United States Securities and Exchange Commission Washington, D.C. 20549 FORM 10-Q /x/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Period Ended December 31, 1999. or / / Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Transition Period From _________ to ________ Commission File Number: 1-12235 ------- TRIUMPH GROUP, INC. ------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 51-0347963 - ----------------------------------- ------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1255 Drummers Lane, Suite 200 Wayne, PA 19087-1565 - ------------------------------------------------ --------------- (Address of principal executive offices) (Zip Code) (610) 975-0420 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. Common Stock, par value $0.001 per share, 8,314,986 shares and Class D common stock, par value $0.001 per share, 3,348,535 shares, each as of January 31, 2000
TRIUMPH GROUP, INC. INDEX <TABLE> <CAPTION> Part I. Financial Information PAGE NUMBER <S> <C> Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets 1 March 31, 1999 and December 31, 1999 Consolidated Statements of Income 3 Three months ended December 31, 1998 and 1999 Nine months ended December 31, 1998 and 1999 Consolidated Statements of Cash Flows 4 Nine months ended December 31, 1998 and 1999 Notes to Consolidated Financial Statements 6 December 31, 1999 Item 2. Management's Discussion and Analysis of Financial 11 Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures About 17 Market Risk Part II. Other Information Item 1. Legal Proceedings 18 Item 2. Changes in Securities 18 Item 3. Defaults upon Senior Securities 18 Item 4. Submission of Matters to a Vote of Security Holders 18 Item 5. Other Information 18 Item 6. Exhibits and Reports on Form 8-K 18 Signature Page 19 </TABLE>
Part I. Financial Information Item: 1. Financial Statements Triumph Group, Inc. Consolidated Balance Sheets (dollars in thousands, except per share data) <TABLE> <CAPTION> MARCH 31, DECEMBER 31, 1999 1999 --------- ------------ (unaudited) <S> <C> <C> ASSETS Current assets: Cash $ 4,953 $ 5,986 Marketable securities -- 1,061 Accounts receivable, net 65,613 70,134 Inventories 104,771 118,618 Prepaid expenses and other 2,473 4,197 Deferred income taxes 2,408 3,533 -------- -------- Total current assets 180,218 203,529 Property and equipment, net 107,123 120,686 Excess of cost over net assets acquired, net 124,667 144,837 Intangible assets and other, net 16,849 25,457 -------- -------- Total assets $428,857 $494,509 ======== ======== </TABLE> -1-
Triumph Group, Inc. Consolidated Balance Sheets (continued) (dollars in thousands, except per share data) <TABLE> <CAPTION> MARCH 31, DECEMBER 31, 1999 1999 -------- ------------- (unaudited) <S> <C> <C> LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 33,894 $ 29,299 Accrued expenses 47,263 49,940 Income taxes payable 4,453 4,714 Current portion of long-term debt 1,151 2,580 --------- --------- Total current liabilities 86,761 86,533 Long-term debt, less current portion 91,857 130,196 Deferred income taxes and other 35,462 42,630 Stockholders' equity: Common stock, $.001 par value, 50,000,000 shares authorized, 8,551,786 shares issued 9 9 Class D common stock convertible, $.001 par value, 6,000,000 shares authorized, 3,348,535 shares issued and outstanding 3 3 Capital in excess of par value 135,418 135,418 Treasury stock, at cost, 52,700 and 236,800 shares (1,336) (5,766) Retained earnings 80,683 105,486 --------- --------- Total stockholders' equity 214,777 235,150 --------- --------- Total liabilities and stockholders' equity $ 428,857 $ 494,509 ========= ========= </TABLE> SEE ACCOMPANYING NOTES. -2-
Triumph Group, Inc. Consolidated Statements of Income (in thousands, except per share data) (unaudited) <TABLE> <CAPTION> THREE MONTHS ENDED NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, ------------------ ----------------- 1998 1999 1998 1999 -------- -------- -------- -------- <S> <C> <C> <C> <C> Net sales $102,023 $110,376 $292,645 $325,546 Operating costs and expenses: Cost of products sold 70,489 75,491 201,849 223,772 Selling, general, and administrative 12,710 15,191 38,106 42,508 Depreciation and amortization 4,041 4,960 10,365 14,476 Special charge -- 734 -- 734 -------- -------- -------- -------- 87,240 96,376 250,320 281,490 Operating income 14,783 14,000 42,325 44,056 Interest expense and other 1,432 2,655 3,443 6,826 -------- -------- -------- -------- Income before income taxes 13,351 11,345 38,882 37,230 Income tax expense 4,940 2,569 14,899 12,029 -------- -------- -------- -------- Net income $ 8,411 $ 8,776 $ 23,983 $ 25,201 ======== ======== ======== ======== Earnings Per Share - Basic: Net income $ 0.71 $ 0.75 $ 2.02 $ 2.15 ======== ======== ======== ======== Weighted average common shares outstanding - Basic 11,900 11,664 11,899 11,697 ======== ======== ======== ======== Earnings Per Share - Assuming Dilution: Net income $ 0.67 $ 0.71 $ 1.89 $ 2.03 ======== ======== ======== ======== Weighted average common shares outstanding - Assuming Dilution 12,633 12,359 12,660 12,403 ======== ======== ======== ======== </TABLE> SEE ACCOMPANYING NOTES. -3-
Triumph Group, Inc. Consolidated Statements of Cash Flows (dollars in thousands) (unaudited) <TABLE> <CAPTION> NINE MONTHS ENDED DECEMBER 31, 1998 1999 ------- ------- <S> <C> <C> OPERATING ACTIVITIES Net income $ 23,983 $ 25,201 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 10,365 14,476 Other amortization included in interest expense 102 186 Provision for doubtful accounts receivable 289 379 Provision for deferred income taxes 3,448 3,933 Interest on subordinated and junior subordinated promissory notes paid by issuance of additional notes 595 677 Changes in other current assets and liabilities, net of acquisition of businesses: Accounts receivable 4,578 5,468 Inventories (14,182) (7,405) Prepaid expenses and other current assets (1,618) 1,115 Accounts payable, accrued expenses, and accrued income taxes payable (6,207) (13,321) Other (398) (3,958) ------- ------- Net cash provided by operating activities 20,955 26,751 INVESTING ACTIVITIES Capital expenditures, net (10,689) (9,283) Proceeds from sale of assets -- 5,991 Cost of businesses acquired, net of cash acquired (53,944) (39,886) ------- ------- Net cash used in investing activities (64,633) (43,178) </TABLE> -4-
