<PAGE> 1
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- --------------------------------------------------------------------------------
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
AND RULE 13e-3 THEREUNDER)
------------------------
BRYLANE INC.
(NAME OF ISSUER)
PINAULT-PRINTEMPS-REDOUTE S.A.
BUTTONS ACQUISITION CORPORATION
BRYLANE INC.
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(TITLE OF CLASS OF SECURITIES)
117661 10 8
(CUSIP NUMBER OF CLASS OF SECURITIES)
<TABLE>
<S> <C> <C>
SERGE WEINBERG SERGE WEINBERG ROBERT A. PULCIANI
CHAIRMAN AND CHIEF EXECUTIVE CHAIRMAN, CHIEF EXECUTIVE OFFICER EXECUTIVE VICE PRESIDENT, CHIEF
OFFICER AND PRESIDENT FINANCIAL OFFICER, SECRETARY AND
PINAULT-PRINTEMPS-REDOUTE S.A. BUTTONS ACQUISITION CORPORATION TREASURER
18, PLACE HENRI BERGSON C/O WACHTELL, LIPTON, ROSEN & KATZ BRYLANE INC.
75381 PARIS CEDEX 08 51 W. 52ND STREET 463 SEVENTH AVENUE, 21ST FLOOR
011 33 1 44 90 61 00 NEW YORK, NY 10019 NEW YORK, NEW YORK 10018
(212) 403-1000 (212) 613-9500
</TABLE>
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSONS AUTHORIZED TO RECEIVE NOTICES
OF COMMUNICATION ON BEHALF OF PERSON(S) FILING STATEMENT)
------------------------
WITH COPIES TO:
<TABLE>
<S> <C> <C>
DAVID A. KATZ, ESQ. ROGER H. LUSTBERG, ESQ. BRUCE A. MANN, ESQ.
JOSHUA R. CAMMAKER, ESQ. THOMAS M. CLEARY, ESQ. MATTHEW S. CROWLEY, ESQ.
WACHTELL, LIPTON, ROSEN & KATZ RIORDAN & MCKINZIE MORRISON & FOERSTER LLP
51 W. 52ND STREET 300 SOUTH GRAND AVENUE, 29TH FLOOR 425 MARKET STREET
NEW YORK, NY 10019 LOS ANGELES, CALIFORNIA 90071 SAN FRANCISCO, CALIFORNIA
(212) 403-1000 (213) 629-4824 94105-2482
(415) 268-7584
</TABLE>
This statement is filed in connection with (Check the appropriate box):
a. [ ] 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 a registration statement under the Securities Act of
1933.
c. [X] 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: [ ]
------------------------
CALCULATION OF FILING FEE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
TRANSACTION VALUATION* AMOUNT OF FILING FEE
- -------------------------------------------------------------------------------------------------------
<S> <C>
$231,941,770 $46,389
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>
* Calculated by multiplying $24.50, the per share tender offer price, by
9,467,011, the sum of the 8,631,279 shares of Common Stock sought to be
purchased in the Offer and the 835,732 shares of Common Stock subject to
options outstanding as of March 8, 1999.
As Filed with the Securities and Exchange Commission on March 16, 1999
------------------------
[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.
<TABLE>
<S> <C>
Amount Previously Paid: $46,389
Form or Registration No.: Schedule 14D/Schedule 13D (Amendment No. 8)
Filing Party: Buttons Acquisition Corporation and
Pinault-Printemps-Redoute S.A.
Date filed: March 16, 1999
</TABLE>
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<PAGE> 2
INTRODUCTION
This Rule 13e-3 Transaction Statement on Schedule 13E-3 (the "Schedule
13E-3") is being filed by (i) Pinault-Printemps-Redoute S.A., a societe anonyme
organized under the laws of the Republic of France ("Parent"), (ii) Buttons
Acquisition Corporation, Inc., a Delaware corporation and an indirect wholly
owned subsidiary of Parent ("Purchaser"), and (iii) Brylane Inc., a Delaware
corporation (the "Company"), pursuant to Section 13(e) of the Securities
Exchange Act of 1934, as amended, and Rule 13e-3 promulgated thereunder by the
Securities and Exchange Commission (the "SEC") in connection with the tender
offer by Purchaser for all the issued and outstanding shares of common stock,
par value $0.01 per share (the "Shares"), of the Company not already
beneficially owned by Parent, on the terms and subject to the conditions set
forth in the Offer to Purchase, dated March 16, 1999 (the "Offer to Purchase"),
and the related Letter of Transmittal (which, together with the Offer to
Purchase, each as amended or supplemented from time to time, constitute the
"Offer"), copies of which are filed as Exhibits (d)(1) and (d)(2) hereto,
respectively.
The Cross Reference Sheet below is being supplied pursuant to General
Instruction F to Schedule 13E-3 and shows the location in the Tender Offer
Statement on Schedule 14D-1 filed by Purchaser and Parent (the "Schedule 14D-1")
with the Securities and Exchange Commission pursuant to Rule 14d-3 of the
Exchange Act (together with any amendments, supplements, exhibits or schedules
thereto, the "Schedule 14D-1"), of the information required to be included in
this Schedule 13E-3. The information set forth in the Schedule 14D-1, including
all exhibits thereto, is expressly incorporated herein by reference as set forth
in the Cross Reference Sheet and the responses in this Schedule 13E-3, and such
responses are qualified in their entirety by reference to the information
contained in the Offer to Purchase and the annexes thereto.
The information contained in this Schedule 13E-3 concerning the Company,
including, without limitation, the information concerning the background of the
transactions, the deliberations of the Company's Board of Directors in
connection with the transaction, the deliberations of the Special Committee of
the Company's Board of Directors in connection with the transactions, the
opinion of the Special Committee's financial advisor and the Company's capital
structure and historical financial statements and projections, was supplied by
the Company. Purchaser and Parent take no responsibility for the accuracy of
such information.
1
<PAGE> 3
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
WHERE
ITEM IN LOCATED IN
SCHEDULE 13E-3 SCHEDULE 14D-1
- -------------- ------------------
<S> <C>
Item 1(a)................................................... Item 1(a)
Item 1(b)................................................... Item 1(b)
Item 1(c)................................................... Item 1(c)
Item 1(d)................................................... *
Item 1(e)................................................... *
Item 1(f)................................................... *
Item 2(a)................................................... Item 2(a)
Item 2(b)................................................... Item 2(b)
Item 2(c)................................................... Item 2(c)
Item 2(d)................................................... Item 2(d)
Item 2(e)................................................... Item 2(e)
Item 2(f)................................................... Item 2(f)
Item 2(g)................................................... Item 2(g)
Item 3(a)................................................... Item 3(a) and 3(b)
Item 3(b)................................................... Item 3(b)
Item 4...................................................... *
Item 5...................................................... Item 5
Item 6(a)................................................... Item 4(a)
Item 6(b)................................................... *
Item 6(c)................................................... Item 4(b)
Item 6(d)................................................... Item 4(c)
Item 7(a)................................................... Item 5
Item 7(b)................................................... *
Item 7(c)................................................... *
Item 7(d)................................................... *
Item 8...................................................... *
Item 9...................................................... *
Item 10(a).................................................. Item 6(a)
Item 10(b).................................................. Item 6(b)
Item 11..................................................... Item 7
Item 12..................................................... *
Item 13..................................................... *
Item 14..................................................... *
Item 15(a).................................................. *
Item 15(b).................................................. Item 8
Item 16..................................................... Item 10(f)
Item 17..................................................... Item 11
</TABLE>
- ---------------
* The Item is located in the Schedule 13E-3 only.
2
<PAGE> 4
ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION.
(a)-(c) The response to Item 1 (a)-(c) of the Schedule 14D-1 is
incorporated herein by reference.
(d) The information set forth in the Offer to Purchase under "SPECIAL
FACTORS -- The Merger Agreement," and "THE TENDER OFFER -- Section 6. Price
Range of Shares; Dividends" is incorporated herein by reference.
(e) The information set forth in the Offer to Purchase under "SPECIAL
FACTORS -- Background of the Offer" is incorporated herein by reference.
(f) The information set forth in the Offer to Purchase under
"INTRODUCTION," "SPECIAL FACTORS -- Background of the Offer" and "SPECIAL
FACTORS -- Interests of Certain Persons in the Offer and the Merger" is
incorporated herein by reference.
ITEM 2. IDENTITY AND BACKGROUND.
(a)-(d) and (g) The response to Item 2 of the Schedule 14D-1 is
incorporated herein by reference. The information concerning the name, state or
other place of organization, principal business and address of the principal
office of Parent, Purchaser and each person controlling Parent, and the
information concerning the name, business address, present principal occupation
or employment and the name, principal business and address of any corporation or
other organization in which such employment or occupation is conducted, material
occupations, positions, offices or employments during the last five years and
citizenship of each of the executive officers and directors of Parent, Purchaser
and each person in control of Parent and Purchaser is set forth in the Offer to
Purchase under "INTRODUCTION," "THE TENDER OFFER -- Section 8. Certain
Information Concerning Parent and Purchaser" and Schedule I to the Offer to
Purchase and is incorporated herein by reference.
(e)-(f) The response to Item 2 of the Schedule 14D-1 is incorporated herein
by reference. During the last five years, neither Purchaser, Parent, nor, to the
best knowledge of Purchaser and Parent, any person controlling Parent or
Purchaser or any of the persons listed in Schedule I to the Offer to Purchase
has been (i) convicted in a criminal proceeding (excluding traffic violations or
similar misdemeanors) or (ii) a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such proceeding
was or is subject to a judgment, decree or final order enjoining future
violations of, or prohibiting activities subject to, federal or state securities
laws or finding any violation of such laws.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS.
(a)-(b) The response to Item 3 of the Schedule 14D-1 is incorporated herein
by reference.
ITEM 4. TERMS OF THE TRANSACTION.
(a) The information set forth in the Offer to Purchase on the cover page
thereof and under "INTRODUCTION," "SPECIAL FACTORS -- Background of the Offer,"
"SPECIAL FACTORS -- Rights of Shareholders in the Offer and the Merger;
Appraisal Rights," "SPECIAL FACTORS -- The Merger Agreement," "THE TENDER
OFFER -- Section 1. Terms of the Offer," "THE TENDER OFFER -- Section 2.
Acceptance for Payment and Payment," "THE TENDER OFFER -- Section 3. Procedures
for Tendering Shares," "THE TENDER OFFER -- Section 4. Withdrawal Rights," "THE
TENDER OFFER -- Section 10. Dividends and Distributions." "THE TENDER
OFFER -- Section 12. Certain Conditions of the Offer," "THE TENDER
OFFER -- Section 13. Extension of Tender Period; Amendment; Termination," "THE
TENDER OFFER -- Section 14. Certain Legal Matters and Regulatory Approvals" and
"THE TENDER OFFER -- Section 16. Miscellaneous" is incorporated herein by
reference.
(b) Not applicable.
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE.
(a)-(e) The response to Item 5(a)-(e) of the Schedule 14D-1 is incorporated
herein by reference.
3
<PAGE> 5
(f) and (g) The response to Item 5(f) and (g) of the Schedule 14D-1 is
incorporated herein by reference.
ITEM 6. SOURCE AND AMOUNTS OF FUNDS OR OTHER CONSIDERATION.
(a) The response to Item 4 of the Schedule 14D-1 is incorporated herein by
reference.
(b) The information set forth in the Offer to Purchase in "THE TENDER
OFFER -- Section 15. Fees and Expenses" is incorporated herein by reference.
(c) The response to Item 4 of the Schedule 14D-1 is incorporated herein by
reference.
(d) Not applicable.
ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS.
(a) The response to Item 5 of the Schedule 14D-1 is incorporated herein by
reference.
(b) The information set forth in the Offer to Purchase under "SPECIAL
FACTORS -- Background of the Offer," "SPECIAL FACTORS -- Position of Parent and
Purchaser Regarding Fairness of the Merger", "SPECIAL FACTORS -- Purpose and
Structure of the Offer; Reasons of Parent and Purchaser for the Offer and the
Merger" and "SPECIAL FACTORS -- Plans for the Company; Certain Effects of the
Offer" is incorporated herein by reference.
(c)-(d) The information set forth in the Offer to Purchase under
"INTRODUCTION," "SPECIAL FACTORS -- Background of the Offer," "SPECIAL
FACTORS -- Purpose and Structure of the Offer, Reasons of Parent and Purchaser
for the Offer and the Merger," "SPECIAL FACTORS -- Plans for the Company;
Certain Effects of the Offer," "THE TENDER OFFER -- Section 5. Certain Federal
Income Tax Consequences" and "THE TENDER OFFER -- Section 11. Effect of the
Offer on the Market for the Shares, the New York Stock Exchange and Exchange Act
Registration" is incorporated herein by reference.
ITEM 8. FAIRNESS OF THE TRANSACTION.
(a)-(e) The information set forth in the Offer to Purchase under
"INTRODUCTION," "SPECIAL FACTORS -- Background of the Offer," "SPECIAL
FACTORS -- Position of Parent and Purchaser Regarding Fairness of the Offer and
the Merger," "SPECIAL FACTORS -- Purpose and Structure of the Offer; Reasons of
Parent and Purchaser for the Offer and the Merger, "SPECIAL
FACTORS -- Recommendation of the Company Board; Fairness of the Offer and the
Merger," "SPECIAL FACTORS -- Plans for the Company; Certain Effects of the
Offer," "THE TENDER OFFER -- Section 1. Terms of the Offer" and "THE TENDER
OFFER -- Section 12. Certain Conditions of the Offer" is incorporated herein by
reference.
(f) Not applicable.
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS.
(a)-(c) The information set forth in the Offer to Purchase under "SPECIAL
FACTORS -- Background of the Offer," "SPECIAL FACTORS -- Position of Parent and
Purchaser Regarding Fairness of the Offer and the Merger," "SPECIAL
FACTORS -- Recommendation of the Company Board; Fairness of the Offer and the
Merger" and Schedule II to the Offer to Purchase is incorporated herein by
reference.
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER.
(a)-(b) The response to Item 6 of the Schedule 14D-1 is incorporated herein
by reference.
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE ISSUER'S
SECURITIES.
The response to Item 7 of the Schedule 14D-1 is incorporated herein by
reference.
4
<PAGE> 6
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH REGARD TO
THE OFFER AND THE MERGER.
(a)-(b) The information set forth in the Offer to Purchase under
"INTRODUCTION," "SPECIAL FACTORS -- Background of the Offer," "SPECIAL
FACTORS -- Position of Parent and Purchaser Regarding Fairness of the Offer and
the Merger," "SPECIAL FACTORS -- Plans for the Company; Certain Effects of the
Offer" and "SPECIAL FACTORS -- Interests of Certain Persons in the Offer and the
Merger" is incorporated herein by reference.
ITEM 13. OTHER PROVISIONS OF THE OFFER AND THE MERGER.
(a) The information set forth in the Offer to Purchase under "SPECIAL
FACTORS -- Rights of Shareholders in the Offer and the Merger; Appraisal
Rights," "SPECIAL FACTORS -- The Merger Agreement" and in Schedule III to the
Offer to Purchase is incorporated herein by reference.
(b) Not applicable.
(c) Not applicable.
ITEM 14. FINANCIAL INFORMATION
(a) The information set forth in the Offer to Purchase under "THE TENDER
OFFER -- Section 7. Certain Information Concerning the Company" and in Schedule
V and Schedule VI to the Offer to Purchase is incorporated herein by reference.
(b) Not applicable.
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED.
(a) The information set forth in the Offer to Purchase under
"INTRODUCTION," "SPECIAL FACTORS -- Background of the Offer" and "SPECIAL
FACTORS -- Position of Parent and Purchaser Regarding Fairness of the Offer and
the Merger" is incorporated herein by reference.
(b) The response to Item 8 of the Schedule 14D-1 is incorporated herein by
reference.
ITEM 16. ADDITIONAL INFORMATION.
The response to Item 10(f) of the Schedule 14D-1 is incorporated herein by
reference.
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT NAME
- ------- ------------
<S> <C>
(a) Not applicable
(b)(1) Opinion of Bear, Stearns & Co. Inc. dated March 9, 1999
(attached as Schedule II to the Offer to Purchase).*
(b)(2) Presentation of Bear, Stearns & Co. Inc. dated March 9,
1999.
(b)(3) Presentation of J.P. Morgan Securities Inc. dated March 4,
1999.
(b)(4) Presentation of J.P. Morgan Securities Inc. dated February
22, 1999.
(b)(5) Presentation of J.P. Morgan Securities Inc. dated November
17, 1998.
(c)(1) Agreement and Plan of Merger dated as of March 10, 1999, by
and among Purchaser, Parent and the Company. (attached as
Schedule IV to the Offer to Purchase)
(c)(2) Stock Purchase Agreement, dated as of February 19, 1998,
among FS Equity Partners II, L.P., FS Equity Partners III,
L.P., and FS Partners International, L.P. and Parent
(incorporated by reference to Exhibit 99.1 to the Company's
Report on Form 8-K dated March 4, 1998).
</TABLE>
5
<PAGE> 7
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT NAME
- ------- ------------
<S> <C>
(c)(3) Stock Purchase Agreement, dated as of February 19, 1998,
between M&P Distributing Co. and Parent (incorporated by
reference to Exhibit 99.2 of the Company's Report on Form
8-K dated March 4, 1998).
(c)(4) Stock Purchase Agreement, dated as of April 3, 1998, between
Leeway & Co. and Parent (incorporated by reference to
Exhibit 4 to the Schedule 13D of Parent, dated April 13,
1998).
(c)(5) Stock Purchase Agreement, dated as of April 3, 1998, between
Bell Atlantic Master Trust and Parent (incorporated by
reference to Exhibit 5 to the Schedule 13D of Parent, dated
April 13, 1998).
(c)(6) Governance Agreement, dated as of April 3, 1998, among the
Company and Parent (incorporated by reference to Exhibit 6
to the Schedule 13D of Parent, dated April 13, 1998).
(c)(7) Registration Rights Agreement, dated as of April 3, 1998,
among the Company and Parent (incorporated by reference to
Exhibit 7 to the Schedule 13D of Parent, dated April 13,
1998).
(d)(1) Form of Offer to Purchase dated March 16, 1999.*
(d)(2) Form of Letter of Transmittal.*
(d)(3) Form of Notice of Guaranteed Delivery.*
(d)(4) Form of Letter from J.P. Morgan Securities Inc. to Brokers,
Dealers, Commercial Banks, Trust Companies and Nominees.*
(d)(5) Form of Letter from Brokers, Dealers, Commercial Banks,
Trust Companies and Nominees to Clients.*
(d)(6) Form of Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9.*
(d)(7) Summary Advertisement as published in The Wall Street
Journal on March 16, 1999.*
(d)(8) Press Release issued by Parent and Purchaser on March 16,
1999.*
(d)(9) Press Release issued by the Company on March 15, 1999.*
(d)(10) Joint Press Release issued by Parent and the Company on
March 10, 1999 (incorporated by reference to Exhibit 2 to
Amendment No. 7 to the Schedule 13D of Parent dated March
10, 1999).
(d)(11) English translation of Press Release issued by Parent on
March 10, 1999 (incorporated by reference to Exhibit 3 to
Amendment No. 7 to the Schedule 13D of Parent dated March
10, 1999).
(d)(12) Press Release issued by Parent on March 10, 1999. *
(d)(13) Press Release issued by the Company on December 2, 1998
(incorporated by reference to Exhibit 10.99 to the Form 10-Q
of the Company for the period ended October 31, 1998).
(d)(14) Press Release issued by Parent on December 2, 1998
(incorporated by reference to Exhibit 4 to Amendment No. 5
to the Schedule 13D of Parent dated December 2, 1998).
(d)(15) Proposal Letter dated December 2, 1998 to the Company from
Parent (incorporated by reference to Exhibit 5 to Amendment
No. 5 to the Schedule 13D of Parent dated December 2, 1998).
(e) Delaware General Corporation Law Section 262 Regarding
Dissenters' Rights (attached as Schedule III to the Offer to
Purchase).*
(f) Not applicable.
</TABLE>
- ---------------
* Incorporated by reference to the Statement on Schedule 14D-1 filed by
Purchaser and Parent on March 16, 1999.
6
<PAGE> 8
SIGNATURE
After due inquiry and to the best of my knowledge and belief, each of the
undersigned hereby certifies that the information set forth in this statement is
true, complete and correct.
March 16, 1999
PINAULT-PRINTEMPS-REDOUTE S.A.
By: /s/ SERGE WEINBERG
------------------------------------
Name: Serge Weinberg
Title: Chairman, Chief Executive
Officer and President
BUTTONS ACQUISITION CORPORATION
By: /s/ SERGE WEINBERG
------------------------------------
Name: Serge Weinberg
Title: Chairman and Chief Executive
Officer
BRYLANE INC.
By: /s/ ROBERT A. PULCIANI
------------------------------------
Name: Robert A. Pulciani
Title: Executive Vice President and
Chief
Financial Officer
7
<PAGE> 9
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT NAME
- ------- ------------
<S> <C>
(a) Not applicable.
(b)(1) Opinion of Bear, Stearns & Co. Inc. dated March 9, 1999
(attached as Schedule II to the Offer to Purchase).*
(b)(2) Presentation of Bear, Stearns & Co. Inc. dated March 9,
1999.
(b)(3) Presentation of J.P. Morgan Securities Inc. dated March 4,
1999.
(b)(4) Presentation of J.P. Morgan Securities Inc. dated February
22, 1999.
(b)(5) Presentation of J.P. Morgan Securities Inc. dated November
17, 1998.
(c)(1) Agreement and Plan of Merger dated as of March 10, 1999, by
and among Purchaser, Parent and the Company (attached as
Schedule IV to the Offer to Purchase).
(c)(2) Stock Purchase Agreement, dated as of February 19, 1998,
among FS Equity Partners II, L.P., FS Equity Partners III,
L.P., and FS Partners International, L.P. and Parent
(incorporated by reference to Exhibit 99.1 to the Company's
Report on Form 8-K dated March 4, 1998).
(c)(3) Stock Purchase Agreement, dated as of February 19, 1998,
between M&P Distributing Co. and Parent (incorporated by
reference to Exhibit 99.2 of the Company's Report on Form
8-K dated March 4, 1998).
(c)(4) Stock Purchase Agreement, dated as of April 3, 1998, between
Leeway & Co. and Parent (incorporated by reference to
Exhibit 4 to the Schedule 13D of Parent, dated April 13,
1998).
(c)(5) Stock Purchase Agreement, dated as of April 3, 1998, between
Bell Atlantic Master Trust and Parent (incorporated by
reference to Exhibit 5 to the Schedule 13D of Parent, dated
April 13, 1998).
(c)(6) Governance Agreement, dated as of April 3, 1998, among the
Company and Parent (incorporated by reference to Exhibit 6
to the Schedule 13D of Parent, dated April 13, 1998).
(c)(7) Registration Rights Agreement, dated as of April 3, 1998,
among the Company and Parent (incorporated by reference to
Exhibit 7 to the Schedule 13D of Parent, dated April 13,
1998).
(d)(1) Form of Offer to Purchase dated March 16, 1999.*
(d)(2) Form of Letter of Transmittal.*
(d)(3) Form of Notice of Guaranteed Delivery.*
(d)(4) Form of Letter from J.P. Morgan Securities Inc. to Brokers,
Dealers, Commercial Banks, Trust Companies and Nominees.*
(d)(5) Form of Letter from Brokers, Dealers, Commercial Banks,
Trust Companies and Nominees to Clients.*
(d)(6) Form of Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9.*
(d)(7) Summary Advertisement as published in The Wall Street
Journal on March 16, 1999.*
(d)(8) Press Release issued by Parent and Purchaser on March 16,
1999.*
(d)(9) Press Release issued by the Company on March 15, 1999.*
(d)(10) Joint Press Release issued by Parent and the Company on
March 10, 1999 (incorporated by reference to Exhibit 2 to
Amendment No. 7 to the Schedule 13D of Parent dated March
10, 1999).
(d)(11) English translation of Press Release issued by Parent on
March 10, 1999 (incorporated by reference to Exhibit 3 to
Amendment No. 7 to the Schedule 13D of Parent dated March
10, 1999).
(d)(12) Press Release issued by Parent on March 10, 1999.*
</TABLE>
<PAGE> 10
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT NAME
- ------- ------------
<S> <C>
(d)(13) Press Release issued by the Company on December 2, 1998
(incorporated by reference to Exhibit 10.99 to the Form 10-Q
of the Company for the period ended October 31, 1998).
(d)(14) Press Release issued by Parent on December 2, 1998
(incorporated by reference to Exhibit 4 to Amendment No. 5
to the Schedule 13D of Parent dated December 2, 1998).
(d)(15) Proposal Letter dated December 2, 1998 to the Company from
Parent (incorporated by reference to Exhibit 5 to Amendment
No. 5 to the Schedule 13D of Parent dated December 2, 1998).
(e) Delaware General Corporation Law Section 262 Regarding
Dissenters' Rights (attached as Schedule III to the Offer to
Purchase).*
(f) Not applicable.
</TABLE>
- ---------------
* Incorporated by reference to the Statement on Schedule 14D-1 filed by
Purchaser and Parent on March 16, 1999.
<PAGE> 1
Exhibit (b)(2)
PRESENTATION TO THE SPECIAL COMMITTEE OF
INDEPENDENT DIRECTORS OF
BRYLANE
MARCH 1999
CONFIDENTIAL
<PAGE> 2
Project Boxer
TABLE OF CONTENTS
SECTION
- --------------------------------------------------------------------------------
1 Transaction Parameters
2 Summary of Recent Developments
3 Implied Multiples
4 Review of Boxer
A Business Overview
B Historical Financial Performance
C Stock Price History
D Wall Street Research Commentary and Earnings Outlook
5 Boxer Projected Financial Performance
6 Observations on Current Market Environment
7 Valuation Guide
A Stock Market Valuation of Comparable Companies
B Comparable Acquisitions Analysis
C Discounted Cash Flow Analysis
CONFIDENTIAL
<PAGE> 3
Project Boxer
APPENDICES
A Discounted Cash Flow Analysis
B Weighted Average Cost of Capital Calculation
C Stock Price Sensitivity Analyses
D Boxer Historical Trading Multiples
CONFIDENTIAL
<PAGE> 4
SECTION 1
TRANSACTION PARAMETERS
<PAGE> 5
TRANSACTION PARAMETERS
TRANSACTION Acquisition of remaining shares of Boxer not
currently owned by PPR
PROPOSED PURCHASE PRICE $24.50 per share
CONSIDERATION Cash
MINIMUM OWNERSHIP CONDITION(1) 90% at the initial expiration period
75% after the initial expiration period
<TABLE>
<CAPTION>
TRANSACTION VALUATION EQUITY VALUE: $423 million(2) ENTERPRISE VALUE: $801 million(3)
EQUITY VALUE / ENTERPRISE VALUE / ENTERPRISE VALUE /
NET INCOME EBITDA EBIT
--------------------- -------------------- -------------------
1998 1999 1998 1999 1998 1999
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
22.7 x 14.4 x 9.6 x 8.1 x 13.1 x 10.6 x
</TABLE>
- ----------
(1) PPR currently owns 49.9% of Boxer with an additional 0.2% held indirectly
through an affiliate.
(2) Calculated on 17.26 million fully diluted shares outstanding.
(3) Includes net debt of $378 million.
