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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 1-12235
TRIUMPH GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 51-0347963
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification Number)
organization)
FOUR GLENHARDIE CORPORATE CENTER,
1255 DRUMMERS LANE, SUITE 200, WAYNE, PENNSYLVANIA 19087
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (610) 975-0420
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.001 PER SHARE
Title of Class
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Indicate by check mark whether the Registrant (1) has filed all reports 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 period 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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The number of outstanding shares of the Registrant's Common Stock, par
value $.001 per share, and Class D Common Stock, par value $.001 per share, on
May 30, 1997 was 6,021,626 and 3,727,962, respectively. In making such
calculation, Registrant is not making a determination of the affiliate or
non-affiliate status of any holders of shares of Common Stock or Class D Common
Stock.
The aggregate market value of the shares of Common Stock held by
non-affiliates of the Registrant (computed by reference to the closing price of
such voting stock on the New York Stock Exchange on May 30, 1997 of $25 5/8) was
approximately $93,728,613.75.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following document are incorporated herein by reference:
Proxy Statement of Triumph Group, Inc. in connection with its 1997 Annual
Meeting of Stockholders is incorporated in part in Part III hereof, as specified
herein.
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TABLE OF CONTENTS
ITEM NO. PAGE
- -------- ----
PART I
1. Business...................................................................... 2
2. Properties.................................................................... 14
3. Legal Proceedings............................................................. 14
4. Submission of Matters to a Vote of Security Holders........................... 14
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters......... 15
6. Selected Financial Data....................................................... 16
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................... 17
8. Financial Statements and Supplementary Data................................... 23
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.................................................................... 41
PART III
10. Directors and Executive Officers of Registrant................................ 41
11. Executive Compensation........................................................ 41
12. Security Ownership of Certain Beneficial Owners and Management................ 42
13. Certain Relationships and Related Transactions................................ 42
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............... 43
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PART I
ITEM 1. BUSINESS
GENERAL OVERVIEW
The Company designs, engineers, manufactures, repairs and overhauls
aircraft components such as mechanical and electromechanical control systems,
aircraft and engine accessories, auxiliary power units ("APUs"), avionics and
aircraft instruments. The Company serves a broad spectrum of the aviation
industry, including commercial airlines and air cargo carriers, as well as
original equipment manufacturers ("OEMs") of aircraft and aircraft components,
on a worldwide basis.
PRODUCTS AND SERVICES
The Company's aviation products and services may generally be divided into
three categories: structural components, instrument and flight controls, and
operational components. The following is a description of some of the products
and services offered by the Company in each of these three categories:
Structural Components. The Company performs stretch forming, bending, die
forming, machining, welding, assembly and other fabrication on aircraft wings,
fuselages and skins for aircraft produced by OEMs such as McDonnell Douglas and
Boeing. The Company also manufactures metallic and composite bonded honeycomb
assemblies for fuselage, wings and flight control surface parts for commercial
airlines and other aircraft operators.
Instrument and Flight Controls. The Company designs and engineers
mechanical and electromechanical controls such as remote valve operators and
push/pull controls ranging from simple vent controls to sophisticated
flight-critical engine controls for OEMs and commercial airlines. The Company's
designs and engineering for such controls are proprietary because such designs
are not sold to the OEM for whom the control is manufactured. Consequently, the
OEM generally relies on the Company to repair or replace such component. The
Company also performs repair and overhaul services and supplies spare parts for
various types of cockpit instruments and gauges for a broad range of commercial
airlines on a worldwide basis.
Operational Components. The Company performs complete repair and overhaul
services on APUs for both commercial airlines and OEMs. APUs are used to provide
power for all non-propulsion aircraft functions such as air conditioning, lights
and other electrical functions. The Company also repairs and overhauls aircraft
accessories, including constant speed drives, pneumatic or electrically actuated
valves, cabin compressors, starters and generators, and manufactures refueling
booms. Certain of these components, like the APUs, are repaired pursuant to SFAR
36 certifications. Finally, the Company provides precision machining services
for other operational components manufactured from refractory and other metals
for the aviation and aerospace industry.
INDUSTRY OVERVIEW AND TRENDS
According to U.S. Department of Commerce statistics, the annual worldwide
market for aircraft, including components, is approximately $56.7 billion. This
market is expected to grow at an annual rate of 5% to 6% through 2000. Aviation
Week and Space Technology has stated that the global airline industry spends at
least $20 billion annually to maintain its aircraft. Both the aircraft component
production and component repair industries are highly fragmented, each
consisting of a limited number of well-capitalized companies, which offer a
broad range of products and services, and a large number of smaller, specialized
companies. The aviation industry has been consolidating at an increasing pace in
recent years, and it is expected that such consolidation will continue for the
foreseeable future.
A number of significant trends are currently affecting the market for the
design, engineering, manufacture, repair and overhaul of aircraft components.
These trends include the following:
Increases in Air Transit and Aircraft Production. Boeing's 1996 Market
Outlook projected that global air travel will increase by 70% and that the
number of passenger and cargo delivery aircraft in service will
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increase by 47% through the year 2005. This trend will be driven, in part, by
the anticipated continued growth of established carriers engaged in the air
freight and package delivery businesses. Average passenger seat miles flown is
also expected to increase significantly over the next few years. Further, many
new airlines are expected to commence operations in the United States and
abroad, especially in China and other countries in Asia where air traffic
previously was limited. Because start-up airlines generally do not invest in the
infrastructure necessary to service their aircraft, such airlines outsource all
or most of their repair and overhaul services. To meet their needs, certain
foreign and many start-up airlines have turned to older aircraft which generally
require more frequent servicing. Further, as aging aircraft are retired, new
aircraft production is increasing. The number of surplus aircraft is expected to
significantly decline while new aircraft production is expected to increase over
the next several years. The continued growth in air transit and aircraft
production will increase the demand for aircraft component purchases and
repairs.
Increased Outsourcing by Aircraft Operators and OEMs. Aircraft operators
have come under increasing pressure to reduce both operating and capital costs
associated with providing aviation services. While several of the expenditures
incurred by aircraft operators are beyond their direct control, such as fuel
prices and labor costs, aircraft operators seeking cost reductions have
increased purchases of certain components from third parties and have outsourced
repair and overhaul functions. Aircraft components sold by third party suppliers
and aircraft components that have been repaired and overhauled are generally
less expensive than new aircraft components sold by OEMs. In addition, OEMs are
increasingly becoming "assemblers" of aviation products by outsourcing more
manufacturing and repair functions to third parties. In this regard, the Company
supplies many OEMs with aircraft components and subassemblies, in addition to
performing repair and overhaul services. In addition, as consolidation in the
aviation services industry continues, aviation services consumers are requiring
vendors to offer a broader range of services including, in some instances,
inventory maintenance and management services. The Company believes that its
broad array of aviation products and services and its reputation for quality and
timely and reliable delivery will position the Company to continue to capitalize
on the outsourcing trend. The Company anticipates that increased reliance on
outsourcing will continue to cause consolidation in the industry since only
those suppliers with extensive capacities and adequate capital will secure such
agreements with OEMs and aircraft operators.
Reduction in the Number of Approved Suppliers and Vendors. In order to
reduce purchasing costs, streamline purchasing decisions and have greater
control over quality, purchasing departments of OEMs and aircraft operators have
been reducing the number of approved suppliers and vendors. In the past year,
several OEMs and aircraft operators have reduced their supplier and vendor lists
from as many as 50 to a core group of five to ten "mega-suppliers" or
"mega-vendors" who have the size and capacity to meet their needs. The Company
has secured a position on such lists of a number of OEMs and airlines. The
Company believes that this trend will continue in the future and that, due to
its established market presence and reputation for quality, the Company will
continue to be selected as an approved supplier and vendor. See "-- Government
Regulation."
Increased Maintenance and Safety Requirements. Under regulations
promulgated by the United States Federal Aviation Administration (the "FAA") and
similar agencies in other countries, including the Joint Aviation Authority (the
"JAA") and the Civil Aviation Administration of China (the "CAAC"), as well as
guidelines established by OEMs and aircraft operators, when an aircraft
component fails to perform within certain prescribed limits or after logging a
prescribed number of flight hours, the aircraft component must be brought to a
repair facility certified by the FAA or similar agency of a foreign nation for
various types of designated service or replacement. The FAA has changed the
nature of the licenses that it grants, from the grant of broad licenses for
aircraft accessories or instruments within broad classifications to more limited
licenses covering specific parts within more narrow classifications. The Company
holds many perpetual broad licenses that will continue unless abandoned,
suspended or revoked. In addition, aircraft components require regular
maintenance and inspection and replacement of "life-limited" components. The
trend toward more stringent maintenance requirements and more frequent
maintenance and overhaul has increased the size of the market for the repair of
such components, because the use of new components is not always cost effective.
In addition, a proposed change in FAA regulations will require aircraft repair
stations and others to implement and follow internal maintenance and safety
requirements in addition to FAA regulations. The Company
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believes that, because of its broad licenses and long-standing emphasis on
quality control, it will benefit from these higher maintenance and safety
standards.
Increased Emphasis on Component Traceability. Because of concerns
regarding the use of unapproved aircraft spare parts, regulatory authorities
have increased the level of documentation that must be maintained on spare
parts. This requirement has been extended by OEMs and aircraft operators to the
vendors of spare parts. The high cost of required technology to compete
effectively in the redistribution market has made entry into and survival in the
aircraft spare parts redistribution market increasingly difficult and expensive.
The Company has implemented technology to enable it to meet these more stringent
traceability requirements and intends to continue to do so in the future.
COMPETITIVE ADVANTAGES
The Company believes that it is well positioned to take advantage of trends
affecting the market for the design, engineering, manufacture, repair and
overhaul of aircraft components due to:
Broad Array of Products and Services. The Company offers the aviation
industry a consolidated point of purchase for a broad array of aviation products
and services. The Company designs, engineers and manufactures aircraft
components to fulfill the particular needs and requirements of its customers,
including electromechanical controls for McDonnell Douglas and fuselage
structural components for the 777 model aircraft for Boeing. In certain cases,
principally at Triumph Controls, Inc. ("TCI"), a subsidiary of the Company, the
Company owns the proprietary rights to these designs and, accordingly, the
customer generally relies on the Company to provide service on such aircraft
components at every stage of their useful lives, including the repair and
overhaul or replacement of such components. In addition, the Company
manufactures aviation components according to its customers' specifications. The
Company also performs repair and overhaul services for customers on various
aviation components manufactured by third parties such as AlliedSignal Inc.
("AlliedSignal"). In addition, the Company offers to maintain and manage
inventories of aircraft components and other products for certain of its
customers. In certain instances, the Company's customers require it to maintain
and manage their inventories.
Government Certifications. The Company operates nine FAA-certified repair
stations and has been granted licenses from the FAA and foreign regulatory
counterparts, including the JAA and the CAAC, to perform repair and overhaul
services on broad classifications of aircraft instruments and accessories.
Without such broad certifications and licenses, which are often expensive and
time-consuming to obtain and involve extensive audit procedures, other companies
are precluded from offering these products and services, thereby constituting a
significant barrier to entry. See "-- Government Regulation." In addition, the
Company holds two exclusive licenses issued by the FAA which permit the Company
to design, engineer, repair, test and release into service without FAA approval
certain products to its own specifications for certain aircraft components and
therefore to compete directly with OEMs with respect to such components. These
exclusive licenses, known as SFAR 36 certifications, enable the Company to
offer, on a proprietary basis, certain repaired parts relating to various
aircraft accessories such as APUs and constant speed drives to its customers at
a lower cost than other companies that must purchase replacement parts from
third parties.
Emphasis on Quality Control. The Company incurs significant expenses to
maintain the most stringent quality control of its products and services. In
addition to domestic and foreign governmental regulations, OEMs, commercial
airlines and other customers require that the Company satisfy certain
requirements relating to the quality of its products and services. The Company
has continually met or exceeded these requirements, and has successfully
completed many audits conducted on a regular basis by the Coordinated Agency for
Supplier Evaluation ("C.A.S.E."), a consortium of United States airlines. As a
C.A.S.E.-listed vendor, the Company is reviewed on a regular basis for quality
and efficiency. In addition, the Company conducts voluntary, thorough
self-auditing, utilizing inspectors from its various companies to audit other
companies in its Aviation Group. The Company also performs testing and
certification procedures on all of the products that it designs, engineers,
manufactures, repairs and overhauls, and maintains detailed records to ensure
traceability of the production of and service on each aircraft component. The
Company believes that its emphasis on quality control has enabled it to obtain
many of the FAA licenses it enjoys, including its exclusive
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SFAR 36 certifications. The expense required to institute and maintain the
Company's quality control procedures represents a barrier to entry for other
companies.
Broad Customer Base. Due to the Company's broad array of products and
services and its emphasis on quality control and timely delivery, the Company's
customers include virtually all of the world's major commercial airlines and an
increasing number of the most widely recognized air cargo carriers, including
Federal Express and United Parcel Service, and OEMs such as Boeing, McDonnell
Douglas, AirBus and AlliedSignal. The Company expects that its customer base
will continue to strengthen and broaden with increased cross-selling efforts by
the Company of its various products and services.
Established Industry Presence. The operating divisions and subsidiaries in
the Company's Aviation Group have substantial experience in the aviation
industry. These entities are characterized by experienced management and
highly-skilled employees. Because of its established industry presence, the
Company enjoys strong customer relations, name recognition and repeat business.
COMPANY STRATEGY
The Company intends to grow its aviation business through:
Expansion of Products and Services. The Company will continue to introduce
new aviation products and services to take advantage of the growing aviation
industry and the increasing demand for aviation products and services. In an
effort to expand its existing array of products and services and to capture
additional repair and overhaul business, the Company plans to expand, as
appropriate, its program for the distribution and inventory management of third
party aircraft components. The Company will also expand its assembly and
subassembly capabilities on certain aircraft components. By broadening its
products and services, the Company intends to further expand its position as a
consolidated point of purchase to the aviation industry, capitalizing on the
increasing trend toward outsourcing and the reduction by aircraft operators and
OEMs of the number of approved suppliers and vendors.
Increased International Marketing. The Company will continue to take
advantage of the expanding international market for aviation products and
services as worldwide air travel escalates and foreign nations, particularly
China and other countries in Asia, purchase used aircraft that require more
frequent repair and maintenance. The Company currently supplies products and
services to virtually every major commercial airline in the world and retains
independent sales representatives in a number of foreign countries. In addition,
the Company participates each year in several international trade shows,
including the Paris Air Show and the Singapore Air Show. The Company intends to
build on its existing international presence through continued market
penetration and, as appropriate opportunities arise, foreign acquisitions.
Capitalizing on Aviation Group Affiliation. Utilizing the group
affiliation of the Company's operating divisions and subsidiaries, the Company
plans to increase cross-selling of its various capabilities to its customers.
For example, one of the Company's operating divisions distributes certain
electromechanical controls manufactured by a subsidiary of the Company. The
Company's operating divisions and subsidiaries will continue to share
independent sales representatives and jointly bid on projects where appropriate,
while still maintaining their individual identities.
Expanded Operating Capacity. The Company plans to increase its operating
capacity to meet the expected increased growth and demand in the aviation
industry. The Company will increase its capital expenditures, including
expenditures for additional equipment and skilled labor, to support this
increased capacity. The Company intends to continue to invest in state of the
art machinery to increase its operating efficiencies and improve operating
margins.