Triumph Group, Inc. Consolidated Statements of Cash Flows (continued) (dollars in thousands) (unaudited) <TABLE> <CAPTION> NINE MONTHS ENDED DECEMBER 31, ----------------------------- FINANCING ACTIVITIES 1998 1999 ---- ---- <S> <C> <C> Net increase in revolving credit facility $ 47,780 $ 24,905 Repayment of debt and capital lease obligations (1,407) (2,080) Purchase of Treasury Stock -- (4,611) Payments of deferred financing costs (25) (985) Proceeds from issuance of long-term debt -- 90 Proceeds from exercise of stock options 77 141 -------- -------- Net cash provided by financing activities 46,425 17,460 -------- -------- Net change in cash 2,747 1,033 Cash at beginning of period 4,642 4,953 -------- -------- Cash at end of period $ 7,389 $ 5,986 ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for income taxes $ 11,230 $ 6,856 Cash paid for interest 2,596 5,848 </TABLE> SEE ACCOMPANYING NOTES. -5-
Triumph Group, Inc. Notes to Consolidated Financial Statements (dollars in thousands, except per share data) (Unaudited) 1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended December 31, 1999 are not necessarily indicative of the results that may be expected for the fiscal year ended March 31, 2000. For further information, refer to the consolidated financial statements and footnotes thereto included in Triumph Group, Inc.'s (the "Company") Annual Report on Form 10-K for the year ended March 31, 1999. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION The Company's aviation segment designs, engineers, manufactures or repairs and overhauls aircraft components for commercial airlines, air cargo carriers, and original equipment manufacturers on a worldwide basis. The Company's metals segment manufactures, machines, processes, and distributes metal products to customers in the computer, construction, container and office furniture industries, primarily within North America. NEW ACCOUNTING STANDARDS In September 1999, the Emerging Issues Task Force issued Issue number 99-5, "Accounting for Pre-Production Costs Related to Long-Term Supply Arrangements" ("EITF 99-5"). EITF 99-5 requires design and development costs incurred after December 31, 1999 for products to be sold under long-term supply arrangements to be expensed as incurred. The Company is currently evaluating the impact of EITF 99-5 on its financial position and results of operations. USE OF ESTIMATES The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 3. ACQUISITIONS In the first and third quarters of Fiscal 2000, the Company acquired all of the outstanding stock of Ralee Engineering Company ("Ralee"), Construction Brevitees d'Alfortville ("CBA"), and Lee Aerospace, Inc. ("Lee") and also acquired substantially all of the assets of KT Aerofab, now operated by the Company as Triumph Components-San Diego, Inc. (collectively the "2000 Acquisitions"). Ralee, based in City of Industry, California, manufactures long structural components such as stringers, cords, floor beams and spars for the aviation industry. CBA, located near Paris, France, is a manufacturer of mechanical ball bearing control assemblies for the aerospace, ground transportation and marine industries. Triumph Components-San Diego, Inc. is a developer of high-temperature metal alloy parts. Lee Aerospace, Inc., located in Wichita, Kansas, is a leading supplier of unheated windshields, flight deck and cabin windows to the general aviation and corporate jet market. The combined purchase price for these acquisitions was $57,982. The purchase price includes cash paid at closing, net of cash acquired, the assumption of debt and certain liabilities, direct costs of the acquisitions, deferred payments and contingent payments of -6-
Triumph Group, Inc. Notes to Consolidated Financial Statements (continued) (dollars in thousands, except per share data) (Unaudited) 3. ACQUISITIONS (Continued) approximately $10,683, which are included in accrued expenses at December 31, 1999. The combined excess of the purchase price over the fair value of the net assets acquired of $24,149 was recorded as excess of cost over net assets acquired and is being amortized over thirty years on a straight-line basis. In fiscal 1999, the Company acquired all of the outstanding stock of Nu-Tech Industries, Inc., DG Industries, Inc., and DV Industries, Inc. (collectively the "1999 Acquisitions"). For further information about the 1999 Acquisitions, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1999. These acquisitions have been accounted for under the purchase method and, accordingly, are included in the consolidated financial statements from their dates of acquisition. These acquisitions were funded by the Company's long-term borrowings in place at the date of each respective acquisition. The following unaudited pro forma information has been prepared assuming the 2000 Acquisitions and the 1999 Acquisitions had taken place on April 1, 1998. <TABLE> <CAPTION> NINE MONTHS ENDED DECEMBER 31, 1998 1999 ----------- ----------- <S> <C> <C> Net sales $ 373,907 $ 336,800 Net income 25,952 25,395 Earnings per common share: Basic 2.18 2.17 Diluted 2.05 2.05 </TABLE> The unaudited pro forma information includes adjustments for interest expense that would have been incurred to finance the purchases, additional depreciation based on the estimated fair market value of the property and equipment acquired, and the amortization of the intangible assets and excess of cost over net assets acquired arising from the transactions. The unaudited pro forma financial information is not necessarily indicative of the results of operations as they would have been had the transactions been effected on April 1, 1998. 4. INVENTORIES The components of inventories are as follows: <TABLE> <CAPTION> MARCH 31, DECEMBER 31, 1999 1999 ---- ---- <S> <C> <C> Raw materials $ 30,896 $ 33,907 Work-in-process 39,280 44,813 Finished goods 34,595 39,898 -------- -------- Total inventories $104,771 $118,618 ======== ======== </TABLE> The Company's method of valuing all inventory is the lower of First-in First-out ("FIFO") cost or market. -7-
