1
WACHOVIA SECURITIES, INC. Investment Banking Group
PROJECT TARA
PRESENTATION TO THE SPECIAL COMMITTEE
OF THE BOARD OF DIRECTORS
CONFIDENTIAL DISCUSSION MATERIALS
MAY 13, 1999
2
WACHOVIA SECURITIES, INC. Investment Banking Group
TABLE OF CONTENTS
- DEAL VALUATION SUMMARY.................................................. A
- ANALYSIS OF MEADOWCRAFT, INC............................................ B
Summary Financial Information........................................... I
Common Stock Analysis................................................... II
Total Return Analysis................................................... III
Research and Investment Opinions Summary................................ IV
- VALUATION ANALYSES...................................................... C
Comparable Public Companies............................................. I
M&A Transactions Multiples.............................................. II
Acquisition Premiums Paid............................................... III
Discounted Cash Flow Analysis........................................... IV
3
WACHOVIA SECURITIES, INC. Investment Banking Group
Deal Valuation Summary
4
WACHOVIA SECURITIES, INC. Investment Banking Group
Project Tara
Deal Valuation
Deal Terms:
Public Non-Affiliate Shares Outstanding [1] 5,315,719
Cash Offer per Share $ 10.00
-------------
Total Cash Consideration $ 53,157,190
Meadowcraft Shares Outstanding [2] 19,708,750
Cash Offer per Share $ 10.00
-------------
Offer Equity Value [3] $ 197,087,500
Meadowcraft Debt [4] 27,012,000
Less: Meadowcraft Cash on Hand [4] --
-------------
Offer Enterprise Value $ 224,099,500
Meadowcraft, Inc. Financial and Market Results:
LTM (1/31/99)
-------------
Net Sales $ 157,712,000
EBITDA 34,189,000
EBIT 27,361,000
Net Income [5] 14,296,000
Book Value 50,257,000
EPS FY 1999E [6] $ 0.52
EPS FY 2000E [6] 0.76
Share Price [7] $ 6.06
Deal Valuation Ratios:
Enterprise Value/Net Sales 1.4 x
Enterprise Value/EBITDA 6.6
Enterprise Value/EBIT 8.2
Equity Value/Net Income 13.8
Equity Value/Book Value 3.9
Offer Price/EPS FY 1999E 19.2
Offer Price/EPS FY 2000E 13.2
Offer Premium over Share Price 64.9%
- ---------------------------------------
[1] Number provided by the Company.
[2] Meadowcraft shares outstanding as of 5/12/99, provided by Meadowcraft and
excluding outstanding options.
[3] Offer equity value is calculated by taking the aggregate number of shares
of common stock outstanding, reflected in note 2 above, times the offer
price of $10.00 per share, in order to provide a consistent analysis for
evaluating the cash consideration to the public non-affiliate stockholders.
[4] Provided by Meadowcraft and as of 5/12/99. Debt does not include amounts
outstanding under the company's revolving line of credit.
[5] Adjusted to reflect the company's termination of its S Corporation election
in connection with its IPO 11/25/97. As a result, the company recorded a
credit to income tax provision in the amount of $3.2 million which has been
excluded.
[6] As published by A.G. Edwards & Sons, Inc. on 5/6/99 and reported to First
Call.
[7] Closing price of Meadowcraft common stock on 4/8/99, one day prior to
announcement of the proposed offer.
5
WACHOVIA SECURITIES, INC. Investment Banking Group
Analysis of Meadowcraft, Inc.
6
WACHOVIA SECURITIES, INC. Investment Banking Group
Summary Financial Information
7
WACHOVIA SECURITIES, INC. Investment Banking Group
Project Tara
Historical Quarterly Income Statements [1]
(in thousands, except per share data)
Q1 (October) Q2 (January)
---------------------------------------- ----------------------------------------
1997 1998 1999 1997 1998 [3] 1999
-------- -------- -------- -------- -------- --------
Revenue $ 6,622 $ 6,916 $ 8,327 $ 27,183 $ 28,546 $ 22,646
Cost of goods 6,067 6,748 10,414 18,046 19,754 17,942
-------- -------- -------- -------- -------- --------
Gross profit 555 168 (2,087) 9,137 8,792 4,704
Selling, general and administrative 1,126 1,141 1,019 787 2,360 2,654
Depreciation and amortization 1,270 1,391 1,704 1,307 1,289 1,712
-------- -------- -------- -------- -------- --------
Income from operations (1,841) (2,364) (4,810) 7,043 5,143 338
Interest income (expense) (985) (491) (679) (1,177) (893) (1,031)
-------- -------- -------- -------- -------- --------
Income before taxes (2,826) (2,855) (5,489) 5,866 4,250 (693)
Provision (credit) for income taxes [2] (1,051) (1,062) (2,042) 2,182 1,582 (251)
-------- -------- -------- -------- -------- --------
Pro forma net income $ (1,775) $ (1,793) $ (3,447) $ 3,684 $ 2,668 $ (442)
======== ======== ======== ======== ======== ========
Basic average shares outstanding 16,561 16,561 19,709 16,000 18,662 19,709
Diluted average shares outstanding 16,561 16,561 19,709 16,000 18,662 19,709
Net income per share (basic & diluted) $ (0.11) $ (0.11) $ (0.17) $ 0.23 $ 0.14 $ (0.02)
======== ======== ======== ======== ======== ========
EBITDA $ (571) $ (973) $ (3,106) $ 8,350 $ 6,432 $ 2,050
Revenue growth 4.4% 20.4% 5.0% -20.7%
Operating income growth (28.4%) (103.5%) (27.0%) (93.4%)
Pre-tax income growth (1.0%) (92.3%) (27.5%) (116.3%)
Net income growth (1.0%) (92.2%) (27.6%) (116.6%)
Q3 (April) Q4 (July)
------------------------ -------------------------------------
1997 1998 1996 1997 1998
-------- -------- -------- -------- --------
Revenue $ 75,907 $ 81,840 $ 32,233 $ 35,368 $ 44,899
Cost of goods 49,932 52,849 24,270 25,932 32,904
-------- -------- -------- -------- --------
Gross profit 25,975 28,991 7,963 9,436 11,995
Selling, general and administrative 4,568 3,456 1,329 1,722 2,287
Depreciation and amortization 1,356 1,754 1,235 1,237 1,658
-------- -------- -------- -------- --------
Income from operations 20,051 23,781 5,399 6,477 8,050
Interest income (expense) (1,807) (1,606) (1,304) (1,161) (1,272)
-------- -------- -------- -------- --------
Income before taxes 18,244 22,175 4,095 5,316 6,778
Provision (credit) for income taxes [2] 6,786 8,250 1,523 1,978 2,518
-------- -------- -------- -------- --------
Pro forma net income $ 11,458 $ 13,925 $ 2,572 $ 3,338 $ 4,260
======== ======== ======== ======== =========
Basic average shares outstanding 16,000 19,709 16,000 16,000 19,709
Diluted average shares outstanding 16,000 19,727 16,000 16,000 19,709
Net income per share (basic & diluted) $ 0.72 $ 0.71 $ 0.16 $ 0.21 $ 0.22
======== ======== ======== ======== =========
EBITDA $ 21,407 $ 25,535 $ 6,634 $ 7,714 $ 9,708
Revenue growth 7.8% 9.7% 26.9%
Operating income growth 18.6% 20.0% 24.3%
Pre-tax income growth 21.5% 29.8% 27.5%
Net income growth 21.5% 29.8% 27.6%
- ------------------------------
[1] Meadowcraft's fiscal year end is July 31. Prior to the company's IPO on
November 25, 1997, its fiscal year end was April 30.
