EXHIBIT 99.1(b)
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Combined Financial Statements
have been prepared to reflect the Mergers, the Refinancing (assuming that (i)
100% of the FNH Notes are acquired in connection with the Refinancing, and (ii)
all outstanding shares of Cal Fed Preferred Stock are acquired in connection
with the Refinancing or are subsequently redeemed by Cal Fed), the RedFed
Merger and the CENFED Merger. The Mergers, the RedFed Merger and the CENFED
Merger will each be accounted for as a purchase. The recorded assets,
liabilities and other items of RedFed will be recorded in Glendale Federal's
consolidated financial statements at their estimated fair value at the closing
date of the RedFed Merger. Glendale Federal's assets, liabilities and other
items will be adjusted to their estimated fair value at the closing date of the
Mergers and combined with the historical book values of the assets and
liabilities of FNH Holdings. Applicable income tax effects of such adjustments
are included as a component of the combined entity's deferred tax asset or
liability. The difference between the estimated fair value of the assets,
liabilities and other items, adjusted as discussed above, and the purchase
price, is recorded as goodwill.
The Unaudited Pro Forma Condensed Combined Financial Statements reflect
preliminary purchase accounting adjustments in compliance with generally
accepted accounting principles. Estimates relating to the fair value of certain
assets, liabilities, and other events requiring recognition have been made as
more fully described in the Notes to the Unaudited Pro Forma Condensed Combined
Financial Statements. Actual adjustments will be made on the basis of actual
assets, liabilities and other items as of the respective closing dates of the
Mergers and the RedFed Merger on the basis of appraisals and evaluations and,
therefore, actual fair value amounts are expected to differ from those
reflected in the Unaudited Pro Forma Condensed Combined Financial Statements.
The Unaudited Pro Forma Condensed Combined Statement of Financial
Condition assumes that each of the proposed mergers and the Refinancing were
consummated on June 30, 1998. However, for purposes of computing the purchase
price, the daily volume weighted average price of Golden State common stock and
the Litigation Tracking Warrants (Trade Mark) for the three days ended
September 10, 1998 was used, as such prices are considered to provide more
relevant information to investors. See Note B. The Unaudited Pro Forma
Condensed Combined Statements of Operations for the six months ended June 30,
1998 and for the year ended December 31, 1997 assume that each of the proposed
mergers and the Refinancing were consummated on January 1, 1997. For purposes
of pro forma presentation, Glendale Federal's consolidated statements of
operations have been recast to conform to the calendar year end used by FNH.
The Unaudited Pro Forma Condensed Combined Financial Statements should be
read in conjunction with the consolidated historical financial statements and
the related notes thereto of Glendale Federal and FNH, which are included or
incorporated by reference herein.
The Unaudited Pro Forma Condensed Combined Financial Statements presented
are not necessarily indicative of the combined financial condition or results
of the future operations of the combined entity or the actual results that
would have been achieved had the proposed mergers been consummated prior to the
periods indicated.
All terms used but not defined elsewhere herein have meanings ascribed to
them in Golden State's Proxy Statement dated July 15, 1998 for its special
meeting of stockholders on August 17, 1998.
GOLDEN STATE HOLDINGS
UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF FINANCIAL CONDITION
AS OF JUNE 30, 1998
(IN THOUSANDS)
GLENDALE
FNH FEDERAL
(HISTORICAL) (HISTORICAL) REDFED(1)
-------------- -------------- -------------
ASSETS
Cash and amounts due
from banks ................... $ 345,921 $ 289,978 $ 71,197
Federal funds sold and
assets purchased under
resale agreements ............ -- 172,000 --
Other investments ............. 879,071 128,308 7,997
Loans receivable, net ......... 20,351,922 13,774,580 910,718
Mortgage-backed
securities, net .............. 9,180,282 2,375,363 10,242
Real estate held for sale
or investment ................ -- 6,327 --
Real estate acquired in
settlement of loans .......... 64,892 37,393 6,716
Investment in capital stock
of FHLB, at cost ............. 540,127 300,339 9,734
Mortgage servicing assets ..... 669,056 243,314 --
Goodwill and other
intangible assets ............ 656,177 180,463 48,767
Other assets .................. 1,348,509 587,331 28,054
----------- ----------- ----------
$34,035,957 $18,095,396 $1,093,425
=========== =========== ==========
LIABILITIES, MINORITY
INTEREST AND
STOCKHOLDERS' EQUITY
Deposits ...................... $16,044,288 $10,701,157 $ 864,861
Securities sold under
agreements to
repurchase ................... 2,861,604 175,551 --
Borrowings from the
FHLB ......................... 10,993,707 5,613,458 70,079
Other borrowings .............. 1,282,580 70 8,693
Other liabilities ............. 729,131 326,761 1,226
Minority interest ............. 986,296 -- --
