-----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, VDWD/LDhbFM55p/LxIsDbpgQYg3axPAVdHfHgaVLTRjIn+bPG128c6bOq+qqq0oi EbYG2uiPYl17pJ44E9L7Rw== 0000912057-99-005561.txt : 19991117 0000912057-99-005561.hdr.sgml : 19991117 ACCESSION NUMBER: 0000912057-99-005561 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 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: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22371 FILM NUMBER: 99751751 BUSINESS ADDRESS: STREET 1: 2361 ROSECRANS AVENUE STREET 2: SUITE 180 CITY: EL SEGUNDO STATE: CA ZIP: 90245-4910 BUSINESS PHONE: 3107259123 MAIL ADDRESS: STREET 1: 2361 ROSECRANS AVENUE STREET 2: SUITE 180 CITY: EL SEGUNDO STATE: CA ZIP: 90245-4910 10-Q 1 FORM 10-Q - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------- FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1999 Commission File Number 333-70365 ---------------------- DECRANE AIRCRAFT HOLDINGS, INC. (Exact name of registrant as specified in its charter) DELAWARE 34-1645569 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2361 ROSECRANS AVENUE, SUITE 180, EL SEGUNDO, CA 90245 (Address, including zip code, of principal executive offices) (310) 725-9123 (Registrant's telephone number, including area code) ---------------------- (NOT APPLICABLE) (Former address and telephone number of principal executive offices, if changed since last report) ---------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No The number of shares of Registrant's Common Stock, $.01 par value, outstanding as of November 1, 1999 was 100 shares. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- DECRANE AIRCRAFT HOLDINGS, INC. INDEX
PAGE ---- PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Consolidated Balance Sheets as of September 30, 1999 and December 31, 1998 ....................... 1 Consolidated Statements of Operations for the three months and nine months ended September 30, 1999, one month ended September 30, 1998 and eight months and two months ended August 31, 1998 ............................................ 2 Consolidated Statements of Stockholder's Equity for the nine months ended September 30, 1999 ..... 3 Consolidated Statements of Cash Flows for the nine months ended September 30, 1999, one month ended September 30, 1998 and eight months ended August 31, 1998 .................... 4 Condensed Notes to Consolidated Financial Statements ............................................. 5 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ............ 16 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK ........................................ 22 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS ................................................................................ 24 ITEM 5. OTHER INFORMATION ................................................................................ 24 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Exhibits ......................................................................................... 25 Reports on Form 8-K .............................................................................. 25
i PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 30, DECEMBER 31, 1999 1998 ------------- ------------ (UNAUDITED) ASSETS Current assets Cash and cash equivalents .................................................................. $ 3,139 $ 3,518 Accounts receivable, net ................................................................... 40,074 30,441 Inventories ................................................................................ 51,290 34,281 Deferred income taxes ...................................................................... 2,916 4,300 Prepaid expenses and other current assets................................................... 2,847 3,897 ----------- ----------- Total current assets ..................................................................... 100,266 76,437 Property and equipment, net ................................................................... 36,531 28,160 Other assets, principally intangibles, net .................................................... 321,966 226,330 ----------- ----------- Total assets ........................................................................... $ 458,763 $ 330,927 ----------- ----------- ----------- ----------- LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities Short-term borrowings ...................................................................... $ 401 $ 283 Current portion of long-term obligations ................................................... 3,682 1,529 Accounts payable ........................................................................... 8,749 6,383 Accrued expenses ........................................................................... 23,740 18,466 Income taxes payable ....................................................................... 4,638 3,743 ----------- ----------- Total current liabilities ................................................................ 41,210 30,404 ----------- ----------- Long-term obligations ......................................................................... 281,094 184,953 Deferred income taxes ......................................................................... 21,522 16,990 Other long-term liabilities ................................................................... 4,904 659 ----------- ----------- Commitments and contingencies (Note 7) Stockholder's equity Cumulative convertible preferred stock, $.01 par value, 8,314,018 shares authorized; none issued and outstanding as of September 30, 1999 and December 31, 1998 ............... - - Undesignated preferred stock, $.01 par value, 10,000,000 shares authorized; none issued and outstanding as of September 30, 1999 and December 31, 1998 ............... - - Common stock, $.01 par value, 9,924,950 shares authorized; 100 shares issued and outstanding as of September 30, 1999 and December 31, 1998 .................... - - Additional paid-in capital ................................................................. 112,700 100,200 Accumulated deficit ........................................................................ (2,053) (2,553) Accumulated other comprehensive income (loss)............................................... (614) 274 ----------- ----------- Total stockholder's equity ............................................................... 110,033 97,921 ----------- ----------- Total liabilities and stockholder's equity ............................................. $ 458,763 $ 330,927 ----------- ----------- ----------- ----------- 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 SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, ---------------------------------------- --------------------------------------- 1998 1998 ---------------------------- --------------------------- ONE MONTH TWO MONTHS ONE MONTH EIGHT MONTHS ENDED ENDED ENDED ENDED 1999 SEPTEMBER 30 AUGUST 31 1999 SEPTEMBER 30 AUGUST 31 (SUCCESSOR) (SUCCESSOR) (PREDECESSOR) (SUCCESSOR) (SUCCESSOR) (PREDECESSOR) ----------- ----------- ------------- ----------- ----------- ------------- (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) Revenues ........................................ $ 65,238 $ 16,012 $ 31,095 $ 177,836 $ 16,012 $ 90,077 Cost of sales ................................... 42,107 11,080 19,826 118,081 11,080 60,101 --------- --------- --------- --------- --------- --------- Gross profit ............................... 23,131 4,932 11,269 59,755 4,932 29,976 --------- --------- --------- --------- --------- --------- Operating expenses Selling, general and administrative expenses.. 10,257 3,170 5,538 27,507 3,170 15,719 Nonrecurring charges ......................... - - 3,632 - - 3,632 Amortization of intangible assets ............ 4,048 802 586 9,506 802 1,347 --------- --------- --------- --------- --------- --------- Total operating expenses ................... 14,305 3,972 9,756 37,013 3,972 20,698 --------- --------- --------- --------- --------- --------- Income from operations .......................... 8,826 960 1,513 22,742 960 9,278 Other expenses (income) Interest expense ............................. 7,155 1,765 1,181 19,884 1,765 2,350 Terminated debt offering expenses ............ - - - - - 600 Other expenses (income) ...................... 56 181 277 (311) 181 247 --------- --------- --------- --------- --------- --------- Income (loss) before provision for income taxes and extraordinary item ................. 1,615 (986) 55 3,169 (986) 6,081 Provision (benefit) for income taxes ............ 932 (506) 226 2,669 (506) 2,892 --------- ---------- --------- --------- --------- --------- Income (loss) before extraordinary item ......... 683 (480) (171) 500 (480) 3,189 Extraordinary loss from debt refinancing, net of income tax benefit .................... - 296 - - 296 - --------- --------- --------- --------- --------- --------- Net income (loss) ............................... $ 683 $ (776) $ (171) $ 500 $ (776) $ 3,189 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- The accompanying notes are an integral part of the consolidated financial statements.
