-----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, JLTin278YG2QZ0HnTc+bRFqjQr9HKggLb8UHtVE5MNuTS0w+SiILeqlX9ChJV1xT 3LvOjYk1+7VBBdO1uG60dQ== 0000912057-01-008744.txt : 20010402 0000912057-01-008744.hdr.sgml : 20010402 ACCESSION NUMBER: 0000912057-01-008744 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 19 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010330 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-K SEC ACT: SEC FILE NUMBER: 000-22371 FILM NUMBER: 1585160 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-K 1 a2040254z10-k.txt 10-K ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------- FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 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, CALIFORNIA 90245 (310) 725-9123 (Address of Principal Executive Offices) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None 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 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The number of shares of Common Stock outstanding on March 26, 2001 was 100. DOCUMENTS INCORPORATED BY REFERENCE: None. ================================================================================ TABLE OF CONTENTS
PAGE PART I Item 1. Description of Business .......................................................... 1 Item 2. Properties ....................................................................... 13 Item 3. Legal Proceedings ................................................................ 13 Item 4. Submission of Matters to a Vote of Security Holders .............................. 14 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters ............ 14 Item 6. Selected Financial Data .......................................................... 15 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations .......................................................... 18 Item 7A. Quantitative and Qualitative Disclosures About Market Risk ....................... 30 Item 8. Financial Statements and Financial Statement Schedules ........................... 31 Item 9. Changes In and Disagreements With Accountants On Accounting and Financial Disclosure ........................................................... 31 PART III Item 10. Directors and Executive Officers of the Registrant ............................... 32 Item 11. Executive Compensation ........................................................... 34 Item 12. Security Ownership of Certain Beneficial Owners and Management ................... 39 Item 13. Certain Relationships and Related Transactions ................................... 43 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ................. 46 SIGNATURES ..................................................................................... 52 INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES ................................ F-1
i ALL STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACTS INCLUDED IN THIS REPORT ARE CONSIDERED FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS, WHICH ARE DIFFICULT TO PREDICT. CHANGES IN SUCH FACTORS COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED IN SUCH FORWARD-LOOKING STATEMENTS AS WE DESCRIBE IN "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS." ALTHOUGH WE BELIEVE THAT THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, WE CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO BE CORRECT. WE UNDERTAKE NO OBLIGATION TO RELEASE PUBLICLY ANY REVISIONS TO THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS. PART I ITEM 1. DESCRIPTION OF BUSINESS COMPANY OVERVIEW DeCrane Aircraft Holdings, Inc., a Delaware corporation founded in 1989, is a leading provider of integrated assemblies, sub-assemblies and component parts to the aircraft industry. Since our founding in 1989, we have experienced both internal growth and growth by identifying fragmented, high-growth niche segments of the industry and acquiring market-leading companies in those niches. Today, we have assembled product capability within three specific segments of the aircraft industry: cabin management for corporate, VIP and head-of-state aircraft; specialty aviation electronic components, commonly referred to as avionics; and systems integration. We have also focused on diversifying our revenue stream between the commercial, commercial after- and retrofit markets, and corporate and regional aircraft markets in order to reduce the impact from cycles in any single market segment. Within these markets, our customers include original manufacturers of aircraft and related avionics equipment, commonly referred to as OEM's, major components suppliers, aircraft repair and modification centers and commercial airlines. We are organized into three operating groups, consistent with the segments in which we operate: Cabin Management, Specialty Avionics and Systems Integration. Through our operating groups, we offer a complete line of cabinetry, galleys, seating and entertainment systems of corporate aircraft, as well as specialty avionics components and systems integration services. OUR OPERATING GROUPS Our historical financial position and results of operations have been affected by our history of acquisitions. As a result, our historical financial statements do not reflect the financial position and results of operations of our current businesses and capital structure. In the description of our businesses that follows, we present some information about our operating groups on a "pro forma" basis, giving effect to all of our acquisitions described in Note 3 accompanying our financial statements listed in the index on page F-1 of this report. The related historical segment information for the three years ended December 31, 2000 is included in Note 18 accompanying our financial statements. 1 CABIN MANAGEMENT GROUP DeCrane's Cabin Management Group contributed approximately 52% of our pro forma revenues for the year ended December 31, 2000. BUSINESS DESCRIPTION Our Cabin Management Group is a leading independent provider of cabin products, with a primary focus on serving the corporate aircraft market. Since 1997, our Cabin Management Group has acquired nine companies involved in the engineering, manufacturing and assembly of the key components for the interior of a corporate aircraft, including interior furnishings, cabin management systems, seating and composite components. Our Cabin Management Group serves major manufacturers of corporate aircraft, including Boeing Business Jet, Bombardier, Cessna, Dassault, Gulfstream and Raytheon. The Cabin Management Group has introduced the concept of modularity to the corporate aircraft market through its "cabinet in a box" product. We believe this distinctive approach of delivering integrated assemblies and sub-assemblies that can be quickly incorporated into the aircraft has been well received by the market. We are currently pioneering the next step in modularity, "cabin in a box." This new concept is designed to address one of the greatest challenges facing the industry's aircraft manufacturers: the lead-time necessary to complete an unfinished "green" aircraft. Through providing entire pre-wired and pre-plumbed modular cabin interiors that will be delivered "just in time" for final integration into the aircraft, we believe we will be able to reduce our customers' lead times, supplier base and overall costs. The Cabin Management Group is guided by our overall strategy to gain market leadership positions in high-growth segments of the aircraft industry by building more related product capabilities than any other company in the industry. To that end, our Cabin Management Group has focused on pursuing two, closely related, strategic imperatives: o BUILDING CRITICAL MASS IN INTERIOR FURNISHINGS, CABIN MANAGEMENT SYSTEMS AND SEATING FOR THE CORPORATE, VIP, AND HEAD-OF-STATE AIRCRAFT MARKETS. Our Cabin Management Group is aggressively focused on broadening and deepening its product offering to the corporate, VIP and head-of-state aircraft markets. As a result of this strategy, we have increased revenue content per plane with our existing customer base and have successfully attracted new customers. o DEVELOPING CAPABILITIES TO PROVIDE MODULAR "TOTAL CABIN SOLUTIONS" TO THE CORPORATE AIRCRAFT MARKET. Consistent with our overall corporate strategy to build integrated system solutions, the Cabin Management Group is focused on aggregating its capabilities to provide partial or fully assembled modular corporate aircraft cabin interiors to its customers. In order to meet these strategic objectives, we have aggressively pursued growth in our Cabin Management Group through selective acquisitions. 2 PRODUCTS AND SERVICES Our Cabin Management Group designs, engineers and manufactures a full line of customized, pre-fit products and provides related services. Approximately 55% of our Cabin Management Group's pro forma revenues are from two customers, Bombardier and Textron. Our products and services are in four broad categories, as summarized below. INTERIOR FURNISHINGS o entertainment and refreshment centers o conference tables o hi-low dining and coffee tables o end tables o cabinets o arm and side ledges o galleys o lavatories o vanities o room enclosures o cabinetry refurbishment services CABIN MANAGEMENT SYSTEMS o in-flight entertainment systems o cabin controls o switches o lighting SEATING o executive track and swivel seats o jump-seats o divans, including models that convert to beds or contain storable tables o upholstery services COMPOSITE COMPONENTS o sound-dampening side walls and headliners o passenger service units o environmental (HVAC) ducting o closets Our "cabinet in a box" product consists of interior furnishings. Our "cabin in a box" product consists of elements from all categories, depending on our customers' specifications. COMPETITION The markets served by our Cabin Management Group are fragmented, with several competitors offering similar products and services. Due to the global nature of the aircraft industry, competition comes from both U.S. and foreign companies. Our Cabin Management Group generally faces competition from a group of smaller companies and enterprises, except for the corporate aircraft manufacturers and independent completion centers. Our principal competitors are summarized below. INTERIOR FURNISHINGS o Bomhoff, Inc. o Custom Aircraft Cabinets o Hiller o Independent completion centers o Corporate aircraft manufacturers completion centers CABIN MANAGEMENT SYSTEMS o Air Show / Pacific Systems o Baker Electronics o DPI Labs o IEC, International SEATING o BE Aerospace o Fisher (Germany) COMPOSITE COMPONENTS o AAR o Fibre Art o Plastic Fab o Scale Composite Works o The Nordham Group 3 SPECIALTY AVIONICS GROUP DeCrane's Specialty Avionics Group contributed approximately 31% of our pro forma revenues for the year ended December 31, 2000. BUSINESS DESCRIPTION Our Specialty Avionics Group supplies aircraft avionics components to the commercial and military aircraft markets as well as to several avionics systems suppliers including Honeywell and Rockwell-Collins. We focus on assembling design, engineering and manufacturing capabilities across several specialty avionics product categories, including cockpit and cabin audio management systems, flight deck visual display and communication systems, power and control devices, and specialty interconnect solutions such as contacts, connectors and various harness assemblies. Our Specialty Avionics Group is also a leading manufacturer of high quality electrical contacts for military and aviation applications. Through its strong focus on building integrated solutions, we believe our Specialty Avionics Group has achieved solid positions in many product categories within the avionics components industry. Today, we believe we are the world's largest supplier of power and signal contacts to the aircraft market, with almost twice the number of FAA approved parts as to our nearest competitor. In addition, our dichroic liquid crystal display devices, commonly referred to as LCD's, are found on every commercial aircraft produced today, making us the largest supplier of dichroic LCD devices to commercial aircraft OEM's. Our Specialty Avionics Group has leveraged its reputation as a high quality manufacturer of avionics products and contacts to build a broader customer base and to deepen its relationships with existing customers. The strategic objectives of our Specialty Avionics Group are well aligned with our overall corporate strategy of capturing and maintaining number 1 or 2 market share in high growth segments of the aircraft industry. In pursuing our objectives for the group, we have been guided by three strategic principles: o BROADEN AND DEEPEN RELATIONSHIPS WITH KEY CUSTOMERS BY ASSEMBLING INTEGRATED CUSTOMER SOLUTIONS. We believe our Specialty Avionics Group has aggressively pursued opportunities to assemble more integrated product capabilities in the specialty avionics segment than any competitor in the aircraft industry, thereby increasing revenue content per plane and growing profitability. o IDENTIFY AND EVALUATE OPPORTUNITIES IN HIGH-GROWTH PRODUCT CATEGORIES. We continue to explore and evaluate growth opportunities in product categories within the specialty avionics segment of our business. o MAINTAIN TECHNOLOGICALLY SUPERIOR PRODUCT OFFERINGS. The specialty avionics industry is a highly specialized and highly technical business. It is imperative that we remain abreast of technological innovations and incorporate them into our products and services. PRODUCTS AND SERVICES Our Specialty Avionics Group designs, engineers and manufactures electronic components, electronic display devices and interconnect components and assemblies. Approximately 20% of our Specialty Avionics Group's pro forma revenues are from Boeing. The products we offer include: o COCKPIT AND CABIN AUDIO, COMMUNICATION, LIGHTING AND POWER AND CONTROL DEVICES. Our Specialty Avionics Group is a leading manufacturer of cockpit audio, lighting and power and control devices, including selective calling system decoders, used in commercial, regional and corporate aircraft. We also manufacture a variety of other commercial aircraft safety system 4 components, including warning tone generators, temperature and de-icing monitoring systems, steep approach monitors and low voltage power supplies for traffic collision avoidance systems. o ELECTRICAL CONTACTS. Contacts conduct electronic signals or electricity and are installed at the terminus of a wire or an electronic or electrical device. We supply precision-machined contacts for use in connectors found in virtually every electronic and electrical system on a commercial aircraft. We sell contacts directly to aircraft and related electronics manufacturers and through our private labeling programs to several major connector manufacturers who sell connectors to the same markets under their brand name. o CONNECTORS AND HARNESS ASSEMBLIES. Electronic and electrical connectors link wires and devices in avionics systems, and permit their assembly, installation, repair and removal. Our connectors are specially manufactured to meet the critical performance requirements demanded by manufacturers and required in the harsh environment of an operating aircraft. We produce connectors that are used in aircraft galleys, flight decks and control panels in the passenger cabin, in addition to producing wire harness assemblies for use in cabin avionics systems, including wire, connectors, contacts and hardware. We typically sell our harness assemblies to manufacturers of aircraft electronic systems but also sell these assemblies as part of our systems integration services through our Systems Integration Group. o LIQUID CRYSTAL DISPLAY DEVICES. We manufacture a wide variety of displays in both dichroic and twisted nematic formats, as well as LCD modules used in commercial and military aircraft. LCD modules are liquid crystal displays packaged with a backlight source, and additional mechanical and electronic components that are plug-and-play ready for the customers' instrument display application. Dichroic displays perform best in situations with high ambient lighting and low backlighting. Twisted nematic displays are suited for situations where a strong backlight is required. Our LCD products are used in a variety of flight deck applications such as auto pilot flight control systems, fuel quantity indicators, exhaust gas temperature indicators, airborne communications, navigation and safety systems and transportation signage. Dichroic and twisted nematic liquid crystal display products are widely used in the aircraft industry because they are easily adapted to custom design and possess a variety of high performance characteristics, including wide viewing angles, high readability in sunlight, and the ability to withstand wide temperature fluctuations. We also manufacture a variety of electronic clock instruments for commercial and military aircraft, including fixed wing and rotary wing, all of which use our LCD devices. o WIRE MARKING AND CRIMPING EQUIPMENT. We design and manufacture high-speed wire marking systems and portable crimping machines used by harness manufacturers, wire mills, aircraft manufacturers and the U.S. military. 5 COMPETITION The markets served by our Specialty Avionics Group are fragmented, with several competitors offering similar products and services. Due to the global nature of the aircraft industry, competition comes from both U.S. and foreign companies. Our Specialty Avionics Group generally faces competition from large, diversified companies that produce a broad range of products. Our principal competitors are summarized in the table below. COCKPIT AND CABIN AUDIO, COMMUNICATION, LIGHTING AND POWER AND CONTROL DEVICES o Baker Electronics o Diehl GmbH (Germany) o Gables Engineering o Palomar o Team (France) ELECTRICAL CONTACTS o Deutsch o Lemco o Several small contact blank suppliers CONNECTOR AND HARNESS ASSEMBLIES o AMP (connectors) o Carlyle (harness assemblies) o Electronic Cable Specialists (harness assemblies) o ITT Cannon (connectors) o Radiall S.A. (France) (connectors) LIQUID CRYSTAL DISPLAY DEVICES o Cristalloid SYSTEMS INTEGRATION GROUP DeCrane's Systems Integration Group contributed approximately 17% of our pro forma revenues for the year ended December 31, 2000. BUSINESS DESCRIPTION Our Systems Integration Group provides aircraft retrofit and refurbishment solutions, from design to FAA certification, including engineering, manufacturing and installation. Our primary focus is on retrofitting new systems onto existing aircraft. Our largest business is the design, production and installation of auxiliary fuel tanks, which extend the range of the aircraft. Our Systems Integration Group has an exclusive long-term contract with Boeing Business Jet to design, manufacture and install auxiliary fuel tanks. We also focus on FAA safety mandate "kits" and we believe we are the major supplier of integration kits for smoke detection and fire suppression in the cargo hold. We also perform structural modifications and FAA re-certification before placing aircraft back into service. There are a limited number of companies that have the necessary authorization to offer aircraft re-certification on behalf of the FAA. Our Systems Integration Group is authorized to provide the full spectrum of services, from design to FAA re-certification, needed for timely retrofitting of an aircraft, thus providing a significant competitive advantage. Our Systems Integration Group has adopted a two-pronged strategic approach to managing its operations: o DEVELOP THE MOST COMPREHENSIVE INTEGRATED RETROFIT OFFERING. For the last ten years, our Systems Integration Group has focused on developing the capabilities necessary to provide a fully integrated offering with respect to aircraft refurbishing and aircraft retrofitting with FAA mandated changes and technological innovations. Through several related acquisitions and aggressive internal product development, our Systems Integration Group has become one of the few non-OEM related operations with the authority to provide alteration services and to offer FAA re-certification of aircraft that undergo overhaul. This re-certification ability represents a significant competitive advantage, as we can offer all the products and services required to re- 6 commission an aircraft in a timely and cost efficient manner. We believe we have developed the most comprehensive offering in retrofitting aircraft with auxiliary fuel tanks in the industry. o TARGET DEVELOPMENT OF SPECIALTY PRODUCTS AND SERVICES RELATING TO FAA MANDATES. Consistent with its first strategic imperative, our Systems Integration Group is also growing its capabilities in providing solution "kits" in response to FAA mandated aircraft upgrades. For example, if the FAA mandates new fire safety measures for all aircraft, we will develop a stand-alone kit that can be quickly incorporated into an aircraft to ensure compliance with minimal downtime. Our Systems Integration Group has demonstrated the ability to identify and quickly respond to probable new FAA mandates. PRODUCTS AND SERVICES Our Systems Integration Group provides auxiliary fuel tanks, auxiliary power units and system integration services, including engineering, kit manufacturing, installation and certification. Customers include Boeing Business Jet, Bombardier, Cessna, Gulfstream, Raytheon and Rockwell Collins. Approximately 40% of our Systems Integration Group's pro forma revenues are from Boeing. The products we offer include: o AUXILIARY FUEL SYSTEMS AND POWER UNITS. We manufacture and install auxiliary fuel tanks for commercial and corporate aircraft. Our unique design and tank construction have made us a leader in the auxiliary fuel tank market. We also manufacture auxiliary power units, which provide ground power to corporate jets made by Cessna, Gulfstream, Learjet and Raytheon. o CABIN AND FLIGHT DECK SYSTEMS INTEGRATION. We have designed and patented a wide range of avionics support structures we sell under the Box-Mount(TM) name. These structures are used to support and environmentally cool avionics equipment, including navigation, communication and flight control equipment. These support structures are sold to aircraft and related electronics manufacturers, airlines and major modification centers. In addition, these products are essential components of the installation kits used in our systems integration operations. COMPETITION The markets served by our System Integration Group are fragmented with several competitors offering similar products and services. Due to the global nature of the aircraft industry, competition comes from both U.S. and foreign companies. Our Cabin Management Group generally faces competition from a group of smaller companies and enterprises, except for the corporate aircraft manufacturers and independent completion centers. Our principal competitors are summarized in the table below. AUXILIARY FUEL SYSTEMS AND POWER UNITS o Marshall o Pfalz Flugewerke (Germany) AUXILIARY POWER UNITS (INTEGRATION ONLY) o Honeywell o Sundstrand CABIN AND FLIGHT DECK SYSTEMS INTEGRATION o ARINC o Aviation Sales o Boeing Aircraft Services o Flight Structures o In-house engineering departments of commercial airlines o Numerous independent airframe maintenance and modification companies 7 OTHER INFORMATION ACQUISITIONS COMPANIES ACQUIRED BY DECRANE AIRCRAFT During the five years ended December 31, 2000, DeCrane Aircraft has acquired the stock or assets of ten significant businesses, as such term is defined by Securities and Exchange Commission rules. These acquisitions are summarized below.
YEAR ACQUIRED GROUP / COMPANY ACQUIRED PRINCIPAL PRODUCTS AND SERVICES AT ACQUISITION DATE - ---------- ------------------------------------------ ---------------------------------------------------------- CABIN MANAGEMENT GROUP 1997 Audio International (1) ................. Cabin management and entertainment products 1999 Precision Pattern (1).................... Aircraft furniture components 1999 Custom Woodwork and Plastics (2) ........ Aircraft furniture components 1999 PCI NewCo (2) ........................... Composite material components 1999 Infinity Partners (2) ................... Aircraft furniture components 2000 Carl F. Booth & Co. (2) ................. Wood veneer panels for aircraft interior cabinetry 2000 ERDA (1) ................................ Aircraft seats SPECIALTY AVIONICS GROUP 1996 Aerospace Display Systems (2)............ Dichroic liquid crystal displays 1998 Avtech (1) .............................. Cockpit audio, lighting, power and control SYSTEMS INTEGRATION GROUP 1999 PATS (1) ................................ Auxiliary fuel and power systems
(1) Acquired stock. (2) Acquired assets, subject to liabilities assumed. Audio International, based in Arkansas, was acquired during 1997 for $24.7 million plus $6.0 million of contingent consideration that was paid during the two years following its acquisition. The contingent consideration was payable upon attainment of defined performance criteria. Aerospace Display Systems, based in Pennsylvania, was acquired during 1996 for $13.4 million. Our 1998 through 2000 acquisitions are described in Note 3 accompanying our financial statements included in this report. All of the acquisitions were accounted for as purchases. We intend to use the acquired assets to manufacture products similar to those previously manufactured by the companies prior to their acquisition. Our financial statements reflect the acquired companies subsequent to their respective acquisition dates. DECRANE HOLDINGS' ACQUISITION OF DECRANE AIRCRAFT DeCrane Holdings Co. and DLJ Merchant Banking Partners II, L.P. and affiliated entities acquired DeCrane Aircraft in August 1998. This acquisition, referred to in this report as the DLJ acquisition, is described in Note 2 accompanying our financial statements included in this report. In November 2000, Credit Suisse First Boston, Inc. acquired Donaldson, Lufkin & Jenrette, Inc. As a result, DLJ Merchant Banking Partners II, L.P. and other entities affiliated with Donaldson Lufkin & Jenrette, Inc. became indirect affiliates of Credit Suisse First Boston, Inc and Credit Suisse Group. The combined operations of the DLJ entities and Credit Suisse First Boston are commonly referred to 8 collectively as Credit Suisse First Boston. See "Item 12. Certain Relationships and Related Transactions--Transactions with Management and Others" for additional information. CUSTOMERS We estimate that in 2000, we sold our products and services to approximately 1,500 customers on a pro forma basis. Our primary customers include manufacturers of aircraft and related avionics equipment, airlines, aircraft component manufacturers and distributors, and aircraft repair and modification companies. The following customers accounted for 10% or more of our consolidated pro forma revenues for the year ended December 31, 2000:
CABIN SPECIALTY SYSTEMS MANAGEMENT AVIONICS INTEGRATION CONSOLIDATED SIGNIFICANT CUSTOMERS GROUP GROUP GROUP TOTAL (1) - -------------------------------------------------------------- ----------- ----------- ----------- ----------- Percent of consolidated pro forma revenues Bombardier ................................................ 15.4 % 1.2 % 1.1 % 17.7 % Boeing (2) ................................................ 0.4 6.8 7.3 14.5 Textron (3) ............................................... 13.6 0.7 0.1 14.4 ----------- ----------- ----------- ----------- Consolidated pro forma revenues ......................... 29.4 % 8.7 % 8.5 % 46.6 % =========== =========== =========== =========== Percent of group pro forma revenues Bombardier ................................................ 29.5 % 4.0 % 6.2 % Boeing (2) ................................................ 0.7 21.9 43.4 Textron (3) ............................................... 26.1 2.2 0.8 ----------- ----------- ----------- Consolidated pro forma revenues ......................... 56.3 % 28.1 % 50.4 % =========== =========== ===========
- --------------------------- (1) Historical data is not deemed to be meaningful because it is not reflective of the companies we have recently acquired. Historical data is presented in Note 18 accompanying our financial statements included in this report. (2) Reflects only our direct revenues from Boeing. Excludes revenues from components our Specialty Avionics Group provides indirectly to Boeing through its sales to other Boeing suppliers. Our Systems Integration Group's revenues from Boeing result from auxiliary fuel tank systems for the Boeing Business Jet. (3) Includes Cessna. Complete loss of any of the customers identified above could have a significant adverse impact on the results of operations expected in future periods. Significant portions of our revenues from our major customers are pursuant to contracts that may include a variety of terms favorable to the customer. Such terms may include our agreement to one or more of the following: o the customer is not required to make purchases, and may terminate such contracts at any time; o we make substantial expenditures to develop products for customers that we may not recoup if we do not receive sufficient orders; o on a prospective basis, we must extend to the customers any reductions in prices or lead times that we provide to other customers; o we must match other suppliers' price reductions or delete the affected products from the contract; and o we must grant irrevocable non-exclusive worldwide licenses to use our designs, tooling and other intellectual property rights to products sold to a customer if we default, or suffer a bankruptcy filing, or transfer our manufacturing rights to a third party. 9 BACKLOG As of December 31, 2000, we had an aggregate sales order backlog of $178.3 million compared to $163.5 million as of December 31, 1999 (on a pro forma basis for our 2000 acquisitions), as follows:
DECEMBER 31, ------------------------- 1999 2000 ----------- ----------- (IN THOUSANDS) Cabin Management Group............................... $ 49,542 $ 53,383 Specialty Avionics Group............................. 50,231 59,467 Systems Integration Group............................ 63,705 65,447 ----------- ----------- Consolidated totals .............................. $ 163,478 $ 178,297 =========== ===========
Orders are usually filled within twelve months; however, backlog totaling $19.7 million as of December 31, 2000 is scheduled for delivery in 2002 and beyond. Orders may be subject to cancellation by the customer prior to shipment. The level of unfilled orders at any given date will be materially affected by when we receive orders and how fast we fill them. Period-to-period comparisons of backlog figures may not be meaningful. For that reason, our backlogs do not necessarily accurately predict actual shipments or sales for any future period. EMPLOYEES As of December 31, 2000, we had 2,865 employees: 1,578 in our Cabin Management Group; 932 in our Specialty Avionics Group; 341 in our Systems Integration Group; and 14 in our corporate office. None of our employees is subject to a collective bargaining agreement, and we have not experienced any material business interruption as a result of labor. We believe that we generally have a good relationship with our employees. RESEARCH AND DEVELOPMENT We continually evaluate opportunities to improve our product offerings and develop new products that incorporate new technologies to meet the demands of our customers and the FAA. Total expenditures were $4.6 million during the twelve months ended December 31, 2000 and $4.3 million during the same period in 1999. FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS Financial information about our revenues and assets by geographic area are included in Note 18 accompanying our financial statements included in this report. SEASONALITY Our businesses are not seasonal in nature. SALES AND MARKETING Our Cabin Management Group has designated relationship managers who are responsible for maintaining and cultivating relationships with customers. In addition, a dedicated sales force is utilized for some of our products. Our Specialty Avionics Group has a dedicated sales force, which cooperates with distributors and independent sales representatives to execute its sales and marketing strategy. We have distributors that purchase, stock and resell several of our product lines. 10 Our Systems Integration Group has a dedicated sales force that handles most of its sales activities. We are continuously seeking opportunities to combine our sales efforts across the operating groups in order to ensure that all sales opportunities are explored and that we maximize our revenue content per plane. We may also assign marketing and sales responsibilities for key customers to one of our senior corporate executives. RAW MATERIALS AND COMPONENT PARTS The components we manufacture require the use of various raw materials including gold, aluminum, copper, rhodium, plating chemicals, hardwoods and plastics. The availability and prices of these materials may fluctuate. Their price is a significant component in, and part of, the sales price of many of our products. Although some of our contracts have prices tied to raw materials prices, we cannot always recover increases in raw materials prices in our product sale prices. We also purchase a variety of manufactured component parts from various suppliers. Raw materials and component parts are generally available from multiple suppliers at competitive prices. However, any delay in our ability to obtain necessary raw materials and component parts may affect our ability to meet customer production needs. ELECTRICAL ENERGY Some of our facilities within our Specialty Avionics and Systems Integration Groups, as well as our corporate headquarters, are located in California. These California-based facilities provided approximately 20% of our consolidated pro forma revenues during 2000. California has recently experienced ongoing electrical power shortages, which have resulted in "rolling blackouts" and curtailment of power for some of our facilities with "interruptible" supply agreements with their providers. To date, power shortages have not caused any significant disruptions to our operations, however, prolonged or frequent blackouts could cause disruptions to our operations and the operations of our suppliers and customers. We are uninsured for losses and interruptions caused by power outages. INTELLECTUAL PROPERTY AND PROPRIETARY INFORMATION We have various trade secrets, proprietary information, trademarks, tradenames, patents, copyrights and other intellectual property rights we believe are important to our business in the aggregate, but not individually. GOVERNMENT REGULATION FEDERAL AVIATION ADMINISTRATION The aviation industry is highly regulated in the United States by the Federal Aviation Administration and in other countries by similar agencies to ensure that aviation products and services meet stringent safety and performance standards. In addition, many of our customers impose their own compliance and quality requirements on us. The FAA prescribes standards and licensing requirements for aircraft components, issues designated alteration station authorizations, and licenses private repair stations. We hold various FAA approvals and licenses, which may only be used by our subsidiary obtaining such approval. If material FAA or customer authorizations or approvals were revoked or suspended, our operations could be adversely affected. The FAA can authorize or deny authorization of many of the services and products we provide. Any such denial would preclude our ability to provide the pertinent service or product. If we failed to comply with applicable FAA standards or regulations, the FAA could exercise a wide range of remedies, including a warning letter, a letter of correction, a civil penalty action, and emergency or non-emergency suspension or revocation of a certificate or approval. 11 Each type of aircraft operated by airlines in the United States must possess an FAA type certificate, generally held by the aircraft manufacturer, indicating that the type design meets applicable airworthiness standards. When someone else develops a major modification to an aircraft already type-certificated, that person must obtain an FAA-issued Supplemental Type Certificate for the modification. Historically, we have obtained several hundred of these Supplemental Type Certificates, most of which we obtained on behalf of our customers as part of our systems integration services. Some of these certificates we obtain are or will eventually be transferred to our customers. As of December 31, 2000, we own and/or manage approximately 250 Supplemental Type Certificates. Many are multi-aircraft certificates, which apply to all of the aircraft of a single type. We foresee the need to obtain additional Supplemental Type Certificates so that we can expand the services we provide and the customers we serve. Supplemental Type Certificates can be issued for proposed aircraft modifications directly by the FAA, or on behalf of the FAA by a Designated Alteration Station. The FAA designates what types of Supplemental Type Certificates can be issued by each Designated Alteration Station. A subsidiary within our Systems Integration Group is an FAA-authorized Designated Alteration Station and can directly issue many of the Supplemental Type Certificates our customers and we require for our systems integration operations. After obtaining a Supplemental Type Certificate, a manufacturer must apply for a Parts Manufacturer Approval from the FAA, or a supplement to an existing Parts Manufacturer Approval, which permits the holder to manufacture and sell installation kits according to the approved design and data package. We have ten Parts Manufacturer Approvals and over 200 supplements to those approvals. In general, each initial Parts Manufacturer Approval is an approval of a manufacturing or modification facility's production quality control system. Each Parts Manufacturer Approval supplement authorizes the manufacture of a particular part in accordance with the requirements of the corresponding Supplemental Type Certificate. We routinely apply for and receive such Parts Manufacturer Approval supplements. In order to perform the actual installations of a modification, we are also required to have FAA approval. This authority is contained either in our Parts Manufacturer Approvals and related supplements, or in our repair station certificates. In order for a company to perform most kinds of repair, engineering, installation or other services on aircraft, its facility must be designated as an FAA-authorized repair station. As of December 31, 2000, we had ten authorized repair stations. OCCUPATIONAL SAFETY AND HEALTH ADMINISTRATION Our manufacturing operations in the United States are subject to a variety of worker and community safety laws. The Occupational Safety and Health Act of 1970 mandate general requirements for safe workplaces for all employees. In addition, OSHA provides special procedures and measures for the handling of hazardous and toxic substances. Specific safety standards have been promulgated for workplaces engaged in the treatment, disposal or storage of hazardous waste. We believe that our operations are in material compliance with OSHA's health and safety requirements. ENVIRONMENTAL MATTERS Our facilities and operations are subject to various federal, state, local, and foreign environmental laws and regulations, including those relating to discharges to air, water, and land, the handling and disposal of solid and hazardous waste, and the cleanup of properties affected by hazardous substances. In addition, some environmental laws, such as the federal Comprehensive Environmental Response, Compensation and Liability Act, as amended ("CERCLA") and similar state laws, impose strict liability upon persons responsible for releases or potential releases of hazardous substances. That liability generally is retroactive, and may create "joint and several" liability among multiple parties who have some relationship to a site or a source of waste. We have sent waste to treatment, storage, or disposal facilities that have been designated as National Priority List sites under CERCLA or equivalent listings 12 under state laws. We have received CERCLA requests for information or allegations of potential responsibility from the Environmental Protection Agency regarding our use of several of those sites. In addition, some of our operations are located on properties that are contaminated to varying degrees. We have not incurred, nor do we expect to incur, liabilities in any significant amount as a result of the foregoing matters, because in these cases other entities have been held primarily responsible, the levels of contamination are sufficiently low so as not to require remediation, or we are indemnified against such costs. In most cases, we do not believe that we have any material liability for past waste disposal. However, in a few cases, we do not have sufficient information to assess our potential liability, if any. It is possible, given the potentially retroactive nature of environmental liability that we will receive additional notices of potential liability relating to current or former activities. Some of our manufacturing processes create wastewater that requires chemical treatment, and one of our facilities was cited for excessive quantity and strength of its wastewater. The costs associated with remedying that failure have not been material. We believe that we have been and are in substantial compliance with environmental laws and regulations and that we have no liabilities under environmental laws and regulations, except for liabilities which we do not expect would likely have a material adverse effect on our business, financial position, results of operations or cash flows. However, some risk of environmental liability is inherent in the nature of our business, and we might in the future incur material costs to meet current or more stringent compliance, cleanup, or other obligations pursuant to environmental laws and regulations. ITEM 2. PROPERTIES We operate in a number of manufacturing, engineering and office facilities in the United States and abroad. At December 31, 2000, we utilized approximately 1.2 million square feet of floor space, approximately 96% of which is located in the United States. We believe that our facilities are in good condition and are adequate to support our operations for the foreseeable future. A summary of our facilities at December 31, 2000, by operating group, follows:
LEASED OWNED TOTAL ----------- ----------- ----------- (IN THOUSANDS OF SQUARE FEET) Cabin Management Group ........................... 558 231 789 Specialty Avionics Group ......................... 115 106 221 Systems Integration Group ........................ 201 -- 201 Corporate ........................................ 8 -- 8 ----------- ----------- ----------- Total in use ................................ 882 337 1,219 Not in use, subleased to others ............. 58 33 91 ----------- ----------- ----------- Total ................................. 940 370 1,310 =========== =========== ===========
ITEM 3. LEGAL PROCEEDINGS As part of its investigation of the crash off the Canadian coast on September 2, 1998 of Swissair Flight 111, the Canadian Transportation Safety Board ("TSB") notified us that they recovered burned wire that was attached to the in-flight entertainment system installed on some of Swissair's aircraft by one of our subsidiaries. We are fully cooperating with the ongoing TSB investigation. Although the TSB has not issued a final report, it has advised us that it has no evidence to date that the system we installed malfunctioned or failed during the flight. Families of the 229 persons who died aboard the flight have filed actions in federal and state courts against us, and many other parties unaffiliated with us, including Swissair and Boeing. The actions claim negligence, strict liability and breach of warranty relating to the installation and testing of the in-flight entertainment system. The actions seek compensatory and punitive 13 damages and costs in an unstated amount. All of the actions have been transferred to the United States District Court for the Eastern District of Pennsylvania and assigned under MDL Case No. 1269 for coordinated or consolidated pretrial proceedings. We intend to defend the claims vigorously. We are a party to a license agreement with McDonnell Douglas (now a part of Boeing) pursuant to which we may request specified data in order to design and market modifications to aircraft manufactured by McDonnell Douglas. Under the agreement, we are to pay McDonnell Douglas a royalty of five percent of the net sales price of all modifications sold by us for which we have requested data from McDonnell Douglas. We requested data for a single modification, which we believe is exempt from the agreement's provision requiring royalties. In 1996, McDonnell Douglas made a demand for $650,000 for royalties. We do not believe that we are obligated to McDonnell Douglas in any amount. However, if the claim is asserted, and if we are unsuccessful in defending it, we may be required to pay royalties to McDonnell Douglas. We are party to other litigation incident to the normal course of business. We do not believe that the outcome of any of such other matters in which we are currently involved will have a material adverse effect on our financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION There is no established public trading market for our shares. In August 1998, we sold all of our issued and outstanding shares to DeCrane Holdings, our parent company, in connection with the DLJ acquisition described in Note 2 accompanying our financial statements included in this report. HOLDERS As of March 26, 2001, DeCrane Holdings was our only common stockholder. DIVIDENDS We have not paid dividends to date on our common stock and do not anticipate paying any cash dividends in the foreseeable future. The terms of our senior credit facility and senior subordinated note indenture restrict our ability to pay dividends if we do not meet certain financial criteria. RECENT SALE OF UNREGISTERED SECURITIES Our recent sales of unregistered securities are described in Note 12 accompanying our financial statements included in this report. 14 ITEM 6. SELECTED FINANCIAL DATA
YEAR ENDED DECEMBER 31, (IN THOUSANDS) (1) ------------------------------------------ 1998 --------------------------- EIGHT MONTHS FOUR MONTHS ENDED ENDED AUGUST 31, DECEMBER 31, 1996 1997 1998 1998 1999 2000 --------- --------- --------- -------- -------- -------- (PREDECESSOR) (2) (SUCCESSOR) (2) STATEMENT OF OPERATIONS DATA: Revenues.................................. $ 65,099 $ 108,903 $ 90,077 $ 60,356 $244,048 $347,379 Cost of sales (3) ........................ 49,392 80,247 60,101 42,739 165,871 232,048 --------- --------- --------- -------- -------- -------- Gross profit ............................. 15,707 28,656 29,976 17,617 78,177 115,331 Selling, general and administrative expenses (4) ........................ 10,747 15,756 19,351 10,274 40,157 45,394 Amortization of intangible assets ........ 709 905 1,347 3,148 13,073 17,948 --------- --------- --------- -------- -------- -------- Operating income ......................... 4,251 11,995 9,278 4,195 24,947 51,989 Interest expense ......................... 4,248 3,154 2,350 6,852 27,918 41,623 Terminated debt offering expenses ........ -- -- 600 -- -- -- Other expenses, net ...................... 108 243 247 335 447 482 --------- --------- --------- -------- -------- -------- Income (loss) before provision for income taxes and extraordinary item ........ (105) 8,598 6,081 (2,992) (3,418) 9,884 Provision for income taxes (benefit) (5) . 712 3,344 2,892 (2,668) 952 6,282 --------- --------- --------- -------- -------- -------- Income (loss) before extraordinary item .. (817) 5,254 3,189 (324) (4,370) 3,602 Extraordinary loss from debt refinancing (6) -- (2,078) -- (2,229) -- -- --------- --------- -------- -------- -------- -------- Net income (loss) ........................ $ (817) $ 3,176 $ 3,189 $ (2,553) $ (4,370) $ 3,602 ========= ========= ========= ======== ======== ======== Net income (loss) applicable to common stockholders ........................ $ (6,357) $ 531 $ 3,189 $ (2,553) $ (4,370) $ 1,328 ========= ========= ========= ======== ======== ======== OTHER FINANCIAL DATA: Cash flows from operating activities ..... $ 2,958 $ 4,641 $ 3,014 $ 1,008 $ 15,200 $ 16,783 Cash flows from investing activities ..... (24,016) (27,809) (87,378) (1,813) (152,774) (112,164) Cash flows from financing activities ..... 21,051 22,957 89,871 (1,597) 142,052 95,656 EBITDA (7) ............................... 7,602 16,915 13,743 13,476 56,526 80,992 Depreciation and amortization (8) ........ $ 3,351 $ 4,920 $ 4,358 $ 4,604 $ 19,186 $ 27,187 Capital expenditures: Paid in cash (9) .................... 5,821 3,842 1,745 1,813 7,262 22,689 Financed with capital lease obligations 414 182 116 48 1,711 109 Ratio of earnings to fixed charges (10) .. 1.0x 3.3x 3.0x -- -- 1.2x OTHER OPERATING DATA: Bookings (11) ............................ $ 81,914 $ 112,082 $ 94,439 $ 54,021 $252,100 $359,975 Backlog at end of period (12) ............ 44,433 49,005 84,184 75,388 156,100 178,297
AS OF DECEMBER 31, (IN THOUSANDS) (1) --------------------------------------------------------- 1996 1997 1998 1999 2000 --------- --------- -------- -------- -------- (PREDECESSOR) (2) (SUCCESSOR) (2) BALANCE SHEET DATA: Cash and cash equivalents ........................... $ 320 $ 206 $ 3,518 $ 7,918 $ 8,199 Working capital ..................................... 10,486 24,772 46,033 29,249 57,514 Total assets ........................................ 69,266 99,137 330,927 531,498 666,049 Total debt (13) ..................................... 42,250 38,838 186,765 315,651 383,279 Mandatorily redeemable securities (14) .............. 6,879 -- -- -- 23,179 Stockholders' equity ................................ 1,236 39,527 97,921 106,241 119,755
See accompanying Notes to Selected Consolidated Financial Data. 15 NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA: (1) Reflects the results of operations and financial position of companies we acquired for all periods subsequent to their respective acquisition dates as follows: o the remaining 25% minority interest in Cory Components, acquired on February 20, 1996; o Aerospace Display, acquired on September 18, 1996; o Elsinore Engineering, acquired on December 5, 1996; o Audio International, acquired on November 14, 1997; o Avtech, acquired on June 26, 1998; o Dettmers, acquired on June 30, 1998; o PATS, acquired on January 22, 1999; o Precision Pattern, acquired on April 23, 1999; o Custom Woodwork, acquired on August 5, 1999; o PCI NewCo, acquired on October 6, 1999; o International Custom Interiors, acquired on October 8, 1999; o Infinity, acquired on December 17, 1999; o Carl F. Booth & Co., acquired on May 11, 2000; o ERDA, acquired on June 30, 2000; and o Coltech, acquired on August 31, 2000. (2) Reflects our results of operations and financial position prior to (predecessor) and subsequent to (successor) our acquisition by DLJ. (3) Includes noncash charges to reflect: o cost of sales based on the fair value of inventory acquired of $4.4 million for the four months ended December 31, 1998 in connection with the DLJ acquisition and $1.6 million for the twelve months ended December 31, 1999 in connection with the Precision Pattern and Custom Woodworks acquisitions, collectively referred to as noncash acquisition charges; and o an inventory write-down of $6.0 million for the twelve months ended December 31, 1999 related to our Systems Integration Group restructuring. (4) Reflects $3.6 million of non-capitalized transaction costs associated with the DLJ acquisition in August 1998 and a $3.9 million charge related to our 1999 Systems Integration Group restructuring, $1.3 million of which was a noncash asset impairment write-down. (5) For the four months ended December 31, 1998, includes a $2.6 million benefit from the reduction of the deferred tax valuation allowance. The provision for income taxes differs from the amount determined by applying the applicable U.S. statutory federal rate to the income 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 the relationship of non-deductible expenses to income before income taxes. (6) Reflects: o the write-offs, net of an income tax benefit, of deferred financing costs, unamortized original issue discounts, a prepayment penalty and other related expenses incurred as a result of the repayment of debt by DeCrane Aircraft with the net proceeds from its initial public offering in April 1997; and o the write-offs, net of an income tax benefit, of deferred financing costs as a result of the repayment of our then existing indebtedness in connection with the DLJ acquisition and the refinancing of the bridge notes during the four months ended December 31, 1998. 16 (7) EBITDA is defined as earnings before interest, income taxes, depreciation and amortization, restructuring and asset impairment charges, acquisition related charges, including the noncash charges described in Note 3 above, and other noncash and nonoperating charges. EBITDA, as defined, is the primary measurement we use to evaluate our operating groups' performance and is consistent with the manner in which our lenders and ultimate investors measure our overall performance. EBITDA is not a measure of performance or financial condition under generally accepted accounting principles. EBITDA is not intended to represent cash flow from operations and should not be considered as an alternative to income from operations or net income computed in accordance with generally accepted accounting principles, as an indicator of our operating performance, as an alternative to cash flow from operating activities or as a measure of liquidity. The funds depicted by EBITDA are not available for our discretionary use due to funding requirements for working capital, capital expenditures, debt service, income taxes and other commitments and contingencies. We believe that EBITDA is a standard measure of liquidity commonly reported and widely used by analysts, investors and other interested parties in the financial markets. However, not all companies calculate EBITDA using the same method, and the EBITDA numbers we report may not be comparable to EBITDA reported by other companies. (8) Reflects depreciation and amortization of plant and equipment and goodwill and other intangible assets. Excludes amortization of deferred financing costs and debt discounts that are classified as a component of interest expense. (9) Includes $5.4 million for the year ended December 31, 2000 related to our acquisition of a manufacturing facility. (10) For purposes of calculating the ratio of earnings to fixed charges, earnings represent net income before income taxes, minority interests in the income of majority-owned subsidiaries, extraordinary items and fixed charges. Fixed charges consist of: o interest, whether expensed or capitalized; o amortization of debt expense and discount or premium relating to any indebtedness, whether expensed or capitalized; and o one-third of rental expenses under operating leases which is considered to be a reasonable approximation of the interest portion of such expense. There were deficiencies of earnings to cover fixed charges of $2.9 million for the four months ended December 31, 1998 and $3.2 million for the year ended December 31, 1999. (11) Bookings represent the total invoice value of purchase orders received during the period. (12) Orders may be subject to cancellation by the customer prior to shipment. The level of unfilled orders at any given date during the year will be materially affected by the timing of our receipt of orders and the speed with which those orders are filled. (13) Total debt is defined as long-term debt, including current portion, and short-term borrowings. (14) Reflects mandatorily redeemable: o common stock warrants as of December 31, 1996; the warrants were either exercised or cancelled in connection with our 1997 recapitalization and initial public offering of common stock; and o 16% preferred stock as of December 31, 2000. 17 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussions should be read in conjunction with our financial statements and accompanying notes included in this report. OVERVIEW Our financial position and results of operations have been affected by our history of acquisitions. As a result, our historical financial statements do not reflect the financial position and results of operations of our current businesses. Our most recent acquisitions, which affect the comparability of the historical financial condition and results of operations described herein, consist of: CABIN MANAGEMENT GROUP o Dettmers, acquired on June 30, 1998; o Precision Pattern, acquired on April 23, 1999; o Custom Woodwork, acquired on August 5, 1999; o PCI NewCo, acquired on October 6, 1999; o International Custom Interiors, acquired on October 8, 1999; o The Infinity Partners, acquired on December 17, 1999; o Carl F. Booth & Co., acquired on May 11, 2000; o ERDA, acquired on June 30, 2000; SPECIALTY AVIONICS GROUP o Avtech, acquired on June 26, 1998; o Coltech, acquired on August 31, 2000; SYSTEMS INTEGRATION GROUP o PATS, acquired on January 22, 1999. Our historical financial statements reflect the financial position and results of operations of the acquired businesses subsequent to their respective acquisition dates. Additionally, our capital structure was significantly altered in August 1998 by the financing obtained to fund the tender offer for our stock in conjunction with our acquisition by DLJ. INDUSTRY OVERVIEW AND TRENDS We compete in the products and services market of the aircraft industry, a market we estimate to be $25 billion annually. The market for our products and services is largely driven by demand in the three civil aircraft markets: commercial, regional and corporate aircraft. We have minimal exposure to the military aircraft market and are therefore relatively immune to defense spending and other factors affecting that market. Orders for commercial jets have been expanding year over year since 1996 as global economies and airline profitability have improved. The market continues to demonstrate positive fundamentals and the outlook for 2001 and 2002 reflects increased stability. We believe the regional aircraft market will remain robust for the near-term. Conversions from turboprop- to jet-powered aircraft fleets have driven the increased public acceptance of and the growth in regional aircraft travel. Longer term, we believe the regional aircraft market outlook is positive as major carriers continue to commit relatively high levels of capital expenditure to build regional presence and as labor union scope clause negotiations are resolved. 18 The corporate aircraft market has grown in size to approximately $10 billion annually and is more profitable than other civil aircraft segments. Factors affecting growth of this market are corporate profitability and the consequent high levels of capital expenditures, introduction of fractional ownership programs, deteriorating commercial airline service and air traffic control delays. We believe expansion will remain particularly strong in the high-end sub-segment of the corporate aircraft market, which will be driven in part by fractional ownership programs. For then near-term, we believe the corporate aircraft market will remain strong, based on current levels of OEM backlogs. RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999 REVENUES. Revenues increased $103.3 million, or 42.3%, to $347.4 million for the year ended December 31, 2000 from $244.0 million for the year ended December 31, 1999. The increase primarily results from the inclusion of revenues in 2000 from companies we acquired during 1999 and 2000. By segment, revenues changed as follows:
INCREASE (DECREASE) FROM 1999 --------------------------- AMOUNT PERCENT ------------- ------------ (IN MILLIONS) Cabin Management ................................................................ $ 100.6 135.6 % Specialty Avionics .............................................................. (1.6) (1.4) Systems Integration ............................................................. 4.4 7.6 Inter-group elimination ......................................................... (0.1) ----------- Total ..................................................................... $ 103.3 ===========
CABIN MANAGEMENT. Revenues increased by $100.6 million, or 135.6% over the prior year, due to: o the inclusion of $94.1 million of revenues resulting from our acquisitions of Precision Pattern, Custom Woodwork, PCI NewCo, International Custom Interiors and Infinity in 1999 and Carl F. Booth and ERDA in 2000; and o a $6.5 million increase in entertainment and cabin management product revenues reflecting primarily a higher volume of corporate jet production by the aircraft manufacturers. SPECIALTY AVIONICS. Revenues decreased by $1.6 million, or 1.4% from the prior year, due to somewhat lower demand for our commercial aircraft products during the first two quarters of the year. SYSTEMS INTEGRATION. Revenues increased by $4.4 million, or 7.6% over the prior year, due to: o a $3.3 million revenue increase resulting from the inclusion of PATS for an entire twelve months during 2000; and o $1.1 million related to timing differences between when orders are received versus shipped. 19 GROSS PROFIT. Gross profit increased $37.2 million, or 47.5%, to $115.3 million for the year ended December 31, 2000. The increase primarily results from the inclusion of gross profit in 2000 from companies we acquired in 1999 and 2000. Gross profit as a percent of revenues increased to 33.2% for the year ended December 31, 2000 from 32.0% for the same period last year primarily as a result of improved Systems Integration profit margins. By segment, gross profit changed as follows:
INCREASE (DECREASE) FROM 1999 --------------------------- AMOUNT PERCENT ------------- ------------ (IN MILLIONS) Cabin Management ................................................................ $ 28.4 93.6 % Specialty Avionics .............................................................. (2.7) (8.0) Systems Integration ............................................................. 11.5 105.8 ------------ Total ..................................................................... $ 37.2 ===========
CABIN MANAGEMENT. Gross profit increased by $28.4 million, or 93.6% over the prior year, due to: o a $31.4 million increase in gross profit resulting from our 1999 and 2000 acquisitions; offset by o a $1.7 million decrease related to lower margins resulting from higher engineering costs associated with developing new entertainment system products; o a $0.8 million decrease from production startup inefficiencies at a new manufacturing facility; and o a $0.5 million decrease related to product mix. SPECIALTY AVIONICS. Gross profit decreased by $2.7 million, or 8.0% from the prior year, due to somewhat lower demand for our commercial aircraft products as a result of lower commercial jet production by Boeing and price reductions to several large customers. SYSTEMS INTEGRATION. Gross profit increased by $11.5 million, or 105.8% over the prior year, due to: o a $5.9 million increase due to recording a one time restructuring charge to cost of sales in 1999, o a $2.8 million increase in gross profit resulting from favorable auxiliary fuel tank manufacturing and installation efficiencies achieved; o a $2.1 million increase resulting, in part, from improved operating results subsequent to our 1999 restructuring, which included our exit from the manufacturing business at two of our subsidiaries; and o a $0.7 million reduction in engineering costs attributable to project development incurred in 1999 but not in 2000. 20 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased $5.2 million, or 12.9%, to $45.4 million for the year ended December 31, 2000, from $40.2 million for the same period last year. The increase primarily results from the inclusion of $7.7 million of SG&A expenses in 2000 from companies we acquired in 1999 and 2000. SG&A expenses as a percent of revenues decreased to 13.1% for the year ended December 31, 2000 compared to 16.5% for the same period last year. By segment, SG&A expenses changed as follows:
INCREASE (DECREASE) FROM 1999 ---------------------------- AMOUNT PERCENT ------------- ----------- (IN MILLIONS) Cabin Management ................................................................ $ 7.4 86.5 % Specialty Avionics .............................................................. (1.1) (8.3) Systems Integration ............................................................. (3.1) (25.9) Corporate ....................................................................... 2.0 29.7 ----------- Total ..................................................................... $ 5.2 ===========
CABIN MANAGEMENT. SG&A expenses increased by $7.4 million, or 86.5% over the prior year, due to: o the inclusion of $7.5 million related to our 1999 and 2000 acquisitions; and o manufacturing facility startup costs of $0.7 million in 2000; offset by o a $0.8 million decrease in expenses resulting from the consolidation of administrative activities during 2000 of companies we acquired during 1999 and 2000. SPECIALTY AVIONICS. SG&A expenses decreased by $1.1 million, or 8.3% from the prior year, due to reduced selling costs related to lower sales. SYSTEMS INTEGRATION. SG&A expenses decreased by $3.1 million, or 25.9% over the prior year, due to: o a $3.9 million decrease related to the one time 1999 restructuring charge; offset by o a $0.6 million increase in expenses resulting from an increase in engineering project management, and o the inclusion of $0.2 million related to our 1999 acquisition. CORPORATE. SG&A expenses increased by $2.0 million, or 29.7% over the prior year due to increased incentive compensation and spending for sales and marketing programs. DEPRECIATION AND AMORTIZATION OF INTANGIBLES. Depreciation and amortization expense, which includes amortization of goodwill and identifiable intangible assets, increased $8.0 million, or 41.7%, for the year ended December 31, 2000. The increase results from the inclusion of $4.9 million of depreciation and amortization expense in 2000 from companies we acquired during 1999 and 2000 and additional depreciation reflecting our capital expenditures during the period. 21 EBITDA AND OPERATING INCOME. EBITDA increased $24.5 million to $81.0 million, or 43.3%, for the year ended December 31, 2000, from $56.5 million for the same period last year. The increase primarily results from the contribution to year 2000 results from companies we acquired during 1999 and 2000. EBITDA as a percent of revenues increased to 23.3% for the year ended December 31, 2000, from 23.2% for the same period last year. Operating income increased $27.0 million to $51.9 million, or 108.4%, for the year ended December 31, 2000, from $24.9 million for the same period last year. By segment, EBITDA changed as follows:
INCREASE (DECREASE) FROM 1999 ------------------------ AMOUNT PERCENT ----------- --------- (IN MILLIONS) EBITDA Cabin Management .............................................................. $ 21.7 89.8 % Specialty Avionics ............................................................ (0.5) (2.0) Systems Integration ........................................................... 4.5 42.2 Corporate ..................................................................... (1.2) (21.1) ----------- Total EBITDA ............................................................. 24.5 Depreciation and amortization ................................................. (8.0) Restructuring and asset impairment charges .................................... 9.9 Acquisition related charges ................................................... 1.8 Nonrecurring manufacturing facility startup costs ............................. (0.7) Other noncash and acquisition related charges ................................. (0.5) ----------- Total operating income ................................................... $ 27.0 ============
CABIN MANAGEMENT. EBITDA increased by $21.7 million, or 89.9% over the prior year, due to acquisitions and increased volume to support higher production levels of corporate jets. SPECIALTY AVIONICS. EBITDA decreased by $0.5 million, or 2.0% from the prior year, due to somewhat lower demand for our commercial aircraft products as a result of lower commercial jet production by Boeing. SYSTEMS INTEGRATION. EBITDA increased by $4.5 million, or 42.2% from the prior year, due to: o a $2.2 million increase resulting primarily from favorable auxiliary fuel tank and power unit manufacturing efficiencies; and o a $2.3 million increase resulting, in part, from improved operating results subsequent to our 1999 restructuring, which included our exit from the manufacturing business at two of our subsidiaries. CORPORATE. EBITDA decreased by $1.2 million, or 21.1% over the prior year, due to increased incentive compensation and spending for sales and marketing programs. INTEREST EXPENSE. Interest expense increased $13.7 million to $41.6 million for the year ended December 31, 2000, from $27.9 million for the same period last year, due to: o a $13.3 million increase resulting from higher debt levels associated with our acquisition of companies during 1999 and 2000; and o a $0.4 million increase resulting from higher average interest rates charged by our lenders during 2000. 22 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 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 the relationship of non-deductible expenses to income before income taxes. NET INCOME (LOSS). Net income increased $8.0 million to $3.6 million for the year ended December 31, 2000 compared to net loss of $4.4 million for the same period in 1999. NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDER. Net income applicable to DeCrane Holdings, our common stockholder, increased $5.7 million to $1.3 million for the year ended December 31, 2000 compared to a net loss of $4.4 million for the same period in 1999. The net increase is attributable to: o a $8.0 million increase in net income; offset by o a $2.3 million increase in accrued dividends and redemption value accretion resulting from DeCrane Aircraft's issuance of 16% mandatorily redeemable preferred stock on June 30, 2000. BOOKINGS. Bookings increased $107.9 million, or 42.8%, to $360.0 million for the year ended December 31, 2000 compared to $252.1 million for the same period in 1999. The increase in bookings for 2000 results from: o a $91.8 million increase associated with companies we acquired in 1999 and 2000; and o a $16.1 million increase related to business growth, principally related to our Cabin Management and Specialty Avionics group's product lines. BACKLOG AT END OF PERIOD. Backlog increased $22.2 million to $178.3 million as of December 31, 2000 compared to $156.1 million as of December 31, 1999. The increase in backlog for 2000 includes: o $9.6 million attributable to existing order backlog for companies we acquired during 2000; and o a net $12.6 million increase primarily related to our Specialty Avionics and Systems Integration groups. 23 YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998 AS A RESULT OF THE DLJ ACQUISITION DESCRIBED IN NOTE 2 ACCOMPANYING OUR FINANCIAL STATEMENTS INCLUDED IN THIS REPORT, OUR RESULTS OF OPERATIONS, CHANGES IN STOCKHOLDERS' EQUITY AND CASH FLOWS ARE PRESENTED ON A PREDECESSOR/SUCCESSOR BASIS. THE RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 DESCRIBED BELOW REFLECTS THE COMBINED HISTORICAL RESULTS FOR THE EIGHT MONTHS ENDED AUGUST 31, 1998 (PREDECESSOR) AND THE FOUR MONTHS ENDED DECEMBER 31, 1998 (SUCCESSOR). REVENUES. Revenues increased $93.6 million, or 62.2%, to $244.0 million for the year ended December 31, 1999 from $150.4 million for the year ended December 31, 1998 as follows:
INCREASE (DECREASE) FROM 1998 ------------------------- AMOUNT PERCENT ------------- ---------- (IN MILLIONS) Cabin Management ................................................................ $ 50.7 215.7% Specialty Avionics .............................................................. 7.5 7.2 Systems Integration ............................................................. 35.9 158.8 Inter-group eliminations ........................................................ (0.5) ----------- Total ..................................................................... $ 93.6 ===========
CABIN MANAGEMENT. Revenues increased by $50.7 million, or 215.7% over the prior year, due to: o the inclusion of $42.8 million of revenues resulting from our acquisitions of Dettmers, Precision Pattern, Custom Woodwork, PCI NewCo and International Custom Interiors; and o a $7.9 million increase in entertainment and cabin management product revenues primarily related to volume growth. SPECIALTY AVIONICS. Revenues increased by $7.5 million, or 7.2% over the prior year, due to: o the inclusion of $15.2 million of revenues resulting from our acquisition of Avtech; offset by o a $7.7 million decrease in revenues due to weak demand for our commercial aircraft products. SYSTEMS INTEGRATION. Revenues increased by $35.9 million, or 158.8% over the prior year, due to: o the inclusion of $41.3 million of revenues resulting from our acquisition of PATS; offset by o a $5.4 million decrease in revenues due to a decline in revenues from our other products and services. GROSS PROFIT. Gross profit increased $30.6 million, or 64.0%, to $78.2 million for the year ended December 31, 1999. Gross profit as a percent of revenues increased to 32.0% for the year ended December 31, 1999 from 31.6% for the same period last year. The groups contributed to the increase in gross profit as follows:
INCREASE (DECREASE) FROM 1998 ---------------------------- AMOUNT PERCENT --------------- ----------- (IN MILLIONS) Cabin Management ................................................................ $ 18.8 163.52% Specialty Avionics .............................................................. 5.0 15.7 Systems Integration ............................................................. 6.8 161.9 ----------- Total ..................................................................... $ 30.6 ==============
CABIN MANAGEMENT. Gross profit increased by $18.8 million, or 163.5% over the prior year, due to: o the inclusion of $15.1 million of gross profit resulting from our 1999 acquisitions; and 24 o a $3.7 million increase related to revenue growth in our entertainment and cabin management product revenues. SPECIALTY AVIONICS. Gross profit increased by $5.0 million, or 15.7% over the prior year, due to: o the inclusion of $9.5 million of gross profit resulting from our acquisition of Avtech; offset by o a $4.5 million decrease in gross profit due to weak demand for our commercial aircraft products. SYSTEMS INTEGRATION. Gross profit increased by $6.8 million, or 161.9% over the prior year, due to: o the inclusion of $14.2 million of gross profit resulting from our acquisition of PATS; offset by o a $6.0 million decrease related to the write down of inventories resulting from the restructuring; and o a $1.4 million decrease in gross profit due to a decline in revenues from our other products and services. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased $10.6 million, or 35.8%, to $40.2 million for the year ended December 31, 1999, from $29.6 million for the same period last year. SG&A expenses as a percent of revenues decreased to 16.5% for the year ended December 31, 1999 compared to 19.7% for the same period last year. The groups contributed to the increase in SG&A as follows:
INCREASE (DECREASE) FROM 1998 --------------------------- AMOUNT PERCENT --------------- ----------- (IN MILLIONS) Cabin Management ................................................................ $ 2.5 41.7% Specialty Avionics .............................................................. 3.1 31.0 Systems Integration ............................................................. 7.5 174.4 Corporate ....................................................................... (2.5) (27.2) ----------- Total ..................................................................... $ 10.6 ===========
CABIN MANAGEMENT. SG&A expenses increased by $2.5 million, or 41.7% over the prior year, due to our 1999 acquisitions. SPECIALTY AVIONICS. SG&A expenses increased by $3.1 million, or 31.0% over the prior year, due to our acquisition of Avtech. SYSTEMS INTEGRATION. SG&A expenses increased by $7.5 million, or 174.4% over the prior year, due to: o the inclusion of $4.8 million of SG&A expenses resulting from our acquisition of PATS; and o a $3.9 million restructuring charge; offset by o a $1.2 million decrease in other selling, general and administrative expenses. CORPORATE. SG&A expenses decreased by $2.5 million, or 27.2% over the prior year, due to: o non-capitalizable tender offer expenses resulting from our acquisition by DLJ of $3.6 million recorded in 1998; partially offset by o a $1.1 million increase in other corporate expenses including $0.5 million for marketing and $0.6 million for non-capitalized acquisition costs. 25 DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization expense increased $10.2 million, or 114.1%, for the year ended December 31, 1999. The groups contributed to the increase in depreciation and amortization expense as follows:
INCREASE (DECREASE) FROM 1998 -------------------------- AMOUNT PERCENT ------------- ----------- (IN MILLIONS) Cabin Management ................................................................ $ 2.3 195.7% Specialty Avionics .............................................................. 4.2 62.8 Systems Integration ............................................................. 3.5 356.4 Corporate ....................................................................... 0.2 185.4 ----------- Total ......................................................................... $ 10.2 ===========
CABIN MANAGEMENT. Depreciation and amortization expense increased by $2.3 million, or 195.7% over the prior year, due to our 1999 acquisitions. SPECIALTY AVIONICS. Depreciation and amortization expense increased by $4.2 million, or 62.8% over the prior year, due to our acquisition of Avtech. SYSTEMS INTEGRATION. Depreciation and amortization expense increased by $3.5 million, or 356.4% over the prior year, due to our acquisition of PATS. CORPORATE. Depreciation and amortization expense increased by $0.2 million, or 185.4% over the prior year, due to goodwill recorded from the DLJ acquisition. EBITDA AND OPERATING INCOME. EBITDA increased $29.3 million to $56.5 million, or 107.7%, for the year ended December 31, 1999, from $27.2 million for the same period last year. The increase primarily results from the contribution to 1999 results by companies we acquired during 1998 and 1999. EBITDA as a percent of revenues increased to 23.2% for the year ended December 31, 1999, from 18.1% for the same period last year. Operating income increased $11.5 million to $24.9 million, or 85.8%, for the year ended December 31, 1999, from $13.4 million for the same period last year. By group, EBITDA changed as follows:
INCREASE (DECREASE) FROM 1998 --------------------------- AMOUNT PERCENT ------------- ----------- (IN MILLIONS) EBITDA Cabin Management .............................................................. $ 18.0 290.3% Specialty Avionics ............................................................ (2.0) (0.7) Systems Integration ........................................................... 9.9 1,414.3 Corporate ..................................................................... 3.4 38.2 -------------- Total EBITDA ................................................................ 29.3 Depreciation and amortization ................................................... (10.2) Restructuring and asset impairment charges ...................................... (9.9) Noncash acquisition related charges ............................................. 2.5 Other noncash and acquisition related charges ................................... (0.2) -------------- Total operating income ...................................................... $ 11.5 ==============
CABIN MANAGEMENT. EBITDA increased by $18.0 million, or 290.3% over the prior year, due to our 1999 acquisitions and higher unit sales of entertainment and cabin management products. 26 SPECIALTY AVIONICS. EBITDA decreased by $2.0 million, or 0.7% over the prior year, due to: o a decrease in operating income related to weakened demand for our commercial aircraft products; offset by inclusion of EBITDA from our acquisition of Avtech. SYSTEMS INTEGRATION. EBITDA increased by $9.9 million, or 1,414.3% over the prior year, due to the inclusion of EBITDA resulting from our acquisition of PATS. CORPORATE. EBITDA increased by $3.4 million, or 38.2% over the prior year, primarily due to a charge in 1998 related to non-capitalizable tender offer expenses resulting from our acquisition by DLJ. INTEREST EXPENSE. Interest expense increased $18.7 million to $27.9 million for the year ended December 31, 1999, from $9.2 million for the same period last year. Interest expense increased: o $16.1 million due to higher debt levels associated with the DLJ acquisition and our acquisition of companies during 1999; and o $2.6 million due to higher average interest rates incurred during 1999 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 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 the relationship of non-deductible expenses to income before income taxes. NET INCOME (LOSS). Net income decreased $5.0 million to a net loss of $4.4 million for the year ended December 31, 1999 compared to net income of $0.6 million for the same period in 1998. BOOKINGS. Bookings increased $103.6 million, or 69.8%, to $252.1 million for the year ended December 31, 1999 compared to $148.5 million for the same period in 1998. The increase in bookings for 1999 were primarily due to: o $94.5 million associated with companies we acquired in 1999; and o $9.1 million related to other businesses. BACKLOG AT END OF PERIOD. Backlog increased $80.7 million to $156.1 million as of December 31, 1999 compared to $75.4 million as of December 31, 1998. The increase in backlog for 1999 includes: o $72.6 million attributable to existing order backlog for companies we acquired during 1999; and o a net $8.1 million increase occurring during 1999 representing an increase in demand for our products. 27 SYSTEMS INTEGRATION GROUP RESTRUCTURING During 2000, we increased our restructuring reserves by $0.6 million resulting from higher than anticipated costs to complete certain actions compared to previous estimates. Also, in connection with the restructuring, we were able to sell property and equipment previously written down and recognized a gain of approximately $0.6 million upon disposal. We also paid $2.1 million of restructuring related costs during the year. Our restructuring reserves total $0.7 million at December 31, 2000. Future cash payments will be funded from existing cash balances and internally generated cash from operations. We do not anticipate recording any material additional charges relating to our restructuring efforts in 2001. 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, third party borrowings, capital contributions from DeCrane Holdings and the issuance of preferred stock. Cash provided by operating activities was $16.8 million for the year ended December 31, 2000, which is the net of $38.9 million of cash provided by operations after adding back depreciation, amortization and other noncash items, $21.3 million used for working capital and $0.8 million resulting from a decrease in other liabilities. The following factors contributed to the $21.3 million working capital increase: o an $11.3 million inventory increase resulting from longer production lead times and inventory level increases to meet current and projected revenue growth; o an $4.2 million accounts receivable increase resulting from higher revenues, timing differences relating to completing of projects and the associated collection; o a $8.4 million net decrease in current liabilities; offset by o a $2.0 million decrease in prepaid and other assets; and o an $0.6 million increase in income taxes payable due to higher current taxable income. Cash used for investing activities was $112.2 million for the year ended December 31, 2000, and consisted of: o $59.1 million for our acquisitions during the year; o $30.5 million for contingent acquisition consideration paid during 2000; and o $22.6 million for capital expenditures, including $5.4 million for the purchase of a furniture manufacturing facility for our Cabin Management Group. We anticipate spending approximately $15.0 million for capital expenditures in 2001. Cash provided by financing activities was $95.7 million for the year ended December 31, 2000 and was primarily used to fund our acquisitions. We obtained these funds by borrowing $67.4 million under our senior credit facility, selling $25.0 million of 16% mandatorily redeemable preferred stock and the receipt of a $7.9 million capital contribution from DeCrane Holdings. We used $5.8 million to make principal payments on our senior term debt, capitalized leases and other debt, and paid $1.9 million of financing costs. At December 31, 2000, senior credit facility borrowings totaling $275.8 million are at variable interest rates based on defined margins over the current prime or Eurodollar rates. At December 31, 2000 we had $57.5 million of working capital and had $25.0 million of borrowings available under our working capital credit facility and $12.6 million available under our acquisition credit facility. Although 28 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. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 requires companies to record derivatives on the balance sheet as assets or liabilities, measured at fair value. It also requires that gains or losses resulting from changes in the values of those derivatives be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. Adoption of SFAS No. 133, as amended by SFAS No. 137 in June 1999, is required for the fiscal year beginning January 1, 2001. We adopted SFAS No. 133 effective January 1, 2001; the adoption did not have a material impact on the Company's consolidated financial position, results of operations or cash flows. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements. SAB No. 101 summarizes the Staff's views in applying generally accepted accounting principles to revenue recognition in the financial statements. The bulletin was effective in the fourth quarter of 2000. We were in compliance with these standards; accordingly, the adoption of SAB No. 101 did not have an impact on our consolidated financial position, results of operations or cash flows. SWISS FRANC FORWARD EXCHANGE CONTRACTS Some of the contact blanks we use in the production of our contacts are manufactured at our Swiss facility and shipped to our El Segundo, California facility for plating and assembly. In 1997 and 1998, solely in an effort to mitigate the effects of currency fluctuations between the U.S. Dollar and the Swiss Franc, we entered into forward exchange contracts at fixed rates. We may continue efforts to mitigate this risk in the future. We do not engage in any currency exchange transactions for trading or speculative purposes. Realized and unrealized gains and losses on foreign exchange contracts are recognized currently in the consolidated statements of operations. COMPLIANCE OF KEY SYSTEMS WITH YEAR 2000 PERFORMANCE STANDARDS We experienced no material disruption in customer or supplier relationships, revenue patterns or customer buying patterns as a result of the year 2000 problem. There have been no losses of revenue and we do not believe that any future contingencies related to year 2000 would have a material impact on our business. COMMON EUROPEAN CURRENCY We have evaluated, and will continue to evaluate, the effects on our operations of the European Economic Monetary Union conversion to the Euro. The costs to prepare for this conversion, including the costs to adapt information systems, have not been and are not expected to be material to our results of operations, financial position or cash flows. We do currently expect the introduction and use of the Euro 29 to have a material effect on our foreign exchange and hedging activities, or on our use of derivative financial instruments. 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: o fuel prices and general economic conditions that affect demand for aircraft and air travel, which in turn affect demand for our product and services; o our reliance on key customers and the adverse effect a significant decline in business from any one of them would have on our business; o changes in prevailing interest rates and the availability of financing to fund our plans for continued growth; o competition from larger companies; o Federal Aviation Administration prescribed standards and licensing requirements, which apply many of the products and services we provide; o inflation, and other general changes in costs of goods and services; o liability and other claims asserted against us that exceeds our insurance coverage; o the ability to attract and retain qualified personnel; o labor disturbances; and o 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. ITEM 7A. 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 Eurodollar rates. At December 31, 2000, the current prime rate was 9.5% and the current Eurodollar rate was 6.64%. Based on $275.8 million of variable-rate debt outstanding as of December 31, 2000, a hypothetical one percent rise in interest rates, to 10.5% for prime rate borrowings and 7.64% for Eurodollar borrowings, would reduce our pre-tax earnings by $2.8 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 30 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 $91.0 million at December 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 one of our subsidiaries operates in Western Europe and one has a manufacturing facility in Mexico. 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 December 31, 2000, we may do so in the future depending on our assessment of future foreign exchange rate trends. ITEM 8. FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES Our consolidated financial statements and financial statement schedules are included in a separate section at the end of this report. Our consolidated financial statements and financial statement schedules are listed in the index on page F-1 of this report and are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 31 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth certain information concerning each person who is currently a director or executive officer of DeCrane Aircraft and its parent company, DeCrane Holdings.
NAME AGE DECRANE AIRCRAFT DECRANE HOLDINGS - ---------------------------- --------- ------------------------------------ ------------------------------------ R. Jack DeCrane *......... 54 Director and Chief Executive Vice Chairman of the Board of Officer Directors Charles H. Becker ........ 55 Senior Vice President and -- Group President Richard J. Kaplan ........ 58 Director and Senior Vice Assistant Secretary and Assistant President, Chief Financial Treasurer (chief accounting Officer, Secretary and Treasurer officer) Robert G. Martin ........ 63 Senior Vice President and -- Group President Jeffrey A. Nerland ....... 43 Senior Vice President, -- Business Development Jeffrey F. Smith ......... 40 Senior Vice President and -- Group President Thompson Dean ............ 42 Chairman of the Board of Directors Chairman of the Board of Directors and President John F. Fort, III *....... 59 Director Director Susan C. Schnabel *....... 39 Director Director
- --------------------------- * Member of DeCrane Holding's Compensation Committee. R. JACK DECRANE is the founder of DeCrane Aircraft. Mr. DeCrane served as President from the time DeCrane Aircraft was founded in December 1989 until April 1993, when he was elected to the newly created office of Chief Executive Officer. Prior to founding our company, Mr. DeCrane held various positions at the aerospace division of B.F. Goodrich. Mr. DeCrane was a Group Vice President at the aerospace division of B.F. Goodrich with management responsibility for three business units from 1986 to 1989. He has served on our board of directors since its inception. CHARLES H. BECKER has been our Senior Vice President and President of the Cabin Management Group since October 1999. Mr. Becker previously served as President and Chief Operating Officer of DeCrane Aircraft from April 1998 to October 1999, Group Vice President of Components of DeCrane Aircraft from December 1996 to April 1998, and President of Tri-Star from December 1994 to April 1998. Prior to joining us, Mr. Becker was President of the Interconnect Systems Division of Microdot, Inc., a manufacturer of contacts and connectors for aerospace applications, from 1984 to 1994. 32 RICHARD J. KAPLAN has been the Senior Vice President, Chief Financial Officer, Secretary and Treasurer of DeCrane Aircraft since March 1999. From April 1998 to March 1999, he served as Executive Vice President and Chief Operating Officer of Developers Diversified Realty Corporation. From 1977 to 1998, he was a partner with Price Waterhouse LLP, having joined the firm in 1964. He became a director in 2000. ROBERT G. MARTIN has been our Senior Vice President and President of the Systems Integration Group since October 1999 and President of PATS since we acquired it in January 1999. Mr. Martin also served as President of Aerospace Display Systems from September 1996 until October 1999. Prior to our acquisition of Aerospace Display Systems in 1996, Mr. Martin had served as its President since 1992. JEFFREY A. NERLAND has been our Vice President, Business Development, since January 1999 and was appointed Senior Vice President in March 2001. From July 1994 through December 1998, he was President of The Nerland Group and a partner with Budetti, Harrison, Nerland and Associates, a consulting and interim management firm. Previously, Mr. Nerland was a director with Kibel, Green Inc., a consulting firm. JEFFREY F. SMITH has been our Senior Vice President and President of the Specialty Avionics Group since October 1999 and President of Avtech since we acquired it in June 1998. Previously, he has served in various capacities with Avtech since 1989. THOMPSON DEAN has been the Managing Partner of DLJ Merchant Banking, Inc. since November 1996. Previously, Mr. Dean was a Managing Director of DLJ Merchant Banking, Inc. and its predecessor. In November 2000, Credit Suisse First Boston, Inc. acquired Donaldson, Lufkin & Jenrette, Inc. As a result, DLJ Merchant Banking, Inc. became an indirect affiliate of Credit Suisse First Boston, Inc. and Credit Suisse Group. Mr. Dean serves as a director of AKI Holding Corp., Arcade Holding Corporation, Charles River Laboratories Holdings, Inc., Formica Corporation, Insilco Holdings Co., Manufacturers' Services Limited, Mueller Holdings, Inc., and Von Hoffman Press, Inc. He became a director in 1998. JOHN F. FORT, III serves as a director of Insilco Holdings Co., Manufacturers' Services Limited, Roper Industries, Inc., Thermadyne Holdings Corporation and Tyco International Ltd. He became a director in 1998. SUSAN C. SCHNABEL has been a Managing Director of DLJ Merchant Banking, Inc. since January 1998. In 1997, she served as Chief Financial Officer of PETsMART, a specialty retailer of pet products and supplies. From 1990 to 1996, Ms. Schnabel was with Donaldson, Lufkin & Jenrette Securities Corporation, where she became a Managing Director in 1996. In November 2000, Credit Suisse First Boston, Inc. acquired Donaldson, Lufkin & Jenrette, Inc. As a result, DLJ Merchant Banking, Inc. and Donaldson, Lufkin & Jenrette Securities Corporation became indirect affiliates of Credit Suisse First Boston, Inc. and Credit Suisse Group. Ms. Schnabel serves as a director of Environmental Systems Products Holdings, Inc. and PMD Group, Inc. She became a director in 1998. SELECTION OF DIRECTORS AND TERM OF OFFICE DLJ Merchant Banking Partners II, L.P. is entitled to select all members of the Board of Directors of DeCrane Holdings and DeCrane Aircraft as described in "Item 13. Certain Relationships and Related Transactions--Investors' Agreement." At least one of such directors selected by DLJ Merchant Banking on each board must be an independent director. Mr. Fort is an independent director. All directors hold office until their successor is designated and qualified. 33 ITEM 11. EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE The following table describes all annual compensation awarded to, earned by or paid to our Chief Executive Officer and the four most highly compensated executive officers other than the Chief Executive Officer for the years ended December 31, 2000, 1999 and 1998.
ANNUAL COMPENSATION ALL OTHER COMPENSATION -------------------------------- --------------------------- SECURITIES UNDERLYING NAME YEAR SALARY BONUS OPTIONS (1) OTHER (2) - ----------------------------------------- -------- ------------- ---------------- ------------- ------------ R. Jack DeCrane (3)..................... 2000 $ 341,381 $ 1,100,000 2,981 $ 48,979 CHIEF EXECUTIVE OFFICER AND 1999 334,791 700,000 106,877 25,570 DIRECTOR 1998 281,761 1,044,000 50,000 49,864 Charles H. Becker (4) .................. 2000 243,521 265,000 917 5,048 SENIOR VICE PRESIDENT 1999 235,000 210,000 26,719 4,800 1998 206,948 160,000 -- 4,800 Richard J. Kaplan (5) .................. 2000 207,293 400,000 4,093 25,721 SENIOR VICE PRESIDENT AND DIRECTOR 1999 158,333 258,000 28,669 4,556 1998 -- -- -- -- Robert G. Martin (6) ................... 2000 216,300 384,000 3,229 5,100 SENIOR VICE PRESIDENT 1999 187,500 209,000 17,813 -- 1998 172,000 66,000 -- -- Jeffrey A. Nerland (7) ................. 2000 185,338 250,000 5,344 5,024 SENIOR VICE PRESIDENT 1999 160,000 181,000 10,688 2,217 1998 -- -- -- --
- --------------------- (1) Number of shares of common stock of DeCrane Holdings issuable upon exercise of options granted pursuant to our management incentive plan during the last fiscal year. (2) Comprised of relocation costs, term life insurance premiums and matching contributions to the 401(k) Retirement Plan. (3) Mr. DeCrane also served as Chairman of the Board of Directors through August 1998. (4) Mr. Becker served as Group Vice President of Components, and President of Tri-Star, through April 1998. Mr. Becker became President and Chief Operating Officer in April 1998 and Senior Vice President and Group President of Cabin Management in October 1999. (5) Mr. Kaplan joined DeCrane Aircraft as Senior Vice President on March 15, 1999. (6) Mr. Martin served as President Aerospace Display Systems from September 1996 until October 1999. Mr. Martin has been President of PATS since we acquired it in January 1999, and became our Senior Vice President and Group President of Systems Integration in October 1999. (7) Prior to Mr. Nerland joining DeCrane Aircraft on January 1, 1999, he provided consulting services to us during 1998 for which either Mr. Nerland or The Nerland Group, of which Mr. Nerland was a 34 principal, was paid a total of $127,800 in 1998 and early 1999, which amount has been excluded from the table above. STOCK OPTION GRANTS IN LAST FISCAL YEAR The following table sets forth individual grants of options to purchase shares of DeCrane Holdings common stock granted to the executive officers named below during the fiscal year ended December 31, 2000, pursuant to the management incentive plan. See "Employment Agreements and Compensation Arrangements - Incentive Plans."
POTENTIAL REALIZABLE NUMBER OF VALUE AT ASSUMED SECURITIES ANNUAL RATES OF STOCK UNDERLYING % OF EXERCISE OR PRICE APPRECIATION (1) OPTIONS OPTIONS BASE PRICE EXPIRATION ----------------------------- NAME GRANTED GRANTED PER SHARE DATE 5% 10% - ------------------------- ------------ ------------ ------------- ------------ ------------- -------------- R. Jack DeCrane ........ 2,981 3.8% $ 23.00 2010 $ 43,119 $ 109,272 Charles H. Becker ...... 917 1.2 23.00 2010 13,264 33,614 Richard J. Kaplan $23.00 options ...... 1,147 1.5 23.00 2010 16,591 42,045 $35.00 options ...... 2,946 3.8 35.00 2010 64,845 164,331 Robert G. Martin $23.00 options ...... 229 0.3 23.00 2010 3,312 8,394 $35.00 options ...... 3,000 3.9 35.00 2010 66,034 167,343 Jeffrey A. Nerland $23.00 options ...... 344 0.4 23.00 2010 4,976 12,610 $35.00 options ...... 5,000 6.4 35.00 2010 110,057 278,905
- ----------------------- (1) The potential realizable value assumes stock price appreciation rates of 5% and 10%, compounded annually, from the date the option was granted over the full option term. These assumed annual compound rates are mandated by Securities and Exchange Commission rules and do not represent our estimate or projection of future prices of the stock. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES No stock options were exercised by our executive officers during the year ended December 31, 2000. The following tables sets forth information about the stock options held by the executive officers named below as of December 31, 2000.
NUMBER OF VALUE OF UNEXERCISED SECURITIES UNDERLYING IN-THE-MONEY OPTIONS UNEXERCISED OPTIONS AT FISCAL YEAR END (1) NAME EXERCISABLE / UNEXERCISABLE EXERCISABLE / UNEXERCISABLE - ---------------------------------------------------------- ---------------------------- ---------------------------- R. Jack DeCrane ......................................... 36,253 / 73,605 $ 435,036 / 883,260 Charles H. Becker ....................................... 9,120 / 18,516 109,440 / 222,192 Richard J. Kaplan ....................................... 10,812 / 21,950 118,080 / 239,712 Robert G. Martin ........................................ 6,944 / 14,098 71,448 / 145,056 Jeffrey A. Nerland ...................................... 5,291 / 10,741 43,692 / 88,692
- ----------------------- (1) Computed based on a common stock share price of $35.00 per share as of December 31, 2000, the measuring date. 35 COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Compensation Committee of our Board of Directors makes decisions regarding officer compensation. Jack DeCrane, chief executive officer of DeCrane Aircraft, participates in those discussions as a member of the Committee. EMPLOYMENT AGREEMENTS AND COMPENSATION ARRANGEMENTS R. JACK DECRANE On July 17, 1998, the Compensation Committee of our Board of Directors approved a three-year employment agreement between DeCrane Aircraft and R. Jack DeCrane, replacing his prior employment agreement that was to expire on September 1, 1998. Mr. DeCrane's employment agreement was amended on May 5, 2000 to provide for a term through June 30, 2001, which term shall automatically extend for additional one year periods unless terminated by either party giving the other party notice of termination prior to April 1st of the year prior to the year in which the agreement would otherwise terminate. Mr. DeCrane's employment agreement provides for various benefits, including: o an initial salary of $310,000, which is subject to annual review and increase, but not decrease; o an annual bonus, currently determined pursuant to the performance-based cash incentive bonus plan; o a $500,000 bonus in recognition of our then-recent acquisition of Avtech Corporation (paid in 1998); o a $250,000 signing bonus (paid in 1998); o options to purchase 50,000 shares of common stock of DeCrane Aircraft at a price equal to the fair market value of the shares as of July 16, 1998, one-half of which were immediately exercisable; the rest became exercisable upon the completion of the DLJ acquisition; and o a $150,000 cash continuation bonus payable on January 2, 1999, if employed by us on January 1, 1999 (paid in 1999). Mr. DeCrane's options for 50,000 shares granted in July 1998 were cancelled in August 1998 and he received a cash payout in lieu of the options. The employment agreement also provides that if specified change-of-control events occur, and Mr. DeCrane's employment is terminated by us for any reason other than for cause or as a result of his death or disability, or by Mr. DeCrane for "good reason," as defined in the agreement, then we will pay Mr. DeCrane a lump sum in cash within fifteen days. The amount of that payment will be $1.00 less than three times the sum of Mr. DeCrane's average base salary plus bonus for the five calendar years preceding his termination date and accrued but unpaid salary and bonus through the termination date. Mr. DeCrane will also receive other specified benefits, including continued coverage under our welfare plans for up to two years; a lump sum payment in cash equal to any unvested portions of our contributions to him under specified savings plans, plus two times the amount of our annual contributions on his behalf to those plans; a lump sum payment in cash equal to our matching contributions under those savings plans that Mr. DeCrane would have received had he continued maximum participation in the plans until the earlier of two years following his termination and December 31 of the year he turns 65, plus the vested and unvested amounts credited to him under any of our deferred compensation plans and the amount required to be credited during the year of his termination; and outplacement consulting services to aid Mr. DeCrane with re-employment. We will reduce these payments to the extent necessary to ensure deductibility for tax purposes. 36 ROBERT G. MARTIN We entered into an employment agreement with Robert G. Martin, Senior Vice President of DeCrane Aircraft and President of the Systems Integration Group on September 10, 1999, amending his prior employment agreement dated September 19, 1996. Mr. Martin's employment agreement provides for an annual salary of $210,000 and an annual bonus determined pursuant to the performance-based cash incentive bonus plan. Mr. Martin's employment agreement expires on December 31, 2001, and DeCrane Aircraft may terminate the agreement at any time for cause or if Mr. Martin otherwise breaches the agreement or in the event of Mr. Martin's death or disability. JEFFREY F. SMITH We entered into an employment agreement with Jeffrey F. Smith, Vice President and General Manager of our Avtech subsidiary, on June 26, 1998. Mr. Smith's employment agreement provided for an annual salary, initially in the amount of $145,000 and an annual bonus currently determined pursuant to the performance-based cash incentive bonus plan. Mr. Smith's employment agreement expired on June 30, 2000 and has not been replaced. CHANGE OF CONTROL AGREEMENTS In September 2000, we entered into change of control agreements with each of our executive officers, other than Mr. DeCrane, whose above described employment agreement contains provisions concerning change of control. The agreements provide that, for a term of two years from the effective date, should a change of control, as defined, occur during the term of the agreement and the executive officer's employment shall be involuntarily terminated for any reason on a date which is less than two years after the date of the change of control, other than for cause, death or disability, DeCrane Aircraft is required to pay such executive his then salary plus average annual bonus over the last five years, equal to twenty four months compensation less the number of months elapsed from the date of the change of control to the employment termination date. 401(K) RETIREMENT PLAN Substantially all of our full-time employees are eligible to participate in one of eight 401(k) retirement plans we sponsor. The 401(k) plans allow employees as participants to defer, on a pre-tax basis, a portion of their salary and accumulate tax deferred earnings, as a retirement fund. The plans generally provide for us to match a percentage of the employee contribution up to a specified percentage of the employee's salary. The full amount vested in a participant's account will be distributed to a participant following termination of employment, normal retirement or in the event of disability or death. INCENTIVE PLANS Our management incentive plan provides for the issuance of options to purchase the common stock of DeCrane Holdings as incentive compensation to designated executive personnel and other key employees of DeCrane Aircraft and its subsidiaries. The Compensation Committee of the Board of Directors administers the management incentive plan. The plan provides for the granting of options to purchase 356,257 common shares and expires in 2009. Substantially all of the options awarded become fully vested and exercisable eight years from the date of grant but vesting and exercise can be accelerated based upon future attainment of defined performance criteria. At December 31, 2000, 33% of most of the options granted are vested and exercisable. We believe the per share exercise price of the options granted approximated the fair market value of the underlying common stock on each of the grant dates. 37 Beginning in 1999, we have permitted, from time-to-time, designated executive personnel and other key employees to purchase shares of common stock of DeCrane Holdings, with a portion of the purchase price to be loaned to the participants by DeCrane Aircraft. This arrangement was made available to persons and in amounts determined by the Compensation Committee of the Board of Directors. In December 1999, management purchased 171,295 shares of DeCrane Holdings common stock for $23.00 per share. The total purchase price was $3.9 million, of which one-half was paid in cash and one-half was loaned to management by DeCrane Aircraft with interest at applicable federal rates. During 2000, an additional 19,707 shares of DeCrane Holdings common stock was purchased by employees at $23.00 per share, which was paid in cash. Our cash incentive bonus plan provides for the allocation of a bonus pool each year for incentive compensation to designated executive personnel and other key employees of DeCrane Aircraft and its subsidiaries. The bonus pool for participants will be adjusted upwards or downwards each year based on EBITDA and cash flow, as defined, generated by the relevant participant's operating unit. Bonus payments will be made in the quarter following the end of the year or period to which they relate. DEFERRED COMPENSATION PLAN In December 1999, we established a deferred compensation plan in which certain designated executive officers and key employees are permitted to defer a portion of their compensation earned. The Company invests amounts deferred and participants are fully vested in the amounts representing the fair market value of their investment accounts. We make no contributions on behalf of the participants and the invested assets are subject to the claims of our general creditors. DIRECTORS' COMPENSATION The directors of DeCrane Aircraft generally do not receive annual fees or fees for attending meetings of the Board of Directors of DeCrane Aircraft or committees thereof. However, John F. Fort, III, an independent director not affiliated with any investor in DeCrane Holdings, receives a director's fee of $5,000 for each meeting attended. In addition, the Board of Directors of DeCrane Holdings extended the management incentive plan to independent non-management directors, and issued options to purchase 6,260 shares of DeCrane Holdings common stock to Mr. Fort under the terms of the management incentive plan. See "Related Party Transactions." Also, Mr. Fort is reimbursed for out-of-pocket expenses. We expect to continue those policies. 38 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT DECRANE AIRCRAFT As of December 31, 2000, DeCrane Aircraft has the following securities issued and outstanding: o 100 shares of common stock, which are owned by one stockholder; and o 250,000 shares of non-voting 16% Senior Redeemable Exchangeable Preferred Stock Due 2009, which are owned by 10 stockholders. The following table sets forth the beneficial ownership of DeCrane Aircraft's voting and non-voting securities as of December 31, 2000 by its principal owners and its executive officers and directors.
16% SENIOR REDEEMABLE COMMON STOCK (2) PREFERRED STOCK -------------------------- --------------------------- NUMBER OF SHARES, NUMBER PARTIALLY OF NAME OF BENEFICIAL OWNER (1) DILUTED PERCENTAGE SHARES PERCENTAGE - ------------------------------------------------------------- ------------- ----------- -------------- ------------ DeCrane Holdings Co. ....................................... 100 100.0% -- -- c/o DLJ Merchant Banking Partners II, L.P. 277 Park Avenue, New York, NY 10172 DLJ Merchant Banking Partners II, L.P. affiliates (3) ...... 277 Park Avenue, New York, NY 10172 -- -- 200,000 80.0% Thompson Dean (4) .......................................... -- -- -- -- c/o Credit Suisse First Boston 277 Park Avenue, New York, New York 10172 Susan C. Schnabel (4) ...................................... -- -- -- -- c/o Credit Suisse First Boston 277 Park Avenue, New York, New York 10172 Putnam Investment Management, Inc. and affiliates (5) ...................................... -- -- 50,000 20.0% One Post Office Square, Boston, MA 02109 John F. Fort, III .......................................... -- -- -- -- R. Jack DeCrane ............................................ -- -- -- -- Charles H. Becker .......................................... -- -- -- -- Richard J. Kaplan .......................................... -- -- -- -- Robert G. Martin ........................................... -- -- -- -- Jeffrey A. Nerland ......................................... -- -- -- -- Jeffrey A. Smith ........................................... -- -- -- -- All directors and named executive officers as a group (nine persons) ................................................... -- -- -- --
- ------------------------- (1) Each person who has the power to vote and direct the disposition of shares is deemed to be a beneficial owner of those shares. (2) The common stock columns reflect the number of shares owned and the total percentage ownership in the manner required by Securities and Exchange Commission rules. The entries for each holder 39 assumes, if applicable, that the particular holder, and no one else, fully exercises all rights under warrants to purchase common stock and common stock which may be acquired upon the exercise of stock options and which are exercisable or will be exercisable prior to 60 days from December 31, 2000. (3) Reflects preferred stock held by the following investors affiliated with DLJ Merchant Banking Partners II, L.P.:
o DLJ ESC II, L.P. o DLJ Investment Partners, L.P. o DLJ Investment Funding II, Inc. o DLJ Investment Partners II, L.P.
The address of each of the investors is 277 Park Avenue, New York, New York 10172. (4) Mr. Dean and Ms. Schnabel are officers of DLJ Merchant Banking, Inc., an affiliate of DLJ Merchant Banking Partners II, L.P and directors of DeCrane Holdings Co. The DLJ entities are affiliates of, and commonly referred to as, Credit Suisse First Boston. See "Item 12. Certain Relationships and Related Transactions--Transactions with Management and Others" for additional information. The share data shown for these individuals excludes shares shown as held by the DLJ affiliates and DeCrane Holdings Co. separately listed in this table; Mr. Dean and Ms. Schnabel disclaim beneficial ownership of those shares. (5) Reflects preferred stock held by the following investors related to Putnam Investment Management, Inc.:
o Putnam Diversified Income Trust o Putnam High Yield Trust o Putnam Fund Trust - Putnam High Yield o Putnam Strategic Income Fund Trust II o Putnam Variable Trust - Putnam VT High o Putnam High Yield Advantage Fund Yield Fund
The address of each of the investors is One Post Office Square, Boston, MA 02109. 40 DECRANE HOLDINGS As of December 31, 2000, DeCrane Holdings has the following securities issued and outstanding: o 3,914,274 shares of common stock, which is owned by 37 stockholders; and o 342,417 shares of non-voting 14% Senior Redeemable Exchangeable Preferred Stock Due 2009, which is owned by 18 stockholders. The following table sets forth the beneficial ownership of DeCrane Holdings' voting and non-voting securities as of December 31, 2000 by its principal owners and its executive officers and directors.
