UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

(AMENDMENT NO. 1)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

COMMISSION FILE NUMBER 333-70363

DECRANE HOLDINGS CO.
(Exact name of registrant as specified in its charter)

Delaware		13-4019703
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

c/o Credit Suisse First Boston / DLJ Merchant Banking Partners II, L.P. Eleven Madison Avenue New York, NY 10010 (212) 325-2000
(Address and Telephone Number of Principal Executive Offices)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

None.

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

None.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

ý YES o NO

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

o YES ý NO

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $2.6 million

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

The number of shares of Common Stock outstanding on March 28, 2003 was 4,116,627.

DOCUMENTS INCORPORATED BY REFERENCE:

None.

Table of Contents

Explanatory Note

Part I
Item 1.	Description of Business
Item 2.	Properties
Item 3.	Legal Proceedings
Item 4.	Submission of Matters to a Vote of Security Holders

Part II
Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters
Item 6.	Selected Financial Data
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk
Item 8.	Financial Statements and Supplementary Data
Item 9.	Changes In and Disagreements With Accountants On Accounting and Financial Disclosure

Part III
Item 10.	Directors and Executive Officers of the Registrant
Item 11.	Executive Compensation
Item 12.	Security Ownership of Certain Beneficial Owners and Management
Item 13.	Certain Relationships and Related Transactions
Item 14.	Controls and Procedures

Part IV
Item 15.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K

Signatures

Index to Financial Statements, Supplementary Financial Information and Financial Statement Schedules

Explanatory Note

DeCrane Holdings Co. is filing this Amendment No. 1 on Form 10-K/A for the fiscal year ended December 31, 2002 to amend and restate, in its entirety, its Annual Report on Form 10-K originally filed with the Securities and Exchange Commission on April 15, 2003 (referred to herein as the “Original Report” and the “Amended Report”). Except for the reclassifications described below, no changes have been made in this Amended Report to the consolidated financial position, results of operations or cash flows we reported in our Original Report. This Amended Report only modifies and updates our disclosures for events occurring subsequent to the filing of our Original Report, as described below, which resulted in our independent accountants revising and reissuing their report accompanying our financial statements and does not otherwise reflect events occurring after the April 15, 2003 filing of our Original Report or modify or update the disclosures set forth in that Original Report in any way to reflect any changes in our business or our consolidated financial position, results of operations or cash flows subsequent to the filing date of the Original Report. For the convenience of the reader, we deemed it desirable to amend and restate our Original Report in its entirety to provide clarity as to the events that have occurred.

As described in our Original Report, during the fourth quarter of fiscal 2002 we embarked on a plan to sell the Specialty Avionics Group and entered into a definitive agreement to sell the group on March 14, 2003. The sale was consummated on May 23, 2003, subsequent to the filing of our Original Report. In addition, at the time of filing our Original Report, our failure to consummate the sale by June 30, 2003 would have been an event of default under our amended senior credit facility. As a result, our independent accountants qualified their report on our audited financial statements with respect to our ability to continue as a going concern. Consummation of the sale alleviated our independent accountants’ doubt about our ability to continue as a going concern. As a result, our independent accountants issued a revised, unqualified report on our financial statements.

In this Amended Report, we are filing in “Item 8. Financial Statements and Supplementary Data” our independent accountants’ revised, unqualified report. We are also reclassifying our consolidated statements of financial position, results of operations and cash flows to reflect the Specialty Avionics Group as a discontinued operation for all periods presented. In addition, we are also making similar conforming changes to other parts of the Original Report as well.

This Amended Report should be read in conjunction with our amended Form 10-Q/As (Amendment No. 1) for the quarterly periods ended March 31, 2003 and June 30, 2003 filed concurrently with this Amended Report. As required by Rule 12b-15 of the Securities Exchange Act of 1934, our Chief Executive Officer and Chief Financial Officer are providing updated certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and updated written statements pursuant to Title 18 United States Code Section 1350, as adopted pursuant to Section 906 of the Act.

All statements other than statements of historical facts included in this report are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors, which are difficult to predict. Changes in such factors could cause actual results to differ materially from those contemplated in such forward-looking statements as we describe in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Forward-Looking Statements and Risk Factors.” Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. We undertake no obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

PART I

ITEM 1. DESCRIPTION OF BUSINESS

Company Overview

DeCrane Holdings Co., a Delaware corporation founded in 1998, is a holding company and does not have any material operations or assets other than its ownership of all of the common stock of DeCrane Aircraft Holdings, Inc. DeCrane Holdings and DLJ Merchant Banking Partners II, L.P. and affiliated entities acquired DeCrane Aircraft in August 1998. DeCrane Aircraft is the predecessor of DeCrane Holdings. As used in this report, unless the context indicates otherwise, “DeCrane” and “we,” “us,” “our,” and similar terms collectively refer to the combined businesses of DeCrane Holdings, DeCrane Aircraft and all of DeCrane Aircraft’s subsidiaries.

DeCrane Aircraft Holdings, Inc., a Delaware corporation founded in 1989, is a provider of integrated assemblies, sub-assemblies and component parts to the aerospace industry. Since our founding in 1989, we have experienced both internal growth and external growth by identifying fragmented, high-growth niche segments within the aerospace industry and acquiring market-leading companies in those niches. Today, we have product capability within two specific segments of the aerospace industry: cabin management for business, VIP and head-of-state aircraft and systems integration services. Within these markets, our customers include original manufacturers of business, VIP and head-of-state aircraft, commonly referred to as OEM’s, and aircraft repair and modification centers.

Our Operating Groups

We are organized into two operating groups, consistent with the segments in which we operate: Cabin Management and Systems Integration. Through our operating groups, we offer a complete line of cabinetry, galleys, seating and cabin management systems for business, VIP and head-of-state aircraft, as well as systems integration services.

Prior to May 23, 2003, we also had a third strategic business, the Specialty Avionics Group. As described in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes included in this report, we sold our equity interests in the companies comprising this group to an affiliate of Odyssey Investment Partners, LLC. As a result of the sale, the Specialty Avionics Group is presented as a discontinued operation in our consolidated financial statements and our discussion below reflects only our continuing operations for all periods.

Our historical financial position and results of operations have also been affected by our history of acquisitions. Our acquisitions are described in “—Other Information–Acquisitions” below.

Cabin Management Group

DeCrane’s Cabin Management Group contributed approximately 75% of our revenues from continuing operations for the year ended December 31, 2002.

Business Description

Our Cabin Management Group is a leading independent provider of cabin products, with a primary focus on serving the business, VIP and head-of-state aircraft market. Since 1997, our Cabin Management Group has acquired nine companies involved in the engineering, manufacturing and assembly of the key components for the interior of a business, VIP and head-of-state aircraft, including cabin interior furnishings, veneer, cabin management systems, seating and composite components. Our Cabin Management Group serves major manufacturers of business, VIP and head-of-state aircraft, including Boeing Business Jet, Bombardier, Cessna, Dassault, Gulfstream and Raytheon.

The Cabin Management Group introduced the concept of modularity to the business, VIP and head-of-state aircraft market by offering totally integrated interior products. In our view, one of the greatest challenges facing the industry’s aircraft manufacturers is minimizing the lead-time necessary to complete an unfinished “green” aircraft. We believe our distinctive approach of delivering integrated assemblies and sub-assemblies addresses this challenge by providing our customers with entire pre-engineered, pre-wired and pre-plumbed modular cabin interiors and management systems ready for final integration into the aircraft. We believe our totally integrated interior products enable our customers to reduce their lead times, supplier base and overall costs.

The Cabin Management Group is guided by our overall strategy to gain market leadership positions in high-growth segments of the aerospace industry by building more related product capabilities than any other company in the industry. To that end, our Cabin Management Group has focused on pursuing two, closely related, strategic imperatives:

• Building Critical Mass in Cabin Interior Furnishings, Cabin Management Systems and Seating for the Business, VIP and Head-of-State Aircraft Markets. Our Cabin Management Group is aggressively focused on broadening and deepening its product offerings to the business, VIP and head-of-state aircraft markets. As a result of this strategy, we have increased revenue content per plane with our existing customer base and have successfully attracted new customers.

• Developing Capabilities to Provide Modular “Total Cabin Solutions” to the Business, VIP and Head-of-State Aircraft Market. Consistent with our overall corporate strategy to build integrated system solutions, the Cabin Management Group is focused on aggregating its capabilities to provide partial or fully assembled modular business, VIP and head-of-state aircraft cabin interiors to its customers.

In order to meet these strategic objectives, we have aggressively pursued growth in our Cabin Management Group through selective acquisitions.

Products and Services

Our Cabin Management Group designs, engineers and manufactures a full line of customized, pre-fit products and provides related services. Approximately 55% of our Cabin Management Group’s revenues in 2002 were from two customers, Textron and Bombardier. Our products and services are in four broad categories, as summarized below.

Interior Furnishings

• entertainment and refreshment centers

• conference tables

• hi-low dining and coffee tables

• end tables

• cabinets

• arm and side ledges

• galleys

• lavatories

• vanities

• room enclosures

• cabinetry refurbishment services

• veneers

Seating

• executive track and swivel seats

• jump-seats

• divans, including models that convert to beds or contain storable tables

• upholstery services

Cabin Management Systems

• in-flight entertainment systems

• in-flight data network and communication systems

• cabin controls

• switches

Composite Components

• sound-dampening side walls and headliners

• passenger service units

• environmental (HVAC) ducting

• closets

Our interior furnishings products and services provided approximately 47% of our consolidated revenues during each of the years in the three year period ended December 31, 2002 and seating provided approximately 10% of our consolidated revenues during each of the years in the same three year period. In addition, cabin management systems provided approximately 13% our consolidated revenues during the year ended December 31, 2000 compared to approximately 10% in 2001 and 7% in 2002. Cabin management systems, as a percent of consolidated revenues, decreased subsequent to 2000 primarily as a result of the interior furnishings and seating companies we acquired during 2000.

Competition

The markets served by our Cabin Management Group are fragmented, with several competitors offering similar products and services. Due to the global nature of the aerospace industry, competition comes from both U.S. and foreign companies. Our Cabin Management Group generally faces competition from a group of smaller companies and enterprises, except for the business, VIP and head-of-state aircraft manufacturers and independent completion centers. We believe that the principal competitive factors in the markets we serve are quality, price, timely deliveries and overall customer service. Our principal competitors are summarized below.

Interior Furnishings

• BE Aerospace

• C & D Interiors

• Global Technology

• Hiller

• The Nordam Group

• Independent completion centers

• Business, VIP and head-of-state aircraft manufacturers and completion centers

Seating

• BE Aerospace

• Fisher (Germany)

Cabin Management Systems

• DPI Labs

• Honeywell Cabin Management Systems and Services

• IEC, International

• Rockwell Collins / Airshow

Composite Components

• AAR

• Fibre Art

• Plastic Fab

• Scale Composite Works

• The Nordam Group

Systems Integration Group

DeCrane’s Systems Integration Group contributed approximately 25% of our revenues from continuing operations for the year ended December 31, 2002.

Business Description

Our Systems Integration Group provides a range of aircraft retrofit, completion and refurbishment services, from conceptual design to Federal Aviation Administration certification, including engineering, manufacturing and installation. One of our largest businesses in this group is the design, production and installation of auxiliary fuel systems, which extend the range of an aircraft. We have an exclusive long-term contract through December 31, 2004 with Boeing Business Jet (“BBJ”) (which may be cancelled by BBJ at any time upon prior written notice) to design, manufacture and install auxiliary fuel systems on the BBJ, a Boeing 737-700IGW, and the BBJ2, a Boeing 737-800, and are one of only four world-wide approved BBJ/BBJ2 service centers. During 2002, we delivered our first business, VIP and head-of-state aircraft interior completion on a BBJ2 aircraft and are under contract to perform an interior completion on a BBJ aircraft for delivery in 2003.

We also focus on regulatory authority safety mandates and believe we are the major supplier of integration kits for smoke detection and fire suppression in the cargo hold, and perform structural, avionics and mechanical systems modifications, including FAA certification of those modifications before returning an aircraft to service.

The aerospace industry is highly regulated in the United States by the FAA and similar regulatory agencies abroad, such as the European Joint Aviation Authorities (commonly referred to as the JAA), to ensure that aviation products and services meet stringent safety and performance standards. As of July 29, 2003, there are only 33 companies world-wide that have the necessary Designated Alteration Station authorization to offer aircraft certification on behalf of the FAA. Our Systems Integration Group is authorized to provide the full spectrum of services, from design to FAA certification, needed for timely retrofitting of an aircraft, thus providing a significant competitive advantage.

Our Systems Integration Group has adopted a two-pronged strategic approach to managing its operations:

• Develop the Most Comprehensive Integrated Retrofit Offering. For the last twelve years, our Systems Integration Group has focused on developing the capabilities necessary to provide a fully integrated offering with respect to aircraft refurbishing and aircraft retrofitting with FAA mandated changes and technological innovations. Through several related acquisitions and aggressive internal product development, our Systems Integration Group has become one of the few non-OEM related operations with the authority to provide alteration services and to offer FAA certification of aircraft that undergo overhaul. This certification ability represents a significant competitive advantage, as we can offer all the products and services required to re-commission an aircraft in a timely and cost efficient manner. We believe we have developed the most comprehensive offering in retrofitting aircraft with auxiliary fuel systems in the industry.

• Target Development of Specialty Products and Services Relating to Regulatory Authority Mandates. Consistent with its first strategic imperative, our Systems Integration Group is also growing its capabilities in providing solution “kits” in response to FAA and JAA mandated aircraft upgrades. Our Systems Integration Group has demonstrated the ability to identify and quickly respond to probable new regulatory authority mandates. For example:

• Many domestic commercial airlines believe the FAA will issue a safety mandate requiring cockpit door video surveillance on every commercial aircraft traveling in U.S. domestic

airspace in 2003 by no later than a specific compliance date. In response, we consulted with commercial airlines and developed what we believe to be a low-cost, high quality cockpit door video surveillance system. Our Sentry One™ system is based on an in-house developed camera control unit with integral power supplies and is combined with state-of-the-art extreme low light cameras and 5.6” video monitors. Some airlines are voluntarily electing to install surveillance systems on their aircraft prior to the expected FAA mandate. We have already received FAA approval for our Sentry One™ system on Boeing 737 aircraft and believe we will be successful in obtaining FAA approval for our system on other types of aircraft as well.

• We believe the JAA will mandate new fire safety measures for all aircraft in Europe, similar to the FAA mandate in the United States. We expect to develop a stand-alone kit, similar to our FAA approved kit, which can be quickly incorporated into an aircraft to ensure compliance with the JAA ruling with minimal downtime.

Products and Services

Our Systems Integration Group provides auxiliary fuel systems, auxiliary power units and system integration services, including engineering, kit manufacturing, installation and certification. Customers include Boeing (Boeing Business Jet, Boeing’s Commercial Airplane Group and Boeing Integrated Defense Systems), Bombardier, Cessna, Gulfstream, Honeywell, Raytheon and Rockwell Collins. Approximately 56% of our Systems Integration Group’s revenues in 2002 were from Boeing. The products and services we provide are described below.

Auxiliary Fuel Systems and Power Units. We design, engineer, manufacture and install auxiliary fuel systems for business, VIP, head-of-state and commercial aircraft. Our unique design and construction have made us a leader in the auxiliary fuel system market. We also manufacture auxiliary power units, which provide ground power to corporate jets made by Bombardier, Cessna, Gulfstream, Learjet and Raytheon. These products and services provided approximately 15% of our consolidated revenues during the year ended December 31, 2002 and 14% during each of the years in the two year period ended December 31, 2001.

Cabin and Flight Deck Systems Integration. We have designed and patented avionics support structures we sell under the Box-Mount™ name. These structures are used to support and environmentally cool avionics equipment, including navigation, communication and flight control equipment. These support structures are sold to aircraft and related electronics manufacturers, airlines and major modification centers. In addition, these products are essential components of the installation kits used in our systems integration operations.

Aircraft Completion and Modification Services. We are one of only three world-wide approved Boeing Business Jet Service Centers providing extensive completion, modification and integration services to the business, VIP and head-of-state aircraft market.

Retrofit and Refurbishment Services. We also provide retrofit and refurbishment services, including engineering, kit manufacturing, installation and certification, to both commercial and business, VIP and head-of-state aircraft customers.

Competition

The markets served by our Systems Integration Group are fragmented with several competitors offering similar products and services. Due to the global nature of the aerospace industry, competition comes from both U.S. and foreign companies. Our Systems Integration Group generally faces competition from a group of smaller companies and enterprises, except for the business, VIP and head-of-state aircraft manufacturers and independent completion centers. We believe that the principal competitive factors in the markets we serve are quality, price, timely deliveries and overall customer service. Our principal competitors are summarized below.

Auxiliary Fuel Systems and Power Units

• Marshalls (United Kingdom)

• Pfalz Flugewerke (Germany)

Auxiliary Power Units (Integration Only)

• Honeywell

• Sundstrand

Aircraft Modification Services

• Associated Air Center

• Jet Aviation (United States and Switzerland)

• Lufthansa (Germany)

Cabin and Flight Deck Systems Integration and Retrofit and Refurbishment Services

• ARINC

• Aviation Sales

• Boeing Aircraft Services

• Flight Structures

• In-house engineering departments of commercial airlines

• Numerous independent airframe maintenance and modification companies

Specialty Avionics Group (Discontinued Operations)

As described in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” we sold the Specialty Avionics Group on May 23, 2003. As a result, the group is reflected as a discontinued operation in this report. The information below is presented to provide a historical perspective on the group’s operations. The Specialty Avionics Group contributed approximately 29% of our combined revenues from both continuing and discontinued operations for the year ended December 31, 2002.

Business Description

The Specialty Avionics Group supplied aircraft avionics components to the commercial and military aircraft markets as well as to several avionics systems suppliers including Honeywell and Rockwell Collins. The group focused on assembling design, engineering and manufacturing capabilities across several specialty avionics product categories, including cockpit and cabin audio management systems, flight deck visual display and communication systems, power and control devices, and specialty interconnect solutions such as contacts, connectors and various harness assemblies. The Specialty Avionics Group is also a leading manufacturer of high quality electrical contacts for military and aviation applications.

Products and Services

The Specialty Avionics Group designed, engineered and manufactured electronic components, electronic display devices and interconnect components and assemblies. Approximately 15% of the Specialty Avionics Group’s revenues in 2002 were from Boeing. The products offered are described below.

Cockpit and Cabin Audio, Communication, Lighting and Power and Control Devices. The Specialty Avionics Group is a leading manufacturer of cockpit audio, lighting and power and control devices, including selective calling system decoders, used in commercial, regional and business, VIP and

head-of-state aircraft. The group also manufactured a variety of other commercial aircraft safety system components, including warning tone generators, temperature and de-icing monitoring systems, steep approach monitors and low voltage power supplies for traffic collision avoidance systems. These products have provided approximately 13% of our combined revenues from both continuing and discontinued operations over the last three years.

Electrical Contacts. Contacts conduct electronic signals or electricity and are installed at the terminus of a wire or an electronic or electrical device. The group supplies precision-machined contacts for use in connectors found in virtually every electronic and electrical system on a commercial aircraft. The group sells contacts directly to aircraft and related electronics manufacturers and through its private labeling programs to several major connector manufacturers who sell connectors to the same markets under their brand name. The contacts are also widely used in military aircraft as well as a variety of commercial and defense telecommunication and data communication applications.

Connectors and Harness Assemblies. Electronic and electrical connectors link wires and devices in avionics systems, and permit their assembly, installation, repair and removal. The group’s connectors are specially manufactured to meet the critical performance requirements demanded by manufacturers and required in the harsh environment of an operating aircraft. The group produces connectors that are used in aircraft galleys, flight decks and control panels in the passenger cabin, in addition to producing wire harness assemblies for use in cabin avionics systems, including wire, connectors, contacts and hardware. Harness assemblies are typically sold to manufacturers of aircraft electronic systems.

Liquid Crystal Display Devices. The group manufactures a wide variety of displays in both dichroic and twisted nematic formats, as well as LCD modules used in commercial and military aircraft. LCD modules are liquid crystal displays packaged with a backlight source, and additional mechanical and electronic components that are plug-and-play ready for a customers’ instrument display applications. Dichroic displays perform best in situations with high ambient lighting and low backlighting. Twisted nematic displays are suited for situations where a strong backlight is required. LCD products are used in a variety of flight deck applications such as auto pilot flight control systems, fuel quantity indicators, exhaust gas temperature indicators, airborne communications, navigation and safety systems and transportation signage. Dichroic and twisted nematic liquid crystal display products are widely used in the aerospace industry because they are easily adapted to custom design and possess a variety of high performance characteristics, including wide viewing angles, high readability in sunlight and the ability to withstand wide temperature fluctuations. The group also manufactures a variety of electronic clock instruments for commercial and military aircraft, including fixed wing and rotary wing, all of which use the group’s LCD devices.

Wire Marking and Crimping Equipment. The group designs and manufactures surface preparation and wire marking systems. Products include laser and inkjet marking systems, atmospheric plasma systems and automatic crimping systems. The products are used in the aerospace, defense, medical device and biomedical industries, principally wire and cable fabricators, wire processors, fiber optics manufacturers and consumer-based products manufacturers.

Competition

The markets served by the Specialty Avionics Group are fragmented, with several competitors offering similar products and services. Due to the global nature of the aerospace industry, competition comes from both U.S. and foreign companies. The Specialty Avionics Group generally faces competition from large, diversified companies that produce a broad range of products. We believe that the principal competitive factors in the markets we serve are product innovations, technological superiority and performance, quality, price, timely deliveries and overall customer service. The principal competitors are summarized below.

Cockpit and Cabin Audio, Communication, Lighting and Power and Control Devices

• Baker Electronics

• Diehl GmbH (Germany)

• Gables Engineering

• Korry

• Team (France)

Electrical Contacts

• Deutsch

• Lemco

• Several small contact blank suppliers

Connector and Harness Assemblies

• AMP (connectors)

• Carlyle (harness assemblies)

• Electronic Cable Specialists (harness assemblies)

• ITT Cannon (connectors)

• Radiall S.A. (France) (connectors)

Liquid Crystal Displays and Chronometers

• Air Precision

• Davtron

• DCI (LCD’s only)

• Electronique Martin (LCD’s only)

• Smiths Group

Other Information

Acquisitions and Dispositions

Disposition of the Specialty Avionics Group

On May 23, 2003, we consummated the sale of our equity interests in the companies comprising the Specialty Avionics Group to Wings Holdings, Inc., an affiliate of Odyssey Investment Partners, LLC. The aggregate selling price was $140.0 million in cash, subject to a post-closing selling price adjustment for the amount of working capital at closing. We used $130.0 million of the proceeds from the sale to repay borrowings under our senior credit facility, as amended. The sale of the Specialty Avionics Group is not expected to affect the operations of our remaining operating groups. The Specialty Avionics Group is reflected as a discontinued operation in this report. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information.

The Specialty Avionics Group consisted of Avtech Corporation of Seattle, Washington, Aerospace Display Systems, LLC of Hatfield, Pennsylvania, and Tri-Star Electronics International, Inc. of El Segundo, California.

