<PAGE>
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Period Ended September 30, 1996
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 Number: 1-12235
------------
TRIUMPH GROUP, INC.
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(Exact name of registrant as specified in its charter)
Delaware 51-0347963
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1255 Drummers Lane, Suite 200
Wayne, PA 19087-1565
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(610) 975-0420
- -----------------------------------------------------------------------------
(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 periods 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 X
----- -----
(Subject to filing requirements since October 24, 1996)
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, $0.001 Par Value 10,024,588 shares as of October 31, 1996
<PAGE>
TRIUMPH GROUP, INC.
INDEX
Part I. Financial Information Page Number
-----------
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets 1
March 31, 1996 and September 30, 1996
Consolidated statements of income 3
Three months ended September 30, 1995 and 1996;
Six months ended September 30, 1995 and 1996.
Consolidated statements of cash flows 4
Six months ended September 30, 1995 and 1996
Notes to condensed consolidated financial statements 6
September 30, 1996
Item 2. Managment's Discussion and Analysis of Financial 15
Condition and Results of Operations.
Part II. Other Information
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 20
Item 3. Defaults upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
Signature Page 21
<PAGE>
Triumph Group, Inc.
Condensed Consolidated Balance Sheets
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1996 1996
-------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 539 $ 618
Accounts receivable, less allowance for
doubtful accounts of $973 and $1,585,
respectively 29,680 40,355
Inventories 45,098 52,449
Estimated net realizable value of business
sold or discontinued, current 27,350 --
Prepaid expenses and other 698 1,535
Deferred income taxes 1,917 2,907
-----------------------
Total current assets 105,282 97,864
Property and equipment, less accumulated
depreciation of $6,718 and $8,838 36,552 44,431
Excess of cost over net assets acquired, less
accumulated amortization of $105 and
$362, respectively 10,339 13,762
Intangible assets, less accumulated amortization
of $1,110 and $1,582, respectively 6,680 10,514
Other assets 2,553 2,291
-----------------------
Total assets $ 161,406 $ 168,862
-----------------------
-----------------------
</TABLE>
1
<PAGE>
Triumph Group, Inc.
Condensed Consolidated Balance Sheets (continued)
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1996 1996
-------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 18,203 $ 18,422
Accrued expenses 15,757 15,410
Income taxes payable 2,137 3,267
Current portion of long-term debt 8,806 5,400
----------------------
Total current liabilities 44,903 42,499
Long-term debt, less current portion 89,963 90,798
Other liabilities 1,992 4,908
Deferred income taxes 6,831 9,133
Redeemable preferred stock, 14% cumulative,
$.01 par value 30,575 shares authorized
and issued 2,652 3,062
Common stockholders' equity:
Common stock, $.001 par value:
Class A--6,500,455 shares authorized;
1,300,000 shares issued 1 1
Class B convertible--4,550,000 shares
authorized and issued 5 5
Class C convertible--455 shares authorized
and issued -- --
Capital in excess of par value 1,006 1,862
Treasury stock, at cost -- (10)
Retained earnings 14,053 16,604
------------------------
Total common stockholders' equity 15,065 18,462
------------------------
Total liabilities and common stockholders' equity $ 161,406 $ 168,862
------------------------
------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
2
<PAGE>
Triumph Group, Inc.
Consolidated Statements of Income
(dollars in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1995 1996
------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 43,702 $ 63,916 $ 86,076 $ 119,100
Operating costs and expenses:
Cost of products sold 33,114 45,540 65,192 84,686
Selling, general, and
administrative 6,254 10,278 12,528 19,711
Depreciation and amortization 758 1,597 1,479 2,855
-------------------------------------------
40,126 57,415 79,199 107,252
Operating income 3,576 6,501 6,877 11,848
Interest expense 1,684 2,118 3,284 4,404
-------------------------------------------
Income from continuing
operations, before income
taxes 1,892 4,383 3,593 7,444
Income tax expense 761 1,753 1,448 3,005
-------------------------------------------
Income from continuing
operations 1,131 2,630 2,145 4,439
Extraordinary loss, net of
income taxes -- (1,478) -- (1,478)
Income from discontinued
operations 64 -- 173 --
------------------------------------------
Net income $ 1,195 $ 1,152 $ 2,318 $ 2,961
------------------------------------------
------------------------------------------
Income from continuing
operations per share $ .18 $ .38 $ .34 $ .65
Extraordinary loss per share -- (.20) -- (.20)
Income from discontinued
operations per share .01 -- .02 --
------------------------------------------
Net income per share $ .19 $ .18 $ .36 $ .45
------------------------------------------
------------------------------------------
Shares used in computing
income per share
(in thousands) 7,292 7,388 7,292 7,386
------------------------------------------
------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
Triumph Group, Inc.
