-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Rn4bISeznMvsk+rTcH24tLx31h1Gc6myy1RY0N9jkLVxviszLX9daHn5y2wvUH1T jwgy1xTVRUigWjRG3vJKOQ== 0000912057-00-022489.txt : 20000510 0000912057-00-022489.hdr.sgml : 20000510 ACCESSION NUMBER: 0000912057-00-022489 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000509 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DECRANE AIRCRAFT HOLDINGS INC CENTRAL INDEX KEY: 0000880765 STANDARD INDUSTRIAL CLASSIFICATION: AIRCRAFT PART & AUXILIARY EQUIPMENT, NEC [3728] IRS NUMBER: 341645569 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22371 FILM NUMBER: 622665 BUSINESS ADDRESS: STREET 1: 2361 ROSECRANS AVENUE STREET 2: SUITE 180 CITY: EL SEGUNDO STATE: CA ZIP: 90245-4910 BUSINESS PHONE: 3107259123 MAIL ADDRESS: STREET 1: 2361 ROSECRANS AVENUE STREET 2: SUITE 180 CITY: EL SEGUNDO STATE: CA ZIP: 90245-4910 10-Q 1 FORM 10-Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2000 Commission File Number 333-70365 ------------------------ DECRANE AIRCRAFT HOLDINGS, INC. (Exact name of registrant as specified in its charter) DELAWARE 34-1645569 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2361 ROSECRANS AVENUE, SUITE 180, EL SEGUNDO, CA 90245 (Address, including zip code, of principal executive offices) (310) 725-9123 (Registrant's telephone number, including area code) ------------------------ (NOT APPLICABLE) (Former address and telephone number of principal executive offices, if changed since last report) ------------------------ 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 period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No The number of shares of Registrant's Common Stock, $.01 par value, outstanding as of May 1, 2000 was 100 shares. ================================================================================ DECRANE AIRCRAFT HOLDINGS, INC. INDEX
PAGE ---- PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Consolidated Balance Sheets as of December 31, 1999 and March 31, 2000 ........................... 1 Consolidated Statements of Operations for the three months ended March 31, 1999 and 2000 ......... 2 Consolidated Statements of Stockholder's Equity for the three months ended March 31, 2000 ........ 3 Consolidated Statements of Cash Flows for the three months ended March 31, 1999 and 2000 ......... 4 Condensed Notes to Consolidated Financial Statements ............................................. 5 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ............ 15 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK ........................................ 20 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS ................................................................................ 22 ITEM 5. OTHER INFORMATION ................................................................................ 22 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Exhibits ......................................................................................... 22 Reports on Form 8-K .............................................................................. 22
i PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, MARCH 31, 1999 2000 ----------- ----------- (UNAUDITED) ASSETS Current assets Cash and cash equivalents .................................................................... $ 7,918 $ 648 Accounts receivable, net ..................................................................... 39,580 42,755 Inventories .................................................................................. 58,721 62,174 Deferred income taxes ........................................................................ 5,592 5,452 Prepaid expenses and other current assets..................................................... 2,114 2,110 ----------- ----------- Total current assets ....................................................................... 113,925 113,139 Property and equipment, net ..................................................................... 37,700 37,223 Other assets, principally intangibles, net ...................................................... 374,111 369,325 ----------- ----------- Total assets ............................................................................. $ 525,736 $ 519,687 =========== =========== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities Current portion of long-term debt ............................................................ $ 5,070 $ 5,544 Accounts payable ............................................................................. 14,948 15,840 Accrued liabilities .......................................................................... 61,082 27,976 Income taxes payable ......................................................................... 3,576 3,994 ----------- ----------- Total current liabilities .................................................................. 84,676 53,354 ----------- ----------- Long-term debt .................................................................................. 310,581 334,888 Deferred income taxes ........................................................................... 21,249 21,763 Other long-term liabilities ..................................................................... 2,989 3,223 ----------- ----------- Commitments and contingencies (Note 9) Stockholder's equity Cumulative convertible preferred stock, $.01 par value, 8,314,018 shares authorized; none issued and outstanding as of December 31, 1999 and March 31, 2000 ..................... - - Undesignated preferred stock, $.01 par value, 10,000,000 shares authorized; none issued and outstanding as of December 31, 1999 and March 31, 2000 ..................... - Common stock, $.01 par value, 9,924,950 shares authorized; 100 shares issued and outstanding as of December 31, 1999 and March 31, 2000 .......................... - Additional paid-in capital ................................................................... 117,158 117,243 Notes receivable for shares sold ............................................................. (2,468) (2,492) Accumulated deficit .......................................................................... (6,923) (6,168) Accumulated other comprehensive income (loss)................................................. (1,526) (2,124) ----------- ----------- Total stockholder's equity ................................................................. 106,241 106,459 ----------- ----------- Total liabilities and stockholder's equity ............................................... $ 525,736 $ 519,687 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. 1 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, ------------------------ 1999 2000 ----------- ----------- (UNAUDITED) Revenues ........................................................................................ $ 49,895 $ 79,178 Cost of sales ................................................................................... 33,895 53,026 ----------- ----------- Gross profit ............................................................................... 16,000 26,152 ----------- ----------- Operating expenses Selling, general and administrative .......................................................... 8,171 11,046 Amortization of intangible assets ............................................................ 2,564 4,213 ----------- ----------- Total operating expenses ................................................................... 10,735 15,259 ----------- ----------- Income from operations .......................................................................... 5,265 10,893 Other expenses Interest expense ............................................................................. 5,751 8,676 Other expenses (income) ...................................................................... (144) 64 ----------- ----------- Income (loss) before provision for income taxes ................................................. (342) 2,153 Provision (benefit) for income taxes ............................................................ (67) 1,398 ----------- ----------- Net income (loss) ............................................................................... $ (275) $ 755 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. 2 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (IN THOUSANDS, EXCEPT SHARE DATA)
PREFERRED PREFERRED COMMON STOCK PAID-IN CONVERTIBLE UNDESIGNATED ----------------- ADDITIONAL STOCK STOCK SHARES AMOUNT CAPITAL ---------- ---------- ------- ------- -------- Balance, December 31, 1999. - 100 - 117,158 Comprehensive income Net income ............. - - - - - Translation adjustment.. - - - - - Compensatory stock option expense ......... - - - - 85 Notes receivable interest accrued ................ - - - - - Balance, March 31, 2000 (Unaudited) ............ $ - $ - 100 $ - $ 117,243 ACCUMULATED NOTES OTHER RECEIVABLE COMPREHENSIVE FOR SHARES ACCUMULATED INCOME SOLD DEFICIT (LOSS) TOTAL ---------- ----------- ----------- ------- Balance, December 31, 1999. (2,468) (6,923) (1,526) 106,241 Comprehensive income Net income ............. 755 - 755 Translation adjustment.. - (598) (598) 157 Compensatory stock option expense ......... - - - 85 Notes receivable interes accrued ................ (24) - - (24) Balance, March 31, 2000 (Unaudited) ............ $ (2,492) $ (6,168) $ (2,124) $ 106,459
The accompanying notes are an integral part of the consolidated financial statements. 3 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, -------------------------- 1999 2000 ------------- ----------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) ............................................................................ $ (275) $ 755 Adjustments to reconcile net income (loss) to net cash provided by operating activities Depreciation and amortization ............................................................ 4,032 6,803 Deferred income taxes..................................................................... 53 681 Other, net ............................................................................... 172 168 Changes in assets and liabilities, net of effect from acquisitions Accounts receivable .................................................................... (3,951) (3,253) Inventories ............................................................................ 1,213 (3,510) Prepaid expenses and other assets ...................................................... (196) (1,046) Accounts payable ....................................................................... 3,127 924 Accrued liabilities .................................................................... (5,180) (4,975) Income taxes payable ................................................................... (120) 1,072 Other long-term liabilities ............................................................ 191 244 ----------- ----------- Net cash used for operating activities ............................................... (934) (2,137) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Cash paid for acquisitions, net of cash acquired ............................................. (41,734) (28,179) Capital expenditures ......................................................................... (2,093) (1,588) ----------- ----------- Net cash used for investing activities ............................................... (43,827) (29,767) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Net borrowings under senior credit facility .................................................. 40,382 26,100 Customer advance ............................................................................. 5,000 - Deferred financing costs ..................................................................... (894) - Principal payments on term debt, capitalized leases and other debt ........................... (452) (1,377) Other, net ................................................................................... - (77) ----------- ----------- Net cash provided by financing activities ............................................ 44,036 24,646 ----------- ----------- Effect of foreign currency translation on cash .................................................. (18) (12) ----------- ----------- Net decrease in cash and cash equivalents ....................................................... (743) (7,270) Cash and cash equivalents at beginning of period ................................................ 3,518 7,918 ----------- ----------- Cash and cash equivalents at end of period ...................................................... $ 2,775 $ 648 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. 4 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - CONSOLIDATED FINANCIAL STATEMENTS The consolidated interim financial statements included in this report are unaudited. The Company believes the interim financial statements are presented on a basis consistent with the audited financial statements. The Company also believes that the interim financial statements contain all adjustments necessary for a fair presentation of the results for such interim periods. All of these adjustments are normal recurring adjustments. The results of operations for interim periods do not necessarily predict the operating results for the full year. The consolidated balance sheet as of December 31, 1999 has been derived from audited financial statements but does not include all disclosures required by generally accepted accounting principles as permitted by interim reporting requirements. The information included in this report should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the audited financial statements and related notes included in the Company's 1999 Form 10-K. Some reclassifications have been made to prior periods' financial statements to conform to the 2000 presentation. NOTE 2 - PROBABLE ACQUISITION SUBSEQUENT TO MARCH 31, 2000 On April 17, 2000, the Company entered into a definitive agreement to acquire substantially all of the assets of Carl F. Booth & Co., Inc., a New Albany, Indiana based manufacturer of wood veneer panels primarily used in aircraft interior cabinetry. The acquisition is subject to several conditions, including financing. The Company expects to complete the acquisition in May 2000. The purchase price is approximately $19,000,000, plus contingent consideration totaling a maximum of $2,000,000 payable over three years. NOTE 3 - UNAUDITED PRO FORMA RESULTS OF OPERATIONS FOR 1999 ACQUISITIONS Unaudited pro forma consolidated results of operations is presented in the table below for three months ended March 31, 1999. The results of operations reflect the Company's 1999 acquisitions described in the 1999 audited financial statements as if all of the transactions were consummated as of January 1, 1999. The pro forma results exclude the effect of the probable acquisition described in Note 2.
