<PAGE>
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 8-K / A
(AMENDMENT NO. 1)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
October 6, 1999
Date of Report
(Date of earliest event reported)
---------------------
DECRANE HOLDINGS CO.
(Exact name of registrant as specified in its charter)
DELAWARE 333-70363 13-4019703
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) 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)
---------------------
===============================================================================
<PAGE>
EXPLANATORY NOTE
On October 19, 1999, DeCrane Holdings Co. filed a Form 8-K describing
our acquisition of PCI NewCo, Inc. on October 6, 1999 and International
Custom Interiors, Inc. on October 8, 1999. At the time of the filing, audited
financial statements of PCI NewCo compliant with Regulation S-X and our
consolidated financial statements for the nine months ended September 30,
1999 were not yet available. As a result, the pro forma consolidated
financial information required by the Securities Exchange Act of 1934 could
not be prepared. International Custom Interiors does not constitute a
significant subsidiary therefore the filing of Regulation S-X compliant
audited financial statements is not required. The purpose of this Form 8-K /
A is to amend our initial filing with respect to the PCI NewCo and
International Custom Interiors acquisitions and provide the required PCI
NewCo audited financial statements and pro forma financial information
reflecting both the PCI NewCo and International Custom Interiors acquisitions.
DOCUMENTS REFERRED TO IN THIS REPORT
DeCrane Holdings has filed documents with the Securities and Exchange
Commission that we refer to in this report. The documents we refer to and the
information they contain are described below.
- - Our Registration Statement No. 333-70363 on Form S-1 effective May 14,
1999, and the prospectus it contains. The prospectus includes our audited
1998 financial statements, descriptions of previously completed
acquisitions and the DLJ acquisition, audited financial statements of
previously acquired companies and unaudited pro forma consolidated
financial information reflecting the previously acquired companies.
- - Our Form 8-K filed on October 19, 1999. The Form 8-K includes information
about our other recently completed acquisitions.
- - Our Form 10-Q for the quarter ended September 30, 1999. The Form 10-Q
includes our historical consolidated financial statements, information
about previously and recently acquired companies, including PCI NewCo and
International Custom Interiors.
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.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of businesses acquired.
Our Form 8-K filed on October 19, 1999 is hereby amended by deleting the
last paragraph in Item 7(a) and replacing it with the following:
Audited financial statements of PCI NewCo, Inc., including related notes
and independent accountants' report, are attached hereto as follows:
<TABLE>
<CAPTION>
Page
------
<S> <C>
Report of Independent Accountants .............................................................. F-9
Balance Sheets as of December 31, 1997 and 1998 and September 30, 1999 (unaudited) ............. F-10
Statements of Income for the years ended December 31, 1997 and 1998 and
the nine months ended September 30, 1998 and 1999 (unaudited) ................................ F-11
Statements of Stockholders' Equity for years ended December 31, 1997 and 1998 and
the nine months ended September 30, 1999 (unaudited) ......................................... F-12
Statements of Cash Flows for the years ended December 31, 1997 and 1998 and
the nine months ended September 30, 1998 and 1999 (unaudited) ................................ F-13
Notes to the Financial Statements .............................................................. F-14
</TABLE>
Because International Custom Interiors, Inc. does not constitute a
significant subsidiary, the filing of Regulation S-X compliant audited financial
statements is not required.
1
<PAGE>
(b) Pro forma financial information.
Our Form 8-K filed on October 19, 1999 is hereby amended by deleting the
last paragraph in Item 7(b) in its entirety and replacing it with the following:
Unaudited pro forma financial information reflecting the PCI NewCo, Inc.
and International Custom Interiors, Inc. acquisitions, including related
explanatory notes, are attached hereto as follows:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Basis of Presentation ..................................................................................... P-11
Unaudited Pro Forma Consolidated Statement of Operations for the year ended December 31, 1998 ............. P-12
Unaudited Pro Forma Consolidated Statement of Operations for the nine months ended September 30, 1999 ..... P-13
Unaudited Pro Forma Consolidated Balance Sheet as of September 30, 1999 ................................... P-14
Notes to Unaudited Pro Forma Consolidated Financial Information ........................................... P-15
</TABLE>
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)
December 14, 1999 By: /s/ Richard J. Kaplan
-------------------------------------------
Name: Richard J. Kaplan
Title: Assistant Secretary and Assistant
Treasurer (chief accounting officer)
2
<PAGE>
FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors
PCI NewCo, Inc.
We have audited the accompanying balance sheets of PCI NewCo, Inc. as of
December 31, 1997 and 1998, and the related statements of income, stockholders'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above, present fairly,
in all material respects, the financial position of PCI NewCo, Inc. as of
December 31, 1997 and 1998, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
BAIRD, KURTZ & DOBSON
November 1, 1999
Wichita, Kansas
F-9
<PAGE>
PCI NEWCO, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------------ -------------
1997 1998 1999
----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash ............................................................................ $ 188 $ 350 $ 410
Accounts receivable ............................................................. 763 751 1,116
Inventories ..................................................................... 563 885 764
Prepaid expenses and other ...................................................... 34 39 56
----------- ----------- -----------
Total current assets .......................................................... 1,548 2,025 2,346
Property and equipment, net ........................................................ 208 328 304
----------- ----------- -----------
Total assets ................................................................ $ 1,756 $ 2,353 $ 2,650
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Revolving credit agreement ...................................................... $ 200 $ 200 $ -
Note payable to stockholder ..................................................... 290 115 -
Accounts payable ................................................................ 217 243 94
Accrued expenses ................................................................ 108 97 224
----------- ----------- -----------
Total current liabilities ..................................................... 815 655 318
----------- ----------- -----------
Commitments and contingencies (Note 10)
Stockholders' equity
Common stock - Class A, no par value, 100,000 shares authorized; 10,000
shares issued and outstanding as of December 31, 1997 and 1998
and 10,526 shares issued and outstanding as of September 30, 1999 ............. 1 1 1
Common stock - Class B, no par value, 100,000 shares authorized;
none issued and outstanding ................................................... - - -
Additional paid-in capital ...................................................... 224 224 247
Retained earnings ............................................................... 716 1,473 2,084
----------- ----------- -----------
Total stockholders' equity .................................................... 941 1,698 2,332
----------- ----------- -----------
Total liabilities and stockholders' equity .................................. $ 1,756 $ 2,353 $ 2,650
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-10
<PAGE>
PCI NEWCO, INC.
STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------ ------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales ............................................................. $ 4,899 $ 7,933 $ 5,756 $ 6,692
Cost of goods sold .................................................... 3,821 5,807 4,272 4,747
----------- ----------- ----------- -----------
Gross profit .......................................................... 1,078 2,126 1,484 1,945
Operating expenses
Selling, general and administrative ................................ 362 536 389 520
----------- ----------- ----------- -----------
Income from operations ................................................ 716 1,590 1,095 1,425
Other expense (income)
Interest expense (income), net...................................... 39 35 25 (2)
Miscellaneous income ............................................... (1) (7) (4) (3)
----------- ----------- ----------- -----------
Net income ............................................................ $ 678 $ 1,562 $ 1,074 $ 1,430
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-11
<PAGE>
PCI NEWCO, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK - CLASS A
-----------------------
NUMBER ADDITIONAL
OF PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
---------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 ............................... 10,000 $ 1 $ 224 $ 118 $ 343
Net income ............................................ - - - 678 678
Common stock dividends ................................ - - - (80) (80)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1997 ............................... 10,000 1 224 716 941
Net income ............................................ - - - 1,562 1,562
Common stock dividends ................................ - - - (805) (805)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1998 ............................... 10,000 1 224 1,473 1,698
Net income (Unaudited) ................................ - - - 1,430 1,430
Sale of common stock (Unaudited) ...................... 526 - 23 - 23
Common stock dividends (Unaudited) .................... - - - (819) (819)
----------- ----------- ----------- ----------- -----------
Balance, September 30, 1999 (Unaudited) .................. 10,526 $ 1 $ 247 $ 2,084 $ 2,332
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-12
<PAGE>
PCI NEWCO, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------ ------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ......................................................... $ 678 $ 1,562 $ 1,074 $ 1,430
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization .................................. 65 92 42 53
Loss on sale of property and equipment ......................... 3 - - -
Changes in operating assets and liabilities
Accounts receivable .............................................. (484) 12 (77) (365)
Inventories ...................................................... (83) (322) (336) 121
Prepaid expenses and other ....................................... (26) (5) 22 (17)
Accounts payable and accrued expenses ............................ 170 15 88 (22)
----------- ----------- ----------- -----------
Net cash provided by operating activities ...................... 323 1,354 813 1,200
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment ................................ (166) (212) (192) (29)
----------- ----------- ----------- -----------
Net cash used for investing activities ......................... (166) (212) (192) (29)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of note payable ............................. 20 - - -
Proceeds from sale of common stock ................................. - - - 23
Common stock dividends ............................................. (80) (805) (475) (819)
Revolving line of credit repayments ................................ - - - (200)
Principal payments on note payable ................................. - (175) (36) (115)
----------- ----------- ----------- -----------
Net cash used for financing activities ......................... (60) (980) (511) (1,111)
----------- ----------- ----------- -----------
NET INCREASE IN CASH .................................................. 97 162 110 60
CASH AT BEGINNING OF PERIOD ........................................... 91 188 188 350
----------- ----------- ----------- -----------
CASH AT END OF PERIOD ................................................. $ 188 $ 350 $ 298 $ 410
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-13
<PAGE>
PCI NEWCO, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
PCI NewCo, Inc (the "Company") manufacturers aircraft components for
several aircraft manufacturers located in the United States.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INVENTORY PRICING
Inventories are stated at lower of weighted-average cost or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. The assets are depreciated
over their estimated useful lives using the straight-line and accelerated
methods.
INCOME TAXES
The Company elected to have its income taxed as an "S" corporation under
provisions of the Internal Revenue Code; taxable income or loss is reported to
the individual stockholders for inclusion in their tax returns. Therefore, no
provision for Federal and state income tax is included in these statements.
UNAUDITED INTERIM RESULTS
The financial information as of September 30, 1999 and for the nine months
ended September 30, 1998 and 1999 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 the interim periods are not
necessarily indicative of results of operations for the full year.
NOTE 2 - ACCOUNTS RECEIVABLE AND MAJOR CUSTOMERS
The Company sells most of its primary product to two customers. There are a
limited number of buyers of the Company's products. The Company extends
unsecured credit to its customers, with credit extended to two customers
exceeding 88% and 67% of accounts receivable at December 31, 1997 and 1998,
respectively.
F-14
<PAGE>
PCI NEWCO, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 - INVENTORIES
Inventories consist of the following (amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30,
1997 1998 1999
----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials ...................................................................... $ 350 $ 396 $ 494
Work-in-process .................................................................... 213 489 270
----------- ----------- -----------
Total inventories ............................................................... $ 563 $ 885 $ 764
=========== =========== ===========
</TABLE>
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following (amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30,
1997 1998 1999
----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Leasehold improvements ............................................................. $ 15 $ 76 $ 76
Machinery and equipment ............................................................ 226 343 361
Furniture and fixtures ............................................................. 7 11 13
Computer equipment ................................................................. 28 38 47
Vehicles ........................................................................... 28 46 46
----------- ----------- -----------
Total cost ...................................................................... 304 514 543
Accumulated depreciation and amortization ....................................... (96) (186) (239)
----------- ----------- -----------
Net property and equipment ...................................................... $ 208 $ 328 $ 304
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
NOTE 5 - REVOLVING CREDIT AGREEMENT
At December 31, 1997 and 1998, the Company had outstanding borrowings in
the amount of $200,000 under a bank revolving credit agreement. The agreement is
unsecured and is personally guaranteed by the principal stockholder. Interest is
at 1/2% under the prime rate (7.25% at December 31, 1998) and is payable
monthly. The agreement provides for maximum borrowings of $500,000 and matures
on November 27, 1999.
NOTE 6 - NOTE PAYABLE TO PRINCIPAL STOCKHOLDER
The Company has an unsecured note payable to the principal stockholder in
the amount of $290,000 and $115,000 at December 31, 1997 and 1998, respectively.
