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, 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, 8,382,986 shares and Class D common stock, par value $0.001 per share, 3,348,535 shares, each as of July 30, 1999
TRIUMPH GROUP, INC. INDEX Part I. Financial Information <TABLE> <CAPTION> Page Number ----------- <S> <C> Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets 1 March 31, 1999 and June 30, 1999 Consolidated Statements of Income 3 Three months ended June 30, 1998 and 1999 Consolidated Statements of Cash Flows 4 Three months ended June 30, 1998 and 1999 Notes to Consolidated Financial Statements 6 June 30, 1999 Item 2. Management's Discussion and Analysis of Financial 10 Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures About 14 Market Risk Part II. Other Information Item 1. Legal Proceedings 15 Item 2. Changes in Securities 15 Item 3. Defaults upon Senior Securities 15 Item 4. Submission of Matters to a Vote of Security Holders 15 Item 5. Other Information 15 Item 6. Exhibits and Reports on Form 8-K 15 Signature Page 16 </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, JUNE 30, 1999 1999 ---- ---- (unaudited) <S> <C> <C> ASSETS Current assets: Cash $ 4,953 $ 7,287 Accounts receivable, net 65,613 63,060 Inventories 104,771 114,931 Prepaid expenses and other 2,473 4,209 Deferred income taxes 2,408 2,492 -------- -------- Total current assets 180,218 191,979 Property and equipment, net 107,123 122,150 Excess of cost over net assets acquired, net 124,667 131,645 Intangible assets and other, net 16,849 18,369 -------- -------- Total assets $428,857 $464,143 -------- -------- -------- -------- </TABLE> -1-
Triumph Group, Inc. Consolidated Balance Sheets (continued) (dollars in thousands, except per share data) <TABLE> <CAPTION> MARCH 31, JUNE 30, 1999 1999 ---- ---- (unaudited) <S> <C> <C> LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 33,894 $ 27,740 Accrued expenses 47,263 52,475 Income taxes payable 4,453 6,110 Current portion of long-term debt 1,151 2,443 -------- -------- Total current liabilities 86,761 88,768 Long-term debt, less current portion 91,857 115,185 Deferred income taxes and other 35,462 40,015 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 168,800 shares (1,336) (4,165) Retained earnings 80,683 88,910 -------- -------- Total stockholders' equity 214,777 220,175 -------- -------- Total liabilities and stockholders' equity $428,857 $464,143 -------- -------- -------- -------- </TABLE> SEE ACCOMPANYING NOTES. -2-
Triumph Group, Inc. Consolidated Statements of Income (in thousands, except per share data) (unaudited) <TABLE> <CAPTION> THREE MONTHS ENDED JUNE 30, --------------------------- 1998 1999 ---- ---- <S> <C> <C> Net sales $91,140 $ 104,894 Operating costs and expenses: Cost of products sold 63,023 71,911 Selling, general, and administrative 12,072 13,435 Depreciation and amortization 2,887 4,726 ------- --------- 77,982 90,072 Operating income 13,158 14,822 Interest expense and other 705 1,855 ------- --------- Income before income taxes 12,453 12,967 Income tax expense 4,859 4,732 ------- --------- Net income $ 7,594 $ 8,235 ------- --------- ------- --------- Earnings Per Share - Basic: Net income $ 0.64 $ 0.70 ------- --------- ------- --------- Weighted average common shares outstanding - Basic 11,898 11,737 ------- --------- ------- --------- Earnings Per Share - Assuming Dilution: Net income $ 0.60 $ 0.66 ------- --------- ------- --------- Weighted average common shares outstanding - Assuming Dilution 12,692 12,455 ------- --------- ------- --------- </TABLE> SEE ACCOMPANYING NOTES. -3-
Triumph Group, Inc. Consolidated Statements of Cash Flows (dollars in thousands) (unaudited) <TABLE> <CAPTION> THREE MONTHS ENDED JUNE 30, --------------------------- 1998 1999 ---- ---- <S> <C> <C> OPERATING ACTIVITIES Net income $7,594 $8,235 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,887 4,726 Other amortization included in interest expense 35 46 Provision for doubtful accounts receivable 56 61 Provision for deferred income taxes 395 2,148 Interest on subordinated and junior subordinated promissory notes paid by issuance of additional notes 185 218 Changes in other current assets and liabilities, net of acquisition of business: Accounts receivable 6,823 7,908 Inventories (5,912) (5,623) Prepaid expenses and other current assets (662) (290) Accounts payable, accrued expenses, and accrued income taxes payable 754 (9,116) Other 59 (136) --------- ------- Net cash provided by operating activities 12,214 8,177 INVESTING ACTIVITIES Capital expenditures, net (4,652) (4,507) Cost of business acquired, net of cash acquired -- (13,031) --------- ------- Net cash used in investing activities (4,652) (17,538) </TABLE> -4-
