<PAGE>
==============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
Commission File Number 333-70363
----------------------
DECRANE HOLDINGS CO.
(Exact name of registrant as specified in its charter)
DELAWARE 13-4019703
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o DLJ MERCHANT BANKING PARTNERS II, L.P.
277 PARK AVENUE, NEW YORK, NY 10172
(Address, including zip code, of principal executive offices)
(212) 892-3000
(Registrant's telephone number, including area code)
----------------------
(NOT APPLICABLE)
(Former address and telephone number of principal executive offices,
if changed since last report)
----------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
/X/ Yes / / No
The number of shares of Registrant's Common Stock, $.01 par value, outstanding
as of May 1, 2000 was 3,571,827 shares.
==============================================================================
<PAGE>
DECRANE HOLDINGS CO.
INDEX
<TABLE>
<CAPTION>
PAGE
------
PART I - FINANCIAL INFORMATION
<S> <C>
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of December 31, 1999 and March 31, 2000 ....................... 1
Consolidated Statements of Operations for the three months ended March 31, 1999 and 2000 ..... 2
Consolidated Statements of Stockholders' Equity for the three months ended March 31, 2000 .... 3
Consolidated Statements of Cash Flows for the three months ended March 31, 1999 and 2000 ..... 4
Condensed Notes to Consolidated Financial Statements ......................................... 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ........ 15
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK .................................... 20
<CAPTION>
PART II - OTHER INFORMATION
<S> <C>
ITEM 1. LEGAL PROCEEDINGS ............................................................................ 22
ITEM 5. OTHER INFORMATION ............................................................................ 22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits ..................................................................................... 22
Reports on Form 8-K .......................................................................... 22
</TABLE>
i
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DECRANE HOLDINGS CO. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents ............................................................... $ 7,918 $ 648
Accounts receivable, net ................................................................ 39,580 42,755
Inventories ............................................................................. 58,721 62,174
Deferred income taxes ................................................................... 5,592 5,452
Prepaid expenses and other current assets................................................ 2,114 2,110
----------- -----------
Total current assets .................................................................. 113,925 113,139
Property and equipment, net ................................................................ 37,700 37,223
Other assets, principally intangibles, net ................................................. 374,111 369,325
----------- -----------
Total assets ........................................................................ $ 525,736 $ 519,687
=========== ===========
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt ....................................................... $ 5,070 $ 5,544
Accounts payable ........................................................................ 14,948 15,840
Accrued liabilities ..................................................................... 61,082 27,976
Income taxes payable .................................................................... 3,576 3,994
----------- -----------
Total current liabilities ............................................................. 84,676 53,354
----------- -----------
Long-term debt ............................................................................. 310,581 334,888
Deferred income taxes ...................................................................... 21,249 21,763
Other long-term liabilities ................................................................ 2,989 3,223
Mandatorily redeemable preferred stock ..................................................... 41,178 42,619
----------- -----------
Stockholders' equity
Undesignated preferred stock, $.01 par value, 1,140,000 shares authorized;
none issued and outstanding as of December 31, 1998 and March 31, 2000 ................ - -
Common stock, $.01 par value, 4,500,000 shares authorized; 3,571,827 shares
issued and outstanding as of December 31, 1999 and March 31, 2000 ..................... 36 36
Additional paid-in capital .............................................................. 75,944 74,588
Notes receivable for shares sold ........................................................ (2,468) (2,492)
Accumulated deficit ..................................................................... (6,923) (6,168)
Accumulated other comprehensive income (loss)............................................ (1,526) (2,124)
----------- -----------
Total stockholders' equity ............................................................ 65,063 63,840
----------- -----------
Total liabilities, mandatorily redeemable preferred stock and stockholders' equity .. $ 525,736 $ 519,687
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
1
<PAGE>
DECRANE HOLDINGS CO. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1999 2000
----------- ------------
(UNAUDITED)
<S> <C> <C>
Revenues .................................................. $ 49,895 $ 79,178
Cost of sales ............................................. 33,895 53,026
----------- -----------
Gross profit ......................................... 16,000 26,152
----------- -----------
Operating expenses
Selling, general and administrative .................... 8,171 11,046
Amortization of intangible assets ...................... 2,564 4,213
----------- -----------
Total operating expenses ............................. 10,735 15,259
----------- -----------
Income from operations .................................... 5,265 10,893
Other expenses
Interest expense ....................................... 5,751 8,676
Other expenses (income) ................................ (144) 64
----------- -----------
Income (loss) before provision for income taxes ........... (342) 2,153
Provision (benefit) for income taxes ...................... (67) 1,398
----------- -----------
Net income (loss) ......................................... $ (275) $ 755
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
2
<PAGE>
DECRANE HOLDINGS CO. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ACCUMULATED
NOTES OTHER
UNDESIGNATED COMMON STOCK ADDITIONAL RECEIVABLE COMPREHENSIVE
PREFERRED ------------------- PAID-IN FOR SHARES ACCUMULATED INCOME
STOCK SHARES AMOUNT CAPITAL SOLD DEFICIT (LOSS) TOTAL
------------ -------- -------- ---------- ---------- ----------- ------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1999 ........ - 3,571,827 36 75,944 (2,468) (6,923) (1,526) 65,063
Comprehensive income
Net income ..................... - - - - - 755 - 755
Translation adjustment ......... - - - - - - (598) (598)
157
Noncash dividend accretion on
mandatorily redeemable preferred
stock .......................... - - - (1,441) - - - (1,441)
Compensatory stock option expense . - - - 85 - - - 85
Notes receivable interest accrued . - - - - (24) - - (24)
Balance, March 31, 2000
(Unaudited) .................... $ - 3,571,827 36 $ 74,588 $(2,492) $(6,168) $(2,124) $63,840
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
3
<PAGE>
DECRANE HOLDINGS CO. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1999 2000
----------- ----------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ........................................................................ $ (275) $ 755
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Depreciation and amortization ........................................................ 4,032 6,803
Deferred income taxes................................................................. 53 681
Other, net ........................................................................... 172 168
Changes in assets and liabilities, net of effect from acquisitions
Accounts receivable ................................................................ (3,951) (3,253)
Inventories ........................................................................ 1,213 (3,510)
Prepaid expenses and other assets .................................................. (196) (1,046)
Accounts payable ................................................................... 3,127 924
Accrued liabilities ................................................................ (5,180) (4,975)
Income taxes payable ............................................................... (120) 1,072
Other long-term liabilities ........................................................ 191 244
----------- ---------
Net cash used for operating activities ........................................... (934) (2,137)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for acquisitions, net of cash acquired ......................................... (41,734) (28,179)
Capital expenditures ..................................................................... (2,093) (1,588)
----------- ----------
Net cash used for investing activities ........................................... (43,827) (29,767)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings under senior credit facility .............................................. 40,382 26,100
Customer advance ......................................................................... 5,000 -
Deferred financing costs ................................................................. (894) -
Principal payments on term debt, capitalized leases and other debt ....................... (452) (1,377)
Other, net ............................................................................... - (77)
----------- ----------
Net cash provided by financing activities ........................................ 44,036 24,646
----------- ----------
Effect of foreign currency translation on cash .............................................. (18) (12)
----------- ----------
Net decrease in cash and cash equivalents ................................................... (743) (7,270)
Cash and cash equivalents at beginning of period ............................................ 3,518 7,918
----------- ----------
Cash and cash equivalents at end of period .................................................. $ 2,775 $ 648
=========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
4
<PAGE>
DECRANE HOLDINGS CO. AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - CONSOLIDATED FINANCIAL STATEMENTS
The consolidated interim financial statements included in this report are
unaudited. The Company believes the interim financial statements are presented
on a basis consistent with the audited financial statements. The Company also
believes that the interim financial statements contain all adjustments necessary
for a fair presentation of the results for such interim periods. All of these
adjustments are normal recurring adjustments. The results of operations for
interim periods do not necessarily predict the operating results for the full
year. The consolidated balance sheet as of December 31, 1999 has been derived
from audited financial statements but does not include all disclosures required
by generally accepted accounting principles as permitted by interim reporting
requirements. The information included in this report should be read in
conjunction with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the audited financial statements and related notes
included in the Company's 1999 Form 10-K. Some reclassifications have been made
to prior periods' financial statements to conform to the 2000 presentation.
NOTE 2 - PROBABLE ACQUISITION SUBSEQUENT TO MARCH 31, 2000
On April 17, 2000, the Company entered into a definitive agreement to
acquire substantially all of the assets of Carl F. Booth & Co., Inc., a New
Albany, Indiana based manufacturer of wood veneer panels primarily used in
aircraft interior cabinetry. The acquisition is subject to several conditions,
including financing. The Company expects to complete the acquisition in May
2000. The purchase price is approximately $19,000,000, plus contingent
consideration totaling a maximum of $2,000,000 payable over three years.
NOTE 3 - UNAUDITED PRO FORMA RESULTS OF OPERATIONS FOR 1999 ACQUISITIONS
Unaudited pro forma consolidated results of operations is presented in the
table below for three months ended March 31, 1999. The results of operations
reflect the Company's 1999 acquisitions described in the 1999 audited financial
statements as if all of the transactions were consummated as of January 1, 1999.
The pro forma results exclude the effect of the probable acquisition described
in Note 2.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1999
--------------------------
HISTORICAL PRO FORMA
------------ -----------
(IN THOUSANDS)
<S> <C> <C>
Revenues ........................................ $ 49,895 $ 71,072
Net loss ........................................ (275) (857)
</TABLE>
The pro forma results of operations do not purport to represent what actual
results would have been if the transactions described above occurred on such
dates or to project the results of operations for any future period. The above
information reflects adjustments for inventory, depreciation, amortization,
general and administrative expenses and interest expense based on the new cost
basis and debt structure of the Company following the acquisitions.
5
<PAGE>
NOTE 4 - 1999 RESTRUCTURING OF THE SYSTEMS INTEGRATION GROUP
In December 1999, the Company announced a plan to reorganize and
restructure the operations of two subsidiaries within its Systems Integration
Group. The restructuring was a result of management's decision to exit the
manufacturing business at these subsidiaries and consolidate and relocate
operations into one facility to more efficiently and effectively manage the
business and be more competitive.
