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 June 30, 1997 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Transition Period From _________ to ________ Commission File Number: 1-12235 ----------- 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, $0.001 Par Value 9,749,588 shares as of June 30, 1997
TRIUMPH GROUP, INC. INDEX Part I. Financial Information Page Number Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets 1 March 31, 1997 and June 30, 1997 Condensed Consolidated Statements of Income 3 Three months ended June 30, 1996 and 1997 Condensed Consolidated Statements of Cash Flows 4 Three months ended June 30, 1996 and 1997 Notes to Condensed Consolidated Financial Statements 6 June 30, 1997 Item 2. Management's Discussion and Analysis of Financial 10 Condition and Results of Operations. Part II. Other Information Item 1. Legal Proceedings 13 Item 2. Changes in Securities 13 Item 3. Defaults upon Senior Securities 13 Item 4. Submission of Matters to a Vote of Security Holders 13 Item 5. Other Information 13 Item 6. Exhibits and Reports on Form 8-K 13 Signature Page 14
Triumph Group, Inc. Condensed Consolidated Balance Sheets (dollars in thousands) <TABLE> <CAPTION> JUNE 30, MARCH 31, 1997 1997 (UNAUDITED) ---------- ----------- <S> <C> <C> ASSETS Current assets: Cash................................................................................... $ 993 $ 945 Accounts receivable, net............................................................... 39,220 42,969 Inventories............................................................................ 54,310 62,282 Prepaid expenses and other............................................................. 1,036 791 Deferred income taxes.................................................................. 1,795 2,007 ----------- ---------- Total current assets..................................................................... 97,354 108,994 Property and equipment, net.............................................................. 48,349 51,310 Excess of cost over net assets acquired, net............................................. 13,516 15,097 Intangible assets, net................................................................... 9,897 11,342 Other assets............................................................................. 2,199 2,293 ----------- ---------- Total assets............................................................................. $ 171,315 $ 189,036 ----------- ---------- ----------- ---------- </TABLE>
Triumph Group, Inc. Condensed Consolidated Balance Sheets (continued) (dollars in thousands) <TABLE> <CAPTION> JUNE 30, MARCH 31, 1997 1997 (Unaudited) ----------- ----------- <S> <C> <C> LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable..................................................................... $ 20,461 $ 20,253 Accrued expenses..................................................................... 16,255 15,072 Income taxes payable................................................................. 3,951 4,086 Current portion of long-term debt.................................................... 399 399 ----------- ----------- Total current liabilities.............................................................. 41,066 39,810 Long-term debt, less current portion................................................... 23,993 35,512 Deferred income taxes and other........................................................ 14,843 17,809 Stockholders' equity: Common Stock, $.001 par value, 15,000,000 shares authorized, 5,801,898 and 6,021,626 shares issued and outstanding at March 31, 1997 and June 30, 1997, respectively.... 6 6 Class D common stock convertible, $.001 par value, 6,000,000 shares authorized, 3,947,690 and 3,727,962 shares issued and outstanding at March 31, 1997 and June 30, 1997, respectively..................................... 4 4 Capital in excess of par value....................................................... 68,479 68,479 Retained earnings.................................................................... 22,924 27,416 ----------- ----------- Total stockholders' equity............................................................. 91,413 95,905 Total liabilities and stockholders' equity............................................. $ 171,315 $ 189,036 ----------- ----------- ----------- ----------- </TABLE> SEE ACCOMPANYING NOTES. 2
