- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K <TABLE> <CAPTION> (Mark One) <S> <C> /X/ Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended March 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 </TABLE> Commission File No. 1-12235 TRIUMPH GROUP, INC. (Exact name of registrant as specified in its charter) <TABLE> <S> <C> DELAWARE 51-0347963 (State or other jurisdiction of incorporation (I.R.S. Employer Identification Number) or organization) </TABLE> FOUR GLENHARDIE CORPORATE CENTER, 1255 DRUMMERS LANE, SUITE 200, WAYNE, PENNSYLVANIA 19087 (Address of principal executive offices, including zip code) Registrant's telephone number, including area code: (610) 975-0420 Securities registered pursuant to Section 12(b) of the Act: <TABLE> <S> <C> Title of Class Name of Exchange on which Registered - --------------------------------------------- --------------------------------------------- COMMON STOCK, PAR VALUE $.001 PER SHARE NEW YORK STOCK EXCHANGE </TABLE> Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the Registrant (1) has filed all reports 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 period 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ The number of outstanding shares of the Registrant's Common Stock, par value $.001 per share, and Class D Common Stock, par value $.001 per share, on May 28, 1999 was 8,382,836 and 3,348,535, respectively. In making such calculation, Registrant is not making a determination of the affiliate or non-affiliate status of any holders of shares of Common Stock or Class D Common Stock. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
The aggregate market value of the shares of Common Stock held by non-affiliates of the Registrant (computed by reference to the closing price of such voting stock on the New York Stock Exchange on May 28, 1999 of $30.625) was approximately $192,487,435. ------------------------ DOCUMENTS INCORPORATED BY REFERENCE Portions of the following document are incorporated herein by reference: Proxy Statement of Triumph Group, Inc. in connection with its 1999 Annual Meeting of Stockholders is incorporated in part in Part III hereof, as specified herein. 2
TABLE OF CONTENTS <TABLE> <CAPTION> ITEM NO. PAGE - ---------------------------------------------------------------------------------------------------------- --------- <S> <C> Part I.................................................................................................... 4 1. Business............................................................................................... 4 2. Properties............................................................................................. 19 3. Legal Proceedings...................................................................................... 20 4. Submission of Matters to a Vote of Security Holders.................................................... 20 Part II................................................................................................... 20 5. Market for Registrant's Common Equity and Related Stockholder Matters.................................. 20 6. Selected Financial Data................................................................................ 21 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................. 23 7a. Quantitative and Qualitative Disclosures about Market Risk............................................ 30 8. Financial Statements and Supplementary Data............................................................ 31 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................... 53 Part III.................................................................................................. 53 10. Directors and Executive Officers of Registrant........................................................ 53 11. Executive Compensation................................................................................ 54 12. Security Ownership of Certain Beneficial Owners and Management........................................ 54 13. Certain Relationships and Related Transactions........................................................ 54 Part IV................................................................................................... 54 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....................................... 54 </TABLE> 3
PART I ITEM 1. BUSINESS This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 relating to Triumph's future operations and prospects, including statements that are based on current projections and expectations about the markets in which Triumph operates, and management's beliefs concerning future performance and capital requirements based upon current available information. Actual results could differ materially from management's current expectations and additional capital may be required and additional capital, if required, may not be available on reasonable terms, if at all, at the times and in the amounts as may be needed by Triumph. In addition to these factors and others described elsewhere in this report, among other factors that could cause actual results to differ materially are uncertainties relating to the integration of acquired businesses, general economic conditions affecting Triumph's two business segments, Year 2000 readiness, dependence of some of Triumph's businesses on 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 Triumph, see the Risk Factors described in Item 1 of this Annual Report on Form 10-K. Triumph does not undertake any obligation to revise these forward-looking statements to reflect future events. GENERAL Triumph designs, engineers, manufactures, repairs, overhauls and distributes aircraft components, such as mechanical and electromechanical control systems, aircraft and engine accessories, auxiliary power units, commonly referred to as APUs, avionics and aircraft instruments. Triumph serves a broad spectrum of the aviation industry, including commercial airlines and air cargo carriers, as well as original equipment manufacturers, commonly referred to as OEMs, of aerospace vehicles, commercial and military aircraft, and aircraft components. PRODUCTS AND SERVICES Triumph's aviation products and services may generally be divided into three categories: structural components, flight controls and instrumentation, and subassembly components. The following is a description of some of the products and services offered by Triumph in each of these three categories: STRUCTURAL COMPONENTS. Triumph performs stretch forming, bending, die forming, machining, milling, welding, assembly and other fabrication on aircraft wings, fuselages and skins for aircraft produced by OEMs such as The Boeing Company. Triumph also manufactures metallic and composite bonded honeycomb assemblies for fuselage, wings and flight control surface parts for commercial airlines and other aircraft operators. FLIGHT CONTROLS AND INSTRUMENTATION. Triumph designs and engineers mechanical and electromechanical controls such as remote valve operators and push/pull controls ranging from simple vent controls to sophisticated flight-critical engine controls for OEMs and commercial airlines and general aviation. In certain cases, principally at Triumph Controls, Inc., a wholly owned subsidiary of Triumph, Triumph's designs and engineering for these controls are proprietary because these designs are not sold to the OEM for whom the control is manufactured. Consequently, the OEM generally relies on Triumph to repair or replace these components. Triumph also performs repair and overhaul services and supplies spare parts for various types of cockpit instruments and gauges for a broad range of commercial airlines on a worldwide basis. SUBASSEMBLY COMPONENTS. Triumph performs complete repair and overhaul services on APUs and components for APUs for both commercial airlines and OEMs. APUs are used to provide power for all non-propulsion aircraft functions such as air conditioning, lights and other electrical functions. Triumph also repairs and overhauls aircraft accessories, including constant speed drives, pneumatic or electrically 4
actuated valves, cabin compressors, starters and generators. Some of these components, like the APUs, are repaired pursuant to SFAR 36 certifications. In addition, Triumph manufactures hot section components for small propulsion jet engines, APUs and land-based power units and combustion system components for power equipment manufacturers. Finally, Triumph provides precision machining services for other operational components manufactured from refractory and other metals for the aviation and aerospace industry. INDUSTRY OVERVIEW AND TRENDS Both the aircraft component production and component repair industries are highly fragmented, each consisting of a limited number of well-capitalized companies, which offer a broad range of products and services, and a large number of smaller, specialized companies. The aviation industry has been consolidating at an increasing pace in recent years, and it is expected that this consolidation will continue for the foreseeable future. A number of significant trends are currently affecting the market for the design, engineering, manufacture, repair and overhaul of aircraft components. These trends include the following: INCREASES IN AIR TRANSIT AND AIRCRAFT PRODUCTION. According to Boeing's 1998 Current Market Outlook, the worldwide fleet of commercial airplanes may double from approximately 12,300 airplanes at the end of 1997 to approximately 26,200 airplanes by 2017. Further, the Boeing Report projects that cargo jet aircraft will increase from approximately 1,430 airplanes in 1997 to approximately 2,706 airplanes by 2017. Additionally, the number of airplanes in service for more than ten years will continue to increase, and these older airplanes are the primary market for independent providers of manufacture, repair and overhaul services. The continued growth in air transit and aircraft production will increase the demand for aircraft component purchases and repairs. INCREASED OUTSOURCING BY AIRCRAFT OPERATORS AND OEMS. Aircraft operators have come under increasing pressure to reduce both operating and capital costs associated with providing aviation services. While several of the expenditures incurred by aircraft operators are beyond their direct control, such as fuel prices and labor costs, aircraft operators seeking cost reductions have increased purchases of some components from third parties and have outsourced repair and overhaul functions. Aircraft components sold by third party suppliers and aircraft components that have been repaired and overhauled are generally less expensive than new aircraft components sold by OEMs. In addition, OEMs are increasingly becoming "assemblers" of aviation products by outsourcing more manufacturing and repair functions to third parties. In this regard, Triumph supplies many OEMs with aircraft components and subassemblies, in addition to performing repair and overhaul services. In addition, as consolidation in the aviation services industry continues, aviation services consumers are requiring vendors to offer a broader range of services including, in some instances, inventory maintenance and management services. Triumph believes that its broad array of aviation products and services and its reputation for quality and timely and reliable delivery will position Triumph to continue to capitalize on the outsourcing trend. Triumph anticipates that increased reliance on outsourcing will continue to cause consolidation in the industry since only those suppliers with extensive capacities and adequate capital will secure agreements with OEMs and aircraft operators. REDUCTION IN THE NUMBER OF APPROVED SUPPLIERS AND VENDORS. In order to reduce purchasing costs, streamline purchasing decisions and have greater control over quality, purchasing departments of OEMs and aircraft operators have been reducing the number of approved suppliers and vendors. In the past several years, several OEMs and aircraft operators have reduced their supplier and vendor lists from as many as 50 to a core group of five to ten "mega-suppliers" or "mega-vendors" who have the size and capacity to meet their needs. Triumph has secured a position on these lists of a number of OEMs and airlines. Triumph believes that this trend will continue in the future and that, due to its established market presence and reputation for quality, Triumph will continue to be selected as an approved supplier and vendor. See "--Government Regulation." 5
INCREASED MAINTENANCE AND SAFETY REQUIREMENTS. Under regulations promulgated by the FAA and similar agencies in other countries, including the Joint Aviation Authority and the Civil Aviation Administration of China, as well as guidelines established by OEMs and aircraft operators, when an aircraft component fails to perform within prescribed limits or after logging a prescribed number of flight hours, the aircraft component must be brought to a repair facility certified by the FAA or similar agency of a foreign nation for various types of designated service or replacement. The FAA has changed the nature of the licenses that it grants, from the grant of broad licenses for aircraft accessories or instruments within broad classifications to more limited licenses covering specific parts within more narrow classifications. Triumph holds many perpetual broad licenses that will continue unless abandoned, suspended or revoked. In addition, aircraft components require regular maintenance and inspection and replacement of "life-limited" components. The trend toward more stringent maintenance requirements and more frequent maintenance and overhaul has increased the size of the market for the repair of these components, because the use of new components is not always cost effective. Triumph believes that, because of its broad licenses and long-standing emphasis on quality control, it benefits from these higher maintenance and safety standards. INCREASED EMPHASIS ON COMPONENT TRACEABILITY. Because of concerns regarding the use of unapproved aircraft spare parts, regulatory authorities have increased the level of documentation that must be maintained on spare parts. This requirement has been extended by OEMs and aircraft operators to the vendors of spare parts. The high cost of required technology to compete effectively in the redistribution market has made entry into and survival in the aircraft spare parts redistribution market increasingly difficult and expensive. Triumph has implemented technology to enable it to meet these more stringent traceability requirements and intends to continue to do so in the future. COMPETITIVE ADVANTAGES Triumph believes that it is well positioned to take advantage of trends affecting the market for the design, engineering, manufacture, repair and overhaul of aircraft components due to: BROAD ARRAY OF PRODUCTS AND SERVICES. Triumph offers the aviation industry a consolidated point of purchase for a broad array of aviation products and services. Triumph designs, engineers and manufactures aircraft components to fulfill the particular needs and requirements of its customers. In some cases, Triumph owns the proprietary rights to these designs and, accordingly, the customer generally relies on Triumph to provide service on these aircraft components at every stage of their useful lives, including the repair and overhaul or replacement of these components. In addition, Triumph manufactures aviation components according to its customers' specifications. Triumph also performs repair and overhaul services for customers on various aviation components manufactured by third parties such as AlliedSignal, Inc. In addition, Triumph offers to maintain and manage inventories of aircraft components and other products for some of its customers. In some instances, Triumph's customers require it to maintain and manage their inventories. GOVERNMENT CERTIFICATIONS. Triumph operates 16 FAA-certified repair stations and has been granted licenses from the FAA and foreign regulatory counterparts, including the Joint Aviation Authority and the Civil Aviation Administration of China, to perform repair and overhaul services on broad classifications of aircraft instruments and accessories. Without these broad certifications and licenses, which are often expensive and time consuming to obtain and involve extensive audit procedures, other companies are precluded from offering these products and services, thereby constituting a significant barrier to entry. See "--Government Regulation." In addition, Triumph holds two exclusive licenses issued by the FAA which permit Triumph to design, engineer, repair, test and release into service without FAA approval particular products to its own specifications for particular aircraft components and therefore to compete directly with OEMs with respect to these components. These exclusive licenses, known as SFAR 36 certifications, enable Triumph to offer, on a proprietary basis, some repaired parts relating to various aircraft accessories 6
such as APUs and constant speed drives to its customers at a lower cost than other companies that must purchase replacement parts from third parties. Triumph employs designated engineering representatives who are certified to act on behalf of the FAA to develop, substantiate and approve repairs on components. EMPHASIS ON QUALITY CONTROL. Triumph incurs significant expenses to maintain the most stringent quality control of its products and services. In addition to domestic and foreign governmental regulations, OEMs, commercial airlines and other customers require that Triumph satisfy requirements relating to the quality of its products and services. Triumph has continually met or exceeded these requirements, and has successfully completed many audits conducted on a regular basis by the Coordinated Agency for Supplier Evaluation, a consortium of United States airlines, commonly referred to as C.A.S.E. As a vendor listed with C.A.S.E., Triumph is reviewed on a regular basis for quality and efficiency. Triumph also performs testing and certification procedures on all of the products that it designs, engineers, manufactures, repairs and overhauls, and maintains detailed records to ensure traceability of the production of and service on each aircraft component. Triumph believes that its emphasis on quality control has enabled it to obtain many of the FAA licenses it enjoys, including its exclusive SFAR 36 certifications. The expense required to institute and maintain Triumph's quality control procedures represents a barrier to entry for other companies. BROAD CUSTOMER BASE. Due to Triumph's broad array of products and services and its emphasis on quality control and timely delivery, Triumph's customers include virtually all of the world's major commercial airlines and an increasing number of the most widely recognized air cargo carriers, including Federal Express Corporation and United Parcel Service of America, Inc., and OEMs such as Boeing, AlliedSignal, Bombardier, Inc. and Aerospatiale (AirBus). Triumph expects that its customer base will continue to strengthen and broaden with increased cross-selling efforts by Triumph of its related products and services. Boeing and AlliedSignal each accounted for more than 10% of Triumph's consolidated revenues for the 12 months ended March 31, 1999. Although the loss of Boeing or AlliedSignal could have a material adverse effect on Triumph, Triumph provides various products and services to numerous Boeing and AlliedSignal facilities and, accordingly, Triumph believes that the loss of all Boeing or AlliedSignal business is unlikely. ESTABLISHED INDUSTRY PRESENCE. The operating divisions and subsidiaries in Triumph's Aviation Group have substantial experience in the aviation industry. These entities are characterized by experienced management and highly-skilled employees. Because of its established industry presence, Triumph enjoys strong customer relations, name recognition and repeat business. COMPANY STRATEGY Triumph intends to grow its aviation business through: EXPANSION OF PRODUCTS AND SERVICES. Triumph will continue to introduce new aviation products and services to take advantage of the growing aviation industry and the increasing demand for aviation products and services. In an effort to expand its existing array of products and services and to capture additional repair and overhaul business, Triumph plans to expand, as appropriate, its program for the distribution and inventory management of third party aircraft components. Triumph will also expand its assembly and subassembly capabilities on particular aircraft components. By broadening its products and services, Triumph intends to further expand its position as a consolidated point of purchase to the aviation industry, capitalizing on the increasing trend toward outsourcing and the reduction by aircraft operators and OEMs of the number of approved suppliers and vendors. 7
