<Page>
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Period Ended December 31, 2001.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Transition Period From _________ to ________
Commission File Number: 1-12235
--------------
TRIUMPH GROUP, INC.
-------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 51-0347963
- ----------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1255 Drummers Lane, Suite 200
Wayne, PA 19087-1565
- ------------------------------------------------ ---------------
(Address of principal executive offices) (Zip Code)
(610) 975-0420
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, par value $0.001 per share, 13,957,829 shares, and Class D common
stock, par value $0.001 per share, 1,848,535 shares, each as of January 31,
2002.
<Page>
TRIUMPH GROUP, INC.
INDEX
Part I. Financial Information PAGE NUMBER
-----------
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets 1
December 31, 2001 and March 31, 2001
Consolidated Statements of Income 3
Three months ended December 31, 2001 and 2000
Nine months ended December 31, 2001 and 2000
Consolidated Statements of Cash Flows 4
Nine months ended December 31, 2001 and 2000
Notes to Consolidated Financial Statements 6
December 31, 2001
Item 2. Management's Discussion and Analysis of Financial 12
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About 17
Market Risk
Part II. Other Information
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
<Page>
Part I. Financial Information
Item: 1. Financial Statements
Triumph Group, Inc.
Consolidated Balance Sheets
(dollars in thousands, except per share data)
<Table>
<Caption>
DECEMBER 31, MARCH 31,
2001 2001
-------- --------
(unaudited)
ASSETS
Current assets:
Cash $ 9,307 $ 4,819
Accounts receivable, net 100,342 115,666
Inventories 185,145 171,105
Prepaid expenses and other 9,117 7,060
-------- --------
Total current assets 303,911 298,650
Property and equipment, net 168,444 157,519
Excess of cost over net assets acquired 252,193 221,083
Intangible assets, net 35,693 38,833
Other, net 7,798 15,284
-------- --------
Total assets $768,039 $731,369
======== ========
</Table>
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Triumph Group, Inc.
Consolidated Balance Sheets (continued)
(dollars in thousands, except per share data)
<Table>
<Caption>
DECEMBER 31, MARCH 31,
2001 2001
--------- ---------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 40,967 $ 52,168
Accrued expenses 45,896 53,011
Income taxes payable 7,728 4,894
Deferred income taxes 4,291 4,291
Current portion of long-term debt 11,033 6,017
--------- ---------
Total current liabilities 109,915 120,381
Long-term debt, less current portion 167,055 170,305
Deferred income taxes and other 54,381 50,792
Stockholders' equity:
Common stock, $.001 par value, 50,000,000
shares authorized, 14,178,789 shares and
12,228,789 shares issued 14 12
Class D common stock convertible,
$.001 par value, 6,000,000 shares authorized,
1,848,535 and 3,348,535 shares issued and
outstanding 2 3
Capital in excess of par value 258,169 241,877
Treasury stock, at cost, 220,960 and 212,188 shares (5,520) (5,167)
Accumulated other comprehensive loss (5,138) (1,174)
Retained earnings 189,161 154,340
--------- ---------
Total stockholders' equity 436,688 389,891
--------- ---------
Total liabilities and stockholders' equity $ 768,039 $ 731,369
========= =========
</Table>
SEE ACCOMPANYING NOTES.
-2-
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Triumph Group, Inc.
Consolidated Statements of Income
(in thousands, except per share data)
(unaudited)
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
--------------------- ---------------------
2001 2000 2001 2000
-------- -------- -------- --------
Net sales $149,297 $143,163 $464,256 $403,722
Operating costs and expenses:
Cost of products sold 103,259 96,496 320,987 273,426
Selling, general, and administrative 19,650 19,157 58,947 52,726
Depreciation and amortization 5,684 6,821 16,202 19,430
Special charge -- -- 5,044 --
-------- -------- -------- --------
128,593 122,474 401,180 345,582
Operating income 20,704 20,689 63,076 58,140
Interest expense and other 3,453 5,906 9,673 15,666
-------- -------- -------- --------
Income before income taxes 17,251 14,783 53,403 42,474
Income tax expense 5,415 4,781 18,502 15,028
-------- -------- -------- --------
Net income $ 11,836 $ 10,002 $ 34,901 $ 27,446
======== ======== ======== ========
Earnings per share - basic $ 0.75 $ 0.83 $ 2.21 $ 2.32
======== ======== ======== ========
Weighted average common shares outstanding - basic 15,778 12,068 15,782 11,806
======== ======== ======== ========
Earnings per share - diluted $ 0.75 $ 0.80 $ 2.19 $ 2.21
======== ======== ======== ========
Weighted average common shares outstanding - diluted 15,844 12,459 15,925 12,427
======== ======== ======== ========
</Table>
SEE ACCOMPANYING NOTES.
