Triumph Group, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)

Three Months Ended December 31, Nine Months Ended December 31,
2017 2016 2017 2016

Net sales $ 775,246
$ 844,863
$ 2,302,091
$ 2,612,885
Operating costs and expenses:
Cost of sales (exclusive of depreciation and amortization shown separately below) 612,206
653,199
1,821,513
2,052,900
Selling, general and administrative 62,147
66,750
213,934
205,222
Depreciation and amortization 39,320
44,331
119,318
135,080
Impairment of intangible assets 190,227
—
190,227
—
Restructuring costs 6,149
11,067
33,751
28,180
Loss on divestitures —
14,350
20,371
19,124
Curtailment and settlement gain, net (15,099 ) —
(14,576 ) —
894,950
789,697
2,384,538
2,440,506
Operating (loss) income (119,704 ) 55,166
(82,447 ) 172,379
Interest expense and other 25,836
19,698
72,229
55,721
(Loss) income before income taxes (145,540 ) 35,468
(154,676 ) 116,658
Income tax (benefit) expense (32,288 ) 6,136
(34,115 ) 32,786
Net (loss) income $ (113,252 ) $ 29,332
$ (120,561 ) $ 83,872

(Loss) earnings per share—basic: $ (2.29 ) $ 0.59
$ (2.44 ) $ 1.70

Weighted-average common shares outstanding—basic 49,459
49,329
49,425
49,294

(Loss) earnings per share—diluted: $ (2.29 ) $ 0.59
$ (2.44 ) $ 1.70

Weighted-average common shares outstanding—diluted 49,459
49,440
49,425
49,421

Dividends declared and paid per common share $ 0.04
$ 0.04
$ 0.12
$ 0.12



	Three Months Ended September 30,						Six Months Ended September 30,
	2019			2018			2019			2018

Net sales	$	772,110		$	855,108		$	1,502,341		$	1,688,008
Operating costs and expenses:
Cost of sales (exclusive of depreciation and amortization shown separately below)	622,236			724,474			1,204,469			1,494,688
Selling, general and administrative	66,201			69,551			128,538			151,208
Depreciation and amortization	30,219			38,134			74,269			76,945
Restructuring costs	5,782			11,832			8,746			15,879
Legal judgment gain, net of expenses	(5,400		)	—			(5,400		)	—
(Gain) loss on sale of assets and businesses	(7,965		)	13,118			(4,829		)	17,837
	711,073			857,109			1,405,793			1,756,557
Operating income (loss)	61,037			(2,001		)	96,548			(68,549		)
Non-service defined benefit income	(28,416		)	(16,524		)	(43,291		)	(33,061		)
Interest expense and other	35,400			28,714			62,891			54,206
Income (loss) before income taxes	54,053			(14,191		)	76,948			(89,694		)
Income tax expense	11,352			485			16,159			1,516
Net income (loss)	$	42,701		$	(14,676	)	$	60,789		$	(91,210	)

Earnings (loss) per share—basic:	$	0.85		$	(0.30	)	$	1.22		$	(1.84	)

Weighted average common shares outstanding—basic	49,987			49,628			49,927			49,590

Earnings (loss) per share—diluted:	$	0.85		$	(0.30	)	$	1.21		$	(1.84	)

Weighted average common shares outstanding—diluted	50,460			49,628			50,385			49,590

Dividends declared and paid per common share	$	0.04		$	0.04		$	0.08		$	0.08

SEE ACCOMPANYING NOTES.

Triumph Group, Inc.

Condensed Consolidated Statements of Comprehensive ~~Income~~Loss

(dollars in thousands)

(unaudited)

Three Months Ended December 31, Nine Months Ended December 31,
2017 2016 2017 2016

Net (loss) income $ (113,252 ) $ 29,332
$ (120,561 ) $ 83,872
Other comprehensive income (loss):
Foreign currency translation adjustment (1,824 ) (15,066 ) 19,502
(36,684 )
Defined benefit pension plans and other postretirement benefits:
Amounts arising during the period - gains (losses), net of tax (expense) benefit:
Prior service loss —
—
523
—
Actuarial gain, net of taxes of $0 23,378
—
23,378
—
Reclassifications from accumulated other comprehensive income - losses (gains), net of tax expense (benefits):
Amortization of net loss, net of taxes of $0 and ($489) for the three months ended and $0 and ($1,466) for the nine months ended, respectively 1,690
834
5,080
2,507
Recognized prior service credits, net of taxes of $0 and $1,408 for the three months ended and $0 and $4,225 for the nine months ended, respectively (17,833 ) (2,407 ) (23,917 ) (7,226 )
Total defined benefit pension plans and other postretirement benefits, net of taxes 7,235
(1,573 ) 5,064
(4,719 )
Cash flow hedges:
Unrealized (loss) gain arising during period, net of tax of $0 and ($1,047) for the three months ended and $9 and ($1,285) for the nine months ended, respectively (816 ) 1,726
(835 ) 2,100
Reclassification of (loss) gain included in net earnings, net of tax of $0 and ($3) for the three months ended and $21 and $2 for the nine months ended, respectively 203
5
(2,177 ) (6 )
Net unrealized (loss) gain on cash flow hedges, net of tax (613 ) 1,731
(3,012 ) 2,094
Total other comprehensive income (loss) 4,798
(14,908 ) 21,554
(39,309 )
Total comprehensive (loss) income $ (108,454 ) $ 14,424
$ (99,007 ) $ 44,563



	Three Months Ended September 30,						Six Months Ended September 30,
	2019			2018			2019			2018

Net income (loss)	$	42,701		$	(14,676	)	$	60,789		$	(91,210	)
Other comprehensive (loss) income:
Foreign currency translation adjustment	(6,227		)	1,038			(8,910		)	(13,486		)
Defined benefit pension plans and other postretirement benefits:
Amounts arising during the period - gains (losses), net of tax (expense) benefit:
Prior service gain, net of taxes of $0	(4,898		)	—			(4,898		)	—
Actuarial loss, net of taxes of $0	(118,073		)	—			(118,073		)	—
Reclassifications from accumulated other comprehensive income - losses (gains), net of tax expense (benefits):
Amortization of net loss, net of taxes of $0 and $0 for the three months ended and $0 and $0 for the six months ended, respectively	4,707			1,676			7,558			3,351
Recognized prior service credits, net of taxes of $0 and $0 for the three months ended and $0 and $0 for the six months ended, respectively	48,945			(2,075		)	47,503			(4,149		)
Total defined benefit pension plans and other postretirement expense, net of taxes	(69,319		)	(399		)	(67,910		)	(798		)
Cash flow hedges:
Unrealized gain arising during period, net of tax of $0 and $(189) for the three months ended and $0 and $(64) for the six months ended, respectively	245			1,706			340			742
Reclassification of loss included in net earnings, net of tax of $0 and $88 for the three months ended and $0 and $123 for the six months ended, respectively	(1,323		)	(742		)	(1,737		)	(813		)
Net unrealized (loss) gain on cash flow hedges, net of tax	(1,078		)	964			(1,397		)	(71		)
Total other comprehensive (loss) income	(76,624		)	1,603			(78,217		)	(14,355		)
Total comprehensive loss	$	(33,923	)	$	(13,073	)	$	(17,428	)	$	(105,565	)

SEE ACCOMPANYING NOTES.

Triumph Group, Inc.

Condensed Consolidated Statements of Stockholders' (Deficit) Equity

For the three and six months ended September 30, 2019

(dollars in thousands)

(unaudited)



	Outstanding Shares		Common Stock All Classes		Capital in Excess of Par Value			Treasury Stock			Accumulated Other Comprehensive Loss			Accumulated Deficit			Total
Balance, March 31, 2019	49,887,268		$	52	$	867,545		$	(159,154	)	$	(487,684	)	$	(794,072	)	$	(573,313	)
Net income	—		—		—			—			—			18,088			18,088
Adoption of ASC 842	—		—		—			—			—			(225		)	(225		)
Foreign currency translation adjustment	—		—		—			—			(2,683		)	—			(2,683		)
Pension liability adjustment, net of income taxes of $0	—		—		—			—			1,409			—			1,409
Change in fair value of foreign currency hedges, net of income taxes of $0	—		—		—			—			(319		)	—			(319		)
Cash dividends ($0.04 per share)	—		—		—			—			—			(1,998		)	(1,998		)
Share-based compensation	154,802		—		(7,631		)	9,534			—			—			1,903
Repurchase of restricted shares for minimum tax obligation	(51,406	)	—		—			(1,043		)	—			—			(1,043		)
Employee stock purchase plan	14,489		—		(634		)	896			—			—			262
Balance, June 30, 2019	50,005,153		$	52	$	859,280		$	(149,767	)	$	(489,277	)	$	(778,207	)	$	(557,919	)
Net income	—		—		—			—			—			42,701			42,701
Foreign currency translation adjustment	—		—		—			—			(6,227		)	—			(6,227		)
Pension liability adjustment, net of income taxes of $0	—		—		—			—			(69,319		)	—			(69,319		)
Change in fair value of foreign currency hedges, net of income taxes of $0	—		—		—			—			(1,078		)	—			(1,078		)
Cash dividends ($0.04 per share)	—		—		—			—			—			(2,003		)	(2,003		)
Share-based compensation	59,938		—		(850		)	3,654			—			—			2,804
Repurchase of restricted shares for minimum tax obligation	(764	)	—		—			(5		)	—			—			(5		)
Employee stock purchase plan	10,196		—		(400		)	622			—			—			222
Balance, September 30, 2019	50,074,523		$	52	$	858,030		$	(145,496	)	$	(565,901	)	$	(737,509	)	$	(590,824	)

Triumph Group, Inc.

Condensed Consolidated Statements of Stockholders' (Deficit) Equity

For the three and six months ended September 30, 2018

(dollars in thousands)

(unaudited)



	Outstanding Shares		Common Stock All Classes		Capital in Excess of Par Value			Treasury Stock			Accumulated Other Comprehensive Loss			Retained Earnings (Accumulated Deficit)			Total
Balance, March 31, 2018	49,669,848		$	51	$	851,280		$	(179,082	)	$	(367,870	)	$	146,155		$	450,534
Net loss	—		—		—			—			—			(76,534		)	(76,534		)
Adoption of ASC 606	—		—		—			—			—			(584,951		)	(584,951		)
Foreign currency translation adjustment	—		—		—			—			(14,524		)	—			(14,524		)
Pension liability adjustment, net of income taxes of $0	—		—		—			—			(399		)	—			(399		)
Change in fair value of foreign currency hedges, net of income taxes of $160	—		—		—			—			(1,035		)	—			(1,035		)
Cash dividends ($0.04 per share)	—		—		—			—			—			(1,988		)	(1,988		)
Share-based compensation	102,248		—		(84		)	2,548			—			—			2,464
Repurchase of restricted shares for minimum tax obligation	(23,756	)	—		—			(532		)	—			—			(532		)
Employee stock purchase plan	16,020		—		(644		)	1,028			—			—			384
Balance, June 30, 2018	49,764,360		$	51	$	850,552		$	(176,038	)	$	(383,828	)	$	(517,318	)	$	(226,581	)
Net loss	—		—		—			—			—			(14,676		)	(14,676		)
Other	—		—		—			—			—			19			19
Foreign currency translation adjustment	—		—		—			—			1,038			—			1,038
Pension liability adjustment, net of income taxes of $0	—		—		—			—			(399		)	—			(399		)
Change in fair value of foreign currency hedges, net of income taxes of $(101)	—		—		—			—			964			—			964
Cash dividends ($0.04 per share)	—		—		—			—			—			(1,993		)	(1,993		)
Share-based compensation	31,596		—		2,671			595			—			—			3,266
Repurchase of restricted shares for minimum tax obligation	(857	)	—		—			(16		)	—			—			(16		)
Employee stock purchase plan	17,618		—		(821		)	1,148			—			—			327
Balance, September 30, 2018	49,812,717		$	51	$	852,402		$	(174,311	)	$	(382,225	)	$	(533,968	)	$	(238,051	)

Triumph Group, Inc.
Condensed Consolidated Statements of Cash Flows

(dollars in thousands)

(unaudited)


	Nine Months Ended December 31,						Six Months Ended September 30,
	2017			2016			2019			2018

Operating Activities
Net (loss) income	$	(120,561	)	$	83,872
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Net income (loss)							$	60,789		$	(91,210	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	119,318			135,080			74,269			76,945
Impairment intangible assets	190,227			—
Amortization of acquired contract liabilities	(91,862		)	(89,031		)	(39,556		)	(34,038		)
Loss on divestiture	20,371			19,124
Curtailment and settlement gain, net	(14,576		)	—
(Gain) loss on divestitures and transfers							(4,829		)	17,837
Curtailment and special termination benefits gain, net							(14,373		)	—
Other amortization included in interest expense	9,791			4,070			6,955			4,852
Provision for doubtful accounts receivable	(365		)	14			1,140			212
(Benefit) provision for deferred income taxes	(24,432		)	18,703
Provision for deferred income taxes							15,159			—
Employee stock-based compensation	6,137			6,140			5,290			5,728
Changes in assets and liabilities, excluding the effects of acquisitions and dispositions of businesses:
Trade and other receivables	(10,554		)	102,915			29,436			(4,722		)
Contract assets							33,930			6,129
Inventories	(154,090		)	(323,389		)	(41,807		)	(49,981		)
Prepaid expenses and other current assets	(1,376		)	15,876			16,209			5,918
Accounts payable and accrued expenses	(53,208		)	(71,232		)
Accounts payable, accrued expenses and contract liabilities							(121,112		)	(101,460		)
Accrued pension and other postretirement benefits	(67,368		)	(72,813		)	(32,114		)	(37,021		)
Other	(5,731		)	(1,980		)	21			3,632
Net cash used in operating activities	(198,279		)	(172,651		)	(10,593		)	(197,179		)
Investing Activities
Capital expenditures	(31,932		)	(33,123		)	(16,995		)	(24,254		)
Proceeds from sale of assets	68,412			23,185
Acquisitions, net of cash acquired	—			9
Net cash provided by (used in) investing activities	36,480			(9,929		)
(Payments on) proceeds from sale of assets							(574		)	41,037
Net cash (used in) provided by investing activities							(17,569		)	16,783
Financing Activities
Net increase in revolving credit facility	20,000			316,121
Proceeds from issuance of long-term debt and capital leases	531,500			12,901
Repayment of debt and capital lease obligations	(369,261		)	(95,744		)
Net (decrease) increase in revolving credit facility							(147,615		)	219,773
Proceeds from issuance of long-term debt and finance leases							546,000			24,700
Repayment of debt and finance lease obligations							(415,447		)	(58,823		)
Payment of deferred financing costs	(17,729		)	(14,012		)	(16,275		)	(1,922		)
Dividends paid	(5,956		)	(5,944		)	(4,001		)	(3,981		)
Repayment of government grant	—			(14,570		)
Repurchase of restricted shares for minimum tax obligation	(369		)	(182		)	(1,048		)	(548		)
Net cash provided by financing activities	158,185			198,570
Net cash (used in) provided by financing activities							(38,386		)	179,199
Effect of exchange rate changes on cash	(1,631		)	(1,513		)	(1,407		)	(1,395		)
Net change in cash	(5,245		)	14,477			(67,955		)	(2,592		)
Cash and cash equivalents at beginning of period	69,633			20,984			92,807			35,819
Cash and cash equivalents at end of period	$	64,388		$	35,461		$	24,852		$	33,227

SEE ACCOMPANYING NOTES.

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

1. BASIS OF PRESENTATION AND ORGANIZATION

The accompanying unaudited condensed consolidated financial statements of Triumph Group, Inc. (the "Company") have been prepared in conformity with accounting principles generally accepted in the United States ("U.S. GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, the interim financial information includes all adjustments of a normal recurring nature necessary for a fair presentation of the results of operations, financial position and cash flows. The results of operations for the three and ~~nine~~six months ended ~~December 31, 2017~~September 30, 2019, are not necessarily indicative of results that may be expected for the year ending March 31, ~~2018.~~2020. The accompanying condensed consolidated financial statements are unaudited and should be read in conjunction with the fiscal ~~2017~~2019 audited ~~condensed~~ consolidated financial statements and notes thereto included in the Company's Form 10-K for the year ended March 31, ~~2017~~2019, filed with the Securities and Exchange Commission (the "SEC") on May ~~24, 2017.~~23, 2019.

The Company designs, engineers, manufactures, repairs and overhauls a broad portfolio of aerostructures, aircraft components, accessories, subassemblies, and systems. The Company serves a broad, worldwide spectrum of the aviation industry, including original equipment manufacturers of commercial, regional, business, and military aircraft and aircraft components, as well as commercial and regional airlines and air cargo carriers.

~~Effective January 1, 2018,~~ Triumph and its subsidiaries are organized based on the products and services that they provide. Under this organizational structure, the Company ~~combined its~~has three reportable segments: Integrated Systems, Aerospace Structures, and ~~Precision Components reporting segments into one reporting segment, Aerospace Structures.~~ Product Support.

Integrated Systems consists of the Company’s operations that provide integrated solutions, including design, development, and support of proprietary components, subsystems and systems, as well as production of complex assemblies using external designs. Capabilities include hydraulic, mechanical and electromechanical actuation, power and control; a complete suite of aerospace gearbox solutions, including engine accessory gearboxes and helicopter transmissions; active and passive heat exchange technology; fuel pumps, fuel metering units and Full Authority Digital Electronic Control fuel systems; and hydromechanical and electromechanical primary and secondary flight controls.

Aerospace Structures ~~and Precision Components share many~~consists of the ~~same customers~~Company’s operations that supply commercial, business, regional and ~~suppliers~~military manufacturers with large metallic and ~~have substantial inter-company work on common programs. As~~composite structures and aircraft interior systems, including air ducting and thermal acoustic insulations systems. Products include wings; wing boxes; fuselage panels; horizontal and vertical tails; subassemblies such as floor grids; and aircraft interior systems, including air ducting and thermal acoustic insulations systems. Aerospace Structures also has the capability to engineer detailed structural designs in metal and composites. Capabilities include advanced composite and interior structures, joining processes such as welding, autoclave bonding and conventional mechanical fasteners and a ~~single operating segment,~~variety of special processes, including: super plastic titanium forming, aluminum and titanium chemical milling, surface treatments, and integrated testing and certification services.

Product Support consists of the Company’s operations that provide full life cycle solutions for commercial, regional and military aircraft. The Company’s extensive product and service offerings include full post-delivery value chain services that simplify the maintenance, repair, and overhaul ("MRO") supply chain. Through its ground support equipment maintenance, component MRO and post-production supply chain activities, Product Support is positioned to provide integrated planeside repair solutions globally. Capabilities include metallic and composite aircraft structures; nacelles; thrust reversers; interiors; auxiliary power units; and a wide variety of pneumatic, hydraulic, fuel and mechanical accessories.

Repair services generally involve the replacement and/or remanufacturing of parts, which is similar to the original manufacture of the part. The processes that the Company ~~believes it will be able~~performs related to ~~leverage their combined resources to make it more cost competitive~~repair and ~~to enhance performance.~~overhaul services are essentially the repair of wear parts or replacement of parts that are beyond economic repair. The ~~newly formed operating segment will also be~~repair service generally involves remanufacturing a ~~reportable segment. As~~complete part or a ~~result, effective January 1, 2018, the Company will have three reporting segments for future financial reporting purposes - Integrated Systems, Product Support and Aerospace Structures.~~component of a part.

Standards Recently Implemented

In ~~March~~February 2016, ~~the FASB issued ASU 2016-09,~~ ~~Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting~~ ("ASU 2016-09"). ASU 2016-09 identifies areas for simplification involving several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. The Company adopted ASU 2016-09 effective April 1, 2017. The adoption of ASU 2016-09 did not have a material impact on the Company's consolidated financial statements.

~~Standards Issued Not Yet Implemented~~

~~In May 2014,~~ the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842). This ASU ~~2014-09,~~ ~~Revenue from Contracts~~requires lessees to recognize most leases on their balance sheets as lease liabilities with ~~Customers~~ ~~(“ASU 2014-09”, “ASC 606”~~corresponding right-of-use ("ROU")~~, which requires recognition of revenue to depict~~ assets. The Company adopted the ~~transfer~~standard as of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The FASB has issued several updates to ASU 2014-09 which must be adopted concurrently with ASU 2014-09.

Under ASC 606, revenue is recognized when control of promised goods or services transfers to a customer and is recognized in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. The major provisions include determining enforceable rights and obligation between parties, defining performance obligations as the units of accounting under contract, accounting for variable consideration, and determining whether performance obligations are satisfied over time or at a point of time. Additionally, ASC 606 requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

~~ASC 606 will be effective for the Company beginning~~ April 1, 2018. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (the “full retrospective method”), or retrospectively with the cumulative effect of initially applying ASC 606 recognized at the date of initial application (the "modified retrospective method”). The Company is adopting ASC 606 effective April 1, 2018 and the Company expects to do so2019, using the modified retrospective ~~method.~~approach and applying the standard’s transition provisions at the adoption date. Reporting periods beginning on

~~Table~~should be applied either retrospectively or prospectively to all implementation costs incurred after the date of ~~Contents~~

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

~~During~~or after April 1, 2019, are presented in accordance with Accounting Standards Codification ("ASC") 842, Leases. Prior periods have not been adjusted and continue to be reported in accordance with previous accounting standards. The Company elected the ~~fiscal year ended March 31, 2016, we established a cross-functional team~~package of practical expedients permitted under the transition guidance, which among other things, allows us to ~~assess and prepare for implementation of~~carryforward the ~~new standard. We are analyzing the impact~~historical lease classification.

Adoption of the new standard onresulted in the ~~Company’s revenue contracts, comparing our current accounting policies~~recognition of operating lease ROU assets and ~~practices~~lease liabilities of $76,444 and $84,663, respectively, with the difference due to prepaid and deferred rent that were reclassified to the ~~requirements~~ROU asset value. An adjustment to opening retained earnings of ~~the new~~$225 was also recognized. The standard ~~and identifying potential differences that would result from applying the new standard to~~did not materially affect our ~~contracts, as well as any potential impacts.~~consolidated net income or cash flows. See Note 5 for further details.

While further analysis of ASC 606 and a review of all material contracts is underway, the adoption of ASC 606 will impact the amount and timing of revenue recognition and the accounting treatment of capitalized pre-production costs for certain of our contracts. Under ASC 606, the units-of-delivery method is no longer viable and some performance obligations may be satisfied over time which will change the timing of recognition of revenue and associated production costs for certain contracts.

ASC 606 is applied by analyzing each contract, or a combination of contracts, to determine if revenue is recognized over time or at a point in time. The Company has determined that some of its contracts will have performance obligations that are satisfied over time and some at a point in time based on when control of goods and services transfers to the customer.

For performance obligations that are satisfied over time, the Company will most likely use an input method as the basis for recognizing revenue. Input methods recognize revenue on the basis of an entity’s efforts or inputs toward satisfying a performance obligation (for example, resources consumed, labor hours expended, costs incurred, time lapsed, or machine hours used) relative to the total expected inputs to satisfy the performance obligation. Performance obligations that are not recognized over time will be recognized at a point in time.

ASC 606 requires the Company to record performance obligations for material rights granted to the customer when contracts offer the customer future purchase options at an incremental discount. The Company is evaluating whether performance obligations for material rights exist for certain contracts which may result in deferral of revenues attributable to such rights. When the material rights are identified, the revenue recognized under ASC 606 results in a different revenue recognition pattern when compared to the revenue recognized under legacy GAAP. However, the Company’s operating cash flows from our contracts with customers will not change. The Transition Adjustment will include the establishment of contract assets and liabilities for billings that are lower than, or in excess of, revenue that has been recognized.

The adoption of ASC 606 will not change the Company's accounting method for forward losses. Forward losses relating to unfulfilled contracts and options will continue to be recorded consistent with historical accounting policies.

Under ASC 606, production costs are generally expensed as incurred and not deferred. Additionally, ASC 340-40 is to be applied if existing guidance is not applicable. The Company’s accounting for preproduction, tooling, and certain other costs is expected to continue under existing guidance since they generally do not fall within the scope of ASC 340-40. The Company typically does not incur costs for obtaining contracts that would be capitalized under ASC 340-40.

In ~~March 2017,~~February 2018, the FASB issued ASU ~~No. 2017-07,~~ ~~Improving~~2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This ASU permits a company to reclassify the ~~Presentation~~income tax effects of ~~Net Periodic Pension Cost~~the 2017 Tax Cuts and ~~Net Periodic Postretirement Benefit Cost~~Jobs Act (“~~ASU 2017-07”~~U.S. tax reform”)~~. ASU 2017-07 amends ASC 715,~~ ~~Compensation — Retirement Benefits~~, on items within AOCI to ~~require employers that present a measure~~retained earnings. We adopted the provisions of operating income in their statement of income to include only the service cost component of net periodic pension cost and net periodic postretirement benefit cost in operating expenses (together with other employee compensation costs). The other components of net benefit cost, including amortization of prior service cost/credit, and settlement and curtailment effects, are to be included in nonoperating expenses. Employers that do not present a measure of operating income are required to include the service cost componentthis ASU in the ~~same line item as other employee compensation costs. Employers are required~~first quarter of 2019 and elected not to include all other components of net benefit cost in a separate line item(s). The line item(s) in which the components of net benefit cost other than the service cost are included need to be identified as such onreclassify the income ~~statement or~~tax effects of U.S. tax reform from items in accumulated other comprehensive income.

Standards Issued Not Yet Implemented

In June 2016, the ~~disclosures.~~FASB issued ASU ~~2017-07 also stipulates that only~~2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU modifies the ~~service cost component~~measurement of ~~net benefit cost is eligible for capitalization.~~expected credit losses of certain financial instruments. ASU ~~2017-07~~2016-13 is effective for ~~reporting~~annual periods beginning after December 15, ~~2017,~~2019, and interim periods within those annual periods. The amendments in this ASU should be applied on a modified retrospective basis to all periods presented. We are currently evaluating the effect that ASU 2016-13 will have on our consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. This ASU modifies the disclosure requirements for fair value measurements by removing, modifying or adding certain disclosures. ASU 2018-13 is effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods, with early adoption permitted. The ~~Company is currently performing its assessment~~amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the ~~impact~~narrative description of ~~adopting~~measurement uncertainty should be applied prospectively for only the ~~guidance; however based on its expectations for~~most recent interim or annual period presented in the initial fiscal year ~~ending March 31,~~of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. We are currently evaluating the effect that ASU 2018-13 will have on our consolidated financial statements and related disclosures.

In August 2018, the Company believes it will likely have a material impact due to the reclassification of certain components of pension and OPEB income from capitalized costs (Operating Income) to Other Income. The Company will adopt the new standard on April 1, 2018. Upon adoption, the cumulative affect, approximately $130,000 to $150,000 will be recorded as a current period charge to earnings in our fiscal year ended March 31, 2019. Excluding the service costs, the net periodic pension benefit for the fiscal year ending March 31, 2018 is expected to be $67,000.

~~In February 2016,~~ the FASB issued ASU ~~2016-02,~~ ~~Leases (Topic 842)~~ ("2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans, which modifies the disclosure requirements for defined benefit pension plans and other postretirement plans. ASU ~~2016-02"). This update requires recognition of lease assets and lease liabilities on the balance sheet of lessees. ASU 2016-02~~2018-14 is effective for ~~fiscal years~~annual periods beginning after December 15, 2020, with early adoption permitted. The amendments in this ASU should be applied on a retrospective basis to all periods presented. We are currently evaluating the effect that ASU 2018-14 will have on our consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). ASU 2018-15 is effective for annual periods beginning after December 15, 2019, and interim ~~reporting~~ periods within those ~~years. Early~~annual periods, with early adoption is permitted. The amendments in this ASU ~~2016-02 requires a~~

~~Triumph Group, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(dollars in thousands, except per share data)~~

~~(unaudited)~~

~~modified retrospective transition approach and provides certain optional transition relief. The Company is~~adoption. We are currently evaluating the ~~guidance to determine the impact it~~effect that ASU 2018-15 will have ~~to the Company's~~on our consolidated financial ~~statements.~~

statements and related disclosures.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

~~Revenue Recognition~~

Revenues are generally recognized in accordance with the contract terms when products are shipped, delivery has occurred or services have been rendered, pricing is fixed and determinable, and collection is reasonably assured. A significant portion of the Company’s contracts are within the scope of the ~~Revenue Recognition - Construction-Type and Production-Type Contracts~~ topic of the Accounting Standards Codification ("ASC") 605-35 and revenue and costs on contracts are recognized using the percentage-of-completion method of accounting. Accounting for the revenue and profit on a contract requires estimates of (1) the contract value or total contract revenue, (2) the total costs at completion, which is equal to the sum of the actual incurred costs to date on the contract and the estimated costs to complete the contract’s scope of work, and (3) the measurement of progress toward completion. Depending on the contract, the Company measures progress toward completion using either the cost-to-cost method or the units-of-delivery method of accounting, with the great majority measured under the units-of-delivery method of accounting.

Under the cost-to-cost method of accounting, progress toward completion is measured as the ratio of total costs incurred to estimated total costs at completion. Costs are recognized as incurred. Profit is determined based on estimated profit margin on the contract multiplied by the progress toward completion. Revenue represents the sum of costs and profit on the contract for the period.

Under the units-of-delivery method of accounting, revenue on a contract is recorded as the units are delivered and accepted during the period at an amount equal to the contractual selling price of those units. The costs recorded on a contract under the units-of-delivery method of accounting are equal to the total costs at completion divided by the total units to be delivered. As contracts can span multiple years, the Company often segments the contracts into production lots for the purposes of accumulating and allocating cost. Profit is recognized as the difference between revenue for the units delivered and the estimated costs for the units delivered.

Adjustments to original estimates for a contract’s revenues, estimated costs at completion and estimated total profit are often required as work progresses under a contract, as experience is gained and as more information is obtained, even though the scope of work required under the contract may not change, or if contract modifications occur. These estimates are also sensitive to the assumed rate of production. Generally, the longer it takes to complete the contract quantity, the more relative overhead that contract will absorb. The impact of revisions in cost estimates is recognized on a cumulative catch-up basis in the period in which the revisions are made. Provisions for anticipated losses on contracts are recorded in the period in which they become evident (‘‘forward losses’’) and are first offset against costs that are included in inventory, with any remaining amount reflected in accrued contract liabilities in accordance with the ~~Revenue Recognition - Construction-Type and Production-Type Contracts~~ topic. Revisions in contract estimates, if significant, can materially affect results of operations and cash flows, as well as valuation of inventory. Furthermore, certain contracts are combined or segmented for revenue recognition in accordance with the ~~Revenue Recognition - Construction-Type and Production-Type Contracts~~ ~~topic.~~

During the quarter ended September 30, 2016, the Company discovered an immaterial error in its percentage-of-completion accounting for one of its contracts, which understated cost of sales and overstated net income for the three months ended June 30, 2016, in the amount of $11,800 and $8,142, respectively, and overstated retained earnings as of March 31, 2016 in the amount of $12,700. The Company assessed the materiality of this error on previously issued financial statements in accordance with the ASC 250, ~~Presentation of Financial Statements, and Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. 99,~~ ~~Materialit~~y. The Company concluded, based on a review of the quantitative and qualitative factors of the materiality of the amount, that the error was not material to any previously issued financial statements and that the correction of the error in the three months ended September 30, 2016 was not material to that period’s financial statements.

