<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, 1997.
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
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TRIUMPH GROUP, INC.
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(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 51-0347963
- ------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporated or organization)
1255 Drummers Lane, Suite 200
Wayne, PA 19087-1565
- ---------------------------------------- -----------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
(610) 975-0420
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(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 11,894,896 shares as of December 31, 1997
<PAGE>
TRIUMPH GROUP, INC.
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE NUMBER
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<S> <C>
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
March 31, 1997 and December 31, 1997........................................................ 1
Condensed Consolidated Statements of Income
Three months ended December 31, 1996 and 1997;
Nine months ended December 31, 1996 and 1997................................................. 3
Condensed Consolidated Statements of Cash Flows
Nine months ended December 31, 1996 and 1997................................................. 4
Notes to Condensed Consolidated Financial Statements
December 31, 1997............................................................................ 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................................... 12
Part II. Other Information
Item 1. Legal Proceedings..................................................................... 17
Item 2. Changes in Securities................................................................. 17
Item 3. Defaults upon Senior Securities....................................................... 17
Item 4. Submission of Matters to a Vote of Security Holders................................... 17
Item 5. Other Information..................................................................... 17
Item 6. Exhibits and Reports on Form 8-K...................................................... 17
Signature Page.................................................................................. 18
</TABLE>
<PAGE>
Triumph Group, Inc.
Condensed Consolidated Balance Sheets
(dollars in thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1997
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<S> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash............................................................................... $ 993 $ 4,626
Accounts receivable, net........................................................... 39,220 54,994
Inventories........................................................................ 54,310 75,727
Prepaid expenses and other......................................................... 1,036 1,667
Deferred income taxes.............................................................. 1,795 3,216
----------- ---------------
Total current assets............................................................... 97,354 140,230
Property and equipment, net........................................................ 48,349 71,709
Excess of cost over net assets acquired, net....................................... 13,516 53,889
Intangible assets and others, net.................................................. 12,096 12,460
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Total assets....................................................................... $ 171,315 $ 278,288
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</TABLE>
1
<PAGE>
Triumph Group, Inc.
Condensed Consolidated Balance Sheets (continued)
(dollars in thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1997
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<S> <C> <C>
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................... $ 20,461 $ 25,064
Accrued expenses................................................................... 16,255 17,172
Income taxes payable............................................................... 3,951 4,793
Current portion of long-term debt.................................................. 399 335
----------- ---------------
Total current liabilities.......................................................... 41,066 47,364
Long-term debt, less current portion............................................... 23,993 27,067
Deferred income taxes and other.................................................... 14,843 28,931
Stockholders' equity:
Common Stock, $.001 par value, 15,000,000 shares authorized, 5,801,898 and
8,166,934 shares issued and outstanding at March 31, 1997 and December 31, 1997,
respectively..................................................................... 6 8
Class D common stock convertible, $.001 par value, 6,000,000 shares authorized,
3,947,690 and 3,727,962 shares issued and outstanding at March 31, 1997 and
December 31, 1997, respectively.................................................. 4 4
Capital in excess of par value..................................................... 68,479 135,316
Retained earnings.................................................................. 22,924 39,598
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Total stockholders' equity......................................................... 91,413 174,926
----------- ---------------
Total liabilities and stockholders' equity......................................... $ 171,315 $ 278,288
