<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, 1998.
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, par value $0.001 per share, and Class D common stock, par value
$0.001 per share, was 8,551,011 shares and 3,348,535 shares, respectively, as of
November 1, 1998
<PAGE>
TRIUMPH GROUP, INC.
INDEX
<TABLE>
<CAPTION>
Part I. Financial Information Page Number
-----------
<S> <C>
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets 1
March 31, 1998 and September 30, 1998
Condensed Consolidated Statements of Income 3
Three months ended September 30, 1997 and 1998;
Six months ended September 30, 1997 and 1998
Condensed Consolidated Statements of Cash Flows 4
Six months ended September 30, 1997 and 1998
Notes to Condensed Consolidated Financial Statements 6
September 30, 1998
Item 2. Management's Discussion and Analysis of Financial 10
Condition and Results of Operations
Item 3. Market Risk 17
Part II. Other Information
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
Signature Page 20
</TABLE>
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
Triumph Group, Inc.
Condensed Consolidated Balance Sheets
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1998 1998
--------- -------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 4,642 $ 6,128
Accounts receivable, net 63,433 63,361
Inventories 77,103 87,874
Prepaid expenses and other 1,298 2,903
Deferred income taxes 2,763 2,260
----- -----
Total current assets 149,239 162,526
Property and equipment, net 78,829 98,672
Excess of cost over net assets acquired, net 55,998 81,132
Intangible assets and other, net 17,379 16,730
------ ------
Total assets $301,445 $359,060
-------- --------
-------- --------
</TABLE>
1
<PAGE>
Triumph Group, Inc.
Condensed Consolidated Balance Sheets (continued)
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1998 1998
---- ----
(unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 27,396 $ 27,009
Accrued expenses 24,285 29,209
Income taxes payable 4,712 4,584
Current portion of long-term debt 675 1,967
---------- ----------
Total current liabilities 57,068 62,769
Long-term debt, less current portion 33,823 67,139
Deferred income taxes and other 27,675 30,629
Stockholders' equity:
Common stock, $.001 par value, 50,000,000
shares authorized, 8,547,236 and 8,551,011
shares issued and outstanding at March 31,
1998 and September 30, 1998, respectively. 9 9
Class D common stock convertible,
$.001 par value, 6,000,000 shares authorized,
3,348,535 shares issued and outstanding at
March 31, 1998 and September 30, 1998. 3 3
Capital in excess of par value 135,331 135,403
Retained earnings 47,536 63,108
---------- ----------
Total stockholders' equity 182,879 198,523
---------- ----------
Total liabilities and stockholders' equity $ 301,445 $ 359,060
---------- ----------
---------- ----------
</TABLE>
SEE ACCOMPANYING NOTES.
2
<PAGE>
Triumph Group, Inc.
Condensed Consolidated Statements of Income
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 75,146 $ 99,482 $ 147,002 $ 190,622
Operating costs and expenses:
Cost of products sold 53,013 68,337 103,770 131,360
Selling, general, and administrative 11,001 13,324 22,028 25,396
Depreciation and amortization 2,003 3,437 3,875 6,324
Gain on sale of assets (1,250) - (1,250) -
------- ----------- ------- ---------
64,767 85,098 128,423 163,080
Operating income 10,379 14,384 18,579 27,542
Interest expense 1,043 1,306 1,879 2,011
----- ----- ----- -----
Income before income taxes and
extraordinary gain 9,336 13,078 16,700 25,531
Income tax expense 3,641 5,100 6,513 9,959
----- ----- ----- -----
Income before extraordinary gain 5,695 7,978 10,187 15,572
Extraordinary gain, net of income taxes 610 - 610 -
--- ------ --- ------
Net income $ 6,305 $ 7,978 $ 10,797 $ 15,572
------ ------ ------ ------
------ ------ ------ ------
Earnings Per Share - Basic:
Income before extraordinary gain $ 0.58 $ 0.67 $ 1.04 $ 1.31
Extraordinary gain, net of income taxes 0.06 - 0.06 -
---- ------ ---- -----
Net income $ 0.65 * $ 0.67 $ 1.11 * $ 1.31
------ ------ ------ ------
------ ------ ------ ------
Weighted average common shares
outstanding - Basic 9,750 11,900 9,750 11,899
------ ------ ------ ------
------ ------ ------ ------
Earnings Per Share - Assuming Dilution:
Income before extraordinary gain $ 0.54 $ 0.63 $ 0.97 $ 1.23
Extraordinary gain, net of income taxes 0.06 - 0.06 -
---- ------ ---- -----
Net income $ 0.60 $ 0.63 $ 1.03 $ 1.23
------ ------ ------ ------
------ ------ ------ ------
Weighted average common shares
outstanding - Assuming Dilution 10,489 12,654 10,476 12,673
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
* Difference due to rounding.
SEE ACCOMPANYING NOTES.
3
<PAGE>
Triumph Group, Inc.