[2] Prior to 1998, the company was taxed as an S-corp. The income taxes prior
to 1998 are pro forma as if the company had been taxed as a C-corp subject
to state and federal taxes.
[3] Net income for the quarter ended January 1998 is adjusted to reflect the
company's termination of its S-Corp. election in connection with its IPO.
As a result, the company recorded a credit to income tax provision in the
amount of $3.2 million which has been excluded.
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WACHOVIA SECURITIES, INC. Investment Banking Group
Project Tara
Historical Annual Income Statements
(in thousands, except per share data)
Year Ended [1]
-------------------------------------------------------------------
April 30, 1995 April 28, 1996 May 3, 1997 July 31, 1998[3]
-------------- -------------- ----------- ----------------
Revenues $ 120,767 $ 117,419 $ 141,945 $ 162,201
Cost of goods sold 88,587 87,849 98,315 112,255
--------- --------- --------- ---------
Gross profit 32,180 29,570 43,630 49,946
Selling, general and administrative 8,926 7,992 7,879 9,244
Depreciation and amortization 2,340 4,006 5,099 6,092
--------- --------- --------- ---------
Income from operations 20,914 17,572 30,652 34,610
Interest income (expense) (4,881) (5,018) (5,274) (4,262)
--------- --------- --------- ---------
Income before taxes 16,033 12,554 25,378 30,348
Provision (credit) for income taxes [2] 6,071 4,685 9,439 11,289
--------- --------- --------- ---------
Pro forma net income $ 9,962 $ 7,869 $ 15,939 $ 19,059
========= ========= ========= =========
Basic average shares outstanding 16,000 16,000 16,000 18,520
Diluted average shares outstanding 16,000 16,000 16,000 18,524
Net income per share (basic & diluted) $ 0.62 $ 0.49 $ 1.00 $ 1.03
========= ========= ========= =========
EBITDA $ 23,254 $ 21,578 $ 35,751 $ 40,702
Revenue growth (2.8%) 20.9% 14.3%
Operating income growth (16.0%) 74.4% 12.9%
Pre-tax income growth (21.7%) 102.2% 19.6%
Net income growth (21.0%) 102.6% 19.6%
- ------------------------------
[1] Meadowcraft's fiscal year end is now July 31. Prior to the company's IPO on
November 25, 1997, its fiscal year end was in April.
[2] Prior to 1998, the company was taxed as an S-corp. The income taxes prior
to 1998 are pro forma as if the company had been taxed as a C-corp subject
to state and federal taxes.
[3] 1998 net income has been adjusted to reflect the company's termination of
its S Corporation election in connection with its IPO. As a result, the
company has recorded a credit to income tax provision in the amount of
$3.2 million which has been excluded.
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WACHOVIA SECURITIES, INC. Investment Banking Group
Project Tara
Projected Income Statements [1]
(in thousands)
Year Ending July 31,
------------------------------------------------------------------------------
1999 2000 2001 2002 2003 2004
-------- -------- -------- -------- -------- --------
Net sales $141,212 $162,937 $171,084 $179,638 $188,620 $198,051
Cost of sales 105,467 118,011 122,201 126,514 130,954 135,521
-------- -------- -------- -------- -------- --------
Gross profit 35,745 44,926 48,883 53,124 57,666 62,530
Total operating expenses 8,911 9,122 9,350 9,584 9,823 10,069
-------- -------- -------- -------- -------- --------
EBITDA 26,834 35,804 39,533 43,540 47,843 52,461
Depreciation and amortization 7,174 7,632 8,410 9,583 10,920 12,443
-------- -------- -------- -------- -------- --------
Total operating income 19,660 28,172 31,123 33,957 36,923 40,018
Interest expense 4,159 3,652 3,021 2,348 1,279 544
Interest (income) -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Other expenses (income) 4,159 3,652 3,021 2,348 1,279 544
-------- -------- -------- -------- -------- --------
Pre-tax income 15,501 24,519 28,102 31,609 35,644 39,474
Provision for income taxes 5,767 9,121 10,454 11,758 13,260 14,684
-------- -------- -------- -------- -------- --------
Pro forma net income $ 9,735 $ 15,398 $ 17,648 $ 19,850 $ 22,385 $ 24,790
======== ======== ======== ======== ======== ========
[1] Projections based upon FY 1999 and FY 2000 Company forecasts and
assumptions provided by the Company for the fiscal years thereafter.
10
WACHOVIA SECURITIES, INC. Investment Banking Group
Project Tara
Balance Sheets [1]
(in thousands)
As of July 31, As of July 31,
------------------- -------------------------------------------------------------------
1997 1998 1999 2000 2001 2002 2003 2004
-------- --------- --------- --------- --------- --------- --------- ---------
ASSETS
- ------
Cash $ -- $ -- $ -- $ 11,109 $ 24,191 $ 39,900 $ 49,077 $ 72,094
Due from factor 10,758 14,686 19,920 21,292 22,357 23,474 24,648 25,881
Accounts receivable 5,700 6,810 7,151 7,508 7,883 8,278 8,691 9,126
Inventory 11,590 21,599 21,599 18,844 19,786 20,776 21,814 22,905
Prepaid expenses and other 293 359 450 450 450 450 450 450
Deferred income taxes -- 4,334 3,794 3,794 3,794 3,794 3,794 3,794
-------- --------- --------- --------- --------- --------- --------- ---------
Total current assets 28,341 47,788 52,913 62,997 78,461 96,671 108,475 134,249
Land 4,966 8,130 8,130 8,130 8,130 8,130 8,130 8,130
Gross plant and equip 54,903 76,299 79,814 83,329 91,739 101,322 112,241 124,684
Accumulated depreciation (17,908) (23,039) (30,213) (37,845) (46,255) (55,838) (66,758) (79,200)
-------- --------- --------- --------- --------- --------- --------- ---------
Net P,P&E 41,961 61,390 57,731 53,614 53,614 53,614 53,614 53,614
Other assets 770 973 900 779 658 537 416 295
-------- --------- --------- --------- --------- --------- --------- ---------
Total assets $ 71,072 $ 110,151 $ 111,544 $ 117,390 $ 132,733 $ 150,822 $ 162,504 $ 188,158
======== ========= ========= ========= ========= ========= ========= =========
[1] Projections based upon FY 1999 and FY 2000 Company forecasts and
assumptions provided by the Company for the fiscal years thereafter.
