TRIUMPH GROUP INC - Annual Report: 2021 (Form 10-K)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended March 31, 2021

or

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

For the transition period from                    to                  

Commission File No. 1-12235

Triumph Group, Inc.

(Exact name of registrant as specified in its charter)

899 Cassatt Road, Suite 210, Berwyn, Pennsylvania 19312

(Address of principal executive offices, including zip code)

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

Securities registered pursuant to Section 12(b) of the Act:

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

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

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

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ☒     No  ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  ☒     No  ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Securities Exchange Act of 1934. (Check one)

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes  ☐     No  ☒

As of September 30, 2020, the aggregate market value of the shares of Common Stock held by non-affiliates of the Registrant was approximately $336 million. Such aggregate market value was computed by reference to the closing price of the Common Stock as reported on the New York Stock Exchange on September 30, 2020. For purposes of making this calculation only, the Registrant has defined affiliates as including all directors and executive officers.

The number of outstanding shares of the Registrant's Common Stock, par value $.001 per share, on May 17, 2021, was 64,220,262.

Documents Incorporated by Reference

Portions of the following document are incorporated herein by reference:

The Proxy Statement of Triumph Group, Inc. to be filed in connection with our 2021 Annual Meeting of Stockholders is incorporated in part in Part III hereof, as specified herein.

Table of Contents

PART I

Item 1.  Business

Cautionary Note Regarding Forward-Looking Statements

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 relating to our future operations and prospects, including statements that are based on current projections and expectations about the markets in which we operate, and management's beliefs concerning future performance and capital requirements based upon current available information. Such statements are based on management's beliefs as well as assumptions made by and information currently available to management. When used in this document, words like "may," "might," "will," "expect," "anticipate," "plan," "believe," "potential," and similar expressions are intended to identify forward-looking statements. Actual results could differ materially from management's current expectations. For example, there can be no assurance that additional capital will not be required, and that such amounts may be material, or that additional capital, if required, will be available on reasonable terms, if at all, at such times and in such amounts as may be needed by us. In addition to these factors, among other factors that could cause actual results to differ materially, are uncertainties relating to the integration of acquired businesses; general economic conditions affecting our business segments; the continued impact of the coronavirus (“COVID-19”) pandemic; the severe disruptions to the economy, the financial markets, and the markets in which we compete; dependence of certain of our businesses on certain key customers; and the risk that we will not realize all of the anticipated benefits from acquisitions as well as competitive factors relating to the aerospace industry. For a more detailed discussion of these and other factors affecting us, see the risk factors described in "Item 1A. Risk Factors." A prolonged impact of COVID-19 could also have the effect of heightening many of these risks.

General

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

Products and Services

We offer a variety of products and services to the aerospace industry through two operating segments: (i) Triumph Systems & Support, whose companies design, develop, and support proprietary components, subsystems and systems; produce complex assemblies using external designs; and provide full life cycle solutions for commercial, regional, and military aircraft and (ii) Triumph Aerospace Structures, whose companies supply commercial, business, regional, and military manufacturers with large metallic and composite structures and produce close-tolerance parts primarily to customer designs and model-based definition, including a wide range of aluminum, hard metal and composite structure capabilities.

Systems & Support’s 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; hydromechanical and electromechanical primary and secondary flight controls; and a broad spectrum of surface treatment options.

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

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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 postproduction supply chain activities, Systems & 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. Companies in Systems & Support repair and overhaul various components for the aviation industry, including:

Aerospace Structures' products include fuselage panels, horizontal and vertical tails, and subassemblies such as floor grids. Aerospace Structures also has the capability to engineer detailed structural designs in metal and composites. Aerospace Structures capabilities also include advanced composite and interior structures, and joining processes such as welding, autoclave bonding and conventional mechanical fasteners.

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

However, as a result of the divestitures disclosed in Note 22, subsequent to March 31, 2021, we no longer design, manufacture, build, and repair aircraft wings and composite and metal bonding.  

Proprietary Rights

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

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

In our overhaul and repair businesses, OEMs of equipment that we maintain for our customers often include language in repair manuals that relate to their equipment, asserting broad claims of proprietary rights to the contents of the manuals used in our operations. There can be no assurance that OEMs will not try to enforce such claims, including the possible use of legal proceedings. In the event of such legal proceedings, there can be no assurance that such actions against the Company will be unsuccessful. However, we believe that our use of manufacture and repair manuals is lawful.

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Sales, Marketing and Engineering

While each of our operating companies maintains responsibility for selling and marketing its specific products, we have developed two marketing teams at the operating segment level who are focused on business development and cross-selling our broad capabilities. One team is dedicated to Systems & Support, and the other team supports Aerospace Structures.  These teams are responsible for selling aerospace structures, systems, integrated assemblies, and repair and overhaul services, reaching across our operating companies, to our OEM, military, airline and air cargo customers. In certain limited cases, we use independent, commission-based representatives to serve our customers' changing needs in some of the markets and geographic regions in which we operate.

The two group-level marketing teams operate as the front end of the selling process, establishing or maintaining relationships, identifying opportunities to leverage our brand, and providing service for our customers. Each individual operating company is responsible for its own technical support, pricing, manufacturing, and product support. Also, within Systems & Support, we meet our customers’ needs by designing systems that integrate the capabilities of our companies.

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

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

Backlog

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

As of March 31, 2021, we had outstanding purchase orders representing an aggregate invoice price of approximately $1.87 billion, of which $1.18 billion and $0.68 billion related to Systems & Support and Aerospace Structures, respectively. As of March 31, 2020, our continuing operations had outstanding purchase orders representing an aggregate invoice price of approximately $3.20 billion, of which $1.47 billion and $1.73 billion related to Systems & Support and Aerospace Structures, respectively. Of the existing backlog of $1.87 billion, approximately $0.81 billion will not be shipped by March 31, 2022.  Refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations for further information on our backlog.  

Dependence on Significant Customers

As disclosed in Note 19, a significant portion of our net sales are to the Boeing Company (“Boeing”).  Refer to Note 19 for specific disclosure of the concentration of net sales and accounts receivable to these customers.  A significant reduction in sales to Boeing may have a material adverse impact on our financial position, results of operations and cash flows.

Competition

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

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

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

Government Regulation, Including Environmental Regulations, and Industry Oversight

Government Regulation and Industry Oversight

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

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

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

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

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

Environmental Regulation

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

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

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Human Capital Resources

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

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

Diversity and Workforce Demographics

We value the diversity of our workforce and believe that the best innovation and business results are achieved when teams are populated with individuals from a diverse set of backgrounds, cultures, genders, and experiences. We have a Diversity & Inclusion Steering Committee (“DISC”) committed to creating an environment in which all employees feel valued, included, and empowered to share their unique experiences, perspectives, and viewpoints.  We believe this is critical to the success of our business and the delivery of worldclass manufacturing, engineering, and aerospace services.  We track the diversity of our leadership and workforce and review our progress toward our diversity objectives with the Company’s Board of Directors on a periodic basis.  Across our total employee population and based on employees who self-identify, as of March 31, 2021, approximately 28% of our employees are female, 10% are people of color, and 8% are veterans.  

Several of our subsidiaries are parties to collective bargaining agreements with labor unions. Under those agreements, we currently employ approximately 1,247 full-time employees. Currently, approximately 19% of our 6,692 permanent employees are represented by labor unions and approximately 55% of net sales are derived from the facilities at which at least some employees are unionized. Of the 1,247 employees represented by unions, no employees are working under contracts that have expired.

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

Talent Acquisition, Retention, and Development

Hiring, developing, and retaining talented employees, particularly in highly technical areas, is an integral part of our human capital management.  In addition to our focus on recruitment, we monitor attrition rates, including with respect to top talent.  We believe that the commitment and connection of employees to their workplace, what we refer to as employee engagement, is a critical component of retention of top talent.  We periodically conduct surveys of our workforce designed to gauge “employee engagement”.  Our People & Culture Committee monitors the responses to these surveys in our pursuit of continuously improving our employee engagement metrics.  We also continue to invest in technology that supports the effectiveness, efficiency, and engagement of our employees, including advanced communication systems and processes.  These investments were particularly valuable as we navigated the challenges presented by the global COVID-19 pandemic.  

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

Employee Safety and Health

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

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

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In response to the global COVID-19 pandemic, we established a cross-functional team to develop appropriate workplace safety and health policies.  We implemented strict protocols aimed at protecting our people and keeping our factories operational and followed Centers for Disease Control and Prevention (“CDC”) guidance.  Drawing upon our core value of acting with velocity, Triumph team members responded locally and on a company-wide basis with innovative solutions to limit the spread of the virus and deliver products and services to customers. This included equipping employees with personal protective equipment; sanitizing workspaces more frequently; and investing in technologies, including enhanced rapid communication software and other technologies that enabled many employees to work remotely.  We limited travel and adjusted our capacity and staffing levels in response to commercial demands. The Company also produced and distributed over 10,000 masks to local medical facilities. Our COVID-19 response team continues to monitor the impact of the pandemic and will continue to provide guidance to our businesses and employees with regard to appropriate safety measures and policies.  

Community Service and Philanthropy

Since 2011, we have demonstrated a deep dedication to corporate citizenship through our Wings community outreach program. Through Wings, based on the needs of their communities, our employees around the world create and implement service projects by partnering with local nonprofit organizations and engage in meaningful volunteer projects that directly benefit local charities committed to serving the needs of others. In 2018, to commemorate our 25th anniversary, the Company committed to 25,000 hours of volunteerism. Through the Wings program and individual acts of volunteerism, employees at our sites have partnered with organizations, including The United Way, The American Red Cross, The Salvation Army, Boys and Girls Club of Middle Tennessee, Ouachita Children’s Center, Los Angeles Regional Food Bank, Second Harvest Food Bank, and many others. The Company enjoys partnering in local communities, and team-based volunteer events help bring our employees together as one team serving its communities.

In 2008, the Triumph Group Charitable Foundation was formed.  The Triumph Group Charitable Foundation allocates its approximately $300 thousand annual grant budget to recipient organizations with the missions of advancing education, particularly in the areas of science, technology, engineering, and mathematics (“STEM”) improving our communities and supporting veterans and military families.

Executive Officers

Our current executive officers are:

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

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

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

Lance R. Turner was appointed our Senior Vice President and Chief Human Resources Officer in September 2017. From 2013 until September 2017, Mr. Turner served as Vice President of Human Resources for CenturyLink, Inc.; and from 2000 until 2013, as Senior Director of Human Resources for Honeywell.

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

William Kircher was appointed our Executive Vice President, Customer Solutions & Support in February 2021, having joined the Company in September 2018. Prior to joining the Company, he served as Chief Operating Officer of MB Aerospace, a Blackstone portfolio company, from 2016 to 2017 and as CEO of VAS Aero Services, a HIG portfolio company, in 2015. Mr. Kircher also spent 18 years with United Technologies Corporation in various domestic and international leadership roles, including President, UTC Aerospace Singapore, and Vice President, Singapore Overhaul and Repair for Pratt and Whitney.