Triumph Group, Inc. Consolidated Statements of Cash Flows (continued) (dollars in thousands) (unaudited) <TABLE> <CAPTION> THREE MONTHS ENDED JUNE 30, --------------------------- FINANCING ACTIVITIES 1998 1999 ---- ---- <S> <C> <C> Net (decrease) increase in revolving credit facility $(7,793) $16,930 Repayment of debt and capital lease obligations (340) (1,435) Purchase of Treasury Stock - (2,864) Payments of deferred financing costs (25) (963) Proceeds from exercise of stock options 72 27 ------ ------ Net cash (used in) provided by financing activities (8,086) 11,695 ------ ------ Net change in cash (524) 2,334 Cash at beginning of period 4,642 4,953 ------ ------ Cash at end of period $ 4,118 $ 7,287 ------ ------ ------ ------ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for income taxes $ 712 $ 896 Cash paid for interest 491 1,556 </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 months ended June 30, 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 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 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. The adoption of SOP 98-1 had no material effect on results of operations or financial position for the three months ended June 30, 1999. 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 Effective April 1, 1999, the Company acquired all of the outstanding stock of Ralee Engineering Company ("Ralee"), based in City of Industry, California, for an aggregate purchase price of approximately $32,213. The purchase price includes cash paid at closing, net of cash acquired, the assumption of debt and certain liabilities, direct costs of the acquisition, deferred payments and a contingent payment of approximately $6,000, which is included in accrued expenses at June 30, 1999. Ralee manufactures long structural components such as stringers, cords, floor beams and spars for the aviation industry. The excess of the purchase price over the fair value of the net assets acquired of $8,207 was recorded as excess of cost over net assets acquired and is being amortized over thirty years on a straight-line basis. The acquisition has been accounted for under the purchase method and, accordingly, is included in the consolidated financial statements from its date of acquisition. The acquisition was funded through the Company's Credit Facility. -6-
Triumph Group, Inc. Notes to Consolidated Financial Statements (continued) (dollars in thousands, except per share data) (Unaudited) 4. INVENTORIES The components of inventories are as follows: <TABLE> <CAPTION> MARCH 31, JUNE 30, 1999 1999 ---- ---- <S> <C> <C> Raw materials $ 30,896 $ 36,945 Work-in-process 39,280 41,498 Finished goods 34,595 36,488 -------- -------- Total inventories $104,771 $114,931 -------- -------- -------- -------- </TABLE> Effective April 1, 1999, the Company's method of valuing all inventory was the lower of First-in First-out ("FIFO") cost or market. As of March 31, 1999, approximately 10% of the inventory was valued using the Last-in First-out ("LIFO") method. 5. LONG-TERM DEBT Long-term debt consists of the following: <TABLE> <CAPTION> MARCH 31, JUNE 30, 1999 1999 ---- ---- <S> <C> <C> Revolving credit facility $76,095 $ 93,025 Subordinated promissory notes 11,734 11,139 Industrial revenue bonds 4,665 4,330 Capital lease obligations 28 8,638 Other debt 486 496 ------- -------- 93,008 117,628 Less current portion 1,151 2,443 ------- -------- $91,857 $115,185 ------- -------- ------- -------- </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. -7-