In 1999, the Company recorded nonrecurring pre-tax charges to operations of
$9,935,000 in connection with the restructuring plan as described below:
- Inventory write-downs to net realizable value as a consequence of
exiting the manufacturing business;
- Certain property and equipment asset impairment write-downs to
net realizable value related to the closing of a manufacturing
facility;
- Severance and other compensation costs related to the termination
of approximately forty manufacturing and administrative employees
upon closing of the manufacturing facility, which is expected to
cease operations by June 2000, and elimination of duplicate
administrative personnel following the consolidation of the
operations;
- Lease termination and other related costs expected to be
incurred during the remaining term of a long-term lease
agreement at the facility being vacated following the
restructuring, net of expected sublease income; and
- Other exit costs, principally legal and consulting fees.
The Company commenced the restructuring during 1999 and expects to complete
the plan in the third quarter of 2000. Of the total charge, $7,242,000
represented a noncash write-down of assets. As of December 31, 1999, $7,754,000
had been incurred and the remaining $2,181,000 was reflected as an accrued
liability. Components of the amounts incurred through March 31, 2000 are as
follows (amounts in thousands):
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
DECEMBER 31, AMOUNTS MARCH 31,
1999 INCURRED 2000
----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Severance and other compensation costs.................... $ 784 $ (451) $ 333
Lease termination and other related costs ................ 721 (80) 641
Other exit costs ......................................... 676 (156) 520
----------- ----------- -----------
Total ................................................. $ 2,181 $ (687) $ 1,494
=========== =========== ===========
</TABLE>
Through March 31, 2000, severance and other compensation costs of
approximately $744,000 have been paid to approximately forty employees, of which
$451,000 was incurred during the three months ended March 31, 2000. The amounts
paid to date have been primarily to manufacturing employees either terminated or
subject to termination as the Company phases out of the manufacturing business.
Approximately twenty-six employees have been terminated as of March 31, 2000.
The Company expects to incur the remaining costs during the second quarter of
2000 when the manufacturing facility ceases operations and duplicate
administrative personnel are eliminated. No significant adjustments have been
made to the original estimates.
The remaining balance of restructuring costs includes leases termination
and other exit costs. Most of the restructuring plan will be completed by the
third quarter of 2000, however, future cash payments will extend beyond this
date due to future lease payments on the vacated facility and the incurrence of
other exit costs. The cash payments will be funded from existing cash balances
and internally generated cash from operations.
6
<PAGE>
NOTE 5 - INVENTORIES
Inventories are comprised of the following (amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
----------- -----------
(UNAUDITED)
<S> <C> <C>
Raw materials ................................................... $ 28,249 $ 28,858
Work-in process ................................................. 20,520 22,510
Finished goods .................................................. 9,952 10,806
----------- -----------
Total inventories ............................................ $ 58,721 $ 62,174
=========== ===========
</TABLE>
Inventoried costs are not in excess of estimated realizable value and
include direct engineering, production and tooling costs, and applicable
manufacturing overhead. In accordance with industry practice, inventoried costs
include amounts relating to programs and contracts with long production cycles.
Included above are engineering costs related to long-term contracts that will be
recoverable based on future sales in the amount of $5,720,000 at December 31,
1999 and $6,754,000 at March 31, 2000. Periodic assessments are performed to
ensure recoverability of engineering costs and adjustments are made, if
necessary, to reduce inventoried costs to estimated realizable value. No
adjustments were required in 1999 and 2000.
NOTE 6 - ACCRUED LIABILITIES
Accrued liabilities are comprised of the following (amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
----------- -----------
(UNAUDITED)
<S> <C> <C>
Acquisition related contingent consideration .................... $ 29,825 $ 1,925
Salaries, wages, compensated absences and payroll related taxes . 8,673 7,562
Customer deposits ............................................... 8,072 9,954
Accrued interest ................................................ 3,228 17
Other accrued liabilities ....................................... 11,284 8,518
----------- -----------
Total accrued liabilities .................................... $ 61,082 $ 27,976
=========== ===========
</TABLE>
NOTE 7 - LONG-TERM DEBT
Long-term debt includes the following amounts (amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
----------- -----------
(UNAUDITED)
<S> <C> <C>
Senior credit facility
$25 million working capital revolving line of credit ......... $ - $ 1,100
$25 million acquisition revolving line of credit ............. - 25,000
Term loans ................................................... 213,213 212,275
12% senior subordinated notes ................................... 100,000 100,000
Capital lease obligations and equipment term financing, with
interest at 6.5% to 21.0%, secured by equipment .............. 2,411 2,057
Other ........................................................... 27 -
---------- ----------
Total long-term debt ......................................... 315,651 340,432
Less current portion ......................................... (5,070) (5,544)
---------- ----------
Long-term debt, less current portion ....................... $ 310,581 $ 334,888
========== ==========
</TABLE>
Acquisition revolving line of credit borrowings were used to fund the
acquisition related contingent consideration earned and accrued in 1999 and paid
during the first quarter of 2000.
7
<PAGE>
NOTE 8 - INCOME TAXES
The provision for income taxes differs from the amount determined by
applying the applicable U.S. statutory federal rate to the income (loss) before
income taxes primarily due to the effects of state and foreign income taxes and
non-deductible expenses, principally goodwill amortization. The difference in
the effective tax rates between periods is mostly a result of higher goodwill
amortization.
NOTE 9 - CAPITAL STRUCTURE
MANDATORILY REDEEMABLE PREFERRED STOCK
During the three months ended March 31, 2000, the liquidation preference of
the preferred stock increased by $1,441,000 to reflect non-cash dividend
accretion. The dividend accretion was charged to additional paid-in capital. The
preferred stock has a total liquidation value of $42,619,000 as of March 31,
2000.
NOTE 10 - CONSOLIDATED STATEMENTS OF CASH FLOWS
Assets acquired and liabilities assumed in connection with acquisitions are
as follows (amounts in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1999 2000
----------- -----------
(UNAUDITED)
<S> <C> <C>
Fair value of assets acquired ......................................... $ 53,738 $ -
Liabilities assumed ................................................... (11,909) -
----------- -----------
Cash paid .......................................................... 41,829 -
Less cash acquired ................................................. (95) -
----------- -----------
Net cash paid for companies acquired during the period ........... 41,734 -
Contingent consideration paid for previously completed acquisitions ... - 27,900
Additional acquisition related expenses ............................... - 279
----------- -----------
Total cash paid for acquisitions ............................... $ 41,734 $ 28,179
=========== ===========
</TABLE>
NOTE 11 - BUSINESS SEGMENT INFORMATION
During 1999, the Company reorganized its businesses into three separate
groups: Cabin Management, Specialty Avionics and Systems Integration. As
prescribed by SFAS No. 131, "Disclosure About Segments of an Enterprise and
Related Information," the Company has restated disclosure information for
earlier periods to reflect its three separate operating groups.
The Company supplies products and services to the general aviation
industry. The Company's subsidiaries are organized into three groups, each of
which are strategic businesses that are managed separately because each business
develops, manufactures and sells distinct products and services. The groups and
a description of their businesses are as follows:
- Cabin Management - provides interior cabin components for the
corporate aircraft market, including furniture, cabinetry, seats and
in-flight entertainment systems;
- Specialty Avionics - designs, engineers and manufacturers electronic
components, display devices and interconnect components and
assemblies; and
- Systems Integration - provides auxiliary fuel tanks, auxiliary power
units and system integration services.
Management utilizes more than one measurement to evaluate group performance
and allocate resources, however, management considers the primary measure to be
earnings before interest, income taxes, depreciation and amortization (referred
to herein as EBITDA) as a measurement of their overall economic returns and cash
flows. This is consistent with the manner in which the Company's overall
performance is measured by its ultimate investors.
8
<PAGE>
NOTE 11 - BUSINESS SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1999 2000
----------- -----------
(UNAUDITED, IN THOUSANDS)
<S> <C> <C>
Revenues
Cabin Management ............................................................................. $ 7,821 $ 36,224
Specialty Avionics ........................................................................... 30,569 26,797
Systems Integration .......................................................................... 11,648 16,609
Inter-group elimination (1) .................................................................. (143) (452)
----------- -----------
Consolidated totals ........................................................................ $ 49,895 $ 79,178
=========== ===========
EBITDA (2)
Cabin Management ............................................................................. $ 2,297 $ 9,395
Specialty Avionics ........................................................................... 7,620 6,148
Systems Integration .......................................................................... 809 3,442
Corporate (3) ................................................................................ (1,761) (1,803)
----------- -----------
Consolidated EBITDA ........................................................................ $ 8,965 $ 17,182
=========== ===========
Total assets
Cabin Management ............................................................................. $ 36,418 $ 189,400
Specialty Avionics ........................................................................... 232,858 223,168
Systems Integration .......................................................................... 94,838 81,841
Corporate .................................................................................... 20,896 25,278
----------- -----------
Consolidated totals ........................................................................ $ 385,010 $ 519,687
=========== ===========
</TABLE>
________________________
(1) Inter-group sales are accounted for at prices comparable to sales to
unaffiliated customers, and are eliminated in consolidation.
(2) A reconciliation of EBITDA to consolidated income (loss) before income
taxes and extraordinary item is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1999 2000
----------- ------------
(UNAUDITED, IN THOUSANDS)
<S> <C> <C>
Consolidated EBITDA ........................................................................ $ 8,965 $ 17,182
Depreciation and amortization (a) .......................................................... (3,700) (6,200)
Other non-operating costs .................................................................. - (89)
Interest expense ........................................................................... (5,751) (8,676)
Other (expenses) income .................................................................... 144 (64)
----------- ------------
Consolidated income (loss) before income taxes ........................................... $ (342) $ 2,153
=========== ===========
</TABLE>
________________________
(a) Reflects depreciation and amortization of long-lived assets, goodwill
and other intangible assets. Excludes amortization of deferred
financing costs, which are classified as a component of interest
expense, of $332,000 and $603,000 for the three months ended March 31,
1999 and 2000, respectively.
(3) Reflects the Company's corporate headquarters costs and expenses not
allocated to the groups.