2
<PAGE> 6
SECTION 2
SUMMARY OF RECENT
DEVELOPMENTS
<PAGE> 7
Project Boxer
SUMMARY OF RECENT DEVELOPMENTS
DATE EVENT
- ---- -----
5/20/98 First quarter earnings announced on target
8/19/98 Warning issued about 2nd half sales
8/31/98 Announced buyback of $40 million of its common stock
9/18/98 2 analysts cut rating
11/18/98 Announced third quarter earnings of 5 cents versus 85 cents in prior
year
12/2/98 PPR offers to acquire remaining shares for $20 per share
1/7/99 Shareholders commence litigation concerning adequacy of PPR offer
1/7/99 Bear Stearns first meets with Boxer Management to commence due
diligence financial review of company
1/7-15/99 Continue review of Management forecast including EPS of $1.25 for FY
1998 and $2.29 for FY 1999
1/18/99 Bear Stearns meets with Special Committee to discuss preliminary
impressions
2/2/99 Bear Stearns has initial meeting with J.P. Morgan where they explain
their justification and analysis of the $20 PPR offer
2/11/99 Bear Stearns meets with Boxer Management to continue financial due
diligence and is informed of additional $5 million pre-tax charge
based on recent physical inventory review at West Bridgewater. 1998
EPS lowered to $1.08 from $1.25
2/25/99 Boxer Management informs Bear Stearns that results of initial 1999
catalog mailing and recent discussions with operating management at
West Bridgewater on expense issues require revising Management
forecast
3/1/99 Revised forecast lowers 1999 EPS from $2.29 to $1.70 and Head
Merchant at Chadwick's resigns
3/3/99 Special Committee separately meets with Bear Stearns and Boxer
Management to discuss revised forecast
3/4/99 Special Committee and Bear Stearns meet with PPR and J.P. Morgan and
negotiate a revised offer of $24.50 per share
CONFIDENTIAL
3
<PAGE> 8
SECTION 3
IMPLIED MULTIPLES
<PAGE> 9
Project Boxer
IMPLIED MULTIPLES
<TABLE>
<CAPTION>
IMPLIED MULTIPLES COMPARABLES
-------------- --------------------------
METHODOLOGY ($24.50 OFFER) HARMONIC MEAN RANGE
----------- -------------- ------------- -----
<S> <C> <C> <C>
STOCK MARKET VALUATION OF COMPARABLES:
P / E (1999) 14.4x 11.6x 7.4x - 16.2x
COMPARABLE ACQUISITIONS(1):
EV / EBITDA (1998) 9.6x 9.4x 4.7x - 17.1x
EV / EBIT (1998) 13.1 11.7 5.5 - 20.6
P / E (1998) 22.7 20.9 11.1 - 30.8
<CAPTION>
VALUE RANGE ($ PER SHARE) COMMENTS
------------------------- --------
<S> <C> <C>
DISCOUNTED CASH FLOW ANALYSIS: $18 - $25 Theoretical present value at Discount
Rate of 10.5 - 11.5% and an exit
multiple of 6.5 - 7.5x 2003E EBITDA
from Management projections
</TABLE>
- ----------
(1) 1998 for Boxer, LTM for comparables.
CONFIDENTIAL
4
<PAGE> 10
SECTION 4
REVIEW OF BOXER
<PAGE> 11
SECTION 4-A
BUSINESS OVERVIEW
<PAGE> 12
Project Boxer
BOXER OVERVIEW
- - Nation's leading catalog retailer of value-priced apparel with established
brands
- - Serves both special and regular-sized markets
- - Major player in low / moderate budged segment
- - Diversification into non-apparel products with home business
- - Difficult second half 1998 (principally in West Bridgewater division) due
to demand and fulfillment problems
- - Lower margin expectation going forward due to increased competition in the
sector and product mix changes
- - Management cautious in outlook over next several years and has lowered
estimates
- - Company will miss Q4 1998 Street forecast(1)
- ----------
(1) Boxer expects ($0.34) loss for Q4 1998 and $1.08 per share for 1998 versus
the composite Street estimate of ($0.11) loss for Q4 1998 and $1.38 per
share for 1998.
CONFIDENTIAL
5
<PAGE> 13
Project Boxer
STRATEGIC ISSUES
SELECTED STRATEGIC ISSUES
COMPANY:
- - Softness in regular-sized business due to merchandising errors and
unseasonably warm Fall 1998
- - Greater risk at West Bridgewater due to fashion component than previously
understood
- - Dependency on key items (wool products) at West Bridgewater
- - Fulfillment / customer service problems at West Bridgewater in Fall 1998
despite lower sales versus Spring season and prior year
- - Expiration of Lane Bryant / Lerner trademarks
- - Uncertainty regarding extension of Sears contract
- - Unexpected additional $5 million inventory write-off required at West
Bridgewater in Q4 1998
- - Recent departure of key personnel at West Bridgewater; need to develop
management succession plan
- - Disappointing initial feedback on certain early Spring 1999 mailings at
West Bridgewater
INDUSTRY:
- - Several direct apparel marketers experienced softer demand in Fall 1998
- - Increased competition in regular-sized business
- - Catalog approval inherently difficult to predict
- Fashion content
- Weather
- - Few examples of quick turnarounds
CONFIDENTIAL
6
<PAGE> 14
Project Boxer
FINANCIAL OBSERVATIONS
SELECTED FINANCIAL OBSERVATIONS
- - Improvement forecasted in 1999, but less aggressive than previous
projections following initial disappointing feedback at West Bridgewater
- - Limited improvements budgeted in fulfillment cost through 2001 as
Management acknowledges the challenge in implementing the correct fixes
and the requirement to invest savings to improve customer service
- - Moderate improvements overall in operating expenses due primarily to
greater efficiencies in advertising and support services
- - More volatility and risk due to greater fashion component at West
Bridgewater than previously understood
- - Short-term strategy to drive earnings through prospecting cuts could
compromise long-term growth
- - Margins partially constrained due to investments in new businesses
CONFIDENTIAL
7
<PAGE> 15
SECTION 4-B
HISTORICAL FINANCIAL PERFORMANCE
<PAGE> 16
Project Boxer
BEAR
STEARNS
HISTORICAL FINANCIAL PERFORMANCE
<TABLE>
<CAPTION>
($ IN MILLIONS, EXCEPT PER SHARE DATA)
ACTUAL PRELIMINARY
------------------------ --------
1996(1) 1997 1998
-------- -------- --------
<S> <C> <C> <C>
NET SALES $ 705 $ 1,315 $ 1,328
% growth -- 86.5% 1.0%
GROSS MARGIN $ 359 641 636
% of Net Sales 50.9% 48.7% 47.8%
ADVERTISING 18.7 302 328
% of Net Sales 26.5% 23.0% 24.7%
FULFILLMENT COSTS 55 124 143
% of Net Sales 7.9% 9.4% 10.8%
SUPPORT SERVICES 52 89 92
% of Net Sales 8.1% 6.8% 6.9%
-------- -------- --------
OPERATING INCOME(2) $ 65(3) $ 125(4) $ 72
% growth -- 92.3% (42.5)%
% of Net Sales 9.2% 9.5% 5.4%
AMORTIZATION 7 11 11
INTEREST EXPENSE 24 28 29
-------- -------- --------
PRETAX INCOME 34 87 32
TAXES 2 33 12
-------- -------- --------
NET INCOME(5) $ 32 $ 54 $ 19(6)
-------- -------- --------
% growth -- 68.8% (64.8)%
% of Net Sales 4.5% 4.1% 1.4%
EBITDA $ 69 $ 136 $ 84
% growth -- 97.1% (38.3)%
% of Net Sales 9.8% 10.3% 6.3%
WEIGHTED AVERAGE DILUTED SHARES (MILLIONS) 14.4 19.4 18.1
EPS (WEIGHTED AVERAGE) $ 2.22 $ 2.76 $ 1.08
</TABLE>
- ----------
(1) 1996 results reflect the operations of Chadwick's on a consolidated basis
from December 9, 1996, the closing date of the Chadwick's acquisition from
TJX.
(2) Includes $2.2 and $4.8 million of unallocated general expenses (relating
to startup of new businesses and other costs) in 1998 and 1999,
respectively.
(3) Excludes $4.1 million of one-time charges relative to $1.7 million
write-off of inventory in Chadwick's business and $2.4 million in on-cash
compensation expense.
(4) Excludes $4.0 million of one-time charges relating to $3.3 million of
write-off of inventory in Chadwick's business and $0.7 million in non-cash
compensation expense.
(5) Excludes after-tax charge of $6.7 million in 1998 and $4.1 million in 1997
relating to deferred financing fees incurred through refinancing of bank
debt and redemption of Senior Subordinated Notes.
(6) Excludes pre-tax charge of $2.3 million relating to PPR proposal fees.
8
CONFIDENTIAL
<PAGE> 17
Project Boxer
BEAR
STEARNS
CONSOLIDATED - HISTORICAL FINANCIAL PERFORMANCE (BY SEASON)
<TABLE>
<CAPTION>
($ IN MILLIONS)
ACTUAL PRELIMINARY
------------------------------- -------
97 SPRING 97 FALL 98 SPRING 98 FALL
------- ------- ------- -------
<S> <C> <C> <C> <C>
Circulation (millions of catalogs) 286 316 308 324
NET SALES $ 603 $ 711 $ 648 $ 680
% growth -- -- 7.5% 4.4%
$ per catalog $ 2.11 $ 2.25 $ 2.11 $ 2.10
Gross Margin 290 347 319 317
% of Net Sales 48.0% 48.8% 49.2% 46.6%
Advertising 138 165 150 178
$ per catalog $ 0.48 $ 0.52 $ 0.49 $ 0.55
% of Net Sales 22.8% 23.1% 23.1% 26.2%
Fulfillment Costs 55 69 64 80
$ per catalog $ 0.19 $ 0.22 $ 0.21 $ 0.25
% of Net Sales 9.2% 9.7% 9.9% 11.8%
Support Services 45 45 45 47
% of Net Sales 7.4% 6.3% 7.0% 6.9%
-------- -------- ------- --------
OPERATING INCOME(1)(2) $ 52 $ 69 $ 60 $ 12
======== ======== ======= ========
% of Net Sales 8.6% 9.7% 9.7% 1.8%
</TABLE>
- ----------
(1) 1997 results (by season) not adjusted for one-time pre-tax charge of $4.0
million relating to inventory write-offs and non-cash compensation
expenses.
(2) 1998 estimates (by season) include pre-tax $3.0 million of unallocated
general expenses.
9
CONFIDENTIAL
<PAGE> 18
Project Boxer
BEAR
STEARNS
WEST BRIDGEWATER - HISTORICAL FINANCIAL PERFORMANCE
<TABLE>
<CAPTION>
($ IN MILLIONS)
ACTUAL PRELIMINARY
-------------------- -------
1996(1) 1997 1998
------- ------- -------
<S> <C> <C> <C>
Circulation (millions of catalogs) 184 232 258
NET SALES $ 526 $ 602 $ 624
% growth -- 14.5% 3.6%
$ per catalog $ 2.86 $ 2.59 $ 2.42
Gross Margin 239 277 275
% of Net Sales 45.4% 46.1% 44.1%
Advertising 101 115 131
$ per catalog $ 0.60 $ 0.50 $ 0.51
% of Net Sales 19.3% 19.1% 21.0%
Fulfillment Costs 57 74 93
$ per catalog $ 0.31 $ 0.32 $ 0.36
% of Net Sales 10.8% 12.2% 14.9%
Support Services 40 37 36
% of Net Sales 7.6% 6.1% 5.7%
------- ------- -------
OPERATING INCOME $ 39 $ 51 $ 15
------- ------- -------
% of Net Sales 7.4% 8.5% 2.4%
</TABLE>
- ----------
(1) 1996 results reflect a full year of operations for Chadwick's.
10
CONFIDENTIAL
<PAGE> 19
Project Boxer
BEAR
STEARNS
WEST BRIDGEWATER - HISTORICAL FINANCIAL PERFORMANCE (BY SEASON)
<TABLE>
<CAPTION>
($ IN MILLIONS)
ACTUAL PRELIMINARY
------------------------------- -------
97 SPRING 97 FALL 98 SPRING 98 FALL
------- ------- ------- -------
<S> <C> <C> <C> <C>
Circulation (millions of catalogs) 114 118 128 130
NET SALES $ 257 $ 345 $ 290 $ 334
% growth -- -- 12.8% (3.2)%
$ per catalog $ 2.25 $ 2.92 $ 2.26 $ 2.57
Gross Margin 118 160 136 139
% of Net Sales 45.8% 46.3% 47.0% 41.6%
Advertising 47 68 53 78
$ per catalog $ 0.41 $ 0.57 $ 0.42 $ 0.60
% of Net Sales 18.4% 19.7% 18.4% 23.4%
Fulfillment Costs 33 41 40 53
$ per catalog $ 0.29 $ 0.34 $ 0.32 $ 0.41
% of Net Sales 12.8% 11.8% 14.0% 15.8%
Support Services 18 19 19 17
% of Net Sales 7.0% 5.4% 6.6% 5.1%
------- ------- ------- -------
OPERATING INCOME $ 19 $ 32 $ 24 $ (9)
------- ------- ------- -------
% of Net Sales 7.6% 9.4% 8.1% (2.7)%
</TABLE>
11
CONFIDENTIAL
<PAGE> 20
Project Boxer
BEAR
STEARNS
INDIANAPOLIS - HISTORICAL FINANCIAL PERFORMANCE
<TABLE>
<CAPTION>
($ IN MILLIONS)
ACTUAL PRELIMINARY
-------------------- -------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Circulation (millions of catalogs) 263 370 375
NET SALES $ 629 $ 711 $ 704
% growth -- 13.1% 0.1%
$ per catalog $ 2.39 $ 1.92 $ 1.88
Gross Margin 324 360 360
% of Net Sales 51.5% 50.6% 51.1%
Advertising 1.73 187 197
$ per catalog $ 0.66 $ 0.51 $ 0.53
% of Net Sales 27.5% 26.3% 28.0%
Fulfillment Costs 42 51 51
$ per catalog $ 0.16 $ 0.14 $ 0.14
% of Net Sales 6.7% 7.2% 7.2%
Support Services 45 52 53
% of Net Sales 7.2% 7.3% 7.5%
------- ------- -------
OPERATING INCOME $ 63 $ 70 $ 60
------- ------- -------
% of Net Sales 10.1 9.9% 8.5%
</TABLE>
12
CONFIDENTIAL
<PAGE> 21
Project Boxer
BEAR
STEARNS
INDIANAPOLIS - HISTORICAL FINANCIAL PERFORMANCE (BY SEASON)
<TABLE>
<CAPTION>
($ IN MILLIONS)
ACTUAL PRELIMINARY
------------------------------- -------
97 SPRING 97 FALL 98 SPRING 98 FALL
------- ------- ------- -------
<S> <C> <C> <C> <C>
Circulation (millions of catalogs) 171 198 180 194
NET SALES $ 346 $ 365 $ 358 $ 346
% growth -- -- 3.5% (5.2)%
$ per catalog $ 2.02 $ 1.84 $ 2.00 $ 1.78
Gross Margin 176 184 182 178
% of Net Sales 50.9% 50.4% 50.9% 51.4%
Advertising 89 98 97 100
$ per catalog $ 0.52 $ 0.49 $ 0.54 $ 0.52
% of Net Sales 25.6% 26.9% 26.9% 28.9%
Fulfillment Costs 23 29 24 28
$ per catalog $ 0.13 $ 0.15 $ 0.13 $ 0.14
% of Net Sales 6.5% 7.9% 6.6% 8.1%
Support Services 26 26 26 27
% of Net Sales 7.5% 7.0% 7.3% 7.8%
------- ------- ------- -------
OPERATING INCOME $ 39 $ 31 $ 36 $ 24
------- ------- ------- -------
% of Net Sales 11.3% 8.5% 10.1% 6.9%
</TABLE>
13
CONFIDENTIAL
<PAGE> 22
BEAR
STEARNS
SECTION 4-C
STOCK PRICE HISTORY
<PAGE> 23
BEAR Project Boxer
STEARNS
HISTORICAL STOCK PRICE PERFORMANCE
BOXER'S STOCK PRICE DECLINED DUE TO A SECOND HALF 1998 EARNINGS WARNING AND
SUBSEQUENT EARNINGS DROP. BOXER SUBSEQUENTLY TRADED BETWEEN $11.13 AND $17.13
UNTIL THE PPR OFFER.
[GRAPH OF HISTORICAL PRICE AND VOLUME TRADED SINCE IP0, WITH SIGNIFICANT DATES
PLOTTED]
2/21/97 - IPO of four million shares priced at $24 each.
02/20/98 - Announced PPR will buy 40% of the Company for $355 million.
04/03/98 - Announced PPR completed purchase of approximately 43.7% of common
stock for $51 per share.
05/20/98 - 1st Qtr. earnings on target.
08/19/98 - Warning issued about 2nd half sales.
08/31/98 - Announced buyback of $40 million of its common stock.
09/18/98 - 2 analysts cut rating.
11/18/98 - Announced 3rd Qtr. earnings of 5 cents versus 85 cents in 3Q of
previous year.
12/02/98 - PPR offers to acquire remaining shares for $173 million or $20 per
share.
12/03/98 - Share rises 29% and exceed per share price of PPR offer.
1/07/99 - Shareholders sue over PPR offer.
1/14/99 - Special Committee engages Bear Stearns as financial advisor to
evaluate PPR proposal.
- ----------
Data through 3/4/99.
14
CONFIDENTIAL
<PAGE> 24
BEAR
STEARNS
SECTION 4-D
WALL STREET RESEARCH
COMMENTARY AND EARNINGS
OUTLOOK
<PAGE> 25
BEAR Project Boxer
STEARNS
WALL STREET RESEARCH COMMENTARY
<TABLE>
<CAPTION>
STOCK PRICE AS OF
ANALYST / FIRM / DATE REPORT RELEASE SELECTED COMMENTS RATING
- --------------------- -------------- ----------------- ------
<S> <C> <C> <C>
Maura H. Byrne/ $23.13 We have decided to lower our EPS estimates to reflect lower than NA
Salomon Smith Barney/ expected sales in November and December. While we had expected the
1/07/99 same factors that pulled down 3Q 98 sales to drag down 4Q 98, the
negative impact has been bigger than we initially projected. Therefore,
we now forecast a 4Q 98 sales decline of 5%. Brylane's stock price
currently reflects the market's expectation of a higher bid than the
recent offer of $20 per share by Pinault-Printemps-Redoute.
Janet J. Kloppenburg/ $22.13 Brylane announced that Pinault-Printemps, a leading specialty retailer Market
BancBoston/ and cataloger in France, offered to acquire the remaining 50% of Brylane Perform
12/03/98 stock which it did not already own at a share price of $20. This
transaction offers Brylane additional merchandising and buying talent
from which to rejuvenate its catalog sales, which have been weak recently.
The Company is becoming a growing presence in the regular-size apparel
market through its Lerner catalog as well as through several new catalogs
recently or soon to be launched. We believe Brylane can enjoy several
years of at least 8% - 10% sales growth and 18% earnings growth based
on: (1) continued growth of at least 8% in existing catalogs; (2)
development of new catalog concepts; (3) more effective utilization of
its 23 million name customer file; (4) continued leverage of its
state-of-the art operating infrastructure, (5) deleveraging of its
balance sheet; and (6) favorable demographic trends such as aging baby
boomers which support a growing population of large-sized individuals.
Todd Slater/ $11.13 The bad news is that problems in the regular-size business have spread HOLD
Lazard Freres/ beyond Lerner to the Chadwick's book. The good news is that the large
11/19/98 size segment, principally Lane Bryant, has recovered and is performing
well. Lerner and Chadwick's seem to be suffering from their own distinct
fashion issues and have become too complacent in their presentation and
their merchandise offerings. SG&A increased 610 basis points because of
1) a 6.1% increase in circulation, 2) lower productivity of catalog
mailings, 3) increase in payroll costs at its West Bridgewater
distribution facility, and 4) higher shipping incentives and shipping
costs. Inventory was up 9% and is too high considering the sales decline.
Mark A. Friedman/ $14.50 Chadwick's problems can be attributed to a combination of too much
Merrill Lynch/ dependency on item merchandise (especially blazers), warm weather, stale BUY
11/18/98 creative and a mailing strategy that focused volume on the early part of
fall. Lerner remained soft as some mis-steps in merchandising continued
to impact sales. The large size business continues to perform well, and
the key focus will be on revitalizing the regular size business.
Janet J. Kloppenburg/ $14.50 We believe there are significant fundamental issues affecting the company's
BancBoston/ business than just fashion and merchandise errors at some of its catalogs. Market
11/18/98 In Lerner, a lack of new fashion as well as tired catalog design were the Perform
catalysts for its poor performance. In Chadwick's, a strong focus on last
year's best sellers did not create any newness this fall, and that
Chadwick's heavily item-dependent merchandising strategy (particularly in
blazers) did not receive favorable response from customers this year.
Janet J. Kloppenburg/ $21.00 The company's shortfall in sales is due not only to continued softness in
BancBoston/ its Lerner catalog but, more importantly, due to softness in its Chadwick's Long-Term
9/25/98 winter catalog as well as in its core Lane Bryant large size catalog. The Attractive
company is facing increase competitive pressure from large-size specialty
retailers or other dominant catalogs such as J.C. Penney, for example, and
is most likely losing market share. The now broad-based and progressive
sales weakness indicates to us a fundamental shift in demand for the
company's value-priced assortments primarily, in our opinion, due to the
company's own internal merchandising errors and to a lesser extent due to
the effects of an overall more conservative consumer spending environment.
</TABLE>
15
CONFIDENTIAL
<PAGE> 26
BEAR Project Boxer
STEARNS
BOXER EARNINGS OUTLOOK(1)
BOXER'S FOURTH QUARTER 1998E ESTIMATE IS SUBSTANTIALLY BELOW THE STREET AVERAGE,
HOWEVER, ITS 1999E ESTIMATE IS ROUGHLY IN LINE WITH THE STREET BASED ON COMPANY
GUIDANCE FROM NOVEMBER 1998.
<TABLE>
<CAPTION>
Q4 1998 / 1998E 1999E EPS
FIRM EPS ESTIMATE ESTIMATE
---- ------------ --------
<S> <C> <C>
BancBoston ($0.10)/$1.39 $1.60
Lazard Freres (0.10)/1.39 1.70
Merrill Lynch (0.09)/1.39 1.70
Salomon Smith Barney (0.15)/1.34 1.65
------------- ------
Composite ($0.11)/$1.38 $1.66
Revised Management Estimate ($0.34)/$1.08(2) $1.70
</TABLE>
- ----------
(1) Source: First Call.
(2) Calculated based on estimated weighted average diluted shares outstanding
of 18.1 million during 1998.
16
CONFIDENTIAL
<PAGE> 27
BEAR Project Boxer
STEARNS
TREND IN 1999E BOXER EARNINGS ESTIMATES
THE STREET'S 1999E ESTIMATE HAS DECLINED STEADILY FROM $3.86 PER SHARE IN MAY
1998 TO A CURRENT $1.66 PER SHARE, A 57% DROP.
EPS ESTIMATES (ROLLING BASIS)
<TABLE>
<CAPTION>
REVISIONS TOTAL
DATE OF ESTIMATE MEAN HIGH LOW UP DOWN ESTIMATES
<S> <C> <C> <C> <C> <C> <C>
February 1999 $1.66 $1.70 $1.60 0 0 4
January 1999 1.66 1.70 1.60 0 1 4
December 1998 1.69 1.75 1.60 0 4 4
November 1998 1.69 1.75 1.60 0 4 4
October 1998 2.59 2.85 2.25 0 5 5
September 1998 3.61 3.85 3.50 0 3 6
August 1998 3.80 3.90 3.50 0 2 5
July 1998 3.84 3.90 3.80 0 0 5
June 1998 3.86 3.90 3.80 0 0 4
May 1998 3.86 3.90 3.80 0 0 4
</TABLE>
[EPS ESTIMATES GRAPH FOR MAY 1998 - FEBRUARY 1999]
Source: I/B/E/S consensus earnings estimates.
17
CONFIDENTIAL
<PAGE> 28
BEAR
STEARNS
SECTION 5
BOXER PROJECTED FINANCIAL PERFORMANCE
<PAGE> 29
BEAR
STEARNS Project Boxer
PROJECTED FINANCIAL PERFORMANCE - REVISED PROJECTIONS(1)
<TABLE>
<CAPTION>
($ IN MILLIONS, EXCEPT PER SHARE DATA)
ACTUAL PROJECTED FISCAL YEAR
1997 1998 1999 2000 2001
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
NET SALES $ 1,315 $ 1,328 $ 1,356 $ 1,445 $ 1,553
% growth -- 1.0% 2.1% 6.5% 7.5%
GROSS MARGIN 641 636 660 701 753
% of Net Sales 48.7% 47.8% 48.6% 48.5% 48.5%
ADVERTISING 302 328 328 347 373
% of Net Sales 23.0% 24.7% 24.2% 24.0% 24.0%
FULFILLMENT COSTS 124 143 150 157 168
% of Net Sales 9.4% 10.8% 11.1% 10.9% 10.8%
SUPPORT SERVICES 89 92 95 98 104
% of Net Sales 6.8% 6.9% 7.0% 6.8% 6.7%
--------- --------- --------- --------- ---------
OPERATING INCOME(2) $ 125(3) $ 72 $ 86 $ 98 $ 109
% growth -- (42.5)% 19.9% 13.7% 10.7%
% of Net Sales 9.5% 5.4% 6.4% 6.8% 7.0%
AMORTIZATION 11 11 11 11 11
INTEREST EXPENSE 28 29 28 25 24
--------- --------- --------- --------- ---------
PRETAX INCOME 87 32 48 62 74
TAXES 33 12 18 24 28
--------- --------- --------- --------- ---------
NET INCOME(4) $ 54 $ 19(5) $ 29 $ 38 $ 45
========= =========== ========= ========= =========
% growth -- (64.8)% 50.1% 30.3% 18.6%
% of Net Sales 4.1% 1.4% 2.2% 2.6% 2.9%
EBITDA $ 136 $ 84 $ 99 $ 111 $ 121
% growth -- (38.3)% 17.8% 12.2% 9.5%
% of Net Sales 10.3% 6.3% 7.3% 7.7% 7.8%
WEIGHTED AVERAGE DILUTED SHARES (MILLIONS) 19.4 18.1 17.3 17.3 17.3
EPS (WEIGHTED AVERAGE) $ 2.76 $ 1.08 $ 1.70 $ 2.21 $ 2.62
</TABLE>
(1) MANAGEMENT PROJECTIONS DATED FEBRUARY 26, 1999.
(2) Includes $2.2 and $4.8 million of unallocated general expenses (relating to
startup of new businesses and other costs) in 1998 and 1999, respectively.
(3) Excludes $4.0 million of one-time charges relating to $3.3 million of
write-off of inventory in Chadwick's business and $0.7 million in non-cash
compensation expense.
(4) Excludes after-tax charge of $6.7 million in 1998 and $4.1 million in 1997
relating to deferred financing fees incurred through refinancing of bank debt
and redemption of Senior Subordinated Notes.
(5) Excludes pre-tax charge of $2.3 million relating to PPR proposal fees.
18
CONFIDENTIAL
<PAGE> 30
BEAR
STEARNS Project Boxer
PROJECTED FINANCIAL PERFORMANCE - OLD PROJECTIONS(1)
<TABLE>
<CAPTION>
($ IN MILLIONS, EXCEPT PER SHARE DATA)
ACTUAL PROJECTED FISCAL YEAR
1997 1998 1999 2000 2001
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
NET SALES $ 1,315 $ 1,328 $ 1,389 $ 1,479 $ 1,590
% growth -- 1.0% 4.6% 6.5% 7.5%
GROSS MARGIN 641 641 678 719 773
% of Net Sales 48.7% 48.2% 48.8% 48.6% 48.6%
ADVERTISING 302 329 328 348 374
% of Net Sales 23.0% 24.8% 23.6% 23.5% 23.5%
FULFILLMENT COSTS 124 143 153 161 172
% of Net Sales 9.4% 10.7% 11.0% 10.9% 10.8%
SUPPORT SERVICES 89 91 96 101 107
% of Net Sales 6.8% 6.9% 6.9% 6.8% 6.7%
--------- --------- --------- --------- ---------
OPERATING INCOME(2) $ 125(3) $ 77 $ 101 $ 110 $ 121
% growth -- (38.2%) 40.3% 8.9% 10.0%
% of Net Sales 9.5% 5.8% 7.3% 7.4% 7.6%
AMORTIZATION 11 11 11 11 11
INTEREST EXPENSE 28 29 26 24 23
--------- --------- --------- --------- ---------
PRETAX INCOME 87 37 65 75 87
TAXES 33 14 25 29 33
--------- --------- --------- --------- ---------
NET INCOME(4) $ 54 $ 23(5) $ 40 $ 46 $ 53
========= =========== ========= ========= =========
% growth -- (57.9%) 103.7% 15.7% 16.3%
% of Net Sales 4.1% 1.7% 2.9% 3.1% 3.4%
EBITDA $ 136 $ 89 $ 114 $ 123 $ 133
% growth -- (34.6%) 35.4% 7.7% 9.1%
% of Net Sales 10.3% 6.7% 8.2% 8.3% 8.4%
WEIGHTED AVERAGE DILUTED SHARES (MILLIONS) 19.4 18.1 17.3 17.3 17.3
EPS (WEIGHTED AVERAGE) $ 2.76 $ 1.25 $ 2.29 $ 2.65 $ 3.08
</TABLE>
(1) MANAGEMENT PROJECTIONS DATED JANUARY 7, 1999.
