10-Q 1 a2069960z10-q.txt FORM 10-Q United States Securities and Exchange Commission Washington, D.C. 20549 FORM 10-Q [x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Period Ended December 31, 2001. 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, 13,957,829 shares, and Class D common stock, par value $0.001 per share, 1,848,535 shares, each as of January 31, 2002. TRIUMPH GROUP, INC. INDEX Part I. Financial Information PAGE NUMBER ----------- Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets 1 December 31, 2001 and March 31, 2001 Consolidated Statements of Income 3 Three months ended December 31, 2001 and 2000 Nine months ended December 31, 2001 and 2000 Consolidated Statements of Cash Flows 4 Nine months ended December 31, 2001 and 2000 Notes to Consolidated Financial Statements 6 December 31, 2001 Item 2. Management's Discussion and Analysis of Financial 12 Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures About 17 Market Risk Part II. Other Information Item 1. Legal Proceedings 18 Item 2. Changes in Securities 18 Item 3. Defaults upon Senior Securities 18 Item 4. Submission of Matters to a Vote of Security Holders 18 Item 5. Other Information 18 Item 6. Exhibits and Reports on Form 8-K 18 Signatures 19 Part I. Financial Information Item: 1. Financial Statements Triumph Group, Inc. Consolidated Balance Sheets (dollars in thousands, except per share data)
DECEMBER 31, MARCH 31, 2001 2001 -------- -------- (unaudited) ASSETS Current assets: Cash $ 9,307 $ 4,819 Accounts receivable, net 100,342 115,666 Inventories 185,145 171,105 Prepaid expenses and other 9,117 7,060 -------- -------- Total current assets 303,911 298,650 Property and equipment, net 168,444 157,519 Excess of cost over net assets acquired 252,193 221,083 Intangible assets, net 35,693 38,833 Other, net 7,798 15,284 -------- -------- Total assets $768,039 $731,369 ======== ========
-1- Triumph Group, Inc. Consolidated Balance Sheets (continued) (dollars in thousands, except per share data)
DECEMBER 31, MARCH 31, 2001 2001 --------- --------- (unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 40,967 $ 52,168 Accrued expenses 45,896 53,011 Income taxes payable 7,728 4,894 Deferred income taxes 4,291 4,291 Current portion of long-term debt 11,033 6,017 --------- --------- Total current liabilities 109,915 120,381 Long-term debt, less current portion 167,055 170,305 Deferred income taxes and other 54,381 50,792 Stockholders' equity: Common stock, $.001 par value, 50,000,000 shares authorized, 14,178,789 shares and 12,228,789 shares issued 14 12 Class D common stock convertible, $.001 par value, 6,000,000 shares authorized, 1,848,535 and 3,348,535 shares issued and outstanding 2 3 Capital in excess of par value 258,169 241,877 Treasury stock, at cost, 220,960 and 212,188 shares (5,520) (5,167) Accumulated other comprehensive loss (5,138) (1,174) Retained earnings 189,161 154,340 --------- --------- Total stockholders' equity 436,688 389,891 --------- --------- Total liabilities and stockholders' equity $ 768,039 $ 731,369 ========= =========
SEE ACCOMPANYING NOTES. -2- Triumph Group, Inc. Consolidated Statements of Income (in thousands, except per share data) (unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, --------------------- --------------------- 2001 2000 2001 2000 -------- -------- -------- -------- Net sales $149,297 $143,163 $464,256 $403,722 Operating costs and expenses: Cost of products sold 103,259 96,496 320,987 273,426 Selling, general, and administrative 19,650 19,157 58,947 52,726 Depreciation and amortization 5,684 6,821 16,202 19,430 Special charge -- -- 5,044 -- -------- -------- -------- -------- 128,593 122,474 401,180 345,582 Operating income 20,704 20,689 63,076 58,140 Interest expense and other 3,453 5,906 9,673 15,666 -------- -------- -------- -------- Income before income taxes 17,251 14,783 53,403 42,474 Income tax expense 5,415 4,781 18,502 15,028 -------- -------- -------- -------- Net income $ 11,836 $ 10,002 $ 34,901 $ 27,446 ======== ======== ======== ======== Earnings per share - basic $ 0.75 $ 0.83 $ 2.21 $ 2.32 ======== ======== ======== ======== Weighted average common shares outstanding - basic 15,778 12,068 15,782 11,806 ======== ======== ======== ======== Earnings per share - diluted $ 0.75 $ 0.80 $ 2.19 $ 2.21 ======== ======== ======== ======== Weighted average common shares outstanding - diluted 15,844 12,459 15,925 12,427 ======== ======== ======== ========
SEE ACCOMPANYING NOTES. -3- Triumph Group, Inc. Consolidated Statements of Cash Flows (dollars in thousands) (unaudited)
