<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, 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.
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(Exact name of registrant as specified in its charter)
Delaware 51-0347963
- ----------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1255 Drummers Lane, Suite 200
Wayne, PA 19087-1565
- ------------------------------------------------ ---------------
(Address of principal executive offices) (Zip Code)
(610) 975-0420
- -----------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes 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 8,551,786 shares and 3,348,535 shares, respectively, as of
January 29, 1999
<PAGE>
TRIUMPH GROUP, INC.
INDEX
Part I. Financial Information
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets 1
March 31, 1998 and December 31, 1998
Consolidated Statements of Income 3
Three months ended December 31, 1997 and 1998
Nine months ended December 31, 1997 and 1998
Consolidated Statements of Cash Flows 4
Nine months ended December 31, 1997 and 1998
Notes to Consolidated Financial Statements 6
December 31, 1998
Item 2. Management's Discussion and Analysis of Financial 11
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk 18
Part II. Other Information
Item 1. Legal Proceedings 19
Item 2. Changes in Securities 19
Item 3. Defaults upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
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.
Consolidated Balance Sheets
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1998
---- ----
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 4,642 $ 7,389
Accounts receivable, net 63,433 63,438
Inventories 77,103 94,900
Prepaid expenses and other 1,298 3,076
Deferred income taxes 2,763 638
-------- --------
Total current assets 149,239 169,441
Property and equipment, net 78,829 104,024
Excess of cost over net assets acquired, net 55,998 115,695
Intangible assets and other, net 17,379 16,553
-------- --------
Total assets $301,445 $405,713
-------- --------
-------- --------
</TABLE>
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<PAGE>
Triumph Group, Inc.
Consolidated Balance Sheets (continued)
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1998
---- ----
(unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 27,396 $ 27,703
Accrued expenses 24,285 42,523
Income taxes payable 4,712 5,505
Current portion of long-term debt 675 2,217
-------- --------
Total current liabilities 57,068 77,948
Long-term debt, less current portion 33,823 88,816
Deferred income taxes and other 27,675 32,010
Stockholders' equity:
Common stock, $.001 par value, 50,000,000 shares
authorized, 8,547,236 and 8,551,286 shares issued
and outstanding at March 31, 1998 and
December 31, 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 December 31, 1998. 3 3
Capital in excess of par value 135,331 135,408
Retained earnings 47,536 71,519
-------- --------
Total stockholders' equity 182,879 206,939
-------- --------
Total liabilities and stockholders' equity $301,445 $405,713
-------- --------
-------- --------
</TABLE>
SEE ACCOMPANYING NOTES.
-2-
<PAGE>
Triumph Group, Inc.
Consolidated Statements of Income
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------ -----------------
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $86,170 $ 102,023 $ 233,172 $ 292,645
Operating costs and expenses:
Cost of products sold 61,388 70,489 165,158 201,849
Selling, general, and administrative 11,278 12,710 33,306 38,106
Depreciation and amortization 2,548 4,041 6,423 10,365
Gain on sale of assets - - (1,250) -
------- --------- --------- ---------
75,214 87,240 203,637 250,320
Operating income 10,956 14,783 29,535 42,325
Interest expense 1,323 1,432 3,202 3,443
------- --------- --------- ---------
Income before income taxes and extraordinary gain 9,633 13,351 26,333 38,882
Income tax expense 3,756 4,940 10,269 14,899
------- --------- --------- ---------
Income before extraordinary gain 5,877 8,411 16,064 23,983
Extraordinary gain, net of income taxes - - 610 -
------- --------- --------- ---------
Net income $ 5,877 $ 8,411 $ 16,674 $ 23,983
------- --------- --------- ---------
------- --------- --------- ---------
Earnings Per Share - Basic:
Income before extraordinary gain $ 0.56 $ 0.71 $ 1.60 $ 2.02
Extraordinary gain, net of income taxes - - 0.06 -
------- --------- --------- ---------
Net income $ 0.56 $ 0.71 $ 1.66 $ 2.02
------- --------- --------- ---------
------- --------- --------- ---------
Weighted average common shares outstanding -
Basic 10,567 11,900 10,023 11,899
------- --------- --------- ---------
------- --------- --------- ---------
Earnings Per Share - Assuming Dilution:
Income before extraordinary gain $ 0.52 $ 0.67 $ 1.49 $ 1.89
Extraordinary gain, net of income taxes - - 0.06 -
------- --------- --------- ---------
Net income $ 0.52 $ 0.67 $ 1.55 $ 1.89
------- --------- --------- ---------
------- --------- --------- ---------
Weighted average common shares outstanding -
Assuming Dilution 11,321 12,633 10,759 12,660
------- --------- --------- ---------
------- --------- --------- ---------
</TABLE>
SEE ACCOMPANYING NOTES.