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</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 NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
-------------------- ----------------------
<S> <C> <C> <C> <C>
1996 1997 1996 1997
--------- --------- ---------- ----------
Net sales............................................................ $ 64,691 86,170 $ 183,791 $ 233,172
Operating costs and expenses (income):
Cost of products sold.............................................. 43,727 61,388 128,413 165,158
Selling, general, and administrative............................... 11,796 11,278 31,507 33,306
Depreciation and amortization...................................... 1,580 2,548 4,435 6,423
Gain on sale of assets............................................. -- -- -- (1,250)
--------- --------- ---------- ----------
57,103 75,214 164,355 203,637
Operating income..................................................... 7,588 10,956 19,436 29,535
Interest expense, net................................................ 1,336 1,323 5,740 3,202
--------- --------- ---------- ----------
Income before income taxes and extraordinary item.................... 6,252 9,633 13,696 26,333
Income tax expense................................................... 2,528 3,756 5,533 10,269
--------- --------- ---------- ----------
Income before extraordinary item..................................... 3,724 5,877 8,163 16,064
Extraordinary (loss) gain, net of income taxes....................... -- -- (1,478) 610
--------- --------- ---------- ----------
Net income........................................................... $ 3,724 $ 5,877 $ 6,685 $ 16,674
--------- --------- ---------- ----------
--------- --------- ---------- ----------
Preferred stock dividends and accretion.............................. (57) -- (460) --
Redemption of Preferred stock........................................ (1,746) -- (1,746) --
--------- --------- ---------- ----------
Income available to common stockholders.............................. $ 1,921 $ 5,877 $ 4,479 $ 16,674
--------- --------- ---------- ----------
--------- --------- ---------- ----------
Basic Earnings Per Share:
Income before extraordinary item................................... $ 0.23 $ 0.56 $ 0.89 $ 1.60
Extraordinary (loss) gain, net of income taxes..................... -- -- (0.22) 0.06
--------- --------- ---------- ----------
Net Income......................................................... $ 0.23 $ 0.56 $ 0.67 $ 1.66
--------- --------- ---------- ----------
--------- --------- ---------- ----------
Shares used in computing basic earnings per share.................. 8,409 10,567 6,693 10,023
--------- --------- ---------- ----------
--------- --------- ---------- ----------
Diluted Earnings Per Share:
Income before extraordinary item................................... $ 0.21 $ 0.52 $ 0.81 $ 1.49
Extraordinary (loss) gain, net of taxes............................ -- -- (0.20) 0.06
--------- --------- ---------- ----------
Net Income......................................................... $ 0.21 $ 0.52 0.61 $ 1.55
--------- --------- ---------- ----------
--------- --------- ---------- ----------
Shares used in computing diluted earnings per share................ 9,098 11,321 7,384 10,759
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--------- --------- ---------- ----------
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
Triumph Group, Inc.
Condensed Consolidated Statements of Cash Flows
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------------------
<S> <C> <C>
DECEMBER 31, DECEMBER 31,
1996 1997
--------------- ---------------
OPERATING ACTIVITIES
Net income..................................................................... $ 6,685 $ 16,674
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................................................ 4,435 6,423
Other amortization included in interest expense.............................. 172 103
Provision for doubtful receivables............................................. 304 7
Provision for deferred income taxes............................................ 927 2,598
Interest on subordinated promissory note and junior subordinated promissory
notes paid by issuance of additional notes................................... 1,378 569
Write off of deferred financing costs.......................................... 915 --
Compensation in stock options issued to employee............................... 80 --
Changes in operating assets and liabilities, net of acquisitions and
dispositions of businesses:
Accounts receivable.......................................................... (3,591) (3,908)
Inventories.................................................................. (9,583) (9,814)
Prepaid expenses and other current assets.................................... (661) (325)
Accounts payable, accrued expenses, and accrued income taxes payable......... (2,777) (4,938)
Other........................................................................ (1,858) (883)
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Net cash (used in) provided by operating activities............................ (3,574) 4,256
INVESTING ACTIVITIES
Capital expenditures, net...................................................... (5,433) (10,932)
Proceeds from sale of property and equipment of discontinued operation......... 27,350 --
Proceeds from sale of company.................................................. 6,736
Cost of businesses acquired, net of cash acquired.............................. (7,950) (66,949)
------ -------
Net cash provided by (used in) investing activities............................ 13,967 (71,145)
</TABLE>
4
<PAGE>
Triumph Group, Inc.