Recent Developments

As disclosed in Note 3, we completed the divestiture of a number of our assets and operations in the year ended March 31, 2021, the largest of which was the transfer of the assets and certain liabilities associated with our Gulfstream G650 wing supply chain activities.  Additionally, in the year ended March 31, 2021, we entered into definitive agreements to sell the composites manufacturing operations located in Milledgeville, Georgia, and Rayong, Thailand, as well as our manufacturing operations located in Red Oak, Texas.  These transactions closed subsequent to March 31, 2021, and we received net proceeds of approximately $155.0 million.  We intend to use approximately $120.0 million of the net proceeds to redeem approximately $113.0 million aggregate principal amount of the First Lien Notes at a redemption price of 106.656%, plus accrued and unpaid interest.   These divestiture transactions represent progress on our transition to focusing on our businesses within the Systems & Support operating segment.

Refer to the accompanying consolidated financial statements and related notes for descriptions of other material matters occurring in the year ended March 31, 2021.  

Available Information

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

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

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Item 1A.  Risk Factors

Strategic Risks

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

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

A substantial percentage of our gross profit and operating results derive from commercial aviation. Our operations have been focused on designing, engineering, manufacturing, repairing and overhauling a broad portfolio of aircraft components, accessories, subassemblies, systems, and aerostructures. Therefore, our business is directly affected by economic factors and other trends that affect our customers in the aerospace industry, including a possible decrease in outsourcing by OEMs and aircraft operators or projected market growth that may not materialize or be sustainable. We are also significantly dependent on sales to the commercial aerospace market, which has been cyclical in nature with significant downturns in the past. When these economic and other factors adversely affect the aerospace industry, they tend to reduce the overall customer demand for our products and services, which decreases our operating income. Economic and other factors that might affect the aerospace industry may have an adverse impact on our results of operations and liquidity. We have credit exposure to a number of commercial airlines, some of which have encountered severe financial difficulties. Some airlines are currently requesting federal assistance and there can be no assurance that they will receive such assistance in the desired amounts, if at all. In addition, an increase in energy costs and the price of fuel to the airlines could result in additional pressure on the operating costs of airlines. The market for jet fuel is inherently volatile and is subject to, among other things, changes in government policy on jet fuel production, fluctuations in the global supply of crude oil and disruptions in oil production or delivery caused by hostility in oil-producing areas. Airlines are sometimes unable to pass on increases in fuel prices to customers by increasing fares due to the competitive nature of the airline industry, and this compounds the pressure on operating costs. Other events of general impact such as natural disasters, pandemics, war, terrorist attacks affecting the industry or pandemic health crises may lead to declines in the worldwide aerospace industry that could adversely affect our business and financial condition.

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

The effects of the COVID-19 pandemic and other potential future public health crises, epidemics, pandemics or similar events on our business, operating results and cash flows are uncertain.

The global outbreak of the coronavirus disease 2019 (“COVID-19”) was declared a pandemic by the World Health Organization and a national emergency by the U.S. Government in March 2020 and has negatively affected the U.S. and global economy; disrupted global supply chains; resulted in significant travel and transport restrictions, including mandated closures and orders to “shelter-in-place”; and created significant disruption of the financial markets. COVID-19 has already impacted the demand for our products and services. The extent of the continued impact of the COVID-19 pandemic on our operational and financial performance, including our ability to execute our programs in the expected time frame, will depend on future developments, including the duration and spread of the pandemic and related actions taken by the U.S. Government, state and local government officials, and international governments to prevent disease spread, all of which are uncertain and cannot be predicted.

In accordance with the U.S. Department of Defense guidance issued in March 2020 designating the Defense Industrial Base as a critical infrastructure workforce, our U.S. production facilities have continued to operate in support of essential products and services required to meet national security commitments to the U.S. Government and the U.S. military, however, facility closures or work slowdowns or temporary stoppages could occur. In addition, other countries have different practices and policies that can affect our international operations and the operations of our suppliers and customers. For example, we had a brief pause in operations located in Mexico in observance of local COVID-19 policies and additional closures could occur, and we are also seeing impacts from travel restrictions both within and outside the U.S. In some cases, facilities are not operating under full staffing as a result of the impact of COVID-19 on or our customers, which could have a longer-term impact.

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If significant portions of our workforce are unable to work effectively, including because of illness, quarantines, absenteeism, government actions, facility closures, travel restrictions, or other restrictions in connection with the COVID-19 pandemic, our operations will be impacted. We may be unable to perform fully on our contracts and our costs may increase as a result of the COVID-19 outbreak. These cost increases, including costs for employees whose jobs cannot be performed remotely, may not be fully recoverable under our contracts, particularly fixed-price contracts, or adequately covered by insurance. The impact of COVID-19 could worsen if there is an extended duration of any COVID-19 outbreak or a resurgence of COVID-19 infection in affected regions after they have begun to experience improvement. We have also incurred increased costs as part of the measures that we have taken to ensure the health and well-being of our employees.

The continued spread of COVID-19 has also led to disruption and volatility in the global capital markets, which depending on future developments could impact our capital resources and liquidity in the future. We are also monitoring the impacts of COVID-19 on the fair value of our assets.  In the fourth quarter of fiscal 2020, we recognized an impairment of goodwill within the Systems & Support reportable segment that was largely due to the impact of the COVID-19 pandemic on global capital markets as well as certain of the MRO operations within that segment.  We cannot assure you that we will not experience future changes in expectations for sales, earnings and cash flows related to intangible assets and goodwill below our current projections, which could result in additional impairment changes.

To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risk factors described in this “Risk Factors” section, such as those relating to our level of indebtedness, results of operations and cash flows.

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

We derive a significant portion of our revenue from the U.S. Government, primarily from defense-related programs with the U.S. Department of Defense ("U.S. DoD"). Levels of U.S. defense spending are very difficult to predict and may be impacted by numerous factors such as the political environment, U.S. foreign policy, macroeconomic conditions and the ability of the U.S. Government to enact relevant legislation such as authorization and appropriations bills.

In addition, significant budgetary delays and constraints have already resulted in reduced spending levels, and additional reductions may be forthcoming. The Budget Control Act of 2011 established limits on U.S. Government discretionary spending, including a reduction of defense spending between the 2012 and 2021 U.S. Government fiscal years. Accordingly, long-term uncertainty remains with respect to overall levels of defense spending and it is likely that U.S. Government discretionary spending levels will continue to be subject to pressure.

In addition, there continues to be significant uncertainty with respect to program-level appropriations for the U.S. DoD and other government agencies within the overall budgetary framework described above. While the House and Senate Appropriations committees included funding for major military programs in fiscal year 2020, such as CH-47 Chinook, AH-64 Apache, KC-46A Tanker, UH-60 Black Hawk, Northrop Grumman Global Hawk and V-22 Osprey programs, uncertainty remains about how defense budgets in fiscal year 2021 and beyond will affect these programs. Future budget cuts, including cuts mandated by sequestration, or future procurement decisions associated with the authorizations and appropriations process could result in reductions, cancellations, and/or delays of existing contracts or programs. Any of these impacts could have a material effect on the results of our operations, financial position and/or cash flows.

In addition, as a result of the significant ongoing uncertainty with respect to both U.S. defense spending levels and the nature of the threat environment, we expect the U.S. DoD to continue to emphasize cost-cutting and other efficiency initiatives in its procurement processes. If we can no longer adjust successfully to these changing acquisition priorities and/or fail to meet affordability targets set by the U.S. DoD customer, our revenues and market share would be further impacted.

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

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

We incur risk associated with new programs with new technologies.

New programs with new technologies typically carry risks associated with design responsibility, development of new production tools, hiring and training of qualified personnel, increased capital and funding commitments, ability to meet customer specifications, delivery schedules and unique contractual requirements, supplier performance, subcontractor performance, ability of the customer

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

In order to perform on new programs, we may be required to construct or acquire new facilities requiring additional up-front investment costs. In the case of significant program delays and/or program cancellations, we could be required to bear certain unrecoverable construction and maintenance costs and incur potential impairment charges for the new facilities. Also, we may need to expend additional resources to determine an alternate revenue generating use for the facilities. Likewise, significant delays in the construction or acquisition of a plant site could impact production schedules.

Cancellations, reductions or delays in customer orders, or new orders under existing forward loss contracts, may adversely affect our results of operations.

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

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

As disclosed in Note 19, a significant portion of our net sales are to Boeing.  As a result, a significant reduction in purchases by Boeing could have a material adverse impact on our financial condition, results of operations, and cash flows. In addition, some of our individual companies rely significantly on particular customers, the loss of which could have an adverse effect on those businesses.

Competitive pressures may adversely affect us.

We have numerous competitors in the aerospace industry. We compete primarily with the top-tier systems integrators and the manufacturers that supply them, some of which are divisions or subsidiaries of OEMs and other large companies that manufacture aircraft components and subassemblies. Our OEM competitors, which include Boeing, Airbus, Bell Helicopter, Bombardier, Cessna, General Electric, Gulfstream, Honeywell, Lockheed Martin, Northrop Grumman, Raytheon, Rolls Royce and Sikorsky, may choose not to outsource production of systems, subsystems, components, or aerostructures due to, among other things, a desire to vertically integrate direct labor and overhead considerations, capacity utilization at their own facilities, or a desire to retain critical or core skills. Consequently, traditional factors affecting competition, such as price and quality of service, may not be significant determinants when OEMs decide whether to produce a part in-house or to outsource. We also face competition from non-OEM component manufacturers, including Parker, Eaton, Honeywell, Transdigm, and UTC Aerospace Systems. Competition for the repair and overhaul of aviation components comes from three primary sources: OEMs, major commercial airlines and other independent repair and overhaul companies.

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

The aerospace industry is constantly undergoing development and change, and it is likely that new products, equipment, and methods of repair and overhaul service will be introduced in the future. In order to keep pace with any new developments, such as additive technology, we may need to expend significant capital to purchase new equipment and machines or to train our employees in the new methods of production and service. As a result of the current impact of COVID-19, we cannot assure you whether we will need to allocate resources for other purposes.

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

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

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

Over the past several years, we have implemented a number of restructuring, realignment and cost-reduction initiatives, including facility consolidations, organizational realignments and reductions in our workforce. While we have realized some efficiencies from these actions, we may not realize the benefits of these initiatives to the extent we anticipated. Further, such benefits may be realized later than expected, and the ongoing difficulties in implementing these measures may be greater than anticipated, which could cause us to incur additional costs or result in business disruptions. In addition, if these measures are not successful or sustainable, we may be compelled to undertake additional realignment and cost-reduction efforts, which could result in significant additional charges. Moreover, if our restructuring and realignment efforts prove ineffective, our ability to achieve our other strategic and business plan goals may be adversely affected. The continued impact of the COVID-19 pandemic could also make it more difficult to realize the benefits and synergies of our actions. We generally do not have the ability to pass on additional costs as a result of the COVID-19 pandemic to our customers under fixed-price contracts.

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

In our overhaul and repair businesses, OEMs of equipment that we maintain for our customers include language in repair manuals relating to their equipment asserting broad claims of proprietary rights to the contents of the manuals used in our operations. Although we believe that our use of manufacture and repair manuals is lawful, there can be no assurance that OEMs will not try to enforce such claims, including through the possible use of legal proceedings, or that any such actions will be unsuccessful.

