10-Q 1 a2030208z10-q.txt QUARTERLY REPORT 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 September 30, 2000. 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, 8,330,224 shares and Class D common stock, par value $0.001 per share, 3,348,535 shares, each as of November 1, 2000 TRIUMPH GROUP, INC. INDEX
PAGE NUMBER Part I. Financial Information Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets 1 March 31, 2000 and September 30, 2000 Consolidated Statements of Income 3 Three months ended September 30, 1999 and 2000 Six months ended September 30, 1999 and 2000 Consolidated Statements of Cash Flows 4 Six months ended September 30, 1999 and 2000 Notes to Consolidated Financial Statements 6 September 30, 2000 Item 2. Management's Discussion and Analysis of Financial 11 Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures About 16 Market Risk Part II. Other Information Item 1. Legal Proceedings 17 Item 2. Changes in Securities 17 Item 3. Defaults upon Senior Securities 17 Item 4. Submission of Matters to a Vote of Security Holders 17 Item 5. Other Information 18 Item 6. Exhibits and Reports on Form 8-K 18 Signature Page 19
Part I. Financial Information Item: 1. Financial Statements Triumph Group, Inc. Consolidated Balance Sheets (dollars in thousands, except per share data)
MARCH 31, SEPTEMBER 30, 2000 2000 -------- ------------- (unaudited) ASSETS Current assets: Cash $ 6,279 $ 6,325 Accounts receivable, net 78,960 87,909 Inventories 123,750 164,301 Prepaid expenses and other 4,730 5,239 -------- -------- Total current assets 213,719 263,774 Property and equipment, net 122,787 157,410 Excess of cost over net assets acquired, net 144,027 197,424 Intangible assets and other, net 26,398 77,222 -------- -------- Total assets $506,931 $695,830 ======== ========
-1- Triumph Group, Inc. Consolidated Balance Sheets (continued) (dollars in thousands, except per share data)
MARCH 31, SEPTEMBER 30, 2000 2000 --------- ----------- (unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 34,996 $ 70,066 Accrued expenses 45,316 52,909 Income taxes payable 2,899 4,041 Deferred income taxes 1,365 2,707 Current portion of long-term debt 4,856 30,987 --------- --------- Total current liabilities 89,432 160,710 Long-term debt, less current portion 133,952 232,740 Deferred income taxes and other 39,177 40,937 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, 229,175 and 223,237 shares (5,580) (5,436) Accumulated other comprehensive loss (684) (1,179) Retained earnings 115,204 132,628 --------- --------- Total stockholders' equity 244,370 261,443 --------- --------- Total liabilities and stockholders' equity $ 506,931 $ 695,830 ========= =========
SEE ACCOMPANYING NOTES. -2- Triumph Group, Inc. Consolidated Statements of Income (in thousands, except per share data) (unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------- ------------------- 1999 2000 2000 1999 -------- -------- -------- -------- Net sales $110,276 $131,563 $215,170 $260,559 Operating costs and expenses: Cost of products sold 76,370 89,288 148,281 176,930 Selling, general, and administrative 13,882 16,602 27,317 33,569 Depreciation and amortization 4,790 6,194 9,516 12,609 -------- -------- -------- -------- 95,042 112,084 185,114 223,108 Operating income 15,234 19,479 30,056 37,451 Interest expense and other 2,316 4,917 4,171 9,760 -------- -------- -------- -------- Income before income taxes 12,918 14,562 25,885 27,691 Income tax expense 4,728 5,389 9,460 10,247 -------- -------- -------- -------- Net income $ 8,190 $ 9,173 $ 16,425 $ 17,444 ======== ======== ======== ======== Earnings Per Share -- Basic: Net income $ 0.70 $ 0.79 $ 1.40 $ 1.49 ======== ======== ======== ======== Weighted average common shares outstanding -- Basic 11,692 11,676 11,712 11,674 ======== ======== ======== ======== Earnings Per Share -- Assuming Dilution: Net income $ 0.66 $ 0.74 $ 1.32 $ 1.41 ======== ======== ======== ======== Weighted average common shares outstanding -- Assuming Dilution 12,397 12,426 12,423 12,411 ======== ======== ======== ========
SEE ACCOMPANYING NOTES. -3- Triumph Group, Inc. Consolidated Statements of Cash Flows (dollars in thousands) (unaudited)
