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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 1998
Commission File Number 0-22371
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DECRANE AIRCRAFT HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 34-1645569
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2361 Rosecrans Avenue, Suite 180, El Segundo, CA 90245
(Address, including zip code, of principal executive offices)
(310) 725-9123
(Registrant's telephone number, including area code)
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(Not Applicable)
(Former address and telephone number of principal executive offices, if
changed since last report)
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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 April 30, 1998 was 7,524,740 shares.
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DECRANE AIRCRAFT HOLDINGS, INC.
INDEX
Page
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of March 31, 1998 and
December 31, 1997 ............................................. 3
Consolidated Statements of Operations for the three months
ended March 31, 1998 and 1997 ................................. 4
Consolidated Statements of Cash Flows for the three months
ended March 31, 1998 and 1997 ................................. 5
Condensed Notes to Consolidated Financial Statements ............ 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ........................................... 8
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION ............................................... 10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits ........................................................ 10
Reports on Form 8-K ............................................. 10
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ITEM 1. FINANCIAL STATEMENTS
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
ASSETS
Current assets
Cash and cash equivalents......................... $ 1,178 $ 206
Accounts receivable, net.......................... 19,839 18,152
Inventories....................................... 28,221 25,976
Prepaid expenses and other current assets......... 1,160 782
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Total current assets........................... 50,398 45,116
Property and equipment, net......................... 13,261 14,054
Other assets, principally intangibles, net.......... 39,940 39,967
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Total assets................................. $ 103,599 $ 99,137
---------- ---------
---------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings............................ $ 432 $ 568
Current portion of long-term obligations ........ 857 858
Accounts payable................................. 7,991 8,032
Accrued expenses................................. 6,226 6,911
Income taxes payable............................. 1,800 3,975
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Total current liabilities...................... 17,306 20,344
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Long-term liabilities
Long-term obligations............................ 43,196 37,412
Deferred income taxes............................ 1,880 1,758
Minority interest................................ 93 96
---------- ---------
Total long-term liabilities.................... 45,169 39,266
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Commitments and contingencies
Stockholders' equity
Undesignated preferred stock, $.01 par value,
10,000,000 shares authorized; none issued
and outstanding............................... - -
Common stock, $.01 par value, 9,924,950 shares
authorized; 5,318,563 shares issued and
outstanding as of March 31, 1998 and
December 31, 1997............................. 53 53
Additional paid-in capital...................... 51,096 51,057
Accumulated deficit............................. (9,756) (11,444)
Foreign currency translation adjustment......... (269) (139)
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Total stockholders' equity.................... 41,124 39,527
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Total liabilities and stockholders' equity.. $ 103,599 $ 99,137
---------- ---------
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The accompanying notes are an integral part of the consolidated financial
statements.
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DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
MARCH 31,
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1998 1997
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(UNAUDITED)
Revenues.................................................... $ 29,128 $ 26,118
Cost of sales............................................... 20,141 20,107
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Gross profit........................................... 8,987 6,011
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Operating expenses
Selling, general and administrative expenses.............. 4,879 3,384
Amortization of intangible assets......................... 379 207
-------- --------
Total operating expenses............................... 5,258 3,591
-------- --------
Income from operations...................................... 3,729 2,420
Other expenses (income)
Interest expense.......................................... 786 1,592
Other income.............................................. (29) (118)
Minority interest......................................... 12 31
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Income before provision for income taxes.................... 2,960 915
Provision for income taxes.................................. 1,272 286
-------- --------
Net income.................................................. 1,688 629
Cumulative convertible preferred stock dividends............ - (380)
-------- --------
Net income applicable to common stockholders................ $ 1,688 $ 249
-------- --------
-------- --------
Income per common share
Basic..................................................... $ .32 $ 2.90
Diluted................................................... $ .30 $ .20
Weighted average number of common and dilutive common
equivalent shares outstanding
Basic................................................... 5,319 86
Diluted................................................. 5,626 3,071
Pro forma for the Recapitalization, as adjusted for the
Initial Public Offering
Income applicable to common stockholders.................. $ 1,688 $ 1,415
Income per common share
Basic................................................... $ .32 $ .27
Diluted................................................. $ .30 $ .25
Weighted average number of common and dilutive common
equivalent shares outstanding
Basic................................................. 5,319 5,302
Diluted............................................... 5,626 5,582
The accompanying notes are an integral part of the consolidated financial
statements.