-3-
<Page>
Triumph Group, Inc.
Consolidated Statements of Cash Flows
(dollars in thousands)
(unaudited)
<Table>
<Caption>
NINE MONTHS ENDED DECEMBER 31,
------------------------------
2001 2000
--------- ---------
OPERATING ACTIVITIES
Net income $ 34,901 $ 27,446
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 16,202 19,430
Non-cash special charge 5,044 --
Provision for deferred income taxes -- 6,107
Provision for doubtful accounts receivable 1,232 216
Interest on subordinated and junior subordinated
promissory notes paid by issuance of
additional notes 818 747
Changes in other current assets and liabilities, net of
acquisitions of businesses:
Accounts receivable 18,099 (8,631)
Inventories (10,023) (18,080)
Prepaid expenses and other (2,055) 625
Accounts payable, accrued expenses, and accrued
income taxes payable (15,416) (14,107)
Other 641 2,535
--------- ---------
Net cash provided by operating activities 49,443 16,288
INVESTING ACTIVITIES
Capital expenditures, net (21,006) (17,900)
Proceeds from sale of assets -- 11,866
Cash used for businesses acquired (29,406) (124,529)
--------- ---------
Net cash used in investing activities (50,412) (130,563)
</Table>
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Triumph Group, Inc.
Consolidated Statements of Cash Flows (continued)
(dollars in thousands)
(unaudited)
<Table>
<Caption>
NINE MONTHS ENDED DECEMBER 31,
------------------------------
2001 2000
--------- ---------
FINANCING ACTIVITIES
Net proceeds from common stock offering $ 16,031 $ --
Net (decrease) increase in revolving credit facility borrowings (12,114) 117,734
Repayment of debt and capital lease obligations (5,527) (3,311)
Proceeds from issuance of long-term debt 7,500 83
Purchase of treasury stock (750) --
Payments of deferred financing costs -- (362)
Proceeds from exercise of stock options 317 191
--------- ---------
Net cash provided by financing activities 5,457 114,335
--------- ---------
Net change in cash 4,488 60
Cash at beginning of period 4,819 6,279
--------- ---------
Cash at end of period $ 9,307 $ 6,339
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for income taxes $ 15,651 $ 6,457
Cash paid for interest 9,363 14,147
</Table>
SEE ACCOMPANYING NOTES.
-5-
<Page>
Triumph Group, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in conformity with accounting principles generally accepted in the United States
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three and nine month
periods ended December 31, 2001 are not necessarily indicative of the results
that may be expected for the fiscal year ended March 31, 2002. For further
information, refer to the consolidated financial statements and footnotes
thereto included in Triumph Group, Inc.'s (the "Company") Annual Report on Form
10-K for the year ended March 31, 2001.
Certain intangible assets at March 31, 2001, have been reclassified to conform
to the new presentation requirements of Statement of Financial Accounting
Standards ("SFAS") No. 141, "Business Combinations" ("SFAS No. 141").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The Company's Aviation segment designs, engineers, manufactures or repairs and
overhauls aircraft components for commercial airlines, air cargo carriers, and
original equipment manufacturers on a worldwide basis. The Company's Metals
segment manufactures, machines, processes, and distributes metal products to
customers in the computer, construction, container and office furniture
industries, primarily within North America.
USE OF ESTIMATES
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
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Triumph Group, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
(Unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
GOODWILL AND INTANGIBLE ASSETS
In June 2001, the Financial Accounting Standards Board approved the issuance of
SFAS No. 141 and SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS No.
142"). SFAS No. 141 applies to all business combinations completed after June
30, 2001 and requires the use of the purchase method of accounting. SFAS No. 141
also establishes new criteria for determining whether intangible assets should
be recognized separately from goodwill. SFAS No. 142 provides that goodwill and
intangible assets with indefinite lives will not be amortized but rather will be
tested for impairment on an annual basis. SFAS No. 142 is effective for fiscal
years beginning after December 15, 2001, however companies with fiscal years
beginning after March 15, 2001 may elect to adopt the statement early.
