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United States
Securities and Exchange Commission

Washington, D.C.  20549

FORM 10-Q

Commission File Number:    1-12235

TRIUMPH GROUP, INC.

(Exact name of registrant as specified in its charter)

(610) 251-1000

(Registrant’s telephone number, including area code)

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  x  No  o

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)  Yes  o  No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date.

Common Stock, par value $0.001 per share, 16,580,337 shares outstanding as of September 30, 2008.

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TRIUMPH GROUP, INC.

INDEX

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Part I.  Financial Information

Item 1.  Financial Statements.

Triumph Group, Inc.
Consolidated Balance Sheets

(dollars in thousands, except per share data)

SEE ACCOMPANYING NOTES.

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Triumph Group, Inc.
Consolidated Statements of Income

(in thousands, except per share data)
(unaudited)

* Difference due to rounding.

SEE ACCOMPANYING NOTES.

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Triumph Group, Inc.
Consolidated Statements of Cash Flows

(dollars in thousands)
(unaudited)

SEE ACCOMPANYING NOTES.

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Triumph Group, Inc.

Consolidated Statements of Comprehensive Income

(dollars in thousands)

(unaudited)

SEE ACCOMPANYING NOTES.

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Triumph Group, Inc.

Notes to Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

1.  BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of Triumph Group, Inc. (the “Company”) have been prepared in conformity with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended September 30, 2008 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2009.  For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2008.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

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

Use of Estimates

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Recently Issued Accounting Pronouncements

Effective April 1, 2008, the Company adopted Emerging Issues Task Force Issue No. 06-10, Accounting for Collateral Assignment Split-Dollar Life Insurance Agreements (“EITF 06-10”).  EITF 06-10 states that an employer should recognize a liability for postretirement benefits based on the applicable life insurance arrangements.  The Company recognized a cumulative-effect adjustment of $2,991 reducing the April 1, 2008 balance of retained earnings and creating a long-term liability.

In May 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) No. APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement) (“FSP APB 14-1”).  FSP APB 14-1 clarifies that convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) are not addressed by paragraph 12 of APB Opinion No. 14, Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants.  Additionally, this FSP specifies that issuers of such instruments should separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods.  This FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years.  Early adoption is not permitted.  The Company is currently evaluating the impact of the adoption of FSP APB 14-1 on the Company’s financial condition and results of operations.

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Triumph Group, Inc.

Notes to Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

2.               SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

In March 2008, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 161, Disclosures about Derivative Instruments and Hedging Activities (“SFAS 161”), which amends and expands the disclosure requirements of FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”), with the intent to provide users of financial statements with an enhanced understanding of: (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations; and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. SFAS 161 requires enhanced qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments and enhanced disclosures about credit-risk-related contingent features in derivative instruments. This statement applies to all entities and all derivative instruments. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008.

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (“SFAS 141(R)”), and SFAS No. 160, Accounting and Reporting of Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 (“SFAS 160”). SFAS 141(R) and SFAS 160 significantly change the accounting for and reporting of business combination transactions and noncontrolling (minority) interests. SFAS 141(R) and SFAS 160 are effective for fiscal years beginning after December 15, 2008. SFAS 141(R) and SFAS 160 are effective prospectively; however, the reporting provisions of SFAS 160 are effective retroactively. SFAS 141(R) is required to be adopted concurrently with SFAS 160.  The Company is currently evaluating the impact of the adoption of SFAS 141(R) and SFAS 160 on the Company’s financial condition and results of operations.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”).  SFAS 157 does not require additional fair value measurements but defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements.  This Statement was to be effective for the Company as of April 1, 2008.  However, in February 2008 the FASB issued FSP No. 157-1, which amends SFAS 157 to exclude SFAS No. 13, “Accounting for Leases,” and other accounting pronouncements that address fair value measurements for lease transactions, and FSP No. 157-2, which delayed the effective date of SFAS 157 as it relates to nonfinancial assets and nonfinancial liabilities until April 1, 2009 for the Company except for items that are recognized or disclosed at fair value in the Company’s financial statements on a recurring basis.  Effective April 1, 2008, the Company adopted the provisions of this Statement except as it relates to those nonfinancial assets and nonfinancial liabilities excluded under FSP No. 157-2.  The nonfinancial assets and nonfinancial liabilities for which the Company has not applied the fair value provisions of SFAS 157 include: goodwill; intangible and other long-lived asset impairment testing; asset retirement obligations; liabilities for exit or disposal activities; and business combinations.  The Company is currently evaluating the impact this Statement will have on the Company’s financial position, results of operations and cash flows as it relates to nonfinancial assets and nonfinancial liabilities.

