<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, 1999.
or
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Transition Period From _________ to ________
Commission File Number: 1-12235
-------
TRIUMPH GROUP, INC.
-------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 51-0347963
- ----------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1255 Drummers Lane, Suite 200
Wayne, PA 19087-1565
- ------------------------------------------------ ---------------
(Address of principal executive offices) (Zip Code)
(610) 975-0420
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, par value $0.001 per share, 8,314,986 shares and Class D common
stock, par value $0.001 per share, 3,348,535 shares, each as of January 31, 2000
<PAGE>
TRIUMPH GROUP, INC.
INDEX
<TABLE>
<CAPTION>
Part I. Financial Information PAGE NUMBER
<S> <C>
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets 1
March 31, 1999 and December 31, 1999
Consolidated Statements of Income 3
Three months ended December 31, 1998 and 1999
Nine months ended December 31, 1998 and 1999
Consolidated Statements of Cash Flows 4
Nine months ended December 31, 1998 and 1999
Notes to Consolidated Financial Statements 6
December 31, 1999
Item 2. Management's Discussion and Analysis of Financial 11
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About 17
Market Risk
Part II. Other Information
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
Signature Page 19
</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,
1999 1999
--------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 4,953 $ 5,986
Marketable securities -- 1,061
Accounts receivable, net 65,613 70,134
Inventories 104,771 118,618
Prepaid expenses and other 2,473 4,197
Deferred income taxes 2,408 3,533
-------- --------
Total current assets 180,218 203,529
Property and equipment, net 107,123 120,686
Excess of cost over net assets acquired, net 124,667 144,837
Intangible assets and other, net 16,849 25,457
-------- --------
Total assets $428,857 $494,509
======== ========
</TABLE>
-1-
<PAGE>
Triumph Group, Inc.
Consolidated Balance Sheets (continued)
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1999
-------- -------------
(unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 33,894 $ 29,299
Accrued expenses 47,263 49,940
Income taxes payable 4,453 4,714
Current portion of long-term debt 1,151 2,580
--------- ---------
Total current liabilities 86,761 86,533
Long-term debt, less current portion 91,857 130,196
Deferred income taxes and other 35,462 42,630
Stockholders' equity:
Common stock, $.001 par value, 50,000,000
shares authorized, 8,551,786 shares issued 9 9
Class D common stock convertible,
$.001 par value, 6,000,000 shares authorized,
3,348,535 shares issued and outstanding 3 3
Capital in excess of par value 135,418 135,418
Treasury stock, at cost, 52,700 and 236,800 shares (1,336) (5,766)
Retained earnings 80,683 105,486
--------- ---------
Total stockholders' equity 214,777 235,150
--------- ---------
Total liabilities and stockholders' equity $ 428,857 $ 494,509
========= =========
</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,
------------------ -----------------
1998 1999 1998 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $102,023 $110,376 $292,645 $325,546
Operating costs and expenses:
Cost of products sold 70,489 75,491 201,849 223,772
Selling, general, and administrative 12,710 15,191 38,106 42,508
Depreciation and amortization 4,041 4,960 10,365 14,476
Special charge -- 734 -- 734
-------- -------- -------- --------
87,240 96,376 250,320 281,490
Operating income 14,783 14,000 42,325 44,056
Interest expense and other 1,432 2,655 3,443 6,826
-------- -------- -------- --------
Income before income taxes 13,351 11,345 38,882 37,230
Income tax expense 4,940 2,569 14,899 12,029
-------- -------- -------- --------
Net income $ 8,411 $ 8,776 $ 23,983 $ 25,201
======== ======== ======== ========
Earnings Per Share - Basic:
Net income $ 0.71 $ 0.75 $ 2.02 $ 2.15
======== ======== ======== ========
Weighted average common shares outstanding - Basic 11,900 11,664 11,899 11,697
======== ======== ======== ========
Earnings Per Share - Assuming Dilution:
Net income $ 0.67 $ 0.71 $ 1.89 $ 2.03
======== ======== ======== ========
Weighted average common shares outstanding -
Assuming Dilution 12,633 12,359 12,660 12,403
======== ======== ======== ========
</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,
1998 1999
------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 23,983 $ 25,201
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 10,365 14,476
Other amortization included in interest expense 102 186
Provision for doubtful accounts receivable 289 379
Provision for deferred income taxes 3,448 3,933
Interest on subordinated and junior subordinated
promissory notes paid by issuance of
additional notes 595 677
Changes in other current assets and liabilities, net of
acquisition of businesses:
Accounts receivable 4,578 5,468
Inventories (14,182) (7,405)
Prepaid expenses and other current assets (1,618) 1,115
Accounts payable, accrued expenses, and accrued
income taxes payable (6,207) (13,321)
Other (398) (3,958)
------- -------
Net cash provided by operating activities 20,955 26,751