11
WACHOVIA SECURITIES, INC. Investment Banking Group
Project Tara
Balance Sheets [1]
(in thousands)
As of July 31, As of July 31,
-------------------- ------------------------------------------------------------------
1997 1998 1999 2000 2001 2002 2003 2004
-------- --------- --------- --------- --------- --------- --------- ---------
LIABILITIES & EQUITY
Current maturities & short-term debt $ 4,550 $ 2,990 $ 2,990 $ 2,990 $ 2,990 $ 2,990 $ 2,990 $ 2,990
Accounts payable 2,847 2,400 2,390 4,000 4,200 4,410 4,631 4,862
Accrued expenses and warranty 6,913 6,594 10,671 9,700 10,185 11,204 12,324 13,556
Income taxes payable -- 2,799 1,040 888 888 888 888 888
-------- --------- --------- --------- --------- --------- --------- ---------
Total current liabilities 14,310 14,783 17,091 17,578 18,263 19,492 20,832 22,296
Long term debt
Revolver -- -- 2,790 -- -- -- -- --
Notes payable 10,226 14,024 4,259 -- -- -- -- --
2003 term note -- 21,003 18,613 16,223 13,833 11,443 -- --
2012 term note -- 6,000 5,600 5,200 4,800 4,400 4,000 3,600
Other term notes 12,400 -- -- -- -- -- -- --
Promissory notes 2,842 -- -- -- -- -- -- --
-------- --------- --------- --------- --------- --------- --------- ---------
Total debt 25,468 41,027 31,262 21,423 18,633 15,843 4,000 3,600
Less current portion (4,550) (2,990) (2,990) (2,990) (2,990) (2,990) (2,990) (2,990)
-------- --------- --------- --------- --------- --------- --------- ---------
Total long-term debt 20,918 38,037 28,272 18,433 15,643 12,853 1,010 610
Capitalized lease obligations 2,700 2,500 2,300 2,100 1,900 1,700 1,500 1,300
-------- --------- --------- --------- --------- --------- --------- ---------
Total liabilities 37,928 55,320 47,663 38,111 35,806 34,045 23,342 24,206
Common stock 160 197 197 197 197 197 197 197
Additional paid-in-capital 340 44,614 44,614 44,614 44,614 44,614 44,614 44,614
Retained earnings 32,644 10,020 19,070 34,468 52,116 71,966 94,351 119,141
-------- --------- --------- --------- --------- --------- --------- ---------
Total stockholders' equity 33,144 54,831 63,881 79,279 96,927 116,777 139,162 163,952
-------- --------- --------- --------- --------- --------- --------- ---------
Total liabilities & equity $ 71,072 $ 110,151 $ 111,544 $ 117,390 $ 132,733 $ 150,822 $ 162,504 $ 188,158
======== ========= ========= ========= ========= ========= ========= =========
[1] Projections based upon FY 1999 and FY 2000 Company forecasts and
assumptions provided by the Company for the fiscal years thereafter.
12
WACHOVIA SECURITIES, INC. Investment Banking Group
Project Tara
Projected Cash Flow Statements [1]
(in thousands)
Year Ending July 31,
-------------------------------------------------------------------
1999 2000 2001 2002 2003 2004
-------- -------- -------- -------- -------- --------
Cash flows from operating activities:
Net income $ 9,735 $ 15,398 $ 17,648 $ 19,850 $ 22,385 $ 24,790
Depreciation 7,174 7,632 8,410 9,583 10,920 12,443
Changes in current assets (5,125) 1,025 (2,382) (2,501) (2,626) (2,758)
Changes in current liabilities 2,308 487 685 1,229 1,341 1,464
-------- -------- -------- -------- -------- --------
Net cash provided by operating activities 14,092 24,543 24,361 28,160 32,019 35,939
Cash flows from investing activities:
Capital expenditures (net of dispositions) (3,515) (3,515) (8,410) (9,583) (10,920) (12,443)
Changes in other long-term assets & liabilities (127) (79) (79) (79) (79) (79)
-------- -------- -------- -------- -------- --------
Net cash provided by investing activities (3,642) (3,594) (8,489) (9,662) (10,999) (12,522)
Cash flows from financing activities:
Dividends paid (685) -- -- -- -- --
Repayment of debt (12,555) (9,839) (2,790) (2,790) (11,843) (400)
Drawdown on revolver 2,790 -- -- -- -- --
-------- -------- -------- -------- -------- --------
Net cash provided by financing activities (10,450) (9,839) (2,790) (2,790) (11,843) (400)
-------- -------- -------- -------- -------- --------
Net additions to cash $ -- $ 11,109 $ 13,082 $ 15,708 $ 9,177 $ 23,017
======== ======== ======== ======== ======== ========
Beginning cash balance -- -- $ 11,109 $ 24,191 $ 39,900 $ 49,077
Ending cash balance -- $ 11,109 $ 24,191 $ 39,900 $ 49,077 $ 72,094
[1] Projections based upon FY 1999 and FY 2000 Company forecasts and
assumptions provided by the Company for the fiscal years thereafter.
13
WACHOVIA SECURITIES, INC. Investment Banking Group
Common Stock Analysis
14
WACHOVIA SECURITIES, INC. Investment Banking Group
Meadowcraft, Inc.
Price/Volume Performance
November 25, 1997 to May 12, 1999
[GRAPH]
*The Company went public on 11/25/97 selling 3,225,000 shares at $13.00.
15
WACHOVIA SECURITIES, INC. Investment Banking Group
Total Return Analysis
16
WACHOVIA SECURITIES, INC. Investment Banking Group
Project Tara
Total Return Since 11/28/97[1]
[GRAPH]
- ---------------------------------------
*See footnotes on following page.
17
WACHOVIA SECURITIES, INC. Investment Banking Group
Project Tara
Total Return Since 11/28/97
(footnotes)
- ----------------------------------------------------
Source: Bloomberg (reported on a weekly basis)
[1] Total return is calculated from 11/28/97 through 5/7/99.
[2] Meadowcraft's total return is based upon the offer price of $10.00 per
share to be received by the public non-affiliate stockholders versus
$13.00, the offering price for the company's IPO which began trading on
11/25/97.
[3] Meadowcraft's total return is based upon the current market price as of
4/8/99, one day prior to announcement, of $6.06 versus $13.00, the
offering price for the company's IPO which began trading on 11/25/97.
[4] The total return for WLFI reflects an acquisition premium. On January
15, 1999, one day prior to the initial announcement of the proposed
transaction, the common stock was $27.00, which represents a total
return of 83.0% over its price on 11/28/97.
18
WACHOVIA SECURITIES, INC. Investment Banking Group
Research and Investment
Opinions Summary
19
WACHOVIA SECURITIES, INC. Investment Banking Group
Project Tara
Research and Investment Opinions Summary [1]
Date of Last EPS Estimate P/E Multiple [2] Price
Research Firm Earnings Estimate FY 1999 FY 2000 FY 1999 FY 2000 Recommendation Target [3]
- -----------------------------------------------------------------------------------------------------------------------------------
A.G. Edwards & Sons, Inc. 06-May-99 $ 0.52 $ 0.76 11.66 x 7.98 x Maintain $6.00 - $7.00
- ---------------------------------------
[1] Based upon data available on May 12, 1999. The last available report for
the Red Chip Review is dated 11/10/98. Because of the Company's material
announcements regarding its business, operations and prospects since that
date, the information has been deemed to be not meaningful, and therefore
has not been included here.
[2] Based upon Meadowcraft's stock price on April 8, 1999, one day prior to
announcement of the proposed offer.
[3] The time frame for the price target is the next twelve months.
20
WACHOVIA SECURITIES, INC. Investment Banking Group
Valuation Analyses
21
WACHOVIA SECURITIES, INC. Investment Banking Group
Comparable Public
Companies
22
WACHOVIA SECURITIES, INC. Investment Banking Group
PROJECT TARA
DESCRIPTION OF COMPARABLE PUBLIC COMPANIES
BUSH INDUSTRIES, INC. (SYM: BSH)
Bush Industries, Inc. designs, manufactures and sells ready-to-assemble
furniture products in various price ranges for both business and consumer use.
