EX-99 6 exh992.txt PRO FORMA THE FAIRCHILD CORPORATION UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS The following unaudited pro forma consolidated financial statements give effect to the disposition of the fastener business to Alcoa for approximately $657.1 million and to our tender offer for all of our 10 3/4% senior subordinated notes due 2009. The unaudited pro forma consolidated statement of earnings for the three months ended September 29, 2002 and the year ended June 30, 2002 gives effect to the disposition of the fastener business and to our tender offer for our 10 3/4% senior subordinated notes due 2009 as if they occurred on July 1, 2002 and July 1, 2001, respectively. The unaudited pro forma consolidated balance sheet as of September 29, 2002 gives effect to the disposition of the fastener business and to our tender offer for our 10 3/4% senior subordinated notes due 2009 as if they occurred on September 29, 2002. The pro forma adjustments are based on preliminary estimates of currently available information and assumptions that we believe are reasonable. The unaudited pro forma consolidated financial statements are presented for informational purposes only and are not intended to be indicative of either future results of our operations or results that might have been achieved if the transactions occurred on the dates specified. The unaudited pro forma consolidated financial statements should be read in conjunction with the company's historical consolidated financial statements and the related notes included in our Quarterly Report on Form 10-Q for the period ended September 29, 2002 and our Annual Report on Form 10-K and as amended for the year ended June 30, 2002 incorporated by reference herein. Based upon these pro forma statements, and as if the disposition of the fastener business had occurred on September 29, 2002, we would have recognized a $38.7 million pre-tax gain on the sale of our fastener business after the write-off of $4.3 million of deferred loan fees, estimated state taxes of $6.0 million, estimated professional fees of $6.0 million, and maximum payment of bonus and change of control fees of $29.0 million. THE FAIRCHILD CORPORATION UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS For the Three Months Ended September 29, 2002 (In thousands, except per share data) Fairchild Fasteners Fasteners Tender Fairchild Historical Historical(a) Disposition(b) Offer(c) Pro Forma ----------- -------------- ---------------- ---------- ------------ Net sales $ 137,228 $(119,432) $ - $ - $ 17,796 Rental revenue 1,765 - - - 1,765 Other income (expense) 849 (629) - - 220 ----------- -------------- ---------------- ---------- ------------ 139,842 (120,061) - - 19,781 Costs and expenses: Cost of sales 105,291 (91,320) - - 13,971 Cost of rental revenue 1,232 - - - 1,232 Selling, general & administrative 27,994 (19,322) - - 8,672 (e) ----------- -------------- ---------------- ---------- ------------ 134,517 (110,642) - - 23,875 Operating income 5,325 (9,419) - - (4,094) Net interest expense (10,998) 250 (d) 2,865 (d) 5,409 (d) (2,474) (f) Net investment loss (52) - - - (52) Change in fair market value of interest rate Contract (6,776) - - - (6,776) ----------- -------------- ---------------- ---------- ------------ Earnings before taxes (12,501) (9,169) 2,865 5,409 (13,396) Income tax (provision) benefit 5,210 3,209 (1,003) (1,893) 5,523 ----------- -------------- ---------------- ---------- ------------ Earnings (loss) from continuing operations $(7,291) $ (5,960) $ 1,862 $3,516 $ (7,873) ----------- -------------- ---------------- ---------- ------------ Earnings per share from continuing operations: Basic $ (0.29) $ (0.32) Diluted (0.29) (0.32) Weighted average shares outstanding: Basic 25,162 25,162 Diluted 25,162 25,162
The accompanying notes to the Unaudited Pro Forma Consolidated Statements of Earnings are an integral part of these statements. THE FAIRCHILD CORPORATION UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS For the Twelve Months Ended June 30, 2002 (In thousands, except per share data) Fairchild Fasteners Fasteners Tender Fairchild Historical Historical(a) Disposition(b) Offer(c) Pro Forma ----------- -------------- ---------------- ---------- ------------ Net sales $624,093 $(546,211) $ - $ - $ 77,882 Rental revenue 6,679 - - - 6,679 Other income (expense) 5,021 (254) - - 4,767 ----------- -------------- ---------------- ---------- ------------ 635,793 (546,465) - - 89,328 Costs and expenses: Cost of sales 472,270 (408,254) - - 64,016 Cost of rental revenue 4,911 - - - 4,911 Selling, general & administrative 128,342 (87,688) - - 40,654 (e) Impairment expense 3,435 - - - 3,435 ----------- -------------- ---------------- ---------- ------------ 608,958 (495,942) - - 113,016 Operating income 26,835 (50,523) - - (23,688) Net interest expense (46,756) 1,410 (d) 12,427 (d) 23,158 (d) (9,761) (f) Investment loss, net (992) (348) - - (1,340) Change in fair market value of interest rate contract (4,567) - - - (4,567) ----------- -------------- ---------------- ---------- ------------ Earnings before taxes (25,480) (49,461) 12,427 23,158 (39,356) Income tax (provision) benefit 15,377 17,311 (4,350) (8,105) 20,233 Equity in earnings (loss) of affiliates, net (137) - - - (137) ----------- -------------- ---------------- ---------- ------------ Earnings (loss) from continuing operations $(10,240) $ (32,150) $ 8,077 $15,053 $ (19,260) ----------- -------------- ---------------- ---------- ------------ Earnings per share from continuing operations: Basic $ (0.41) $ (0.77) Diluted (0.41) (0.77) Weighted average shares outstanding: Basic 25,155 25,155 Diluted 25,155 25,155