INVESTING ACTIVITIES
Capital expenditures, net (10,689) (9,283)
Proceeds from sale of assets -- 5,991
Cost of businesses acquired, net of cash acquired (53,944) (39,886)
------- -------
Net cash used in investing activities (64,633) (43,178)
</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 1998 1999
---- ----
<S> <C> <C>
Net increase in revolving credit facility $ 47,780 $ 24,905
Repayment of debt and capital lease obligations (1,407) (2,080)
Purchase of Treasury Stock -- (4,611)
Payments of deferred financing costs (25) (985)
Proceeds from issuance of long-term debt -- 90
Proceeds from exercise of stock options 77 141
-------- --------
Net cash provided by financing activities 46,425 17,460
-------- --------
Net change in cash 2,747 1,033
Cash at beginning of period 4,642 4,953
-------- --------
Cash at end of period $ 7,389 $ 5,986
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for income taxes $ 11,230 $ 6,856
Cash paid for interest 2,596 5,848
</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 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, 1999 are not necessarily indicative of the results that may be
expected for the fiscal year ended March 31, 2000. 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 year
ended March 31, 1999.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The Company's aviation segment designs, engineers, manufactures or repairs and
overhauls aircraft components for commercial airlines, air cargo carriers, and
original equipment manufacturers on a worldwide basis. 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
In September 1999, the Emerging Issues Task Force issued Issue number 99-5,
"Accounting for Pre-Production Costs Related to Long-Term Supply Arrangements"
("EITF 99-5"). EITF 99-5 requires design and development costs incurred after
December 31, 1999 for products to be sold under long-term supply arrangements to
be expensed as incurred. The Company is currently evaluating the impact of EITF
99-5 on its financial position and results of operations.
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. ACQUISITIONS
In the first and third quarters of Fiscal 2000, the Company acquired all of
the outstanding stock of Ralee Engineering Company ("Ralee"), Construction
Brevitees d'Alfortville ("CBA"), and Lee Aerospace, Inc. ("Lee") and also
acquired substantially all of the assets of KT Aerofab, now operated by the
Company as Triumph Components-San Diego, Inc. (collectively the "2000
Acquisitions"). Ralee, based in City of Industry, California, manufactures
long structural components such as stringers, cords, floor beams and spars
for the aviation industry. CBA, located near Paris, France, is a manufacturer
of mechanical ball bearing control assemblies for the aerospace, ground
transportation and marine industries. Triumph Components-San Diego, Inc. is a
developer of high-temperature metal alloy parts. Lee Aerospace, Inc., located
in Wichita, Kansas, is a leading supplier of unheated windshields, flight
deck and cabin windows to the general aviation and corporate jet market. The
combined purchase price for these acquisitions was $57,982. The purchase
price includes cash paid at closing, net of cash acquired, the assumption of
debt and certain liabilities, direct costs of the acquisitions, deferred
payments and contingent payments of
-6-
<PAGE>
Triumph Group, Inc.
Notes to Consolidated Financial Statements (continued)
(dollars in thousands, except per share data)
(Unaudited)
3. ACQUISITIONS (Continued)
approximately $10,683, which are included in accrued expenses at December 31,
1999. The combined excess of the purchase price over the fair value of the net
assets acquired of $24,149 was recorded as excess of cost over net assets
acquired and is being amortized over thirty years on a straight-line basis.
In fiscal 1999, the Company acquired all of the outstanding stock of Nu-Tech
Industries, Inc., DG Industries, Inc., and DV Industries, Inc. (collectively the
"1999 Acquisitions"). For further information about the 1999 Acquisitions, refer
to the consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1999.
These acquisitions have been accounted for under the purchase method and,
accordingly, are included in the consolidated financial statements from their
dates of acquisition. These acquisitions were funded by the Company's long-term
borrowings in place at the date of each respective acquisition.
The following unaudited pro forma information has been prepared assuming the
2000 Acquisitions and the 1999 Acquisitions had taken place on April 1, 1998.
<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 31,
1998 1999
----------- -----------
<S> <C> <C>
Net sales $ 373,907 $ 336,800
Net income 25,952 25,395
Earnings per common share:
Basic 2.18 2.17
Diluted 2.05 2.05
</TABLE>
The unaudited pro forma information includes adjustments for interest expense
that would have been incurred to finance the purchases, additional depreciation
based on the estimated fair market value of the property and equipment acquired,
and the amortization of the intangible assets and excess of cost over net assets
acquired 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, 1998.