Stock-Based Compensation

In December 2004, the FASB issued SFAS No. 123(R), Share-Based Payment, (“SFAS 123(R)”), which requires companies to measure compensation cost for all share-based payments (including employee stock options) at fair value. The Company adopted SFAS 123(R), using the modified-prospective transition method, beginning on April 1, 2006, and therefore began to expense the fair value of all outstanding options over their remaining vesting periods to the extent the options were not fully vested as of the

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Triumph Group, Inc.

Notes to Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

2.               SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

adoption date and began to expense the fair value of all options granted subsequent to March 31, 2006 over their requisite service periods. SFAS 123(R) also requires the benefits of tax deductions in excess of recognized compensation expense to be reported as a financing cash flow ($196 and $1,409 for the six months ended September 30, 2008 and September 30, 2007, respectively), rather than an operating cash flow.  Stock-based compensation expense related to employee stock options recognized under SFAS 123(R) for the three months ended September 30, 2008 and September 30, 2007 was $812 and $755, respectively, and for the six months ended September 30, 2008 and September 30, 2007 was $1,617 and $1,295, respectively.  In accordance with Staff Accounting Bulletin (“SAB”) 107 the Company has classified share-based compensation within selling, general and administrative expenses to correspond with the same line item as the majority of the cash compensation paid to employees.

Intangible Assets

Intangible assets cost and accumulated amortization at September 30, 2008 were $129,920 and $57,440, respectively.  Intangible assets cost and accumulated amortization at March 31, 2008 were $129,920 and $51,432, respectively.  Intangible assets consists of two major classes: (i) product rights and licenses, which at September 30, 2008 had a weighted-average life of 11.3 years, and (ii) non-compete agreements, customer relationships and other, which at September 30, 2008 had a weighted-average life of 10.3 years.  Gross cost and accumulated amortization of product rights and licenses at September 30, 2008 were $74,082 and $41,573, respectively, and at March 31, 2008 were $74,082 and $38,087, respectively.  Gross cost and accumulated amortization of noncompete agreements, customer relationships and other at September 30, 2008 were $55,838 and $15,867, respectively, and at March 31, 2008 were $55,838 and $13,345, respectively.  Amortization expense for the three and six months ended September 30, 2008 and 2007 was $3,013 and $6,008 and $2,604 and $5,203, respectively.  Amortization expense for the fiscal year ended March 31, 2009 and the succeeding five fiscal years by year is expected to be as follows: 2009: $12,034; 2010: $11,828; 2011: $10,043; 2012: $8,516; 2013: $8,356; and 2014: $7,354.

3.  ACQUISITIONS

FISCAL 2008 ACQUISITIONS

Acquisition of B. & R. Machine & Tool Corp.

Effective February 27, 2008, the Company acquired the assets and business of B. & R. Machine & Tool Corp. (“B&R”) through a newly organized, wholly-owned subsidiary of the Company, Triumph Structures – Long Island, LLC.  Triumph Structures – Long Island, LLC provides aircraft structural components and dynamic parts and assemblies for commercial and military aerospace programs. The results for Triumph Structures – Long Island, LLC are included in the Company’s Aerospace Systems segment.