9
<PAGE>
NOTE 12 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
In conjunction with the senior credit facility and 12% senior
subordinated notes described in Note 7, the following condensed consolidating
financial information is presented for the Company, segregating guarantor and
non-guarantor subsidiaries. The accompanying financial information in the
Guarantor Subsidiaries column reflects the financial position, results of
operations and cash flows for those subsidiaries guaranteeing the senior
credit facility and the notes. The guarantor subsidiaries are wholly-owned
subsidiaries of the Company and their guarantees are full and unconditional
on a joint and several basis. There are no restrictions on the ability of the
guarantor subsidiaries to transfer funds to the issuer in the form of cash
dividends, loans or advances. Separate financial statements of the guarantor
subsidiaries are not presented because management believes that such
financial statements would not be material to investors. Investments in
subsidiaries in the following condensed consolidating financial information
are accounted for under the equity method of accounting. Consolidating
adjustments include the following:
(1) Elimination of investments in subsidiaries.
(2) Elimination of intercompany accounts.
(3) Elimination of intercompany sales between guarantor and non-guarantor
subsidiaries.
(4) Elimination of equity in earnings of subsidiaries.
<TABLE>
<CAPTION>
BALANCE SHEETS
DECEMBER 31, 1999
------------------------------------------------------------------------
GUARANTOR NON-GUARANTOR CONSOLIDATING CONSOLIDATED
ISSUER SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL
----------- ------------ ------------- ------------- ------------
(IN THOUSANDS)
ASSETS
<S> <C> <C> <C> <C> <C>
Current assets
Cash and cash equivalents ...................... $ 7,839 $ (323) $ 402 $ - $ 7,918
Accounts receivable, net ....................... - 38,201 1,379 - 39,580
Inventories .................................... - 57,072 1,649 - 58,721
Other current assets ........................... 6,645 938 123 - 7,706
----------- ----------- ---------- ----------- -----------
Total current assets ......................... 14,484 95,888 3,553 - 113,925
Property and equipment, net ....................... 1,282 34,174 2,244 - 37,700
Other assets, principally intangibles, net ........ 17,065 344,986 12,060 - 374,111
Investments in subsidiaries ....................... 360,515 20,305 - (380,820)(1) -
Intercompany receivables .......................... 77,566 17,334 2,612 (97,512)(2) -
----------- ----------- ---------- ------------ -----------
Total assets ............................... $ 470,912 $ 512,687 $ 20,469 $ (478,332) $ 525,736
=========== =========== ========== ============ ===========
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings .......................... $ 4,640 $ 404 $ 26 $ - $ 5,070
Other current liabilities ...................... 10,237 68,691 678 - 79,606
----------- ----------- ---------- ----------- -----------
Total current liabilities .................... 14,877 69,095 704 - 84,676
----------- ----------- ---------- ----------- -----------
Long-term debt .................................... 309,836 712 33 - 310,581
Intercompany payables ............................. 17,797 79,384 331 (97,512)(2) -
Other long-term liabilities ....................... 20,635 2,981 622 - 24,238
Mandatorily redeemable preferred stock ............ 41,178 - - - 41,178
----------- ----------- ---------- ----------- -----------
Stockholders' equity
Paid-in capital ................................ 73,512 289,415 15,440 (304,855)(1) 73,512
Retained earnings (deficit) .................... (6,923) 71,100 4,865 (75,965)(1) (6,923)
Accumulated other comprehensive
income (loss) ................................ - - (1,526) - (1,526)
----------- ----------- ---------- ----------- -----------
Total stockholders' equity ................... 66,589 360,515 18,779 (380,820) 65,063
----------- ----------- ---------- ----------- -----------
Total liabilities, mandatorily redeemable
preferred stock and stockholders' equity . $ 470,912 $ 512,687 $ 20,469 $ (478,332) $ 525,736
=========== =========== ========== =========== ===========
</TABLE>
10
<PAGE>
NOTE 12 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
MARCH 31, 2000 (UNAUDITED)
------------------------------------------------------------------------
GUARANTOR NON-GUARANTOR CONSOLIDATING CONSOLIDATED
ISSUER SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL
----------- ------------ ------------- ------------- ------------
(IN THOUSANDS)
ASSETS
<S> <C> <C> <C> <C> <C>
Current assets
Cash and cash equivalents ...................... $ 990 $ (772) $ 430 $ - $ 648
Accounts receivable, net ....................... - 41,037 1,718 - 42,755
Inventories .................................... - 60,237 1,937 - 62,174
Other current assets ........................... 6,390 966 206 - 7,562
----------- ----------- ---------- ----------- -----------
Total current assets ......................... 7,380 101,468 4,291 - 113,139
Property and equipment, net ....................... 1,433 33,687 2,103 - 37,223
Other assets, principally intangibles, net ........ 17,091 340,666 11,568 - 369,325
Investments in subsidiaries ....................... 379,239 20,415 - (399,654)(1) -
Intercompany receivables .......................... 96,374 23,183 1,914 (121,471)(2) -
----------- ----------- ---------- ----------- -----------
Total assets ............................... $ 501,517 $ 519,419 $ 19,876 $ (521,125) $ 519,687
=========== =========== ========== =========== ===========
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings .......................... $ 5,145 $ 374 $ 25 $ - $ 5,544
Other current liabilities ...................... 8,308 38,888 614 - 47,810
----------- ----------- ---------- ----------- -----------
Total current liabilities .................... 13,453 39,262 639 - 53,354
----------- ----------- ---------- ----------- -----------
Long-term debt .................................... 334,400 463 25 - 334,888
Intercompany payables ............................. 23,630 97,510 331 (121,471)(2) -
Other long-term liabilities ....................... 21,451 2,945 590 - 24,986
Mandatorily redeemable preferred stock ............ 42,619 - - - 42,619
----------- ----------- ---------- ----------- -----------
Stockholders' equity
Paid-in capital ................................ 72,132 302,940 15,440 (318,380)(1) 72,132
Retained earnings (deficit) .................... (6,168) 76,299 4,975 (81,274)(1) (6,168)
Accumulated other comprehensive
income (loss) ................................ - - (2,124) - (2,124)
----------- ----------- ---------- ----------- -----------
Total stockholders' equity ................... 65,964 379,239 18,291 (399,654) 63,840
----------- ----------- ---------- ----------- -----------
Total liabilities, mandatorily redeemable
preferred stock and stockholders' equity . $ 501,517 $ 519,419 $ 19,876 $ (521,125) $ 519,687
=========== =========== ========== =========== ===========
</TABLE>
11
<PAGE>
NOTE 12 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
------------------------------------------------------------------------
GUARANTOR NON-GUARANTOR CONSOLIDATING CONSOLIDATED
ISSUER SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL
----------- ------------ ------------- ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues .......................................... $ - $ 48,508 $ 3,651 $ (2,264)(3) $ 49,895
Cost of sales ..................................... - 33,417 2,742 (2,264)(3) 33,895
----------- ----------- ---------- ----------- -----------
Gross profit ...................................... - 15,091 909 - 16,000
Selling, general and administrative expenses ...... 1,781 6,043 347 - 8,171
Amortization of intangible assets ................. 46 2,389 129 - 2,564
Interest expense .................................. 5,668 73 10 - 5,751
Intercompany charges .............................. (1,612) 1,564 48 - -
Equity in earnings of subsidiaries ................ (2,871) (495) - 3,366 (4) -
Other expenses (income) ........................... - 109 (253) - (144)
Provision (benefit) for income taxes .............. (2,737) 2,537 133 - (67)
----------- ----------- ---------- ----------- -----------
Net income (loss) ................................. $ (275) $ 2,871 $ 495 $ (3,366) $ (275)
=========== =========== ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED)
------------------------------------------------------------------------
GUARANTOR NON-GUARANTOR CONSOLIDATING CONSOLIDATED
ISSUER SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL
----------- ------------ ------------- ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues .......................................... $ - $ 81,368 $ 3,148 $ (5,338)(3) $ 79,178
Cost of sales ..................................... - 55,908 2,456 (5,338)(3) 53,026
----------- ----------- ---------- ----------- -----------
Gross profit ...................................... - 25,460 692 - 26,152
Selling, general and administrative expenses ...... 1,976 8,698 372 - 11,046
Amortization of intangible assets ................. 51 4,048 114 - 4,213
Interest expense (income) ......................... 6,988 1,691 (3) - 8,676
Intercompany charges .............................. (1,669) 1,669 - - -
Equity in earnings of subsidiaries ................ (5,199) (187) - 5,386 (4) -
Other expenses (income) ........................... 3 81 (20) - 64
Provision (benefit) for income taxes .............. (2,905) 4,261 42 - 1,398
----------- ----------- ---------- ----------- -----------
Net income ........................................ $ 755 $ 5,199 $ 187 $ (5,386) $ 755
=========== =========== ========== =========== ===========
</TABLE>
12
<PAGE>
NOTE 12 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
------------------------------------------------------------------------
GUARANTOR NON-GUARANTOR CONSOLIDATING CONSOLIDATED
ISSUER SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL
----------- ------------ ------------- ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) .............................. $ (275) $ 2,871 $ 495 $ (3,366)(4) $ (275)
Adjustments to net income (loss)
Non-cash net income adjustments .............. 510 3,579 168 - 4,257
Equity in earnings of subsidiaries ........... (2,871) (495) - 3,366 (4) -
Changes in working capital ..................... 4,647 (8,638) (925) - (4,916)
----------- ----------- ---------- ----------- -----------
Net cash provided by (used for)
operating activities........................ 2,011 (2,683) (262) - (934)
----------- ----------- ---------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for acquisition, net of
cash acquired ................................ (41,829) 95 - - (41,734)
Capital expenditures ........................... (13) (1,589) (491) - (2,093)
----------- ----------- ---------- ----------- -----------
Net cash used for investing activities ....... (41,842) (1,494) (491) - (43,827)
----------- ----------- ---------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Debt financing for acquisition ................. 36,734 5,000 - - 41,734
Line of credit borrowings ...................... 2,072 - 682 - 2,754
Principal payments on long-term
debt and leases .............................. (164) (279) (9) - (452)
----------- ----------- ---------- ----------- -----------
Net cash provided by
financing activities ....................... 38,642 4,721 673 - 44,036
----------- ----------- ---------- ----------- -----------
Effect of foreign currency
translation on cash ............................ - - (18) - (18)
----------- ----------- ---------- ----------- -----------
Net increase (decrease) in cash
and equivalents ................................ (1,189) 544 (98) - (743)
Cash and equivalents at beginning
of period ...................................... 2,458 762 298 - 3,518
----------- ----------- ---------- ----------- -----------
Cash and equivalents at end of period ............. $ 1,269 $ 1,306 $ 200 $ - $ 2,775
=========== =========== ========== =========== ===========
</TABLE>
13
<PAGE>
NOTE 12 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED)
------------------------------------------------------------------------
GUARANTOR NON-GUARANTOR CONSOLIDATING CONSOLIDATED
ISSUER SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL
----------- ------------ ------------- ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ..................................... $ 755 $ 5,199 $ 187 $ (5,386)(4) $ 755
Adjustments to net income (loss)
Non-cash net income adjustments .............. 1,483 5,920 249 - 7,652
Equity in earnings of subsidiaries ........... (5,199) (187) - 5,386 (4) -
Changes in working capital ..................... (539) (9,774) (231) - (10,544)
----------- ----------- ---------- ----------- -----------
Net cash provided by (used for)
operating activities........................ (3,500) 1,158 205 - (2,137)
----------- ----------- ---------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for acquisition, net of
cash acquired ................................ (28,179) - - - (28,179)
Capital expenditures ........................... (238) (1,198) (152) - (1,588)
----------- ----------- ---------- ----------- -----------
Net cash used for investing activities ....... (28,417) (1,198) (152) - (29,767)
----------- ----------- ---------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Senior credit facility borrowings .............. 26,100 - - - 26,100
Principal payments on long-term
debt and leases .............................. (1,032) (332) (13) - (1,377)
Other, net ..................................... - (77) - - (77)
----------- ----------- ---------- ----------- -----------
Net cash provided by (used for)
financing activities ....................... 25,068 (409) (13) - 24,646
----------- ----------- ---------- ----------- -----------
Effect of foreign currency
translation on cash ............................ - - (12) - (12)
----------- ----------- ---------- ----------- -----------
Net increase (decrease) in cash
and equivalents ................................ (6,849) (449) 28 - (7,270)
Cash and equivalents at beginning
of period ...................................... 7,839 (323) 402 - 7,918
----------- ----------- ---------- ----------- -----------
Cash and equivalents at end of period ............. $ 990 $ (772) $ 430 $ - $ 648
=========== =========== ========== =========== ===========
</TABLE>
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR
CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED IN THIS REPORT.