THREE MONTHS ENDED MARCH 31, 1999 ---------------------------- HISTORICAL PRO FORMA --------------- ----------- (IN THOUSANDS) Revenues ..................................................................... $ 49,895 $ 71,072 Net loss ..................................................................... (275) (857)
The pro forma results of operations do not purport to represent what actual results would have been if the transactions described above occurred on such dates or to project the results of operations for any future period. The above information reflects adjustments for inventory, depreciation, amortization, general and administrative expenses and interest expense based on the new cost basis and debt structure of the Company following the acquisitions. 5 NOTE 4 - 1999 RESTRUCTURING OF THE SYSTEMS INTEGRATION GROUP In December 1999, the Company announced a plan to reorganize and restructure the operations of two subsidiaries within its Systems Integration Group. The restructuring was a result of management's decision to exit the manufacturing business at these subsidiaries and consolidate and relocate operations into one facility to more efficiently and effectively manage the business and be more competitive. In 1999, the Company recorded nonrecurring pre-tax charges to operations of $9,935,000 in connection with the restructuring plan as described below: - Inventory write-downs to net realizable value as a consequence of exiting the manufacturing business; - Certain property and equipment asset impairment write-downs to net realizable value related to the closing of a manufacturing facility; - Severance and other compensation costs related to the termination of approximately forty manufacturing and administrative employees upon closing of the manufacturing facility, which is expected to cease operations by June 2000, and elimination of duplicate administrative personnel following the consolidation of the operations; - Lease termination and other related costs expected to be incurred during the remaining term of a long-term lease agreement at the facility being vacated following the restructuring, net of expected sublease income; and - Other exit costs, principally legal and consulting fees. The Company commenced the restructuring during 1999 and expects to complete the plan in the third quarter of 2000. Of the total charge, $7,242,000 represented a noncash write-down of assets. As of December 31, 1999, $7,754,000 had been incurred and the remaining $2,181,000 was reflected as an accrued liability. Components of the amounts incurred through March 31, 2000 are as follows (amounts in thousands):
BALANCE AT BALANCE AT DECEMBER 31, AMOUNTS MARCH 31, 1999 INCURRED 2000 ------------ ------------- ------------ (UNAUDITED) (UNAUDITED) Severance and other compensation costs.............................................. $ 784 $ (451) $ 333 Lease termination and other related costs .......................................... 721 (80) 641 Other exit costs ................................................................... 676 (156) 520 ----------- ----------- ----------- Total ........................................................................... $ 2,181 $ (687) $ 1,494 =========== =========== ===========
Through March 31, 2000, severance and other compensation costs of approximately $744,000 have been paid to approximately forty employees, of which $451,000 was incurred during the three months ended March 31, 2000. The amounts paid to date have been primarily to manufacturing employees either terminated or subject to termination as the Company phases out of the manufacturing business. Approximately twenty-six employees have been terminated as of March 31, 2000. The Company expects to incur the remaining costs during the second quarter of 2000 when the manufacturing facility ceases operations and duplicate administrative personnel are eliminated. No significant adjustments have been made to the original estimates. The remaining balance of restructuring costs includes leases termination and other exit costs. Most of the restructuring plan will be completed by the third quarter of 2000, however, future cash payments will extend beyond this date due to future lease payments on the vacated facility and the incurrence of other exit costs. The cash payments will be funded from existing cash balances and internally generated cash from operations. 6 NOTE 5 - INVENTORIES Inventories are comprised of the following (amounts in thousands):
DECEMBER 31, MARCH 31, 1999 2000 ----------- ----------- (UNAUDITED) Raw materials ................................................................................... $ 28,249 $ 28,858 Work-in process ................................................................................. 20,520 22,510 Finished goods .................................................................................. 9,952 10,806 ----------- ----------- Total inventories ............................................................................ $ 58,721 $ 62,174 =========== ===========
Inventoried costs are not in excess of estimated realizable value and include direct engineering, production and tooling costs, and applicable manufacturing overhead. In accordance with industry practice, inventoried costs include amounts relating to programs and contracts with long production cycles. Included above are engineering costs related to long-term contracts that will be recoverable based on future sales in the amount of $5,720,000 at December 31, 1999 and $6,754,000 at March 31, 2000. Periodic assessments are performed to ensure recoverability of engineering costs and adjustments are made, if necessary, to reduce inventoried costs to estimated realizable value. No adjustments were required in 1999 and 2000. NOTE 6 - ACCRUED LIABILITIES Accrued liabilities are comprised of the following (amounts in thousands):
DECEMBER 31, MARCH 31, 1999 2000 ----------- ----------- (UNAUDITED) Acquisition related contingent consideration .................................................... $ 29,825 $ 1,925 Salaries, wages, compensated absences and payroll related taxes ................................. 8,673 7,562 Customer deposits ............................................................................... 8,072 9,954 Accrued interest ................................................................................ 3,228 17 Other accrued liabilities ....................................................................... 11,284 8,518 ----------- ----------- Total accrued liabilities .................................................................... $ 61,082 $ 27,976 =========== ===========
NOTE 7 - LONG-TERM DEBT Long-term debt includes the following amounts (amounts in thousands):
DECEMBER 31, MARCH 31, 1999 2000 ----------- ----------- (UNAUDITED) Senior credit facility $25 million working capital revolving line of credit ......................................... $ - $ 1,100 $25 million acquisition revolving line of credit ............................................. - 25,000 Term loans ................................................................................... 213,213 212,275 12% senior subordinated notes ................................................................... 100,000 100,000 Capital lease obligations and equipment term financing, with interest at 6.5% to 21.0%, secured by equipment .......................................................... 2,411 2,057 Other ........................................................................................... 27 - ----------- ----------- Total long-term debt ......................................................................... 315,651 340,432 Less current portion ......................................................................... (5,070) (5,544) ----------- ----------- Long-term debt, less current portion ....................................................... $ 310,581 $ 334,888 =========== ===========
Acquisition revolving line of credit borrowings were used to fund the acquisition related contingent consideration earned and accrued in 1999 and paid during the first quarter of 2000. 7 NOTE 8 - INCOME TAXES The provision for income taxes differs from the amount determined by applying the applicable U.S. statutory federal rate to the income (loss) before income taxes primarily due to the effects of state and foreign income taxes and non-deductible expenses, principally goodwill amortization. The difference in the effective tax rates between periods is mostly a result of higher goodwill amortization. NOTE 9 - COMMITMENTS AND CONTINGENCIES FUNDING OF DECRANE HOLDINGS OBLIGATIONS The Company is a wholly owned subsidiary of DeCrane Holdings Co. DeCrane Holdings' capital structure includes mandatorily redeemable preferred stock. Preferred stock dividends are payable by DeCrane Holdings quarterly at a rate of 14% per annum. Prior to September 30, 2003, dividends are not paid in cash but instead accrete to the liquidation value of the preferred stock, which, in turn, increases the redemption obligation. On or after September 30, 2003, preferred stock dividends are paid in cash. Since the Company is DeCrane Holdings' only operating subsidiary and source of cash, the Company may be required to fund DeCrane Holdings' preferred stock dividend and redemption requirements in the future. The DeCrane Holdings preferred stock has a total redemption value of $42,619,000 as of March 31, 2000, including accumulated dividends. NOTE 10 - CONSOLIDATED STATEMENTS OF CASH FLOWS Assets acquired and liabilities assumed in connection with acquisitions are as follows (amounts in thousands):
THREE MONTHS ENDED MARCH 31, ------------------------ 1999 2000 ----------- ----------- (UNAUDITED) Fair value of assets acquired ................................................................... $ 53,738 $ - Liabilities assumed ............................................................................. (11,909) - ----------- ----------- Cash paid .................................................................................... 41,829 - Less cash acquired ........................................................................... (95) - ----------- ----------- Net cash paid for companies acquired during the period ..................................... 41,734 - Contingent consideration paid for previously completed acquisitions ............................. - 27,900 Additional acquisition related expenses ......................................................... - 279 ----------- ----------- Total cash paid for acquisitions ......................................................... $ 41,734 $ 28,179 =========== ===========
NOTE 11 - BUSINESS SEGMENT INFORMATION During 1999, the Company reorganized its businesses into three separate groups: Cabin Management, Specialty Avionics and Systems Integration. As prescribed by SFAS No. 131, "Disclosure About Segments of an Enterprise and Related Information," the Company has restated disclosure information for earlier periods to reflect its three separate operating groups. The Company supplies products and services to the general aviation industry. The Company's subsidiaries are organized into three groups, each of which are strategic businesses that are managed separately because each business develops, manufactures and sells distinct products and services. The groups and a description of their businesses are as follows: - Cabin Management - provides interior cabin components for the corporate aircraft market, including furniture, cabinetry, seats and in-flight entertainment systems; - Specialty Avionics - designs, engineers and manufacturers electronic components, display devices and interconnect components and assemblies; and - Systems Integration - provides auxiliary fuel tanks, auxiliary power units and system integration services. Management utilizes more than one measurement to evaluate group performance and allocate resources, however, management considers the primary measure to be earnings before interest, income taxes, depreciation and amortization (referred to herein as EBITDA) as a measurement of their overall economic returns and cash flows. This is consistent with the manner in which the Company's overall performance is measured by its ultimate investors. 8 NOTE 11 - BUSINESS SEGMENT INFORMATION (CONTINUED)