Condensed Consolidated Statements of Cash Flows
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED SEPTEMBER 30,
--------------------------------
1997 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 10,797 $ 15,572
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Gain on sale of assets (1,250) -
Gain on extinguishment of debt (1,000) -
Depreciation and amortization 3,875 6,324
Other amortization included in interest expense 68 69
Provision for doubtful accounts receivable 17 133
Provision for deferred income taxes 802 749
Interest on subordinated and junior subordinated
promissory notes paid by issuance of
additional notes 380 386
Changes in other current assets and liabilities, net
of acquisitions and disposition of businesses:
Accounts receivable (5,963) 2,364
Inventories (10,421) (8,262)
Prepaid expenses and other current assets (620) (1,485)
Accounts payable, accrued expenses, and accrued
income taxes payable 233 (3,716)
Other (681) (550)
----- -----
Net cash (used in) provided by operating activities (3,763) 11,584
INVESTING ACTIVITIES
Capital expenditures, net (7,385) (7,742)
Proceeds from sale of company 5,861 -
Cost of businesses acquired, net of cash acquired (33,458) (27,330)
-------- --------
Net cash used in investing activities (34,982) (35,072)
</TABLE>
4
<PAGE>
Triumph Group, Inc.
Condensed Consolidated Statements of Cash Flows (continued)
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED SEPTEMBER 30,
------------------------------
1997 1998
FINANCING ACTIVITIES ---- ----
<S> <C> <C>
Net increase in revolving credit facility $ 45,306 $ 25,497
Proceeds from issuance of long-term debt 5,000 -
Retirement of long-term debt (7,000) -
Repayment of debt and capital lease obligations (96) (570)
Payments of deferred financing costs - (25)
Proceeds from exercise of stock options - 72
--------- ---------
Net cash provided by financing activities 43,210 24,974
Increase in cash 4,465 1,486
Cash at beginning of period 993 4,642
--------- ---------
Cash at end of period $ 5,458 $ 6,128
--------- ---------
--------- ---------
NONCASH INVESTING ACTIVITIES
Covenant not to compete contract liability
related to acquisition $ 1,800 $ -
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for income taxes $ 6,932 $ 9,910
Cash paid for interest 1,609 1,518
</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, 1998 are not necessarily indicative of the results that may be
expected for the fiscal year ended March 31, 1999. For further information,
refer to the consolidated financial statements and footnotes thereto included in
Triumph Group, Inc.'s (the "Company") Annual Report on Form 10-K for the fiscal
year ended March 31, 1998.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The Company's aviation segment designs, engineers, manufactures, repairs,
overhauls and distributes aircraft components for commercial airlines, air cargo
carriers, and original equipment manufacturers on a worldwide basis. The
Company's metals segment manufactures, machines, processes, and distributes
metal products to customers in the computer, construction, container and office
furniture industries, primarily within North America.
NEW ACCOUNTING STANDARDS
Effective April 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"), which
establishes standards for reporting and displaying comprehensive income and its
components. Comprehensive income includes all changes in stockholder's equity
during a period, except those resulting from investments by and distributions to
owners. The adoption of SFAS No. 130 had no impact on the Company's net income
or stockholders' equity.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS No. 131"). SFAS No. 131 requires
disclosure of certain information about operating segments, products and
services, geographic areas of operations and major customers. The Company is
required to adopt this statement as of the end of the fiscal year ending March
31, 1999. The Company is evaluating the effects of SFAS No. 131 on its financial
statement disclosures. SFAS No. 131 will have no effect on the Company's results
of operations, financial condition, capital resources or liquidity.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles 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.
6
<PAGE>
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(dollars in thousands, except per share data)
(Unaudited)
3. ACQUISITIONS AND DIVESTITURES
As of July 1, 1998, the Company acquired all of the outstanding capital stock of
Nu-Tech Industries, Inc. ("Nu-Tech"), based in the Kansas City, Missouri
metropolitan area, for an aggregate purchase price of approximately $41,425. The
purchase price includes cash paid at closing, net of cash acquired, the
assumption of equipment financing and certain liabilities, direct costs of the
acquisition and a deferred payment. Nu-Tech specializes in producing complex
structural components for the commercial and military aircraft market; machining
of precision parts from aluminum extrusions; and high speed machining of
precision parts from alloys such as titanium and stainless steel. The excess of
the purchase price over net assets acquired of $26,366 was recorded as excess of
cost over net assets acquired and is being amortized over thirty years on a
straight-line basis.
This acquisition has been accounted for under the purchase method and,
accordingly, is included in the consolidated financial statements from its date
of acquisition. Changes in purchase accounting estimates may result in a
reallocation of the purchase price within one year of the acquisition. The
acquisition was funded through the Company's long-term borrowings.
In fiscal 1998, the Company acquired substantially all of the assets of
Frisby Aerospace and J.D. Chapdelaine Co. and also acquired all of the
outstanding stock of Stolper-Fabralloy Company, LLC and Hydro-Mill Company,
(collectively the "1998 Acquisitions"). Also during fiscal 1998, the Company
sold substantially all of the assets of Deluxe Specialties Mfg. Co. and Air
Lab, (collectively, the "1998 Divestitures"). For further information about
the 1998 Acquisitions and the 1998 Divestitures, refer to the consolidated
financial statements and footnotes thereto included the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1998.