OVERVIEW
Our financial position, results of operations and cash flows have been
affected by our history of acquisitions. Since January 1, 1999, we have
completed six acquisitions and, as a result, our historical financial statements
do not reflect the financial position, results of operations and cash flows of
our current businesses. The companies we have acquired since January 1, 1999,
which affect the comparability of the historical financial statements included
herein, consists of:
CABIN MANAGEMENT GROUP
- PPI, acquired on April 23, 1999;
- Custom Woodwork, acquired on August 5, 1999;
- PCI NewCo, acquired on October 6, 1999;
- International Custom Interiors, acquired on October 8, 1999;
- The Infinity Partners, acquired on December 17, 1999; and
SYSTEMS INTEGRATION GROUP
- PATS, acquired on January 22, 1999.
Our historical financial statements reflect the financial position, results
of operations and cash flows of the acquired companies subsequent to their
respective acquisition dates.
INDUSTRY OUTLOOK AND TRENDS
In April 2000, Teal Group Corporation, an industry-recognized aerospace
research group, revised its ten-year corporate aircraft delivery projections.
The Teal Group currently projects that 6,327 corporate aircraft will be
delivered between 1999 and 2008, reflecting a 24.9% increase over its July 1999
projection of 5,067 aircraft and a 90.2% increase over the 3,326 aircraft that
were delivered between 1989 and 1998.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
REVENUES. Revenues increased $29.3 million, or 58.7%, to $79.2 million for
the three months ended March 31, 2000 from $49.9 million for the three months
ended March 31, 1999. The increase primarily results from the inclusion of $30.6
million of revenues in 2000 from companies we acquired during 1999. By segment,
revenues changed as follows:
<TABLE>
<CAPTION>
INCREASE (DECREASE)
FROM 1999
-------------------------
AMOUNT PERCENT
----------- -----------
(IN MILLIONS)
<S> <C> <C>
Cabin Management ....................................................................... $ 28.5 365.4%
Specialty Avionics ..................................................................... (3.8) (12.4)
Systems Integration .................................................................... 5.0 43.1
Inter-group elimination ................................................................ (0.4)
-----------
Total ................................................................................ $ 29.3
=============
</TABLE>
CABIN MANAGEMENT. Revenues increased by $28.5 million, or 365.4% over the
prior year, due to:
- the inclusion of $27.3 million of revenues resulting from our
acquisitions of PPI Holdings, Custom Woodwork, PCI NewCo,
International Custom Interiors and Infinity during 1999; and
- a $1.2 million increase in entertainment and cabin management product
revenues primarily related to volume growth.
15
<PAGE>
SPECIALTY AVIONICS. Revenues decreased by $3.8 million, or 12.4% over the
prior year, due to somewhat lower demand for our commercial aircraft products.
SYSTEMS INTEGRATION. Revenues increased by $5.0 million, or 43.1% over the
prior year, due to:
- the inclusion of $3.3 million of revenues resulting from our
acquisition of PATS during 1999; and
- a $1.7 million increase in revenues from our other products and
services.
GROSS PROFIT. Gross profit increased $10.2 million, or 63.7%, to $26.2
million for the three months ended March 31, 2000. The increase primarily
results from the inclusion of $10.1 million of gross profit in 2000 from
companies we acquired during 1999. Gross profit as a percent of revenues
increased to 33.1% for the three months ended March 31, 2000 from 32.1% for the
same period last year primarily as a result of the higher margins of companies
acquired during 1999. By segment, gross profit changed as follows:
<TABLE>
<CAPTION>
INCREASE (DECREASE)
FROM 1999
-------------------------
AMOUNT PERCENT
----------- -----------
(IN MILLIONS)
<S> <C> <C>
Cabin Management ....................................................................... $ 8.9 222.5%
Specialty Avionics ..................................................................... (2.0) (19.8)
Systems Integration .................................................................... 3.3 173.7
-------------
Total ................................................................................ $ 10.2
=============
</TABLE>
CABIN MANAGEMENT. Gross profit increased by $8.9 million, or 222.5% over
the prior year, due to:
- the inclusion of $9.2 million of gross profit resulting from our
acquisitions of PPI Holdings, Custom Woodwork, PCI NewCo,
International Custom Interiors and Infinity during 1999;
- a $0.5 million increase related to higher entertainment and cabin
management product revenues; offset by
- a $0.8 million decrease related to our entertainment and cabin
management product sales mix and additional overhead costs to support
anticipated growth.
SPECIALTY AVIONICS. Gross profit decreased by $2.0 million, or 19.8% over
the prior year, due to somewhat lower demand for our commercial aircraft
products.
SYSTEMS INTEGRATION. Gross profit increased by $3.3 million, or 173.7% over
the prior year, due to:
- the inclusion of $0.9 million of gross profit resulting from our
acquisition of PATS in 1999; and
- a $2.4 million increase in gross profit due to favorable manufacturing
and installation efficiencies achieved at PATS and the 1999
restructuring described in Note 4.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $2.8 million, or 34.2%, to $11.0 million for
the three months ended March 31, 2000, from $8.2 million for the same period
last year. The increase primarily results from the inclusion of $3.2 million of
SG&A expenses in 2000 from companies we acquired during 1999. SG&A expenses as a
percent of revenues decreased to 13.9% for the three months ended March 31, 2000
compared to 16.4% for the same period last year. By segment, SG&A expenses
changed as follows:
<TABLE>
<CAPTION>
INCREASE (DECREASE)
FROM 1999
-------------------------
AMOUNT PERCENT
----------- -----------
(IN MILLIONS)
<S> <C> <C>
Cabin Management ....................................................................... $ 1.9 105.6%
Specialty Avionics ..................................................................... (0.4) (11.4)
Systems Integration .................................................................... 0.8 57.1
Corporate .............................................................................. 0.5 33.3
-------------
Total ................................................................................ $ 2.8
=============
</TABLE>
CABIN MANAGEMENT. SG&A expenses increased by $1.9 million, or 105.6% over
the prior year, due to our acquisitions of PPI Holdings, Custom Woodwork, PCI
NewCo, International Custom Interiors and Infinity during 1999.
SPECIALTY AVIONICS. SG&A expenses decreased by $0.4 million, or 11.4% over
the prior year, due to reduced selling costs related to lower sales.
16
<PAGE>
SYSTEMS INTEGRATION. SG&A expenses increased by $0.8 million, or 57.1% over
the prior year, due to:
- the inclusion of $0.2 million of SG&A expenses resulting from our
acquisition of PATS; and
- a $0.6 million increase in other selling, general and administrative
expenses.
CORPORATE. SG&A expenses increased by $0.5 million, or 33.3% over the prior
year. However as a percent of sales Corporate SG&A declined from 2.9% to 2.5 %.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense increased $2.5 million, or 67.5%, for the three months ended March 31,
2000. The increase primarily results from the inclusion of $1.5 million of
depreciation expense in 2000 from companies we acquired during 1999. By segment,
depreciation expense changed as follows:
<TABLE>
<CAPTION>
INCREASE (DECREASE)
FROM 1999
-------------------------
AMOUNT PERCENT
----------- -----------
(IN MILLIONS)
<S> <C> <C>
Cabin Management ............................ $ 1.5 375.0%
Specialty Avionics .......................... 0.5 20.0
Systems Integration ......................... 0.5 71.4
-----------
Total ..................................... $ 2.5
===========
</TABLE>
CABIN MANAGEMENT. Depreciation and amortization expense increased by $1.5
million, or 375.0% over the prior year, with $1.3 million due to our
acquisitions of PPI Holdings, Custom Woodwork, PCI NewCo, International Custom
Interiors and Infinity during 1999 and $0.2 million from existing Cabin
Management operations.
SPECIALTY AVIONICS. Depreciation and amortization expense increased by $0.5
million, or 20.0% over the prior year.