Accordingly, effective April 1, 2001, the Company adopted SFAS No. 142. The
following table reflects the comparable prior year period's net income and
earnings per share as if SFAS No. 142 had been adopted on April 1, 2000:
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------- -------------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Reported net income $ 11,836 $ 10,002 $ 34,901 $ 27,446
Add-back after-tax goodwill amortization -- 1,015 -- 3,262
---------- ---------- ---------- ----------
Adjusted net income $ 11,836 $ 11,017 $ 34,901 $ 30,708
========== ========== ========== ==========
Earnings per share - basic $ 0.75 $ 0.83 $ 2.21 $ 2.32
Add-back after-tax goodwill amortization -- 0.08 -- 0.28
---------- ---------- ---------- ----------
Adjusted earnings per share - basic $ 0.75 $ 0.91 $ 2.21 $ 2.60
========== ========== ========== ==========
Earnings per share - diluted $ 0.75 $ 0.80 $ 2.19 $ 2.21
Add-back after-tax goodwill amortization -- 0.08 -- 0.26
---------- ---------- ---------- ----------
Adjusted earnings per share - diluted $ 0.75 $ 0.88 $ 2.19 $ 2.47
========== ========== ========== ==========
</Table>
Intangible assets cost and accumulated amortization at December 31, 2001 were
$47,811 and $12,118, respectively. Intangible assets cost and accumulated
amortization at March 31, 2001 were $47,561 and $8,728, respectively. Intangible
assets consists of two major classes: product rights and licenses, and
non-compete agreements and other. Gross cost and accumulated amortization of
product rights and licenses at December 31, 2001 were $36,705 and $6,285,
respectively, and at March 31, 2001 were $36,455 and $3,748, respectively. Gross
cost and accumulated amortization of noncompete agreements and other at
December 31, 2001 were $11,106 and $5,833, respectively, and at March 31, 2001
were $11,106 and $4,980, respectively. Amortization expense for the three and
nine-month periods ended December 31, 2001 was $1,134 and $3,390, respectively.
Amortization expense for the fiscal year ended March 31, 2002 and the succeeding
five fiscal years by year is expected to be as follows: 2002: $4,520; 2003:
$4,077; 2004: $3,896; 2005: $3,896; 2006: $3,896; 2007: $3,896.
-7-
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Triumph Group, Inc.
Notes to Consolidated Financial Statements (continued)
(dollars in thousands, except per share data)
(Unaudited)
3. ACQUISITIONS
In August 2001, the Company acquired substantially all of the assets of EMCO
Fluid Systems, Inc., renamed EFS Aerospace, Inc. ("EFS"). EFS, located in
Valencia, California, designs, produces, assembles and tests both hydraulic
and pneumatic valves and actuators for the aviation and aerospace industries.
The purchase price of approximately $38,166 includes the assumption of debt
and certain liabilities and direct costs of the transaction. The excess of
the purchase price over the preliminary estimated fair value of the net
assets acquired of $30,150 was recorded as excess of cost over net assets
acquired. The EFS acquisition agreement provides for a reduction in the
purchase price in the event certain performance measurements are not met on
each specified date through 2004. The pro forma effects of the EFS
acquisition for the nine months ended December 31, 2001 and 2000 were not
material.
4. INVENTORIES
The components of inventories are as follows:
<Table>
<Caption>
DECEMBER 31, MARCH 31,
2001 2001
-------- --------
Raw materials $ 57,302 $ 50,638
Work-in-process 77,161 75,186
Finished goods 50,682 45,281
-------- --------
Total inventories $185,145 $171,105
======== ========
</Table>
5. LONG-TERM DEBT
Long-term debt consists of the following:
<Table>
<Caption>
DECEMBER 31, MARCH 31,
2001 2001
-------- --------
Revolving credit facility $132,886 $145,000
Subordinated promissory notes 26,677 18,658
Other debt 18,525 12,664
-------- --------
178,088 176,322
Less current portion 11,033 6,017
-------- --------
$167,055 $170,305
======== ========
</Table>
In conjunction with the EFS acquisition, the Company assumed $10,000 of seller
financing with an interest rate of 6% maturing between October 2002 and October
2005 and $1,067 of other debt. In October 2001, the Company retired
substantially all of the then outstanding balance of the other debt of EFS.
