2023 the Company sold intellectual property that required redemption of 19 340 of the outstanding principal balance and payment of a premium of approximately 1 287 On March 14 2023 the Company used 1 068 831 of the proceeds from the issuance of the 2028 First Lien Notes i to call all outstanding 2024 First Lien Notes ii to acquire a portion of the 2024 Second Lien Notes that the Company had offered to purchase as part of a tender offer and iii to redeem the balance of the 2024 Second Lien Notes that were not tendered in such tender offer The Company recognized additional net extinguishment losses of approximately 31 600 upon these redemptions and repurchases
The Company follows ASC 740 Income Taxes which prescribes a recognition threshold and measurement attribute criteria for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return as well as guidance on derecognition classification interest and penalties disclosure and transition The Company s policy is to release the tax effects from accumulated other comprehensive loss when all of the related assets or liabilities that gave rise to the accumulated other comprehensive loss income have been derecognized The Company has elected to treat global intangible low taxed income GILTI as a period expense
A valuation allowance if needed reduces deferred tax assets to the amount expected to be realized When determining the amount of net deferred tax assets that are more likely than not to be realized the Company assesses all available positive and negative evidence This evidence includes but is not limited to prior earnings history expected future earnings carry back and carry forward periods and the feasibility of ongoing tax strategies that could potentially enhance the likelihood of the realization of a deferred tax asset The weight given to the positive and negative evidence is commensurate with the extent the evidence may
be objectively verified As such it is generally difficult for positive evidence regarding projected future taxable income exclusive of reversing taxable temporary differences to outweigh objective negative evidence of recent financial reporting losses Based upon our analysis of our historical operating results as well as projections of our future taxable income during the periods in which the temporary differences will be recoverable management believes the uncertainty regarding the realization of our net deferred tax assets requires a full valuation allowance against such net assets as of March 31 2025
During fiscal year 2025 the Company adjusted the valuation allowance against the consolidated net deferred tax asset by 491 primarily due to utilization of net operating loss carryforwards disallowed interest expense deductions research and development cost amortization and pension and other postretirement benefit plans As of March 31 2025 management determined that it was necessary to maintain a valuation allowance against principally all of its net deferred tax assets
As of March 31 2025 the Company has net operating loss carryforwards of 65 751 1 279 655 and 182 853 for U S federal state and foreign jurisdictions respectively All Federal net operating losses have an indefinite carryforward period State net operating losses began to expire in 2025 with a portion classified as indefinite Approximately 6 357 of foreign net operating losses begin to expire in 2027 and 176 496 have an indefinite carryforward period
At March 31 2025 cumulative undistributed earnings of foreign subsidiaries for which no U S income or foreign withholding taxes have been recorded is 119 926 As the Company currently intends to indefinitely reinvest all such earnings no provision has been made for income taxes that may become payable upon distribution of such earnings and it is not practicable to determine the amount of the related unrecognized deferred income tax liability
As of March 31 2025 and 2024 the total amount of unrecognized tax benefits was 12 268 and 12 281 respectively all of which would impact the effective rate if recognized The Company anticipates that total unrecognized tax benefits may be reduced by zero in the next 12 months With a few exceptions the Company is no longer subject to U S federal state or local income tax examinations or foreign income tax examinations by tax authorities for fiscal years ended before March 31 2014
In March 2025 the Company amended the Plan to among other things i extend the expiration date from March 13 2025 to March 13 2028 subject to other earlier termination events including if stockholder approval of the amendment has not been obtained by March 13 2026 and ii take into account the pending Merger The Rights also will expire i if the Rights are redeemed or exchanged as provided in the Plan ii if the Board determines that the Plan is no longer necessary or desirable for the preservation of the Tax Benefits iii if the Board determines that no Tax Benefits once realized as applicable may be carried forward in which case the Rights will expire on the first date of the relevant taxable year for which such determination is made or iv automatically immediately prior to the effective time of the Merger
Pursuant to the Plan if a stockholder or group becomes a 4 9 stockholder without meeting certain customary exceptions the Rights become exercisable and entitle stockholders other than the 4 9 stockholder or group causing the rights to become exercisable to purchase additional shares of Triumph at a significant discount resulting in significant dilution in the economic