Consolidated Statements of Cash Flows
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1996
-------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,318 $ 2,961
Adjustments to reconcile net income
to net cash provided by operating
activities:
Discontinued operations (5,091) --
Depreciation and amortization 1,479 2,855
Other amortization included in
interest expense 126 139
Provision for doubtful receivables 88 279
Provision for deferred income taxes 289 120
Interest on subordinated promissory
note and junior subordinated
promissory notes paid by issuance
of additional notes 554 1,124
Write-off of deferred financing costs -- 923
Compensation in stock options issued
to employee -- 80
Changes in assets and liabilities,
net of acquisitions and dispositions
of businesses:
Accounts receivable (200) (6,407)
Inventories (4,166) (6,199)
Prepaid expenses and other current
assets (156) (822)
Accounts payable, accrued expenses,
and accrued income taxes payable (4,453) (2,033)
Other 135 (1,784)
-------------------------------
Net cash provided by (used in)
operating activities (9,077) (8,764)
INVESTING ACTIVITIES
Capital expenditures, net (1,317) (1,999)
Proceeds from sale of property and
equipment of discontinued operation -- 27,350
Cost of businesses acquired, net of
cash acquired -- (7,950)
-------------------------------
Net cash (used in) provided by
investing activities (1,317) 17,401
</TABLE>
4
<PAGE>
Triumph Group, Inc.
Consolidated Statements of Cash Flows (continued)
(dollars in thousands)
(unaudited
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1996
----------------------------
<S> <C> <C>
FINANCING ACTIVITIES
Net (decrease) increase in revolving credit
facility, excluding refinancing $ 11,550 $ (2,801)
(Purchase) sale of treasury stock, net 21 (10)
Proceeds from issuance of long-term debt 23 54,065
Retirement of long-term debt -- (54,366)
Payments of long-term debt (1,419) (4,936)
Payment of deferred financing costs -- (510)
-------------------------
Net cash (used in) provided by financing activities 10,175 (8,558)
-------------------------
(Decrease) increase in cash (219) 79
Cash at beginning of period 746 539
-------------------------
Cash at end of period $ 527 $ 618
-------------------------
-------------------------
NONCASH INVESTING AND FINANCING ACTIVITIES
Assumption of liabilities related to acquisitions $ 10,386
Covenant not to compete contract liability
related to acquisition 2,800
Stock options issued in conjunction with acquisition 164
Redeemable preferred stock issued in lieu of
cash dividend payments and accretion to
face value $ 339 410
</TABLE>
SEE ACCOMPANYING NOTES.
5
<PAGE>
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles 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 generally accepted accounting
principles 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-month periods ended September 30, 1996 are not necessarily
indicative of the results that may be expected for the year ended March 31,
1997. For further information, refer to the consolidated financial statements
and footnotes thereto for the year ended March 31, 1996 included in the
Company's Form S-1 effective with the Securities and Exchange Commission on
October 24, 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Triumph's aviation segment designs, engineers, manufactures, or repairs and
overhauls aircraft components for commercial airlines, air cargo carriers,
and original equipment manufacturers on a worldwide basis. Triumph's metals
segment manufactures, machines, forges, processes, and distributes metal
products to customers in the computer, construction, container, farm
equipment, and office furniture industries, primarily within North America.