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

Operational Risks

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

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

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

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

Although we utilize various procedures and controls to monitor and mitigate these threats, there can be no assurance that these procedures and controls will be sufficient to prevent security threats from materializing. If any of these events were to materialize, the costs related to cyber or other security threats or disruptions may not be fully insured or indemnified and could have a material adverse effect on our reputation, operating results and financial condition.

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

We are highly dependent on the availability of essential raw materials such as carbon fiber, aluminum and titanium, and purchased engineered component parts from our suppliers, many of which are available only from single customer-approved sources. Moreover, we are dependent upon the ability of our suppliers to provide raw materials and components that meet our

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specifications, quality standards and delivery schedules. Our suppliers' failure to provide expected raw materials or component parts could require us to identify and enter into contracts with alternate suppliers that are acceptable to both us and our customers, which could result in significant delays, expenses, increased costs, and management distraction and adversely affect production schedules and contract profitability.

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

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

Due to economic difficulty, we may face pressure to renegotiate agreements resulting in lower margins. Our suppliers may discontinue provision of products to us at attractive prices or at all, and we may not be able to obtain such products in the future from these or other providers on the scale and within the time periods we require. Furthermore, substitute raw materials or component parts may not meet the strict specifications and quality standards we and our customers demand, or that the U.S. Government requires. If we are not able to obtain key products on a timely basis and at an affordable cost, or we experience significant delays or interruptions of their supply, revenues from sales of products that use these supplies will decrease. The current impact of the COVID-19 pandemic could also result in a larger period of time to find suitable replacements.

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

The aerospace industry continues to experience consolidation among suppliers and customers, primarily as it pertains to the airlines. Suppliers have consolidated and formed alliances to broaden their product and integrated system offerings and achieve critical mass. This supplier consolidation is in part attributable to aircraft manufacturers more frequently awarding long-term sole-source or preferred supplier contracts to the most capable suppliers, thus reducing the total number of suppliers. This consolidation could cause us to compete against certain competitors with greater financial resources, market penetration and purchasing power. When we purchase component parts and services from suppliers to manufacture our products, consolidation reduces price competition between our suppliers, which could diminish incentives for our suppliers to reduce prices. If this consolidation continues, our operating costs could increase, and it may become more difficult for us to be successful in obtaining new customers. The COVID-19 pandemic has also put considerable pressure on suppliers, which could exacerbate this consolidation.

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

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

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

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

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

From time to time, some of our operating locations have experienced difficulties in attracting and retaining skilled personnel to design, engineer, manufacture, repair and overhaul sophisticated aircraft components. Our ability to operate successfully could be jeopardized if we are unable to attract and retain a sufficient number of skilled personnel to conduct our business.

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

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

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

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

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

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

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

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

Financial Risks 

Financial risk relates to our ability to meet financial obligations and mitigate exposure to broad market risks, including funding and liquidity risks, such as risk related to our credit ratings and our availability and cost of funding; credit risk; and volatility in foreign currency exchange rates, interest rates, and commodity prices. Liquidity risk refers to the potential inability to meet contractual or contingent financial obligations (whether on- or off-balance sheet) as they arise and could potentially impact our financial condition or overall safety and soundness. Credit risk is the risk of financial loss arising from a customer or counterparty failure to meet its contractual obligations to us.

Our substantial debt could adversely affect our financial condition and our ability to operate and grow our business. The terms of our indentures governing our Senior Notes impose significant operating and financial restrictions on us and our subsidiaries, which could also adversely affect our operating flexibility and put us at a competitive disadvantage by preventing us from capitalizing on business opportunities and additional financing may not be available on terms acceptable to us.

The terms of our indentures governing our Senior Notes and Securitization Facility (each as defined in Note 10) impose significant operating and financial restrictions on us, which limit our ability to incur liens, sell assets and enter into certain transactions, among

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other things.  In addition, our debt documents require us to comply with various financial and other covenants set forth in the related agreement. We are in compliance with all of our debt covenants. 

We cannot assure you that we will be able to maintain compliance with the covenants in the agreements governing our indebtedness in the future or, if we fail to do so, that we will be able to obtain waivers from the holders of such indebtedness or amend the covenants and other terms of the agreements governing such indebtedness on commercially reasonable terms, if at all. Failure to maintain compliance with these covenants may allow the holders of such indebtedness to require immediate repayment of the indebtedness owed to them and to terminate any unfunded commitments, which could have a material adverse effect on our operations.

We may periodically need to obtain additional financing in order to meet our debt obligations as they come due, to support our operations and/or to make acquisitions. Our access to the debt capital markets and the cost of borrowings are affected by a number of factors, including market conditions and the strength of our credit ratings and the impact of the COVID-19 pandemic on our markets.  If we cannot obtain adequate sources of credit on favorable terms, or at all, our business, operating results, and financial condition could be adversely affected. We may also seek transactions to extend the maturity of our debt, reduce leverage or obtain covenant flexibility. Such transactions could result in us incurring additional secured debt or equity and there can be no assurance that we will be successful in these endeavors.

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

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

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

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

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

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

Legal & Compliance Risks

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

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

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

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

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

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

Any exposure to environmental liabilities may adversely affect us.

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

Pursuant to certain environmental laws, a current or previous owner or operator of a contaminated site may be held liable for the entire cost of investigation, removal or remediation of hazardous materials at such property. Innocent Landowner Regulations require an Environmental Site Assessment prior to acquisition to prevent unknowingly acquiring impaired property.  Once identified, if the transaction continues, the impairment is not covered by insurance. Although management believes that our operations and facilities are in material compliance with such laws and regulations, future changes in such laws, regulations, or interpretations

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thereof or the nature of our operations or regulatory enforcement actions, which may arise, may require us to make significant additional capital expenditures to ensure compliance in the future. Certain of our facilities, including facilities acquired and operated by us or one of our subsidiaries, have at one time or another been under active investigation for environmental contamination by federal or state agencies when acquired and, at least in some cases, continue to be under investigation or subject to remediation. Lawsuits, claims and costs involving environmental matters may arise in the future. Individual facilities of ours have also been subject to investigation on occasion for possible past waste disposal practices which might have contributed to contamination at or from remote third-party waste disposal sites. In some instances, we are indemnified by prior owners or operators and/or present owners of the facilities for liabilities that we incur as a result of these investigations and the environmental contamination found that predates our acquisition of these facilities, subject to certain limitations, including, but not limited to, specified exclusions, deductibles and limitations on the survival period of the indemnity. We also maintain a pollution liability policy that provides coverage, subject to specified limitations, for specified material liabilities associated with the cleanup of certain on-site pollution conditions, as well as defense and indemnity for certain third-party suits (including Superfund liabilities at third-party sites), in each case, to the extent not otherwise indemnified. Also, as we proceed with our plans to exit certain facilities as part of restructuring and related initiatives, the need for remediation for potential environmental contamination could be identified. However, if we are required to pay the expenses related to environmental liabilities because neither indemnification nor insurance coverage is available, these expenses could have a material adverse effect on our financial position, results of operations, and cash flows.

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

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

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

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

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

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

We bear the potential risk that the U.S. Government may unilaterally suspend our customers or us from new contracts pending the resolution of alleged violations of procurement laws or regulations. Sales to the U.S. Government are also subject to changes in the

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government's procurement policies in advance of design completion. An unexpected termination of, or suspension from, a significant government contract, a reduction in expenditures by the U.S. Government for aircraft using our products, lower margins resulting from increasingly competitive procurement policies, a reduction in the volume of contracts awarded to us, or substantial cost overruns could have a material adverse effect on our financial condition, results of operations and cash flows.

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

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

Regulations related to conflict minerals have and will continue to force us to incur additional expenses, may make our supply chain more complex and could adversely impact our business.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 contains provisions to improve transparency and accountability concerning the supply of certain minerals and metals, known as conflict minerals, originating from the Democratic Republic of Congo (the "DRC") and adjoining countries. As a result, in August 2012, the SEC adopted annual investigation, disclosure and reporting requirements for those companies that manufacture or contract to manufacture products that contain conflict minerals that originated from the DRC and adjoining countries. We have and will continue to incur compliance costs, including costs related to determining the sources of conflict minerals used in our products and other potential changes to processes or sources of supply as a consequence of such verification activities. The implementation of these rules could adversely affect the sourcing, supply and pricing of materials used in certain of our products. As there may be only a limited number of suppliers offering "conflict-free" minerals, we cannot be sure that we will be able to obtain necessary conflict-free minerals from such suppliers in sufficient quantities or at competitive prices. Also, we may face reputational challenges if we determine that certain of our products contain minerals not determined to be conflict-free.

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

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

Item 1B.  Unresolved Staff Comments

None.

Item 2.  Properties

As of March 31, 2021, our segments owned or leased properties that are material to our operations with the following square footage:

At March 31, 2021, our segments occupied 61% of the square footage in the table above at the following major locations:

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We believe that our properties are adequate to support our operations for the foreseeable future.  As disclosed above, subsequent to March 31, 2021, we completed the sale of our manufacturing operations located in Milledgeville, Georgia, and Red Oak, Texas.  These facilities will reduce the total square footage of owned and leased property as reflected in the table above by approximately 1.8 million square feet.

Item 3.  Legal Proceedings

In the ordinary course of business, we are involved in disputes, claims and lawsuits with employees, suppliers and customers, as well as governmental and regulatory inquiries, that are deemed to be immaterial. Some may involve claims or potential claims of substantial damages, fines, penalties or injunctive relief. While we cannot predict the outcome of any pending or future litigation or proceeding and no assurances can be given, we do not believe that any pending matter will have a material effect, individually or in the aggregate, on its financial position or results of operations.

Item 4.  Mine Safety Disclosures

Not applicable.

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PART II

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

Our common stock is traded on the New York Stock Exchange under the symbol "TGI." As of May 17, 2021, there were approximately 136 holders of record of our common stock and we believe that our common stock was beneficially owned by approximately 14,000 persons.

Stock Issuances

On February 4, 2021, the Company implemented a new “at the market” stock issuance program by entering into an equity distribution agreement (the “Equity Distribution Agreement”) with Citigroup Global Markets Inc. (the “Manager”). Under the terms of the Equity Distribution Agreement, the Company may from time to time to or through the Manager, acting as agent and/or principal, offer and sell shares of its common stock (the “Shares”), par value $0.001 per share (“Common Stock”) having a gross sales price of up to $150.0 million.  From the date the program was implemented through March 31, 2021, the Company completed the program, selling 9,178,752 shares with a gross sales price of $150.0 million for total proceeds net of stock issuance costs of $145.4 million.

On December 17, 2020, the Company contributed 2,849,002 shares of common stock to the separate pension plan trust with an aggregate contribution value of approximately $40.0 million on the contribution date.

Dividend Policy

During fiscal 2021, we made no declaration or payments of dividends due to the March 2020 suspension of our dividend program.  This suspension is still in place.  In fiscal 2020, we paid cash dividends of $0.16 per share. Our declaration and payment of cash dividends in the future and the amount thereof will depend upon our results of operations, financial condition, cash requirements, future prospects, limitations imposed by credit agreements or indentures governing debt securities and other factors deemed relevant by our Board of Directors. No assurance can be given that cash dividends will be declared and paid at historical levels or at all. Certain of our debt arrangements restrict our paying dividends and making distributions on our capital stock, except for the payment of stock dividends and redemptions of an employee's shares of capital stock upon termination of employment. We currently have an accumulated deficit which could limit or restrict our ability to pay dividends in the future.