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

~~Accordingly, in order~~Revenue Recognition

The Company's revenue is principally from contracts with customers to ~~correct this immaterial error,~~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 ~~recorded~~for the duration of the program’s life. Purchase orders (or authorizations to proceed) are issued pursuant to the master supply agreements. Additionally, a ~~charge~~majority of the Company’s agreements with customers include options for future purchases. Such options primarily reduce the administrative effort of issuing subsequent purchase orders and do not represent material rights granted to ~~"Cost~~customers. The Company generally enters into agreements directly with its customers and is the principal in all current contracts.

The identification of ~~sales"~~a contract with a customer for purposes of accounting and financial reporting requires an evaluation of the terms and conditions of agreements to determine whether presently enforceable rights and obligations exist. Management considers a number of factors when making this evaluation that include, but are not limited to, the nature and substance of the business exchange, the specific contractual terms and conditions, the promised products and services, the termination provisions in the contract, as well as the nature and execution of the customer’s ordering process and how the Company is authorized to perform work. Generally, presently enforceable rights and obligations are not created until a purchase order is issued by a customer for a specified number of units of product or services. Therefore, the issuance of a purchase order is generally the point at which a contract is identified for accounting and financial reporting purposes.

Management identifies the promises to the customer. Promises are generally explicitly stated in each contract, but management also evaluates whether any promises are implied based on the terms of the agreement, past business practice, or other facts and circumstances. Each promise is evaluated to determine if it is a performance obligation. A performance obligation is a promise in a contract to transfer a distinct good or service. The Company considers a number of factors when determining whether a promise is a contractual performance obligation, including whether the customer can benefit from the good or service on its own or together with other resources that are readily available to the customer, whether the Company provides a significant service of integrating goods or services to deliver a combined output to the customer, or whether the goods or services are highly interdependent. The Company’s performance obligations consist of a wide range of engineering design services and manufactured components, as well as spare parts and repairs for original equipment manufacturers ("OEMs").

The transaction price for a contract reflects the consideration the Company expects to receive for fully satisfying the performance obligations in the contract. Typically, the transaction price consists solely of fixed consideration but may include variable consideration for contractual provisions such as unpriced contract modifications, cost-sharing provisions, and other receipts or payments to customers. The Company identifies and estimates variable consideration, typically at the most likely amount the Company expects to receive from its customers. Variable consideration is only included in the transaction price to the extent it is probable that a significant reversal of ~~$24,500,~~cumulative revenue recognized for the contract will not occur, or when the uncertainty associated with the variable consideration is resolved. The Company's contracts with customers generally require payment under normal commercial terms after delivery with payment typically required within 30 to 120 days of delivery. However, a subset of the Company’s current contracts includes significant financing components because the timing of the transfer of the underlying products and services under contract are at the customers’ discretion. For these contracts, the Company adjusts the transaction price to reflect the effects of the time value of money.

The Company generally is not subject to collecting sales tax and has made an accounting policy election to exclude from the transaction price any sales and other similar taxes collected from customers. As a result, any such collections are accounted for on a net basis.

The total transaction price is allocated to each of the identified performance obligations using the relative stand-alone selling price. The objective of the allocation is to reflect the consideration that the Company expects to receive in exchange for the products or services associated with each performance obligation. Stand-alone selling price is the price at which the Company would sell a promised good or service separately to a customer. Stand-alone selling prices are established at contract inception, and subsequent changes in transaction price are allocated on the same basis as at contract inception. When stand-alone selling prices for the Company’s products and services are not observable, the Company uses either the “Expected Cost Plus a Margin” or "Adjusted Market Assessment" approaches to estimate stand-alone selling price. Expected costs are typically derived from the available periodic forecast information.

Revenue is ~~presented~~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

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

representing repair, maintenance, and engineering activities are recognized over the contractual period or as services are rendered. Sales under long-term contracts with performance obligations satisfied over time are recognized using either an input or output method. The Company recognizes revenue over time as it performs on these contracts because of the continuous transfer of control to the customer as represented by contractual terms that entitle the Company to the reimbursement of costs plus a reasonable profit for work performed to manufacture products for which the Company has no alternate use or for work performed on a customer-owned asset.

With control transferring over time, revenue is recognized based on the extent of progress toward completion of the performance obligation. The Company generally uses the cost-to-cost input method of progress for our contracts because it best depicts the transfer of control to the customer that occurs as work progresses. Under the cost-to-cost method, the extent of progress toward completion is measured based on the proportion of costs incurred to date to the total estimated costs at completion of the performance obligation. The Company reviews its cost estimates on significant contracts on a periodic basis, or when circumstances change and warrant a modification to a previous estimate. Cost estimates are largely based on negotiated or estimated purchase contract terms, historical performance trends and other economic projections. Significant factors that influence these estimates include inflationary trends, technical and schedule risk, internal and subcontractor performance trends, business volume assumptions, asset utilization, and anticipated labor agreements.

Revenue and cost estimates are regularly monitored and revised based on changes in circumstances. Impacts from changes in estimates of net sales and cost of sales are recognized on a cumulative catch-up basis, which recognizes in the current period the cumulative effect of the changes on current and prior periods based on a performance obligation’s percentage of completion. Forward loss reserves for anticipated losses on long-term contracts are recorded in full when such losses become evident, to the extent required, and are included in contract liabilities on the accompanying ~~Condensed Consolidated Statements of Income during the~~ ~~nine~~ ~~months ended December 31, 2016.~~consolidated balance sheets.

For the three months ended ~~December 31, 2017,~~September 30, 2019, cumulative catch-up adjustments from changes in estimates, ~~inclusive of~~including changes in forward loss estimates, increased net sales by approximately $3,189 and decreased operating income, net income, and earnings per share by approximately ~~$5,319, $4,255~~$(5,127), $(4,050) and ~~$0.09,~~$(0.08), net of tax, respectively. For the three months ended ~~December 31, 2016 cumulative catch-up adjustments were balanced between positive and negative variances.~~

~~For the nine months ended December 31, 2017,~~September 30, 2018, cumulative catch-up adjustments from changes in estimates ~~inclusive~~increased net sales by approximately $3,459 and decreased operating loss, net loss and loss per share by approximately $(10,191), $(10,191) and $(0.21), net of tax, respectively.

For the six months ended September 30, 2019, cumulative catch-up adjustments from changes in estimates, including changes in forward loss estimates, increased net sales by approximately $1,245 and decreased operating income, net income, and earnings per share by approximately ~~$11,979~~$(12,270), ~~$9,583~~$(9,693) and ~~$0.19~~$(0.19), net of tax, respectively. For the ~~nine~~six months ended ~~December 31, 2016~~,September 30, 2018, cumulative catch-up adjustments from changes in estimates decreased net sales, operating ~~income,~~loss, net ~~income~~loss and ~~earnings~~loss per share by approximately ~~$(6,290)~~$(3,292), ~~$(4,522)~~$(12,968), $(12,968) and ~~$(0.09)~~$(0.26), net of tax, respectively. These cumulative catch-up adjustments do not include a non-cash charge the Company recorded as a result of the adoption of ASU 2017-07 of $87,241 due to a change in estimate inseparable from a change in accounting principles, which is presented on the accompanying consolidated statements of operations within cost of sales.

~~Amounts representing contract change orders or claims~~Revenues for performance obligations that are ~~only included~~not recognized over time are recognized at the point in ~~revenue~~time when ~~such change orders or claims have been settled with~~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 the extent that units have been delivered. Additionally, some contracts may contain provisions for revenue sharing, price re-determination, requests for equitable adjustments, change orders or cost and/orcustomers. Shipping and handling activities are not considered performance ~~incentives. Such amounts or incentives~~obligations and related costs are included in cost of sales as incurred.

Differences in the timing of revenue recognition and contractual billing and payment terms result in the recognition contract ~~value when the amounts can be reliably estimated~~assets and ~~their realization is reasonably assured.~~liabilities. Refer to Note 4 for further discussion.

Although fixed-price contracts, which extend several years into the future, generally permit the Company to keep unexpected profits if costs are less than projected, the Company also bears the risk that increased or unexpected costs may reduce profit or cause the Company to sustain losses on the contract. In a fixed-price contract, the Company must fully absorb cost overruns, notwithstanding the difficulty of estimating allThe portion of the ~~costs the Company will incur in performing these~~Company's revenue resulting from transactions other than contracts ~~and in projecting the ultimate level of revenue that may otherwise be achieved.~~

~~As previously disclosed, the Company recognized provisions for forward losses associated~~ with ~~our long-term contracts on the 747-8 and Bombardier programs. There is still risk similar~~customers pertains to what the Company has experienced on the 747-8 and Bombardier programs. Particularly, the Company's ability to manage risks related to supplier performance, execution of cost reduction strategies, hiring and retaining skilled production and management personnel, quality and manufacturing execution, program schedule delays, potential need to negotiate facility lease extensions or alternatively relocate work and many other risks, will determine the ultimate performance of these programs.

~~Included in net sales of Integrated Systems, Aerospace Structures and Precision Components, is~~ the non-cash amortization of acquired contract liabilities that were recognized as fair value adjustments through purchase accounting from various acquisitions. ~~For~~

Leases

The Company leases office space, manufacturing facilities, land, vehicles, and equipment. The Company determines if an agreement is or contains a lease at the ~~three~~lease inception date and recognizes right-of-use assets and lease liabilities at the lease commencement date. A ROU asset and corresponding lease liability are not recorded for leases with an initial term of 12 months ~~ended December 31, 2017~~or less (short-term leases).

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

ROU assets represent the Company's right to use an underlying asset during the lease term, and ~~2016,~~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 ~~$34,492~~at commencement date and ~~$29,206, respectively, into net sales~~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 ~~accompanying Condensed Consolidated Statements~~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 ~~Income. For~~occurring and are presented in the ~~nine~~ ~~months ended~~ ~~December 31, 2017 and 2016~~,same line of the ~~Company recognized $91,862 and $89,031, respectively, into net sales on~~consolidated balance sheet as the ~~accompanying Condensed Consolidated Statements of Income.~~

~~Product Support provides repair and overhaul services, of which a small portion of services are provided under long-term power-by-the-hour contracts.~~rent expense arising from fixed payments. The Company ~~applies the proportional performance method of accounting to recognize revenue under these contracts. Revenue is recognized over the contract period as units~~has lease agreements with lease and non-lease components. Non-lease components are delivered based on the relative value in proportion to the total estimated contract consideration. In estimating the total contract consideration, management evaluates the projected utilization of its customers’ fleet over the term of the contract, in connectioncombined with the related ~~estimated repair~~lease components and ~~overhaul servicing requirements to the fleet based on such utilization. Changes in utilization~~accounted for as lease components for all classes of ~~the fleet by customers, among other factors, may have an impact on these estimates and require adjustments to estimates of revenue to be realized.~~underlying assets.

Concentration of Credit Risk

The Company’s trade accounts receivable are exposed to credit risk. However, the risk is limited due to the diversity of the customer base and the customer base’s wide geographical area. Trade accounts receivable from The Boeing Company ("Boeing") (representing commercial, military and space) represented approximately ~~11%~~17% and 5%18% of total trade accounts receivable as of ~~December 31, 2017~~September 30, 2019 and March 31, ~~2017~~,2019, respectively. Trade accounts receivable from Gulfstream ~~(representing commercial, military and space)~~Aerospace Corporation ("Gulfstream") represented approximately ~~14%~~7% and 3%11% of total trade accounts receivable as of ~~December 31, 2017~~September 30, 2019 and March 31, ~~2017,~~2019, respectively. Trade accounts receivable from Bombardier Inc. ("Bombardier") represented approximately 14% and 13% as of September 30, 2019 and March 31, 2019, respectively. The Company had no other concentrations of credit risk of more than 10%.

~~Triumph Group, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(dollars in thousands, except per share data)~~

~~(unaudited)~~

Sales to Boeing for the ~~nine~~six months ended ~~December 31, 2017,~~September 30, 2019, were ~~$743,271,~~$510,934, or ~~32%~~34% of net sales, of which ~~$151,803, $302,980, $282,068~~$117,938, $382,457, and ~~$6,420~~$10,539 were from the Integrated Systems, Aerospace Structures ~~Precision Components~~ and Product Support, respectively. Sales to Boeing for the ~~nine~~six months ended ~~December 31, 2016~~,September 30, 2018, were ~~$928,020,~~$527,896, or ~~36%~~31% of net sales, of which ~~$157,772, $427,960, $317,426~~$110,971, $410,133 and ~~$24,862~~$6,792 were from the Integrated Systems, Aerospace Structures ~~Precision Components~~ and Product Support, respectively.

Sales to Gulfstream for the ~~nine~~six months ended ~~December 31, 2017,~~September 30, 2019, were ~~$304,157,~~$187,689, or ~~13%~~12% of net sales, of which ~~$897, $293,749, $9,203~~$1,168, $185,973, and ~~$308~~$548 were from the Integrated Systems, Aerospace Structures ~~Precision Components~~ and Product Support, respectively. Sales to Gulfstream for the ~~nine~~six months ended ~~December 31, 2016,~~September 30, 2018, were ~~$321,671,~~$174,805, or ~~12%~~10% of net sales, of which ~~$1,418, $311,207, $8,855~~$1,065, $173,437, and ~~$191~~$303 were from the Integrated Systems, Aerospace Structures ~~Precision Components~~ and Product Support, respectively.

No other single customer accounted for more than 10% of the Company’s net sales. However, the loss of any significant customer, including Boeing and Gulfstream, could have a material adverse effect on the Company and its operating subsidiaries.

~~Stock-Based Compensation~~

The Company recognizes compensation expense for share-based awards based on the fair value of those awards at the date of grant. Stock-based compensation expense for the three months ended December 31, 2017 and 2016, was $2,719 and $2,163, respectively. Stock-based compensation expense for the ~~nine~~ ~~months ended~~ ~~December 31, 2017 and 2016, was~~ ~~$6,137~~ ~~and~~ ~~$6,140~~, 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 employees. Upon the exercise of stock options or vesting of restricted stock, the Company first transfers treasury stock, then issues new shares.

~~Intangible Assets~~

~~The components of intangible assets, net, are as follows:~~

December 31, 2017

Weighted-
Average Life

Gross Carrying
Amount

Accumulated
Amortization
Net

Customer relationships 17.0 $ 621,524
$ (247,058 ) $ 374,466
Product rights, technology and licenses 11.4 55,104
(41,241 ) 13,863
Non-compete agreements and other 16.3 2,756
(921 ) 1,835
Tradenames 10.0 150,000
(19,344 ) 130,656
Total intangibles, net $ 829,384
$ (308,564 ) $ 520,820

March 31, 2017

Weighted-
Average Life

Gross Carrying
Amount

Accumulated
Amortization
Net

Customer relationships 16.6 $ 663,165
$ (241,124 ) $ 422,041
Product rights, technology and licenses 11.4 54,347
(39,486 ) 14,861
Non-compete agreements and other 16.3 2,756
(786 ) 1,970
Tradenames 10.3 163,000
(9,508 ) 153,492
Total intangibles, net $ 883,268
$ (290,904 ) $ 592,364

~~Amortization expense for the three months ended December 31, 2017 and 2016, was $13,618 and $13,348, respectively. Amortization expense for the~~ ~~nine~~ ~~months ended December 31, 2017 and 2016, was $42,993 and $40,565, respectively.~~

Table of ~~property and equipment additions through capital leases.~~Contents

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

Intangible Assets

The components of intangible assets, net, are as follows:



	September 30, 2019
	Weighted Average Life	Gross Carrying Amount		Accumulated Amortization			Net

Customer relationships	17.7	$	549,965	$	(261,063	)	$	288,902
Product rights, technology and licenses	11.4	54,646		(45,035		)	9,611
Non-compete agreements and other	16.7	2,656		(1,124		)	1,532
Tradenames	10.0	150,000		(44,063		)	105,937
Total intangibles, net		$	757,267	$	(351,285	)	$	405,982



	March 31, 2019
	Weighted Average Life	Gross Carrying Amount		Accumulated Amortization			Net

Customer relationships	17.7	$	551,093	$	(245,626	)	$	305,467
Product rights, technology and licenses	11.4	54,850		(43,978		)	10,872
Non-compete agreements and other	16.7	2,656		(1,041		)	1,615
Tradenames	10.0	150,000		(37,000		)	113,000
Total intangibles, net		$	758,599	$	(327,645	)	$	430,954

Amortization expense for the three months ended September 30, 2019 and 2018, was $12,063 and $13,203, respectively. Amortization expense for the six months ended September 30, 2019 and 2018, was $24,146 and $26,436, respectively. Significant changes in expected cash flows generated by long-lived assets could result in the recognition of impairment losses; no such changes or losses were identified as of September 30, 2019.

Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. When determining fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and also considers assumptions that market participants would use when pricing an asset or liability. The fair value hierarchy has three levels of inputs that may be used to measure fair value: Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities; Level 2—Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability; and Level 3—Unobservable inputs for the asset or liability. The Company has applied fair value measurements to its divestitures ~~and interest rate swap~~ (see Note ~~3 and Note 5)~~3).

Warranty Reserves

A reserve has been established to provide for the estimated future cost of warranties on our delivered products. The Company periodically reviews the reserves and adjustments are made accordingly. A provision for warranty on products delivered is made on the basis of historical experience and identified warranty issues. Warranties cover such factors as non-conformance to specifications and defects in material and workmanship. The majority of the Company's agreements include a ~~three-year~~3-year warranty, although certain programs have warranties up to 20twenty years. The warranty reserves as of ~~December 31, 2017~~September 30, 2019 and March 31, ~~2017,~~2019, were ~~$85,516~~$60,207 and ~~$107,088,~~$58,395, respectively. The decrease in warranty reserves during the first nine months of the fiscal year ended March 31, 2018, were offset by a corresponding decrease to the related indemnification asset, which is included in other assets on the accompanying Condensed Consolidated Balance Sheets.

Supplemental Cash Flow Information

The Company ~~paid $11,013 and $5,936 for~~made income ~~taxes,~~tax payments, net of refunds ~~for~~of $2,724 during the ~~nine~~six months ended ~~December 31, 2017 and 2016, respectively.~~

September 30, 2019. The Company ~~made interest~~received income tax refunds, net of payments of ~~$54,013~~ ~~and~~ ~~$61,251~~ ~~for~~$7,120 during the ~~nine~~six months ended ~~December 31, 2017 and 2016, respectively.~~September 30, 2018.

~~During the nine months ended December 31, 2017 and 2016, the Company financed $2,206 and $11,504, respectively,~~

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

As of ~~December 31, 2017,~~September 30, 2019, the Company remains able to purchase an additional 2,277,789 shares under the existing stock repurchase program. However, there are certain restrictions placed on the repurchase program by the Company's lenders that prevent any repurchases at this time.

3. DIVESTED OPERATIONS AND ASSETS HELD FOR SALE

In October 2019, the Company entered into a definitive agreement to sell its manufacturing operations at its Nashville, TN, facility. The Company expects to record a loss during the third fiscal quarter of approximately $50,000 to $60,000 from the sale of approximately $125,000 in net assets at this facility. As of September 30, 2019, the Board of Directors had not approved the transaction due to uncertainty pertaining to specific terms and conditions, and therefore the transaction did not meet the requirements for the related assets and liabilities to be classified as held for sale on the accompanying condensed consolidated balance sheets.

In September ~~2017,~~2019, the Company completed the assignment of its E-2 Jets contract with Embraer for the manufacture of structural components for their program to AeroSpace Technologies of Korea Inc. ("ASTK"). As part of this transaction, the Company transferred certain assets and liabilities to ASTK and recognized a gain of approximately $10,000 which is presented on the accompanying consolidated statements of operations within (gain) loss on sale of assets and businesses.

In March 2019, the Company sold all of the shares of Triumph ~~Processing - Embee Division,~~Structures – Kansas City, Inc. ~~("Embee"~~; Triumph Structures – Wichita, Inc.; Triumph Gear Systems – Toronto; ULC; and Triumph Northwest (The Triumph Group Operations, Inc.) ~~for total~~(together, "Machining"). Total cash proceeds net of ~~$64,986. As a result of~~transaction costs for the sale of ~~Embee,~~Machining was approximately $43,000. A portion of the proceeds associated with the sale of Machining included consideration in the form of a note receivable of $10,000. Upon closing, the Company recognized a loss of ~~$17,857 which~~approximately $116,000. An additional loss of approximately $5,000 was recognized during the six months ended September 30, 2019, as a result of working capital adjustments and additional transaction costs and is presented within loss on divestitures on the accompanying ~~Condensed Consolidated Statements~~condensed consolidated statements of ~~Operations as "Loss on divestiture." The operating results of Embee were included in Integrated Systems through the date of disposal.~~operations.

In ~~September 2016,~~March 2019, the Company sold all of the shares of (i) Triumph Fabrications - San Diego, Inc. and Triumph Fabrications - Ft. Worth, Inc. (together, "Fabrications"), and (ii) Triumph Aviation Services - NAAS Division, Inc. ("NAAS"). Total cash proceeds net of transaction costs for the sales of Fabrications and NAAS were approximately $133,000 and $18,000, respectively. As a result of the sales of Fabrications, the Company recognized a gain of approximately $54,000. The sale of NAAS resulted in an immaterial gain.

In February 2019, the Company transitioned responsibility for the Global 7500 wing program manufacturing operations of Aerospace Structures to Bombardier at which point Bombardier assumed the program’s assets and obligations. As a result of this transfer, the Company recognized a loss of approximately $169,000. The Company continues to provide transition services related to infrastructure support reducing in scope over the next several months, as well as a lease of the building in Red Oak, Texas, dedicated to the manufacturer of the Global 7500 wing to Bombardier.

In July 2018 and August 2018, respectively, the Company sold all of the shares of Triumph ~~Aerospace Systems-Newport News,~~Structures - East Texas, Inc. ~~("Newport News")~~as well as all of the shares of Triumph Structures - Los Angeles, Inc., and Triumph Processing, Inc. for ~~total~~combined cash proceeds net of ~~$9,000.~~transactions costs of approximately $43,000 and a note receivable of $7,000. The note receivable was collected in October 2018. As a result of ~~the sale of Newport News,~~these sales, the Company recognized ~~a loss~~losses of ~~$4,774~~approximately $17,000 which isare presented on the accompanying ~~Condensed Consolidated Statements~~consolidated statements of ~~Operations as "Loss~~operations within (gain) loss on ~~divestiture."~~ sale of assets and businesses.

4. REVENUE RECOGNITION AND CONTRACTS WITH CUSTOMERS

Disaggregation of Revenue

The ~~operating results~~Company disaggregates revenue based on the method of ~~Newport News were included~~measuring satisfaction of the performance obligation either over time or at a point in ~~Integrated Systems through the date of disposal.~~

~~In December 2016,~~time. Additionally, the Company ~~entered into a definitive agreement~~disaggregates revenue based upon the end market where products and services are transferred to ~~divest Triumph Air Repair,~~ the ~~Auxiliary Power Unit Overhaul Operations of Triumph Aviation Services - Asia, Ltd.~~customer. The Company’s principal operating segments and ~~Triumph Engines - Tempe ("Engines and APU"). As a result, the Company recognized a loss of $14,263 on the sale. The operating results of Engines and APU were included~~related revenue are discussed in ~~Product Support through the date of disposal. The transaction closed during the quarter ended June 30, 2017.~~Note 13, Segments.

1013

Table of ~~these entities does~~Contents

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

The ~~disposal~~following table shows disaggregated net sales satisfied overtime and at a point in time (excluding intercompany sales) for the three and six months ended September 30, 2019:



	Three Months Ended September 30,				Six Months Ended September 30,
	2019		2018		2019		2018
Integrated Systems
Satisfied over time	$	75,871	$	72,188	$	148,176	$	136,547
Satisfied at a point in time	198,648		177,626		369,275		342,804
Revenue from contracts with customers	274,519		249,814		517,451		479,351
Amortization of acquired contract liabilities	9,624		8,768		17,749		17,617
Total revenue	284,143		258,582		535,200		496,968

Aerospace Structures
Satisfied over time	$	372,247	$	448,315	$	744,484	$	901,594
Satisfied at a point in time	35,462		70,059		71,874		138,743
Revenue from contracts with customers	407,709		518,374		816,358		1,040,337
Amortization of acquired contract liabilities	12,992		8,036		21,807		16,421
Total revenue	420,701		526,410		838,165		1,056,758

Product Support
Satisfied over time	$	63,483	$	64,807	$	120,420	$	124,232
Satisfied at a point in time	3,783		5,309		8,556		10,050
Revenue from contracts with customers	67,266		70,116		128,976		134,282
Amortization of acquired contract liabilities	—		—		—		—
Total revenue	67,266		70,116		128,976		134,282
	$	772,110	$	855,108	$	1,502,341	$	1,688,008

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

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



	Three Months Ended September 30,				Six Months Ended September 30,
	2019		2018		2019		2018
Integrated Systems
Commercial aerospace	$	139,819	$	133,103	$	268,238	$	253,680
Military	99,538		87,735		183,603		170,427
Business jets	17,832		15,297		33,539		28,133
Regional	8,537		7,339		15,860		13,956
Non-aviation	8,793		6,340		16,211		13,155
Revenue from contracts with customers	274,519		249,814		517,451		479,351
Amortization of acquired contract liabilities	9,624		8,768		17,749		17,617
Total revenue	$	284,143	$	258,582	$	535,200	$	496,968

Aerospace Structures
Commercial aerospace	$	242,888	$	244,636	$	472,529	$	526,799
Military	28,778		66,482		56,378		124,404
Business jets	110,660		191,866		231,809		359,313
Regional	25,377		10,132		55,632		16,534
Non-aviation	6		5,258		10		13,287
Revenue from contracts with customers	407,709		518,374		816,358		1,040,337
Amortization of acquired contract liabilities	12,992		8,036		21,807		16,421
Total revenue	$	420,701	$	526,410	$	838,165	$	1,056,758

Product Support
Commercial aerospace	$	54,447	$	55,093	$	101,347	$	104,563
Military	8,978		11,869		20,271		21,254
Business jets	525		399		964		1,793
Regional	3,214		2,755		6,264		6,672
Non-aviation	102		—		130		—
Revenue from contracts with customers	67,266		70,116		128,976		134,282
Amortization of acquired contract liabilities	—		—		—		—
Total revenue	67,266		70,116		128,976		134,282
	$	772,110	$	855,108	$	1,502,341	$	1,688,008

Contract Assets and Liabilities

Contract assets primarily represent revenues recognized for performance obligations that have been satisfied or partially satisfied but for which amounts have not ~~represent~~been billed. This typically occurs when revenue is recognized over time but the Company's contractual right to bill the customer and receive payment is conditional upon the satisfaction of additional performance obligations in the contract, such as final delivery of the product. Contract assets are recognized when the revenue associated with the contract is recognized prior to billing and derecognized when billed in accordance with the terms of the contract. The Company performs ongoing evaluations of the potential impairment of its contract assets based on prior experience and specific matters when they arise. No impairments to contract assets were recorded for the period ended September 30, 2019.

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

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 ~~strategic shift~~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 isliability 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. Contract modifications that are for goods or services that are not ~~expected~~distinct from the existing contract, due to ~~have~~the significant integration with the original good or service provided, are accounted for as if they were part of that existing contract. The effect of a ~~major effect~~contract modification to an existing contract on the ~~Company's operations~~transaction price and our measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue (either as an increase in or ~~financial results, as defined by ASC 205-20,~~ ~~Discontinued Operations~~;a reduction of revenue) on a cumulative catch-up basis. When the modifications include additional performance obligations that are distinct and at relative stand-alone selling price, they are accounted for as a ~~result, the disposals do not meet the criteria to be~~new contract and performance obligation, which are recognized prospectively.

Contract balances are classified as ~~discontinued operations.~~

~~To measure the amount of impairment related to the divestitures, the Company compared the fair values of~~ assets ~~and~~or liabilities ~~at the evaluation dates to the carrying amounts~~on a contract-by-contract basis at the end of ~~the month prior to the respective evaluation dates.~~each reporting period. The ~~sale of Embee, Newport News and Engines and APU~~following table summarizes our contract assets and liabilities ~~are categorized~~balances:



	September 30, 2019			March 31, 2019			Change
Contract assets	$	334,843		$	326,667		$	8,176
Contract liabilities	(390,704		)	(450,051		)	59,347
Net contract liability	$	(55,861	)	$	(123,384	)	$	67,523

The Company recognized revenue due to changes in estimates associated with performance obligations satisfied or partially satisfied in previous periods of $1,245. The increase in contract assets is the result of revenue recognized in excess of amounts billed during the quarter partially offset by $76,667 in contract assets liquidated as ~~Level 2 within the fair value hierarchy. The key assumption included the negotiated sales price~~part of the assignment of the E2-Jets contract to ASTK. The decrease in contract liabilities is the result of revenue recognized in excess of the receipt of additional customer advances during the period as well as $12,641 in contract liabilities liquidated as part of the assignment of the E2-Jets contract to ASTK. For the period ended September 30, 2019, the Company recognized $48,555 of revenue that was included in the contract liability balance at the beginning of the period. Noncurrent contract assets presented in other, net on the accompanying consolidated balance sheets as of September 30, 2019 and March 31, 2019, were $34,173 and $34,185, respectively. Noncurrent contract liabilities presented in other noncurrent liabilities on the accompanying consolidated balance sheets as of September 30, 2019 and March 31, 2019, were $113,737 and $156,332, respectively.

Performance Obligations

Customers generally contract with the Company for requirements in a segment relating to a specific program, and the ~~assumptions~~Company’s performance obligations consist of a wide range of engineering design services and manufactured components, as well as spare parts and repairs for OEMs. A single contract may contain multiple performance obligations consisting of both recurring and nonrecurring elements.

As of September 30, 2019, the ~~liabilities (see Note 2 above for definition of levels).~~Company has the following unsatisfied, or partially unsatisfied, performance obligations that are expected to be recognized in the future as noted in the table below. The Company expects options to be exercised in addition to the amounts presented below.



	Total		Less than 1 year		1-3 years		4-5 years		More than 5 years
Unsatisfied performance obligations	$	4,426,826	$	2,167,822	$	1,348,222	$	458,893	$	451,889

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

5. LEASES

The components of lease expense for the six months ended September 30, 2019, are disclosed in the table below.



Lease Cost	Financial Statement Classification	Six Months Ended September 30, 2019
Operating lease cost	Cost of sales or Selling, general and administrative expense	$	12,760
Variable lease cost	Cost of sales or Selling, general and administrative expense	3,722

Financing Lease Cost:
Amortization of right-of-use assets	Depreciation and amortization	2,730
Interest on lease liability	Interest expense and other	1,192
Total lease cost (1)		$	20,404

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

Supplemental cash flow information for the six months ended September 30, 2019, is disclosed in the table below.



	Six Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows used in operating leases	$	9,300
Operating cash flows used in finance leases	1,196
Financing cash flows used in finance leases	4,647

ROU assets obtained in exchange for lease liabilities
Operating leases	$	2,455
Finance leases	795

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

Supplemental balance sheet information related to leases as of September 30, 2019, is disclosed in the table below.



Leases	Classification	September 30, 2019
Assets
Operating lease ROU assets	Other, net	$	70,050

Finance lease ROU assets, cost	Property and equipment, net	45,269
Accumulated amortization	Property and equipment, net	(19,251		)
Finance lease ROU assets, net		26,018
Total lease assets		$	96,068

Liabilities
Current
Operating	Accrued expenses	$	16,804
Finance	Current portion of long-term debt	7,759
Noncurrent
Operating	Other noncurrent liabilities	63,753
Finance	Long-term debt, less current portion	20,360
Total lease liabilities		$	108,676

Information related to lease terms and discount rates as of September 30, 2019, is disclosed in the table below:



	September 30, 2019
Weighted average remaining lease term (years)
Operating leases	7.4
Finance leases	6.7

Weighted average discount rate
Operating leases	6.4	%
Finance leases	5.7	%

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

The maturity of the Company's lease liabilities as of September 30, 2019, is disclosed in the table below.