EARNINGS PER SHARE
Earnings per share is computed using the weighted average number of shares of
common stock outstanding after giving effect to the 65-for-one stock split
described in Note 8, except as noted below. Pursuant to the Securities and
Exchange Commission Staff Accounting Bulletins and Staff policy, common and
preferred shares, options, and warrants issued during the period commencing
12 months prior to the initial filing of the proposed initial public offering
at prices below the public offering price are presumed to have been in
contemplation of the public offering and have been included in the
calculation as if they were outstanding for all periods presented, determined
using the treasury stock method and the price from the initial public
offering. In addition, common share equivalents such as warrants and options
are included in the computation.
6
<PAGE>
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(dollars in thousands, except per share data)
(Unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE (CONTINUED)
Earnings per share reflected in the consolidated statements of income has
been computed as described above, but also gives effect to the exchange of
all outstanding 14% junior subordinated promissory notes, a portion of the
10.5% junior subordinated promissory notes and preferred stock for common
stock upon the closing of the Company's initial public offering (determined
using the if-converted method) as described in Note 8. Additionally, income
from continuing operations has been increased to reflect interest related to
the junior subordinated promissory notes net of income tax expense. Primary
and fully diluted earnings per share are the same.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions (for example, long-term contract revenue recognition and
postretirement benefits) that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
3. ACQUISITION
On July 31, 1996, the Company acquired all of the outstanding stock of
Advanced Materials Technologies, Inc. ("AMTI") based in Tempe, Arizona for an
aggregate purchase price of $21,300, including cash consideration of $7,950,
an option to purchase 13,000 shares of the Company's Class A Common Stock at
an exercise price of $1.87 per share valued at $164, a five-year covenant
not-to-compete contract valued at $2,800 and the assumption of liabilities
and costs related to the transaction of $10,386. AMTI repairs and refurbishes
gas turbine engine components used in the aviation industry. The acquisition
was accounted for under the purchase method, and the purchase price was
allocated to the assets based on their estimated fair values, with any excess
recorded as cost over net assets acquired. The acquisition was funded through
the Company's long-term borrowings.
7
<PAGE>
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(dollars in thousands, except per share data)
(Unaudited)
3. ACQUISITIONS (CONTINUED)
The following pro forma results of operations for the six months ended
September 30, 1995 and 1996, have been prepared assuming the purchase of AMTI
had taken place at the beginning of the respective periods:
SIX MONTHS ENDED
SEPTEMBER 30,
1995 1996
-------------------------
Net sales $ 92,817 $127,581
Income from continuing operations 2,315 5,446
Income from continuing operations
per share 0.36 0.79
The 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, plant, and equipment acquired,
and the amortization of the intangible assets arising from the transaction.
The pro forma financial information is not necessarily indicative of the
results of operations as they would have been had the transaction been
effected on the assumed dates.
8
<PAGE>
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(dollars in thousands, except per share data)
(Unaudited)
4. DISCONTINUED PAPER OPERATIONS
On March 31, 1996, the Company sold substantially all of the assets of its
paper converting subsidiary, Quality Park Products, Inc. of St. Paul, MN, to
Mail-Well, Inc. for approximately $27,350 in cash and supplemental payments
and the assumption by the purchaser of certain liabilities.
The results of Quality Park Products, Inc. have been reported separately as a
component of discontinued operations in the Consolidated Statements of Income.
The following is a summary of the results of operations of the Company's paper
converting business:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1995 1996
----------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 23,881 $ -- $ 48,202 $ --
Income from operations $ 64 $ -- $ 173 $ --
</TABLE>
9
<PAGE>
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(dollars in thousands, except per share data)
(Unaudited)
5. INVENTORIES
The components of inventories are as follows:
MARCH 31, SEPTEMBER 30,
1996 1996
-----------------------------
Raw materials $ 16,093 $ 18,079
Work-in-process 12,862 14,850
Finished goods 16,570 19,947
--------- ---------
Total inventories at current FIFO cost 45,525 52,876
Less allowance to reduce certain current
FIFO costs to LIFO basis 427 427
-----------------------------
Total inventories $ 45,098 $ 52,449
-----------------------------
-----------------------------
Inventories would have been $427 higher than reported at March 31, 1996 and
September 30, 1996 if the first-in, first-out method of determining cost had
been used for all inventories. Approximately 15% and 16% of the inventory is
valued using the LIFO method at March 31, 1996 and September 30, 1996,
respectively.