Companies Acquired by DeCrane Aircraft

During the five years ended December 31, 2002, DeCrane Aircraft has acquired the stock or assets of eight significant businesses, as such term is defined by Securities and Exchange Commission rules, as follows:

Cabin Management Group

• all of the common stock of Precision Pattern, Inc., a Kansas-based designer and manufacturer of interior furniture components for business, VIP and head-of-state aircraft, on April 23, 1999;

• substantially all of the assets of Custom Woodwork & Plastics, Inc., a Georgia-based designer and manufacturer of interior furniture components for business, VIP and head-of-state aircraft, on August 5, 1999;

• substantially all of the assets of PCI NewCo, Inc., a Kansas-based manufacturer of composite material and components for business, VIP and head-of-state aircraft, on October 6, 1999;

• substantially all of the assets of The Infinity Partners, Ltd., a Texas-based designer and manufacturer of interior furniture components for middle- and high-end business, VIP and head-of-state aircraft, on December 17, 1999;

• substantially all of the assets of Carl F. Booth & Co., an Indiana-based manufacturer of wood veneer panels primarily used in aircraft interior cabinetry, on May 11, 2000;

• all of the common stock of ERDA, Inc. (subsequently renamed DeCrane Aircraft Seating Co., Inc.), a Wisconsin-based designer and manufacturer of aircraft seating, on June 30, 2000;

Specialty Avionics Group

• all of the common stock of Avtech Corporation, a Washington-based designer and manufacturer of avionics components for commercial and business, VIP and head-of-state aircraft, on June 26, 1998; and

Systems Integration Group

• all of the common stock of PATS, Inc., a Maryland-based designer, manufacturer and installer of auxiliary fuel systems for business, VIP and head-of-state aircraft and a manufacturer of aircraft auxiliary power units, on January 22, 1999.

All of the acquisitions were accounted for as purchases. We have used the acquired assets to manufacture products similar to those previously manufactured by the companies prior to their acquisition. Our financial statements reflect the acquired companies subsequent to their respective acquisition dates. Our more recent acquisitions are described in Note 2 accompanying our financial statements included in this report.

DeCrane Holdings’ Acquisition of DeCrane Aircraft

DeCrane Holdings Co. and DLJ Merchant Banking Partners II, L.P. and affiliated entities acquired all of the stock of DeCrane Aircraft in August 1998 for $186.3 million. This acquisition is referred to in this report as the DLJ acquisition. As a result, DeCrane Aircraft is the predecessor of DeCrane Holdings.

In November 2000, Credit Suisse First Boston, Inc. acquired Donaldson, Lufkin & Jenrette, Inc. As a result, DLJ Merchant Banking Partners II, L.P. and other entities affiliated with Donaldson Lufkin & Jenrette, Inc. became indirect affiliates of Credit Suisse First Boston, Inc. and Credit Suisse Group. The combined operations of the DLJ entities and Credit Suisse First Boston are commonly referred to collectively as Credit Suisse First Boston. See “Item 13. Certain Relationships and Related Transactions—Acquisition of Donaldson, Lufkin & Jenrette, Inc. by Credit Suisse Group” for additional information.

Customers

We estimate that our Cabin Management Group currently sells its products and services to approximately 800 customers and our Systems Integration Group sells its products and services to approximately 200 customers. Our primary customers include manufacturers of business, VIP and head-of-state aircraft, airlines and aircraft repair and modification companies.

The following customers accounted for 10% or more of our consolidated revenues from continuing operations for the year ended December 31, 2002. Historical data for the three years ended December 31, 2002 is presented in Note 17 accompanying our consolidated financial statements included in this report.

Significant Customers	Cabin Management Group		Systems Integration Group		Consolidated Total

Percent of consolidated revenues:
Textron (1)	23.5	%	—	%	23.5	%
Bombardier	16.0		1.4		17.4
Boeing (2)	1.4		14.0		15.4
Consolidated revenues	40.9	%	15.4	%	56.3	%

Percent of group revenues (3):
Textron (1)	31.3	%	—	%
Bombardier	21.4		5.4
Boeing (2)	1.9		56.0
Group revenues	54.6	%	61.4	%

(1) Includes Cessna.

(2) Reflects only our direct revenues from Boeing. Our Systems Integration Group’s revenues from Boeing result from auxiliary fuel systems for the Boeing Business Jet.

(3) Inter-group revenues are eliminated against the group originating the sale.

Complete loss of any of the customers identified above could have a significant adverse impact on our results of operations expected in future periods.

Significant portions of our revenues from our major customers are pursuant to contracts that may include a variety of terms favorable to the customer. Such terms may include our agreement to one or more of the following:

• the customer is not required to make purchases, and may terminate such contract at any time;

• we make substantial expenditures to develop products for customers that we may not recoup if we do not receive sufficient orders;

• on a prospective basis, we must extend to the customers any reductions in prices or lead times that we provide to other customers;

• we must match other suppliers’ price reductions or delete the affected products from the contract; and

• we must grant irrevocable non-exclusive worldwide licenses to use our designs, tooling and other intellectual property rights to products sold to a customer if we default, or suffer a bankruptcy filing, or transfer our manufacturing rights to a third party.

Backlog

As of December 31, 2002, we had an aggregate sales order backlog from continuing operations of $66.8 million compared to $99.5 million as of December 31, 2001, as follows:

	December 31,
(In thousands)	2002		2001

Cabin Management	$	31,679	$	43,653
Systems Integration	35,126		55,865
Consolidated totals	$	66,805	$	99,518

Orders are usually filled within twelve months; however, backlog totaling $9.4 million as of December 31, 2002 is scheduled for delivery in 2004 and beyond as follows: Cabin Management – $0.7 million; and Systems Integration – $8.7 million. Orders may be subject to cancellation by the customer prior to shipment. The level of unfilled orders at any given date will be materially affected by when we receive orders and how fast we fill them. Period-to-period comparisons of backlog figures may not be meaningful. For that reason, our backlogs do not necessarily accurately predict actual shipments or sales for any future period.

As described in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Industry Overview and Trends,” the acts and ongoing threats of global terrorism, the current military conflicts, SARS epidemic and weak global economic conditions are all adversely impacting the aerospace industry. We are not able to predict the continuing impact these events will have in future periods. However, given the magnitude of these events, the adverse impact could be material.

Employees

As of December 31, 2002, we had 2,176 employees: 1,117 in our Cabin Management Group; 733 in our Specialty Avionics Group (discontinued operations); 313 in our Systems Integration Group; and 13 in our corporate office. None of our employees is subject to a collective bargaining agreement, and we have not experienced any material business interruption as a result of labor disputes. We believe that we generally have a good relationship with our employees.

Research and Development

We continually evaluate opportunities to improve our product offerings and develop new products that incorporate new technologies to meet the demands of our customers and the FAA. Total expenditures by continuing operations were $0.1 million for the year ended December 31, 2002, $0.7 million during the year ended December 31, 2001 and $1.6 million during the year ended December 31, 2000.

Financial Information About Geographic Areas

Financial information about our revenues and assets by geographic area are included in Note 17 accompanying our financial statements included in this report.

Seasonality

Our businesses generally are not seasonal in nature.

Sales and Marketing

Our Cabin Management Group has designated relationship managers who are responsible for maintaining and cultivating relationships with customers. In addition, a dedicated sales force is utilized for some of our products and services.

Our Systems Integration Group has a dedicated sales force that handles most of its sales activities.

We are continuously seeking opportunities to combine our sales efforts across all of our operating groups in order to ensure that all sales opportunities are explored and that we maximize our revenue content per plane. We may also assign marketing and sales responsibilities for key customers to one of our senior corporate executives.

Raw Materials and Component Parts

The components we manufacture require the use of various raw materials including aluminum, hardwoods and plastics. The availability and prices of these materials may fluctuate. The cost of such raw materials is a significant component in, and part of, the sales price of many of our products. Although some of our contracts have prices tied to raw materials prices, we cannot always recover raw material price increases in our product sale price. We also purchase a variety of manufactured sub-component parts from various suppliers. Raw materials and component parts are generally available from multiple suppliers at competitive prices. However, any delay in our ability to obtain necessary raw materials and component parts may affect our ability to meet customer production needs.

Intellectual Property and Proprietary Information

We have various trade secrets, proprietary information, trademarks, tradenames, patents, copyrights and other intellectual property rights we believe are important to our business in the aggregate, but not individually.

Government Regulation

Federal Aviation Administration

The aerospace industry is highly regulated in the United States by the Federal Aviation Administration and in other countries by similar agencies to ensure that aviation products and services meet stringent safety and performance standards. In addition, many of our customers impose their own compliance and quality requirements on us. The FAA prescribes standards and licensing requirements for aircraft components, issues designated alteration station authorizations, and licenses private repair stations. We hold various FAA approvals and licenses, which may only be used by our subsidiary obtaining such approval. If material FAA or customer authorizations or approvals were revoked or suspended, our operations could be adversely affected.

The FAA can authorize or deny authorization of many of the services and products we provide. Any such denial would preclude our ability to provide the pertinent service or product. If we failed to comply with applicable FAA standards or regulations, the FAA could exercise a wide range of remedies, including a warning letter, a letter of correction, a civil penalty action, and emergency or non-emergency suspension or revocation of a certificate or approval.

Each type of aircraft operated by airlines in the United States must possess an FAA type certificate, generally held by the aircraft manufacturer, indicating that the type design meets applicable airworthiness standards. When someone else develops a major modification to an aircraft already type-certificated, that person must obtain an FAA-issued Supplemental Type Certificate for the modification. Historically, we have obtained several hundred of these Supplemental Type Certificates, most of which we obtained on behalf of our customers as part of our systems integration services. Some of these certificates we obtain were or eventually will be transferred to our customers. As of December 31, 2002, we own and/or manage on behalf of our customers approximately 300 Supplemental Type Certificates. Many are multi-aircraft certificates, which apply to all of the aircraft of a single type. We foresee the need to obtain additional Supplemental Type Certificates so that we can expand the services we provide and the customers we serve and believe we will be able to obtain such certificates as the need arises.

Supplemental Type Certificates can be issued for proposed aircraft modifications directly by the FAA, or on behalf of the FAA by a Designated Alteration Station. The FAA designates what types of Supplemental Type Certificates can be issued by each Designated Alteration Station. A subsidiary within our Systems Integration Group is an FAA-authorized Designated Alteration Station and can directly issue

many of the Supplemental Type Certificates our customers and we require for our systems integration operations.

After obtaining a Supplemental Type Certificate, a manufacturer must apply for a Parts Manufacturer Approval from the FAA, or a supplement to an existing Parts Manufacturer Approval, which permits the holder to manufacture and sell installation kits according to the approved design and data package. We have six Parts Manufacturer Approvals and approximately 160 supplements to those approvals. In general, each initial Parts Manufacturer Approval is an approval of a manufacturing or modification facility’s production quality control system. Each Parts Manufacturer Approval supplement authorizes the manufacture of a particular part in accordance with the requirements of the corresponding Supplemental Type Certificate. We routinely apply for and receive such Parts Manufacturer Approval supplements. In order to perform the actual installations of a modification, we are also required to have FAA approval. This authority is contained either in our Parts Manufacturer Approvals and related supplements, or in our repair station certificates. In order for a company to perform most kinds of repair, engineering, installation or other services on aircraft, its facility must be designated as an FAA-authorized repair station. As of December 31, 2002, we had seven authorized repair stations and employed approximately 100 FAA certified representatives.

Occupational Safety and Health Administration

Our manufacturing operations in the United States are subject to a variety of worker and community safety laws. The Occupational Safety and Health Act of 1970 mandates general requirements for safe workplaces for all employees. In addition, OSHA provides special procedures and measures for the handling of hazardous and toxic substances and has established specific safety standards for workplaces engaged in the treatment, disposal or storage of hazardous waste. We believe that our operations are in material compliance with OSHA’s health and safety requirements.

Environmental Matters

Our facilities and operations are subject to various federal, state, local, and foreign environmental laws and regulations, including those relating to discharges to air, water, and land, the handling and disposal of solid and hazardous waste, and the cleanup of properties affected by hazardous substances. In addition, some environmental laws, such as the federal Comprehensive Environmental Response, Compensation and Liability Act, as amended (“CERCLA”) and similar state laws, impose strict liability upon persons responsible for releases or potential releases of hazardous substances. That liability generally is retroactive, and may create “joint and several” liability among multiple parties who have some relationship to a site or a source of waste, such as a current or former owner or operator of real property or a party who arranges to transport wastes to a third-party site. We have sent waste to treatment, storage, or disposal facilities that have been designated as National Priority List sites under CERCLA or equivalent listings under state laws. We have received CERCLA requests for information or allegations of potential responsibility from the Environmental Protection Agency regarding our use of several of those sites. In addition, some of our operations are located on properties that are contaminated to varying degrees.

We have not incurred, nor do we expect to incur, liabilities in any significant amount as a result of the foregoing matters because in most of these cases other entities have been held primarily responsible, the levels of contamination are sufficiently low so as not to require remediation, or we are indemnified against such costs. However, in a few cases, we do not have sufficient information to assess our potential liability, if any. In addition, it is possible, given the potentially retroactive nature of environmental liability, that we will receive additional notices of potential liability relating to current or former activities.

We believe that we have no liabilities under environmental laws and regulations, except for liabilities which we do not expect would likely have a material adverse effect on our business, financial position, results of operations or cash flows. However, some risk of environmental liability is inherent in the nature of our business, and we might in the future incur material costs to meet current or more stringent compliance, cleanup, or other obligations pursuant to environmental laws and regulations.

In connection with the sale of the Specialty Avionics Group, we have agreed to indemnify the buyer for all pre-closing releases of hazardous materials at any of Avtech’s facilities up to a maximum amount of $5.0 million.

ITEM 2. PROPERTIES

We operate in a number of manufacturing, engineering and office facilities in the United States and abroad. At December 31, 2002, we utilized approximately 1.3 million square feet of floor space, approximately 93% of which is located in the United States. We believe that our facilities are in good condition and are adequate to support our operations for the foreseeable future. Our operating groups’ facilities at December 31, 2002 are summarized below.

(In thousands of square feet)	Leased	Owned	Total

Cabin Management	506	204	710
Specialty Avionics	164	88	252
Systems Integration	114	150	264
Corporate	8	—	8
Total in use	792	442	1,234

Not in use, held for sale	—	104	104
Not in use, subleased to others	84	32	116
Total	876	578	1,454

In addition to the 252,000 square feet of facilities used by the Specialty Avionics Group, an additional 32,000 square feet of owned facilities not in use and subleased to others was transferred to the buyer in connection with our sale of the group in 2003. The sale of the Specialty Avionics Group will not have an impact on the utilization of our remaining facilities.

ITEM 3. LEGAL PROCEEDINGS

As part of its investigation of the crash of Swissair Flight 111 off the Canadian coast on September 2, 1998, the Canadian Transportation Safety Board (the “CTSB”) initially notified us that it recovered burned wire that was attached to the in-flight entertainment system installed on some of Swissair’s aircraft by one of our subsidiaries. Our subsidiary has worked vigorously over the last five years with the CTSB investigators in the fact-finding investigation of this catastrophic incident. On March 27, 2003, the CTSB released its final report on its investigation. This report indicated that the CTSB was unable to conclusively determine the cause of the fire which led to the crash of the aircraft.

We were a defendant in most, but not all, of the actions brought by the estates of the 229 victims of the crash. The actions, which sought damages and costs in unstated amounts, claimed negligence, strict liability, and breach of warranty. Virtually all of the cases have been settled by Boeing and Swissair’s insurers and both assignment of the claims against, and releases in favor, of us have been obtained by the Boeing and Swissair insurers.

Boeing and Swissair have made a claim (but have not commenced litigation) against us to contribute to the amounts paid to settle the cases. As there is no litigation pending, no discovery has been

taken by either side as to liability for the crash. We believe that our subsidiary is not responsible for the crash and, in any event, we maintain insurance for such matters. We further believe that any loss we may sustain upon the ultimate resolution of this matter, if any, will not exceed the amount of insurance coverage maintained. Accordingly, no accrual for loss has been recorded in our financial statements.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS

Market Information

There is no established public trading market for our shares. In August 1998, we purchased and canceled all of DeCrane Aircraft’s issued and outstanding shares in connection with the DLJ acquisition.

Holders

As of March 28, 2003, there are 37 holders of record of our common stock.

Dividends

We have not paid dividends to date on our common stock and do not anticipate paying any cash dividends in the foreseeable future. The terms of our senior credit facility and senior subordinated note indenture restrict our ability to pay dividends if we do not meet certain financial criteria.

Recent Sale of Unregistered Securities

During the year ended December 31, 2002, we sold unregistered shares of our common stock ($.01 par value) in two separate cash transactions:

• Sold 3,704 shares to a director for $0.1 million, or $27.00 per share, on June 18, 2002; and

• Sold 217,392 shares to DLJ Merchant Banking Partners II, L.P. and affiliated entities for $5.0 million, or $23.00 per share, on September 27, 2002.

The issuances of shares were exempt from the registration requirements of the Securities Act of 1933 under Section 4(2) as transactions by an issuer not involving any public offering.

ITEM 6. SELECTED FINANCIAL DATA

	(1)
													1998
(In thousands)	Year Ended December 31,												Four Months Ended December 31, 1998			Eight Months Ended August 31, 1998
	2002			2001			2000			1999
																(Predecessor) (2)
Statement of Operations Data:
Revenues	$	229,841		$	272,112		$	236,501		$	131,547		$	17,945		$	27,518
Cost of sales (3)	170,485			196,866			155,134			90,103			12,011			17,759

Gross profit	59,356			75,246			81,367			41,444			5,934			9,759

Selling, general and administrative expenses (4)	40,318			45,429			33,345			26,812			5,442			14,188
Impairment of goodwill (5)	—			8,583			—			—			—			—
Amortization of intangible assets (6)	3,540			12,436			10,628			5,938			748			615

Operating income (loss)	15,498			8,798			37,394			8,694			(256		)	(5,044		)

Interest expense (7)	25,376			29,645			27,181			15,874			4,687			512
Minority interest in preferred stock of subsidiary (8)	5,841			5,061			2,274			—			—			—
Other expenses, net (9)	505			634			277			855			64			595

Income (loss) from continuing operations before provision for income taxes	(16,224		)	(26,542		)	7,662			(8,035		)	(5,007		)	(6,151		)
Provision for income taxes (benefit) (10)	(3,621		)	(3,933		)	4,607			(2,102		)	(3,861		)	(2,172		)

Income (loss) from continuing operations	(12,603		)	(22,609		)	3,055			(5,933		)	(1,146		)	(3,979		)

Income (loss) from discontinued operations, net of tax (11)	(41,396		)	3,546			(1,727		)	1,578			807			7,168
Cumulative effect of change in accounting principle (12)	(17,828		)	—			—			—			—			—
Extraordinary loss from debt refinancing (13)	—			—			—			—			(2,229		)	—
Net income (loss)	$	(71,827	)	$	(19,063	)	$	1,328		$	(4,355	)	$	(2,568	)	$	3,189

Net income (loss) applicable to common stockholders	$	(79,826	)	$	(26,034	)	$	(4,746	)	$	(9,649	)	$	(4,210	)	$	3,189

Other Financial Data:
Restructuring, asset impairment and other related charges (14)	$	17,255		$	25,834		$	—		$	9,935		$	—		$	—
Depreciation and amortization (15)	10,612			20,364			15,086			8,315			1,004			1,279
Capital expenditures:
Paid in cash	4,356			10,191			20,193			4,077			801			272
Financed with capital lease obligations	67			4,376			105			1,012			—			—

Other Operating Data:
Bookings (16)	$	197,132		$	252,800		$	238,546		$	170,547		$	19,759		$	31,660
Backlog at end of period (17)	66,805			99,518			118,830			107,634			20,888			19,583

	As of December 31, (in thousands) (1)
(In thousands)	2002			2001		2000		1999		1998

Balance Sheet Data:
Cash and cash equivalents	$	12,421		$	9,478	$	7,706	$	7,899	$	3,831
Working capital (18)	196,176			81,656		61,398		32,412		49,033
Total assets (18)	548,967			645,711		664,254		531,842		330,927
Total debt (19)	381,017			399,268		381,513		314,936		185,807
Mandatorily redeemable securities (20)	96,303			82,463		70,431		41,178		35,884
Stockholders’ equity (deficit)	(27,271		)	48,167		74,190		66,595		61,625

See accompanying Notes to Selected Financial Data.

Notes to Selected Financial Data:

(1) Reflects historical selected consolidated financial data derived from the audited consolidated financial statements and related notes for the periods, reclassified to reflect the Specialty Avionics Group as a discontinued operation.

Also reflects the results of operations and financial position of companies we acquired for all periods subsequent to their respective acquisition dates as follows:

Company Acquired		Date Acquired
• Coltech (a component of discontinued operations)		August 31, 2000
• DeCrane Aircraft Seating Co. (formerly ERDA)		June 30, 2000
• Carl F. Booth & Co.		May 11, 2000
• Infinity		December 17, 1999
• International Custom Interiors		October 8, 1999
• PCI NewCo		October 6, 1999
• Custom Woodwork		August 5, 1999
• Precision Pattern		April 23, 1999
• PATS		January 22, 1999
• Dettmers		June 30, 1998
• Avtech (a component of discontinued operations)		June 26, 1998

(2) Reflects DeCrane Aircraft’s results of operations and financial position prior to (predecessor) the DLJ acquisition.

(3) Includes charges to reflect:

• our restructuring activities as follows:

• a $6.9 million noncash inventory write-down, a $2.6 million charge for estimated losses on uncompleted long-term contracts and $1.2 million of other charges during the twelve months ended December 31, 2002;

• a $1.8 million noncash inventory write-down, a noncash write-off of $7.9 million of curtailed product development costs and charges totaling $3.9 million for the realignment of production programs between facilities during the twelve months ended December 31, 2001; and

• a $6.0 million noncash inventory write-down during the twelve months ended December 31, 1999; and

• cost of sales based on the fair value of inventory acquired of $1.6 million during the twelve months ended December 31, 1999 in connection with the Precision Pattern and Custom Woodworks acquisitions and $0.7 million during the four months ended December 31, 1998 in connection with the DLJ acquisition.

(4) Includes charges of:

• our restructuring activities as follows:

• $6.5 million during the year ended December 31, 2002, $3.9 million of which was a noncash asset impairment write-down;

• $3.7 million during the year ended December 31, 2001, $1.3 million of which was a noncash asset impairment write-down;

• $3.9 million during the year ended December 31, 1999, $1.3 million of which was a noncash asset impairment write-down; and

• $3.6 million during the eight months ended August 31, 1998 for non-capitalized transaction costs associated with the DLJ acquisition.

(5) Reflects noncash goodwill impairment charges, including charges resulting from our restructuring activities.

(6) For the five years ended December 31, 2002, reflects the amortization of identifiable intangible assets. For periods prior to January 1, 2002, also reflects the amortization of goodwill as follows: 2001 – $9.1 million; 2000 – $7.8 million; 1999 – $3.8 million; 1998 – $0.5 million (four months) and $0.6 million (eight months). Starting January 1, 2002, goodwill is no longer amortized but instead subject to annual impairment testing with a loss charged to operations in the period in which impairment occurs, as required by SFAS No. 142, “Goodwill and Other Intangible Assets.”