Condensed Consolidated Statements of Cash Flows (continued)
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------------------
<S> <C> <C>
DECEMBER 31, DECEMBER 31,
1996 1997
--------------- ---------------
FINANCING ACTIVITIES
Net proceeds from Common Stock Offering........................................ 51,760 66,813
Net (decrease) increase in revolving credit facility, excluding refinancing.... $ (15,548) 5,878
Proceeds from issuance of long-term debt....................................... 54,065 5,000
Retirement of long-term debt................................................... (93,616) (7,000)
Payments of long-term debt..................................................... (6,288) (195)
Payments of deferred financing costs........................................... (398) --
Other.......................................................................... (10) 26
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Net cash (used in) provided by financing activities............................ (10,035) 70,522
--------------- -------
Increase in cash............................................................... 358 3,633
Cash at beginning of period.................................................... 539 993
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Cash at end of period.......................................................... $ 897 $ 4,626
--------------- -------
--------------- -------
NONCASH INVESTING AND FINANCING ACTIVITIES
Assumption of liabilities related to acquisition............................... $ 10,386 $ 19,855
Covenant not to compete contract liability related to acquisition.............. 2,800 1,800
Redeemable preferred stock issued in lieu of cash dividend payments and
accretion to face value...................................................... 2,206 --
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes..................................................... $ 3,586 $ 7,196
Cash paid for interest......................................................... 6,075 2,579
</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, 1997 are not necessarily indicative of the results that may be expected for
the year ended March 31, 1998. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended March 31, 1997.
The Company's income per share and share data in the financial statements
have been retroactively restated to reflect the effect of the 65-for-1 stock
split declared in connection with the initial public offering by the Company of
its common stock in October 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The Company's aviation segment designs, engineers, manufactures, repairs
and overhauls 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, farm equipment, and office
furniture industries, primarily within North America.
EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No 128, Earnings per Share. Statement 128
replaced the previously reported primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants, and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All earnings per share
amounts for all periods have been presented, and where necessary, restated to
conform to the Statement 128 requirements. Share and per share amounts have been
adjusted for the 65-for-1 stock split effected in conjunction with the Company's
initial public offering.
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)
NEW ACCOUNTING STANDARDS
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income" and Statement No. 131, "Disclosures about Segments of an Enterprise and
Related Information". Both Statements become effective for fiscal periods
beginning after December 15, 1997, with early adoption permitted. The Company is
evaluating the effects these statements will have on its financial reporting and
disclosures. The Statements are expected to have no material 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.
3. ACQUISITION
On October 29, 1997, the Company acquired all of the outstanding stock of
Stolper-Fabralloy Company, LLC ("Stolper"). Stolper fabricates sheet metal from
high temperature alloys, which is used primarily in the hot section of jet
engines. Stolper also provides repair and overhaul services to aerospace
end-users. Stolper operates facilities in Brookfield, Wisconsin and Phoenix,
Arizona. The cash portion of the purchase price was approximately $33.6 million.
The excess of the purchase price over net assets acquired of $19.3 million
was recorded as excess of cost over net assets acquired and is being
amortized over 30 years on a straight line basis.
On September 1, 1997, the Company acquired all of the outstanding stock of
Hydro-Mill Company ("Hydro-Mill"), based in Chatsworth, California for an
aggregate purchase price of approximately $42.2 million. The purchase price
includes cash paid at closing, a note to the former owner, the assumption of
certain liabilities, and direct costs of the acquisition. Hydro-Mill
manufactures precision machined structural parts and assemblies for the
aerospace industry. The excess of the purchase price over net assets acquired of
$20.2 million was recorded as excess of cost over net assets acquired and is
being amortized over thirty years on a straight line basis.