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DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
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1998 1997
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(UNAUDITED)
Cash flows from operating activities
Net income............................................... $ 1,688 $ 629
Adjustments to reconcile net income to
net cash (used for) provided by operating activities
Depreciation and amortization........................ 1,457 1,400
Deferred income taxes................................ (46) 163
Unrealized loss on forward foreign exchange
contracts.......................................... 112 395
Other, net........................................... 20 31
Changes in assets and liabilities
Accounts receivable................................ (1,848) (1,058)
Inventories........................................ (2,299) (2,044)
Prepaid expenses and other assets.................. (351) 61
Accounts payable................................... (110) 2,403
Accrued expenses................................... (672) (273)
Income taxes payable............................... (2,152) 1
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Net cash (used for) provided by
operating activities........................... (4,201) 1,708
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Cash flows from investing activities
Capital expenditures..................................... (297) (1,370)
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Net cash used for investing activities........... (297) (1,370)
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Cash flows from financing activities
Net borrowings under revolving
line of credit agreements.............................. 5,883 1,834
Promissory note principal payments....................... - (956)
Principal payments on capitalized lease and
other long-term obligations............................ (215) (756)
Payment of stock offering and deferred financing costs... (416) (613)
Other, net............................................... 24 59
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Net cash provided by (used for)
financing activities........................... 5,276 (432)
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Effect of foreign currency translation on cash............. 194 (64)
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Net increase (decrease) in cash and cash equivalents....... 972 (158)
Cash and cash equivalents at beginning of period........... 206 320
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Cash and cash equivalents at end of period................. $ 1,178 $ 162
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The accompanying notes are an integral part of the consolidated financial
statements.
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DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial information as of March 31, 1998 and for the
three months ended March 31, 1998 and 1997 is unaudited. In the opinion of
the Company, the unaudited financial information is presented on a basis
consistent with the audited financial statements and contains all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair statement of the results for such interim periods. The results of
operations for interim periods are not necessarily indicative of results of
operations for the full year. The information included in this Form 10-Q
should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations and the audited financial
statements and notes thereto included in the Company's Form 10-K for the year
ended December 31, 1997. Certain reclassifications have been made to prior
periods' financial information to conform to the 1998 presentation.
NOTE 2 - SALE OF COMMON STOCK
In April 1998, the Company sold 2,206,177 shares of common stock for
$17.00 per share. Proceeds from the offering of $35,542,000, net of
$1,963,000 for underwriting discounts and commissions, were used to partially
repay borrowings outstanding under the Company's senior credit facility.
The table below summarizes the changes in stockholders' equity for the
three months ended March 31, 1998 and the effect of the common stock sold in
April 1998 (amounts in thousands, except share data):
PREFERRED STOCK COMMON STOCK
----------------- ------------------ FOREIGN
NUMBER NUMBER ADDITIONAL CURRENCY
OF OF PAID-IN ACCUMULATED TRANSLATION
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT TOTAL
------- -------- --------- ------- -------- ---------- ----------- ---------
Balance,
December 31, 1997............ - $ - 5,318,563 $ 53 $ 51,057 $ (11,444) $ (139) $ 39,527
Net income..................... - - - - - 1,688 - 1,688
Stock option compensation
expense...................... - - - - 39 - - 39
Translation adjustment......... - - - - - - (130) (130)
------- -------- --------- ------- -------- ---------- -------- ---------
Balance,
March 31, 1998............... - - 5,318,563 53 51,096 (9,756) (269) 41,124
Sale of common stock (A)....... - - 2,206,177 22 34,820 - - 34,842
------- -------- --------- ------- -------- ---------- -------- ---------
Balance after sale of
common stock................. - $ - 7,524,740 $ 75 $ 85,916 $ (9,756) $ (269) $ 75,966
------- -------- --------- ------- -------- ---------- -------- ---------
------- -------- --------- ------- -------- ---------- -------- ---------
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(A) Reflects the sale of common stock in April 1998, net of underwriting
discounts and commissions of $1,963,000 and an estimated $700,000 in
expenses attributable to the offering.
NOTE 2 - INCOME PER COMMON SHARE
As described in the Company's Form 10-K for the year ended December 31,
1997, the holders of certain securities agreed to a plan for the
recapitalization of the Company (the "Recapitalization") during 1997.
Completion of the Recapitalization was a condition to the consummation of the
Company's initial public offering (the "IPO") and, was effective concurrent
therewith. The IPO was consummated on April 16, 1997. Since the Company's
historical capital structure is not indicative of its structure after the
Recapitalization and IPO, pro forma income per share is presented for 1997
and reflects the Recapitalization, the IPO and the application of the
proceeds therefrom, as if both had occurred January 1, 1997.
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NOTE 2 - INCOME PER COMMON SHARE (CONTINUED)
Income per common share ("EPS") have been computed pursuant to the
provisions of Statement of Financial Accounting Standards No. 128, "Earnings
Per Share," which became effective after December 15, 1997; all periods prior
thereto have been restated to conform with the provisions of this statement.