2 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (IN THOUSANDS, EXCEPT SHARE DATA)
PREFERRED STOCK COMMON STOCK ACCUMULATED ------------------ ------------------ OTHER NUMBER NUMBER ADDITIONAL COMPREHENSIVE OF OF PAID-IN ACCUMULATED INCOME SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT (LOSS) TOTAL -------- ------- -------- ------- ---------- ----------- ------------- --------- Balance, December 31, 1998 ...... - $ - 100 $ - $100,200 $ (2,553) $ 274 $ 97,921 Comprehensive income (loss) Net income ................... - - - - - 500 - 500 Translation adjustment ....... - - - - - - (888) (888) --------- (388) --------- Capital contribution ............ - - - - 12,500 - - 12,500 -------- -------- -------- -------- -------- --------- --------- --------- Balance, September 30, 1999 (Unaudited) .................. - $ - 100 $ - $112,700 $ (2,053) $ (614) $ 110,033 -------- -------- -------- -------- -------- --------- --------- --------- -------- -------- -------- -------- -------- --------- --------- --------- 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)
NINE MONTHS ENDED SEPTEMBER 30, ----------------------------------------- 1998 ---------------------------- ONE MONTH EIGHT MONTHS ENDED ENDED 1999 SEPTEMBER 30 AUGUST 31 (SUCCESSOR) (SUCCESSOR) (PREDECESSOR) ----------- ------------ ------------- (UNAUDITED) (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) ........................................................... $ 500 $ (776) $ 3,189 Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities Depreciation and amortization ........................................... 14,875 1,252 4,454 Deferred income taxes ................................................... 462 345 (2,339) Extraordinary loss from debt refinancing................................. - 296 - Other, net .............................................................. 176 (61) (360) Changes in assets and liabilities, net of effect from acquisitions Accounts receivable ................................................... (2,598) (975) (3,621) Inventories ........................................................... 1,423 1,492 (2,017) Prepaid expenses and other assets ..................................... (1,276) (650) (58) Accounts payable ...................................................... (1,967) 1,514 (1,127) Accrued expenses ...................................................... (3,792) (1,525) 3,519 Income taxes payable .................................................. 2,342 (2,418) 1,374 Other long-term liabilities ........................................... 77 - - ----------- ----------- ----------- Net cash provided by (used for) operating activities ................ 10,222 (1,506) 3,014 ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Cash paid for acquisition, net of cash acquired ............................. (116,790) - (85,808) Capital expenditures ........................................................ (4,752) (307) (1,745) Other, net .................................................................. 111 - 175 ----------- ----------- ----------- Net cash used for investing activities .............................. (121,431) (307) (87,378) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Term debt borrowings ........................................................ 90,000 - - Net borrowings (repayments) under revolving line of credit agreements ....... 7,700 (1,519) 56,446 Net proceeds from the sale of common stock .................................. - - 34,815 Capital contribution ........................................................ 12,500 - - Customer advance ............................................................ 5,000 - - Other long-term borrowings .................................................. 636 - - Deferred financing costs .................................................... (3,062) - - Principal payments on term debt, capitalized leases and other obligations ... (1,824) (129) (1,317) Acquisition of Predecessor Proceeds from senior credit facility and bridge notes ..................... - 185,400 - Proceeds from sale of common equity ....................................... - 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 ............................................. - (7,398) - Other, net .................................................................. (21) - (73) ------------ ----------- ------------ Net cash provided by financing activities ........................... 110,929 358 89,871 ----------- ----------- ----------- Effect of foreign currency translation on cash ................................. (99) (17) 26 ------------ ------------ ----------- Net increase (decrease) in cash and cash equivalents ........................... (379) (1,472) 5,533 Cash and cash equivalents at beginning of period ............................... 3,518 5,739 206 ----------- ----------- ----------- Cash and cash equivalents at end of period ..................................... $ 3,139 $ 4,267 $ 5,739 ----------- ----------- ----------- ----------- ----------- ----------- The accompanying notes are an integral part of the consolidated financial statements.
4 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - CONSOLIDATED FINANCIAL STATEMENTS The consolidated interim financial statements included in this report are unaudited. The Company believes the interim financial statements are presented on a basis consistent with the audited financial statements. The Company also believes that the interim financial statements contain all adjustments necessary for a fair presentation of the results for such interim periods. All of these adjustments are normal recurring adjustments. The results of operations for interim periods do not necessarily predict the operating results for the full year. The consolidated balance sheet as of December 31, 1998 and the consolidated statements of operations and cash flows for the eight months ended August 31, 1998 have been derived from audited financial statements but do 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 1998 audited financial statements and related notes included in the Company's prospectus. The prospectus is part of the Company's Registration Statement No. 333-70365 on Form S-1 filed with the Securities and Exchange Commission effective May 14, 1999. The Company has made some reclassifications to prior periods' financial statements to conform to the 1999 presentation. NOTE 2 - ACQUISITIONS ACQUIRED PRIOR TO SEPTEMBER 30, 1999 During the nine months ended September 30, 1999, the Company acquired: - - all of the common stock of PATS, Inc., a Maryland-based designer, manufacturer and installer of auxiliary fuel tank systems and a manufacturer of aircraft auxiliary power units, on January 22, 1999; - - all of the common stock of PPI Holdings, Inc., a Kansas-based designer and manufacturer of interior furniture components for middle- and high-end corporate aircraft, on April 23, 1999; and - - substantially all of the assets of Custom Woodwork & Plastics, Inc., a Georgia-based designer and manufacturer of interior furniture components for middle- and high-end corporate aircraft, on August 5, 1999. The total purchase price was $116,035,000, plus contingent consideration totaling a maximum of $19,250,000 payable over two years based on future attainment of defined performance criteria. The total purchase price includes an estimated $3,080,000 of acquisition related costs. The acquisitions were accounted for as purchases and the assets acquired and liabilities assumed have been recorded at their estimated fair values. As a result: - - the historical value of inventory acquired was increased by $1,606,000; - - identifiable intangible assets totaling $15,229,000 were recorded; and - - the $85,883,000 difference between the total purchase price and the fair value of the net assets acquired was recorded as goodwill. The purchase price allocations are preliminary and may change upon the completion of the final valuations of the net assets acquired. The increase in inventory value was charged to operations as the inventory was sold during the nine months ended September 30, 1999. Identifiable intangible assets are being amortized on a straight-line basis over their estimated useful lives, ranging from seven and 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. The consolidated balance sheet as of September 30, 1999 reflects the financial position of the companies acquired and the consolidated statements of operations for the three months and nine months ended September 30, 1999 includes their operating results subsequent to their respective acquisition dates. The acquisitions were funded with borrowings under the Company's senior credit facility as described in Note 5, a $12,500,000 equity contribution from DeCrane Holdings and a $5,000,000 customer advance to be offset against amounts receivable from future product deliveries. 5 NOTE 2 - ACQUISITIONS (CONTINUED) ACQUIRED SUBSEQUENT TO SEPTEMBER 30, 1999 Subsequent to September 30, 1999, the Company acquired: - - substantially all of the assets of PCI NewCo, Inc., a Kansas-based manufacturer of composite material and components for middle- and high-end corporate aircraft, on October 6, 1999; and - - all of the common stock of International Custom Interiors, Inc., a Florida-based provider of upholstery services and manufacturer of furniture for middle- and high-end corporate aircraft, on October 8, 1999. The total purchase price was $11,991,000, plus contingent consideration totaling a maximum of $4,500,000 payable over five years based on future attainment of defined performance criteria. The total purchase price includes an estimated $700,000 of acquisition related costs. The acquisitions will be accounted for as purchases and the assets acquired and liabilities assumed will be recorded at their estimated fair values. The consolidated financial statements will reflect the financial position and results of operations of the companies acquired for periods subsequent to their respective acquisition dates. The acquisitions were funded with borrowings under the Company's senior credit facility as described in Note 5. NOTE 3 - PRO FORMA RESULTS OF OPERATIONS FOR THE DLJ AND OTHER ACQUISITIONS Unaudited pro forma consolidated results of operations are presented in the table below for nine months ended September 30, 1999 and 1998. The results of operations reflect the Company's purchase by DLJ and other 1998 acquisitions described in the Company's 1998 audited financial statements and the 1999 PATS, PPI and Custom Woodwork acquisitions as if all of these transactions were consummated as of January 1, 1998. The pro forma results exclude the effect of the PCI NewCo and International Custom Interiors acquisitions, which were completed subsequent to September 30, 1999.
