Triumph Group Reports Third Quarter Fiscal 2016 Results

BERWYN, Pa.

Triumph Group, Inc. (NYSE:TGI) today reported financial results for its third quarter of fiscal year 2016, which ended December 31, 2015.

“For the third quarter fiscal year 2016, Triumph delivered strong year over year margin growth in both our Aerospace Systems Group and Aftermarket Services segments, enabled in part by previously announced cost reduction initiatives. Operating results, however, were impacted by a non-cash tradename impairment charge and costs related to legal settlements,” said Daniel J. Crowley, Triumph’s President and Chief Executive Officer.

“While Aerostructures revenues were impacted by the rate reductions on certain programs and the timing of shipments that will be realized in the fourth quarter, the aerospace and defense market remains attractive and Triumph continues to be a critical supplier and partner to virtually all Tier 1 aerospace and defense OEMs. Aerostructures recently achieved a critical milestone with the on-time delivery of Triumph’s first shipment of the fully joined fuselage in support of Embraer’s E2 program,” Mr. Crowley stated.

Mr. Crowley continued, “We continued to deliver on customer commitments during the quarter; however, we have more work to do to improve execution and drive predictable profitability. Upon joining Triumph as CEO this month, I commenced a comprehensive strategic and operational review of the company to determine the attractiveness of our end-markets, our competitive positioning, and the actions we must take to deliver enhanced shareholder value. Going forward, our objectives are to deliver on our customer commitments, gain the benefits of our scale, strengthen our pipeline and ensure best practices are deployed across the enterprise as we align as One Triumph Team.”

Impairment Charge

During the fiscal third quarter of 2016, the company performed an interim assessment of fair value of its goodwill and indefinite-lived intangible assets, including the tradenames, due to the continued decline in stock price. As a result, the company recorded a pre-tax, non-cash impairment charge of $229.2 million, or $3.02 per diluted share, related to the decline in fair value compared to the carrying value of the Vought tradename. The charge reflected the impact of declining revenues from production rate cuts and the slower than projected ramp on the Bombardier Global 7000 program and the timing of associated earnings.

Consolidated Results

For the fiscal third quarter of 2016, net sales were $913.9 million, a slight decrease compared to fiscal third quarter 2015 net sales of $917.4 million. Organic sales for the quarter decreased eleven percent primarily due to rate reductions on key Aerostructures programs.

Net loss for the third quarter of fiscal year 2016 was ($88.6) million, or ($1.80) per share, compared to a loss of ($39.8) million, or ($0.79) per share, for the third quarter of the prior fiscal year. Results for the quarter included a pre-tax, non-cash tradename impairment charge of $229.2 million as well as a pre-tax charge of approximately $12.4 million ($0.17 per diluted share) related to legal settlements, approximately $10.5 million of which was associated with the resolution of a previously disclosed law suit related to the closure of the Jefferson Street facility. Excluding these charges, net income for the third quarter of fiscal year 2016 was $68.6 million, or $1.39 per diluted share. The prior fiscal year’s quarter included charges totaling $172.7 million pre-tax as detailed below in Table A. Excluding these costs, earnings per share for the prior fiscal year quarter were $1.42 per diluted share. The number of shares used in computing diluted earnings per share for the third quarter of fiscal year 2016 was 49.3 million shares.

TABLE A

For the quarter ended December 31, 2015, the company generated $3.7 million of cash flow from operations, which reflected partial payment of the legal settlements and continued spending on the development programs, offset by working capital improvement.

Net sales for the first nine months of fiscal year 2016 were $2.828 billion, a one percent increase from net sales of $2.808 billion for the prior fiscal year. Net income for the first nine months of fiscal year 2016 was $35.7 million, or $0.72 per diluted share, versus $155.9 million, or $3.04 per diluted share, in the prior year period. The year-to-date results included the non-cash impairment charge and legal settlement charges as well as facility consolidation costs and a pension curtailment charge. Excluding these items totaling $249.8 million pre-tax ($3.30 per diluted share), net income for the first nine months of fiscal year 2016 was $198.6 million, or $4.03 per diluted share.

During the nine months ended December 31, 2015, cash flow utilization from operations was $174.7 million.

Segment Results

Aerostructures

The Aerostructures segment reported net sales of $553.6 million in the third quarter of fiscal year 2016 compared to $560.3 million in the prior fiscal year period. Organic sales for the quarter declined seventeen percent primarily due to decreased production on the 747-8, A330 and G450/550 programs. Operating loss for the third quarter of fiscal year 2016 was ($187.3) million, compared to an operating loss of ($104.2) million for the prior year period, and included the previously noted pre-tax charges totaling $239.7 million related to a legal settlement and a tradename impairment. The segment’s operating results for the quarter also included a net unfavorable cumulative catch-up adjustment on long-term contracts of $2.8 million. Excluding the 747-8 program and the charges related to the legal settlement and impairment, the segment’s operating margin for the quarter was 11 percent.