The following unaudited pro forma information has been prepared assuming the
purchase of Nu-Tech, the 1998 Acquisitions and the 1998 Divestitures had
taken place on April 1, 1997:
<TABLE>
<CAPTION>
SIX MONTHS ENDED SEPTEMBER 30,
------------------------------
1997 1998
---- ----
<S> <C> <C>
Net sales $ 181,281 $ 196,206
Operating income 20,309 29,092
Income before extraordinary gain 9,552 16,261
Income before extraordinary gain per share:
Basic 0.98 1.37
Diluted 0.91 1.28
Net income 10,162 16,261
Net income per share:
Basic 1.04 1.37
Diluted 0.97 1.28
</TABLE>
The unaudited pro forma information includes adjustments for interest expense
that would have been incurred to finance the purchases, 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 as they would have been
had the transactions been effected on April 1, 1997. Also, the unaudited pro
forma information excludes the sales and profits of the 1998 Divestitures.
The sales and operating income included in the above unaudited pro forma
information for the six months ended September 30, 1998 for the 1998
Divestitures were $7,575 and $2,018, respectively.
7
<PAGE>
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(dollars in thousands, except per share data)
(Unaudited)
4. INVENTORIES
The components of inventories are as follows:
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1998 1998
---- ----
<S> <C> <C>
Raw materials $23,665 $28,512
Work-in-process 26,796 31,855
Finished goods 27,228 28,093
------- -------
Total inventories at FIFO cost 77,689 88,460
Less allowance to reduce certain
current FIFO costs to LIFO basis 586 586
------- -------
Total inventories $77,103 $87,874
------- -------
------- -------
</TABLE>
Approximately 12% and 11% of the inventory is valued using the LIFO method at
March 31, 1998 and September 30, 1998, respectively.
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1998 1998
---- ----
<S> <C> <C>
Revolving credit facility $17,720 $43,217
Subordinated promissory notes 10,964 11,797
Industrial revenue bonds 5,000 4,665
Equipment notes and other debt 814 9,427
------- -------
34,498 69,106
Less current portion 675 1,967
------- -------
$33,823 $67,139
------- -------
------- -------
</TABLE>
In July 1998, in connection with the Nu-Tech acquisition, the Company assumed
approximately $9,300 of equipment notes with interest rates ranging from 8.5% to
9.25%, maturing between March 2004 and March 2007. Each equipment note is
secured by a piece of equipment. The outstanding balance of the equipment notes
at September 30, 1998 was $9,070.
6. COMMITMENTS AND CONTINGENCIES
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 IKON Office Solutions, Inc. (formerly Alco Standard Corporation) which
existed prior to the acquisition of such assets and any unidentified
environmental liabilities which arise subsequent to the date of closing 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
<PAGE>
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(dollars in thousands, except per share data)
(Unaudited)
7. EARNINGS PER SHARE
The following is a reconciliation between the weighted average common shares
outstanding used in the calculation of basic and diluted earnings per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
(in thousands) 1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighed average common shares
outstanding 9,750 11,900 9,750 11,899
Net effect of dilutive stock options 89 104 76 124
Net effect of dilutive warrant 650 650 650 650
------- ------ ----- ------
Weighted average common shares
outstanding - Assuming Dilution 10,489 12,654 10,476 12,673
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
Options to purchase 181,200 shares of common stock, at prices ranging from
$43.125 per share to $45.375 per share, were outstanding during the second
quarter of fiscal 1999. These options were not included in the computation of
diluted earnings per share because the exercise price was greater than the
average market price of the common stock during the three months ended September
30, 1998 and, therefore, the effect would be antidilutive. Also, warrants to
purchase up to 60,000 shares of common stock at $10 per share, subject to
certain performance criteria, were not included in the computation of diluted
earnings per share during the second quarter of fiscal 1999 because the number
of contingently issuable warrants was zero, based on the number of shares, if
any, that would be issuable under the terms of the arrangement, as if the end of
the contingency period were September 30, 1998.
8. SUBSEQUENT EVENTS
In October 1998, the Company acquired all of the outstanding capital stock of DG
Industries, Inc. ("DG") and in November 1998, the Company acquired all of the
outstanding capital stock of DV Industries, Inc. ("DV"). DG, with a facility in
Phoenix, Arizona, provides precision machining services on hydraulic and
pneumatic components for the aviation industry. DV, with a facility in Lynwood,
California, is one of the largest providers of chemical processing, painting and
non-destructive testing services to the aerospace and defense industries. The
combined purchase price for these acquisitions of approximately $42,000, subject
to adjustment, includes cash paid at closing, net of cash acquired, the
assumption of certain liabilities, direct costs of the acquisitions and deferred
payments.
9
<PAGE>
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.)
