<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
SCHEDULE 13E-3
Rule 13e-3 Transaction Statement
(Pursuant to Section 13(e) of the Securities Exchange
Act of 1934)
(Amendment No. 1)
TUESDAY MORNING CORPORATION
(Name of Issuer)
MADISON DEARBORN PARTNERS II, L.P.
MADISON DEARBORN CAPITAL PARTNERS II, L.P.
MADISON DEARBORN PARTNERS, INC.
MR. LLOYD L. ROSS
MR. JERRY M. SMITH
(Name of Persons Filing Statement)
COMMON STOCK, $.01 PAR VALUE
(Title of Class of Securities)
89903710
(CUSIP Number of Class of Securities)
Jerry M. Smith Benjamin D. Chereskin
President Vice President
Tuesday Morning Corporation Madison Dearborn Partners II, L.P.
14621 Inwood Rd. Madison Dearborn Capital Partners II, L.P.
Dallas, Texas 75244 Madison Dearborn Partners, Inc.
(972) 387-3562 Three First National Plaza
Chicago, Illinois 60602
(312) 732-5115
Lloyd L. Ross
Chief Executive officer
Tuesday Morning Corporation
14621 Inwood Rd.
Dallas, Texas 75244
(972) 387-3562
- --------------------------------------------------------------------------------
(Name, Address and Telephone Number of Persons Authorized to Receive
Notices and Communications on Behalf of Persons Filing Statement)
Copies to:
Bruce Hallet, Esq. Carter W. Emerson, P.C.
Crouch & Hallet, L.L.P. Kirkland & Ellis
717 N. Harwood Suite 1400 200 East Randolph Drive
Dallas, TX 775201 Chicago, Illinois 60601
(214) 953-0053 (312) 861-2000
This statement is filed in connection with (check the appropriate box):
a. [X] The filing of solicitation materials or an information statement
subject to Regulation 14A, Regulation 14C or Rule 13e-3(c) under the
Securities Exchange Act of 1934.
b. [_] The filing of registration statement under the Securities Act of 1933.
c. [_] A tender offer.
d. [_] None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies: [X]
CALCULATION OF FILING FEE
________________________________________________________________________________
Transaction Valuation* Amount of Filing Fee
--------------------- --------------------
$314,417,070 $62,883
________________________________________________________________________________
*The transaction valuation has been calculated by multiplying $23.88, the
average of the high and low sale price for shares of Common Stock on September
19, 1997 on the Nasdaq National Market, by 13,166,544, the number of shares of
Common Stock estimated to be outstanding at the time of the transaction
(includes 1,248,863 underlying options to purchase shares of Common Stock).
[X] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
Amount Previously Paid: $62,883
Form or Registration No.: Schedule 14A
Filing Party: Tuesday Morning Corporation
Date Filed: September 24, 1997
================================================================================
<PAGE>
AMENDMENT NO. 1 TO SCHEDULE 13E-3
This amendment to Rule 13E-3 Transaction Statement (this "Amendment")
relates to the solicitation of proxies by Tuesday Morning Corporation, a
Delaware corporation ("Issuer"), in connection with a Special Meeting of
Issuer's stockholders at which such stockholders will be asked to consider the
approval of, among other things, an Agreement and Plan of Merger (the "Merger
Agreement"), dated as of September 12, 1997, by and among Madison Dearborn
Partners II, L.P., a Delaware limited partnership ("Madison Dearborn"), Tuesday
Morning Acquisition Corp., a Delaware corporation and a wholly owned subsidiary
of Madison Dearborn ("Merger Subsidiary").
A previous statement on Schedule 13E-3 was filed on November 3, 1997. This
Amendment is being filed for the sole purpose of filing by amendment Exhibit
(b)(2), Report of SBC Warburg Dillon Read Inc., to the previous statement.
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
November 10, 1997
_________________________________________
(Date)
MADISON DEARBORN CAPITAL PARTNERS II, L.P.
By: Madison Dearborn Partners II, L.P.
Its: General Partner
By: Madison Dearborn Partners, Inc.
Its: General Partner
By: /s/ Benjamin D. Chereskin
-------------------------
Name: Benjamin D. Chereskin
Title: Vice President
MADISON DEARBORN PARTNERS II, L.P.
By: Madison Dearborn Partners, Inc.
Its: General Partner
By: /s/ Benjamin D. Chereskin
-------------------------
Name: Benjamin D. Chereskin
Title: Vice President
MADISON DEARBORN PARTNERS, INC
By: /s/ Benjamin D. Chereskin
-------------------------
Name: Benjamin D. Chereskin
Title: Vice President
/s/ Lloyd L. Ross
----------------------------------------
Lloyd L. Ross
/s/ Jerry M. Smith
----------------------------------------
Jerry M. Smith
iv
<PAGE>
Tuesday Morning
GIFTS. 50% TO 80% OFF EVERYTHING.
Presentation To the Board of Directors
SBC Warburg Dillon Read
September 12, 1997
<PAGE>
<TABLE>
<CAPTION>
Tuesday Morning Corporation
================================================================================================================
Table of Contents
Tab
---
<S> <C>
Review of Proposed Transaction............................................................. A
Overview of Sale Process....................................................... A-1
Summary Analysis of Offer...................................................... A-2
Financing Structure and Analysis of Feasibility of Proposal.................... A-3
Review of Tuesday Morning.................................................................. B
Historical Financial Performance............................................... B-1
Historical Trading Analysis.................................................... B-2
Projected Business Plan and Strategy........................................... B-3
Preliminary Valuation...................................................................... C
Exhibits
--------
Comparable Company Trading Analysis................................................... 1
Discounted Cash Flow Analysis......................................................... 2
LBO Analysis.......................................................................... 3
Recapitalization Analysis............................................................. 4
Comparable Industry Acquisitions...................................................... 5
Calculation of Estimated Weighted Average Cost of Capital............................. 6
</TABLE>
<PAGE>
Tuesday Morning Corporation
================================================================================
Presentation to the Board of Directors
Review of Proposed Transaction............. A
Overview of Sale Process..............A-1
<PAGE>
Tuesday Morning Corporation / A-1-1
================================================================================
Overview of Sale Process
. In November of 1996 Tuesday Morning retained SBC Warburg Dillon Read Inc.
("SBCWDR") and Hatchett Capital Group ("Hatchett") as financial advisors
to review strategic and financial alternatives for the Company.
. The review of strategic and financial alternatives was motivated by Lloyd
Ross', Chairman and CEO, and Jerry Smith's, President and COO, desire to
retire and liquefy their shareholdings.
. Beginning in March 1997, SBCWDR contacted a total of 26 potential partners
and/or acquirors including 19 corporate buyers and 7 financial buyers.
- Potential corporate buyers included close-out retailers, other discount
retailers, department store retailers and other specialty retailers.
. The Company distributed information memoranda to 10 potential acquirors (5
corporate buyers and 5 financial buyers) who expressed initial interest in
exploring a possible purchase of Tuesday Morning.
[ART] SBC Warburg Dillon Read
<PAGE>
Tuesday Morning Corporation / A - 1 - 2
================================================================================
Overview of Sale Process
. After discussions with this group of potential acquirers, only one party,
Madison Dearborn Partners, Inc., ("Madison Dearborn") demonstrated
ongoing interest in acquiring the Company.
. In June 1997, the Company provided selected additional financial
information to Madison Dearborn to assist them in developing a financial
analysis of Tuesday Morning.
. On July 15 and July 16, 1997, representatives of Madison Dearborn visited
the Company to meet with management and tour the facilities.
[ART] SBC Warburg Dillon Read
<PAGE>
Tuesday Morning Corporation / A - 1 - 3
================================================================================
. On July 18, 1997, Madison Dearborn made a preliminary proposal to acquire
the Company for $23.00 per share.
. Pursuant to further negotiations Madison Dearborn increased its offer to
$24.00 per share on July 23, 1997.
. Pursuant to further negotiations, Madison Dearborn increased its offer to
$25.00 per share on August 1, 1997 and indicated it was its final and
best offer.
. On August 14, 1997, Tuesday Morning publicly announced a preliminary
agreement with Madison Dearborn.
- Since the announcement, neither the Company nor any of its advisors
have been contacted by any other party expressing an interest in
acquiring the Company.
[ART] SBC Warburg Dillon Read
<PAGE>
Tuesday Morning Corporation / A-1-4
================================================================================
Overview of Madison Dearborn
. Madison Dearborn Partners, Inc. is one of the largest management buyout
and special equity investment firms in the United States. Founded in
1993, Madison Dearborn has raised approximately $1.5 billion in two
investment funds. Previously, from 1980 to 1992, the principals of
Madison Dearborn managed the $2 billion buyout fund of First Chicago
Corporation.
. Madison Dearborn's funds have come from a variety of investors including
endowments, public and private pension funds, and financial institutions.
. Since 1980, Madison Dearborn's principals have invested over $1 billion
in more than 100 middle market transactions. Representative past and
current consumer and retail oriented portfolio companies include:
- Beverages & More, Inc. - Intercontinental Art, Inc.
- Consolidated Stores Corporation - Sterling Merchandise Company
- Cornerstone Investment Group, Inc. - The Sports Authority, Inc.
[ART] SBC Warburg Dillon Read
<PAGE>
Tuesday Morning Corporation
================================================================================
Presentation to the Board of Directors
Review of Proposed Transaction...............A
Overview of Sale Process.............A - 1
Summary Analysis of Offer............A - 2
<PAGE>
Tuesday Morning Corporation / A - 2- 1
================================================================================
SUMMARY
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
<S> <C>
Acquiring Entity: Newco (a corporation owned by
Madison Dearborn Partners, Inc.)
Price per Common Share: $25.00
Percent of Shares to be Acquired: 100%
Consideration: Cash
Offer for Equity/1/: $324.6 million
---------------------------------------------------------------------------
Note 1: Net of proceeds from exercise of options.
</TABLE>
SBC Warburg Dillon Read
<PAGE>
Tuesday Morning Corporation / A - 2 - 2
================================================================================
Acquisition Multiples
[_] Based on a purchase price of $25.00 per share, Madison Dearborn would
pay the following acquisition multiples.
<TABLE>
<CAPTION>
================================================================
Valuation
(in millions, except per share data)
<S> <C>
Offer price per share $25.00
Common shares outstanding 11.926
Options/1/ 1.056
-------
Total shares outstanding 12.983
Offer for Equity: $324.6
Plus: Debt assumed/2/ 4.0
Less: Cash/2/ (3.4)
-------
Offer for Net Assets: $325.2
- ----------------------------------------------------------------
</TABLE>
Note 1: Modified treasury stock method. Average option exercise price of $3.97
per share.
Note 2: Company projections as of 9/5/97.
<TABLE>
<CAPTION>
================================================================================
Implied Acquisition Multiples
(in millions, except per share data)
LTM 6/30/97 FY1997E/3/
----------- ----------
<S> <C> <C>
Net Sales $281.6 $320.9
EBITDA/1/ 30.3 39.7
EBIT/2/ 25.3 35.7
Earnings per Share $1.13 $1.34
Book Value 78.3 95.9
Net Asset Value to:
Net Sales 1.2x 1.0x
EBITDA/1/ 10.7 8.2
EBIT/2/ 12.9 9.1
Equity Value to:
Earnings per Share 22.3x 18.7x
Book Value 4.1 3.4
Acquisition premium over unaffected
stock price of $20.375 on 8/13/97 22.7%
- --------------------------------------------------------------------------------
</TABLE>
Note 1: EBITDA equals earnings before interest, taxes, depreciation and
amortization.
Note 2: EBIT equals earnings before interest and taxes.
Note 3: Company projections as of 9/5/97.
SBC Warburg Dillon Read
<PAGE>
Tuesday Morning Corporation
================================================================================
Presentation to the Board of Directors
Review of Proposed Transaction.................... A
Overview of Sale Process................ A-1
Summary Analysis of Offer............... A-2
Financing Structure and Analysis of .... A-3
Feasibility of Proposal
<PAGE>
Tuesday Morning Corporation / A - 3 - 1
================================================================================
FINANCING STRUCTURE
The proposed financing structure to be used in the buyout is outlined below.
<TABLE>
<CAPTION>
================================================================================
Source of Funds
(In millions)
Interest
Amount Rate % % of Total
------ -------- ----------
<S> <C> <C> <C>
New Revolver Borrowings $ 13.5 8.25% 4.0%
Senior Unsecured Debt A 46.0 8.25 13.5%
Senior Unsecured Debt B 60.0 9.00 17.6
Subordinated Debt 100.0 10.75 29.4
Sponsor Equity 115.0 -- 33.8
Due from Officer/1/ 2.7 -- 0.8
Excess Cash On Hand 3.4 -- 0.0
------ ----------
Total Sources $340.6 100.0%
- --------------------------------------------------------------------------------
</TABLE>
Note 1: Unsecured loan due from officer.
<TABLE>
<CAPTION>
=================================================
Uses of Funds
(In millions)
<S> <C>
Purchase of Equity $324.6
Debt Refinanced 0.0
Fees and Expenses 16.0
------
Total Uses $340.6
======
Warrants 0.0%
Management Carry 10.0%
- -------------------------------------------------
</TABLE>
SBC Warburg Dillon Read
<PAGE>
Tuesday Morning Corporation / A - 3 - 2
================================================================================
FEASIBILITY ANALYSIS
Pro forma credit statistics under this financing structure follow.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
Credit Statistics/1,2/
Pro Forma Projections
--------- -----------------------
1997 1998 1999 2000
--------- ----- ----- -----
<S> <C> <C> <C> <C>
EBIT / Total Interest/3/ 1.5x 1.8x 2.2x 2.6x
EBITDA / Total Interest 1.7 2.0 2.4 2.8
EBITDA-CapEx / Total Interest 1.5 1.8 2.2 2.5
Senior Debt / EBITDA 3.3x 2.7x 2.1x 1.7x
Total Debt / EBITDA 5.9 4.9 4.0 3.3
Total Debt / Total Capitalization 67.1% 65.5% 62.5% 58.3%
Total Equity / Total Capitalization 32.9% 34.5% 37.5% 41.7%
-------------------------------------------------------------------------
</TABLE>
Note 1: Company projections as of 9/5/97.
Note 2: Calculated using estimated annual average revolver balances.
Note 3: EBIT expressed before goodwill amortization.
[LOGO of SBC Warburg Dillon Read]
<PAGE>
Tuesday Morning Corporation / A - 3 - 3
- --------------------------------------------------------------------------------
Equity Return Analysis
Assuming the successful execution of Tuesday Morning's business plan, equity
investors in the Company sponsored by Madison Dearborn can expect returns of
approximately 30% in 5 years.
------------------------------------------------------
Equity Return Analysis/1/
(in millions)
Multiple of FY2002E EBITDA
----------------------------------
7.0x 8.0x 9.0x
----------- ----------- -----------
$77.4 $77.4 $77.4
FY 2002E EBITDA
Total Enterprise Value 541.5 618.8 696.2
Less: Net Debt (139.5) (139.5) (139.5)
----------- ----------- -----------
Net Value to Equity Investors $402.0 $479.3 $556.7
Equity Rate of Return in 2002 25.8% 30.3% 34.2%
- ------------------------------------------------------------------------
Note 1: Company projections as of 9/5/97.
[LOGO] SBC Warburg Dillon Read
<PAGE>
Tuesday Morning Corporation
================================================================================
Presentation to the Board of Directors
Review of Proposed Transactions........................ A
Overview of Sale Process....................A - 1
Summary of Terms and Conditions of Offer....A - 2
Financing Structure and Analysis of.........A - 3
Feasibility of Proposal
Review of Tuesday Morning.............................. B
Historical Financial Performance............B - 1
<PAGE>
Tuesday Morning Corporation/B-1-1
================================================================================
Overview of Historical Financial Performance
. Tuesday Morning has grown dramatically over the past five years nearly
doubling the total number of retail stores.