The accompanying notes to the Unaudited Pro Forma Consolidated Statements of Earnings are an integral part of these statements. THE FAIRCHILD CORPORATION UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET September 29, 2002 (In thousands) Fairchild Fasteners Fasteners Tender Fairchild Historical Historical(a) Disposition(b) Offer(c) Pro Forma ----------- -------------- --------------- ------------- ------------ Cash $ 15,782 $ - $ 392,958 (d) $(222,040) (i) $186,700 (m) Short-term investments 502 (86) - - 416 Accounts receivable, less allowances 100,732 (95,146) - (679) (i) 4,907 Inventory 181,942 (162,226) - - 19,716 Prepaid and other current assets 37,194 (8,587) - - 28,607 ----------- -------------- --------------- ------------- ------------ Total current assets 336,152 (266,045) 392,958 (222,719) 240,346 Net fixed assets 123,272 (119,734) - - 3,538 Net assets held for sale 19,116 - - - 19,116 Goodwill 274,549 (257,111) - - 17,438 Investment in affiliates 3,356 - - - 3,356 Prepaid pension assets 64,780 - - - 64,780 Deferred loan costs 10,487 - (4,251) (e) (5,816) (j) 420 Real estate investment 109,028 - - - 109,028 Long-term investments 5,041 - - - 5,041 Other assets 14,939 (1,493) - (7,064) (i) 6,382 ----------- -------------- --------------- ------------- ------------ Total Assets $ 960,720 $(644,383) $ 388,707 $(235,599) $469,445 ----------- -------------- --------------- ------------- ------------ Bank notes payable & current maturities of debt $ 52,256 $ - $ (20,078) (f) $ - $ 32,178 (n) Accounts payable 40,423 (31,627) - - 8,796 Accrued liabilities: Salaries, wages and commissions 27,226 (22,501) - - 4,725 Employee benefit plan costs 3,071 (1,109) - - 1,962 Insurance 14,694 (3,976) - - 10,718 Interest 12,732 - (1,040) (f) (11,019) (i) 673 Other accrued liabilities 31,432 (6,049) - - 25,383 ----------- -------------- --------------- ------------- ------------ Total current liabilities 181,834 (65,262) (21,118) (11,019) 84,435 Long-term debt, less current maturities 430,001 - (201,956) (f) (225,000) (i) 3,045 (n) Fair value of interest rate contract 17,764 - - - 17,764 Other long-term liabilities 16,806 (11,078) - - 5,728 Retiree health care liabilities 42,465 (14,756) - - 27,709 Noncurrent income taxes 48,279 - - - 48,279 Deferred income taxes 4,277 (148) 13,545 (g) 147 (k) 17,821 ----------- -------------- --------------- ------------- ------------ Total liabilities 741,426 (91,244) (209,529) (235,872) 204,781 Class A common stock 3,035 (5,896) 5,896 - 3,035 Class B common stock 262 - - - 262 Paid-in capital 232,799 (564,331) 564,331 - 232,799 Treasury stock, at cost (76,532) - - - (76,532) Notes due from stockholders (1,831) - - - (1,831) Retained earnings 84,656 (2,855) 28,009 (h) 273 (l) 110,083 Cumulative other comprehensive income (23,095) 19,943 - - (3,152) ----------- -------------- --------------- ------------- ------------ Total stockholders' equity 219,294 (553,139) 598,236 273 264,664 ----------- -------------- --------------- ------------- ------------ Total liabilities & stockholders equity $ 960,720 $(644,383) $ 388,707 $(235,599) $469,445 ----------- -------------- --------------- ------------- ------------
The accompanying notes to the Unaudited Pro Forma Consolidated Balance Sheet are an integral part of these statements. NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF EARNINGS (In thousands) (a) Represents the elimination of the historical operating results from our fastener business that is being sold to Alcoa for the periods presented. The fastener business being sold to Alcoa does not include the results of two small divisions known as APS and Fairchild Aerostructures. (b) Represents the effects of the disposition of our fastener business, which requires the mandatory repayment of the outstanding amounts borrowed under our United States credit facility. (c) Represents the effects of the tender offer to purchase all of our $225 million 10 3/4% senior subordinated notes due 2009. (d) Represents the reduction in net interest expense from the tender offer and the repayment of our worldwide debt facilities, excluding the remaining debt related to the Farmingdale real estate and Fairchild Aerostructures, as follows: Three Months Ended Year Ended Sept. 29, 2002 June 30, 2002 -------------------- ----------------- Interest expense on retired debt: Fastener business debt in Europe $ 250 $ 1,410 United States credit facility 2,865 12,427 Senior subordinated notes 5,409 23,158 -------------------- ----------------- Reduction in interest expense $ 8,524 $ 36,995 -------------------- -----------------