NINE MONTHS ENDED DECEMBER 31, ------------------------------ 2001 2000 --------- --------- OPERATING ACTIVITIES Net income $ 34,901 $ 27,446 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 16,202 19,430 Non-cash special charge 5,044 -- Provision for deferred income taxes -- 6,107 Provision for doubtful accounts receivable 1,232 216 Interest on subordinated and junior subordinated promissory notes paid by issuance of additional notes 818 747 Changes in other current assets and liabilities, net of acquisitions of businesses: Accounts receivable 18,099 (8,631) Inventories (10,023) (18,080) Prepaid expenses and other (2,055) 625 Accounts payable, accrued expenses, and accrued income taxes payable (15,416) (14,107) Other 641 2,535 --------- --------- Net cash provided by operating activities 49,443 16,288 INVESTING ACTIVITIES Capital expenditures, net (21,006) (17,900) Proceeds from sale of assets -- 11,866 Cash used for businesses acquired (29,406) (124,529) --------- --------- Net cash used in investing activities (50,412) (130,563)
-4- Triumph Group, Inc. Consolidated Statements of Cash Flows (continued) (dollars in thousands) (unaudited)
NINE MONTHS ENDED DECEMBER 31, ------------------------------ 2001 2000 --------- --------- FINANCING ACTIVITIES Net proceeds from common stock offering $ 16,031 $ -- Net (decrease) increase in revolving credit facility borrowings (12,114) 117,734 Repayment of debt and capital lease obligations (5,527) (3,311) Proceeds from issuance of long-term debt 7,500 83 Purchase of treasury stock (750) -- Payments of deferred financing costs -- (362) Proceeds from exercise of stock options 317 191 --------- --------- Net cash provided by financing activities 5,457 114,335 --------- --------- Net change in cash 4,488 60 Cash at beginning of period 4,819 6,279 --------- --------- Cash at end of period $ 9,307 $ 6,339 ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for income taxes $ 15,651 $ 6,457 Cash paid for interest 9,363 14,147
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 conformity with accounting principles 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 nine month periods ended December 31, 2001 are not necessarily indicative of the results that may be expected for the fiscal year ended March 31, 2002. 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, 2001. Certain intangible assets at March 31, 2001, have been reclassified to conform to the new presentation requirements of Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" ("SFAS No. 141"). 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. -6- Triumph Group, Inc. Notes to Consolidated Financial Statements (dollars in thousands, except per share data) (Unaudited) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) GOODWILL AND INTANGIBLE ASSETS In June 2001, the Financial Accounting Standards Board approved the issuance of SFAS No. 141 and SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"). SFAS No. 141 applies to all business combinations completed after June 30, 2001 and requires the use of the purchase method of accounting. SFAS No. 141 also establishes new criteria for determining whether intangible assets should be recognized separately from goodwill. SFAS No. 142 provides that goodwill and intangible assets with indefinite lives will not be amortized but rather will be tested for impairment on an annual basis. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001, however companies with fiscal years beginning after March 15, 2001 may elect to adopt the statement early. Accordingly, effective April 1, 2001, the Company adopted SFAS No. 142. The following table reflects the comparable prior year period's net income and earnings per share as if SFAS No. 142 had been adopted on April 1, 2000:
THREE MONTHS ENDED NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, ------------------------- ------------------------- 2001 2000 2001 2000 ---------- ---------- ---------- ---------- Reported net income $ 11,836 $ 10,002 $ 34,901 $ 27,446 Add-back after-tax goodwill amortization -- 1,015 -- 3,262 ---------- ---------- ---------- ---------- Adjusted net income $ 11,836 $ 11,017 $ 34,901 $ 30,708 ========== ========== ========== ========== Earnings per share - basic $ 0.75 $ 0.83 $ 2.21 $ 2.32 Add-back after-tax goodwill amortization -- 0.08 -- 0.28 ---------- ---------- ---------- ---------- Adjusted earnings per share - basic $ 0.75 $ 0.91 $ 2.21 $ 2.60 ========== ========== ========== ========== Earnings per share - diluted $ 0.75 $ 0.80 $ 2.19 $ 2.21 Add-back after-tax goodwill amortization -- 0.08 -- 0.26 ---------- ---------- ---------- ---------- Adjusted earnings per share - diluted $ 0.75 $ 0.88 $ 2.19 $ 2.47 ========== ========== ========== ==========
