Exhibit (a)(15)
PRESENTATION MATERIALS OF HOULIHAN LOKEY HOWARD
& ZUKIN FINANCIAL ADVISORS, INC.
Project Sun
- --------------------------------------------------------------------------------
PRESENTATION TO THE SPECIAL COMMITTEE TO THE BOARD OF DIRECTORS
March 7, 2002
HOULIHAN LOKEY HOWARD & ZUKIN
Financial Advisors
1930 Century Park West
Los Angeles, California 90067
(310) 553-8871 http://www.hlhz.com
Los Angeles New York Chicago San Francisco
Washington, D.C. Minneapolis Dallas Atlanta Toronto
- --------------------------------------------------------------------------------
Project Sun
- --------------------------------------------------------------------------------
Table of Contents
- --------------------------------------------------------------------------------
Section
-------
Executive Summary ..................................................... A
Due Diligence Summary ................................................. B
Overview of HPAC ...................................................... C
Overview of Deutsche Lufthansa AG ..................................... D
Valuation Summary ..................................................... E
Delisting Issue ....................................................... F
Potential Alternatives Summary ........................................ G
Exhibits
- --------
Synopses of Comparable Companies ................................. 1
Supplemental Valuation Schedules ................................. 2
- ---------------------------------------------- Houlihan Lokey Howard & Zukin i
- --------------------------------------------------------------------------------
Executive Summary
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Project Sun
- --------------------------------------------------------------------------------
Executive Summary
Background
We understand the following regarding Hawker Pacific Aerospace ("Company" or
"HPAC" hereinafter) and its largest shareholder, Lufthansa Technik AG ("LHT"), a
wholly-owned subsidiary of Deutsche Lufthansa AG ("Lufthansa"). The Company's
common shares are traded on the NASDAQ. LHT currently owns 73.25 percent of the
Company on a fully diluted basis, including a purchase of 715,530 shares on
February 25, 2002. On the same day, LHT announced that was contemplating a
launch of a tender offer for all of the HPAC shares it does not already own at a
price between $2.90 and $3.25 per share. In response to this announcement, and
in anticipation of a definitive offer from LHT, the Company has formed a special
committee of its Board of Directors (the "Committee") to evaluate any such
offer. On Monday March 4, 2002, LHT communicated to the Company the firm
intention to pursue the tender offer at $3.25 per share. LHT's offer to purchase
the shares of the Company it does not already hold and other related
transactions disclosed to Houlihan Lokey Howard & Zukin are referred to
collectively herein as the "Transaction."
Role of Houlihan Lokey Howard & Zukin
Houlihan Lokey Howard & Zukin ("Houlihan Lokey") has been retained on behalf of
the Committee. The Committee has requested that Houlihan Lokey render an opinion
as to the fairness, from a financial point of view, to the public stockholders
of the Company of the consideration to be received by them in connection with
the Transaction (the "Opinion"). The Opinion shall not address the Company's
underlying business decision to effect the Transaction.
- --------------------------------------------- Houlihan Lokey Howard & Zukin 1
- --------------------------------------------------------------------------------
Due Diligence Summary
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Project Sun
- --------------------------------------------------------------------------------
Due Diligence Summary
- --------------------------------------------------------------------------------
Due Diligence Summary
In connection with this Opinion, we have made such reviews, analyses and
inquiries as we have deemed necessary and appropriate under the circumstances.
Among other things, we have:
1. met with certain members of the senior management of HPAC to discuss the
operations, financial condition, future prospects and projected operations
and performance of HPAC;
2. visited certain facilities and business offices of HPAC;
3. reviewed the HPAC's annual reports to shareholders and on Form 10-K for the
fiscal years ended December 31, 2000 and quarterly reports on Form 10-Q for
the three quarters ended September 30, 2001, and Company-prepared interim
financial statements for the 12 month period ended December 31, 2001, which
HPAC's management has identified as being the most current financial
statements available;
4. reviewed the Management Projections Presented to LHT, dated November 20,
2001 and Modified Management Projections dated March 5, 2002 prepared by
HPAC's management, with respect to the Company's future financial
performance for the years ending December 31, 2002 through 2004;
5. reviewed the historical market prices and trading volume for HPAC's
publicly traded securities;
6. reviewed certain other publicly available financial data for certain
companies that we deem comparable to the Company;
7. reviewed the letter from NASDAQ dated, February 14, 2002 to HPAC regarding
the May 15, 2002 deadline for the Company to regain compliance under
NASDAQ's listing requirements in order for the Company's securities to
remain listed on the NASDAQ;
8. reviewed certain financial data regarding historic acquisitions made by
Lufthansa; and
9. conducted such other studies, analyses and inquiries as we have deemed
appropriate.
- --------------------------------------------- Houlihan Lokey Howard & Zukin 3
- --------------------------------------------------------------------------------
Project Sun
- --------------------------------------------------------------------------------
Due Diligence Summary
- --------------------------------------------------------------------------------
Due Diligence Summary (Continued)
Limiting Factors
We have relied upon and assumed, without independent verification, that the
financial information, forecasts and projections provided to us have been
reasonably prepared and reflect the best currently available estimates of the
future financial results and condition of HPAC, and that there has been no
material change in the assets, financial condition, business or prospects of
HPAC since the date of the most recent financial statements made available to
us.
- --------------------------------------------- Houlihan Lokey Howard & Zukin 4
- --------------------------------------------------------------------------------
Overview of HPAC
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Project Sun
- --------------------------------------------------------------------------------
Overview of HPAC
- --------------------------------------------------------------------------------
Company Overview
HPAC repairs and overhauls fixed wing and helicopter landing gear,
hydromechanical components and wheels, brakes and braking system components for
a diverse international customer base, including commercial airlines, air cargo
operators, domestic government agencies, aircraft leasing companies, aircraft
parts distributors and original equipment manufacturers ("OEMs"). HPAC is a
certified Federal Aviation Administration ("FAA") and Joint Airworthiness
Authority ("JAA") approved repair station, and has also been granted Parts
Manufacturer Approvals by the FAA.
In addition, HPAC distributes, manufactures and sells new and overhauled spare
parts and components for both fixed wing aircraft and helicopters. HPAC has
long-term service contracts with many customers, including Federal Express
Corporation ("Federal Express"), American Airlines, Inc. ("American Airlines"),
the United States Coast Guard, British Airways, US Airways, Inc. ("US Airways"),
EVA Airways, UPS, China Southern and Shanghai Airlines.
HPAC is organized into two divisions and one wholly-owned subsidiary. HPAC's
principal operating division and headquarters is located in Sun Valley (Los
Angeles), California. HPAC's Hawker Pacific Aerospace, Ltd., subsidiary operates
a major overhaul facility in Hayes (London) in the United Kingdom. HPAC also
operates a small hydraulic repair facility in Amsterdam, The Netherlands.
- --------------------------------------------- Houlihan Lokey Howard & Zukin 6
- --------------------------------------------------------------------------------
Project Sun
- --------------------------------------------------------------------------------
Overview of HPAC
- --------------------------------------------------------------------------------
Financial Profile
($ in millions, except per share amounts)
HPAC - MARKET OVERVIEW
Pre-Announcement Stock Price on 02/25/02 $2.12
Post-Announcement Stock Price on 02/26/02 $3.24
Current Stock price on 3/5/02 $3.19
52-Week High on 4/25/01 $4.20
52-Week Low on 12/19/01 $1.50
- ----------------------------------------------------------------------
Pre-Announcement Price Discount to 52-Week High -49.5%
Pre-Announcement Price Premium to 52-Week Low 41.3%
Post-Announcement Price Discount to 52-Week High -22.9%
Post-Announcement Price Premium to 52-Week Low 116.0%
- ----------------------------------------------------------------------
Basic Shares Outstanding 10,160,675
Add: In the Money Options & Warrants 47,000
Fully Converted Shares Outstanding 10,207,675
Less: Shares Purchased 35,630
Fully Diluted Shares Outstanding 10,172,045
Current Price Per Share $3.19
Current Market Value of Equity $32.4
Debt at 12/31/01 $72.6
Cash at 12/31/01 1.6
HPAC - FINANCIAL SNAPSHOT
Operating
Revenue Income(1) Net Income(1)
------- --------- -------------
1999 $82.3 $4.3 ($1.0)
2000 77.1 (2.3) (5.4)
2001 E 82.6 (3.5) (5.5)
2002 E 86.6 2.3 (1.0)
2003 E 95.2 5.3 0.9
Market Multiples
-------------------------------------------
EV / EV / MVE /
Revenues Oper. Income Net Income
-------- ------------ ----------
2001 E 1.25 x NMF NMF
2002 E 1.19 x NMF NMF
2003 E 1.09 x 19.5 x 35.4 x
Other Issues
- ------------
- - HPAC is currently facing the possibility of being delisted from the Nasdaq.
- - The company has approximately $4.0 million negative book value as of
December 31, 2001.
- - LHT has continued to provide funding to HPAC either directly or through the
facilitation loan facilities with German financial institutions.
Footnotes:
NMF - Not Meaningful
(1) FYE 1999 TO 2001E figures have been adjusted to account for non-recurring
and one-time charges, see Representative Levels for additional detail.
- --------------------------------------------- Houlihan Lokey Howard & Zukin 7
- --------------------------------------------------------------------------------
Project Sun
- --------------------------------------------------------------------------------
Overview of HPAC
- --------------------------------------------------------------------------------
Trading Analysis
($ in millions)
Daily Trading Volume/(1)/
------------------------------------------------------------------------------------------------------------
1 Month
Public Company 1 Month % of Float Pre-Announce % of Float 3 Months % of Float 6 Months % of Float
- -------------- -------------------------- ------------------------- ------------------------- --------------------------
Aar Corp 110.5 0.4% 102.2 0.4% 108.7 0.4% 98.0 0.4%
Aviall Inc 79.8 0.4% 67.8 0.4% 111.6 0.6% 103.9 0.6%
First Aviation Svcs Inc 0.7 0.0% 1.3 0.0% 1.5 0.0% 1.2 0.0%
Mercury Air Group Inc 5.6 0.2% 5.5 0.2% 7.1 0.3% 8.4 0.4%
Pemco Aviation Inc 2.2 0.1% 2.8 0.2% 4.5 0.2% 5.1 0.3%
Sequa Corp -Cl A 4.9 0.1% 5.7 0.1% 5.9 0.1% 5.9 0.1%
BBA Group plc 1,816.4 NA 1,780.6 NA 1,942.9 NA 2,520.2 NA
Vector Aerospace 34.3 NA 32.4 NA 34.9 NA 31.8 NA
Median 19.9 0.2% 19.0 0.2% 21.0 0.6% 20.1 0.5%
- ------------------------------------------------------------------------------------------------------------------------------------
Hawker Pacific Aerospace 15.1 0.6% 3.3/(4)/ 0.1% 4.3/(4)/ 0.2% 4.8/(4)/ 0.2%
- ------------------------------------------------------------------------------------------------------------------------------------
Public Company 1 Year % of Float Float/(2)(3)/
- -------------- ---------------------------- ---------------
Aar Corp 92.4 0.4% 25,590.0
Aviall Inc 100.2 0.6% 18,210.0
First Aviation Svcs Inc 1.3 0.0% 3,160.0
Mercury Air Group Inc 8.9 0.4% 2,310.0
Pemco Aviation Inc 5.0 0.3% 1,860.0
Sequa Corp -Cl A 6.1 0.1% 4,200.0
BBA Group plc 2,696.5 NA NA
Vector Aerospace 34.7 NA NA
Median 21.808 0.6% 3,680.0
- ------------------------------------------------------------------------------
Hawker Pacific Aerospace 4.4/(4)/ 0.2% 2,540.0
- ------------------------------------------------------------------------------
Enterprise Market Value
Volatility/(2)/ Value of Equity
-------------------- ---------- ------------ Insider Institutional
Public Company 30 Day 90 Day 3/1/02 3/1/02 Ownership/(6)/ Ownership/(6)/
- -------------- -------- ---------- ---------- ------------ -------------- ---------------
Aar Corp 34.0% 46.0% $ 407.6 $ 199.8 52.0% 84.0%
Aviall Inc 65.5% 58.9% 263.8 133.2 27.0% 50.0%
First Aviation Svcs Inc 52.5% 58.1% 21.8 33.1 56.0% 30.0%
Mercury Air Group Inc 44.5% 52.0% 95.3 30.4 32.0% 21.0%
Pemco Aviation Inc 23.6% 62.8% 81.3 67.6 83.0% 17.0%
Sequa Corp -Cl A 34.5% 29.9% 1,115.3 539.1 50.0% 31.0%
BBA Group plc 22.8% 40.9% 2,622.3 1,662.0 NA NA
Vector Aerospace 57.9% 69.5% 173.5 71.2 NA NA
Median 39.5% 55.0% 218.7 $ 102.2 51.0% 30.5%
- ------------------------------------------------------------------------------------------------------------
Hawker Pacific Aerospace 182.0% 128.2% $ 92.5/(5)/ $ 21.5/(5)/ 2.0% 82.9%/(2)/
- ------------------------------------------------------------------------------------------------------------
Stock Analyst Revenue
Public Company Exchange Coverage(#)/(2)/ Multiples
- -------------- ---------- ---------------- -----------
Aar Corp NYSE 4 0.53 x
Aviall Inc NYSE 2 0.51 x
First Aviation Svcs Inc NASDAQ 0 0.21 x
Mercury Air Group Inc AMEX 0 0.22 x
Pemco Aviation Inc NASDAQ 0 0.50 x
Sequa Corp -Cl A NYSE 0 0.62 x
BBA Group plc London 25 1.20 x
Vector Aerospace Toronto 7 0.80 x
Median 0.53 x
- -------------------------------------------------------------------------
Hawker Pacific Aerospace NASDAQ 0/(2)/ 1.12 x
- -------------------------------------------------------------------------
(1) Per Compustat, figures represented in thousands.