Stockholders' equity .......... 1,138,351 1,278,399 148,566
----------- ----------- ----------
$34,035,957 $18,095,396 $1,093,425
=========== =========== ==========
PRO FORMA REFINANCING
ADJUSTMENTS BEFORE ADJUSTMENTS PRO FORMA
(NOTE D) REFINANCING (NOTE G) COMBINED
------------- ------------- ------------- --------------
ASSETS
Cash and amounts due
from banks ................... $ -- $ 707,096 $ (45,002) $ 662,094
Federal funds sold and
assets purchased under
resale agreements ............ -- 172,000 -- 172,000
Other investments ............. -- 1,015,376 -- 1,015,376
Loans receivable, net ......... 6,807 35,044,027 -- 35,044,027
Mortgage-backed
securities, net .............. 6,962 11,572,849 -- 11,572,849
Real estate held for sale
or investment ................ -- 6,327 -- 6,327
Real estate acquired in
settlement of loans .......... -- 109,001 -- 109,001
Investment in capital stock
of FHLB, at cost ............. -- 850,200 -- 850,200
Mortgage servicing assets ..... 54,243 966,613 -- 966,613
Goodwill and other
intangible assets ............ 61,875 947,282 -- 947,282
Other assets .................. 184,446 2,148,340 (28,847) 2,158,076
28,625
9,958
----------- ----------- ---------- -----------
$ 314,333 $53,539,111 $ (35,266) $53,503,845
=========== =========== ========== ===========
LIABILITIES, MINORITY
INTEREST AND
STOCKHOLDERS' EQUITY
Deposits ...................... $ 2,588 $27,612,894 $ -- $27,612,894
Securities sold under
agreements to
repurchase ................... -- 3,037,155 -- 3,037,155
Borrowings from the
FHLB ......................... 1,194 16,678,438 -- 16,678,438
Other borrowings .............. 993 1,292,336 (915,000) 2,371,255
2,000,000
(6,081)
Other liabilities ............. 563,578 1,620,696 (12,159) 1,621,765
13,228
Minority interest ............. -- 986,296 (486,458) 499,838
Stockholders' equity .......... (254,020) 2,311,296 (134,600) 1,682,500
(494,196)
----------- ----------- ---------- -----------
$ 314,333 $53,539,111 $ (35,266) $53,503,845
=========== =========== ========== ===========
- - ----------
(1) Represents the RedFed Merger, accounted for as a purchase, together with
related pro forma purchase accounting adjustments.
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
2
GOLDEN STATE HOLDINGS
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
GLENDALE
FNH FEDERAL CENFED
(HISTORICAL) (HISTORICAL) AND REDFED(1)
-------------- -------------- ---------------
Interest income ................ $1,091,523 $581,626 $85,568
Interest expense ............... 752,596 353,826 49,745
Net interest income ............ 338,927 227,800 35,823
Provision for loan losses ...... 20,000 (3,721) 804
---------- -------- -------
Net interest income after
provision for loan losses ..... 318,927 231,521 35,019
Other income:
Fee income ..................... 71,363 48,357 5,002
Gain on sale of loans, net ..... 36,124 796 --
Gain on sale of
mortgage-backed
securities, net ............... -- 4,430 725
Other income, net .............. 62,685 209 158
---------- -------- -------
Total other income ............ 170,172 53,792 5,885
Other expenses:
Compensation and
employee benefits ............. 127,620 70,449 18,333
Occupancy expense, net ......... 41,406 16,887 2,606
Regulatory insurance ........... 5,054 4,015 586
Advertising and promotion 9,914 10,434 385
Furniture, fixtures and
equipment ..................... -- 8,109 --
Other general and
administrative expenses ....... 99,611 40,288 8,518
Total general and
administrative
expenses ..................... 283,605 150,182 30,428
Restructuring charges .......... -- 4,452 3,761
Legal expense--goodwill
lawsuit ....................... -- 9,068 --
Operations of real estate
held for sale or
investment .................... -- 46 --
Operations of real estate
acquired in settlement of
loans ......................... (5,138) (4,329) 2,415
Amortization of goodwill
and other intangible
assets ........................ 23,229 5,052 4,880
---------- -------- -------
Total other expenses .......... 301,696 164,471 41,484
Earnings before income tax
provision (benefit) ........... 187,403 120,842 (580)
Income tax provision
(benefit) ..................... (221,134) 49,195 (120)
---------- -------- -------
Earnings before minority
interest ...................... 408,537 71,647 (460)
Minority interest .............. 45,614 -- --
---------- -------- -------
Net earnings ................... $ 362,923 $ 71,647 $ (460)
========== ======== =======
PRO FORMA REFINANCING
ADJUSTMENTS BEFORE ADJUSTMENTS PRO FORMA
(NOTE D) REFINANCING (NOTE G) COMBINED
----------------- ------------- ------------------- -----------------
Interest income ................ $ (5,129) $1,753,588 $ (1,238) $1,752,350
Interest expense ............... (1,616) 1,154,551 (49,185) 1,176,639
70,455
818
-----------
Net interest income ............ (3,513) 599,037 (23,326) 575,711
Provision for loan losses ...... -- 17,083 -- 17,083
---------- ---------- ----------- ----------
Net interest income after
provision for loan losses ..... (3,513) 581,954 (23,326) 558,628
Other income:
Fee income ..................... (4,068) 120,654 -- 120,654
Gain on sale of loans, net ..... -- 36,920 -- 36,920
Gain on sale of
mortgage-backed
securities, net ............... -- 5,155 -- 5,155