The purchase price for B&R of $84,044 includes cash paid at closing, estimated deferred payments, assumption of debt and direct costs of the transaction.  Included in the estimated deferred payments is an earnout note for $13,000.  Payments under the earnout note are contingent upon the achievement of certain earnings levels during the earnout period.  The maximum amounts payable in respect of fiscal 2009, 2010 and 2011 are $3,500, $4,500 and $5,000, respectively.  The excess of the purchase price over the preliminary estimated fair value of the net assets acquired of $34,608 was recorded as goodwill, all of which is tax deductible. The Company has also identified intangible assets valued at approximately $20,000 with a weighted-average life of 10 years. The Company is awaiting final valuation of inventory and final appraisal of intangible assets related to its acquisition of B&R.  Accordingly, the Company has recorded its best estimate of the value of inventory and intangible assets.  In addition, the Company is

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Triumph Group, Inc.

Notes To Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

3.               ACQUISITIONS (Continued)

currently estimating cost of goods sold for this subsidiary utilizing estimated gross profit rates.  Therefore, the allocation of purchase price for the acquisition of B&R is not complete and is subject to change.

The following condensed balance sheet represents the amounts assigned to each major asset and liability caption in the aggregate for the B&R acquisition:

The B&R acquisition has been accounted for under the purchase method and, accordingly, is included in the consolidated financial statements from the effective date of acquisition. The acquisition was funded by the Company’s long-term borrowings in place at the date of acquisition.

The following unaudited pro forma information for the Company for the three and six months ended September 30, 2007 has been prepared assuming the B&R acquisition had occurred on April 1, 2006. The pro forma information for the three and six months ended September 30, 2007 is as follows: Net sales: $290,248 and $575,617; Income from continuing operations: $19,352 and $37,461; Income per share from continuing operations - basic: $1.17 and $2.27; Income per share from continuing operations – diluted:  $1.09 and $2.14.

The unaudited pro forma information includes adjustments for interest expense that would have been incurred to finance the purchase, additional depreciation based on the estimated fair market value of the property and equipment acquired, and the amortization of the intangible assets arising from the transaction.  The unaudited pro forma financial information is not necessarily indicative of the results of operations of the Company as it would have been had the transaction been effected on the assumed date.

4.  DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE

In September 2007, the Company sold the assets of Triumph Precision, Inc., a build-to-specification manufacturer and supplier of ultra-precision machined components and assemblies in its Aerospace Systems segment.  The effective date of the sale was July 1, 2007.  The Company recognized a pre-tax loss of $650 on the sale of the business, which included costs to sell of $150.  The Company has also decided to sell Triumph Precision Castings Co., a casting facility in its Aftermarket Services segment that specializes in producing high quality hot gas path components for aero and land based gas turbines.  The Company recognized a pre-tax loss of $3,500 in the first quarter of fiscal 2008 based upon a write-down of the carrying value of the business to estimated fair value less costs to sell.  The write-down was applied to inventory and long-lived assets, consisting primarily of property, plant and equipment.  For financial

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Triumph Group, Inc.

Notes To Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

4.  DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE (continued)

statement purposes, the assets, liabilities, results of operations and cash flows of these businesses have been segregated from those of the continuing operations and are presented in the Company’s consolidated financial statements as discontinued operations and assets and liabilities held for sale.

Revenues of discontinued operations were $2,729 and $4,828, and $2,171 and $6,635 for the three and six months ended September 30, 2008 and September 30, 2007, respectively.  The loss from discontinued operations was $1,093 and $2,296, and $1,472 and $5,366, net of income tax benefit of $588 and $1,236, and $792 and $2,889 for the three and six months ended September 30, 2008 and September 30, 2007, respectively.  Interest expense of $711 and $1,392, and $769 and $1,525 was allocated to discontinued operations for the three and six months ended September 30, 2008 and September 30, 2007, respectively, based upon the actual borrowings of the operations, and such interest expense is included in the loss from discontinued operations.

