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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q/A
(Amendment No. 1)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period Ended March 31, 2001

Commission File Number 333-70365

DECRANE AIRCRAFT HOLDINGS, INC.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization) 34-1645569
(IRS Employer Identification No.)

2361 Rosecrans Avenue, Suite 180, El Segundo, CA 90245
(Address, including zip code, of principal executive offices)

(310) 725-9123
(Registrant's telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

    Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /x/  No / /

    The number of shares of Registrant's Common Stock, $.01 par value, outstanding as of May 7, 2001 was 100 shares.

Table of Contents

Explanatory Note

    This Form 10-Q/A (Amendment No. 1) corrects a typographical error in the column headings on the Consolidated Statement of Operations and the Consolidated Statement of Cash Flows for the three months ended March 31, 2001 and 2000. The years 2001 and 2000 in the column headings were transposed in the previously filed Form 10-Q. Amounts for the three months ended March 31, 2001 are reflected in the first column with the corresponding amounts for 2000 reflected in the second column.

		Page
Part I  Financial Information
Item 1.	Financial Statements (Unaudited)	1
	Consolidated Balance Sheets as of March 31, 2001 and December 31, 2000	1
	Consolidated Statements of Operations for the three months ended March 31, 2001 and 2000	2
	Consolidated Statements of Stockholder's Equity for the three months ended March 31, 2001	3
	Consolidated Statements of Cash Flows for the three months ended March 31, 2001 and 2000	4
	Condensed Notes to Consolidated Financial Statements	5
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	16
	Overview	16
	Results of Operations	16
	Liquidity and Capital Resources	20
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	21
	Interest Rate Risk	21
	Foreign Currency Exchange Risk	21
Part II  Other Information
Item 1.	Legal Proceedings	23
Item 6.	Exhibits and Reports on Form 8-K	23
	Exhibits	23
	Reports on Form 8-K	23
Signatures		23

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share data)

				March 31, 2001			December 31, 2000
				(Unaudited)
Assets
Current assets
	Cash and cash equivalents			$	5,104		$	8,199
	Accounts receivable, net				69,484			59,023
	Inventories				90,929			83,677
	Deferred income taxes				14,385			15,090
	Prepaid expenses and other current assets				1,353			987
		Total current assets			181,255			166,976
Property and equipment, net					60,657			59,491
Other assets, principally intangibles, net					433,774			439,582
			Total assets	$	675,686		$	666,049
Liabilities, Mandatorily Redeemable Preferred Stock and Stockholder's Equity
Current liabilities
	Current portion of long-term debt			$	11,837		$	9,289
	Accounts payable				25,574			20,304
	Accrued liabilities				53,505			76,364
	Income taxes payable				4,260			3,505
		Total current liabilities			95,176			109,462
Long-term debt					395,442			373,990
Deferred income taxes					37,709			37,013
Other long-term liabilities					2,762			2,650
Commitments and contingencies (Note 8)
Mandatorily redeemable preferred stock					24,378			23,179
Stockholder's equity
	Cumulative convertible preferred stock, $.01 par value, 8,314,018 shares authorized; none issued and outstanding as of March 31, 2001 and December 31, 2000				—			—
	Undesignated preferred stock, $.01 par value, 9,300,000 shares authorized as of March 31, 2001 and December 31, 2000; none issued and outstanding as of March 31, 2001 and December 31, 2000				—			—
	Common stock, $.01 par value, 35,000,000 shares authorized; 100 shares issued and outstanding as of March 31, 2001 and December 31, 2000				—			—
	Additional paid-in capital				126,306			127,315
	Notes receivable for shares sold				(2,587	)		(2,552	)
	Accumulated deficit				(849	)		(3,321	)
	Accumulated other comprehensive loss				(2,651	)		(1,687	)
		Total stockholder's equity			120,219			119,755
			Total liabilities and stockholder's equity	$	675,686		$	666,049

    The accompanying notes are an integral part of the consolidated financial statements.

1

DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations

(In thousands)

			Three Months Ended March 31,
			2001			2000
			(Unaudited)
Revenues			$	99,151		$	79,178
Cost of sales				64,106			53,026
		Gross profit		35,045			26,152
Operating expenses
	Selling, general and administrative expenses			14,660			11,046
	Amortization of intangible assets			4,966			4,213
		Total operating expenses		19,626			15,259
		Income from operations		15,419			10,893
Other expenses
	Interest expense			10,455			8,676
	Other expenses, net			105			64
Income before provision for income taxes				4,859			2,153
Provision for income taxes				2,387			1,398
Net income				2,472			755
Accrued preferred stock dividends				(1,082	)		—
Preferred stock redemption value accretion				(117	)		—
Net income applicable to common stockholder			$	1,273		$	755

    The accompanying notes are an integral part of the consolidated financial statements.