Intangible assets cost and accumulated amortization at December 31, 2001 were $47,811 and $12,118, respectively. Intangible assets cost and accumulated amortization at March 31, 2001 were $47,561 and $8,728, respectively. Intangible assets consists of two major classes: product rights and licenses, and non-compete agreements and other. Gross cost and accumulated amortization of product rights and licenses at December 31, 2001 were $36,705 and $6,285, respectively, and at March 31, 2001 were $36,455 and $3,748, respectively. Gross cost and accumulated amortization of noncompete agreements and other at December 31, 2001 were $11,106 and $5,833, respectively, and at March 31, 2001 were $11,106 and $4,980, respectively. Amortization expense for the three and nine-month periods ended December 31, 2001 was $1,134 and $3,390, respectively. Amortization expense for the fiscal year ended March 31, 2002 and the succeeding five fiscal years by year is expected to be as follows: 2002: $4,520; 2003: $4,077; 2004: $3,896; 2005: $3,896; 2006: $3,896; 2007: $3,896. -7- Triumph Group, Inc. Notes to Consolidated Financial Statements (continued) (dollars in thousands, except per share data) (Unaudited) 3. ACQUISITIONS In August 2001, the Company acquired substantially all of the assets of EMCO Fluid Systems, Inc., renamed EFS Aerospace, Inc. ("EFS"). EFS, located in Valencia, California, designs, produces, assembles and tests both hydraulic and pneumatic valves and actuators for the aviation and aerospace industries. The purchase price of approximately $38,166 includes the assumption of debt and certain liabilities and direct costs of the transaction. The excess of the purchase price over the preliminary estimated fair value of the net assets acquired of $30,150 was recorded as excess of cost over net assets acquired. The EFS acquisition agreement provides for a reduction in the purchase price in the event certain performance measurements are not met on each specified date through 2004. The pro forma effects of the EFS acquisition for the nine months ended December 31, 2001 and 2000 were not material. 4. INVENTORIES The components of inventories are as follows:
DECEMBER 31, MARCH 31, 2001 2001 -------- -------- Raw materials $ 57,302 $ 50,638 Work-in-process 77,161 75,186 Finished goods 50,682 45,281 -------- -------- Total inventories $185,145 $171,105 ======== ========
5. LONG-TERM DEBT Long-term debt consists of the following:
DECEMBER 31, MARCH 31, 2001 2001 -------- -------- Revolving credit facility $132,886 $145,000 Subordinated promissory notes 26,677 18,658 Other debt 18,525 12,664 -------- -------- 178,088 176,322 Less current portion 11,033 6,017 -------- -------- $167,055 $170,305 ======== ========
In conjunction with the EFS acquisition, the Company assumed $10,000 of seller financing with an interest rate of 6% maturing between October 2002 and October 2005 and $1,067 of other debt. In October 2001, the Company retired substantially all of the then outstanding balance of the other debt of EFS. On August 23, 2001, the Company entered into a loan agreement with the Illinois Development Finance Authority related to the Illinois Development Finance Authority Economic Development Bonds, series of 2001 ("the Bonds"). The proceeds of the Bonds of $7,500 were used to fund the purchase of the Company's TriWestern Metals new electro-galvanizing production line. The Bonds are due to mature on August 1, 2016 and are secured by the equipment. The Bonds bear interest at a variable rate based on LIBOR, which at December 31, 2001 was 3.5%. -8- Triumph Group, Inc. Notes to Consolidated Financial Statements (continued) (dollars in thousands, except per share data) (Unaudited) 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 NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, ----------------- ----------------- (in thousands) 2001 2000 2001 2000 ------ ------ ------ ------ Weighted average common shares outstanding 15,778 12,068 15,782 11,806 Net effect of dilutive stock options 66 130 143 101 Net effect of dilutive warrant -- 261 -- 520 ------ ------ ------ ------ Weighted average common shares outstanding - assuming dilution 15,844 12,459 15,925 12,427 ====== ====== ====== ======
Options to purchase 358,200 shares of common stock, at prices ranging from $31.38 per share to $44.88 per share, were outstanding during the third quarter of fiscal 2002. These options were not included in the computation of diluted earnings per share because the exercise price was greater than the average market price of the common stock during the three months ended December 31, 2001 and, therefore, the effect would be antidilutive. 7. COMMON STOCK OFFERING In March 2001, the Company completed the sale of 3,000,003 shares of its Common stock for $37.50 a share through an underwritten public offering. In addition, the Company granted the underwriters of its public offering a 30-day option to purchase additional shares to cover over-allotments. In April 2001, the Underwriters exercised the over-allotment option and the Company sold an additional 450,000 shares of its Common stock. The net proceeds from the sales of $122,406 were used to repay long-term debt. During the quarter ended June 30, 2001, 1,500,000 shares of Class D Common stock were converted to Common stock. In September 2001, the Company purchased 25,000 shares of its common stock as Treasury stock for an aggregate purchase price of $750. -9- 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:
THREE MONTHS ENDED NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, ------------------------ ------------------------ 2001 2000 2001 2000 --------- --------- --------- --------- Net Sales: Aviation $ 138,485 $ 129,597 $ 428,007 $ 357,659 Metals 10,812 13,566 36,249 46,063 --------- --------- --------- --------- $ 149,297 $ 143,163 $ 464,256 $ 403,722 ========= ========= ========= ========= Income before income taxes: Operating income (expense): Aviation $ 22,448 $ 21,954 $ 73,364 $ 60,023 Metals 29 181 242 1,836 Corporate (1,773) (1,446) (5,486) (3,719) Special charge -- -- (5,044) -- --------- --------- --------- --------- 20,704 20,689 63,076 58,140 Interest expense and other 3,453 5,906 9,673 15,666 --------- --------- --------- --------- $ 17,251 $ 14,783 $ 53,403 $ 42,474 ========= ========= ========= ========= Capital expenditures: Aviation $ 6,299 $ 5,609 $ 18,498 $ 13,676 Metals 530 1,535 2,473 4,119 Corporate 22 81 35 105 --------- --------- --------- --------- $ 6,851 $ 7,225 $ 21,006 $ 17,900 ========= ========= ========= ========= Depreciation and amortization: Aviation $ 5,288 $ 6,504 $ 15,016 $ 18,490 Metals 371 293 1,114 880 Corporate 25 24 72 60 --------- --------- --------- --------- $ 5,684 $ 6,821 $ 16,202 $ 19,430 ========= ========= ========= ========= December 31, March 31, 2001 2001 --------- --------- Assets: Aviation $ 728,507 $ 694,278 Metals 28,204 29,768 Corporate 11,328 7,323 --------- --------- $ 768,039 $ 731,369 ========= =========
During the three months ended December 31, 2001 and 2000, the Company had foreign sales of $35,710 and $32,496, respectively. For the nine months ended December 31, 2001 and 2000, the Company had foreign sales of $102,567 and $79,635, respectively. -10- Triumph Group, Inc. Notes to Consolidated Financial Statements (continued) (dollars in thousands, except per share data) (Unaudited) 9. DERIVATIVES AND HEDGING ACTIVITIES Effective April 1, 2001 the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 137 and SFAS No. 138. This standard requires that all derivative financial instruments, such as interest rate swap contracts, be recognized in the financial statements and measured at fair value regardless of the purpose or intent for holding them. Changes in the fair value of derivative financial instruments are either recognized periodically in income or shareholder's equity (as a component of accumulated other comprehensive income), depending on whether the derivative is being used to hedge changes in fair value or cash flows. The adoption of SFAS No. 133 resulted in a loss of $3,119 recorded to accumulated other comprehensive loss and a liability recorded in deferred income taxes and other. Use of Derivative Financial Instruments The Company uses derivative financial instruments principally to manage the risk that changes in interest rates will affect the amount of its future interest payments. The following is a summary of the Company's risk management strategies and the effect of these strategies on the consolidated financial statements. Interest Rate Risk Management The Company uses a two-year interest rate swap contract to adjust the amount of total debt that is subject to variable interest rates. Under the interest rate swap contract, the Company pays amounts equal to the specified fixed-rate of interest (6.56%) multiplied by the notional principal amount ($100,000), and receives a variable rate of interest (30-day LIBOR) multiplied by the same notional principal amount. No other cash payments are made unless the contract is terminated prior to maturity, in which case the amount paid or received in settlement is established by agreement at the time of termination and should represent the market quotation, at current rates of interest, of the remaining obligations to exchange payments under the terms of the contract. The counterparty to the interest rate swap agreement exposes the Company to credit loss in the event of non-performance, although the Company does not anticipate such non-performance. Pursuant to SFAS No. 133, the Company accounts for its interest rate swap contract as a cash flow hedge which is highly effective. As of December 31, 2001, the interest rate swap is reflected at fair value of $4,043 and is included in deferred income taxes and other with a corresponding amount included in accumulated other comprehensive loss. The Company has not experienced any ineffectiveness with its interest rate swap and accordingly has not recognized any gains or losses in its earnings. -11- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (The following discussion should be read in conjunction with the Consolidated Financial Statements contained elsewhere herein.) THREE MONTHS ENDED DECEMBER 31, 2001 COMPARED TO THREE MONTHS ENDED DECEMBER 31, 2000 AVIATION SEGMENT NET SALES. Net sales for the Aviation segment