4. INVENTORIES
The components of inventories are as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1999
---- ----
<S> <C> <C>
Raw materials $ 30,896 $ 33,907
Work-in-process 39,280 44,813
Finished goods 34,595 39,898
-------- --------
Total inventories $104,771 $118,618
======== ========
</TABLE>
The Company's method of valuing all inventory is the
lower of First-in First-out ("FIFO") cost or market.
-7-
<PAGE>
Triumph Group, Inc.
Notes to Consolidated Financial Statements (continued)
(dollars in thousands, except per share data)
(Unaudited)
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1999
---- ----
<S> <C> <C>
Revolving credit facility $ 76,095 $101,000
Subordinated promissory notes 11,734 17,531
Industrial revenue bonds 4,665 5,293
Capital lease obligations 28 7,996
Other debt 486 956
-------- --------
93,008 132,776
Less current portion 1,151 2,580
-------- --------
$ 91,857 $130,196
======== ========
</TABLE>
On June 11, 1999, the Company amended and restated its Credit Facility ("New
Credit Facility") with its Lenders to increase the Credit Facility to $250,000
from $125,000, extend the term and amend certain terms and covenants. The New
Credit Facility bears interest at either LIBOR plus between 0.75% and 1.75% or
the prime rate (or the Federal Funds rate plus 0.5% if greater) at the option of
the Company and expires on June 13, 2004. The variation in the interest rate is
based upon the Company's ratio of total indebtedness to earnings before
interest, taxes, depreciation and amortization. In addition, the Company is
required to pay a commitment fee of between 0.175% and 0.375% on the unused
portion of the New Credit Facility without penalty. The Company may allocate up
to $5,000 of the available New Credit Facility for the issuance of letters of
credit.
Effective April 1, 1999, in connection with the Ralee acquisition, the Company
assumed approximately $8,665 of capital leases with interest rates ranging from
7.1% to 10.2%, maturing between September 2003 and August 2005. Each capital
lease is secured by a piece of equipment.
During the quarter ended December 31, 1999, in connection with the CBA and Lee
acquisitions, the Company assumed approximately $6,047 of debt related to seller
financing, $842 of an Industrial Revenue Bond financing, and $365 of other debt.
The Lee acquisition agreement provides for a reduction in the purchase price in
the event certain performance measurements are not met on each specified date
through year 2003. The Industrial Revenue Bond is secured by machinery and
equipment.
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 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-
<PAGE>
Triumph Group, Inc.
Notes to Consolidated Financial Statements (continued)
(dollars in thousands, except per share data)
(Unaudited)
7. SPECIAL CHARGE
During the quarter ended December 31, 1999 the Company announced a realignment
of reporting responsibilities. As a result of the realignment, the Company
recorded a pretax charge of $734, primarily related to severance of three
employees.
The following is a summary of the activity related to the charge recorded:
<TABLE>
<CAPTION>
BALANCE BALANCE
MARCH 31, 1999 CHARGES PAYMENTS DECEMBER 31, 1999
-------------- ------- -------- -----------------
<S> <C> <C> <C> <C>
Severance $ 0 $ 566 $(217) $ 349
Other 0 168 (168) 0
----- ----- ----- -----
Total $ 0 $ 734 $(385) $ 349
===== ===== ===== =====
</TABLE>
The balance of accrued severance is included in accrued expenses as of December
31, 1999.
8. EARNINGS PER SHARE
The following is a reconciliation between the weighted average outstanding
shares 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) 1998 1999 1998 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Weighted average common shares outstanding 11,900 11,664 11,899 11,697
Net effect of dilutive stock options 83 45 111 56
Net effect of dilutive warrant 650 650 650 650
------ ------ ------ ------
Weighted average common shares outstanding -
assuming dilution 12,633 12,359 12,660 12,403
====== ====== ====== ======
</TABLE>
Options to purchase 342,300 shares of common stock, at prices ranging from
$26.25 per share to $45.38 per share, were outstanding during the third quarter
of fiscal 2000. 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, 1999
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 2000 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, 1999.
-9-
<PAGE>
Triumph Group, Inc.
