DECRANE AIRCRAFT HOLDINGS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The Pro Forma Condensed Consolidated Financial Information should be read
in conjunction with: (i) the Company's audited consolidated financial statements
and notes thereto, and the unaudited pro forma financial data for the year ended
December 31, 1996, which are included in the Company's Prospectus dated April
16, 1997 issued in connection with its initial public offering of common stock
(as previously filed as Exhibit 20.1 to the Form 10-Q for the quarter ended
March 31, 1997); and (ii) the Company's Form 10-Q for the quarter ended
September 30, 1997.
The following Unaudited Pro Forma Condensed Consolidated Financial
Information is based on the historical consolidated financial statements of the
Company, adjusted to present the unaudited pro forma condensed consolidated
results of operations of the Company as if the following transactions had
occurred on January 1, 1996: (i) the acquisition of Audio International, Inc.
("Audio International") for $24,726,000 in cash, including $726,000 of
acquisition related expenses; (ii) the Minority Interest and ADS Acquisitions,
as described in the Company's Prospectus; (iii) the Recapitalization, as
described in the Company's Prospectus; and (iv) the sale by the Company of
2,700,000 shares of Common Stock in the Offering and the application of the net
proceeds therefrom as set forth under "Use of Proceeds" in the Prospectus. The
unaudited pro forma condensed consolidated balance sheet reflects the
acquisition of Audio International on a pro forma basis as if the acquisition
had occurred on September 30, 1997.
The unaudited pro forma condensed consolidated statement of operations for
the nine months ended September 30, 1997 reflects the unaudited historical
consolidated financial statements of the Company, adjusted to reflect: (i) the
pro forma effect of the Recapitalization and the Offering; and (ii) the
combination, with appropriate adjustments, of the unaudited consolidated
financial statements of Audio International nine months ended September 30, 1997
(the "1997 Acquisition").
The unaudited pro forma condensed consolidated statement of operations for
the year ended December 31, 1996 reflects the audited historical consolidated
financial statements of the Company, adjusted to reflect: (i) the combination,
with appropriate adjustments, of the unaudited financial statements of ADS for
the period from January 1 through September 18, 1996, the date on which it was
acquired and the Minority Interest Acquisition (the "1996 Acquisitions"); (ii)
the pro forma effect of the Recapitalization and the Offering; and (iii) the
combination, with appropriate adjustments, of the audited consolidated financial
statements of Audio International for the year ended December 31, 1996 (the
"1997 Acquisition").
The Company believes the Unaudited Pro Forma Condensed Consolidated
Financial Information contains all adjustments necessary for a fair presentation
of the above described transactions. The pro forma adjustments are based upon
available information and certain assumptions that the Company believes are
reasonable. With respect to the Audio International pro forma acquisition
adjustments described in the accompanying notes, the allocation of the purchase
price is preliminary and subject to final determination by the Company. The pro
forma acquisition adjustments also exclude the effect of contingent
consideration aggregating a maximum $6,000,000 payable over two years based on
future attainment of defined performance criteria. The Unaudited Pro Forma
Condensed Consolidated Financial Information is presented for illustrative
purposes only and is not necessarily indicative of the results of operations
that would have occurred had the transactions been consummated on the dates
indicated, or that may be obtained in future periods.
1
DECRANE AIRCRAFT HOLDINGS, INC.