Repurchases of Stock

In December 1998, we announced a program to repurchase up to 500,000 shares of our common stock. In February 2008, the Company's Board of Directors authorized an increase in the Company's existing stock repurchase program by up to an additional 500,000 shares of its common stock. In February 2014, the Company's Board of Directors authorized an increase in the Company's existing stock repurchase program by up to an additional 5,000,000 shares of its common stock. Though no purchases have been made in recent years, to the extent permitted by documentation governing our indebtedness, repurchases may be made from time to time in open market transactions, block purchases, privately negotiated transactions or otherwise at prevailing prices. No time limit has been set for completion of the program.  As of May 20, 2021, the Company remains able to purchase an additional 2,277,789 shares under such program. We currently have an accumulated deficit which, together with certain restrictive covenants imposed by credit agreements or indentures governing debt securities, could limit or restrict our ability to repurchase stock in the future.

Equity Compensation Plan Information

The information required regarding equity compensation plan information will be included in our 2021 Proxy Statement in connection with our 2021 Annual Meeting of Stockholders to be held on July 21, 2021, under the heading "Equity Compensation Plan Information" and is incorporated herein by reference.

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The following graph compares the cumulative 5-year total return provided stockholders on our common stock relative with the cumulative total returns of the Russell 1000 index, the Russell 2000 index and the S&P Aerospace & Defense index. An investment of $100 (with reinvestment of all dividends) is assumed to have been made in our common stock and in each of the indexes on March 31, 2016, and its relative performance is tracked through March 31, 2021.

COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN*

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

And The S&P Aerospace & Defense Index

* $100 invested on March 31, 2016, in stock or index, including reinvestment of dividends.

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

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

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

OVERVIEW

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

During the fiscal year ended March 31, 2021, we divested of a number of our assets and operations, including the transfer of the assets and certain liabilities associated with our Gulfstream G650 wing supply chain activities.  Additionally, subsequent to March 31, 2021, we completed the sale of our composites manufacturing operations located in Milledgeville, Georgia, and Rayong, Thailand, as well as our manufacturing operations located in Red Oak, Texas.  We recognized combined net losses of $104.7 million primarily from these transactions. These losses are presented on the accompanying consolidated statements of operations within loss on sale of assets and businesses, net.  The operating results associated with the G650 wing supply chain activities and the composites and other manufacturing operations referred to above were included within Aerospace Structures through the date of transfer and through March 31, 2021, respectively.  During the year ended March 31, 2021, these transactions represented, in the aggregate, approximately $266.2 million of the $1.87 billion of consolidated net sales (or approximately 14.2% of consolidated net sales).

Significant financial results for the fiscal year ended March 31, 2021, include:

Our working capital needs are generally funded through cash flows from operations and borrowings under our credit arrangements. For the fiscal year ended March 31, 2021, we used $173.1 million of cash flows in operating activities, used $9.3 million in investing activities, and received $277.2 million from financing activities. Cash flows provided by operating activities in fiscal year 2020 were $96.7 million.

We have committed to several plans that incorporated the restructuring of certain of our businesses. As of March 31, 2021, with the exception of two pending facility closures to be completed in fiscal 2022 or 2023, we have substantially completed these plans.

During late fiscal 2020, in response to anticipated market headwinds primarily arising from the impact of the COVID-19 pandemic, we committed to new restructuring and cost reduction activities to align capacity with expected demand.  These plans and related activities were implemented to generate savings of approximately $120.0 million in fiscal 2021 on a consolidated basis, primarily from headcount and other human resource related cost reductions.  We achieved these savings goals for the year ended March 31, 2021.  

While the long-term outlook for the aerospace industry remains positive due the fundamental drivers of air travel demand, current expectations are that it will take 2-3 years for travel to return to calendar 2019 levels and a few years beyond that for the industry to return to long-term trend growth, although there can be no assurance that such period will not be longer. To balance the supply and demand given the COVID-19 shock and to preserve long-term potential and competitiveness, our customers have decided to reduce the production rates of several of their commercial aircraft programs. These rate decisions were based on assessments of the demand environment. There is uncertainty with respect to how commercial air traffic levels will recover, and whether and at what point capacity will return to and/or exceed pre-COVID-19 pandemic levels.  We continue to work with our customers to closely monitor the key factors that affect backlog and future demand including customers’ evolving manufacturing plans, the widebody replacement cycle and the cargo market, but such impact could be material and make it difficult to compare periods.

We continue to expect the COVID-19 pandemic to reduce demand for commercial aviation aftermarket due to the recent sharp decreases in flights; as well as reduce demand for commercial aviation production as OEMs have lowered their related delivery rate assumptions.  The COVID-19 pandemic related reduction in OEM production rates has resulted in additional costs to produce and deliver our products.  While these costs were largely mitigated through our cost reduction initiatives during the year ended March 31, 2021, continued or further cost increases may not be mitigated through additional cost reduction initiatives and could negatively impact earnings and cash flows, particularly with respect to our fixed-price contracts.

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We are unable at this time to reasonably estimate potential future additional financial impacts or a range of loss, if any, due to continued uncertainties related to the impacts of COVID-19 on our operations, supply chain and customers, future changes to OEM production rates, supply chain impacts, and/or the results of negotiations with particular customers. Any such impacts, including any changes in our estimates, could have a material adverse effect on our financial position, results of operations, and/or cash flows.

For example, we expect that, in the event that our customers are unable to resume aircraft deliveries consistent with provided assumptions, the continued absence of revenue, earnings, and cash flows associated with those deliveries would continue to have a material impact on our operating results.  In the event that future OEM production rate increases occur at a slower rate or take longer than we are currently assuming, we expect that the growth in inventory and other cash flow impacts associated with production would decrease.  However, while any prolonged delays in planned OEM production rate increases could mitigate the impact on our liquidity, it could significantly increase the overall expected costs to manufacture our products, which would reduce operating margins and/or increase abnormal production costs in the future.  Additionally, the declines in global air travel are expected to result in reduced demand for MRO services and uncertainty exists related to the length of time until air travel returns to historical levels.

From fiscal 2015 to fiscal 2019, our Aerospace Structures business unit experienced operating and forward losses on our 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 the significant developments of each program as well as other significant programs.

Boeing 737 MAX

The Boeing 737 MAX program represented approximately 3% of revenue for the fiscal year ended March 31, 2021. During the third fiscal quarter of the year ended March 31, 2021, the Federal Aviation Administration and the Agência Nacional de Aviação Civil of Brazil approved the 737 MAX return to flight which was quickly followed by Transport Canada and the European Union Aviation Safety Agency in January 2021. Boeing resumed 737 MAX deliveries in our third fiscal quarter of the year ended March 31, 2021, delivering 27 aircraft.  Conditions are expected to improve as COVID-19 vaccination distribution accelerates, and Boeing has projected further 737 MAX rate increases in the latter half of calendar year 2021.  The International Air Transport Association has predicted a 55% increase in passengers traveling in 2021 to 2.8 billion passengers.  

Boeing has predicted that revenue passenger miles will return to 2019 levels in approximately two to three years. Boeing has planned 737 MAX gradual rate increases to 31 per month in early calendar year 2022 with further gradual increases corresponding with market demand. In January, Boeing stated that it has delivered more than 80 737 MAX airplanes since the FAA granted a return to flight and approximately 320 airplanes remain in inventory.  Boeing has stated that the balance of 737 MAX airplanes produced during the grounding and included within inventory will be delivered by the close of calendar year 2022. While we expect to see gradual increases in 737 MAX revenue across both of our reportable segments in fiscal year 2022 based on these assumptions, a resurgence of COVID-19 that results in additional delays or shutdowns could degrade this expectation.

Boeing 747-8

As of March 31, 2020, Triumph’s production on this program has completed from its Hawthorne, California, facility, with the remaining production from its Grand Prairie, Texas, facility expected to be completed in early to mid-fiscal 2022.  Facility exit plans are underway at both locations and are expected to result in additional cost to exit of approximately $7.5 million through mid-fiscal 2022 and result in projected cash uses.

G280

In May 2020, we reached agreement to the accelerated transfer of the G280 wing program to IAI and Korean Aerospace Industries.  We completed the final wing assembly in July 2020 and have closed our manufacturing operations at the leased Tulsa factory as of the end of October 2020.

G650

In the first quarter of fiscal 2019, we reached an agreement with Gulfstream to optimize the supply chain on our G650 work scope.  The G650 wing box and wing completion work, which had been coproduced across three facilities at both companies, are being consolidated into Gulfstream’s facilities in Savannah, Georgia.  We completed the manufacturing of our final wing box in July 2019.  In August 2020, we completed the transfer of our remaining G650 wing supply chain activity and engineering services to Gulfstream.  As a result of the divestiture of our composites manufacturing operations located in Milledgeville, Georgia, in May 2021, we no longer are responsible for the production of G650 wing components.  We continue to produce G650 flaps under a separate supply agreement.

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T-7 Red Hawk

The T-7 Red Hawk wing and horizontal tail manufacturing operations were part of the sale of our Red Oak, Texas manufacturing operations which closed in May 2021.  The related manufacturing operations did not have a significant impact on the results of our operations in the year ended March 31, 2021.  

Although none of the development or production programs noted above individually are 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 programs will significantly dilute our future consolidated margins, although a prolonged impact of the COVID-19 pandemic could result in changes in expectations.

During the fiscal year ended March 31, 2020, we divested of a number of our assets and operations, including the sale of our manufacturing operations at our Nashville, Tennessee, facility and the assignment of our E-2 Jets contract with Embraer for the manufacture of structural components for their program to AeroSpace Technologies of Korea Inc. ("ASTK").  We recognized combined net losses of $56.9 million associated with the fiscal 2020 divestitures, which are presented on the accompanying consolidated statements of operations within loss on sale of assets and businesses, net.  The operating results of the Nashville manufacturing operations are included in Aerospace Structures through the date of divestiture or assignment.  Collectively, these transactions are referred to as the “fiscal 2020 divestitures.”  

During the fiscal year ended March 31, 2019, we divested of a number of our 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 - 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. ("NAAS"). Collectively, these transactions are referred to as the "fiscal 2019 divestitures". We recognized combined 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 NAAS, the operating results for the fiscal 2019 divestitures are included in Aerospace Structures ("fiscal 2019 Aerospace Structures Divestitures") through the respective dates of divestiture. The operating results for NAAS are included in Systems & Support through the date of divestiture.

RESULTS OF OPERATIONS

The following includes a discussion of our consolidated and business segment results of operations. Our diverse structure and customer base do not provide 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 Securities and Exchange Commission (the "SEC") rules, we also disclose and discuss certain non-GAAP financial measures in our public filings and earning releases. Currently, the non-GAAP financial measures that we disclose are Adjusted EBITDA, which is our net 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. We disclose Adjusted EBITDA on a consolidated and Adjusted EBITDAP on a consolidated and a reportable segment basis in our earnings releases, investor conference calls and filings with the SEC. The non-GAAP financial measures that we use may not be comparable to similarly titled measures reported by other companies. Also, in the future, we may disclose different non-GAAP financial measures in order to help our investors more meaningfully evaluate and compare our future results of operations with our previously reported results of operations.

