EXHIBIT 99.5
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The Unaudited Pro Forma Consolidated Financial Data presents the following
pro forma data for the Company: (i) the results of operations for the year ended
December 31, 1997 and the three months ended March 31, 1998; and (ii) the
financial position as of March 31, 1998. The Unaudited Pro Forma Consolidated
Financial Data should be read in conjunction with the Company's: (i) audited
consolidated financial statements and notes thereto included in the Form 10-K
for the year ended December 31, 1997; and (ii) unaudited consolidated financial
statements and notes thereto included in the Form 10-Q for the quarter ended
March 31, 1998. Capitalized terms, unless defined herein, have the meaning
ascribed to them in the aforementioned Forms 10-K and 10-Q.
The following Unaudited Pro Forma Consolidated Financial Data for the year
ended December 31, 1997 and the three months ended March 31, 1998 presents the
results of operations of the Company as if the following transactions had
occurred as of January 1, 1997: (i) the acquisition of Avtech Corporation
("Avtech") for $84.7 million in cash, including an estimated $1.3 million of
acquisition related costs; (ii) the Audio International acquisition, which
occurred on November 14, 1997 as described in the Company's Form 10-K; (iii) the
Recapitalization, the IPO, and the application of the net proceeds therefrom,
which were completed on April 16, 1997 as described in the Company's Form 10-K;
and (iv) the sale of 2,206,177 shares of common stock, and the application of
the net proceeds therefrom, which was completed in April 1998 (the "Follow-On
Equity Offering"), as described in the Company's Form 10-Q. The balance sheet
data as of March 31, 1998 is adjusted to reflect the following transactions as
if they occurred on March 31, 1998: (i) the Avtech acquisition; and (ii) the
Company's Follow-On Equity Offering and the application of the net proceeds
therefrom. The data does not include the acquisition of Dettmers Industries Inc.
("Dettmers") because inclusion would not have a material effect on such data.
The Unaudited Pro Forma Consolidated Financial Data presenting the results
of operations for the year ended December 31, 1997 reflects the unaudited
consolidated financial statements of Audio International for the period from
January 1, 1997 through November 14, 1997, the date on which it was acquired.
The Avtech results of operations data for all periods is unaudited and was
derived from audited and unaudited financial statements as of and for the
appropriate periods since it was not acquired until June 26, 1998. Avtech's
fiscal year end, prior to its acquisition by the Company, was September 30th.
The balance sheet of Avtech as of March 31, 1998 was derived from its audited
financial statements for the six months ended March 31, 1998.
The Company believes the Unaudited Pro Forma Consolidated Financial Data
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 Avtech 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 Unaudited Pro Forma
Consolidated Financial Data 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.
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UNAUDITED PRO FORMA CONSOLIDATED
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
ACQUISITIONS ACQUISITIONS,
DECRANE -------------------------- IPO AND
AIRCRAFT AUDIO FOLLOW-ON
HOLDINGS, INTERNATIONAL, AVTECH EQUITY OFFERING
INC. INC. CORPORATION ADJUSTMENTS PRO FORMA
--------- ------------- ----------- --------------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues.............................................. $ 108,903 $ 12,431 $ 34,689 $ (252)(2) $ 155,771
Cost of sales......................................... 80,247 7,345 22,396 (139)(3) 109,849
--------- ------------- ----------- ------- -----------
Gross profit (loss)................................... 28,656 5,086 12,293 (113) 45,922
Selling, general and administrative expenses.......... 15,756 3,983 7,036 (1,503)(4) 25,272
ESOP contribution..................................... -- -- 1,200 (1,200)(5) --
Nonrecurring bonus expense............................ -- -- -- -- --
Amortization of intangible assets..................... 905 -- -- 2,599(7) 3,504
--------- ------------- ----------- ------- -----------
Operating income...................................... 11,995 1,103 4,057 (9) 17,146
Interest expense (income)............................. 3,154 8 (305) 4,939(8) 7,796
Other expenses (income)............................... 243 5 (59) -- 189
--------- ------------- ----------- ------- -----------
Income (loss) before provision for income taxes and
extraordinary item.................................. 8,598 1,090 4,421 (4,948) 9,161
Provision for income taxes (benefit).................. 3,344 365 1,487 (797)(9) 4,399
--------- ------------- ----------- ------- -----------
Income (loss) before extraordinary item (1)........... $ 5,254 $ 725 $ 2,934 $ (4,151) $ 4,762
--------- ------------- ----------- ------- -----------
--------- ------------- ----------- ------- -----------
Income (loss) applicable to common
stockholders (1).................................... $ 2,609 $ 725 $ 2,934 $ (1,506)(10) $ 4,762
--------- ------------- ----------- ------- -----------
--------- ------------- ----------- ------- -----------
Income (loss) per common share (1)
Basic............................................... $ 0.69 $ 0.63
Diluted............................................. 0.62 0.61
Weighted average number of common shares outstanding
Basic............................................. 3,803 7,510
Diluted........................................... 4,892 7,812
The accompanying notes are an integral part of the Unaudited Pro Forma
Consolidated Financial Data.