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
1997 Acquisition
DeCrane ----------------------------
Aircraft Audio
Holdings, Offering International, Acquisition Pro Forma
Inc. Adjustments Pro Forma Inc. Adjustments as Adjusted
------------ ------------ ------------ -------------- ------------ -----------
Revenues $ 80,887 $ -- $ 80,887 $ 11,162 $ -- $ 92,049
Cost of sales 60,518 -- 60,518 6,180 54 (6) 66,752
--------- --------- --------- --------- --------- ---------
Gross profit (loss) 20,369 -- 20,369 4,982 (54) 25,297
Selling, general and
administrative expenses 11,012 100 (2) 11,112 3,230 (76) (7) 14,266
Amortization of intangible assets 616 -- 616 -- 492 (8) 1,108
--------- --------- --------- --------- --------- ---------
Operating income (loss) 8,741 (100) 8,641 1,752 (470) 9,923
Interest expense 2,598 (1,528)(3) 1,070 -- 1,463 (9) 2,533
Other expenses 388 -- 388 2 -- 390
--------- --------- --------- --------- --------- ---------
Income (loss) before provision
(benefit) for income taxes 5,755 1,428 7,183 1,750 (1,933) 7,000
Provision (benefit) for income taxes 2,191 528 (4) 2,719 624 (606) (10) 2,737
--------- --------- --------- --------- --------- ---------
Income (loss) (1) $ 3,564 $ 900 $ 4,464 $ 1,126 $ (1,327) $ 4,263
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Income (loss) applicable to
common stockholders (1) $ 919 $ 3,545 (5)$ 4,464 $ 1,126 $ (1,327) $ 4,263
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Income (loss) per share (1)
Pro forma for the Recapitalization $ 0.77 (11) $ -- $ --
Pro forma for the Recapitalization
and the Offering -- 0.79 (12) --
Pro forma as adjusted -- -- 0.75 (13)
Weighted average number of
common shares outstanding
Pro forma for the Recapitalization 4,617 (11) -- --
Pro forma for the Recapitalization
and the Offering -- 5,648 (12) --
Pro forma as adjusted -- -- 5,648 (13)
The accompanying notes are an integral part of the Unaudited
Pro Forma Condensed Consolidated Financial Information.
2
DECRANE AIRCRAFT HOLDINGS, INC.
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
1996 Acquisitions
DeCrane ---------------------------------
Aircraft Aerospace
Holdings, Display Acquisition Offering
Inc. Systems Adjustments Adjustments
------------ ------------- ------------- ------------
Revenues $ 65,099 $ 7,706 $ -- $ --
Cost of sales 49,392 4,855 284 (14) --
---------- ---------- ---------- ----------
Gross profit (loss) 15,707 2,851 (284) --
Selling, general and
administrative expenses 10,904 1,286 (203) (14) 200 (14)
Amortization of
intangible assets 709 -- 214 (14) --
Gain on litigation settlement (157) -- -- --
---------- ---------- ---------- ----------
Operating income (loss) 4,251 1,565 (295) (200)
Interest expense 4,248 52 1,125 (14) (4,639) (14)
Other expenses (income) 108 -- (89) (14) --
---------- ---------- ---------- ----------
Income (loss) before provision
(benefit) for income taxes (105) 1,513 (1,331) 4,439
Provision (benefit) for
income taxes 712 615 (777) (14) 1,377 (15)
---------- ---------- ---------- ----------
Income (loss) (1) $ (817) $ 898 $ (554) $ 3,062
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Income (loss) applicable to
common stockholders (1) $ (6,357) $ 898 $ (554) $ 8,602 (5)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Income (loss) per share (1)
Pro forma for the
Recapitalization $ (0.31) (14)
Pro forma for the
Recapitalization,
1996 Acquisitions and
the Offering --
Pro forma as adjusted --
Weighted average number of
common shares outstanding
Pro forma for the
Recapitalization 2,659 (14)
Pro forma for the
Recapitalization,
1996 Acquisitions and
the Offering --
Pro forma as adjusted --
1997 Acquisition
---------------------------------
Audio
International, Acquisition Pro Forma
Pro Forma Inc. Adjustments as Adjusted
-------------- ------------- ------------- -------------
Revenues $ 72,805 $ 10,134 $ -- $ 82,939
Cost of sales 54,531 4,667 141 (6) 59,339
---------- ---------- ---------- ----------
Gross profit (loss) 18,274 5,467 (141) 23,600
Selling, general and
administrative expenses 12,187 2,926 45 (7) 15,158
Amortization of
intangible assets 923 -- 657 (8) 1,580
Gain on litigation settlement (157) -- -- (157)
---------- ---------- ---------- ----------
Operating income (loss) 5,321 2,541 (843) 7,019
Interest expense 786 13 1,850 (9) 2,649
Other expenses (income) 19 (16) -- 3
---------- ---------- ---------- ----------
Income (loss) before provision
(benefit) for income taxes 4,516 2,544 (2,693) 4,367
Provision (benefit) for
income taxes 1,927 926 (734) (10) 2,119
---------- ---------- ---------- ----------
Income (loss) (1) $ 2,589 $ 1,618 $ (1,959) $ 2,248
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Income (loss) applicable to
common stockholders (1) $ 2,589 $ 1,618 $ (1,959) $ 2,248
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Income (loss) per share (1)
Pro forma for the
Recapitalization $ -- $ --
Pro forma for the
Recapitalization,
1996 Acquisitions and
the Offering 0.46 (12) --
Pro forma as adjusted -- 0.40 (13)
Weighted average number of
common shares outstanding
Pro forma for the
Recapitalization -- --
Pro forma for the
Recapitalization,
1996 Acquisitions and
the Offering 5,613 (12) --
Pro forma as adjusted -- 5,613 (13)
The accompanying notes are an integral part of the Unaudited
Pro Forma Condensed Consolidated Financial Information.