(2) Per Bloomberg.
(3) Float represented in thousands of shares.
(4) Average trading volume for HPAC reflects prior to the announcement of LHT
contemplated acquisition of the remaining shares outstanding.
(5) Figures based upon stock price prior to LHT's announced contemplation of
acquiring the remaining shares outstanding.
(6) Per Yahoo Finance.
- --------------------------------------------- Houlihan Lokey Howard & Zukin 8
- --------------------------------------------------------------------------------
Project Sun
- --------------------------------------------------------------------------------
Overview of HPAC
- --------------------------------------------------------------------------------
Financial Performance - Historical
($ in millions)
1999A FYE
------------------------------------------------------------------
1Q99 2Q99 3Q99 4Q99 1999A
==================================================================
Revenue $ 16.2 $ 17.4 $ 23.5 $ 25.3 $ 82.3
COGS 12.8 18.1 18.5 19.8 69.2
------ ------ ------- ------ -------
Gross profit 3.4 (0.7) 5.0 5.5 13.1
SG&A 2.2 2.5 2.5 3.2 10.4
------ ------ ------- ------ -------
Operating income 1.2 (3.2) 2.5 2.3 2.7
Interest (income)/expense 1.1 1.5 1.6 1.7 6.0
Other expenses - - - 0.1 0.1
------ ------ ------- ------ -------
Pretax income 0.1 (4.7) 0.8 0.5 (3.3)
Income (benefit)/taxes 0.0 (1.8) 0.3 0.4 (1.1)
------ ------ ------- ------ -------
Net income 0.0 (3.0) 0.5 0.2 (2.3)
Other - - - 0.3 0.3
Preferred Stock Dividend - - - - -
------ ------ ------- ------ -------
Total - - - 0.3 0.3
Net income available to shareholders $ 0.0 $ (3.0) $ 0.5 $ (0.1) $ (2.5)
Basic 5.822 5.822 5.858 5.822 5.822
Dilutive 0.008 - 0.005 - -
------ ------ ------- ------ -------
Total Shares Outstanding 5.830 5.822 5.862 5.822 5.822
EPS $ 0.01 $(0.51) $ 0.09 $(0.02) $ (0.44)
Margins
- -------
Gross Profit 21.0% -4.0% 21.1% 21.6% 15.9%
COGS 79.0% 104.0% 78.9% 78.4% 84.1%
SG&A 13.5% 14.5% 10.6% 12.5% 12.6%
Operating income 7.4% -18.6% 10.5% 9.1% 3.3%
Net income 0.2% -17.1% 2.2% 0.6% -2.7%
2000A FYE
------------------------------------------------------------------
1Q00 2Q00 3Q00 4Q00 2000A
==================================================================
Revenue $ 21.5 $ 20.3 $ 18.5 $ 16.7 $ 77.1
COGS 17.4 16.9 17.5 17.9 69.7
------ ------ ------- ------ -------
Gross profit 4.1 3.4 1.0 (1.1) 7.4
SG&A 2.9 2.2 2.9 3.1 11.1
------ ------ ------- ------ -------
Operating income 1.2 1.2 (1.9) (4.2) (3.7)
Interest (income)/expense 1.7 2.3 2.6 2.2 8.8
Other expenses 0.1 0.0 1.8 (0.0) 1.9
------ ------ ------- ------ -------
Pretax income (0.6) (1.1) (6.3) (6.4) (14.4)
Income (benefit)/taxes (0.2) (0.5) 4.8 (0.0) 4.1
------ ------ ------- ------ -------
Net income (0.4) (0.7) (11.1) (6.4) (18.5)
Other 1.1 0.8 - 0.0 2.0
Preferred Stock Dividend 0.1 0.1 0.1 0.1 0.3
------ ------ ------- ------ -------
Total 1.2 0.9 0.1 0.1 2.3
Net income available to shareholders $ (1.6) $ (1.6) $ (11.1) $ (6.5) $ (20.7)
Basic 5.823 5.825 5.855 7.024 7.024
Dilutive - - - - -
------ ------ ------- ------ -------
Total Shares Outstanding 5.823 5.825 5.855 7.024 7.024
EPS $(0.27) $(0.27) $ (1.90) $(0.92) $ (2.95)
Margins
- -------
Gross Profit 18.9% 16.8% 5.4% -6.7% 9.5%
COGS 81.1% 83.2% 94.6% 106.7% 90.5%
SG&A 13.4% 11.0% 15.7% 18.3% 14.4%
Operating income 5.5% 5.8% -10.3% -25.0% -4.8%
Net income -1.6% -3.3% -59.8% -38.2% -24.0%
2001E FYE
-------------------------------------------------------------------
1Q01 2Q01 3Q01 4Q01E 2001E/(1)/
===================================================================
Revenue $ 18.9 $ 21.2 $ 22.5 $ 19.9 $ 82.6
COGS 14.9 20.4 19.5 19.7 74.5
------ ------- ------- ------- -------
Gross profit 4.0 0.9 3.0 0.2 8.1
SG&A 3.1 3.3 2.8 3.8 12.9
------ ------- ------- ------- -------
Operating income 0.9 (2.4) 0.3 (3.6) (4.8)
Interest (income)/expense 2.0 1.3 1.2 1.1 5.7
Other expenses - (0.0) - 0.0 (0.0)
------ ------- ------- ------- -------
Pretax income (1.1) (3.7) (1.0) (4.7) (10.5)
Income (benefit)/taxes - - - - -
------ ------- ------- ------- -------
Net income (1.1) (3.7) (1.0) (4.7) (10.5)
Other - - - - -
Preferred Stock Dividend - - - - -
------ ------- ------- ------- -------
Total - - - - -
Net income available to shareholders $ (1.1) $ (3.7) $ (1.0) $ (4.7) $ (10.5)
Basic 7.581 10.161 10.162 10.162 10.162
Dilutive - - - - -
------ ------- ------- ------- -------
Total Shares Outstanding 7.581 10.161 10.162 10.162 10.162
EPS $(0.14) $ (0.37) $ (0.10) $ (0.46) $ (1.03)
Margins
- -------
Gross Profit 21.2% 4.1% 13.5% 1.0% 9.8%
COGS 78.8% 95.9% 86.5% 99.0% 90.2%
SG&A 16.2% 15.5% 12.4% 19.1% 15.7%
Operating income 4.9% -11.4% 1.1% -18.0% -5.8%
Net income -5.7% -17.5% -4.3% -23.7% -12.7%
Footnotes:
- ---------
(1) FYE 2001 figures are based upon management's preliminary financial results.
- --------------------------------------------- Houlihan Lokey Howard & Zukin 9
- --------------------------------------------------------------------------------
Project Sun
- --------------------------------------------------------------------------------
Overview of HPAC
- --------------------------------------------------------------------------------
Financial Performance - Projected
($ in millions)
------------------------------------
2002P/(1)/ Fiscal Year Ending December 31,/(1)/
-------------------------------------- ------------------------------------
1Q02 2Q02 3Q02 4Q02 2002P 2003P 2004P
====================================== ====================================
Revenue $ 20.6 $ 21.3 $ 23.6 $ 21.1 $ 86.6 $ 95.2 $ 105.0
COGS 17.7 17.6 20.1 17.4 72.7 77.3 84.0
------- ------- ------- ------- ------- ------- -------
Gross profit 3.0 3.7 3.6 3.7 13.9 17.9 21.0
SG&A 2.9 2.9 2.9 2.9 11.6 12.6 14.0
------- ------- ------- ------- ------- ------- -------
Operating income 0.1 0.8 0.6 0.7 2.3 5.3 7.0
Interest (income)/expense 1.0 1.0 1.0 1.0 4.0 3.8 3.3
Other expenses 0.0 0.0 0.0 0.0 0.0 -- --
------- ------- ------- ------- ------- ------- -------
Pretax income (0.9) (0.2) (0.4) (0.3) (1.7) 1.5 3.7
Income (benefit)/taxes -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Net income (0.9) (0.2) (0.4) (0.3) (1.7) 1.5 3.7
Other -- -- -- -- -- -- --
Preferred Stock Dividend -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Total -- -- -- -- -- -- --
Net income available to shareholders $ (0.9) $ (0.2) $ (0.4) $ (0.3) $ (1.7) $ 1.5 $ 3.7
Basic 10.162 10.162 10.162 10.162 10.162 10.162 10.162
Dilutive -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Total Shares Outstanding 10.162 10.162 10.162 10.162 10.162 10.162 10.162
EPS $ (0.09) $ (0.02) $ (0.04) $ (0.03) $ (0.17) $ 0.15 $ 0.36
Margins
- -------
Gross Profit 14.3% 17.4% 15.0% 17.5% 16.1% 18.8% 20.0%
COGS 85.7% 82.6% 85.0% 82.5% 83.9% 81.2% 80.0%
SG&A 13.8% 13.6% 12.3% 14.0% 13.4% 13.2% 13.3%
Operating income 0.5% 3.8% 2.7% 3.6% 2.7% 5.6% 6.7%
Net income -4.4% -0.9% -1.6% -1.2% -2.0% 1.6% 3.5%
Footnotes:
- ---------
(1) Projections are based upon management's modified representations of future
performance.
- -------------------------------------------- Houlihan Lokey Howard & Zukin 10
- --------------------------------------------------------------------------------
Project Sun
- --------------------------------------------------------------------------------
Overview of HPAC
- --------------------------------------------------------------------------------
Historical Balance Sheet
($ in millions)
As of December 31,
-------------------------------------------------
Assets 1998 1999 2000 2001E
- ------ -------------------------------------------------
Current Assets:
Cash & Equivalents $ 0.560 $ 2.227 $ 3.349 $ 1.604
Accounts Receivable 12.303 18.506 14.954 13.606
Inventories 21.645 24.680 27.398 31.320
Deferred Tax Assets 0.000 0.531 1.668 0.000
Other Current Assets 0.731 0.550 0.855 2.216
-------------------------------------------------
Total Current Assets 35.239 46.494 48.224 48.745
-------------------------------------------------
Net Fixed Assets 47.175 51.435 48.048 43.750
Other Assets 4.823 5.234 1.727 1.991
-------------------------------------------------
Total Assets $ 87.237 $103.163 $ 97.999 $ 94.486
=================================================
Liabilities & Stockholders' Equity
- ----------------------------------
Current Liabilities:
Accounts Payable $ 12.171 $ 13.402 $ 9.962 $ 9.975
Current Maturities 48.465 53.240 2.334 1.509
Accrued Expenses 1.242 4.186 6.082 9.669
Other Current Liabilities 2.456 4.892 7.025 5.173
-------------------------------------------------
Total Current Liabilities 64.334 75.720 25.403 26.326
-------------------------------------------------
Long-Term Debt $ 2.500 $ 8.117 $ 70.135 $ 71.062
Other Liabilities 0.000 0.000 0.000 1.179
Deferred Taxes 0.000 0.000 2.980 0.000
-------------------------------------------------
Total Liabilities 66.834 83.837 98.518 98.567
-------------------------------------------------
Stockholders' Equity:
Preferred Stock $ 0.000 $ 1.792 $ 0.000 $ 0.000
Common Stock 21.108 22.384 28.682 36.030
Retained Earnings (0.705) (4.850) (29.201) (40.112)
-------------------------------------------------
Net Stockholders' Equity 20.403 19.326 (0.519) (4.081)
-------------------------------------------------
Total Liabilities & Stockholders' Equity $ 87.237 $103.163 $ 97.999 $ 94.486
=================================================
- -------------------------------------------- Houlihan Lokey Howard & Zukin 11
- --------------------------------------------------------------------------------
Project Sun
- --------------------------------------------------------------------------------
Overview of HPAC
- --------------------------------------------------------------------------------
Market Perspectives - 52 Week Returns Prior to Announcement
================================================================================
MARKET PERFORMANCE
[PRICE PERFORMANCE GRAPH APPEARS HERE]
================================================================================
52-Week Price Performance
- HPAC: -32.2%
- HLHZ MRO Index: -7.6%
- S&P 500 Index: -12.5%
- Nasdaq Composite Index: -23.3%
- -------------------------------------------- Houlihan Lokey Howard & Zukin 12
- --------------------------------------------------------------------------------
Project Sun
- --------------------------------------------------------------------------------
Overview of HPAC
- --------------------------------------------------------------------------------
Market Perspectives - Returns Since September 20, 2000
================================================================================
MARKET PERFORMANCE SINCE SEPTEMBER 20, 2000
[PRICE PERFORMANCE GRAPH APPEARS HERE]
================================================================================
Price Performance Since Sept. 20, 2000
- HPAC: -50.7%
- HLHZ MRO Index: -10.5%
- S&P 500 Index: -21.0%
- Nasdaq Index: -52.1%
- -------------------------------------------- Houlihan Lokey Howard & Zukin 13
- --------------------------------------------------------------------------------
Project Sun
- --------------------------------------------------------------------------------
Overview of HPAC
- --------------------------------------------------------------------------------
Investor Profile
- --------------------------------------------------------------------------------------
Percent
Holder Name Portfolio Name Share Held/(1)/ Outstanding
- --------------------------------------------------------------------------------------
Lufthansa Technik NA 7.451/(2)/ 73.3%
- --------------------------------------------------------------------------------------
Dimensional Fund Dimensional Fund 0.392 3.9%
Royce & Associates Royce & Associates 0.005 0.0%
Michael Riley NA 0.029 0.3%
Keybank National Keybank National Company 0.017 0.2%
Northern Trust Northern Trust Corp. 0.010 0.1%
Barclays Global Barclays Bank plc 0.007 0.1%
Mellon C. Baird NA 0.002 0.0%
Joel F. McIntyre NA 0.002 0.0%
Deutsche Bank Deutsche Bank AG 0.000 0.0%
- --------------------------------------------------------------------------------------
Total 0.464 4.6%
Total Basic Shares Outstanding 10.162
NA - Not Available
Source: Bloomberg
(1) Number of shares represented in millions.
