<PAGE>
Exhibit 99.(c)(2)
--------------------------------------------------------------------------------
Materials Prepared for the
Board of Directors regarding:
BI Incorporated
August 9, 2000
--------------------------------------------------------------------------------
[SunTrust Equitable Logo Goes here]
<PAGE>
THE FOLLOWING MATERIALS ARE BASED UPON SUNTRUST EQUITABLE SECURITIES
CORPORATION'S ANALYSIS OF THE TRANSACTION AS DESCRIBED IN THE DRAFT AGREEMENT
AND PLAN OF MERGER DATED AUGUST 3, 2000. IN THE EVENT OF MATERIAL CHANGES TO
THIS DOCUMENT WHICH ARE NOT REFLECTED IN THESE MATERIALS, THE ENCLOSED ANALYSIS
AND OUR CONCLUSIONS MAY BE AFFECTED.
Certain portions of the enclosed analysis are based upon projected financial
results and other sections describe plans and strategies which may not
materialize. Any projected financial results are based upon analyst forecasts,
internal projections and discussions with management. A number of factors,
including industry conditions, changes in costs, labor issues and other factors
which are beyond the scope of these projections and out of the control of BI
Incorporated and SunTrust Equitable may cause actual results to differ
materially from these projections.
<PAGE>
Table of Contents
1. Executive Summary
2. Summary Operating Statistics
3. Stock Price Performance and Ownership
4. Valuation Analysis
A. Comparable Public Companies Analysis
B. Comparable Acquisitions
C. Discounted Cash Flow Analysis
D. Leveraged Buyout Analysis
5. Premiums Paid Analysis
Exhibit
-------
A. Leveraged Buyout Model
<PAGE>
Section 1
Executive Summary
<PAGE>
Executive Summary
. We understand that Kohlberg & Company ("Kohlberg") intends to commence an
offer to purchase all of the outstanding shares of BI Incorporated ("BI" or
the "Company") common stock at a price of $8.25 per share, net to the
seller for such shares in cash, through a tender offer to be commenced as
promptly as practicable (the "Proposed Transaction").
. SunTrust Equitable Securities Corporation ("STES") has been retained by the
Company to serve as financial advisor and to render an opinion to the Board
of Directors of BI with regard to the Proposed Transaction. As such, STES
has been requested to render an opinion as investment bankers (the
"Opinion") as to the fairness, from a financial point of view, of the
consideration to be paid to the Company's shareholders under the terms of
the Proposed Transaction.
Scope of Engagement
. In connection with our engagement, STES has, among other things:
. reviewed the draft merger agreement dated August 3, 2000;
. reviewed certain historical and projected financial information
regarding BI;
. reviewed certain information relating to comparable acquisition
transactions;
. reviewed certain financial and other information with respect to
certain other corrections/treatment companies;
. compared certain financial positions and operating results of the
Company; and
. conducted such other financial studies, analyses and investigations and
reviewed such other factors as we deemed appropriate.
1
<PAGE>
Executive Summary
Scope of Engagement (Cont'd)
. We held discussions with senior management of the Company concerning the
historical and current operations of the business, its financial condition
and prospects, as well as the present strategic and operating issues facing
the Company.
. We have assumed (i) the accuracy of the Company's audited historical
financial statements as prepared by the Company's management and subject to
audit by Arthur Andersen LLP and/or Pricewaterhouse Coopers LLP, (ii) the
accuracy of the Company's unaudited interim historical financial statements
as prepared by the Company's management and (iii) the financial forecasts
which we examined were reasonably prepared on bases reflecting the best
currently available estimates and good faith judgments of the management of
the Company.
. We have also assumed that all material assets and liabilities (contingent
or otherwise) of the Company are as set forth in the financial statements
of the Company or as otherwise disclosed by BI.
. Our methodologies included:
- A review and comparison of trading multiples for comparable publicly-
traded companies in the corrections industry;
- A review of recently completed precedent transaction multiples for
merger and acquisition transactions in the corrections industry (i.e.,
multiples of revenues, gross profit, and EBITDA as available);
- Performing a discounted cash-flow analysis of the Company including
sensitivity analyses utilizing a range of assumptions;
- Performing a stand-alone leveraged buyout analysis of the Company
including sensitivity analyses utilizing a range of assumptions; and
- Performing a premiums paid analysis for cash offers during the past
year with enterprise values ranging from $25 million to $250 million.
2
<PAGE>
Executive Summary
Overview of the Proposal
Consideration: $8.25 per share in cash
Mechanism: Tender offer for 90% of fully diluted shares
outstanding. Target or Acquiror may extend for two
additional 20 business day periods. If more than 75%,
but less than 90% of shares are tendered, Long Form
Merger can be undertaken.
Financing: Cash, senior bank debt, senior subordinated debt and
equity
Termination Fee: Expenses of Acquiror plus $2 million if Company enters
into an alternative transaction within 18 months.
Indemnification for
Board of Directors: Existing indemnification for four years with attempt
to renew thereafter.
No Solicitation: Company cannot solicit, initiate, or encourage any
action that facilitates an alternative transaction
except as allowed under fiduciary out.
Fiduciary Out Provisions: The Board may withdraw, modify or amend its
recommendation of the merger agreement or approve,
determine to be advisable or recommended a Superior
Proposal if a majority of the Board determines in good
faith, after considering applicable provisions of
state law and after consultation with outside counsel,
that the failure to do so could reasonably be expected
to constitute a breach of its fiduciary duties to its
stockholders under applicable law.
Tax Implications: Taxable to BI shareholders
Accounting Treatment: Purchase
3
<PAGE>
Executive Summary
Overview of the Proposal (cont'd)
Significant Conditions: . No statutes or other laws or orders prohibiting
consummation of the merger;
. No injunctions;
. Stockholder agreements and options; and
. Stockholder approval, if necessary.
Major Covenants: . Conduct of business
Termination: . By mutual consent;
. By either party if Effective time shall not have
occurred on or before November 15, 2000, or in the
event of Long Form Merger, February 15, 2001;
. By either party if prohibited by a governmental
entity;
. By the Company if a Superior Offer is accepted;
. By the Company if there is a material breach of the
merger agreement by the Acquiror;
. By either party if the offer expired with no shares
being purchased;
. By Acquiror if the Board withdraws, modifies or
proposes publicly to withdraw or modify its
recommendation of the offer;
. By Acquiror if the Company materially breaches the
merger agreement;
4
<PAGE>
Section 2
Summary Operating Statistics
<PAGE>
Summary Operating Statistics
($ in millions, except percentages)
<TABLE>
<CAPTION>
Fiscal Year End June 30,
----------------------------------------------------------------------------------
1998A 1999A 2000E/(1)/ 2001 2002 2003 2004 2005
------- ------- ---------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Service, Monitoring & Rental $ 44.8 $ 57.0 $ 67.1 $ 78.0 $ 93.2 $ 111.0 $ 130.9 $ 153.2
Direct Sales 13.8 11.4 10.3 9.3 9.0 9.0 9.0 9.0
------- ------- ---------- ------- ------- ------- ------- -------
Total Revenue 58.6 68.4 77.4 87.3 102.2 120.0 139.9 162.2
% growth 30.8% 16.6% 13.2% 12.8% 17.1% 17.3% 16.6% 15.9%
Cost of Sales:
Service, Monitoring & Rental 22.7 28.9 39.3 45.6 54.5 64.4 75.3 87.3
Direct Sales 6.0 4.9 6.3 6.0 5.4 5.2 5.0 5.0
------- ------- ---------- ------- ------- ------- ------- -------
Total Cost of Sales 28.7 33.8 45.6 51.6 59.9 69.6 80.3 92.4
Gross Profit:
Service, Monitoring & Rental 22.1 28.1 27.8 32.4 38.7 46.6 55.6 65.9
Direct Sales 7.9 6.5 4.0 3.3 3.6 3.8 4.0 4.0
------- ------- ---------- ------- ------- ------- ------- -------
Total Gross Profit 30.0 34.6 31.8 35.7 42.3 50.4 59.6 69.8
Gross Profit % 51.1% 50.6% 41.1% 40.9% 41.4% 42.0% 42.6% 43.1%
SG&A 21.5 23.7 26.3 26.2 30.0 34.9 40.3 44.4
Interest Expense -- -- 1.0 0.8 0.4 0.3 0.2 0.1
Amortization expense 7.1/(2)/ 7.4/(2)/ 1.7 1.5 1.6 1.6 1.6 1.6
------- ------- ---------- ------- ------- ------- ------- -------
NIBT 1.3 3.6 2.8 7.2 10.3 13.6 17.5 23.7
% revenue 2.3% 5.2% 3.6% 8.2% 10.1% 11.3% 12.5% 14.6%
------- ------- ---------- ------- ------- ------- ------- -------
EBITDA $ 8.5 $ 10.9 $ 12.2 $ 17.1 $ 19.7 $ 22.9 $ 27.0 $ 30.9
======= ======= ========== ======= ======= ======= ======= =======
</TABLE>
--------------------------------------
(1) Pro forma to reflect Intervention acquisition.
(2) Includes depreciation.
Source: Company projections
5
<PAGE>
Summary Operating Statistics
Selected Quarterly Growth Information
---------------------------------------------------------------
GRAPH: Relative Growth Quarter vs. Year Ago Quarter (%)
---------------------------------------------------------------
6
<PAGE>
Section 3
Stock Price Performance and Ownership
<PAGE>
Stock Price Performance and Ownership
BIAC 1 Year Weekly Price/Volume Graph
-----------------------------------------------
GRAPH
-----------------------------------------------
Source: Factset
7
<PAGE>
Stock Price Performance and Ownership
Volume Distribution
------------------------------------------------------------------
GRAPHS: 90 Day and 1 Year Volume Distribution
------------------------------------------------------------------
. Over the 90 Day period ended August 7, 2000, 774 thousand shares traded
representing approximately 9.7% of total shares outstanding. The weighted
average stock price over this period was $5.44. Over the year ended August 7,
2000 3.85 million shares traded representing 48.5% of total shares
outstanding and a weighted average stock price of $7.25.