(7) Excludes interest expense attributable to the Specialty Avionics Group, which is classified as a component of the income or loss from discontinued operations, as described in Note 11 below.

(8) Reflects accrued dividends and redemption value accretion on DeCrane Aircraft’s 16% mandatorily redeemable preferred stock.

(9) For the eight months ended August 31, 1998, reflects a $0.6 million charge for costs incurred in connection with a debt offering terminated as a result of the DLJ acquisition.

(10) For the four months ended December 31, 1998, includes a $2.6 million benefit from the reduction of the deferred tax valuation allowance. Excluding the effect of the valuation allowances, the provision for income taxes differs from the amount determined by applying the applicable U.S. statutory federal rate to the income before income taxes primarily due to the effects of state income taxes and non-deductible expenses, principally goodwill impairment charges and amortization (for periods prior to January 1, 2002) and minority interest in preferred stock of subsidiary. The difference in the effective tax rates between periods is mostly a result of the relationship of non-deductible expenses to the loss before income taxes.

(11) Reflects the net income or loss of the Specialty Avionics Group, which was sold on May 23, 2003 and therefore is classified as a discontinued operation during the periods and includes charges to reflect:

• a $39.3 million noncash charge during the six months ended June 30, 2002 and the year ended December 31, 2002 to reflect the cumulative effect of the change in accounting principle for the impairment of goodwill upon adoption of SFAS No. 142 on January 1, 2002; and

• interest expense attributable to the Specialty Avionics Group as follows:

									1998
(In thousands)	Year Ended December 31,								Four Months Ended December 31, 1998		Eight Months Ended August 31, 1998
	2002		2001		2000		1999
											(Predecessor)
Interest expense associated with:
Senior bank credit facility debt required to be repaid	$	7,720	$	8,439	$	13,337	$	10,875	$	1,739	$	1,077
Debt obligations assumed by the buyer	798		917		1,105		1,154		441		761
Interest expense attributable to discontinued operations	$	8,518	$	9,356	$	14,442	$	12,029	$	2,180	$	1,838

Interest expense on senior bank credit facility debt required to be repaid reflects allocated interest expense attributable to senior bank credit facility debt which was required to be repaid with the proceeds from the sale. For the four years ended December 31, 2002, the allocation is computed on $130.0 million of debt repaid. For the four months ended December 31, 1998, the allocation is computed on $63.3 million of debt attributable to the group subsequent to the DLJ acquisition. For the eight months ended August 31, 1998, the allocation is computed on $83.6 million of debt attributable to the Avtech acquisition on June 26, 1998. Interest expense was based on the historical interest rates charged during each of the periods.

(12) Reflects the noncash charge, net of $0.9 million tax benefit, for the impairment of goodwill upon adoption of SFAS No. 142 on January 1, 2002.

(13) Reflects the write-off of deferred financing costs, net of an income tax benefit, as a result of the repayment of our then existing indebtedness in connection with the DLJ acquisition and the refinancing of the bridge notes during the four months ended December 31, 1998.

(14) Reflects the total restructuring, asset impairment and other related charges incurred during the periods related to our restructuring activities.

(15) Reflects depreciation and amortization of plant and equipment, goodwill (for periods prior to the January 1, 2002 adoption of SFAS No. 142) and other intangible assets. Excludes amortization of deferred financing costs and debt discounts, which are classified as a component of interest expense.

(16) Bookings represent the total invoice value of purchase orders received during the period.

(17) Backlog represents the total invoice value of unfilled purchase orders at the end of the period. Orders may be subject to cancellation by the customer prior to shipment. The level of unfilled orders at any given date during the year will be materially affected by the timing of our receipt of orders and the speed with which those orders are filled.

(18) Includes amounts attributable to the Specialty Avionics Group, which is reflected as a discontinued operation, as follows:

	As of December 31, (in thousands)
(In thousands)	2002		2001		2000		1999			1998

Working capital:
Continuing operations	$	55,363	$	39,862	$	20,480	$	(1,992	)	$	14,850
Discontinued operations	140,813		41,794		40,918		34,404			34,183
Total working capital	$	196,176	$	81,656	$	61,398	$	32,412		$	49,033

Total assets:
Continuing operations	$	388,226	$	423,272	$	429,812	$	305,685		$	95,640
Discontinued operations	160,741		222,439		234,442		226,157			235,287
Total assets	$	548,967	$	645,711	$	664,254	$	531,842		$	330,927

(19) Total debt is defined as long-term debt, including current portion.

(20) Reflects DeCrane Holdings mandatorily redeemable 14% preferred stock and includes DeCrane Aircraft 16% mandatorily redeemable preferred stock as of December 31, 2002, 2001 and 2000, which is reflected as minority interest in preferred stock of subsidiary in our consolidated financial statements.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussions should be read in conjunction with our financial statements and accompanying notes included in this report.

Recent Developments

On May 23, 2003, we consummated the sale of our equity interests in the subsidiaries comprising the Specialty Avionics Group to Wings Holdings, Inc., an affiliate of Odyssey Investment Partners, LLC, for $140.0 million in cash. Proceeds of $130.0 million from the sale were used to repay senior credit facility borrowings, in accordance with the facility’s terms which were amended to permit the sale.

As we originally described in our initial Form 10-K for the year ended December 31, 2002, our failure to consummate the sale of the Specialty Avionics Group by June 30, 2003 would have been an event of default under the amended senior credit facility. As a result, our independent accountants qualified their report on our audited financial statements for the year ended December 31, 2002 with respect to our ability to continue as a going concern. Consummation of the sale and repayment of $130.0 million of borrowings alleviated our independent accountants’ doubt about our ability to continue as a going concern. As a result, our independent accountants issued a revised, unqualified report on our financial statements, which is included in this Amendment No. 1 to our Form 10-K for the year ended December 31, 2002. See “—Liquidity and Capital Resources–Recent Developments Affecting Financial Condition and Liquidity” below for additional information.

The sale of the Specialty Avionics Group is not expected to affect the operations of the remaining operating groups. As a result of the sale, the Specialty Avionics Group is presented as a discontinued operation in our consolidated financial statements and our discussion below of our results of operations reflects only continuing operations for all periods.

Industry Overview and Trends

We compete in the aircraft products and services market of the aerospace industry. The market for our products and services is largely driven by demand in the three civil aircraft markets: business, VIP and head-of-state aircraft and, to a lesser extent, commercial and regional aircraft. Weak global economic conditions, which were exacerbated by the September 11, 2001 terrorist attack on the United States, ongoing concerns about global terrorism, the current Middle Eastern military conflicts and the Severe Acute Respiratory Syndrome, or SARS, epidemic are all adversely impacting the aerospace industry and have led to a decrease in demand for business, VIP and head-of-state aircraft. In response to certain of these adverse conditions, we have announced and implemented a series of restructuring activities designed to reduce expenses and conserve working capital. See “—Restructuring, Asset Impairment and Other Related Charges” below for additional information.

The business, VIP and head-of-state aircraft portion of our business experienced weakness during 2002 and will continue to experience weakness throughout 2003 as evidenced by various manufacturers’ announced plans to temporarily suspend production at various times throughout the year in response to the weak demand for new aircraft. However, we believe business, VIP and head-of-state aircraft deliveries may experience a modest recovery in 2004 and continuing recovery thereafter. The commercial aircraft portion of our business, which subsequent to the sale of the Specialty Avionics Group accounts for less than 5% of consolidated revenues, also experienced significant weakness in 2002 and we believe this condition will continue through 2003 and into 2004, with potential recovery not expected to occur until at least 2005. Our beliefs are based on the assumptions that we will experience economic recovery and there are no further negative geo-political developments affecting our industry.

Results of Operations

Performance Measures

The following discussion of our results of operations includes discussions of financial measures and operating statistics we use to evaluate the performance of, and trends in, our businesses. We believe the presentation of these measures and statistics are relevant and useful to investors because it allows them to view performance and trends in a manner similar to the methods we use. These measures and statistics, and why they are important to us and could be of interest to you, are described below.

Adjusted EBITDA. Our discussion of the results of operations includes discussions of financial measures determined in accordance with accounting principles generally accepted in the United States of America (“GAAP”) as well as the financial measure Adjusted EBITDA, which excludes certain charges reflected in our GAAP basis financial statements. Our presentation of Adjusted EBITDA is in accordance with the GAAP requirements of SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” which requires us to report the primary measure of segment performance we use to evaluate and manage our businesses.

We utilize more than one measurement to evaluate segment performance and allocate resources among our operating segments; however, we consider Adjusted EBITDA, as defined below, to be the primary measurement of overall operating segment core economic performance and return on invested capital. We also use Adjusted EBITDA in the annual budgeting and planning for future periods, as one of the decision-making criteria for funding discretionary capital expenditure and product development programs and as the measure for determining the value of acquisitions and dispositions. Our board of directors uses Adjusted EBITDA as one of the performance metrics for determining the amount of bonuses awarded to pursuant to the cash incentive bonus plan and as an indicator of enterprise value used in determining the exercise price of stock options granted and the acceleration of stock option vesting pursuant the incentive stock option plan.

We define Adjusted EBITDA as earnings before interest, income taxes, depreciation and amortization, restructuring, asset impairment and other related charges, acquisition related charges not capitalized and other noncash and nonoperating charges. We believe the presentation of this measure is relevant and useful to investors because it allows investors and analysts to view segment performance in a manner similar to the method we use, helps improve their ability to understand our core segment performance, adjusted for items we believe are unusual, and makes it easier to compare our results with other companies that have different financing, capital structures and tax rates. In addition, we believe these measures are consistent with the manner in which our lenders and investors measure our overall performance and liquidity, including our ability to service debt and fund discretionary capital expenditure and product development programs.

Our method of calculating Adjusted EBITDA may not be consistent with that of other companies and should be viewed in conjunction with measurements that are computed in accordance GAAP, such as net income (loss), the nearest comparable GAAP financial measure. Adjusted EBITDA should not be viewed as substitutes for or superior to net income (loss), cash flow from operations or other data prepared in accordance with GAAP as a measure of our profitability or liquidity. The notes to our financial statements include information about our operating segments, including Adjusted EBITDA, and should be read in conjunction with the discussions presented herein. The notes to our financial statements also include a reconciliation of Adjusted EBITDA to net income (loss) to clarify the differences between these financial measures.

Bookings and Backlog. Bookings and backlog are operating statistics we use as leading trend indicators of future demand for our products and services. Bookings and backlog are based upon the

value of purchase orders received from our customers, which will result in revenues, if and when such orders are filled.

Bookings represent the total invoice value of purchase orders received during the period and backlog represents the total invoice value of unfilled purchase orders as of the end of a period. Orders may be subject to change or cancellation by the customer prior to shipment. The level of unfilled orders at any given date during the year will be materially affected by the timing of our receipt of orders and the speed with which those orders are filled.

Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

Our results of operations have been affected by restructuring, asset impairment and other related charges relating to a series of restructuring activities and goodwill impairment charges. These charges, which affect the comparability of our reported results of operations between periods, are more fully described in “—Restructuring, Asset Impairment and Other Related Charges” and “—Goodwill Impairment Charges” below.

Revenues. Revenues decreased $42.3 million, or 15.5%, to $229.8 million for the year ended December 31, 2002 from $272.1 million for the year ended December 31, 2001. By segment, revenues changed as follows:

	Increase (Decrease) From 2001
(In millions)	Amount			Percent

Cabin Management	$	(33.2	)	(16.1	)%
Systems Integration	(9.5		)	(14.0	)
Inter-group elimination	0.4
Total	$	(42.3	)

Cabin Management. Revenues decreased by $33.2 million, or 16.1% compared to the prior year. The decrease, which is across most of our product and services categories, is caused by the ongoing adverse impact of weak global economic conditions which reduces the affordability of business, VIP and head-of-state aircraft and therefore demand for the products and services we provide. The 2002 decrease consists of:

• a $22.4 million decrease in aircraft furniture and related products revenues;

• a $9.8 million decrease in cabin management and entertainment systems revenues; and

• a $6.1 million decrease in seating products revenues; offset by

• a $5.1 million increase in other product and services revenues.

The revenue decrease was caused by lower order volume from our customers as opposed to a loss of customers or price reductions. The decrease in order volume is attributable to weak global economic conditions and the impact these conditions are having on manufacturers of business, VIP and head-of-state aircraft and therefore demand for the products and services we provide to them. Weak global economic conditions have reduced the amount of discretionary income available to purchase and operate these types of aircraft. As a result, the manufacturers of these aircraft have experienced a decrease in orders for new aircraft which, in turn, reduces the orders our customers place with us.

Revenues from Textron and Bombardier, our principal customers, decreased $15.0 million compared to the prior year as a result of the decrease in orders and resulting production of aircraft they are experiencing due to the economic downturn. We also experienced similar volume decreases from our other customers during the period.

Systems Integration. Revenues decreased by $9.5 million, or 14.0% compared to the prior year, due to:

• a $7.5 million decrease in the commercial aircraft systems integration and engineering services we provide resulting from the aftermath of September 11^th,and resulting down-turn in the commercial airline industry; the airline industry’s corresponding reduction in the size of its operating fleet and the delay or postponement retrofit and refurbishment programs for the remaining operational fleet reduced demand for our integration and engineering services; and

• a $2.0 million decrease resulting from reduced demand for our business, VIP and head-of-state aircraft products and services due to the adverse impact weak global economic conditions are having on the demand for those types of aircraft as follows:

• a $5.6 million decrease in BBJ auxiliary fuel systems revenues; offset by

• a $3.6 million increase in our aircraft completion and modification revenues, principally resulting for our first aircraft interior completion during 2002.

Gross profit. Gross profit decreased $15.9 million, or 21.1%, to $59.3 million for the year ended December 31, 2002 from $75.2 million for the same period last year. By segment, gross profit changed as follows:

	Increase (Decrease) From 2001
(In millions)	Amount			Percent

Cabin Management	$	(10.7	)	(21.7	)%
Systems Integration	(5.3		)	(20.3	)
Inter-group elimination	0.1
Total	$	(15.9	)

Cabin Management. Gross profit decreased by $10.7 million, or 21.7% compared to the prior year, primarily due to:

• a $6.6 million net decrease caused by charges related to our 2001 and 2002 restructuring activities;

• a $3.8 million decrease in profit margins due to lower volume for our business, VIP and head-of-state aircraft furniture and seating products, and

• a $0.3 million decrease in gross profit related to lower volume for our cabin management and entertainment systems.

Systems Integration. Gross profit decreased by $5.3 million, or 20.3% compared to the prior year, primarily due to $4.1 million of other asset impairment related charges and lower sales volume.

Selling, general and administrative expenses. Selling, general and administrative expenses decreased $5.1 million, or 11.3%, to $40.3 million for the year ended December 31, 2002, from $45.4 million for the same period last year. By segment, SG&A expenses changed as follows:

	Increase (Decrease) From 2001
(In millions)	Amount			Percent

Cabin Management	$	(1.9	)	(7.3	)%
Systems Integration	(2.1		)	(22.0	)
Corporate	(1.1		)
Total	$	(5.1	)

Cabin Management. SG&A expenses decreased by $1.9 million, or 7.3% compared to the prior year, due to:

• a $4.7 million decrease in expenses as a result of cost reduction measures implemented in 2001 and 2002 in response to lower sales volume resulting from the weak global economic conditions; offset by

• a $2.8 million increase caused by charges relating to our 2001 and 2002 restructuring activities.

Systems Integration. SG&A expenses decreased by $2.1 million, or 22.0% compared to the prior year, due to lower labor and employee benefit costs resulting from workforce reductions implemented during the fourth quarter of fiscal 2001.

Corporate. SG&A expenses decreased by $1.1 million compared to the prior year, primarily due to workforce and travel expense reductions offset by increases in insurance and employee benefit costs.

Impairment of goodwill. In 2001, an $8.6 million impairment charge was recognized pursuant to the provisions of SFAS No. 121, “Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,” to reflect the impairment resulting from our restructuring activities. See “—Goodwill Impairment Charges” below for additional information.

Depreciation and amortization of intangibles. Depreciation and amortization expense decreased $9.8 million to $10.6 million for the year ended December 31, 2002 compared to $20.4 million for the same period last year, primarily resulting from the adoption of new accounting standards, as follows:

	Increase (Decrease) From 2002
(In millions)	Amount			Percent

Depreciation charged to:
Cost of sales	$	(0.7	)	(14.2	)%
Selling, general and administrative expense	(0.2		)	(5.1	)
Amortization of intangible assets:
Goodwill	(9.1		)	(100.0	)
Identifiable intangible assets	0.2			5.0
Total	$	(9.8	)

Effective January 1, 2002, we adopted SFAS No. 142, “Goodwill and Other Intangible Assets” and the provisions of SFAS No. 141, “Business Combinations,” which were required to be adopted concurrent with the adoption of SFAS No. 142. Under these new standards, goodwill is deemed to be an indefinite-lived asset and, as a result, the recording of periodic goodwill amortization charges was discontinued effective January 1, 2002. In addition, SFAS No. 141 requires that intangible assets relating to acquired assembled workforce intangibles not meeting the criteria for recognition apart from goodwill be reclassified to goodwill. Goodwill amortization was $9.1 million for the year ended December 31, 2001, which includes $1.1 million of assembled workforce amortization, now deemed part of goodwill. See “—Goodwill Impairment Charges” below for additional information.

Excluding the effect of the accounting change, depreciation and amortization decreased $0.9 million as a result of lower depreciable costs resulting from the impairment of long-lived assets recorded during the fourth quarter of fiscal 2001 and 2002, partially offset by additional depreciation resulting from capital expenditures during the period.

Adjusted EBITDA. As described above in “—Performance Measures—Adjusted EBITDA,” we use this financial measure to evaluate the core economic performance of our operating segments. The notes to our financial statements include additional information about Adjusted EBITDA, and should be

read in conjunction with the discussions presented herein. The notes to our financial statements also include a reconciliation of Adjusted EBITDA to net income (loss), a GAAP financial measure, to clarify the differences between these two measures.

Cabin Management. Adjusted EBITDA decreased by $12.9 million, or 28.3% compared to the prior year, primarily due to:

• a $9.3 million decrease related principally to lower revenues in our business, VIP and head-of-state aircraft furniture and seating operations; and

• a $3.6 million decrease resulting from lower sales volume for our cabin management and entertainment systems.

Systems Integration. Adjusted EBITDA increased by $0.9 million, or 5.4% compared to the prior year, primarily the result of reduced SG&A spending resulting from workforce reductions.

Operating income. Operating income increased $6.7 million to $15.5 million for the year ended December 31, 2002, from $8.8 million for the same period last year. Operating income changed as follows:

	Increase (Decrease) From 2001
(In millions)	Amount		Percent

Cabin Management	$	2.7	55.9	%
Systems Integration	1.4		18.1
Corporate	2.5
Inter-group elimination	0.1
Total	$	6.7

Cabin Management. Operating income increased by $2.7 million, or 55.9% compared to the prior year, primarily due to:

• a $10.7 million decrease in gross profit primarily caused by charges related to our restructuring activities and due to lower volume for our business, VIP and head-of-state aircraft furniture and seating products; offset by

• a $1.9 million decrease in SG&A resulting from cost reduction measures and restructuring charges;

• a $5.0 million decrease in goodwill impairment; and

• a $6.7 million decrease in amortization of intangibles.

Systems Integration. Operating income increased by $1.4 million, or 18.1% compared to the prior year, primarily due to:

• a $5.2 million decrease in gross profit due to other asset impairment related charges and lower sales volumes; offset by

• a $2.2 million decrease in SG&A resulting from lower labor and employee benefit costs;

• a $3.5 million decrease in goodwill impairment; and

• a $0.9 million decrease in amortization of intangibles.

Corporate. Operating income increased $2.5 million compared to the prior year, due to principally to reduced SG&A spending.

Interest expense. Interest expense decreased $4.3 million, or 14.4%, to $25.4 million for the year ended December 31, 2002 compared to $29.7 million for the same period last year due almost entirely to lower average interest rates charged by our lenders.

Minority interest in preferred stock of subsidiary. Minority interest increased $0.8 million to $5.8 million for the year ended December 31, 2002 compared to $5.0 million for the same period last year. Minority interest reflects accrued dividends, which are compounded quarterly, and redemption value accretion during the periods on DeCrane Aircrafts’ 16% preferred stock.

Provision for income taxes. The provision for income taxes differs from the amount determined by applying the applicable U.S. statutory federal rate to the income before income taxes primarily due to the effects of state and foreign income taxes and non-deductible expenses, principally goodwill impairment charges and amortization (for periods prior to the January 1, 2002 adoption of SFAS No. 142) and minority interest in preferred stock of subsidiary. The difference in the effective tax rates between periods is mostly the result of the adoption of SFAS No. 142.

Loss from continuing operations. Loss from continuing operations decreased $10.0 million to a loss of $12.6 million for the year ended December 31, 2002, compared to a loss of $22.6 million for the same period last year. The decrease in loss from continuing operations is attributable to:

• an $8.9 million decrease in amortization of goodwill and intangible assets resulting from the adoption of SFAS No. 142, “Goodwill and Other Intangible Assets,” on January 1, 2002;

• an $8.6 million decrease in goodwill impairment charges; and

• a $4.3 million decrease in interest expense; offset by

• an $11.0 million loss increase principally resulting from reduced profits caused by lower revenues; and

• a $0.8 million increase in minority interest in preferred stock of subsidiary.

Income (loss) from discontinued operations. Income from discontinued operations decreased $44.9 million to a loss of $41.4 million for the year ended December 31, 2002 compared to income of $3.5 million for the same period last year. The change in income (loss) from discontinued operations is attributable to:

• a $39.4 million charge in 2002 to reflect the cumulative effect on discontinued operations of the change in accounting principle associated with initial adoption of SFAS No. 142, “Goodwill and Other Intangible Assets;” and

• a $7.7 million charge in 2002 to reflect the additional impairment of goodwill in connection with the annual impairment testing provisions of SFAS No. 142; and

• a $3.1 million loss increase principally resulting from reduced profits caused by lower revenues; offset by

• a $5.3 million reduction in goodwill amortization expense resulting from discontinuance of periodic amortization charges pursuant to SFAS No. 142.

The $39.4 million and $7.7 million charges in 2002 are attributable to the goodwill impairment of one of the three reporting units within the Specialty Avionics Group. Aggregate goodwill was $126.5 million as of December 31, 2001 and $80.7 million as of December 31, 2002, after the $47.1 million 2002 impairment charges and a $1.3 million reclassification of intangible assets in connection with the adoption of SFAS No. 142. See “—Goodwill Impairment Charges” below for additional information.

Cumulative effect of change in accounting principle. The $17.8 million charge to reflect the cumulative effect of change in accounting principle for the year ended December 31, 2002 was a result of transitional goodwill impairment charges recognized upon initial adoption of SFAS No. 142, “Goodwill and Other Intangible Assets.” See “—Goodwill Impairment Charges” below for additional information.

Net income (loss). Net loss increased $52.7 million to a net loss of $71.8 million for the year ended December 31, 2002 compared to a net loss of $19.0 million for the same period last year. The increase over the prior year is a result of a $10.0 million decrease in loss from continuing operations offset by an increase in loss from discontinued operations of $44.9 million and the cumulative effect of change in accounting principle of $17.8 million.