6. LONG-TERM DEBT
Long-term debt consists of the following:
MARCH 31, SEPTEMBER 30,
1996 1996
-----------------------------
Revolving credit facility $ 22,157 $ 29,746
Senior term loans 32,460 35,000
Senior subordinated notes 14,900 -
Subordinated promissory notes 19,000 19,443
Junior subordinated promissory notes 9,575 10,290
Other debt and capital lease obligations 677 1,719
-----------------------------
98,769 96,198
Less current portion 8,806 5,400
-----------------------------
$89,963 $90,798
-----------------------------
-----------------------------
10
<PAGE>
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(dollars in thousands, except per share data)
(Unaudited)
6. LONG-TERM DEBT (CONTINUED)
On July 19, 1996, the Company entered into an unsecured five-year credit
agreement for a $50,000 revolving credit facility and a $35,000 term loan.
Both credit instruments bear interest at either LIBOR plus between 0.63% and
1.88% or prime plus between 0% and 0.38% at the option of the Company. The
variation in the interest rate is based upon the Company's ratio of total
indebtedness to earnings before interest, taxes, and depreciation and
amortization. In addition, the Company is required to pay a commitment fee of
between 0.2% and 0.45% on the unused portion of the revolving credit facility
based upon the ratio described above. Principal payments on the term loan of
$1,250 are made quarterly with a final balloon payment of $11,250 due on July
1, 2001. The Company may repay amounts owed under the credit agreement or
reduce the revolving credit facility commitment without penalty.
Additionally, the Company may allocate up to $5,000 of the available
revolving credit facility for the issuance of letters of credit.
The proceeds of the new term loan, amounts borrowed under the new
revolving credit facility and the proceeds received from the sale of Quality
Park Products, Inc. (see Note 4) were used to extinguish the outstanding
balances of the revolving credit facility, the senior term loans, and the
senior subordinated notes existing at March 31, 1996. The extinguishment of
this debt resulted in an extraordinary loss of $1,478, net of an income tax
benefit of $985.
The Subordinated Promissory Notes consist of two notes, a $13,500
principal amount bearing interest at 10%, and due in equal installments on
June 1, 2002 and June 1, 2003 and $5,943 principal amount bearing interest at
10.5%, and due in equal installments on December 31, 2002 and December 31,
2003.
The Junior Subordinated Promissory Notes ("Junior Notes") consist of
unsecured obligations of the Company and one of its subsidiaries. The Junior
Notes of the Company, $8,800 and $9,440 at March 31, 1996 and September 30,
1996, respectively, are subordinated to all liabilities of the Company and
its subsidiaries and bear interest at 14%. The Company, in its sole
discretion, may pay interest by issuance of additional Junior Notes and
elected to do so for $554 and $637 for the six months ended September 30,
1995 and 1996, respectively. On October 30, 1996, the Junior Notes of
the Company were exchanged for Common Stock of the Company in conjunction
with the Company's initial public offering described in Note 8.
11
<PAGE>
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(dollars in thousands, except per share data)
(Unaudited)
6. LONG-TERM DEBT (CONTINUED)
In January 1996, additional Junior Notes of one of the Company's subsidiaries
were issued in the amount of $760 and are subordinated to all liabilities of
the subsidiary and the majority of the indebtedness of the Company and its
subsidiaries pursuant to the revolving credit facility, the senior term
loans, and the senior subordinated notes and bear interest at 10.5%. The
subsidiary, in its sole discretion, may pay interest by issuance of
additional Junior Notes and elected to do so for $43 for the six months ended
September 30, 1996. These Junior Notes are due in equal installments on
December 31, 2005 and 2006, although the holders of the notes have no right
to demand payment of principal until all superior debt, as defined, has been
paid in full. On October 30, 1996, $492 of these Junior Notes were exchanged
for common stock in conjunction with the Company's initial public offering
described in Note 8.