ACQUISITIONS. Triumph expects to continue its growth through acquisitions of other companies, assets or product lines that add to or complement Triumph's existing aviation products and services. Triumph successfully completed seven acquisitions since April 1, 1998. <TABLE> <CAPTION> EFFECTIVE DATE OF COMPANY ACQUIRED ACQUISITION BUSINESS OF COMPANY ACQUIRED - ------------------------------------------ -------------------------- ------------------------------------------ <S> <C> <C> Nu-Tech Industries, Inc. July 1, 1998 Produces complex structural components for the commercial and military aircraft markets. DV Industries, Inc. October 1, 1998 Provides metal finishing, processing and other services for the military and commercial industries. DG Industries, Inc. October 1, 1998 Specializes in precision machining services for the aerospace, military and commercial industries. Chase Aerospace, Ltd., operated by Triumph January 1, 1999 Repairs and overhauls APUs and other as Triumph Air Repair (Europe) Ltd. subassembly components for commercial transport carriers and the commuter aviation industry. Hartford Tool & Die Company, operated by January 1, 1999 Manufactures precision components and Triumph as HTD Aerospace, Inc. assemblies for the military and commercial industries. May Industries, Inc., operated by Triumph February 1, 1999 Manufactures and machines precision tubing as Triumph Precision, Inc. and provides heat-treating and brazing services for the aerospace industry. Ralee Engineering Corp. April 1, 1999 Manufactures long structural components for the airline industry. </TABLE> Because of the fragmented nature of much of the market for aircraft products and services, Triumph believes that many additional acquisition opportunities exist in the aviation industry. Triumph steadily evaluates acquisition opportunities. Triumph may not successfully complete any of these acquisitions and if so acquired, these entities may not be properly integrated into Triumph. EXPANDED OPERATING CAPACITY. Triumph plans to increase its operating capacity to meet the expected increased growth and demand in the aviation industry. Triumph will increase its capital expenditures, including expenditures for additional equipment and skilled labor, to support this increased capacity. Triumph intends to continue to invest in state of the art machinery to increase its operating efficiencies and improve operating margins. INCREASED INTERNATIONAL MARKETING. Triumph intends to continue to take advantage of the expanding international market for aviation products and services as worldwide air travel escalates and foreign nations purchase used aircraft that require more frequent repair and maintenance. Triumph currently supplies products and services to virtually every major commercial airline in the world and retains independent sales representatives in a number of foreign countries. In addition, Triumph participates each year in several international trade shows, including the Paris Air Show and the Singapore Air Show. Triumph intends to build on its existing international presence through continued market penetration and, as appropriate opportunities arise, foreign acquisitions. CAPITALIZING ON AVIATION GROUP AFFILIATION. Utilizing the group affiliation of Triumph's operating divisions and subsidiaries, Triumph plans to increase cross-selling of related capabilities to its customers. In 8
addition, Triumph has added a corporate Vice President who will coordinate this cross-selling among companies. Triumph's operating divisions and subsidiaries will continue to share independent sales representatives and jointly bid on projects where appropriate, while still maintaining their individual identities. HISTORICAL BACKGROUND Triumph was formed by members of management and Citicorp Venture Capital, Ltd. to acquire particular businesses and assets from IKON Office Solutions, Inc. In connection with this acquisition, 19 members of management contributed capital in the aggregate amount of approximately $1.1 million and Citicorp Venture Capital, an institutional investor, contributed capital in the aggregate amount of approximately $6.9 million. PROPRIETARY RIGHTS Triumph benefits from its proprietary rights relating to designs, engineering, manufacturing processes and repair and overhaul procedures. For example, at Triumph Controls, one of Triumph's subsidiaries, Triumph designs and engineers flight control systems and retains the proprietary rights to these designs and engineering. Accordingly, the customer generally relies on Triumph to provide initial and additional components, as well as to redesign, reengineer, replace or repair and provide overhaul services on these aircraft components at every stage of their useful lives. In addition, Triumph has proprietary rights to some of its manufacturing processes. For some products, Triumph's unique manufacturing capabilities are required by the customer's specifications or designs, thereby necessitating reliance on Triumph for production of this designed product. Triumph also holds two SFAR 36 certifications that permit it to develop proprietary repair procedures to be used in some repair and overhaul processes, enabling Triumph to offer the customer a lower cost alternative to purchasing the OEM's replacement part. Triumph employs three designated engineering representatives who are certified to act on behalf of the FAA to develop, substantiate and approve repairs on components for some of Triumph's operating divisions and subsidiaries. RAW MATERIALS AND REPLACEMENT PARTS Triumph purchases raw materials, primarily consisting of steel and aluminum coils, sheets and shapes, from various vendors. Triumph also purchases replacement parts which are utilized in its various repair and overhaul operations. Although Triumph believes that these raw materials and replacement parts are generally available at competitive prices from numerous sources, at times, castings and extrusions are in short supply and difficult to purchase in sufficient amounts to meets its customers' demands. See "Risk Factors--Limited Availability of Raw Materials." OPERATING DIVISIONS AND SUBSIDIARIES Triumph operates through several operating divisions and subsidiaries which are divided into two groups: the Aviation Group and the Metals Group. The following chart describes the operations, customer base and certain other information with respect to Triumph's operating divisions and subsidiaries at March 31, 1999: 9
<TABLE> <CAPTION> OPERATING NUMBER DIVISION/SUBSIDIARY OF (YEAR ESTABLISHED) LOCATION BUSINESS TYPE OF CUSTOMERS EMPLOYEES - ------------------------ ------------------------ ------------------------ ------------------------ ------------- <S> <C> <C> <C> <C> AVIATION GROUP A. Biederman(1) Glendale, CA Sells and services Commercial airlines, 84 (1933) aircraft and industrial U.S. military and cargo instruments. carriers. Advanced Materials Chandler, AZ Repairs and manufactures Aviation OEMs and 354 Technologies, Inc.(3) Tempe, AZ components for APUs and aircraft operators. (1987) gas turbine engines. Aerospace Technologies, Fort Worth, TX Manufactures Commercial airlines, 130 Inc.(1) (1969) metallic/composite U.S. military and bonded honeycomb component supplier assemblies and repairs industry. fuselage, wing, flight control surface parts and other flight critical components. DG Industries, Inc. Phoenix, AZ Specializes in precision Military and commercial 27 (1978) machining of aerospace industry. components. DV Industries, Inc. Lynwood, CA Provides metal Aerospace, military and 131 (1978) finishing, processing commercial industries. and other services. Frisby Aerospace, Clemmons, NC Designs, manufactures, Military and commercial 136 Inc.(3) (1940) Freeport, NY assembles and tests OEMs, U.S. government, precision aircraft prime contractors and components. major airlines. Hydro-Mill Co.(1) (1937) Chatsworth, CA Manufactures, repairs Aviation OEMs, 162 and overhauls precision commercial airlines and machine parts and aircargo carriers. assemblies. HTD Aerospace, Inc. Bloomfield, CT Manufactures precision Commercial industry and 34 (1935) components and military. assemblies. JDC Company(3) (1985) Ft. Lauderdale, FL Specializes in the Commercial Airlines and 61 Austin, TX repair, overhaul and general aviation exchange of aircraft operators. electromechanical and pneumatic aircraft instruments. </TABLE> 10
<TABLE> <CAPTION> OPERATING NUMBER DIVISION/SUBSIDIARY OF (YEAR ESTABLISHED) LOCATION BUSINESS TYPE OF CUSTOMERS EMPLOYEES - ------------------------ ------------------------ ------------------------ ------------------------ ------------- <S> <C> <C> <C> <C> K-T Corporation (1963) Shelbyville, IN Performs stretch Aviation OEMs, U.S. 161 forming, bending, die military and aerospace, forming, machining, mass transportation, welding, assembly and energy and heavy other fabrication on trucking industries. aircraft wings, fuselages and skins. L.A. Gauge (1954) Sun Valley, CA Machines, bonds and Defense, aerospace, 39 fabricates ultra- medical, automotive and precision parts. computer industries. Lamar Electro-Air(1)(2) Wellington, KS Repairs and overhauls U.S. government, 108 (1965) aircraft and engine commercial airlines and accessories, general aviation manufactures pneumatic aircraft operators. and electrically actuated valves for aircraft. Northwest Industries Albany, OR Machines and fabricates Aerospace, nuclear, 32 (1960) refractory, reactive, medical, electronic and heat and chemical industries. corrosion-resistant precision products. Nu-Tech Industries, Inc. Grandview, MO Produces complex Commercial and military 125 (1972) structural components. aircraft market. Ralee Engineering Corp. City of Industry, CA Manufactures long Aviation OEMs. 139 (1962) structural components such as stringers, cords and flooring. Special Processes of Phoenix, AZ Produces and applies Aviation OEMs and 26 Arizona, Inc.(1) (1987) plasma coating. aircraft operators. Stolper-Fabralloy Phoenix, AZ Fabricates precision Commercial, military and 273 Company(3) (1908) Brookfield, WI sheet metal components aerospace OEMs. from high temperature alloys and provides repair and overhaul services. </TABLE> 11
<TABLE> <CAPTION> OPERATING NUMBER DIVISION/SUBSIDIARY OF (YEAR ESTABLISHED) LOCATION BUSINESS TYPE OF CUSTOMERS EMPLOYEES - ------------------------ ------------------------ ------------------------ ------------------------ ------------- <S> <C> <C> <C> <C> Triumph Air Repair(1)(2) Phoenix, AZ Repairs and overhauls Worldwide commercial 127 (1979) APUs and supplemental airlines. equipment. Triumph Air Repair Hampshire, England Repairs and overhauls Commercial transport 33 (Europe) Limited APUs and constant speed carriers and the (1989)(1) drives and integrated commuter aviation drive generators. industry. Triumph Controls, North Wales, PA Designs and manufactures Aviation OEMs, 284 Inc.(1) (1943) mechanical and shipyards, repair and electromechanical overhaul facilities, control systems. airlines and U.S. and NATO military forces. Triumph Precision, Inc. Phoenix, AZ Manufactures and Aerospace industry. 57 (1964) machines precision tubing and provides heat treating and brazing services. METALS GROUP Great Western Steel Chicago, IL Produces steel products, Manufacturers, primarily 34 (1918) specializing in flat in the home and office rolled products. products industries. Kilroy Structural Steel Cleveland, OH Erects structural steel General contractors, 18 Co. (1918) frameworks. engineers and architects of commercial buildings and bridges. Triumph Industries Bridgeview, IL Produces and distributes Computer and electronic 51 (1960) specialty industries. electrogalvanized products. </TABLE> - ------------------------ (1) Designates FAA-certified repair station. (2) Designates SFAR 36 certification. (3) Designates that two locations are FAA-certified repair stations. METALS PROCESSING AND DISTRIBUTION Triumph's Metals Group consists of two operating divisions and one subsidiary with substantial experience in the metals industry. These businesses include a leading producer of electrogalvanized steel products and a steel service center specializing in flat rolled steel products. These entities supply products to several hundred manufacturers and other customers in the computer and electronics industries on a regional and national basis. In addition, Triumph operates a business engaged in the erection of structural frameworks for buildings and bridges in the Midwestern United States. 12
Triumph's Metals Group processes, converts and distributes steel and steel products including electrogalvanized steel products which are stamped, formed, welded and painted, and coated steel for the electronic and computer industries. Triumph's steel service center specializes in flat rolled products and their processing, including hot or cold rolled sheet and coil and galvanized sheet and coil used primarily by the home and office products and appliance industry. Triumph also erects structural framework, including steel members and allied materials, for buildings and bridges, with a specialty in commercial and industrial buildings. These structural erection services are provided on a project-by-project basis primarily in the Midwestern United States. These projects are generally awarded on a fixed fee, competitive bid basis. SALES AND MARKETING Each of Triumph's operating divisions and subsidiaries independently conducts sales and marketing efforts directed at their respective customers and industries and, where appropriate, collaborates with other Triumph operating divisions and subsidiaries for cross-marketing efforts. In addition, Triumph has added a corporate Vice President who will coordinate this cross-selling among companies. Each sales force and the respective officers of the operating divisions and subsidiaries are responsible for obtaining new customers and maintaining relationships with existing customers. Sales efforts are conducted primarily by independent regional manufacturer's representatives and in-house personnel. Generally, manufacturer's representatives receive a commission on sales and the in-house sales personnel receive a base salary plus commission. Engaging independent sales representatives at the local level facilitates responsiveness to each customer's changing needs and current trends in each marketplace in which Triumph operates. Triumph continually looks for opportunities to leverage its growing capabilities. The Presidents of Triumph's operating divisions and subsidiaries in the Aviation Group and Triumph's new Vice President, hired in March 1999 to assist in the coordination of the Group's marketing and sales efforts, meet periodically to discuss ways to improve sales and cross-marketing opportunities. The management of each operating division and subsidiary of Triumph also maintains close business relationships with many customers, thereby furthering the sales and marketing efforts of their businesses. A significant portion of Triumph's government and defense contracts are awarded on a competitive bidding basis. Triumph generally does not bid or act as the primary contractor, but will typically bid and contract as a subcontractor on contracts on a fixed fee basis. Triumph generally sells to its other customers on a fixed fee, negotiated contract or purchase order basis. BACKLOG As of March 31, 1999, Triumph's Aviation and Metals Groups had outstanding purchase orders representing an aggregate invoice price of approximately $189.9 million and $20.4 million, respectively. As of March 31, 1998, Triumph's Aviation and Metals Groups had outstanding purchase orders representing an aggregate invoice price of approximately $174.2 million and $12.6 million, respectively. Triumph believes that purchase orders in an aggregate approximate amount of $50.0 million will not be shipped by the Aviation Group by March 31, 2000. Triumph believes that all of the purchase orders will be shipped by the Metals Group by March 31, 2000. COMPETITION The aircraft components production and repair industry is highly fragmented, consisting of both a limited number of well-capitalized companies which offer a broad range of products and services and a large number of smaller, specialized companies. Triumph believes that the principal competitive factors in the aviation products and services industry are quality, turnaround time, overall customer service and price. See "--Competitive Advantages." Triumph believes that it competes favorably on the basis of the foregoing factors. Triumph does not believe that the location of its repair facilities is a significant factor to 13
its customers in selecting Triumph, as substantially all of the components serviced by Triumph are transported by common carrier to Triumph's facilities for service. Triumph competes with third party manufacturers, some of which are divisions or subsidiaries of OEMs or other large companies in the manufacture of aircraft components and subassemblies. Competition for the repair and overhaul of aviation components comes from three primary sources, some with greater financial and other resources than Triumph: OEMs, major commercial airlines and other independent service companies. Some major commercial airlines continue to own and operate their own service centers, while others have begun to sell their repair and overhaul services to other aircraft operators. The repair and overhaul services provided by domestic airlines are primarily for their own aircraft, although these airlines may outsource a limited amount of repair and overhaul services to third parties. Foreign airlines that provide repair and overhaul services typically provide these services not only for their own aircraft but for other airlines as well. OEMs also maintain service centers which provide repair and overhaul services for the components they manufacture. Other independent service organizations also compete for the repair and overhaul business of other users of aircraft components. Triumph's principal competitors in the metals industry include national and regional steel mills, other steel service centers, steel erection companies and pre-engineered building manufacturers. Some of these competitors have greater financial and other resources than Triumph. GOVERNMENT REGULATION The aviation industry is highly regulated in the United States by the FAA and in other countries by similar agencies. Triumph must be certified by the FAA and, in some cases, by individual OEMs, in order to engineer and service parts and components used in specific aircraft models. If material authorizations or approvals were revoked or suspended, the operations of Triumph would be adversely affected. New and more stringent government regulations may be adopted, or industry oversight heightened, in the future and these new regulations, if enacted, or any industry oversight, if heightened, may have an adverse impact on Triumph. Triumph must also satisfy the requirements of its customers, including OEMs, that are subject to FAA regulations, and provide these customers with products and services that comply with the government regulations applicable to aircraft components used in commercial flight operations. The FAA regulates commercial flight operations and requires that aircraft components meet its stringent standards. In addition, the FAA requires that various maintenance routines be performed on aircraft components, and Triumph currently satisfies these maintenance standards in its repair and overhaul services. Several of Triumph's operating divisions are FAA-approved repair stations. Currently, the FAA is granting licenses only for the manufacture or repair of a specific aircraft component, rather than the broader licenses that have been granted in the past. The FAA licensing process may be costly and time-consuming. In order to obtain an FAA license, an applicant must satisfy all applicable regulations of the FAA governing repair stations. These regulations require that an applicant have experienced personnel, inspection systems, suitable facilities and equipment. In addition, the applicant must demonstrate a need for the license. Because an applicant must procure manufacturing and repair manuals from third parties relating to a particular aircraft component in order to obtain a license with respect to this component, the application process may involve substantial cost. The license approval processes for the Joint Aviation Authority and Civil Aviation Administration of China are similarly stringent, involving potentially lengthy audits conducted by these regulatory authorities. Triumph's aviation and metals operations are also subject to a variety of worker and community safety laws. The Occupational Safety and Health Act of 1970 mandates general requirements for safe workplaces for all employees. In addition, OSHA provides special procedures and measures for the handling of hazardous and toxic substances. Specific safety standards have been promulgated for workplaces engaged 14