Net loss applicable to common stockholders. Net loss applicable to common stockholders increased $53.8 million to a net loss of $79.8 million for the year ended December 31, 2002 compared to a net loss of $26.0 million for the same period last year. The increase in the net loss applicable to our common stockholders is attributable to:

• a $52.8 million net loss increase; and

• a $1.0 million increase in noncash preferred stock dividend accretion on our 14% mandatorily redeemable preferred stock resulting from the quarterly compounding of the dividends accreted.

Bookings. Bookings decreased $55.7 million, or 22.0%, to $197.1 million for the year ended December 31, 2002 compared to $252.8 million for the same period last year. The decrease in bookings for 2002 is due to decreases in orders for all of our business segments.

Backlog at end of period. Backlog decreased $32.7 million to $66.8 million as of December 31, 2002 compared to $99.5 million as of December 31, 2001.

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

Our results of operations have been affected by acquisitions during 2000 and, as a result, affect the comparability of our historical results. The year 2000 acquisitions, which affect the comparability of the historical results of operations described herein, are within our Cabin Management Group and include Carl F. Booth & Co., acquired on May 11, 2000, and DeCrane Aircraft Seating Co. (formerly ERDA), acquired on June 30, 2000. Our historical financial statements reflect the financial position and results of operations of these acquired businesses subsequent to their respective acquisition dates.

Our results of operations have also been affected by restructuring, asset impairment and other related charges relating to a series of restructuring activities and goodwill impairment charges. These charges, which affect the comparability of our reported results of operations between periods, are more fully described in “—Restructuring, Asset Impairment and Other Related Charges” and “—Goodwill Impairment Charges” below.

Revenues. Revenues increased $35.6 million, or 15.5%, to $272.1 million for the year ended December 31, 2001 from $236.5 million for the year ended December 31, 2000. By segment, revenues changed as follows:

	Increase (Decrease) From 2000
(In millions)	Amount			Percent

Cabin Management	$	31.3		17.9	%
Systems Integration	4.5			7.2
Inter-group elimination	(0.2		)
Total	$	35.6

Cabin Management. Revenues increased by $31.3 million, or 17.9% over the prior year, due to:

• the inclusion of $23.8 million of revenues resulting from our acquisitions of Carl F. Booth & Co. and DeCrane Aircraft Seating Co. in 2000; and

• a $7.5 million increase in cabin furniture and related products revenues.

Systems Integration. Revenues increased by $4.5 million, or 7.2% over the prior year, due to:

• a $9.3 million increase in auxiliary fuel system and power unit revenues; offset by

• a $4.8 million decrease in cabin and flight deck systems integration revenues resulting from reducing the number of product offerings to focus on our core product lines.

Gross profit. Gross profit decreased $6.1 million, or 6.8%, to $75.2 million for the year ended December 31, 2001, from $81.3 million of the same period last year. By segment, gross profit changed as follows:

	Increase (Decrease) From 2000
(In millions)	Amount			Percent

Cabin Management	$	(9.5	)	(15.9	)%
Systems Integration	3.5			15.7
Inter-group elimination	(0.1		)
Total	$	(6.1	)

Cabin Management. Gross profit decreased by $9.5 million, or 15.9% compared to prior year, primarily due to:

• a $13.6 million decrease caused by 2001 restructuring charges relating to the curtailment and resulting write-off of inventoried costs for several product development programs, realignment of production programs between facilities and inventory write-downs, and

• a $4.3 million decrease in profit margins associated with higher manufacturing costs for business, VIP and head-of-state aircraft furniture related to large airframe models; offset by

• a $7.1 million increase in gross profit related to our 2000 acquisitions; and

• a $1.3 million increase in gross profit related to higher product volume for business, VIP and head-of-state aircraft furniture.

Systems Integration. Gross profit increased by $3.5 million, or 15.7% over the prior year, due to:

• a $3.1 million increase due to higher auxiliary fuel systems volume and favorable manufacturing efficiencies; and

• a $1.2 million increase resulting, in part, from improved operating results subsequent to our fourth quarter 1999 restructuring activities; offset by

• a $0.8 million decrease resulting from lower cabin and flight deck systems integration services volume.

Selling, general and administrative expenses. Selling, general and administrative expenses increased $12.1 million, or 36.2%, to $45.4 million for the year ended December 31, 2001, from $33.3 million for the same period last year. By segment, SG&A expenses changed as follows:

	Increase (Decrease) From 2000
(In millions)	Amount		Percent

Cabin Management	$	10.3	65.0	%
Systems Integration	1.0		12.0
Corporate	0.8		10.1
Total	$	12.1

Cabin Management. SG&A expenses increased by $10.3 million, or 65.0% over the prior year, due to:

• a $3.7 million increase caused by 2001 restructuring and asset impairment charges relating to severance, lease termination and other related costs;

• a $3.5 million increase in expenses to support increased production and new programs; and

• a $3.1 million increase in expenses resulting from our 2000 acquisitions.

Systems Integration. SG&A expenses increased by $1.0 million, or 12.0% over the prior year, due to an increase in expenses associated with refocusing our cabin and flight deck systems integration services to product offerings requiring higher levels of sales and marketing, program management and customer service support.

Corporate. SG&A expenses increased by $0.8 million, or 10.1% over the prior year, primarily due to increased depreciation expense.

Depreciation and amortization of intangibles. Depreciation and amortization expense, which includes amortization of goodwill and identifiable intangible assets, increased $5.3 million, or 35.0%, for the year ended December 31, 2001. The increase results from the inclusion of $2.2 million of depreciation and amortization expense in 2001 from companies we acquired during 2000 and additional depreciation resulting from our capital expenditures during the period.

Adjusted EBITDA. As described above in “—Performance Measures–Adjusted EBITDA,” we use this financial measure to evaluate the core economic performance of our operating segments. The notes to our financial statements include additional information about Adjusted EBITDA, and should be read in conjunction with the discussions presented herein. The notes to our financial statements also include a reconciliation of Adjusted EBITDA to net income (loss), a GAAP financial measure, to clarify the differences between these two measures.

Cabin Management. Adjusted EBITDA decreased by $0.5 million, or 1.1% compared to the prior year, primarily due to:

• a $5.5 million decrease primarily resulting from higher manufacturing costs for business, VIP and head-of-state aircraft furniture related to the large airframe models; offset by

• a $5.0 million increase resulting from our 2000 acquisitions.

Systems Integration. Adjusted EBITDA increased by $2.1 million, or 14.1% over the prior year, due principally to higher auxiliary fuel systems revenues and favorable manufacturing efficiencies.

Operating income. Operating income decreased $28.6 million to $8.8 million for the year ended December 31, 2001, from $37.4 million for the same period last year. By segment, operating income changed as follows:

	Increase (Decrease) From 2000
(In millions)	Amount			Percent

Operating income:
Cabin Management	$	(26.5	)	(74.3	)%
Systems Integration	(1.1		)	(10.3	)
Corporate	(0.6		)	(8.4	)
Inter-group elimination	(0.4		)
Total Operating income	$	(28.6	)

Cabin Management. Operating income decreased by $26.5 million, or 74.3% compared to the prior year, primarily due to:

• a $9.5 million decrease in gross profit primarily caused by 2001 restructuring charges and lower profit margins associated with higher manufacturing costs; and

• a $10.3 million increase in SG&A resulting from restructuring and other related charges and expenses to support increased production and new programs and a full year of operations for our 2000 acquisitions;

• a $5.6 million increase in impairment charges; and

• a $1.1 million increase in amortization of intangibles.

Systems Integration. Operating income decreased by $1.1 million, or 10.3% over the prior year, due to the following:

• a $3.5 million increase in gross profit resulting from higher auxiliary fuel systems volume and favorable manufacturing efficiencies and improved operations; offset by

• a $1.0 million increase in SG&A due to higher levels of sales and marketing, program management and customer service support; and

• a $3.6 million increase in impairment charges.

Interest expense. Interest expense was $29.6 million for the year ended December 31, 2001 compared to $27.2 million for the year ended December 31, 2000, a reduction of $2.4 million due to the following:

• a $4.2 million decrease resulting from lower average interest rates charged by our lenders during 2001; offset by

• a $1.8 million increase resulting from higher levels of indebtedness.

Minority interest in preferred stock of subsidiary. Minority interest increased $2.8 million to $5.1 million for the year ended December 31, 2001 compared to $2.3 million for the same period last year. Minority interest reflects the accrued dividends and redemption value accretion during the periods on DeCrane Aircrafts’ 16% preferred stock issued on June 30, 2000.

the effects of state and foreign income taxes and non-deductible expenses, principally goodwill amortization and minority interest in preferred stock of subsidiary. The difference in the effective tax rates between periods is mostly a result of the relationship of non-deductible expenses to income before income taxes.

Loss from continuing operations. Loss from continuing operations increased $25.7 million to a loss of $22.6 million for the year ended December 31, 2001, compared to income of $3.1 million for the same period last year. The change in the loss from continuing operations is principally attributable to:

• a $25.9 million charge for restructuring, asset impairment and other related charges in 2001;

• a $5.3 million increase in depreciation and amortization;

• a $2.8 million increase in minority interest in preferred stock of subsidiary;

• a $2.6 million decrease in income from operations; offset by

• a $8.5 million increase in benefit from income taxes; and

• a $2.4 million decrease in interest expense.

Income (loss) from discontinued operations. Income from discontinued operations increased $5.3 million to $3.6 million for the year ended December 31, 2002 compared to a loss of $1.7 million for the same period last year.

Net income (loss). Net income decreased $20.4 million to a net loss of $19.1 million for the year ended December 31, 2001 compared to net income of $1.3 million for the same period last year.

Net loss applicable to common stockholders. Net loss applicable to common stockholders increased $21.3 million to a net loss of $26.0 million for the year ended December 31, 2001 compared to a net loss of $4.7 million for the same period last year. The increase in the net loss applicable to our common stockholders is attributable to:

• a $20.4 million net loss increase, which is net of a $2.8 million increase in the charge for minority interest in preferred stock of subsidiary issued on June 30, 2000; and

• a $0.9 million increase in noncash preferred stock dividend accretion on our 14% mandatorily redeemable preferred stock.

Bookings. Bookings increased $14.3 million, or 6.0%, to $252.8 million for the year ended December 31, 2001 compared to $238.5 million for the same period last year. The increase in bookings for 2001 results from:

• a $22.5 million increase associated with companies we acquired during 2000 that are included for a full year in our 2001 results; offset by

• an $8.2 million decrease resulting from the adverse impact the events of September 11^th and its aftermath and the weakening global economic conditions are having on our businesses.

Backlog at end of period. Backlog decreased $19.3 million to $99.5 million as of December 31, 2001 compared to $118.8 million as of December 31, 2000. The decrease in backlog for 2001 primarily results from the adverse impact the events of September 11^th and its aftermath and the weakening global economic conditions are having on our businesses.

Restructuring, Asset Impairment and Other Related Charges

The following discussion should be read in conjunction with Note 3 accompanying our financial statements included in this report.

During the years ended December 31, 2002 and 2001, we recorded restructuring, asset impairment and other related pre-tax charges, principally related to our restructuring activities. These charges are summarized below.

	Year Ended December 31,
(In millions)	2002		2001		2000

Nature of charges:
Seat Manufacturing Facilities Restructuring	$	6.3	$	—	$	—
Asset Realignment Restructuring	6.9		20.1		—
Goodwill impairment charges	7.7		8.6		—
Other asset impairment related charges	4.3		—		—
Total pre-tax charges	$	25.2	$	28.7	$	—

Business segment recording the charges:
Cabin Management	$	13.2	$	22.4	$	—
Systems Integration	4.0		3.5		—
Total charged to continuing operations	17.2		25.9		—
Specialty Avionics (discontinued operations)	8.0		2.8		—
Total pre-tax charges	$	25.2	$	28.7	$	—

Charged to operations:
Cost of sales	$	10.7	$	13.6	$	—
Selling, general and administrative expenses	6.5		3.7		—
Impairment of goodwill	—		8.6		—
Total charged to continuing operations	17.2		25.9		—
Charged to discontinued operations	8.0		2.8		—
Total pre-tax charges	$	25.2	$	28.7	$	—

Components of charges:
Noncash charges	$	11.4	$	19.6	$	—
Cash charges	5.8		6.3		—
Total charged to continuing operations	17.2		25.9		—
Charged to discontinued operations	8.0		2.8		—
Total pre-tax charges	$	25.2	$	28.7	$	—

Seat Manufacturing Facilities Restructuring

In 2002, we announced we would consolidate the production of four seating and related manufacturing facilities into two, resulting in the permanent closure of two facilities. This program was designed to improve manufacturing efficiencies and to further reduce costs and conserve working capital. In connection with these restructuring activities, we recorded pre-tax charges to operations totaling $6.3 million during the year ended December 31, 2002, of which $3.6 million were noncash charges, for restructuring, asset impairment and other related restructuring charges.

The restructuring, asset impairment and other related expenses are comprised of charges for current asset write-downs, the impairment of long-lived assets, severance and lease termination costs and other restructuring-related expenses pertaining to FAA retesting and recertification, moving, transportation and travel costs and shutdown and startup costs.

These restructuring activities were substantially completed during the second quarter of fiscal 2002. A $0.1 million restructuring reserve remains as of December 31, 2002 for lease termination and other related costs. The manufacturing facilities were closed during June 2002.

Asset Realignment Restructuring

During the second quarter of fiscal 2001, we adopted a restructuring program to realign aircraft furniture production programs among our manufacturing facilities. In addition, and in response to the adverse impact on the aerospace industry resulting from the September 11^th terrorist attack and its aftermath, as well as the weakening of global economic conditions, we announced and implemented a further restructuring program in December 2001 designed to reduce costs and conserve working capital. This program included permanently closing one manufacturing facility and idling a second facility for an indefinite period, curtailing several product development programs and instituting workforce reductions. This program primarily affected our Cabin Management and Specialty Avionics Groups.

In connection with these restructuring activities, we recorded pre-tax charges to operations of $28.7 million in fiscal 2001, of which $22.1 million were noncash charges, for the impairment of long-lived assets and restructuring costs related to write-downs and write-offs of inventoried costs, costs associated with the realignment of aircraft furniture production programs among facilities, severance, lease termination and other related costs. During 2001, we paid $5.0 million of costs related to this restructuring in cash and a $1.6 million restructuring reserve remained as of December 31, 2001 solely for severance, lease termination and other related costs.

Due to the ongoing weakness of the business, VIP and head-of-state aircraft market, we decided during the second quarter of fiscal 2002 to permanently close the temporarily idled manufacturing facility. In connection with this decision, we recorded additional pre-tax charges to operations totaling $6.9 million during the year ended December 31, 2002, of which $3.8 million were noncash charges, for restructuring, asset impairment charges and other related expenses. During 2002, we paid $4.6 million of costs related to this restructuring in cash and a $0.1 million restructuring reserve remained as of December 31, 2002 solely for the remaining lease termination and other related costs. The restructuring activities relating to leased facilities were completed during the second quarter of fiscal 2002.

Goodwill Impairment Charges

Due to continued weakness in the commercial aircraft portion of our business, in the fourth quarter of fiscal 2002 we recorded a pre-tax charge of $7.7 million related to our annual goodwill impairment testing pursuant to SFAS No. 142. The impairment charge pertained to the Specialty Avionics Group.

Prior to adoption of SFAS No. 142, impairment testing was in accordance with SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.” In 2001, we recorded an $8.6 million pre-tax charge to operations to reflect the impairment loss resulting from our restructuring activities. The impairment charge pertained to our Cabin Management and Systems Integration Groups.

See “—Goodwill Impairment Charges” below for additional information on all of the impairment charges.

Other Asset Impairment Related Charges

Due to continued weakness in the commercial aircraft portion of our business, in the fourth quarter of fiscal 2002 we recorded a pre-tax charge to cost of goods sold of $4.3 million related to inventories. Of this amount, charges totaling $0.3 million pertained to the Specialty Avionics Group.

Goodwill Impairment Charges

The following discussion should be read in conjunction with Notes 3 and 7 accompanying our financial included in this report.

Our results of operations for each of the years in the two year period ended December 31, 2002 have been affected by the adoption of SFAS No. 142, “Goodwill and Other Intangible Assets,” and goodwill impairment charges. The tables below summarize the changes in goodwill during the periods.

	Continuing Operations												Discontinued Operations
(In millions)	Cabin Management Group			Systems Integration Group			Corporate			Total			Specialty Avionics Group

Balance, December 31, 2000	$	187.8		$	33.0		$	4.1		$	224.9		$	131.5
Contingent consideration earned	3.8			—			—			3.8			—
Amortization during the period	(6.6		)	(1.2		)	(0.2		)	(8.0		)	(4.7		)
Impairment charge (a)	(5.1		)	(3.5		)	—			(8.6		)	—
Cash received upon settlement of asserted claims	(1.2		)	—			—			(1.2		)	—
Foreign currency translation	—			—			—			—			(0.3		)
Balance, December 31, 2001	178.7			28.3			3.9			210.9			126.5

Adoption of SFAS 141 and 142:
Reclassification of intangible assets	3.1			0.4			0.1			3.6			1.3
Transitional impairment charge (b)	(8.5		)	(7.9		)	(2.3		)	(18.7		)	(39.4		)
Contingent consideration earned	0.6			—			—			0.6			—
Impairment charge (c)	—			—			—			—			(7.7		)
Balance, December 31, 2002	$	173.9		$	20.8		$	1.7		$	196.4		$	80.7

(a) Reflects a goodwill impairment charge to operations during the year ended December 31, 2001 and reflected as a component of our restructuring, asset impairment and other related charges. See “—Restructuring, Asset Impairment and Other Related Charges” above.

(b) Reflects a goodwill impairment charge recorded (before $0.9 million of income tax benefit) during the year ended December 31, 2002 as the cumulative effect of change in accounting principle in accordance with the transitional provisions of adopting SFAS No. 142, “Goodwill and Other Intangible Assets.”

(c) Reflects a goodwill impairment charge to operations during the year ended December 31, 2002 and reflected as a component of our restructuring, asset impairment and other related charges. See “—Restructuring, Asset Impairment and Other Related Charges” above.

• Reclassification of Intangible Assets. Intangible assets relating to acquired assembled workforce intangibles not meeting the criteria for recognition apart from goodwill were reclassified to goodwill, net of deferred income taxes.

• Discontinuance of Goodwill Amortization. Goodwill is deemed to be an indefinite-lived asset. As a result, and in accordance with SFAS No. 142, the recording of periodic goodwill amortization charges was discontinued effective January 1, 2002.

• Annual Testing for Goodwill Impairment. In lieu of periodic goodwill amortization charges, SFAS No. 142 requires goodwill to be tested annual for impairment, or when events or changes in circumstances indicate the carrying value may not be recoverable.

During 2002, we completed the transitional impairment testing of goodwill recorded as of January 1, 2002 as required under SFAS No. 142. Fair value of each reporting unit was determined using a discounted cash flow approach taking into consideration projections based on the individual characteristics of the reporting units, historical trends, market multiples for comparable businesses and independent appraisals. Our Cabin Management Group consists of three reporting units, our Systems Integration Group consists of two and the Specialty Avionics consists of three. Unallocated goodwill was allocated to the reporting units for impairment testing purposes. The results indicated that the carrying value of goodwill was impaired at one of the reporting units within each of our operating groups. The resulting impairment was primarily attributable to a change in the evaluation criteria for goodwill utilized under previous accounting guidance to the fair value approach stipulated in SFAS No. 142. In accordance with the transitional provision of SFAS No. 142, we recorded a $17.8 million noncash write-down of goodwill (net of $0.9 million income tax benefit) as of January 1, 2002 as a cumulative effect of a change in accounting principle. An additional $39.4 million noncash write-down of goodwill pertained to the Specialty Avionics Group and is included in the loss from discontinued operations.

During the fourth quarter of fiscal 2002, we performed our annual impairment testing and recorded an additional $7.7 million impairment charge related to one of the reporting units within the Specialty Avionics Group. The charge was primarily the result of a decrease in fair value caused by using lower cash flow forecasts for the commercial aircraft portion of our business, which experienced further weakness during 2002. This charge is included as a component of income (loss) from discontinued operations.

Liquidity and Capital Resources

We are a holding company and have no direct material operations. Our only asset is our ownership of all of the common stock of DeCrane Aircraft, and our only material liability is our guarantee of the DeCrane Aircraft senior credit facility. Our principal liquidity needs are for income taxes and, beginning in 2005, the payment cash dividends on our preferred stock.

Our only source of cash is dividends from DeCrane Aircraft. The senior credit facility and senior subordinated notes described below are obligations of DeCrane Aircraft and impose limitations on its ability to pay dividends to us. We believe that DeCrane Aircraft’s debt instruments will permit it to supply us with sufficient cash to meet the cash needs referred to above for several years. However, if that is not the case, we would not be able to satisfy those needs, because we have no other source of cash other than dividends from DeCrane Aircraft. We would then be required to secure alternate financing, which may not be available on acceptable terms, or at all.

DeCrane Aircraft’s principal cash needs are for debt service, working capital, capital expenditures and strategic acquisitions, as well as to provide us with cash to finance our needs. Its principal sources of liquidity are expected to be cash flow from operations, potential capital market transactions and third party borrowings, principally under its senior credit facility.

Cash Flows During the Year Ended December 31, 2002

Net cash provided by operating activities was $11.7 million for the year ended December 31, 2002 and consisted of $18.8 million of cash provided by operations after adding back depreciation, amortization, the noncash portion of our restructuring and asset impairment charges and other noncash items, and $7.1 million used for working capital. The following factors contributed to the $7.1 million working capital increase:

• a $17.9 million decrease in accounts payable and accrued expenses, primarily resulting from reduced purchasing commensurate with lower revenues; and

• a $4.8 million inventory increase principally related to program costs on long-term contracts; offset by

• a $15.0 million accounts receivable decrease resulting from decreased revenues as well as timing differences relating to progress and final billings on long-term contracts; and by

• a $0.2 million decrease in prepaid expenses and other assets; and further offset by

• a $0.4 million increase in income taxes payable.

We expect moderate working capital growth during 2003.

Net cash used for investing activities was $10.2 million for the year ended December 31, 2002 and consisted of:

• $5.9 million of contingent acquisition consideration paid during 2002; and

• $4.3 million for capital expenditures.

We anticipate spending approximately $5.0 to $6.0 million for capital expenditures in 2003. There is $0.6 million of contingent acquisition consideration that was earned and accrued as of December 31, 2002 that will be paid during the first quarter of fiscal 2003. There are no other remaining contingent acquisition payment obligations remaining.

Net cash used for financing activities was $15.4 million for the year ended December 31, 2002. Cash of $21.5 million was used for net repayments of our revolving line of credit borrowings under our senior credit facility, principal payments on our term debt, capitalized lease obligations and other debt, financing costs associated with amending our senior credit facility and the repurchase of stock and options from former management members. Cash of $6.1 million was provided by $5.0 million of proceeds from the sale of common stock and $1.1 million of additional long-term borrowings.

