As Filed with the Securities and Exchange Commission on April 5, 1999
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
AMENDMENT NO. 1
TO
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>
<CAPTION>
<S> <C> <C>
SERGE WEINBERG SERGE WEINBERG ROBERT A. PULCIANI
CHAIRMAN AND CHIEF EXECUTIVE OFFICER CHAIRMAN, CHIEF EXECUTIVE OFFICER EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL
PINAULT-PRINTEMPS-REDOUTE S.A. AND PRESIDENT OFFICER, SECRETARY AND TREASURER
18, PLACE HENRI BERGSON BUTTONS ACQUISITION CORPORATION BRYLANE INC.
75381 PARIS CEDEX 08 C/O WACHTELL, LIPTON, ROSEN & KATZ 463 SEVENTH AVENUE, 21ST FLOOR
011 33 1 44 90 61 00 51 W. 52ND STREET NEW YORK, NEW YORK 10018
NEW YORK, NY 10019 (212) 613-9500
(212) 403-1000
</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>
<CAPTION>
<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 94105-2482
(212) 403-1000 (213) 629-4824 (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.
--------------------------
Date filed: April 5, 1999
================================================================================
<PAGE>
INTRODUCTION
This Amendment No. 1 to the 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").
ITEM 16. ADDITIONAL INFORMATION.
On March 29, 1999, Parent received early termination of the applicable
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, with respect to the Offer and the Merger. Therefore, the condition
to the Offer relating to such waiting period has been satisfied.
The following amendments are set forth in this Item 16. However, the
cross-references to the Offer to Purchase contained throughout this Schedule
13E-3, as originally filed, continue to apply, giving effect to the amendments
contained in this Item 16.
(a) Item 16 is hereby amended by deleting and replacing in its entirety
the fourth sentence of the fifth paragraph under "SPECIAL FACTORS--Background of
the Offer--History and Background of the Company and Arrangements between the
Company, Parent and Purchaser" on page 4 in the Offer to Purchase with the
following:
In connection with the April 1998 Stock Purchase, the Company and
Parent entered into a Governance Agreement, dated as of April 3, 1998
(the "Governance Agreement"), pursuant to which, among other things,
Parent's ability to acquire additional Shares and to take other actions
has been limited. However, the provisions of the Governance Agreement
did permit Parent (and its affiliates) to purchase a limited number of
additional Shares up to a maximum of approximately 47.5% of outstanding
Shares as set forth in the Governance Agreement (Parent's beneficial
ownership of approximately 49.9% is a result of the Company's Share
repurchases, which were approved by the independent directors). Also in
connection with the April 1998 Stock Purchase, the Company and Parent
entered into a Registration Rights Agreement, dated as of April 3, 1998
(the "Registration Rights Agreement"), pursuant to which the Company
has granted Parent certain registration rights to facilitate the resale
of the Shares beneficially owned by Parent under certain conditions.
<PAGE>
(b) Item 16 is hereby amended by deleting and replacing in its entirety
the first sentence of the tenth paragraph under "SPECIAL FACTORS--Background of
the Offer--History and Background of the Company and Arrangements between the
Company, Parent and Purchaser" on page 4 in the Offer to Purchase with the
following:
On December 2, 1998, a special meeting of the Company Board was held,
at which Mr. Weinberg stated that Parent desired to make a proposal to
acquire the outstanding Shares not beneficially owned by Parent.
Pursuant to the Governance Agreement, Mr. Weinberg requested that the
independent directors of the Company consent to Parent's making a
proposal. The special meeting was temporarily adjourned to permit the
independent directors to meet separately to consider Parent's request.
The independent directors concluded that there was no inherent reason
why a proposal to acquire the remaining Shares should not be
considered, that without knowing the terms of Parent's proposal the
independent directors could not determine whether the proposal was in
the best interests of the Stockholders, other than Parent, and that,
accordingly, the independent directors should waive the provisions of
the Governance Agreement to the extent necessary to permit Parent to
present its proposal to the Company Board. At that meeting, the
independent directors did not waive the provisions of the Governance
Agreement which prohibited Parent from conducting a tender offer. The
special meeting of the Company Board reconvened and Parent submitted a
proposal letter (the "Proposal Letter") to the Company Board.
(c) Item 16 is hereby amended by adding the following immediately
prior to the text of the Proposal Letter under "SPECIAL FACTORS--Background of
the Offer--History and Background of the Company and Arrangements between the
Company, Parent and Purchaser" on page 5 in the Offer to Purchase:
Parent is aware that the Commission takes the position that the safe
harbor for forward-looking statements does not apply to statements made
in a press release in connection with a tender offer.
(d) Item 16 is hereby amended by adding the following after the fourth
paragraph following the text of the Proposal Letter under "SPECIAL
FACTORS--Background of the Offer--History and Background of the Company and
Arrangements between the Company, Parent and Purchaser" on page 7 in the Offer
to Purchase:
The preliminary analysis of the Proposal that Bear Stearns presented at
the January 29, 1999 meeting of the Special Committee was based, in
part, on the Budget Projections (as defined below) provided to Bear
Stearns by the Company's management in early January 1999 after being
retained by the Special Committee. In the course of the meeting, Bear
Stearns indicated that it had not yet completed its due diligence but
was attempting to provide the Special Committee with its preliminary
findings based on the information available at that time.
The analysis of the Proposal was based, in part, upon the Budget
Projections, which were the only projections available at that time. As
described in "--Certain Financial
-2-
<PAGE>
Projections (Unaudited)," the Budget Projections, at the time of their
preparation, reflected management's best judgment as to the most likely
future financial results of the Company. The Budget Projections no
longer represent the Company's management's judgment of the most likely
future financial results of the Company. See "--Certain Financial
Projections (Unaudited)" for a description of the difference between
the Budget Projections and the Management Projections (as defined
below).
Bear Stearns utilized several valuation methodologies in order to frame
a preliminary range of values for the Special Committee.
Comparable Public Company Analysis
Bear Stearns initially reviewed a broad universe of direct marketing
retailers. Applying a 11x-13x price earnings multiple to the 1999
Budget Projection of earnings per share of $2.29 implied a value range
of $25-$30 per share. Applying a slightly higher 12x-14x price earnings
multiple to the consensus estimate of four Wall Street equity research
analysts for 1999 of $1.66 implied a value range of $20-$23 per share.
Present Value of Hypothetical Stock Price
Bear Stearns conducted a theoretical analysis of the present value of
future share prices of the Company assuming the achievability of the
Budget Projection of earnings per share of $2.29 for 1999, $2.65 for
2000 and $3.08 for 2001. Bear Stearns assumed a range of required
annual return on equity of between 15%-20% and price earnings multiple
of 12x-14x. The range of values implied by this analysis was $26-$32
per share.
Comparable Acquisitions/Precedent Transaction Analysis
Using publicly available information, Bear Stearns applied 1998 mean
multiples for earnings per share and earnings before interest, taxes,
depreciation and amortization (EBITDA) from precedent transactions to
the preliminary 1998 Company earnings per share of $1.25 and EBITDA of
$89 million (taken from the Budget Projections). In addition, Bear
Stearns noted the acquisition of Arizona Mail Order by Fingerhut
Companies Inc. as being particularly recent and comparable at 6.7x
latest twelve months EBITDA. The range of values implied by this
analysis was $22-$27 per share.
Discounted Cash Flow Analysis
Bear Stearns performed a discounted cash flow analysis of the Company
for the fiscal years ended 1999 through 2003 based on the Budget
Projections and a sensitivity case reflecting less aggressive sales and
earnings recovery assumptions. Bear Stearns' analysis applied a range
of discount rates from 11-11.5% and exit multiples of 6.0-7.5x EBITDA
for 2003. The implied value range based on the Budget Projections was
$25-$35 per share. The sensitivity case, which assumed compounded
annual sales growth of 4.0% for 1998-2000 versus the Budget Projections
of 5.5% and operating income margin of 6.4% for 1999 and 6.8% average
for 2000-2003 versus the Budget Projections of 7.3%
-3-
<PAGE>
for 1999 and 7.9% average for 2000-2003. The implied value range based
on the sensitivity case was $18-$26 per share.
A copy of the written materials prepared by Bear Stearns for the
January 29, 1999 meeting of the Special Committee containing the
foregoing analyses is filed as Exhibit (b)(6) to the Schedule 13E-3.
(e) Item 16 is hereby amended by deleting and replacing in their
respective entireties the sixth, ninth and tenth bullet points of the first
paragraph under "SPECIAL FACTORS--Position of Parent and Purchaser Regarding
Fairness of the Offer and the Merger--Position of Parent and Purchaser" on page
9 in the Offer to Purchase with the following:
-- the historical and projected financial performance of the Company
and its financial results (including, without limitation, sales,
EBITDA, and net income), and Parent's views as to the likelihood of
achieving such results under various scenarios (See "--Certain
Financial Projections (Unaudited)");
-- the consideration to be paid to the Stockholders is entirely in
cash, which is more liquid, and the value of which is more easily
ascertainable and less subject to risk, than securities;
-- in the Merger, Stockholders will receive an amount in cash equal to
$24.50 or any greater amount per Share paid pursuant to the Offer
(the "Per Share Amount"), so that Stockholders that do not
participate in the Offer receive the same consideration as
Stockholders that do participate; and
(f) Item 16 is hereby amended by deleting and replacing in its entirety
the second paragraph under "SPECIAL FACTORS--Position of Parent and Purchaser
Regarding Fairness of the Offer and the Merger--Position of Parent and
Purchaser" on page 9 in the Offer to Purchase:
Parent and Purchaser did not find it practicable to assign, nor did
they assign, relative weights to the individual factors considered in
reaching their conclusion as to fairness. In light of the nature of the
Company's business as a financially sound and growing corporation,
Parent and Purchaser did not deem net book value, going concern value
or liquidation value to be relevant indicators of value of the Shares.
Moreover, Parent is not aware of any firm offers made by any
unaffiliated person during the preceding 18 months for the merger or
consolidation of the Company, the sale or transfer of all or any
substantial part of the assets of the Company or securities of the
Company which would enable the holder thereof to exercise control of
the Company. In their fairness determination, Parent and Purchaser
considered the fact that Parent, through its subsidiaries, acquired
Shares at prices significantly higher than $24.50 within the past year.
See "--Background of the Offer" and "--Interests of Certain Persons in
the Offer and the Merger." However, Parent and Purchaser believe that
the present and projected performance of the Company and the decline in
the trading prices of the Shares indicate
-4-
<PAGE>
that the Share prices paid by Parent's subsidiaries significantly in
excess of $24.50 are no longer indicative of the current value of the
Company.
(g) Item 16 is hereby amended by adding the following sentence at the
end of the second paragraph under "SPECIAL FACTORS--Position of Parent and
Purchaser Regarding Fairness of the Offer and the Merger--J.P. Morgan Reports"
on page 9 in the Offer to Purchase:
The November 17 Report contained a review of the Company and Parent's
investment in the Company, including:
-- global market factors (turmoil in financial markets, collapse in
exports and a lowering of business confidence), direct mail and
apparel sector factors (catalog sales for Christmas season 20% below
expectations at the time of the November 17 Report, increasing
competition, softening of the apparel sector as more dollars shift
towards home furnishings) and Company-specific factors (a general
slowdown continuing accross all catalog divisions, continued
weakness in the Lerner catalogs due to merchandising miscues,
slowdown in core large size Lane Bryant catalog and sustained
pressure on Chadwick's performance, increased markdowns on fall
inventories and increased competition), all of which have negatively
impacted the Company's performance and prospects;
-- the recent Share price performance, including in relation to that of
the Company's peers and the broader market (indicating
underperformance), and factors relating to such Share price
performance (including lower analysts earnings per share estimates
and significant contraction in 12 month-forward earnings per share
and price earnings ratios, which are consistent with share price
erosion and multiple contraction in the direct mail/apparel sector);
-- significant reductions in analysts' earnings estimates for the
Company, to a Street median as of November 13, 1998 of $2.06 and
$2.55 earnings per share estimates for fiscal years ended January
1999 and January 2000, respectively; and
-- analysts' comments in the fall of 1998 emphasizing the weaknesses in
the Company's catalogs and the Company's below-expectations
performance.
The November 17 Report set forth the valuation implications of the
Company, reviewing J.P. Morgan's discounted cash flow analysis,
comparative trading analysis, comparative operating performance
analysis, and comparable trading multiples analysis, all of which were
based on publicly available information and which showed a range of $18
to $30 per Share. The November 17 Report also contained a review of
certain issues to consider, such as acquisition premia, in an
exploration of alternatives, including a possible acquisition. For more
detailed information regarding the foregoing, see the full text of the
November 17 Report, filed as Exhibit (b)(5) to the Schedule 13E-3.