14% SENIOR REDEEMABLE COMMON STOCK (2) PREFERRED STOCK -------------------------- --------------------------- NUMBER OF SHARES, NUMBER PARTIALLY OF NAME OF BENEFICIAL OWNER (1) DILUTED PERCENTAGE SHARES PERCENTAGE - ------------------------------------------------------------- ------------- ----------- -------------- ------------ DLJ Merchant Banking Partners II, L.P. and affiliates (3) ...................................... 3,906,032 94.7% 340,000 99.3% 277 Park Avenue, New York, NY 10172 Thompson Dean (4) .......................................... -- -- -- -- c/o Credit Suisse First Boston 277 Park Avenue, New York, New York 10172 Susan C. Schnabel (4) ...................................... -- -- -- -- c/o Credit Suisse First Boston 277 Park Avenue, New York, New York 10172 Putnam Investment Management, Inc. and affiliates (5) ...................................... 13.936 * -- -- One Post Office Square, Boston, MA 02109 John F. Fort, III (6) ...................................... 3,841 * -- -- R. Jack DeCrane (7) ........................................ 95,755 2.4% -- -- Charles H. Becker (8) ...................................... 27,428 * -- -- Richard J. Kaplan (9) ...................................... 33,698 * -- -- Robert G. Martin (10) ...................................... 11,520 * -- -- Jeffrey A. Nerland (11) .................................... 12,156 * -- -- Jeffrey A. Smith (12) ...................................... 16,173 * -- -- All directors and named executive officers as a group (nine persons) ................................................... 200,571 5.0% -- --
- ---------------------- * Less than 1.0% (1) Each person who has the power to vote and direct the disposition of shares is deemed to be a beneficial owner of those shares. (2) The common stock columns reflect the number of shares owned and the total percentage ownership in the manner required by Securities and Exchange Commission rules. The entries for each holder assumes, if applicable, that the particular holder, and no one else, fully exercises all rights under warrants to purchase common stock and common stock which may be acquired upon the exercise of stock options and which are exercisable or will be exercisable prior to 60 days from December 31, 2000. 41 (3) Reflects 3,695,652 shares of common stock, warrants to purchase an additional 210,380 shares of common stock and preferred stock held directly by DLJ Merchant Banking Partners II, L.P. and the following affiliated investors:
o DLJ Diversified Partners, L.P. o DLJ Investment Partners II, L.P. o DLJ Diversified Partners-A, L.P. o DLJ Merchant Banking Partners II-A, L.P. o DLJ EAB Partners, L.P. o DLJ Millennium Partners, L.P. o DLJ First ESC L.P. o DLJ Millennium Partners-A, L.P. o DLJ ESC II, L.P. o DLJ Offshore Partners II, C.V. o DLJ Investment Funding II, Inc. o DLJMB Funding II, Inc. o DLJ Investment Partners, L.P. o UK Investment Plan 1997 Partners, Inc.
The address of DLJ Offshore Partners II, C.V. is John B. Gorsiraweg 14, Willemstad, Curacao, Netherlands Antilles. The address of UK Investment Plan 1997 Partners, Inc. is 2121 Avenue of the Stars, Fox Plaza, Suite 3000, Los Angeles, California 90067. The address of each of the other investors is 277 Park Avenue, New York, New York 10172. (4) Mr. Dean and Ms. Schnabel are officers of DLJ Merchant Banking, Inc., an affiliate of DLJ Merchant Banking Partners II, L.P and directors of DeCrane Aircraft. The DLJ entities are affiliates of, and commonly referred to as, Credit Suisse First Boston. See "Item 12. Certain Relationships and Related Transactions--Transactions with Management and Others" for additional information. The share data shown for these individuals excludes shares shown as held by the DLJ affiliates separately listed in this table; Mr. Dean and Ms. Schnabel disclaim beneficial ownership of those shares. (5) Reflects warrants to purchase shares of common stock held by the following investors related to Putnam Investment Management, Inc.:
o Putnam Diversified Income Trust o Putnam High Yield Trust o Putnam Fund Trust - Putnam High Yield o Putnam Strategic Income Fund Trust II o Putnam Variable Trust - Putnam VT High o Putnam High Yield Advantage Fund Yield Fund
The address of each of the investors is One Post Office Square, Boston, MA 02109. (6) Includes 2,841 shares that may be acquired upon the exercise of stock options that are exercisable or will become exercisable prior to 60 days from December 31, 2000. (7) Includes 36,253 shares that may be acquired upon the exercise of stock options that are exercisable or will become exercisable prior to 60 days from December 31, 2000. (8) Includes 9,120 shares that may be acquired upon the exercise of stock options that are exercisable or will become exercisable prior to 60 days from December 31, 2000. (9) Includes 10,812 shares that may be acquired upon the exercise of stock options that are exercisable or will become exercisable prior to 60 days from December 31, 2000. (10) Includes 6,944 shares that may be acquired upon the exercise of stock options that are exercisable or will become exercisable prior to 60 days from December 31, 2000. (11) Includes 5,291 shares that may be acquired upon the exercise of stock options that are exercisable or will become exercisable prior to 60 days from December 31, 2000. (12) Includes 7,019 shares that may be acquired upon the exercise of stock options that are exercisable or will become exercisable prior to 60 days from December 31, 2000. 42 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS TRANSACTIONS WITH MANAGEMENT AND OTHERS ACQUISITION OF DONALDSON, LUFKIN & JENRETTE, INC. BY CREDIT SUISSE GROUP DLJ Merchant Banking Partners, II, L.P. is an affiliate of Donaldson, Lufkin & Jenrette, Inc. In November 2000, Credit Suisse Group and its Credit Suisse First Boston, Inc. subsidiary acquired Donaldson, Lufkin & Jenrette, Inc. Upon completion of the acquisition, Donaldson, Lufkin & Jenrette, Inc. was renamed Credit Suisse First Boston (USA), Inc. The combined operations are commonly referred to collectively as Credit Suisse First Boston. ARRANGEMENTS WITH OTHER CSFB/DLJ AFFILIATES DLJ Capital Funding, Inc., receives customary fees and reimbursement of expenses in connection with the arrangement and syndication of our senior bank credit facility. Credit Suisse First Boston Corporation, referred to herein as CSFB Corporation and formerly known as Donaldson, Lufkin & Jenrette Securities Corporation, is the sole market-maker for our senior subordinated notes. In addition, DeCrane Aircraft is obligated to pay CSFB Corporation an annual advisory fee of $300,000 until 2003. We may from time to time enter into other investment banking relationships with CSFB Corporation or one of its affiliates pursuant to which they will receive customary fees and will be entitled to reimbursement for all reasonable disbursements and out-of-pocket expenses incurred in connection therewith. We expect that any such arrangement will include provisions for the indemnification of CSFB Corporation against liabilities, including liabilities under the federal securities laws. INVESTORS' AGREEMENT Investors owing 96.6% of DeCrane Holdings' issued and outstanding common stock and common stock warrants and options, all of DeCrane Holdings' preferred stock and all of DeCrane Aircraft's preferred and common stock, have entered into an Amended and Restated Investors' Agreement, dated October 6, 2000. The investors who own DeCrane Holdings' Class A warrants to purchase 159,794 shares of common stock are not parties to the Investors' Agreement. The agreement provides that: o The parties to the agreement shall vote their shares to cause DLJ Merchant Banking Partners, II, L.P. to select all members of the Board of Directors of DeCrane Holdings and DeCrane Aircraft and at least one of such directors on each board shall be an independent director. o Transfers of the shares of by the parties to the agreement are restricted. o Parties to the agreement may participate in some specific kinds of sales of shares by DLJ affiliates. o DLJ affiliates may require the other parties to the agreement to sell shares of DeCrane Holdings' common stock in some cases should the DLJ affiliates choose to sell any such shares owned by them. o The DLJ affiliates may request six demand registrations with respect to all or any of the DeCrane Holdings common stock and preferred stock and warrants to purchase 154,637 common shares held by those affiliates (referred to herein as the Initial Capitalization Warrants), which are immediately exercisable subject to customary deferral and cutback provisions. o The holders of Class B warrants to purchase 139,357 shares of DeCrane Holdings common stock may request two demand registrations together with all or any common stock held by them, which are immediately exercisable subject to customary deferral and cutback provisions. 43 o The parties to the agreement are entitled to unlimited piggyback registration rights, subject to customary cutback provisions, and excluding registrations of shares issuable in connection with any employee stock options, employee benefit plan or an acquisition. o DeCrane Holdings will indemnify the stockholders against some liabilities and expenses, including liabilities under the Securities Act. o Any person acquiring shares of common stock or preferred stock who is required by the terms of the Investors' Agreement or any employment agreement or stock purchase, option, stock option or other compensation plan to become a party thereto shall execute an agreement to become bound by the Investors' Agreement. Each DeCrane Holdings' Initial Capitalization Warrant entitles the holder to purchase one share of common stock at an exercise price of not less than $0.01 per share subject to customary antidilution provisions and other customary terms. The warrants are exercisable at any time prior to 5:00 p.m. New York City time on August 28, 2009, subject to applicable federal and state securities laws. Each DeCrane Holdings' Class B Warrant entitles the holder to purchase one share of common stock at an exercise price of not less than $0.01 per share subject to customary antidilution provisions and other customary terms. The warrants are exercisable at any time prior to 5:00 p.m. New York City time on June 30, 2010, subject to applicable federal and state securities laws. TRANSACTIONS DURING 2000 Briefly described below are transactions, or series of similar transactions, which occurred during the year ended December 31, 2000 that individually exceeds $60,000 as required by Securities and Exchange Commission rules. These transactions are also described in the notes accompanying our financial statements included in this report. In connection with financing our acquisitions of companies during 2000: o DLJ Merchant Banking and affiliates purchased 326,087 shares of DeCrane Holdings common stock for $7.5 million ($23.00 per share) and DeCrane Holdings, in turn, contributed the proceeds to DeCrane Aircraft; o Affiliates of DLJ Merchant Banking purchased 250,000 shares of DeCrane Aircraft 16% preferred stock and warrants to purchase 139,357 shares of DeCrane Holdings common stock for $25.0 million; subsequent to their initial purchase, the DLJ Merchant Banking affiliates sold 20% of the preferred stock and common stock warrants to Putnam Investment Management, Inc. and affiliates in a private transaction; and o DeCrane Aircraft amended it senior credit facility and borrowed an additional $55.0 million of term debt. DLJ Capital Funding, Inc., received customary fees and reimbursement of expenses in connection with the transaction. DeCrane Aircraft executive officers and management purchased 19,707 shares of DeCrane Holdings common stock for $23.00 per share. In addition, Mr. Fort purchased 1,000 shares of DeCrane Holdings common stock for $23.00 per share and was granted options to purchase 1,000 common shares at $23.00 per share and 2,000 common shares at $35.00 per share pursuant to the management incentive plan, which also pertains to independent non-management directors. Mr. Fort is presently the only director qualifying for the plan. 44 INDEBTEDNESS OF EXECUTIVE OFFICERS AND DIRECTORS The following table sets forth all indebtedness owed to us by our executive officers and directors that individually exceeds $60,000 as required by Securities and Exchange Commission rules. All indebtedness set forth below results from purchases of DeCrane Holdings common stock and is payable to DeCrane Aircraft. The indebtedness, plus accrued interest, is payable upon the sale of the DeCrane Holdings stock held as collateral for each of the loans. See Item 10, "Directors and Executive Officers of the Registrant" for information regarding each individual's relationship with DeCrane Aircraft and DeCrane Holdings.
TOTAL INDEBTEDNESS TO DECRANE AIRCRAFT AS OF DECEMBER 31, 2000 ------------------------------------------- NUMBER OF SHARES HELD AS INTEREST ACCRUED NAME COLLATERAL(1) RATE(2) PRINCIPAL(3) INTEREST(4) TOTAL(5) - ------------------------------------------- ------------- ------------- ------------- ------------- -------------- R. Jack DeCrane .......................... 56,521 5.74% $ 649,991 $ 38,498 $ 688,489 Charles H. Becker ........................ 17,391 5.74 199,996 11,846 211,842 Richard J. Kaplan ........................ 21,739 5.74 249,998 14,807 264,805 Jeffrey A. Nerland ....................... 6,521 5.74 74,991 4,442 79,433 Jeffrey F. Smith ......................... 8,695 5.74 99,992 5,922 105,914
- ----------------------- (1) Reflects the number of shares of DeCrane Holdings common stock held by DeCrane Aircraft as collateral for the loans. (2) Reflects the applicable federal rate of interest charged on the loans. Interest is compounded annually. (3) Reflects the original principal amount of the loans. (4) Reflects accrued interest payable through December 31, 2000. (5) Reflects the maximum amount of indebtedness during the year ended December 31, 2000. 45 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K LIST OF DOCUMENTS FILED AS PART OF THIS REPORT 1. FINANCIAL STATEMENTS Our consolidated financial statements filed with this report are included in a separate section and the end of this report and are listed in an index on page F-1. 2. FINANCIAL STATEMENT SCHEDULES Our consolidated financial statement schedules filed with this report are included in a separate section and the end of this report and are listed in an index on page F-1. 3. EXHIBITS The following exhibits are filed as part of this report.
EXHIBIT FILING NUMBER REFERENCE EXHIBIT DESCRIPTION ------------- --------- ----------------------------------------------------------------------------------- 3.2.1 (1) Certificate of Incorporation of DeCrane Aircraft Holdings, Inc. 3.2.2 (1) Bylaws of DeCrane Aircraft Holdings, Inc. 3.3.1 (10) Certificate of Formation and Certificate of Merger of Aerospace Display Systems, LLC 3.3.2 (10) Limited Liability Company Operating Agreement for Aerospace Display Systems, LLC 3.4.1 (1) Articles of Incorporation of Audio International, Inc. 3.4.2 (1) Amended & Restated Bylaws of Audio International, Inc. 3.5.1 (1) Articles of Incorporation of Avtech Corporation 3.5.2 (1) Bylaws of Avtech Corporation 3.7.1 (1) Certificate of Incorporation of Dettmers Industries, Inc. (formerly DAHX Acquisition, Inc.) 3.7.2 (1) Bylaws of Dettmers Industries, Inc. 3.10.1 (1) Articles of Incorporation of Hollingsead International, Inc. 3.10.2 (1) Bylaws of Hollingsead International Inc. 3.11.1 (1) Articles of Incorporation of Tri-Star Electronics International, Inc. 3.11.2 (1) Bylaws of Tri-Star Electronics International, Inc. 3.12.1 (1) Articles of Incorporation of PATS, Inc. 3.12.2 (1) Bylaws of PATS, Inc. 3.12.3 (1) Amendment to Articles of PATS, Inc. 3.12.4 (1) Amendment to Bylaws of PATS, Inc. 3.13.1 (1) Articles of Incorporation of Flight Refueling, Inc. 3.13.2 (1) Bylaws of Flight Refueling, Inc.
46
EXHIBIT FILING NUMBER REFERENCE EXHIBIT DESCRIPTION ------------- --------- ----------------------------------------------------------------------------------- 3.14.1 (1) Articles of Incorporation of Patrick Aircraft Tank Systems, Inc. 3.14.2 (1) Bylaws of Patrick Aircraft Tank Systems, Inc. 3.15.1 (1) Articles of Incorporation of PATS Aircraft and Engineering Corporation 3.15.2 (1) Bylaws of PATS Aircraft and Engineering Corporation 3.16.1 (1) Articles of Incorporation of PATS Support, Inc. 3.16.2 (1) Bylaws of PATS Support, Inc. 3.17.1 (3) Articles of Incorporation of PPI Holdings, Inc. 3.17.2 (3) Bylaws of PPI Holdings, Inc. 3.18.1 (3) Articles of Incorporation of Precision Pattern, Inc. 3.18.2 (3) Bylaws of Precision Pattern, Inc. 3.19.1 (10) Certificate of Formation and Certificate of Merger for Custom Woodwork & Plastics, LLC 3.19.2 (10) Limited Liability Company Operating Agreement for Custom Woodwork & Plastics, LLC 3.20.1 (4) Articles of Incorporation of PCI Acquisition Co., Inc. 3.20.2 (4) Bylaws of PCI Acquisition Co., Inc. 3.21.1 (4) Articles of Incorporation of International Custom Interiors, Inc. 3.21.2 (4) Bylaws of International Custom Interiors, Inc. 3.22.1 (5) Articles of Incorporation DAH-IP Holdings, Inc. 3.22.2 (5) Bylaws of DAH-IP Holdings, Inc. 3.23.1 (5) Articles of Incorporation of DAH-IP Infinity, Inc. 3.23.2 (5) Bylaws of DAH-IP Infinity, Inc. 3.24.1 (5) Certificate of Limited Partnership DAH-IP Acquisition Co., L.P. the General Partner, and DeCrane Aircraft Holdings, Inc., the Limited Partner 3.24.2 (5) Limited Partnership Agreement of DAH-IP Acquisition Co., L.P. among DAH-IP Holdings, Inc., the General Partner, and DeCrane Aircraft Holdings, Inc., the Limited Partner 3.24.3 (5) Assignment of Partnership Interest by DeCrane Aircraft Holdings, Inc. to DAH-IP Infinity, Inc. 3.25.1 (8) Certificate of Formation and Certificate of Amendment of Carl F. Booth & Co., LLC 3.25.2 (8) Limited Liability Company Agreement of Carl F. Booth & Co., LLC 3.26.1 (10) Restated Articles of Incorporation of ERDA, Inc. 3.26.2 (10) Bylaws of ERDA, Inc. (formerly ERDA Acquisition Co., Inc.) 3.27.1 (12) Articles of Incorporation of Coltech, Inc. 3.27.2 (12) Bylaws of Coltech, Inc. 3.28.1 * Articles of Incorporation of DeCrane International Sales, Inc. 3.28.2 * Bylaws (No. 1) of DeCrane International Sales, Inc. 3.29.1 * Certificate of Limited Partnership of DeCrane Aircraft Furniture Co., LP 3.29.2 * Limited Partnership Agreement of DeCrane Aircraft Furniture Co., LP
47
EXHIBIT FILING NUMBER REFERENCE EXHIBIT DESCRIPTION ------------- --------- ----------------------------------------------------------------------------------- 4.1 (1) Indenture dated October 5, 1998 between DeCrane Aircraft and State Street Bank and Trust Company 4.1.1 (1) Supplemental Indenture dated January 22, 1999 among PATS, Inc. and its subsidiaries, the other guarantors under the Indenture, DeCrane Aircraft and State Street Bank and Trust Company 4.1.2 (2) Supplemental Indenture to be dated April 23, 1999 among PPI Holdings, Inc., Precision Pattern, Inc., the other guarantors under the Indenture, DeCrane Aircraft and State Street Bank and Trust Company 4.1.3 (12) Supplemental Indenture to be dated August 5, 1999 among CWP Acquisition, Inc. d/b/a Custom Woodwork & Plastics, Inc., the other guarantors under the Indenture, DeCrane Aircraft and State Street Bank and Trust Company 4.1.4 (12) Supplemental Indenture to be dated October 6, 1999 among PCI Acquisition Co., Inc. d/b/a PCI Newco, Inc., the other guarantors under the Indenture, DeCrane Aircraft and State Street Bank and Trust Company 4.1.5 (12) Supplemental Indenture to be dated October 8, 1999 among International Custom Interiors, Inc., the other guarantors under the Indenture, DeCrane Aircraft and State Street Bank and Trust Company 4.1.6 (12) Supplemental Indenture to be dated December 17, 1999 among DAH-IP Acquisition, L.P. d/b/a Infinity Partners, L.P., DAH-IP Holdings, Inc., DAH-IP Infinity, Inc., the other guarantors under the Indenture, DeCrane Aircraft and State Street Bank and Trust Company 4.1.7 (12) Supplemental Indenture to be dated May 11, 2000 among Booth Acquisition, LLC, the other guarantors under the Indenture, DeCrane Aircraft and State Street Bank and Trust Company 4.1.8 (12) Supplemental Indenture to be dated June 16, 2000 among DeCrane Aircraft Furniture Co., L.P., the other guarantors under the Indenture, DeCrane Aircraft and State Street Bank and Trust Company 4.1.9 (12) Supplemental Indenture to be dated June 30, 2000 among ERDA, Inc., the other guarantors under the Indenture, DeCrane Aircraft and State Street Bank and Trust Company 4.1.10 (12) Supplemental Indenture to be dated August 31, 2000 among Coltech, Inc., the other guarantors under the Indenture, DeCrane Aircraft and State Street Bank and Trust Company 4.2 (1) A/B Exchange Registration Rights Agreement among DeCrane Aircraft Holdings, Inc., the subsidiary guarantors, and DLJ Securities Corporation 4.5 (1) Form of DeCrane Aircraft 12% Senior Subordinated Notes due 2008 4.6 (10) Certificate of Designations, Preferences and Rights of 16% Senior Redeemable Exchangeable Preferred Stock due 2009 4.6.1 (12) Amendment to the Certificate of Designations, Preferences and Rights of 16% Senior Redeemable Exchangeable Preferred Stock due 2009 dated October 5, 2000 4.7 (10) Senior Preferred Stock Registration Rights Agreement dated as of June 30, 2000 among DeCrane Aircraft Holdings, Inc. and the Holders of Senior Preferred Stock
48
EXHIBIT FILING NUMBER REFERENCE EXHIBIT DESCRIPTION ------------- --------- ----------------------------------------------------------------------------------- 4.7.1 (12) Amendment No. 1 to the Senior Preferred Stock Registration Rights Agreement dated as of June 30, 2000 among DeCrane Aircraft Holdings, Inc. and the Holders of Senior Preferred Stock dated October 6, 2000 10.1 (10) Securities Purchase Agreement dated as of June 30, 2000 among DeCrane Aircraft Holdings, Inc., DeCrane Holdings Co. and the purchasers named therein 10.2 (12) Amended and Restated Investors' Agreement dated as of October 6, 2000 by and among DeCrane Holdings Co., DeCrane Aircraft Holdings, Inc. and the stockholders named therein 10.5 (1) Tax Sharing Agreement dated March 15, 1993 between DeCrane Aircraft and several subsidiaries 10.6 ** (1) Employment Agreement dated July 17, 1998 between DeCrane Aircraft Holdings, Inc. and R. Jack DeCrane 10.6.1 ** * First Amendment to Employment Agreement dated May 5, 2000 between DeCrane Aircraft Holdings, Inc. and R. Jack DeCrane 10.7 ** (1) 401(K) Salary Reduction Non-Standardized Adoption Agreement dated April 30, 1992 between the Company and The Lincoln National Life Insurance Company 10.8 (1) Form of Subscription Agreement for DeCrane Holdings Co. common and preferred stock by certain members of Global Technology Partners LLC 10.10 (1) Credit Agreement dated August 28, 1998 by and among DeCrane Aircraft Holdings, Inc. (successor by merger to DeCrane Finance Co.) and DLJ Capital Funding, Inc. 10.10.1 (1) First Amendment to Credit Agreement dated January 22, 1999 10.10.2 (6) Second Amended and Restated Credit Agreement dated as of December 17, 1999 among DeCrane Aircraft, the lenders listed therein, DLJ Capital Funding, Inc., as syndication agent, and Bank One NA, as administrative agent 10.10.3 (9) Third Amended and Restated Credit Agreement dated as of May 11, 2000 among DeCrane Aircraft, the lenders listed therein, DLJ Capital Funding, Inc., as syndication agent, and Bank One NA, as administrative agent 10.10.3.1 (12) First Amendment to the Third Amended and Restated Credit Agreement dated as of May 11, 2000 among DeCrane Aircraft, the lenders listed therein, DLJ Capital Funding, Inc., as syndication agent, and Bank One NA, as administrative agent 10.19 ** (5) Amended Management Incentive Stock Option Plan 10.20 ** (5) Amended Stock Subscription Agreement 10.21 ** (5) Amended Incentive Bonus Plan 10.22 ** (7) Executive Deferred Compensation Plan 10.23.1 ** * Change of Control Agreement between DeCrane Aircraft Holdings, Inc. and Michael S. Abeles 10.23.2 ** * Change of Control Agreement between DeCrane Aircraft Holdings, Inc. and Charles H. Becker
49
EXHIBIT FILING NUMBER REFERENCE EXHIBIT DESCRIPTION ------------- --------- ----------------------------------------------------------------------------------- 10.23.3 ** * Change of Control Agreement between DeCrane Aircraft Holdings, Inc. and Richard J. Kaplan 10.23.4 ** * Change of Control Agreement between DeCrane Aircraft Holdings, Inc. and James E. Mann 10.23.5 ** * Change of Control Agreement between DeCrane Aircraft Holdings, Inc. and Robert G. Martin 10.23.6 ** * Change of Control Agreement between DeCrane Aircraft Holdings, Inc. and Brian K. Moody 10.23.7 ** * Change of Control Agreement between DeCrane Aircraft Holdings, Inc. and Jeffrey A. Nerland 10.23.8 ** * Change of Control Agreement between DeCrane Aircraft Holdings, Inc. and Jeffrey F. Smith 10.23.9 ** * Change of Control Agreement between DeCrane Aircraft Holdings, Inc. and Eric D. Steidl 12.1 * Computation of Earnings to Fixed Charges Ratios 21.1 * List of Subsidiaries of Registrant 23.1 * Consent of PricewaterhouseCoopers LLP 99.1 * Unaudited Pro Forma Financial Data for the year ended December 31, 2000
- ---------------------------------
* Filed herewith. ** Denotes management contracts and compensatory plans and arrangements required to be filed as exhibits to this report. (1) Filed as an exhibit to our Registration Statement (Registration No. 333-70365) on Form S-1 (Amendment No. 1) filed with the Commission on March 3, 1999. (2) Filed as an exhibit to our Registration Statement (Registration No. 333-70365) on Form S-1 (Amendment No. 2) filed with the Commission on April 23, 1999. (3) Filed as an exhibit to our Registration Statement (Registration No. 333-70365) on Form S-1 (Amendment No. 3) filed with the Commission on May 6, 1999. (4) Filed as an exhibit to our Form 8-K dated August 5, 1999 filed with the Commission on October 19, 1999. (5) Filed as an exhibit to our Form 8-K dated December 17, 1999 filed with the Commission on December 31, 1999. (6) Filed as an exhibit to our Form 10-K dated December 31, 1999 filed with the Commission on March 30, 2000. (7) Filed as an exhibit to our Form 10-Q dated March 31, 2000 filed with the Commission on May 9, 2000. (8) Filed as an exhibit to our Form 8-K dated May 11, 2000 filed with the Commission on May 25, 2000. (9) Filed as an exhibit to our Form 8-K (Amendment No. 1) dated May 11, 2000 filed with the Commission on June 16, 2000.
50
(10) Filed as an exhibit to our Form 8-K (Amendment No. 1) dated June 30, 2000 filed with the Commission on August 2, 2000. (11) Filed as an exhibit to our Form 10-Q dated June 30, 2000 filed with the Commission on August 14, 2000. (12) Filed as an exhibit to our Form 10-Q dated September 30, 2000 filed with the Commission on November 14, 2000.
REPORTS OF FORM 8-K FILED DURING THE QUARTER ENDED DECEMBER 31, 2000 None. 51 SIGNATURES Pursuant to the requirements of Section 13 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)
By: /s/ R. Jack Decrane By: /s/ Richard J. Kaplan ---------------------------------------------- -------------------------------------------- R. Jack DeCrane Richard J. Kaplan Chief Executive Officer Senior Vice President, Chief Financial Officer, Secretary and Treasurer
Date: March 29, 2001 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: /s/ Thompson Dean By: /s/ R. Jack Decrane ---------------------------------------------- -------------------------------------------- Thompson Dean R. Jack DeCrane Chairman of the Board of Directors Director By: /s/ John F. Fort, III By: /s/ Richard J. Kaplan ---------------------------------------------- -------------------------------------------- John F. Fort, III Richard J. Kaplan Director Director By: /s/ Susan C. Schnabel ---------------------------------------------- Susan C. Schnabel Director
Date: March 29, 2001 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Page CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Accountants ........................................................................ F-2 Consolidated Balance Sheets as of December 31, 1999 and 2000 ............................................. F-3 Consolidated Statements of Operations for the eight months ended August 31, 1998, the four months ended December 31, 1998 and the years ended December 31, 1999 and 2000 .................... F-4 Consolidated Statements of Stockholder's Equity for the eight months ended August 31, 1998, the four months ended December 31, 1998 and the years ended December 31, 1999 and 2000 .................... F-5 Consolidated Statements of Cash Flows for the eight months ended August 31, 1998, the four months ended December 31, 1998 and the years ended December 31, 1999 and 2000 .................... F-6 Notes to Consolidated Financial Statements ............................................................... F-7
CONSOLIDATED FINANCIAL STATEMENT SCHEDULES For the eight months ended August 31, 1998, the four months ended December 31 1998 and the years ended December 31, 1999 and 2000: II - Valuation and Qualifying Accounts .............................................................. F-48
All other schedules are omitted because they are either not applicable or the required information is shown in the consolidated financial statements or notes thereto. F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholder of DeCrane Aircraft Holdings, Inc. In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of DeCrane Aircraft Holdings, Inc. and its subsidiaries at December 31, 1999 and 2000, and the results of their operations and cash flows for the eight months ended August 31, 1998, the four months ended December 31, 1998 and the years ended December 31, 1999 and 2000 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. PRICEWATERHOUSECOOPERS LLP Los Angeles, California March 9, 2001 F-2 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, -------------------------- 1999 2000 ------------ ----------- ASSETS Current assets Cash and cash equivalents ........................................................... $ 7,918 $ 8,199 Accounts receivable, net ............................................................ 45,342 59,023 Inventories ......................................................................... 58,721 83,677 Deferred income taxes ............................................................... 5,592 15,090 Prepaid expenses and other current assets ........................................... 2,114 987 ----- --- Total current assets .............................................................. 119,687 166,976 Property and equipment, net ............................................................ 37,700 59,491 Other assets, principally intangibles, net ............................................. 374,111 439,582 ------- ------- Total assets .................................................................. $ 531,498 $ 666,049 =========== =========== LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND STOCKHOLDER'S EQUITY Current liabilities Current portion of long-term debt ................................................... $ 5,070 $ 9,289 Accounts payable .................................................................... 14,948 20,304 Accrued liabilities ................................................................. 66,844 76,364 Income taxes payable ................................................................ 3,576 3,505 ----- ----- Total current liabilities ......................................................... 90,438 109,462 Long-term debt ......................................................................... 310,581 373,990 Deferred income taxes .................................................................. 21,249 37,013 Other long-term liabilities ............................................................ 2,989 2,650 Commitments and contingencies (Note 14) Mandatorily redeemable preferred stock ................................................. - 23,179 ------ ------ 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 2000 ........................................................ - - Undesignated preferred stock, $.01 par value, 10,000,000 and 9,300,000 shares authorized as of December 31, 1999 and 2000, respectively; none issued and outstanding as of December 31, 1999 and 2000 ...................... - - Common stock, $.01 par value, 35,000,000 shares authorized; 100 shares issued and outstanding as of December 31, 1999 and 2000 ........................... - - Additional paid-in capital .......................................................... 117,158 127,315 Notes receivable for shares sold .................................................... (2,468) (2,552) Accumulated deficit ................................................................. (6,923) (3,321) Accumulated other comprehensive loss ................................................ (1,526) (1,687) ------ ------ Total stockholder's equity ........................................................ 106,241 119,755 ------- ------- Total liabilities and stockholder's equity ...................................... $ 531,498 $ 666,049 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. F-3 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS)
(PREDECESSOR) (SUCCESSOR) ------------- -------------------------------------- EIGHT MONTHS FOUR MONTHS YEAR YEAR ENDED ENDED ENDED ENDED AUGUST 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1998 1998 1999 2000 ------------- ------------ ------------ ------------ Revenues ................................................. $ 90,077 $ 60,356 $ 244,048 $ 347,379 Cost of sales ............................................ 60,101 42,739 165,871 232,048 ------ ------ ------- ------- Gross profit ...................................... 29,976 17,617 78,177 115,331 ------ ------ ------ ------- Operating expenses Selling, general and administrative expenses .......... 19,351 10,274 40,157 45,394 Amortization of intangible assets ..................... 1,347 3,148 13,073 17,948 ----- ----- ------ ------ Total operating expenses .......................... 20,698 13,422 53,230 63,342 ------ ------ ------ ------ Income from operations ............................ 9,278 4,195 24,947 51,989 Other expenses Interest expense ...................................... 2,350 6,852 27,918 41,623 Terminated debt offering expenses ..................... 600 - - - Other expenses, net ................................... 247 335 447 482 ------ ------ ------ ------- Income (loss) before provision (benefit) for income taxes and extraordinary item .......................... 6,081 (2,992) (3,418) 9,884 Provision (benefit) for income taxes ..................... 2,892 (2,668) 952 6,282 ----- ------ ------- ----- Income (loss) before extraordinary item .................. 3,189 (324) (4,370) 3,602 Extraordinary loss from debt refinancing, net of income tax benefit .................................... - (2,229) - - ------ ------- ------ ------ Net income (loss) ........................................ 3,189 (2,553) (4,370) 3,602 Accrued preferred stock dividends ........................ - - - (2,040) Preferred stock redemption value accretion ............... - - - (234) ------ ------ ------ ------ Net income (loss) applicable to common stockholder .................................... $ 3,189 $ (2,553) $ (4,370) $ 1,328 =========== =========== =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. F-4 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (IN THOUSANDS, EXCEPT SHARE DATA)
NOTES ACCUMULATED COMMON STOCK ADDITIONAL RECEIVABLE OTHER ------------ PAID-IN FOR SHARES ACCUMULATED COMPREHENSIVE SHARES AMOUNT CAPITAL SOLD DEFICIT LOSS TOTAL ------ ------ ------- ---- ------- ---- ----- PREDECESSOR Balance, December 31, 1997 ........... 5,318,563 $ 53 $ 51,057 $ - $ (11,444) $ (139) $ 39,527 Comprehensive income Net income ........................ - - - - 3,189 - 3,189 Translation adjustment ............ - - - - - 94 94 ----- 3,283 ----- Sale of common stock ................. 2,206,177 22 34,793 - - - 34,815 Exercise of stock options ............ 575,692 6 8,206 - - - 8,212 ------- ------- ------- ------- ------- ------- ------- Balance, August 31, 1998 ............. 8,100,432 $ 81 $ 94,056 $ - $ (8,255) $ (45) $ 85,837 ========= ========= ========= ========= ========== ========== ========= =================================================================================================================== SUCCESSOR Sale of common stock ................. 100 $ - $ 99,000 $ - $ - $ - $ 99,000 Comprehensive income Net loss .......................... - - - - (2,553) - (2,553) Translation adjustment ............ - - - - - 274 274 ------ (2,279) ------ Value of warrants issued with debt offering - - 1,200 - - - 1,200 ------- ------- ------- ------- ------- ------- ------- Balance, December 31, 1998 ........... 100 - 100,200 - (2,553) 274 97,921 Comprehensive income Net loss .......................... - - - - (4,370) - (4,370) Translation adjustment ............ - - - - - (1,800) (1,800) ------ (6,170) ------ Capital contributions and related notes receivable issued in connection with shares sold .................. - - 16,815 (2,447) - - 14,368 Compensatory stock option expense .... - - 143 - - - 143 Notes receivable interest accrued .... - - - (21) - - (21) --- ------ ------- ------ ------ ------ ------- Balance, December 31, 1999 ........... 100 - 117,158 (2,468) (6,923) (1,526) 106,241 Comprehensive income Net income ........................ - - - - 3,602 - 3,602 Translation adjustment ............ - - - - - (161) (161) ------ 3,441 ------ Capital contribution, net of common stock repurchased ................. - - 7,851 51 - - 7,902 Value of warrants issued with sale of preferred stock ................... - - 4,019 - - - 4,019 Accrued preferred stock dividends .... - - (2,040) - - - (2,040) Preferred stock redemption value accretion - - (234) - - - (234) Compensatory stock option expense .... - - 561 - - - 561 Notes receivable interest accrued .... - - - (135) - - (135) --- ------ ------- ------ ------ ------ ------- Balance, December 31, 2000 ........... 100 $ - $ 127,315 $ (2,552) $ (3,321) $ (1,687) $ 119,755 === ========= ========= ========= ========= ========= =========
The accompanying notes are an integral part of the consolidated financial statements. F-5 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
(PREDECESSOR) (SUCCESSOR) ------------- -------------------------------------- EIGHT MONTHS FOUR MONTHS YEAR YEAR ENDED ENDED ENDED ENDED AUGUST 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1998 1998 1999 2000 ------------ ------------ ----------- ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) ..................................... $ 3,189 $ (2,553) $ (4,370) $ 3,602 Adjustments to reconcile net income (loss) to net cash provided by operating activities Depreciation and amortization ..................... 4,454 4,983 20,817 29,445 Noncash portion of restructuring charge ........... - - 7,242 - Deferred income taxes ............................. (2,339) (5,072) (380) 5,121 Extraordinary loss from debt refinancing .......... - 2,229 - - Other, net ........................................ (360) (97) 132 773 Changes in assets and liabilities, net of effect from acquisitions Accounts receivable ............................... (3,621) (2,929) 379 (4,157) Inventories ....................................... (2,017) 4,313 (15,358) (11,302) Prepaid expenses and other assets ................. (58) (562) 96 2,048 Accounts payable .................................. (1,127) (1,754) 3,754 2,259 Accrued liabilities ............................... 3,524 2,250 3,703 (10,799) Income taxes payable .............................. 1,374 108 862 583 Other long-term liabilities........................ (5) 92 (1,677) (790) ------ ----- ------ ------ Net cash provided by operating activities ....... 3,014 1,008 15,200 16,783 ----- ----- ------ ------ CASH FLOWS FROM INVESTING ACTIVITIES Cash paid for acquisitions, net of cash acquired ...... (85,808) - (145,706) (89,546) Capital expenditures .................................. (1,745) (1,813) (7,262) (22,689) Other, net ............................................ 175 - 194 71 ------- ------ -------- -------- Net cash used for investing activities .......... (87,378) (1,813) (152,774) (112,164) ------- ------ -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Term debt borrowings .................................. - - 135,000 55,000 Net proceeds from sale of preferred stock and warrants ........................................ - - - 24,924 Net borrowings (repayments) under revolving line of credit agreements ........................... 91,261 (1,103) (5,800) 12,400 Capital contribution .................................. - - 14,368 7,902 Customer advance and other borrowings ................. - - 5,000 3,451 Principal payments on term debt, capitalized leases and other debt ............................... (1,317) (458) (1,953) (5,824) Deferred financing costs .............................. - - (4,348) (1,900) Other, net ............................................ (73) (36) (215) (297) ------- ------ -------- -------- Net cash provided by (used for) financing activities .......................... 89,871 (1,597) 142,052 95,656 ------ ------ ------- ------ Effect of foreign currency translation on cash ........... 26 181 (78) 6 ------- ------ -------- -------- Net increase (decrease) in cash and cash equivalents ..... 5,533 (2,221) 4,400 281 Cash and cash equivalents at beginning of period ......... 206 5,739 3,518 7,918 ------- ------ -------- -------- Cash and cash equivalents at end of period ............... $ 5,739 $ 3,518 $ 7,918 $ 8,199 =========== =========== =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. F-6 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF THE BUSINESS DeCrane Aircraft Holdings, Inc. and subsidiaries (the "Company" or "DeCrane Aircraft") is a leading provider of integrated assemblies, sub-assemblies and component parts to the aircraft industry. During 1999, the Company reorganized its businesses into three separate operating groups: Cabin Management, Specialty Avionics and Systems Integration. As a result of the DLJ acquisition in August 1998 (Note 2), the Company became a wholly-owned subsidiary of DeCrane Holdings Co. ("DeCrane Holdings"). BASIS OF PRESENTATION The consolidated financial statements include the accounts of the Company and all wholly-owned and majority-owned subsidiaries and partnership interests. All intercompany accounts and transactions have been eliminated. Certain reclassifications have been made to prior years' financial statements to conform to the current year presentation. As a result of the DLJ acquisition in August 1998 (Note 2), the Company has presented its results of operations, changes in stockholder's equity and cash flows on a predecessor/successor basis. Preparation of these consolidated financial statements in conformity with generally accepted accounting principles requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. INVENTORIES Inventories are stated at the lower of cost, as determined under the first-in, first-out ("FIFO") method, or market. Costs include materials, labor and manufacturing overhead. PROPERTY AND EQUIPMENT Property and equipment for companies acquired are stated at fair value as of the date the acquisition occurred and at cost for all subsequent additions. Property and equipment are depreciated using the straight-line method over their estimated useful lives. Useful lives for machinery and equipment range from two to twenty years. Building and building improvements are depreciated using the straight-line method over their estimated useful lives of forty years. Leasehold improvements are amortized using the straight-line method over their estimated useful lives or remaining lease term, whichever is less. Expenditures for maintenance and repairs are expensed as incurred. The costs for improvements are capitalized. Upon retirement or disposal, the cost and accumulated depreciation of property and equipment are reduced and any gain or loss is recorded in income or expense. F-7 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) OTHER ASSETS Goodwill is amortized on a straight-line basis over thirty years from the date the acquisition occurred. Additional goodwill resulting from contingent consideration payments subsequent to the acquisition date is amortized prospectively over the remaining period of the initial thirty-year term. Other intangibles are amortized on a straight-line basis over their estimated useful lives, ranging from five to fifteen years. Deferred financing costs are amortized using either the straight-line or effective interest method, over the term of the related debt. ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS The Company reviews long-lived assets and certain intangible assets for impairment when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. In the event the sum of the expected undiscounted future cash flows resulting from the use of the asset is less than the carrying amount of the asset, an impairment loss equal to the excess of the asset's carrying value over its fair value is recorded. In 1999, the Company recorded a $1,259,000 pre-tax charge to reflect the impairment loss resulting from the closing of a manufacturing facility (Note 4). ACCRUED WARRANTIES The Company sells some products to customers with various repair or replacement warranties. The terms of the warranties vary according to the customer and/or product involved. The most common warranty periods are either the earlier of twelve to sixty months from the date of delivery to the operator or forty-two months from the date of manufacture. Provisions for estimated future warranty costs are made in the period corresponding to the sale of the product and such costs have been within management's expectations. Classification between short and long-term warranty obligations is estimated based on historical trends. DERIVATIVES The Company does not use derivative financial instruments for trading purposes but only to manage well-defined foreign exchange rate risks. Market value gains and losses on forward foreign exchange contracts are recognized currently in the consolidated statements of operations. The Company enters into Swiss franc forward exchange contracts to purchase Swiss francs as a general economic hedge against foreign inventory procurement and manufacturing costs. Market value gains and losses on forward foreign exchange contracts recognized in the consolidated statements of operations aggregated a realized net gain (loss) of $323,000 for the eight months ended August 31, 1998 and $146,000 for the four months ended December 31, 1998. The Company had no open forward exchange contracts as of December 31, 1998 and did not enter in any such contracts during the years ended December 31, 1999 and 2000. F-8 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INCOME TAXES Deferred income taxes are determined using the liability method. A deferred tax asset or liability is determined based on the difference between the financial statement and tax basis of assets and liabilities as measured by the enacted tax rates that will be in effect when these differences reverse. Deferred tax expense is the result of changes in the deferred tax asset or liability. If necessary, valuation allowances are established to reduce deferred tax assets to their expected realizable values. FAIR VALUE OF FINANCIAL INSTRUMENTS All financial instruments are held for purposes other than trading. The estimated fair value of the Company's long-term debt is based on either quoted market prices or current rates for similar issues for debt of the same remaining maturities. The estimated fair value of the Company's $100,000,000 senior subordinated debt was approximately $92,000,000 at December 31, 1999 and $91,000,000 at December 31, 2000. All other non-derivative financial instruments as of December 31, 1999 and 2000 approximate their carrying amounts either because of the short maturity of the instrument, or based on their effective interest rates compared to current market rates for similar long-term debt or obligations. FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS The financial statements of the Company's U.K. and Swiss subsidiaries have been translated into U.S. dollars from their functional currencies, pounds sterling and Swiss francs, respectively, in the consolidated financial statements. Assets and liabilities have been translated at the exchange rate on the balance sheet date and income statement amounts have been translated at average exchange rates in effect during the period. The net translation adjustment is reflected as a component of accumulated comprehensive income or loss within stockholder's equity. Realized foreign currency exchange gains (losses) included in other income or expense in the consolidated statements of operations were ($411,000) for the eight months ended August 31, 1998, ($262,000) for the four months ended December 31, 1998, $530,000 for the year ended December 31, 1999 and $351,000 for the year ended December 31, 2000. RESEARCH AND DEVELOPMENT COSTS Research and development costs are expensed as incurred. Such costs were $1,195,000 for the eight months ended August 31, 1998, $832,000 for the four months ended December 31, 1998, $4,264,000 for the year ended December 31, 1999 and $4,630,000 for the year ended December 31, 2000. F-9 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) STOCK OPTION PLAN As permitted under Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," the Company measures compensation expense related to the employee stock option plan utilizing the intrinsic value method as prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." REVENUE RECOGNITION Revenues from the sale of manufactured products, except for products manufactured under long-term contracts, are recorded when products are shipped. Revenues from long-term contracts are recognized under the percentage-of-completion method using the total contract price, actual costs incurred to date and an estimate of the completion costs. Any anticipated losses on contracts are charged to operations when identified. STATEMENTS OF CASH FLOWS For purposes of the statements of cash flows, cash equivalents include short-term, highly liquid investments with original maturities of three months or less. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 requires companies to record derivatives on the balance sheet as assets or liabilities, measured at fair value. It also requires that gains or losses resulting from changes in the values of those derivatives be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. Adoption of SFAS No. 133, as amended by SFAS No. 137 in June 1999, is required for the fiscal year beginning January 1, 2001. The Company adopted SFAS No. 133 effective January 1, 2001; the adoption did not have a material impact on the Company's consolidated financial position, results of operations or cash flows. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements. SAB No. 101 summarizes the Staff's views in applying generally accepted accounting principles to revenue recognition in the financial statements. The bulletin was effective in the fourth quarter of 2000. The Company was in compliance with these standards; accordingly, the adoption of SAB No. 101 did not have an impact on its consolidated financial position, results of operations or cash flows. F-10 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED) NOTE 2. THE DLJ ACQUISITION In July 1998, DeCrane Holdings Co., a newly incorporated entity, and two other holding companies were organized by DLJ Merchant Banking Partners II, L.P. and affiliated funds and entities to carry out a tender offer for all the shares of the DeCrane Aircraft's common stock, including options to purchase shares which became immediately vested, for $23.00 per share. At the completion of the tender offer in August 1998, the two other holding companies merged with the DeCrane Aircraft. All of DeCrane Aircraft's previously outstanding shares were canceled and, as a result, DeCrane Aircraft became a wholly-owned subsidiary of DeCrane Holdings. DeCrane Aircraft incurred nonrecurring charges totaling $3.6 million (pre-tax) during the eight months ended August 31, 1998 in conjunction with the transaction. This transaction is referred to herein as the DLJ acquisition. The gross purchase price for the shares and options was $186.3 million. Assets acquired and liabilities assumed have been recorded at their estimated fair values based on an independent appraisal and, accordingly, historical values were increased as follows: o $4.4 million to inventory; o $2.6 million to property and equipment; and o $50.0 million to certain identifiable intangible assets. The excess of the purchase price over the fair value of the net assets acquired totaling $70.0 million was allocated to goodwill. The increase in inventory value was expensed as the inventory was sold during the four months ended December 31, 1998. The intangible assets, other than goodwill, are being amortized on a straight-line basis over periods ranging from five to fifteen years. Goodwill is being amortized on a straight-line basis over a period of thirty years. As a result of the tender offer, the Company terminated a debt offering which was in process at that time and recorded a $0.6 million pre-tax charge for the eight months ended August 31, 1998 for the estimated costs incurred. Concurrent with the DLJ acquisition, DeCrane Aircraft was required to repay all of its borrowings under its then existing credit facility. In order to fund the purchase of the shares in the tender offer, repay the credit facility and pay expenses incurred in connection therewith, DeCrane Aircraft: o received a $99.0 million equity contribution from DeCrane Holdings; o entered into a new syndicated senior secured credit facility; and o issued $100.0 million of senior subordinated increasing rate notes (referred to herein as the bridge notes). In October 1998, subsequent to DeCrane Aircraft's acquisition by DeCrane Holdings and its related financing, the bridge notes were repaid with the proceeds from DeCrane Aircraft's issuance of $100.0 million of 12% senior subordinated notes, which were paired with warrants to purchase 155,000 shares of DeCrane Holdings common stock. In conjunction with the repayment of the DeCrane Aircraft's existing credit facility indebtedness concurrent with the DLJ acquisition and the repayment of the bridge notes, DeCrane Aircraft recorded a $2.2 million extraordinary charge, net of income tax benefit of $1.5 million, during the four months ended December 31, 1998. F-11 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED) NOTE 3. ACQUISITIONS During the three years ended December 31, 2000, the Company acquired: CABIN MANAGEMENT GROUP - - substantially all of the assets of Dettmers Industries, Inc., a Florida-based designer and manufacturer of seats for corporate aircraft, on June 30, 1998; - - all of the common stock of Precision Pattern, Inc., a Kansas-based designer and manufacturer of interior furniture components for corporate aircraft, on April 23, 1999; - - substantially all of the assets of Custom Woodwork & Plastics, Inc., a Georgia-based designer and manufacturer of interior furniture components for corporate aircraft, on August 5, 1999; - - substantially all of the assets of PCI NewCo, Inc., a Kansas-based manufacturer of composite material and components for corporate aircraft, on October 6, 1999; - - all of the common stock of International Custom Interiors, Inc., a Florida-based designer and manufacturer of interior furniture components and provider of upholstery services for corporate aircraft, on October 8, 1999; - - substantially all of the assets of The Infinity Partners, Ltd., a Texas-based designer and manufacturer of interior furniture components for middle- and high-end corporate aircraft, on December 17, 1999; - - substantially all of the assets of Carl F. Booth & Co., an Indiana-based manufacturer of wood veneer panels primarily used in aircraft interior cabinetry, on May 11, 2000; - - all of the common stock of ERDA, Inc., a Wisconsin-based designer and manufacturer of aircraft seating, on June 30, 2000; SPECIALTY AVIONICS GROUP - - all of the common stock of Avtech Corporation, a Washington-based designer and manufacturer of avionics components for commercial and corporate aircraft, on June 26, 1998; - - all of the common stock of Coltech, Inc., an Arizona-based designer and manufacturer of audio components for commercial and corporate aircraft, on August 31, 2000; and SYSTEMS INTEGRATION GROUP - - all of the common stock of PATS, Inc., a Maryland-based designer, manufacturer and installer of auxiliary fuel tank systems for corporate aircraft and a manufacturer of aircraft auxiliary power units, on January 22, 1999. The acquisitions were accounted for as purchases and the assets acquired and liabilities assumed have been recorded at their estimated fair values. The consolidated financial statements reflect the acquired companies subsequent to their respective acquisition dates. The acquisitions are summarized in the following table. F-12 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED) NOTE 3. ACQUISITIONS (CONTINUED)
(PREDECESSOR) (SUCCESSOR) ------------- ------------------------- EIGHT MONTHS YEAR YEAR ENDED ENDED ENDED AUGUST 31, DECEMBER 31, DECEMBER 31, 1998 1999 2000 ------------- ------------ ------------ (IN THOUSANDS) (IN THOUSANDS) Paid in cash Purchase price ..................................................... $ 85,552 $ 140,819 $ 55,852 Acquisition related costs .......................................... 1,519 4,491 3,511 ----------- ----------- ----------- Total purchase price ............................................. $ 87,071 $ 145,310 $ 59,363 =========== =========== =========== Maximum determinable contingent consideration payable, based on future attainment of defined performance criteria ......... $ 2,000 $ 48,950 $ 2,000 =========== =========== =========== Adjustments to reflect assets acquired at fair value Increase to historical value of inventory acquired ................. $ - $ 1,606 $ - Increase to historical value of property and equipment ............. 6,672 - - Identifiable intangible assets recorded ............................ - 15,341 18,936 Difference between the total purchase price and fair value of the net assets acquired recorded as goodwill at the time of acquisition .............................................. 59,979 110,922 41,622
The 1998 acquisitions were funded with borrowings under the Company's then existing credit facility. The 1999 and 2000 acquisitions were funded with borrowings under the Company's senior credit facility, equity contributions from DeCrane Holdings and the sale of preferred stock as described in Note 12, and a $5,000,000 customer advance to be offset against amounts receivable from future product deliveries. The increase in inventory value was charged to operations as the inventory was sold during the periods immediately following acquisition. Identifiable intangible assets are being amortized on a straight-line basis over their estimated useful lives, ranging from seven to fifteen years. Goodwill is being amortized on a straight-line basis over thirty years. The amount of contingent consideration paid in the future, if any, will increase goodwill and will be amortized prospectively over the remaining period of the initial thirty-year term. Based upon the acquired companies level of attainment of their defined performance criteria during the three years ended December 31, 2000, the Company recorded contingent consideration payable of $3,000,000 in 1998, $29,825,000 in 1999 and $20,154,000 in 2000, resulting in a corresponding increase in goodwill. The contingent consideration is included in accrued liabilities in the consolidated financial statements. The Company's maximum determinable contingent consideration payment obligations remaining as of December 31, 2000 are described in Note 14. F-13 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED) NOTE 3. ACQUISITIONS (CONTINUED) Unaudited pro forma consolidated results of operations are presented in the table below for the years ended December 31, 1999 and 2000. The results of operations reflect the Company's acquisitions as if all of these transactions were consummated as of January 1, 1999.
