EX-99.(C)(8) 4 dex99c8.htm PRESENTATION OF CIBC PRESENTATION OF CIBC

Exhibit (c)(8)

 

CONFIDENTIAL

 

PRESENTATION REGARDING:

 

PROJECT ORB

 

Presentation to the Special Committee

 

July 15, 2005

 

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CONFIDENTIAL MATERIAL FOR THE SPECIAL COMMITTEE OF THE BOARD OF DIRECTORS

 

THE FOLLOWING PAGES CONTAIN MATERIAL PROVIDED TO THE SPECIAL COMMITTEE OF THE BOARD OF DIRECTORS OF BRAVO, INC. (“BRAVO” OR THE “COMPANY”) BY CIBC WORLD MARKETS CORP. (“CIBC WORLD MARKETS”) IN CONNECTION WITH THE POTENTIAL SALE TRANSACTION INVOLVING BRAVO. THE ACCOMPANYING MATERIAL WAS COMPILED OR PREPARED ON A CONFIDENTIAL BASIS SOLELY FOR THE USE OF THE SPECIAL COMMITTEE OF THE BOARD OF DIRECTORS OF THE COMPANY AND NOT WITH A VIEW TOWARD PUBLIC DISCLOSURE UNDER STATE OR FEDERAL SECURITIES LAWS OR OTHERWISE. THE INFORMATION CONTAINED IN THIS MATERIAL WAS OBTAINED FROM THE COMPANY AND PUBLIC SOURCES AND WAS RELIED UPON BY CIBC WORLD MARKETS WITHOUT ASSUMING RESPONSIBILITY FOR INDEPENDENT VERIFICATION AS TO THE ACCURACY OR COMPLETENESS OF SUCH INFORMATION. ANY ESTIMATES AND PROJECTIONS FOR THE COMPANY CONTAINED HEREIN HAVE BEEN SUPPLIED BY THE MANAGEMENT OF THE COMPANY OR ARE PUBLICLY AVAILABLE, AND INVOLVE NUMEROUS AND SIGNIFICANT SUBJECTIVE DETERMINATIONS, WHICH MAY NOT BE CORRECT. NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, IS MADE AS TO THE ACCURACY OR COMPLETENESS OF SUCH INFORMATION AND NOTHING CONTAINED HEREIN IS, OR SHALL BE RELIED UPON AS, A REPRESENTATION OR WARRANTY, WHETHER AS TO THE PAST, THE PRESENT OR THE FUTURE. THIS MATERIAL WAS NOT PREPARED FOR USE BY READERS NOT AS FAMILIAR WITH THE BUSINESS AND AFFAIRS OF THE COMPANY AS THE SPECIAL COMMITTEE OF THE BOARD OF DIRECTORS OF THE COMPANY AND, ACCORDINGLY, NEITHER THE COMPANY NOR CIBC WORLD MARKETS NOR THEIR RESPECTIVE LEGAL OR FINANCIAL ADVISORS OR ACCOUNTANTS TAKE ANY RESPONSIBILITY FOR THE ACCOMPANYING MATERIAL IF USED BY PERSONS OTHER THAN THE SPECIAL COMMITTEE OF THE BOARD OF DIRECTORS OF THE COMPANY.

 

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PRESENTATION TO THE SPECIAL COMMITTEE / July 15, 2005

 

     

Table of Contents

 

1       Summary of Amended Terms

     

2       Financial Analysis

     

3       Appendix

     

A      Bravo Financial Projections

     

B      Cost of Capital Calculation

     

 

LOGO   

PRESENTATION TO THE SPECIAL COMMITTEE / July 15, 2005

 

     

1 Summary of Amended Terms

 

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PRESENTATION TO THE SPECIAL COMMITTEE / July 15, 2005

 

   

4

 

Summary of Amended Terms

 

Summary of Amended Terms

 

     Key Transaction Terms

Per Share Merger

Consideration

   

•      $20.00 per share, in cash, for each outstanding share of Bravo common stock

 

•      2.4% decrease from previous merger consideration of $20.50 per share

Sources of Financing1   

•      $240 million of common and preferred equity from Consortium

 

•      $125 million Preferred from Jupiter ($83 million) and Tango ($42 million)

 

•      $115 million Common Stock from Omega ($90 million), Jupiter ($17 million), Tango ($8 million)

 

•      $290 million of debt financing under commitment letters from Bank of America, N.A., Goldman Sachs Credit Partners L.P., UBS Loan Finance LLC and UBS Securities LLC

 

•      High Yield Debt ($190 million), with bridge loan financing to backstop

 

•      Working Capital Facility ($100 million facility; undrawn at close)

 

•      5.77x Adjusted Debt / LTM Adjusted EBITDAR (estimated LTM 7/31/2005)

 

•      4.12x Total Debt / LTM Adjusted EBITDA (estimated LTM 7/31/2005)

 

•      $27.5 million of balance sheet cash

 

•      $7.6 million of management re-investment

 

•      Material financing commitment letters conditions to funding

 

•      Debt:

 

•      Company Material Adverse Effect (“MAE”)

 

•      Financing market MAE

 

•      S&P and Moody’s rating (no minimum rating requirement)

 

•      Maximum closing Adjusted Debt / LTM Adjusted EBITDAR of 5.94x

 

•      Mandatory utilization of up to $5 million of cash on balance sheet to reduce debt financing in order to remain below 5.94x leverage ratio

 

•      Minimum closing LTM Adjusted EBITDA of $45 million

 

•      Equity:

 

•      Omega shareholder approval for Omega equity commitment was obtained on 7/11/2005

Source: Based on the draft received 7/15/2005 of Amendment No. 1 to the Agreement and Plan of Merger and ongoing negotiations.