Three months ended September 30, 1998 compared to three months ended September
30, 1997
Aviation Group
Net sales. Net sales for the Aviation Group increased by $27.9 million,
or 51.8%, to $81.8 million for the second quarter of fiscal 1999 from $53.9
million for the second quarter of fiscal 1998. This increase was primarily due
to the inclusion of an aggregate of $30.5 million and $3.7 million in net sales
for Nu-Tech Industries, Inc. ("Nu-Tech"), Frisby Aerospace, Inc. ("Frisby"),
Hydro-Mill Co. ("Hydro-Mill"), Stolper-Fabralloy Company ("Stolper") and JDC
Company ("JDC"), (collectively, the "Acquired Companies"), in the second quarter
of fiscal 1999 and 1998, respectively. The increase is partially offset by a
reduction in sales due to the sale of the Company's Air Lab division ("Air Lab")
in the second quarter of fiscal 1998. Air Lab had sales of $0.5 million for the
second quarter of fiscal 1998.
On a pro forma basis, assuming the Acquired Companies had been
purchased on April 1, 1997, and the sale of Air Lab had taken place on April 1,
1997, net sales for the Aviation Group increased to $81.8 million for the three
months ended September 30, 1998 from $73.3 million for the same three month
period in the prior year. This represents growth ("Internal Growth") of $8.6
million or 11.7% over the prior year period.
Increased demand for overhaul and repair services from the commercial
airlines and cargo carriers, as well as increased orders of aircraft components
from OEMs, accounted for the increase in net sales in the Aviation Group.
Costs of products sold. Costs of products sold for the Aviation Group
increased by $19.0 million, or 52.6%, to $55.1 million for the second quarter of
fiscal 1999 from $36.1 million for the second quarter fiscal 1998. This increase
was primarily due to the inclusion of $20.4 million and $2.3 million in the
second quarter of fiscal 1999 and 1998, respectively, of costs of products sold
associated with net sales generated by the Acquired Companies. The remaining
increase is associated with the increase in net sales of the remaining operating
divisions and subsidiaries in the Aviation Group, offset by a reduction of $0.4
million due to the sale of Air Lab.
Gross profit. Gross profit for the Aviation Group increased by $8.9
million, or 50.1%, to $26.7 million for the second quarter of fiscal 1999 from
$17.8 million for the second quarter of fiscal 1998. This increase was primarily
due to the inclusion of $10.1 million and $1.4 million in the second quarter of
fiscal 1999 and 1998, respectively, of gross profit on the net sales generated
by the Acquired Companies. The remaining increase was generated on the increased
sales volume of the other operating divisions and subsidiaries in the Aviation
Group offset by the reduction of gross profit due to the sale of Air Lab. As a
percentage of net sales, gross profit for the Aviation Group was 32.7% and 33.0%
for the second quarter of fiscal 1999 and 1998, respectively.
Selling, general and administrative expenses. Selling, general and
administrative expenses for the Aviation Group increased by $2.3 million, or
33.0%, to $9.1 million for the second quarter of fiscal 1999 from $6.9 million
for the second quarter of fiscal 1998, primarily due to the Acquired Companies.
Depreciation and amortization. Depreciation and amortization for the
Aviation Group increased by $1.4 million, or 82.5%, to $3.2 million for the
second quarter of fiscal 1999 from $1.7 million for the second quarter of fiscal
1998, primarily due to the assets acquired in connection with the Acquired
Companies.
10
<PAGE>
Management's Discussion And Analysis of
Financial Condition and Results of Operations
(continued)
Operating income. Operating income for the Aviation Group increased by
$4.0 million, or 38.0%, to $14.4 million for the second quarter of fiscal 1999
from $10.5 million for the second quarter of fiscal 1998. Excluding the one time
gain on the sale of the Air Lab assets in the prior year, operating income
increased by $5.2 million or 56.8%. This increase was primarily due to the
addition of net sales and profits generated by the Acquired Companies. As a
percentage of net sales, operating income for the Aviation Group was 17.6% for
the second quarter of fiscal 1999 and 17.1% for the second quarter of fiscal
1998, excluding the gain on sale of Air Lab assets.
On a pro forma basis, assuming the Acquired Companies had been
purchased and Air Lab had been sold on April 1, 1997, operating income for the
Aviation Group from Internal Growth was $4.1 million, or 40.1%, increasing to
$14.4 million in the second quarter of fiscal 1999 from $10.3 million in the
second quarter of fiscal 1998.
Metals Group
Net sales. Net sales for the Metals Group decreased by $3.6 million, or
16.8%, to $17.7 million for the second quarter of fiscal 1999 from $21.2 million
for the second quarter of fiscal 1998. This decrease was mainly due to the sale
of the assets at the end of fiscal 1998 of the Deluxe Specialties Mfg. division
("Deluxe"). Deluxe had sales of $2.6 million in the second quarter of fiscal
1998.
Costs of products sold. Costs of products sold for the Metals Group
decreased by $3.7 million, or 21.7%, to $13.2 million for the second quarter of
fiscal 1999 from $16.9 million for the second quarter of fiscal 1998. This
decrease was mainly due to the sale of Deluxe. Deluxe had $2.0 million of cost
of products sold in the second quarter of fiscal 1998.