The indentures under the debt agreements described above contain restrictions
and covenants which include limitations on the Company's ability to incur
additional indebtedness, issue stock, options, or warrants (excluding the
initial public offering and employee stock option plan described in Note 8),
make certain restricted payments and acquisitions, create liens, enter into
transactions with affiliates, sell substantial portions of its assets, make
capital expenditures and pay cash dividends.
Additional covenants require compliance with financial tests, including
current ratio, leverage, interest coverage ratio, and maintenance of minimum
net worth. As of the closing of the Company's initial public offering on
October 30, 1996, the entire $50,000 was available under the revolving credit
facility.
Interest paid on indebtedness during the six months ended September 30,
1995 and 1996 amounted to $3,662 and $3,872, respectively.
On July 19, 1996, in conjunction with the refinancing, $923 in unamortized
deferred financing fees related to the extinguished debt were written-off and
an additional $510 in financing fees related to the new credit agreement were
capitalized.
12
<PAGE>
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(dollars in thousands, except per share data)
(Unaudited)
7. COMMITMENTS AND CONTINGENCIES
During 1995, the Company entered into a consulting agreement for total
consideration of $1,300 payable in annual installments, which expires on
April 30, 2001.
Certain of the Company's business operations and facilities are subject to
a number of federal, state, and local environmental laws and regulations. The
Company is indemnified for environmental liabilities related to assets
purchased from Alco which existed prior to the acquisition by the Company and
any unidentified environmental liabilities which arise subsequent to the date
of settlement through July 22, 2000, arising from conditions or activities
existing at these facilities prior to the acquisition. In the opinion of
management, there are no significant environmental concerns which would have
a material effect on the financial condition or operating results of the
Company which are not covered by such indemnification.
The Company is involved in certain litigation matters arising out of its
normal business activities. In the opinion of management, the ultimate
resolution of such litigation will not have a material effect on the
financial condition or operating results of the Company.
8. SUBSEQUENT EVENTS
On October 30, 1996, the Company completed the sale of 2,500,000 shares of
its common stock for $19.00 a share through an underwritten public offering
and the sale of 125,000 shares of its common stock for $17.67 a share through
a direct sale by the Company. The net proceeds from the sales are estimated
to be $45,334. Of the total net proceeds, $37,997 was used to pay down a
portion of the Company's long-term borrowings under its five-year credit
agreement and 10% subordinated promissory note (see Note 6).
On October 30, 1996, in conjunction with the sale of common stock, the
Company recapitalized the common stock through a 65-for-one stock split. All
references to earnings per share data in the financial statements have been
restated to give effect to the stock split.
On October 30, 1996, in conjunction with the public offering described
above, the Company exchanged all outstanding preferred stock for common
stock. The liquidation value of the preferred stock plus accumulated
dividends at the date of the exchange of $4,858 was converted to 281,318
shares of common stock at the initial public offering price of $19.00 (less
underwriting discounts and commissions and estimated offering expenses
payable by the Company).
13
<PAGE>
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(dollars in thousands, except per share data)
(Unaudited)
8. SUBSEQUENT EVENTS (CONTINUED)
In addition, on October 30, 1996, the Company exchanged all outstanding 14%
junior notes and a portion of outstanding 10.5% junior notes for common
stock. The face value of the junior notes exchanged plus accrued but unpaid
interest at the date of exchange of $10,006 was exchanged for 579,395 shares
of common stock at the initial public offering price of $19.00 (less
underwriting discounts and commissions and estimated offering expenses
payable by the Company).
The Company adopted the 1996 Stock Option Plan (the "Plan") which became
effective on October 30, 1996. The Plan provides for grants of stock options
to officers and key employees of the Company.
On November 20, 1996, the Company completed the sale of 375,000 shares of its
Common Stock for $19.00 a share pursuant to the exercise of the underwriters'
30-day over-allotment option described in the Company's Form S-1 effective
with the Securities and Exchange Commission on October 24, 1996.
14
<PAGE>
Management's Discussion And Analysis of
Financial Condition and Results of Operations
Result of Operations
Revenues for the three month period ended September 30, 1996 increased 46% to
$63.9 million from $43.7 million for the three month period ended
September 30, 1995. Revenues for the six month period ended September 30,
1996 increased 38% to $119.1 million from $86.1 million for the six month
period ended September 30, 1995. The increase in revenue reflects the
aviation group's acquisitions of Triumph Controls, Inc. (TCI) Air Lab, Inc.
