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 AIRCRAFT HOLDINGS, INC. (Exact name of registrant as specified in its charter) DELAWARE 333-70365 34-1645569 (State or other jurisdiction (Commission File Number) (I.R.S. Employer of incorporation) Identification No.) 2361 ROSECRANS AVENUE, SUITE 180, EL SEGUNDO, CA 90245 (Address, including zip code, of principal executive offices) (310) 725-9123 (Registrant's telephone number, including area code) -------------------------- NOT APPLICABLE (Former address and telephone number of principal executive offices, if changed since last report) -------------------------- EXPLANATORY NOTE On October 19, 1999, DeCrane Aircraft Holdings, Inc. 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 Aircraft 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. 333-70365 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: Page ------ 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 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 (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: Page ---- 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 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) December 14, 1999 By: /s/ Richard J. Kaplan ---------------------------------------- Name: Richard J. Kaplan Title: Senior Vice President, Chief Financial Officer, Secretary and Treasurer 2 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 PCI NEWCO, INC. BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA) DECEMBER 31, ------------------------ SEPTEMBER 30, 1997 1998 1999 ----------- ----------- ----------- (UNAUDITED) 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 =========== =========== =========== The accompanying notes are an integral part of the financial statements. F-10 PCI NEWCO, INC. STATEMENTS OF INCOME (IN THOUSANDS) YEAR ENDED NINE MONTHS ENDED DECEMBER 31, SEPTEMBER 30, ------------------------ ------------------------ 1997 1998 1998 1999 ----------- ----------- ----------- ----------- (UNAUDITED) 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 =========== =========== =========== =========== The accompanying notes are an integral part of the financial statements. F-11 PCI NEWCO, INC. STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE DATA) COMMON STOCK - CLASS A ------------------------- NUMBER ADDITIONAL OF PAID-IN RETAINED SHARES AMOUNT CAPITAL EARNINGS TOTAL ----------- ----------- ----------- ----------- ----------- 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 =========== =========== =========== =========== =========== The accompanying notes are an integral part of the financial statements. F-12 PCI NEWCO, INC. STATEMENTS OF CASH FLOWS (IN THOUSANDS) YEAR ENDED NINE MONTHS ENDED DECEMBER 31, SEPTEMBER 30, ----------------------- ------------------------ 1997 1998 1998 1999 ----------- ----------- ----------- ----------- (UNAUDITED) 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 =========== =========== =========== =========== The accompanying notes are an integral part of the financial statements. F-13 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 PCI NEWCO, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 3 - INVENTORIES Inventories consist of the following (amounts in thousands): DECEMBER 31, ------------------------ SEPTEMBER 30, 1997 1998 1999 ----------- ----------- ------------- (UNAUDITED) Raw materials ...................................................................... $ 350 $ 396 $ 494 Work-in-process .................................................................... 213 489 270 ----------- ----------- ----------- Total inventories ............................................................... $ 563 $ 885 $ 764 =========== =========== =========== NOTE 4 - PROPERTY AND EQUIPMENT Property and equipment consists of the following (amounts in thousands): DECEMBER 31, ------------------------ SEPTEMBER 30, 1997 1998 1999 ----------- ----------- ----------- (UNAUDITED) 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 =========== =========== =========== 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): DECEMBER 31, ------------------------ SEPTEMBER 30, 1997 1998 1999 ----------- ----------- ------------- (UNAUDITED) Payroll ............................................................................ $ 67 $ 36 $ 161 Profit sharing ..................................................................... 33 57 61 Other .............................................................................. 