THE FAIRCHILD CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements give
effect to the disposition of the fastener business to Alcoa for approximately
$657.1 million and to our tender offer for all of our 10 3/4% senior
subordinated notes due 2009. The unaudited pro forma consolidated statement of
earnings for the three months ended September 29, 2002 and the year ended June
30, 2002 gives effect to the disposition of the fastener business and to our
tender offer for our 10 3/4% senior subordinated notes due 2009 as if they
occurred on July 1, 2002 and July 1, 2001, respectively. The unaudited pro forma
consolidated balance sheet as of September 29, 2002 gives effect to the
disposition of the fastener business and to our tender offer for our 10 3/4%
senior subordinated notes due 2009 as if they occurred on September 29, 2002.
The pro forma adjustments are based on preliminary estimates of currently
available information and assumptions that we believe are reasonable. The
unaudited pro forma consolidated financial statements are presented for
informational purposes only and are not intended to be indicative of either
future results of our operations or results that might have been achieved if the
transactions occurred on the dates specified.
The unaudited pro forma consolidated financial statements should be read
in conjunction with the company's historical consolidated financial statements
and the related notes included in our Quarterly Report on Form 10-Q for the
period ended September 29, 2002 and our Annual Report on Form 10-K and as
amended for the year ended June 30, 2002 incorporated by reference herein.
Based upon these pro forma statements, and as if the disposition of the
fastener business had occurred on September 29, 2002, we would have recognized a
$38.7 million pre-tax gain on the sale of our fastener business after the
write-off of $4.3 million of deferred loan fees, estimated state taxes of $6.0
million, estimated professional fees of $6.0 million, and maximum payment of
bonus and change of control fees of $29.0 million.
THE FAIRCHILD CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
For the Three Months Ended September 29, 2002 (In thousands,
except per share data)
Fairchild Fasteners Fasteners Tender Fairchild
Historical Historical(a) Disposition(b) Offer(c) Pro Forma
----------- -------------- ---------------- ---------- ------------
Net sales $ 137,228 $(119,432) $ - $ - $ 17,796
Rental revenue 1,765 - - - 1,765
Other income (expense) 849 (629) - - 220
----------- -------------- ---------------- ---------- ------------
139,842 (120,061) - - 19,781
Costs and expenses:
Cost of sales 105,291 (91,320) - - 13,971
Cost of rental revenue 1,232 - - - 1,232
Selling, general & administrative 27,994 (19,322) - - 8,672 (e)
----------- -------------- ---------------- ---------- ------------
134,517 (110,642) - - 23,875
Operating income 5,325 (9,419) - - (4,094)
Net interest expense (10,998) 250 (d) 2,865 (d) 5,409 (d) (2,474) (f)
Net investment loss (52) - - - (52)
Change in fair market value of interest rate
Contract (6,776) - - - (6,776)
----------- -------------- ---------------- ---------- ------------
Earnings before taxes (12,501) (9,169) 2,865 5,409 (13,396)
Income tax (provision) benefit 5,210 3,209 (1,003) (1,893) 5,523
----------- -------------- ---------------- ---------- ------------
Earnings (loss) from continuing operations $(7,291) $ (5,960) $ 1,862 $3,516 $ (7,873)
----------- -------------- ---------------- ---------- ------------
Earnings per share from continuing operations:
Basic $ (0.29) $ (0.32)
Diluted (0.29) (0.32)
Weighted average shares outstanding:
Basic 25,162 25,162
Diluted 25,162 25,162
The accompanying notes to the Unaudited Pro Forma Consolidated Statements of
Earnings are an integral part of these statements.