2

DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholder's Equity

(In thousands, except share data)

		Common Stock						Notes Receivable For Shares Sold
					Additional Paid-in Capital						Accumulated Deficit			Accumulated Other Comprehensive Loss
		Shares	Amount														Total
Balance, December 31, 2000		100	$	—	$	127,315		$	(2,552	)	$	(3,321	)	$	(1,687	)	$	119,755
Comprehensive income
	Net income	—		—		—			—			2,472			—			2,472
	Translation adjustment	—		—		—			—			—			(964	)		(964	)
																		1,508
Accrued preferred stock dividends		—		—		(1,082	)		—			—			—			(1,082	)
Preferred stock redemption value accretion		—		—		(117	)		—			—			—			(117	)
Compensatory stock option expense		—		—		190			—			—			—			190
Notes receivable interest accrued		—		—		—			(35	)		—			—			(35	)
Balance, March 31, 2001 (Unaudited)		100	$	—	$	126,306		$	(2,587	)	$	(849	)	$	(2,651	)	$	120,219

    The accompanying notes are an integral part of the consolidated financial statements.

3

DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows

(In thousands)

					Three Months Ended March 31,
					2001			2000
					(Unaudited)
Cash flows from operating activities
	Net income				$	2,472		$	755
	Adjustments to reconcile net income to net cash provided by operating activities
			Depreciation and amortization			8,248			6,803
			Deferred income taxes			746			681
			Other, net			359			168
	Changes in assets and liabilities, net of effect from acquisitions
		Accounts receivable				(10,610	)		(5,585	)
		Inventories				(7,348	)		(3,510	)
		Prepaid expenses and other assets				(838	)		(1,046	)
		Accounts payable				5,302			924
		Accrued liabilities				(5,602	)		(2,643	)
		Income taxes payable				1,505			1,072
		Other long-term liabilities				155			244
				Net cash used for operating activities		(5,611	)		(2,137	)
Cash flows from investing activities
	Cash paid for acquisitions					(17,247	)		(28,179	)
	Capital expenditures					(2,604	)		(1,588	)
	Other, net					55			—
				Net cash used for investing activities		(19,796	)		(29,767	)
Cash flows from financing activities
	Net borrowings under senior credit facility					23,300			26,100
	Principal payments on term debt, capitalized leases and other debt					(1,001	)		(1,377	)
	Other, net					(58	)		(77	)
				Net cash provided by financing activities		22,241			24,646
Effect of foreign currency translation on cash						71			(12	)
Net decrease in cash and cash equivalents						(3,095	)		(7,270	)
Cash and cash equivalents at beginning of period						8,199			7,918
Cash and cash equivalents at end of period					$	5,104		$	648

    The accompanying notes are an integral part of the consolidated financial statements.

4

DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements
(Unaudited)

Note 1. Consolidated Financial Statements

    The consolidated interim financial statements included in this report are unaudited. The Company believes the interim financial statements are presented on a basis consistent with the audited financial statements. The Company also believes that the interim financial statements contain all adjustments necessary for a fair statement of the results for such interim periods. All of these adjustments are normal recurring adjustments. The results of operations for interim periods do not necessarily predict the operating results for the full year. The consolidated balance sheet as of December 31, 2000 has been derived from audited financial statements but does not include all disclosures required by generally accepted accounting principles as permitted by interim reporting requirements. The information included in this report should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the audited financial statements and related notes included in the Company's 2000 Form 10-K. Some reclassifications have been made to prior periods' financial statements to conform to the 2001 presentation.

Note 2. Unaudited Pro Forma Results of Operations for 2000 Acquisitions

    Unaudited pro forma consolidated results of operations are presented in the table below for three months ended March 31, 2000. The pro forma results of operations reflects the companies acquired during 2000, which are not reflected in the March 31, 2000 historical results, as if all of the acquisitions were consummated as of January 1, 2000. Historical results for 2001, which reflects the companies acquired during 2000, are presented for comparability. Amounts are in thousands.

	Three Months Ended March 31,
	2001 Historical		2000 Pro Forma
	(Unaudited)
Revenues	$	99,151	$	91,482
EBITDA, as defined (Note 10)		23,385		21,447
Net income		2,472		1,264

    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.

Note 3. Inventories

    Inventories are comprised of the following as of March 31, 2001 and December 31, 2000 (amounts in thousands):

		March 31, 2001		December 31, 2000
		(Unaudited)
Raw materials		$	50,515	$	49,235
Work-in process			32,310		26,749
Finished goods			8,104		7,693
	Total inventories	$	90,929	$	83,677

5

    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 program costs, principally engineering, of $9,581,000 at March 31, 2001 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 program costs and adjustments are made, if necessary, to reduce inventoried costs to estimated realizable value. No adjustments were required in 2001 and 2000.