(2) LHT's holdings include 57,412 beneficiary shares held by certain members of
management, committed to vote along with LHT as per the Shareholders
Rights and Voting Agreement dated September 20, 2000.
- -------------------------------------------- Houlihan Lokey Howard & Zukin 14
- --------------------------------------------------------------------------------
Project Sun
- --------------------------------------------------------------------------------
Overview of HPAC
- --------------------------------------------------------------------------------
HPAC - Historical Events Study
- --------------------------------------------------------------------------------
HPAC
HISTORICAL CLOSING PRICE AND TRADING VOLUME
- --------------------------------------------------------------------------------
[HISTORICAL HPAC CLOSING PRICE AND TRADING VOLUME GRAPH APPEARS HERE]
Date Stock Price Volume(000's)
---- ----------- -------------
A - September 21, 2000 $6.00 227.0
B - November 15, 2000 $4.72 31.1
C - November 17, 2000 $4.50 12.6
D - November 22, 2000 $3.41 74.2
E - December 14, 2000 $4.50 30.6
F - March 19, 2001 $3.25 8.0
G - May 15, 2001 $3.10 4.1
H - June 27, 2001 $3.26 0.0
I - August 13, 2001 $3.01 5.6
J - November 14, 2001 $2.50 14.8
K - January 16, 2002 $2.35 0.3
L - February 25, 2002 $2.12 1.6
- --------------------------------------------- Houlihan Lokey Howard & Zukin 15
- --------------------------------------------------------------------------------
Project Sun
- --------------------------------------------------------------------------------
Overview of HPAC
- --------------------------------------------------------------------------------
HPAC -- Significant Historical Events
A September 21, 2000 HPAC announced with LHT, that LHT acquired a controlling
interest in the Company. LHT acquired its controlling
interest in a private transaction by purchasing 40 percent
of the Company's common stock from the shareholders of
Unique Investment Corporation. LHT also purchased all
outstanding shares of the Company's Series C convertible
preferred stock from the private investor group that
provided such funding to the Company in December 1999.
B November 15, 2000 HPAC announced the closing of a $65 million
debt facility with two German banks:
Landesbank Hessen-Thuringen Girozentrale
("Helaba") and KfW (Kreditanstalt fur
Wiederaufbau). Proceeds from the facility,
which was entirely drawn in one funding, had
been used to retire the Company's obligations to
Heller Financial Inc.
C November 17, 2000 HPAC announced that it would delay the issuance
of its Quarterly Report on Form 10-Q. The
Company previously announced that it had
terminated the services of its former independent auditors,
and the Company is currently in the process of retaining a
new accounting firm.
D November 22, 2000 HPAC was notified by Nasdaq that its securities
are subject to delisting from The Nasdaq National Market
because the Company had not filed its quarterly report on
Form 10-Q in a timely manner. The Company announced that it
would delay the issuance of its 10-Q report as the Company
had not yet received independent account review.
E December 14, 2000 HPAC announced its financial results for the
third quarter of fiscal year 2000. Revenue for the quarter
decreased to $18.5 million from $23.5 million in the third
quarter of 1999, while year-to-date revenue increased to
$60.3 million from $57.1 million in the first nine months of
1999. Most of the revenue growth was derived from new
landing gear contracts and increased component services in
the Sun Valley division.
- --------------------------------------------- Houlihan Lokey Howard & Zukin 16
- --------------------------------------------------------------------------------
Project Sun
- --------------------------------------------------------------------------------
Overview of HPAC
- --------------------------------------------------------------------------------
HPAC -- Significant Historical Events (Continued)
F March 19, 2001 HPAC announced that on March 16, 2001, LHT converted
into equity approximately $9.8 million of debt and
accrued interest owed to it by Hawker Pacific. The
conversion was executed pursuant to a February 6, 2001, debt
exchange agreement between the parties. The conversion rate
of $3.125 per common share was set equal to the then-current
market price, and was determined by the average of the
closing bid prices on the five trading days immediately
preceding the date of the agreement. Based upon this
conversion rate, LHT was issued 3,136,952 shares of the
Company's common stock. As a result of these transactions,
LHT now owns or controls approximately 67 percent of the
outstanding common stock of the Company.
G May 15, 2001 The Company announced financial results for the first
quarter of fiscal year 2001. Revenue for the quarter
decreased by 12 percent to $18.9 million from $21.5
million for the comparable period in 2000. The net loss
available to common shareholders in the first quarter was
$1.2 million, or $0.14 per basic and diluted share, a
compared with $1.5 million, or $0.27 per basic and diluted
share, in the prior year.
H June 27, 2001 HPAC announced that its majority shareholder, LHT,
has provided a revolving line of credit to the Company's
wholly owned London subsidiary, Hawker Pacific Aerospace
Ltd. The facility, which may be drawn up to an aggregate
amount of 5.2 million British pounds sterling (approximately
$7.4 million), must be repaid within 364 days.
- --------------------------------------------- Houlihan Lokey Howard & Zukin 17
- --------------------------------------------------------------------------------
Project Sun
- --------------------------------------------------------------------------------
Overview of HPAC
- --------------------------------------------------------------------------------
HPAC -- Significant Historical Events (Continued)
I August 13, 2001 HPAC announced financial results for the second quarter of
fiscal year 2001. Second quarter revenue increased by 5
percent to $21.2 million from $20.3 million in 2000, while
year-to-date revenue decreased by 4 percent to $40.1 million
from $41.8 million in the prior comparable period. The
company posted a net loss for the quarter of $3.7 million or
$0.37 per common share, as compared with a net loss of $1.6
million or $0.27 per common share, in the second quarter of
2000.
The Company also announced that it signed agreements
with its majority shareholder, LHT, under which both parties
have agreed to cooperate and support each other in providing
aircraft component services to their combined customer base,
and to provide each other access to their respective
capabilities and capacities. The agreements also provided
for the parties to continue developing a joint sales and
marketing approach, and to further explore purchasing
synergies.
J November 14, 2001 HPAC announced financial results for the third
quarter of fiscal year 2001. Third quarter revenue increased
by 2 percent to $22.5 million from $18.5 million in 2000,
while year-to-date revenue increased 4 percent to $62.7
million from $60.3 million in the comparable prior year
period. The Company posted a net loss for the quarter of $1
million, or $0.10 per common share, as compared with a net
loss of $11.1 million or $1.90 per common share, in the
third quarter of 2000.
K January 16, 2002 The Company announced that it had hired Richard Fortner as
President and Chief Executive Officer. Mr. Fortner replaced
Dave Lokken who had left the Company to pursue other
business interests. Prior to joining HPAC, Mr. Fortner
served as President of AAR Landing Gear Services at AAR
Corp.
L February 25, 2002 Deutsche Lufthansa AG's LHT unit announced that
it was contemplating a cash tender offer for all of the
shares of HPAC it doesn't already own. LHT would pay $2.90
to $3.25 a share in March for the Hawker shares the unit of
Europe's second-biggest airline. LHT completed the purchases
of 715,530 common shares of HPAC for $3.25 a share, raising
its stake to 73 percent from 67 percent. In response, the
Company has formed a committee to evaluate LHT's offer to
buy its shares.
- --------------------------------------------- Houlihan Lokey Howard & Zukin 18
- --------------------------------------------------------------------------------
Overview of Deutsche Lufthansa AG
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Project Sun
- --------------------------------------------------------------------------------
Overview of Deutsche Lufthansa AG
- --------------------------------------------------------------------------------
Company Description
- --------------------------------------------------------------------------------
LHT is a subsidiary of Deutsche Lufthansa AG, Europe's second largest passenger
airline and cargo airline behind. With 375 jets, including code-sharing
agreements, LHT serves about 340 destinations in 90 countries. With hubs in
Frankfurt and Munich, the carrier is part of the Star Alliance that includes
United Air Lines, Air Canada, and All Nippon Airways. LHT also has interests in
travel-related businesses, including ground services, catering, and leisure
travel services. LHT owns a stake in Amadeus, one of the world's biggest
computer reservation systems, and it's expanding its shipping and logistics
operations with partners Deutsche Post and DHL.
- --------------------------------------------------------------------------------
Historical Financial Performance /(1)/
($ in millions)
Fiscal Year Ending December 31,
----------------------------------------------------------------------------
1996 1997 1998 1999 2000
============================================================================
Revenue $ 13,547.2 $ 12,874.6 $ 13,573.2 $ 12,892.2 $ 14,327.5
% Growth NA -5.0% 5.4% -5.0% 11.1%
COGS 10,651.9 9,694.9 10,310.3 9,971.7 11,739.2
Gross profit 2,895.3 3,179.7 3,262.9 2,920.5 2,588.3
% Margin 21.4% 24.7% 24.0% 22.7% 18.1%
EBIT 540.9 987.6 1,849.1 1,304.1 1,464.1
% Margin 4.0% 7.7% 13.6% 10.1% 10.2%
EBITDA 1,443.0 1,803.6 2,863.8 2,244.7 2,427.8
% Margin 10.7% 14.0% 21.1% 17.4% 16.9%
Net Income $ 359.7 $ 461.7 $ 857.2 $ 635.2 $ 649.4
% Margin 2.7% 3.6% 6.3% 4.9% 4.5%
Shares Outstanding 381.6 381.6 381.6 381.6 381.6
EPS - before extraordinary items $ 0.94 $ 1.21 $ 2.25 $ 1.66 $ 1.70
Cash 1,216.8 2,038.2 1,953.1 783.7 957.8
Long-term debt 2,303.9 2,337.6 2,816.9 1,357.7 1,608.0
Debt to EBITDA 1.6 x 1.3 x 1.0 x 0.6 x 0.7 x
NA - Not Available
(1) Source: Compustat and Worldscope.
- --------------------------------------------------------------------------------
Stock Price Performance Graph
- --------------------------------------------------------------------------------
[STOCK PRICE AND TRADING VOLUME GRAPH APPEARS HERE]
- --------------------------------------------------------------------------------
Acquisition History
- --------------------------------------------------------------------------------
Announce Close Pnt. Pnt. Purchase
Date Date Target Acquired Owned Price
- ------------------------------------------------------ ----------------------------------
2/10/1999 3/30/1999 Hudson General Corp 100.0% 0.0% $ 133.3
3/11/1999 5/30/1999 SKY CHEFS 14.0% 33.0% 200.4
9/22/1999 9/22/1999 Air Dolomiti 26.0% 0.0% NA
11/9/1999 NA British Midland Airways Ltd. 20.0% 0.0% 151.1
5/3/2000 5/3/2000 Global Freight Exchange 10.0% 0.0% NA
9/21/2000 9/21/2000 Hawker Pacific Aerospace 40.0% 0.0% NA
9/21/2000 1/1/2001 Eurowings Luftverkehrs AG 24.9% 0.0% NA
1/23/2001 NA Composite International, Inc. 100.0% 0.0% NA
12/14/2001 Pending Swissair Flight Support AG 100.0% 0.0% NA
- --------------------------------------------- Houlihan Lokey Howard & Zukin 20
- --------------------------------------------------------------------------------
Project Sun
- --------------------------------------------------------------------------------
Overview of Deutsche Lufthansa AG
- --------------------------------------------------------------------------------
LHT's Historical Ownership of HPAC
Common
--------------------------
Prem./Disc.
September 20, 2000 Shares to Market Preferred
- ------------------ ----------- ------------- -----------
Upon the closing the purchases for $4.12 per share on September 20, 2000, LHT 2,341,495 -36.3%
became the record owner of 2,341,495 shares of Common Stock and controlled the 196,342
voting rights of an additional 196,342 shares of Common Stock. This transaction
also gave LHT control over the voting rights of 129,786 options.