On August 23, 2001, the Company entered into a loan agreement with the Illinois
Development Finance Authority related to the Illinois Development Finance
Authority Economic Development Bonds, series of 2001 ("the Bonds"). The proceeds
of the Bonds of $7,500 were used to fund the purchase of the Company's
TriWestern Metals new electro-galvanizing production line. The Bonds are due to
mature on August 1, 2016 and are secured by the equipment. The Bonds bear
interest at a variable rate based on LIBOR, which at December 31, 2001 was 3.5%.
-8-
<Page>
Triumph Group, Inc.
Notes to Consolidated Financial Statements (continued)
(dollars in thousands, except per share data)
(Unaudited)
6. EARNINGS PER SHARE
The following is a reconciliation between the weighted average outstanding
shares used in the calculation of basic and diluted earnings per share:
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
----------------- -----------------
(in thousands) 2001 2000 2001 2000
------ ------ ------ ------
Weighted average common shares outstanding 15,778 12,068 15,782 11,806
Net effect of dilutive stock options 66 130 143 101
Net effect of dilutive warrant -- 261 -- 520
------ ------ ------ ------
Weighted average common shares outstanding -
assuming dilution 15,844 12,459 15,925 12,427
====== ====== ====== ======
</Table>
Options to purchase 358,200 shares of common stock, at prices ranging from
$31.38 per share to $44.88 per share, were outstanding during the third quarter
of fiscal 2002. These options were not included in the computation of diluted
earnings per share because the exercise price was greater than the average
market price of the common stock during the three months ended December 31, 2001
and, therefore, the effect would be antidilutive.
7. COMMON STOCK OFFERING
In March 2001, the Company completed the sale of 3,000,003 shares of its Common
stock for $37.50 a share through an underwritten public offering. In addition,
the Company granted the underwriters of its public offering a 30-day option to
purchase additional shares to cover over-allotments. In April 2001, the
Underwriters exercised the over-allotment option and the Company sold an
additional 450,000 shares of its Common stock. The net proceeds from the sales
of $122,406 were used to repay long-term debt.
During the quarter ended June 30, 2001, 1,500,000 shares of Class D Common stock
were converted to Common stock.
In September 2001, the Company purchased 25,000 shares of its common stock as
Treasury stock for an aggregate purchase price of $750.
-9-
<Page>
Triumph Group, Inc.
Notes to Consolidated Financial Statements (continued)
(dollars in thousands, except per share data)
(Unaudited)
8. SEGMENT REPORTING
Selected financial information for each reportable segment is as follows:
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------ ------------------------
2001 2000 2001 2000
--------- --------- --------- ---------
Net Sales:
Aviation $ 138,485 $ 129,597 $ 428,007 $ 357,659
Metals 10,812 13,566 36,249 46,063
--------- --------- --------- ---------
$ 149,297 $ 143,163 $ 464,256 $ 403,722
========= ========= ========= =========
Income before income taxes:
Operating income (expense):
Aviation $ 22,448 $ 21,954 $ 73,364 $ 60,023
Metals 29 181 242 1,836
Corporate (1,773) (1,446) (5,486) (3,719)
Special charge -- -- (5,044) --
--------- --------- --------- ---------
20,704 20,689 63,076 58,140
Interest expense and other 3,453 5,906 9,673 15,666
--------- --------- --------- ---------
$ 17,251 $ 14,783 $ 53,403 $ 42,474
========= ========= ========= =========
Capital expenditures:
Aviation $ 6,299 $ 5,609 $ 18,498 $ 13,676
Metals 530 1,535 2,473 4,119
Corporate 22 81 35 105
--------- --------- --------- ---------
$ 6,851 $ 7,225 $ 21,006 $ 17,900
========= ========= ========= =========
Depreciation and amortization:
Aviation $ 5,288 $ 6,504 $ 15,016 $ 18,490
Metals 371 293 1,114 880
Corporate 25 24 72 60
--------- --------- --------- ---------
$ 5,684 $ 6,821 $ 16,202 $ 19,430
========= ========= ========= =========
<Caption>
December 31, March 31,
2001 2001
--------- ---------
Assets:
Aviation $ 728,507 $ 694,278
Metals 28,204 29,768
Corporate 11,328 7,323
--------- ---------
$ 768,039 $ 731,369
========= =========
</Table>
During the three months ended December 31, 2001 and 2000, the Company had
foreign sales of $35,710 and $32,496, respectively. For the nine months ended
December 31, 2001 and 2000, the Company had foreign sales of $102,567 and
$79,635, respectively.