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We view Adjusted EBITDA and Adjusted EBITDAP as operating performance measures and, as such, we believe that the U.S. GAAP financial measure most directly comparable to such measures is net loss. In calculating Adjusted EBITDA and Adjusted EBITDAP, we exclude from 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 and Adjusted EBITDAP are not measurements of financial performance under U.S. GAAP and should not be considered as a measure of liquidity, as an alternative to net loss, or as an indicator of any other measure of performance derived in accordance with U.S. GAAP. Investors and potential investors in our securities should not rely on Adjusted EBITDA or Adjusted EBITDAP as a substitute for any U.S. GAAP financial measure, including net loss. In addition, we urge investors and potential investors in our securities to carefully review the reconciliation of Adjusted EBITDA and Adjusted EBITDAP to net 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 and Adjusted EBITDAP.

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

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

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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 loss for the indicated periods (in thousands):

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

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The fluctuations from period to period within the amounts of the components of the reconciliations above are discussed further below within Results of Operations.

Fiscal year ended March 31, 2021, compared with fiscal year ended March 31, 2020

Net Sales

Net sales decreased by $1.03 billion, or 35.5%, to $1.87 billion for the fiscal year ended March 31, 2021, from $2.90 billion for the fiscal year ended March 31, 2020. Organic sales adjusted for inter-segment sales decreased $782.3 million, or 29.9%, with additional declines from the Nashville and G650 divestitures of $248.1 million. Organic sales decreased primarily due to the impacts of the COVID-19 pandemic, including temporarily idle facilities and certain production rate decreases primarily on commercial programs, planned reductions on sunsetting programs (i.e., 747-8, G280, G550), and the transitioned workscope on the E-2 Jet program.  These declines were partially offset by increases in military platforms.  Net sales for the year ended March 31, 2021, included $43.8 million in total nonrecurring revenues, as compared with $41.5 million for the year ended March 31, 2020.

Cost of Sales and Gross Margin

Cost of sales decreased by $831.1 million, or 36.0%, to $1.48 billion for the fiscal year ended March 31, 2021, from $2.31 billion for the fiscal year ended March 31, 2020. Organic cost of sales adjusted for inter-segment sales decreased $588.8 million, or 29.0%, with additional declines from the Nashville and G650 divestitures of $242.3 million. Organic cost of sales decreased primarily due to the lower volumes described above within our discussion of net sales and a $10.0 million partial reversal of prior loss reserves. These decreases were partially offset by an approximately $23.7 million impairment loss recognized in cost of sales on certain rotable inventory that primarily arose as a result of customer fleet retirement announcements resulting from the COVID-19 pandemic.

Organic gross margin for the fiscal year ended March 31, 2021, was 21.1% compared with 22.1% for the fiscal year ended March 31, 2020. The gross margin for the fiscal year ended March 31, 2021, decreased primarily as a result of the impairment of rotable asset inventory as cost-reduction actions and certain favorable customer settlements offset absorption related increases.  Gross margin for the year ended March 31, 2021, included net favorable cumulative catch-up adjustments on long-term contracts of $12.3 million. The favorable cumulative catch-up adjustments to operating income included gross favorable adjustments of $55.2 million and gross unfavorable adjustments of $42.8 million. Gross margins for the year ended March 31, 2020, included net unfavorable cumulative catch-up adjustments of $22.8 million.

Segment Operating Income

Segment operating income decreased by $337.4 million, or 184.2%, to an operating loss of $154.2 million for the fiscal year ended March 31, 2021, from segment operating income of $183.2 million for the fiscal year ended March 31, 2020. Organic segment operating income decreased by $338.9 million, or 187.9%, primarily due to long-lived asset impairment charges of $252.4 million partially offset by the prior year goodwill impairment of $66.1 million, the decreased volumes and impairment of rotable asset inventory discussed above within our discussion of net sales and cost of sales, increased restructuring costs of $20.4 million. These increases were partially offset by decreases in administrative compensation cost of $20.5 million, travel costs of $6.9 million, decreased research and development costs of $4.9 million, the reduction in the forward loss reserve of a commercial widebody program described above within our discussion of cost of sales, and intangible asset amortization expense of $26.7 million, the latter being the result of the reduction in the carrying value of the long-lived assets impaired in the first fiscal quarter impairment as disclosed in Note 2. Additionally, the Nashville and G650 divestitures contributed approximately $4.3 million of operating income in the year ended March 31, 2021, which is consistent with the operating income contributed in the year ended March 31, 2020.  

Corporate Expense

Corporate operations incurred expenses of $172.0 million for the fiscal year ended March 31, 2021, as compared with $125.3 million for the fiscal year ended March 31, 2020. The corporate expenses increased because of increased loss on sale of assets and businesses of $37.7 million, increased restructuring costs of $7.5 million, and a $9.3 million gain on legal judgment in the prior fiscal year. These increases were partially offset by decreased subscription costs of $3.3 million and travel costs of $2.6 million.  

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Interest Expense and Other

Interest expense and other increased by $49.3 million, or 40.3%, to $171.4 million for the fiscal year ended March 31, 2021, compared with $122.1 million for the fiscal year ended March 31, 2020, due to the write-off of approximately $15.6 million of deferred financing fees associated with the extinguishment of our revolving credit facility and partial extinguishment of our 5.25% Senior Notes due June 1, 2022 (the “2022 Notes”), as well as higher interest rates and relative debt levels and a $6.2 million increase from the net unfavorable change in foreign currency exchange rate losses.  

Non-service Defined Benefit Income

Non-service defined benefit income increased by $8.9 million, or 22.0%, to $49.5 million for the fiscal year ended March 31, 2021, compared with $40.6 million for the fiscal year ended March 31, 2020. The increase was primarily due to prior year expenses from pension settlements, special termination benefits, and curtailment losses of $64.6 million partially offset by a prior year gain from curtailment of other post-employment benefits of $49.5 million, partially offset by changes in actuarial assumptions and experience which reduced income for the year ended March 31, 2021, by $6.3 million.

Income Taxes

The income tax expense was $2.9 million for the fiscal year ended March 31, 2021, reflecting an effective tax rate of (0.7)%.  During the fiscal year ended March 31, 2021, we adjusted the valuation allowance against the consolidated net deferred tax asset by $73.9 million primarily due to an increase in the net operating loss and changes to temporary differences related to interest disallowance, long-lived intangible asset impairment, and pension and other postretirement benefit plans. As of March 31, 2021, management determined that it was necessary to maintain a valuation allowance against principally all of our net deferred tax assets.

Fiscal year ended March 31, 2020, compared with fiscal year ended March 31, 2019

Net Sales

Net sales decreased by $464.8 million, or 13.8%, to $2.90 billion for the fiscal year ended March 31, 2020, from $3.36 billion for the fiscal year ended March 31, 2019.  Organic sales adjusted for inter-segment sales increased $140.5 million, or 5.2%, offset by declines from the fiscal 2019 divestitures and fiscal 2020 divestitures, including the Global 7500 transition, of $605.3 million.  Organic sales increased primarily due to increased volumes across Airbus commercial programs and various military programs, as well as aftermarket demand for military rotorcraft programs in Systems & Support, increased volumes on G550, 767, 787, G280, and M100 programs as well as increased volume and pricing on E-2 Jets sales to ASTK in Aerospace Structures, and increased demand for accessory components.  These increases were partially offset in decreased volumes on 737.

Cost of Sales and Gross Margin

Cost of sales decreased by $617.5 million, or 21.1%, to $2.31 billion for the fiscal year ended March 31, 2020, from $2.92 billion for the fiscal year ended March 31, 2019. Organic cost of sales adjusted for inter-segment sales increased $26.3 million, or 1.2%, offset by declines from the fiscal 2019 divestitures and fiscal 2020 divestitures, including the Global 7500 transition, of $645.6 million. Organic cost of sales increased primarily due to the higher volumes in the above programs partially offset by the prior year forward loss provisions from the adoption of ASU 2017-07 of $87.2 million.  Organic gross margin for the fiscal year ended March 31, 2020, was 20.8% compared with 17.6% for the fiscal year ended March 31, 2019. The gross margin for the fiscal year ended March 31, 2020, increased compared with the prior year period due to the nonrecurring forward loss provisions from the adoption of ASU 2017-07.  

Gross margin included net unfavorable cumulative catch-up adjustments on long-term contracts of $22.8 million. The unfavorable cumulative catch-up adjustments to operating income included gross favorable adjustments of $43.4 million and gross unfavorable adjustments of $66.2 million. Gross margins for fiscal 2019 included net unfavorable cumulative catch-up adjustments of $68.7 million.

Segment Operating Income

Segment operating income increased by $134.5 million, or 276.3%, to $183.2 million for the fiscal year ended March 31, 2020, from $48.7 million for the fiscal year ended March 31, 2019.  Organic segment operating income increased by $45.1 million, or 31.7%,

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primarily due to the increased margins above as well as decreases in administrative compensation cost of $13.7 million and research and development of $8.5 million, were partially offset by a $66.1 million goodwill impairment charge under Systems & Support.   The fiscal 2019 divestitures and fiscal 2020 divestitures contributed $89.4 million in increased operating income in the current year primarily due to incurring operating losses of the fiscal year ended March 31, 2019.  

Corporate Expense

Corporate operations incurred expenses of $125.3 million for the fiscal year ended March 31, 2020, as compared with $323.4 million for the fiscal year ended March 31, 2019.  The corporate expenses included decreased loss on sale of assets and businesses of $168.3 million, decreased compensation cost of $12.3 million, with additional benefit from the legal judgment gain of $9.3 million.  

Interest Expense and Other

Interest expense and other increased by $7.5 million, or 6.6%, to $122.1 million for the fiscal year ended March 31, 2020, compared with $114.6 million for the fiscal year ended March 31, 2019, due to higher interest rates and relative debt levels.

Non-service Defined Benefit Income

Non-service defined benefit income decreased by $16.1 million, or 28.5%, to $40.6 million for the fiscal year ended March 31, 2020, compared with $56.7 million for the fiscal year ended March 31, 2019.  The decrease was primarily due to additional expense in the current year from pension settlements, special termination benefits, and curtailment losses of $64.6 million partially offset by a gain from curtailment of other post-employment benefits of $49.5 million, as well as changes in actuarial assumptions and experience which reduced income for fiscal year 2020 by $4.1 million.

Income Taxes

The income tax expense was $5.8 million for the fiscal year ended March 31, 2020, reflecting an effective tax rate of (24.5)%.  During the fiscal year ended March 31, 2020, we adjusted the valuation allowance against the consolidated net deferred tax asset by $36.9 million primarily due to an increase in the net operating loss and changes to temporary differences related to pension and other postretirement benefit plans.  As of March 31, 2020, management determined that it was necessary to maintain a valuation allowance against principally all of our net deferred tax assets.

Business Segment Performance

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

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

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

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We currently generate a majority of our revenue from clients 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 in these industries. If any of these industries experiences a downturn, our clients 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.