The company's products include audio/video home entertainment centers, home
theatre furniture systems, audio cabinets, television/VCR carts, room dividers,
wall units, bookcases, bedroom and kitchen/utility furniture, microwave carts,
computer desks and workstations, hutches, printer stands, double pedestal
executive desks, credenzas, storage armoires and file cabinets.
[GRAPH]
23
WACHOVIA SECURITIES, INC. Investment Banking Group
PROJECT TARA
DESCRIPTION OF COMPARABLE PUBLIC COMPANIES
CHROMCRAFT REVINGTON, INC. (SYM: CRC)
Chromcraft designs, manufactures and sells residential and commercial furniture
through its wholly-owned subsidiaries, Chromcraft Corporation, Peters-Revington
Corporation, Silver Furniture Co., Inc., and Cochrane Furniture Company, Inc.
The company's Chromcraft products include mid-to-higher priced casual dining
furniture. Peters-Revington products consist of moderately priced occasional
furniture. Silver Furniture manufactures occasional tables and the Cochrane
division makes and sells medium-priced wood dining room and bedroom furniture,
mainly in traditional and country styling.
[GRAPH]
24
WACHOVIA SECURITIES, INC. Investment Banking Group
PROJECT TARA
DESCRIPTION OF COMPARABLE PUBLIC COMPANIES
FLEXSTEEL INDUSTRIES, INC. (SYM: FLXS)
Flexsteel Industries, Inc. manufactures and sells a broad line of quality
upholstered furniture for the retail furniture market, contract furniture
market and recreational vehicle furniture market. The company's classes of
products include a variety of wood and upholstered furniture (including
upholstered reclining and rocker-reclining chairs), swivel rockers, chairs,
sofas, sofa beds, loveseats and convertible bedding units, some or all of which
are for home, office, recreational vehicles, vans and mobile homes.
Products are sold to several national chains, some of which sell on a private
label basis.
[GRAPH]
25
WACHOVIA SECURITIES, INC. Investment Banking Group
PROJECT TARA
DESCRIPTION OF COMPARABLE PUBLIC COMPANIES
PULASKI FURNITURE CORPORATION (SYM: PLFC)
Pulaski Furniture Corporation manufactures and sells medium-priced wooden
bedroom, dining room and occasional furniture. The company has an import
division that supplements its product mix with furniture and component parts.
Pulaski is best known in the furniture industry for its extensive line of
curios, collector's cabinets and hall trees. Also, the company manufactures
grandfather, mantel and wall clocks through its subsidiary Ridgeway Clock
Company.
[GRAPH]
26
WACHOVIA SECURITIES, INC. Investment Banking Group
PROJECT TARA
DESCRIPTION OF COMPARABLE PUBLIC COMPANIES
THE ROWE COMPANIES (SYM: ROW)
The Rowe Companies is comprised primarily of Rowe Furniture Inc., its core
upholstered furniture subsidiary; The Mitchell Gold Co., a producer of
upholstered leather furniture; The Wexford Collection, Inc., a producer of
solid wood furniture; and Home Elements, Inc., a chain of retail specialty home
furnishings stores. The company's upholstered goods consist primarily of sofas,
loveseats and chairs and are sold primarily in the middle to upper-middle price
range. The company sells its manufactured products primarily through an
exclusive sales force of commissioned employees to national, regional and local
retailers.
[GRAPH]
27
WACHOVIA SECURITIES, INC. Investment Banking Group
PROJECT TARA
DESCRIPTION OF COMPARABLE PUBLIC COMPANIES
STANLEY FURNITURE COMPANY, INC. (SYM: STLY)
Stanley Furniture Company, Inc. designs and manufactures wood furniture
exclusively targeted at the upper-medium price range of the residential market
including bedroom, dining room, youth bedroom, living room tables,
entertainment centers, home office and upholstery. The company provides wood
product in a variety of woods, veneers and finishes. The company's product
lines cover all major design categories including European, traditional,
contemporary/transitional, eighteenth century and country/nostalgia designs.
[GRAPH]
28
WACHOVIA SECURITIES, INC. Investment Banking Group
PROJECT TARA
DESCRIPTION OF COMPARABLE PUBLIC COMPANIES
WINSLOEW FURNITURE, INC. (SYM: WLFI)
WinsLoew Furniture, Inc. designs, manufactures and distributes three principal
product lines: casual furniture for both the residential and contract markets,
contract seating designed for restaurant, lodging, office or other general
institutional use, and ready-to-assemble furniture. The company's casual
furniture products for residential use consist principally of medium to
upper-medium priced indoor and outdoor furniture and include numerous style
collections such as traditional, European and contemporary design patterns.
[GRAPH]
29
WACHOVIA SECURITIES, INC. Investment Banking Group
Project Tara
Comparable Companies Analysis
(in millions, except per share data)
Current 52 Week Price Equity Market
Year Price ----------------- Shares Market Net Value of
Company Ticker End 5/12/99 High Low Outst. Value Debt [1] Capital. [2]
------ ----- ------- ------- ------- ------ ------- -------- ------------
Bush Industries, Inc. [4] BSH Dec. $ 15.63 $ 27.31 $ 10.38 13.9 $ 216.8 $ 119.5 $ 336.3
Chromcraft Revington, Inc. [5] CRC Dec. 16.50 19.59 13.88 10.8 177.7 -- 177.7
Flexsteel Industries, Inc. [6] FLXS June 13.38 14.25 9.13 6.7 89.7 -- 89.7
Pulaski Furniture Corporation PLFC Nov. 22.00 27.00 19.25 2.9 63.7 25.1 88.8
The Rowe Companies [7] ROW Nov. 11.38 14.00 6.88 12.3 139.8 34.2 174.0
Stanley Furniture Company STLY Dec. 22.56 27.38 11.25 7.1 160.6 36.4 197.0
WinsLoew Furniture, Inc. [8] WLFI Dec. 33.00 33.38 15.50 7.2 237.0 4.7 241.7
Meadowcraft, Inc. [9] MWI July $ 6.06 $ 16.63 $ 4.06 19.7 $ 119.5 $ 27.0 $ 146.5
Meadowcraft, Inc. [9] [10] MWI July $ 10.00 $ 16.63 $ 4.06 19.7 $ 197.1 $ 27.0 $ 224.1
Latest Twelve Months First Call
------------------------------------- EPS Estimates [3]
Net Net ------------------------
Company Revenues EBITDA EBIT Income LTM 1999E 2000E
-------- ------ ------ ------- ------ ------ ------
Bush Industries, Inc. [4] $ 416.3 $ 36.9 $ 18.7 $ 7.1 $ 0.49 $ 1.13 $ 1.63
Chromcraft Revington, Inc. [5] 237.8 32.3 28.0 16.5 1.44 1.59 1.75
Flexsteel Industries, Inc. [6] 253.9 19.3 13.5 8.5 1.22 1.40 NA
Pulaski Furniture Corporation 177.0 17.5 12.0 6.7 2.35 2.69 NA
The Rowe Companies [7] 208.0 21.3 17.2 10.6 0.89 1.02 1.18
Stanley Furniture Company 253.3 35.2 29.4 15.4 1.95 2.17 2.45
WinsLoew Furniture, Inc. [8] 146.7 34.6 31.9 19.6 2.60 2.55 NA
Meadowcraft, Inc. [9] $ 157.7 $ 34.2 $ 27.4 $ 14.3 $ 0.78 $ 0.64 $ 0.76
Meadowcraft, Inc. [9] [10] $ 157.7 $ 34.2 $ 27.4 $ 14.3 $ 0.78 $ 0.64 $ 0.76
- -------------
[1] Net debt equals long-term debt less cash and cash equivalents. In the
event that cash exceeds long-term debt, net debt is assumed to be zero.