 

1 Sources, uses and conditions of funding as reflected in draft debt commitment letters received on 7/15/05.

 

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PRESENTATION TO THE SPECIAL COMMITTEE / July 15, 2005

 

   

5

 

Summary of Amended Terms

 

Transaction Statistics

($ in millions, except per share data)

 

Valuation

    Transaction
Value
  

Bravo Per Share Consideration

    $ 20.00  

Fully Diluted Shares, Gross (in millions) (1)

      22.2  
    

Bravo Equity Value

    $ 444.7  

Plus: Debt & Minority Interest @ 4/30/2005 (2)

      10.8  

Less: Free Cash as of 4/30/2005 (2), (3)

      (32.5 )

Less: Option Proceeds (1)

      (11.4 )
    

Bravo Enterprise Value

    $ 411.5  

 

     Financial
Statistic (2)
    Transaction
Multiples
     Public Trading
Multiples (4)
     Precedent Transactions
Multiples (5)
  
        Low
     High
     Low
     High
  

LTM 7/31/2005E Revenue

    $ 465.3    0.88 x   0.39 x   0.65 x   0.53 x   0.65 x

LTM 7/31/2005E EBITDA (6)

    $ 46.5    8.8 x   5.6 x   7.6 x   7.1 x   8.7 x

2005E Calendar EPS

    $ 0.90    22.2 x   12.9 x   17.5 x   —       —    

2006E Calendar EPS

    $ 1.07    18.7     11.8     14.5     —       —    
1 Per Bravo management.

 

2 Source: Historical SEC filings and Bravo management. Figures represent Bravo core business only, per Bravo management.

 

3 Represents 12-month rolling average cash balance of $42.5 million less $10.0 million in operating cash, per Bravo management.

 

4 Based on low to median multiple reflected on the Public Trading Summary (See p. 12).

 

5 Based on + / - 10.0% of the median multiples reflected on the Precedent Transactions Summary (See p. 13).

 

6 Includes add-back of $2.3 million related to one-time property lease accounting adjustment, per Bravo management.

 

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PRESENTATION TO THE SPECIAL COMMITTEE / July 15, 2005

 

   

6

 

Summary of Amended Terms

 

Summary Transaction Leverage Comparison

($ in millions)

 

     April
Announced Transaction
     July
Amended
Transaction
  

Pro Forma Transaction Leverage Summary

    Debt
    Leverage
Multiple (1)
     Debt
    Leverage
Multiple (1)
  

Proposed Acquisition Financing

    $ 205.0    3.77 x   $ 190.0    3.93 x

Plus: Existing Debt (2)

      9.4    0.17 x     9.2    0.19 x
    
  
 
  

Total Debt

    $ 214.4    3.94 x   $ 199.2    4.12 x

Plus: Trailing Rent Expense Capitalized @ 8.0x

      289.9    3.20 x     284.9    3.39 x
    
  
 
  

Total Adjusted Debt

    $ 504.3    5.56 x   $ 484.1    5.77 x

Source: Bravo management.

 

1 April Announced Deal leverage multiples based on estimated LTM Adjusted EBITDA of $54.4 million and Adjusted EBITDAR of $90.7 million as of 4/30/2005 representing Bravo core business plus Gardeners Eden, per Bravo management. July Amended Transaction leverage multiples based on estimated adjusted LTM Adjusted EBITDA of $48.3 million and Adjusted EBITDAR of $83.9 million as of 7/31/2005 representing Bravo core business only, per Bravo management. Per Bravo management and leverage test definition in financing commitment letters, LTM Adjusted EBITDA and Adjusted EBITDAR include add-back of $2.3 million related to one-time property lease accounting adjustment and non-cash compensation add-backs of $1.1 million and $1.7 million for 4/30/2005 and 7/31/2005, respectively, for purposes of calculating leverage ratios.

 

2 Estimated total mortgage balance plus capital lease balance as of 4/30/2005 and 7/31/2005 for the April Announced Deal and the July Amended Transaction, respectively, per Bravo management.

 

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PRESENTATION TO THE SPECIAL COMMITTEE / July 15, 2005

 

   

7

 

Summary of Revised Terms

 

Financial Overview Update

($ in millions)

 

LOGO

 

Source: Bravo management.