Other income, net .............. -- 63,052 -- 63,052
---------- ---------- ----------- ----------
Total other income ............ (4,068) 225,781 -- 225,781
Other expenses:
Compensation and
employee benefits ............. -- 216,402 -- 216,402
Occupancy expense, net ......... -- 60,899 -- 60,899
Regulatory insurance ........... -- 9,655 -- 9,655
Advertising and promotion -- 20,733 -- 20,733
Furniture, fixtures and
equipment ..................... -- 8,109 -- 8,109
Other general and
administrative expenses ....... -- 148,417 (3,336) 147,835
2,754
----------- ----------- ----------- ----------
Total general and
administrative
expenses ..................... -- 464,215 (582) 463,633
Restructuring charges .......... -- 8,213 -- 8,213
Legal expense--goodwill
lawsuit ....................... -- 9,068 -- 9,068
Operations of real estate
held for sale or
investment .................... -- 46 -- 46
Operations of real estate
acquired in settlement of
loans ......................... -- (7,052) -- (7,052)
Amortization of goodwill
and other intangible
assets ........................ 2,063 35,224 -- 35,224
---------- ---------- ----------- ----------
Total other expenses .......... 2,063 509,714 (582) 509,132
Earnings before income tax
provision (benefit) ........... (9,644) 298,021 (22,744) 275,277
Income tax provision
(benefit) ..................... 56,415 (2) (115,644) (9,552) (4) (125,196)
---------- ---------- ----------- ----------
Earnings before minority
interest ...................... (66,059) 413,665 (13,192) 400,473
Minority interest .............. (6,666)(3) 38,948 (26,456)(5) 12,492
---------- ---------- ----------- ----------
Net earnings ................... $ (59,393) $ 374,717 $ 13,264(6) $ 387,981(7)
========== ========== ============= ============
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
3
GOLDEN STATE HOLDINGS
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- - ----------
(1) Represents the CENFED Merger and the RedFed Merger, each accounted for as
a purchase, together with related pro forma purchase accounting
adjustments.
(2) The adjustment to income tax expense includes adjustments for
nondeductible goodwill amortization and to adjust FNH's historical
effective tax rate to 42%.
(3) Reflects a 42% effective tax rate related to the REIT Preferred Stock.
(4) Represents tax expense at 42% related to pro forma Refinancing
adjustments.
(5) Represents historical dividends paid related to the Cal Fed Preferred
Stock.
(6) Does not reflect the extraordinary loss that will be realized as a result
of the Refinancing. See Note G.
(7) Pro forma combined net earnings for the six months ended June 30, 1998
includes the recognition of a $250 million tax benefit, representing a
reduction in the valuation allowance established against FNH's deferred
tax asset. If this $250 million tax benefit is not considered, net
earnings for the six months ended June 30, 1998 would be as follows (in
thousands):
FNH historical ............ $112,923
Pro forma before Refinancing 124,717
Pro forma combined ........ 137,981
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
4
GOLDEN STATE HOLDINGS
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
GLENDALE
FNH FEDERAL CENFED
(HISTORICAL) (HISTORICAL) AND REDFED(1)
-------------- -------------- ---------------
Interest income ................ $2,127,490 $1,121,021 $236,033
Interest expense ............... 1,440,804 711,807 147,953
Net interest income ........... 686,686 409,214 88,080
Provision for loan losses ...... 79,800 12,015 7,139
---------- ---------- --------
Net interest income after
provision for loan losses .... 606,886 397,199 80,941
Other income:
Fee income .................... 143,919 96,867 13,904
Gain (loss) on sale of loans,
net .......................... 24,721 (363) 16
Gain (loss) on sale of
mortgage-backed
securities, net .............. -- (226) 2,029
Other income, net ............. 171,054 1,217 1,249
---------- ---------- --------
Total other income ........... 339,694 97,495 17,198
Other expenses:
Compensation and
employee benefits ............ 256,448 124,693 29,450
Occupancy expense, net ........ 81,914 33,468 12,832
Regulatory insurance .......... 10,680 8,949 2,433
Advertising and promotion 20,186 22,708 2,146
Furniture, fixtures and
equipment .................... -- 13,649 --
Other general and
administrative expenses ...... 233,642 71,221 9,719
---------- ---------- --------
Total general and
administrative expenses 602,870 274,688 56,580
SAIF special assessment ....... -- (3,153) --
Legal expense--goodwill
lawsuit ...................... -- 28,517 --
Operations of real estate
held for sale or
investment ................... -- (387) --
Operations of real estate
acquired in settlement of
loans ........................ (3,304) 4,021 2,745
Acquisition and
restructuring charges ........ -- 2,487 397
Amortization of goodwill
and other intangible
assets ....................... 49,153 7,056 9,733
---------- ---------- --------
Total other expenses ......... 648,719 313,229 69,455
Earnings before income tax
provision ..................... 297,861 181,465 28,684
Income tax provision ........... 47,148 76,851 10,063
---------- ---------- --------
Earnings before minority
interest ...................... 250,713 104,614 18,621