2
UNAUDITED PRO FORMA CONSOLIDATED
STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
ACQUISITION
AND
DECRANE ACQUISITION FOLLOW-ON
AIRCRAFT ----------- EQUITY
HOLDINGS, AVTECH OFFERING
INC. CORPORATION ADJUSTMENTS PRO FORMA
----------- ----------- -------------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues.................................................... $ 29,128 $ 10,741 $ (62)(2) $ 39,807
Cost of sales............................................... 20,141 6,448 (49)(3) 26,540
----------- ----------- ------- -----------
Gross profit (loss)......................................... 8,987 4,293 (13) 13,267
Selling, general and administrative expenses................ 4,879 1,699 (463)(4) 6,115
ESOP contribution........................................... -- 300 (300)(5) --
Nonrecurring bonus expense.................................. -- 1,592 (1,592)(6) --
Amortization of intangible assets........................... 379 -- 503(7) 882
----------- ----------- ------- -----------
Operating income............................................ 3,729 702 1,839 6,270
Interest expense (income)................................... 786 (19) 1,141(8) 1,908
Other income................................................ (17) (27) -- (44)
----------- ----------- ------- -----------
Income (loss) before provision for income taxes............. 2,960 748 698 4,406
Provision for income taxes (benefit)........................ 1,272 256 408(9) 1,936
----------- ----------- ------- -----------
Net income (loss)........................................... $ 1,688 $ 492 $ 290 $ 2,470
----------- ----------- ------- -----------
----------- ----------- ------- -----------
Income (loss) per common share(1)
Basic................................................... $ 0.32 $ 0.33
Diluted................................................. 0.30 0.32
Weighted average number of common shares outstanding
Basic................................................... 5,319 7,525
Diluted................................................. 5,626 7,832
The accompanying notes are an integral part of the Unaudited Pro Forma
Consolidated Financial Data.