Acquisitions. The Company expects to continue its growth through
acquisitions of other companies, assets or product lines that add to or
complement the Company's existing aviation products and services. The Company
successfully completed one acquisition in the 12 months ended March 31, 1997.
This acquisition, Advanced Materials Technologies, Inc. ("AMTI"), represents an
expansion of both the Company's existing aviation products and services and its
customer base. AMTI repairs and manufactures components for
APUs and gas turbine engines. The Company also purchased all of the assets of
J.D. Chapdelaine Co.
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("JDC Company"), as of April 30, 1997. JDC Company is engaged in the business of
repairing, overhauling, exchanging and selling instrumentation for the aviation
industry. Because of the fragmented nature of much of the market for aircraft
products and services, the Company believes that many additional acquisition
opportunities exist in the aviation industry. The Company is currently
evaluating several such acquisition opportunities. There can be no assurance
that the Company will successfully complete any of these acquisitions or, that
if so acquired, such entities will be properly integrated into the Company.
HISTORICAL BACKGROUND
The Company was formed by members of management and Citicorp Venture
Capital, Ltd. ("CVC") to acquire (the "Acquisition") certain businesses and
assets from IKON Office Solutions, Inc., formerly Alco Standard Corporation
("Alco"). In connection with the Acquisition, 19 members of management
contributed capital in the aggregate amount of approximately $1.1 million and
CVC, an institutional investor, contributed capital in the aggregate amount of
approximately $6.9 million.
In July 1993, the Company acquired substantially all of the assets relating
to Alco's aviation, metals processing and paper converting businesses for an
aggregate purchase price of approximately $115.2 million, including a
subordinated promissory note in the aggregate principal amount of $13.5 million
(the "Alco Note").
The businesses acquired from Alco as part of the Acquisition included a
major portion of the Company's aviation operations and its entire metals
operations, as well as Quality Park Products, Inc. ("Quality Park"), a paper
converting business. Following the Acquisition, the Company determined to focus
its efforts on its core businesses and, after restructuring, sold Quality Park
in March 1996 to Mail-Well I Corporation ("Mail-Well") for approximately $27.4
million in cash, and the assumption by Mail-Well of certain liabilities.
As part of the Company's strategy to grow its aviation businesses, the
Company has completed two material acquisitions since the Acquisition. In
January 1996, the Company acquired all of the assets and assumed certain of the
liabilities of TCI, formerly a division of Teleflex Incorporated ("Teleflex"),
for aggregate consideration of approximately $36.5 million, including a 10.5%
subordinated promissory note in the principal amount of $5.5 million (the
"Teleflex Note"). The Company also assumed liabilities and incurred transaction
related costs totalling $3.6 million. As part of the transaction, the Company
also sold shares of TCI representing a 10% minority interest and 10.5% junior
subordinated promissory notes in an aggregate principal amount of $0.8 million
to an affiliate of Teleflex and to certain members of management of TCI. The TCI
shares were convertible, at the option of the Company, into shares of the
Company's Common Stock, par value $.001 per share ("Common Stock"), which option
the Company exercised as to the shares held by the members of management of TCI
in October 1996, prior to its initial public offering. Contemporaneously, the
Company also exchanged the 10.5% junior subordinated promissory notes owned by
the members of management for shares of its Common Stock. TCI manufactures and
services mechanical and electromechanical controls for various end users,
primarily in the aviation industry.
In July 1996, the Company purchased all of the outstanding capital stock of
AMTI. The aggregate consideration for the AMTI acquisition was approximately
$7.5 million in cash paid at closing plus a total of approximately $2.8 million
to be paid through the year 2002 as consideration for a confidentiality and non-
competition agreement entered into by one of the former owners of AMTI. In
addition, the Company assumed certain liabilities and incurred transaction
related costs totalling $10.3 million. The Company also purchased for
approximately $0.5 million certain real estate leased to AMTI by its principal
stockholder. As part of the acquisition, the Company also acquired AMTI's wholly
owned subsidiary, Special Processes of Arizona, Inc. ("SPOA"). AMTI engages in
the repair and manufacture of components for APUs and gas turbine engines. SPOA
engages in the production and application of plasma coating used primarily by
the aviation industry.
PROPRIETARY RIGHTS
The Company benefits from its proprietary rights relating to certain
designs, engineering, manufacturing processes and repair and overhaul
procedures. For example, at TCI, the Company designs and engineers flight
control systems and retains the proprietary rights to these designs and
engineering. Accordingly, the customer
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generally relies on the Company to provide initial and additional components, as
well as to redesign, reengineer, replace or repair and provide overhaul services
on such aircraft components at every stage of their useful lives. In addition,
the Company has proprietary rights to certain of its manufacturing processes.
For certain products, the Company's unique manufacturing capabilities are
required by the customer's specifications or designs, thereby necessitating
reliance on the Company for production of such designed product. The Company
also holds several SFAR 36 certifications that permit it to develop proprietary
repair procedures to be used in certain repair and overhaul processes, enabling
the Company to offer the customer a lower cost alternative to purchasing the
OEM's replacement part.
RAW MATERIALS AND REPLACEMENT PARTS
The Company purchases raw materials, primarily consisting of steel and
aluminum coils, sheets and shapes, from various vendors. The Company also
purchases replacement parts which are utilized in its various repair and
overhaul operations. The Company believes that these raw materials and
replacement parts are generally available at competitive prices from numerous
sources.
OPERATING DIVISIONS AND SUBSIDIARIES
The Company operates through several operating divisions and subsidiaries
which are divided into two groups: the Aviation Group and the Metals Group. The
following chart describes the operations, customer base and certain other
information with respect to the Company's operating divisions and subsidiaries:
OPERATING
DIVISION/SUBSIDIARY NUMBER OF
(YEAR ESTABLISHED) LOCATION BUSINESS TYPE OF CUSTOMERS EMPLOYEES
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Aviation Group
A. Biederman(1) Glendale, CA Sells and services Commercial airlines, 85
(1933) aircraft and industrial U.S. military and cargo
instruments. carriers.
Advanced Materials Tempe, AZ Repairs and Aviation OEMs and 220
Technologies, Inc.(1) manufactures components aircraft operators.
(1987) for APUs and
gas turbine engines.
Aerospace Technologies, Forth Worth, TX Manufactures Commercial airlines, 88
Inc.(1) metallic/composite U.S. military and
(1969) bonded honeycomb component supplier
assemblies and repairs industry.
fuselage, wing, flight
control surface parts
and other flight
critical components.
Air Lab(1) Seattle, WA Repairs and overhauls Commercial airlines, 39
(1974) aviation aircraft manufacturers,
instrumentation and avionics and instrument
controls. manufacturers, major
freight carriers,
corporate aircraft
operators and aviation
parts suppliers.
JDC Company(1) Ft. Lauderdale, FL Repairs and services Aircraft manufacturers 47
(1985) Georgetown, TX aircraft instruments. ranging from general
aviation to wide-body
air transport.
K-T Corporation Shelbyville, IN Performs stretch Aviation OEMs, U.S. 210
(1963) forming, bending, die military and aerospace,
forming, machining, mass transportation,
welding, assembly and energy and heavy
other fabrication on trucking industries.
aircraft wings,
fuselages and skins.
L.A. Gauge Co. Sun Valley, CA Machines, bonds and Defense, aerospace, 44
(1954) fabricates medical, automotive and
ultra-precision parts. computer industries.
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OPERATING
DIVISION/SUBSIDIARY NUMBER OF
(YEAR ESTABLISHED) LOCATION BUSINESS TYPE OF CUSTOMERS EMPLOYEES
- ----------------------- ------------------- ----------------------- ----------------------- ---------
Lamar Electro-Air Wellington, KS Repairs and overhauls U.S. government, 112
Corporation(1)(2) aircraft and engine commercial airlines and
(1965) accessories, general aviation
manufactures pneumatic aircraft operators.
and electrically
actuated valves for
aircraft and assembles
axles and aluminum
wheels for automobiles.
Northwest Industries Albany, OR Machines and fabricates Aerospace, nuclear, 28
(1960) refractory, reactive, medical, electronic and
heat and chemical industries.
corrosion-resistant
precision products.
Special Processes of Phoenix, AZ Produces and applies Aviation OEMs and 16
Arizona, Inc.(1) plasma coating. aircraft operators.
(1987)
Triumph Air Repair, Phoenix, AZ Repairs and overhauls Worldwide commercial 131
Inc.(1)(2) APUs and supplemental airlines.
(1979) equipment.
Triumph Controls, North Wales, PA Designs and Aviation OEMs, 278
Inc.(1) manufactures mechanical shipyards, repair and
(1943) and electromechanical overhaul facilities,
control systems. airlines and U.S. and
NATO military forces.
Metals Group
Deluxe Specialties Mfg. Hutchinson, KS Manufactures fuel tanks U.S. manufacturers of 123
Co. and hydraulic mobile, material
(1961) reservoirs. handling, agricultural,
construction and power
generation equipment.
Great Western Steel Co. Chicago, IL Produces steel Manufacturers, 40
(1918) products, specializing primarily in the home
in flat rolled and office products
products. industries.
Kilroy Structural Steel Cleveland, OH Erects structural steel General contractors, 13
Co. frameworks. engineers and
(1918) architects of
commercial buildings
and bridges.
Triumph Industries Bridgeview, IL Produces and Computer and electronic 53
(1960) distributes specialty industries.
electrogalvanized
products.
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(1) Designates FAA-certified repair station.
(2) Designates SFAR 36 certification.
METALS PROCESSING AND DISTRIBUTION
The Company's Metals Group consists of three operating divisions and one
subsidiary with substantial experience in the metals industry. These businesses
include a leading producer of electrogalvanized steel products, a steel service
center specializing in flat rolled steel products and a leading manufacturer of
fuel tanks and hydraulic reservoirs. These entities supply products to several
hundred manufacturers and other customers in the computer, electronics and
agricultural industries on a regional and national basis. In addition, the
Company operates a business engaged in the erection of structural frameworks for
buildings and bridges in the midwestern United States.
The Company's Metals Group processes, converts and distributes steel and
steel products including electrogalvanized steel products which are stamped,
formed, welded and painted, and coated steel for the electronic and computer
industries. The Company's steel service center specializes in flat rolled
products and their processing, including hot or cold rolled sheet and coil and
galvanized sheet and coil used primarily by the
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home and office products and appliance industry. The Company's fuel tanks and
hydraulic reservoirs are used in off-highway mobile equipment units, which are
sold primarily to the agricultural industry.
The Company also erects structural framework, including steel members and
allied materials, for buildings and bridges, with a specialty in commercial and
industrial buildings. Included among the Company's recent projects are Jacobs'
Field, the Cleveland Indians' baseball stadium, and the Rock and Roll Hall of
Fame in Cleveland, Ohio. These structural erection services are provided on a
project-by-project basis primarily in the midwestern United States. These
projects are generally awarded on a fixed fee, competitive bid basis.
SALES AND MARKETING
Each of the Company's operating divisions and subsidiaries independently
conducts sales and marketing efforts directed at their respective customers and
industries and, in some cases, collaborate with other operating divisions and
subsidiaries within its group for cross-marketing efforts. Each sales force and
the respective officers of the operating divisions and subsidiaries are
responsible for obtaining new customers and maintaining relationships with
existing customers. Sales and marketing efforts are conducted primarily by
independent regional manufacturer's representatives and in-house personnel.
Generally, manufacturer's representatives receive a commission on sales and the
in-house sales personnel receive a base salary plus commission. Engaging
independent sales representatives at the local level facilitates responsiveness
to each customer's changing needs and current trends in each marketplace in
which the Company operates.
Presidents of each of the Company's operating divisions and subsidiaries in
the Aviation Group meet periodically to discuss ways to improve sales and
cross-marketing opportunities. The management of each operating division and
subsidiary of the Company also maintains close business relationships with many
customers, thereby furthering the sales and marketing efforts of their
businesses.
A significant portion of the Company's government and defense contracts are
awarded on a competitive bidding basis. The Company generally does not bid or
act as the primary contractor, but will typically bid and contract as a
subcontractor on contracts on a fixed fee basis. The Company generally sells to
its other customers on a fixed fee, negotiated contract or purchase order basis.
BACKLOG
As of March 31, 1997, the Company's Aviation and Metals Groups had
outstanding purchase orders representing an aggregate invoice price of
approximately $93.2 million and $22.1 million, respectively. As of March 31,
1996, the Company's Aviation and Metals Groups had outstanding purchase orders
representing an aggregate invoice price of approximately $68.4 million and $20.2
million, respectively. The Company believes that purchase orders in an aggregate
approximate amount of $14.7 million will not be shipped by the Aviation Group in
the 12 months ended March 31, 1998. The Company believes that all of the
purchase orders will be shipped by the Metals Group in the 12 months ended March
31, 1998.
COMPETITION
The aircraft components production and repair industry is highly
fragmented, consisting of both a limited number of well-capitalized companies
which offer a broad range of products and services and a large number of
smaller, specialized companies. The Company believes that the principal
competitive factors in the aviation products and services industry are quality,
turnaround time, overall customer service and price. See "-- Competitive
Advantages." The Company believes that it competes favorably on the basis of the
foregoing factors. The Company does not believe that the location of its repair
facilities is a significant factor to its customers in selecting the Company, as
substantially all of the components serviced by the Company are transported by
common carrier to the Company's facilities for service.
The Company competes with third party manufacturers, some of which are
divisions or subsidiaries of OEMs or other large companies in the manufacture of
aircraft components and subassemblies. Competition for the repair and overhaul
of aviation components comes from three primary sources, some with greater
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11
financial and other resources than the Company: OEMs, major commercial airlines
and other independent service companies. Certain major commercial airlines
continue to own and operate their own service centers, while others have begun
to sell their repair and overhaul services to other aircraft operators. The
repair and overhaul services provided by domestic airlines are primarily for
their own aircraft, although these airlines may outsource a limited amount of
repair and overhaul services to third parties. Foreign airlines that provide
repair and overhaul services typically provide these services not only for their
own aircraft but for other airlines as well. OEMs also maintain service centers
which provide repair and overhaul services for the components they manufacture.
Other independent service organizations also compete for the repair and overhaul
business of other users of aircraft components.
The Company's principal competitors in the metals industry include national
and regional steel mills, other steel service centers, steel erection companies
and pre-engineered building manufacturers. Some of these competitors have
greater financial and other resources than the Company.
GOVERNMENT REGULATION
The aviation industry is highly regulated in the United States by the FAA
and in other countries by similar agencies. The Company must be certified by the
FAA and, in some cases, by individual OEMs, in order to engineer and service
parts and components used in specific aircraft models. If material
authorizations or approvals were revoked or suspended, the operations of the
Company would be adversely affected. New and more stringent government
regulations may be adopted, or industry oversight heightened, in the future and
such new regulations, if enacted, or any industry oversight, if heightened, may
have an adverse impact on the Company.
The Company must also satisfy the requirements of its customers, including
OEMs, that are subject to FAA regulations, and provide these customers with
products and services that comply with the government regulations applicable to
aircraft components used in commercial flight operations. The FAA regulates
commercial flight operations and requires that aircraft components meet its
stringent standards. In addition, the FAA requires that various maintenance
routines be performed on aircraft components, and the Company currently
satisfies these maintenance standards in its repair and overhaul services.
Several of the Company's operating divisions are FAA-approved repair stations.