Minority interest .............. 89,344 -- --
---------- ---------- --------
Net earnings .................. $ 161,369 $ 104,614 $ 18,621
========== ========== ========
PRO FORMA REFINANCING
ADJUSTMENTS BEFORE ADJUSTMENTS PRO FORMA
(NOTE D) REFINANCING (NOTE G) COMBINED
----------------- ------------- -------------------- -------------
Interest income ................ $ (10,256) $3,474,288 $ (2,475) $3,471,813
Interest expense ............... (3,231) 2,297,333 (98,369) 2,341,510
140,910
1,636
------------
Net interest income ........... (7,025) 1,176,955 (46,652) 1,130,303
Provision for loan losses ...... -- 98,954 -- 98,954
----------- ---------- ------------ ----------
Net interest income after
provision for loan losses .... (7,025) 1,078,001 (46,652) 1,031,349
Other income:
Fee income .................... (8,136) 246,554 -- 246,554
Gain (loss) on sale of loans,
net .......................... -- 24,374 -- 24,374
Gain (loss) on sale of
mortgage-backed
securities, net .............. -- 1,803 -- 1,803
Other income, net ............. -- 173,520 -- 173,520
----------- ---------- ------------ ----------
Total other income ........... (8,136) 446,251 -- 446,251
Other expenses:
Compensation and
employee benefits ............ -- 410,591 -- 410,591
Occupancy expense, net ........ -- 128,214 -- 128,214
Regulatory insurance .......... -- 22,062 -- 22,062
Advertising and promotion -- 45,040 -- 45,040
Furniture, fixtures and
equipment .................... -- 13,649 -- 13,649
Other general and
administrative expenses ...... -- 314,582 (6,672) 313,417
5,507
----------- ---------- ------------ ----------
Total general and
administrative expenses -- 934,138 (1,165) 932,973
SAIF special assessment ....... -- (3,153) -- (3,153)
Legal expense--goodwill
lawsuit ...................... -- 28,517 -- 28,517
Operations of real estate
held for sale or
investment ................... -- (387) -- (387)
Operations of real estate
acquired in settlement of
loans ........................ -- 3,462 -- 3,462
Acquisition and
restructuring charges ........ -- 2,884 -- 2,884
Amortization of goodwill
and other intangible
assets ....................... 4,125 70,067 -- 70,067
----------- ---------- ------------ ----------
Total other expenses ......... 4,125 1,035,528 (1,165) 1,034,363
Earnings before income tax
provision ..................... (19,286) 488,724 (45,487) 443,237
Income tax provision ........... 92,230 (2) 226,292 (19,105)(4) 207,187
----------- ---------- ------------ ----------
Earnings before minority
interest ...................... (111,516) 262,432 (26,382) 236,050
Minority interest .............. (12,331)(3) 77,013 (52,912)(5) 24,101
----------- ---------- ------------ ----------
Net earnings .................. $ (99,185) $ 185,419 $ 26,530 (6) $ 211,949
=========== ========== ============== ==========
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
5
GOLDEN STATE HOLDINGS
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- - ----------
(1) Represents the CENFED Merger and the RedFed Merger, each accounted for as
a purchase, together with related pro forma purchase accounting
adjustments.
(2) The adjustment to income tax expense includes adjustments for
nondeductible goodwill amortization and to adjust FNH's historical
effective tax rate to 42%.
(3) Reflects a 42% effective tax rate related to the REIT Preferred Stock.
(4) Represents tax expense at 42% related to pro forma refinancing
adjustments.
(5) Represents historical dividends paid related to the Cal Fed Preferred
Stock.
(6) Does not reflect the extraordinary loss that will be realized as a result
of the Refinancing. See Note G.
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
6
GOLDEN STATE HOLDINGS
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
AS OF JUNE 30, 1998 AND FOR THE SIX MONTH AND TWELVE MONTH PERIODS
ENDED JUNE 30, 1998 AND DECEMBER 31, 1997, RESPECTIVELY
NOTE A: BASIS OF PRESENTATION
The Unaudited Pro Forma Condensed Combined Statement of Financial
Condition combines the unaudited pro forma condensed combined statement of
financial condition of RedFed and the historical consolidated statements of
financial condition of FNH and Glendale Federal as of June 30, 1998, as if the
Mergers, the RedFed Merger and the Refinancing were consummated on June 30,
1998. The Unaudited Pro Forma Condensed Combined Statement of Operations for
the six months ended June 30, 1998 combines the unaudited pro forma condensed
combined statements of operations of CENFED and RedFed and the historical
unaudited consolidated statements of operations of FNH and Glendale Federal for
the six months ended June 30, 1998, as if the Mergers, the RedFed Merger, the
CENFED Merger and the Refinancing were consummated on January 1, 1997. The
Unaudited Pro Forma Condensed Combined Statement of Operations for the year
ended December 31, 1997 combines the pro forma condensed combined statements of
operations of CENFED and RedFed and the historical statements of operations of
FNH and Glendale Federal as if the Mergers, the RedFed Merger, the CENFED
Merger and the Refinancing were consummated on January 1, 1997. Certain items
in the unaudited pro forma condensed combined financial statements related to
FNH have been reclassified to conform to the Glendale Federal presentation.