Interest is paid annually at a rate of 7%. Subsequent to December 31, 1998, the
balance was paid in full.
NOTE 7 - ACCRUED EXPENSES
Accrued expenses consists of the following (amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30,
1997 1998 1999
----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Payroll ............................................................................ $ 67 $ 36 $ 161
Profit sharing ..................................................................... 33 57 61
Other .............................................................................. 8 4 2
----------- ----------- -----------
Total accrued expenses .......................................................... $ 108 $ 97 $ 224
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
F-15
<PAGE>
PCI NEWCO, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 - PROFIT SHARING PLAN
The Company has a 401(k) profit sharing plan covering substantially all
employees. The Company's contribution to the plan is 6% of the compensation of
all participants under the plan determined for the Company's taxable year for
which it makes the contribution. The Company expensed contributions for the
years ended December 31, 1997 and 1998 in the amounts of $33,000 and $57,000,
respectively.
NOTE 9 - STOCK OPTIONS
During 1998, the Company granted options to one of its employees for up to
526 shares of Class A common stock. The options immediately vested and all were
exercised in 1999.
A summary of the status of the options outstanding at December 31, 1998,
and changes during the year then ended is presented below:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER AVERAGE
OF EXERCISE
SHARES PRICE
----------- -----------
<S> <C> <C>
Options outstanding at December 31, 1997 ........................................................ - -
Options granted during the year ................................................................. 526 $ 118.82
----------- -----------
Options outstanding at December 31, 1998 ........................................................ 526 $ 118.82
----------- -----------
Options exercisable at December 31, 1998 ........................................................ 526 $ 118.82
----------- -----------
</TABLE>
The Company applies Accounting Principles Board Opinion 25 and related
interpretations in accounting for stock options issued to employees, and no
compensation cost has been recognized. No fair value disclosures with respect to
stock options are presented because in the opinion of management, such
disclosures would not materially effect the financial statements.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
The Company rents its business facility from a property rental company,
which is partially owned by the Company's principal stockholder. The lease was
month-to-month through September 1999 when a 10-year lease was entered into.
Annual lease payments were $88,000 and $96,000 for 1997 and 1998, respectively.
NOTE 11 - ADDITIONAL CASH FLOW INFORMATION
Interest paid in cash during the twelve months ended December 31, 1997 and
1998 was $39,000 and $35,000, respectively.
NOTE 12 - YEAR 2000 ISSUE
Like all entities, the Company is exposed to risks associated with the Year
2000 Issue, which affects computer software and hardware; transactions with
customers, vendors and other entities; and equipment dependent on microchips.
The Company has begun but not yet completed the process of identifying and
remediating potential Year 2000 problems. It is not possible for any entity to
guarantee the results of its own remediation efforts or to accurately predict
the impact of the Year 2000 Issue on third parties with which the Company does
business. If remediation efforts of the Company or third parties with which it
does business are not successful, the Year 2000 problem could have negative
effects on the Company's financial condition and results of operations in the
near term.
F-16
<PAGE>
PCI NEWCO, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents estimated fair values of the Company's
financial instruments. For the revolving credit agreement and note payable to
the principal stockholder, the fair value is estimated based on the borrowing
rates currently available to the Company for bank loans with similar terms and
maturities. The fair values of certain of these instruments were calculated by
discounting expected cash flows, which method involves significant judgments by
management and uncertainties. Fair value is the estimated amount at which
financial assets or liabilities could be exchanged in a current transaction
between willing parties, other than in a forced or liquidation sale. Because no
market exists for certain of these financial instruments, and because management
does not intend to sell these financial instruments, the Company does not know
whether the fair values shown below represent values at which the respective
financial instruments could be sold individually or in the aggregate.
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1998
------------------------ ------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Financial assets
Cash ............................................................... $ 188 $ 188 $ 350 $ 350
Financial liabilities
Revolving credit agreement ......................................... $ 200 $ 200 $ 200 $ 200
Note payable to principal stockholder .............................. $ 290 $ 290 $ 115 $ 115
</TABLE>
NOTE 14 - SUBSEQUENT EVENTS
DIVIDENDS PAID
Dividends of $624,000 were declared on January 1, 1999, and were paid on
April 15, 1999.
SALE OF COMPANY
On October 6, 1999, substantially all of the Company's assets were sold to
an unrelated entity.
F-17
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
BASIS OF PRESENTATION
The following unaudited pro forma consolidated financial information for
DeCrane Holdings is based on its historical financial statements adjusted to
reflect the 1998 Avtech, Dettmers and DLJ acquisitions and the 1999 PATS, PPI,
Custom Woodwork, PCI NewCo and International Custom Interiors acquisitions. For
additional information on the 1998 Avtech, Dettmers and DLJ acquisitions, see
the notes to DeCrane Holdings' 1998 consolidated financial statements included
in the prospectus. For additional information on the 1999 PATS, PPI, Custom
Woodwork, PCI NewCo and International Custom Interiors acquisitions, see the
notes to DeCrane Holdings' Form 10-Q for the quarter ended September 30, 1999.
Unaudited pro forma consolidated statements of operations are presented for
the year ended December 31, 1998 and the nine months ended September 30, 1999.
The statements reflect the acquisitions as if they had occurred as of January 1,
1998. The unaudited pro forma consolidated balance sheet reflects the PCI NewCo
and International Custom Interiors acquisitions as of September 30, 1999; all of
the 1998 acquisitions and the 1999 PATS, PPI and Custom Woodworks acquisitions
had occurred by that date and are therefore reflected in the historical balance
sheet.
The pro forma adjustments are based upon available information and
assumptions management believes are reasonable under the circumstances. The
unaudited pro forma consolidated financial information and accompanying notes
should be read in conjunction with the historical financial statements and
related notes of:
- - DeCrane Holdings included in the prospectus and Form 10-Q;
- - Avtech, PATS and PPI included in the prospectus; and
- - Custom Woodwork included in the Form 8-K filed on October 19, 1999.
The pro forma financial information does not purport to represent what
DeCrane Holdings' actual results of operations or actual financial position
would have been if the transactions described above in fact occurred on such
dates or to project DeCrane Holdings' results of operations or financial
position for any future period or date.