Triumph Group, Inc. Notes to Consolidated Financial Statements (continued) (dollars in thousands, except per share data) (Unaudited) 6. COMMITMENTS AND CONTINGENCIES Certain of the Company's business operations and facilities are subject to a number of federal, state, and local environmental laws and regulations. The Company is indemnified for environmental liabilities related to assets purchased from IKON Office Solutions, Inc. (formerly Alco Standard Corporation) which existed prior to the acquisition of such assets and any unidentified environmental liabilities which arise subsequent to the date of 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. 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 JUNE 30, -------- (in thousands) 1998 1999 ---- ---- <S> <C> <C> Weighted average common shares outstanding 11,898 11,737 Net effect of dilutive stock options 144 68 Net effect of dilutive warrant 650 650 ------ ------ Weighted average common shares outstanding - assuming dilution 12,692 12,455 ------ ------ ------ ------ </TABLE> Options to purchase 203,500 shares of common stock, at prices ranging from $32.19 per share to $45.38 per share, were outstanding during the first 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 June 30, 1999 and, therefore, the effect would be antidilutive. Also, warrants to purchase up to 60,000 share 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 first 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 June 30, 1999. -8-
Triumph Group, Inc. Notes to Consolidated Financial Statements (continued) (dollars in thousands, except per share data) (Unaudited) 8. SEGMENT REPORTING Selected financial information for each reportable segment is as follows: <TABLE> <CAPTION> THREE MONTHS ENDED JUNE 30, -------- 1998 1999 ---- ---- <S> <C> <C> Net Sales: Aviation $ 74,057 $86,055 Metals 17,083 18,839 -------- ------- $ 91,140 $104,894 -------- ------- -------- ------- Income before income taxes: Operating income (expense): Aviation $ 13,419 $14,669 Metals 754 930 Corporate (1,015) (777) -------- ------- 13,158 14,822 Interest expense and other 705 1,855 -------- ------- $ 12,453 $12,967 -------- ------- -------- ------- Capital expenditures: Aviation $ 4,394 $ 4,135 Metals 224 372 Corporate 34 - -------- ------- $ 4,652 $ 4,507 -------- ------- -------- ------- Depreciation and amortization: Aviation $ 2,615 $ 4,419 Metals 257 295 Corporate 15 12 -------- ------- $ 2,887 $ 4,726 -------- ------- -------- ------- </TABLE> <TABLE> <CAPTION> March 31, 1999 June 30, 1999 -------------- ------------- <S> <C> <C> Assets: Aviation $395,745 $429,279 Metals 31,228 30,793 Corporate 1,884 4,071 -------- -------- $428,857 $464,143 -------- -------- -------- -------- </TABLE> During the quarters ended June 30, 1998 and 1999, the Company had foreign sales of $15,921 and $11,677, respectively. 9. SUBSEQUENT EVENT On August 12 and 13, 1999 the Company repurchased an additional 50,000 and 24,000 shares of its Common stock, respectively. The aggregate purchase price was $1,745. -9-
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 JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998 AVIATION GROUP NET SALES. Net sales for the Aviation Group increased by $12.0 million, or 16.2%, to $86.1 million for the first quarter of fiscal 2000 from $74.1 million for the first quarter of fiscal 1999. This increase was due to the inclusion of an aggregate of $19.2 million in net sales in the first quarter of fiscal 2000 for Nu-Tech Industries, Inc. ("Nu-Tech"), DG Industries, Inc. ("DG"), DV Industries, Inc. ("DV"), Triumph Air Repair (Europe) Ltd. ("Triumph Air (Europe)"), HTD Aerospace, Inc. ("HTD") and Triumph Precision, Inc. ("Triumph Precision"), (collectively, the "1999 Acquisitions") and Ralee Engineering Company ("Ralee"). Net sales for the other operating divisions and subsidiaries in the Aviation Group experienced a 9.7% decrease, totaling $7.2 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. COSTS OF PRODUCTS SOLD. Costs of products sold for the Aviation Group increased by $7.5 million, or 15.1%, to $57.0 million for the first quarter of fiscal 2000 from $49.5 million for the first quarter fiscal 1999. This increase was due to the inclusion of $11.0 million in the first quarter of fiscal 2000 of costs of products sold associated with net sales generated by the 1999 Acquisitions and Ralee. Costs of products sold for the other operating divisions and subsidiaries in the Aviation Group decreased by $3.5 million, or 7.1%, due to the decline in shipments for Boeing commercial airplane programs discussed above. GROSS PROFIT. Gross profit for the Aviation Group increased by $4.5 million, or 18.4%, to $29.0 million for the first quarter of fiscal 2000 from $24.5 million for the first quarter of fiscal 1999. This increase was due to the inclusion of $8.2 million in the first quarter of fiscal 2000 of gross profit on the net sales generated by the 1999 Acquisitions and Ralee. The remaining net decrease of $3.6 million was due to reasons discussed above. As a percentage of net sales, gross profit for the Aviation Group was 33.7% and 33.1% for the first quarter of fiscal 2000 and 1999, respectively. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses for the Aviation Group increased by $1.5 million, or 17.2%, to $9.9 million for the first quarter of fiscal 2000 from $8.5 million for the first quarter of fiscal 1999, primarily due to the 1999 Acquisitions and Ralee. DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the Aviation Group increased by $1.8 million, or 69.0%, to $4.4 million for the first quarter of fiscal 2000 from $2.6 million for the first quarter of fiscal 1999, primarily due to the assets acquired in connection with the 1999 Acquisitions and Ralee. OPERATING INCOME. Operating income for the Aviation Group increased by $1.3 million, or 9.3%, to $14.7 million for the first quarter of fiscal 2000 from $13.4 million for the first quarter of fiscal 1999. This increase was primarily due to the addition of net sales and profits generated by the 1999 Acquisitions and Ralee. All other operating divisions and subsidiaries in the Aviation group experienced a 27.0% 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 17.0% for the first quarter of fiscal 2000 and 18.1% for the first quarter of fiscal 1999. -10-
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 $1.8 million, or 10.3%, to $18.8 million for the first quarter of fiscal 2000 from $17.1 million for the first quarter of fiscal 1999. This increase was mainly due to an increase activity at the Company's structural steel erection operation. COSTS OF PRODUCTS SOLD. Costs of products sold for the Metals Group increased by $1.4 million, or 10.4%, to $14.9 million for the first quarter of fiscal 2000 from $13.5 million for the first quarter of fiscal 1999. This increase mainly was due to the increase in activity at the Company's structural steel erection operation. GROSS PROFIT. Gross profit for the Metals Group increased by $0.4 million, or 9.8%, to $4.0 million for fiscal 2000 from $3.6 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 21.0% and 21.1% for the first quarter of fiscal 2000 and fiscal 1999, respectively. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses for the Metals Group increased by $0.1 million, or 5.4%, to $2.7 million from $2.6 million in the first quarter of fiscal 1999. DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the Metals Group remained unchanged at $0.3 million for the first quarter of fiscal 2000 from the first quarter of fiscal 1999. OPERATING INCOME. Operating income for the Metals Group increased by $0.2 million, or 23.3%, to $0.9 million for the first quarter of fiscal 2000 from $0.8 million for the first quarter of fiscal 1999, due to the reasons discussed above. As a percentage of net sales, operating income for the Metals Group was 4.9% and 4.4% for the first quarter of fiscal 2000 and 1999, respectively. OVERALL RESULTS CORPORATE EXPENSES. Corporate expenses decreased by $0.2 million, or 23.4%, to $0.8 million for the first quarter of fiscal 2000 from $1.0 million for the first quarter of fiscal 1999. INTEREST EXPENSE AND OTHER. Interest expense and other increased by $1.2 million, or 163.1%, to $1.9 million for the first quarter of fiscal 2000 from $0.7 million for the first quarter of fiscal 1999. This increase was primarily due to increased debt levels associated with the 1999 Acquisitions and the acquisition of Ralee, the cash portions of which were financed by borrowings under the Company's Credit Facility. INCOME TAX EXPENSE. The effective tax rate was 36.5% for the first quarter of fiscal 2000 and 39.0% for the first quarter of fiscal 1999. The first quarter of fiscal 2000 effective tax rate is comparable to the third and fourth quarters of fiscal 1999 effective tax rates of 37.0% in each of those quarters. NET INCOME. Net income increased by $0.6 million, or 8.4%, to $8.2 million for the first quarter of fiscal 2000 from $7.6 million for the first quarter of fiscal 1999. The increase in first quarter 2000 net income was primarily attributable to the 1999 Acquisitions and Ralee, partially offset by the reduced earnings of the remaining Aviation Group operating units due to the decline in shipments for Boeing commercial airplane programs discussed above. -11-