PRO FORMA FOR THE NINE MONTHS ENDED SEPTEMBER 30, ------------------------ 1999 1998 ----------- ----------- (IN THOUSANDS) Revenues ...................................................................................... $ 196,016 $ 183,214 Income (loss) before extraordinary item ....................................................... 2,140 (5,618)
The pro forma results of operations do not purport to represent what actual results would have been if the transactions described above occurred on such dates or to project the results of operations for any future period. The above information reflects adjustments for inventory, depreciation, amortization, general and administrative expenses and interest expense based on the new cost basis and debt structure of the Company following the acquisitions. In 1998, income excludes the effect of a $2,229,000 extraordinary loss incurred in connection with debt refinancings of which $296,000 was incurred during the nine months ended September 30, 1998. One customer, the Boeing Company, accounted for more than 10% of the Company's 1998 consolidated revenues. If the Company had completed its 1998 and 1999 acquisitions at the beginning of 1998, three customers would have accounted for 10% or more of the Company's consolidated revenues as follows:
PRO FORMA FOR THE NINE MONTHS ENDED SEPTEMBER 30, ------------------------ 1999 1998 ----------- ----------- Boeing ........................................................................................ 18.6% 24.1% Textron ....................................................................................... 17.2% 11.0% Bombardier .................................................................................... 13.2% 3.8%
Complete loss of any of these customers could have a significant adverse impact on the results of operations expected in future periods. 6 NOTE 4 - INVENTORIES Inventories are comprised of the following (amounts in thousands):
SEPTEMBER 30, DECEMBER 31, 1999 1998 ------------- ------------ (UNAUDITED) Raw material .................................................................................. $ 26,219 $ 19,221 Work-in process ............................................................................... 18,658 7,231 Finished goods ................................................................................ 6,413 7,829 ----------- ----------- Total inventories .......................................................................... $ 51,290 $ 34,281 ----------- ----------- ----------- -----------
NOTE 5 - BORROWINGS Long-term obligations include the following amounts (amounts in thousands):
SEPTEMBER 30, DECEMBER 31, 1999 1998 ------------- ------------ (UNAUDITED) Senior credit facility $25 million working capital revolving line of credit ....................................... $ - $ 5,800 $25 million acquisition revolving line of credit ........................................... 13,500 - Term loans ................................................................................. 169,050 79,888 12% senior subordinated notes ................................................................. 100,000 100,000 Capital lease obligations and equipment term financing ........................................ 1,776 367 Other ........................................................................................ 450 427 ----------- ----------- Total long-term obligations ................................................................ 284,776 186,482 Less current portion ....................................................................... (3,682) (1,529) ----------- ----------- Long-term obligations, less current portion .............................................. $ 281,094 $ 184,953 ----------- ----------- ----------- -----------
In conjunction with the January 1999 PATS acquisition, the Company borrowed $14,918,000 under its acquisition revolving credit facility and amended its term loan facility to provide for an additional $20,000,000 of term loan borrowings. The interest rate margins, the rates charged above the current prime or Euro-Dollar rates, were increased by 0.50% for all senior credit facility borrowings. The amended interest rate margins range between 1.50% to 1.75% for prime rate borrowings and 2.75% to 3.00% for Euro-Dollar borrowings, depending on the type of borrowing. In April 1999, the term loan facility was further amended to provide for an additional $70,000,000 of term loan borrowings. The Company used $50,000,000 of the proceeds to fund the PPI acquisition and $20,000,000 to repay borrowings under its acquisition and working capital revolving credit facilities. The interest rate margins applicable to the $70,000,000 incremental term loan borrowings are 2.00% for prime rate borrowings or 3.25% for Euro-Dollar borrowings. In conjunction with the August 1999 Custom Woodwork acquisition, the Company borrowed $13,500,000 under its acquisition revolving credit facility. Subsequent to September 30, 1999, the Company borrowed $11,500,000 under its acquisition revolving credit facility in conjunction with the October 1999 PCI NewCo and International Custom Interiors acquisitions. NOTE 6 - INCOME TAXES The provision for income taxes differs from the amount determined by applying the applicable U.S. statutory federal rate to the income (loss) before income taxes primarily due to the effects of state and foreign income taxes and non-deductible expenses, principally goodwill amortization. The difference in the effective tax rates between periods is mostly a result of higher goodwill amortization. 7 NOTE 7 - LITIGATION 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 notified the Company that they recovered burned wire which had been attached to the in-flight entertainment system installed on some of Swissair's aircraft by a subsidiary of the Company. At the request of the attorneys for families of persons who died aboard the flight, the Company put its insurance carrier on notice of a potential claim by those families. The Transportation Safety Board has advised the Company that it has no evidence that the system installed by the Company's subsidiary malfunctioned or failed during the flight. The Company is fully cooperating with the investigation. Families of persons who died aboard the flight have filed actions in federal and state courts against the Company, our subsidiary, and many other parties unaffiliated with the Company, including Swissair and Boeing. The action claims 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. The Company intends to vigorously defend against the claims. In August 1998, the Company and its chief executive officer were served in an action filed in state court in California by the Company's chief financial officer claiming that he was due additional compensation in the form of stock options, and claiming fraud, negligent misrepresentation and breach of contract in connection therewith, fraudulent misrepresentation in violation of provisions of the California Labor Code for which doubled damages are sought, promissory estoppel, and wrongful discharge in violation of public policy as a result of his allegations of improprieties in connection with the DLJ acquisition transactions. The plaintiff later amended his complaint to allege breach of an implied contract as well. The action seeks not less than $1,500,000 plus punitive damages and costs. The Company intends to vigorously defend against the claims. The plaintiff's employment with the Company was terminated. 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. NOTE 8 - CONSOLIDATED STATEMENTS OF CASH FLOWS Assets acquired and liabilities assumed in connection with acquisitions are as follows (amounts in thousands):
NINE MONTHS ENDED SEPTEMBER 30, ---------------------------------------- 1998 ---------------------------- ONE MONTH EIGHT MONTHS ENDED ENDED 1999 SEPTEMBER 30 AUGUST 31 (SUCCESSOR) (SUCCESSOR) (PREDECESSOR) ----------- ----------- ------------- (UNAUDITED) (UNAUDITED) 1999 and 1998 acquisitions Fair value of assets acquired ............................................... $ 136,359 $ - 91,640 Liabilities assumed ......................................................... (20,324) - (4,569) ----------- ----------- ----------- Cash paid ................................................................. 116,035 - 87,071 Less cash acquired ........................................................ (2,245) - (1,263) ----------- ----------- ----------- Net cash paid for 1999 and 1998 acquisitions ............................ 113,790 - 85,808 Contingent consideration paid in conjunction with the 1997 Audio International acquisition ........................................ 3,000 - - ----------- ----------- ----------- Net cash paid for acquisitions ............................................ $ 116,790 $ - 85,808 ----------- ----------- ----------- ----------- ----------- -----------