in the treatment, disposal or storage of hazardous waste. Triumph believes that its operations are in material compliance with OSHA's health and safety requirements. ENVIRONMENTAL MATTERS Triumph's operations are subject to federal, state and local environmental laws and regulation by government agencies, including the Environmental Protection Agency. Among other matters, these regulatory authorities impose requirements that regulate the emission, discharge, generation, management, transportation and disposal of hazardous materials, pollutants and contaminants, govern public and private response actions to hazardous or regulated substances which may be or have been released to the environment, and require Triumph to obtain and maintain licenses and permits in connection with its operations. This extensive regulatory framework imposes significant compliance burdens and risks on Triumph. Although management believes that Triumph's operations and its facilities are in material compliance with these laws and regulations, future changes in these laws, regulations or interpretations thereof or the nature of Triumph's operations may require Triumph to make significant additional capital expenditures to ensure compliance in the future. Certain of Triumph's facilities have been or are currently the subject of environmental remediation activities, the cost of which is subject to indemnification provided by IKON Office Solutions pursuant to the acquisition by Triumph of these facilities from IKON Office Solutions. One of these facilities is connected with a site included on the National Priorities List of Superfund sites maintained by the EPA. Another of these facilities is located on a site included in the EPA's database of potential Superfund sites. IKON Office Solutions's indemnification covers Triumph for losses Triumph might suffer in connection with liabilities and obligations (and other liabilities and obligations arising out of or in connection with the acquisition) arising under environmental, health and safety laws with respect to operations or use of those facilities prior to their acquisition by Triumph. More specifically, this IKON Office Solutions indemnification covers both (i) the costs, claims and potential losses associated with environmental matters identified in the purchase agreement for the acquisition as the result of environmental assessments or other disclosures made in connection with the acquisition, including the costs, claims and potential losses associated with all the environmental remediation activities and identified liabilities, and (ii) the losses connected to environmental liabilities which were not identified in the purchase agreement and which arise from conditions or activities existing at the facilities or operations acquired from IKON Office Solutions prior to their acquisition from IKON Office Solutions, provided that they are identified by Triumph to IKON Office Solutions before July 22, 2000. Some other facilities acquired and operated by Triumph or one of its subsidiaries, including a leased facility located on an EPA National Priorities List site, were under active investigation for environmental contamination by federal or state agencies when acquired, and continue to be under investigation. Triumph is indemnified by prior operators and/or present owners of the facilities for liabilities which Triumph incurs as a result of these investigations and the environmental contamination found which pre-dates Triumph's acquisition of these facilities. Two Company facilities also have been the subject of notices from a citizen group alleging failure to notify and file reports with appropriate agencies regarding the presence of hazardous chemicals in excess of specified threshold quantities. Triumph has denied these allegations and the citizen group has either withdrawn or ceased actively pursuing these claims. See "Risk Factors--Potential Exposure to Environmental Liabilities." EMPLOYEES As of March 31, 1999, Triumph employed approximately 2,506 persons, of whom 164 were management employees, 90 were sales and marketing personnel, 209 were technical personnel, 236 were administrative personnel and 1,807 were production workers. As of March 31, 1999, approximately 342 employees were subject to collective bargaining agreements. Two of these collective bargaining agreements have expired and Triumph is currently negotiating with the unions for new contracts. None of the other collective bargaining agreements will expire in the next 12 months. Triumph has not experienced any material labor-related work stoppage and considers its relations with its employees to be good. 15
RISK FACTORS Statements in this Annual Report on Form 10-K, including those concerning Triumph's expectations regarding the effect of industry trends on Triumph, competitive advantages, strategies, future sales, gross profits, capital expenditures, selling, general and administrative expenses, and cash requirements, include forward-looking statements. Actual results may vary materially from these expectations. Factors which could cause actual results to differ from expectations include dependence on the aviation industry, requirements of capital, integration of acquired businesses, government regulation, dependence on key customers, technological developments and obsolete inventory. For a description of these and additional risks, see the discussion below. Triumph's results of operations may be adversely affected by one or more of these factors. DEPENDENCE ON AVIATION INDUSTRY. A substantial percentage of Triumph's gross profit and operating income is derived from its Aviation Group. Triumph's aviation operations are focused on designing, engineering and manufacturing aircraft components on new aircraft and performing repair and overhaul services on existing aircraft and aircraft components; therefore, Triumph's business is directly affected by economic factors and other trends that affect its customers in the aviation industry, including a possible decrease in outsourcing by aircraft operators and OEMs or projected market growth that may not materialize or be sustainable. When these economic and other factors adversely affect the aviation industry, they tend to reduce the overall customer demand for Triumph's products and services, thereby decreasing Triumph's operating income. Economic and other factors that might affect the aviation industry may have an adverse impact on Triumph's results of operations. See "Business--Industry Overview and Trends." CAPITAL REQUIREMENTS AND INTEGRATION OF ACQUIRED BUSINESSES. A key element of Triumph's strategy has been, and continues to be, internal growth and growth through the acquisition of additional companies engaged in the aviation industry. In order to grow internally, Triumph will be required to make significant capital expenditures. Triumph's ability to grow by acquisition is dependent upon, and may be limited by, the availability of suitable acquisition candidates and capital, and by particular restrictions contained in Triumph's revolving credit facility and its other financing arrangements. Growth by acquisition involves risks that could adversely affect Triumph's operating results, including difficulties in integrating the operations and personnel of acquired companies, the potential amortization of acquired intangible assets and the potential loss of key employees of acquired companies. Triumph may not be able to obtain the capital necessary to pursue its internal growth and acquisition strategy, consummate acquisitions on satisfactory terms or, if any acquisitions are consummated, satisfactorily integrate these acquired businesses into Triumph. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources" and "Business--Company Strategy." YEAR 2000 CONVERSION. The Year 2000 issue exists because many computer systems and applications 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. Triumph has already taken substantial steps to address the Year 2000 issue. With the implementation and completion of the Year 2000 project as scheduled, the possibility of significant interruptions of Triumph's normal operations is reduced. However, Triumph may not identify and address all significant internal or external Year 2000 problems in a prompt and cost-effective manner. These Year 2000 problems, if not fixed, could have a material adverse effect on Triumph's business, results of operations or financial condition. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Year 2000 Conversion." COMPETITION. There are numerous competitors of Triumph in both the aviation services and metals processing and distribution industries. Competition in the aviation industry comes from three primary sources: major commercial airlines, many of which operate their own maintenance and overhaul units, OEMs, which manufacture, repair and overhaul their own components, and other independent service companies. Triumph's principal competitors in the metals industry include national and regional steel mills, 16
other steel service centers, steel erection companies and pre-engineered building manufacturers. Some of Triumph's competitors in both aviation and metals have substantially greater financial and other resources than Triumph. Competitive pressures in either industry may materially adversely affect Triumph's business, financial condition or results of operations. See "Business--Competition." GOVERNMENT REGULATION AND INDUSTRY OVERSIGHT. The aviation industry is highly regulated in the United States by the FAA and in other countries by similar agencies. Triumph must be certified by the FAA and, in some cases, by individual OEMs in order to engineer and service parts and components used in specific aircraft models. If material authorizations or approvals were revoked or suspended, the operations of Triumph would be adversely affected. New and more stringent government regulations may be adopted, or industry oversight heightened, in the future and any new regulations, if enacted, or any industry oversight, if heightened, may have an adverse impact on Triumph. See "Business--Government Regulation." FLUCTUATIONS IN OPERATING RESULTS. Triumph's overall operating results are affected by many factors, including the timing of orders from large customers and the timing of expenditures to manufacture parts and purchase inventory in anticipation of future sales of products and services. A large portion of Triumph's operating expenses are relatively fixed. Because several operating divisions and subsidiaries of Triumph typically do not obtain long-term purchase orders or commitments from their customers, they must anticipate the future volume of orders based upon the historic purchasing patterns of customers and upon their discussions with customers as to their future requirements. Cancellations, reductions or delays in orders by a customer or group of customers could have a material adverse effect on Triumph's business, financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." DEPENDENCE OF CERTAIN BUSINESSES ON KEY CUSTOMERS. Two customers of Triumph, Boeing and AlliedSignal, each accounted for more than 10% of Triumph's consolidated revenues during the 12 months ended March 31, 1999, and the loss of either of these customers could have a material adverse effect on Triumph. In addition, some of Triumph's operating divisions and subsidiaries have significant customers, the loss of whom could have an adverse effect on those businesses. LIMITED AVAILABILITY OF RAW MATERIALS. Recently, Triumph has experienced extended lead times for delivery of aircraft quality castings and extrusions. These extended lead times may affect Triumph's ability to meet its customers' demands on a timely basis. Triumph may not be able to purchase sufficient aircraft-quality castings and extrusions or other raw materials to meet the demands of its customers in the future and aircraft-quality castings and extrusions and other raw materials may not be available on satisfactory terms or reasonable prices or that such limited availability will not have a material adverse effect on Triumph. TECHNOLOGICAL DEVELOPMENTS. The aviation industry is constantly undergoing development and change, and accordingly, it is likely that new products, equipment and methods of repair and overhaul service will be introduced in the future. In order to keep pace with any new developments, Triumph may need to expend significant capital to purchase new equipment and machines or to train its employees in the new methods of production and service. Triumph may not be successful in developing new products and these capital expenditures may have a material adverse effect on Triumph. RISKS REGARDING TRIUMPH'S INVENTORY. Triumph offers to maintain and manage inventories of aircraft components and other products for some of its customers. In addition, some of Triumph's customers require Triumph to maintain and manage their inventories. If this inventory is not used by Triumph, because Triumph ceases to supply these customers with the related products or services or because these components or other products become obsolete, Triumph will not realize any income to offset the expenses incurred by Triumph to acquire and maintain this inventory. 17
RELIANCE ON SKILLED PERSONNEL. From time to time, some of Triumph's operating divisions and subsidiaries have experienced difficulties in attracting and retaining skilled personnel to design, engineer, manufacture, repair and overhaul sophisticated aircraft components. The ability of Triumph to operate successfully could be jeopardized if Triumph is unable to attract and retain a sufficient number of skilled personnel. EXISTENCE OF COLLECTIVE BARGAINING AGREEMENTS. Several of Triumph's subsidiaries are parties to collective bargaining agreements with labor unions, two of which have expired and are subject to current negotiation. Under those agreements, Triumph currently employs approximately 342 full-time employees, and from time to time employs up to an additional 114 temporary employees for its steel erection business, all of whom are members of labor unions. Currently, approximately 13.6% of Triumph's permanent employees are represented by labor unions and approximately 25.8% of the Aviation Group's revenues and 100% of the Metals Group's revenues are derived from the operating divisions and subsidiaries a portion of whose employees are unionized. Triumph's inability to negotiate acceptable contracts with these unions, particularly the contracts currently under negotiation, could result in strikes by the affected workers and increased operating costs as a result of higher wages or benefits paid to union members. If the unionized workers were to engage in a strike or other work stoppage, or other employees were to become unionized, Triumph could experience a significant disruption of its operations and higher ongoing labor costs, which could have an adverse effect on Triumph's business and results of operations. PRODUCT LIABILITY; CLAIMS EXPOSURE. Triumph's overall operations expose it to potential liability for personal injury or death as a result of the failure of an aircraft component that has been serviced by Triumph, the failure of an aircraft component designed or manufactured by Triumph or the irregularity of metal products processed or distributed by Triumph. While Triumph believes that its liability insurance is adequate to protect it from these liabilities and while no material claims have been made against Triumph, claims may arise in the future and insurance coverage may not be adequate. Additionally, insurance coverage may not be available in the future at an acceptable cost. Any liability not covered by insurance or for which third party indemnification is not available could have a material adverse effect on the financial condition of Triumph. See "Business--Legal Proceedings." POTENTIAL EXPOSURE TO ENVIRONMENTAL LIABILITIES. Triumph's business operations and facilities are subject to a number of federal, state and local environmental laws and regulations. Although management believes that Triumph's operations and facilities are in material compliance with such laws and regulations, future changes in these laws, regulations or interpretations thereof or the nature of Triumph's operations may require Triumph to make significant additional capital expenditures to ensure compliance in the future. Some of Triumph's facilities have been or are currently the subject of environmental remediation activities, the cost of which is subject to indemnification provided by IKON Office Solutions. One of these facilities is connected with a site included in the National Priorities List of Superfund sites maintained by the EPA. Another of these facilities is located on a site included in the EPA's database of potential Superfund sites. The IKON Office Solutions indemnification covers both (i) the costs and claims associated with all of these environmental remediation activities and liabilities and (ii) the cost of unidentified liabilities that arise from conditions or activities existing at facilities prior to their acquisition from IKON Office Solutions and that are identified before July 22, 2000. Some other facilities acquired and operated by Triumph or one of its subsidiaries, including a leased facility located on an EPA National Priorities List site, have been under active investigation for environmental contamination by federal or state agencies when acquired, and continue to be under investigation. Triumph is indemnified by prior operators and/or present owners of the facilities for liabilities which Triumph incurs as a result of these investigations and the environmental contamination found which pre-dates Triumph's acquisition of these facilities. Triumph does not maintain environmental liability insurance, and if Triumph were required to pay the expenses related to these environmental liabilities, these expenses could have a material adverse effect on Triumph. See "Business--Environmental Matters." 18
ITEM 2. PROPERTIES PROPERTIES Triumph's executive offices are located in Wayne, Pennsylvania, where Triumph leases 7,695 square feet of space. In addition, Triumph owns or leases the following facilities in which its operating divisions and subsidiaries are located. <TABLE> <CAPTION> SQUARE OWNED/ LOCATION DESCRIPTION FOOTAGE LEASED - --------------------------------------------- --------------------------------------------- --------- --------- <S> <C> <C> <C> AVIATION GROUP Chandler, AZ................................. Thermal processing facility/office 7,000 Leased Phoenix, AZ.................................. Plasma spray facility/office 13,500 Leased Phoenix, AZ.................................. Repair and overhaul shop/office 50,000 Leased Phoenix, AZ.................................. Manufacturing facility/office 35,000 Leased Phoenix, AZ.................................. Machine shop/office 13,700 Owned Phoenix, AZ.................................. Manufacturing facility/office 54,812 Leased Tempe, AZ.................................... Manufacturing facility/office 13,500 Owned Tempe, AZ.................................... Machine shop 9,300 Owned Tempe, AZ.................................... Machine shop 32,100 Owned Chatsworth, CA............................... Manufacturing facility/office 101,900 Owned Chatsworth, CA............................... Manufacturing facility 21,600 Leased City of Industry, CA......................... Manufacturing facility/office 75,000 Leased Glendale, CA................................. Instrument shop/warehouse/office 25,000 Leased Lynwood, CA.................................. Processing and finishing facility/office 59,662 Leased Sun Valley, CA............................... Machine shop/office 30,000 Owned Walnut, CA................................... Manufacturing facility/office 98,359 Leased Bloomfield, CT............................... Manufacturing facility/office 25,000 Leased Hampshire, England........................... Repair and overhaul/office 11,915 Leased Ft. Lauderdale, FL........................... Instrument shop/warehouse/office 7,200 Leased Shelbyville, IN.............................. Manufacturing facility/office 192,300 Owned Shelbyville, IN.............................. Manufacturing facility/office 50,000 Owned Wellington, KS............................... Repair and overhaul/office 65,000 Leased Grandview, MO................................ Manufacturing facility/office 80,000 Owned Freeport, NY................................. Manufacturing facility/office/warehouse 29,000 Owned Clemmons, NC................................. Manufacturing facility/repair/office 20,000 Owned Albany, OR................................... Machine shop/office 25,000 Owned North Wales, PA.............................. Manufacturing facility/office 111,400 Leased Austin, TX................................... Instrument shop/warehouse/office 4,500 Leased Fort Worth, TX............................... Manufacturing facility/office 114,100 Owned Brookfield, WI............................... Manufacturing facility/office 62,000 Leased METALS GROUP Bridgeview, IL............................... Steel processing facility/office 135,700 Leased Chicago, IL.................................. Steel distributing facility/office 140,000 Owned Cleveland, OH................................ Steel fabrication facility/office 30,950 Leased Plain City, OH............................... Office 2,000 Leased </TABLE> 19