[2] Market value of capitalization equals market value of equity plus net debt.
[3] EPS estimates are from First Call and are shifted to reflect calendar year
ends, except as otherwise noted.
[4] BSH EBITDA and balance sheet information are as of 12/31/98, as that is all
that is publicly available at this time. Financials for the three months
ended 4/3/99 exclude an after-tax restructuring charge of $6.5 million.
[5] CRC EBITDA is as of 12/31/98, as that is all that is publicly available at
this time.
[6] FLXS depreciation and amortization for the periods ended 3/31/99 and
3/31/98 were estimated by applying the three year historical average
depreciation & amortization as a percentage of revenues of 2.29%.
Net income and EPS for the year ended 6/30/98 exclude a $720,000 (or $0.10
per share) non-taxable gain from insurance settlement.
[7] ROW earnings estimates reflect a November year end. EBITDA, EBIT, net
income and EPS for the year ended 11/30/98 exclude a $1.8 million gain on
sale of receivables.
[8] On 5/5/99 the Company accepted an offer from Trivest Furniture Corp. to
purchase the Company for $34.75 a share. On 1/15/99, one day prior to the
announcement, WLFI's closing stock price was $27.00.
[9] The company terminated its S Corporation election in connection with their
IPO in November 1997. As a result, for the year ended 7/31/98, the company
recorded a credit to income tax provision in the amount of $3.2 million.
This amount has been excluded from net income and EPS. Calendar 2000
earnings estimates reflect FY 2000 projections provided by the Company and
projections based on assumptions provided by the Company.
The current stock price reflects the stock price on April 8, 1999, one day
prior to announcement of the proposed offer.
[10] The offer analysis is calculated by taking the aggregate number of shares
of common stock outstanding as of 5/12/99 times the offer price of $10.00
per share, in order to provide a consistent analysis for evaluating the
cash offer to the public non-affiliate stockholders.
30
WACHOVIA SECURITIES, INC. Investment Banking Group
Project Tara
Comparable Companies Analysis
(in millions, except per share data)
Total Debt Market Value
Latest Net Return to BV 3-Year of Capitalization to LTM
Twelve EBITDA EBIT Income on of Total CAGR ------------------------
Company Months Margin Margin Margin Equity Capital Sales Sales EBITDA EBIT
------ ------ ------ ------ ------ ---------- ------ ----- ------ -----
Bush Industries, Inc. [4] Apr-99 8.9% 4.5% 1.7% 5.8% 49.6% 27.0% 0.8 x 9.1 x 18.0 x
Chromcraft Revington, Inc. [5] Apr-99 13.6% 11.8% 6.9% 16.4% 0.0% 16.0% 0.7 5.5 6.3
Flexsteel Industries, Inc. [6] Mar-99 7.6% 5.3% 3.3% 10.4% 2.0% 7.3% 0.4 4.6 6.6
Pulaski Furniture Corporation Jan-99 9.9% 6.8% 3.8% 11.2% 29.7% 1.7% 0.5 5.1 7.4
The Rowe Companies [7] Feb-99 10.2% 8.3% 5.1% 22.2% 41.7% 16.4% 0.8 8.2 10.1
Stanley Furniture Company Mar-99 13.9% 11.6% 6.1% 23.0% 37.0% 10.7% 0.8 5.6 6.7
WinsLoew Furniture, Inc. [8] Mar-99 23.6% 21.7% 13.4% 29.2% 9.1% 9.7% 1.6 7.0 7.6
Mean 12.5% 10.0% 5.8% 16.9% 24.1% 12.7% 0.8 x 6.4 x 9.0 x
Median 10.2% 8.3% 5.1% 16.4% 29.7% 10.7% 0.8 5.6 7.4
Meadowcraft, Inc. [9] Jan-99 21.7% 17.3% 9.1% 28.4% 35.0% 17.5% 0.9 x 4.3 x 5.4 x
Meadowcraft, Inc. [9] [10] Jan-99 21.7% 17.3% 9.1% 28.4% 35.0% 17.5% 1.4 x 6.6 x 8.2 x
MV of Current Share Price/EPS
Equity/BV -------------------------
Company of Equity LTM 1999E 2000E
--------- ---- ----- -----
Bush Industries, Inc. [4] 1.8 x 32.1 x 13.8 x 9.6 x
Chromcraft Revington, Inc. [5] 1.8 11.5 10.4 9.4
Flexsteel Industries, Inc. [6] 1.1 11.0 9.6 NA
Pulaski Furniture Corporation 1.1 9.4 8.2 NA
The Rowe Companies [7] 2.9 12.8 11.2 9.6
Stanley Furniture Company 2.4 11.6 10.4 9.2
WinsLoew Furniture, Inc. [8] 3.5 12.7 12.9 NA
Mean 2.1 x 14.4 x 10.9 x 9.5 x
Median 1.8 11.6 10.4 9.5
Meadowcraft, Inc. [9] 2.4 x 7.8 x 9.5 x 8.0 x
Meadowcraft, Inc. [9] [10] 3.9 x 12.8 x 15.6 x 13.2 x
- ----------------------
[1] Net debt equals long-term debt less cash and cash equivalents. In the event
that cash exceeds long-term debt, net debt is assumed to be zero.
[2] Market value of capitalization equals market value of equity plus net debt.
[3] EPS estimates are from First Call and are shifted to reflect calendar year
ends, except as otherwise noted.
[4] BSH EBITDA and balance sheet information are as of 12/31/98, as that is all
that is publicly available at this time. Financials for the three months
ended 4/3/99 exclude an after-tax restructuring charge of $6.5 million.
[5] CRC EBITDA is as of 12/31/98, as that is all that is publicly available at
this time.
[6] FLXS depreciation and amortization for the periods ended 3/31/99 and
3/31/98 were estimated by applying the three year historical average
depreciation & amortization as a percentage of revenues of 2.29%.
Net income and EPS for the year ended 6/30/98 exclude a $720,000 (or $0.10
per share) non-taxable gain from insurance settlement.
[7] ROW earnings estimates reflect a November year end. EBITDA, EBIT, net
income and EPS for the year ended 11/30/98 exclude a $1.8 million gain on
sale of receivables.
[8] On 5/5/99 the Company accepted an offer from Trivest Furniture Corp. to
purchase the Company for $34.75 a share. On 1/15/99, one day prior to the
announcement, WLFI's closing stock price was $27.00.
[9] The company terminated its S Corporation election in connection with their
IPO in November 1997. As a result, for the year ended 7/31/98, the company
recorded a credit to income tax provision in the amount of $3.2 million.
This amount has been excluded from net income and EPS. Calendar 2000
earnings estimates reflect FY 2000 projections provided by the Company and
projections based on assumptions provided by the Company.
The current stock price reflects the stock price on April 8, 1999, one day
prior to announcement of the proposed offer.
[10] The offer analysis is calculated by taking the aggregate number of shares
of common stock outstanding as of 5/12/99 times the offer price of $10.00
per share, in order to provide a consistent analysis for evaluating the
cash offer to the public non-affiliate stockholders.