 

1 Includes add-back of $2.3 million related to one-time property lease accounting adjustment, per Bravo management.

 

LOGO   

PRESENTATION TO THE SPECIAL COMMITTEE / July 15, 2005

 

   

8

 

2 Financial Analysis

 

LOGO   

PRESENTATION TO THE SPECIAL COMMITTEE / July 15, 2005

 

   

9

 

Financial Analysis

 

Bravo Analysis Summary

 

LOGO

 

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PRESENTATION TO THE SPECIAL COMMITTEE / July 15, 2005

 

   

10

 

Financial Analysis

 

Bravo Analysis Detail

($ in millions, except per share data)

 

Free Cash @ 4/30/05 (1)

    $ 32.5

Total Debt & Minority Interest @ 4/30/05 (2)

    $ 10.8

Option Proceeds (2)

    $ 11.4

Fully Diluted Shares, Gross (in millions) (2)

      22.2

 

Public Trading Analysis

 

    

Financial

Statistic (2)

    Selected
Multiple Range (3)
     Enterprise Value
    Equity Value
    Per Share Amount
      Low
     High
     Low
    High
    Low
    High
    Low
    High

LTM 7/31/2005E EBITDA

    $ 46.5    5.6 x   7.6 x   $ 261.4    $ 354.5    $ 294.5    $ 387.6    $ 13.25    $ 17.44

2005E Calendar EPS

    $ 0.90    12.9 x   17.5 x   $ 225.8    $ 317.7    $ 259.0    $ 350.8    $ 11.65    $ 15.78

2006E Calendar EPS

    $ 1.07    11.8 x   14.5 x     246.5      310.8      279.7      343.9      12.58      15.47
                                                   
  
                                        Reference Range (4)    $ 12.49    $ 16.23
                                                   
  

 

Precedent Transactions Analysis

 

    

Financial

Statistic (2)

    Selected
Multiple Range (5)
     Enterprise Value
    Equity Value
    Per Share Amount
      Low
     High
     Low
    High
    Low
    High
    Low
    High

LTM 7/31/2005E EBITDA

    $ 46.5    7.1 x   8.7 x   $ 331.3    $ 404.9    $ 364.4    $ 438.0    $ 16.39    $ 19.70

 

Discounted Cash Flow Analysis

 

     Discount Rate
     EBITDA
Exit Multiple
     Enterprise Value
    Equity Value
    Per Share Amount
     Low
     High
     Low
     High
     Low
    High
    Low
    High
    Low
    High

Assumptions

    13.0 %   15.0 %   6.5 x   7.5 x   $ 387.2    $ 466.6    $ 420.3    $ 499.8    $ 18.90    $ 22.48

 

Leveraged Buyout Analysis

 

    

Target

IRR

     EBITDA
Exit Multiple
     Enterprise Value
    Equity Value
    Per Share Amount
     Low
     High
     Low
    High
    Low
    High
    Low
    High

Assumptions

    25.0 %   7.0 x   8.0 x   $ 355.9    $ 389.3    $ 389.1    $ 422.4    $ 17.50    $      19.00
1 Represents 12-month rolling average cash balance of $42.5 million less $10.0 million in operating cash, per Bravo management.

 

2 Source: Bravo management. Note: LTM 7/31/2005E EBITDA includes add-back of $2.3 million related to one-time property lease accounting adjustment, per Bravo management. Figures reflect Bravo core business only, per Bravo management.

 

3 Based on the low to median multiples reflected on the Public Trading Summary (See p. 12).

 

4 Reference range based on average of the per share amounts.

 

5 Based on +/- 10.0% of the median multiples reflected on the Precedent Transaction Summary (See p. 13).

 

LOGO   

PRESENTATION TO THE SPECIAL COMMITTEE / July 15, 2005

 

   

11

 

Financial Analysis

 

Public Trading Summary

($ in millions, except per share data)

 

   

Current
Price

7/14/2005

   52-week
  

Market

Value

  

Enterprise

Value

   EV as a Multiple of LTM (1)
     Price/CY
EPS (2)
     3-5 Year
Growth
Rate (2)
     P/E/G
  

Company

     Low
   High
       Revenue
     EBITDA
     EBIT
     2005E
     2006E
       2005E
     2006E
  

Borders Group

   $ 25.15   $ 21.20   $ 27.47   $ 1,834.2   $ 1,839.8   $ 3,917.9     $ 327.5     $ 212.0     $ 1.74     $ 1.95     11.3 %   127.9 %   114.5 %

LTM: 04/23/05

                                   0.47 x     5.6 x     8.7 x     14.4 x     12.9 x                  

Cost Plus

   $ 24.18   $ 20.75   $ 37.61   $ 535.8   $ 601.3   $ 922.9     $ 72.2     $ 46.0     $ 1.36     $ 1.57     17.2 %   103.6 %   89.9 %

LTM: 04/30/05

                                   0.65 x     8.3 x     13.1 x     17.8 x     15.4 x                  

Electronics Boutique

   $ 65.44   $ 23.25   $ 65.73   $ 1,686.7   $ 1,572.8   $ 2,124.0     $ 118.3     $ 78.4     $ 2.37     $ 2.80     16.7 %   165.1 %   139.8 %