SIX MONTHS ENDED SEPTEMBER 30, ------------------------------ 1999 2000 ---- ---- OPERATING ACTIVITIES Net income $ 16,425 $ 17,444 Adjustments to reconcile net income to net cash Provided by operating activities: Depreciation and amortization 9,516 12,609 Provision for deferred income taxes 3,267 4,174 Interest on subordinated and junior subordinated promissory notes paid by issuance of additional notes 444 493 Changes in other current assets and liabilities, net of acquisitions of businesses: Accounts receivable (360) 729 Inventories (7,647) (16,363) Prepaid expenses and other (990) 710 Accounts payable, accrued expenses, and accrued income taxes payable (8,261) (9,541) Other (462) (3,943) ------- -------- Net cash provided by operating activities 11,932 6,312 INVESTING ACTIVITIES Capital expenditures, net (7,113) (10,675) Proceeds from sale of assets 5,794 -- Cash used for businesses acquired (22,419) (90,871) ------- -------- Net cash used in investing activities (23,738) (101,546)
-4- Triumph Group, Inc. Consolidated Statements of Cash Flows (continued) (dollars in thousands) (unaudited)
SIX MONTHS ENDED SEPTEMBER 30, ------------------------------ 1999 2000 ---- ---- FINANCING ACTIVITIES Net increase in revolving credit facility borrowings $ 19,506 $ 97,564 Repayment of debt and capital lease obligations (1,758) (2,408) Purchase of treasury stock (4,611) -- Payments of deferred financing costs (963) -- Proceeds from exercise of stock options 141 124 -------- -------- Net cash provided by financing activities 12,315 95,280 -------- -------- Net change in cash 509 46 Cash at beginning of period 4,953 6,279 -------- -------- Cash at end of period $ 5,462 $ 6,325 ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for income taxes $ 7,062 $ 6,533 Cash paid for interest 3,808 8,789
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 accounting principals generally accepted in the United States 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 six month periods ended September 30, 2000 are not necessarily indicative of the results that may be expected for the fiscal year ended March 31, 2001. 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, 2000. 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. USE OF ESTIMATES The preparation of the financial statements in conformity with accounting principles generally accepted in the United States 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, 2000, the Company acquired all of the outstanding stock of ACR Industries, Inc. ("ACR"), Chem-Fab Corporation ("Chem-Fab") and Airborne Nacelle Services, Inc. ("Airborne Nacelle"). In May 2000, the Company acquired certain assets from the Anadite California Restoration Trust ("Anadite Assets"). On September 30, 2000, the Company acquired certain product rights and assets associated with hydraulic systems and auxiliary power units (APU's), from Honeywell International, Inc., (the "Honeywell Acquisitions") (collectively the "2001 Acquisitions"). ACR, located in Macomb, Michigan, is a leading manufacturer of complex geared assemblies including gas turbine jet engine gear boxes, helicopter transmissions, geared systems for fixed-winged aircraft and other related components. Chem-Fab and Airborne Nacelle, both located in Hot-Springs, Arkansas, together process sheet metal and other structural parts and assemblies for the aerospace industry. The Anadite Assets, which will be relocated to several of the Company's existing operating facilities, will provide anodizing, chemical film coating, phosphate flouride coating, passivation, liquid penetrant inspection, hardness testing, conductivity testing, thermal optical properties testing and painting to the aerospace industry. The Honeywell product rights and assets, which will be relocated from Honeywell International, Inc.'s Rocky Mount, North Carolina facility ot Triumph's Frisby Aerospace, Inc. subsidiary, located in Clemmons, North Carolina, are used in connection with the design, manufacture and overhaul of hydraulic pumps, motors and power transfer units. The Honeywell product rights and assets by which Triumph becomes the exclusive designated 700 APU Factory Service Center and exclusive distributor of new 660 APU products will be transferred to Triumph's Triumph Air Repair facility located in Phoenix, Arizona. The combined purchase price for the 2001 Acquisitions was $163,454. The purchase price includes cash paid at closing, the assumption of debt and certain liabilities, direct costs of the acquisitions and deferred payments. Included in accounts payable at September 30, 2000 is $32,000 representing checks issued at closing which were outstanding at September 30, 2000. -6- Triumph Group, Inc. Notes to Consolidated Financial Statements (continued) (dollars in thousands, except per share data) (Unaudited) 3. ACQUISITIONS (Continued) Except for the Honeywell Acquisitions, the combined excess of the purchase price over the estimated fair value of the net assets acquired of $54,398 was recorded as excess of cost over net assets acquired and is being amortized over thirty years on a straight-line basis. The excess of the purchase price over the estimated fair value of the tangible assets acquired in the Honeywell Acquisitions of $50,175 has been recorded as intangibles. The intangibles related to the hydraulic systems are being amortized over 30 years and the intangibles related to the APU product rights are being amortized over 10 years. These acquisitions have been accounted for under the purchase method and, accordingly, are included in the consolidated financial statements from their dates of acquisition. These acquisitions were funded by the Company's long-term borrowings in place at the date of each respective acquisition. In fiscal 2000, the Company acquired all of the outstanding stock of Ralee Engineering Company, Construction Brevitees d'Alfortville, and Lee Aerospace, Inc. 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 Acqusitions"). For more information about the 2000 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, 2000. The following unaudited pro forma information has been prepared assuming the 2001 Acquisitions and the 2000 Acquisitions had occurred on April 1, 1999.
SIX MONTHS ENDED SEPTEMBER 30, ------------------------------ 1999 2000 ---- ---- Net sales $280,176 $275,997 Net income 20,171 19,333 Earnings per common share Basic 1.72 1.66 Diluted 1.62 1.56
The pro forma effects of the acquisitions of the Anadite Assets and the product rights for the 700 APU from Honeywell International, Inc. are not included in the above pro forma amounts because the required information is not available. The unaudited pro forma information includes adjustments for interest expense that would have been incurred to finance the purchases, additional depreciation based on the estimated fair market value of the property and equipment acquired, and the amortization of the intangible assets and excess of cost over net assets acquired arising from the transactions. The unaudited pro forma financial information is not necessarily indicative of the results of operations as they would have been had the transactions been effected on the assumed dates. 4. INVENTORIES The components of inventories are as follows:
MARCH 31, SEPTEMBER 30, 2000 2000 -------- -------- Raw materials $ 34,195 $ 41,226 Work-in-process 46,189 80,864 Finished goods 43,366 42,211 -------- -------- Total inventories $123,750 $164,301 ======== ========
-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:
MARCH 31, SEPTEMBER 30, 2000 2000 -------- -------- Revolving credit facility $107,204 $204,768 Subordinated promissory notes 17,686 45,463 Industrial revenue bonds 5,497 5,089 Capital lease obligations 7,661 7,203 Other debt 760 1,204 -------- -------- 138,808 263,727 Less current portion 4,856 30,987 -------- -------- $133,952 $232,740 ======== ========
Effective September 30, 2000, in connection with the Honeywell Acquisitions, the Company assumed approximately $27,000 of seller financing due December 31, 2000. 6. 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:
THREE MONTHS ENDED SIX MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------ --------------- (in thousands) 1999 2000 1999 2000 ------ ------ ------ ------ Weighted average common shares outstanding 11,692 11,676 11,712 11,674 Net effect of dilutive stock options 55 100 61 87 Net effect of dilutive warrant 650 650 650 650 ------ ------ ------ ------ Weighted average common shares outstanding -- assuming dilution 12,397 12,426 12,423 12,411 ====== ====== ====== ======
Options to purchase 147,650 shares of common stock, at prices ranging from $31.38 per share to $44.88 per share, were outstanding during the second quarter of fiscal 2001. 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 September 30, 2000 and, therefore, the effect would be antidilutive. -8- Triumph Group, Inc. Notes to Consolidated Financial Statements (continued) (dollars in thousands, except per share data) (Unaudited) 7. SEGMENT REPORTING Selected financial information for each reportable segment is as follows:
THREE MONTHS ENDED SIX MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------- ---------------------- 1999 2000 1999 2000 --------- --------- --------- --------- Net Sales: Aviation $ 91,728 $ 115,222 $ 177,783 $ 228,062 Metals 18,548 16,341 37,387 32,497 --------- --------- --------- --------- $ 110,276 $ 131,563 $ 215,170 $ 260,559 ========= ========= ========= ========= Income before income taxes: Operating income (expense): Aviation $ 15,181 $ 19,965 $ 29,850 $ 38,069 Metals 998 731 1,928 1,655 Corporate (945) (1,217) (1,722) (2,273) --------- --------- --------- --------- 15,234 19,479 30,056 37,451 Interest expense and other 2,316 4,917 4,171 9,760 --------- --------- --------- --------- $ 12,918 $ 14,562 $ 25,885 $ 27,691 ========= ========= ========= ========= Capital expenditures: Aviation $ 2,353 $ 3,538 $ 6,488 $ 8,067 Metals 244 1,785 616 2,584 Corporate 9 15 9 24 --------- --------- --------- --------- $ 2,606 $ 5,338 $ 7,113 $ 10,675 ========= ========= ========= ========= Depreciation and amortization: Aviation $ 4,481 $ 5,883 $ 8,900 $ 11,986 Metals 297 293 592 587 Corporate 12 18 24 36 --------- --------- --------- --------- $ 4,790 $ 6,194 $ 9,516 $ 12,609 ========= ========= ========= =========
MARCH 31, SEPTEMBER 30, 2000 2000 -------- -------- Assets: Aviation $477,374 $663,384 Metals 27,410 30,087 Corporate 2,147 2,359 -------- -------- $506,931 $695,830 ======== ========
For the three months ended September 30, 1999 and 2000, the Company had foreign sales of $17,116 and $24,868, respectively. For the six months ended September 30, 1999 and 2000, the Company had foreign sales of $33,037 and $47,139, respectively. -9- Triumph Group, Inc. Notes to Consolidated Financial Statements (continued) (dollars in thousands, except per share data) (Unaudited) 8. SUBSEQUENT EVENT On October 16, 2000, the Company amended its revolving credit facility ("Credit Facility") with its lenders to increase the Credit Facility to $350,000 from $250,000 and amend certain terms and covenants. -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 SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1999 AVIATION SEGMENT NET SALES. Net sales for the Aviation Segment increased by $23.5 million, or 25.6%, to $115.2 million for the second quarter of fiscal 2001 from $91.7 million for the second quarter of fiscal 2000. This increase was due to the inclusion of an aggregate of $23.8 million and $1.4 million in net sales in the second quarter of fiscal 2001 and 2000, respectively, for Lee Aerospace, Inc. ("Lee"), Triumph Components - San Diego, Inc. ("Triumph Components") and Construction Brevitees d'Alfortville ("CBA") (collectively the "2000 Acquisitions") and ACR Industries, Inc. ("ACR"), Chem-Fab Corporation ("Chem-Fab") and Airborne Nacelle Services, Inc. ("Airborne Nacelle") (collectively the "2001 Acquisitions"). Net sales for the other operating divisions and subsidiaries in the Aviation Segment increased by $1.1 million, or 1.2%, from the prior year period. COSTS OF PRODUCTS SOLD. Costs of products sold for the Aviation Segment increased by $14.5 million, or 23.5%, to $76.3 million for the second quarter of fiscal 2001 from $61.8 million for the second quarter fiscal 2000. This increase was due to the inclusion of $15.8 million and $0.9 million in the second quarter of fiscal 2001 and 2000, respectively, of costs of products sold associated with net sales generated by the 2000 Acquisitions and the 2001 Acquisitions. Costs of products sold for the other operating divisions and subsidiaries in the Aviation Segment decreased by $0.4 million, or 0.7% from the prior year period. GROSS PROFIT. Gross profit for the Aviation Segment increased by $9.0 million, or 30.0%, to $38.9 million for the second quarter of fiscal 2001 from $30.0 million for the second quarter of fiscal 2000. This increase was due to the inclusion of $8.0 million and $0.5 million in the second quarter of fiscal 2001, and 2000, respectively, of gross profit on the net sales generated by the 2000 Acquisitions and the 2001 Acquisitions. Gross profit for the other operating divisions and subsidiaries increased by $1.5 million, or 5.0%, over the prior year period. As a percentage of net sales, gross profit for the Aviation Segment was 33.8% for the second quarter of fiscal 2001 and 32.7% for the second quarter of fiscal 2000. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses for the Aviation Segment increased by $2.8 million, or 27.2%, to $13.1 million for the second quarter of fiscal 2001 from $10.3 million for the second quarter of fiscal 2000, primarily due to the 2000 Acquisitions and the 2001 Acquisitions. DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the Aviation Segment increased by $1.4 million, or 31.3%, to $5.9 million for the second quarter of fiscal 2001 from $4.5 million for the second quarter of fiscal 2000, primarily due to the assets acquired in connection with the 2000 Acquisitions and the 2001 Acquisitions. OPERATING INCOME. Operating income for the Aviation Segment increased by $4.8 million, or 31.5%, to $20.0 million for the second quarter of fiscal 2001 from $15.2 million for the second quarter of fiscal 2000. This increase was primarily due to the addition of net sales and profits generated by the 2000 Acquisitions and the 2001 Acquisitions. The other operating divisions and subsidiaries in the Aviation Segment as a group experienced a 4.6% increase in operating income from the prior year. As a percentage of net sales, operating income for the Aviation Segment was 17.3% for the second quarter of fiscal 2001 and 16.6% for the second quarter of fiscal 2000. -11- Management's Discussion And Analysis of Financial Condition and Results of Operations (continued) METALS SEGMENT NET SALES. Net sales for the Metals Segment decreased by $2.2 million, or 11.9%, to $16.3 million for the second quarter of fiscal 2001 from $18.5 million for the second quarter of fiscal 2000. This decrease was mainly due to import pricing pressures and lower volume at the Company's electro-galvanized steel operation. COSTS OF PRODUCTS SOLD. Costs of products sold for the Metals Segment decreased by $1.6 million, or 10.9%, to $13.0 million for the second quarter of fiscal 2001 from $14.6 million for the second quarter of fiscal 2000. This decrease mainly was due to the decrease in volume at the Company's electro-galvanized steel operation. GROSS PROFIT. Gross profit for the Metals Segment decreased by $0.6 million, or 15.5%, to $3.3 million for fiscal 2001 from $4.0 million for the prior year period, due to the reasons discussed above. As a percentage of net sales, gross profit for the Metals Segment was 20.4% and 21.3% for the second quarter of fiscal 2001 and fiscal 2000, respectively. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses for the Metals Segment decreased by $0.3 million, or 12.9%, to $2.3 million from $2.7 million in the second quarter of fiscal 2000. DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the Metals Segment remained unchanged at $0.3 million for the second quarter of fiscal 2001 from the second quarter of fiscal 2000. OPERATING INCOME. Operating income for the Metals Segment decreased by $0.3 million, or 26.8%, to $0.7 million for the second quarter of fiscal 2001 from $1.0 million for the second quarter of fiscal 2000, due to the reasons discussed above. As a percentage of net sales, operating income for the Metals Segment was 4.5% and 5.4% for the second quarter of fiscal 2001 and 2000, respectively. OVERALL RESULTS CORPORATE EXPENSES. Corporate expenses increased by $0.3 million, or 28.8%, to $1.2 million for the second quarter of fiscal 2001 from $0.9 million for the second quarter of fiscal 2000. INTEREST EXPENSE AND OTHER. Interest expense and other increased by $2.6 million, or 112.3%, to $4.9 million for the second quarter of fiscal 2001 from $2.3 million for the second quarter of fiscal 2000. This increase was primarily due to increased debt levels associated with the 2000 Acquisitions and the 2001 Acquisitions, the cash portions of which were financed by borrowings under the Company's Credit Facility, as well as a slightly higher rate on the Company's amended and restated credit facility ("Credit Facility"). INCOME TAX EXPENSE. The effective tax rate was 37.0% for the second quarter of fiscal 2001 and 36.6% for the second quarter of fiscal 2000. NET INCOME. Net income increased by $1.0 million, or 12.0%, to $9.2 million for the second quarter of fiscal 2001 from $8.2 million for the second quarter of fiscal 2000. The increase in second quarter 2001 net income was primarily attributable to the 2000 Acquisitions and the 2001 Acquisitions, partially offset by the increased interest expense due to the increased debt levels associated with the 2000 Acquisitions and the 2001 Acquisitions. -12- Management's Discussion And Analysis of Financial Condition and Results of Operations (continued) SIX MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO SIX MONTHS ENDED SEPTEMBER 30, 1999 AVIATION SEGMENT NET SALES. Net sales for the Aviation Segment increased by $50.3 million, or 28.3%, to $228.1 million for the six months ended September 30, 2000 from $177.8 million for the six months ended September 30, 1999. This increase was