-10-
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Triumph Group, Inc.
Notes to Consolidated Financial Statements (continued)
(dollars in thousands, except per share data)
(Unaudited)
9. DERIVATIVES AND HEDGING ACTIVITIES
Effective April 1, 2001 the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No. 137 and
SFAS No. 138. This standard requires that all derivative financial instruments,
such as interest rate swap contracts, be recognized in the financial statements
and measured at fair value regardless of the purpose or intent for holding them.
Changes in the fair value of derivative financial instruments are either
recognized periodically in income or shareholder's equity (as a component of
accumulated other comprehensive income), depending on whether the derivative is
being used to hedge changes in fair value or cash flows. The adoption of SFAS
No. 133 resulted in a loss of $3,119 recorded to accumulated other comprehensive
loss and a liability recorded in deferred income taxes and other.
Use of Derivative Financial Instruments
The Company uses derivative financial instruments principally to manage the risk
that changes in interest rates will affect the amount of its future interest
payments. The following is a summary of the Company's risk management strategies
and the effect of these strategies on the consolidated financial statements.
Interest Rate Risk Management
The Company uses a two-year interest rate swap contract to adjust the amount of
total debt that is subject to variable interest rates. Under the interest rate
swap contract, the Company pays amounts equal to the specified fixed-rate of
interest (6.56%) multiplied by the notional principal amount ($100,000), and
receives a variable rate of interest (30-day LIBOR) multiplied by the same
notional principal amount. No other cash payments are made unless the contract
is terminated prior to maturity, in which case the amount paid or received in
settlement is established by agreement at the time of termination and should
represent the market quotation, at current rates of interest, of the remaining
obligations to exchange payments under the terms of the contract. The
counterparty to the interest rate swap agreement exposes the Company to credit
loss in the event of non-performance, although the Company does not anticipate
such non-performance. Pursuant to SFAS No. 133, the Company accounts for its
interest rate swap contract as a cash flow hedge which is highly effective. As
of December 31, 2001, the interest rate swap is reflected at fair value of
$4,043 and is included in deferred income taxes and other with a corresponding
amount included in accumulated other comprehensive loss. The Company has not
experienced any ineffectiveness with its interest rate swap and accordingly has
not recognized any gains or losses in its earnings.
-11-
<Page>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
(The following discussion should be read in conjunction with the Consolidated
Financial Statements contained elsewhere herein.)
THREE MONTHS ENDED DECEMBER 31, 2001 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
2000
AVIATION SEGMENT
NET SALES. Net sales for the Aviation segment increased by $8.9
million, or 6.9%, to $138.5 million for the third quarter of fiscal 2002 from
$129.6 million for the third quarter of fiscal 2001. This growth in revenue is
mainly due to the acquisition of EFS Aerospace, Inc. ("EFS") which accounts for
$7.3 million of the increase. The remaining net increase is due to our increased
participation in the expanding regional jet market, namely the Canadair RJ
programs, growth of participation in Airbus programs, primarily the A319, A320
and A321 programs and certain military programs, most significantly the C-17
program. Increases in certain Boeing program build rates, namely the B737 new
generation, added to the growth of net sales in the quarter over the prior year
period offset by declines in other programs, most notably the E-2C.
Due to the terrorist activities of September 11, 2001 and the
resulting adverse effects on commercial aircraft production rates and airline
flight schedules, Triumph believes that its sales for the remainder of the
fiscal year to commercial aircraft OEM's and certain airline customers will
be negatively impacted, but sales to the military of spare parts are expected
to positively impact the Company's sales for the remainder of the year.
However, the net effect of these factors on the Company's consolidated sales
is indeterminable at this time.
OPERATING INCOME. Operating income for the Aviation segment increased
by $0.5 million, or 2.3%, to $22.4 million for the third quarter of fiscal 2002
from $22.0 million for the third quarter of fiscal 2001. Effective April 1,
2001, the Company adopted Statement of Financial Accounting Standards No. 142
"Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 142 provides that
goodwill and intangible assets with indefinite lives will not be amortized. In
accordance with SFAS 142, the Company stopped amortizing goodwill effective
April 1, 2001. Had SFAS 142 been effective April 1, 2000, operating income in
the third quarter of fiscal 2001 would have been $23.5 million, or $1.6 million
more than reported.