31
WACHOVIA SECURITIES, INC. Investment Banking Group
M&A Transactions Multiples
32
WACHOVIA SECURITIES, INC. Investment Banking Group
Project Tara
Analysis of Multiples Paid for M&A Transactions
in the Furniture Industry
From November 1, 1998 to May 7, 1999
($ in millions)
Announcement Form of
Date [1] Acquiror Name Target Name Consideration
- ------------ --------------------------------- ----------------------------------- ----------------------
Announced or Completed Transactions
- -----------------------------------------------
01/18/99 Trivest Furniture Corporation WinsLoew Furniture, Inc. [4] Cash
9/21/98 [5] Pulaski Furniture Corporation Dawson Furniture Company, Inc. Cash
03/24/99 Warburg Pincus & Co. Knoll, Inc. Cash
03/26/99 Bruckmann, Rosser, Sherrill & Co. Cort Business Services Corp. Cash & Preferred Stock
05/06/99 Falcon Products, Inc. Shelby Williams Industries, Inc. Cash
04/09/99 SRB-MWI, LLC Meadowcraft, Inc. [6] Cash
Announcement Enterprise Equity Book
Date [1] Target Business Description Value [2] Value [3] Value
- ------------ ----------------------------------------- ---------- ---------- --------
01/18/99 Designs, manufactures and distributes $ 254.3 $ 249.6 $ 67.2
outdoor furniture and contract seating
9/21/98 [5] Manufactures solid pine and oak furniture 14.8 14.8 15.2
03/24/99 Designs & manufactures office furniture 1,157.3 1,015.5 343.9
03/26/99 National provider of rental furniture 437.1 347.0 175.7
05/06/99 Designs & manufactures seating products 144.6 144.6 65.0
04/09/99 Manufactures and produces casual $ 224.1 $ 197.1 $ 50.3
indoor and outdoor furniture
33
WACHOVIA SECURITIES, INC. Investment Banking Group
Project Tara
Analysis of Multiples Paid for M&A Transactions
in the Furniture Industry
From November 1, 1998 to May 7, 1999
($ in millions)
Target Values - Latest Twelve Months (LTM)
-------------------------------------------
Announcement Net Operating Oper. Cash Net
Date [1] Acquiror Name Target Name Sales Income Flow Income [7]
- ------------ --------------------------------- ------------------------------- ------ --------- ---------- ----------
Announced or Completed Transactions
- --------------------------------------------------
01/18/99 Trivest Furniture Corporation WinsLoew Furniture, Inc. [4] $146.7 $ 31.9 $ 34.6 $19.6
9/21/98 [5] Pulaski Furniture Corporation Dawson Furniture Company, Inc. 19.3 2.3 2.5 1.8
03/24/99 Warburg Pincus & Co. Knoll, Inc. 948.7 171.5 208.0 93.0
03/26/99 Bruckmann, Rosser, Sherrill & Co. Cort Business Services Corp. 319.0 52.6 97.9 25.9
05/06/99 Falcon Products, Inc. Shelby Williams Industries, Inc 170.6 16.8 19.3 10.8
Mean
Median
04/09/99 SRB-MWI, LLC Meadowcraft, Inc. [6] $157.7 $ 27.4 $ 34.2 $14.3
Number of Data Points
Ranking (1=highest) [8]
Enterprise Enterprise Enterprise Equity Equity
Announcement Value/ Value/ Oper. Value/ Oper. Value/ Value/
Date [1] Net Sales Income Cash Flow Net Income Book Value
- ------------ ---------- ------------ ------------ ---------- ----------
Announced or Completed Transactions
- -----------------------------------
01/18/99 1.7 x 8.0 x 7.4 x 12.7 x 3.7 x
9/21/98 [5] 0.8 6.4 6.0 8.2 1.0
03/24/99 1.2 6.7 5.6 10.9 3.0
03/26/99 1.4 8.3 4.5 13.4 2.0
05/06/99 0.8 8.6 7.5 13.4 2.2
Mean 1.2 x 7.6 x 6.2 x 11.7 x 2.4 x
Median 1.2 8.0 6.0 12.7 2.2
04/09/99 SRB-MWI, LLC 1.4 x 8.2 x 6.6 x 13.8 x 3.9 x
Number of Data Points 6 6 6 6 6
Ranking (1=highest) [8] 2 3 3 1 1
34
WACHOVIA SECURITIES, INC. Investment Banking Group
Project Tara
Analysis of Multiples Paid for M&A Transactions
in the Furniture Industry
(footnotes)
- ------------------------------------
Source: Securities Data Company, SEC filings, press releases and news articles.
NA = Not Available
NM = Not Meaningful
[1] Reflects date of first announcement. In some cases, offers have been
amended at later dates.
[2] Enterprise value represents the equity value paid in the transaction
plus net debt. Net debt includes long term indebtedness paid down or
assumed less cash and equivalents. Amount represented reflects the most
recent offer announced.
[3] Equity value is calculated by taking the offer price per share times the
number of shares outstanding as listed on the most recent company 10Q or
10K.
[4] On January 18, 1999, Trivest made an offer of $30 per share for WLFI. On
March 30, Trivest increased the offer to $33 per share. On April 21,
Hancock Park Associates made WFLI an offer of $33.50 per share. On May 5,
WLFI announced that the Company had accepted an amended offer by Trivest of
$34.75 per share.
[5] The acquisition was completed on February 28, 1999. Net income excludes
$242,154 of joint venture distribution of income payable to Pulaski in
conjunction with the transactions.
[6] The MWI offer analysis is calculated by taking the aggregate number of
shares of common stock outstanding as of 5/11/99 times the offer price of
$10.00 per share, in order to provide a consistent analysis for evaluating
the cash consideration to the public non-affiliate stockholders.
[7] Net income is presented before discontinued operations or extraordinary
items.
[8] The ranking shows Meadowcraft's position within the above universe of
comparable transactions.
35
WACHOVIA SECURITIES, INC. Investment Banking Group
Project Tara
Analysis of Multiples Paid for Going Private Transactions
From November 1, 1998 to May 7, 1999
($ in millions)
Announcement Form of
Date [1] Acquiror Name Target Name Consideration
- ---------------------------------------- ---------------------------- ---------------------
Announced or Completed Transactions
- -----------------------------------
12/08/98 Vestar Capital Group St. John Knits Cash
01/18/99 Trivest Furniture Corporation WinsLoew Furniture, Inc. [4] Cash
01/27/99 RB Capital Inc. Rock Bottom Brewery [5] Cash
03/24/99 Warburg Pincus & Co. Knoll, Inc. Cash
03/25/99 Vestar Capital Group Sheridan Healthcare, Inc. [6] Cash
03/26/99 Bruckmann, Rosser, Sherrill Cort Business Services Corp. Cash & Preferred Stock
& Co.