P-11
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
DECRANE COMPANIES ACQUIRED (2)
HOLDINGS ------------------------------------------------------------
AND PREVIOUSLY INTERNATIONAL
AIRCRAFT REPORTED PCI CUSTOM
HISTORICAL (1) ACQUISITIONS (3) NEWCO (4) INTERIORS (4) ADJUSTMENTS PRO FORMA
-------------- ---------------- --------- -------------- ---------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues ............................. $ 150,433 $ 98,539 $ 7,933 $ 1,887 $ (458) (5) $ 258,334
Cost of sales ........................ 102,840 65,776 5,807 1,913 541 (6) 176,877
----------- ----------- -------- ---------- ---------- ---------
Gross profit (loss)................... 47,593 32,763 2,126 (26) (999) 81,457
Selling, general and administrative
expenses .......................... 25,993 11,976 536 422 (1,728) (7) 37,199
Nonrecurring acquisition
expenses .......................... 3,632 1,479 - - (5,111) (8) -
Nonrecurring bonuses and
employment contract
termination expenses .............. - 4,072 - - (4,072) (9) -
ESOP contribution .................... - 530 - - (530)(10) -
Amortization of intangible assets..... 4,495 328 - - 9,662 (11) 14,485
----------- ----------- -------- ---------- ---------- ---------
Operating income (loss)............... 13,473 14,378 1,590 (448) 780 29,773
Interest expense (income) ............ 9,217 1,310 35 (2) 21,092 (12) 31,652
Other expenses (income) .............. 1,182 (32) (7) 4 (600)(13) 547
----------- ----------- -------- ---------- ---------- ---------
Income (loss) before provision for
income taxes and extraordinary
item .............................. 3,074 13,100 1,562 (450) (19,712) (2,426)
Provision for income taxes (benefit) . 224 691 - (113) 554 (14) 1,356
----------- ----------- -------- ---------- ---------- ---------
Income (loss) before extraordinary
item (15) ......................... $ 2,850 $ 12,409 $ 1,562 $ (337) $ (20,266) $ (3,782)
=========== =========== ======== ========== ========= =========
See accompanying notes to the Unaudited Pro Forma Consolidated Financial Information.
</TABLE>
P-12
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
COMPANIES ACQUIRED (2)
--------------------------------------------------------------
DECRANE PREVIOUSLY INTERNATIONAL
HOLDINGS REPORTED PCI CUSTOM
HISTORICAL (1) ACQUISITIONS (3) NEWCO (4) INTERIORS (4) ADJUSTMENTS PRO FORMA
-------------- ---------------- --------- ---------------- -------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues ............................. $ 177,836 $ 18,180 $ 6,692 $ 4,753 $ (301)(5) $ 207,160
Cost of sales ........................ 118,081 11,867 4,747 3,057 (1,907)(6) 135,845
----------- ----------- -------- ---------- --------- ---------
Gross profit ......................... 59,755 6,313 1,945 1,696 1,606 71,315
Selling, general and administrative
expenses .......................... 27,507 1,497 520 492 - 30,016
Nonrecurring acquisition
expenses .......................... - 200 - - (200)(8) -
Nonrecurring bonuses and
employment contract
termination expenses .............. - 120 - - (120)(9) -
Amortization of intangible assets..... 9,506 124 - - 1,186 (11) 10,816
----------- ----------- -------- ---------- -------- --------
Operating income ..................... 22,742 4,372 1,425 1,204 740 30,483
Interest expense (income) ............ 19,884 139 (2) (19) 2,282 (12) 22,284
Other income ......................... (311) (22) (3) (4) - (340)
----------- ----------- -------- ---------- -------- --------
Income (loss) before provision for
income taxes and extraordinary
item .............................. 3,169 4,255 1,430 1,227 (1,542) 8,539
Provision for income taxes (benefit) . 2,669 (1,244) - 417 3,471 (14) 5,313
----------- ----------- -------- ---------- -------- --------
Net income (loss) .................... $ 500 $ 5,499 $ 1,430 $ 810 $ (5,013) $ 3,226
----------- ----------- -------- ---------- -------- --------
----------- ----------- -------- ---------- -------- --------
See accompanying notes to the Unaudited Pro Forma Consolidated Financial Information.
</TABLE>
P-13
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
COMPANY ACQUIRED (18)
---------------------------------------------
DECRANE INTERNATIONAL
HOLDINGS PCI CUSTOM
HISTORICAL (17) NEWCO (19) INTERIORS (19) ADJUSTMENTS PRO FORMA
--------------- ------------- ----------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents ...................... $ 3,139 $ 410 $ 168 $ - $ 3,717
Accounts receivable, net ....................... 40,074 1,116 494 - 41,684
Inventories .................................... 51,290 764 341 111 (20) 52,506
Deferred income taxes .......................... 2,916 - - - 2,916
Prepaid expenses and other current assets ...... 2,847 56 421 (412)(21) 2,912
----------- ----------- ---------- ----------- -----------
Total current assets ......................... 100,266 2,346 1,424 (301) 103,735
----------- ----------- ---------- ----------- -----------
Property and equipment, net ....................... 36,531 304 80 - 36,915
----------- ----------- ---------- ----------- -----------
Other assets, principally intangibles, net
Goodwill and other intangibles ................. 309,729 - - 8,847 (22) 318,576
Deferred financing costs ....................... 10,699 - - - 10,699
Other assets ................................... 1,174 - 3 - 1,177
----------- ----------- ---------- ----------- -----------
Net other assets, principally intangibles .... 321,602 - 3 8,847 330,452
----------- ----------- ---------- ----------- -----------
Total assets ............................... $ 458,399 $ 2,650 $ 1,507 $ 8,546 $ 471,102
=========== =========== ========== =========== ===========
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings .......................... $ 401 $ - $ - $ - $ 401
Current portion of long-term obligations ....... 3,682 - 228 (228)(23) 3,682
Accounts payable ............................... 8,749 94 64 - 8,907
Accrued expenses ............................... 23,546 224 32 - 23,802
Income taxes payable ........................... 4,638 - 298 - 4,936
----------- ---------- --------- ----------- -----------
Total current liabilities .................... 41,016 318 622 (228) 41,728
----------- ---------- --------- ----------- -----------
Long-term obligations
Senior revolving credit facility ............... 13,500 - - 11,991 (24) 25,491
Senior term facility ........................... 165,950 - - - 165,950
Senior subordinated notes ...................... 100,000 - - - 100,000
Other long-term obligations .................... 1,644 - - - 1,644
----------- ---------- --------- ---------- -----------
Total long-term obligations .................. 281,094 - - 11,991 293,085
----------- ---------- --------- ---------- -----------
Deferred income taxes ............................. 21,522 - - - 21,522
Other long-term liabilities ....................... 4,904 - - - 4,904
Mandatorily redeemable preferred stock ............ 39,785 - - - 39,785
Stockholders' equity .............................. 70,078 2,332 885 (3,217)(25) 70,078
----------- ---------- --------- ---------- -----------
Total liabilities, mandatorily redeemable
preferred stock and stockholders' equity . $ 458,399 $ 2,650 $ 1,507 $ 8,546 $ 471,102
=========== ========== ========= ========== ===========
See accompanying notes to the Unaudited Pro Forma Consolidated Financial Information.