At December 31, 2002, our senior credit facility borrowings totaling $270.2 million are at variable interest rates based on defined margins over the current prime rate or LIBOR. We also had $100.0 million of 12% senior subordinated notes and other indebtedness totaling $11.5 million outstanding as of the end of the year. The total annual maturities of all of our indebtedness outstanding as of December 31, 2002 are as follows: 2003 – $16.9 million; 2004 – $54.0 million; 2005 – $97.8 million; 2006 – $107.1 million; 2007 – $0.6 million; and 2008 and thereafter – $105.3 million. The senior credit facility and senior subordinated notes indenture impose restrictive and financial covenants on us. In March 2003, terms and financial covenants contained in our senior credit facility were amended as described below.

Capital Resources and Debt Obligations as of December 31, 2002

As of December 31, 2002, we had $55.4 million of working capital, excluding assets and liabilities of the discontinued operations we sold in 2003. As of December 31, 2002, we also had $33.6 million of borrowings available under our revolving line of credit, as amended in March 2003 and described below.

Our revolving line of credit expires in September 2004. We may not be able to replace it on commercially acceptable terms, or at all. As of December 31, 2002, our senior credit facility borrowings totaling $270.2 million are at variable interest rates based on defined margins over the current prime rate or LIBOR. We also had $100.0 million of 12% senior subordinated notes and other indebtedness totaling $10.8 million outstanding as of December 31, 2002.

The senior credit facility and senior subordinated notes indenture impose restrictive and financial covenants on us. In the first quarter of fiscal 2003, terms and financial covenants contained in our senior credit facility were amended to, among other things, permit the sale of the Specialty Avionics Group which was consummated on May 23, 2003. As required by the amendment, we repaid $130.0 million of senior credit facility borrowings with the proceeds from the sale. See “—Recent Developments Affecting Financial Condition and Liquidity” below for additional information.

Recent Developments Affecting Financial Condition and Liquidity

As more fully described in “—Industry Overview and Trends,” the acts and ongoing threats of global terrorism, the current military conflicts, SARS epidemic and weak global economic conditions are all adversely impacting our business. In response, we have implemented a series of restructuring activities, as described in “—Restructuring, Asset Impairment and Other Related Charges,” designed to reduce costs and conserve working capital.

During the fourth quarter of fiscal 2002, we further assessed our long-term business strategies in light of current aerospace industry conditions. In addition, we subsequently determined that we would likely not be in compliance with our senior credit facility’s financial covenants in 2003. We believe that when the aerospace industry recovers, the demand for our Cabin Management and Systems Integration groups’ products and services for business, VIP and head-of-state aircraft will return to historical levels and, accordingly, we decided to focus our resources in these market segments. To accomplish this objective, we embarked on a plan to sell the Specialty Avionics Group, which is highly dependent on the commercial airline industry.

In March 2003, we entered into a definitive agreement to sell the Specialty Avionics Group and received requisite lender approval to amend the senior credit facility to permit the sale. We consummated the sale on May 23, 2003 and, as required by the senior credit facility amendment, used $130.0 million of the proceeds from the sale to repay senior credit facility borrowings. The senior credit facility amendment also relaxes various financial covenants for 2003 and beyond, decreases by $10.0 million the maximum permitted revolving line of credit borrowings to $40.0 million, increases the prime rate and LIBOR interest margins by 1.5% and permits the issuance of specified types of additional indebtedness and the repurchase of up to $20.0 million aggregate principal amount of our 12% senior subordinated notes with the proceeds from the sale of junior securities. Junior securities means: (i) senior subordinated notes issued by us that are unsecured and do not provide for any scheduled redemptions or prepayments or any sinking fund installment payments or maturities prior to the termination of the senior credit facility, or other indebtedness subordinated in right of payment to our obligations under the senior credit facility, and whose material terms are satisfactory to the lenders; and (ii) equity securities issued by us.

The table below reflects senior credit facility borrowings as of December 31, 2002, adjusted to reflect the $130.0 million repayment with the proceeds from the sale and the adjustment of the future maturities pursuant to the amendment.

	Senior Credit Facility Borrowings As of December 31, 2002
(In millions)	Historical		Repayment			As Adjusted

Total maturities during the year ending December 31,
2003	$	14.7	$	(11.4	)	$	3.3
2004	52.7		(39.2		)	13.5
2005	96.6		(29.7		)	66.9
2006	106.2		(49.7		)	56.5
Total senior credit facility borrowings	$	270.2	$	(130.0	)	$	140.2

We believe our expected operating cash flows, together with borrowings under our senior credit facility ($33.6 million of which was available as of December 31, 2002, the commitment for which expires in September 2004), will be sufficient to meet our future short- and long-term operating expenses, working capital requirements, capital expenditures and debt service obligations for the next twelve months. However, our ability to comply with our debt financial covenants, pay principal or interest and satisfy our other debt obligations will depend on our future operating performance as well as competitive, legislative, regulatory, business and other factors beyond our control. Although we cannot be certain, we expect to be in compliance with the revised financial covenants through the end of the year based on our current operating plan.

In addition, we are continually considering acquisitions that complement or expand our existing businesses or that may enable us to expand into new markets, some of which may be material. Future acquisitions may require additional debt, equity financing or both. We may not be able to obtain any additional financing on acceptable terms.

Disclosure of Contractual Obligations and Commitments

The following table summarizes our known contractual obligations to make future cash payments as of December 31, 2002, as well an estimate of the periods during which these payments are expected to be made.

			Years Ending December 31,
(In millions)	Total		2003		2004 and 2005		2006 and 2007		2008 and Beyond

Long-term debt (a):
Senior credit facility	$	270.2	$	14.7	$	149.3	$	106.2	$	—
12% senior subordinated notes	100.0		—		—		—		100.0
Capital lease obligations	4.0		0.6		1.1		0.7		1.6
Other indebtedness	6.8		1.0		1.2		0.9		3.7
Total long-term debt	381.0		16.3		151.6		107.8		105.3

Operating lease obligations	15.4		1.8		3.2		2.5		7.9
Mandatorily redeemable preferred stock redemption obligations:
DeCrane Aircraft preferred stock (b)	37.0		—		—		—		37.0
DeCrane Holdings preferred stock (c)	62.2		—		—		—		62.2
Total obligations	$	495.6	$	18.1	$	154.8	$	110.3	$	212.4

(a) Excludes interest payments. Interest on the 12% senior subordinated notes is payable semiannually. The senior credit facility bears interest at a variable rate and therefore the amount of future interest payments are uncertain.

(b) Dividends accrue quarterly at the annual rate of 16% and are payable, at our option, either in cash or by the issuance of additional shares of preferred stock. Since the issuance of the preferred stock in June 2000, we have elected to issue additional shares in lieu of cash dividend payments and may continue to do so until June 2005, after which time we are required to pay quarterly dividends in cash. If we elect to continue issuing additional shares until June 2005, our mandatory redemption obligation on March 31, 2009, the mandatory redemption date, will be $54.8 million and our annual cash dividend payment obligation will be $8.8 million, payable quarterly, commencing September 2005.

(c) Dividends accrue quarterly at a 14% annual rate. Prior to September 30, 2005, dividends are not paid in cash but instead accrete to the liquidation value of the preferred stock. Our annual cash dividend payment obligation will be $12.7 million, payable quarterly, commencing December 31, 2005 and our mandatory redemption obligation on September 30, 2009, the mandatory redemption date, will be $90.8 million.

The senior credit facility obligations reflected above are prior to the effect of the March 2003 amendment and application of the estimated net proceeds of $130.0 million from May 2003 sale of the Specialty Avionics Group as required by the amendment. Assuming the sale of the Specialty Avionics Group were to have been consummated on December 31, 2002, our obligations would have been as follows:

				Years Ending December 31,
(In millions)	Total			2003			2004 and 2005			2006 and 2007			2008 and Beyond

Senior credit facility:
As reported	$	270.2		$	14.7		$	149.3		$	106.2		$	—
Assumed debt repayment	(130.0		)	(11.4		)	(68.9		)	(49.7		)	—
As adjusted	$	140.2		$	3.3		$	80.4		$	56.5		$	—

Total obligations:
As reported	$	495.6		$	18.1		$	154.8		$	110.3		$	212.4
Assumed debt repayment	(130.0		)	(11.4		)	(68.9		)	(49.7		)	—
As adjusted	$	365.6		$	6.7		$	85.9		$	60.6		$	212.4

Disclosure About Off-Balance Sheet Commitments and Indemnities

During our normal course of business, we have entered into agreements containing indemnities pursuant to which we may be required to make payments in the future. These indemnities are in connection with facility leases and liabilities for specified claims arising from investment banking services our financial advisors provide to us. The duration of these indemnities, commitments and guarantees varies, and in certain cases, is indefinite. Substantially all of these indemnities provide no limitation on the maximum potential future payments we could be obligated to make and is not quantifiable. We have not recorded any liability for these indemnities as of December 31, 2002 since no claims have been asserted to date.

In connection with the sale of the Specialty Avionics Group, we made indemnities to the buyer with respect to a number of customary, and certain other specific, representations and warranties. Our indemnities with respect to some of these matters are limited in terms of duration with the maximum of potential future payments capped at $14.0 million and our indemnities with respect to specified environmental matters will expire not later than October 2010 and provides for a maximum liability of $5.0 million, while others will have no limitations. In addition, the $140.0 million selling price is subject to a potential post-closing adjustment related to the amount of working capital at closing. Although we

cannot be certain, we believe the potential adjustment will not be material. The post-closing adjustment, if any, would be payable by us in cash upon its final determination.

As of December 31, 2002, we also had an irrevocable standby letter of credit in the amount of $0.4 million issued and outstanding under our senior credit facility.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which are prepared in accordance with accounting principles generally accepted in the United States of America. Our preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.

We evaluate our estimates on an on-going basis. We base our estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant estimates and judgments used in the preparation of our financial statements.

Allowance for uncollectible accounts receivable. Accounts receivable are reduced by an allowance for amounts that are deemed uncollectible. The estimated allowance for uncollectible amounts is based primarily on our evaluation of the financial condition of each of our customers and their payment history. We also provide an allowance based on the age of all receivables for which we have not established a customer-specific allowance. Generally, we do not require collateral or other security to support accounts receivable, however, under certain circumstances, we require deposits or cash-on-delivery terms. While our losses have been within our expectations, a deterioration of our customers’ financial condition may require that we provide additional allowances, reducing our operating income in future periods. Our customers operate in the business, VIP and head-of-state and commercial aircraft industry throughout the world and are being adversely impacted by the acts and ongoing threats of global terrorism, the current military conflicts, SARS epidemic and weak global economic conditions. Accounts receivable of $27.6 million is reduced by an allowance for uncollectible accounts of $1.2 million as of December 31, 2002.

Work-in-process inventory–deferred program costs. We incur product development costs, comprised principally of engineering costs, relative to programs and contracts with long production cycles. In accordance with industry practice, we defer these costs in inventory. Program costs are charged to cost of sales over the production cycle of the program. Periodically, we assess the recoverability of the deferred program costs based on existing order backlog and our estimate of future orders. We reduce the deferred program costs to estimated realizable value in the period in which recoverability becomes uncertain. For example, in connection with our restructuring activities, we reassessed and elected to curtail several programs. As a result, we wrote off program costs totaling $7.9 million during the year ended December 31, 2001. Deferred program costs included in work-in-process inventory are $14.8 million as of December 31, 2002.

Allowance for excess and obsolete inventory. Inventories are reduced by an allowance for estimated excess and obsolete inventory. The allowance is the difference between the cost of the inventory and its estimated market value. Our market value estimates are based upon existing order backlog, our assumptions about market conditions, including future orders and market pricing. While our products are not subject to rapid technological obsolescence, we also consider this factor in determining our market value estimates. If our customers cancel existing orders or actual market conditions, including future orders, are less favorable than we projected, we may provide additional allowances, reducing our

gross profit in future periods. Inventories of $63.1 million were reduced by an allowance for excess and obsolete inventory of $3.8 million as of December 31, 2002.

Goodwill impairment. On January 1, 2002, we began accounting for goodwill under Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 142 requires an impairment-only approach to accounting for goodwill. Because of our history of acquisitions, goodwill constitutes a significant portion of our long-term assets. As a result of the adoption of SFAS No. 142, we recorded a transitional goodwill impairment charge of $17.8 million in 2002 as the cumulative effect of the change in accounting principle. An additional $39.3 million transitional impairment charge pertained to the Specialty Avionics Group and is included in the loss from discontinued operations.

The SFAS No. 142 goodwill impairment model is a two-step process. First, it requires a comparison of the book value of net assets to the fair value of the reporting units that have goodwill assigned to them. If the fair value is determined to be less than book value, a second step is performed to compute the amount of the impairment. In this process, a fair value for goodwill is estimated, based in part on the fair value of the reporting unit used in the first step, and is compared to its carrying value. The amount by which carrying value exceeds fair value represents the amount of goodwill impairment. SFAS No. 142 requires goodwill to be tested for impairment annually at the same time every year, and when an event occurs or circumstances change such that it is reasonably possible that impairment may exist. We have selected October 31^st as our annual testing date.

We estimate the fair values of our reporting units using a discounted cash flow approach, taking into consideration projections based on the individual characteristics of the reporting units, historical trends, market multiples for comparable businesses and independent appraisals. The forecasts of future cash flows are based on our best estimate of future revenues and operating costs, based primarily on existing backlog, expected future bookings and general market conditions. Changes in these forecasts could cause a particular reporting unit to either pass or fail the first step in the goodwill impairment mode, which could significantly change the amount of impairment recorded.

As a result of our first required annual testing, as of October 31, 2002, we recorded an additional $7.7 million pre-tax impairment charge pertaining to the Specialty Avionics Group which is reflected as a component of the net loss from discontinued operations. The charge was primarily the result of using lower cash flow forecasts for the commercial aircraft portion of our business.

Goodwill pertaining to continuing and discontinued operations with an aggregate book value of $277.1 million remains as of as of December 31, 2002 and will be subject impairment testing in October 2003, or sooner, if additional events occur or circumstances change such that it is reasonably possible that further impairment may exist.

Valuation of long-lived assets and other intangible assets. In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” we review long-lived assets and other identifiable intangible assets for impairment when events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Factors we consider important, which could trigger an impairment review, include significant:

• underperformance relative to expected future operating results;

• changes in the manner of our use of the acquired assets;

• changes in our business strategy; or

• negative aerospace industry or global economic conditions.

Our impairment review consists of comparing the sum of the expected undiscounted future cash flows resulting from the use of the asset to the carrying value of the assets. When we determine that the carrying value may not be recoverable, we record an impairment loss equal to the excess of the asset’s carrying value over its fair value. We measure fair value based on a projected discounted cash flow method using a discount rate we believe to be commensurate with the risk inherent in our current business model. Net long-lived assets and intangible assets, excluding goodwill, amounted to $65.2 million as of December 31, 2002.

Accounting for income taxes. As part of the process of preparing our financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual current tax exposure together with assessing permanent and temporary differences resulting from differing treatment of items, such as amortization of assets and other nondeductible expenses, for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our statement of financial position. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not likely, we must establish a valuation allowance which increases our provision for income taxes in our statement of operations.

We have $22.6 million of deferred tax assets as of December 31, 2002, which includes $12.2 million of federal and state loss carryforwards. Based on our estimates of taxable income by jurisdiction and the periods over which our deferred tax assets will be recoverable, we believe it is more likely than not that we will generate taxable income in future periods sufficient to realize the tax benefit associated with these assets. As a result, we have not established a valuation allowance reducing our deferred tax assets as of December 31, 2002. In the event actual results differ from our estimates or we adjust these estimates in future periods, we would need to establish a valuation allowance in the period such determination is made, which would increase our provision for income taxes.

Revenue and profit recognition under long-term contracts. Because of relatively long production cycles, a portion of our revenues and profits are recognized under percentage-of-completion method of accounting using total contract price, actual costs incurred to date and an estimate of the completion costs for each contract. We use this method because reasonably accurate estimates of the revenue and costs applicable to the various stages of a contract can be made. Recognized revenues and profits on each contract are subject to revisions as the contract progresses towards completion. Revisions to revenue and profit estimates are made in the period in which the facts that give rise to the revision become known. Provisions for estimated losses on uncompleted contracts are fully recognized in the period in which such losses are determined. Approximately 28.9% of our revenues and 25.2% of our gross profit during the year ended December 31, 2002 was recognized under the percentage-of-completion method of accounting.

Litigation. We evaluate contingencies in accordance with SFAS No. 5, “Accounting for Contingencies.” We establish reserves for estimated loss contingencies when it is our assessment that a loss is probable and the amount of the loss can be reasonably estimated. Revisions to contingent liabilities are charged against income in the period in which different facts or information becomes known or circumstances change that affect the previous assumptions with respect to the likelihood or amount of loss. Reserves for contingent liabilities are based upon our assumptions and estimates, advice of legal counsel or other third parties regarding the probable outcomes of the matter. Should the outcome differ from the assumptions and estimates, revisions to the estimated reserves for contingent liabilities would be required.

As described in “Item 3. Legal Proceedings” and Note 13 accompanying our financial statements included in this report, we are involved in legal proceedings for which no reserves for estimated loss contingencies have been established. Our current evaluation of these matters is that it is probable we will

prevail and therefore are not required to accrue estimated losses in accordance with SFAS No. 5. However, there is a possibility that we may ultimately be required to pay all or a portion of the contingent liabilities related to these matters, which may have an adverse impact on our business, financial position, results of operations or cash flows in future periods.

Restructuring of our businesses. As described in “—Restructuring, Asset Impairment and Other Related Charges,” we recorded charges totaling $17.2 million during 2002 and $25.9 million during 2001 in response to the adverse aerospace industry impact the acts, and ongoing threats, of global terrorism and the current weak global economic conditions are having on our businesses. These charges are based on our present estimates of the impact these events are having on our businesses and the future recovery of the aerospace industry. Actual results and future recovery could differ from these estimates, potentially resulting in further restructuring, asset impairment and other related charges.

Recently Issued Accounting Pronouncements

SFAS No. 145

In May 2002, the Financial Accounting Standards Board issued SFAS No. 145, “Rescission of SFAS Nos. 4, 44, and 64, Amendment of SFAS No. 13, and Technical Corrections.” Among other things, SFAS No. 145 rescinds various pronouncements regarding early extinguishment of debt and allows extraordinary accounting treatment for early extinguishment only when the provisions of Accounting Principles Board Opinion No. 30, “Reporting the Results of Operations–Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions” are met. SFAS No. 145 provisions regarding early extinguishment of debt are generally effective for fiscal years beginning January 1, 2003. We believe this new standard will not have an impact on our business, consolidated financial position, results of operations or cash flow.

SFAS No. 146

In June 2002, the Financial Accounting Standards Board issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 supersedes previous accounting guidance, principally Emerging Issues Task Force Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).”

SFAS No. 146 requires that the liability for costs associated with an exit or disposal activity be initially measured at fair value and recognized when the liability is incurred. In periods subsequent to initial measurement, changes to the liability are measured using the credit-adjusted risk-free rate that was used in the initial measurement of the liability recorded. The cumulative effect of a change resulting from revisions to either the timing or the amount of estimated cash flows is recognized as an adjustment to the liability in the period of the change and charged to the same line items in the statement of operations used when the related costs were initially recognized. Under EITF No. 94-3, a liability for an exit cost was recognized at the date of a company’s commitment to an exit plan.

The provisions of SFAS No. 146 are required to be applied prospectively to exit or disposal activities initiated after December 31, 2002. We believe SFAS No. 146 may affect the timing of recognizing future restructuring costs, as well as the amounts recognized, depending on the nature of the exit or disposal activity and the timing of the related estimated cash flows.

FIN No. 45

In November 2002, the Financial Accounting Standards Board issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of

Indebtedness of Others.” FIN No. 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. The interpretation also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and initial measurement provisions of FIN No. 45 are applicable to us on a prospective basis to guarantees issued or modified after December 31, 2002. However, the disclosure requirements in FIN No. 45 are effective for our financial statements for periods ending after December 15, 2002.

We are not a party to any agreement in which it is a guarantor of indebtedness of others therefore the interpretation is not expected to have a material effect on our financial position, results of operations or cash flows. We have adopted the disclosure requirements of this interpretation as of December 31, 2002.

SFAS No. 148

In December 2002, the Financial Accounting Standards Board issued SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure.” SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS 123, “Accounting for Stock-Based Compensation,” to require disclosure in both interim and annual financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results.

For non-compensatory stock options, we have elected to continue to account for our stock-based compensation plan under APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and disclose pro forma effect of the plan on net income as provided by SFAS No. 123, “Accounting for Stock-Based Compensation.” Therefore, at this time, adoption of this statement will not have a material impact on our financial position, results of operations or cash flows.

The SFAS No. 148 pro forma disclosures were effective for our fiscal year ended December 31, 2002 and for interim financial statements beginning in 2003. The pro forma disclosures are in the notes accompanying the financial statements included in this report.

FIN No. 46

In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46, “Consolidation of Variable Interest Entities.” FIN No. 46 addresses consolidation by business enterprises of variable interest entities (formerly special purpose entities or “SPEs”). We do not have any variable interest entities as defined in FIN No. 46.

Forward-Looking Statements and Risk Factors

Special Note Regarding Forward-Looking Statements

All statements other than statements of historical facts included in this report, including statements about our future performance and liquidity and future industry performance, are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to known and unknown risks, uncertainties and other factors, which are difficult to predict. Some of those risks are specifically described below, but we are also vulnerable to a variety of elements that affect many businesses, such as:

• fuel prices and general economic conditions that affect demand for aircraft and air travel, which in turn affect demand for our products and services;

• acts, and ongoing threats, of global terrorism, military conflicts and health epidemics that affect demand for aircraft and air travel, which in turn affect demand for our products and services;

• inflation, and other general changes in costs of goods and services;

• price and availability of raw materials, component parts and electrical energy;

• liability and other claims asserted against us that exceeds our insurance coverage;

• the ability to attract and retain qualified personnel;

• labor disturbances;

• changes in operating strategy, or our acquisition and capital expenditure plans; and

• the risks described below.

Changes in such factors could cause our actual results to differ materially from those expressed or implied in this report. Although we believe that the expectations reflected in such statements are reasonable, we can give no assurance that such expectations will prove to be correct. We undertake no obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. You should not rely on our forward-looking statements as if they were certainties.

Risk Factors

Substantial Leverage. Our substantial levels of debt could adversely affect our financial health and prevent us from fulfilling our obligations under the debt agreements.

As of December 31, 2002, we had total consolidated indebtedness of approximately $381.0 million and we had $33.6 million of additional revolving line of credit borrowings available under our senior bank credit facility (as amended in March 2003), subject to customary funding conditions. We also had $37.0 million of mandatorily redeemable preferred stock as of December 31, 2002. The senior bank credit facility and the indenture under which our notes are issued each also permit us to incur significant amounts of additional debt and to secure that debt with some of our assets.

The amount of debt we carry could have important consequences:

• It may limit the cash flow available for general corporate purposes and acquisitions. Interest payments on our debt were $27.6 million for the year ended December 31, 2002. Earnings from continuing operations were insufficient to cover fixed charges by $10.4 million for the year ended December 31, 2002.

• It may limit our ability to obtain additional debt financing in the future for working capital, capital expenditures or acquisitions.