Currently, the FAA is granting licenses only for the manufacture or repair
of a specific aircraft component, rather than the broader licenses that have
been granted in the past. The FAA licensing process may be costly and
time-consuming. In order to obtain an FAA license, an applicant must satisfy all
applicable regulations of the FAA governing repair stations. These regulations
require that an applicant have experienced personnel, inspection systems,
suitable facilities and equipment. In addition, the applicant must demonstrate a
need for the license. Because an applicant must procure manufacturing and repair
manuals from third parties relating to a particular aircraft component in order
to obtain a license with respect to such component, the application process may
involve substantial cost.
The license approval processes for the JAA and the CAAC are similarly
stringent, involving potentially lengthy audits conducted by these regulatory
authorities.
The Company's aviation and metals operations are also subject to a variety
of worker and community safety laws. The Occupational Safety and Health Act of
1970 ("OSHA") mandates general requirements for safe workplaces for all
employees. In addition, OSHA provides special procedures and measures for the
handling of certain hazardous and toxic substances. Specific safety standards
have been promulgated for workplaces engaged in the treatment, disposal or
storage of hazardous waste. The Company believes that its operations are in
material compliance with OSHA's health and safety requirements.
ENVIRONMENTAL MATTERS
The Company's operations are subject to federal, state and local
environmental laws and regulation by government agencies, including the
Environmental Protection Agency (the "EPA"). Among other matters, these
regulatory authorities impose requirements that regulate the emission,
discharge, generation, manage-
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12
ment, transportation and disposal of hazardous materials, pollutants and
contaminants, govern public and private response actions to hazardous or
regulated substances which may be or have been released to the environment, and
require the Company to obtain and maintain licenses and permits in connection
with its operations. This extensive regulatory framework imposes significant
compliance burdens and risks on the Company. Although management believes that
the Company's operations and its facilities are in material compliance with such
laws and regulations, there can be no assurance that future changes in such
laws, regulations or interpretations thereof or the nature of the Company's
operations will not require the Company to make significant additional capital
expenditures to ensure compliance in the future.
Certain of the Company's facilities are currently the subject of
environmental remediation activities, the cost of which is subject to
indemnification provided by Alco pursuant to the Acquisition. One of these
facilities is connected with a site included on the National Priorities List of
Superfund sites maintained by the EPA. Another of these facilities is located on
a site included in the EPA's database of potential Superfund sites. Alco's
indemnification covers the Company for losses the Company might suffer in
connection with liabilities and obligations (and other liabilities and
obligations arising out of or in connection with the Acquisition) arising under
environmental, health and safety laws with respect to operations or use of those
facilities prior to their acquisition by the Company. More specifically, this
Alco indemnification covers both (i) the costs, claims and potential losses
associated with environmental matters identified in the purchase agreement for
the Acquisition as the result of environmental assessments or other disclosures
made in connection with the Acquisition, including the costs, claims and
potential losses associated with all the environmental remediation activities
and identified liabilities, and (ii) the losses connected to environmental
liabilities which were not identified in the purchase agreement and which arise
from conditions or activities existing at the facilities or operations acquired
from Alco prior to their acquisition from Alco, provided that they are
identified by the Company to Alco before July 22, 2000. Another of the Company's
facilities leased from Teleflex is located on a site placed on the EPA's
National Priorities List prior to its acquisition by the Company, and is subject
to indemnification provided by Teleflex for environmental liabilities arising
from activities or conditions existing at this facility prior to the Company's
acquisition. See "-- Risk Factors -- Potential Exposure to Environmental
Liabilities."
EMPLOYEES
As of March 31, 1997, the Company employed approximately 1,480 persons, of
whom 190 were management employees, 52 were sales and marketing personnel, 114
were technical personnel, 227 were administrative personnel and 897 were
production workers. As of March 31, 1997, approximately 226 employees were
subject to collective bargaining agreements. None of these collective bargaining
agreements will expire in the next 12 months. The Company has not experienced
any material labor-related work stoppage and considers its relations with its
employees to be good.
RISK FACTORS
Statements in this Annual Report on Form 10-K, including those concerning
the Company's expectations regarding the effect of industry trends on the
Company, competitive advantages, strategies, future sales, gross profits,
capital expenditures, selling, general and administrative expenses, and cash
requirements, include certain forward-looking statements. As such, actual
results may vary materially from such expectations. Factors which could cause
actual results to differ from expectations include dependence on the aviation
industry, requirements of capital, integration of acquired businesses,
government regulation, dependence on key customers, technological developments
and obsolete inventory. For a description of these and additional risks, see the
discussion below. There can be no assurance that the Company's results of
operations will not be adversely affected by one or more of these factors.
Dependence on Aviation Industry. A substantial percentage of the Company's
gross profit and operating income is derived from its Aviation Group. The
Company's aviation operations are focused on designing, engineering and
manufacturing aircraft components on new aircraft and performing repair and
overhaul services on existing aircraft and aircraft components. Therefore, the
Company's business is directly affected by economic factors and other trends
that affect its customers in the aviation industry, including a possible
11
13
decrease in outsourcing by aircraft operators and OEMs or projected market
growth that may not materialize or be sustainable. When such economic and other
factors adversely affect the aviation industry, they tend to reduce the overall
customer demand for the Company's products and services, thereby decreasing the
Company's operating income. There can be no assurance that economic and other
factors that might affect the aviation industry will not have an adverse impact
on the Company's results of operations. See "-- Industry Overview and Trends."
Capital Requirements and Integration of Acquired Businesses. A key element
of the Company's strategy has been, and continues to be, internal growth and
growth through the acquisition of additional companies engaged in the aviation
industry. In order to grow internally, the Company will be required to make
significant capital expenditures. The Company's ability to grow by acquisition
is dependent upon, and may be limited by, the availability of suitable
acquisition candidates and capital, and by certain restrictions contained in the
Company's revolving credit facility (the "Credit Facility") and its other
financing arrangements. In addition, growth by acquisition involves risks that
could adversely affect the Company's operating results, including difficulties
in integrating the operations and personnel of acquired companies, the potential
amortization of acquired intangible assets and the potential loss of key
employees of acquired companies. There can be no assurance that the Company will
be able to obtain the capital necessary to pursue its internal growth and
acquisition strategy, consummate acquisitions on satisfactory terms or, if any
such acquisitions are consummated, satisfactorily integrate such acquired
businesses into the Company. See "-- Company Strategy" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
Competition. There are numerous competitors of the Company in both the
aviation services and metals processing and distribution industries. Competition
in the aviation industry comes from three primary sources: major commercial
airlines, many of which operate their own maintenance and overhaul units; OEMs,
which manufacture, repair and overhaul their own components; and other
independent service companies. The Company's principal competitors in the metals
industry include national and regional steel mills, other steel service centers,
steel erection companies and pre-engineered building manufacturers. Certain of
the Company's competitors in both aviation and metals have substantially greater
financial and other resources than the Company. There can be no assurance that
competitive pressures in either industry will not materially and adversely
affect the Company's business, financial condition or results of operations. See
"-- Competition."
Government Regulation and Industry Oversight. The aviation industry is
highly regulated in the United States by the FAA and in other countries by
similar agencies. The Company must be certified by the FAA and, in some cases,
by individual OEMs in order to engineer and service parts and components used in
specific aircraft models. If material authorizations or approvals were revoked
or suspended, the operations of the Company would be adversely affected. New and
more stringent government regulations may be adopted, or industry oversight
heightened, in the future and such new regulations, if enacted, or any industry
oversight, if heightened, may have an adverse impact on the Company. See
"-- Government Regulation."
Fluctuations in Operating Results. The Company's overall operating results
are affected by many factors, including the timing of orders from large
customers and the timing of expenditures to manufacture parts and purchase
inventory in anticipation of future sales of products and services. A large
portion of the Company's operating expenses are fixed. Because several operating
divisions and subsidiaries of the Company typically do not obtain long-term
purchase orders or commitments from their customers, they must anticipate the
future volume of orders based upon the historic purchasing patterns of their
customers and upon their discussions with customers as to their future
requirements. Cancellations, reductions or delays in orders by a customer or
group of customers could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Dependence on Key Customers. There are no customers of the Company that
accounted for more than 10% of the Company's consolidated revenues during the
last fiscal year. Certain of the Company's operating divisions and subsidiaries
have significant customers, the loss of whom could have a material adverse
effect on their respective businesses.
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Technological Developments. The aviation industry is constantly undergoing
development and change, and accordingly, it is likely that new products,
equipment and methods of repair and overhaul service will be introduced in the
future. In order to keep pace with any new developments, the Company may need to
expend significant capital to purchase new equipment and machines or to train
its employees in the new methods of production and service. There can be no
assurance that the Company will be successful in developing new products or that
such capital expenditures will not have a material adverse effect on the
Company.
Risks Regarding the Company's Inventory. The Company offers to maintain
and manage inventories of aircraft components and other products for certain of
its customers. In addition, certain of the Company's customers require the
Company to maintain and manage their inventories. If this inventory is not used
by the Company, because the Company ceases to supply such customers with the
related products or services or because such components or other products become
obsolete, the Company will not realize any income to offset the expenses
incurred by the Company to acquire and maintain such inventory.
Reliance on Skilled Personnel. From time to time certain of the Company's
operating divisions and subsidiaries have experienced difficulties in attracting
and retaining skilled personnel to design, engineer, manufacture or repair and
overhaul sophisticated aircraft components. The ability of the Company to
operate successfully could be jeopardized if the Company is unable to attract
and retain a sufficient number of skilled personnel.
Existence of Collective Bargaining Agreements. Several of the Company's
subsidiaries are parties to collective bargaining agreements with labor unions.
None of these collective bargaining agreements will expire in the next 12
months. In the aggregate under those agreements, the Company currently employs
approximately 226 full-time employees, and from time to time employs up to an
additional 150 temporary employees for its steel erection business, all of whom
are members of labor unions. Currently, approximately 18% of the Company's
permanent employees are represented by labor unions and approximately 23.5% of
the Aviation Group's revenues and 87.6% of the Metals Group's revenues are
derived from the operating divisions and subsidiaries a portion of whose
employees are unionized. The Company's inability to negotiate acceptable
contracts with these unions could result in strikes by the affected workers and
increased operating costs as a result of higher wages or benefits paid to union
members. If the unionized workers were to engage in a strike or other work
stoppage, or other employees were to become unionized, the Company could
experience a significant disruption of its operations and higher ongoing labor
costs, which could have an adverse effect on the Company's business and results
of operations. See "-- Employees."
Product Liability; Claims Exposure. The Company's overall operations
expose it to potential liabilities for personal injury or death as a result of
the failure of an aircraft component that has been serviced by the Company, the
failure of an aircraft component designed or manufactured by the Company or the
irregularity of metal products processed or distributed by the Company. While
the Company believes that its liability insurance is adequate to protect it from
such liabilities and while no material claims have been made against the
Company, no assurance can be given that claims will not arise in the future or
that such insurance coverage will be adequate. Additionally, there can be no
assurance that insurance coverage can be maintained in the future at an
acceptable cost. Any such liability not covered by insurance or for which third
party indemnification is not available could have a material adverse effect on
the financial condition of the Company. See "Legal Proceedings."
Potential Exposure to Environmental Liabilities. The Company's business
operations and facilities are subject to a number of federal, state and local
environmental laws and regulations. Although management believes that the
Company's operations and facilities are in material compliance with such laws
and regulations, there can be no assurance that future changes in such laws,
regulations or interpretations thereof or the nature of the Company's operations
will not require the Company to make significant additional capital expenditures
to ensure compliance in the future. Certain of the Company's facilities are
currently the subject of environmental remediation activities, the cost of which
is subject to indemnification provided by Alco in connection with the
Acquisition. One of these facilities is connected with a site included on the
National Priorities List of Superfund sites maintained by the EPA. Another of
these facilities is located on a site included in the EPA's database of
potential Superfund sites. The Alco indemnification covers both (i) the costs
and claims associated with all of these environmental remediation activities and
liabilities, and (ii) the costs of unidentified environmental liabilities that
arise from conditions or activities existing at facilities
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acquired from Alco prior to their acquisition from Alco and that are identified
before July 22, 2000. For a more detailed description of the Alco
indemnification, see "-- Environmental Matters." Another of the Company's
facilities leased from Teleflex is located on a site placed on the EPA's
National Priorities List prior to its acquisition by the Company, and is subject
to indemnification provided by Teleflex for environmental liabilities arising
from activities or conditions existing at this facility prior to the Company's
acquisition thereof. The Company does not maintain environmental liability
insurance, and if the Company were required to pay the expenses related to these
environmental liabilities, such expenses could have a material adverse effect on
the Company. See "-- Environmental Matters."
ITEM 2. PROPERTIES
The Company's executive offices are located in Wayne, Pennsylvania, where
the Company leases 5,100 square feet of space. This lease expires in September
2000. In addition, the Company currently owns or leases the following facilities
in which its operating divisions and subsidiaries are located:
SQUARE OWNED/LEASE
LOCATION DESCRIPTION FOOTAGE EXPIRATION
- --------------------------------- --------------------------------- ------- -----------
Aviation Group
Chandler, AZ................... Thermal processing facility and 7,000 2017
office
Phoenix, AZ.................... Plasma spray facility and office 13,500 2000
Phoenix, AZ.................... Repair and overhaul shop and 50,000 1999
office
Tempe, AZ...................... Manufacturing facility and office 13,500 Owned
Tempe, AZ...................... Machine shop 9,300 Owned
Glendale, CA................... Instrument shop, warehouse and 25,000 2005
office
Milpitas, CA................... Warehouse, repair shop and office 3,700 1997
Sun Valley, CA................. Machine shop and office 30,000 Owned
Ft. Lauderdale, FL............. Instrument shop, warehouse and 7,190 2002
office
Shelbyville, IN................ Manufacturing facility and office 192,300 Owned
Wellington, KS................. Repair and overhaul and office 90,000 1997
Albany, OR..................... Machine shop and office 25,000 Owned
North Wales, PA................ Manufacturing facility and office 111,400 2002
Fort Worth, TX................. Manufacturing facility and office 114,100 Owned
Georgetown, TX................. Instrument shop, warehouse and 2,240 1997
office
Seattle, WA.................... Instrument shop, warehouse and 10,000 1998
office
Metals Group
Bridgeview, IL................. Steel processing facility and 135,700 2006
office
Chicago, IL.................... Steel distribution facility and 140,000 Owned
office
Hutchinson, KS................. Manufacturing facility and office 75,000 Owned
Cleveland, OH.................. Steel fabrication facility and 163,000 Owned
office
Plain City, OH................. Office 2,000 1997
The Company believes that its properties are adequate to support its
operations for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
The Company is not presently involved in any material legal proceedings
outside of the ordinary course of business. The Company may in the future be
named as a defendant in lawsuits involving product defects, breach of warranty
or other actions relating to products that it manufactures or products that it
distributes that are manufactured by others. The Company believes that its
potential exposure is adequately covered by its aviation product and general
liability insurance.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock is traded on the New York Stock Exchange under the symbol
"TGI." The following table sets forth the range of high and low closing prices
for the Common Stock for the periods indicated:
HIGH LOW
---- ---
FISCAL 1997
3rd Quarter(1).............................................. $27 1/4 $20 7/8
4th Quarter................................................. 31 3/4 24
- ---------------
(1) Commencing on October 25, 1996, the day on which trading commenced following
the Company's initial public offering.