As of April 30, 1997, the Company acquired substantially all of the
assets of J. D. Chapdelaine Co. ("JDC") based in Ft. Lauderdale, Florida for
an aggregate purchase price of $5.2 million. The purchase price includes cash
paid at closing, a long-term liability related to a covenant not-to-compete
contract, the assumption of certain liabilities and direct costs of the
acquisition. JDC specializes in the repair, overhaul and exchange of
electromechanical aircraft instruments. The excess of the purchase price over
net assets acquired of $1.7 million was recorded as excess of cost over net
assets acquired and is being amortized over twenty-five years on a
straight-line basis.
These acquisitions have been accounted for under the purchase method and
accordingly, are included in the consolidated financial statements from their
dates of acquisition. Changes in purchase accounting estimates may result in a
reallocation of the purchase price within one year of the acquisitions. The
acquisitions were 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)
The following unaudited pro forma information has been prepared assuming the
purchases of Hydro-Mill, JDC, and Stolper had taken place on April 1, 1996:
<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 31,
---------------------------------------------
1996 1997
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<S> <C> <C>
Net Sales..................................................................... 228,231 265,661
Income before extraordinary item.............................................. 9,723 17,001
Income before extraordinary item per share (diluted).......................... 1.02 1.58
Net income.................................................................... 8,245 17,611
Net income per share (diluted)................................................ .82 1.64
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, plant and equipment acquired, and the
amortization of the intangible assets arising from the transactions. 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, 1996.
</TABLE>
4. DIVESTITURE
On July 31, 1997, the Company sold substantially all of the assets of its
Seattle, Washington based division, Air Lab, to Sextant Avionique, Inc. for
approximately $5.9 million in cash and the assumption by the purchaser of
certain liabilities. The reported results for the three and nine months ended
December 31, 1997 include the gain of $1.3 million on the sale of the Air Lab
assets. For the nine months ended December 31, 1996 and 1997, Air Lab had net
sales of $4.0 million and $2.1 million, respectively, and operating income of
$0.4 million and $0.2 million, respectively.
5. INVENTORIES
The components of inventories are as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1997
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<S> <C> <C>
Raw materials...................................................................... $ 15,863 25,724
Work-in-process.................................................................... 17,295 24,504
Finished goods..................................................................... 21,694 26,041
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Total inventories at current FIFO cost............................................. 54,852 76,269
Less allowance to reduce certain current FIFO costs to LIFO basis.................. 542 542
----------- -------
Total inventories.................................................................. $ 54,310 $ 75,727
----------- -------
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</TABLE>
Approximately 12% and 13% of the inventory is valued using the LIFO method
at March 31, 1997 and December 31, 1997, respectively.
8
<PAGE>
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(dollars in Thousands, except per share data)
(Unaudited)
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1997
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<S> <C> <C>
Revolving credit facility.......................................................... $ 8,707 $ 14,585
Subordinated promissory notes...................................................... 14,246 6,786
Junior subordinated promissory notes............................................... 407 436
Other debt and capital lease obligations........................................... 1,032 5,595
----------- -------
24,392 27,402
Less current portion............................................................... 399 335
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$ 23,993 $ 27,067
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</TABLE>
On October 24, 1997, the Company amended its existing credit agreement with
its lenders to provide for an additional $40 million in borrowing capacity.
The amended credit agreement increases the revolving credit facility to $125
million and is similar in form and substance to the $85 million credit
agreement dated March 31, 1997.
On September 15, 1997, the Company retired the remaining $8 million
subordinated note payable to IKON Office Solutions, Inc. (formerly Alco Standard
Corporation). The terms of the note provide for a $1 million discount in the
event the note was repaid by October 1, 1997. The cash payment of $7 million was
funded by the Company's long-term borrowings under its revolving credit
facility. The early extinguishment of this debt resulted in an extraordinary
gain of $0.6 million, net of income taxes of $0.4 million.
In July 1997, the Company entered into a $10 million discretionary line of
credit ("Line of Credit"). The Line of Credit bears interest at the current rate
offered by the lender. Borrowings under the Line of Credit are payable on the
last day of the applicable interest period or on demand. The Line of Credit
expires in July 1998 and may be continued or renewed at that time.