Notes to Consolidated Financial Statements (continued)
(dollars in thousands, except per share data)
(Unaudited)
9. SEGMENT REPORTING
Selected financial information for each reportable segment is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------ ------------
1998 1999 1998 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net Sales:
Aviation $ 84,653 $ 91,757 $ 240,517 $ 269,540
Metals 17,370 18,619 52,128 56,006
--------- --------- --------- ---------
$ 102,023 $ 110,376 $ 292,645 $ 325,546
========= ========= ========= =========
Income before income taxes:
Operating income (expense):
Aviation $ 14,584 $ 14,674 $ 42,431 $ 44,524
Metals 1,240 1,175 3,290 3,103
Corporate (1,041) (1,115) (3,396) (2,837)
Special charge -- (734) -- (734)
------ ------ ------ -------
14,783 14,000 42,325 44,056
Interest expense and other 1,432 2,655 3,443 6,826
--------- --------- --------- ---------
$ 13,351 $ 11,345 $ 38,882 $ 37,230
========= ========= ========= =========
Depreciation and amortization:
Aviation $ 3,756 $ 4,647 $ 9,533 $ 13,547
Metals 270 301 787 893
Corporate 15 12 45 36
--------- --------- --------- ---------
$ 4,041 $ 4,960 $ 10,365 $ 14,476
========= ========= ========= =========
Capital expenditures:
Aviation $ 3,216 $ 1,825 $ 10,481 $ 8,313
Metals (272) 295 164 911
Corporate 3 50 44 59
--------- --------- --------- ---------
$ 2,947 $ 2,170 $ 10,689 $ 9,283
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1999
-------------- -----------------
<S> <C> <C>
Assets:
Aviation $395,745 $459,789
Metals 31,228 29,504
Corporate 1,884 5,216
-------- --------
$428,857 $494,509
======== ========
</TABLE>
For the three months ended December 31, 1998 and 1999, the Company had foreign
sales of $11,678 and $19,001 respectively. For the nine months ended December
31, 1998 and 1999, the Company had foreign sales of $35,499 and $50,123,
respectively.
-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, 1999 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
1998
AVIATION GROUP
NET SALES. Net sales for the Aviation Group increased by $7.1 million,
or 8.4%, to $91.8 million for the third quarter of fiscal 2000 from $84.7
million for the third quarter of fiscal 1999. This increase was due to the
inclusion of an aggregate of $21.4 million and $9.3 million in net sales in the
third quarter of fiscal 2000 and 1999, respectively, for Nu-Tech Industries,
Inc., DG Industries, Inc., DV Industries, Inc., Triumph Air Repair (Europe)
Ltd., HTD Aerospace, Inc. and Triumph Precision, Inc., (collectively, the "1999
Acquisitions") and Ralee Engineering Company, Construction Brevitees
d'Alfortville, Lee Aerospace, Inc. and Triumph Components-San Diego, Inc.,
(collectively, the "2000 Acquisitions"). Net sales for the other operating
divisions and subsidiaries in the Aviation Group experienced a 6.7% decrease,
totaling $5.1 million, from the prior year period. The decline in sales was due
to slowdowns in the production rates of certain Boeing commercial airplane
programs, specifically the 737 Classic, 747 and 777, as well as effects from
Boeing working off excess inventory for these programs, slightly offset by
increases in sales related to the C-17 and E-2C military aircraft programs.
COSTS OF PRODUCTS SOLD. Costs of products sold for the Aviation
Group increased by $3.7 million, or 6.4%, to $61.2 million for the third
quarter of fiscal 2000 from $57.5 million for the third quarter fiscal 1999.
This increase was due to the inclusion of $13.1 million and $5.3 million in
the third quarter of fiscal 2000 and 1999, respectively, of costs of products
sold associated with net sales generated by the 1999 Acquisitions and the
2000 Acquisitions and a $1.0 million charge for inventory due to
discontinuance of certain product lines. Costs of products sold for the other
operating divisions and subsidiaries in the Aviation Group decreased by $4.1
million, or 7.9%, mainly due to the decline in shipments for Boeing
commercial airplane programs discussed above.
GROSS PROFIT. Gross profit for the Aviation Group increased by $3.4
million, or 12.5%, to $30.6 million for the third quarter of fiscal 2000 from
$27.2 million for the third quarter of fiscal 1999. This increase was due to the
inclusion of $8.3 million and $4.0 million in the third quarter of fiscal 2000
and 1999, respectively, of gross profit on the net sales generated by the 1999
Acquisitions and the 2000 Acquisitions. The remaining net decrease of $0.9
million was due to reasons discussed above. As a percentage of net sales, gross
profit for the Aviation Group was 33.3% for the third quarter of fiscal 2000 and
32.1% for the third quarter of fiscal 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the Aviation Group increased by $2.4 million, or
27.3%, to $11.3 million for the third quarter of fiscal 2000 from $8.9 million
for the third quarter of fiscal 1999, primarily due to the 1999 Acquisitions and
the 2000 Acquisitions.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the
Aviation Group increased by $0.9 million, or 23.7%, to $4.6 million for the
third quarter of fiscal 2000 from $3.8 million for the third quarter of fiscal
1999, primarily due to the assets acquired in connection with the 1999
Acquisitions and the 2000 Acquisitions.