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 $8.2 million of cash flows from operating activities for the three months ended June 30, 1999. The Company used approximately $17.5 million in investing activities and raised $11.7 million in financing activities for the three months ended June 30, 1999. On June 11, 1999, the Company amended and restated its Credit Facility ("New Credit Facility") with its Lenders to increase the Credit Facility to $250.0 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, 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 June 30, 1999, $155.6 million was available under the New Credit Facility. On June 30, 1999, an aggregate amount of approximately $93.0 million was outstanding under the New Credit Facility, $85.0 million of which was accruing interest at LIBOR plus applicable basis points totaling 6.0% per annum, and $8.0 million of which was accruing interest at the prime rate of 7.75% per annum. Amounts repaid under the New Credit Facility may be reborrowed. In the first quarter of fiscal 2000, the Company acquired all of the outstanding stock of 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 purchase price for this acquisition, net of cash acquired, of approximately $13.0 million was funded by borrowings under the Company's Credit Facility. Also, in connection with this 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. 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. In August 1999, 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 $4.5 million for the three months ended June 30, 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 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 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. -12-
Management's Discussion And Analysis of Financial Condition and Results of Operations (continued) The Company has recognized the need to ensure that its business operations will not be adversely affected by the upcoming calendar year 2000 date change and is cognizant of the time sensitive nature of the problem. The Company's operating units have assessed or are in the process of assessing how each may be impacted by Year 2000 and have formulated and commenced or are formulating and commencing implementation of a comprehensive plan to address all known aspects of the Year 2000 problem: information systems, production and facilities equipment, suppliers and customers. The Company's operating units are currently making inquiries of customers and suppliers to assess their Year 2000 readiness. The operating units are also in the process of testing information technology ("IT") systems, as well as non-IT systems, and verifying that vendor-supplied or outsourced systems will be Year 2000 compliant and will repair or replace any such systems found to be non-compliant. Currently, the Company estimates that, on a consolidated basis, it has substantially completed its assessment of how it may be impacted 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 substantially 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 June 30, 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 $0.6 million. The estimated costs yet to be incurred are approximately $0.4 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. -13-
Management's Discussion And Analysis of Financial Condition and Results of Operations (continued) FORWARD LOOKING STATEMENTS This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 relating to the Company's future operations and prospects, including statements that are based on current projections and expectations about the markets in which the Company operates, and management's beliefs concerning future performance and capital requirements based upon current available information. Such statements are based on management's beliefs as well as assumptions made by and information currently available to management. When used in this document, words like "may", "might", "will", "expect", "anticipate", "believe", "potential", and similar expressions are intended to 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. 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. -14-
TRIUMPH GROUP, INC. Part II. Other Information Item 1. Legal Proceedings Not applicable Item 2. Changes in Securities Not applicable Item 3. Defaults upon Senior Securities Not applicable Item 4. Submission of Matters to a Vote of Security Holders Not applicable Item 5. Other Information Not applicable Item 6. Exhibits and Reports on Form 8-K A. Exhibits (27) Financial Data Schedule B. Reports on Form 8-K The Company did not file any reports on Form 8-K during the three months ended June 30, 1999 -15-
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: August 13, 1999 -16-