Triumph believes that its properties are adequate to support its operations for the foreseeable future. ITEM 3. LEGAL PROCEEDINGS Triumph is presently involved in ordinary routine litigation incidental to its business. None of the cases or claims currently pending is expected, individually or in the aggregate, to have a material adverse effect on Triumph. Triumph believes that its potential exposure is adequately covered by its aviation product and general liability insurance. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Common Stock is traded on the New York Stock Exchange under the symbol "TGI." The following table sets forth the range of high and low closing prices for the Common Stock for the periods indicated: <TABLE> <CAPTION> HIGH LOW ------- ------- <S> <C> <C> FISCAL 1999 1st Quarter......................... $50 7/8 $39 3/4 2nd Quarter......................... 47 11/16 27 1/16 3rd Quarter......................... 34 7/8 24 4th Quarter......................... 35 1/8 23 1/2 FISCAL 1998 1st Quarter......................... $31 7/8 $22 3/4 2nd Quarter......................... 33 5/8 27 1/8 3rd Quarter......................... 37 1/4 30 1/2 4th Quarter......................... 45 32 15/16 </TABLE> As of May 28, 1999, the reported closing price for the Common Stock was $30.625. As of May 28, 1999, there were approximately 55 holders of record of the Common Stock and Triumph believes that its Common Stock was beneficially owned by 2,850 persons. Triumph has never declared or paid cash dividends on any class of its Common Stock and does not anticipate paying any cash dividends in the foreseeable future. Triumph currently intends to retain its earnings, if any, and reinvest them in the development of its business. Triumph's credit facility and Triumph's 10.5% subordinated promissory note and payment in kind notes issued pursuant thereto in the aggregate principal amount of approximately $7.7 million payable to Teleflex Incorporated prohibit Triumph from paying dividends or making any distributions on its capital stock, except for the payment of stock dividends and redemptions of an employee's shares of capital stock upon termination of employment. 20
ITEM 6. SELECTED FINANCIAL DATA The following selected historical financial data should be read in conjunction with the Consolidated Financial Statements and related Notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included herein. <TABLE> <CAPTION> YEARS ENDED MARCH 31, --------------------------------------------------------- <S> <C> <C> <C> <C> <C> 1995 1996(1) 1997(2) 1998(3) 1999(4) --------- ---------- ---------- ---------- ---------- <CAPTION> IN THOUSANDS, EXCEPT PER SHARE DATA <S> <C> <C> <C> <C> <C> HISTORICAL OPERATING DATA: Aviation Group Net sales........................................... $ 70,714 $ 100,166 $ 167,731 $ 242,317 $ 328,577 Cost of products sold............................... 51,395 70,643 110,932 164,978 220,002 --------- ---------- ---------- ---------- ---------- Gross profit........................................ 19,319 29,523 56,799 77,339 108,575 Selling, general and administrative................. 8,761 12,915 24,228 29,611 36,652 Depreciation and amortization....................... 1,780 2,513 5,066 7,991 13,301 --------- ---------- ---------- ---------- ---------- Operating income, before corporate expense(5)....... 8,778 14,095 27,505 39,737 58,622 Metals Group Net sales........................................... 93,451 86,608 82,747 87,141 71,531 Cost of products sold............................... 74,441 69,097 65,118 68,333 55,018 --------- ---------- ---------- ---------- ---------- Gross profit........................................ 19,010 17,511 17,629 18,808 16,513 Selling, general and administrative................. 11,715 11,874 12,177 12,225 11,037 Depreciation and amortization....................... 916 999 979 1,100 1,036 --------- ---------- ---------- ---------- ---------- Operating income, before corporate expense(5)....... 6,379 4,638 4,473 5,483 4,440 --------- ---------- ---------- ---------- ---------- Combined operating income, before corporate expense........................................... 15,157 18,733 31,978 45,220 63,062 Corporate expense(6)................................ 1,606 2,522 4,371 3,944 4,490 Interest expense and other.......................... 6,589 7,318 6,591 3,963 5,144 Gain on sale of assets.............................. -- -- -- (2,250) -- --------- ---------- ---------- ---------- ---------- Income from continuing operations, before income taxes and extra-ordinary items.............................. 6,962 8,893 21,016 39,563 53,428 Income tax expense.................................. 2,598 3,699 8,461 15,561 20,281 --------- ---------- ---------- ---------- ---------- Income from continuing operations, before extraordinary items............................... 4,364 5,194 12,555 24,002 33,147 Extraordinary (loss) gain, net of income taxes...... -- -- (1,478) 610 -- (Loss)income from discontinued operations........... (2,852) 4,496 -- -- -- --------- ---------- ---------- ---------- ---------- Net income.......................................... $ 1,512 $ 9,690 $ 11,077 $ 24,612 $ 33,147 --------- ---------- ---------- ---------- ---------- --------- ---------- ---------- ---------- ---------- Preferred stock dividends and accretion............... (489) (740) (460) -- -- Redemption of preferred stock......................... -- -- (1,746) -- -- --------- ---------- ---------- ---------- ---------- Income available to common stockholders............... $ 1,023 $ 8,950 $ 8,871 $ 24,612 $ 33,147 --------- ---------- ---------- ---------- ---------- --------- ---------- ---------- ---------- ---------- Earnings per share: Income from continuing operations, before extraordinary items: Basic............................................. $ 0.66 $ 0.76 $ 1.39 $ 2.29 $ 2.79 Diluted........................................... 0.60 0.68 1.27 2.14 2.62 Shares used in computing earnings per share: Basic............................................. 5,850 5,850 7,447 10,485 11,896 Diluted........................................... 6,500 6,514 8,146 11,231 12,646 </TABLE> 21
<TABLE> <CAPTION> YEARS ENDED MARCH 31, --------------------------------------------------------- <S> <C> <C> <C> <C> <C> 1995 1996(1) 1997(2) 1998(3) 1999(4) --------- ---------- ---------- ---------- ---------- <CAPTION> IN THOUSANDS, EXCEPT PER SHARE DATA <S> <C> <C> <C> <C> <C> BALANCE SHEET DATA: Working capital....................................... $ 39,609 $ 60,379 $ 56,288 $ 92,171 $ 93,457 Total assets.......................................... 111,386 161,406 171,315 301,445 428,857 Long-term debt, including current portion............. 71,738 98,769 24,392 34,498 93,008 Redeemable preferred stock............................ 1,912 2,652 -- -- -- Total stockholders' equity............................ 6,094 15,065 91,413 182,879 214,777 </TABLE> - ------------------------ (1) Results include the acquisitions of Triumph Controls, Inc. and Air Lab, Inc. from the date of each respective acquisition. (2) Results include the acquisition of Advanced Materials Technologies, Inc. from the date of acquisition. See Note 3 to the Consolidated Financial Statements. (3) Results include the acquisitions of JDC Company, Hydro-Mill Co., Stolper-Fabralloy Company and Frisby Aerospace, Inc. from the date of each respective acquisition, and the sales of Air Lab, Inc. and Deluxe Specialties Mfg., Co. See Note 3 to the Consolidated Financial Statements. (4) Results include the acquisitions of Nu-Tech Industries, Inc., DG Industries, Inc., DV Industries, Inc., Triumph Air Repair (Europe) Ltd., HTD Aerospace, Inc. and Triumph Precision, Inc. from the date of each respective acquisition. See Note 3 to the Consolidated Financial Statements. (5) Operating income, before corporate expense, is presented by group to assist the reader in evaluating each of the group's results of operations before financing and corporate expenses. (6) Corporate expenses primarily consist of compensation, rent and general costs related to the operation of the Company's corporate office and other general expenses of the Company including professional fees. 22
ITEM 7. 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.) FISCAL YEAR ENDED MARCH 31, 1999 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1998 AVIATION GROUP NET SALES. Net sales for the Aviation Group increased by $86.3 million, or 35.6%, to $328.6 million for fiscal 1999 from $242.3 million for fiscal 1998. This increase was primarily due to the inclusion of an aggregate of $128.8 million and $44.4 million in net sales for JDC Company ("JDC"), Hydro-Mill Co. ("Hydro-Mill"), Stolper-Fabralloy Company ("Stolper") and Frisby Aerospace, Inc. ("Frisby"), (collectively, the "1998 Acquisitions") and Nu-Tech Industries, Inc. ("Nu-Tech"), DG Industries, Inc. ("DG"), DV Industries, Inc. ("DV"), Triumph Air Repair (Europe) Ltd. ("Triumph Air Repair (Europe)"), HTD Aerospace, Inc. ("HTD") and Triumph Precision, Inc. ("Triumph Precision"), (collectively, the "1999 Acquisitions") in fiscal year 1999 and fiscal 1998, respectively. The increase is partially offset by a reduction in sales due to the sale of the Company's Air Lab division ("Air Lab") in the second quarter of fiscal 1998. Air Lab had sales of $2.1 million for the year ended March 31, 1998. On a pro forma basis, assuming the 1998 Acquisitions, the 1999 Acquisitions and the sale of Air Lab had taken place on April 1, 1997, net sales for the Aviation Group increased to $361.1 million for fiscal 1999 from $333.5 million for fiscal 1998. This represents growth ("Internal Growth") of $27.6 million or 8.3% over the prior year. 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 $55.0 million, or 33.4%, to $220.0 million for fiscal 1999 from $165.0 million for fiscal 1998. This increase was primarily due to the inclusion of $85.6 million and $31.2 million in fiscal 1999 and fiscal 1998, respectively, of costs of products sold associated with net sales generated by the 1998 Acquisitions and the 1999 Acquisitions. 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. GROSS PROFIT. Gross profit for the Aviation Group increased by $31.2 million, or 40.4%, to $108.6 million for fiscal 1999 from $77.3 million for fiscal 1998. This increase was primarily due to the inclusion of $43.3 million and $13.2 million in fiscal 1999 and 1998, respectively, of gross profit on the net sales generated by the 1998 Acquisitions and the 1999 Acquisitions. 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 33.0% and 31.9% for fiscal 1999 and fiscal 1998, respectively. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses for the Aviation Group increased by $7.0 million, or 23.8%, to $36.7 million for fiscal 1999 from $29.6 million for fiscal 1998, primarily due to the 1998 Acquisitions and the 1999 Acquisitions. DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the Aviation Group increased by $5.3 million, or 66.4%, to $13.3 million for fiscal 1999 from $8.0 million for fiscal 1998, primarily due to the assets acquired in connection with the 1998 Acquisitions and the 1999 Acquisitions. OPERATING INCOME. Operating income for the Aviation Group increased by $18.9 million, or 47.5%, to $58.6 million for fiscal 1999 from $39.7 million, excluding the $1.3 million gain on the sale of Air Lab, for fiscal 1998. This increase was assisted by the growth in aircraft production and the increased outsourcing of 23
repair and overhaul services by commercial aircraft operators. This increase was also due to the addition of net sales and profits generated by the 1998 Acquisitions and the 1999 Acquisitions, as well as the incremental operating income resulting from increased sales volume. As a percentage of net sales, operating income for the Aviation Group was 17.8% and 16.4% for fiscal 1999 and fiscal 1998, respectively. On a pro forma basis, assuming the 1998 Acquisitions, the 1999 Acquisitions and the sale of Air Lab had taken place on April 1, 1997, operating income for the Aviation Group from Internal Growth was $13.1 million or 26.7%, increasing to $62.2 million in fiscal 1999 from $49.1 million in fiscal 1998. METALS GROUP NET SALES. Net sales for the Metals Group decreased by $15.6 million, or 17.9%, to $71.5 million for fiscal 1999 from $87.1 million for fiscal 1998. This decrease was primarily due to the sale of the assets of the Company's Deluxe Specialties Mfg. division ("Deluxe") at the end of fiscal 1998. Deluxe had sales of $10.8 million for fiscal 1998. COSTS OF PRODUCTS SOLD. Costs of products sold for the Metals Group decreased by $13.3 million, or 19.5%, to $55.0 million for fiscal 1999 from $68.3 million for fiscal 1998. This decrease was primarily due to lower raw material prices and the sale of Deluxe. Deluxe had $8.2 million of cost of products sold in fiscal 1998. GROSS PROFIT. Gross profit for the Metals Group decreased by $2.3 million, or 12.2%, to $16.5 million for fiscal 1999 from $18.8 million for fiscal 1998, due to the reasons discussed above. As a percentage of net sales, gross profit for the Metals Group was 23.1% and 21.6% for fiscal 1999 and fiscal 1998, respectively. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses for the Metals Group decreased by $1.2 million, or 9.7%, to $11.0 million for fiscal 1999 from $12.2 million for fiscal 1998, mainly due to the sale of Deluxe. DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the Metals Group decreased by $0.1 million, or 5.8%, to $1.0 million for fiscal 1999 from $1.1 million for fiscal 1998. OPERATING INCOME. Operating income for the Metals Group decreased by $1.0 million, or 19.0%, to $4.4 million, for fiscal 1999 from $5.5 million for fiscal 1998, excluding the $1.0 million gain on the sale of Deluxe, due to the reasons discussed above. As a percentage of net sales, operating income for the Metals Group was 6.2% and 6.3% for fiscal 1999 and fiscal 1998, respectively. OVERALL RESULTS CORPORATE EXPENSES. Corporate expenses increased by $0.5 million, or 13.8%, to $4.5 million for fiscal 1999 from $3.9 million for fiscal 1998. INTEREST EXPENSE AND OTHER. Interest expense and other increased by $1.2 million, or 29.8%, to $5.1 million for fiscal 1999 from $4.0 million for fiscal 1998. This increase was primarily due to increased debt levels associated with the 1998 Acquisitions and the 1999 Acquisitions, 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 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 38.0% for fiscal 1999 and 39.3% for fiscal 1998. NET INCOME. Net income increased by $8.5 million, or 34.7%, to $33.1 million for fiscal 1999 from $24.6 million for 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 24
subordinated note payable to IKON Office Solutions, Inc. (formerly Alco Standard Corporation) and the gains on the sales of the Air Lab assets (after tax gain of $0.8 million) and the Deluxe assets (after tax gain of $0.6 million), both in the prior year, net income increased by $10.5 million or 46.4%. The increase in fiscal 1999 net income was primarily attributable to the 1998 Acquisitions and the 1999 Acquisitions and the increase in income for the Aviation Group as a whole. FISCAL YEAR ENDED MARCH 31, 1998 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1997 AVIATION GROUP NET SALES. Net sales for the Aviation Group increased by $74.6 million, or 44.5%, to $242.3 million for fiscal 1998 from $167.7 million for fiscal 1997. This increase was primarily due to the inclusion of an aggregate of $77.8 million and $17.8 million in net sales for Advanced Materials Technologies, Inc. ("AMTI"), Frisby, Hydro-Mill, Stolper and JDC in fiscal 1998 and fiscal 1997, 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 and $5.5 million for the years ended March 31, 1998 and 1997, respectively. Net sales for the other operating divisions and subsidiaries in the Aviation Group, experienced a 12.4% increase in net sales over fiscal 1997. 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 $54.0 million, or 48.7%, to $165.0 million for fiscal 1998 from $110.9 million for fiscal 1997. This increase was primarily due to the inclusion of $51.5 million and $10.1 million in fiscal 1998 and fiscal 1997, respectively, of costs of products sold associated with net sales generated by AMTI, Frisby, Hydro-Mill, Stolper and JDC. 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 $20.5 million, or 36.2%, to $77.3 million for fiscal 1998 from $56.8 million for fiscal 1997. This increase was primarily due to the inclusion of $26.4 million and $7.7 million in fiscal 1998 and 1997, respectively, of gross profit on the net sales generated by AMTI, Frisby, Hydro-Mill, Stolper and JDC. 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 31.9% and 33.9% for fiscal 1998 and fiscal 1997, respectively. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses for the Aviation Group increased by $5.4 million, or 22.2%, to $29.6 million for fiscal 1998 from $24.2 million for fiscal 1997, primarily due to the AMTI, Frisby, Hydro-Mill, Stolper and JDC acquisitions. DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the Aviation Group increased by $2.9 million, or 57.7%, to $8.0 million for fiscal 1998 from $5.1 million for fiscal 1997, primarily due to the assets acquired in connection with the AMTI, Frisby, Hydro-Mill, Stolper and JDC acquisitions. OPERATING INCOME. Operating income for the Aviation Group increased by $12.2 million, or 44.5%, to $39.7 million, excluding the $1.3 million gain on the sale of Air Lab, for fiscal 1998 from $27.5 million for fiscal 1997. This increase was assisted by the growth in aircraft production and the increased outsourcing of repair and overhaul services by commercial aircraft operators. This increase was also due to the addition of net sales and profits generated by AMTI, Frisby, Hydro-Mill, Stolper and JDC, as well as the incremental operating income resulting from increased sales volume. As a percentage of net sales, operating income for the Aviation Group was 16.4% for both fiscal 1998 and fiscal 1997. 25