(h) Item 16 is hereby amended by adding the following sentence after
the second sentence of the third paragraph under "SPECIAL FACTORS--Position of
Parent and Purchaser Regarding Fairness of the Offer and the Merger--J.P. Morgan
Reports" on page 9 in the Offer to Purchase:
-5-
<PAGE>
The February 22 Report reviewed the fiscal year 1998 below-expectations
operating performance for the Company. The February 22 Report then set
forth that the Company management's projection of an extremely rapid
recovery from the challenges that the Company faced in fiscal year
1998, including the projections that fiscal year 1999 operating profit
would grow 24% over (pre-reserve) fiscal year 1998 levels and that the
West Bridgewater division's operating profit would grow 61% over
(pre-reserve) fiscal year 1998 levels. For more detailed information
regarding such projections, "--Certain Financial Projections
(Unaudited)--Brylane Inc. Budget Projections."
In response to such projections, the February 22 Report reviewed
strategic concerns, operating risks and challenges associated with the
Company, including:
-- problems associated with the Company's Chadwick's division for the
second half of fiscal year 1998, including the facts that average
revenue per order on customer sales were off over 20% from the prior
year, that response rates on customer sales, reactivations and
prospects were off 9%, 22% and 17% over the prior year,
respectively, and operating income (before inventory adjustment) of
$(1.5) million compared to $32.5 million one year prior;
-- the short-term nature of the Company's contract with Sears, which
accounted for approximately 18.7% of second half of fiscal year 1998
operating profit and 11.5% of fiscal year 1998 operating profit;
-- recent order fulfillment problems, which are expected to take two
years to turn around;
-- the aggressive nature of the Budget Projections, including the facts
that fiscal year 1999 response rates were forecast to exceed the
record fiscal year 1997 results, and that gross margin improvement
is projected given an aggressive pricing policy;
-- expectations regarding future capital expenditures;
-- increasing competition in the Company's core markets;
-- expiration of certain key trademarks in October 2007 which will
necessitate higher advertising expenditures; and
-- chief executive officer succession planning.
The February 22 Report set forth the valuation implications of the
Company, reviewing J.P. Morgan's discounted cash flow analysis,
discounted cash flow sensitivity analysis, and comparable company
trading multiples analysis. The highest implied value per Share derived
from the foregoing analyses was $23.89 based on the most optimistic
case analyzed. For more detailed information regarding the foregoing,
see the full text of the February 22 Report, filed as Exhibit (b)(4) to
the Schedule 13E-3.
-6-
<PAGE>
(i) Item 10(f) is hereby amended by adding the following sentence at
the end of the fifth paragraph under "SPECIAL FACTORS--Position of Parent and
Purchaser Regarding Fairness of the Offer and the Merger--J.P. Morgan Reports"
on page 10 in the Offer to Purchase:
J.P. Morgan has consented to the inclusion of the descriptions of its
November 17 Report, February 22 Report and March 4 Report contained herein and
to the filing of such Reports as exhibits to the Schedule 13E-3.
(j) Item 16 is hereby amended by adding the following sentence after
the first sentence of the second paragraph under "SPECIAL
FACTORS--Recommendation of the Company Board; Fairness of the Offer and the
Merger--Recommendation of the Special Committee and the Company Board--Company
Board" on page 13 in the Offer to Purchase:
The Company Board and the Special Committee concluded that the Offer
Price adequately reflected the Company's historical results of
operations based on the Bear Stearns' precedent transaction analysis,
and that the Offer Price adequately reflected the Company's future
growth prospects based on the Bear Stearns' comparable public company
and discounted cash flow analyses, all of which are discussed under
"--Opinion of Bear Stearns." The Company Board also recognized that the
Offer Price was significantly lower than prices the Company paid to
repurchase Shares in the open market less than six months before the
Offer commenced, but concluded that in light of the lower than expected
Company earnings and the decline in the trading price of the Shares,
those prices were not relevant to a determination at this time of
whether the Offer Price was fair to the Stockholders other than Parent.
(k) Item 16 is hereby amended by moving the nineteenth paragraph under
"SPECIAL FACTORS--Recommendation of the Company Board; Fairness of the Offer and
the Merger--Opinion of Bear Stearns" on page 16 to follow the seventh paragraph
under "SPECIAL FACTORS--Recommendation of the Company Board; Fairness of the
Offer and the Merger--Opinion of Bear Stearns" on page 15 in the Offer to
Purchase.
(l) Item 16 is hereby amended by amending and restating the first
sentence of the eighth paragraph under "SPECIAL FACTORS--Recommendation of the
Company Board; Fairness of the Offer and the Merger--Opinion of Bear Stearns" on
page 15 in the Offer to Purchase as follows:
Set forth below is a brief summary of certain analyses performed by
Bear Stearns, contained in the Bear Stearns Report and reviewed with
the Special Committee on March 9, 1999 in connection with the
preparation of Bear Stearns' opinion.
(m) Item 16 is hereby amended by adding the following sentence after
the first sentence of the fourteenth paragraph under "SPECIAL
FACTORS--Recommendation of the Company Board; Fairness of the Offer and the
Merger--Opinion of Bear Stearns" on page 16 in the Offer to Purchase:
-7-
<PAGE>
Based on guidance from the Company's management, solely for purposes of
the discounted cash flow analysis, Bear Stearns assumed that net sales
would grow at a 7.5% annual rate in years 2002 and 2003, that the
EBITDA margin to sales would be 7.8% in 2002 and 8.2% in 2003, and that
working capital would remain at a constant percentage of sales as in
prior years. Bear Stearns also used the Company's management's estimate
for capital expenditures of $50 million and $20 million in 2002 and
2003, respectively. No other material assumptions regarding 2002 and
2003 were necessary for Bear Stearns' discounted cash flow analysis or
any other analyses undertaken by Bear Stearns.
(n) Item 16 is hereby amended by adding the following sentence as the
last paragraph under "SPECIAL FACTORS--Recommendation of the Company Board;
Fairness of the Offer and the Merger--Opinion of Bear Stearns" on page 17 in the
Offer to Purchase:
Bear Stearns has consented to the references to its opinion and the
foregoing description of the analyses it performed in this Offer to
Purchase.
(o) Item 16 is hereby amended by deleting and replacing in its entirety
the fourth paragraph under "SPECIAL FACTORS--Certain Financial Projections
(Unaudited)" on page 17 in the Offer to Purchase with the following:
Several factors were considered by the Company's management in
developing the Management Projections, including, without limitation:
-- substantially fewer orders from certain initial spring mailings
reflecting disappointing responses to several merchandising changes,
resulting in, among other things, an approximately 15% decline in
projected orders from the Company's Bridgewater catalog and an
approximately 13% decline in the projected orders from the Company's
combined Lerner weekend and spring sale catalogs;
-- changes in the industry indicating more intense competition from
existing and new entrants (including the recent acquisition of
Fingerhut Companies, Inc. by Federated Department Stores, Inc.)
-- changes in the industry resulting in more alternatives for the
customer, including the Internet as a distribution channel, at
competitive prices; and
-- loss of key management in the Chadwick's division, including the
resignation of Carol Meyrowitz, head merchandiser for Chadwick's,
and of the chief financial officer of Chadwick's and the vice
president of operations of Chadwick's.
(p) Item 16 is hereby amended by deleting the second to the last
sentence under "SPECIAL FACTORS--Cautionary Statement Concerning Forward-Looking
Statements" on page 20 in the Offer to Purchase.
-8-
<PAGE>
(q) Item 16 is hereby amended by deleting and replacing in its entirety
the first paragraph under "SPECIAL FACTORS--Purpose and Structure of the Offer;
Reasons of Parent and Purchaser for the Offer and the Merger" on page 20 in the
Offer to Purchase with the following:
The purpose of the Offer, the Merger and the Merger Agreement is to
enable Parent to acquire complete control of the Company Board and the
entire equity interest in the Company. The possible alternatives
available to Parent to accomplish its purpose were restricted by the
standstill provisions of the Governance Agreement. See "--Interests of
Certain Persons in the Offer and the Merger--Governance Agreement."
Parent sought to achieve its goal of acquiring complete control of the
Company Board and the entire equity interest in the Company through the
means which it believed had the greatest likelihood of success in a
relatively short timeframe. Based on advice from its legal and
financial advisors, Parent believed that the Offer and Merger were the
means to achieve its goal with the greatest likelihood of success in a
relatively short timeframe. Therefore, Parent did not consider or
pursue any alternative means to accomplish its goal of acquiring the
entire equity interest of the Company and complete control of the
Company Board.
Upon consummation of the Merger, the Company will become a wholly owned
subsidiary of Parent. The Offer is being made pursuant to the Merger
Agreement. The two-step Offer and Merger structure has been used in
lieu of a one-step merger because Parent believes that a tender offer
may be consummated more quickly than a one-step merger transaction.
(r) Item 16 is hereby amended by adding the following sentence after
the third sentence of the third paragraph under "SPECIAL FACTORS--Purpose and
Structure of the Offer; Reasons of Parent and Purchaser for the Offer and the
Merger" on page 20 in the Offer to Purchase:
Parent has not yet taken any steps to implement the changes referenced
in the preceding sentence.
(s) Item 16 is hereby amended by adding the following paragraph after
the third paragraph under "SPECIAL FACTORS--Purpose and Structure of the Offer;
Reasons of Parent and Purchaser for the Offer and the Merger" on page 20 in the
Offer to Purchase:
The Company Board and the Special Committee had no role in determining
the timing of Parent in making its proposal to acquire the outstanding
Shares that it does not already beneficially own or the Offer.
Recognizing that Parent's proposal to acquire the outstanding Shares
that it does not already beneficially own and the transactions
contemplated by the Offer could be amended or withdrawn by Parent at
any time in its discretion, the Company Board and the Special Committee
concluded that because they had determined that the Offer was fair to
and in the best interests of the Stockholders, other than Parent, the
prohibitions of the Governance Agreement should be waived rather
-9-
<PAGE>
than risking withdrawal of Parent's proposal or the transactions
contemplated by the Offer.
(t) Item 16 is hereby amended by deleting and replacing in its entirety
the fourth paragraph under "THE TENDER OFFER--Section 8. Certain Information
Concerning Parent and Purchaser" on page 44 of the Offer to Purchase with the
following:
On March 10, 1999, Parent announced its audited consolidated results
for the year ended December 31, 1998. As at such date, Parent had
consolidated revenues of 108,329 million French Francs (or
approximately $18,080 million), operating income of 5,977 million
French Francs (or approximately $998 million) and net income of 3,331
million French Francs (or approximately $556 million). The foregoing
approximate dollar equivalents are based on the exchange rate on March
10, 1999 of 5.9916 French Francs to a United States dollar, as reported
in The Wall Street Journal for such date. A copy of the Parent Results
Press Release is filed as Exhibit (a)(12) to the Schedule14D-1.
Parent's financial statements are prepared in accordance with French
generally accepted accounting principles ("French GAAP"). Parent does
not, nor is it otherwise required to, audit its financial statements in
accordance with GAAP. The following represents, in the opinion of
Parent, the significant differences between GAAP and French GAAP that
would affect the foregoing financial data of Parent. No attempt has
been made to identify future differences between GAAP and French GAAP
resulting from prescribed changes in accounting standards. It should
also be noted that regulatory bodies that promulgate French GAAP and
GAAP have significant on-going projects which could affect comparisons
between GAAP and French GAAP. Finally, the following does not identify
all of the differences between French GAAP and GAAP that may be
relevant.
Deferred taxation
Under French GAAP, deferred tax is calculated under the liability
method on temporary timing differences between taxable and accounting
earnings.
Net deferred tax balances are calculated on the basis of the tax
position of each company or group of companies participating in a group
tax election. Deferred tax assets are capitalized only if the company
or the fiscally consolidated entity has a reasonable degree of
certainty of recovering them during subsequent years; the assets
corresponding to carried forward tax losses are capitalized only when
they are virtually certain to be offset against future taxable profits.
Irrecoverable taxes relative to the payment of dividends of
consolidated entities are provisioned. No provision is made for
possible future distribution of reserves of either consolidated or
unconsolidated companies.
Where there is no intention of disposal, potential tax liabilities on
intangible assets recognized at the time of the acquisitions are not
recorded.