On May 5, 1997 the Company entered into a loan agreement with the City of
Shelbyville, Indiana related to the City of Shelbyville, Indiana Adjustable Rate
Economic Development Revenue Bonds, Series 1997 (the "Bonds"). The proceeds of
the Bonds of $5.0 million are being used to fund the expansion of the Company's
K-T Corporation facility. The Bonds are due to mature on May 1, 2012 and are
secured by an irrevocable letter of credit issued by PNC Bank, N.A.. The Bonds
bear interest at a variable weekly rate.
9
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Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(dollars in Thousands, except per share data)
(Unaudited)
7. 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 the assets 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. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
-------------------- --------------------
<S> <C> <C> <C> <C>
1996 1997 1996 1997
--------- --------- --------- ---------
NUMERATOR:
Income before extraordinary item.......................................... $ 3,724 $ 5,877 $ 8,163 $ 16,064
Preferred stock dividends and accretion................................... (57) -- (460) --
Redemption of preferred stock............................................. (1,746) -- (1,746) --
--------- --------- ---------- -------
Numerator for basic and diluted earnings per share--income before
extraordinary item available to common stockholders....................... $ 1,921 $ 5,877 $ 5,957 $ 16,064
--------- --------- ---------- -------
--------- --------- ---------- -------
Denominator:
Denominator for basic earnings per share-weighted-average shares.......... 8,409 10,567 6,693 10,023
Effect of dilutive securities:
Stock options........................................................... 39 104 41 86
Warrant................................................................. 650 650 650 650
--------- --------- ---------- -------
Denominator for basic and diluted earnings per share-adjusted
weighted-average shares................................................. 9,098 11,321 7,384 10,759
--------- --------- ---------- -------
--------- --------- ---------- -------
</TABLE>
10
<PAGE>
Triumph Group, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(dollars in Thousands, except per share data)
(Unaudited)
9. COMMON STOCK OFFERING
In November 1997, the company completed the sale of 2,000,845 shares of its
Common Stock for $33.00 a share through an underwritten public offering. In
addition, the Company granted the Underwriters of its public offering a 30
day option to purchase additional shares to cover over-allotments. In
December 1997, the Underwriters excercised the over-allotment option and the
Company sold an additional 143,100 shares of its Common Stock. The net
proceeds from the sales of $66,813, were used to repay long-term debt.
10. SUBSEQUENT EVENTS
On February 11, 1998, the Company agreed to acquire Frisby Aerospace
("Frisby") which designs, manufactures, assembles and tests precision
aircraft components and subsystems. Frisby operates facilities in Freeport,
New York and Clemmons, North Carolina. The cash portion of the purchase is
approximately $14.0 million and will be funded by borrowings under the Credit
Facility. The transaction is expected to close in February 1998.