METALS GROUP NET SALES. Net sales for the Metals Group increased by $4.4 million, or 5.3%, to $87.1 million for fiscal 1998 from $82.7 million for fiscal 1997. This increase was primarily due to increased demand for both flat-rolled and electro-galvanized steel products processed by the Company. COSTS OF PRODUCTS SOLD. Costs of products sold for the Metals Group increased by $3.2 million, or 4.9%, to $68.3 million for fiscal 1998 from $65.1 million for fiscal 1997. This increase was primarily due to increased sales volume partially offset by lower costs of raw materials. GROSS PROFIT. Gross profit for the Metals Group increased by $1.2 million, or 6.7%, to $18.8 million for fiscal 1998 from $17.6 million for fiscal 1997, due to the reasons discussed above. As a percentage of net sales, gross profit for the Metals Group was 21.6% and 21.3% for fiscal 1998 and fiscal 1997, respectively. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses for the Metals Group remained unchanged at $12.2 million for fiscal 1998 from fiscal 1997. DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the Metals Group increased by $0.1 million, or 12.4%, to $1.1 million for fiscal 1998 from $1.0 million for fiscal 1997. OPERATING INCOME. Operating income for the Metals Group increased by $1.0 million, or 22.6%, to $5.5 million, excluding the $1.0 million gain on the sale of Deluxe, for fiscal 1998 from $4.5 million for fiscal 1997, due to the reasons discussed above. As a percentage of net sales, operating income for the Metals Group was 6.3% and 5.4% for fiscal 1998 and fiscal 1997, respectively. OVERALL RESULTS CORPORATE EXPENSES. Corporate expenses decreased by $0.4 million, or 9.8%, to $3.9 million for fiscal 1998 from $4.4 million for fiscal 1997. INTEREST EXPENSE. Interest expense decreased by $2.6 million, or 39.9%, to $4.0 million for fiscal 1998 from $6.6 million for fiscal 1997. This decrease was primarily due to reduced debt levels associated with the application of the proceeds from the public offering of the Company's Common stock and the proceeds from the sale of Air Lab, partially offset by the acquisitions of Frisby, Hydro-Mill, Stolper and JDC, the cash portions of which were financed by borrowings under the Company's credit agreement. INCOME TAX EXPENSE. The effective tax rate was 39.3% for fiscal 1998 and 40.3% for fiscal 1997. INCOME BEFORE EXTRAORDINARY ITEM. Income before extraordinary item increased by $11.4 million, or 91.2%, to $24.0 million for fiscal 1998 from $12.6 million for fiscal 1997. This increase was primarily due to the contribution generated by AMTI, Frisby, Hydro-Mill, Stolper and JDC and the overall favorable conditions in the aviation industry resulting in increased net sales of the Company's products and services. EXTRAORDINARY ITEMS. An extraordinary gain in fiscal 1998 of $0.6 million (net of tax provision of $0.4 million) relates to a discount for the prepayment of the $8.0 million subordinated note payable to IKON Office Solutions, Inc. An extraordinary loss in fiscal 1997 of $1.5 million (net of tax benefit of $1.0 million), relates to prepayment premiums and the related write-off of unamortized deferred financing costs due to the early retirement of 11% senior subordinated notes, senior term loans and the revolving credit facility. NET INCOME. Net income increased by $13.5 million, or 122.2%, to $24.6 million for fiscal 1998 from $11.1 million for fiscal 1997. The increase in fiscal 1998 net income was primarily attributable to the strong results of the Aviation Group, the extraordinary loss recorded in fiscal 1997 and the extraordinary gain recorded in fiscal 1998. 26
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 $34.2 million of cash flows from operating activities for the year ended March 31, 1999. The Company used approximately $80.7 million in investing activities, and raised $46.9 million in the year ended March 31, 1999. As of March 31, 1999, $47.5 million was available under the $125.0 million credit facility (the "Credit Facility"). The Credit Facility would have matured on March 21, 2003 and bore interest, at the option of the Company, at the fluctuating prime rate or LIBOR, plus applicable points. On March 31, 1999, an aggregate amount of approximately $76.1 million was outstanding under the Credit Facility, $70.0 million of which was accruing interest at LIBOR plus applicable basis points totaling 5.44% per annum, and $6.1 million of which was accruing at the prime rate of 7.75% per annum. Amounts repaid under the Credit Facility may be reborrowed. The Company has renegotiated its Credit Facility ("New Credit Facility"), which closed on June 11, 1999, 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. 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, and 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. Additionally, the Company may allocate up to $5.0 million of the available New Credit Facility for the issuance of letters of credit. In July 1998, in connection with the Nu-Tech acquisition, the Company assumed approximately $9.3 million of equipment notes with interest rates ranging from 8.5% to 9.25%, maturing between March 2004 and March 2007. Each equipment note was secured by a piece of equipment. During March 1999, the Company retired all of the outstanding equipment notes, using the proceeds obtained from the sale of the equipment, which was subsequently lease-backed. On September 15, 1997, the Company retired the remaining $8.0 million subordinated note payable to IKON Office Solutions, Inc. The terms of the note provided for a $1.0 million discount in the event the note was repaid by October 1, 1997. The cash payment of $7.0 million was funded by the Company's long-term borrowings under its Credit Facility. The early extinguishment of this debt resulted in an extraordinary gain of $0.6 million net of income taxes of $0.4 million. In July 1997, the Company entered into a $10.0 million discretionary line of credit ("Line of Credit"). The Line of Credit bears interest at the current rate offered by the lender. Borrowings under the Line of Credit are payable on the last day of the applicable interest period or on demand. The Line of Credit has no established expiration date. No amount was outstanding on the Line of Credit as of March 31, 1999. On May 5, 1997, the Company entered into a loan agreement with the City of Shelbyville, Indiana related to the City of Shelbyville, Indiana Adjustable Rate Economic Development Revenue Bonds, Series 1997 (the "Bonds"). The proceeds of the Bonds of $5.0 million are being used to fund the expansion of the Company's K-T Corporation facility. The Bonds are due to mature on May 1, 2012 and are secured by an irrevocable letter of credit issued by PNC Bank, N.A.. The Bonds bear interest at a variable weekly rate. At March 31, 1999, the interest rate of the Bonds was 3.25%. Capital expenditures were approximately $19.5 million for the year ended March 31, 1999, 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 $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. 27
In fiscal 1999, the Company acquired all of the outstanding stock of Nu-Tech, DG and DV and substantially all of the assets of Triumph Air Repair (Europe), HTD and Triumph Precision. 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. Triumph Air Repair (Europe), based in Lasham 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. HTD, based in Bloomfield, Connecticut, specializes in manufacturing precision components and assemblies for commercial and military jet engines. Triumph Precision, based in Phoenix, Arizona, specializes in complex aerospace tube bending, precision machining, metal heat treating and brazing. The combined cash purchase price for these acquisitions was $69.0 million which was funded by borrowings under the Company's Credit Facility. In May 1999, the Company acquired all of the outstanding stock of Ralee Engineering Company ("Ralee"). Ralee, located in City of Industry, California, manufactures long structural components such as stringers, cords, floor beams and spars for the airline industry. The cash paid at closing of approximately $13.3 million was funded by borrowings under the Company's Credit Facility. Ralee has revenues of approximately $20.0 million. 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 presented an excellent investment opportunity. During fiscal 1999 the Company purchased 52,700 shares of its Common stock, for total cash consideration of $1.3 million. In April 1999, the Company purchased 117,500 shares of its Common stock for total cash consideration of $2.9 million. The purchases were funded by borrowings under the Company's Credit Facility. 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. 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 28
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 and the development of plans to address the testing and remediation of its systems, and is approximately three-quarters of the way through its testing and remediation activities. The Company estimates that it will complete this process prior to October 31, 1999. 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 March 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 $0.4 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. MARKET RISK The principal market risk to which the Company is exposed is changes in interest rates on debt instruments. The Company manages its exposure to changes in interest rate fluctuations by optimizing the use of fixed and variable rate debt. The information below summarizes the Company's market risks 29
associated with debt obligations and should be read in conjunction with Note 6 of the Consolidated Financial Statements. The following table presents principal cash flows and the related interest rates by year of maturity. Fixed interest rates disclosed represent the weighted average rate as of March 31, 1999. Variable interest rates disclosed fluctuate with the LIBOR, federal funds rates and other weekly rates and represent the weighted average rate at March 31, 1999. EXPECTED YEARS OF MATURITY ($ IN 000S) <TABLE> <CAPTION> 2000 2001 2002 2003 2004 THEREAFTER --------- --------- --------- --------- --------- ----------- <S> <C> <C> <C> <C> <C> <C> Long -term debt, including current portion: Fixed rate ($)............................................... 816 818 800 4,667 4,667 480 Weighted average interest rate (%)........................... 7.0 7.0 7.0 9.9 9.9 10.5 Variable rate ($)............................................ 335 335 335 76,430 335 2,990 Weighted average interest rate (%)........................... 3.25 3.25 3.25 5.4 3.25 3.25 <CAPTION> TOTAL --------- <S> <C> Long -term debt, including current portion: Fixed rate ($)............................................... 12,248 Weighted average interest rate (%)........................... Variable rate ($)............................................ 80,760 Weighted average interest rate (%)........................... </TABLE> 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 Registration Statement on Form S-3 filed with Securities and Exchange Commission in November 1997 and in Item 1 of this Annual Report on Form 10-K, for the year ended March 31, 1999, filed with the SEC in June 1999. Pro forma financial information included above may not be indicative of actual results had the 1998 Acquisitions, the 1999 Acquisitions and the sale of Air Lab occurred on April 1, 1997. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK See discussion in Item 7. 30
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS To the Board of Directors and Stockholders of Triumph Group, Inc. We have audited the accompanying consolidated balance sheets of Triumph Group, Inc. as of March 31, 1999 and 1998, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended March 31, 1999. Our audits also included the financial statement schedule listed in the index at Item 14 (a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Triumph Group, Inc. at March 31, 1999 and 1998, and the consolidated results of its operations and its cash flows for each of the three years in the period ended March 31, 1999, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ ERNST & YOUNG LLP Philadelphia, Pennsylvania April 16, 1999, except for Note 18, as to which the date is May 12, 1999 31
TRIUMPH GROUP, INC. CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) <TABLE> <CAPTION> MARCH 31, ---------------------- <S> <C> <C> 1998 1999 ---------- ---------- ASSETS Current assets: Cash.................................................................................... $ 4,642 $ 4,953 Accounts receivable, less allowance for doubtful accounts of $1,840 and $1,907................................................................................ 63,433 65,613 Inventories............................................................................. 77,103 104,771 Prepaid expenses and other.............................................................. 1,298 2,473 Deferred income taxes................................................................... 2,763 2,408 ---------- ---------- Total current assets...................................................................... 149,239 180,218 Property and equipment, net............................................................... 78,829 107,123 Excess of cost over net assets acquired, net.............................................. 55,998 124,667 Intangible assets and other, net.......................................................... 17,379 16,849 ---------- ---------- Total assets.......................................................................... $ 301,445 $ 428,857 ---------- ---------- ---------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable........................................................................ $ 27,396 $ 33,894 Accrued expenses........................................................................ 24,285 47,263 Income taxes payable.................................................................... 4,712 4,453 Current portion of long-term debt....................................................... 675 1,151 ---------- ---------- Total current liabilities............................................................. 57,068 86,761 Long-term debt, less current portion...................................................... 33,823 91,857 Deferred income taxes and other........................................................... 27,675 35,462 Stockholders' equity: Common stock, $.001 par value, 15,000,000 and 50,000,000 shares authorized, 8,547,236 and 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............................................................ 135,331 135,418 Treasury stock, at cost, 52,700 shares.................................................... -- (1,336) Retained earnings......................................................................... 47,536 80,683 ---------- ---------- Total stockholders' equity.............................................................. 182,879 214,777 ---------- ---------- Total liabilities and stockholders' equity............................................ $ 301,445 $ 428,857 ---------- ---------- ---------- ---------- </TABLE> See notes to consolidated financial statements. 32
TRIUMPH GROUP, INC. CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA) <TABLE> <CAPTION> YEAR ENDED MARCH 31, ---------------------------------- <S> <C> <C> <C> 1997 1998 1999 ---------- ---------- ---------- Net sales.................................................................... $ 250,478 $ 329,458 $ 400,108 Operating costs and expenses: Cost of products sold...................................................... 176,050 233,311 275,020 Selling, general and administrative........................................ 40,748 45,723 52,130 Depreciation and amortization.............................................. 6,073 9,148 14,386 Gain on sale of businesses................................................. -- (2,250) -- ---------- ---------- ---------- 222,871 285,932 341,536 ---------- ---------- ---------- Operating income............................................................. 27,607 43,526 58,572 Interest expense and other................................................... 6,591 3,963 5,144 ---------- ---------- ---------- Income before income taxes and extraordinary item............................ 21,016 39,563 53,428 Income tax expense........................................................... 8,461 15,561 20,281 ---------- ---------- ---------- Income before extraordinary item............................................. 12,555 24,002 33,147 Extraordinary (loss) gain, net of income taxes............................... (1,478) 610 -- ---------- ---------- ---------- Net income................................................................. $ 11,077 $ 24,612 $ 33,147 ---------- ---------- ---------- ---------- ---------- ---------- Preferred stock dividends.................................................... (460) -- -- Redemption of preferred stock................................................ (1,746) -- -- ---------- ---------- ---------- Income available to common stockholders...................................... $ 8,871 $ 24,612 $ 33,147 ---------- ---------- ---------- ---------- ---------- ---------- Earnings Per Share--Basic: Income before extraordinary item........................................... $ 1.39 $ 2.29 $ 2.79 Extraordinary (loss) gain, net of income taxes............................. (0.20) 0.06 -- ---------- ---------- ---------- Net income................................................................. $ 1.19 $ 2.35 $ 2.79 ---------- ---------- ---------- ---------- ---------- ---------- Weighted average common shares outstanding--Basic............................ 7,447 10,485 11,896 ---------- ---------- ---------- ---------- ---------- ---------- Earnings Per Share--Assuming Dilution: Income before extraordinary item........................................... $ 1.27 $ 2.14 $ 2.62 Extraordinary (loss) gain, net of income taxes............................. (0.18) 0.05 -- ---------- ---------- ---------- Net income................................................................. $ 1.09 $ 2.19 $ 2.62 ---------- ---------- ---------- ---------- ---------- ---------- Weighted average common shares outstanding-- Assuming Dilution.......................................................... 8,146 11,231 12,646 ---------- ---------- ---------- ---------- ---------- ---------- </TABLE> See notes to consolidated financial statements. 33
TRIUMPH GROUP, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DOLLARS IN THOUSANDS) <TABLE> <CAPTION> COMMON CAPITAL IN STOCK EXCESS OF TREASURY RETAINED ALL CLASSES PAR VALUE STOCK EARNINGS TOTAL ------------- ---------- --------- --------- ---------- <S> <C> <C> <C> <C> <C> Balance at March 31, 1996.............................. $ 6 $ 1,006 $ -- $ 14,053 $ 15,065 Net income........................................... 11,077 11,077 Issuance of 3,000,000 shares of common stock in public offering and direct sale (net of $1,250 issuance costs).................................... 3 51,757 51,760 Redeemable preferred stock dividends................. (370) (370) Accretion of redeemable preferred stock.............. (1,836) (1,836) Compensation in stock options issued to employee..... 80 80 Purchase of 45,500 shares of common stock............ (85) (85) Acquisition consideration in stock options issued.... 164 164 Exercise of options to purchase common stock....................................... 75 75 Conversion of minority interest in subsidiary to common stock....................................... 619 619 Retirement of treasury stock......................... (10) 10 -- Exchange of redeemable preferred stock for common stock.............................................. 4,858 4,858 Exchange of junior subordinated promissory notes for common stock....................................... 1 10,005 10,006 --- ---------- --------- --------- ---------- Balance at March 31, 1997.............................. 10 68,479 -- 22,924 91,413 Net income........................................... 24,612 24,612 Issuance of 2,143,945 shares of common stock in public offering (net of $400 issuance costs)....... 2 66,810 66,812 Exercise of options to purchase common stock....................................... 42 42 --- ---------- --------- --------- ---------- Balance at March 31, 1998.............................. 12 135,331 -- 47,536 182,879 Net income........................................... 33,147 33,147 Exercise of options to purchase common stock....................................... 87 87 Purchase of 52,700 shares of common stock............ (1,336) (1,336) --- ---------- --------- --------- ---------- Balance at March 31, 1999.............................. $ 12 $ 135,418 $ (1,336) $ 80,683 $ 214,777 --- ---------- --------- --------- ---------- --- ---------- --------- --------- ---------- </TABLE> See notes to consolidated financial statements. 34