increased by $8.9 million, or 6.9%, to $138.5 million for the third quarter of fiscal 2002 from $129.6 million for the third quarter of fiscal 2001. This growth in revenue is mainly due to the acquisition of EFS Aerospace, Inc. ("EFS") which accounts for $7.3 million of the increase. The remaining net increase is due to our increased participation in the expanding regional jet market, namely the Canadair RJ programs, growth of participation in Airbus programs, primarily the A319, A320 and A321 programs and certain military programs, most significantly the C-17 program. Increases in certain Boeing program build rates, namely the B737 new generation, added to the growth of net sales in the quarter over the prior year period offset by declines in other programs, most notably the E-2C. Due to the terrorist activities of September 11, 2001 and the resulting adverse effects on commercial aircraft production rates and airline flight schedules, Triumph believes that its sales for the remainder of the fiscal year to commercial aircraft OEM's and certain airline customers will be negatively impacted, but sales to the military of spare parts are expected to positively impact the Company's sales for the remainder of the year. However, the net effect of these factors on the Company's consolidated sales is indeterminable at this time. OPERATING INCOME. Operating income for the Aviation segment increased by $0.5 million, or 2.3%, to $22.4 million for the third quarter of fiscal 2002 from $22.0 million for the third quarter of fiscal 2001. Effective April 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 142 provides that goodwill and intangible assets with indefinite lives will not be amortized. In accordance with SFAS 142, the Company stopped amortizing goodwill effective April 1, 2001. Had SFAS 142 been effective April 1, 2000, operating income in the third quarter of fiscal 2001 would have been $23.5 million, or $1.6 million more than reported. The remaining net decrease in operating income over the prior year period of approximately $1.1 million resulted from a reduction of margin due to the mix of products sold, offset by operating income generated by EFS. -12- 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 $2.8 million, or 20.3%, to $10.8 million for the third quarter of fiscal 2002 from $13.6 million for the third quarter of fiscal 2001. This decrease was mainly due to import pricing pressures and lower volume at the Company's electrogalvanized steel operation. OPERATING INCOME. Operating income for the Metals segment decreased by $0.2 million, or 84.0%, for the third quarter of fiscal 2002 from the prior year period. This decrease was mainly due to the decline in net sales. OVERALL RESULTS CORPORATE EXPENSES. Corporate expenses increased by $0.3 million, or 22.6%, to $1.8 million for the third quarter of fiscal 2002 from $1.4 million for the third quarter of fiscal 2001. INTEREST EXPENSE AND OTHER. Interest expense and other decreased by $2.5 million, or 41.5%, to $3.5 million for the third quarter of fiscal 2002 from $5.9 million for the third quarter of fiscal 2001. This decrease was primarily due to lower interest rates and decreased debt levels from the follow-on public offering which occurred in March and April of 2001. INCOME TAX EXPENSE. The effective tax rate was 31.4% for the third quarter of fiscal 2002 and 32.3% for the third quarter of fiscal 2001. NET INCOME. Net income increased to $11.8 million for the third quarter of fiscal 2002 from $10.0 million for the prior year period. The increase in net income for the third quarter of fiscal 2002 was primarily attributable to the earnings of EFS, the adoption of SFAS 142 in fiscal 2002 and the decreased interest expense offset by the net decrease in earnings from the other Aviation segment operating units. -13- Management's Discussion And Analysis of Financial Condition and Results of Operations (continued) NINE MONTHS ENDED DECEMBER 31, 2001 COMPARED TO NINE MONTHS ENDED DECEMBER 31, 2000 AVIATION SEGMENT NET SALES. Net sales for the Aviation segment increased by $70.3 million, or 19.7%, to $428.0 million for the nine months ended December 31, 2001 from $357.7 million for the prior year period. This growth in revenue is due to our increased participation in the expanding regional jet market, namely the Canadair RJ programs, growth of participation in Airbus programs, primarily the A319, A320 and A321 programs and certain military programs, most significantly the C-17 program. Revenue growth was also helped by the positive impact of license agreements and product lines obtained in fiscal 2001 and from the acquisition of EFS. Increases in certain Boeing program build rates, namely the B737 new generation and B777, added to the growth of net sales in the nine months over the prior year period offset by declines in other programs, most notably the E-2C. Due to the terrorist activities of September 