The remaining net decrease in operating income over the prior year
period of approximately $1.1 million resulted from a reduction of margin due to
the mix of products sold, offset by operating income generated by EFS.
-12-
<Page>
Management's Discussion And Analysis of
Financial Condition and Results of Operations
(continued)
METALS SEGMENT
NET SALES. Net sales for the Metals segment decreased by $2.8 million,
or 20.3%, to $10.8 million for the third quarter of fiscal 2002 from $13.6
million for the third quarter of fiscal 2001. This decrease was mainly due to
import pricing pressures and lower volume at the Company's electrogalvanized
steel operation.
OPERATING INCOME. Operating income for the Metals segment decreased
by $0.2 million, or 84.0%, for the third quarter of fiscal 2002 from the
prior year period. This decrease was mainly due to the decline in net sales.
OVERALL RESULTS
CORPORATE EXPENSES. Corporate expenses increased by $0.3 million, or
22.6%, to $1.8 million for the third quarter of fiscal 2002 from $1.4 million
for the third quarter of fiscal 2001.
INTEREST EXPENSE AND OTHER. Interest expense and other decreased by
$2.5 million, or 41.5%, to $3.5 million for the third quarter of fiscal 2002
from $5.9 million for the third quarter of fiscal 2001. This decrease was
primarily due to lower interest rates and decreased debt levels from the
follow-on public offering which occurred in March and April of 2001.
INCOME TAX EXPENSE. The effective tax rate was 31.4% for the third
quarter of fiscal 2002 and 32.3% for the third quarter of fiscal 2001.
NET INCOME. Net income increased to $11.8 million for the third quarter
of fiscal 2002 from $10.0 million for the prior year period. The increase
in net income for the third quarter of fiscal 2002 was primarily attributable to
the earnings of EFS, the adoption of SFAS 142 in fiscal 2002 and the decreased
interest expense offset by the net decrease in earnings from the other Aviation
segment operating units.
-13-
<Page>
Management's Discussion And Analysis of
Financial Condition and Results of Operations
(continued)
NINE MONTHS ENDED DECEMBER 31, 2001 COMPARED TO NINE MONTHS ENDED DECEMBER 31,
2000
AVIATION SEGMENT
NET SALES. Net sales for the Aviation segment increased by $70.3
million, or 19.7%, to $428.0 million for the nine months ended December 31, 2001
from $357.7 million for the prior year period. This growth in revenue is due to
our increased participation in the expanding regional jet market, namely the
Canadair RJ programs, growth of participation in Airbus programs, primarily the
A319, A320 and A321 programs and certain military programs, most significantly
the C-17 program. Revenue growth was also helped by the positive impact of
license agreements and product lines obtained in fiscal 2001 and from the
acquisition of EFS. Increases in certain Boeing program build rates, namely the
B737 new generation and B777, added to the growth of net sales in the nine
months over the prior year period offset by declines in other programs, most
notably the E-2C.
Due to the terrorist activities of September 11, 2001 and the
resulting adverse effects on commercial aircraft production rates and airline
flight schedules, Triumph believes that its sales for the remainder of the
fiscal year to commercial aircraft OEM's and certain airline customers will
be negatively impacted, but sales to the military of spare parts are expected
to positively impact the Company's sales for the remainder of the year.
However, the net effect of these factors on the Company's consolidated sales
is indeterminable at this time.
OPERATING INCOME. Operating income for the Aviation segment increased
by $13.3 million, or 22.2%, to $73.4 million for the nine months ended December
31, 2001 from $60.0 million for the prior year period. Effective April 1, 2001,
the Company adopted Statement of Financial Accounting Standards No. 142
"Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 142 provides that
goodwill and intangible assets with indefinite lives will not be amortized. In
accordance with SFAS 142, the Company stopped amortizing goodwill effective
April 1, 2001. Had SFAS 142 been effective April 1, 2000, operating income for
the nine months ended December 31, 2000 would have been $65.2 million or $5.2
million more than reported.
During the nine months ended December 31, 2001, the Company incurred
approximately $2.6 million of amortization and royalty expenses related to its
purchase of certain licenses and a product line which it acquired at the end of
the second quarter of fiscal 2001 compared to approximately $0.9 million for the
prior year period.
The remaining net increase in operating income over the prior year
period of approximately $9.9 million resulted from the increase in revenues and
gross profits, most notably from the programs discussed above as well as the
acquisition of EFS, offset by increases in selling, general and administrative
expenses from the Aviation Segment as a whole.