3
DECRANE AIRCRAFT HOLDINGS, INC.
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(IN THOUSANDS)
1997 Acquisition
DeCrane ---------------------------------
Aircraft Audio
Holdings, International, Acquisition Pro Forma
Inc. Inc. Adjustments as Adjusted
---------- -------------- ------------- -----------
ASSETS
Current assets
Cash and cash equivalents $ 339 $ 778 $ -- $ 1,117
Accounts receivable, net 15,368 2,526 -- 17,894
Inventories 22,046 1,538 -- 23,584
Prepaid expenses and other current assets 874 360 -- 1,234
---------- ---------- ---------- ----------
Total current assets 38,627 5,202 -- 43,829
Property and equipment, net 12,245 1,538 499 (16) 14,282
Other assets, principally intangibles, net 19,773 101 19,697 (17) 39,571
---------- ---------- ---------- ----------
Total assets $ 70,645 $ 6,841 $ 20,196 $ 97,682
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings $ 723 $ -- $ -- $ 723
Current portion of long-term debt 946 -- -- 946
Accounts payable 8,053 272 -- 8,325
Accrued expenses 5,666 785 -- 6,451
Income taxes payable 910 471 -- 1,381
---------- ---------- ---------- ----------
Total current liabilities 16,298 1,528 -- 17,826
Long-term liabilities
Long-term obligations 12,667 747 24,726(18) 38,140
Deferred income taxes 3,826 36 -- 3,862
Minority interest 65 -- -- 65
---------- ---------- ---------- ----------
Total long-term liabilities 16,558 783 24,726 42,067
Stockholders' equity
Common stock 53 -- -- 53
Additional paid-in capital 50,390 691 (691)(19) 50,390
Retained earnings (deficit) (12,525) 3,839 (3,839)(19) (12,525)
Foreign currency translation adjustment (129) -- -- (129)
---------- ---------- ---------- ----------
Total stockholders' equity 37,789 4,530 (4,530) 37,789
---------- ---------- ---------- ----------
Total liabilities and stockholders' equity $ 70,645 $ 6,841 $ 20,196 $ 97,682
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
The accompanying notes are an integral part of the Unaudited
Pro Forma Condensed Consolidated Financial Information.
4
DECRANE AIRCRAFT HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(1) Reflects income (loss) before an extraordinary charge incurred as a
result of the debt repayment with the net proceeds from the Offering as
described in the Company's Form 10-Q for the quarter ended September 30,
1997.
(2) Represents incremental general and administrative expenses associated
with regulatory compliance requirements including listing, registrar and
transfer agent fees, quarterly and annual report and proxy statement
preparation and distribution expenses, legal and accounting fees and
director and officers' liability insurance premiums.
(3) Represents a decrease in interest expense to reflect the sale by the
Company of 2,700,000 shares of common stock in the Offering and the
application of the net proceeds therefrom as described in the Prospectus.
(4) Represents an increase in the provision for income taxes resulting from
an increase in pro forma taxable income.
(5) Reflects the elimination of preferred stock dividends and adjustment of
redemption value of the mandatorily redeemable common stock warrants as a
result of the Recapitalization and the Offering as described in the
Company's Form 10-Q for the quarter ended September 30, 1997 and in
"Unaudited Pro Forma Consolidated Financial Data" in the Prospectus.
(6) For the nine months ended September 30, 1997, represents an increase in
depreciation expense to reflect a $499,000 increase in the fair value of
assets acquired.
For the year ended December 31, 1996, represents: (i) an increase of
$69,000 to conform the expense classification used in the December 31,
1996 audited financial statements to the expense classification used by
the Company in presenting the statement of operations for the nine months
ended September 30, 1997; and (ii) a $72,000 increase in depreciation
expense to reflect a $499,000 increase in the fair value of assets
acquired.