Note 4. Accrued Liabilities

    Accrued liabilities are comprised of the following as of March 31, 2001 and December 31, 2000 (amounts in thousands):

		March 31, 2001		December 31, 2000
		(Unaudited)
Acquisition related contingent consideration		$	3,079	$	20,154
Customer advances and deposits			20,344		19,974
Salaries, wages, compensated absences and payroll related taxes			12,163		15,337
Accrued interest			2,467		3,730
Other accrued liabilities			15,452		17,169
	Total accrued liabilities	$	53,505	$	76,364

Note 5. Long-Term Debt

    Long-term debt includes the following amounts as of March 31, 2001 and December 31, 2000 (amounts in thousands):

			March 31, 2001			December 31, 2000
			(Unaudited)
Senior credit facility
	$25 million working capital revolving line of credit		$	10,700		$	—
	$25 million acquisition revolving line of credit			25,000			12,400
	Term loans			263,443			263,443
12% senior subordinated notes				100,000			100,000
Capital lease obligations and equipment term debt financing, secured by property and equipment				6,486			5,231
Other indebtedness				1,650			2,205
	Total long-term debt			407,279			383,279
	Less current portion			(11,837	)		(9,289	)
		Long-term debt, less current portion	$	395,442		$	373,990

Note 6. Income Taxes

    The provision for income taxes differs from the amount determined by applying the applicable U.S. statutory federal rate to 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

6

the effective tax rates between periods is mostly a result of the relationship of non-deductible expenses to income before income taxes.

Note 7. Capital Structure

Mandatorily Redeemable Preferred Stock

    The table below summarizes the increase in mandatorily redeemable preferred stock during the three months ended March 31, 2001.

	Number of Shares	Mandatory Redemption Value		Unamortized Issuance Discount			Net Book Value
	(in thousands, except share and per share data)
Balance, December 31, 2000	270,400	$	27,040	$	(3,861	)	$	23,179
Accrued dividends and redemption value accretion	10,816		1,082		117			1,199
Balance, March 31, 2001 (Unaudited)	281,216	$	28,122	$	(3,744	)	$	24,378
Per share liquidation value as of March 31, 2001 (Unaudited)		$	100.00

    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, the Company may, at its option, pay dividends either in cash or by the issuance of additional shares of preferred stock. For the three months ended March 31, 2001, the Company elected to issue 10,816 additional shares in lieu of cash dividend payments. The accrued dividends and redemption value accretion were charged to additional paid-in capital.

Note 8. Commitments and Contingencies

Contingent Acquisition Consideration

    The determinable amounts of the Company's remaining maximum contingent consideration payment obligations, as of March 31, 2001, 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 March 31, 2001 (Notes 2, 4 and 9). Provided the defined performance criteria is attained for the future years ending December 31^st as indicated below, the Company's determinable maximum contingent consideration payment obligation will be (amounts in thousands):

			(Unaudited)
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.

7

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 $48,906,000 as of March 31, 2001, including accumulated dividends.

Note 9. Consolidated Statements of Cash Flows

    The following information supplements the Company's consolidated statements of cash flows (amounts in thousands):

			Three Months Ended March 31,
			2001		2000
			(Unaudited)
Components of cash paid for acquisitions
	Contingent consideration paid for previously completed acquisitions		$	17,075	$	27,900
	Additional acquisition related expenses			172		279
		Total cash paid for acquisitions	$	17,247	$	28,179

Note 10. 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, EBITDA is considered to be the primary measurement of overall group 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.

8

    The accounting policies of the groups are substantially the same as those described in the summary of significant accounting policies in Note 1 to the audited financial statements. 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.

			Three Months Ended March 31,
			2001			2000
			(Unaudited)
Revenues
	Cabin Management		$	51,359		$	36,224
	Specialty Avionics			31,273			26,797
	Systems Integration			16,734			16,609
	Inter-group elimination(1)			(215	)		(452	)
		Consolidated totals	$	99,151		$	79,178
EBITDA(2)
	Cabin Management		$	13,398		$	9,541
	Specialty Avionics			7,827			6,133
	Systems Integration			4,096			3,442
	Corporate(3)			(1,936	)		(1,803	)
	Inter-group elimination(4)			—			(131	)
		Consolidated totals	$	23,385		$	17,182
Total assets (as of period end)
	Cabin Management		$	324,561		$	189,160
	Specialty Avionics			228,044			223,379
	Systems Integration			83,971			90,044
	Corporate(5)			39,449			25,905
	Inter-group elimination(6)			(339	)		(707	)
		Consolidated totals	$	675,686		$	527,781

(1)

Inter-group sales are accounted for at prices comparable to sales to unaffiliated customers, and are eliminated in consolidation.

9

(2)

The table below reconciles EBITDA to consolidated income from operations and income before income taxes (amounts in thousands).