-10-
<PAGE>
Under GAAP, deferred taxes are provided for all temporary differences
between the tax and commercial balance sheets. Not all these
differences that qualify for deferred tax calculation are permissible
under French GAAP. Under GAAP, deferred taxes are also calculated for
tax loss carryforwards and certain other adjustments using the
liability method and based on enacted tax rates. A valuation allowance
is established when it is more likely than not that deferred tax assets
will not be realized.
Consolidation Policies
Parent does not consolidate certain entities in which it owns a
majority interest, in particular its Financial Services Division is
accounted for under the equity method. Under GAAP, majority owned
entities (over 50% ownership) are generally required to be fully
consolidated, whereas non-majority owned entities are generally
required to be accounted for using either the cost or equity method
depending upon the amount of influence the applicable company is able
to exert over the owned entity.
Depreciation/Amortization Policies
As permitted under French GAAP, Parent has not amortized certain
intangible assets (trade names and market shares). Under GAAP these
intangible assets would be amortized over their expected useful lives,
not exceeding 40 years.
Lease Transactions
Parent has entered into certain lease transactions for land buildings
and other fixed assets. Pursuant to French GAAP Parent has disclosed
the nature of the transactions, the gross amount of the related
contracts, and the remaining amounts due under these contracts. Under
French GAAP the related obligations under these contracts are
considered period expenses and are not accrued for in the balance sheet
(i.e., the obligation is considered an operating lease obligation).
Under GAAP such leases would be considered capital leases and would
require that an asset and related debt liability be initially recorded
and subsequently adjusted to reflect the lease payments and use of the
asset.
(u) Item 16 is hereby amended by deleting and replacing in its entirety
the last sentence of the first paragraph before the bulleted list under "THE
TENDER OFFER--Section 12. Certain Conditions of the Offer" on page 46 in the
Offer to Purchase with the following:
Furthermore, notwithstanding any other provision of the Offer,
Purchaser may, subject to the terms of the Merger Agreement, amend or
terminate the Offer or postpone the acceptance for payment of or
payment for tendered Shares if at any time on or after March 10, 1999
(unless otherwise indicated below) and before the Expiration Date, any
of the following events shall occur:
(v) Item 16 is hereby amended by making the following revisions to
Schedule I to the Offer to Purchase:
(i) the second sentence of the Employment History of Philippe LaGayette
under Parent is amended and restated as follows: President of J.P.
Morgan et cie S.A. since 1998; (ii)
-11-
<PAGE>
the second sentence of the Employment History of Francois Henrot under
Parent is amended and restated as follows: General Partner of
Rothschild et Cie Banque since March, 1997; (iii) the first sentence
under Parent and the second sentence under Purchaser of the Employment
History of Serge Weinberg are amended and restated as follows: Chairman
of the Management Board since July, 1995; (iv) the second sentence of
the Employment History of Serge Weinberg under Redcats is amended and
restated as follows: Chairman of the Management Board of Parent since
July, 1995 (v) the Employment History of Francois Henri Pinault under
Parent is hereby amended and restated as follows: Member of Management
Board since 1993. Member of Artemis since 1992. Chairman of the Board
of FNAC since May, 1997; (vi) the Employment History of Francois Henri
Pinault under Artemis is hereby amended and restated as follows:
Director for more than 5 years. Chairman of the Board of FNAC since
May, 1997; (vii) the Employment History of Andre Guilbert under Parent
is hereby amended and restated as follows: Member of Management Board
since 1998; and (viii) Jean Loyrette no longer sits on the Board of
Parent.
-12-
<PAGE>
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.
Item 17 is hereby amended by adding the following exhibits.
EXHIBIT EXHIBIT
NO. NAME
----------- -----------
(b)(6) Presentation of Bear, Stearns & Co. Inc. dated January 29, 1999.
(d)(16) Memorandum, dated March 29, 1999, to Participants in the 1996
Stock Option Plan and 1996 Performance Stock Option Plan.*
(d)(17) Memorandum, dated March 29, 1999, to Participants in the Brylane,
L.P. Savings and Retirement Plan and Brylane Inc. Employee Stock
Purchase Plan.*
(d)(18) Memorandum, dated March 29, 1999, to Participants in the Brylane
Inc. Stock Subscription Plan.*
- --------------------
* Incorporated by reference to Amendment No. 1 to the Statement on Schedule
14D-1 filed by Purchaser and Parent on April 5, 1999.
-13-
<PAGE>
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.
April 5, 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
-14-
<PAGE>
EXHIBIT INDEX
EXHIBIT
NO. EXHIBIT NAME
(b)(6) Presentation of Bear, Stearns & Co. Inc. dated January 29, 1999.
(d)(16) Memorandum, dated March 29, 1999, to Participants in the 1996
Stock Option Plan and 1996 Performance Stock Option Plan.*
(d)(17) Memorandum, dated March 29, 1999, to Participants in the
Brylane, L.P. Savings and Retirement Plan and Brylane Inc.
Employee Stock Purchase Plan.*
(d)(18) Memorandum, dated March 29, 1999, to Participants in the Brylane
Inc. Stock Subscription Plan.*
- ---------------
* Incorporated by reference to Amendment No. 1 to the Statement on Schedule
14D-1 filed by Purchaser and Parent on April 5, 1999.
Exhibit (b)(6)
BEAR
STEARNS
PRESENTATION TO THE SPECIAL COMMITTEE OF
INDEPENDENT DIRECTORS OF
BRYLANE
JANUARY 29, 1999
PRELIMINARY AND CONFIDENTIAL
<PAGE>
BEAR
STEARNS PROJECT BOXER
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
SECTION
- --------------------------------------------------------------------------------
1 Review of Boxer
A Business Overview
B Historical Financial Performance
C Stock Price History
D Wall Street Research Commentary and Earnings Outlook
2 Boxer Projected Financial Performance
3 Observations on Current Market Environment
4 Valuation Guide
A Overview of Methodologies and Summary Observations
B Stock Market Valuation of Comparable Companies
C Present Value of Hypothetical Stock Price Analysis
D Comparable Acquisition Analysis
E Discounted Cash Flow Analysis
APPENDICES
A Financial Impact of Transaction on PPR
- --------------------------------------------------------------------------------
PRELIMINARY AND CONFIDENTIAL
<PAGE>
BEAR
STEARNS
SECTION 1
REVIEW OF BOXER
<PAGE>
BEAR
STEARNS
SECTION 1-A
BUSINESS OVERVIEW
<PAGE>
BEAR
STEARNS PROJECT BOXER
- --------------------------------------------------------------------------------
BOXER OVERVIEW
o Nation's leading catalog retailer of value-priced apparel with established
brands
o Serves both the special and regular-sized markets
o Dominant player in low/moderate budget market
o Difficult second half 1998 due to business and industry factors
o Diversification into non-apparel products have enhanced growth prospects and
reinforced Management's ability to manage innovation
o Opportunity for product range expansion and cross-border selling through
majority shareholder
o Management cautious in outlook over next several seasons
- --------------------------------------------------------------------------------
PRELIMINARY AND CONFIDENTIAL 1
<PAGE>
BEAR
STEARNS PROJECT BOXER
- --------------------------------------------------------------------------------
ISSUES AND OBSERVATIONS
- ----------------
o Sales declines at certain catalogs due to merchandising
problems and industry softness
o Fulfillment / customer service problems at West
Bridgewater
SELECTED o Increased competition in both large-size and regular
STRATEGIC size businesses
ISSUES
o Difference between "Wall Street" estimates and
management projections
o Expiration of Lane Bryant / Lerner trademarks
o Uncertainty regarding extension of Sears agreement
o Development of alternate distribution channels (i.e.,
internet)
o Low likelihood that PPR will sell its stake in Boxer
- ----------------
- ----------------
o Moderate growth in revenue following decline in second
half 1998
o Tighter margins due primarily to increased fulfillment
costs at Chadwick's
o Continued emphasis on maximizing effectiveness of
SELECTED catalog mailings
FINANCIAL
OBSERVATIONS o Management projects gradual recovery in core business
starting Spring 1999
o Margins partially recover in core business, and are
constrained due to investments in new businesses
o No significant internet strategies incorporated in
projections
- ----------------
- --------------------------------------------------------------------------------
PRELIMINARY AND CONFIDENTIAL 2
<PAGE>
BEAR
STEARNS
SECTION 1-B
HISTORICAL FINANCIAL PERFORMANCE
<PAGE>
BEAR
STEARNS PROJECT BOXER
- --------------------------------------------------------------------------------
BRYLANE INC. - HISTORICAL FINANCIAL PERFORMANCE
<TABLE>
<CAPTION>
($ IN MILLIONS)
- --------------------------------------------------------------------------------------------------
ACTUAL ESTIMATED
------------------------------------ ------------------
1996(1) 1997 1998
----------------- ---------------- ------------------
<S> <C> <C> <C>
Circulation (millions of catalogs) NA 602 633
NET SALES $705 $1,315 $1,328
% growth - 86.4% 1.0%
$ per catalog NA $2.18 $2.10
Gross Margin $359 640 641
% of Net Sales 50.9% 48.7% 48.2%
Advertising 18.7 302 329
$ per catalog NA $0.50 $0.52
% of Net Sales 26.5% 23.0% 24.8%
Fulfillment Costs 55 124 143
$ per catalog NA $0.21 $0.23
% of Net Sales 7.9% 9.5% 10.7%
Support Services 52 89 91
% of Net Sales 8.1% 6.8% 6.9%
-------- -------- -------
OPERATING INCOME(2) $65 (3) $125 (4) $77
% of Net Sales 9.2% 9.5% 5.8%
Amortization 7 11 11
Interest Expense 24 28 29
-------- -------- -------
Pretax Income 34 87 37
Taxes 2 33 14
-------- -------- -------
NET INCOME(5) $32 $54 $23 (6)
-------- -------- -------
% growth - 68.7% (57.9)%
% of Net Sales 4.5% 4.1% 1.7%
Fully Diluted Shares (millions) 14.4 19.4 18.0
EPS $2.22 $2.76 $1.25
EBITDA $69 $136 $89
- --------------------------------------------------------------------------------------------------
</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 non-cash
compensation expense.
(4) Excludes $4.0 million of one-time charges relating to $3.3 million
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 $2.3 million relating to PPR proposal fees.
- --------------------------------------------------------------------------------
PRELIMINARY AND CONFIDENTIAL 3
<PAGE>
BEAR
STEARNS PROJECT BOXER
- --------------------------------------------------------------------------------
BRYLANE INC. - HISTORICAL FINANCIAL PERFORMANCE (BY SEASON)
<TABLE>
<CAPTION>
($ IN MILLIONS)
- -------------------------------------------------------------------------------------------
ACTUAL ESTIMATED
----------------------------------- ------------
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 $688
% growth - 17.9% (8.9)% 6.1%
$ per catalog $2.11 $2.25 $2.11 $2.12
Gross Margin 290 347 319 327
% of Net Sales 48.0% 48.8% 49.2% 47.6%
Advertising 138 165 150 181
$ per catalog $0.48 $0.52 $0.49 $0.56
% of Net Sales 22.8% 23.1% 23.1% 26.4%
Fulfillment Costs 55 69 64 81
$ 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 46
% of Net Sales 7.4% 6.3% 7.0% 6.7%
------ ------ ------ ------
OPERATING INCOME(1)(2) $52 $69 $60 $19
------ ------ ------ ------
% of Net Sales 8.6% 9.7% 9.7% 2.7%
- -------------------------------------------------------------------------------------------
</TABLE>
- ------------
(1) Operating income result of $79 million for 1998E (by season) does not foot
to consolidated result of $77 million as Management has recently revised
the consolidated estimate downward but did not reflect these changes in the
seasonal data.
(2) 1997 results (by season) not adjusted for one-time pre-tax charge of $4.0
million relating to inventory write-offs and non-cash compensation
expenses.
- --------------------------------------------------------------------------------
PRELIMINARY AND CONFIDENTIAL 4
<PAGE>
BEAR
STEARNS PROJECT BOXER
- --------------------------------------------------------------------------------
WEST BRIDGEWATER - HISTORICAL FINANCIAL PERFORMANCE
($ IN MILLIONS)
- --------------------------------------------------------------------------------
ACTUAL ESTIMATED
-------------------------- ----------
1996(1) 1997 1998
----------- ------------- ----------
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 239 277 283
% of Net Sales 45.4% 46.1% 45.4%
Advertising 101 115 132
$ per catalog $0.60 $0.50 $0.51
% of Net Sales 19.3% 19.1% 21.2%
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 $52 $22
-------- -------- --------
% of Net Sales 7.4% 8.6% 3.5%
- --------------------------------------------------------------------------------
- -----------
(1) 1996 results reflect a full year of operations for Chadwick's.