-----------
Source: Factset
8
<PAGE>
Stock Price Performance and Ownership
BIAC Shareholder Analysis
--------------------------------------------------------------------
Institutional Holders /(1)/
--------------------------------------------------------------------
As a % of
Total Shares
Holder Shares Held Outstanding
----------------------------------- ------------- ------------
Merrill Lynch Asset Management 722,200 9.1%
Dimensional Fund 591,300 7.4%
Wynnefield Capital Management 315,125 4.0%
United Missouri Bank of Kansas City 240,555 3.0%
Barclays Bank PLC 82,219 1.0%
Reich & Tang Asset Management 72,500 0.9%
Mellon Bank Corporation 20,300 0.3%
Bank of New York 20,000 0.3%
Sloate, Weisman, Murray & Co. 15,000 0.2%
Northern Trust Corporation 14,500 0.2%
AXA Financial 10,000 0.1%
United States Trust Co. of NY 7,000 0.1%
CIBC Securities 2,100 0.0%
Norwest Bank of Minnesota 2,000 0.0%
Banc One Corporation 916 0.0%
First Virginia Bank 500 0.0%
Gray Seifert & Company 100 0.0%
Taunus Corporation 100 0.0%
International Strategy & Investment 100 0.0%
------------- ------------
Total Institutional Holdings 2,116,510 26.6%
============= ============
--------------------------------------------------------------------
Insiders/(2)/
--------------------------------------------------------------------
As a % of
Total Shares
Holder Shares Held Outstanding
----------------------------------- ------------- ------------
David J. Hunter 144,926 1.8%
Mckinley C. Edwards, Jr. 58,563 0.7%
Jackie A. Chamberlin 30,872 0.4%
Byam K. Stevens 20,950 0.3%
Steven P. Merefield 20,165 0.3%
Jeremy N. Kendall 11,150 0.1%
Jonathan M. Hinebauch 6,830 0.1%
Perry M. Johnston 3,000 0.0%
Beverly J. Haddon 1,000 0.0%
------------- ------------
Total Insider Holdings 297,456 3.7%
============= ============
--------------------------------------------------------------------
Total BIAC Shareholders
--------------------------------------------------------------------
Total Institutional 2,116,510 26.6%
Total Insider 297,456 3.7%
Other 5,534,596 69.6%
------------- ------------
Total Shares Outstanding/(3)/ 7,948,562 100.0%
============= ============
----------------------
(1) Source: Bloomberg as of August 7, 2000.
(2) Source: Proxy dated November 16, 1999.
(3) Per BIAC 10-Q for Quarter ended March 31, 2000.
9
<PAGE>
Section 4
Valuation Analysis
<PAGE>
Valuation Analysis
Valuation Matrix
-----------------------------------------------------------
Offer Price per Share $8.25
-----------------------------------------------------------
($ in thousands, Current Price/Implied Premium $4.13 8/7/00 100%
except per
share data) Shares Outstanding 7,949 $65,576
Options $1,867
Equity Purchase Price $67,443
Net Debt Assumed $12,128
-----------------------------------------------------------
Implied Firm Value $79,571
-----------------------------------------------------------
Firm Value/Total Revenue
Trailing Twelve Months/(1)/ $ 72,195 1.1x
Fiscal year 2000/(2)/ $ 77,400 1.0x
Projected 2001/(2)/ $ 87,300 0.9x
Projected 2002/(2)/ $102,200 0.8x
-----------------------------------------------------------
Firm Value/EBITDA
Trailing Twelve Months/(1)/ $ 11,724 6.8x
Fiscal year 2000/(2)/ $ 12,200 6.5x
Projected 2001/(2)/ $ 17,100 4.7x
Projected 2002/(2)/ $ 19,700 4.0x
-----------------------------------------------------------
Firm Value/EBIT
Trailing Twelve Months/(1)/ $ 3,856 20.6x
Fiscal year 2000/(2)/ $ 3,800 20.9x
Projected 2001/(2)/ $ 8,000 9.9x
Projected 2002/(2)/ $ 10,700 7.4x
-----------------------------------------------------------
Equity Price/EPS
Trailing Twelve Months/(1)/ $ 0.26 31.7x
-----------------------------------------------------------
Equity Value/Book Equity
Fiscal year 2000/(1)/ $ 48,625 1.4x
-----------------------------------------------------------
(1) Source: Company filings.
(2) Source: Company projections.
10
<PAGE>
Valuation Analysis
Relative Valuation Summary
Enterprise Value as a
Multiple of TR12: Equity Value
----------------------- as a Multiple of
Comparable Public Company Analysis Revenues EBITDA EBIT TR12 P/E
-------- ------ ---- ----------------
Average Multiple Excluding BI 0.7x 5.4x 7.5x 8.7x
Median Multiple Excluding BI 0.4x 5.6x 7.8x 7.3x
Comparable Acquisition Analysis
Average Multiple
Excluding High and Low 1.1x 9.1x
Median Multiple 0.8x 6.0x
--------------------------------------------------------------------------------
Implied BI Transaction Multiple/(2)/ 1.1x 6.8x 20.6x 31.7x
--------------------------------------------------------------------------------
Premium Prior to Announcement
----------------------------------
Premiums Paid Analysis 1 Day 1 Week 4 Weeks
----- ------ -------
Average Premium 28.0% 30.2% 38.8%
Average Premium Excluding High and Low 26.3% 27.6% 36.3%
--------------------------------------------------------------------------------
Implied BI Premiums Relative to
August 7, 2000/(3)/ 106.3% 83.3% 46.7%
--------------------------------------------------------------------------------
Range of Implied Values
--------------------------------
Discounted Cash Flow Analysis Low High
--------------- ---------------
Management Case Implied Value per Share 6.76 17.42
Sensitivity Case Implied Value per Share/(4)/ 4.07 12.21
Return at an Exit Multiple of:
------------------------------
Leveraged Buyout Analysis 6.0x 7.0x
------------- -------------
Equity Return to Sponsor 32.1% 36.8%
----------------------
(1) Average purchase transaction multiple excludes pooling transactions.
(2) Based on a share price of $8.25 and trailing twelve month data.
(3) Premiums based on a share price of $8.25.
(4) Sensitivity case based on a 30.0% reduction of operating income.
11
<PAGE>
Section 4A
Comparable Public Companies Analysis
<PAGE>
Comparable Public Companies Analysis
. We have examined the trading and valuation characteristics of a group of
publicly-traded companies in the corrections/treatment industry. None of
these companies are identical to BI.
. The companies examined were:
- America Service Group
- Avalon Correctional Services
- Children's Comprehensive Services
- Cornell Companies
- Correctional Services Corporation
- Ramsay Youth Services
- Res-Care
- Wackenhut Corrections Corporation
. Each company's valuation must be analyzed in context with its business focus
and trading history relative to BI. The schedules on the following pages
present an assessment of each company's operating performance and trading
history relative to BI.
12
<PAGE>
Comparable Public Companies Analysis
Description of Comparable Companies
America Service Group (ASGR-NASDAQ) contracts to provide managed healthcare
services to correctional facilities and military installations throughout the
United States through its subsidiaries Prison Health Services Inc. (PHS), EMSA
Correctional Care Inc. (EMSA Correctional) and EMSA Military Services Inc. (EMSA
Military). The company, through PHS and EMSA Correctional, contracts with state,
county and local governmental agencies to provide comprehensive healthcare
services to inmates of prisons and jails, with a focus on those facilities that
maintain an average daily population of over 300 inmates. EMSA Military provides
a broad range of emergency medicine and primary healthcare services to active
and retired military personnel and their dependents in medical facilities
operated by the United States Department of Defense and the United States
Veterans Administration.
Avalon Correctional Services (CITY-NASDAQ) specializes in operating private
community correctional facilities and providing intensive correctional
programming. Avalon currently owns and operates 1,185 private corrections beds.
The company owns and operates three minimum-security correctional facilities in
Oklahoma, one medium security juvenile facility in Oklahoma, one medium security
correctional facility in Texas, and an additional medium-security correctional
facility is currently being constructed in Texas. The facilities provide
numerous programs for offenders generally serving the last six months of their
sentence. Avalon provides contract agencies the basic services relating to the
security, detention and care of inmates, and a broad range of rehabilitative
programs to reduce recidivism. The programming includes substance abuse
treatment and counseling, vocational training, work release programs, basic
educational programs, job and life skill training, and reintegration services.
Children's Comprehensive Services (KIDS - NASDAQ) and its subsidiaries provide a
continuum of services to at-risk and troubled youth. The company emphasizes
education, treatment and juvenile justice services, primarily to federal, state
and local governmental entities charged with the responsibility for providing
such services. The company offers these services through the operation and
management of education and treatment programs and both open and secured
residential treatment centers in Alabama, Arkansas, California, Florida, Hawaii,
Kentucky, Louisiana, Michigan, Montana, Ohio, Pennsylvania, Tennessee, Texas and
Utah. The company also provides a limited range of adult behavioral services at
certain of its locations in response to community demand. In addition, the
company provides consulting, management and marketing services to other
entities.
13
<PAGE>
Comparable Public Companies Analysis
Description of Comparable Companies
Cornell Companies (CRN - NYSE) is one of the leading providers of privatized
correctional, detention, pre-release, and treatment services in the United
States. The company currently operates facilities in 13 states and the District
of Columbia. The company provides integrated facility development, design,
construction and operational services to governmental agencies within three
operating divisions: secure institutional correctional and detention services;
juvenile treatment, educational and detention services; and pre-release
correctional and treatment services. As of December 31, 1999, the company had
contracts to operate 72 facilities with a total service capacity of 14,845.
Cornell Companies residential facilities have a total service capacity of 12,317
beds, with 49 facilities currently in operation.
Correctional Services Corporation (CSCQ - NASDAQ) incorporated on October 28,
1993, is a comprehensive provider of juvenile rehabilitative services and a
developer and operator of adult correctional facilities. The company has 35
juvenile facilities and approximately 3,800 juveniles in its care, and operates
18 adult facilities representing approximately 7,100 beds. On a combined basis,
as of December 31, 1999, the company provided services in 20 states and Puerto
Rico, representing approximately 10,900 beds excluding aftercare services. In
addition, CSC operates a wide range of correctional facilities targeted toward
solving the specialized needs of governmental agencies. On March 31, 1999, the
company acquired Youth Services International, a national provider of private
educational, developmental and rehabilitative programs to adjudicated juveniles,
through a merger.
Ramsay Youth Services (RYOU - NASDAQ) is a provider and manager of diversified
education, treatment and community-based programs and services for at-risk and
troubled youth in residential and non-residential settings nationwide. The
company offers its full spectrum of programs and services in Alabama, Florida,
Missouri, Michigan, Nevada, North Carolina, South Carolina, Texas, Utah and the
Commonwealth of Puerto Rico. The company also provides a limited range of adult
behavioral services at certain of its locations in response to community demand.
The programs and services provided by the company are designed through a
comprehensive continuum that is directed to address the specific needs of each
youth.
14
<PAGE>
Comparable Public Companies Analysis
Description of Comparable Companies
Res-Care (RSCR - NASDAQ) is a provider of residential, training, educational and
support services to populations with special needs, including persons with
developmental and other disabilities and at-risk and troubled youths. The
company's programs include an array of services provided in both residential and
non-residential settings for adults and youths with mental retardation or other
developmental disabilities (MR/DD) and disabilities caused by acquired brain
injury (ABI). The company also provides programs for youths who have special
educational or support needs, are from disadvantaged backgrounds, or have severe
emotional disorders. The company has three reportable operating segments:
disabilities services; Job Corps program; and other youth services programs.
Wackenhut Corrections Corporation (WHC - NYSE) operates privatized correctional
facilities. The company is a 56%-owned subsidiary of the Wackenhut Corporation,
a provider of professional security services. As of January 2, 2000, the company
had 56 correctional, detention and healthcare facilities either under contract
or award with an aggregate design capacity of 39,930 beds. Of these 56
facilities, 50 are currently in operation, and the company is developing six. Of
the facilities being developed, three are expected to commence operations during
2000 (two in the second quarter and one in the third quarter). Wackenhut offers
governmental agencies a comprehensive range of correctional and related
institutional services to federal, state, local and overseas government
agencies.