11, 2001 and the resulting adverse effects on commercial aircraft production rates and airline flight schedules, Triumph believes that its sales for the remainder of the fiscal year to commercial aircraft OEM's and certain airline customers will be negatively impacted, but sales to the military of spare parts are expected to positively impact the Company's sales for the remainder of the year. However, the net effect of these factors on the Company's consolidated sales is indeterminable at this time. OPERATING INCOME. Operating income for the Aviation segment increased by $13.3 million, or 22.2%, to $73.4 million for the nine months ended December 31, 2001 from $60.0 million for the prior year period. Effective April 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 142 provides that goodwill and intangible assets with indefinite lives will not be amortized. In accordance with SFAS 142, the Company stopped amortizing goodwill effective April 1, 2001. Had SFAS 142 been effective April 1, 2000, operating income for the nine months ended December 31, 2000 would have been $65.2 million or $5.2 million more than reported. During the nine months ended December 31, 2001, the Company incurred approximately $2.6 million of amortization and royalty expenses related to its purchase of certain licenses and a product line which it acquired at the end of the second quarter of fiscal 2001 compared to approximately $0.9 million for the prior year period. The remaining net increase in operating income over the prior year period of approximately $9.9 million resulted from the increase in revenues and gross profits, most notably from the programs discussed above as well as the acquisition of EFS, offset by increases in selling, general and administrative expenses from the Aviation Segment as a whole. -14- 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 $9.8 million, or 21.3%, to $36.2 million for the nine months ended December 31, 2001 from $46.1 million for the prior year period. This decrease was mainly due to import pricing pressures and lower volume at the Company's electrogalvanized steel operation as well as a lower activity level at the Company's structural steel erection operation. OPERATING INCOME. Operating income for the Metals segment decreased by $1.6 million, or 86.8%, to $0.2 million for the nine months ended December 31, 2001 from $1.8 million from the prior year period. This decrease was mainly due to the decline in net sales. OVERALL RESULTS CORPORATE EXPENSES. Corporate expenses increased by $1.8 million, or 47.5%, to $5.5 million for the nine months ended December 31, 2001 from $3.7 million for the prior year period. SPECIAL CHARGE. During the second quarter of fiscal 2001, the Company recorded a special charge totaling $5.0 million related to the write-off of the development expense on a new aircraft program, which is deemed unlikely to go into production at this time. INTEREST EXPENSE AND OTHER. Interest expense and other decreased by $6.0 million, or 38.3%, to $9.7 million for the nine months ended December 31, 2001 from $15.7 million for the prior year period. This decrease was primarily due to lower interest rates and decreased debt levels from the follow-on public offering, which occurred in March and April of 2001. INCOME TAX EXPENSE. The effective tax rate was 34.6% for the nine months ended December 31, 2001 and 35.4% for the nine months ended December 31, 2000. NET INCOME. Net income increased to $34.9 million for the nine months ended December 31, 2001 from $27.4 million for the prior year period. The increase in net income was primarily attributable to the earnings of the Aviation segment operating units, the adoption of SFAS 142 in fiscal 2002 and the decreased interest expense offset by the special charge. -15- 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 $49.4 million of cash flows from operating activities for the nine months ended December 31, 2001. The Company used $50.4 million in investing activities and raised $5.5 million in financing activities for the nine months ended December 31, 2001. As of December 31, 2001, $214.4 million was available under the Company's revolving credit facility ("Credit Facility"), which expires on June 13, 2004. On December 31, 2001, an aggregate amount of approximately $132.9 million was outstanding under the Credit Facility, $128.0 million of which was accruing interest at LIBOR plus applicable basis points totaling 6.6% per annum, and $4.9 million of which was accruing interest at the prime rate of 4.75% per annum. Amounts repaid under the Credit Facility may be reborrowed. The Company may allocate up to $5.0 million of the available Credit Facility for the issuance of letters of credit of which $2.7 million was used as of December 31, 2001. In March 2001, the Company completed the sale of 3,000,003 shares of its Common stock for $37.50 per share through an underwritten public