SYSTEMS INTEGRATION. Depreciation and amortization expense increased by
$0.5 million, or 71.4% over the prior year, with $0.2 million due to our
acquisition of PATS.
EBITDA AND OPERATING INCOME (LOSS). EBITDA increased $8.2 million to $17.2
million, or 91.1%, for the three months ended March 31, 2000, from $9.0 million
for the same period last year. The increase primarily results from the inclusion
of $8.1 million of EBITDA in 2000 from companies we acquired during 1999. EBITDA
as a percent of revenues increased to 21.7% for the three months ended March 31,
2000, from 18.0% for the same period last year. Operating income increased $5.6
million to $10.9 million, or 105.7%, for the three months ended March 31, 2000,
from $5.3 million for the same period last year. By segment, EBITDA changed as
follows:
<TABLE>
<CAPTION>
INCREASE (DECREASE)
FROM 1999
-------------------------
AMOUNT PERCENT
----------- -----------
(IN MILLIONS)
<S> <C> <C>
EBITDA
Cabin Management .......................... $ 7.1 308.7%
Specialty Avionics ........................ (1.4) (18.4)
Systems Integration ....................... 2.6 325.0
Corporate ................................. (0.1) 5.9
-----------
Total EBITDA ............................ 8.2
Depreciation and amortization ............... 2.5
Other non-operating costs ................... 0.1
-----------
Total operating income (loss) ........... $ 5.6
===========
</TABLE>
CABIN MANAGEMENT. EBITDA increased by $7.1 million, or 308.7% over the
prior year, due to:
- the inclusion of $7.3 million resulting from our acquisitions of PPI
Holdings, Custom Woodwork, PCI NewCo, International Custom Interiors
and Infinity during 1999; and
- a $0.2 million decrease related to entertainment and cabin management
products.
SPECIALTY AVIONICS. EBITDA decreased by $1.4 million, or 18.4% over the
prior year, due to somewhat lower demand for our commercial aircraft products.
17
<PAGE>
SYSTEMS INTEGRATION. EBITDA increased by $2.6 million, or 325.0% over the
prior year, due to:
- the inclusion of $0.8 million resulting from our acquisition of PATS;
- a $0.7 million increase resulting primarily from favorable
manufacturing efficiencies achieved at PATS; and
- a $1.1 million increase resulting, in part, from the 1999
restructuring described in Note 4; $0.7 million was charged against
the restructuring accrual during the quarter and no adjustments were
made to our original estimates.
CORPORATE. EBITDA decreased by $0.1 million, or 5.9% over the prior year,
as a result of higher expenses in support of companies acquired during 1999.
INTEREST EXPENSE. Interest expense increased $3.0 million to $8.7 million
for the three months ended March 31, 2000, from $5.7 million for the same period
last year. Interest expense increased:
- $2.6 million due to higher debt levels associated with our acquisition
of companies during 1999; and
- $0.4 million due to higher average interest rates incurred during 2000
primarily due to higher margins charged by our lenders on our debt.
PROVISION FOR INCOME TAXES. The provision for income taxes differs from the
amount determined by applying the applicable U.S. statutory federal rate to the
income (loss) before income taxes primarily due to the effects of state and
foreign income taxes and non-deductible expenses, principally goodwill
amortization. The difference in the effective tax rates between periods is
mostly a result of higher goodwill amortization.
NET INCOME. Net income increased $1.1 million to $0.8 million for the three
months ended March 31, 2000 compared to a net loss of $0.3 million for the same
period in 1999.
BOOKINGS AND BACKLOG. Bookings increased $6.6 million, or 10.0%, to $72.6
million for the three months ended March 31, 2000 compared to $66.0 million for
the same period in 1999. The increase in bookings for 2000 results from:
- a $27.3 million increase associated with companies we acquired in
1999; offset by
- a $14.7 million decrease associated with Systems Integration and the
timing of receipt of orders in 1999 immediately following our
acquisition of PATS; and further offset by
- a $6.0 million decrease related to other businesses, principally in
Specialty Avionics as a result of somewhat lower demand for our
commercial aircraft products.
Backlog decreased $6.1 million to $150.0 million as of March 31, 2000
compared to $156.1 million as of December 31, 1999. The decrease primarily
results from the timing of receipt of customer orders. By segment, backlog
changed as follows:
- a $4.7 million decrease related to Cabin Management;
- a $0.7 million decrease related to Specialty Avionics; and
- a $0.7 million decrease related to Systems Integration.
LIQUIDITY AND CAPITAL RESOURCES
We have required cash primarily to fund acquisitions and, to a lesser
extent, to fund capital expenditures and for working capital. Our principal
sources of liquidity have been cash flow from operations and third party
borrowings.
For the three months ended March 31, 2000, we used $2.1 million of cash
from operating activities, which is the net of $8.4 million of cash generated
from operations after adding back depreciation, amortization and other noncash
items, $10.7 million used for working capital and $0.2 million resulting from an
increase in other liabilities. The following factors contributed to the $10.7
million working capital increase:
- a net $3.5 million increase in inventory due to longer lead times
involved with production and increases to meet projected revenue
growth;
- a $3.2 million accounts receivable increase due to timing differences
relating to completing of projects and the associated collection;
- a $1.0 million decrease in prepaid expenses and other assets; and
18
<PAGE>
- a net $4.1 million decrease in accounts payable and accrued expenses
due to timing differences between when liabilities are incurred and
when they are paid.
The working capital increases were offset by a $1.1 million increase in
income taxes payable due to higher current taxable income.
Cash used for investing activities during the three months ended March 31,
2000 consisted of $28.2 million for the payment of acquisition related
contingent consideration earned in 1999 and $1.6 million for capital
expenditures. We anticipate spending $16.8 million for capital expenditures in
2000.
Net cash provided by financing activities was $24.6 million for the three
months ended March 31, 2000 and was primarily used to fund the payment of
acquisition related contingent consideration. We obtained these funds primarily
by borrowing $26.1 million under our senior credit facility. Additionally, we
used $1.3 million to make principal payments on our term debt, capitalized
leases and other debt.
At March 31, 2000, senior credit facility borrowings totaling $238.4
million are at variable interest rates based on defined margins over the current
prime or Euro-Dollar rates. At March 31, 2000 we had $59.7 million of working
capital and $23.9 million of borrowings available under our working capital
senior credit facility. Although we cannot be certain, we believe that operating
cash flow, together with borrowings under our bank credit facility, will be
sufficient to meet our future short- and long-term operating expenses, working
capital requirements, capital expenditures and debt service obligations for the
next twelve months. However, our ability to pay principal or interest, to
refinance our debt and to satisfy our other debt obligations will depend on our
future operating performance. We will be affected by economic, financial,
competitive, legislative, regulatory, business and other factors beyond our
control. In addition, we are continually considering acquisitions that
complement or expand our existing businesses or that may enable us to expand
into new markets. Future acquisitions may require additional debt, equity
financing or both. We may not be able to obtain any additional financing on
acceptable terms.
19
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to various market risks, including interest rates and
changes in foreign currency exchange rates. Market risk is the potential loss
arising from adverse changes in market rates and prices, such as interest rates
and foreign currency exchange rates. From time to time we use derivative
financial instruments to manage and reduce risks associated with these factors.
We do not enter into derivatives or other financial instruments for trading or
speculative purposes.
INTEREST RATE RISK. A significant portion of our capital structure is
comprised of long-term variable- and fixed-rate debt.
Market risk related to our variable-rate debt is estimated as the potential
decrease in pre-tax earnings resulting from an increase in interest rates. The
interest rates applicable to variable-rate debt are, at our option, based on
defined margins over the current prime or Euro-Dollar rates. At March 31, 2000,
the current prime rate was 8.64% and the current Euro-Dollar rate was 6.19%.
Based on $238.4 million of variable-rate debt outstanding as of March 31, 2000,
a hypothetical one percent rise in interest rates, to 9.64% for prime rate
borrowings and 7.19% for Euro-Dollar borrowings, would reduce our pre-tax
earnings by $2.4 million annually. Prior to December 31, 1997, we purchased
interest rate cap contracts to limit our exposure related to rising interest
rates on our variable-rate debt. While we have not entered into similar
contracts since that date, we may do so in the future depending on our
assessment of future interest rate trends.
The estimated fair value of our $100.0 million fixed-rate long-term debt is
approximately $92.0 million at March 31, 2000. Market risk related to our
fixed-rate debt is deemed to be the potential increase in fair value resulting
from a decrease in interest rates. For example, a hypothetical ten percent
decrease in the interest rates, from 12.0% to 10.8%, would increase the fair
value of our fixed-rate debt by approximately $7.0 million.
FOREIGN CURRENCY EXCHANGE RATE RISK. Our foreign customers are located in
various parts of the world, primarily Western Europe, the Far East and Canada,
and two of our subsidiaries operate in Western Europe. To limit our foreign
currency exchange rate risk related to sales to our customers, orders are
primarily valued and sold in U.S. dollars. From time to time we have entered
into forward foreign exchange contracts to limit our exposure related to foreign
inventory procurement and operating costs. However, while we have not entered
into any such contracts since 1998 and no such contracts are open as of March
31, 2000, we may do so in the future depending on our assessment of future
foreign exchange rate trends.
20
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements in this report discuss future expectations, beliefs
or strategies, projections or other "forward-looking" information. These
statements are subject to known and unknown risks. Many factors could cause
actual company results, performance or achievements, or industry results, to be
materially different from the projections expressed or implied by this report.
We are vulnerable to a variety of risks that affect many businesses, such as:
- fuel prices and general economic conditions that affect demand for
aircraft and air travel, which in turn affect demand for our products
and services;
- our reliance on key customers and the adverse effect a significant
decline in business from any one of them would have on our business;
- changes in prevailing interest rates and the availability of financing
to fund our plans for continued growth;
- competition from larger companies;
- Federal Aviation Administration prescribed standards and licensing
requirements, which apply many of the products and services we
provide;
- inflation, and other general changes in costs of goods and services;
- liability and other claims asserted against us that exceeds our
insurance coverage;
- the ability to attract and retain qualified personnel;
- labor disturbances; and
- changes in operating strategy, or our acquisition and capital
expenditure plans.