OPERATING INCOME. Operating income for the Aviation Group, excluding
its portion of the special charge recorded in the third quarter, increased by
$0.1 million, or 0.6%, to $14.7 million for the third quarter of fiscal 2000
from $14.6 million for the third quarter of fiscal 1999. This increase was
primarily due to the addition of net sales and profits generated by the 1999
Acquisitions and the 2000 Acquisitions. All other operating divisions and
subsidiaries in the Aviation Group experienced a 13.3% decline in operating
income from the prior year due to the reasons discussed above. As a percentage
of net sales, operating income for the Aviation Group was 16.0% for the third
quarter of fiscal 2000 and 17.2% for the third quarter of fiscal 1999.
-11-
<PAGE>
Management's Discussion And Analysis of
Financial Condition and Results of Operations
(continued)
METALS GROUP
NET SALES. Net sales for the Metals Group increased by $1.2 million, or
7.2%, to $18.6 million for the third quarter of fiscal 2000 from $17.4 million
for the third quarter of fiscal 1999. This increase was mainly due to an
increase in activity at the Company's structural steel erection operation.
COSTS OF PRODUCTS SOLD. Costs of products sold for the Metals Group
increased by $1.3 million, or 10.0%, to $14.3 million for the third quarter
of fiscal 2000 from $13.0 million for the third quarter of fiscal 1999. This
increase mainly was due to the increase in activity at the Company's
structural steel erection operation and the effect of a one-time reduction in
the prior year due to lower raw material prices.
GROSS PROFIT. Gross profit for the Metals Group decreased by $0.1
million, or 1.2%, to $4.3 million for fiscal 2000 from $4.3 million for the
prior year period, due to the reasons discussed above. As a percentage of net
sales, gross profit for the Metals Group was 23.0% and 25.0% for the third
quarter of fiscal 2000 and fiscal 1999, respectively.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the Metals Group remained unchanged at $2.8 million
for the third quarter of fiscal 2000 from the third quarter of fiscal 1999.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the
Metals Group remained unchanged at $0.3 million for the third quarter of fiscal
2000 from the third quarter of fiscal 1999.
OPERATING INCOME. Operating income for the Metals Group, excluding its
portion of the special charge recorded in the third quarter, decreased by $0.1
million, or 5.2%, to $1.2 million for the third quarter of fiscal 2000 from $1.2
million for the third quarter of fiscal 1999, due to the reasons discussed
above. As a percentage of net sales, operating income for the Metals Group was
6.3% and 7.1% for the third quarter of fiscal 2000 and 1999, respectively.
OVERALL RESULTS
CORPORATE EXPENSES. Corporate expenses increased by $0.1 million, or
7.1%, to $1.1 million for the third quarter of fiscal 2000 from $1.0 million for
the third quarter of fiscal 1999.
SPECIAL CHARGE. During the quarter ended December 31, 1999, the Company
announced a realignment of reporting responsibilities. As a result of the
realignment, the Company recorded a pre-tax charge of $0.7 million, primarily
related to severance for three employees. Through December 31, 1999, $0.4
million has been paid.
INTEREST EXPENSE AND OTHER. Interest expense and other increased by
$1.2 million, or 85.4%, to $2.7 million for the third quarter of fiscal 2000
from $1.4 million for the third quarter of fiscal 1999. This increase was
primarily due to increased debt levels associated with the 1999 Acquisitions and
the 2000 Acquisitions, the cash portions of which were financed by borrowings
under the Company's Credit Facility, as well as a slightly higher rate on and
amortization of fees relating to the Company's amended and restated credit
facility ("New Credit Facility").
INCOME TAX EXPENSE. The effective tax rate was 22.6% for the third
quarter of fiscal 2000 and 37.0% for the third quarter of fiscal 1999. In the
third quarter of fiscal 2000, the Company adjusted its effective income tax rate
at which reversals of temporary differences will be taxed. The adjustment
resulted in a $1.6 million reduction in income tax expense for the quarter ended
December 31, 1999. The reduction, primarily in the state effective tax rate, is
a result of recent acquisitions and the implementation of tax planning
strategies.
NET INCOME. Net income increased by $0.4 million, or 4.3%, to $8.8
million for the third quarter of fiscal 2000 from $8.4 million for the third
quarter of fiscal 1999. The increase in third quarter 2000 net income was
primarily attributable to the 1999 Acquisitions and the 2000 Acquisitions and
the tax adjustment, partially offset by the special charge and the reduced
earnings of the remaining Aviation Group operating units due to the decline in
shipments for Boeing commercial airplane programs discussed above.