(Air Lab) and AMTI accounting for $15.8 million and $28.0 million of the
increase for the three and six months ended September 30, 1996, respectively.
The remaining operating divisions and subsidiaries in the aviation group
experienced a 19% and 14% increase for the three months and six months ended
September 30, 1996, respectively, due to higher activity in the repair and
overhaul markets and increased orders from OEMs. The increase in revenue was
partially offset by the metals group which experienced a sales decrease of
2.0% in the six months ended September 30, 1996, which was primarily due to
weakened demand and lower selling prices for flat-rolled steel products
processed by the Company.
Cost of goods sold for the three month period ended September 30, 1996 was
71.3% of sales compared to 75.8% for the three month period ended
September 30, 1995. Cost of goods sold for the six month period ended
September 30, 1996 was 71.1% of sales compared to 75.7% for the six month
period ended September 30, 1995. The improvement was primarily related to the
inclusion of the aviation group's acquisitions of TCI, Air Lab and AMTI.
Selling, general and administrative expenses for the three month period ended
September 30,1996 increased $4.0 million to $10.3 million from $6.3 million
for the three month period ended September 30, 1995. For the six month
period ended September 30, 1996 these expenses increased $7.2 million to
$19.7 million from $12.5 million for the six month period ended September 30,
1995. The increases were primarily related to the inclusion of the aviation
group's acquisitions of TCI, Air Lab and AMTI, accounting for 70% of such
increases. The remaining increase is associated with the higher sales
activity level generated by the aviation group.
15
<PAGE>
Depreciation and amortization for the three month period ended September
30, 1996 increased $0.8 million to $1.6 million from $0.8 million for the
three month period ended September 30, 1995. Depreciation and amortization
for the six month period ended September 30, 1996 increased $1.4 million, to
$2.9 million from $1.5 million for the six month period ended September 30,
1995. The increase is primarily attributable to the depreciation and
amortization on the increased asset base related to the inclusion of the
aviation group's acquisitions of TCI, Air Lab and AMTI.
Operating income as a percentage of sales increased from 8.2% for the three
month period ended September 30, 1995 to 10.2% for the three month period ended
September 30, 1996. Similarly, operating income as a percentage of sales
inceased from 8.0% for the six months ended September 30, 1995 to 9.9% for
the six months ended September 30, 1996. The improvement in operating income
was primarily due to the contributions of the aviation group's acquisitions
accounting for $6.4 million of the increase for the six month period ended
September 30, 1996. Existing operating divisions and subsidiaries in the
aviation group accounted for $.5 million of the improvement. The increase
was partially offset by lower operating income in the metals group,
accounting for a $0.9 million decrease.
Interest expense of $2.1 million for the three months ended September 30,
1996 represents a $0.4 million increase from the three month period ended
September 30, 1995. For the six month period ended September 30, 1996,
interest expense increased $1.1 million to $4.4 million compared to the six
month period ended September 30, 1995. This increase was primarily due to
increased debt levels associated with the acquisitions of TCI, Air Lab and
AMTI, the cash portions of which were financed by borrowings under the
Company's credit agreement.
An extraordinary loss in 1996 of $1.5 million (net of a tax benefit of
$1.0 million) relates to prepayment premiums and the related write-off of
unamortized deferred financing costs due to the retirement of 11% senior
subordinated notes, senior term loans and the revolving credit facility.
16
<PAGE>
Liquidity and Capital Resources
The Company's working capital needs are generally funded through cash flows
from operations and the Credit Facility. The Company used approximately $8.8
million of cash flows from operating activities, principally for working
capital requirements, for the six months ended September 30, 1996. As of
September 30, 1996, $20.3 million was available under the revolving credit
facility.