THREE MONTHS ENDED MARCH 31, ------------------------ 1999 2000 ----------- ----------- (UNAUDITED, IN THOUSANDS) Revenues Cabin Management ............................................................................. $ 7,821 $ 36,224 Specialty Avionics ........................................................................... 30,569 26,797 Systems Integration .......................................................................... 11,648 16,609 Inter-group elimination (1) .................................................................. (143) (452) ----------- ----------- Consolidated totals ........................................................................ $ 49,895 $ 79,178 =========== =========== EBITDA (2) Cabin Management ............................................................................. $ 2,297 $ 9,395 Specialty Avionics ........................................................................... 7,620 6,148 Systems Integration .......................................................................... 809 3,442 Corporate (3) ................................................................................ (1,761) (1,803) ----------- ----------- Consolidated EBITDA ........................................................................ $ 8,965 $ 17,182 =========== =========== Total assets Cabin Management ............................................................................. $ 36,418 $ 189,400 Specialty Avionics ........................................................................... 232,858 223,168 Systems Integration .......................................................................... 94,838 81,841 Corporate .................................................................................... 21,252 25,278 ----------- ----------- Consolidated totals ........................................................................ $ 385,366 $ 519,687 =========== ===========
- ---------------------- (1) Inter-group sales are accounted for at prices comparable to sales to unaffiliated customers, and are eliminated in consolidation. (2) A reconciliation of EBITDA to consolidated income (loss) before income taxes and extraordinary item is as follows:
THREE MONTHS ENDED MARCH 31, ------------------------ 1999 2000 ----------- ----------- (UNAUDITED, IN THOUSANDS) Consolidated EBITDA ........................................................................ $ 8,965 $ 17,182 Depreciation and amortization (a) .......................................................... (3,700) (6,200) Other non-operating costs .................................................................. - (89) Interest expense ........................................................................... (5,751) (8,676) Other (expenses) income .................................................................... 144 (64) ----------- ------------ Consolidated income (loss) before income taxes ........................................... $ (342) $ 2,153 =========== ===========
--------------------------- (a) Reflects depreciation and amortization of long-lived assets, goodwill and other intangible assets. Excludes amortization of deferred financing costs, which are classified as a component of interest expense, of $332,000 and $603,000 for the three months ended March 31, 1999 and 2000, respectively. (3) Reflects the Company's corporate headquarters costs and expenses not allocated to the groups. 9 NOTE 12 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION In conjunction with the senior credit facility and 12% senior subordinated notes described in Note 7, the following condensed consolidating financial information is presented for the Company, segregating guarantor and non-guarantor subsidiaries. The accompanying financial information in the Guarantor Subsidiaries column reflects the financial position, results of operations and cash flows for those subsidiaries guaranteeing the senior credit facility and the notes. The guarantor subsidiaries are wholly-owned subsidiaries of the Company and their guarantees are full and unconditional on a joint and several basis. There are no restrictions on the ability of the guarantor subsidiaries to transfer funds to the issuer in the form of cash dividends, loans or advances. Separate financial statements of the guarantor subsidiaries are not presented because management believes that such financial statements would not be material to investors. Investments in subsidiaries in the following condensed consolidating financial information are accounted for under the equity method of accounting. Consolidating adjustments include the following: (1) Elimination of investments in subsidiaries. (2) Elimination of intercompany accounts. (3) Elimination of intercompany sales between guarantor and non-guarantor subsidiaries. (4) Elimination of equity in earnings of subsidiaries. BALANCE SHEETS
DECEMBER 31, 1999 ------------------------------------------------------------------------- GUARANTOR NON-GUARANTOR CONSOLIDATING CONSOLIDATED ISSUER SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL ----------- ------------ ------------ ----------- ------------ (IN THOUSANDS) ASSETS Current assets Cash and cash equivalents ...................... $ 7,839 $ (323) $ 402 $ - $ 7,918 Accounts receivable, net ....................... - 38,201 1,379 - 39,580 Inventories .................................... - 57,072 1,649 - 58,721 Other current assets ........................... 6,645 938 123 - 7,706 ----------- ----------- ---------- ----------- ----------- Total current assets ......................... 14,484 95,888 3,553 - 113,925 Property and equipment, net ....................... 1,282 34,174 2,244 - 37,700 Other assets, principally intangibles, net ........ 17,065 344,986 12,060 - 374,111 Investments in subsidiaries ....................... 360,515 20,305 - (380,820)(1) - Intercompany receivables .......................... 77,566 17,334 2,612 (97,512)(2) - ----------- ----------- ---------- ------------ ----------- Total assets ............................... $ 470,912 $ 512,687 $ 20,469 $ (478,332) $ 525,736 =========== =========== ========== ============ =========== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities Short-term borrowings .......................... $ 4,640 $ 404 $ 26 $ - $ 5,070 Other current liabilities ...................... 10,237 68,691 678 - 79,606 ----------- ----------- ---------- ----------- ----------- Total current liabilities .................... 14,877 69,095 704 - 84,676 ----------- ----------- ---------- ----------- ----------- Long-term debt .................................... 309,836 712 33 - 310,581 Intercompany payables ............................. 17,797 79,384 331 (97,512)(2) - Other long-term liabilities ....................... 20,635 2,981 622 - 24,238 ----------- ----------- ---------- ----------- ----------- Stockholder's equity Paid-in capital ................................ 114,690 289,415 15,440 (304,855)(1) 114,690 Retained earnings (deficit) .................... (6,923) 71,100 4,865 (75,965)(1) (6,923) Accumulated other comprehensive income (loss) ................................ - - (1,526) - (1,526) ----------- ----------- ----------- ----------- ------------ Total stockholder's equity ................... 107,767 360,515 18,779 (380,820) 106,241 ----------- ----------- ---------- ------------ ----------- Total liabilities and stockholder's equity ..................... $ 470,912 $ 512,687 $ 20,469 $ (478,332) $ 525,736 =========== =========== ========== ============ ===========
10 NOTE 12 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) BALANCE SHEETS (CONTINUED)
MARCH 31, 2000 (UNAUDITED) ------------------------------------------------------------------------- GUARANTOR NON-GUARANTOR CONSOLIDATING CONSOLIDATED ISSUER SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL ----------- ------------ ------------ ------------- ------------- (IN THOUSANDS) ASSETS Current assets Cash and cash equivalents ...................... $ 990 $ (772) $ 430 $ - $ 648 Accounts receivable, net ....................... - 41,037 1,718 - 42,755 Inventories .................................... - 60,237 1,937 - 62,174 Other current assets ........................... 6,390 966 206 - 7,562 ----------- ----------- ---------- ----------- ----------- Total current assets ......................... 7,380 101,468 4,291 - 113,139 Property and equipment, net ....................... 1,433 33,687 2,103 - 37,223 Other assets, principally intangibles, net ........ 17,091 340,666 11,568 - 369,325 Investments in subsidiaries ....................... 379,239 20,415 - (399,654)(1) - Intercompany receivables .......................... 96,374 23,183 1,914 (121,471)(2) - ----------- ----------- ---------- ----------- ----------- Total assets ............................... $ 501,517 $ 519,419 $ 19,876 $ (521,125) $ 519,687 =========== =========== ========== =========== =========== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities Short-term borrowings .......................... $ 5,145 $ 374 $ 25 $ - $ 5,544 Other current liabilities ...................... 8,308 38,888 614 - 47,810 ----------- ----------- ---------- ----------- ----------- Total current liabilities .................... 13,453 39,262 639 - 53,354 ----------- ----------- ---------- ----------- ----------- Long-term debt .................................... 334,400 463 25 - 334,888 Intercompany payables ............................. 23,630 97,510 331 (121,471)(2) - Other long-term liabilities ....................... 21,451 2,945 590 - 24,986 ----------- ----------- ---------- ----------- ----------- Stockholder's equity Paid-in capital ................................ 114,751 302,940 15,440 (318,380)(1) 114,751 Retained earnings (deficit) .................... (6,168) 76,299 4,975 (81,274)(1) (6,168) Accumulated other comprehensive income (loss) ................................ - - (2,124) - (2,124) ----------- ----------- ---------- ----------- ----------- Total stockholder's equity ................... 108,583 379,239 18,291 (399,654) 106,459 ----------- ----------- ---------- ----------- ----------- Total liabilities and stockholder's equity ..................... $ 501,517 $ 519,419 $ 19,876 $ (521,125) $ 519,687 =========== =========== ========== =========== ===========
11 NOTE 12 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED) ------------------------------------------------------------------------- GUARANTOR NON-GUARANTOR CONSOLIDATING CONSOLIDATED ISSUER SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL ----------- ------------ ------------ ------------- ------------- (IN THOUSANDS) Revenues .......................................... $ - $ 48,508 $ 3,651 $ (2,264)(3) $ 49,895 Cost of sales ..................................... - 33,417 2,742 (2,264)(3) 33,895 ----------- ----------- ---------- ----------- ----------- Gross profit ...................................... - 15,091 909 - 16,000 Selling, general and administrative expenses ...... 1,781 6,043 347 - 8,171 Amortization of intangible assets ................. 46 2,389 129 - 2,564 Interest expense .................................. 5,668 73 10 - 5,751 Intercompany charges .............................. (1,612) 1,564 48 - - Equity in earnings of subsidiaries ................ (2,871) (495) - 3,366 (4) - Other expenses (income) ........................... - 109 (253) - (144) Provision (benefit) for income taxes .............. (2,737) 2,537 133 - (67) ----------- ----------- ---------- ----------- ----------- Net income (loss) ................................. $ (275) $ 2,871 $ 495 $ (3,366) $ (275) =========== =========== ========== =========== =========== THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED) ------------------------------------------------------------------------- GUARANTOR NON-GUARANTOR CONSOLIDATING CONSOLIDATED ISSUER SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL ----------- ------------ ------------ ------------- ------------- (IN THOUSANDS) Revenues .......................................... $ - $ 81,368 $ 3,148 $ (5,338)(3) $ 79,178 Cost of sales ..................................... - 55,908 2,456 (5,338)(3) 53,026 ----------- ----------- ---------- ----------- ----------- Gross profit ...................................... - 25,460 692 - 26,152 Selling, general and administrative expenses ...... 1,976 8,698 372 - 11,046 Amortization of intangible assets ................. 51 4,048 114 - 4,213 Interest expense (income) ......................... 6,988 1,691 (3) - 8,676 Intercompany charges .............................. (1,669) 1,669 - - - Equity in earnings of subsidiaries ................ (5,199) (187) - 5,386 (4) - Other expenses (income) ........................... 3 81 (20) - 64 Provision (benefit) for income taxes .............. (2,905) 4,261 42 - 1,398 ----------- ----------- ---------- ----------- ----------- Net income ........................................ $ 755 $ 5,199 $ 187 $ (5,386) $ 755 =========== =========== ========== =========== ===========