Gross profit. Gross profit for the Metals Group increased by $0.1
million, or 2.2%, to $4.4 million for fiscal 1999 from $4.3 million for the same
period in the prior year, due to the reasons discussed above as well as a change
in the mix of sales from lower margin sales to higher margin sales. As a
percentage of net sales, gross profit for the Metals Group was 25.1% and 20.4%
for the second quarter of fiscal 1999 and fiscal 1998, respectively.
Selling, general and administrative expenses. Selling, general and
administrative expenses for the Metals Group remained unchanged at $2.9 million
from the prior year period.
Depreciation and amortization. Depreciation and amortization for the
Metals Group remained unchanged at $0.3 million for the second quarter of fiscal
1999 from the second quarter of fiscal 1998.
Operating income. Operating income for the Metals Group increased by
$0.1 million, or 10.9%, to $1.3 million for the second quarter of fiscal 1999
from $1.2 million for the second quarter of fiscal 1998, due to the reasons
discussed above. As a percentage of net sales, operating income for the Metals
Group was 7.3% and 5.5% for the second quarter of fiscal 1999 and 1998,
respectively.
Overall Results
Corporate expenses. Corporate expenses increased by $0.1 million, or
7.7%, to $1.3 million for the second quarter of fiscal 1999 from $1.2 million
for the same period in the prior year.
11
<PAGE>
Management's Discussion And Analysis of
Financial Condition and Results of Operations
(continued)
Interest expense. Interest expense increased by $0.3 million, or 25.2%,
to $1.3 million for the second quarter of fiscal 1999 from $1.0 million for the
second quarter of fiscal 1998. This increase was primarily due to increased debt
levels associated with the acquisitions of the Acquired Companies, the cash
portions of which were financed by borrowings under the Company's credit
agreement, partially offset by the application of the proceeds from the public
offering in November 1997 of shares of the Company's common stock and the
proceeds from the sales of Air Lab and Deluxe.
Income tax expense. The effective tax rate was 39.0% for the second
quarter of both fiscal 1999 and 1998.
Net income. Net income increased by $1.7 million, or 26.5%, to $8.0
million for the second quarter of fiscal 1999 from $6.3 million for the second
quarter of fiscal 1998. Excluding an extraordinary gain of $0.6 million (net of
tax of $0.4 million) recognized in the second quarter of 1998 that relates to a
discount realized on the prepayment of a subordinated note payable to IKON
Office Solutions, Inc. (formerly Alco Standard Corporation) and the gain on the
sale of Air Lab assets (after tax gain of $0.8 million) in the prior year, net
income increased by $3.0 million or 61.7%. The increase in second quarter 1999
net income was primarily attributable to the acquisitions of the Acquired
Companies and the increase in income for the Aviation Group as a whole.
Six months ended September 30, 1998 compared to six months ended September 30,
1997
Aviation Group
Net sales. Net sales for the Aviation Group increased by $53.1
million, or 51.7%, to $155.9 million for the six months ended September 30,
1998 from $102.8 million for the six months ended September 30, 1997. This
increase was primarily due to the inclusion of an aggregate of $57.0 million
and $4.5 million in net sales for the Acquired Companies in the first six
months of fiscal 1999 and 1998, respectively. The increase is partially
offset by a reduction in sales due to the sale of Air Lab in the second
quarter of fiscal 1998. Air Lab had sales of $2.1 million for the first six
months of fiscal 1998.
On a pro forma basis, assuming the Acquired Companies had been
purchased and Air Lab had been sold on April 1, 1997, net sales for the
Aviation Group from Internal Growth was $18.9 million, or 13.3%, increasing
to $161.4 million in the first six months of fiscal 1999 from $142.5 million
in the first six months of fiscal 1998.
Increased demand for overhaul and repair services from commercial
airlines and cargo carriers, as well as increased orders of aircraft
components from OEM's, accounted for the increase in net sales in the
Aviation Group.
Costs of products sold. Costs of products sold for the Aviation
Group increased by $35.9 million, or 52.2%, to $104.6 million for the first
six months of fiscal 1999 from $68.8 million for the first six months of
fiscal 1998. This increase was primarily due to the inclusion of $38.4
million and $2.8 million in the first six months of fiscal 1999 and 1998,
respectively, of costs of products sold associated with net sales generated
by the Acquired Companies. The remaining increase is associated with the
increase in net sales of the remaining operating divisions and subsidiaries
in the Aviation Group, offset by a reduction of $1.5 million due to the sale
of Air Lab.
12
<PAGE>
Management's Discussion And Analysis of
Financial Condition and Results of Operations
(continued)
Gross profit. Gross profit for the Aviation Group increased by $17.2
million, or 50.6%, to $51.2 million for the first six months of fiscal 1999 from
$34.0 million for the first six months of fiscal 1998. This increase was
primarily due to the inclusion of $18.6 million and $1.8 million in the first
six months of fiscal 1999 and 1998, respectively, of gross profit on the net
sales generated by the Acquired Companies. The remaining increase was generated
on the increased sales volume of the other operating divisions and subsidiaries
in the Aviation Group offset by the reduction of gross profit due to the sale of
Air Lab. As a percentage of net sales, gross profit for the Aviation Group was
32.9% and 33.1% for the first six months of fiscal 1999 and 1998, respectively.