(2) Includes $2.2 and $4.8 million of unallocated general expenses (relating to
startup of new businesses and other costs) in 1998 and 1999, respectively.
(3) Excludes $4.0 million of one-time charges relating to $3.3 million of
write-off of inventory in Chadwick's business and $0.7 million in non-cash
compensation expense.
(4) Excludes after-tax charge of $6.7 million in 1998 and $4.1 million in 1997
relating to deferred financing fees incurred through refinancing of bank debt
and redemption of Senior Subordinated Notes.
(5) Excludes pre-tax charge of $2.3 million relating to PPR proposal fees.
CONFIDENTIAL 19
<PAGE> 31
BEAR
STEARNS Project Boxer
REVISED PROJECTED FINANCIAL PERFORMANCE (BY SEASON)
BOXER CONSOLIDATED ($ IN MILLIONS)
<TABLE>
<CAPTION>
ACTUAL PRELIMINARY PROJECTED
--------------------------------
SPRING 97 FALL 97 SPRING 98 FALL 98 SPRING 99 FALL 99
--------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $ 603 $ 711 $ 648 $ 680 $ 638 $ 718
% Growth -- -- 7.5% (4.4%) (1.5%) 5.6%
Operating Income 52 69 60 12 43 48
% of Net Sales 8.6% 9.7% 9.7% 1.8% 6.7% 6.7%
</TABLE>
WEST BRIDGEWATER ($ IN MILLIONS)
<TABLE>
<CAPTION>
ACTUAL PRELIMINARY PROJECTED
---------------------------------
SPRING 97 FALL 97 SPRING 98 FALL 98 SPRING 99 FALL 99
--------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $ 257 $ 345 $ 290 $ 334 $ 255 $ 338
% Growth -- -- 12.8% (3.2%) (12.1%) 1.2%
Operating Income 19 32 24 (9) 6 19
% of Net Sales 7.6% 9.4% 8.1% (2.7)% 2.4% 5.6%
</TABLE>
INDIANAPOLIS ($ IN MILLIONS)
<TABLE>
<CAPTION>
ACTUAL PRELIMINARY PROJECTED
---------------------------------
SPRING 97 FALL 97 SPRING 98 FALL 98 SPRING 99 FALL 99
--------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $ 346 $ 365 $ 358 $ 346 $ 383 $ 380
% Growth -- -- 3.5% (5.2%) 7.0% 9.8%
Operating Income 39 31 36 24 37 29
% of Net Sales 11.3% 8.5% 10.1% 6.9% 9.6% 7.7%
</TABLE>
20
CONFIDENTIAL
<PAGE> 32
BEAR
STEARNS
SECTION 6
OBSERVATIONS ON CURRENT MARKET ENVIRONMENT
<PAGE> 33
BEAR PROJECT BOXER
STEARNS
RELATIVE STOCK PRICE PERFORMANCE OF BOXER VS. COMPARABLE GROUP INDEX
BOXER HAS TRACKED ITS COMPARABLE GROUP UNTIL AN EARNINGS WARNING IN AUGUST 1998
AND SUBSEQUENT EARNINGS DROP CAUSED THE SPREAD TO WIDEN.
[INDEX PRICE GRAPH SINCE IPO(1) TRACKING BOXER, COMPARABLE GROUP INDEX(3) AND
S&P 500: FEBRUARY 1997 - MARCH 1999]
(1) IPO on 2/21/97.
(2) Data through 3/4/99.
(3) Comparable Group Index is an equally weighted index of Coldwater Creek, DM
Management, Lands' End and Lillian Vernon.
21
CONFIDENTIAL
<PAGE> 34
BEAR
STEARNS
SECTION 7
VALUATION GUIDE
<PAGE> 35
BEAR
STEARNS
SECTION 7-A
STOCK MARKET VALUATION OF COMPARABLE COMPANIES
<PAGE> 36
BEAR
STEARNS
COMPARABLE COMPANY TRADING MULTIPLES
($ IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
5-YEAR 1999E P /E/
PRICE AS MARKET EV / EV / PROJECTED 5-YEAR
OF VALUE ENTERPRISE EBITDA EBIT EPS(2) P / E GROWTH PROJECTED
COMPANY 3/4/99 OF EQUITY VALUE (1) 1999E 1999E 1999E 1999E RATE (3) GROWTH RATE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Projections
BOXER (EFFECTED PRICE)(4) $21.44 $ 371 $ 749 7.6X(5) 9.9x(6) $ 1.70 12.6X 15% 0.84
BOXER (OFFER)(7) 24.50 424 802 8.1 (5) 10.6(6) 1.70 14.4 15 0.96
Blair $18.88 $ 168 $ 198 4.6x(8) 5.3x $ 2.55(8) 7.4x NA NA
Coldwater Creek 11.63 118 133 5.0 (9) 6.0 1.18 9.9 22 0.46
DM Management 15.75 162 175 8.5 10.2 0.98 16.1 28 0.57
Lands' End 29.81 914 1,161 10.6 13.6 1.84 16.2 13 1.25
Lillian Vernon 14.38 131 131 5.4 (8) 6.8 (8) 1.03 14.0 20 0.70
HARMONIC MEAN (EXCLUDING BOXER)
6.1X 7.4X 11.6X
</TABLE>
(1) Net debt used in calculation of enterprise value is not adjusted to reflect
seasonal debt and does not include any off-balance sheet debt.
(2) Source: First Call.
(3) Source: Zack's consensus earnings estimates.
(4) Reflects current market price which has been effected by PPR proposal.
(5) Assumes 1999 EBITDA of $98.7 million.
(6) Assumes 1999 EBIT of $75.4 million.
(7) Represents revised PPR offer from 3/4/99.
(8) Source: Value Line.
(9) D&A assumed to equal LTM result of $4.5 million due to lack of further
information.
22
CONFIDENTIAL
<PAGE> 37
Project Boxer
BEAR
STEARNS
COMPARABLE COMPANY DESCRIPTION
<TABLE>
<CAPTION>
COMPANY DESCRIPTION MARKET VALUE ENTERPRISE LTM SALES(1)
OF EQUITY VALUE
<S> <C> <C> <C> <C>
Boxer Specialty direct marketer to the value-priced $371 $749 $1,328
market. Serves the special-size market with Lane
Bryant, Roaman's, Jessica London and King Size catalogs,
and the regular-size market with Chadwick's, Lerner and
Bridgewater catalogs. Recently diversified into home
furnishing products. Exclusive licensing arrangement with
Sears.
Blair Retailer and direct mail merchandiser of fashion 168 198 540
apparel for men and women, as well as a variety of
home products; operates select number of retail
stores and outlet centers.
Coldwater Creek Specialty direct-mail retailer of apparel, gifts, 118 133 318
jewelry and home furnishings; select number of
company retail stores
DM Management Specialty direct marketer of high quality women's 162 175 219
apparel, accessories, shoes, and gifts; markets its
products through the J. Jill and Nicole Summers
catalogs
Lands' End Specialty direct-mail retailer of clothing, 914 1,161 1,311
accessories, shoes, luggage, bath and bedding
products; operates chain of outlet stores
Lillian Vernon Direct-mail specialty catalog marketer of 131 131 266
household, gift, gardening, kitchen, Christmas and
children's products
</TABLE>
<TABLE>
<CAPTION>
COMPANY DESCRIPTION EBITDA EBIT NET INCOME
MARGIN(1) MARGIN(1) MARGIN(1)
<S> <C> <C> <C> <C>
Boxer Specialty direct marketer to the value-priced 6.3% 4.6% 1.5%
market. Serves the special-size market with Lane
Bryant, Roaman's, Jessica London and King Size catalogs,
and the regular-size market with Chadwick's, Lerner and
Bridgewater catalogs. Recently diversified into home
furnishing products. Exclusive licensing arrangement with
Sears.
Blair Retailer and direct mail merchandiser of fashion 6.6 5.7 3.5
apparel for men and women, as well as a variety of
home products; operates select number of retail
stores and outlet centers.
Coldwater Creek Specialty direct-mail retailer of apparel, gifts, 7.5 5.9 3.3
jewelry and home furnishings; select number of
company retail stores
DM Management Specialty direct marketer of high quality women's 7.1 6.1 3.8
apparel, accessories, shoes, and gifts; markets its
products through the J. Jill and Nicole Summers
catalogs
Lands' End Specialty direct-mail retailer of clothing, 7.4 6.0 3.6
accessories, shoes, luggage, bath and bedding
products; operates chain of outlet stores
Lillian Vernon Direct-mail specialty catalog marketer of 5.9 4.2 2.8
household, gift, gardening, kitchen, Christmas and
children's products
</TABLE>
(1) Boxer's LTM operating results are for the fiscal year 1998 period. 1999
Sales, EBITDA, EBIT and Net Income margins are projected to be $1,356 million,
7.3%, 6.5% and 2.2%, respectively.
CONFIDENTIAL
23
<PAGE> 38
BEAR
STEARNS
SECTION 7-B
COMPARABLE ACQUISITIONS ANALYSIS
<PAGE> 39
BEAR
STEARNS Project Boxer
COMPARABLE ACQUISITION ANALYSIS
($ IN MILLIONS)
<TABLE>
<CAPTION>
ANNOUNCEMENT TARGET / EQUITY ENTERPRISE LTM
-------------------------------------------
DATE ACQUIROR VALUE VALUE REVENUE EBITDA EBIT NET INCOME
- ---- -------- ----- ----- ------- ------ ---- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
3/4/99 BOXER / PINAULT - $423 $801 $1,328 $84 $61 $19
PRINTEMPS-REDOUTE(1)
2/11/99 Fingerhut Companies / 1,482 1,742 1,609 134 93 46
Federated Department
Stores
12/15/98 Bedford Fair / 39 39 120 NA NA NA
Fingerhut Companies
8/12/98 Arizona Mail Order / 109 120 140 NA NA NA
Fingerhut Companies
6/15/98 Pleasant Co. / 700 715 300 NA NA NA
Mattel
5/18/98 Viking Office 2,452 2,363 1,447 138 115 80
Products /
Office Depot
4/7/98 Quill / 637 690 551 NA NA 22
Staples
3/20/98 Rivertown Trading / 120 120 190 NA NA NA
Dayton Hudson
2/20/98 Boxer / 935 1,290 1,315 135 114 53
Pinault - Printemps
Redoute(4)
</TABLE>
<TABLE>
<CAPTION>
ANNOUNCEMENT TARGET / ENTERPRISE VALUE / LTM EQUITY VALUE
------------------------ / LTM
DATE ACQUIROR REVENUE EBITDA EBIT NET INCOME
- ---- -------- ------- ------ ---- ----------
<S> <C> <C> <C> <C> <C>
3/4/99 BOXER / PINAULT - 0.60X 9.6X 13.2X 22.7X
PRINTEMPS-REDOUTE(1)
2/11/99 Fingerhut Companies / 1.08 13.1 18.7 24.0(2)
Federated Department
Stores
12/15/98 Bedford Fair / 0.33 NA NA NA
Fingerhut Companies
8/12/98 Arizona Mail Order / 0.86 6.7(3) NA NA
Fingerhut Companies
6/15/98 Pleasant Co. / 2.38 NA NA NA
Mattel
5/18/98 Viking Office 1.63 17.1 20.6 30.8
Products /
Office Depot
4/7/98 Quill / 1.25 NA NA 28.7
Staples
3/20/98 Rivertown Trading / 0.63 NA NA NA
Dayton Hudson
2/20/98 Boxer / 0.98 9.6 11.3 17.6
Pinault - Printemps
Redoute(4)
</TABLE>
Note: LTM = Latest twelve months.
(1) Figures assume 100% acquisition, however, transaction represents the
remaining 49.9% stake of Brylane's total outstanding stock, at $24.50 per share.
(2) Multiple assumes $25 offer price divided by 1998 EPS of $1.04.
(3) Based on Street estimates.
(4) Figures assume 100% acquisition, however, transaction represents a 43.7%
stake of Brylane's total outstanding stock, at $51 per share.
CONFIDENTIAL
24
<PAGE> 40
PROJECT
BOXER Project Boxer
COMPARABLE ACQUISITION ANALYSIS (CONT.)
($ IN MILLIONS)
<TABLE>
<CAPTION>
LTM
ANNOUNCEMENT TARGET / EQUITY ENTERPRISE --------------------------
DATE ACQUIROR VALUE VALUE REVENUE EBITDA EBIT
- ------------ -------- ------ ---------- ------- ------- ----
<S> <C> <C> <C> <C> <C> <C>
1/6/97 Maintenance $245 $279 $126 $23 $21
Warehouse /
Home Depot
12/2/96 Eastbay / 147 143 120 10 9
Woolworth
10/21/96 Chadwick's (TJX) / 243 236 480 50 43
Brylane LP
12/21/95 State Line Tack / 19 28 53 (0) (1)
PETsMART
11/30/95 Inmac / 124 135 369 15 11
Micro Warehouse
4/4/95 Sporting Dogs 69 75 75 1 1
Specialties /
PETsMART
7/13/93 Brylane Direct / 475 475 425 46 43
Freeman Spogli(1)
</TABLE>
<TABLE>
<CAPTION>
EQUITY VALUE
ANNOUNCEMENT TARGET / ENTERPRISE VALUE / LTM / LTM
DATE ACQUIROR NET INCOME REVENUE EBITDA EBIT NET INCOME
<S> <C> <C> <C> <C> <C> <C>
1/6/97 Maintenance $11 2.21x 12.2x 13.3x 22.3x
Warehouse /
Home Depot
12/2/96 Eastbay / 6 1.19 13.8 15.4 24.8
Woolworth
10/21/96 Chadwick's (TJX) / 22 0.49 4.7 5.5 11.1
Brylane LP
12/21/95 State Line Tack / (1) 0.52 NM NM NM
PETsMART
11/30/95 Inmac / 5 0.36 9.1 12.2 27.1
Micro Warehouse
4/4/95 Sporting Dogs 1 0.99 NM NM NM
Specialties /
PETsMART
7/13/93 Brylane Direct / 26 1.12 10.3 11.1 18.1
Freeman Spogli(1)
HIGH 2.38X 17.1x 20.6x 30.8x
LOW 0.33 4.7 5.5 11.1
HARMONIC MEAN 0.77 9.4 11.7 20.9
</TABLE>
Note: LTM = Latest twelve months.
(1) Figures assume 100% acquisition, however, transaction represents a 60.0%
stake of Brylane Direct business.
CONFIDENTIAL
25
<PAGE> 41
SECTION 7-C
DISCOUNTED CASH FLOW ANALYSIS
<PAGE> 42
BEAR
STEARNS Project Boxer
KEY OPERATING ASSUMPTIONS
($ IN MILLIONS)
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 4-YEAR CAGR
---- ---- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C> <C>
NET SALES $ 1,357 $ 1,444 $ 1,552 $ 1,668 $ 1,792 7.2%
% growth -- 6.5% 7.5% 7.5% 7.5%
GROSS MARGIN 660 701 753 810 870
% of Net Sales 48.6% 48.5% 48.5% 48.5% 48.5%
EBITDA 99 112 122 130 146 10.2%
% of Net Sales 7.3% 7.8% 7.8% 7.8% 8.2%
OPERATING INCOME 87 99 108 118 125 9.5%
% of Net Sales 6.4% 6.8% 7.0% 7.0% 7.0%
CAPEX 20 30 50 50 20
% of Net Sales 1.5% 2.1% 3.2% 3.0% 1.1%
</TABLE>
DISCOUNT RATE: 10.5-11.5%
EXIT MULTIPLE: 6.5-7.5x
IMPLIED PERPETUITY GROWTH: 3.3-4.1%
26
CONFIDENTIAL
<PAGE> 43
BEAR
STEARNS Project Boxer
DISCOUNTED CASH FLOW RESULTS
<TABLE>
<CAPTION>
DISCOUNT RATE
--------------------------------------------------------------------------
EBITDA MULTIPLES 10.5% 11.0% 11.5%
---------------- ----- ----- -----
<S> <C> <C> <C> <C>
PRESENT VALUE OF 1999 - 2003 CASH FLOWS $149 $147 $145
PRESENT VALUE OF TERMINAL VALUES 6.5x $577 $564 $551
7.0 621 607 594
7.5 665 650 636
PRESENT VALUE OF ENTERPRISE VALUES 6.5x $725 $711 $696
7.0 770 754 739
7.5 814 797 781
LESS: NET DEBT @ 10/31/98 ($378) ($378) ($378)
PRESENT VALUE OF EQUITY 6.5x $347 $333 $318
7.0 392 376 361
7.5 436 419 403
PV OF GROSS EQUITY VALUE / PER SHARE 6.5x $20.13 $19.27 $18.43
7.0 22.70 21.78 20.89
7.5 25.27 24.29 23.35
</TABLE>
27
CONFIDENTIAL
<PAGE> 44
BEAR
STEARNS
APPENDICES
<PAGE> 45
BEAR
STEARNS
APPENDIX A
DISCOUNTED CASH FLOW ANALYSIS
<PAGE> 46
BEAR STEARNS Project Boxer
BOXER DISCOUNTED CASH FLOW VALUATION MODEL (Management Case)
($ in millions, except per share data)
SUMMARY OF OPERATIONS AND ASSUMPTIONS
<TABLE>
<CAPTION>
Actual
Nine Months Three Months
Actual Fiscal Year Ended Estimated
----------------------------- -------------- --------------
1996 1997 10/31/98 1/31/99
----------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
OPERATING ASSUMPTIONS
Circulation (millions of catalogs)(1) 263.1 602.3
Net Sales as % of Gross Demand - 68.7%
% Growth - 86.4%
Total COGS as % of Net Sales 49.1% 51.3%
Gross Profit Margin 50.9% 48.7%
Catalog & Advertising as % of Net Sales 26.5% 23.0%
$ Per Book 0.71 0.50
Fulfillment as % of Net Sales 7.9% 9.4%
$ Per Book 0.21 0.21
Support Services as % of Net Sales 7.4% 6.8%
----- ------- ----------- ----------
Total SG&A as % of Net Sales(2) 41.7% 39.2%
EBITDA as % of Net Sales 9.8% 10.3%
% Growth 96.3%
Operating Income as % of Net Sales(2) 9.1% 9.5%
% Growth 94.9%
Tax Rate 5.6% 38.2%
Minimum Cash Balance - -
SUMMARY OF OPERATIONS
Gross Demand - $1,913.0
Net Sales 705.4 1,314.8
Gross Profit 358.8 640.6
EBITDA 69.1 135.7
Operating Income 64.3 125.4
Net Income 31.9 53.6
</TABLE>
<TABLE>
<CAPTION>
Projected Fiscal Year
----------------------------------------------------------------------------
1998 1999 2000 2001 2002 2003
---------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
OPERATING ASSUMPTIONS
Circulation (millions of catalogs)(1) 630.6 589.4 619.2 653.7 687.9 724.8
Net Sales as % of Gross Demand 69.3% 68.8% 68.6% 68.6% 68.9% 69.0%
% Growth 1.0% 2.1% 6.5% 7.5% 7.5% 7.5%
Total COGS as % of Net Sales 52.2% 51.4% 51.5% 51.5% 51.5% 51.5%
Gross Profit Margin 47.8% 48.6% 48.5% 48.5% 48.5% 48.5%
Catalog & Advertising as % of Net Sales 24.7% 24.2% 24.0% 24.0% 24.0% 24.0%
$ Per Book 0.52 0.56 0.56 0.57 0.58 0.59
Fulfillment as % of Net Sales 10.8% 11.1% 10.9% 10.8% 10.8% 10.8%
$ Per Book 0.23 0.25 0.25 0.26 0.26 0.27
Support Services as % of Net Sales 6.9% 7.0% 6.8% 6.7% 6.7% 6.7%
----- ------- ------- -------- ------- ------
Total SG&A as % of Net Sales(2) 42.4% 42.3% 41.7% 41.5% 41.5% 41.6%
EBITDA as % of Net Sales 6.2% 7.3% 7.8% 7.8% 7.8% 8.2%
% Growth (38.9)% 19.3% 13.1% 8.6% 7.1% 12.2%
Operating Income as % of Net Sales(2) 5.4% 6.4% 6.8% 7.0% 7.0% 7.0%
% Growth (42.8)% 20.6% 14.0% 9.8% 8.5% 6.2%
Tax Rate 38.5% 38.5% 38.5% 38.5% 38.5% 38.5%
Minimum Cash Balance 0.5 0.5 0.5 0.5 0.5 0.5
SUMMARY OF OPERATIONS
Gross Demand $1,918.0 $1,972.4 $2,106.0 $2,263.4 $2,421.3 $2,597.4
Net Sales 1,328.4 1,356.5 1,444.2 1,552.0 1,667.9 1,792.4
Gross Profit 635.3 659.8 700.6 753.1 809.7 870.0
EBITDA 83.0 99.0 112.0 121.6 130.2 146.1
Operating Income 71.8 86.6 98.6 108.3 117.5 124.7
Net Income 18.7 29.9 38.7 46.2 52.7 58.9
</TABLE>
- ----------
(1) Excludes circulation of Brett Inserts.
(2) Before Amortization expense.
(3) Defined as unlevered Net Income plus Depreciation & Amortization less
increase in Capital Expenditures and Working Capital.
Page 1
Confidential
<PAGE> 47
Bear Stearns
Project Boxer
BOXER DISCOUNTED CASH FLOW VALUATION MODEL (Management Case)
($ in millions, except per share data)
INCOME STATEMENT
<TABLE>
<CAPTION>
Actual
Nine Months Three Months
Actual Fiscal Year Ended Estimated
------------------------ ----------- ------------
1996 1997 10/31/98 1/31/99
----------- --------- ----------- ------------
<S> <C> <C> <C> <C>
REVENUE
Gross Demand
Indy $978.9
W Bridge 934.1
General 0.0
------ -------- ------ ------
Total Gross Demand $1,913.0
% Growth -
Net Sales
Indy $711.5
W Bridge 601.9
General 1.5
------ -------- ------ ------
Total Net Sales $705.4 $1,314.8 $996.3 $332.2
% of Gross Demand 68.7%
COST OF GOODS SOLD
Indy $351.2
W Bridge 321.2
General 1.9
------ -------- ------ ------
Total COGS $346.6 $674.3 $506.2 $187.3
% of Net Sales 49.1% 51.3% 50.8% 56.4%
GROSS PROFIT
Indy $360.3
W Bridge 277.4
General (0.4)
------ -------- ------ ------
Total Gross Profit $358.8 $640.6 $490.1 $145.2
Gross Profit Margin 50.9% 48.7% 49.2% 43.7%
SG&A EXPENSE
Catalog & Advertising
Indy $187.0
W Bridge 115.2
General 0.0
------ -------- ------ ------
Total Catalog & Advertising $187.0 $302.2 $249.2 $79.1
% of Net Sales 26.5% 23.0% 25.0% 23.8%
$ Per Book 0.71 0.50
Fulfillment
Indy $51.4
W Bridge 73.5
General (0.7)
------ -------- ------ ------
Total Fulfillment $55.5 $124.2 $100.2 $42.8
% of Net Sales 7.9% 9.4% 10.1% 12.9%
$ Per Book 0.21 0.21
Support Services
Indy $51.8
W Bridge 36.7
General 1.0
------ -------- ------ ------
Total Support Services $52.0 $88.8 $68.1 $24.1
% of Net Sales 7.4% 6.8% 6.8% 7.3%
</TABLE>
<TABLE>
<CAPTION>
Projected Fiscal Year
-------------------------------------------------------------------
1998 1999 2000 2001 2002 2003
---------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
REVENUE
Gross Demand
Indy $965.8 $1,034.7 $1,122.3 $1,219.1 $1,318.9 $1,433.8
W Bridge 952.3 937.8 983.6 1,044.3 1,102.4 1,163.7
General 0.0 0.0 0.0 0.0 0.0 0.0
-------- -------- -------- -------- -------- --------
Total Gross Demand $1,918.0 $1,972.4 $2,106.0 $2,263.4 $2,421.3 $2,597.4
% Growth 0.3% 2.8% 6.8% 7.5% 7.0% 7.3%
Net Sales
Indy $706.6 $763.3 $824.4 $890.3 $961.5 $1,038.5
W Bridge 621.9 593.2 619.8 661.7 706.3 753.9
General 0.0 0.0 0.0 0.0 0.0 0.0
-------- -------- -------- -------- -------- --------
Total Net Sales $1,328.4 $1,356.5 $1,444.2 $1,552.0 $1,667.9 $1,792.4
% of Gross Demand 69.3% 68.8% 68.6% 68.6% 68.9% 69.0%
COST OF GOODS SOLD
Indy $348.3 $374.0 $403.9 $436.3 $471.2 $508.9
W Bridge 345.1 322.7 339.7 362.6 387.0 413.5
General 0.0 0.0 0.0 0.0 0.0 0.0
-------- -------- -------- -------- -------- --------
Total COGS $693.5 $696.7 $743.6 $798.9 $858.2 $922.4
% of Net Sales 52.2% 51.4% 51.5% 51.5% 51.5% 51.5%
GROSS PROFIT
Indy $358.2 $389.3 $420.4 $454.1 $490.4 $529.6
W Bridge 276.7 270.5 280.2 299.1 319.3 340.4
General 0.3 0.0 0.0 0.0 0.0 0.0
-------- -------- -------- -------- -------- --------
Total Gross Profit $635.3 $659.8 $700.6 $753.1 $809.7 $870.0
Gross Profit Margin 47.8% 48.6% 48.5% 48.5% 48.5% 48.5%
SG&A EXPENSE
Catalog & Advertising
Indy $194.3 $203.8 $218.5 $235.9 $254.8 $275.2
W Bridge 134.0 123.8 128.3 137.1 145.9 155.7
General 0.0 0.0 0.0 0.0 0.0 0.0
-------- -------- -------- -------- -------- --------
Total Catalog & Advertising $328.290 $327.6 $346.8 $373.0 $400.7 $430.9
% of Net Sales 24.7% 24.2% 24.0% 24.0% 24.0% 24.0%
$ Per Book 0.52 0.56 0.56 0.57 0.58 0.59
Fulfillment
Indy $53.3 $57.2 $61.8 $66.8 $72.1 $77.9
W Bridge 90.2 90.8 91.7 99.9 110.9 118.0
General (0.5) 2.1 3.2 0.8 (3.6) (1.8)
-------- -------- -------- -------- -------- --------
Total Fulfillment $143.0 $150.1 $156.8 $167.5 $179.5 $194.1
% of Net Sales 10.8% 11.1% 10.9% 10.8% 10.8% 10.8%
$ Per Book 0.23 0.25 0.25 0.26 0.26 0.27
Support Services
Indy $53.0 $57.9 $61.8 $66.8 $72.1 $77.4
W Bridge 36.2 35.0 34.7 35.7 38.1 41.1
General 3.0 2.7 1.9 1.9 1.9 1.9
-------- -------- -------- -------- -------- --------
Total Support Services $92.2 $95.5 $98.4 $104.4 $112.1 $120.3
% of Net Sales 6.9% 7.0% 6.8% 6.7% 6.7% 6.7%
</TABLE>
Page 2
<PAGE> 48
Bear Stearns
Project Boxer
BOXER DISCOUNTED CASH FLOW VALUATION MODEL (Management Case)
($ in millions, except per share data)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
====== ======== ====== ======
TOTAL SG&A EXPENSE $294.5 $515.2 $417.5 $146.0
% of Net Sales 41.7% 39.2% 41.9% 43.9%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
-------- -------- -------- -------- -------- --------
TOTAL SG&A EXPENSE $563.5 $573.2 $602.0 $644.9 $692.2 $745.3
% of Net Sales 42.4% 42.3% 41.7% 41.5% 41.5% 41.6%
</TABLE>
Confidential
Page 3
<PAGE> 49
Bear Stearns
Project Boxer
BOXER DISCOUNTED CASH FLOW VALUATION MODEL (Management Case)
($ in millions, except per share data)
INCOME STATEMENT (cont.)