----------------------------------------------------------------------
Stores Operated at Year End
350 -- CAGR: 10.5%
315
300 -- 286
260
250 -- 246
235
200 -- 191
150 --
100 --
50 --
0 --
1992 1993 1994 1995 1996 1997E/1/
----------------------------------------------------------------------
Note 1: Company projections as of 9/5/97.
- --------------------------------------------------------------------------------
Net New Stores 41 44 11 14 26 29
% Change 27.3% 23.0% 4.7% 5.7% 10.0% 10.1%
- --------------------------------------------------------------------------------
[LOGO] SBC Warburg Dillon Read
<PAGE>
Tuesday Morning Corporation/B-1-2
================================================================================
Overview of Historical Financial Performance
. Since 1993, comparable-store sales growth has improved significantly.
-----------------------------------------------------------------------
Comparable-Store Sales Growth/1/
<TABLE>
<CAPTION>
Average: 6.0%
<S> <C> <C> <C> <C> <C> <C>
20.0% --
19.0%
15.0% --
14.0%
10.0% --
8.2%
6.4%
5.0% --
4.2%
0.0% -- | | | | | | |
(3.0%)
-5.0% --
1992 1993 1994 1995 1996 1H97
</TABLE>
- --------------------------------------------------------------------------------
Note 1: Company reports.
[LOGO]SBC Warburg Dillon Read
<PAGE>
Tuesday Morning Corporation/B-1-3
================================================================================
Overview of Historical Financial Performance
[_] As a result of these factors net sales has grown from $160.0 million
in 1992 to $320.9 million projected for 1997.
-----------------------------------------------------------------------
Total Sales
(In millions)
$350.0 -- CAGR: (1992-1997): 14.9%
$320.9
$300.0 --
$256.8
$250.0 -- $210.3
$190.1
$200.0 -- $175.8
$150.0 -- $160
$100.0 --
$50.0 --
$0.0 --
1992 1993 1994 1995 1996 1997E/1/
----------------------------------------------------------------------
Note 1: Company projections as of 9/5/97.
- --------------------------------------------------------------------------------
% Growth 29.8% 9.8% 8.1% 10.6% 22.1% 23.1%
- --------------------------------------------------------------------------------
SBC Warburg Dillon Read
<PAGE>
Tuesday Morning Corporation / B - 1 - 4
================================================================================
OVERVIEW OF HISTORICAL FINANCIAL PERFORMANCE
[_] Profitability has recovered significantly since 1993, 1997 is expected to
be the third year in a row of record financial performance.
(DESCRIPTION OF GROSS PROFIT AND MARGIN BAR CHART)
---------------------------------------------------
Gross Profit and Margin/1/
(dollars in millions)
CAGR: 15.5%
<TABLE>
<S> <C>
1992....................................... $ 55.5
1993....................................... $ 52.6
1994....................................... $ 63.2
1995....................................... $ 72.8
1996....................................... $ 91.6
1997E/2/................................... $114.0
---------------------------------------------------
</TABLE>
Note 1: Adjusted for UNICAP cost allocation method.
Note 2: Company projections as of 9/5/97.
Scales: $ - to $120
28.0% to 36.0%
(DESCRIPTION OF EBIT AND MARGIN BAR CHART)
---------------------------------------------------
EBIT and Margin
(dollars in millions)
CAGR: 27.6%
<TABLE>
<S> <C>
1992........................................ $10.2
1993........................................ $(1.2)
1994........................................ $ 6.3
1995........................................ $10.4
1996........................................ $21.0
1997E....................................... $35.7
---------------------------------------------------
</TABLE>
Note 1: Company projections as of 9/5/97.
Scales: $(5.0) - to $35.0
-2.0% to 12.0%
(LOGO OF SBC WARBURG DILLON READ)
<PAGE>
Tuesday Morning Corporation/B-1-5
================================================================================
Overview of Historical Financial Performance
. Margins and profitability were negatively impacted in 1993 primarily by
aggressive expansion, poor buying decisions and ineffective inventory
management.
-- Difficulties were heightened due to Lloyd Ross' decision to reduce his
involvement in the business starting in 1992.
. As a result of the difficulties, Lloyd Ross reassumed more active involvement
in the Company in 1994, Jerry Smith became President and many initiatives were
begun to address the Company's weaknesses.
-- Buying practices were changed and certain other senior management changes
were effected.
-- Projects to automate and reengineer warehouse processing and to upgrade
point-of-sale information systems were begun.
-- Electronic article surveillance equipment installations were initiated.
-- Real estate and store operations management moderated the rate of store
growth from 44 in 1993 to 11 in 1994.
-- Buying staff was increased markedly to broaden the product mix and maintain
the limited quantities of merchandise required for successful events.
SBC Warburg Dillon Read
<PAGE>
Tuesday Morning Corporation / B - 1 - 6
================================================================================
Overview of Historical Financial Performance
. Since 1993, the Company's financial performance has improved
considerably, resulting from:
-- Better, more accurate pricing and fewer markdowns due to point-of-sale
information systems.
-- More attractive product mix driven by a more focused and experienced
staff of 22 buyers.
-- Substantial operating leverage in warehouse processing and
distribution.
-- Comparable-store sales growth of 14% in 1996, and 19% year-to-date
1997, in part, through execution of the "wave" concept of shipping
new merchandise to stores.
-- Ongoing opportunities to locate new stores in attractive market areas.
[LOGO]SBC Warburg Dillon Read
<PAGE>
<TABLE>
<CAPTION>
Tuesday Morning Corporation / B-1-7
============================================================================================================================
Comparable Company Financial Analysis
. Compared to the Company's peers, Tuesday Morning's historical financial
performance is generally in line with the industry averages.
- However, as a result of the Company's turnaround, earnings growth is
substantially above the industry.
============================================================================================================================
Operating Statistics - Close-Out Retail Companies
(dollars in millions)
3 Year CAGR Gross Margin EDITDA Margin Operating Margin
------------------- ----------------- --------------- ----------------
LTM Operating 3 Year 3 Year 3 Year
Sales Sales Income LTM Average LTM Average LTM Average
------ ----- --------- ----- ------- ---- ------- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TJX Companies $6,777 48.0% 55.2% 22.8% 21.9% 8.3% 7.2% 6.4% 5.2%
Consolidated Stores 2,920 49.5 39.2 41.4 42.2 8.0 10.2 6.1 8.1
Ross Stores 1,762 15.7 57.1 29.6 28.0 10.2 7.7 8.5 5.8
MacFrugal's Bargains - CloseOuts 797 6.4 (0.7) 43.0 44.0 11.3 10.6 9.1 8.2
Mazel Stores 181 53.6 55.6 33.5 29.5 7.9 8.1 7.5 7.5
- ---------------------------------------------------------------------------------------------------------------------------
Median $1,762 48.0% 55.2% 33.5% 29.5% 8.3% 8.1% 7.5% 7.5%
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Tuesday Morning $ 282 16.2% 90.4% 35.8% 34.5% 10.5% 7.2% 8.4% 5.2%
Rank 5/6 4/6 1/6 3/6 3/6 2/6 5/6 3/6 5/6
- ---------------------------------------------------------------------------------------------------------------------------
Earnings Estimates/1/
---------------------
Growth 5-Year
1998/1997 Growth
--------- -------
TJX Companies 25.5% 15.8%
Consolidated Stores 20.6 20.1
Ross Stores 15.9 14.8
MacFrugal's Bargains - CloseOuts 16.3 14.0
Mazel Stores 20.3 22.5
- ---------------------------------------------------------------------------------------------------------------------------
Median 20.3% 15.8%
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Tuesday Morning 17.9% 20.0%
Rank 4/6 3/6
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: See Exhibit 1 for additional detail.
Note 1: Source: I/B/E/S estimates.
[ART] SBC Warburg Dillon Read
<PAGE>
Tuesday Morning Corporation
================================================================================
PRESENTATION TO THE BOARD OF DIRECTORS
<TABLE>
<S> <C>
Review of Proposed Transaction................ A
Overview of Sale Process............. A - 1
Summary Analysis of Offer............ A - 2
Financing Structure and Analysis of
Feasibility of Proposal.............. A - 3
Review of Tuesday Morning..................... B
Historical Financial Performance..... B - 1
Historical Trading Analysis.......... B - 2
</TABLE>
<PAGE>
Tuesday Morning Corporation/B-2-1
================================================================================
Overview of Tuesday Morning's trading statistics
. The Company completed its IPO in March 1986 at $4.44 per share
(split-adjusted).
. Tuesday Morning's stock price reached a low of $2.08 on April 8, 1988,
and a subsequent high of $22.50 on July 22, 1997.
. The Company's 30-day average closing stock price prior to the acquisition
announcement on August 14, 1997 is $20.80. Its 90-day average prior to
announcement is $19.91.
--An offer of $25.00 per share represents a 20.2% premium to the
Company's 30-day average, and a 25.6% premium to the 90-day average.
<TABLE>
<CAPTION>
==============================================================================
Stock Price Performance, IPO to Present
<S> <C> <C> <C> <C> <C> <C> <C> <C>
25
20
15
10
5
0 | | | | | | | | |
3/28/86 8/28/87 1/27/89 6/29/90 11/29/91 4/30/93 9/30/94 3/1/96 8/1/97
------------------------------------------------------------------------------
</TABLE>
[LOGO] SBC Warburg Dillon Read
<PAGE>
<TABLE>
<CAPTION>
Tuesday Morning Corporation / B - 2 - 2
====================================================================================================================================
COMPARABLE COMPANY TRADING ANALYSIS
[_] Based on the Company's pre-announcement stock price, the Company's
valuation was generally at or below its peers.
================================================================================================================================
Trading Analysis - Close Out Retail Companies
(dollars in millions, except per share data and multiples analysis) Equity Value to: Enterprise Value to:
------------------------------------ -------------------------
Stock Equity LTM CY1997E CY1998E Latest LTM LTM LTM
Price Value EPS EPS/2/ EPS/2/ BV Sales EBITDA EBIT
------ ------ ----- ------- ------- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TJX Companies $29.19 $4,655 6.2x 13.3x 10.6x 4.0x 0.7x 8.4x 10.8x
Consolidated Stores 40.00 3,370 34.6 25.5 21.1 4.9 1.3 16.0 21.0
Ross Stores 31.88 1,584 18.0 20.7 17.8 4.5 0.9 8.7 10.3
MacFrugal's Bargains - Close Outs 29.75 745 18.4 19.6 16.8 2.8 0.9 8.3 10.4
Mazel Stores 23.00 211 26.7 26.0 21.6 3.2 1.2 14.9 15.8
- ------------------------------------------------------------------------------------------------------------------------------------
Median $1,584 18.4x 20.7x 17.8x 4.0x 0.9x 8.7x 10.8x
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Tuesday Morning (at sign) 8/13/97 Close $20.38/1/ $243 18.0x 15.2x 12.9x 3.1x 1.0x 9.8x 11.9x
Rank 5/6 4/6 6/6 5/6 5/6 3/6 3/6 3/6
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note 1: Pre-announcement stock price.
Note 2: Source: I/B/E/S.
[_] See Exhibit 1 for additional detail.
[LOGO] SBC Warburg Dillon Read
<PAGE>
Tuesday Morning Corporation
================================================================================
PRESENTATION TO THE BOARD OF DIRECTORS
REVIEW OF PROPOSED TRANSACTION................... A
OVERVIEW OF SALE PROCESS...............A - 1
SUMMARY ANALYSIS OF OFFER..............A - 2
FINANCING STRUCTURE AND ANALYSIS OF....A - 3
FEASIBILITY OF PROPOSAL
REVIEW OF TUESDAY MORNING........................ B
HISTORICAL FINANCIAL PERFORMANCE.......B - 1
HISTORICAL TRADING ANALYSIS............B - 2
PROJECTED BUSINESS PLAN AND STRATEGY...B - 3
<PAGE>
Tuesday Morning Corporation / B - 3 - 1
================================================================================
OVERVIEW OF FINANCIAL PROJECTIONS
[_] SBCWDR has reviewed Tuesday Morning's financial projections and their
underlying assumptions, including:
- Review of Company projections as of September 9, 1997 prepared by
Tuesday Morning management.
- Discussions with Lloyd Ross, Chairman & CEO, Jerry Smith, President &
COO, and Mark Jarvis, CFO, regarding major assumptions.
[_] Management has indicated that there will be no major changes in the
Company's business plan and strategy if Madison Dearborn acquires
Tuesday Morning.
[_] The following pages summarize certain aspects of the plan.
[LOGO] SBC Warburg Dillon Read
<PAGE>
Tuesday Morning Corporation / B - 3 - 2
================================================================================
Overview of Financial Projections
. Major assumptions underlying the business plan include:
-- New store openings at a 10% growth rate through 1999, and 35 stores per
year over the balance of the projection period
-- Comparable-store sales growth as follows:
==========================================================
Comparable - Store Sales Growth /1/
<TABLE>
<CAPTION>
1998 1999 2000 Forward
------ ------ ------ -------
<S> <C> <C> <C> <C>
Pre-1997 Stores 5.0% 5.0% 3.0% 3.0%
1997 Stores - 12.0% 8.0% 3.0%
Year 2 Year 3 Year 4 Forward
------ ------ ------ -------
Pre-1997 Stores 20.0% 10.0% 5.0% 3.0%
-----------------------------------------------------------
</TABLE>
Note 1: Company projections as of 9/5/97.
-- Gross margins (pre-UNICAP) at 43.5% consistent with recent historical
experience.
-- EBITDA margin improvements from 12.4% in 1997E to 14.8% in 2002 (vs.
1996 actual of 10.1%).
. These assumptions exceed the Company projections presented by management
at the Company's Annual Shareholders Meeting in May 1997.
[LOGO]SBC Warburg Dillon Read
<PAGE>
<TABLE>
<CAPTION>
Tuesday Morning Corporation/B-3-3
========================================================================================
Overview of Financial Projections
. SBCWDR compared Tuesday Morning's historical growth and profitability to
that presented in the current business plan.
======================================================================
Selected Comparisons
Historical Projected
1994-1997E 1997E 1996-2002
---------- ----- ---------
<S> <C> <C> <C>
Annual Average Net 20 29 34
New Store Openings
CAGR in New Store Openings 8.6% 10.1% 9.1%
Average Comparable - Store
Sales Growth 10.7% 18.7% 10.5%
Average Sales Growth 15.9% 25.0% 10.2%
Average Gross Margin 42.6% 43.6% 43.6%
Average EBITDA Margin 8.7% 12.4% 13.9%
Average EBIT Margin/1/ 7.0% 11.1% 12.9%
----------------------------------------------------------------------
Sources: Company reports; Company projections as of 9/5/97.
Note 1: Before goodwill amortization in projection period.
</TABLE>
. The projections for the Company are similar in terms of planned growth
and gross margin, but substantially more aggressive in EBITDA and EBIT
margins.
- Margin projected to increase from 12.4% in 1997 to 14.8% in 2002.
- Prior to 1997E, the Company's highest EBITDA margin ever achieved was
12.3% in 1986 (which declined to 10.5% in 1987 and 8.8% in 1988).
[ART] SBC Warburg Dillon Read
<PAGE>
<TABLE>
<CAPTION>
Tuesday Morning Corporation
==================================================================================================
Presentation to the Board of Directors
<S> <C>
Review of Proposed Transaction............................................................. A
Overview of Sale Process....................................................... A-1
Summary Analysis of Offer...................................................... A-2
Financing Structure and Analysis of Feasibility of Proposal.................... A-3
Review of Tuesday Morning.................................................................. B
Historical Financial Performance............................................... B-1
Historical Trading Analysis.................................................... B-2
Projected Business Plan and Strategy........................................... B-3
Preliminary Valuation...................................................................... C
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Tuesday Morning Corporation / C - 1
======================================================================================================
Discounted Cash Flow Analysis
. A discounted cash flow analysis of the Company's business plan as
outlined in Section B-3 results in the following values.
