<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 December 31, 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.
-----------------------------------------------------
(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 X No
----- -----
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 9,749,588 shares as of December 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 December 31, 1996
Consolidated statements of income 3
Three months ended December 31, 1995 and 1996;
Nine months ended December 31, 1995 and 1996.
Consolidated statements of cash flows 4
Nine months ended December 31, 1995 and 1996
Notes to condensed consolidated financial statements 6
December 31, 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)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1996
(unaudited)
-------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 539 $ 897
Accounts receivable, less allowance for
doubtful accounts of $973 and $1,386,
respectively 29,680 37,514
Inventories 45,098 55,833
Estimated net realizable value of business
sold or discontinued, current 27,350 --
Prepaid expenses and other 698 1,374
Deferred income taxes 1,917 4,155
-----------------------
Total current assets 105,282 99,773
Property and equipment, less accumulated
depreciation of $6,718 and $9,963 36,552 46,740
Excess of cost over net assets acquired, less
accumulated amortization of $105 and
$467, respectively 10,339 13,657
Intangible assets, less accumulated amortization
of $1,110 and $1,851, respectively 6,680 10,245
Other assets 2,553 2,186
-----------------------
Total assets $ 161,406 $ 172,601
-----------------------
-----------------------
</TABLE>
1
<PAGE>
Triumph Group, Inc.
Condensed Consolidated Balance Sheets (continued)
(dollars in thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1996
(unaudited)
-------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 18,203 $ 16,414
Accrued expenses 15,757 15,708
Income taxes payable 2,137 4,233
Current portion of long-term debt 8,806 410
----------------------
Total current liabilities 44,903 36,765
Long-term debt, less current portion 89,963 32,687
Other liabilities 1,992 4,940
Deferred income taxes 6,831 11,188
Redeemable preferred stock, 14% cumulative,
$.01 par value 30,575 shares authorized
and issued at March 31, 1996 2,652 --
Common stockholders' equity:
Common stock, $.001 par value:
Class A--6,500,455 shares authorized;
1,300,000 shares issued at March 31, 1996 1 --
Class B convertible--4,550,000 shares
authorized and issued at March 31, 1996 5 --
Class C convertible--455 shares authorized
and issued at March 31, 1996 -- --
Common Stock, $.001 par value, 15,000,000 shares
authorized, 5,756,139 shares issued and outstanding
at December 31, 1996 -- 6
Class D Common Stock (convertible), $.001 par value,
6,000,000 shares authorized, 3,993,449 shares
issued and outstanding at December 31, 1996 -- 4
Capital in excess of par value 1,006 68,479
Retained earnings 14,053 18,532
------------------------
Total common stockholders' equity 15,065 87,021
------------------------
Total liabilities and common stockholders' equity $ 161,406 $ 172,601
------------------------
------------------------
</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 NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1995 1996 1995 1996
------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 46,492 $ 64,691 $132,568 $ 183,791
Operating costs and expenses:
Cost of products sold 35,972 43,727 101,164 128,413
Selling, general, and
administrative 6,216 11,796 18,744 31,507
Depreciation and amortization 857 1,580 2,336 4,435
-------------------------------------------
43,045 57,103 122,244 164,355
Operating income 3,447 7,588 10,324 19,436
Interest expense, net 1,416 1,336 4,700 5,740
-------------------------------------------
Income from continuing
operations, before income
taxes 2,031 6,252 5,624 13,696
Income tax expense 832 2,528 2,280 5,533
-------------------------------------------
Income from continuing
operations 1,199 3,724 3,344 8,163
Extraordinary loss, net of
income taxes -- -- -- (1,478)
Income from discontinued
operations 315 -- 488 --
------------------------------------------
Net income $ 1,514 $ 3,724 $ 3,832 $ 6,685
------------------------------------------
------------------------------------------
Income from continuing
operations per share $ .19 $ .40 $ .53 $ 1.07
Extraordinary loss per share -- -- -- (.18)
Income from discontinued
operations per share .04 -- .06 --
------------------------------------------
Net income per share $ .23 $ .40 $ .59 $ .89
------------------------------------------
------------------------------------------
Shares used in computing
income per share
(in thousands) 7,318 9,379 7,318 8,023
------------------------------------------
------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
Triumph Group, Inc.