11
<PAGE>
Management's Discussion And Analysis of
Financial Condition and Results of Operations
RESULT OF OPERATIONS
Net sales for the three month period ended December 31, 1997 increased 33.2%
to $86.2 million from $64.7 million for the three month period ended December
31, 1996. Net sales for the nine month period ended December 31, 1997
increased 26.9% to $233.2 million from $183.8 million for the nine month
period ended December 31,1996. The Aviation Group's sales increased 42.1% to
$63.8 million from $44.9 million for the three months ended December 31, 1997
and increased 37.1% to $166.6 million from $121.5 million for nine months
ended December 31, 1997. This increase in net sales reflects the Aviation
Group's acquisitions of Advanced Materials Technologies, Inc. ("AMTI"), JDC
Company ("JDC"), Hydro-Mill Co. ("Hydro-Mill") and Stolper-Fabralloy Company
("Stolper"). These acquisitions contributed an aggregate of $24.1 million and
$6.7 million in net sales for the three months ended December 31, 1997 and
1996, respectively. The increase for the nine months ended December 31, 1997
was primarily due to the inclusion of an aggregate of $43.9 million and $11.2
million in net sales for the nine months ended December 31,1997 and 1996,
respectively for AMTI, JDC, Hyrdo-Mill and Stolper. 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 $1.4 and $4.0 million for the
three months and nine months ended December 31, 1996, respectively, and sales
of $2.1 million for the nine months ended December 31, 1997. The remaining
operating divisions and subsidiaries in the Aviation Group experienced an
8.1% and 13.4% increase in net sales over the three and nine months ended
December 31, 1996, respectively. The increase in the Aviation Group was due
to increased demand for overhaul and repair services from the commercial
airline and air cargo carriers, as well as increased orders of aircraft
components from OEMs. Net sales for the three month period ended December 31,
1997 in the Metals Group increased 13.0% to $22.4 million from $19.8 million
for the three month period ended December 31, 1996. Net sales for the nine
month period ended December 31,1997 in the Metals Group increased 6.9% to
$66.6 million from $62.3 million for the nine month period ended December 31,
1997. The increase in the Metals Group was primarily due to increased volume
over the prior year.
Cost of goods sold for the three month period ended December 31, 1997 was
71.2% of sales compared to 67.6% for the three month period ended December
31, 1996. The increase was primarily due to the inclusion of an aggregate of
$16.2 million and $3.1 million for the three months ended December 31, 1997 and
1996, respectively, in cost of products sold associated with the net sales
generated by AMTI, JDC, Hydro-Mill and Stolper. Cost of goods sold for the
nine month period ended December 31, 1997 was 70.8% compared to 69.9% for the
nine month period ended December 31, 1996. The increase was primarily due to
the inclusion of an aggregate of $28.2 million and $5.0 million for the nine
months ended December 31, 1997 and 1996, respectively, in cost of products
sold associated with the net sales generated by AMTI, JDC, Hydro-Mill and
Stolper.
Gross profit increased by $12.6 million, or 22.8%, to $68.0 million for the
nine months ended December 31, 1997 from $55.4 million for the nine months ended
December 31,1996. Of this increase, $9.5 million was a result of the inclusion
of gross profit on the net sales generated by AMTI, JDC, Hydro-Mill and Stolper.
As a percentage of net sales, gross profit was 29.2% and 30.1% for the nine
months ended December 31, 1997 and 1996, respectively.
Selling, general and administrative expenses for the three month period ended
December 31, 1997 decreased $0.5 million to $11.3 million from $11.8 million for
the three month period ended December 31, 1996. For the nine month period ended
December 31, 1997 these expenses increased $1.8 million to $33.3 million from
$31.5 million for the nine months ended December 31, 1996. The increase was
primarily due to the inclusion of an aggregate of $5.0 million and $3.2 million
for the nine months ended December 31, 1997 and 1996 respectively, in selling,
general and administrative expenses of AMTI, JDC, and Hydro-Mill, and Stolper.
Depreciation and amortization for the three month period ended December 31,
1997 increased $1.0 million to $2.5 million from $1.6 million for the three
month period ended December 31 1996. Depreciation and amortization for the nine
month period ended December 30, 1997 increased $2.0 million to $6.4 million
12
<PAGE>
from $4.4 million for the nine month period ended December 31, 1997. 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 AMTI, JDC, Hydro-Mill and Stolper.
Operating income as a percentage of sales increased from 11.7% for the three
month period ended December 31, 1996 to 12.7% for the three month period ended
December 31, 1997. The increase was primarily due to the inclusion of an
aggregate of $4.5 million and $1.4 million in operating income for AMTI, JDC,
Hydro-Mill and Stolper for the three months ended December 31, 1997 and 1996
respectively, accounting for $3.1 million of the increase. Similarly, operating
income as a percentage of sales increased from 10.6% for the nine month period
ended December 31, 1996 to 12.7% for the nine month period ended December 31,
1997. The increase for the nine months ended December 31, 1997 was primarily due
to the inclusion of an aggregate of $8.5 million and $2.4 million in operating
income for AMTI, JDC, Hydro-Mill and Stolper for the nine months ended December
31, 1997 and 1996, respectively. The remaining increase was related to a $1.3
million gain on the sale of Air Lab, a $1.5 million, improvement in the
operating income of the remaining operating divisions and subsidiaries in the
Aviation Group and $1.3 million improvement in the operating income of the
Metals Group.