============================================================================
Equity Valuation Per Share/1/
(in millions, except per share data)
Discount Rates
----------------------------------
17% 18% 19%
------ ------ ------
<S> <C> <C> <C> <C>
2002 EBITDA 7.0x $25.51 $24.55 $23.64
Multiple 8.0 28.22 27.15 26.13
9.0 30.93 29.74 28.62
----------------------------------------------------------------------------
Note 1: 12.9 million shares.
</TABLE>
. See Exhibit 2 for additional detail
[ART] Warburg Dillon Read
<PAGE>
<TABLE>
<CAPTION>
Tuesday Morning Corporation / C - 2
======================================================================================================
Discounted Cash Flow Analysis
. A discounted cash flow analysis that incorporates EBITDA margins at the
1997E level over the projection period.
- The Company has not achieved the 12%+ EBITDA margins projected in the
current plan since 1986.
============================================================================
Equity Valuation Per Share/1/
(in millions, except per share data)
Discount Rates
----------------------------------
17% 18% 19%
------ ------ ------
<S> <C> <C> <C> <C>
2002 EBITDA 7.0x $21.36 $20.56 $19.80
Multiple 8.0 23.63 22.73 21.88
9.0 25.89 24.90 23.96
----------------------------------------------------------------------------
Note 1: 12.9 million shares.
</TABLE>
. See Exhibit 2 for additional detail.
[ART] Warburg Dillon Read
<PAGE>
Tuesday Morning Corporation / C - 3
- --------------------------------------------------------------------------------
Discounted Cash Flow Analysis
A discounted cash flow analysis that incorporates EBITDA margins that
duplicate 1987 - 1991 levels over the projection period.
<TABLE>
<CAPTION>
----------------------------------------------------------
Equity Valuation Per Share/1/
(in millions, except per share data)
Discount Rates
--------------------------
17% 18% 19%
<S> <C> <C> <C>
------ ------ ------
2002 EBITDA | 7.0x | $14.01 $13.48 $12.98
Multiple | 8.0 | 15.55 14.96 14.39
| 9.0 | 17.09 16.43 15.81
----------------------------------------------------------
</TABLE>
Note 1: 12.9 million shares.
See Exhibit 2 for additional detail.
[LOGO] SBC Warburg Dillon Read
<PAGE>
Tuesday Morning Corporation / C-4
================================================================================
Leveraged Buyout Analysis
. A leveraged buyout of the Company at purchase prices greater than $25.00
per share yields increasingly weaker credit statistics and lower equity
returns.
<TABLE>
<CAPTION>
============================================================================================
LBO Purchase Price Analysis/1/
Price Per Common Share/2/
---------------------------------
$25.00 $26.00 $27.00 $28.00
------------------------------------------------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
1997E EBITDA/Interest 1.7x 1.7x 1.6x 1.6x
1997E EBIT/Interest 1.5 1.5 1.5 1.4
Total Debt/Capitalization 67.1% 66.5% 65.9% 65.4%
Total Debt/EBITDA 5.9x 6.1x 6.2x 6.4x
IRR Assuming of 8.0x Exit Multiple of 2002 EBITDA 30.3% 28.3% 26.5% 24.7%
-------------------------------------------------------------------------------------
</TABLE>
Note 1: Company projections as of 9/5/97.
Note 2: Assumes increase in purchase price is funded 50% with equity and
50% with debt.
. See Exhibit 3 for additional detail.
[LOGO] SBC Warburg Dillon Read
<PAGE>
Tuesday Morning Corporation / C - 5
================================================================================
Recapitalization Analysis
[_] An analysis of a leveraged recapitalization of the Company by paying a
one-time cash dividend financed with debt results in lower values.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
Recapitalization Valuation Analysis
(in millions, except per share data)
Cash Dividend per Share
-----------------------------------------------
$ 12.00 $ 13.00 $ 14.00 $ 15.00 $ 16.00
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Total Cash Dividend $155.8 $168.8 $181.8 $194.7 $207.7
1997E Pro Forma EPS $0.83 $0.77 $0.71 $0.64 $0.58
Assumed P/E Multiple/1/ 15.2x 15.2x 15.2x 15.2x 15.2x
------- ------ ------ ------ ------
Implied Stock Value $12.61 $11.67 $10.74 $9.80 $8.87
------- ------ ------ ------ ------
Total Value per Share $24.61 $24.67 $24.74 $24.80 $24.87
1997E EBIT / Interest Expense 3.6x 3.3x 3.1x 2.9x 2.7x
1997E EBITDA / Interest Expense 4.0 3.8 3.5 3.4 3.2
1997E Total Debt / EBITDA 4.0 4.3 4.7 5.0 5.3
----------------------------------------------------------------------------------
Note 1: Multiple of 1997E earnings prior to announcement of $25.00
offer.
Note 2: See Exhibit 4 for additional detail.
</TABLE>
[_] Other negative qualitative factors may cause the Company's stock to trade
at P/E levels below that indicated above, including:
-- The resulting smaller market capitalization and float of stock
-- Significant financial leverage added to inherent operating leverage of
business due to seasonality
[LOGO] SBC Warburg Dillon Read
<PAGE>
<TABLE>
<CAPTION>
Tuesday Morning Corporation / C - 6
===============================================================================================================
ANALYSIS OF COMPARABLE ACQUISITONS
[_] Reviewing a selection of acquisitions of retailers, by both corporate
and financial buyers, the Tuesday Morning offer price exceeds that of
other recent acquisitions.
===============================================================================================
Comparable Acquisition Analysis - Retail Companies
Offer for Assets to LTM: Offer for Equity to:/1/
------------------------- ---------------------------
Sales EBIT EBITDA LTM Net Inc Book Value
----- ---- ------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Average 0.5x 12.5x 8.1x 21.5x 2.9x
Median 0.5 11.8 8.3 20.8 2.0
High 1.3 19.1 13.3 39.2 6.9
Low 0.2 6.2 4.1 10.0 1.5
# In Calculation 11 11 9 9 9
- --------------------------------------------------------------------------------------------------------------
Tuesday Morning (at sign) $25.00 1.2x 12.9x 10.7x 22.3x 4.1x
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
[_] See Exhibit 5 for additional detail.
[LOGO] SBC Warburg Dillon Read
<PAGE>
Tuesday Morning Corporation/C-7
================================================================================
Analysis of Accretion/(Dilution) at Various Purchase Prices
. At $25.00 per share in cash and higher prices, an acquisition of the
Company by a corporate acquiror would be dilutive.
-- Does not reflect any synergies
-- Assumes achievement of 1997 plan
<TABLE>
<CAPTION>
===============================================================================
Accretion (Dilution) Analysis
Purchase Price Range
(in millions) ------------------------------------
$25.00 $25.50 $26.00 $26.50
- ------------------------------ ------ ------ ------ ------
<S> <C> <C> <C> <C>
1997E Pretax Income $32.3 $32.3 $32.3 $32.3
Less: Interest Expenses on
Acquisition Debt at 8.5% (27.6) (28.2) (28.7) (29.3)
------ ------ ------ ------
Adjusted Pretax Income 4.7 4.1 3.6 3.0
Less: Taxes (1.9) (1.6) (1.4) (1.2)
------ ------ ------ ------
Net Income 2.8 2.5 2.2 1.8
Goodwill Amortization/1/ (5.9) (6.1) (6.2) (6.4)
------ ------ ------ ------
Pro Forma Net Income ($3.1) ($3.6) ($4.0) ($4.6)
- ---------------------------------------------------------------------
Note 1: Assumes goodwill amortized over 40 years.
. However, no corporate buyer approached the Company with an offer.
</TABLE>
[LOGO] SBC Warburg Dillon Read
<PAGE>
================================================================================
Exhibits
Comparable Company Trading Analysis........ 1
Discounted Cash Flow Analysis.............. 2
LBO Analysis............................... 3
Recapitalization Analysis.................. 4
Comparable Industry Acquisitions........... 5
Calculation of Estimated Weighted Average
Cost of Capital.......................... 6
<PAGE>
<TABLE>
<CAPTION>
Preliminary & Confidential Dillon, Read & Co. Inc.
====================================================================================================================================
Analysis of Selected Deep Discount Retail Companies
---------------------- --------------------------------------
---------------------- --------------------------------------
Tuesday Morning Average Median
- ---------------------------------------- --------------- ------- ------
<S> <C> <C> <C>
CURRENT PRICE DATA
Closing Price as of: 09/05/97 $20.38(11)
52 Week Range: High $24.17
Low 8.67
Price as % of: High 84.3%
Low 235.1%
Indicated Dividend Yield 0.0%
Ticker TUES
Exchange NASD
Fiscal Year End December
Latest Quarter June
- ---------------------------------------- ---------------------- --------------------------------------
FORECASTED EARNINGS DATA
Latest Twelve Months E.P.S. $1.13
Forecast FY + 1 E.P.S.(a) $1.34
Forecast FY + 2 E.P.S.(a) $1.58
Forecast 1997 CY E.P.S.(a) $1.34
Forecast 1998 CY E.P.S.(a) 1.58
% Change CY 1997E vs. 1998E 17.9%
Five Year Growth Rate(a) 20.0%
- ---------------------------------------- ---------------------- --------------------------------------
Shares Outstanding (MM) 11.9
Market Value of Common Equity $243.4
Unlevered Market Value(b) 281.8
- ---------------------------------------- ---------------------- --------------------------------------
MARKET VALUE OF EQUITY TO:
Latest Twelve Months E.P.S. 18.0 x 20.8 x 18.4 x
Forecast FY 1997 E.P.S. 15.2 20.9 20.7
Forecast FY 1998 E.P.S. 12.9 17.4 17.6
Forecast CY 1997 E.P.S. 15.2 x 21.0 x 20.7 x
Forecast CY 1998 E.P.S. 12.9 17.6 17.8
Book Value 3.1 x 3.9 x 4.0 x
- ---------------------------------------- ---------------------- --------------------------------------
UNLEVERED MARKET VALUE TO:
LTM Revenue 1.0 x 1.0 x 0.9 x
LTM Operating Cash Flow (EBITDA)(d) 9.5 11.3 8.7
LTM Operating Income(EBIT) 11.4 13.6 10.8
Latest Net Assets(f) 2.4 3.6 3.5
- ---------------------------------------- ---------------------- --------------------------------------
LATEST TWELVE MONTHS DATA
Total Revenue $281.6 $2,487.4 $1,761.7
Operating Cash Flows(d) 29.7 215.6 179.2
Operating Income 24.7 169.7 150.5
Net Income(c) 14.2 96.0 90.7
- ---------------------------------------- ---------------------- --------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------
---------------------------------------------------------------------
MacFrugal's Bargains
Consolidated Stores Close-Outs Mazel Stores
- ---------------------------------------- ------------------- -------------------- ------------
CURRENT PRICE DATA
<S> <C> <C> <C>
Closing Price as of: 09/05/97 $40.00 $29.75 $23.00
52 Week Range: High $41.75 $31.63 $29.25
Low $22.96 20.50 11.75
Price as % of: High 95.8% 94.1% 78.6%
Low 174.2% 145.1 195.7%
Indicated Dividend Yield 0.0% 0.0% 0.0%
Ticker CNS MFI MAZL
Exchange NYSE NYSE NASD
Fiscal Year End January January January
Latest Quarter May May April
- ---------------------------------------- ---------------------------------------------------------------------
FORECASTED EARNINGS DATA
Latest Twelve Months E.P.S. $1.16 $1.62 $0.86
Forecast FY + 1 E.P.S.(a) $1.59 $1.52 $0.88
Forecast FY + 2 E.P.S.(a) 1.92 1.79 1.08
Forecast 1997 CY E.P.S.(a) $1.57 $1.52 $0.88
Forecast 1998 CY E.P.S.(a) 1.89 1.77 1.06
% Change CY 1997E vs. 1998E 20.6% 16.3% 20.3%
Five Year Growth Rate(a) 20.1% 14.0% 22.5%
- ---------------------------------------- ---------------------------------------------------------------------
Shares Outstanding(MM) 84.3 (10) 25.0 9.2
Market Value of Common Equity $3,370.1 $745.1 $210.9
Unlevered Market Value(b) 3,751.4 748.1 213.5
- ---------------------------------------- ---------------------------------------------------------------------
MARKET VALUE OF EQUITY TO:
Latest Twelve Months E.P.S. 34.6 x 18.4 x 26.7 x
Forecast FY 1997 E.P.S. 25.2 19.6 26.1
Forecast FY 1998 E.P.S. 20.8 16.6 21.3
Forecast CY 1997 E.P.S. 25.5 x 19.6 x 26.0 x
Forecast CY 1998 E.P.S. 21.1 16.8 21.6
Book Value 4.9 x 2.8 x 3.2 x
- ---------------------------------------- ---------------------------------------------------------------------
UNLEVERED MARKET VALUE TO:
LTM Revenue 1.3 x 0.9 x 1.2 x
LTM Operating Cash Flow (EBITDA)(d) 16.0 8.3 14.9
LTM Operating Income(EBIT) 21.0 10.4 15.8
Latest Net Assets(f) 3.5 2.8 3.1
- ---------------------------------------- ---------------------------------------------------------------------
LATEST TWELVE MONTHS DATA $2,920.4 $797.0 $180.6
Total Revenue 234.2 90.2 14.3
Operating Cash Flows(d) 178.9 72.1 13.6
Operating Income 100.1 41.8 7.9
Net Income(c)
- ---------------------------------------- ---------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------
-----------------------------------------------
Ross Stores TJX Companies
- ---------------------------------------- ----------- -------------
CURRENT PRICE DATA
<S> <C> <C>
Closing Price as of: 09/05/97 $31.88 $29.19
52 Week Range: High $34.38 $30.75
Low 16.81 15.63
Price as % of: High 92.7% 94.9%
Low 189.6% 186.8%
Indicated Dividend Yield 0.6% 0.7%
Ticker ROST TJX
Exchange NASD NASD
Fiscal Year End January January
Latest Quarter May April
- ---------------------------------------- -----------------------------------------------
FORECASTED EARNINGS DATA
Latest Twelve Months E.P.S. $1.77 $4.68
Forecast FY + 1 E.P.S.(a) $1.54 $2.29
Forecast FY + 2 E.P.S.(a) 1.81 2.80
Forecast 1997 CY E.P.S.(a) $1.54 $2.20
Forecast 1998 CY E.P.S.(a) 1.79 2.76
% Change CY 1997E vs. 1998E 15.9% 25.5%
Five Year Growth Rate(a) 14.8% 15.8%
- ---------------------------------------- -----------------------------------------------
Shares Outstanding(MM) 49.7 159.5 (7)
Market Value of Common Equity $1,584.0 $4,654.8
Unlevered Market Value(b) 1,557.1 4,680.8
- ---------------------------------------- -----------------------------------------------
MARKET VALUE OF EQUITY TO:
Latest Twelve Months E.P.S. 18.0 x 6.2 x
Forecast FY 1997 E.P.S. 20.7 12.7
Forecast FY 1998 E.P.S. 17.6 10.4
Forecast CY 1997 E.P.S. 20.7 x 13.3 x
Forecast CY 1998 E.P.S. 17.8 10.6
Book Value 4.5 x 4.0 x
- ---------------------------------------- -----------------------------------------------
UNLEVERED MARKET VALUE TO:
LTM Revenue 0.9 x 0.7 x
LTM Operating Cash Flow (EBITDA)(d) 8.7 8.4
LTM Operating Income(EBIT) 10.3 10.8
Latest Net Assets(f) 4.8 3.9
- ---------------------------------------- -----------------------------------------------
LATEST TWELVE MONTHS DATA
Total Revenue $1,761.7 $6,777.3
Operating Cash Flows(d) 179.2 559.8
Operating Income 150.5 433.5
Net Income(c) 90.7 239.3
- ---------------------------------------- -----------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Preliminary & Confidential Dillon, Read & Co. Inc.