Triumph Group, Inc. Condensed Consolidated Statements of Income (dollars in thousands, except per share data) (unaudited) <TABLE> <CAPTION> THREE MONTHS ENDED ------------------------ <S> <C> <C> JUNE 30, JUNE 30, 1996 1997 ----------- ----------- Net sales................................................................................... $ 55,184 $ 71,856 Operating costs and expenses: Cost of products sold..................................................................... 39,146 50,757 Selling, general, and administrative...................................................... 9,433 11,027 Depreciation and amortization............................................................. 1,258 1,872 ----------- ----------- 49,837 63,656 Operating income............................................................................ 5,347 8,200 Interest expense, net....................................................................... 2,286 836 ----------- ----------- Income before income taxes.................................................................. 3,061 7,364 Income tax expense.......................................................................... 1,252 2,872 ----------- ----------- Net income.................................................................................. $ 1,809 $ 4,492 ----------- ----------- Net income per share........................................................................ $ 0.27 $ 0.43 ----------- ----------- ----------- ----------- Shares used in computing income per share................................................... 7,353 10,496 (in thousands) ----------- ----------- ----------- ----------- </TABLE> SEE ACCOMPANYING NOTES. 3
Triumph Group, Inc. Condensed Consolidated Statements of Cash Flows (dollars in thousands) (unaudited) <TABLE> <CAPTION> THREE MONTHS ENDED ------------------------ <S> <C> <C> JUNE 30, JUNE 30, 1996 1997 ----------- ----------- OPERATING ACTIVITIES Net income.................................................................................. $ 1,809 $ 4,492 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization............................................................. 1,258 1,872 Other amortization included in interest expense........................................... 87 34 Provision for doubtful receivables........................................................ 487 45 Provision for deferred income taxes....................................................... (178) 637 Interest on subordinated promissory note and junior subordinated promissory notes paid by issuance of additional notes............................................................ 626 156 Compensation in stock options issued to employee.......................................... 80 -- Changes in operating assets and liabilities, net of acquisitions of businesses: Accounts receivable..................................................................... (2,893) (3,261) Inventories............................................................................. (3,197) (7,231) Prepaid expenses and other current assets............................................... 8 247 Accounts payable, accrued expenses, and accrued income taxes payable.................... (4,265) (2,677) Other................................................................................... (592) 242 ----------- ----------- Net cash used in operating activities....................................................... (6,770) (5,444) INVESTING ACTIVITIES Capital expenditures, net................................................................... (876) (3,866) Proceeds from sale of property and equipment of discontinued operation...................... 25,550 -- Cost of businesses acquired, net of cash acquired........................................... -- (2,101) ----------- ----------- Net cash provided by (used in) investing activities......................................... 24,674 (5,967) </TABLE> 4
Triumph Group, Inc. Condensed Consolidated Statements of Cash Flows (continued) (dollars in thousands) (unaudited) <TABLE> <CAPTION> THREE MONTHS ENDED ----------------------- <S> <C> <C> JUNE 30, JUNE 30, 1996 1997 ---------- ----------- FINANCING ACTIVITIES Net (decrease) increase in revolving credit facility, excluding refinancing................ $ (13,050) 6,366 Purchase of treasury stock................................................................. (85) -- Proceeds from issuance of long-term debt................................................... 40 5,000 Payments of long-term debt................................................................. (4,918) (3) ---------- ----------- Net cash (used in) provided by financing activities........................................ (18,013) 11,363 ---------- ----------- Decrease in cash........................................................................... (109) (48) Cash at beginning of period................................................................ 539 993 ---------- ----------- Cash at end of period...................................................................... $ 430 $ 945 ---------- ----------- ---------- ----------- NONCASH INVESTING AND FINANCING ACTIVITIES Assumption of liabilities related to acquisition........................................... $ -- $ 1,305 Covenant not to compete contract liability related to acquisition.......................... -- 1,800 Redeemable preferred stock issued in lieu of cash dividend payments and accretion to face value.................................................................................... 202 -- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for income taxes................................................................. $ 1,054 $ 2,146 Cash paid for interest..................................................................... 1,781 588 </TABLE> SEE ACCOMPANYING NOTES. 5