15
<PAGE>
Comparable Public Companies Analysis
-----------------------------------------------------
GRAPH: Indexed Performance (%) - Comparable Companies
-----------------------------------------------------
Source: Factset
16
<PAGE>
Comparable Public Companies Analysis
----------------------------------------------------------------
GRAPH: Indexed Performance (%) - Comparables Index, BIAC, NASDAQ
----------------------------------------------------------------
Source: Factset
-----------------------
(1) The comparable company index includes ASGR, CITY, KIDS, CRN, CSCQ, RYOU,
RSCR and WHC and is market cap weighted.
17
<PAGE>
<TABLE>
<CAPTION>
Comparable Public Companies Analysis
Corrections/Treatment Companies
($ in thousands, except per share data)
Enterprise Value as a
Multiple of TR12: 2001 P/E
8/7/00 Equity ---------------------------- P/E as a % of
Closing Enterprise Market Net ----------------------- Trendlin
Company Name Price Value/(1)/ Value Revenues EBITDA EBIT TR 12 CY 00E CY 01E Growth
---------------------------- ------- ---------- -------- -------- ------- ------- ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
America Service Group $ 19.00 $120,019 $ 70,890 $290,814 $16,625 $12,649 $ 1.34 $ 1.36 $ 1.70 24.0%
0.4x 7.2x 9.5x 14.2x 14.0x 11.2x 46.6%
Avalon Correctional Services 1.52 37,403 7,147 19,624 5,110 3,620 0.11 N/A N/A N/A
1.9x 7.3x 10.3x 14.2x N/A N/A N/A
------------------------------------------------------------------------------------------------------------------------------------
BI Incorporated 4.13 40,598 32,788 72,195 11,724 3,856 0.26 N/A N/A N/A
0.6x 3.5x 10.5x 15.9x N/A N/A N/A
------------------------------------------------------------------------------------------------------------------------------------
Children's Comprehensive 3.06 44,172 21,962 127,088 14,816 10,447 0.67 N/A N/A N/A
0.3x 3.0x 4.2x 4.6x N/A N/A N/A
Cornell Companies, Inc. 6.69 204,280 63,291 192,079 31,543 25,163 0.92 1.03 1.23 25.0%
1.1x 6.5x 8.1x 7.3x 6.5x 5.4x 21.7%
Correctional Services Corp. 4.63 85,231 52,600 228,693 21,285 15,876 0.69 0.95 1.09 15.0%
0.4x 4.0x 5.4x 6.7x 4.9x 4.2x 28.2%
Ramsay Youth Services 1.19 24,486 10,813 86,037 5,716 3,089 0.16 0.15 0.20 35.0%
0.3x 4.3x 7.9x 7.4x 7.9x 5.9x 16.8%
Res-Care, Inc. 6.16 448,424 149,692 848,674 81,190 59,075 0.87 1.12 1.40 22.5%
0.5x 5.5x 7.6x 7.0x 5.5x 4.4x 19.5%
Wackenhut Corrections 8.31 179,920 186,092 471,561 31,201 25,067 1.00 1.00 1.25 26.3%
0.4x 5.8x 7.2x 8.3x 8.3x 6.7x 25.4%
------------------------------------------------------------------------------------------------------------------------------------
Average Multiple/(2)/ 0.7x 5.4x 7.5x 8.7x 7.8x 6.3x 26.4%
Average Multiple Excluding High and Low/(2)/ 0.5x 5.5x 7.6x 8.5x 7.1x 5.6x 23.7%
Median/(2)/ 0.4x 5.6x 7.8x 7.3x 7.2x 5.7x 23.6%
------------------------------------------------------------------------------------------------------------------------------------
(1) Enterprise Value equals the sum of the Equity Market Value and Total Debt less Cash.
(2) Excludes BI Incorporated.
</TABLE>
18
<PAGE>
Comparable Public Companies Analysis
Summary Operational Results
($ in thousands)
<TABLE>
<CAPTION>
Net Revenues EBITDA Net Income
-------------------- -------------------- --------------------
TR12 CAGR/(1)/ TR12 Margin TR12 CAGR/(1)/
-------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
America Service Group 290,814 45.3% 16,625 5.7% 3,543 60.3%
Avalon Correctional Services 19,624 69.1% 5,110 26.0% 453 N/M
------------------------------------------------------------------------------------------------------------------
BI Incorporated 72,195 20.6% 11,724 16.2% 2,236 30.1%
------------------------------------------------------------------------------------------------------------------
Children's Comprehensive 127,088 76.0% 14,816 11.7% 4,846 (10.6%)
Cornell Companies, Inc. 192,079 58.7% 31,543 16.4% 8,837 52.9%
Correctional Services Corp. 228,693 15.3% 21,285 9.3% 7,685 N/A
Ramsay Youth Services 86,037 (22.2%) 5,716 6.6% 1,572 (4.4%)
Res-Care, Inc. 848,674 33.1% 81,190 9.6% 25,264 19.0%
Wackenhut Corrections 471,561 45.6% 31,201 6.6% 21,890 35.9%
------------------------------------------------------------------------------------------------------------------
Average/(2)/ $283,071 40.1% $25,936 11.5% $ 9,261 25.5%
Average Excluding High and Low/(2)/ $232,712 44.5% $20,198 10.0% $ 8,062 25.9%
Median/(2)/ $210,386 45.5% $18,955 9.4% $ 6,266 27.5%
------------------------------------------------------------------------------------------------------------------
Return on Average Assets Return on Avg. Equity
------------------------ --------------------- Debt/Total
TR12 Avg./(1)/ TR12 Avg./(1)/ Capitalization
---------- ---------- -------- --------- --------------
America Service Group 3.4% 7.4% 11.2% 21.9% 45.3%
Avalon Correctional Services 1.2% (0.0%) 9.9% 0.0% 82.0%
------------------------------------------------------------------------------------------------------------------
BI Incorporated 3.3% 4.9% 4.8% 7.0% 14.6%
------------------------------------------------------------------------------------------------------------------
Children's Comprehensive 4.9% 6.6% 8.5% 10.1% 31.1%
Cornell Companies, Inc. 3.2% 3.5% 9.0% 8.2% 58.7%
Correctional Services Corp. 7.0% (0.4%) 14.9% 0.2% 39.8%
Ramsay Youth Services 3.9% (6.9%) 9.0% (17.8%) 46.3%
Res-Care, Inc. 4.7% 5.0% 15.2% 15.5% 64.8%
Wackenhut Corrections 10.4% 11.5% 18.5% 18.7% 15.1%
------------------------------------------------------------------------------------------------------------------
Average/(2)/ 4.8% 3.3% 12.0% 7.1% 47.9%
Average Excluding High and Low/(2)/ 4.5% 3.7% 11.5% 8.8% 47.7%
Median/(2)/ 4.3% 4.3% 10.5% 9.1% 45.8%
------------------------------------------------------------------------------------------------------------------
(1) Computed for the three most recent fiscal years.
(2) Excludes BI Incorporated.
</TABLE>
19
<PAGE>
Comparable Public Companies Analysis
Historical Stock Price Performance
($ in thousands, except per share data)
<TABLE>
<CAPTION>
Closing Stock Price 1 Year
------------------- Average Daily Price Percentage
Company Ticker 8/6/99 8/7/00 Volume Change Price Change
----------------------------------- ----------- -------- --------- ------------- ------ ------------
<S> <C> <C> <C> <C> <C> <C>
America Service Group ASGR/NASDAQ $14.44 $19.00 15,866 $ 4.56 31.6%
Avalon Correctional Services CITY/NASDAQ 2.78 1.52 4,151 (1.27) (45.5%)
-------------------------------------------------------------------------------------------------------------------------
BI Incorporated BIAC/NASDAQ 8.00 4.13 19,700 (3.88) (48.4%)
-------------------------------------------------------------------------------------------------------------------------
Children's Comprehensive KIDS/NASDAQ 5.81 3.06 19,192 (2.75) (47.3%)
Cornell Companies, Inc. CRN/NYSE 15.44 6.69 33,174 (8.75) (56.7%)
Correctional Services Corp. CSCQ/NASDAQ 9.19 4.63 58,386 (4.56) (49.7%)
Ramsay Youth Services RYOU/NASDAQ 3.00 1.19 11,987 (1.81) (60.4%)
Res-Care, Inc. RSCR/NASDAQ 20.38 6.16 19,768 (14.22) (69.8%)
Wackenhut Corrections WHC/NYSE 19.25 8.31 67,725 (10.94) (56.8%)
-------------------------------------------------------------------------------------------------------------------------
Average/(1)/ (44.3%)
Average Excluding High and Low/(1)/ (52.7%)
Median/(1)/ (53.2%)
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
--------------------
(1) Average excludes BIAC.
20
<PAGE>
Comparable Public Companies Analysis
Historical Market Capitalization
<TABLE>
<CAPTION>
Market Value (000's)
Closing Stock Price --------------------------------------------
------------------- Price Percentage
Company Ticker 8/6/99 8/7/00 8/6/99 8/7/00 Change Price Change
----------------------------------- ----------- -------- --------- -------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
America Service Group ASGR/NASDAQ $14.44 $19.00 $ 51,817 $ 70,890 $19,073 36.8%
Avalon Correctional Services CITY/NASDAQ 2.78 1.52 12,990 7,147 (5,843) (45.0%)
----------------------------------------------------------------------------------------------------------------------------
BI Incorporated BIAC/NASDAQ 8.00 4.13 63,290 32,788 (30,503) (48.2%)
----------------------------------------------------------------------------------------------------------------------------
Children's Comprehensive KIDS/NASDAQ 5.81 3.06 42,431 21,962 (20,470) (48.2%)
Cornell Companies, Inc. CRN/NYSE 15.44 6.69 147,930 63,291 (84,640) (57.2%)
Correctional Services Corp. CSCQ/NASDAQ 9.19 4.63 104,490 52,600 (51,890) (49.7%)
Ramsay Youth Services RYOU/NASDAQ 3.00 1.19 27,247 10,813 (16,434) (60.3%)
Res-Care, Inc. RSCR/NASDAQ 20.38 6.16 495,136 149,692 (345,444) (69.8%)
Wackenhut Corrections WHC/NYSE 19.25 8.31 430,950 186,092 (244,858) (56.8%)
----------------------------------------------------------------------------------------------------------------------------
Average/(1)/ $164,124 $ 70,311 ($93,813) (43.8%)
Average Excluding High and Low/(1)/ $134,144 $ 61,541 ($70,689) (52.9%)
Median/(1)/ $ 78,154 $ 57,946 ($36,180) (53.2%)
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
--------------------
(1) Average excludes BIAC.
21
<PAGE>
Section 4B
Comparable Acquisitions
<PAGE>
Comparable Acquisitions
. We reviewed and analyzed certain publicly-available financial and structural
information for selected merger and acquisition transactions involving
companies in the corrections industry.
. We examined these transactions and calculated the multiples of revenues,
gross profit and EBITDA implied by the total transaction value.
. No company or transaction is identical to BI or the Proposed Transaction.