-14-
<Page>
Management's Discussion And Analysis of
Financial Condition and Results of Operations
(continued)
METALS SEGMENT
NET SALES. Net sales for the Metals segment decreased by $9.8 million,
or 21.3%, to $36.2 million for the nine months ended December 31, 2001 from
$46.1 million for the prior year period. This decrease was mainly due to import
pricing pressures and lower volume at the Company's electrogalvanized steel
operation as well as a lower activity level at the Company's structural steel
erection operation.
OPERATING INCOME. Operating income for the Metals segment decreased by
$1.6 million, or 86.8%, to $0.2 million for the nine months ended December 31,
2001 from $1.8 million from the prior year period. This decrease was mainly due
to the decline in net sales.
OVERALL RESULTS
CORPORATE EXPENSES. Corporate expenses increased by $1.8 million, or
47.5%, to $5.5 million for the nine months ended December 31, 2001 from $3.7
million for the prior year period.
SPECIAL CHARGE. During the second quarter of fiscal 2001, the Company
recorded a special charge totaling $5.0 million related to the write-off of the
development expense on a new aircraft program, which is deemed unlikely to go
into production at this time.
INTEREST EXPENSE AND OTHER. Interest expense and other decreased by
$6.0 million, or 38.3%, to $9.7 million for the nine months ended December 31,
2001 from $15.7 million for the prior year period. This decrease was primarily
due to lower interest rates and decreased debt levels from the follow-on public
offering, which occurred in March and April of 2001.
INCOME TAX EXPENSE. The effective tax rate was 34.6% for the nine
months ended December 31, 2001 and 35.4% for the nine months ended December 31,
2000.
NET INCOME. Net income increased to $34.9 million for the nine months
ended December 31, 2001 from $27.4 million for the prior year period. The
increase in net income was primarily attributable to the earnings of the
Aviation segment operating units, the adoption of SFAS 142 in fiscal 2002 and
the decreased interest expense offset by the special charge.
-15-
<Page>
Management's Discussion And Analysis of
Financial Condition and Results of Operations
(continued)
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital needs are generally funded through cash
flows from operations and borrowings under its credit arrangements. The Company
generated $49.4 million of cash flows from operating activities for the nine
months ended December 31, 2001. The Company used $50.4 million in investing
activities and raised $5.5 million in financing activities for the nine months
ended December 31, 2001.
As of December 31, 2001, $214.4 million was available under the
Company's revolving credit facility ("Credit Facility"), which expires on June
13, 2004. On December 31, 2001, an aggregate amount of approximately $132.9
million was outstanding under the Credit Facility, $128.0 million of which was
accruing interest at LIBOR plus applicable basis points totaling 6.6% per annum,
and $4.9 million of which was accruing interest at the prime rate of 4.75% per
annum. Amounts repaid under the Credit Facility may be reborrowed. The Company
may allocate up to $5.0 million of the available Credit Facility for the
issuance of letters of credit of which $2.7 million was used as of December 31,
2001.
In March 2001, the Company completed the sale of 3,000,003 shares of
its Common stock for $37.50 per share through an underwritten public offering.
In addition, the Company granted its underwriters of its public offering a
30-day option to purchase additional shares to cover over-allotments. In April
2001, the Underwriters exercised the over-allotment option and the Company sold
an additional 450,000 shares of its Common stock. The net proceeds from the
April 2001 sales of $16.0 million were used to repay long-term debt.
On August 23, 2001, the Company entered into a loan agreement with the
Illinois Development Finance Authority related to the Illinois Development
Finance Authority Economic Development Bonds, series of 2001 ("the Bonds"). The
proceeds of the Bonds of $7.5 million were used to fund the purchase of the
Company's TriWestern Metals new electro-galvanizing production line. The Bonds
are due to mature on August 1, 2016 and are secured by the equipment. The Bonds
bear interest at a variable rate based on LIBOR, which at December 31, 2001 was
3.5%.
Capital expenditures were approximately $21.0 million for the nine
months ended December 31, 2001 primarily for manufacturing machinery and
equipment for the Aviation segment. The Company funded these expenditures
through borrowings under its Credit Facility. The Company expects capital
expenditures to be approximately $40.0 million for its fiscal year ending March
31, 2002. The expenditures are expected to be used mainly to expand capacity at
several facilities.