THE FAIRCHILD CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
For the Twelve Months Ended June 30, 2002 (In thousands,
except per share data)
Fairchild Fasteners Fasteners Tender Fairchild
Historical Historical(a) Disposition(b) Offer(c) Pro Forma
----------- -------------- ---------------- ---------- ------------
Net sales $624,093 $(546,211) $ - $ - $ 77,882
Rental revenue 6,679 - - - 6,679
Other income (expense) 5,021 (254) - - 4,767
----------- -------------- ---------------- ---------- ------------
635,793 (546,465) - - 89,328
Costs and expenses:
Cost of sales 472,270 (408,254) - - 64,016
Cost of rental revenue 4,911 - - - 4,911
Selling, general & administrative 128,342 (87,688) - - 40,654 (e)
Impairment expense 3,435 - - - 3,435
----------- -------------- ---------------- ---------- ------------
608,958 (495,942) - - 113,016
Operating income 26,835 (50,523) - - (23,688)
Net interest expense (46,756) 1,410 (d) 12,427 (d) 23,158 (d) (9,761) (f)
Investment loss, net (992) (348) - - (1,340)
Change in fair market value of interest rate
contract (4,567) - - - (4,567)
----------- -------------- ---------------- ---------- ------------
Earnings before taxes (25,480) (49,461) 12,427 23,158 (39,356)
Income tax (provision) benefit 15,377 17,311 (4,350) (8,105) 20,233
Equity in earnings (loss) of affiliates, net (137) - - - (137)
----------- -------------- ---------------- ---------- ------------
Earnings (loss) from continuing operations $(10,240) $ (32,150) $ 8,077 $15,053 $ (19,260)
----------- -------------- ---------------- ---------- ------------
Earnings per share from continuing operations:
Basic $ (0.41) $ (0.77)
Diluted (0.41) (0.77)
Weighted average shares outstanding:
Basic 25,155 25,155
Diluted 25,155 25,155
The accompanying notes to the Unaudited Pro Forma Consolidated Statements of
Earnings are an integral part of these statements.
THE FAIRCHILD CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
September 29, 2002
(In thousands)
Fairchild Fasteners Fasteners Tender Fairchild
Historical Historical(a) Disposition(b) Offer(c) Pro Forma
----------- -------------- --------------- ------------- ------------
Cash $ 15,782 $ - $ 392,958 (d) $(222,040) (i) $186,700 (m)
Short-term investments 502 (86) - - 416
Accounts receivable, less allowances 100,732 (95,146) - (679) (i) 4,907
Inventory 181,942 (162,226) - - 19,716
Prepaid and other current assets 37,194 (8,587) - - 28,607
----------- -------------- --------------- ------------- ------------
Total current assets 336,152 (266,045) 392,958 (222,719) 240,346
Net fixed assets 123,272 (119,734) - - 3,538
Net assets held for sale 19,116 - - - 19,116
Goodwill 274,549 (257,111) - - 17,438
Investment in affiliates 3,356 - - - 3,356
Prepaid pension assets 64,780 - - - 64,780
Deferred loan costs 10,487 - (4,251) (e) (5,816) (j) 420
Real estate investment 109,028 - - - 109,028
Long-term investments 5,041 - - - 5,041
Other assets 14,939 (1,493) - (7,064) (i) 6,382
----------- -------------- --------------- ------------- ------------
Total Assets $ 960,720 $(644,383) $ 388,707 $(235,599) $469,445
----------- -------------- --------------- ------------- ------------
Bank notes payable & current maturities of debt $ 52,256 $ - $ (20,078) (f) $ - $ 32,178 (n)
Accounts payable 40,423 (31,627) - - 8,796
Accrued liabilities:
Salaries, wages and commissions 27,226 (22,501) - - 4,725
Employee benefit plan costs 3,071 (1,109) - - 1,962
Insurance 14,694 (3,976) - - 10,718
Interest 12,732 - (1,040) (f) (11,019) (i) 673
Other accrued liabilities 31,432 (6,049) - - 25,383
----------- -------------- --------------- ------------- ------------
Total current liabilities 181,834 (65,262) (21,118) (11,019) 84,435
Long-term debt, less current maturities 430,001 - (201,956) (f) (225,000) (i) 3,045 (n)
Fair value of interest rate contract 17,764 - - - 17,764
Other long-term liabilities 16,806 (11,078) - - 5,728