interest and voting power of the 4 9 stockholder or group causing the Rights to become exercisable Stockholders owning 4 9 or more of Triumph s outstanding shares at the time the Plan was adopted were grandfathered and will only cause the Rights to distribute and become exercisable if they acquire an additional one percent or more of Triumph s outstanding shares Under the Plan the Board has the ability to determine in its sole discretion that any person shall not be deemed an acquiring person and therefore that the Rights shall not become exercisable if such person becomes a 4 9 stockholder In connection with the Merger Agreement the Board exempted Parent and Merger Sub from the definition of an acquiring person conditioned upon the consummation of the Merger The adoption of the Plan and the dividend distribution did not have an impact on the Company s consolidated financial statements
In 2014 the Company s Board of Directors authorized an increase in the Company s existing stock repurchase program by up to 5 000 000 shares of its common stock in addition to the 500 800 shares authorized under prior authorizations As of March 31 2025 the Company remains able to purchase an additional 2 277 789 shares 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
The calculation of basic earnings per share is based on income loss from continuing operations income from discontinued operations or net income loss divided by the weighted average number of common shares considered outstanding during the periods The calculation of diluted earnings per share reflects the effect of all potentially dilutive securities principally outstanding warrants and outstanding restricted stock units and is based on income loss from continuing operations income from discontinued operations or net income loss divided by the diluted weighted average number of common shares considered outstanding during the periods As disclosed in Note 2 the Warrants permitted the tendering of Designated Notes in payment of the exercise price In computing diluted earnings per share the Company applies the if converted method to the warrants and such warrants are assumed to be exercised and the Designated Notes are assumed to be tendered unless tendering cash would be more advantageous to the warrant holder Interest net of tax on any Designated Notes assumed to be tendered is added
back as an adjustment to the income loss from continuing operations numerator as the warrants are transactions related to continuing operations The income loss from continuing operations numerator is also adjusted for any nondiscretionary adjustments based on income net of tax including for example warrant remeasurement gains and losses recognized in the period If cash exercise is more advantageous the Company applies the treasury stock method to the warrants when calculating diluted earnings per share
The Company sponsors a defined contribution 401 k plan under which salaried and certain hourly employees may defer a portion of their compensation Eligible participants may contribute to the plan up to the allowable amount as determined by the plan of their regular compensation before taxes The Company generally matches contributions at a rate of 75 of the first 6 of compensation contributed by the participant All contributions and Company matched contributions are invested at the direction of the employee in one or more investment options offered under the plan Company matching contributions vest immediately and aggregated to 8 057 9 143 and 9 329 for the fiscal years ended March 31 2025 2024 and 2023 respectively
The Company sponsors several defined benefit pension plans covering some of its employees Most employees are ineligible to participate in the plans or have ceased to accrue additional benefits under the plans based upon their service to the Company or years of service accrued under the defined benefit pension plans Benefits under the defined benefit plans are based on years of service and for most non represented employees on average compensation for certain years It is the Company s policy to fund at least the minimum amount required for all qualified plans using actuarial cost methods and assumptions acceptable under applicable government regulations by making payments into a separate trust The Company has in the past contributed and may in the future contribute shares of its common stock to this separate trust which would reduce cash contributions required by the Company
In addition to the defined benefit pension plans the Company provides other postretirement benefits OPEB in the form of certain healthcare benefits for eligible retired employees Such benefits are unfunded as of March 31 2025 No active employees are eligible for these benefits The vast majority of eligible retirees receive a fixed dollar benefit they can use to purchase healthcare services A small number of eligible retirees receive traditional retiree medical benefits for which the Company pays all premiums All retirees who are eligible for these traditional benefits are Medicare eligible Current plan documents reserve the right to amend or terminate the plans at any time subject to applicable collective bargaining requirements for represented employees
In accordance with the Compensation Retirement Benefits topic of ASC 715 the Company has recognized the funded status of the benefit obligation as of March 31 2025 and 2024 on the accompanying consolidated balance sheets The funded status is measured as the difference between the fair value of the plans assets and the pension benefit obligation or accumulated postretirement benefit obligation of the plan The majority of the plan assets are publicly traded investments which were valued based on the market price as of the measurement date Investments that are not publicly traded were valued based on the estimated fair value of those investments based on the Company s evaluation of data from fund managers and comparable market data or using the net asset value as a practical expedient