We cannot predict any of the foregoing with certainty, so our
forward-looking statements are not necessarily accurate predictions. Also, we
are not obligated to update any of these statements, to reflect actual results
or report later developments. You should not rely on our forward-looking
statements as if they were certainties.
INCORPORATION OF DOCUMENTS BY REFERENCE
We have filed with the Securities and Exchange Commission, and are
including within this report by referring to it here, our Form 10-K for the year
ended December 31, 1999. The Form 10-K includes our audited 1999 financial
statements, which we refer to in this report.
You may read and copy any reports, statements or other information we file
at the SEC's reference room in Washington D.C. Please call the SEC at (202)
942-8090 for further information on the operation of the reference rooms. You
can also request copies of these documents, upon payment of a duplicating fee,
by writing to the SEC, or review our SEC filings on the SEC's EDGAR web site,
which can be found at http:\\www.sec.gov. You may also write or call us at our
corporate office located at 2361 Rosecrans Avenue, Suite 180, El Segundo,
California 90245. Our telephone number is (310) 725-9123.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Refer to the legal proceedings described in Item 3 of our Form 10-K for the
year ended December 31, 1999.
ITEM 5. OTHER INFORMATION
PROBABLE ACQUISITION SUBSEQUENT TO MARCH 31, 2000
On April 17, 2000, we entered into a definitive agreement to acquire
substantially all of the assets of Carl F. Booth & Co., Inc.; a New Albany,
Indiana based manufacturer of wood veneer panels primarily used in aircraft
interior cabinetry. The acquisition is subject to several conditions, including
financing. We expect to complete the acquisition in May 2000. The purchase price
is approximately $19.0 million, plus contingent consideration totaling a maximum
of $2.0 million payable over three year. We intend to use the acquired assets to
manufacture products similar to those previously manufactured by the company
prior to its acquisition.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
<TABLE>
<C> <S>
10.22 Executive Deferred Compensation Plan **
21.1 List of Subsidiaries of Registrant **
27 Financial Data Schedule **
</TABLE>
----------------------
* Previously filed
** Filed herewith
b. Reports on Form 8-K
None
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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 HOLDINGS CO.
(Registrant)
May 9, 2000 By: /s/ RICHARD J. KAPLAN
--------------------------------------------
Name: Richard J. Kaplan
Title: Assistant Secretary and Assistant
Treasurer (chief accounting officer)
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EXHIBIT 10.22
DECRANE AIRCRAFT HOLDINGS, INC.
1999 EXECUTIVE
DEFERRED COMPENSATION PLAN
SECTION 1. ESTABLISHMENT OF PLAN
DeCrane Aircraft Holdings, Inc. hereby establishes the DeCrane
Aircraft Holdings, Inc. 1999 Executive Deferred Compensation Plan set forth
herein, adopted and effective as of December 31, 1999 for a select group of
management or highly compensated employees, within the meaning of Sections
201(1), 301(a)(3) and 401(a)(1) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), in recognition of the valuable service performed
by such employees and to encourage their continued employment. It is intended
that the Plan be unfunded for purposes of Title I of ERISA and the Internal
Revenue Code of 1986, as amended (the "Code").
SECTION 2. DEFINITION OF TERMS
The following words and phrases when used herein, unless the
context clearly requires otherwise, shall have the following respective
meanings:
2.1. ACCOUNT. Book entries maintained by the Company reflecting
Deferred Amounts and interest thereon.
2.2 ACCRUED BENEFIT. The sum of all Deferred Amounts credited to
a Participant's Account from time to time pursuant to this Agreement, together
with earnings thereon calculated as set forth in Section 5 hereof, minus any
distributions hereunder.
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2.3 AFFILIATE. Any corporation, partnership, joint venture,
association, limited liability company or similar organization or entity, the
employees of which would be treated as employed by the Company under Section
414(b) or 414(c) of the Code.
2.4 CHANGE IN CONTROL. The occurrence of any of the following:
(a) any "person" (as such term is used in Sections 3(a)(9)
and 13(d)(3) of the Exchange Act) other than (A) the DLJ Entities and/or their
respective Permitted Transferees (as defined in the Investors' Agreement) or
(B) any "group" (within the meaning of such Section 13(d)(3)) of which the
DLJ Entities constitute a majority (on the basis of ownership interest),
acquires, directly or indirectly, by virtue of the consummation of any
purchase, merger or other combination, securities of the Company representing
more than 51% of the combined voting power of the Company's then outstanding
voting securities with respect to matters submitted to a vote of the
stockholders generally; or
(b) a sale or transfer by the Company or any of its
Subsidiaries of substantially all of the consolidated assets of the Company
and its Subsidiaries to an entity which is not an Affiliate of the Company
prior to such sale or transfer.
2.5 COMPANY. DeCrane Aircraft Holdings, Inc.
2.6 COMPENSATION. The total salary otherwise payable in cash to
the Participant by the Company, exclusive of Accrued Benefits.
2.7 DEFERRAL DATE. Except as otherwise provided in Section 3.4,
the date, as elected by the Participant on his or her initial Election of
Deferral, which is five years after the effective date of such Election of
Deferral or, if later, on which the Participant attains age 55, 60 or 65.
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2.8 DEFERRED AMOUNTS. The amounts of Compensation and any bonus
actually deferred pursuant to an Election of Deferral.
2.9 EFFECTIVE DATE. December 31, 1999.
2.10 ELECTION OF DEFERRAL. A written notice filed by the
Participant with the Company in substantially the form attached hereto as
Exhibit A, specifying the amount of Compensation and/or bonuses to be deferred,
the investment option for crediting earnings under Section 5 and, in the case of
the initial Election of Deferral, the Participant's Deferral Date and election
of a form of payment under Section 6.
2.11 ELIGIBLE EMPLOYEE. The president of the Company or any
Affiliate, corporate division managers and any other key employee of the Company
or an Affiliate who is designated by Plan Administrator.
2.12 NOTICE OF DISCONTINUANCE. A written notice filed by the
Participant with the Company in substantially the form attached hereto as
Exhibit B, requesting discontinuance of the deferral of the Participant's
Compensation and/or bonuses.
2.13 PARTICIPANT. An Eligible Employee who elects to participate
in the Plan by filing an Election of Deferral with the Company in accordance
with Section 3.1.
2.14 PLAN. The DeCrane Aircraft Holdings, Inc. 1999 Executive
Deferred Compensation Plan, as set forth herein and as amended from time to time
in accordance with Section 20.
2.15 PLAN ADMINISTRATOR. The person or persons appointed by
the Board of Directors of the Company to administer the Plan pursuant to Section
13. Such person or persons shall serve at the discretion of the Board of
Directors of the Company.
2.17 PLAN YEAR. The fiscal year of the Company.
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SECTION 3. PARTICIPATION
3.1 ELECTION TO PARTICIPATE. An Eligible Employee may elect to
participate in this Plan by filing an Election of Deferral with the Company at
any time on or after the Effective Date. Any such Election of Deferral (and any
Notice of Discontinuance or subsequent Election of Deferral filed pursuant to
Section 4) shall be deemed filed when received by the Plan Administrator.
3.2 EFFECTIVE DATE OF ELECTION. An Election of Deferral filed
pursuant to Section 3.1 shall be effective on the first day of the first pay
period beginning after such Election of Deferral is filed if such filing is
within 30 days after the Effective Date or, if later, within 30 days after the
individual becomes an Eligible Employee. Any Election of Deferral filed pursuant
to Section 3.1 after the applicable 30-day period set forth in the preceding
sentence shall be effective on the first day of the first pay period beginning
on or after the first day of the Plan Year after such Election of Deferral is
filed.
3.3 DEFERRED AMOUNTS. The Election of Deferral filed pursuant
to Section 3.1 shall specify the Deferred Amount, in whole percentages up to
100% or a fixed dollar amount, to be deferred from the Participant's
Compensation for each pay period beginning on or after the effective date of
such Election of Deferral determined pursuant to Section 3.2 and continuing
through his or her Deferral Date. Such Election of Deferral may also specify the
Deferred Amount, in whole percentages up to 100% or a fixed dollar amount, to be
deferred from any bonus that the Company may award which is payable after the
effective date of such Election of Deferral and before the Participant's
Deferral Date. Notwithstanding the foregoing, the minimum Deferred Amount for
any Plan Year shall not be less than $10,000. The Participant's
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Deferred Amounts shall be credited to his or her Account as of the dates such
Deferred Amounts would, but for such deferral, be payable to the Participant.
3.4 DEFERRAL DATE. The initial Election of Deferral filed
pursuant to Section 3.1 shall also specify the Deferral Date elected by the
Participant. The Participant may subsequently elect to extend the original
Deferral Date specified on his or her initial Election of Deferral to a later
date which is five years after such original Deferral Date or on which the
Participant attains age 55, 60 or 65. An election to extend the original
Deferral Date may only be made once, must be in writing, must be received by the
Plan Administrator at least 90 days prior to the original Deferral Date and
shall be irrevocable.
SECTION 4. TERMINATION OR AMENDMENT OF ELECTION
The Participant's initial Election of Deferral filed pursuant to
Section 3.1 shall continue in effect, pursuant to the terms of the Election of
Deferral, unless and until the Participant files with the Company a Notice of
Discontinuance or a subsequent Election of Deferral specifying a different
Deferral Amount for the Participant's Compensation and/or bonuses. Each Election
of Deferral filed pursuant to this Section 4 shall similarly continue in effect
until the Participant files a Notice of Discontinuance or a subsequent Election
of Deferral. A Notice of Discontinuance shall be effective on the first day of
the first pay period beginning at least 30 days after such Notice of
Discontinuance is filed, and shall apply only with respect to the Participant's
Compensation and bonuses attributable to services not yet performed. Any
Election of Deferral filed pursuant to this Section 4 shall be effective on the
first day of the first pay period beginning on or after the first day of the
Plan Year after such Election of Deferral is filed, provided that it is filed at
least 30 days prior to the first day of such Plan Year; the Election of
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Deferral in effect at the time of such filing, if any, shall remain in effect
for any remaining pay periods beginning in the Plan Year in which such filing
occurs, unless it is discontinued by filing a Notice of Discontinuance.