		Three Months Ended March 31,
		2001			2000
		(Unaudited)
Consolidated EBITDA		$	23,385		$	17,182
Depreciation and amortization(a)			(7,695	)		(6,200	)
Acquisition related charges not capitalized			(81	)		(4	)
Other noncash charges			(190	)		(85	)
	Consolidated income from operations		15,419			10,893
Interest expense			(10,455	)		(8,676	)
Other expenses, net			(105	)		(64	)
	Consolidated income before income taxes	$	4,859		$	2,153

(a)   Reflects depreciation and amortization of long-lived assets, goodwill and other intangible assets. Excludes amortization of deferred financing costs, which are classified as a component of interest expense, of $553,000 and $603,000 for the three months ended March 31, 2001 and 2000, respectively.

(3)

Reflects the Company's corporate headquarters costs and expenses not allocated to the groups.

(4)

Reflects elimination of the effect of inter-group profits in inventory.

(5)

Reflects the Company's corporate headquarters assets, excluding investments in and notes receivable from subsidiaries.

(6)

Reflects elimination of inter-group receivables and profits in inventory as of period end.

Note 11. Supplemental Condensed Consolidating Financial Information

    In conjunction with the senior credit facility and 12% senior subordinated notes described in Note 5, 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.

10

Balance Sheets

				March 31, 2001 (Unaudited)
				Issuer			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated Total
				(in thousands)
Assets
Current assets
	Cash and cash equivalents			$	4,763		$	252	$	89		$	—		$	5,104
	Accounts receivable, net				—			68,312		1,172			—			69,484
	Inventories				—			89,117		1,812			—			90,929
	Other current assets				14,278			1,224		236			—			15,738
		Total current assets			19,041			158,905		3,309			—			181,255
Property and equipment, net					4,257			53,799		2,601			—			60,657
Other assets, principally intangibles, net					16,151			408,095		9,528			—			433,774
Investments in subsidiaries					401,192			20,685		—			(421,877	)(1)		—
Intercompany receivables					237,589			75,999		4,795			(318,383	)(2)		—
		Total assets		$	678,230		$	717,483	$	20,233		$	(740,260	)	$	675,686
Liabilities, Mandatorily Redeemable Preferred Stock and Stockholder's Equity
Current liabilities
	Short-term borrowings			$	10,691		$	1,122	$	24		$	—		$	11,837
	Other current liabilities				17,146			64,528		1,665			—			83,339
		Total current liabilities			27,837			65,650		1,689			—			95,176
Long-term debt					389,346			6,096		—			—			395,442
Intercompany payables					75,999			242,384		—			(318,383	)(2)		—
Other long-term liabilities					37,800			2,161		510			—			40,471
Mandatorily redeemable preferred stock					24,378			—		—			—			24,378
Stockholder's equity
	Paid-in capital				123,719			338,729		15,440			(354,169	)(1)		123,719
	Retained earnings (deficit)				(849	)		62,463		5,245			(67,708	)(1)		(849	)
	Accumulated other comprehensive loss				—			—		(2,651	)		—			(2,651	)
		Total stockholder's equity			122,870			401,192		18,034			(421,877	)		120,219
			Total liabilities, mandatorily redeemable preferred stock and stockholder's equity	$	678,230		$	717,483	$	20,233		$	(740,260	)	$	675,686

11

				December 31, 2000
				Issuer			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated Total
				(in thousands)
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					16,514			412,730		10,338			—			439,582
Investments in subsidiaries					394,794			20,739		—			(415,533	)(1)		—
Intercompany receivables					251,725			92,991		3,863			(348,579	)(2)		—
		Total assets		$	689,823		$	719,415	$	20,923		$	(764,112	)	$	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			338,729		15,440			(354,169	)(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			394,794		19,052			(415,533	)		119,755
			Total liabilities, mandatorily redeemable preferred stock and stockholder's equity	$	689,823		$	719,415	$	20,923		$	(764,112	)	$	666,049

12

Statements of Operations

		Three Months Ended March 31, 2001 (Unaudited)
		Issuer			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated Total
		(in thousands)
Revenues		$	—		$	98,193		$	2,712		$	(1,754	)(3)	$	99,151
Cost of sales			—			63,502			2,358			(1,754	)(3)		64,106
	Gross profit		—			34,691			354			—			35,045
Selling, general and administrative expenses			2,422			11,987			251			—			14,660
Amortization of intangible assets			76			4,787			103			—			4,966
Interest expense			10,194			251			10			—			10,455
Intercompany charges			(5,239	)		5,239			—			—			—
Equity in earnings of subsidiaries			(6,398	)		(4	)		—			6,402	(4)		—
Other expenses (income), net			75			72			(42	)		—			105
Provision for income taxes (benefit)			(3,602	)		5,961			28			—			2,387
	Net income	$	2,472		$	6,398		$	4		$	(6,402	)	$	2,472