Retiree health care liabilities 42,465 (14,756) - - 27,709
Noncurrent income taxes 48,279 - - - 48,279
Deferred income taxes 4,277 (148) 13,545 (g) 147 (k) 17,821
----------- -------------- --------------- ------------- ------------
Total liabilities 741,426 (91,244) (209,529) (235,872) 204,781
Class A common stock 3,035 (5,896) 5,896 - 3,035
Class B common stock 262 - - - 262
Paid-in capital 232,799 (564,331) 564,331 - 232,799
Treasury stock, at cost (76,532) - - - (76,532)
Notes due from stockholders (1,831) - - - (1,831)
Retained earnings 84,656 (2,855) 28,009 (h) 273 (l) 110,083
Cumulative other comprehensive income (23,095) 19,943 - - (3,152)
----------- -------------- --------------- ------------- ------------
Total stockholders' equity 219,294 (553,139) 598,236 273 264,664
----------- -------------- --------------- ------------- ------------
Total liabilities & stockholders equity $ 960,720 $(644,383) $ 388,707 $(235,599) $469,445
----------- -------------- --------------- ------------- ------------
The accompanying notes to the Unaudited Pro Forma Consolidated Balance Sheet
are an integral part of these statements.
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands)
(a) Represents the elimination of the historical operating results from our
fastener business that is being sold to Alcoa for the periods presented.
The fastener business being sold to Alcoa does not include the results of
two small divisions known as APS and Fairchild Aerostructures.
(b) Represents the effects of the disposition of our fastener business, which
requires the mandatory repayment of the outstanding amounts borrowed under
our United States credit facility.
(c) Represents the effects of the tender offer to purchase all of our $225
million 10 3/4% senior subordinated notes due 2009.
(d) Represents the reduction in net interest expense from the tender offer and
the repayment of our worldwide debt facilities, excluding the remaining
debt related to the Farmingdale real estate and Fairchild Aerostructures,
as follows:
Three Months
Ended Year Ended
Sept. 29, 2002 June 30, 2002
-------------------- -----------------
Interest expense on retired debt:
Fastener business debt in Europe $ 250 $ 1,410
United States credit facility 2,865 12,427
Senior subordinated notes 5,409 23,158
-------------------- -----------------
Reduction in interest expense $ 8,524 $ 36,995
-------------------- -----------------
(e) After the sale of our fastener business, the remaining selling, general and
administrative expense, by business segment, is as follows:
Three Months
Ended Year Ended
Sept. 29, 2002 June 30, 2002
-------------------- -----------------
APS and Fairchild Aerostructures $ 512 $ 2,608
Aerospace Distribution 3,307 14,030
Real Estate Operations 61 319
Corporate 4,793 23,697
-------------------- -----------------
$ 8,673 $ 40,654
-------------------- -----------------
(f) After the sale of our fastener business, the components of net interest
expense are as follows:
Three Months
Ended Year Ended
Sept. 29, 2002 June 30, 2002
-------------------- -----------------
$100 million interest rate contract $ 1,170 $ 4,162
Farmingdale $30,750 credit facility 385 1,760
Other cash interest expense 474 2,257
-------------------- -----------------
Total cash interest expense 2,029 8,179
Non-cash interest expense (income) 587 4,305
-------------------- -----------------
Total interest expense 2,616 12,484
Less: interest income (142) (2,723)
-------------------- -----------------
Net interest expense $ 2,474 $ 9,761
-------------------- -----------------
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(In thousands)
(a) Represents the elimination of the historical fastener business that is
being sold to Alcoa for the period presented. The fastener business being
sold to Alcoa does not include the net assets of two small divisions known
as APS and Fairchild Aerostructures.