PRO FORMA FOR THE YEAR ENDED DECEMBER 31, ----------------------- 1999 2000 ---------- ----------- (UNAUDITED, IN THOUSANDS) Revenues ............................................................................... $ 335,542 $ 371,584 EBITDA, as defined (Note 18) ........................................................... 78,455 89,160 Net income (loss) ...................................................................... (2,021) 5,357
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 and capital structure of the Company following the acquisitions. During 2000, three customers accounted for more than 10% of the Company's consolidated revenues (Note 18). If the Company had completed its 1999 and 2000 acquisitions at the beginning of 1999, revenues from these customers would have been as follows:
PRO FORMA FOR THE YEAR ENDED DECEMBER 31, ----------------------- 1999 2000 ---------- ----------- (UNAUDITED, IN THOUSANDS) Bombardier ............................................................................. $ 42,391 $ 65,746 Boeing ................................................................................. 47,366 53,735 Textron ................................................................................ 47,654 53,669 ----------- ----------- Total ............................................................................... $ 137,411 $ 173,150 =========== ===========
Complete loss of any of the customers identified above could have a significant adverse impact on the results of operations expected in future periods. F-14 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED) NOTE 4. RESTRUCTURING, ASSET IMPAIRMENT AND OTHER NONRECURRING CHARGES In December 1999, the Company announced a plan to reorganize and restructure the operations of two of its subsidiaries within the Systems Integration Group. The restructuring was a result of a management 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 connection with the restructuring plan, the Company recorded nonrecurring pre-tax charges to operations of $9,935,000 in 1999 for restructuring costs including severance and other exit costs, asset impairments and inventory reserves. Of this amount, $5,983,000 is included in cost of goods sold for inventory write-downs as a consequence of exiting the manufacturing business. The remaining $3,952,000 is included in selling, general and administration expenses related to all other restructuring costs, as described below: - - The Company's restructuring plan resulted in the impairment of certain property and equipment related to the closing of the manufacturing facility. As a result, these assets were written down to their net realizable value. - - Lease termination and other related costs include primarily the net loss expected to be incurred on the remaining existing lease under a long-term rental agreement at the facility being vacated following the restructuring. The loss has been reduced by the expected sublease income. - - Severance and other compensation costs relate to the termination of approximately fifty employees. The majority of these employees are hourly workers located in the manufacturing facility, which ceased operations in June 2000. The remainder of the work force reduction consists of the elimination of duplicate administrative personnel following the consolidation of the operations. The Company commenced the restructuring during 1999 and completed the plan in the third quarter of 2000. Of the total charge, $7,242,000 represents a noncash write-down of assets. Components of the restructuring, asset impairment and other nonrecurring charges incurred through December 31, 2000 are as follows:
NONCASH WRITE-DOWN OF --------------------- LEASE PROPERTY SEVERANCE TERMINATION OTHER AND AND OTHER AND OTHER EXIT INVENTORY EQUIPMENT COMPENSATION RELATED COSTS COSTS TOTAL --------- --------- -------------------------- ----- ----- (IN THOUSANDS) Pre-tax restructuring charge ....... $ 5,983 $ 1,259 $ 1,077 $ 752 $ 864 $ 9,935 Noncash write-downs ................ (5,983) (1,259) - - - (7,242) Cash paid during the period ........ - - (293) (31) (188) (512) ---- --- ---- ---- Balance, December 31, 1999 ...... - - 784 721 676 2,181 Adjustments ........................ - - - 641 - 641 Cash paid during the period ........ - - (784) (775) (558) (2,117) ------ ------ ------ ------ ------ ------ Balance, December 31, 2000 ...... $ - $ - $ - $ 587 $ 118 $ 705 ========== =========== =========== =========== =========== ===========
F-15 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED) NOTE 4. RESTRUCTURING, ASSET IMPAIRMENT AND OTHER NONRECURRING CHARGES (CONTINUED) The total restructuring, asset impairment and other nonrecurring charges above include costs totaling $787,000 that were incurred during the first three quarters of 1999 and related primarily to downsizing activities within the Systems Integration Group prior to the adoption of the formal restructuring plan. The adjustments made in 2000 reflect the increase to the restructuring reserves as a result of higher than anticipated costs to complete certain actions compared to previous estimates. Additionally, during 2000 the Company was able to sell property and equipment previously written down and recognized a gain on disposal of approximately $600,000. The remaining balance of restructuring costs includes lease termination and other exit costs. The restructuring plan was completed in 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. During the eight months ended August 31, 1998, the Company recorded a $3,632,000 pre-tax nonrecurring charge in connection with its acquisition by DLJ. This amount is included in selling, general and administrative expenses. NOTE 5. ACCOUNTS RECEIVABLE The Company is potentially subject to concentrations of credit risk as the Company relies heavily on customers operating in the domestic and foreign corporate and commercial aircraft industries. Generally, the Company does not require collateral or other security to support accounts receivable subject to credit risk. Under certain circumstances, deposits or cash-on-delivery terms are required. The Company maintains reserves for potential credit losses and generally, such losses have been within management's expectations. Accounts receivable is net of an allowance for doubtful accounts of $1,966,000 at December 31, 1999 and $1,902,000 at December 31, 2000. Included in accounts receivable are unbilled receivables under long-term contracts totaling $5,354,000 at December 31, 2000 (none at December 31, 1999). F-16 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED) NOTE 6. INVENTORIES Inventories are comprised of the following as of December 31, 1999 and 2000:
DECEMBER 31, ----------------- 1999 2000 ----------- ----------- (IN THOUSANDS) Raw materials .......................................................................... $ 28,249 $ 49,235 Work-in process ........................................................................ 20,520 26,749 Finished goods ......................................................................... 9,952 7,693 ----- ----- Total inventories ................................................................... $ 58,721 $ 83,677 =========== ===========
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 of $5,720,000 at December 31, 1999 and $8,603,000 at December 31, 2000 related to long-term contracts that will be recoverable based on future sales. 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 7. PROPERTY AND EQUIPMENT Property and equipment includes the following as of December 31, 1999 and 2000:
DECEMBER 31, ------------------------- 1999 2000 ----------- ----------- (IN THOUSANDS) Machinery and equipment ................................................................ $ 17,938 $ 27,393 Land, buildings and leasehold improvements ............................................. 17,704 30,841 Computer equipment and software, furniture and fixtures ................................ 8,563 13,985 Tooling ................................................................................ 2,476 2,594 ----- ----- Total cost .......................................................................... 46,681 74,813 Accumulated depreciation and amortization ........................................... (8,981) (15,322) ------ ------- Net property and equipment ........................................................ $ 37,700 $ 59,491 =========== ===========
F-17 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED) NOTE 7. PROPERTY AND EQUIPMENT (CONTINUED) Property and equipment under capital leases included above consist of the following as of December 31, 1999 and 2000:
DECEMBER 31, ------------------------- 1999 2000 ----------- ----------- (IN THOUSANDS) Machinery and equipment ................................................................ $ 781 $ 1,283 Computer equipment and software, furniture and fixtures ................................ 2,220 2,113 ----- ----- Total cost .......................................................................... 3,001 3,396 Accumulated depreciation and amortization ........................................... (280) (954) ---- ---- Net property and equipment ........................................................ $ 2,721 $ 2,442 =========== ===========
Depreciation of property and equipment under capital leases is included in depreciation expense in the consolidated financial statements. NOTE 8. OTHER ASSETS Other assets includes the following as of December 31, 1999 and 2000:
DECEMBER 31, 1999 DECEMBER 31, 2000 ----------------------------------- ---------------------------------- ACCUMULATED ACCUMULATED COST AMORTIZATION NET COST AMORTIZATION NET ----------- ----------- ----------- ----------- ----------- ----------- (in thousands) Goodwill ........................... $ 312,104 $ (9,371) $ 302,733 $ 377,167 $ (20,811) $ 356,356 Identifiable intangibles FAA certifications .............. 32,391 (2,824) 29,567 45,816 (5,431) 40,385 Other identifiable intangibles ................... 32,931 (3,999) 28,932 38,421 (7,906) 30,515 Deferred financing costs ........... 14,027 (1,973) 12,054 15,927 (4,231) 11,696 Other non-amortizable assets ....... 825 - 825 630 - 630 ----------- ----------- ----------- ----------- ----------- ----------- Total other assets .......... $ 392,278 $ (18,167) $ 374,111 $ 477,961 $ (38,379) $ 439,582 =========== =========== =========== =========== =========== ===========
NOTE 9. ACCRUED LIABILITIES Accrued liabilities are comprised of the following as of December 31, 1999 and 2000:
DECEMBER 31, ------------------------- 1999 2000 ----------- ----------- (IN THOUSANDS) Acquisition related contingent consideration ........................................... $ 29,825 $ 20,154 Customer advances and deposits ......................................................... 13,834 19,974 Salaries, wages, compensated absences and payroll related taxes ........................ 8,673 15,337 Accrued interest ....................................................................... 3,228 3,730 Other accrued liabilities .............................................................. 11,284 17,169 ------ ------ Total accrued liabilities ........................................................... $ 66,844 $ 76,364 =========== ===========
F-18 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED) NOTE 10. LONG-TERM DEBT Long-term debt includes the following amounts as of December 31, 1999 and 2000:
DECEMBER 31, ------------------------- 1999 2000 ----------- ----------- (IN THOUSANDS) Senior credit facility $25 million working capital revolving line of credit ................................ $ - $ - $25 million acquisition revolving line of credit .................................... - 12,400 Term loans .......................................................................... 213,213 263,443 12% senior subordinated notes .......................................................... 100,000 100,000 Capital lease obligations and equipment term debt financing, secured by equipment ................................................................ 2,411 5,231 Other indebtedness ..................................................................... 27 2,205 ----------- ----------- Total long-term debt ................................................................ 315,651 383,279 Less current portion ................................................................ (5,070) (9,289) ----------- ----------- Long-term debt, less current portion .............................................. $ 310,581 $ 373,990 =========== ===========
During 1999 and 2000, the Company amended its senior credit facility and borrowed $190,000,000 to finance, in part, acquisitions. SENIOR CREDIT FACILITY The senior credit facility provides for term loan borrowings in the aggregate principal amount of $270,000,000 and revolving lines of credit for borrowings up to an aggregate principal amount of $25,000,000 each for working capital and to finance acquisitions. Principal payments for term loan borrowings are due in increasing amounts over the next six years and all borrowings under the revolving loan facility must be repaid by September 30, 2004. Loans under the senior credit facility generally bear interest based on a margin over, at the Company's option, the prime rate or the Eurodollar rate. The margins applicable to certain portions of amounts borrowed may vary depending upon the Company's consolidated debt leverage ratio. Currently, the applicable margins are 1.50% to 2.75% for prime rate borrowings and 2.75% to 4.00% for Eurodollar borrowings. The weighted-average interest rate on all senior credit facility borrowings outstanding was 10.13% as of December 31, 2000. Borrowings under the senior credit facility are secured by substantially all of the assets of the Company. The Company is subject to certain commitment fees under the facility as well as the maintenance of certain financial ratios, cash flow results and other restrictive covenants, including the payment of dividends in cash. F-19 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED) NOTE 10. LONG-TERM DEBT (CONTINUED) 12% SENIOR SUBORDINATED NOTES In October 1998, the bridge notes issued in connection with the DLJ acquisition were repaid with the net proceeds from the Company's issuance of $100,000,000 of 12% senior subordinated notes, which were paired in units with warrants to purchase 155,000 shares of DeCrane Holdings common stock. The senior subordinated notes will mature on September 30, 2008; interest is payable semi-annually on March 30 and September 30 of each year. The senior subordinated notes are unsecured general obligations of the Company and are subordinated in right of payment to substantially all existing and future senior indebtedness of the Company, including senior credit facility indebtedness. Prior to maturity, the Company may redeem all or some of the senior subordinated notes at defined redemption prices, which may include a premium. In the event of a change in control, the holders may require the Company to repurchase the senior subordinated notes for a redemption price that may also include a premium. OTHER INDEBTEDNESS As of December 31, 2000, other indebtedness reflects acquisition financing payable to sellers in connection with their respective acquisitions. The debt is non-interest bearing; original issue discounts ranging between 10.5% and 12.5% are being amortized over the term. AGGREGATE MATURITIES The total annual maturities of long-term debt outstanding as of December 31, 2000 are as follows:
(IN THOUSANDS) Year ending December 31, 2001 ............................................................................................. $ 9,325 2002 ............................................................................................. 13,533 2003 ............................................................................................. 16,213 2004 ............................................................................................. 47,189 2005 ............................................................................................. 97,034 2006 and thereafter .............................................................................. 200,373 ----------- Total aggregate maturities ..................................................................... 383,667 Less unamortized debt discounts ................................................................ (388) ----------- Total long-term debt ......................................................................... $ 383,279 ===========
F-20 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 11. INCOME TAXES Income (loss) before income taxes and extraordinary item was taxed under the following jurisdictions:
(PREDECESSOR) (SUCCESSOR) ------------- -------------------------------------- EIGHT MONTHS FOUR MONTHS YEAR YEAR ENDED ENDED ENDED ENDED AUGUST 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1998 1998 1999 2000 ---- ---- ---- ---- (IN THOUSANDS) (IN THOUSANDS) Domestic ................................................. $ 5,637 $ (3,345) $ (3,532) $ 10,049 Foreign .................................................. 444 353 114 (165) ----------- ----------- ----------- ----------- Total ................................................. $ 6,081 $ (2,992) $ (3,418) $ 9,884 =========== =========== =========== ===========
The provisions for income taxes (benefit) are as follows:
(PREDECESSOR) (SUCCESSOR) ------------- ----------------------------------- EIGHT MONTHS FOUR MONTHS YEAR YEAR ENDED ENDED ENDED ENDED AUGUST 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1998 1998 1999 2000 ---- ---- ---- ---- (IN THOUSANDS) (IN THOUSANDS) Current U.S. federal .......................................... $ 3,835 $ 1,560 $ 89 $ 370 State and local ....................................... 1,275 699 1,140 671 Foreign................................................ 121 145 103 120 ----------- ----------- ----------- ----------- Total current ....................................... 5,231 2,404 1,332 1,161 ----------- ----------- ----------- ----------- Deferred U.S. federal .......................................... (1,932) (4,150) (76) 4,599 State and local ....................................... (435) (816) (284) 557 Foreign ............................................... 28 (106) (20) (35) ----------- ----------- ----------- ----------- Total deferred ...................................... (2,339) (5,072) (380) 5,121 ----------- ----------- ----------- ----------- Total provision U.S. federal .......................................... 1,903 (2,590) 13 4,969 State and local ....................................... 840 (117) 856 1,228 Foreign ............................................... 149 39 83 85 ----------- ----------- ----------- ----------- Total provision ..................................... $ 2,892 $ (2,668) $ 952 $ 6,282 =========== =========== =========== ===========
F-21 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 11. INCOME TAXES (CONTINUED) The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory federal rate to the income (loss) before income taxes and extraordinary item as a result of the following differences:
(PREDECESSOR) (SUCCESSOR) ------------- ----------------------------------- EIGHT MONTHS FOUR MONTHS YEAR YEAR ENDED ENDED ENDED ENDED AUGUST 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1998 1998 1999 2000 ---- ---- ---- ---- (IN THOUSANDS) (IN THOUSANDS) Income tax (benefit) at U.S. statutory rates ............. $ 2,068 $ (1,017) $ (1,162) $ 3,459 Increase (decrease) resulting from Amortization of assets and other expenses not deductible for income tax purposes .................. 594 782 2,025 2,247 Decrease in deferred tax asset valuation allowance .... -- (2,575) -- -- State income taxes, net of federal benefit ............ 550 (25) 111 798 Lower tax rates on earnings of foreign subsidiaries and foreign sales corporation ....................... (50) (36) (48) (214) Other, net ............................................ (270) 203 26 (8) ----------- ----------- ----------- ----------- Income tax (benefit) at effective rates ........... $ 2,892 $ (2,668) $ 952 $ 6,282 =========== =========== =========== ===========
Deferred tax liabilities (assets) are comprised of the following as of December 31, 1999 and 2000:
DECEMBER 31, ------------ 1999 2000 ---- ---- (IN THOUSANDS) Gross deferred tax liabilities Intangible assets ................................................................... $ 23,608 $ 33,229 Property and equipment ............................................................. 4,069 3,784 Other ............................................................................... 290 -- ----------- ----------- Gross deferred tax liabilities..................................................... 27,967 37,013 ----------- ----------- Gross deferred tax (assets) Loss carryforwards .................................................................. (5,690) (3,710) Accrued liabilities ................................................................. (3,786) (7,598) Inventory ........................................................................... (2,340) (2,772) Other ............................................................................... (494) (1,010) ----------- ----------- Gross deferred tax (assets) ....................................................... (12,310) (15,090) ----------- ----------- Net deferred tax liability ...................................................... $ 15,657 $ 21,923 ----------- ----------- Balance sheet classification Noncurrent deferred tax liability ................................................... $ 21,249 $ 37,013 Current deferred tax asset .......................................................... (5,592) (15,090) ----------- ----------- Net deferred tax liability ........................................................ $ 15,657 $ 21,923 ----------- -----------
F-22 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 11. INCOME TAXES (CONTINUED) Prior to 1997, the Company incurred losses and accordingly provided a valuation allowance for its domestic deferred net tax assets. Management believes that it is more likely than not that the Company will generate taxable income sufficient to realize the tax benefit associated with the future deductible deferred tax assets and loss carryforwards prior to their expiration. As a result, the Company reduced the valuation allowance by $2,575,000 during the four months ended December 31, 1998. As of December 31, 2000, the Company has total loss carryforwards of approximately $10,342,000 for federal income tax purposes and $2,009,000 for state income tax purposes, which includes federal loss carryforwards acquired in the Avtech and ERDA acquisitions. The loss carryforwards are not subject to limitations on their annual utilization ("Section 382 limitation," as defined in the Internal Revenue Code) and therefore are available for utilization in 2001. Undistributed earnings of foreign subsidiaries are not material to the consolidated financial statements. As such, foreign taxes that may be due, net of U.S. foreign tax credits, have not been provided. NOTE 12. SUCCESSOR CAPITAL STRUCTURE Upon completion of the DLJ tender offer in August 1998, all of DeCrane Aircraft's then existing predecessor capital structure was canceled. DeCrane Aircraft's predecessor capital structure and transactions are described in Note 13. The capital structure and transactions described herein pertain to DeCrane Holdings and DeCrane Aircraft from DeCrane Holdings' inception in 1998 to December 31, 2000. DeCrane Aircraft is a wholly-owned subsidiary of DeCrane Holdings. MANDATORILY REDEEMABLE PREFERRED STOCK The table below summarizes mandatorily redeemable preferred stock issued during the year ended December 31, 2000.
NUMBER MANDATORY UNAMORTIZED NET OF REDEMPTION ISSUANCE BOOK SHARES VALUE DISCOUNT VALUE ------ ----- -------- ----- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Sale of preferred stock ........................................ 250,000 $ 25,000 $ (4,019) $ 20,981 Issuance costs ................................................. -- -- (76) (76) Accrued dividends and redemption value accretion ............... 20,400 2,040 234 2,274 ------- ----------- ----------- ----------- Balance, December 31, 2000 .................................. 270,400 $ 27,040 $ (3,861) $ 23,179 ======= =========== =========== =========== Per share liquidation value as of December 31, 2000 .............................................. $ 100.00
F-23 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 12. SUCCESSOR CAPITAL STRUCTURE (CONTINUED) On June 30, 2000, 250,000 shares of DeCrane Aircraft 16% preferred stock and warrants to purchase 139,357 shares of DeCrane Holdings common stock were sold for $25,000,000 to DLJ affiliates (Note 17). The proceeds from the sale were used to fund, in part, the ERDA acquisition. A portion of the proceeds from the sale totaling $4,019,000 was ascribed to the common stock warrants and was credited to additional paid-in capital. The corresponding reduction in redemption value of the preferred stock, and related issuance costs, are recorded as an issuance discount and are being amortized using the effective interest method through the preferred stock mandatory redemption date. DeCrane Aircraft is authorized to issue 700,000 shares of 16% Senior Redeemable Exchangeable Preferred Stock Due 2009, $.01 par value. The preferred stock has a $100.00 per share liquidation preference, plus accrued and unpaid cash dividends, and is non-voting. Holders of the preferred stock are entitled to receive, when, as and if declared, dividends at a rate equal to 16% per annum. Prior to June 30, 2005, DeCrane Aircraft may, at its option, pay dividends either in cash or by the issuance of additional shares of preferred stock. For the six months ended December 31, 2000, DeCrane Aircraft elected to issue 20,400 additional shares in lieu of cash dividend payments. The preferred stock is mandatorily redeemable on March 31, 2009. Upon the occurrence of a change in control, as defined, each holder has the right to require DeCrane Aircraft to redeem all or part of such holder's shares at a price equal to 101% of the liquidation preference (116% if prior to July 1, 2001), plus accrued and unpaid cash dividends. CUMULATIVE CONVERTIBLE AND UNDESIGNATED PREFERRED STOCK The Company is authorized to issue 8,314,018 shares of cumulative convertible preferred stock, $.01 par value; none has been issued or outstanding during the three years ended December 31, 2000. The Company is also authorized to issue 10,000,000 shares of $.01 par value undesignated preferred stock. On June 30, 2000, 700,000 of those shares were designated 16% Senior Redeemable Exchangeable Preferred Stock Due 2009; 9,300,000 shares remain undesignated as of December 31, 2000. COMMON STOCK In August 1998, DeCrane Aircraft received $99,000,000 from the sale of 100 shares of common stock to DeCrane Holdings. DeCrane Aircraft has 100 shares ($.01 par value) issued and outstanding as of December 31, 1999 and 2000. During 1999 and 2000, DeCrane Aircraft received additional cash capital contributions from DeCrane Holdings aggregating $14,368,000 in 1999 and $7,902,000 in 2000 resulting from DeCrane Holdings' sale of capital stock and used the proceeds to fund portions of the acquisitions completed during those years. F-24 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 12. SUCCESSOR CAPITAL STRUCTURE (CONTINUED) NOTES RECEIVABLE FOR SHARES SOLD During 1998 and 1999, DeCrane Holdings sold mandatorily redeemable preferred and common stock in three transactions in which one-half of the purchase price was paid in cash and one-half was loaned to the purchasers by DeCrane Aircraft, with interest at the then applicable federal rates. The loans bear interest at rates ranging between 4.33% and 5.74%. The loans, plus accrued interest, are payable upon the sale of the stock and are collaterialized by such stock. The resulting notes receivable, plus accrued interest, are classified as a reduction of equity in the consolidated statement of financial position. The three transactions, which resulted in loans for one-half of the total purchase price, were as follows: - - in December 1998, a group of related party investors (Note 17) purchased mandatorily redeemable preferred and common stock for $704,000; - - in October 1999, the same group of investors purchased additional shares of common stock for $250,000; and - - in December 1999, DeCrane Aircraft's management purchased common stock for $3,940,000. During 2000, a note receivable totaling $51,000, including accrued interest, was canceled in conjunction with the repurchase of the common stock that collaterialized the note for its original $23.00 per share issuance price. NOTE 13. PREDECESSOR CAPITAL STRUCTURE AND TRANSACTIONS All of events and transactions described below occurred prior to the DLJ acquisition. The debt and equity securities described are no longer issued or outstanding. COMMON STOCK In April 1998, the Company sold 2,206,177 shares of common stock for $17.00 per share. Net proceeds from the offering of $34,815,000 were used to partially repay borrowings outstanding under the Company's then existing senior credit facility. COMMON STOCK OPTIONS In connection with the DLJ acquisition in August 1998, all stock options vested and were either exercised or canceled as of August 31, 1998. F-25 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 14. COMMITMENTS AND CONTINGENCIES LITIGATION As part of its investigation of the crash Swissair Flight 111 off the Canadian coast on September 2, 1998, the Canadian Transportation Safety Board ("TSB") notified the Company that they recovered burned wire that was attached to the in-flight entertainment system installed on some of Swissair's aircraft by one of the Company's subsidiaries. The Company is fully cooperating with the on-going TSB investigation. Although the TSB has not issued a final report, it has advised the Company that it has no evidence to date that the system the Company's subsidiary installed malfunctioned or failed during the flight. Families of the 229 persons who died aboard the flight have filed actions in federal and state courts against the Company, and many other unaffiliated parties, including Swissair and Boeing. The actions claim negligence, strict liability and breach of warranty relating to the installation and testing of the in-flight entertainment system. The actions seek compensatory and punitive damages and costs in an unstated amount. All of the actions have been transferred to the United States District Court for the Eastern District of Pennsylvania and assigned under MDL Case No. 1269 for coordinated or consolidated pretrial proceedings. The Company intends to defend the claims vigorously. The Company is a party to a license agreement with McDonnell Douglas (now a part of Boeing) pursuant to which the Company may request specified data in order to design and market modifications to aircraft manufactured by McDonnell Douglas. Under the agreement, the Company is to pay McDonnell Douglas a royalty of five percent of the net sales price of all modifications sold by the Company for which it has requested data from McDonnell Douglas. The Company requested data for a single modification, which the Company believes is exempt from the agreement's provision requiring royalties. In 1996, McDonnell Douglas made a demand for $650,000 for royalties. The Company believes that it is not obligated to McDonnell Douglas in any amount. However, if the claim is asserted, and if the Company is unsuccessful in defending it, the Company may be required to pay royalties to McDonnell Douglas. The Company and its subsidiaries are also involved in other routine legal and administrative proceedings incident to the normal conduct of business. Management believes the ultimate disposition of all of the foregoing matters will not have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows. F-26 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 14. COMMITMENTS AND CONTINGENCIES (CONTINUED) LEASE COMMITMENTS The Company leases certain facilities and equipment under various capital and operating leases. Certain leases require payment of property taxes and include escalation clauses. Future minimum capital and operating lease commitments under non-cancelable leases are as follows as of December 31, 2000:
CAPITAL OPERATING LEASES LEASES ------ ------ (IN THOUSANDS) Year ending December 31, 2001 ................................................................................ $ 1,206 $ 4,179 2002 ................................................................................ 783 3,994 2003 ................................................................................ 223 3,787 2004 ................................................................................ 87 3,769 2005 ................................................................................ 24 3,666 2006 and thereafter ................................................................. -- 15,375 ---- ----------- ----------- Total minimum payments required ................................................... 2,323 $ 34,770 =========== Less amount representing future interest cost ..................................... (174) ----------- Recorded obligation under capital leases ........................................ $ 2,149 -----------
Total rental expense charged to operations was $2,303,000 for the eight months ended August 31, 1998, $1,095,000 for the four months ended December 31, 1998, $3,620,000 for the year ended December 31, 1999 and $3,903,000 for the year ended December 31, 2000. CONTINGENT ACQUISITION CONSIDERATION The maximum determinable amounts of the Company's remaining contingent consideration payment obligations, as of December 31, 2000, are summarized below. The contingent consideration is payable based upon the acquired companies level of attainment of their defined performance criteria in future periods and excludes amounts earned and recorded through December 31, 2000 (Notes 3, 9 and 15). Provided the defined performance criteria is attained for the future years ending December 31st as indicated below, the Company's maximum determinable contingent consideration payment obligation will be:
(IN THOUSANDS) For the year ending December 31, 2001 ........................................................................................... $ 1,450 2002 ........................................................................................... 1,350 2003 ........................................................................................... 750 ---- ----------- Total maximum determinable obligation ........................................................ $ 3,550 ===========
Contingent consideration payable, if any, is payable during the first quarter of the following year. F-27 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 14. COMMITMENTS AND CONTINGENCIES (CONTINUED) FUNDING OF DECRANE HOLDINGS PREFERRED STOCK OBLIGATIONS The Company is a wholly owned subsidiary of DeCrane Holdings whose capital structure also includes mandatorily redeemable preferred stock. 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 obligations in the future. DeCrane Holdings' preferred stock dividends are payable quarterly at a rate of 14% per annum. Prior to September 30, 2005, 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, 2005, preferred stock dividends are required to be paid in cash, if declared. The DeCrane Holdings preferred stock has a total redemption value of $47,252,000 as of December 31, 2000, including accumulated dividends. NOTE 15. CONSOLIDATED STATEMENTS OF CASH FLOWS The following information supplements the Company's consolidated statements of cash flows.
(PREDECESSOR) (SUCCESSOR) ------------- ----------------------------------- EIGHT MONTHS FOUR MONTHS YEAR YEAR ENDED ENDED ENDED ENDED AUGUST 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1998 1998 1999 2000 ---- ---- ---- ---- (IN THOUSANDS) (IN THOUSANDS) Components of cash paid for acquisitions Fair value of assets acquired ......................... $ 91,640 $ -- $ 165,628 $ 94,155 Liabilities assumed ................................... (4,569) -- (20,318) (34,792) ----------- ----------- ----------- ----------- Cash paid ........................................... 87,071 -- 145,310 59,363 Less cash acquired .................................. (1,263) -- (2,604) (292) ----------- ----------- ----------- ----------- Net cash paid for acquisitions .................... 85,808 -- 142,706 59,071 Paid in connection with previous acquisitions Contingent consideration paid in cash ............... -- -- 3,000 29,825 Additional acquisition related expenses ............. -- -- -- 650 ----------- ----------- ----------- ----------- Total cash paid for acquisitions .................. $ 85,808 $ -- $ 145,706 $ 89,546 =========== =========== =========== ===========
F-28 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 15. CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(PREDECESSOR) (SUCCESSOR) ------------- -------------------------------------- EIGHT MONTHS FOUR MONTHS YEAR YEAR ENDED ENDED ENDED ENDED AUGUST 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1998 1998 1999 2000 ---- ---- ---- ---- (IN THOUSANDS) (IN THOUSANDS) Additional financing activities, net Acquisition of Predecessor Proceeds from senior credit facility and bridge notes ...................................... $ -- $ 191,722 $ -- $ -- Proceeds from sale of common stock .................. -- 99,000 -- -- Proceeds from stock options exercised ............... -- 4,314 -- -- Purchase of shares outstanding ...................... -- (186,310) -- -- Repayment of existing credit facility ............... -- (93,000) -- -- Transaction fees and expenses ....................... -- (15,726) -- -- Common stock offering and use of proceeds Net proceeds from the sale .......................... 34,815 -- -- -- Repayment of debt ................................... (34,815) -- -- -- ------------ ----------- ------------ ------------ Additional financing activities, net .............. $ -- $ -- $ -- $ -- ============ =========== ============ ============ Paid in cash Interest .............................................. $ 2,227 $ 3,706 $ 26,005 $ 39,160 Income taxes paid, net of refunds received ............ 4,825 1,328 470 578 Noncash investing and financing transactions Refinancing of bridge notes with senior subordinated notes .................................. $ -- $ 100,000 $ -- $ -- Additional acquisition contingent consideration recorded ............................................ -- 3,000 29,825 20,154 Loans to stockholders to purchase DeCrane Holdings capital stock, plus accrued interest ....... -- -- 2,468 84 Capital expenditures financed with capital lease obligations ......................................... 116 48 1,711 109
F-29 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 16. EMPLOYEE BENEFIT PLANS STOCK BASED INCENTIVE COMPENSATION MANAGEMENT INCENTIVE STOCK OPTION PLAN In December 1999, DeCrane Holding's Board of Directors approved a management incentive plan which provides for the issuance of options to purchase the common stock of DeCrane Holdings as incentive compensation to designated executive personnel and other key employees of the Company and its subsidiaries. The Compensation Committee of the Board of Directors of DeCrane Holdings administers the plan and determines the amount of options granted from time to time. The plan provides for the granting of options to purchase 356,257 common shares and expires in 2009. The options are granted at fair market value at the date of grant. Substantially all of the options awarded become fully vested and exercisable eight years from the date of grant but vesting and exercise can be accelerated based upon future attainment of defined performance criteria. In addition, the plan's Committee may authorize alternate vesting schedules. The plan also provides for the acceleration of vesting upon the occurrence of certain events, including, under certain circumstances, a change of control. During 1999, options to purchase 282,922 shares were granted under the plan, of which 27,994 shares vested immediately and options to purchase an additional 29,942 shares vested based on the attainment of year 1999 performance criteria. During 2000, options to purchase 80,623 shares were granted under the plan, of which 15,828 shares vested immediately. An additional 36,832 shares from the 1999 and 2000 grants vested based on the attainment of year 2000 performance criteria. The per share exercise price of the options granted was equal to the fair market value of the common stock on each of the grant dates, and accordingly, no compensation expense was recognized during the years ended December 31, 1999 and 2000. INCENTIVE STOCK OPTIONS GRANTED TO OTHERS In July 1999, a group of related party investors, including two individuals who were then serving as directors, were granted options as compensation for consulting services. Options were granted to purchase 44,612 shares of DeCrane Holdings common stock at $23.00 per share and the per share exercise price was equal to the fair market value of the common stock on the grant date. The options vest over a three-year period, are subject to acceleration if DLJ and its affiliates sell any of their shares of common stock, and expire in 2009. F-30 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 16. EMPLOYEE BENEFIT PLANS (CONTINUED) SUMMARY OF ALL STOCK OPTIONS The following table summarizes the status of all stock options at December 31, 1999 and 2000 and the activity for the two years ended December 31, 2000.
YEAR ENDED DECEMBER 31, ----------------------------------------------- 1999 2000 --------------------- --------------------- WEIGHTED- WEIGHTED- NUMBER AVERAGE NUMBER AVERAGE OF EXERCISE OF EXERCISE SHARES PRICE SHARES PRICE ------ ----- ------ ----- Options outstanding, beginning of year ....................... -- $ -- 327,534 $ 23.00 Granted ...................................................... 327,534 23.00 80,623 31.94 Canceled ..................................................... -- -- (21,288) 23.00 ------- ------- Options outstanding, end of year ............................. 327,534 23.00 386,869 24.86 ------- ------- Options exercisable, end of year ............................. 57,936 23.00 124,395 24.07 ------- -------
The following table summarizes information about stock options outstanding and stock options exercisable at December 31, 2000.
OPTIONS OUTSTANDING --------------------------- NUMBER NUMBER OF SHARES OF SHARES EXERCISABLE AS OF WEIGHTED-AVERAGE AS OF DECEMBER 31, REMAINING DECEMBER 31, 2000 CONTRACTUAL LIFE 2000 ---- ---------------- ---- Per share exercise price $23.00 ............................................................. 326,823 8.95 years 113,295 $35.00 ............................................................. 60,046 9.93 years 11,100
For compensatory stock options granted to non-employees, the Company recognized compensation expense of $143,000 for the year ended December 31, 1999 and $561,000 for the year ended December 31, 2000. For non-compensatory stock options, the Company uses APB Opinion No. 25 to account for stock-based compensation and, accordingly, no compensation expense was recognized during the year ended December 31, 1999 and 2000. The Company has adopted the disclosure-only provisions of SFAS No. 123. For the year ended December 31, 1999, the effect of applying the fair value method of SFAS No. 123 to the options granted to employees and directors in 1999 did not result in pro forma net income or loss that was materially different from the historical amount reported. For the year ended December 31, 2000, net income, pro forma for the effect of applying the fair value method to the options granted in 1999 and 2000, would have been as follows: Net income (in thousands) As reported ...................................................................................... $ 3,602 Pro forma ........................................................................................ 3,163 Weighted-average fair value of options granted (per share) .......................................... 9.48
F-31 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 16. EMPLOYEE BENEFIT PLANS (CONTINUED) For the purposes of the pro forma disclosure, the estimated fair value of the options is amortized over the options' vesting period. The effect of applying SFAS No. 123 may not be representative of the pro forma effect in future years since additional options may be granted during those future years. The fair value of the options was determined using the following assumptions:
1999 2000 ---- ---- Compensatory options, using the Black Scholes option valuation model Risk free interest rates ........................................................ 6.8% 5.23% Expected dividend yield ......................................................... -- -- Expected life ................................................................... 10 years 10 years Expected stock price volatility ................................................. 67.0% 65.0% Employee and director options, using the minimum value method Risk free interest rates ........................................................ 5.8%-6.5% 5.5%-6.7% Expected dividend yield ......................................................... -- -- Expected life ................................................................... 8 years 8 years
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models, as well as the minimum value method, do not necessarily provide a reliable single measure of its employee stock options. The minimum value method, which is an acceptable method for non-public companies, excludes stock price volatility. MANAGEMENT STOCK PURCHASES Beginning in December 1999, DeCrane Holding's Board of Directors has permitted designated executive personnel and other key employees to purchase shares of common stock of DeCrane Holdings, with a portion of the purchase price to be loaned to the participants by DeCrane Aircraft. In December 1999, management purchased 171,295 shares of DeCrane Holdings' common stock for $23.00 per share. The total purchase price was approximately $3,900,000, of which one-half was paid in cash and one-half was loaned to management by DeCrane Aircraft as described in Note 12. In 2000, management purchased an additional 20,707 shares for $23.00 per share in cash pursuant to the plan's antidilution provisions. Dilution resulted from the issuance of the DeCrane Holdings common stock warrants in connection with the sale of DeCrane Aircraft's 16% preferred stock. F-32 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 16. EMPLOYEE BENEFIT PLANS (CONTINUED) 401(K) RETIREMENT PLAN Substantially all the Company's domestic employees are eligible to participate in one of eight 401(k) retirement plans, which are defined contribution plans satisfying the requirements of the Employee Retirement Income Security Act of 1974. The Company's expense related to its matching contributions to these plans totaled $128,000 during the eight months ended August 31, 1998, $95,000 during the four months ended December 31, 1998, $1,272,000 during the year ended December 31, 1999 and $2,203,000 during the year ended December 31, 2000. NOTE 17. RELATED PARTY TRANSACTIONS The Company's transactions with related parties included in the consolidated financial statements are summarized in the table below.
(PREDECESSOR) (SUCCESSOR) ------------- -------------------------------------- EIGHT MONTHS FOUR MONTHS YEAR YEAR ENDED ENDED ENDED ENDED AUGUST 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1998 1998 1999 2000 ---- ---- ---- ---- (IN THOUSANDS) (IN THOUSANDS) DLJ Transaction financing fees and expenses ............... $ -- $ 12,000 $ 4,048 $ $1,703 Bridge notes interest expense ......................... -- 1,041 -- -- Management fees Charged to operations during the period ............. -- 100 302 300 Payable as of period end ............................ -- 100 75 75 GLOBAL TECHNOLOGY PARTNERS, LLC Promissory notes Receivable as of period end, including interest ..... -- 352 495 518 Interest income recorded during the period........... -- -- 18 23 Each related party is described below.