Consolidated Statements of Cash Flows
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31,
1995 1996
-------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 3,832 $ 6,685
Adjustments to reconcile net income
to net cash provided by (used in) operating
activities:
Discontinued operations (3,025) --
Depreciation and amortization 2,332 4,435
Other amortization included in
interest expense 189 172
Provision for doubtful receivables 103 304
Provision for deferred income taxes 166 927
Interest on subordinated promissory
note and junior subordinated
promissory notes paid by issuance
of additional notes 848 1,378
Write-off of deferred financing costs -- 915
Compensation in stock options issued
to employee -- 80
Changes in assets and liabilities,
net of acquisitions and dispositions
of businesses:
Accounts receivable 245 (3,591)
Inventories (5,142) (9,583)
Prepaid expenses and other current
assets (61) (661)
Accounts payable, accrued expenses,
and accrued income taxes payable (2,506) (2,777)
Other 483 (1,858)
-------------------------------
Net cash provided by (used in)
operating activities (2,536) (3,574)
INVESTING ACTIVITIES
Capital expenditures, net (1,581) (5,433)
Proceeds from sale of property and
equipment of discontinued operation -- 27,350
Cost of businesses acquired, net of
cash acquired (2,402) (7,950)
-------------------------------
Net cash (used in) provided by
investing activities (3,983) 13,967
</TABLE>
4
<PAGE>
Triumph Group, Inc.
Consolidated Statements of Cash Flows (continued)
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31,
1995 1996
----------------------------
<S> <C> <C>
FINANCING ACTIVITIES
Net proceeds from Common Stock offering $ -- $ 51,760
Net increase (decrease) in revolving credit
facility, excluding refinancing 8,114 (15,548)
Sale (purchase) of treasury stock, net 21 (10)
Proceeds from issuance of long-term debt 29 54,065
Retirement of long-term debt -- (93,616)
Payments of long-term debt (2,233) (6,288)
Payment of deferred financing costs -- (398)
-------------------------
Net cash provided by (used in) financing activities 5,931 (10,035)
-------------------------
(Decrease) increase in cash (588) 358
Cash at beginning of period 746 539
-------------------------
Cash at end of period $ 158 $ 897
-------------------------
-------------------------
NONCASH INVESTING AND FINANCING ACTIVITIES
Assumption of liabilities related to acquisitions $ 741 $ 10,269
Covenant not to compete contract liability
related to acquisition 400 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 538 2,206
Common Stock issued in exchange for redemption of
Preferred Stock -- 4,858
Common Stock issued in exchange for redemption of
14% junior subordinated promissory notes -- 9,514
Common Stock issued in exchange for redemption of
10.5% junior subordinated promissory notes -- 492
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid for income taxes $ 811 $3,586
</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 nine-months ended December 31, 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 $21,183, 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 $10,269. 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 nine months ended
December 31, 1995 and 1996, have been prepared assuming the purchase of AMTI
had taken place at the beginning of the respective periods:
NINE MONTHS ENDED
DECEMBER 31,
1995 1996
-------------------------
Net sales $144,201 $192,272
Income from continuing operations 4,036 9,170
Income from continuing operations
per share $ 0.62 $ 1.20
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 NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1995 1996 1995 1996
----------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 27,046 $ -- $ 75,248 $ --
Income from operations $ 315 $ -- $ 488 $ --
</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, DECEMBER 31,
1996 1996
-----------------------------
Raw materials $ 16,093 $ 20,308
Work-in-process 12,862 14,302
Finished goods 16,570 21,650
--------- ---------
Total inventories at current FIFO cost 45,525 56,260
Less allowance to reduce certain current
FIFO costs to LIFO basis 427 427
-----------------------------
Total inventories $ 45,098 $ 55,833
-----------------------------
-----------------------------
Inventories would have been $427 higher than reported at March 31, 1996 and
December 31, 1996 if the first-in, first-out method of determining cost had
been used for all inventories. Approximately 15% and 18% of the inventory is
valued using the LIFO method at March 31, 1996 and December 31, 1996,
respectively.