8 NOTE 9 - 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. Management believes the adoption of SFAS No. 133 will not have a material impact on the Company's consolidated financial position or results of operations. NOTE 10 - 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 for the Company, segregating guarantor and non-guarantor subsidiaries. The accompanying financial information in the "Guarantor Subsidiaries" column reflects the financial position, results of operations and cash flows for those subsidiaries guaranteeing the senior credit facility and the notes. The guarantor subsidiaries are wholly-owned subsidiaries of the Company and their guarantees are full and unconditional on a joint and several basis. There are no restrictions on the ability of the guarantor subsidiaries to transfer funds to the issuer in the form of cash dividends, loans or advances. Separate financial statements of the guarantor subsidiaries are not presented because management believes that such financial statements would not be material to investors. Investments in subsidiaries in the following condensed consolidating financial information are accounted for under the equity method of accounting. Consolidating adjustments include the following: (1) Elimination of investments in subsidiaries. (2) Elimination of intercompany accounts. (3) Elimination of intercompany sales between guarantor and non-guarantor subsidiaries. (4) Elimination of equity in earnings of subsidiaries. 9 NOTE 10 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) BALANCE SHEETS
SEPTEMBER 30, 1999 (UNAUDITED) ------------------------------------------------------------------------------ DECRANE AIRCRAFT GUARANTOR NON-GUARANTOR CONSOLIDATING CONSOLIDATED HOLDINGS, INC. SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL -------------- ------------ ------------- ------------- ------------- (IN THOUSANDS) ASSETS Current assets Cash and cash equivalents ......................... $ 807 $ 2,211 $ 121 $ - $ 3,139 Accounts receivable, net ....................... - 38,818 1,256 - 40,074 Inventories .................................... - 49,578 1,712 - 51,290 Other current assets ........................... 3,532 2,135 96 - 5,763 ----------- ----------- ---------- ----------- ----------- Total current assets ......................... 4,339 92,742 3,185 - 100,266 Property and equipment, net ....................... 1,262 32,853 2,416 - 36,531 Other assets, principally intangibles, net ........ 16,208 292,935 12,823 - 321,966 Investments in subsidiaries ....................... 363,948 20,297 - (384,245)(1) - Intercompany receivables .......................... 38,808 331 3,902 (43,041)(2) - ----------- ----------- ---------- ----------- ----------- Total assets ............................... $ 424,565 $ 439,158 $ 22,326 $ (427,286) $ 458,763 ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- ----------- LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities Short-term obligations ......................... $ 3,490 $ 164 $ 429 $ - $ 4,083 Other current liabilities ...................... 8,227 27,669 1,231 - 37,127 ----------- ----------- ---------- ----------- ----------- Total current liabilities .................... 11,717 27,833 1,660 - 41,210 ----------- ----------- ---------- ----------- ----------- Long-term obligations ............................. 280,416 636 42 - 281,094 Intercompany payables ............................. 873 41,837 331 (43,041)(2) - Other long-term liabilities ....................... 20,912 4,904 610 - 26,426 ----------- ----------- ---------- ----------- ----------- Stockholder's equity Paid-in capital ................................ 112,700 300,450 15,440 (315,890)(1) 112,700 Retained earnings (deficit) .................... (2,053) 63,498 4,857 (68,355)(1) (2,053) Accumulated other comprehensive income (loss) ................................ - - (614) - (614) ----------- ----------- ---------- ----------- ----------- Total stockholder's equity ................... 110,647 363,948 19,683 (384,245) 110,033 ----------- ----------- ---------- ----------- ----------- Total liabilities and stockholder's equity . $ 424,565 $ 439,158 $ 22,326 $ (427,286) $ 458,763 ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
10 NOTE 10 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) BALANCE SHEETS (CONTINUED)
DECEMBER 31, 1998 (UNAUDITED) ------------------------------------------------------------------------------ DECRANE AIRCRAFT GUARANTOR NON-GUARANTOR CONSOLIDATING CONSOLIDATED HOLDINGS, INC. SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL -------------- ------------ ------------- ------------- ------------ (IN THOUSANDS) ASSETS Current assets Cash and cash equivalents ...................... $ 2,458 $ 762 $ 298 $ - $ 3,518 Accounts receivable, net ....................... - 28,917 1,524 - 30,441 Inventories .................................... - 32,624 1,657 - 34,281 Other current assets ........................... 7,066 894 237 - 8,197 ----------- ----------- ---------- ----------- ----------- Total current assets ......................... 9,524 63,197 3,716 - 76,437 Property and equipment, net ....................... 272 26,170 1,718 - 28,160 Other assets, principally intangibles, net ........ 12,105 200,383 13,842 - 226,330 Investments in subsidiaries ....................... 250,366 20,114 - (270,480)(1) - Intercompany receivables .......................... 39,012 2,091 3,622 (44,725)(2) - ----------- ----------- ---------- ----------- ----------- Total assets ............................... $ 311,279 $ 311,955 $ 22,898 $ (315,205) $ 330,927 ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- ----------- LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities Short-term obligations ......................... $ 892 $ 628 $ 292 $ - $ 1,812 Other current liabilities ...................... 10,767 16,651 1,174 - 28,592 ----------- ----------- ---------- ----------- ----------- Total current liabilities .................... 11,659 17,279 1,466 - 30,404 ----------- ----------- ---------- ----------- ----------- Long-term obligations ............................. 184,822 131 - - 184,953 Intercompany payables ............................. 873 43,521 331 (44,725)(2) - Other long-term liabilities ....................... 16,278 658 713 - 17,649 ----------- ----------- ---------- ----------- ----------- Stockholder's equity Paid-in capital ................................ 100,200 210,787 15,440 (226,227)(1) 100,200 Retained earnings (deficit) .................... (2,553) 39,579 4,674 (44,253)(1) (2,553) Accumulated other comprehensive income (loss) ................................ - - 274 - 274 ----------- ----------- ---------- ----------- ----------- Total stockholder's equity ................... 97,647 250,366 20,388 (270,480) 97,921 ----------- ----------- ---------- ----------- ----------- Total liabilities and stockholder's equity . $ 311,279 $ 311,955 $ 22,898 $ (315,205) $ 330,927 ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
11 NOTE 10 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999 (SUCCESSOR - UNAUDITED) ------------------------------------------------------------------------------ DECRANE AIRCRAFT GUARANTOR NON-GUARANTOR CONSOLIDATING CONSOLIDATED HOLDINGS, INC. SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL -------------- ------------ ------------- ------------- ------------ (IN THOUSANDS) Revenues .......................................... $ - $ 174,583 $ 8,591 $ (5,338)(3) $ 177,836 Cost of sales ..................................... - 116,546 6,873 (5,338)(3) 118,081 ----------- ----------- ---------- ----------- ----------- Gross profit ...................................... - 58,037 1,718 - 59,755 Selling, general and administrative expenses ...... 4,981 21,402 1,124 - 27,507 Amortization of intangible assets ................. 116 9,015 375 - 9,506 Interest expense .................................. 17,407 2,444 33 - 19,884 Intercompany charges .............................. (3,603) 3,475 128 - - Equity in earnings of subsidiaries ................ (11,619) (363) - 11,982 (4) - Other expenses (income) ........................... - 61 (372) - (311) Provision (benefit) for income taxes .............. (7,782) 10,384 67 - 2,669 ----------- ----------- ---------- ----------- ----------- Net income ........................................ $ 500 $ 11,619 $ 363 $ (11,982) $ 500 ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- ----------- ONE MONTH ENDED SEPTEMBER 30, 1998 (SUCCESSOR - UNAUDITED) ------------------------------------------------------------------------------ DECRANE AIRCRAFT GUARANTOR NON-GUARANTOR CONSOLIDATING CONSOLIDATED HOLDINGS, INC. SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL -------------- ------------ ------------- ------------- ------------ (IN THOUSANDS) Revenues .......................................... $ - $ 15,659 $ 1,096 $ (743)(3) $ 16,012 Cost of sales ..................................... - 10,975 848 (743)(3) 11,080 ----------- ----------- ---------- ----------- ----------- Gross profit ...................................... - 4,684 248 - 4,932 Selling, general and administrative expenses ...... 359 2,714 97 - 3,170 Amortization of intangible assets ................. 9 749 44 - 802 Interest expense .................................. 1,701 64 - - 1,765 Intercompany charges .............................. (576) 559 17 - - Equity in (earnings) loss of subsidiaries ......... (2) 62 - (60)(4) - Other expenses (income) ........................... - (7) 188 - 181 Provision (benefit) for income taxes .............. (1,011) 541 (36) - (506) Extraordinary charge, net of tax .................. 296 - - - 296 ----------- -------------- ---------- ----------- ----------- Net income (loss) ................................. $ (776) $ 2 $ (62) $ 60 $ (776) ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- ----------- EIGHT MONTHS ENDED AUGUST 31, 1998 (PREDECESSOR - UNAUDITED) ---------------------------------------------------------------------------- DECRANE AIRCRAFT GUARANTOR NON-GUARANTOR CONSOLIDATING CONSOLIDATED HOLDINGS, INC. 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) ........................... 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 ------------ ----------- ---------- ----------- ----------- ------------ ----------- ---------- ----------- -----------