DLJ DLJ Merchant Banking Partners II, L.P. and affiliated funds own 83.3% of DeCrane Holdings common stock and 99.3% of its preferred stock, and 80% of DeCrane Aircraft's preferred stock, all on a fully diluted basis. DeCrane Aircraft is a wholly-owned subsidiary of DeCrane Holdings. In November 2000, DLJ Merchant Banking Partners II, L.P. and affiliated funds became indirect affiliates of Credit Suisse Group and Credit Suisse First Boston, Inc. DLJ affiliated funds were the initial purchasers of all of DeCrane Aircraft's 16% preferred stock and DeCrane Holdings common stock warrants sold during 2000. Subsequent to the initial purchase, the DLJ affiliated funds sold 20% of the preferred stock and common stock warrants to unaffiliated parties in a private transaction. F-33 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 17. RELATED PARTY TRANSACTIONS (CONTINUED) DLJ is represented on the Board of Directors of both DeCrane Holdings and DeCrane Aircraft. In addition, Credit Suisse First Boston Corporation (formerly Donaldson, Lufkin & Jenrette Securities Corporation) is involved in market-making activities for DeCrane Holding's Class A common stock warrants and DeCrane Aircraft's senior subordinated notes and may hold such securities from time to time. DLJ is also paid fees for arranging the syndicate of lenders providing the DeCrane Aircraft's senior credit facility. GLOBAL TECHNOLOGY PARTNERS, LLC Members of Global Technology own 1.6% of DeCrane Holdings common stock and 0.7% of its preferred stock, all on a fully diluted basis, and had two members on the Company's Board of Directors from August 1998 through July 2000. DeCrane Aircraft is a wholly-owned subsidiary of DeCrane Holdings. DeCrane Aircraft loaned one-half of the purchase price for such shares to the members at rates ranging between 4.33% and 5.44%. The loans, plus accrued interest, are payable from the proceeds from the sale of the stock and are collaterialized by such stock. NOTE 18. BUSINESS SEGMENT INFORMATION 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 manufactures 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 EBITDA to be the primary measurement of their overall economic returns and cash flows. Management defines EBITDA as earnings before interest, income taxes, depreciation and amortization, restructuring and asset impairment charges, acquisition related charges and other noncash and nonoperating charges. This is consistent with the manner in which the Company's lenders and ultimate investors measure its overall performance. The accounting policies of the groups are substantially the same as those described in the summary of significant accounting policies (Note 1). Some transactions are recorded at the Company's corporate headquarters and are not allocated to the groups such as, most of the Company's cash and cash equivalents, debt and related net interest expense, corporate headquarters costs and income taxes. F-34 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 18. BUSINESS SEGMENT INFORMATION (CONTINUED)
(PREDECESSOR) (SUCCESSOR) ------------ ------------------------------------ EIGHT MONTHS FOUR MONTHS YEAR YEAR ENDED ENDED ENDED ENDED AUGUST 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1998 1998 1999 2000 ----------- ----------- ----------- ----------- (IN THOUSANDS) (IN THOUSANDS) BUSINESS SEGMENT INFORMATION Revenues Cabin Management ...................................... $ 13,449 $ 10,059 $ 74,244 $ 174,796 Specialty Avionics .................................... 62,559 42,411 112,501 110,878 Systems Integration ................................... 14,276 8,331 58,483 62,965 Inter-group elimination (1) ........................... (207) (445) (1,180) (1,260) ----------- ----------- ----------- ----------- Consolidated totals ................................. $ 90,077 $ 60,356 $ 244,048 $ 347,379 =========== =========== =========== =========== Revenues from Significant Customers (2) Cabin Management ...................................... $ 2,269 $ 1,134 $ 39,737 $ 107,194 Specialty Avionics .................................... 15,975 12,328 31,425 30,542 Systems Integration ................................... 1,477 739 22,774 31,750 ----------- ----------- ----------- ----------- Consolidated totals ................................. $ 19,721 $ 14,201 $ 93,936 $ 169,486 =========== =========== =========== =========== EBITDA (3) Cabin Management ...................................... $ 3,051 $ 3,100 $ 24,153 $ 45,853 Specialty Avionics .................................... 17,401 11,833 27,240 26,696 Systems Integration ................................... 702 (16) 10,569 15,026 Corporate (4) ......................................... (7,411) (1,441) (5,436) (6,583) ----------- ----------- ----------- ----------- Consolidated EBITDA ................................. $ 13,743 $ 13,476 $ 56,526 $ 80,992 =========== =========== =========== =========== Depreciation and amortization (5) Cabin Management ...................................... $ 670 $ 530 $ 3,548 $ 9,477 Specialty Avionics .................................... 3,079 3,600 10,871 12,101 Systems Integration ................................... 560 420 4,473 4,682 Corporate ............................................. 49 54 294 927 ----------- ----------- ----------- ----------- Consolidated totals ................................. $ 4,358 $ 4,604 $ 19,186 $ 27,187 =========== =========== =========== =========== Total assets Cabin Management ...................................... $ 30,822 $ 36,469 $ 181,780 $ 309,415 Specialty Avionics .................................... 139,382 232,959 224,218 227,061 Systems Integration ................................... 22,308 38,299 93,473 86,602 Corporate ............................................. 13,117 23,200 32,027 42,971 ----------- ----------- ----------- ----------- Consolidated totals ................................. $ 205,629 $ 330,927 $ 531,498 $ 666,049 =========== =========== =========== =========== Capital expenditures (6) Cabin Management ...................................... $ 644 $ 468 $ 2,355 $ 14,896 Specialty Avionics .................................... 964 1,209 3,217 2,496 Systems Integration ................................... 94 136 1,534 1,612 Corporate ............................................. 43 -- 156 3,685 ----------- ----------- ----------- ----------- Consolidated totals ................................. $ 1,745 $ 1,813 $ 7,262 $ 22,689 =========== =========== =========== ===========
- ------------------ The notes appear on the next page. F-35 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 18. BUSINESS SEGMENT INFORMATION (CONTINUED)
(PREDECESSOR) (SUCCESSOR) ------------- -------------------------------------- EIGHT MONTHS FOUR MONTHS YEAR YEAR ENDED ENDED ENDED ENDED AUGUST 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1998 1998 1999 2000 ------------ ----------- ----------- ----------- (IN THOUSANDS) (IN THOUSANDS) GEOGRAPHICAL AREA INFORMATION Consolidated net revenues to unaffiliated customers (7) United States ......................................... $ 87,696 $ 59,341 $ 241,905 $ 345,783 Western Europe ........................................ 2,381 1,015 2,143 1,596 ----------- ----------- ----------- ----------- Consolidated totals ................................. $ 90,077 $ 60,356 $ 244,048 $ 347,379 =========== =========== =========== =========== Consolidated long-lived assets (8) United States ......................................... $ 24,693 $ 26,455 $ 35,465 $ 54,566 Western Europe ........................................ 543 1,705 2,235 2,758 Mexico ................................................ -- -- -- 2,167 ----------- ----------- ----------- ----------- Consolidated totals ................................. $ 25,236 $ 28,160 $ 37,700 $ 59,491 =========== =========== =========== ===========
NOTES TO BUSINESS SEGMENT INFORMATION (1) Inter-group sales are accounted for at prices comparable to sales to unaffiliated customers, and are eliminated in consolidation. (2) Three customers each accounted for more than 10% of the Company's consolidated revenues in 2000, two in 1999 and one in 1998 as shown in the table below. Customer data for periods prior to reaching the 10% threshold is included for comparability.
(PREDECESSOR) (SUCCESSOR) ------------- ----------- EIGHT MONTHS FOUR MONTHS YEAR YEAR ENDED ENDED ENDED ENDED AUGUST 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1998 1998 1999 2000 ----------- ----------- ----------- ----------- (IN THOUSANDS) (IN THOUSANDS) Bombardier (exceeds 10% for 2000).................. $ 3,222 $ 1,611 $ 16,308 $ 64,131 Boeing (exceeds 10% for all periods) .............. 15,583 12,132 46,436 52,735 Textron (exceeds 10% for 1999 and 2000)............ 916 458 31,192 52,620 ----------- ----------- ----------- ----------- Consolidated totals ............................. $ 19,721 $ 14,201 $ 93,936 $ 169,486 =========== =========== =========== ===========
All of the Company's operating groups derive revenues for each of the customers. Complete loss of any of the customers identified above could have a significant adverse impact on the results of operations expected in future periods. F-36 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 18. BUSINESS SEGMENT INFORMATION (CONTINUED) (3) A reconciliation of EBITDA to consolidated income (loss) before income taxes and extraordinary item is as follows:
(PREDECESSOR) (SUCCESSOR) ------------- -------------------------------------- EIGHT MONTHS FOUR MONTHS YEAR YEAR ENDED ENDED ENDED ENDED AUGUST 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1998 1998 1999 2000 ------------ ----------- ---------- ------------ (IN THOUSANDS) (IN THOUSANDS) Consolidated EBITDA ............................... $ 13,743 $ 13,476 $ 56,526 $ 80,992 Restructuring and asset impairment charges ........ -- -- (9,935) -- Depreciation and amortization ..................... (4,358) (4,604) (19,186) (27,187) Acquisition related charges Noncash inventory related charges ............... -- (4,448) (1,606) -- Acquisition related charges not capitalized ..... (107) (229) (709) (538) Nonrecurring manufacturing facility startup costs ................................. -- -- -- (717) Other noncash charges ............................. -- -- (143) (561) ----------- ----------- ----------- ----------- Consolidated income from operations ........... 9,278 4,195 24,947 51,989 Interest expense .................................. (2,350) (6,852) (27,918) (41,623) Terminated debt offering expenses ................. (600) -- -- -- Other expenses, net ............................... (247) (335) (447) (482) ----------- ----------- ----------- ----------- Consolidated income (loss) before income taxes and extraordinary item ........ $ 6,081 $ (2,992) $ (3,418) $ 9,884 =========== =========== =========== ===========
(4) Reflects the Company's corporate headquarters costs and expenses not allocated to the groups. (5) 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 $96,000 for the eight months ended August 31, 1998, $379,000 for the four months ended December 31, 1998, $1,631,000 for the year ended December 31, 1999 and $2,258,000 for the year ended December 31, 2000. (6) Reflects capital expenditures paid in cash. Excludes capital expenditures financed with capital lease obligations of $116,000 for the eight months ended August 31, 1998, $48,000 for the four months ended December 31, 1998, $1,711,000 for the year ended December 31, 1999 and $109,000 for the year ended December 31, 2000. (7) Allocated on the basis of the location of the subsidiary originating the sale. (8) Allocated on the basis of the location of the subsidiary and consists of the Company's property and equipment. Corporate long-lived assets are included with the United States assets. F-37 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 19. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION In conjunction with the senior credit facility and 12% senior subordinated notes described in Note 10, the following condensed consolidating financial information is presented segregating the Company, as the issuer, and 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. F-38 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 19. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) BALANCE SHEETS
DECEMBER 31, 1999 (SUCCESSOR) ----------------------------- 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 ................ -- 43,963 1,379 -- 45,342 Inventories ............................. -- 57,072 1,649 -- 58,721 Other current assets .................... 6,645 938 123 -- 7,706 ----------- ----------- ----------- ----------- ----------- Total current assets .................. 14,484 101,650 3,553 -- 119,687 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 $ 518,449 $ 20,469 $ (478,332) $ 531,498 =========== =========== =========== =========== =========== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities Short-term borrowings ................... $ 4,640 $ 404 $ 26 $ -- $ 5,070 Other current liabilities ............... 10,237 74,453 678 -- 85,368 ----------- ----------- ----------- ----------- ----------- Total current liabilities ............. 14,877 74,857 704 -- 90,438 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 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 $ 518,449 $ 20,469 $ (478,332) $ 531,498 =========== =========== =========== =========== ===========
F-39 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 19. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) BALANCE SHEETS (CONTINUED)
DECEMBER 31, 2000 (SUCCESSOR) ----------------------------- GUARANTOR NON-GUARANTOR CONSOLIDATING CONSOLIDATED ISSUER SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL ------ ------------ ------------ ------------- ------------ (IN THOUSANDS) ASSETS Current assets Cash and cash equivalents ............... $ 7,553 $ 233 $ 413 $ -- $ 8,199 Accounts receivable, net ................ -- 57,288 1,735 -- 59,023 Inventories ............................. -- 82,013 1,664 -- 83,677 Other current assets .................... 14,814 1,118 145 -- 16,077 ----------- ----------- ----------- ----------- ----------- Total current assets .................. 22,367 140,652 3,957 -- 166,976 Property and equipment, net ................ 4,423 52,303 2,765 -- 59,491 Other assets, principally intangibles, net......................... 36,869 392,375 10,338 -- 439,582 Investments in subsidiaries ................ 374,439 20,739 -- (395,178)(1) -- Intercompany receivables ................... 251,725 92,991 3,863 (348,579)(2) -- ----------- ----------- ----------- ----------- ----------- Total assets ...................... $ 689,823 $ 699,060 $ 20,923 $ (743,757) $ 666,049 ----------- ----------- ----------- ----------- ----------- LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND STOCKHOLDER'S EQUITY Current liabilities Short-term borrowings ................... $ 7,997 $ 1,266 $ 26 $ -- $ 9,289 Other current liabilities ............... 38,635 60,276 1,262 -- 100,173 ----------- ----------- ----------- ----------- ----------- Total current liabilities ............. 46,632 61,542 1,288 -- 109,462 Long-term debt ............................. 368,837 5,147 6 -- 373,990 Intercompany payables ...................... 92,991 255,588 -- (348,579)(2) -- Other long-term liabilities ................ 36,742 2,344 577 -- 39,663 Mandatorily redeemable preferred stock ......................... 23,179 -- -- -- 23,179 ----------- ----------- ----------- ----------- ----------- Stockholder's equity Paid-in capital ......................... 124,763 318,374 15,440 (333,814)(1) 124,763 Retained earnings (deficit) ............. (3,321) 56,065 5,299 (61,364)(1) (3,321) Accumulated other comprehensive loss .................... -- -- (1,687) -- (1,687) Total stockholder's equity .......... 121,442 374,439 19,052 (395,178) 119,755 ----------- ----------- ----------- ----------- ----------- Total liabilities, mandatorily redeemable preferred stock and stockholder's equity ........ $ 689,823 $ 699,060 $ 20,923 $ (743,757) $ 666,049 =========== =========== =========== =========== ===========
F-40 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 19. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) STATEMENTS OF OPERATIONS
EIGHT MONTHS ENDED AUGUST 31, 1998 (PREDECESSOR) ------------------------------------------------ GUARANTOR NON-GUARANTOR CONSOLIDATING CONSOLIDATED ISSUER SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL ------ ------------ ------------ ----------- ----- (IN THOUSANDS) Revenues ................................... $ -- $ 87,312 $ 8,503 $ (5,738)(3) $ 90,077 ----------- ----------- ----------- ----------- -- ----------- Cost of sales .............................. -- 59,252 6,587 (5,738)(3) 60,101 ----------- ----------- ----------- ----------- -- ----------- Gross profit ............................ -- 28,060 1,916 -- 29,976 Selling, general and administrative expenses ................. 3,949 11,041 729 -- 15,719 Nonrecurring charges ....................... 3,632 -- -- -- 3,632 Amortization of intangible assets .......... -- 1,337 10 -- 1,347 Interest expense ........................... 2,343 7 -- -- 2,350 Intercompany charges ....................... (4,357) 4,229 128 -- -- Equity in earnings of subsidiaries ......... (6,824) (489) -- 7,313 (4) -- Other expenses (income), net ............... 600 (164) 411 -- 847 Provision (benefit) for income taxes ....... (2,532) 5,275 149 -- 2,892 ----------- ----------- ----------- ----------- -- ----------- Net income ............................ $ 3,189 $ 6,824 $ 489 $ (7,313) $ 3,189 =========== =========== =========== =========== ===========
FOUR MONTHS ENDED DECEMBER 31, 1998 (SUCCESSOR) ----------------------------------------------- GUARANTOR NON-GUARANTOR CONSOLIDATING CONSOLIDATED ISSUER SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL ------ ------------ ------------ ----------- ----- (IN THOUSANDS) Revenues ................................... $ -- $ 58,904 $ 5,041 $ (3,589)(3) $ 60,356 Cost of sales .............................. -- 42,691 3,637 (3,589)(3) 42,739 ----------- ----------- ----------- ----------- ----------- Gross profit ............................ -- 16,213 1,404 -- 17,617 Selling, general and administrative expenses ................. 1,741 8,124 409 -- 10,274 Amortization of intangible assets .......... 102 2,868 178 -- 3,148 Interest expense ........................... 6,754 92 6 -- 6,852 Intercompany charges ....................... (3,088) 3,025 63 -- -- Equity in earnings of subsidiaries ......... (7,753) (506) -- 8,259 (4) -- Other expenses, net ........................ -- 132 203 -- 335 Provision for income taxes (benefit) ....... 2,568 (5,275) 39 -- (2,668) Extraordinary charge, net of tax ........... 2,229 -- -- -- 2,229 ----------- ----------- ----------- ----------- ----------- Net income (loss) ..................... $ (2,553) $ 7,753 $ 506 $ (8,259) $ (2,553) =========== =========== =========== =========== ===========
F-41 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 19. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) STATEMENTS OF OPERATIONS (CONTINUED)
YEAR ENDED DECEMBER 31, 1999 (SUCCESSOR) ---------------------------------------- GUARANTOR NON-GUARANTOR CONSOLIDATING CONSOLIDATED ISSUER SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL ------ ------------ ------------ ----------- ----- (IN THOUSANDS) Revenues ................................... $ -- $ 237,837 $ 11,549 $ (5,338)(3) $ 244,048 Cost of sales .............................. -- 161,770 9,439 (5,338)(3) 165,871 ------- ----- ------ -- ------- Gross profit ............................ -- 76,067 2,110 -- 78,177 Selling, general and administrative expenses ................. 6,419 32,232 1,506 -- 40,157 Amortization of intangible assets .......... 161 12,417 495 -- 13,073 Interest expense ........................... 27,493 386 39 -- 27,918 Intercompany charges ....................... (8,888) 8,888 -- -- -- Equity in earnings of subsidiaries ......... (12,611) (406) -- 13,017 (4) -- Other expenses (income), net ............... 646 219 (418) -- 447 Provision for income taxes (benefit) ....... (8,850) 9,720 82 -- 952 ----------- ----------- ----------- ----------- ----------- Net income (loss) ..................... $ (4,370) $ 12,611 $ 406 $ (13,017) $ (4,370) =========== =========== =========== =========== ===========
YEAR ENDED DECEMBER 31, 2000 (SUCCESSOR) ---------------------------------------- GUARANTOR NON-GUARANTOR CONSOLIDATING CONSOLIDATED ISSUER SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL ------ ------------ ------------ ----------- ----- (IN THOUSANDS) Revenues ................................... $ -- $ 342,400 $ 11,873 $ (6,894)(3) $ 347,379 Cost of sales .............................. -- 229,554 9,388 (6,894)(3) 232,048 ------- ----- ------ -- ------- Gross profit ............................ -- 112,846 2,485 -- 115,331 Selling, general and administrative expenses ................. 8,720 35,359 1,315 -- 45,394 Amortization of intangible assets .......... 276 17,263 409 -- 17,948 Interest expense ........................... 40,864 752 7 -- 41,623 Intercompany charges ....................... (20,214) 20,214 -- -- -- Equity in earnings of subsidiaries ......... (15,668) (681) -- 16,349 (4) -- Other expenses (income), net ............... 336 158 (12) -- 482 Provision for income taxes (benefit) ....... (17,916) 24,113 85 -- 6,282 ----------- ----------- ----------- ----------- ----------- Net income ............................ $ 3,602 $ 15,668 $ 681 $ (16,349) $ 3,602 =========== =========== =========== =========== ===========
F-42 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 19. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) STATEMENTS OF CASH FLOWS
EIGHT MONTHS ENDED AUGUST 31, 1998 (PREDECESSOR) ------------------------------------------------ GUARANTOR NON-GUARANTOR CONSOLIDATING CONSOLIDATED ISSUER SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL ------ ------------ ------------------------ ----- (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES Net income ................................. $ 3,189 $ 6,824 $ 489 $ (7,313)(4) $ 3,189 Noncash adjustments Equity in earnings of subsidiaries ...... (6,824) (489) -- 7,313 (4) -- Other noncash adjustments ............... (2,222) 3,420 557 -- 1,755 Changes in working capital ................. 5,492 (7,393) (29) -- (1,930) ----------- ----------- ----------- ----------- ----------- Net cash provided by (used for) operating activities ................ (365) 2,362 1,017 -- 3,014 ----------- ----------- ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Cash paid for acquisitions, net of cash acquired ........................ (87,071) 1,263 -- -- (85,808) Capital expenditures and other ............. (44) (1,306) (220) -- (1,570) ----------- ----------- ----------- ----------- ----------- Net cash used for investing activities ................ (87,115) (43) (220) -- (87,378) ----------- ----------- ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Net revolving line of credit borrowings .............................. 57,000 -- (554) -- 56,446 Net proceeds from sale of common stock ............................ 34,815 -- -- -- 34,815 Principal payments on long-term debt and leases ......................... (3) (1,280) (34) -- (1,317) Other, net ................................. 23 (96) -- -- (73) ----------- ----------- ----------- ----------- ----------- Net cash provided by (used for) financing activities ................ 91,835 (1,376) (588) -- 89,871 ----------- ----------- ----------- ----------- ----------- Effect of foreign currency translation on cash ..................... -- -- 26 -- 26 Net increase in cash and equivalents ....... 4,355 943 235 -- 5,533 Cash and equivalents at beginning of period ............................... 16 109 81 -- 206 ----------- ----------- ----------- ----------- ----------- Cash and equivalents at end of period ...... $ 4,371 $ 1,052 $ 316 $ -- $ 5,739 =========== =========== =========== =========== ===========
F-43 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 19. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) STATEMENTS OF CASH FLOWS (CONTINUED)
FOUR MONTHS ENDED DECEMBER 31, 1998 (SUCCESSOR) ----------------------------------------------- GUARANTOR NON-GUARANTOR CONSOLIDATING CONSOLIDATED ISSUER SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL ----------- ------------ ------------ ------------ --------- (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) .......................... $ (2,553) $ 7,753 $ 506 $ (8,259)(4) $ (2,553) Noncash adjustments Equity in earnings of subsidiaries ...... (7,753) (506) -- 8,259 (4) -- Other noncash adjustments ............... (2,647) 4,964 (274) -- 2,043 Changes in working capital ................. 12,408 (10,272) (618) -- 1,518 ----------- ----------- ----------- ----------- ----------- Net cash provided by (used for) operating activities ................ (545) 1,939 (386) -- 1,008 ----------- ----------- ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures and other ............. -- (1,746) (67) -- (1,813) ----------- ----------- ----------- ----------- ----------- Net cash used for investing activities ................ -- (1,746) (67) -- (1,813) ----------- ----------- ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Line of credit borrowings (repayments) ............................ (1,367) -- 264 -- (1,103) Principal payments on long-term debt and leases ......................... (1) (447) (10) -- (458) Other, net ................................. -- (36) -- -- (36) ----------- ----------- ----------- ----------- ----------- Net cash provided by (used for) financing activities ................ (1,368) (483) 254 -- (1,597) ----------- ----------- ----------- ----------- ----------- Effect of foreign currency translation on cash ..................... -- -- 181 -- 181 ----------- ----------- ----------- ----------- ----------- Net decrease in cash and equivalents ....... (1,913) (290) (18) -- (2,221) Cash and equivalents at beginning of period ............................... 4,371 1,052 316 -- 5,739 ----------- ----------- ----------- ----------- ----------- Cash and equivalents at end of period ...... $ 2,458 $ 762 $ 298 $ -- $ 3,518 =========== =========== =========== =========== ===========
F-44 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 19. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) STATEMENTS OF CASH FLOWS (CONTINUED)
YEAR ENDED DECEMBER 31, 1999 (SUCCESSOR) ---------------------------------------- GUARANTOR NON-GUARANTOR CONSOLIDATING CONSOLIDATED ISSUER SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL ------ ------------ ------------ ----------- ----- (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) .......................... $ (4,370) $ 12,611 $ 406 $ (13,017)(4) $ (4,370) Noncash adjustments Equity in earnings of subsidiaries ...... (12,611) (406) -- 13,017 (4) -- Other noncash adjustments ............... 1,787 25,188 836 -- 27,811 Changes in working capital ................. 30,867 (38,903) (205) -- (8,241) ----------- ----------- ----------- ----------- ----------- Net cash provided by (used for) operating activities ................ 15,673 (1,510) 1,037 -- 15,200 ----------- ----------- ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Cash paid for acquisitions, net of cash acquired ........................ (148,310) 2,604 -- -- (145,706) Capital expenditures and other ............. (156) (6,289) (623) -- (7,068) ----------- ----------- ----------- ----------- ----------- Net cash used for investing activities ................ (148,466) (3,685) (623) -- (152,774) ----------- ----------- ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Debt financing for acquisitions ............ 135,000 -- -- -- 135,000 Capital contribution ....................... 14,368 -- -- -- 14,368 Customer advance ........................... -- 5,000 -- -- 5,000 Net revolving line of credit borrowings .............................. (5,800) -- -- -- (5,800) Principal payments on long-term debt and leases ......................... (1,046) (675) (232) -- (1,953) Other, net ................................. (4,348) (215) -- -- (4,563) ----------- ----------- ----------- ----------- ----------- Net cash provided by (used for) financing activities ................ 138,174 4,110 (232) -- 142,052 ------- ----- ---- ------- Effect of foreign currency translation on cash ..................... -- -- (78) -- (78) ----------- ----------- ----------- ----------- ----------- Net increase (decrease) in cash and equivalents ............................. 5,381 (1,085) 104 -- 4,400 Cash and equivalents at beginning of period ............................... 2,458 762 298 -- 3,518 ----------- ----------- ----------- ----------- ----------- Cash and equivalents at end of period ...... $ 7,839 $ (323) $ 402 $ -- $ 7,918 ----------- ----------- ----------- ---------- -----------
F-45 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 19. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) STATEMENTS OF CASH FLOWS (CONTINUED)
YEAR ENDED DECEMBER 31, 2000 (SUCCESSOR) ---------------------------------------- GUARANTOR NON-GUARANTOR CONSOLIDATING CONSOLIDATED ISSUER SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL ------ ------------ ------------ ----------- ----- (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES Net income ................................. $ 3,602 $ 15,668 $ 681 $ (16,349)(4) $ 3,602 Noncash adjustments Equity in earnings of subsidiaries ...... (15,668) (681) -- 16,349 (4) -- Other noncash adjustments ............... 9,092 25,293 954 -- 35,339 Changes in working capital ................. 1,283 (22,458) (983) -- (22,158) ----------- ----------- ----------- ------------ ----------- Net cash provided by (used for) operating activities ................ (1,691) 17,822 652 -- 16,783 ----------- ----------- ----------- ------------ ----------- CASH FLOWS FROM INVESTING ACTIVITIES Cash paid for acquisitions, net of cash acquired ........................ (89,838) 292 -- -- (89,546) Capital expenditures and other ............. (3,614) (18,370) (634) -- (22,618) ----------- ----------- ----------- ------------ ----------- Net cash used for investing activities ................ (93,452) (18,078) (634) -- (112,164) ----------- ----------- ----------- ------------ ----------- CASH FLOWS FROM FINANCING ACTIVITIES Debt financing for acquisitions ............ 55,000 -- -- -- 55,000 Proceeds from sale of preferred stock and warrants ............................ 24,924 -- -- -- 24,924 Net revolving line of credit borrowings .............................. 12,400 -- -- -- 12,400 Capital contribution ....................... 7,902 -- -- -- 7,902 Other borrowings ........................... -- 3,451 -- -- 3,451 Principal payments on long-term debt and leases ......................... (3,419) (2,392) (13) -- (5,824) Other, net ................................. (1,950) (247) -- -- (2,197) ----------- ----------- ----------- ------------ ----------- Net cash provided by (used for) financing activities ................ 94,857 812 (13) -- 95,656 ----------- ----------- ----------- ------------ ----------- Effect of foreign currency translation on cash ..................... -- -- 6 -- 6 Net increase (decrease) in cash and equivalents ............................. (286) 556 11 -- 281 Cash and equivalents at beginning of period ............................... 7,839 (323) 402 -- 7,918 ----------- ----------- ----------- ------------ ----------- Cash and equivalents at end of period ...... $ 7,553 $ 233 $ 413 $ -- $ 8,199 =========== =========== =========== ============ ===========
F-46 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 20. CONDENSED QUARTERLY DATA FOR 1999 AND 2000 (UNAUDITED) Unaudited condensed quarterly data for the years ended December 31, 1999 and 2000 are summarized in the tables below.
YEAR ENDED DECEMBER 31, 1999 (SUCCESSOR) ---------------------------------------- 1ST 2ND 3RD 4TH ------------ ----------- ----------- ---------- (IN THOUSANDS) Revenues ..................................................... $ 49,895 $ 62,703 $ 65,238 $ 66,212 Gross profit ................................................. 16,000 20,624 23,131 18,422 EBITDA, as defined (Note 18) ................................. 8,965 14,167 15,689 17,705 Net income (loss) ............................................ (275) 92 683 (4,870)
During the fourth quarter of 1999, the Company announced a plan to reorganize and restructure the operations of two of its subsidiaries within the Systems Integration Group (Note 4). As a result, a restructuring and asset impairment charge aggregating $9,148,000 was recorded in the fourth quarter. In addition, charges aggregating $787,000 related to this restructuring were charged to operations during the first three quarters of 1999, for a total restructuring and impairment charge of $9,935,000 for the year.
YEAR ENDED DECEMBER 31, 2000 (SUCCESSOR) ---------------------------------------- 1ST 2ND 3RD 4TH ----------- ---------- ------------ ------------ (IN THOUSANDS) Revenues ..................................................... $ 79,178 $ 82,094 $ 93,149 $ 92,958 Gross profit ................................................. 26,152 27,611 31,131 30,437 EBITDA, as defined (Note 18) ................................. 17,182 19,941 22,159 21,710 Net income (loss)............................................. 755 1,987 890 (30)
F-47 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING OF COST AND OTHER END OF PERIOD EXPENSE ACCOUNTS DEDUCTIONS PERIOD ------ ------- -------- ---------- ------ PREDECESSOR EIGHT MONTHS ENDED AUGUST 31, 1998 Allowance for doubtful accounts ........ $ 487 $ 384 $ 32 (1) $ 376 $ 527 Reserve for excess, slow moving and potentially obsolete material ............................ 3,364 760 2,056 (1) 311 5,869 =================================================================================================================== SUCCESSOR FOUR MONTHS ENDED DECEMBER 31, 1998 Allowance for doubtful accounts ........ $ 527 (1) $ 243 $ -- $ 189 $ 581 Reserve for excess, slow moving and potentially obsolete material ............................ 5,869 (1) 285 -- 452 5,702 YEAR ENDED DECEMBER 31, 1999 Allowance for doubtful accounts ........ $ 581 $ 1,252 $ 1,407 (1) $ 1,274 $ 1,966 Reserve for excess, slow moving and potentially obsolete material (2) ........................ 5,702 1,373 2,567 (1) 2,676 6,966 YEAR ENDED DECEMBER 31, 2000 Allowance for doubtful accounts ........ $ 1,966 $ 120 $ 223 (1) $ 407 $ 1,902 Reserve for excess, slow moving and potentially obsolete material ............................ 6,966 1,261 215 (1) 2,862 5,580
- ---------- (1) Attributable to companies acquired. Reflects historical amounts used to determine the fair value of assets acquired. (2) Excludes $5,983,000 of inventory write-downs resulting from the plan to reorganize and restructure the operations of two subsidiaries. F-48 EX-3.28-1 2 a2040254zex-3_281.txt EXHIBIT 3.28.1 EXHIBIT 3.28.1 FORM 1 COMPANIES ACT OF BARBADOS (SECTION 5) ARTICLES OF INCORPORATION 1. NAME OF COMPANY COMPANY NO: DeCrane International Sales, Inc. 17952 2. THE CLASSES AND ANY MAXIMUM NUMBER OF SHARES THAT THE COMPANY IS AUTHORIZED TO ISSUE The Company is authorized to issue an unlimited number of shares of one class designated as common shares. 3. RESTRICTION IF ANY ON SHARE TRANSFERS See attached schedule 4. NUMBER (OR MINIMUM AND MAXIMUM NUMBER) OF DIRECTORS There shall be a minimum of 2 and maximum of 8 directors. 5. RESTRICTIONS IF ANY ON BUSINESS THE COMPANY MAY CARRY ON The company is not allowed to engage in any business activity, which would conflict with the provisions of the Barbados Foreign Sales Corporation Act Cap, 59C of the laws of Barbados. 6. OTHER PROVISIONS IF ANY A) An invitation to the public to subscribe for shares or debentures of the Company is prohibited. B) The number of shareholders of the Company shall be limited to not more than 25 7. INCORPORATORS DATE 3 JANUARY 2000 NAMES ADDRESS SIGNATURE Ikins D. Clarke Hothersal Turning /s/ Ikins D. Clarke St. Michael, Barbados ------------------- 1 FORM 1 COMPANIES ACT OF BARBADOS (SECTION 5) SCHEDULE TO ARTICLES OF INCORPORATION 1. NAME OF COMPANY COMPANY NO: DeCrane International Sales, Inc. 17952 3. RESTRICTION IF ANY ON SHARE TRANSFERS The right to transfer shares of the Company shall be restricted in that no shareholder shall be entitled to transfer any share or shares of the Company without the previous express sanction of the holders of more than 50% of the common shares of the Company for the time being outstanding expressed by a resolution passed at a meeting of the shareholders or by an instrument or instruments in writing signed by the holders of more than 50% of such shares. 7. INCORPORATORS DATE 3 JANUARY 2000 NAMES ADDRESS SIGNATURE Ikins D. Clarke Hothersal Turning /s/ Ikins D. Clarke St. Michael, Barbados ------------------- 2 EX-3.28-2 3 a2040254zex-3_282.txt EXHIBIT 3.28.2 EXHIBIT 3.28.2 GENERAL BY-LAW NO. 1 A BY-LAW RELATING GENERALLY TO THE CONDUCT OF THE AFFAIRS OF: DECRANE INTERNATIONAL SALES, INC. BE IT ENACTED as the general by-law of DECRANE INTERNATIONAL SALES, INC. (hereinafter called the "Company") as follows: 1. INTERPRETATION 1.1 In this by-law and all other by-laws of the Company, unless the context otherwise requires: (a) "Act" means the Companies Act Cap. 308 as from time to time amended and every statute substituted therefor and, in the case of such substitution, any references in the by-laws of the Company to provisions of the Act shall be read as references to the substituted provisions therefor in the new statute or statutes; (b) "Regulations" means any Regulations made under the Act, and every regulation substituted therefor and, in the case of such substitution, any references in the by-laws of the Company to provisions of the Regulations shall be read as references to the substituted provisions therefor in the new regulations; (c) "By-laws" means any by-law of the Company from time to time in force; (d) all terms contained in the by-laws and defined in the Act or the Regulations shall have the meanings given to such terms in the Act or the Regulations; and (e) the singular includes the plural and the plural includes the singular; the masculine gender includes the feminine and neuter genders; the word "person" includes bodies corporate, companies, partnerships, syndicates, trusts and any association of persons; and the word "individual" means a natural person. 2. REGISTERED OFFICE 2.1 The registered office of the Company shall be in Barbados at such address as the directors may fix from time to time by resolution. 3. SEAL 3.1 The common seal of the Company shall be such as the directors may by resolution from time to time adopt. 4. DIRECTORS 4.1 POWERS: Subject to any unanimous shareholder agreement, the business and affairs of the Company shall be managed by the directors. 4.2 NUMBER: There shall be a minimum of two directors and a maximum of eight directors. 4.3 ELECTION: Directors shall be elected by the shareholders on a show of hands unless a ballot is demanded in which case such election shall be by ballot. 4.4 TENURE: Unless his tenure is sooner determined, a director shall hold office from the date on which he is elected or appointed until the close of the annual meeting of the shareholders next following but he shall be eligible for re-election if qualified. 4.4.1 OFFICER TO CONTINUE AS A DIRECTOR: A director who is also an officer shall continue to be a director until he ceases to be an officer. 4.4.2 Director's appointment to cease in certain circumstances: A director shall cease to be a director: (a) if he becomes bankrupt or compounds with his creditors or is declared insolvent; 1 (b) if he is found to be of unsound mind; or (c) if by notice in writing to the Company he resigns his office and any such resignation shall be effective at the time it is sent to the Company or at the time specified in the notice, whichever is later. 4.4.3 SHAREHOLDERS MAY REMOVE ANY DIRECTOR: The shareholders of the Company may, by ordinary resolution passed at a special meeting of the shareholders, remove any director from office and a vacancy created by the removal of a director may be filled at the meeting of the shareholders at which the director is removed. 4.5 CASUAL VACANCY AMONG THE DIRECTORS: Where there is any vacancy or vacancies among the directors, the directors then in office may exercise all of the powers of the directors so long as a quorum of the directors remain in office. Any vacancy occurring among the directors may be filled, for the remainder of the term, by such directors. 4.6 COMMITTEES OF DIRECTORS: The directors may appoint from among their number a committee of directors and subject to section 80(2) of the Act may delegate to such committee any of the powers of the directors. 4.7 ALTERNATE DIRECTORS: The directors may appoint any person, who is nominated by a director, to be the alternate of that director to act in his place at any meeting of the directors at which he is unable to be present. Every such alternate shall be entitled to notice of meetings of the directors and to attend and vote thereat as a director when the person appointing him is not personally present, and where he is a director to have a separate vote on behalf of the director he is representing in addition to his own vote. A director may at any time in writing request the revocation by the directors of the appointment of an alternate nominated by him. Every such alternate shall be an agent of the Company and shall not be deemed to be the agent of the director nominating him. The remuneration (if any) of such an alternate shall be payable out of the remuneration (if any) payable to the director nominating him, and the proportion thereof shall be agreed between them. An alternate need not hold any share qualification. 5. BORROWING POWERS OF DIRECTORS 5.1 General powers: The directors may from time to time: (a) borrow money upon the credit of the Company; (b) issue, reissue, sell or pledge debentures of the Company; (c) subject to section 53 of the Act, give a guarantee on behalf of the Company to secure performance of an obligation of any person; and (d) mortgage, charge, pledge or otherwise create a security interest in all or any property of the Company, owned or subsequently acquired, to secure any obligation of the Company. 5.2 POWERS OF DIRECTORS TO DELEGATE: The directors may from time to time by resolution delegate to any officer of the Company all or any of the powers conferred on the directors by paragraph 5.1 hereof to the full extent thereof or such lesser extent as the directors may in any such resolution provide. 5.3 POWERS OF BORROWING BY-LAW NOT SUBSTITUTED: The powers conferred by paragraph 5.1 hereof shall be in supplement of and not in substitution for any powers to borrow money for the purposes of the Company possessed by its directors or officers independently of a borrowing by-law. 6. MEETINGS OF DIRECTORS 6.1 PLACE OF MEETING: Meetings of the directors and of any conimiuee of the directors may be held within or outside Barbados. 6.2 NOTICE: A meeting of the directors may be convened at any time by any director or the Secretary, when directed or authorized by any director. Subject to subsection 76(l) of the Act the notice of any such meeting need not specify the purpose of or the business to be transacted at the meeting. Notice of any such meeting shall be served in the manner specified in paragraph 18.1 hereof not less than two days (exclusive of the day on which the notice is delivered or sent but inclusive of the day for which notice is given) before the meeting is to take place. A director may in any manner waive notice of a meeting of the directors and attendance of a director at a meeting of the 2 directors shall constitute a waiver of notice of the meeting except where a director attends a meeting for the express purpose of objecting to the transaction of any business on the grounds that the meeting is not lawfully called. 6.2.1 NOTICE TO NEWLY ELECTED OR APPOINTED DIRECTOR: It shall not be necessary to give notice of a meeting of the directors to a newly elected or appointed director for a meeting held immediately following the election of directors by the shareholders or the appointment to fill a vacancy among the directors. 6.3 QUORUM: Two directors shall form a quorum for the transaction of business and, notwithstanding any vacancy among the directors, a quorum may exercise all the powers of the directors. No business shall be transacted at a meeting of directors unless a quorum is present. 6.3.1 PARTICIPATION BY TELEPHONE: A director may, if all the directors consent, participate in a meeting of directors or of any committee of the directors by means of such telephone or other communications facilities as permit all persons participating in the meeting to hear each other and a director participating in such a meeting by such means is deemed to be present at that meeting. 6.4 VOTING: Questions arising at any meeting of the directors shall be decided by a majority of votes. In case of an equality of votes the chairman of the meeting in addition to his original vote shall have a second or casting vote. 6.5 RESOLUTION IN LIEU OF MEETING: Notwithstanding any of the foregoing provisions of this by-law a resolution in writing signed by all the directors entitled to vote on that resolution at a meeting of the directors or any committee of the directors is as valid as if it had been passed at a meeting of the directors or any committee of the directors. 7. REMUNERATION OF DIRECTORS 7.1 The remuneration to be paid to the directors shall be such as the directors may from time to time determine and such remuneration may be in addition to the salary paid to any officer or employee of the Company who is also a director. The directors may also award special remuneration to any director undertaking any special services on the Company's behalf other than the routine work ordinarily required of a director and the confirmation of any such resolution or resolutions by the shareholders shall not be required. The directors shall also be entitled to be paid their traveling and other expenses properly incurred by them in connection with the affairs of the Company. 8. SUBMISSION OF CONTRACTS OR TRANSACTIONS TO SHAREHOLDERS FOR APPROVAL 8.1 The directors in their discretion may submit any contract, act or transaction for approval or ratification at any annual meeting of the shareholders or at any special meeting of the shareholders called for the purpose of considering the same and, subject to the provisions of section 89 of the Act, any such contract, act or transaction that is approved or ratified or confirmed by a resolution passed by a majority of the votes cast at any such meeting (unless any different or additional requirement is imposed by the Act or by the Company's articles or any other by-law) shall be as valid and as binding upon the Company and upon all the shareholders as though it had been approved, ratified or confirmed by every shareholder of the Company. 9. FOR THE PROTECTION OF DIRECTORS AND OFFICERS 9.1 LIMITATION OF LIABILITY OF DIRECTOR OR OFFICER: No director or officer of the Company shall be liable to the Company for: (a) the acts, receipts, neglects or defaults of any other director or officer or employee or for joining in any receipt or act for conformity; (b) any loss, damage or expense incurred by the Company through the insufficiency or deficiency of title to any property acquired by the Company or for or on behalf of the Company; (c) the insufficiency or deficiency of any security in or upon which any of the moneys of or belonging to the Company shall be placed out or invested; (d) any loss or damage arising from the bankruptcy, insolvency or tortuous act of any person, including any person with whom any moneys, securities or effects shall be lodged or deposited; 3 (e) any loss, conversion, misapplication or misappropriation of or any damage resulting from any dealings with any moneys, securities or other assets belonging to the Company; (f) any other loss, damage or misfortune whatever which may happen in the execution of the duties of his respective office or trust or in relation thereto; unless the same happens by or through his failure to exercise the powers and to discharge the duties of his office honestly and in good faith with a view to the best interests of the Company and in connection therewith to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. 9.2 NO RELIEF FOR BREACHES OF ACT OR REGULATIONS: Nothing herein contained shall relieve a director or officer from the duty to act in accordance with the Act or Regulations made thereunder or relieve him from liability for a breach thereof. 9.2.1 DIRECTORS TO AUTHORIZE OR APPROVE CONTRACTS, ACTS AND TRANSACTIONS: The directors for the time being of the Company shall not be under any duty or responsibility in respect of any contract, act or transaction whether or not made, done or entered into in the name or on behalf of the Company, except such as are submitted to and authorized or approved by the directors. 9.2.2 ENTITLEMENT TO REMUNERATION FOR SERVICES: If any director or officer of the Company is employed by or performs services for the Company otherwise than as a director or officer or is a member of a firm or a shareholder, director or officer of a body corporate which is employed by or performs services for the Company, the fact of his being a shareholder, director or officer of the Company shall not disentitle such director or officer or such firm or body corporate, as the case may be, from receiving proper remuneration for such services. 10. INDEMNITIES TO DIRECTORS AND OFFICERS 10.1 Subject to section 97 of the Act, except in respect of an action by or on behalf of the Company to obtain a judgment in its favor, the Company shall indemnify a director or officer of the Company, a former director or officer of the Company or a person who acts or acted at the Company's request as a director or officer of a body corporate of which the Company is or was a shareholder or creditor, and his personal representatives, against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, reasonably incurred by him in respect of any civil, criminal or administrative action or proceeding to which he is made a party by reason of being or having been a director or officer of such company, if: (a) he acted honestly and in good faith with a view to the best interests of the Company; and (b) in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, he had reasonable grounds for believing that his conduct was lawful. II. OFFICERS 11.1 APPOINTMENT: The directors shall as often as may be required appoint a Secretary and, if deemed advisable, may as often as may be required appoint any or all of the following officers: a Chairman, a Deputy Chairman, a Managing Director, a President, one or more Vice-Presidents, a Treasurer, one or more Assistant Secretaries or one or more Assistant Treasurers. A director may be appointed to any office of the Company but none of the officers except the Chairman, the Deputy Chairman, the Managing Director, the President and Vice-President need be a director. Two or more of the aforesaid offices may be held by the same person. In case and whenever the same person holds the offices of Secretary and Treasurer he may but need not be known as the Secretary-Treasurer. The directors may from time to time appoint such other officers and agents as they deem necessary who shall have such authority and shall perform such duties as may from time to time be prescribed by the directors. 11.2 REMUNERATION: The remuneration of all officers appointed by the directors shall be determined from time to time by resolution of the directors. The fact that any officer or employee is a director or shareholder of the Company shall not disqualify him from receiving such remuneration as may be determined. 11.3 POWERS AND DUTIES: All officers shall sign such contracts, documents or instruments in writing as require their respective signatures and shall respectively have and perform all powers and duties incident to their respective offices and such other powers and duties respectively as may from time to time be assigned to them by the directors. 4 11.4 DELEGATION: In case of the absence or inability to act of any officer of the Company except a Managing Director or for any other reason that the directors may deem sufficient the directors may delegate all or any of the powers of such officer to any other officer or to any director. 11.5 CHAIRMAN: A Chairman shall, when present, preside at all meetings of the directors, and any committee of the directors or the shareholders. 11.6 DEPUTY CHAIRMAN: If the Chairman is absent or is unable to or refuses to act, the Deputy Chairman (if any) shall, when present, preside at all meetings of the directors, and any committee of the directors, or the shareholders. 11.7 MANAGING DIRECTOR: A Managing Director shall exercise such powers and have such authority as may be delegated to him by the directors in accordance with the provisions of section 80 of the Act. 11.8 PRESIDENT: A President shall be the Chief Executive Officer of the Company. He shall be vested with and may exercise all the powers and shall perform all the duties of a Chairman and Deputy Chairman if none be appointed or if the Chairman and the Deputy Chairman are absent or are unable or refuse to act. 11.9 VICE-PRESIDENT: A Vice-President or, if more than one, the Vice-Presidents, in order of seniority, shall be vested with all the powers and shall perform all the duties of the President in the absence or inability or refusal to act of the President. 11.10 SECRETARY: The Secretary shall give or cause to be given notices for all meetings of the directors, any committee of the directors and the shareholders when directed to do so and shall have charge of the minute books and seal of the Company and, subject to the provisions of paragraph 14.1 hereof, of the records (other than accounting records) referred in section 170 of the Act. 11.11 TREASURER: Subject to the provisions of any resolution of the directors, a Treasurer shall have the care and custody of all the funds and securities of the Company and shall deposit the same in the name of the Company in such bank or banks or with such other depositary or depositories as the directors may direct. He shall keep or cause to be kept the accounting records referred to in section 172 of the Act. He may be required to give such bond for the faithful performance of his duties as the directors in their uncontrolled discretion may require but no director shall be liable for failure to require any such bond or for the insufficiency of any such bond or for any loss by reason of the failure of the Company to receive any indemnity thereby provided. 11.12 ASSISTANT SECRETARY AND ASSISTANT TREASURER: The Assistant Secretary or, if more than one, the Assistant Secretaries in order of seniority, and the Assistant Treasurer or, if more than one, the Assistant Treasurers in order of seniority, shall respectively perform all the duties of the Secretary and the Treasurer, respectively, in the absence or inability or refusal to act of the Secretary or the Treasurer, as the case may be. 11.13 GENERAL MANAGER OR MANAGER: The directors may from time to time appoint one or more General Managers or Managers and may delegate to him or them full power to manage and direct the business and affairs of the Company (except such matters and duties as by law must be transacted or performed by the directors or by the shareholders) and to employ and discharge agents and employees of the Company or may delegate to him or them any lesser authority. A General Manager or Manager shall conform to all lawful orders given to him by the directors of the Company and shall at all reasonable times give to the directors or any of them all information they may require regarding the affairs of the Company. Any agent or employee appointed by the General Manager of Manager may be discharged by the directors. 11.14 VACANCIES: If the office of any officer of the Company becomes vacant by reason of death, resignation, disqualification or otherwise, the directors by resolution shall, in the case of the Secretary, and may, in the case of any other office, appoint a person to fill such vacancy. 12. SHAREHOLDERS' MEETINGS 12.1 ANNUAL MEETING: Subject to the provisions of section 105 of the Act, the annual meeting of the shareholders shall be held on such day in each year and at such time as the directors may be resolution determine at any place within Barbados or, if all the shareholders entitled to vote at such meeting so agree, outside Barbados. 5 12.2 SPECIAL MEETINGS: Special meetings of the shareholders may be convened by order of the Chairman, the Deputy Chairman, the Managing Director, the President, a Vice-President or by the directors at any date and time and at any place within Barbados or, if all the shareholders entitled to vote at such meeting so agree, outside Barbados. 12.2.1 REQUISITIONING OF MEETING BY SHAREHOLDERS: The directors shall, on the requisition of the holders of not less than five percent of the issued shares of the Company that carry a right to vote at the meeting requisitioned, forthwith convene a meeting of shareholders, and in the case of such requisition the following provisions shall have effect: (1) The requisition must state the purposes of the meeting and must be signed by the requisitionists and deposited at the Registered Office, and may consist of several documents in like form each signed by one or more of the requisitionists. (2) If the directors do not, within twenty-one days from the date of the requisition being so deposited, proceed to convene a meeting, the requisitionists or any of them may themselves convene the meeting, but any meeting so convened shall not be held after three months from the date of such deposit. (3) Unless subsection (3) of section 129 of the Act applies, the directors shall be deemed not to have duly convened the meeting if they do not give such notice as is required by the Act within fourteen days from the deposit of the requisition. (4) Any meeting convened under this paragraph by the requisitionists shall be called as nearly as possible in the manner in which meetings are to be called pursuant to the by-laws and Divisions E and F of Part I of the Act. (5) A requisition by joint holders of shares must be signed by all such holders. 12.3 NOTICE: A printed, written or typewritten notice stating the day, hour and place of meeting shall be given by serving such notice on each shareholder entitled to vote at such meeting on each director and on the auditor of the Company in the manner specified in paragraph 18.1 hereof, not less than twenty-one days or more than fifty days (in each case exclusive of the day for which notice is given) before the date of the meeting. Notice of a meeting at which special business is to be transacted shall state (a) the nature of that business in sufficient detail to permit the shareholder to form a reasoned judgment thereon, and (b) the text of any special resolution to be submitted to the meeting. 12.4 WAIVER OF NOTICE: A shareholder and any other person entitled to attend a meeting of shareholders may in any marmer waive notice of a meeting of shareholders and attendance of any such person at a meeting of shareholders shall constitute a waiver of notice of the meeting except where such person attends a meeting for the express purpose of objecting to the transaction of any business on the grounds that the meeting is not lawfully called. 12.5 OMISSION OF NOTICE: The accidental omission to give notice of any meeting or any irregularity in the notice of any meeting or the non-receipt of any notice by any shareholder, director or the auditor of the Company shall not invalidate any resolution passed or any proceedings taken at any meeting of the shareholders. 