The Mergers will be accounted for using the "purchase" method of
accounting. Glendale Federal is treated as the acquired corporation for
financial reporting purposes. Glendale Federal's assets, liabilities, and other
items will be adjusted to their estimated fair value at the closing date of the
Mergers and combined with the historical book values of the assets and
liabilities of FNH. Applicable income tax effects of such adjustments are
included as a component of the combined entity's deferred tax asset/liability.
The difference between the estimated fair value of the assets, liabilities and
other items, adjusted as discussed above, and the purchase price, is recorded
as goodwill.
For purposes of the Unaudited Pro Forma Condensed Combined Financial
Statements, estimates relating to the fair value of certain assets, liabilities
and other items have been made as of June 30, 1998. Actual adjustments will be
made on the basis of actual assets, liabilities and other items as of the date
of the respective mergers on the basis of appraisals and evaluations made as of
that time and, therefore, actual fair value amounts are expected to differ from
those reflected in the Unaudited Pro Forma Condensed Combined Financial
Statements.
It should be noted that management's expectations of cost savings and
other operating efficiencies are not reflected in the Unaudited Pro Forma
Condensed Combined Financial Statements. Further, it should be noted that net
interest income may increase or decrease from historical levels based upon
changes in the shape of the yield curve and current market conditions. The pro
forma financial data do not necessarily reflect the results of operations or
the financial position of Golden State Holdings that actually would have
resulted had the Mergers, the RedFed Merger, the CENFED Merger and the
Refinancing occurred at the dates indicated, or project the results of
operations or financial position of Golden State Holdings for any future date
or period.
NOTE B: PURCHASE PRICE
The terms of the Agreement call for Golden State Stockholders to own 58
percent of the outstanding common stock of the combined entity, immediately
after giving effect to the Mergers, on a fully-diluted basis (without giving
effect to shares issuable pursuant to the Litigation Tracking Warrants (Trade
Mark) or the issuance of Contingent Shares). The Agreement also provides for
the contingent issuance to FGH and Hunter's Glen of additional shares of Golden
State Common Stock in connection with (i) the use by Golden State of certain
tax benefits of Parent Holdings and the realization of certain other potential
tax
7
GOLDEN STATE HOLDINGS
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS--(CONTINUED)
AS OF JUNE 30, 1998 AND FOR THE SIX MONTH AND TWELVE MONTH PERIODS
ENDED JUNE 30, 1998 AND DECEMBER 31, 1997, RESPECTIVELY
benefits and liabilities of Golden State and Parent Holdings and (ii) the
receipt by the combined company of a net after-tax recovery in certain
litigation, including a portion of the net recovery, if any, in the Cal Fed
Goodwill Litigation against the United States government.
Using the daily volume weighted average price of $18.875 and $4.776 for
the fully diluted Golden State common stock and Litigation Tracking Warrants
(Trade Mark) , respectively, for the three days ended September 10, 1998,
Golden State's fully diluted outstanding shares as of June 30, 1998, applying
the treasury stock method under Statement of Financial Accounting Standards No.
128, "Earnings Per Share," as required by the Agreement, would be as follows:
GOLDEN STATE
- - ------------
Common shares outstanding as of June 30, 1998 ................................. 55,485,151
Treasury shares to be issued as part of RedFed Merger ......................... 4,565,534
Shares issuable pursuant to outstanding Series A Preferred Stock convertible to
common stock (i) ............................................................. 11,099,721
Shares issuable pursuant to outstanding 5 Year Warrants on common stock (ii) .. 1,278
Shares issuable pursuant to outstanding 7 Year Warrants on common stock (iii) . 5,305,443
Shares issuable pursuant to outstanding Stock Options on common stock (iv) .... 581,900
----------
Total--fully diluted outstanding shares ....................................... 77,039,027
==========
- - ----------
(i) Based on 4,617,484 shares, each convertible into 2.404 shares of
Golden State Common Stock.
(ii) Warrants convertible at an exchange rate of 10 warrants for one
share of Golden State Common Stock.
(iii) 10,769,807 warrants with $12.00 exercise price per warrant.
(iv) Based on 2,778,508 stock options with a weighted average exercise
price per share of Golden State Common Stock of $15.111.