On October 6, 2008, the Company exercised the buy-out provision in the operating lease on its casting facility.  Accordingly, in the quarter ending December 31, 2008, the property, plant and equipment related to the assets held for sale will increase by approximately $3,600.

Assets and liabilities held for sale are comprised of the following:

5.  INVENTORIES

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

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Triumph Group, Inc.

Notes To Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

6.  LONG-TERM DEBT

Long-term debt consists of the following:

Credit Facility

On July 10, 2008, the Company amended the existing amended and restated credit agreement (the “Credit Facility”) with its lenders primarily to allow for an asset securitization facility of up to $125,000 and to amend certain other terms and covenants.  Coincident with the amendment, the Company exercised the accordion feature of the Credit Facility to increase the Credit Facility to $370,000 from $350,000.  The Credit Facility bears interest at either:  (i) LIBOR plus between 0.625% and 2.00%; (ii) the prime rate; or (iii) an overnight rate at the option of the Company. The applicable interest rate is based upon the Company’s ratio of total indebtedness to earnings before interest, taxes, depreciation and amortization. In addition, the Company is required to pay a commitment fee of between 0.175% and 0.400% on the unused portion of the Credit Facility.

At September 30, 2008, there were $166,936 in borrowings and $5,966 in letters of credit outstanding under the facility.  At March 31, 2008 there were $193,750 in borrowings and $5,941 in letters of credit outstanding under the facility.  The level of unused borrowing capacity under the Company’s revolving credit facility varies from time to time depending in part upon its compliance with financial and other covenants set forth in the related agreement.  The Company is currently in compliance with all such covenants.  As of September 30, 2008, the Company had borrowing capacity under this facility of $197,098 after reductions for borrowings and letters of credit outstanding under the facility.

Convertible Senior Subordinated Notes

On September 18, 2006, the Company issued $201,250 in convertible senior subordinated notes (the “Notes”). The Notes are direct, unsecured, senior subordinated obligations of the Company, and rank (i) junior in right of payment to all of the Company’s existing and future senior indebtedness, (ii) equal in right of payment with any other future senior subordinated indebtedness, and (iii) senior in right of payment to all subordinated indebtedness.  The Notes bear interest at a fixed rate of 2.625% per annum, payable in cash semi-annually in arrears on each April 1 and October 1 beginning April 1, 2007.

The Notes are eligible for conversion upon meeting certain conditions as provided in the indenture governing the Notes. For the fiscal quarter ended September 30, 2008 the Notes were not eligible for conversion.  Accordingly, the Company has classified the Notes as long-term as of September 30, 2008.

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Triumph Group, Inc.

Notes To Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

6.  LONG-TERM DEBT (Continued)

To be included in the calculation of diluted earnings per share, the average price of the Company’s common stock for the quarter must exceed the conversion price per share of $54.45. The average price of the Company’s common stock for the fiscal quarter ended September 30, 2008 and September 30, 2007 was $50.36 and $74.95, respectively.  Therefore, as of the fiscal quarter ended September 30, 2008, there were no additional shares included in the diluted earnings per share calculation.  As of the fiscal quarter ended September 30, 2007, there were an additional 1,010,840 shares included in the diluted earnings per share calculation.  The average price of the Company’s common stock for the six months ended September 30, 2008 and September 30, 2007 was $54.65 and $68.82, respectively.  Therefore, as of the six months ended September 30, 2008 and September 30, 2007, there were an additional 13,425 and 771,587 shares, respectively, included in the diluted earnings per share calculation.