- --------------------------------------------------------------------------------
PRELIMINARY AND CONFIDENTIAL 5
<PAGE>
BEAR
STEARNS PROJECT BOXER
- --------------------------------------------------------------------------------
WEST BRIDGEWATER - HISTORICAL FINANCIAL PERFORMANCE (BY SEASON)
<TABLE>
<CAPTION>
($ IN MILLIONS)
- ------------------------------------------------------------------------------------------
ACTUAL ESTIMATED
---------------------------------- -------------
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 - 34.1% (16.0)% 15.3%
$ per catalog $2.25 $2.92 $2.26 $2.57
Gross Margin 118 160 136 147
% of Net Sales 45.8% 46.3% 47.0% 44.1%
Advertising 47 68 53 79
$ per catalog $0.41 $0.57 $0.42 $0.61
% of Net Sales 18.4% 19.7% 18.4% 23.7%
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% 5.0%
------ ------ ------- --------
OPERATING INCOME $19 $32 $24 ($2)
------ ------ ------- --------
% of Net Sales 7.6% 9.4% 8.1% (0.5)%
- ------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
PRELIMINARY AND CONFIDENTIAL 6
<PAGE>
BEAR
STEARNS PROJECT BOXER
- --------------------------------------------------------------------------------
INDIANAPOLIS - HISTORICAL FINANCIAL PERFORMANCE
($ IN MILLIONS)
- --------------------------------------------------------------------------------
ACTUAL ESTIMATED
-----------------------------------------
1996 1997 1998
---------- ----------- -------------
Circulation (millions of catalogs) 263 370 375
NET SALES $629 $711 $712
% growth - 13.1% 0.1%
$ per catalog $2.39 $1.92 $1.90
Gross Margin 324 360 363
% of Net Sales 51.5% 50.6% 50.9%
Advertising 1.73 187 199
$ per catalog $0.66 $0.51 $0.53
% of Net Sales 27.5% 26.3% 27.9%
Fulfillment Costs 42 51 52
$ per catalog $0.16 $0.14 $0.14
% of Net Sales 6.7% 7.2% 7.3%
Support Services 45 52 52
% of Net Sales 7.2% 7.3% 7.4%
------ ------ ------
OPERATING INCOME $63 $70 $59
------ ------ ------
% of Net Sales 10.1 9.9% 8.3%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRELIMINARY AND CONFIDENTIAL 7
<PAGE>
BEAR
STEARNS PROJECT BOXER
- --------------------------------------------------------------------------------
INDIANAPOLIS - HISTORICAL FINANCIAL PERFORMANCE (BY SEASON)
<TABLE>
<CAPTION>
($ IN MILLIONS)
- ------------------------------------------------------------------------------------------------
ACTUAL ESTIMATED
-------------------------------------- ------------
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 $354
% growth 5.4% (1.8)% (1.2)%
$ per catalog $2.02 $1.84 $2.00 $1.82
Gross Margin 176 184 182 180
% of Net Sales 50.9% 50.4% 50.9% 50.9%
Advertising 89 98 97 102
$ per catalog $0.52 $0.49 $0.54 $0.53
% of Net Sales 25.6% 26.9% 26.9% 28.9%
Fulfillment Costs 23 29 24 29
$ per catalog $0.13 $0.15 $0.13 $0.15
% of Net Sales 6.5% 7.9% 6.6% 8.1%
Support Services 26 26 26 26
% of Net Sales 7.5% 7.0% 7.3% 7.5%
------ ------ ------ ------
OPERATING INCOME $39 $31 $36 $23
------ ------ ------ ------
% of Net Sales 11.3% 8.5% 10.1% 6.5%
- ---------------------------------------- ------------ ------------ ------------ --- ------------
</TABLE>
- --------------------------------------------------------------------------------
PRELIMINARY AND CONFIDENTIAL 8
<PAGE>
BEAR
STEARNS
SECTION 1-C
STOCK PRICE HISTORY
<PAGE>
BEAR
STEARNS PROJECT BOXER
- --------------------------------------------------------------------------------
HISTORICAL STOCK PRICE PERFORMANCE
BOXER'S STOCK PRICE HAD TRADED SIGNIFICANTLY ABOVE $20 UNTIL SEPTEMBER 1998 WHEN
BOXER ISSUED AN EARNINGS WARNING.
[GRAPH SHOWING HISTORICAL STOCK PRICE AND VOLUME TRADED SINCE IPO
FROM 1/98 TO 1/22/99 WITH THE FOLLOWING INFORMATION:
02/21/97 - IPO of four million shares priced at $24 each.
02/20/98 - Announced PPR will buy 40% of the Company for $355 million.
03/18/98 - Surge in 4th Qtr. results beats estimates.
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.
08/18/98 - 2nd 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. EPS of 5 cents versus 85 cents 4th Qtr.
12/02/98 - PPR offers to acquire remaining shares for $173 million or $20 per
share.]
- --------------------------------------------------------------------------------
PRELIMINARY AND CONFIDENTIAL 9
<PAGE>
BEAR
STEARNS PROJECT BOXER
- --------------------------------------------------------------------------------
HISTORICAL TRADING RANGES (1)
A MAJORITY OF SHARES HAVE TRADED AT LEVELS HIGHER THAN $20 IN BOTH 1997 AND
1998.
- -------------------------------------- --------------------------------------
1997 1998
TOTAL VOLUME = 15.8 MILLION SHARES TOTAL VOLUME = 28.9 MILLION SHARES
- -------------------------------------- --------------------------------------
[Bar graph showing the percent of [Bar graph showing the percent of
total trading volume for particular total trading volume for particular
trading ranges in 1997, containing trading ranges in 1997, containing
the following information: the following information:
Percent of Total Percent of Total
Trading Range Trading Volume Trading Range Trading Volume
- -------------- ------------------ -------------- ------------------
$20.00-$25.00 28.5% $10.00-$15.00 12.8%
$25.00-$30.00 6.7% $15.00-$20.00 14.7%
$30.00-$35.00 4.0% $20.00-$25.00 26.8%
$35.00-$40.00 8.9% $25.00-$30.00 9.3%
$40.00-$45.00 9.6% $35.00-$40.00 3.9%
$45.00-$50.00 35.2% $40.00-$45.00 3.7%
$50.00-$55.00 7.1%] $45.00-$50.00 11.6%
$50.00-$55.00 7.7%
$55.00-$60.00 9.0%
$60.00-$65.00 0.3%]
- --------------------------------------------------------------------------------
- ------------
Source: FactSet Information Systems.
(11) Shares traded as a percentage of total shares outstanding.
- --------------------------------------------------------------------------------
PRELIMINARY AND CONFIDENTIAL 10
<PAGE>
BEAR
STEARNS
SECTION 1-D
WALL STREET RESEARCH
COMMENTARY AND EARNINGS
OUTLOOK
<PAGE>
BEAR
STEARNS PROJECT BOXER
- --------------------------------------------------------------------------------
WALL STREET RESEARCH COMMENTARY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
STOCK PRICE AS
ANALYST/FIRM/DATE REPORT RELEASE SELECTED COMMENTS RATING
- ------------------- ---------------- ----------------------------------------------------------------------------- -----------
<S> <C> <C> <C>
Todd Slater $11.13 The bad news is that problems in the regular-size business have spread beyond HOLD
Mark Picard Lerner to the Chadwick's book. The good news is that the large size segment,
Lazard Freres principally Lane Bryant, has recovered and is performing well. Lerner and
11/19/98 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 dependency BUY
Marni Shapiro on item merchandise (especially blazers), warm weather, stale creative and a
Merrill Lynch mailing strategy that focused volume on the early part of fall. Lerner
11/18/98 remained soft as some miss-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 Kloppenburg $14.50 We believe there are significant fundamental issues affecting the company's Market
Eileen Murphy business than just fashion and merchandise errors at some of its catalogs. Perform
BancBoston In Lerner, a lack of new fashion as well as tired catalog design were the
11/18/98 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 Kloppenburg $21.00 The company's shortfall in sales is due not only to continued softness in its Long-Term
Eileen Murphy Lerner catalog but, more importantly, due to softness in its Chadwick's Attractive
BancBoston winter catalog as well as in its core Lane Bryant large size catalog. The
9/25/98 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>
- --------------------------------------------------------------------------------
PRELIMINARY AND CONFIDENTIAL 11
<PAGE>
BEAR
STEARNS PROJECT BOXER
- --------------------------------------------------------------------------------
BOXER EARNINGS OUTLOOK(1)
BOXER'S FOURTH QUARTER 1998E ESTIMATE IS BELOW THE STREET AVERAGE, HOWEVER, ITS
1999E ESTIMATE IS APPROXIMATELY 38% HIGHER.
- --------------------------------------------------------------------------------
Q4 1998/1998E 1999E EPS
FIRM EPS ESTIMATE ESTIMATE
- -------------------------------- --------------------- --------------------
Robertson Stephens ($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
Management Estimate ($0.15)/$1.25 (2) $2.29
- --------------------------------------------------------------------------------
- ---------------
(1) Source: First Call.
(2) Calculated based on estimated weighted average diluted shares outstanding
of 18.0 million during 1998.
- --------------------------------------------------------------------------------
PRELIMINARY AND CONFIDENTIAL 12
<PAGE>
BEAR
STEARNS PROJECT BOXER
- --------------------------------------------------------------------------------
TREND IN 1999E BOXER EARNINGS ESTIMATES
THE STREET'S 1999E ESTIMATE HAS DECLINED STEADILY FROM $3.86 PER SHARE IN APRIL
1998 TO A CURRENT $1.66 PER SHARE, A 57% DROP.
<TABLE>
<CAPTION>
EPS ESTIMATES (ROLLING BASIS)
- ----------------------------------------------------------------------------------------------------------------------
REVISIONS
------------------- TOTAL
DATE OF ESTIMATE MEAN HIGH LOW UP DOWN ESTIMATES
- ----------------------------- ------- ------- ------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
January 1999 $1.66 $1.70 $1.60 0 1 4
December 1998 1.69 1.75 1.60 0 4 4
November 1998 1.69 1.75 1.60 0 4 4
October 1998 2.59 2.85 2.25 0 5 5
September 1998 3.61 3.85 3.50 0 3 6
August 1998 3.80 3.90 3.50 0 2 5
July 1998 3.84 3.90 3.80 0 0 5
June 1998 3.86 3.90 3.80 0 0 4
May 1998 3.86 3.90 3.80 0 0 4
April 1998 3.86 3.90 3.80 0 0 4
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
EPS ESTIMATES GRAPH
- --------------------------------------------------------------------------------
[Graph showing monthly EPS estimates from April 1998 to January 1999.]
- --------------------------------------------------------------------------------
- -----------
Source: FactSet Information Systems.
- --------------------------------------------------------------------------------
PRELIMINARY AND CONFIDENTIAL 13
<PAGE>
BEAR
STEARNS
SECTION 2
BOXER PROJECTED FINANCIAL PERFORMANCE
<PAGE>
BEAR
STEARNS PROJECT BOXER
- --------------------------------------------------------------------------------
BRYLANE INC. - PROJECTED FINANCIAL PERFORMANCE (1)
<TABLE>
<CAPTION>
($ IN MILLIONS)
- ---------------------------------------------------------------------------------------------------------
ACTUAL PROJECTED FISCAL YEAR
---------- --------------------------------------------------
1997 1998 1999 2000 2001
---------- --------------------------------------------------
<S> <C> <C> <C> <C> <C>
Circulation (millions of catalogs) 602 633 589 NA NA
NET SALES $1,315 $1,328 $1,389 $1,479 $1,590
% growth - 1.0% 4.6% 6.5% 7.5%
$ per catalog $2.18 $2.10 $2.36 NA NA
Gross Margin 640 641 678 719 773
% of Net Sales 48.7% 48.2% 48.8% 48.6% 48.6%
Advertising 302 329 328 348 374
$ per catalog $0.50 $0.52 $0.56 NA NA
% of Net Sales 23.0% 24.8% 23.6% 23.5% 23.5%
Fulfillment Costs 124 143 153 161 172
$ per catalog $0.21 $0.23 $0.26 NA NA
% of Net Sales 9.5% 10.7% 11.0% 10.9% 10.8%
Support Services 90 91 96 101 107
% of Net Sales 6.7% 6.9% 6.9% 6.8% 6.7%
-------- -------- -------- -------- -------
OPERATING INCOME(2) $125 (3) $77 $101 $110 $121
% 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 64 75 87
Taxes 33 14 25 29 33
-------- -------- -------- -------- -------
NET INCOME(4) $54 $23 (5) $40 $46 $53
-------- -------- -------- -------- -------
% growth - (57.9)% 75.9% 15.7% 15.7%
% of Net Sales 4.1% 1.7% 2.9% 3.1% 3.4%
Fully Diluted Shares (millions) 19.4 18.0 17.3 17.3 17.3
EPS $2.76 $1.25 $2.29 $2.65 $3.08
EBITDA $136 $89 $113 $122 $133
- ---------------------------------------------------------------------------------------------------------
</TABLE>
- --------------
(1) Management projections.