Purchase Price:
Number of Golden State fully diluted outstanding shares ......... 77,039,027
Price per share ................................................. $18.875
----------
Purchase price (in thousands) ................................ $1,454,112
==========
NOTE C: PURCHASE ACCOUNTING ADJUSTMENTS
(IN THOUSANDS)
---------------
Golden State stockholders' equity, giving effect to the RedFed Merger $1,375,497
Goodwill due to the Mergers (Note D) ................................. 61,875
Fair value adjustments, net of taxes (Note D) ........................ 36,677
Merger costs, net of taxes (Note E) .................................. (84,867)
Goodwill litigation proceeds participation (Note F) .................. 64,930
----------
Total purchase price .............................................. $1,454,112
==========
8
GOLDEN STATE HOLDINGS
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS--(CONTINUED)
AS OF JUNE 30, 1998 AND FOR THE SIX MONTH AND TWELVE MONTH PERIODS
ENDED JUNE 30, 1998 AND DECEMBER 31, 1997, RESPECTIVELY
NOTE D: PURCHASE ACCOUNTING ADJUSTMENTS
The estimated purchase accounting adjustments relating to the Mergers are
detailed below:
INTEREST- MORTGAGE
EARNING SERVICING
ASSETS ASSETS GOODWILL
-------------- ------------- ------------
(IN THOUSANDS)
Purchase price in excess of Golden
State's net stockholders' equity, giving
effect to the RedFed Merger ...................... $ -- $ -- $ 78,615
Fair value adjustments, net of taxes .............. 13,769 54,243 (36,677)
Merger costs, net of taxes (Note E) ............... -- -- 84,867
Other integration costs, net of taxes
(Note E) ......................................... -- -- --
Value of Golden State Holdings'
retained participation in the Glendale
Goodwill Litigation after issuance of
the Litigation Tracking Warrants (Trade Mark)
(Note F) ......................................... -- -- (64,930)
Dividend of tax benefits to FGH as a
result of deconsolidation caused by
the Mergers ...................................... -- -- --
---------- --------- ---------
$ 13,769 $ 54,243 $ 61,875
========== ========= =========
IMPACT ON PRE-TAX
EARNINGS FOR:
Six months ended June 30, 1998 .................... $ (5,129) $ (4,068) $ (2,063)
Year ended December 31, 1997 ...................... $ (10,256) $ (8,136) $ (4,125)
INTEREST-
OTHER BEARING OTHER STOCKHOLDERS'
ASSETS LIABILITIES LIABILITIES EQUITY
---------- ------------- ------------- --------------
(IN THOUSANDS)
Purchase price in excess of Golden
State's net stockholders' equity, giving
effect to the RedFed Merger ...................... $ -- $ -- $ -- $ 78,615
Fair value adjustments, net of taxes .............. -- 4,775 26,560 --
Merger costs, net of taxes (Note E) ............... 41,433 -- 126,300 --
Other integration costs, net of taxes
(Note E) ......................................... 31,065 -- 73,700 (42,635)
Value of Golden State Holdings'
retained participation in the Glendale
Goodwill Litigation after issuance of
the Litigation Tracking Warrants (Trade Mark)
(Note F) ......................................... 111,948 -- 47,018 --
Dividend of tax benefits to FGH as a
result of deconsolidation caused by
the Mergers ...................................... -- -- 290,000 (290,000)
-------- ------ -------- ----------
$184,446 $4,775 $563,578 $ (254,020)
======== ====== ======== ==========
IMPACT ON PRE-TAX
EARNINGS FOR: TOTAL
----------
Six months ended June 30, 1998 .................... $ -- $1,616 $ -- $ (9,644)
==========
Year ended December 31, 1997 ...................... $ -- $3,231 $ -- $ (19,286)
==========
IMPACT ON PRE-TAX EARNINGS
----------------------------------
SIX MONTHS YEAR
ENDED ENDED
AMOUNT JUNE 30, 1998 DECEMBER 31, 1997
---------- --------------- ------------------
(IN THOUSANDS)
Interest-Earning Assets:
Loans receivable, net .............. $ 6,807 $ (4,144) $ (8,287)
Mortgage-backed securities ......... 6,962 (985) (1,969)
------- --------- ----------
$13,769 $ (5,129) $ (10,256)
======= ========= ==========
Interest-Bearing Liabilities
Deposits ........................... $ 2,588 $ 599 $ 1,198
Borrowings from the FHLB ........... 1,194 520 1,040
Other borrowings ................... 993 497 993
------- --------- ----------
$ 4,775 $ 1,616 $ 3,231
======= ========= ==========
Premiums relating to mortgage-backed securities and loans receivable are
amortized to interest income using an interest method over the weighted average
life of the related asset. The premium on mortgage servicing assets is
amortized in proportion to, and over the period of, estimated net servicing
9
GOLDEN STATE HOLDINGS
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS--(CONTINUED)
AS OF JUNE 30, 1998 AND FOR THE SIX MONTH AND TWELVE MONTH PERIODS
ENDED JUNE 30, 1998 AND DECEMBER 31, 1997, RESPECTIVELY
income. Goodwill is amortized on the straight line basis over fifteen years.
Premiums relating to deposits and borrowings are amortized to interest expense
using an interest method over the weighted average life of the related
liability.
NOTE E: MERGER AND INTEGRATION COSTS
The table below reflects Golden State Holdings' current estimate, for
purposes of pro forma presentation, of the aggregate merger and integration
costs, net of taxes, expected to be incurred in connection with the Mergers.
While a portion of these costs may be required to be recognized in the combined
entity's results of operations as incurred, the current estimate of these costs
has been reflected in the pro forma condensed combined statement of financial
condition to disclose the effect of these activities on Golden State Holdings'
pro forma condensed combined financial position.