The impacts of the COVID-19 pandemic and resulting production rate decreases primarily on commercial programs led to a reduction in the proportion of our sales mix arising from the commercial aerospace end market in both of our segments.  The current year transfer of the assets and certain liabilities associated with our Gulfstream G650 wing supply chain activities and the fiscal 2020 divestitures led to reductions in our sales mix arising from the business jets end market and also contributed to the reductions in commercial aerospace within Aerospace Structures. Additionally, both Systems & Support and Aerospace Structures experienced increases in military end market sales primarily from volume on military rotorcraft.

Business Segment Performance—Fiscal year ended March 31, 2021, compared with fiscal year ended March 31, 2020

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Systems & Support:     

Net Sales

Systems & Support net sales decreased by $297.6 million, or 21.9%, to $1.06 billion for the fiscal year ended March 31, 2021, from $1.36 billion for the fiscal year ended March 31, 2020. Sales decreased primarily due the impact of the COVID-19 pandemic and decreased sales volumes on commercial narrowbody and widebody programs, partially offset by increases in military platforms.

Cost of Sales and Gross Margin

Systems & Support cost of sales decreased by $178.6 million, or 18.6%, to $781.9 million for the fiscal year ended March 31, 2021, from $960.5 million for the fiscal year ended March 31, 2020. Gross margin for the fiscal year ended March 31, 2021, was 26.2% compared with 29.3% for the fiscal year ended March 31, 2020. Cost of sales decreased due to the sales decrease noted above as well as sales mix and the results of our restructuring and cost-reduction activities as well as a $10.0 million partial reversal of prior loss reserves.  These decreases were partially offset by an approximately $23.7 million impairment loss recognized in cost of sales on certain rotable inventory that primarily arose as a result of customer fleet retirement announcements resulting from the COVID-19 pandemic.  Gross margin decreased primarily as a result of the changes in sales mix and the impairment of rotable inventory, as cost-reduction actions offset absorption related increases.

Operating Income and Adjusted EBITDAP

Systems & Support operating income decreased by $27.8 million, or 19.7%, to $113.5 million for the fiscal year ended March 31, 2021, from $141.3 million for the fiscal year ended March 31, 2020. Operating income decreased primarily due to the decreased sales and factors affecting cost of sales noted above, partially offset by reductions in administrative compensation cost of $9.4 million and restructuring costs of $11.8 million as well the goodwill impairment recognized in the year ended March 31, 2020, of $66.1 million. The decrease in Adjusted EBITDAP year over year is due to the same factors that decreased operating income, with the exception of the current year rotable inventory asset impairment and the prior year goodwill impairment, which are excluded from Adjusted EBITDAP.

Operating Margin and Adjusted EBITDAP Margin

Systems & Support operating income as a percentage of segment sales increased to 10.7% for the fiscal year ended March 31, 2021, as compared with 10.4% for the fiscal year ended March 31, 2020, due to the factors described above. These same factors contributed to the decrease in Adjusted EBITDAP margin to 14.9% from 15.5% year over year, with the exception of the current year rotable inventory asset impairment and the prior year goodwill impairment, which are excluded from Adjusted EBITDAP.

Aerospace Structures:     

Net Sales

Aerospace Structures net sales decreased by $741.5 million, or 47.7%, to $814.4 million for the fiscal year ended March 31, 2021, from $1.56 billion for the fiscal year ended March 31, 2020.  Organic net sales decreased by $493.5 million, with additional declines from the Nashville and G650 divestitures of $248.1 million.  Organic net sales decreased due to the planned reductions on sunsetting programs (i.e., 747-8, G280, G550), the transitioned workscope on the E-2 Jets and G650 programs, as well as the impacts of the COVID-19 pandemic, including temporarily idle facilities and certain production rate decreases primarily on commercial programs. Net sales for the year ended March 31, 2021, included $43.8 million in total nonrecurring revenues, as compared with $36.5 million for the year ended March 31, 2020.

Cost of Sales and Gross Margin

Aerospace Structures cost of sales decreased by $661.2 million, or 48.6%, to $699.0 million for the fiscal year ended March 31, 2021, from $1.36 billion for the fiscal year ended March 31, 2020. Organic cost of sales decreased by $418.9 million, with an additional reduction in cost of sales from the Nashville and G650 divestitures of $242.3 million.  Organic gross margin for the fiscal year ended March 31, 2021, was 14.1% compared with 14.5% for the fiscal year ended March 31, 2020.  The decrease in organic cost of sales is due to decrease in sales noted above. Organic gross margin decreased primarily as a result of increased product costs due to the lower sales volumes partially offset by the results of our restructuring and cost reduction activities and certain favorable customer settlements. The gross margin included net favorable cumulative catch-up adjustments of $11.5 million. The net favorable cumulative catch-up adjustments included gross favorable adjustments of $54.4 million and gross unfavorable adjustments of $42.8 million. The net unfavorable cumulative catch-up adjustment for the fiscal year ended March 31, 2020, was $22.9 million.

Operating Income and Adjusted EBITDAP

Aerospace Structures operating income decreased by $309.6 million, or 739.5%, to an operating loss of $267.7 million for the fiscal year ended March 31, 2021, from operating income of $41.9 million for the fiscal year ended March 31, 2020. Organic operating income decreased by $311.1 million, or 795.9%.  The Nashville and G650 divestitures contributed approximately $4.3 million of operating income in the year ended March 31, 2021, which is consistent with the operating income contributed in the year ended March 31, 2020.  The decreased organic operating income for the fiscal year ended March 31, 2021, was primarily the result of the decreases noted above as well as the $252.4 million long-lived asset impairment described above and an increase in restructuring costs of $32.2 million partially offset by decreased administrative compensation cost of $11.1 million and intangible asset amortization expense of $26.7 million, the latter being the result of the reduction in the carrying value of the long-lived assets impaired in the first quarter impairment as disclosed in Note 2. The increase in Adjusted EBITDAP year over year is due to the same factors that increased operating income, except for the long-lived asset impairment charges, which are excluded from Adjusted EBITDAP.

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Operating Margin and Adjusted EBITDAP Margin

Aerospace Structures operating loss as a percentage of segment sales decreased to (32.9)% for the fiscal year ended March 31, 2021, as compared with 2.7% for the fiscal year ended March 31, 2020, due to the decrease in operating income as noted above. These same factors as noted above for the Adjusted EBITDAP contributed to the decrease in Adjusted EBITDAP margin to 2.2% from 6.6% year over year.

Business Segment Performance—Fiscal year ended March 31, 2020, compared with fiscal year ended March 31, 2019

Systems & Support:  

Net Sales

Systems & Support net sales increased by $32.6 million, or 2.5%, to $1.36 billion for the fiscal year ended March 31, 2020, from $1.33 billion for the fiscal year ended March 31, 2019. Organic sales increased by $63.3 million, or 4.9%, offset by declines of $30.8 million from the fiscal 2019 divestitures within Systems & Support.  Organic sales increased due to increased volumes on engine components, Airbus commercial programs, aftermarket demand for military rotorcraft components, and aftermarket spare part sales and accessory component repairs. These increases were partially offset by decreased volumes on 737.  

Cost of Sales and Gross Margin

Systems & Support cost of sales increased by $8.7 million, or 0.9%, to $960.5 million for the fiscal year ended March 31, 2020, from $951.8 million for the fiscal year ended March 31, 2019. Organic cost of sales increased by $33.1 million, or 3.6%, offset by declines of $24.4 million from the fiscal 2019 divestitures within Systems & Support.  Organic gross margin for the fiscal year ended March 31, 2020, was 29.3% compared with 28.3% for the fiscal year ended March 31, 2019. Organic cost of sales increased due to the sales increase noted above and sales mix, partially offset by a reduction of cost of sales as a result of a $5.3 million reduction in acquired contract reserves, which also drove the increased gross margin for the fiscal year ended March 31, 2020.

Operating Income and Adjusted EBITDAP

Systems & Support operating income decreased by $59.8 million, or 29.7%, to $141.3 million for the fiscal year ended March 31, 2020, from $201.1 million for the fiscal year ended March 31, 2019. Organic operating income decreased by $57.2 million, or 28.8% primarily due to the goodwill impairment charge of $66.1 million and increased restructuring costs of $8.3 million, partially offset by decreased research and development costs of $5.9 million and the increased gross margin described above.  The fiscal 2019 divestitures resulted in $2.6 million in decreased operating income in the current year primarily due to operating income earned in the fiscal year ended March 31, 2019.

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Operating Margin and Adjusted EBITDAP Margin

Systems & Support operating income as a percentage of segment sales decreased to 10.4% for the fiscal year ended March 31, 2020, as compared with 15.2% for the fiscal year ended March 31, 2019, due to the factors described above. These same factors contributed to the decrease in Adjusted EBITDAP margin year over year.

Aerospace Structures:   

Net Sales

Aerospace Structures net sales decreased by $506.5 million, or 24.6%, to $1.56 billion for the fiscal year ended March 31, 2020, from $2.06 billion for the fiscal year ended March 31, 2019.  Organic net sales increased by $68.0 million, offset by declines of $574.5 million from the fiscal 2019 and fiscal 2020 divestitures within Aerospace Structures.  Organic net sales increased due to increased volumes for the G280, G550, 767, and M100 programs, as well as increased volumes and pricing related to the E-2 Jets and 787 programs.  These increases were partially offset by decreased volumes on 737.  

Cost of Sales and Gross Margin

Aerospace Structures cost of sales decreased by $637.2 million, or 31.9%, to $1.36 billion for the fiscal year ended March 31, 2020, from $2.00 billion for the fiscal year ended March 31, 2019. Organic cost of sales decreased by $16.0 million, with an additional reduction in cost of sales of $621.3 million from the fiscal 2019 and fiscal 2020 divestitures within Aerospace Structures.  Organic gross margin for the fiscal year ended March 31, 2020, was 13.0% compared with 7.7% for the fiscal year ended March 31, 2019.  The decrease in organic cost of sales is due to the nonrecurring forward loss provisions from the adoption of ASU 2017-07 in the year ended March 31, 2019, of $87.2 million and a reduction in unfavorable cumulative catch-up adjustments of $45.8 million partially offset by increases related to the increased net sales above.  The gross margin included net unfavorable cumulative catch-up adjustments of $22.9 million due in large part to the estimated effects of the COVID-19 pandemic. The net unfavorable cumulative catch-up adjustments included gross favorable adjustments of $43.3 million and gross unfavorable adjustments of $66.2 million. The net unfavorable cumulative catch-up adjustment for the fiscal year ended March 31, 2019, was $68.7 million.

Operating Income and Adjusted EBITDAP

Aerospace Structures operating income increased by $194.3 million, or 127.5%, to $41.9 million for the fiscal year ended March 31, 2020, from an operating loss of $152.4 million for the fiscal year ended March 31, 2019. Organic operating income increased by $102.3 million, or 182.0%, with further increases resulting from the fiscal 2019 and fiscal 2020 divestitures within Aerospace Structures of $92.0 million.  The increased organic operating income for the fiscal year ended March 31, 2020, was primarily due to the increased gross margin discussed above as well as lower administrative compensation due to decreased severance and headcount of approximately $18.8 million 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.