None of the transactions involved companies that have the same focus as BI.
. In addition, several of the companies acquired in these transactions were
engaged in aggressive consolidation strategies prior to their acquisition
that may distort the suggested transaction valuation multiples.
22
<PAGE>
Comparable Acquisitions
($ in thousands)
<TABLE>
<CAPTION>
Multiples of Total
Consideration to TR12:
-------------------------
Transaction Total Net Gross
Date Acquiror / Target Type Consideration Revenue Profit EBITDA
----- ------------------------------------------ -------------- ------------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
2/93 Youth Services International, Inc. Asset Purchase $ 1,767 N/A N/A N/A
Forest Ridge Community Youth Services
11/93 Youth Services International, Inc. Asset Purchase 4,930 2.6x 4.5x 6.0x
Prestige Developments, Inc.
1/94 Youth Services International, Inc. Stock Purchase 350 0.2x 0.5x N/M
Western Youth, Inc.
3/94 Cornell Corrections, Inc. Stock Purchase 10,000 0.7x 3.6x 54.1x
Eclectic Communications, Inc.
8/94 Youth Services International, Inc. Asset Purchase 923 0.3x N/A N/A
Parc Place Limited Partnership
10/94 Youth Services International, Inc. Stock Purchase 686 N/A N/A N/A
Promise House, Inc.
12/94 Corrections Corporation of America Pooling 20,963 2.7x 11.1x 18.7x
TransCor America, Inc.
4/95 Corrections Corporation of America Pooling 40,023 1.7x 11.5x 21.0x
Concept Incorporated
6/95 Youth Services International, Inc. Stock Purchase 1,338 N/A N/A N/A
Developmental Behavioral Consultants, Inc.
7/95 Youth Services International, Inc. Asset Purchase 5,119 1.1x 1.9x 11.0x
Desert Hills Center, New Mexico
8/95 Corrections Corporation of America Pooling 29,838 3.6x N/A N/A
Corrections Partners, Inc.
3/96 Youth Services International, Inc. Asset Purchase 3,825 0.4x 1.0x 1.8x
Tampa Bay Academy, Ltd.
5/96 Cornell Corrections, Inc. Stock Purchase 2,000 0.6x N/M N/M
The Reid Center
</TABLE>
---------------------
Source: CommScan, Bloomberg and SEC filings
23
<PAGE>
Comparable Acquisitions
($ in thousands)
<TABLE>
<CAPTION>
Multiples of Total
Consideration to TR12:
-------------------------
Transaction Total Net Gross
Date Acquiror / Target Type Consideration Revenue Profit EBITDA
----- ------------------------------------------ -------------- ------------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
7/96 Cornell Corrections, Inc. Asset Purchase $22,700 1.3x 3.4x 4.5x
MidTex Detentions, Inc.
7/96 Youth Services International, Inc. Stock Purchase 800 N/A N/A N/A
Youth Quest, Inc.
9/96 Res-Care, Inc. Asset Purchase N/A N/A N/A N/A
Community Learning Centers, Inc.
9/96 Youth Services International, Inc. Asset Purchase N/A N/A N/A N/A
Introspect Healthcare Corp.
10/96 BI Incorporated Stock Purchase 6,000 0.7x 1.3x 3.0x
Community Corrections Corporation
2/97 Cornell Corrections, Inc. Asset Purchase 6,000 0.8x 3.7x 6.0x
Interventions Co.
2/97 BI Incorporated Stock Purchase 2,337 N/A N/A N/A
Peregrine Corrections, Inc.
4/97 Children's Comprehensive Services, Inc. Stock Purchase 990 0.8x N/A N/A
AR&D, Inc.
6/97 Children's Comprehensive Services, Inc. Asset Purchase 25,600 0.4x N/M N/M
Vendell Healthcare, Inc.
7/97 Healthcare America, Inc. Mgmt. Buyout 90,000 0.8x 1.7x 8.3x
Healthcare America, Inc.
7/97 Wackenhut Corrections Corporation Stock Purchase 6,000 0.9x N/A N/A
Psychiatric hospital
9/97 Cornell Corrections, Inc. Stock Purchase 18,000 0.6x 2.4x 7.2x
The Abraxas Group
10/97 Youth and Family Centered Services, Inc. Stock Purchase 20,500/(1)/ 0.5x 4.5x 5.9x
YSI Behavioral Health Operations
</TABLE>
---------------------
(1) Includes a $4.5 million earn-out.
Source: CommScan, Bloomberg and SEC filings
24
<PAGE>
Comparable Acquisitions
($ in thousands)
<TABLE>
<CAPTION>
Multiples of Total
Consideration to TR12:
-------------------------
Transaction Total Net Gross
Date Acquiror / Target Type Consideration Revenue Profit EBITDA
----- ------------------------------------------ -------------- ------------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
1/98 Children's Comprehensive Services, Inc. Pooling $ 2,700 N/A N/A N/A
Ventures Management Services
2/98 Children's Comprehensive Services, Inc. Stock Purchase 2,250 0.9x N/A N/A
Chad Youth Enhancement Center
4/98 Corrections Corporation/CCA Prison Realty Stock Purchase 265,000 N/A N/A N/A
U.S. Corrections Corporation
6/98 Youth Services International, Inc. Pooling 6,826 0.7x N/A 5.8x
Community Corrections, Inc.
8/98 Cornell Corrections, Inc. Stock Purchase 20,000 1.9x N/A 3.9x
Allvest, Inc.
9/98 Children's Comprehensive Services, Inc. Stock Purchase 12,500 0.9x N/A N/A
Ameris Health Systems, Inc.
12/98 CCA Prison Realty Trust Stock Purchase 1,598,760 3.9x 13.9x 17.3x
Corrections Corporation of America
1/99 Correctional Properties Trust Stock Purchase 45,000 N/A N/A N/A
Lawton, Ohio Correctional Facility
3/99 Correctional Services Corporation Stock Purchase N/A N/A N/A N/A
Youth Services International, Inc.
5/99 Avalon Correctional Services, Inc. Stock Purchase N/A N/A N/A N/A
Adams Community Corrections
6/99 Avalon Correctional Services, Inc. Stock Purchase 8,600 0.5x N/A N/A
Villa at Greeley, LLC
11/99 Cornell Companies, Inc. Asset Purchase N/A N/A N/A N/A
Interventions/BHS Consulting Corporation
1/00 Correctional Properties Trust Stock Purchase 15,200 1.8x N/A N/A
Jena Juvenile Justice Center
</TABLE>
---------------------
Source: CommScan, Bloomberg and SEC filings
25
<PAGE>
Comparable Acquisitions
($ in thousands)
<TABLE>
<CAPTION>
Multiples of Total
Consideration to TR12:
-------------------------
Transaction Total Net Gross
Date Acquiror / Target Type Consideration Revenue Profit EBITDA
----- ------------------------------------------ -------------- ------------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
3/00 America Service Group Inc. Asset Purchase $14,000 N/A N/A N/A
PA & NY Operations (Correctional Physician Servs. Inc.)
5/00 America Service Group Inc. Stock Purchase 17,000 0.9x N/A N/A
Correctional Health Services, Inc.
----------------------------------------------------------------------------------------------------------------------
Average (Excluding High/Low) 1.1x 4.2x 9.1x
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
Median 0.8x 3.5x 6.0x
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
Average Purchase Acquisition Multiples 1.0x 3.5x 10.8x
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
Averae Pooling Acquisition Multiples 2.2x 11.3x 15.2x
----------------------------------------------------------------------------------------------------------------------
</TABLE>
---------------------
Source: CommScan, Bloomberg and SEC filings
26
<PAGE>
Section 4C
Discounted Cash Flow Analysis
<PAGE>
Discounted Cash Flow Analysis
. The discounted cash flow analysis presents a valuation for the equity of the
Company based upon projected cash flows. The analysis seeks to evaluate the
intrinsic value of a business without considering a sale or other transaction
with the Company.
. The analysis is presented under two scenarios using five year projections
provided by Company management ("Management Case") and a scenario with EBIT
discounted by 30.0% ("Sensitivity Case").
. The final year of projections is utilized to calculate the "terminal value,"
an estimate of the value of the Company at the end of the projection period.
This value is estimated by using a range of EBITDA multiples. The range is
based upon current and recent trading multiples for the Company.
. The projections are utilized to calculate free cash flow that is discounted
to the present time utilizing discount rates ranging from 9.3% to 11.3%. The
discount rates reflect the uncertainty of the projections and are estimated
from the Company's theoretical cost of capital.
. Inherent in any discounted cash flow analysis are the use of a number of
assumptions, including the accuracy of projections, and the subjective
determination of an appropriate terminal value and discount rate to apply to
the projected cash flows of the entity under examination. Variations in any
of these assumptions or judgments could significantly alter the results of a
discounted cash flow analysis.
27
<PAGE>
Discounted Cash Flow Analysis
Discounted Cash Flow Analysis
Management Case
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
2001 2002 2003 2004 2005
-------- -------- -------- -------- --------
Earnings Before Interest & Taxes $ 8,000 $ 10,700 $ 13,900 $ 17,700 $ 23,800
EBITDA 17,100 19,700 22,900 27,000 30,900
Income Tax Effect 42.5% 42.5% 42.5% 42.5% 42.5%
-------- -------- -------- -------- --------
Net Operating Earnings Less Taxes 4,600 6,153 7,993 10,178 13,685
Plus Depreciation & Amortization 9,100 9,000 9,000 9,300 7,100
-------- -------- -------- -------- --------
Cash Flow From Operations 13,700 15,153 16,993 19,478 20,785
Change in Net Working Captial 168 (2,789) (9,413) (12,653) (15,373)
Capital Expenditures (8,300) (8,000) (5,100) (5,100) (5,100)
-------- -------- -------- -------- --------
Free Cash Flow $ 5,568 $ 4,364 $ 2,480 $ 1,724 $ 312
======== ======== ======== ======== ========
</TABLE>
Terminal Value as a Multiple of EBITDA (1)
-------------------------------------------------------------
3.0x 4.0x 5.0x 6.0x 7.0x
--------- --------- --------- --------- ---------
$ 92,700 $ 123,600 $ 154,500 $ 185,400 $ 216,300
Net Obligations (2) $12,128
Example of DCF Calculations
Free Cash Flow
--------------
2001 $ 5,568
2002 4,364
2003 2,480
2004 1,724
2005 312
Terminal Value (5.0x) 154,500
Discount Rate (4) 10.3%
Discounted Value $ 106,393
Less: Net Obligations (12,128)
--------------
Net Value $ 94,265
==============
Shares Outstanding 7,949
Net Value Per Share $ 11.86
==============
<TABLE>
<CAPTION>
Present Value of Equity (3)
Discount Terminal Value Multiple
Rate (4) -----------------------------------------------------------------------------------
3.0x 4.0x 5.0x 6.0x 7.0x
---------- --------------- -------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
9.3% 59,300 79,093 98,886 118,678 138,471
10.3% 56,442 75,354 94,265 113,177 132,089
11.3% 53,731 71,808 89,885 107,963 126,040
Per Share Present Value of Equity (3)
---------- -----------------------------------------------------------------------------------
9.3% 7.46 9.95 12.44 14.93 17.42
10.3% 7.10 9.48 11.86 14.24 16.62
11.3% 6.76 9.03 11.31 13.58 15.86
</TABLE>
-----------------------
(1) STES estimate.