(b) Represents the effects of the disposition of our fastener business, which
requires the mandatory repayment of the outstanding amounts borrowed under
our United States credit facility.
(c) Represents the effects of the tender offer to purchase all of our $225
million 10 3/4% senior subordinated notes due 2009.
(d) Represents the net increase in cash from the disposition of the fastener
business, prior to the tender offer, as follows:
Gross cash proceeds received $ 657,050
Maximum payment of bonus/change of control (29,018) (1)
State taxes (6,000)
Professional fees (6,000) (2)
----------------
Net cash proceeds prior to debt repayment 616,032
Debt retirement:
Repayment of United States credit facility (201,650)
Repayment of fastener business debt in Europe (20,384)
Payment of accrued interest (1,040)
----------------
Net cash available prior to the tender offer $ 392,958
----------------
(1) Represents the maximum bonus payments under performance goals for four
of our executives that may be awarded as a result of the sale of the
fastener business and represents the change of control payments due to
the sale of our fastener business, under contracts with five of our
executives. The bonuses are being considered at the special meeting as
proposals 2, 3, 4 and 5 included in this proxy statement. The maximum
payments that could be awarded are as follows:
Maximum Change of
Bonus Control
---------------- ----------------
J. Steiner (b) $ 16,427 $ 6,280
E. Steiner 13,141 5,434
J. Flynn 6,570 900
D. Miller 6,570 1,125
---------------- ----------------
Total $ 42,708 $ 13,739
---------------- ----------------
Maximum Amount to be paid (a) $ 56,447
----------------
E. Juris N/A 795 795
----------------
Total $ 57,242
----------------
<FN>
(a) The board of directors has decided that the maximum amount of the
change of control payments and bonus payments on this sale, taken
in the aggregate, cannot exceed $28,223 for Messrs. J. Steiner, E.
Steiner, J. Flynn and D. Miller. In addition, to the extent an
officer receives his change of control payment, the board will not
approve a bonus to such officer in excess of 50% of the maximum
bonus he otherwise would have been eligible to receive.
(b) Subject to the overall maximum amount of $28,223 less any bonus
payments paid to Messrs. J. Steiner, E. Steiner, J. Flynn and
D. Miller in connection with the sale and less any change of
control payments made to Messrs. E. Steiner, J. Flynn and
D. Miller in connection with the sale, Mr. J. Steiner's change of
control payment may be more than the amount shown on the table if
he elects to defer receiving his change of control payment for
this sale, to a later date. Mr. J. Steiner's change of control
payment is based on a formula equal to 2.99 times base salary and
2.99 times the preceding year's bonus. Pursuant to the terms of
two of Mr. J. Steiner's employment agreements, Mr. J. Steiner may
elect to defer, until the second anniversary of the closing of the
sale, his change of control payment. If Mr. J. Steiner elects to
defer his change of control payment, he is then entitled at any
time prior to the second anniversary of the sale to elect to
receive his change of control payment, in which event the change
of control payment will be the greater of what Mr. J. Steiner
would have received on the closing of the sale, or the change of
control payment Mr. J. Steiner would then be entitled to receive
based on his change of control formula, subject to the cap
described above. In addition, J. Steiner and E. Steiner have
entered into a non-competition and consulting agreement with Alcoa
under which Alcoa has agreed to pay, over a four year period, fees
to both gentlemen which in the aggregate total $5 million.
</FN>
(2) Includes financial advisory, fairness opinion and legal fees.
(e) Represents the write-off of deferred loan fees relating to the
repayment of the United States credit facility.