8 4 2 ----------- ----------- ----------- Total accrued expenses .......................................................... $ 108 $ 97 $ 224 =========== =========== =========== F-15 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: WEIGHTED- NUMBER AVERAGE OF EXERCISE SHARES PRICE ----------- ------------ 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 =========== 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 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. DECEMBER 31, 1997 DECEMBER 31, 1998 ------------------------ ------------------------ CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE ----------- ----------- ----------- ----------- 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 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 UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION BASIS OF PRESENTATION The following unaudited pro forma consolidated financial information for DeCrane Aircraft 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 Aircraft's 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 Aircraft's 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 Aircraft 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 Aircraft's 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 Aircraft's results of operations or financial position for any future period or date. P-11 UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1998 COMPANIES ACQUIRED (2) ------------------------------------------------------ DECRANE PREVIOUSLY INTERNATIONAL AIRCRAFT REPORTED PCI CUSTOM HISTORICAL (1) ACQUISITIONS (3) NEWCO (4) INTERIORS (4) ADJUSTMENTS PRO FORMA -------------- ---------------- --------- ------------- ----------- ----------- (DOLLARS IN THOUSANDS) 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) ............ 9,202 1,310 35 (2) 21,107 (12) 31,652 Other expenses (income) .............. 1,182 (32) (7) 4 (600)(13) 547 ----------- ----------- -------- ---------- --------- --------- Income (loss) before provision for income taxes and extraordinary item .............................. 3,089 13,100 1,562 (450) (19,727) (2,426) Provision for income taxes (benefit) . 224 691 - (113) 554 (14) 1,356 ----------- ----------- -------- ---------- --------- --------- Income (loss) before extraordinary item (15) ......................... $ 2,865 $ 12,409 $ 1,562 $ (337) $ (20,281) $ (3,782) =========== =========== ======== ========== ========= ========= See accompanying notes to the Unaudited Pro Forma Consolidated Financial Information. P-12 UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPANIES ACQUIRED (2) ------------------------------------------------------ DECRANE PREVIOUSLY INTERNATIONAL AIRCRAFT REPORTED PCI CUSTOM HISTORICAL (1) ACQUISITIONS (3) NEWCO (4) INTERIORS (4) ADJUSTMENTS PRO FORMA -------------- ---------------- --------- ------------- ----------- ----------- (DOLLARS IN THOUSANDS) 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. P-13 UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 1999 COMPANY ACQUIRED (18) DECRANE -------------------------------------- AIRCRAFT INTERNATIONAL HISTORICAL PCI CUSTOM (SUCCESSOR)(17) NEWCO(19) INTERIORS(19) ADJUSTMENTS PRO FORMA --------------- ---------- ------------ ------------ ---------- (DOLLARS IN THOUSANDS) 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 ................................... 1,538 - 3 - 1,541 --------- --------- --------- --------- --------- Net other assets, principally intangibles .... 321,966 - 3 8,847 330,816 --------- --------- --------- --------- --------- Total assets ............................... $ 458,763 $ 2,650 $ 1,507 $ 8,546 $ 471,466 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- LIABILITIES AND STOCKHOLDER'S 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 ............................... 23,740 224 32 - 23,996 Income taxes payable ........................... 4,638 - 298 - 4,936 --------- --------- --------- --------- --------- Total current liabilities .................... 41,210 318 622 (228) 41,922 --------- --------- --------- --------- --------- 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 Stockholder's equity .............................. 110,033 2,332 885 (3,217)(25) 110,033 --------- --------- --------- --------- --------- Total liabilities and stockholder's equity.. $ 458,763 $ 2,650 $ 1,507 $ 8,546 $ 471,466 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- See accompanying notes to the Unaudited Pro Forma Consolidated Financial Information. P-14 NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION (1) For the year ended December 31, 1998, reflects DeCrane Aircraft's historical results of operations for the eight months ended August 31, 1998 prior to the DLJ acquisition (predecessor) and the four months ended December 31, 1998 subsequent to the DLJ acquisition (successor) as summarized in the table below. For the nine months ended September 30, 1999, reflects DeCrane Aircraft's historical results of operations subsequent to the DLJ acquisition (successor). DECRANE AIRCRAFT HISTORICAL ------------------------------------- EIGHT FOUR TWELVE MONTHS MONTHS MONTHS (PREDECESSOR) (SUCCESSOR) TOTAL ------------ ----------- ----------- YEAR ENDED DECEMBER 31, 1998 Revenues .................................................................... $ 90,077 $ 60,356 $ 150,433 Cost of sales ............................................................... 