Upon the closing of the Stock Purchase Agreement with Deephaven Private 300
Placement Trading, Ltd., LHT became the record owner of 300 shares of the
Preferred Stock, representing 100% of the then issued and outstanding shares of
the Preferred Stock.
December 22, 2000
- -----------------
LHT exercised its right to convert all 300 shares of the Preferred Stock and 1,106,982 -34.3% -300
accrued dividend into Common Stock at a conversion price equal to $2.71007 per
share of Common Stock. As a result of this conversion, LHT acquired 1,106,982
shares of Common Stock.
December 29, 2000
- -----------------
LHT received a portion of the accrued dividends on the Preferred Stock in the 57,404 NA
form of an additional 57,404 shares of Common Stock.
March 16, 2001
- --------------
On February 6, 2001, HPAC entered into an Exchange of Promissory Note with LHT 3,136,952 -2.0%
("Debt Conversion Agreement") whereby LHT agreed to cancel all of the principal
and accrued interest under the Loan Agreement in exchange for shares of Common
Stock. Under the Debt Conversion Agreement, the conversion price of $3.125 per
share was set equal to the market price at the time the parties entered into the
agreement, the market price was calculated based on the average of the closing
bid prices for the prior five trading days preceding the date of the agreement.
The Debt Conversion Agreement also contains certain covenants substantially
similar to those in the Loan Agreement which continue beyond the debt conversion
closing. On March 16, 2001, LHT retired the $9,300,000 plus $502,975 accrued
interest under the Loan Agreement in exchange for the issuance by HPAC to LHT of
3,136,952 shares of Common Stock.
- -------------------------------------------- Houlihan Lokey Howard & Zukin 21
- --------------------------------------------------------------------------------
Project Sun
- --------------------------------------------------------------------------------
Overview of Deutsche Lufthansa AG
- --------------------------------------------------------------------------------
LHT's Historical Ownership of HPAC (Continued)
Common
--------------------
Prem./Disc.
Shares To Market Preferred
--------- --------- ---------
September 14, 2001
- ------------------
The shareholders of HPAC approved the issuance of the Warrants and the issuance 35,582 NA
of 35,582 shares of Common Stock (issued November 21, 2001) in payment of the
remaining portion of the accrued and unpaid dividends on the Preferred Stock.
LHT did not exercise the Warrants before their expiration.
February 25, 2002
- -----------------
LHT purchased for cash 426,600 shares of Common Stock from Royce & Associates, 426,600 53.3%
Inc., 150,000 shares of Common Stock from Volksbanken-Kapitalanlageges 150,000
m.b.H., and 138,930 common shares from David Lokken, at a price per share of 138,930
$3.25 or a total purchase price of $2,325,472.50.
- -----------------------------------------------------------------------------------------------------------------------
TOTAL SHARES HELD BY LHT/(1)/ 7,451,357 --
Percentage of total HPAC Common Shares Outstanding/(2)/ 73.3%
(1) LHT's holdings include 57,412 beneficiary shares held by certain members of
management, committed to vote along with LHT as per the Shareholders Rights
and Voting Agreement dated September 20, 2000.
(2) 10,160,675 HPAC common shares outstanding as of October 15, 2001.
- --------------------------------------------- Houlihan Lokey Howard & Zukin 22
- --------------------------------------------------------------------------------
Valuation Summary
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Project Sun
- --------------------------------------------------------------------------------
Valuation Summary
- --------------------------------------------------------------------------------
Valuation Summary
Low High
----------- ------------
Market Approach
- ---------------
Market Multiple Methodology Speculative Speculative
Comparable Transaction Methodology $1.05 $1.99
Income Approach
- ---------------
Discounted Cash Flow Methodology - Modified Management Case Speculative $0.04
Discounted Cash Flow Methodology - Management Case $0.33 $1.43
Pre-Announcement Share Price as of February 25, 2002 $2.12
- --------------------------------------------- Houlihan Lokey Howard & Zukin 24
- --------------------------------------------------------------------------------
Project Sun
- --------------------------------------------------------------------------------
Valuation Summary
- --------------------------------------------------------------------------------
Premium Study
- ----------------------------------------------------------------
LHT's Contemplated Cash Tender Offer
- ----------------------------------------------------------------
Low High
========== =========
Offer Range $2.90 -- $3.25
Price as of 2/25/02 $2.12 -- $2.12
Implied Premium 36.8% -- 53.3%
5-Day Average Share Price $2.19 $2.19
Implied Premium 32.4% -- 48.4%
10-Day Average Share Price $2.41 $2.41
Implied Premium 20.3% -- 34.8%
20-Day Average Share Price $2.44 $2.44
Implied Premium 18.6% -- 33.0%
30-Day Average Share Price $2.36 $2.36
Implied Premium/Discount 22.8% -- 37.6%
- ----------------------------------------------------------------
Implied EV / Revenue 0.86 x -- 0.86 x
- ----------------------------------------------------------------
- --------------------------------------------
Premiums Paid for Minority Interests/(1)/
- --------------------------------------------
Low High
========== ==========
1-Day
- -----
Range -11.1% -- 279.3%
Median/(3)/ 27.6%
Mean/(3)/ 48.4%
7-Days
- ------
Range -12.1% -- 281.5%
Median/(3)/ 39.4%
Mean/(3)/ 48.6%
30-Days
- -------
Range -7.0% -- 279.3%
Median/(3)/ 41.2%
Mean/(3)/ 52.5%
- --------------------------------------------
EV / Revenue NA -- NA
- --------------------------------------------
- --------------------------------------------
Control Premium Study/(2)/
- --------------------------------------------
Low High
========== ==========
Range -97.6% -- 610.0%
Median/(3)/ 35.9%
Mean/(3)/ 52.1%
- --------------------------------------------
EV / Revenue NA -- NA
- --------------------------------------------
- -------------------------------------------
Comparable Transaction Analysis/(4)/
- -------------------------------------------
Low High
========= =========
Range NA -- NA
Median NA
Mean NA
- -------------------------------------------
EV / Revenue 1.09 x -- 1.52 x
- -------------------------------------------
- -------------------------------------------
Premiums/Discounts Paid by LHT in Prior
Transactions with HPAC
- -------------------------------------------
Low High
========== =========
Range -36.3% -- 53.3%
- -------------------------------------------
- --------------------------------------------------------------------------------
CONCLUSION: LHT's potential cash tender offer per share provides a premium to
the pre-announce price per share of HPAC. Based on the above analysis, this
premium is in the range of premiums paid for minority interests by a controlling
shareholder and premiums paid for change of control transaction. Also, the
implied EV / Revenue multiple based on LHT's potential cash tender offer is in
the range of similar change of control transactions that have taken place in the
MRO subsector of the Aerospace industry.
- --------------------------------------------------------------------------------
(1) Premiums Paid for Minority Interest based upon 108 transactions across all
industries from 1997 to March 4, 2002.
(2) Control Premium Study based upon 908 transactions across all industries
during 2001.
(3) Calculation does not include negative premiums.
(4) Transactions analysis data is comprised of acquisitions made in the MRO
subsector of the aerospace industry, from January 2000 to March 4, 2002.
- --------------------------------------------- Houlihan Lokey Howard & Zukin 25
- --------------------------------------------------------------------------------
Project Sun
- --------------------------------------------------------------------------------
Valuation Summary
- --------------------------------------------------------------------------------
Fairness Summary
Tender Offer Pre-Announce 5-Day 10-Day 20-Day 30-Day
Price Price Avg. Price Avg. Price Avg. Price Avg. Price
------------- ------------- ------------ ------------ ------------ ------------
3.25 2.12 2.19 2.41 2.44 2.36
Total Shares Outstanding 10.2 10.2 10.2 10.2 10.2 10.2
-------- -------- -------- -------- -------- --------
Implied Market Value of Equity $33.0 $21.5 $22.3 $24.5 $24.8 $24.0
Add: Net Debt 71.0 71.0 71.0 71.0 71.0 71.0
-------- -------- -------- -------- -------- --------
Enterprise Value $104.0 $92.5 $93.2 $95.5 $95.8 $94.9
Implied EV / Revenue 1.26 x 1.12 x 1.13 x 1.16 x 1.16 x 1.15 x
Implied Premium Over
---------------------------------------------------------------------
Pre-Announce 5-Day 10-Day 20-Day 30-Day
Price Avg. Price Avg. Price Avg. Price Avg. Price
------------- ------------ ------------ ------------ ------------
53.3% 48.4% 34.9% 33.2% 37.7%
Observations
. The cash tender offer price of $3.25 implied a revenue multiple of 1.26x,
which is in the range of what strategic buyers have paid for more
profitable companies whose EBITDA margins ranged between 10 and 20 percent.
. The 53.3 percent premium over the pre-announcement share price of $2.12
appears to be fair.
Conclusion
The cash tender offer of $3.25 per share is fair from a financial point of view.
- -------------------------------------------- Houlihan Lokey Howard & Zukin 26
- --------------------------------------------------------------------------------
Market Multiple Methodology
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Project Sun
- --------------------------------------------------------------------------------
Market Multiple Methodology
- --------------------------------------------------------------------------------
Market Multiple Methodology
(figures in millions)
Representative Selected Indicated
Level Multiple Range Enterprise Value Range
-------------- ------------------ ---------------------------
LTM Revenues (1) $82.581 0.20 x -- 0.50 x $16.520 -- $41.290
NFY Revenues (2) $86.600 0.20 x -- 0.50 x $17.320 -- $43.300
Mean $16.920 -- $42.295
Selected Enterprise Value Range, on a Minority Interest Basis $17.000 -- $43.000
Less: Total Interest-Bearing Debt, net of Cash 70.967 70.967
Add: Value of NOL 4.184 -- 4.184
Less: Option Value 0.000 -- 0.000
----------- -----------
Aggregate Value of Minority Interest, as if Marketable Speculative -- Speculative
- --------------------------------------------------------------------------------------------------------------
Price Per Share Speculative -- Speculative
- --------------------------------------------------------------------------------------------------------------
Footnotes:
- ----------
(1) Revenue figure based upon preliminary financial results.
(2) Figure based upon management's modified forecasted performance.
- -------------------------------------------- Houlihan Lokey Howard & Zukin 28
- --------------------------------------------------------------------------------
Project Sun
- --------------------------------------------------------------------------------
Market Multiple Methodology
- --------------------------------------------------------------------------------
Multiple Selection Analysis
Range
---------------------
Low High Mean Median Selected Range Percent of Median
------- ------ ------ ------- ------------------ -----------------
LTM Revenues 0.21 x 1.20 x 0.57 x 0.52 x 0.20 x -- 0.50 x 38.4% -- 96.1%
NFY Revenues 0.79 x 1.17 x 0.98 x 0.98 x 0.20 x -- 0.50 x 20.4% -- 51.1%
- --------------------------------------------- Houlihan Lokey Howard & Zukin 29
- --------------------------------------------------------------------------------
Project Sun
- --------------------------------------------------------------------------------
Market Multiple Methodology
- --------------------------------------------------------------------------------
Representative Levels
(figures in millions)
Fiscal Year Ended December 31,
- -----------------------------------------------------------------------------------------------------------
1999 2000 2001E 2002P 2003P
- -----------------------------------------------------------------------------------------------------------
Reported Revenue $ 82.318 $77.059 $82.581 $86.600 $ 95.200
Less: Cost of Goods Sold 69.197 69.704 74.458 72.700 77.300
----------------------------------------------------------
Gross Profit $ 13.121 $7.355 $ 8.123 $13.900 $ 17.900
Less: Selling, General & Administrative 10.372 11.092 12.948 11.600 12.600
Add: Depreciation and Amortization 4.057 4.797 4.275 4.604 5.066
Add: Adjustments (1) 1.586 1.478 1.370 0.000 0.000
----------------------------------------------------------
Adjusted EBITDA $ 8.392 $ 2.538 $ 0.820 $ 6.904 $ 10.366
Less: Depreciation and Amortization 4.057 4.797 4.275 4.604 5.066
----------------------------------------------------------
Adjusted EBIT $ 4.335 $(2.259) $(3.455) $ 2.300 $ 5.300
Less: Interest Expense (2) 6.001 6.712 5.690 4.003 3.772
----------------------------------------------------------
Adjusted Pre-tax Income $ (1.666) $(8.971) $(9.145) $(1.703) $ 1.528
Less: Taxes @ 40.0% (0.666) (3.588) (3.658) (0.681) 0.611
----------------------------------------------------------
Adjusted Net Income $ (1.000) $(5.383) $(5.487) $(1.022) $ 0.917
Add: Depreciation and Amortization 4.057 4.797 4.275 4.604 5.066
----------------------------------------------------------
Adjusted Cash Flow $ 3.057 $(0.586) $(1.212) $ 3.582 $5.983
Net Book Value (tangible) $ 17.534 NMF NMF NMF NMF
Total Assets $103.163 $97.999 $94.486 $99.455 $108.069
Footnotes:
- ---------
(1) Adjustments:
Asset Write-down $0.826 $0.830 $0.000 $0.000 $0.000
Severance (departing management) 0.760 0.648 0.850 0.000 0.000
Other Adjustments 0.000 0.000 0.520 0.000 0.000
--------------------------------------------------------
Total Adjustments $1.586 $1.478 $1.370 $0.000 $0.000
(2) Interest Expense has been adjusted to exclude borrowing costs in attributed
to penalties and fees incurred by the Company.