<TABLE>
<CAPTION>
Actual
Nine Months Three Months
Actual Fiscal Year Ended Estimated
------------------ ----------- -------------
1996 1997 10/31/98 1/31/99
----- ------ -------- -------
<S> <C> <C> <C> <C>
OPERATING INCOME (EBITA) $64.3 $125.4 $72.5 ($0.8)
Operating Income Margin 9.1% 9.5% 7.3% -0.2%
AMORTIZATION $6.5 $11.0 $8.5 $3.0
% of Net Sales 0.9% 0.8% 0.8% 0.9%
INTEREST EXPENSE
Bank Revolver $1.5
Bank Term Loan 5.3
----- ----- ----- ------
TOTAL INTEREST EXPENSE $24.0 $27.7 $23.0 $6.8
INTEREST INCOME 0.0 0.0 0.0 0.0
OTHER INCOME (EXPENSE) 0.0 0.0 0.0 0.0
----- ----- ----- ------
PRETAX INCOME $33.8 $86.7 $41.1 ($10.6)
INCOME TAXES 1.9 33.1 15.8 (4.1)
----- ----- ----- ------
NET INCOME $31.9 (1) $53.6 (2) $25.3 ($6.5)
===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Projected Fiscal Year
-------------------------------------------------------------
1998 1999 2000 2001 2002 2003
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
OPERATING INCOME (EBITA) $71.8 $86.6 $98.6 $108.3 $117.5 $124.7
Operating Income Margin 5.4% 6.4% 6.8% 7.0% 7.0% 7.0%
AMORTIZATION $11.5 $11.1 $10.7 $10.3 $10.0 $9.6
% of Net Sales 0.9% 0.8% 0.7% 0.7% 0.6% 0.5%
INTEREST EXPENSE
Bank Revolver $6.4 $6.4 $6.7 $8.1 $8.7
Bank Term Loan 20.5 18.6 16.2 13.7 10.6
----- ----- ----- ----- ----- -----
TOTAL INTEREST EXPENSE $29.8 $26.9 $25.0 $22.9 $21.9 $19.3
INTEREST INCOME 0.0 0.0 0.0 0.0 0.0 0.0
OTHER INCOME (EXPENSE) 0.0 0.0 0.0 0.0 0.0 0.0
----- ----- ----- ----- ----- -----
PRETAX INCOME $30.5 $48.6 $62.9 $75.1 $85.7 $95.8
INCOME TAXES 11.7 18.7 24.2 28.9 33.0 36.9
----- ----- ----- ----- ----- -----
NET INCOME $18.7 (3) $29.9 $38.7 $46.2 $52.7 $58.9
===== ===== ===== ===== ===== =====
</TABLE>
- ----------
(1) Excludes one-time pre-tax charge of $1.7 million relating to write-off of
inventories at Chadwick's and $2.4 million in non-cash compensation
expenses.
(2) Excludes one-time pre-tax charge of $3.3 million relating to write-off of
inventories at Chadwick's and $0.7 million in non-cash compensation
expenses.
(3) Excludes $2.3 million pre-tax charge relating to PPR proposal fee.
Confidential
Page 4
<PAGE> 50
Bear Stearns
Project Boxer
BOXER DISCOUNTED CASH FLOW VALUATION MODEL (Management Case)
($ in millions, except per share data)
BALANCE SHEET
<TABLE>
<CAPTION>
Actual
Nine Months
Actual Fiscal Year Ended
------------------ ------------
1996 1997 10/31/98
------ ------ --------
<S> <C> <C> <C>
ASSETS
Cash & Equivalents $3.3 $5.1 $0.0
Accounts Receivable 54.9 16.0 36.4
Inventory 168.8 219.6 240.9
Prepaid and Other Current Assets 47.3 58.4 74.7
------ ------ ------
Total Current Assets $274.2 $299.1 $352.1
Property, Plant & Equipment, Net $76.0 $77.1 $80.0
Intangible Assets 354.4 333.3 323.7
Other Assets 0.7 10.7 10.7
------ ------ ------
Total Assets $705.2 $720.2 $766.5
====== ====== ======
LIABILITIES
Accounts Payable $93.9 $139.5 $154.3
Accrued Expenses 54.0 38.7 24.7
Other Current Liabilities 18.6 17.8 19.8
------ ------ ------
Total Current Liabilities $166.5 $196.0 $198.8
Bank Revolver $0.0 $19.0 $78.0
Bank Term Loan 427.4 339.8 300.0
Convertible Redeemable Preferred Stock 1.5 1.4 0.0
------ ------ ------
Total Debt Instruments $428.9 $360.1 $378.0
Other Long Term Liabilities 6.0 9.0 11.6
------ ------ ------
Total Liabilities $601.4 $565.2 $588.4
Total Stockholder's Equity 103.9 155.0 178.0
------ ------ ------
Total Liabilities & Equity $705.2 $720.2 $766.5
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Projected Fiscal Year
------------------------------------------------------------
1998 1999 2000 2001 2002 2003
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash & Equivalents $0.5 $0.5 $0.5 $0.5 $0.5 $0.5
Accounts Receivable 48.0 49.0 52.2 56.0 60.2 64.7
Inventory 250.4 251.6 268.5 288.5 309.9 333.1
Prepaid and Other Current Assets 93.0 95.0 101.1 108.6 116.8 125.5
------ ------ ------ ------ ------ ------
Total Current Assets $391.9 $396.0 $422.3 $453.7 $487.4 $523.8
Property, Plant & Equipment, Net $85.9 $93.4 $109.8 $145.0 $179.0 $177.6
Intangible Assets 321.8 310.7 300.0 289.7 279.7 270.0
Other Assets 10.7 10.7 10.7 10.7 10.7 10.7
------ ------ ------ ------ ------ ------
Total Assets $810.3 $810.9 $842.8 $899.0 $956.8 $982.1
====== ====== ====== ====== ====== ======
LIABILITIES
Accounts Payable $173.4 $174.2 $185.9 $199.7 $214.5 $230.6
Accrued Expenses 28.2 28.7 30.1 32.2 34.6 37.3
Other Current Liabilities 27.7 27.9 29.7 32.0 34.3 36.9
------ ------ ------ ------ ------ ------
Total Current Liabilities $229.3 $230.7 $245.7 $263.9 $283.5 $304.7
Bank Revolver $97.9 $84.7 $97.9 $124.8 $145.3 $142.9
Bank Term Loan 300.0 282.5 247.5 212.5 177.5 125.0
Convertible Redeemable Preferred Stock 0.0 0.0 0.0 0.0 0.0 0.0
------ ------ ------ ------ ------ ------
Total Debt Instruments $397.9 $367.2 $345.4 $337.3 $322.8 $267.9
Other Long Term Liabilities 11.6 11.6 11.6 11.6 11.6 11.6
------ ------ ------ ------ ------ ------
Total Liabilities $638.8 $609.5 $602.7 $612.8 $617.8 $584.3
Total Stockholder's Equity 171.5 201.4 240.1 286.3 338.9 397.9
------ ------ ------ ------ ------ ------
Total Liabilities & Equity $810.3 $810.9 $842.8 $899.0 $956.8 $982.1
====== ====== ====== ====== ====== ======
</TABLE>
Confidential
Page 5
<PAGE> 51
Bear Stearns
Project Boxer
BOXER DISCOUNTED CASH FLOW VALUATION MODEL (Management Case)
($ in millions, except per share data)
CASH FLOW STATEMENT
<TABLE>
<CAPTION>
Three Months
Estimated Projected Fiscal Year
------------- ------------------------------------------
1/31/99 1999 2000 2001 2002 2003
------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
CASH FLOW FROM OPERATIONS
Net Income ($6.5) $29.9 $38.7 $46.2 $52.7 $58.9
Plus: Depreciation & Amortization 4.5 23.5 24.3 25.2 26.0 31.0
Plus: Change in Working Capital
Decrease / (Increase) in Accounts Receivable (11.6) (1.0) (3.2) (3.9) (4.2) (4.5)
Decrease / (Increase) in Inventory (9.5) (1.2) (16.9) (19.9) (21.4) (23.2)
Decrease / (Increase) in Prepaid & Other Current Assets (18.3) (2.0) (6.1) (7.5) (8.1) (8.7)
Decrease / (Increase) in Other Assets 0.0 0.0 0.0 0.0 0.0 0.0
Increase / (Decrease) in Accounts Payable 19.1 0.8 11.7 13.8 14.8 16.0
Increase / (Decrease) in Accrued Expenses 3.5 0.5 1.4 2.1 2.4 2.7
Increase / (Decrease) in Other Current Liabilities 7.9 0.1 1.9 2.2 2.4 2.6
Increase / (Decrease) in Other Long Term Liabilities 0.0 0.0 0.0 0.0 0.0 0.0
Cash Flow from Operating Activities ($11.0) $50.7 $51.8 $58.1 $64.5 $74.8
------ ----- ----- ----- ----- -----
CASH FLOW FROM INVESTING
Capital Expenditures ($8.4) ($20.0) ($30.0) ($50.0) ($50.0) ($20.0)
Other 0.0 0.0 0.0 0.0 0.0 0.0
------ ----- ----- ----- ----- -----
Cash Flow from Investing Activities ($8.4) ($20.0) ($30.0) ($50.0) ($50.0) ($20.0)
CASH FLOW FROM FINANCING
Change in Total Debt Instruments (Excluding Bank Revolver)
Bank Term Loan 0.0 (17.5) (35.0) (35.0) (35.0) (52.5)
------ ----- ----- ----- ----- -----
Cash Flow from Financing (Excluding Bank Revolver) $0.0 ($17.5) ($35.0) ($35.0) ($35.0) ($52.5)
Bank Revolver 19.9 (13.2) 13.2 26.9 20.5 (2.3)
------ ----- ----- ----- ----- -----
Cash Flow from Financing Activities $19.9 ($30.7) ($21.8) ($8.1) ($14.5) ($54.8)
Net Change in Cash & Cash Equivalents 0.5 0.0 0.0 0.0 0.0 0.0
Cash & Cash Equivalents, Beginning of Period 0.0 0.5 0.5 0.5 0.5 0.5
------------------------------------------------------------------------------------------------------------
Cash & Cash Equivalents, End of Period $0.5 $0.5 $0.5 $0.5 $0.5 $0.5
------------------------------------------------------------------------------------------------------------
</TABLE>
Confidential
Page 6
<PAGE> 52
Bear Stearns
Project Boxer
BOXER DISCOUNTED CASH FLOW VALUATION MODEL (Management Case)
($ in millions, except per share data)
<TABLE>
<CAPTION>
WORKING CAPITAL SCHEDULE
Actual
Nine Months
Actual Fiscal Year Ended
------------------ ------------
1996 1997 10/31/98
---- ---- --------
<S> <C> <C> <C>
Accounts Receivable $54.9 $16.0 $36.4
Days Receivable 28.0 9.7 16.5
% of Net Sales 7.8% 1.2% 3.7%
Inventories $168.8 $219.6 $240.9
Days Inventory 175.4 103.7 145.7
% of COGS 48.7% 32.6% 47.6%
Prepaid & Other Current Assets $47.3 $58.4 $74.7
% of Net Sales 6.7% 4.4% 7.5%
Accounts Payable $93.9 $139.5 $154.3
Days Payable 97.6 62.3 88.3
% of COGS 27.1% 20.7% 30.5%
Accrued Expenses $54.0 $38.7 $24.7
% of SG&A Expense 18.3% 7.5% 5.9%
Other Current Liabilities $18.6 $17.8 $19.8
% of COGS 5.4% 2.6% 3.9%
------ ----- ------
Net Working Capital $104.4 $98.0 $153.2
% of Net Sales 14.8% 7.5% 15.4%
Increase / (Decrease) in Working Capital - ($6.5) $55.2
</TABLE>
<TABLE>
<CAPTION>
WORKING CAPITAL SCHEDULE
Projected Fiscal Year
--------------------------------------------------
1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Accounts Receivable $48.0 $49.0 $52.2 $56.0 $60.2 $64.7
Days Receivable 13.0 13.0 13.0 13.0 13.0 13.0
% of Net Sales 3.6% 3.6% 3.6% 3.6% 3.6% 3.6%
Inventories $250.4 $251.6 $268.5 $288.5 $309.9 $333.1
Days Inventory 130.0 130.0 130.0 130.0 130.0 130.0
% of COGS 36.1% 36.1% 36.1% 36.1% 36.1% 36.1%
Prepaid & Other Current Assets $93.0 $95.0 $101.1 $108.6 $116.8 $125.5
% of Net Sales 7.0% 7.0% 7.0% 7.0% 7.0% 7.0%
Accounts Payable $173.4 $174.2 $185.9 $199.7 $214.5 $230.6
Days Payable 90.0 90.0 90.0 90.0 90.0 90.0
% of COGS 25.0% 25.0% 25.0% 25.0% 25.0% 25.0%
Accrued Expenses $28.2 $28.7 $30.1 $32.2 $34.6 $37.3
% of SG&A Expense 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%
Other Current Liabilities $27.7 $27.9 $29.7 $32.0 $34.3 $36.9
% of COGS 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
------ ------ ------ ------ ------ ------
Net Working Capital $162.1 $164.8 $176.0 $189.2 $203.4 $218.5
% of Net Sales 12.2% 12.2% 12.2% 12.2% 12.2% 12.2%
Increase / (Decrease) in Working Capital $8.9 $2.7 $11.2 $13.2 $14.1 $15.1
</TABLE>
Page 7
Confidential
<PAGE> 53
Bear Stearns
Project Boxer
BOXER DISCOUNTED CASH FLOW VALUATION MODEL (Management Case)
($ in millions, except per share data)
DEBT SCHEDULE
<TABLE>
<CAPTION>
Three Months
Estimated
--------------
---------------------------------------------------------------------
Bank Revolver @ LIBOR+1.00 6.03% 1998
--------------------------------------------------------------------- -----
---------------------------------------------------------------------
Bank Revolver @ LIBOR+2.00 7.03%
---------------------------------------------------------------------
<S> <C>
Beginning Cash Balance $0.0
Plus: Period Cash Flows
Cash Flow from Operating Activities (11.0)
Cash Flow form Investing Activities (8.4)
Cash Flow from Financing Activities (Excluding Bank Revolver) 0.0
Minimum Cash Balance (0.5)
------
Excess Cash / (Cash Deficit) ($19.9)
Beginning Balance $78.0
Borrowings / (Repayments) 19.9
------
Ending Balance $97.9
Interest Expense $1.5
----------------------------------------------------------------------
Bank Term Loan @ LIBOR+2.00 7.03%
----------------------------------------------------------------------
Beginning Balance $300.0
Mandatory Amortization 0.0
% of Original 0.0%
Optional Amortization 0.0
------
Ending Balance $300.0
Interest Expense $5.3
----------------------------------------------------------------------
Cash & Equivalents 4.50%
----------------------------------------------------------------------
Beginning Balance $0.0
Ending Balance 0.5
Interest Income on Cash Balances $0.0
</TABLE>
<TABLE>
<CAPTION>
Projected Fiscal Year
------------------------------------------------
---------------------------------------------------------------------
Bank Revolver @ LIBOR+1.00 6.03% 1999 2000 2001 2002 2003
--------------------------------------------------------------------- ----- ----- ----- ----- -----
---------------------------------------------------------------------
Bank Revolver @ LIBOR+2.00 7.03%
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Beginning Cash Balance $0.5 $0.5 $0.5 $0.5 $0.5
Plus: Period Cash Flows
Cash Flow from Operating Activities 50.7 51.8 58.1 64.5 74.8
Cash Flow form Investing Activities (20.0) (30.0) (50.0) (50.0) (20.0)
Cash Flow from Financing Activities (Excluding Bank Revolver) (17.5) (35.0) (35.0) (35.0) (52.5)
Minimum Cash Balance (0.5) (0.5) (0.5) (0.5) (0.5)
------ ------ ------ ------ ------
Excess Cash / (Cash Deficit) $13.2 ($13.2) ($26.9) ($20.5) $2.3
Beginning Balance $97.9 $84.7 $97.9 $124.8 $145.3
Borrowings / (Repayments) (13.2) 13.2 26.9 20.5 (2.3)
------ ------ ------ ------ ------
Ending Balance $84.7 $97.9 $124.8 $145.3 $142.9
Interest Expense $6.4 $6.4 $6.7 $8.1 $8.7
----------------------------------------------------------------------
Bank Term Loan @ LIBOR+2.00 7.03%
----------------------------------------------------------------------
Beginning Balance $300.0 $282.5 $247.5 $212.5 $177.5
Mandatory Amortization (17.5) (35.0) (35.0) (35.0) (52.5)
% of Original 5.8% 12.4% 14.1% 16.5% 29.6%
Optional Amortization 0.0 0.0 0.0 0.0 0.0
------ ------ ------ ------ ------
Ending Balance $282.5 $247.5 $212.5 $177.5 $125.0
Interest Expense $20.5 $18.6 $16.2 $13.7 $10.6
----------------------------------------------------------------------
Cash & Equivalents 4.50%
----------------------------------------------------------------------
Beginning Balance $0.5 $0.5 $0.5 $0.5 $0.5
Ending Balance 0.5 0.5 0.5 0.5 0.5
Interest Income on Cash Balances $0.0 $0.0 $0.0 $0.0 $0.0
</TABLE>
Page 8
Confidential
<PAGE> 54
BEAR STEARNS Project Boxer
BOXER DISCOUNTED CASH FLOW VALUATION MODEL (Management Case)
($ in millions, except per share data)
DEPRECIATION SCHEDULE
<TABLE>
<CAPTION>
Actual
Assumptions Nine Months Three Months
Years to Depreciate Existing Property, Plant & Equipment, Net 7 Ended Estimated
Years to Depreciate New Property, Plant & Equipment 17 10/31/98 1/31/99
<S> <C> <C> <C>
Beginning Property, Plant & Equipment, Net 77.1
1998 Capital Expenditures 20.0
1999 Capital Expenditures 20.0
2000 Capital Expenditures 30.0
2001 Capital Expenditures 50.0
2002 Capital Expenditures 50.0
2003 Capital Expenditures 20.0
Depreciation Add-Back(1)
Beginning Property, Plant & Equipment, Net $77.1 $80.0
Plus: Capital Expenditures 11.6 8.4
Less: Total Depreciation (8.7) (2.6)
----- -----
Period End Property, Plant & Equipment, Net $80.0 $85.9
----- -----
</TABLE>
<TABLE>
<CAPTION>
Assumptions Straight Line Depreciation
Years to Depreciate Existing Property, Plant & Equipment, Net Projected Fiscal Year
Years to Depreciate New Property, Plant & Equipment 1998 1999 2000 2001 2002 2003
<S> <C> <C> <C> <C> <C> <C>
Beginning Property, Plant & Equipment, Net $10.6 $10.6 $10.6 $10.6 $10.6 $10.6
1998 Capital Expenditures 0.6 1.2 1.2 1.2 1.2 1.2
1999 Capital Expenditures 0.6 1.2 1.2 1.2 1.2
2000 Capital Expenditures 0.9 1.8 1.8 1.8
2001 Capital Expenditures 1.5 3.0 3.0
2002 Capital Expenditures 1.5 3.0
2003 Capital Expenditures 0.6
Depreciation Add-Back(1) 0.3 1.5 3.3
Beginning Property, Plant & Equipment, Net $77.1 $85.9 $93.4 $109.8 $145.0 $179.0
Plus: Capital Expenditures 20.0 20.0 30.0 50.0 50.0 20.0
Less: Total Depreciation (11.2) (12.4) (13.6) (14.8) (16.0) (21.4)
----- ----- ------ ------ ------ ------
Period End Property, Plant & Equipment, Net $85.9 $93.4 $109.8 $145.0 $179.0 $177.6
----- ----- ------ ------ ------ ------
</TABLE>
AMORTIZATION SCHEDULE
<TABLE>
<CAPTION>
Actual
Assumption Nine Months Three Months
Years to Amortize Existing Itangibles 29 Ended Estimated
10/31/98 1/31/99
<S> <C> <C>
Intangibles
Beginning Balance $333.3 $323.7
Less: Total Amortization (9.6) (1.9)
------ ------
Ending Balance $323.7 $321.8
====== ======
</TABLE>
<TABLE>
<CAPTION>
Assumption Straight Line Amortization
Years to Amortize Existing Itangibles 29 Projected Fiscal Year
1998 1999 2000 2001 2002 2003
<S> <C> <C> <C> <C> <C> <C>
Intangibles
Beginning Balance $333.3 $321.8 $310.7 $300.0 $289.7 $279.7
Less: Total Amortization (11.5) (11.1) (10.7) (10.3) (10.0) (9.6)
------ ------ ------ ------ ------ ------
Ending Balance $321.8 $310.7 $300.0 $289.7 $279.7 $270.0
====== ====== ====== ====== ====== ======
</TABLE>
- ----------
(1) Capital Expenditure in excess of baseline $20 million per annum are
related to the building of a third distribution center. The resulting
depreciation will not be expensed until the facility is completed in 2003
and is therefore added back to depreciation expense for valuation
purposes.