LTM: 04/30/05

                                   0.74 x     13.3 x     20.1 x     27.6 x     23.4 x                  

Finlay Enterprises

   $ 12.98   $ 10.59   $ 21.99   $ 118.5   $ 337.4   $ 921.8     $ 70.0     $ 53.0     $ 2.27     $ 2.67     NA     NA     NA  

LTM: 04/30/05

                                   0.37 x     4.8 x     6.4 x     5.7 x     4.9 x                  

Kirkland’s

   $ 8.41   $ 7.46   $ 12.65   $ 163.5   $ 155.1   $ 396.5     $ 20.4     $ 7.5     $ 0.48     $ 0.62     15.0 %   116.8 %   90.4 %

LTM: 04/30/05

                                   0.39 x     7.6 x     20.8 x     17.5 x     13.6 x                  

Pier 1 Imports

   $ 14.33   $ 13.96   $ 19.98   $ 1,257.3   $ 1,103.8   $ 1,871.5     $ 133.3     $ 56.6     $ 0.41     $ 0.57     13.1 %   269.7 %   193.0 %

LTM: 05/28/05

                                   0.59 x     8.3 x     19.5 x     35.2 x     25.2 x                  

RadioShack

   $ 24.31   $ 23.11   $ 34.48   $ 3,801.9   $ 3,999.2   $ 4,871.5     $ 635.3     $ 528.5     $ 1.88     $ 2.06     11.1 %   116.8 %   106.4 %

LTM: 03/31/05

                                   0.82 x     6.3 x     7.6 x     12.9 x     11.8 x                  

Restoration Hardware

   $ 8.50   $ 4.82   $ 8.68   $ 301.2   $ 346.1   $ 544.4     $ 21.7     $ 5.7     $ 0.21     $ 0.37     35.8 %   115.7 %   63.4 %

LTM: 04/30/05

                                   0.64 x     16.0 x     60.5 x     41.5 x     22.7 x                  

Sharper Image

   $ 12.92   $ 11.16   $ 32.74   $ 199.2   $ 138.7   $ 748.5     $ 37.6     $ 14.8     $ 0.04     $ 0.31     17.5 %   NM     NM  

LTM: 04/30/05

                                   0.19 x     3.7 x     9.4 x     NM       NM                    

Williams-Sonoma

   $ 41.67   $ 29.45   $ 41.79   $ 5,082.1   $ 5,011.3   $ 3,216.7     $ 433.7     $ 318.9     $ 1.85     $ 2.14     17.6 %   128.0 %   110.9 %

LTM: 05/01/05

                                   1.56 x     11.6 x     15.7 x     22.5 x     19.5 x                  

Zale Corporation

   $ 33.29   $ 24.59   $ 33.88   $ 1,708.6   $ 1,843.3   $ 2,366.3     $ 243.4     $ 182.2     $ 2.26       NA     12.0 %   122.7 %   NA  

LTM: 04/30/05

                                   0.78 x     7.6 x     10.1 x     14.7 x     NA                    
                              High:     1.56 x     11.6 x     20.8 x     35.2 x     25.2 x         269.7 %   193.0 %
                              Low:     0.39 x     5.6 x     7.6 x     12.9 x     11.8 x         103.6 %   89.9 %
                              Mean:     0.75 x     7.9 x     13.6 x     19.3 x     16.4 x         140.8 %   117.5 %
                              Median:     0.65 x     7.6 x     13.1 x     17.5 x     14.5 x         122.7 %   108.6 %

Bravo

   $ 19.48   $ 13.30   -$ 20.49   $ 419.0   $ 385.3   $ 501.7     $ 47.3     $ 33.4     $ 1.06     $ 1.29     17.7 %   103.8 %   85.7 %

LTM: 04/30/05

                                   0.77 x     8.1 x     11.5 x     18.3 x     15.1 x                  

Note: Summary multiples exclude outliers (Electronics Boutique, Finlay Enterprises, Restoration Hardware and Sharper Image).

 

Note: NM = not meaningful; NA = not available.

 

1 EBITDA and EBIT figures are all restated for extraordinary items.

 

2 Latest First Call consensus estimates.

 

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PRESENTATION TO THE SPECIAL COMMITTEE / July 15, 2005

 

   

12

 

Financial Analysis

 

Precedent Transaction Summary

($ in millions)

 

Date
Closed

   

Target Company

   

Acquiring Company

    Enterprise
Value
    Enterprise Value / LTM:
  
            Revenue
     EBITDA
     EBIT
  

Pending

    Electronics Boutique Holdings Corp.    GameStop Corp.    $ 1,284.6    0.60 x   10.9 x   16.4 x

Oct-04

    Cole National Corporation    Luxottica Group S.p.A.    $ 726.8    0.59 x   7.9 x   13.8 x

Jul-04

    Galyan’s Trading Company, Inc.    Dick’s Sporting Goods, Inc.    $ 353.3    0.49 x   10.2 x   NM  