Selling, general and administrative expenses. Selling, general and
administrative expenses for the Aviation Group increased by $3.8 million, or
27.4%, to $17.6 million for the first six months of fiscal 1999 from $13.8
million for the first six months of fiscal 1998, primarily due to such expenses
related to the Acquired Companies.
Depreciation and amortization. Depreciation and amortization for the
Aviation Group increased by $2.4 million, or 73.2%, to $5.8 million for the
first six months of fiscal 1999 from $3.3 million for the first six months of
fiscal 1998, primarily due to the assets acquired in connection with the
Acquired Companies.
Operating income. Operating income for the Aviation Group increased by
$9.7 million, or 53.7%, to $27.8 million for the first six months of fiscal 1999
from $18.1 million for the first six months of fiscal 1998. Excluding the one
time gain on the sale of the Air Lab assets in the prior year, operating income
increased $11.0 million or 65.1%. This increase was primarily due to the
addition of net sales and profits generated by the Acquired Companies. As a
percentage of net sales, operating income for the Aviation Group was 17.9% for
the first six months of fiscal 1999 and 16.4% for the first six months of fiscal
1998, excluding the gain on sale of Air Lab assets.
On a pro forma basis, assuming the Acquired Companies had been
purchased and Air Lab had been sold on April 1, 1997, operating income for the
Aviation Group from Internal Growth was $9.2 million, or 45.8%, increasing to
$29.4 million for the first six months of fiscal 1999 from $20.2 million for the
first six months of fiscal 1998.
Metals Group
Net sales. Net sales for the Metals Group decreased by $9.5 million, or
21.4%, to $34.8 million for the first six months of fiscal 1999 from $44.2
million for the first six months of fiscal 1998. This decrease was mainly due to
the sale of the Deluxe assets at the end of fiscal. Deluxe had sales of $5.5
million in the first six months of fiscal 1998.
Costs of products sold. Costs of products sold for the Metals Group
decreased by $8.3 million, or 23.7%, to $26.7 million for the first six months
of fiscal 1999 from $35.0 million for the first six months of fiscal 1998. This
decrease was mainly due to the sale of Deluxe. Deluxe had $4.2 million of cost
of products sold in the first six months of fiscal 1998.
Gross profit. Gross profit for the Metals Group decreased by $1.2
million, or 12.8%, to $8.0 million for fiscal 1999 from $9.2 million for the
same period in the prior year, due to the reasons discussed above. As a
percentage of net sales, gross profit for the Metals Group was 23.1% and 20.8%
for the first six months of fiscal 1999 and fiscal 1998, respectively.
13
<PAGE>
Management's Discussion And Analysis of
Financial Condition and Results of Operations
(continued)
Selling, general and administrative expenses. Selling, general and
administrative expenses for the Metals Group decreased by $0.5 million, or 8.8%,
to $5.5 million from $6.0 million in the first six months of fiscal 1998, mainly
due to the sale of Deluxe.
Depreciation and amortization. Depreciation and amortization for the
Metals Group remained unchanged at $0.5 million for the first six months of
fiscal 1999 from the first six months of fiscal 1998.
Operating income. Operating income for the Metals Group decreased by
$0.7 million, or 24.1%, to $2.1 million for the first six months of fiscal 1999
from $2.7 million for the first six months of fiscal 1998, due to the reasons
discussed above. As a percentage of net sales, operating income for the Metals
Group was 5.9% and 6.1% for the first six months of fiscal 1999 and 1998,
respectively.
Overall Results
Corporate expenses. Corporate expenses increased by $0.1 million, or
5.5%, to $2.4 million in the first six months of fiscal 1999 from $2.2 million
in the same period of the prior year.
Interest expense. Interest expense increased by $0.1 million, or 7.0%,
to $2.0 million for the first six months of fiscal 1999 from $1.9 million for
the first six months of fiscal 1998. This increase was primarily due to
increased debt levels associated with the acquisitions of the Acquired
Companies, the cash portions of which were financed by borrowings under the
Company's credit agreement, partially offset by the application of the proceeds
from the public offering in November 1997 of shares of the Company's common
stock and the proceeds from the sales of Air Lab and Deluxe.
Income tax expense. The effective tax rate was 39.0% for the first six
months of both fiscal 1999 and 1998.
Net income. Net income increased by $4.8 million, or 44.2%, to $15.6
million for the first six months of fiscal 1999 from $10.8 million for the first
six months of fiscal 1998. Excluding an extraordinary gain of $0.6 million (net
of tax of $0.4 million) recognized in the second quarter of 1998 that relates to
a discount realized on the prepayment of a subordinated note payable to IKON
Office Solutions, Inc. (formerly Alco Standard Corporation) and the gain on the
sale of Air Lab assets (after tax gain of $0.8 million) in the prior year, net
income increased by $6.1 million or 65.2%. The increase in year to date 1999 net
income was primarily attributable to the Acquired Companies and the increase in
income for the Aviation Group as a whole.