	Operating leases			Finance leases			Total
FY2020 (remaining of year)	$	12,174		$	4,689		$	16,863
FY2021	17,028			8,773			25,801
FY2022	14,735			5,738			20,473
FY2023	11,344			2,862			14,206
FY2024	8,696			2,110			10,806
Thereafter	37,931			11,263			49,194
Total lease payments	101,908			35,435			137,343
Less: Imputed interest	(21,351		)	(7,316		)	(28,667		)
Total lease liabilities	$	80,557		$	28,119		$	108,676

6. INVENTORIES

Inventories are stated at the lower of cost (average-cost or specific-identification methods) or market. The components of inventories are as follows:



	September 30, 2019		March 31, 2019
Raw materials	$	37,128	$	35,883
Work-in-process, including manufactured and purchased components	306,634		277,996
Finished goods	53,776		42,399
Rotable assets	56,864		57,282
Total inventories	$	454,402	$	413,560

December 31, 2017 March 31, 2017
Raw materials $ 82,768
$ 89,069
Work-in-process, including manufactured and purchased components 1,613,881
1,297,989
Finished goods 117,820
118,265
Rotable assets 57,295
57,337
Less: unliquidated progress payments (409,040 ) (222,485 )
Total inventories $ 1,462,724
$ 1,340,175

Work-in-process inventory includes capitalized pre-production costs on newer development programs. Capitalized pre-production costs include nonrecurring engineering, planning and design, including applicable overhead, incurred before production is manufactured on a regular basis. Significant customer-directed work changes can also cause pre-production costs to be incurred. These costs are typically recovered over a contractually determined number

7. LONG-TERM DEBT

Long-term debt consists of ~~ship set deliveries. The balance of development program inventory, comprised principally of capitalized pre-production costs, excluding progress payments related to~~ the ~~Company's contracts with Bombardier for the Global 7000/8000 program ("Bombardier") and Embraer for the second generation E-Jet program ("Embraer") are as follows:~~

December 31, 2017
Inventory Capitalized Pre-Production Forward Loss Provision Total Inventory, net
Bombardier $ 265,137
$ 670,010
$ (352,900 ) $ 582,247
Embraer 33,669
179,121
(5,762 ) 207,028
Total $ 298,806
$ 849,131
$ (358,662 ) $ 789,275

March 31, 2017
Inventory Capitalized Pre-Production Forward Loss Provision Total Inventory, net
Bombardier $ 89,650
$ 589,449
$ (399,758 ) $ 279,341
Embraer 14,987
173,169
(5,800 ) 182,356
Total $ 104,637
$ 762,618
$ (405,558 ) $ 461,697

Under our contract for the Bombardier Global 7000/8000 wing program ("Global 7000"), the Company has the right to design, develop and manufacture wing components for the Global 7000 program. The Global 7000 contract provides for fixed pricing and requires the Company to fund certain up-front development expenses, with certain milestone payments made by Bombardier.

following:



	September 30, 2019			March 31, 2019

Revolving line of credit	$	67,385		$	215,000
Receivable securitization facility	65,900			80,700
Finance leases	28,119			31,292
Senior secured notes due 2024	525,000			—
Senior notes due 2021	—			375,000
Senior notes due 2022	300,000			300,000
Senior notes due 2025	500,000			500,000
Less: Debt issuance costs	(17,871		)	(13,171		)
	1,468,533			1,488,821
Less: Current portion	7,759			8,201
	$	1,460,774		$	1,480,620

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

The Global 7000 program charge resulted in the impairment of previously capitalized pre-production costs due to the combination of cost recovery uncertainty, higher than anticipated non-recurring costs and increased forecasted costs on recurring production. The increases in costs were driven by several factors, including: changing technical requirements, increased spending on the design and engineering phase of the program, and uncertainty regarding cost reduction and cost recovery initiatives with our customer and suppliers.

~~The Global 7000 program has continued to incur costs since March 2016 in support of the development and transition to production.~~

In May 2017, Triumph Aerostructures and Bombardier entered into a comprehensive settlement agreement that resolved all outstanding commercial disputes between them, including all pending litigation, related to the design, manufacture and supply of wing components for the Global 7000 business aircraft. The settlement resets the commercial relationship between the companies and allows each company to better achieve its business objectives going forward.

Further cost increases or an inability to meet revised recurring cost forecasts on the Global 7000 program may result in additional forward loss reserves in future periods, while improvements in future costs compared to current estimates may result in favorable adjustments if forward loss reserves are no longer required.

The Company is still in the pre-production stages for the Bombardier and Embraer programs, as these aircrafts are not scheduled to enter service until calendar year 2018, or later. Transition of these programs from development to recurring production levels is dependent upon the success of the programs achieving flight testing and certification, as well as the ability of the Bombardier and Embraer programs to generate acceptable levels of aircraft sales. The failure to achieve these milestones and level of sales or significant cost overruns may result in additional forward losses.

~~5. LONG-TERM DEBT~~

~~Long-term debt consists of the following:~~

December 31, 2017 March 31, 2017

Revolving line of credit $ 50,000
$ 29,999
Term loan —
309,375
Receivable securitization facility 109,200
112,900
Capital leases 58,297
72,800
Senior notes due 2021 375,000
375,000
Senior notes due 2022 300,000
300,000
Senior notes due 2025 500,000
—
Other debt —
7,978
Less: Debt issuance costs (17,886 ) (11,752 )
1,374,611
1,196,300
Less: Current portion 15,135
160,630
$ 1,359,476
$ 1,035,670

Revolving Credit Facility

~~In July 2017,~~On September 23, 2019, the Company and its subsidiary co-borrowers and guarantors entered into ~~a Ninth~~an Eleventh Amendment to the Credit Agreement (the ~~“Ninth~~“Eleventh Amendment” and the ~~Existing~~existing Credit Agreement as amended by the ~~Ninth~~Eleventh Amendment, the “Credit Agreement”) with the Administrative Agent and the Lenders party ~~thereto to, among~~thereto. Among other things, the Eleventh Amendment:

(i) ~~permit~~permits the Company to incur ~~High Yield Indebtedness (as defined~~indebtedness in respect of the ~~Credit Agreement)~~Senior Secured Notes due 2024 (the "2024 Notes") in an aggregate principal amount of up to ~~$500,000,~~$525,000 , subject to the ~~Company’s obligations~~terms and conditions of the Intercreditor Agreement;

(ii) lowers the aggregate amount of revolving credit commitments from $700,000 to ~~apply~~$600,000 upon the earlier of (a) the completion by the Company of $100,000 in certain asset sales or divestitures or (b) March 31, 2020;

(iii) extends, with respect to extending banks representing approximately $406,500 of $600,000 total commitments outstanding as of March 31, 2020, the expiration date for the revolving line of credit available to the Company pursuant to the Credit Agreement to March 15, 2024; and retains an accordion feature that permits the Company to request an increase to the revolving credit commitments by up to $200,000;

(iv) adds an additional mandatory prepayment provision requiring that the Company prepay any outstanding revolving credit loans in an amount equal to (a) with respect to an Identified Asset Sale (as defined in the Credit Agreement) the greater of (x) $50,000 and (y) 100% of the net ~~proceeds from this offering to repay the outstanding principal amount of the term loans in full, (ii) limit the mandatory prepayment provisions to eliminate the requirement that net~~asset sale proceeds received ~~from the incurrence of Permitted Indebtedness~~in connection therewith, and (b) with respect to other Specified Asset Sales (as defined in the Credit Agreement), ~~including~~100% of the ~~High Yield Indebtedness, be applied to reduce the revolving credit~~net asset proceeds received from such other Specified Asset Sales;

~~Triumph Group, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(dollars in thousands, except per share data)~~

~~(unaudited)~~

~~commitments once the revolving credit commitments have been reduced to $800,000, (iii) amend~~(v) modifies certain financial covenants and other terms ~~and (iv) modify the current interest rate and letter of credit pricing tiers.~~

In connection with the ~~amendment~~Eleventh Amendment to the Credit Agreement, the Company incurred ~~$633~~$6,944 of financing costs. These costs, along with the ~~$13,226~~$6,222 of unamortized financing costs subsequent to the ~~amendment,~~Tenth Amendment, are being amortized over the remaining term of the Credit ~~Agreement.~~Agreement on a lender-by-lender basis. In accordance with the reduction in the capacity of the Credit Agreement, the Company ~~wrote-off~~wrote off a proportional amount of unamortized financing fees existing prior to the ~~amendment.~~

In May 2017, the Company entered into an Eighth Amendment to the Third Amended and Restated Credit Agreement, among the Company and its lenders to, among other things, (i) eliminate the total leverage ratio financial covenant, (ii) increase the maximum permitted senior secured leverage ratio financial covenant applicable to each fiscal quarter, commencing with the fiscal quarter ended March 31, 2017, and to revise the step-downs applicable to such financial covenant, (iii) reduce the aggregate principal amount of commitments under the revolving line of credit to $850,000 from $1,000,000, (iv) modify the maturity date of the term loans so that all of the term loans will mature on March 31, 2019, and (v) establish a new higher pricing tier for the interest rate, commitment fee and letter of credit fee pricing provisions.Eleventh Amendment.

The obligations under the Credit ~~Facility~~Agreement and related documents are secured by liens on substantially all assets of the Company and its domestic subsidiaries pursuant to a Second Amended and Restated Guarantee and Collateral Agreement, dated as of November 19, 2013, among the administrative agent, the Company and the subsidiaries of the Company party thereto.

Pursuant to the Credit ~~Facility,~~Agreement, the Company can borrow, repay and re-borrow revolving credit loans, and cause to be issued letters of credit, in an aggregate principal amount not to exceed ~~$800,000~~$700,000 outstanding at any ~~time.~~time as such revolving credit commitments are reduced as discussed above. The Credit ~~Facility~~Agreement bears interest at either: (i) ~~LIBOR~~London Interbank Offered Rate ("LIBOR") plus between 1.50% and 3.50%; (ii) the prime rate; or (iii) an overnight rate at the option of the Company. The applicable interest rate is based upon the Company’s ratio of total indebtedness to earnings before interest, taxes, depreciation and ~~amortization.~~amortization provided, however, that during the Pricing Restriction Period (as defined in the Credit Agreement), the loans will bear interest at the highest rate above LIBOR. In addition, the Company is required to pay a commitment fee of 0.50% on the unused portion of the Credit ~~Facility.~~Agreement. The Company’s obligations under the Credit ~~Facility~~Agreement are guaranteed by the Company’s domestic subsidiaries.

At ~~December 31, 2017,~~September 30, 2019, there were ~~$50,000~~$67,385 in borrowings and ~~$30,152~~$23,878 in letters of credit outstanding under the Revolving Line of Credit provisions of the Credit ~~Facility,~~Agreement, primarily to support insurance policies. At March 31, ~~2017,~~2019, there were ~~$29,999~~$215,000 in outstanding borrowings and ~~$27,240~~$30,773 in letters of credit outstanding under the Revolving Line of Credit provisions of the Credit ~~Facility,~~Agreement, primarily to support insurance policies. The level of unused borrowing capacity under the Revolving Line of Credit provisions of the Credit ~~Facility~~Agreement varies from time to time depending in part upon its compliance with financial and other covenants set forth in the related agreement. The Credit ~~Facility~~Agreement contains certain affirmative and negative covenants, including limitations on specified levels of indebtedness to earnings before interest, taxes, depreciation and amortization, and interest coverage requirements, and includes limitations on, among other things, liens, mergers, consolidations, sales of assets, and incurrence of debt. If an event of default were to occur under the Credit ~~Facility,~~Agreement, the

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

lenders would be entitled to declare all amounts borrowed under it immediately due and payable. The occurrence of an event of default under the Credit ~~Facility~~Agreement could also cause the acceleration of obligations under certain other agreements. The Company is currently in compliance with all such covenants. ~~Although the Company does not anticipate any violations of the financial covenants, its ability to comply with these covenants is dependent upon achieving earnings and cash flow projections.~~ As of ~~December 31, 2017,~~September 30, 2019, the Company had borrowing capacity under this ~~facility~~agreement of ~~$719,848~~$393,314 after reductions for borrowings, letters of credit outstanding under the facility and consideration of covenant limitations.

The Credit Facility also provided for a variable rate term loan (the "2013 Term Loan"). The Company repaid the outstanding principal amount of the 2013 Term Loan in quarterly installments, on the first business day of each January, April, July and October. The 2013 Term Loan was paid in full with the proceeds from the Senior Notes due 2025 (see below).

The Company previously maintained an interest rate swap agreement to reduce its exposure to interest on the variable rate portion of its long-term debt. In conjunction with the repayment of the 2013 Term Loan, the Company terminated the interest rate swap receiving $280 upon settlement which is included in Interest expense and other on the accompanying Condensed Consolidated Statements of Operations.

~~Triumph Group, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(dollars in thousands, except per share data)~~

~~(unaudited)~~

Receivables Securitization Facility

In November 2017, the Company amended ~~the Securitization Facility~~its receivable securitization facility (the "Securitization Facility") decreasing the purchase limit from $225,000 to $125,000 and extending the term through November 2020. In connection with the Securitization Facility, the Company sells on a revolving basis certain ~~trade~~eligible accounts receivable to Triumph Receivables, LLC, a wholly-owned special-purpose entity, which in turn sells a percentage ownership interest in the receivables to commercial paper conduits sponsored by financial institutions. The Company is the servicer of the trade accounts receivable under the Securitization Facility. As of ~~December 31, 2017,~~September 30, 2019, the maximum amount available under the Securitization Facility was $125,000. Interest rates are based on LIBOR plus a program fee and a commitment fee. The program fee is 0.13% on the amount outstanding under the Securitization Facility. Additionally, the commitment fee is 0.50% on 100.00% of the maximum amount available under the Securitization Facility. The Company secures its trade accounts receivable, which are generally ~~non-interest bearing,~~non-interest-bearing, in transactions that are accounted for as borrowings pursuant to ~~the~~ASC 860, Transfers and ~~Servicing~~ ~~topic of the ASC 860.~~Servicing.

The agreement governing the Securitization Facility contains restrictions and covenants, including limitations on the making of certain restricted ~~payments,~~payments; creation of certain ~~liens,~~liens; and certain corporate acts such as mergers, consolidations and the sale of all or substantially all of the Company's assets.

Senior Secured Notes Due ~~2021~~2024

On ~~February 26, 2013,~~September 23, 2019, the Company issued ~~$375,000~~$525,000 principal amount of ~~4.875%~~6.250% Senior Secured Notes due ~~2021 (the "2021 Notes").~~2024. The ~~2021~~2024 Notes were sold at 100% of principal amount and have an effective interest yield of ~~4.875%~~6.250%. Interest on the ~~2021~~2024 Notes accrues at the rate of ~~4.875%~~6.250% per annum and is payable semiannually in cash in arrears on ~~April 1~~March 15 and ~~October 1~~September 15 of each year, commencing on March 15, 2020. In connection with the issuance of the 2024 Notes, the Company incurred approximately $9,300 of costs, which were deferred and are being amortized over the term of the 2024 Notes.

The 2024 Notes are second lien secured obligations of the Company and its subsidiary guarantors. The 2024 Notes:

rank equal in right of payment to existing and future senior indebtedness of the Company and its subsidiary guarantors, including the obligations of the Company and its subsidiary guarantors under the Company’s credit facility;

are effectively subordinated to all obligations of the Company and its subsidiary guarantors that are either (A) secured by a lien on the Collateral (as defined below) that is senior or prior to the second-priority liens securing the 2024 Notes, including the first-priority liens securing borrowings under the Company’s credit facility and certain cash management and hedging obligations, or (B) secured by assets that do not constitute the Collateral, in each case to the extent of the value of the assets securing such obligations;

are senior in right of payment to existing and future subordinated indebtedness of the Company and its subsidiary guarantors;

are effectively senior to all existing and future unsecured debt of the Company and its subsidiary guarantors, but only to the extent of the value of the Collateral (after giving effect to any senior liens on the Collateral); and

are structurally subordinated in right of payment to all indebtedness and other liabilities of the Company’s existing and future subsidiaries that do not guarantee the 2024 Notes.

The 2024 Notes are guaranteed on a full, senior secured, joint and several basis by each of the Company’s domestic restricted subsidiaries that is a borrower under the Company’s credit facility or that guarantees any of the Company’s debt or that of any of the Company’s domestic restricted subsidiaries under the Company’s credit facility and in the future by any of the Company’s domestic restricted subsidiaries that are borrowers under any credit facility or that guarantee any debt of the Company or any of its domestic restricted subsidiaries incurred under any credit facility (the "Guarantor Subsidiaries").

The Company may redeem the 2024 Notes, in whole or in part, at any time or from time to time on or after September 15, 2020, 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 September 15, 2020, the Company may redeem the 2024 Notes, in whole or in part, at a redemption price equal

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

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 2024 Notes prior to September 15, 2020, with the net cash proceeds from certain equity offerings at a redemption price equal to 106.250% of their principal amount, together with accrued and unpaid interest, if any, to the redemption date.

If the Company experiences specific kinds of changes of control, the Company is required to offer to purchase all of the 2024 Notes at a purchase price of 101% of their principal amount, plus accrued and unpaid interest, if any, to the date of purchase.

The 2024 Notes were issued pursuant to an indenture dated as of September 23, 2019 (the “Indenture”). The 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.

Senior Notes Due 2021

On September 23, 2019, the Company called all outstanding 4.875% Senior Notes due 2021 (the "2021 Notes") Notes and discharged the 2021 Notes by irrevocably depositing with the 2021 Notes trustee sufficient funds to pay all principal and accrued interest through October ~~1, 2013.~~23, 2019. On October 23, 2019, the Company redeemed $375,000 principal amount of the 2021 Notes with the proceeds of the 2024 Notes.

Senior Notes Due 2022

On June 3, 2014, the Company issued $300,000 principal amount of 5.250% Senior Notes due 2022 (the "2022 Notes"). The 2022 Notes were sold at 100% of principal amount and have an effective interest yield of 5.250%. Interest on the 2022 Notes accrues at the rate of 5.250% per annum and is payable semiannually in cash in arrears on June 1 and December 1 of each year, commencing on December 1, 2014.

Senior Notes Due 2025

On August 17, 2017, the Company issued $500,000 principal amount of 7.750% Senior Notes due 2025 (the "2025 Notes"). The 2025 Notes were sold at 100% of principal amount and have an effective interest yield of 7.750%. Interest on the 2025 Notes accrues at the rate of 7.750% per annum and is payable semiannually in cash in arrears on February 15 and August 15 of each year, commencing on February 15, 2018. In connection with the issuance of the 2025 Notes, the Company incurred approximately $8,779 of costs, which were deferred and are being amortized on the effective interest method over the term of the 2025 Notes.

The 2025 Notes are the Company's senior unsecured obligations and rank equally in right of payment with all of its other existing and future senior unsecured indebtedness and senior in right of payment to all of its existing and future subordinated indebtedness. The 2025 Notes are guaranteed on a full, joint and several basis by each of the Guarantor Subsidiaries.

The Company may redeem some or all of the 2025 Notes prior to August 15, 2020 by paying a "make-whole" premium. The Company may redeem some or all of the 2025 Notes on or after August 15, 2020, at specified redemption prices. In addition, prior to August 15, 2020, the Company may redeem up to 35% of the 2025 Notes with the net proceeds of certain equity offerings at a redemption price equal to 107.750% of the aggregate principal amount plus accrued and unpaid interest, if any, subject to certain limitations set forth in the indenture governing the 2025 Notes (the "2025 Indenture").

The Company is obligated to offer to repurchase the 2025 Notes at a price of (i) 101% of their principal amount plus accrued and unpaid interest, if any, as a result of certain change-of-control events and (ii) 100% of their principal amount plus accrued and unpaid interest, if any, in the event of certain asset sales. These restrictions and prohibitions are subject to certain qualifications and exceptions.

The 2025 Indenture contains covenants that, among other things, limit the Company's ability and the ability of any of the guarantor subsidiaries to (i) grant liens on its assets, (ii) make dividend payments, other distributions or other restricted

~~Triumph Group, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(dollars in thousands, except per share data)~~

~~(unaudited)~~

payments, (iii) incur restrictions on the ability of the Guarantor Subsidiaries to pay dividends or make other payments, (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, and (viii) enter into transactions with affiliates.

~~Receivables Purchase Agreement~~

On March 28, 2016, the Company entered into a Purchase Agreement ("Receivables Purchase Agreement") to sell certain accounts receivables to a financial institution without recourse. The Company is the servicer of the accounts receivable under the Receivables Purchase Agreement. As of December 31, 2017, the maximum amount available under the Receivables Purchase Agreement was $90,000. Interest rates are based on LIBOR plus 0.65% - 0.70%. As of December 31, 2017 and March 31, 2017, the Company sold $0 and $78,006, respectively, worth of eligible accounts receivable.

Financial Instruments Not Recorded at Fair Value

The carrying amounts of certain of our financial instruments, including cash and cash equivalents, accounts receivable and accounts payable, approximate fair value because of their short maturities (Level 1 inputs). Carrying amounts and the related estimated fair values of the Company’s financial instruments not recorded at fair value in the condensed consolidated financial statements are as follows:



	September 30, 2019				March 31, 2019
	Carrying Value		Fair Value		Carrying Value		Fair Value
Long-term debt	$	1,468,533	$	1,510,145	$	1,488,821	$	1,568,037

December 31, 2017 March 31, 2017

Carrying
Value
Fair Value
Carrying
Value
Fair Value
Long-term debt $ 1,374,611
$ 1,432,240
$ 1,196,300
$ 1,178,968

The fair value of the long-term debt was calculated based on interest rates available for debt with terms and maturities similar to the Company’s existing debt arrangements (Level 2 inputs), unless quoted market prices were available.

The Company made interest payments of $48,972 and $38,587 for the six months ended September 30, 2019 and 2018, respectively.

~~6. (LOSS)~~

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

8. EARNINGS PER SHARE

The following is a reconciliation between the ~~weighted-average~~weighted average outstanding shares used in the calculation of basic and diluted earnings per share:



	Three Months Ended September 30,		Six Months Ended September 30,
	(in thousands)		(in thousands)
	2019	2018	2019	2018
Weighted average common shares outstanding – basic	49,987	49,628	49,927	49,590
Net effect of dilutive stock options and non-vested stock⁽¹⁾	473	—	458	—
Weighted average common shares outstanding – diluted	50,460	49,628	50,385	49,590

Three Months Ended December 31, Nine Months Ended December 31,
(in thousands) (in thousands)
2017 2016 2017 2016
Weighted-average common shares outstanding – basic 49,459
49,329
49,425
49,294
Net effect of dilutive stock options and nonvested stock —
111
—
127
Weighted-average common shares outstanding – diluted 49,459
49,440
49,425
49,421
(1) For the three and six months ended September 30, 2019 and 2018, the shares that could potentially dilute earnings per share in the future but were not included in diluted weighted average common shares outstanding because to do so would have been anti-dilutive were immaterial.

7.9. INCOME TAXES

The Company follows the Income ~~Taxes~~Taxes topic of ASC 740, 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,~~de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

~~Triumph Group, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(dollars in thousands, except per share data)~~

~~(unaudited)~~

impact of these changes on the Company. The Company has recorded a provisional tax benefit of $24,573 related to the impact of the Act’s reduction in the statutory tax rate on its net deferred tax liability, as well as a provisional tax liability of $2,175 imposed on unremitted foreign earnings under the Act’s mandatory repatriation provisions. The Company has prepared a reasonable estimate around the impact of the Act and has recorded the provisional impact (as described in SAB 118)as discrete adjustments noted above to the tax provision for the three months ended December 31, 2017. While the Company believes these are reasonable estimates of the impact of the Act, additional time is needed to finalize these estimates. While the Company has computed and recorded these provisional amounts, these will be finalized within the established measurement period (not to exceed one year) as additional data and information is gathered. The Company determined that the amounts recorded are provisional as adjustments may occur due to additional guidance from the IRS, the earnings and profit at March 31, 2018, and as certain tax positions are finalized when the Company files its 2018 tax returns.

Due to the legislative changes aforementioned, companies need to continually reevaluate their indefinite assertion. Additional withholding taxes and/or deferred tax liability associated with basis differences may be required, but due to the legislative uncertainty around the withholding taxes on distributions under the act, no estimate has been recorded as of December 31, 2017. This will be analyzed within the proscribed measurement period. The Company continues to review the anticipated impacts around the base erosion anti-abuse tax (“BEAT”) and the global intangible low taxed income (“GILTI”) which are not effective until the year ended March 31, 2019. The Company has not recorded any impact of these provisions as of December 31, 2017, but plans to perform a full analysis within the proscribed measurement period.

The Company has classified uncertain tax positions as noncurrent income tax liabilities unless expected to be paid in one year. Penalties and tax-related interest expense are reported as a component of income tax ~~expense.~~ expense and are not significant.

As of ~~December 31, 2017~~September 30, 2019 and March 31, ~~2017, the total amount of accrued income tax-related interest and penalties was~~ ~~$312~~ ~~and~~ ~~$282, respectively.~~

~~As of~~ ~~December 31, 2017~~ ~~and~~ ~~March 31, 2017~~,2019, the total amount of unrecognized tax benefits was ~~$11,403~~$19,446 and ~~$10,266~~,$19,152, respectively, most of which~~$11,403~~ ~~and~~ ~~$10,266, respectively,~~ would impact the effective rate, if recognized. The Company does not anticipate that total unrecognized tax benefits will be reduced in the next 12 months.

As of ~~December 31, 2017,~~September 30, 2019, the Company has a valuation allowance against principally all of its net deferred tax assets given insufficient positive evidence to support the realization of the Company’s deferred tax assets. The Company intends to continue maintaining a valuation allowance on its deferred tax assets until there is sufficient positive evidence to support the reversal of all or some portion of these allowances. A reduction in the valuation allowance could result in a significant decrease in income tax expense in the period that the release is recorded. However, the exact timing and amount of the reduction in its valuation allowance is unknown at this time and will be subject to the earnings level the Company achieves during fiscal ~~2018~~2020 as well as the Company's income in future periods.

The effective income tax rate for the three months ended ~~December 31, 2017,~~September 30, 2019, was ~~22.2%~~21.0% as compared ~~to 17.3%~~with (2.2)% for the three months ended ~~December 31, 2016.~~September 30, 2018. For the three months ended ~~December 31, 2017,~~September 30, 2018, the effective tax rate reflected a ~~$22,398~~limitation on the recognition of tax ~~benefit related~~benefits due to the ~~Act, a $4,758 tax benefit related to the return to provision true up adjustment, the impact of the non-deductible portion of the goodwill impairment, and the partial reversal of previously established~~full valuation allowance related to the current year activity. For the three months ended December 31, 2016, the income tax provision reflected the partial reversal of previously established valuation allowance related to the capital loss generated from the divestiture of TAS-Newport News.

allowance. The effective income tax rate for the ~~nine~~six months ended ~~December 31, 2017,~~September 30, 2019, was ~~22.1%~~21.0% as compared ~~to 28.1%~~with (1.6)% for the ~~nine~~six months ended ~~December 31, 2016.~~September 30, 2018. For the ~~nine~~six months ended ~~December 31, 2017,~~September 30, 2018, the effective tax rate reflected a ~~$22,398~~limitation on the recognition of tax benefit from the Tax Act, a $4,758 tax benefit from the return to provision true up adjustment, the impact of the non-deductible portion of the goodwill impairment, the partial reversal of previously established valuation allowance relatedbenefits due to the current year activity, as well as the disallowed capital loss generated from the divestiture of Embee. For the nine months ended December 31, 2016, the income tax provision reflected the disallowed tax benefit of $1,277 related to the capital loss generated from the divestiture of Newport News.full valuation allowance.

With few exceptions, the Company is no longer subject to U.S. federal, state, or local income tax examinations for fiscal years ended before March 31, ~~2011, U.S. federal income tax examinations for fiscal years ended March 31, 2012 and 2013, state or local examinations for fiscal years ended before March 31, 2013,~~2014, or foreign income tax examinations by tax authorities for fiscal years ended before March 31, ~~2011.~~2013.

~~Triumph Group, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(dollars in thousands, except per share data)~~

~~(unaudited)~~

As of ~~December 31, 2017~~September 30, 2019, the Company is subject to examination in ~~one~~1 state jurisdiction. The Company has filed appeals in a prior state examination related to fiscal years ended March 31, 1999 through March 31, 2005. Because of net operating losses acquired as part of the acquisition of Vought, the Company is subject to U.S. federal income tax examinations and various state jurisdictions for the ~~years~~period ended ~~December 31, 2001~~June 16, 2010 and after, related to previously filed Vought tax returns. The Company believes appropriate provisions for all outstanding issues have been made for all jurisdictions and all open years.

~~8. GOODWILL~~

~~The following is a summary of the changes in the carrying value of goodwill by reportable segment, from~~ ~~March 31, 2017~~ ~~through~~ ~~December 31, 2017~~:

Integrated Systems Precision Components Product Support Total
Balance, March 31, 2017 $ 541,155
$ 532,418
$ 69,032
$ 1,142,605
Impairment of goodwill —
(190,227 ) —
(190,227 )
Goodwill derecognized in connection with divestitures and assets held for sale (27,709 ) —
—
(27,709 )
Effect of exchange rate changes 7,126
2,810
(105 ) 9,831
Balance, December 31, 2017 $ 520,572
$ 345,001
$ 68,927
$ 934,500

The Company's most recent annual goodwill impairment test was performed for all reporting units as of February 1, 2017. The Company also performs the goodwill impairment test on an interim basis upon the occurrence of events or substantive changes in circumstances that indicate a reporting unit's carrying value may be less than its fair value. The Company performed an interim assessment of the fair value of its goodwill due to the Company's decision to combine the Aerospace Structures and Precision Components reporting segments into one reporting segment as noted above. In accordance with ASC 350-20-35-3C, there are several potential events and circumstances that could be indicators of goodwill impairment. A change in a company's reporting unit structure is one of these events, and when this does occur, a company must perform a "before and after" test of the reporting units (see Note 1). Additionally, the Company's enhanced visibility into its future cash flows based on its annual planning process was also an indicator. Consistent with the Company's policy described in the Form 10-K for the fiscal year ended March 31, 2017, the Company performed the goodwill impairment test which includes using a combination of both the market and income approaches to estimate the fair value of each reporting unit.

After performing the "before" portion of the test of the reporting units and concluded that the Precision Component's reporting unit had a fair value that was lower then its carrying value by an amount of $(190,227). Accordingly, the Company recorded a non-cash impairment charge during the quarter ended December 31, 2017 of $(190,227), which is presented on the accompanying Consolidated Statements of Operations as "Impairment of intangible assets”. The decline in fair value is the result of declining revenues from production rate reductions on sun-setting programs and the slower than previously projected ramp in our development programs and the timing of associated earnings and cash flows.

The Company then performed the "after" portion of the test of the reporting units and concluded that the new reporting unit of Aerospace Structure's goodwill had a fair value that was lower then its carrying value by an amount that exceeded the remaining goodwill for the reporting unit. Following the applicable accounting guidance, this impairment charge is deemed to have occurred during the Company's fiscal fourth quarter. Therefore, the Company will record a non-cash impairment charge during the quarter ended March 31, 2018 of $345,001, which will be presented on the Consolidated Statements of Operations as "Impairment of intangible assets” for the fiscal year ended March 31, 2018. The decline in fair value is the result of declining revenues from production rate reductions on sun-setting programs and the slower than previously projected ramp in our development programs and the timing of associated earnings and cash flows (See Note 2 for definition of fair value levels).