Interest Rate Swap

The Company uses an interest rate swap, a type of derivative financial instrument, to manage interest costs and minimize the effects of interest rate fluctuations on cash flows associated with its Credit Facility.  The Company does not use derivatives for trading or speculative purposes.  While interest rate swaps are subject to fluctuations in value, these fluctuations are generally offset by the value of the underlying exposures being hedged.  The Company has assessed the counterparty credit risk related to this agreement and has identified no material impact to the fair values as of September 30, 2008.  The Company accounts for its interest rate swap in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, (“SFAS 133”), which requires that all derivatives be recorded on the balance sheet at fair value.  SFAS 133 also requires that changes in the fair value be recorded each period in current earnings or other comprehensive income, depending on whether a derivative has been designated as part of a hedge transaction and, if it is, depending on the type of hedge transaction.  Interest rate swaps are designated as cash flow hedges.  Changes in the fair value of a cash flow hedge, to the extent the hedge is effective, are recorded, net of tax, in other comprehensive income (loss), a component of stockholders’ equity, until earnings are affected by the variability of the hedged cash flows.  Cash flow hedge ineffectiveness, defined as the extent that the changes in the fair value of the derivative exceed the variability of cash flows of the forecasted transaction, is recorded currently in earnings.

In March 2008, the Company entered into an $85,000 floating-to-fixed interest rate swap agreement (the “Swap”), maturing June 2011.  Under the Swap, the Company receives interest equivalent to the one-month LIBOR and pays a fixed rate of interest of 2.925 percent with settlements occurring monthly.  The objective of the hedge is to eliminate the variability of cash flows in interest payments for $85,000 of floating rate debt.  To maintain hedge accounting for the Swap, the Company is committed to maintaining at least $85,000 in borrowings at an interest rate based on one-month LIBOR, plus an applicable margin, through June 2011.  The Swap’s fair value of $1,289 at September 30, 2008 is included in other assets on the consolidated balance sheet and the corresponding change in fair value, net of tax, is included in other comprehensive income, a component of stockholders’ equity.  For the six months ended September 30, 2008, $102 of losses were reclassified into earnings from accumulated other comprehensive income.

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Triumph Group, Inc.

Notes To Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

6.  LONG-TERM DEBT (Continued)

Asset Securitization Program

In August 2008, the Company entered into a receivable securitization facility (“Securitization Facility”).  In connection with the Securitization Facility, the Company sells on a revolving basis certain accounts receivable to Triumph Receivables, LLC, a wholly owned special purpose entity, which in turn sells a percentage ownership interest in the receivables to commercial paper conduits sponsored by financial institutions.  The Company is the servicer of the accounts receivable under the Securitization Facility.  As of September 30, 2008, the maximum amount available under the facility, which currently expires in August 2013, was $125,000.  Interest rates are based on prevailing market rates for short-term commercial paper plus a program fee and a commitment fee.  The program fee is 35 basis points at September 30, 2008.  Additionally, the commitment fee is 30 basis points at September 30, 2008.  At September 30, 2008, there were no borrowings outstanding under the Securitization Facility.  In connection with entering into the Securitization Facility, the Company incurred approximately $590 of costs, which were deferred and are being amortized over the life of the facility.  The Company securitizes its accounts receivable, which are generally non-interest bearing, in transactions that are accounted for as borrowings under SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.”

The agreement governing the Securitization Facility contains restrictions and covenants which include limitations on the making of certain restricted payments, creation of certain liens, and certain corporate acts such as mergers, consolidations and sale of substantially all assets.

7.  FAIR VALUE MEASUREMENTS

In September 2006, the FASB issued SFAS 157, Fair Value Measurements.  This Statement defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and expands disclosures about fair value measurements.  On April 1, 2008, the provisions of SFAS 157 became effective for financial assets and financial liabilities of the Company.

SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  SFAS 157 classifies the inputs used to measure fair value into the following hierarchy:

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Triumph Group, Inc.

Notes To Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

7.  FAIR VALUE MEASUREMENTS (Continued)

The following table provides the assets reported at fair value and measured on a recurring basis as of September 30, 2008:

The fair value of the derivative contract is determined using observable current market information as of the reporting date such as the prevailing LIBOR-based interest rate.

8.  EARNINGS PER SHARE

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

9.  INCOME TAXES

Effective April 1, 2007, the Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”).  The cumulative effect of adoption of FIN 48 has been recorded as a charge of $291 to retained earnings, an increase of $66 to net deferred income tax liabilities and an increase of $225 to income taxes payable as of April 1, 2007.