Page 9
Confidential
<PAGE> 55
BEAR STEARNS Project Boxer
BOXER DISCOUNTED CASH FLOW VALUATION MODEL (Management Case)
($ in millions, except per share data)
COST OF EQUITY ANALYSIS
<TABLE>
<CAPTION>
Levered Book Value Market Value Debt/ Marginal
INDUSTRY COMPARABLES Beta(1) of Debt of Equity(1) Equity Tax Rate
------- ------- ------------ ------ --------
<S> <C> <C> <C> <C> <C>
Coldwater Creek 1.3 15.1 118.4 12.7% 35.0%
DM Management 1.3 32.9 162.4 20.3% 39.0%
Lands' End 0.8 256.6 913.8 28.1% 35.0%
Lillian Vernon 0.6 2.6 130.6 2.0% 34.0%
------ --------
$307.2 $1,325.2
BOXER ASSUMPTIONS
Industry Unlevered Beta 0.77
Boxer Debt $378.0
Boxer Equity 370.0
Boxer Marginal Corporate Tax Rate 38.5%
Boxer Levered Beta
1=BARRA Beta 1.35
2=Calculated Beta
MARKET RETURN ASSUMPTIONS
Risk Free Rate 5.44%
Market Risk Premium 7.80%
Small Capitalization Premium 1.70%
ESTIMATED COMPANY COST OF EQUITY (BASED ON CAPM) 17.7%
</TABLE>
<TABLE>
<CAPTION>
Unlevered Capitalization Industry
INDUSTRY COMPARABLES Beta Weight Unlevered Beta
---- ------ --------------
<S> <C> <C> <C>
Coldwater Creek 1.22 8.2% 0.10
DM Management 1.11 12.0% 0.13
Lands' End 0.68 71.7% 0.49
Lillian Vernon 0.62 8.2% 0.05
----- ----
100.0% 0.77
</TABLE>
WEIGHTED AVERAGE COST OF CAPITAL ANALYSIS
<TABLE>
<CAPTION> Current Capitalization
---------------------- Capital Tax After Tax Contribution
Value % of Total Cost Shield Capital Cost to WACC
----- ---------- ---- ------ ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Debt $378.0 50.5% 7.03% 38.5% 4.3% 2.2%
Stockholder's Equity 370.0 49.5% 17.7% 0.0% 17.7% 8.7%
------ ----- ----
Total Capitalization $748.0 100.0% 10.9% = WACC
</TABLE>
- --------------------
(1) As of 3/4/99
Page 10
Confidential
<PAGE> 56
Bear Stearns Project Boxer
BOXER DISCOUNTED CASH FLOW VALUATION MODEL (Management Case)
($ in millions, except per share data)
DISCOUNTED CASH FLOW ANALYSIS
WACC Based on CAPM Model 10.9%
WACC Used to Discount Cash Flows 10.9%
<TABLE>
<CAPTION>
NOMINAL CASH FLOWS TO THE UNLEVERED FIRM Projected Fiscal Year
1999 2000 2001
---- ---- ----
<S> <C> <C> <C> <C> <C>
$86.6 $98.6 $108.3
Operating Income (EBITA) 100.0% 100.0% 100.0%
% of Management Projections Realized
0.0 0.0 0.0
Additional Savings
4 1=Consolidated Data Center
2=Proprietary Credit Card
3=Both
4=None
86.6 98.6 108.3
Adjusted Operating Income (EBITA) (29.1) (33.9) (37.7)
------- ------- -------
Less: Income Taxes (@ 38.5%) $57.5 $64.8 $70.6
Unlevered Net Income
$12.4 $13.6 $14.8
Plus: Depreciation (20.0) (30.0) (50.0)
Less: Capital Expenditures (2.7) (11.2) (13.2)
------- ------- -------
Decrease / (Increase) in Working Capital $47.2 $37.2 $22.2
Unlevered Free Cash Flow
Terminal Cash Flow (Multiple of EBITDA) 7.0x
1 1=Current Multiple
2=Forward Multiple
Implied Growth Rate 4.1%
-----------------------------------------------------------------------------------------------------------------------
Nominal Period Cash Flows to the Unlevered Firm $47.2 $37.2 $22.2
-----------------------------------------------------------------------------------------------------------------------
Number of Periods to Discount Back Unlevered Free Cash Flow 1 2 3
-----------------------------------------------------------------------------------------------------------------------
Present Value of Period Cash Flows to the Unlevered Firm $42.6 $30.2 $16.2
-----------------------------------------------------------------------------------------------------------------------
PRESENT VALUE OF THE FIRM (ENTERPRISE VALUE) $756.4
------------------------------------------------------------------------------------
Plus: Cash 0.0
Less: Debt (378.0)
Plus: Options Outstanding 0.0
------------------------------------------------------------------------------------
PRESENT VALUE OF EQUITY $378.4
------------------------------------------------------------------------------------
Fully Diluted Shares Outstanding 17.3
------------------------------------------------------------------------------------
PRESENT VALUE OF EQUITY VALUE PER SHARE $21.92
------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NOMINAL CASH FLOWS TO THE UNLEVERED FIRM
2002 2003
---- ----
<S> <C> <C>
$117.5 $124.7
Operating Income (EBITA) 100.0% 100.0%
% of Management Projections Realized
0.0 0.0
Additional Savings
4 1=Consolidated Data Center
2=Proprietary Credit Card
3=Both
4=None
117.5 124.7
Adjusted Operating Income (EBITA) (41.4) (44.3)
------- ---------
Less: Income Taxes (@ 38.5%) $76.1 $80.4
Unlevered Net Income
$16.0 $21.4
Plus: Depreciation (50.0) (20.0)
Less: Capital Expenditures (14.1) (15.1)
------- ---------
Decrease / (Increase) in Working Capital $28.0 $66.7
Unlevered Free Cash Flow
---------
1,022.8
---------
Terminal Cash Flow (Multiple of EBITDA)
1 1=Current Multiple
2=Forward Multiple
Implied Growth Rate
------------------------------------------------------------------------------------
Nominal Period Cash Flows to the Unlevered Firm $28.0 $1,089.5
------------------------------------------------------------------------------------
Number of Periods to Discount Back Unlevered Free Cash Flow 4 5
------------------------------------------------------------------------------------
Present Value of Period Cash Flows to the Unlevered Firm $18.5 $648.8
------------------------------------------------------------------------------------
</TABLE>
Page 11
Confidential
<PAGE> 57
Bear Stearns
Project Boxer
BOXER DISCOUNTED CASH FLOW VALUATION MODEL (Management Case)
($ in millions, except per share data)
DISCOUNTED CASH FLOW ANALYSIS
SENSITIVITY: PRESENT VALUE OF 1999-2003 CASH FLOWS
<TABLE>
<CAPTION>
<S> <C> <C>
9.5% $153
10.0% 151
10.5% 149
Firm 11.0% 147
WACC 11.5% 145
12.0% 143
12.5% 141
13.0% 140
</TABLE>
SENSITIVITY: PRESENT VALUE OF TERMINAL VALUES
<TABLE>
<CAPTION>
Exit Multiple of EBITDA
-----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
6.0x 6.5x 7.0x 7.5x 8.0x 8.5x 9.0x
9.5% $557 $603 $650 $696 $743 $789 $835
10.0% 544 590 635 680 726 771 817
10.5% 532 577 621 665 710 754 798
Firm 11.0% 520 564 607 650 694 737 780
WACC 11.5% 509 551 594 636 678 721 763
12.0% 497 539 580 622 663 705 746
12.5% 487 527 568 608 649 689 730
13.0% 476 516 555 595 634 674 714
</TABLE>
SENSITIVITY: PRESENT VALUE OF ENTERPRISE VALUES
<TABLE>
<CAPTION>
Exit Multiple of EBITDA
-----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
6.0x 6.5x 7.0x 7.5x 8.0x 8.5x 9.0x
9.5% $710 $756 $803 $849 $895 $942 $988
10.0% 695 741 786 831 877 922 967
10.5% 681 725 770 814 858 903 947
Firm 11.0% 667 711 754 797 841 884 927
WACC 11.5% 654 696 739 781 823 866 908
12.0% 641 682 724 765 807 848 889
12.5% 628 668 709 750 790 831 871
13.0% 615 655 695 734 774 814 853
</TABLE>
Page 12
CONFIDENTIAL
<PAGE> 58
Bear Sterns Project Boxer
BOXER DISCOUNTED CASH FLOW VALUATION MODEL (Management Case)
($ in millions, except per share data)
DISCOUNTED CASH FLOW ANALYSIS
SENSITIVITY: PRESENT VALUE OF EQUITY VALUE
<TABLE>
<CAPTION>
Exit Multiple of EBITDA
----------------------------------------------------------
6.0x 6.5x 7.0x 7.5x 8.0x 8.5x 9.0x
<S> <C> <C> <C> <C> <C> <C> <C> <C>
9.5% $332 $378 $425 $471 $517 $564 $610
10.0% 317 363 408 453 499 544 589
10.5% 303 347 392 436 480 525 569
Firm 11.0% 289 333 376 419 463 506 549
WACC 11.5% 276 318 361 403 445 488 530
12.0% 263 304 346 387 429 470 511
12.5% 250 290 331 372 412 453 493
13.0% 237 277 317 356 396 436 475
</TABLE>
SENSITIVITY: PRESENT VALUE OF EQUITY VALUE PER SHARE
<TABLE>
<CAPTION>
Exit Multiple of EBITDA
----------------------------------------------------------------
6.0x 6.5x 7.0x 7.5x 8.0x 8.5x 9.0x
<S> <C> <C> <C> <C> <C> <C> <C> <C>
9.5% $19.22 $21.91 $24.60 $27.29 $29.98 $32.67 $35.36
10.0% 18.38 21.01 23.64 26.26 28.89 31.52 34.15
10.5% 17.56 20.13 22.70 25.27 27.84 30.40 32.97
Firm 11.0% 16.76 19.27 21.78 24.29 26.81 29.32 31.83
WACC 11.5% 15.98 18.43 20.89 23.35 25.80 28.26 30.72
12.0% 15.22 17.62 20.02 22.43 24.83 27.23 29.63
12.5% 14.48 16.83 19.18 21.53 23.88 26.22 28.57
13.0% 13.76 16.06 18.35 20.65 22.95 25.25 27.54
</TABLE>
SENSITIVITY: IMPLIED GROWTH RATE
<TABLE>
<CAPTION>
Exit Multiple of EBITDA
----------------------------------------------------------
6.0x 6.5x 7.0x 7.5x 8.0x 8.5x 9.0x
<S> <C> <C> <C> <C> <C> <C> <C> <C>
9.5% 1.8% 2.3% 2.8% 3.2% 3.6% 3.9% 4.2%
10.0% 2.2% 2.8% 3.3% 3.7% 4.1% 4.4% 4.7%
10.5% 2.7% 3.3% 3.7% 4.2% 4.5% 4.9% 5.2%
Firm 11.0% 3.2% 3.7% 4.2% 4.6% 5.0% 5.3% 5.6%
WACC 11.5% 3.6% 4.2% 4.7% 5.1% 5.5% 5.8% 6.1%
12.0% 4.1% 4.7% 5.1% 5.6% 6.0% 6.3% 6.6%
12.5% 4.5% 5.1% 5.6% 6.0% 6.4% 6.8% 7.1%
13.0% 5.0% 5.6% 6.1% 6.5% 6.9% 7.2% 7.5%
</TABLE>
Page 13
Confidential
<PAGE> 59
Bear Sterns Project Boxer
BOXER DISCOUNTED CASH FLOW VALUATION MODEL (Management Case)
($ in millions, except per share data)
DISCOUNTED CASH FLOW ANALYSIS
SENSITIVITY: PRESENT VALUE OF EQUITY VALUE REMAINING TO BE ACQUIRED BY PPR
<TABLE>
<CAPTION>
Exit Multiple of EBITDA
-----------------------
6.0x 6.5x 7.0x 7.5x 8.0x 8.5x 9.0x
<S> <C> <C> <C> <C> <C> <C> <C> <C>
9.5% $165.6 $188.7 $211.9 $235.0 $258.2 $281.3 $304.5
10.0% 158.3 180.9 203.6 226.2 248.8 271.5 294.1
10.5% 151.2 173.3 195.5 217.6 239.7 261.9 284.0
Firm 11.0% 144.3 166.0 187.6 209.2 230.9 252.5 274.1
WACC 11.5% 137.6 158.8 179.9 201.1 222.2 243.4 264.5
12.0% 131.1 151.8 172.5 193.1 213.8 234.5 255.2
12.5% 124.7 144.9 165.2 185.4 205.6 225.9 246.1
13.0% 118.5 138.3 158.1 177.9 197.7 217.4 237.2
</TABLE>
Page 14
Confidential
<PAGE> 60
APPENDIX B
WEIGHTED AVERAGE COST OF CAPITAL CALCULATION
<PAGE> 61
<TABLE>
<CAPTION>
COST OF EQUITY ANALYSIS
- ------------------------------------------------------------------------------------------------------------------------------------
Levered Book Value Market Value Debt/ Marginal Unlevered Capitalization Industry
INDUSTRY COMPARABLES Beta(1) of Debt of Equity(1) Equity Tax Rate Beta Weight Unlevered Beta
------- ---------- ------------ ------ --------- --------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Coldwater Creek 1.3 15.1 118.4 12.7% 35.0% 1.22 8.2% 0.10
DM Management 1.3 32.9 162.4 20.3% 39.0% 1.11 12.0% 0.13
Lands' End 0.8 256.6 913.8 28.1% 35.0% 0.68 71.7% 0.49
Lillian Vernon 0.6 2.6 130.6 2.0% 34.0% 0.62 8.2% 0.05
----- -------- ----- ----
$307.2 $1,325.2 100.0% 0.77
BOXER ASSUMPTIONS
Industry Unlevered Beta 0.77
Boxer Debt $378.0
Boxer Equity 370.0
Boxer Marginal Corporate Tax Rate 38.5%
Boxer Levered Beta
2 1=BARRA Beta
2=Calculated Beta 1.25
MARKET RETURN ASSUMPTIONS
Risk Free Rate 5.44%
Market Risk Premium 7.80%
Small Capitalization Premium 1.70%
ESTIMATED COMPANY COST OF EQUITY
(BASED ON CAPM) 16.9%
</TABLE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE COST OF CAPITAL ANALYSIS
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Current Capitalization
---------------------- Capital Tax After Tax Contribution
Value % of Total Cost Shield Capital Cost to WACC
----- ---------- -------- ------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Debt $378.0 50.5% 7.03% 38.5% 4.3% 2.2%
Stockholder's Equity 370.0 49.5% 16.9% 0.0% 16.9% 8.4%
------ ----- ------------
Total Capitalization $748.0 100.0% 10.5% = WACC
</TABLE>
- ---------------
(1) As of 3/4/99
<PAGE> 62
COST OF EQUITY ANALYSIS
<TABLE>
<CAPTION>
LEVERED BOOK VALUE MARKET VALUE DEBT/ MARGINAL UNLEVERED CAPITALIZATION INDUSTRY
INDUSTRY COMPARABLES BETA(1) OF DEBT OF EQUITY(1) EQUITY TAX RATE BETA WEIGHT UNLEVERED BETA
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Coldwater Creek 1.3 15.1 118.4 12.7% 35.0% 1.22 8.2% 0.10
DM Management 1.3 32.9 162.4 20.3% 39.0% 1.11 12.0% 0.13
Lands' End 0.8 256.6 913.8 28.1% 35.0% 0.68 71.7% 0.49
Lilian Vernon 0.6 2.6 130.6 2.0% 34.0% 0.62 8.2% 0.05
------ -------- ------ ----
$307.2 $1,325.2 100.0% 0.77
BOXER ASSUMPTIONS -------
Industry Unlevered Beta 0.77
-------
Boxer Debt $378.0
Boxer Equity 370.0
Boxer Marginal Corporate
Tax Rate 38.5%
Boxer Levered Beta -------
1 1=BARRA Beta 1.35
2=Calculated Beta -------
MARKET RETURN ASSUMPTIONS
Risk Free Rate 5.44%
Market Risk Premium 7.80%
Small Capitalization Premiums 1.70%
ESTIMATED COMPANY COST OF EQUITY -------
(BASED ON CAPM) 17.7%
-------
</TABLE>
WEIGHTED AVERAGE COST OF CAPITAL ANALYSIS
<TABLE>
<CAPTION>
CURRENT CAPITALIZATION
---------------------- CAPITAL TAX AFTER TAX CONTRIBUTION
VALUE % OF TOTAL COST SHIELD CAPITAL COST TO WACC
------ ---------- ------- ------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Debt $378.0 50.5% 7.03% 38.5% 4.3% 2.2%
Stockholder's Equity 370.0 49.5% 17.7% 0.0% 17.7% 8.7%
------ ---------- ------------------
Total Capitalization $748.0 100.0% 10.9% = WACC
------------------
</TABLE>
_________________
(1) As of 3/4/99
<PAGE> 63
APPENDIX C
STOCK PRICE SENSITIVITY ANALYSES
<PAGE> 64
Bear Sterns Project Boxer
STOCK PRICE SENSITIVITY ANALYSIS: ONE YEAR ANALYSIS
THE FOLLOWING TABLE SHOWS THE PRESENT VALUE TODAY OF BOXER'S PROJECTED STOCK
PRICE IN MARCH 2000 BASED ON CURRENT MANAGEMENT PROJECTIONS.
FY2000 ESTIMATE
- ------------------------------------------------ ----------------------------
FY2000 Management Projection $2.21
- ------------------------------------------------ ----------------------------
PRESENT VALUE TODAY
<TABLE>
<CAPTION>
REQUIRED RATE OF RETURN ON EQUITY
---------------------------------
15.0% 16.0% 17.0%
---- ---- ----
<S> <C> <C> <C> <C>
Forward 11.0x $21.14 $20.96 $20.78
P/E 12.0 23.06 22.86 22.67
Ratio 13.0 24.98 24.77 24.56
14.0 26.90 26.67 26.44
15.0 28.83 28.58 28.33
</TABLE>
28
CONFIDENTIAL
<PAGE> 65
Bear Stearns Project Boxer
STOCK PRICE SENSITIVITY ANALYSIS: TWO YEAR ANALYSIS
THE FOLLOWING TABLE SHOWS THE PRESENT VALUE TODAY OF BOXER'S PROJECTED STOCK
PRICE IN MARCH 2001 BASED ON CURRENT MANAGEMENT PROJECTIONS.
FY2001 ESTIMATE
- ------------------------------------------------ ----------------------------
FY2001 Management Projection $2.62
- ------------------------------------------------ ----------------------------
PRESENT VALUE TODAY
<TABLE>
<CAPTION>
REQUIRED RATE OF RETURN ON EQUITY
15.0% 16.0% 17.0%
----- ----- -----
<S> <C> <C> <C> <C>
Forward 11.0x $21.79 $21.42 $21.05
P/E 12.0 23.77 23.37 22.97
Ratio 13.0 25.75 25.31 24.88
14.0 27.74 27.26 26.80
15.0 29.72 29.21 28.71
</TABLE>
29
CONFIDENTIAL
<PAGE> 66
APPENDIX D
BOXER HISTORICAL TRADING MULTIPLES
<PAGE> 67
Bear Stearns Project Boxer
HISTORICAL FORWARD P / E MULTIPLES
BOXER HAS TRADED AT A DISCOUNT TO THE COMPARABLE GROUP.
[BAR GRAPHS COMPARING MONTHLY P / E MULTIPLES(1) FOR BOXER (MARKET PRICE),
COMPARABLE GROUP INDEX(3) AND BOXER (OFFER PRICE) - APRIL 1997 TO FEBRUARY 1999]
April 1997 - July 1998 - Boxer Average Discount (Pre-earnings drop): 15%
April 1997 - October 1998 - Boxer Average Discount (Including earnings drop)
(2): 20%
P/E Multiples of Boxer (Market Price) compared to Comparable Group Index (3)
April 1997: 84%
July 1997: 81%
October 1997: 89%
January 1998: 81%
April 1998: 99%
July 1998: 73%
October 1998: 58%
January 1999: 112%
February 1999: 104%
Source: I/B/E/S consensus earnings estimates.
(1) Based on forward year P / E ratios that consider consensus research
estimates currently available in period.
(2) Boxer's stock price fell sharply from $35.94 to $24.50 on August 19, 1998,
after the Company issued a warning relating to second half sales.
(3) Comparable Group Index is a harmonic mean of Coldwater Creek, DM Management,
Lands' End and Lillian Vernon.
(4) Boxer's implied P / E multiple calculated using a $24.50 offer price and
$1.70 1999 EPS estimate.
30
Confidential
<PAGE> 68
BEAR Project Boxer
STEARNS
HISTORICAL DISCOUNT TO COMPARABLE COMPANIES
BOXER HAS TRADED AT AN HISTORICAL P / E DISCOUNT TO ITS COMPARABLE GROUP OF
BETWEEN 15% AND 20%.
COMPARABLE GROUP MEAN(1) 13.5X
BOXER AVERAGE DISCOUNT (PRE-EARNINGS DROP) 15%
ADJUSTED P / E MULTIPLE 11.5X
1999 EPS $1.70
IMPLIED VALUE PER SHARE $19.55
BOXER AVERAGE DISCOUNT (INCLUDING EARNINGS DROP) 20%
ADJUSTED P / E MULTIPLE 10.8X
1999E EPS $1.70
IMPLIED VALUE PER SHARE $18.36
(1) Includes Coldwater Creek, DM Management, Land's End and Lillian Vernon.
Blair is excluded because its P / E multiple on current year's earnings is not
recorded on a historical basis by I/B/E/S.
31
CONFIDENTIAL
<PAGE> 1
Exhibit (b)(3)
March 4, 1999 Highly Confidential
- -------------------------------------------------------------------------------
PROJECT CATALOG
PRESENTATION TO THE SPECIAL COMMITTEE OF THE BOARD
OF DIRECTORS
<PAGE> 2
Highly Confidential
DISCUSSION OUTLINE
- --------------------------------------------------------------------------------
- - STRATEGIC AND OPERATING ISSUES
- - Brylane forecast overview
- - Valuation implications
- - Appendix
1
<PAGE> 3
Highly Confidential
THERE ARE SEVERAL CHARACTERISTICS UNIQUE TO CATALOG CLOTHING RETAILERS THAT
RENDER THE BUSINESS INHERENTLY DIFFICULT TO PREDICT
- --------------------------------------------------------------------------------
- - "Fashion content" of apparel, for example:
- Style
- Types of products (blouse versus suit tops)
- Fabric
- Printed versus plain colors
- - Weather dependency of apparel
- Prolonged seasons
- Unusually extreme conditions
- - Dependency on strong sales performance of a few key items (Chadwick's)
- - Lead time associated with catalog production/merchandise procurement
- Reduces ability to react to merchandising and pricing issues in a timely
manner
2
<PAGE> 4
Highly Confidential
BRYLANE'S ABILITY TO QUICKLY AND SUSTAINABLY REVERSE CURRENT PERFORMANCE TRENDS
IS YET TO BE DEMONSTRATED
- -------------------------------------------------------------------------------
- - FY98 operating performance below expectations
- FY98 actual earnings approximately 23% below current Street estimates
notwithstanding 57% downward revision in analyst earnings estimates since
August of 1998
- - The operating performance of the West Bridgewater division in the second
half of FY98 is of particular concern
- Average revenue per order on customer sales off over 20% from the prior year
- Response rates on customer sales, reactivations and prospects off 9%, 22%
and 17% over prior year, respectively
- Gross margin (before inventory adjustment) of 44.1% compared to 46.3% in
2H97
- Operating income (before inventory adjustment) of $(1.5)MM compared to
$32.5MM one year prior
- - Stable, but low, single-digit growth in special size catalogs compared to
initial double-digit projections
- - Brylane management's characterization of increasing competition in core
markets and overall catalog sector
3
<PAGE> 5
Highly Confidential
BRYLANE'S ABILITY TO QUICKLY AND SUSTAINABLY REVERSE CURRENT
PERFORMANCE TRENDS IS YET TO BE DEMONSTRATED (CONT'D)
- -------------------------------------------------------------------------------
- - Brylane management's FY99 Budget assumed an extremely rapid recovery from
FY98's poor performance even though the same challenges persist
- FY99 operating profit was projected to grow 24% over (pre-reserve) FY98
levels
- West Bridgewater operating profit was projected to grow 61% over
(pre-reserve) FY98 levels
- - Management has since revised the FY99 Budget
- EBITDA lowered by 13%, or $14.8 million, to $98.7 million
- EPS revised downward by 26% to $1.70 from $2.29
4
<PAGE> 6
Highly Confidential
KEY DRIVERS OF BRYLANE MANAGEMENT'S FY99 BUDGET
WERE AGGRESSIVE
- -------------------------------------------------------------------------------
- - Year-over-year growth in response rates at key catalogs
- Brylane's larger divisions were projected to increase response rates
significantly
- FY99 response rates were projected to exceed the record FY97 results
- - Gross margin improvement given an aggressive pricing policy
- In most cases, FY99 margins were projected to be ahead of those in the prior
two years
- Overall average revenue per order was projected to decline by 1.3% in FY99,
with West Bridgewater declining by over 2.5%
- - Decrease in prospecting expenditures likely would have impacted revenues
beyond FY99
- Number of prospecting books mailed at Brylane's larger divisions was
projected to be considerably lower in FY99 than in either of the prior two
years
- - Problems with order fulfillment at West Bridgewater are expected to take two
years to turn around
- - An incremental $70MM of capital expenditures is expected to be incurred in
FY00 through FY02
5
<PAGE> 7
Highly Confidential
MANAGEMENT HAS DECIDED TO IMPLEMENT MATERIAL AND
HENCE, RISKY CHANGES
- --------------------------------------------------------------------------------
- - Chadwick's initiatives:
- Addressing logistics issues under leadership of new management
- Repositioning merchandise offerings ("softer merchandising offer")
- Changing pricing policy for key products going forward
- Implementing new, more cost-efficient sourcing policy
- Developing new graphics for catalog
- Increasing length of distribution schedule for catalog (three weeks
instead of one)
- - Lerner initiatives
- Turnover of 50% of current merchandising and purchasing team
- - Overall portfolio initiatives
- Change in catalog distribution policy (short-term versus long-term
consequences)
- Inception of new catalogs (Brylane Home, La Redoute)
6
<PAGE> 8
Highly Confidential
THESE CHANGES WILL BE IMPLEMENTED IN THE CONTEXT OF INCREASING COMPETITION
- --------------------------------------------------------------------------------
- - Larger department stores continue to enter the mail order business through
internal investment, and through acquisitions (e.g. Federated acquisition of
FingerHut)
- - Increased emphasis on higher "fashion-content" for traditional department
stores, as well as renewed focus on special size category (Sears, JCPenney)
- - Availability of cheaper sourcing from Far Eastern suppliers is likely to
result in increased price competition
7
<PAGE> 9
Highly Confidential
BRYLANE'S LACK OF OPERATING HISTORY WITH THE
CHADWICK'S BUSINESS WILL ALSO PROVE CHALLENGING
- --------------------------------------------------------------------------------
- - Acquired in 4Q1996
- - Managed with significant autonomy since acquisition
- - Unlike its operating experience with other catalogs, Brylane's management has
never experienced a downturn in the Chadwick's business
- - Resignation of Carol Meyrowitz further increases the near-term merchandising
challenge of the Chadwick's recovery
8
<PAGE> 10
Highly Confidential
TODAY, BRYLANE IS MORE DEPENDENT ON ITS
TRADITIONAL CATALOGS AND SEARS BOOKS
- --------------------------------------------------------------------------------
- - Portfolio is weighted heavily towards its traditional catalogs
- 1998 sales: 52% traditional(1) versus 48% specialty(2)
- 1998 operating profit: 76% traditional(1) versus 24% specialty(2)
- - The short-term nature of the company's contract with Sears represents a
considerable risk
- Accounted for approximately 18.7% and 11.5% of 2H98 and FY98 operating
profit, respectively
- Projected to account for 12.2% of FY99 operating profit
- - Ability to pursue organic Internet-related strategy is limited in the
short-term
- Target customers in traditional markets unlikely to have widespread access
to the Internet
- License to conduct commerce on the Web through Lane Bryant and Lerner trade
names does not provide for exclusivity
(1) Includes Lane Bryant, Roamans, Lerner, Sears and King Size businesses
(2) Includes West Bridgewater, Gramercy Home, and Brett businesses
9
<PAGE> 11
Highly Confidential
LONGER-TERM CHALLENGES ALSO CREATE ADDITIONAL
UNCERTAINTY IN BRYLANE'S BUSINESS PROSPECTS
- -------------------------------------------------------------------------------
- - Expiration of key Lane Bryant and Lerner trademarks in October of 2007 will
necessitate higher advertising expenditures in order to maintain response
rates
- - Lane Bryant, in particular, has a strong brand image in the market place
- - Increasing focus on direct mail and large-size apparel exhibited by leading
department stores and other specialty chains
- - Succession planning for key senior management
10
<PAGE> 12
Highly Confidential
DISCUSSION OUTLINE
- -------------------------------------------------------------------------------
- - Strategic and operating issues
- - BRYLANE FORECAST OVERVIEW
- - Valuation implications
- - Appendix
11
<PAGE> 13
Highly Confidential
BRYLANE MANAGEMENT'S CURRENT PROJECTIONS ARE
SIMILAR TO PPR'S "OPTIMISTIC" CASE
- --------------------------------------------------------------------------------
[Bar graphs showing EBITDA ($ millions) for FY99, FY00
and FY01]
<TABLE>
<CAPTION>
FY99 FY00 FY01
<S> <C> <C>
PPR downside: $85 PPR downside: $87 PPR downside: $95
PPR base: $94 PPR base: $104 PPR base: $110
Management current: $99 PPR optimistic: $111 PPR optimistic: $119
PPR optimistic: $103 Management current: $111 Management current: $121
Management Budget: $114 Management Budget: $122 Management Budget: $133
</TABLE>
[Bar graphs showing EPS ($ per share) for FY99, FY00
and FY01]
<TABLE>
<CAPTION>
FY99 FY00 FY01
<S> <C> <C>
PPR downside: $1.15 PPR downside: $1.21 PPR downside: $1.44
PPR base: $1.49 PPR base: $1.90 PPR base: $2.08
Management current: $1.70 PPR optimistic: $2.19 PPR optimistic: $2.44
PPR optimistic: $1.82 Management current: $2.21 Management current: $2.62
Management Budget: $2.29 Management Budget: $2.65 Management Budget: $3.08
</TABLE>
12
<PAGE> 14
Highly Confidential
PPR MADE SLIGHT ADJUSTMENTS TO BRYLANE MANAGEMENT'S FY99 BUDGET TO ARRIVE AT
ITS FY99 BASE FORECAST
- --------------------------------------------------------------------------------
- - Response rates at West Bridgewater and Lerner reduced by 0.159% and 0.075%,
respectively
- - Gross margin reduced by 0.6%
- - Advertising expense and support service expense held constant
- - Fulfillment expense at West Bridgewater and Lerner decreased by $1.3MM and
$0.2MM respectively
- - Net differential in management vs. PPR base:
<TABLE>
<CAPTION>
$ MILLIONS MANAGEMENT PPR DIFFERENCE % DIFFERENCE
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $1,389 $1,362 $27 (1.9%)
Gross profit 678 657 21 (3.1%)
Operating profit 101 82 19 (18.8%)
- -----------------------------------------------------------------------------
</TABLE>
13
<PAGE> 15
Highly Confidential
DISCUSSION OUTLINE
- --------------------------------------------------------------------------------
- - Strategic and operating issues
- - Brylane forecast overview
- - VALUATION IMPLICATIONS
- - Appendix
14
<PAGE> 16
Highly Confidential
MARKET REACTION TO PPR'S OFFER HAS BEEN MODEST
- --------------------------------------------------------------------------------
$ PER SHARE
[Graph plotting the following share price data:]
Pre-announcement (12/1) 30-day trading range: $11.13-$18.50
Closing price 1 week prior to announcement: $12.69
Offer price $20.00
Post-offer trading range: $21.44-$23.38
Current price (3/2/99): $21.56
15
<PAGE> 17
Highly Confidential
BRYLANE'S POOR STOCK PRICE PERFORMANCE IS A FUNCTION OF LOWER ANALYST EPS
ESTIMATES AND SIGNIFICANT MULTIPLE CONTRACTION
- --------------------------------------------------------------------------------
[Graph comparing 12-month [Graph comparing 12-month
forward EPS estimates (Rebased forward P/E ratios for Non-
to $1.00) for Non-Internet biased Internet biased peers (1) and
peers (1) and Brylane] Brylane]
<TABLE>
<CAPTION>
<S> <C> <C> <C>
% change in % change in
Company/index estimates Company/index multiples
- ------------- ----------- ------------- -----------
Non-Internet 33.4% Non-Internet (29.3%)
biased peers (1) biased peers (1)
Button (48.3%) Button (14.8%)
</TABLE>
(1) Equal-weighted index includes Coldwater Creek, DM Management, Lillian
Vernon, and Talbots
Source: I/B/E/S
16
<PAGE> 18
Highly Confidential
CONVINCING ANALYSTS TO REVISE ESTIMATES UPWARD IN THE FACE OF RECENT HISTORY
AND NEWS TO COME MAY BE DIFFICULT
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
MEDIAN EPS ESTIMATES
$ PER SHARE FY98 % CHANGE FY99 % CHANGE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MAY-98 $3.27 $3.86
JUN-98 3.28 0.3% 3.86 0.0%
JUL-98 3.28 0.0 3.84 (0.5)
AUG-98 3.27 (0.3) 3.80 (1.0)
SEP-98 3.10 (5.2) 3.61 (5.0)
OCT-98 2.07 (33.2) 2.55 (29.4)
NOV-98 1.39 (32.9) 1.70 (33.3)
DEC-98 1.39 0.0 1.70 0.0
JAN-99 1.39 0.0 1.68 (1.2)
CURRENT "STREET" ESTIMATES $1.39 0.0% $1.67 (0.6%)
- --------------------------------------------------------------------------------
ACTUAL (PRE-RESERVE) $1.25 (10.1%)
ACTUAL (POST-RESERVE) $1.07 (23.0%)
MANAGEMENT BUDGET $2.29
CURRENT MANAGEMENT PROJECTION $1.70
PPR BASE CASE $1.49
- --------------------------------------------------------------------------------
</TABLE>
Source: I/B/E/S estimates
17
<PAGE> 19
Highly Confidential
Brylane has historically traded at a discount to other
catalog retailers
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
[Graph comparing Historical 12-month - Higher equity risk resulting from
forward P/E for Non-Internet biased substantial financial leverage
peers (1), Comprehensive peers (2),
and Brylane] - Lower growth profile
Avg. discount to: - Trademark expiration and lack of
- ---------------- control over use of traditional Lane
Non-internet biased peers (1) (35%) Bryant and Lerner brands by the
Comprehensive peers (2) (25%) Limited
(1) Consists of Lillian Vernon, Talbots, Coldwater Creek, and DM Management
(2) Consists of Lillian Vernon, Talbots, Coldwater Creek, DM Management, Intimate Brands, Spiegel, Land's End, and Delia's
</TABLE>
18
<PAGE> 20
Highly Confidential
COMPARABLE P/E BASED VALUATION SHOULD REFLECT BRYLANE'S
HISTORICAL TRADING DISCOUNT RELATIVE TO ITS PEERS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BRYLANE CURRENT
MANAGEMENT MANAGEMENT PPR BASE
FY99 BUDGET PROJECTION "STREET" CASE
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Current 1999 EPS estimates $2.29 $1.70 $1.67 $1.49
Direct mail peers P/E(1) 17.7x 17.7x 17.7x 17.7x
Historical discount 35% 35% 35% 35%
Adjusted P/E 11.5x 11.5x 11.5x 11.5x
- -----------------------------------------------------------------------------------------------
VALUE PER SHARE $26.35 $19.56 $19.21 $17.14
- -----------------------------------------------------------------------------------------------
Non-Internet biased peers P/E(2) 14.1x 14.1x 14.1x 14.1x
Historical discount 25% 25% 25% 25%
Adjusted P/E 10.6x 10.6x 10.6x 10.6x
- -----------------------------------------------------------------------------------------------
VALUE PER SHARE $24.22 $17.98 $17.66 $15.76
- -----------------------------------------------------------------------------------------------
</TABLE>
(1) Consists of Lillian Vernon, Talbots, Coldwater Creek, DM Management,
Intimate Brands, Spiegel, Land's End, and Delias
(2) Consists of Lillian Vernon, Talbots, Coldwater Creek, and DM Management
19
<PAGE> 21
Highly Confidential
VALUATION IMPLICATIONS
- -------------------------------------------------------------------------------
$ PER SHARE
<TABLE>
<CAPTION>
IMPLIED MULTIPLES:
---------------------------------
DCF ANALYSIS VALUE(1) FV/1999E EBITDA FV/1999E EBIT
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
PPR base case $16.36 7.0x 9.3x
Current management projection $22.62 7.7x 10.2x
- -------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MEDIAN COMPARABLE MULITIPLES(2): IMPLIED VALUE:
COMPARABLE TRADING --------------------------------- -------------------------------------
MULTIPLES ANALYSIS FV/1999E EBITDA FV/1999E EBIT FV/1999E EBITDA FV/1999E EBIT
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PPR base case 7.0x 9.7x $16.36 $17.78
Current management projection 7.0x 9.7x $18.25 $20.39
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Assumes WACC of 10.0% and terminal period sales growth of 1.5%
(2) Based on median multiples for the peer group consisting of Lillian Vernon,
Talbots, Coldwater Creek, and DM Management
Note: Equity values derived from firm value metrics assuming net debt of $372
million and fully diluted shares of 17.3 million
20
<PAGE> 22
Highly Confidential
DCF SENSITIVITY ANALYSIS
- -------------------------------------------------------------------------------
$ per share
<TABLE>
<CAPTION>
PPR BASE CASE CURRENT MANAGEMENT PROJECTION
SALES GROWTH 1.00% 1.50% 2.00% SALES GROWTH 1.00% 1.50% 2.00%
- ---------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
WACC WACC
10.0% $15.18 $16.36 $17.68 10.0% $21.16 $22.62 $24.28
10.5% $13.10 $14.11 $15.24 10.5% $18.71 $19.98 $21.40
11.0% $11.23 $12.10 $13.07 11.0% $16.52 $17.62 $18.84
- ---------------------------------------- ----------------------------------------
</TABLE>
Note: Equity values derived from firm value metrics assuming net debt of $372
million and fully diluted shares of 17.3 million
21
<PAGE> 23
Highly Confidential
COMPARABLE COMPANY TRADING MULTIPLES ANALYSIS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FV/99E FV/99E EV/99E LONG-TERM NET DEBT/
EBITDA EBIT NET INCOME GROWTH FIRM VALUE
<S> <C> <C> <C> <C> <C>
Coldwater Creek 4.8x 6.1x 9.5x 23.0% 11.5%
DM Management 8.1 9.7 14.0 25.0 9.4
Lillian Vernon 6.7 9.6 14.3 20.0 0.8
The Talbots 7.3 11.3 18.1 15.0 12.0
MEDIAN 7.0x 9.7x 14.1x 21.5% 10.5%
BRYLANE FINANCIALS ($MM)
PPR base case $94.0 $70.5 $25.7
Current management projection 98.7 75.2 29.3
IMPLIED VALUE FOR BRYLANE SHARES(1)
PPR base case $16.36 $17.78 $20.87
Current management projection 18.25 20.39 23.74
- ------------------------------------------------------------------------------------------
</TABLE>
- - DIFFERENTIAL IN LEVERAGE/FINANCIAL RISK AT BRYLANE RELATIVE TO PEER GROUP
RESULTS IN LACK OF COMPARABILITY IN APPLYING P/E MULTIPLES TO BRYLANE
EARNINGS
(1) Based on median multiple of selected peer group
Note: As of 3/2/99. Equity values derived from firm value metrics assuming net
debt of $372 million and fully diluted shares of 17.3 million
22
<PAGE> 24
Highly Confidential
GIVEN BRYLANE'S LACK OF EARNINGS VISIBILITY, HIGH LEVEL OF
OPERATING RISK AND INCREASING LEVEL OF COMPETITION, ANY VIEW OF
FUTURE POTENTIAL SHOULD BE COMPARED AGAINST TODAY'S $20 OFFER
<TABLE>
- -------------------------------------------------------------------------------------------------------------
Present value analysis
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PPR offer price $20.00
Potential share price in two years $16.00 $18.00 $20.00 $22.00 $24.00 $26.00 $28.00 $30.00
PV of future share price(1) $13.09 $14.72 $16.36 $17.99 $19.63 $21.26 $22.90 $24.54
% (discount)/premium offer (34.6%) (26.4%) (18.2%) (10.0%) (1.9%) 6.3% 14.5% 22.7%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Assumes discount rate of 11%
23
<PAGE> 25
Highly Confidential
DISCUSSION OUTLINE
- -------------------------------------------------------------------
. STRATEGIC AND OPERATING ISSUES
. BRYLANE FORECAST OVERVIEW
. VALUATION IMPLICATIONS
- --------------------------------------------------------------------
. APPENDIX
- --------------------------------------------------------------------
24
<PAGE> 26
Highly Confidential
<TABLE>
SELECTED COMPARABLE PUBLICLY TRADED COMPANIES
- -----------------------------------------------------------------------------------------------------------------------------------
MARKET FIRM LTM EBITDA EBIT
COMPANY DESCRIPTION CAP VALUE SALES MARGIN MARGIN
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Coldwater Creek Specialty direct-mail retailer $112 $127 $318 7.4% 5.9%
of apparel, gifts, jewelry and
home furnishings; select number
of company retail stores
DM Management Specialty direct marketer of high 140 155 219 7.1% 6.1%
quality women's apparel, accessories,
shoes, and gifts; markets its products
through the J. Jill and Nicole Summers
catalogs
Lillian Vernon Direct-mail specialty catalog marketer 129 130 266 5.4% 3.5%
of household, gift, gardening, kitchen,
Christmas and children's products
The Talbots Leading specialty retailer and cataloger 795 903 1,119 6.9% 3.4%
of women's and children's classic apparel,
shoes, and accessories; operates in over
600 stores in the U.S., Canada and U.K.