12 NOTE 12 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED) ------------------------------------------------------------------------- GUARANTOR NON-GUARANTOR CONSOLIDATING CONSOLIDATED ISSUER SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL ----------- ------------ ------------ ------------- ------------- (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) .............................. $ (275) $ 2,871 $ 495 $ (3,366)(4) $ (275) Adjustments to net income (loss) Non-cash net income adjustments .............. 510 3,579 168 - 4,257 Equity in earnings of subsidiaries ........... (2,871) (495) - 3,366 (4) - Changes in working capital ..................... 4,647 (8,638) (925) - (4,916) ----------- ----------- ---------- ----------- ----------- Net cash provided by (used for) operating activities........................ 2,011 (2,683) (262) - (934) ----------- ----------- ---------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Cash paid for acquisition, net of cash acquired ................................ (41,829) 95 - - (41,734) Capital expenditures ........................... (13) (1,589) (491) - (2,093) ----------- ----------- ---------- ----------- ----------- Net cash used for investing activities ....... (41,842) (1,494) (491) - (43,827) ----------- ----------- ---------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Debt financing for acquisition ................. 36,734 5,000 - - 41,734 Line of credit borrowings ...................... 2,072 - 682 - 2,754 Principal payments on long-term debt and leases .............................. (164) (279) (9) - (452) ----------- ----------- ---------- ----------- ----------- Net cash provided by financing activities ....................... 38,642 4,721 673 - 44,036 ----------- ----------- ---------- ----------- ----------- Effect of foreign currency translation on cash ............................ - - (18) - (18) ----------- ----------- ---------- ----------- ----------- Net increase (decrease) in cash and equivalents ................................ (1,189) 544 (98) - (743) Cash and equivalents at beginning of period ...................................... 2,458 762 298 - 3,518 ----------- ----------- ---------- ----------- ----------- Cash and equivalents at end of period ............. $ 1,269 $ 1,306 $ 200 $ - $ 2,775 =========== =========== ========== =========== ===========
13 NOTE 12 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) STATEMENTS OF CASH FLOWS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED) ------------------------------------------------------------------------- GUARANTOR NON-GUARANTOR CONSOLIDATING CONSOLIDATED ISSUER SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL ----------- ------------ ------------ ------------- ------------- (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES Net income ..................................... $ 755 $ 5,199 $ 187 $ (5,386)(4) $ 755 Adjustments to net income (loss) Non-cash net income adjustments .............. 1,483 5,920 249 - 7,652 Equity in earnings of subsidiaries ........... (5,199) (187) - 5,386 (4) - Changes in working capital ..................... (539) (9,774) (231) - (10,544) ----------- ----------- ---------- ----------- ----------- Net cash provided by (used for) operating activities........................ (3,500) 1,158 205 - (2,137) ----------- ----------- ---------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Cash paid for acquisition, net of cash acquired ................................ (28,179) - - - (28,179) Capital expenditures ........................... (238) (1,198) (152) - (1,588) ----------- ----------- ---------- ----------- ----------- Net cash used for investing activities ....... (28,417) (1,198) (152) - (29,767) ----------- ----------- ---------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Senior credit facility borrowings .............. 26,100 - - - 26,100 Principal payments on long-term debt and leases .............................. (1,032) (332) (13) - (1,377) Other, net ..................................... - (77) - - (77) ----------- ----------- ---------- ----------- ----------- Net cash provided by (used for) financing activities ....................... 25,068 (409) (13) - 24,646 ----------- ----------- ---------- ----------- ----------- Effect of foreign currency translation on cash ............................ - - (12) - (12) ----------- ----------- ---------- ----------- ----------- Net increase (decrease) in cash and equivalents ................................ (6,849) (449) 28 - (7,270) Cash and equivalents at beginning of period ...................................... 7,839 (323) 402 - 7,918 ----------- ----------- ---------- ----------- ----------- Cash and equivalents at end of period ............. $ 990 $ (772) $ 430 $ - $ 648 =========== =========== ========== =========== ===========
14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED IN THIS REPORT. OVERVIEW Our financial position, results of operations and cash flows have been affected by our history of acquisitions. Since January 1, 1999, we have completed six acquisitions and, as a result, our historical financial statements do not reflect the financial position, results of operations and cash flows of our current businesses. The companies we have acquired since January 1, 1999, which affect the comparability of the historical financial statements included herein, consists of: CABIN MANAGEMENT GROUP - PPI, acquired on April 23, 1999; - Custom Woodwork, acquired on August 5, 1999; - PCI NewCo, acquired on October 6, 1999; - International Custom Interiors, acquired on October 8, 1999; - The Infinity Partners, acquired on December 17, 1999; and SYSTEMS INTEGRATION GROUP - PATS, acquired on January 22, 1999. Our historical financial statements reflect the financial position, results of operations and cash flows of the acquired companies subsequent to their respective acquisition dates. INDUSTRY OUTLOOK AND TRENDS In April 2000, Teal Group Corporation, an industry-recognized aerospace research group, revised its ten-year corporate aircraft delivery projections. The Teal Group currently projects that 6,327 corporate aircraft will be delivered between 1999 and 2008, reflecting a 24.9% increase over its July 1999 projection of 5,067 aircraft and a 90.2% increase over the 3,326 aircraft that were delivered between 1989 and 1998. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999 REVENUES. Revenues increased $29.3 million, or 58.7%, to $79.2 million for the three months ended March 31, 2000 from $49.9 million for the three months ended March 31, 1999. The increase primarily results from the inclusion of $30.6 million of revenues in 2000 from companies we acquired during 1999. By segment, revenues changed as follows:
INCREASE (DECREASE) FROM 1999 -------------------------- AMOUNT PERCENT ----------- ----------- (IN MILLIONS) Cabin Management ....................................................................... $ 28.5 365.4% Specialty Avionics ..................................................................... (3.8) (12.4) Systems Integration .................................................................... 5.0 43.1 Inter-group elimination ................................................................ (0.4) ------------- Total ................................................................................ $ 29.3 =============
CABIN MANAGEMENT. Revenues increased by $28.5 million, or 365.4% over the prior year, due to: - the inclusion of $27.3 million of revenues resulting from our acquisitions of PPI Holdings, Custom Woodwork, PCI NewCo, International Custom Interiors and Infinity during 1999; and - a $1.2 million increase in entertainment and cabin management product revenues primarily related to volume growth. 15 SPECIALTY AVIONICS. Revenues decreased by $3.8 million, or 12.4% over the prior year, due to somewhat lower demand for our commercial aircraft products. SYSTEMS INTEGRATION. Revenues increased by $5.0 million, or 43.1% over the prior year, due to: - the inclusion of $3.3 million of revenues resulting from our acquisition of PATS during 1999; and - a $1.7 million increase in revenues from our other products and services. GROSS PROFIT. Gross profit increased $10.2 million, or 63.7%, to $26.2 million for the three months ended March 31, 2000. The increase primarily results from the inclusion of $10.1 million of gross profit in 2000 from companies we acquired during 1999. Gross profit as a percent of revenues increased to 33.1% for the three months ended March 31, 2000 from 32.1% for the same period last year primarily as a result of the higher margins of companies acquired during 1999. By segment, gross profit changed as follows:
INCREASE (DECREASE) FROM 1999 -------------------------- AMOUNT PERCENT ----------- ----------- (IN MILLIONS) Cabin Management ....................................................................... $ 8.9 222.5% Specialty Avionics ..................................................................... (2.0) (19.8) Systems Integration .................................................................... 3.3 173.7 ------------- Total ................................................................................ $ 10.2 =============
CABIN MANAGEMENT. Gross profit increased by $8.9 million, or 222.5% over the prior year, due to: - the inclusion of $9.2 million of gross profit resulting from our acquisitions of PPI Holdings, Custom Woodwork, PCI NewCo, International Custom Interiors and Infinity during 1999; - a $0.5 million increase related to higher entertainment and cabin management product revenues; offset by - a $0.8 million decrease related to our entertainment and cabin management product sales mix and additional overhead costs to support anticipated growth. SPECIALTY AVIONICS. Gross profit decreased by $2.0 million, or 19.8% over the prior year, due to somewhat lower demand for our commercial aircraft products. SYSTEMS INTEGRATION. Gross profit increased by $3.3 million, or 173.7% over the prior year, due to: - the inclusion of $0.9 million of gross profit resulting from our acquisition of PATS in 1999; and - a $2.4 million increase in gross profit due to favorable manufacturing and installation efficiencies achieved at PATS and the 1999 restructuring described in Note 4. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased $2.8 million, or 34.2%, to $11.0 million for the three months ended March 31, 2000, from $8.2 million for the same period last year. The increase primarily results from the inclusion of $3.2 million of SG&A expenses in 2000 from companies we acquired during 1999. SG&A expenses as a percent of revenues decreased to 13.9% for the three months ended March 31, 2000 compared to 16.4% for the same period last year. By segment, SG&A expenses changed as follows:
INCREASE (DECREASE) FROM 1999 -------------------------- AMOUNT PERCENT ----------- ----------- (IN MILLIONS) Cabin Management ....................................................................... $ 1.9 105.6% Specialty Avionics ..................................................................... (0.4) (11.4) Systems Integration .................................................................... 0.8 57.1 Corporate .............................................................................. 0.5 33.3 ------------- Total ................................................................................ $ 2.8 =============
CABIN MANAGEMENT. SG&A expenses increased by $1.9 million, or 105.6% over the prior year, due to our acquisitions of PPI Holdings, Custom Woodwork, PCI NewCo, International Custom Interiors and Infinity during 1999. SPECIALTY AVIONICS. SG&A expenses decreased by $0.4 million, or 11.4% over the prior year, due to reduced selling costs related to lower sales. 16 SYSTEMS INTEGRATION. SG&A expenses increased by $0.8 million, or 57.1% over the prior year, due to: - the inclusion of $0.2 million of SG&A expenses resulting from our acquisition of PATS; and - a $0.6 million increase in other selling, general and administrative expenses. CORPORATE. SG&A expenses increased by $0.5 million, or 33.3% over the prior year. However as a percent of sales Corporate SG&A declined from 2.9% to 2.5 %. DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization expense increased $2.5 million, or 67.5%, for the three months ended March 31, 2000. The increase primarily results from the inclusion of $1.5 million of depreciation expense in 2000 from companies we acquired during 1999. By segment, depreciation expense changed as follows:
INCREASE (DECREASE) FROM 1999 -------------------------- AMOUNT PERCENT ----------- ----------- (IN MILLIONS) Cabin Management ....................................................................... $ 1.5 375.0% Specialty Avionics ..................................................................... 0.5 20.0 Systems Integration .................................................................... 0.5 71.4 ------------- Total ................................................................................ $ 2.5 =============
CABIN MANAGEMENT. Depreciation and amortization expense increased by $1.5 million, or 375.0% over the prior year, with $1.3 million due to our acquisitions of PPI Holdings, Custom Woodwork, PCI NewCo, International Custom Interiors and Infinity during 1999 and $0.2 million from existing Cabin Management operations. SPECIALTY AVIONICS. Depreciation and amortization expense increased by $0.5 million, or 20.0% over the prior year. SYSTEMS INTEGRATION. Depreciation and amortization expense increased by $0.5 million, or 71.4% over the prior year, with $0.2 million due to our acquisition of PATS. EBITDA AND OPERATING INCOME (LOSS). EBITDA increased $8.2 million to $17.2 million, or 91.1%, for the three months ended March 31, 2000, from $9.0 million for the same period last year. The increase primarily results from the inclusion of $8.1 million of EBITDA in 2000 from companies we acquired during 1999. EBITDA as a percent of revenues increased to 21.7% for the three months ended March 31, 2000, from 18.0% for the same period last year. Operating income increased $5.6 million to $10.9 million, or 105.7%, for the three months ended March 31, 2000, from $5.3 million for the same period last year. By segment, EBITDA changed as follows:
INCREASE (DECREASE) FROM 1999 -------------------------- AMOUNT PERCENT ----------- ----------- (IN MILLIONS) EBITDA Cabin Management ..................................................................... $ 7.1 308.7% Specialty Avionics ................................................................... (1.4) (18.4) Systems Integration .................................................................. 2.6 325.0 Corporate ............................................................................ (0.1) 5.9 ----------- Total EBITDA ....................................................................... 8.2 Depreciation and amortization .......................................................... 2.5 Other non-operating costs .............................................................. 0.1 ------------- Total operating income (loss) ...................................................... $ 5.6 =============
CABIN MANAGEMENT. EBITDA increased by $7.1 million, or 308.7% over the prior year, due to: - the inclusion of $7.3 million resulting from our acquisitions of PPI Holdings, Custom Woodwork, PCI NewCo, International Custom Interiors and Infinity during 1999; and - a $0.2 million decrease related to entertainment and cabin management products. SPECIALTY AVIONICS. EBITDA decreased by $1.4 million, or 18.4% over the prior year, due to somewhat lower demand for our commercial aircraft products. 17 SYSTEMS INTEGRATION. EBITDA increased by $2.6 million, or 325.0% over the prior year, due to: - the inclusion of $0.8 million resulting from our acquisition of PATS; - a $0.7 million increase resulting primarily from favorable manufacturing efficiencies achieved at PATS; and - a $1.1 million increase resulting, in part, from the 1999 restructuring described in Note 4; $0.7 million was charged against the restructuring accrual during the quarter and no adjustments were made to our original estimates. CORPORATE. EBITDA decreased by $0.1 million, or 5.9% over the prior year, as a result of higher expenses in support of companies acquired during 1999. INTEREST EXPENSE. Interest expense increased $3.0 million to $8.7 million for the three months ended March 31, 2000, from $5.7 million for the same period last year. Interest expense increased: - $2.6 million due to higher debt levels associated with our acquisition of companies during 1999; and - $0.4 million due to higher average interest rates incurred during 2000 primarily due to higher margins charged by our lenders on our debt. PROVISION FOR INCOME TAXES. The provision for income taxes differs from the amount determined by applying the applicable U.S. statutory federal rate to the income (loss) before income taxes primarily due to the effects of state and foreign income taxes and non-deductible expenses, principally goodwill amortization. The difference in the effective tax rates between periods is mostly a result of higher goodwill amortization. NET INCOME. Net income increased $1.1 million to $0.8 million for the three months ended March 31, 2000 compared to a net loss of $0.3 million for the same period in 1999. BOOKINGS AND BACKLOG. Bookings increased $6.6 million, or 10.0%, to $72.6 million for the three months ended March 31, 2000 compared to $66.0 million for the same period in 1999. The increase in bookings for 2000 results from: - a $27.3 million increase associated with companies we acquired in 1999; offset by - a $14.7 million decrease associated with Systems Integration and the timing of receipt of orders in 1999 immediately following our acquisition of PATS; and further offset by - a $6.0 million decrease related to other businesses, principally in Specialty Avionics as a result of somewhat lower demand for our commercial aircraft products. Backlog decreased $6.1 million to $150.0 million as of March 31, 2000 compared to $156.1 million as of December 31, 1999. The decrease primarily results from the timing of receipt of customer orders. By segment, backlog changed as follows: - a $4.7 million decrease related to Cabin Management; - a $0.7 million decrease related to Specialty Avionics; and - a $0.7 million decrease related to Systems Integration. LIQUIDITY AND CAPITAL RESOURCES We have required cash primarily to fund acquisitions and, to a lesser extent, to fund capital expenditures and for working capital. Our principal sources of liquidity have been cash flow from operations and third party borrowings. For the three months ended March 31, 2000, we used $2.1 million of cash from operating activities, which is the net of $8.4 million of cash generated from operations after adding back depreciation, amortization and other noncash items, $10.7 million used for working capital and $0.2 million resulting from an increase in other liabilities. The following factors contributed to the $10.7 million working capital increase: - a net $3.5 million increase in inventory due to longer lead times involved with production and increases to meet projected revenue growth; - a $3.2 million accounts receivable increase due to timing differences relating to completing of projects and the associated collection; - a $1.0 million decrease in prepaid expenses and other assets; and 18 - a net $4.1 million decrease in accounts payable and accrued expenses due to timing differences between when liabilities are incurred and when they are paid. The working capital increases were offset by a $1.1 million increase in income taxes payable due to higher current taxable income. Cash used for investing activities during the three months ended March 31, 2000 consisted of $28.2 million for the payment of acquisition related contingent consideration earned in 1999 and $1.6 million for capital expenditures. We anticipate spending $16.8 million for capital expenditures in 2000. Net cash provided by financing activities was $24.6 million for the three months ended March 31, 2000 and was primarily used to fund the payment of acquisition related contingent consideration. We obtained these funds primarily by borrowing $26.1 million under our senior credit facility. Additionally, we used $1.3 million to make principal payments on our term debt, capitalized leases and other debt. At March 31, 2000, senior credit facility borrowings totaling $238.4 million are at variable interest rates based on defined margins over the current prime or Euro-Dollar rates. At March 31, 2000 we had $59.7 million of working capital and $23.9 million of borrowings available under our working capital senior credit facility. Although we cannot be certain, we believe that operating cash flow, together with borrowings under our bank credit facility, will be sufficient to meet our future short- and long-term operating expenses, working capital requirements, capital expenditures and debt service obligations for the next twelve months. However, our ability to pay principal or interest, to refinance our debt and to satisfy our other debt obligations will depend on our future operating performance. We will be affected by economic, financial, competitive, legislative, regulatory, business and other factors beyond our control. In addition, we are continually considering acquisitions that complement or expand our existing businesses or that may enable us to expand into new markets. Future acquisitions may require additional debt, equity financing or both. We may not be able to obtain any additional financing on acceptable terms. 19 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to various market risks, including interest rates and changes in foreign currency exchange rates. Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest rates and foreign currency exchange rates. From time to time we use derivative financial instruments to manage and reduce risks associated with these factors. We do not enter into derivatives or other financial instruments for trading or speculative purposes. INTEREST RATE RISK. A significant portion of our capital structure is comprised of long-term variable- and fixed-rate debt. Market risk related to our variable-rate debt is estimated as the potential decrease in pre-tax earnings resulting from an increase in interest rates. The interest rates applicable to variable-rate debt are, at our option, based on defined margins over the current prime or Euro-Dollar rates. At March 31, 2000, the current prime rate was 8.64% and the current Euro-Dollar rate was 6.19%. Based on $238.4 million of variable-rate debt outstanding as of March 31, 2000, a hypothetical one percent rise in interest rates, to 9.64% for prime rate borrowings and 7.19% for Euro-Dollar borrowings, would reduce our pre-tax earnings by $2.4 million annually. Prior to December 31, 1997, we purchased interest rate cap contracts to limit our exposure related to rising interest rates on our variable-rate debt. While we have not entered into similar contracts since that date, we may do so in the future depending on our assessment of future interest rate trends. The estimated fair value of our $100.0 million fixed-rate long-term debt is approximately $92.0 million at March 31, 2000. Market risk related to our fixed-rate debt is deemed to be the potential increase in fair value resulting from a decrease in interest rates. For example, a hypothetical ten percent decrease in the interest rates, from 12.0% to 10.8%, would increase the fair value of our fixed-rate debt by approximately $7.0 million. FOREIGN CURRENCY EXCHANGE RATE RISK. Our foreign customers are located in various parts of the world, primarily Western Europe, the Far East and Canada, and two of our subsidiaries operate in Western Europe. To limit our foreign currency exchange rate risk related to sales to our customers, orders are primarily valued and sold in U.S. dollars. From time to time we have entered into forward foreign exchange contracts to limit our exposure related to foreign inventory procurement and operating costs. However, while we have not entered into any such contracts since 1998 and no such contracts are open as of March 31, 2000, we may do so in the future depending on our assessment of future foreign exchange rate trends. 20 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Some of the statements in this report discuss future expectations, beliefs or strategies, projections or other "forward-looking" information. These statements are subject to known and unknown risks. Many factors could cause actual company results, performance or achievements, or industry results, to be materially different from the projections expressed or implied by this report. We are vulnerable to a variety of risks that affect many businesses, such as: - fuel prices and general economic conditions that affect demand for aircraft and air travel, which in turn affect demand for our products and services; - our reliance on key customers and the adverse effect a significant decline in business from any one of them would have on our business; - changes in prevailing interest rates and the availability of financing to fund our plans for continued growth; - competition from larger companies; - Federal Aviation Administration prescribed standards and licensing requirements, which apply many of the products and services we provide; - inflation, and other general changes in costs of goods and services; - liability and other claims asserted against us that exceeds our insurance coverage; - the ability to attract and retain qualified personnel; - labor disturbances; and - changes in operating strategy, or our acquisition and capital expenditure plans. We cannot predict any of the foregoing with certainty, so our forward-looking statements are not necessarily accurate predictions. Also, we are not obligated to update any of these statements, to reflect actual results or report later developments. You should not rely on our forward-looking statements as if they were certainties. INCORPORATION OF DOCUMENTS BY REFERENCE We have filed with the Securities and Exchange Commission, and are including within this report by referring to it here, our Form 10-K for the year ended December 31, 1999. The Form 10-K includes our audited 1999 financial statements, which we refer to in this report. You may read and copy any reports, statements or other information we file at the SEC's reference room in Washington D.C. Please call the SEC at (202) 942-8090 for further information on the operation of the reference rooms. You can also request copies of these documents, upon payment of a duplicating fee, by writing to the SEC, or review our SEC filings on the SEC's EDGAR web site, which can be found at http:\\www.sec.gov. You may also write or call us at our corporate office located at 2361 Rosecrans Avenue, Suite 180, El Segundo, California 90245. Our telephone number is (310) 725-9123. 21 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Refer to the legal proceedings described in Item 3 of our Form 10-K for the year ended December 31, 1999. ITEM 5. OTHER INFORMATION PROBABLE ACQUISITION SUBSEQUENT TO MARCH 31, 2000 On April 17, 2000, we entered into a definitive agreement to acquire substantially all of the assets of Carl F. Booth & Co., Inc.; a New Albany, Indiana based manufacturer of wood veneer panels primarily used in aircraft interior cabinetry. The acquisition is subject to several conditions, including financing. We expect to complete the acquisition in May 2000. The purchase price is approximately $19.0 million, plus contingent consideration totaling a maximum of $2.0 million payable over three year. We intend to use the acquired assets to manufacture products similar to those previously manufactured by the company prior to its acquisition. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits 10.22 Executive Deferred Compensation Plan ** 21.1 List of Subsidiaries of Registrant ** 27 Financial Data Schedule ** ________________________ * Previously filed ** Filed herewith b. Reports on Form 8-K None 22 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. DECRANE AIRCRAFT HOLDINGS, INC. (Registrant) May 9, 2000 By: /s/ RICHARD J. KAPLAN --------------------------------- Name: Richard J. Kaplan Title: Senior Vice President, Chief Financial Officer, Secretary and Treasurer 23 EX-10.22 2 EXHIBIT 10.22 EXHIBIT 10.22 DECRANE AIRCRAFT HOLDINGS, INC. 1999 EXECUTIVE DEFERRED COMPENSATION PLAN SECTION 1. ESTABLISHMENT OF PLAN DeCrane Aircraft Holdings, Inc. hereby establishes the DeCrane Aircraft Holdings, Inc. 1999 Executive Deferred Compensation Plan set forth herein, adopted and effective as of December 31, 1999 for a select group of management or highly compensated employees, within the meaning of Sections 201(1), 301(a)(3) and 401(a)(1) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), in recognition of the valuable service performed by such employees and to encourage their continued employment. It is intended that the Plan be unfunded for purposes of Title I of ERISA and the Internal Revenue Code of 1986, as amended (the "Code"). SECTION 2. DEFINITION OF TERMS The following words and phrases when used herein, unless the context clearly requires otherwise, shall have the following respective meanings: 2.1. ACCOUNT. Book entries maintained by the Company reflecting Deferred Amounts and interest thereon. 2.2 ACCRUED BENEFIT. The sum of all Deferred Amounts credited to a Participant's Account from time to time pursuant to this Agreement, together with earnings thereon calculated as set forth in Section 5 hereof, minus any distributions hereunder. -1- 2.3 AFFILIATE. Any corporation, partnership, joint venture, association, limited liability company or similar organization or entity, the employees of which would be treated as employed by the Company under Section 414(b) or 414(c) of the Code. 2.4 CHANGE IN CONTROL. The occurrence of any of the following: (a) any "person" (as such term is used in Sections 3(a)(9) and 13(d)(3) of the Exchange Act) other than (A) the DLJ Entities and/or their respective Permitted Transferees (as defined in the Investors' Agreement) or (B) any "group" (within the meaning of such Section 13(d)(3)) of which the DLJ Entities constitute a majority (on the basis of ownership interest), acquires, directly or indirectly, by virtue of the consummation of any purchase, merger or other combination, securities of the Company representing more than 51% of the combined voting power of the Company's then outstanding voting securities with respect to matters submitted to a vote of the stockholders generally; or (b) a sale or transfer by the Company or any of its Subsidiaries of substantially all of the consolidated assets of the Company and its Subsidiaries to an entity which is not an Affiliate of the Company prior to such sale or transfer. 2.5 COMPANY. DeCrane Aircraft Holdings, Inc. 2.6 COMPENSATION. The total salary otherwise payable in cash to the Participant by the Company, exclusive of Accrued Benefits. 2.7 DEFERRAL DATE. Except as otherwise provided in Section 3.4, the date, as elected by the Participant on his or her initial Election of Deferral, which is five years after the effective date of such Election of Deferral or, if later, on which the Participant attains age 55, 60 or 65. -2- 2.8 DEFERRED AMOUNTS. The amounts of Compensation and any bonus actually deferred pursuant to an Election of Deferral. 2.9 EFFECTIVE DATE. December 31, 1999. 2.10 ELECTION OF DEFERRAL. A written notice filed by the Participant with the Company in substantially the form attached hereto as Exhibit A, specifying the amount of Compensation and/or bonuses to be deferred, the investment option for crediting earnings under Section 5 and, in the case of the initial Election of Deferral, the Participant's Deferral Date and election of a form of payment under Section 6. 2.11 ELIGIBLE EMPLOYEE. The president of the Company or any Affiliate, corporate division managers and any other key employee of the Company or an Affiliate who is designated by Plan Administrator. 2.12 NOTICE OF DISCONTINUANCE. A written notice filed by the Participant with the Company in substantially the form attached hereto as Exhibit B, requesting discontinuance of the deferral of the Participant's Compensation and/or bonuses. 2.13 PARTICIPANT. An Eligible Employee who elects to participate in the Plan by filing an Election of Deferral with the Company in accordance with Section 3.1. 2.14 PLAN. The DeCrane Aircraft Holdings, Inc. 1999 Executive Deferred Compensation Plan, as set forth herein and as amended from time to time in accordance with Section 20. 2.15 PLAN ADMINISTRATOR. The person or persons appointed by the Board of Directors of the Company to administer the Plan pursuant to Section 13. Such person or persons shall serve at the discretion of the Board of Directors of the Company. 2.17 PLAN YEAR. The fiscal year of the Company. -3- SECTION 3. PARTICIPATION 3.1 ELECTION TO PARTICIPATE. An Eligible Employee may elect to participate in this Plan by filing an Election of Deferral with the Company at any time on or after the Effective Date. Any such Election of Deferral (and any Notice of Discontinuance or subsequent Election of Deferral filed pursuant to Section 4) shall be deemed filed when received by the Plan Administrator. 3.2 EFFECTIVE DATE OF ELECTION. An Election of Deferral filed pursuant to Section 3.1 shall be effective on the first day of the first pay period beginning after such Election of Deferral is filed if such filing is within 30 days after the Effective Date or, if later, within 30 days after the individual becomes an Eligible Employee. Any Election of Deferral filed pursuant to Section 3.1 after the applicable 30-day period set forth in the preceding sentence shall be effective on the first day of the first pay period beginning on or after the first day of the Plan Year after such Election of Deferral is filed. 3.3 DEFERRED AMOUNTS. The Election of Deferral filed pursuant to Section 3.1 shall specify the Deferred Amount, in whole percentages up to 100% or a fixed dollar amount, to be deferred from the Participant's Compensation for each pay period beginning on or after the effective date of such Election of Deferral determined pursuant to Section 3.2 and continuing through his or her Deferral Date. Such Election of Deferral may also specify the Deferred Amount, in whole percentages up to 100% or a fixed dollar amount, to be deferred from any bonus that the Company may award which is payable after the effective date of such Election of Deferral and before the Participant's Deferral Date. Notwithstanding the foregoing, the minimum Deferred Amount for any Plan Year shall not be less than $10,000. The Participant's -4- Deferred Amounts shall be credited to his or her Account as of the dates such Deferred Amounts would, but for such deferral, be payable to the Participant. 