May-04

    InterTAN, Inc.    Circuit City Stores, Inc.    $ 264.2    0.59 x   8.0 x   10.4 x

Feb-04

    FTD, Inc.    Leonard Green & Partners, L.P.    $ 409.8    1.10 x   8.4 x   11.3 x

Dec-03

    OfficeMax    Boise Cascade Corp    $ 1,251.8    0.26 x   10.1 x   NM  

Dec-03

    General Nutrition Companies, Inc.    Apollo Management, L.P.    $ 750.0    0.54 x   8.5 x   NM  

Aug-03

    The Sports Authority    Gart Sports Co.    $ 522.5    0.37 x   8.0 x   18.7 x

Nov-02

    Vitamin Shoppe Industries Inc.    Bear Stearns Merchant Banking    $ 305.0    1.16 x   7.6 x   9.5 x

Nov-01

    Discount Auto Parts    Advance Auto Parts    $ 463.5    0.69 x   6.9 x   10.7 x

Aug-01

    Future Shop Ltd.    Best Buy Co., Inc.    $ 319.8    0.26 x   8.2 x   10.2 x

Aug-01

    Sound Advice    Tweeter Home Entertainment    $ 144.3    0.73 x   10.7 x   15.1 x

Jun-01

    Oshman’s Sporting Goods    Gart Sports Company    $ 101.1    0.31 x   5.2 x   7.5 x

Apr-01

    Sunglass Hut International    Luxottica Group    $ 674.2    1.03 x   8.7 x   13.9 x

Jan-01

    Musicland Stores Corporation    Best Buy Co., Inc.    $ 635.9    0.33 x   4.3 x   6.1 x

Dec-00

    Magnolia Hi-Fi, Inc.    Best Buy Co., Inc.    $ 87.0    0.80 x   NA     NA  

Sep-00

    Piercing Pagoda    Zale Corporation    $ 218.3    0.77 x   5.6 x   8.3 x

Oct-00

    PetCo Animal Supplies    Leonard Green / Texas Pacific    $ 563.2    0.54 x   5.8 x   10.1 x

Jun-00

    Funco (GameStop)    Barnes & Noble    $ 142.3    0.56 x   7.6 x   10.1 x
                 High:    1.16 x   10.9 x   18.7 x
                 Low:    0.26 x   4.3 x   6.1 x
                 Mean:    0.65 x   7.6 x   11.5 x
                 Median:    0.60 x   7.9 x   10.4 x

Source: Public filings, press releases and other public sources.

 

Note: NM = not meaningful; NA = not available.

 

Note: Summary multiples exclude data from Galyan’s Trading Company, Inc., OfficeMax and General Nutrition Companies, Inc. transactions due to depressed profitability of respective target companies.

 

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PRESENTATION TO THE SPECIAL COMMITTEE / July 15, 2005

 

   

13

 

Financial Analysis

 

Bravo Discounted Cash Flow Analysis

($ in millions, except per share data)

 

     2nd Half (1)
     Projected
  
     2005
     2006
     2007
     2008
     2009
  

Revenue

    $ 236.2     $ 532.4     $ 598.0     $ 658.8     $ 710.7  

EBITDA

      22.5       53.8       63.6       77.5       87.4  

Less: Depreciation

      (6.9 )     (15.0 )     (16.5 )     (18.5 )     (19.6 )
    
 
 
 
 

EBIT

      15.7       38.8       47.1       59.1       67.9  

Less: Income Taxes @ 38.8%

      (6.1 )     (15.0 )     (18.3 )     (22.9 )     (26.3 )
    
 
 
 
 

Unlevered After-Tax Income

    $ 9.6     $ 23.7     $ 28.8     $ 36.1     $ 41.5  

Plus: Depreciation

    $ 6.9     $ 15.0     $ 16.5     $ 18.5     $ 19.6  

Less: Capital Expenditures

      (9.0 )     (21.4 )     (24.0 )     (25.5 )     (20.5 )

Less: Working Capital Investment

      2.0       5.8       0.9       (2.0 )     (1.6 )

Less: Change in Other Assets & Liabilities, Net

      1.0       2.2       2.2       (0.8 )     (0.6 )
    
 
 
 
 

Free Cash Flow

    $ 10.6     $ 25.3     $ 24.3     $ 26.3     $ 38.4  
    
 
 
 
 

 

     6.5x EBITDA
     7.0x EBITDA
     7.5x EBITDA
  

Terminal Value Based on EBITDA Multiple Exit Multiple in Year 4.5 (2009)

                                                                         

Discount Rate

      13.0 %     14.0 %     15.0 %     13.0 %     14.0 %     15.0 %     13.0 %     14.0 %     15.0 %
    
 
 
 
 
 
 
 
 

Discounted Free Cash Flows Q3 2005 - 2009

    $ 88.2     $ 86.1     $ 84.1     $ 88.2     $ 86.1     $ 84.1     $ 88.2     $ 86.1     $ 84.1  

Discounted Terminal Value

      327.9       315.2       303.0       353.2       339.4       326.4       378.4       363.7       349.7  
    