</TABLE>
25
<PAGE> 1
Exhibit (b)(4)
February 22, 1999 Highly Confidential
- ---------------------------------------------------------------
PROJECT CATALOG
SUMMARY OF BRYLANE ANALYSIS
BY PINAULT-PRINTEMPS-REDOUTE
JP MORGAN
<PAGE> 2
The information in this presentation is based upon Brylane and PPR management
forecasts and reflects prevailing conditions and our views as of this date, all
of which are accordingly subject to change. In preparing this presentation, we
have relied upon and assumed, without independent verification, the accuracy
and completeness of all information available from public sources or which was
provided to us by or on behalf of Brylane or PPR or which was otherwise
reviewed by us. In addition, our analyses are not and do not purport to be
appraisals of the assets, stock, or business of Brylane. This presentation is
incomplete without reference to, and should be viewed solely in conjunction
with, the oral briefing provided by J.P. Morgan. Neither this presentation nor
any of its contents may be used for any other purpose without the prior written
consent of J.P. Morgan.
JPMORGAN
<PAGE> 3
Highly Confidential
DISCUSSION OUTLINE
- --------------------------------------------------------------------------------
- - PPR HAS REFINED ITS ANALYSIS FOLLOWING DISCUSSIONS WITH BRYLANE MANAGEMENT
- - Valuation implications
JPMORGAN
1
<PAGE> 4
Highly Confidential
STRATEGIC CONCERNS
- --------------------------------------------------------------------------------
- - FY98 operating performance below expectations
- FY98 actual earnings approximately 25% below current Street estimates
notwithstanding 58% downward revision in analyst earnings estimates since
August of 1998
- - Brylane management projects extremely rapid recovery from the challenges that
Brylane faced in FY98
- FY99 operating profit is forecast to grow 24% over (pre-reserve) FY98 levels
- West Bridgewater operating profit is forecast to grow 61% over (pre-reserve)
FY98 levels
- - Apparent acknowledgment by some senior Brylane management of risks inherent in
FY99 budget
- 50% probability of achieving budget
- - Higher capital expenditure requirements in FY00 through FY02
- - Brylane management's characterization of increasing competition in core
markets
JPMorgan
2
<PAGE> 5
Highly Confidential
OPERATING RISKS
- --------------------------------------------------------------------------------
- - The operating performance of the West Bridgewater division in the second
half of FY98 is of particular concern
- Average revenue per order on customer sales off over 20% from the
prior year
- Response rates on customer sales, reactivations and prospects off 9%, 22%
and 17% over prior year, respectively
- Gross margin (before inventory adjustment) of 44.1% compared to 46.3% in
2H97
- Operating income (before inventory adjustment) of $(1.5)MM compared to
$32.5MM one year prior
- - The short-term nature of the company's contract with Sears represents a
considerable risk
- Accounts for approximately 18.7% of 2H98 operating profit and 11.5% of FY98
operating profit
JPMorgan 3
<PAGE> 6
HIGHLY CONFIDENTIAL
KEY DRIVERS OF BRYLANE MANAGEMENT FORECAST ARE AGGRESSIVE ...
________________________________________________________________________________
- - Year-over-year growth in response rates at key catalogs
- Brylane's larger divisions are forecast to increase response rates
significantly
- FY99 response rates are forecast to exceed the record FY97 results
- - Gross margin improvement given an aggressive pricing policy
- In most cases, FY99 margins are ahead of those in the prior two years
- Overall average revenue per order declines by 1.3% in FY99, with West
Bridgewater declining by over 2.5%
- - Decreases in prospecting expenditures are likely to impact revenues
beyond FY99
- Number of prospecting books mailed at Brylane's larger divisions are
forecast to be considerably lower in FY99 than either of the prior two
years
- - Problems with order fulfillment are expected to take two years to turn around
- - An incremental $70MM of capital expenditures is expected to be incurred in
FY00 through FY02
4
JPMorgan
<PAGE> 7
HIGHLY CONFIDENTIAL
...AS EVIDENCED BY THE VIEWS OF STREET ANALYSTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FISCAL YEAR
------------------------------------------------
MEDIAN EPS ESTIMATES
$ PER SHARE 1998 1999
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
May-98 $3.27 $3.86
Jun-98 3.28 3.86
Jul-98 3.28 3.84
Aug-98 3.27 3.80
Sep-98 3.10 3.61
Oct-98 2.07 2.55
Nov-98 1.39 1.70
Dec-98 1.39 1.70
Jan-99 1.39 1.68
CURRENT $1.39 $1.67
ACTUAL PRE-RESERVE $1.25
ACTUAL POST-RESERVE $1.07
MANAGEMENT FORECAST $2.29
PPR BASE CASE $1.49
- ---------------------------------------------------------------------------------------------
</TABLE>
JPMORGAN
Source: IBES estimates
5
<PAGE> 8
Highly Confidential
PPR HAS DEVELOPED ITS VIEW OF BRYLANE'S BUSINESS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Projected Fiscal Year
-------------------------------------------------------------
$ millions 1999 2000 2001 2002 2003 CAGR
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PPR BASE CASE
Revenues $1,362 $1,409 $1,452 $1,495 $1,540 3.1%
% growth 2.5% 3.5% 3.0% 3.0% 3.0%
Gross profit $657 $679 $696 $714 $736 2.9%
% margin 48.2% 48.2% 48.0% 47.8% 47.8%
EBITDA $94 $104 $110 $114 $118 5.8%
% margin 6.9% 7.4% 7.6% 7.7% 7.7%
Operating profit(1) $82 $91 $94 $94 $97 4.4%
% margin 6.0% 6.4% 6.5% 6.3% 6.3%
Capex $20 $30 $50 $50 $20
$ revenue 1.5% 2.1% 3.4% 3.3% 1.3%
BRYLANE MANAGEMENT CASE
Revenues $1,389 $1,479 $1,590 $1,670 $1,753 6.0%
% growth 4.6% 6.5% 7.5% 5.0% 5.0%
Gross profit $678 $718 $769 $804 $845 5.7%
% margin 48.8% 48.5% 48.3% 48.2% 48.2%
EBITDA $113 $122 $133 $140 $147 6.7%
% margin 8.2% 8.3% 8.4% 8.4% 8.4%
Operating profit(1) $101 $109 $117 $120 $126 5.7%
% margin 7.3% 7.4% 7.3% 7.2% 7.2%
Capex $20 $30 $50 $50 $20
% revenue 1.4% 2.0% 3.1% 3.0% 1.1%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Before amortization expense (EBITA)
6
JPMorgan
<PAGE> 9
Highly Confidential
LONGER-TERM CHALLENGES CREATE ADDITIONAL UNCERTAINTY
IN BRYLANE'S BUSINESS PROSPECTS...
- -------------------------------------------------------------------------------
- - Expiration of key trademarks in October of '07 will necessitate higher
advertising expenditures in order to maintain response rates
- - Increasing competition in Brylane's core markets
- - CEO succession planning
JPMORGAN
7
<PAGE> 10
HIGHLY CONFIDENTIAL
... RESULTING IN THE EVALUATION OF DOWNSIDE AND UPSIDE FORECASTS FOR BRYLANE
<TABLE>
<CAPTION>
________________________________________________________________________________
$ MILLIONS PROJECTED FISCAL YEAR
_________________________________________________________
1999 2000 2001 2002 2003 CAGR
________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
DOWNSIDE CASE
Revenues $1,328 $1,348 $1,375 $1,403 $1,431 1.9%
% growth 0.0% 1.5% 2.0% 2.0% 2.0%
Gross profit $638 $646 $656 $666 $680 1.6%
% margin 48.0% 47.9% 47.7% 47.5% 47.5%
EBITDA $85 $87 $95 $98 $100 4.0%
% margin 6.4% 6.4% 6.9% 7.0% 7.0%
Operating profit $73 $73 $79 $77 $79 1.9%
% margin 5.5% 5.4% 5.7% 5.5% 5.5%
Capex $20 $30 $50 $50 $20
% margin 1.5% 2.2% 3.6% 3.6% 1.4%
OPTIMISTIC CASE
Revenues $1,388 $1,465 $1,523 $1,584 $1,647 4.4%
% growth 4.5% 5.5% 4.0% 4.0% 4.0%
Gross profit $678 $711 $736 $763 $794 4.0%
% margin 48.8% 48.5% 48.3% 48.2% 48.2%
EBITDA $103 $111 $119 $124 $129 6.0%
% margin 7.4% 7.6% 7.8% 7.9% 7.8%
Operating profit $90 $98 $103 $104 $108 4.7%
% margin 6.5% 6.7% 6.7% 6.6% 6.6%
Capex $20 $30 $50 $50 $20
% revenue 1.4% 2.0% 3.3% 3.2% 1.2%
________________________________________________________________________________
</TABLE>
(1) Before amortization expense (EBITA)
JPMorgan
8
<PAGE> 11
Highly Confidential
DISCUSSION OUTLINE
- --------------------------------------------------------------------------------
- - PPR has refined its analysis following discussions with Brylane management
- - VALUATION IMPLICATIONS
JPMORGAN
9
<PAGE> 12
Highly Confidential
VALUATION IMPLICATIONS
- -------------------------------------------------------------------------------
$ PER SHARE
<TABLE>
<CAPTION>
IMPLIED MULTIPLES:
---------------------------------
DCF ANALYSIS VALUE(1) FV/1999E EBITDA FV/1999E EBIT
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Base $16.36 7.0x 9.3x
Downside $10.26 6.4x 8.9x
Optimistic $21.87 7.3x 9.5x
- -------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MEDIAN COMPARABLE MULTIPLES(2): IMPLIED VALUE:
COMPARABLE TRADING --------------------------------- ---------------------------------
MULTIPLES ANALYSIS FV/1999E EBITDA FV/1999E EBIT FV/1999E EBITDA FV/1999E EBIT
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Base 6.3x 9.0x $12.88 $15.07
Downside 6.3x 9.0x $9.74 $10.60
Optimistic 6.3x 9.0x $16.00 $19.48
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) Assumes WACC of 10.0% and terminal period sales growth of 1.5%
(2) Based on median multiples for the peer group consisting of Lillian Vernon,
Talbots, Coldwater Creek, and DM Management
Note: Equity values derived from firm value metrics assuming net debt of $372
million and fully diluted shares of 17.3 million
JPMorgan
10
<PAGE> 13
HIGHLY CONFIDENTIAL
DCF SENSITIVITY ANALYSIS
- --------------------------------------------------------------------------------
$ PER SHARE
<TABLE>
<CAPTION>
BASE CASE
Sales growth 1.00% 1.50% 2.00%
- --------------------------------------------------------
<S> <C> <C> <C>
WACC
10.0% $15.18 $16.36 $17.68
10.5% $13.10 $14.11 $15.24
11.0% $11.23 $12.10 $13.07
- --------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DOWNSIDE CASE OPTIMISTIC CASE
Sales growth 1.00% 1.50% 2.00% Sales growth 1.00% 1.50% 2.00%
- ------------------------------------------------------- -------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
WACC WACC
10.0% $9.32 $10.26 $11.32 10.0% $20.44 $21.87 $23.48
10.5% $7.54 $ 8.35 $ 9.25 10.5% $18.04 $19.28 $20.66
11.0% $5.95 $ 6.64 $ 7.41 11.0% $15.89 $16.96 $18.15
- ------------------------------------------------------- -------------------------------------------------------
</TABLE>
Note: Equity values derived from firm value metrics assuming net debt of $372
million and fully diluted shares of 17.3 million
JP MORGAN
11
<PAGE> 14
Highly Confidential
Comparable company trading multiples analysis
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
FV/99E FV/99E EV/99E Long-term Net debt
EBITDA EBIT net income growth firm value(1)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Coldwater Creek 4.8x 6.1x 9.4x 22.5% 10.8%
DM Management 9.0 10.8 15.6 25.0 8.5
Lillian Vernon 5.4 7.2 10.8 20.0 0.8
The Talbots 7.3 11.3 17.9 15.0 12.1
Median 6.3x 9.0x 13.2x 21.3% 10.8%
Brylane financials ($MM)
Base $94.0 $70.5 $25.7
Downside 85.3 61.8 20.0 14%-18% 48.7%
Optimistic 102.5 79.0 31.5
Implied value for Brylane shares(1)
Base $12.88 $15.07 $19.53
Downside $9.74 $10.60 $15.14
Optimistic $16.00 $19.48 $23.89
- --------------------------------------------------------------------------------
</TABLE>
- - Differential in leverage/financial risk at Brylane relative to peer group
results in lack of comparability in applying P/E multiples to Brylane
earnings
(1) Based on median multiple of selected peer group
Note: As of 2/17/99. Equity values derived from firm value metrics assuming
net debt of $372 million and fully diluted shares of 17.3 million
JPMORGAN
12
<PAGE> 15
Highly Confidential
SELECTED COMPARABLE PUBLICLY TRADED COMPANIES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
MARKET FIRM LTM EBITDA EBIT
COMPANY DESCRIPTION CAP VALUE SALES MARGIN MARGIN
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Coldwater Creek Specialty direct-mail retailer of $120 $134 $318 7.4% 5.9%
apparel, gifts, jewelry and home
furnishings; select number of company
retail stores
DM Management Specialty direct marketer of high guality 157 172 219 7.1% 6.1%
women's apparel, accessories, shoes, and
gifts; markets its products through the
J. Jill and Nicole Summers catalogs
Lillian Vernon Direct-mail specialty catalog marketer of 130 131 266 5.4% 3.5%
household, gift, gardening, kitchen,
Christmas and children's products
The Talbots Leading specialty retailer and cataloger of 789 897 1,119 6.9% 3.4%
women's and children's classic apparel,
shoes, and accessories; operates in over
600 stores in the U.S., Canada and U.K.
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
JPMORGAN
13
<PAGE> 1
Exhibit (b)(5)
NOVEMBER 17, 1998 HIGHLY CONFIDENTIAL
WORKING DRAFT
PROJECT CATALOG
DISCUSSION MATERIALS
JPMORGAN
<PAGE> 2
This working draft was prepared exclusively for the benefit and internal use of
Pinault-Printemps-Redoute S.A. ("PPR") in order to update PPR on its investment
in Button, and to assist PPR, on a preliminary basis, in its evaluation of the
feasibility of various alternatives and transactions and does not carry any
right of publication or disclosure to any other party. This presentation is
incomplete without reference to, and should be viewed solely in conjunction
with, the oral briefing provided by J.P. Morgan. Neither this presentation nor
any of its contents may be used for any other purpose without the prior written
consent of J.P. Morgan.
The information in this presentation is based upon publicly available
information and reflects prevailing conditions and J.P. Morgan's views as of
this date, all of which are accordingly subject to change. In preparing this
presentation, J.P. Morgan has relied upon and assumed, without independent
verification, the accuracy and completeness of all information available from
public sources or which was otherwise reviewed by J.P. Morgan. In addition, J.P.
Morgan's analyses are not and do not purport to be appraisals of the assets,
stock, or business of PPR or Button.
JPMORGAN
<PAGE> 3
EXECUTIVE SUMMARY
- - Using publicly available information, J.P. Morgan has reviewed the recent
performance and expected prospects of Button in connection with PPR's
equity stake in the Company
- - Analyzed the trends and performance of the direct mail/apparel sector
- Highlighted specific issues and challenges confronting Button's
business
- - Ongoing concerns over a contraction in economic growth, reduced consumer
spending, and increased apparel retailing competition have contributed to
weakened prospects for Button
- - Direct mail peers have underperformed the market by 34% since February 20,
1998, while Button has underperformed the market by 79% over the same
period
- - Equity analysts have reduced their January, 1998 and January, 1999
earnings estimates for Button by an average of 37% and 34% to $2.06 and
$2.55, respectively
JPMORGAN
1
<PAGE> 4
AGENDA
- - SITUATION PROFILE
- - Valuation analysis
- - Acquisition premium considerations
- - Appendix
JPMORGAN
2
<PAGE> 5
BUTTON'S PROSPECTS HAVE BEEN NEGATIVELY IMPACTED BY A NUMBER OF FACTORS
GLOBAL MARKET(1)
- - Full impact of the turmoil in financial markets has yet to be seen.
Financial markets are still unambiguously tighter, with sustained
volatility
- - With business confidence dropping to its lowest level since the last
recession, much more weakening is likely(2)
- - Direct effects from the collapse in exports are already evident -
second-round effects are probably just starting
DIRECT MAIL/ APPAREL SECTOR
- - Catalog sales for Christmas season are already 20 percent below
expectations
- - Competition is increasing substantially; 15 percent increase in new
catalogs this season
- - Retailers selling out of stores are staking more turf and capitalizing on
synergies
- - The apparel sector has softened as consumers are shifting more dollars
towards home furnishings
BUTTON SPECIFIC
- - General slowdown continues across all catalog divisions
- - Continued weakness in Lerner catalog due to merchandising miscues
- - Slowdown in core large size Lane Bryant catalog and sustained pressure on
Chadwick's performance
- - Margin reduction due to reduced operating leverage as sales soften
- - Additional margin pressure anticipated due to increased markdowns on fall
inventories and increased competition
(1) Per J.P. Morgan Global Data Watch, November 6, 1998
(2) J.P. Morgan is forecasting a U.S. recession during Q2 and Q3 1999
JPMORGAN
3
<PAGE> 6
BUTTON'S SHARE PRICE HAS DROPPED SIGNIFICANTLY OVER THE PAST SEVERAL MONTHS
IPO DATE TO NOVEMBER 13, 1998
[GRAPH TRACKING BUTTON'S SHARE PRICE AND TRADING VOLUME FROM IPO TO NOVEMBER 13,
1998, WITH SIGNIFICANT EVENTS NOTED]
(02/97) Initial public offering priced at $24 per share
(10/97) Freeman Spogli (and others) sell 5MM shares through secondary offering
at $46 per share
(02/20/98) PPR announces agreement to buy 43.7% of Button from Freeman Spogli,
The Limited and others at $51 per share
(04/03/98) PPR's acquisition of shares of Button from Freeman Spogli and others
closes
(08/19/98) Button falls 27% on management commentary regarding expected flat 2H:
1998 sales growth
(08/31/98) Announcement of intent to buy back up to $40MM of common stock
(09/25/98) Salomon Smith Barney downgrades Button to neutral from outperform
because of low earnings visibility, estimates lowered from $3.10 to 2.05 per
share
Source: Tradeline
JPMORGAN
4
<PAGE> 7
BUTTON'S STOCK HAS UNDERPERFORMED ITS PEERS AND THE BROADER MARKET
[GRAPH (ADJUSTED FOR DIVIDENDS AND INDEXED TO BUTTON) COMPARING STOCK PRICE OF
BUTTON, COMPREHENSIVE PEERS(1) AND S&P INDUSTRIALS FOR PERIOD OF 02/20/98 TO
11/23/98]
<TABLE>
<CAPTION>
Company/index Total returns
- ------------- -------------
<S> <C>
S&P Industrials 11.2%
Comprehensive peers(1) (16.9%)
Direct mail peers(2) (23.0%)
Button (67.6%)
</TABLE>
(1) Equal-weighted index includes Blair, Coldwater Creek, Concepts Direct,
Delia's, DM Management, Fingerhut, Hanover Direct, Intimate Brands, Land's
End, Lillian Vernon, Spiegel and Talbots
(2) Equal-weighted index includes Blair, Coldwater Creek, Concepts Direct,
Delia's, DM Management, Fingerhut, Hanover Direct, Land's End, Lillian
Vernon, and Spiegel
Source: Tradeline
JPMORGAN
5
<PAGE> 8
BUTTON'S RECENT POOR STOCK PRICE PERFORMANCE IS LARGELY A FUNCTION OF LOWER
ANALYST EPS ESTIMATES . . .