(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
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 $2.3 million relating to PPR proposal fees.
- --------------------------------------------------------------------------------
PRELIMINARY AND CONFIDENTIAL 14
<PAGE>
BEAR
STEARNS PROJECT BOXER
- --------------------------------------------------------------------------------
PROJECTED FINANCIAL PERFORMANCE: MANAGEMENT VS. WALL STREET
<TABLE>
<CAPTION>
($ IN MILLIONS)
- ------------------------------------------------------------------------------------------------------------------------------
ACTUAL PROJECTED FISCAL YEAR
-------------------------------- ------------------------------------------------------------
MANAGEMENT LAZARD FRERES MANAGEMENT LAZARD FRERES MANAGEMENT LAZARD FRERES
-------------- ----------------- -------------- --------------- ------------- --------------
1997 1997 1998 1998 1999 1999
-------------- ----------------- -------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
NET SALES $1,315 $1,315 $1,328 $1,332 $1,389 $1,346
% growth - - 1.0% 1.3% 4.6% 1.1%
Gross Margin 641 641 641 644 678 646
% of Net Sales 48.7% 48.7% 48.2% 48.4% 48.8% 48.0%
Operating Expenses 515 515 563 562 577 562
% of Net Sales 39.2% 39.2% 42.4% 42.2% 41.5% 41.8%
----------- ------------ ------------ ---------- ---------- ----------
OPERATING INCOME(1) $125 (2) $125 (2) $77 $82 $101 $84
% of Net Sales 9.5% 9.5% 5.8% 6.1% 7.3% 6.2%
Amortization 11 11 11 11 11 11
Interest Expense 28 27 29 30 26 25
----------- ------------ ------------ ---------- ---------- ----------
Pretax Income 87 87 37 41 64 48
Taxes 33 33 14 16 25 18
----------- ------------ ------------ ---------- ---------- ----------
NET INCOME(3) $54 $55 $23 (4) $25 (4) $40 $29
----------- ------------ ------------ ---------- ---------- ----------
% growth - - (57.9)% (54.2)% 75.9% 17.6%
% of Net Sales 4.1 4.2% 1.7% 1.9% 2.9% 2.2%
Fully Diluted Shares (millions) 19.4 19.8 18.0 18.0 17.3 17.3
EPS $2.76 $2.76 $1.25 $1.39 $2.29 $1.70
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
(1) 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.
(2) 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.
(3) 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.
(4) Excludes pre-tax charge of $2.3 million relating to PPR proposal fees.
- --------------------------------------------------------------------------------
PRELIMINARY AND CONFIDENTIAL 15
<PAGE>
BEAR
STEARNS PROJECT BOXER
- --------------------------------------------------------------------------------
BRYLANE INC. - PROJECTED FINANCIAL PERFORMANCE(1) (BY SEASON)
<TABLE>
<CAPTION>
($ IN MILLIONS)
- ------------------------------------------------------------------------------------------------------------------------------------
ACTUAL PROJECTED FISCAL YEAR
----------------------------- -----------------------------------------------------------------
97 SPRING 97 FALL 98 SPRING 98 FALL 99 SPRING 99 FALL 00 SPRING 00 FALL 01 SPRING 01 FALL
--------- -------- --------- -------- ---------- -------- --------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Circulation (millions of catalogs) 286 316 308 324 284 306 NA NA NA NA
NET SALES $603 $711 $648 $688 $652 $737 NA NA NA NA
% growth - 17.9% (8.9)% 6.1% (5.2)% 12.9% NA NA NA NA
$ per catalog $2.11 $2.25 $2.11 $2.12 $2.30 $2.41 NA NA NA NA
Gross Margin 290 347 319 327 320 358 NA NA NA NA
% of Net Sales 48.0% 48.8% 49.2% 47.6% 49.0% 48.6% NA NA NA NA
Advertising 138 165 150 181 153 175 NA NA NA NA
$ per catalog $0.48 $0.52 $0.49 $0.56 $0.54 $0.57 NA NA NA NA
% of Net Sales 22.8% 23.1% 23.1% 26.4% 23.5% 23.7% NA NA NA NA
Fulfillment Costs 55 69 64 81 72 81 NA NA NA NA
$ per catalog $0.19 $0.22 $0.21 $0.25 $0.25 $0.27 NA NA NA NA
% of Net Sales 9.2% 9.7% 9.9% 11.8% 11.0% 11.0% NA NA NA NA
Support Services 45 45 45 46 48 48 NA NA NA NA
% of Net Sales 7.4% 6.3% 7.0% 6.7% 7.3% 6.6% NA NA NA NA
-------- -------- -------- -------- -------- ------- -------- ------- ------- ------
OPERATING INCOME(2)(3) $52 $69 $60 $19 $47 $54 NA NA NA NA
-------- -------- -------- -------- -------- ------- -------- ------- ------- ------
% of Net Sales 8.6 9.7% 9.7% 2.7% 7.3% 7.3% NA NA NA NA
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------------
(1) Management projections.
(2) Operating income result of $79 million for 1998E (by season) does not foot
to consolidated result of $77 million as Management has recently revised
the consolidated estimate downward but did not reflect these changes in the
seasonal data.
(3) 1997 results (by season) not adjusted for one-time pre-tax charge of $4.0
million relating to inventory write-offs and non-cash compensation charges.
- --------------------------------------------------------------------------------
PRELIMINARY AND CONFIDENTIAL 16
<PAGE>
BEAR
STEARNS PROJECT BOXER
- --------------------------------------------------------------------------------
WEST BRIDGEWATER - PROJECTED FINANCIAL PERFORMANCE(1)
<TABLE>
<CAPTION>
($ IN MILLIONS)
- ---------------------------------------------------------------------------------------------------
ACTUAL PROJECTED FISCAL YEAR
----------- -------------------------------------------
1997 1998 1999 2000 2001
----------- ---------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Circulation (millions of catalogs) 232 258 215 NA NA
NET SALES $602 $624 $621 NA NA
% growth - 3.6% (0.4)% NA NA
$ per catalog $2.59 $2.42 $2.89 NA NA
Gross Margin 277 283 286 NA NA
% of Net Sales 46.1% 45.4% 46.0% NA NA
Advertising 115 132 120 NA NA
$ per catalog $0.50 $0.51 $0.56 NA NA
% of Net Sales 19.1% 21.2% 19.4% NA NA
Fulfillment Costs 74 93 93 NA NA
$ per catalog $0.32 $0.36 $0.43 NA NA
% of Net Sales 12.2% 14.9% 15.0% NA NA
Support Services 37 36 37 NA NA
% of Net Sales 6.1% 5.7% 6.0% NA NA
------ ------ ------ ------ ------
OPERATING INCOME $52 $22 $35 NA NA
------ ------ ------ ------ ------
% of Net Sales 8.6% 3.5% 5.7% NA NA
- ---------------------------------------------------------------------------------------------------
</TABLE>
- -------------
(1) Management projections.
- --------------------------------------------------------------------------------
PRELIMINARY AND CONFIDENTIAL 17
<PAGE>
BEAR
STEARNS PROJECT BOXER
- --------------------------------------------------------------------------------
WEST BRIDGEWATER - PROJECTED FINANCIAL PERFORMANCE(1) (BY SEASON)
<TABLE>
<CAPTION>
($ IN MILLIONS)
- ------------------------------------------------------------------------------------------------------------------------------------
ACTUAL PROJECTED FISCAL YEAR
----------------------------- ----------------------------------------------------------------
97 SPRING 97 FALL 98 SPRING 98 FALL 99 SPRING 99 FALL 00 SPRING 00 FALL 01 SPRING 01 FALL
--------- ------- --------- ------- --------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Circulation (millions of catalogs) 114 118 128 130 104 111 NA NA NA NA
NET SALES $257 $345 $290 $334 $267 $354 NA NA NA NA
% growth - 34.1% (16.0)% 15.3% (20.1)% 32.6% NA NA NA NA
$ per catalog $2.25 $2.92 $2.26 $2.57 $2.58 $3.19 NA NA NA NA
Gross Margin 118 160 136 147 123 163 NA NA NA NA
% of Net Sales 45.8% 46.3% 47.0% 44.1% 46.1% 46.0% NA NA NA NA
Advertising 47 68 53 79 51 70 NA NA NA NA
$ per catalog $0.41 $0.57 $0.42 $0.61 $0.49 $0.63 NA NA NA NA
% of Net Sales 18.4% 19.7% 18.4% 23.7% 18.9% 19.7% NA NA NA NA
Fulfillment Costs 33 41 40 53 44 49 NA NA NA NA
$ per catalog $0.29 $0.34 $0.32 $0.41 $0.43 $0.44 NA NA NA NA
% of Net Sales 12.8% 11.8% 14.0% 15.8% 16.5% 13.9% NA NA NA NA
Support Services 18 19 19 17 18 19 NA NA NA NA
% of Net Sales 7.0% 5.4% 6.6% 5.0% 6.8% 5.3% NA NA NA NA
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
OPERATING INCOME $19 $32 $24 ($2) $10 $25 NA NA NA NA
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
% of Net Sales 7.6% 9.4% 8.1% (0.5)% 3.9% 7.0% NA NA NA NA
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
(1) Management projections.
- --------------------------------------------------------------------------------
PRELIMINARY AND CONFIDENTIAL 18
<PAGE>
BEAR
STEARNS PROJECT BOXER
- --------------------------------------------------------------------------------
INDIANAPOLIS - PROJECTED FINANCIAL PERFORMANCE(1)
<TABLE>
<CAPTION>
($ IN MILLIONS)
- -----------------------------------------------------------------------------------------------------
ACTUAL PROJECTED FISCAL YEAR
------------ ------------------------------------------------
1997 1998 1999 2000 2001
------------ ------------ ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
Circulation (millions of catalogs) 370 375 375 NA NA
NET SALES $711 $712 $768 NA NA
% growth - 0.1% 7.8% NA NA
$ per catalog $1.92 $1.90 $2.05 NA NA
Gross Margin 360 363 392 NA NA
% of Net Sales 50.6% 50.9% 51.1% NA NA
Advertising 187 199 208 NA NA
$ per catalog $0.51 $0.53 $0.56 NA NA
% of Net Sales 26.3% 27.9% 27.1% NA NA
Fulfillment Costs 51 52 57 NA NA
$ per catalog $0.14 $0.14 $0.15 NA NA
% of Net Sales 7.2% 7.3% 7.4% NA NA
Support Services 52 52 57 NA NA
% of Net Sales 7.3% 7.4% 7.4% NA NA
------ ------ ------ ----- -----
OPERATING INCOME $70 $59 $71 NA NA
------ ------ ------ ----- -----
% of Net Sales 9.9% 8.3% 9.2% NA NA
- -----------------------------------------------------------------------------------------------------
</TABLE>
- -----------------
(1) Management projections.
- --------------------------------------------------------------------------------
PRELIMINARY AND CONFIDENTIAL 19
<PAGE>
BEAR
STEARNS PROJECT BOXER
- --------------------------------------------------------------------------------
INDIANAPOLIS - PROJECTED FINANCIAL PERFORMANCE(1)
<TABLE>
<CAPTION>
($ IN MILLIONS)
- ------------------------------------------------------------------------------------------------------------------------------------
ACTUAL PROJECTED FISCAL YEAR
----------------------------- ----------------------------------------------------------------
97 SPRING 97 FALL 98 SPRING 98 FALL 99 SPRING 99 FALL 00 SPRING 00 FALL 01 SPRING 01 FALL
--------- ------- --------- ------- --------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Circulation (millions of catalogs) 171 198 180 194 180 194 NA NA NA NA
NET SALES $346 $365 $358 $354 $385 $383 NA NA NA NA
% growth 5.4% (1.8)% (1.2)% 8.9% (0.7)% NA NA NA NA
$ per catalog $2.02 $1.84 $2.00 $1.82 $2.14 $1.97 NA NA NA NA
Gross Margin 176 184 182 180 197 195 NA NA NA NA
% of Net Sales 50.9% 50.4% 50.9% 50.9% 51.1% 51.1% NA NA NA NA
Advertising 89 98 97 102 103 105 NA NA NA NA
$ per catalog $0.52 $0.49 $0.54 $0.53 $0.57 $0.54 NA NA NA NA
% of Net Sales 25.6% 26.9% 26.9% 28.9% 26.7% 27.5% NA NA NA NA
Fulfillment Costs 23 29 24 29 26 30 NA NA NA NA
$ per catalog $0.13 $0.15 $0.13 $0.15 $0.15 $0.16 NA NA NA NA
% of Net Sales 6.5% 7.9% 6.6% 8.1% 6.9% 7.9% NA NA NA NA
Support Services 26 26 26 26 28 28 NA NA NA NA
% of Net Sales 7.5% 7.0% 7.3% 7.5% 7.4% 7.4% NA NA NA NA
------ ------ ------ ------ ------ ------ ----- ----- ----- -----
OPERATING INCOME $39 $31 $36 $23 $39 $32 NA NA NA NA
------ ------ ------ ------ ------ ------ ----- ----- ----- -----
% of Net Sales 11.3% 8.5% 10.1% 6.5% 10.1% 8.3% NA NA NA NA
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------
(1) Management projections.