(2) Includes long-term debt and capitalized leases less cash.
(3) Adjusted to deduct outstanding obligations.
(4) Based on estimated cost of capital.
28
<PAGE>
Discounted Cash Flow Analysis
Discounted Cash Flow Analysis
Sensitivity Case, 30.0% Operation Income Reduction
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
2001 2002 2003 2004 2005
-------- -------- -------- -------- --------
Earnings Before Interest & Taxes $ 5,600 $ 7,490 $ 9,730 $ 12,390 $ 16,660
EBITDA 14,700 16,490 18,730 21,690 23,760
Income Tax Effect 42.5% 42.5% 42.5% 42.5% 42.5%
-------- -------- -------- -------- --------
Net Operating Earnings Less Taxes 3,220 4,307 5,595 7,124 9,580
Plus Depreciation & Amortization 9,100 9,000 9,000 9,300 7,100
-------- -------- -------- -------- --------
Cash Flow From Operations 12,320 13,307 14,595 16,424 16,680
Change in Net Working Captial 168 (2,789) (9,413) (12,653) (15,373)
Capital Expenditures (8,300) (8,000) (5,100) (5,100) (5,100)
-------- -------- -------- -------- --------
Free Cash Flow $ 4,188 $ 2,518 $ 82 $ (1,329) $ (3,794)
======== ======== ======== ======== ========
</TABLE>
Terminal Value as a Multiple of EBITDA (1)
-------------------------------------------------------------
3.0x 4.0x 5.0x 6.0x 7.0x
--------- --------- --------- --------- ---------
$ 71,280 $ 95,040 $ 118,800 $ 142,560 $ 166,320
Net Obligations (2) $12,128
Example of DCF Calculations
Free Cash Flow
--------------
2001 $ 4,188
2002 2,518
2003 82
2004 (1,329)
2005 (3,794)
Terminal Value (5.0x) 118,800
Discount Rate (4) 10.3%
Discounted Value $ 75,416
Less: Net Obligations (12,128)
--------------
Net Value $ 63,288
==============
Shares Outstanding 7,949
Net Value Per Share $ 7.96
==============
<TABLE>
<CAPTION>
Present Value of Equity (3)
Discount Terminal Value Multiple
Rate (4) -----------------------------------------------------------------------------------
3.0x 4.0x 5.0x 6.0x 7.0x
---------- --------------- -------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
9.3% 36,170 51,389 66,608 81,828 97,047
10.3% 34,205 48,746 63,288 77,830 92,372
11.3% 32,342 46,242 60,142 74,042 87,943
Per Share Present Value of Equity (3)
---------- -----------------------------------------------------------------------------------
9.3% 4.55 6.47 8.38 10.29 12.21
10.3% 4.30 6.13 7.96 9.79 11.62
11.3% 4.07 5.82 7.57 9.32 11.06
</TABLE>
-----------------------
(1) STES estimate.
(2) Includes long-term debt and capitalized leases.
(3) Adjusted to deduct outstanding obligations.
(4) Based on estimated cost of capital.
29
<PAGE>
Discounted Cash Flow Analysis
Weighted Average Cost of Capital
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Levered Debt-to- Unlevered
Betas for Comparable Companies Beta (BI) Market Equity Beta (BU)(1)
------------------------------ --------- ------------- ------------
America Service Group 0.51 52.5% 0.39
Avalon Correctional Services 0.14 432.5% 0.04
Children's Comprehensive 0.80 118.2% 0.48
Cornell Companies, Inc. 0.60 223.2% 0.26
Correctional Services Corp. 0.89 66.1% 0.64
Ramsay Youth Services 0.47 141.3% 0.26
Res-Care, Inc. 0.44 208.9% 0.20
Wackenhut Corrections 0.78 11.3% 0.73
--------- ------------- ------------
Average 0.58 156.7% 0.38
</TABLE>
Market Assumptions
Implied Risk-Free Rate (5-Year T-Note 08/07/00) 6.1%
Risk Premium for Common Stocks (2) 8.1%
Small Capitalization Premium (2) 2.2%
Levered Cost of Equity for Comparables (3) 10.7%
Unlevered Cost of Equity for Comparables 9.1%
Marginal Tax Rate 42.5%
Debt-to-Equity Ratio 26.8%
<TABLE>
<CAPTION>
<S> <C> <C>
Common
Assumptions for Debt Equity (CE)
------------------------------------ --------- ---------------
Cost 8.50% 11.8%
Value $ 12,928 $ 48,325
Total Value of Company $ 61,253 Total Value = Debt + Common Equity
Relevered Beta (4) 0.43 Based on the Unlevered Beta from the Comparables and the
Company's Debt-to-Equity-Equity Ratio
Cost of Common Equity 11.8% Company Cost of Equity = Risk-Free Rate + (Relevered Beta x
Risk Premium) + Private Equity Risk Premium
Weighted Average Cost of Capital 10.3% WACC = [(cost D) x (value D/V) x (1-tax rate)] + [(cost PE) x
(value PE/V)] + [(cost CE) x (value CE/V)]
</TABLE>
------------------------
(1) BU = BI/[1 + (1 - tax rate) x (debt/equity ratio)]. Assumes an average tax
rate of 42.5%
(2) Provided by Ibbotsen Associates.
(3) Cost of equity = risk free rate + (BI x risk premium for common stocks).
(4) Relevered Beta = average Bu x [1 + (1 - tax rate) x (debt/equity ratio)].
30
<PAGE>
Section 4D
Leveraged Buyout Analysis
<PAGE>
Leveraged Buyout Analysis
. The leveraged buyout model presents an analysis of the stand-alone value for
the equity of the Company. The analysis focuses upon the price which could be
paid for the Company's equity in a leveraged transaction while achieving an
adequate internal rate of return on investment.
. The analysis is presented utilizing Company provided projections and is
assumed to be a stock purchase with the assumption of existing liabilities.
. Goodwill is created in the transaction and is assumed to be amortized over 20
years and is not deductible for tax purposes.
. The transaction is assumed to be funded with a capital structure consisting
of equity, subordinated debt and senior bank financing. The senior term A
bank debt is assumed to have an interest rate of 9.96%, the senior term B
bank debt is assumed to have an interest rate of 10.46%, while the
subordinated debt is assumed to have an interest rate of 12.0% with a 1.0%
PIK.
. Under the two scenarios, the value of equity acquired is calculated assuming
an $8.25 purchase price. The return is calculated over a five-year time
period with an assumed exit valuation of 6.0x and 7.0x EBITDA.
. Summary information appears on the following page with the entire model
presented in Exhibit A.
31
<PAGE>
Leveraged Buyout Analysis
($ in millions)
SUMMARY
PURCHASE ASSUMPTIONS:
--------------------
Purchase of Stock $ 74.9
Transaction Fees 6.0
Payoff Existing Senior Debt 12.8
Existing Debt - Assumed -
Less: Options Outstanding (8.4)
Non-Compete Agreement -
Plus: Required Cash (Excess) -
----------
Financing Requirements $ 85.4
==========
Purchase Multiples:
2000 EBITDA 7.0x
2001 EBITDA 5.0x
CAPITALIZATION
--------------
% Common
Amount % Total Equity
------ ------- --------
Senior Term Debt - A $ 15.0 17.6% 0.0%
Senior Term Debt - B 22.5 26.4% 0.0%
Revolving Credit - 0.0% 0.0%
----------------------------------
Total Senior Debt 37.5 43.9% 0.0%
Mezzanine - 0.0% 0.0%
Senior Subordinated Debt 19.0 22.3% 12.5%
Seller Note -
----------------------------------
Total Debt 56.5 66.2% 12.5%
Preferred Stock - 0.0% 0.0%
Equity - Sponsors 28.9 33.8% 72.5%
Equity - Management - 0.0% 15.0%
Equity - STES - 0.0% 0.0%
----------------------------------
Total Equity 28.9 33.8% 87.5%
TOTAL CAPITALIZATION $ 85.4 100.0% 100.0%
==================================
CALCULATION OF PURCHASE PRICE:
-----------------------------
Offer Price Per Share $ 8.25
Current Share Price $ 4.13
Premium Offered 100.0%
CALCULATION OF INTANGIBLES:
--------------------------
Purchase Price $ 66.6
Less
Net Worth 48.6
--------
Goodwill 17.9
Years of Amortization 20.0
--------
Annual Goodwill Expense 0.9
Transaction Costs 6.0
Years of Amortization 7.0
--------
Annual Transaction Expense 0.9
Total Amortization of Intang. per Year 1.8
RETURNS TO INVESTORS:
--------------------
Multiple of EBITDA
----------------------------------------------------
6.0x 6.5x 7.0x 7.5x 8.0x
----------------------------------------------------
Net Terminal Value $ 161.1 $ 176.5 $ 192.0 $ 207.4 $ 222.9
Senior Subordinated Debt 25.4% 26.3% 27.2% 28.1% 29.0%
Sponsors 32.1% 34.6% 36.8% 39.0% 41.0%
----------------------------------------------------------
COVERAGE RATIOS:
----------------
Closing 2001
------------------
Total Debt/Total Capitalization 66.2% 65.5%
Senior Debt/Total Capitalization 43.9% 26.8%
EBITDA/Interest 12.2x 2.4x
EBITDA/Senior Interest 12.2x 4.4x
Senior Debt/EBITDA 3.1x 2.1x
Senior Debt/EBIT 9.9x 5.1x
Senior Debt/Operating Cash Flow 3.9x
Total Debt/EBITDA 4.6x 3.2x
Total Debt/EBIT 14.9x 7.7x
Total Debt/Operating Cash Flow 6.0x
----------------------------------------------------------
32
<PAGE>
Section 5
Premiums Paid Analysis
<PAGE>
Premiums Paid Analysis
. We reviewed and analyzed publicly available information including transaction
prices and historical stock prices for:
. going private transactions;
. completed between 1997 and 2000; and
. with a transaction value between $25 and $250 million.
. We examined these transactions and calculated the premiums of take-out prices
relative to historical stock prices at intervals of one day, one week, four
weeks and one year prior to the announcement date of the individual
transaction.
. We performed a regression analysis on the premium relative to one day prior
to the announcement versus the percentage change in stock price from one year
prior to announcement to the lowest price during the year preceding the
announcement.