[Graph of Median EPS estimates ($ per share) for Comprehensive peers, S&P
Industrials and Brylane]
Source: I/B/E/S
JPMORGAN
6
<PAGE> 9
. . . AS WELL AS SIGNIFICANT MULTIPLE CONTRACTION
[Graph comparing 12-month forward EPS estimates (Rebased to $1.00) for
Comprehensive peers(1), S&P Industrials and Button]
[Graph comparing 12-month forward P/E ratios for Comprehensive peers(1), S&P
Industrials and Button]
<TABLE>
<CAPTION>
% CHANGE
COMPANY/INDEX IN MULTIPLES
- ------------- ------------
<S> <C>
S&P Industrials 14.9%
Comprehensive peers(1) (33.7%)
Direct mail peers(2) (37.3%)
Button (57.8%)
</TABLE>
(1) Equal-weighted index includes Coldwater Creek, Concepts Direct, Delia's,
DM Management, Intimate Brands, Land's End, Lillian Vernon, Spiegel and
Talbots
(2) Equal-weighted index includes Blair, Coldwater Creek, Concepts Direct,
Delia's, DM Management, Fingerhut, Hanover Direct, Land's End, Lillian
Vernon, and Spiegel Source: I/B/E/S
JPMORGAN
7
<PAGE> 10
THE DIRECT MAIL/APPAREL SECTOR HAS EXPERIENCED SIGNIFICANT SHARE PRICE EROSION
AND MULTIPLE CONTRACTION
[Bar graphs illustrating share price total return and P/E change for direct
mail/apparel sector - February 20, 1998 through November 13, 1998]
<TABLE>
<CAPTION>
Company Total return P/E change
- ------- ------------ ----------
<S> <C> <C>
Talbots 36.6% (14.3%)
DM Managment 35.2% (7.3%)
S&P Industrials 11.2% 14.9%
Blair 10.2% N/A
Fingerhut(1) (5.5%) N/A
Hanover Direct (7.0%) N/A
Intimate Brands (9.4%) (21.7%)
Lillian Vernon (15.2%) (25.1%)
Concepts Direct (31.0%) N/M
Spiegel (31.6%) (59.8%)
Lands End (49.3%) (47.1%)
Coldwater Creek (64.2%) (61.4%)
Button (67.6%) (57.8%)
Delia's (71.2%) (68.4%)
</TABLE>
(1) P/E change not available as Fingerhut recently spun-off a significant
subsidiary
Note: Total return analysis assumes reinvestment of dividends
Source: Tradeline
JPMORGAN
8
<PAGE> 11
ANALYSTS HAVE SIGNIFICANTLY REDUCED EARNINGS ESTIMATES FOR BUTTON
<TABLE>
<CAPTION>
EPS ESTIMATES IMPLIED P/E MULTIPLE
PRICE ---------------- --------------------
FIRM ANALYST DATE PER SHARE JAN-99 JAN-00 JAN-99 JAN-00 LTGR RECOMMENDATION
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BancBoston/
Robertson Stephens Janet Kloppenburg 10/26/98 $17.69 $1.89 $2.12 9.4x 8.3x 18% Attractive
9/25/98 16.25 2.02 2.25 8.0 7.2 Attractive
9/18/98 24.50 3.00 3.45 8.2 7.1 Buy
8/20/98 24.25 3.05 3.50 8.0 6.9 Buy
8/3/98 40.19 3.32 3.88 12.1 10.4 Strong buy
Lazard Freres/ Todd Slater 9/28/98 $14.81 $2.10 $2.55 7.1x 5.8x 10% Hold
ING Barings 8/25/98 27.25 3.30 3.85 8.3 7.1 Buy
11/11/97 46.25 3.25 N/A 14.2 N/A Buy
Merrill Lynch Mark Friedman 9/25/98 $16.25 $2.07 $2.85 7.9x 5.7x 18% Neutral
8/26/98 26.94 3.10 3.55 8.7 7.6 Neutral
5/21/98 52.94 3.28 N/A 16.1 N/A Buy
4/8/98 56.81 3.27 3.90 17.4 14.6 Buy
Salomon S.B./ Maura Byrne 10/16/98 $15.56 $2.05 $2.50 7.6x 6.2x 14% Neutral
J.P. Morgan 9/25/98 16.25 2.05 2.50 7.9x 6.5x Neutral
9/18/98 24.50 3.10 3.65 7.9 6.7 Outperform
7/16/98 44.44 3.28 3.80 13.5 11.7 Buy
5/21/98 52.94 3.28 N/A 16.1 N/A Buy
3/17/98 59.00 3.27 3.80 18.0 15.5 Buy
Warburg Peter Schaeffer 9/25/98 $16.25 $2.47 $2.78 6.6x 5.8x 15% Strong buy
Dillon Read
Current Street median 11/13/98 $16.50 $2.06 $2.55 8.0x 6.5x 15%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Source: I/B/E/S and Bloomberg
JPMORGAN
9
<PAGE> 12
RECENT ANALYST COMMENTARY HIGHLIGHTS CONCERN OVER BUTTON'S NEAR TERM PROSPECTS
"THROUGH F1998, BUTTON'S BUSINESS HAS SLOWLY DETERIORATED WITH LERNER'S WEAKNESS
IN 1H:98 . . . AN EARLY INDICATION THAT MORE SEVERE AND FUNDAMENTAL PROBLEMS
EXISTED IN BUTTON'S BUSINESS . . . . We believe Button's sales shortfall is due
to continued softness in its regular size Chadwick's and Lerner catalogs as well
as its core Lane Bryant large size catalog . . . . We are now expecting 3Q:98
sales to be down at least 2 percent, which will most likely cause considerable
pressure on both gross margin and expenses . . . . WE WOULD CAUTION NEAR TERM
INVESTMENT [IN SHARES OF BUTTON] IN LIGHT OF THE CONTINUED RISK TO OUR SALES AND
EARNINGS OUTLOOK . . . . The sudden slowdown in the core large-size business
this fall season . . . in tandem with highly inconsistent results achieved in
Chadwick's throughout all of F1998 leads us to believe that the company may be
facing increased competitive pressure from specialty retailers."
Janet J. Kloppenburg, BancBoston Robertson Stephens, October 26, 1998
"REDUCING SECOND HALF EXPECTATIONS FURTHER DUE TO SALES WEAKNESS AT KEY
CATALOGS, PARTICULARLY CHADWICK'S . . . . Gross margins are expected to decrease
due to increased markdowns. We look for SG&A expense to increase . . . . in
addition the company plans to use promotions and incentives in an effort to
spark sales."
Mark Friedman, Merrill Lynch, September 25, 1998
". . . GENERAL SLOWDOWN CONTINUES ACROSS ALL CATALOG DIVISIONS. CHADWICK'S,
LERNER, LANE BRYANT, ROAMANS AND JESSICA LONDON ARE ALL BELOW PLAN . . . . We
estimate catalog and operating expenses expand 10%, as management will not be
able to scale expenses back in line with new sales expectations."
Maura Hunter Byrne, Salomon Smith Barney, September 25, 1998
"ENTERING SEPTEMBER, THE PICTURE HAS NOT CHANGED AS THE COMPANY IS STILL
SUFFERING FROM ANEMIC SALES OF WINTER MERCHANDISE PRIMARILY IN THEIR REGULAR
SIZE CATALOGS . . . . Based on the sales shortfall and the resulting inability
to leverage operating expenses, we have lowered our sales and earnings
expectations."
Peter Schaeffer, Warburg Dillon Read, September 25, 1998
"WHILE IT IS STILL EARLY . . . THE MISS TO PLAN IS WIDESPREAD."
Todd Slater, Lazard Freres, September 25, 1998
JPMORGAN
Source: Street research
10
<PAGE> 13
AGENDA
- - Situation profile
- - VALUATION ANALYSIS
- - Acquisition premium considerations
- - Appendix
JPMORGAN
11
<PAGE> 14
PRELIMINARY PUBLIC VALUATION OF BUTTON
$ per share
[Graph plotting share price information relating to Button]
($12.38 closing price; 11/20/98)
Discounted cash flow(1) CASE I: STREET MEDIAN EPS AND LTGR
- - CASE I: $18.00 - $23.00 CASE II: STREET MEDIAN EPS AND LTGR
- - CASE II: $14.00 - $18.00 WITH CAPEX INCREASE
Trading multiples
- - Direct-mail peers(2): $17.00 - $22.00
- - Comprehensive peers(3): $18.00 - $23.00
30-day trading range: $11.31 - $18.50
60-day trading range: $11.31 - $28.44
(1) Based on publicly available information, including revised analysts'
projections released subsequent to Button's November 18, 1998 3Q earnings
announcement
(2) Consists of Coldwater Creek, Delia's, DM Management, Fingerhut, Land's
End, Lillian Vernon and Spiegel
(3) Consists of Coldwater Creek, Delia's, DM Management, Fingerhut, Intimate
Brands, Land's End, Lillian Vernon, Spiegel and Talbots
Note: Equity values derived from firm value metrics assuming net debt of $378
and fully diluted shares of 17.4 million
JPMORGAN
12
<PAGE> 15
PRELIMINARY PUBLIC VALUATION SUMMARY OF BUTTON
$ MILLIONS, EXCEPT PER SHARE DATA
<TABLE>
<CAPTION>
IMPLIED MULTIPLES
--------------------------------------------------------
JAN-1999 JAN-2000
VALUE RANGE ----------------------- ----------------------- IMPLIED PRM.
PER SHARE FV/EBITDA EV/NET INCOME FV/EBITDA EV/NET INCOME TO MARKET
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
DCF ANALYSIS(1)
Case I $26-$30 7.6x-8.2x 12.2x-14.1x 7.0x-7.6x 10.2x-11.8x 58%-82%
Case II $23-$27 7.1x-7.7x 10.8x-12.7x 6.6x-7.2x 9.0x-10.6x 39%-64%
TRADING COMPARABLES
Direct mail peers $18-$26 6.3x-7.6x 8.4x-12.2x 5.9x-7.0x 7.1x-10.2x 9%-58%
Comprehensive peers $21-$29 6.8x-8.0x 9.8x-13.6x 6.3x-7.4x 8.2x-11.4x 27%-76%
30-day trading range $11-$19 5.4x-6.5x 5.6x- 8.9x 5.0x-6.0x 4.7x- 7.5x (27%)-15%
60-day trading range $11-$28 5.2x-7.9x 5.2x-13.1x 4.9x-7.3x 4.3x-11.0x (33%)-70%
BUTTON FINANCIALS ($MM) $112.1 $37.1 $120.7 $44.3
BUTTON MULTIPLES (11/13/98) 6.1X 7.7X 5.6X 6.5X
</TABLE>
<TABLE>
<S> <C>
Current share price (11/13/98) $ 16.50
Fully-diluted shares outstanding 17.4
-------
Equity value $ 287.1
Net debt per 8/1/98 10-Q 368.5
Share repurchase debt 25.8
-------
Total net debt $ 394.3
-------
Firm value $ 681.4
</TABLE>
(1) DCF analysis that assumes low-end Street EPS and long-term growth rate
estimates would imply a value range per share for Button of $18 to $21
JPMORGAN
13
<PAGE> 16
DISCOUNTED CASH FLOW ANALYSIS
<TABLE>
<CAPTION>
CASE I CASE II
- -------------------------------------------------------------------------------
<S> <C> <C>
1999 EPS ESTIMATES $ 2.06 $ 2.06
2000 EPS ESTIMATES $ 2.55 $ 2.55
LONG-TERM GROWTH % 15.0% 12.5%
- -------------------------------------------------------------------------------
Revenues (1999-2004 CAGR) 5.0% 5.0%
Gross margins (1999-2004 avg) 49.5% 49.5%
Operating margins (1999-2004 avg) 6.9% 6.7%
- -------------------------------------------------------------------------------
CAPEX AS % OF REVENUES (1999-2004 AVG) 1.0% 1.7%(1)
- -------------------------------------------------------------------------------
Depreciation as % of revenues (1999-2004 0.8% 1.1%
avg)
NWI as % of revenues (1999-2004 avg) 7.8% 7.8%
Effective tax rate (1999-2004 avg) 34.0% 33.8%
Terminal value EBITDA exit multiple 6.0x-6.5x 6.0x-6.5x
Implied terminal value growth rate 1.1%-2.4% 1.0%-2.4%
WACC 9.75%-10.25% 9.75%-10.25%
- -------------------------------------------------------------------------------
IMPLIED EQUITY VALUE RANGE PER SHARE $26-$30 $23-$27
- -------------------------------------------------------------------------------
</TABLE>
(1) Additional capex of $35 million in both 2001 and 2002 pursuant to
discussion with PPR management
JPMORGAN
14
<PAGE> 17
DISCOUNTED CASH FLOW ANALYSIS: IMPLIED MULTIPLES
$ millions, except per share data
<TABLE>
<CAPTION>
CASE I CASE II
------------------- ----------------------
<S> <C> <C>
- ------------------------------------------------------------------------------------------------
Firm value $ 847 - $ 916 $ 795 - $ 864
Equity value 452 - 522 400 - 470
Equity value per share 26 - 30 23 - 26
Implied premium to market 58% - 82% 39% - 64%
- ------------------------------------------------------------------------------------------------
EBITDA
1999E 7.6x - 8.2x 7.0x - 7.7x
2000E 7.0 - 7.6 6.6 - 7.2
Net income
1999E 12.2x - 14.1x 10.8x - 12.7x
2000E 10.2 - 11.8 9.0 - 10.6
- ------------------------------------------------------------------------------------------------
</TABLE>
Note: The above valuation assumes net debt of $394.3 million and shares
outstanding of 17.4 million
JPMORGAN
15
<PAGE> 18
COMPARATIVE TRADING ANALYSIS
AS OF NOVEMBER 13, 1998
[Bar graphs comparing firm value/1999E EBITDA for Button, Direct-mail peers(1),
and Comprehensive peers(2)]
<TABLE>
<S> <C>
Button: 6.1x
Direct-mail peers(1): 7.4x
Comprehensive peers(2): 7.6x
</TABLE>
[Bar graphs comparing Equity value/2000E earnings for Button, Direct-mail
peers(1), and Comprehensive peers(2)]
<TABLE>
<S> <C>
Button: 6.5x
Direct-mail peers(1): 10.3x
Comprehensive peers(2): 13.3x
</TABLE>
[Bar graphs comparing Equity value/1999E earnings for Button, Direct-mail
peers(1), and Comprehensive peers(2)]
<TABLE>
<S> <C>
Button: 7x
Direct-mail peers(1): 13.9x
Comprehensive peers(2): 16.1x
</TABLE>
[Bar graphs comparing 2000E PE/long-term growth rate for Button, Direct-mail
peers(1), and Comprehensive peers(2)]
<TABLE>
<S> <C>
Button: 0.39x
Direct-mail peers(1): 0.49x
Comprehensive peers(2): 0.65x
</TABLE>
(1) Consists of Coldwater Creek, Delia's, DM Management, Fingerhut, Land's
End, Lillian Vernon and Spiegel
(2) Consists of Coldwater Creek, Delia's, DM Management, Fingerhut, Intimate
Brands, Land's End, Lillian Vernon, Spiegel and Talbots
Source: I/B/E/S
JPMORGAN
16
<PAGE> 19
COMPARATIVE OPERATING PERFORMANCE ANALYSIS
[Bar graphs comparing LTM EBITDA for Button, Direct-mail peers(1), and Compre-
hensive peers(2)]
<TABLE>
<S> <C>
Button: 10.4%
Direct-mail peers(1): 7.6%
Comprehensive peers(2): 7.6%
</TABLE>
[Bar graphs comparing Net debt/firm value for Button, Direct-mail peers(1) and
Comprehensive peers(2)]
<TABLE>
<S> <C>
Button: 54.7%
Direct-mail peers(1): 11.8%
Comprehensive peers(2): 10.9%
</TABLE>
[Bar graphs comparing LTM EBIT margin for Button, Direct-mail peers(1), and
Comprehensive peers(2)]
<TABLE>
<S> <C>
Button: 8.7%
Direct-mail peers(1): 6.3%
Comprehensive peers(2): 6.3%
</TABLE>
[Bar graphs comparing long-term growth rate for Button, Direct-mail peers(1),
and Comprehensive peers(2)]
<TABLE>
<S> <C>
Button: 16.5%
Direct-mail peers(1): 20.0%
Comprehensive peers(2): 17.0%
</TABLE>
(1) Consists of Coldwater Creek, Delia's, DM Management, Fingerhut, Land's
End, Lillian Vernon and Spiegel
(2) Consists of Coldwater Creek, Delia's, DM Management, Fingerhut, Intimate
Brands, Land's End, Lillian Vernon, Spiegel and Talbots
Source: I/B/E/S
JPMORGAN
17
<PAGE> 20
COMPARABLE TRADING MULTIPLES ANALYSIS
<TABLE>
<CAPTION>
FV/EBITDA FV/EBIT EV/NET INCOME
------------------- ------------------ ------------------ LONG-TERM
1999E 2000E 1999E 2000E 1999E 2000E GROWTH
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
DIRECT MAIL PEERS
Blair 4.7x NA 5.2x NA 7.9x NA 35.0%
Coldwater Creek 7.3 5.6 9.2 6.9 13.9 10.3 25.0
Concepts Direct NM 15.3 NM 27.3 NM 40.0 NA
Delia's 8.4 5.9 10.0 7.0 19.5 13.3 35.0
DM Management 11.3 9.3 13.7 11.1 19.7 16.2 25.0
Fingerhut 4.9 4.3 7.7 6.4 9.5 7.8 17.0
Genesis Direct NM 8.6 NM 16.6 NM 19.1 32.5
Lands' End 7.4 6.4 8.9 7.7 11.7 10.0 15.0
Lillian Vernon 7.6 5.7 10.2 7.3 13.5 9.7 20.0
Spiegel 6.4 6.0 11.4 10.1 21.4 15.6 16.5
Median(1) 7.4x 5.9x 10.0x 7.3x 13.9x 10.3x 20.0%
RETAILER PEERS
Intimate Brands 8.3x 7.3x 9.7x 8.5x 16.1x 13.9x 16.0%
The Talbots 7.8 6.6 13.1 10.8 22.5 18.0 15.0
Median 8.1x 7.0x 11.4x 9.7x 19.3x 16.0x 15.5%
COMPREHENSIVE PEERS(2)
Median 7.6x 6.0x 10.0x 7.7x 16.1x 13.3x 20.0%
- --------------------------------------------------------------------------------------------------------------------------------
Button 6.1x 5.6x 7.6x 6.9x 7.7x 6.5x 16.5%
Button financials ($MM) $ 112.1 $ 120.7 $ 89.8 $ 98.4 $ 37.1 $ 44.3
- --------------------------------------------------------------------------------------------------------------------------------
Implied value for Button shares
(Direct mail peers only)
Median multiple 7.4x 5.9x 10.0x 7.3x 13.9x 10.3x
Implied share price $ 25.18 $ 18.28 $ 28.87 $ 18.68 $ 29.64 $ 26.31
Implied value for Button shares
(Comprehensive peers) (2)
Median multiple 7.6x 6.0x 10.0x 7.7x 16.1x 13.3x
Implied share price $ 26.26 $ 18.96 $ 28.87 $ 20.81 $ 34.34 $ 33.98
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: As of 11/13/98. Equity values derived from firm value metrics assuming net
debt of $394.3 million and fully diluted shares of 17.4 million
(1) Consists of Coldwater Creek, Delia's, DM Management, Fingerhut, Land's
End, Lillian Vernon and Spiegel
(2) Consists of Coldwater Creek, Delia's, DM Management, Fingerhut, Intimate
Brands, Land's End, Lillian Vernon, Spiegel and Talbots
JPMORGAN
18
<PAGE> 21
AGENDA
- - Situation profile
- - Valuation analysis
- - ACQUISITION PREMIUM CONSIDERATIONS
- - Appendix
19
<PAGE> 22
IMPLIED PREMIA AND MULTIPLES AT VARIOUS PRICES
<TABLE>
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
Share price $ 16.50 $ 20.00 $ 24.00 $ 28.00
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Premium to:
11/13/98 close ($16.50) 0.0% 21.2% 45.5% 69.7%
1 week prior ($16.56) (0.4) 20.8 44.9 69.1
30-day average ($15.86) 4.0 26.1 51.3 76.5
60-day average ($18.08) (8.7) 10.6 32.7 54.9
90-day average ($21.76) (24.2) (8.1) 10.3 28.7
- --------------------------------------------------------------------------------
Implied firm value ($MM) $ 681 $ 742 $ 812 $ 882
Implied equity value ($MM) 287 348 418 487
</TABLE>
<TABLE>
<CAPTION>
IMPLIED MULTIPLES DIRECT MAIL
PEERS COMPREHENSIVE
(MEDIAN) PEERS (MEDIAN)
- ----------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
EBITDA ($MM)
- - 1999E $112.1 6.1x 6.6x 7.2x 7.9x 7.4x 7.6x
- - 2000E $120.7 5.6 6.1 6.7 7.3 5.9 6.0
Net income
- - 1999E $ 37.1 7.7x 9.4x 11.3x 13.1x 13.9x 16.1x
- - 2000E $ 44.3 6.5 7.9 9.4 11.0 10.3 13.3
-------------------------------
</TABLE>
(1) Button financials are based on Case I
Note: Equity values derived from firm value metrics assuming net debt of $394.3
and fully diluted shares of 17.4 million
JPMORGAN
20
<PAGE> 23
SHARES TRADED ANALYSIS
[Bar graphs illustrating % of float traded (with shares MM noted) and price
below which shares have traded during past 30 days]
Average price = $15.86
<TABLE>
<CAPTION>
Price below which
Shares have traded
($) Shares MM traded
- ------------------ ----------------
<S> <C>
$12 .05
$13 0.4
$15 0.6
$16 0.8
$17 1.9
$18 2.4
$19 2.5
</TABLE>
[Bar graphs illustrating % of float traded (with shares MM noted) and price
below which shares have traded during past 90 days]
Average price = $21.76
<TABLE>
<CAPTION>
Price below which
Shares have traded
($) Shares MM traded
------------------ ----------------
<S> <C>
$15 1.3
$19 4.5
$23 5.6
$27 10.6
$29 11.7
$37 11.9
$39 12.1
</TABLE>
Note: Based on float of 10,397,733 shares
Source: Tradeline
JPMORGAN
21
<PAGE> 24
PREMIA PAID IN SELECTED GOING PRIVATE TRANSACTIONS
[BAR GRAPHS SHOWING PREMIUM (%) PAID OVER ONE WEEK PRIOR TO ANNOUNCEMENT]
<TABLE>
<CAPTION>
Premium % Number of transactions
- --------- ----------------------
<S> <C>
less than 0% 4
0% less than 10% 6
10% less than 20% 21
20% less than 30% 13
30% less than 40% 5
40% less than 50% 10
50% less than 60% 3
60%+ 9
</TABLE>
COMMENTS
- - Median initial premium of 18.6%
- - Median final premium of 23.1%
- - Wide variation in premia paid
- - Median percentage of outstanding shares purchased equal to 29%
Note: Selected transactions in sample include 71 going private transactions
in which an owner of 50% or more of a U.S. public company acquires the
remaining shares for total consideration of $1 million or more; January
1, 1990 through October 31, 1998
JPMORGAN
22
<PAGE> 25
PREMIUM PAID IN SELECTED GOING PRIVATE TRANSACTIONS (CONT'D)
JANUARY 1, 1990 TO DATE(1)
<TABLE>
<CAPTION>
TRANSACTION VALUE
-----------------
DATE ANNOUNCED ACQUIROR TARGET CONSIDERATION % ACQ. $MM
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
10/27/98 Allmerica Financial Corp Citizens Corp (Hanover Ins. Co) Cash 17.5 $ 185.1
09/29/98 Newmont Mining Corp Newmont Gold Co Stock 6.5 264.8
09/23/98 Usinor SA J&L Specialty Steel Inc Cash 46.5 112.7
09/08/98 Investor Group PEC Israel Economic Corp Cash 19.0 87.3
07/07/98 Dexter Corp Life Technologies Inc(Dexter) Cash 48.0 453.2
3/5/98 Xerox XLConnect Solutions Cash 20.0 66.7
9/18/97 Orion Capital Corp. Guaranty National Cash 22.7 128.5
8/29/97 REXEL SA (PPR) REXEL INC. CASH 49.4 300.0
6/26/97 Rhone-Poulenc SA Rhone-Poulenc Rorer Cash 40.5 4,217.6
6/20/97 Waste Management Wheelabrator Technologies Cash 33.0 854.9
6/3/97 FH Faulding Faulding Cash 38.0 77.2
6/2/97 Anthem (Blue Cross/Blue Shield) Acordia Cash 33.2 172.8
5/22/97 Texas Industries Chaparral Steel Cash 15.0 66.7
5/14/97 Enron Corp Enron Global P & P Stock 48.0 422.9
3/3/97 American Financial Group American Finl Entps Cash election 17.0 85.1
2/25/97 Petrofina SA Fina Cash 14.6 264.0
2/18/97 Sun Healthcare Contour Medical Cash election 34.7 35.2
1/28/97 Monsanto Calgene Cash 45.4 242.1
1/13/97 Zurich Versicherungs GmbH Zurich Reinsurance Centre Cash 34.0 319.0
1/21/97 Mafco Holdings Mafco Consolidated Cash 15.0 116.9
12/17/96 Allmerica Financial Allmerica Property & Casualty Cash election 40.6 798.6
12/6/96 Sears Roebuck MaxServ Cash 47.6 30.1
10/10/96 Renco Group WCI Steel Cash 16.0 56.5
8/26/96 Conseco Bankers Life Stock 11.5 146.1
8/26/96 State of North Carolina North Carolina Railroad Cash 25.0 70.8
8/8/96 Chemed Corp Roto-Rooter Cash 45.1 100.5
7/3/96 Gold Kist Golden Poultry Cash 25.0 52.1
5/27/96 Novartis AG SyStemix Cash 31.2 93.6
9/26/95 SCOR SA SCOR US Cash 20.0 54.9
8/25/95 Berkshire Hathaway GEICO Cash 49.0 2,347.0
5/19/95 BIC SA Bic Cash 22.0 218.9
</TABLE>
<TABLE>
<CAPTION>
PREMIUMS (%) PAID
OVER UNAFFECTED PRICE(2)
------------------------
DATE ANNOUNCED ACQUIROR TARGET CONSIDERATION INITIAL BID FINAL BID
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
10/27/98 Allmerica Financial Corp Citizens Corp (Hanover Ins. Co) Cash 2.2 2.2
09/29/98 Newmont Mining Corp Newmont Gold Co Stock 20.8 20.8
09/23/98 Usinor SA J&L Specialty Steel Inc Cash 91.7 112.5
09/08/98 Investor Group PEC Israel Economic Corp Cash 8.8 8.8
07/07/98 Dexter Corp Life Technologies Inc(Dexter) Cash 17.9 17.9
3/5/98 Xerox XLConnect Solutions Cash 15.1 15.1
9/18/97 Orion Capital Corp. Guaranty National Cash 23.9 23.9
8/29/97 REXEL SA (PPR) REXEL INC. CASH 9.5 26.3
6/26/97 Rhone-Poulenc SA Rhone-Poulenc Rorer Cash 16.5 22.8
6/20/97 Waste Management Wheelabrator Technologies Cash 16.5 28.2
6/3/97 FH Faulding Faulding Cash 9.1 22.7
6/2/97 Anthem (Blue Cross/Blue Shield) Acordia Cash 11.5 11.5
5/22/97 Texas Industries Chaparral Steel Cash 15.2 25.3
5/14/97 Enron Corp Enron Global P & P Stock 7.6 13.7
3/3/97 American Financial Group American Finl Entps Cash election 48.0 48.0
2/25/97 Petrofina SA Fina Cash 18.5 18.5
2/18/97 Sun Healthcare Contour Medical Cash election 47.8 47.8
1/28/97 Monsanto Calgene Cash 45.0 60.0
1/13/97 Zurich Versicherungs GmbH Zurich Reinsurance Centre Cash 18.5 18.5
1/21/97 Mafco Holdings Mafco Consolidated Cash 41.9 23.5
12/17/96 Allmerica Financial Allmerica Property & Casualty Cash election (0.9) 12.8
12/6/96 Sears Roebuck MaxServ Cash 45.9 67.6
10/10/96 Renco Group WCI Steel Cash 29.0 29.0
8/26/96 Conseco Bankers Life Stock 10.5 10.5
8/26/96 State of North Carolina North Carolina Railroad Cash 161.4 161.4
8/8/96 Chemed Corp Roto-Rooter Cash 12.3 12.3
7/3/96 Gold Kist Golden Poultry Cash 50.0 50.0
5/27/96 Novartis AG SyStemix Cash 47.8 69.6
9/26/95 SCOR SA SCOR US Cash 24.4 35.6
8/25/95 Berkshire Hathaway GEICO Cash 23.1 23.1
5/19/95 BIC SA Bic Cash 1.4 12.5
</TABLE>
(1) As of 10/31/98
(2) Bid price over share price one week prior to announcement
Source: Securities Data Corporation, SEC and other public filings
JPMORGAN
23
<PAGE> 26
PREMIUM PAID IN SELECTED GOING PRIVATE
TRANSACTIONS (CONT'D)
JANUARY 1, 1990 TO DATE(1)
<TABLE>
<CAPTION>
TRANSACTION VALUE
-----------------
DATE ANNOUNCED ACQUIROR TARGET CONSIDERATION % ACQ. $MM
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
4/5/95 Club Mediterranee SA Club Med Cash 33.0 $ 153.4
4/7/95 AT&T (McCaw Cellular) LIN Broadcasting Cash 47.8 3,117.6
2/7/95 WMX Technologies Rust International Cash 3.6 50.5
12/28/94 Fleet Financial Fleet Mortgage Group Cash 19.0 190.0
12/22/94 ZENECA Group PLC Salick Health Care Cash 50.0 234.0
11/2/94 PacifiCorp Pacific Telecom Cash 13.0 159.0
9/8/94 GTE Contel Cellular Cash 10.0 254.3
8/24/94 Dole Food Castle & Cooke Homes Cash 17.0 79.0
7/29/94 Foundation Health Intergroup Healthcare Stock 37.4 255.7