As of December 31, 2017, Aerospace Structures has goodwill of $863,901, which was fully impaired and the Precision Components' impairment charge noted above represents its accumulated impairment charges.

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

10. GOODWILL

The following is a summary of the changes in the carrying value of goodwill by reportable segment, from March 31, 2019 through September 30, 2019:



	Integrated Systems			Product Support		Total
Balance, March 31, 2019	$	517,104		$	66,121	$	583,225
Effect of exchange rate changes	(4,309		)	—		(4,309		)
Balance, September 30, 2019	$	512,795		$	66,121	$	578,916

As of September 30, 2019 and March 31, 2019, Aerospace Structures had goodwill of $1,246,454, which was fully impaired.

9.11. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS

The Company sponsors several defined benefit pension plans covering some of its employees. Certain employee groups 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 U.S. government regulations (and for non-U.S. plans, acceptable under local regulations), by making payments into a separate trust.

In addition to the defined benefit pension plans, the Company provides certain healthcare and life insurance benefits for eligible retired employees. Such benefits are unfunded. Employees achieve eligibility to participate in these contributory plans upon retirement from active service if they meet specified age and years of service requirements. Election to participate for some employees must be made at the date of retirement. Qualifying dependents at the date of retirement ~~are~~may also be eligible for medical coverage. Current plan documents reserve the right to amend or terminate the plans at any time, subject to applicable collective bargaining requirements for represented employees. From time to time, changes have been made to the benefits provided to various groups of plan participants. Premiums charged to most retirees for medical coverage prior to age 65 are based on years of service and are adjusted annually for changes in the cost of the plans as determined by an independent actuary. In addition to this medical inflation cost-sharing feature, the plans also have provisions for deductibles, co-payments, coinsurance percentages, out-of-pocket limits, schedules of reasonable fees, preferred provider networks, coordination of benefits with other plans and a Medicare carve-out.

In accordance with the Compensation – Retirement Benefits topic of ASC 715, the Company has recognized the funded status of the benefit obligation as of the date of the last ~~remeasurement,~~re-measurement, on the accompanying ~~Condensed Consolidated Balance Sheets.~~condensed consolidated balance sheets. The funded status is measured as the difference between the fair value of the plan’s assets and the pension benefit obligation or accumulated postretirement benefit obligation, of the plan. In order to recognize the funded status, the Company determined the fair value of the plan assets. The majority of the plan assets are publicly traded investments, which were valued based on the market price as of the date of ~~remeasurement.~~re-measurement. Investments that are not publicly traded were valued based on the estimated fair value of those investments based on our evaluation of data from fund managers and comparable market data.

~~Net Periodic Benefit Plan Costs~~

~~The components of net periodic benefit costs (income) for our postretirement benefit plans are shown in the following table:~~

Pension benefits
Three Months Ended December 31, Nine Months Ended December 31,
2017 2016 2017 2016
Components of net periodic benefit costs:
Service cost $ 1,126
$ 1,628
$ 3,371
$ 4,911
Interest cost 18,803
18,144
56,391
54,494
Expected return on plan assets (38,090 ) (38,966 ) (114,222 ) (117,025 )
Amortization of prior service credits (710 ) (445 ) (2,131 ) (1,337 )
Amortization of net loss 3,478
3,027
10,403
9,088
Settlement charge —
—
523
—
Net periodic benefit income $ (15,393 ) $ (16,612 ) $ (45,665 ) $ (49,869 )

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

Net Periodic Benefit Plan Costs

The components of net periodic benefit costs (income) for our postretirement benefit plans are shown in the following table:



	Pension Benefits
	Three Months Ended September 30,						Six Months Ended September 30,
	2019			2018			2019			2018
Components of net periodic benefit costs:
Service cost	$	600		$	824		$	1,181		$	1,654
Interest cost	17,427			19,909			36,089			39,830
Expected return on plan assets	(35,618		)	(37,074		)	(71,356		)	(74,181		)
Amortization of prior service credits	(233		)	(907		)	(512		)	(1,815		)
Amortization of net loss	6,333			4,179			11,692			8,360
Curtailment loss	23,476			—			23,476			—
Special termination benefits	11,642			—			11,642			—
Net periodic benefit expense (income)	$	23,627		$	(13,069	)	$	12,212		$	(26,152	)


	Other postretirement benefits												Other Postretirement Benefits
	Three Months Ended December 31,						Nine Months Ended December 31,						Three Months Ended September 30,						Six Months Ended September 30,
	2017			2016			2017			2016			2019			2018			2019			2018
Components of net periodic benefit costs:
Service cost	$	102		$	179		$	305		$	537		$	18		$	57		$	62		$	113
Interest cost	1,219			1,247			3,656			3,740			614			1,010			1,478			2,019
Amortization of prior service credits	(2,328		)	(3,366		)	(6,984		)	(10,097		)	(1,156		)	(1,164		)	(2,320		)	(2,327		)
Amortization of gain	(1,775		)	(1,647		)	(5,324		)	(4,941		)	(1,547		)	(2,463		)	(3,989		)	(4,926		)
Settlement gain	(15,099		)	—			(15,099		)	—
Curtailment gain													(49,491		)	—			(49,491		)	—
Net periodic benefit income	$	(17,881	)	$	(3,587	)	$	(23,446	)	$	(10,761	)	$	(51,562	)	$	(2,560	)	$	(54,260	)	$	(5,121	)

The following summarizes the key events whose effects on net periodic benefit cost and obligations are included in the tables above:

In ~~November 2017,~~September 2019, the Company ratified amendments to its pension and retiree welfare plans with a group of union-represented employees at the Company’s Grand Prairie, TX, facility in conjunction with an announced ~~an amendment to the retirement plan~~shutdown of ~~its non-represented employee participants.~~this facility. Effective ~~November 30, 2017, the Company eliminated and reduced certain~~April 1, 2020, all current retiree welfare benefits for ~~retirees. Those changes~~the union-represented retirees and active employees will cease. A new benefit consisting of a one-time credit to Heath Reimbursement Accounts for the current retirees will be provided. The Company and the union also agreed to increased pension benefits which are effective with the ratification of the agreement. This agreement resulted in a decrease inof the projected ~~OPEB~~other post-employment benefits ("OPEB") benefit obligation of ~~$17,652 and~~$61,766. It also resulted in a ~~related~~one-time OPEB curtailment gain of ~~$15,099~~$41,128. As a result of the planned shutdown, subsidized early retirement provisions within the retirement plan and the agreed-to pension benefit increases, a pension curtailment loss of $23,476 was recognized, along with a one-time charge of $11,642 for special termination benefits. The net curtailment gain and charge for special termination benefits are included in ~~"Curtailment and settlement gain, net"~~"Non-service defined benefit income" on the ~~Consolidated Statement~~condensed consolidated statement of ~~Operations~~operations for the three and ~~nine~~six months ended ~~December 31, 2017.~~September 30, 2019.

In August 2019, the Company ratified amendments to its pension and retiree welfare plans with a group of union-represented employees at the Company’s Nashville, TN, facility. Effective January 1, 2020, all current retiree welfare benefits for the union-represented retirees and active employees will cease. A new benefit consisting of a one-time credit to Heath Reimbursement Accounts for the current retirees will be provided. The Company and the union also agreed to increased pension benefits which are effective on February 1, 2020, and the union also agreed to increased pension benefits which are effective with the ratification of the agreement. This agreement resulted in a decrease of the

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

projected OPEB benefit obligation of $34,731. It also resulted in a one-time OPEB curtailment gain of $8,363. The agreed-to pension benefit increases resulted in an increase of the projected pension benefit obligation of $4,898. The curtailment gain is included in "Non-service defined benefit income" on the condensed consolidated statement of operations for the three and three months ended September 30, 2019.

~~10.~~12. STOCKHOLDERS' EQUITY

Accumulated Other Comprehensive Loss

Changes in accumulated other comprehensive income (loss) ("AOCI") by component for the three and ~~nine~~six months ended ~~December 31, 2017~~September 30, 2019 and ~~2016,~~2018, respectively, were as follows:

Currency Translation Adjustment Unrealized Gains and Losses on Derivative Instruments Defined Benefit Pension Plans and Other Postretirement Benefits
Total (1)
Balance September 30, 2017 $ (65,886 ) $ (246 ) $ (313,290 ) $ (379,422 )
AOCI before reclassifications (1,824 ) (816 ) 23,378
20,738
Amounts reclassified from AOCI —
203
(16,143 ) (2 ) (15,940 )
Net current period AOCI (1,824 ) (613 ) 7,235
4,798
Balance December 31, 2017 $ (67,710 ) $ (859 ) $ (306,055 ) $ (374,624 )


Balance September 30, 2016	$	(80,434	)	$	(2,557	)	$	(288,572	)			$	(371,563	)
															Currency Translation Adjustment			Unrealized Gains and Losses on Derivative Instruments			Defined Benefit Pension Plans and Other Postretirement Benefits			Total⁽¹⁾
Balance, June 30, 2019															(51,289		)	(1,449		)	(436,539		)	(489,277		)
AOCI before reclassifications	(15,066		)	1,726			��					(13,340		)	(6,227		)	245			(122,971		)	(128,953		)
Amounts reclassified from AOCI	—			5			(1,573		)	(2	)	(1,568		)	—			(1,323		)	53,652			52,329
Net current period AOCI	(15,066		)	1,731			(1,573		)			(14,908		)	$	(6,227	)	$	(1,078	)	$	(69,319	)	$	(76,624	)
Balance December 31, 2016	$	(95,500	)	$	(826	)	$	(290,145	)			$	(386,471	)
Balance, September 30, 2019															$	(57,516	)	$	(2,527	)	$	(505,858	)	$	(565,901	)



Balance, June 30, 2018	(73,207		)	(913		)	(309,708		)	(383,828		)
AOCI before reclassifications	1,038			1,706			(399		)	2,345
Amounts reclassified from AOCI	—			(742		)	—			(742		)
Net current period AOCI	$	1,038		$	964		$	(399	)	$	1,603
Balance, September 30, 2018	$	(72,169	)	$	51		$	(310,107	)	$	(382,225	)



Balance, March 31, 2019	(48,606		)	(1,130		)	(437,948		)	(487,684		)
AOCI before reclassifications	(8,910		)	340			(122,971		)	(131,541		)
Amounts reclassified from AOCI	—			(1,737		)	55,061			53,324
Net current period AOCI	$	(8,910	)	$	(1,397	)	$	(67,910	)	$	(78,217	)
Balance, September 30, 2019	$	(57,516	)	$	(2,527	)	$	(505,858	)	$	(565,901	)



Balance, March 31, 2018	$	(58,683	)	$	122		$	(309,309	)	$	(367,870	)
AOCI before reclassifications	(13,486		)	742			(798		)	(13,542		)
Amounts reclassified from AOCI	—			(813		)	—			(813		)
Net current period AOCI	(13,486		)	(71		)	(798		)	(14,355		)
Balance, September 30, 2018	$	(72,169	)	$	51		$	(310,107	)	$	(382,225	)

(1) Net of tax.

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

Balance March 31, 2017 $ (87,212 ) $ 2,153
$ (311,119 ) $ (396,178 )
AOCI before reclassifications 19,502
(835 ) 23,901
42,568
Amounts reclassified from AOCI —
(2,177 ) (18,837 ) (2 ) (21,014 )
Net current period AOCI 19,502
(3,012 ) 5,064
21,554
Balance December 31, 2017 $ (67,710 ) $ (859 ) $ (306,055 ) $ (374,624 )

Balance March 31, 2016 $ (58,816 ) $ (2,920 ) $ (285,426 ) $ (347,162 )
AOCI before reclassifications (36,684 ) 2,100
—
(34,584 )
Amounts reclassified from AOCI —
(6 ) (4,719 ) (2 ) (4,725 )
Net current period AOCI (36,684 ) 2,094
(4,719 ) (39,309 )
Balance December 31, 2016 $ (95,500 ) $ (826 ) $ (290,145 ) $ (386,471 )

~~(1) Net of tax.~~

(2) Includes amortization of actuarial losses and recognized prior service (credits) costs, which are included in the net periodic pension cost of which a portion is allocated to production as inventoried costs.

~~Issuance of Restricted Stock Awards and Stock Options~~

Included in the employment agreement for the Company's CEO were restricted stock awards totaling 179,134 shares. The awards generally vest in full after four to seven years. The fair value of the awards is determined by the product of the number of shares granted, the grant date market price of the Company's stock and adjusted for the market conditions necessary to achieve the awards. Certain of these awards contain performance conditions, in addition to service conditions. The fair value of the awards is expensed over a graded vesting period of the requisite service period of four to seven years. In addition the employment agreement included 150,000 stock options with an exercise price of $30.86, a contractual term of 10 years and vesting over a 4-year period.

~~Triumph Group, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(dollars in thousands, except per share data)~~

~~(unaudited)~~

~~11.~~13. SEGMENTS

The Company ~~has four~~reports financial performance based on the following three reportable segments: Integrated Systems, Aerospace Structures ~~Precision Components~~ and Product Support. The Company’s reportable segments are aligned with how the business is managed, and the Company's views of the markets ~~that the Company~~it serves. The Chief Operating Decision Maker (the ~~"CODM"~~“CODM”) evaluates performance and allocates resources based upon review of segment information. The CODM utilizes earnings before interest, income taxes, depreciation and amortization, and pension (“Adjusted ~~EBITDA”~~EBITDAP”) as a primary measure of segment profitability to evaluate performance of its segments and allocate resources.

Integrated Systems consists of the Company’s operations that provides 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 electro-mechanical 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; hydro-mechanical and electromechanical primary and secondary flight controls; and a broad spectrum of surface treatment options.

Aerospace Structures consists of the Company’s operations that supply commercial, business, regional and military manufacturers with large metallic and composite structures. Products include wings, wing boxes, fuselage panels, horizontal and vertical tails and sub-assemblies such as floor grids. Inclusive of most of the former Vought Aircraft Division, Aerospace Structures also has the capability to engineer detailed structural designs in metal and composites.

Precision Components consists of the Company’s operations that produce close-tolerance parts primarily to customer designs and model-based definition, including a wide range of aluminum, hard metal and composite structure capabilities. Capabilities include complex machining, gear manufacturing, sheet metal fabrication, forming, advanced composite and interior structures, joining processes such as welding, autoclave bonding and conventional mechanical fasteners and a variety of special processes including: super plastic titanium forming, aluminum and titanium chemical milling and surface treatments.

Product Support consists of the Company’s operations that provide full life cycle solutions for commercial, regional and military aircraft. The Company’s extensive product and service offerings include full post-delivery value chain services that simplify the MRO supply chain. Through its line maintenance, component MRO and postproduction supply chain activities, Product Support is positioned to provide integrated planeside repair solutions globally. Capabilities include fuel tank repair, metallic and composite aircraft structures, nacelles, thrust reversers, interiors, auxiliary power units and a wide variety of pneumatic, hydraulic, fuel and mechanical accessories.

Segment Adjusted ~~EBITDA~~EBITDAP is total segment revenue reduced by operating expenses (less depreciation and amortization) identifiable with that segment. Corporate includes general corporate administrative costs and any other costs not identifiable with one of the Company’s ~~segments, including restructuring of $17,089 for the nine months ended December 31, 2017.~~segments.

The Company does not accumulate net sales information by product or service or groups of similar products and services and, therefore, the Company does not disclose net sales by product or service because to do so would be impracticable. ~~Selected financial information for each reportable segment and the reconciliation of Adjusted EBITDA to operating income is as follows:~~

Three Months Ended December 31, Nine Months Ended December 31,
2017 2016 2017 2016
Net sales:
Integrated Systems $ 239,198
$ 256,080
$ 711,099
$ 758,803
Aerospace Structures 282,495
304,235
807,754
956,114
Precision Components 219,675
226,294
685,701
740,354
Product Support 68,039
87,292
202,839
257,317
Elimination of inter-segment sales (34,161 ) (29,038 ) (105,302 ) (99,703 )
$ 775,246
$ 844,863
$ 2,302,091
$ 2,612,885

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

Selected financial information for each reportable segment is as follows:



	Three Months Ended September 30,						Six Months Ended September 30,
	2019			2018			2019			2018
Net sales:
Integrated Systems	$	285,980		$	260,717		$	538,206		$	501,756
Aerospace Structures	422,579			528,367			841,757			1,060,753
Product Support	67,394			72,199			129,149			138,414
Elimination of inter-segment sales	(3,843		)	(6,175		)	(6,771		)	(12,915		)
	$	772,110		$	855,108		$	1,502,341		$	1,688,008

Income (loss) before income taxes:
Operating income (loss):
Integrated Systems	$	51,472		$	39,866		$	86,244		$	75,275
Aerospace Structures	13,608			(22,744		)	25,891			(102,331		)
Product Support	10,865			11,514			20,142			19,183
Corporate	(12,044		)	(27,371		)	(30,439		)	(54,948		)
Share-based compensation expense	(2,864		)	(3,266		)	(5,290		)	(5,728		)
	61,037			(2,001		)	96,548			(68,549		)
Non-service defined benefit income	(28,416		)	(16,524		)	(43,291		)	(33,061		)
Interest expense and other	35,400			28,714			62,891			54,206
	$	54,053		$	(14,191	)	$	76,948		$	(89,694	)

Depreciation and amortization:
Integrated Systems	$	6,983		$	7,384		$	14,050		$	14,939
Aerospace Structures	21,285			28,294			56,344			57,214
Product Support	1,099			1,664			2,189			3,334
Corporate	852			792			1,686			1,458
	$	30,219		$	38,134		$	74,269		$	76,945

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

Adjusted EBITDAP:
Integrated Systems	$	48,831		$	38,482		$	82,545		$	72,597
Aerospace Structures	17,451			(2,486		)	55,978			25,703
Product Support	11,964			13,178			22,331			22,517
Corporate and share-based compensation	(17,300		)	(16,727		)	(34,151		)	(41,381		)
	$	60,946		$	32,447		$	126,703		$	79,436

Capital expenditures:
Integrated Systems	$	3,909		$	3,828		$	6,760		$	5,437
Aerospace Structures	4,032			7,077			8,005			17,215
Product Support	633			671			1,666			1,019
Corporate	331			478			564			583
	$	8,905		$	12,054		$	16,995		$	24,254

Three Months Ended December 31, Nine Months Ended December 31,
2017 2016 2017 2016

(Loss) income before income taxes:
Operating income (expense):
Integrated Systems $ 42,667
$ 51,596
$ 132,171
$ 145,379
Aerospace Structures 12,022
23,867
23,253
57,898
Precision Components (186,225 ) 2,942
(191,100 ) 7,223
Product Support 12,399
14,662
32,069
42,986
Corporate (567 ) (37,901 ) (78,840 ) (81,107 )
(119,704 ) 55,166
(82,447 ) 172,379
Interest expense and other 25,836
19,698
72,229
55,721
$ (145,540 ) $ 35,468
$ (154,676 ) $ 116,658

Depreciation and amortization:
Integrated Systems $ 8,318
$ 9,766
$ 27,857
$ 30,228
Aerospace Structures 19,048
17,942
57,484
54,289
Precision Components 9,850
13,999
27,858
42,344
Product Support 1,663
2,294
5,068
7,230
Corporate 441
330
1,051
989
$ 39,320
$ 44,331
$ 119,318
$ 135,080

Impairment charge of intangible assets:
Precision Components $ 190,227
$ —
$ 190,227
$ —

Amortization of acquired contract liabilities, net:
Integrated Systems $ 11,634
$ 7,628
$ 28,235
$ 27,101
Aerospace Structures 21,352
21,105
60,315
60,190
Precision Components 1,506
473
3,312
1,740
$ 34,492
$ 29,206
$ 91,862
$ 89,031

Adjusted EBITDA:
Integrated Systems $ 39,351
$ 53,734
$ 131,793
$ 148,506
Aerospace Structures 9,718
20,704
20,422
51,997
Precision Components 12,346
16,468
23,673
47,827
Product Support 14,062
16,956
37,137
50,216
Corporate (15,225 ) (23,221 ) (71,994 ) (60,994 )
$ 60,252
$ 84,641
$ 141,031
$ 237,552

Capital expenditures:
Integrated Systems $ 1,903
$ 2,763
$ 5,923
$ 8,586
Aerospace Structures 2,384
2,228
9,503
9,820
Precision Components 3,407
2,636
12,563
11,040
Product Support 599
687
1,629
2,020
Corporate 864
843
2,314
1,657
$ 9,157
$ 9,157
$ 31,932
$ 33,123

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)



	September 30, 2019		March 31, 2019
Total Assets:
Integrated Systems	$	1,273,816	$	1,215,350
Aerospace Structures	1,167,096		1,257,039
Product Support	275,955		271,813
Corporate	44,936		110,372
	$	2,761,803	$	2,854,574

December 31, 2017 March 31, 2017
Total Assets:
Integrated Systems $ 1,220,259
$ 1,281,828
Aerospace Structures 1,573,942
1,548,239
Precision Components 1,056,015
1,262,691
Product Support 285,302
284,231
Corporate 50,414
37,611
$ 4,185,932
$ 4,414,600

During the three months ended ~~December 31, 2017~~September 30, 2019 and ~~2016,~~2018, the Company had international sales of ~~$184,182~~$185,957 and ~~$198,052,~~$264,526, respectively.

During the ~~nine~~six months ended ~~December 31, 2017~~September 30, 2019 and ~~2016,~~2018, the Company had international sales of ~~$529,226~~$361,297 and ~~$561,177,~~$491,096, respectively.


~~12.~~14.	SELECTED CONDENSED CONSOLIDATING FINANCIAL STATEMENTS OF PARENT, GUARANTORS AND NON-GUARANTORS

The ~~2021~~2022 Notes, the ~~2022~~2024 Notes, and the 2025 Notes are fully and unconditionally guaranteed on a joint and several basis by the Guarantor Subsidiaries. The total assets, stockholders' equity, revenue, earnings and cash flows from operating activities of the Guarantor Subsidiaries exceeded a majority of the consolidated total of such items as of and for the periods reported. The only consolidated subsidiaries of the Company that are not guarantors of the ~~2021~~2022 Notes, the ~~2022~~2024 Notes, and the 2025 Notes (the “Non-Guarantor Subsidiaries”) ~~are:~~are (a) the receivables securitization special-purpose ~~entity;~~entity and (b) the foreign operating subsidiaries. The following tables present condensed consolidating financial statements, including the Company (the “Parent”), the Guarantor Subsidiaries, and the Non-Guarantor Subsidiaries. Such financial statements include summary ~~Condensed Consolidating Balance Sheets~~condensed consolidating balance sheets as of ~~December 31, 2017~~September 30, 2019 and March 31, ~~2017~~2019, ~~Condensed Consolidating Statements~~condensed consolidating statements of ~~Comprehensive Income~~comprehensive income for the three and ~~nine~~six months ended ~~December 31, 2017~~September 30, 2019 and ~~2016~~2018, and ~~Condensed Consolidating Statements~~condensed consolidating statements of ~~Cash Flows~~cash flows for the ~~nine~~six months ended ~~December 31, 2017~~September 30, 2019 and ~~2016~~2018.

2329

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

SUMMARY CONDENSED CONSOLIDATING BALANCE SHEETS:


	December 31, 2017												September 30, 2019
	Parent		Guarantor Subsidiaries			Non-Guarantor Subsidiaries		Eliminations			Consolidated Total		Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries		Eliminations			Consolidated Total
Current assets:
Cash and cash equivalents	$	12,628	$	8,396		$	43,364	$	—		$	64,388	$	55		$	167		$	24,630	$	—		$	24,852
Trade and other receivables, net	—		69,305			251,694		—			320,999		9,159			103,937			229,210		—			342,306
Contract assets													—			294,773			5,897		—			300,670
Inventories	—		1,342,611			120,113		—			1,462,724		—			375,848			78,554		—			454,402
Prepaid expenses and other	20,027		10,469			13,004		—			43,500		9,116			6,829			4,909		—			20,854
Total current assets	32,655		1,430,781			428,175		—			1,891,611		18,330			781,554			343,200		—			1,143,084
Property and equipment, net	10,920		618,925			120,077		—			749,922		10,642			414,005			78,343		—			502,990
Goodwill and other intangible assets, net	—		1,321,175			134,145		—			1,455,320		—			889,099			95,799		—			984,898
Other, net	21,496		45,329			22,254		—			89,079		28,162			72,511			30,158		—			130,831
Intercompany investments and advances	2,354,461		81,541			72,512		(2,508,514		)	—		1,274,684			65,297			89,061		(1,429,042		)	—
Total assets	$	2,419,532	$	3,497,751		$	777,163	$	(2,508,514	)	$	4,185,932	$	1,331,818		$	2,222,466		$	636,561	$	(1,429,042	)	$	2,761,803

Current liabilities:
Current portion of long-term debt	$	574	$	14,561		$	—	$	—		$	15,135	$	1,735		$	6,024		$	—	$	—		$	7,759
Accounts payable	3,324		340,106			43,651		—			387,081		2,972			383,213			32,521		—			418,706
Accrued expenses	49,520		531,133			46,758		—			627,411		40,933			429,312			28,688		—			498,933
Total current liabilities	53,418		885,800			90,409		—			1,029,627		45,640			818,549			61,209		—			925,398
Long-term debt, less current portion	1,317,662		41,814			—		—			1,359,476		1,386,539			8,307			65,928		—			1,460,774
Intercompany advances	283,926		2,080,159			488,955		(2,853,040		)	—		467,160			1,891,936			293,157		(2,652,253		)	—
Accrued pension and other postretirement benefits, noncurrent	6,608		503,033			—		—			509,641		5,923			548,477			—		—			554,400
Deferred income taxes and other	9,404		495,634			33,636		—			538,674		17,380			363,681			30,994		—			412,055
Total stockholders’ equity	748,514		(508,689		)	164,163		344,526			748,514
Total liabilities and stockholders’ equity	$	2,419,532	$	3,497,751		$	777,163	$	(2,508,514	)	$	4,185,932
Total stockholders’ (deficit) equity													(590,824		)	(1,408,484		)	185,273		1,223,211			(590,824		)
Total liabilities and stockholders’ (deficit) equity													$	1,331,818		$	2,222,466		$	636,561	$	(1,429,042	)	$	2,761,803

2430

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

SUMMARY CONDENSED CONSOLIDATING BALANCE SHEETS:



	March 31, 2019
	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries		Eliminations			Consolidated Total
Current assets:
Cash and cash equivalents	$	70,192		$	429		$	22,186	$	—		$	92,807
Trade and other receivables, net	10,150			123,153			240,287		—			373,590
Contract assets	—			322,698			3,969		—			326,667
Inventories	—			339,038			74,522		—			413,560
Prepaid expenses and other	22,152			7,611			4,683		—			34,446
Total current assets	102,494			792,929			345,647		—			1,241,070
Property and equipment, net	11,276			449,489			82,945		—			543,710
Goodwill and other intangible assets, net	—			912,279			101,900		—			1,014,179
Other, net	14,630			34,664			6,321		—			55,615
Intercompany investments and advances	1,112,100			230,437			88,697		(1,431,234		)	—
Total assets	$	1,240,500		$	2,419,798		$	625,510	$	(1,431,234	)	$	2,854,574

Current liabilities:
Current portion of long-term debt	$	1,904		$	6,297		$	—	$	—		$	8,201
Accounts payable	6,571			396,542			30,670		—			433,783
Accrued expenses	58,301			445,542			29,448		—			533,291
Total current liabilities	66,776			848,381			60,118		—			975,275
Long-term debt, less current portion	1,469,543			11,077			—		—			1,480,620
Intercompany advances	262,718			2,017,003			372,888		(2,652,609		)	—
Accrued pension and other postretirement benefits, noncurrent	6,067			534,412			—		—			540,479
Deferred income taxes and other	8,709			408,838			13,966		—			431,513
Total stockholders’ (deficit) equity	(573,313		)	(1,399,913		)	178,538		1,221,375			(573,313		)
Total liabilities and stockholders’ (deficit) equity	$	1,240,500		$	2,419,798		$	625,510	$	(1,431,234	)	$	2,854,574

March 31, 2017
Parent
Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries
Eliminations
Consolidated
Total
Current assets:
Cash and cash equivalents $ 19,942
$ 24,137
$ 25,554
$ —
$ 69,633
Trade and other receivables, net 546
34,874
276,372
—
311,792
Inventories —
1,243,461
96,714
—
1,340,175
Prepaid expenses and other 7,763
11,678
10,623
—
30,064
Assets held for sale —
3,250
18,005
—
21,255
Total current assets 28,251
1,317,400
427,268
—
1,772,919
Property and equipment, net 8,315
673,153
123,562
—
805,030
Goodwill and other intangible assets, net —
1,560,050
174,919
—
1,734,969
Other, net 17,902
67,955
15,825
—
101,682
Intercompany investments and advances 2,057,534
81,541
77,090
(2,216,165 ) —
Total assets $ 2,112,002
$ 3,700,099
$ 818,664
$ (2,216,165 ) $ 4,414,600

Current liabilities:
Current portion of long-term debt $ 33,298
$ 14,432
$ 112,900
$ —
$ 160,630
Accounts payable 17,291
426,646
37,306
—
481,243
Accrued expenses 53,829
578,457
42,093
—
674,379
Liabilities related to assets held for sale —
—
18,008
—
18,008
Total current liabilities 104,418
1,019,535
210,307
—
1,334,260
Long-term debt, less current portion 974,693
60,977
—
—
1,035,670
Intercompany advances 178,381
1,754,529
370,907
(2,303,817 ) —
Accrued pension and other postretirement benefits, noncurrent 6,633
585,501
—
—
592,134
Deferred income taxes and other 1,403
564,358
40,302
—
606,063
Total stockholders’ equity 846,474
(284,801 ) 197,148
87,652
846,473
Total liabilities and stockholders’ equity $ 2,112,002
$ 3,700,099
$ 818,664
$ (2,216,165 ) $ 4,414,600

2531

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME:



	For the Three Months Ended September 30, 2019
	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated Total
Net sales	$	—		$	706,422		$	88,449		$	(22,761	)	$	772,110

Operating costs and expenses:
Cost of sales	—			576,999			67,998			(22,761		)	622,236
Selling, general and administrative	17,300			41,680			7,221			—			66,201
Depreciation and amortization	852			26,619			2,748			—			30,219
Restructuring costs	—			5,782			—			—			5,782
Loss (gain) on sale of assets and businesses	2,156			(10,121		)	—			—			(7,965		)
Legal judgment gain, net	(5,400		)	—			—			—			(5,400		)
	14,908			640,959			77,967			(22,761		)	711,073
Operating (loss) income	(14,908		)	65,463			10,482			—			61,037
Intercompany interest and charges	(34,081		)	32,540			1,541			—			—
Non-service defined benefit income	—			(27,931		)	(485		)	—			(28,416		)
Interest expense and other	30,440			6,243			(1,283		)	—			35,400
(Loss) income before income taxes	(11,267		)	54,611			10,709			—			54,053
Income tax (benefit) expense	(2,959		)	13,638			673			—			11,352
Net (loss) income	(8,308		)	40,973			10,036			—			42,701
Other comprehensive loss	(1,077		)	(69,109		)	(6,438		)	—			(76,624		)
Total comprehensive (loss) income	$	(9,385	)	$	(28,136	)	$	3,598		$	—		$	(33,923	)

For the Three Months Ended December 31, 2017
Parent
Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries
Eliminations
Consolidated
Total
Net sales $ —
$ 705,792
$ 88,443
$ (18,989 ) $ 775,246