TRIUMPH GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) <TABLE> <CAPTION> YEAR ENDED MARCH 31, ---------------------------------- <S> <C> <C> <C> 1997 1998 1999 ---------- ---------- ---------- Operating Activities Net income.................................................................... $ 11,077 $ 24,612 $ 33,147 Adjustments to reconcile net income to net cash provided by operating activities: Gain on sale of businesses.................................................. -- (2,250) -- Gain on extinguishment of debt.............................................. -- (1,000) -- Depreciation and amortization............................................... 6,073 9,148 14,386 Other amortization included in interest expense............................. 206 139 137 Provision for doubtful accounts receivable.................................. 959 173 508 Provision for deferred income taxes......................................... 1,067 3,555 2,339 Interest on subordinated and junior subordinated promissory notes paid by issuance of additional notes.............................................. 1,550 758 803 Write-off deferred financing costs.......................................... 915 -- -- Changes in other current assets and liabilities, net of acquisitions and dispositions of businesses................................................ (13,483) (20,340) (17,228) Other....................................................................... (215) (1,216) 104 ---------- ---------- ---------- Net cash provided by operating activities..................................... 8,149 13,579 34,196 ---------- ---------- ---------- Investing Activities Capital expenditures, net..................................................... (8,183) (14,220) (19,489) Proceeds from sale of assets.................................................. -- -- 7,767 Proceeds from sale of discontinued operations................................. 27,350 -- -- Proceeds from sale of businesses, net of cash sold............................ -- 11,572 -- Cost of businesses acquired, net of cash acquired............................. (7,950) (80,708) (69,021) ---------- ---------- ---------- Net cash provided by (used in) investing activities........................... 11,217 (83,356) (80,743) ---------- ---------- ---------- Financing Activities Net proceeds from common stock offering....................................... 51,760 66,812 -- Net (decrease) increase in revolving credit facility.......................... (23,841) 9,013 58,375 Purchase of treasury stock, net............................................... (10) -- (1,336) Proceeds from exercise of stock options....................................... -- 42 87 Proceeds from issuance of long-term debt...................................... 54,065 5,000 -- Refinancing and retirement of long-term debt.................................. (93,616) (7,000) (8,585) Repayment of debt and capital lease obligations............................... (6,872) (423) (1,658) Payment of deferred financing cost............................................ (398) (18) (25) ---------- ---------- ---------- Net cash (used in) provided by financing activities........................... (18,912) 73,426 46,858 ---------- ---------- ---------- Net change in cash............................................................ 454 3,649 311 Cash at beginning of year..................................................... 539 993 4,642 ---------- ---------- ---------- Cash at end of year........................................................... $ 993 $ 4,642 $ 4,953 ---------- ---------- ---------- ---------- ---------- ---------- </TABLE> See notes to consolidated financial statements. 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1. BASIS OF PRESENTATION Triumph Group, Inc. ("Triumph") is a Delaware corporation which, through its operating subsidiaries, is engaged in aviation services and metals converting and distribution. The accompanying consolidated financial statements include the accounts of Triumph and its subsidiaries (collectively, the "Company"). Intercompany accounts and transactions have been eliminated from the consolidated financial statements. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION Triumph's aviation segment designs, engineers, manufactures or repairs and overhauls aircraft components for commercial airlines, air cargo carriers and original equipment manufacturers on a worldwide basis. Triumph's metals segment manufactures, machines, processes and distributes metal products to customers in the computer, construction, container and office furniture industries, primarily within North America. The Company's trade accounts receivable are exposed to credit risk; however, the risk is limited due to the diversity of the customer base and the customer base's wide geographical area. Trade accounts receivable from AlliedSignal and Boeing Co. ("Boeing") represented approximately 11% and 15%, respectively, of total accounts receivable as of March 31, 1999 and 16% and 12%, respectively, at March 31, 1998. The Company had no other significant concentrations of credit risk. For fiscal 1999, AlliedSignal and Boeing represented approximately 12% and 19%, respectively, of consolidated sales. Boeing's percentage includes the effects of Boeing's acquisitions of McDonnell Douglas and Rocketdyne. In fiscal 1998 Boeing represented approximately 14% of consolidated sales and AlliedSignal was less than 10% of consolidated sales. No other single customer accounts for more than 10% of the Company's sales; however, the loss of any significant customer, including AlliedSignal or Boeing, could have a material effect on the Company and its operating subsidiaries. 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. NEW ACCOUNTING STANDARDS Effective April 1, 1998, the Company adopted the Financial Accounting Standards Board's ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 superseded SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise." SFAS No. 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. SFAS No. 131 also establishes standards for related disclosures about products and services, geographic areas, and major customers. The adoption of SFAS No. 131 did not affect results of operations or financial position, but did affect the disclosure of segment information (see Note 14). In March 1998, the Accounting Standards Executive Committee issued Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1 requires all costs related to the development of internal-use software other than those incurred 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) during the application development stage to be expensed as incurred. Costs incurred during the application development stage are required to be capitalized and amortized over the estimated useful life of the software. SOP 98-1 is effective for the Company's first quarter ending June 30, 1999. Adoption is not expected to have a material effect on the Company's consolidated financial statements. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost and depreciated over the estimated useful lives of the related assets by the straight-line method. Buildings and improvements are depreciated over a period of 15 to 39 1/2 years, and machinery and equipment are depreciated over a period of 7 to 15 years (except for furniture, fixtures and computer equipment which is depreciated over a period of 3 to 10 years). EXCESS OF COST OVER NET ASSETS ACQUIRED The excess of cost over the fair value of net assets acquired is being amortized on a straight-line basis over a period of twenty-five to thirty years. Accumulated amortization at March 31, 1998 and 1999 was $1,896 and $5,264, respectively. The carrying value of excess of cost over net assets acquired is evaluated periodically in relation to the operating performance and expected future undiscounted cash flows of the underlying businesses. INTANGIBLE ASSETS Intangible assets at March 31, 1998 and 1999 of $14,793 and $13,335, respectively, consist primarily of patents, trademarks, aerospace designs and covenant not-to-compete agreements. Intangible assets are amortized on a straight-line basis over their estimated useful lives which range from five to twenty-five years. Accumulated amortization at March 31, 1998 and 1999 was $4,103 and $5,170, respectively. REVENUE RECOGNITION Revenues are recorded when services are performed or when products are shipped except for long-term construction contracts which are recorded on the percentage-of-completion method based on the relationship between actual costs incurred and total estimated costs at completion. Estimated costs to complete for each contract are reviewed periodically as work progresses and appropriate adjustments are made to revenue recognition percentages, if necessary. In the event such estimates indicate a loss would be incurred on the contract, the estimated amount of such loss would be recognized in the period the estimated loss was determined. Sales from long-term construction contracts approximated 7%, 4% and 2% of total sales for the years ended March 31, 1997, 1998 and 1999, respectively. STOCK-BASED COMPENSATION The Company follows Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its employee stock-based compensation (see Note 9). 3. ACQUISITIONS AND DIVESTITURES In 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") and substantially all of the 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 3. ACQUISITIONS AND DIVESTITURES (CONTINUED) assets of Chase Aerospace (UK) Limited, renamed Triumph Air Repair (Europe) Limited ("Triumph Air Repair (Europe)"), Hartford Tool and Die Company, renamed HTD Aerospace, Inc. ("HTD") and May Industries, Inc. and Metal Joining, Inc. together renamed Triumph Precision, Inc. ("Triumph Precision"). 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. Triumph Air Repair (Europe), based in Lasham 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. HTD, based in Bloomfield, Connecticut, specializes in manufacturing precision components and assemblies for commercial and military jet engines. Triumph Precision, based in Phoenix, Arizona, specializes in complex aerospace tube bending, precision machining, and metal heat treating and brazing. The combined purchase price for these acquisitions was $102,950. 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 a contingent payment of approximately $7,000, which is included in accrued expenses at March 31, 1999. The combined excess of the purchase price over the fair value of the net assets acquired of $71,435 was recorded as excess of cost over net assets acquired and is being amortized over thirty years on a straight-line basis. In fiscal 1998, the Company acquired substantially all of the assets of Frisby Aerospace, Inc. ("Frisby") and J.D. Chapdelaine Co., renamed JDC Company ("JDC") and also acquired all of the outstanding stock of Stolper-Fabralloy Company, LLC ("Stolper") and Hydro-Mill Company ("Hydro-Mill"). Frisby designs, manufactures, assembles and tests precision aircraft components and subsystems from facilities located in Freeport, New York and Clemmons, North Carolina. JDC, based in Ft. Lauderdale, Florida, specializes in the repair, overhaul and exchange of electromechanical aircraft instruments. Stolper fabricates sheet metal from high temperature alloys and provides repair and overhaul service to aerospace end-users from facilities located in Brookfield, Wisconsin and Phoenix, Arizona. Hydro-Mill, based in Chatsworth, California, manufactures precision machined structural parts and assemblies for the aerospace industry. The combined purchase price for these acquisitions was $93,632. The purchase price includes cash paid at closing, in certain instances notes payable to the former owner, a long-term liability related to a covenant not-to-compete contract, the assumption of certain liabilities and direct costs of the acquisitions. The combined excess of purchase price over the fair value of the net assets acquired of $43,769 was recorded as excess of cost over net assets acquired and is being amortized on a straight-line basis over twenty-five to thirty years. The Frisby acquisition agreement provides for a reduction in the purchase price in the event certain performance measurements are not met on each anniversary of the acquisition through year 2003. In fiscal 1997, the Company acquired all of the outstanding stock of Advanced Materials Technologies, Inc. ("AMTI") based in Tempe, Arizona for an aggregate purchase price of $16,257, including cash consideration, an option to purchase 13,000 shares of the Company's Class A Common Stock at an exercise price of $1.87 per share valued at $164, a five-year covenant not-to-compete contract and the assumption of certain liabilities and direct costs of the transaction. AMTI repairs and refurbishes gas turbine engine components used in the aviation industry. The excess of the purchase price over the fair value of net assets acquired of $2,870 is being amortized over twenty-five years on a straight-line basis. 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 3. ACQUISITIONS AND DIVESTITURES (CONTINUED) 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. In fiscal 1998, the Company sold substantially all of the assets of Deluxe Specialties Mfg. Co. ("Deluxe") and the Company's Air Lab division ("Air Lab") (collectively the "1998 Divestitures") for $10,697 in cash and the assumption by the purchasers of certain liabilities. The reported results for the year ended March 31, 1998 include the $2,250 gain on sale of these assets. For the years ended March 31, 1997 and 1998, these entities had net sales of $15,697 and $12,906, respectively, and operating income of $1,568 and $1,386, respectively. The following unaudited pro forma information has been prepared assuming the above acquisitions and the 1998 Divestitures had occurred on April 1, 1997. <TABLE> <CAPTION> YEAR ENDED MARCH 31, ---------------------- <S> <C> <C> 1998 1999 ---------- ---------- Net sales............................................................. $ 409,907 $ 432,659 Income before extraordinary item...................................... 23,736 34,133 Income before extraordinary item per share: Basic............................................................... 2.26 2.87 Diluted............................................................. 2.11 2.70 Net income............................................................ 24,346 34,133 Earnings per common share: Basic............................................................... 2.32 2.87 Diluted............................................................. 2.17 2.70 </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 the assumed dates. 4. INVENTORIES Inventories are stated at the lower of cost (first-in, first-out or last-in, first-out methods) or market. The components of inventories are as follows: <TABLE> <CAPTION> MARCH 31, --------------------- <S> <C> <C> 1998 1999 --------- ---------- Raw materials.......................................................... $ 23,665 $ 30,896 Work-in-process........................................................ 26,796 39,280 Finished goods......................................................... 27,228 34,595 --------- ---------- Total inventories at FIFO cost................................... 77,689 104,771 Less allowance to reduce certain FIFO costs to LIFO basis.............. 586 -- --------- ---------- Total inventories................................................ $ 77,103 $ 104,771 --------- ---------- --------- ---------- </TABLE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 4. INVENTORIES (CONTINUED) Approximately 12% and 10% of the inventory is valued using the LIFO method at March 31, 1998 and 1999, respectively. 5. INCOME TAXES The components of income tax expense are as follows: <TABLE> <CAPTION> YEAR ENDED MARCH 31, ------------------------------- <S> <C> <C> <C> 1997 1998 1999 --------- --------- --------- Current: Federal..................................................... $ 6,453 $ 10,430 $ 16,211 State....................................................... 941 1,576 1,731 --------- --------- --------- 7,394 12,006 17,942 Deferred: Federal..................................................... 1,169 2,993 1,917 State....................................................... (102) 562 422 --------- --------- --------- 1,067 3,555 2,339 --------- --------- --------- $ 8,461 $ 15,561 $ 20,281 --------- --------- --------- --------- --------- --------- </TABLE> A reconciliation of the statutory federal income tax rate to the effective tax rate is as follows: <TABLE> <CAPTION> YEAR ENDED MARCH 31, ------------------------------- <S> <C> <C> <C> 1997 1998 1999 --------- --------- --------- Statutory federal income tax rate............................. 35.0% 35.0% 35.0% State and local income taxes, net of federal tax benefit...... 2.6 3.5 2.6 Miscellaneous permanent items and non-deductible accruals..... 0.8 0.9 0.8 Other......................................................... 1.9 (0.1) (0.4) --------- --------- --------- Effective income tax rate..................................... 40.3% 39.3% 38.0% --------- --------- --------- --------- --------- --------- </TABLE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 5. INCOME TAXES (CONTINUED) Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts reportable for income tax purposes. The components of deferred tax assets and liabilities are as follows: <TABLE> <CAPTION> MARCH 31, -------------------- <S> <C> <C> 1998 1999 --------- --------- Deferred tax assets: Net operating loss carryforwards...................................... $ 436 $ -- Accruals and reserves................................................. 1,267 1,084 Accounts receivable................................................... 272 -- Inventories........................................................... 1,158 1,980 --------- --------- 3,133 3,064 Deferred tax liabilities: Property and equipment................................................ 13,906 17,804 Other assets.......................................................... 5,129 8,682 Accounts receivable................................................... -- 352 Prepaid expenses and other............................................ 900 735 --------- --------- 19,935 27,573 --------- --------- Net deferred tax liabilities............................................ $ 16,802 $ 24,509 --------- --------- --------- --------- </TABLE> Income taxes paid during the years ended March 31, 1997, 1998 and 1999 were $6,413, $10,611 and $16,135, respectively. At March 31, 1996, the Company had alternative minimum tax credit carryforwards of $1,558 for income tax purposes which were fully utilized in 1997. 6. LONG-TERM DEBT Long-term debt consists of the following: <TABLE> <CAPTION> MARCH 31, -------------------- <S> <C> <C> 1998 1999 --------- --------- Revolving credit facility............................................... $ 17,720 $ 76,095 Subordinated promissory notes........................................... 10,964 11,734 Industrial revenue bonds................................................ 5,000 4,665 Other debt and capital lease obligations................................ 814 514 --------- --------- 34,498 93,008 Less current portion.................................................... 675 1,151 --------- --------- $ 33,823 $ 91,857 --------- --------- --------- --------- </TABLE> On March 8, 1999 and December 31, 1998, the Company amended its existing $125,000 credit agreement ("Credit Facility") with its lenders to amend certain terms and covenants. The Credit Facility bears interest at either LIBOR plus between 0.30% and 1.00% or the prime rate (or the Federal funds rate plus 0.5% if greater) at the option of the Company and expires on March 21, 2003. The variation in the interest rate is based upon the Company's ratio of total indebtedness to earnings before interest, taxes, and depreciation and amortization. In addition, the Company is required to pay a commitment fee of between 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 6. LONG-TERM DEBT (CONTINUED) 0.10% and 0.225% on the unused portion of the Credit Facility without penalty. Additionally, the Company may allocate up to $5,000 of the available Credit Facility for the issuance of letters of credit of which $1,300 and $1,400 was used as of March 31, 1998 and 1999, respectively. 