33
<PAGE>
Premiums Paid Analysis
GRAPH: 1997-Present Completed Going Private Transactions Valued Between $25 and
$250 Million, Premium Paid 1 Day Prior to Announcement vs. % Change in Stock
Price from 1 Year Prior to Announcement to Lowest Price 1 Year Prior to
Announcement
-----------
Source: CommScan
34
<PAGE>
Premiums Paid Analysis
<TABLE>
<CAPTION>
Target Target
Price Revised Initial Offer to Stock Price:
Initially Price ------------------------------
Offered Offered 1
Announcement Transaction Acquisition Per Per 1 Day 1 Week Month 1 Year
Date Target Value (mm) Technique Share Share Prior Prior Prior Prior
------------ ---------------------------------- ----------- ---------------- --------- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
7/23/96 Osborn Communications Corp. $ 100.00 Tender Offer $ 15.38 $ 15.38 28.1% 50.0% 30.9% 119.6%
10/17/96 Triad Systems Corp. 221.58 Tender Offer 9.25 9.25 68.2% 60.9% 85.0% 74.1%
4/11/97 Ero Inc. 201.89 Tender Offer 11.25 11.25 9.8% 16.9% 32.4% 66.7%
5/30/97 Integrated Living Communities Inc. 77.00 Tender Offer 11.50 11.50 26.9% 21.1% 53.3% N/A
6/16/97 Fredericks of Hollywood 68.65 Tender Offer 6.14 7.75 17.0% 14.2% 22.8% 22.8%
7/01/97 Kerr Group Inc. 27.30 Tender Offer 5.40 5.40 39.4% 39.4% 127.4% 27.1%
7/03/97 Krystal Company 145.40 Cash Acquisition 14.50 14.50 132.0% 169.8% 176.2% 182.9%
7/31/97 Bucyrus International Inc. 189.60 Tender Offer 18.00 18.00 33.3% 46.9% 71.4% 108.7%
8/15/97 T-SF Communications Corp. 145.00 Tender Offer 40.25 40.25 3.9% 4.2% 6.3% 102.5%
9/05/97 National Picture & Frame Co. 63.00 Tender Offer 12.00 12.00 11.6% 11.0% 9.1% 10.3%
9/16/97 Tescorp Inc. 132.40 Tender Offer 4.50 4.50 33.3% 33.3% 38.5% 50.0%
9/23/97 El Chico Restaurants Inc. 47.32 Tender Offer 12.75 12.75 21.4% 17.2% 22.9% 54.5%
10/01/97 Alpine Lace Brands Inc. 56.69 Tender Offer 9.13 9.13 (8.8%) 5.8% 15.9% 43.1%
10/17/97 Tranzionic Cos. 101.44 Tender Offer 29.00 29.00 (1.5%) (2.9%) 5.5% 88.6%
12/23/97 Union Corp. 182.67 Tender Offer 31.50 31.50 14.5% 13.5% 29.2% 41.6%
1/29/98 Monroe, Inc. 48.62 Tender Offer 10.77 10.77 5.1% 10.5% 7.7% 74.1%
2/17/98 Bell Sports Corp. 141.98 Tender Offer 10.50 10.25 16.7% 15.9% 11.3% 102.4%
3/11/98 Portec Inc. 71.26 Cash Acquisition 16.00 16.00 8.9% 14.3% 11.3% 45.5%
3/16/98 Norwood Promotional Products 162.47 Tender Offer 20.70 20.70 19.1% 19.1% 23.6% 38.0%
4/03/98 Bertucci's Inc. 97.16 Tender Offer 10.50 10.50 35.5% 35.5% 33.3% 86.7%
5/21/98 National Gas & Oil Co. 93.04 Tender Offer 13.00 13.00 7.2% 18.2% 26.1% 52.7%
6/02/98 Housecall Medical Resources, Inc. 50.15 Tender Offer 1.50 1.50 23.2% 2.7% 14.3% (63.1%)
6/16/98 Personnel Management Inc. 34.70 Tender Offer 16.00 16.00 25.5% 23.1% 23.1% 66.2%
6/22/98 GT Bicycles Inc. 168.63 Tender Offer 8.00 8.00 68.4% 77.8% 36.2% (1.5%)
7/17/98 Decrane Aircraft Holdings Inc. 183.54 Tender Offer 23.00 23.00 30.5% 28.7% 31.4% 33.3%
7/28/98 Compdent Corp. 151.70 Tender Offer 18.00 18.00 33.3% 30.9% 23.6% (15.8%)
7/29/98 E-Z Serve Corp. 41.61 Tender Offer 0.60 0.60 37.1% 20.0% 37.1% (20.0%)
9/18/98 Spaghetti Warehouse, Inc. 60.00 Tender Offer 8.00 8.00 39.1% 32.0% 2.4% 13.3%
11/09/98 Global Motorsport Group, Inc. 100.87 Tender Offer 19.50 19.50 15.6% 14.7% 44.4% 35.7%
1/19/99 Audits & Surveys Worldwide, Inc. 42.50 Cash Acquisition 3.24 3.24 32.9% 36.4% 44.0% 12.7%
</TABLE>
--------------------
Source: CommScan
35
<PAGE>
Premiums Paid Analysis
<TABLE>
<CAPTION>
Target Target
Price Revised Initial Offer to Stock Price:
Initially Price ------------------------------
Offered Offered 1
Announcement Transaction Acquisition Per Per 1 Day 1 Week Month 1 Year
Date Target Value (mm) Technique Share Share Prior Prior Prior Prior
------------ ---------------------------------- ----------- ---------------- --------- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2/22/99 Oacis Healthcare Holdings 47.42 Tender Offer 4.45 4.45 36.9% 42.4% 42.4% 31.9%
2/23/99 Damen Financial Corp. 51.75 Tender Offer 18.35 18.35 20.3% 28.8% 24.4% 1.2%
3/08/99 Analysis & Technology Inc. 102.30 Tender Offer 26.00 26.00 18.9% 16.2% 23.8% 21.6%
3/15/99 Haskel International, Inc. 62.82 Tender Offer 12.90 12.90 42.3% 49.6% 51.8% 26.6%
3/25/99 Sheridan Healthcare Inc. 125.29 Tender Offer 9.25 9.25 8.8% 12.1% 17.5% (39.8%)
4/26/99 Bridgeport Machines Inc. 55.93 Cash Acquisition 10.00 10.00 67.5% 77.8% 81.8% (20.8%)
5/07/99 Instron Corp. 182.09 Tender Offer 22.00 22.00 36.4% 29.4% 37.5% 9.7%
5/12/99 Optek Technology, Inc. 190.97 Tender Offer 25.50 25.50 29.9% 47.8% 96.2% 13.6%
5/19/99 Fulton Bancorp, Inc. 31.67 Tender Offer 19.15 19.15 12.6% 12.6% 41.9% (14.9%)
7/22/99 White Cap Industries, Inc. 229.93 Tender Offer 16.50 16.50 49.2% 45.1% 50.0% (13.2%)
9/03/99 Digital Link Corp. 86.92 Tender Offer 10.30 10.85 25.8% 23.0% 22.1% 174.7%
9/27/99 TEAM America Corp. 33.68 Tender Offer 7.75 7.75 29.2% 26.5% 53.1% 24.0%
2/25/00 Spanlink Communications Inc. 56.13 Tender Offer 10.50 10.50 (2.3%) 6.3% 28.2% 194.7%
------------------------------------------------------------------------------------------------------------------------------------
Average 28.0% 30.2% 38.8% 44.3%
Average Excluding High and Low 26.3% 27.6% 36.3% 43.3%
Median 25.8% 23.0% 30.9% 34.5%
First Quartile 36.0% 37.9% 44.2% 72.2%
Third Quartile 13.6% 14.3% 22.4% 10.9%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
--------------------
Source: CommScan
36
<PAGE>
SunTrust Equitable Securities
PROJECT BARS 08/08/2000
Case: Leveraged Buyout Analysis, Purchase of Stock 12:48 PM
($ in millions) Page 1 of 11
--------------------------------------------------------------------------------
SUMMARY
----------------------------------------
----------------------------------------------------
PURCHASE ASSUMPTIONS:
---------------------
Purchase Of Stock $ 74.9
Transaction Fees 6.0
Payoff Existing Senior Debt 12.8
Existing Debt - Assumed -
Less: Options Outstanding (8.4)
Non-Compete Agreement -
Plus: Required Cash (Excess) -
------------
Financing Requirements $ 85.4
============
Purchase Multiples:
2000 EBITDA 7.0 x
2001 EBITDA 5.0 x
----------------------------------------------------
--------------------------------------------------------------------
CAPITALIZATION:
--------------- % Common
Amount % Total Equity
------ ------- --------
Senior Term Debt - A $ 15.0 17.6% 0.0%
Senior Term Debt - B 22.5 26.4% 0.0%
Revolving Credit - 0.0% 0.0%
---------------------------------
Total Senior Debt 37.5 43.9% 0.0%
Mezzanine - 0.0% 0.0%
Senior Subordinated Debt 19.0 22.3% 12.5%
Seller Note -
---------------------------------
Total Debt 56.5 66.2% 12.5%
Preferred Stock - 0.0% 0.0%
Equity - Sponsors 28.9 33.8% 72.5%
Equity - Management - 0.0% 15.0%
Equity - STES - 0.0% 0.0%
---------------------------------
Total Equity 28.9 33.8% 87.5%
TOTAL CAPITALIZATION $ 85.4 100.0% 100.0%
=================================
--------------------------------------------------------------------
---------------------------------------
CALCULATION OF PURCHASE PRICE:
------------------------------
Offer Price Per Share $ 8.25
Current Share Price $ 4.13
Premium Offered 100.0%
---------------------------------------
---------------------------------------
CALCULATION OF INTANGIBLES:
---------------------------
Purchase Price $66.6
Less:
Net Worth 48.6
--------
Goodwill 17.9
Years of Amortization 20.0
--------
Annual Goodwill Expense 0.9
Transaction Costs 6.0
Years of Amortization 7.0
--------
Annual Transaction Expense 0.9
Total Amort. of Intang. per Year 1.8
---------------------------------------
--------------------------------------------------------------------------------
RETURNS TO INVESTORS:
---------------------
Multiple of EBITDA
--------------------------------------------------------
6.0x 6.5x 7.0x 7.5x 8.0x
--------------------------------------------------------
Net Terminal Value $161.1 $176.5 $192.0 $207.4 $222.9
Senior Subordinated Debt 25.4% 26.3% 27.2% 28.1% 29.0%
Sponsors 32.1% 34.6% 36.8% 39.0% 41.0%
--------------------------------------------------------------------------------
---------------------------------------------------------------------
COVERAGE RATIOS:
----------------
CLOSING 2001
------------------
Total Debt/ Total Capitalization 66.2% 65.5%
Senior Debt/ Total Capitalization 43.9% 26.8%
EBITDA/Interest 12.2x 2.4x
EBITDA/Senior Interest 12.2x 4.4x
Senior Debt/EBITDA 3.1x 2.1x
Senior Debt/EBIT 9.9x 5.1x
Senior Debt/Operating Cash Flow 3.9x
Total Debt/EBITDA 4.6x 3.2x
Total Debt/EBIT 14.9x 7.7x
Total Debt/Operating Cash Flow 6.0x
---------------------------------------------------------------------
<PAGE>
SunTrust Equitable Securities
PROJECT BARS 08/08/2000
Case: Leveraged Buyout Analysis, Purchase of Stock 12:48 PM
($ in millions) Page 2 of 11
================================================================================
PRO FORMA CAPITALIZATION
---------------------------------------------------
--------------------------------------------------------------------------------
SOURCES OF FUNDS
================================================================================
--------------------------------------------------
% Equity
Amount % Owned
---------------- ------------- ---------------
Revolving Credit $ - 0.0% 0.0%
Existing Debt - 0.0% 0.0%