-3-
<PAGE>
Triumph Group, Inc.
Consolidated Statements of Cash Flows
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 31,
------------------------------
1997 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 16,674 $ 23,983
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sale of assets (1,250) -
Gain on extinguishment of debt (1,000) -
Depreciation and amortization 6,423 10,365
Other amortization included in interest expense 103 102
Provision for doubtful accounts receivable 7 289
Provision for deferred income taxes 2,598 3,448
Interest on subordinated and junior subordinated
promissory notes paid by issuance of
additional notes 569 595
Changes in other current assets and liabilities, net of
acquisitions and disposition of businesses:
Accounts receivable (3,908) 4,578
Inventories (9,814) (14,182)
Prepaid expenses and other current assets (325) (1,618)
Accounts payable, accrued expenses, and accrued
income taxes payable (4,938) (6,207)
Other (883) (398)
-------- --------
Net cash provided by operating activities 4,256 20,955
INVESTING ACTIVITIES
Capital expenditures, net (10,932) (10,689)
Proceeds from sale of company 6,736 -
Cost of businesses acquired, net of cash acquired (66,949) (53,944)
-------- --------
Net cash used in investing activities (71,145) (64,633)
</TABLE>
-4-
<PAGE>
Triumph Group, Inc.
Consolidated Statements of Cash Flows (continued)
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 31,
------------------------------
FINANCING ACTIVITIES 1997 1998
---- ----
<S> <C> <C>
Net increase in revolving credit facility $ 5,878 $ 47,780
Net proceeds from Common Stock Offering 66,813 -
Proceeds from issuance of long-term debt 5,000 -
Retirement of long-term debt (7,000) -
Repayment of debt and capital lease obligations (195) (1,407)
Payments of deferred financing costs - (25)
Proceeds from exercise of stock options 26 77
------- -------
Net cash provided by financing activities 70,522 46,425
Increase in cash 3,633 2,747
Cash at beginning of period 993 4,642
------- -------
Cash at end of period $ 4,626 $ 7,389
------- -------
------- -------
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 $ 7,196 $ 11,230
Cash paid for interest 2,579 2,596
</TABLE>
SEE ACCOMPANYING NOTES.
-5-
<PAGE>
Triumph Group, Inc.
Notes to 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 month periods ended
December 31, 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 Consolidated Financial Statements (continued)
(dollars in thousands, except per share data)
(Unaudited)
3. ACQUISITIONS AND DIVESTITURES
In the second and third quarters of fiscal 1999, the Company acquired all of the
outstanding stock of Nu-Tech Industries, Inc. ("Nu-Tech"), DG Industries, Inc.
("DG") and DV Industries, Inc. ("DV") (collectively the "1999 Acquisitions").
Nu-Tech, based in the Kansas City, Missouri metropolitan area, 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.
DG, based in Phoenix, Arizona, provides precision machining services on
hydraulic and pneumatic components for the aviation industry, focusing on a wide
spectrum of aircraft flap, spoiler, auxiliary power and cooling systems. DV,
located in Lynwood, California, provides chemical processing, painting and
non-destructive testing services to the aerospace and defense industries. The
combined purchase price for these acquisitions was $84,066. The purchase price
includes cash paid at closing, net of cash acquired, the assumption of debt and
certain liabilities, direct costs of the acquisitions and deferred payments. The
combined excess of the purchase price over net assets acquired of $61,958 was
recorded as excess of cost over net assets acquired and is being amortized over
thirty 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
respective dates of acquisition. Changes in purchase accounting estimates may
result in a reallocation of the purchase price within one year of each
respective acquisition. These acquisitions were 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
1999 Acquisitions, the 1998 Acquisitions and the 1998 Divestitures had taken
place on April 1, 1997:
<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 31,
------------------------------
1997 1998
---- ----
<S> <C> <C>
Net sales $288,183 $307,632
Operating Income 31,447 45,492
Income before extraordinary gain 14,302 25,138
Income before extraordinary gain per share:
Basic 1.43 2.11
Diluted 1.33 1.99
Net income 14,912 25,138
Net income per share:
Basic 1.49 2.11
Diluted 1.39 1.99
</TABLE>
-7-
<PAGE>
Triumph Group, Inc.