12.6 VOTES: Every question submitted to any meeting of shareholders shall be decided in the first instance by a show of hands unless a person entitled to vote at the meeting has demanded a ballot and, if the articles so provide, in the case of an equality of votes the chairman of the meeting shall on a ballot have a casting vote in addition to any votes to which he may otherwise be entitled. 12.6.1 ENTITLEMENT TO VOTE: At every meeting at which he is entitled to vote, every shareholder, proxy holder or individual authorized to represent a shareholder who is present in person shall have one vote on a show of hands. Upon a ballot at which he is entitled to vote, every shareholder, proxy holder or individual authorized to represent a shareholder shall, subject to the articles, have one vote for every share held by the shareholder. 12.6.2 DECLARATION BY CHAIRMAN TO BE CONCLUSIVE: At any meeting unless a ballot is demanded, a declaration by the chairman of the meeting that a resolution has been carried or carried unanimously or by a particular majority or lost or not carried by a particular majority shall be conclusive evidence of the fact. 6 12.6.3 PROCEDURE FOR SELECTING ALTERNATIVE CHAIRMAN: When the Chairman, the Deputy Chairman, the President and the Vice-President are absent, the persons who are present and entitled to vote shall choose another director as chairman of the meeting; but if no director is present or all the directors present decline to take the chair, the persons who are present and entitled to vote shall choose one of their number to be chairman. 12.6.4 BALLOT MAY BE DEMANDED: A ballot may, either before or after any vote by a show of hands, be demanded by any person entitled to vote at the meeting. If at any meeting a ballot is demanded on the election of a chairman or on the question of adjournment it shall be taken forthwith without adjournment. If at any meeting a ballot is demanded on any other question or as to the election of directors, the vote shall be taken by ballot in such a manner and either at once, later in the meeting or after adjournment as the chairman of the meeting directs. The result of a ballot shall be deemed to be the resolution of the meeting at which the ballot was demanded. A demand for a ballot may be withdrawn. 12.6.5 VOTING BY JOINT SHAREHOLDERS: If two or more persons hold shares jointly, one of those holders present at a meeting of shareholders may, in the absence of the other, vote the shares; but if two or more of those persons who are present, in person or by proxy vote, they must vote as one on the shares jointly held by them. 12.7 PROXIES: Votes at meetings of shareholders may be given either personally or by proxy or, in the case of a shareholder who is a body corporate or association, by an individual authorized by a resolution of the directors or governing body of that body corporate or association to represent it at meetings of shareholders of the Company. 12.7.1 EXECUTION AND VALIDITY OF PROXY: A proxy shall be executed by the shareholder or his attorney authorized in writing and is valid only at the meeting is respect of which it is given or any adjournment thereof. 12.7.2 APPOINTEE NEED NOT BE SHAREHOLDER: A person appointed by proxy need not be a shareholder. 12.7.3 FORM OF PROXY: Subject to the provisions of Part V of the Regulations, a proxy may be in the following form: The undersigned shareholder of DECRANE INTERNATIONAL SALES, INC. hereby appoints [Name of appointee] of [Address of appointee], or failing him, [Name of alternate appointee] of [Address of alternate appointee] as the nominee of the undersigned to attend and act for the undersigned and on behalf of the undersigned at the [Annual or Special, as the case may be] Meeting of the shareholders of the said Company to be held on the day of 20 and at any adjournment or adjournments thereof in the same manner, to the same extent and with the same powers as if the undersigned were present at the said meeting or such adjournment or adjournments thereof. DATED this day of 20 . -------------- ------------------------------ --- Signature of shareholder ------------------------------------------------ 12.8 ADJOURNMENT: The chairman of any meeting may with the consent of the meeting adjourn the same from time to time to a fixed time and place and no notice of such adjournment need be given to the shareholders unless the meeting is adjourned by one or more adjournments for an aggregate of thirty days or more in which case notice of the adjourned meeting shall be given as for an original meeting. Any business that might have been brought before or dealt with at the original meeting in accordance with the notice calling the same may be brought before or dealt with at any adjourned meeting for which no notice is required. 12.9 QUORUM: Subject to the Act, except in the case of a Company having only one shareholder, a quorum for the transaction of business at any meeting of the shareholders shall be two persons present in person, each being either a shareholder entitled to vote thereat, or a duly appointed proxy holder or representative of a shareholder so entitled. If a quorum is present at the opening of any meeting of the shareholders, the shareholders present or represented may proceed with the business of the meeting notwithstanding a quorum is not present throughout the meeting. If a quorum is not present within 30 minutes of the time fixed for a meeting of shareholders, the persons present and entitled to vote may adjourn the meeting to a fixed time and place but may not transact any other business. 7 12.10 RESOLUTION IN LIEU OF MEETING: Notwithstanding any of the foregoing provisions of this by-law a resolution in writing signed by all the shareholders entitled to vote on that resolution at a meeting of the shareholders is, subject to section 128 of the Act, as valid as if it had been passed at a meeting of the shareholders. 13. SHARES 13.1 ALLOTMENT AND ISSUANCE: Subject to the Act, the articles and any unanimous shareholder agreement, shares in the capital of the Company may be allotted and issued by resolution of the directors at such times and on such terms and conditions and to such persons or class of persons as the directors determine. 13.2 CERTIFICATES: Share certificates and the form of share transfer shall (subject to section 181 of the Act) be in such form as the directors may by resolution approve and such certificates shall be signed by a Chairman or a Deputy Chairman or a Managing Director or a President or a Vice President and the Secretary or an Assistant Secretary holding office at the time of signing. 13.2.1 ISSUANCE OF REPLACEMENT CERTIFICATE: The directors or any agent designated by the directors may in their or his discretion direct the issuance of a new share or other such certificate in lieu of and upon cancellation of a certificate that has been mutilated or in substitution for a certificate claimed to have been lost, destroyed or wrongfully taken, on payment of such reasonable fee and on such terms as to inderimity, reimbursement of expenses and evidence of loss and of title as the directors may from time to time prescribe, whether generally or in any particular case. 14. TRANSFER OF SHARES AND DEBENTURES 14.1 TRANSFER: The shares or debentures of a company may be transferred by a written instrument of transfer signed by the transferor and naming the transferee. 14.2 REGISTERS: Registers of shares and debentures issued by the Company shall be kept at the registered office of the Company or at such other place in Barbados as may from time to time be designated by resolution of the directors. 14.3 SURRENDER OF CERTIFICATES: Subject to section 179 of the Act, no transfer of shares or debentures shall be registered unless or until the certificate representing the shares or debentures to be transferred has been surrendered for cancellation. 14.4 SHAREHOLDER INDEBTED TO THE COMPANY: If so provided in the articles, the Company has a lien on a share registered in the name of a shareholder or his personal representative for a debt of that shareholder to the Company. By way of enforcement of such lien the directors may refuse to permit the registration of a transfer of such share. 15. DIVIDENDS 15.1 DIRECTORS MAY DECLARE DIVIDENDS: The directors may from time to time by resolution declare and the Company may pay dividends on the issued and outstanding shares in the capital of the Company subject to the provisions (if any) of the articles and sections 51 and 52 of the Act. 15.1.1 DIVIDENDS TO JOINT SHAREHOLDERS: in case several persons are registered as the joint holders of any shares, any one of such persons may give effectual receipts for all dividends and payments on account of dividends. 16. VOTING IN OTHER COMIPANIES 16.1 All shares or debentures carrying voting rights in any other body corporate that are held from time to time by the Company may be voted at any and all meetings of shareholders, debenture holders (as the case may be) of such other body corporate and in such manner and by such person or persons as the directors of the Company shall from time to time determine. The officers of the Company may for and on behalf of the Company from time to time: (a) execute and deliver proxies; and (b) arrange for the issuance of voting certificates or other evidence of the right to vote; in such names as they may determine without the necessity of a resolution or other action by the directors. 8 17. INFORMATION AVAILABLE TO SHAREHOLDERS 17.1 DIRECTORS MAY RESTRICT INFORMATION TO SHAREHOLDERS: Except as provided by the Act, no shareholder shall be entitled to any information respecting any details or conduct of the Company's business which in the opinion of the directors it would be inexpedient in the interests of the Company to communicate to the public. 17.2 DIRECTORS MAY PROVIDE ACCESS TO RECORDS: The directors may from time to time, subject to rights conferred by the Act, determine whether and to what extent and at what time and place and under what conditions or regulations the documents, books and registers and accounting records of the Company or any of them shall be open to the inspection of shareholders and no shareholder shall have any right to inspect any document or book or register or accounting record of the Company except as conferred by statute or authorized by the directors or by a resolution of the shareholders. 18. NOTICES 18.1 METHOD OF GIVING NOTICE: Any notice or other document required by the Act, the Regulations, the articles or the by-laws to be sent to any shareholder, debenture holder, director or auditor may be delivered personally or sent by prepaid mail or cable or telex to any such person at his latest address as shown in the records of the Company or its transfer agent and to any such director at his latest address as shown in the records of the Company or in the latest notice filed under section 66 or 74 of the Act, and to the auditor at his business address. 18.2 WAIVER OF NOTICE: Notice may be waived or the time for the notice may be waived or abridged at any time with the consent in writing of the person entitled thereto. 18.3 UNDELIVERED NOTICES: If a notice or document is sent to a shareholder or debenture holder by prepaid mail in accordance with this paragraph and the notice or document is returned on three consecutive occasions because the shareholder or debenture holder cannot be found, it shall not be necessary to send any further notices or documents to the shareholder or debenture holder until he informs the Company in writing of his new address. 18.4 SHARES AND DEBENTURES REGISTERED IN MORE THAN ONE NAME: All notices or other documents with respect to any shares or debentures registered in more than one name shall be given to whichever of such persons is named first in the records of the Company and any notice or other document so given shall be sufficient notice or delivery to all the holders of such shares or debentures. 18.5 PERSONS BECOMING ENTITLED BY OPERATION OF LAW: Subject to section 184 of the Act, every person who by operation of law, transfer or by any other means whatsoever becomes entitled to any share is bound by every notice or other document is respect of such share that, previous to his name and address being entered in the records of the Company is duly given to the person from whom he derives his title to such share. 18.6 DECEASED SHAREHOLDERS: Subject to section 184 of the Act, any notice or other document delivered or sent by prepaid mail, cable or telex or left at the address of any shareholder as the same appears in the records of the Company shall, notwithstanding that such shareholder is deceased, and whether or not the Company has notice of his death, be deemed to have been duly served in respect of the shares held by him (whether solely or with any other person) until some other person is entered in his stead in the records of the Company as the holder or one of the holders thereof and such service shall for all purposes be deemed a sufficient service of such notice or document on his personal representatives and on all persons, if any interested with him in such shares. 18.7 SIGNATURE TO NOTICES: The signature of any director or officer of the Company to any notice or document to be given by the Company may be written, stamped, typewritten or printed or partly written, stamped, typewritten or printed. 18.8 COMPUTATION OF TIME: Where a notice extending over a number of days or other period is required under any provisions of the articles or the by-laws the day of sending the notice shall, unless it is otherwise provided, be counted in such number of days or other period. 18.9 PROOF OF SERVICE: Where a notice required under paragraph 18.1 hereof is delivered personally to the person to whom it is addressed or delivered to his address as mentioned in paragraph 18.1 hereof, service shall be deemed to be at the time of delivery of such notice. 9 18.9.1 NOTICE BY POST: Where such notice is sent by post, service of the notice shall be deemed to be effected forty-eight hours after posting if the notice was properly addressed and posted by prepaid mail. 18.9.2 NOTICE BY CABLE OR TELEX: Where the notice is sent by cable or telex, service is deemed to be effected on the date on which the notice is so sent. 18.9.3 CERTIFICATE OF OFFICER CONCLUSIVE EVIDENCE: A certificate of an officer of the Company in office at the time of the making of the certificate or of any transfer agent of shares of any class of the Company as to facts in relation to the delivery or sending of any notice shall be conclusive evidence of those facts. 19. CHEQUES, DRAFTS AND NOTES 19.1 All cheques, drafts or orders for the payment of money and all notes and acceptances and bills of exchange shall be signed by such officers or persons and in such manners as the directors may from time to time designate by resolution. 20. EXECUTION OF INSTRUMENTS 20.1 SIGNATURE OF THE COMPANY: Contracts, documents or instruments in writing requiring the signature of the Company may be signed by: (a) a Chairman, a Deputy Chairman, a Managing Director, a President or a Vice-President together with the Secretary or the Treasurer, or (b) any two directors and all contracts, documents and instruments in writing so signed shall be binding upon the Company without any further authorization or formality. The directors shall have power from time to time by resolution to appoint any officers or persons on behalf of the Company either to sign certificates for shares in the Company and contracts, documents and instruments in writing generally to sign specific contracts, documents or instruments in writing. 20.1.1 USE OF COMMON SEAL: The common seal of the Company may be affixed to contracts, documents and instruments in writing signed as aforesaid or by any officers or persons specified in paragraph 20.1 hereof. 20.1.2 DELEGATION OF AUTHORITY TO SIGN AND EXECUTE: Subject to section 134 of the Act: (a) a Chairman, a Deputy Chairman, a Managing Director, a President or a Vice-President together with the Secretary or the Treasurer, or (b) any two directors shall have the authority to sign and execute (under the seal of the Company or otherwise) all instruments that may be necessary for the purpose of selling, assigning, transferring, exchanging, converting or conveying any such shares, stocks, bonds, debentures, rights, warrants or other securities. 21. SIGNATURES 21.1 The signature of a Chairman, a Deputy Chairman, a Managing Director, a President, a Vice-President, the Secretary, the Treasurer, an Assistant Secretary or an Assistant Treasurer or any director of the Company or of any officer or person, appointed pursuant to paragraph 20 hereof by resolution of the directors may, if specifically authorized by resolution of the directors, be printed, engraved, lithographed or otherwise mechanically reproduced upon any certificate for shares in the Company or contract, document or instrument in writing, bond, debenture or other security of the Company executed or issued by or on behalf of the Company. Any document or instrument in writing on which the signature of any such officer or person is so reproduced shall be deemed to have been manually signed by such officer or person whose signature is so reproduced and shall be as valid to all intents and purposes as if such document or instrument in writing had been signed manually and notwithstanding that the officer or person whose signature is so reproduced has ceased to hold office at the date on which such document or instrument in writing is delivered or issued. 10 22. FINANCIAL YEAR 22.1 The fiscal year end of the company shall conform to the taxable year of its principal shareholder(s) ENACTED this 3rd day of January, 2000 (Corporate Seal) /s/ R. JACK DECRANE /s/ RICHARD J. KAPLAN - ------------------------------- ----------------------------------- R. Jack DeCrane Richard J. Kaplan Chairman Secretary 11 EX-3.29-1 4 a2040254zex-3_291.txt EXHIBIT 3.29.1 EXHIBIT 3.29.1 CERTIFICATE OF LIMITED PARTNERSHIP 1. The name of the limited partnership is DeCrane Aircraft Furniture Co., LP. 2. The address of the registered office is c/o CT Corporation System, 350 N. St. Paul Street, Dallas, Texas 75201. 3. The name of the registered agent at the above address is CT Corporation System. 4. The address where records of the partnership are to be kept or made available is 2361 Rosecrans Avenue, Suite 180, El Segundo, California 90245. 5. The name, mailing address and street address of the business or residence of each general partner is as follows:
GENERAL PARTNER MAILING ADDRESS BUSINESS OR RESIDENCE STREET ADDRESS --------------- --------------- ------------------------------------ DAH-IP Holdings, 2361 Rosecrans Avenue, 2361 Rosecrans Avenue Inc. Suite 180 Suite 180 El Segundo, CA 90401 El Segundo, CA 90401
June 7, 2000 DeCrane Aircraft Furniture Co., LP By: DAH-IP Holdings, Inc. Its: General Partner By: /s/ STEPHEN A. SILVERMAN -------------------------- Stephen A. Silverman Assistant Secretary EX-3.29-2 5 a2040254zex-3_292.txt EXHIBIT 3.29.2 EXHIBIT 3.29.2 DECRANE AIRCRAFT FURNITURE CO., L.P. LIMITED PARTNERSHIP AGREEMENT This Limited Partnership Agreement dated as of the 8th day of June, 2000 is entered into among DAH-IP Holdings, Inc., a Delaware corporation (the "General Partner") and DAH-IP Infinity, Inc., a Delaware corporation (the "Limited Partner") (the General Partner and the Limited Partner are referred to below collectively as the "Partners" and individually as a "Partner"), and is made with reference to the following facts: WHEREAS, the Partners formed this limited partnership (the "Partnership") pursuant to the Texas Revised Limited Partnership Act (the "Act") on June 8, 2000. WHEREAS, the Partners desire to set forth in this Agreement their understanding as to how the Partnership will be administered. NOW, THEREFORE, in consideration of the mutual provisions and understandings contained in this Agreement, the Partners hereby agree as follows: SECTION 1 PARTNERSHIP FORMATION AND IDENTIFICATION 1.1 FORMATION. Partners admitted on the date hereof formed the Partnership as a limited partnership pursuant to the Texas Revised Limited Partnership Act. 1.2 NAME AND PLACE OF BUSINESS. The name of the Partnership shall be the DeCrane Aircraft Furniture Co., L.P. or such other name or names as may be selected by the General Partner from time to time with written notice given to the Limited Partner of such change. The principal place of business of the Partnership shall be 11451 Jones Maltsberger, San Antonio, Texas 78216, unless changed by the General Partner with written notice given to the Limited Partner of such change. The Partnership may also maintain such other offices at such other places as the General Partner may deem advisable. 1.3 ADDRESS OF PARTNERS. The address of the Limited Partner is 2361 Rosecrans #180, El Segundo, California 90245. The address of the General Partner is 2361 Rosecrans #180, El Segundo, California 90245. A Limited Partner may change its address by written notice to the General Partner, and the General Partner may change its address by written notice to each Limited Partner. Page 1 1.4 CERTIFICATE. The General Partner has prepared, executed and acknowledged a separate Certificate of Limited Partnership pursuant to the power of attorney contained in Section 11. This Certificate of Limited Partnership was recorded in the office of the Secretary of State of the State of Texas on June 8, 2000. 1.5. INVESTMENT INTENT. The Limited Partner represents and warrants that its interest in the Partnership has been acquired for investment purposes and that it is not acquiring such interest with a view toward the sale or distribution of all or any part thereof. The Limited Partner acknowledges that the issuance of its interest in the Partnership has not been registered under the Securities Act of 1933 (the "33 Act"), or qualified under any state securities or blue sky law in reliance on exemptions from such registration and qualification afforded by the 1933 Act and state securities and blue sky laws. SECTION 2 PURPOSE AND NATURE OF BUSINESS The purpose of the Partnership and business to be carried on by it, subject to the limitations contained elsewhere in this Agreement, are: (a) To acquire certain assets of The Aviart Group, Incorporated and its affiliates. (b) To engage in the design, engineering, manufacture, sale or servicing of cabin cabinetry, furniture or fixtures or equipment for commercial or corporate aircraft or fixtures or equipment for commercial or corporate aircraft or general aviation aircraft; and (c) To enter into and perform any contracts and agreements, and carry on any activities, incidental to the accomplishment of the foregoing purpose. SECTION 3 TERM The Partnership shall commence on formation pursuant to Section 1 and shall continue in full force and effect until March 31, 2050, unless extended by amendment of this Agreement or unless the Partnership is dissolved prior to that date as hereinafter provided. SECTION 4 FISCAL YEAR The Fiscal Year of the Partnership for financial reporting and tax purposes shall be the calendar year. If, however, the General Partner determines that a change to some other fiscal year for either financial reporting or tax purposes would be in the best interests of the Page 2 Partnership, the General Partner shall be entitled (subject to applicable laws and regulations) to make such a change. SECTION 5 AGENT FOR SERVICE OF PROCESS CT Corporation System, 350 North St. Paul Street, Dallas Texas 75201, is hereby designated as the agent of the Partnership upon whom process issued by authority of or under any law of the State of Texas may be served. SECTION 6 CAPITAL CONTRIBUTIONS AND ACCOUNTS 6.1 INITIAL CAPITAL CONTRIBUTIONS. (a) The Partners shall contribute the following cash amounts to the capital of the Partnership concurrently with the approval of this Agreement: General Partner $ 57,000 Limited Partner $ 846,000 ----------- Total $ 903,000 ===========
(b) Capital Contributions may be made cash or in kind, if such property is approved by the General Partner. 6.2 ADDITIONAL CAPITAL CONTRIBUTION. Except as otherwise provided in this Article 6, the Limited Partner shall not be obligated to make any additional capital contributions to the Partnership, PROVIDED that, upon the General Partner's request, the Limited Partner shall be entitled to make additional capital contributions in the Limited Partner's sole and absolute discretion. 6.3 LIMITED LIABILITY. The Limited Partner (i) shall not be obligated or liable to the Partnership, the General Partner, or any other person for losses in excess of the capital contributions made and required to be made by the Limited Partner under this Agreement, (ii) except as may otherwise be provided by law, shall not be liable to the Partnership, the General Partner or any other person for the repayment of amounts received from the Partnership pursuant to the terms of this Agreement, whether or not such amounts are deemed to be returns or withdrawals of capital, and (iii) shall not have any liability or obligation to any person whatsoever for any obligations or liabilities of the Partnership. 6.4 CAPITAL ACCOUNTS. The General Partner shall at all times maintain or cause to be maintained a separate capital account ("Capital Account") for each Partner which shall be credited with all Capital Contributions and maintained as provided below. Each Capital Account shall specifically reflect the name and address of the Partner and shall be maintained in accordance with Treasury Regulation Section 1.704-1(b). Page 3 SECTION 7 ALLOCATIONS AND DISTRIBUTIONS 7.1 ALLOCATIONS. (a) ALLOCATION OF LOSSES. All losses of the Partnership (including all expense items separately stated on the Partnership's tax returns) shall be allocated one percent (1%) to the General Partner and ninety-nine percent (99%) to the Limited Partner. (b) ALLOCATION OF PROFITS. Profits from operations and capital events shall be allocated one percent (1%) to the General Partner and ninety-nine percent (99%) to the Limited Partner. 7.2 DISTRIBUTIONS. (a) Cash available for distribution means and includes all cash receipts of the Partnership from any and all sources whatsoever, less all Partnership expenditures and less a reserve determined in the reasonable discretion of the General Partner. Cash available for distribution shall be distributed one percent (1%) to the General Partner and ninety-nine percent (99%) to the Limited Partner. (b) Cash available for distribution shall be distributed to the partners within thirty (30) days after the General Partner determines the availability thereof. SECTION 8 AUTHORITY OF THE GENERAL PARTNER 8.1 MANAGEMENT. The General Partner shall have full responsibility for and charge of the overall management, conduct and operation of the Partnership in all respects. Without in any way limiting or impairing the generality of the foregoing, the General Partner shall have the full power and authority to do the following: (a) Negotiate the acquisition of the assets of The Infinity Partners Ltd. (the "Assets"); (b) Manage the Assets; (c) Administer the overall operation of the Partnership; (d) Act as the tax matters partner for the Partnership in accordance with Section 8.2; (e) Perform, or cause to be performed, the following services: Page 4 (i) set up books of account, records and payment procedures, including individual accounts of the Partners; (ii) provide bookkeeping and other related services for the Partnership; (iii) collect, manage and disburse the Capital Contributions of the Partners for the purposes set forth in this Agreement; (iv) provide management, financial and business planning services to the Partnership; (v) collect receipts and make payments and expenditures in accordance with the terms of this Agreement; and (vi) make periodic reports relating to operating results, valuations and Limited Partner account balances, as required by this Agreement; (g) Employ from time to time third parties to render services to the Partnership, including attorneys and accountants who may also represent the General Partner or any of its Affiliates; (h) Appoint and designate any Person as successor or substitute agent for service of process of the Partnership and file any amendment to the Certificate of Limited Partnership necessary or appropriate in connection therewith; (i) Take whatever steps are required by governmental authorities having jurisdiction over the Partnership or its Assets; (j) Possess and exercise all of the rights and powers provided by law to a general partner in a limited partnership, except to the extent that such rights might be limited or restricted by this Agreement; (k) Process Limited Partner admissions, withdrawals and redemptions; (l) Exercise, in its sole discretion, any voting, consent or similar rights relating to the Assets and execute and deliver on behalf of the Partnership any proxies, powers of attorney, consents or other instruments relating to the exercise of those rights; and (m) Do anything else that the General Partner deems advisable to further the purposes of the Partnership and that is not prohibited by this Agreement or applicable law. Page 5 8.2 TAX MATTERS. (a) The General Partner is hereby designated the "tax matters partner" for purposes of Section 6231(a) of the Code (and regulations thereunder). (b) The General Partner is hereby authorized to withhold, out of any distributions that would otherwise be made to the Limited Partner, an amount equal to the amount of United States federal, state or local income or other tax, and any related penalties, interest or other payments, that the General Partner determines the Partnership or the General Partner is required to withhold or to pay to a taxing authority with respect to or on behalf of such Limited Partner, and to file all necessary reports relating to such withholding or payment as may be required by law. Any amounts so withheld or paid shall be deemed actually distributed to such Limited Partner for all purposes of this Agreement. Notwithstanding the foregoing, if any such amounts are deemed for tax purposes to be a Partnership deduction or expense, the amount of any such deduction or expense shall be specially allocated to the Limited Partner. If at any time (x) the amount required to be withheld or paid with respect to or on behalf of such Limited Partner shall exceed (y) the amounts that are then available for distribution to such Limited Partner, the General Partner shall notify such Limited Partner of the amount by which the amount referred to in clause (x) exceeds the amount referred to in clause (y), and such Limited Partner shall promptly pay over to the General Partner an amount of cash equal to such amount. The Limited Partner shall indemnify the Partnership and the General Partner and hold each of them harmless from any liability with respect to any taxes, penalties or interest required to be withheld or paid to any taxing authority by the Partnership or the General Partner for or on behalf of such Limited Partner or with respect to such Limited Partner. (c) The General Partner shall have the right to make such elections under the tax laws of the United States, the several states and other relevant jurisdictions as to the treatment of items of Partnership income, gain, loss, deduction and credit and as to all other relevant matters as it believes necessary, appropriate and desirable. (d) The General Partner may make or petition to revoke (as the case may be) the election referred to in Section 754 of the Code. Each Partner agrees in the event of such an election to supply promptly to the Partnership the information necessary to give effect thereto. 8.3 DOING BUSINESS OUTSIDE TEXAS. In the event that the Partnership engages in any business permitted by this Agreement in jurisdictions other than Texas, and the General Partner deems it advisable in order to protect the limited liability of the Limited Partner or to comply with applicable laws and regulations, the General Partner may, and, to the extent required by law, shall: (a) File or record this Agreement, a certificate of limited partnership or other documents or instruments in such other jurisdictions; (b) Establish and form a new limited partnership(s) in such other jurisdictions pursuant to such jurisdiction's laws and regulations, which limited partnership(s) shall Page 6 have the Partnership or the Limited Partner as a limited partner or as limited partners and the General Partner as the general partner; (c) Obtain opinions of counsel in such other jurisdictions; and (d) Take such other actions as shall be deemed advisable by the General Partner. 8.4 MANAGEMENT FEE OF GENERAL PARTNER. The General Partner will not receive a Management Fee for its services hereunder. 8.5 EXPENSES OF THE PARTNERSHIP. The General Partner shall be entitled to reimbursement in full from the Partnership for (or cause the Partnership to pay directly) all properly substantiated expenses, costs and fees directly incurred in connection with the formation, operation and termination of the Partnership. 8.6 LIMITED PARTNER'S CONSENT. To the fullest extent permitted by law, the Limited Partner hereby consents to the exercise by the General Partner of the powers conferred on it by this Agreement. 8.7 AMENDMENTS. (a) This Agreement may be amended only in a writing signed by all of the Partners. (b) Notwithstanding paragraph (a) of this Section, the General Partner may amend this Agreement, without providing written notice to the Limited Partner thereof, to: (i) make a change that is necessary or, in the opinion of the General Partner, advisable to qualify the Partnership as a limited partnership or a partnership in which the Limited Partner have limited liability under the laws of any jurisdiction, or to ensure that the Partnership will not be treated as an association taxable as a corporation for federal income tax purposes; (ii) supply any omission or make any change that is necessary or desirable to cure any ambiguity, or to correct or supplement any provision in this Agreement that would be inconsistent with any other provision in this Agreement; or (iii) make any change that is necessary or desirable to satisfy any opinion, order or ruling of any federal, state or other governmental statutes, so long as such change minimizes any adverse effect on the Limited Partner, or that is required or contemplated by this Agreement. 8.8 GENERAL PARTNER LIABILITY. Except as otherwise required by law, neither of the General Partner nor any of its Affiliates, directors, officers, employees, shareholders, assigns, representatives or agents shall be liable, responsible or accountable in damages or otherwise to the Partnership or the Limited Partner for any loss, liability, damage, settlement cost, or other expense incurred by reason of any act or omission performed or omitted by such Person so long as such Person is not determined to be guilty by a final adjudication of gross negligence or willful misconduct with respect to such act or omission. The General Partner may Page 7 separately engage or invest in other business ventures that may be in competition with the Partnership. SECTION 9 LIMITED PARTNER 9.1 NO MANAGEMENT POWER OR LIABILITY. Except as specifically provided herein to the contrary, the Limited Partner shall have no rights or power in the management of, or the transaction of any business by, the Partnership and shall have no power or authority to sign for or bind the Partnership. SECTION 10 TRANSFER OF PARTNERS' INTERESTS; WITHDRAWALS 10.1 RESTRICTIONS ON TRANSFER. Each Partner shall not voluntarily or involuntarily sell, convey, assign, mortgage, pledge, hypothecate, encumber or otherwise transfer (collectively, "Transfer") its interest in the Partnership or any part thereof without the prior written consent of the other Partner, which consent may not be unreasonably withheld. 10.2 SUBSTITUTED LIMITED PARTNER. (a) No transferee of a Limited Partner's interest in the Partner shall have the right to become a Limited Partner ("Substitute Limited Partner") in place of its transferor unless and until all of the following conditions have been satisfied: (i) The General Partner has consented in writing to the substitution; (ii) The assignor and assignee execute, acknowledge and deliver such instruments as the General Partner deems necessary, appropriate or desirable to effect such substitution; and (iii) The Substituted Limited Partner agrees to bear all expenses and costs of such substitution, including legal fees and filing fees of the Partnership. (b) An assignee, Legal Representative or successor in interest of a Limited Partner shall be subject to all of the restrictions upon a Limited Partner provided in this Agreement. (c) If an assignee, Legal Representative or successor in interest of a Limited Partner is not admitted as a Substituted Limited Partner (a "Nonadmitted Transferee"), such Nonadmitted Transferee shall become a holder of record of the Limited Partnership interest and shall be entitled to receive distributions in respect of such Units as herein provided but otherwise shall have none of the rights or obligations of a Limited Partner. Page 8 SECTION 11 POWER OF ATTORNEY 11.1 APPOINTMENT OF GENERAL PARTNER AS ATTORNEY FOR LIMITED PARTNERS. The Limited Partner makes, constitutes and appoints the General Partner its true and lawful attorney-in-fact, in its name, place and stead, with full power to do any of the following: (a) File and record this Agreement and all amendments to this Agreement made in accordance with this Agreement; (b) Prepare, execute on its behalf, verify, file and record amendments to this Agreement; (c) Prepare, execute on its behalf, file and record a Certificate of Limited Partnership and all amendments that the General Partner may deem advisable, including amendments to reflect the changes identified in clause (b) above; (d) Prepare, execute on its behalf, file and record any other agreements, certificates, instruments and other documents required to continue the Partnership, to admit Substituted Limited Partner, to liquidate and dissolve the Partnership, to comply with applicable law, and to carry out the purposes of clauses (a) and (b) above, to the extent consistent with this Agreement; (e) Take any further action that the General Partner shall consider advisable in connection with the exercise of the authority pursuant to this Section. 11.2 NATURE OF SPECIAL POWER. The power of attorney granted under this Section 11 is a special power of attorney coupled with an interest, is irrevocable and may be exercised by the General Partner by listing all of the Partners executing any agreement, certificate, instrument or document with a single signature of such attorney-in-fact acting as attorney-in-fact for all of them. SECTION 12 BOOKS AND RECORDS The General Partner shall maintain the books and records required by law for the Partnership at its principal office and all Partners have the right to inspect, examine and copy such books and records at reasonable times and upon reasonable notice. Upon the request of a Limited Partner, the General Partner shall promptly deliver to the requesting Limited Partner, at the expense of the Partnership, a copy of any information which the General Partner is required by law to so provide. Page 9 SECTION 13 ADMISSION OF ADDITIONAL PARTNERS, GENERAL PARTNER REMOVAL, ETC. 13.1 ADMISSION OF PARTNERS. No additional Partners shall be admitted to the Partnership without the written consent of all Partners. 13.2 VOLUNTARY WITHDRAWAL; HYPOTHECATION. The General Partner shall have the right to resign as General Partner of the Partnership at any time in its sole discretion, upon 30 days' prior written notice. The General Partner may pledge or grant a security interest in its right to receive payments and distributions under this Agreement. 13.2 REMOVAL OF THE GENERAL PARTNER; INSOLVENCY, ETC. (a) The General Partner may be removed as general partner without its consent only by reason of the General Partner's fraud, willful misconduct or gross negligence in connection with operations of the Partnership, which fraud, willful misconduct or gross negligence shall have had a material adverse effect on the business or properties of the Partnership, or if the General Partner shall cease to be capable of properly performing its duties hereunder. Immediately prior to the effective date of such removal or upon the resignation of the General Partner, a successor General Partner may be appointed to continue the business of the Partnership upon the written consent of the Limited Partner. (b) The General Partner shall cease to be the General Partner of the Partnership if the General Partner is dissolved, or if an order for relief against the General Partner is entered under Chapter 7 of the federal bankruptcy law, or if: (i) the General Partner makes a general assignment for the benefit of creditors, (ii) the General Partner files a voluntary petition under the federal bankruptcy law, (iii) the General Partner files a petition or answer seeking for the General Partner any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any statute, law, or regulation, (iv) the General Partner files an answer or other pleading admitting or failing to contest the material allegations of a petition filed against the General Partner in any proceeding of this nature, (v) the General Partner seeks, consents to, or acquiesces in the appointment of a trustee, receiver, or liquidator of the General Partner or of all or any substantial part of the General Partner's properties, (vi) 60 days after the commencement of any proceeding against the General Partner seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any statute, law or regulation, and the proceeding has not been dismissed, or (vii) within 60 days after the appointment without the General Partner's consent or acquiescence of a trustee, receiver, or liquidator of the General Partner or of all or any substantial part of the General Partner's properties, the appointment is not vacated or stayed, or within 60 days after the expiration of any such stay, the appointment is not vacated. Immediately prior to the effective date of the General Partner's cessation of service as General Partner, a successor General Partner may be appointed to continue the business of the Partnership with the written consent of not less than all of the remaining Partners. (c) If the Limited Partner removes the General Partner in accordance with Section 13.2(a), a notice of removal specifying the effective date of removal shall be served on Page 10 the General Partner either by certified or by registered mail, return receipt requested, or by personal service. (d) Any successor General Partner shall have the same rights and obligations under this Agreement as the replaced General Partner would have had subsequent to such date if the replaced General Partner has continued to act as General Partner. SECTION 14 DISSOLUTION AND TERMINATION OF THE PARTNERSHIP 14.1 EVENTS CAUSING DISSOLUTION. The Partnership shall be dissolved and terminated and its Assets distributed in the manner and order provided for in this Section upon expiration of the term of the Partnership unless earlier dissolved under the following provisions: (a) The General Partner may elect to dissolve the Partnership following the sale of all or substantially all of the Assets of the Partnership; (b) The General Partner may elect to dissolve the Partnership in the event that the General Partner determines that as a result of the application to the Partnership or a Partner of legal restrictions, the Partnership, the Limited Partner or the General Partner may be materially and adversely affected; (c) When the General Partner resigns, is removed or otherwise ceases to be the General Partner of the Partnership, the Partnership shall be dissolved and terminated unless a successor General Partner has been appointed; or (d) A court of competent jurisdiction decrees dissolution. Notwithstanding provisions (a) through (d) above, the General Partner may elect to terminate the Partnership in its sole and absolute discretion. 14.2 DISTRIBUTION AND VALUATION OF ASSETS ON LIQUIDATION. (a) In liquidating the Partnership, the General Partner will make distributions in cash, in kind, or partly in cash and partly in kind as the General Partner may determine. The General Partner need not distribute all of the Assets at once, but may make partial distributions. (b) Subject to subsection (c) below, the Assets of the Partnership, after allowing for claims of creditors of the Partnership, the Management Fees of the General Partner, claims by the General Partner for expenses, charges or deductions of the Partnership paid by it, or any other liabilities of the Partnership, shall be distributed to the Partners in the proportions that their respective positive Capital Account balances bear to each other. In the case of a distribution in kind of any Assets, such Assets shall be treated as though they were sold immediately prior to such distribution for their fair market value, and the Capital Accounts shall be adjusted to reflect such deemed sale. Page 11 (c) In the event the Partnership is "liquidated" within the meaning of Treasury Regulation Section 1.704-1(b)(2)(ii)(g), the distributions pursuant to this Article shall be made, to the extent possible, within the time period required by Treasury Regulation Section 1.704-1(b)(2)(ii)(b)(2). Where necessary and desirable to comply with the preceding sentence, distributions may be made to a trust established for the benefit of the Partners for the purposes of liquidating Partnership Assets, collecting amounts owed to the Partnership and paying any contingent or unforeseen liabilities or obligations of the Partnership or of the General Partner arising out of or in connection with the Partnership. The General Partner or the liquidator, as the case may be, shall distribute the assets of any such trust to the Partners from time to time in the same proportions as the amount distributed to the trust by the Partnership would otherwise have been distributed to the Partners pursuant to this Agreement. SECTION 15 GENERAL PROVISIONS 15.1 NOTICES. Except as otherwise provided herein, any notice, distribution, offer or other communication which shall be given to any Partner in connection with the Partnership or this Agreement shall be duly given if reduced to writing and either personally delivered or sent by mail, postage prepaid, or facsimile transmission, telex or telegraph to the address most recently furnished by the Limited Partner for such purpose and if so mailed shall conclusively be deemed received five days after mailing, or if sent by facsimile transmission, telex or telegraph shall conclusively be deemed received the day after being so sent. 15.2 SURVIVAL OF RIGHTS. This Agreement shall be binding upon and, as to permitted or accepted successors, transferees and assigns, inure to the benefit of the Partners and the Partnership and their respective heirs, legatees, legal representatives, successors, transferees and assigns, in all cases whether by the laws of descent and distribution, sale of assets, other sale, operation of law, or, without limitation, otherwise. 15.3. CONSTRUCTION. The language in all parts of this Agreement shall be in all cases construed simply according to its fair meaning and not strictly for or against the Limited Partner or the General Partner. 15.4. SECTION HEADINGS. The captions of the sections in this Agreement are for convenience only and shall not be used in construing or interpreting this Agreement. 15.5. AGREEMENT IN COUNTERPARTS. This Agreement and any amendments hereto may be executed in multiple counterparts, each of which shall be deemed an original agreement and all of which shall constitute one and the same agreement, notwithstanding the fact that all Partners are not signatories to the original or the same counterpart. 15.6. GOVERNING LAW. This Agreement shall be construed according to the internal laws, and not the laws pertaining to choice or conflict of laws, of the State of Texas. Page 12 15.7 ADDITIONAL DOCUMENTS. Each Partner, upon the request of the General Partner, agrees to perform all further acts and execute, acknowledge and deliver all further documents which may be reasonably necessary, appropriate or desirable to carry out the provisions of this Agreement, including but not limited to acknowledging before a Notary Public any signature heretofore or hereafter made by a Partner. 15.8 ENTIRE AGREEMENT. This Agreement as may have been executed and delivered by the Limited Partner (a) constitutes the entire Agreement of the Partners with respect to the Partnership, and (b) supersedes all prior written and prior and contemporaneous oral agreements, understandings and negotiations with respect to the Partnership. Page 13 EX-10.6-1 6 a2040254zex-10_61.txt EXHIBIT 10.6.1 EXHIBIT 10.6.1 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT ("Amendment No. 1") is entered into as of the 5th day of May, 2000 by and between DeCrane Aircraft Holdings, Inc., a Delaware corporation (the "Company") and R. Jack DeCrane (the "Executive"). WHEREAS, the parties hereto have entered into that certain Employment Agreement, dated as of July 17, 1998 (the "Employment Agreement"), pursuant to which the Company agreed to employ the Executive, and the Executive agreed to accept such employment, under certain terms and conditions set forth therein. WHEREAS, the parties have agreed to amend the Employment Agreement to alter certain of the provisions therein. NOW, THEREFORE, in consideration of the foregoing recitals and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows: 1. AMENDMENT TO SECTION 1. Section 1 shall hereby be deleted in its entirety and replaced with the following: "TERM OF AGREEMENT. Except as otherwise provided herein, the term of this Agreement shall commence effective July 1, 1998, shall continue through June 30, 2001, and shall automatically extend for additional one year periods unless terminated by either party giving the other party notice of termination prior to April 1 of the year prior to the year in which the agreement would otherwise terminate (the "Term")." 2. AMENDMENT TO SECTION 2. The following sentence shall be added immediately after the first sentence of Section 2: "The Executive shall report directly and exclusively to the Board of Directors of the Company." 3. AMENDMENT TO SECTION 3. The following language shall be added immediately following "1993 Share Incentive Plan" in the first sentence of Section 3(C): "and the Incentive Compensation Plan approved by the Board of Directors of the Company in December, 1999" 4. FULL FORCE AND EFFECT. Except as expressly set forth in this Amendment No. 1, the Employment Agreement shall remain unchanged and in full force and effect. 5. GOVERNING LAW. This Amendment No. 1 is to be governed by and construed in accordance with the laws of the State of California. 6. HEADINGS. The subject headings of the sections and subsections of this Amendment No. 1 are included for purposes of convenience only and shall not affect the construction or interpretation of any of its provisions. 7. COUNTERPARTS. This Amendment No. 1 may be executed in any number of counterparts, each of which when executed and delivered shall be deemed to be an original, and all of which together shall be deemed to be one and the same instrument. 8. ENTIRE AGREEMENT. This Amendment No. 1 and the Employment Agreement constitute the entire agreement between the parties hereto with respect to the transactions contemplated herein, and supersede all prior agreements and understandings, whether written or oral, between the parties with respect to the subject matter of this Amendment No. 1 and the Employment Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 1 as of the date set forth above. DECRANE AIRCRAFT HOLDINGS, INC., a Delaware corporation "Company" By: ---------------------------------- Name: -------------------------------- Its: --------------------------------- "Executive" /s/ R. JACK DECRANE -------------------------------------- R. Jack DeCrane EX-10.23-1 7 a2040254zex-10_231.txt EXHIBIT 10.23.1 EXHIBIT 10.23.1 CHANGE OF CONTROL AGREEMENT This Change of Control Agreement (the "Agreement") is made and entered into September 27, 2000 by and between DeCrane Aircraft Holdings, Inc. (the "Company") and Mike Abeles ("Executive") based on the following facts: A. Executive is currently employed by the Company in the capacity as Director of Planning and Analysis and is a key executive of the Company. B. The Company desires to define the terms and conditions of any termination of employment upon a Change of Control (as defined herein) in the Company. Based on the foregoing facts and circumstances and for good and valuable consideration, receipt of which is hereby acknowledged, the Company and Executive agree as follows: 1. TERM OF AGREEMENT. Except as otherwise provided herein, the term of this Agreement shall commence effective the date hereof and shall continue for one year (the "Term"). 2. A. COMPENSATION UPON TERMINATION FOLLOWING A CHANGE OF CONTROL. In the event that (i) a Change of Control shall have occurred during the term of this Agreement and while Executive is employed by the Company and (ii) the Executive's employment shall be involuntarily terminated for any reason on a date which is less than one year after the date of the Change of Control (whether during or after the term of this Agreement) other than for Cause, death or disability or Executive shall terminate his employment for Good Reason, then the Company shall make the following payments to Executive within 15 days following the date of such termination of employment (the "Termination Date"), subject in each case to any applicable payroll or other taxes required to be withheld. (1) The Company shall pay Executive a lump sum amount in cash equal to the sum of (a) Executive's monthly base salary multiplied by a number equal to 12 minus the number of whole months elapsed from the date of the Change of Control to the Termination Date (the "Multiplier") and (b) Executive's average annual bonus including in such average any such annual bonus earned (even though such bonus may be paid in the year following the year in which earned), (computed over the shorter of (x) the period of Executive's employment by the Company or (y) five calendar years each as measured to the day immediately preceding the Termination Date) divided by 12 and multiplied by the Multiplier. 1 (2) The Company shall pay Executive a lump sum amount in cash equal to accrued but unpaid salary and bonus through the Termination Date, and unpaid salary with respect to any vacation days accrued but not taken as of the Termination Date. B. DEFINITIONS. (1) As used in this Agreement, "Change of Control" shall mean an event involving the Company of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), assuming that such Schedule, Regulation and Act applied to the Company, provided that such a Change of Control shall be deemed to have occurred at such time as: (i) any "person" (as that term is used in Sections 13(d) and 14(d)(2) of the Exchange Act) (other than an Excluded Person (as defined below)) becomes, directly or indirectly, the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of securities representing 20% or more of the combined voting power for election of members of the Board of Directors of the then outstanding voting securities of the Company or any successor of the Company, excluding any person whose beneficial ownership of securities of the Company or any successor is obtained in a merger or consolidation not included in paragraph (iii) below; (ii) during any period of two consecutive years or less, individuals who at the beginning of such period constituted the Board of Directors of the Company cease, for any reason, to constitute at least a majority of the Board, unless the appointment, election or nomination for election of each new member of the Board (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) was approved by a vote of at least two-thirds of the members of the Board of Directors then still in office who were members of the Board at the beginning of the period or whose appointment, election or nomination was so approved since the beginning of such period; (iii) there is consummated any merger, consolidation or similar transaction to which the Company is a party as a result of which the persons who were equity holders of the Company immediately prior to the effective date of the merger or consolidation shall have beneficial ownership of less than 50% of the combined voting power for election of members of the Board of Directors (or equivalent) of the surviving entity or its parent following the effective date of such merger or consolidation; (iv) any sale or other disposition (or similar 2 transaction) (in a single transaction or series of related transactions) of (x) 50% or more of the assets or earnings power of the Company or (y) business operations which generated a majority of the consolidated revenues (determined on the basis of the Company's four most recently completed fiscal quarters for which reports have been completed) of the Company and its subsidiaries immediately prior thereto, other than a sale, other disposition, or similar transaction to an Excluded Person or to an entity of which equityholders of the Company beneficially own at least 50% of the combined voting power; (v) any liquidation of the Company. For purposes of this definition of Change of Control, the term "Excluded Person" shall mean and include (i) any corporation beneficially owned by shareholders of the Company in substantially the same proportion as their ownership of shares of the Company and (ii) the Company. (2) As used in this Agreement, "Good Reason" shall mean the occurrence, following a Change of Control, of any one of the following events without Executive's consent: (i) the Company assigns Executive to any duties substantially inconsistent with his position, duties, responsibilities, status or reporting responsibility with the Company immediately prior to the Change of Control, or assigns Executive to a position that does not provide Executive with substantially the same or better compensation, status, responsibilities and duties as Executive enjoyed immediately prior to the Change of Control; (ii) the Company reduces the amount of Executive's base salary as in effect as of the date of the Change of Control or as the same may be increased thereafter from time to time, except for across-the-board salary reductions similarly affecting all senior executives of the Company; (iii) the Company fails to pay Executive an annual bonus consistent with past practices and bonuses consistent with past practices are paid to any other senior executives of the Company; (iv) the Company changes the location at which Executive is employed by more than 50 miles from the location at which Executive is employed as of the date of this Agreement; or (v) the Company breaches this Agreement in any material respect, including without limitation failing to obtain a succession agreement from any successor to assume and agree to perform this Agreement. (3) For Cause. As used in this Agreement, "Cause" shall mean (i) any material act of dishonest constituting a felony (of which Executive is convicted or pleads guilty) which results or is intended to result directly or indirectly in substantial gain or personal enrichment to Executive at the expense of the Company, or (ii) after notice of 3 breach delivered to Executive specifying in reasonable detail and a reasonable opportunity for Executive to cure the breaches specified in the notice, the Board, acting by a two thirds vote, after a meeting held for the purpose of making such determination and after reasonable notice to Executive and an opportunity for him together with his counsel to be heard before the Board, determines, in good faith, other than for reasons of physical or mental illness, Executive willfully and continually fails to substantially perform his duties pursuant to this Agreement and such failure results in demonstrable material injury to the Company. The following shall not constitute Cause: (i) Executive's bad judgment or negligence, (ii) any act or omission by Executive without intent of gaining therefrom directly or indirectly a profit to which Executive was not legally entitled, (iii) any act or omission by Executive with respect to which a determination shall have been made that Executive met the applicable standard of conduct prescribed for indemnification or reimbursement of payment of expenses under the By-Laws of the Company or the laws of the State of Delaware as in effect at the time of such act or omission. 