Triumph Group, Inc. Notes to Consolidated Financial Statements (continued) (dollars in thousands, except per share data) (Unaudited) 5. LONG-TERM DEBT Long-term debt consists of the following: <TABLE> <CAPTION> MARCH 31, DECEMBER 31, 1999 1999 ---- ---- <S> <C> <C> Revolving credit facility $ 76,095 $101,000 Subordinated promissory notes 11,734 17,531 Industrial revenue bonds 4,665 5,293 Capital lease obligations 28 7,996 Other debt 486 956 -------- -------- 93,008 132,776 Less current portion 1,151 2,580 -------- -------- $ 91,857 $130,196 ======== ======== </TABLE> On June 11, 1999, the Company amended and restated its Credit Facility ("New Credit Facility") with its Lenders to increase the Credit Facility to $250,000 from $125,000, extend the term and amend certain terms and covenants. The New Credit Facility bears interest at either LIBOR plus between 0.75% and 1.75% or the prime rate (or the Federal Funds rate plus 0.5% if greater) at the option of the Company and expires on June 13, 2004. The variation in the interest rate is based upon the Company's ratio of total indebtedness to earnings before interest, taxes, depreciation and amortization. In addition, the Company is required to pay a commitment fee of between 0.175% and 0.375% on the unused portion of the New Credit Facility without penalty. The Company may allocate up to $5,000 of the available New Credit Facility for the issuance of letters of credit. Effective April 1, 1999, in connection with the Ralee acquisition, the Company assumed approximately $8,665 of capital leases with interest rates ranging from 7.1% to 10.2%, maturing between September 2003 and August 2005. Each capital lease is secured by a piece of equipment. During the quarter ended December 31, 1999, in connection with the CBA and Lee acquisitions, the Company assumed approximately $6,047 of debt related to seller financing, $842 of an Industrial Revenue Bond financing, and $365 of other debt. The Lee acquisition agreement provides for a reduction in the purchase price in the event certain performance measurements are not met on each specified date through year 2003. The Industrial Revenue Bond is secured by machinery and equipment. 6. COMMITMENTS AND CONTINGENCIES Certain of the Company's business operations and facilities are subject to a number of federal, state, and local environmental laws and regulations. The Company is indemnified for environmental liabilities related to assets purchased from IKON Office Solutions, Inc. (formerly Alco Standard Corporation) which existed prior to the acquisition of such assets and any unidentified environmental liabilities which arise subsequent to the date of settlement through July 22, 2000, arising from conditions or activities existing at these facilities prior to the acquisition. In the opinion of management, there are no significant environmental concerns which would have a material effect on the financial condition or operating results of the Company which are not covered by such indemnification. The Company is involved in certain litigation matters arising out of its normal business activities. In the opinion of management, the ultimate resolution of such litigation will not have a material effect on the financial condition or operating results of the Company. -8-
Triumph Group, Inc. Notes to Consolidated Financial Statements (continued) (dollars in thousands, except per share data) (Unaudited) 7. SPECIAL CHARGE During the quarter ended December 31, 1999 the Company announced a realignment of reporting responsibilities. As a result of the realignment, the Company recorded a pretax charge of $734, primarily related to severance of three employees. The following is a summary of the activity related to the charge recorded: <TABLE> <CAPTION> BALANCE BALANCE MARCH 31, 1999 CHARGES PAYMENTS DECEMBER 31, 1999 -------------- ------- -------- ----------------- <S> <C> <C> <C> <C> Severance $ 0 $ 566 $(217) $ 349 Other 0 168 (168) 0 ----- ----- ----- ----- Total $ 0 $ 734 $(385) $ 349 ===== ===== ===== ===== </TABLE> The balance of accrued severance is included in accrued expenses as of December 31, 1999. 8. EARNINGS PER SHARE The following is a reconciliation between the weighted average outstanding shares used in the calculation of basic and diluted earnings per share: <TABLE> <CAPTION> THREE MONTHS ENDED NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, ------------------ ----------------- (in thousands) 1998 1999 1998 1999 ------ ------ ------ ------ <S> <C> <C> <C> <C> Weighted average common shares outstanding 11,900 11,664 11,899 11,697 Net effect of dilutive stock options 83 45 111 56 Net effect of dilutive warrant 650 650 650 650 ------ ------ ------ ------ Weighted average common shares outstanding - assuming dilution 12,633 12,359 12,660 12,403 ====== ====== ====== ====== </TABLE> Options to purchase 342,300 shares of common stock, at prices ranging from $26.25 per share to $45.38 per share, were outstanding during the third quarter of fiscal 2000. These options were not included in the computation of diluted earnings per share because the exercise price was greater than the average market price of the common stock during the three months ended December 31, 1999 and, therefore, the effect would be antidilutive. Also, warrants to purchase up to 60,000 shares of common stock at $10.00 per share, subject to certain performance criteria, were not included in the computation of diluted earnings per share during the third quarter of fiscal 2000 because the number of contingently issuable warrants was zero, based on the number of shares, if any, that would be issuable under the terms of the arrangement, as if the end of the contingency period were December 31, 1999. -9-
