-----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, MmqImxj2qaK3ZcdLb6D6L3g+RFw+ODsDzELAd9r6s9XGWFVxRhnfYNYOXukR6qXi uRHLnllMxKvtTRAYLyND2g== 0001047469-98-002217.txt : 19980129 0001047469-98-002217.hdr.sgml : 19980129 ACCESSION NUMBER: 0001047469-98-002217 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19971114 ITEM INFORMATION: FILED AS OF DATE: 19980128 SROS: NASD 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: 8-K/A SEC ACT: SEC FILE NUMBER: 000-22371 FILM NUMBER: 98514655 BUSINESS ADDRESS: STREET 1: 155 MONTROSE WEST AVE. SUITE 210 CITY: COPLEY STATE: OH BUSINESS PHONE: 3306683061 MAIL ADDRESS: STREET 1: 155 MONTROSE WEST AVENUE STREET 2: SUITE 210 CITY: COPLEY STATE: OH ZIP: 44321 8-K/A 1 8-K/A - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------- FORM 8-K/A (AMENDMENT NO. 1) CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 November 14, 1997 Date of Report (Date of earliest event reported) ---------------------- DECRANE AIRCRAFT HOLDINGS, INC. (Exact name of registrant as specified in its charter) Delaware 0-22371 34-1645569 (State or other jurisdiction (Commission File Number) (I.R.S. Employer of incorporation) 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) ---------------------- 155 Montrose West Avenue, Suite 210, Copley, OH 44321 (330) 668-3061 (Former address and telephone number of principal executive offices, if changed since last report) ---------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- DeCrane Aircraft Holdings, Inc. (the "Company") hereby amends Item 7 of its Current Report on Form 8-K dated November 14, 1997 (filed with the Securities and Exchange Commission on November 25, 1997) to file the financial statements and exhibits relating to the acquisition of Audio International, Inc. ("Audio International"). The following Item 7 amends, in its entirety, Item 7 of the Form 8-K previously filed on November 25, 1997. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. a. Financial statements of businesses acquired. Audited consolidated financial statements of Audio International, Inc. and subsidiary, including notes thereto and auditors' report thereon, as of December 31, 1996 and 1995 and for each of the two years in the period ended December 31, 1996 are filed herewith as Exhibit 99.3 and are incorporated herein by reference. b. Pro forma financial information. Unaudited pro forma consolidated financial information, including explanatory notes thereto, as of September 30, 1997 and for the nine months ended September 30, 1997 and twelve months ended December 31, 1996 are filed herewith as Exhibit 99.4 and are incorporated herein by reference. c. Exhibits. Exhibit No. Exhibit Description ------- --------------------------------------------------------------- 2.1 Stock Purchase and Sale Agreement by and among Robert S. Brown, Rick Marsh and Wayne Richie, the shareholders of Audio International, Inc. and DeCrane Aircraft Holdings, Inc., including Exhibit 1.2.2, Form of the Earnout Agreement ** 10.1 Consent and Amendment No. 1 to Loan and Security Agreement dated as of October 21, 1997 among DeCrane Aircraft Holdings, Inc., Bank of America National Trust and Savings Association, successor-by-merger to Bank of America Illinois, as agent and lender, and Comerica Bank - California, Mellon Bank, N.A. and Sumitomo Bank of California, as lenders ** 10.2 Covenant Not to Compete Agreement between DeCrane Aircraft Holdings, Inc., Audio International, Inc. and Robert S. Brown ** 10.3 Covenant Not to Compete Agreement between DeCrane Aircraft Holdings, Inc., Audio International, Inc. and Rick Marsh ** 10.4 Covenant Not to Compete Agreement between DeCrane Aircraft Holdings, Inc., Audio International, Inc. and Wayne Richie ** 10.5 Employment Agreement dated November 14, 1997 between Audio International, Inc. and Robert S. Brown ** 10.6 Employment Agreement dated November 14, 1997 between Audio International, Inc. and Rick Marsh ** 99.1 Press release issued by DeCrane Aircraft Holdings, Inc. on November 3, 1997 *** 99.2 Press release issued by DeCrane Aircraft Holdings, Inc. on November 14, 1997 ** -2- 99.3 Audited consolidated financial statements of Audio International, Inc. and subsidiary, including notes thereto and auditors' report thereon, as of December 31, 1996 and 1995 and for each of the two years in the period ended December 31, 1996 incorporated by reference in Item 7(a) of this report * 99.4 Unaudited pro forma consolidated financial information, including explanatory notes thereto, as of September 30, 1997 and for the nine months ended September 30, 1997 and the twelve months ended December 31, 1996 incorporated by reference in Item 7(b) of this report * - ----------------- * - Filed herewith ** - Previously filed November 25, 1997 on Form 8-K dated November 14, 1997. *** - Previously filed November 4, 1997 on Form 8-K dated November 3, 1997. 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) January 28, 1998 By: /s/ Robert A. Rankin ------------------------------------------- Name: Robert A. Rankin Title: Chief Financial Officer and Secretary -3- EXHIBIT INDEX Exhibit No. Exhibit Description ------- --------------------------------------------------------------- 2.1 Stock Purchase and Sale Agreement by and among Robert S. Brown, Rick Marsh and Wayne Richie, the shareholders of Audio International, Inc. and DeCrane Aircraft Holdings, Inc., including Exhibit 1.2.2, Form of the Earnout Agreement ** 10.1 Consent and Amendment No. 1 to Loan and Security Agreement dated as of October 21, 1997 among DeCrane Aircraft Holdings, Inc., Bank of America National Trust and Savings Association, successor-by-merger to Bank of America Illinois, as agent and lender, and Comerica Bank - California, Mellon Bank, N.A. and Sumitomo Bank of California, as lenders ** 10.2 Covenant Not to Compete Agreement between DeCrane Aircraft Holdings, Inc., Audio