The following tables set forth the Company s consolidated defined benefit pension plans for its union and non union employees as of March 31 2025 and 2024 and the amounts recorded on the consolidated balance sheets at March 31 2025 and 2024 Company contributions include amounts contributed directly to plan assets and indirectly as benefits paid from the Company s assets Benefit payments reflect the total benefits paid from the plans and the Company s assets Information on the plans includes both the domestic qualified and nonqualified plans and the foreign qualified plans
The discount rate is determined annually as of each measurement date based on a review of yield rates associated with long term high quality corporate bonds At the end of each year the discount rate is primarily determined using the results of bond yield curve models based on a portfolio of high quality bonds matching notional cash inflows with the expected benefit payments for each significant benefit plan
The expected return on plan assets is determined based on a market related value of assets MRVA which is a smoothed asset value For fixed income securities the MRVA is determined using the fair value of the fixed income assets For all other classes of pension assets the MRVA is calculated by recognizing investment performance that is different from that expected on a straight line basis over five years Actuarial gains and losses are amortized over the average remaining life expectancy of inactive participants for plans that are predominantly inactive and over the expected future service for active participants for other plans but only to the extent unrecognized gains or losses exceed a corridor equal to 10 of the greater of the projected benefit obligation or market related value of assets
The Company estimates the service and interest cost of its pension and OPEB plans by using the specific spot rates derived from the yield curve used to discount the cash flows reflected in the measurement of the benefit obligation The Company believes this approach provides a precise measurement of service and interest costs due to the correlation between projected benefit cash flows to the corresponding spot yield curve rates
During the fiscal year ended March 31 2025 the Society of Actuaries SOA did not release a new mortality projection scale due to the continued uncertainty of the impact of the COVID 19 pandemic on the long term mortality rate however the SOA did provide observations on recent U S population mortality experience with a comparison relative to the most recent projection scale MP 2021 The Company elected to adjust Scale MP 2021 based on the SOA s recent observations of broad mortality experience In addition the Company elected to change the base mortality table to incorporate two additional years of actual plan experience for non represented participants through September 30 2024 and adjusted experience to reflect the September 2024 annuity purchase described below
As required under ASC 715 the Company remeasures plan assets and obligations during an interim period whenever a significant event occurs that results in a material change in the net periodic pension cost The determination of significance is based on judgment and consideration of events and circumstances impacting the pension costs
Pension plan assets are invested in various asset classes that are expected to produce a sufficient level of diversification and investment return over the long term The investment goals are to exceed the assumed actuarial rate of return over the long term within reasonable and prudent levels of risks and to meet future obligations
Asset liability studies are conducted on a regular basis to provide guidance in setting investment goals for the pension portfolio and its asset allocation The asset allocation aims to prudently achieve a strong risk adjusted return while seeking to minimize funding level volatility and improve the funded status of the plans The pension plans currently employ a liability driven investment LDI approach where assets and liabilities move in the same direction The goal is to limit the volatility of the funding status and cover part but not all of the changes in liabilities Most of the liabilities changes are due to interest rate movements
To balance expected risk and return allocation targets are established and monitored against acceptable ranges All investment policies and procedures are designed to ensure that the plans investments are in compliance with the Employee Retirement Income Security Act of 1974 ERISA Guidelines are established defining permitted investments within each asset class Each investment manager has contractual guidelines to ensure that investments are made within the parameters of their asset class or in the case of multi asset class managers the parameters of their multi asset class strategy Certain investments are not permitted at any time including investment directly in employer securities and uncovered short sales
Public equity securities including common stock are primarily valued using a market approach based on the closing fair market prices of identical instruments in the principal market on which they are traded Commingled funds that are open ended mutual funds for which the fair value per share is determined and published by the respective mutual fund sponsor and is the basis for current observable transactions are categorized as Level 1 fair value measures