On July 19, 1996, the direct and indirect subsidiaries of the Company entered
into an unsecured five year credit facility for a $50.0 million revolving
credit line and a $35.0 million term loan. The Company guarantees repayment
of the loans under the Credit Facility. Both loans bear interest at either
LIBOR plus an applicable margin or the prime rate plus an applicable margin,
at the option of the borrowers. The margin applicable to LIBOR varies
between 0.63% and 1.88% and the margin applicable to the prime rate varies
between 0% and 0.38%, in each case based upon the borrowers' ratio of total
indebtedness to earnings before interest, taxes and depreciation and
amortization. In addition, the borrowers are required to pay a commitment
fee of between 0.2% and 0.45% on the unused portion of the Credit Facility
based upon the ratio described above. Principal payments on the term loan of
approximately $1.3 million are made quarterly with a final lump sum payment
of approximately $11.3 million due on July 1, 2001. The borrowers may repay
amounts owed under the Credit Facility or reduce the revolving credit
facility commitment without penalty. Additionally, the borrowers may
allocate up to $5.0 million of the available revolving credit facility for
the issuance of letters of credit. The Credit Facility contains restrictions
and covenants applicable to the borrowers and the Company which include
limitations on the ability to incur additional indebtedness, issue stock
options or warrants, make certain restricted payments and acquisitions,
create liens, enter into transactions with affiliates, sell substantial
portions of its assets and make capital expenditures. The Company's long
term debt prohibits the Company from paying any dividends or making any
distributions on its capital stock, except for the payment of stock dividends
and redemptions of employees' shares of capital stock upon termination of
employment. Certain of the Company's long term debt agreements restrict the
payment of dividends.
The proceeds of borrowings under the Credit Facility and the proceeds from
the sale of the discontinued paper operations of Quality Park Products, Inc.
were used to extinguish the outstanding balances of the revolving credit
facility, the senior term loans and the senior subordinated notes existing at
March 31. 1996. The extinguishment of this debt resulted in an extraordinary
loss of approximately $1.5 million, net of an income tax benefit of
approximately $1.0 million.
17
<PAGE>
The Company's outstanding subordinated promissory notes consist of two notes in
the aggregate principal amount of $19.3 million. Approximately $5.5 million,
was repaid with the proceeds of the Company's initial public offering.
The 14% Junior Notes are unsecured obligations of the Company which were issued
to CVC Affiliates and certain members of management of the Company. In October
1996, the 14% Junior Notes aggregated approximately $9.5 million, including
principal and accrued interest, and were converted into common stock
immediately prior to the consummation of the initial public offering.
The 10.5% Junior Notes are unsecured obligations of the Company which are
contractually subordinated to all liabilities of TCI and its subsidiaries,
and bear interest at 10.5%. The 10.5% Junior Notes were issued to TFX
Equities, Inc. and certain members of management of TCI. The 10.5% Junior
Notes are due in equal installments on December 31, 2005 and 2006, although
the holders of the 10.5% Junior Notes have no right to demand payment of
principal until all superior debt, as defined, has been paid in full. In
October 1996, the 10.5% Junior Notes owned by members of management of TCI had
an aggregate value of approximately $0.5 million, including principal and
accrued interest, and were converted into shares of common stock immediately
prior to the consummation of the Company's initial public offering. In
October 1996, the 10.5% Junior Notes owned by TFX Equities, Inc. had an
aggregate value of approximately $0.4 million, including principal and accrued
interest and remain outstanding after the closing of the Company's initial
public offering.
On July 31, 1996, the Company acquired all of the outstanding stock of
AMTI based in Tempe, Arizona for an aggregate purchase price of $21,300,
including cash consideration of $7,950, an option to purchase 13,000 shares of
the Company's Class A Common Stock at an exercise price of $1.87 per share
valued at $164, a five-year covenant not-to-compete contract valued at $2,800
and the assumption of liabilities and costs related to the transaction of
$10,386. AMTI repairs and refurbishes gas turbine engine components used in
the aviation industry. The acquisition was accounted for under the purchase
method, and the purchase price was allocated to the assets based on their
estimated fair values, with any excess recorded as cost over net assets
acquired. The acquisition was funded through the Company's long-term
borrowings.