Triumph Group, Inc. Notes to Consolidated Financial Statements (continued) (dollars in thousands, except per share data) (Unaudited) 9. SEGMENT REPORTING Selected financial information for each reportable segment is as follows: <TABLE> <CAPTION> THREE MONTHS ENDED NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, ------------ ------------ 1998 1999 1998 1999 --------- --------- --------- --------- <S> <C> <C> <C> <C> Net Sales: Aviation $ 84,653 $ 91,757 $ 240,517 $ 269,540 Metals 17,370 18,619 52,128 56,006 --------- --------- --------- --------- $ 102,023 $ 110,376 $ 292,645 $ 325,546 ========= ========= ========= ========= Income before income taxes: Operating income (expense): Aviation $ 14,584 $ 14,674 $ 42,431 $ 44,524 Metals 1,240 1,175 3,290 3,103 Corporate (1,041) (1,115) (3,396) (2,837) Special charge -- (734) -- (734) ------ ------ ------ ------- 14,783 14,000 42,325 44,056 Interest expense and other 1,432 2,655 3,443 6,826 --------- --------- --------- --------- $ 13,351 $ 11,345 $ 38,882 $ 37,230 ========= ========= ========= ========= Depreciation and amortization: Aviation $ 3,756 $ 4,647 $ 9,533 $ 13,547 Metals 270 301 787 893 Corporate 15 12 45 36 --------- --------- --------- --------- $ 4,041 $ 4,960 $ 10,365 $ 14,476 ========= ========= ========= ========= Capital expenditures: Aviation $ 3,216 $ 1,825 $ 10,481 $ 8,313 Metals (272) 295 164 911 Corporate 3 50 44 59 --------- --------- --------- --------- $ 2,947 $ 2,170 $ 10,689 $ 9,283 ========= ========= ========= ========= </TABLE> <TABLE> <CAPTION> MARCH 31, 1999 DECEMBER 31, 1999 -------------- ----------------- <S> <C> <C> Assets: Aviation $395,745 $459,789 Metals 31,228 29,504 Corporate 1,884 5,216 -------- -------- $428,857 $494,509 ======== ======== </TABLE> For the three months ended December 31, 1998 and 1999, the Company had foreign sales of $11,678 and $19,001 respectively. For the nine months ended December 31, 1998 and 1999, the Company had foreign sales of $35,499 and $50,123, respectively. -10-
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (The following discussion should be read in conjunction with the Consolidated Financial Statements contained elsewhere herein.) THREE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO THREE MONTHS ENDED DECEMBER 31, 1998 AVIATION GROUP NET SALES. Net sales for the Aviation Group increased by $7.1 million, or 8.4%, to $91.8 million for the third quarter of fiscal 2000 from $84.7 million for the third quarter of fiscal 1999. This increase was due to the inclusion of an aggregate of $21.4 million and $9.3 million in net sales in the third quarter of fiscal 2000 and 1999, respectively, for Nu-Tech Industries, Inc., DG Industries, Inc., DV Industries, Inc., Triumph Air Repair (Europe) Ltd., HTD Aerospace, Inc. and Triumph Precision, Inc., (collectively, the "1999 Acquisitions") and Ralee Engineering Company, Construction Brevitees d'Alfortville, Lee Aerospace, Inc. and Triumph Components-San Diego, Inc., (collectively, the "2000 Acquisitions"). Net sales for the other operating divisions and subsidiaries in the Aviation Group experienced a 6.7% decrease, totaling $5.1 million, from the prior year period. The decline in sales was due to slowdowns in the production rates of certain Boeing commercial airplane programs, specifically the 737 Classic, 747 and 777, as well as effects from Boeing working off excess inventory for these programs, slightly offset by increases in sales related to the C-17 and E-2C military aircraft programs. COSTS OF PRODUCTS SOLD. Costs of products sold for the Aviation Group increased by $3.7 million, or 6.4%, to $61.2 million for the third quarter of fiscal 2000 from $57.5 million for the third quarter fiscal 1999. This increase was due to the inclusion of $13.1 million and $5.3 million in the third quarter of fiscal 2000 and 1999, respectively, of costs of products sold associated with net sales generated by the 1999 Acquisitions and the 2000 Acquisitions and a $1.0 million charge for inventory due to discontinuance of certain product lines. Costs of products sold for the other operating divisions and subsidiaries in the Aviation Group decreased by $4.1 million, or 7.9%, mainly due to the decline in shipments for Boeing commercial airplane programs discussed above. GROSS PROFIT. Gross profit for the Aviation Group increased by $3.4 million, or 12.5%, to $30.6 million for the third quarter of fiscal 2000 from $27.2 million for the third quarter of fiscal 1999. This increase was due to the inclusion of $8.3 million and $4.0 million in the third quarter of fiscal 2000 and 1999, respectively, of gross profit on the net sales generated by the 1999 Acquisitions and the 2000 Acquisitions. The remaining net decrease of $0.9 million was due to reasons discussed above. As a percentage of net sales, gross profit for the Aviation Group was 33.3% for the third quarter of fiscal 2000 and 32.1% for the third quarter of fiscal 1999. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses for the Aviation Group increased by $2.4 million, or 27.3%, to $11.3 million for the third quarter of fiscal 2000 from $8.9 million for the third quarter of fiscal 1999, primarily due to the 1999 Acquisitions and the 2000 Acquisitions. DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the Aviation Group increased by $0.9 million, or 23.7%, to $4.6 million for the third quarter of fiscal 2000 from $3.8 million for the third quarter of fiscal 1999, primarily due to the assets acquired in connection with the 1999 Acquisitions and the 2000 Acquisitions. OPERATING INCOME. Operating income for the Aviation Group, excluding its portion of the special charge recorded in the third quarter, increased by $0.1 million, or 0.6%, to $14.7 million for the third quarter of fiscal 2000 from $14.6 million for the third quarter of fiscal 1999. This increase was primarily due to the addition of net sales and profits generated by the 1999 Acquisitions and the 2000 Acquisitions. All other operating divisions and subsidiaries in the Aviation Group experienced a 13.3% decline in operating income from the prior year due to the reasons discussed above. As a percentage of net sales, operating income for the Aviation Group was 16.0% for the third quarter of fiscal 2000 and 17.2% for the third quarter of fiscal 1999. -11-