04/09/99 SRB-MWI, LLC Meadowcraft, Inc. [7] Cash
Announcement Enterprise Equity Book
Date [1] Target Business Description Value [2] Value [3] Value
- ------------ ---------------------------------------- ----------- --------- -------
Announced or Completed Transactions
- -----------------------------------
12/08/98 Designs & manufactures women's clothing $ 497.4 $ 497.4 $ 166.9
01/18/99 Designs, manufactures and distributes 254.3 249.6 67.2
casual outdoor furniture and contract
seating
01/27/99 Owns and operates restaurants 84.5 80.5 65.4
03/24/99 Designs & manufactures office furniture 1,157.3 1,015.5 343.9
03/25/99 Provides physician services to hospitals 116.8 60.9 67.5
03/26/99 National provider of rental furniture 437.1 347.0 175.7
04/09/99 Manufactures and produces casual $ 224.1 $ 197.1 $ 50.3
indoor and outdoor furniture
36
WACHOVIA SECURITIES, INC. Investment Banking Group
Project Tara
Analysis of Multiples Paid for Going Private Transactions
From November 1, 1998 to May 7, 1999
($ in millions)
Target Values - Latest Twelve Months (LTM)
------------------------------------------
Announcement Net Operating Oper. Cash Net
Date [1] Acquiror Name Target Name Sales Income Flow Income [8]
- -------------- ----------------------------- ---------------------------- ------ ---------- ----------- -----------
Announced or Completed Transactions
- ----------------------------------------------
12/08/98 Vestar Capital Group St. John Knits $286.6 $ 47.9 $ 60.0 $30.0
01/18/99 Trivest Furniture Corporation WinsLoew Furniture, Inc. [4] 146.7 31.9 34.6 19.6
01/27/99 RB Capital Inc. Rock Bottom Brewery [5] 160.1 10.4 19.0 6.2
03/24/99 Warburg Pincus & Co. Knoll, Inc. 948.7 171.5 208.0 93.0
03/25/99 Vestar Capital Group Sheridan Healthcare, Inc. [6] 113.0 14.8 19.1 6.4
03/26/99 Bruckmann, Rosser, Sherrill Cort Business Services Corp. 319.0 52.6 97.9 25.9
& Co.
04/09/99 SRB-MWI, LLC Meadowcraft, Inc. [7] $157.7 $ 27.4 $ 34.2 $14.3
Number of Data Points
Ranking (1=highest) [9]
Enterprise Enterprise Enterprise Equity Equity
Announcement Value/ Value/ Oper. Value/ Oper. Value/ Value/
Date [1] Net Sales Income Cash Flow Net Income Book Value
---------- ------------ ------------ ---------- ----------
12/08/98 1.7 x 10.4 x 8.3 x 16.6 x 3.0 x
01/18/99 1.7 8.0 7.4 12.7 3.7
01/27/99 0.5 8.1 4.4 12.9 1.2
03/24/99 1.2 6.7 5.6 10.9 3.0
03/25/99 1.0 7.9 6.1 9.6 0.9
03/26/99 1.4 8.3 4.5 13.4 2.0
Mean 1.3 x 8.2 x 6.0 x 12.7 x 2.3 x
Median 1.3 8.0 5.8 12.8 2.5
04/09/99 1.4 x 8.2 x 6.6 x 13.8 x 3.9 x
Number of Data Points 7 7 7 7 7
Ranking (1=highest) [9] 3 3 3 2 1
37
WACHOVIA SECURITIES, INC. Investment Banking Group
Project Tara
Analysis of Multiples Paid for Going Private Transactions
(footnotes)
- ------------------------------
Source: Securities Data Company, SEC filings, press releases and news articles.
NA = Not Available
NM = Not Meaningful
[1] Reflects date of first announcement. In some cases, offers have been
amended at later dates.
[2] Enterprise value represents the equity value paid in the transaction
plus net debt. Net debt includes long term indebtedness paid down or
assumed less cash and equivalents. Amount represented reflects the most
recent offer announced.
[3] Equity value is calculated by taking the offer price per share times the
number of shares outstanding as listed on the most recent company 10Q or
10K.
[4] On January 18, 1999, Trivest made an offer of $30 a share for WLFI. On
March 30, Trivest increased the offer to $33 a share. On April 21, Hancock
Park Associates made WLFI an offer of $33.50 a share. On May 5, WLFI
announced that the Company had accepted an amended offer by Trivest of
$34.75 a share.
[5] Rock Bottom financials for the year ended 12/31/98 exclude a charge of $1.8
million related to start-up costs and a gain of $138,441 for restructuring
costs accruals.
[6] Vestar completed the acquisition of Sheridan Healthcare on May 10, 1999.
[7] The MWI offer analysis is calculated by taking the aggregate number of
shares of common stock outstanding as of 5/11/99 times the offer price of
$10.00 per share, in order to provide a consistent analysis for evaluating
the cash consideration to the public non-affiliate stockholders.
[8] Net income is presented before discontinued operations or extraordinary
items.
[9] The ranking shows Meadowcraft's position within the above universe of
comparable transactions.
38
WACHOVIA SECURITIES, INC. Investment Banking Group
Acquisition Premiums Paid
39
WACHOVIA SECURITIES, INC. Investment Banking Group
Project Tara
Analysis of Premiums Paid for M&A Transactions
in the Furniture Industry
From November 1, 1998 to May 7, 1999
Offer Stock Price Premium/
Date Price per 52 Week High (discount)
Announced [1] Acquiror Name Target Name Share at Announcement to 52 Week High
- ------------- --------------------------------- -------------------------------- --------- --------------- ---------------
Announced or Pending Transactions
- -----------------------------------------------
01/18/99 Trivest Furniture Corporation WinsLoew Furniture, Inc. [2] $34.75 $29.00 19.8%
03/24/99 Warburg Pincus & Co. Knoll, Inc. 25.00 40.63 (38.5%)
03/26/99 Bruckmann, Rosser, Sherrill & Co. Cort Business Services Corp. 26.50 48.00 (44.8%)
05/06/99 Falcon Products, Inc. Shelby Williams Industries, Inc. 16.50 16.00 3.1%
04/09/99 SRB-MWI, LLC Meadowcraft, Inc. $10.00 $16.75 (40.3%)
Premium Premium Premium Premium
Date 1 day prior 1 week prior 4 weeks prior 12 weeks prior
Announced [1] Acquiror Name to Ann. Date to Ann. Date to Ann. Date to Ann. Date
- ------------- --------------------------------- ------------ ------------ ------------- --------------
Announced or Pending Transactions
- -----------------------------------------------
01/18/99
28.7% 36.3% 35.6% 77.1%
03/24/99
63.9% 35.6% 30.7% (13.8%)
03/26/99
58.2% 66.3% 60.0% 9.3%
05/06/99
20.0% 24.5% 66.0% 28.8%
Mean 42.7% 40.7% 48.1% 25.3%
Median 43.5% 35.9% 47.8% 19.0%
04/09/99
64.9% 66.7% 77.8% (12.1%)
- ----------------------------------
Source: Bloomberg and press releases
[1] Reflects date of first announcement. In some cases, offers have been
amended at later dates.
[2] On January 18, 1999, Trivest made an offer of $30 a share for WLFI. On
March 30, Trivest increased the offer to $33 a share. On April 21,
Hancock Park Associates made WLFI an offer of $33.50 a share. On May 5,
WLFI announced that the Company had accepted an amended offer by Trivest
of $34.75 a share. For analysis purposes, 1/18/99 has been used as the
announcement date to evaluate the premium for the current offer premium.