6. LONG-TERM DEBT
Long-term debt consists of the following:
MARCH 31, DECEMBER 31,
1996 1996
-----------------------------
Revolving credit facility $ 22,157 $ 17,000
Senior term loans 32,460 --
Senior subordinated notes 14,900 --
Subordinated promissory notes 19,000 14,094
Junior subordinated promissory notes 9,575 387
Other debt and capital lease obligations 677 1,616
-----------------------------
98,769 33,097
Less current portion 8,806 410
-----------------------------
$89,963 $32,687
-----------------------------
-----------------------------
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.
The credit agreement bears interest at either LIBOR plus between 0.50% and
1.50% or prime plus 0% 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
0.40% on the unused portion of the revolving credit facility based upon the
ratio described above. 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.
On October 30, 1996, the Company paid down the then outstanding balance on
the revolving credit facility using the proceeds from the Company's initial
public offering (see Note 8). On December 31, 1996, the Company amended the
credit agreement increasing the revolving credit facility to $85,000 and
retiring the term loan. The term loan of $33,750 was retired using proceeds
from the Company's initial public offering and borrowings under the Company's
revolving credit facility.
The Subordinated Promissory Notes consist of two notes, a $8,000 principal
amount bearing interest at 10%, and due in $6,750 and $1,250 installments on
June 1, 2002 and June 1, 2003 respectively, and $6,094 principal amount
bearing interest at 10.5%, and due in equal installments on December 31, 2002
and December 31, 2003. On October 30, 1996, the Company paid down
approximately $5,500 of the Subordinated Promissory Note outstanding at March
31, 1996 using proceeds from the Company's initial public offering.
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 $0 at March 31, 1996 and December 31,
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 $848 and $720 for the nine months ended December 31,
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.
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)
The Junior Notes of one of the Company's subsidiaries, $775 and $387 at March
31, 1996 and December 31, 1996 respectively, are subordinated to all
liabilities of the subsidiary and the majority of the indebtedness of the
Company and its subsidiaries 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 $64 for the nine months ended December 31, 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.
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 December 31, 1996, $66,900 of additional borrowings were
available under the revolving credit facility.
Interest paid on indebtedness during the nine months ended December 31,
1995 and 1996 amounted to $5,365 and $6,075, respectively.
On July 19, 1996, in conjunction with the refinancing, $925 in unamortized
deferred financing fees related to the extinguished debt were written-off and
an additional $398 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. CAPITAL STOCK AND STOCKHOLDERS' EQUITY
In October 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. In addition, the Company granted the
underwriters of its public offering a 30-day option to purchase up to 375,000
additional shares of its Common Stock for $19.00 a share to cover
over-allotments. In November 1996, the underwriters exercised the
over-allotment option and the Company sold an additional 375,000 shares of
its Common Stock. The net proceeds from the sales were $51,760. The total net
proceeds were used to pay down a portion of the Company's long-term borrowings
under its five-year credit agreement and $5,500 of the 10% subordinated
promissory note (see Note 6).
In October 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.
In October 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. CAPITAL STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
In addition, in October 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).
9. STOCK OPTION PLAN
The Company adopted the 1996 Stock Option Plan (the "Plan") which became
effective in October 1996. The Plan provides for grants of stock options to
officers and key employees of the Company.