===================================================================================================================================
Analysis of Selected Deep Discount Retail Companies 09/08/97
06:54 PM
--------------- ------------------ -------------------
--------------- ------------------ -------------------
Tuesday Morning Average Median Consolidated Stores
--------------- ------- ------ -------------------
<S> <C> <C> <C> <C>
THREE YEAR GROWTH RATES
Total Revenue 16.2% 34.6% 48.0% 49.5%
Operating Cash Flow (d) 63.3% 37.4% 44.2% 38.4%
Operating Income 90.4% 41.3% 55.2% 39.2%
Net Income (c) 108.4% 39.0% 40.0% 40.0%
- ---------------------------------------- --------------- ------- ------ -------------------
LTM MARGINS, RETURNS &
ASSET UTILIZATION
Gross Margin 35.8% 34.0% 33.5% 41.4%
3 Year Avg. 34.5% 33.1% 29.5% 42.2%
Operating Cash Flow (d) 10.5% 9.1% 8.3% 8.0%
3 Year Avg. 7.2% 8.7% 8.1% 10.2%
Operating Income 8.8% 7.5% 7.5% 6.1%
3 Year Avg. 5.2% 7.0% 7.5% 8.1%
Net Income (c) 5.0% 4.3% 4.4% 3.4%
3 Year Avg. 2.7% 4.2% 4.3% 4.7%
Return on Average Equity 18.2% 17.8% 16.0% 14.6%
Operating Return on Net Assets 21.1% 29.4% 27.2% 16.8%
Inventory Turnover 1.4 x 2.7 x 2.4 x 1.8 x
- ---------------------------------------- --------------- ------- ------ -------------------
LATEST BALANCE SHEET DATA
Net Debt (e) $ 38.4 $ 381.3
Shareholders' Equity 78.3 685.2
Net Assets (f) 116.7 1,066.5
Net Debt/Net Market Capitalization 13.6% 10.2%
Net Debt/Net Book Capitalization 32.9% 35.8%
- ---------------------------------------- --------------- ------- ------ -------------------
OPERATING DATA
Comparable store sales growth 9.5%
LQ 23.0% 7.7%
LFY 14.0% 1798
No. of stores LFY 286 9.0 (3)
Selling sq. ft per store LFY (000s) 7.8 $163.4
Sales per sq. foot of selling space (mm) LFY $122.3 0.5
Inventory per store at FYTD (mm) 0.4
- ---------------------------------------- --------------- ------- ------ -------------------
</TABLE>
<TABLE>
<CAPTION>
--------------------- ------------ ----------- -------------
--------------------- ------------ ----------- -------------
Mac Frugal's Bargains
Close-Outs Mazel Stores Ross Stores TJX Companies
--------------------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
THREE YEAR GROWTH RATES 6.4% 53.6% 15.7% 48.0%
Total Revenue 0.7% 51.0% 44.2% 52.5%
Operating Cash Flow (d) -0.7% 55.6% 57.1% 55.2%
Operating Income 0.6% 32.9% 62.7% 59.1%
Net Income (c)
- ---------------------------------------------- ------------------------------------------------------------------------------
LTM MARGINS, RETURNS &
ASSET UTILIZATION
Gross Margin 43.0% 33.5% 29.6% 22.8%
3 Year Avg. 44.0% 29.5% 28.0% 21.9%
Operating Cash Flow (d) 11.3% 7.9% 10.2% 8.3%
3 Year Avg. 10.6% 8.1% 7.7% 7.2%
Operating Income 9.1% 7.5% 8.5% 6.4%
3 Year Avg. 8.2% 7.5% 5.8% 5.2%
Net Income (c) 5.2% 4.4% 5.1% 3.5%
3 Year Avg. 4.3% 5.9% 3.4% 2.6%
Return on Average Equity 16.0% 11.9% 26.0% 20.5%
Operating Return on Net Assets 27.2% 19.7% 46.8% 36.3%
Inventory Turnover 2.4 x 2.4 x 3.0 x 3.8 x
- ---------------------------------------------- ------------------------------------------------------------------------------
LATEST BALANCE SHEET DATA
Net Debt (e) $3.0 $2.5 ($26.9) $26.0
Shareholders' Equity 261.8 66.3 348.7 1,168.0
Net Assets (f) 264.8 68.8 321.8 1,194.0
Net Debt/Net Market Capitalization 0.4% 1.2% -1.7% 0.6%
Net Debt/Net Book Capitalization 1.1% 3.7% -8.4% 2.2%
- ---------------------------------------------- ------------------------------------------------------------------------------
OPERATING DATA
Comparable store sales growth
LQ 13.4% -4.0% 11.0% 5.9% (2)
LFY 4.2% 15.8% 13.0% 7.0%
No. of stores LFY 319 23 309 1136
Selling sq. ft per store LFY (000s) 17.7 8.8 21.6 30.1 (4)
Sales per sq. foot of selling space (mm) LFY $137.2 $533.9 $253.5 $195.7
Inventory per store at FYTD (mm) 0.6 1.8 1.3 1.2
- ---------------------------------------------- ------------------------------------------------------------------------------
</TABLE>
<PAGE>
Preliminary & Confidential Dillon, Read & Co. Inc.
- --------------------------------------------------------------------------------
Analysis of Selected Deep Discount Retail Companies 09/08/97
06:54 PM
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Mac
Frugal's
Bargains
Tuesday Consolidated Close- Mazel Ross TJX
Morning Average Median Stores Outs Stores Stores Companies
- ------------------------------------ ------- --------------- ----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Revenues
LTM $281.6 $ 2,920.4 $ 797.0 $180.6 $1,761.7 $6,777.3
FYTD 114.9 594.9 183.5 43.1 442.8 1,560.2
FYTD-1 90.0 322.0 159.1 42.5 370.9 1,472.2
LFY(A) 256.8 2,647.5 772.6 179.9 1,689.8 6,689.4
LFY-1 210.3 1,406.0 704.9 98.1 1,426.4 3,975.1
LFY-2 190.1 1,185.1 682.1 76.3 1,262.5 3,055.6
- ------------------------------------ ------- --------------- ---------------------------------------------------------------
LFY Revenue Growth 22.1% 88.3% 9.6% 83.3% 18.5% 68.3%
COGS (as % of revenue) 64.2% 58.6% 57.0% 66.5% 70.4% 77.2%
LTM $180.8 $ 1,711.7 $ 454.5 $120.1 $1,239.6 $5,234.0
FYTD 74.0 356.1 104.9 28.3 309.5 1,202.6
FYTD-1 58.4 186.9 88.7 29.6 264.1 1,167.4
LFY 165.2 1,542.5 438.3 121.4 1,194.1 5,198.8
LFY-1 137.4 811.6 414.6 70.2 1,031.5 3,143.3
LFY-2 126.9 681.2 358.3 55.2 920.3 2,370.7
- ------------------------------------ ------- --------------- ---------------------------------------------------------------
Gross Profit
- ------------------------------------ ------- --------------- ---------------------------------------------------------------
LTM $100.9 $ 1,208.7 $ 342.5 $ 60.4 $ 522.1 $1,543.3
FYTD 40.9 238.8 78.6 14.8 133.3 357.5
FYTD-1 31.6 135.1 70.4 12.9 106.9 304.9
LFY 91.6 1,105.0 334.3 58.5 495.7 1,490.6
LFY-1 72.8 594.5 290.3 27.9 394.9 831.9
LFY-2 63.2 503.9 323.7 21.1 342.3 684.9
- ------------------------------------ ------- --------------- ---------------------------------------------------------------
SG&A (as % of revenue) 27.1% 35.3% 33.9% 26.0% 21.1% 16.4%
LTM $ 76.2 $1,029.8% $ 270.3 $ 46.9 $ 371.6 $1,109.7
FYTD 36.3 246.1 68.7 12.2 86.7 273.7
FYTD-1 31.3 124.7 63.0 9.9 76.2 251.2
LFY 71.2 908.5 264.7 44.6(1) 361.2 1,087.1
LFY-1 63.0 475.8 254.4 20.8 320.1 669.9
LFY-2 57.5 402.4 253.1 15.3 287.8 517.4
- ------------------------------------ ------- --------------- ---------------------------------------------------------------
Operating Income
- ------------------------------------ ------- --------------- ---------------------------------------------------------------
LTM $ 24.7 $ 178.9 $ 72.1 $ 13.6 $ 150.5 $ 433.5
FYTD 4.6 (7.3) 9.9 2.6 46.7 83.8
FYTD-1 0.3 10.4 7.4 3.0 30.7 53.7
LFY 20.4 196.5 69.7 13.9 134.5 403.5
LFY-1 9.8 118.7 35.9 7.1 74.9 162.0
LFY-2 5.6 101.5 70.6 5.8 54.5 167.4
- ------------------------------------ ------- --------------- ---------------------------------------------------------------
Depreciation & Amortization
- ------------------------------------ ------- --------------- ---------------------------------------------------------------
LTM $ 5.0 $ 55.4 $ 18.0 $ 0.7 $ 28.8 $ 126.3
FYTD 2.5 15.1 4.4 0.3 7.3 29.9
FYTD-1 2.4 8.2 4.7 0.2 7.3 30.4
LFY 4.9 48.4 18.3 0.6 28.8 126.8
LFY-1 4.6 30.0 18.2 0.5 27.0 79.2
LFY-2 3.9 26.5 16.0 0.6 24.0 60.6
- ------------------------------------ ------- --------------- ---------------------------------------------------------------
Operating Cash Flow(e)
- ------------------------------------ ------- --------------- ---------------------------------------------------------------
LTM $ 29.7 $ 234.2 $ 90.2 $ 14.3 $ 179.2 $ 559.8
FYTD 7.1 7.9 14.3 3.0 53.9 113.7
FYTD-1 2.7 18.6 12.1 3.2 37.9 84.2
LFY 25.3 244.9 87.9 14.6 163.2 530.3
LFY-1 14.4 148.7 54.1 7.6 101.9 241.2
LFY-2 9.5 128.0 86.6 6.4 78.5 228.0
- ------------------------------------ ------- --------------- ---------------------------------------------------------------
Net Income
- ------------------------------------ ------- --------------- ---------------------------------------------------------------
LTM $ 14.2 $ 100.1 $ 41.8 $ 7.9 $ 90.7 $ 239.3
FYTD 2.5 (7.3) 6.0 1.5 23.8 48.5
FYTD-1 (0.2) 5.9 3.5 2.1(1) 13.9 23.0
LFY 11.5 113.3 39.3(8) 8.5(1) 80.9 213.8
LFY-1 4.8 70.1 14.6 6.4(1) 43.3 71.9(6)
LFY-2 2.7 57.8 38.9 4.8 30.6(5) 84.5
- ------------------------------------ ------- --------------- ---------------------------------------------------------------
LFY Net Income Growth 141.3% 61.6% 170.2% 32.0% 87.0% 197.3%
- ------------------------------------ ------- --------------- ---------------------------------------------------------------
</TABLE>
<PAGE>
Preliminary & Confidential Dillon, Read & Co. Inc.
- --------------------------------------------------------------------------------
Analysis of Selected Deep Discount Retail Companies 09/08/97
06:54 PM
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
Mac
Frugal's
Bargains
Tuesday Consolidated Close- Mazel Ross TJX
Morning Average Median Stores Outs Stores Stores Companies
- -------------------------------------------- ------- --------------- ----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shareholder's Equity
- --------------------------------------------
LQ $78.28 $685.21 $261.76 $66.29 $348.65 $1,168.00
LFY 75.53 682.09 252.03 64.76 328.84 1,127.19
LFY-1 63.65 389.56 230.40 12.87 291.52 764.63
- -------------------------------------------- ------- --------------- ----------------------------------------------------------
Oper. CF Margin
- -------------------------------------------- ------- --------------- ----------------------------------------------------------
Average LFY 7.2% 10.2% 10.6% 8.1% 7.7% 7.2%
LTM 10.5% 8.0% 11.3% 7.9% 10.2% 8.3%
LFY 9.9% 9.3% 11.4% 8.1% 9.7% 7.9%
LFY-1 6.8% 10.6% 7.7% 7.8% 7.1% 6.1%
LFY-2 5.0% 10.8% 12.7% 8.4% 6.2% 7.5%
- -------------------------------------------- ------- --------------- ----------------------------------------------------------
Gross Profit Margin
- -------------------------------------------- ------- --------------- ----------------------------------------------------------
Average 34.5% 42.2% 44.0% 29.5% 28.0% 21.9%
LTM 35.8% 41.4% 43.0% 33.5% 29.6% 22.8%
LFY 35.7% 41.7% 43.3% 32.5% 29.3% 22.3%
LFY-1 34.6% 42.3% 41.2% 28.4% 27.7% 20.9%
LFY-2 33.2% 42.5% 47.5% 27.6% 27.1% 22.4%
- -------------------------------------------- ------- --------------- ----------------------------------------------------------
Oper. Income Margin
- -------------------------------------------- ------- --------------- ----------------------------------------------------------
Average 5.2% 8.1% 8.2% 7.5% 5.8% 5.2%
LTM 8.8% 6.1% 9.1% 7.5% 8.5% 6.4%
LFY 7.9% 7.4% 9.0% 7.7% 8.0% 6.0%
LFY-1 4.7% 8.4% 5.1% 7.3% 5.2% 4.1%
LFY-2 3.0% 8.6% 10.4% 7.5% 4.3% 5.5%
- -------------------------------------------- ------- --------------- ----------------------------------------------------------
Net Income Margin
- -------------------------------------------- ------- --------------- ----------------------------------------------------------
Average 2.7% 4.7% 4.3% 5.9% 3.4% 2.6%
LTM 5.0% 3.4% 5.2% 4.4% 5.1% 3.5%
LFY 4.5% 4.3% 5.1% 4.7% 4.8% 3.2%
LFY-1 2.3% 5.0% 2.1% 6.6% 3.0% 1.8%
LFY-2 1.4% 4.9% 5.7% 6.3% 2.4% 2.8%
- -------------------------------------------- ------- --------------- ----------------------------------------------------------
Avg. Return on Equity
- -------------------------------------------- ------- --------------- ----------------------------------------------------------
Average 11.4% 17.3% 11.0% 31.6% 19.7% 14.2%
LFY 15.2% 16.6% 15.6% 13.1% 24.6% 19.0%
LFY-1 7.5% 18.0% 6.3% 50.1% 14.8% 9.4%
- -------------------------------------------- ------- --------------- ----------------------------------------------------------
Share Data
- -------------------------------------------- ------- --------------- ----------------------------------------------------------
FYTD Avg. Shares Outstanding 12.7 87.7 (10) 25.4 9.2 50.5 169.8 (7)
FYTD-1 Avg. Shares Outstanding 11.8 77.9 (10) 25.7 9.2 51.6 204.5 (7)
LFY Avg. Shares Outstanding 12.3 (9) 84.0 (10) 25.9 9.2 51.4 181.3 (7)
LTM Avg. Shares Outstanding (used in EPS) 12.6 86.49 25.85 9.17 51.12 51.12
- --------------------------------------------
Indicated Dividend per share $0.00 $0.00 $0.00 $0.00 $0.18 $0.20
Latest Book Value per share 6.55 8.13 10.45 7.23 7.02 7.32
- -------------------------------------------- ------- --------------- ----------------------------------------------------------
Balance Sheet Data
- -------------------------------------------- ------- --------------- ----------------------------------------------------------
Cash $1.3 $23.4 $11.0 $1.2 $26.9 $397.1
Inventories 128.3 927.8 188.5 49.9 409.0 1,384.4
Net Debt 38.4 381.3 3.0 2.5 (26.9) 26.0
Net Assets 116.7 1,066.5 264.8 68.8 321.8 1,194.0
Minority Interest 0.0 0.0 0.0 0.0 0.0 0.0
Preferred Equity 0.0 0.0 0.0 0.0 0.0 150.0
Common Equity 78.3 685.2 261.8 66.3 348.7 1,168.0
Total Debt 39.8 404.7 14.0 3.7 0.0 273.1
- -------------------------------------------- ------- --------------- ----------------------------------------------------------
</TABLE>
Item Definitions:
- -----------------
(a) Forecasts provided by I/B/E/S Estimates & ZACKS.