 
 
 
 
 
 
 
 

Enterprise Value

    $ 416.2     $ 401.3     $ 387.2     $ 441.4     $ 425.6     $ 410.5     $ 466.6     $ 449.8     $ 433.8  
    
 
 
 
 
 
 
 
 

Less: Debt & Minority Interest @ 4/30/05

      ($10.8 )     ($10.8 )     ($10.8 )     ($10.8 )     ($10.8 )     ($10.8 )     ($10.8 )     ($10.8 )     ($10.8 )

Plus: Free Cash @ 4/30/05 (1)

      32.5       32.5       32.5       32.5       32.5       32.5       32.5       32.5       32.5  

Plus: Option Proceeds

      11.4       11.4       11.4       11.4       11.4       11.4       11.4       11.4       11.4  
    
 
 
 
 
 
 
 
 

Implied Equity Value

    $ 449.3     $ 434.5     $ 420.3     $ 474.5     $ 458.7     $ 443.6     $ 499.8     $ 483.0     $ 466.9  
    
 
 
 
 
 
 
 
 

Fully Diluted Shares, Gross (in millions)                    22.2

 

                                

 

Equity Value Per Share
Discount
Rate
    EBITDA Terminal Multiple
   6.5x
    7.0x
    7.5x
13.0%    $ 20.21    $ 21.34    $ 22.48
14.0%    $ 19.54    $ 20.63    $ 21.72
15.0%    $ 18.90    $ 19.95    $ 21.00

Financial data source: Bravo management estimates and projections; figures represent Bravo core business only, per Bravo management.

 

1 Represents one-half of the estimated free cash flow in 2005.

 

2 Represents estimated 12-month rolling average cash balance of $42.5 million less $10.0 million in operating cash, per Bravo management.

 

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PRESENTATION TO THE SPECIAL COMMITTEE / July 15, 2005

 

   

14

 

Financial Analysis

 

Bravo Leveraged Buyout Summary

($ in millions, except per share data)

 

•   Illustrative leveraged buyout analysis at a $19.00 per share purchase price based on Bravo management projections results in a projected IRR of approximately 25.0% assuming a 2009 year-end exit (Year 4.5) at an 8.0x EBITDA exit multiple

 

Transaction Assumptions

 

Transaction Date

    7/31/2005

Deferred Financing Fees Amortization Period

    7

 

Trading Information

 

     Bravo
  

Enterprise Value

    Current
     @ LBO
  

Share Price @ 7/14/2005

    $ 19.48     $ 19.00  

Implied Premium / (Discount)

      —         (2.5 %)

Fully Diluted Shares, Gross

      22.2       22.2  

Equity Market Value

    $ 433.1     $ 422.4  

Plus: Debt & Minority Interest @ 4/30/2005

      10.8       10.8  

Less: Free Cash @ 4/30/2005 (1)

      (32.5 )     (32.5 )

Less: Option Proceeds

      (11.4 )     (11.4 )
    
 

Enterprise Value

    $ 400.0     $ 389.3  

Plus: Lease Expense Capitalized @ 8.0x

      284.9       284.9  
    
 

Adjusted Enterprise Value

    $ 684.9     $ 674.2  

 

Multiple Analysis

    Statistic
    Multiple
  
      Current
     @ LBO
  

LTM 7/31/2005E EBITDA

    $ 46.5    8.6 x   8.4 x

2005E EBITDA

    $ 45.1    8.9 x   8.6 x

2005E P/E

    $ 0.90    21.6 x   21.1 x

2006E P/E

      1.07    18.3     17.8  

 

Investor Equity % IRR Calculation

 

EBITDA Multiple

    2008
     2009
  

7.0x

    18.3 %   19.7 %

7.5x

    21.5 %   22.0 %

8.0x

    24.5 %   24.1 %

 

Summary Pro Forma Credit / Leverage Statistics

 

     7/31/05 PF
  

Total Debt / EBITDA

    4.12 x

Adjusted Debt / EBITDAR

    5.75 x

EBITDA / Interest Expense

    2.25 x

 

Ownership

 

     Amount
    Contribution
     Ownership
  

Management Option Plan

    $ 0.0    0.0 %   5.0 %

Investor Equity

      205.5    100.0 %   95.0 %
    
  
 

Total Equity

    $ 205.5    100.0 %   100.0 %

 

Sources and Uses of Funds

 

Sources of Funds

    Amount
    Rate
     Percent
  

Bank Revolver

    $ 0.0    L + 250     0.0 %

Senior Unsecured Notes

      190.0    10.00 %   43.2 %

Excess Balance Sheet Cash

      32.5          7.4 %

Option Proceeds

      11.4          2.6 %

Investor Equity

      205.5          46.8 %
    
        

Total Sources of Funds

    $ 439.4          100.0 %

Uses of Funds

                  

Purchase of Bravo Common Equity

    $ 422.4          96.1 %

Transaction Costs

      12.0          2.7 %

Financing Fees

      5.0          1.1 %
    
        