- --------------------------------------------- Houlihan Lokey Howard & Zukin 30
- --------------------------------------------------------------------------------
Project Sun
- --------------------------------------------------------------------------------
Market Multiple Methodology
- --------------------------------------------------------------------------------
Risk Analysis Rankings
Size Size
(Revenue, millions) (Enterprise Value, millions)
- -------------------------------------------------------------------------------
Name Value Name Value
- -------------------------------------------------------------------------------
BBA Group plc $2,178.9 BBA Group plc $2,622.3
Sequa Corp -Cl A $1,785.9 Sequa Corp -Cl A $1,115.3
Aar Corp $769.0 Aar Corp $407.6
Aviall Inc $516.9 Aviall Inc $263.8
Mercury Air Group Inc $428.8 Vector Aerospace $173.5
Vector Aerospace $217.6 Mercury Air Group Inc $95.3
Pemco Aviation Inc $161.4 Hawker Pacific Aerospace Inc $92.5
First Aviation Svcs Inc $105.0 Pemco Aviation Inc $81.3
Hawker Pacific Aerospace Inc $82.6 First Aviation Svcs Inc $21.8
Historical Growth Historical Growth
(2-Year EBITDA) (1-Year EBITDA)
- -------------------------------------------------------------------------------
Name Value Name Value
- -------------------------------------------------------------------------------
BBA Group plc 11.5% Aviall Inc 36.3%
Pemco Aviation Inc 8.7% Sequa Corp -Cl A 2.7%
Mercury Air Group Inc 5.1% BBA Group plc 1.3%
Vector Aerospace 3.4% Mercury Air Group Inc -1.8%
Sequa Corp -Cl A -2.3% Vector Aerospace -5.8%
Aviall Inc -3.0% Pemco Aviation Inc -24.5%
First Aviation Svcs Inc -14.8% Aar Corp -30.8%
Aar Corp -17.4% Hawker Pacific Aerospace Inc -67.7%
Hawker Pacific Aerospace Inc -68.7% First Aviation Svcs Inc -81.9%
Profitability Relative Depreciation
(EBITDA to Revenue) (Depreciation to EBITDA)
- -------------------------------------------------------------------------------
Name Value Name Value
- -------------------------------------------------------------------------------
BBA Group plc 17.6% Hawker Pacific Aerospace Inc NMF
Vector Aerospace 12.7% First Aviation Svcs Inc 98.0%
Pemco Aviation Inc 11.1% Sequa Corp -Cl A 51.4%
Sequa Corp -Cl A 10.1% Mercury Air Group Inc 43.4%
Aviall Inc 8.0% Aar Corp 38.1%
Aar Corp 6.2% BBA Group plc 33.3%
Mercury Air Group Inc 5.4% Aviall Inc 26.1%
First Aviation Svcs Inc 1.3% Pemco Aviation Inc 22.0%
Hawker Pacific Aerospace Inc 1.0% Vector Aerospace 19.2%
Historical Growth Historical Growth
(2-Year Revenue) (1-Year Revenue)
- -------------------------------------------------------------------------------
Name Value Name Value
- -------------------------------------------------------------------------------
Mercury Air Group Inc 48.1% Mercury Air Group Inc 43.1%
First Aviation Svcs Inc 26.4% Aviall Inc 30.7%
Vector Aerospace 13.8% First Aviation Svcs Inc 17.5%
BBA Group plc 13.7% Vector Aerospace 16.6%
Aviall Inc 9.6% BBA Group plc 9.9%
Pemco Aviation Inc 6.8% Hawker Pacific Aerospace Inc 7.2%
Hawker Pacific Aerospace Inc 0.2% Sequa Corp -Cl A 3.6%
Sequa Corp -Cl A -1.1% Pemco Aviation Inc -4.5%
Aar Corp -8.8% Aar Corp -14.7%
Projected Growth Projected Growth
(1-Year EBITDA) (5-Year EPS)
- -------------------------------------------------------------------------------
Name Value Name Value
- -------------------------------------------------------------------------------
Aar Corp NA First Aviation Svcs Inc NA
Aviall Inc NA Mercury Air Group Inc NA
First Aviation Svcs Inc NA Pemco Aviation Inc NA
Mercury Air Group Inc NA Sequa Corp -Cl A NA
Pemco Aviation Inc NA Hawker Pacific Aerospace Inc NA
Sequa Corp -Cl A NA BBA Group plc 20.4%
Hawker Pacific Aerospace Inc NA Vector Aerospace 12.6%
Vector Aerospace 5.1% Aar Corp 6.0%
BBA Group plc -7.4% Aviall Inc -10.7%
Internal Investment
(Capital Expenditures to Liquidity
Revenue) (Current Ratio)
- -------------------------------------------------------------------------------
Name Value Name Value
- -------------------------------------------------------------------------------
BBA Group plc 10.4% First Aviation Svcs Inc 4.7
Pemco Aviation Inc 5.4% Aviall Inc 2.7
Sequa Corp -Cl A 5.2% Aar Corp 2.6
Aviall Inc 3.6% Sequa Corp -Cl A 2.6
Vector Aerospace 3.4% BBA Group plc 1.9
Aar Corp 1.7% Hawker Pacific Aerospace Inc 1.9
Mercury Air Group Inc 1.3% Vector Aerospace 1.7
Hawker Pacific Aerospace Inc 1.0% Mercury Air Group Inc 1.5
First Aviation Svcs Inc -0.6% Pemco Aviation Inc 1.1
Projected Growth
(1-Year Revenue)
- ---------------------------------------
Name Value
- ---------------------------------------
Aar Corp NA
Aviall Inc NA
First Aviation Svcs Inc NA
Mercury Air Group Inc NA
Pemco Aviation Inc NA
Sequa Corp -Cl A NA
Hawker Pacific Aerospace Inc 4.9%
Vector Aerospace 1.2%
BBA Group plc -4.4%
Profitability
(EBIT to Revenue)
- ---------------------------------------
Name Value
- ---------------------------------------
BBA Group plc 11.8%
Vector Aerospace 10.3%
Pemco Aviation Inc 8.7%
Aviall Inc 5.9%
Sequa Corp -Cl A 4.9%
Aar Corp 3.9%
Mercury Air Group Inc 3.1%
First Aviation Svcs Inc 0.0%
Hawker Pacific Aerospace Inc -4.1%
Leverage
(Debt to EV)
- ---------------------------------------
Name Value
- ---------------------------------------
Hawker Pacific Aerospace Inc 78.4%
First Aviation Svcs Inc 74.5%
Mercury Air Group Inc 71.4%
Aar Corp 64.0%
Sequa Corp -Cl A 63.8%
Vector Aerospace 59.0%
Aviall Inc 50.5%
BBA Group plc 38.7%
Pemco Aviation Inc 19.3%
- --------------------------------------------- Houlihan Lokey Howard & Zukin 31
- --------------------------------------------------------------------------------
Project Sun
- --------------------------------------------------------------------------------
Market Multiple Methodology
- --------------------------------------------------------------------------------
Comparable Company Debt-Free Multiples
(figures in millions)
EV / Revenue
------------------------------------------------------
EV 3-YR Avg. FYE LTM NFY NFY + 1
----------- ----------- ------- -------- ------- ---------
Aar Corp $ 407.598 0.41x 0.47x 0.53x NA NA
Aviall Inc 263.824 0.63x 0.54x 0.51x NA NA
First Aviation Svcs Inc 21.761 0.27x 0.22x 0.21x NA NA
Mercury Air Group Inc 95.261 0.28x 0.20x 0.22x NA NA
Pemco Aviation Inc 81.346 0.52x 0.50x 0.50x NA NA
Sequa Corp -Cl A 1,115.253 0.63x 0.63x 0.62x NA NA
BBA Group plc 2,622.306 1.25x 1.12x 1.20x 1.17x 1.09x
Vector Aerospace 173.539 0.91x 0.80x 0.80x 0.79x 0.74x
Hawker Pacific Aerospace Inc 92.508 1.15x 1.12x 1.12x NA NA
- -------------------------------------------------------------------------------------------------------------
Low 0.27x 0.20x 0.21x 0.79x 0.74x
High 1.25x 1.12x 1.20x 1.17x 1.09x
Median 0.57x 0.52x 0.52x 0.98x 0.91x
Mean 0.61x 0.56x 0.57x 0.98x 0.91x
- -------------------------------------------------------------------------------------------------------------
EV / EBITDA
------------------------------------------------------
EV 3-YR Avg. FYE LTM NFY NFY + 1
----------- ----------- ------- -------- ------- ---------
Aar Corp $ 407.598 4.9x 6.3x 8.5x NA NA
Aviall Inc 263.824 7.9x 7.4x 6.4x NA NA
First Aviation Svcs Inc 21.761 NMF NMF 15.8x NA NA
Mercury Air Group Inc 95.261 3.6x 3.5x 4.1x NA NA
Pemco Aviation Inc 81.346 5.4x 5.7x 4.5x NA NA
Sequa Corp -Cl A 1,115.253 5.6x 5.7x 6.2x NA NA
BBA Group plc 2,622.306 6.7x 6.2x 6.8x 6.7x 6.0x
Vector Aerospace 173.539 6.3x 6.3x 6.3x 6.0x 5.2x
Hawker Pacific Aerospace Inc 92.508 24.0x NMF NMF NA NA
- -------------------------------------------------------------------------------------------------------------
Low 3.6x 3.5x 4.1x 6.0x 5.2x
High 7.9x 7.4x 15.8x 6.7x 6.0x
Median 5.6x 6.2x 6.3x 6.3x 5.6x
Mean 5.8x 5.9x 7.3x 6.3x 5.6x
- -------------------------------------------------------------------------------------------------------------
Note: Hawker Pacific Aerospace Inc. is excluded from the Low, High, Median and
Mean calculations. The Company's multiples are based upon the
pre-announcement closing price of $2.12.
- -------------------------------------------- Houlihan Lokey Howard & Zukin 32
- --------------------------------------------------------------------------------
Comparable Transaction Methodology
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Project Sun
- --------------------------------------------------------------------------------
Comparable Transaction Methodology
- --------------------------------------------------------------------------------
Comparable Transaction Methodology
(figures in millions)
Representative Selected Indicated
Level Multiple Range Enterprise Value Range
-------------- ------------------ ---------------------------
LTM Revenues $82.581 0.95 x -- 1.10 x $78.450 -- $90.840
Selected Enterprise Value Range, on a Controlling Interest Basis $79.000 -- $91.000
Less: Total Interest-Bearing Debt, net Cash 70.967 70.967
--------- ---------
Value of Total Equity, on a Controlling Interest Basis $ 8.033 -- $20.033
Less: Minority Interest Discount @ 23.1% (1) 1.506 -- 3.756
--------- ---------
Aggregate Value of Minority Interest, as if Marketable $ 6.527 -- $16.277
Add: Value of NOL 4.184 4.184
Less: Option Value 0.069 -- 0.230
--------- ---------
Marketable Minority Equity Value $10.642 -- $20.231
- -------------------------------------------------------------------------------------------------------------
Price Per Share $1.05 -- $1.99
- -------------------------------------------------------------------------------------------------------------
Footnotes:
- ----------
(1) Based upon a control premium of 30.0 percent.