-12-
Management's Discussion And Analysis of
Financial Condition and Results of Operations
(continued)
NINE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO NINE MONTHS ENDED DECEMBER 31,
1998
AVIATION GROUP
NET SALES. Net sales for the Aviation Group increased by $29.0 million,
or 12.1%, to $269.5 million for the nine months ended December 31, 1999 from
$240.5 million for the nine months ended December 31, 1998. This increase was
due to the inclusion of an aggregate of $59.0 million and $14.1 million in net
sales in the first nine months of fiscal 2000 and 1999, respectively, generated
by the 1999 Acquisitions and the 2000 Acquisitions. Net sales for the other
operating divisions and subsidiaries in the Aviation Group experienced a 7.0%
decrease, totaling $15.9 million, from the prior year period. The decline in
sales was due to slowdowns in the production rates of certain Boeing commercial
airplane programs, specifically the 737 Classic, 747 and 777, as well as effects
from Boeing working off excess inventory for these programs, slightly offset by
an increase in the production rate of the 737 New Generation and the C-17 and
E-2C military aircraft programs.
COSTS OF PRODUCTS SOLD. Costs of products sold for the Aviation
Group increased by $17.9 million, or 11.0%, to $180.0 million for the first
nine months of fiscal 2000 from $162.1 million for the first nine months of
fiscal 1999. This increase was due to the inclusion of $36.0 million and $8.1
million in the first nine months of fiscal 2000 and 1999, respectively, of
costs of products sold associated with net sales generated by the 1999
Acquisitions and the 2000 Acquisitions and a $1.0 million charge for
inventory due to discontinuance of certain product lines. Costs of products
sold for the other operating divisions and subsidiaries in the Aviation Group
decreased by $10.1 million, or 6.5%, due to the decline in shipments for
Boeing commercial airplane programs discussed above.
GROSS PROFIT. Gross profit for the Aviation Group increased by $11.2
million, or 14.2%, to $89.6 million for the first nine months of fiscal 2000
from $78.4 million for the first nine months of fiscal 1999. This increase was
due to the inclusion of $23.0 million and $6.0 million in the first nine months
of fiscal 2000 and 1999, respectively, of gross profit on the net sales
generated by the 1999 Acquisitions and the 2000 Acquisitions. The remaining net
decrease of $5.8 million was due to reasons discussed above. As a percentage of
net sales, gross profit for the Aviation Group was 33.2% and 32.6% for the first
nine months of fiscal 2000 and 1999, respectively.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the Aviation Group increased by $5.0 million, or
19.1%, to $31.5 million for the first nine months of fiscal 2000 from $26.5
million for the first nine months of fiscal 1999, primarily due to the 1999
Acquisitions and the 2000 Acquisitions.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the
Aviation Group increased by $4.0 million, or 42.1%, to $13.5 million for the
first nine months of fiscal 2000 from $9.5 million for the first nine months of
fiscal 1999, primarily due to the assets acquired in connection with the 1999
Acquisitions and the 2000 Acquisitions.
OPERATING INCOME. Operating income for the Aviation Group, excluding
its portion of the special charge recorded in the third quarter, increased by
$2.1 million, or 4.9%, to $44.5 million for the first nine months of fiscal 2000
from $42.4 million for the first nine months of fiscal 1999. This increase was
primarily due to the addition of net sales and profits generated by the 1999
Acquisitions and the 2000 Acquisitions. All other operating divisions and
subsidiaries in the Aviation Group experienced a 16.3% decline in operating
income from the prior year due to the reasons discussed above. As a percentage
of net sales, operating income for the Aviation Group was 16.5% for the first
nine months of fiscal 2000 and 17.6% for the first nine months of fiscal 1999.
-13-
<PAGE>
Management's Discussion And Analysis of
Financial Condition and Results of Operations
(continued)
METALS GROUP
NET SALES. Net sales for the Metals Group increased by $3.9 million, or
7.4%, to $56.0 million for the first nine months of fiscal 2000 from $52.1
million for the first nine months of fiscal 1999. This increase was mainly due
to an increase in activity at the Company's structural steel erection operation.
COSTS OF PRODUCTS SOLD. Costs of products sold for the Metals Group
increased by $4.1 million, or 10.2%, to $43.8 million for the first nine
months of fiscal 2000 from $39.8 million for the first nine months of fiscal
1999. This increase mainly was due to the increase in activity at the
Company's structural steel erection operation and the effect of a one-time
reduction in the prior year due to lower raw material prices.
GROSS PROFIT. Gross profit for the Metals Group decreased by $0.2
million, or 1.4%, to $12.2 million for the first nine months of fiscal 2000 from
$12.4 million for the prior year period, due to the reasons discussed above. As
a percentage of net sales, gross profit for the Metals Group was 21.8% and 23.7%
for the first nine months of fiscal 2000 and fiscal 1999, respectively.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the Metals Group decreased by $0.1 million, or 1.1%,
to $8.2 million from $8.3 million in the first nine months of fiscal 1999.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the
Metals Group increased by $0.1 million, or 13.5%, to $0.9 million for the first
nine months of fiscal 2000 from $0.8 million the first nine months of fiscal
1999.