Pursuant to the Plan, options to acquire a total of 518,750 shares of common
stock may be granted. Options to purchase 250,140 shares at an exercise price
equal to $19.00 per share have been granted under the Plan.
14
<PAGE>
Management's Discussion And Analysis of
Financial Condition and Results of Operations
Result of Operations
Revenues for the three month period ended December 31, 1996 increased 39% to
$64.7 million from $46.5 million for the three month period ended December
31, 1995. Revenues for the nine month period ended December 31, 1996
increased 39% to $183.8 million from $132.6 million for the nine month period
ended December 31, 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 $15.7 million and $43.7 million of the increase
for the three and nine months ended December 31, 1996, respectively. The
remaining operating divisions and subsidiaries in the aviation group
experienced a 24.2% and 17.7% increase for the three months and nine months
ended December 31, 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 13.8% and 6.3% in the three months and nine months ended December 31,
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 December 31, 1996 was
67.6% of sales compared to 77.4% for the three month period ended December
31, 1995. Cost of goods sold for the nine month period ended December 31,
1996 was 69.9% of sales compared to 76.3% for the nine month period ended
December 31, 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
December 31, 1996 increased $5.6 million to $11.8 million from $6.2 million
for the three month period ended December 31, 1995. For the nine month
period ended December 31, 1996 these expenses increased $12.8 million to
$31.5 million from $18.8 million for the nine month period ended December 31,
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 December 31,
1996 increased $0.7 million to $1.6 million from $0.9 million for the three
month period ended December 31, 1995. Depreciation and amortization for the
nine month period ended December 31, 1996 increased $2.1 million, to $4.4
million from $2.3 million for the nine month period ended December 31, 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 7.4% for the three
month period ended December 31, 1995 to 11.7% for the three month period
ended December 31, 1996. Similarly, operating income as a percentage of sales
inceased from 7.8% for the nine months ended December 31, 1995 to 10.6% for
the nine months ended December 31, 1996. The improvement in operating income
was primarily due to the contributions of the aviation group's acquisitions
accounting for $9.7 million of the increase for the nine month period ended
December 31, 1996. Existing operating divisions and subsidiaries in the
aviation group accounted for $1.9 million of the improvement. The increase
was partially offset by lower operating income in the metals group,
accounting for a $0.8 million decrease.
Interest expense of $1.3 million for the three months ended December 31, 1996
represents a $0.1 million decrease from the three month period ended December
31, 1995. For the nine month period ended December 31, 1996, interest
expense increased $1.0 million to $5.7 million compared to the nine month
period ended December 31, 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 agreement. The Company used approximately
$3.6 million of cash flows from operating activities, principally for working
capital requirements, for the nine months ended December 31, 1996. As of
December 31, 1996, $66.9 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 agreement for a $50.0 million revolving
credit facility and a $35.0 million term loan. The Company guarantees
repayment of the loans under the credit agreement. The credit agreement bears
interest at either LIBOR plus an applicable margin or the prime rate at the
option of the borrowers. The margin applicable to LIBOR varies between 0.50%
and 1.50% and is 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 0.40% on the unused portion of the credit facility based upon the ratio
described above. The borrowers may repay amounts owed under the credit
agreement 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
agreement 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.
On October 30, 1996, the Company paid down the outstanding balance on the
revolving credit facility using the proceeds from the Company's initial
public offering. On December 31, 1996, the Company amended the credit
agreement increasing the revolving credit facility to $85.0 million and
retiring the term loan. The term loan of $33.8 million was retired using
proceeds from the Company's initial public offering and borrowings under the
Company's revolving credit facility.
17
<PAGE>
The Company's outstanding subordinated promissory notes consist of two notes
in the aggregate principal amount of $14.1 million at December 31, 1996.
Approximately $5.5 million, was repaid on October 31, 1996 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 $21,183, 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
$10,269. 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 $5.4 million for the nine months
ended December 31, 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 $7.0 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.