Notes to Consolidated Financial Statements (continued)
(dollars in thousands, except per share data)
(Unaudited)
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 excluded
from the above unaudited pro forma information for the nine months ended
December 31, 1997 for the 1998 Divestitures were $10,202 and $2,291
respectively.
4. INVENTORIES
The components of inventories are as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1998
---- ----
<S> <C> <C>
Raw materials $23,665 $30,782
Work-in-process 26,796 33,385
Finished goods 27,228 30,733
------- -------
Total inventories at FIFO cost 77,689 94,900
Less allowance to reduce certain current
FIFO costs to LIFO basis 586 -
------- -------
Total inventories $77,103 $94,900
------- -------
------- -------
</TABLE>
Approximately 12% and 11% of the inventory is valued using the LIFO method at
March 31, 1998 and December 31, 1998, respectively.
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1998
---- ----
<S> <C> <C>
Revolving credit facility $17,720 $65,500
Subordinated promissory notes 10,964 12,006
Industrial revenue bonds 5,000 4,665
Equipment notes and other debt 814 8,862
------- -------
34,498 91,033
Less current portion 675 2,217
------- -------
$33,823 $88,816
------- -------
------- -------
</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 December 31, 1998 was $8,821.
-8-
<PAGE>
Triumph Group, Inc.
Notes to Consolidated Financial Statements (continued)
(dollars in thousands, except per share data)
(Unaudited)
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.
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 NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------ -----------------
(in thousands) 1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighed average common shares
outstanding 10,567 11,900 10,023 11,899
Net effect of dilutive stock options 104 83 86 111
Net effect of dilutive warrant 650 650 650 650
------ ------ ------ ------
Weighted average common shares
outstanding - Assuming Dilution 11,321 12,633 10,759 12,660
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
Options to purchase 207,800 shares of common stock, at prices ranging from
$32.19 per share to $45.38 per share, were outstanding during the third 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 December 31, 1998
and, therefore, the effect would be antidilutive. Also, warrants to purchase up
to 60,000 shares of common stock at $10.00 per share, subject to certain
performance criteria, were not included in the computation of diluted earnings
per share during the third 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 December 31, 1998.
-9-
<PAGE>
Triumph Group, Inc.
Notes to Consolidated Financial Statements (continued)
(dollars in thousands, except per share data)
(Unaudited)
8. SUBSEQUENT EVENTS
In January 1999, the Company acquired substantially all of the assets of Chase
Aerospace (UK) Limited ("Chase") and Hartford Tool and Die Company ("Hartford").
Chase, based in Lashom Alton Hampshire, England, repairs and overhauls auxiliary
power units, constant speed drives and integrated drive generators for
commercial transport carriers and the commuter aviation industry. Chase will be
renamed Triumph Air Repair (Europe) Limited. Hartford, based in Bloomfield,
Connecticut, specializes in manufacturing precision components and assemblies
for commercial and military jet engines. The combined cash paid at closing, for
these acquisitions of approximately $9,429 was funded by borrowings under the
Company's Credit Facility.
-10-
<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 DECEMBER 31, 1998 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
1997
AVIATION GROUP
NET SALES. Net sales for the Aviation Group increased by $20.9 million,
or 32.7%, to $84.7 million for the third quarter of fiscal 1999 from $63.8
million for the third quarter of fiscal 1998. This increase was primarily due to
the inclusion of an aggregate of $33.6 million and $15.1 million in net sales
for DG Industries, Inc. ("DG"), DV Industries, Inc ("DV"), 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 third quarter of fiscal 1999
and 1998, respectively.
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 $84.7 million for the three
months ended December 31, 1998 from $78.7 million for the same three month
period in the prior year. This represents growth ("Internal Growth") of $5.9
million or 7.6% 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 $13.8 million, or 31.5%, to $57.5 million for the third quarter of
fiscal 1999 from $43.7 million for the third quarter fiscal 1998. This increase
was primarily due to the inclusion of $22.2 million and $11.0 million in the
third 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.