18
<PAGE>
Capital expenditures were approximately $2.0 million for the six months
ended September 30,1996 primarily for manufacturing machinery and equipment
for the aviation group. The Company funded these expenditures through
borrowings under its credit arrangements. The Company expects capital
expenditures to be approximately $6.0 million for its fiscal year ending
March 31, 1997. Of this amount, approximately $3.0 million is expected to be
used to expand capacity at the Company's stretch forming operations and the
remainder will be used for upgrades of information systems, machinery and
equipment, primarily for the aviation group. The Company believes that the
cash proceeds from its initial public offering, together with cash generated
by operations and borrowings under the Credit Facility, will be sufficient to
meet anticipated cash requirements for the next 12 months. There can be no
assurance that additional capital will not be required or that any such
additional capital will be available on reasonable terms, if at all, at such
times as may be required by the Company.
This report contains certain forward looking statements, within the meaning
of the Private Securities Litigation Reform Act of 1995, relating to the
Company's business and future operations. While the Company believes that its
expectations in this regard are based on reasonable assumptions within the
bounds of its knowledge, there can be no assurance that actual operating
results will not differ materially from the Company's expectations. Factors
which could cause actual results to differ from expectations include, among
others, uncertainties relating to the Company's capital requirements and
integration of acquired businesses, dependence of certain of the Company's
businesses on certain key customers and uncertainties relating to quarterly
operating results, as well as general competitive factors relating to the
aviation and metals industries. Specific reference is made to the risks and
uncertainties described in the Company's prospectus dated October 25, 1996.
19
<PAGE>
TRIUMPH GROUP, INC.
Part II. Other Information
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities
Not applicable
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(11) Statement re: computation of earnings per share
The Company did not file any reports on Form 8-K during the three months
ended September 30, 1996.
20
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Triumph Group, Inc.
------------------------------------------------
(Registrant)
------------------------------------------------
Richard C. Ill, President & CEO
------------------------------------------------
John R. Bartholdson, Senior Vice President & CFO
(Principal Financial Officer)
------------------------------------------------
Kevin E. Kindig, Controller
(Principal Accounting Officer)
Dated: November 20, 1996
21
<PAGE>
Exhibit 11
Triumph Group, Inc.
Statement of Computation of Earnings Per Share
Three- and six-month periods ended September 30, 1995 and 1996
(dollars in thousands, except per share data)
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1995 1996
-------------------- ----------------
Earnings per share:
Weighted average number of
outstanding common shares 5,850,460 5,856,431 5,850,460 5,830,696
Dilutive effect of outstanding
warrant 649,995 649,995 649,995 649,995
Dilutive effect of options
issued within one year
of filing at a price below
the estimated IPO price 36,334 29,250 36,334 32,793
Dilutive effect of the
conversion of a portion of
the minority interest in
Triumph Controls, Inc. 38,530 -- 38,530 19,265
Conversion of preferred stock 241,737 278,705 241,737 278,705
Conversion of Junior Subordinated
Promissory Notes 475,293 574,099 475,293 574,099
------------------- -------------------
Weighted average number of
outstanding common shares
and common share equivalents 7,292,349 7,388,480 7,292,349 7,385,552
------------------- --------------------
------------------- --------------------
Income from continuing operations $ 1,131 $ 2,630 $ 2,145 $ 4,439
Interest related to Junior
Subordinated Promissory Notes 283 338 554 651
Income tax effect (113) (135) (221) (260)
--------------------- --------------------
Income from continuing operations
available to common shareholders 1,301 2,833 2,478 4,830
Income from discontinued operations 64 -- 173 --
Extraordinary loss -- (1,478) -- (1,478)
--------------------- --------------------
Net income available to common
shareholders $ 1,365 $ 1,355 $ 2,651 $ 3,352
--------------------- --------------------
--------------------- --------------------
Earnings per share:
Continuing operations $ 0.18 $ 0.38 $ 0.34 $ 0.65
Discontinued operations 0.01 -- 0.02 --
Extraordinary loss -- (0.20) -- (0.20)
--------------------- --------------------
Total $ 0.19 $ 0.18 $ 0.36 $ 0.45
--------------------- --------------------
--------------------- --------------------
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 2ND QTR
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