due to the inclusion of an aggregate of $50.3 million and $1.4 million in net sales in the first six months of fiscal 2001 and 2000, respectively, generated by the 2000 Acquisitions and the 2001 Acquisitions. Net sales for the other operating divisions and subsidiaries in the Aviation Segment increased by $1.4 million, or 0.8%, over the prior year period. COSTS OF PRODUCTS SOLD. Costs of products sold for the Aviation Segment increased by $32.9 million, or 27.7%, to $151.7 million for the first six months of fiscal 2001 from $118.8 million for the first six months of fiscal 2000. This increase was due to the inclusion of $32.9 million and $0.9 million in the first six months of fiscal 2001 and 2000, respectively, of costs of products sold associated with net sales generated by the 2000 Acquisitions and the 2001 Acquisitions. Costs of products sold for the other operating divisions and subsidiaries in the Aviation Segment increased by $0.9 million, or 0.8%, over the prior year period. GROSS PROFIT. Gross profit for the Aviation Segment increased by $17.4 million, or 29.5%, to $76.3 million for the first six months of fiscal 2001 from $59.0 million for the first six months of fiscal 2000. This increase was due to the inclusion of $17.3 million and $0.5 million in the first six months of fiscal 2001 and 2000, respectively, of gross profit on the net sales generated by the 2000 Acquisitions and the 2001 Acquisitions. Gross profit for the other operating divisions and subsidiaries increased by $0.5 million, or 0.8%, over the prior year period. As a percentage of net sales, gross profit for the Aviation Segment was 33.5% and 33.2% for the first six months of fiscal 2001 and 2000, respectively. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses for the Aviation Segment increased by $6.1 million, or 30.0%, to $26.3 million for the first six months of fiscal 2001 from $20.2 million for the first six months of fiscal 2000, primarily due to the 2000 Acquisitions and the 2001 Acquisitions. DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the Aviation Segment increased by $3.1 million, or 34.7%, to $12.0 million for the first six months of fiscal 2001 from $8.9 million for the first six months of fiscal 2000, primarily due to the assets acquired in connection with the 2000 Acquisitions and the 2001 Acquistions. OPERATING INCOME. Operating income for the Aviation Segment increased by $8.2 million, or 27.5%, to $38.1 million for the first six months of fiscal 2001 from $29.9 million for the first six months of fiscal 2000. This increase was primarily due to the addition of net sales and profits generated by the 2000 Acquisitions and the 2001 Acquisitions. The other operating divisions and subsidiaries in the Aviation Segment as a group experienced a 2.6% decline in operating income from the prior year mainly due to higher depreciation expense. As a percentage of net sales, operating income for the Aviation Segment was 16.7% for the first six months of fiscal 2001 and 16.8% for the first six months of fiscal 2000. -13- Management's Discussion And Analysis of Financial Condition and Results of Operations (continued) METALS SEGMENT NET SALES. Net sales for the Metals Segment decreased by $4.9 million, or 13.1%, to $32.5 million for the first six months of fiscal 2001 from $37.4 million for the first six months of fiscal 2000. This decrease was mainly due to decreased activity at the Company's structural steel erection operation and import pricing pressures and lower volume at the Company's electro-galvanized steel operation. COSTS OF PRODUCTS SOLD. Costs of products sold for the Metals Segment decreased by $4.3 million, or 14.5%, to $25.2 million for the first six months of fiscal 2001 from $29.5 million for the first six months of fiscal 2000. This decrease mainly was due to the decrease in activity at the Company's structural steel erection operation and the lower volume at the Company's electro-galvanized steel operation. GROSS PROFIT. Gross profit for the Metals Segment decreased by $0.6 million, or 7.9%, to $7.3 million for the first six months of fiscal 2001 from $7.9 million for the prior year period, due to the reasons discussed above. As a percentage of net sales, gross profit for the Metals Segment was 22.4% and 21.2% for the first six months of fiscal 2001 and fiscal 2000, respectively. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses for the Metals Segment decreased by $0.4 million, or 6.5%, to $5.0 million from $5.4 million in the first six months of fiscal 2000. DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the Metals Segment remained unchanged from the prior year period at $0.6 million for the six months ended September 30, 2000. OPERATING INCOME. Operating income for the Metals Segment decreased by $0.3 million, or 14.2%, to $1.7 million for the first six months of fiscal 2001 from $1.9 million for the first six months of fiscal 2000, due to the reasons discussed above. As a percentage of net sales, operating income for the Metals Segment was 5.1% and 5.2% for the first six months of fiscal 2001 and 2000, respectively. OVERALL RESULTS CORPORATE EXPENSES. Corporate expenses increased by $0.6 million, or 32.0%, to $2.3 million for the first six months of fiscal 2001 from $1.7 million for the first six months of fiscal 2000. INTEREST EXPENSE AND OTHER. Interest expense and other increased by $5.6 million, or 134.0%, to $9.8 million for the first six months of fiscal 2001 from $4.2 million for the first six months of fiscal 2000. This increase was primarily due to increased debt levels associated with the 2000 Acquisitions and the 2001 Acquisitions, the cash portions of which were financed by borrowings under the Company's Credit Facility, as well as a slightly higher rate on the Company's Credit Facility. INCOME TAX EXPENSE. The effective tax rate was 37.0% for the first six months of fiscal 2001 and 36.5% for the first six months of fiscal 2000. NET INCOME. Net income increased by $1.0 million, or 6.2%, to $17.4 million for the first six months of fiscal 2001 from $16.4 million for the first six months of fiscal 2000. The increase fiscal 2000 net income was primarily attributable to the 2000 Acquisitions and the 2001 Acquisitions, partially offset by the reduced earnings of the remaining Aviation Segment operating units and the increased interest expense due to the increased debt levels associated with the 2000 Acquisitions and the 2001 Acquisitions. -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 $6.3 million of cash flows from operating activities for the six months ended September 30, 2000. The Company used approximately $101.5 million in investing activities and raised $95.3 million in financing activities for the six months ended September 30, 2000. On October 16, 2000, the Company amended its revolving credit facility ("Credit Facility") with its lenders to increase the Credit Facility to $350.0 million from $250.0 million, and amend certain terms and covenants. As of September 30, 2000, $44.0 million was available under the Credit Facility. On September 30, 2000, an aggregate amount of approximately $204.8 million was outstanding under the Credit Facility, $200.0 million of which was accruing interest at LIBOR plus applicable basis points totaling 8.12% per annum, and $4.8 million of which was accruing interest at the prime rate of 9.5% per annum. Amounts repaid under the Credit Facility may be reborrowed. Effective April 1, 2000, the Company acquired all of the outstanding stock of ACR Industries, Inc., Chem-Fab Corporation and Airborne Nacelle Services, Inc. In May 2000, the Company acquired certain assets from the Anadite California Restoration Trust. The combined cash portion of the purchase prices paid at closing for these acquisitions of approximately $54.2 was funded by borrowings under the Company's Credit Facility. In connection with these acquisitions, the Company assumed $32.6 million of seller financing, which accrued interest at 7%, and $3.6 million of other debt. In July 2000, the Company retired $30.6 million of the assumed seller financing and approximately $3.2 million of the assumed other debt. These payments were funded by borrowings under the Credit Facility. Effective September 30, 2000, the Company acquired certain product rights and assets from Honeywell International, Inc. The Company paid $32.0 million at closing, which was included in accounts payable at September 30, 2000 and assumed $27.0 million of seller financing due December 31, 2000. Capital expenditures were approximately $10.7 million for the six months ended September 30, 2000 primarily for manufacturing machinery and equipment for the Aviation Segment. The Company funded these expenditures through borrowings under its Credit Facility. The Company expects capital expenditures to be approximately $20.0 million for its fiscal year ending March 31, 2001. The expenditures are expected to be used primarily to expand capacity at several facilities. The Company believes that cash