3. MITIGATION. Executive is not required to seek other employment or otherwise mitigate the amount of any payments to be made by the Company pursuant to this Agreement. 4. ASSIGNMENT. Neither Company nor Executive shall have the right to assign its respective rights pursuant to this Agreement. The Company shall require any proposed successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance reasonably satisfactory to Executive, to expressly assume and agree to perform this agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place, concurrent with the execution of a definitive agreement with the Company to engage in such transaction. 5. This Agreement shall be binding on the inure to the benefit of Executive and his heirs and the Company and any permitted assignee. The Company shall not engage in any transaction, including a merger or sale of assets unless, as a condition to such transaction such successor organization assumes the obligations of the Company pursuant to this Agreement. 4 6. NOTICES. If to Company: DeCrane Aircraft Holdings, Inc. 2361 Rosecrans Avenue, Suite 180 El Segundo, CA 90245 Attention: Chief Financial Officer Fax: 310-643-0746 If to Executive: Mike Abeles __________________________________ __________________________________ Fax: ____________________________ 7. FACSIMILE SIGNATURES, EXECUTION AND DELIVERY. This Agreement shall be effective upon transmission of a signed facsimile by one party to the other. 8. MISCELLANEOUS. This Agreement supersedes and makes void any prior agreement between the parties and sets forth the entire agreement and understanding of the parties hereto with respect to the matters covered hereby, and may not otherwise be amended or modified except by written agreement executed by the Company and the Executive. This Agreement shall be governed by and construed in accordance with the laws of the State of California. This Agreement has been executed on the date specified in the first paragraph. DECRANE AIRCRAFT HOLDINGS, INC. By: -------------------------------- Authorized Signature EXECUTIVE -------------------------------- Mike Abeles 5 EX-10.23-2 8 a2040254zex-10_232.txt EXHIBIT 10.23.2 EXHIBIT 10.23.2 CHANGE OF CONTROL AGREEMENT This Change of Control Agreement (the "Agreement") is made and entered into September 27, 2000 by and between DeCrane Aircraft Holdings, Inc. (the "Company") and Chuck Becker ("Executive") based on the following facts: A. Executive is currently employed by the Company in the capacity as President, Cabin Management Group and is a key executive of the Company. B. The Company desires to define the terms and conditions of any termination of employment upon a Change of Control (as defined herein) in the Company. Based on the foregoing facts and circumstances and for good and valuable consideration, receipt of which is hereby acknowledged, the Company and Executive agree as follows: 1. TERM OF AGREEMENT. Except as otherwise provided herein, the term of this Agreement shall commence effective the date hereof and shall continue for two years (the "Term"). 2. A. COMPENSATION UPON TERMINATION FOLLOWING A CHANGE OF CONTROL. In the event that (i) a Change of Control shall have occurred during the term of this Agreement and while Executive is employed by the Company and (ii) the Executive's employment shall be involuntarily terminated for any reason on a date which is less than one year after the date of the Change of Control (whether during or after the term of this Agreement) other than for Cause, death or disability or Executive shall terminate his employment for Good Reason, then the Company shall make the following payments to Executive within 15 days following the date of such termination of employment (the "Termination Date"), subject in each case to any applicable payroll or other taxes required to be withheld. (1) The Company shall pay Executive a lump sum amount in cash equal to the sum of (a) Executive's monthly base salary multiplied by a number equal to 24 minus the number of whole months elapsed from the date of the Change of Control to the Termination Date (the "Multiplier") PROVIDED, HOWEVER, that in no event shall the Multiplier be less than six, and (b) Executive's average annual bonus including in such average any such annual bonus earned (even though such bonus may be paid in the year following the year in which earned), (computed over the shorter of (x) the period of Executive's employment by the Company or (y) five calendar years each as measured to the day immediately preceding the Termination Date) divided by 12 and multiplied by the Multiplier. 1 (2) The Company shall pay Executive a lump sum amount in cash equal to accrued but unpaid salary and bonus through the Termination Date, and unpaid salary with respect to any vacation days accrued but not taken as of the Termination Date. B. DEFINITIONS. (1) As used in this Agreement, "Change of Control" shall mean an event involving the Company of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), assuming that such Schedule, Regulation and Act applied to the Company, provided that such a Change of Control shall be deemed to have occurred at such time as: (i) any "person" (as that term is used in Sections 13(d) and 14(d)(2) of the Exchange Act) (other than an Excluded Person (as defined below)) becomes, directly or indirectly, the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of securities representing 20% or more of the combined voting power for election of members of the Board of Directors of the then outstanding voting securities of the Company or any successor of the Company, excluding any person whose beneficial ownership of securities of the Company or any successor is obtained in a merger or consolidation not included in paragraph (iii) below; (ii) during any period of two consecutive years or less, individuals who at the beginning of such period constituted the Board of Directors of the Company cease, for any reason, to constitute at least a majority of the Board, unless the appointment, election or nomination for election of each new member of the Board (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) was approved by a vote of at least two-thirds of the members of the Board of Directors then still in office who were members of the Board at the beginning of the period or whose appointment, election or nomination was so approved since the beginning of such period; (iii) there is consummated any merger, consolidation or similar transaction to which the Company is a party as a result of which the persons who were equity holders of the Company immediately prior to the effective date of the merger or consolidation shall have beneficial ownership of less than 50% of the combined voting power for election of members of the Board of Directors (or equivalent) of the surviving entity or its parent following the effective date of such merger or consolidation; (iv) any sale or other disposition (or similar 2 transaction) (in a single transaction or series of related transactions) of (x) 50% or more of the assets or earnings power of the Company or (y) business operations which generated a majority of the consolidated revenues (determined on the basis of the Company's four most recently completed fiscal quarters for which reports have been completed) of the Company and its subsidiaries immediately prior thereto, other than a sale, other disposition, or similar transaction to an Excluded Person or to an entity of which equityholders of the Company beneficially own at least 50% of the combined voting power; (v) any liquidation of the Company. For purposes of this definition of Change of Control, the term "Excluded Person" shall mean and include (i) any corporation beneficially owned by shareholders of the Company in substantially the same proportion as their ownership of shares of the Company and (ii) the Company. (2) As used in this Agreement, "Good Reason" shall mean the occurrence, following a Change of Control, of any one of the following events without Executive's consent: (i) the Company assigns Executive to any duties substantially inconsistent with his position, duties, responsibilities, status or reporting responsibility with the Company immediately prior to the Change of Control, or assigns Executive to a position that does not provide Executive with substantially the same or better compensation, status, responsibilities and duties as Executive enjoyed immediately prior to the Change of Control; (ii) the Company reduces the amount of Executive's base salary as in effect as of the date of the Change of Control or as the same may be increased thereafter from time to time, except for across-the-board salary reductions similarly affecting all senior executives of the Company; (iii) the Company fails to pay Executive an annual bonus consistent with past practices and bonuses consistent with past practices are paid to any other senior executives of the Company; (iv) the Company changes the location at which Executive is employed by more than 50 miles from the location at which Executive is employed as of the date of this Agreement; or (v) the Company breaches this Agreement in any material respect, including without limitation failing to obtain a succession agreement from any successor to assume and agree to perform this Agreement. (3) For Cause. As used in this Agreement, "Cause" shall mean (i) any material act of dishonest constituting a felony (of which Executive is convicted or pleads guilty) which results or is intended to result directly or indirectly in substantial gain or personal enrichment to Executive at the expense of the Company, or (ii) after notice of 3 breach delivered to Executive specifying in reasonable detail and a reasonable opportunity for Executive to cure the breaches specified in the notice, the Board, acting by a two thirds vote, after a meeting held for the purpose of making such determination and after reasonable notice to Executive and an opportunity for him together with his counsel to be heard before the Board, determines, in good faith, other than for reasons of physical or mental illness, Executive willfully and continually fails to substantially perform his duties pursuant to this Agreement and such failure results in demonstrable material injury to the Company. The following shall not constitute Cause: (i) Executive's bad judgment or negligence, (ii) any act or omission by Executive without intent of gaining therefrom directly or indirectly a profit to which Executive was not legally entitled, (iii) any act or omission by Executive with respect to which a determination shall have been made that Executive met the applicable standard of conduct prescribed for indemnification or reimbursement of payment of expenses under the By-Laws of the Company or the laws of the State of Delaware as in effect at the time of such act or omission. 3. MITIGATION. Executive is not required to seek other employment or otherwise mitigate the amount of any payments to be made by the Company pursuant to this Agreement. 4. ASSIGNMENT. Neither Company nor Executive shall have the right to assign its respective rights pursuant to this Agreement. The Company shall require any proposed successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance reasonably satisfactory to Executive, to expressly assume and agree to perform this agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place, concurrent with the execution of a definitive agreement with the Company to engage in such transaction. 5. This Agreement shall be binding on the inure to the benefit of Executive and his heirs and the Company and any permitted assignee. The Company shall not engage in any transaction, including a merger or sale of assets unless, as a condition to such transaction such successor organization assumes the obligations of the Company pursuant to this Agreement. 4 6. NOTICES. If to Company: DeCrane Aircraft Holdings, Inc. 2361 Rosecrans Avenue, Suite 180 El Segundo, CA 90245 Attention: Chief Financial Officer Fax: 310-643-0746 If to Executive: Chuck Becker _________________________________ _________________________________ Fax: ___________________________ 7. FACSIMILE SIGNATURES, EXECUTION AND DELIVERY. This Agreement shall be effective upon transmission of a signed facsimile by one party to the other. 8. MISCELLANEOUS. This Agreement supersedes and makes void any prior agreement between the parties and sets forth the entire agreement and understanding of the parties hereto with respect to the matters covered hereby, and may not otherwise be amended or modified except by written agreement executed by the Company and the Executive. This Agreement shall be governed by and construed in accordance with the laws of the State of California. This Agreement has been executed on the date specified in the first paragraph. DECRANE AIRCRAFT HOLDINGS, INC. By: ------------------------------------ Authorized Signature EXECUTIVE ------------------------------------ Chuck Becker 5 EX-10.23-3 9 a2040254zex-10_233.txt EXHIBIT 10.23.3 EXHIBIT 10.23.3 CHANGE OF CONTROL AGREEMENT This Change of Control Agreement (the "Agreement") is made and entered into September 27, 2000 by and between DeCrane Aircraft Holdings, Inc. (the "Company") and Richard Kaplan ("Executive") based on the following facts: A. Executive is currently employed by the Company in the capacity as Chief Financial Officer, Senior Vice President, Secretary and Treasurer and is a key executive of the Company. B. The Company desires to define the terms and conditions of any termination of employment upon a Change of Control (as defined herein) in the Company. Based on the foregoing facts and circumstances and for good and valuable consideration, receipt of which is hereby acknowledged, the Company and Executive agree as follows: 1. TERM OF AGREEMENT. Except as otherwise provided herein, the term of this Agreement shall commence effective the date hereof and shall continue for two years (the "Term"). 2. A. COMPENSATION UPON TERMINATION FOLLOWING A CHANGE OF CONTROL. In the event that (i) a Change of Control shall have occurred during the term of this Agreement and while Executive is employed by the Company and (ii) the Executive's employment shall be involuntarily terminated for any reason on a date which is less than one year after the date of the Change of Control (whether during or after the term of this Agreement) other than for Cause, death or disability or Executive shall terminate his employment for Good Reason, then the Company shall make the following payments to Executive within 15 days following the date of such termination of employment (the "Termination Date"), subject in each case to any applicable payroll or other taxes required to be withheld. (1) The Company shall pay Executive a lump sum amount in cash equal to the sum of (a) Executive's monthly base salary multiplied by a number equal to 24 minus the number of whole months elapsed from the date of the Change of Control to the Termination Date (the "Multiplier") and (b) Executive's average annual bonus including in such average any such annual bonus earned (even though such bonus may be paid in the year following the year in which earned), (computed over the shorter of (x) the period of Executive's employment by the Company or (y) five calendar years each as measured to the day immediately preceding the Termination Date) divided by 12 and multiplied by the Multiplier. 1 (2) The Company shall pay Executive a lump sum amount in cash equal to accrued but unpaid salary and bonus through the Termination Date, and unpaid salary with respect to any vacation days accrued but not taken as of the Termination Date. B. DEFINITIONS. (1) As used in this Agreement, "Change of Control" shall mean an event involving the Company of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), assuming that such Schedule, Regulation and Act applied to the Company, provided that such a Change of Control shall be deemed to have occurred at such time as: (i) any "person" (as that term is used in Sections 13(d) and 14(d)(2) of the Exchange Act) (other than an Excluded Person (as defined below)) becomes, directly or indirectly, the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of securities representing 20% or more of the combined voting power for election of members of the Board of Directors of the then outstanding voting securities of the Company or any successor of the Company, excluding any person whose beneficial ownership of securities of the Company or any successor is obtained in a merger or consolidation not included in paragraph (iii) below; (ii) during any period of two consecutive years or less, individuals who at the beginning of such period constituted the Board of Directors of the Company cease, for any reason, to constitute at least a majority of the Board, unless the appointment, election or nomination for election of each new member of the Board (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) was approved by a vote of at least two-thirds of the members of the Board of Directors then still in office who were members of the Board at the beginning of the period or whose appointment, election or nomination was so approved since the beginning of such period; (iii) there is consummated any merger, consolidation or similar transaction to which the Company is a party as a result of which the persons who were equity holders of the Company immediately prior to the effective date of the merger or consolidation shall have beneficial ownership of less than 50% of the combined voting power for election of members of the Board of Directors (or equivalent) of the surviving entity or its parent following the effective date of such merger or consolidation; (iv) any sale or other disposition (or similar 2 transaction) (in a single transaction or series of related transactions) of (x) 50% or more of the assets or earnings power of the Company or (y) business operations which generated a majority of the consolidated revenues (determined on the basis of the Company's four most recently completed fiscal quarters for which reports have been completed) of the Company and its subsidiaries immediately prior thereto, other than a sale, other disposition, or similar transaction to an Excluded Person or to an entity of which equityholders of the Company beneficially own at least 50% of the combined voting power; (v) any liquidation of the Company. For purposes of this definition of Change of Control, the term "Excluded Person" shall mean and include (i) any corporation beneficially owned by shareholders of the Company in substantially the same proportion as their ownership of shares of the Company and (ii) the Company. (2) As used in this Agreement, "Good Reason" shall mean the occurrence, following a Change of Control, of any one of the following events without Executive's consent: (i) the Company assigns Executive to any duties substantially inconsistent with his position, duties, responsibilities, status or reporting responsibility with the Company immediately prior to the Change of Control, or assigns Executive to a position that does not provide Executive with substantially the same or better compensation, status, responsibilities and duties as Executive enjoyed immediately prior to the Change of Control; (ii) the Company reduces the amount of Executive's base salary as in effect as of the date of the Change of Control or as the same may be increased thereafter from time to time, except for across-the-board salary reductions similarly affecting all senior executives of the Company; (iii) the Company fails to pay Executive an annual bonus consistent with past practices and bonuses consistent with past practices are paid to any other senior executives of the Company; (iv) the Company changes the location at which Executive is employed by more than 50 miles from the location at which Executive is employed as of the date of this Agreement; or (v) the Company breaches this Agreement in any material respect, including without limitation failing to obtain a succession agreement from any successor to assume and agree to perform this Agreement. (3) For Cause. As used in this Agreement, "Cause" shall mean (i) any material act of dishonest constituting a felony (of which Executive is convicted or pleads guilty) which results or is intended to result directly or indirectly in substantial gain or personal enrichment to Executive at the expense of the Company, or (ii) after notice of 3 breach delivered to Executive specifying in reasonable detail and a reasonable opportunity for Executive to cure the breaches specified in the notice, the Board, acting by a two thirds vote, after a meeting held for the purpose of making such determination and after reasonable notice to Executive and an opportunity for him together with his counsel to be heard before the Board, determines, in good faith, other than for reasons of physical or mental illness, Executive willfully and continually fails to substantially perform his duties pursuant to this Agreement and such failure results in demonstrable material injury to the Company. The following shall not constitute Cause: (i) Executive's bad judgment or negligence, (ii) any act or omission by Executive without intent of gaining therefrom directly or indirectly a profit to which Executive was not legally entitled, (iii) any act or omission by Executive with respect to which a determination shall have been made that Executive met the applicable standard of conduct prescribed for indemnification or reimbursement of payment of expenses under the By-Laws of the Company or the laws of the State of Delaware as in effect at the time of such act or omission. 3. MITIGATION. Executive is not required to seek other employment or otherwise mitigate the amount of any payments to be made by the Company pursuant to this Agreement. 4. ASSIGNMENT. Neither Company nor Executive shall have the right to assign its respective rights pursuant to this Agreement. The Company shall require any proposed successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance reasonably satisfactory to Executive, to expressly assume and agree to perform this agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place, concurrent with the execution of a definitive agreement with the Company to engage in such transaction. 5. This Agreement shall be binding on the inure to the benefit of Executive and his heirs and the Company and any permitted assignee. The Company shall not engage in any transaction, including a merger or sale of assets unless, as a condition to such transaction such successor organization assumes the obligations of the Company pursuant to this Agreement. 4 6. NOTICES. If to Company: DeCrane Aircraft Holdings, Inc. 2361 Rosecrans Avenue, Suite 180 El Segundo, CA 90245 Attention: Chief Financial Officer Fax: 310-643-0746 If to Executive: Richard Kaplan ___________________________________ ___________________________________ Fax: _____________________________ 7. FACSIMILE SIGNATURES, EXECUTION AND DELIVERY. This Agreement shall be effective upon transmission of a signed facsimile by one party to the other. 8. MISCELLANEOUS. This Agreement supersedes and makes void any prior agreement between the parties and sets forth the entire agreement and understanding of the parties hereto with respect to the matters covered hereby, and may not otherwise be amended or modified except by written agreement executed by the Company and the Executive. This Agreement shall be governed by and construed in accordance with the laws of the State of California. This Agreement has been executed on the date specified in the first paragraph. DECRANE AIRCRAFT HOLDINGS, INC. By: ----------------------------------- Authorized Signature EXECUTIVE ----------------------------------- Richard Kaplan 5 EX-10.23-4 10 a2040254zex-10_234.txt EXHIBIT 10.23.4 EXHIBIT 10.23.4 CHANGE OF CONTROL AGREEMENT This Change of Control Agreement (the "Agreement") is made and entered into March 1, 2001 by and between DeCrane Aircraft Holdings, Inc. (the "Company") and James Mann ("Executive") based on the following facts: A. Executive is currently employed by the Company in the capacity as Vice President, Tax and SEC Reporting and is a key executive of the Company. B. The Company desires to define the terms and conditions of any termination of employment upon a Change of Control (as defined herein) in the Company. Based on the foregoing facts and circumstances and for good and valuable consideration, receipt of which is hereby acknowledged, the Company and Executive agree as follows: 1. TERM OF AGREEMENT. Except as otherwise provided herein, the term of this Agreement shall commence effective the date hereof and shall continue for one year (the "Term"). 2. A. COMPENSATION UPON TERMINATION FOLLOWING A CHANGE OF CONTROL. In the event that (i) a Change of Control shall have occurred during the term of this Agreement and while Executive is employed by the Company and (ii) the Executive's employment shall be involuntarily terminated for any reason on a date which is less than one year after the date of the Change of Control (whether during or after the term of this Agreement) other than for Cause, death or disability or Executive shall terminate his employment for Good Reason, then the Company shall make the following payments to Executive within 15 days following the date of such termination of employment (the "Termination Date"), subject in each case to any applicable payroll or other taxes required to be withheld. (1) The Company shall pay Executive a lump sum amount in cash equal to the sum of (a) Executive's monthly base salary multiplied by a number equal to 12 minus the number of whole months elapsed from the date of the Change of Control to the Termination Date (the "Multiplier") and (b) Executive's average annual bonus including in such average any such annual bonus earned (even though such bonus may be paid in the year following the year in which earned), (computed over the shorter of (x) the period of Executive's employment by the Company or (y) five calendar years each as measured to the day immediately preceding the Termination Date) divided by 12 and multiplied by the Multiplier. 1 (2) The Company shall pay Executive a lump sum amount in cash equal to accrued but unpaid salary and bonus through the Termination Date, and unpaid salary with respect to any vacation days accrued but not taken as of the Termination Date. B. DEFINITIONS. (1) As used in this Agreement, "Change of Control" shall mean an event involving the Company of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), assuming that such Schedule, Regulation and Act applied to the Company, provided that such a Change of Control shall be deemed to have occurred at such time as: (i) any "person" (as that term is used in Sections 13(d) and 14(d)(2) of the Exchange Act) (other than an Excluded Person (as defined below)) becomes, directly or indirectly, the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of securities representing 20% or more of the combined voting power for election of members of the Board of Directors of the then outstanding voting securities of the Company or any successor of the Company, excluding any person whose beneficial ownership of securities of the Company or any successor is obtained in a merger or consolidation not included in paragraph (iii) below; (ii) during any period of two consecutive years or less, individuals who at the beginning of such period constituted the Board of Directors of the Company cease, for any reason, to constitute at least a majority of the Board, unless the appointment, election or nomination for election of each new member of the Board (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) was approved by a vote of at least two-thirds of the members of the Board of Directors then still in office who were members of the Board at the beginning of the period or whose appointment, election or nomination was so approved since the beginning of such period; (iii) there is consummated any merger, consolidation or similar transaction to which the Company is a party as a result of which the persons who were equity holders of the Company immediately prior to the effective date of the merger or consolidation shall have beneficial ownership of less than 50% of the combined voting power for election of members of the Board of Directors (or equivalent) of the surviving entity or its parent following the effective date of such merger or consolidation; (iv) any sale or other disposition (or similar 2 transaction) (in a single transaction or series of related transactions) of (x) 50% or more of the assets or earnings power of the Company or (y) business operations which generated a majority of the consolidated revenues (determined on the basis of the Company's four most recently completed fiscal quarters for which reports have been completed) of the Company and its subsidiaries immediately prior thereto, other than a sale, other disposition, or similar transaction to an Excluded Person or to an entity of which equityholders of the Company beneficially own at least 50% of the combined voting power; (v) any liquidation of the Company. For purposes of this definition of Change of Control, the term "Excluded Person" shall mean and include (i) any corporation beneficially owned by shareholders of the Company in substantially the same proportion as their ownership of shares of the Company and (ii) the Company. (2) As used in this Agreement, "Good Reason" shall mean the occurrence, following a Change of Control, of any one of the following events without Executive's consent: (i) the Company assigns Executive to any duties substantially inconsistent with his position, duties, responsibilities, status or reporting responsibility with the Company immediately prior to the Change of Control, or assigns Executive to a position that does not provide Executive with substantially the same or better compensation, status, responsibilities and duties as Executive enjoyed immediately prior to the Change of Control; (ii) the Company reduces the amount of Executive's base salary as in effect as of the date of the Change of Control or as the same may be increased thereafter from time to time, except for across-the-board salary reductions similarly affecting all senior executives of the Company; (iii) the Company fails to pay Executive an annual bonus consistent with past practices and bonuses consistent with past practices are paid to any other senior executives of the Company; (iv) the Company changes the location at which Executive is employed by more than 50 miles from the location at which Executive is employed as of the date of this Agreement; or (v) the Company breaches this Agreement in any material respect, including without limitation failing to obtain a succession agreement from any successor to assume and agree to perform this Agreement. (3) For Cause. As used in this Agreement, "Cause" shall mean (i) any material act of dishonest constituting a felony (of which Executive is convicted or pleads guilty) which results or is intended to result directly or indirectly in substantial gain or personal enrichment to Executive at the expense of the Company, or (ii) after notice of 3 breach delivered to Executive specifying in reasonable detail and a reasonable opportunity for Executive to cure the breaches specified in the notice, the Board, acting by a two thirds vote, after a meeting held for the purpose of making such determination and after reasonable notice to Executive and an opportunity for him together with his counsel to be heard before the Board, determines, in good faith, other than for reasons of physical or mental illness, Executive willfully and continually fails to substantially perform his duties pursuant to this Agreement and such failure results in demonstrable material injury to the Company. The following shall not constitute Cause: (i) Executive's bad judgment or negligence, (ii) any act or omission by Executive without intent of gaining therefrom directly or indirectly a profit to which Executive was not legally entitled, (iii) any act or omission by Executive with respect to which a determination shall have been made that Executive met the applicable standard of conduct prescribed for indemnification or reimbursement of payment of expenses under the By-Laws of the Company or the laws of the State of Delaware as in effect at the time of such act or omission. 3. MITIGATION. Executive is not required to seek other employment or otherwise mitigate the amount of any payments to be made by the Company pursuant to this Agreement. 4. ASSIGNMENT. Neither Company nor Executive shall have the right to assign its respective rights pursuant to this Agreement. The Company shall require any proposed successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance reasonably satisfactory to Executive, to expressly assume and agree to perform this agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place, concurrent with the execution of a definitive agreement with the Company to engage in such transaction. 5. This Agreement shall be binding on the inure to the benefit of Executive and his heirs and the Company and any permitted assignee. The Company shall not engage in any transaction, including a merger or sale of assets unless, as a condition to such transaction such successor organization assumes the obligations of the Company pursuant to this Agreement. 4 6. NOTICES. If to Company: DeCrane Aircraft Holdings, Inc. 2361 Rosecrans Avenue, Suite 180 El Segundo, CA 90245 Attention: Chief Financial Officer Fax: 310-643-0746 If to Executive: James Mann __________________________________ __________________________________ Fax: ____________________________ 7. FACSIMILE SIGNATURES, EXECUTION AND DELIVERY. This Agreement shall be effective upon transmission of a signed facsimile by one party to the other. 8. MISCELLANEOUS. This Agreement supersedes and makes void any prior agreement between the parties and sets forth the entire agreement and understanding of the parties hereto with respect to the matters covered hereby, and may not otherwise be amended or modified except by written agreement executed by the Company and the Executive. This Agreement shall be governed by and construed in accordance with the laws of the State of California. This Agreement has been executed on the date specified in the first paragraph. DECRANE AIRCRAFT HOLDINGS, INC. By: ----------------------------------- Authorized Signature EXECUTIVE ----------------------------------- James Mann 5 EX-10.23-5 11 a2040254zex-10_235.txt EXHIBIT 10.23.5 EXHIBIT 10.23.5 CHANGE OF CONTROL AGREEMENT This Change of Control Agreement (the "Agreement") is made and entered into September 27, 2000 by and between DeCrane Aircraft Holdings, Inc. (the "Company") and Bob Martin ("Executive") based on the following facts: A. Executive is currently employed by the Company in the capacity as President, Systems Integration and is a key executive of the Company. B. The Company desires to define the terms and conditions of any termination of employment upon a Change of Control (as defined herein) in the Company. Based on the foregoing facts and circumstances and for good and valuable consideration, receipt of which is hereby acknowledged, the Company and Executive agree as follows: 1. TERM OF AGREEMENT. Except as otherwise provided herein, the term of this Agreement shall commence effective the date hereof and shall continue for two years (the "Term"). 2. A. COMPENSATION UPON TERMINATION FOLLOWING A CHANGE OF CONTROL. In the event that (i) a Change of Control shall have occurred during the term of this Agreement and while Executive is employed by the Company and (ii) the Executive's employment shall be involuntarily terminated for any reason on a date which is less than one year after the date of the Change of Control (whether during or after the term of this Agreement) other than for Cause, death or disability or Executive shall terminate his employment for Good Reason, then the Company shall make the following payments to Executive within 15 days following the date of such termination of employment (the "Termination Date"), subject in each case to any applicable payroll or other taxes required to be withheld. (1) The Company shall pay Executive a lump sum amount in cash equal to the sum of (a) Executive's monthly base salary multiplied by a number equal to 24 minus the number of whole months elapsed from the date of the Change of Control to the Termination Date (the "Multiplier") and (b) Executive's average annual bonus including in such average any such annual bonus earned (even though such bonus may be paid in the year following the year in which earned), (computed over the shorter of (x) the period of Executive's employment by the Company or (y) five calendar years each as measured to the day immediately preceding the Termination Date) divided by 12 and multiplied by the Multiplier. 1 (2) The Company shall pay Executive a lump sum amount in cash equal to accrued but unpaid salary and bonus through the Termination Date, and unpaid salary with respect to any vacation days accrued but not taken as of the Termination Date. B. DEFINITIONS. (1) As used in this Agreement, "Change of Control" shall mean an event involving the Company of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), assuming that such Schedule, Regulation and Act applied to the Company, provided that such a Change of Control shall be deemed to have occurred at such time as: (i) any "person" (as that term is used in Sections 13(d) and 14(d)(2) of the Exchange Act) (other than an Excluded Person (as defined below)) becomes, directly or indirectly, the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of securities representing 20% or more of the combined voting power for election of members of the Board of Directors of the then outstanding voting securities of the Company or any successor of the Company, excluding any person whose beneficial ownership of securities of the Company or any successor is obtained in a merger or consolidation not included in paragraph (iii) below; (ii) during any period of two consecutive years or less, individuals who at the beginning of such period constituted the Board of Directors of the Company cease, for any reason, to constitute at least a majority of the Board, unless the appointment, election or nomination for election of each new member of the Board (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) was approved by a vote of at least two-thirds of the members of the Board of Directors then still in office who were members of the Board at the beginning of the period or whose appointment, election or nomination was so approved since the beginning of such period; (iii) there is consummated any merger, consolidation or similar transaction to which the Company is a party as a result of which the persons who were equity holders of the Company immediately prior to the effective date of the merger or consolidation shall have beneficial ownership of less than 50% of the combined voting power for election of members of the Board of Directors (or equivalent) of the surviving entity or its parent following the effective date of such merger or consolidation; (iv) any sale or other disposition (or similar 2 transaction) (in a single transaction or series of related transactions) of (x) 50% or more of the assets or earnings power of the Company or (y) business operations which generated a majority of the consolidated revenues (determined on the basis of the Company's four most recently completed fiscal quarters for which reports have been completed) of the Company and its subsidiaries immediately prior thereto, other than a sale, other disposition, or similar transaction to an Excluded Person or to an entity of which equityholders of the Company beneficially own at least 50% of the combined voting power; (v) any liquidation of the Company. For purposes of this definition of Change of Control, the term "Excluded Person" shall mean and include (i) any corporation beneficially owned by shareholders of the Company in substantially the same proportion as their ownership of shares of the Company and (ii) the Company. (2) As used in this Agreement, "Good Reason" shall mean the occurrence, following a Change of Control, of any one of the following events without Executive's consent: (i) the Company assigns Executive to any duties substantially inconsistent with his position, duties, responsibilities, status or reporting responsibility with the Company immediately prior to the Change of Control, or assigns Executive to a position that does not provide Executive with substantially the same or better compensation, status, responsibilities and duties as Executive enjoyed immediately prior to the Change of Control; (ii) the Company reduces the amount of Executive's base salary as in effect as of the date of the Change of Control or as the same may be increased thereafter from time to time, except for across-the-board salary reductions similarly affecting all senior executives of the Company; (iii) the Company fails to pay Executive an annual bonus consistent with past practices and bonuses consistent with past practices are paid to any other senior executives of the Company; (iv) the Company changes the location at which Executive is employed by more than 50 miles from the location at which Executive is employed as of the date of this Agreement; or (v) the Company breaches this Agreement in any material respect, including without limitation failing to obtain a succession agreement from any successor to assume and agree to perform this Agreement. (3) For Cause. As used in this Agreement, "Cause" shall mean (i) any material act of dishonest constituting a felony (of which Executive is convicted or pleads guilty) which results or is intended to result directly or indirectly in substantial gain or personal enrichment to Executive at the expense of the Company, or (ii) after notice of 3 breach delivered to Executive specifying in reasonable detail and a reasonable opportunity for Executive to cure the breaches specified in the notice, the Board, acting by a two thirds vote, after a meeting held for the purpose of making such determination and after reasonable notice to Executive and an opportunity for him together with his counsel to be heard before the Board, determines, in good faith, other than for reasons of physical or mental illness, Executive willfully and continually fails to substantially perform his duties pursuant to this Agreement and such failure results in demonstrable material injury to the Company. The following shall not constitute Cause: (i) Executive's bad judgment or negligence, (ii) any act or omission by Executive without intent of gaining therefrom directly or indirectly a profit to which Executive was not legally entitled, (iii) any act or omission by Executive with respect to which a determination shall have been made that Executive met the applicable standard of conduct prescribed for indemnification or reimbursement of payment of expenses under the By-Laws of the Company or the laws of the State of Delaware as in effect at the time of such act or omission. 3. MITIGATION. Executive is not required to seek other employment or otherwise mitigate the amount of any payments to be made by the Company pursuant to this Agreement. 4. ASSIGNMENT. Neither Company nor Executive shall have the right to assign its respective rights pursuant to this Agreement. The Company shall require any proposed successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance reasonably satisfactory to Executive, to expressly assume and agree to perform this agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place, concurrent with the execution of a definitive agreement with the Company to engage in such transaction. 5. This Agreement shall be binding on the inure to the benefit of Executive and his heirs and the Company and any permitted assignee. The Company shall not engage in any transaction, including a merger or sale of assets unless, as a condition to such transaction such successor organization assumes the obligations of the Company pursuant to this Agreement. 4 6. NOTICES. If to Company: DeCrane Aircraft Holdings, Inc. 2361 Rosecrans Avenue, Suite 180 El Segundo, CA 90245 Attention: Chief Financial Officer Fax: 310-643-0746 If to Executive: Bob Martin ___________________________________ ___________________________________ Fax: _____________________________ 7. FACSIMILE SIGNATURES, EXECUTION AND DELIVERY. This Agreement shall be effective upon transmission of a signed facsimile by one party to the other. 8. MISCELLANEOUS. This Agreement supersedes and makes void any prior agreement between the parties and sets forth the entire agreement and understanding of the parties hereto with respect to the matters covered hereby, and may not otherwise be amended or modified except by written agreement executed by the Company and the Executive. This Agreement shall be governed by and construed in accordance with the laws of the State of California. This Agreement has been executed on the date specified in the first paragraph. DECRANE AIRCRAFT HOLDINGS, INC. By: ----------------------------------- Authorized Signature EXECUTIVE ----------------------------------- Bob Martin 5 EX-10.23-6 12 a2040254zex-10_236.txt EXHIBIT 10.23.6 EXHIBIT 10.23.6 CHANGE OF CONTROL AGREEMENT This Change of Control Agreement (the "Agreement") is made and entered into September 27, 2000 by and between DeCrane Aircraft Holdings, Inc. (the "Company") and Brian Moody ("Executive") based on the following facts: A. Executive is currently employed by the Company in the capacity as Chief Financial Officer of the Cabin Management Group and is a key executive of the Company. B. The Company desires to define the terms and conditions of any termination of employment upon a Change of Control (as defined herein) in the Company. Based on the foregoing facts and circumstances and for good and valuable consideration, receipt of which is hereby acknowledged, the Company and Executive agree as follows: 1. TERM OF AGREEMENT. Except as otherwise provided herein, the term of this Agreement shall commence effective the date hereof and shall continue for one year (the "Term"). 2. A. COMPENSATION UPON TERMINATION FOLLOWING A CHANGE OF CONTROL. In the event that (i) a Change of Control shall have occurred during the term of this Agreement and while Executive is employed by the Company and (ii) the Executive's employment shall be involuntarily terminated for any reason on a date which is less than one year after the date of the Change of Control (whether during or after the term of this Agreement) other than for Cause, death or disability or Executive shall terminate his employment for Good Reason, then the Company shall make the following payments to Executive within 15 days following the date of such termination of employment (the "Termination Date"), subject in each case to any applicable payroll or other taxes required to be withheld. (1) The Company shall pay Executive a lump sum amount in cash equal to the sum of (a) Executive's monthly base salary multiplied by a number equal to 12 minus the number of whole months elapsed from the date of the Change of Control to the Termination Date (the "Multiplier") and (b) Executive's average annual bonus including in such average any such annual bonus earned (even though such bonus may be paid in the year following the year in which earned), (computed over the shorter of (x) the period of Executive's employment by the Company or (y) five calendar years each as measured to the day immediately preceding the Termination Date) divided by 12 and multiplied by the Multiplier. 1 (2) The Company shall pay Executive a lump sum amount in cash equal to accrued but unpaid salary and bonus through the Termination Date, and unpaid salary with respect to any vacation days accrued but not taken as of the Termination Date. B. DEFINITIONS. (1) As used in this Agreement, "Change of Control" shall mean an event involving the Company of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), assuming that such Schedule, Regulation and Act applied to the Company, provided that such a Change of Control shall be deemed to have occurred at such time as: (i) any "person" (as that term is used in Sections 13(d) and 14(d)(2) of the Exchange Act) (other than an Excluded Person (as defined below)) becomes, directly or indirectly, the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of securities representing 20% or more of the combined voting power for election of members of the Board of Directors of the then outstanding voting securities of the Company or any successor of the Company, excluding any person whose beneficial ownership of securities of the Company or any successor is obtained in a merger or consolidation not included in paragraph (iii) below; (ii) during any period of two consecutive years or less, individuals who at the beginning of such period constituted the Board of Directors of the Company cease, for any reason, to constitute at least a majority of the Board, unless the appointment, election or nomination for election of each new member of the Board (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) was approved by a vote of at least two-thirds of the members of the Board of Directors then still in office who were members of the Board at the beginning of the period or whose appointment, election or nomination was so approved since the beginning of such period; (iii) there is consummated any merger, consolidation or similar transaction to which the Company is a party as a result of which the persons who were equity holders of the Company immediately prior to the effective date of the merger or consolidation shall have beneficial ownership of less than 50% of the combined voting power for election of members of the Board of Directors (or equivalent) of the surviving entity or its parent following the effective date of such merger or consolidation; (iv) any sale or other disposition (or similar 2 transaction) (in a single transaction or series of related transactions) of (x) 50% or more of the assets or earnings power of the Company or (y) business operations which generated a majority of the consolidated revenues (determined on the basis of the Company's four most recently completed fiscal quarters for which reports have been completed) of the Company and its subsidiaries immediately prior thereto, other than a sale, other disposition, or similar transaction to an Excluded Person or to an entity of which equityholders of the Company beneficially own at least 50% of the combined voting power; (v) any liquidation of the Company. For purposes of this definition of Change of Control, the term "Excluded Person" shall mean and include (i) any corporation beneficially owned by shareholders of the Company in substantially the same proportion as their ownership of shares of the Company and (ii) the Company. (2) As used in this Agreement, "Good Reason" shall mean the occurrence, following a Change of Control, of any one of the following events without Executive's consent: (i) the Company assigns Executive to any duties substantially inconsistent with his position, duties, responsibilities, status or reporting responsibility with the Company immediately prior to the Change of Control, or assigns Executive to a position that does not provide Executive with substantially the same or better compensation, status, responsibilities and duties as Executive enjoyed immediately prior to the Change of Control; (ii) the Company reduces the amount of Executive's base salary as in effect as of the date of the Change of Control or as the same may be increased thereafter from time to time, except for across-the-board salary reductions similarly affecting all senior executives of the Company; (iii) the Company fails to pay Executive an annual bonus consistent with past practices and bonuses consistent with past practices are paid to any other senior executives of the Company; (iv) the Company changes the location at which Executive is employed by more than 50 miles from the location at which Executive is employed as of the date of this Agreement; or (v) the Company breaches this Agreement in any material respect, including without limitation failing to obtain a succession agreement from any successor to assume and agree to perform this Agreement. (3) For Cause. As used in this Agreement, "Cause" shall mean (i) any material act of dishonest constituting a felony (of which Executive is convicted or pleads guilty) which results or is intended to result directly or indirectly in substantial gain or personal enrichment to Executive at the expense of the Company, or (ii) after notice of 3 breach delivered to Executive specifying in reasonable detail and a reasonable opportunity for Executive to cure the breaches specified in the notice, the Board, acting by a two thirds vote, after a meeting held for the purpose of making such determination and after reasonable notice to Executive and an opportunity for him together with his counsel to be heard before the Board, determines, in good faith, other than for reasons of physical or mental illness, Executive willfully and continually fails to substantially perform his duties pursuant to this Agreement and such failure results in demonstrable material injury to the Company. The following shall not constitute Cause: (i) Executive's bad judgment or negligence, (ii) any act or omission by Executive without intent of gaining therefrom directly or indirectly a profit to which Executive was not legally entitled, (iii) any act or omission by Executive with respect to which a determination shall have been made that Executive met the applicable standard of conduct prescribed for indemnification or reimbursement of payment of expenses under the By-Laws of the Company or the laws of the State of Delaware as in effect at the time of such act or omission. 3. MITIGATION. Executive is not required to seek other employment or otherwise mitigate the amount of any payments to be made by the Company pursuant to this Agreement. 4. ASSIGNMENT. Neither Company nor Executive shall have the right to assign its respective rights pursuant to this Agreement. The Company shall require any proposed successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance reasonably satisfactory to Executive, to expressly assume and agree to perform this agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place, concurrent with the execution of a definitive agreement with the Company to engage in such transaction. 5. This Agreement shall be binding on the inure to the benefit of Executive and his heirs and the Company and any permitted assignee. The Company shall not engage in any transaction, including a merger or sale of assets unless, as a condition to such transaction such successor organization assumes the obligations of the Company pursuant to this Agreement. 4 6. NOTICES. If to Company: DeCrane Aircraft Holdings, Inc. 2361 Rosecrans Avenue, Suite 180 El Segundo, CA 90245 Attention: Chief Financial Officer Fax: 310-643-0746 If to Executive: Brian Moody _________________________________ _________________________________ Fax: ___________________________ 7. FACSIMILE SIGNATURES, EXECUTION AND DELIVERY. This Agreement shall be effective upon transmission of a signed facsimile by one party to the other. 8. MISCELLANEOUS. This Agreement supersedes and makes void any prior agreement between the parties and sets forth the entire agreement and understanding of the parties hereto with respect to the matters covered hereby, and may not otherwise be amended or modified except by written agreement executed by the Company and the Executive. This Agreement shall be governed by and construed in accordance with the laws of the State of California. This Agreement has been executed on the date specified in the first paragraph. DECRANE AIRCRAFT HOLDINGS, INC. By: ----------------------------------- Authorized Signature EXECUTIVE ----------------------------------- Brian Moody 5 EX-10.23-7 13 a2040254zex-10_237.txt EXHIBIT 10.23.7 EXHIBIT 10.23.7 CHANGE OF CONTROL AGREEMENT This Change of Control Agreement (the "Agreement") is made and entered into September 27, 2000 by and between DeCrane Aircraft Holdings, Inc. (the "Company") and Jeffrey A. Nerland ("Executive") based on the following facts: A. Executive is currently employed by the Company in the capacity as Vice President - Seating Division and Vice President - Business Development and is a key executive of the Company. B. The Company desires to define the terms and conditions of any termination of employment upon a Change of Control (as defined herein) in the Company. Based on the foregoing facts and circumstances and for good and valuable consideration, receipt of which is hereby acknowledged, the Company and Executive agree as follows: 1. TERM OF AGREEMENT. Except as otherwise provided herein, the term of this Agreement shall commence effective the date hereof and shall continue for two years (the "Term"). 2. A. COMPENSATION UPON TERMINATION FOLLOWING A CHANGE OF CONTROL. In the event that (i) a Change of Control shall have occurred during the term of this Agreement and while Executive is employed by the Company and (ii) the Executive's employment shall be involuntarily terminated for any reason on a date which is less than one year after the date of the Change of Control (whether during or after the term of this Agreement) other than for Cause, death or disability or Executive shall terminate his employment for Good Reason, then the Company shall make the following payments to Executive within 15 days following the date of such termination of employment (the "Termination Date"), subject in each case to any applicable payroll or other taxes required to be withheld. (1) The Company shall pay Executive a lump sum amount in cash equal to the sum of (a) Executive's monthly base salary multiplied by a number equal to 24 minus the number of whole months elapsed from the date of the Change of Control to the Termination Date (the "Multiplier") and (b) Executive's average annual bonus including in such average any such annual bonus earned (even though such bonus may be paid in the year following the year in which earned), (computed over the shorter of (x) the period of Executive's employment by the Company or (y) five calendar years each as measured to the day immediately preceding the Termination Date) divided by 12 and multiplied by the Multiplier. 