Management's Discussion And Analysis of Financial Condition and Results of Operations (continued) METALS GROUP NET SALES. Net sales for the Metals Group increased by $1.2 million, or 7.2%, to $18.6 million for the third quarter of fiscal 2000 from $17.4 million for the third quarter of fiscal 1999. This increase was mainly due to an increase in activity at the Company's structural steel erection operation. COSTS OF PRODUCTS SOLD. Costs of products sold for the Metals Group increased by $1.3 million, or 10.0%, to $14.3 million for the third quarter of fiscal 2000 from $13.0 million for the third quarter of fiscal 1999. This increase mainly was due to the increase in activity at the Company's structural steel erection operation and the effect of a one-time reduction in the prior year due to lower raw material prices. GROSS PROFIT. Gross profit for the Metals Group decreased by $0.1 million, or 1.2%, to $4.3 million for fiscal 2000 from $4.3 million for the prior year period, due to the reasons discussed above. As a percentage of net sales, gross profit for the Metals Group was 23.0% and 25.0% for the third quarter of fiscal 2000 and fiscal 1999, respectively. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses for the Metals Group remained unchanged at $2.8 million for the third quarter of fiscal 2000 from the third quarter of fiscal 1999. DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the Metals Group remained unchanged at $0.3 million for the third quarter of fiscal 2000 from the third quarter of fiscal 1999. OPERATING INCOME. Operating income for the Metals Group, excluding its portion of the special charge recorded in the third quarter, decreased by $0.1 million, or 5.2%, to $1.2 million for the third quarter of fiscal 2000 from $1.2 million for the third quarter of fiscal 1999, due to the reasons discussed above. As a percentage of net sales, operating income for the Metals Group was 6.3% and 7.1% for the third quarter of fiscal 2000 and 1999, respectively. OVERALL RESULTS CORPORATE EXPENSES. Corporate expenses increased by $0.1 million, or 7.1%, to $1.1 million for the third quarter of fiscal 2000 from $1.0 million for the third quarter of fiscal 1999. SPECIAL CHARGE. During the quarter ended December 31, 1999, the Company announced a realignment of reporting responsibilities. As a result of the realignment, the Company recorded a pre-tax charge of $0.7 million, primarily related to severance for three employees. Through December 31, 1999, $0.4 million has been paid. INTEREST EXPENSE AND OTHER. Interest expense and other increased by $1.2 million, or 85.4%, to $2.7 million for the third quarter of fiscal 2000 from $1.4 million for the third quarter of fiscal 1999. This increase was primarily due to increased debt levels associated with the 1999 Acquisitions and the 2000 Acquisitions, the cash portions of which were financed by borrowings under the Company's Credit Facility, as well as a slightly higher rate on and amortization of fees relating to the Company's amended and restated credit facility ("New Credit Facility"). INCOME TAX EXPENSE. The effective tax rate was 22.6% for the third quarter of fiscal 2000 and 37.0% for the third quarter of fiscal 1999. In the third quarter of fiscal 2000, the Company adjusted its effective income tax rate at which reversals of temporary differences will be taxed. The adjustment resulted in a $1.6 million reduction in income tax expense for the quarter ended December 31, 1999. The reduction, primarily in the state effective tax rate, is a result of recent acquisitions and the implementation of tax planning strategies. NET INCOME. Net income increased by $0.4 million, or 4.3%, to $8.8 million for the third quarter of fiscal 2000 from $8.4 million for the third quarter of fiscal 1999. The increase in third quarter 2000 net income was primarily attributable to the 1999 Acquisitions and the 2000 Acquisitions and the tax adjustment, partially offset by the special charge and the reduced earnings of the remaining Aviation Group operating units due to the decline in shipments for Boeing commercial airplane programs discussed above. -12- Management's Discussion And Analysis of Financial Condition and Results of Operations (continued) NINE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO NINE MONTHS ENDED DECEMBER 31, 1998 AVIATION GROUP NET SALES. Net sales for the Aviation Group increased by $29.0 million, or 12.1%, to $269.5 million for the nine months ended December 31, 1999 from $240.5 million for the nine months ended December 31, 1998. This increase was due to the inclusion of an aggregate of $59.0 million and $14.1 million in net sales in the first nine months of fiscal 2000 and 1999, respectively, generated by the 1999 Acquisitions and the 2000 Acquisitions. Net sales for the other operating divisions and subsidiaries in the Aviation Group experienced a 7.0% decrease, totaling $15.9 million, from the prior year period. The decline in sales was due to slowdowns in the production rates of certain Boeing commercial airplane programs, specifically the 737 