As of May 30, 1997, the reported closing price for the Common Stock was
$25 5/8. As of May 30, 1997, there were approximately 54 holders of record of
the Common Stock and the Company believes that its Common Stock was beneficially
owned by 758 persons.
The Company has never declared or paid cash dividends on any class of its
Common Stock and does not anticipate paying any cash dividends in the
foreseeable future. The Company currently intends to retain its earnings, if
any, and reinvest them in the development of its business. The Credit Facility,
the Teleflex Note and the Alco Note prohibit the Company from paying dividends
or making any distributions on its capital stock, except for the payment of
stock dividends and redemptions of an employee's shares of capital stock upon
termination of employment. At such time as no senior debt, such as the Credit
Facility, is outstanding, the Company is permitted by the Alco Note, but not by
the Teleflex Note, to pay dividends from 50% of excess cash flow.
Recent Sales of Unregistered Securities
The following sales of securities of the Company, including its
subsidiaries, took place on the dates indicated (transactions shown give
retroactive effect to the 65-for-one stock split of the Company's capital stock
immediately prior to the Company's initial public offering):
In July 1996, in connection with the acquisition of AMTI, the Company
granted to the President of AMTI an option to purchase 13,000 shares of the
Company's Class A Common Stock, par value $.001 per share ("Class A Common
Stock") at an exercise price of $1.87 per share and sold to such President
$17,162 principal amount of the Company's 14% junior subordinated promissory
notes ("14% JSDs"). The option was exercised on August 30, 1996. The 13,000
shares of Class A Common Stock and the 14% JSDs were subsequently exchanged into
13,000 and 1,027 shares of Common Stock, respectively, upon the Company's
initial public offering.
In August 1996, the Company granted to the President of Aerospace
Technologies, Inc., a subsidiary of the Company ("ATI"), an option to purchase
7,800 shares of Class A Common Stock at an exercise price of $1.87 per share,
and sold to such President $10,517 principal amount of the Company's 14% JSDs.
The option was exercised on September 25, 1996. The 7,800 shares of Class A
Common Stock and the 14% JSDs held by such President were exchanged into 7,800
and 616 shares of Common Stock, respectively, upon the Company's initial public
offering.
The foregoing transactions were deemed exempt from registration under the
Securities Act of 1933, as amended, pursuant to Section 4(2) thereof.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected historical financial data should be read in
conjunction with the Consolidated Financial Statements and related Notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included herein.
PREDECESSOR COMPANY TRIUMPH GROUP, INC.
---------------------------- --------------------------------------------
EIGHT MONTHS TEN MONTHS
YEAR ENDED ENDED ENDED YEARS ENDED MARCH 31,
SEPTEMBER 30, MAY 31, MARCH 31, -------------------------------
1992(1) 1993(1) 1994 1995 1996(2) 1997(2)
------------- ------------ ---------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
HISTORICAL OPERATING DATA:
Aviation Group
Net sales................................... $ 76,346 $ 46,517 $ 57,257 $ 70,714 $ 100,166 $167,731
Cost of products sold....................... 55,254 34,568 39,941 51,395 70,643 110,932
------- ------- ------- ------- -------- --------
Gross profit................................ 21,092 11,949 17,316 19,319 29,523 56,799
Selling, general and administrative......... 9,161 5,830 6,799 8,761 12,915 24,228
Depreciation and amortization............... 2,060 1,413 1,379 1,780 2,513 5,066
------- ------- ------- ------- -------- --------
Operating income, before corporate
expense(3)................................ 9,871 4,706 9,138 8,778 14,095 27,505
Metals Group
Net sales................................... 78,258 57,216 72,738 93,451 86,608 82,747
Cost of products sold....................... 60,178 45,293 57,154 74,441 69,097 65,118
------- ------- ------- ------- -------- --------
Gross profit................................ 18,080 11,923 15,584 19,010 17,511 17,629
Selling, general and administrative......... 10,741 7,704 9,614 11,715 11,874 12,177
Depreciation and amortization............... 832 658 594 916 999 979
------- ------- ------- ------- -------- --------
Operating income, before corporate
expense................................... 6,507 3,561 5,376 6,379 4,638 4,473
------- ------- ------- ------- -------- --------
Combined operating income, before corporate
expense................................... $ 16,378 $ 8,267 14,514 15,157 18,733 31,978
======= =======
Corporate expense(4)........................ 1,573 1,606 2,522 4,371
Interest expense............................ 4,908 6,589 7,318 6,591
------- ------- -------- --------
Income from continuing operations, before
income taxes and extraordinary loss....... 8,033 6,962 8,893 21,016
Income tax expense.......................... 3,125 2,598 3,699 8,461
------- ------- -------- --------
Income from continuing operations, before
extraordinary loss........................ 4,908 4,364 5,194 12,555
Extraordinary loss, net of income taxes..... -- -- -- (1,478)
Income (loss) from discontinued
operations................................ (462) (2,852) 4,496 --
------- ------- -------- --------
Net income.................................. $ 4,446 $ 1,512 $ 9,690 $ 11,077
======= ======= ======== ========
Earning per share(5):
Income from continuing operations, before
extraordinary loss(5)..................... $ 0.73 $ 0.68 $ 0.80 $ 1.50
Shares used in computing earnings per
share(5).................................. 7,180 7,268 7,369 8,648
BALANCE SHEET DATA:
Working capital............................... $ 32,360 $ 33,296 $ 49,152 $ 39,609 $ 60,379 $ 56,288
Total assets.................................. 154,343 152,761 104,905 111,386 161,406 171,315
Long-term debt, including current portion..... 64,477 69,013 74,403 71,738 98,769 24,392
Redeemable preferred stock.................... -- -- 1,423 1,912 2,652 --
Total stockholders' equity.................... 69,283 63,398 5,080 6,094 15,065 91,413
- ---------------
(1) Financial information related to the year ended September 30, 1992 and the
eight month period ended May 31, 1993 is unaudited and represents operating
results for the divisions and subsidiaries of the predecessor company which
were purchased by the Company as of June 1, 1993. Information is provided
through operating income to assist the reader in evaluating the Company's
historical operating trends. Financial information after operating income is
excluded as the information is not comparable to
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subsequent periods because of the significantly changed corporate
organization and capital structure which resulted from the Acquisition.
(2) The operating results of TCI, Air Lab and AMTI are included since the dates
of acquisition, January 1, 1996, October 2, 1995 and July 31, 1996,
respectively. The combined operations of TCI, Air Lab and AMTI contributed
$11.0 million and $62.7 million to the Aviation Group's net sales and $2.3
million and $15.4 million to the Aviation Group's operating income, before
corporate expense, for the fiscal years ended March 31, 1996 and 1997,
respectively.
(3) Operating income, before corporate expense, is presented by group to assist
the reader in evaluating each of the group's results of operations before
financing and corporate expenses.
(4) Corporate expenses primarily consist of compensation, rent and general costs
related to the operation of the Company's corporate office and other general
expenses of the Company including professional fees.
(5) Earnings per share information represents the Company's per share data and
weighted average Common Stock outstanding, restated to give retroactive
effect to the 65-for-one stock split effected immediately prior to the
Company's initial public offering, the dilutive effects of warrants, stock
issued during the period commencing 12 months prior to the Company's initial
public offering at prices below the public offering price, the conversion of
all of the Company's capital stock and junior subordinated promissory notes
("JSDs") immediately prior to the Company's initial public offering, the
exchange of capital stock and JSDs immediately prior to the Company's
initial public offering into shares of Common Stock and shares of the
Company's Class D Common Stock, par value $.001 per share, and an adjustment
for the interest on the JSDs net of tax expense. Primary and fully diluted
earnings per share are the same.
ITEM 7. 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.)
FISCAL YEAR ENDED MARCH 31, 1997 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1996
Aviation Group
Net sales. Net sales for the Aviation Group increased by $67.6 million, or
67.5%, to $167.7 million for fiscal 1997 from $100.2 million for fiscal 1996.
This increase was primarily due to the inclusion of an aggregate of $62.7
million and $11.0 million in net sales for TCI, Air Lab and AMTI in fiscal 1997
and fiscal 1996, respectively. Net sales for the other operating divisions and
subsidiaries in the Aviation Group, experienced a 17.8% increase in net sales
over fiscal 1996. Increased demand for overhaul and repair services from the
commercial airlines and cargo carriers, as well as increased orders of aircraft
components from OEMs, accounted for the increase in net sales in the Aviation
Group.
Costs of products sold. Costs of products sold for the Aviation Group
increased by $40.3 million, or 57.0%, to $110.9 million for fiscal 1997 from
$70.6 million for fiscal 1996. This increase was primarily due to inclusion of
$35.5 million and $6.0 million in fiscal 1997 and fiscal 1996, respectively, of
costs of products sold associated with net sales generated by TCI, Air Lab and
AMTI. The remaining increase is associated with the increase in net sales of the
remaining operating divisions and subsidiaries in the Aviation Group.
Gross profit. Gross profit for the Aviation Group increased by $27.3
million, or 92.4%, to $56.8 million for fiscal 1997 from $29.5 million for
fiscal 1996. Of this increase, $22.2 million was a result of the inclusion of
gross profit on the net sales generated by TCI, Air Lab and AMTI. In addition,
$5.1 million of gross profit was generated on the increased sales volume of the
other operating divisions and subsidiaries in the Aviation Group. As a
percentage of net sales, gross profit for the Aviation Group was 33.9% and 29.5%
for fiscal 1997 and fiscal 1996, respectively.
Selling, general and administrative expenses. Selling, general and
administrative expenses for the Aviation Group increased by $11.3 million, or
87.6%, to $24.2 million for fiscal 1997 from $12.9 million for fiscal 1996, due
to increased sales volume and the TCI, Air Lab and AMTI acquisitions.
17
19
Depreciation and amortization. Depreciation and amortization for the
Aviation Group increased by $2.6 million, or 101.6%, to $5.1 million for fiscal
1997 from $2.5 million for fiscal 1996, primarily due to the assets acquired in
connection with the TCI, Air Lab and AMTI acquisitions.
Operating income. Operating income for the Aviation Group increased by
$13.4 million, or 95.1%, to $27.5 million for fiscal 1997 from $14.1 million for
fiscal 1996. This increase was assisted by the growth in aircraft production and
the increased outsourcing of repair and overhaul services by commercial aircraft
operators. This increase was also due to the addition of net sales and profits
generated by TCI, Air Lab, and AMTI, as well as the incremental operating income
resulting from increased sales volume. As a percentage of net sales, operating
income for the Aviation Group was 16.4% and 14.1% for fiscal 1997 and fiscal
1996, respectively.
Metals Group
Net sales. Net sales for the Metals Group decreased by $3.9 million, or
4.5%, to $82.7 million for fiscal 1997 from $86.6 million for fiscal 1996. This
decrease was primarily due to reduced sales volume at the Company's steel
erecting facility.
Costs of products sold. Costs of products sold for the Metals Group
decreased by $4.0 million, or 5.8%, to $65.1 million for fiscal 1997 from $69.1
million for fiscal 1996. This decrease was primarily due to the reduced sales
volume as a result of reorganizing the fabrication operations at the Company's
steel erecting facility.
Gross profit. Gross profit for the Metals Group increased by $.1 million,
or .7%, to $17.6 million for fiscal 1997 from $17.5 million for fiscal 1996, due
to the reasons discussed above. As a percentage of net sales, gross profit for
the Metals Group was 21.3% and 20.2% for fiscal 1997 and fiscal 1996,
respectively.
Selling, general and administrative expenses. Selling, general and
administrative expenses for the Metals Group increased by $.3 million, or 2.6%,
to $12.2 million for fiscal 1997 from $11.9 million for fiscal 1996.
Depreciation and amortization. Depreciation and amortization for the
Metals Group remained unchanged at $1.0 million for fiscal 1997 and 1996.
Operating income. Operating income for the Metals Group decreased by $.1
million, or 3.6%, to $4.5 million for fiscal 1997 from $4.6 million for fiscal
1996, due to the reasons discussed above. As a percentage of net sales,
operating income for the Metals Group was 5.4% for both years.
Overall Results
Corporate expenses. Corporate expenses increased by $1.9 million, or
73.3%, to $4.4 million for fiscal 1997 from $2.5 million for fiscal 1996. This
increase was primarily due to additional incentive compensation, staffing and
professional fees associated with public company reporting requirements.
Interest expense. Interest expense decreased by $0.7 million, or 9.9%, to
$6.6 million for fiscal 1997 from $7.3 million for fiscal 1996. This decrease
was primarily due to reduced debt levels associated with the application of the
proceeds from the initial public offering of the Company's Common stock and the
proceeds from the sale of Quality Park Products, Inc. ("Quality Park"),
partially offset by the acquisitions of TCI, Air Lab, and AMTI, the cash
portions of which were financed by borrowings under the Company's credit
agreement.
Income tax expense. The effective tax rate was 40.3% for fiscal 1997 and
41.6% for fiscal 1996.
Income from continuing operations, before extraordinary loss. Income from
continuing operations, before extraordinary loss increased by $7.4 million, or
141.7%, to $12.6 million for fiscal 1997 from $5.2 million for fiscal 1996. This
increase was primarily due to the contribution generated by TCI, Air Lab and
AMTI and the overall favorable conditions in the aviation industry resulting in
increased net sales of the Company's products and services.
18
20
Income from discontinued operations. The Company had income from
discontinued operations of $4.5 million in fiscal 1996, principally as a result
of the sale of Quality Park, which resulted in an after-tax gain of $2.5
million, and improved operating results at Quality Park due to the favorable
effects of restructuring efforts.
Extraordinary loss. An extraordinary loss in fiscal 1997 of $1.5 million
(net of tax benefit of $1.0 million), relates to prepayment premiums and the
related write-off of unamortized deferred financing costs due to the early
retirement of 11% senior subordinated notes, senior term loans and the revolving
credit facility.
Net income. Net income increased by $1.4 million, or 14.3%, to $11.1
million for fiscal 1997 from $9.7 million for fiscal 1996. The increase in
fiscal 1997 net income was primarily attributable to the strong results of the
Aviation Group, partially offset by the extraordinary loss recorded in fiscal
1997 and the comparison to fiscal 1996 which included the results of
discontinued operations.
FISCAL YEAR ENDED MARCH 31, 1996 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1995
Aviation Group
Net sales. Net sales for the Aviation Group increased by $29.5 million, or
41.6%, to $100.2 million for fiscal 1996 from $70.7 million for fiscal 1995.
This increase was primarily due to an $18.4 million increase in net sales for
the operating divisions and subsidiaries in the Aviation Group, representing a
26.0% increase in net sales over fiscal 1995, and the inclusion of an aggregate
of $11.0 million in net sales for TCI and Air Lab. Increased demand for overhaul
and repair services from the commercial airlines and cargo carriers, as well as
increased orders of aircraft components from OEMs, accounted for the increase in
net sales in the Aviation Group.
Costs of products sold. Costs of products sold for the Aviation Group
increased by $19.2 million, or 37.5%, to $70.6 million for fiscal 1996 from
$51.4 million for fiscal 1995. This increase was primarily due to $6.4 million
of increased costs of products sold associated with net sales generated by TCI
and Air Lab. The remaining increase is associated with the increase in net sales
of the remaining operating divisions and subsidiaries in the Aviation Group.