(7) For the nine months ended September 30, 1997, represents: (i) a $18,000
increase in depreciation expense to reflect a $499,000 increase in the
fair value of assets acquired; and (ii) a $94,000 net decrease in
compensation expense attributable to the resignation of one former
stockholder of Audio International as of the acquisition date, offset by
an increase in compensation for the two remaining former shareholders of
Audio International pursuant to employment agreements entered into with
the Company.
For the year ended December 31, 1996, represents: (i) an decrease of
$69,000 to conform the expense classification used in the December 31,
1996 audited financial statements to the expense classification used by
the Company in presenting the statement of operations for the nine months
ended September 30, 1997; (ii) a $24,000 increase in depreciation expense
to reflect a $499,000 increase in the fair value of assets acquired; and
(iii) a $90,000 net increase in compensation expense attributable to an
increase in compensation for two former shareholders of Audio
International pursuant to employment agreements entered into with the
Company, offset by a decrease in compensation attributable to the
resignation of the third former stockholder of Audio International as of
the acquisition date.
(8) Represents increases in amortization expense resulting from the
amortization of $19,967,000 of goodwill related to the acquisition on a
straight-line basis over 30 years.
(9) Represents increases in interest expense resulting from the revolving
line of credit indebtedness incurred to finance the acquisition.
(10) Represents decreases in the provision for income taxes as a result of
decreases in pro forma taxable income.
5
DECRANE AIRCRAFT HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION (CONTINUED)
(11) Reflects the Recapitalization as described in the Company's Form 10-Q for
the quarter ended September 30, 1997.
(12) For the nine months ended September 30, 1997, reflects the
Recapitalization, adjusted on a pro forma basis for the Offering.
For the year ended December 31, 1996, reflects the Recapitalization,
adjusted on a pro forma basis for 1996 Acquisitions and the Offering.
Both periods also reflect 50,743 additional common shares issued to two
stockholders during the fourth quarter of 1997 to settle their asserted
claim that they were entitled to additional shares pursuant to certain
anti-dilution provisions as described in the Company's Form 10-Q for the
quarter ended September 30, 1997.
(13) For the nine months ended September 30, 1997, reflects the
Recapitalization, adjusted on a pro forma basis for the Offering as
described in the Company's Form 10-Q for the quarter ended September 30,
1997 and the acquisition of Audio International.
For the year ended December 31, 1996, reflects the Recapitalization,
adjusted on a pro forma basis for the 1996 Acquisitions and the Offering
as described in the Company's Form 10-Q for the quarter ended September
30, 1997 and the acquisition of Audio International.
Both periods also reflect 50,743 additional common shares issued to two
stockholders during the fourth quarter of 1997 to settle their asserted
claim that they were entitled to additional shares pursuant to certain
anti-dilution provisions as described in the Company's Form 10-Q for the
quarter ended September 30, 1997.
(14) As described in "Unaudited Pro Forma Consolidated Financial Data" in the
Prospectus.
(15) Represents an increase in the provision for income taxes resulting from
an increase in pro forma taxable income, net of a partial utilization of
net operating loss carryforwards.
Subsequent to consummation of the Offering, the Company determined that
the amount of loss carryforwards that may be utilized in each period is
subject to limitations because of the occurrence of a change in control
of the Company, as defined in the Internal Revenue Code. A change of
control occurred during 1996 as a result of certain equity transactions
and upon consummation of the Offering in 1997. The tax provision in
this pro forma reflects the limitation of the utilization of net
operating loss carryforwards.
(16) Represents an increase to fair value of the assets acquired.
(17) The total purchase price paid at closing was $24,726,000 in cash,
including and estimated $726,000 in acquisition related costs. The
acquisition is accounted for as a purchase and the difference between the
purchase price and the fair value of the net assets acquired is recorded
as goodwill and will be amortized over 30 years. Goodwill excludes
contingent consideration aggregating a maximum of $6,000,000 payable over
two years based on future attainment of defined performance criteria. The
amount of contingent consideration paid in the future, if any, will
increase goodwill and will be amortized prospectively over the remaining
period of the initial 30-year term.
(18) Represents borrowings under the Company's revolving line of credit to
fund the acquisition.
(19) Represents the elimination of net equity as of the acquisition date.
6