generated by operations and borrowings under the Credit Facility will be sufficient to meet anticipated cash requirements for its current operations. However, the Company has a stated policy to grow through acquisition and is continuously evaluating various acquisition opportunities. As a result, the Company currently is pursuing the potential purchase of a number of candidates. In the event that more than one of these transactions are successfully consummated, the availability under the Credit Facility might be fully utilized and additional funding sources may be needed. There can be no assurance that such funding sources will be available to the Company on terms favorable to the Company, if at all. -15- 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 these expectations will be realized. Among other factors that could cause actual results to differ materially from expectations are competitive factors relating to the aviation and metals industries, dependence of certain of the Company's businesses on certain key customers, need for additional financing for acquisitions and capital expenditures on terms acceptable to the Company, cancellations, reductions or delays in customer orders, product liabilities in excess of the Company's insurance and general economic conditions affecting the Company's two business segments. For a more detailed discussion of these and other factors affecting the Company, see risk factors described in the Company's Annual Report on Form 10-K, for the year ended March 31, 2000, filed with the SEC in June 2000. 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, 2000. There has been no material change in this information. -16- TRIUMPH GROUP, INC. Part II. Other Information Item 1. Legal Proceedings On October 5, 2000, The Triumph Group Operations, Inc. settled the personal injury lawsuit pending in the U.S. District Court for the Eastern District of Virginia, Richmond, Virginia titled JOYCE W. CHANDLER V. WESTWARD INDUSTRIES, LTD., WHITE BEAR SALES, INC, GENUINE PARTS COMPANY T/A NAPA AUTO PARTS, THE IFH GROUP, INC., DELUXE TANK MFG. CO., STANT MANUFACTURING INC., AND THE TRIUMPH GROUP OPERATIONS D/B/A DELUXE SPECIALTIES MANUFACTURING, CO. The settlement amount was within the Company's product liability insurance limits. Final documentation reflecting the settlement and terminating the lawsuit and all claims against the Company has been prepared and will be filed with the court shortly. 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 The Company's Annual Meeting of Stockholders was held on July 26, 2000. At such meeting, the following matters were voted upon by the stockholders, receiving the number of affirmative, negative and withheld votes, as well as abstentions and broker non-votes, set forth below for each matter. 1. Election of six persons to the Company's Board of Directors to serve until the 2001 Annual Meeting of Stockholders and until their successors are elected and qualified. RICHARD C. ILL: 7,758,260 Affirmative 5,085 Against JOHN R. BARTHOLDSON: 7,749,844 Affirmative 13,501 Against CLAUDE F. KRONK: 7,758,365 Affirmative 4,980 Against RICHARD C. GOZON 7,758,365 Affirmative 4,980 Against JOSEPH M. SILVESTRI 7,596,174 Affirmative 167,171 Against WILLIAM O. ALBERTINI 7,749,819 Affirmative 13,526 Against -17- 2. Ratification of the selection of Ernst & Young LLP as independent public accountants for the Company for the fiscal year ending March 31, 2001. 7,745,240 Affirmative 15,255 Negative 2,850 Withheld Item 5. Other Information Not applicable Item 6. Exhibits and Reports on Form 8-K A. Exhibits (10.28) Employment Agreement with Richard C. Ill dated July 1, 1999 (a) (10.29) Employment Agreement with John R. Bartholdson dated July 1, 1999 (a) (10.30) Employment Agreement with Richard M. Eisenstaedt dated July 1, 1999 (a) (10.31) Amended and Restated Credit Agreement dated October 16, 2000 among Triumph Group, Inc., PNC Bank National Association as Administrative Agent, Bank of America, N.A. as Documentation Agent, First Union National Bank as Syndication Agent and Mellon Bank, N.A. as Co-Agent (10.32) Employment Agreement with Lawrence J. Resnick dated August 1, 2000. (27) Financial Data Schedule --------------- (a) Incorporated by reference to Triumph's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999. Reports on Form 8-K The Company did not file any reports on Form 8-K during the three months ended September 30, 2000 -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: November 13, 2000 -19-