Total Uses of Funds

    $ 439.4          100.0 %

 

Debt Capacity Analysis

 

Estimated LTM EBITDA @ 7/31/2005

    $ 46.5  

Plus: SERP Add-back

      0.5  

Plus: Non-Cash Compensation Add-back

      1.3  
    

Estimated Adj. LTM EBITDA @ 7/31/2005

    $ 48.3  

Estimated LTM Rent Expense @ 7/31/2005

      35.6  
    

Estimated Adj. LTM EBITDAR @ 7/31/2005

    $ 83.9  

Target Adjusted Debt / EBITDAR Leverage

      5.90 x
    

Implied Adjusted Debt Capacity

    $ 495.1  

Less: Lease Expense Capitalized @ 8.0x

      (284.9 )
    

Implied Debt Capacity

    $ 210.2  

Less: Existing Mortgage

      (9.2 )
    

Incremental Debt Capacity

    $ 201.0  

Financial data source: Bravo management estimates and projections; figures represent Bravo core business only, per Bravo management.

 

1 Represents 12-month rolling average cash balance of $42.5 million less $10.0 million in operating cash, per Bravo management.

 

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PRESENTATION TO THE SPECIAL COMMITTEE / July 15, 2005

 

   

15

 

3 Appendix

 

LOGO   

PRESENTATION TO THE SPECIAL COMMITTEE / July 15, 2005

 

   

16

 

A Bravo Financial Projections

 

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17

 

Bravo Financial Projections

 

Bravo Income Statement

($ in millions, except per share data)

 

     Estimated
     Projected
  
Fiscal Year End 01/31    2005
     2006
     2007
     2008
     2009
  

Sales

    $ 472.4     $ 532.4     $ 598.0     $ 658.8     $ 710.7  

Cost of Goods Sold

      198.6       221.5       248.8       272.7       292.8  
    
 
 
 
 

Gross Profit

    $ 273.9     $ 310.9     $ 349.2     $ 386.1     $ 417.9  

SG&A

      242.5       272.1       302.1       327.0       350.0  
    
 
 
 
 

EBIT

    $ 31.4     $ 38.8     $ 47.1     $ 59.1     $ 67.9  

Interest Expense (Income), Net

      0.6       0.7       0.8       0.7       0.6  
    
 
 
 
 

Pre-Tax Income

    $ 30.8     $ 38.1     $ 46.3     $ 58.4     $ 67.3  

Provision for Taxes

      11.9       14.8       18.0       22.6       26.1  
    
 
 
 
 

Net Income

    $ 18.8     $ 23.3     $ 28.4     $ 35.7     $ 41.2  
    
 
 
 
 

Number of Shares Outstanding

      21.3       21.5       21.7       21.9       22.1  

Fully Diluted EPS (In Dollars)

    $ 0.88     $ 1.08     $ 1.31     $ 1.63     $ 1.86  

EBIT

    $ 31.4     $ 38.8     $ 47.1     $ 59.1     $ 67.9  

Plus: Depreciation & Amortization

      13.7       15.0       16.5       18.5       19.6  
    
 
 
 
 

EBITDA

    $ 45.1     $ 53.8     $ 63.6     $ 77.5     $ 87.4  
    
 
 
 
 

Margin & Growth Rate Analysis

                                         

Revenue Growth

      0.7 %     12.7 %     12.3 %     10.2 %     7.9 %

COGS as a % of Sales

      42.0 %     41.6 %     41.6 %     41.4 %     41.2 %

Gross Margin

      58.0 %     58.4 %     58.4 %     58.6 %     58.8 %

SG&A as a % of Sales

      51.3 %     51.1 %     50.5 %     49.6 %     49.2 %

EBITDA Margin

      9.5 %     10.1 %     10.6 %     11.8 %     12.3 %

EBIT Margin

      6.6 %     7.3 %     7.9 %     9.0 %     9.6 %

Pre-Tax Margin

      6.5 %     7.2 %     7.7 %     8.9 %     9.5 %

Effective Tax Rate

      38.8 %     38.8 %     38.8 %     38.8 %     38.8 %

Net Margin

      4.0 %     4.4 %     4.7 %     5.4 %     5.8 %

Source: 2005E through 2009E based on Bravo management estimates and represent Bravo core business only, per Bravo management.

 

LOGO   

PRESENTATION TO THE SPECIAL COMMITTEE / July 15, 2005

 

   

18

 

Bravo Financial Projections

 

Bravo Balance Sheet

($ in millions)

 

     Estimated
     Projected
  
Fiscal Year End 01/31    2005
     2006
     2007
     2008
     2009
  

Assets

                                         

Cash and Cash Equivalents

    $ 105.7     $ 129.6     $ 152.6     $ 177.6     $ 214.7  

Accounts Receivable

      10.1       10.0       11.0       12.1       13.0  

Inventory

      63.2       70.8       78.2       85.8       92.1  

Other Current Assets

      10.3       10.8       11.2       12.3       13.3  
    
 
 
 
 