RELATED
GROSS TAX NET
COSTS BENEFIT COSTS
---------- --------- ----------
(IN THOUSANDS)
Merger costs:
Severance costs ............................................... $ 55,000 $23,183 $ 31,817
Contract termination costs .................................... 23,100 9,737 13,363
Investment banking, legal and other professional fees ......... 40,000 5,058 34,942
Benefit plan termination costs ................................ 5,000 2,107 2,893
Branch consolidation costs .................................... 3,200 1,348 1,852
-------- ------- --------
Subtotal--merger costs included in the allocation of the
purchase price ............................................. 126,300 41,433 84,867
-------- ------- --------
Other Integration costs:
Conversion costs .............................................. 27,900 11,760 16,140
Branch consolidation costs .................................... 9,600 4,046 5,554
Transition staffing expenses .................................. 17,000 7,166 9,834
Officer benefits .............................................. 10,000 4,215 5,785
Other costs ................................................... 9,200 3,878 5,322
-------- ------- --------
Subtotal--other integration costs reflected as an adjustment
to stockholders' equity .................................... 73,700 31,065 42,635
-------- ------- --------
Total merger and integration costs ............................. $200,000 $72,498 $127,502
======== ======= ========
10
GOLDEN STATE HOLDINGS
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS--(CONTINUED)
AS OF JUNE 30, 1998 AND FOR THE SIX MONTH AND TWELVE MONTH PERIODS
ENDED JUNE 30, 1998 AND DECEMBER 31, 1997, RESPECTIVELY
Golden State Holdings' cost estimates are forward looking statements.
While the costs represent management's current estimate of merger and
integration costs that will be incurred, the ultimate level and timing of
recognition of such costs will be based on the final merger and integration
plan to be completed in the coming months; the types and amounts of actual
costs incurred could vary materially from these estimates if future
developments differ from the underlying assumptions used by management in
determining its current estimate of these costs.
NOTE F: LITIGATION TRACKING WARRANTS (Trade Mark)
Represents the estimated fair value of the 15% interest in the after-tax
recovery, if any, in the Glendale Goodwill Litigation to be excluded in
calculating the number of shares issuable upon exercise of the Litigation
Tracking Warrants (TradeMark), as follows:
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
-----------------------
Fully diluted Litigation Tracking Warrants (Trade Mark) outstanding as of June 30,
1998 ............................................................................... 77,039,027
Daily volume weighted average price of Litigation Tracking Warrants (Trade Mark) for
the three days ended September 10, 1998 ............................................ $ 4.776
------------
Market value of Litigation Tracking Warrants (Trade Mark) ........................... $ 367,938
Percent of Goodwill Litigation owned by Litigation Tracking Warrants (Trade Mark)
Holders ............................................................................ 85%
------------
Total market value of Glendale Goodwill Litigation .................................. $ 432,869
Percent of Glendale Goodwill Litigation owned by Golden State Holdings............... 15%
------------
Estimated fair value of Glendale Goodwill Litigation owned by Golden
State Holdings ..................................................................... $ 64,930
============
The amount of the litigation proceeds reflected above is provided for
illustrative purposes only. Such amount does not necessarily represent
management's evaluation of the likely outcome of the Glendale Goodwill
Litigation.
11
GOLDEN STATE HOLDINGS
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS--(CONTINUED)
AS OF JUNE 30, 1998 AND FOR THE SIX MONTH AND TWELVE MONTH PERIODS
ENDED JUNE 30, 1998 AND DECEMBER 31, 1997, RESPECTIVELY
NOTE G: REFINANCING ADJUSTMENTS
In connection with the Refinancing, Golden State Holdings will make offers
to purchase or will redeem the following issues of debt and preferred stock
(dollars in thousands):
IMPACT ON PRE-TAX EARNINGS
-----------------------------------
SIX MONTHS ENDED
AT JUNE 30, 1998 JUNE 30, 1998
---------------------------------- -----------------------------------
PRINCIPAL AMORTIZATION OF
OR LIQUIDATION DEFERRED INTEREST DEFERRED
PREFERENCE ISSUANCE COSTS EXPENSE/DIVIDEND ISSUANCE COSTS
---------------- ---------------- ------------------ ----------------
FNH 12 1/4% Senior Notes .............. $200,000 $ 9,704 $12,250 $1,482
FNH 9 1/8% Senior Subordinated
Notes ................................ 140,000 4,457 6,388 426
FNH 10 5/8% Senior Subordinated
Notes ................................ 575,000 14,686 30,547 1,428
-------- ------- ------- ------
Total Debt Reduction ................. $915,000 $28,847 $49,185 $3,336
======== ======= ======= ======
Cal Fed 11 1/2% Preferred Stock ....... $300,730 $17,292
Cal Fed 10 5/8% Preferred Stock ....... 172,500 9,164
plus: Accrued and Unpaid Dividends.... 13,228 --
-------- -------
Total Preferred Stock Reduction
(Minority Interest) ................ $486,458 $26,456
======== =======
IMPACT ON PRE-TAX EARNINGS
-----------------------------
YEAR ENDED
DECEMBER 31, 1997
-----------------------------
INTEREST AMORTIZATION OF
EXPENSE/ DEFERRED
DIVIDEND ISSUANCE COSTS
---------- ----------------
FNH 12 1/4% Senior Notes ..................................... $24,500 $2,964
FNH 9 1/8% Senior Subordinated Notes ......................... 12,775 852
FNH 10 5/8% Senior Subordinated Notes ........................ 61,094 2,856
------- ------
Total Debt Reduction ........................................ $98,369 $6,672
======= ======
Cal Fed 11 1/2% Preferred Stock .............................. $34,584
Cal Fed 10 5/8% Preferred Stock .............................. 18,328
plus: Accrued and Unpaid Dividends .......................... --
-------
Total Preferred Stock Reduction (Minority Interest) ......... $52,912
=======
12
GOLDEN STATE HOLDINGS
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS--(CONTINUED)
AS OF JUNE 30, 1998 AND FOR THE SIX MONTH AND TWELVE MONTH PERIODS
ENDED JUNE 30, 1998 AND DECEMBER 31, 1997, RESPECTIVELY
The deferred issuance costs reflected above, net of taxes of approximately
$12,159, will be written off as part of the Refinancing. These items and the
premiums paid will be reflected as an "extraordinary item--early extinguishment
of debt" on the financial statements of Golden State Holdings in an amount
totalling approximately $134,600 on an after-tax basis.