In conjunction with the adoption of FIN 48, the Company has classified uncertain tax positions as non-current income tax liabilities unless expected to be paid in one year.  Penalties and tax-related interest expense are reported as a component of income tax expense.  As of September 30, 2008 and March 31, 2008, the total amount of accrued income tax-related interest and penalties was $493 and $433, respectively.

As of September 30, 2008 and March 31, 2008, the total amount of unrecognized tax benefits was $2,995 and $2,950, respectively, of which $2,743 and $2,698, respectively, would impact the effective rate, if recognized.  The Company anticipates that total unrecognized tax benefits may be reduced by approximately $1,140 due to the expiration of statutes of limitation for various federal tax issues in the next 12 months.

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Triumph Group, Inc.

Notes To Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

9.  INCOME TAXES (Continued)

As of September 30, 2008, the Company’s previous examinations in state jurisdictions were settled without adjustment.  The Company has filed appeals in a state jurisdiction related to fiscal years ended March 31, 1999 through March 31, 2005.  The Company believes appropriate provisions for all outstanding issues have been made for all jurisdictions and all open years.

With few exceptions, the Company is no longer subject to U.S. federal income tax examinations for fiscal years ended before March 31, 2005, state or local examinations for fiscal years ended before March 31, 2004, or foreign income tax examinations by tax authorities for fiscal years ended before March 31, 2006.

10.  GOODWILL

The following is a summary of the changes in the carrying value of goodwill by reportable segment, from March 31, 2008 through September 30, 2008:

11.  SEGMENTS

The Company is organized based on the products and services that it provides. Under this organizational structure, the Company has two reportable segments: the Aerospace Systems Group and the Aftermarket Services Group. The Company evaluates performance and allocates resources based on operating income of each reportable segment. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies (see Note 2). Each segment has a president and controller who manage their respective segment. The segment president reports directly to the President and CEO of the Company, the Chief Operating Decision Maker (“CODM”), as defined in SFAS No. 131, Disclosure about Segments of an Enterprise and Related Information.  The segment presidents maintain regular contact with the CODM to discuss operating activities, financial results, forecasts and plans for the segment. The segment controllers have dual reporting responsibilities, reporting to both their segment president as well as the Corporate Controller.  The Company’s CODM evaluates performance and allocates resources based upon review of segment information. The CODM utilizes operating income as a primary measure of profitability.

Our Aerospace Systems segment consists of 34 operating locations, and the Aftermarket Services segment consists of 17 operating locations at September 30, 2008.

The Aerospace Systems segment consists of the Company’s operations that manufacture products primarily for the aerospace OEM market. The segment’s operations design and engineer mechanical and electromechanical controls, such as hydraulic systems, main engine gearbox assemblies, accumulators and

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Triumph Group, Inc.

Notes To Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

11.  SEGMENTS (Continued)

mechanical control cables. The segment’s revenues are also derived from stretch forming, die forming, milling, bonding, machining, welding and assembly and fabrication of various structural components used in aircraft wings, fuselages and other significant assemblies. Further, the segment’s operations also design and manufacture composite assemblies for floor panels, environmental control system ducts and non-structural cockpit components.  These products are sold to various aerospace OEMs on a global basis.

The Aftermarket Services segment consists of the Company’s operations that provide maintenance, repair and overhaul services to both commercial and military markets on components and accessories manufactured by third parties. Maintenance, repair and overhaul revenues are derived from services on auxiliary power units, airframe and engine accessories, including constant-speed drives, cabin compressors, starters and generators, and pneumatic drive units. In addition, the segment’s operations repair and overhaul thrust reversers, nacelle components and flight control surfaces.  The segment’s operations also perform repair and overhaul services and supply spare parts for various types of cockpit instruments and gauges for a broad range of commercial airlines on a worldwide basis.