Aerospace Systems

The Aerospace Systems segment reported net sales of $288.3 million in the third quarter of fiscal year 2016 compared to $279.2 million in the prior year period, an increase of three percent. Organic sales for the quarter were flat as compared to the prior year period. Operating income for the third quarter of fiscal year 2016 was $52.8 million compared to $41.9 million for the prior year period, an increase of twenty-six percent, reflecting an operating margin of eighteen percent.

Aftermarket Services

The Aftermarket Services segment reported net sales in the third quarter of fiscal year 2016 of $78.1 million compared to $80.7 million in the prior year period. Organic sales for the quarter declined six percent primarily due to softness in commercial aftermarket. Operating income for the third quarter of fiscal year 2016 was $12.4 million compared to $12.5 million for the prior year period, reflecting an operating margin of sixteen percent. The segment’s operating results included legal settlement expenses of approximately $1.9 million.

Outlook

Based on current aircraft production rates, the company now expects revenue for the fiscal year 2016 to be approximately $3.9 billion and earnings per share for the fourth quarter fiscal year 2016 to be approximately $1.50 based on a weighted average share count of 49.3 million shares. This guidance does not include additional costs associated with strategic actions that may be taken as a result of the comprehensive business review or the impact that may result from transitioning to lower production rates on the 747-8 program. The company expects to generate free cash flow for the fourth quarter fiscal year 2016 of approximately $200.0 to $250.0 million.

Conference Call

Triumph Group will hold a conference call today, January 28th at 8:30 a.m. (ET) to discuss the third quarter fiscal year 2016 results. The conference call will be available live and archived on the company’s website at http://www.triumphgroup.com. A slide presentation will be included with the audio portion of the webcast. An audio replay will be available from January 28^th to February 4^th by calling (888) 266-2081 (Domestic) or (703) 925-2533 (International), passcode #1668039.

About Triumph Group

Triumph Group, Inc., headquartered in Berwyn, Pennsylvania, 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.

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

Statements in this release which are not historical facts are forward-looking statements under the provisions of the Private Securities Litigation Reform Act of 1995, including statements of expectations of or assumptions about financial and operational performance, expected sales, earnings per share and cash flow and operational efficiencies. All forward-looking statements involve risks and uncertainties which could affect the company’s actual results and could cause its actual results to differ materially from those expressed in any forward looking statements made by, or on behalf of, the company. Further information regarding the important factors that could cause actual results to differ from projected results can be found in Triumph Group’s reports filed with the SEC, including our Annual Report on Form 10-K for the fiscal year ended March 31, 2015.

FINANCIAL DATA (UNAUDITED)

TRIUMPH GROUP, INC. AND SUBSIDIARIES
(dollars in thousands)

Non-GAAP Financial Measure Disclosures

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

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

in our earnings releases and in other filings with the SEC and to carefully review the GAAP financial information included as part of our Quarterly Reports on Form 10-Q and our Annual Reports on Form 10-K that are filed with the SEC, as well as our quarterly earnings releases, and compare the GAAP financial information with our Adjusted EBITDA.

Adjusted EBITDA is used by management to internally measure our operating and management performance and by investors as a supplemental financial measure to evaluate the performance of our business that, when viewed with our GAAP results and the accompanying reconciliation, we believe provides additional information that is useful to gain an understanding of the factors and trends affecting our business. We have spent more than 20 years expanding our product and service capabilities partially through acquisitions of complementary businesses. Due to the expansion of our operations, which included acquisitions, our net income has included significant charges for depreciation and amortization. Adjusted EBITDA excludes these charges and provides meaningful information about the operating performance of our business, apart from charges for depreciation and amortization. We believe the disclosure of Adjusted EBITDA 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 of our ongoing operating performance because the isolation of non-cash income and expenses,

such as amortization of acquired contract liabilities, depreciation and amortization, and non-operating items, such as interest and income taxes, provides additional information about our cost structure, and, over time, helps track our operating progress. In addition, investors, securities analysts and others have regularly relied on Adjusted EBITDA to provide a financial measure by which to compare our operating performance against that of other companies in our industry.

Set forth below are descriptions of the financial items that have been excluded from our net income to calculate Adjusted EBITDA and the material limitations associated with using this non-GAAP financial measure as compared to net income:

FINANCIAL DATA (UNAUDITED)

TRIUMPH GROUP, INC. AND SUBSIDIARIES
(dollars in thousands)

Non-GAAP Financial Measure Disclosures (continued)

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

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

FINANCIAL DATA (UNAUDITED)

TRIUMPH GROUP, INC. AND SUBSIDIARIES
(dollars in thousands)

Non-GAAP Financial Measure Disclosures (continued)

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

FINANCIAL DATA (UNAUDITED)

TRIUMPH GROUP, INC. AND SUBSIDIARIES
(dollars in thousands)

Non-GAAP Financial Measure Disclosures (continued)

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

We use “Net Debt to Capital” as a measure of financial leverage. The following table sets forth the computation of Net Debt to Capital:

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Triumph Group
Sheila G. Spagnolo, 610-251-1000
Vice President, Tax & Investor Relations
sspagnolo@triumphgroup.com