International, Inc. and Robert S. Brown ** 10.3 Covenant Not to Compete Agreement between DeCrane Aircraft Holdings, Inc., Audio International, Inc. and Rick Marsh ** 10.4 Covenant Not to Compete Agreement between DeCrane Aircraft Holdings, Inc., Audio International, Inc. and Wayne Richie ** 10.5 Employment Agreement dated November 14, 1997 between Audio International, Inc. and Robert S. Brown ** 10.6 Employment Agreement dated November 14, 1997 between Audio International, Inc. and Rick Marsh ** 99.1 Press release issued by DeCrane Aircraft Holdings, Inc. on November 3, 1997 *** 99.2 Press release issued by DeCrane Aircraft Holdings, Inc. on November 14, 1997 ** 99.3 Audited consolidated financial statements of Audio International, Inc. and subsidiary, including notes thereto and auditors' report thereon, as of December 31, 1996 and 1995 and for each of the two years in the period ended December 31, 1996 incorporated by reference in Item 7(a) of this report * 99.4 Unaudited pro forma consolidated financial information, including explanatory notes thereto, as of September 30, 1997 and for the nine months ended September 30, 1997 and the twelve months ended December 31, 1996 incorporated by reference in Item 7(b) of this report * - ----------------- * - Filed herewith ** - Previously filed November 25, 1997 on Form 8-K dated November 14, 1997. *** - Previously filed November 4, 1997 on Form 8-K dated November 3, 1997. -4- EX-99.3 2 EX-99.3 AUDIO INTERNATIONAL, INC. AND SUBSIDIARY INDEX TO FINANCIAL STATEMENTS Page ---- INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS 1 FINANCIAL STATEMENTS Consolidated Balance Sheets as of December 31, 1996 and 1995 2 Consolidated Statements of Earnings and Retained Earnings for the years ended December 31, 1996 and 1995 3 Consolidated Statements of Cash Flows for the years ended December 31, 1996 and 1995 4 Notes to Consolidated Financial Statements 5 INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS The Board of Directors and Stockholders Audio International, Inc. North Little Rock, Arkansas We have audited the accompanying consolidated balance sheets of Audio International, Inc. and subsidiary as of December 31, 1996 and 1995, and the related consolidated statements of earnings and retained earnings and consolidated statements of cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits of the consolidated financial statements referred to in the preceding paragraph provide a reasonable basis for our opinion. In our previously issued auditors' reports dated April 4, 1996, and February 21, 1997, we did not express an opinion on the consolidated statement of earnings and retained earnings, or the consolidated statement of cash flows for the year ended December 31, 1995, since we had not audited such statements. In accordance with your subsequent instructions, we have now audited the consolidated statement of earnings and retained earnings and the consolidated statement of cash flows for the year ended December 31, 1995, in accordance with generally accepted auditing standards. Accordingly, our present opinion on these financial statements, as presented herein, is different from that expressed in our previous reports. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Audio International, Inc. and subsidiary as of December 31, 1996 and 1995, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. As discussed in Note 12, the Company prepared its financial statements for years prior to 1995 on the income tax basis of accounting. Effective January 1, 1995, the Company adopted generally accepted accounting principles for the preparation of its financial statements, and accordingly, appropriate adjustments have been made to retained earnings as of January 1, 1995. THOMAS & THOMAS Certified Public Accountants Little Rock, Arkansas February 21, 1997 (Except for paragraph 3 above, as to which the date is December 17, 1997) 1 AUDIO INTERNATIONAL, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1996 AND 1995 1996 1995 ---------- ----------- CURRENT ASSETS Cash in financial institutions $ 46,140 $ 2,868 Repurchase agreements 1,543,200 470,862 Receivables: Trade, net 1,206,764 633,258 Employees and other 13,471 28,668 Inventories 1,503,346 830,660 Prepaid income taxes -- 55,368 Deferred income taxes 37,898 30,135 ---------- ----------- Total current assets 4,350,819 2,051,819 PROPERTY AND EQUIPMENT, NET 1,298,834 1,243,160 OTHER ASSETS Other investments 100,000 -- Utility deposits 1,013 1,050 ---------- ----------- TOTAL ASSETS $5,750,666 $3,296,029 ---------- ----------- ---------- ----------- CURRENT LIABILITIES Construction contract payable $ -- $ 268,587 Accounts payable, trade 426,182 438,456 Accrued expenses 312,842 154,070 Income taxes payable 817,257 -- Current portion of long-term debt 43,699 38,826 ---------- ----------- Total current liabilities 1,599,980 899,939 DEFERRED INCOME TAXES 22,605 31,220 LONG-TERM DEBT, EXCLUDING CURRENT PORTION 723,841 578,809 ---------- ----------- TOTAL LIABILITIES 2,346,426 1,509,968 ---------- ----------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Common stock, $1 par value, 1,000 shares authorized, 129 shares issued and outstanding 129 129 Additional paid-in capital 600,887 600,887 Contributed capital 90,000 90,000 Retained earnings 2,713,224 1,095,045 ---------- ----------- TOTAL STOCKHOLDERS' EQUITY 3,404,240 1,786,061 ---------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $5,750,666 $3,296,029 ---------- ----------- ---------- ----------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 2 AUDIO INTERNATIONAL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS YEARS ENDED DECEMBER 31, 1996 AND 1995 1996 1995 ----------- ----------- SALES AND SERVICE REVENUES, NET $10,134,263 $5,182,046 COST OF SALES AND SERVICE 4,666,917 2,710,253 ----------- ----------- Gross Profit 5,467,346 2,471,793 