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 was secured by a piece of equipment. During March 1999, the Company retired all of the outstanding equipment notes, using the proceeds obtained from the sale of the equipment, which was subsequently leased-back. On March 30, 1998, the Company amended and restated its Credit Facility to extend the maturity date, reduce interest rates and amend certain covenants. On September 15, 1997, the Company retired the remaining $8,000 subordinated note payable to IKON Office Solutions, Inc. (formerly Alco Standard Corporation). The terms of the note provided for a $1,000 discount in the event the note was repaid by October 1, 1997. The cash payment of $7,000 was funded by the Company's long-term borrowings under its Credit Facility. The early extinguishment of this debt resulted in an extraordinary gain of $610, net of income taxes of $390. In July 1997, the Company entered into a $10,000 discretionary line of credit ("Line of Credit"). The Line of Credit bears interest at the current rate offered by the lender. Borrowings under the Line of Credit are payable on the last day of the applicable interest period or on demand. The Line of Credit has no established expiration date. No amounts were outstanding on this Line of Credit as of March 31, 1998 and 1999. On May 5, 1997, the Company entered into a loan agreement with the City of Shelbyville, Indiana related to the City of Shelbyville, Indiana Adjustable Rate Economic Development Revenue Bonds, Series 1997 (the "Bonds"). The proceeds of the Bonds of $5,000 are being used to fund the expansion of the Company's K-T Corporation facility. The Bonds are due to mature on May 1, 2012 and are secured by an irrevocable letter of credit issued by PNC Bank, N.A. The Bonds bear interest at a variable weekly rate, which was 3.95% and 3.25% at March 31, 1998 and 1999, respectively. On October 30, 1996, the Company paid down the then outstanding balance on the revolving credit facility using the proceeds from the Company's initial public offering (see Note 7). On December 31, 1996, the Company amended the credit agreement increasing the revolving credit facility to $85,000 and retiring the $33,750 term loan. On July 19, 1996, the Company entered into an unsecured credit agreement for a $50,000 revolving credit facility and a $35,000 term loan. The proceeds of the new term loan, amounts borrowed under the new revolving credit facility and the proceeds received from the sale of Quality Park Products, Inc., a former subsidiary of the Company, were used to extinguish the outstanding balances of the revolving credit facility, the senior term loans, and the senior subordinated notes existing at March 31, 1996. The early extinguishment of this debt resulted in an extraordinary loss of $1,478, net of an income tax benefit of $985 related to the write-off of unamortized deferred financing fees and prepayment penalties. At March 31, 1998 and 1999, the interest rate on borrowings under the Credit Facility was 6.51% and 5.63%, respectively. As of March 31, 1999, $47,505 of additional borrowings were available under the Credit Facility. 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 6. LONG-TERM DEBT (CONTINUED) At March 31, 1999, the Subordinated Promissory Notes consist of two notes, a $4,000 principal amount bearing interest at 7%, due in annual installments of $800 on July 1 of each year commencing in 1999 through and including 2003, and $7,734 principal amount bearing interest at 10.5%, due in equal installments on December 31, 2002 and December 31, 2003. With regard to the 10.5% note, the Company, at its sole discretion, may pay interest by issuance of additional 10.5% notes and elected to do so for $626, $692 and $770 for the years ended March 31, 1997, 1998 and 1999, respectively. The indentures under the debt agreements described above contain restrictions and covenants which include limitations on the Company's ability to incur additional indebtedness, issue stock options or warrants (excluding the initial public offering and the employee stock option plan described in Notes 7 and 9), make certain restricted payments and acquisitions, create liens, enter into transactions with affiliates, sell substantial portions of its assets and pay cash dividends. Additional covenants require compliance with financial tests, including leverage, interest coverage ratio, and maintenance of minimum net worth. The fair value of the Company's Credit Facility and the Bonds approximate their carrying values. The fair value of the subordinated promissory notes, based on a discounted cash flow method, is approximately $13,000. Maturities of long-term debt are as follows: 2000--$1,151; 2001--$1,153; 2002--$1,135; 2003--$81,097; 2004--$5,002; thereafter, $3,470 through 2013. Interest paid on indebtedness during the years ended March 31, 1997, 1998, and 1999 amounted to $5,986, $3,277 and $3,957, respectively. Financing fees and expenses of $807 incurred with respect to indebtedness have been capitalized and are reflected in other assets. These fees and expenses are being amortized over the terms of the related indebtedness (5-8 years). Total amortization (included in interest expense) for the years ended March 31, 1997, 1998 and 1999 was $206, $139 and $137, respectively. On July 19, 1996, in conjunction with the refinancing, $915 in unamortized deferred financing fees related to the extinguished debt were written off and an additional $398 in financing fees related to the new credit agreement were capitalized. 7. STOCKHOLDERS' EQUITY During fiscal 1999, the Company purchased 52,700 shares of the Company's Common stock as treasury stock. Treasury stock is recorded at cost. Also during fiscal 1999, the Company increased its authorized shares of Common stock from 15,000,000 to 50,000,000. In November 1997, the Company completed the sale of 2,000,845 shares of its Common stock for $33.00 a share through an underwritten public offering. In addition, the Company granted the underwriters of its public offering a 30-day option to purchase additional shares to cover over-allotments. In December 1997, the underwriters exercised the over-allotment option and the Company sold an additional 143,100 shares of its Common stock. The net proceeds from the sale of $66,812 were used to repay long-term debt. In October 1996, the Company completed the sale of 2,500,000 shares of its Common stock for $19.00 per share through an underwritten public offering and the sale of 125,000 shares of its Common stock for $17.67 per share through a direct sale by the Company. In addition, the Company granted the underwriters of its public offering a 30-day option to purchase up to 375,000 additional shares of its Common stock for $19.00 a share to cover over-allotments. In November 1996, the underwriters exercised the over-allotment 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 7. STOCKHOLDERS' EQUITY (CONTINUED) option and the Company sold an additional 375,000 shares of its Common stock. The net proceeds from the sales were $51,760. The total net proceeds were used to pay down a portion of the Company's long-term borrowings under its credit agreement and $5,500 of the 10% subordinated promissory note. In October 1996, in conjunction with the public offering described above, the Company exchanged all outstanding Redeemable preferred stock for Common stock. The liquidation value of the Redeemable preferred stock plus accumulated dividends at the date of the exchange of $4,858 was converted to 281,318 shares of Common stock at the initial public offering price of $19.00 (less underwriting discounts and commissions and estimated offering expenses payable by the Company). The accretion of the original issue discount and accumulated dividends of $2,206, for the year ended March 31, 1997 was charged to retained earnings. In addition, in October 1996, the Company exchanged all outstanding 14% junior notes and a portion of the outstanding 10.5% junior notes for Common stock. The face value of the junior notes exchanged plus accrued but unpaid interest at the date of exchange of $10,006 was exchanged for 579,395 shares of Common stock at the initial public offering price of $19.00 (less underwriting discounts and commissions and estimated offering expenses payable by the Company). The holders of the Common stock and the Class D common stock are entitled to one vote per share on all matters to be voted upon by the stockholders of Triumph except that Class D does not participate in the voting of directors and are entitled to participate ratably in any distributions. The holders of Class D common stock may elect at any time to convert any or all such shares into Common stock on a share-for-share basis. During fiscal 1997, 1998 and 1999, 197,370, 599,155 and 0 shares, respectively, of Class D common stock were converted to shares of the Company's Common stock. The Company issued a stock purchase warrant in conjunction with the issuance of the senior subordinated notes which allows the holder to purchase 650,000 shares of Common stock for an aggregate exercise price of one hundred dollars through July 31, 2003. The proceeds from the issuance of the senior subordinated notes allocated to the warrants of $100 have been included in capital in excess of par value. The Company has Preferred stock of $100 par value, 250,000 shares authorized. At March 31, 1998 and 1999 no shares of Preferred stock are outstanding. Prior to the initial public offering of the Company's Common Stock, the Company had Class A, B and C common shares outstanding, $.001 par value. The Class A had 6,500,455 shares authorized and 1,300,000 shares issued. The Class B and Class C were convertible to Class A and had 4,550,000 and 455 shares authorized and issued, respectively. In conjunction with the public offering, the Class A, B and C were converted to Common stock and Class D common stock. 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 8. 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> YEAR ENDED MARCH 31, ------------------------------- 1997 1998 1999 --------- --------- --------- (THOUSANDS) <S> <C> <C> <C> Weighted average common shares outstanding........................ 7,447 10,485 11,896 Net effect of dilutive stock options.............................. 49 96 100 Net effect of dilutive warrant.................................... 650 650 650 --------- --------- --------- Weighted average common shares outstanding--assuming dilution..... 8,146 11,231 12,646 --------- --------- --------- --------- --------- --------- </TABLE> Options to purchase 67,000 shares of Common stock, at prices ranging from $32.19 per share to $45.38 per share, were outstanding during 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 twelve months ended March 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 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 March 31, 1999. 9. EMPLOYEE BENEFIT PLANS DEFINED BENEFIT PENSION PLAN Approximately 170 employees participate in a noncontributory defined benefit pension plan sponsored by the Company. Normal retirement under the Plan is age 65 and participants receive monthly benefits of a stated amount for each year of service. The Company's funding policy for the Plan is to make the minimum annual contributions required by applicable regulations. The Plan's assets are primarily invested in stocks and bonds. The net periodic pension cost and related pension liability is not material. DEFINED CONTRIBUTION PENSION PLAN The Company sponsors a defined contribution 401(k) plan, under which salaried and certain hourly employees may defer a portion of their compensation. Eligible participants may contribute to the plan up to 20% of their regular compensation before taxes. During fiscal 1997, the Company increased its matching contribution from 33% to 50% of the first 6% of compensation contributed by the participant. All contributions and Company matches are invested at the direction of the employee in one or more mutual funds. Company matching contributions vest immediately and aggregated $749, $1,049 and $1,441 for the years ended March 31, 1997, 1998 and 1999, respectively. OTHER POSTRETIREMENT BENEFITS In connection with the acquisition of one of the Company's subsidiaries, the Company provides certain postretirement medical and insurance benefits to eligible employees under a collective bargaining agreement. For any employees who retired through the date of the acquisition, the previous owner 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 9. EMPLOYEE BENEFIT PLANS (CONTINUED) retained all liabilities for benefits due and administration of the postretirement benefits. The Company has assumed responsibility for administration of the postretirement coverage for any eligible employee who retires subsequent to the date of acquisition. The Company will pay the costs related to these benefits upon retirement and will be reimbursed by the previous owner for its pro rata portion based on relative length of service. The Company does not fund the plan. The Company has recorded a total liability of approximately $1,600 (as estimated by actuaries) for other postretirement benefits, of which approximately $1,400 is estimated to be reimbursed by the previous owner as of March 31, 1999. These amounts are included in other liabilities and other assets, respectively. The discount rate used was 6.65%. The annual expense for such benefits is not material. STOCK OPTION PLANS The Company has stock option plans under which employees and non-employee directors may be granted options to purchase shares of the Company's Common stock at the fair market value at the time of the grant. Options generally vest over three to five years and expire ten years from the date of the grant. The Company also has issued performance-based stock purchase warrants with an exercise price of $10.00 per share which expire ten years from the date of grant. SUMMARY OF STOCK OPTION AND WARRANT ACTIVITY <TABLE> <CAPTION> WEIGHTED AVERAGE WEIGHTED AVERAGE OPTIONS EXERCISE PRICE WARRANTS EXERCISE PRICE --------- ----------------- ----------- ----------------- <S> <C> <C> <C> <C> Balance, March 31, 1996............ 0 0 Granted............................ 248,340 $ 19.00 -- Forfeited.......................... (1,250) $ 19.00 -- --------- ----------- Balance, March 31, 1997............ 247,090 $ 19.00 0 Granted............................ 25,600 $ 34.00 -- Exercised.......................... (2,238) $ 19.00 -- Forfeited.......................... (10,289) $ 19.00 -- --------- ----------- Balance, March 31, 1998............ 260,163 $ 20.48 0 Granted............................ 182,200 $ 43.73 60,000 $ 10.00 Exercised.......................... (4,550) $ 19.00 -- Forfeited.......................... (7,375) $ 27.56 -- --------- ----------- Balance, March 31, 1999............ 430,438 $ 30.21 60,000 $ 10.00 --------- ----------- --------- ----------- </TABLE> 46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 9. EMPLOYEE BENEFIT PLANS (CONTINUED) SUMMARY OF STOCK OPTIONS AND WARRANTS OUTSTANDING AT MARCH 31, 1999 <TABLE> <CAPTION> OPTIONS/WARRANTS OPTIONS/WARRANTS OUTSTANDING EXERCISABLE --------------------------------------- ---------------------- <S> <C> <C> <C> <C> <C> WEIGHTED AVERAGE WEIGHTED WEIGHTED REMAINING AVERAGE AVERAGE EXERCISE PRICE CONTRACTUAL EXERCISE EXERCISE RANGE NUMBER LIFE (YRS.) PRICE NUMBER PRICE - -------------- --------- --------------- ----------- --------- ----------- $10.00 60,000 9.3 $ 10.00 0 $19.00 226,238 7.6 $ 19.00 112,614 $ 19.00 $32 3/16-$34 24,000 8.6 $ 33.92 5,900 $ 34.00 $43 1/8-$45 3/8 180,200 9.1 $ 43.80 0 --------- --------- 490,438 118,514 --------- --------- --------- --------- </TABLE> At March 31, 1998 and 1999, 256,349 options and 135,524 options, respectively, were available for issuance under the plans. During fiscal 1997, the Company adopted the disclosure-only option under SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). The Company uses the accounting method under APB Opinion No. 25 ("APB 25") and related interpretations for its employee stock options. Under APB 25, when the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. Pro forma disclosure, as required by SFAS 123, regarding net income and earnings per share has been determined as if the Company had accounted for its employee stock options under the fair value method. Option valuation models use highly subjective assumptions to determine the fair value of traded options with no vesting or trading restrictions. Because options granted under the Plan have vesting requirements and cannot be traded, and because changes in the assumptions can materially affect the fair value estimate, in management's opinion, the existing valuation models do not necessarily provide a reliable measure of the fair value of its employee stock options. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions: risk-free interest rate of 5.5% for 1997, 5.9% for 1998 and 5.5% for 1999; no dividends; a volatility factor of the expected market price of the Company's Common stock of .32, .30 and .30 for 1997, 1998 and 1999, respectively, and a weighted-average expected life of the options of 6 years. For purposes of pro forma disclosures, the weighted average fair value of the options ($8.00 per share for the 1997 issuance, $14.19 per share for the 1998 issuance and $17.79 per share for the 1999 issuance) is amortized to expense over the options' assumed vesting period. Since the Company's stock options vest over three to five years and additional options may be granted each year, the pro forma effect on net income reported below is not representative of the effect of fair value stock option expense on future years 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 9. EMPLOYEE BENEFIT PLANS (CONTINUED) pro forma net income. The following pro forma information has been prepared assuming the Company accounted for its stock options under the fair value method: PRO FORMA NET INCOME AND EARNINGS PER SHARE <TABLE> <CAPTION> YEAR ENDED MARCH 31, ------------------------------- <S> <C> <C> <C> 1997 1998 1999 --------- --------- --------- Pro forma net income......................................... $ 10,946 $ 24,130 $ 32,008 Pro forma net income per share: Basic...................................................... 1.17 2.30 2.69 Diluted.................................................... 1.07 2.16 2.56 </TABLE> 10. LEASES Capital lease assets are included in property and equipment and the related obligations in other debt and capital lease obligations. Amortization of capital lease assets is included in depreciation expense. At March 31, 1999, future minimum payments under noncancelable operating leases with initial or remaining terms of more than one year were as follows: 2000--$5,180; 2001--$5,046; 2002--$4,683; 2003--$4,138; 2004--$3,529 thereafter, $11,266 through 2017. In the normal course of business, operating leases are generally renewed or replaced by other leases. Total rental expense was $1,830, $2,479 and $3,679 for the years ended March 31, 1997, 1998 and 1999, respectively. 11. PROPERTY AND EQUIPMENT Net property and equipment at March 31, 1998 and 1999 is: <TABLE> <CAPTION> MARCH 31, --------------------- <S> <C> <C> 1998 1999 --------- ---------- Land................................................................... $ 6,460 $ 7,653 Buildings and improvements............................................. 16,814 24,489 Machinery and equipment................................................ 71,454 99,627 --------- ---------- 94,728 131,769 Less accumulated depreciation........................................ 15,899 24,646 --------- ---------- $ 78,829 $ 107,123 --------- ---------- --------- ---------- </TABLE> Depreciation expense for the years ended March 31, 1997, 1998 and 1999 was $4,480, $6,348 and $9,558, respectively. 12. COMMITMENTS AND CONTINGENCIES Certain of the Company's business operations and facilities are subject to a number of federal, state and local environmental laws and regulations. The Company is indemnified for environmental liabilities related to assets purchased from IKON Office Solutions, Inc. (formerly Alco Standard Corporation) which existed prior to the acquisition of the assets and any unidentified environmental liabilities which arise subsequent to the date of settlement through July 22, 2000, arising from conditions or activities existing at 48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 12. COMMITMENTS AND CONTINGENCIES (CONTINUED) 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. 13. COLLECTIVE BARGAINING AGREEMENTS Approximately 14% of the Company's labor force is covered under collective bargaining agreements. These collective bargaining agreements expire over the next several years, with the exception at one operating location in the Metals segment, which is currently under negotiation. 