The following table provides a reconciliation of both income and the
number of common shares used in the computations of "basic" EPS, which
utilizes the weighted average number of common shares outstanding without
regard to dilutive potential common shares, and "diluted" EPS, which includes
all such shares (amounts in thousands, except per share data).
THREE MONTHS ENDED
MARCH 31, 1997
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THREE PRO FORMA
MONTHS FOR THE
ENDED RECAPITAL-
MARCH 31, AS IZATION
1998 REPORTED AND IPO
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Income applicable to common shares - Numerator
Net income................................................. $ 1,688 $ 629 $ 1,415
Cumulative convertible preferred stock dividends........... - (380) -
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Income applicable to common shares (basic)............... 1,688 249 1,415
Cumulative convertible preferred stock dividends........... - 380 -
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Income applicable to common shares (diluted)............. $ 1,688 $ 629 $ 1,415
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Shares - Denominator
Weighted average common shares outstanding (basic)......... 5,319 86 5,302
Add dilutive effect of
Preferred stock outstanding prior to conversion.......... - 1,942 -
Common stock options..................................... 307 279 279
Warrants outstanding prior to cancellation,
conversion or exercise................................. - 837 71
Less antidilutive effect of potential common shares........ - (73) (70)
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Weighted average common shares outstanding (diluted)..... 5,626 3,071 5,582
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EPS - Income per common share
Basic...................................................... $ .32 $ 2.90 $ .27
Diluted.................................................... $ .30 $ .20 $ .25
Pro forma for the Recapitalization and IPO assumes each occurred on
January 1, 1997. Therefore, pro forma income per common share is computed
using pro forma income before preferred stock dividends. Pro forma income
also reflects the sale by the Company of 2,700,000 shares of common stock in
the IPO and the application of the net proceeds therefrom.
NOTE 3 - INVENTORIES
Inventories are comprised of the following (amounts in thousands):
MARCH 31, DECEMBER 31,
1998 1997
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(UNAUDITED)
Raw material................................................... $ 17,329 $ 14,224
Work-in process................................................ 2,360 4,655
Finished goods................................................. 8,532 7,097
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Total inventories............................................ $ 28,221 $ 25,976
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NOTE 4 - INCOME TAXES
During the three months ended March 31, 1998 and 1997, the Company reduced
its deferred tax asset valuation allowance by $47,000 and $142,000,
respectively, to reflect the book benefit of federal and state net operating
loss carryforwards not previously recognized. Approximately $2,405,000 of the
Company's loss carryforwards remained at March 31, 1998 for federal income
tax purposes, respectively. No benefit for the remaining loss carryforwards
has been recognized in the consolidated financial statements.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
REVENUES. Revenues increased $3.0 million, or 11.5%, to $29.1 million for
the three months ended March 31, 1998 from $26.1 million for the three months
ended March 31, 1997. Revenues increased primarily due to the following: (i) the
inclusion of $4.7 million of revenue from Audio International which was acquired
on November 14, 1997; (ii) an increase in the sales of dichroic LCD's of $.6
million; and (iii) the first deliveries of smoke detection and fire suppression
systems integration kits for Northwest (through Kidde Safety) of $.4 million
offset by (iv) lower direct sales of $1.6 million and lower indirect sales of
approximately the same magnitude to Boeing due to their production disruptions.
GROSS PROFIT. Gross profit increased $3.0 million, or 49.5%, to $9.0
million for the three months ended March 31, 1998 from $6.0 million for the
three months ended March 31, 1997. Gross profit as a percent of revenues
increased to 30.9% for the three months ended March 31, 1998 from 23.0% for
the three months ended March 31, 1997. Gross profit increased from the
increased sales volume and a favorable change in mix. The increase in gross
profit as a percent of revenue was attributable to a favorable change in mix
and cost reduction programs. Gross profit as a percent of revenue increased
to 30.9% for the three months ended March 31, 1998 from 30.1% for the three
months ended December 31, 1997
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses increased $1.5 million, or 44.2%, to $4.9
million for the three months ended March 31, 1998 from $3.4 million for the
three months ended March 31, 1997. SG&A expenses, as a percent of revenues,
increased to 16.8% for the three months ended March 31, 1998 from 13.0% for
the three months ended March 31, 1997. SG&A expenses increased primarily due
to the inclusion of SG&A expenses from Audio International, which was
acquired in 1997, and R&D expenses of $.3 million.
OPERATING PROFIT. Operating profit increased $1.3 million, or 54.1%, to $3.7
million for the three months ended March 31, 1998 from $2.4 million for the
three months ended March 31, 1997. Operating profit as a percent of revenues
increased to 12.8% for the three months ended March 31, 1998 from 9.3% for the
three months ended March 31, 1997. The increase in operating income resulted
from the factors described above.