The following debt was issued (in thousands):
IMPACT ON PRE-TAX EARNINGS
--------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997
---------------------------- ---------------------------
AMORTIZATION OF AMORTIZATION OF
DEFERRED INTEREST DEFERRED INTEREST DEFERRED
PRINCIPAL ISSUANCE COSTS EXPENSE ISSUANCE COSTS EXPENSE ISSUANCE COSTS
------------- ---------------- ---------- ----------------- ---------- ----------------
Total New Notes in
multiple-tranche transaction--
7.0455% aggregate yield, net
of original issue discount of
$6,081........................ $1,993,919 $28,625 $70,455 $2,754 $140,910 $5,507
========== ======= ======= ====== ======== ======
The use of proceeds from the Refinancing is estimated as follows (in
thousands):
Sale of New Notes ............................................ $ 1,993,919
FNH Debt Offers:
FNH 12 1/4% Senior Notes .................................... 200,000
FNH 9 1/8% Senior Subordinated Notes ........................ 140,000
FNH 10 5/8% Senior Subordinated Notes ....................... 575,000
Cal Fed Preferred Stock Offers:
Cal Fed 11 1/2% Preferred Stock ............................. 300,730
Cal Fed 10 5/8% Preferred Stock ............................. 172,500 (1,388,230)
-------
Parent Holdings Defeasance:
FNPH 12 1/2% Senior Notes ................................... (455,000)
Premiums, Fees and Other Expenses (net of taxes) ............. (195,691)
------------
Net Cash Payment to be made by Golden State Holdings (from Cal
Fed dividend) ............................................... $ (45,002)
============
In connection with the Refinancing, a dividend will be paid to Parent
Holdings totaling $494,196, representing the principal amount of the Parent
Holdings Notes and the after-tax expenses related to the redemption of such
notes.
At an assumed rate of 5.5%, the net cash payment made of $45,002 would
reduce pre-tax earnings by approximately $1,238 and $2,475 for the six months
ended June 30, 1998 and the year ended December 31, 1997, respectively.
The hedging transaction effected under the Rate Lock Agreements resulted
in a net loss of approximately $9,958, which will be deferred and amortized
over the life of the related Fixed Rate New Notes through interest expense.
This amortization will reduce pre-tax earnings by approximately $818 and $1,636
for the six months ended June 30, 1998 and the year ended December 31, 1997,
respectively.
There can be no assurance that all of the outstanding FNH Notes and Cal
Fed Preferred Stock will be purchased in connection with the Refinancing. The
pro forma financial results assume that 100% of the
13
GOLDEN STATE HOLDINGS
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS--(CONTINUED)
AS OF JUNE 30, 1998 AND FOR THE SIX MONTH AND TWELVE MONTH PERIODS
ENDED JUNE 30, 1998 AND DECEMBER 31, 1997, RESPECTIVELY
outstanding principal amount of the FNH Notes and all of the Cal Fed Preferred
Stock is purchased in the Refinancing. If FNH does not purchase all of the
outstanding Cal Fed 11 1/2% and 10 5/8% Preferred Stock, Golden State Holdings
intends to cause Cal Fed to redeem any remaining Cal Fed 10 5/8% Preferred
Stock on April 1, 1999 and any remaining Cal Fed 11 1/2% Preferred Stock on
September 1, 1999 (which are the respective dates on which each series of such
Preferred Stock first becomes redeemable). As shown below, pro forma results
will vary if less than 100% of the FNH Notes or Cal Fed Preferred Stock is
purchased and excess proceeds from the Refinancing invested at 5.5% (dollars in
thousands, except per share data):
PERCENT OFFERED
TO PURCHASE INCREASE IN NET EARNINGS
- - ---------------------- ------------------------------------------
CAL FED
FNH PREFERRED FOR SIX MONTHS FOR YEAR ENDED
NOTES STOCK ENDED JUNE 30, 1998 DECEMBER 31, 1997
- - -------- ----------- --------------------- ------------------
100% 100% $13,264 $26,530
95% 80% 9,067 18,135
90% 75% 7,490 14,981
80% 65% 4,308 8,618
14