3.4 DEFERRAL DATE. The initial Election of Deferral filed pursuant to Section 3.1 shall also specify the Deferral Date elected by the Participant. The Participant may subsequently elect to extend the original Deferral Date specified on his or her initial Election of Deferral to a later date which is five years after such original Deferral Date or on which the Participant attains age 55, 60 or 65. An election to extend the original Deferral Date may only be made once, must be in writing, must be received by the Plan Administrator at least 90 days prior to the original Deferral Date and shall be irrevocable. SECTION 4. TERMINATION OR AMENDMENT OF ELECTION The Participant's initial Election of Deferral filed pursuant to Section 3.1 shall continue in effect, pursuant to the terms of the Election of Deferral, unless and until the Participant files with the Company a Notice of Discontinuance or a subsequent Election of Deferral specifying a different Deferral Amount for the Participant's Compensation and/or bonuses. Each Election of Deferral filed pursuant to this Section 4 shall similarly continue in effect until the Participant files a Notice of Discontinuance or a subsequent Election of Deferral. A Notice of Discontinuance shall be effective on the first day of the first pay period beginning at least 30 days after such Notice of Discontinuance is filed, and shall apply only with respect to the Participant's Compensation and bonuses attributable to services not yet performed. Any Election of Deferral filed pursuant to this Section 4 shall be effective on the first day of the first pay period beginning on or after the first day of the Plan Year after such Election of Deferral is filed, provided that it is filed at least 30 days prior to the first day of such Plan Year; the Election of -5- Deferral in effect at the time of such filing, if any, shall remain in effect for any remaining pay periods beginning in the Plan Year in which such filing occurs, unless it is discontinued by filing a Notice of Discontinuance. Notwithstanding anything herein to the contrary, a Participant's Election of Deferral shall terminate, and be of no further force or effect, upon attainment of his or her Deferral Date (either as specified on the Participant's initial Election of Deferral or a subsequent election pursuant to Section 3.4, as applicable), and no Election of Deferral may be filed thereafter. SECTION 5 - EARNINGS ON DEFERRED AMOUNTS 5.1 INVESTMENT OPTIONS. The Company will credit Deferred Amounts in the Participant's Account with earnings thereon from and after the date each Deferred Amount is credited to the Account. Earnings on Deferred Amounts shall accrue commencing on the date the Account first has a positive balance and shall continue on the balance in the Participant's Account from time to time up to the date as of which benefits under Section 6, disability benefits under Section 7, death benefits under Section 8, termination benefits under Section 9 or benefits upon a Change in Control, whichever applies, are paid in full. Earnings under this Section 5 on Deferred Amounts credited to the Participant's Account for any Plan Year shall be calculated at a rate computed as if such Deferred Amounts had been invested in accordance with one of the investment options under (a), (b) or (c) as follows: (a) one or more of the following mutual funds: (i) DLJ Winthrop Growth Fund; (ii) DLJ Winthrop Small Company Value Fund; (iii) DLJ Winthrop International Equity Fund; -6- (iv) DLJ Winthrop Developing Markets Fund; (v) DLJ Winthrop Growth and Income Fund; (vi) DLJ Winthrop High Income Fund; (vii) DLJ Winthrop Fixed Income Fund; and (viii) DLJ Winthrop U.S. Government Money Fund; or (b) DLJ Global Diversified Investors; or (c) DLJ Technology Long/Short Investors; as elected by the Participant in his or her initial Election of Deferral. 5.2 CHANGE IN INVESTMENT OPTIONS FOR SUBSEQUENT DEFERRED AMOUNTS. The Participant shall have the right as of the first day of each calendar quarter beginning after the effective date of his or her initial Election of Deferral, on an Election of Deferral filed in accordance with Section 4, to elect a different investment option under Section 5.1(a), (b) or (c) for the calculation of earnings on Deferred Amounts credited to his or her Account for such Plan Year. An election made under Section 5.1 or this Section 5.2 shall remain in effect for Deferred Amounts credited to the Participant's Account for all subsequent Plan Years, unless changed in accordance with this Section 5.2. 5.3 CHANGE IN INVESTMENT OPTIONS FOR ACCRUED BENEFIT. The Participant shall have the right as of the first day of each calendar quarter to elect a different investment option under Section 5.1(a), (b) or (c) for the calculation of earnings on the portion, if any, of his or her Accrued Benefit which is then being credited with earnings under Section 5.1(a). Such election shall be made at such time and in such manner as the Company shall determine. Notwithstanding anything herein to the contrary, the Participant shall not have the right at any time to elect a different investment option with respect to the portion, if any, of his or her -7- Accrued Benefit which is being credited with earnings under Section 5.1(b) or (c). 5.4 INVESTMENTS AND CHARGES. Nothing in this Section 5 shall require the Company to actually invest any Deferred Amounts in accordance with a Participant's election; provided, however, that if the Company in its sole discretion does make any such investment, the Participant's Account shall be reduced for any charges imposed by the applicable fund. SECTION 6. BENEFITS AT DEFERRAL DATE. On or as soon as administratively feasible after the Participant's Deferral Date, regardless of whether the Participant has retired, the Company shall pay to the Participant his or her Accrued Benefit in a lump sum or in 15 annual installments, as elected by the Participant in his or her initial Election of Deferral. Annual installments shall be determined by dividing the balance in the Participant's Account on the date payments commence and each anniversary of such date by a fraction, the numerator of which is one and the denominator of which is the number of remaining installments. Notwithstanding the foregoing: (a) the Participant may change his or her election of a form of payment by filing a written notice with the Plan Administrator at least one year prior to his or her Deferral Date; and (b) the Company may, in its sole discretion, defer for a reasonable period of time any payment otherwise required under this Section 6 with respect to the portion of the Participant's Accrued Benefit which is being credited with earnings under Section 5.1(b) or (c). -8- SECTION 7. DISABILITY BENEFIT Notwithstanding any other provision hereof, the Participant shall be entitled to receive a disability benefit hereunder upon termination of employment due to disability, as determined in accordance with the Company's long-term disability plan, prior to his or her Deferral Date. If the Participant's employment is terminated due to disability pursuant to this Section 7, the disability benefit payable hereunder shall be that amount that would have been payable as a benefit had the Participant attained his or her Deferral Date on the date of such termination. The disability benefit payable under this Section 7 shall be paid in the form elected by the Participant or designated by the Company in accordance with the provisions of Section 6 on or as soon as administratively feasible after the Participant's termination of employment. SECTION 8. DEATH BENEFIT 8.1 DEATH PRIOR TO PAYMENT OR COMMENCEMENT OF BENEFITS. In the event of the Participant's death prior to his or her Deferral Date and prior to payment of disability benefits or termination benefits under Section 7 or 9, respectively, the Company shall pay the Accrued Benefit in the Participant's Account as of the date of his or her death to the Participant's designated beneficiary, in accordance with the last such designation received by the Plan Administrator from the Participant prior to his or her death. If no such designation has been received by the Plan Administrator from the Participant prior to his or her death, or if the designated beneficiary dies prior to the Participant, the Accrued Benefit in the Participant's Account shall be paid to the Participant's then living spouse; if the Participant is not survived by a spouse, to the then living children of the Participant, if any, in equal shares; and if none, to the estate of the Participant. Such death benefit shall be paid in the form elected by the participant, -9- or designated by the Company, in accordance with the provisions of Section 6 as soon as administratively feasible after the Participant's death. If a designated beneficiary, spouse or child receiving death benefits under this Section 8.1 in the form of installments dies prior to payment of the Participant's entire Accrued Benefit, the remaining balance of such Accrued Benefit shall be paid in a lump sum to the estate of such designated beneficiary, spouse or child. 8.2 DEATH AFTER COMMENCEMENT OF INSTALLMENTS. In the event of the Participant's death after payment of benefits at his or her Deferral Date, disability benefits or termination benefits under Section 6, 7 or 9, respectively, has commenced in the form of installments, any remaining installments shall be paid to the designated beneficiary or other person determined in accordance with Section 8.1. 8.3 BENEFICIARY DESIGNATION. The Participant shall have the right, at any time, to submit to the Plan Administrator, in substantially the form attached hereto as Exhibit C, a written designation of primary and secondary beneficiaries to whom payment under this Plan shall be made in accordance with Section 8.1 or 8.2. Each beneficiary designation shall become effective when received by the Plan Administrator. SECTION 9. TERMINATION BENEFIT In the event that, prior to the Participant's Deferral Date, his or her employment with the Company is terminated for any reason, the Company shall thereafter pay to the Participant as a termination benefit the Participant's Accrued Benefit on or as soon as administratively feasible after the Participant's Deferral Date in the form elected by the Participant, or designated by the Company, in accordance with the provisions of Section 6; notwithstanding any other provision of this plan, if the Participant's employment is voluntarily -10- terminated by the Participant other than for early retirement as determined by the Company, or involuntarily terminated by the Company for cause as determined by the Company, the Company may, in its sole discretion, pay the Participant's entire Accrued Benefit in a lump sum on or as soon as administratively feasible after the date of such termination. SECTION 10. CHANGE IN CONTROL Notwithstanding anything herein to the contrary, upon a Change in Control: (a) all Elections of Deferral shall terminate and be of no further force or effect; and (b) each Participant's Accrued Benefit, including the unpaid portion of any Participant's Accrued Benefit which is then being paid in installments under Section 6, 7, 8 or 9, shall be immediately payable to the Participant or his or her beneficiary, as applicable, in a lump sum. SECTION 11. HARDSHIP BENEFIT 11.1 HARDSHIP BENEFIT. In the event a Participant suffers an unforeseen emergency (as defined in Section 11.2), the Company may, if it deems advisable in its sole and absolute discretion, distribute to or utilize on behalf of the Participant as a hardship benefit any portion of the Participant's Account as of the date a hardship benefit is distributed or utilized. Any hardship benefit shall be distributed or utilized at such times as the Company shall determine, and the Accrued Benefit in the Participant's Account shall be reduced by the amount so distributed and/or utilized. 