Gross profit. Gross profit for the Aviation Group increased by $10.2
million, or 52.8%, to $29.5 million for fiscal 1996 from $19.3 million for
fiscal 1995. Of this increase, $5.0 million was a result of the increased sales
volume and $0.6 million was a result of improved margins at the operating
divisions and subsidiaries in the Aviation Group. This increase was also
attributable to the inclusion of $4.6 million of gross profit on the net sales
generated by TCI and Air Lab. As a percentage of net sales, gross profit for the
Aviation Group was 29.5% and 27.3% for fiscal 1996 and fiscal 1995,
respectively.
Selling, general and administrative expenses. Selling, general and
administrative expenses for the Aviation Group increased by $4.2 million, or
47.4%, to $12.9 million for fiscal 1996 from $8.8 million for fiscal 1995, due
to increased sales volume and the TCI and Air Lab acquisitions.
Depreciation and amortization. Depreciation and amortization for the
Aviation Group increased by $0.7 million, or 41.2%, to $2.5 million for fiscal
1996 from $1.8 million for fiscal 1995, primarily due to the assets acquired in
connection with the TCI and Air Lab acquisitions.
Operating income. Operating income for the Aviation Group increased by
$5.3 million, or 60.6%, to $14.1 million for fiscal 1996 from $8.8 million for
fiscal 1995. This increase was assisted by the growth in aircraft production and
the increased outsourcing of repair and overhaul services by commercial aircraft
operators. This increase was also due to the addition of net sales and profits
generated by TCI and Air Lab, as well as the incremental operating income
resulting from increased sales volume. As a percentage of net sales, operating
income for the Aviation Group was 14.1% and 12.4% for fiscal 1996 and fiscal
1995, respectively.
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Metals Group
Net sales. Net sales for the Metals Group decreased by $6.8 million, or
7.3%, to $86.6 million for fiscal 1996 from $93.5 million for fiscal 1995. This
decrease was primarily due to weakened demand and lower selling prices for
flatrolled steel products processed by the Company. In addition, the Company's
electrogalvanized products experienced greater competition from hot-dipped
rolled steel products.
Costs of products sold. Costs of products sold for the Metals Group
decreased by $5.3 million, or 7.2%, to $69.1 million for fiscal 1996 from $74.4
million for fiscal 1995. This decrease was primarily due to the reduced sales
volume and lower costs of raw materials.
Gross profit. Gross profit for the Metals Group decreased by $1.5 million,
or 7.9%, to $17.5 million for fiscal 1996 from $19.0 million for fiscal 1995,
due to the reasons discussed above. As a percentage of net sales, gross profit
for the Metals Group was 20.2% and 20.3% for fiscal 1996 and fiscal 1995,
respectively.
Selling, general and administrative expenses. Selling, general and
administrative expenses for the Metals Group increased by $0.2 million, or 1.4%,
to $11.9 million for fiscal 1996 from $11.7 million for fiscal 1995.
Depreciation and amortization. Depreciation and amortization for the
Metals Group increased by $0.1 million, or 9.1%, to $1.0 million for fiscal 1996
from $0.9 million for fiscal 1995. This increase was primarily due to
depreciation of certain assets recently placed into service.
Operating income. Operating income for the Metals Group decreased by $1.7
million, or 27.3%, to $4.6 million for fiscal 1996 from $6.4 million for fiscal
1995, due to reasons discussed above. As a percentage of net sales, operating
income for the Metals Group was 5.4% and 6.8% for fiscal 1996 and fiscal 1995,
respectively.
Overall Results
Corporate expenses. Corporate expenses increased by $0.9 million, or
57.0%, to $2.5 million for fiscal 1996 from $1.6 million for fiscal 1995. This
increase was primarily due to additional incentive compensation, staffing and
professional fees.
Interest expense. Interest expense increased by $0.7 million, or 11.1%, to
$7.3 million for fiscal 1996 from $6.6 million for fiscal 1995. This increase
was primarily due to increased debt levels associated with the acquisitions of
TCI and Air Lab, the cash portions of which were financed by borrowings under
the Company's credit agreement.
Income tax expense. The effective tax rate was 41.6% for fiscal 1996 and
37.3% for fiscal 1995.
Income from continuing operations. Income from continuing operations
increased by $0.8 million, or 19.0%, to $5.2 million for fiscal 1996 from $4.4
million for fiscal 1995. This increase was primarily due to the net sales
generated by TCI and Air Lab and the overall favorable conditions in the
aviation industry resulting in increased net sales of the Company's products and
services.
Income (loss) from discontinued operations. The Company had income from
discontinued operations of $4.5 million in fiscal 1996, principally as a result
of the sale of Quality Park, which resulted in an after-tax gain of $2.5
million, and improved operating results at Quality Park due to the favorable
effects of restructuring efforts. The Company had a loss from discontinued
operations of $2.9 million in fiscal 1995 due to $2.0 million in operating
losses at Quality Park and a $0.9 million loss on the sale of certain assets of
Quality Park.
Net income. Net income increased by $8.2 million, or 540.9%, to $9.7
million for fiscal 1996 from $1.5 million for fiscal 1995. Of this increase,
$7.3 million was attributable to the income from the discontinued Quality Park
operations in fiscal 1996 as compared to the loss at these operations during
fiscal 1995. The increase in fiscal 1996 net income was also attributable to the
strong results of the Aviation Group, partially offset by a decline in
profitability in the Metals Group. As a percentage of net sales, net income was
5.2% and 0.9% for fiscal 1996 and fiscal 1995, respectively.
20
22
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital needs are generally funded through cash flows
from operations and the credit agreement. The Company provided approximately
$8.1 million from operating activities and $11.2 million from investing
activities while using $18.9 million in financing activities, net of the
Company's initial public offering, primarily for retirement of debt for the
fiscal year ended March 31, 1997. As of March 31, 1997, $75.3 million was
available under the revolving credit facility.
On July 19, 1996, the Company entered into an unsecured five-year credit
agreement for $85.0 million ($50.0 million revolver and $35.0 million term
loan). On December 31, 1996, the Company amended the credit agreement increasing
the revolving credit facility to $85.0 million and retiring the term loan. The
term loan of $33.8 million was retired using proceeds from the Company's initial
public offering and borrowings under the Company's revolving credit facility.
On March 31, 1997, the Company entered into the Credit Facility with its
lenders to extend the maturity date of the existing credit agreement, reduce
interest rates and amend certain covenants. The Credit Facility contains
restrictions and covenants applicable to the Company which include limitations
on the ability to incur additional indebtedness, issue stock options or
warrants, make certain restricted payments and acquisitions, create liens, enter
into transactions with affiliates, sell substantial portions of its assets and
make capital expenditures. The Company's long-term debt generally prohibits the
Company from paying any dividends or making any distributions on its capital
stock.
The proceeds of borrowings under the Credit Facility and the proceeds from
the sale of the discontinued paper operations of Quality Park were used to
extinguish the outstanding balances of the revolving credit facility, the senior
term loans and the senior subordinated notes existing at March 31, 1996. The
early extinguishment of this debt resulted in an extraordinary loss of
approximately $1.5 million, net of an income tax benefit of approximately $1.0
million.
The Company's outstanding subordinated promissory notes consist of two
notes in the aggregate principal amount of $14.2 million at March 31, 1997.
Approximately $5.5 million was repaid on October 31, 1996 with the proceeds of
the Company's initial public offering.
The Company's 14% junior subordinated promissory notes were unsecured
obligations of the Company which were issued to certain members of management
and certain shareholders of the Company. In October 1996, these notes aggregated
approximately $9.5 million, including principal and accrued interest, and were
converted into common stock immediately prior to the consummation of the
Company's initial public offering.
The Company's 10.5% junior subordinated promissory notes are unsecured
obligations of the Company, which are contractually subordinated to all
liabilities of TCI and its subsidiaries. These notes were issued to TFX
Equities, Inc. and certain members of management of TCI and are due in equal
installments on December 31, 2005 and 2006, although the holders of these notes
have no right to demand payment of principal until all superior debt, as
defined, has been paid in full.
On July 31, 1996, the Company acquired all of the outstanding stock of AMTI
based in Tempe, Arizona for an aggregate purchase price of approximately $21.2
million, including cash consideration of approximately $8.0 million, an option
to purchase 13,000 shares of the Company's Class A common stock at an exercise
price of $1.87 per share, a five-year covenant not-to-compete contract valued at
$2.8 million and the assumption of liabilities and costs related to the
transaction of approximately $10.3 million. The acquisition was accounted for
under the purchase method, and the purchase price was allocated to the assets
based on their estimated fair values, with any excess recorded as cost over net
assets acquired. The acquisition was funded through the Company's long-term
borrowings.
Capital expenditures were approximately $8.2 million for the fiscal year
ended March 31, 1997 primarily for manufacturing machinery and equipment for the
Aviation Group. The Company funded these expenditures through borrowings under
its credit arrangements. The Company expects capital expenditures to be
approximately $11.0 million for its fiscal year ending March 31, 1998. Of this
amount, approximately $2.0 million is expected to be used to expand capacity at
the Company's stretch forming operations and the
21
23
remainder will be used for upgrades of information systems, machinery and
equipment, primarily for the Aviation Group. The Company believes that cash
generated by operations and borrowings under the Credit Facility will be
sufficient to meet anticipated cash requirements for the next 12 months.
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 were successfully purchased, the
availability under the Credit Facility might be fully utilized and additional
cash requirements might have to be sourced. Given the Company's operating
results and the earnings potential of the acquisitions, various capital sources
should be receptive to fund the additional requirements.
In the third quarter of fiscal 1997, the Company completed the sale of
2,875,000 shares of its Common stock for $19.00 per share through an
underwritten public offering and the sale of 125,000 shares of its Common stock
for $17.67 per share through a direct sale by the Company. The net proceeds from
the sales, of approximately $51.8 million, were used to pay down a portion of
the Company's long-term borrowings under its five-year credit agreement and $5.5
million of the 10% subordinated promissory note.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 relating to the Company's
future operations and prospects, including statements that are based on current
projections and expectations about the markets in which the Company operates,
and management's beliefs concerning future performance and capital requirements
based upon current available information. Actual results could differ materially
from management's current expectations and there can be no assurance that
additional capital will not be required or that additional capital, if required,
will be available on reasonable terms, if at all, at such times and in such
amounts as may be needed by the Company. In addition to these factors, among
other factors that could cause actual results to differ materially are
uncertainties relating to the integration of acquired businesses, general
economic conditions affecting the Company's two business segments, dependence of
certain of the Company's businesses on certain key customers as well as
competitive factors relating to the aviation and metals industries. For a more
detailed discussion of these and other factors affecting the Company, see the
risk factors described in the Company's registration statement on Form S-1 filed
with Securities and Exchange Commission and in Item 1 of this Annual Report on
Form 10-K.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of Triumph Group, Inc.
We have audited the accompanying consolidated balance sheets of Triumph
Group, Inc. as of March 31, 1997 and 1996, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended March 31, 1997. Our audits also included the financial
statement schedule listed in the index at Item 14(a). These financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Triumph Group, Inc. at March 31, 1997 and 1996, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended March 31, 1997, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Philadelphia, Pennsylvania
April 23, 1997
23
25
TRIUMPH GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
MARCH 31,
---------------------
1996 1997
-------- --------
ASSETS
Current assets:
Cash................................................................. $ 539 $ 993
Accounts receivable, less allowance for doubtful accounts:
1996 -- $973 and 1997 -- $1,619................................... 29,680 39,220
Inventories.......................................................... 45,098 54,310
Estimated net realizable value of discontinued operations............ 27,350 --
Prepaid expenses and other........................................... 698 1,036
Deferred income taxes................................................ 1,917 1,795
-------- --------
Total current assets.............................................. 105,282 97,354
Property and equipment, net............................................ 36,552 48,349
Excess of cost over net assets acquired, net........................... 10,339 13,516
Intangible assets and other, net....................................... 9,233 12,096
-------- --------
Total assets................................................. $161,406 $171,315
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................................... $ 18,203 $ 20,461
Accrued expenses..................................................... 15,757 16,255
Income taxes payable................................................. 2,137 3,951
Current portion of long-term debt.................................... 8,806 399
-------- --------
Total current liabilities......................................... 44,903 41,066
Long-term debt, less current portion................................... 89,963 23,993
Deferred income taxes and other........................................ 8,823 14,843
Redeemable preferred stock............................................. 2,652 --
Stockholders' equity:
Common stock, $.001 par value, 15,000,000 shares authorized,
5,801,898 shares issued and outstanding at March 31, 1997......... -- 6
Class D common stock convertible, $.001 par value, 6,000,000 shares
authorized, 3,947,690 shares issued and outstanding at March 31,
1997.............................................................. -- 4
Common stock; Classes A, B, and C (see Note 8)....................... 6 --
Capital in excess of par value....................................... 1,006 68,479
Retained earnings.................................................... 14,053 22,924
-------- --------
Total stockholders' equity........................................ 15,065 91,413
-------- --------
Total liabilities and stockholders' equity................... $161,406 $171,315
======== ========
See notes to consolidated financial statements.
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26
TRIUMPH GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED MARCH 31,
----------------------------------
1995 1996 1997
-------- -------- --------
Net sales.................................................. $164,165 $186,774 $250,478
-------- -------- --------
Operating costs and expenses:
Cost of products sold.................................... 125,836 139,740 176,050
Selling, general and administrative...................... 22,060 27,288 40,748
Depreciation and amortization............................ 2,718 3,535 6,073
-------- -------- --------
150,614 170,563 222,871
-------- -------- --------
Operating income........................................... 13,551 16,211 27,607
Interest expense........................................... 6,589 7,318 6,591
-------- -------- --------
Income from continuing operations, before income taxes and
extraordinary loss....................................... 6,962 8,893 21,016
Income tax expense......................................... 2,598 3,699 8,461
-------- -------- --------
Income from continuing operations, before extraordinary
loss..................................................... 4,364 5,194 12,555
Extraordinary loss, net of income taxes.................... -- -- (1,478)
Income (loss) from discontinued operations................. (2,852) 4,496 --
-------- -------- --------
Net income................................................. $ 1,512 $ 9,690 $ 11,077
======== ======== ========
Income from continuing operations, before extraordinary
loss per share........................................... $ 0.68 $ 0.80 $ 1.50
Extraordinary loss per share............................... -- -- (0.17)
Income (loss) from discontinued operations per share....... (0.39) 0.61 --
-------- -------- --------
Net income per share....................................... $ 0.29 $ 1.41 $ 1.33
======== ======== ========
Shares used in computing income per share (in thousands)... 7,268 7,369 8,648
======== ======== ========
See notes to consolidated financial statements.
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27
TRIUMPH GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
COMMON CAPITAL IN
STOCK EXCESS OF TREASURY RETAINED
ALL CLASSES PAR VALUE STOCK EARNINGS TOTAL
----------- ---------- -------- --------- -------
Balance at March 31, 1994....................... $ 6 $ 994 $ -- $ 4,080 $ 5,080
Net income.................................... 1,512 1,512
Redeemable preferred stock dividends.......... (473) (473)
Accretion of Redeemable preferred stock....... (16) (16)
Purchase of 26,000 shares of common stock..... (9) (9)
--- ------- ---- ------- -------
Balance at March 31, 1995....................... 6 994 (9) 5,103 6,094
Net income.................................... 9,690 9,690
Redeemable preferred stock dividends.......... (594) (594)
Accretion of Redeemable preferred stock....... (146) (146)
Sale of 26,000 shares of common stock......... 12 9 21
--- ------- ---- ------- -------
Balance at March 31, 1996....................... 6 1,006 -- 14,053 15,065
Net income.................................... 11,077 11,077
Issuance of 3,000,000 shares of common stock 3 51,757 51,760
in public offering and direct sale
(net of $1,250 issuance costs).............