Classic, 747 and 777, as well as effects from Boeing working off excess inventory for these programs, slightly offset by an increase in the production rate of the 737 New Generation and the C-17 and E-2C military aircraft programs. COSTS OF PRODUCTS SOLD. Costs of products sold for the Aviation Group increased by $17.9 million, or 11.0%, to $180.0 million for the first nine months of fiscal 2000 from $162.1 million for the first nine months of fiscal 1999. This increase was due to the inclusion of $36.0 million and $8.1 million in the first nine months of fiscal 2000 and 1999, respectively, of costs of products sold associated with net sales generated by the 1999 Acquisitions and the 2000 Acquisitions and a $1.0 million charge for inventory due to discontinuance of certain product lines. Costs of products sold for the other operating divisions and subsidiaries in the Aviation Group decreased by $10.1 million, or 6.5%, due to the decline in shipments for Boeing commercial airplane programs discussed above. GROSS PROFIT. Gross profit for the Aviation Group increased by $11.2 million, or 14.2%, to $89.6 million for the first nine months of fiscal 2000 from $78.4 million for the first nine months of fiscal 1999. This increase was due to the inclusion of $23.0 million and $6.0 million in the first nine months of fiscal 2000 and 1999, respectively, of gross profit on the net sales generated by the 1999 Acquisitions and the 2000 Acquisitions. The remaining net decrease of $5.8 million was due to reasons discussed above. As a percentage of net sales, gross profit for the Aviation Group was 33.2% and 32.6% for the first nine months of fiscal 2000 and 1999, respectively. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses for the Aviation Group increased by $5.0 million, or 19.1%, to $31.5 million for the first nine months of fiscal 2000 from $26.5 million for the first nine months of fiscal 1999, primarily due to the 1999 Acquisitions and the 2000 Acquisitions. DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the Aviation Group increased by $4.0 million, or 42.1%, to $13.5 million for the first nine months of fiscal 2000 from $9.5 million for the first nine months of fiscal 1999, primarily due to the assets acquired in connection with the 1999 Acquisitions and the 2000 Acquisitions. OPERATING INCOME. Operating income for the Aviation Group, excluding its portion of the special charge recorded in the third quarter, increased by $2.1 million, or 4.9%, to $44.5 million for the first nine months of fiscal 2000 from $42.4 million for the first nine months of fiscal 1999. This increase was primarily due to the addition of net sales and profits generated by the 1999 Acquisitions and the 2000 Acquisitions. All other operating divisions and subsidiaries in the Aviation Group experienced a 16.3% decline in operating income from the prior year due to the reasons discussed above. As a percentage of net sales, operating income for the Aviation Group was 16.5% for the first nine months of fiscal 2000 and 17.6% for the first nine months of fiscal 1999. -13-
Management's Discussion And Analysis of Financial Condition and Results of Operations (continued) METALS GROUP NET SALES. Net sales for the Metals Group increased by $3.9 million, or 7.4%, to $56.0 million for the first nine months of fiscal 2000 from $52.1 million for the first nine months of fiscal 1999. This increase was mainly due to an increase in activity at the Company's structural steel erection operation. COSTS OF PRODUCTS SOLD. Costs of products sold for the Metals Group increased by $4.1 million, or 10.2%, to $43.8 million for the first nine months of fiscal 2000 from $39.8 million for the first nine months of fiscal 1999. This increase mainly was due to the increase in activity at the Company's structural steel erection operation and the effect of a one-time reduction in the prior year due to lower raw material prices. GROSS PROFIT. Gross profit for the Metals Group decreased by $0.2 million, or 1.4%, to $12.2 million for the first nine months of fiscal 2000 from $12.4 million for the prior year period, due to the reasons discussed above. As a percentage of net sales, gross profit for the Metals Group was 21.8% and 23.7% for the first nine months of fiscal 2000 and fiscal 1999, respectively. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses for the Metals Group decreased by $0.1 million, or 1.1%, to $8.2 million from $8.3 million in the first nine months of fiscal 1999. DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the Metals Group increased by $0.1 million, or 13.5%, to $0.9 million for the first nine months of fiscal 2000 from $0.8 million the first nine months of fiscal 1999. OPERATING INCOME. Operating income for the Metals Group, excluding its portion of the special charge recorded in the third quarter, decreased by $0.2 million, or 5.7%, to $3.1 million for the first nine months of fiscal 2000 from $3.3 million for the first nine months of fiscal 1999, due to the reasons discussed above. As a percentage of net sales, operating income for the Metals Group was 5.5% and 6.3% for the first nine months of fiscal 2000 and 1999, respectively. OVERALL RESULTS CORPORATE EXPENSES. Corporate expenses decreased by $0.6 million, or 16.5%, to $2.8 million for the first nine months of fiscal 2000 from $3.4 million for the first nine months of fiscal 1999. SPECIAL CHARGE. During the quarter ended December 31, 1999, the Company announced a realignment of reporting responsibilities. As a result of the realignment, the Company recorded a pre-tax charge of $0.7 million, primarily related to severance for three employees. Through December 31, 1999, $0.4 million has been paid. INTEREST EXPENSE AND OTHER. Interest expense and other increased by $3.4 million, or 98.3%, to $6.8 million for the first nine months of fiscal 2000 from $3.4 million for the first nine months of fiscal 