Segment operating income is total segment revenue reduced by operating expenses identifiable with that segment. Corporate includes general corporate administrative costs and any other costs not identifiable with one of the Company’s segments.

The Company does not accumulate net sales information by product or service or groups of similar products and services, and therefore the Company does not disclose net sales by product or service because to do so would be impracticable.

Selected financial information for each reportable segment is as follows:

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Triumph Group, Inc.

Notes To Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

11.  SEGMENTS (Continued)

During the three months ended September 30, 2008 and 2007, the Company had international sales of $69,277 and $58,166, respectively.  During the six month period ended September 30, 2008 and 2007, the Company had international sales of $140,419 and $114,347, respectively.

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Item 2.  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 contained elsewhere herein.)

OVERVIEW

We are a major supplier to the aerospace industry and have two operating segments: (i) Triumph Aerospace Systems Group, whose companies design, engineer and manufacture a wide range of proprietary and build to print components, assemblies and systems primarily for the global aerospace OEM market; and (ii) Triumph Aftermarket Services Group, whose companies serve aircraft fleets, notably commercial airlines, the U.S. military and cargo carriers, through the maintenance, repair and overhaul of aircraft components and accessories manufactured by third parties.

Financial highlights for the three and six months ended September 30, 2008 include:

·                  Net sales for the second quarter of the fiscal year ending March 31, 2009 increased 16% to $323.4 million

·                  Operating income in the second quarter of fiscal 2009 increased 34% to $42.7 million

·                  Income from continuing operations for the second quarter of fiscal 2009 increased 39% to $26.1 million

·                  Backlog increased 7% over the second quarter of the prior year to $1.3 billion

·                  Income from continuing operations of $1.57 per diluted common share for the second quarter was a 50% increase versus the prior year quarter

·                  For the first six months of fiscal 2009, we generated $51.0 million of cash flow from operating activities

OUTLOOK

Based upon the market assumptions included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2008, we are reaffirming our revenue guidance and increasing full year earnings per share from continuing operations to be at least $5.40.  This reflects our conclusion that the net overall effect of the existing positive and negative trends in our markets and the economy generally, although difficult to assess, will support such financial results.  Among the positive trends we have considered are the following:

·                  Recent statements by Boeing and Airbus indicating continued strength in general in their end markets.

·                  Recent statements by Boeing that financing remains available to its customers through third parties and, if it becomes necessary in some cases, could be made available to its customers through Boeing’s credit arm.

·                  The continued financial and operational strength generally reported by the other aircraft manufacturers that we serve.

·                  Recent indications that U.S. air carriers are beginning efforts to modernize their fleets, which could lead to increased or extended demand for new aircraft containing our products.

·                  Continued strength in orders received by our companies from customers in all of our markets: commercial, regional, business and military.

·                  The potential of higher oil prices, which has increased demand for new, more fuel-efficient aircraft containing our products.

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We continue to monitor the effects of significant negative trends that have the potential to adversely affect our business, including without limitation the following:

·                  The current work stoppage at Boeing by its largest union, which has already had a modest adverse impact on our financial results, and would have a more significant adverse impact on our future results depending on its duration, which is uncertain.

·                  The severe reduction in the worldwide availability of credit in the financial markets, which, if prolonged, has the potential to adversely affect sales of aircraft containing our products.

·                  The possibility that the current reduction in economic activity being experienced in the U.S. and, to varying degrees, around the world will adversely affect the demand for air travel and, in turn, the demand for aerospace products and services.

·                  A continuation of the extreme fluctuations in the price of oil, or the possibility of a return to high prices for oil, which could increase the cost of air travel and consequently adversely affect demand for our products and services.

While our assessment of the foregoing conflicting trends leads us presently to expect the increased earnings per share for fiscal year 2009 noted above, there can be no assurance that our assessment of these trends will prove to be correct, nor any assurance that other events or trends will cause our actual results to differ from those expected.