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,925,873 2,174,280 ----------- ----------- Operating Income 2,541,473 297,513 OTHER INCOME (EXPENSE) Investment income 32,228 14,769 Interest expense (45,346) (28,400) Gain (loss) on disposal of assets, net 11,278 (38,224) Other 4,625 788 ----------- ----------- Earnings Before Income Taxes 2,544,258 246,446 PROVISION FOR INCOME TAXES 926,079 66,000 ----------- ----------- NET EARNINGS 1,618,179 180,446 RETAINED EARNINGS, BEGINNING OF YEAR 1,095,045 914,599 ----------- ----------- RETAINED EARNINGS, END OF YEAR $ 2,713,224 $1,095,045 ----------- ----------- ----------- ----------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 3 AUDIO INTERNATIONAL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1996 AND 1995 1996 1995 ---------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES NET EARNINGS $1,618,179 $ 180,446 ---------- ----------- ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES (Gain) loss on disposal of assets, net (11,278) 38,224 Depreciation 151,055 93,963 Increase (decrease) in operating assets: Accounts receivable, trade (573,506) (102,793) Accounts receivable, employee and other 15,197 (22,312) Inventories (672,686) (472,191) Prepaid income taxes 55,368 (55,368) Deferred income taxes (7,763) -- Increase (decrease) in operating liabilities: Accounts payable (12,274) 352,522 Accrued expenses 158,772 22,079 Construction contract payable (268,587) 268,588 Income taxes payable 817,257 (137,119) Deferred income taxes (8,615) 4,045 ---------- ----------- Total adjustments, net (357,060) (10,362) ---------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES 1,261,119 170,084 ---------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Payments for purchase of property and equipment, net (195,451) (992,087) Other investments (100,000) -- Repayments of stockholder loans -- (240,000) Other assets 37 (1,050) ---------- ----------- NET CASH USED BY INVESTING ACTIVITIES (295,414) (1,233,137) ---------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from common stock issuance -- 600,000 Payments on long-term debt (18,160) (14,867) Proceeds from issuance of long-term debt 168,065 596,942 ---------- ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES 149,905 1,182,075 ---------- ----------- NET INCREASE IN CASH AND CASH EQUIVALENTS 1,115,610 119,022 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 473,730 354,708 ---------- ----------- CASH AND CASH EQUIVALENTS, END OF YEAR $1,589,340 $ 473,730 ---------- ----------- ---------- ----------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 4 AUDIO INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A) BUSINESS ACTIVITY Audio International, Inc. (the Company), an Arkansas Corporation, was incorporated January 2, 1987 for the primary purpose of designing, manufacturing and marketing audio and video systems for the aviation industry. On February 16, 1995, the Company formed a new corporation, Audio International Sales, Inc. (a Foreign Sales Corporation), in the Virgin Islands which is a wholly-owned subsidiary of the Company. Foreign sales accounted for approximately 6.9% and 7.2% of total revenues for the years ended December 31, 1996 and 1995, respectively. B) CONSOLIDATION The accompanying financial statements present the consolidated accounts of the Company and its wholly-owned subsidiary. Accordingly, the consolidated financial statements include all of the assets, liabilities, income, expenses, and cash flows for these companies. All significant intercompany transactions and balances have been eliminated. C) INVENTORIES Inventories are stated at the lower of cost (first-in, first-out basis) or market. D) ALLOWANCE FOR DOUBTFUL ACCOUNTS Bad debts are provided on the allowance method based on historical experience and management's evaluation of outstanding accounts receivable. The balance of the allowance at December 31, 1996 and 1995, was $20,000. E) PROPERTY AND EQUIPMENT Property and equipment are carried at cost. Major renewals and betterments are capitalized while replacements, maintenance, and repairs which do not improve or extend the life of an asset are expensed. Property and equipment is depreciated over the estimated useful lives of the various assets using the straight-line method for financial statement purposes. F) INCOME TAXES Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. Current income taxes are based on taxable income for federal and state tax reporting purposes. G) CASH AND CASH EQUIVALENTS For purposes of the statements of cash flows, management considers all highly liquid debt instruments, including repurchase agreements, with an original maturity of three months or less to be cash equivalents. H) RESEARCH AND DEVELOPMENT Current operations are charged with all research, engineering, and product development expenses which amounted to approximately $640,000 and $376,000 for the years ended December 31, 1996 and 1995. I) WARRANTY RESERVE The financial statements include product warranty reserves of approximately $62,000 and $25,000 at December 31, 1996 and 1995, respectively. The reserve, which is classified as a current liability for 5 financial statement purposes, is based upon estimates of future costs associated with fulfilling warranty obligations. 