60,101 42,739 102,840 ----------- ----------- ----------- Gross profit ................................................................ 29,976 17,617 47,593 Selling, general and administrative expenses ................................ 15,719 10,274 25,993 Nonrecurring acquisition expenses ........................................... 3,632 - 3,632 Amortization of intangible assets ........................................... 1,347 3,148 4,495 ----------- ----------- ----------- Operating income ............................................................ 9,278 4,195 13,473 Interest expense ............................................................ 2,350 6,852 9,202 Other expenses .............................................................. 847 335 1,182 ----------- ----------- ----------- Income (loss) before provision for income taxes and extraordinary item ...... 6,081 (2,992) 3,089 Provision for income taxes (benefit) ........................................ 2,892 (2,668) 224 ----------- ----------- ----------- Income (loss) before extraordinary item ..................................... $ 3,189 $ (324) $ 2,865 =========== =========== =========== (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): CUSTOM AVTECH (A) DETTMERS (B) PATS (C) PPI (D) WOODWORK (E) TOTAL ----------- ------------ ----------- ----------- ------------- ----------- 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 =========== =========== ========== ========== ========= ========== ------------------------ Notes (a) through (e) appear on the next page. P-15 CUSTOM AVTECH (A) DETTMERS (B) PATS (C) PPI (D) WOODWORK (E) TOTAL ----------- ------------ ----------- ----------- ------------- ----------- 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 =========== =========== ========== ========== ========= ========== - --------------------------- (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 (6) Reflects the net change in cost of sales attributable to the following (dollars in thousands): YEAR NINE MONTHS ENDED ENDED DECEMBER 31, SEPTEMBER 30, 1998 1999 ----------- ------------- 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) =========== =========== - ----------------------------- (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): YEAR NINE MONTHS ENDED ENDED DECEMBER 31, SEPTEMBER 30, 1998 1999 ----------- ------------- 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) $ - =========== ========= - ----------------------------- (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 (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): AMORTIZATION EXPENSE -------------------------- YEARS YEAR NINE MONTHS INTANGIBLE ESTIMATED ENDED ENDED ASSET USEFUL DECEMBER 31, SEPTEMBER 30, AMOUNT LIFE 1998 1999 ---------- --------- ------------ ------------- 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 =========== =========== - ----------------------------- (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 (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): INTEREST EXPENSE ------------------------ YEAR NINE MONTHS ENDED ENDED DECEMBER 31, SEPTEMBER 30, RATE OR TERM AMOUNT 1998 1999 ---------------------- ----------- ------------ ------------- 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 =========== =========== - ----------------------------- (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: YEAR NINE MONTHS ENDED ENDED DECEMBER 31, SEPTEMBER 30, 1998 1999 ----------- ------------ 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% (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 (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 $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 Aircraft'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): YEAR NINE MONTHS ENDED ENDED DECEMBER 31, SEPTEMBER 30, 1998 1999 ----------- ------------- Net cash provided by (used for) Operating activities ................................................................... $ 3,880 $ 18,997 Investing activities ................................................................... (219,705) (7,801) Financing activities ................................................................... 218,134 (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 ---------------------- Notes (a) through (c) appear on the next page. P-20 (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 Aircraft's financial position subsequent to the 1998 Avtech, Dettmers and DLJ acquisitions and the 1999 PATS, PPI and Custom Woodwork acquisitions. (18) Reflects DeCrane Aircraft's 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): INTERNATIONAL PCI CUSTOM NEWCO INTERIORS TOTAL ----------- ------------- ----------- 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 =========== =========== =========== (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 (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