12 NOTE 10 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1999 (SUCCESSOR - UNAUDITED) ------------------------------------------------------------------------------ DECRANE AIRCRAFT GUARANTOR NON-GUARANTOR CONSOLIDATING CONSOLIDATED HOLDINGS, INC. SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL -------------- ------------ ------------- ------------- ------------ (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES Net income ..................................... $ 500 $ 11,619 $ 363 $ (11,982) $ 500 Adjustments to net income Non-cash net income adjustments .............. 1,851 13,041 621 - 15,513 Equity in earnings of subsidiaries ........... (11,619) (363) - 11,982(4) - Changes in working capital ..................... 20,073 (25,286) (578) - (5,791) ----------- ----------- ---------- ----------- ----------- Net cash provided by (used for) operating activities........................ 10,805 (989) 406 - 10,222 ----------- ----------- ---------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Cash paid for acquisitions, net of cash acquired (119,035) 2,245 - - (116,790) Capital expenditures and other ................. (66) (3,952) (623) - (4,641) ----------- ----------- ---------- ----------- ----------- Net cash used for investing activities ....... (119,101) (1,707) (623) - (121,431) ----------- ----------- ---------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Term debt borrowings ........................... 90,000 - - - 90,000 Capital contribution ........................... 12,500 - - - 12,500 Net revolving line of credit borrowings ........ 7,700 - - - 7,700 Customer advance ............................... - 5,000 - - 5,000 Other long-term borrowings ..................... 636 - - - 636 Deferred financing costs ....................... (3,062) - - - (3,062) Principal payments on long-term debt and leases .............................. (1,129) (675) (20) - (1,824) Other, net ..................................... - (180) 159 - (21) ----------- ----------- ---------- ----------- ----------- Net cash provided by financing activities .... 106,645 4,145 139 - 110,929 ----------- ----------- ---------- ----------- ----------- Effect of foreign currency translation on cash .... - - (99) - (99) ----------- ----------- ---------- ----------- ----------- Net increase (decrease) in cash and equivalents ... (1,651) 1,449 (177) - (379) Cash and equivalents at beginning of period ....... 2,458 762 298 - 3,518 ----------- ----------- ---------- ----------- ----------- Cash and equivalents at end of period ............. $ 807 $ 2,211 $ 121 $ - $ 3,139 ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
13 NOTE 10 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) STATEMENTS OF CASH FLOWS (CONTINUED)
ONE MONTH ENDED SEPTEMBER 30, 1998 (SUCCESSOR - UNAUDITED) ------------------------------------------------------------------------------ DECRANE AIRCRAFT GUARANTOR NON-GUARANTOR CONSOLIDATING CONSOLIDATED HOLDINGS, INC. SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL -------------- ------------ ------------- ------------- ------------ (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) .............................. $ (776) $ 2 $ (62) $ 60 $ (776) Adjustments to net income (loss) Non-cash net income adjustments .............. 750 1,020 62 - 1,832 Equity in earnings of subsidiaries ........... (2) 62 - (60)(4) - Changes in working capital ..................... (1,681) (711) (170) - (2,562) ----------- ----------- ---------- ----------- ----------- Net cash provided by (used for) operating activities........................ (1,709) 373 (170) - (1,506) ----------- ----------- ---------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures and other ................. - (240) (67) - (307) ----------- ------------ ---------- ----------- ----------- Net cash used for investing activities ....... - (240) (67) - (307) ----------- ----------- ---------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Acquisition of Predecessor, net ................ 2,006 - - - 2,006 Net revolving line of credit repayments ........ (1,600) - 81 - (1,519) Principal payments on long-term debt and leases .............................. (1) (118) (10) - (129) ----------- ----------- ---------- ----------- ----------- Net cash provided by (used for) financing activities ....................... 405 (118) 71 - 358 ----------- ----------- ---------- ----------- ----------- Effect of foreign currency translation on cash .... - - (17) - (17) ----------- ----------- ---------- ----------- ----------- Net increase (decrease) in cash and equivalents ... (1,304) 15 (183) - (1,472) Cash and equivalents at beginning of period ....... 4,371 1,052 316 - 5,739 ----------- ----------- ---------- ----------- ----------- Cash and equivalents at end of period ............. $ 3,067 $ 1,067 $ 133 $ - $ 4,267 ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
14 NOTE 10 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) STATEMENTS OF CASH FLOWS (CONTINUED)
EIGHT MONTHS ENDED AUGUST 31, 1998 (PREDECESSOR - UNAUDITED) ------------------------------------------------------------------------------ DECRANE AIRCRAFT GUARANTOR NON-GUARANTOR CONSOLIDATING CONSOLIDATED HOLDINGS, INC. SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL -------------- ------------ ------------- ------------- ------------ (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES Net income ..................................... $ 3,189 $ 6,824 $ 489 $ (7,313) $ 3,189 Adjustments to net income Non-cash net income adjustments .............. (2,222) 3,420 557 - 1,755 Equity in earnings of subsidiaries ........... (6,824) (489) - 7,313(4) - 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 ----------- ----------- ---------- ----------- ----------- ----------- ----------- ---------- ----------- -----------
15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED IN THIS REPORT. OVERVIEW Our financial position and results of operations have been affected by our history of acquisitions. Since our formation in 1989, we have completed sixteen acquisitions of businesses or assets. 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 statements included herein, consist of: - - Avtech, acquired on June 26, 1998; - - Dettmers, acquired on June 30, 1998; - - PATS, acquired on January 22, 1999; - - PPI, acquired on April 23, 1999; and - - Custom Woodwork on August 5, 1999. Our historical financial statements included in this report 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 the DLJ acquisition. In October 1999, we acquired PCI NewCo and International Custom Interiors. Our historical financial statements do not reflect these acquisitions since they were acquired subsequent to September 30, 1999. INDUSTRY OUTLOOK AND TRENDS During the first six months of 1999, Boeing, our largest customer, initiated a program to reduce inventory levels and, in addition, they have announced lower production rates for some of their models of commercial aircraft. These factors have resulted in lower sales volume for various products we supply to Boeing both directly and indirectly through sales to other Boeing suppliers, most notably electrical contacts and connectors. We believe the demand for these products will continue to be lower over the next twelve months and possibly beyond. Offsetting this anticipated weakness in demand for products we supply to the commercial aircraft market, is the high level of middle- and high-end corporate aircraft production and consequent strong demand for cabin management products we manufacture, such as audio and video systems, seats and furniture. We anticipate this high level of demand for such products to continue for at least the next twelve months. RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1998 THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 REFLECTS THE COMBINED HISTORICAL RESULTS FOR THE ONE MONTH ENDED SEPTEMBER 31, 1998 (SUCCESSOR) AND THE TWO MONTHS ENDED AUGUST 31, 1998 (PREDECESSOR). REVENUES. Revenues increased $18.1 million, or 38.4%, to $65.2 million for the three months ended September 30, 1999 from $47.1 million for the three months ended September 30, 1998. Revenues increased due to: - - the inclusion of $23.9 million of revenues resulting from the PATS, PPI and Custom Woodwork acquisitions; and - - a $2.7 million increase in entertainment and cabin management product revenues. The increases were offset by: - - a $7.2 million decrease in revenues due to weak demand for our commercial aircraft products; and - - a $1.3 million net decrease in revenues from our other products and services. 16 GROSS PROFIT. Gross profit increased $6.9 million, or 42.6%, to $23.1 million for the three months ended September 30, 1999. Gross profit as a percent of revenues increased to 35.4% for the quarter ended September 30, 1999 from 34.4% for the same period last year. Factors contributing to the gross profit increase were: - - a contribution of $9.0 million from the acquired companies; - - a $1.2 million increase due to higher entertainment and cabin management products revenues; and - - a $1.2 million increase resulting from the portion of the DLJ acquisition purchase price allocated to inventory and charged to operations as the inventory was sold during the one month ended September 30, 1998; and - - a $0.1 million increase relating to other products and services. Offsetting the above favorable factors was: - - a $2.7 million decrease due to lower commercial aircraft product revenues; - - a $1.4 million decrease due to lower margins resulting from fixed overhead costs absorbed over a lower revenue base; - - a $0.5 million charge for the portion of the Custom Woodwork acquisition purchase price allocated to inventory and charged to operations as the inventory was sold during the three months ended September 30, 1999. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased $1.6 million, or 18.4%, to $10.3 million for the three months ended September 30, 1999, from $8.7 million for the same period last year. SG&A expenses as a percent of revenues decreased to 15.7 % for the third quarter 1999 compared to 18.5% for the same quarter last year. The net increase in SG&A expenses is a result of: - - a $2.0 million increase from the inclusion of expenses from the acquired companies; offset by - - a net $0.4 million decrease in expenses at our other companies. OPERATING INCOME. Operating income increased $6.3 million, or 252.0%, to $8.8 million for the three months ended September 30, 1999, from $2.5 million for the same period last year. Operating income as a percent of revenues increased to 13.5% for the third quarter of 1999, from 5.3% for the same quarter last year. Operating income increased due to: - - the inclusion of $7.0 million from the acquired companies , - - a $3.6 million charge recorded in 1998 for nonrecurring tender offer expenses; - - a $1.2 million charge resulting from the portion of the DLJ acquisition purchase price allocated to inventory and charged to operations as the inventory was sold during the one month ended September 30, 1998; and - - a $1.5 million improvement resulting from existing business growth. The increases were offset by: - - a $3.8 million reduction resulting from weakened demand for our commercial aircraft products; - - higher amortization expenses of $2.7 million associated with the DLJ acquisition and the PATS, PPI and Custom Woodwork acquisitions; and - - a $0.5 million charge for the portion of the Custom Woodwork acquisition purchase price allocated to inventory and charged to operations as the inventory was sold during the three months ended September 30, 1999. INTEREST EXPENSE. Interest expense increased $4.3 million to $7.2 million for the three months ended September 30, 1999, from $2.9 million for the same period last year. Higher debt levels resulting from the tender offer and the PATS, PPI and Custom Woodwork acquisitions caused the increase. PROVISION FOR INCOME TAXES. The provision for income taxes differs from the amount determined by applying the applicable U.S. statutory federal rate to the income (loss) before income taxes primarily due to the effects of state and foreign income taxes and non-deductible expenses, principally goodwill amortization. The difference in the effective tax rates between periods is mostly a result of higher goodwill amortization. NET INCOME (LOSS). Net income increased $1.6 million, to $0.7 million for the three months ended September 30,1999 compared to a net loss of $0.9 million for the same period in 1998. The increase was due to the factors described above. 17 BOOKINGS AND BACKLOG. Bookings increased $13.9 million, or 28.1%, to $63.4 million for the three months ended September 30, 1999 compared to $49.5 million for the same period in 1998. An increase in bookings of $29.9 million attributable to companies acquired was offset by decreases of $12.2 million for commercial aircraft products and $3.8 million for our other products and services. Backlog increased $64.4 million, or 85.4%, to $139.8 million as of September 30, 1999 compared to $75.4 million as of December 31, 1998. A $71.0 million increase in backlog attributable to companies acquired as offset by decreases of $5.7 million for commercial aircraft products and $0.9 million for our other products and services. NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1998 THE RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 REFLECTS THE COMBINED HISTORICAL RESULTS FOR THE ONE MONTH ENDED SEPTEMBER 31, 1998 (SUCCESSOR) AND THE EIGHT MONTHS ENDED AUGUST 31, 1998 (PREDECESSOR). REVENUES. Revenues increased $71.7 million, or 67.6%, to $177.8 million for the nine months ended September 30, 1999 from $106.1 million for the nine months ended September 30, 1998. Revenues increased due to: - - the inclusion of $76.9 million of revenues resulting from the Avtech, Dettmers, PATS, PPI and Custom Woodwork acquisitions; and - - a $6.7 million increase in entertainment and cabin management product revenues. The increases were offset by: - - a $8.7 million decrease in revenues due to weak demand for our commercial aircraft products; and - - a $3.2 million net decrease in revenues from our other products and services. GROSS PROFIT. Gross profit increased $24.9 million, or 71.3%, to $59.8 million for the nine months ended September 30, 1999. Gross profit as a percent of revenues increased to 33.6% for the nine months ended September 30, 1999 from 32.9% for the same period last year. Factors contributing to the gross profit increase were: - - a contribution of $29.1 million from the acquired companies; - - a $3.5 million increase due to higher entertainment and cabin management products revenues; and - - a $1.2 million increase resulting from the portion of the DLJ acquisition purchase price allocated to inventory and charged to operations as the inventory was sold during the one month ended September 30, 1998. Offsetting the above favorable factors were: - - a $2.8 million decrease due to lower commercial aircraft product revenues; - - a $2.5 million decrease due to lower margins resulting from fixed overhead costs absorbed over a lower revenue base; - - a $1.6 million charge for the portions of PPI and Custom Woodwork acquisition purchase prices allocated to inventory and charged to operations as the inventory was sold during the nine months ended September 30, 1999; and - - a $2.0 million decrease related to other products and services. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased $8.6 million, or 45.5%, to $27.5 million for the nine months ended September 30, 1999, from $18.9 million for the same period last year. SG&A expenses as a percent of revenues decreased to 15.5% for the nine months ended September 30, 1999 compared to 17.8% for the same period last year. SG&A expenses increased as a result of: - - a $8.0 million increase from the inclusion of expenses from acquired companies; and - - a $0.6 million increase in expenses at our other companies. 18 OPERATING INCOME. Operating income increased $12.5 million to $22.7 million for the nine months ended September 30, 1999, from $10.2 million for the same period last year. Operating income as a percent of revenues increased to 12.8% for the nine months ended September 30, 1999, from 9.6% for the same period last year. Operating income increased due to: - - the inclusion of $21.0 million from the acquired companies; - - a $3.6 million charge recorded in 1998 for nonrecurring tender offer expenses; - - a $2.6 million increase related to entertainment and cabin management products; and - - a $1.2 million charge resulting from the portion of the DLJ acquisition purchase price allocated to inventory and charged to operations as the inventory was sold during the one month ended September 30, 1998. The increases were offset by: - - higher amortization expenses of $7.4 million associated with the DLJ acquisition and the PATS, PPI and Custom Woodwork acquisitions; and - - a $5.5 million reduction resulting from weakened demand for our commercial aircraft products; - - a $1.6 million charge for the portions of the PPI and Custom Woodwork acquisition purchase prices allocated to inventory and charged to operations as the inventory was sold during the nine months ended September 30, 1999; and - - a $1.4 million decrease related to other products and services. INTEREST EXPENSE. Interest expense increased $15.8 million to $19.9 million for the nine months ended September 30, 1999, from $4.1 million for the same period last year. Higher debt levels resulting from the tender offer and the Avtech, Dettmers, PATS, PPI, and Custom Woodwork acquisitions caused the increase. PROVISION FOR INCOME TAXES. The provision for income taxes differs from the amount determined by applying the applicable U.S. statutory federal rate to the income (loss) before income taxes primarily due to the effects of state and foreign income taxes and non-deductible expenses, principally goodwill amortization. The difference in the effective tax rates between periods is mostly a result of higher goodwill amortization. NET INCOME. Net income decreased $1.9 million, to $0.5 million for the nine months ended September 30,1999 compared to $2.4 million for the same period in 1998. BOOKINGS AND BACKLOG. Bookings increased $115.1 million, or 103.4%, to $226.4 million for the nine months ended September 30, 1999 compared to $111.3 million for the same period in 1998. An increase in bookings of $132.5 million attributable to companies acquired was offset by decreases of $15.3 million for commercial aircraft products and $2.1 million for our other products and services. Backlog increased $64.4 million, or 85.4%, to $139.8 million as of September 30, 1999 compared to $75.4 million as of December 31, 1998. A $71.0 million increase in backlog attributable to companies acquired as offset by decreases of $5.7 million for commercial aircraft products and $0.9 million for our other products and services. LIQUIDITY AND CAPITAL RESOURCES For the nine months ended September 30, 1999, we generated $10.2 million of cash from operating activities which is the net of $15.5 million of cash generated from operations after adding back depreciation, amortization and other non-cash items, and $5.9 million used for working capital and $0.1 resulting from an increase in other liabilities. The following factors contributed to the $5.9 million working capital increase: - - a net $5.7 million decrease in accounts payable and accrued expenses resulting from lower inventory levels, the 1999 payment of $3.0 million accrued contingent consideration pertaining to the 1997 Audio International acquisition and payment timing patterns; - - a $2.6 million accounts receivable increase due to higher sales; and - - a $1.3 million increase in prepaid expenses and other assets. The working capital increases were offset by: - - a $1.4 million inventory decrease as a result of adjustments to inventory levels based on production forecasts; and - - a $2.3 million increase in income taxes payable due to higher current taxable income. 