• It may limit our flexibility in reacting to competitive and other changes in the industry and economic conditions generally.

• It may expose us to increased interest expenses, when interest rates fluctuate, because some of our borrowing may be, and in recent years most of it has been, at variable “floating” rates.

• It may limit our ability to respond to changes in our markets or exploit business opportunities.

Restrictive Covenants. Our operations and those of our subsidiaries are restricted by the terms of our senior credit facility and senior subordinated notes indenture.

Our senior credit facility and the indenture under which our senior subordinated notes are issued limit our flexibility in operating our businesses, including our ability and the ability of our subsidiaries to:

• incur debt;

• issue preferred stock;

• repurchase capital stock or subordinated debt;

• enter into transactions with affiliates;

• enter into sale and leaseback transactions;

• create liens or allow them to exist;

• pay dividends or other distributions;

• make investments;

• sell assets; and

• enter into mergers and consolidations.

In addition, our senior bank credit facility requires that we satisfy several tests of financial condition, including minimum levels of EBITDA and interest and fixed charges coverage and maximum permitted levels of leverage and senior debt. Our ability to do so can be affected by events beyond our control, and we cannot be sure that we will meet those tests. Our failure to do so could result in a default under our senior bank credit facility, which would permit the lenders to terminate their commitments and accelerate all debt and would trigger an event of default under the senior subordinated notes indenture. Although we were in compliance with these covenants as of December 31, 2002, we have required amendments on several occasions in recent years to avoid potential defaults and we may not be able to comply with these tests in the future.

The senior bank credit facility is secured by substantially all our material assets. If we default under our senior debt agreements, the lenders could choose to declare all outstanding amounts immediately due and payable, and seek foreclosure of the assets we granted to them as collateral.

Potential Inability to Service Debt. We will require a significant amount of cash to service our debt and to fund our operations and planned capital expenditures. Our ability to generate cash depends on cash flows from our subsidiaries and many factors beyond our control.

After the repayment of $130.0 million of debt in connection with the sale of the Specialty Avionics Group, we will be required to repay $16.8 million of senior bank credit facility borrowings in 2003 and 2004 and substantial amounts thereafter. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources and —Disclosure of Contractual Obligations and Commitments” for additional information. Our ability to satisfy our debt obligations and to fund our operations and planned capital expenditures will depend on our ability to generate cash in the future and access to our revolving credit facility, which will terminate in September 2004. This, to an extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.

We cannot assure you that our operating cash flow will be sufficient to meet our anticipated future operating and capital expenditures and debt payments as they become due or that future borrowings will be available to us for such purposes. If our cash flow in future periods is lower than we expect, we might be forced to reduce or delay acquisitions or capital expenditures, sell assets and/or reduce operating expenses in order to make all required debt service payments. Alternatively, we may have to refinance all or a portion of our debt on or before maturity. A reduction in our operating expenses might reduce important efforts, such as selling and marketing programs, management information system upgrades and new product development. In addition, we may not be able to refinance our debt on commercially reasonable terms or at all.

For example, we reported a net loss of $71.8 million for the year ended December 31, 2002 and $19.1 million for the same period in 2001. The 2002 loss includes $17.8 million as a result of a cumulative effect of change in accounting principle, a $41.4 million loss attributable to discontinued operations and $17.2 million of pre-tax restructuring and long-lived asset impairment charges we recorded resulting from our restructuring activities. The 2001 loss includes $20.1 million of additional restructuring charges and an $8.6 million goodwill impairment charge. Our restructuring activities were implemented in response to the adverse impact the events described in “—Aerospace Industry Risks” below are having on our business.

Aerospace Industry Risks. The aerospace industry is cyclical and affected by many factors beyond our control, including geo-political and global economic conditions.

We compete in the aircraft products and services market of the aerospace industry. The market for our products and services is largely driven by demand in the civil aircraft markets, principally for business, VIP and head-of-state aircraft and, to a lesser extent, commercial and regional aircraft. The September 11, 2001 terrorist attack on the United States, ongoing concerns about global terrorism, the current Middle-Eastern military conflicts, the Severe Acute Respiratory Syndrome (SARS) epidemic and weak global economic conditions are all adversely impacting the aerospace industry and our business.

Based on industry and market data, we believe the business, VIP and head-of-state aircraft portion of our business will experience weakness throughout 2003 as evidenced by various manufacturers’ announced plans to temporarily suspend production at various times throughout the year in response to the weak demand for new aircraft. We believe aircraft deliveries may reflect a modest recovery in 2004 and show continuing recovery thereafter. We also believe the commercial aircraft portion of our business will experience significant weakness during 2003 and 2004, with potential recovery not expected to occur until at least 2005. Our beliefs are based on the assumptions we will experience economic recovery and there are no further negative geo-political developments affecting our industry.

Further or prolonged decreases in demand for new business, VIP and head-of-state and commercial aircraft, as well as related component parts (which occur for a variety of reasons, including those described above), would result in additional decreases in demand for our products and services, and, correspondingly, our revenues, thereby adversely affecting our financial condition. In addition, further deterioration or prolonged decreases in demand could result in further restructurings of our business.

Concentration of Key Customers. We receive a significant portion of our revenues from a small group of key customers, and we are vulnerable to changes in their economic condition and purchasing plans.

A significant decline in business from any one of our key customers could have a material adverse effect on our business. Our three largest customers accounted for 56.3% of our consolidated revenues from continuing operations for the year ended December 31, 2002 as follows: Textron (which includes Cessna) – 23.5%; Bombardier – 17.4%; and Boeing – 15.4%. Some of our customers also have the in-house capabilities to perform the services and provide many of the products we offer and, accordingly, could discontinue outsourcing their business to us.

In addition, significant portions of our revenues from our major customers are pursuant to contracts that may include a variety of terms favorable to the customer. Such terms may include our agreement to one or more of the following:

• the customer is not required to make purchases, and may terminate such contracts at any time;

• we make substantial expenditures to develop products for customers that we may not recoup if we do not receive sufficient orders;

• on a prospective basis, we must extend to the customers any reductions in prices or lead times that we provide to other customers;

• we must match other suppliers’ price reductions or delete the affected products from the contract; and

Intangible Asset Impairment. Our total assets include a substantial amount of intangible assets. The write-off of a significant portion of intangible assets would negatively affect our results of operations.

As of December 31, 2002, goodwill and other intangible assets represented approximately 41.1% of our total assets. Intangible assets consist of goodwill and other identifiable intangible assets associated with our acquisitions, representing the excess of cost over the fair value of tangible assets we have acquired. We may not be able to realize the value of these assets. Goodwill is not amortized but is subject to annual testing for impairment. Identifiable intangible assets with finite lives are amortized over their individual useful lives and are also subject to annual impairment testing. Simply stated, if the carrying value of the asset exceeds the estimated undiscounted future cash flows from the operating activities of the related business, impairment is deemed to have occurred. In this event, the amount is written down accordingly. Under current accounting rules, this would result in a charge against income from operations. We have recorded goodwill asset impairment charges from continuing operations totaling $8.6 million during the year ended December 31, 2001. In addition, we recorded a transitional goodwill impairment charge of $17.8 million from continuing operations as of January 1, 2002 in connection with the adoption of SFAS No. 142, “Goodwill and Other Intangible Assets.”

Any future impairment testing resulting in the write-off of a significant portion of goodwill or identifiable intangible assets will have an adverse impact on our results of operations and total capitalization, the effect of which could be material.

Competition. We operate in a highly competitive industry and compete against a number of companies, some of which have significantly greater financial, technological and marketing resources than we do.

We operate in highly competitive markets within the aerospace industry. Our competitors include business aircraft manufacturers, independent completion and modification companies and other independent service organizations, including some of our customers, many of whom may have significantly greater financial, technological, manufacturing and marketing resources than we do. The niche markets within the aerospace industry that we serve are relatively fragmented, with several competitors offering the same products and services we provide. Due to the global nature of the aerospace industry, competition comes from both U.S. and foreign companies.

We believe our ability to compete depends on high product performance, short lead-time and timely delivery, competitive pricing, superior customer service and support and continued certification under customer quality requirements and assurance programs. There can be no assurance that we will be able to compete successfully with respect to these factors in the future.

Growth Strategy. Our acquisition of other companies may pose certain risks.

We consider and take advantage of selected opportunities to grow by acquiring other businesses whose operations or product lines complement our existing businesses. Our ability to implement this growth strategy will depend on finding suitable acquisition candidates at acceptable prices and obtaining

the required financing. Any acquisition we may make in the future could be subject to a number of risks, including:

• our ability to integrate the operations and personnel of the acquired company;

• our failure to identify liabilities of the acquired company for which we may be responsible as a successor owner or operator;

• the loss of key personnel in the acquired company; and

• the impact on our financial position, results of operations and cash flows resulting from additional acquisition indebtedness.

Our inability to adequately manage these or other risks could have an adverse effect on our business.

Regulation. The FAA closely regulates many of our operations. If we fail to comply with its many standards, or if those standards change, we could lose installation or certification capabilities, which are important to our business.

The aerospace industry is highly regulated in the United States by the Federal Aviation Administration to ensure that aviation products and services meet stringent safety and performance standards. The FAA prescribes standards and licensing requirements for aircraft components, issues designated alteration station authorizations, and licenses private repair stations. We hold various FAA authorizations and licenses, including a Designated Alteration Station authorization, which gives one of our subsidiaries the authority to certify some aircraft design modifications on behalf of the FAA. Our business depends on our continuing access to, or use of, these FAA authorizations and licenses, and our employment of, or access to, FAA-certified individual engineering professionals.

We cannot assure you that we will continue to have adequate access to those authorizations, licenses and certified professionals, the loss or unavailability of which could adversely affect our operations. The FAA could also change its policies regarding the delegation of inspection and certification responsibilities to private companies, which could adversely affect our business.

Environmental Risks and Regulation. Some of our operations and facilities generate waste or have done so in the past, which may result in unknown future liabilities for environmental remediation.

Environmental laws, particularly the federal Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), may impose strict, retroactive and joint and several liability upon persons responsible for releases or potential releases of hazardous substances and other parties who have some relationship to a site or a source of waste, such as a current or former owner or operator of real property or a party who arranges to transport wastes to a third-party site. We have sent waste to treatment, storage or disposal facilities that have been designated as National Priority List (more commonly known as Superfund) sites under CERCLA or equivalent listings under state laws. We have received requests for information or allegations of potential responsibility from the U.S. Environmental Protection Agency regarding our use of several of these sites. Given the potentially retroactive nature of environmental liability, it is possible that we will receive additional notices of potential liability relating to current or former activities. We may incur costs in the future for prior waste disposal by us or former owners of our subsidiaries or our facilities. Some of our operations are also located on properties that are contaminated to varying degrees. We may incur costs in the future to address existing or future contamination. If we incur significant costs in connection with these or other environmental issues, our business and financial condition could be adversely affected.

Excess Loss Risks. We could sustain losses in excess of our insurance for liability claims.

Our business exposes us to possible claims for damages resulting from the manufacture, installation and use of our products. Many factors beyond our control could lead to such claims, such as the failure of an aircraft on which our products have been installed, the reliability and skill of the operators of such aircraft and the maintenance performed on such aircraft. We carry aircraft products and grounding liability insurance for this purpose, but we cannot assure you that our insurance coverage will be adequate to cover claims that may arise or that we will be able to renew our coverage in the future at commercially reasonable rates.

Industry and Market Data. We cannot guarantee the accuracy and completeness of the industry and market data and trends we describe in this report and rely upon in preparing our operating forecasts.

The industry and market data we use in this report is based on the good faith estimates of our management, which estimates are based primarily upon internal management information and, to the extent available, independent industry publications and other publicly available information. However, the nature of the aerospace industry and competition in our markets results in limited availability of reliable, independent data. Although we believe that the sources we have used are reliable, we do not guarantee, and have not independently verified, the accuracy and completeness of the information.

Dependence on Key Personnel. We need to retain the services of our key employees.

Our success and growth depends in large part on the skills and efforts of our management team and on our ability to attract and retain qualified personnel experienced in the various operations of our business. The loss of key personnel, including our founder, R. Jack DeCrane, combined with the failure to attract additional qualified personnel for whatever reason, could delay implementation of our business plan or otherwise adversely affect our operations. We do not have employment contracts with our key personnel, other than Mr. DeCrane. We do not carry key man life insurance on any members of our management team.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to various market risks, including interest rates and changes in foreign currency exchange rates. Market risk is the potential loss arising from adverse changes in prevailing market rates and prices. From time to time, we use derivative financial instruments to manage and reduce risks associated with these factors. We do not enter into derivatives or other financial instruments for trading or speculative purposes.

Interest Rate Risk. A significant portion of our capital structure is comprised of long-term variable and fixed-rate debt.

Market risk related to our variable-rate debt is estimated as the potential decrease in pre-tax earnings resulting from an increase in interest rates. The interest rates applicable to variable-rate debt are, at our option, based on defined margins over the current prime rate or LIBOR. At December 31, 2002, the current prime rate was 4.75% and the current LIBOR was 1.95%. Based on $270.2 million of variable-rate debt outstanding as of December 31, 2002, a hypothetical one percent rise in interest rates, to 5.75% for prime rate borrowings and 2.95% for LIBOR borrowings, would reduce our pre-tax earnings by $2.7 million annually.

To limit a portion of our exposure related to rising interest rates, we have entered into an interest rate swap contract to effectively convert $4.5 million of variable-rate industrial revenue bonds to 4.2% fixed-rate debt until maturity in 2008. The contract is considered to be a hedge against changes in the

amount of future cash flows associated with interest payments on this portion of our variable-rate debt. Market risk related to this interest rate swap contract is estimated as the potential higher interest expense we will incur if the variable interest rate decreases below the 4.2% fixed rate. Based on the $4.5 million of variable-rate debt converted to fixed-rate debt outstanding as of December 31, 2002, a hypothetical one percent decrease in the variable interest rate to 3.2%, would reduce our pre-tax earnings by less than $0.1 million annually.

The estimated fair value of our $100.0 million fixed-rate long-term debt decreased $53.5 million, or 57.2%, to approximately $40.0 million at December 31, 2002 from $93.5 million at December 31, 2001. We believe the decrease is attributable to the overall deterioration of the aerospace industry’s financial condition following the events of September 11^th and its aftermath. Subsequent to December 31, 2002, the estimated fair value increased by $10.0 million to approximately $50.0 million as of March 20, 2003. Although we cannot be certain, we believe the increase may be a result of our announcement that we had entered into a definitive agreement to sell the Specialty Avionics Group. Market risk related to our fixed-rate debt is deemed to be the potential increase in fair value resulting from a decrease in interest rates. For example, a hypothetical ten percent decrease in the interest rates, from 12.0% to 10.8%, would increase the fair value of our fixed-rate debt by approximately $7.0 million.

Foreign Currency Exchange Rate Risk. Our foreign customers are located in various parts of the world, primarily Canada, the Far and Middle East and Western Europe, and we have subsidiaries with manufacturing facilities in Mexico. To limit our foreign currency exchange rate risk related to sales to our customers, orders are almost always valued and sold in U.S. dollars. We have entered into forward foreign exchange contracts in the past, primarily to limit the Specialty Avionics Group’s exposure related to foreign inventory procurement and operating costs. While we have not entered into any such contracts since 1998, we may do so in the future depending on the volume of non-U.S. dollar denominated transactions and our assessment of future foreign exchange rate trends.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our consolidated financial statements, supplementary financial information and financial statement schedules are included in a separate section at the end of this report. The financial statements, supplementary information and schedules are listed in the index on page F-1 of this report and are incorporated herein by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Directors and Executive Officers

The following table sets forth certain information concerning each person who is currently a director or executive officer of DeCrane Holdings and its wholly-owned subsidiary, DeCrane Aircraft.

Name	Age	DeCrane Holdings	DeCrane Aircraft

R. Jack DeCrane (1)	56	Vice Chairman of the Board of Directors and Chief Executive Officer	Director and Chief Executive Officer

Richard J. Kaplan	60	Director, Chief Financial Officer and Assistant Secretary	Director, Senior Vice President, Chief Financial Officer, Secretary and Treasurer

Robert G. Martin	65	—	Senior Vice President and Group President

Jeffrey A. Nerland	45	—	Senior Vice President and Group President

Thompson Dean	45	Chairman of the Board of Directors	Chairman of the Board of Directors

James A. Quella	53	Director	Director

Susan C. Schnabel (1)(2)	41	Director	Director

Albert E. Suter (1)(2)	67	Director	Director

(1) Member of the Compensation Committee; Ms. Schnabel serves as the committee’s chairperson.

(2) Member of the Audit Committee; Mr. Suter serves as the committee’s chairman.

R. Jack DeCrane is the founder of DeCrane Aircraft. Mr. DeCrane served as President from the time DeCrane Aircraft was founded in December 1989 until April 1993, when he was elected to the newly created office of Chief Executive Officer. In August 2002, Mr. DeCrane was also appointed Chief Executive Officer of DeCrane Holdings. He has served on the board of directors of DeCrane Aircraft and DeCrane Holdings since their inceptions.

Richard J. Kaplan has been the Senior Vice President, Chief Financial Officer, Secretary and Treasurer of DeCrane Aircraft and Assistant Treasurer and Assistant Secretary (principal accounting officer) of DeCrane Holdings since March 1999. In August 2002, Mr. Kaplan was appointed Chief Financial Officer and Assistant Secretary of DeCrane Holdings. From April 1998 to March 1999, he served as Executive Vice President and Chief Operating Officer of Developers Diversified Realty Corporation. From 1977 to 1998, he was a partner with Price Waterhouse LLP, having joined the firm in 1964. He became a director of DeCrane Aircraft and DeCrane Holdings in 2000.

Robert G. Martin has been our Senior Vice President and President of the Systems Integration Group since October 1999. Mr. Martin also served as President of PATS since we acquired it in January 1999 through December 2002 and as President of Aerospace Display Systems from September 1992 until October 1999.

Jeffrey A. Nerland has been our Senior Vice President and President of the Cabin Management Group since December 2001. From January 1999 until December 2001, Mr. Nerland served as Vice President, Business Development, and was appointed Senior Vice President in March 2001. Mr. Nerland also served as President of the Cabin Management Group’s Seating Division from June 2000 through December 2001. From July 1994 through December 1998, he was President of The Nerland Group and a partner with Budetti, Harrison, Nerland and Associates, a consulting and interim management firm.

Thompson Dean has been a director of DeCrane Aircraft and DeCrane Holdings in 1998. Mr. Dean also served are President of DeCrane Holdings from its inception in 1998 through August 2002. Mr. Dean has also been the Managing Partner of DLJ Merchant Banking, Inc. since November 1995. In November 2000, Credit Suisse First Boston, Inc. acquired Donaldson, Lufkin & Jenrette, Inc. As a result, DLJ Merchant Banking, Inc. became an indirect affiliate of Credit Suisse First Boston, Inc. and Credit Suisse Group. Mr. Dean serves as a director of AKI Holding Corp., Amatek Holdings S.A., Arcade Holding Corporation, Manufacturers’ Services Limited, Mueller Holdings, Inc., and Von Hoffman Holdings, Inc.

James A. Quella has been a director of DeCrane Aircraft and DeCrane Holdings since February 2003. Mr. Quella has also been a Managing Director and Operating Partner of DLJ Merchant Banking, Inc. since July 2000. In November 2000, Credit Suisse First Boston, Inc. acquired Donaldson, Lufkin & Jenrette, Inc. As a result, DLJ Merchant Banking, Inc. and Donaldson, Lufkin & Jenrette Securities Corporation became indirect affiliates of Credit Suisse First Boston, Inc. and Credit Suisse Group. Previously, Mr. Quella was a Managing Director with GH Ventures Partners LLC from January 2000 through July 2000 and Vice Chairman of Mercer Management Consulting, Inc. from 1997 through 1999. Mr. Quella serves as a director of Advanstar, Inc., Advanstar Communications Inc., Merrill Corporation and Von Hoffman Holdings, Inc.

Susan C. Schnabel has been a director of DeCrane Aircraft and DeCrane Holdings since 1998. Ms. Schnabel has also been a Managing Director of DLJ Merchant Banking, Inc. since January 1998. In November 2000, Credit Suisse First Boston, Inc. acquired Donaldson, Lufkin & Jenrette, Inc. As a result, DLJ Merchant Banking, Inc. and Donaldson, Lufkin & Jenrette Securities Corporation became indirect affiliates of Credit Suisse First Boston, Inc. and Credit Suisse Group. Ms. Schnabel serves as a director of Environmental Systems Products Holdings, Inc., Noveon, Inc. and Shoppers Drug Mart, Inc.

Albert E. Suter has been a director of DeCrane Aircraft and DeCrane Holdings since May 2002. Mr. Suter is a Senior Advisor and Retired Vice Chairman and Chief Operating Officer of Emerson Electric Co., a manufacturer of electrical, electromechanical and electronic products and systems. Mr. Suter has served Emerson in various capacities since 1989. Mr. Suter serves as a director of Furniture Brands International, Inc.

ITEM 11. EXECUTIVE COMPENSATION

Summary Compensation Table

The following table describes all annual compensation awarded to, earned by or paid to our Chief Executive Officer and the four most highly compensated executive officers other than the Chief Executive Officer for the three years ended December 31, 2002.

		Annual Compensation				All Other Compensation
Name						Securities Underlying Options (1)	Other (2)
Name	Year	Salary		Bonus		Securities Underlying Options (1)	Other (2)

R. Jack DeCrane (3)	2002	$	355,144	$	750,000	—	$	19,477
Chief Executive Officer and Director	2001	352,906		1,290,000		—	15,741
	2000	341,381		1,100,000		2,981	48,979

Richard J. Kaplan (4)	2002	212,200		330,000		—	9,029
Senior Vice President and Director	2001	212,200		470,000		—	5,809
	2000	207,293		400,000		4,093	25,721

Robert G. Martin (5)	2002	222,789		300,000		—	6,500
Senior Vice President	2001	222,789		403,639		—	6,275
	2000	216,300		384,000		3,229	5,100

Jeffrey A. Nerland (6)	2002	210,000		225,000		—	6,507
Senior Vice President	2001	191,794		290,000		—	5,541
	2000	185,338		250,000		5,344	5,024

Jeffrey F. Smith (7)	2002	212,181		275,000		—	4,565
Senior Vice President	2001	212,003		490,000		—	5,250
	2000	206,063		249,000		3,000	5,250

(1) Number of shares of common stock of DeCrane Holdings issuable upon exercise of options granted pursuant to our management incentive plan during the applicable fiscal year.

(2) Comprised of relocation costs, life insurance premiums and matching contributions to the 401(k) Retirement Plan.

(3) Mr. DeCrane also serves as Vice Chairman of the Board of Directors of DeCrane Holdings and was appointed its Chief Executive Officer in August 2002.

(4) Mr. Kaplan also served as Assistant Treasurer and Assistant Secretary (principal accounting officer) of DeCrane Holdings from March 1999 until August 2002 when he was appointed its Chief Financial Officer and Assistant Secretary.

(5) Mr. Martin served as President of PATS since we acquired it in January 1999 through December 2002. In October 1999, Mr. Martin also became our Senior Vice President and Group President of Systems Integration.