		Three Months Ended March 31, 2000 (Unaudited)
		Issuer			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated Total
		(in thousands)
Revenues		$	—		$	78,557		$	3,148		$	(2,527	)(3)	$	79,178
Cost of sales			—			53,097			2,456			(2,527	)(3)		53,026
	Gross profit		—			25,460			692			—			26,152
Selling, general and administrative expenses			1,976			8,698			372			—			11,046
Amortization of intangible assets			51			4,048			114			—			4,213
Interest expense (income)			8,577			102			(3	)		—			8,676
Intercompany charges			(3,258	)		3,258			—			—			—
Equity in earnings of subsidiaries			(5,199	)		(187	)		—			5,386	(4)		—
Other expenses (income), net			3			81			(20	)		—			64
Provision for income taxes (benefit)			(2,905	)		4,261			42			—			1,398
	Net income	$	755		$	5,199		$	187		$	(5,386	)	$	755

13

Statements of Cash Flows

		Three Months Ended March 31, 2001 (Unaudited)
		Issuer			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated Total
		(in thousands)
Cash flows from operating activities
Net income		$	2,472		$	6,398		$	4		$	(6,402	)(4)	$	2,472
Noncash adjustments
	Equity in earnings of subsidiaries		(6,398	)		(4	)		—			6,402	(4)		—
	Other noncash adjustments		2,309			6,470			574			—			9,353
Changes in working capital			(7,077	)		(9,601	)		(758	)		—			(17,436	)
	Net cash provided by (used for) operating activities		(8,694	)		3,263			(180	)		—			(5,611	)
Cash flows from investing activities
Cash paid for acquisitions, net of cash acquired			(17,247	)		—			—			—			(17,247	)
Capital expenditures and other			(51	)		(2,290	)		(208	)		—			(2,549	)
	Net cash used for investing activities		(17,298	)		(2,290	)		(208	)		—			(19,796	)
Cash flows from financing activities
Net senior credit facility borrowings			23,300			—			—			—			23,300
Principal payments on term debt, capitalized leases and other debt			(98	)		(896	)		(7	)		—			(1,001	)
Other, net			—			(58	)		—			—			(58	)
	Net cash provided by (used for) financing activities		23,202			(954	)		(7	)		—			22,241
Effect of foreign currency translation on cash			—			—			71			—			71
Net increase (decrease) in cash and equivalents			(2,790	)		19			(324	)		—			(3,095	)
Cash and equivalents at beginning of period			7,553			233			413			—			8,199
Cash and equivalents at end of period		$	4,763		$	252		$	89		$	—		$	5,104

14

		Three Months Ended March 31, 2000 (Unaudited)
		Issuer			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated Total
		(in thousands)
Cash flows from operating activities
Net income		$	755		$	5,199		$	187		$	(5,386	)(4)	$	755
Noncash adjustments
	Equity in earnings of subsidiaries		(5,199	)		(187	)		—			5,386	(4)		—
	Other noncash adjustments		1,483			5,920			249			—			7,652
Changes in working capital			(539	)		(9,774	)		(231	)		—			(10,544	)
	Net cash provided by (used for) operating activities		(3,500	)		1,158			205			—			(2,137	)
Cash flows from investing activities
Cash paid for acquisitions			(28,179	)		—			—			—			(28,179	)
Capital expenditures and other			(238	)		(1,198	)		(152	)		—			(1,588	)
	Net cash used for investing activities		(28,417	)		(1,198	)		(152	)		—			(29,767	)
Cash flows from financing activities
Net senior credit facility borrowings			26,100			—			—			—			26,100
Principal payments on term debt, capitalized leases and other debt			(1,032	)		(332	)		(13	)		—			(1,377	)
Other, net			—			(77	)		—			—			(77	)
	Net cash provided by (used for) financing activities		25,068			(409	)		(13	)		—			24,646
Effect of foreign currency translation on cash			—			—			(12	)		—			(12	)
Net increase (decrease) in cash and equivalents			(6,849	)		(449	)		28			—			(7,270	)
Cash and equivalents at beginning of period			7,839			(323	)		402			—			7,918
Cash and equivalents at end of period		$	990		$	(772	)	$	430		$	—		$	648

15

ITEM 2.  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 our Cabin Management Group's acquisitions of Carl F. Booth & Co. on May 11, 2000 and ERDA on June 30, 2000.

    Our historical financial statements reflect the financial position and results of operations of the acquired businesses subsequent to their respective acquisition dates.

Results of Operations

Three Months Ended March 31, 2001 Compared to Three Months Ended March 31, 2000

    Revenues.  Revenues increased $20.0 million, or 25.2%, to $99.2 million for the three months ended March 31, 2001 from $79.2 million for the three months ended March 31, 2000. The increase primarily results from the inclusion of revenues in 2001 from companies we acquired during 2000. By segment, revenues changed as follows:

		Increase (Decrease) From 2000
		Amount		Percent
		(in millions)
Cabin Management		$	15.1	41.8	%
Specialty Avionics			4.6	17.0
Systems Integration			0.1	0.8
Inter-group elimination			0.2
	Total	$	20.0

    Cabin Management.  Revenues increased by $15.1 million, or 41.8% over the prior year, due to:

•

the inclusion of $13.4 million of revenues resulting from our acquisitions of Carl F. Booth & Co. and ERDA in 2000; and



•

a $1.7 million increase in cabin furniture and related products revenues reflecting primarily a higher volume of corporate jet production by the aircraft manufacturers.