- --------------------------------------------------------------------------------
PRELIMINARY AND CONFIDENTIAL 20
<PAGE>
BEAR
STEARNS
SECTION 3
OBSERVATIONS ON CURRENT MARKET
ENVIRONMENT
<PAGE>
BEAR
STEARNS PROJECT BOXER
- --------------------------------------------------------------------------------
RELATIVE STOCK PRICE PERFORMANCE OF BOXER VS. OTHER DIRECT MARKETERS
BOXER HAS OUTPERFORMED BOTH S&P 500 AND COMPARABLE COMPANIES THROUGH SEPTEMBER
1998.
[Index Price Graph Since IPO, comparing Boxer against Direct Marketing Index (2)
and S&P 500 from February 1997 to January 1999 (1)]
- -----------------
(1) Data through 1/22/99.
(2) Direct Marketing Index is an equally weighted index of Blair, Coldwater
Creek, Damark International, dELiA*s, DM Management, Hanover Direct, Lands'
End, Lillian Vernon and Spiegel.
- --------------------------------------------------------------------------------
PRELIMINARY AND CONFIDENTIAL 21
<PAGE>
BEAR
STEARNS PROJECT BOXER
- --------------------------------------------------------------------------------
RELATIVE STOCK PRICE PERFORMANCE OF BOXER VS. OTHER DIRECT MARKETERS
DESPITE A RECOVERY IN BOXER'S SHARE PRICE IN NOVEMBER AND DECEMBER 1998, THE
STOCK HAS LAGGED ITS PEER GROUP IN JANUARY 1999.
[Three Month Index Price Graph, comparing Boxer to Direct Marketing Index (2)
and S&P 500 from October 1998 - January 1999 (1)]
- ------------------
(1) Data through 1/22/99.
(2) Direct Marketing Index is an equally weighted index of Blair, Coldwater
Creek, Damark International, dELiA*s, DM Management, Hanover Direct, Lands'
End, Lillian Vernon and Spiegel.
- --------------------------------------------------------------------------------
PRELIMINARY AND CONFIDENTIAL 22
<PAGE>
BEAR
STEARNS PROJECT BOXER
- --------------------------------------------------------------------------------
STOCK PRICE PERFORMANCE OF DIRECT MARKETERS
% CHANGE: DECEMBER 31, 1997 - PRESENT
- --------------------------------------------------------------------------------
[Bar Graph presenting the following information:
FHT (1) 76%
DMMC 72%
SPGLA 57%
BL 22%
HNV 2%
LVC (10)%
LE (15)%
DMRK (24)%
DLIA (33)%
BYL (2) (53)%
CWTR (55)%]
- --------------------------------------------------------------------------------
% CHANGE FROM LATEST TWELVE MONTH HIGH
- --------------------------------------------------------------------------------
[Bar Graph presenting the following information:
SPGLA (14)%
HNV (16)%
LVC (19)%
LE (30)%
DMMC (32)%
BL (37)%
DMRK (44)%
DLIA (50)%
FHT (1) (52)%
BYL (2) (62)%
CWTR (64)% ]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Note: Data as of 1/22/99.
Note: BL: Blair. BYL: Boxer. CWTR: Coldwater Creek. DMRK: Damark
International. DLIA: dELiA*s. DMMC: DM Management. FHT: Fingerhut.
HNV: Hanover Direct. LE: Lands' End. LVC: Lillian Vernon. SPGLA: Spiegel.
(1) Price is adjusted to reflect the spin-off of Metris.
(2) Projected growth rate of 17%. Source: Zack's and I/B/E/S.
- --------------------------------------------------------------------------------
PRELIMINARY AND CONFIDENTIAL 23
<PAGE>
BEAR
STEARNS PROJECT BOXER
- --------------------------------------------------------------------------------
STOCK PRICE PERFORMANCE OF DIRECT MARKETERS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
PRICE AS OF PRICE AS OF % LATEST TWELVE %
COMPANY TICKER 1/22/98 12/31/97 CHANGE MONTH HIGH CHANGE
- ---------------------- --------- ------------ -------------- ----------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C>
BOXER (OFFER)(1) BYL $20.00 $49.25 (59)% $61.13 (67)%
BOXER BYL 23.00 49.25 (53) 61.13 (62)
Blair BL 21.13 17.25 22 33.38 (37)
Coldwater Creek CWTR 15.13 33.75 (55) 41.50 (64)
Damark International DMRK 7.38 9.75 (24) 13.25 (44)
dELiA*s DLIA 15.00 22.25 (33) 29.75 (50)
DM Management DMMC 17.94 10.42 72 26.41 (32)
Fingerhut(2) FHT 18.38 10.47 76 38.00 (52)
Hanover Direct HNV 3.06 3.00 2 3.63 (16)
Lands' End LE 29.75 35.06 (15) 42.75 (30)
Lillian Vernon LVC 15.00 16.63 (10) 18.63 (19)
Spiegel SPGLA 7.75 4.94 57 9.03 (14)
AVERAGE (EXCLUDING BOXER) 9% (36)%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
- --------------
(1) Reflects $20 per share offer by PPR.
(2) Price is adjusted to reflect the spin-off of Metris.
- --------------------------------------------------------------------------------
PRELIMINARY AND CONFIDENTIAL 24
<PAGE>
BEAR
STEARNS PROJECT BOXER
- --------------------------------------------------------------------------------
HISTORICAL FORWARD P/E MULTIPLES
P/E MULTIPLES OF DIRECT MARKETERS HAVE CHANGED SIGNIFICANTLY OVER THE LAST YEAR.
[Bar graph of April 1997 to January 1999 Monthly P/E Multiples(1), comparing
Boxer to Direct Marketing Index(3), with respect to the October 1998 $20 Offer
Price(2), and containing the following information:
Boxer's discount to Direct Marketing Index P/E Multiples
- ----------------------------------------------------------
April 1997 74%
July 1997 70%
October 1997 80%
January 1998 85%
April 1998 92%
July 1998 64%
October 1998 52%
January 1999 85%]
- -------------------
Source: FactSet Information Systems.
Note: Boxer's discount to the direct marketing index is indicated as a
percentage above Boxer's bar.
(1) Based on forward year P/E ratios that consider consensus research estimates
currently available in period.
(2) Boxer's P/E multiple calculated using Management estimates.
(3) Direct Marketing Index is a harmonic mean of Coldwater Creek, Damark
International, dELiA*s, DM Management, Land's End, Lillian Vernon and
Speigel.
- --------------------------------------------------------------------------------
PRELIMINARY AND CONFIDENTIAL 25
<PAGE>
BEAR
STEARNS
SECTION 4
VALUATION GUIDE
<PAGE>
BEAR
STEARNS
SECTION 4-A
OVERVIEW OF METHODOLOGIES AND
SUMMARY OBSERVATIONS
<PAGE>
BEAR
STEARNS PROJECT BOXER
- --------------------------------------------------------------------------------
OVERVIEW OF METHODOLOGIES
WE UTILIZED SEVERAL METHODOLOGIES APPLIED TO MANAGEMENT'S PROJECTIONS IN ORDER
TO FRAME A PRELIMINARY RANGE OF VALUES FOR PPR.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
METHODOLOGY COMMENT
- ------------------------------------------------ ---------------------------------------------------------
<S> <C>
STOCK MARKET VALUATION OF COMPARABLE COMPANIES o Based on earnings multiples
o Several companies have recently been effected
by "Internet" commentary
PRESENT VALUE OF HYPOTHETICAL STOCK PRICE o Applies earnings multiples derived from
public comparable group to assumed future
earnings, and then discounts the results to
the present
COMPARABLE ACQUISITIONS o Applies transaction multiples from group of
precedent catalog/apparel transactions to
Boxer's cash flow (EBITDA/EBIT) and net
income (EPS)
DISCOUNTED CASH FLOWS o Discounts assumed future free cash flows to
present
o Results largely dependent on quality of
assumed future cash flows and terminal value
o Weighted average cost of capital reflective
of prospective equity beta and capital structure
of Boxer
o Sensitivity Case with alternative assumptions(1)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
- -----------------
(1) FOR ILLUSTRATIVE PURPOSES ONLY. PROJECTIONS NOT PREPARED IN CONJUNCTION
WITH MANAGEMENT.
- --------------------------------------------------------------------------------
PRELIMINARY AND CONFIDENTIAL 26
<PAGE>
BEAR
STEARNS PROJECT BOXER
- --------------------------------------------------------------------------------
SUMMARY OBSERVATIONS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
VALUE RANGE
METHODOLOGY ($ PER SHARE) COMMENTS
- ------------------------------------- ----------------- ----------------------------------------------------
<S> <C> <C>
STOCK MARKET VALUATION OF COMPARABLE
COMPANIES
o Management Projections $25 - 30 o 11.0 - 13.0x Management projections for 1999E
EPS of $2.29
o Street Estimates $20 - 23 o 12.0 - 14.0x Street estimate for 1999E EPS of
$1.66
PRESENT VALUE OF HYPOTHETICAL STOCK PRICE $26 - 32 o 15.0 - 20.0% return on equity at 12.0 - 14.0x
2001E EPS of $3.08 and 2000E EPS of $2.65 from
Management projections
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
PRELIMINARY AND CONFIDENTIAL 27
<PAGE>
BEAR
STEARNS PROJECT BOXER
- --------------------------------------------------------------------------------
SUMMARY OBSERVATIONS (CONT.)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
VALUE RANGE
METHODOLOGY ($ PER SHARE) COMMENTS
- ------------------------------- -------------- -----------------------------------------------------------
<S> <C> <C>
COMPARABLE ACQUISITIONS $22 - 27 o Harmonic mean multiple of 9.0x 1998E EBITDA
of $89 million or $24 per share
o Harmonic mean multiple of 20.6x 1998E EPS of
$1.25 or $26 per share
o Multiple of 6.7x (Arizona Mail Order) - 7.5x
1999E EBITDA of $114 million
DISCOUNTED CASH FLOWS
o Management Projections $25 - 35 o Theoretical present value @ WACC of 11.0 - 11.5%
and an exit multiple of 6.0 - 7.5x 2003E EBITDA
from Management projections
o Sensitivity Case(1) $18 - 26 o Reflects less aggressive sales and earnings recovery
assumptions (Sensitivity Case)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------
(1) FOR ILLUSTRATIVE PURPOSES ONLY. PROJECTIONS NOT PREPARED IN CONJUNCTION
WITH MANAGEMENT.
- --------------------------------------------------------------------------------
PRELIMINARY AND CONFIDENTIAL 28
<PAGE>
BEAR
STEARNS PROJECT BOXER
- --------------------------------------------------------------------------------
VALUATION MATRIX
THE FOLLOWING TABLE PROVIDES A SUMMARY OF KEY PREMIUMS AND MULTIPLES.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
PREMIUM ON MANAGEMENT PROJECTIONS STREET ESTIMATES MANAGEMENT PROJECTIONS
------------------ AGGREGATE ---------------------- ------------------ --------------------------
PRICE PER CURRENT LTM EQUITY 1998E 1999E 1998E 1999E ENTERPRISE ENTERPRISE VALUE/EBITDA
SHARE(1) PRICE(2) HIGH VALUE P/E P/E P/E P/E VALUE(3) 1998E 1999E
- --------- --------- -------- --------- ---------- ----------- --------- -------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$16.88 (27)% (72)% $292 13.5x 7.4x 12.2x 10.2x $670 7.5x 5.9x
20.00 (13) (67) 346 16.0 8.7 14.5 12.0 724 8.2 6.4
22.50 (2) (63) 389 18.0 9.8 16.3 13.6 767 8.6 6.8
25.00 8 (59) 433 20.0 10.9 18.1 15.0 811 9.1 7.1
27.50 19 (55) 476 22.0 12.0 19.9 16.6 854 9.6 7.5
30.00 30 (51) 519 24.0 13.1 21.7 18.0 897 10.1 7.9
32.50 41 (47) 562 26.0 14.2 23.6 19.6 940 10.6 8.3
35.00 52 (43) 606 28.0 15.3 25.4 21.1 984 11.1 8.7
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
(1) Price of Boxer stock prior to PPR proposal of $20 per share.