6 AUDIO INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) J) ADVERTISING EXPENSE Advertising expenditures, including production cost related to various units utilized for demonstrations and display, are expensed as incurred. K) CONCENTRATION OF CREDIT RISK The Company's financial instruments that are exposed to concentrations of credit risk consist primarily of cash in financial institutions, repurchase agreements, and trade accounts receivable. The Company places its cash and temporary cash investments with high credit quality institutions. At times such deposits may be in excess of insurance limits. The Company routinely assesses the financial strength of its customers and, as a consequence, believes that its trade accounts receivable credit risk exposure is limited. L) USE OF ESTIMATES In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. M) RECLASSIFICATIONS Certain amounts for the year ended December 31, 1995, have been reclassified to conform with the presentation of the December 31, 1996 amounts. The reclassifications have no effect on net income for the years ended December 31, 1996 or 1995. NOTE 2: REPURCHASE AGREEMENTS The Company is party to a contract with a local bank under which all operating funds on deposit with the bank are invested in repurchase agreements on a daily basis. The bank maintains, as collateral for the benefit of the Company, certain securities in its investment portfolio. The collateral consists of United States government obligations, obligations of United States government agencies, or other obligations guaranteed by the United States government. The securities are held by an agent bank or registered in the agent's name as an owner or pledgee at the Federal Reserve Bank. Interest, at a rate determined by the bank, is paid on a daily basis. The agreements are repurchased by the bank upon presentation of any check or other withdrawal of funds from the Company's operating account. NOTE 3: INVENTORIES Inventories at December 31, 1996 and 1995 consist of the following: 1996 1995 ---------- -------- Raw materials $ 863,373 $546,078 Work-in-process 403,193 147,187 Finished goods 236,780 137,395 ---------- -------- Total inventories $1,503,346 $830,660 ---------- -------- ---------- -------- 7 AUDIO INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 NOTE 4: PROPERTY AND EQUIPMENT During 1995 the City of North Little Rock Industrial Development Corporation conveyed title to certain land to the Company for consideration of $10 and an agreement that the Company would locate its new facility on the property. This land, and the related contribution of capital, was recorded for financial statement purposes at its estimated fair market value of $90,000 at the date of receipt. The following is a summary of property and equipment as of December 31: Cost ----------------------- Estimated 1996 1995 Useful Lives ---------- ---------- ------------ Land, contributed $ 90,000 $ 90,000 -- Building and improvements 785,740 727,295 40 years Machinery and equipment 657,974 536,166 3-7 years Office furniture and equipment 96,303 70,407 3-7 years Motor vehicles 95,230 110,498 5 years ---------- ---------- 1,725,247 1,534,366 Accumulated depreciation (426,413) (291,206) ---------- ---------- Net property and equipment $1,298,834 $1,243,160 ---------- ---------- ---------- ---------- The Company substantially completed construction of its new facility, and moved its operations from leased facilities, in December 1995. This change in facilities resulted in losses from abandonment of leasehold improvements of approximately $42,000. NOTE 5: OTHER INVESTMENTS In December 1996, the Company entered into a contract with an unrelated entity, whereby the Company advanced the entity $100,000 to be used to manufacture and develop certain products for the Company. The advance payment will be recovered through annual discounts on Company purchases of products from the entity over the term of the contract. NOTE 6: BANK LINE OF CREDIT A revolving line of credit, which bears interest at the lender's prime rate, is provided to the Company under the terms of a credit agreement dated June 15, 1996. The terms of the agreement allow the Company to borrow up to $200,000. The line of credit is secured by amounts on deposit with the financial institution. There was no balance outstanding on this line of credit at December 31, 1996 or 1995. 8 AUDIO INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 NOTE 7: ACCRUED EXPENSES Accrued expenses consist of the following at December 31, 1996 and 1995: 1996 1995 -------- -------- Payroll $106,746 $ 52,471 Vacation 54,239 36,139 Payroll taxes withheld and accrued 74,983 32,808 Reserve for warranties 61,568 25,000 Other 15,306 7,652 -------- -------- Total accrued expenses $312,842 $154,070 -------- -------- NOTE 8: LONG-TERM DEBT Long-term debt at December 31, 1996 and 1995 consists of the following: 1996 1995 -------- -------- Note payable to Arkansas Development Finance Authority; due in annual installments through May, 2011, including interest ranging from 5.25% to 6.0%, secured by property and equipment. $750,000 $596,942 Notes payable to bank; secured by vehicles; payable in monthly installments including interest at 7.3%, through February, 2000. 17,540 20,693 -------- -------- 767,540 617,635 Current portion (43,699) (38,826) -------- -------- Long-term debt, excluding current portion $723,841 $578,809 -------- -------- -------- -------- During the year ended December 31, 1996, the Company obtained permanent financing, which refinanced its interim note on its new facility. Thus, the note has been classified as long-term debt as of December 31, 1996 and 1995, for financial statement purposes. This debt requires a reserve account for monthly deposits to provide for the next installment of debt service. The balance in this account, which totaled $42,490 and $-0- at December 31, 1996 and 1995, respectively, is included in Cash in Financial Institutions. The terms of the note also require the Company to meet certain restrictive debt covenants, which have been met as of December 31, 1996 and 1995. Cash payments for interest on all debt amounted to $46,210 and $22,640 for the years ended December 31, 1996 and 1995, respectively. 