- -------------------------------------------- Houlihan Lokey Howard & Zukin 34
- --------------------------------------------------------------------------------
Project Sun
- --------------------------------------------------------------------------------
Comparable Transaction Methodology
- --------------------------------------------------------------------------------
Comparable Transaction Analysis
($ in millions)
Target LTM Method Enter- EV EV EV
Seller - Target Business ------------------- of prise to to to
Announced Closed Unit Sold Buyer Description: Revenue EBIT EBITDA Payment Value EBITDA EBIT Revenue
- --------- --------- -------------- --------------- ------------------ ------- ---- ------ ------- ------ ------ ---- -------
7-Jan-02 Reliance Empresa Provides * * *
Aerotech Brasileiras de maintenance and
Inc - Celsius Aeronautica SA modification of
Aerotech Inc aircraft
3-Oct-01 Spar L-3 Global provider 91.3 13.8 17.2 139.2 8.1x 10.1x 1.52x
Aerospace Communications of turnkey
Ltd Corp aviation life
cycle management
services
18-May-01 AeroGroup Inc American Supplies, * * *
Communications aircraft, pilots,
Enterprises Inc maintenance and
other support
services
19-Mar-01 19-Mar-01 Turbotech PWCA Pratt & Supplier of * * *
Repairs Inc. Whitney Canada component repairs
Corp for small gas
turbine engines
and auxiliary
power
16-Jan-01 16-Jan-01 Gulfstream BBA Group Plc Aircraft Engines Cash 43.0 * * *
Aerospace And Engine Parts
Corporation -
Engine
Overhaul
Business of
Gulfstream
15-Nov-00 11-Jul-01 Ranger BBA Group PLC Provides ground 141.7 14.7 Cash 154.3 * 10.5x 1.09x
Aerospace and cargo
Corp handling and
refueling
services to
the airline
industry
4-Oct-00 4-Oct-00 Honeywell AAR Corp Provides repair 20.0 Cash * * *
International and distribution
Inc - Hermetic services to the
Aircraft North American
International aviation
Corp aftermarket
24-Jul-00 24-Jul-00 Airborne Triumph Repairs and Cash * * *
Nacelle Group Inc overhauls complex
Services Inc parts for a
broad spectrum of
the aerospace
industry
5-Jun-00 Lynton BBA Group PLC Performs aviation 56.0 2.5 5.4 Cash 81.6 15.0x 32.2x 1.46x
Group Inc sales and
services
24-Apr-00 24-Apr-00 Fort Wayne Air Mercury Air Provides aircraft 3.9 * * *
Service Inc Group Inc maintenance,
repair, and
refueling services
24-Apr-00 24-Apr-00 Consolidated Mercury Air Provides aircraft * * *
Airways Inc Group Inc maintenance,
repair, and
refueling services
10-Jan-00 10-Jan-00 Quantum Honeywell Provides aerospace * * *
Laser Corp International repair services
Inc
----------------------------------------------------------
Min 20.0 2.5 5.4 3.9 8.1x 10.1x 1.09x
Max 141.7 13.8 17.2 154.3 15.0x 32.2x 1.52x
Median 73.7 8.2 14.7 81.6 11.6x 10.5x 1.46x
Mean 77.3 8.2 12.4 84.4 11.6x 17.6x 1.36x
----------------------------------------------------------
Source: Mergerstat
* - Not available or excluded from range
- -------------------------------------------- Houlihan Lokey Howard & Zukin 35
- --------------------------------------------------------------------------------
Discounted Cash Flow Methodology
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Project Sun
- --------------------------------------------------------------------------------
Disounted Cash Flow Methodology
- --------------------------------------------------------------------------------
Discounted Cash Flow Methodology - Modified Management Case /(1)/
(figures in millions)
Projected Fiscal Year Ending December 31,
-----------------------------------------------
2002 2003 2004
-----------------------------------------------
EBIT $ 1.917 $ 5.300 $ 7.000
Less: Taxes 0.767 2.120 2.800
-----------------------------------------------
Debt-Free Earnings $ 1.150 $ 3.180 $ 4.200
Less: Capital Expenditures (3.100) (6.125) (7.910)
Less: Working Capital Requirements (0.801) (1.108) (1.062)
Add: Depreciation and Amortization 3.837 5.066 5.634
-----------------------------------------------
Total Net Investment $(0.064) $(2.166) $(3.338)
-----------------------------------------------
Net Debt-Free Cash Flows: $ 1.086 $ 1.014 $ 0.862
Discount Period 0.42 1.33 2.33
Discount Factor @ 17.0% 0.94 0.81 0.69
-----------------------------------------------
Present Value of Net Debt-Free Cash Flows: $ 1.017 $ 0.822 $ 0.597
Sensitivity Analysis: Enterprise Value
--------------------------------------
Terminal Multiple
Discount -------------------------------------------------------
Rate 5.0 x 6.0 x 7.0 x 8.0 x 9.0 x
-------- ------- ------- ------- ------- -------
15.0% $45.003 $53.506 $62.008 $70.511 $79.014
16.0% $43.947 $52.243 $60.540 $68.837 $77.134
17.0% $42.925 $51.022 $59.120 $67.217 $75.315
18.0% $41.935 $49.840 $57.745 $65.649 $73.554
19.0% $40.978 $48.695 $56.413 $64.131 $71.849
Range of Selected Enterprise Values $51.022 -- $67.217
Less: Total Interest-Bearing Debt, net Cash 70.967 70.967
-------- -------
Total Value of Equity (19.945) -- (3.750)
Less: Value of NOL 4.184 4.184
Less: Option Value - 0.000
-------- -------
Marketable Minority Equity Value Speculative -- 0.434
Price Per Share Speculative -- $ 0.04
- -------------------------------------------------------
DCF Assumptions
- -------------------------------------------------------
Discount Rate 17.0%
Tax Rate 40.0%
- -------------------------------------------------------
- -------------------------------------------------------
Terminal Value Assumptions
- -------------------------------------------------------
Terminal EBITDA (2004) $12.634
Terminal Multiple 7.0 x
-------
Terminal Value $88.439
Discount Period 2.83
Discount Factor @ 17.0% 0.64
-------
PV of Terminal Value $56.683
- -------------------------------------------------------
- -------------------------------------------------------
Distribution of Value
- -------------------------------------------------------
Period Cash Flow 4.1%
Terminal Cash Flow 95.9%
-------
Total 100.0%
- -------------------------------------------------------
- -------------------------------------------------------
Implied Analyses
- -------------------------------------------------------
LTM EBITDA Multiple NMF
NFY EBITDA Multiple NMF
Implied Gordon Growth Rate 15.9%
- -------------------------------------------------------
(1) Modified Management Case represents management's base case expectations
adjusted to reflect less aggressive growth and margin expansion.
- --------------------------------------------- Houlihan Lokey Howard & Zukin 37
- --------------------------------------------------------------------------------
Project Sun
- --------------------------------------------------------------------------------
Discounted Cash Flow Methodology
- --------------------------------------------------------------------------------
Discounted Cash Flow Methodology - Management Case
(figures in millions)
Projected Fiscal Year Ending December 31,
----------------------------------------------
2002 2003 2004
EBIT $ 3.398 $10.415 $13.299
Less: Taxes 1.359 4.166 5.320
----------------------------------------------
Debt-Free Earnings $ 2.039 $ 6.249 $ 7.979
Less: Capital Expenditures (3.100) (6.125) (7.910)
Less: Working Capital Requirements (0.801) (1.108) (1.062)
Add: Depreciation and Amortization 3.837 5.066 5.634
----------------------------------------------
Total Net Investment $(0.064) $(2.166) $(3.338)
----------------------------------------------
Net Debt-Free Cash Flows: $ 1.975 $ 4.083 $ 4.641
Discount Period 0.42 1.33 2.33
Discount Factor @ 20.0% 0.93 0.78 0.65
----------------------------------------------
Present Value of Net Debt-Free Cash Flows: $ 1.830 $ 3.202 $ 3.033
Sensitivity Analysis: Enterprise Value
--------------------------------------
Terminal Multiple
Discount -----------------------------------------------------
Rate 5.0 x 5.5 x 6.0 x 6.5 x 7.0 x
-----------------------------------------------------------------
18.0% $67.500 $73.422 $79.345 $85.268 $91.191
19.0% $65.996 $71.778 $77.561 $83.344 $89.127
20.0% $64.538 $70.186 $75.833 $81.480 $87.128
21.0% $63.126 $68.642 $74.159 $79.675 $85.191
22.0% $61.757 $67.146 $72.535 $77.924 $83.313
Range of Selected Enterprise Values $70.186 -- $81.480
Less: Total Interest-Bearing Debt, net Cash 70.967 70.967
------- -------
Total Value of Equity (0.781) -- 10.513
Add: Value of NOL 4.184 4.184
Less: Option Value 0.008 0.124
------- -------
Marketable Minority Equity Value 3.395 -- 14.573
Price Per Share $0.33 -- $1.43
- ------------------------------------------------------
DCF Assumptions
- -------------------------------------------------------
Discount Rate 20.0%
Tax Rate 40.0%
- -------------------------------------------------------
- -------------------------------------------------------
Terminal Value Assumptions
- -------------------------------------------------------
Terminal EBITDA (2004) $ 18.933
Terminal Multiple 6.0 x
--------
Terminal Value $113.598
Discount Period 2.83
Discount Factor @ 20.0% 0.60
--------
PV of Terminal Value $ 67.768
- -------------------------------------------------------
- -------------------------------------------------------
Distribution of Value
- -------------------------------------------------------
Period Cash Flow 10.6%
Terminal Cash Flow 89.4%
------
Total 100.0%
- -------------------------------------------------------
- -------------------------------------------------------
Implied Analyses
- -------------------------------------------------------
LTM EBITDA Multiple NMF
NFY EBITDA Multiple NMF
Implied Gordon Growth Rate 15.3%
- -------------------------------------------------------
- --------------------------------------------- Houlihan Lokey Howard & Zukin 38
- --------------------------------------------------------------------------------
Project Sun
- --------------------------------------------------------------------------------
Discounted Cash Flow Methodology
- --------------------------------------------------------------------------------
Weighted Average Cost of Capital
(figures in millions)
Market Debt to Preferred to Equity to
Preferred Value of Total Debt to Total Total Total
Debt Stock Equity Capitalization Equity Capitalization Capitalization Capitalization
-------- --------- -------- -------------- ------- -------------- -------------- --------------
Aar Corp $260.9 $0.0 $199.8 $460.7 130.6% 56.6% 0.0% 43.4%
Aviall Inc $133.2 $0.0 $133.2 $266.4 100.0% 50.0% 0.0% 50.0%
First Aviation
Svcs Inc $16.2 $0.0 $33.1 $49.3 48.9% 32.8% 0.0% 67.2%
Mercury Air
Group Inc $68.1 $0.0 $30.4 $98.5 223.8% 69.1% 0.0% 30.9%
Pemco Aviation Inc $15.7 $0.0 $67.6 $83.3 23.2% 18.8% 0.0% 81.2%
Sequa Corp -Cl A $711.3 $4.0 $539.1 $1,254.4 131.9% 56.7% 0.3% 43.0%
BBA Group plc $1,014.0 $84.5 $1,662.0 $2,760.5 61.0% 36.7% 3.1% 60.2%
Vector Aerospace $102.3 $0.0 $71.2 $173.5 143.7% 59.0% 0.0% 41.0%
Hawker Pacific
Aerospace Inc $72.6 $0.0 $21.5 $94.1 336.9% 77.1% 0.0% 22.9%
- ---------------------------------------------------------------------------------------------------------------------------------
Median $102.3 $0.0 $71.2 $173.5 130.6% 56.6% 0.0% 43.4%
Mean $266.0 $9.8 $306.5 $582.3 133.3% 50.8% 0.4% 48.9%
- ---------------------------------------------------------------------------------------------------------------------------------
Decile Adjusted Equity Size
Levered Unlevered Based Unlevered Risk Risk Cost of
Beta Beta Beta Beta Premium (1) Premium (1) Equity
------- --------- ------ --------- ----------- ----------- -------
Aar Corp 0.60 0.34 1.28 0.37 7.8% 1.47% 11.8%
Aviall Inc 1.04 0.65 1.34 0.69 7.8% 1.74% 15.5%
First Aviation Svcs Inc 0.24 0.19 1.42 0.19 7.8% 4.63% 12.2%
Mercury Air Group Inc 0.64 0.27 1.42 0.27 7.8% 4.63% 15.3%
Pemco Aviation Inc 0.12* 0.11* 1.42 0.11* 7.8% 4.63% 11.3%
Sequa Corp -Cl A 0.51 0.28 1.18 0.34 7.8% 1.08% 10.8%
BBA Group plc 1.45 1.06 1.13 1.33 7.8% 0.62% 17.6%
Vector Aerospace 0.11* 0.06* 1.42 0.06* 7.8% 4.63% 11.2%
Hawker Pacific Aerospace Inc 0.44 0.15 1.42 0.15 7.8% 4.63% 13.8%
- ---------------------------------------------------------------------------------------------------------------------------------
Median 0.60 0.28 1.42 0.34 12.2%
Mean 0.70 0.42 1.34 0.48 13.3%
- ---------------------------------------------------------------------------------------------------------------------------------
Footnotes:
- ----------
Source: Compustat
Weighted Average Cost of Capital (WACC) =
(Cost of Debt * (1-Tax Rate) * Debt to Enterprise Value) +
(Cost of Equity * Equity to Enterprise Value) +
(Cost of Preferred * Preferred to Enterprise Value)
Cost of Equity = Risk Free Rate +
(Levered Beta * Equity Risk Premium) + Size Risk Premium
Risk-free rate as of March 1, 2002.
(1) Ibbotson Associates, Stocks Bonds Bills and Inflation 2001 Yearbook,
pp. 134, 136, and 174.
* Excluded from range.
- --------------------------------------------- Houlihan Lokey Howard & Zukin 39
- --------------------------------------------------------------------------------
Delisting Risk
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Project Sun
- --------------------------------------------------------------------------------
Delisting Risk
- --------------------------------------------------------------------------------
The Issue - Potential Delisting of HPAC
HPAC received a letter dated February 14, 2001 from the NASDAQ warning of the
potential delisting of HPAC's publicly traded common shares if HPAC does not
meet the current listing requirements by May 15, 2002. NASDAQ requires all
companies that wish to be listed on the exchange to meet the following criteria:
i) minimum bid price of three dollars per share, ii) minimum float of three
million shares, iii) minimum float dollars of $15 million, and iv) net tangible
assets of at least four million dollars. Currently, the net tangible assets of
HPAC do not meet the minimum requirements of NASDAQ. Also, without LHT's
announced tender offer, it is reasonable to expect HPAC stock price to fall to
its pre announcement price, below the three dollar per share threshold. As such,
HPAC could potentially be delisted by May 2002. The delisting of HPAC would have
a negative impact on the market value of the Company shares.
Effects of Being Delisted
"If your company's stock is being traded on OTC, it means you probably won't be
able to attract institutional investors...Institutional investors also pull more
than their investment dollars - they take their analysts with them, making it
much harder for companies to generate any kind of buzz about their stock." -
Mike Hutchings, Attorney, Gray Cary.