1999. This increase was primarily due to increased debt levels associated with the 1999 Acquisitions and the 2000 Acquisitions, the cash portions of which were financed by borrowings under the Company's Credit Facility, as well as a slightly higher rate on and amortization of fees relating to the Company's New Credit Facility. INCOME TAX EXPENSE. The effective tax rate was 32.3% for the first nine months of fiscal 2000 and 38.3% for the first nine months of fiscal 1999. In the third quarter of fiscal 2000, the Company adjusted its effective income tax rate at which reversals of temporary differences will be taxed. The adjustment resulted in a $1.6 million reduction in income tax expense for the nine months ended December 31, 1999. The reduction, primarily in the state effective tax rate, is a result of recent acquisitions and the implementation of tax planning strategies. NET INCOME. Net income increased by $1.2 million, or 5.1%, to $25.2 million for the first nine months of fiscal 2000 from $24.0 million for the first nine months of fiscal 1999. The increase fiscal 2000 net income was primarily attributable to the 1999 Acquisitions and the 2000 Acquisitions and the tax adjustment, partially offset by the special charge and the reduced earnings of the remaining Aviation Group operating units due to the decline in shipments for Boeing commercial airplane programs discussed above. -14-
Management's Discussion And Analysis of Financial Condition and Results of Operations (continued) LIQUIDITY AND CAPITAL RESOURCES The Company's working capital needs are generally funded through cash flows from operations and borrowings under its credit arrangements. The Company generated approximately $26.8 million of cash flows from operating activities for the nine months ended December 31, 1999. The Company used approximately $43.2 million in investing activities and raised $17.5 million in financing activities for the nine months ended December 31, 1999. On June 11, 1999, the Company amended and restated its former revolving credit facility with its lenders to increase the credit facility to $250.0 million from $125.0 million, extend the term and amend certain terms and covenants ("New Credit Facility"). The New Credit Facility bears interest at either LIBOR plus between 0.75% and 1.75% or the prime rate (or the Federal Funds rate plus 0.5% if greater) at the option of the Company and expires on June 13, 2004. The variation in the interest rate is based upon the Company's ratio of total indebtedness to earnings before interest, taxes, depreciation and amortization. In addition, the Company is required to pay a commitment fee of between 0.175% and 0.375% on the unused portion of the New Credit Facility without penalty. The Company may allocate up to $5.0 million of the available New Credit Facility for the issuance of letters of credit. As of December 31, 1999, $147.6 million was available under the New Credit Facility. On December 31, 1999, an aggregate amount of approximately $101.0 million was outstanding under the New Credit Facility, $100.0 million of which was accruing interest at LIBOR plus applicable basis points totaling 7.5% per annum, and $1.0 million of which was accruing interest at the prime rate of 8.5% per annum. Amounts repaid under the New Credit Facility may be reborrowed. In the first and third quarters of fiscal 2000, the Company acquired all of the outstanding stock of Ralee Engineering Company ("Ralee"), Construction Brevitees d'Alfortville ("CBA"), and Lee Aerospace, Inc. ("Lee") and acquired substantially all of the assets of KT Aerofab, now operated by the Company as Triumph Components-San Diego, Inc. Ralee, located in City of Industry, California, manufactures long structural components such as stringers, cords, floor beams and spars for the aviation industry. CBA, located near Paris, France, is a manufacturer of mechanical ball bearing control assemblies for the aerospace, ground transportation and marine industries. Triumph Components-San Diego, Inc. is a developer of high-temperature metal alloy parts. Lee, located in Wichita, Kansas, is a leading supplier of unheated windshields, flight deck and cabin windows to the general aviation and corporate jet market. The combined cash portion of the purchase prices paid at closing, net of cash acquired, for these companies of approximately $27.9 million was funded by borrowings under the Company's New Credit Facility. In connection with the Ralee acquisition, the Company assumed $8.7 million of capital leases for equipment with interest rates ranging from 7.1% to 10.2%, maturing between September 2003 and August 2005. Also, in connection with the CBA and Lee acquisitions, the Company assumed $6.0 million of seller financing, $4.7 million of which accrues interest at 7% and $1.3 million of which accrues interest at a floating rate, $0.8 million of an Industrial Revenue Bond which accrues interest at 7.15%, and $0.4 million of other debt. During the first quarter of fiscal 2000, the Company purchased 117,500 shares of its Common stock for total cash consideration of $2.9 million. During the second quarter of fiscal 2000, the Company purchased 74,000 shares of its Common stock for total cash consideration of $1.7 million. The purchases were funded by borrowings under the Company's New Credit Facility. Capital expenditures were approximately $9.3 million for the nine months ended December 31, 1999 primarily for manufacturing machinery and equipment for the Aviation Group. The Company funded these expenditures through borrowings under its New Credit Facility. The Company expects capital expenditures to be approximately $21.0 million for its fiscal year ending March 31, 2000. The expenditures are expected to be used primarily to expand capacity at several facilities in the Aviation Group. The Company believes that cash generated by operations and borrowings under the New Credit Facility will be sufficient to meet anticipated cash requirements for its current operations. However, the -15-