(b) Market value of common equity plus book value of net debt.
(c) All net income numbers are from continuing operations, exclude one
time charges and are before NOL's.
(d) Operating cash flow is defined as operating income plus depreciation
and amortization
(e) Net debt equals total debt less cash plus preferred equity plus
minority interest.
(f) Net assets defined as shareholder's equity plus net debt.
Company Notes:
- --------------
(1) Pro forma as adjusted data gives effect to the Company's initial
public offering as of the beginning of all periods presented, excludes
certain non-recurring charge and gives effect to the use of proceeds.
(2) Comparable same store sales growth is a weighted average of comparable
same store sales growth for T.J. Maxx, Marshalls, Winners, T.K. Maxx,
and Homegoods.
(3) Selling sq. ft. per store is a weighted average of closeout and toy
stores.
(4) Selling sq. ft. per store is a weighted average of T.J. Maxx,
Marshalls, Winners, Homegoods, and T.K. Maxx stores.
(5) ROST net income for FY Ended January 28, 1995 excludes a pre-tax
insurance proceed of $10.4mm.
(6) TJX net income for fiscal year ended January 27, 1996 excludes a
pre-tax store closing cost of $35 mm.
(7) Shares outstanding adjusted to reflect 2 for 1 stock split.
(8) MFI net income for fiscal year ended February 2, 1997 excludes a
pre-tax gain on distribution center settlement of $6.2 mm.
(9) Shares outstanding adjusted to reflect 3 for 2 stock split.
(10) Shares outstanding adjusted to reflect 5 for 4 stock split.
(11) TUES stock price as of 08/13/97.
<PAGE>
SBC Warburg Dillon Read Inc. Highly Confidential
- --------------------------------------------------------------------------------
Scenario: Management Business Plan
<TABLE>
<CAPTION>
Discounted Cash Flow Valuation
(dollars in millions, except per share data)
----------------------------------------------------------------------------------------------------------------------------------
Free Cash Flow Calculation
Projections
Pro Forma Years Ending Dec. 31,
--------- ------------------------------------------
1997 1998 1999 2000 2001 2002
--------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Revenue $320.9 $360.9 $402.0 $439.9 $479.5 $521.3
EBITDA 39.7 46.6 55.1 61.6 69.0 77.1
Depreciation 4.0 4.5 5.1 5.7 6.3 7.0
--------- ------ ------ ------ ------ ------
EBITA (before goodwill amortization) 35.6 42.0 50.0 55.9 62.7 70.2
Tax: Federal & State 13.2 15.6 18.5 20.7 23.2 26.0
--------- ------ ------ ------ ------ ------
EBIATA 22.5 26.5 31.5 35.2 39.5 44.2
Depreciation & Amortization 4.5 5.1 5.7 6.3 7.0
Capital Expenditures (5.2) (5.8) (6.1) (6.5) (7.0)
Change in Net Working Capital (excluding cash) (2.6) (7.1) (6.6) (6.9) (7.3)
------ ------ ------ ------ ------
Free Cash Flow $23.2 $23.7 $28.2 $32.4 $37.0
====== ====== ====== ====== ======
Average
('95-'97) 1996
--------- --------
EBITDA Margin 7.1% 10.1% 12.4% 12.9% 13.7% 14.0% 14.4% 14.8%
EBITA Margin (before goodwill amortization) 7.8% 8.2% 11.1% 11.6% 12.4% 12.7% 13.1% 13.5%
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
Equity Value Per Share
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Discount Rate
--------------------------------------------------
Less: Total Debt @ 12/31/97 4.0 17.0% 17.5% 18.0% 18.5% 19.0%
------ ------ ------ ------ ------
Total Primary Shares 13.0
7.0 $25.51 $25.02 $24.55 $24.09 $23.64
2002
EBITDA 8.0 $28.22 $27.68 $27.15 $26.63 $26.13
Multiple
9.0 $30.93 $30.33 $29.74 $29.17 $28.62
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SBC Warburg Dillon Read Inc. Highly Confidential
- -------------------------------------------------------------------------------
-----------------------------------------------------
Scenario: 1997E EBITDA Margin over Projection Period
-----------------------------------------------------
Discounted Cash Flow Valuation
(dollars in millions, except per share data)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
Free Cash Flow Calculation
Projections
Pro Forma Year Ending Dec. 31,
---------- -----------------------------------------------
1997 1998 1999 2000 2001 2002
---------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Revenue $320.9 $360.9 $402.0 $439.9 $479.5 $521.3
EBITDA
Depreciation 39.7 44.6 49.7 54.4 59.3 64.4
EBITA (before goodwill amortization) 4.0 4.5 5.1 5.7 6.3 7.0
---------- ------- ------- ------- ------- -------
35.6 40.1 44.6 48.7 53.0 57.5
Tax: Federal & State 13.2 14.8 16.5 18.0 19.6 21.3
---------- ------- ------- ------- ------- -------
EBIATA 22.5 25.3 28.1 30.7 33.4 36.2
Depreciation & Amortization 4.5 5.1 5.7 6.3 7.0
Captial Expenditures (5.2) (5.8) (6.1) (6.5) (7.0)
Change in Net Working Capital (excluding cash) (2.6) (7.1) (6.6) (6.9) (7.3)
------- ------- ------- ------- -------
Free Cash Flow $ 21.9 $ 20.3 $ 23.6 $ 26.3 $ 29.0
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Average
('95-'97) 1996
--------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EBITDA Margin 7.1% 10.1% 12.4% 12.4% 12.4% 12.4% 12.4% 12.4%
EBITA Margin (before goodwill amortization) 7.8% 8.2% 11.1% 11.1% 11.1% 11.1% 11.0% 11.0%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Equity Value Per Share
Discount Rate
Less: Total Debt @ 12/31/97 4.0 -----------------------------------------------
Total Primary Shares 13.0 17.0% 17.5% 18.0% 18.5% 19.0%
------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
2002 7.0 $21.36 $20.96 $20.56 $20.18 $19.80
EBITDA 8.0 $23.63 $23.17 $22.73 $22.30 $21.88
Multiple 9.0 $25.89 $25.39 $24.90 $24.43 $23.96
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SBC Warburg Dillon Read Inc. Highly Confidential
- --------------------------------------------------------------------------------
- ------------------------------------------
Scenario: EBITDA Margin Period 1987 - 1991
- ------------------------------------------
Discounted Cash Flow Valuation
(dollars in millions, except per share data)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Free Cash Flow Calculation
Projections
Pro Forma Years Ending Dec. 31,
--------- --------------------------------------------------
1997 1998 1999 2000 2001 2002
--------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $320.9 $360.9 $402.0 $439.9 $479.5 $521.3
EBITDA 39.7 37.9 35.4 39.2 37.4 43.8
Depreciation 4.0 4.5 5.1 5.7 6.3 7.0
--------- ------ ------ ------ ------ ------
EBITA (before goodwill amortization) 35.6 33.4 30.3 33.5 31.1 36.8
Tax: Federal & State 13.2 12.3 11.2 12.4 11.5 13.6
--------- ------ ------ ------ ------ ------
EBIATA 22.5 21.0 19.1 21.1 19.6 23.2
Depreciation & Amortization 4.5 5.1 5.7 6.3 7.0
Capital Expenditures (5.2) (5.8) (6.1) (6.5) (7.0)
Change in Net Working Capital
(excluding cash) (2.6) (7.1) (6.6) (6.9) (7.3)
------ ------ ------ ------ ------
Free Cash Flow $17.7 $11.3 $14.0 $12.5 $16.0
====== ====== ====== ====== ======
Average
('95-'97) 1996
--------- -------
EBITDA Margin 7.1% 10.1% 12.4% 10.5% 8.8% 8.9% 7.8% 8.4%
EBITA Margin
(before goodwill amortization) 7.8% 8.2% 11.1% 9.2% 7.5% 7.6% 6.5% 7.1%
- --------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Equity Value Per Share
Discount Rate
-----------------------------------------------------
Less: Total Debt @ 12/31/97 4.0 17.0% 17.5% 18.0% 18.5% 19.0%
--------- ------ ------ ------ ------
Total Primary Shares 13.0
7.0 $14.01 $13.74 $13.48 $13.23 $12.98
2002
EBITDA 8.0 $15.55 $15.25 $14.96 $14.67 $14.39
Multiple
9.0 $17.09 $16.75 $16.43 $16.11 $15.81
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SBC Warburg Dillon Read Inc. Highly Confidential
- --------------------------------------------------------------------------------
09/09/97
- -----------------------
Scenario: MDP Base Case
- -----------------------
<TABLE>
<S> <C>
- -------------------------------------------------------------
Valuation Summary
Common Shares Outstanding 11.926
Treasury Options 1.056
-------
Total Primary Shares 12.983
Offer per Common Share $25.00
Unaffected Price @ 8/13/97 20.38
-------
Premium to Market 22.7%
Offer for Equity $324.6
Plus: Debt Assumed 4.0 (1)
Plus: Revolver Assumed 0.0
Less: Excess Cash on Hand 3.4
-------
Offer for Assets $325.2
- -------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Transaction Multiples 1997E 1998E
----- -----
<S> <C> <C>
Asset Value to:
Net Sales 1.01 x 0.90 x
EBITDA 8.20 6.99
EBIT 9.12 7.75
Net Assets 3.26 0.97
Equity Value to:
Net Income 15.96 x 13.72 x
Book Value 3.39 2.70
- -------------------------------------------------------------
</TABLE>
<TABLE>
- -------------------------------------------------------------
Purchase Allocation
<S> <C>
Purchase Price of Equity $324.6
Plus: Transaction Fees 7.0
Less: Write Up of Assets 0.0
Less: Book Value of Equity 95.9
------
Total Goodwill $235.7
Amortization of Goodwill $5.9
Amoritzation Period 40
- -------------------------------------------------------------
</TABLE>
<TABLE>
- -------------------------------------------------------------
Fees and Expenses
<S> <C>
Transaction Fees & Expenses 7.0
Financing Fees & Expenses 9.0
-----
Total Fees & Expenses $16.0
Amortization of Financing Fees $1.3
Amortization Period 7
- -------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Sources of Funds
Amount Rate %
------ ------
<S> <C> <C>
New Revolver Borrowings $13.5 8.25%
Senior Unsecured Debt A 46.0 8.25%
Senior Unsecured Debt B 60.0 9.00%
Subordinated Debt 100.0 10.75%
Investor Preferred Equity 115.0 8.00%
Management Common Equity 0.0 ---
Due from Officer 2.7 (2) ---
Excess Cash On Hand 3.4 ---
------
Total Sources $340.6
======
- -----------------------------------------------------------------------------
</TABLE>
<TABLE>
- -------------------------------------------------------
Uses of Funds
<S> <C>
Purchase of Equity $324.6
Debt Refinanced 0.0
Fees and Expenses 16.0
------
Total Uses $340.6
======
Warrants 0.0%
Management Carry 10.0%
- --------------------------------------------------------
</TABLE>
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------
Pro Forma Capitalization
Estimated Pro Forma % of Total at Year-End
--------- --------- ----------------------------
1997 Adjustments 1997 1997 1998 1999
--------- ----------- --------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Debt
Existing Debt $4.0 $0.0 $4.0 1.2% 1.0% 0.7%
Revolving Credit Facility 0.0 13.5 13.5 4.0% 3.8% 4.7%
Senior Unsecured Debt A 0.0 46.0 46.0 13.6% 11.7% 8.2%
Senior Unsecured Debt B 0.0 60.0 60.0 17.7% 17.8% 17.5%
Subordinated Debt 0.0 100.0 100.0 29.5% 29.9% 29.8%
----- ------ ------ ------ ------
Total 4.0 223.5 66.0% 64.1% 61.0%
Equity
Preferred Equity 0.0 115.0 115.0 34.0% 37.1% 40.0%
Common Equity 95.9 (95.9) 0.0 0.0% -1.2% -1.0%
----- ------ ------ ------ ------
Total 95.9 115.0 34.0% 35.9% 39.0%
Total Capitalization $99.9 $338.5 100.0% 100.0% 100.0%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Credit Statistics (3) Projections
Pro Forma Year Ending Dec. 31,
--------- ----------------------------------------
1997 1998 1999 2000 2001
--------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
EBIT/Cash Interest (4)(5) 1.52 x 1.81 x 2.20 x 2.56 x 3.05 x
EBITDA/Cash Interest (5) 1.70 2.01 2.43 2.82 3.35
EBITDA-CapX/Cash Interest (5) 1.50 1.78 2.17 2.54 3.04
EBIT/Interest (4) 1.52 x 1.81 x 2.20 x 2.56 x 3.05 x
EBITDA/Interest 1.70 2.01 2.43 2.82 3.35
EBITDA-CapX/Interest 1.50 1.78 2.17 2.54 3.04
Senior Debt/EBITDA 3.29 x 2.68 x 2.11 x 1.65 x 1.34 x
Total Debt/EBITDA 5.91 4.90 3.97 3.30 2.80
Total Debt/Total Capitalization 67.1% 65.5% 62.5% 58.3% 53.8%
Total Debt/Total Equity 2.04 x 1.90 x 1.67 x 1.40 x 1.17 x
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Mortgage debt and capital lease balances as of 12/31/97.
(2) Unsecured loan due from officer.
(3) Calculated using average revolver balances.
(4) Before goodwill amortization.
(5) Excludes non-cash interest charges when applicable.