Redeemable preferred stock dividends.......... (370) (370)
Accretion of Redeemable preferred stock....... (1,836) (1,836)
Compensation in stock options issued 80 80
to employee................................
Purchase of 45,500 shares of common stock..... (85) (85)
Acquisition consideration in stock options 164 164
issued.....................................
Exercise of options to purchase common 75 75
stock......................................
Conversion of minority interest in subsidiary 619 619
to common stock............................
Retirement of Treasury Stock.................. (10) 10 --
Exchange of Redeemable preferred stock for 4,858 4,858
common stock...............................
Exchange of junior subordinated promissory 1 10,005 10,006
notes for common stock.....................
--- ------- ---- ------- -------
Balance at March 31, 1997....................... $10 $ 68,479 $ -- $ 22,924 $91,413
=== ======= ==== ======= =======
See notes to consolidated financial statements.
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TRIUMPH GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
YEAR ENDED MARCH 31,
---------------------------------
1995 1996 1997
------- -------- --------
OPERATING ACTIVITIES
Net income.................................................. $ 1,512 $ 9,690 $ 11,077
Adjustments to reconcile net income to net cash provided by
operating activities:
Discontinued operations................................... 3,738 (4,396) --
Depreciation and amortization............................. 2,718 3,535 6,073
Other amortization included in interest expense........... 252 276 206
Provision for doubtful accounts receivable................ 14 243 959
Provision for deferred income taxes....................... 877 719 1,067
Interest on subordinated and junior subordinated
promissory
notes paid by issuance of additional notes............. 993 1,161 1,550
Write-off deferred financing costs........................ -- -- 915
Compensation in stock options issued to employee.......... -- -- 80
Changes in operating assets and liabilities, net of
acquisitions
and dispositions of businesses (see note 17)........... (4,457) 4,873 (13,778)
------- -------- --------
Net cash provided by operating activities................... 5,647 16,101 8,149
------- -------- --------
INVESTING ACTIVITIES
Capital expenditures, net................................... (3,229) (1,897) (8,183)
Proceeds from sale of discontinued operations............... 375 -- 27,350
Proceeds from sale of company, net of cash sold............. 1,192 -- --
Cost of businesses acquired, net of cash acquired........... -- (34,137) (7,950)
------- -------- --------
Net cash (used in) provided by investing activities......... (1,662) (36,034) 11,217
------- -------- --------
FINANCING ACTIVITIES
Net proceeds from common stock offering..................... -- -- 51,760
Net (decrease) increase in revolving credit facility........ (617) 2,129 (23,841)
(Purchase) sale of treasury stock, net...................... (9) 21 (10)
Proceeds from issuance of long-term debt.................... -- 20,827 54,065
Refinancing and retirement of long-term debt................ -- -- (93,616)
Repayment of debt and capital lease obligations............. (3,040) (3,251) (6,872)
Payment of deferred financing cost.......................... -- -- (398)
------- -------- --------
Net cash (used in) provided by financing activities......... (3,666) 19,726 (18,912)
------- -------- --------
Net change in cash.......................................... 319 (207) 454
Cash at beginning of year................................... 427 746 539
------- -------- --------
Cash at end of year......................................... $ 746 $ 539 $ 993
======= ======== ========
See notes to consolidated financial statements.
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29
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. BASIS OF PRESENTATION
Triumph Group, Inc. ("Triumph") is a Delaware corporation which, through
its operating subsidiaries, is engaged in aviation services and metals
converting and distribution.
The accompanying consolidated financial statements include the accounts of
Triumph and its subsidiaries (collectively, the "Company") as of the dates and
for the periods indicated. Intercompany accounts and transactions have been
eliminated from the consolidated financial statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Triumph'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. Triumph's metals segment
manufactures, machines, processes and distributes metal products to customers in
the computer, construction, container, farm equipment and office furniture
industries, primarily within North America. The Company's trade accounts
receivable are exposed to credit risk; however, the risk is limited due to the
diversity of the customer base and the customer base's wide geographical area.
At March 31, 1997, the Company had no significant concentrations of credit risk.
No single customer accounts for more than 10% of the Company's sales; however,
the loss of any significant customer could have a material effect on the Company
and its operating subsidiaries.
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.
Earnings Per Share
Earnings per share for all periods presented is computed using the weighted
average number of shares of common stock outstanding after giving effect to the
65-for-one stock split described in Note 8. Common shares and options issued
during the period commencing 12 months prior to the initial public offering at
prices below the public offering price are presumed to have been in
contemplation of the public offering and are included in the calculation as if
they were outstanding for all periods presented. In addition, common share
equivalents such as warrants and options are included in the computation.
Earnings per share reflected in the consolidated statements of income for
all periods presented has been computed as described above, but also gives
effect to the exchange for common stock of all outstanding 14% junior
subordinated promissory notes and a portion of the 10.5% junior subordinated
promissory notes and all outstanding Redeemable preferred stock. Additionally,
income from continuing operations, before extraordinary loss has been increased
to reflect interest related to the junior subordinated promissory notes net of
income tax expense. Primary and fully diluted earnings per share are the same.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share", which is required to be adopted for annual and
quarterly periods ended after December 15, 1997. At that time, the Company will
be required to change the method currently used to compute earnings per share
and to restate all prior periods presented. Under the new requirements for
calculating primary earnings per share, the dilutive effect of stock options and
warrants will be excluded. The impact is estimated to result in an increase in
primary income from continuing operations, before extraordinary loss per share
for the years ended
28
30
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
March 31, 1995, 1996 and 1997 of $0.07, $0.08 and $0.13 respectively. The impact
of Statement 128 on the calculation of fully diluted earnings per share for
these years is not expected to be material.
Property and Equipment
Property and equipment are recorded at cost and depreciated over the
estimated useful lives of the related assets by the straight-line method.
Buildings and improvements are depreciated over a period of 15 to 39 1/2 years,
and machinery and equipment are depreciated over a period of 7 to 15 years
(except for furnitures, fixtures and computer equipment which is depreciated
over a period of 3 to 10 years).
Effective April 1, 1996, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles and goodwill related to those assets. The
adoption of this standard had no effect on the Company's financial position,
results of operations, or liquidity.
Excess of Cost Over Net Assets Acquired
The excess of cost over the fair value of net assets acquired is being
amortized on a straight-line basis over twenty-five years. Accumulated
amortization at March 31, 1996 and 1997 was $105 and $609, respectively.
Intangible Assets
Intangible assets at March 31, 1996 and 1997 of $6,680 and $9,897,
respectively, consist primarily of patents, trademarks, aerospace designs, and
licensing agreements. Intangible assets are amortized on a straight-line basis
over their estimated useful lives which range from five to twenty-five years.
Accumulated amortization at March 31, 1996 and 1997 was $1,110 and $2,199,
respectively.
Revenue Recognition
Revenues are recorded when services are performed or when products are
shipped except for long-term construction contracts which are recorded on the
percentage-of-completion method based on the relationship between actual costs
incurred and total estimated costs at completion. Estimated costs to complete
for each contract are reviewed periodically as work progresses and appropriate
adjustments are made to revenue recognition percentages, if necessary. In the
event such estimates indicate a loss would be incurred on the contract, the
estimated amount of such loss would be recognized in the period the estimated
loss was determined. Sales from long-term construction contracts approximated
11%, 12% and 7% of total sales for the years ended March 31, 1995, 1996 and
1997, respectively.
Stock-Based Compensation
The Company follows Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for its employee stock-based compensation (see Note 10).
3. ACQUISITIONS
On July 31, 1996, the Company acquired all of the outstanding stock of
Advanced Materials Technologies, Inc. ("AMTI") based in Tempe, Arizona for an
aggregate purchase price of $21,183, including cash consideration of $7,950, an
option to purchase 13,000 shares of the Company's Class A Common Stock at an
exercise price of $1.87 per share valued at $164, a five-year covenant
not-to-compete contract valued at $2,800 and the assumption of liabilities and
costs related to the transaction of $10,269. AMTI repairs and refurbishes
29
31
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
gas turbine engine components used in the aviation industry. The excess of the
purchase price over the fair value of net assets acquired of $2,870 was recorded
as excess of cost over net assets acquired and is being amortized over
twenty-five years on a straight-line basis.
In January 1996, the Company acquired substantially all of the assets of
Triumph Controls, Inc., formerly a division of Teleflex, Incorporated
(Teleflex), for an aggregate purchase price of $40,100. Triumph Controls, Inc.
manufactures and services mechanical controls for a broad range of end users,
primarily in the aviation industry. The purchase price includes cash paid to
Teleflex, a note to Teleflex, assumed liabilities and direct costs of the
acquisition. The aggregate purchase price was allocated to the assets based on
their estimated fair values, including $5,500 of intangible assets (patents,
trademarks and aerospace designs). The Company assumed certain liabilities of
$2,600 and incurred transaction-related costs of approximately $1,000. During
1997, the purchase price and purchase accounting estimates were finalized
resulting in an additional $560 of costs in excess of net assets acquired. In
conjunction with the Company's initial public offering (see Note 8), the Company
exchanged a portion of the common stock of Triumph Controls, Inc. for shares of
Common stock of the Company. As a result of the conversion, $520 was recorded as
excess of cost over net assets acquired to reflect the excess of fair market
value over book value as an increase in the purchase price. The excess of the
purchase price over the fair value of net assets acquired of $10,960 was
recorded as excess of cost over net assets acquired and is being amortized over
twenty-five years on a straight-line basis.
In October 1995, the Company acquired substantially all of the assets of
Air Lab, Inc. of Seattle, WA, for an aggregate purchase price of $3,400. Air
Lab, Inc. services instruments and avionics for the commercial aviation
industry. The purchase price includes cash paid to Air Lab, Inc., a long-term
liability related to a covenant not-to-compete contract, certain assumed
liabilities and direct costs of the acquisition.
These acquisitions have been accounted for under the purchase method and,
accordingly, are included in the consolidated financial statements from their
dates of acquisition. These acquisitions were funded by the Company's long-term
borrowings in place at the date of each respective acquisition.
The following unaudited pro forma information has been prepared assuming
the purchases of AMTI, Triumph Controls, Inc. and Air Lab, Inc. had taken place
at the beginning of the year prior to the year of acquisition:
YEAR ENDED MARCH 31,
---------------------
1996 1997
-------- --------
Net sales.............................................. $230,168 $258,959
Income from continuing operations, before extraordinary
loss................................................. 8,317 13,562
Income from continuing operations, before extraordinary
loss per share....................................... 1.22 1.62
Net income............................................. 12,813 12,084
Net income per share................................... 1.83 1.45
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, plant,
and equipment acquired, and the amortization of the intangible assets 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.
30
32
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
4. DISCONTINUED PAPER OPERATIONS
On March 31, 1996, the Company sold substantially all of the assets of its
paper converting subsidiary, Quality Park Products, Inc. of St. Paul, MN, to
Mail-Well, Inc. for approximately $27,350 in cash and the assumption by the
purchaser of certain liabilities.
The results of Quality Park Products, Inc. have been reported separately as
a component of discontinued operations in the Consolidated Statements of Income.
The following is a summary of the results of operations of the Company's
paper converting business:
YEAR ENDED MARCH
31,
-------------------
1995 1996
------- -------
Net sales................................................ $84,170 $99,531
Income (loss) from operations (net of taxes -- $1,628 and
$1,156, respectively).................................. (2,852) 2,046
Gain on sale (net of taxes -- $1,633 in 1996)............ -- 2,450
------- -------
Income (loss) from discontinued operations............... $(2,852) $ 4,496
======= =======
Interest expense of $1,700 and $2,045 was allocated to Quality Park
Products, Inc. for the years ended March 31, 1995 and 1996, respectively. Such
amounts are included in the income (loss) from discontinued operations of those
years. These costs were allocated based on the operation's actual borrowings.
5. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out or
last-in, first-out methods) or market. The components of inventories are as
follows:
MARCH 31,
-------------------
1995 1996
------- -------
Raw materials............................................ $16,093 $15,863
Work-in-process.......................................... 12,862 17,295
Finished goods........................................... 16,570 21,694
------- -------
Total inventories at current FIFO cost................... 45,525 54,852
Less allowance to reduce certain current FIFO costs to
LIFO basis............................................. 427 542
------- -------
Total inventories........................................ $45,098 $54,310
======= =======
Inventories would have been $427 and $542 higher than reported at March 31,
1996 and 1997, respectively, if the first-in, first-out method of determining
cost had been used for all inventories. Approximately 15% and 12% of the
inventory is valued using the LIFO method at March 31, 1996 and 1997,
respectively.
31
33
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
6. INCOME TAXES
The components of income tax expense related to continuing operations is as
follows:
YEAR ENDED MARCH 31,
----------------------------
1995 1996 1997
------ ------ ------
Current:
Federal........................................ $1,650 $2,689 $6,453
State.......................................... 71 291 941
------ ------ ------
1,721 2,980 7,394
Deferred:
Federal........................................ 685 574 1,169
State.......................................... 192 145 (102)
------ ------ ------
877 719 1,067
------ ------ ------
$2,598 $3,699 $8,461
====== ====== ======
A reconciliation of the statutory federal income tax rate to the effective
tax rate is as follows:
YEAR ENDED MARCH 31,
----------------------
1995 1996 1997
---- ---- ----
Statutory federal income tax rate...................... 34.0% 34.0% 35.0%
State and local income tax rate, net of federal tax
benefit.............................................. 2.5 3.2 2.6
Miscellaneous permanent items and non-deductible
accruals............................................. -- 1.3 0.8
Other.................................................. 0.8 3.1 1.9
---- ---- ----
Effective income tax rate.............................. 37.3% 41.6% 40.3%
==== ==== ====
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts reportable for income tax purposes. The components of
deferred tax assets and liabilities are as follows:
MARCH 31,
-----------------
1996 1997
------ ------
Deferred tax assets:
Alternative minimum and other tax credits................ $1,171 $ --
Accruals and reserves.................................... 942 815
Accounts receivable...................................... 28 315
Inventories.............................................. 2,514 947
------ ------
$4,655 $2,077
Deferred tax liabilities:
Property and equipment................................... $3,491 $6,214
Discontinued operation................................... 2,521 --
Other assets............................................. 3,340 3,240
Prepaid expenses and other............................... 217 812
------ ------
9,569 10,266
------ ------
Net deferred tax liabilities............................... $4,914 $8,189
====== ======
32
34
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Income taxes paid during the years ended March 31, 1995, 1996 and 1997 were
$838, $904 and $6,413, respectively. At March 31, 1996, the Company had
alternative minimum tax credit carryforwards of $1,558 for income tax purposes
which were fully utilized in the current year.