Operating costs and expenses:
Cost of sales —
563,033
68,162
(18,989 ) 612,206
Selling, general and administrative 27,914
27,331
6,902
—
62,147
Depreciation and amortization 441
34,606
4,273
—
39,320
Impairment of intangible assets —
135,013
55,214
—
190,227
Restructuring 2,382
2,637
1,130
—
6,149
Curtailment and settlement gain, net

(15,099 ) —
—
—
(15,099 )
15,638
762,620
135,681
(18,989 ) 894,950
Operating (loss) income (15,638 ) (56,828 ) (47,238 ) —
(119,704 )
Intercompany interest and charges (39,386 ) 38,877
509
—
—
Interest expense and other 23,686
2,796
(646 ) —
25,836
Income (loss) before income taxes 62
(98,501 ) (47,101 ) —
(145,540 )
Income (benefit) tax expense (49,074 ) 15,715
1,071
—
(32,288 )
Net income (loss) 49,136
(114,216 ) (48,172 ) —
(113,252 )
Other comprehensive (loss) income (613 ) 7,235
(1,824 ) —
4,798
Total comprehensive (loss) income $ 48,523
$ (106,981 ) $ (49,996 ) $ —
$ (108,454 )

2632

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME:


	For the Three Months Ended December 31, 2016															For the Three Months Ended September 30, 2018
	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated Total			Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated Total
Net sales	$	—		$	772,916		$	90,526		$	(18,579	)	$	844,863		$	—		$	786,284		$	89,140		$	(20,316	)	$	855,108

Operating costs and expenses:
Cost of sales	—			599,381			72,397			(18,579		)	653,199			—			675,502			69,288			(20,316		)	724,474
Selling, general and administrative	16,955			41,991			7,804			—			66,750			14,931			45,835			8,785			—			69,551
Depreciation and amortization	331			39,850			4,150			—			44,331			791			32,743			4,600			—			38,134
Restructuring	6,231			4,449			387			—			11,067
Restructuring costs																2,767			9,065			—			—			11,832
Loss on divestiture and assets held for sale	14,350			—			—			—			14,350			12,171			947			—			—			13,118
	37,867			685,671			84,738			(18,579		)	789,697			30,660			764,092			82,673			(20,316		)	857,109
Operating (loss) income	(37,867		)	87,245			5,788			—			55,166			(30,660		)	22,192			6,467			—			(2,001		)
Intercompany interest and charges	(45,597		)	43,466			2,131			—			—			(38,620		)	36,722			1,898			—			—
Non-service defined benefit income																—			(16,188		)	(336		)	—			(16,524		)
Interest expense and other	18,542			3,963			(2,807		)	—			19,698			24,823			5,201			(1,310		)	—			28,714
(Loss) income before income taxes	(10,812		)	39,816			6,464			—			35,468			(16,863		)	(3,543		)	6,215			—			(14,191		)
Income (benefit) tax expense	(8,980		)	13,666			1,450			—			6,136
Income tax expense (benefit)																6,063			(5,735		)	157			—			485
Net (loss) income	(1,832		)	26,150			5,014			—			29,332			(22,926		)	2,192			6,058			—			(14,676		)
Other comprehensive (loss) income	1,731			(1,573		)	(15,066		)	—			(14,908		)
Total comprehensive (loss) income	$	(101	)	$	24,577		$	(10,052	)	$	—		$	14,424
Other comprehensive income (loss)																964			(371		)	1,010			—			1,603
Total comprehensive loss																$	(21,962	)	$	1,821		$	7,068		$	—		$	(13,073	)

2733

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME:



	For the Six Months Ended September 30, 2019
	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated Total
Net sales	$	—		$	1,381,451		$	163,492		$	(42,602	)	$	1,502,341

Operating costs and expenses:
Cost of sales	—			1,120,147			126,924			(42,602		)	1,204,469
Selling, general and administrative	33,555			80,811			14,172			—			128,538
Depreciation and amortization	1,685			67,021			5,563			—			74,269
Restructuring costs	540			8,206			—			—			8,746
Legal judgment gain, net of expenses	(5,400		)	—			—			—			(5,400		)
Loss (gain) on sale of assets and businesses	5,292			(10,121		)	—			—			(4,829		)
	35,672			1,266,064			146,659			(42,602		)	1,405,793
Operating (loss) income	(35,672		)	115,387			16,833			—			96,548
Intercompany interest and charges	(69,584		)	66,293			3,291			—			—
Non-service defined benefit income	—			(42,303		)	(988		)	—			(43,291		)
Interest expense and other	53,654			11,550			(2,313		)	—			62,891
(Loss) income before income taxes	(19,742		)	79,847			16,843			—			76,948
Income tax (benefit) expense	(5,568		)	20,079			1,648			—			16,159
Net (loss) income	(14,174		)	59,768			15,195			—			60,789
Other comprehensive loss	(1,396		)	(67,612		)	(9,209		)	—			(78,217		)
Total comprehensive (loss) income	$	(15,570	)	$	(7,844	)	$	5,986		$	—		$	(17,428	)

For the Nine Months Ended December 31, 2017
Parent
Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries
Eliminations
Consolidated
Total
Net sales $ —
$ 2,096,894
$ 266,101
$ (60,904 ) $ 2,302,091

Operating costs and expenses:
Cost of sales —
1,667,935
214,482
(60,904 ) 1,821,513
Selling, general and administrative 69,820
118,006
26,108
—
213,934
Depreciation and amortization 1,050
105,781
12,487
—
119,318
Impairment of intangible assets —
135,013
55,214
—
190,227
Restructuring 17,089
13,883
2,779
—
33,751
Loss on divestiture 20,371
—
—
—
20,371
Curtailment and settlement gain, net (14,576 ) —
—
—
(14,576 )
93,754
2,040,618
311,070
(60,904 ) 2,384,538
Operating (loss) income (93,754 ) 56,276
(44,969 ) —
(82,447 )
Intercompany interest and charges (122,339 ) 116,076
6,263
—
—
Interest expense and other 63,092
8,181
956
—
72,229
(Loss) income before income taxes (34,507 ) (67,981 ) (52,188 ) —
(154,676 )
Income tax (benefit) expense (64,823 ) 31,414
(706 ) —
(34,115 )
Net income (loss) 30,316
(99,395 ) (51,482 ) —
(120,561 )
Other comprehensive (loss) income (3,012 ) 5,064
19,502
—
21,554
Total comprehensive income (loss) $ 27,304
$ (94,331 ) $ (31,980 ) $ —
$ (99,007 )

2834

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME:

For the Nine Months Ended December, 2016
Parent
Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries
Eliminations
Consolidated
Total
Net sales $ —
$ 2,388,881
$ 281,978
$ (57,974 ) $ 2,612,885

Operating costs and expenses:
Cost of sales —
1,883,122
227,752
(57,974 ) 2,052,900
Selling, general and administrative 45,052
137,609
22,561
—
205,222
Depreciation and amortization 989
121,412
12,679
—
135,080
Restructuring 15,831
11,735
614
—
28,180
Loss on divestiture and assets held for sale 19,124
—
—
—
19,124
80,996
2,153,878
263,606
(57,974 ) 2,440,506
Operating (loss) income (80,996 ) 235,003
18,372
—
172,379
Intercompany interest and charges (144,666 ) 137,909
6,757
—
—
Interest expense and other 53,657
8,729
(6,665 ) —
55,721
Income before income taxes 10,013
88,365
18,280
—
116,658
Income tax (benefit) expense (7,359 ) 35,783
4,362
—
32,786
Net income 17,372
52,582
13,918
—
83,872
Other comprehensive income (loss) 2,094
(4,719 ) (36,684 ) —
(39,309 )
Total comprehensive income (loss) $ 19,466
$ 47,863
$ (22,766 ) $ —
$ 44,563



	For the Six Months Ended September 30, 2018
	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated Total
Net sales	$	—		$	1,551,179		$	177,280		$	(40,451	)	$	1,688,008

Operating costs and expenses:
Cost of sales	—			1,392,424			142,715			(40,451		)	1,494,688
Selling, general and administrative	39,490			95,006			16,712			—			151,208
Depreciation and amortization	1,458			66,659			8,828			—			76,945
Restructuring costs	2,766			13,113			—			—			15,879
Loss on divestiture and assets held for sale	16,891			946			—			—			17,837
	60,605			1,568,148			168,255			(40,451		)	1,756,557
Operating (loss) income	(60,605		)	(16,969		)	9,025			—			(68,549		)
Intercompany interest and charges	(78,838		)	74,797			4,041			—			—
Non-service defined benefit income	—			(32,375		)	(686		)	—			(33,061		)
Interest expense and other	48,378			9,282			(3,454		)	—			54,206
(Loss) income before income taxes	(30,145		)	(68,673		)	9,124			—			(89,694		)
Income tax expense (benefit)	30,546			(30,087		)	1,057			—			1,516
Net (loss) income	(60,691		)	(38,586		)	8,067			—			(91,210		)
Other comprehensive loss	(70		)	(435		)	(13,850		)	—			(14,355		)
Total comprehensive loss	$	(60,761	)	$	(39,021	)	$	(5,783	)	$	—		$	(105,565	)

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS:



	For the Six Months Ended September 30, 2019
	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations		Consolidated Total
Net (loss) income	$	(14,174	)	$	59,768		$	15,195		$	—	$	60,789

Adjustments to reconcile net income to net cash provided by (used in) operating activities	(63,313		)	(11,245		)	3,176			—		(71,382		)
Net cash (used in) provided by operating activities	(77,487		)	48,523			18,371			—		(10,593		)
Capital expenditures	(564		)	(14,330		)	(2,101		)	—		(16,995		)
(Payments on) proceeds from sale of assets	(4,950		)	4,078			298			—		(574		)
Net cash used in investing activities	(5,514		)	(10,252		)	(1,803		)	—		(17,569		)
Net increase in revolving credit facility	(147,615		)	—			—			—		(147,615		)
Proceeds on issuance of debt	525,000			—			21,000			—		546,000
Retirements and repayments of debt	(376,327		)	(3,322		)	(35,798		)	—		(415,447		)
Payments of deferred financing costs	(16,275		)	—			—			—		(16,275		)
Dividends paid	(4,001		)	—			—			—		(4,001		)
Repurchase of restricted shares for minimum tax obligation	(1,048		)	—			—			—		(1,048		)
Intercompany financing and advances	33,130			(35,211		)	2,081			—		—
Net cash provided by (used in) financing activities	12,864			(38,533		)	(12,717		)	—		(38,386		)
Effect of exchange rate changes on cash	—			—			(1,407		)	—		(1,407		)
Net change in cash and cash equivalents	(70,137		)	(262		)	2,444			—		(67,955		)
Cash and cash equivalents at beginning of period	70,192			429			22,186			—		92,807
Cash and cash equivalents at end of period	$	55		$	167		$	24,630		$	—	$	24,852

For the Nine Months Ended December 31, 2017
Parent
Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries
Eliminations
Consolidated
Total
Net income (loss) $ 30,316
$ (99,395 ) $ (51,482 ) $ —
$ (120,561 )

Adjustments to reconcile net income to net cash (used in) operating activities provided by (54,460 ) (139,525 ) 73,560
42,707
(77,718 )
Net cash (used in) provided by operating activities (24,144 ) (238,920 ) 22,078
42,707
(198,279 )
Capital expenditures (2,314 ) (25,507 ) (4,111 ) —
(31,932 )
Proceeds from sale of assets —
68,009
403
—
68,412
Net cash (used in) provided by investing activities (2,314 ) 42,502
(3,708 ) —
36,480
Net increase in revolving credit facility 20,000
—
—
—
20,000
Proceeds on issuance of debt 500,000
—
31,500
—
531,500
Retirements and repayments of debt (314,628 ) (19,333 ) (35,300 ) —
(369,261 )
Payments of deferred financing costs (17,729 ) —
—
—
(17,729 )
Dividends paid (5,956 ) —
—
—
(5,956 )
Repurchase of restricted shares for minimum tax obligation (369 ) —
—
—
(369 )
Intercompany financing and advances (162,174 ) 200,010
4,871
(42,707 ) —
Net cash provided by (used in)financing activities 19,144
180,677
1,071
(42,707 ) 158,185
Effect of exchange rate changes on cash —
—
(1,631 ) —
(1,631 )
Net change in cash and cash equivalents (7,314 ) (15,741 ) 17,810
—
(5,245 )
Cash and cash equivalents at beginning of period 19,942
24,137
25,554
—
69,633
Cash and cash equivalents at end of period $ 12,628
$ 8,396
$ 43,364
$ —
$ 64,388

3036

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS:



	For the Six Months Ended September 30, 2018
	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated Total
Net (loss) income	$	(60,691	)	$	(38,586	)	$	8,067		$	—		$	(91,210	)

Adjustments to reconcile net income to net cash provided by (used in) operating activities	53,818			(180,109		)	11,498			8,824			(105,969		)
Net cash (used in) provided by operating activities	(6,873		)	(218,695		)	19,565			8,824			(197,179		)
Capital expenditures	(583		)	(21,145		)	(2,526		)	—			(24,254		)
Proceeds from sale of assets	—			40,189			848			—			41,037
Net cash (used in) provided by investing activities	(583		)	19,044			(1,678		)	—			16,783
Net increase in revolving credit facility	219,773			—			—			—			219,773
Proceeds on issuance of debt	—			—			24,700			—			24,700
Retirements and repayments of debt	(703		)	(11,320		)	(46,800		)	—			(58,823		)
Payments of deferred financing costs	(1,922		)	—			—			—			(1,922		)
Dividends paid	(3,981		)	—			—			—			(3,981		)
Repurchase of restricted shares for minimum tax obligations	(548		)	—			—			—			(548		)
Intercompany financing and advances	(205,128		)	211,208			2,744			(8,824		)	—
Net cash provided by (used in) financing activities	7,491			199,888			(19,356		)	(8,824		)	179,199
Effect of exchange rate changes on cash	—			—			(1,395		)	—			(1,395		)
Net change in cash and cash equivalents	35			237			(2,864		)	—			(2,592		)
Cash and cash equivalents at beginning of period	44			—			35,775			—			35,819
Cash and cash equivalents at end of period	$	79		$	237		$	32,911		$	—		$	33,227

For the Nine Months Ended December, 2016
Parent
Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries
Eliminations
Consolidated
Total
Net income $ 17,372
$ 52,582
$ 13,918
$ —
$ 83,872

Adjustments to reconcile net income to net cash provided by (used in) operating activities (2,419 ) (294,036 ) 27,922
12,010
(256,523 )
Net cash provided by (used in) operating activities 14,953
(241,454 ) 41,840
12,010
(172,651 )
Capital expenditures (1,657 ) (22,442 ) (9,024 ) —
(33,123 )
Proceeds from sale of assets —
22,253
932
—
23,185
Acquisitions, net of cash acquired —
9
—
—
9
Net cash used in investing activities (1,657 ) (180 ) (8,092 ) —
(9,929 )
Net increase in revolving credit facility 316,121
—
—
—
316,121
Proceeds on issuance of debt 201
—
12,700
—
12,901
Retirements and repayments of debt (21,368 ) (10,676 ) (63,700 ) —
(95,744 )
Payments of deferred financing costs (14,012 ) —
—
—
(14,012 )
Dividends paid (5,944 ) —
—
—
(5,944 )
Repayment of government grant —
(14,570 ) —
—
(14,570 )
Repurchase of restricted shares for minimum tax obligations (182 ) —
—
—
(182 )
Intercompany financing and advances (288,995 ) 275,159
25,846
(12,010 ) —
Net cash (used in) provided by financing activities (14,179 ) 249,913
(25,154 ) (12,010 ) 198,570
Effect of exchange rate changes on cash —
—
(1,513 ) —
(1,513 )
Net change in cash and cash equivalents (883 ) 8,279
7,081
—
14,477
Cash and cash equivalents at beginning of period 1,544
201
19,239
—
20,984
Cash and cash equivalents at end of period $ 661
$ 8,480
$ 26,320
$ —
$ 35,461

3137

Triumph Group, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

~~13.~~15. COMMITMENTS AND CONTINGENCIES

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 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. In the three months ended September 30, 2019, the Company was awarded $5,400 in a legal judgment associated with a longstanding litigation matter arising from a prior acquisition. The Company expects to receive an additional $3,000 to $5,000 from this matter as reimbursement of legal expenses.

As the Company completes its restructuring plans as disclosed in Note 16, including the disposal of certain facilities, the Company may be exposed to additional costs such as environmental remediation obligations, lease termination costs, or supplier claims which may have a material effect on its financial position or results of operations when such matters arise and a reasonable estimate of the costs can be made.

~~14.~~16. RESTRUCTURING COSTS

~~During~~As disclosed in the ~~fiscal~~Company's Form 10-K for the year ended March 31, 2019, during the fiscal years ended March 31, 2017 and 2016, the Company committed to a restructuring ofplans involving certain of its businesses, as well as the consolidation of certain of its ~~facilities ("2017 Restructuring Plan").~~facilities. With the exception of certain consolidations to be completed in future years, these plans were substantially complete as of March 31, 2019. The Company ~~expects~~incurred costs of $8,746 associated with new restructuring plans during the six months ended September 30, 2019. These costs, which are being incurred primarily within the Integrated Systems segment, pertain to reduce its footprint by approximately 1.0 million square feet, to reduce head count by approximately 100 employees and to amend certain contracts. Over the next few fiscal years, the Company estimates that it will record aggregate pre-tax charges of $55,000 to $60,000 related to these programs, which represent employee termination benefits, contract termination costs, accelerated depreciation and facility closure and other exitthird-party consulting costs and ~~will result in future cash outlays.~~

~~During~~are estimated to be approximately $10,000 to $12,000 for the ~~fiscal~~ year ended March 31, 2016, the Company committed to a restructuring of certain of its businesses as well as the consolidation of certain of its facilities ("2016 Restructuring Plan"). The Company expects to reduce its footprint by approximately 3.5 million square feet and to reduce head count by approximately 1,200 employees. Over the next few fiscal years, the Company estimates that it will record aggregate pre-tax charges of $140,000 to $150,000 related to these programs, which represent employee termination benefits, contract termination costs, accelerated depreciation and facility closure and other exit costs, and will result in future cash outlays.2020.

~~The following table provides a summary of the Company's current aggregate cost estimates by major type of expense associated with the restructuring plans noted above:~~

Type of expense: Total estimated amount expected to be incurred
Termination benefits $ 21,000
Facility closure and other exit costs (1) 44,000
Contract termination costs 18,000
Accelerated depreciation charges (2) 37,000
Other (3) 89,000
$ 209,000

~~(1)~~ I~~ncludes costs to transfer product lines among facilities and outplacement and employee relocation costs.~~

~~(2) Accelerated depreciation charges are recorded as part of Depreciation and amortization on the Consolidated Statement of Operations.~~

~~(3) Consists of other costs directly related to the plan, including project management, legal, regulatory costs and other transformation related costs, such as costs to amend certain contracts.~~

~~The restructuring charges recognized for the three and nine months ended December 31, 2017 and 2016, by type and by segment consisted of the following:~~

~~Triumph Group, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(dollars in thousands, except per share data)~~

~~(unaudited)~~

For the Three Months Ended December 31, 2017
Integrated Systems Aerospace Structures Precision Components Product Support Corporate Total
Termination benefits $ 26
$ —
$ 1,121
$ —
$ —
$ 1,147
Facility closure and other exit costs —
—
474
—
—
474
Other 929
980
218
19
2,382
4,528
Total Restructuring 955
980
1,813
19
2,382
6,149
Depreciation and amortization 382
—
—
—
—
382
Total $ 1,337
$ 980
$ 1,813
$ 19
$ 2,382
$ 6,531

For the Three Months Ended December 31, 2016
Integrated Systems Aerospace Structures Precision Components Product Support Corporate Total
Termination benefits $ —
$ —
$ 494
$ 57
$ —
$ 551
Facility closure and other exit costs —
297
1,209
180
—
1,686
Other 49
2,296
133
121
6,231
8,830
Total Restructuring 49
2,593
1,836
358
6,231
11,067
Depreciation and amortization 46
—
3,006
13
—
3,065
Total $ 95
$ 2,593
$ 4,842
$ 371
$ 6,231
$ 14,132

For the Nine Months Ended December 31, 2017
Integrated Systems Aerospace Structures Precision Components Product Support Corporate Total
Termination benefits $ 26
$ —
$ 1,868
$ —
$ —
$ 1,894
Facility closure and other exit costs 70
3,504
4,761
—
—
8,335
Other 1,673
980
3,001
779
17,089
23,522
Total Restructuring 1,769
4,484
9,630
779
17,089
33,751
Depreciation and amortization 1,909
—
629
—
—
2,538
Total $ 3,678
$ 4,484
$ 10,259
$ 779
$ 17,089
$ 36,289

For the Nine Months Ended December, 2016
Integrated Systems Aerospace Structures Precision Components Product Support Corporate Total
Termination benefits $ 286
$ 250
$ 966
$ 147
$ —
$ 1,649
Facility closure and other exit costs —
297
1,456
215
—
1,968
Other 49
6,307
2,185
191
15,831
24,563
Total Restructuring 335
6,854
4,607
553
15,831
28,180
Depreciation and amortization 139
—
9,854
303
—
10,296
Total $ 474
$ 6,854
$ 14,461
$ 856
$ 15,831
$ 38,476

Termination benefits include employee retention, severance and benefit payments for terminated employees. Facility closure costs include general operating costs incurred subsequent to production shutdown as well as equipment relocation and other associated costs. Contract termination costs include costs associated with terminating existing leases and supplier agreements. Other transformation costs include legal, outplacement and employee relocation costs, and other employee-related costs and costs to amend certain contracts.

Triumph Group, Inc.

Management's Discussion and Analysis of

Financial Condition and Results of Operations

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

(The following discussion should be read in conjunction with the ~~Condensed Consolidated Financial Statements~~condensed consolidated financial statements contained elsewhere herein.)

OVERVIEW

We are a major supplier to the aerospace industry and have ~~four~~three operating segments: (i) Integrated Systems, whose companies’ revenues are derived from integrated solutions, including design, development and support of proprietary components, subsystems and systems, as well as production of complex assemblies using external designs; (ii) Aerospace Structures, whose companies supply commercial, business, regional and military manufacturers with large metallic and composite ~~structures; (iii) Precision Components, whose companies~~structures and produce close-tolerance parts primarily to customer designs and ~~model-based~~model based definition, including a wide range of aluminum, hard metal and composite structure capabilities; and ~~(iv)~~(iii) Product Support, whose companies provide full life cycle solutions for commercial, regional and military aircraft.

Effective January 1, 2018, we combined our Aerospace Structures and Precision Components reporting segments into one reporting segment, Aerospace Structures. Aerospace Structures and Precision Components share many ofDuring the same customers and suppliers and have substantial inter-company work on common programs. As a single operating segment, we believe we will be able to leverage their combined resources to make it more cost competitive and enhance performance. The newly formed operating segment will also be a reportable segment. As a result, effective January 1, 2018, we will have three reporting segments for future financial reporting purposes - Integrated Systems, Product Support and Aerospace Structures.

~~In September 2017,~~fiscal year ended March 31, 2019, the Company ~~sold~~divested of a number of its assets and operations, including (i) selling all of the shares of Triumph Structures - East Texas, Inc. and all of the shares of Triumph Structures - Los Angeles, Inc. and Triumph Processing, Inc. (collectively, the "Long & Large"), (ii) transitioning the responsibility for the Bombardier Global 7500 ("Global 7500") wing program manufacturing operations of Aerospace Structures to Bombardier, (iii) selling all of the shares of Triumph Fabrications - ~~Embee~~San Diego, Inc. and Triumph Fabrications - Ft. Worth, Inc. (together, "Fabrications"), (iv) selling all of the shares of Triumph Structures – Kansas City, Inc., Triumph Structures – Wichita, Inc., Triumph Gear Systems – Toronto, ULC and Triumph Northwest (The Triumph Group Operations, Inc.) (together, "Machining"), and (v) selling all of the shares of Triumph Aviation Services - NAAS Division, Inc. ("~~Embee"~~NAAS") ~~for total cash proceeds of $64,986. As a result of~~. Collectively, these transactions are referred to as the ~~sale of Embee, the~~"fiscal 2019 divestitures." The Company recognized acombined net losses of $235.3 million associated with the fiscal 2019 divestitures, which are presented on the accompanying consolidated statements of operations within loss on divestitures. With the exception of ~~$17,857, which is~~NAAS, the operating results for the fiscal 2019 divestitures are included in ~~Corporate.~~Aerospace Structures ("fiscal 2019 Aerospace Structures Divestitures") through the respective dates of divestiture. The operating results ~~of Embee were~~for NAAS are included in ~~Integrated Systems~~Product Support through the date of ~~disposal.~~divestiture.

Highlights for the ~~third~~second quarter of the fiscal year ending March 31, ~~2018~~2020, included:

Net sales for the ~~third~~second quarter of the fiscal year ending March 31, ~~2018~~2020, were ~~$775.2~~$772.1 million, compared ~~to $844.9~~with $855.1 million for the prior year period.

Operating ~~loss~~income in the ~~third~~second quarter of fiscal ~~2018~~2020 was ~~$(119.7) million and included a non-cash impairment charge of $190.2~~$61.0 million, compared ~~to $55.2~~with operating loss of $2.0 million for the ~~third~~second quarter of fiscal ~~2017.~~2019.

Net ~~loss~~income for the ~~third~~second quarter of fiscal ~~2018~~2020 was ~~$113.3~~$42.7 million, compared towith a net ~~income~~loss of ~~$29.3~~$14.7 million for the ~~third~~second quarter of fiscal ~~2017.~~2019.

Backlog as of ~~December 31, 2017~~September 30, 2019, was ~~$4.36~~$3.66 billion. Of our existing backlog of ~~$4.36~~$3.66 billion, we estimate that approximately ~~$1.72~~$1.41 billion will not be shipped by ~~December 31, 2018.~~September 30, 2020.

Net ~~loss~~income for the ~~third~~second quarter of fiscal ~~2018~~2020 was ~~$2.29~~$0.85 per diluted common share, as compared towith a net ~~income~~loss of ~~$0.59~~$0.30 per diluted share in the prior year period.

We used ~~$198.3~~$10.6 million of cash flow from operating activities for the ~~nine~~six months ended ~~December 31, 2017,~~September 30, 2019, as compared towith cash used in operations of ~~$172.7~~$197.2 million in the comparable prior year period.

WeThe Company has committed to several plans (which were initiated in fiscal 2016) that ~~incorporate~~incorporated the restructuring of certain of ~~our~~its businesses as well as the consolidation of certain of ~~our~~its facilities. ~~We expect~~With the exception of certain consolidations and related shutdowns to ~~reduce our footprint by approximately 4.5 million square feet and to reduce head count by 1,300 employees. Over the course of the plans (which were initiated~~be completed in ~~fiscal 2016), we estimate that we will record aggregate pre-tax charges of $195.0 million to $210.0 million related to~~future years, these plans ~~which represent employee termination benefits, contract termination costs, accelerated depreciation and facility closure and other exit costs, and will result in future cash outlays.~~were substantially complete as of March 31, 2019. For the ~~nine~~six months ended ~~December 31, 2017~~September 30, 2019 and ~~2016, we recorded charges of $33.8~~2018, the Company incurred $8.7 million and ~~$28.2~~$15.9 million ~~respectively, related~~in restructuring costs, respectively. As disclosed in Note 15, the Company may be exposed to ~~these plans.~~additional costs that are not yet known or reasonably estimable which may have a material effect on its financial position or results of operations when such matters are identified and become reasonably estimable.

Our 2016 and 2017 restructuring plans and related activities were anticipated to generate annualized savings of approximately $300 million per year on a consolidated basis by fiscal year 2019 from facility consolidations, headcount reductions, operational efficiencies, and supply chain optimization. These anticipated savings were expected to come from our reportable segments approximately as follows: Integrated Systems - 23%; Aerospace Structures - 46%; Precision Components -

3439

Triumph Group, Inc.

Management's Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

~~26% and Product Support - 5%. A significant portion of the anticipated savings are expected to be reinvested in~~From fiscal 2014 through fiscal 2019, our Aerospace Structures business ~~development, research &~~unit had been performing design, development and capital improvements to help drive organic growth. Through December 31, 2017, the Company is on target for its consolidated anticipated savings goals, however the nature of those savings has shifted over time to be more weighted towards our supply chain optimization and operational efficiencies than previously anticipated, offset by reduced expectations associated with the facility consolidations and headcount reductions.

Our most recent annual goodwill impairment test was performed for all reporting units as of February 1, 2017. We also perform the goodwill impairment test on an interim basis upon the occurrence of events or substantive changes in circumstances that indicate a reporting unit's carrying value may be less than its fair value. We performed an interim assessment of the fair value of our goodwill due to our decision to combine the Aerospace Structures and Precision Components reporting segments into one reporting segment as noted above. In accordance with ASC 350-20-35-3C, there are several potential events and circumstances that could be indicators of goodwill impairment. A change in a company's reporting unit structure is one of these events, and when this does occur, a company must perform a 'before and after" test of the reporting units. Additionally, the Company's enhanced visibility into its future cash flows based on its annual planning process was also an indicator. Consistent with our policy described in the Form 10-K for the fiscal year ended March 31, 2017, we performed the goodwill impairment test, which includes using a combination of both the market and income approaches to estimate the fair value of each reporting unit.

After performing the "before" portion of the test of the reporting units and concluded that the Precision Component's goodwill had a fair value that was lower then its carrying value by an amount of $190.2 million. Accordingly, we recorded a non-cash impairment charge during the quarter ended December 31, 2017 of $190.2 million, which is presented on the accompanying Consolidated Statements of Operations as "Impairment of intangible assets”. The decline in fair value is the result of declining revenues from production rate reductions on sun-setting programs and the slower than previously projected ramp in our development programs and the timing of associated earnings and cash flows

The Company then performed the "after" portion of the test of the reporting units and concluded that the new reporting unit of Aerospace Structure's goodwill had a fair value that was lower then its carrying value by an amount that exceeded the remaining goodwill for the reporting unit. Following the applicable accounting guidance, this impairment charge is deemed to have occurred during the Company's fiscal fourth quarter. Therefore, we will record a non-cash impairment charge during the quarter ended March 31, 2018 of $345.0 million, which will be presented on the Consolidated Statements of Operations as "Impairment of intangible assets” for the fiscal year ended March 31, 2018. The decline in fair value is the result of declining revenues from production rate reductions on sun-setting programs and the slower than previously projected ramp in our development programs and the timing of associated earnings and cash flows (See Note 2 for definition of fair value levels).

On December 22, 2017, the U.S. government enacted comprehensive tax legislation referred to as the Tax Cuts and Jobs Act (the “Act”). The Act introduces tax reform that reduces the current corporate federal income tax rate from 35% to 21%, among other changes. The Act makes broad and complex changes to the U.S. tax code and it will take time to fully evaluate the impact of these changes on the Company. The Company has recorded a provisional tax benefit of $24.6 million related to the impact of the Act’s reduction in the statutory tax rate on its net deferred tax liability, as well as a provisional tax liability of $2.2 million imposed on unremitted foreign earnings under the Act’s mandatory repatriation provisions. The Company has prepared a reasonable estimate around the impact of the Act and has recorded the provisional impact (SAB 118) as discrete adjustments noted above to the tax provision for the three months ended December 31, 2017. While the Company believes these are reasonable estimates of the impact of the Act, additional time is needed to finalize these estimates. While the Company has computed and recorded these provisional amounts, these will be finalized within the established measurement period (not to exceed one year) as additional data and information is gathered. The Company determined that the amounts recorded are provisional as adjustments may occur due to additional guidance from the IRS, the earnings and profit at March 31, 2018, and as certain tax positions are finalized when the Company files its 2018 tax returns.