"In general, if a stock does get delisted, it's not good news for anybody still
holding the shares." -Jay Ritter, finance professor at the University of
Florida.
"Dropping off the NASDAQ means you essentially drop off everybody's radar
screen," - Bill Whitlow, manager of more than $200 million in two mutual funds
for Seattle-based Safeco Corp.
"There are not the same market makers. There's not the same liquidity." -
Richard Rosenblatt, Chief Executive of DrKoop.com
- --------------------------------------------- Houlihan Lokey Howard & Zukin 41
- --------------------------------------------------------------------------------
Project Sun
- --------------------------------------------------------------------------------
Delisting Risk
- --------------------------------------------------------------------------------
Effects of Being Delisted (Continued)
. Some institutions, such as mutual funds or large investments firms, don't
invest in OTC companies. Without institutional investors companies have a
much harder time selling their stocks.
. Not being able to sell a stock can also make it harder to retain employees,
since stock options make up a significant portion of many compensation
packages.
. Companies that are delisted by the NASDAQ national market have a number of
options, few of them good:
- Companies can join the OTC Bulletin Board, a lesser exchange set up by
the National Association of Securities Dealers, where penny stocks
abound. Failing that, they can fall to the Pink Sheets, a thinly traded
exchange where share prices are quoted on printed, pink sheets
distributed among certain Wall Street firms.
- The reverse stock split is the most immediate method to fight
delisting, although it reduces a company's public float. It is rare for
delisted companies to reapply for NASDAQ listing.
- Another strategy to avoid delisting is for a company to buy back its
shares in the market, hoping to shore up the price. But that assumes
the registrant has substantial cash levels to initiate the buyback. If
that cash is spent buying back shares, it is not available to pay
employees, develop new products, pay salespeople or keep the business
running.
. Avoiding delisting does not just mean temporarily meet the minimal NASDAQ
requirements. In a hearing, the NASDAQ officials want to establish that the
company has a viable business plan, with enough financial resources in
place that it won't collapse, and that it trades actively enough so that
the stock won't be vulnerable to manipulation.
. A company's share value declines further when the stock is delisted, as
liquidity is reduced and trading costs increase. Share values drop an
average 55 percent when it begins trading after a delisting from the
NASDAQ, according to Tyler Shumway, a finance professor at the University
of Michigan who studied the delistings between 1978 and 1995, before NASDAQ
tightened its listing standards. One reason the drop is so significant, he
states, is that delistings often have coincided with bankruptcy filings by
companies that never trade again.
- --------------------------------------------- Houlihan Lokey Howard & Zukin 42
- --------------------------------------------------------------------------------
Project Sun
- --------------------------------------------------------------------------------
Delisting Risk
- --------------------------------------------------------------------------------
Effects of Being Delisted (Continued)
. Companies that remain in business can experience sharp drops in their
share value. Wavo Corp., a digital media company, dropped 43 percent to
12.5 cents on its first day on the OTC Bulletin Board. Shares of Source
Media Inc., an interactive advertising company, sank 27 percent to 50
cents a share on the day the company was delisted from NASDAQ.
. Companies facing delisting can request a hearing and then try to persuade
NASDAQ that they have a viable business plan already in place and
sufficient trading activity.
. With thin trading volume, bid-ask spreads -- the difference between the
price at which traders are offering to sell a stock and the price at which
they are willing to buy it -- can double, says Paul Seguin, a finance
professor at the University of Minnesota's Carlson School of Management.
Another woe for investors: "A lot of databases don't cover Bulletin Board
stocks," says Georgetown University finance professor James Angel. Nor do
most analysts cover them.
. Delisted stocks are also more vulnerable to market manipulation, both
because regulators give them less scrutiny and because it takes less cash
to move their prices. Manipulation is "absolutely" a worry, says Mr. Spohn
of PopMail.com. "But it's sometimes very difficult to identify if somebody
is manipulating your stock. You don't know who is buying and who is
selling."
. To regain a NASDAQ listing once lost, companies must have a bid price of
at least $5 a share.
- --------------------------------------------- Houlihan Lokey Howard & Zukin 43
- --------------------------------------------------------------------------------
Potential Alternatives Summary
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Project Sun
- --------------------------------------------------------------------------------
Potential Alternatives Summary
- --------------------------------------------------------------------------------
Status Quo
. Should the transaction not occur, and HPAC continues its normal course of
business, or the "status quo" scenario, HPAC would not meet the net
tangible asset requirement in order to remain listed on the NASDAQ, by end
of May 2002. Further, assuming LHT is amenable converting debt to equity,
the Company would meet NASDAQ minimum listing requirements only through
November 2002, at which time the increased minimum net tangible asset
requirement would force the Company to be in violation of the NASDAQ rules.
Strategic Alliance
. Sale of Minority Interest to a Strategic Investor - HPAC could pursue an
alliance with a new strategic partner. However, on February 25, 2002, LHT
announced it intention to repurchase shares of HPAC in a cash tender offer,
and since that date, there has been no apparent interest by any other
entity. Given LHT's significant ownership interest in HPAC, a strategic
equity investor would not have the opportunity to gain control of the
Company. Also, a strategic investor seeking to have access the LHT parent,
Deutsche Lufthansa AG, for strategic alliance purposes would not use the
purchase of minority interest in a non-material entity controlled by one of
Deutsche Lufthansa AG's wholly owned subsidiaries such as LHT.
Financial Investor
. Sale of Minority Interest to Financial Investor - HPAC's Fiscal Year Ending
December 31, 2002 budget demonstrates a "break-even" scenario, referred to
as a "Black-Zero" by LHT, whereby the Company will attain a net income
level slightly above zero. A financial investor would seek significantly
higher operating profitability levels than what HPAC is budgeting for
fiscal year 2000 through 2005. Further, a financial investor would be
concerned with an exit event, which is undefined at the moment. As such,
HPAC would have difficulty in attracting a financial investor.
- --------------------------------------------- Houlihan Lokey Howard & Zukin 45
- --------------------------------------------------------------------------------
Exhibits
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Synopses of Comparable Companies
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Project Sun
- --------------------------------------------------------------------------------
Synopses of Comparable Companies
- --------------------------------------------------------------------------------
AAR Corp.
AAR CORP. (AIR) supplies aftermarket products and services to the global
aviation/aerospace industry. AIR reports its activities in one business segment:
Aviation Services. Three classes of similar products and services are included
within this segment: Aircraft and Engines, Airframe and Accessories and
Manufacturing.
====================================================================
AAR CORP.
DAILY PRICE/VOLUME GRAPH
====================================================================
[STOCK PRICE AND TRADING VOLUME GRAPH APPEARS HERE]
====================================================================
AIR's Aircraft and Engines activities include the purchase, sale and lease of
used commercial jet aircraft; the purchase, sale and lease of a wide variety of
new, overhauled and repaired engines and engine products for the aviation
aftermarket, including a broad range of spare engines and engine parts and other
engine components and accessories; and the overhaul, repair and exchange of a
wide range of engine parts and components and other engine support services for
its commercial and military customers. AIR also provides customized inventory
supply and management programs for engine parts and components in support of
customer maintenance activities. The company also provides turbine engine
overhaul and parts supply services to industrial gas and steam turbine
operators.
AIR's Airframe and Accessories activities consist of the purchase, sale and
lease of new, overhauled and repaired airframe parts and accessories for the
aviation aftermarket; and the overhaul, repair and exchange of a wide variety of
airframe and accessory parts and components for its commercial, military and
general aviation customers. The company also provides customized inventory
supply and management programs for certain airframe parts and components in
support of customer maintenance activities. AIR is also an authorized
distributor for more than 150 leading aviation/aerospace product manufacturers.
- -------------------------------------------- Houlihan Lokey Howard & Zukin 48
- --------------------------------------------------------------------------------
Project Sun
- --------------------------------------------------------------------------------
Synopses of Comparable Companies
- --------------------------------------------------------------------------------
Aviall, Inc.
Aviall, Inc. (AVL), a subsidiary of Ryder System, Inc. prior to its spinoff in
December 1993, is an independent global distributor of new aviation parts and
supplies. It also provides on-line inventory information services to the
aviation and marine industries through wholly owned Inventory Locator Service
(ILS).
================================================================================
AVIALL, INC.
DAILY PRICE/VOLUME GRAPH
[STOCK PRICE AND TRADING VOLUME GRAPH APPEARS HERE]
================================================================================
The company believes it is the largest independent global distributor of
aircraft parts and supplies, serving both the commercial and general aviation
after-markets by providing a link between parts manufacturers, sellers and
buyers throughout the world. AVL develops relationships with suppliers who seek
advanced inventory management, order processing, forecasting and direct
electronic communications with end users. Product lines distributed include
piston engines and parts, a variety of airframe spares (oxygen systems, filters,
control cables, batteries, actuators and motors), undercarriage items (wheels,
brakes and tires) and supplies. Parts are distributed from customer service
centers located throughout the world, including North America, Europe and the
Asia-Pacific region. AVL has approximately 16,500 customers, to which it sells
about 65,500 unique parts. The company is an authorized distributor for
manufacturers such as BFGoodrich, Scott Aviation, Telair International, Lord
Corp., Federal Mogul Aviation, Textron Lycoming and Honeywell, and in January
2000, under a ten-year agreement, became the exclusive distributor of the Rolls
Royce model 250 turbine engine line.
- -------------------------------------------- Houlihan Lokey Howard & Zukin 49
- --------------------------------------------------------------------------------
Project Sun
- --------------------------------------------------------------------------------
Synopses of Comparable Companies
- --------------------------------------------------------------------------------
First Aviation Services Inc.
First Aviation Services Inc. (FAVS) supplies aircraft parts and components to
the aviation industry worldwide, and provides the aerospace industry with third
party logistics and inventory management services. Customers include original
equipment manufacturers, passenger and cargo airlines, fleet operators,
corporate aircraft operators, fixed base operators, certified repair facilities,
governments and military services.
================================================================================
FIRST AVIATION SERVICES INC.
DAILY PRICE/VOLUME GRAPH
[STOCK PRICE AND TRADING VOLUME GRAPH APPEARS HERE]
================================================================================
The company represents more than 150 manufacturers and distributes approximately
80,000 new and factory reconditioned parts and components, selling to
professional aircraft maintenance organizations, aircraft operators, including
fleet operators and airlines, and FBOs. The parts are approved by the Federal
Aviation Administration (FAA) and are acquired from small, specialized
manufacturers as well as major original equipment manufacturers such as Goodyear
Tire and Rubber, Michelin Aircraft Tire, Federal Mogul, B.F. Goodrich Aerospace,
General Electric Lighting, Teledyne Continental Motors, Parker Hannifin,
Marathon Power Technologies, Barry Controls, The New Piper Aircraft, Inc. and
Cessna Aircraft Co. Most of these suppliers are committed to servicing
aftermarket customers solely through wholesale distributors such as API.
Distributors add value to commonly available products by offering immediate
availability, broad product lines, technical assistance and other value added
services, such as logistics and inventory management services. API does not have
any long-term agreements or commitments from the original equipment
manufacturers from whom it purchases parts and is dependent upon these
manufacturers for access to parts for resale.
- -------------------------------------------- Houlihan Lokey Howard & Zukin 50
- --------------------------------------------------------------------------------
Project Sun
- --------------------------------------------------------------------------------
Synopses of Comparable Companies
- --------------------------------------------------------------------------------
Mercury Air Group, Inc.
Mercury Air Group, Inc. (MAX) provides services to the aviation industry through
four principal operating units: fuel sales, cargo operations, fixed base
operations and United States government contract services.
================================================================================
MERCURY AIR GROUP, INC.
DAILY PRICE/VOLUME GRAPH
[STOCK PRICE AND TRADING VOLUME GRAPH APPEARS HERE]
================================================================================
Fuel sales include the sale of fuel and delivery of fuel primarily to domestic
and international commercial airlines, business aviation and air freight
airlines. The fuel sales division facilitates the management and distribution of
aviation fuel for Mercury's airline customers which the major suppliers
typically do not service. In this way, MAX serves as a reseller from major oil
companies to air carriers, affording oil companies access to these carriers
without their assumption of the credit risk for these fuel purchases. The
company competes based on quality of its service and by offering a combination
of favorable pricing and credit terms, and a real time analysis of the
availability, quantity and price of fuel in airports and terminals worldwide.
Mercury's revenue from fuel sales and services as a percentage of revenue
comprised 66.6 percent of total revenue in fiscal year 2001 (June).
Cargo operations consist of cargo handling, space logistics operations and
general cargo sales agent services. The company's cargo operations are conducted
through its subsidiary, Mercury Air Cargo, Inc., which provides domestic and
international air cargo handling, airmail handling and bonded warehousing. Cargo
operations comprised 6.6 percent of total revenue for fiscal year 2001.
- -------------------------------------------- Houlihan Lokey Howard & Zukin 51
- --------------------------------------------------------------------------------
Project Sun
- --------------------------------------------------------------------------------
Synopses of Comparable Companies
- --------------------------------------------------------------------------------
Pemco Aviation Group Inc.