7. LONG-TERM DEBT
Long-term debt consists of the following:
MARCH 31,
-------------------
1996 1997
------- -------
Revolving credit facility................................ $22,157 $ 8,707
Senior term loans........................................ 32,460 --
Senior subordinated notes................................ 14,900 --
Subordinated promissory notes............................ 19,000 14,246
Junior subordinated promissory notes..................... 9,575 407
Other debt and capital lease obligations................. 677 1,032
------- -------
98,769 24,392
Less current portion..................................... 8,806 399
------- -------
$89,963 $23,993
======= =======
On July 19, 1996, the Company entered into an unsecured credit agreement
for a $50,000 revolving credit facility and a $35,000 term loan. The proceeds of
the new term loan, amounts borrowed under the new revolving credit facility and
the proceeds received from the sale of Quality Park Products, Inc. (see Note 4)
were used to extinguish the outstanding balances of the revolving credit
facility, the senior term loans, and the senior subordinated notes existing at
March 31, 1996. The early extinguishment of this debt resulted in an
extraordinary loss of $1,478, net of an income tax benefit of $985 related to
the write-off of unamortized deferred financing fees and prepayment penalties.
On October 30, 1996, the Company paid down the then outstanding balance on
the revolving credit facility using the proceeds from the Company's initial
public offering (see Note 8). On December 31, 1996, the Company amended the
credit agreement increasing the revolving credit facility to $85,000 and
retiring the $33,750 term loan.
On March 31, 1997, the Company entered into an amended and restated credit
agreement ("Credit Facility") with its lenders to extend the maturity date of
the existing credit facility, reduce interest rates and amend certain covenants.
The Credit Facility bears interest at either LIBOR plus between 0.375% and 1.25%
or the prime rate (or the Federal funds rate plus 0.5% if greater) at the option
of the Company and expires on March 31, 2002. The variation in the interest rate
is based upon the Company's ratio of total indebtedness to earnings before
interest, taxes, and depreciation and amortization. In addition, the Company is
required to pay a commitment fee of between 0.125% and 0.25% on the unused
portion of the Credit Facility based upon the ratio described above. The Company
may repay or reduce amounts owed under the Credit Facility without penalty.
Additionally, the Company may allocate up to $5,000 of the available Credit
Facility for the issuance of letters of credit of which $1,000 was used as of
March 31, 1997.
At March 31, 1996 and 1997, the interest rate on borrowings under the
Credit Facility was 8.17% and 8.25%, respectively. As of March 31, 1997, $75,293
of additional borrowings were available under the Credit Facility.
The Subordinated Promissory Notes consist of two notes, an $8,000 principal
amount bearing interest at 10%, due in installments of $6,750 and $1,250 on June
1, 2002 and June 1, 2003, respectively, and $6,246 principal amount bearing
interest at 10.5%, due in equal installments on December 31, 2002 and Decem-
33
35
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
ber 31, 2003. With regard to the 10.5% note, the Company, at its sole
discretion, may pay interest by issuance of additional 10.5% notes and elected
to do so for $0 and $746 for the years ended March 31, 1996 and 1997,
respectively. On October 30, 1996, the Company paid down approximately $5,500 of
the 10% Subordinated Promissory Note outstanding at March 31, 1996 using
proceeds from the Company's initial public offering.
The Junior Subordinated Promissory Notes ("Junior Notes") consisted of
unsecured obligations of the Company and one of its subsidiaries, were
subordinated to all liabilities of the Company and its subsidiaries and interest
was payable at 14%. The Company, at its sole discretion, was permitted to pay
interest by issuance of additional Junior Notes and elected to do so for $1,146
and $741 for the years ended March 31, 1996 and 1997, respectively. On October
30, 1996, the Junior Notes of the Company were exchanged for common stock of the
Company in conjunction with the Company's initial public offering.
The indentures under the debt agreements described above contain
restrictions and covenants which include limitations on the Company's ability to
incur additional indebtedness, issue stock options or warrants (excluding the
initial public offering and the employee stock option plan described in Notes 8
and 10), make certain restricted payments and acquisitions, create liens, enter
into transactions with affiliates, sell substantial portions of its assets, make
capital expenditures and pay cash dividends.
Additional covenants require compliance with financial tests, including
current ratio, leverage, interest coverage ratio, and maintenance of minimum net
worth.
The fair value of the Company's Credit Facility approximates the carrying
value. The fair value of the subordinated promissory notes is approximately
$17,000.
Maturities of long-term debt are as follows: 1998 - $399; 1999 - $418;
2000 - $104; 2001 - $111; 2002 - $8,707; thereafter, $14,653 through 2006.
Interest paid on indebtedness during the years ended March 31, 1995, 1996,
and 1997 amounted to $6,909, $7,552 and $5,986, respectively.
Financing fees and expenses of $764 incurred with respect to indebtedness
have been capitalized and are reflected in other assets. These fees and expenses
are being amortized over the terms of the related indebtedness (5-8 years).
Total amortization (included in interest expense) for the years ended March 31,
1995, 1996 and 1997 was $252, $276 and $206, respectively. On July 19, 1996, in
conjunction with the refinancing, $915 in unamortized deferred financing fees
related to the extinguished debt were written off and an additional $398 in
financing fees related to the new credit agreement were capitalized.
8. STOCKHOLDERS' EQUITY
In October 1996, the Company completed the sale of 2,500,000 shares of its
Common stock for $19.00 per share through an underwritten public offering and
the sale of 125,000 shares of its Common stock for $17.67 per share through a
direct sale by the Company. In addition, the Company granted the underwriters of
its public offering a 30-day option to purchase up to 375,000 additional shares
of its Common stock for $19.00 a share to cover over-allotments. In November
1996, the underwriters exercised the over-allotment option and the Company sold
an additional 375,000 shares of its Common stock. The net proceeds from the
sales were $51,760. The total net proceeds were used to pay down a portion of
the Company's long-term borrowings under its credit agreement and $5,500 of the
10% subordinated promissory note (see Note 7).
In October 1996, in conjunction with the sale of Common stock, the Company
recapitalized the Common stock through a 65-for-one stock split. All references
to shares and earnings per share data in the financial statements have been
restated to give effect to the stock split. In addition, the Company increased
the authorized number of shares of Common stock to 15,000,000 and Class D common
stock to 6,000,000.
34
36
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
In October 1996, in conjunction with the public offering described above,
the Company exchanged all outstanding Redeemable preferred stock for common
stock. The liquidation value of the Redeemable preferred stock plus accumulated
dividends at the date of the exchange of $4,858 was converted to 281,318 shares
of common stock at the initial public offering price of $19.00 (less
underwriting discounts and commissions and estimated offering expenses payable
by the Company).
In addition, in October 1996, the Company exchanged all outstanding 14%
junior notes and a portion of the outstanding 10.5% junior notes for common
stock. The face value of the junior notes exchanged plus accrued but unpaid
interest at the date of exchange of $10,006 was exchanged for 579,395 shares of
common stock at the initial public offering price of $19.00 (less underwriting
discounts and commissions and estimated offering expenses payable by the
Company).
The holders of the Common stock and the Class D common stock are entitled
to one vote per share on all matters to be voted upon by the stockholders of
Triumph except that Class D does not participate in the voting of directors and
are entitled to participate ratably in any distributions.
The holders of Class D common stock may elect at any time to convert any or
all such shares into the Common stock on a share-for-share basis.
The Company issued a stock purchase warrant in conjunction with the
issuance of the senior subordinated notes which allows the holder to purchase
650,000 shares of Common stock for an aggregate exercise price of one hundred
dollars through July 31, 2003. The proceeds from the issuance of the senior
subordinated notes allocated to the warrants of $100 have been included in
capital in excess of par value.
On a pro forma basis, income from continuing operations, before
extraordinary loss and income from continuing operations, before extraordinary
loss per share for fiscal 1997 would have been $14,493 and $1.39, respectively,
if the public offering had occurred on April 1, 1996. The pro forma information
assumes reduced interest expense and applicable income tax adjustments resulting
from the application of the net proceeds from the offering and it assumes
10,390,000 shares of Common stock outstanding for the year. The pro forma
information does not necessarily reflect the actual results that would have
occurred nor is it necessarily indicative of future results.
The Company has Preferred stock of $100 par value, 250,000 shares
authorized. At March 31, 1996 and 1997 no shares of Preferred stock are
outstanding. At March 31, 1996, the Company had Class A, B and C common shares
outstanding, $.001 par value. The Class A had 6,500,455 shares authorized and
1,300,000 shares issued. The Class B and Class C were convertible to Class A and
had 4,550,000 and 455 shares authorized and issued, respectively. In conjunction
with the public offering, the Class A, B and C were converted to Common stock
and Class D common stock.
9. REDEEMABLE PREFERRED STOCK
The Redeemable preferred stock, $.01 par value, provided for 14% cumulative
dividends and redemption on July 21, 2004 or 91 days after the retirement date
of senior debt at the lesser of the liquidation value of $100 per share ($3,058)
plus all accumulated and unpaid dividends or 40% of the Company's equity value.
Accumulated and unpaid dividends of approximately $1,424 or $46.57 per share are
included in Redeemable preferred stock as of March 31, 1996. At March 31, 1996,
the Company had 30,575 shares of Redeemable preferred stock authorized and
issued.
The difference between the original issue price of $1,057 and the
liquidation value of $3,058 was being accreted through July 21, 2004 using the
effective interest method. On October 30, 1996, all shares of outstanding
Redeemable preferred stock were exchanged for common stock at the liquidation
value plus
35
37
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
accumulated dividends (See Note 8). The accretion of $16, $146 and $1,836 for
the years ended March 31, 1995, 1996 and 1997, respectively, is charged to
retained earnings.
10. EMPLOYEE BENEFIT PLANS
Defined Benefit Pension Plan
Approximately 150 employees participate in a noncontributory defined
benefit pension plan sponsored by the Company. Normal retirement under the Plan
is age 65 and participants receive monthly benefits of a stated amount for each
year of service. The Company's funding policy for the Plan is to make the
minimum annual contributions required by applicable regulations. The net
periodic pension cost and related pension liability is not material.
Defined Contribution Pension Plan
The Company sponsors a defined contribution 401(k) plan, under which
salaried and certain hourly employees may defer a portion of their compensation.
Eligible participants may contribute to the plan up to 15% of their regular
compensation before taxes. During fiscal 1997, the Company increased its
matching contribution from 33% to 50% of the first 6% of compensation
contributed by the participant. All contributions and Company matches are
invested at the direction of the employee in one or more mutual funds. Company
matching contributions vest immediately and aggregated $404, $437 and $749 for
the years ended March 31, 1995, 1996 and 1997, respectively.
Other Postretirement Benefits
In connection with the acquisition of Triumph Controls, Inc., the Company
provides certain postretirement medical and insurance benefits to eligible
employees under a Collective Bargaining Agreement. For any employees who retired
through the date of the acquisition, the Seller retained all liabilities for
benefits due and administration of the postretirement benefits. The Company has
assumed responsibility for administration of the postretirement coverage for any
eligible employee who retires subsequent to the date of acquisition. The Company
will pay the costs related to these benefits upon retirement and will be
reimbursed by the Seller for its pro rata portion based on relative length of
service. The Company does not fund the plan.
The Company has recorded a total liability of approximately $1,100 (as
estimated by actuaries) for other postretirement benefits, of which
approximately $1,000 is estimated to be reimbursed by the Seller as of March 31,
1997. These amounts are included in Other Liabilities and Other Assets,
respectively. The discount rate used was 7%. The annual expense for such
benefits is not material.
Stock Option Plan
The Company adopted the 1996 Stock Option Plan (the "Plan") which became
effective in October 1996. The Plan provides for grants of stock options to
officers and key employees of the Company. Shares of the Company granted under
the Plan are in nonqualified and incentive stock options. On October 25, 1996,
the Company granted options to certain officers and managers to purchase 250,140
shares of the Company's Common stock at the fair market value at the date of
grant, of $19.00 per share. The options vest and become exercisable ratably over
a four-year period beginning on October 25, 1997. The options expire ten years
from the date of grant. In addition to the 250,140 outstanding options, 268,610
shares were available for issuance under the Plan at March 31, 1997.
During fiscal 1997, the Company adopted the disclosure-only option under
SFAS No. 123, "Accounting for Stock-Based Compensation." The Company uses the
accounting method under APB Opinion No. 25 (APB 25) and related interpretations
for its employee stock options. Under APB 25, when the exercise price
36
38
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
of the Company's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
Pro forma disclosure, as required by SFAS No. 123, regarding net income and
earnings per share has been determined as if the Company had accounted for its
employee stock options under the fair value method.
Option valuation models use highly subjective assumptions to determine the
fair value of traded options with no vesting or trading restrictions. Because
options granted under the Company's Stock option plan have vesting requirements
and cannot be traded, and because changes in the assumptions can materially
affect the fair value estimate, in management's opinion, the existing valuation
models do not necessarily provide a reliable measure of the fair value of its
employee stock options.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions: risk-free interest rate of 5.5%; no dividends; a volatility factor
of the expected market price of the Company's Common stock of .32 and a
weighted-average expected life of the options of 6 years.
For purposes of pro forma disclosures, the estimated fair value of the
options ($8.00 per share) is amortized to expense over the options' assumed
vesting period. Since the Company's stock options vest over four years and
additional options may be granted each year, the pro forma effect on net income
reported below, is not representative of the effect of fair value stock option
expense on future years' pro forma net income. The following pro forma
information has been prepared assuming the Company accounted for its stock
options under the fair value method:
FOR THE YEAR ENDED
MARCH 31, 1997
------------------
Pro forma net income......................................... $ 10,946
Pro forma earnings per share................................. $ 1.31
11. LEASES
Capital lease assets are included in property and equipment and the related
obligations in other debt and capital lease obligations. Amortization of capital
lease assets is included in depreciation expense. At March 31, 1997, future
minimum payments under noncancelable operating leases with initial or remaining
terms of more than one year were as follows: 1998 - $1,874; 1999 - $1,678;
2000 - $1,525; 2001 - $1,133; 2002 - $1,011; thereafter (through 2006) - $2,908.
In the normal course of business, operating leases are generally renewed or
replaced by other leases.
Total rental expense was $950, $1,135 and $1,830 for the years ended March
31, 1995, 1996 and 1997, respectively.
37
39
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
12. FIXED ASSETS
Net property and equipment at March 31, 1996 and 1997 is:
MARCH 31,
-------------------
1996 1997
------- -------
Land..................................................... $ 3,009 $ 3,479
Buildings and improvements............................... 7,438 10,480
Machinery and equipment.................................. 32,823 45,494
------- -------
43,270 59,453
Less accumulated depreciation.......................... 6,718 11,104
------- -------
$36,552 $48,349
======= =======
Depreciation expense for the years ended March 31, 1995, 1996 and 1997 was
$2,360, $2,977 and $4,480, respectively.
13. COMMITMENTS AND CONTINGENCIES
Certain of the Company's business operations and facilities are subject to
a number of federal, state and local environmental laws and regulations. The
Company is indemnified for environmental liabilities related to assets purchased
from IKON Office Solutions, Inc. (formerly Alco Standard Corporation) which
existed prior to the acquisition of the assets and any unidentified
environmental liabilities which arise subsequent to the date of settlement
through July 22, 2000, arising from conditions or activities existing at these
facilities prior to the acquisition. In the opinion of management, there are no
significant environmental concerns which would have a material effect on the
financial condition or operating results of the Company which are not covered by
such indemnification.
The Company is involved in certain litigation matters arising out of its
normal business activities. In the opinion of management, the ultimate
resolution of such litigation will not have a material effect on the financial
condition or operating results of the Company.
14. COLLECTIVE BARGAINING AGREEMENTS
Approximately 18% of the Company's labor force is covered under collective
bargaining agreements. These collective bargaining agreements expire over the
next several years.