14. SEGMENT REPORTING The Company is organized based on the products and services that it provides. Under this organizational structure, the Company has two reportable segments: Aviation and Metals. The Company's Aviation segment consists of twenty operating units and the Metals segment consists of three operating units at March 31, 1999. The Aviation segment revenue is generated from the manufacture, repair and overhaul of sub-assembly and structural components and flight controls and instrumentation for aircraft and related products. The sub-assembly components revenues are derived from repair and overhaul services on auxiliary power units for both commercial airlines and OEMs. The Company also repairs and overhauls aircraft accessories, including constant-speed drives, cabin compressors, starters and generators, and pneumatic drive units. Further, the Company provides precision machining services primarily to various OEMs for other sub-assembly components manufactured from refractory and other metals for the aviation and aerospace industry. The structural components revenues are derived from stretch forming, die forming, milling, bonding, machining, welding and assembly and fabrication on aircraft wings, fuselages and skins for aircraft produced by OEMs such as Boeing and Bombardier. The Company also manufactures metallic and composite bonded honeycomb assemblies for fuselage, wings and flight control surface parts for airlines and other aircraft operators. The flight controls and instrumentation revenues are derived from designing and engineering of mechanical and electromechanical controls, such as remote valve operators and push/pull controls, ranging from simple vent controls to sophisticated flight-critical engine controls for OEMs and commercial airlines. The Company also performs repair and overhaul services, and supplies spare parts, for various types of cockpit instruments and gauges for a broad range of commercial airlines on a worldwide basis. The Metals segment produces and distributes electrogalvanized steel, which can be stamped, formed, welded and painted and coated steel. The Company also operates a steel service center specializing in flat rolled products and their processing, including hot and cold rolled sheet and galvanized sheet and coil. In addition, the Company operates a business engaged in the erection of structural frameworks for buildings and bridges. 49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 14. SEGMENT REPORTING (CONTINUED) Segment operating income is total segment revenue reduced by operating expenses identifiable with that segment. Corporate includes general corporate administrative costs and any other costs not identifiable with one of the Company's segments. The Company evaluates performance and allocates resources based on operating income of each reportable segment, rather than at the operating unit level. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies (see Note 2). There are no intersegment sales. Selected financial information for each reportable segment is as follows: <TABLE> <CAPTION> YEAR ENDED MARCH 31, ---------------------------------- <S> <C> <C> <C> 1997 1998 1999 ---------- ---------- ---------- Net sales: Aviation................................................................... $ 167,731 $ 242,317 $ 328,577 Metals..................................................................... 82,747 87,141 71,531 ---------- ---------- ---------- $ 250,478 $ 329,458 $ 400,108 ---------- ---------- ---------- ---------- ---------- ---------- Income before income taxes and extraordinary item: Operating income (expense): Aviation................................................................... $ 27,505 $ 39,737 $ 58,622 Metals..................................................................... 4,473 5,483 4,440 Gain on sale of businesses................................................. -- 2,250 -- Corporate.................................................................. (4,371) (3,944) (4,490) ---------- ---------- ---------- 27,607 43,526 58,572 Interest expense and other................................................. 6,591 3,963 5,144 ---------- ---------- ---------- $ 21,016 $ 39,563 $ 53,428 ---------- ---------- ---------- ---------- ---------- ---------- Assets: Aviation................................................................... $ 139,988 $ 264,593 $ 395,745 Metals..................................................................... 28,815 33,762 31,228 Corporate.................................................................. 2,512 3,090 1,884 ---------- ---------- ---------- $ 171,315 $ 301,445 $ 428,857 ---------- ---------- ---------- ---------- ---------- ---------- Capital expenditures: Aviation................................................................... $ 6,756 $ 12,545 $ 18,676 Metals..................................................................... 1,285 1,545 808 Corporate.................................................................. 142 130 5 ---------- ---------- ---------- $ 8,183 $ 14,220 $ 19,489 ---------- ---------- ---------- ---------- ---------- ---------- Depreciation and amortization: Aviation................................................................... $ 5,066 $ 7,991 $ 13,301 Metals..................................................................... 979 1,100 1,036 Corporate.................................................................. 28 57 49 ---------- ---------- ---------- $ 6,073 $ 9,148 $ 14,386 ---------- ---------- ---------- ---------- ---------- ---------- </TABLE> During fiscal years 1997, 1998 and 1999, the Company had foreign sales of $32,853, $45,237 and $53,400, respectively. 50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 15. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) <TABLE> <CAPTION> FOR THE QUARTER ENDED: ---------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> FISCAL 1998 (1) FISCAL 1999 (2) ------------------------------------------ -------------------------------------------- <CAPTION> JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 --------- --------- --------- --------- --------- --------- ---------- ---------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Net sales.......................... $ 71,856 $ 75,146 $ 86,170 $ 96,286 $ 91,140 $ 99,482 $ 102,023 $ 107,463 Gross profit....................... 21,099 22,133 24,782 28,133 28,117 31,145 31,534 34,292 Income before extraordinary Item... 4,492 5,695 5,877 7,938 7,594 7,978 8,411 9,164 Extraordinary item, net of tax..... -- 610 -- -- -- -- -- -- Net income......................... 4,492 6,305 5,877 7,938 7,594 7,978 8,411 9,164 Income before extraordinary item per share: Basic............................ 0.46 0.58 0.56 0.67 0.64 0.67 0.71 0.77 Diluted.......................... 0.43 0.54 0.52 0.63 0.60 0.63 0.67 0.73 Net income per share: Basic............................ 0.46 0.65 0.56 0.67 0.64 0.67 0.71 0.77 Diluted.......................... 0.43 0.60 0.52 0.63 0.60 0.63 0.67 0.73 </TABLE> - ------------------------ (1) In fiscal 1998, the Company acquired JDC, Hydro-Mill, Stolper and Frisby on April 30, 1997, September 1, 1997, October 29, 1997 and February 18, 1998, respectively. Also in fiscal 1998, the Company sold substantially all of the assets of Air Lab and Deluxe on July 31, 1997 and March 31, 1998, respectively. (2) In fiscal 1999, the Company acquired Nu-Tech, DG, DV, HTD, Triumph Air Repair (Europe) and Triumph Precision on July 1, 1998, October 1, 1998, October 1, 1998, January 1, 1999, January 1, 1999 and February 1, 1999, respectively. 16. SUPPLEMENTAL CASH FLOW INFORMATION <TABLE> <CAPTION> YEARS ENDED MARCH 31, ---------------------------------- <S> <C> <C> <C> 1997 1998 1999 ---------- ---------- ---------- Changes in other current assets and liabilities, net of acquisitions and dispositions of businesses: Accounts receivable......................................................... $ (5,952) $ (12,081) $ 4,149 Inventories................................................................. (8,060) (8,236) (19,007) Prepaid expenses and other current assets................................... (323) 67 (950) Accounts payable, accrued expenses, and accrued income taxes payable........ 852 (90) (1,420) ---------- ---------- ---------- $ (13,483) $ (20,340) $ (17,228) ---------- ---------- ---------- ---------- ---------- ---------- Non-cash investing and financing activities: Covenant not-to-compete contract liability related to acquisition........... $ 2,800 $ 1,800 $ -- Seller note related to acquired business.................................... -- 4,000 -- </TABLE> 51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 17. DISCONTINUED PAPER OPERATIONS On March 31, 1996, the Company sold substantially all of the assets of its paper converting subsidiary, Quality Park Products, Inc. of St. Paul, Minnesota, to Mail-Well, Inc. for approximately $27,350 in cash and the assumption by the purchaser of certain liabilities. 18. SUBSEQUENT EVENTS On May 12, 1999, the Company acquired all of the outstanding stock of Ralee Engineering Company ("Ralee"). Ralee, located in City of Industry, California, manufactures long structural components such as stringers, cords, floor beams and spars for the aviation industry. The cash paid at closing of approximately $13,316 was funded by borrowings under the Company's Credit Facility. On April 5 and 6, 1999, the Company repurchased an additional 52,500 and 65,000 shares of Common stock, respectively. The aggregate purchase price was $2,864. 52
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT DIRECTORS The information required for Directors is included in the Proxy Statement of Triumph in connection with its 1999 Annual Meeting of Stockholders to be held on July 28, 1999, under the heading "Proposal No. 1--Election of Directors" and is incorporated herein by reference. EXECUTIVE OFFICERS <TABLE> <CAPTION> EFFECTIVE DATE OF ELECTION TO NAME AGE POSITION PRESENT POSITION - ------------------------------------------- --- ------------------------------------------- ------------------ <S> <C> <C> <C> Richard C. Ill............................. 56 President and Chief Executive Officer July 1, 1993 John R. Bartholdson........................ 54 Senior Vice President, Chief Financial July 1, 1993 Officer and Treasurer Richard M. Eisenstaedt..................... 53 Vice President, General Counsel and October 1, 1996 Secretary Craig N. Kitchen........................... 48 Vice President March 15, 1999 Paul T. Stimmler........................... 60 Vice President July 1, 1993 Kevin E. Kindig............................ 42 Vice President and Controller July 1, 1993 </TABLE> RICHARD C. ILL has been President and Chief Executive Officer and a director of Triumph since 1993. Mr. Ill joined Alco Standard Corporation, now IKON Office Solutions, in 1968 and became Group Vice President of Metalsource, a steel distribution business, in 1973. In 1975, Mr. Ill became President of Triumph Industries and, in 1983, became President of Metalsource. In 1988, Mr. Ill became President of Alco Diversified Services, a division of Alco. He was named Vice President of Alco in 1989. Mr. Ill is a member of the Advisory Board of Outward Bound, USA and the Board of Directors, Chairman's Council and Policy and Planning Committee of the Steel Service Center Institute. JOHN R. BARTHOLDSON has been Senior Vice President, Chief Financial Officer and Treasurer and a director of Triumph since 1993. Mr. Bartholdson joined Alco Diversified Services in the fall of 1992. Prior to joining Alco Diversified Services, Mr. Bartholdson was employed for 14 years by Lukens, Inc., the last five years in the position of Senior Vice President and Chief Financial Officer. Mr. Bartholdson serves on the Board of Directors of PBHG Funds, Inc. RICHARD M. EISENSTAEDT became Vice President, General Counsel and Secretary of Triumph in October 1996. From 1988 to 1996, Mr. Eisenstaedt was an attorney with Alco and Unisource Worldwide, Inc., an affiliate of Alco, the last two years as General Counsel of Unisource. CRAIG N. KITCHEN became Vice President of Triumph in March 1999. From June 1997 to March 1999, Mr. Kitchen was the Director, Airline Propulsion of AlliedSignal Engines. From October 1995 to June 1997, Mr. Kitchen was the Vice President, Sales for Stolper-Fabralloy, now a wholly owned subsidiary of Triumph, and from June 1991 to October 1995, Mr. Kitchen was the Vice President, Propulsion of AlliedSignal Engines. PAUL T. STIMMLER has been Vice President of Triumph since 1993 and also served as Secretary of Triumph until October 1996. From 1989 to 1993, Mr. Stimmler was Group Vice President of Alco 53
Diversified Services, responsible for risk management, vehicle leasing, advertising, benefits administration and human resources. KEVIN E. KINDIG has been Controller of Triumph since 1993 and Vice President since April 1999. From 1985 to 1993, Mr. Kindig was employed by Lukens, Inc. in various positions, as Manufacturing Accounting Manager since 1989 and as a financial analyst from 1985 to 1989. The information regarding compliance with Section 16(a) under the Securities Act is included in the Proxy Statement of Triumph in connection with its 1999 Annual Meeting of Stockholders to be held on July 28, 1999, under the heading "Section 16(a) Beneficial Ownership--Reporting Compliance" and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information required regarding executive compensation is included in the Proxy Statement of Triumph in connection with its 1999 Annual Meeting of Stockholders to be held on July 28, 1999, under the heading "Executive Compensation" and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required regarding security ownership is included in the Proxy Statement of Triumph in connection with its 1999 Annual Meeting of Stockholders to be held on July 28, 1999, under the heading "Security Ownership of Principal Stockholders and Management" and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Not Applicable. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K FINANCIAL STATEMENTS (a)(1) The following consolidated financial statements are included in Item 8 of this report: <TABLE> <CAPTION> PAGE --------- <S> <C> Triumph Group, Inc., Report of Ernst & Young, LLP, Independent Auditors............. Consolidated Balance Sheet as of March 31, 1998 and 1999............................ 31 Consolidated Statements of Income for the Fiscal Years Ended March 31, 1997, 1998 and 1999.......................................................................... 32 Consolidated Statements of Stockholders' Equity for the Fiscal Years Ended March 31, 1997, 1998 and 1999............................................................... 33 Consolidated Statements of Cash Flows for the Fiscal Years Ended March 31, 1997, 1998 and 1999..................................................................... 34 Notes to Consolidated Financial Statements.......................................... 35 </TABLE> (a)(2) The following financial statement schedule is included in this report: <TABLE> <CAPTION> PAGE --------- <S> <C> Schedule II--Valuation and Qualifying Accounts...................................... 54 </TABLE> All other schedules have been omitted as not applicable or because the information is included elsewhere in the Consolidated Financial Statements or notes thereto. (a)(3) The following is a list of exhibits. Where so indicated by footnote, exhibits which were previously filed are incorporated by reference. 54
TRIUMPH GROUP, INC. SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS (DOLLARS IN THOUSANDS) <TABLE> <CAPTION> BALANCE AT BEGINNING ADDITIONS OF CHARGED TO ADDITIONS(1) BALANCE AT YEAR EXPENSE (DEDUCTIONS) (2) END OF YEAR ----------- ------------- ----------------- ----------- <S> <C> <C> <C> <C> For year ended March 31, 1999: $ 207 Allowance for doubtful accounts receivable.............. $ 1,840 $ 508 (648) $ 1,907 For year ended March 31, 1998: 495 Allowance for doubtful accounts receivable.............. 1,619 173 (447) 1,840 For year ended March 31, 1997: 36 Allowance for doubtful accounts receivable.............. 973 959 (349) 1,619 </TABLE> - ------------------------ (1) Additions consist of accounts receivable recoveries, miscellaneous adjustments and amounts recorded in conjunction with the acquisitions of Advanced Materials Technologies, Inc., JDC Company, Hydro-Mill Co., Stolper-Fabralloy Company, Frisby Aerospace, Inc., Nu-Tech Industries, Inc., DG Industries, Inc., DV Industries, Inc., Triumph Air Repair (Europe) Ltd., HTD Aerospace, Inc. and Triumph Precision, Inc. (2) Deductions represent write-offs of related account balances and amounts recorded in conjunction with the sales of Air Lab, Inc. and Deluxe Specialties, Mfg. Co. <TABLE> <CAPTION> EXHIBIT NUMBER DESCRIPTION - ----------------- ------------------------------------------------------------------------------------------------- <C> <S> 3.1 Amended and Restated Certificate of Incorporation of Triumph Group, Inc.* 3.2 Bylaws of Triumph Group, Inc.* 3.3 Certificate of Amendment to Amended and Restated Certificate of Incorporation of Triumph Group, Inc. 4 Form of certificate evidencing Common Stock of Triumph Group, Inc.* 10.1 Form of Employment Agreement with Richard C. Ill.* 10.2 Form of Employment Agreement with John R. Bartholdson.* 10.3 Purchase Agreement dated as of July 22, 1993 between Triumph and Citicorp Venture Capital, Ltd.* 10.4 Registration Agreement dated as of July 22, 1993 among Triumph, Citicorp Venture Capital, Ltd., World Equity Partners, L.P. and certain members of management of Triumph.* 10.5 Warrant dated July 22, 1993 issued to World Equity Partners, L.P.* 10.6 Warrant Agreement dated as of July 22, 1993 among Triumph, Citicorp Venture Capital, Ltd. and World Equity Partners, L.P.* 10.7 Asset Purchase Agreement dated as of December 31, 1995 among Triumph, Triumph Control Systems, Inc. and Teleflex Incorporated.* 10.8 Subordinated Promissory Note dated December 31, 1995 payable to Teleflex Incorporated.* </TABLE> 55
<TABLE> <CAPTION> EXHIBIT NUMBER DESCRIPTION - ----------------- ------------------------------------------------------------------------------------------------- <C> <S> 10.9 Stock Purchase Agreement dated as of July 31, 1996 among The Triumph Group Holdings, Inc., Advanced Materials Technologies, Inc. and certain members of management of Advanced Materials Technologies, Inc.* 10.10 Executive Securities Agreement dated July 31, 1996 between Triumph and Jay Donkersloot, as amended.* 10.11 Non-Competition Agreement dated July 31, 1996 between Triumph and Jay Donkersloot.* 10.12 Executive Stock Agreement dated as of May 9, 1995 between Triumph and John M. Brasch.* 10.13 Form of 1996 Stock Option Plan.* 10.14 Form of Executive Securities Agreement.* 10.15 Executive Stock Agreement between Triumph and Richard C. Ill.* 10.16 Executive Stock Agreement between Triumph and John R. Bartholdson.* 10.17 Executive Stock Agreement between Triumph and Paul T. Stimmler.* 10.18 Executive Stock Agreement between Triumph and Kevin E. Kindig.* 10.19 Agreement with Hydro-Mill Co. dated September 2, 1997.** 10.20 Agreement with Stolper-Fabralloy Company, L.L.C. dated October 29, 1997.*** 10.21 Agreement with Nu-Tech Industries Holding Company and the Stockholders thereof effective as of July 1, 1998.**** 10.22 Agreement with Charles M. Newell and Henry H. Newell effective as of July 1, 1998.**** 10.23 Directors' Stock Option Plan. 10.24 Second Amended and Restated Credit Agreement dated June 11, 1999 among Triumph Group, Inc., PNC Bank, National Association as Administrative and Documentation Agent, First Union National Bank as Syndication Agent and Mellon Bank, N.A. as Co-Agent. 21.1 Subsidiaries of Triumph Group, Inc. 23.1 Consent of Ernst & Young LLP. 27 Financial Data Schedule for the year ended March 31, 1999. </TABLE> - ------------------------ * Incorporated by reference to Triumph's Registration Statement on Form S-1 (Registration No. 333-10777), declared effective on October 24, 1996. ** Incorporated by reference to Triumph's Current Report on Form 8-K filed September 14, 1997. *** Incorporated by reference to Triumph's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997. **** Incorporated by reference to Triumph's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998. REPORTS ON FORM 8-K Triumph filed no reports on Form 8-K during the quarter ended March 31, 1999. 56
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed by the undersigned thereunto duly authorized. <TABLE> <S> <C> <C> Dated: June 24, 1999 TRIUMPH GROUP, INC. By: /s/ RICHARD C. ILL ----------------------------------------- Richard C. Ill PRESIDENT AND CHIEF EXECUTIVE OFFICER (PRINCIPAL EXECUTIVE OFFICER) </TABLE> Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. <TABLE> <S> <C> <C> President, Chief Executive /s/ RICHARD C. ILL Officer and Director - ------------------------------ (Principal Executive June 24, 1999 Richard C. Ill Officer) Senior Vice President, /s/ JOHN R. BARTHOLDSON Chief Financial Officer, - ------------------------------ Treasurer and Director June 24, 1999 John R. Bartholdson (Principal Financial Officer) /s/ KEVIN E. KINDIG - ------------------------------ Controller (Principal June 24, 1999 Kevin E. Kindig Accounting Officer) /s/ RICHARD C. GOZON - ------------------------------ Director June 24, 1999 Richard C. Gozon /s/ CLAUDE F. KRONK - ------------------------------ Director June 24, 1999 Claude F. Kronk /s/ JOSEPH M. SILVESTRI - ------------------------------ Director June 24, 1999 Joseph M. Silvestri /s/ MICHAEL A. DELANEY - ------------------------------ Director June 24, 1999 Michael A. Delaney /s/ WILLIAM O. ALBERTINI - ------------------------------ Director June 24, 1999 William O. Albertini </TABLE> 57