Senior Term Debt - A 15.0 17.6% 0.0%
Senior Term Debt - B 22.5 26.4% 0.0%
Mezzanine - 0.0% 0.0%
Senior Subordinated Debt 19.0 22.3% 12.5%
Seller Note - 0.0% 0.0%
Preferred Stock - 0.0% 0.0%
Common Equity:
Sponsors 28.9 33.8% 72.5%
Management - 0.0% 15.0%
STES - 0.0% 0.0%
Excess Cash on Balance Sheet - 0.0% 0.0%
---------------- ------------- ---------------
TOTAL SOURCES $ 85.4 100.0% 100.0%
================ ============= ===============
================================================================================
-----------------------------------------------------------------------
USES OF FUNDS
=======================================================================
--------------------------------
Amount %
---------------- -------------
Purchase Of Stock $ 74.9 87.8%
Less: Options Outstanding (8.4) (9.8%)
Payoff Existing Senior Debt 12.8 15.0%
Existing Debt - Assumed - 0.0%
Transaction Fees 6.0 7.0%
Tender And/Or Consent Costs - 0.0%
Non-Compete Agreement - 0.0%
Required Cash (Excess) - 0.0%
---------------- -------------
TOTAL USES $ 85.4 100.0%
================ =============
=======================================================================
<PAGE>
SunTrust Equitable Securities
PROJECT BARS 08/08/2000
Case: Leveraged Buyout Analysis, Purchase of Stock 12:48 PM
($ in millions) Page 3 of 11
================================================================================
ASSUMPTIONS
---------------------------------------------
---------------------------------------------
OPERATING RATIOS
---------------------------------------------
<TABLE>
<CAPTION>
PRO FORMA PROJECTED
---------- ----------------------------------------------
2000 2001 2002 2003 2004 2005
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Revenue Growth 12.8% 17.1% 17.4% 16.6% 15.9%
Cost of Goods Sold 54.6% 54.8% 55.0% 54.9% 54.6% 55.3%
Gross Margin 45.4% 45.2% 45.0% 45.1% 45.4% 44.7%
General & Administrative 29.7% 25.7% 25.7% 26.0% 26.0% 25.7%
Depreciation 8.7% 7.9% 6.5% 5.6% 5.1% 3.1%
Operating Margin 7.1% 11.7% 12.8% 13.5% 14.2% 16.0%
EBITDA Margin 15.8% 19.6% 19.3% 19.1% 19.3% 19.1%
Accounts Rec. (Days of Revenue) 64.79 68.57 67.50 66.31 65.36 64.25
Inventories (Days of COGS) 45.65 34.36 25.98 22.15 19.10 16.29
Prepaid Expenses (% of Revenue) 1.88% 1.55% 1.08% 0.79% 0.70% 0.62%
Other Current Assets (% of Revenue) 1.21% 0.92% 0.83% 0.71% 0.64% 0.55%
Accounts Payable (Days of COGS) 20.33 14.51 18.33 22.91 27.49 32.83
Accrued Expenses (Days of COGS) 27.88 27.49 31.31 34.36 38.18 42.00
Other Current Liab. (Days of COGS) 26.05 21.00 20.62 20.24 20.62 21.00
Depreciation $ 6.9 $ 6.6 $ 6.7 $ 7.1 $ 5.0
Capital Expenditures - PP&E $ 8.3 $ 8.0 $ 5.1 $ 5.1 $ 5.1
Taxes Rates
-----------
Tax Rate 42.50% 42.50% 42.50% 42.50% 42.50%
</TABLE>
<PAGE>
SunTrust Equitable Securities
PROJECT BARS 08/08/2000
Case: Leveraged Buyout Analysis, Purchase of Stock 12:48 PM
($ in millions) Page 4 of 11
===============================================================================
INCOME STATEMENTS
------------------------------------------
<TABLE>
<CAPTION>
PRO FORMA PROJECTED
---------- ----------------------------------------------
FYE 6/30 FISCAL YEAR ENDED 06/30
---------- ----------------------------------------------
2000 2001 2002 2003 2004 2005
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 77.4 $ 87.3 $102.2 $120.0 $139.9 $162.2
Cost of Goods Sold 42.3 47.8 56.2 65.9 76.4 89.6
---------- ----------------------------------------------
Gross Margin 35.2 39.5 46.0 54.1 63.5 72.6
General & Administrative 23.0 22.4 26.3 31.2 36.4 41.6
Depreciation 6.7 6.9 6.6 6.7 7.1 5.0
---------- ----------------------------------------------
Operating Profit 5.5 10.2 13.1 16.2 19.9 25.9
EBITDA 12.2 17.1 19.7 22.9 27.0 30.9
Goodwill Amortization - (0.9) (0.9) (0.9) (0.9) (0.9)
Amortization of Intagibles (1.7) (2.2) (2.4) (2.3) (2.2) (2.1)
---------- ----------------------------------------------
EBIT 3.8 7.1 9.8 13.0 16.8 22.9
Interest Expense
----------------
Existing Debt 1.0 - - - - -
Senior Term Debt - A - 1.5 1.3 1.1 0.8 0.4
Senior Term Debt - B - 2.4 2.4 2.3 2.3 2.3
Transaction Cost Amort. - 0.9 0.9 0.9 0.9 0.9
Senior Subordinated Debt - 2.3 2.3 2.3 2.3 2.3
---------- ----------------------------------------------
Total Interest Expense 1.0 7.0 6.8 6.6 6.3 5.9
Pretax Income 2.8 0.1 3.0 6.4 10.5 17.0
Provision for Income Taxes 1.1 0.1 1.3 2.7 4.5 7.2
---------- ----------------------------------------------
Net Income $ 1.7 $ 0.1 $ 1.7 $ 3.7 $ 6.0 $ 9.8
========== ==============================================
Preferred Dividends - - - - - -
Net to Retained Earnings $ 1.7 $ 0.1 $ 1.7 $ 3.7 $ 6.0 $ 9.8
========== ==============================================
</TABLE>
<PAGE>
SunTrust Equitable Securities
PROJECT BARS 08/08/2000
Case: Leveraged Buyout Analysis, Purchase of Stock 12:48 PM
($ in millions) Page 5 of 11
===============================================================================
COMMON SIZED INCOME STATEMENTS
--------------------------------------------------------------
<TABLE>
<CAPTION>
PRO FORMA PROJECTED
---------- ----------------------------------------------
FYE 6/30 FISCAL YEAR ENDED 06/30
---------- ----------------------------------------------
2000 2001 2002 2003 2004 2005
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Revenue 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of Goods Sold 54.6% 54.8% 55.0% 54.9% 54.6% 55.3%
---------- ----------------------------------------------
Gross Margin 45.4% 45.2% 45.0% 45.1% 45.4% 44.7%
Labor Expense 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Operating Expense 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
General & Administrative 29.7% 25.7% 25.7% 26.0% 26.0% 25.7%
Depreciation 8.7% 7.9% 6.5% 5.6% 5.1% 3.1%
---------- ----------------------------------------------
Operating Profit 7.1% 11.7% 12.8% 13.5% 14.2% 16.0%
EBITDA 15.8% 19.6% 19.3% 19.1% 19.3% 19.1%
Miscellaneous Income (Expense) 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Gain (Loss) on Assets Sales 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Asset Write-up Depreciation 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Transaction Cost Amort. 0.0% 1.0% 0.8% 0.7% 0.6% 0.5%
Goodwill Amortization 0.0% (1.0%) (0.9%) (0.7%) (0.6%) (0.6%)
---------- ----------------------------------------------
EBIT 7.1% 11.6% 12.8% 13.4% 14.2% 15.9%
Interest Expense
----------------
Existing Debt 1.3% 0.0% 0.0% 0.0% 0.0% 0.0%
Overflow Debt 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Revolving Credit 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Senior Term Debt - A 0.0% 1.7% 1.3% 0.9% 0.6% 0.3%
Senior Term Debt - B 0.0% 2.7% 2.3% 2.0% 1.7% 1.4%
Mezzanine 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Senior Subordinated Debt 0.0% 2.6% 2.2% 1.9% 1.6% 1.4%
---------- ----------------------------------------------
Seller Note 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
---------- ----------------------------------------------
Total Interest Expense 1.3% 7.0% 5.8% 4.8% 3.9% 3.1%
Pretax Income 5.8% 4.6% 6.9% 8.6% 10.3% 12.8%
Provision for Income Taxes 1.4% 0.1% 1.2% 2.3% 3.2% 4.5%
---------- ----------------------------------------------
Net Income 4.4% 4.6% 5.7% 6.4% 7.1% 8.4%
========== ==============================================
Preferred Dividends 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Net to Retained Earnings 4.4% 4.6% 5.7% 6.4% 7.1% 8.4%
========== ==============================================
</TABLE>
<PAGE>
SunTrust Equitable Securities
PROJECT BARS 08/08/2000
Case: Leveraged Buyout Analysis, Purchase of Stock 12:48 PM
($ in millions) Page 6 of 11
===============================================================================
BALANCE SHEETS
-----------------------------------------
-----------------------------------------
ASSETS
-----------------------------------------
<TABLE>
<CAPTION>
PRO FORMA PROJECTED
------------ ----------------------------------------------
As of 6/30 ADJUST CLOSING As of 06/30
------------ ------ ------- ----------------------------------------------
2000 2001 2002 2003 2004 2005
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Current Assets:
Cash & Marketable Securities $ 0.8 $ - $ 0.8 $ 0.8 $ 1.5 $ 5.7 $ 10.9 $ 16.9
Accounts Receivable 13.7 13.7 16.4 18.9 21.8 25.1 28.6
Inventory 5.3 5.3 4.5 4.0 4.0 4.0 4.0
Investments in Sales-Type Leases 3.3 3.3 3.0 3.0 3.0 3.0 3.0
Prepaid Expenses 1.5 1.5 1.4 1.1 1.0 1.0 1.0
Deferred Income Taxes 0.9 0.9 0.8 0.9 0.9 0.9 0.9
------------ ----------------------------------------------------------
TOTAL CURRENT ASSETS 25.6 25.6 26.9 29.4 36.3 44.8 54.4
Net PPE 20.4 - 20.4 21.3 21.5 18.7 15.5 14.4
Other Assets 5.0 5.0 4.8 5.3 5.6 6.4 7.1
Investments in Sales-Type Leases 3.9 3.9 3.4 3.4 3.4 3.4 3.4
Intangible Assets 17.3 17.3 15.6 14.4 13.3 12.3 11.4
Transaction Costs - 6.0 6.0 5.1 4.3 3.4 2.6 1.7
Acquisition Goodwill - 17.9 17.9 17.1 16.2 15.3 14.4 13.5
------------ ----------------------------------------------------------
TOTAL FIXED ASSETS 46.6 70.6 67.3 65.0 59.7 54.6 51.5
TOTAL ASSETS $ 72.2 $ 96.1 $ 94.2 $ 94.4 $ 95.9 $ 99.4 $ 105.8
============ ==========================================================
</TABLE>
<PAGE>