GROSS PROFIT. Gross profit for the Aviation Group increased by $7.1
million, or 35.4%, to $27.2 million for the third quarter of fiscal 1999 from
$20.1 million for the third quarter of fiscal 1998. This increase was primarily
due to the inclusion of $11.5 million and $4.1 million in the third 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. As a percentage of net sales, gross profit for the Aviation Group was
32.1% and 31.5% for the third quarter of fiscal 1999 and 1998, respectively.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the Aviation Group increased by $1.6 million, or
22.6%, to $8.9 million for the third quarter of fiscal 1999 from $7.2 million
for the third quarter of fiscal 1998, primarily due to the Acquired Companies.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the
Aviation Group increased by $1.5 million, or 64.7%, to $3.8 million for the
third quarter of fiscal 1999 from $2.3 million for the third quarter of fiscal
1998, primarily due to the assets acquired in connection with the Acquired
Companies.
-11-
<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 37.9%, to $14.6 million for the third quarter of fiscal 1999
from $10.6 million for the third quarter of fiscal 1998. 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 17.2% for the third quarter of fiscal 1999 and 16.6% for the third quarter
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, operating income for the
Aviation Group from Internal Growth was $5.7 million, or 63.3%, increasing to
$14.6 million in the third quarter of fiscal 1999 from $8.9 million in the third
quarter of fiscal 1998.
METALS GROUP
NET SALES. Net sales for the Metals Group decreased by $5.0 million, or
22.4%, to $17.4 million for the third quarter of fiscal 1999 from $22.4 million
for the third 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"), as well as weakness in the available markets for construction and
electrogalvanized steel. Deluxe had sales of $2.6 million in the third quarter
of fiscal 1998.
COSTS OF PRODUCTS SOLD. Costs of products sold for the Metals Group
decreased by $4.7 million, or 26.3%, to $13.0 million for the third quarter of
fiscal 1999 from $17.7 million for the third quarter of fiscal 1998. This
decrease was mainly due to lower raw material prices and the sale of Deluxe.
Deluxe had $2.0 million of cost of products sold in the third quarter of fiscal
1998.
GROSS PROFIT. Gross profit for the Metals Group decreased by $0.4
million, or 7.7%, to $4.3 million for the third quarter of fiscal 1999 from $4.7
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 25.0%
and 21.0% for the third quarter of fiscal 1999 and fiscal 1998, respectively.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the Metals Group decreased by $0.4 million, or
12.5%, to $2.8 million in the third quarter of fiscal 1999 from $3.2 million in
the third quarter of fiscal 1998.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the
Metals Group remained unchanged at $0.3 million for the third quarter of fiscal
1999 from the third quarter of fiscal 1998.
OPERATING INCOME. Operating income for the Metals Group, remained
unchanged at $1.2 million for the third quarter of fiscal 1999 from the third
quarter of fiscal 1998, due to the reasons discussed above. As a percentage of
net sales, operating income for the Metals Group was 7.1% and 5.4% for the third
quarter of fiscal 1999 and 1998, respectively.
OVERALL RESULTS
CORPORATE EXPENSES. Corporate expenses increased by $0.2 million, or
25.6%, to $1.0 million for the third quarter of fiscal 1999 from $0.8 million
for the same period in the prior year.
-12-
<PAGE>
Management's Discussion And Analysis of
Financial Condition and Results of Operations
(continued)
INTEREST EXPENSE. Interest expense increased by $0.1 million, or 8.2%,
to $1.4 million for the third quarter of fiscal 1999 from $1.3 million for the
third 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 37.0% for third quarter
of fiscal 1999 and 39.0% for the third quarter fiscal 1998.
NET INCOME. Net income increased by $2.5 million, or 43.1%, to $8.4
million for the third quarter of fiscal 1999 from $5.9 million for the third
quarter of fiscal 1998. The increase in third 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, as well as a reduction in
the effective tax rate for the third quarter of 1999.