Triumph Group, Inc. Notes to Condensed Consolidated Financial Statements (dollars in thousands, except per share data) (Unaudited) 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended June 30, 1997 are not necessarily indicative of the results that may be expected for the year ended March 31, 1998. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended March 31, 1997. The Company's income per share and share data in the financial statements have been retroactively restated to reflect the effect of the 65-for-1 stock split declared in connection with the initial public offering by the Company of its common stock in October 1996. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION The Company's aviation segment designs, engineers, manufactures, 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, farm equipment, and office furniture industries, primarily within North America. EARNINGS PER SHARE Earnings per share for the periods presented is computed using the weighted average number of shares of common stock outstanding after giving effect to the 65-for-one stock split effected in conjunction with the Company's initial public offering. In addition, common share equivalents such as warrants and options are included in the computation. 6
Triumph Group, Inc. Notes to Condensed Consolidated Financial Statements (continued) (dollars in thousands, except per share data) (Unaudited) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) EARNINGS PER SHARE (CONTINUED) In February 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings Per Share," which is required to be adopted for annual and quarterly periods ended after December 15, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods presented. Under the new requirements for calculating primary earnings per share, the dilutive effect of stock options and warrants will be excluded. Under this method, primary income per share (referred to as Basic EPS) for the three months ended June 30, 1996 and 1997 would have been $0.30 and $0.46 respectively. The impact of Statement 128 on the calculation of fully diluted earnings per share for those years is not expected to be material. USE OF ESTIMATES The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 3. ACQUISITION On April 30, 1997, the Company acquired substantially all of the assets of J. D. Chapdelaine Co. ("JDC") based in Ft. Lauderdale, Florida for an aggregate purchase price of $5.2 million. The purchase price includes cash paid at closing, a long-term liability related to a covenant not-to-compete contract, the assumption of certain liabilities and direct costs of the acquisition. JDC specializes in the repair, overhaul and exchange of electromechanical aircraft instruments. The acquisition was accounted for under the purchase method, and the purchase price was allocated to the assets based on their estimated fair values, with any excess recorded as cost over net assets acquired. Changes in purchase accounting estimates may result in a reallocation of the purchase price within one year of the acquisition. The acquisition was funded through the Company's long-term borrowings. 7
Triumph Group, Inc. Notes to Condensed Consolidated Financial Statements (continued) (dollars in thousands, except per share data) (Unaudited) 4. INVENTORIES The components of inventories are as follows: MARCH 31, JUNE 30, 1997 1997 --------- -------- Raw materials...................................... $15,863 $22,098 Work-in-process.................................... 17,295 16,892 Finished goods..................................... 21,694 23,834 ------- -------- Total inventories at current FIFO cost............. 54,852 62,824 Less allowance to reduce certain current FIFO costs to LIFO basis......................... 542 542 -------- -------- Total inventories.................................. $54,310 $62,282 -------- -------- -------- -------- Approximately 12% and 15% of the inventory is valued using the LIFO method at March 31, 1997 and June 30, 1997, respectively. 5. LONG-TERM DEBT Long-term debt consists of the following: MARCH 31, JUNE 30, 1997 1997 ---------- -------- Revolving credit facility.......................... $ 8,707 $15,073 Subordinated promissory notes...................... 14,246 14,394 Junior subordinated promissory notes............... 407 415 Other debt and capital lease obligations........... 1,032 6,029 -------- -------- 24,392 35,911 Less current portion 399 399 -------- -------- $23,993 $35,512 -------- -------- -------- -------- 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. 8