Operating Margin and Adjusted EBITDAP Margin

Aerospace Structures operating income as a percentage of segment sales increased to 2.7% for the fiscal year ended March 31, 2020, as compared with (7.4)% for the fiscal year ended March 31, 2019, 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.

Liquidity and Capital Resources

Our working capital needs are generally funded through our current cash and cash equivalents, cash flows from operations, and proceeds from the Securitization Facility. For the fiscal year ended March 31, 2021, we had a net cash outflow of $173.1 million from operating activities, a decrease of $269.8 million, compared with a net cash inflow of $96.7 million for the fiscal year ended March 31, 2020. Cash flows from operations were unfavorably impacted by increased disbursements to our suppliers relative to the receipts from our customers, as we were unable to reduce volumes of our material purchases at the same rates that our sales declined from the impacts of the COVID-19 pandemic.  Cash flows included steady inventory levels and significantly lower accounts payable.  Additionally, of the approximately $51.0 million in cash proceeds from the transfer of the assets and certain liabilities associated with the G650 wing supply chain activities, approximately $50.0 million of the cash proceeds were allocated to the settlement of existing relationships derived from operations and therefore are classified within operating cash flows.  The remaining approximately $1.0 million of the cash proceeds were allocated to the productive assets transferred as part of the transaction and are classified within investing cash flows.  Cash flows from operations began to recover in the second half of the fiscal year.  Cash flows from operations also included approximately $40.0 million in the liquidation of prior period customer advances against current period deliveries.  Interest payments were approximately $116.5 million for the year ended March 31, 2021, as compared with $99.4 million for the year ended March 31, 2020.  The increase in interest payments was the result of higher interest rates and relative debt levels as a result of the financing activities described below.  

In March 2020, in response to anticipated headwinds resulting from the impact of the COVID-19 pandemic on the aerospace industry, including the impact on global air travel, we implemented certain cost reduction actions to improve our financial health, align capacity with expected demand, and ensure our long-term competitiveness.  This included the reduction of overhead and indirect staff and temporary workers and the selective implementation of furloughs across our business to reduce costs while delivering on customer commitments. Through these initiatives, combined with reductions in travel, corporate events, and other expenses, we achieved our cost reduction goals in fiscal year 2021.  We also completed certain previously announced

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consolidation and shutdown initiatives with sunsetting programs within Aerospace Structures that resulted in cash outflows of approximately $20.0 million.  

Cash flows provided by investing activities for the fiscal year ended March 31, 2021, decreased $16.7 million from the fiscal year ended March 31, 2020, to cash used in investing activities of $9.3 million compared with cash provided by investing activities of $7.4 million. Cash flows provided by investing activities for the fiscal year ended March 31, 2021, included cash from the sale of assets and businesses of $15.9 million offset by capital expenditures of $25.2 million. Cash flows used in investing activities for the fiscal year ended March 31, 2020, included cash from the fiscal 2020 divestitures of $47.2 million offset by capital expenditures of $39.8 million.  We currently expect capital expenditures in fiscal 2022 to be in the range of $30.0 million, of which approximately $22.0 million pertains to our core Systems & Support operating segment.  The majority of our fiscal 2022 capital expenditures are capital investments designed to improve our manufacturing efficiency and expand our capabilities.

Cash flows provided by financing activities for the fiscal year ended March 31, 2021, were $277.2 million, compared with cash flows provided by financing activities for the fiscal year ended March 31, 2020, of $293.7 million. In March, we drew on our Credit Facility (as defined below), bringing the outstanding balance as of March 31, 2020, to $400.0 million.  This was done as part of a comprehensive precautionary approach to increase our cash position and maximize our financial flexibility, in light of the current volatility in the global markets resulting from the COVID-19 pandemic.  In the year ended March 31, 2021, the following significant financing cash flow events occurred:

The remainder of financing cash flows pertain primarily to borrowings and payments under finance leases.  As of March 31, 2021, we had $589.9 million of cash on hand and $34.2 million was available under our receivable securitization facility (the “Securitization Facility”) (subject to any additional constraints arising from the balance of eligible receivables at that time) after giving effect to approximately $27.8 million in outstanding letters of credit.

We have taken a number of actions to improve liquidity. In March 2020, we suspended the declaration and/or payment of dividends until further notice. We have furloughed certain employees and announced reductions in force which were largely implemented in the first and fourth quarters of fiscal 2021. We have reduced discretionary spending as well as reduced or deferred research and development and capital expenditures. We are also working with our customers and supply chain to accelerate receipts and conserve cash. We have also deferred certain employer payroll tax payments pursuant to the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. In September 2020, we submitted an application to the IRS requesting a change in the plan year for our U.S. pension plan.  The change was designed to minimize the funding impact of the temporary market trough caused by the COVID-19 pandemic.  The IRS approved our application.  As a result, our projected required pension contributions for the next three fiscal years were reduced by approximately $50.0 million.  In addition, the pension funding relief provisions of the American Rescue Plan Act (“ARPA”) further reduced our projected pension funding requirements by approximately an additional $200.0 million over the next six fiscal years. We expect to take advantage of additional programs if passed by the federal government.

As disclosed above, subsequent to March 31, 2021, we completed the sale of our manufacturing operations in Milledgeville, Georgia, Rayong, Thailand, and Red Oak, Texas, receiving net proceeds of approximately $155.0 million.  We intend to use approximately $120.0 million of the net proceeds to redeem approximately $113.0 million aggregate principal amount of the First Lien Notes at a redemption price of 106.656%, plus accrued and unpaid interest. The redemption is required by the terms of the First Lien Notes, and following the redemption, approximately $587.0 million aggregate principal amount of First Lien Notes will remain outstanding. The divestiture transactions will significantly reduce our cash receipts from customers as well as our contractual obligations as disclosed below, including reducing the risk of incurring cash flow losses on long-term fixed price contracts.  We also expect that in the first quarter of fiscal 2022 we will use available cash to redeem all $236.5 million aggregate principal outstanding amount of our 2022 Notes at a redemption price of 100.000%, plus accrued and unpaid interest.  Subsequent to this redemption, we will have no material outstanding indebtedness maturing before 2024.  

While we currently expect fiscal 2022 operations to result in net cash outflows due to liquidation of prior customer advances, losses on exit costs on our 747-8 program and customer settlement; we believe, based on an assessment of our current cash as presented on the accompanying consolidated balance sheet as of March 31, 2021, as well as current market conditions, that cash flows from operations and borrowings under our receivable securitization facility (the “Securitization Facility”) will be sufficient to meet anticipated cash requirements for our current operations for at least the next 12 months.  We also believe, based on our current cash, our fiscal 2022 operating cash flow expectations, the expected recovery of cash flows from operations subsequent to fiscal 2022, the successful capital market transactions occurring during the year ended March 31, 2021, and the repayment of the 2022 Notes, that we have the ability to generate and obtain adequate amounts of cash to meet anticipated cash requirements for the foreseeable future. We are evaluating additional funding options from the U.S. government via the U.S. Treasury and various Federal Reserve programs. We are also considering various divestiture opportunities that should provide liquidity as well as opportunities to access credit and capital markets.  There can be no assurance that such funding sources will be available to us on

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terms favorable to us, if at all. We may also seek transactions to extend the maturity of our indebtedness, reduce leverage, or decrease interest expense. Such transactions could include one or more repurchases or exchanges of our outstanding indebtedness. These transactions could increase our total amount of secured indebtedness or be dilutive to stockholders. There can be no assurances if or when we will consummate any such transactions or the timing thereof.

On August 17, 2020, we completed a series of refinancing transactions that are described below:

On September 29, 2020, we entered into additional amendments to the Securitization Facility.  The September amendments provide us with enhanced liquidity options by establishing a letter of credit facility under the Securitization Facility which effectively replaces a similar limited letter of credit facility under the Revolving Credit Facility. Pursuant to the letter of credit facility, we may request the Securitization Facility’s administrator to issue one or more letters of credit that will expire no later than 12 months after the date of issuance, extension or renewal, as applicable.

The 2022 Notes and the 7.750% Senior Notes due August 15, 2025 (the “2025 Notes”) (collectively, the "Senior Notes") are our senior unsecured obligations and rank equally in right of payment with all of our other existing and future senior unsecured indebtedness and senior in right of payment to all of our existing and future subordinated indebtedness. The Senior Notes are guaranteed on a full, joint and several basis by each of the Guarantor Subsidiaries.

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

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

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

The 2022 Notes and 2025 Notes are our senior unsecured obligations and rank equally in right of payment with all of our other existing and future senior unsecured indebtedness and senior in right of payment to all of our existing and future subordinated indebtedness. The 2022 Notes and 2025 Notes are guaranteed on a full, joint and several basis by each of our existing and future domestic restricted subsidiaries that is a borrower under any of our credit facilities or that guarantees any of our debt or that of any of our restricted subsidiaries, in each case incurred under any of our credit facilities.

Our only consolidated subsidiaries that are not guarantors of the First Lien Notes, 2022 Notes, the 2024 Notes and the 2025 Notes (the "Non-Guarantor Subsidiaries") are: (i) the receivables securitization special purpose entity, and (ii) the foreign operating subsidiaries.

The First Lien Notes, the 6.250% Senior Secured Notes due September 15, 2024 (the “2024 Notes”),and the guarantees are secured, subject to permitted liens, by second-priority liens on all of our assets and our subsidiary guarantors (the “Collateral”) that secure all of the indebtedness under certain hedging and cash management obligations. The First Lien Notes and the 2024 Notes and the guarantees are not secured by the assets of Non-Guarantor Subsidiaries. Some of our assets are excluded from the Collateral, including our real property assets.

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The following tables present summarized financial information of the Company and the Guarantor Subsidiaries on a combined basis. The combined summarized financial information eliminates intercompany balances and transactions among the Company and the Guarantor Subsidiaries and equity in earnings and investments in any Guarantor Subsidiaries or Non-Guarantor Subsidiaries. The summarized financial information is provided in accordance with the reporting requirements of Rule 13-01 under SEC Regulation S-X for the issuer and Guarantor Subsidiaries.

For the fiscal year ended March 31, 2020, we had a net cash inflow of $96.7 million from operating activities, an increase of $271.1 million, compared with a net cash outflow of $174.4 million for the fiscal year ended March 31, 2019. We liquidated approximately $89.0 million in prior period customer advances against current period deliveries.  During the fiscal year ended March 31, 2019, we invested in inventory to support ramping and existing programs.  

Cash flows provided by investing activities for the fiscal year ended March 31, 2020, decreased $193.2 million from the fiscal year ended March 31, 2019. Cash flows provided by investing activities for the fiscal year ended March 31, 2020, included cash from the fiscal 2020 sales of assets and businesses of $47.2 million offset by capital expenditures of $39.8 million. Cash flows used in investing activities for the fiscal year ended March 31, 2019, included cash from the fiscal 2019 divestitures of $247.6 million, offset by capital expenditures of $47.1 million.