NINE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO NINE MONTHS ENDED DECEMBER 31,
1997
AVIATION GROUP
NET SALES. Net sales for the Aviation Group increased by $74.0 million,
or 44.4%, to $240.5 million for the nine months ended December 31, 1998 from
$166.6 million for the nine months ended December 31, 1997. This increase was
primarily due to the inclusion of an aggregate of $90.6 million and $19.6
million in net sales for the Acquired Companies in the first nine 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 nine 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 $25.9 million, or 11.3%, increasing to $255.5
million in the first nine months of fiscal 1999 from $229.6 million in the first
nine 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 $49.6 million, or 44.1%, to $162.1 million for the first nine
months of fiscal 1999 from $112.5 million for the first nine months of fiscal
1998. This increase was primarily due to the inclusion of $60.6 million and
$13.8 million in the first nine 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.
-13-
<PAGE>
Management's Discussion And Analysis of
Financial Condition and Results of Operations
(continued)
GROSS PROFIT. Gross profit for the Aviation Group increased by $24.3
million, or 45.0%, to $78.4 million for the first nine months of fiscal 1999
from $54.1 million for the first nine months of fiscal 1998. This increase was
primarily due to the inclusion of $30.0 million and $5.9 million in the first
nine 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
32.6% and 32.5% for the first nine months of fiscal 1999 and 1998, respectively.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the Aviation Group increased by $5.4 million, or
25.7%, to $26.5 million for the first nine months of fiscal 1999 from $21.0
million for the first nine 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 $3.9 million, or 69.8%, to $9.5 million for the
first nine months of fiscal 1999 from $5.6 million for the first nine 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
$13.7 million, or 47.9%, to $42.4 million for the first nine months of fiscal
1999 from $28.7 million for the first nine months of fiscal 1998. Excluding the
one time gain on the sale of the Air Lab assets in the prior year, operating
income increased $15.0 million or 54.6%. 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 first nine months of fiscal 1999 and 16.5% for the first nine 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 $14.4 million, or 46.4%, increasing to
$45.6 million for the first nine months of fiscal 1999 from $31.2 million for
the first nine months of fiscal 1998.
METALS GROUP
NET SALES. Net sales for the Metals Group decreased by $14.5 million,
or 21.7%, to $52.1 million for the first nine months of fiscal 1999 from $66.6
million for the first nine months of fiscal 1998. This decrease was mainly due
to the sale of the Deluxe assets at the end of fiscal 1998, as well as weakness
in the available markets for construction and electrogalvanized steel. Deluxe
had sales of $8.1 million in the first nine months of fiscal 1998.
COSTS OF PRODUCTS SOLD. Costs of products sold for the Metals Group
decreased by $12.9 million, or 24.6%, to $39.8 million for the first nine months
of fiscal 1999 from $52.7 million for the first nine months of fiscal 1998. This
decrease was mainly due to lower raw material prices and the sale of Deluxe.
Deluxe had $6.2 million of cost of products sold in the first nine months of
fiscal 1998.
GROSS PROFIT. Gross profit for the Metals Group decreased by $1.5
million, or 11.1%, to $12.4 million for the first nine months of fiscal 1999
from $13.9 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 23.7% and 20.9% for the first nine months of fiscal 1999 and fiscal 1998,
respectively.
-14-
<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 $0.9 million, or
10.1%, to $8.3 million in the first nine months of fiscal 1999 from $9.2 million
in the first nine months of fiscal 1998, mainly due to the sale of Deluxe.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the
Metals Group remained unchanged at $0.8 million for the first nine months of
fiscal 1999 from the first nine months of fiscal 1998.
OPERATING INCOME. Operating income for the Metals Group decreased by
$0.6 million, or 15.8%, to $3.3 million for the first nine months of fiscal 1999
from $3.9 million for the first nine months of fiscal 1998, due to the reasons
discussed above. As a percentage of net sales, operating income for the Metals
Group was 6.3% and 5.9% for the first nine months of fiscal 1999 and 1998,
respectively.
OVERALL RESULTS
CORPORATE EXPENSES. Corporate expenses increased by $0.3 million, or
10.9%, to $3.4 million in the first nine months of fiscal 1999 from $3.1 million
in the same period of the prior year.
INTEREST EXPENSE. Interest expense increased by $0.2 million, or 7.5%,
to $3.4 million for the first nine months of fiscal 1999 from $3.2 million for
the first nine 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 38.3% for the first nine
months of fiscal 1999 and 39.0% for the first nine months of fiscal 1998.