The above paragraph contains forward looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 relating to capital
expenditures and cash requirements for the next twelve months. Actual results
could differ materially from management's current expectations and there can
be no assurance that additional capital will not be required or that
additional capital, if required, will be available on reasonable terms, if at
all, at such times and in such amounts as may be needed by the Company. 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 the company's two
business segments, dependence of certain of the Company's businesses on
certain key customers as well as competitive factors relating to the aviation
and metals industries. For a more detailed discussion of these and other
factors affecting the Company, see "Risk Factors" described in the Company's
registration statement on Form S-1 filed with Securities and Exchange
Commission with effective date of October 24, 1996.
In October 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 $17.87 a share through a
direct sale by the Company. In addition, the Company granted the underwriters
of its public offering a 30-day option to purchase up to 375,000 additional
shares of its Common Stock for $19.00 a share to cover over-allotments. In
November 1996, the underwriters exercised the over-allotment option and the
Company sold an additional 375,000 shares of its Common Stock. The net
proceeds from the sales were $51,760. The total net proceeds were used to pay
down a portion of the Company's long-term borrowings under its five-year
credit agreement and $5,500 of the 10% subordinated promissory note (see Note
6).
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 December 31, 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: February 7, 1997
21
<PAGE>
Exhibit 11
Triumph Group, Inc.
Statement of Computation of Earnings Per Share
Three- and nine-month periods ended December 31, 1995 and 1996
(dollars in thousands, except per share data)
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1995 1996 1995 1996
-------------------- --------------------
Earnings per share:
Weighted average number of
outstanding common shares 5,850,460 7,829,093 5,850,460 6,499,344
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 -- 36,334 --
Dilutive effect of options -- 39,485 -- 13,210
Dilutive effect of the
conversion of a portion of
the minority interest in
Triumph Controls, Inc. 38,530 -- 38,530 --
Conversion of preferred stock 250,541 281,318 250,541 281,318
Conversion of Junior Subordinated
Promissory Notes 492,301 579,395 492,301 579,395
------------------- -------------------
Weighted average number of
outstanding common shares
and common share equivalents 7,318,161 9,379,286 7,318,161 8,023,262
------------------- ---------------------
------------------- ---------------------
Income from continuing operations $ 1,199 $ 3,724 $ 3,344 $ 8,163
Interest related to Junior
Subordinated Promissory Notes 294 91 848 739
Income tax effect (118) (36) (339) (296)
--------------------- --------------------
Income from continuing operations
available to common shareholders 1,375 3,779 3,853 8,606
Income from discontinued operations 315 -- 488 --
Extraordinary loss -- -- -- (1,478)
--------------------- --------------------
Net income available to common
shareholders $ 1,690 $ 3,779 $ 4,341 $ 7,128
--------------------- --------------------
--------------------- --------------------
Earnings per share:
Continuing operations $ 0.19 $ 0.40 $ 0.53 $ 1.07
Discontinued operations 0.04 -- 0.06 --
Extraordinary loss -- -- -- (0.18)
--------------------- --------------------
Total $ 0.23 $ 0.40 $ 0.59 $ 0.89
--------------------- --------------------
--------------------- --------------------
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<PAGE>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 3RD QTR
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 897
<SECURITIES> 0
<RECEIVABLES> 38,900
<ALLOWANCES> 1,386
<INVENTORY> 55,833
<CURRENT-ASSETS> 99,773
<PP&E> 56,703
<DEPRECIATION> 9,963
<TOTAL-ASSETS> 172,601
<CURRENT-LIABILITIES> 36,765
<BONDS> 32,687
0
0
<COMMON> 10
<OTHER-SE> 87,011
<TOTAL-LIABILITY-AND-EQUITY> 172,601
<SALES> 183,791
<TOTAL-REVENUES> 183,791
<CGS> 128,413
<TOTAL-COSTS> 164,355
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 5,740
<INCOME-PRETAX> 13,696
<INCOME-TAX> 5,533
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