40
WACHOVIA SECURITIES, INC. Investment Banking Group
Project Tara
Analysis of Premiums Paid for Going Private Transactions
From November 1, 1998 to May 7, 1999
Offer Stock Price Premium/
Date Price per 52 Week High (discount)
Announced [1] Acquiror Name Target Name Share at Announcement to 52 Week High
- ------------- --------------------------------- ----------------------------- --------- --------------- ---------------
Announced or Pending Transactions
- ---------------------------------
12/08/98 Vestar Capital Group St. John Knits $30.00 $47.75 (37.2%)
01/18/99 Trivest Furniture Corporation WinsLoew Furniture, Inc. [2] 34.75 29.00 19.8%
01/27/99 RB Capital Inc. Rock Bottom Brewery 10.00 8.63 15.9%
03/24/99 Warburg Pincus & Co. Knoll, Inc. 25.00 40.63 (38.5%)
03/25/99 Vestar Capital Group Sheridan Healthcare, Inc. [3] 9.25 17.06 (45.8%)
03/26/99 Bruckmann, Rosser, Sherrill & Co. Cort Business Services Corp. 26.50 48.00 (44.8%)
04/05/99 SHP Acquisition, LLC. Sunstone Hotel Investors [4] 9.75 16.31 (40.2%)
04/09/99 SRB-MWI, LLC Meadowcraft, Inc. $10.00 $16.75 (40.3%)
Premium Premium Premium Premium
Date 1 day prior 1 week prior 4 weeks prior 12 weeks prior
Announced [1] to Ann. Date to Ann. Date to Ann. Date to Ann. Date
- ------------- ------------ ------------ ------------- --------------
12/08/98 42.9% 44.1% 50.0% 67.8%
01/18/99 28.7% 36.3% 35.6% 77.1%
01/27/99 53.8% 53.8% 95.1% 73.9%
03/24/99 63.9% 35.6% 30.7% (13.8%)
03/25/99 8.8% 12.1% 17.5% 10.4%
03/26/99 58.2% 66.3% 60.0% 9.3%
04/05/99 33.3% 34.5% 32.2% (8.2%)
Mean 41.4% 40.4% 45.9% 30.9%
Median 42.9% 36.3% 35.6% 10.4%
04/09/99 64.9% 66.7% 77.8% (12.1%)
- ------------------------------
Source: Bloomberg and press releases
[1] Reflects date of first announcement. In some cases, offers have been
amended at later dates.
[2] On January 18, 1999, Trivest made an offer of $30 a share for WLFI. On
March 30, Trivest increased the offer to $33 a share. On April 21,
Hancock Park Associates made WLFI an offer of $33.50 a share. On May 5,
WLFI announced that the Company had accepted an amended offer by Trivest
of $34.75 a share. For analysis purposes, 1/18/99 has been used as the
announcement date to evaluate the premium for the current offer premium.
[3] Vestar completed the acquisition of Sheridan Healthcare on May 10, 1999.
[4] The announced offer is for $9.50-$10.00 a share. For analysis purposes, the
midpoint of the range, or $9.75 per share, was used. This transaction was
not included in the Multiples Paid Analysis for Going Private Transactions
due to the difference in accounting treatment between REITs and
manufacturing companies, making comparisons not meaningful.
41
WACHOVIA SECURITIES, INC. Investment Banking Group
Discounted Cash Flow
Analysis
42
WACHOVIA SECURITIES, INC. Investment Banking Group
Project Tara
Discounted Cash Flow Analysis -- Operating Cash Flow EBITDA
Exit Multiple Method (1)
Fiscal Year Ending July 31,
-----------------------------------------------------------------------
2000 2001 2002 2003 2004
-------- -------- -------- -------- --------
($ in thousands, except per share data)
EBITDA $ 35,804 $ 39,533 $ 43,540 $ 47,843 $ 52,461
Depreciation and amortization 7,632 8,410 9,583 10,920 12,443
Interest expense 3,652 3,021 2,348 1,279 544
Other expenses -- -- -- -- --
-------- -------- -------- -------- --------
Pre-tax income 24,519 28,102 31,609 35,644 39,474
Provision for income taxes 9,121 10,454 11,758 13,260 14,684
-------- -------- -------- -------- --------
Net income $ 15,398 $ 17,648 $ 19,850 $ 22,385 $ 24,790
-------- -------- -------- -------- --------
Add: Depreciation & amortization 7,632 8,410 9,583 10,920 12,443
Add: After-tax interest expense 2,294 1,897 1,475 803 342
Less: Net additions to working capital (2) 1,986 (2,462) (1,874) (1,891) (1,903)
Less: Capital expenditures (3,515) (8,410) (9,583) (10,920) (12,443)
-------- -------- -------- -------- --------
Operating cash flow $ 23,795 $ 17,084 $ 19,451 $ 21,296 $ 23,229
-------- -------- -------- -------- --------
Cash flow growth -28.2% 13.9% 9.5% 9.1%
EQUITY VALUATION MATRIX (3)
Discount EBITDA Exit Multiple (5)
Rate([4]) 5.5x 6.0x 6.5x 7.0x
- --------- -------- -------- -------- --------
13.0% $203,679 $217,916 $232,153 $246,389
15.0% 187,064 200,105 213,146 226,187
17.0% 172,013 183,977 195,941 207,905
--------
Average Valuation of Equity $207,206
--------
Per Share Valuation of Equity $ 10.51
--------
- ----------------------------------
[1] Projections based upon FY 1999 and FY 2000 Company forecasts and
assumptions provided by the Company for the fiscal years thereafter. Assumes
closing of transaction on or around July 31, 1999.
[2] Excluding cash and short-term debt.
[3] Less debt (net of cash) of $26,513.
[4] Discount rates are estimates of WACC.
[5] Applied to FY 2004 results.
43
WACHOVIA SECURITIES, INC. Investment Banking Group
Project Tara
Discounted Cash Flow Analysis -- Free Cash Flow Net Income
Exit Multiple Method (1)
Fiscal Year Ending July 31,
-----------------------------------------------------------------------
2000 2001 2002 2003 2004
-------- -------- -------- -------- --------
($ in thousands, except per share data)
EBITDA $ 35,804 $ 39,533 $ 43,540 $ 47,843 $ 52,461
Depreciation and amortization 7,632 8,410 9,583 10,920 12,443
Interest expense 3,652 3,021 2,348 1,279 544
Other expenses -- -- -- -- --
-------- -------- -------- -------- --------
Pre-tax income 24,519 28,102 31,609 35,644 39,474
Provision for income taxes 9,121 10,454 11,758 13,260 14,684
-------- -------- -------- -------- --------
Net income $ 15,398 $ 17,648 $ 19,850 $ 22,385 $ 24,790
======== ======== ======== ======== ========
Add: Depreciation & amortization 7,632 8,410 9,583 10,920 12,443
Less: Mandatory debt repayments (1,395) (2,790) (2,790) (11,843) (400)
Less: Net additions to working capital [2] 1,986 (2,462) (1,874) (1,891) (1,903)
Less: Capital expenditures (3,515) (8,410) (9,583) (10,920) (12,443)
-------- -------- -------- -------- --------
Free cash flow $ 20,107 $ 12,396 $ 15,187 $ 8,650 $ 22,487
======== ======== ======== ======== ========
Cash flow growth -38.3% 22.5% -43.0% 159.9%
EQUITY VALUATION MATRIX
Discount Net Income Exit Multiple (4)
Rate([3]) 11.5x 12.0x 12.5x 13.0x
- --------- -------- -------- -------- --------
15.0% $194,704 $200,866 $207,029 $213,191
17.0% 180,624 186,277 191,931 197,584
19.0% 167,862 173,056 178,250 183,444
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Average Valuation of Equity $189,568
--------
Per Share Valuation of Equity $ 9.62
--------
[1] Projections based upon FY 1999 and FY 2000 Company forecasts and assumptions
provided by the Company for the fiscal years thereafter. Assumes closing
of transaction on or around July 31, 1999.
[2] Excluding cash and short-term debt.
[3] Discount rates are estimates of the cost of equity.
[4] Applied to FY 2004 results.