7/28/94 WMX Technologies Chemical Waste Mgmt Cash 21.4 397.4
6/6/94 Ogden Corp. Ogden Projects Inc. Stock 15.8 110.3
3/1/94 National Intergroup Inc. Foxmeyer Corp. Stock 19.5 79.7
2/17/94 EW Scripps Co Scripps Howard Broadcasting Stock 14.0 118.8
1/7/94 Holderbank Holnam Inc Cash 5.0 52.0
10/13/93 Medco Medical Marketing Group Cash 45.8 156.7
4/26/93 Triarc Companies, Inc. Southeastern Public Service Stock 29.0 86.0
2/22/93 Torchmark Corp. United Investors Mgt. Cash 16.0 205.8
11/13/92 Rust Intl (WMX) Brand Cos. Cash Election 44.0 185.6
8/17/92 Leucadia National Corp. Phlcorp. Stock 37.0 139.9
7/1/92 Loral Corp. Loral Aerospace Corp. Stock 41.0 198.3
3/2/92 W.R. Grace & Co. Grace Energy Corp. Cash 17.0 77.3
2/24/92 Unocal Corp. Unocal Exploration Corp. Stock 4.0 117.7
10/16/91 Time Warner American TV & Comm. Cash 18.0 1,699.5
9/18/91 Arkla Inc. Arkla Exploration Co. Stock 18.0 92.6
5/1/91 Tele-Communications Inc. United Artists Entertainment Stock 46.0 486.4
3/1/91 Air & Water Technologies? Metcalf & Eddy Cos. Stock 18.0 51.0
2/8/91 LAC Minerals LTD Bond International Gold Stock 35.3 149.6
2/6/91 Broken Hill Property Co. Hamilton Oil Corp. Cash 49.9 296.5
1/3/91 Murphy Oil Corp. Ocean Drilling & Exploration Stock 39.0 389.6
11/12/90 US West US West Newvector Group Stock 19.0 436.8
10/23/90 Ogden Corp. ERC Environ. & Energy Svcs Cash 38.8 30.0
10/8/90 Western Gas Resources Western Gas Processors Stock 48.0 130.3
7/31/90 Freeport-McMoRan Inc. Freeport-McMoran Oil & Gas Stock 18.5 46.2
7/19/90 Caesars World Inc. Ceasars New Jersey Inc. Cash 13.4 49.1
7/12/90 Paramount Communications, Inc. TVX Broadcast Group Cash 17.0 61.3
7/6/90 Renault Mack Trucks Cash 40.0 70.8
5/17/90 Kansas City Southern Industries, Inc. DST Systems Inc. Cash 12.9 39.0
3/19/90 LPL Acquisition Corp. LPL Technologies, Inc. Cash 49.0 187.6
3/2/90 American Express Co. Shearson Lehman Bros Stock 39.0 361.2
3/2/90 Intermark Inc. Triton Group Ltd. Stock 48.4 48.1
1/24/90 Imetal S.A. Copperweld Corp. Cash 44.4 149.6
MEAN 29.5 $ 328.7
MEDIAN 29.0 $ 139.9
</TABLE>
<TABLE>
<CAPTION>
PREMIUMS (%) PAID
OVER UNAFFECTED PRICE(2)
------------------------
DATE ANNOUNCED ACQUIROR TARGET CONSIDERATION INITIAL BID FINAL BID
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
4/5/95 Club Mediterranee SA Club Med Cash 14.8 39.9
4/7/95 AT&T (McCaw Cellular) LIN Broadcasting Cash (24.1) (6.0)
2/7/95 WMX Technologies Rust International Cash 19.1 39.1
12/28/94 Fleet Financial Fleet Mortgage Group Cash 18.5 18.5
12/22/94 ZENECA Group PLC Salick Health Care Cash 37.3 49.6
11/2/94 PacifiCorp Pacific Telecom Cash 15.5 23.7
9/8/94 GTE Contel Cellular Cash 21.6 37.8
8/24/94 Dole Food Castle & Cooke Homes Cash 25.8 41.6
7/29/94 Foundation Health Intergroup Healthcare Stock 74.5 90.7
7/28/94 WMX Technologies Chemical Waste Mgmt Cash (3.3) 8.9
6/6/94 Ogden Corp. Ogden Projects Inc. Stock 17.6 17.6
3/1/94 National Intergroup Inc. Foxmeyer Corp. Stock 11.3 9.1
2/17/94 EW Scripps Co Scripps Howard Broadcasting Stock 6.8 6.8
1/7/94 Holderbank Holnam Inc Cash 15.5 15.5
10/13/93 Medco Medical Marketing Group Cash (15.6) (8.0)
4/26/93 Triarc Companies, Inc. Southeastern Public Service Stock 63.8 63.8
2/22/93 Torchmark Corp. United Investors Mgt. Cash 9.4 12.1
11/13/92 Rust Intl (WMX) Brand Cos. Cash Election 13.6 13.6
8/17/92 Leucadia National Corp. Phlcorp. Stock 15.2 15.2
7/1/92 Loral Corp. Loral Aerospace Corp. Stock 4.0 4.0
3/2/92 W.R. Grace & Co. Grace Energy Corp. Cash 34.7 55.1
2/24/92 Unocal Corp. Unocal Exploration Corp. Stock 18.3 18.3
10/16/91 Time Warner American TV & Comm. Cash 67.5 67.5
9/18/91 Arkla Inc. Arkla Exploration Co. Stock 28.7 28.7
5/1/91 Tele-Communications Inc. United Artists Entertainment Stock (7.5) (7.5)
3/1/91 Air & Water Technologies? Metcalf & Eddy Cos. Stock 16.7 16.7
2/8/91 LAC Minerals LTD Bond International Gold Stock 82.9 110.6
2/6/91 Broken Hill Property Co. Hamilton Oil Corp. Cash 21.2 21.2
1/3/91 Murphy Oil Corp. Ocean Drilling & Exploration Stock 24.1 24.1
11/12/90 US West US West Newvector Group Stock 53.9 53.9
10/23/90 Ogden Corp. ERC Environ. & Energy Svcs Cash 40.5 44.1
10/8/90 Western Gas Resources Western Gas Processors Stock (15.0) (15.0)
7/31/90 Freeport-McMoRan Inc. Freeport-McMoran Oil & Gas Stock 42.7 42.7
7/19/90 Caesars World Inc. Ceasars New Jersey Inc. Cash 45.5 49.3
7/12/90 Paramount Communications, Inc. TVX Broadcast Group Cash 50.0 90.0
7/6/90 Renault Mack Trucks Cash 19.0 19.0
5/17/90 Kansas City Southern Industries, Inc. DST Systems Inc. Cash 24.4 40.9
3/19/90 LPL Acquisition Corp. LPL Technologies, Inc. Cash 31.5 37.0
3/2/90 American Express Co. Shearson Lehman Bros Stock 18.6 18.6
3/2/90 Intermark Inc. Triton Group Ltd. Stock 16.9 16.9
1/24/90 Imetal S.A. Copperweld Corp. Cash 29.2 41.7
MEAN 26.3 32.3
MEDIAN 18.6 23.1
</TABLE>
(1) As of 10/31/98
(2) Bid price over share price one week prior to announcement
Source: Securities Data Corporation, SEC and other public filings
JPMORGAN
24
<PAGE> 27
AGENDA
- - Situation profile
- - Valuation analysis
- - Acquisition premium considerations
- - APPENDIX
JPMORGAN
25
<PAGE> 28
PPR OWNERSHIP ANALYSIS
<TABLE>
<CAPTION>
SHARES
DATE PURCHASED TOTAL PPR SHARES
---------------------------------------------------------------------------
<S> <C> <C>
04/03/98 8,010,917 8,010,917
06/12/98 68,500 8,079,417
06/03/98 148,800 8,228,217
06/12/98 4,000 8,232,217
06/15/98 21,000 8,253,217
06/19/98 6,500 8,259,717
06/22/98 6,000 8,265,717
06/29/98 119,900 8,385,617
06/30/98 54,700 8,440,317
07/01/98 45,300 8,485,617
07/06/98 20,000 8,505,617
07/08/98 20,000 8,525,617
07/09/98 40,000 8,565,617
07/28/98 3,000 8,568,617
08/13/98 32,500 8,601,117
08/14/98 25,000 8,626,117
08/17/98 100,000 8,726,117
08/18/98 11,900 8,738,017
08/19/98 45,000 8,783,017
10/15/98 (166,000) 8,617,017
---------------------------------------------------------------------------
Total 8,617,017 8,617,017
</TABLE>
<TABLE>
<S> <C>
SHARES OUTSTANDING(1) 17,277,150
SHARES OWNED BY PPR @ 11/13/98 8,617,017
TOTAL PPR PERCENT OWNERSHIP 49.9%
---------------------------------------------------------------------------
</TABLE>
(1) Based on 18,477,150 shares outstanding on August 28, 1998 and adjusted for
approximately 1,200,000 shares repurchased by Button
JPMORGAN
26
<PAGE> 29
BUTTON OWNERSHIP PROFILE
<TABLE>
<CAPTION>
SHAREHOLDER SHARES % OUTSTANDING
- --------------------------------------------------------------------------------
<S> <C> <C>
FMR Corp 1,609,800 9.3%
Equitable Companies 1,174,400 6.8
Capital Research & Mgmt 786,600 4.6
Fred Alger Mgmt 550,500 3.2
Friess Associates 424,700 2.5
Mellon Bank 420,704 2.4
Mass Mutual 316,500 1.8
First Union 268,400 1.6
Morgan Stanley 279,549 1.6
Scudder Kemper 271,500 1.6
- --------------------------------------------------------------------------------
TOTAL 6,102,653 35.3%
- --------------------------------------------------------------------------------
</TABLE>
(1) Based on 17,277,150 shares outstanding (18,477,150 shares outstanding
on August 28, 1998 and adjusted for approximately 1,200,000 shares
repurchased by Button
Source: Spectrum, 6/30/98
JPMORGAN
27
<PAGE> 30
COMPARABLE TRANSACTION OBSERVATIONS
$ MILLIONS, EXCEPT MULTIPLES AND MARGINS
<TABLE>
<CAPTION>
TOTAL CONSIDERATION/
DATE TOTAL --------------------------
ANNOUNCED TARGET ACQUIROR CONSIDERATION % PREMIUM SALES EBITDA EBIT
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
November-98 Popular Plan Club Fingerhut N/A N/A N/A N/A N/A
August-98 Arizona Mail Company Fingerhut $ 120 N/A 0.9x 6.0x N/A
July-98 PC Flowers & Gifts Fingerhut N/A N/A N/A N/A N/A
February-98 Brylane PPR 1,394 0.0% 1.1 10.4 12.4x
November-97 Chef's Catalog Neiman-Marcus Group 31 N/A 0.6 N/A N/A
October-97 J. Crew Texas Pacific Group 477 N/A 0.5 9.2 12.2
January-97 Territory Ahead Management N/A N/A N/A N/A N/A
January-97 Eastbay Woolworth 143 28.0% 1.2 14.1 15.8
January-97 Maintenance Warehouse/America Corp. Home Depot 245 N/A N/A N/A N/A
October-96 Chadwick's of Boston Brylane 303 N/A 0.6 N/A N/A
April-96 E&B Marine West Marine 50 1.7% 0.5 16.5 26.6
December-95 Gander Mountain - catalog business Cabela 35 N/A N/A N/A N/A
August-93 Brylane Freeman Spogli & Co. 285 N/A 1.0 N/A 9.9
MEDIAN $ 194 1.7% 0.8x 10.4x 12.4x
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
% MARGIN
DATE EQUITY VALUE/ -----------------------------
ANNOUNCED TARGET ACQUIROR NET INCOME EBITDA EBIT NET INCOME
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
November-98 Popular Plan Club Fingerhut N/A N/A N/A N/A
August-98 Arizona Mail Company Fingerhut N/A 14.0% N/A N/A
July-98 PC Flowers & Gifts Fingerhut N/A N/A N/A N/A
February-98 Brylane PPR 18.6x 10.2% 8.6% 4.3%
November-97 Chef's Catalog Neiman-Marcus Group N/A N/A N/A N/A
October-97 J. Crew Texas Pacific Group N/A 5.9% 4.4% N/A
January-97 Territory Ahead Management N/A N/A N/A N/A
January-97 Eastbay Woolworth N/A N/A N/A N/A
January-97 Maintenance Warehouse/America Corp. Home Depot N/A N/A N/A N/A
October-96 Chadwick's of Boston Brylane 18.8 N/A N/A 2.7%
April-96 E&B Marine West Marine N/A 2.7% 1.6% 0.2%
December-95 Gander Mountain - catalog business Cabela N/A N/A N/A N/A
August-93 Brylane Freeman Spogli & Co. N/A N/A 10.0% N/A
MEDIAN 18.7x 8.1% 6.5% 2.7%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Source: Securities Data Corporation
JPMORGAN
28
<PAGE> 31
THE DIRECT MAIL/APPAREL SECTOR HAS EXPERIENCED SIGNIFICANT MULTIPLE CONTRACTION
<TABLE>
<CAPTION>
CATALOG COMPARABLES
--------------------------------------------------------------------------
BUTTON S&P LE LVC CWTR SPGLA DLIA DMMC CDIR
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STOCK PRICE
02/26/97 $23.75 940.53 $27.88 $13.00 $18.00 $ 6.75 $17.50 $ 3.92 $12.75
10/15/97 45.88 1,127.29 31.56 16.69 29.00 6.44 22.25 10.67 20.00
04/03/98 56.88 1,306.33 38.25 18.13 22.00 6.13 25.13 14.50 16.00
11/13/98 16.50 1,346.14 19.75 14.38 13.50 3.06 7.88 16.25 9.85
% CHANGE (04/03/98-11/13/98) (71.0%) 3.1% (48.4%) (20.7%) (38.6%) (50.1%) (68.7%) 12.1% (38.3%)
12-MONTH FORWARD EPS ESTIMATES
02/26/97 $ 2.10 $ 45.19 $ 1.75 $ 1.05 $ 0.81 $ 0.23 $ 0.44 $ 0.40 $ 0.58
10/15/97 2.95 48.18 1.96 1.23 1.06 0.09 0.58 0.55 1.13
04/03/98 3.42 48.93 2.23 1.27 1.18 0.17 0.73 0.72 0.41
11/13/98 2.47 46.85 2.00 1.43 1.32 0.21 0.57 0.96 0.31
% CHANGE (04/03/98-11/13/98) (27.8%) (4.3%) (10.3%) 12.4% 11.9% 20.6% (20.2%) 32.8% (24.4%)
12-MONTH FORWARD P/E RATIOS
02/26/97 11.3x 20.8x 15.9x 12.4x 22.2x 29.3x 39.8x 9.8x 24.0x
10/15/97 15.6 23.4 16.1 13.6 27.4 71.5 38.4 19.4 17.7
04/03/98 16.6 26.7 17.2 14.3 18.6 36.0 34.4 20.1 38.0
11/13/98 6.7 28.6 10.2 10.2 10.8 16.1 14.1 16.7 32.0
% CHANGE (04/03/98-11/13/98) (59.7%) 7.1% (40.6%) (28.3%) (41.7%) (55.1%) (59.1%) (16.7%) (15.8%)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RETAIL COMPANIES
--------------------
IBI TLB
- -----------------------------------------------------
<S> <C> <C>
STOCK PRICE
02/26/97 $19.13 $31.38
10/15/97 22.75 26.75
04/03/98 27.81 19.44
11/13/98 25.31 24.69
% CHANGE (04/03/98-11/13/98) (9.0%) 27.0%
12-MONTH FORWARD EPS ESTIMATES
02/26/97 $ 1.25 $ 2.24
10/15/97 1.40 1.50
04/03/98 1.59 0.77
11/13/98 1.74 1.31
% CHANGE (04/03/98-11/13/98) 9.4% 69.5%
12-MONTH FORWARD P/E RATIOS
02/26/97 15.3x 14.0x
10/15/97 16.3 17.8
04/03/98 17.5 25.2
11/13/98 14.3 18.6
% CHANGE (04/03/98-11/13/98) (18.5%) (26.1%)
- -----------------------------------------------------
</TABLE>
Source: I/B/E/S
JPMORGAN
29
<PAGE> 32
J.P. MORGAN DEVELOPED FORECASTS FOR BUTTON BASED ON PUBLICLY AVAILABLE
INFORMATION
[Graph showing Sales forecast ($MM) - 1996-2004]
`96 - `98 CAGR: 10.4%
`99 - `04 CAGR: 2.8%, 5.0%
[Graph showing EBITDA margin forecast - 1996-2004]
[Graph showing Gross Margin forecast - 1996-2004]
[Graph showing EPS ($ per share) forecast - 1998-2004]
`96-`98 CAGR: 52.9%
`99-`04 CAGR
- - Case I: 15.0%
- - Case II: 12.5%
JPMORGAN
30
<PAGE> 33
DISCOUNTED CASH FLOW FORECAST SUMMARY
$ MILLIONS, EXCEPT PER SHARE DATA
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDING JANUARY 31,
------------------------------------------------------------------------------------
1998 LTM 1999E 2000E 2001E 2002E 2003E 2004E
- --------------------------------------------------------------------------------------------------------------------------------
CASE I
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $ 1,315 $ 1,360 $ 1,353 $ 1,421 $ 1,491 $ 1,567 $ 1,646 $ 1,729
% growth 13.6% - 2.9% 5.0% 5.0% 5.0% 5.0% 5.0%
EBITDA 137 141 112 121 126 132 140 149
% margin 10.4% 10.4% 8.3% 8.5% 8.4% 8.5% 8.5% 8.6%
EPS $ 2.76 $ 3.07 $ 2.06 $ 2.55 $ 2.90 $ 3.26 $ 3.67 $ 4.14
% growth 46.8% - (25.3%) 23.7% 13.8% 12.3% 12.7% 12.7%
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
CASE II
Sales $ 1,315 $ 1,360 $ 1,353 $ 1,421 $ 1,491 $ 1,567 $ 1,646 $ 1,729
% growth 13.6% - 2.9% 5.0% 5.0% 5.0% 5.0% 5.0%
EBITDA 137 141 112 121 126 132 140 149
% margin 10.4% 10.4% 8.3% 8.5% 8.4% 8.5% 8.5% 8.6%
EPS $ 2.76 $ 3.07 $ 2.06 $ 2.55 $ 2.73 $ 2.88 $ 3.25 $ 3.72
% growth 46.8% - (25.3%) 23.7% 7.3% 5.5% 12.9% 14.3%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
JPMORGAN
31
<PAGE> 34
DISCOUNTED CASH FLOW ANALYSIS: CASE I
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JANUARY 31,
-----------------------------------------------------------------------------
$ MILLIONS 1999 2000 2001 2002 2003 2004
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales $1,358 $1,421 $1,491 $1,5678 $1,646 $1,729
% growth 2.9% 5.0% 5.0% 5.0% 5.0% 5.0%
EBITDA 112 121 126 132 140 149
% margin 8.3% 8.5% 8.4% 8.5% 8.5% 8.6%
EBIT 90 98 102 108 116 124
% margin 6.6% 6.9% 6.8% 6.9% 7.0% 7.2%
Capex 13 13 15 16 17 17
% sales 1.0% 0.9% 1.0% 1.0% 1.0% 1.0%
Change in NWI 7 5 6 6 6 6
</TABLE>
CASE I (EQUITY VALUE/SHARE)
<TABLE>
<CAPTION>
TERMINAL VALUE EBITDA MULTIPLE
------------------------------
6.00X 6.25X 6.5X
------------------------------
<S> <C> <C> <C>
WACC
9.75% $27.18 $28.57 $29.96
10.00 26.73 28.11 29.48
10.25 26.29 27.65 29.00
</TABLE>
- --------------------------------------------------------------------------------
General assumptions 1999 and 2000 forecast based on consensus EPS estimates
of $2.06 and $2.55, respectively, and long-term EPS
growth of 15.0%
Sales growth Assumes sales growth of 2.9% and 5.0% in 1999 and 2000,
respectively, flat at 5.0% through 2004
Margins Gross margin and operating margin average 49.5% and
6.9%, respectively, during the forecast period
Cash flow items Capex forecast of 1.0% of sales and working capital at
7.8% of sales
- --------------------------------------------------------------------------------
CASE I (IMPLIED 1999 FV/EBITDA)
<TABLE>
<CAPTION>
TERMINAL VALUE EBITDA MULTIPLE
--------------------------------
6.00X 6.25X 6.50X
--------------------------------
<S> <C> <C> <C>
WACC
9.75% 7.7x 7.9x 8.2x
10.00 7.7 7.9 8.1
10.25 7.6 7.8 8.0
</TABLE>
JPMORGAN
32
<PAGE> 35
DISCOUNTED CASH FLOW ANALYSIS: CASE II
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JANUARY 31
----------------------------------------------------------------------------
$ MILLIONS 1999 2000 2001 2002 2003 2004
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales $1,353 $1,421 $1,491 $1,567 $1,646 $1,729
% growth 2.9% 5.0% 5.0% 5.0% 5.0% 5.0%
EBITDA 112 121 126 132 140 149
% margin 8.3% 8.5% 8.4% 8.5% 8.5% 8.6%
EBIT 90 98 99 101 109 117
% margin 6.6% 6.9% 6.6% 6.5% 6.6% 6.8%
Capex 13 50 51 17 16 17
% sales 1.0% 0.9% 3.3% 3.2% 1.0% 1.0%
Change in NWI 7 5 6 6 6 6
</TABLE>
CASE II (EQUITY VALUE/SHARE)
<TABLE>
<CAPTION>
TERMINAL VALUE EBITDA MULTIPLE
-------------------------------
6.00X 6.25X 6.50X
-------------------------------
<S> <C> <C> <C>
WACC
9.75% $24.33 $25.72 $27.10
10.00 23.90 25.27 26.64
10.25 23.47 24.82 26.18
</TABLE>
- --------------------------------------------------------------------------------
General assumptions 1999 and 2000 forecast based on consensus EPS estimates
of $2.06 and $2.55, respectively
Sales growth Assumes sales growth of 2.9% and 5.0% in 1999 and 2000,
respectively, flat at 5.0% through 2004
Margins Gross margin and operating margin average 49.5% and
6.7%, respectively, during the forecast period
Cash flow items Capex forecast of 1.0% (except 2001 and 2002) of sales
and working capital at 7.8% of sales
Modifications/ Additional capex of $35 million in both 2001 and 2002.
comments(1) Assumes no additional sales growth or margin improvement
over Case I
- --------------------------------------------------------------------------------
CASE II (IMPLIED 1999 FV/EBITDA)
<TABLE>
<CAPTION>
TERMINAL VALUE EBITDA MULTIPLE
-------------------------------
6.00X 6.25X 6.50X
-------------------------------
<S> <C> <C> <C>
WACC
9.75% 7.3x 7.5x 7.7x
10.00 7.2 7.4 7.6
10.25 7.2 7.4 7.6
</TABLE>
JPMORGAN
(1) Pursuant to discussions with PPR management
33
<PAGE> 36
SELECTED COMPARABLE PUBLICLY TRADED COMPANIES
<TABLE>
<CAPTION>
Company Description Comments
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Blair Retails and direct mail merchandises fashion apparel for Experienced flat Q2 sales; operates retail stores
men and women, as well as a variety of home products. in Pennsylvania and Delaware, as well as two outlet
Home products include draperies, furniture covers, area stores in Pennsylvania.
rugs, bath accessories, kitchenware, tools and more
Coldwater Creek Specialty direct-mail retailer of apparel, gifts, jewelry and Announced intention to sell Milepost 4 in order to
home furnishings; select number of company retail focus on core female and home furnishings customers
stores
Concepts Direct Provides a variety of database management, list Significant growth in customer and database size
processing, and marketing research services to direct expected to continue in near term; however, still
marketing companies. The Company also sells experiencing increasing losses
personalized paper products and a diverse line of
merchandise, including collectibles, gift items, home
decorative items, and casual apparel
Delia's Direct marketer of casual apparel and related Sales slowing due to current competition in teen
accessories to girls and young women. Offers an sector and changes in fashion. Store sales
assortment of branded products including jeans, shorts, expected to surpass catalog sales within three
t-shirts, dresses, swimwear, sunglasses, costume years
jewelry, watches and cosmetics
DM Management Specialty direct marketer of high quality women's One of the few direct marketers that continues to
apparel, accessories, shoes, and gifts; markets its perform well. J. Jill and Nicole Summers have a
products through the J. Jill and Nicole Summers catalogs combined circulation of 70 million
Fingerhut Leading direct marketer of consumer products; sells its Three acquisitions over past four months (Arizona
merchandise through catalogs, television and other Mail, Popular Plan Club, PC Flowers & Gifts).
media; targets moderate income customers Cutting circulation of certain catalogs
Genesis Direct Database-driven specialty retailer, offers products Net loss of $21.2 million for Q2; Company has
directly to consumers in targeted niche markets through retained investment advisors to assist in the
catalogs, Internet websites, and electronic media. The evaluation of strategic alternatives, including a
Company markets sports apparel, accessories, home possible sale of the company
furnishings, equipment, kids toys, games, crafts,
clothing, educational materials, gifts, collectibles, and
more
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
JPMORGAN
34
<PAGE> 37
SELECTED COMPARABLE PUBLICLY TRADED COMPANIES (CONT'D)
<TABLE>
<CAPTION>
COMPANY DESCRIPTION COMMENTS
<S> <C> <C>
Hanover Direct Specialty direct marketer, providing home fashions, Modest operating improvements over prior year. The
general merchandise, men's and women's apparel, and Company Store and Silhouette showed significant
gift catalogs via direct mail and electronic commerce. year-to-year growth in demand.
Intimate Brands Leading specialty retailer of intimate apparel and Catalog sales, which approximate 33% of total sales,
personal care products, operating mainly under Victoria are flat year-to-date and expected down 5%-10% in
Secret and Bath & Body Works brand names; over 600 Q3
stores in
U.S., Canada, U.K.
Land's End Specialty mail-order retailer of classic styles and casual Inventory problem expected to affect Q4; fired CEO
clothing for men, women and children, accessories, and Vice Chairman of sales; 55% owned by
shoes, soft luggage and bath and bedding items Chairman/Founder
Lillian Vernon Direct-mail specialty catalog marketer of household, gift, Q2 earnings affected by poor retail environment;
gardening, kitchen, Christmas and children's products initiated share repurchase program in October
Spiegel International, multichannel specialty retailer marketing Catalog business continues to erode; October sales
apparel and home furnishings to customers through down 5%; Eddie Bauer same store sales down 14% in
catalogs, 508 specialty retail stores, and electronic October and 11% year-to-date
platforms. Merchandising businesses include Spiegel
Catalog, Eddie Bauer, Eddie Bauer HOMECollection,
AKA EDDIE BAUER and Newport News
The Talbots Leading specialty retailer and cataloger of women's and Alienated core classic customer last year; expects
children's classic apparel, shoes, and accessories; flat catalog sales this year; developed a test book
operates in over 600 stores in the U.S., Canada and for plus size women (1.2MM copies); currently
U.K. eliminating unprofitable names
</TABLE>
JPMORGAN
35
<PAGE> 38
SELECTED COMPARABLE PUBLICLY TRADED COMPANIES (CONT'D)
$ MILLIONS
<TABLE>
<CAPTION>
LTM 1998
-----------------------------------------------
NET DEBT/ EBITDA EBIT
MARKET CAP NET DEBT FIRM VALUE FIRM VALUE REVENUES MARGIN MARGIN NET MARGIN
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Blair Corp. $ 212 $ 26 $ 238 0.11 $ 491 8.2% 7.1% 4.1%
Coldwater Creek 146 21 167 0.13 300 7.5 6.0 3.5
Concepts Direct 50 2 52 0.05 79 0.7 (0.5) (0.3)
Delia's 113 (17) 96 (0.18) 132 7.7 6.7 4.2
DM Management 159 15 174 0.08 197 6.7 5.6 3.6
Fingerhut 423 261 683 0.38 1,789 10.8 8.0 3.9
Genesis Direct 151 47 198 0.24 156 NM NM NM
Hanover Direct 487 76 563 0.13 553 NM NM NM
Intimate Brands 6,213 328 6,541 0.05 3,733 19.4 16.5 10.1
Land's End 618 172 790 0.22 1,307 8.1 6.9 4.2
Lillian Vernon 134 16 150 0.11 265 5.7 4.0 2.7
Spiegel 436 741 1,177 0.63 2,770 4.9 1.8 (0.8)
The Talbots 778 73 852 0.09 1,107 6.8 3.4 1.5
MEDIAN $ 212 $ 47 $ 207 0.13 $ 491 7.2% 6.0% 3.6%
BUTTON 287 394 681 0.55 1,360 10.4 8.7 4.1
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
JPMORGAN
36