(e) After the sale of our fastener business, the remaining selling, general and administrative expense, by business segment, is as follows: Three Months Ended Year Ended Sept. 29, 2002 June 30, 2002 -------------------- ----------------- APS and Fairchild Aerostructures $ 512 $ 2,608 Aerospace Distribution 3,307 14,030 Real Estate Operations 61 319 Corporate 4,793 23,697 -------------------- ----------------- $ 8,673 $ 40,654 -------------------- -----------------
(f) After the sale of our fastener business, the components of net interest expense are as follows: Three Months Ended Year Ended Sept. 29, 2002 June 30, 2002 -------------------- ----------------- $100 million interest rate contract $ 1,170 $ 4,162 Farmingdale $30,750 credit facility 385 1,760 Other cash interest expense 474 2,257 -------------------- ----------------- Total cash interest expense 2,029 8,179 Non-cash interest expense (income) 587 4,305 -------------------- ----------------- Total interest expense 2,616 12,484 Less: interest income (142) (2,723) -------------------- ----------------- Net interest expense $ 2,474 $ 9,761 -------------------- -----------------
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET (In thousands) (a) Represents the elimination of the historical fastener business that is being sold to Alcoa for the period presented. The fastener business being sold to Alcoa does not include the net assets of two small divisions known as APS and Fairchild Aerostructures. (b) Represents the effects of the disposition of our fastener business, which requires the mandatory repayment of the outstanding amounts borrowed under our United States credit facility. (c) Represents the effects of the tender offer to purchase all of our $225 million 10 3/4% senior subordinated notes due 2009. (d) Represents the net increase in cash from the disposition of the fastener business, prior to the tender offer, as follows: Gross cash proceeds received $ 657,050 Maximum payment of bonus/change of control (29,018) (1) State taxes (6,000) Professional fees (6,000) (2) ---------------- Net cash proceeds prior to debt repayment 616,032 Debt retirement: Repayment of United States credit facility (201,650) Repayment of fastener business debt in Europe (20,384) Payment of accrued interest (1,040) ---------------- Net cash available prior to the tender offer $ 392,958 ----------------
(1) Represents the maximum bonus payments under performance goals for four of our executives that may be awarded as a result of the sale of the fastener business and represents the change of control payments due to the sale of our fastener business, under contracts with five of our executives. The bonuses are being considered at the special meeting as proposals 2, 3, 4 and 5 included in this proxy statement. The maximum payments that could be awarded are as follows: Maximum Change of Bonus Control ---------------- ---------------- J. Steiner (b) $ 16,427 $ 6,280 E. Steiner 13,141 5,434 J. Flynn 6,570 900 D. Miller 6,570 1,125 ---------------- ---------------- Total $ 42,708 $ 13,739 ---------------- ---------------- Maximum Amount to be paid (a) $ 56,447 ---------------- E. Juris N/A 795 795 ---------------- Total $ 57,242 ---------------- (a) The board of directors has decided that the maximum amount of the change of control payments and bonus payments on this sale, taken in the aggregate, cannot exceed $28,223 for Messrs. J. Steiner, E. Steiner, J. Flynn and D. Miller. In addition, to the extent an officer receives his change of control payment, the board will not approve a bonus to such officer in excess of 50% of the maximum bonus he otherwise would have been eligible to receive. (b) Subject to the overall maximum amount of $28,223 less any bonus payments paid to Messrs. J. Steiner, E. Steiner, J. Flynn and D. Miller in connection with the sale and less any change of control payments made to Messrs. E. Steiner, J. Flynn and D. Miller in connection with the sale, Mr. J. Steiner's change of control payment may be more than the amount shown on the table if he elects to defer receiving his change of control payment for this sale, to a later date. Mr. J. Steiner's change of control payment is based on a formula equal to 2.99 times base salary and 2.99 times the preceding year's bonus. Pursuant to the terms of two of Mr. J. Steiner's employment agreements, Mr. J. Steiner may elect to defer, until the second anniversary of the closing of the sale, his change of control payment. If Mr. J. Steiner elects to defer his change of control payment, he is then entitled at any time prior to the second anniversary of the sale to elect to receive his change of control payment, in which event the change of control payment will be the greater of what Mr. J. Steiner would have received on the closing of the sale, or the change of control payment Mr. J. Steiner would then be entitled to receive based on his change of control formula, subject to the cap described above. In addition, J. Steiner and E. Steiner have entered into a non-competition and consulting agreement with Alcoa under which Alcoa has agreed to pay, over a four year period, fees to both gentlemen which in the aggregate total $5 million.