~~Management's Discussion and Analysis of~~

~~Financial Condition and Results of Operations~~

~~(continued)~~

~~We are currently performing work~~initial manufacturing on several ~~new~~ programs, ~~which are in various stages of development. Several of the these programs are expected to enter flight testing during calendar 2018,~~ including the ~~Bombardier Global 7000/8000 ("Bombardier"), and~~ Embraer second generation E-Jet ("E2-Jets") and ~~we expect to deliver revenue generating production units for these programs in calendar 2018.~~more recently, the Gulfstream G500/G600 programs. Historically, low-rate production commences during flight testing, followed by an increase to full-rate production, assuming that successful testing and certification are achieved. ~~Accordingly,~~While work progressed on these development programs, we ~~anticipate that~~have experienced difficulties in achieving estimated cost targets particularly in the areas of engineering and estimated recurring costs which resulted in forward losses. Additionally, from fiscal 2015 to fiscal 2019, our Aerospace Structures business unit experienced operating and forward losses on its production of the Boeing 747-8 fuselage for Boeing, Gulfstream G280 wing for Israel Aerospace Industries, Ltd ("IAI") and Gulfstream G650 wing for Gulfstream. Further discussion is included below regarding each program's impact on operations over the past three fiscal years.

E2-Jets

Under our contract with Embraer, we had the exclusive right to design, develop and manufacture the center fuselage section III, rear fuselage section and various tail section components (rudder and elevator) for the E2-Jets over the initial 600 ship sets. The contract provided for funding on a fixed amount of ~~these programs~~nonrecurring costs, to be paid over a specified number of production units. Higher than expected spending on the E2-Jets program resulted in a near break-even estimated profit margin percentage, with additional potential future cost pressures as well as opportunities for improved performance. Risks related to additional engineering as well as the recurring cost profile remain on this program.

During the fiscal year ended March 31, 2018, the Company reached an agreement with AeroSpace Technologies of Korea Inc. ("ASTK") to optimize the supply chain under our portion of the E2 program. Under this agreement, ASTK will ~~begin generating full-rate production level revenues between calendar~~build and transport fuselage shipsets to Embraer and establish a facility in Brazil to manage stock and repairs locally. At the time, the Company maintained its role as the supply chain integrator on the program.

In April 2019, we announced an agreement to assign our contract with Embraer for the manufacture of structural components for their program to ASTK. Under this agreement, we will remain a supplier to ASTK for the rudder and elevator components. We completed the assignment of our contract during the three months ended September 30, 2019, and ~~fiscal 2021.~~ recognized a gain of approximately $10,000 included in our Aerospace Structures operating income.

G500/G600

We are ~~still~~ in the ~~early~~final development stages for the Gulfstream G500/G600 programs, as these aircraft are ~~not~~ expected to enter service ~~until~~in fiscal ~~2019.~~2020. Transition of each of these programs from development to recurring production levels is dependent upon the success of each program at achieving flight testing and certification, as well as the ability of the OEM to generate acceptable levels of aircraft sales.

During the nine months ended December 31, 2017, we incurred approximately $86.5 million in capitalized pre-production costs associated with the Bombardier Global 7000/8000 and the Embraer second generation E-Jet programs, for which we have not yet begun deliveries. We expect to incur additional costs related to these programs as they continue to develop. Inventory costs are evaluated for recoverability through their inclusion in the total costs used in the calculation of each contract's estimated profit margin. When the estimated total contract costs exceed total estimated contract revenues, a forward loss is established. We may incur additional costs related to these programs if there are further delays due to our customer or our capability to execute timely.

While work progressed on these development programs, we have experienced difficulties in achieving estimated cost targets, particularly in the areas of engineering and estimated recurring costs resulting in previously recorded forward loss provisions. In the fourth quarter of fiscal 2016, we recorded a $399.8 million forward loss on our Global 7000/8000 wing contract. The Global 7000/8000 contract provides for fixed pricing and requires us to fund certain up-front development expenses, with certain milestone payments made by Bombardier.

The provision for forward losses on the Global 7000/8000 program resulted in the impairment of previously capitalized pre-production costs due to the combination of cost recovery uncertainty, higher than anticipated non-recurring costs and increased forecasted costs on recurring production. The increases in costs were driven by several factors, including: changing technical requirements, increased spending on the design and engineering phase of the program and uncertainty regarding cost reduction and cost recovery initiatives with our customer and suppliers.

~~The program has continued to incur costs since March 2016 in support of development and transition to production.~~

On December 22, 2016, Triumph Aerostructures, LLC, the wholly owned subsidiary of the Company that is party to the Global 7000/8000 contract with Bombardier (“Triumph Aerostructures”), initiated litigation against Bombardier in the Quebec Superior Court, District of Montreal. The lawsuit related to Bombardier’s failure to pay to Triumph Aerostructures certain non-recurring expenses incurred by Triumph Aerostructures during the development phase of a program pursuant to which Triumph Aerostructures agreed to design, manufacture, and supply the wing and related components for Bombardier’s Global 7000 business aircraft.

In May 2017, Triumph Aerostructures and Bombardier entered into a comprehensive settlement agreement that resolved all outstanding commercial disputes between them, including all pending litigation, related to the design, manufacture and supply of wing components for Bombardier’s Global 7000/8000 business aircraft. The settlement resets the commercial relationship between the companies and allows each company to better achieve its business objectives going forward.

Under our contract with Embraer, we have the exclusive right to design, develop and manufacture the center fuselage section III, rear fuselage section and various tail section components (rudder and elevator) for the E2-Jets. The contract provides for funding on a fixed amount of non-recurring costs, which will be paid over a specified number of production units. Higher than expected spending on the E2-Jets program has resulted in a near breakeven estimated profit margin percentage, with additional potential future cost pressures as well as opportunities for improved performance. Risks related to additional engineering as well as the recurring cost profile remains as this program completes flight testing.

Further cost increases or an inability to meet revised recurring cost forecasts on the ~~Global 7000/8000 and Embraer programs~~G500/G600 program may result in additional forward loss reserves in future periods, while improvements in future costs compared towith current estimates or additional cost recovery may result in favorable adjustments if forward loss reserves are no longer required.

Boeing 747-8

As disclosed during fiscal 2016, Boeing announced a rate reduction to the 747-8 program, which lowered production to one plane every two months. The impact of the rate reduction resulted in additional forward loss during the fiscal year ended March 31, 2016.

In March 2017, the Company settled several outstanding change orders and open pricing on a number of its programs with Boeing. The agreement included pricing settlements, advanced payments, delivery schedule adjustments and the opportunity to extend the mutual relationship on future programs. The agreement also provided for continued build ahead on the 747-8 program through the end of the existing contract, resulting in a reduction to the previously recognized forward losses on the 747-8 program.

This program has stabilized with no additional forward losses being recognized and is anticipated to complete production by mid-fiscal 2021.

3640

Triumph Group, Inc.

Management's Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

G280

We ~~seek additional consideration~~acquired both the G280 and G650 wing programs in fiscal 2015 and received proceeds for ~~customer work statement changes throughout our~~$160.0 million as both contracts were operating at a loss. While operations have improved on the G650 since acquisition as noted further below, the cost profile of the G280 wing program has continued to result in forward loss charges, including $29.1 million in the fiscal year ended March 31, 2019.

In April 2019, the Company and IAI reached an agreement to transition the manufacture of the G280 wing to IAI. The two companies have developed detailed transition plans to enable a seamless transition of work. Our contract ~~life as a standard course~~with IAI will terminate upon completion of ~~business. We recently~~the transition of work. Our forward loss recognized in the fiscal year ended March 31, 2019, noted above includes the cost to transition, which is estimated to be completed in mid-fiscal 2021.

G650

In the first quarter of fiscal 2019, the Company reached ~~a preliminary~~an agreement with Gulfstream ~~across many programs we support, including but not limited~~ to optimize the supply chain on the Company's G650 work scope. The G650 wing ~~program. We~~box and wing completion work, which had been co-produced across three facilities at both companies, are ~~also currently engaged~~being consolidated into Gulfstream’s facilities in Savannah, Georgia. The Company completed the manufacturing of its final wing box in July 2019. The Company maintains its role as the supply chain integrator on the program and has since returned this contract to modest profitability.

In September 2017, the Company reached an agreement with ~~other customers~~Boeing to supply the wing, vertical tail and horizontal tail structures for the new Advanced Pilot Training program for the U.S. Air Force. In September 2018, the U.S. Air Force awarded the contract to Boeing. In fiscal 2019, the Company initiated supply chain analysis in ~~similar negotiations. The ability~~support of Boeing's preliminary design. Risks related to ~~recover or negotiate additional consideration is not certain~~development and ~~varies by contract. Varying market conditions for these products may also impact~~recurring productions costs are possible and could result in future ~~profitability.~~forward losses.

Although none of ~~these new~~the development or production programs noted above individually isare expected to have a material impact on our net revenues, they do have the potential, either individually or in the aggregate, to materially and negatively impact our consolidated results of operations if future changes in estimates result in the need for a forward loss provision. Absent any such loss provisions, we do not anticipate that any of these ~~new~~ programs will significantly dilute our future consolidated margins.

In March 2017, the Company settled several outstanding change orders and open pricing on a number of its programs with Boeing. The agreement included pricing settlements, advanced payments, delivery schedule adjustments and the opportunity to extend the mutual relationship on future programs. The agreement also provides for continued build ahead on the 747-8 program through the end of the existing contract, resulting in a reduction to the previously recognized forward losses on the 747-8 program.

As disclosed during fiscal 2016, Boeing announced a rate reduction to the 747-8 program, which lowers production to one plane every two months. We assessed the impact of the rate reduction and recorded an additional $161.4 million forward loss during the fiscal year ended March 31, 2016. Additional costs associated with exiting the facilities where the 747-8 program is manufactured, such as asset impairment, supplier and lease termination charges, as well as severance and retention payments to employees and contractors have been included in the 2016 Restructuring Plan.

~~As previously disclosed, we recognized a provision for forward losses associated with our long-term contract on the 747-8 and Bombardier programs. T~~here is still risk similar to what we have experienced on the 747-8 and Bombardier programs. Particularly, our ability to manage risks related to supplier performance, execution of cost reduction strategies, hiring and retaining skilled production and management personnel, quality and manufacturing execution, program schedule delays, potential need to negotiate facility lease extensions or alternatively relocate work and many other risks, will determine the ultimate performance of these long-term programs.

Recognition of additional forward losses in the future periods continues to be a risk and will depend upon several factors, including the impact of the above discussed production rate change, our ability to successfully perform under current design and manufacturing plans, achievement of forecasted cost reductions as we continue production and our ability to successfully resolve claims and assertions with our customers and suppliers.

In December 2016, the Company entered into a definitive agreement to divest Triumph Air Repair, the Auxiliary Power Unit Overhaul Operations of Triumph Aviation Services - Asia, Ltd. and Triumph Engines - Tempe ("Engines and APU"). As a result, the Company recognized a loss of $14,263 on the sale. The operating results of Engines and APU were included in Product Support through the date of disposal. The transaction closed during the quarter ended June 30, 2017.

In September 2016, the Company sold all of the shares of Triumph Aerospace Systems-Newport News, Inc. ("Newport News) for total cash proceeds of $9,000. As a result of the sale of Newport News, the Company recognized a loss of $4,774, which is included in Corporate. The operating results of Newport News were included in Integrated Systems through the date of disposal.

~~The divestitures of Engines and APU and Newport News are subsequently referred to as the "fiscal 2017 divestitures."~~

RESULTS OF OPERATIONS

The following includes a discussion of our consolidated and business segment results of operations. The Company's diverse structure and customer base do not allow for precise comparisons of the impact of price and volume changes to our results. However, we have disclosed the significant variances between the respective periods.

Non-GAAP Financial Measures

We prepare and publicly release annual audited and quarterly unaudited financial statements prepared in accordance with U.S. GAAP. In accordance with the rules of the Securities and Exchange Commission (the "SEC") ~~guidance on Compliance and Disclosure Interpretations,~~, we

~~Management's Discussion and Analysis of~~

~~Financial Condition and Results of Operations~~

~~(continued)~~

also disclose and discuss certain non-GAAP financial measures in our public filings and earning releases. Currently, the non-GAAP financial ~~measure~~measures that we disclose isare Adjusted EBITDA, which is our net income ~~from continuing operations~~(loss) before interest, income taxes, amortization of acquired contract liabilities, legal settlements, loss on divestitures, depreciation and amortization; and Adjusted EBITDAP, which is Adjusted EBITDA, before pension expense or benefit, including the effects of curtailments, settlements, and other early retirement ~~incentives, legal settlements and depreciation and amortization.~~incentives. 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 towith our previously reported results of operations.

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

Triumph Group, Inc.

Management's Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

not rely on Adjusted EBITDA or Adjusted EBITDAP as a substitute for any U.S. GAAP financial measure, including net income (loss) ~~or income from continuing operations.~~. In addition, we urge investors and potential investors in our securities to carefully review the reconciliation of Adjusted EBITDA and Adjusted EBITDAP to net income (loss) 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.~~EBITDA and Adjusted EBITDAP.

Adjusted EBITDA isand Adjusted EBITDAP are used by management to internally measure our operating and management performance and by investors as a supplemental financial measure to evaluate the performance of our business that, when viewed with our U.S. GAAP results and the accompanying reconciliation, we believe provides additional information that is useful to gain an understanding of the factors and trends affecting our business. We have spent more than 20 years expanding our product and service capabilities, partially through acquisitions of complementary businesses. Due to the expansion of our operations, which included acquisitions, our net income ~~from continuing operations~~(loss) has included significant charges for depreciation and amortization. Adjusted EBITDA ~~excludes~~and Adjusted EBITDAP exclude these charges and ~~provides~~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 ~~is a measure~~and Adjusted EBITDAP are measures of our ongoing operating performance because the isolation of non-cash charges, such as depreciation and amortization, and non-operating items, such as interest, ~~and~~ 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 a financial ~~measure~~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 net income (loss) to calculate Adjusted EBITDA and Adjusted EBITDAP and the material limitations associated with using ~~this~~these non-GAAP financial ~~measure~~measures as compared towith net income (loss) or income from continuing operations:

~~Divestitures~~Gains or losses from divestitures may be useful for investors to consider because they reflect gains or losses from sale of operating units. We do not believe these earnings necessarily reflect the current and ongoing cash earnings related to our operations.

Legal settlements, when applicable, may be useful for investors to consider because it reflects gains or losses from disputes with third parties. We do not believe these earnings necessarily reflect the current and ongoing cash earnings related to our operations.

~~Curtailments,~~Non-service defined benefit income or expense from our pension and other postretirement benefit plans (inclusive of the adoption of ASU 2017-07 and certain pension related transactions such as curtailments, settlements, and early retirement ~~incentives~~incentives) may be useful for investors to consider because they represent the ~~current period impact~~cost of postretirement benefits to plan participants, net of the ~~change in~~assumption of returns on the ~~defined benefit obligation due to~~plan's assets and are not indicative of the ~~reduction in future service costs as well as the incremental cost of retirement incentive benefits~~cash paid ~~to participants.~~for such benefits. We do not believe these earnings (expenses) necessarily reflect the current and ongoing cash earnings related to our operations.

Amortization of acquired contract liabilities may be useful for investors to consider because it represents the non-cash earnings on the fair value of off-market contracts acquired through acquisitions. We do not believe these earnings necessarily reflect the current and ongoing cash earnings related to our operations.

~~Management's Discussion and Analysis of~~

~~Financial Condition and Results of Operations~~

~~(continued)~~

Amortization expense (including intangible asset impairments) may be useful for investors to consider because it represents the estimated attrition of our acquired customer base and the diminishing value of product rights and licenses. We do not believe these charges necessarily reflect the current and ongoing cash charges related to our operating cost structure.

Depreciation may be useful for investors to consider because it generally represents the wear and tear on our property and equipment used in our operations. We do not believe these charges necessarily reflect the current and ongoing cash charges related to our operating cost structure.

The amount of interest expense and other we incur may be useful for investors to consider and may result in current cash inflows or outflows. However, we do not consider the amount of interest expense and other to be a representative component of the day-to-day operating performance of our business.

Triumph Group, Inc.

Management's Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

Income tax expense may be useful for investors to consider because it generally represents the taxes which may be payable for the period and the change in deferred income taxes during the period and may reduce the amount of funds otherwise available for use in our business. However, we do not consider the amount of income tax expense to be a representative component of the day-to-day operating performance of our business.

Management compensates for the above-described limitations of using non-GAAP measures only to supplement our U.S. GAAP results and to provide additional information that is useful to gain an understanding of the factors and trends affecting our business.

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

Three Months Ended December 31, Nine Months Ended December 31,
2017 2016 2017 2016
Net (loss) income $ (113,252 ) $ 29,332
$ (120,561 ) $ 83,872
Loss on divestitures —
14,350
20,371
19,124
Pension settlement charge (15,099 ) —
(14,576 ) —
Amortization of acquired contract liabilities, net (34,492 ) (29,206 ) (91,862 ) (89,031 )
Depreciation and amortization * 229,547
44,331
309,545
135,080
Interest expense and other 25,836
19,698
72,229
55,721
Income tax expense (32,288 ) 6,136
(34,115 ) 32,786
Adjusted EBITDA $ 60,252
$ 84,641
$ 141,031
$ 237,552
* - Includes Impairment charges related to intangible assets



	Three Months Ended September 30,						Six Months Ended September 30,
	2019			2018			2019			2018
Net income (loss)	$	42,701		$	(14,676	)	$	60,789		$	(91,210	)
Legal judgment gain, net of expenses	(5,400		)	—			(5,400		)	—
(Gain) loss on sale of assets and businesses	(7,965		)	13,118			(4,829		)	17,837
Adoption of ASU 2017-07	—			—			—			87,241
Amortization of acquired contract liabilities, net	(22,616		)	(16,804		)	(39,556		)	(34,038		)
Depreciation and amortization	30,219			38,134			74,269			76,945
Interest expense and other	35,400			28,714			62,891			54,206
Curtailment gain and special termination benefits charges, net	(14,373		)	—			(14,373		)	—
Union represented employee incentives	5,671			—			5,671			—
Income tax expense	11,352			485			16,159			1,516
Adjusted EBITDA	74,989			48,971			155,621			112,497
Non-service defined benefit income (excluding curtailment and special termination benefits)	(14,043		)	(16,524		)	(28,918		)	(33,061		)
Adjusted EBITDAP	$	60,946		$	32,447		$	126,703		$	79,436

The following tables show our Adjusted ~~EBITDA~~EBITDAP by reportable segment reconciled to our operating income for the indicated periods (in thousands):

Three Months Ended December 31, 2017
Total Integrated Systems Aerospace Structures Precision Components Product Support
Corporate/
Eliminations
Operating income (loss) $ (119,704 ) $ 42,667
$ 12,022
$ (186,225 ) $ 12,399
$ (567 )
Loss on divestitures —
—
—
—
—
—
Curtailment & settlement gain, net (15,099 ) —
—
—
—
(15,099 )
Amortization of acquired contract liabilities, net (34,492 ) (11,634 ) (21,352 ) (1,506 ) —
—
Depreciation and amortization * 229,547
8,318
19,048
200,077
1,663
441
Adjusted EBITDA $ 60,252
$ 39,351
$ 9,718
$ 12,346
$ 14,062
$ (15,225 )

* - Includes Impairment charges related to intangible assets



	Three Months Ended September 30, 2019
	Total			Integrated Systems			Aerospace Structures			Product Support		Corporate/ Eliminations
Operating income (loss)	$	61,037		$	51,472		$	13,608		$	10,865	$	(14,908	)
Legal judgment gain, net of expenses	(5,400		)	—			—			—		(5,400		)
(Gain) loss on sale of assets and businesses	(7,965		)	—			(10,121		)	—		2,156
Amortization of acquired contract liabilities, net	(22,616		)	(9,624		)	(12,992		)	—		—
Depreciation and amortization	30,219			6,983			21,285			1,099		852
Union represented employee incentives	5,671			—			5,671			—		—
Adjusted EBITDAP	$	60,946		$	48,831		$	17,451		$	11,964	$	(17,300	)

3943

Triumph Group, Inc.

Management's Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

Three Months Ended December 31, 2016
Total Integrated Systems Aerospace Structures Precision Components Product Support
Corporate/
Eliminations
Operating income (loss) $ 55,166
$ 51,596
$ 23,867
$ 2,942
$ 14,662
$ (37,901 )
Loss on divestitures 14,350
—
—
—
—
14,350
Amortization of acquired contract liabilities, net (29,206 ) (7,628 ) (21,105 ) (473 ) —
—
Depreciation and amortization 44,331
9,766
17,942
13,999
2,294
330
Adjusted EBITDA $ 84,641
$ 53,734
$ 20,704
$ 16,468
$ 16,956
$ (23,221 )



	Three Months Ended September 30, 2018
	Total			Integrated Systems			Aerospace Structures			Product Support		Corporate/ Eliminations
Operating (loss) income	$	(2,001	)	$	39,866		$	(22,744	)	$	11,514	$	(30,637	)
Loss on sale of assets and businesses	13,118			—			—			—		13,118
Amortization of acquired contract liabilities, net	(16,804		)	(8,768		)	(8,036		)	—		—
Depreciation and amortization	38,134			7,384			28,294			1,664		792
Adjusted EBITDAP	$	32,447		$	38,482		$	(2,486	)	$	13,178	$	(16,727	)

Nine Months Ended December 31, 2017
Total Integrated Systems Aerospace Structures Precision Components Product Support
Corporate/
Eliminations
Operating income (loss) $ (82,447 ) $ 132,171
$ 23,253
$ (191,100 ) $ 32,069
$ (78,840 )
Loss on divestitures 20,371
—
—
—
—
20,371
Curtailment & settlement gain, net (14,576 ) —
—
—
—
(14,576 )
Amortization of acquired contract liabilities, net (91,862 ) (28,235 ) (60,315 ) (3,312 ) —
—
Depreciation and amortization * 309,545
27,857
57,484
218,085
5,068
1,051
Adjusted EBITDA 141,031
$ 131,793
$ 20,422
$ 23,673
$ 37,137
$ (71,994 )

* - Includes Impairment charges related to intangible assets



	Six Months Ended September 30, 2019
	Total			Integrated Systems			Aerospace Structures			Product Support		Corporate/ Eliminations
Operating income (loss)	$	96,548		$	86,244		$	25,891		$	20,142	$	(35,729	)
Legal settlement gain, net of expenses	(5,400		)	—			—			—		(5,400		)
(Gain) loss on sale of assets and businesses	(4,829		)	—			(10,121		)	—		5,292
Amortization of acquired contract liabilities, net	(39,556		)	(17,749		)	(21,807		)	—		—
Depreciation and amortization	74,269			14,050			56,344			2,189		1,686
Union represented employee incentives	5,671			—			5,671			—		—
Adjusted EBITDAP	$	126,703		$	82,545		$	55,978		$	22,331	$	(34,151	)

Nine Months Ended December 31, 2016
Total Integrated Systems Aerospace Structures Precision Components Product Support
Corporate/
Eliminations
Operating income (loss) $ 172,379
145,379
$ 57,898
$ 7,223
$ 42,986
$ (81,107 )
Loss on divestitures 19,124
—
—
—
—
19,124
Amortization of acquired contract liabilities, net (89,031 ) (27,101 ) (60,190 ) (1,740 ) —
—
Depreciation and amortization 135,080
30,228
54,289
42,344
7,230
989
Adjusted EBITDA $ 237,552
$ 148,506
$ 51,997
$ 47,827
$ 50,216
$ (60,994 )



	Six Months Ended September 30, 2018
	Total			Integrated Systems			Aerospace Structures			Product Support		Corporate/ Eliminations
Operating (loss) income	$	(68,549	)	$	75,275		$	(102,331	)	$	19,183	$	(60,676	)
Loss on sale of assets and businesses	17,837			—			—			—		17,837
Adoption of ASU 2017-07	87,241			—			87,241			—		—
Amortization of acquired contract liabilities, net	(34,038		)	(17,617		)	(16,421		)	—		—
Depreciation and amortization	76,945			14,939			57,214			3,334		1,458
Adjusted EBITDAP	$	79,436		$	72,597		$	25,703		$	22,517	$	(41,381	)

~~Three months ended December 31, 2017 compared to~~

Corporate operating loss includes share-based compensation expense of $2.9 million and $3.3 million for the three months ended ~~December 31, 2016~~September 30, 2019 and 2018, and $5.3 million and $5.7 million for the six months ended September 30, 2019 and 2018, respectively.

Three Months Ended December 31,
2017 2016
(dollars in thousands)
Net sales $ 775,246
$ 844,863
Segment operating income $ (119,137 ) $ 93,067
Corporate expense (567 ) (37,901 )
Total operating income (119,704 ) 55,166
Interest expense and other 25,836
19,698
Income tax expense (32,288 ) 6,136
Net (loss) income $ (113,252 ) $ 29,332

Triumph Group, Inc.

Management's Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

Three months ended September 30, 2019, compared with three months ended September 30, 2018



	Three Months Ended September 30,
	2019			2018
	(dollars in thousands)
Net sales	$	772,110		$	855,108
Segment operating income	$	75,945		$	28,636
Corporate expense	(12,044		)	(27,371		)
Share-based compensation expense	(2,864		)	(3,266		)
Total operating income (loss)	61,037			(2,001		)
Interest expense and other	35,400			28,714
Non-service defined benefit income	(28,416		)	(16,524		)
Income tax expense	11,352			485
Net income (loss)	$	42,701		$	(14,676	)

Net sales decreased by ~~$69.6~~$83.0 million, or ~~8.2%~~9.7%, to ~~$775.2~~$772.1 million for the three months ended ~~December 31, 2017,~~September 30, 2019, from ~~$844.9~~$855.1 million for the three months ended ~~December 31, 2016.~~September 30, 2018. Organic sales adjusted for inter-segment sales ~~decreased $34.1~~increased $87.5 million, or ~~4.2%. The fiscal 2017 and Embee~~12.8%, offset by declines from divestitures ~~contributed $35.5 million in net sales to the comparative prior year period.~~of $170.5 million. Organic sales ~~decreased~~increased primarily due to increased volumes on G280, G550, 767, and 787 programs, a new statement of work under the ~~completion of~~Mitsubishi M100 program, increases in engine components and ~~continued rate reductions on certain Boeing and Airbus programs.~~military rotorcraft components as well as increased demand for accessory components. Net sales for the three months ended ~~December 31, 2017,~~September 30, 2019, included ~~$2.8~~$17.3 million in total ~~non-recurring~~nonrecurring revenues, as compared ~~to $5.6~~with $4.9 million in ~~non-recurring~~nonrecurring revenues for the three months ended ~~December 31, 2016.~~September 30, 2018.

Cost of sales decreased ~~$41.0~~$102.2 million, or ~~6.3%~~14.1%, to ~~$612.2~~$622.2 million for the three months ended ~~December 31, 2017,~~September 30, 2019, from ~~$653.2~~$724.5 million for the three months ended ~~December 31, 2016.~~September 30, 2018. Organic cost of sales ~~decreased $15.4~~adjusted for inter-segment sales increased $84.4 million, or ~~2.2%. The fiscal 2017 and Embee~~15.7%, offset by declines from divestitures ~~contributed $25.6 million to cost~~ of ~~sales in the comparative prior year period.~~$186.6 million. Organic cost of sales ~~decreased~~increased primarily due to the ~~decrease~~higher volumes in ~~organic~~the above programs partially offset by a reduction of cost of sales ~~mentioned above and changes~~as a result of a $5.3 million reduction in ~~sales mix.~~an acquired contract reserves. The ~~comparable~~ organic gross margin for the three months ended ~~December 31, 2017~~September 30, 2019 was ~~21.0%~~19.3%, as compared ~~to 22.4%~~with 21.2%, for the three months ended ~~December 31, 2016.~~September 30, 2018.

Gross margin included net ~~favorable~~unfavorable cumulative catch-up adjustments on long-term contracts of ~~$5.3~~$5.1 million. The cumulative catch-up adjustments to gross margin included gross favorable adjustments of ~~$26.4~~$18.3 million and gross unfavorable adjustments of ~~$21.1~~$23.4 million. Gross margin for the three months ended ~~December 31, 2016~~September 30, 2018, included net ~~favorable~~unfavorable cumulative catch-up adjustments of ~~$2.1~~$10.2 million.

Segment operating income ~~decreased~~increased by ~~$212.2~~$47.3 million, or ~~228.0%~~165.2%, to ~~an operating loss of $(119.1)~~$75.9 million for the three months ended ~~December 31, 2017,~~September 30, 2019, from ~~operating income of $93.1~~$28.6 million for the three months ended ~~December 31, 2016.~~September 30, 2018. Organic segment operating income ~~decreased $16.6~~increased by $18.3 million ~~or 18.9%. The fiscal 2017 and Embee divestitures~~primarily due to the approximately $10.0 million gain recognized as a result of the transfer of the E-2 Jets program to ASTK. Divestitures contributed ~~$5.4~~$29.0 million improvement to operating income ~~for~~due to operating losses in the ~~three months ended December 31, 2016.~~prior period, including $38.4 million on the Global 7500 program. Organic operating income for the three months ended ~~December 31, 2017 decreased~~September 30, 2019 also increased due to ~~the decline~~a decrease in ~~organic sales noted above and the previously mentioned goodwill impairment charge~~compensation cost of ~~$190.2~~$5.4 million and ~~included costs related~~research and development cost of $3.8 million partially offset by the incentives paid to ~~our restructuring plans~~union represented employees of ~~$3.8~~$5.7 million.

Corporate expenses were ~~$0.6~~$12.0 million for the three months ended ~~December 31, 2017,~~September 30, 2019, as compared ~~to $37.9~~with $27.4 million for the three months ended ~~December 31, 2016.~~September 30, 2018. The decrease in corporate expenses ~~of $37.3~~was $15.3 million, or ~~98.5%~~56.0%, and was ~~impacted by~~primarily the ~~OPEB settlement gain~~result of ~~$15.1 million,~~ decreased ~~consulting costs of $6.0 million and restructuring charges of $3.8 million. The prior year period included the~~ loss on ~~divestiture~~sale of assets and businesses as well as the ~~Engines and APU business of $14.4 million.~~current period gain on a legal judgment.

Interest expense and other increased by ~~$6.1~~$6.7 million, or ~~31.2%~~23.3%, to ~~$25.8~~$35.4 million for the three months ended ~~December 31, 2017,~~September 30, 2019, compared ~~to $19.7~~with $28.7 million for the three months ended ~~December 31, 2016,~~September 30, 2018, due to a write-off of deferred financing costs of approximately $3.0 million as a result of the debt transactions disclosed in Note 7 and higher interest ~~rates partially offset by lower~~expense due to differences in relative debt ~~levels.~~levels and higher interest rates.

The effective income tax rate for the three months ended December 31, 2017 was 22.1% compared to 17.3% for the three months ended December 31, 2016. For the three months ended December 31, 2017, the effective tax rate reflected a $22.4 million tax benefit related to the Act, a $4.8 million tax benefit related to the return to provision true up adjustment, the impact of the non-deductible portion of the goodwill impairment, and the partial reversal of previously established valuation allowance related to the current year activity. For the three months ended December 31, 2016, the income tax provision reflected the partial reversal of previously established valuation allowance related to the capital loss generated from the divestiture of TAS-Newport News.

For the fiscal year ending March 31, 2018, the Company expects its effective tax rate to be approximately 1.0% with opportunity to be reduced further through the release of the valuation allowance that is discussed further in Note 7.

4145

Triumph Group, Inc.