Investments in commingled funds and private equity and infrastructure funds are carried at net asset value NAV as a practical expedient to estimate fair value The NAV is the total value of the fund divided by the number of shares outstanding Adjustments to NAV if any are determined based on evaluation of data provided by fund managers including valuation of the underlying investments derived using inputs such as cost operating results discounted future cash flows and market based comparable data In accordance with ASC 820 10 investments that are measured at NAV practical expedient are not classified in the fair value hierarchy however their fair value amounts are presented in these tables to permit reconciliation of the fair value hierarchy to the total plan assets disclosed in this footnote
The long term rate of return assumption represents the expected average rate of earnings on the funds invested to provide for the benefits included in the benefit obligations The long term rate of return assumption is determined based on a number of factors including historical market index returns the anticipated long term asset allocation of the plans historical plan return data plan expenses and the potential to outperform market index returns For fiscal 2026 the expected long term rate of return is 5 50 8 00
In the year ended March 31 2025 the Company contributed approximately 23 829 in cash to the separate pension plan trust In the year ended March 31 2024 the Company contributed 3 200 000 shares of common stock to the separate pension plan trust with an aggregate contribution value of approximately 39 136 on the contribution date The Company expects to contribute approximately 38 400 to its qualified U S defined benefit pension plans during fiscal 2026 No plan assets are expected to be returned to the Company in fiscal 2026
The Company has stock incentive plans under which employees and non employee directors may be granted equity awards in the form of stock options with an exercise price equal to the fair value of the Company s stock on the grant date or in the form of restricted stock or restricted stock units that vest pursuant to service conditions and in some cases performance and or market conditions The stock incentive and compensation plans under which outstanding equity awards have been granted to employees officers and non employee directors are the Triumph Group 2018 Equity Plan the 2018 Plan the Triumph Group 2013 Equity and Cash Incentive Plan the 2013 Plan and the 2016 Directors Equity Compensation Plan as amended the Directors Plan The current stock incentive and compensation plans used for future awards are the 2018 Plan and the Directors Plan New grants under the 2013 Plan ceased upon the approval of the 2018 Plan in fiscal 2019 and the 2013 Plan expired by its terms during fiscal 2024 The 2018 Plan and the Directors Plan are collectively referred to in this note as the plans
Management and the compensation committee have utilized restricted stock units as its primary form of share based incentive compensation Restricted stock units that vest solely pursuant to service conditions generally vest on a graded basis over a three year period and are subject to forfeiture should the grantee s employment be terminated prior to an applicable vesting date Management and the compensation committee have also granted restricted stock units referred to herein as performance restricted stock units that vest pursuant to a combination of service conditions as well as market and performance conditions Such awards generally vest subject to specific market and or performance conditions on a cliff vesting basis at the end of a three year performance period The market and performance conditions may result in the awards vesting below target including zero vesting awards if certain threshold vesting conditions are not met or up to 300 of the number of awards granted if certain vesting conditions are exceeded The share based payment expense arising from restricted stock unit expense is included in capital in excess of par value The fair value of restricted stock units awards subject only to service conditions or service and performance conditions is determined by the product of the number of shares granted and the grant date market price of the Company s common stock adjusted for material non public information that the Company may be aware of as of the grant date if any The fair value of restricted stock units awards that contain market conditions is determined by the product of the number of shares granted and the grant date fair value of such an award value using a Monte Carlo valuation methodology The fair value of
share based compensation granted to employees was 11 987 11 775 and 13 728 during the fiscal years ended March 31 2025 2024 and 2023 respectively The fair value of restricted stock unit awards is expensed on a straight line basis over the requisite service period which is typically the vesting period The Company recognized 13 010 9 445 and 8 913 of share based compensation expense during the fiscal years ended March 31 2025 2024 and 2023 respectively The Company has classified share based compensation within selling general and administrative expenses to correspond with the same line item as the majority of the cash compensation paid to the employees receiving share based compensation