Interest expense of $1.3 million for the three months ended December 31,1997
is unchanged from the three month period ended December 31, 1996. For the nine
month period ended December 31, 1997 interest expense decreased $2.5 million to
$3.2 million. This decrease from the prior year was primarily due to reduced
debt levels associated with the application of the proceeds from the public
offerings of the Company's common stock and proceeds from the sale of Air Lab,
which was partially offset by the acquisitions of AMTI, JDC, Hydro-Mill, and
Stolper, the cash portions of which were financed by borrowings under the Credit
Agreement.
An extraordinary gain for the nine months ended December 31, 1997 of $0.6
million (net of tax of $0.4 million) relates to a discount realized on the
prepayment of a subordinated note payable to IKON Office Solutions, Inc.
(formerly Alco Standard Corporation). An extraordinary loss for the nine months
ended December 31, 1996 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.
13
<PAGE>
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 $4.3 million of cash flows from operating activities
for the nine months ended December 31, 1997. The Company used approximately
$71.1 million in investing activities, while providing $70.5 million in
financing activities for the nine months ended December 31, 1997. As of
December 31, 1997, $109.1 million was available under the $125.0 million
credit facility (the "Credit Facility"). On October 24, 1997, the Company
amended the Credit Facility, increasing it to $125.0 million from $85.0
million. The Credit Facility matures on March 31, 2002 and bears interest, at
the option of the Company, at the fluctuating prime rate or LIBOR, plus
applicable points. On December 31, 1997, an aggregate amount of approximately
$14.6 million was outstanding under the Credit Facility, $10.0 million of
which was accruing interest at LIBOR (plus applicable basis points) of 6.65%
per annum, and $4.6 million of which was accruing at the prime rate of 8.5%
per annum. Amounts repaid under the Credit Facility may be reborrowed.
On September 15, 1997, the Company retired the remaining $8 million
subordinated note payable to IKON Office Solutions, Inc. (formerly Alco Standard
Corporation). The terms of the note provided for a $1 million discount in the
event the note was repaid by October 1, 1997. The cash payment of $7 million was
funded by the Company's long-term borrowings under its revolving credit
facility. The early extinguishment of this debt resulted in an extraordinary
gain of $0.6 million net of income taxes of $0.4 million.
In July, 1997, the Company entered into a $10 million discretionary line of
credit ("Line of Credit"). The Line of Credit bears interest at the current rate
offered by the lender. Borrowings under the Line of Credit are payable on the
last day of the applicable interest period or on demand. The Line of Credit
expires in July, 1998 and may be continued or renewed at that time.
On May 5, 1997 the Company entered into a loan agreement with the City of
Shelbyville, Indiana related to the City of Shelbyville, Indiana Adjustable Rate
Economic Development Revenue Bonds, Series 1997 (the "Bonds"). The proceeds of
the Bonds of $5.0 million are being used to fund the expansion of the Company's
K-T Corporation facility. The Bonds are due to mature on May 1, 2012 and are
secured by an irrevocable letter of credit issued by PNC Bank, N.A.. The Bonds
bear interest at a variable weekly rate.
Capital expenditures were approximately $10.9 million for the nine months
ended December 31, 1997 primarily for manufacturing machinery and equipment for
the Aviation Group. The Company funded these expenditures through borrowings
under its Credit Facility and from the proceeds from the Bonds. The Company
expects capital expenditures to be approximately $15.0 million for its fiscal
year ending March 31, 1998. The expenditures are expected to be used primarily
to expand capacity at several facilities in the Aviation Group.