</TABLE>
P-14
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
(1) For the year ended December 31, 1998, reflects DeCrane Holdings' historical
results of operations for the four months ended December 31, 1998 and the
historical results of operations for DeCrane Aircraft (predecessor) for the
eight months ended August 31, 1998 prior to the DLJ acquisition as
summarized in the table below. For the nine months ended September 30,
1999, reflects DeCrane Holdings' historical results of operations.
<TABLE>
<CAPTION>
EIGHT MONTHS
FOUR MONTHS DECRANE TWELVE
DECRANE AIRCRAFT MONTHS
HOLDINGS (PREDECESSOR) TOTAL
----------- ------------- -----------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
Revenues .................................................................... $ 60,356 $ 90,077 $ 150,433
Cost of sales ............................................................... 42,739 60,101 102,840
----------- ----------- -----------
Gross profit ................................................................ 17,617 29,976 47,593
Selling, general and administrative expenses ................................ 10,274 15,719 25,993
Nonrecurring acquisition expenses ........................................... - 3,632 3,632
Amortization of intangible assets ........................................... 3,148 1,347 4,495
----------- ----------- -----------
Operating income ............................................................ 4,195 9,278 13,473
Interest expense ............................................................ 6,867 2,350 9,217
Other expenses .............................................................. 335 847 1,182
----------- ----------- -----------
Income (loss) before provision for income taxes and extraordinary item ...... (3,007) 6,081 3,074
Provision for income taxes (benefit) ........................................ (2,668) 2,892 224
----------- ----------- -----------
Income (loss) before extraordinary item ..................................... $ (339) $ 3,189 $ 2,850
=========== =========== ===========
</TABLE>
(2) Reflects the historical results of operations for companies acquired and
DLJ acquisition adjustments for the periods not included in the historical
column.
(3) Reflects the results of operations of companies acquired and previously
reported as follows (dollars in thousands):
<TABLE>
<CAPTION>
CUSTOM
AVTECH (A) DETTMERS (B) PATS (C) PPI (D) WOODWORK (E) TOTAL
---------- ------------ ---------- ---------- ------------ ---------
<C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
Revenues .................................... $ 20,984 $ 2,013 $ 33,348 $ 37,714 $ 4,480 $ 98,539
Cost of sales ............................... 13,267 1,454 24,321 24,376 2,358 65,776
---------- ---------- ---------- ---------- ---------- ----------
Gross profit ................................ 7,717 559 9,027 13,338 2,122 32,763
Selling, general and
administrative expenses ................... 3,695 760 4,906 2,218 397 11,976
Nonrecurring acquisition expenses ........... 1,229 -- 250 -- -- 1,479
Nonrecurring bonuses and employment
contract termination expenses ............. 3,592 -- 480 -- -- 4,072
ESOP contribution ........................... 300 -- 230 -- -- 530
Amortization of intangible assets ........... -- -- -- 328 -- 328
---------- ---------- ---------- ---------- ---------- ----------
Operating income (loss) ..................... (1,099) (201) 3,161 10,792 1,725 14,378
Interest expense (income) ................... (60) 13 296 1,096 (35) 1,310
Other expenses (income) ..................... (35) -- -- 5 (2) (32)
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before provision for
income taxes and extraordinary item ....... (1,004) (214) 2,865 9,691 1,762 13,100
Provision for income taxes (benefit) ........ (322) -- 1,013 -- -- 691
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before extraordinary item ..... $ (682) $ (214) $ 1,852 $ 9,691 $ 1,762 $ 12,409
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
- -----------------------------
Notes (a) through (e) appear on the next page.
P-15
<PAGE>
<TABLE>
<CAPTION>
CUSTOM
AVTECH (A) DETTMERS (B) PATS (C) PPI (D) WOODWORK (E) TOTAL
----------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
NINE MONTHS ENDED SEPTEMBER 30, 1999
Revenues ................................. $ -- $ -- $ 451 $ 12,757 $ 4,972 $ 18,180
Cost of sales ............................ -- -- 1,229 8,435 2,203 11,867
----------- ------------ ------------ ------------ ------------ ------------
Gross profit (loss) ...................... -- -- (778) 4,322 2,769 6,313
Selling, general and
administrative expenses ................ -- -- 291 944 262 1,497
Nonrecurring acquisition expenses ........ -- -- 200 -- -- 200
Nonrecurring bonuses and employment
contract termination expenses .......... -- -- 120 -- -- 120
Amortization of intangible assets ........ -- -- -- 124 -- 124
----------- ------------ ------------ ------------ ------------ ------------
Operating income (loss) .................. -- -- (1,389) 3,254 2,507 4,372
Interest expense ......................... -- -- 23 127 (11) 139
Other expenses (income) .................. -- -- 11 (33) -- (22)
----------- ------------ ------------ ------------ ------------ ------------
Income (loss) before provision for
income taxes and extraordinary item .... -- -- (1,423) 3,160 2,518 4,255
Provision for income taxes (benefit) ..... -- -- (1,244) -- -- (1,244)
----------- ------------ ------------ ------------ ------------ ------------
Net income (loss) ........................ $ -- $ (179) $ 3,160 $ 2,518 $ 5,499
----------- ------------ ------------ ------------ ------------ ------------
----------- ------------ ------------ ------------ ------------ ------------
</TABLE>
- ------------------------------
(a) Avtech - For the year ended December 31, 1998, reflects the period
from January 1, 1998 to June 25, 1998; for periods subsequent to June
25, 1998, its results are included in the historical columns.