Management's Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

The effective income tax rate for the three months ended September 30, 2019, was 21.0% compared with (2.2)% for the three months ended September 30, 2018. For the three months ended September 30, 2019, the effective tax rate reflected a limitation on the recognition of tax benefits due to the full valuation allowance.

Business Segment Performance - Three months ended ~~December 31, 2017~~September 30, 2019, compared towith three months ended ~~December 31, 2016~~September 30, 2018

We report our financial performance based on the following ~~four~~three reportable segments: Integrated Systems, Aerospace Structures, ~~Precision Components~~ and Product Support. The Company's Chief Operating Decision Maker ("CODM") utilizes Adjusted EBITDAP as a primary measure of profitability to evaluate performance of its segments and allocate resources.

The results of operations among our reportable segments, as well as our operating segments, vary due to differences in competitors, customers, extent of proprietary deliverables and performance. For example, Integrated Systems, which generally includes proprietary products and/or arrangements ~~in which~~where we become the primary source or one of a few primary sources to our customers, ~~whereby~~ our unique manufacturing capabilities command a higher margin. ~~Also, OEMs are increasingly focusing on assembly activities while outsourcing more manufacturing and repair to third parties, and as a result, are less of a competitive force than in previous years.~~ This compares to Aerospace Structures, which generally includes long-term sole-source or preferred supplier contracts and the success of these programs provides a strong foundation for our business and positions us well for future growth on new programs and new derivatives. In contrast, Product Support provides MRO services on components and accessories manufactured by third parties, with more diverse competition, including airlines, OEMs and other third-party service providers. In addition, variability in the timing and extent of customer requests performed in Product Support can provide for greater volatility and less predictability in revenue and earnings than that experienced in Integrated Systems and Aerospace Structures ~~and Precision Components~~ segments.

Integrated Systems consists of the Company’s operations that ~~provides~~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 ~~electro-mechanical~~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; ~~hydro-mechanical~~and hydromechanical and electromechanical primary and secondary flight ~~controls; and a broad spectrum of surface treatment options.~~controls.

Aerospace Structures consists of the Company’s operations that supply commercial, business, regional and military manufacturers with large metallic and composite ~~structures.~~structures and aircraft interior systems, including air ducting and thermal acoustic insulations systems. Products include wings, wing boxes, fuselage panels, horizontal and vertical tails, ~~and sub-assemblies~~subassemblies such as floor ~~grids. Inclusive of most of the former Vought Aircraft Division,~~grids, and aircraft interior systems, including air ducting and thermal acoustic insulations systems. Aerospace Structures also has the capability to engineer detailed structural designs in metal and composites.

Precision Components consists of the Company’s operations that produce close-tolerance parts primarily to customer designs and model-based definition, including a wide range of aluminum, hard metal and composite structure capabilities. Capabilities include ~~complex machining, gear manufacturing, sheet metal fabrication, forming,~~ advanced composite and interior structures, joining processes such as welding, autoclave bonding and conventional mechanical fasteners and a variety of special processes, including: super plastic titanium forming, aluminum and titanium chemical milling, surface treatments, and ~~surface treatments.~~integrated testing and certification services.

Product Support consists of the Company’s operations that ~~provides~~provide full life cycle solutions for commercial, regional and military aircraft. The Company’s extensive product and service offerings include full post-delivery value chain services that simplify the MRO supply chain. Through its ~~line~~ground support equipment maintenance, component MRO and ~~postproduction~~post-production supply chain activities, Product Support is positioned to provide integrated planeside repair solutions globally. Capabilities include ~~fuel tank repair,~~ metallic and composite aircraft ~~structures, nacelles,~~structures; nacelles; thrust ~~reversers, interiors,~~reversers; interiors; auxiliary power ~~units~~units; and a wide variety of pneumatic, hydraulic, fuel and mechanical accessories.

We currently generate a majority of our revenue from ~~clients~~customers in the commercial aerospace industry, the military, the business jet industry and the regional airline industry. Our growth and financial results are largely dependent on continued demand for our products and services from ~~clients~~customers in these industries. If any of these industries experiences a downturn, our ~~clients~~customers in these sectors may conduct less business with us. The following table summarizes our net sales by end market by business segment. 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.

4246

Triumph Group, Inc.

Management's Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

Three Months Ended December 31,
2017 2016
Integrated Systems
Commercial aerospace 16.4 % 14.8 %
Military 10.7 % 11.7 %
Business Jets 2.0 % 2.2 %
Regional 1.1 % 0.9 %
Non-aviation 0.5 % 0.6 %
Total Integrated Systems net sales 30.7 % 30.2 %
Aerospace Structures
Commercial aerospace 15.7 % 15.2 %
Military 4.0 % 5.8 %
Business Jets 15.7 % 14.1 %
Total Aerospace Structures net sales 35.7 % 35.2 %
Precision Components
Commercial aerospace 16.4 % 16.7 %
Military 5.4 % 4.6 %
Business Jets 2.0 % 2.1 %
Regional 0.5 % 0.4 %
Non-aviation 0.8 % 0.4 %
Total Precision Components net sales 25.1 % 24.2 %
Product Support
Commercial aerospace 7.0 % 7.9 %
Military 0.9 % 1.8 %
Regional 0.6 % 0.7 %
Total Product Support net sales 8.5 % 10.4 %
Total Consolidated net sales 100.0 % 100.0 %



	Three Months Ended September 30,								% of Total Sales
	2019			2018			% Change		2019		2018
	(in thousands)
NET SALES
Integrated Systems	$	285,980		$	260,717		9.7	%	37.0	%	30.5	%
Aerospace Structures	422,579			528,367			(20.0	)%	54.7	%	61.8	%
Product Support	67,394			72,199			(6.7	)%	8.7	%	8.4	%
Elimination of inter-segment sales	(3,843		)	(6,175		)	(37.8	)%	(0.5	)%	(0.7	)%
Total Net Sales	$	772,110		$	855,108		(9.7	)%	100.0	%	100.0	%

We continue to experience a higher proportion of our sales mix in the commercial aerospace end market for Integrated Systems and Precision Components due to the 737, 777, 787, A320 and A350 programs. We have experienced a decline in the commercial aerospace end market for Aerospace Structures due to lower production rates of the 747-8 and a decrease in our military end market due to the wind-down of the C-17 program, although there can be no assurance to that effect.

Three Months Ended December 31, % of Total
Sales
2017 2016 % Change 2017 2016
(in thousands)
NET SALES
Integrated Systems $ 239,198
$ 256,080
(6.6 )% 30.9 % 30.3 %
Aerospace Structures 282,495
304,235
(7.1 )% 36.4 % 36.0 %
Precision Components 219,675
226,294
(2.9 )% 28.3 % 26.8 %
Product Support 68,039
87,292
(22.1 )% 8.8 % 10.3 %
Elimination of inter-segment sales (34,161 ) (29,038 ) 17.6 % (4.4 )% (3.4 )%
Total Net Sales $ 775,246
$ 844,863
(8.2 )% 100.0 % 100.0 %



	Three Months Ended September 30,								% of Segment Sales
	2019			2018			% Change		2019		2018
	(in thousands)
SEGMENT OPERATING INCOME (LOSS)
Integrated Systems	$	51,472		$	39,866		29.1	%	18.0	%	15.3	%
Aerospace Structures	13,608			(22,744		)	(159.8	)%	3.2	%	(4.3	)%
Product Support	10,865			11,514			(5.6	)%	16.1	%	15.9	%
Corporate	(12,044		)	(27,371		)	56.0	%	n/a		n/a
Share-based compensation expense	(2,864		)	(3,266		)	12.3	%	n/a		n/a
Total Operating Income (Loss)	$	61,037		$	(2,001	)			7.9	%	(0.2	)%



	Three Months Ended September 30,								% of Segment Sales
	2019			2018			% Change		2019		2018
	(in thousands)
Adjusted EBITDAP
Integrated Systems	$	48,831		$	38,482		26.9	%	17.7	%	15.3	%
Aerospace Structures	17,451			(2,486		)	(802.0	)%	4.3	%	(0.5	)%
Product Support	11,964			13,178			(9.2	)%	17.8	%	18.3	%
Corporate and share-based compensation	(17,300		)	(16,727		)	(3.4	)%	n/a		n/a
	$	60,946		$	32,447		87.8	%	8.1	%	3.9	%

Integrated Systems: Integrated Systems net sales increased by $25.3 million, or 9.7%, to $286.0 million for the three months ended September 30, 2019, from $260.7 million for the three months ended September 30, 2018. The increase was primarily due to increased volumes on aftermarket spare part sales as well as approximately $5.0 million in a nonrecurring licensing transaction.

Integrated Systems cost of sales increased by $7.8 million, or 4.2%, to $192.7 million for the three months ended September 30, 2019, from $184.9 million for the three months ended September 30, 2018. The increase was driven by the increased sales volume noted above partially offset by the reversal of $5.3 million in acquired contract reserves due to contract modifications.

The gross margin for the three months ended September 30, 2019, was 32.6% compared with 29.1% for the three months ended September 30, 2018. The increase in gross margin for the three months ended September 30, 2019, is the result of a change in sales mix, the nonrecurring licensing transaction, and the reversal of the acquired contract reserve note above.

Triumph Group, Inc.

Management's Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

Three Months Ended December 31, % of Segment
Sales
2017 2016 % Change 2017 2016
(in thousands)
SEGMENT OPERATING INCOME
Integrated Systems $ 42,667
$ 51,596
(17.3 )% 17.8 % 20.1 %
Aerospace Structures 12,022
23,867
(49.6 )% 4.3 % 7.8 %
Precision Components (186,225 ) 2,942
(6,429.9 )% (84.8 )% 1.3 %
Product Support 12,399
14,662
(15.4 )% 18.2 % 16.8 %
Corporate (567 ) (37,901 ) 98.5 % n/a
n/a
Total Operating Income $ (119,704 ) $ 55,166
(317.0 )% (15.4 )% 6.5 %

Three Months Ended December 31, % of Segment
Sales
2017 2016 % Change 2017 2016
(in thousands)
Adjusted EBITDA
Integrated Systems $ 39,351
$ 53,734
(26.8 )% 16.5 % 21.0 %
Aerospace Structures 9,718
20,704
(53.1 )% 3.4 % 6.8 %
Precision Components 12,346
16,468
(25.0 )% 5.6 % 7.3 %
Product Support 14,062
16,956
(17.1 )% 20.7 % 19.4 %
Corporate (15,225 ) (23,221 ) 34.4 % n/a
n/a
$ 60,252
$ 84,641
(28.8 )% 7.8 % 10.0 %

~~Integrated Systems:~~Integrated Systems ~~net sales decreased~~operating income increased by ~~$16.9~~$11.6 million, or ~~6.6%~~29.1%, to ~~$239.2~~$51.5 million for the three months ended ~~December 31, 2017,~~September 30, 2019, from ~~$256.1~~$39.9 million for the three months ended ~~December 31, 2016. Organic sales decreased $6.4~~September 30, 2018. Adjusted EBITDAP increased by $10.3 million, or 2.6%. The Embee divestiture contributed $10.5 million to the net sales decrease from the three months ended December 31, 2016. Organic sales declined primarily due to rate reductions on 777 and A380 programs and timing of deliveries on other key commercial and military programs.

~~Integrated Systems cost of sales decreased by $5.9 million, or 3.5%~~26.9%, to ~~$163.6~~$48.8 million for the three months ended ~~December 31, 2017,~~September 30, 2019, from ~~$169.5~~$38.5 million for the three months ended ~~December 31, 2016. Organic cost~~September 30, 2018. The increase of ~~sales increased $1.0 million, or 0.6%. The Embee divestitures contributed $6.9 million to the decrease cost of sales from the comparative prior year period. The organic cost of sales inclined~~both operating income and Adjusted EBITDAP was due to the ~~decrease in net sales, as noted above. The comparable organic~~increased gross margin ~~for the three months ended December 31, 2017 was 31.6% compared with 33.8% for the three months ended December 31, 2016.~~

Integrated Systems operating income decreased by $8.9 million, or 17.3%, to $42.7 million for the three months ended December 31, 2017, from $51.6 million for the three months ended December 31, 2016. Organic operating income decreased $8.0 million, or 15.9%. The Embee divestiture contributed $0.9 million to the operating income decrease to the comparative prior year period. Operating income decreased for the three months ended December 31, 2017, due to the decrease in net sales, as noted above, ~~and~~partially offset by increased restructuring costs of ~~$0.6~~$3.4 million. ~~The decreased Adjusted EBITDA year over year is due to the same factors that decreased operating income.~~

Integrated Systems operating income as a percentage of segment sales ~~decreased~~increased to ~~17.8%~~18.0% for the three months ended ~~December 31, 2017,~~September 30, 2019, as compared ~~to 20.1%~~with 15.3% for the three months ended ~~December 31, 2016. These~~September 30, 2018. The same factors noted above affecting the Adjusted ~~EBITDA~~EBITDAP contributed to the ~~decreased~~increased Adjusted ~~EBITDA~~EBITDAP margin year over year.

Aerospace Structures: Aerospace Structures net sales decreased by ~~$21.7~~$105.8 million, or ~~7.1%~~20.0%, to ~~$282.5~~$422.6 million for the three months ended ~~December 31, 2017,~~September 30, 2019, from ~~$304.2~~$528.4 million for the three months ended ~~December 31, 2016. Sales~~September 30, 2018. Organic sales increased $57.1 million, or 15.6%. Net sales decreased ~~primarily~~as a result of the fiscal 2019 Aerostructures divestitures by $162.9 million. The organic sales increased due to increased volumes on G280, G550, 767, and 787 programs, as well as a new statement of work under the ~~completion of and continued rate reductions on certain Boeing programs and partially offset by rate increases on 767/Tanker~~Mitsubishi M100 program. Net sales for the three months ended ~~December 31, 2017~~September 30, 2019, included ~~$2.8~~$12.3 million in total ~~non-recurring~~nonrecurring revenues, as compared ~~to $5.6~~with $4.9 million in total ~~non-recurring~~nonrecurring revenues for the three months ended ~~December 31, 2016.~~September 30, 2018.

~~Management's Discussion and Analysis of~~

~~Financial Condition and Results of Operations~~

~~(continued)~~

Aerospace Structures cost of sales decreased by ~~$10.3~~$107.7 million, or ~~4.0%~~21.9%, to ~~$244.7~~$384.3 million for the three months ended ~~December 31, 2017,~~September 30, 2019, from ~~$254.9~~$492.1 million for the three months ended ~~December 31, 2016.~~ September 30, 2018. Organic cost of sales increased $72.9 million, or 23.4%. Cost of sales decreased as a result of the fiscal 2019 Aerostructures divestitures by $180.7 million. The ~~comparable~~increase in organic cost of sales was primarily due to the increased volumes noted above as well as $5.7 million of current period charges included in cost of sales associated with incentives paid to union represented employees. Additionally, in the prior period the Company benefited from a reduction in the forward loss reserve on a Gulfstream program of $7.6 million. The organic gross margin for the three months ended ~~December 31, 2017~~September 30, 2019, was ~~13.4%~~9.1% compared with ~~16.2%~~14.8% for the three months ended ~~December 31, 2016, the decline in gross margin was affected by the decreased sales noted above.~~September 30, 2018.

Aerospace Structures cost of sales for the three months ended ~~December 31, 2017~~September 30, 2019, included net ~~favorable~~unfavorable cumulative catch-up adjustments on long-term contracts of $5.3 million. The cumulative catch-up adjustments to gross margin for the three months ended ~~December 31, 2017~~September 30, 2019, included gross favorable adjustments of ~~$26.4~~$17.6 million and gross unfavorable adjustments of ~~$21.1~~$23.0 million. Segment cost of sales for the three months ended ~~December 31, 2016~~September 30, 2018, included net ~~favorable~~unfavorable cumulative catch-up adjustments of ~~$2.1~~$12.4 million.

Aerospace Structures operating income ~~decreased~~increased by ~~$11.8~~$36.4 million, or ~~49.6%~~159.8%, to ~~$12.0~~$13.6 million for the three months ended ~~December 31, 2017,~~September 30, 2019, from ~~$23.9~~$22.7 million for the three months ended ~~December 31, 2016.~~September 30, 2018. The organic operating income increased $6.7 million, or 96.6%. Operating income ~~decreased~~increased as a result of the fiscal 2019 Aerostructures divestitures by $29.7 million. Organic operating income increased for the three months ended ~~December 31, 2017,~~September 30, 2019, primarily due to ~~the decreased sales noted above, increased net customer financing fees of $1.2 million, increased research and development of $1.3 million and increased amortization expense of $1.7 million~~lower overall compensation costs due to decreased severance charges and headcount as well as the ~~change in estimated useful life~~approximately $10.0 million gain recognized as a result of ~~certain intangible assets.~~the transfer of the E-2 Jets program to ASTK. The ~~decrease~~increase in Adjusted ~~EBITDA~~EBITDAP year over year is due to the ~~same factors that decreased~~increased operating ~~income.~~income noted above.

Aerospace Structures operating income as a percentage of segment sales ~~decreased to 4.3%~~was 3.2% for the ~~nine~~three months ended ~~December 31, 2017,~~September 30, 2019, as compared ~~to 7.8%~~with operating loss as a percentage of segment sales of (4.3)% for the ~~nine~~three months ended ~~December 31, 2016, due to the decrease in operating income as noted above.~~September 30, 2018. The Adjusted ~~EBITDA~~EBITDAP margin year over year ~~is comparable to~~has increased for the ~~prior year period.~~same reasons noted above for operating income.

~~Precision Components:~~ ~~Precision Components~~

Product Support: Product Support net sales decreased by ~~$6.6~~$4.8 million, or ~~2.9%~~6.7%, to ~~$219.7~~$67.4 million for the three months ended ~~December 31, 2017,~~September 30, 2019, from ~~$226.3~~$72.2 million for the three months ended ~~December 31, 2016.~~September 30, 2018. The ~~decline in sales~~decrease was primarily ~~driven~~the result of the divestiture of NAAS partially offset by ~~production rate.~~

Precision Components cost of sales decreased by $5.9 million, or 3.0%, to $189.2 million for the three months ended December 31, 2017, from $195.1 million for the three months ended December 31, 2016. Gross margin for the three months ended December 31, 2017 was 13.9%, compared with 13.8% for the three months ended December 31, 2016.

Precision Components operating income decreased by $189.2 million, or 6,429.9%, to an operating loss of $186.2 million for the three months ended December 31, 2017, from operating income of $2.9 million for the three months ended December 31, 2016,increases due to the previously mentioned goodwill impairment charge of $190.2 million, partially offset decreased restructuring charges of $1.2 million compared to the prior year period. The Adjusted EBITDA decreased year over year due to the decreased sales as noted above.

~~Precision Components operating income as a percentage of segment sales decreased to (84.8)%~~improvement in demand for the three months ended December 31, 2017, as compared to 1.3% for the three months ended December 31, 2016, due to the goodwill impairment charge as noted above. The Adjusted EBITDA margin year over year was affected by the same factors that decreased the Adjusted EBITDA.

~~Product Support:~~ Product Support net sales decreased by $19.3 million, or 22.1%, to $68.0 million for the three months ended December 31, 2017, from $87.3 million for the three months ended December 31, 2016. Organic sales increased $5.8 million, or 9.4%, due to increased demand from OEM customers. The divestiture of Engines and APU contributed $25.1 million to net sales for the three months ended December 31, 2016.accessory component repairs.

Product Support cost of sales decreased by ~~$14.4~~$4.7 million, or ~~22.8%~~8.7%, to ~~$48.9~~$49.1 million for the three months ended ~~December 31, 2017,~~September 30, 2019, from ~~$63.4~~$53.7 million for the three months ended ~~December 31, 2016. Organic cost of sales increased $4.3 million, or 9.5%.~~September 30, 2018. The decrease was driven by the divestiture of ~~Engines and APU contributed $18.7 million in cost of~~NAAS partially offset by the increased sales ~~to the three months ended December 31, 2016. Gross~~noted above. Organic gross margin for the three months ended ~~December 31, 2017~~September 30, 2019, was ~~28.1%~~27.2% compared ~~to 28.2%~~with 25.9% for the three months ended ~~December 31, 2016.~~September 30, 2018.

Product Support operating income decreased by ~~$2.3~~$0.6 million, or ~~15.4%~~5.6%, to ~~$12.4~~$10.9 million for the three months ended ~~December 31, 2017,~~September 30, 2019, from ~~$14.7~~$11.5 million for the three months ended December 31, 2016. Organic operating income increased $2.2 million or 22.0%, due to the increased organic sales noted above. The divestiture of Engines and APU contributed $4.5 million operating income for the three months ended December 31, 2016.September 30, 2018. The decrease ~~in Adjusted EBITDA year over year is due to~~was driven by the divestiture of ~~Engines and APU.~~NAAS.

4548

Triumph Group, Inc.

Management's Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

Product Support operating income as a percentage of segment sales increased to ~~18.2%~~16.1% for the three months ended ~~December 31, 2017,~~September 30, 2019, as compared ~~to 16.8%~~with 15.9% for the three months ended ~~December 31, 2016.~~September 30, 2018. The Adjusted ~~EBITDA~~EBITDAP margin was ~~20.7%~~17.8% for the three months ended ~~December 31, 2017,~~September 30, 2019, as compared ~~to 19.4%~~with 18.3% for the three months ended ~~December 31, 2016.~~September 30, 2018.

~~Nine~~Six months ended ~~December 31, 2017~~September 30, 2019, compared to ~~nine~~with six months ended ~~December 31, 2016~~

September 30, 2018

Nine Months Ended December 31,
2017 2016
(dollars in thousands)
Net sales $ 2,302,091
$ 2,612,885
Segment operating income $ (3,607 ) $ 253,486
Corporate expense (78,840 ) (81,107 )
Total operating income (82,447 ) 172,379
Interest expense and other 72,229
55,721
Income tax (benefit) expense (34,115 ) 32,786
Net (loss) income $ (120,561 ) $ 83,872



	Six Months Ended September 30,
	2019			2018
	(dollars in thousands)
Net sales	$	1,502,341		$	1,688,008
Segment operating income (loss)	$	132,277		$	(7,873	)
Corporate expense	(30,439		)	(54,948		)
Share-based compensation expense	(5,290		)	(5,728		)
Total operating income (loss)	96,548			(68,549		)
Interest expense and other	62,891			54,206
Non-service defined benefit income	(43,291		)	(33,061		)
Income tax expense	16,159			1,516
Net income (loss)	$	60,789		$	(91,210	)

Net sales decreased by ~~$310.8~~$185.7 million,, or ~~11.9%~~11.0%, to ~~$2.3~~$1.50 billion for the ~~nine~~six months ended ~~December 31, 2017~~,September 30, 2019, from ~~$2.6~~$1.69 billion for the ~~nine~~six months ended ~~December 31, 2016~~.September 30, 2018. Organic sales adjusted for inter-segment sales ~~decreased $226.2~~increased by $130.6 million, or ~~9.0%. The fiscal 2017 and Embee~~9.5%, offset by declines from divestitures ~~contributed $84.6 million to the net sales decrease as compared to the~~ ~~nine~~ ~~months ended December 31, 2016.~~of $316.3 million. Organic sales ~~decreased~~increased primarily due to increased volumes on G280, G550, 767, and 787 programs, a new statement of work under the ~~completion of~~Mitsubishi M100 program, increased volume and ~~continued rate reductions~~pricing on ~~certain Boeing~~E-2 Jets sales to ASTK, increases in engine components and ~~Gulfstream programs, along with the timing of deliveries on certain programs. These factors were partially offset by~~military rotorcraft components as well as increased ~~production on the 767/Tanker program.~~demand for accessory components. Net sales for the ~~nine~~six months ended ~~December 31, 2017,~~September 30, 2019, included ~~$7.0~~$25.2 million in total ~~non-recurring~~nonrecurring revenues, as compared ~~to $15.9~~with $44.3 million in ~~non-recurring~~nonrecurring revenues for the ~~nine~~six months ended ~~December 31, 2016.~~September 30, 2018.

Cost of sales decreased~~$231.4~~ by $290.2 million,, or ~~11.3%~~19.4%, to ~~$1.8~~$1.20 billion for the ~~nine~~six months ended ~~December 31, 2017~~,September 30, 2019, from ~~$2.1~~$1.49 billion for the ~~nine~~six months ended ~~December 31, 2016~~.September 30, 2018. Organic cost of sales ~~decreased $169.3~~adjusted for inter-segment sales increased $49.2 million, or ~~8.1%.~~4.3%, offset by declines from divestitures of $339.4 million. The ~~fiscal 2017 and Embee divestitures contributed $62.1 million to the~~increase in organic cost of sales ~~decrease as compared to the~~ ~~nine~~ ~~months ended December 31, 2016. Organic cost of sales decreased~~increased due to the ~~decrease~~increase in organic sales mentioned ~~above.~~above partially offset by the nonrecurring charge of $87.2 million in the six months ended September 30, 2018, arising from the adoption of ASU 2017-07. The organic gross margin for the ~~nine~~six months ended ~~December 31, 2017~~September 30, 2019, was ~~20.8%~~19.7%, as compared ~~to 21.2%~~with 15.6% for the ~~nine~~six months ended ~~December 31, 2016. The organic gross~~September 30, 2018.

Gross margin for the ~~nine~~six months ended ~~December 31, 2017, decreased compared to the comparable prior year period due to the completion of certain Boeing and Gulfstream programs as noted above.~~

~~Gross margin~~September 30, 2019, included net ~~favorable~~unfavorable cumulative catch-up adjustments on long-term contracts of ~~$12.0~~$12.3 million. The cumulative catch-up adjustments to gross margin included gross favorable adjustments of ~~$65.7~~$24.6 million and gross unfavorable adjustments of ~~$53.7~~$36.9 million. Gross margin for the ~~nine~~six months ended ~~December 31, 2016~~September 30, 2018, included the previously mentioned net unfavorable cumulative catch-up adjustments of ~~$6.3 million~~.$13.0 million.

Segment operating income ~~decreased~~increased by ~~$257.1~~$140.2 million,, or ~~101.4%~~1,780.1%, to ~~$3.6~~operating income of $132.3 million for the ~~nine~~six months ended ~~December 31, 2017~~,September 30, 2019, from ~~$253.5~~an operating loss of $(7.9) million for the ~~nine~~six months ended ~~December 31, 2016~~. September 30, 2018. Organic segment operating income ~~decreased $53.7 million, or 22.4%. The fiscal 2017 and Embee divestitures~~increased $90.5 million. Divestitures contributed ~~$13.2 million~~additional increases to ~~the~~ operating income ~~decrease as compared to the~~ ~~nine~~ ~~months ended December 31, 2016.~~of $49.7 million. Organic operating income for the ~~nine~~six months ended ~~December 31, 2017 decreased~~September 30, 2019, primarily increased due to the ~~decline in sales~~factors noted above, as well as the ~~previously mentioned goodwill impairment charge~~$10.0 million gain recognized upon the assignment of ~~$190.2 million~~the E-2 Jets contract to ASTK in the current year. Additionally, research and ~~increased restructuring of $4.3~~development expenses were higher in the prior year by approximately $7.6 million.

Corporate expenses were ~~$78.8~~$30.4 million for the ~~nine~~six months ended ~~December 31, 2017~~,September 30, 2019, as compared to ~~$81.1~~with $54.9 million for the ~~nine~~six months ended ~~December 31, 2016~~.September 30, 2018. The ~~increase~~decrease in corporate expenses of ~~$2.3~~$24.5 million, or ~~2.8%~~44.6%, was primarily due to the loss on divestitures of $20.4 million, restructuring charges of $1.3 million and an increase in compensation accruals as compared to the prior year period of $6.7 million, partially offset by an OPEB settlement gain of $15.1 million.

4649

Triumph Group, Inc.

Management's Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

decreases in losses on divestitures of $12.5 million and compensation costs of $5.4 million as well as the current period gain on a legal judgment of $5.4 million.

Interest expense and other increased by ~~$16.5~~$8.7 million,, or ~~29.6%~~16.0%, to ~~$72.2~~$62.9 million for the ~~nine~~six months ended ~~December 31, 2017~~,September 30, 2019, compared to ~~$55.7~~with $54.2 million for the ~~nine~~six months ended ~~December 31, 2016,~~September 30, 2018, due to ~~higher interest rates, the impairment~~a write-off of deferred financing ~~fees~~costs of approximately $3.0 million as a result of the debt transactions disclosed in Note 7 and higher interest expense due to ~~the amendment to the Credit Facility~~differences in relative debt levels and ~~the extinguishment of the Term Loan of approximately $5.2 million and the unfavorable net change in foreign exchange rate gain/loss of approximately $8.1 million compared to the prior year period.~~higher interest rates.

The effective income tax rate for the ~~nine~~six months ended ~~December 31, 2017~~September 30, 2019, was ~~22.1%~~21.0% compared ~~to 28.1%~~with (1.6)% for the ~~nine~~six months ended ~~December 31, 2016.~~September 30, 2018. For the ~~nine~~six months ended ~~December 31, 2017,~~September 30, 2019, the effective tax rate reflected a ~~$22.4 million~~limitation on the recognition of tax benefit from the Tax Act, a $4.8 million tax benefit from the return to provision true up adjustment, the impact of the non-deductible portion of the goodwill impairment, the partial reversal of previously established valuation allowance relatedbenefits due to the ~~current year activity, as well as the disallowed capital loss generated from the divestiture of Embee. For the nine~~full valuation allowance.

Business Segment Performance - Six months ended ~~December 31, 2016, the income tax provision reflected the disallowed tax benefit of $1.3 million related to the capital loss generated from the divestiture of Newport News.~~

~~For the fiscal year ending March 31, 2018, the Company expects its effective tax rate to be approximately 1.0%~~September 30, 2019, compared with ~~opportunity to be reduced further through the release of the valuation allowance that is discussed further in Note 7.~~

six months ended September 30, 2018:



	Six Months Ended September 30,								% of Total Sales
	2019			2018			% Change		2019		2018
	(in thousands)
NET SALES
Integrated Systems	$	538,206		$	501,756		7.3	%	35.8	%	29.7	%
Aerospace Structures	841,757			1,060,753			(20.6	)%	56.0	%	62.8	%
Product Support	129,149			138,414			(6.7	)%	8.6	%	8.2	%
Elimination of inter-segment sales	(6,771		)	(12,915		)	(47.6	)%	(0.5	)%	(0.8	)%
Total Net Sales	$	1,502,341		$	1,688,008		(11.0	)%	100.0	%	100.0	%



	Six Months Ended September 30,								% of Segment Sales
	2019			2018			% Change		2019		2018
	(in thousands)
SEGMENT OPERATING INCOME (LOSS)
Integrated Systems	$	86,244		$	75,275		14.6	%	16.0	%	15.0	%
Aerospace Structures	25,891			(102,331		)	(125.3	)%	3.1	%	(9.6	)%
Product Support	20,142			19,183			5.0	%	15.6	%	13.9	%
Corporate	(30,439		)	(54,948		)	44.6	%	n/a		n/a
Share-based compensation	(5,290		)	(5,728		)	7.6	%
Total Operating Income (Loss)	$	96,548		$	(68,549	)			6.4	%	(4.1	)%

Triumph Group, Inc.