19 Cash used for investing activities during the nine months ended September 30, 1999 consisted of $113.8 million for the PATS, PPI and Custom Woodwork acquisitions, $3.0 million of contingent consideration paid during 1999 related to the 1997 Audio International acquisition, and $4.8 million for capital expenditures. We anticipate spending $6.6 million for capital expenditures in 1999. Net cash provided by financing activities was $110.9 million for the nine months ended September 30, 1999. The cash provided was primarily used to fund our acquisitions as follows: - - January 1999 - the senior term loan facility was amended to provide for an additional $20.0 million of term loan borrowings and we used the funds, along with $14.9 million of borrowings under our acquisition revolving credit facility and a $5.0 million customer advance to acquire all of the common stock of PATS; - - April 1999 - the term loan facility was further amended and we borrowed an additional $70 million and used $50.0 million of the proceeds to partially fund the PPI acquisition and $20.0 million to repay borrowings under our acquisition and working capital revolving credit facilities; we also used an additional $12.5 million capital contribution received from DeCrane Holdings to fund the remaining portion of the PPI acquisition; and - - August 1999 - we borrowed an additional $13.8 million under our acquisition and working capital revolving credit facilities to fund the Custom Woodwork acquisition. Subsequent to September 30, 1999 we borrowed an additional $11.5 million under our acquisition revolving credit facility to fund the PCI NewCo and International Custom Interiors acquisitions. At September 30, 1999, senior credit facility borrowings totaling $182.6 million are at variable interest rates based on defined margins over the current prime or Euro-Dollar rates. As of September 30, 1999 we had $59.1 million of working capital, $25.0 million of borrowings available under our working capital senior credit facility and $11.5 million available under our acquisition senior credit facility. We believe that the current levels of working capital and amounts available under our senior credit facilities will enable us to meet our liquidity requirements for the next several years. 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. Management believes the adoption of SFAS No. 133 will not have a material impact on the Company's consolidated financial position or results of operations. COMPLIANCE OF KEY SYSTEMS WITH YEAR 2000 PERFORMANCE STANDARDS We are dependent in part on computer- and date-controlled systems for some internal functions, particularly inventory control, purchasing, customer billing and payroll. Similarly, suppliers of components and services on which we rely, and our customers, may have Year 2000 compliance risks, which would affect their operations and their transactions with us. Other parties with whom we have commercial relationships, including raw materials suppliers and service providers, such as banking and financial services, data processing services, telecommunications services and utilities, are highly reliant on computer-based technology. We expect to incur less than $1.0 million in the aggregate to remediate and test our systems, and evaluate and address the risks of our key customers and vendors. All of our Year 2000 compliance costs have been or are expected to be funded from our operating cash flow. We believe the number of products manufactured by us whose functioning is dependent upon computer-controlled or other date-controlled systems is not significant. We are not aware of any material customer- or vendor-related Year 2000 issues. Our manufacturing operations and our products generally are not based upon date-controlled machinery; our business operations and systems are not so time-sensitive that brief interruptions, or a shift to backup paper records, should cause significant losses. 20 Our Year 2000 compliance efforts have been directed primarily towards ensuring that we will be able to continue to perform three critical functions: - - make and sell our products, - - order and receive raw material and supplies, and - - pay our employees and vendors. Our assessment of year 2000 performance standards is complete for our information technology systems and for those systems deemed to be critical to our operations. Our initial review of third-party compliance risks from our key vendors and customers has also been completed. We will continue our review of data from all of those vendors and customers who responded during the second quarter of 1999 to determine if additional steps are necessary to mitigate risks. Our management does not anticipate any resulting failures in our systems, products or supply chain that would disrupt our operations to a material degree at this time. Between now and the end of the year, we will continue to test our systems, monitor the readiness of our vendors and suppliers, and take necessary actions to correct noncompliant systems. We completed the renovation, upgrade or replacement of all of our significant information technology systems for year 2000 performance standards during the third quarter of 1999. Several of our subsidiaries completed the installation of accounting and manufacturing control systems replacing existing systems not compliant with year 2000 performance standards. All of our significant systems that have been renovated or newly installed have been tested and are presently operating. However, the novelty and complexity of the issues presented, and our dependence on the technical skills of employees and independent contractors and on the representations and preparedness of third parties, could cause our efforts to be less than fully effective. Moreover, Year 2000 issues present a number of risks that are beyond our control, such as the failure of utility companies to deliver electricity, the failure of telecommunications companies to provide voice and data services, the failure of financial institutions to process transactions and transfer funds, the failure of vendors to deliver materials or perform services required by us and the collateral effects on us of the effects of Year 2000 issues on the economy in general or on our customers in particular. Additionally, in view of the mixed results achieved by software vendors in correcting these problems, we cannot assure you that new systems we obtain to replace noncompliant systems will themselves prove to be fully compliant. Although we believe that our compliance efforts are designed to appropriately identify and address those Year 2000 issues that are subject to our reasonable control, we cannot assure you that our efforts will be fully effective, or that Year 2000 issues will not have a material adverse effect on our business, financial condition or results of operations. In the worst case, a protracted failure of general business systems among our customers or vendors, or in our own plant, could cause production delays or canceled orders which would significantly reduce our revenue for the duration of such a situation. We have not developed a contingency plan which assumes significant and protracted Year 2000-related failures of major vendors, customers or systems, and do not plan to do so. 21 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to various market risks, including interest rates and changes in foreign currency exchange rates. Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest rates and foreign currency exchange rates. From time to time we use derivative financial instruments to manage and reduce risks associated with these factors. We do not enter into derivatives or other financial instruments for trading or speculative purposes. INTEREST RATE RISK. A significant portion of our capital structure is comprised of long-term variable- and fixed-rate debt. Market risk related to our variable-rate debt is estimated as the potential decrease in pre-tax earnings resulting from an increase in interest rates. The interest rates applicable to variable-rate debt are, at our option, based on defined margins over the current prime or Euro-Dollar rates. At September 30, 1999, the current prime rate was 8.25% and the current Euro-Dollar rate was 5.52%. Based on $182.6 million of variable-rate debt outstanding as of September 30, 1999, a hypothetical one percent rise in interest rates, to 9.25% for prime rate borrowings and 6.52% for Euro-Dollar borrowings, would reduce our pre-tax earnings by $1.8 million annually. Subsequent to September 30, 1999, we increased our variable-rate debt by $11.5 million. Prior to December 31, 1997, we purchased interest rate cap contracts to limit our exposure related to rising interest rates on our variable-rate debt. While we have not entered into similar contracts since that date, we may do so in the future depending on our assessment of future interest rate trends. At September 30, 