Liquidity and Capital Resources
The Company's working capital needs are generally funded through cash
flows from operations and borrowings under its credit arrangements. The Company
generated approximately $11.6 million of cash flows from operating activities
for the six months ended September 30, 1998. The Company used approximately
$35.1 million in investing activities and raised $25.0 million in financing
activities for the six months ended September 30, 1998. As of September 30,
1998, $80.2 million was available under the Company's $125.0 million credit
facility (the "Credit Facility"). On September 30, 1998, an aggregate amount of
approximately $43.2 million was outstanding under the Credit Facility, $39.0
million of which was accruing interest at LIBOR plus applicable basis points
totaling 5.9% per annum, and $4.2 million of which was accruing interest at the
prime rate of 8.5% per annum. Amounts repaid under the Credit Facility may be
reborrowed.
14
<PAGE>
Management's Discussion And Analysis of
Financial Condition and Results of Operations
(continued)
On July 16, 1998, the Company acquired all of the outstanding capital
stock of Nu-Tech which specializes in producing complex structural components
for the commercial and military aircraft market; machining of precision parts
from aluminum extrusions; and high speed machining of precision parts from
alloys such as titanium and stainless steel. Nu-Tech operates facilities located
in the Kansas City, Missouri metropolitan area. The cash portion of the purchase
price, net of cash acquired, of approximately $27.3 million was funded by
borrowings under the Company's Credit Facility. In connection with the Nu-Tech
acquisition, the Company assumed $9.3 million of equipment notes with interest
rates ranging from 8.5% to 9.25%, maturing between March 2004 and March 2007.
In October 1998, the Company acquired all of the capital stock of DG
Industries, Inc. ("DG") and in November 1998 the Company acquired all of the
capital stock of DV Industries, Inc. ("DV"). DG, with a facility in Phoenix,
Arizona, provides precision machining services on hydraulic and pneumatic
components for the aviation industry. DV, with a facility in Lynwood,
California, is one of the largest providers of chemical processing, painting and
non-destructive testing services to the aerospace and defense industries. The
combined cash paid at closing, net of cash acquired, of approximately $26.6
million was funded by borrowings under the Company's Credit Facility.
Capital expenditures were approximately $7.7 million for the six months
ended September 30, 1998 primarily for manufacturing machinery and equipment for
the Aviation Group. The Company funded these expenditures through borrowings
under its Credit Facility. The Company expects capital expenditures to be
approximately $22.0 million for its fiscal year ending March 31, 1999. The
expenditures are expected to be used primarily to expand capacity at several
facilities in the Aviation Group.
The Company believes that cash generated by operations and borrowings
under the Credit Facility will be sufficient to meet anticipated cash
requirements for its current operations. However, the Company has a stated
policy to grow through acquisition and is continuously evaluating various
acquisition opportunities. As a result, the Company currently is pursuing the
potential purchase of a number of candidates. In the event that more than one of
these transactions are successfully consummated, the availability under the
Credit Facility might be fully utilized and additional funding sources may be
needed. There can be no assurance that such funding sources will be available to
the Company.
FORWARD LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 relating to the Company's
future operations and prospects, including statements that are based on current
projections and expectations about the markets in which the Company operates,
and management's beliefs concerning future performance and capital requirements
based upon current available information. Such statements are based on
management's beliefs as well as assumptions made by and information currently
available to management. When used in this document, words like "may", "might",
"will", "expect", "anticipate", "believe", "potential", and similar expressions
are intended to indentify forward looking statements. 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
the risk factors described in the Company's Registration Statement on Form S-3
filed with Securities and Exchange Commission in November 1997 and the Company's
Annual Report on Form 10-K for the year ended March 31, 1998.
15
<PAGE>
Management's Discussion And Analysis of
Financial Condition and Results of Operations
(continued)
Pro forma financial information included above may not be indicative of
actual results had the Acquired Companies been purchased and the sale of Air Lab
occurred on April 1, 1997.
YEAR 2000 DATE CONVERSION
The Year 2000 issue exists because many software programs, computer hardware,
operating systems and microprocessor based embedded controls in automated
equipment use two-digit date fields to designate a year. As the century date
change occurs, date-sensitive systems may recognize the year 2000 as 1900, or
not at all. This inability to recognize or properly treat the year 2000 may
cause systems to process financial and operational information incorrectly or
fail to operate.