INTEREST EXPENSE. Interest expense decreased $.8 million, or 50.6%, to $.8
million for the three months ended March 31, 1998 from $1.6 million for the
three months ended March 31, 1997. This decrease resulted from the completion of
the IPO on April 16, 1997 and the repayment of a substantial portion of the
Company's debt with the proceeds, offset by the increase in debt to finance the
purchase of Audio International, which was acquired on November 14, 1997.
PROVISION FOR INCOME TAXES. During the three months ended March 31, 1998,
the Company reduced its deferred tax asset valuation allowance by $.1 million to
reflect the book benefit of federal net operating loss carryforwards not
previously recognized.
NET INCOME. The net income increased $1.1 million to $1.7 million for the
three months ended March 31, 1998 from $.6 million for the three months ended
March 31, 1997. The increase is a result of the factors described above.
NET INCOME APPLICABLE TO COMMON STOCKHOLDERS. Net income applicable to
common stockholders increased $1.4 million to $1.7 million for the three months
ended March 31, 1998 from $.2 million for the three months ended March 31, 1997.
The increase resulted from the factors described above and from a $.4 million
decrease in cumulative preferred stock dividends attributable to the preferred
stock that was converted into common stock as part of the Recapitalization
concurrent with the Company's IPO in April 1997.
PRO FORMA INCOME, AS ADJUSTED. Pro forma income, as adjusted before
extraordinary item, increased $.3 million to $1.7 million for the three months
ended March 31, 1998 from a pro forma $1.4 million for the three months ended
March 31, 1997 as a result of the factors described above.
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BOOKINGS. Bookings increased $.9 million or 1.5%, to $28.2 million for the
three months ended March 31, 1998 compared to $27.3 million for the same period
in 1997. Backlog increased $3.6 million, or 8.0% to $48.5 million for March 31,
1998 compared to $44.9 million for March 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended March 31, 1998, the Company used cash from
operating activities of $4.2 million. The Company used $7.4 million in cash
for working capital. Accounts receivables increased $1.8 million for the
three months ended March 31, 1998 due to higher sales, as average days
outstanding remained essentially flat. Inventories increased by $2.3 million
for the three months ended March 31, 1998 in support of anticipated sales
growth in the second half of 1998. Accounts payable decreased slightly by $.1
million for the three months ended March 31, 1998.
Capital expenditures of $.6 million were made during the three months ended
March 31, 1998. Offsetting the capital expenditures was $.3 million of recovery
of leasehold improvements. The Company anticipates capital expenditures of
approximately $4.5 million in 1998.
Net cash provided by financing activities was $5.3 million of the three
months ended March 31, 1998. Cash increased $1.0 million for the three months
ended March 31, 1998 due to the factors described above. In February 1998, the
Credit Facility was amended to increase the revolving line of credit to $75
million from $60 million. On April 1, 1998, the Company sold approximately 2.2
million shares of common stock for $17 per share. Net proceeds from the offering
of $35.5 million were used to repay amounts due under the Company's Credit
Facility. The Company believes that the current levels of working capital and
amounts available under its Credit Facility will enable it to meet its
foreseeable short-term and long-term liquidity requirements.
FORWARD-LOOKING STATEMENTS
Management's discussion and analysis of financial condition and results of
operations that are not historical facts are forward-looking statements. Such
forward-looking statements in this document are made pursuant to the safe
harbor provisions of the Securities Act of 1933 and the Securities Exchange
Act of 1934. Forward-looking statements involve a number of risks and
uncertainties. For a discussion of certain risks and uncertainties that may
affect the actual results of any forward-looking information contained
herein, refer to the section entitled "Risk Factors" included in Item 1,
"Description of Business," in the Company's Form 10-K for the year ended
December 31, 1997.
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PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
PRESIDENT AND CHIEF OPERATING OFFICER APPOINTED
In April 1998, the Company appointed Charles H. Becker as its President and
Chief Operating Officer responsible for all of the Company's operating
subsidiaries.
Mr. Becker has been the Company's Group Vice President of Components since
December 1996, and President of Tri-Star Electronics International, Inc., a
wholly owned subsidiary of the Company, since December 1994. Prior to joining
the Company, Mr. Becker was President of the Interconnect Systems Division of
Microdot, Inc. from 1984 to 1994.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
20.1 Final Prospectus of the Company dated April 2, 1998 *
27 Financial Data Schedule *
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* Filed herewith
b. Reports on Form 8-K
There were no reports filed on Form 8-K for the three months ended
March 31, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DECRANE AIRCRAFT HOLDINGS, INC.
(Registrant)
May 13, 1998 By: /s/ ROBERT A. RANKIN
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Name: Robert A. Rankin
Title: Chief Financial Officer
and Secretary
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