1999, the carrying value of our fixed-rate long-term debt approximated its fair value. Market risk related to our fixed-rate debt is deemed to be the potential increase in fair value resulting from a decrease in interest rates. For example, a hypothetical ten percent decrease in the interest rates, from 12.0% to 10.8%, would increase the fair value of our fixed-rate debt by approximately $7.0 million. FOREIGN CURRENCY EXCHANGE RATE RISK. Our foreign customers are located in various parts of the world, primarily Western Europe, the Far East and Canada, and two of our subsidiaries operate in Western Europe. To limit our foreign currency exchange rate risk related to sales to our customers, orders are primarily valued and sold in U.S. dollars. From time to time we have entered into forward foreign exchange contracts to limit our exposure related to foreign inventory procurement and operating costs. However, we have not entered into any such contracts during the nine months ended September 30, 1999 and no such contracts are open as of that date. 22 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. Some of those risks are specifically described in the "Risk Factors" section in our prospectus dated May 14, 1999, but we are also vulnerable to a variety of elements 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; - - changes in prevailing interest rates and the availability of financing to fund our plans for continued growth; - - inflation, and other general changes in costs of goods and services; - - liability and other claims asserted against us; - - the ability to attract and retain qualified personnel; - - labor disturbances; and - - changes in operating strategy, or our acquisition and capital expenditure plans. We cannot predict any of the foregoing with certainty, so our forward-looking statements are not necessarily accurate predictions. Also, we are not obligated to update any of these statements, to reflect actual results or report later developments. You should not rely on our forward-looking statements as if they were certainties. INCORPORATION OF DOCUMENTS BY REFERENCE We have filed with the Securities and Exchange Commission, and are including within this report by referring to it here, our Registration Statement No. 333-70365 on Form S-1 effective May 14, 1999, and the prospectus it contains. That prospectus includes audited 1998 financial statements and risk factors, 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. 23 PART II - OTHER INFORMATION ITEM 1. 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 notified us that they recovered burned wire which had been attached to the in-flight entertainment system installed on some of Swissair's aircraft by one of our subsidiaries. Attorneys for families of persons who died aboard the flight requested that we put our insurance carrier on notice of a potential claim by those families, and we did so. The Transportation Safety Board has advised us that it has no evidence that the system we installed malfunctioned or failed during the flight. We are fully cooperating with the investigation. Families of persons who died aboard the flight have filed actions in federal and state courts against the Company, our subsidiary Hollingsead, and many other parties unaffiliated with the Company, including Swissair and Boeing. The action claims 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. We intend to vigorously defend against the claims. In August 1998, DeCrane Aircraft and R. Jack DeCrane, its chief executive officer, were served in an action filed in state court in California by Robert A. Rankin, claiming that he was due additional compensation in the form of stock options, and claiming fraud, negligent misrepresentation and breach of contract in connection therewith, fraudulent misrepresentation in violation of provisions of the California Labor Code for which doubled damages are sought, promissory estoppel, and wrongful discharge in violation of public policy as a result of his allegations of improprieties in connection with the DLJ acquisition transactions. The plaintiff later amended his complaint to allege breach of an implied contract as well. The action seeks not less than $1.5 million plus punitive damages and costs. We intend to vigorously defend against the claims. Mr. Rankin's employment with DeCrane Aircraft was terminated. We are also involved in other routine legal and administrative proceedings incident to the normal conduct of business. We believe the ultimate disposition of all of the foregoing matters will not have a material adverse effect on our consolidated financial position, results of operations or cash flows. ITEM 5. OTHER INFORMATION Acquisition of PPI Holdings, Inc. - --------------------------------- On April 23, 1999 we acquired all of the common stock of PPI Holdings, Inc. PPI is a Kansas-based designer and manufacturer of interior furniture components for middle- and high-end corporate aircraft. We intend to continue to use the acquired assets to manufacture products similar to those previously manufactured by PPI. The acquisition is described in Note 2 to consolidated financial statements included with this report and our prospectus. The prospectus is part of our Registration Statement No. 333-70365 on Form S-1 filed with the Securities and Exchange Commission effective May 14,1999. Acquisition of Custom Woodwork & Plastics, Inc. - ----------------------------------------------- On August 5, 1999 we acquired substantially all of the assets, subject to accounts payable and accrued expenses assumed, of Custom Woodwork & Plastics, Inc. Custom Woodwork is a Georgia-based designer and manufacturer of interior furniture components for middle- and high-end corporate aircraft. We intend to continue to use the acquired assets to manufacture products similar to those previously manufactured by Custom Woodwork. The acquisition is described in Note 2 to consolidated financial statements included with this report. Regulation S-X compliant audited financial statements of Custom Woodwork and the related pro forma consolidated financial information are included in our Form 8-K we filed on October 19, 1999. 24 Acquisition of PCI NewCo, Inc. - ------------------------------ On October 6, 1999 we acquired substantially all of the assets, subject to accounts payable and accrued expenses assumed, of PCI NewCo, Inc. PCI NewCo is a Kansas-based manufacturer of composite material and components for middle- and high-end corporate aircraft. We intend to continue to use the acquired assets to manufacture products similar to those previously manufactured by PCI NewCo. The acquisition is described in Note 2 to consolidated financial statements included with this report. On October 19, 1999 we filed a Form 8-K describing the PCI NewCo acquisition. PCI NewCo audited financial statements compliant with Regulation S-X are not yet available. As a result, the pro forma consolidated financial information required by the Securities Exchange Act of 1934 cannot be prepared at this time. The audited financial statements and pro forma information for the appropriate periods will be filed by amendment to our Form 8-K as soon as practicable, but in no event later than December 20, 1999. Acquisition of International Custom Interiors, Inc. - --------------------------------------------------- On October 8, 1999 we acquired all of the common stock of International Custom Interiors, Inc. International Custom Interiors is a Florida-based provider of upholstery services and manufacturer of furniture for middle- and high-end corporate aircraft. We intend to continue to use the acquired assets to manufacture products similar to those previously manufactured by International Custom Interiors. The acquisition is described in Note 2 to consolidated financial statements included with this report. On October 19, 1999 we filed a Form 8-K describing the International Custom Interiors acquisition. International Custom Interiors does not constitute a significant subsidiary. As a result, the filing of Regulation S-X-compliant audited financial statements and consolidated pro forma financial information is not required. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits 3.19.1 Articles of Incorporation of CWP Acquisition, Inc. * 3.19.2 By Laws of CWP Acquisition, Inc. * 3.20.1 Articles of Incorporation of PCI Acquisition Co., Inc. * 3.20.2 By Laws of PCI Acquisition Co., Inc. * 3.21.1 Articles of Incorporation of International Custom Interiors, Inc. * 3.21.2 By Laws of International Custom Interiors, Inc. * 20.1 Prospectus of DeCrane Aircraft Holdings, Inc. dated May 14, 1999 (incorporated by reference to the Company's Registration Statement No. 333-70365 on Form S-1 effective May 14, 1999) * 21.1 List of Subsidiaries of Registrant * 27 Financial Data Schedule ** ---------------------- * Previously filed ** Filed herewith b. Reports on Form 8-K On October 19, 1999 we filed a Form 8-K regarding our acquisition of Custom Woodwork & Plastics, Inc., PCI NewCo, Inc. and International Customer Interiors, Inc. 25 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) November 15, 1999 By: /s/ RICHARD J. KAPLAN ---------------------------------------------- Name: Richard J. Kaplan Title: Senior Vice President, Chief Financial Officer, Secretary and Treasurer 26 EX-27 2 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ACCOMPANYING CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 3,139 0 41,644 1,570 51,290 100,266 42,444 5,913 458,763 41,210 281,094 0 0 0 110,033 458,763 177,836 177,836 118,081 155,094 (311) 0 19,884 3,169 2,669 500 0 0 0 500 0 0
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