The fair value of employee restricted stock units which vested during fiscal 2025 2024 and 2023 was 11 324 6 718 and 9 247 respectively Expected future compensation expense on restricted stock units net of expected forfeitures is approximately 9 701 which is expected to be recognized over the remaining weighted average vesting period of approximately 1 5 years Under the terms of the Merger Agreement at the time the Merger becomes effective each outstanding restricted stock unit and performance restricted stock unit whether vested or unvested shall be canceled in exchange for an amount in cash equal to the product of i the total number of common stock underlying such unit and ii 26 00 In the case of performance restricted stock units the number of shares of common stock underlying such unit shall be based on the attainment of the applicable performance metrics at a target level of performance
Certain of the Company s current or former operations and facilities are subject to a number of federal state local and foreign environmental laws and regulations In July 2024 a panel of three arbitrators made a decision in an arbitration between Triumph Aerostructures LLC TAS a wholly owned subsidiary of the Company and Northrop Grumman Systems Corporation Northrop related to responsibility for environmental remediation costs at certain formerly occupied properties that had been previously operated by Northrop The decision indicated that TAS would be liable to reimburse Northrop for remediation costs incurred at the properties through September 2023 in the amount of approximately 11 500 The decision also indicated that TAS would be responsible for reimbursing Northrop for remediation costs at two of the facilities incurred subsequent to September 2023 Such incremental remediation costs for the period from September 2023 to June 30 2024 are estimated to be approximately 2 000 Accordingly TAS accrued a total of approximately 13 464 following the decision of which 7 464 was recognized in the three months ended June 30 2024 and is presented within legal contingencies loss on the Company s condensed consolidated statement of operations Estimated incremental remediation costs reimbursable to Northrop pursuant to the arbitration decision incurred subsequent to June 30 2024 are included within selling general and administrative costs on the Company s condensed consolidated statement of operations and were immaterial for the nine month period ended March 31 2025 The Company estimates that total future remediation costs reimbursable to Northrop could be up to approximately 38 000 and result in annual cash expenditures not likely to exceed 2 000 to 3 000 per year In addition TAS is a party to the environmental remediation regulatory order at one of the properties Therefore in accordance with ASC 410 30 Environmental obligations the Company has accrued approximately 1 300 as management s best estimate of the total future remediation costs at this property In August 2024 TAS filed a motion to seek to set aside the adverse decision from the arbitration panel but such motion was denied by the trial court in November 2024 TAS filed a notice of appeal with the trial court in January 2025 and on March 26 2025 TAS filed its brief in support of the appeal The court entered judgment on the arbitration award on February 7 2025 TAS s appeal remains pending before the court
In the ordinary course of business the Company is involved in disputes claims and lawsuits with employees suppliers and customers as well as governmental and regulatory inquiries that it deems to be immaterial Some may involve claims or potential claims of substantial damages fines penalties or injunctive relief While the Company cannot predict the outcome of any pending or future commercial dispute litigation or proceeding and no assurances can be given the Company does not believe that any pending matter will have a material effect individually or in the aggregate on its financial position or results of operations
As disclosed in Note 3 we have engaged in a number of divestitures In connection with divestitures and related transactions the Company from time to time has indemnified and has been indemnified by third parties against certain liabilities that may arise in connection with among other things business activities prior to the completion of the respective transactions The term of these indemnifications which typically pertain to environmental tax and product liabilities is generally indefinite As of March 31 2025 no indemnification assets have been recorded and indemnification liabilities are immaterial
As it relates to certain divestitures disputes have arisen or may continue to arise between the Company and the acquirer subsequent to the completion and closing of the divestiture transaction Such disputes have included or may include amounts payable to or from the buyer for closing working capital adjustments to the purchase price as well as claims regarding alleged violations of contractual terms representations and warranties of the sale agreements among other matters The outcome of such disputes typically involve negotiations between the Company and the acquirer but could also lead to litigation between the parties including as disclosed further below and the ultimate claims made by the parties against each other could be material