(b) Dettmers - For the year ended December 31, 1998, reflects the period
from January 1, 1998 to June 29, 1998; for periods subsequent to June
29, 1998, its results are included in the historical columns.
(c) PATS - For the year ended December 31, 1998, reflects the period from
January 1, 1998 to December 31, 1998; for the nine months ended
September 30, 1999, reflects the period from January 1, 1999 to
January 21, 1999; subsequent to January 21, 1999, its results are
included in the historical column.
(d) PPI - For the year ended December 31, 1998, reflects the period from
January 1, 1999 to December 31, 1998; for the nine months ended
September 30, 1999, reflects the period from January 1, 1999 to April
22, 1999; subsequent to April 22, 1999, its results are included in
the historical column.
(e) Custom Woodwork - For the year ended December 31, 1998, reflects the
period from January 1, 1999 to December 31, 1998; for the nine months
ended September 30, 1999, reflects the period from January 1, 1999 to
August 4, 1999; subsequent to August 4, 1999, its results are included
in the historical column.
(4) Reflects the results of operations for the year ended December 31, 1998 and
the nine months ended September 30, 1999.
(5) Reflects the elimination of intercompany sales.
P-16
<PAGE>
(6) Reflects the net change in cost of sales attributable to the following
(dollars in thousands):
<TABLE>
<CAPTION>
YEAR NINE MONTHS
ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
<S> <C> <C>
Increase (decrease) in cost of goods sold (a) ............................................ $ 1,717 $ (1,606)
Decrease in depreciation expense (b) ..................................................... (658) -
Elimination of intercompany sales ........................................................ (458) (301)
Work force reductions attributable to merging the companies acquired ..................... (60) -
----------- -----------
Net increase (decrease) in cost of sales ............................................... $ 541 $ (1,907)
=========== ===========
</TABLE>
- -----------------------------
(a) To reflect cost of goods sold based on the fair value of inventory
acquired in conjunction with the PPI, Custom Woodwork and PCI NewCo
acquisitions as if they were acquired on January 1, 1998.
(b) To reflect a decrease in depreciation expense resulting from the fair
value and remaining economic useful lives of depreciable assets
acquired in connection with the DLJ acquisition.
(7) Reflects the net decrease in selling, general and administrative expenses
attributable to the following (dollars in thousands):
<TABLE>
<CAPTION>
YEAR NINE MONTHS
ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
<S> <C> <C>
Decrease in compensation expense (a) ..................................................... $ (1,775) $ -
Decrease in investor relations expenses (b) .............................................. (221) -
Other, net (c) ........................................................................... 268 -
----------- -----------
Net decrease in selling, general and administrative expenses ........................... $ (1,728) $ -
=========== ===========
</TABLE>
- -----------------------------
(a) To reflect the resignation of some former employees and changes to
employment agreements for remaining employees of the companies
acquired.
(b) To reflect the decrease in investor relations expenses associated with
becoming a privately held company as a result of the DLJ acquisition.
(c) To reflect an increase in depreciation expense resulting from the fair
value and remaining economic useful lives of depreciable assets
acquired in connection with the DLJ acquisition, net of cost savings
attributable to employee benefit plans implemented at the companies
acquired.
(8) Reflects a reduction for nonrecurring charges incurred by DeCrane Aircraft
on behalf of its stockholders related to the DLJ acquisition, and by Avtech
and PATS on behalf of their stockholders related to their respective
acquisitions by DeCrane Aircraft.
(9) Reflects a reduction in expense attributable to employment contract
termination expenses and nonrecurring bonuses awarded prior to, and in
anticipation of, the acquisitions of Avtech and PATS by DeCrane Aircraft.
(10) Reflects a reduction in expense attributable to the termination of the
Employee Stock Ownership Plans in conjunction with the acquisitions of
Avtech and PATS.
P-17
<PAGE>
(11) Reflects a net increase in amortization expense pertaining to the
amortization of goodwill and other intangible assets related to the DLJ,
PATS, PPI, Custom Woodwork, PCI NewCo and International Custom Interiors
acquisitions on a straight-line basis as follows (dollars in thousands):
<TABLE>
<CAPTION>
AMORTIZATION EXPENSE
--------------------------
YEARS YEAR NINE MONTHS
INTANGIBLE ESTIMATED ENDED ENDED
ASSET USEFUL DECEMBER 31, SEPTEMBER 30,
AMOUNT LIFE 1998 1999
------------ ----------- ------------ -------------
<S> <C> <C> <C> <C>
Elimination of predecessor basis amortization:
DeCrane Aircraft ............................................. $ (1,347) $ -
PPI .......................................................... (328) (124)
DLJ acquisition amortization (a):
Goodwill ..................................................... $ 166,675 30 3,704 -
FAA certifications ........................................... 30,391 15 1,351 -
Engineering drawings ......................................... 9,138 15 406 -
Assembled workforce .......................................... 6,588 7 627 -
Tradenames, trademarks and patents ........................... 3,908 5 to 12 269 -
Amortization attributable to 1999 acquisitions (b):
PATS (c)
Goodwill ................................................... 24,250 30 808 67
Customer contracts ......................................... 8,515 7 1,216 101
FAA certifications ......................................... 2,000 15 133 11
Engineering drawings ....................................... 2,000 15 133 11
PPI (d)
Goodwill ................................................... 50,349 30 1,678 560
Assembled workforce ........................................ 1,923 7 275 92
Engineering drawings ....................................... 624 15 42 14
Custom Woodwork (e)
Goodwill ................................................... 11,284 30 376 219
Assembled workforce ........................................ 167 7 24 14
PCI NewCo (f)
Goodwill ................................................... 6,357 30 212 159
International Custom Interiors (f)
Goodwill ................................................... 2,490 30 83 62
----------- -----------
Net increase in amortization ............................ $ 9,662 $ 1,186
=========== ===========
</TABLE>
- -----------------------------
(a) For the year ended December 31, 1998, reflects amortization for the
period from January 1, 1998 to August 31, 1998. Subsequent to August
31, 1998, amortization is included in the historical column.