Triumph Group, Inc. Notes to Condensed Consolidated Financial Statements (continued) (dollars in thousands, except per share data) (Unaudited) 6. COMMITMENTS AND CONTINGENCIES Certain of the Company's business operations and facilities are subject to a number of federal, state, and local environmental laws and regulations. The Company is indemnified for environmental liabilities related to assets purchased from IKON Office Solutions, Inc. (formerly Alco Standard Corporation) which existed prior to the acquisition of the assets and any unidentified environmental liabilities which arise subsequent to the date of settlement through July 22, 2000, arising from conditions or activities existing at these facilities prior to the acquisition. In the opinion of management, there are no significant environmental concerns which would have a material effect on the financial condition or operating results of the Company which are not covered by such indemnification. The Company is involved in certain litigation matters arising out of its normal business activities. In the opinion of management, the ultimate resolution of such litigation will not have a material effect on the financial condition or operating results of the Company. 7. SUBSEQUENT EVENTS On July 31, 1997, the Company sold substantially all of the assets of its Seattle, Washington based facility, Air Lab, Inc., to Sextant Avionique, Inc. for approximately $5.8 million in cash and the assumption by the purchaser of certain liabilities. For the three months ended June 30, 1996 and 1997, Air Lab had net sales of $1,279 and $1,590, respectively, and operating income of $120 and $192, respectively. In July, 1997, the Company entered into a $10 million discretionary line of credit ("Line of Credit"). The Line of Credit bears interest at the current rate offered by the lender. Borrowings under the Line of Credit are payable on the last day of the applicable interest period or on demand. The Line of Credit expires in July 1998 and may be continued or renewed at that time. 9
Management's Discussion And Analysis of Financial Condition and Results of Operations Result of Operations Revenues for the three month period ended June 30, 1997 increased 30.2% to $71.9 million from $55.2 million for the three month period ended June 30, 1996. The increase in revenue reflects the aviation group's acquisitions of Advanced Materials Technologies, Inc. ("AMTI") and J. D. Chapdelaine Co. ("JDC"), accounting for $8.1 million of the increase for the three months ended June 30, 1997. The remaining operating divisions and subsidiaries in the aviation group experienced a 14.8% increase for the three months ended June 30, 1997 due to higher activity in the repair and overhaul markets and increased orders from OEMs. The increase in total revenue was aided by the metals group which experienced a sales increase of 17.0% in the three months ended June 30, 1997. Approximately 10.0% of this increase was due to price/mix improvements, while 7.0% of such increase was due to increased volume. Cost of goods sold for the three month period ended June 30, 1997 was 70.6% of sales compared to 70.9% for the three month period ended June 30, 1996. The improvement was primarily related to the inclusion of the aviation group's acquisitions of AMTI and JDC. Selling, general and administrative expenses for the three month period ended June 30, 1997 increased $1.6 million to $11.0 million from $9.4 million for the three month period ended June 30, 1996. The increase was primarily related to the inclusion of the aviation group's acquisitions of AMTI and JDC, accounting for $1.3 million of such increases. The remaining increase is associated with the higher sales activity level generated by the aviation group. Depreciation and amortization for the three month period ended June 30, 1997 increased $0.6 million to $1.9 million from $1.3 million for the three month period ended June 30, 1996. The increase is primarily attributable to the depreciation and amortization on the increased asset base related to the inclusion of the aviation group's acquisitions of AMTI and JDC. Operating income as a percentage of sales increased from 9.7% for the three month period ended June 30, 1996 to 11.4% for the three month period ended June 30, 1997. The improvement in operating income was primarily due to the contributions of the aviation group's acquisitions, accounting for $1.4 million of the increase and $1.0 million improvement in the Metals Group operating margins for the three month period ended June 30, 1997. Existing operating divisions and subsidiaries in the aviation group accounted for $0.3 million of the improvement. Interest expense of $0.8 million for the three months ended June 30, 1997 represents a $1.5 million decrease from the three month period ended June 30, 1996. This decrease was primarily due to reduced debt levels associated with the application of the proceeds from the initial public offering of the Company's common stock, partially offset by the acquisitions of AMTI and JDC, the cash portions of which were financed by borrowings under the Company's credit agreement. 10