The Company has received notification of claims which allege certain bases for indemnification and damages relating to certain divestitures The relevant agreements generally contain limits on certain damages that may be payable under the relevant agreements For example the divestiture agreement relating to the sale of the Red Oak facility specified that representations and warranties insurance would be the sole and exclusive remedy for breach of representations and warranties except in the case of fraud By way of further example the divestiture agreement relating to the sale of the Stuart facility contains an 18 750 general cap on breaches of representations other than certain specified representations and a 25 000 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 As disclosed in Note 3 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 2 400 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 9 200 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 6 800 to the buyer The purchaser of the Stuart facility also commenced litigation against the Company on December 12 2023 seeking additional indemnification for damages claimed to be approximately 130 000 for losses allegedly arising from the knowing breach of certain representations and warranties regarding the financial condition of TAS and the products manufactured by TAS and alleged failures to disclose known and widespread paint issues and certain supplier and production issues at the facility prior to the closing The Company intends to vigorously defend claims brought against it and does not believe that any pending matter will have a material effect on its financial position or results of operations If the Company is unable to successfully and equitably resolve such claims and assertions its business financial condition and results of operations could be materially adversely affected
Additionally in connection with certain divestitures the Company has obtained customer consent to assign specified long term contracts to the acquirer of the divested business by entering into consent to assignment agreements among the customer the acquirer and the Company Pursuant to certain of these agreements the Company remains a guarantor pursuant to guarantee agreements with the customer that predate the divestiture transaction The term of these obligations typically covers a period of 2 to 5 years from the date of divestiture There is no limitation to the maximum potential future liabilities under these contracts however the Company typically has a right to indemnification from acquirers against such losses that may arise from the acquirers failure to perform under the assigned contracts On June 13 2024 Boeing submitted correspondence to the Company asserting that under the terms of a guarantee agreement between Boeing and the Company the Guarantee Agreement the Company would be responsible for damages that Boeing may suffer from any production disruption caused by Qarbon Aerospace LLC Qarbon the acquirer of the Company s Red Oak facility on the T7 A program which is the subject of ongoing litigation between the Company and Qarbon On December 19 2024 Boeing informed the Company that it had reached a settlement agreement with Qarbon and has continued to reiterate its assertion that the Company would be responsible for higher production costs payable to Qarbon under the settlement agreement At this time the Company has accrued 6 200 with respect to this matter It is reasonably possible that the Company may incur a material loss in excess of the amount accrued but no such loss is
estimable at this time due to among other things the fact that this contractual dispute raises difficult legal and factual issues and is subject to many uncertainties and complexities Nonetheless the Company intends to vigorously defend itself against any assertion that Boeing is entitled to damages from the Company under the Guarantee Agreement Separately pursuant to the terms of the purchase agreement providing for Qarbon s acquisition of the Red Oak facility the Company is entitled to indemnification from Qarbon which would be recognized upon realization
Also in connection with certain divestitures the Company has assigned lease facility agreements to the acquirers and entered into guarantee agreements with respect to the lease agreement in the event of non performance under the lease by the assignee The Company typically has a right to indemnification from the assignee or other third party to the transaction On May 2 2023 the Company received a letter from a lessor associated with one such transaction to assert the lessor s rights against the Company as guarantor The lease payment associated with the lease is approximately 130 per month over a lease term ending December 31 2031 although the landlord may be barred from recovery due to its acceptance of the lessee s surrender of the premises The Company currently estimates that a reasonably possible loss if any would be recoverable through indemnification and be immaterial
In the year ended March 31 2023 the Company withdrew from the IAM National Pension Fund the Fund which is a multiemployer pension plan to which the Company previously contributed on behalf of certain of its represented employees Such withdrawal occurred as part of the Company s exit of its Spokane Washington composites manufacturing operations In April 2023 the Company received a letter from the Fund confirming the Company s complete withdrawal from the Fund and indicating that the Company s portion of the unfunded vested benefits the Withdrawal Liability was estimated to be approximately 14 644 payable in quarterly installments of approximately 400 over a period of approximately thirteen years As of March 31 2025 the Company s liability for this obligation is included on the accompanying condensed consolidated balance sheet is approximately 13 132 representing its estimate of the remaining obligation before interest based on the letter received from the Fund The Company has issued a formal challenge through arbitration on the issue of the interest rate used by the Fund when determining the Withdrawal Liability and it is possible the Withdrawal Liability could be reduced during that process