<PAGE>
SBC Warburg Dillon Read Inc. Highly Confidential
- --------------------------------------------------------------------------------
- ----------------------------
Scenario: MDP Base Case
- ----------------------------
Internal Rate of Return Analysis
(dollars in millions, except per share data)
<TABLE>
<CAPTION>
Calculation of Equity Cash Out Values
1998 1999 2000 2001 2002
------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Projected EBITDA $ 46.5 $ 54.9 $ 61.5 $ 69.1 $ 77.4
7 x EBITDA $ 325.5 $384.5 $430.8 $483.8 $541.5
Asset Value @ Multiples Of: 8 x EBITDA 372.1 439.4 492.3 552.9 618.8
9 x EBITDA 418.6 494.3 553.9 622.0 696.2
Less: Net Debt $ 209.3 $199.4 $184.4 $164.3 $139.5
7 x EBITDA $ 116.2 $185.0 $246.4 $319.5 $402.0
Equity Value @: 8 x EBITDA 162.7 240.0 307.9 388.6 479.3
9 x EBITDA 209.2 294.9 369.5 457.7 556.7
<CAPTION>
3-Year Returns
1997 1998 1999 2000 IRR
------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
7 x EBITDA $(115.0) $ 0.0 $ 0.0 $221.7 24.5%
Equity @: 8 x EBITDA (115.0) 0.0 0.0 277.1 34.1%
9 x EBITDA (115.0) 0.0 0.0 332.5 42.5%
7 x EBITDA (100.0) 10.8 10.8 110.8 10.8%
Subordinated Debt @: 8 x EBITDA (100.0) 10.8 10.8 110.8 10.8%
9 x EBITDA (100.0) 10.8 10.8 110.8 10.8%
<CAPTION>
4-Year Returns
1997 1998 1999 2000 2001 IRR
------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
7 x EBITDA $(115.0) $ 0.0 $ 0.0 $ 0.0 $287.6 25.8%
Equity @: 8 x EBITDA (115.0) 0.0 0.0 0.0 349.8 32.1%
9 x EBITDA (115.0) 0.0 0.0 0.0 412.0 37.6%
7 x EBITDA (100.0) 10.8 10.8 10.8 110.8 10.7%
Subordinated Debt @: 8 x EBITDA (100.0) 10.8 10.8 10.8 110.8 10.7%
9 x EBITDA (100.0) 10.8 10.8 10.8 110.8 10.7%
<CAPTION>
5-Year Returns
1997 1998 1999 2000 2001 2002 IRR
------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
7 x EBITDA $(115.0) $ 0.0 $ 0.0 $ 0.0 $ 0.0 $361.8 25.8%
Equity @: 8 x EBITDA (115.0) 0.0 0.0 0.0 0.0 431.4 30.3%
9 x EBITDA (115.0) 0.0 0.0 0.0 0.0 501.0 34.2%
7 x EBITDA (100.0) 10.8 10.8 10.8 10.8 110.8 10.8%
Subordinated Debt @: 8 x EBITDA (100.0) 10.8 10.8 10.8 10.8 110.8 10.8%
9 x EBITDA (100.0) 10.8 10.8 10.8 10.8 110.8 10.8%
</TABLE>
<TABLE>
<CAPTION>
Pro Forma Equity Ownership
Equity Pro Forma
Investment Ownership
---------- ---------
<S> <C> <C>
Investor Preferred Equity $115.0 90.0%
Investor Common Equity 0.0 0.0%
Subordinated Debt -- 0.0%
Management Group 10.0%
Common 0.0 0.0%
with Carry 10.0% 10.0%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SBC Warburg Dillon Read Inc.
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
New Store Model Forward Years
----------------------------------------------
(dollars in One Two Three Four Five Forward
thousands) ------ ------ ------ ------ ------ -------
Store Net
Sales $0.800 $0.960 $1.056 $1.109 $1.142 NA
% Growth (y-o-y) 20% 10% 5% 3% 3%
Sales Projections Stores ----------------------------------------------------------------------------------------------
(dollars in millions) Opened 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Pre 1997 Store Base 286 $256.8 $304.6 $319.9 $335.9 $345.9 $356.3 $367.0 $378.0 $389.4 $401.0 $413.1 $425.5
18.7% 5.0% 5.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
1997 Stores 29 16.3 24.6 27.6 29.8 30.7 31.3
51.5% 12.0% 8.0% 3.0% 2.0%
New Stores Opened In:
1998 32 16.4 20.2 22.7 24.5 25.8 26.6 27.4 28.2 29.1 30.0
1999 35 18.4 22.6 25.5 27.4 29.0 29.8 30.7 31.7 32.6
2000 35 18.8 23.2 26.1 28.1 29.7 30.6 31.5 32.5
2001 35 19.3 23.8 26.8 28.8 30.4 31.4 32.3
2002 35 19.8 24.4 27.5 29.6 31.2 32.1
2003 35 20.3 25.0 28.1 30.3 32.0
2004 35 20.8 25.6 28.8 31.0
2005 35 21.3 26.2 29.6
2006 35 21.9 26.9
2007 35 22.4
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
$256.8 $320.9 $360.9 $402.0 $439.9 $479.5 $521.3 $533.2 $578.4 $625.7 $675.1 $726.8
Sales Growth 25.0% 12.5% 11.4% 9.4% 9.0% 8.7% 2.3% 8.5% 8.2% 7.9% 7.7%
</TABLE>
<PAGE>
SBC Warburg Dillon Read Inc. Highly Confidential
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------
Scenario: MDP Base Case
- -----------------------
Projected Pro Projections
Income Statement Actual Forma Year Ending Dec. 31,
------- -------- -----------------------------------------------------------------------------------------
(dollars in millions,
except per share data) 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $256.8 $320.9 $360.9 $402.0 $439.9 $479.5 $521.3 $533.2 $578.4 $625.7 $675.1 $726.8
Cost of Sales 165.2 181.0 203.5 226.7 248.1 270.4 294.0 300.7 326.2 352.9 380.8 409.9
------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Gross Profit 91.6 139.9 157.4 175.3 191.8 209.0 227.3 232.5 252.2 272.8 294.3 316.9
SG&A Expense 71.2 104.9 116.1 125.4 135.9 146.2 156.9 160.5 174.1 188.3 203.2 218.8
------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Operating Profit 20.4 35.0 41.3 49.8 55.9 62.8 70.4 72.0 78.1 84.5 91.1 98.1
Other (Income)/Expense (0.6) (0.6) (0.7) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Goodwill Amortization 0.0 5.9 5.9 5.9 5.9 5.9 5.9 5.9 5.9 5.9 5.9 5.9
------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Other
(Income)/Expense (0.6) 5.3 5.2 5.9 5.9 5.9 5.9 5.9 5.9 5.9 5.9 5.9
Earnings Before Interest
& Taxes 21.0 29.8 36.1 44.0 50.0 56.9 64.5 66.1 72.2 78.6 85.2 92.2
Existing Debt 2.8 0.3 0.3 0.2 0.2 0.1 0.0 0.0 0.0 0.0 0.0 0.0
Revolving Credit
Facility 0.0 3.1 3.2 3.6 4.0 4.1 4.6 5.7 5.8 6.0 6.6 7.3
Senior Unsecured Debt A 0.0 3.8 3.5 2.8 1.6 0.5 (0.0) (0.0) (0.0) (0.0) (0.0) (0.0)
Senior Unsecured Debt B 0.0 5.4 5.4 5.3 5.3 5.2 5.2 5.1 5.0 5.0 4.9 4.9
Subordinated Debt 0.0 10.8 10.8 10.8 10.8 10.8 10.8 10.8 10.8 10.8 10.8 10.8
------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Interest Expense 2.8 23.4 23.2 22.6 21.8 20.6 20.6 21.6 21.6 21.8 22.3 22.9
Interest Income 0.3 0.2 0.2 0.2 0.2 0.2 0.3 0.3 0.3 0.3 0.3 0.4
Financing Fee
Amortization 0.0 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 0.0 0.0 0.0
------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Pretax Income 18.5 5.2 11.8 20.3 27.1 35.3 42.9 43.5 49.6 57.1 63.3 69.7
Tax: Federal & State 7.0 4.1 6.6 9.7 12.2 15.2 18.1 18.3 20.5 23.3 25.6 28.0
------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net Income 11.5 1.1 5.3 10.6 14.9 20.0 24.8 25.2 29.0 33.8 37.7 41.7
Preferred Dividends 9.2 9.2 9.9 10.7 11.6 12.5 13.5 14.6 15.8 17.0 18.4
------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net Income to Common $11.5 ($8.1) ($3.9) $0.6 $4.2 $8.4 $12.3 $11.7 $14.5 $18.0 $20.6 $23.3
======= ======== ======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Average Shares
(millions) 12.3 12.6 12.8 13.1 13.3 13.6 13.9 14.2 14.4 14.7 15.0 15.3
Earnings Per Share $0.93 $0.09 $0.41 $0.81 $1.12 $1.47 $1.79 $1.78 $2.01 $2.29 $2.51 $2.72
- -----------------------------------------------------------------------------------------------------------------------------------
Note: EBITDA $25.9 $39.7 $46.5 $54.9 $61.5 $69.1 $77.4 $79.7 $86.3 $89.4 $96.6 $104.1
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Operating Assumptions
Sales Growth (y-o-y) 22.1% 25.0% 12.5% 11.4% 9.4% 9.0% 8.7% 2.3% 8.5% 8.2% 7.9% 7.7%
Gross Margin 35.7% 43.6% 43.6% 43.6% 43.6% 43.6% 43.6% 43.6% 43.6% 43.6% 43.6% 43.6%
SG&A Expense 27.7% 32.7% 32.2% 31.2% 30.9% 30.5% 30.1% 30.1% 30.1% 30.1% 30.1% 30.1%
Operating Profit Margin 7.9% 10.9% 11.4% 12.4% 12.7% 13.1% 13.5% 13.5% 13.5% 13.5% 13.5% 13.5%
Other Income
(% of sales) 0.2% 0.2% 0.2% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
EBIT Margin 8.2% 9.3% 10.0% 10.9% 11.4% 11.9% 12.4% 12.4% 12.5% 12.6% 12.6% 12.7%
Interest Income
(% of sales) 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1%
Pretax Profit Margin 7.2% 1.6% 3.3% 5.0% 6.2% 7.4% 8.2% 8.2% 8.6% 9.1% 9.4% 9.6%
Tax Rate 37.8% 37.0% 37.0% 37.0% 37.0% 37.0% 37.0% 37.0% 37.0% 37.0% 37.0% 37.0%
Net Income Margin 4.5% 0.3% 1.5% 2.6% 3.4% 4.2% 4.8% 4.7% 5.0% 5.4% 5.6% 5.7%
EPS Growth NM NM 362.7% 96.8% 38.0% 31.9% 21.6% -0.5% 12.9% 14.0% 9.3% 8.6%
Number of Stores 286 315 347 382 417 452 487 522 557 592 627 662
Store Growth (y-o-y) 10.0% 10.1% 10.2% 10.1% 9.2% 8.4% 7.7% 7.2% 6.7% 6.3% 5.9% 5.6%
Sales per Store ($000) $940.5 $1,067.9 $1,090.3 $1,102.9 $1,101.2 $1,103.5 $1,110.3 $1,056.8 $1,072.0 $1,089.0 $1,107.6 $1,127.7
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SBC Warburg Dillon Read Inc. Highly Confidential
- --------------------------------------------------------------------------------
- --------------------------------------
Scenario: MDP Base Case
- --------------------------------------
<TABLE>
<CAPTION>
Projected
Actual Estimated Pro Forma Year Ending Dec. 31,
Projected Balance Sheet ------ --------- --------- --------------------------
(dollars in millions) 1996 1997 Adjustments 1997 1998 1999 2000
------ --------- ----------- --------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash & Equivalents $10.8 $8.4 ($3.4) $5.0 $5.0 $5.0 $5.0
Inventory 75.5 90.5 0.0 90.5 96.9 108.0 118.2
Prepaid Expenses 1.0 1.6 0.0 1.6 1.8 2.0 2.2
Other Current Assets 0.7 1.0 0.0 1.0 1.1 1.2 1.3
------ --------- --------- ------ ------ ------
Total Current Assets 88.0 101.4 98.1 104.8 116.2 126.7
Net Property, Plant & Equipment 30.4 31.0 0.0 31.0 31.7 32.4 32.9
Other Non-Current Assets
Goodwill 0.0 0.0 235.7 235.7 229.8 223.9 218.0
Deferred Financing Fees 0.0 0.0 9.0 9.0 7.7 6.4 5.1
Other Non-Current Assets 3.3 3.3 (2.7)(2) 0.6 0.6 0.6 0.6
------ --------- --------- ------ ------ ------
Total Other Non-Current Assets 3.3 3.3 245.3 238.1 230.9 223.7
TOTAL ASSETS $121.8 $135.7 $374.4 $374.6 $379.5 $383.3
====== ========= ========= ====== ====== ======
LIABILITIES & EQUITY
Accounts Payable $22.5 $25.1 $0.0 $25.1 $28.2 $31.4 $34.4
Other Current Liabilities 14.2 8.0 0.0 8.0 9.0 10.1 11.0
------ --------- --------- ------ ------ ------
Total Current Liabilities 36.8 33.1 33.1 37.2 41.4 45.3
Existing Debt (1) 6.6 4.0 0.0 4.0 3.2 2.4 1.6
Revolving Credit Facility 0.0 0.0 13.5 13.5 12.6 15.6 18.1
Senior Unsecured Debt A 0.0 0.0 46.0 46.0 39.1 27.6 11.5
Senior Unsecured Debt B 0.0 0.0 60.0 60.0 59.4 58.5 58.2
Subordinated Debt 0.0 0.0 100.0 100.0 100.0 100.0 100.0
------ --------- --------- ------ ------ ------
Total Debt 6.6 4.0 223.5 214.3 204.4 189.4
Deferred Taxes 2.9 2.8 0.0 2.8 2.8 2.8 2.8
TOTAL LIABILITIES 46.2 39.9 259.4 254.3 248.7 237.6
Preferred Equity 0.0 0.0 115.0 115.0 124.2 134.1 144.9
Common Equity 75.5 95.9 (95.9) 0.0 (3.9) (3.3) 0.9
------ --------- --------- ------ ------ ------
TOTAL EQUITY 75.5 95.9 115.0 120.3 130.8 145.7
TOTAL LIABILITIES & EQUITY $121.8 $135.7 $374.4 $374.6 $379.5 $383.3
====== ========= ========= ====== ====== ======
- ---------------------------------------------------------------------------------------------------------------------------
check 0 0.000 0 0 0 0
- ---------------------------------------------------------------------------------------------------------------------------
Note: Operating Working Capital (excluding cash) $60.0 $62.6 $69.7 $76.3
- ---------------------------------------------------------------------------------------------------------------------------
Operating Assumptions
Inventory Turnover 2.6 x 2.0 x 2.2 x 2.1 x 2.1 x 2.1 x
Avg. Inventory per Store ($000) 223.5 263.5 263.5 273.7 295.2 296.0
Prepaid Expenses (% of sales) 0.4% 0.5% 0.5% 0.5% 0.5% 0.5%
Other Current Assets (% of sales) 0.3% 0.3% 0.3% 0.3% 0.3% 0.3%
Payables Days Outstanding 32.0 28.5 28.5 28.5 28.5 28.5
Other Current Liabilities (% of sales) 5.5% 2.5% 2.3% 2.5% 2.5% 2.5%
Net Working Capital (% of sales) 20.0% 21.3% 20.2% 21.1% 20.7% 20.2%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Projected
Year Ending Dec. 31,
Projected Balance Sheet ------------------------------------------------------------------
(dollars in millions) 2001 2002 2003 2004 2005 2006 2007
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash & Equivalents $5.0 $17.5 $47.8 $76.3 $104.9 $135.4 $170.4
Inventory 128.8 140.0 143.2 155.3 168.0 181.3 195.2
Prepaid Expenses 2.4 2.6 2.7 2.9 3.1 3.4 3.6
Other Current Assets 1.4 1.6 1.6 1.7 1.9 2.0 2.2
------ ------ ------ ------ ------ ------ ------
Total Current Assets 137.6 161.7 195.3 236.2 277.1 322.1 371.4
Net Property, Plant & Equipment 33.1 33.1 32.5 31.9 35.0 38.0 41.0
Other Non-Current Assets
Goodwill 212.1 206.2 200.3 194.5 188.6 182.7 176.8
Deferred Financing Fees 3.9 2.6 1.3 0.0 0.0 0.0 0.0
Other Non-Current Assets 0.6 0.6 0.6 0.6 0.6 0.6 0.7
------ ------ ------ ------ ------ ------ ------
Total Other Non-Current Assets 216.6 209.4 202.2 195.0 189.1 183.2 177.4
TOTAL ASSETS $387.3 $404.2 $430.0 $463.1 $501.2 $543.4 $589.8
====== ====== ====== ====== ====== ====== ======
LIABILITIES & EQUITY
Accounts Payable $37.4 $40.7 $41.6 $45.2 $48.9 $52.7 $56.7
Other Current Liabilities 12.0 13.0 13.3 14.5 15.6 16.9 18.2
------ ------ ------ ------ ------ ------ ------
Total Current Liabilities 49.4 53.7 55.0 59.6 64.5 69.6 74.9
Existing Debt (1) 0.8 0.0 0.0 0.0 0.0 0.0 0.0
Revolving Credit Facility 10.9 0.0 0.0 0.0 0.0 0.0 0.0
Senior Unsecured Debt A (0.0) (0.0) (0.0) (0.0) (0.0) (0.0) (0.0)
Senior Unsecured Debt B 57.6 57.0 56.4 55.8 55.2 54.6 54.0
Subordinated Debt 100.0 100.0 100.0 100.0 100.0 100.0 100.0
------ ------ ------ ------ ------ ------ ------
Total Debt 169.3 157.0 156.4 155.8 155.2 154.6 154.0
Deferred Taxes 2.8 2.8 2.8 2.8 2.8 2.8 2.8
TOTAL LIABILITIES 221.5 213.5 214.2 218.2 222.5 227.0 231.7
Preferred Equity 156.5 169.0 182.5 197.1 212.9 229.9 248.3
Common Equity 9.5 21.7 33.4 47.8 65.8 86.5 109.8
------ ------ ------ ------ ------ ------ ------
TOTAL EQUITY 165.8 190.6 215.9 244.9 278.7 316.4 358.1
TOTAL LIABILITIES & EQUITY $387.3 $404.2 $430.0 $463.1 $501.2 $543.4 $589.8
====== ====== ====== ====== ====== ====== ======
- -------------------------------------------------------------------------------------------------------------------------
check 0 0 0 0 0 0 0
- -------------------------------------------------------------------------------------------------------------------------
Note: Operating Working Capital (excluding cash) $83.2 $90.4 $92.5 $100.3 $108.5 $117.1 $126.1
- -------------------------------------------------------------------------------------------------------------------------
Operating Assumptions
Inventory Turnover 2.1 x 2.1 x 2.1 x 2.1 x 2.1 x 2.1 x 2.1 x
Avg. Inventory per Store ($000) 296.1 297.3 290.8 285.9 290.3 295.1 300.2
Prepaid Expenses (% of sales) 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5%
Other Current Assets (% of sales) 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3%
Payables Days Outstanding 28.5 28.5 28.5 28.5 28.5 28.5 28.5
Other Current Liabilities (% of sales) 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5%
Net Working Capital (% of sales) 20.0% 22.5% 26.9% 33.1% 36.8% 40.4% 43.9%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Existing mortgage debt and capital lease obligations.