    Specialty Avionics.  Revenues increased by $4.6 million, or 17.0% from the prior year, due to:

•

a $4.1 million increase in cockpit audio, communications, lighting and power and control devices revenues; and



•

a $0.5 million revenue increase resulting from higher unit volume for our interconnect products.

    Systems Integration.  Revenues increased by $0.1 million, or 0.8% over the prior year, due to:

•

a $1.6 million revenue increase in auxiliary fuel tank systems and power units; offset by



•

a $1.5 million decrease in cabin and flight deck systems integration revenues.

16

    Gross profit.  Gross profit increased $8.9 million, or 34.0%, to $35.0 million for the three months ended March 31, 2001. The increase primarily results from the inclusion of gross profit in 2001 from companies we acquired in 2000. Gross profit as a percent of revenues increased to 35.3% for the three months ended March 31, 2001 from 33.1% for the same period last year primarily as a result of improved profit margins in our Specialty Avionics and Systems Integration groups. By segment, gross profit changed as follows:

		Increase (Decrease) From 2000
		Amount		Percent
		(in millions)
Cabin Management		$	5.1	39.4	%
Specialty Avionics			2.3	27.3
Systems Integration			1.3	24.6
Inter-group elimination			0.2
	Total	$	8.9

    Cabin Management.  Gross profit increased by $5.1 million, or 39.4% over the prior year due to:

•

a $4.9 million increase in gross profit resulting from our 2000 acquisitions; and



•

a $0.9 million increase related to higher volume for our cabin furniture and related products; offset by



•

a $0.7 million decrease resulting from higher engineering and field service costs for entertainment system products associated with testing and certification of new products.

    Specialty Avionics.  Gross profit increased by $2.3 million, or 27.3% from the prior year, due to:

•

a $2.3 million increase related to higher unit volume for our cockpit audio, communications, lighting and power and control devices products; and



•

a $1.0 million increase related to a shift in product mix to items with higher margins; offset by



•

a $0.7 million decrease related to higher material and labor costs for our interconnect products; and



•

a $0.3 million decrease related to labor inefficiencies caused by rolling blackouts and higher electrical energy costs at our California-based facilities.

    Systems Integration.  Gross profit increased by $1.3 million, or 24.6% over the prior year, due to:

•

a $0.5 million increase due to higher auxiliary fuel tank systems volume; and



•

a $0.6 million increase in gross profit resulting from improved auxiliary fuel tank manufacturing and installation efficiencies; and



•

a $0.2 million increase resulting, in part, from improved operating results subsequent to our fourth quarter 1999 restructuring.

    Selling, general and administrative expenses.  Selling, general and administrative expenses increased $3.6 million, or 33.1%, to $14.7 million for the three months ended March 31, 2001, from $11.0 million for the same period last year. The increase primarily results from the inclusion of $2.1 million of SG&A expenses in 2001 from companies we acquired in 2000. SG&A expenses as a

17

percent of revenues increased to 14.8% for the three months ended March 31, 2001 compared to 13.9% for the same period last year. By segment, SG&A expenses changed as follows:

	Increase (Decrease) From 2000
	Amount		Percent
	(in millions)
Cabin Management	$	2.1	57.2	%
Specialty Avionics		0.5	18.1
Systems Integration		0.5	21.5
Corporate		0.5	24.3
Total	3.6

    Cabin Management.  SG&A expenses increased by $2.1 million, or 57.2% over the prior year, due to the inclusion of companies acquired during 2000.

    Specialty Avionics.  SG&A expenses increased by $0.5 million, or 18.1% from the prior year, due to higher labor and employee benefit costs.

    Systems Integration.  SG&A expenses increased by $0.5 million, or 21.5% over the prior year, due to:

•

a $0.3 million increase related to an increase in engineering project management; and



•

a $0.2 million increase in related to higher labor and employee benefit costs.

    Corporate.  SG&A expenses increased by $0.5 million, or 24.3% over the prior year due to:

•

a $0.1 million increase in labor and employee benefit costs and spending for sales and marketing programs; and



•

a $0.4 million increase in depreciation and other noncash and acquisition related charges.

    Depreciation and amortization of intangibles.  Depreciation and amortization expense, which includes amortization of goodwill and identifiable intangible assets, increased $1.5 million, or 24.1%, for the three months ended March 31, 2001. The increase results from the inclusion of $1.1 million of depreciation and amortization expense in 2001 from companies we acquired during 2000 and additional depreciation reflecting our capital expenditures during the period.