(6) Mr. Nerland served as Vice President, Business Development, from January 1999 through December 2001 and was appointed Senior Vice President in March 2001. In December 2001, Mr. Nerland became our President of the Cabin Management Group.

(7) Mr. Smith was our Senior Vice President and President of the Specialty Avionics Group from October 1999 until he resigned his positions on May 23, 2003 in connection with the sale of the Specialty Avionics Group. Prior to October 1999, Mr. Smith was President of our Avtech subsidiary.

Stock Option Grants in Last Fiscal Year

During the fiscal year ended December 31, 2002, no options to purchase shares of DeCrane Holdings common stock were granted pursuant to the management incentive plan. See “—Employment Agreements and Compensation Arrangements–Incentive Plans.”

Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values

No stock options were exercised by our executive officers during the year ended December 31, 2002. The following table sets forth information about the stock options held by the executive officers named below as of December 31, 2002.

Name	Number of Securities Underlying Unexercised Options Exercisable / Unexercisable	Value of Unexercised In-the-Money Options at Fiscal Year End (1) Exercisable / Unexercisable

R. Jack DeCrane
Exercisable at $23.00 per share	36,253 / 73,605	$ — / —
Richard J. Kaplan
Exercisable at $23.00 per share	9,840 / 19,976	— / —
Exercisable at $35.00 per share	972 / 1,974	— / —
Robert G. Martin
Exercisable at $23.00 per share	5,954 /12,088	— / —
Exercisable at $35.00 per share	990 / 2,010	— / —
Jeffrey A. Nerland
Exercisable at $23.00 per share	3,641 / 7,391	— / —
Exercisable at $35.00 per share	1,650 / 3,350	— / —
Jeffrey F. Smith
Exercisable at $23.00 per share	6,029 / 12,243	— / —
Exercisable at $35.00 per share	990 /2,010	— / —

(1) Unexercised options had an exercise price above fair market value as of December 31, 2002. Since the common stock of DeCrane Holdings is privately-held, there is no established public trading market for its shares. The Board of Directors determines the fair value of stock options granted and the fair value of the common stock as of any given period-end date based on the aggregate enterprise value of DeCrane Holdings. Enterprise value is computed based upon a multiple of Adjusted EBITDA, as reflected in our financial statements, and the multiple is based upon comparable data from other publicly-held companies as well as publicly available information on privately-held companies. The Board of Directors did not determine the specific fair value of the common stock as of December 31, 2002, but did conclude that fair value was below $23.00 per share, the lowest exercise price of any options granted.

Compensation Committee Interlocks and Insider Participation

The Compensation Committee of our Board of Directors makes decisions regarding officer compensation. Jack DeCrane, chief executive officer of DeCrane Aircraft and DeCrane Holdings, participates in those discussions as a member of the Committee.

Employment Agreements and Compensation Arrangements

R. Jack DeCrane

On July 17, 1998, the Compensation Committee of our Board of Directors approved a three-year employment agreement between DeCrane Aircraft and R. Jack DeCrane, replacing his prior employment agreement that was to expire on September 1, 1998. Mr. DeCrane’s employment agreement was amended on May 5, 2000 to provide for a term through June 30, 2001, which term shall automatically extend for additional one year periods unless terminated by either party giving the other party notice of termination prior to April 1^st of the year prior to the year in which the agreement would otherwise terminate and has therefore been extended to June 30, 2005. Mr. DeCrane’s employment agreement provides for various benefits, including an initial salary of $310,000, which is subject to annual review and increase, but not a decrease, and an annual bonus, currently determined pursuant to the performance-based cash incentive bonus plan.

The employment agreement also provides that if specified change-of-control events occur, and Mr. DeCrane’s employment is terminated by us for any reason other than for cause or as a result of his death or disability, or by Mr. DeCrane for “good reason,” as defined in the agreement, then we will pay Mr. DeCrane a lump sum in cash within fifteen days. The amount of that payment will be $1.00 less than three times the sum of Mr. DeCrane’s average base salary plus bonus for the five calendar years preceding his termination date and accrued but unpaid salary and bonus through the termination date. Mr. DeCrane will also receive other specified benefits, including continued coverage under our welfare plans for up to two years; a lump sum payment in cash equal to any unvested portions of our contributions to him under specified savings plans, plus two times the amount of our annual contributions on his behalf to those plans; a lump sum payment in cash equal to our matching contributions under those savings plans that Mr. DeCrane would have received had he continued maximum participation in the plans until the earlier of two years following his termination and December 31 of the year he turns 65, plus the vested and unvested amounts credited to him under any of our deferred compensation plans and the amount required to be credited during the year of his termination; and outplacement consulting services to aid Mr. DeCrane with re-employment. We will reduce these payments to the extent necessary to ensure deductibility for tax purposes.

Change of Control Agreements

In August 2002, we entered into change of control agreements with each of our executive officers, other than Mr. DeCrane, whose above described employment agreement contains provisions concerning change of control. The agreements, which replaced earlier agreements which had expired, provide that, for a term of two years from the effective date, should a change of control, as defined, occur during the term of the agreement and the executive officer’s employment shall be involuntarily terminated for any reason on a date which is less than two years after the date of the change of control, other than for cause, death or disability or terminated by the officer for good reason, DeCrane Aircraft is required to pay such executive a lump sum equal to his then salary plus average annual bonus over the last five years, equal to twenty four months compensation less the number of months elapsed from the date of the change of control to the employment termination date.

401(k) Retirement Plan

Substantially all of our full-time employees are eligible to participate in one of the 401(k) retirement plans we sponsor. The 401(k) plans allow employees as participants to defer, on a pre-tax basis, a portion of their salary and accumulate tax deferred earnings, as a retirement fund. The plans generally provide for a discretionary Company match of a percentage of the employee contribution up to a specified percentage of the employee’s salary. The full amount vested in a participant’s account will be

distributed to a participant following termination of employment, normal retirement or in the event of disability or death.

Incentive Plans

Our management incentive plan provides for the issuance of options to purchase the common stock of DeCrane Holdings as incentive compensation to designated executive personnel and other key employees of DeCrane Aircraft and its subsidiaries. The Compensation Committee of the Board of Directors of DeCrane Holdings administers the management incentive plan. The plan provides for the granting of options to purchase 356,257 common shares and expires in 2009. Substantially all of the options awarded become fully vested and exercisable eight years from the date of grant but vesting and exercise can be accelerated based upon future attainment of defined performance criteria. As of December 31, 2002, 32% of the options granted pursuant to the plan are vested and exercisable. We believe the per share exercise price of the options granted approximated the fair market value of the underlying common stock on each of the grant dates.

From time-to-time, we have permitted designated executive personnel and other key employees to purchase shares of common stock of DeCrane Holdings. Prior to the July 30, 2002 enactment of the Sarbanes-Oxley Act of 2002, a portion of the purchase price was in certain instances, loaned to the participants by DeCrane Aircraft. This arrangement was made available to persons and in amounts determined by the Compensation Committee of the Board of Directors. In December 1999, management purchased 171,295 shares of DeCrane Holdings common stock for $23.00 per share. The total purchase price was $3.9 million, of which one-half was paid in cash and one-half was loaned to management by DeCrane Aircraft with interest at applicable federal rates. During 2000, an additional 19,707 shares of DeCrane Holdings common stock was purchased by employees at $23.00 per share, which was paid in cash. Subsequent to the July 30, 2002 enactment of the Sarbanes-Oxley Act, we have discontinued making new loans to participants as mandated by the Act. Loans originated prior to and outstanding as of the effective date of the Act will be repaid in accordance with their terms, as permitted by the Act. Upon termination of employment of any purchaser by us without cause, DeCrane Holdings has the right to purchase, and the purchaser has the right to cause DeCrane Holdings to purchase, such purchased stock at its then fair market value or, if we terminate the purchaser with cause or the purchaser terminates employment, the purchase price is the lower of $23.00 per share or its then fair market value.

Our cash incentive bonus plan provides for the allocation of a bonus pool each year for incentive compensation to designated executive personnel and certain other employees of DeCrane Aircraft and its subsidiaries. The bonus pool, which is approved by the compensation committee, is adjusted each year based on Adjusted EBITDA and cash flow, as defined, generated by the relevant participant’s operating unit. Bonus payments are generally made in the quarter following the end of the year or period to which they pertain.

Deferred Compensation Plan

From December 1999 through December 2002, we had a deferred compensation plan in which certain designated executive officers and key employees were permitted to defer a portion of their compensation earned. DeCrane Aircraft invested amounts deferred and participants were fully vested in the amounts representing the fair market value of their investment accounts. We made no contributions on behalf of the participants and the invested assets are subject to the claims of our general creditors. The plan was terminated in January 2003 and the fair market values of the individual investment accounts on the termination date were distributed to the individual participants.

Directors

Selection of Directors and Term of Office

DLJ Merchant Banking Partners II, L.P. is entitled to select all members of the Board of Directors of DeCrane Holdings and DeCrane Aircraft as described in “Certain Relationships and Related Transactions—Investors’ Agreement.” At least one of such directors selected by DLJ Merchant Banking on each board must be an independent director. Mr. Suter is an independent director. All directors hold office until their successor is designated and qualified.

Directors’ Compensation

The directors of DeCrane Holdings and DeCrane Aircraft generally do not receive annual fees or fees for attending meetings of the Board of Directors or committees thereof. However, Albert E. Suter, an independent director not affiliated with any investor in DeCrane Holdings, receives a director’s fee of $50,000 per year. In addition, the Board of Directors of DeCrane Holdings authorized the issuance of options to purchase 7,500 shares of DeCrane Holdings common stock to Mr. Suter under the same terms as the management incentive plan. See “Certain Relationships and Related Transactions—Transactions with Management and Others–Recent Transactions” for additional information. Also, Mr. Suter is reimbursed for out-of-pocket expenses. We expect to continue these policies.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Security Ownership of Certain Beneficial Owners and Management

DeCrane Holdings

As of March 28, 2003, DeCrane Holdings has the following securities issued and outstanding:

• 4,116,627 shares of common stock, which is owned by 37 stockholders; and

• 342,417 shares of non-voting 14% Senior Redeemable Exchangeable Preferred Stock Due 2009, which is owned by 18 stockholders.

The following table sets forth the beneficial ownership of DeCrane Holdings’ voting and non-voting securities as of March 28, 2003 by its principal owners and its executive officers and directors.

	Common Stock (2)			14% Senior Redeemable Preferred Stock
Name of Beneficial Owner (1)	Number of Shares, Partially Diluted	Percentage		Number of Shares	Percentage

DLJ Merchant Banking Partners II, L.P. and affiliates (3) Eleven Madison Avenue, New York, NY 10010	4,179,530	95.4	%	340,000	99.3	%

Thompson Dean (4) c/o Credit Suisse First Boston Eleven Madison Avenue, New York, NY 10010	—	—		—	—

James A. Quella (4) c/o Credit Suisse First Boston Eleven Madison Avenue, New York, NY 10010	—	—		—	—

Susan C. Schnabel (4) c/o Credit Suisse First Boston Eleven Madison Avenue, New York, NY 10010	—	—		—	—

Albert E. Suter (5)	6,204		*	—	—

R. Jack DeCrane (6)	95,755	2.3	%	—	—

Richard J. Kaplan (7)	33,698		*	—	—

Robert G. Martin (8)	11,520		*	—	—

Jeffrey A. Nerland (9)	12,156		*	—	—

Jeffrey F. Smith (10)	16,173		*	—	—

All directors and named executive officers as a group (nine persons)	175,506	4.2	%	—	—

* Less than 1.0%

(1) Each person who has the power to vote and direct the disposition of shares is deemed to be a beneficial owner of those shares.

(2) The common stock columns reflect the number of shares owned and the total percentage ownership in the manner required by Securities and Exchange Commission rules. The entries for each holder assumes, if applicable, that the particular holder, and no one else, fully exercises all rights under warrants to purchase common stock and common stock which may be acquired upon the exercise of

stock options and which are exercisable, or will be exercisable, prior to 60 days from March 28, 2003.

(3) Reflects 3,913,044 shares of common stock, warrants to purchase an additional 266,486 shares of common stock and preferred stock held directly by DLJ Merchant Banking Partners II, L.P. and the following affiliated investors:

•	DLJ Diversified Partners, L.P.
•	DLJ Diversified Partners-A, L.P.
•	DLJ EAB Partners, L.P.
•	DLJ ESC II, L.P.
•	DLJ First ESC L.P.
•	DLJ Investment Partners, L.P.
•	DLJ Investment Partners II, L.P.
•.	DLJ Merchant Banking Partners II-A, L.P.
•	DLJ Millennium Partners, L.P.
•	DLJ Millennium Partners-A, L.P.
•	DLJ Offshore Partners II, C.V.
•	DLJIP II Holdings, L.P.
•	DLJMB Funding II, Inc.
•	MBP II Plan Investors
•	UK Investment Plan 1997 Partners, Inc.

The address of each of the investors is Eleven Madison Avenue, New York, New York 10010.

(4) Mr. Dean, Mr. Quella and Ms. Schnabel are officers of DLJ Merchant Banking, Inc., an affiliate of DLJ Merchant Banking Partners II, L.P. and directors of DeCrane Aircraft. The DLJ entities are affiliates of, and commonly collectively referred to as, Credit Suisse First Boston. See “Item 13. Certain Relationships and Related Transactions—Transactions with Management and Others” for additional information. The share data shown for these individuals excludes shares shown as held by the DLJ affiliates separately listed in this table; Mr. Dean, Mr. Quella and Ms. Schnabel disclaim beneficial ownership of those shares.

(5) Includes 2,500 shares that may be acquired upon the exercise of stock options that are exercisable or will become exercisable prior to 60 days from March 28, 2003.

(6) Includes 36,253 shares that may be acquired upon the exercise of stock options that are exercisable or will become exercisable prior to 60 days from March 28, 2003.

(7) Includes 10,812 shares that may be acquired upon the exercise of stock options that are exercisable or will become exercisable prior to 60 days from March 28, 2003.

(8) Includes 6,944 shares that may be acquired upon the exercise of stock options that are exercisable or will become exercisable prior to 60 days from March 28, 2003.

(9) Includes 5,291 shares that may be acquired upon the exercise of stock options that are exercisable or will become exercisable prior to 60 days from March 28, 2003.

(10) Includes 7,019 shares that may be acquired upon the exercise of stock options that are exercisable or will become exercisable prior to 60 days from March 28, 2003.

DeCrane Aircraft

As of March 28, 2003, DeCrane Aircraft has the following securities issued and outstanding:

• 100 shares of common stock, which are owned by one stockholder; and

• 250,000 shares of non-voting 16% Senior Redeemable Exchangeable Preferred Stock Due 2009, which are owned by nine stockholders.

The following table sets forth the beneficial ownership of DeCrane Aircraft’s voting and non-voting securities as of March 28, 2003 by its principal owners and its executive officers and directors.

	Common Stock (2)			16% Senior Redeemable Preferred Stock
Name of Beneficial Owner (1)	Number of Shares, Partially Diluted	Percentage		Number of Shares	Percentage

DeCrane Holdings Co. c/o DLJ Merchant Banking Partners II, L.P. Eleven Madison Avenue, New York, NY 10010	100	100.0	%	—	—

DLJ Merchant Banking Partners II, L.P. affiliates (3) Eleven Madison Avenue, New York, NY 10010	—	—		200,000	80.0	%

Thompson Dean (4) c/o Credit Suisse First Boston Eleven Madison Avenue, New York, NY 10010	—	—		—	—

James A. Quella (4) c/o Credit Suisse First Boston Eleven Madison Avenue, New York, NY 10010	—	—		—	—

Susan C. Schnabel (4) c/o Credit Suisse First Boston Eleven Madison Avenue, New York, NY 10010	—	—		—	—

Putnam Investment Management, Inc. and affiliates (5) One Post Office Square, Boston, MA 02109	—	—		50,000	20.0	%

Albert E. Suter	—	—		—	—

R. Jack DeCrane	—	—		—	—

Richard J. Kaplan	—	—		—	—

Robert G. Martin	—	—		—	—

Jeffrey A. Nerland	—	—		—	—

Jeffrey F. Smith	—	—		—	—

All directors and named executive officers as a group (nine persons)	—	—		—	—

(1) Each person who has the power to vote and direct the disposition of shares is deemed to be a beneficial owner of those shares.

stock options and which are exercisable, or will be exercisable, prior to 60 days from March 28, 2003.

(3) Reflects preferred stock held by the following investors affiliated with DLJ Merchant Banking Partners II, L.P.:

• DLJ Investment Partners, L.P.

• DLJ Investment Partners II, L.P.

• DLJIP II Holdings, L.P.

The address of each of the investors is Eleven Madison Avenue, New York, New York 10010.

(4) Mr. Dean, Mr. Quella and Ms. Schnabel are officers of DLJ Merchant Banking, Inc., an affiliate of DLJ Merchant Banking Partners II, L.P. and directors of DeCrane Holdings Co. The DLJ entities are affiliates of, and commonly collectively referred to as, Credit Suisse First Boston. See “Item 13. Certain Relationships and Related Transactions—Transactions with Management and Others” for additional information. The share data shown for these individuals excludes shares shown as held by the DLJ affiliates and DeCrane Holdings Co. separately listed in this table; Mr. Dean, Mr. Quella and Ms. Schnabel disclaim beneficial ownership of those shares.

(5) Reflects preferred stock held by the following investors related to Putnam Investment Management, Inc.:

• Putnam Diversified Income Trust

• Putnam Fund Trust - Putnam High Yield Trust II

• Putnam High Yield Advantage Fund

• Putnam High Yield Trust

• Putnam Strategic Income Fund

• Putnam Variable Trust - Putnam VT High Yield Fund

The address of each of the investors is One Post Office Square, Boston, MA 02109.

Securities Authorized for Issuance Under Equity Compensation Plans

We have a Management Incentive Stock Option Plan under which shares of DeCrane Holdings common stock are authorized for issuance to employees and directors in exchange for their services. In 1999, we also granted DeCrane Holdings incentive common stock options to non-employees in exchange for consulting and advisory services. Our Management Incentive Stock Option Plan and the stock options awarded to non-employees are approved by our security holders. The following table provides aggregate information regarding the shares of DeCrane Holdings common stock that may be issued upon the exercise of the options as of December 31, 2002.

Plan Category	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights	Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights		Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (1))

Equity compensation plans approved by security holders:
Management Incentive Stock Option Plan	293,461	$	24.58	53,544
Incentive stock options granted to non-employees	44,612	23.00		—
Equity compensation plans not approved by security holders	—	—		—
Total	338,073	24.37		53,544

The provisions of our Management Incentive Stock Option Plan and the terms of the options granted to non-employees are described in Note 15 accompanying our financial statements included in this report.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Acquisition of Donaldson, Lufkin & Jenrette, Inc. by Credit Suisse Group

DLJ Merchant Banking Partners, II, L.P. is an affiliate of Donaldson, Lufkin & Jenrette, Inc. In November 2000, Credit Suisse Group and its Credit Suisse First Boston, Inc. subsidiary acquired Donaldson, Lufkin & Jenrette, Inc. Upon completion of the acquisition, Donaldson, Lufkin & Jenrette, Inc. was renamed Credit Suisse First Boston (USA), Inc. The combined operations are commonly referred to collectively as Credit Suisse First Boston or CSFB.

Transactions with Management and Others

Arrangements with Other CSFB / DLJ Affiliates

Credit Suisse First Boston, as successor to DLJ Capital Funding, Inc., receives customary fees and reimbursement of expenses in connection with the arrangement and syndication of our senior bank credit facility and as a lender thereunder. Credit Suisse First Boston Corporation, referred to herein as CSFB Corporation and formerly known as Donaldson, Lufkin & Jenrette Securities Corporation, is the sole market-maker for our senior subordinated notes. In addition, DeCrane Aircraft is obligated to pay CSFB Corporation an annual advisory fee, currently in the amount of $350,000 per year. We may from time to time enter into other investment banking relationships with CSFB Corporation or one of its affiliates pursuant to which they will receive customary fees and will be entitled to reimbursement for all reasonable disbursements and out-of-pocket expenses incurred in connection therewith. We expect that any such arrangement will include provisions for the indemnification of CSFB Corporation against liabilities, including liabilities under the federal securities laws.

Investors’ Agreement

Investors owing 96.7% of DeCrane Holdings’ issued and outstanding common stock and common stock warrants and options, all of DeCrane Holdings’ preferred stock and all of DeCrane Aircraft’s preferred and common stock, have entered into an Amended and Restated Investors’ Agreement, dated October 6, 2000, among DeCrane Holdings Co., DLJ Merchant Banking Partners II, L.P. and affiliated funds and entities, Putnam Investment Management, Inc. and affiliated funds and entities and all management investors. Investors who own DeCrane Holdings’ warrants to purchase 159,794 shares of common stock are not parties to the Investors’ Agreement. The agreement provides that:

• The parties to the agreement shall vote their shares to cause DLJ Merchant Banking Partners, II, L.P. to select all members of the Board of Directors of DeCrane Holdings and DeCrane Aircraft and at least one of such directors on each board shall be an independent director.

• Transfers of the shares by the parties to the agreement are restricted.

• Parties to the agreement may participate in some specific kinds of sales of shares by DLJ affiliates.

• DLJ affiliates may require the other parties to the agreement to sell shares of DeCrane Holdings’ common stock in some cases should the DLJ affiliates choose to sell any such shares owned by them.

• The DLJ affiliates may request six demand registrations with respect to all or any of the DeCrane Holdings common stock, preferred stock and Class A warrants to purchase 155,000 common shares held by those affiliates, which are immediately exercisable subject to customary deferral and cutback provisions.

• The holders of Class B warrants to purchase 139,357 shares of DeCrane Holdings common stock may request two demand registrations together with all or any common stock held by them, which are immediately exercisable subject to customary deferral and cutback provisions.

• The parties to the agreement are entitled to unlimited piggyback registration rights, subject to customary cutback provisions, and excluding registrations of shares issuable in connection with any employee stock options, employee benefit plan or an acquisition.

• DeCrane Holdings will indemnify the stockholders against some liabilities and expenses, including liabilities under the Securities Act.

• Any person acquiring shares of common stock or preferred stock who is required by the terms of the Investors’ Agreement or any employment agreement or stock purchase, option, stock option or other compensation plan to become a party thereto shall execute an agreement to become bound by the Investors’ Agreement.

Each DeCrane Holdings’ Class A Warrant entitles the holder to purchase one share of common stock at an exercise price of not less than $0.01 per share subject to customary antidilution provisions and other customary terms. The warrants are exercisable at any time prior to 5:00 p.m. New York City time on August 28, 2009, subject to applicable federal and state securities laws.

Each DeCrane Holdings’ Class B Warrant entitles the holder to purchase one share of common stock at an exercise price of not less than $0.01 per share subject to customary antidilution provisions and other customary terms. The warrants are exercisable at any time prior to 5:00 p.m. New York City time on June 30, 2010, subject to applicable federal and state securities laws.

Transactions During 2002 and 2003

Securities and Exchange Commission rules require we briefly describe transactions, or series of similar transactions, with specified persons (as defined in the rules) and involving amounts exceeding $60,000, which have occurred since January 1, 2002, the beginning of our most recent fiscal year. These transactions are briefly described below and are also described in the notes accompanying our financial statements included in this report.