38
40
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
15. SEGMENT REPORTING
Selected financial information for each segment is as follows:
YEAR ENDED MARCH 31,
----------------------------------
1995 1996 1997
-------- -------- --------
Net sales:
Aviation................................................. $ 70,714 $100,166 $167,731
Metals converting and distribution....................... 93,451 86,608 82,747
-------- -------- --------
$164,165 $186,774 $250,478
======== ======== ========
Operating income (expenses):
Aviation................................................. $ 8,778 $ 14,095 $ 27,505
Metals converting and distribution....................... 6,379 4,638 4,473
Corporate................................................ (1,606) (2,522) (4,371)
-------- -------- --------
$ 13,551 $ 16,211 $ 27,607
======== ======== ========
Assets:
Aviation................................................. $ 53,100 $101,219 $139,988
Metals converting and distribution....................... 32,550 29,965 28,815
Discontinued operations.................................. 20,165 27,350 --
Corporate................................................ 5,571 2,872 2,512
-------- -------- --------
$111,386 $161,406 $171,315
======== ======== ========
Capital expenditures:
Aviation................................................. $ 2,077 $ 1,684 $ 6,756
Metals converting and distribution....................... 1,152 213 1,285
Corporate................................................ -- -- 142
-------- -------- --------
$ 3,229 $ 1,897 $ 8,183
======== ======== ========
Depreciation and amortization:
Aviation................................................. $ 1,780 $ 2,513 $ 5,066
Metals converting and distribution....................... 916 999 979
Corporate................................................ 22 23 28
-------- -------- --------
$ 2,718 $ 3,535 $ 6,073
======== ======== ========
39
41
TRIUMPH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
FOR THE THREE MONTHS ENDED
-----------------------------------------------
3/31/97 12/31/96 9/30/96(4) 6/30/96
---------- ----------- ---------- -------
Net sales................................... $ 66,687 $64,691 $ 63,916 $55,184
Gross profit................................ 19,050 20,964 18,376 16,038
Income from continuing operations, before
extraordinary loss........................ 4,392 3,724 2,630 1,809
Extraordinary loss, net of tax.............. -- -- (1,478) --
Net income.................................. 4,392 3,724 1,152 1,809
Income from continuing operations, before
extraordinary loss per share(3)........... 0.42 0.40 0.38 0.27
Net income per share(3)..................... 0.42 0.40 0.18 0.27
3/31/96(1) 12/31/95(2) 9/30/95 6/30/95
---------- ----------- ---------- -------
Net sales................................... $ 54,206 $46,492 $ 43,702 $42,374
Gross profit................................ 15,630 10,520 10,588 10,296
Income from continuing operations........... 1,850 1,199 1,131 1,014
Income from discontinued operations......... 4,008 315 64 109
Net income.................................. 5,858 1,514 1,195 1,123
Income from continuing operations per
share(3).................................. 0.28 0.19 0.18 0.16
Net income per share(3)..................... 0.82 0.23 0.19 0.17
- ---------------
(1) In January 1996, the Company completed its acquisition of Triumph Controls,
Inc. The operating results of Triumph Controls, Inc. are included for the
full period.
(2) In October 1995, the Company completed its acquisition of Air Lab, Inc. The
operating results of Air Lab, Inc. are included in the quarters ended
December 31, 1995 and March 31, 1996.
(3) See Note 2 "Summary of Significant Accounting Policies" for information
regarding the calculation of income from continuing operations and net
income per share.
(4) On July 31, 1996, the Company completed its acquisition of AMTI. The
operating results of AMTI are included in the quarters ended September 30,
1996, December 31, 1996 and March 31, 1997.
17. SUPPLEMENTAL CASH FLOW INFORMATION
YEARS ENDED MARCH 31,
--------------------------------
1995 1996 1997
------- ------- --------
Changes in operating assets and liabilities, net of
acquisitions and dispositions of businesses:
Accounts receivable........................................ $(7,189) $ 3,540 $ (5,952)
Inventories................................................ (2,979) (4,201) (8,060)
Prepaid expenses and other current assets.................. 318 353 (323)
Accounts payable, accrued expenses, and accrued income
taxes payable........................................... 4,867 4,627 1,535
Other...................................................... 526 554 (978)
------- -------- ---------
$(4,457) $ 4,873 $(13,778)
======= ======== =========
Non-cash investing and financing activities:
Covenant not-to-compete contract liability related to
acquisition............................................. $ -- $ -- $ 2,800
Seller note related to acquired business................... -- 5,500 --
Assumption of liabilities related to acquisitions.......... -- 3,800 10,269
Non-cash proceeds from divestiture of discontinued
operation............................................... -- 10,300 --
Redeemable preferred stock issued in lieu of cash dividend
payments and accretion to face value.................... 530 740 2,206
40
42
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
DIRECTORS
The information required for Directors is included in the Proxy Statement
of the Company in connection with its 1997 Annual Meeting of Stockholders to be
held on July 24, 1997, under the heading "Proposal No. 1 -- Election of
Directors" and is incorporated herein by reference.
EXECUTIVE OFFICERS
EFFECTIVE DATE
OF
ELECTION TO
NAME AGE POSITION PRESENT POSITION
- --------------------------------- --- -------------------------------------- ----------------
Richard C. Ill................... 54 President and Chief Executive Officer July 1, 1993
John R. Bartholdson.............. 52 Senior Vice President, Chief Financial July 1, 1993
Officer and Treasurer
Richard M. Eisenstaedt........... 51 Vice President, General Counsel and October 1, 1996
Secretary
Paul T. Stimmler................. 58 Vice President and Assistant Secretary July 1, 1993
Kevin E. Kindig.................. 40 Controller and Assistant Secretary July 1, 1993
Richard C. Ill has been President and Chief Executive Officer and a
director of the Company since 1993. Mr. Ill joined Alco in 1968 and became Group
Vice President of Metalsource, a steel distribution business, in 1973. In 1975,
Mr. Ill became President of Triumph Industries and, in 1983, became President of
Metalsource. In 1988, Mr. Ill became President of Alco Diversified Services, a
division of Alco. He was named Vice President of Alco in 1989. Mr. Ill is a
member of the Advisory Board of Outward Bound, USA and the Board of Directors,
Chairman's Council and Policy and Planning Committee of the Steel Service Center
Institute.
John R. Bartholdson has been Senior Vice President, Chief Financial Officer
and Treasurer and a director of the Company since 1993. Mr. Bartholdson joined
Alco Diversified Services in the fall of 1992. Prior to joining Alco Diversified
Services, Mr. Bartholdson was employed for 14 years by Lukens, Inc., the last
five years in the position of Senior Vice President and Chief Financial Officer.
Mr. Bartholdson serves on the Board of Directors of PBHG Funds, Inc.
Richard M. Eisenstaedt became Vice President, General Counsel and Secretary
of the Company in October 1996. From 1988 to 1996, Mr. Eisenstaedt was an
attorney with Alco and Unisource Worldwide, Inc. ("Unisource"), an affiliate of
Alco, the last two years as General Counsel of Unisource.
Paul T. Stimmler has been Vice President of the Company since 1993 and also
served as Secretary of the Company until October 1996. From 1989 to 1993, Mr.
Stimmler was Group Vice President of Alco Diversified Services, responsible for
risk management, vehicle leasing, advertising, benefits administration and human
resources.
Kevin E. Kindig has been Controller of the Company since 1993. From 1985 to
1993, Mr. Kindig was employed by Lukens, Inc. in various positions, as
Manufacturing Accounting Manager since 1989 and as a financial analyst from 1985
to 1989.
ITEM 11. EXECUTIVE COMPENSATION
The information required regarding executive compensation is included in
the Proxy Statement of the Company in connection with its 1997 Annual Meeting of
Stockholders to be held on July 24, 1997, under the heading "Executive
Compensation" and is incorporated herein by reference.
41
43
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required regarding security ownership is included in the
Proxy Statement of the Company in connection with its 1997 Annual Meeting of
Stockholders to be held on July 24, 1997, under the heading "Security Ownership
of Principal Stockholders and Management" and is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required regarding certain relationships and related
transactions is included in the Proxy Statement of the Company in connection
with its 1997 Annual Meeting of Stockholders to be held on July 24, 1997, under
the heading "Certain Relationships and Related Transactions" and is incorporated
herein by reference.
42
44
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS
(a)(1) The following consolidated financial statements are included in Item
8 of this report:
PAGE
----
Triumph Group, Inc.
Report of Ernst & Young LLP, Independent Auditors..................... 23
Consolidated Balance Sheets as of March 31, 1996 and 1997............. 24
Consolidated Statements of Income for the Fiscal Years Ended March 31,
1995, 1996 and 1997................................................. 25
Consolidated Statements of Stockholders' Equity for the Fiscal Years
Ended March 31, 1995, 1996 and 1997................................. 26
Consolidated Statements of Cash Flows for the Fiscal Years Ended March
31, 1995, 1996 and 1997............................................. 27
Notes to Consolidated Financial Statements............................ 28
(a)(2) The following financial statement schedule is included in this
report:
Schedule II -- Valuation and Qualifying Accounts
All other schedules have been omitted as not applicable or because the
information is included elsewhere in the Consolidated Financial Statements or
notes thereto.
43
45
(a)(3) The following is a list of exhibits. Where so indicated by footnote,
exhibits which were previously filed are incorporated by reference.
EXHIBIT
NUMBER DESCRIPTION
- ------- -------------------------------------------------------------------------------------
3.1 Amended and Restated Certificate of Incorporation of Triumph Group, Inc.*
3.2 Bylaws of Triumph Group, Inc.*
4 Form of certificate evidencing Common Stock of Triumph Group, Inc.*
10.1 Form of Employment Agreement with Richard C. Ill.*
10.2 Form of Employment Agreement with John R. Bartholdson.*
10.3 Credit Agreement with PNC Bank, N.A. dated July 19, 1996.*
10.4 Guaranty of the Company to PNC Bank, N.A. dated July 19, 1996.*
10.5 Purchase Agreement dated as of July 22, 1993 between the Company and Citicorp Venture
Capital, Ltd.*
10.6 Subordinated Promissory Note dated June 1, 1993 payable to MDR Corporation, as
amended.*
10.7 Stockholders Agreement dated as of July 22, 1993 among the Company, Citicorp Venture
Capital, Ltd., World Equity Partners, L.P. and certain members of management of the
Company, as amended on May 9, 1995.***
10.8 Registration Agreement dated as of July 22, 1993 among the Company, Citicorp Venture
Capital, Ltd., World Equity Partners, L.P. and certain members of management of the
Company.*
10.9 Warrant dated July 22, 1993 issued to World Equity Partners, L.P.*
10.10 Warrant Agreement dated as of July 22, 1993 among the Company, Citicorp Venture
Capital, Ltd. and World Equity Partners, L.P.*
10.11 Asset Purchase Agreement dated as of December 31, 1995 among the Company, Triumph
Control Systems, Inc. and Teleflex Incorporated.*
10.12 Subordinated Promissory Note dated December 31, 1995 payable to Teleflex
Incorporated.*
10.13 Stock Purchase Agreement dated as of July 31, 1996 among The Triumph Group Holdings,
Inc., Advanced Materials Technologies, Inc. and certain members of management of
Advanced Materials Technologies, Inc.*
10.14 Executive Securities Agreement dated July 31, 1996 between the Company and Jay
Donkersloot, as amended.*
10.15 Non-Competition Agreement dated July 31, 1996 between the Company and Jay
Donkersloot.*
10.16 Note Modification Agreement dated December 31, 1995 between the Company and MDR
Corporation.*
10.17 Executive Stock Agreement dated as of May 9, 1995 between the Company and John M.
Brasch.*
10.18 Form of 1996 Stock Option Plan.*
10.19 Form of Executive Securities Agreement.*
10.20 Executive Stock Agreement between the Company and Richard C. Ill.*
10.21 Executive Stock Agreement between the Company and John R. Bartholdson.*
10.22 Executive Stock Agreement between the Company and Paul T. Stimmler.*
10.23 Executive Stock Agreement between the Company and Kevin E. Kindig.*
10.24 Amendment to Subordinated Promissory Note payable to MDR Corporation dated October
31, 1996.
10.25 First Amendment to Credit Agreement with PNC Bank, National Association, dated
December 31, 1996.
10.26 Replacement Revolving Credit Note dated December 31, 1996 payable to PNC Bank,
National Association.
10.27 Amended and Restated Credit Agreement with PNC Bank, National Association, dated as
of March 31, 1997.
10.28 Second Replacement Revolving Credit Note dated March 31, 1997 payable to PNC Bank,
National Association.
44
46
EXHIBIT
NUMBER DESCRIPTION
- ------- -------------------------------------------------------------------------------------
11.1 Statements re: computations of per share earnings.
21.1 Subsidiaries of Triumph Group, Inc.
27 Financial Data Schedule.
- ---------------
* Incorporated by reference to the Registrant's Registration Statement on Form
S-1 (Registration No. 333-10777), declared effective on October 24, 1996.
** Removed as a result of being paid in full from the proceeds of the Company's
initial public offering.
*** Removed as a result of being terminated upon the Company's initial public
offering.
REPORTS ON FORM 8-K
The Company filed no reports on Form 8-K during the quarter ended March 31,
1997 and through June 15, 1997.
45
47
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed by the undersigned thereunto duly authorized.
TRIUMPH GROUP, INC.
Dated: June 23, 1997 By: /s/ RICHARD C. ILL
------------------------------------
Richard C. Ill
President and Chief Executive
Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
/s/ RICHARD C. ILL President, Chief Executive Officer and June 23, 1997
- -------------------------- Director (Principal Executive Officer)
Richard C. Ill
/s/ JOHN R. BARTHOLDSON Senior Vice President, Chief Financial June 23, 1997
- -------------------------- Officer, Treasurer and Director
John R. Bartholdson (Principal Financial Officer)
/s/ KEVIN E. KINDIG Controller (Principal Accounting Officer) June 23, 1997
- --------------------------
Kevin E. Kindig
/s/ RICHARD C. GOZON Director June 23, 1997
- --------------------------
Richard C. Gozon
/s/ CLAUDE F. KRONK Director June 23, 1997
- --------------------------
Claude F. Kronk
/s/ JOSEPH M. SILVESTRI Director June 23, 1997
- --------------------------
Joseph M. Silvestri
/s/ MICHAEL A. DELANEY Director June 23, 1997
- --------------------------
Michael A. Delaney
46
48
TRIUMPH GROUP, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
BALANCE AT ADDITIONS
BEGINNING OF CHARGED TO ADDITIONS (1) BALANCE AT
YEAR EXPENSE (DEDUCTIONS)(2) END OF YEAR
------------ ---------- --------------- -----------
For year ended March 31, 1997.................... 36
Allowance for doubtful accounts receivable..... 973 959 (349) 1,619
For year ended March 31, 1997.................... 59
Allowance for doubtful accounts receivable..... 766 243 (95) 973
For year ended March 31, 1997.................... 107
Allowance for doubtful accounts receivable..... 727 14 (82) 766
- ---------------
(1) Additions consist of accounts receivable recoveries, miscellaneous
adjustments and amounts recorded in conjunction with the acquisitions of
Triumph Controls, Inc., Air Lab, Inc. and Advanced Materials Technologies,
Inc.
(2) Deductions represent write-offs of related accounts balances.
47