(2) Unsecured loans due from officer.
<PAGE>
SBC Warburg Dillon Read Inc. Highly Confidential
- --------------------------------------------------------------------------------
- ----------------------------
Scenario: MDP Base Case
- ----------------------------
<TABLE>
<CAPTION>
Pro Projected
Actual Forma Years Ending Dec. 31,
Projected Cash Flow Statement ------ ----- -----------------------------------------------------------------------------
(dollars in millions) 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
------ ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cash Flow from Operating Activities
Net Income to Common $11.5 $(8.1) $(3.9) $ 0.6 $ 4.2 $ 8.4 $12.3 $11.7 $14.5 $18.0 $20.6 $23.3
Depreciation & Amortization 4.9 4.0 4.5 5.1 5.7 6.3 7.0 7.7 8.2 4.9 5.4 6.0
Increase/(Decrease) in Deferred
Taxes (0.4) (0.1) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Goodwill Amortization 0.0 5.9 5.9 5.9 5.9 5.9 5.9 5.9 5.9 5.9 5.9 5.9
Financing Fee Amortization 0.0 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 0.0 0.0 0.0
0.0 9.2 9.2 9.9 10.7 11.6 12.5 13.5 14.6 15.8 17.0 18.4
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Cash from Operations 16.1 12.3 17.0 22.8 27.7 33.5 39.0 40.1 44.4 44.6 49.0 53.6
Changes in Working Capital
(Increase)/Decrease in Inventory (23.1) (15.0) (6.4) (11.0) (10.2) (10.6) (11.2) (3.2) (12.1) (12.7) (13.3) (13.9)
(Increase)/Decrease in Prepaid
Expenses (0.1) (0.6) (0.2) (0.2) (0.2) (0.2) (0.2) (0.1) (0.2) (0.2) (0.2) (0.3)
(Increase)/Decrease in Other
Current Assets (0.3) (0.2) (0.1) (0.1) (0.1) (0.1) (0.1) (0.0) (0.1) (0.1) (0.1) (0.2)
(Increase)/Decrease in Other
Assets (0.3) 2.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Increase/(Decrease) in Accounts
Payable 9.8 2.5 3.1 3.2 3.0 3.1 3.3 0.9 3.5 3.7 3.9 4.0
Increase/(Decrease) in Other
Current Liabilities 7.9 (6.2) 1.0 1.0 0.9 1.0 1.0 0.3 1.1 1.2 1.2 1.3
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net Change in Working Capital (5.9) (16.7) (2.6) (7.1) (6.6) (6.9) (7.3) (2.1) (7.8) (8.2) (8.6) (9.0)
Total Cash Flow from Operating
Activities $10.1 $(4.4) $14.3 $15.7 $21.2 $26.7 $31.8 $38.0 $36.6 $36.4 $40.4 $44.7
Cash Flow from Investing Activities
Cash Expenditures $(4.7) $(5.2) $(5.8) $(6.1) $(6.5) $(7.0) $(7.1) $(7.5) $(8.0) $(8.5) $(9.0)
Cash Flow from Financing Activities
Scheduled Debt Repayments
Existing Debt (0.8) (0.8) (0.8) (0.8) (0.8) 0.0 0.0 0.0 0.0 0.0
Senior Unsecured Debt A (6.9) (11.5) (16.1) (11.5) 0.0 0.0 0.0 0.0 0.0 0.0
Senior Unsecured Debt B (0.6) (0.6) (0.6) (0.6) (0.6) (0.6) (0.6) (0.6) (0.6) (0.6)
Subordinated Debt 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total Scheduled Debt Repayments (8.3) (12.9) (17.5) (12.9) (1.4) (0.6) (0.6) (0.6) (0.6) (0.6)
NET CHANGE IN CASH BEFORE REVOLVER 0.8 (3.0) (2.5) 7.2 23.4 30.3 28.4 27.8 31.3 35.0
(Repayment)/Borrowing from Revolver (0.8) 3.0 2.5 (7.2) (10.9) 0.0 0.0 0.0 0.0 0.0
NET CHANGE IN CASH $ 0.0 $ 0.0 $ 0.0 $ 0.0 $12.5 $30.3 $28.4 $27.8 $31.3 $35.0
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
REVOLVER BALANCE 12.6 15.6 18.1 10.9 0.0 0.0 0.0 0.0 0.0 0.0
</TABLE>
<PAGE>
SBC Warburg Dillon Read Inc. Highly Confidential
- -------------------------------------------------------------------------------
------------------------
Scenario: MDP Base Case
------------------------
Projected Asset Schedule
(dollars in millions)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
PP&E Schedule Projections
Actual Pro Forma Year Ending Dec. 31,
------ --------- -------------------------------------------------------------
1996 Adjustments 1997 1998 1999 2000 2001 2002 2003 2004 2005
------ ----------- --------- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning PP&E $31.1 $30.4 $31.0 $31.7 $32.4 $32.9 $33.1 $33.1 $32.5 $31.9
Plus: Capital Expenditures 4.2 4.7 5.2 5.8 6.1 6.5 7.0 7.1 7.5 8.0
Less: Depreciation (4.9) (4.0) (4.5) (5.1) (5.7) (6.3) (7.0) (7.7) (8.2) (4.9)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Ending PP&E 30.4 31.0 31.7 32.4 32.9 33.1 33.1 32.5 31.9 35.0
Capital Expenditures as % of Sales 1.6% 1.5% 1.4% 1.4% 1.4% 1.4% 1.3% 1.3% 1.3% 1.3%
Depreciation as % of Sales 1.9% 1.3% 1.3% 1.3% 1.3% 1.3% 1.3% 1.4% 1.4% 0.8%
</TABLE>
<TABLE>
<CAPTION>
PP&E Schedule Projections
Year Ending Dec. 31,
--------------------
2006 2007
----- -----
<S> <C> <C>
Beginning PP&E $35.0 $38.0
Plus: Capital Expenditures 8.5 9.0
Less: Depreciation (5.4) (6.0)
----- -----
Ending PP&E 38.0 41.0
Capital Expenditures as % of Sales 1.3% 1.2%
Depreciation as % of Sales 0.8% 0.8%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Capital Expenditure Schedule Projections
Year Ending Dec. 31,
-------------------------------------------------------------------------
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Number of New Stores 29 32 35 35 35 35 35 35 35 35 35
New Store-related CapX $50,000 per store $1.5 $1.6 $1.8 $1.8 $1.8 $1.8 $1.8 $1.8 $1.8 $1.8 $1.8
Other CapX 1.0% of net sales 3.2 3.6 4.0 4.4 4.8 5.2 5.3 5.8 6.3 6.8 7.3
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total 4.7 5.2 5.8 6.1 6.5 7.0 7.1 7.5 8.0 8.5 9.0
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Depreciation Schedule Projections
Year Ending Dec. 31,
Book PP&E Base/ ----------------------------------------------------------------
Life Year New CapX 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
---- ---- --------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Asset Base
Projected Capital Expenditures 8.0 1996 $30.4 $3.8 $3.8 $3.8 $3.8 $3.8 $3.8 $3.8 $3.8
10.0 1997 4.7 0.2 0.5 0.5 0.5 0.5 0.5 0.5 0.2 0.2 0.2 0.2
1998 5.2 0.3 0.5 0.5 0.5 0.5 0.5 0.5 0.3 0.3 0.3
1999 5.8 0.3 0.6 0.6 0.6 0.6 0.6 0.6 0.3 0.3
2000 6.1 0.3 0.6 0.6 0.6 0.6 0.6 0.6 0.3
2001 6.5 0.3 0.7 0.7 0.7 0.7 0.7 0.7
2002 7.0 0.3 0.7 0.7 0.7 0.7 0.7
2003 7.1 0.4 0.7 0.7 0.7 0.7
2004 7.5 0.4 0.8 0.8 0.8
2005 8.0 0.4 0.8 0.8
2006 8.5 0.4 0.9
2007 9.0 0.5
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total Depreciation $4.0 $4.5 $5.1 $5.7 $6.3 $7.0 $7.7 $8.2 $4.9 $5.4 $6.0
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Goodwill Schedule Projections
Years Ending Dec. 31,
Pro Forma -----------------------------------------------------------
Amortization Period (Years) 40.0 Adjustments 1997 1998 1999 2000 2001 2002 2003 2004
----------- --------- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning Gross Balance $ 0.0 $ 0.0 $235.7 $229.8 $223.9 $218.0 $212.1 $206.2 $200.3
Additions/(Writeoffs) 235.7 235.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Amortization (5.9) (5.9) (5.9) (5.9) (5.9) (5.9) (5.9) (5.9) (5.9)
------ ------ ------ ------ ------ ------ ------ ------
Ending Gross Balance 235.7 229.8 223.9 218.0 212.1 206.2 200.3 194.5
</TABLE>
<TABLE>
<CAPTION>
Goodwill Schedule Projections
Years Ending Dec. 31,
----------------------
Amortization Period (Years) 2005 2006 2007
------ ------ ------
<S> <C> <C> <C>
Beginning Gross Balance $194.5 $188.6 $182.7
Additions/(Writeoffs) 0.0 0.0 0.0
Amortization (5.9) (5.9) 5.9
------ ------ ------
Ending Gross Balance 188.6 182.7 176.8
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Financing Fee Schedule Projections
Years Ending Dec. 31,
Pro Forma -----------------------------------------------------------
Amortization Period (Years) 7.0 Adjustments 1997 1998 1999 2000 2001 2002 2003 2004
----------- --------- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning Gross Balance $ 0.0 $ 0.0 $ 9.0 $ 7.7 $ 6.4 $ 5.1 $ 3.9 $ 2.6 $ 1.3
Additions/(Writeoffs) 9.0 9.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Amortization (1.3) (1.3) (1.3) (1.3) (1.3) (1.3) (1.3) (1.3) (1.3)
----- ----- ----- ----- ----- ----- ----- -----
Ending Gross Balance 9.0 7.7 6.4 5.1 3.9 2.6 1.3 0.0
</TABLE>
<TABLE>
<CAPTION>
Financing Fee Schedule Projections
Years Ending Dec. 31,
---------------------
Amortization Period (Years) 2005 2006 2007
---- ---- ----
<S> <C> <C> <C>
Beginning Gross Balance $0.0 $0.0 $0.0
Additions/(Writeoffs) 0.0 0.0 0.0
Amortization 0.0 0.0 0.0
---- ---- ----
Ending Gross Balance 0.0 0.0 0.0
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SBC Warburg Dillon Read Inc. Highly Confidential
- --------------------------------------------------------------------------------
Scenario: MDP Base Case
Projected Financing Schedule
(dollars in millions)
Interest Rates
Existing Mortgage Debt 7.755%
Revolving Credit Facility 8.250%
Senior Unsecured Notes A 8.250%
Senior Unsecured Notes B 9.000%
Subordinated Debt 10.750%
Preferred Equity 8.000%
<TABLE>
<CAPTION>
Projections
Estimated Pro Forma Year Ending December 31,
--------- --------- ------------------------------------------------------------
Financing Type 1997 Adjustments 1997 1998 1999 2000 2001 2002 2003 2004
--------- ----------- --------- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Existing Debt
Operating Balance $4.0 0.0 $ 4.0 $ 4.0 $ 3.2 $ 2.4 $ 1.6 $ 0.8 $ 0.0 $ 0.0
Principal Payment 0.0 0.0 0.0 (0.8) (0.8) (0.8) (0.8) (0.8) 0.0 0.0
---- ------ ------ ------ ------ ------ ------ ------ ------
Closing Balance 4.0 4.0 3.2 2.4 1.6 0.8 0.0 0.0 0.0
Interest Payment 0.3 0.3 0.2 0.2 0.1 0.0 0.0 0.0
Principal Repayment % 20.0% 20.0% 20.0% 20.0% 20.0% 0.0% 0.0%
Revolving Credit Facility
Opening Balance $0.0 $ 13.5 $ 13.5 $ 13.5 $ 12.6 $ 15.6 $ 18.1 $ 10.9 $ 0.0 $ 0.0
(Repayment)/Borrowing 0.0 0.0 0.0 (0.8) 3.0 2.5 (7.2) (10.9) 0.0 0.0
---- ------ ------ ------ ------ ------ ------ ------ ------
Closing Balance 0.0 13.5 12.6 15.6 18.1 10.9 0.0 0.0 $ 0.0
Average Revolver Balance $0.0 $ 24.5(1) $ 24.5(1) $ 26.3 $ 29.3 $ 32.0 $ 34.9 $ 38.0 $ 38.8 $ 42.1
Inventory Growth (%) 7.1% 11.4% 9.4% 9.0% 8.7% 2.3% 8.5%
Less: Net Change in Cash 0.0 0.0 0.0 0.0 0.0 0.0 0.0 12.5 30.3 28.4
---- ------ ------ ------ ------ ------ ------ ------ ------
Net Average Revolver Balance 0.0 24.5 26.3 29.3 32.0 34.9 50.5 69.2 70.6
Interest Payment 3.1 3.2 3.6 4.0 4.1 4.6 5.7 5.8
Senior Unsecured Debt A
Opening Balance $0.0 $ 46.0 $ 46.0 $ 46.0 $ 39.1 $ 27.6 $ 11.5 ($0.0) ($0.0) ($0.0)
Principal Payment 0.0 0.0 0.0 (6.9) (11.5) (16.1) (11.5) 0.0 0.0 0.0
---- ------ ------ ------ ------ ------ ------ ------ ------
Closing Balance 0.0 46.0 39.1 27.6 11.5 (0.0) (0.0) (0.0) (0.0)
Interest Payment 3.8 3.5 2.8 1.6 0.5 (0.0) (0.0) (0.0)
Principal Repayment % 0.0% 15.0% 25.0% 35.0% 25.0% 0.0% 0.0% 0.0%
Senior Unsecured Debt B
Opening Balance $0.0 $ 60.0 $ 60.0 $ 60.0 $ 59.4 $ 58.8 $ 58.2 $ 57.6 $ 57.0 $ 56.4
Principal Payment 0.0 0.0 0.0 (0.6) (0.6) (0.6) (0.6) (0.6) (0.6) (0.6)
---- ------ ------ ------ ------ ------ ------ ------ ------
Closing Balance 0.0 60.0 59.4 58.8 58.2 57.6 57.0 56.4 55.8
Interest Payment 5.4 5.4 5.3 5.3 5.2 5.2 5.1 5.0
Principal Repayment % 0.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%
Subordinated Debt
Opening Balance $0.0 $100.0 $100.0 $100.0 $100.0 $100.0 $100.0 $100.0 $100.0 $100.0
Principal Payment 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
---- ------ ------ ------ ------ ------ ------ ------ ------
Closing Balance 0.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Interest Payment 10.8 10.8 10.8 10.8 10.8 10.8 10.8 10.8
Principal Repayment % 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Investor Preferred Equity
Opening Balance $0.0 $115.0 $115.0 $115.0 $124.2 $134.1 $144.9 $156.5 $169.0 $182.5
Dividend Payment (PIK) 0.0 9.2 9.2 9.9 10.7 11.6 12.5 13.5 14.6
Additions/(Redemptions) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
---- ------ ------ ------ ------ ------ ------ ------ ------
Closing Balance 0.0 115.0 124.2 134.1 144.9 156.5 169.0 182.5 197.1
Projections
Year Ending December 31,
--------------------------
Financing Type 2005 2006 2007
------ ------ ------
Existing Debt
Operating Balance $ 0.0 $ 0.0 $ 0.0
Principal Payment 0.0 0.0 0.0
------ ------ ------
Closing Balance 0.0 0.0 0.0
Interest Payment 0.0 0.0 0.0
Principal Repayment % 0.0% 0.0% 0.0%
Revolving Credit Facility
Opening Balance $ 0.0 $ 0.0 $ 0.0
(Repayment)/Borrowing 0.0 0.0 0.0
------ ------ ------
Closing Balance 0.0 0.0 0.0
Average Revolver Balance $ 45.6 $ 49.2 $ 52.9
Inventory Growth (%) 8.2% 7.9% 7.7%
Less: Net Change in Cash 27.8% 31.3 35.0
------ ------ ------
Net Average Revolver Balanc 73.3 80.5 88.0
Interest Payment 6.0 6.6 7.3
Senior Unsecured Debt A
Opening Balance ($0.0) ($0.0) ($0.0)
Principal Payment 0.0 0.0 0.0
------ ------ ------
Closing Balance (0.0) (0.0) (0.0)
Interest Payment (0.0) (0.0) (0.0)
Principal Repayment % 0.0% 0.0% 0.0%
Senior Unsecured Debt B
Opening Balance $ 55.8 $ 55.2 $ 54.6
Principal Payment (0.6) (0.6) (0.6)
------ ------ ------
Closing Balance 55.2 54.6 54.0
Interest Payment 5.0 4.9 4.9
Principal Repayment % 1.0% 1.0% 1.0%
Subordinated Debt
Opening Balance $100.0 $100.0 $100.0
Principal Payment 0.0 0.0 0.0
------ ------ ------
Closing Balance 100.0 100.0 100.0
Interest Payment 10.8 10.8 10.8
Principal Repayment % 0.0% 0.0% 0.0%
Investor Preferred Equity
Opening Balance $197.1 $212.9 $229.9
Dividend Payment (PIK) 15.8 17.0 18.4
Additions/(Redemptions) 0.0 0.0 0.0
------ ------ ------
Closing Balance 212.9 229.9 248.3
</TABLE>
(1) Twelve months ending 6/30/97.