(2) Price as of 1/22/99.
(3) Equity value plus debt net of cash.
- --------------------------------------------------------------------------------
PRELIMINARY AND CONFIDENTIAL 29
<PAGE>
BEAR
STEARNS
SECTION 4-B
STOCK MARKET VALUATION OF
COMPARABLE COMPANIES
<PAGE>
BEAR
STEARNS PROJECT BOXER
- --------------------------------------------------------------------------------
SUMMARY STOCK MARKET DATA FOR DIRECT MARKETERS
<TABLE>
<CAPTION>
($ IN MILLIONS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------------------------------------------------------
5-YEAR 1999E P/E /
MARKET EPS ESTIMATES P/E MULTIPLES PROJECTED 5-YEAR
PRICE AS OF VALUE ENTERPRISE ---------------- ---------------- GROWTH PROJECTED
COMPANY 1/22/99 OF EQUITY VALUE(1) 1998E 1999E 1998E 1999E RATE(2) GROWTH RATE
- -------------------------- ----------- --------- ---------- -------- ------- -------- ------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MANAGEMENT PROJECTIONS:
- ------------------------
BOXER (OFFER)(3) $20.00 $346 $724 $1.25 $2.29 16.0x 8.7x 15% 0.58x
BOXER 23.00 398 776 1.25 2.29 18.4 10.0 15 0.67
STREET ESTIMATES:(4)
- ---------------------
BOXER (OFFER)(3) $20.00 $346 $724 $1.38 $1.66 14.5x 12.0x 17% 0.71x
BOXER 23.00 398 776 1.38 1.66 16.7 13.9 17 0.82
Blair(5) $21.13 $188 $218 $2.10 $2.40 10.1x 8.8x 11% 0.80x
Coldwater Creek 15.13 154 175 1.01 1.20 15.0 12.6 23 0.55
Damark International 7.38 47 66 (1.54) (1.65) NM NM 20 NM
dELiA*s 15.00 212 209 0.40 0.60 37.5 25.0 37 0.68
DM Management 17.94 173 187 0.80 0.96 22.4 18.7 28 0.66
Fingerhut 18.38 907 1,168 0.89 1.04 20.6 17.7 16 1.13
Hanover Direct 3.06 645 706 NA NA NA NA NA NA
Lands' End 29.75 900 1,146 1.30 1.72 22.9 17.3 13 1.33
Lillian Vernon 15.00 137 153 0.64 1.40 23.4 10.7 20 0.54
Spiegel 7.75 1,021 1,919 0.05 0.30 NM 25.8 17 1.55
HARMONIC MEAN (EXCLUDING BOXER) 18.8x 15.0x
- ------------------------------------------------------------------------------------------------------------------------------------
</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: Zack's and I/B/E/S.
(3) Reflects $20 per share offer by PPR.
(4) Source: First Call and selected Wall Street research.
(5) 1998E and 1999E EPS estimates are from Value Line.
- --------------------------------------------------------------------------------
PRELIMINARY AND CONFIDENTIAL 30
<PAGE>
BEAR
STEARNS PROJECT BOXER
- --------------------------------------------------------------------------------
SUMMARY STOCK MARKET DATA FOR DIRECT MARKETERS
<TABLE>
<CAPTION>
($ IN MILLIONS, EXCEPT PER SHARE DATA)
- ------------------------------------------------------------------------------------------------------------------------------------
PRICE MARKET ENTERPRISE VALUE / EBITDA ENTERPRISE VALUE / EBIT
AS OF VALUE ENTERPRISE ----------------------------------- --------------------------------
COMPANY 1/22/99 OF EQUITY VALUE(1) LTM 1998E 1999E LTM 1998E 1999E
- -------------------------- ----------- ----------- ------------ ----------- ----------- ----------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MANAGEMENT PROJECTIONS:
- -----------------------
BOXER (OFFER)(2) $20.00 $346 $724 6.2x 8.2x 6.4x 7.6x 10.9x 8.0x
BOXER 23.00 398 776 6.6 8.7 6.8 8.1 11.7 8.6
STREET ESTIMATES:(3)
- --------------------
BOXER (OFFER)(2) $20.00 $346 $724 6.2x 7.9x 7.6x 7.6x 10.3x 10.0x
BOXER 23.00 398 776 6.6 8.4 8.1 8.1 11.0 10.7
Blair $21.13 $188 $218 6.1x NA NA 7.1x NA NA
Coldwater Creek 15.13 154 175 7.7 7.6x(4) 6.5x(4) 9.7 9.5x 7.9x
Damark International 7.38 47 66 18.8 NA NA NM NA NA
dELiA*s 15.00 212 209 21.4 21.8 13.8 26.9 26.9 16.6
DM Management 17.94 173 187 14.1 11.6 9.1 17.1 14.1 10.9
Fingerhut 18.38 907 1,168 6.1 5.6 4.8 7.9 7.3 6.0
Hanover Direct 3.06 645 706 NM NA NA NM NA NA
Lands' End 29.75 900 1,146 11.8 12.2 10.4 14.5 15.5 13.4
Lillian Vernon 15.00 137 153 9.4 NA NA 12.9 NA NA
Spiegel 7.75 1,021 1,919 11.1 11.1(5) 10.8(5) 22.4 23.2 15.3
HARMONIC MEAN (EXCLUDING BOXER) 9.9x 9.8x 8.2x 12.2x 13.1x 10.2x
- ------------------------------------------------------------------------------------------------------------------------------------
</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) Reflects $20 per share offer by PPR.
(3) Source: Selected Wall Street Research.
(4) D&A assumed to equal LTM result of $4.5 million due to lack of further
disclosure.
(5) D&A estimated as constant percent of sales from latest fiscal year.
- --------------------------------------------------------------------------------
PRELIMINARY AND CONFIDENTIAL 31
<PAGE>
BEAR
STEARNS
SECTION 4-C
PRESENT VALUE OF HYPOTHETICAL
STOCK PRICE ANALYSIS
<PAGE>
BEAR
STEARNS PROJECT BOXER
- --------------------------------------------------------------------------------
PROJECTED STOCK PRICE: ONE YEAR ANALYSIS
THE FOLLOWING TABLE SHOWS THE PRESENT VALUE TODAY OF BOXER'S PROJECTED STOCK
PRICE IN JANUARY 2000 BASED ON CURRENT MANAGEMENT PROJECTIONS.
FY2000 ESTIMATE
------------------------------------------------
FY2000 Management Projection $2.65
------------------------------------------------
PRESENT VALUE TODAY
- -----------------------------------------------------------------------------
REQUIRED RATE OF RETURN ON EQUITY
----------------------------------------------
15.0% 17.5% 20.0%
--------------- -------------- -------------
Forward 10.0x $23.04 $22.55 $22.08
P/E 12.0 27.65 27.06 26.50
Ratio 14.0 32.26 31.57 30.92
16.0 36.87 36.08 35.33
- -----------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRELIMINARY AND CONFIDENTIAL 32
<PAGE>
BEAR
STEARNS PROJECT BOXER
- --------------------------------------------------------------------------------
PROJECTED STOCK PRICE: TWO YEAR ANALYSIS
THE FOLLOWING TABLE SHOWS THE PRESENT VALUE TODAY OF BOXER'S PROJECTED STOCK
PRICE IN JANUARY 2001 BASED ON CURRENT MANAGEMENT PROJECTIONS.
FY2001 ESTIMATE
-----------------------------------------------------
FY2001 Management Projection $3.08
-----------------------------------------------------
PRESENT VALUE TODAY
- --------------------------------------------------------------------------------
REQUIRED RATE OF RETURN ON EQUITY
-------------------------------------------------
15.0% 17.5% 20.0%
-------------- ------------- ----------------
Forward 10.0x $23.30 $22.32 $21.40
P/E 12.0 27.96 26.78 25.68
Ratio 14.0 32.62 31.25 29.96
16.0 37.28 35.71 34.24
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRELIMINARY AND CONFIDENTIAL 33
<PAGE>
BEAR
STEARNS
SECTION 4-D
COMPARABLE ACQUISITION ANALYSIS
<PAGE>
BEAR
STEARNS PROJECT BOXER
- --------------------------------------------------------------------------------
COMPARABLE ACQUISITION ANALYSIS
<TABLE>
<CAPTION>
($ IN MILLIONS)
- ------------------------------------------------------------------------------------------------------------------------------------
LTM ENTERPRISE VALUE/LTM EQUITY VALUE/
ANNOUNCEMENT TARGET / EQUITY ENTERPRISE --------------------------------- ---------------------- LTM
DATE ACQUIROR VALUE VALUE REVENUE EBITDA EBIT NET INCOME REVENUE EBITDA EBIT NET INCOME
- ------------ ---------------------------- ------- ---------- ------- ------ ------ ---------- ------- ------ ----- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/15/98 Bedford Fair / $39 $39 $120 NA NA NA 0.33x NA NA NA
Fingerhut Companies
12/2/98 BOXER / PINAULT- $345 $723 $1,342 $117 $95 $39 0.54x 6.0x 7.3x 8.8x
PRINTEMPS-REDOUTE(2)
8/12/98 Arizona Mail Order / $109 $120 $140 NA NA NA 0.86x 6.7(1) NA NA
Fingerhut Companies
6/15/98 Pleasant Co. / 700 715 300 NA NA NA 2.38 NA NA NA
Mattel
5/18/98 Viking Office Products / 2,452 2,363 1,447 138 115 80 1.63 17.1 20.6 30.8
Office Depot
4/7/98 Quill / 637 690 551 NA NA 22 1.25 NA NA 28.7
Staples
3/20/98 Rivertown Trading / 120 120 190 NA NA NA 0.63 NA NA NA
Dayton Hudson
2/20/98 Boxer / 935 1,290 1,315 135 114 53 0.98 9.6 11.3 17.6
Pinault - Printemps Redoute(3)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -----------------------
Note: LTM = Latest twelve months.
(1) Based on Street estimates.
(2) Figures assume 100% acquisition, however, transaction represents the
remaining 50.1% stake of Brylane's total outstanding stock, at $20 per
share.
(3) Figures assume 100% acquisition, however, transaction represents a 43.7%
stake of Brylane's total outstanding stock, at $51 per share.
- --------------------------------------------------------------------------------
PRELIMINARY AND CONFIDENTIAL 34
<PAGE>
BEAR
STEARNS PROJECT BOXER
- --------------------------------------------------------------------------------
COMPARABLE ACQUISITION ANALYSIS (CONT.)
<TABLE>
<CAPTION>
($ IN MILLIONS)
- ------------------------------------------------------------------------------------------------------------------------------------
LTM ENTERPRISE VALUE/LTM EQUITY VALUE/
ANNOUNCEMENT TARGET/ EQUITY ENTERPRISE -------------------------------- ------------------------ LTM
DATE ACQUIROR VALUE VALUE REVENUE EBITDA EBIT NET INCOME REVENUE EBITDA EBIT NET INCOME
- ------------ -------------------------- ------ ---------- ------- ------ ---- ---------- ------- ------ ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1/6/97 Maintenance Warehouse/ $245 $279 $126 $23 $21 $11 2.21x 12.2x 13.3x 22.3x
Home Depot
12/2/96 Eastbay/ 147 143 120 10 9 6 1.19 13.8 15.4 24.8
Woolworth
10/21/96 Chadwick's (TJX)/ 243 236 480 50 43 22 0.49 4.7 5.5 11.1
Brylane LP
12/21/95 State Line Tack/ 19 28 53 (0) (1) (1) 0.52 NM NM NM
PETsMART
11/30/95 Inmac/ 124 135 369 15 11 5 0.36 9.1 12.2 27.1
Micro Warehouse
4/4/95 Sporting Dogs Specialties/ 69 75 75 1 1 1 0.99 NM NM NM
PETsMART
7/13/93 Brylane Direct/ 475 475 425 46 43 26 1.12 10.3 11.1 18.1
Freeman Spogli(1)
----------------------------------------------------------------
HIGH 2.4x 17.1x 20.6x 30.8x
LOW 0.3 4.7 5.5 11.1
HARMONIC MEAN 0.8 9.0 11.1 20.6
----------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------------
Note: LTM = Latest twelve months.