Liquidity and Capital Resources The Company's working capital needs are generally funded through cash flows from operations and the credit agreement. The Company used approximately $5.4 million of cash flows from operating activities, principally for working capital requirements, for the three months ended June 30, 1997. The Company used approximately $6.0 million in investing activities, while providing $11.4 million in financing activities for the three months ended June 30, 1997. As of June 30, 1997, $68.8 million was available under the $85.0 million revolving credit facility ("Credit Facility"). 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. In July, 1997, the Company entered into a $10 million discretionary line of credit ("Line of Credit"). The Line of Credit bears interest at the current rate offered by the lender. Borrowings under the Line of Credit are payable on the last day of the applicable interest period or on demand. The Line of Credit expires in July, 1998 and may be continued or renewed at that time Capital expenditures were approximately $3.9 million for the three months ended June 30, 1997 primarily for manufacturing machinery and equipment for The Aviation Group. The Company funded these expenditures through borrowings under its Credit Facility and from the proceeds from the Bonds. The Company expects capital expenditures to be approximately $11.0 million for its fiscal year ending March 31, 1998. Of this amount, approximately $2.0 million is expected to be used to expand capacity at the Company's stretch forming operations and the remainder will be used for upgrades of information systems, machinery and equipment, primarily for the Aviation Group. On July 31, 1997, the Company sold substantially all of the assets of its Seattle, Washington based facility, Air Lab, Inc., to Sextant Avionique, Inc. for approximately $5.8 million in cash and the assumption by the purchaser of certain liabilities. For the three months ended June 30, 1996 and 1997, Air Lab had net sales of $1,279 and $1,590, respectively, and operating income of $120 and $192, respectively. On April 30, 1997, the Company purchased substantially all of the assets of JDC in a cash transaction. The transaction was funded by borrowings under the Credit Facility. JDC, based in Ft. Lauderdale, Florida, specializes in the repair, overhaul and exchange of electromechanical aircraft instruments. The cash purchase price was approximately $2.1 million. The Company believes that cash generated by operations, borrowings under the Credit Facility, and proceeds from the Bonds will be sufficient to meet anticipated cash requirements for its current operations. However, the Company has a stated policy to grow through acquisition and is continuously evaluating various acquisition opportunities. As a result, the Company currently is pursuing the potential purchase of a number of candidates with some in the later stages of negotiation and two under letter of intent. In the event that more than one of these were successfully purchased, the availability under the Credit Facility might be fully utilized and additional cash requirements might have to be sourced. Given the Company's operating results and the earnings potential of the acquisitions, various capital sources should be receptive to fund the additional requirements. 11
Forward-Looking Statements This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 relating to the Company's future operations and prospects, including statements that are based on current projections and expectations about the markets in which the company operates, and management's beliefs concerning future performance and capital requirements based upon current available information. Actual results could differ materially from management's current expectations and there can be no assurance that additional capital will not be required or that additional capital, if required, will be available on reasonable terms, if at all, at such times and in such amounts as may be needed by the Company. In addition to these factors, among other factors that could cause actual results to differ materially are uncertainties relating to the integration of acquired businesses, general economic conditions affecting the Company's two business segments, dependence of certain of the Company's businesses on certain key customers as well as competitive factors relating to the aviation and metals industries. For a more detailed discussion of these and other factors affecting the Company, see the risk factors described in the Company's registration statement on Form S-1 filed with Securities and Exchange Commission and the Company's Annual Report on Form 10-K, for the year ended March 31, 1997, filed with the SEC in June 1997. 12
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 (11) Statement re: computation of earnings per share (27) Financial Data Schedule The Company did not file any reports on Form 8-K during the three months ended June 30, 1997. 13
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. III ------------------------------------------------ Richard C. III, President & CEO /s/ John R. Bartholdson ------------------------------------------------ John R. Bartholdson, Senior Vice President & CFO (Principal Financial Officer) /s/ Kevin E. Kindig ------------------------------------------------ Kevin E. Kindig, Controller (Principal Accounting Officer) Dated: August 13, 1997 14