(b) Amortization expense may change upon completion of the final
valuations of the net assets acquired.
(c) For the year ended December 31, 1998, reflects amortization for the
period from January 1, 1998 to December 31, 1998. For the nine months
ended September 30, 1999, reflects amortization for the period from
January 1, 1999 to January 21, 1999; subsequent to January 21, 1999,
amortization is included in the historical column.
(d) For the year ended December 31, 1998, reflects amortization for the
period from January 1, 1999 to December 31, 1998. For the nine months
ended September 30, 1999, reflects amortization for the period from
January 1, 1999 to April 22, 1999; subsequent to April 22, 1999,
amortization is included in the historical column.
(e) For the year ended December 31, 1998, reflects amortization for the
period from January 1, 1999 to December 31, 1998. For the nine months
ended September 30, 1999, reflects amortization for the period from
January 1, 1999 to August 4, 1999; subsequent to August 4, 1999,
amortization is included in the historical column.
(f) Reflects amortization for the year ended December 31, 1998 and the
nine months ended September 30, 1999.
P-18
<PAGE>
(12) Reflects the net increase in interest expense, including deferred financing
cost amortization and commitment fees, as a result of the 1998 Avtech,
Dettmers and DLJ acquisitions and the 1999 PATS, PPI, Customer Woodwork,
PCI NewCo and International Custom Interiors acquisitions as if they all
had occurred on January 1, 1998.
Pro forma interest expense consists of the following (dollars in
thousands):
<TABLE>
<CAPTION>
INTEREST EXPENSE
--------------------------
YEAR NINE MONTHS
ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
RATE OR TERM AMOUNT 1998 1999
---------------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Senior credit facility (a):
Revolving credit facilities ....................... LIBOR (b) + 2.75% $ (c) $ 2,469 $ 916
Term facilities:
Term A .......................................... LIBOR (b) + 2.75% (d) 2,955 2,075
Term B .......................................... LIBOR (b) + 3.00% (e) 5,615 3,968
Term C .......................................... LIBOR (b) + 3.25% (f) 6,220 4,381
Senior subordinated notes ........................... 12.00% 100,000 12,000 9,000
Customer advance .................................... 7.50% (g) 380 200
Other long-term obligations ......................... 4.34% to 18.08% (h) 148 271
Deferred financing cost amortization:
Senior revolving credit facilities ................ 6 years (i) 1,277 213 160
Senior term facilities:
Term A .......................................... 6 years (j) 894 196 146
Term B .......................................... 7 years (j) 2,043 313 233
Term C .......................................... 7 years (j) 2,168 336 249
Senior subordinated notes ......................... 10 years (j) 5,810 581 436
Commitment fees and expenses ........................ 226 249
----------- -----------
Pro forma interest expense (k) .................. $ 31,652 $ 22,284
=========== ===========
</TABLE>
- -----------------------------
(a) Reflects the senior credit facility established in conjunction with
the DLJ acquisition, as amended for the PATS, PPI, Custom Woodwork,
PCI NewCo and International Custom Interiors acquisitions, as if all
events had occurred January 1, 1998.
(b) Calculations based on the historical LIBOR rates charged during the
respective periods. The weighted average historical LIBOR rates were
as follows:
<TABLE>
<CAPTION>
YEAR NINE MONTHS
ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ --------------
<S> <C> <C>
Revolving credit facilities .......................................................... 5.585% 5.092%
Term A facility ...................................................................... 5.694% 5.231%
Term B facility ...................................................................... 5.666% 5.236%
Term C facility ...................................................................... 5.669% 5.199%
</TABLE>
(c) Reflects revolving credit facility borrowings for the DLJ, PATS, PPI,
Custom Woodwork, PCI NewCo and International Custom Interiors
acquisitions as of January 1, 1998. The pro forma weighted average
borrowings outstanding under the revolving credit facilities were
$29.6 million for the twelve months ended December 31, 1998 and $15.6
million for the nine months ended September 30, 1999.
(d) Reflects Term A facility borrowings of $35.0 million for the DLJ
acquisition as of January 1, 1998 reduced by quarterly principal
payments of $438,000 commencing March 31, 1999. The pro forma weighted
average borrowings outstanding under the Term A facility were $35.0
million for the twelve months ended December 31, 1998 and $34.7
million for the nine months ended September 30, 1999.
(e) Reflects Term B facility borrowings of $65.0 million for the DLJ and
PATS acquisitions as of January 1, 1998 reduced by quarterly principal
payments of $163,000 commencing March 31, 1998. The pro forma weighted
average borrowings outstanding under the Term B facility were $64.8
million for the twelve months ended December 31, 1998 and $64.2
million for the nine months ended September 30, 1999.
P-19
<PAGE>
(f) Reflects Term C facility borrowings of $70.0 million for the PPI
acquisition and to refinance acquisition related revolving credit
facility borrowings as of January 1, 1998 reduced by quarterly
principal payments of $175,000 commencing March 31, 1998. The pro
forma weighted average borrowings outstanding under the Term C
facility were $69.7 million for the twelve months ended December 31,
1998 and $69.1 million for the nine months ended September 30, 1999.
(g) Reflects a $5.0 million customer advance related to the PATS
acquisition as of January 1, 1998 reduced by principal payments of H
$975,000 on November 30, 1998 and $1.2 million on May 31, 1999. The
pro forma weighted average advance outstanding was $4.9 million for
the twelve months ended December 31, 1998 and $3.5 million for the
nine months ended September 30, 1999.
(h) Reflects historical interest expense related to capital lease
obligations and equipment term debt financing.
(i) Deferred financing costs are amortized on a straight-line basis over
the term of the agreement.
(j) Deferred financing costs are amortized using the effective interest
method.