(1) Figures assume 100% acquisition, however, transaction represents a 60.0%
stake of Brylane Direct business.
- --------------------------------------------------------------------------------
PRELIMINARY AND CONFIDENTIAL 35
<PAGE>
BEAR
STEARNS
SECTION 4-E
DISCOUNTED CASH FLOW ANALYSIS
<PAGE>
BEAR
STEARNS PROJECT BOXER
- --------------------------------------------------------------------------------
DISCOUNTED CASH FLOW ANALYSIS - MANAGEMENT PROJECTIONS
THE FOLLOWING TABLE ARRIVES AT A PRELIMINARY SHARE PRICE BASED ON MANAGEMENT
PROJECTIONS AND OTHER PUBLIC INFORMATION USING DISCOUNTED CASH FLOWS.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
WACC
EBITDA ------------------------------------------------------------------------------
MULTIPLES 9.5% 10.0% 10.5% 11.0% 11.5% 12.0% 12.5% 13.0%
---------- --------- -------- --------- --------- --------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRESENT VALUE OF 1999 - 2003 CASH FLOWS $237 $234 $231 $227 $224 $221 $218 $215
PRESENT VALUE OF TERMINAL VALUES 6.0x 649 635 620 607 593 580 567 555
7.0 758 740 724 708 692 677 662 647
8.0 866 846 827 809 791 773 756 740
PRESENT VALUE OF ENTERPRISE VALUES 6.0x 886 869 851 834 817 801 786 770
7.0 995 974 954 935 916 898 880 863
8.0 1,103 1,080 1,058 1,036 1,015 995 975 955
LESS: NET DEBT @ 10/31/98 ($378) ($378) ($378) ($378) ($378) ($378) ($378) ($378)
PRESENT VALUE OF EQUITY 6.0x 508 491 473 456 439 423 408 392
7.0 617 596 576 557 538 520 502 485
8.0 725 702 680 658 637 617 597 577
PV OF GROSS EQUITY VALUE / PER SHARE 6.0x 29.38 28.35 27.34 26.36 25.40 24.47 23.56 22.67
7.0 35.64 34.46 33.32 32.20 31.11 30.05 29.02 28.01
8.0 41.89 40.58 39.29 38.04 36.83 35.64 34.48 33.36
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
PRELIMINARY AND CONFIDENTIAL 36
<PAGE>
BEAR
STEARNS PROJECT BOXER
- --------------------------------------------------------------------------------
BRYLANE, INC. - SENSITIVITY CASE PROJECTIONS(1)
<TABLE>
<CAPTION>
($ IN MILLIONS)
- --------------------------------------------------------------------------------------------------------------------------
ACTUAL PROJECTED FISCAL YEAR
1997 1998 1999 2000 2001 2002 2003
---------- ---------- ---------- --------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Circulation (millions of catalogs) 602 633 589 616 651 685 720
NET SALES $1,315 $1,328 $1,354 $1,442 $1,551 $1,663 $1,785
% growth - 1.0% 2.0% 6.5% 7.5% 7.3% 7.3%
$ per catalog $2.18 $2.10 $2.30 $2.34 $2.38 $2.43 $2.48
Gross Margin 641 640 657 700 753 808 867
% of Net Sales 48.7% 48.2% 48.5% 48.5% 48.6% 48.6% 48.6%
Advertising 302 329 333 353 378 406 435
$ per catalog $0.50 $0.52 $0.56 $0.57 $0.58 $0.59 $0.61
% of Net Sales 23.0% 24.8% 24.6% 24.5% 24.4% 24.4% 24.4%
Fulfillment Costs 124 143 147 155 166 175 187
$ per catalog $0.09 $0.11 $0.11 $0.11 $0.11 $0.11 $0.11
% of Net Sales 9.5% 10.7% 10.9% 10.8% 10.7% 10.5% 10.5%
Support Services 89 91 96 101 107 107 107
% of Net Sales 6.7% 6.9% 6.9% 6.8% 6.7% 6.7% 6.7%
------ ------ ------ ------ ------ ------ ------
OPERATING INCOME(2) $125(3) $77 $87 $94 $104 $116 $124
% of Net Sales 9.5% 5.8% 6.4% 6.5% 6.7% 7.0% 7.0%
Amortization 11 12 11 11 10 10 10
Interest Expense 28 30 28 26 22 19 16
------ ------ ------ ------ ------ ------ ------
Pretax Income 87 36 48 57 71 86 98
Taxes 33 13 18 22 27 33 38
------ ------ ------ ------ ------ ------ ------
NET INCOME(4) $54 $23(5) $29 $35 $44 $53 $61
------ ------ ------ ------ ------ ------ ------
% growth - (58.0) 30.5 19.6 24.4 21.0 14.3
% of Net Sales 3.9% 1.7% 2.9% 3.1% 3.4% 3.4% 3.4%
Fully Diluted Shares (millions) 19.4 18.0 17.3 17.3 17.3 17.3 17.3
EPS $2.76 $1.25 $1.70 $2.03 $2.53 $3.06 $3.50
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------------------
(1) FOR ILLUSTRATIVE PURPOSES ONLY. PROJECTIONS NOT PREPARED IN CONJUNCTION
WITH MANAGEMENT.
(2) Includes $2.2 and $4.8 million of unallocated general expenses including
startup of new businesses in 1998 and 1999, respectively.
(3) Includes $4.0 million of one-time charges relating to $3.3 million 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.
- --------------------------------------------------------------------------------
PRELIMINARY AND CONFIDENTIAL 37
<PAGE>
BEAR
STEARNS PROJECT BOXER
- --------------------------------------------------------------------------------
DISCOUNTED CASH FLOW ANALYSIS - SENSITIVITY CASE(1)
THE FOLLOWING TABLE ARRIVES AT A PRELIMINARY SHARE PRICE BASED ON SENSITIVITY
CASE PROJECTIONS AND OTHER PUBLIC INFORMATION USING DISCOUNTED CASH FLOWS.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
WACC
EBITDA ----------------------------------------------------------------------------
MULTIPLES 9.5% 10.0% 10.5% 11.0% 11.5% 12.0% 12.5% 13.0%
--------- -------- -------- -------- ------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRESENT VALUE OF 1999 - 2003 CASH FLOWS $196 $193 $191 $188 $186 $183 $181 $178
PRESENT VALUE OF TERMINAL VALUES 6.0x 544 532 520 508 497 486 475 465
7.0 635 620 606 593 580 567 554 542
8.0 725 709 693 678 663 648 634 620
PRESENT VALUE OF ENTERPRISE VALUES 6.0x 740 725 711 696 683 669 656 643
7.0 831 814 797 781 765 750 735 721
8.0 921 902 884 866 848 831 814 798
LESS: NET DEBT @ 10/31/98 ($378) ($378) ($378) ($378) ($378) ($378) ($378) ($378)
PRESENT VALUE OF EQUITY 6.0x 362 347 333 318 305 291 278 265
7.0 453 436 419 403 387 372 357 343
8.0 543 524 506 488 470 453 436 420
PV OF GROSS EQUITY VALUE / PER SHARE 6.0x 20.92 20.06 19.22 18.40 17.61 16.83 16.07 15.33
7.0 26.16 25.18 24.23 23.30 22.39 21.51 20.65 19.81
8.0 31.40 30.31 29.24 28.19 27.18 26.19 25.23 24.29
- ---------------------------------------- -----------------------------------------------------------------------------------------
</TABLE>
- -----------------
(1) FOR ILLUSTRATIVE PURPOSES ONLY. PROJECTIONS NOT PREPARED IN CONJUNCTION
WITH MANAGEMENT.
- --------------------------------------------------------------------------------
PRELIMINARY AND CONFIDENTIAL 38
<PAGE>
BEAR
STEARNS PROJECT BOXER
- --------------------------------------------------------------------------------
BRYLANE INC. - MANAGEMENT PROJECTIONS VS. SENSITIVITY CASE COMPARISON
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
MANAGEMENT SENSITIVITY
PROJECTIONS CASE COMMENTS
----------- ----------- ----------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES GROWTH o Sales estimated to grow from 1998 - 1999 at half the rate for Sensitivity
1998-2000 CAGR 5.5% 4.0% Case vs. Management projections (i.e., 2.0% vs. 4.6%) due to continued
demand softness in general and slower expected recovery of lost sales at
Chadwick's and Lerners
GROSS MARGIN (% NET SALES) o Some gross margin improvement in Sensitivity Case from 1998 - 1999
1997 48.7% 48.7% although not expected to return to historical levels
1998 48.2 48.2 o Continued pricing pressure at Chadwick's and other regular-sized catalogs
1999 48.8 48.5
2000-2003 Average 48.6 48.6
ADVERTISING (% NET SALES) o Majority of margin deterioration from 1997 to 1998 due to postage and
1997 23.0% 23.0% paper price increases
1998 24.7 24.8 o Assumes further deterioration in response rates
1999 23.6 24.6 o Sensitivity Case assumes less efficiencies in future years due to lower
2000-2003 Average 23.6 24.3 productivity of catalogs as Management prospects fewer new customers in
1998 and 1999
FULFILLMENT COSTS (% NET SALES) o Sensitivity Case to track Management projections in initial years
1997 9.5% 9.5%
1998 10.7 10.7
1999 11.0 11.0
2000-2003 Average 10.3 10.6
o Sensitivity Case to track Management projections
SUPPORT SERVICES (% NET SALES)
1997 6.7% 6.7%
1998 6.9 6.9
1999 6.9 6.9
2000-2003 Average 6.8 6.8
OPERATING INCOME (% NET SALES)
1997 9.5% 9.5%
1998 5.8 5.8
1999 7.3 6.4
2000-2003 Average 7.9 6.8
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
PRELIMINARY AND CONFIDENTIAL 39
<PAGE>
BEAR
STEARNS
APPENDICES
<PAGE>
BEAR
STEARNS
APPENDIX A
FINANCIAL IMPACT OF TRANSACTION
ON PPR
<PAGE>
BEAR
STEARNS PROJECT BOXER
- --------------------------------------------------------------------------------
ACCRETION / DILUTION ANALYSIS
BY ANALYZING THE POTENTIAL ACCRETION / DILUTION FOR PPR, ONE CAN GET AN IDEA OF
PPR'S FINANCIAL CAPACITY.
ASSUMPTIONS:
- ----------------------------------------
o Purchase accounting
o 100% cash at 3% excess rate
o 20-year goodwill amortization
- ----------------------------------------
<TABLE>
<CAPTION>
PRO FORMA ANALYSIS ($ IN MILLIONS)
- -----------------------------------------------------------------------------------------------------------------------------
100% CASH
PPR ------------------------------------------------------------------
STANDALONE $20.00 $22.00 $24.00 $26.00 $28.00 $30.00 $32.00
---------- ------- -------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EARNINGS PER SHARE
1998E (Management Case) $4.90 $4.89 $4.88 $4.87 $4.85 $4.84 $4.83 $4.81
1999E (Management Case) 5.94 6.01 5.99 5.98 5.97 5.95 5.94 5.93
1999E (Sensitivity Case) 5.94 5.97 5.96 5.94 5.93 5.92 5.90 5.89
ACCRETION/(DILUTION)
1998E (Management Case) (0.1)% (0.3)% (0.6)% (0.9)% (1.1)% (1.4)% (1.7)%
1999E (Management Case) 1.2% 0.9% 0.7% 0.5% 0.3% 0.0% (0.2)%
1999E (Sensitivity Case) 0.6% 0.3% 0.1% (0.1)% (0.3)% (0.6)% (0.8)%
BREAK EVEN SG&A SYNERGIES ($ IN MILLIONS)
1998E (Management Case) $0.5 $2.9 $5.4 $7.8 $10.2 $12.6 $15.0
1999E (Management Case) NM NM NM NM NM NM 1.9
1999E (Sensitivity Case) NM NM NM 1.2 3.6 6.0 8.4
BREAK EVEN SYNERGIES (AS A % OF TARGET SALES)
1998E (Management Case) 0.1% 0.4% 0.8% 1.2% 1.5% 1.9% 2.3%
1999E (Management Case) NM NM NM NM NM NM 0.3%
1999E (Sensitivity Case) NM NM NM 0.2% 0.5% 0.9% 1.2%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
PRELIMINARY AND CONFIDENTIAL 40