On December 15, 1998, the Company announced a program to repurchase up
to 500,000 shares of its common stock. In September 2001, the Company
repurchased a total of 25,000 shares at an average share price of $29.99 for a
total purchase price of $0.7 million. From the inception of the program through
December 31, 2001, the Company has repurchased a total of 269,200 shares for a
total purchase price of $6.7 million.
The expected future cash flows for the next five years for long term
debt, leases and other obligations are as follows:
<Table>
<Caption>
- ----------------------------------------- ----------------------------------------------------------------
CONTRACTUAL OBLIGATIONS PAYMENTS DUE BY PERIOD
($ IN THOUSANDS)
- ----------------------------------------- ----------------------------------------------------------------
Total Less than 1-3 years 4-5 years After 5
1 year years
- ----------------------------------------------------------------------------------------------------------
Long Term Debt (1) $172,546 $ 9,591 $151,769 $ 3,748 $ 7,438
- ----------------------------------------------------------------------------------------------------------
Capital Lease Obligations (1)(2) 5,943 1,576 4,224 143 --
- ----------------------------------------------------------------------------------------------------------
Operating Leases 79,503 13,761 22,951 24,262 18,529
- ----------------------------------------------------------------------------------------------------------
Other Long Term Obligations (1) 2,202 948 503 496 255
- ----------------------------------------------------------------------------------------------------------
Total $260,194 $ 25,876 $179,447 $ 28,649 $ 26,222
- ----------------------------------------------------------------------------------------------------------
</Table>
(1) Included in liabilities on the Company's balance sheet as of December 31,
2001.
(2) Includes interest component.
-16-
<Page>
Management's Discussion And Analysis of
Financial Condition and Results of Operations
(continued)
The Company believes that cash generated by operations and borrowings
under the Credit Facility will be sufficient to meet anticipated cash
requirements for its current operations. However, the Company has a stated
policy to grow through acquisition and is continuously evaluating various
acquisition opportunities. As a result, the Company currently is pursuing the
potential purchase of a number of candidates. In the event that more than one of
these transactions are successfully consummated, the availability under the
Credit Facility might be fully utilized and additional funding sources may be
needed. There can be no assurance that such funding sources will be available to
the Company on terms favorable to the Company, if at all.
FORWARD LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 relating to the Company's
future operations and prospects, including statements that are based on current
projections and expectations about the markets in which the Company operates,
and management's beliefs concerning future performance and capital requirements
based upon current available information. Such statements are based on
management's beliefs as well as assumptions made by and information currently
available to management. When used in this document, words like "may", "might",
"will", "expect", "anticipate", "believe", "potential", and similar expressions
are intended to identify forward looking statements. Actual results could differ
materially from management's current expectations. For example, there can be no
assurance that additional capital will not be required or that additional
capital, if required, will be available on reasonable terms, if at all, at such
times and in such amounts as may be needed by the Company. In addition to these
factors, among other factors that could cause actual results to differ
materially are uncertainties relating to the integration of acquired businesses,
general economic conditions affecting the Company's business segments,
dependence of certain of the Company's businesses on certain key customers as
well as competitive factors relating to the aviation and metals industries and
the Company's assessment of the impact of the September 11, 2001 attack. For a
more detailed discussion of these and other factors affecting the Company, see
risk factors described in the Company's Annual Report on Form 10-K, for the year
ended March 31, 2001, filed with the SEC in June 2001.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
For information regarding the Company's exposure to certain market
risks, see Item 7A. Quantitative and Qualitative Disclosures About Market Risk
in the Company's Annual Report on Form 10-K for the year ended March 31, 2001
and Note 9 to the Company's financial statements in its Quarterly Report on Form
10-Q for the period ended December 31, 2001. There has been no material change
in this information.
-17-
<Page>
TRIUMPH GROUP, INC.
Part II. Other Information
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities
Not applicable
Item 3. Defaults upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Not applicable
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the three months ended
December 31, 2001.
-18-
<Page>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Triumph Group, Inc.
------------------------------------------------
(Registrant)
/s/ Richard C. Ill
------------------------------------------------
Richard C. Ill, President & CEO
/s/ John R. Bartholdson
------------------------------------------------
John R. Bartholdson, Senior Vice President & CFO
(Principal Financial Officer)
/s/ Kevin E. Kindig
------------------------------------------------
Kevin E. Kindig, Vice President & Controller
(Principal Accounting Officer)
Dated: February 8, 2002
-19-