    EBITDA and Operating income.  EBITDA increased $6.2 million to $23.4 million, or 35.9%, for the three months ended March 31, 2001, from $17.2 million for the same period last year. The increase results, in part, from the contribution to year 2001 results from companies we acquired during 2000. EBITDA as a percent of revenues increased to 23.6% for the three months ended March 31, 2001, from 21.7% for the same period last year. Operating income increased $4.5 million to $15.4 million, or

18

41.2%, for the three months ended March 31, 2001, from $10.9 million for the same period last year. By segment, EBITDA changed as follows:

			Increase (Decrease) From 2000
			Amount			Percent
			(in millions)
EBITDA
	Cabin Management		$	3.8		40.4	%
	Specialty Avionics			1.7		27.3
	Systems Integration			0.7		19.0
	Corporate			(0.1	)	(7.4	)
	Inter-group elimination			0.1
		Total EBITDA		6.2
Depreciation and amortization				(1.5	)
Other noncash and acquisition related charges				(0.2	)
		Total operating income	$	4.5

    Cabin Management.  EBITDA increased by $3.8 million, or 40.4% over the prior year, due to our 2000 acquisitions and increased volume to support higher production levels of corporate jets.

    Specialty Avionics.  EBITDA increased by $1.7 million, or 27.3% from the prior year, due to higher demand for our commercial aircraft products.

    Systems Integration.  EBITDA increased by $0.7 million, or 19.0% from the prior year, due to:

•

a $0.9 million increase resulting primarily from favorable auxiliary fuel tank and power unit manufacturing efficiencies; offset by



•

a $0.2 million decrease resulting from higher SG & A costs.

    Corporate.  EBITDA decreased by $0.1 million, or 7.4% from the prior year, due to higher labor and sales and marketing costs.

    Interest expense.  Interest expense increased $1.8 million to $10.5 million for the three months ended March 31, 2000, from $8.7 million for the same period last year, due to:

•

a $2.2 million increase resulting from higher debt levels associated with our acquisition of companies during 2000; offset by



•

a $0.4 million decrease resulting from lower average interest rates charged by our lenders during 2001.

    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.  Net income increased $1.7 million to $2.5 million for the three months ended March 31, 2001 compared to $0.8 million for the same period in 2000.

19

    Net income applicable to common stockholder.  Net income applicable to DeCrane Holdings, our common stockholder, increased $0.5 million to $1.3 million for the three months ended March 31, 2001 compared to $0.8 million for the same period in 2000. The net increase is attributable to:

•

a $1.7 million increase in net income; offset by



•

a $1.2 million increase in accrued dividends and redemption value accretion resulting from the issuance of 16% mandatorily redeemable preferred stock on June 30, 2000.

    Bookings.  Bookings increased $37.1 million, or 51.1%, to $109.7 million for the three months ended March 31, 2001 compared to $72.6 million for the same period in 2000. The increase in bookings for 2001 results from:

•

a $13.7 million increase associated with companies we acquired in 2000; and



•

a $23.4 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 $10.0 million to $188.3 million as of March 31, 2001compared to $178.3 million as of December 31, 2000. The increase in backlog for 2001 primarily relates to our Cabin Management group.

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 used by operating activities was $5.6 million for the three months ended March 31, 2001, which is the net of $11.8 million of cash provided by operations after adding back depreciation, amortization and other noncash items, $17.6 million used for working capital offset by $0.2 million resulting from a increase in other liabilities. The following factors contributed to the $17.6 million working capital increase:

•

a $10.6 million accounts receivable increase resulting from higher revenues, timing differences relating to completion of projects versus the associated collection and the timing of other collections.



•

a $7.4 million inventory increase resulting from longer production lead times and inventory level increases to meet current and projected revenue growth;



•

a $0.8 million increase in prepaid and other assets; and



•

a $0.3 million net decrease in accounts payable and accrued expenses; offset by



•

a $1.5 million increase in income taxes payable due to higher current taxable income.

    Cash used for investing activities was $19.8 million for the three months ended March 31, 2001, and consisted of:

•

$17.2 million for contingent acquisition consideration paid during 2001; and



•

$2.6 million for capital expenditures.

    We anticipate spending approximately $15.0 million for capital expenditures in 2001.

    Cash provided by financing activities was $22.2 million for the three months ended March 31, 2001 and was primarily used to fund the payment of contingent acquisition consideration. We obtained these

20

funds by borrowing $23.3 million under our senior credit facility. We used $1.1 million to make principal payments on our senior term debt, capitalized leases and other debt.