<PAGE>
SBC Warburg Dillon Read Inc. Highly Confidential
- --------------------------------------------------------------------------------
Leveraged Recapitalization Analysis
(dollars in millions)
<TABLE>
<CAPTION>
Cash Dividend per Share
--------------------------------------------------------------------------------------------
$12.00 $13.00 $14.00 $15.00 $16.00
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Total Cash Dividend $155.8 $168.8 $181.8 $194.7 $207.7
1997E Net Income 20.4 20.4 20.4 20.4 20.4
Less: After Tax Interest Expense
on Debt 9.6 10.4 11.2 12.0 12.8
--------------- --------------- --------------- --------------- ---------------
Pro Forma Net Income 10.8 10.0 9.2 8.4 7.6
Earnings per Share $ 0.83 $ 0.77 $ 0.71 $ 0.64 $ 0.58
1997E Price/Earnings Multiple (1) 15.2 x 15.2 15.2 15.2 15.2
Implied Trading Price Per Share $12.61 $11.67 $10.74 $ 9.80 $ 8.87
Plus: Dividend per Share 12.0 13.0 14.0 15.0 16.0
Implied Total Value Per Share $24.61 $24.67 $24.74 $24.80 $24.87
1997E EBIT/Interest 3.6 x 3.3 x 3.1 x 2.9 x 2.7 x
1997E EBITDA/Interest 4.0 3.8 3.5 3.4 3.2
1997E Total Debt/EBITDA 4.03 4.25 4.68 4.99 5.30
- -----------------------------------------------------------
(1) Multiple of 1997E earnings prior to 8/14/97 acquisition announcement.
</TABLE>
<PAGE>
Selected Comparable Industry Acquisitions
<TABLE>
<CAPTION>
Offer for
Date Assets
Announced Acquiror/Target Business of Target Form ($ mil)
- --------- -------------------------------------- ---------------------------------- ----------- --------
<S> <C> <C> <C> <C>
07/03/97 BAA PLC Owns and operates duty free shops Merger $736.4
Duty Free International Inc.
11/27/96 J.W. Childs (Investor Group) Tractor and hardware stores NA NA
Central Tractor
11/12/96 Leonard Green Partners (Investor Group) Pool supply stores Merger 133.8
Leslie's Poolmart
10/21/96 Brylane LP (The Limited, Inc.) Discount women's clothing catalog Merger 388.3
Chadwick's of Boston Ltd. (TJX Co.) unit of discount retailer
09/09/96 Phar-Mar, Inc. Owns and operates variety stores Stock swap 923.7
ShopKo Stores, Inc.
03/25/96 Consolidated Stores Corp Owns and operates toy and hobby Purchase of 315.0
Kay-Bee Toy & Hobby Shops, Inc. stores assets
01/16/96 Dollar Tree Stores, inc. Owns and operates discount variety Purchase of 62.8
Terrific Promotions, Inc. stores stock
10/13/95 TJX Companies Inc Operates family clothing stores Purchase of 589.9
Marshall's Inc. (Melville Corp) stock
08/15/95 Investor Group Chain of discount women's clothing Purchase of 13.0
TJX Companies Inc-Hit or Miss stores assets
10/27/94 Investor Group Owns and operates discount stores Open market NA
Family Dollar Stores purchase
06/16/93 CostCo Wholesale Corp. Owns and operates membership Merger 2,224.7
Price Co. warehouses
04/16/92 Value City Department Stores Owns and operates discount Purchase of 23.1
Gee Bee Department Stores department stores assets
</TABLE>
<TABLE>
<CAPTION>
Offer for Assets to:
--------------------------------
Latest
Date LTM LTM LTM Net
Announced Acquiror/Target Business of Target Form Revenue EBIT EBITDA Assets
- --------- -------------------------------------- ---------------------------------- -------- ------- ---- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
07/03/97 BAA PLC Owns and operates duty free shops Merger 1.26 x 18.22 x 13.34 x 2.54 x
Duty Free International Inc.
11/27/96 J.W. Childs (Investor Group) Tractor and hardware stores NA 0.6 11.8 9.3 NA
Central Tractor
11/12/96 Leonard Green Partners (Investor Group) Pool supply stores Merger 0.7 13.1 9.2 1.9
Leslie's Poolmart
10/21/96 Brylane LP (The Limited, Inc.) Discount women's clothing catalog Merger 0.81 11.35 NA 3.14
Chadwick's of Boston Ltd. (TJX Co.) unit of discount retailer
09/09/96 Phar-Mar, Inc. Owns and operates variety stores Stock 0.45 9.56 6.03 1.10
ShopKo Stores, Inc. swap
03/25/96 Consolidated Stores Corp Owns and operates toy and hobby Purchase 0.29 17.70 NA 1.16
Kay-Bee Toy & Hobby Shops, Inc. stores of assets
01/16/96 Dollar Tree Stores, inc. Owns and operates discount variety Purchase 0.55 13.35 11.11 3.92
Terrific Promotions, Inc. stores of stock
10/13/95 TJX Companies Inc Operates family clothing stores Purchase 0.2 19.1 6.7 0.9
Marshall's Inc. (Melville Corp) of stock
08/15/95 Investor Group Chain of discount women's clothing Purchase NA NA NA NA
TJX Companies Inc-Hit or Miss stores of assets
10/27/94 Investor Group Owns and operates discount stores Open 0.49 6.17 5.29 1.98
Family Dollar Stores market
purchase
06/16/93 CostCo Wholesale Corp. Owns and operates membership Merger 0.28 11.00 8.25 2.56
Price Co. warehouses
04/16/92 Value City Department Stores Owns and operates discount Purchase 0.16 6.42 4.05 NM
Gee Bee Department Stores department stores of assets
</TABLE>
<TABLE>
<CAPTION> Offer for Equity to:
Offer for --------------------
Date Equity LTM Net Book
Announced Acquiror/Target Business of Target Form ($ mil) Income Value
- --------- -------------------------------------- ---------------------------------- ----------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
07/03/97 BAA PLC Owns and operates duty free shops Merger $675.3 30.85 x 2.95 x
Duty Free International Inc.
11/27/96 J.W. Childs (Investor Group) Tractor and hardware stores NA NA 20.8 1.7
Central Tractor
11/12/96 Leonard Green Partners (Investor Group) Pool supply stores Merger 100.7 23.0 2.6
Leslie's Poolmart
10/21/96 Brylane LP (The Limited, Inc.) Discount women's clothing catalog Merger 328.0 25.43 5.17
Chadwick's of Boston Ltd. (TJX Co.) unit of discount retailer
09/09/96 Phar-Mar, Inc. Owns and operates variety stores Stock swap 625.5 16.12 1.48
ShopKo Stores, Inc.
03/25/96 Consolidated Stores Corp Owns and operates toy and hobby Purchase of NA NA NA
Kay-Bee Toy & Hobby Shops, Inc. stores assets
01/16/96 Dollar Tree Stores, inc. Owns and operates discount variety Purchase of 54.6 13.28 6.94
Terrific Promotions, Inc. stores stock
10/13/95 TJX Companies Inc Operates family clothing stores Purchase of 599.3 39.2 1.0
Marshall's Inc. (Melville Corp) stock
08/15/95 Investor Group Chain of discount women's clothing Purchase of 13.0 NA NA
TJX Companies Inc-Hit or Miss stores assets
10/27/94 Investor Group Owns and operates discount stores Open market 24.5 9.95 1.98
Family Dollar Stores purchase
06/16/93 CostCo Wholesale Corp. Owns and operates membership Merger 1,666.2 15.05 1.92
Price Co. warehouses
04/16/92 Value City Department Stores Owns and operates discount Purchase of NA NA NA
Gee Bee Department Stores department stores assets
</TABLE>
Source: Securities Data Company
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Average 0.53 x 12.52 x 8.14 x 2.14 x 21.52 x 2.86 x
Median 0.49 11.80 8.25 1.96 20.80 1.98
High 1.26 19.09 13.34 3.92 39.17 6.94
Low 0.16 6.17 4.05 0.94 9.95 1.48
# in calc. 11 11 9 9 9 9
- -------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SBC Warburg Dillon Read Inc. Highly Confidential
- --------------------------------------------------------------------------------
Weighted Average Cost of Capital Calculation
(dollars in millions)
Estimation of Unlevered Asset Beta
<TABLE>
<CAPTION>
Net Market Value D/ ME/ Unlevered
Equity Beta(1) Debt(D) Equity (ME) (D+ME) (D+ME) Asset Beta
--------------- ------- ------------ -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Consolidated Stores 1.30 x $381.3 $3,370.1 10.2% 89.8% 1.19 x
MacFrugal's Bargain-Closeouts 0.90 $ 3.0 $ 745.1 0.4% 99.6% 0.90
Mazel Stores 1.28 $ 2.5 $ 210.9 1.2% 98.8% 1.27
Ross Stores 1.25 $ 3.0 $1,584.0 0.2% 99.8% 1.25
TJX Companies 1.50 $ 26.0 $4,654.8 0.6% 99.4% 1.49
-----------
1.22
</TABLE>
<TABLE>
Estimation of Weighted Average Cost of Capital
D/(D+ME) 0.0% 10.0% 20.0%
--------------- ------- ------------
<S> <C> <C> <C>
Implied Equity Beta (2) 1.22 x 1.32 x 1.43 x
Average Yield 3-Month T-Bills (9/1/97) 5.21% 5.21% 5.21%
Average Yield 30-Year T-Bonds (9/1/97) 6.61% 6.61% 6.61%
Cost of Equity over T-Bills (3) 18.6% 19.7% 20.9%
Cost of Equity over T-Bonds (4) 18.3% 19.3% 20.3%
--------------- ------- ------------
Average Cost of Equity 18.4% 19.5% 20.6%
After-Tax Cost of Debt (5) 5.40% 5.40% 5.40%
Weighted Average Cost of Capital
Based on T-Bills 18.6% 18.3% 17.8%
Based on T-Bonds 18.3% 17.9% 17.3%
--------------- ------- ------------
Average 18.4% 18.1% 17.5%
</TABLE>
- ---------------------------------------
(1) Source: Value Line.
(2) Assumes a debt beta of 0.17 as given by Reilly and Joehnk in The Journal of
Finance, December 1976, Table 1, p. 1394. Unlevered asset beta calculated
as: [(D/(D+ME))* Debt Beta + (ME/(D+ME)) * (Equity Beta]. Equity beta under
the hypothetical capital structures calculated as:[Asset Beta + (D/ME) *
(Asset Beta - Debt Beta)].
(3) Cost of equity over T-bills calculated as: [(Equity Beta* (8.90% + 2.06)) +
5.21%]. The 8.90% figure is the short-horizon expected equity risk premium
(large company stock total returns minus U.S. Treasury bill total returns;
the 2.06% figure is the expected low-capitalization equity size premium for
deciles 7-8; averages based on annual data from 1926 to 1996) according to
SBBI 1997 Yearbook (Ibbotson Associates). The 5.21% figure, our proxy for
the risk-free rate, is the average yield on 30-Year Treasury Bills on
9/1/97.
(4) Cost of equity over T-bonds calculated as:[(Equity Beta* (7.50% + 2.06)) +
6.61%]. The 7.50% figure is the long-horizon expected equity risk premium
(large company stock total returns minus long-term government bond income
returns; the 2.06% figure is the expected low-capitalization equity size
premium for deciles 7-8; averages based on annual data from 1926 to 1996).
according to SBBI 1997 Yearbook (Ibbotson Associates). The 6.61% figure,
our proxy for the risk-free rate, is the average yield on 30-Year Treasury
Bonds on 9/1/97.
(5) Pretax costs of debt were taken as the average yields for different classes
of bonds on Bloomberg on 9/1/97. These were taxed at a rate of 40.0%, which
approximates the average Federal and State tax rates for the period
beginning 1/1/93 under the Tax Reform Act of 1993.