SunTrust Equitable Securities
PROJECT BARS 08/08/2000
Case: Leveraged Buyout Analysis, Purchase of Stock 12:48 PM
($ in millions) Page 7 of 11
===============================================================================
BALANCE SHEETS
-----------------------------------------
-----------------------------------------
LIABILITIES & EQUITY
-----------------------------------------
<TABLE>
<CAPTION>
PRO FORMA PROJECTED
------------ ----------------------------------------------
As of 6/30 ADJUST CLOSING As of 06/30
------------ ------ ------- ----------------------------------------------
2000 2001 2002 2003 2004 2005
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Current Liabilities:
Accounts Payable $ 2.4 $ 2.4 $ 1.9 $ 2.4 $ 3.0 $ 3.6 $ 4.3
Accrued Expenses 3.2 3.2 $ 3.6 $ 4.1 $ 4.5 $ 5.0 $ 5.5
Other Current Liabilities 3.0 3.0 $ 2.8 $ 2.7 $ 2.7 $ 2.7 $ 2.8
------------ ----------------------------------------------------------
TOTAL CURRENT LIABILITIES 8.6 8.6 8.3 9.2 10.2 11.3 12.6
Deferred Revenue 2.0 2.0 1.9 1.7 1.6 1.6 1.6
Long Term Debt:
Existing Debt 12.8 (12.8) - - - - - -
Senior Term Debt - A - 15.0 15.0 13.5 11.3 8.3 4.5 -
Senior Term Debt - B - 22.5 22.5 22.5 22.5 22.4 22.4 22.4
Senior Subordinated Debt - 19.0 19.0 19.0 19.0 19.0 19.0 19.0
------------ ----------------------------------------------------------
TOTAL LONG TERM DEBT 12.8 56.5 55.0 52.7 49.7 45.9 41.4
TOTAL LIABILITIES 23.4 67.1 65.1 63.6 61.4 58.8 55.5
Net Worth:
Equity - Common 36.0 (7.2) 28.9 28.9 28.9 28.9 28.9 28.9
Retained Earnings 12.6 (12.6) - 0.1 1.8 5.4 11.5 21.3
------------ ----------------------------------------------------------
NET WORTH 48.6 28.9 28.9 30.6 34.3 40.4 50.1
------------ ----------------------------------------------------------
LIABILITIES & NET WORTH $ 72.0 $ 95.9 $ 94.0 $ 94.2 $ 95.7 $ 99.2 $ 105.6
============ ==========================================================
</TABLE>
<PAGE>
SunTrust Equitable Securities
PROJECT BARS 08/08/2000
Case: Leveraged Buyout Analysis, Purchase of Stock 12:48 PM
($ in millions) Page 8 of 11
===============================================================================
CASH FLOW STATEMENT
----------------------------------------------------
<TABLE>
<CAPTION>
PROJECTED
----------------------------------------------
FISCAL YEAR ENDED 06/30
----------------------------------------------
2001 2002 2003 2004 2005
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
NET TO RETAINED EARNINGS $ 0.1 $ 1.7 $ 3.7 $ 6.0 $ 9.8
Non-Cash Adjustments:
Depreciation and Amortization 9.1 9.0 9.0 9.3 7.1
Transaction Cost Amort. 0.9 0.9 0.9 0.9 0.9
Goodwill Amortization 0.9 0.9 0.9 0.9 0.9
----------------------------------------------
FUNDS FROM OPERATIONS 10.9 12.5 14.4 17.1 18.6
Net Working Capital Requirements:
Accounts Receivable (2.7) (2.5) (2.9) (3.3) (3.5)
Inventory 0.8 0.5 - - -
Investments in Sales-Type Leases 0.3 - - - -
Prepaid Expenses 0.1 0.3 0.2 (0.0) (0.0)
Deferred Income Taxes 0.1 (0.0) - (0.1) -
Accounts Payable (0.5) 0.5 0.6 0.6 0.7
Accrued Expenses 0.4 0.5 0.4 0.5 0.5
Deferred Revenues (0.1) (0.2) (0.1) - -
Other Current Liabilities (0.3) (0.0) (0.1) 0.1 0.0
----------------------------------------------
(INCREASE) IN NET WORKING CAPITAL (1.8) (1.0) (1.9) (2.2) (2.3)
CASH FROM OPERATIONS 9.1 11.5 12.5 14.9 16.3
Capital Expenditures - PP&E (8.3) (8.0) (5.1) (5.1) (5.1)
(Increase)/Decrease in Sales-Type Leases 0.5 - - - -
(Increase)/Decrease in Other Assets 0.2 (0.5) (0.2) (0.9) (0.7)
----------------------------------------------
CASH AVAILABLE FOR AMORTIZATION $ 1.6 $ 3.0 $ 7.2 $ 9.0 $ 10.6
==============================================
</TABLE>
<PAGE>
SunTrust Equitable Securities
PROJECT BARS 08/08/2000
Case: Leveraged Buyout Analysis, Purchase of Stock 12:48 PM
($ in millions) Page 9 of 11
===============================================================================
DEBT ANALYSIS
--------------------------------------------------
Interest Rates & Coupon
-----------------------
Existing Debt 9.50%
Senior Term Debt - A 9.96%
Senior Term Debt - B 10.46%
Revolving Credit 9.50%
Mezzanine 12.00%
Senior Subordinated Debt 12.00%
<TABLE>
<CAPTION>
PROJECTED
----------------------------------------------
FISCAL YEAR ENDED 06/30
----------------------------------------------
2001 2002 2003 2004 2005
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
CASH AVAILABLE FOR AMORTIZATION 1.6 3.0 7.2 9.0 10.6
----------------------------------------------
Cash For Retirement of Senior Term Debt - A 1.6 3.0 7.2 9.0 10.6
Senior Term Debt - A Retired (1.5) (2.3) (3.0) (3.8) (4.5)
----------------------------------------------
Cash For Retirement of Senior Term Debt - B 0.1 0.7 4.2 5.2 6.1
Senior Term Debt - B Retired (0.0) (0.0) (0.0) (0.0) (0.0)
----------------------------------------------
CHANGE IN CASH ACCOUNT 0.0 0.7 4.1 5.2 6.1
==============================================
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA PROJECTED
-------------- -------------------------------------------------------
As of 06/30 As of 06/30
-------------- -------------------------------------------------------
2000 CLOSING 2001 2002 2003 2004 2005
---- ------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
CAPITALIZATION SUMMARY
Existing Debt $ 12.8 $ - $ - $ - $ - $ - $ -
Senior Term Debt - A - 15.0 13.5 11.3 8.3 4.5 -
Senior Term Debt - B - 22.5 22.5 22.5 22.4 22.4 22.4
Senior Subordinated Debt - 19.0 19.0 19.0 19.0 19.0 19.0
Common Equity 48.6 28.9 28.9 30.6 34.3 40.4 50.1
------ ----- -------------------------------------------------------
BOOK CAPITALIZATION $ 61.4 $ 85.4 $ 83.9 $ 83.3 $ 84.0 $ 86.3 $ 91.5
TOTAL DEBT $ 12.8 $ 56.5 $ 55.0 $ 52.7 $ 49.7 $ 45.9 $ 41.4
BOOK EQUITY $ 48.6 $ 28.9 $ 28.9 $ 30.6 $ 34.3 $ 40.4 $ 50.1
</TABLE>
<PAGE>
SunTrust Equitable Securities
PROJECT BARS 08/08/2000
Case: Leveraged Buyout Analysis, Purchase of Stock 12:48 PM
($ in millions) Page 10 of 11
===============================================================================
RATIO ANALYSIS
-------------------------------
<TABLE>
<CAPTION>
HISTORICAL PROJECTED
----------------- -----------------------------------------------
As of 06/30 As of 06/30
----------------- -----------------------------------------------
2000 CLOSING 2001 2002 2003 2004 2005
---- ------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Total Debt/ Total Capitalization 20.8% 66.2% 65.5% 63.2% 59.2% 53.2% 45.2%
Senior Debt/ Total Capitalization 20.8% 43.9% 26.8% 26.9% 26.7% 26.0% 24.5%
EBITDA/Interest - 12.2 2.4 2.9 3.5 4.3 5.2
EBITDA/Senior Interest - 12.2 4.4 5.3 6.6 8.5 11.1
Senior Debt/EBITDA - 3.1 2.1 1.7 1.3 1.0 0.7
Senior Debt/EBIT - 9.9 5.1 3.4 2.4 1.6 1.0
Senior Debt/Operating Cash Flow - - 3.9 2.9 2.5 1.8 1.4
Total Debt/EBITDA - 4.6 3.2 2.7 2.2 1.7 1.3
Total Debt/EBIT - 14.9 7.7 5.4 3.8 2.7 1.8
Total Debt/Operating Cash Flow - - 6.0 4.6 4.0 3.1 2.5
</TABLE>
<PAGE>
SunTrust Equitable Securities
PROJECT BARS 08/08/2000
Case: Leveraged Buyout Analysis, Purchase of Stock 12:48 PM
($ in millions) Page 11 of 11
===============================================================================
RETURN ANALYSIS
---------------------------
----------------------------------------
EXIT YEAR 2005
EXIT EBITDA MULTIPLE 7.0x
----------------------------------------
------------------------------------------------------
PROCEEDS ALLOCATION
-----------------------------------------
Exit Year EBITDA 30.9
x EBITDA Multiple 7.0x
--------------
EXIT VALUATION $ 216.4
PLUS: Excess Cash 16.9
LESS: Total Remaining Debt (41.4)
LESS: 1% PIK on Subordinated Debt (1.0)
--------------
NET PROCEEDS TO ALLOCATE $ 191.0
==============
Sponsors $ 138.5
Management $ 28.7
Senior Subordinated Debt $ 23.9
------------------------------------------------------
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
EQUITY ALLOCATION Semi- Fully-
---------------------------------- Investment % Diluted Diluted
--------------------------------------------------
<S> <C> <C> <C> <C>
Sponsors $ 28.9 100.0% 85.3% 72.5%
Management - 0.0% 0.0% 0.0%
STES - 0.0% 0.0% 0.0%
Senior Subordinated Debt 19.0 * 14.7% 12.5%
Management Performance Option * * * 15.0%
--------------------------------------------------
TOTAL EQUITY ALLOCATION $ 47.9 100.0% 100.0% 100.0%
==================================================
------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PROJECTED
-------------------------------------------------------------
CLOSING 2001 2002 2003 2004 2005
------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Senior Subordinated Debt
------------------------------------------
Investment $(19.0) $ - $ - $ - $ - $ 19.0
Interest 2.3 2.3 2.3 2.3 3.2
Participation - - - - 23.9
-----------------------------------------------------------------------------
IRR = 27.24% $(19.0) $ 2.3 $2.3 $2.3 $2.3 $ 46.1
=============================================================================
Sponsors
------------------------------------------
Investment $(28.9) $ - $ - $ - $ - $ -
Participation - - - - 138.5
-----------------------------------------------------------------------------
IRR = 36.84% $(28.9) $ - $ - $ - $ - $138.5
=============================================================================
</TABLE>