11.2 UNFORESEEN EMERGENCY. For purposes of this Plan, unforeseen emergency means a severe financial hardship to the Participant resulting from a sudden -11- unexpected illness or accident of the Participant or a dependent of the Participant, loss of the Participant's property due to casualty or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. The circumstances that will constitute an unforeseeable emergency would depend upon the facts of each case, but, in any case, distribution or utilization of a hardship benefit may not be made in the event that such hardship is or may be relieved: (a) through reimbursement or compensation by insurance or otherwise; (b) by liquidation of the Participant's assets, to the extent that liquidation of such assets would not itself cause severe financial hardship; or (c) by cessation of Deferred Amounts under the Plan. In any event, the need to send a Participant's child to college or the desire to purchase a home shall not be an unforeseeable emergency. SECTION 12. OFFSET FOR OBLIGATIONS TO COMPANY If, at such time as the Participant becomes entitled to benefit payments hereunder, the Participant has any debt, obligation or other liability representing an amount owing to the Company or any Affiliate, and if such debt, obligation, or other liability is due and owing at the time benefit payments are payable hereunder, the Company may offset the amount owing it against the amount of benefits otherwise payable hereunder. -12- SECTION 13. ADMINISTRATION 13.1 AUTHORITY OF THE PLAN ADMINISTRATOR. Subject to applicable law and any limitations or restrictions imposed by the Board of Directors of the Company, the Plan Administrator shall have full and discretionary power to: (a) interpret and construe the provisions of the Plan; (b) establish rules and regulations for the administration of the Plan; (c) maintain all records necessary for administration of the Plan, including, but not limited to Elections of Deferral, Notices of Discontinuance, beneficiary designations and records relating to Accrued Benefits and payment thereof; and (d) make all other determinations, and take such actions, including but not limited to the appointment of agents, as may be necessary or advisable for the administration of the Plan and the performance of its duties hereunder. 13.2 DECISIONS. If two or more persons are serving as Plan Administrator, any decision of the Plan Administrator may be made by a written document signed by a majority of such persons or by majority vote at a meeting. No person serving as Plan Administrator shall make any decision or take any action affecting exclusively his or her own Accrued Benefits under the Plan, if any; all such matters shall be decided by a majority of the remaining persons serving as Plan Administrator or, if none, by the Board of Directors of the Company or its duly authorized delegate. All determinations and decisions made by the Plan Administrator shall be final, conclusive and binding on all persons including the Company, Participants and their beneficiaries hereunder. 13.3 ADMINISTRATIVE EXPENSES. All expenses of administering the Plan shall be paid by the Company. -13- SECTION 14. NO TRUST CREATED Nothing contained in this Plan, and no action taken pursuant to its provisions shall create, or be construed to create, a trust of any kind, or a fiduciary relationship between the Company and the Participants, their beneficiaries hereunder or any other person. SECTION 15. SOURCE OF PAYMENTS 15.1 GENERAL ASSETS AND UNSECURED CREDITORS. The payments to any Participant or beneficiary hereunder shall be made from assets which shall continue, for all purposes, to be a part of the general, unrestricted assets of the Company; no person shall have any interest in any such assets by virtue of the provisions of this Plan. The Company's obligation hereunder shall be an unfunded and unsecured promise to pay money in the future. To the extent that any person acquires a right to receive payments from the Company under the provisions hereof, such right shall be no greater than the right of any unsecured general creditor of the Company; no such person shall have nor acquire any legal or equitable right, interest or claim in or to any property or assets of the Company. 15.2 INSURANCE OR OTHER PROPERTY. In the event that, in its discretion, the Company purchases an insurance policy or policies insuring the life of any Participant (or any other property) to allow the Company to recover the cost of providing benefits, in whole or in part, hereunder, neither the Participant nor any beneficiary hereunder shall have any rights whatsoever therein or in the proceeds therefrom. The Company shall be the sole owner and beneficiary of any such insurance policy or other property and shall possess and may exercise all incidents of ownership therein. No such policy, policies or other property shall be held in any -14- trust for the Participants, any beneficiary or any other person nor as collateral security for any obligation of the Company hereunder. SECTION 16. NO CONTRACT OF EMPLOYMENT Nothing contained herein shall be construed to be a contract of employment for any term of years, nor as conferring upon any Participant the right to continue to be employed by the Company in his or her present capacity, or in any capacity. SECTION 17. BENEFITS NOT TRANSFERABLE Neither the Participants nor their beneficiaries hereunder shall have any power or right to assign, transfer, alienate, anticipate, pledge, charge or otherwise encumber any part or all of the benefits payable hereunder. No such benefits shall be liable or subject to seizure by any creditor for the debts, contracts, liabilities, engagements or torts of any Participant or beneficiary hereunder, whether by attachment, garnishment, levy, execution or any other legal or equitable process, nor shall such benefits be transferable by operation of law in the event of the bankruptcy or insolvency of any Participant or beneficiary hereunder. Any such attempted assignment, seizure or transfer shall be null and void and of no effect. SECTION 18. WITHHOLDING Notwithstanding any other provision hereof, the Company shall have the right to deduct and withhold from any Deferred Amount or payment under this Plan any taxes required by law to be withheld with respect thereto. -15- SECTION 19. DETERMINATION OF BENEFITS 19.1. CLAIM. A person who believes that he or she is being denied a benefit to which he or she is entitled under the Plan (hereinafter referred to as a "Claimant") may file a written request for such benefit with the Plan Administrator, setting forth his or her claim. The request must be addressed to the Plan Administrator at the Company's then principal place of business. 19.2 CLAIM DECISION. Upon receipt of a claim, the Plan Administrator shall advise the Claimant that a reply will be forthcoming within 90 days and shall, in fact, deliver such reply within such period. The Plan Administrator may, however, extend the reply period for an additional 90 days for reasonable cause. If the claim is denied in whole or in part, the Plan Administrator shall adopt a written opinion, using language calculated to be understood by the Claimant, setting forth: (a) The specific reason or reasons for such denial; (b) The specific reference to pertinent provisions of this Plan on which such denial is based; (c) A description of any additional material or information necessary for the Claimant to perfect his or her claim and an explanation why such material or such information is necessary; (d) Appropriate information as to the steps to be taken if the Claimant wishes to submit the claim for review; and (e) The time limits for requesting a review under subsection (c) and for review under subsection (d) hereof. -16- 19.3 REQUEST FOR REVIEW. With 60 days after the receipt by the Claimant of the written opinion described above, the Claimant may request in writing that the Plan Administrator review its determination. Such request must be addressed to the Plan Administrator at the Company's then principal place of business. The Claimant or his duly authorized representative may, but need not, review the pertinent documents and submit issues and comments in writing for consideration by the Plan Administrator. If the Claimant does not request a review of the Plan Administrator's determination within such 60 day period, he or she shall be barred and estopped from challenging the Plan Administrator's determination. 19.4 REVIEW OF DECISION. Within 60 days after the Plan Administrator's receipt of a request for review, it will review its prior determination. After considering all materials presented by the Claimant, the Plan Administrator will render a written opinion, written in a manner calculated to be understood by the Claimant, setting forth the specific reasons for the decision and containing specific references to the pertinent provisions of this Plan on which the decision is based. If special circumstances require that the sixty (60) day time period be extended, the Plan Administrator will so notify the Claimant and will render the decision as soon as possible, but no later than 120 days after receipt of the request for review. SECTION 20. AMENDMENT OR TERMINATION This Plan may be amended or terminated, in whole or in part, by the Board of Directors of the Company, or its duly authorized delegate, at any time in its sole discretion; provided, however, that any such amendment or termination shall not adversely affect any Participant's Accrued Benefit as of the date thereof. In the event of termination of the Plan, each Participant's Accrued Benefit, including the unpaid portion of any Participant's Accrued Benefit -17- which is then being paid in installments under Section 6, 7, 8 or 9, shall be paid to such Participant or his or her beneficiary, as applicable, in a single lump sum as soon as administratively feasible. SECTION 21. GOVERNING LAW To the extent not preempted by Federal law, this Plan shall be governed by and construed in accordance with the laws of the State of California, without regard to the conflicts of law provisions. IN WITNESS WHEREOF, the Company hereby executes and adopts this Plan, as set forth herein, effective as of December 31, 1999. DECRANE AIRCRAFT HOLDINGS, INC. By: /s/ Eric D. Steidl ------------------------- Eric D. Steidl Its: Controller ------------------------- -18- EX-21. 3 EXHIBIT 21.1 EXHIBIT 21.1 LIST OF SUBSIDIARIES OF REGISTRANT SUBSIDIARIES OF DECRANE AIRCRAFT HOLDINGS, INC. AEROSPACE DISPLAY SYSTEMS, INC., a Delaware corporation. AUDIO INTERNATIONAL, INC., an Arkansas corporation. AVTECH CORPORATION, a Washington corporation. CORY COMPONENTS, INC., a California corporation. CUSTOM WOODWORK & PLASTICES, Inc., a Delaware corporation. THE INFINITY PARTNERS, LTD., a Texas limited partnership. DAH-IP HOLDINGS, INC., a Delaware corporation. DAH-IP INFINITY, INC., a Delaware corporation. DECRANE AIRCRAFT INTERNATIONAL SALES, INC., a Barbados corporation. DETTMERS INDUSTRIES, INC., a Delaware corporation. ELSINORE AEROSPACE SERVICES, INC., a California corporation. ELSINORE ENGINEERING, INC., a Delaware corporation. FLIGHT REFUELING, INC., a Maryland corporation. HOLLINGSEAD INTERNATIONAL, INC., a California corporation. HOLLINGSEAD INTERNATIONAL, LTD., a UK company. INTERNATIONAL CUSTOM INTERIORS, INC., a Florida corporation. PATRICK AIRCRAFT TANK SYSTEMS, INC., a Maryland corporation. PATS AIRCRAFT AND ENGINEERING CORPORATION, a Maryland corporation. PATS SUPPORT, INC., a Maryland corporation. PATS, INC., a Maryland corporation. PCI NEWCO., INC., a Delaware Corporation. PPI HOLDINGS, INC., a Kansas corporation. PRECISION PATTERN, INC., a Kansas corporation. TRI-STAR ELECTRONICS EUROPE S.A., a Swiss company. TRI-STAR ELECTRONICS INTERNATIONAL, INC., a California corporation. TRI-STAR TECHNOLOGIES, a California general partnership. EX-27 4 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ACCOMPANYING CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 648 0 44,652 1,897 62,174 113,139 48,188 10,965 519,687 53,354 334,888 0 0 0 106,459 519,687 79,178 79,178 53,026 68,285 64 (69) 8,676 2,153 1,398 755 0 0 0 755 0 0
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