(f) Represents required debt repayments as follows:
Fastener
European U.S. Credit
Debt Facility Total
--------------- ---------------- ----------------
Bank notes payable & current maturities of debt $ 17,828 $ 2,250 $ 20,078
Long-term debt, less current maturities 2,556 199,400 201,956
--------------- ---------------- ----------------
Total debt $ 20,384 $ 201,650 $ 222,034
--------------- ---------------- ----------------
Accrued interest $ 61 $ 979 $ 1,040
--------------- ---------------- ----------------
(g)(h) Represents the tax benefit and the change in retained earnings
associated with the disposition of the fastener business, the write-off
of deferred loan fees, state taxes, professional fees, and the maximum
bonus and change of control obligations that will be charged to earnings
at closing, as follows:
Adjustment
Tax To Retained
Total Effect (g) Earnings (h)
--------------- ---------------- -----------------
Retained earnings of fastener business $ 2,855 $ - $ 2,855
Gain on sale of fastener business (3) 38,699 13,545 25,154
--------------- ---------------- -----------------
$ 41,554 $ 13,545 $ 28,009
--------------- ---------------- -----------------
(3) The book gain on the sale of the fastener business is calculated as
follows:
After-Tax
Total Tax Effect Gain
--------------- ---------------- -----------------
Proceeds from sale of the fastener business $ 657,050
Less: Equity of the fastener business (553,139)
Recognition of cumulative translation losses (19,943)
---------------
Gain on sale of fastener business before expenses $ 83,968 $ 29,389 $ 54,579
Write-off of deferred loan fees of U.S. credit facility (4,251) (1,488) (2,763)
Transaction payments:
Maximum bonus/change of control (29,018) (10,156) (18,862)
State taxes (6,000) (2,100) (3,900)
Professional fees (6,000) (2,100) (3,900)
--------------- ---------------- -----------------
Gain on sale of fastener business $ 38,699 $ 13,545 $ 25,154
--------------- ---------------- -----------------
The gain on the sale of the fastener business and the remaining net tax
operating loss carryforward is calculated for United States income tax purposes
as follows:
Proceeds from the sale of the fastener business $ 657,050
Less: Basis of fastener business (359,000)
----------------
Gain on sale of fastener business before expenses 298,050
Write-off of deferred loan fees of U.S. credit facility
(4,251)
Transaction payments:
Maximum bonus/change of control (29,018)
State taxes (6,000)
Professional fees (6,000)
----------------
Gain on sale of fastener business 252,781
Available net tax operating loss carryforward (282,547)
----------------
Remaining net tax operating loss carryforward after the sale $ (29,766)
----------------
(i) Represents the cash required for the tender offer to purchase all of our 10
3/4% senior subordinated notes due 2009 as follows:
Tender offer:
10 3/4% Senior subordinated notes $ 225,000
Payment of accrued interest 11,019
Professional fees 1,000
Less: Collateral received to satisfy a note receivable (4) (14,300)
Less: Collection of interest on note receivable (679)
----------------
Net cash required for tender offer $ 222,040
----------------
(4) Represents the collection of promissory notes due from an
unaffiliated third party that will be satisfied, in conjunction with
the tender offer, by the payment to us of the collateral for the
promissory notes consisting of $14,300 face value of 10 3/4% senior
subordinated notes due 2009. The carrying value of the promissory notes
was $7,064.
(j) Represents the write-off of deferred loan fees due to the tender offer.
(k)(l) Represents the tax benefit and the change in retained earnings associated
with the tender offer.
Adjustment
Tax To Retained
Total Effect(k) Earnings(l)
---------------- ---------------- -----------------
Gain on promissory notes $ 7,236 $ 2,533 $ 4,703
Write-off of deferred loan fees of 10 3/4% senior subordinated notes (5,816) (2,036) (3,780)
Professional fees (1,000) (350) (650)
---------------- ---------------- -----------------
$ 420 $ 147 $ 273
---------------- ---------------- -----------------
(m) Includes restricted cash of $25,000 required to be placed in escrow as a
result of the sale of our fastener business and approximately $18,000 required
to be provided as cash collateral for outstanding letters of credit and an
interest rate contract obligation.
(n) Represents the $30,750 debt related to Farmingdale real estate, $3,953
related to Fairchild Aerostructures debt and $520 of other debt.