Sales to Boeing for fiscal 2025 were 288 907 or 23 of net sales of which 181 867 and 107 040 were from Systems Support and Interiors respectively Sales to Boeing for fiscal 2024 were 279 956 or 23 of net sales of which 168 038 and 111 918 were from Systems Support and Interiors respectively Sales to Boeing for fiscal 2023 were 259 343 or 23 of net sales of which 154 404 and 104 939 were from Systems Support and Interiors respectively
The Company currently generates a majority of its revenue from clients in the commercial aerospace industry and the military The Company s growth and financial results are largely dependent on continued demand for its products and services from clients in these industries When these industries experience a downturn it is possible that customers in these sectors may conduct less business with the Company
Approximately 13 of the Company s labor force is covered under collective bargaining agreements As of March 31 2025 none of the Company s collectively bargained workforce is working under contracts that have expired and none of the Company s collectively bargained workforce are working under contracts that are set to expire within one year
The Company reports financial performance based on the following two reportable segments Systems Support and Interiors The Company s reportable segments are aligned with how the business is managed and the Company s views of the markets it serves The Chief Executive Officer is the Company s Chief Operating Decision Maker the CODM and evaluates performance and allocates resources based upon review of segment information The CODM utilizes earnings before interest income taxes consideration payable to customer related to divestiture depreciation and amortization and pension Adjusted EBITDAP as a primary measure of segment profitability to evaluate the performance of its segments and allocate resources
1 Other segment items for both segments include certain operating expenses that are not regularly provided to the CODM and that are identifiable with that segment including cost of goods sold and selling general and administrative expenses Other segment items does not include depreciation and amortization expense which is excluded from segment Adjusted EBITDAP
During fiscal years ended March 31 2025 2024 and 2023 the Company had foreign sales of 353 988 284 069 and 251 695 respectively The Company reports as foreign sales those sales with delivery points outside of the United States As of March 31 2025 and 2024 the Company s continuing operations had tangible long lived assets of approximately 23 656 and 30 358 respectively principally comprising property plant and equipment
The CODM also is regularly provided and uses to manage each segment an amount of selling general and administrative expense Segment selling general and administrative Each segment s single reported amount for Segment selling general and administrative includes depreciation and amortization expense which is excluded from segment Adjusted EBITDAP Therefore Segment selling general and administrative expense as regularly provided to the CODM is not an expense category that is included in the calculation of segment Adjusted EBITDAP The Company has disclosed Segment selling general and administrative in the table below and has reconciled it to selling general and administrative expense included on the accompanying consolidated statements of operations
3 Other reconciling items to selling general and administrative includes i amounts that are included within segment selling general and administrative but that are presented separately on the accompanying consolidated statements of operations including depreciation and amortization and restructuring and ii for Interiors certain segment selling general and administrative expenses that are not regularly provided to the CODM
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded processed summarized and reported within the time periods specified in the SEC s rules and forms and that such information is accumulated and communicated to our management including our principal executive officer and principal financial officer as appropriate to allow timely decisions regarding required disclosure In designing and evaluating the disclosure controls and procedures management recognized that any controls and procedures no matter how well designed and operated can provide only reasonable assurance of achieving the desired control objectives and management necessarily was required to apply its judgment in evaluating the cost benefit relationship of possible controls and procedures
As of March 31 2025 we completed an evaluation under the supervision and with the participation of our management including our principal executive officer and principal financial officer of the effectiveness of the design and operation of our disclosure controls and procedures Based on the foregoing our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of March 31 2025
The management of Triumph Group Inc Triumph is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a 15 f and 15d 15 f under the Securities Exchange Act of 1934 Triumph s internal control system over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U S generally accepted accounting principles The Company s internal control over financial reporting includes those policies and procedures that