1 (2) The Company shall pay Executive a lump sum amount in cash equal to accrued but unpaid salary and bonus through the Termination Date, and unpaid salary with respect to any vacation days accrued but not taken as of the Termination Date. B. DEFINITIONS. (1) As used in this Agreement, "Change of Control" shall mean an event involving the Company of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), assuming that such Schedule, Regulation and Act applied to the Company, provided that such a Change of Control shall be deemed to have occurred at such time as: (i) any "person" (as that term is used in Sections 13(d) and 14(d)(2) of the Exchange Act) (other than an Excluded Person (as defined below)) becomes, directly or indirectly, the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of securities representing 20% or more of the combined voting power for election of members of the Board of Directors of the then outstanding voting securities of the Company or any successor of the Company, excluding any person whose beneficial ownership of securities of the Company or any successor is obtained in a merger or consolidation not included in paragraph (iii) below; (ii) during any period of two consecutive years or less, individuals who at the beginning of such period constituted the Board of Directors of the Company cease, for any reason, to constitute at least a majority of the Board, unless the appointment, election or nomination for election of each new member of the Board (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) was approved by a vote of at least two-thirds of the members of the Board of Directors then still in office who were members of the Board at the beginning of the period or whose appointment, election or nomination was so approved since the beginning of such period; (iii) there is consummated any merger, consolidation or similar transaction to which the Company is a party as a result of which the persons who were equity holders of the Company immediately prior to the effective date of the merger or consolidation shall have beneficial ownership of less than 50% of the combined voting power for election of members of the Board of Directors (or equivalent) of the surviving entity or its parent following the effective date of such merger or consolidation; (iv) any sale or other disposition (or similar 2 transaction) (in a single transaction or series of related transactions) of (x) 50% or more of the assets or earnings power of the Company or (y) business operations which generated a majority of the consolidated revenues (determined on the basis of the Company's four most recently completed fiscal quarters for which reports have been completed) of the Company and its subsidiaries immediately prior thereto, other than a sale, other disposition, or similar transaction to an Excluded Person or to an entity of which equityholders of the Company beneficially own at least 50% of the combined voting power; (v) any liquidation of the Company. For purposes of this definition of Change of Control, the term "Excluded Person" shall mean and include (i) any corporation beneficially owned by shareholders of the Company in substantially the same proportion as their ownership of shares of the Company and (ii) the Company. (2) As used in this Agreement, "Good Reason" shall mean the occurrence, following a Change of Control, of any one of the following events without Executive's consent: (i) the Company assigns Executive to any duties substantially inconsistent with his position, duties, responsibilities, status or reporting responsibility with the Company immediately prior to the Change of Control, or assigns Executive to a position that does not provide Executive with substantially the same or better compensation, status, responsibilities and duties as Executive enjoyed immediately prior to the Change of Control; (ii) the Company reduces the amount of Executive's base salary as in effect as of the date of the Change of Control or as the same may be increased thereafter from time to time, except for across-the-board salary reductions similarly affecting all senior executives of the Company; (iii) the Company fails to pay Executive an annual bonus consistent with past practices and bonuses consistent with past practices are paid to any other senior executives of the Company; (iv) the Company changes the location at which Executive is employed by more than 50 miles from the location at which Executive is employed as of the date of this Agreement; or (v) the Company breaches this Agreement in any material respect, including without limitation failing to obtain a succession agreement from any successor to assume and agree to perform this Agreement. (3) For Cause. As used in this Agreement, "Cause" shall mean (i) any material act of dishonest constituting a felony (of which Executive is convicted or pleads guilty) which results or is intended to result directly or indirectly in substantial gain or personal enrichment to Executive at the expense of the Company, or (ii) after notice of 3 breach delivered to Executive specifying in reasonable detail and a reasonable opportunity for Executive to cure the breaches specified in the notice, the Board, acting by a two thirds vote, after a meeting held for the purpose of making such determination and after reasonable notice to Executive and an opportunity for him together with his counsel to be heard before the Board, determines, in good faith, other than for reasons of physical or mental illness, Executive willfully and continually fails to substantially perform his duties pursuant to this Agreement and such failure results in demonstrable material injury to the Company. The following shall not constitute Cause: (i) Executive's bad judgment or negligence, (ii) any act or omission by Executive without intent of gaining therefrom directly or indirectly a profit to which Executive was not legally entitled, (iii) any act or omission by Executive with respect to which a determination shall have been made that Executive met the applicable standard of conduct prescribed for indemnification or reimbursement of payment of expenses under the By-Laws of the Company or the laws of the State of Delaware as in effect at the time of such act or omission. 3. MITIGATION. Executive is not required to seek other employment or otherwise mitigate the amount of any payments to be made by the Company pursuant to this Agreement. 4. ASSIGNMENT. Neither Company nor Executive shall have the right to assign its respective rights pursuant to this Agreement. The Company shall require any proposed successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance reasonably satisfactory to Executive, to expressly assume and agree to perform this agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place, concurrent with the execution of a definitive agreement with the Company to engage in such transaction. 5. This Agreement shall be binding on the inure to the benefit of Executive and his heirs and the Company and any permitted assignee. The Company shall not engage in any transaction, including a merger or sale of assets unless, as a condition to such transaction such successor organization assumes the obligations of the Company pursuant to this Agreement. 4 6. NOTICES. If to Company: DeCrane Aircraft Holdings, Inc. 2361 Rosecrans Avenue, Suite 180 El Segundo, CA 90245 Attention: Chief Financial Officer Fax: 310-643-0746 If to Executive: Jeffrey A. Nerland _________________________________ _________________________________ Fax: ___________________________ 7. FACSIMILE SIGNATURES, EXECUTION AND DELIVERY. This Agreement shall be effective upon transmission of a signed facsimile by one party to the other. 8. MISCELLANEOUS. This Agreement supersedes and makes void any prior agreement between the parties and sets forth the entire agreement and understanding of the parties hereto with respect to the matters covered hereby, and may not otherwise be amended or modified except by written agreement executed by the Company and the Executive. This Agreement shall be governed by and construed in accordance with the laws of the State of California. This Agreement has been executed on the date specified in the first paragraph. DECRANE AIRCRAFT HOLDINGS, INC. By: ----------------------------------- Authorized Signature EXECUTIVE ----------------------------------- Jeffrey A. Nerland 5 EX-10.23-8 14 a2040254zex-10_238.txt EXHIBIT 10.23.8 EXHIBIT 10.23.8 CHANGE OF CONTROL AGREEMENT This Change of Control Agreement (the "Agreement") is made and entered into September 27, 2000 by and between DeCrane Aircraft Holdings, Inc. (the "Company") and Jeff Smith ("Executive") based on the following facts: A. Executive is currently employed by the Company in the capacity as President, Specialty Avionics Group and is a key executive of the Company. B. The Company desires to define the terms and conditions of any termination of employment upon a Change of Control (as defined herein) in the Company. Based on the foregoing facts and circumstances and for good and valuable consideration, receipt of which is hereby acknowledged, the Company and Executive agree as follows: 1. TERM OF AGREEMENT. Except as otherwise provided herein, the term of this Agreement shall commence effective the date hereof and shall continue for two years (the "Term"). 2. A. COMPENSATION UPON TERMINATION FOLLOWING A CHANGE OF CONTROL. In the event that (i) a Change of Control shall have occurred during the term of this Agreement and while Executive is employed by the Company and (ii) the Executive's employment shall be involuntarily terminated for any reason on a date which is less than one year after the date of the Change of Control (whether during or after the term of this Agreement) other than for Cause, death or disability or Executive shall terminate his employment for Good Reason, then the Company shall make the following payments to Executive within 15 days following the date of such termination of employment (the "Termination Date"), subject in each case to any applicable payroll or other taxes required to be withheld. (1) The Company shall pay Executive a lump sum amount in cash equal to the sum of (a) Executive's monthly base salary multiplied by a number equal to 24 minus the number of whole months elapsed from the date of the Change of Control to the Termination Date (the "Multiplier") and (b) Executive's average annual bonus including in such average any such annual bonus earned (even though such bonus may be paid in the year following the year in which earned), (computed over the shorter of (x) the period of Executive's employment by the Company or (y) five calendar years each as measured to the day immediately preceding the Termination Date) divided by 12 and multiplied by the Multiplier. 1 (2) The Company shall pay Executive a lump sum amount in cash equal to accrued but unpaid salary and bonus through the Termination Date, and unpaid salary with respect to any vacation days accrued but not taken as of the Termination Date. B. DEFINITIONS. (1) As used in this Agreement, "Change of Control" shall mean an event involving the Company of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), assuming that such Schedule, Regulation and Act applied to the Company, provided that such a Change of Control shall be deemed to have occurred at such time as: (i) any "person" (as that term is used in Sections 13(d) and 14(d)(2) of the Exchange Act) (other than an Excluded Person (as defined below)) becomes, directly or indirectly, the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of securities representing 20% or more of the combined voting power for election of members of the Board of Directors of the then outstanding voting securities of the Company or any successor of the Company, excluding any person whose beneficial ownership of securities of the Company or any successor is obtained in a merger or consolidation not included in paragraph (iii) below; (ii) during any period of two consecutive years or less, individuals who at the beginning of such period constituted the Board of Directors of the Company cease, for any reason, to constitute at least a majority of the Board, unless the appointment, election or nomination for election of each new member of the Board (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) was approved by a vote of at least two-thirds of the members of the Board of Directors then still in office who were members of the Board at the beginning of the period or whose appointment, election or nomination was so approved since the beginning of such period; (iii) there is consummated any merger, consolidation or similar transaction to which the Company is a party as a result of which the persons who were equity holders of the Company immediately prior to the effective date of the merger or consolidation shall have beneficial ownership of less than 50% of the combined voting power for election of members of the Board of Directors (or equivalent) of the surviving entity or its parent following the effective date of such merger or consolidation; (iv) any sale or other disposition (or similar 2 transaction) (in a single transaction or series of related transactions) of (x) 50% or more of the assets or earnings power of the Company or (y) business operations which generated a majority of the consolidated revenues (determined on the basis of the Company's four most recently completed fiscal quarters for which reports have been completed) of the Company and its subsidiaries immediately prior thereto, other than a sale, other disposition, or similar transaction to an Excluded Person or to an entity of which equityholders of the Company beneficially own at least 50% of the combined voting power; (v) any liquidation of the Company. For purposes of this definition of Change of Control, the term "Excluded Person" shall mean and include (i) any corporation beneficially owned by shareholders of the Company in substantially the same proportion as their ownership of shares of the Company and (ii) the Company. (2) As used in this Agreement, "Good Reason" shall mean the occurrence, following a Change of Control, of any one of the following events without Executive's consent: (i) the Company assigns Executive to any duties substantially inconsistent with his position, duties, responsibilities, status or reporting responsibility with the Company immediately prior to the Change of Control, or assigns Executive to a position that does not provide Executive with substantially the same or better compensation, status, responsibilities and duties as Executive enjoyed immediately prior to the Change of Control; (ii) the Company reduces the amount of Executive's base salary as in effect as of the date of the Change of Control or as the same may be increased thereafter from time to time, except for across-the-board salary reductions similarly affecting all senior executives of the Company; (iii) the Company fails to pay Executive an annual bonus consistent with past practices and bonuses consistent with past practices are paid to any other senior executives of the Company; (iv) the Company changes the location at which Executive is employed by more than 50 miles from the location at which Executive is employed as of the date of this Agreement; or (v) the Company breaches this Agreement in any material respect, including without limitation failing to obtain a succession agreement from any successor to assume and agree to perform this Agreement. (3) For Cause. As used in this Agreement, "Cause" shall mean (i) any material act of dishonest constituting a felony (of which Executive is convicted or pleads guilty) which results or is intended to result directly or indirectly in substantial gain or personal enrichment to Executive at the expense of the Company, or (ii) after notice of 3 breach delivered to Executive specifying in reasonable detail and a reasonable opportunity for Executive to cure the breaches specified in the notice, the Board, acting by a two thirds vote, after a meeting held for the purpose of making such determination and after reasonable notice to Executive and an opportunity for him together with his counsel to be heard before the Board, determines, in good faith, other than for reasons of physical or mental illness, Executive willfully and continually fails to substantially perform his duties pursuant to this Agreement and such failure results in demonstrable material injury to the Company. The following shall not constitute Cause: (i) Executive's bad judgment or negligence, (ii) any act or omission by Executive without intent of gaining therefrom directly or indirectly a profit to which Executive was not legally entitled, (iii) any act or omission by Executive with respect to which a determination shall have been made that Executive met the applicable standard of conduct prescribed for indemnification or reimbursement of payment of expenses under the By-Laws of the Company or the laws of the State of Delaware as in effect at the time of such act or omission. 3. MITIGATION. Executive is not required to seek other employment or otherwise mitigate the amount of any payments to be made by the Company pursuant to this Agreement. 4. ASSIGNMENT. Neither Company nor Executive shall have the right to assign its respective rights pursuant to this Agreement. The Company shall require any proposed successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance reasonably satisfactory to Executive, to expressly assume and agree to perform this agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place, concurrent with the execution of a definitive agreement with the Company to engage in such transaction. 5. This Agreement shall be binding on the inure to the benefit of Executive and his heirs and the Company and any permitted assignee. The Company shall not engage in any transaction, including a merger or sale of assets unless, as a condition to such transaction such successor organization assumes the obligations of the Company pursuant to this Agreement. 4 6. NOTICES. If to Company: DeCrane Aircraft Holdings, Inc. 2361 Rosecrans Avenue, Suite 180 El Segundo, CA 90245 Attention: Chief Financial Officer Fax: 310-643-0746 If to Executive: Jeff Smith _________________________________ _________________________________ Fax: ___________________________ 7. FACSIMILE SIGNATURES, EXECUTION AND DELIVERY. This Agreement shall be effective upon transmission of a signed facsimile by one party to the other. 8. MISCELLANEOUS. This Agreement supersedes and makes void any prior agreement between the parties and sets forth the entire agreement and understanding of the parties hereto with respect to the matters covered hereby, and may not otherwise be amended or modified except by written agreement executed by the Company and the Executive. This Agreement shall be governed by and construed in accordance with the laws of the State of California. This Agreement has been executed on the date specified in the first paragraph. DECRANE AIRCRAFT HOLDINGS, INC. By: ----------------------------------- Authorized Signature EXECUTIVE ----------------------------------- Jeff Smith 5 EX-10.23-9 15 a2040254zex-10_239.txt EXHIBIT 10.23.9 EXHIBIT 10.23.9 CHANGE OF CONTROL AGREEMENT This Change of Control Agreement (the "Agreement") is made and entered into September 27, 2000 by and between DeCrane Aircraft Holdings, Inc. (the "Company") and Eric Steidl ("Executive") based on the following facts: A. Executive is currently employed by the Company in the capacity as Corporate Controller and is a key executive of the Company. B. The Company desires to define the terms and conditions of any termination of employment upon a Change of Control (as defined herein) in the Company. Based on the foregoing facts and circumstances and for good and valuable consideration, receipt of which is hereby acknowledged, the Company and Executive agree as follows: 1. TERM OF AGREEMENT. Except as otherwise provided herein, the term of this Agreement shall commence effective the date hereof and shall continue for one year (the "Term"). 2. A. COMPENSATION UPON TERMINATION FOLLOWING A CHANGE OF CONTROL. In the event that (i) a Change of Control shall have occurred during the term of this Agreement and while Executive is employed by the Company and (ii) the Executive's employment shall be involuntarily terminated for any reason on a date which is less than one year after the date of the Change of Control (whether during or after the term of this Agreement) other than for Cause, death or disability or Executive shall terminate his employment for Good Reason, then the Company shall make the following payments to Executive within 15 days following the date of such termination of employment (the "Termination Date"), subject in each case to any applicable payroll or other taxes required to be withheld. (1) The Company shall pay Executive a lump sum amount in cash equal to the sum of (a) Executive's monthly base salary multiplied by a number equal to 12 minus the number of whole months elapsed from the date of the Change of Control to the Termination Date (the "Multiplier") and (b) Executive's average annual bonus including in such average any such annual bonus earned (even though such bonus may be paid in the year following the year in which earned), (computed over the shorter of (x) the period of Executive's employment by the Company or (y) five calendar years each as measured to the day immediately preceding the Termination Date) divided by 12 and multiplied by the Multiplier. 1 (2) The Company shall pay Executive a lump sum amount in cash equal to accrued but unpaid salary and bonus through the Termination Date, and unpaid salary with respect to any vacation days accrued but not taken as of the Termination Date. B. DEFINITIONS. (1) As used in this Agreement, "Change of Control" shall mean an event involving the Company of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), assuming that such Schedule, Regulation and Act applied to the Company, provided that such a Change of Control shall be deemed to have occurred at such time as: (i) any "person" (as that term is used in Sections 13(d) and 14(d)(2) of the Exchange Act) (other than an Excluded Person (as defined below)) becomes, directly or indirectly, the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of securities representing 20% or more of the combined voting power for election of members of the Board of Directors of the then outstanding voting securities of the Company or any successor of the Company, excluding any person whose beneficial ownership of securities of the Company or any successor is obtained in a merger or consolidation not included in paragraph (iii) below; (ii) during any period of two consecutive years or less, individuals who at the beginning of such period constituted the Board of Directors of the Company cease, for any reason, to constitute at least a majority of the Board, unless the appointment, election or nomination for election of each new member of the Board (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) was approved by a vote of at least two-thirds of the members of the Board of Directors then still in office who were members of the Board at the beginning of the period or whose appointment, election or nomination was so approved since the beginning of such period; (iii) there is consummated any merger, consolidation or similar transaction to which the Company is a party as a result of which the persons who were equity holders of the Company immediately prior to the effective date of the merger or consolidation shall have beneficial ownership of less than 50% of the combined voting power for election of members of the Board of Directors (or equivalent) of the surviving entity or its parent following the effective date of such merger or consolidation; (iv) any sale or other disposition (or similar 2 transaction) (in a single transaction or series of related transactions) of (x) 50% or more of the assets or earnings power of the Company or (y) business operations which generated a majority of the consolidated revenues (determined on the basis of the Company's four most recently completed fiscal quarters for which reports have been completed) of the Company and its subsidiaries immediately prior thereto, other than a sale, other disposition, or similar transaction to an Excluded Person or to an entity of which equityholders of the Company beneficially own at least 50% of the combined voting power; (v) any liquidation of the Company. For purposes of this definition of Change of Control, the term "Excluded Person" shall mean and include (i) any corporation beneficially owned by shareholders of the Company in substantially the same proportion as their ownership of shares of the Company and (ii) the Company. (2) As used in this Agreement, "Good Reason" shall mean the occurrence, following a Change of Control, of any one of the following events without Executive's consent: (i) the Company assigns Executive to any duties substantially inconsistent with his position, duties, responsibilities, status or reporting responsibility with the Company immediately prior to the Change of Control, or assigns Executive to a position that does not provide Executive with substantially the same or better compensation, status, responsibilities and duties as Executive enjoyed immediately prior to the Change of Control; (ii) the Company reduces the amount of Executive's base salary as in effect as of the date of the Change of Control or as the same may be increased thereafter from time to time, except for across-the-board salary reductions similarly affecting all senior executives of the Company; (iii) the Company fails to pay Executive an annual bonus consistent with past practices and bonuses consistent with past practices are paid to any other senior executives of the Company; (iv) the Company changes the location at which Executive is employed by more than 50 miles from the location at which Executive is employed as of the date of this Agreement; or (v) the Company breaches this Agreement in any material respect, including without limitation failing to obtain a succession agreement from any successor to assume and agree to perform this Agreement. (3) For Cause. As used in this Agreement, "Cause" shall mean (i) any material act of dishonest constituting a felony (of which Executive is convicted or pleads guilty) which results or is intended to result directly or indirectly in substantial gain or personal enrichment to Executive at the expense of the Company, or (ii) after notice of 3 breach delivered to Executive specifying in reasonable detail and a reasonable opportunity for Executive to cure the breaches specified in the notice, the Board, acting by a two thirds vote, after a meeting held for the purpose of making such determination and after reasonable notice to Executive and an opportunity for him together with his counsel to be heard before the Board, determines, in good faith, other than for reasons of physical or mental illness, Executive willfully and continually fails to substantially perform his duties pursuant to this Agreement and such failure results in demonstrable material injury to the Company. The following shall not constitute Cause: (i) Executive's bad judgment or negligence, (ii) any act or omission by Executive without intent of gaining therefrom directly or indirectly a profit to which Executive was not legally entitled, (iii) any act or omission by Executive with respect to which a determination shall have been made that Executive met the applicable standard of conduct prescribed for indemnification or reimbursement of payment of expenses under the By-Laws of the Company or the laws of the State of Delaware as in effect at the time of such act or omission. 3. MITIGATION. Executive is not required to seek other employment or otherwise mitigate the amount of any payments to be made by the Company pursuant to this Agreement. 4. ASSIGNMENT. Neither Company nor Executive shall have the right to assign its respective rights pursuant to this Agreement. The Company shall require any proposed successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance reasonably satisfactory to Executive, to expressly assume and agree to perform this agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place, concurrent with the execution of a definitive agreement with the Company to engage in such transaction. 5. This Agreement shall be binding on the inure to the benefit of Executive and his heirs and the Company and any permitted assignee. The Company shall not engage in any transaction, including a merger or sale of assets unless, as a condition to such transaction such successor organization assumes the obligations of the Company pursuant to this Agreement. 4 6. NOTICES. If to Company: DeCrane Aircraft Holdings, Inc. 2361 Rosecrans Avenue, Suite 180 El Segundo, CA 90245 Attention: Chief Financial Officer Fax: 310-643-0746 If to Executive: Eric Steidl ___________________________________ ___________________________________ Fax: _____________________________ 7. FACSIMILE SIGNATURES, EXECUTION AND DELIVERY. This Agreement shall be effective upon transmission of a signed facsimile by one party to the other. 8. MISCELLANEOUS. This Agreement supersedes and makes void any prior agreement between the parties and sets forth the entire agreement and understanding of the parties hereto with respect to the matters covered hereby, and may not otherwise be amended or modified except by written agreement executed by the Company and the Executive. This Agreement shall be governed by and construed in accordance with the laws of the State of California. This Agreement has been executed on the date specified in the first paragraph. DECRANE AIRCRAFT HOLDINGS, INC. By: ----------------------------------- Authorized Signature EXECUTIVE ----------------------------------- Eric Steidl 5 EX-12.1 16 a2040254zex-12_1.txt EXHIBIT 12.1 EXHIBIT 12.1 DECRANE AIRCRAFT HOLDINGS, INC. COMPUTATION OF EARNINGS TO FIXED CHARGES RATIOS (DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31, -------------------------------------------------------------------- 1998 --------------------------- EIGHT MONTHS FOUR MONTHS ENDED ENDED AUGUST 31, DECEMBER 31, 1996 1997 1998 1998 1999 2000 --------- --------- --------- -------- -------- -------- (PREDECESSOR) (SUCCESSOR) EARNINGS: Income (loss) before provision for income taxes and extraordinary item .......... $ (105) $ 8,598 $ 6,081 $ (2,992) $ (3,418) $ 9,884 Minority interest in income of subsidiary with fixed charges .................... 193 112 48 82 197 228 Fixed charges ............................ 4,785 3,842 3,117 7,217 29,123 42,923 --------- --------- --------- -------- -------- -------- Total earnings ........................ $ 4,873 $ 12,552 $ 9,246 $ 4,307 $ 25,902 $ 53,035 ========= ========= ========= ======== ======== ======== FIXED CHARGES: Interest expense, including amortization of debt discounts and issuance costs (1).. $ 4,248 $ 3,154 $ 2,350 $ 6,852 $ 27,918 $ 41,623 Interest component of rentals (2) ....... 537 688 767 365 1,205 1,300 --------- --------- --------- -------- -------- -------- Total fixed charges ................... $ 4,785 $ 3,842 $ 3,117 $ 7,217 $ 29,123 $ 42,923 ========= ========= ========= ======== ======== ======== RATIO OF EARNINGS TO FIXED CHARGES: Ratio .................................... 1.0x 3.3x 3.0x -- -- 1.2x Deficiency ............................... $ -- $ -- $ -- $ 2,910 $ 3,221 $ --
- -------------------------- (1) None capitalized (2) Reflects one-third of rental expense under operating leases considered to represent interest costs. EX-21.1 17 a2040254zex-21_1.txt EXHIBIT 21.1 EXHIBIT 21.1 LIST OF SUBSIDIARIES OF REGISTRANT SUBSIDIARIES OF DECRANE AIRCRAFT HOLDINGS, INC. AEROSPACE DISPLAY SYSTEMS, LLC, a Delaware limited liability company. AUDIO INTERNATIONAL, INC., an Arkansas corporation. AVTECH CORPORATION, a Washington corporation. CARL F. BOOTH & CO., LLC, a Delaware limited liability company. COLTECH, INC., a Texas corporation. CUSTOM WOODWORK & PLASTICS, LLC, a Delaware limited liability company. DAH-IP HOLDINGS, INC., a Delaware corporation. DAH-IP INFINITY, INC., a Delaware corporation. DECRANE AIRCRAFT FURNITURE CO., LP, a Texas limited partnership. DECRANE AIRCRAFT INTERNATIONAL SALES, INC., a Barbados corporation. DETTMERS INDUSTRIES, INC., a Delaware corporation. ERDA, INC., a Wisconsin 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. THE INFINITY PARTNERS, LTD., a Texas limited partnership. 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-23.1 18 a2040254zex-23_1.txt EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (No. 333-43496) of DeCrane Aircraft Holdings, Inc. of our report dated March 9, 2001 relating to the consolidated financial statements and financial statement schedule, which appears in this Form 10-K. PricewaterhouseCoopers LLP Los Angeles, California March 30, 2001 EX-99.1 19 a2040254zex-99_1.txt EXHIBIT 99.1 EXHIBIT 99.1 INDEX TO UNAUDITED PRO FORMA FINANCIAL DATA
PAGE ---- Basis of Presentation .................................................................................... P-2 Pro Forma Consolidated Statement of Operations for the years ended: December 31, 1999 ..................................................................................... P-3 December 31, 2000 ..................................................................................... P-4 Notes to Unaudited Pro Forma Financial Data .............................................................. P-5 Computation of Pro Forma Earnings to Fixed Charges Ratios ................................................ P-12
P-1 UNAUDITED PRO FORMA FINANCIAL DATA BASIS OF PRESENTATION The following unaudited pro forma financial data for DeCrane Aircraft Holdings, Inc. is based on our historical consolidated financial statements, adjusted to reflect our acquisitions of Carl F. Booth & Co. and ERDA, Inc. during the year ended December 31, 2000, as required by Securities and Exchange Commission rules. In addition, the pro forma financial data is also adjusted to reflect three other less significant acquisitions we completed during 2000. Supplementally, we have also provided unaudited pro forma data for the year ended December 31, 1999. The 1999 pro forma data is adjusted to reflect our 2000 acquisitions and our 1999 PATS, Precision Pattern, Custom Woodwork, PCI NewCo., International Custom Interiors and Infinity acquisitions. Our 1999 and 2000 acquisitions are described in the notes accompanying our financial statements. Unaudited pro forma consolidated statements of operations are presented for each of the years in the two-year period ended December 31, 2000. The statements reflect our acquisitions as if they had occurred as of January 1, 1999. All of our 1999 and 2000 acquisitions had occurred by December 31, 2000 and are therefore reflected in our historical balance sheet as of that date. The pro forma adjustments are based upon available information and assumptions management believes are reasonable under the circumstances. The unaudited pro forma financial data and accompanying notes should be read in conjunction with our historical audited financial statements and related notes and the historical audited financial statements and related notes of the companies we have acquired and filed with the Securities and Exchange Commission on Forms 10-K and 8-K. The pro forma financial data does not purport to represent what our actual results of operations or actual financial position would have been if the transactions described above in fact occurred on such dates or to project our results of operations or financial position for any future period or date. P-2 UNAUDITED PRO FORMA FINANCIAL DATA CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1999
HISTORICAL RESULTS ------------------------ DECRANE COMPANIES ACQUISITION AIRCRAFT (1) ACQUIRED (2) ADJUSTMENTS PRO FORMA ----------- ----------- ----------- ----------- (DOLLARS IN THOUSANDS) Revenues .............................................. $ 244,048 $ 94,384 $ (2,890) (3) $ 335,542 Cost of sales ......................................... 165,871 66,091 (2,890) (4) 229,072 ----------- ----------- ----------- ----------- Gross profit ....................................... 78,177 28,293 -- 106,470 Selling, general and administrative expenses .......... 40,157 11,692 (3,769) (5) 48,080 Amortization of intangible assets ..................... 13,073 363 4,404 (6) 17,840 ----------- ----------- ----------- ----------- Operating income ................................... 24,947 16,238 (635) 40,550 Interest expense ...................................... 27,918 1,084 10,519 (7) 39,521 Other expenses (income), net........................... 447 (54) -- 393 ----------- ----------- ----------- ----------- Income (loss) before provision for income taxes ....... (3,418) 15,208 (11,154) 636 Provision for income taxes (benefit) .................. 952 (457) 2,162 (8) 2,657 ----------- ----------- ----------- ----------- Net income (loss) ..................................... (4,370) 15,665 (13,316) (2,021) Accrued preferred stock dividends and redemption value accretion ......................... -- -- (4,714) (9) (4,714) ----------- ----------- ----------- ----------- Net income (loss) applicable to common stockholder ................................. $ (4,370) $ 15,665 $ (18,030) $ (6,735) =========== =========== =========== ===========
See accompanying Notes to Unaudited Pro Forma Financial Data. P-3 UNAUDITED PRO FORMA FINANCIAL DATA CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 2000
HISTORICAL RESULTS ------------------------ DECRANE COMPANIES ACQUISITION AIRCRAFT (1) ACQUIRED (2) ADJUSTMENTS PRO FORMA ----------- ----------- ----------- ----------- (DOLLARS IN THOUSANDS) Revenues .............................................. $ 347,379 $ 25,512 $ (1,307) (3) $ 371,584 Cost of sales ......................................... 232,048 17,388 (1,936) (4) 247,500 ----------- ----------- ----------- ----------- Gross profit .......................................... 115,331 8,124 629 124,084 Selling, general and administrative expenses .......... 45,394 4,994 (2,659) (5) 47,729 Amortization of intangible assets ..................... 17,948 171 1,237 (6) 19,356 ----------- ----------- ----------- ----------- Operating income ...................................... 51,989 2,959 2,051 56,999 Interest expense ...................................... 41,623 608 617 (7) 42,848 Other expenses, net ................................... 482 -- -- 482 ----------- ----------- ----------- ----------- Income before provision for income taxes .............. 9,884 2,351 1,434 13,669 Provision for income taxes (benefit) .................. 6,282 (308) 2,338 (8) 8,312 ----------- ----------- ----------- ----------- Net income ............................................ 3,602 2,659 (904) 5,357 Accrued preferred stock dividends and redemption value accretion ......................... (2,274) -- (3,162) (9) (5,436) ----------- ----------- ----------- ----------- Net income (loss) applicable to common stockholder ................................. $ 1,328 $ 2,659 $ (4,066) $ (79) =========== =========== =========== ===========
See accompanying Notes to Unaudited Pro Forma Financial Data. P-4 UNAUDITED PRO FORMA FINANCIAL DATA NOTES TO UNAUDITED PRO FORMA FINANCIAL DATA (1) Reflects our historical consolidated results of operations for the years ended December 31, 1999 and 2000 derived from our historical audited financial statements. (2) Reflects the historical results of operations of companies we acquired that are not included in our historical results. The results of operations for the companies we acquired are for the periods from the beginning of the period presented to the dates indicated below. For periods subsequent to those dates, their respective results of operations are included in our historical results.
COMPANY ACQUIRED REFLECTS PRO FORMA HISTORICAL RESULTS THROUGH ---------------------------------------------------- ---------------------------------------------------- 1999 ACQUISITIONS PATS January 21, 1999 Precision Pattern April 22, 1999 Custom Woodwork & Plastics August 4, 1999 PCI NewCo October 5, 1999 International Custom Interiors October 7, 1999 Infinity December 16, 1999 2000 ACQUISITION Carl Booth May 1, 2000 ERDA June 30, 2000
Tables summarizing the acquired companies' results of operations for the years ended December 31, 1999 and 2000 appear below.
TOTAL 2000 ACQUISITIONS 1999 CARL -------------------------------------- YEAR ENDED DECEMBER 31, 1999 ACQUISITIONS BOOTH ERDA (a) OTHERS (b) TOTAL ---------------------------- ----------- ----------- ----------- ----------- ----------- (DOLLARS IN THOUSANDS) Revenues ................................. $ 52,834 $ 13,757 $ 21,476 $ 6,317 $ 94,384 Cost of sales ............................ 36,440 10,163 16,783 2,705 66,091 ----------- ----------- ----------- ----------- ----------- Gross profit ............................. 16,394 3,594 4,693 3,612 28,293 Selling, general and administrative Expenses ............................... 5,324 1,237 2,270 2,861 11,692 Amortization of intangible assets ........ 124 -- 239 -- 363 ----------- ----------- ----------- ----------- ----------- Operating income ......................... 10,946 2,357 2,184 751 16,238 Interest expense (income) ................ 152 (65) 997 -- 1,084 Other income, net ........................ (29) (25) -- -- (54) ----------- ----------- ----------- ----------- ----------- Income before provision for income taxes ........................... 10,823 2,447 1,187 751 15,208 Provision for income taxes (benefit) ..... (827) -- 389 (19) (457) ----------- ----------- ----------- ----------- ----------- Net income ............................... $ 11,650 $ 2,447 $ 798 $ 770 $ 15,665 =========== =========== =========== =========== ===========
- -------------------------- (a) Excludes the operating results of ERDA's majority owned subsidiary not acquired. (b) Reflects our acquisition of Coltech and two product lines during 2000. P-5 UNAUDITED PRO FORMA FINANCIAL DATA NOTES TO UNAUDITED PRO FORMA FINANCIAL DATA (CONTINUED)
1999 ACQUISITIONS --------------------------------------------------------------------------- CUSTOM INT'L YEAR ENDED DECEMBER 31, 1999 PRECISION WOOD PCI CUSTOM (CONTINUED) PATS PATTERN WORK NEWCO. INTERIORS INFINITY TOTAL --------- --------- --------- --------- --------- --------- --------- (DOLLARS IN THOUSANDS) Revenues ...................... $ 451 $ 12,757 $ 4,972 $ 6,692 $ 4,753 $ 23,209 $ 52,834 Cost of sales ................. 1,229 8,435 2,203 4,747 3,057 16,769 36,440 --------- --------- --------- --------- --------- --------- --------- Gross profit (loss) ........... (778) 4,322 2,769 1,945 1,696 6,440 16,394 Selling, general and administrative expenses ..... 611 944 262 520 492 2,495 5,324 Amortization of intangible assets ...................... -- 124 -- -- -- -- 124 --------- --------- --------- --------- --------- --------- --------- Operating income (loss) ....... (1,389) 3,254 2,507 1,425 1,204 3,945 10,946 Interest expense (income) ..... 23 127 (11) (2) (19) 34 152 Other expenses (income), net .. 11 (33) -- (3) (4) -- (29) --------- --------- --------- --------- --------- --------- --------- Income (loss) before provision for income taxes ....................... (1,423) 3,160 2,518 1,430 1,227 3,911 10,823 Provision for income taxes (benefit) ............. (1,244) -- -- -- 417 -- (827) --------- --------- --------- --------- --------- --------- --------- Net income (loss) ............. $ (179) $ 3,160 $ 2,518 $ 1,430 $ 810 $ 3,911 $ 11,650 ========= ========= ========= ========= ========= ========= =========
2000 ACQUISITIONS --------------------------------------------------- CARL BOOTH ERDA (a) OTHERS (b) TOTAL ----------- ----------- ----------- ----------- (DOLLARS IN THOUSANDS) Revenues .............................................. $ 5,983 $ 14,354 $ 5,175 $ 25,512 Cost of sale .......................................... 3,110 11,984 2,294 17,388 ----------- ----------- ----------- ----------- Gross profit .......................................... 2,873 2,370 2,881 8,124 Selling, general and administrative expenses .......... 588 2,499 1,907 4,994 Amortization of intangible assets ..................... -- 171 -- 171 ----------- ----------- ----------- ----------- Operating income (loss) ............................... 2,285 (300) 974 2,959 Interest expense (income) ............................. (33) 641 -- 608 ----------- ----------- ----------- ----------- Income (loss) before provision for income taxes ....... 2,318 (941) 974 2,351 Provision for income taxes (benefit) .................. -- (308) -- (308) ----------- ----------- ----------- ----------- Net income (loss) ..................................... $ 2,318 $ (633) $ 974 $ 2,659 =========== =========== =========== ===========
- ------------------------ (a) Excludes the operating results of ERDA's majority owned subsidiary not acquired. (b) Reflects our acquisition of Coltech and two product lines during 2000. P-6 UNAUDITED PRO FORMA FINANCIAL DATA NOTES TO UNAUDITED PRO FORMA FINANCIAL DATA (CONTINUED) (3) Reflects the elimination of intercompany sales. (4) Reflects a net decrease in cost of sales attributable to the follow:
YEAR ENDED DECEMBER 31, ------------------------- 1999 2000 ----------- ----------- (DOLLARS IN THOUSANDS) Elimination of intercompany sales ............................................... $ (2,890) $ (1,307) Reorganization of manufacturing process (a)...................................... -- (529) Reversal of intercompany profit in inventory (b) ................................ -- (100) ----------- ----------- Decrease in cost of sales.................................................... $ (2,890) $ (1,936) =========== ===========
- ------------------------ (a) Reflects costs incurred, subsequent to the acquisition date, for a reorganization of the manufacturing process at ERDA. We planned for the reorganization prior to acquisition and began implementing the plan immediately after acquisition. The reorganization was completed during 2000. (b) Eliminated in our historical results. (5) Reflects the net decrease in selling, general and administrative expenses attributable to the following:
YEAR ENDED DECEMBER 31, ------------------------- 1999 2000 ----------- ----------- (DOLLARS IN THOUSANDS) Bonuses and employment contract termination expenses (a) ........................ $ (3,031) $ (1,708) Acquisition related expenses (b) ................................................ (716) (951) Other, net (c) .................................................................. (22) -- ----------- ----------- Decrease in selling, general and administrative expenses ...................... $ (3,769) $ (2,659) =========== ===========
- ---------------------------- (a) Reflects a reduction in expenses attributable to employment contract termination expenses and nonrecurring bonuses awarded prior to, and in anticipation of, our acquisitions of PATS, Infinity and Coltech. (b) Reflects a reduction for non-capitalizable acquisition expenses incurred by PATS, Infinity and ERDA on behalf of their stockholders related to their respective acquisitions by us. (c) Reflects cost savings attributable to employee benefit plans implemented at the companies we acquired. P-7 UNAUDITED PRO FORMA FINANCIAL DATA NOTES TO UNAUDITED PRO FORMA FINANCIAL DATA (CONTINUED) (6) Reflects the net increase in amortization expense pertaining to the amortization of goodwill and other intangible assets related to the companies we have acquired as follows:
INTANGIBLE ESTIMATED YEAR ENDED DECEMBER 31, ASSET USEFUL ------------------------- AMOUNT LIFE (a) 1999 2000 ----------- ----------- ----------- ----------- (DOLLARS IN THOUSANDS) Elimination of predecessor basis amortization (b)..................................... $ (363) $ (171) Amortization attributable to companies acquired (c): Goodwill ............................................ $ 152,543 30 3,031 675 FAA certifications .................................. 15,425 15 906 448 Customer contracts .................................. 8,390 7 100 -- Engineering drawings ................................ 5,482 15 216 95 Assembled workforce ................................. 4,980 7 514 190 ----------- ----------- Net increase in amortization expense .............. $ 4,404 $ 1,237 =========== ===========
- -------------------------- (a) Amortized on a straight-line basis over the respective estimated useful lives. (b) Reflects the elimination of amortization expense recorded by Precision Pattern and ERDA for periods prior to their acquisition. (c) Reflects adjustments for all of our 1999 and 2000 acquisitions from the beginning of the period presented to their respective acquisition dates; subsequent to those dates, amortization expense is included in our historical results. (7) Reflects the net increase in interest expense, including deferred financing cost amortization and commitment fees, as a result of our 1999 and 2000 acquisitions as if they all had occurred on January 1, 1999. The components of pro forma interest expense are summarized in a table on the next page. P-8 UNAUDITED PRO FORMA FINANCIAL DATA NOTES TO UNAUDITED PRO FORMA FINANCIAL DATA (CONTINUED) The components of pro forma interest expense are summarized in the table below.
YEAR ENDED DECEMBER 31, ------------------------- RATE OR TERM AMOUNT 1999 2000 -------------------------- ----------- ----------- ----------- (DOLLARS IN THOUSANDS) Senior credit facility (a): Revolving credit facilities .......... LIBOR (b) + 2.75% (c) $ 84 $ 28 Term facilities: Term A ............................. LIBOR (b) + 2.75% (d) 3,345 3,526 Term B ............................. LIBOR (b) + 3.5% (e) 11,930 13,458 Term D ............................. LIBOR (b) + 4.0% (f) 8,668 9,717 Senior subordinated notes .............. 12.00% $ 100,000 12,000 12,000 Customer advance ....................... 7.50% (g) 380 247 Other long-term obligations ............ 4.7% to 25.7% (h) 251 1,042 Deferred financing cost amortization: Senior revolving credit facilities ... 6 years (i) 1,277 213 213 Senior term facilities: Term A ............................. 6 years (j) 1,141 343 314 Term B ............................. 7 years (j) 4,211 679 672 Term D ............................. 6 years (j) 3,100 481 477 Senior subordinated notes ............ 10 years (j) 6,317 632 632 Commitment fees and expenses ........... 515 522 ----------- ----------- Pro forma interest expense (k) ..... $ 39,521 $ 42,848 =========== ===========
- ---------------------------- (a) Reflects our senior credit facility as amended for all of our 1999 and 2000 acquisitions, as if all events had occurred on January 1, 1999. (b) Calculations based on the historical LIBOR rates charged during the respective periods. The weighted average historical LIBOR rates were as follows:
YEAR ENDED DECEMBER 31, ----------------------- 1999 2000 --------- -------- Revolving credit facilities .............................................. 5.374% 6.709% Term A facility .......................................................... 5.365% 6.582% Term B facility .......................................................... 5.369% 6.603% Term D facility .......................................................... 5.396% 6.636%
(c) Reflects revolving credit facility borrowings of $5.8 million at December 31, 1998 plus $2.7 million pro forma additional borrowings as of January 1, 1999 for our 1999 and 2000 acquisitions. The pro forma weighted average borrowings outstanding under the revolving credit facilities were $1.0 million for the year ended December 31, 1999 and $296,000 for the year ended December 31, 2000. (d) Reflects Term A facility borrowings of $34.5 million at December 31, 1998 plus $7.5 million pro forma additional borrowings as of January 1, 1999 for our Infinity and Carl Booth acquisitions, reduced by quarterly principal payments of $500,000 on March 31, 1999, $531,000 on June 30 and September 30, 1999 and $1.1 million commencing December 31, 1999. The pro forma weighted average borrowings outstanding under the Term A facility were $41.2 million for the year ended December 31, 1999 and $37.8 million for the year ended December 31, 2000. P-9 UNAUDITED PRO FORMA FINANCIAL DATA NOTES TO UNAUDITED PRO FORMA FINANCIAL DATA (CONTINUED) (e) Reflects Term B facility borrowings of $44.9 million at December 31, 1998 plus $90.0 million pro forma additional borrowings as of January 1, 1999 for our PATS and Precision Pattern acquisition, reduced by quarterly principal payments of $163,000 on March 31, 1999 and $338,000 commencing June 30, 1999. The pro forma weighted average borrowings outstanding under the Term B facility were $134.5 million for the year ended December 31, 1999 and $133.2 million for the year ended December 31, 2000. (f) Reflects Term D facility pro forma additional borrowings of $92.5 million as of January 1, 1999 for our Infinity and Carl Booth acquisitions and to repay then existing revolving credit facility borrowings as of January 1, 1998, reduced by quarterly principal payments of $100,000 on March 31, 1999 and $231,000 commencing June 30, 1999. The pro forma weighted average borrowings outstanding under the Term D facility were $92.3 million for the year ended December 31, 1999 and $91.4 million for the year ended December 31, 2000. (g) Reflects a $5.0 million customer advance related to our PATS acquisition, pro forma as of January 1, 1999, reduced by principal payments of $975,000 on November 30, 1999 and $1.2 million on May 31 and November 30, 2000. The pro forma weighted average advance outstanding was $4.9 million for the year ended December 31, 1999 and $3.2 million for the year ended December 31, 2000. (h) Reflects historical interest expense related to capital lease obligations and equipment term debt financing. (i) Deferred financing costs are amortized on a straight-line basis over the term of the agreement. (j) Deferred financing costs are amortized using the effective interest method. (k) A 0.125% change in the interest rates charged on variable rate borrowings would change interest expense and net income (loss) by:
YEAR ENDED DECEMBER 31, ------------------------- 1999 2000 ----------- ----------- (DOLLARS IN THOUSANDS) Interest expense......................................................... $ 341 $ 343 Net income (loss)........................................................ 207 208
(8) Represents an increase in the provision for income taxes as a result of reflecting a pro forma provision for income taxes on the income of Precision Pattern, Custom Woodwork, PCI NewCo, Infinity and Carl Booth which were taxed as S Corporations or partnerships prior to their acquisitions, partially offset by a decrease in pro forma taxable income. The effective tax rate differs from the U.S. federal statutory rate primarily due to goodwill amortization related to acquisitions not deductible for income tax purposes and state and foreign income taxes. The difference in effective tax rates between periods is mostly a result the relationship of non-deductible expense to income before taxes. (9) Reflects an increase in accrued preferred stock dividends and redemption value accretion. We sold 16% mandatorily redeemable preferred stock and used the proceeds to partially fund the ERDA acquisition. P-10 UNAUDITED PRO FORMA FINANCIAL DATA NOTES TO UNAUDITED PRO FORMA FINANCIAL DATA (CONTINUED) (10) Supplemental pro forma financial information is as follows:
YEAR ENDED DECEMBER 31, ------------------------- 1999 2000 ----------- ----------- (DOLLARS IN THOUSANDS) Net cash provided by (used for): Operating activities .......................................................... $ 26,701 $ 20,725 Investing activities .......................................................... (214,882) (53,896) Financing activities .......................................................... 187,693 33,549 EBITDA (a) ...................................................................... 78,455 89,160 Depreciation and amortization (b) ............................................... 25,512 29,212 Capital expenditures: Paid in cash .................................................................. 9,283 23,492 Financed with capital lease obligations ....................................... 2,388 109 Cash interest expense ........................................................... 37,173 40,540 Ratio of earning to fixed charges (c) ........................................... 1.0x 1.3 x
- ------------------------- (a) EBITDA is defined as earnings before interest, income taxes, depreciation and amortization, restructuring and asset impairment charges, acquisition related charges and other noncash and nonoperating charges. EBITDA, as defined, is the primary measurement we use to evaluate our operating groups' performance and is consistent with the manner in which our lenders and ultimate investors measure our overall performance. EBITDA is not a measure of performance or financial condition under generally accepted accounting principles. EBITDA is not intended to represent cash flow from operations and should not be considered as an alternative to income from operations or net income computed in accordance with generally accepted accounting principles, as an indicator of our operating performance, as an alternative to cash flow from operating activities or as a measure of liquidity. The funds depicted by EBITDA are not available for our discretionary use due to funding requirements for working capital, capital expenditures, debt service, income taxes and other commitments and contingencies. We believe that EBITDA is a standard measure of liquidity commonly reported and widely used by analysts, investors and other interested parties in the financial markets. However, not all companies calculate EBITDA using the same method, and the EBITDA numbers we report may not be comparable to EBITDA reported by other companies. (b) Reflects depreciation and amortization of plant and equipment, goodwill and other intangible assets. Excludes amortization of deferred financing costs, which are classified as a component of interest expense. (c) For purposes of calculating the ratio of earnings to fixed charges, earnings represent net income before income taxes, minority interests in the income of majority-owned subsidiaries, extraordinary items and fixed charges. Fixed charges consist of: - interest, whether expensed or capitalized; - amortization of debt expense and discount or premium relating to any indebtedness, whether expensed or capitalized; and - one-third of rental expenses under operating leases which is considered to be a reasonable approximation of the interest portion of such expense. P-11 UNAUDITED PRO FORMA FINANCIAL DATA COMPUTATION OF PRO FORMA EARNING TO FIXED CHARGES RATIOS
YEAR ENDED DECEMBER 31, ------------------------- 1999 2000 ----------- ----------- (DOLLARS IN THOUSANDS) EARNINGS: Income before provision for income taxes ............................................... $ 636 $ 13,669 Minority interest in income of subsidiary with fixed charges ........................... 197 228 Fixed charges .......................................................................... 40,901 44,148 ----------- ----------- Total earnings .................................................................... $ 41,734 $ 58,045 =========== =========== FIXED CHARGES: Interest expense, including amortization of debt discounts and issuance costs (1) .............................................................. $ 39,521 $ 42,848 Interest component of rentals (2) ...................................................... 1,380 1,300 ----------- ----------- Total fixed charges ............................................................... $ 40,901 $ 44,148 =========== =========== RATIO OF EARNINGS TO FIXED CHARGES: Ratio .................................................................................. 1.0x 1.3x Deficiency ............................................................................. $ -- $ --
- --------------------------- (1) None capitalized. (2) Reflects one-third of rental expense under operating leases considered to represent interest costs. P-12 -----END PRIVACY-ENHANCED MESSAGE-----