RESULTS OF OPERATIONS

Quarter ended September 30, 2008 compared to quarter ended September 30, 2007

Net sales increased by $43.6 million, or 15.6%, to $323.4 million for the quarter ended September 30, 2008 from $279.8 million for the quarter ended September 30, 2007.  The acquisition of the assets of B. & R. Machine & Tool Corp. (“B&R”), now Triumph Structures – Long Island, LLC, contributed $12.4 million of the net sales increase.  Organic sales growth was $31.2 million, or 11.2%.

The Aerospace Systems segment benefited primarily from increased sales to our OEM customers driven by increased aircraft build rates, increased market penetration and the additional sales associated with the

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acquisition of the assets and business of B&R, while the increase in sales for our Aftermarket Services segment was the result of increased demand for our services as a result of increased market penetration.

Segment operating income increased by $13.5 million, or 37.4%, to $49.4 million for the quarter ended September 30, 2008 from $36.0 million for the quarter ended September 30, 2007.  Operating income growth was a direct result of margins attained on increased sales volume as described above, improved execution, the contribution from the B&R acquisition and reduced litigation costs, partially offset by increases in payroll, power-by-the-hour contract charges, depreciation and amortization, and healthcare expenses.

Corporate expenses increased by $2.6 million, or 62.7%, to $6.7 million for the quarter ended September 30, 2008 from $4.1 million for the quarter ended September 30, 2007.  However, excluding a $0.5 million insurance reimbursement related to product liability claims in the prior year quarter and a decline in litigation costs of $0.3 million, corporate expenses increased only $1.8 million primarily due to workers compensation and healthcare expenses.

Interest expense and other decreased by $0.5 million, or 14.0%, to $3.1 million for the quarter ended September 30, 2008 compared to $3.6 million for the prior year period.  This decrease was due to lower interest rates on our revolving credit facility partially offset by seller note interest and interest on capital leases.

The effective income tax rate for the quarter ended September 30, 2008 was 34.2% compared to 33.8% for the quarter ended September 30, 2007.  The increase in the tax rate was primarily due to the expiration of the research and experimentation tax credit in December 2007.  In the third quarter ending December 31, 2008, we will recognize the benefit of the retroactive reinstatement of the research and experimentation tax credit back to January 1, 2008.  This will result in a global effective tax rate for the full fiscal year ending March 31, 2009 of approximately 32.5%.

Loss from discontinued operations before income taxes was $1.7 million for the quarter ended September 30, 2008, compared with a loss from discontinued operations before income taxes of $2.3 million.  The benefit for income taxes remained unchanged at $0.6 million for the quarter ended September 30, 2008 compared to the prior year period.

Business Segment Performance

The Aerospace Systems segment consists of the Company’s operations that manufacture products primarily for the aerospace OEM market. The Aerospace Systems segment’s operations design and engineer mechanical and electromechanical controls, such as hydraulic systems and components, main engine gearbox assemblies, accumulators and mechanical control cables. The Aerospace Systems segment’s revenues are also derived from stretch forming, die forming, milling, bonding, machining, welding and assembly and fabrication of various structural components used in aircraft wings, fuselages and other significant assemblies. Further, the segment’s operations also design and manufacture composite assemblies for floor panels, environmental control system ducts and non-structural cockpit components.  These products are sold to various aerospace OEMs on a global basis.

The Aftermarket Services segment consists of the Company’s operations that provide maintenance, repair and overhaul services to both commercial and military markets on components and accessories manufactured by third parties. Maintenance, repair and overhaul revenues are derived from services on auxiliary power units, airframe and engine accessories, including constant-speed drives, cabin compressors, starters and generators, and pneumatic drive units. In addition, the Aftermarket Services segment’s operations repair and overhaul thrust reversers, nacelle components and flight control surfaces. The Aftermarket Services operations also perform repair and overhaul services, and supply spare parts for various types of cockpit instruments and gauges for a broad range of commercial airlines on a worldwide basis.

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Business Segment Performance – Three months ended September 30, 2008 compared to three months ended September 30, 2007.