Management's Discussion And Analysis of Financial Condition and Results of Operations (continued) Company has a stated policy to grow through acquisition and is continuously evaluating various acquisition opportunities. As a result, the Company currently is pursuing the potential purchase of a number of candidates. In the event that more than one of these transactions are successfully consummated, the availability under the New Credit Facility might be fully utilized and additional funding sources may be needed. There can be no assurance that such funding sources will be available to the Company on terms favorable to the Company, if at all. YEAR 2000 DATE CONVERSION The Company recognized the need to ensure that its business operations would not be adversely affected by the calendar year 2000 date change and was cognizant of the time sensitive nature of the problem. The Company's operating units assessed how each may be impacted by Year 2000 and formulated and commenced implementation of a comprehensive plan to address all known aspects of the Year 2000 problem: information systems, production and facilities equipment, suppliers and customers. The Company's operating units made inquiries of customers and suppliers to assess their Year 2000 readiness. The operating units also tested information technology ("IT") systems, as well as non-IT systems, and verified that vendor-supplied or outsourced systems would be Year 2000 compliant. The Company has not separately tracked its Year 2000 costs as a project, but rather has incurred the costs in conjunction with normal sustaining activities. The discretely identifiable costs incurred through December 31, 1999 of completing the Company's Year 2000 assessment and of modifying its computer software and hardware, as well as its production and facilities equipment, to be Year 2000 compliant were approximately $1.0 million. The Company has not experienced any material Year 2000 compliance problems to date and, to the Company's knowledge, none of its significant vendors, service providers, or customers have suffered material problems related to Year 2000 compliance that the Company believes are likely to materially adversely affect the Company. The Company continues to monitor its Year 2000 program for unexpected issues that could possibly still develop. The Year 2000 problem has many aspects and potential consequences, some of which are not reasonably foreseeable, and there can be no assurance that unforeseen consequences will not arise. FORWARD LOOKING STATEMENTS This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 relating to the Company's future operations and prospects, including statements that are based on current projections and expectations about the markets in which the Company operates, and management's beliefs concerning future performance and capital requirements based upon current available information. Such statements are based on management's beliefs as well as assumptions made by and information currently available to management. When used in this document, words like "may", "might", "will", "expect", "anticipate", "believe", "potential", and similar expressions are intended to identify forward looking statements. Actual results could differ materially from management's current expectations and there can be no assurance that additional capital will not be required or that additional capital, if required, will be available on reasonable terms, if at all, at such times and in such amounts as may be needed by the Company. In addition to these factors, among other factors that could cause actual results to differ materially are uncertainties relating to the integration of acquired businesses, general economic conditions affecting the Company's two business segments, dependence of certain of the Company's businesses on certain key customers as well as competitive factors relating to the aviation and metals industries. For a more detailed discussion of these and other factors affecting the Company, see the risk factors described in the Company's Annual Report on Form 10-K, for the year ended March 31, 1999, filed with the SEC in June 1999. -16-
Management's Discussion And Analysis of Financial Condition and Results of Operations (continued) Item 3. Quantitative and Qualitative Disclosures About Market Risk For information regarding the Company's exposure to certain market risks, see Item 7A. Quantitative and Qualitative Disclosures About Market Risk in the Company's Annual Report on Form 10-K for the year ended March 31, 1999. There has been no material change in this information. -17-
TRIUMPH GROUP, INC. Part II. Other Information Item 1. Legal Proceedings Not applicable Item 2. Changes in Securities Not applicable Item 3. Defaults upon Senior Securities Not applicable Item 4. Submission of Matters to a Vote of Security Holders Not applicable Item 5. Other Information Not applicable Item 6. Exhibits and Reports on Form 8-K A. Exhibits (27.1) Financial Data Schedule for the nine months ended December 31, 1999 (27.2) Restated Financial Data Schedule for the six months ended September 30, 1999 B. Reports on Form 8-K The Company did not file any reports on Form 8-K during the three months ended December 31, 1999 -18-
Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Triumph Group, Inc. ------------------------------------------------ (Registrant) /s/ Richard C. Ill ------------------------------------------------ Richard C. Ill, President & CEO /s/ John R. Bartholdson ------------------------------------------------ John R. Bartholdson, Senior Vice President & CFO (Principal Financial Officer) /s/ Kevin E. Kindig ------------------------------------------------ Kevin E. Kindig, Vice President & Controller (Principal Accounting Officer) Dated: February 14, 2000 -19-