NET INCOME. Net income increased by $7.3 million, or 43.8%, to $24.0
million for the first nine months of fiscal 1999 from $16.7 million for the
first nine 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 $8.7 million or 56.7%. 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 $21.0 million of cash flows from operating activities
for the nine months ended December 31, 1998. The Company used approximately
$64.6 million in investing activities and raised $46.4 million in financing
activities for the nine months ended December 31, 1998. As of December 31, 1998,
$57.9 million was available under the Company's $125.0 million credit facility
(the "Credit Facility"). On December 31, 1998, an aggregate amount of
approximately $65.5 million was outstanding under the Credit Facility, $54.0
million of which was accruing interest at LIBOR plus applicable basis points
totaling 5.8% per annum, and $11.5 million of which was accruing interest at the
prime rate of 7.75% per annum. Amounts repaid under the Credit Facility may be
reborrowed.
-15-
<PAGE>
Management's Discussion And Analysis of
Financial Condition and Results of Operations
(continued)
In the second and third quarters of fiscal 1999, the Company acquired
all of the outstanding stock of Nu-Tech Industries, Inc. ("Nu-Tech"), DG
Industries, Inc. ("DG") and DV Industries, Inc. ("DV"). 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. 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 purchase
price for these acquisitions, net of cash acquired, of approximately $53.9
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 December 1998, the Company announced that its Board of Directors
authorized the repurchase of up to 500,000 shares of its common stock, subject
to market conditions. Repurchases may be made from time to time in open market
transactions, block purchases, privately negotiated transactions or otherwise at
prevailing prices. No time limit has been set for completion of the program. The
Company's Board of Directors believes that at the price levels prevailing at the
time of the authorization, the repurchase of the Company's common stock would
present an excellent investment opportunity.
In January 1999, the Company acquired substantially all of the assets
of Chase Aerospace (UK) Limited ("Chase") and Hartford Tool and Die Company
("Hartford"). Chase, based in Lashom Alton Hampshire, England, repairs and
overhauls auxiliary power units, constant speed drives and integrated drive
generators for commercial transport carriers and the commuter aviation industry.
Chase will be renamed Triumph Air Repair (Europe) Limited. Hartford, based in
Bloomfield, Connecticut, specializes in manufacturing precision components and
assemblies for commercial and military jet engines. The combined cash paid at
closing, net of cash acquired, for these acquisitions of approximately $9.4
million was funded by borrowings under the Company's Credit Facility.
Capital expenditures of approximately $10.7 million for the nine months
ended December 31, 1998 were 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.
-16-
<PAGE>
Management's Discussion And Analysis of
Financial Condition and Results of Operations
(continued)
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.
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. Currently, the Company estimates that,
on a consolidated basis, it has substantially completed its assessment of how it
may be impacted, is approximately three-quarters of the way through the
development of plans to address the testing and remediation of its systems, and
has completed approximately half of its testing and remediation activities. The
Company estimates that it will complete this process prior to December 31, 1999.
-17-
<PAGE>
Management's Discussion And Analysis of
Financial Condition and Results of Operations
(continued)
The Company has not separately tracked its Year 2000 costs as a project, but
rather has incurred the costs in conjunction with normal sustaining activities.
The discretely identifiable costs incurred through December 31, 1998 of
completing the Company's Year 2000 assessment and of modifying its computer
software and hardware, as well as its production and facilities equipment, to be
Year 2000 compliant were approximately $0.2 million. The estimated costs yet to
be incurred are approximately $0.5 million. The current assessment does not
include costs related to software and hardware replaced in the normal course of
business other than replacements accelerated due to the Year 2000 issue.
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. The most likely worst case scenario would be the failure of particular
computer systems or machines with embedded chips that would require manual
processes in order to continue production and invoicing activities. The Company
believes that it could obtain materials at reasonably competitive prices from
alternate suppliers given a failure at a current vendor.
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 is in the process of developing contingency plans 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
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. Quantitative and Qualitative Disclosures about Market Risk
Not applicable
-18-
<PAGE>
TRIUMPH GROUP, INC.
Part II. Other Information
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities
Not applicable
Item 3. Defaults upon Senior Securities
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
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 December 31, 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: February 12, 1999
-20-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF TRIUMPH GROUP, INC. FOR THE NINE MONTHS ENDED DECEMBER
31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
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