Because of inherent limitations internal control over financial reporting may not prevent or detect misstatements Therefore even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation Also projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in condition or that the degree of compliance with the policies or procedures may deteriorate
Triumph s management assessed the effectiveness of Triumph s internal control over financial reporting as of March 31 2025 In making this assessment management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission 2013 framework COSO in Internal Control Integrated Framework Based on management s assessment and those criteria management believes that Triumph maintained effective internal control over financial reporting as of March 31 2025
We have audited Triumph Group Inc s internal control over financial reporting as of March 31 2025 based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission 2013 framework the COSO criteria In our opinion Triumph Group Inc the Company maintained in all material respects effective internal control over financial reporting as of March 31 2025 based on the COSO criteria
We also have audited in accordance with the standards of the Public Company Accounting Oversight Board United States PCAOB the consolidated balance sheets of the Company as of March 31 2025 and 2024 the related consolidated statements of operations comprehensive income loss stockholders deficit and cash flows for each of the three years in the period ended March 31 2025 and the related notes and financial statement schedule listed in the Index at Item 15 a 2 and our report dated May 28 2025 expressed an unqualified opinion thereon
The Company s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management s Report on Internal Control Over Financial Reporting Our responsibility is to express an opinion on the Company s internal control over financial reporting based on our audit We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
Our audit included obtaining an understanding of internal control over financial reporting assessing the risk that a material weakness exists testing and evaluating the design and operating effectiveness of internal control based on the assessed risk and performing such other procedures as we considered necessary in the circumstances We believe that our audit provides a reasonable basis for our opinion
A company s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles A company s internal control over financial reporting includes those policies and procedures that 1 pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company 2 provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company and 3 provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition use or disposition of the company s assets that could have a material effect on the financial statements
Because of its inherent limitations internal control over financial reporting may not prevent or detect misstatements Also projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate
We have developed and implemented a formal set of internal controls and procedures for financial reporting in accordance with the SEC s rules regarding management s report on internal controls As a result of continued review and testing by management and by our internal and independent auditors or as a result of newly adopted accounting standards additional changes may be made to our internal controls and procedures However we did not make any changes to our internal control over financial reporting in the fourth quarter of fiscal 2025 that has materially affected or is reasonably likely to materially affect our internal control over financial reporting
Amended and Restated Receivables Purchase Agreement dated as of September 29 2020 among Triumph Receivables LLC as seller Triumph Group Inc as servicer the various purchasers LC participants and purchaser agents from time to time party thereto PNC Bank National Association as administrator and as LC bank and PNC Capital Markets LLC as structuring agent
Fourth Amendment to Amended and Restated Receivables Purchase Agreement dated as of December 22 2023 among Triumph Receivables LLC as seller Triumph Group Inc as servicer the various purchasers LC participants and purchaser agents from time to time party thereto and PNC Bank National Association as administrator and as LC bank
The following financial information from Triumph Group Inc s Annual Report on Form 10 K for the fiscal year ended March 31 2025 formatted in iXBRL i Consolidated Balance Sheets as of March 31 2025 and 2024 ii Consolidated Statements of Operations for the fiscal years ended March 31 2025 2024 and 2023 iii Consolidated Statements of Stockholders Deficit for the fiscal years ended March 31 2025 2024 and 2023 iv Consolidated Statements of Cash Flows for the fiscal years ended March 31 2025 2024 and 2023 v Consolidated Statements of Comprehensive Income Loss for the fiscal years ended March 31 2025 2024 and 2023 and vi Notes to the Consolidated Financial Statements
In accordance with Item 601 b 4 iii A of Regulations S K copies of specific instruments defining the rights of holders of long term debt of the Company or its subsidiaries are not filed herewith Pursuant to this regulation we hereby agree to furnish a copy of any such instrument to the SEC upon request

Company Name	TRIUMPH GROUP INC Vist SEC web-site
Category	AIRCRAFT & PARTS
Trading Symbol	TGI