(k) A 0.125% change in the interest rates charged on variable rate
borrowings would change interest expense by $260,000 for the twelve
months ended December 31, 1998 and $192,000 for the nine months ended
September 30, 1999. Income (loss) before extraordinary item would
change by $158,000 for the twelve months ended December 31, 1998 and
$116,000 for the nine months ended September 30, 1999.
(13) Reflects adjustment for nonrecurring charges associated with a terminated
debt offering in June 1998. Such offering was terminated upon initiation of
the DLJ acquisition.
(14) Represents an increase in the provision for income taxes as a result of a
change in pro forma taxable income, a provision for income taxes on the
income of Dettmers, PPI, Custom Woodwork and PCI NewCo which were taxed as
S Corporations prior to their acquisitions, and elimination of the $2.6
million one time benefit caused by reversal of DeCrane Holding's deferred
tax valuation allowance. The effective tax rate differs from the U.S.
federal statutory rate due to goodwill amortization related to acquisitions
not deductible for income tax purposes and state income taxes.
(15) In conjunction with the DLJ acquisition, deferred financing costs of
$347,000, net of income tax benefit, were written off as an extraordinary
charge as a result of the termination of DeCrane Aircraft's prior senior
credit facility. In conjunction with the sale of the senior subordinated
notes described in the prospectus, deferred financing costs of $1.9
million, net of income tax benefit, were written off as an extraordinary
charge as a result of the termination of the bridge notes. These amounts
have not been reflected in the unaudited pro forma consolidated statement
of operations for the year ended December 31, 1998.
(16) Supplemental pro forma financial information is as follows (dollars in
thousands):
<TABLE>
<CAPTION>
YEAR NINE MONTHS
ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
<S> <C> <C>
Net cash provided by (used for)
Operating activities ................................................................... $ 3,880 $ 18,997
Investing activities ................................................................... (404,831) (7,801)
Financing activities ................................................................... 403,260 (16,891)
EBITDA (a) ............................................................................... 56,023 46,519
Depreciation and amortization (b) ........................................................ 20,085 16,036
Capital expenditures
Paid in cash ........................................................................... 7,025 4,912
Financed with capital lease obligations ................................................ 164 1,323
Cash interest expense .................................................................... 30,013 21,060
Ratio of earnings to fixed charges (c) ................................................... - 1.4x
</TABLE>
- -----------------------------
Notes (a) through (c) appear on the next page.
P-20
<PAGE>
(a) EBITDA equals operating income plus depreciation, amortization, parent
company management fees and certain non-cash and acquisition related
charges. EBITDA is not a measure of performance or financial condition
under generally accepted accounting principles. EBITDA is not intended
to represent cash flow from operations and should not be considered as
an alternative to income from operations or net income computed in
accordance with generally accepted accounting principles, as an
indicator of our operating performance, as an alternative to cash flow
from operating activities or as a measure of liquidity. The funds
depicted by EBITDA are not available for our discretionary use due to
funding requirements for working capital, capital expenditures, debt
service, income taxes and other commitments and contingencies. We
believe that EBITDA is a standard measure of liquidity commonly
reported and widely used by analysts, investors and other interested
parties in the financial markets. However, not all companies calculate
EBITDA using the same method and the EBITDA numbers set forth above
may not be comparable to EBITDA reported by other companies.
(b) Reflects depreciation and amortization of plant and equipment,
goodwill and other intangible assets. Excludes amortization of
deferred financing costs and debt discounts, which are classified as a
component of interest expense.
(c) For purposes of calculating the earnings to fixed charges ratio,
earnings represent net income before income taxes, minority interest
in the income of majority-owned subsidiaries, extraordinary items and
fixed charges. Fixed charges consist of:
- interest, whether expensed or capitalized;
- amortization of debt expense and discount relating to any
indebtedness, whether expensed or capitalized; and
- one-third of rental expense under operating leases which is
considered to be a reasonable approximation of the interest
portion of such expense.
There was a $2.3 million deficiency of earnings to fixed charges
for the year ended December 31, 1998.
(17) Reflects DeCrane Holdings' financial position subsequent to the 1998
Avtech, Dettmers and DLJ acquisitions and the 1999 PATS, PPI and Custom
Woodwork acquisitions.
(18) Reflects DeCrane Holdings' purchase of substantially all of the assets, of
PCI NewCo and all of the common stock of International Custom Interiors.
Sources and uses of funds for the acquisitions, had they occurred on
September 30, 1999, are as follows (dollars in thousands):
<TABLE>
<CAPTION>
INTERNATIONAL
PCI CUSTOM
NEWCO INTERIORS TOTAL
----------- ----------- -----------
<S> <C> <C> <C>
SOURCES
Senior revolving credit facility borrowings ................................. $ 8,800 $ 3,191 $ 11,991
=========== =========== ===========
USES
Purchase of net assets and common stock ..................................... $ 8,500 $ 2,791 $ 11,291
Estimated acquisition fees and expenses ..................................... 300 400 700
----------- ----------- -----------
Total uses ................................................................ $ 8,800 $ 3,191 $ 11,991
=========== =========== ===========
</TABLE>
(19) Reflects the financial position of PCI NewCo and International Custom
Interiors as of September 30, 1999.
(20) Reflects the increase in PCI NewCo's inventory to its estimated fair value
as of the acquisition date.
(21) Reflects the elimination of notes receivable from the former stockholders
of International Custom Interiors not acquired.
(22) Reflects the excess of the PCI NewCo and International Custom Interiors
purchase prices over the fair value of the assets acquired. For purposes of
this pro forma consolidated financial information, we allocated the excess
purchase prices to goodwill and amortized it on a straight-line basis over
30 years. Such allocations are preliminary and may change upon the
completion of the final valuations of the assets acquired.
(23) Reflects the repayment of a debt obligation of International Custom
Interiors concurrent with its acquisition.
P-21
<PAGE>
(24) Reflects the senior credit facility borrowings for the PCI NewCo and
International Custom Interiors acquisitions. The terms of the senior credit
facility are described in our historical consolidated financial statements
included in the prospectus and Form 10-Q.
(25) Reflects the elimination of PCI NewCo and International Custom Interiors
stockholders' equity upon acquisition.
P-22