Notwithstanding anything herein to the contrary, a Participant's Election of
Deferral shall terminate, and be of no further force or effect, upon
attainment of his or her Deferral Date (either as specified on the
Participant's initial Election of Deferral or a subsequent election pursuant
to Section 3.4, as applicable), and no Election of Deferral may be filed
thereafter.
SECTION 5 - EARNINGS ON DEFERRED AMOUNTS
5.1 INVESTMENT OPTIONS. The Company will credit Deferred
Amounts in the Participant's Account with earnings thereon from and after the
date each Deferred Amount is credited to the Account. Earnings on Deferred
Amounts shall accrue commencing on the date the Account first has a positive
balance and shall continue on the balance in the Participant's Account from time
to time up to the date as of which benefits under Section 6, disability benefits
under Section 7, death benefits under Section 8, termination benefits under
Section 9 or benefits upon a Change in Control, whichever applies, are paid in
full. Earnings under this Section 5 on Deferred Amounts credited to the
Participant's Account for any Plan Year shall be calculated at a rate computed
as if such Deferred Amounts had been invested in accordance with one of the
investment options under (a), (b) or (c) as follows:
(a) one or more of the following mutual funds:
(i) DLJ Winthrop Growth Fund;
(ii) DLJ Winthrop Small Company Value Fund;
(iii) DLJ Winthrop International Equity Fund;
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(iv) DLJ Winthrop Developing Markets Fund;
(v) DLJ Winthrop Growth and Income Fund;
(vi) DLJ Winthrop High Income Fund;
(vii) DLJ Winthrop Fixed Income Fund; and
(viii) DLJ Winthrop U.S. Government Money Fund; or
(b) DLJ Global Diversified Investors; or
(c) DLJ Technology Long/Short Investors;
as elected by the Participant in his or her initial Election of Deferral.
5.2 CHANGE IN INVESTMENT OPTIONS FOR SUBSEQUENT DEFERRED
AMOUNTS. The Participant shall have the right as of the first day of each
calendar quarter beginning after the effective date of his or her initial
Election of Deferral, on an Election of Deferral filed in accordance with
Section 4, to elect a different investment option under Section 5.1(a), (b) or
(c) for the calculation of earnings on Deferred Amounts credited to his or her
Account for such Plan Year. An election made under Section 5.1 or this Section
5.2 shall remain in effect for Deferred Amounts credited to the Participant's
Account for all subsequent Plan Years, unless changed in accordance with this
Section 5.2.
5.3 CHANGE IN INVESTMENT OPTIONS FOR ACCRUED BENEFIT. The
Participant shall have the right as of the first day of each calendar quarter
to elect a different investment option under Section 5.1(a), (b) or (c) for
the calculation of earnings on the portion, if any, of his or her Accrued
Benefit which is then being credited with earnings under Section 5.1(a). Such
election shall be made at such time and in such manner as the Company shall
determine. Notwithstanding anything herein to the contrary, the Participant
shall not have the right at any time to elect a different investment option
with respect to the portion, if any, of his or her
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Accrued Benefit which is being credited with earnings under Section 5.1(b) or
(c).
5.4 INVESTMENTS AND CHARGES. Nothing in this Section 5 shall
require the Company to actually invest any Deferred Amounts in accordance with a
Participant's election; provided, however, that if the Company in its sole
discretion does make any such investment, the Participant's Account shall be
reduced for any charges imposed by the applicable fund.
SECTION 6. BENEFITS AT DEFERRAL DATE.
On or as soon as administratively feasible after the
Participant's Deferral Date, regardless of whether the Participant has retired,
the Company shall pay to the Participant his or her Accrued Benefit in a lump
sum or in 15 annual installments, as elected by the Participant in his or her
initial Election of Deferral. Annual installments shall be determined by
dividing the balance in the Participant's Account on the date payments commence
and each anniversary of such date by a fraction, the numerator of which is one
and the denominator of which is the number of remaining installments.
Notwithstanding the foregoing:
(a) the Participant may change his or her election of a form
of payment by filing a written notice with the Plan Administrator at least one
year prior to his or her Deferral Date; and
(b) the Company may, in its sole discretion, defer for a
reasonable period of time any payment otherwise required under this Section 6
with respect to the portion of the Participant's Accrued Benefit which is being
credited with earnings under Section 5.1(b) or (c).
-8-
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SECTION 7. DISABILITY BENEFIT
Notwithstanding any other provision hereof, the Participant
shall be entitled to receive a disability benefit hereunder upon termination of
employment due to disability, as determined in accordance with the Company's
long-term disability plan, prior to his or her Deferral Date. If the
Participant's employment is terminated due to disability pursuant to this
Section 7, the disability benefit payable hereunder shall be that amount that
would have been payable as a benefit had the Participant attained his or her
Deferral Date on the date of such termination. The disability benefit payable
under this Section 7 shall be paid in the form elected by the Participant or
designated by the Company in accordance with the provisions of Section 6 on or
as soon as administratively feasible after the Participant's termination of
employment.
SECTION 8. DEATH BENEFIT
8.1 DEATH PRIOR TO PAYMENT OR COMMENCEMENT OF BENEFITS. In the
event of the Participant's death prior to his or her Deferral Date and prior to
payment of disability benefits or termination benefits under Section 7 or 9,
respectively, the Company shall pay the Accrued Benefit in the Participant's
Account as of the date of his or her death to the Participant's designated
beneficiary, in accordance with the last such designation received by the Plan
Administrator from the Participant prior to his or her death. If no such
designation has been received by the Plan Administrator from the Participant
prior to his or her death, or if the designated beneficiary dies prior to the
Participant, the Accrued Benefit in the Participant's Account shall be paid to
the Participant's then living spouse; if the Participant is not survived by a
spouse, to the then living children of the Participant, if any, in equal shares;
and if none, to the estate of the Participant. Such death benefit shall be paid
in the form elected by the participant,
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or designated by the Company, in accordance with the provisions of Section 6
as soon as administratively feasible after the Participant's death. If a
designated beneficiary, spouse or child receiving death benefits under this
Section 8.1 in the form of installments dies prior to payment of the
Participant's entire Accrued Benefit, the remaining balance of such Accrued
Benefit shall be paid in a lump sum to the estate of such designated
beneficiary, spouse or child.
8.2 DEATH AFTER COMMENCEMENT OF INSTALLMENTS. In the event of
the Participant's death after payment of benefits at his or her Deferral Date,
disability benefits or termination benefits under Section 6, 7 or 9,
respectively, has commenced in the form of installments, any remaining
installments shall be paid to the designated beneficiary or other person
determined in accordance with Section 8.1.
8.3 BENEFICIARY DESIGNATION. The Participant shall have the
right, at any time, to submit to the Plan Administrator, in substantially the
form attached hereto as Exhibit C, a written designation of primary and
secondary beneficiaries to whom payment under this Plan shall be made in
accordance with Section 8.1 or 8.2. Each beneficiary designation shall become
effective when received by the Plan Administrator.
SECTION 9. TERMINATION BENEFIT
In the event that, prior to the Participant's Deferral Date,
his or her employment with the Company is terminated for any reason, the Company
shall thereafter pay to the Participant as a termination benefit the
Participant's Accrued Benefit on or as soon as administratively feasible after
the Participant's Deferral Date in the form elected by the Participant, or
designated by the Company, in accordance with the provisions of Section 6;
notwithstanding any other provision of this plan, if the Participant's
employment is voluntarily
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terminated by the Participant other than for early retirement as determined
by the Company, or involuntarily terminated by the Company for cause as
determined by the Company, the Company may, in its sole discretion, pay the
Participant's entire Accrued Benefit in a lump sum on or as soon as
administratively feasible after the date of such termination.
SECTION 10. CHANGE IN CONTROL
Notwithstanding anything herein to the contrary, upon a Change
in Control:
(a) all Elections of Deferral shall terminate and be of
no further force or effect; and
(b) each Participant's Accrued Benefit, including the
unpaid portion of any Participant's Accrued Benefit which is then being paid in
installments under Section 6, 7, 8 or 9, shall be immediately payable to the
Participant or his or her beneficiary, as applicable, in a lump sum.
SECTION 11. HARDSHIP BENEFIT
11.1 HARDSHIP BENEFIT. In the event a Participant suffers an
unforeseen emergency (as defined in Section 11.2), the Company may, if it deems
advisable in its sole and absolute discretion, distribute to or utilize on
behalf of the Participant as a hardship benefit any portion of the Participant's
Account as of the date a hardship benefit is distributed or utilized. Any
hardship benefit shall be distributed or utilized at such times as the Company
shall determine, and the Accrued Benefit in the Participant's Account shall be
reduced by the amount so distributed and/or utilized.
11.2 UNFORESEEN EMERGENCY. For purposes of this Plan,
unforeseen emergency means a severe financial hardship to the Participant
resulting from a sudden
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unexpected illness or accident of the Participant or a dependent of the
Participant, loss of the Participant's property due to casualty or other
similar extraordinary and unforeseeable circumstances arising as a result of
events beyond the control of the Participant. The circumstances that will
constitute an unforeseeable emergency would depend upon the facts of each
case, but, in any case, distribution or utilization of a hardship benefit may
not be made in the event that such hardship is or may be relieved:
(a) through reimbursement or compensation by insurance or
otherwise;
(b) by liquidation of the Participant's assets, to the
extent that liquidation of such assets would not itself cause severe financial
hardship; or
(c) by cessation of Deferred Amounts under the Plan.
In any event, the need to send a Participant's child to
college or the desire to purchase a home shall not be an unforeseeable
emergency.
SECTION 12. OFFSET FOR OBLIGATIONS TO COMPANY
If, at such time as the Participant becomes entitled to
benefit payments hereunder, the Participant has any debt, obligation or other
liability representing an amount owing to the Company or any Affiliate, and if
such debt, obligation, or other liability is due and owing at the time benefit
payments are payable hereunder, the Company may offset the amount owing it
against the amount of benefits otherwise payable hereunder.