9 AUDIO INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 NOTE 8: LONG-TERM DEBT (Continued) Maturities of long-term debt, based upon the Company's monthly sinking fund and other debt requirements, is as follows at December 31, 1996: 1997 $ 43,699 1998 38,851 1999 44,242 2000 40,748 2001 40,000 Thereafter 560,000 -------- $767,540 -------- -------- NOTE 9: INCOME TAXES Income tax expense (benefit) for the years ended December 31, 1996 and 1995, is summarized as follows: 1996 1995 -------- ------- Current: Federal $793,693 $61,262 State 148,764 693 -------- ------- 942,457 61,955 -------- ------- Deferred: Federal $(13,750) $ 3,780 State (2,628) 265 -------- ------- (16,378) 4,045 -------- ------- Total provision for income taxes $926,079 $66,000 -------- ------- -------- ------- The actual income tax expense differs from "expected" tax expense (computed by applying appropriate U.S. Federal corporate income tax rates to income before income taxes) primarily due to the effects of state income tax, Federal and state tax credits, nondeductible life insurance premiums, Foreign Sales Corporation income exclusions and entertainment expenses. Cash payments for income taxes amounted to $87,617 and $259,147 for the years ended December 31, 1996 and 1995, respectively. The Company's deferred tax assets and deferred tax liabilities at December 31, 1996 and 1995, are as follows: 1996 1995 -------- ------- Current deferred tax assets, net $37,898 $30,135 Noncurrent deferred tax liabilities, net 22,605 31,220 -------- ------- Net deferred tax asset (liability) $15,293 $(1,085) -------- ------- -------- ------- 10 AUDIO INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 NOTE 9: INCOME TAXES (Continued) The Company's deferred tax assets and deferred tax liabilities result primarily from the use of accelerated methods of depreciation for tax purposes; bad debt reserves, accrued warranty expense and accrued vacation expense being recorded for financial statement purposes; and different inventory valuations for tax and book purposes. In assessing of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Based upon the level of historical taxable income, management believes it is more likely than not the Company will realize the benefits of these deductible differences. NOTE 10: EMPLOYEE BENEFIT PLAN The Company has adopted a retirement plan which qualifies under Section 401(k) of the Internal Revenue Code and therefore includes certain salary deferral features for eligible employees. Employees may elect to contribute up to fifteen percent of their gross earnings to the plan. The Company makes matching contributions equal to employee contributions up to 3% of each participating employee's salary. Matching contributions to the plan were approximately $39,900 and $24,700 for the years ended December 31, 1996 and 1995, respectively. NOTE 11: BUSINESS CONCENTRATIONS The majority of the Company's sales and service revenues are generated through customers in the private aviation industry located throughout the United States. At any given time, certain customers may account for significant portions of the Company's business. The Company's largest six customers accounted for approximately 63% and 58% of net sales for the years ended December 31, 1996 and 1995, respectively. NOTE 12: RESTATEMENT OF BALANCES Effective January 1, 1995, the Company adopted generally accepted accounting principles for the preparation of its financial statements. In previous years, the records and financial statements of the Company were prepared on the income tax basis of accounting. Certain adjustments have been applied to the beginning retained earnings in order to restate amounts in accordance with generally accepted accounting principles. An analysis of these adjustments, and the restated beginning retained earnings, is as follows: January 1, 1995 balance, as previously reported $853,765 Adjustments for expense accruals and reserves (70,000) Adjustments for inventory, property and equipment valuations 130,834 -------- January 1, 1995 balance, as restated $914,599 -------- -------- 11 AUDIO INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 NOTE 13: COMMON STOCK ISSUANCE During 1995, the Company and its shareholders entered into an agreement under which twenty-nine shares of the Company's $1 par value capital stock were to be issued to a new shareholder in exchange for consideration of $600,000 deposited with the Company during 1995. In addition, the then existing shareholders of the Company each would sell seven shares of their capital stock to the new shareholder, creating a one-third interest for each of the three shareholders. This agreement was consummated February 20, 1996. For comparative financial statement purposes, certain reclassifications have been made to reflect this transaction as of December 31, 1995. Thus, at December 31, 1996 and 1995, one hundred and twenty-nine of the Company's one thousand authorized shares were considered to be issued and outstanding. The stock acquisition agreement contained additional provisions requiring the employment of each of the three shareholders for a minimum of five years from the date of the agreement and various other provisions related to bonus arrangements and fringe benefits. NOTE 14: EVENT (UNAUDITED) SUBSEQUENT TO THE DATE OF THE INDEPENDENT AUDITORS' REPORT On November 14, 1997, the Company's stockholders entered into an acquisition agreement, under which all shares of the Company were acquired by DeCrane Aircraft Holdings, Inc. 12 EX-99.4 3 EX-99.4 DECRANE AIRCRAFT HOLDINGS, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION The Pro Forma Condensed Consolidated Financial Information should be read in conjunction with: (i) the Company's audited consolidated financial statements and notes thereto, and the unaudited pro forma financial data for the year ended December 31, 1996, which are included in the Company's Prospectus dated April 16, 1997 issued in connection with its initial public offering of common stock (as previously filed as Exhibit 20.1 to the Form 10-Q for the quarter ended March 31, 1997); and (ii) the Company's Form 10-Q for the quarter ended September 30, 1997. The following Unaudited Pro Forma Condensed Consolidated Financial Information is based on the historical consolidated financial statements of the Company, adjusted to present the unaudited pro forma condensed consolidated results of operations of the Company as if the following transactions had occurred on January 1, 1996: (i) the acquisition of Audio International, Inc. ("Audio International") for $24,726,000 in cash, including $726,000 of acquisition related expenses; (ii) the Minority Interest and ADS Acquisitions, as described in the Company's Prospectus; (iii) the Recapitalization, as described in the Company's Prospectus; and (iv) the sale by the Company of 2,700,000 shares of Common Stock in the Offering and the application of the net proceeds therefrom as set forth under "Use of Proceeds" in the Prospectus. The unaudited pro forma condensed consolidated balance sheet reflects the acquisition of Audio International on a pro forma basis as if the acquisition had occurred on September 30, 1997. The unaudited pro forma condensed consolidated statement of operations for the nine months ended September 30, 1997 reflects the unaudited historical consolidated financial statements of the Company, adjusted to reflect: (i) the pro forma effect of the Recapitalization and the Offering; and (ii) the combination, with appropriate adjustments, of the unaudited consolidated financial statements of Audio International nine months ended September 30, 1997 (the "1997 Acquisition"). The unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 1996 reflects the audited historical consolidated financial statements of the Company, adjusted to reflect: (i) the combination, with appropriate adjustments, of the unaudited financial statements of ADS for the period from January 1 through September 18, 1996, the date on which it was acquired and the Minority Interest Acquisition (the "1996 Acquisitions"); (ii) the pro forma effect of the Recapitalization and the Offering; and (iii) the combination, with appropriate adjustments, of the audited consolidated financial statements of Audio International for the year ended December 31, 1996 (the "1997 Acquisition"). The Company believes the Unaudited Pro Forma Condensed Consolidated Financial Information contains all adjustments necessary for a fair presentation of the above described transactions. The pro forma adjustments are based upon available information and certain assumptions that the Company believes are reasonable. With respect to the Audio International pro forma acquisition adjustments described in the accompanying notes, the allocation of the purchase price is preliminary and subject to final determination by the Company. The pro forma acquisition adjustments also exclude the effect of contingent consideration aggregating a maximum $6,000,000 payable over two years based on future attainment of defined performance criteria. The Unaudited Pro Forma Condensed Consolidated Financial Information is presented for illustrative purposes only and is not necessarily indicative of the results of operations that would have occurred had the transactions been consummated on the dates indicated, or that may be obtained in future periods. 1 DECRANE AIRCRAFT HOLDINGS, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 1997 (IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
1997 Acquisition DeCrane ---------------------------- Aircraft Audio Holdings, Offering International, Acquisition Pro Forma Inc. Adjustments Pro Forma Inc. Adjustments as Adjusted ------------ ------------ ------------ -------------- ------------ ----------- Revenues $ 80,887 $ -- $ 80,887 $ 11,162 $ -- $ 92,049 Cost of sales 60,518 -- 60,518 6,180 54 (6) 66,752 --------- --------- --------- --------- --------- --------- Gross profit (loss) 20,369 -- 20,369 4,982 (54) 25,297 Selling, general and administrative expenses 11,012 100 (2) 11,112 3,230 (76) (7) 14,266 Amortization of intangible assets 616 -- 616 -- 492 (8) 1,108 --------- --------- --------- --------- --------- --------- Operating income (loss) 8,741 (100) 8,641 1,752 (470) 9,923 Interest expense 2,598 (1,528)(3) 1,070 -- 1,463 (9) 2,533 Other expenses 388 -- 388 2 -- 390 --------- --------- --------- --------- --------- --------- Income (loss) before provision (benefit) for income taxes 5,755 1,428 7,183 1,750 (1,933) 7,000 Provision (benefit) for income taxes 2,191 528 (4) 2,719 624 (606) (10) 2,737 --------- --------- --------- --------- --------- --------- Income (loss) (1) $ 3,564 $ 900 $ 4,464 $ 1,126 $ (1,327) $ 4,263 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Income (loss) applicable to common stockholders (1) $ 919 $ 3,545 (5)$ 4,464 $ 1,126 $ (1,327) $ 4,263 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Income (loss) per share (1) Pro forma for the Recapitalization $ 0.77 (11) $ -- $ -- Pro forma for the Recapitalization and the Offering -- 0.79 (12) -- Pro forma as adjusted -- -- 0.75 (13) Weighted average number of common shares outstanding Pro forma for the Recapitalization 4,617 (11) -- -- Pro forma for the Recapitalization and the Offering -- 5,648 (12) -- Pro forma as adjusted -- -- 5,648 (13)
The accompanying notes are an integral part of the Unaudited Pro Forma Condensed Consolidated Financial Information. 2 DECRANE AIRCRAFT HOLDINGS, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