A diversified aviation and aerospace company, Pemco Aviation Group Inc. (PAGI)
is engaged mainly in providing aircraft maintenance and modification services,
including complete airframe inspection, maintenance, repair and custom airframe
design and modification.
================================================================================
PEMCO AVIATION GROUP INC.
DAILY PRICE/VOLUME GRAPH
[STOCK PRICE AND TRADING VOLUME GRAPH APPEARS HERE]
================================================================================
The company provides these services for government and military customers
primarily through its Government Services Group (which accounted for 64 percent
of revenues and 84 percent of profits in 2000), which specializes in providing
Programmed Depot Maintenance (PDM) on large transport aircraft. In addition to
PDM, various other repair, maintenance and modification services are performed
for PAGI's customers. The Government Services Group's contracts are
multi-aircraft programs generally lasting several years. The company believes
its facilities, tooling, experienced labor force, quality and on time delivery
record position it as one of the premier United States providers of PDM for
large transport aircraft.
PAGI's Commercial Services Group (25 percent of 2000 revenues, 8 percent of
profit) provides commercial aircraft maintenance and modification services on a
contract basis to the owners and operators of large commercial aircraft. The
company provides commercial aircraft maintenance varying in scope from a single
aircraft serviced over a few days to multi-aircraft programs lasting several
years. PAGI can offer full range maintenance support services to airlines,
coupled with related technical services required by these customers.
The company also has broad experience in modifying commercial aircraft and
providing value-added technical solutions and holds numerous proprietary
Supplemental Type Certificates. The company has performed more than 250 cargo
conversions of narrow and wide-body commercial aircraft.
- -------------------------------------------- Houlihan Lokey Howard & Zukin 52
- --------------------------------------------------------------------------------
Project Sun
- --------------------------------------------------------------------------------
Synopses of Comparable Companies
- --------------------------------------------------------------------------------
Sequa Corp.
Sequa Corp. (SQA) is a diversified industrial company that produces a broad
range of products through operating units in five segments: Aerospace,
Propulsion, Metal Coating, Specialty Chemicals and Other Products.
================================================================================
SEQUA CORP.
DAILY PRICE/VOLUME GRAPH
[STOCK PRICE AND TRADING VOLUME GRAPH APPEARS HERE]
================================================================================
The Aerospace segment consists solely of the company's largest operating unit,
Chromalloy Gas Turbine, which repairs and manufactures components for jet
aircraft engines. A major independent supplier in the repair market, Gas Turbine
provides domestic and international airlines with technologically advanced
repairs and coatings for turbine airfoils and other critical engine components.
In addition, the unit repairs components for land-based turbine engines. It also
supplies components to the manufacturers of jet engines and serves both the
general aviation and military markets.
The Propulsion segment consists solely of Atlantic Research Corp. (ARC), a
supplier of solid rocket fuel propulsion systems. ARC is a developer and
manufacturer of advanced rocket propulsion systems, gas generators and auxiliary
rocket motors, and engages in research and development relating to new rocket
propellants and advanced engineered materials. For the military contract market,
ARC produces propulsion systems primarily for tactical weapons. For space
applications, ARC produces small liquid fuel rocket engines designed to provide
attitude and orbit control for a number of satellite systems worldwide.
The Metal Coating segment consists solely of Precoat Metals, which deals with
the application of protective and decorative coatings to continuous steel and
aluminum coils. Precoat's principal market is the building products industry,
where coated steel is used for the construction of pre-engineered building
systems, and as components in the industrial, commercial, agricultural and
residential sectors.
- -------------------------------------------- Houlihan Lokey Howard & Zukin 53
- --------------------------------------------------------------------------------
Project Sun
- --------------------------------------------------------------------------------
Synopses of Comparable Companies
- --------------------------------------------------------------------------------
BBA Group PLC.
BBA Group PLC. Aviation services and materials technology businesses.
The aviation services operates in the United States and in Europe by providing
fuelling, engine and landing gear overhaul, repair and maintenance, cargo
handling, trip planning, and pilot training.
Materials technology operates in such countries as Brazil, Canada, China, Hong
Kong, Mexico, South Africa, United States, and in Europe by providing non-woven
materials for the hygiene and industrial sector.
Aviation accounted for 52 percent of 2000 revenues and material technology 48
percent.
================================================================================
BBA GROUP PLC.
DAILY PRICE/VOLUME GRAPH
[STOCK PRICE AND TRADING VOLUME GRAPH APPEARS HERE]
================================================================================
- -------------------------------------------- Houlihan Lokey Howard & Zukin 54
- --------------------------------------------------------------------------------
Project Sun
- --------------------------------------------------------------------------------
Synopses of Comparable Companies
- --------------------------------------------------------------------------------
Vector Aerospace Corp.
Vector Aerospace Corporation. Provides aviation repair and overhaul services of
gas turbine engines, components and helicopter airframes.
Through facilities in Canada, the United States and the United Kingdom, it
provides services to commercial and military customers internationally.
Services include the repair and overhaul of turbine engines including turboprop
and turbofan engines for airplanes and turboshaft engines for helicopters.
Vector Aerospace also services dynamic components, accessories, blades,
propellers and airframes for both helicopters and airplanes. It has also
developed specialized avionics and information technology services.
================================================================================
VECTOR AEROSPACE CORP.
DAILY PRICE/VOLUME GRAPH
[STOCK PRICE AND TRADING VOLUME GRAPH APPEARS HERE]
================================================================================
- -------------------------------------------- Houlihan Lokey Howard & Zukin 55
- --------------------------------------------------------------------------------
Supplemental Valuation Schedules
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Project Sun
- --------------------------------------------------------------------------------
Supplemental Valuation Schedules
- --------------------------------------------------------------------------------
Comparable Company Market Analysis
(figures in millions, except per share values)
First Mercury Pemco
Aviation Air Aviation Sequa Corp
Aar Corp Aviall Inc Svcs Inc Group Inc Inc -Cl A
-------- ---------- -------- --------- -------- ----------
General Market Information
- --------------------------
Ticker Symbol AIR AVL FAVS MAX PAGI SQA A
Exchange NYSE NYSE NASDAQ AMEX NASDAQ NYSE
Fiscal Year End 05/2001 12/2000 01/2001 06/2001 12/2000 12/2000
Latest Financial Information 11/2001 09/2001 10/2001 12/2001 09/2001 09/2001
Closing Price as of Valuation Date $7.44 $7.10 $4.60 $4.50 $15.75 $49.31
20-Day Average Stock Price $7.79 $7.05 $4.71 $5.10 $15.54 $47.15
52 Week Price Range
High $17.45 $11.25 $5.48 $7.50 $18.00 $54.22
Low $6.96 $4.52 $4.00 $3.10 $8.13 $37.64
52 Week Return -46.5% -3.0% 4.4% -21.1% 51.8% 12.2%
Market Valuation Information
- ----------------------------
Fully Diluted Shares 26.859 18.758 7.204 6.758 4.295 10.932
Closing Price as of Valuation Date $7.44 $7.10 $4.60 $4.50 $15.75 $49.31
Market Value of Equity (MVE) $199.832 $133.183 $33.138 $30.413 $67.645 $539.075
plus: Total Debt (book) 260.895 133.183 16.204 68.063 15.686 711.301
plus: Preferred Stock Redemption/Market/Liq. Value 0.000 0.000 0.000 0.000 0.000 3.985
less: Cash & Cash Equivalents (book) 53.129 2.542 28.622 3.215 1.985 139.108
plus: Minority Interest in Subsidiaries 0.000 0.000 1.041 0.000 0.000 0.000
-------------------------------------------------------------------------
Enterprise Value $407.598 $263.824 $21.761 $95.261 $81.346 $1,115.253
=========================================================================
BBA Vector Hawker Pacific
Group plc Aerospace Aerospace Inc
--------- --------- -------------
General Market Information
--------------------------
Ticker Symbol BBA *RNO HPAC
Exchange London Toronto NASDAQ
Fiscal Year End 12/2000 12/2001 12/01/01
Latest Financial Information 06/01/01 12/2001 12/01/01
Closing Price as of Valuation Date $3.66 $2.51 $2.12
20-Day Average Stock Price $3.68 $2.61 $2.60
52 Week Price Range
High $5.40 $4.45 $4.20
Low $2.48 $2.41 $1.50
52 Week Return 30.5% -7.0% -37.5%
Market Valuation Information
----------------------------
Fully Diluted Shares 454.100 28.398 10.161
Closing Price as of Valuation Date $3.66 $2.51 $2.12
Market Value of Equity (MVE) $1,662.006 $71.223 $21.541
plus: Total Debt (book) 1,014.000 102.316 72.571
plus: Preferred Stock Redemption/Market/Liq. Value 84.450 0.000 0.000
less: Cash & Cash Equivalents (book) 140.250 0.000 1.604
plus: Minority Interest in Subsidiaries 2.100 0.000 0.000
-----------------------------------
Enterprise Value $2,622.306 $173.539 $92.508
===================================
Note: HPAC stock price at closing on February 25, 2002.
- --------------------------------------------- Houlihan Lokey Howard & Zukin 57
- --------------------------------------------------------------------------------
Project Sun
- --------------------------------------------------------------------------------
Supplemental Valuation Schedules
- --------------------------------------------------------------------------------
Balance Sheet Statistics
(figures in millions)
Net Net Net Other
Total Income Income Current Quick Inventory A/R A/P Working LT
Assets ROA ROE Ratio Ratio Turnover Days Days Capital Liab/EV
---------- ------ ------ ------- ----- --------- ---- ---- -------- -------
Aar Corp $ 714.208 1.6% -13.7% 2.6 0.7 2.1 49.1 46.7 $306.151 13.8%
Aviall Inc $ 440.206 3.1% 6.5% 2.7 0.9 2.8 57.1 48.3 $175.275 6.2%
First Aviation Svcs Inc $ 80.877 0.2% -1.7% 4.7 2.9 3.8 56.6 50.5 $28.278 0.0%
Mercury Air Group Inc $ 133.308 2.8% 5.6% 1.5 1.3 104.3 45.3 26.2 $22.502 0.4%
Pemco Aviation Inc $ 66.461 15.7% 71.8% 1.1 0.5 6.8 38.4 48.5 $12.202 3.2%
Sequa Corp -Cl A $1,864.956 2.5% 6.1% 2.6 1.1 3.9 46.1 37.3 $386.860 11.3%
BBA Group plc $2,792.250 7.6% 24.9% 1.9 0.3 NMF NA NA $511.200 3.8%
Vector Aerospace $ 240.263 1.4% -21.2% 1.7 0.5 1.7 67.3 81.7 $106.523 6.6%
Hawker Pacific Aerospace Inc $ 94.486 -9.8% -182.6% 1.9 0.6 2.7 71.0 57.3 $22.325 1.3%
- ------------------------------------------------------------------------------------------------------------------------
Low $ 66.461 -9.8% -182.6% 1.1 0.3 1.7 38.4 26.2 $12.202 0.0%
High $2,792.250 15.7% 71.8% 4.7 2.9 104.3 71.0 81.7 $511.200 13.8%
Median $ 240.263 2.5% 5.6% 1.9 0.7 3.3 52.9 48.4 $106.523 3.8%
Mean $ 714.113 2.8% -11.6% 2.3 1.0 16.0 53.9 49.6 $174.591 5.2%
- ------------------------------------------------------------------------------------------------------------------------
Leverage
--------------------------------------
Debt/ Debt/ Debt/ Interest
EBITDA MVE/(1)/ EV Coverage/(2)/
------ -------- ----- -------------
Aar Corp 5.4 x 130.6% 0.6 x 2.3 x
Aviall Inc 3.2 x 100.0% 0.5 x 4.3 x
First Aviation Svcs Inc 11.8 x 48.9% 0.7 x 2.6 x
Mercury Air Group Inc 2.9 x 223.8% 0.7 x 3.7 x
Pemco Aviation Inc 0.9 x 23.2% 0.2 x 8.0 x
Sequa Corp -Cl A 4.0 x 131.9% 0.6 x 3.2 x
BBA Group plc 2.6 x 61.0% 0.4 x 8.8 x
Vector Aerospace 3.7 x 143.7% 0.6 x 3.4 x
Hawker Pacific Aerospace Inc 85.4 x 336.9% 0.8 x 0.1 x
- --------------------------------------------------------------------------
Low 0.9 x 23.2% 0.2 x 0.1 x
High 85.4 x 336.9% 0.8 x 8.8 x
Median 3.7 x 130.6% 0.6 x 3.4 x
Mean 13.3 x 133.3% 0.6 x 4.1 x
- --------------------------------------------------------------------------
Footnotes:
- ---------
* Excluded from the Range
Source: Compustat
NA - Not Available
NMF - Not Meaningful Figure
EV - Enterprise Value
MVE - Market Value of Equity
EBIT - Earnings Before Interest and Taxes
EBITDA - Earnings Before Interest, Taxes, Depreciation and Amortization
ROA - Return on Assets
ROE - Return on Equity
A/R - Accounts Receivable
A/P - Accounts Payable
(1) Represents Total Interest-Bearing Debt to Market Value of Equity.
(2) Represents EBITDA to Net Interest Expense.
- --------------------------------------------- Houlihan Lokey Howard & Zukin 58