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SECTION 13. ADMINISTRATION
13.1 AUTHORITY OF THE PLAN ADMINISTRATOR. Subject to
applicable law and any limitations or restrictions imposed by the Board of
Directors of the Company, the Plan Administrator shall have full and
discretionary power to:
(a) interpret and construe the provisions of the Plan;
(b) establish rules and regulations for the administration
of the Plan;
(c) maintain all records necessary for administration of
the Plan, including, but not limited to Elections of Deferral, Notices of
Discontinuance, beneficiary designations and records relating to Accrued
Benefits and payment thereof; and
(d) make all other determinations, and take such actions,
including but not limited to the appointment of agents, as may be necessary or
advisable for the administration of the Plan and the performance of its duties
hereunder.
13.2 DECISIONS. If two or more persons are serving as Plan
Administrator, any decision of the Plan Administrator may be made by a written
document signed by a majority of such persons or by majority vote at a meeting.
No person serving as Plan Administrator shall make any decision or take any
action affecting exclusively his or her own Accrued Benefits under the Plan, if
any; all such matters shall be decided by a majority of the remaining persons
serving as Plan Administrator or, if none, by the Board of Directors of the
Company or its duly authorized delegate. All determinations and decisions made
by the Plan Administrator shall be final, conclusive and binding on all persons
including the Company, Participants and their beneficiaries hereunder.
13.3 ADMINISTRATIVE EXPENSES. All expenses of administering
the Plan shall be paid by the Company.
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SECTION 14. NO TRUST CREATED
Nothing contained in this Plan, and no action taken pursuant
to its provisions shall create, or be construed to create, a trust of any kind,
or a fiduciary relationship between the Company and the Participants, their
beneficiaries hereunder or any other person.
SECTION 15. SOURCE OF PAYMENTS
15.1 GENERAL ASSETS AND UNSECURED CREDITORS. The payments to
any Participant or beneficiary hereunder shall be made from assets which shall
continue, for all purposes, to be a part of the general, unrestricted assets of
the Company; no person shall have any interest in any such assets by virtue of
the provisions of this Plan. The Company's obligation hereunder shall be an
unfunded and unsecured promise to pay money in the future. To the extent that
any person acquires a right to receive payments from the Company under the
provisions hereof, such right shall be no greater than the right of any
unsecured general creditor of the Company; no such person shall have nor acquire
any legal or equitable right, interest or claim in or to any property or assets
of the Company.
15.2 INSURANCE OR OTHER PROPERTY. In the event that, in its
discretion, the Company purchases an insurance policy or policies insuring the
life of any Participant (or any other property) to allow the Company to recover
the cost of providing benefits, in whole or in part, hereunder, neither the
Participant nor any beneficiary hereunder shall have any rights whatsoever
therein or in the proceeds therefrom. The Company shall be the sole owner and
beneficiary of any such insurance policy or other property and shall possess and
may exercise all incidents of ownership therein. No such policy, policies or
other property shall be held in any
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trust for the Participants, any beneficiary or any other person nor as
collateral security for any obligation of the Company hereunder.
SECTION 16. NO CONTRACT OF EMPLOYMENT
Nothing contained herein shall be construed to be a contract
of employment for any term of years, nor as conferring upon any Participant the
right to continue to be employed by the Company in his or her present capacity,
or in any capacity.
SECTION 17. BENEFITS NOT TRANSFERABLE
Neither the Participants nor their beneficiaries hereunder
shall have any power or right to assign, transfer, alienate, anticipate, pledge,
charge or otherwise encumber any part or all of the benefits payable hereunder.
No such benefits shall be liable or subject to seizure by any creditor for the
debts, contracts, liabilities, engagements or torts of any Participant or
beneficiary hereunder, whether by attachment, garnishment, levy, execution or
any other legal or equitable process, nor shall such benefits be transferable by
operation of law in the event of the bankruptcy or insolvency of any Participant
or beneficiary hereunder. Any such attempted assignment, seizure or transfer
shall be null and void and of no effect.
SECTION 18. WITHHOLDING
Notwithstanding any other provision hereof, the Company shall
have the right to deduct and withhold from any Deferred Amount or payment under
this Plan any taxes required by law to be withheld with respect thereto.
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SECTION 19. DETERMINATION OF BENEFITS
19.1. CLAIM. A person who believes that he or she is being
denied a benefit to which he or she is entitled under the Plan (hereinafter
referred to as a "Claimant") may file a written request for such benefit with
the Plan Administrator, setting forth his or her claim. The request must be
addressed to the Plan Administrator at the Company's then principal place of
business.
19.2 CLAIM DECISION. Upon receipt of a claim, the Plan
Administrator shall advise the Claimant that a reply will be forthcoming within
90 days and shall, in fact, deliver such reply within such period. The Plan
Administrator may, however, extend the reply period for an additional 90 days
for reasonable cause. If the claim is denied in whole or in part, the Plan
Administrator shall adopt a written opinion, using language calculated to be
understood by the Claimant, setting forth:
(a) The specific reason or reasons for such denial;
(b) The specific reference to pertinent provisions of this
Plan on which such denial is based;
(c) A description of any additional material or information
necessary for the Claimant to perfect his or her claim and an explanation why
such material or such information is necessary;
(d) Appropriate information as to the steps to be taken if
the Claimant wishes to submit the claim for review; and
(e) The time limits for requesting a review under
subsection (c) and for review under subsection (d) hereof.
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19.3 REQUEST FOR REVIEW. With 60 days after the receipt by the
Claimant of the written opinion described above, the Claimant may request in
writing that the Plan Administrator review its determination. Such request must
be addressed to the Plan Administrator at the Company's then principal place of
business. The Claimant or his duly authorized representative may, but need not,
review the pertinent documents and submit issues and comments in writing for
consideration by the Plan Administrator. If the Claimant does not request a
review of the Plan Administrator's determination within such 60 day period, he
or she shall be barred and estopped from challenging the Plan Administrator's
determination.
19.4 REVIEW OF DECISION. Within 60 days after the Plan
Administrator's receipt of a request for review, it will review its prior
determination. After considering all materials presented by the Claimant, the
Plan Administrator will render a written opinion, written in a manner calculated
to be understood by the Claimant, setting forth the specific reasons for the
decision and containing specific references to the pertinent provisions of this
Plan on which the decision is based. If special circumstances require that the
sixty (60) day time period be extended, the Plan Administrator will so notify
the Claimant and will render the decision as soon as possible, but no later than
120 days after receipt of the request for review.
SECTION 20. AMENDMENT OR TERMINATION
This Plan may be amended or terminated, in whole or in part,
by the Board of Directors of the Company, or its duly authorized delegate, at
any time in its sole discretion; provided, however, that any such amendment
or termination shall not adversely affect any Participant's Accrued Benefit
as of the date thereof. In the event of termination of the Plan, each
Participant's Accrued Benefit, including the unpaid portion of any
Participant's Accrued Benefit
-17-
<PAGE>
which is then being paid in installments under Section 6, 7, 8 or 9, shall be
paid to such Participant or his or her beneficiary, as applicable, in a
single lump sum as soon as administratively feasible.
SECTION 21. GOVERNING LAW
To the extent not preempted by Federal law, this Plan shall be
governed by and construed in accordance with the laws of the State of
California, without regard to the conflicts of law provisions.
IN WITNESS WHEREOF, the Company hereby executes and adopts this
Plan, as set forth herein, effective as of December 31, 1999.
DECRANE AIRCRAFT HOLDINGS, INC.
By: /s/ Eric D. Steidl
-------------------------
Eric D. Steidl
Its: Controller
-------------------------
-18-
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES OF REGISTRANT
SUBSIDIARIES OF DECRANE HOLDINGS CO.
DECRANE AIRCRAFT HOLDINGS, INC., a Delaware corporation.
SUBSIDIARIES OF DECRANE AIRCRAFT HOLDINGS, INC.
AEROSPACE DISPLAY SYSTEMS, INC., a Delaware corporation.
AUDIO INTERNATIONAL, INC., an Arkansas corporation.
AVTECH CORPORATION, a Washington corporation.
CORY COMPONENTS, INC., a California corporation.
CUSTOM WOODWORK & PLASTICES, Inc., a Delaware corporation.
THE INFINITY PARTNERS, LTD., a Texas limited partnership.
DAH-IP HOLDINGS, INC., a Delaware corporation.
DAH-IP INFINITY, INC., a Delaware corporation.
DECRANE AIRCRAFT INTERNATIONAL SALES, INC., a Barbados corporation.
DETTMERS INDUSTRIES, INC., a Delaware corporation.
ELSINORE AEROSPACE SERVICES, INC., a California corporation.
ELSINORE ENGINEERING, INC., a Delaware corporation.
FLIGHT REFUELING, INC., a Maryland corporation.
HOLLINGSEAD INTERNATIONAL, INC., a California corporation.
HOLLINGSEAD INTERNATIONAL, LTD., a UK company.
INTERNATIONAL CUSTOM INTERIORS, INC., a Florida corporation.
PATRICK AIRCRAFT TANK SYSTEMS, INC., a Maryland corporation.
PATS AIRCRAFT AND ENGINEERING CORPORATION, a Maryland corporation.
PATS SUPPORT, INC., a Maryland corporation.
PATS, INC., a Maryland corporation.
PCI NEWCO., INC., a Delaware Corporation.
PPI HOLDINGS, INC., a Kansas corporation.
PRECISION PATTERN, INC., a Kansas corporation.
TRI-STAR ELECTRONICS EUROPE S.A., a Swiss company.
TRI-STAR ELECTRONICS INTERNATIONAL, INC., a California corporation.
TRI-STAR TECHNOLOGIES, a California general partnership.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 648
<SECURITIES> 0
<RECEIVABLES> 44652
<ALLOWANCES> 1897
<INVENTORY> 62174
<CURRENT-ASSETS> 113139
<PP&E> 48188
<DEPRECIATION> 10965
<TOTAL-ASSETS> 519687
<CURRENT-LIABILITIES> 53354
<BONDS> 334888
42619
0
<COMMON> 36
<OTHER-SE> 63804
<TOTAL-LIABILITY-AND-EQUITY> 519687
<SALES> 79178
<TOTAL-REVENUES> 79178
<CGS> 53026
<TOTAL-COSTS> 68285
<OTHER-EXPENSES> 64
<LOSS-PROVISION> (69)
<INTEREST-EXPENSE> 8676
<INCOME-PRETAX> 2153
<INCOME-TAX> 1398
<INCOME-CONTINUING> 755
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 755
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