1996 Acquisitions DeCrane --------------------------------- Aircraft Aerospace Holdings, Display Acquisition Offering Inc. Systems Adjustments Adjustments ------------ ------------- ------------- ------------ Revenues $ 65,099 $ 7,706 $ -- $ -- Cost of sales 49,392 4,855 284 (14) -- ---------- ---------- ---------- ---------- Gross profit (loss) 15,707 2,851 (284) -- Selling, general and administrative expenses 10,904 1,286 (203) (14) 200 (14) Amortization of intangible assets 709 -- 214 (14) -- Gain on litigation settlement (157) -- -- -- ---------- ---------- ---------- ---------- Operating income (loss) 4,251 1,565 (295) (200) Interest expense 4,248 52 1,125 (14) (4,639) (14) Other expenses (income) 108 -- (89) (14) -- ---------- ---------- ---------- ---------- Income (loss) before provision (benefit) for income taxes (105) 1,513 (1,331) 4,439 Provision (benefit) for income taxes 712 615 (777) (14) 1,377 (15) ---------- ---------- ---------- ---------- Income (loss) (1) $ (817) $ 898 $ (554) $ 3,062 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Income (loss) applicable to common stockholders (1) $ (6,357) $ 898 $ (554) $ 8,602 (5) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Income (loss) per share (1) Pro forma for the Recapitalization $ (0.31) (14) Pro forma for the Recapitalization, 1996 Acquisitions and the Offering -- Pro forma as adjusted -- Weighted average number of common shares outstanding Pro forma for the Recapitalization 2,659 (14) Pro forma for the Recapitalization, 1996 Acquisitions and the Offering -- Pro forma as adjusted --
1997 Acquisition --------------------------------- Audio International, Acquisition Pro Forma Pro Forma Inc. Adjustments as Adjusted -------------- ------------- ------------- ------------- Revenues $ 72,805 $ 10,134 $ -- $ 82,939 Cost of sales 54,531 4,667 141 (6) 59,339 ---------- ---------- ---------- ---------- Gross profit (loss) 18,274 5,467 (141) 23,600 Selling, general and administrative expenses 12,187 2,926 45 (7) 15,158 Amortization of intangible assets 923 -- 657 (8) 1,580 Gain on litigation settlement (157) -- -- (157) ---------- ---------- ---------- ---------- Operating income (loss) 5,321 2,541 (843) 7,019 Interest expense 786 13 1,850 (9) 2,649 Other expenses (income) 19 (16) -- 3 ---------- ---------- ---------- ---------- Income (loss) before provision (benefit) for income taxes 4,516 2,544 (2,693) 4,367 Provision (benefit) for income taxes 1,927 926 (734) (10) 2,119 ---------- ---------- ---------- ---------- Income (loss) (1) $ 2,589 $ 1,618 $ (1,959) $ 2,248 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Income (loss) applicable to common stockholders (1) $ 2,589 $ 1,618 $ (1,959) $ 2,248 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Income (loss) per share (1) Pro forma for the Recapitalization $ -- $ -- Pro forma for the Recapitalization, 1996 Acquisitions and the Offering 0.46 (12) -- Pro forma as adjusted -- 0.40 (13) Weighted average number of common shares outstanding Pro forma for the Recapitalization -- -- Pro forma for the Recapitalization, 1996 Acquisitions and the Offering 5,613 (12) -- Pro forma as adjusted -- 5,613 (13)
The accompanying notes are an integral part of the Unaudited Pro Forma Condensed Consolidated Financial Information. 3 DECRANE AIRCRAFT HOLDINGS, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 1997 (IN THOUSANDS)
1997 Acquisition DeCrane --------------------------------- Aircraft Audio Holdings, International, Acquisition Pro Forma Inc. Inc. Adjustments as Adjusted ---------- -------------- ------------- ----------- ASSETS Current assets Cash and cash equivalents $ 339 $ 778 $ -- $ 1,117 Accounts receivable, net 15,368 2,526 -- 17,894 Inventories 22,046 1,538 -- 23,584 Prepaid expenses and other current assets 874 360 -- 1,234 ---------- ---------- ---------- ---------- Total current assets 38,627 5,202 -- 43,829 Property and equipment, net 12,245 1,538 499 (16) 14,282 Other assets, principally intangibles, net 19,773 101 19,697 (17) 39,571 ---------- ---------- ---------- ---------- Total assets $ 70,645 $ 6,841 $ 20,196 $ 97,682 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Short-term borrowings $ 723 $ -- $ -- $ 723 Current portion of long-term debt 946 -- -- 946 Accounts payable 8,053 272 -- 8,325 Accrued expenses 5,666 785 -- 6,451 Income taxes payable 910 471 -- 1,381 ---------- ---------- ---------- ---------- Total current liabilities 16,298 1,528 -- 17,826 Long-term liabilities Long-term obligations 12,667 747 24,726(18) 38,140 Deferred income taxes 3,826 36 -- 3,862 Minority interest 65 -- -- 65 ---------- ---------- ---------- ---------- Total long-term liabilities 16,558 783 24,726 42,067 Stockholders' equity Common stock 53 -- -- 53 Additional paid-in capital 50,390 691 (691)(19) 50,390 Retained earnings (deficit) (12,525) 3,839 (3,839)(19) (12,525) Foreign currency translation adjustment (129) -- -- (129) ---------- ---------- ---------- ---------- Total stockholders' equity 37,789 4,530 (4,530) 37,789 ---------- ---------- ---------- ---------- Total liabilities and stockholders' equity $ 70,645 $ 6,841 $ 20,196 $ 97,682 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
The accompanying notes are an integral part of the Unaudited Pro Forma Condensed Consolidated Financial Information. 4 DECRANE AIRCRAFT HOLDINGS, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION (1) Reflects income (loss) before an extraordinary charge incurred as a result of the debt repayment with the net proceeds from the Offering as described in the Company's Form 10-Q for the quarter ended September 30, 1997. (2) Represents incremental general and administrative expenses associated with regulatory compliance requirements including listing, registrar and transfer agent fees, quarterly and annual report and proxy statement preparation and distribution expenses, legal and accounting fees and director and officers' liability insurance premiums. (3) Represents a decrease in interest expense to reflect the sale by the Company of 2,700,000 shares of common stock in the Offering and the application of the net proceeds therefrom as described in the Prospectus. (4) Represents an increase in the provision for income taxes resulting from an increase in pro forma taxable income. (5) Reflects the elimination of preferred stock dividends and