3
UNAUDITED PRO FORMA CONSOLIDATED
BALANCE SHEET
MARCH 31, 1998
DECRANE FOLLOW-ON ACQUISITION
AIRCRAFT EQUITY ------------------------
HOLDINGS, OFFERING AVTECH ACQUISITION
INC. ADJUSTMENTS CORPORATION ADJUSTMENTS PRO FORMA
---------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
ASSETS
Current assets
Cash and cash equivalents....................... $ 1,178 $ -- $ 3,260 $ (2,167) 14) $ 2,271
Accounts receivable, net........................ 19,839 -- 6,648 -- 26,487
Inventories..................................... 28,221 -- 5,684 -- 33,905
Income taxes refundable......................... -- -- -- 3,561(15) 3,561
Deferred tax assets............................. -- -- 735 1,425(16) 2,160
Prepaid expenses and other current assets....... 1,160 -- 224 -- 1,384
---------- ----------- ----------- ----------- -----------
Total current assets.......................... 50,398 -- 16,551 2,819 69,768
Property and equipment, net....................... 13,261 -- 5,411 4,710(17) 23,382
Other assets, principally intangibles, net........ 39,940 (358) 11) 162 62,742(18) 102,486
---------- ----------- ----------- ----------- -----------
$ 103,599 $ (358) $ 22,124 $ 70,271 $ 195,636
---------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings........................... $ 432 $ -- $ -- $ -- $ 432
Current portion of long-term obligations........ 857 -- -- -- 857
Accounts payable................................ 7,991 -- 1,614 -- 9,605
Accrued expenses................................ 6,226 -- 4,371 (600) 19) 9,997
Income taxes payable............................ 1,800 -- -- -- 1,800
---------- ----------- ----------- ----------- -----------
Total current liabilities..................... 17,306 -- 5,985 (600) 22,691
---------- ----------- ----------- ----------- -----------
Long-term liabilities
Long-term obligations........................... 43,196 (35,200) 12) -- 84,943(20) 92,939
Deferred income taxes........................... 1,880 -- -- 1,601(21) 3,481
Deferred compensation........................... -- -- 1,463 (1,463) 22) --
Minority interest and other long-term
liabilities................................... 93 -- 466 -- 559
---------- ----------- ----------- ----------- -----------
Total long-term liabilities................... 45,169 (35,200) 1,929 85,081 96,979
---------- ----------- ----------- ----------- -----------
Stockholders' equity
Common stock.................................... 53 22(13) 232 (232) 23) 75
Additional paid-in capital...................... 51,096 34,820(13) -- -- 85,916
Retained earnings (deficit)..................... (9,756) -- 13,978 (13,978) 23) (9,756)
Accumulated other comprehensive
income........................................ (269) -- -- -- (269)
---------- ----------- ----------- ----------- -----------
Total stockholders' equity.................... 41,124 34,842 14,210 (14,210) 75,966
---------- ----------- ----------- ----------- -----------
$ 103,599 $ (358) $ 22,124 $ 70,271 $ 195,636
---------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- -----------
The accompanying notes are an integral part of the Unaudited Pro Forma
Consolidated Financial Data.
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UNAUDITED PRO FORMA CONSOLIDATED
BALANCE SHEET
MARCH 31, 1998
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
(1) Reflects income (loss) before the effect of a $2.1 million extraordinary
loss incurred as a result of the write-off, net of an income tax benefit, of
deferred financing costs, unamortized original issue discounts, a prepayment
penalty and other related expenses incurred as a result of the repayment of
debt by the Company with the net proceeds from its IPO. See the consolidated
financial statements and related notes thereto included in the Company's
Form 10-K.
(2) Reflects the elimination of intercompany sales between the Company and
Avtech.
(3) For the year ended December 31, 1997 and the three months ended March 31,
1998, reflects the elimination of intercompany cost of sales aggregating
$252,000 and $62,000, respectively, between the Company and Avtech, offset
by an increase in depreciation expense to reflect an increase in the fair
value of depreciable assets acquired.
(4) For the year ended December 31, 1997 and the three months ended March 31,
1998, reflects a decrease of $1.5 million and $467,000, respectively, in
compensation expense to reflect the resignation of certain former employees
and changes to employment agreements for certain remaining employees of the
acquired companies offset by an increase in depreciation expense to reflect
an increase in the fair value of depreciable assets acquired.
(5) Reflects a reduction in expense attributable to the termination of Avtech's
Employee Stock Ownership Plan ("ESOP") concurrent with the acquisition.
(6) Reflects a reduction in expense attributable to nonrecurring bonuses awarded
prior to, and in anticipation of, the acquisition by the Company.
(7) For the year ended December 31, 1997 and the three months ended March 31,
1998, reflects an increase in amortization expense pertaining to the
amortization of goodwill on a straight-line basis over 30 years of (i) $20.1
million of goodwill related to the Audio International acquisition, which
occurred on November 14, 1997; and (ii) $60.4 million of goodwill related to
the Avtech acquisition, which occurred on June 26, 1998.