OPERATING INCOME. Operating income for the Metals Group, excluding its
portion of the special charge recorded in the third quarter, decreased by $0.2
million, or 5.7%, to $3.1 million for the first nine months of fiscal 2000 from
$3.3 million for the first nine months of fiscal 1999, due to the reasons
discussed above. As a percentage of net sales, operating income for the Metals
Group was 5.5% and 6.3% for the first nine months of fiscal 2000 and 1999,
respectively.
OVERALL RESULTS
CORPORATE EXPENSES. Corporate expenses decreased by $0.6 million, or
16.5%, to $2.8 million for the first nine months of fiscal 2000 from $3.4
million for the first nine months of fiscal 1999.
SPECIAL CHARGE. During the quarter ended December 31, 1999, the Company
announced a realignment of reporting responsibilities. As a result of the
realignment, the Company recorded a pre-tax charge of $0.7 million, primarily
related to severance for three employees. Through December 31, 1999, $0.4
million has been paid.
INTEREST EXPENSE AND OTHER. Interest expense and other increased by
$3.4 million, or 98.3%, to $6.8 million for the first nine months of fiscal 2000
from $3.4 million for the first nine months of fiscal 1999. This increase was
primarily due to increased debt levels associated with the 1999 Acquisitions and
the 2000 Acquisitions, the cash portions of which were financed by borrowings
under the Company's Credit Facility, as well as a slightly higher rate on and
amortization of fees relating to the Company's New Credit Facility.
INCOME TAX EXPENSE. The effective tax rate was 32.3% for the first nine
months of fiscal 2000 and 38.3% for the first nine months of fiscal 1999. In the
third quarter of fiscal 2000, the Company adjusted its effective income tax rate
at which reversals of temporary differences will be taxed. The adjustment
resulted in a $1.6 million reduction in income tax expense for the nine months
ended December 31, 1999. The reduction, primarily in the state effective tax
rate, is a result of recent acquisitions and the implementation of tax planning
strategies.
NET INCOME. Net income increased by $1.2 million, or 5.1%, to $25.2
million for the first nine months of fiscal 2000 from $24.0 million for the
first nine months of fiscal 1999. The increase fiscal 2000 net income was
primarily attributable to the 1999 Acquisitions and the 2000 Acquisitions and
the tax adjustment, partially offset by the special charge and the reduced
earnings of the remaining Aviation Group operating units due to the decline in
shipments for Boeing commercial airplane programs discussed above.
-14-
<PAGE>
Management's Discussion And Analysis of
Financial Condition and Results of Operations
(continued)
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 $26.8 million of cash flows from operating activities
for the nine months ended December 31, 1999. The Company used approximately
$43.2 million in investing activities and raised $17.5 million in financing
activities for the nine months ended December 31, 1999.
On June 11, 1999, the Company amended and restated its former revolving
credit facility with its lenders to increase the credit facility to $250.0
million from $125.0 million, extend the term and amend certain terms and
covenants ("New Credit Facility"). The New Credit Facility bears interest at
either LIBOR plus between 0.75% and 1.75% or the prime rate (or the Federal
Funds rate plus 0.5% if greater) at the option of the Company and expires on
June 13, 2004. The variation in the interest rate is based upon the Company's
ratio of total indebtedness to earnings before interest, taxes, depreciation and
amortization. In addition, the Company is required to pay a commitment fee of
between 0.175% and 0.375% on the unused portion of the New Credit Facility
without penalty. The Company may allocate up to $5.0 million of the available
New Credit Facility for the issuance of letters of credit. As of December 31,
1999, $147.6 million was available under the New Credit Facility. On December
31, 1999, an aggregate amount of approximately $101.0 million was outstanding
under the New Credit Facility, $100.0 million of which was accruing interest at
LIBOR plus applicable basis points totaling 7.5% per annum, and $1.0 million of
which was accruing interest at the prime rate of 8.5% per annum. Amounts repaid
under the New Credit Facility may be reborrowed.