    At March 31, 2001, senior credit facility borrowings totaling $299.1 million are at variable interest rates based on defined margins over the current prime or Eurodollar rates. At March 31, 2001 we had $86.1 million of working capital and had $14.3 million of borrowings available under our working capital credit facility and no funds available under our acquisition credit facility. Although we cannot be certain, we believe that operating cash flow, together with borrowings under our bank credit facility, will be sufficient to meet our future short- and long-term operating expenses, working capital requirements, capital expenditures and debt service obligations for the next twelve months. However, our ability to pay principal or interest, to refinance our debt and to satisfy our other debt obligations will depend on our future operating performance. We will be affected by economic, financial, competitive, legislative, regulatory, business and other factors beyond our control. In addition, we are continually considering acquisitions that complement or expand our existing businesses or that may enable us to expand into new markets. Future acquisitions may require additional debt, equity financing or both. We may not be able to obtain any additional financing on acceptable terms.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    We are exposed to various market risks, including interest rates and changes in foreign currency exchange rates. Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest rates and foreign currency exchange rates. From time to time we use derivative financial instruments to manage and reduce risks associated with these factors. We do not enter into derivatives or other financial instruments for trading or speculative purposes.

Interest Rate Risk. A significant portion of our capital structure is comprised of long-term variable- and fixed-rate debt.

    Market risk related to our variable-rate debt is estimated as the potential decrease in pre-tax earnings resulting from an increase in interest rates. The interest rates applicable to variable-rate debt are, at our option, based on defined margins over the current prime or Eurodollar rates. At March 31, 2001, the current prime rate was 8.00% and the current Eurodollar rate was 5.28%. Based on $299.1 million of variable-rate debt outstanding as of March 31, 2001, a hypothetical one percent rise in interest rates, to 9.00% for prime rate borrowings and 6.28% for Eurodollar borrowings, would reduce our pre-tax earnings by $3.0 million annually. We have, during periods prior to 1998, purchased interest rate cap contracts to limit our exposure related to rising interest rates on our variable-rate debt. While we have not entered into similar contracts during the last three years, 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 $93.0 million at March 31, 2001. 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 March 31, 2001, we may do so in the future depending on our assessment of future foreign exchange rate trends.

21

Special Note Regarding Forward-Looking Statements

    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. We are vulnerable to a variety of factors that affect many businesses, such as:

•

fuel prices and general economic conditions that affect demand for aircraft and air travel, which in turn affect demand for our products and services;



•

our reliance on key customers and the adverse effect a significant decline in business from any one of them would have on our business;



•

changes in prevailing interest rates and the availability of financing to fund our plans for continued growth;



•

competition from larger companies;



•

Federal Aviation Administration prescribed standards and licensing requirements, which apply many of the products and services we provide;



•

inflation, and other general changes in costs of goods and services;



•

liability and other claims asserted against us that exceeds our insurance coverage;



•

the ability to attract and retain qualified personnel;



•

labor disturbances; and



•

changes in operating strategy, or our acquisition and capital expenditure plans.

    Changes in such factors could cause our actual results to differ materially from those contemplated in such 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. You should not rely on our forward-looking statements as if they were certainties.

Incorporation of Documents by Reference

    We have filed with the Securities and Exchange Commission, and are including within this report by referring to it here, our Form 10-K for the year ended December 31, 2000. The Form 10-K includes our audited financial statements, which we refer to in this report.

    You may read and copy any reports, statements or other information we file at the SEC's reference room in Washington D.C. Please call the SEC at (202) 942-8090 for further information on the operation of the reference rooms. You can also request copies of these documents, upon payment of a duplicating fee, by writing to the SEC, or review our SEC filings on the SEC's EDGAR web site, which can be found at http:\\www.sec.gov. You may also write or call us at our corporate office located at 2361 Rosecrans Avenue, Suite 180, El Segundo, California 90245. Our telephone number is (310) 725-9123.

22

PART II—OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

    Refer to the legal proceedings described in Item 3 of our Form 10-K for the year ended December 31, 2000.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

a.

Exhibits

10.10.4 Increased Commitments Agreement, dated as of April 27, 2001, pursuant to Third Amended and Restated Credit Agreement, dated as of May 11, 2000, as amended by the First Amendment to the Third Amended and Restated Credit Agreement, dated as of June 30, 2000 *

*

Previously filed

**

Filed herewith

b.

Reports on Form 8-K

    None

SIGNATURES

    Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	DECRANE AIRCRAFT HOLDINGS, INC. (Registrant)
May 14, 2001	By:	/s/ RICHARD J. KAPLAN Richard J. Kaplan Senior Vice President, Chief Financial Officer, Secretary, Treasurer and Director

23

QuickLinks

Table of Contents
Explanatory Note
PART I—FINANCIAL INFORMATION
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES Consolidated Balance Sheets (In thousands, except share data)
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES Consolidated Statements of Operations (In thousands)
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES Consolidated Statements of Stockholder's Equity (In thousands, except share data)
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (In thousands)
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES Condensed Notes to Consolidated Financial Statements (Unaudited)
Overview
Results of Operations
Liquidity and Capital Resources
Special Note Regarding Forward-Looking Statements
Incorporation of Documents by Reference
PART II—OTHER INFORMATION
SIGNATURES