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

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The above table includes approximately $207.7 million of total contractual obligations pertaining to the manufacturing operations located in Milledgeville, Georgia, Rayong, Thailand, and Red Oak, Texas, that, subsequent to the closing of these transactions in May, are no longer contractual obligations of the Company.  Of the $207.7 million total contractual obligations, approximately $183.1 million represented purchase obligations, of which approximately 78% were expected to be paid in less than one year.  The majority of the remaining $24.6 million contractual obligations associated with these divestitures pertained to operating leases.  The above table excludes unrecognized tax benefits of $11.8 million as of March 31, 2021, since we cannot predict with reasonable certainty the timing of cash settlements with the respective taxing authorities.  

In addition to the financial obligations detailed in the table above, we also had obligations related to our benefit plans at March 31, 2021, as detailed in the following table. Our other postretirement benefits are not required to be funded in advance, so benefit payments are paid as they are incurred. Our expected net contributions and payments are included in the table below:

Current plan documents reserve our right to amend or terminate the plans at any time, subject to applicable collective bargaining requirements for represented employees.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Critical accounting policies are those accounting policies that can have a significant impact on the presentation of our financial condition and results of operations, and that require the use of complex and subjective estimates based upon past experience and management's judgment. Because of the uncertainty inherent in such estimates, actual results may differ from these estimates. Below are those policies applied in preparing our consolidated financial statements that management believes are the most dependent on the application of estimates and assumptions. For additional accounting policies, refer to Note 2 to the accompanying consolidated financial statements.

Revenue Recognition and Contract Balances

Our accounting policy regarding revenue recognition is disclosed in Note 2 to the consolidated financial statements.  As described in Note 2, for certain contracts and performance obligations, we are required to exercise judgment when developing assumptions regarding expected total costs to fulfill performance obligations, variable consideration, and the standalone selling price of a performance obligation.  These assumptions are most significant within the Aerospace Structures business segment because the size and long-term nature of our contracts with customers.  Specifically, assumptions regarding the total costs require significant judgment with regard to materials, labor, and overhead costs that are affected by our ability to achieve technical requirements and schedule requirements, as well as our estimation of internal and subcontractor performance projections, anticipated volume, asset utilization, labor agreements, and inflation trends.  We continually review and update our assumptions based on market trends and program performance. When we satisfy a performance obligation and recognize revenue over time, material changes in assumptions may result in positive or negative cumulative catch-up adjustments related to revenues previously recognized or, in some cases, forward loss contract reserves.

Goodwill and Intangible Assets

Refer to Note 2 and Note 7 for details on our goodwill and intangible asset accounting policies.  As disclosed in Note 7, as of March 31, 2021, Aerospace Structures had goodwill of $871.4 million which was fully impaired during fiscal year 2018.  The goodwill of one of the reporting units within Systems & Support had goodwill of $66.1 million which was fully impaired during fiscal year 2020.  No reporting units have goodwill with a material carrying value that is at risk of impairment as of March 31, 2021.

We review identified intangible assets with definite lives and subject to amortization for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Determining whether an impairment loss has occurred requires the use of our internal forecast to estimate future cash flows and the useful life over which these cash flows will occur.  As disclosed in Note 2, in May 2020, we concluded that the planned divestitures of our composites manufacturing operations located in Milledgeville, Georgia and Rayong, Thailand, represented a significant change in the manner in which the related asset group was expected to be used and that the asset group therefore needed to be tested for recoverability and

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impairment.  We applied a discount rate of 15.0% to the estimated future excess earnings and cash flows of the asset group in order to estimate the fair value of the asset group as of the measurement date and recognized a total noncash impairment charge of $252.4 million, primarily allocated to definite-lived intangible assets.

Postretirement Plans

Certain of our current and former employees participate in defined benefit pension and other postretirement defined benefit plans (collectively, referred to as “defined benefit plans”) in the United States, Canada, and the United Kingdom, which we sponsor. The determination of projected benefit obligations and the recognition of expenses related to defined benefit pension plans are dependent on various assumptions. The most significant of these assumptions are the discount rates and the long-term expected rates of return on plan assets. Actual results that differ from our assumptions are accumulated and amortized for each plan to the extent required over the estimated future life expectancy of plan participants.

Significant Assumptions

We develop assumptions using relevant experience, in conjunction with market-related data for each plan. Assumptions are reviewed annually with third party consultants and adjusted as appropriate. Refer to Note 15 for details regarding the assumptions used to estimate projected benefit obligations and net periodic benefit cost as they pertain to our defined benefit pension plans.  

Expected Return on Plan Assets

We determine our expected return on plan assets by evaluating both historical returns and estimates of future returns. Specifically, we consider the plan’s actual historical annual return on assets and historical broad market returns over long-term time frames based on our strategic allocation, which is detailed in Note 15. Future returns are based on independent estimates of long-term asset class returns. Based on this approach, the weighted average long-term expected annual rate of return on assets was estimated at 7.94% for fiscal years 2021 and 2020.

Discount Rate

The discount rate is used to calculate the present value of expected future benefit payments at the measurement date. A decrease in the discount rate increases the present value of benefit obligations and generally decreases pension expense. The discount rate assumption is based on current investment yields of high-quality fixed income investments during the retirement benefits maturity period. The pension discount rate is determined by considering an interest rate yield curve comprising AAA/AA bonds, with maturities between zero and thirty years, developed by the plan’s actuaries. Annual benefit payments are then discounted to present value using this yield curve to develop a single discount rate matching the plan’s characteristics.  The discount rate assumption will change from measurement date to measurement date as market yields on high quality corporate bonds change.

Sensitivity Analysis

Pension Expense

A 25 basis point change in each of the long-term expected rate of return on plan assets and discount rate would have the following effect on the combined U.S. defined benefit pension plans’ pension income for the next 12 months:

Projected Benefit Obligation

Funded status is derived by subtracting the respective year-end values of the projected benefit obligations (“PBO”) from the fair value of plan assets. The sensitivity of the PBO to changes in the discount rate varies depending on the magnitude and direction of the change in the discount rate. Refer to Note 12 for a quantitative sensitivity analysis for the PBO.

Income Tax

We follow ASC 740, Income Taxes, which prescribes a recognition threshold and measurement attribute criteria for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, as well as guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

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We recognize deferred tax assets and liabilities based on the differences between the financial statement basis and the tax basis of assets, liabilities, net operating losses and tax carryforwards. A valuation allowance is required to be recognized to reduce the recorded deferred tax asset to the amount that will more likely than not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income by jurisdiction during the periods in which those temporary differences become deductible or when carryforwards can be utilized. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in this assessment. As of March 31, 2021, we have a valuation allowance against substantially all of our net deferred tax assets given the insufficient positive evidence to support the realization of our deferred tax assets.  A reduction in the valuation allowance could result in a significant decrease in income tax expense in the period that the reduction is recorded.  However, the exact timing and amount of the reduction in our valuation allowance are unknown at this time and will be subject to the earnings level we achieve as well as our projected income in future periods.

Recently Issued Accounting Pronouncements

Refer to Note 2 for disclosure of the effects of recently issued accounting guidance.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

Commodity Price Risk and Inflation Risk

Some contracts with our suppliers for raw materials, component parts and other goods are short-term contracts, which are subject to termination on a relatively short-term basis. The prices of our raw materials and component parts fluctuate depending on market conditions, and substantial increases in prices, whether due to significant inflationary pressures or other market factors, could increase our operating costs, which, as a result of our fixed-price contracts, we may not be able to recoup through increases in the prices of our products. We generally do not employ forward contracts or other financial instruments to hedge commodity price risk, although we continue to review a full range of business options focused on strategic risk management for all material commodities.

Any failure by our suppliers to provide acceptable raw materials, components, kits or subassemblies could adversely affect our production schedules and contract profitability. We assess qualification of suppliers and continually monitor them to control risk associated with such supply base reliance.

To a lesser extent, we also are exposed to fluctuations in the prices of certain utilities and services, such as electricity, natural gas, chemicals and freight. We utilize a range of long-term agreements to minimize procurement expense and supply risk in these areas, and we strive to minimize the effects of inflation through cost containment, productivity improvements, and, where possible, price increases.  We do not believe that inflation has had a material effect on our business, financial condition, or results of operations to date..

Foreign Exchange Risk

In addition, even when revenues and expenses are matched, we must translate foreign denominated results of operations, assets and liabilities for our foreign subsidiaries to U.S. dollars in our consolidated financial statements. Consequently, increases and decreases in the value of the U.S. dollar as compared with the respective foreign currencies will affect our reported results of operations and the value of our assets and liabilities on our consolidated balance sheets, even if our results of operations or the value of those assets and liabilities has not changed in its original currency. These transactions could significantly affect the comparability of our results between financial periods and/or result in significant changes to the carrying value of our assets, liabilities and stockholders' equity.

We are subject to foreign currency exchange rate risk relating to receipts from customers and payments to suppliers in foreign currencies. We use foreign currency forward contracts to hedge the price risk associated with forecasted foreign denominated payments related to our ongoing business. Foreign currency forward contracts are sensitive to changes in foreign currency exchange rates. At March 31, 2021, a 10% change in the exchange rate in our portfolio of foreign currency contracts would not have material impact on our unrealized gains. Consistent with the use of these contracts to neutralize the effect of exchange rate fluctuations, such unrealized losses or gains would be offset by corresponding gains or losses, respectively, in the remeasurement of the underlying transactions being hedged. When taken together, these forward currency contracts and the offsetting underlying commitments do not create material market risk.

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Interest Rate Risk

Our primary exposure to market risk consists of changes in interest rates on borrowings. An increase in interest rates would adversely affect our operating results and the cash flow available after debt service to fund operations and expansion. In addition, an increase in interest rates would adversely affect our ability to pay dividends on our common stock, if permitted to do so under certain of our debt arrangements, including the Amended Credit Agreement. We manage exposure to interest rate fluctuations by optimizing the use of fixed and variable rate debt. As of March 31, 2021, approximately 100% of our debt was fixed-rate debt. Our financing policy states that we generally maintain between 50% and 75% of our debt as fixed-rate debt on a fully leveraged basis. The information below summarizes our market risks associated with debt obligations and should be read in conjunction with Note 10 of the notes to the accompanying consolidated financial statements.

The following table presents principal cash flows and the related interest rates. Fixed interest rates disclosed represent the weighted average rate as of March 31, 2021. Variable interest rates disclosed fluctuate with the LIBOR, federal funds rates, and other weekly rates and represent the weighted average rate at March 31, 2021.

Expected Years of Maturity

There are no other significant market risk exposures.

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Item 8.  Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Triumph Group, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Triumph Group, Inc. (the Company) as of March 31, 2021 and 2020, the related consolidated statements of operations, comprehensive loss, stockholders' deficit and cash flows for each of the three years in the period ended March 31, 2021, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at March 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 2021, in conformity with U.S. generally accepted accounting principles.

We also have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of March 31, 2021, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated May 20, 2021, expressed an unqualified opinion thereon.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company changed its method of calculating the expected return on the fixed income assets held within the plan assets of its qualified U.S. defined benefit plan during the year ended March 31, 2021.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Revenue Recognition for Performance Obligations Satisfied Over Time

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Realizability of Deferred Tax Assets

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Defined Benefit Pension Obligations

We have served as the Company’s auditor since 1993.

/s/ Ernst & Young LLP

Philadelphia, Pennsylvania

May 20, 2021

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TRIUMPH GROUP, INC.

Consolidated Balance Sheets

(Dollars in thousands, except per share data)