On February 11, 1998 the company agreed to acquire Frisby Aerospace
("Frisby") which designs, manufactures, assembles and tests precision
aircraft and subsystems. Frisby operates facilities in Freeport, New York and
Clemmons, North Carolina. The cash portion of the purchase is approximately
$14.0 million and will be funded by borrowings under the Credit Facility. The
transaction is expected to close in February 1998.
On October 29, 1997, the Company acquired all of the outstanding stock of
Stolper-Fabralloy Company ("Stolper"). The transaction was funded by borrowings
under the Credit Facility. Stolper fabricates sheet metal from high temperature
alloys, which is used primarily in the hot section of jet engines. Stolper also
provides repair and overhaul services to aerospace end users. Stolper operates
facilities in Brookfield, Wisconsin and Phoenix, Arizona. The cash portion of
the purchase price was approximately $33.6 million.
On September 1, 1997, the Company acquired all of the outstanding stock of
Hydro-Mill in a cash transaction. The transaction was funded by borrowings under
the Credit Facility. Hydro-Mill, based in Chatsworth, California, specializes in
the manufacture of precision machined structural parts and assemblies for the
aerospace industry. The cash purchase price was approximately $31.5 million.
14
<PAGE>
On July 31, 1997, the Company sold substantially all of the assets of its
Seattle, Washington based facility, Air Lab, to Sextant Avionique, Inc.
for approximately $5.9 million in cash and the assumption by the purchaser of
certain liabilities. In connection with the sale of AirLab, the Company and
Sextant entered into a five year marketing and service agreement pursuant to
which A. Biederman, a division of the Company, will serve as an authorized
warranty and non warranty repair station for certain products of Sextant and
as an authorized distributor for spare parts of Sextant. The Company believes
that such a marketing and service agreement will enhance customer service and
increase its market share in instrument repair and distribution.
As of April 30, 1997, the Company acquired substantially all of the assets
of JDC in a cash transaction. The transaction was funded by borrowings under the
Credit Facility. JDC, based in Ft. Lauderdale, Florida, specializes in the
repair, overhaul and exchange of electromechanical aircraft instruments. The
cash purchase price was approximately $2.1 million.
In November 1997, the Company completed the sale of 2,000,845 shares of its
Common Stock for $33.00 a share through an underwritten public offering. In
addition, the Company granted the Underwriters of its public offering a 30
day option to purchase additional shares to cover over-allotments. In
December 1997, the underwriters exercised the over-allotment option and the
Company sold an additional 143,100 shares of its Common Stock. The net
proceeds from the sales of $66,813, were used to repay long-term debt.
The Company believes that cash generated by operations, borrowings under the
Credit Facility, and proceeds from the Bonds 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 were 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.
15
<PAGE>
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. 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 and the Company's Annual Report on Form
10-K, for the year ended March 31, 1997, filed with the SEC in June 1997.
16
<PAGE>
TRIUMPH GROUP, INC.
PART II. Other Information
<TABLE>
<S> <C>
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities
Not applicable
Item 3. Defaults upon Senior Securities
Not applicable
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
</TABLE>
A. Exhibits
(27) Financial Data Schedule
17
<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: February 17, 1998
18
<TABLE> <S> <C>
<PAGE>
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<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 4,626
<SECURITIES> 0
<RECEIVABLES> 56,860
<ALLOWANCES> 1,866
<INVENTORY> 75,727
<CURRENT-ASSETS> 140,230
<PP&E> 86,460
<DEPRECIATION> 14,751
<TOTAL-ASSETS> 278,288
<CURRENT-LIABILITIES> 47,364
<BONDS> 27,067
0
0
<COMMON> 12
<OTHER-SE> 174,914
<TOTAL-LIABILITY-AND-EQUITY> 278,288
<SALES> 233,172
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