adjustment of redemption value of the mandatorily redeemable common stock warrants as a result of the Recapitalization and the Offering as described in the Company's Form 10-Q for the quarter ended September 30, 1997 and in "Unaudited Pro Forma Consolidated Financial Data" in the Prospectus. (6) For the nine months ended September 30, 1997, represents an increase in depreciation expense to reflect a $499,000 increase in the fair value of assets acquired. For the year ended December 31, 1996, represents: (i) an increase of $69,000 to conform the expense classification used in the December 31, 1996 audited financial statements to the expense classification used by the Company in presenting the statement of operations for the nine months ended September 30, 1997; and (ii) a $72,000 increase in depreciation expense to reflect a $499,000 increase in the fair value of assets acquired. (7) For the nine months ended September 30, 1997, represents: (i) a $18,000 increase in depreciation expense to reflect a $499,000 increase in the fair value of assets acquired; and (ii) a $94,000 net decrease in compensation expense attributable to the resignation of one former stockholder of Audio International as of the acquisition date, offset by an increase in compensation for the two remaining former shareholders of Audio International pursuant to employment agreements entered into with the Company. For the year ended December 31, 1996, represents: (i) an decrease of $69,000 to conform the expense classification used in the December 31, 1996 audited financial statements to the expense classification used by the Company in presenting the statement of operations for the nine months ended September 30, 1997; (ii) a $24,000 increase in depreciation expense to reflect a $499,000 increase in the fair value of assets acquired; and (iii) a $90,000 net increase in compensation expense attributable to an increase in compensation for two former shareholders of Audio International pursuant to employment agreements entered into with the Company, offset by a decrease in compensation attributable to the resignation of the third former stockholder of Audio International as of the acquisition date. (8) Represents increases in amortization expense resulting from the amortization of $19,967,000 of goodwill related to the acquisition on a straight-line basis over 30 years. (9) Represents increases in interest expense resulting from the revolving line of credit indebtedness incurred to finance the acquisition. (10) Represents decreases in the provision for income taxes as a result of decreases in pro forma taxable income. 5 DECRANE AIRCRAFT HOLDINGS, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION (CONTINUED) (11) Reflects the Recapitalization as described in the Company's Form 10-Q for the quarter ended September 30, 1997. (12) For the nine months ended September 30, 1997, reflects the Recapitalization, adjusted on a pro forma basis for the Offering. For the year ended December 31, 1996, reflects the Recapitalization, adjusted on a pro forma basis for 1996 Acquisitions and the Offering. Both periods also reflect 50,743 additional common shares issued to two stockholders during the fourth quarter of 1997 to settle their asserted claim that they were entitled to additional shares pursuant to certain anti-dilution provisions as described in the Company's Form 10-Q for the quarter ended September 30, 1997. (13) For the nine months ended September 30, 1997, reflects the Recapitalization, adjusted on a pro forma basis for the Offering as described in the Company's Form 10-Q for the quarter ended September 30, 1997 and the acquisition of Audio International. For the year ended December 31, 1996, reflects the Recapitalization, adjusted on a pro forma basis for the 1996 Acquisitions and the Offering as described in the Company's Form 10-Q for the quarter ended September 30, 1997 and the acquisition of Audio International. Both periods also reflect 50,743 additional common shares issued to two stockholders during the fourth quarter of 1997 to settle their asserted claim that they were entitled to additional shares pursuant to certain anti-dilution provisions as described in the Company's Form 10-Q for the quarter ended September 30, 1997. (14) As described in "Unaudited Pro Forma Consolidated Financial Data" in the Prospectus. (15) Represents an increase in the provision for income taxes resulting from an increase in pro forma taxable income, net of a partial utilization of net operating loss carryforwards. Subsequent to consummation of the Offering, the Company determined that the amount of loss carryforwards that may be utilized in each period is subject to limitations because of the occurrence of a change in control of the Company, as defined in the Internal Revenue Code. A change of control occurred during 1996 as a result of certain equity transactions and upon consummation of the Offering in 1997. The tax provision in this pro forma reflects the limitation of the utilization of net operating loss carryforwards. (16) Represents an increase to fair value of the assets acquired. (17) The total purchase price paid at closing was $24,726,000 in cash, including and estimated $726,000 in acquisition related costs. The acquisition is accounted for as a purchase and the difference between the purchase price and the fair value of the net assets acquired is recorded as goodwill and will be amortized over 30 years. Goodwill excludes contingent consideration aggregating a maximum of $6,000,000 payable over two years based on future attainment of defined performance criteria. 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 30-year term. (18) Represents borrowings under the Company's revolving line of credit to fund the acquisition. (19) Represents the elimination of net equity as of the acquisition date. 6 -----END PRIVACY-ENHANCED MESSAGE-----