Year Ended December 31, 2002

The following transactions occurred during the year ended December 31, 2002:

• DeCrane Holdings repurchased 18,308 shares of its common stock from Charles H. Becker, a former DeCrane Aircraft executive officer, for $0.5 million ($27.00 per share) in January 2002. In connection with the repurchase, DeCrane Aircraft’s $0.2 million loan to Mr. Becker collateralized by the repurchased common stock was repaid, plus accrued interest. Mr. Becker also elected to exercise 9,120 vested stock options on a cashless basis and received $36,000 for the net difference between the $27.00 per share repurchase price and the $23.00 per share option exercise price. DeCrane Aircraft funded DeCrane Holdings’ cash requirements for the transactions.

• DeCrane Aircraft further amended its senior credit facility in March 2002. Credit Suisse First Boston received customary fees and reimbursement of expenses in connection with obtaining the amendment.

• Mr. Suter, a director, purchased 3,704 shares of DeCrane Holdings common stock for $0.1 million and was granted options to purchase an additional 7,500 common shares, all at $27.00 per share, in May and June 2002. The shares purchased and options granted were under the same terms as the management incentive plan, which also pertains to independent non-management directors. DeCrane Holdings contributed the net proceeds to DeCrane Aircraft.

• DLJ Merchant Banking and affiliates purchased 217,392 shares of DeCrane Holdings common stock for $5.0 million ($23.00 per share) in September 2002 and DeCrane Holdings, in turn, contributed the net proceeds to the paid-in capital of DeCrane Aircraft.

• CSFB Corporation received a $350,000 annual advisory fee.

CSFB and affiliated funds and entities were paid an aggregate of $2.0 million in connection with the above transactions.

January 1, 2003 to the Present

The following transactions occurred during the period from January 1, 2003 to the date of this report:

• DeCrane Aircraft sold its Specialty Avionics Group on May 23, 2003. CSFB Corporation served as DeCrane Aircraft’s financial advisors for the transaction and received customary fees and reimbursement of expenses in connection with the transaction.

• In connection with DeCrane Aircraft’s sale of its Specialty Avionics Group, DeCrane Aircraft further amended its senior credit facility in March 2003. Credit Suisse First Boston received customary fees and reimbursement of expenses in connection with obtaining the amendment.

• CSFB Corporation has received $175,000 of its $350,000 annual advisory fee for 2003.

CSFB and affiliated funds and entities were paid an aggregate of $2.7 million in connection with the above transactions.

Indebtedness of Executive Officers and Directors

The following table sets forth all indebtedness owed to us by our executive officers and directors that individually exceeds $60,000 as required by Securities and Exchange Commission rules. All indebtedness set forth below results from purchases of DeCrane Holdings common stock in transactions consummated prior to the July 30, 2002 enactment of the Sarbanes-Oxley Act of 2002 and is payable to DeCrane Aircraft. Beginning July 30, 2002, we no longer provide loans to directors or executive officers as mandated by the Act. The indebtedness, plus accrued interest, is payable upon the sale of the DeCrane Holdings stock held as collateral for each of the loans. See “Item 10. Directors and Executive Officers of the Registrant” for information regarding each individual’s relationship with DeCrane Aircraft and DeCrane Holdings.

Name	Number of Shares Held as Collateral (1)	Interest Rate (2)		Total Indebtedness to DeCrane Aircraft as of December 31, 2002
Name	Number of Shares Held as Collateral (1)	Interest Rate (2)		Principal (3)		Accrued Interest (4)		Total (5)

R. Jack DeCrane	56,521	5.74	%	$	649,991	$	119,806	$	769,797
Richard J. Kaplan	21,739	5.74		249,998		46,079		296,077
Robert G. Martin(6)	4,347	5.74		49,990		9,214		59,204
Jeffrey A. Nerland	6,521	5.74		74,991		13,822		88,813

(1) Reflects the number of shares of DeCrane Holdings common stock held by DeCrane Aircraft as collateral for the loans.

(2) Reflects the applicable federal rate of interest charged on the loans. Interest is compounded annually.

(3) Reflects the original principal amount of the loans.

(4) Reflects accrued interest payable through December 31, 2002.

(5) Reflects the maximum amount of indebtedness during the year ended December 31, 2002.

(6) Total indebtedness exceeds $60,000 as of the filing date of this report.

ITEM 14. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures. Our Chief Executive Officer and Chief Financial Officer have evaluated our disclosure controls and procedures within 90 days of the initial filing of this report on April 15, 2003. These controls and procedures are designed to ensure that all of the information required to be disclosed by us in our periodic reports filed with the Securities and Exchange Commission (the “Commission”) is recorded, processed, summarized and reported within the time periods specified by the Commission and that the information is communicated to the Chief Executive Officer and Chief Financial Officer on a timely basis. Based on their evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were suitable and effective.

Changes in internal controls. Subsequent to the date of their evaluation and prior to the initial filing of this report, there have been no significant changes in our internal controls or in other factors that could significantly affect the internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) List of Documents Filed as Part of this Report

1. Financial Statements

Our consolidated financial statements filed with this report are included in a separate section at the end of this report and are listed in an index on page F-1.

2. Financial Statement Schedules

Our consolidated financial statement schedules filed with this report are included in a separate section at the end of this report and are listed in an index on page F-1.

3. Exhibits

The following exhibits are filed as part of this report.

Exhibit Number	Filing Reference	Exhibit Description

2.1	(18)	Stock Purchase Agreement dated as of March 14, 2003 among Wings Holdings, Inc. and DeCrane Aircraft Holdings, Inc. and DeCrane Holdings Co. relating to the purchase and sale of 100% of the Common Stock of Avtech Corporation and Tri-Star Electronics International, Inc. and 100% of the Membership Interest of Aerospace Display Systems, LLC
3.1.1	(1)	Bylaws of DeCrane Holdings Co.
3.1.2	(1)	Certificate of Incorporation of DeCrane Holdings Co.
3.1.2.1	(11)	Certificate of Amendment of Certificate of Incorporation of DeCrane Holdings Co. dated May 8, 2000
3.2.1	(1)	Certificate of Incorporation of DeCrane Aircraft Holdings, Inc.
3.2.1.1	(15)	Certificate of Amendment of Certificate of Incorporation of DeCrane Aircraft Holdings, Inc. dated October 17, 2001
3.2.2	(1)	Bylaws of DeCrane Aircraft Holdings, Inc.
3.3.1	(10)	Certificate of Formation and Certificate of Merger of Aerospace Display Systems, LLC
3.3.2	(10)	Limited Liability Company Operating Agreement for Aerospace Display Systems, LLC
3.3.2.1	(18)	Amendment No. 1 to Limited Liability Company Agreement of Aerospace Display Systems, LLC dated March 9, 2003
3.4.1	(1)	Articles of Incorporation of Audio International, Inc.
3.4.2	(1)	Amended & Restated Bylaws of Audio International, Inc.
3.5.1	(1)	Articles of Incorporation of Avtech Corporation
3.5.2	(1)	Bylaws of Avtech Corporation
3.7.1	(16)	Certificate of Formation and Certificate of Merger of Dettmers Industries, LLC
3.7.2	(16)	Limited Liability Company Operating Agreement of Dettmers Industries, LLC
3.10.1	(1)	Articles of Incorporation of Hollingsead International, Inc.
3.10.2	(1)	Bylaws of Hollingsead International Inc.
3.11.1	(1)	Articles of Incorporation of Tri-Star Electronics International, Inc.
3.11.2	(1)	Bylaws of Tri-Star Electronics International, Inc.
3.12.1	(1)	Articles of Incorporation of PATS, Inc.
3.12.2	(1)	Bylaws of PATS, Inc.
3.12.3	(1)	Amendment to Articles of Incorporation of PATS, Inc.
3.12.4	(1)	Amendment to Bylaws of PATS, Inc.
3.17.1	(3)	Articles of Incorporation of PPI Holdings, Inc.
3.17.2	(3)	Bylaws of PPI Holdings, Inc.
3.18.1	(3)	Articles of Incorporation of Precision Pattern, Inc.

Exhibit Number	Filing Reference	Exhibit Description

3.18.2	(3)	Bylaws of Precision Pattern, Inc.
3.19.1	(10)	Certificate of Formation and Certificate of Merger for Custom Woodwork & Plastics, LLC
3.19.2	(10)	Limited Liability Company Operating Agreement for Custom Woodwork & Plastics, LLC
3.20.1	(4)	Articles of Incorporation of PCI Newco, Inc. (formerly PCI Acquisition Co., Inc.)
3.20.1.1	(16)	Certificate of Amendment of Articles of Incorporation of PCI Acquisition Co., Inc. (changing its name to PCI Newco, Inc.)
3.20.2	(4)	Bylaws of PCI Newco, Inc. (formerly PCI Acquisition Co., Inc.)
3.22.1	(5)	Articles of Incorporation DAH-IP Holdings, Inc.
3.22.2	(5)	Bylaws of DAH-IP Holdings, Inc.
3.23.1	(5)	Articles of Incorporation of DAH-IP Infinity, Inc.
3.23.2	(5)	Bylaws of DAH-IP Infinity, Inc.
3.24.1	(5)	Certificate of Limited Partnership of The Infinity Partners, LTD. (formerly DAH-IP Acquisition Co., L.P.)
3.24.1.1	(16)	Certificate of Amendment of the Certificate of Limited Partnership of DAH-IP Acquisition Co., L.P. (changing its name to The Infinity Partners, LTD.)
3.24.2	(5)	Limited Partnership Agreement of The Infinity Partners, LTD. (formerly DAH-IP Acquisition Co., L.P.) among DAH-IP Holdings, Inc., the General Partner, and DeCrane Aircraft Holdings, Inc., the Limited Partner
3.24.3	(5)	Assignment of Partnership Interest in The Infinity Partners, LTD. (formerly DAH-IP Acquisition Co., L.P.) by DeCrane Aircraft Holdings, Inc. to DAH-IP Infinity, Inc.
3.25.1	(8)	Certificate of Formation and Certificate of Amendment of Carl F. Booth & Co., LLC
3.25.2	(8)	Limited Liability Company Agreement of Carl F. Booth & Co., LLC
3.26.1	(10)	Restated Articles of Incorporation of ERDA, Inc.
3.26.1.1	(17)	Articles of Amendment amending the Restated Articles of Incorporation of ERDA, Inc. (changing its name to DeCrane Aircraft Seating Company, Inc.
3.26.2	(10)	Bylaws of ERDA, Inc. (formerly ERDA Acquisition Co., Inc.)
3.27.1	(12)	Articles of Incorporation of Coltech, Inc.
3.27.2	(12)	Bylaws of Coltech, Inc.
3.29.1	(13)	Certificate of Limited Partnership of DeCrane Aircraft Furniture Co., LP
3.29.2	(13)	Limited Partnership Agreement of DeCrane Aircraft Furniture Co., LP
3.30.1	(17)	Certificate of Formation of DeCrane Cabin Interiors, LLC
3.30.2	(17)	Limited Liability Company Agreement of DeCrane Cabin Interiors, LLC
4.1	(1)	Indenture dated October 5, 1998 between DeCrane Aircraft and State Street Bank and Trust Company
4.1.1	(1)	Supplemental Indenture dated January 22, 1999 among PATS, Inc. and its subsidiaries, the other guarantors under the Indenture, DeCrane Aircraft and State Street Bank and Trust Company

Exhibit Number	Filing Reference	Exhibit Description

4.1.2	(2)	Supplemental Indenture to be dated April 23, 1999 among PPI Holdings, Inc., Precision Pattern, Inc., the other guarantors under the Indenture, DeCrane Aircraft and State Street Bank and Trust Company
4.1.3	(12)	Supplemental Indenture to be dated August 5, 1999 among CWP Acquisition, Inc. d/b/a Custom Woodwork & Plastics, Inc., the other guarantors under the Indenture, DeCrane Aircraft and State Street Bank and Trust Company
4.1.4	(12)	Supplemental Indenture to be dated October 6, 1999 among PCI Acquisition Co., Inc. d/b/a PCI Newco, Inc., the other guarantors under the Indenture, DeCrane Aircraft and State Street Bank and Trust Company
4.1.5	(12)	Supplemental Indenture to be dated October 8, 1999 among International Custom Interiors, Inc., the other guarantors under the Indenture, DeCrane Aircraft and State Street Bank and Trust Company
4.1.6	(12)	Supplemental Indenture to be dated December 17, 1999 among DAH-IP Acquisition, L.P. d/b/a Infinity Partners, L.P., DAH-IP Holdings, Inc., DAH-IP Infinity, Inc., the other guarantors under the Indenture, DeCrane Aircraft and State Street Bank and Trust Company
4.1.7	(12)	Supplemental Indenture to be dated May 11, 2000 among Booth Acquisition, LLC, the other guarantors under the Indenture, DeCrane Aircraft and State Street Bank and Trust Company
4.1.8	(12)	Supplemental Indenture to be dated June 16, 2000 among DeCrane Aircraft Furniture Co., L.P., the other guarantors under the Indenture, DeCrane Aircraft and State Street Bank and Trust Company
4.1.9	(12)	Supplemental Indenture to be dated June 30, 2000 among ERDA, Inc., the other guarantors under the Indenture, DeCrane Aircraft and State Street Bank and Trust Company
4.1.10	(12)	Supplemental Indenture to be dated August 31, 2000 among Coltech, Inc., the other guarantors under the Indenture, DeCrane Aircraft and State Street Bank and Trust Company
4.3	(1)	Form of Class A Warrant for the Purchase of 155,000 Shares of Common Stock of DeCrane Holdings Co. at an exercise price of $.01 per share
4.3.1	(10)	Form of Class B Warrant for the Purchase of 139,357 Shares of Common Stock of DeCrane Holdings Co. at an exercise price of $.01 per share
4.3.2	(16)	Warrant Agreement dated October 5, 1998 for the Purchase of 155,000 Shares of Common of DeCrane Holdings Co. at an exercise price of $23.00 per share
4.4	(1)	Warrant Registration Rights Agreement - DeCrane Holdings Co.
4.5	(16)	Certificate of Amendment amending the Certificate of Designations, Preferences and Rights of 14% Senior Redeemable Exchangeable Preferred Stock due 2008, effective October 2, 1998
4.5	(1a)	Form of DeCrane Aircraft 12% Senior Subordinated Notes due 2008
4.5.1	(10)	Amendment No. 1 to the Certificate of Designations, Preferences and Rights of 14% Senior Redeemable Exchangeable Preferred Stock due 2008, effective June 29, 2000

Exhibit Number	Filing Reference	Exhibit Description

4.6	(10a)	Certificate of Designations, Preferences and Rights of 16% Senior Redeemable Exchangeable Preferred Stock due 2009
4.6.1	(12a)	Amendment to the Certificate of Designations, Preferences and Rights of 16% Senior Redeemable Exchangeable Preferred Stock due 2009 dated October 5, 2000
4.7	(10a)	Senior Preferred Stock Registration Rights Agreement dated as of June 30, 2000 among DeCrane Aircraft Holdings, Inc. and the Holders of Senior Preferred Stock
4.7.1	(12a)	Amendment No. 1 to the Senior Preferred Stock Registration Rights Agreement dated as of June 30, 2000 among DeCrane Aircraft Holdings, Inc. and the Holders of Senior Preferred Stock dated October 6, 2000
10.1	(10)	Securities Purchase Agreement dated as of June 30, 2000 among DeCrane Aircraft Holdings, Inc., DeCrane Holdings Co. and the purchasers named therein
10.2	(12)	Amended and Restated Investors’ Agreement dated as of October 6, 2000 by and among DeCrane Holdings Co., DeCrane Aircraft Holdings, Inc. and the stockholders named therein
10.5	(1)	Tax Sharing Agreement dated March 15, 1993 between DeCrane Aircraft and several subsidiaries
10.6 **	(1)	Employment Agreement dated July 17, 1998 between DeCrane Aircraft Holdings, Inc. and R. Jack DeCrane
10.6.1 **	(13)	First Amendment to Employment Agreement dated May 5, 2000 between DeCrane Aircraft Holdings, Inc. and R. Jack DeCrane
10.7 **	(1)	401(k) Salary Reduction Non-Standardized Adoption Agreement dated April 30, 1992 between the Company and The Lincoln National Life Insurance Company
10.8	(1)	Form of Subscription Agreement for DeCrane Holdings Co. common and preferred stock by certain members of Global Technology Partners LLC
10.10	(1)	Credit Agreement dated August 28, 1998 by and among DeCrane Aircraft Holdings, Inc. (successor by merger to DeCrane Finance Co.) and DLJ Capital Funding, Inc.
10.10.1	(1)	First Amendment to Credit Agreement dated January 22, 1999
10.10.2	(6)	Second Amended and Restated Credit Agreement dated as of December 17, 1999 among DeCrane Aircraft Holdings, Inc., the lenders listed therein, DLJ Capital Funding, Inc., as syndication agent, and Bank One NA, as administrative agent
10.10.3	(9)	Third Amended and Restated Credit Agreement dated as of May 11, 2000 among DeCrane Aircraft Holdings, Inc., the lenders listed therein, DLJ Capital Funding, Inc., as syndication agent, and Bank One NA, as administrative agent
10.10.3.1	(12)	First Amendment to the Third Amended and Restated Credit Agreement dated as of June 30, 2000 among DeCrane Aircraft Holdings, Inc., the lenders listed therein, DLJ Capital Funding, Inc., as syndication agent, and Bank One NA, as administrative agent

Exhibit Number	Filing Reference	Exhibit Description

10.10.4	(14)	Increased Commitments Agreement, dated as of April 27, 2001, pursuant to Third Amended and Restated Credit Agreement, dated as of May 11, 2000, as amended by the First Amendment to the Third Amended and Restated Credit Agreement, dated as of June 30, 2000
10.10.5	(16)	Second Amendment to the Third Amended and Restated Credit Agreement dated as of March 19, 2002 among DeCrane Aircraft Holdings, Inc., the lenders listed therein, Credit Suisse First Boston (as successor to DLJ Capital Funding, Inc.) as syndication agent, and Bank One NA, as administrative agent
10.10.6	(18)	Third Amendment to the Third Amended and Restated Credit Agreement dated as of March 31, 2003 among DeCrane Aircraft Holdings, Inc., the lenders listed therein, Credit Suisse First Boston (as successor to DLJ Capital Funding, Inc.) as syndication agent, and Bank One NA, as administrative agent
10.11	(1)	General Terms Agreement between The Boeing Company and PATS, Inc. dated February 17, 1998
10.11.1	(1)	Special Business Provisions between The Boeing Company and PATS, Inc. dated February 17, 1998
10.11.2	(1)	Letter Agreement between The Boeing Company and DeCrane Aircraft Holdings, Inc. dated January 15, 1999
10.19 **	(5)	Amended Management Incentive Stock Option Plan
10.20 **	(5)	Amended Stock Subscription Agreement
10.21 **	(5)	Amended Incentive Bonus Plan
10.22 **	(7)	Executive Deferred Compensation Plan
10.23 **	(18)	Form of Change of Control Agreements between DeCrane Aircraft Holdings, Inc. and certain executives
21.1	(17)	List of Subsidiaries of Registrant
31.1	*	Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	*	Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32	*	Chief Executive Officer and Chief Financial Officer Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

* Filed herewith.

** Denotes management contracts and compensatory plans and arrangements required to be filed as exhibits to this report.

(1) Filed as an exhibit to our Registration Statement (Registration No. 333-70363) on Form S-1 (Amendment No. 1) filed with the Commission on March 3, 1999.

(1a) Filed as an exhibit to the Registration Statement of DeCrane Aircraft Holdings, Inc. (Registration No. 333-70365) on Form S-1 (Amendment No. 1) filed with the Commission on March 3, 1999 and incorporated by reference herein.

(2) Filed as an exhibit to our Registration Statement (Registration No. 333-70363) on Form S-1 (Amendment No. 2) filed with the Commission on April 23, 1999.

(3) Filed as an exhibit to our Registration Statement (Registration No. 333-70363) on Form S-1 (Amendment No. 3) filed with the Commission on May 6, 1999.

(4) Filed as an exhibit to our Form 8-K dated August 5, 1999 filed with the Commission on October 19, 1999.

(5) Filed as an exhibit to our Form 8-K dated December 17, 1999 filed with the Commission on December 31, 1999.

(6) Filed as an exhibit to our Form 10-K dated December 31, 1999 filed with the Commission on March 30, 2000.

(7) Filed as an exhibit to our Form 10-Q dated March 31, 2000 filed with the Commission on May 9, 2000.

(8) Filed as an exhibit to our Form 8-K dated May 11, 2000 filed with the Commission on May 25, 2000.

(9) Filed as an exhibit to our Form 8-K (Amendment No. 1) dated May 11, 2000 filed with the Commission on June 16, 2000.

(10) Filed as an exhibit to our Form 8-K (Amendment No. 1) dated June 30, 2000 filed with the Commission on August 2, 2000.

(10a) Filed as an exhibit to the Form 8-K (Amendment No. 1) dated June 30, 2000 of DeCrane Aircraft Holdings, Inc. filed with the Commission on August 2, 2000 and incorporated herein by reference.

(11) Filed as an exhibit to our Form 10-Q dated June 30, 2000 filed with the Commission on August 14, 2000.

(12) Filed as an exhibit to our Form 10-Q dated September 30, 2000 filed with the Commission on November 14, 2000.

(12a) Filed as an exhibit to the Form 10-Q dated September 30, 2000 of DeCrane Aircraft Holdings, Inc. filed with the Commission on November 14, 2000 and incorporated herein by reference.

(13) Filed as an exhibit to our Form 10-K dated December 31, 2000 filed with the Commission on March 30, 2001.

(14) Filed as an exhibit to our Form 10-Q dated March 31, 2001 filed with the Commission on May 14, 2001.

(15) Filed as an exhibit to our Form 10-Q dated September 30, 2001 filed with the Commission on November 13, 2001.

(16) Filed as an exhibit to our Form 10-K dated December 31, 2001 filed with the Commission on March 27, 2002.

(17) Filed as an exhibit to our Form 10-Q dated March 31, 2002 filed with the Commission on May 13, 2002.

(18) Filed as an exhibit to our Form 10-K dated December 31, 2002 filed with the Commission on April 15, 2003.

(b) Reports of Form 8-K Filed During the Quarter Ended December 31, 2002

On November 26, 2002 we filed a Form 8-K Current Report regarding a meeting held with our bondholders on that day. A copy of the slide presentation given to the bondholders during the meeting is filed as an exhibit.

In addition, on March 17, 2003 we also filed a Form 8-K Current Report regarding DeCrane Aircraft entering into a definitive agreement to sell its Specialty Avionics Group. The text of the press release is contained in the filing.

SIGNATURES

Pursuant to the requirements of Section 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this amended report to be signed on its behalf by the undersigned, thereunto duly authorized.

DECRANE HOLDINGS CO. (Registrant)


By:	/s/ R. JACK DECRANE	By:	/s/ RICHARD J. KAPLAN
	R. Jack DeCrane		Richard J. Kaplan
	Chief Executive Officer		Chief Financial Officer and Assistant Secretary

DECRANE HOLDINGS CO 10-K/A