(8) For the year ended December 31, 1997, represents: (i) a decrease in interest
expense of $1.3 million to reflect the refinancing of existing debt with the
$28.9 million net proceeds from the IPO and $12.3 million Senior Credit
Facility borrowings; and (ii) a net increase in Senior Credit Facility
interest expense of $6.3 million to reflect borrowings of $24.7 and $84.7
million for Audio International and Avtech acquisitions, respectively, net
of the application of the $34.8 million net proceeds from the Follow-On
Equity Offering to reduce Senior Credit Facility borrowings.
For the three months ended March 31, 1998, represents a net increase in
Senior Credit Facility interest expense of $1.1 million to reflect
borrowings of $84.7 million for Avtech acquisition, net of the application
of the $34.8 million net proceeds from the Follow-On Equity Offering to
reduce Senior Credit Facility borrowings.
(9) Represents a decrease in the provision for income taxes as a result of a
decrease in pro forma taxable income. The percent decrease differs from the
amount expected by applying the U.S. federal statutory rate due to
depreciation and amortization not deductible for income tax purposes.
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UNAUDITED PRO FORMA CONSOLIDATED
BALANCE SHEET
MARCH 31, 1998
(10) Reflects the elimination of preferred stock dividends and adjustment to the
redemption value of mandatorily redeemable common stock warrants as a result
of the Recapitalization and IPO. See the consolidated financial statements
and related notes thereto included in the Company's Form 10-K.
(11) Reflects the reclassification of capitalized costs associated with the
Follow-On Equity Offering to additional paid-in capital as reduction of the
net proceeds received therefrom.
(12) Reflects the repayment of Senior Credit Facility borrowings with the net
proceeds from the Follow-On Equity Offering.
(13) Reflects the sale by the Company of common stock in the Follow-On Equity
Offering.
(14) Reflects a decrease in cash to adjust to the actual cash balance acquired
upon closing.
(15) Reflects federal income taxes refundable as a result of a tax deduction
created upon the exercise of stock options by former Avtech employees
immediately prior to its acquisition by the Company. The stock option
exercise created a $25.4 million tax deduction for Avtech immediately prior
to its acquisition. The tax deduction may be used for both carryback and
carryforward purposes to reduce Avtech's taxable income. The carryforward
will expire in 2013.
(16) Reflects the incremental deferred income tax benefit the Company estimates
it will receive during the next twelve-month period as a result of utilizing
the loss carryforward created upon the exercise of stock options by former
Avtech employees immediately prior to its acquisition by the Company.
(17) Reflects a $3.4 million and $1.3 million increase in the fair value of land
and buildings, respectively, acquired in the Avtech acquisition.
(18) Reflects: (i) $60.4 million of goodwill attributable to the Avtech
acquisition; (ii) a $2.2 million long-term deferred income tax asset the
Company estimates it will realize as a result of utilizing the loss
carryforward created upon the exercise of stock options by former Avtech
employees immediately prior to its acquisition by the Company; and (iii)
$250,000 of Senior Credit Facility deferred financing costs associated with
amendment fees and expenses to provide financing for the Avtech acquisition.
(19) Reflects the elimination of Avtech's accrued ESOP contribution liability
paid by Avtech prior to its acquisition by the Company.
(20) Reflects Senior Credit Facility borrowings of $84.7 million to fund the
Avtech acquisition and $250,000 for Senior Credit Facility deferred
financing costs.
(21) Reflects the deferred tax liability resulting from the $4.7 million
increase in the fair value of land and buildings acquired in the Avtech
acquisition that is not deductible for income tax purposes.
(22) Reflects the elimination of Avtech's deferred compensation liability paid
by Avtech prior to its acquisition by the Company.
(23) Reflects the elimination of Avtech's common stock and retained earnings
upon acquisition by the Company.
6