offering. In addition, the Company granted its underwriters of its public offering a 30-day option to purchase additional shares to cover over-allotments. In April 2001, the Underwriters exercised the over-allotment option and the Company sold an additional 450,000 shares of its Common stock. The net proceeds from the April 2001 sales of $16.0 million were used to repay long-term debt. On August 23, 2001, the Company entered into a loan agreement with the Illinois Development Finance Authority related to the Illinois Development Finance Authority Economic Development Bonds, series of 2001 ("the Bonds"). The proceeds of the Bonds of $7.5 million were used to fund the purchase of the Company's TriWestern Metals new electro-galvanizing production line. The Bonds are due to mature on August 1, 2016 and are secured by the equipment. The Bonds bear interest at a variable rate based on LIBOR, which at December 31, 2001 was 3.5%. Capital expenditures were approximately $21.0 million for the nine months ended December 31, 2001 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 $40.0 million for its fiscal year ending March 31, 2002. The expenditures are expected to be used mainly to expand capacity at several facilities. On December 15, 1998, the Company announced a program to repurchase up to 500,000 shares of its common stock. In September 2001, the Company repurchased a total of 25,000 shares at an average share price of $29.99 for a total purchase price of $0.7 million. From the inception of the program through December 31, 2001, the Company has repurchased a total of 269,200 shares for a total purchase price of $6.7 million. The expected future cash flows for the next five years for long term debt, leases and other obligations are as follows:
----------------------------------------- ---------------------------------------------------------------- CONTRACTUAL OBLIGATIONS PAYMENTS DUE BY PERIOD ($ IN THOUSANDS) ----------------------------------------- ---------------------------------------------------------------- Total Less than 1-3 years 4-5 years After 5 1 year years ---------------------------------------------------------------------------------------------------------- Long Term Debt (1) $172,546 $ 9,591 $151,769 $ 3,748 $ 7,438 ---------------------------------------------------------------------------------------------------------- Capital Lease Obligations (1)(2) 5,943 1,576 4,224 143 -- ---------------------------------------------------------------------------------------------------------- Operating Leases 79,503 13,761 22,951 24,262 18,529 ---------------------------------------------------------------------------------------------------------- Other Long Term Obligations (1) 2,202 948 503 496 255 ---------------------------------------------------------------------------------------------------------- Total $260,194 $ 25,876 $179,447 $ 28,649 $ 26,222 ----------------------------------------------------------------------------------------------------------
(1) Included in liabilities on the Company's balance sheet as of December 31, 2001. (2) Includes interest component. -16- Management's Discussion And Analysis of Financial Condition and Results of Operations (continued) 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. 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. For example, 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 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 and the Company's assessment of the impact of the September 11, 2001 attack. 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, 2001, filed with the SEC in June 2001. 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, 2001 and Note 9 to the Company's financial statements in its Quarterly Report on Form 10-Q for the period ended December 31, 2001. There has been no material change in this information. -17- TRIUMPH GROUP, INC. Part II. Other Information Item 1. Legal Proceedings Not applicable Item 2. Changes in Securities Not applicable Item 3. Defaults upon Senior Securities Not applicable Item 4. Submission of Matters to a Vote of Security Holders Not applicable Item 5. Other Information Not applicable Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Not applicable (b) Reports on Form 8-K The Company did not file any reports on Form 8-K during the three months ended December 31, 2001. -18- Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Triumph Group, Inc. ------------------------------------------------ (Registrant) /s/ Richard C. Ill ------------------------------------------------ Richard C. Ill, President & CEO /s/ John R. Bartholdson ------------------------------------------------ John R. Bartholdson, Senior Vice President & CFO (Principal Financial Officer) /s/ Kevin E. Kindig ------------------------------------------------ Kevin E. Kindig, Vice President & Controller (Principal Accounting Officer) Dated: February 8, 2002 -19-