In the first and third quarters of fiscal 2000, the Company acquired
all of the outstanding stock of Ralee Engineering Company ("Ralee"),
Construction Brevitees d'Alfortville ("CBA"), and Lee Aerospace, Inc. ("Lee")
and acquired substantially all of the assets of KT Aerofab, now operated by the
Company as Triumph Components-San Diego, Inc. Ralee, located in City of
Industry, California, manufactures long structural components such as stringers,
cords, floor beams and spars for the aviation industry. CBA, located near Paris,
France, is a manufacturer of mechanical ball bearing control assemblies for the
aerospace, ground transportation and marine industries. Triumph Components-San
Diego, Inc. is a developer of high-temperature metal alloy parts. Lee, located
in Wichita, Kansas, is a leading supplier of unheated windshields, flight deck
and cabin windows to the general aviation and corporate jet market. The combined
cash portion of the purchase prices paid at closing, net of cash acquired, for
these companies of approximately $27.9 million was funded by borrowings under
the Company's New Credit Facility. In connection with the Ralee acquisition, the
Company assumed $8.7 million of capital leases for equipment with interest rates
ranging from 7.1% to 10.2%, maturing between September 2003 and August 2005.
Also, in connection with the CBA and Lee acquisitions, the Company assumed $6.0
million of seller financing, $4.7 million of which accrues interest at 7% and
$1.3 million of which accrues interest at a floating rate, $0.8 million of an
Industrial Revenue Bond which accrues interest at 7.15%, and $0.4 million of
other debt.
During the first quarter of fiscal 2000, the Company purchased 117,500
shares of its Common stock for total cash consideration of $2.9 million. During
the second quarter of fiscal 2000, the Company purchased 74,000 shares of its
Common stock for total cash consideration of $1.7 million. The purchases were
funded by borrowings under the Company's New Credit Facility.
Capital expenditures were approximately $9.3 million for the nine
months ended December 31, 1999 primarily for manufacturing machinery and
equipment for the Aviation Group. The Company funded these expenditures through
borrowings under its New Credit Facility. The Company expects capital
expenditures to be approximately $21.0 million for its fiscal year ending March
31, 2000. 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 New Credit Facility will be sufficient to meet anticipated cash
requirements for its current operations. However, the
-15-
<PAGE>
Management's Discussion And Analysis of
Financial Condition and Results of Operations
(continued)
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 New 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 on terms favorable to the
Company, if at all.
YEAR 2000 DATE CONVERSION
The Company recognized the need to ensure that its business operations
would not be adversely affected by the calendar year 2000 date change and was
cognizant of the time sensitive nature of the problem. The Company's operating
units assessed how each may be impacted by Year 2000 and formulated and
commenced 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 made inquiries of
customers and suppliers to assess their Year 2000 readiness. The operating units
also tested information technology ("IT") systems, as well as non-IT systems,
and verified that vendor-supplied or outsourced systems would be Year 2000
compliant.
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, 1999
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 $1.0 million.
The Company has not experienced any material Year 2000 compliance
problems to date and, to the Company's knowledge, none of its significant
vendors, service providers, or customers have suffered material problems related
to Year 2000 compliance that the Company believes are likely to materially
adversely affect the Company. The Company continues to monitor its Year 2000
program for unexpected issues that could possibly still develop. The Year 2000
problem has many aspects and potential consequences, some of which are not
reasonably foreseeable, and there can be no assurance that unforeseen
consequences will not arise.
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 identify 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 Annual Report on Form 10-K, for the year
ended March 31, 1999, filed with the SEC in June 1999.
-16-
<PAGE>
Management's Discussion And Analysis of
Financial Condition and Results of Operations
(continued)
Item 3. Quantitative and Qualitative Disclosures About Market Risk
For information regarding the Company's exposure to certain market
risks, see Item 7A. Quantitative and Qualitative Disclosures About Market Risk
in the Company's Annual Report on Form 10-K for the year ended March 31, 1999.
There has been no material change in this information.
-17-
<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
(27.1) Financial Data Schedule for the nine months ended
December 31, 1999
(27.2) Restated Financial Data Schedule for the six months
ended September 30, 1999
B. Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
three months ended December 31, 1999
-18-
<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, Vice President & Controller
(Principal Accounting Officer)
Dated: February 14, 2000
-19-
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<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, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
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<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 5,986
<SECURITIES> 1,061
<RECEIVABLES> 72,411
<ALLOWANCES> 2,277
<INVENTORY> 118,618
<CURRENT-ASSETS> 203,529
<PP&E> 154,908
<DEPRECIATION> 34,222
<TOTAL-ASSETS> 494,509
<CURRENT-LIABILITIES> 86,533
<BONDS> 130,196
0
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<COMMON> 12
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<TOTAL-LIABILITY-AND-EQUITY> 494,509
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<TOTAL-REVENUES> 325,546
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<TOTAL-COSTS> 281,490
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<LOSS-PROVISION> 379
<INTEREST-EXPENSE> 6,833
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF TRIUMPH GROUP, INC. FOR THE SIX MONTHS ENDED SEPTEMBER
30,1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
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</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
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