Management's Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

~~Business Segment Performance - Nine months ended December 31, 2017 compared to nine months ended December 31, 2016~~

Nine Months Ended December 31,
2017 2016
Integrated Systems
Commercial aerospace 16.6 % 15.0 %
Military 10.6 % 10.2 %
Business Jets 1.7 % 1.7 %
Regional 1.0 % 1.0 %
Non-aviation 0.8 % 1.0 %
Total Integrated Systems net sales 30.7 % 28.9 %
Aerospace Structures
Commercial aerospace 16.1 % 16.7 %
Military 3.1 % 5.5 %
Business Jets 14.9 % 13.6 %
Total Aerospace Structures net sales 34.2 % 35.9 %
Precision Components
Commercial aerospace 17.8 % 17.9 %
Military 5.5 % 4.7 %
Business Jets 1.9 % 2.0 %
Regional 0.6 % 0.5 %
Non-aviation 0.7 % 0.4 %
Total Precision Components net sales 26.5 % 25.5 %
Product Support
Commercial aerospace 7.2 % 7.5 %
Military 0.9 % 1.5 %
Business Jets — % — %
Total Product Support net sales 8.6 % 9.7 %
Total Consolidated net sales 100.0 % 100.0 %



	Six Months Ended September 30,								% of Segment Sales
	2019			2018			% Change		2019		2018
	(in thousands)
Adjusted EBITDAP
Integrated Systems	$	82,545		$	72,597		13.7	%	15.9	%	15.0	%
Aerospace Structures	55,978			25,703			117.8	%	6.8	%	2.5	%
Product Support	22,331			22,517			(0.8	)%	17.3	%	16.3	%
Corporate and share-based compensation	(34,151		)	(41,381		)	17.5	%	n/a		n/a
	$	126,703		$	79,436		59.5	%	8.7	%	4.8	%

~~We continue to experience a higher proportion of our sales mix in the commercial aerospace end market for~~

Integrated Systems: Integrated Systems net sales increased by $36.5 million, or 7.3%, to $538.2 million for the six months ended September 30, 2019, from $501.8 million for the six months ended September 30, 2018. The increase was due to increased volumes on engine components, military rotorcraft components, and ~~Precision Components~~aftermarket spare part sales as well as $5.0 million in a nonrecurring licensing transaction.

Integrated Systems cost of sales increased by $19.3 million, or 5.4%, to $374.2 million for the six months ended September 30, 2019, from $354.9 million for the six months ended September 30, 2018. Cost of sales increased due to the ~~737, 777, 787, A320~~sales increase noted above and ~~A350 programs. We have experienced~~sales mix, partially offset by a ~~decline~~reduction of cost of sales as a result of a $5.3 million reduction in acquired contract reserves.

The gross margin for the ~~commercial aerospace end market~~six months ended September 30, 2019, was 30.5% compared with 29.3% for ~~Aerospace Structures due~~the six months ended September 30, 2018. The increase in gross margin for the six months ended September 30, 2019, is the result of sales mix as well as the favorable impact on margin from the nonrecurring licensing transaction and reduction in acquired contract reserves.

Integrated Systems operating income increased by $11.0 million, or 14.6%, to ~~lower production rates of~~$86.2 million for the ~~747-8 and a decrease in our military end market~~six months ended September 30, 2019, from $75.3 million for the six months ended September 30, 2018. Operating income increased due to the ~~wind-down~~increased gross margin as noted above, partially offset by increased restructuring costs of $3.4 million. The increase in Adjusted EBITDAP year over year is due to the same factors that increased operating income.

Integrated Systems operating income as a percentage of segment sales increased to 16.0% for the six months ended September 30, 2019, as compared with 15.0% for the six months ended September 30, 2018, due to the increased gross margin as noted above. These same factors noted above affecting the Adjusted EBITDAP contributed to the increased Adjusted EBITDAP margin year over year.

Aerospace Structures: Aerospace Structures net sales decreased by $219.0 million, or 20.6%, to $841.8 million for the six months ended September 30, 2019, from $1.06 billion for the six months ended September 30, 2018. Organic sales increased $81.1 million, or 10.7%. Net sales decreased as a result of the ~~C-17~~fiscal 2019 Aerostructures divestitures by $300.1 million. The organic sales increased due to the increased volumes and pricing related to the E-2 Jets and 787 programs and increased volumes for the G280, G550, and 777 programs, and a new statement of work under the Mitsubishi M100 program. ~~We expect~~Net sales for the six months ended September 30, 2019, included $20.2 million in total nonrecurring revenues, as compared with $44.3 million in total nonrecurring revenues for the six months ended September 30, 2018.

Aerospace Structures cost of sales decreased by $304.9 million, or 29.1%, to ~~see continued growth~~$742.6 million for the six months ended September 30, 2019, from $1.05 billion for the six months ended September 30, 2018. The organic cost of sales increased $21.8 million, or 3.0%. Cost of sales decreased as a result of the fiscal 2019 Aerostructures divestitures by $326.7 million. The organic cost of sales increased due to the increase in ~~our Business Jet end market~~organic sales asmentioned above offset by the ~~Bombardier Global 7000 program begins~~nonrecurring charge of $87.2 million in the six months ended September 30, 2018, arising from the adoption of ASU 2017-07. The organic gross margin for the six months ended September 30, 2019, was 11.8% compared with 5.2% for the six months ended September 30, 2018.

Aerospace Structures cost of sales for the six months ended September 30, 2019, included net unfavorable cumulative catch-up adjustments of $11.8 million. The cumulative catch-up adjustments to ~~deliver production units, although there can be no assurance to that effect.~~gross margin for the six months ended September 30, 2019, included gross favorable adjustments of $24.6 million and gross unfavorable adjustments of $36.4 million. Segment cost of sales for the six months ended September 30, 2018, included net unfavorable cumulative catch-up adjustments of $12.8 million.

4851

Triumph Group, Inc.

Management's Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

Aerospace Structures operating increased by $128.2 million, or 125.3%, to $25.9 million for the six months ended September 30, 2019, compared with an operating loss of $102.3 million for the six months ended September 30, 2018. The organic operating income increased $77.3 million or 150.4%. Operating income increased as a result of the fiscal 2019 Aerostructures divestitures prior period operating losses of $51.0 million. Organic operating income increased for the same reasons noted above for gross margin as well as lower compensation due to decreased severance and headcount and the approximately $10.0 million gain recognized as a result of the transfer of the E-2 Jets program to ASTK. The increase in Adjusted EBITDAP year over year is due to the same factors that increased operating income.

Nine Months Ended December 31, % of Total
Sales
2017 2016 % Change 2017 2016
(in thousands)
NET SALES
Integrated Systems $ 711,099
$ 758,803
(6.3 )% 30.9 % 29.0 %
Aerospace Structures 807,754
956,114
(15.5 )% 35.1 % 36.6 %
Precision Components 685,701
740,354
(7.4 )% 29.8 % 28.3 %
Product Support 202,839
257,317
(21.2 )% 8.8 % 9.8 %
Elimination of inter-segment sales (105,302 ) (99,703 ) 5.6 % (4.6 )% (3.8 )%
Total Net Sales $ 2,302,091
$ 2,612,885
(11.9 )% 100.0 % 100.0 %
Aerospace Structures operating income as a percentage of segment sales increased to 3.1% for the six months ended September 30, 2019, as compared with (9.6)% for the six months ended September 30, 2018, due to the increase in operating income as noted above. These same factors as noted above for the Adjusted EBITDAP contributed to the increased Adjusted EBITDAP margin year over year.

Nine Months Ended December 31, % of Segment
Sales
2017 2016 % Change 2017 2016
(in thousands)
SEGMENT OPERATING INCOME
Integrated Systems $ 132,171
$ 145,379
(9.1 )% 18.6 % 19.2 %
Aerospace Structures 23,253
57,898
(59.8 )% 2.9 % 6.1 %
Precision Components (191,100 ) 7,223
(2,745.7 )% (27.9 )% 1.0 %
Product Support 32,069
42,986
(25.4 )% 15.8 % 16.7 %
Corporate (78,840 ) (81,107 ) 2.8 % n/a
n/a
Total Operating Income $ (82,447 ) $ 172,379
(147.8 )% (3.6 )% 6.6 %

Nine Months Ended December 31, % of Segment
Sales
2017 2016 % Change 2017 2016
(in thousands)
Adjusted EBITDA
Integrated Systems $ 131,793
$ 148,506
(11.3 )% 18.5 % 19.6 %
Aerospace Structures 20,422
51,997
(60.7 )% 2.5 % 5.4 %
Precision Components 23,673
47,827
(50.5 )% 3.5 % 6.5 %
Product Support 37,137
50,216
(26.0 )% 18.3 % 19.5 %
Corporate (71,994 ) (60,994 ) (18.0 )% n/a
n/a
$ 141,031
$ 237,552
(40.6 )% 6.1 % 9.1 %

~~Integrated Systems:~~ ~~Integrated Systems~~Product Support: Product Support net sales decreased by ~~$47.7~~$9.3 million, or ~~6.3%~~6.7%, to ~~$711.1~~$129.1 million for the ~~nine~~six months ended ~~December 31, 2017,~~September 30, 2019, from ~~$758.8~~$138.4 million for the ~~nine~~six months ended ~~December 31, 2016. Organic sales decreased $25.7 million, or 3.6%.~~September 30, 2018. The ~~Newport News and Embee divestitures contributed $22.0 million to~~decrease was primarily the ~~net sales decrease as compared to~~result of the ~~nine~~ ~~months ended December 31, 2016. Organic sales declined primarily due to rate reductions on A380 and 777 programs and timing~~divestiture of ~~deliveries on other key commercial and military programs,~~NAAS partially offset by ~~increased sales on 737 program.~~increases due to improvement in demand for accessory component repairs.

~~Integrated Systems~~Product Support cost of sales decreased by ~~$30.2~~$10.7 million, or ~~6.0%~~10.2%, to ~~$471.2~~$94.5 million for the ~~nine~~six months ended ~~December 31, 2017,~~September 30, 2019, from ~~$501.3~~$105.2 million for the ~~nine~~six months ended ~~December 31, 2016. Organic cost~~September 30, 2018. The decrease was driven by the divestiture of ~~sales decreased $15.8 million, or 3.3%. The Newport News and Embee divestitures contributed $14.4 million to~~NAAS partially offset by the ~~cost of~~increased sales ~~decrease as compared to the~~ ~~nine~~ ~~months ended December 31, 2016. The organic cost of sales decreased due to the net sales decrease~~ noted above. ~~The organic~~Organic gross margin for the ~~nine~~six months ended ~~December 31, 2017~~September 30, 2019, was ~~33.9%~~26.8% compared with ~~34.1%~~24.4% for the ~~nine~~six months ended September 30, 2018.

Product Support operating income increased by $1.0 million, or 5.0%, to $20.1 million for the six months ended September 30, 2019, from $19.2 million for the six months ended September 30, 2018. The increased gross margins contributed to the increase in operating income and Adjusted EBITDAP year over year.

Product Support operating income as a percentage of segment sales increased to 15.6% for the six months ended September 30, 2019, as compared with 13.9% for the six months ended September 30, 2018, due to the increased gross profit noted above and the lower sales due to the divestiture of NAAS. These same factors contributed to the increased Adjusted EBITDAP margin year over year.

4952

Triumph Group, Inc.

Management's Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

~~months ended December 31, 2016. The decrease in gross margin for the nine months ended December 31, 2017 is due to product mix.~~

Integrated Systems operating income decreased by $13.2 million, or 9.1%, to $132.2 million for the nine months ended December 31, 2017, from $145.4 million for the nine months ended December 31, 2016. Organic operating income decreased $10.3 million, or 7.2%. The Newport News and Embee divestitures contributed $2.9 million to the operating income decrease for the ~~nine~~ months ended December 31, 2016. Operating income decreased for the nine months ended December 31, 2017, due to the decline in sales and gross margin as noted above. The decrease in Adjusted EBITDA year over year is due to the same factors that decreased operating income.

Integrated Systems operating income as a percentage of segment sales decreased to 18.6% for the nine months ended December 31, 2017, as compared to 19.2% for the nine months ended December 31, 2016, due to the decreased gross margin as noted above. These same factors noted above affecting the Adjusted EBITDA contributed to the decreased Adjusted EBITDA margin year over year.

~~Aerospace Structures:~~ ~~Aerospace Structures net sales decreased by $148.4 million, or 15.5%, to $807.8 million for the~~ ~~nine~~ ~~months ended December 31, 2017, from $956.1 million for the~~ ~~nine~~ months ended December 31, 2016. Sales decreased primarily due to the completion of and continued rate reductions on certain Boeing and Gulfstream programs and partially offset by rate increases on 767/Tanker and Global Hawk/Triton programs. Net sales for the nine months ended December 31, 2017 included $7.0 million in total non-recurring revenues, as compared to $15.9 million in total non-recurring revenues for the nine months ended December 31, 2016.

Aerospace Structures cost of sales decreased by $117.4 million, or 14.3%, to $703.5 million for the nine months ended December 31, 2017, from $820.8 million for the nine months ended December 31, 2016. The cost of sales were negatively impacted by the decreased sales as noted above. The comparable gross margin for the nine months ended December 31, 2017 was 12.9% compared with 14.2% for the nine months ended December 31, 2016. The decreased gross margin for the nine months ended December 31, 2017 is due to the change in product mix.

Aerospace Structures cost of sales for the nine months ended December 31, 2017 included net favorable cumulative catch-up adjustments of $12.0 million. The cumulative catch-up adjustments to gross margin for the nine months ended December 31, 2017 included gross favorable adjustments of $65.7 million and gross unfavorable adjustments of $53.7 million. Segment cost of sales for the nine months ended December 31, 2016 included net unfavorable cumulative catch-up adjustments of $6.3 million.

Aerospace Structures operating income decreased by $34.6 million, or 59.8%, to $23.3 million for the nine months ended December 31, 2017, compared to $57.9 million for the nine months ended December 31, 2016. Operating income decreased for the nine months ended December 31, 2017, due to the decline in sales as noted above, increased net customer financing fees of $1.2 million, increased legal expenses of $1.8 million and increased amortization expense of $5.0 million due to the change in estimated useful life of certain intangible assets. The decrease in Adjusted EBITDA year over year is due to the same factors that decreased operating income.

Aerospace Structures operating income as a percentage of segment sales decreased to 2.9% for the nine months ended December 31, 2017, as compared to 6.1% for the nine months ended December 31, 2016, due to the decrease in operating income as noted above. These same factors contributed to the decreased Adjusted EBITDA margin year over year.

~~Precision Components:~~ Precision Components net sales decreased by $54.7 million, or 7.4%, to $685.7 million for the nine months ended December 31, 2017, from $740.4 million for the nine months ended December 31, 2016. The decline in sales was primarily driven by production rate and step down pricing on 777 program and step down pricing on the 787 program, partially offset by increased production on the A350 program.

~~Precision Components cost of sales decreased by $41.7 million, or 6.5%, to $602.6 million for the~~ ~~nine~~ ~~months ended~~ ~~December 31, 2017, from~~ ~~$644.3 million~~ ~~for the~~ ~~nine~~ ~~months ended~~ ~~December 31, 2016. The cost of sales decreased due to the decline in sales as noted above. The gross margin for the~~ ~~nine~~ ~~months ended December 31, 2017 was 12.1%, compared with 13.0% for the~~ ~~nine~~ ~~months ended~~ ~~December 31, 2016. The gross margin declined for the~~ ~~nine~~ ~~months ended December 31, 2017, due to the decline in sales noted above.~~

~~Precision Components operating income decreased by~~ ~~$198.3 million, or~~ ~~2,745.7%, to an operating loss of~~ ~~$191.1 million~~ ~~for the~~ ~~nine~~ ~~months ended~~ ~~December 31, 2017, from operating income of~~ ~~$7.2 million~~ ~~for the~~ ~~nine~~ ~~months ended~~ ~~December 31, 2016. The operating loss~~ ~~nine~~ ~~months ended December 31, 2017, was the result of the decreased sales, as noted above, the~~

~~Management's Discussion and Analysis of~~

~~Financial Condition and Results of Operations~~

~~(continued)~~

previously mentioned goodwill impairment charge of $190.2 million and by increased restructuring costs of $5.0 million. The Adjusted EBITDA decreased year over year due to the decreased sales noted above.

~~Precision Components operating loss as a percentage of segment sales declined to~~ ~~(27.9)%~~ ~~for the~~ ~~nine~~ ~~months ended~~ ~~December 31, 2017, as compared to~~ ~~1.0%~~ ~~for the~~ ~~nine~~ ~~months ended~~ ~~December 31, 2016, due to the goodwill impairment noted above. The Adjusted EBITDA margin year over year was affected by the same factors that decreased the Adjusted EBITDA.~~

~~Product Support:~~ ~~Product Support net sales decreased by $54.5 million, or 21.2%, to $202.8 million for the~~ ~~nine~~ ~~months ended December 31, 2017, from~~ ~~$257.3 million~~ ~~for the~~ ~~nine~~ ~~months ended~~ ~~December 31, 2016. Organic sales increased $8.0 million, or 4.3%, due to increased demand from OEM customers. The divestiture of Engines and APU contributed $62.5 million to net sales for the~~ ~~nine~~ ~~months ended December 31, 2016.~~

~~Product Support cost of sales decreased by $37.3 million, or 20.0%, to $149.6 million for the~~ ~~nine~~ ~~months ended~~ ~~December 31, 2017~~, from $186.9 million for the nine months ended December 31, 2016. Organic cost of sales increased $10.4 million, or 7.8%. Organic cost of sales did not increase in proportion to the increase in sales due to sales mix. The divestiture of Engines and APU contributed $47.7 million in cost of sales to the ~~nine~~ ~~months ended December 31, 2016. Organic gross margin for the~~ ~~nine~~ ~~months ended~~ ~~December 31, 2017~~ ~~was 26.6% compared to 29.0% for the~~ ~~nine~~ ~~months ended~~ ~~December 31, 2016~~.

~~Product Support operating income~~ ~~decreased~~ by ~~$10.9 million, or~~ ~~25.4%, to~~ ~~$32.1 million~~ ~~for the~~ ~~nine~~ ~~months ended~~ ~~December 31, 2017, from~~ ~~$43.0 million~~ ~~for the~~ ~~nine~~ ~~months ended~~ ~~December 31, 2016. Organic operating income decreased $0.6 million or 2.0%, due to the decreased gross profit noted above. The divestiture of Engines and APU contributed $10.3 million operating income for the~~ ~~nine~~ ~~months ended December 31, 2016. These same factors contributed to the decrease in Adjusted EBITDA year over year.~~

~~Product Support operating income as a percentage of segment sales decreased to~~ ~~15.8%~~ ~~for the~~ ~~nine~~ ~~months ended~~ ~~December 31, 2017, as compared to 16.7% for the~~ ~~nine~~ ~~months ended~~ ~~December 31, 2016, due to the decreased gross profit noted above. These same factors contributed to the decreased Adjusted EBITDA margin year over year.~~

Liquidity and Capital Resources

Our working capital needs are generally funded through cash flows from operations and borrowings under our credit arrangements. During the ~~nine~~six months ended ~~December 31, 2017,~~September 30, 2019, we used approximately ~~$198.3~~$10.6 million of cash flows from operating activities, ~~received~~used approximately ~~$36.5~~$17.6 million in investing activities and ~~received~~used approximately ~~$158.2~~$38.4 million in financing activities.

Cash flows used in operating activities for the ~~nine~~six months ended ~~December 31, 2017~~September 30, 2019, were ~~$198.3~~$10.6 million, compared towith cash flows used in operating activities for the ~~nine~~six months ended ~~December 31, 2016~~September 30, 2018, of ~~$172.7~~$197.2 million. During the nine months ended December 31, 2017, net cash used in operating activities was primarily due the timing of payments on accounts payable and other accrued expenses of $373.4 million driven by timing of payables to suppliers, offset by decreased receipts from customers of $321.4 million due to decreased utilization of the receivables purchase agreement and decreased sales.

We continue to invest in inventory ~~for new~~to support ramping programs which impacts our cash flows from operating activities. During the nine months ended December 31, 2017, inventory build for capitalized pre-production costs on new programs excluding progress payments, including the Bombardier Global 7000/8000 program and ~~the Embraer E-Jet, were $80.6~~also liquidated approximately $40.0 million and $6.0 million, respectively. Additionally, the cash utilization for production inventory build, including build ahead on several programs subject to relocation, was approximately $286.9 million. Totalin prior period customer advances ~~including unliquidated progress payments netted~~ against ~~inventory which are included in cash flows from operations, increased $251.1 million, primarily due to timing of receipts and resolution of open assertions.~~current period deliveries.

Cash flows used in investing activities for the ~~nine~~six months ended ~~December 31, 2017 increased $46.4~~September 30, 2019, decreased $34.4 million from the ~~nine~~six months ended ~~December 31, 2016.~~September 30, 2018. Cash flows used in investing activities for the ~~nine~~six months ended ~~December 31, 2017,~~September 30, 2019, included capital expenditures of ~~$31.9~~$17.0 million and payments on a working capital true-up from the prior period sale of assets net of current period proceeds from sales of assets of $0.6 million. Cash provided by investing activities for the six months ended September 30, 2018, included capital expenditures of $24.3 million and proceeds from the sale of assets of ~~$68.4~~$41.0 million.

Cash flows used in ~~investing~~financing activities for the ~~nine~~six months ended ~~December 31, 2016, included capital expenditures of $33.1~~September 30, 2019, were $38.4 million, ~~and proceeds from the sale of assets of $23.2 million.~~

~~Cash~~compared with cash flows provided by financing activities for the ~~nine~~six months ended ~~December 31, 2017 were $158.2 million, compared to cash flows used in financing activities for the nine months ended December 31, 2016~~September 30, 2018, of ~~$198.6~~$179.2 million. ~~Cash flows~~

~~Management's Discussion and Analysis of~~

~~Financial Condition and Results of Operations~~

~~(continued)~~

provided by financing activities for the nine months ended December 31, 2017 and 2016, respectively, included the proceeds from the issuance of our Senior Notes due 2025 of $500.0 million, offset by repayment of the 2013 Term Loan of $302.3 million, payment of financing fees $17.7 million and additional borrowings on our Credit Facility (as defined below).

As of ~~December 31, 2017~~, ~~$719.8~~September 30, 2019, $393.3 million was available under our revolving credit facility (the “Credit Facility”) after consideration of covenant limitations. On ~~December 31, 2017~~,September 30, 2019, an aggregate amount of ~~approximately~~ ~~$50.0~~$67.4 million was outstanding under the Credit Facility, all of which was accruing interest at LIBOR plus applicable basis points totaling 3.50% per annum. Amounts repaid under the Credit Facility may be ~~reborrowed.~~re-borrowed.

We believe that cash flows from operations and borrowings under the Credit Facility will be sufficient to meet anticipated cash requirements for our current operations for the foreseeable future. However, we are continuously evaluating various acquisition and divestiture opportunities. In the event that such a transaction occurs, the availability under the Credit Facility may change or be fully utilized and additional funding sources may be needed. There can be no assurance that such funding sources will be available to us on terms favorable to us, if at all.

At ~~December 31, 2017~~,September 30, 2019, there was ~~$109.2~~$65.9 million outstanding under our receivable securitization facility ("Securitization Facility"). Interest rates on the Securitization Facility are based on prevailing market rates for short-term commercial paper, plus a program fee and a commitment fee. The Securitization Facility's net availability is not ~~impacted~~affected by the borrowing capacity of the Credit Facility.

In July 2017, the Company entered into a Ninth Amendment to the Credit Agreement (the “Ninth Amendment” and the Existing Credit Agreement as amended by the Ninth Amendment, the “Credit Agreement”) with the Administrative Agent and the Lenders party thereto to, among other things, (i) permit the Company to incur High Yield Indebtedness (as defined in the Credit Agreement) in an aggregate principal amount of up to $500.0 million, subject to the Company’s obligations to apply the net proceeds from this offering to repay the outstanding principal amount of the term loans in full, (ii) limit the mandatory prepayment provisions to eliminate the requirement that net proceeds received from the incurrence of Permitted Indebtedness (as defined in the Credit Agreement), including the High Yield Indebtedness, be applied to reduce the revolving credit commitments once the revolving credit commitments have been reduced to $800.0 million, (iii) amend certain covenants and other terms and (iv) modify the current interest rate and letter of credit pricing tiers.

In May 2017, the Company entered into an Eighth Amendment to the Third Amended and Restated Credit Agreement (the “Eighth Amendment Effective Date”), among the Company and its lenders to, among other things, (i) eliminate the total leverage ratio financial covenant, (ii) increase the maximum permitted senior secured leverage ratio financial covenant applicable to each fiscal quarter, commencing with the fiscal quarter ended March 31, 2017, and to revise the step-downs applicable to such financial covenant, (iii) reduce the aggregate principal amount of commitments under the revolving line of credit to $800.0 million from $1.0 billion, (iv) modify the maturity date of the term loans so that all of the term loans will mature on March 31, 2019, and (v) establish a new higher pricing tier for the interest rate, commitment fee and letter of credit fee pricing provisions.

The Company is currently in compliance with all such covenants. Although the Company does not anticipate any violations of the financial covenants, its ability to comply with these covenants is dependent upon achieving earnings and cash flow projections.

On August 17, 2017, the Company issued $500.0 million principal amount of 7.750% Senior Notes due 2025 (the "2025 Notes"). The 2025 Notes were sold at 100% of principal amount and have an effective interest yield of 7.750%. Interest on the 2025 Notes accrues at the rate of 7.750% per annum and is payable semiannually in cash in arrears on February 15 and August 15 of each year, commencing on February 15, 2018.

~~The 2025~~ Notes are the Company's senior unsecured obligations and rank equally in right of payment with all of its other existing and future senior unsecured indebtedness and senior in right of payment to all of its existing and future subordinated indebtedness. The ~~2025~~Senior Notes are guaranteed on a full, joint and several basis by each of the Guarantor Subsidiaries.

The Company may redeem some or all of ~~the 2025~~its Senior Notes prior to August 15, 2020 by paying a "make-whole" premium. The Company may redeem some or all of the 2025 Notes on or after August 15, 2020, at specified redemption prices. In addition, prior to August 15, 2020, the Company may redeem up to 35% of the 2025 Notes with the net proceeds of certain equity offerings at a redemption price equal to 107.750% of the aggregate principal amount plus accrued and unpaid interest, if any,their stated maturities, subject to certain limitations set forth in the indenture governing the ~~2025~~applicable Senior Notes ~~(the "2025 Indenture").~~

~~Management's Discussion~~ and, ~~Analysis of~~

~~Financial Condition and Results of Operations~~

~~(continued)~~

in certain cases, subject to significant prepayment premiums. The Company is obligated to offer to repurchase the ~~2025~~Senior Notes at ~~a price of (i) 101% of their principal amount plus accrued and unpaid interest, if any,~~specified prices as a result of certain change-of-control events and ~~(ii) 100%~~a sale of ~~their principal amount plus accrued and unpaid interest, if any, in the event~~all or substantially all of ~~certain asset sales.~~its assets. These restrictions and prohibitions are subject to certain qualifications and exceptions.

The ~~2025 Indenture contains~~indentures governing the Senior Notes, as well as the Credit Facility and Securitization Facility, contain covenants that, among other things, limit the Company's ability and the ability of any of the Guarantor Subsidiaries to (i) grant liens on its ~~assets,~~assets; (ii) make dividend payments, other distributions or other restricted ~~payments,~~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,~~transactions; (v) merge, consolidate, transfer or dispose of substantially all of their ~~assets,~~assets; (vi) incur additional ~~indebtedness,~~indebtedness; (vii) use the proceeds from sales of assets, including capital stock of restricted subsidiaries (in the case of the Senior Notes); and (viii) enter into transactions with affiliates. The Company is currently in compliance with all financial covenants under its debt agreements. Although the Company does not anticipate any violations of the financial covenants, its ability to comply with these covenants is depended upon achieving earnings and cash flow projections.

~~The expected future cash flows for~~

Triumph Group, Inc.

Management's Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

For further details regarding the ~~next five years for~~Company's long-term debt ~~leases~~arrangements, including the 2021 Notes, the 2022 Notes, 2024 Notes, and ~~other obligations are as follows:~~

Payments Due by Period
(in thousands)
Contractual Obligations Total
Less than
1 year
1-3 years 4-5 years
More than 5
years
Debt principal (1) $ 1,392,497
$ 15,135
$ 135,072
$ 733,777
$ 508,513
Debt interest (2) 305,749
75,201
79,711
78,100
72,737
Operating leases 138,051
26,155
41,417
25,933
44,546
Purchase obligations 1,533,563
1,197,322
275,163
46,720
14,358
Total $ 3,369,860
$ 1,313,813
$ 531,363
$ 884,530
$ 640,154

~~(1) Included in~~ the ~~Company’s balance sheet at~~ ~~December 31, 2017~~.

~~(2) Includes fixed-rate interest only.~~

~~The above table excludes unrecognized tax benefits of $11.4 million as of~~ ~~December 31, 2017~~2025 Notes (collectively, the "Senior Notes"), ~~since we cannot predict with reasonable certainty the timing of cash settlements with the respective taxing authorities.~~including current period transactions, refer to Note 7.

For the fiscal year ending March 31, ~~2018,~~2020, the Company is not required to make minimum contributions to its U.S. defined benefit pension plans under the minimum funding requirements of the Employee Retirement Income Security Act of 1974 and the Pension Protection Act of 2006.

We believe that cash flows from operations and borrowings under the Credit Facility will be sufficient to meet anticipated cash requirements for our current operations for the foreseeable future. However, we are continuously evaluating various acquisition and divestiture opportunities. As a result, we currently are pursuing the potential purchase of a number of candidates. In the event that more than one of these transactions are successfully consummated, the availability under the Credit Facility might be fully utilized and additional funding sources may be needed. There can be no assurance that such funding sources will be available to us on terms favorable to us, if at all.

Critical Accounting Policies

The Company's critical accounting policies are discussed in Management's Discussion and Analysis of Financial Condition and Results of Operations and notes accompanying the condensed consolidated financial statements that appear in the Annual Report on Form 10-K for the fiscal year ended March 31, ~~2017.~~2019. Except as otherwise disclosed in the condensed consolidated financial statements and accompanying notes included in this report, there were no material changes subsequent to the filing of the Annual Report on Form 10-K for the fiscal year ended March 31, ~~2017,~~2019, in the Company's critical accounting policies or in the assumptions or estimates used to prepare the financial information appearing in this report.

~~Management's Discussion and Analysis of~~

~~Financial Condition and Results of Operations~~

~~(continued)~~

Forward-Looking Statements

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 relating to our future operations and prospects, including statements that are based on current projections and expectations about the markets in which we operate, and our beliefs concerning future performance and capital requirements based upon current available information. Such statements are based on our beliefs as well as assumptions made by and information currently available to us. When used in this document, words like “may,” “might,” “will,” “expect,” “anticipate,” “believe,” “potential,” "plan," "estimate," and similar expressions are intended to identify forward-looking statements. Actual results could differ materially from our current expectations. For example, there can be no assurance that additional capital will not be required 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 our ability to execute on our restructuring plans, the integration of acquired businesses, divestitures of our business, general economic conditions affecting our business, dependence of certain of our businesses on certain key customers as well as competitive factors relating to the aviation industry. For a more detailed discussion of these and other factors affecting us, see the risk factors described in our Annual Report on Form 10-K for the fiscal year ended March 31, ~~2017,~~2019, filed with the SEC on May ~~24, 2017.~~

23, 2019.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

For information regarding our exposure to certain market risks, see “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the fiscal year ended March 31, ~~2017.~~2019. There has been no material change in this information during the period covered by this report.

Item 4. Controls and Procedures.

(a) Evaluation of disclosure controls and procedures.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports pursuant to the Securities Exchange Act of 1934, as amended, 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 chief executive officer and chief 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 ~~December 31, 2017~~September 30, 2019, we completed an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our chief executive officer and chief financial officer

Triumph Group, Inc.

Management's Discussion and Analysis of

Financial Condition and Results of Operations

(continued)

concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of ~~December 31, 2017~~September 30, 2019.

(b) Changes in internal control over financial reporting.

There were no changes that occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.