(2) Includes financial advisory, fairness opinion and legal fees. (e) Represents the write-off of deferred loan fees relating to the repayment of the United States credit facility. (f) Represents required debt repayments as follows: Fastener European U.S. Credit Debt Facility Total --------------- ---------------- ---------------- Bank notes payable & current maturities of debt $ 17,828 $ 2,250 $ 20,078 Long-term debt, less current maturities 2,556 199,400 201,956 --------------- ---------------- ---------------- Total debt $ 20,384 $ 201,650 $ 222,034 --------------- ---------------- ---------------- Accrued interest $ 61 $ 979 $ 1,040 --------------- ---------------- ----------------
(g)(h) Represents the tax benefit and the change in retained earnings associated with the disposition of the fastener business, the write-off of deferred loan fees, state taxes, professional fees, and the maximum bonus and change of control obligations that will be charged to earnings at closing, as follows: Adjustment Tax To Retained Total Effect (g) Earnings (h) --------------- ---------------- ----------------- Retained earnings of fastener business $ 2,855 $ - $ 2,855 Gain on sale of fastener business (3) 38,699 13,545 25,154 --------------- ---------------- ----------------- $ 41,554 $ 13,545 $ 28,009 --------------- ---------------- -----------------
(3) The book gain on the sale of the fastener business is calculated as follows: After-Tax Total Tax Effect Gain --------------- ---------------- ----------------- Proceeds from sale of the fastener business $ 657,050 Less: Equity of the fastener business (553,139) Recognition of cumulative translation losses (19,943) --------------- Gain on sale of fastener business before expenses $ 83,968 $ 29,389 $ 54,579 Write-off of deferred loan fees of U.S. credit facility (4,251) (1,488) (2,763) Transaction payments: Maximum bonus/change of control (29,018) (10,156) (18,862) State taxes (6,000) (2,100) (3,900) Professional fees (6,000) (2,100) (3,900) --------------- ---------------- ----------------- Gain on sale of fastener business $ 38,699 $ 13,545 $ 25,154 --------------- ---------------- -----------------
The gain on the sale of the fastener business and the remaining net tax operating loss carryforward is calculated for United States income tax purposes as follows: Proceeds from the sale of the fastener business $ 657,050 Less: Basis of fastener business (359,000) ---------------- Gain on sale of fastener business before expenses 298,050 Write-off of deferred loan fees of U.S. credit facility (4,251) Transaction payments: Maximum bonus/change of control (29,018) State taxes (6,000) Professional fees (6,000) ---------------- Gain on sale of fastener business 252,781 Available net tax operating loss carryforward (282,547) ---------------- Remaining net tax operating loss carryforward after the sale $ (29,766) ----------------
(i) Represents the cash required for the tender offer to purchase all of our 10 3/4% senior subordinated notes due 2009 as follows: Tender offer: 10 3/4% Senior subordinated notes $ 225,000 Payment of accrued interest 11,019 Professional fees 1,000 Less: Collateral received to satisfy a note receivable (4) (14,300) Less: Collection of interest on note receivable (679) ---------------- Net cash required for tender offer $ 222,040 ----------------
(4) Represents the collection of promissory notes due from an unaffiliated third party that will be satisfied, in conjunction with the tender offer, by the payment to us of the collateral for the promissory notes consisting of $14,300 face value of 10 3/4% senior subordinated notes due 2009. The carrying value of the promissory notes was $7,064. (j) Represents the write-off of deferred loan fees due to the tender offer. (k)(l) Represents the tax benefit and the change in retained earnings associated with the tender offer. Adjustment Tax To Retained Total Effect(k) Earnings(l) ---------------- ---------------- ----------------- Gain on promissory notes $ 7,236 $ 2,533 $ 4,703 Write-off of deferred loan fees of 10 3/4% senior subordinated notes (5,816) (2,036) (3,780) Professional fees (1,000) (350) (650) ---------------- ---------------- ----------------- $ 420 $ 147 $ 273 ---------------- ---------------- -----------------
(m) Includes restricted cash of $25,000 required to be placed in escrow as a result of the sale of our fastener business and approximately $18,000 required to be provided as cash collateral for outstanding letters of credit and an interest rate contract obligation. (n) Represents the $30,750 debt related to Farmingdale real estate, $3,953 related to Fairchild Aerostructures debt and $520 of other debt.