The Company has recognized the need to ensure that its business operations will
not be adversely affected by the upcoming calendar year 2000 date change and is
cognizant of the time sensitive nature of the problem. The Company's operating
units have assessed or are in the process of assessing how each may be impacted
by Year 2000 and have formulated and commenced or are formulating and commencing
implementation of a comprehensive plan to address all known aspects of the Year
2000 problem: information systems, production and facilities equipment,
suppliers and customers. The Company's operating units are currently making
inquiries of customers and suppliers to assess their Year 2000 readiness. The
operating units are also in the process of testing information technology ("IT")
systems, as well as non-IT systems, and verifying that vendor-supplied or
outsourced systems will be Year 2000 compliant and will repair or replace any
such systems found to be non-compliant. The Company expects that this process
will continue throughout the current and into the subsequent fiscal year.
The cost of completing the Company's Year 2000 assessment and the cost of
modifying its computer software and hardware, as well as its production and
facilities equipment, to be Year 2000 compliant has not been and is not expected
to be material. The current assessment does not include costs related to
software and hardware replaced in the normal course of business.
The variety and complexity of the Year 2000 issues identified and the proposed
solutions, the Company's dependence on the technical skills of employees and
independent contractors, and especially the representations and readiness of
third parties are among the factors that could cause the Company's efforts to be
less than fully effective. In addition, Year 2000 issues present a number of
risks that are beyond the Company's reasonable control, such as continued
service from outside parties such as utility companies, financial institutions,
and transportation and delivery companies (such as Federal Express and United
Parcel Service). Also, certain significant customers are material to the Company
and a Year 2000 failure by one or more of these parties could result in a
material adverse effect on the Company's operating results and financial
position.
While the Company does not currently foresee any material problems, there can be
no assurance that the Company and its material suppliers and customers will be
Year 2000 compliant by January 1, 2000 and that any such non-compliance will not
have a material adverse effect on the Company.
The Company intends to develop a contingency plan after its risk assessment is
completed, in the event that any unresolved issues are identified.
The foregoing Year 2000 discussion includes forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995 relating to
the Company's efforts and management's expectations relating to Year 2000
readiness. The Company's Year 2000 project is dependent on certain future events
16
<PAGE>
Management's Discussion And Analysis of
Financial Condition and Results of Operations
(continued)
including the availability and cost of personnel trained to perform Year 2000
modifications, the ability of the Company to locate and correct all
non-compliant computer codes and embedded controls, the ability of material
customers, suppliers and trading partners to successfully complete their own
Year 2000 remediation projects, the accuracy of information received from third
parties concerning the Year 2000 compliance of their information systems or
automated equipment or concerning their Year 2000 business risk assessment, and
similar uncertainties.
Item 3. Market Risk
Not applicable
17
<PAGE>
TRIUMPH GROUP, INC.
Part II. Other Information
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities
At the Annual Meeting of Stockholders in July 1998, the Stockholders of
the Company approved an amendment to the Company's Amended and Restated
Certificate of Incorporation to increase the number of authorized
shares of common stock of the Company, par value $.001 per share from
15,000,000 to 50,000,000. See "Item 4 - Submission of Matters to a Vote
of Security Holders."
Item 3. Defaults upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held on July 21, 1998.
At such meeting, the following matters were voted upon by the stockholders,
receiving the number of affirmative, negative and withheld votes, as well as
abstentions and broker non-votes, set forth below for each matter.
1. Election of six persons to the Company's Board of Directors to serve
until 1999 Annual Meeting of Stockholders and until their successors
are elected and qualified.
Richard C. Ill:
---------------
7,591,800 Affirmative
27,025 Withheld
John R. Bartholdson:
--------------------
7,591,800 Affirmative
27,025 Withheld
Richard C. Gozon:
-----------------
7,591,200 Affirmative
27,625 Withheld
Claude F. Kronk:
----------------
7,592,300 Affirmative
26,525 Withheld
Joseph M. Silvestri:
--------------------
7,442,459 Affirmative
176,366 Withheld
Michael A. Delaney:
-------------------
7,592,300 Affirmative
26,525 Withheld
18
<PAGE>
TRIUMPH GROUP, INC.
2. Approval of an amendment to the Company's Certificate of Incorporation
to increase the number of authorized shares of common stock from
15,000,000 to 50,000,00.
8,869,805 Affirmative
2,092,725 Negative
3. Ratification of the Director's Stock Option Plan.
10,738,889 Affirmative
223,975 Negative
4. Ratification of the selection of Ernst & Young LLP as independent
public accountants for the Company of the fiscal year ending March 31,
1999.
10,946,433 Affirmative
17,827 Negative
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
(27) Financial Data Schedule
B. Reports on Form 8-K
The Company did not file any reports on Form 8-K during the three
months ended September 30, 1998.
19
<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)
/s/ Richard C. Ill
------------------------------------------------
Richard C. Ill, President & CEO
/s/ John R. Bartholdson
------------------------------------------------
John R. Bartholdson, Senior Vice President & CFO
(Principal Financial Officer)
/s/ Kevin E. Kindig
------------------------------------------------
Kevin E. Kindig, Controller
(Principal Accounting Officer)
Dated: November 16, 1998
20
<TABLE> <S> <C>
<PAGE>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF TRIUMPH GROUP, INC. FOR THE SIX MONTHS ENDED SEPTEMBER
30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
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