Total Current Assets

      189.3       221.1       253.0       287.8       333.1  

Net Property, Plant & Equipment

      76.3       82.7       90.2       97.3       98.2  

Existing Goodwill

      0.0       0.0       0.0       0.0       0.0  

Other Intangible Assets

      0.0       0.0       0.0       0.0       0.0  

Other Assets

      7.0       7.2       7.5       8.2       8.9  
    
 
 
 
 

Total Assets

    $ 272.5     $ 311.0     $ 350.7     $ 393.3     $ 440.2  
    
 
 
 
 

Liabilities and Shareholders' Equity

                                         

Bank Revolver

    $ 0.0     $ 0.0     $ 0.0     $ 0.0     $ 0.0  

Accounts Payable

      14.7       16.4       18.2       19.9       21.4  

Other Current Liabilities

      39.5       51.5       59.5       65.5       70.7  
    
 
 
 
 

Total Current Liabilities

      54.2       67.9       77.7       85.5       92.1  

Other Liabilities

      24.5       26.9       29.4       29.4       29.4  

Existing Mortgage Bravo

      8.8       7.9       7.0       6.0       5.1  
    
 
 
 
 

Total Long-Term Debt

      8.8       7.9       7.0       6.0       5.1  
    
 
 
 
 

Total Liabilities

      87.5       102.7       114.0       120.9       126.6  

Other Party Interest in Consolidated Entities

      1.3       1.3       1.3       1.3       1.3  

Common Equity

      183.7       207.0       235.3       271.0       312.2  
    
 
 
 
 

Total Liabilities and Equity

    $ 272.5     $ 311.0     $ 350.7     $ 393.3     $ 440.2  
    
 
 
 
 

Total Debt

    $ 8.8     $ 7.9     $ 7.0     $ 6.0     $ 5.1  

Total Debt, Preferred & Minority Interest

      10.1       9.2       8.3       7.4       6.5  

Net Debt, Preferred & Minority Interest

      (95.6 )     (120.4 )     (144.3 )     (170.2 )     (208.2 )

Total Book Equity

      183.7       207.0       235.3       271.0       312.2  

Total Book Capitalization

      192.4       214.8       242.3       277.1       317.4  

Source: Bravo management.

 

LOGO   

PRESENTATION TO THE SPECIAL COMMITTEE / July 15, 2005

 

   

19

 

Bravo Financial Projections

 

Bravo Cash Flow Statement

($ in millions)

 

     Projected
  
Fiscal Year End 01/31    2006
     2007
     2008
     2009
  

Cash Flow From Operations

                                 

Net Income

    $ 23.3     $ 28.4     $ 35.7     $ 41.2  

Depreciation

      15.0       16.5       18.5       19.6  

Change in Working Capital

      5.8       0.9       (2.0 )     (1.6 )

Change in Other Assets

      (0.2 )     (0.3 )     (0.8 )     (0.6 )

Change in Other Liabilities

      2.4       2.4       0.0       0.0  
    
 
 
 

Cash Provided / (Used) by Operating Activities

    $ 46.3     $ 47.9     $ 51.4     $ 58.5  

Cash Flow From Investing Activities

                                 

Capital Expenditures

      ($21.4 )     ($24.0 )     (25.5 )     (20.5 )
    
 
 
 

Cash Provided / (Used) by Investing Activities

      ($21.4 )     ($24.0 )     ($25.5 )     ($20.5 )

Cash Flow From Financing Activities

                                 

Change in Existing Mortgage Bravo

      ($0.9 )     ($0.9 )     (0.9 )     (0.9 )

Dividend Paid to Common Shareholders

      0.0       0.0       0.0       0.0  

Change in Common Equity

      0.0       0.0       0.0       0.0  
    
 
 
 

Cash Provided / (Used) by Financing Activities

      ($0.9 )     ($0.9 )     ($0.9 )     ($0.9 )

Cash Provided / (Used) by Operating Activities

    $ 46.3     $ 47.9     $ 51.4     $ 58.5  

Cash Provided / (Used) by Investing Activities

      (21.4 )     (24.0 )     (25.5 )     (20.5 )

Cash Provided / (Used) by Financing Activities

      (0.9 )     (0.9 )     (0.9 )     (0.9 )

(Payments) / Borrowings on Revolver

      0.0       0.0       0.0       0.0  
    
 
 
 

Total Change In Cash

    $ 24.0     $ 23.0     $ 25.0     $ 37.1  
    
 
 
 

Beginning Cash Balance

    $ 105.7     $ 129.6       152.6       177.6  

Change In Cash

      24.0       23.0       25.0       37.1  
    
 
 
 

Ending Cash Balance

    $ 129.6     $ 152.6     $ 177.6     $ 214.7  
    
 
 
 

Source: Bravo management.

 

LOGO   

PRESENTATION TO THE SPECIAL COMMITTEE / July 15, 2005

 

   

20

 

B Cost of Capital Calculation

 

LOGO   

PRESENTATION TO THE SPECIAL COMMITTEE / July 15, 2005

 

   

21

 

Cost of Capital Calculation

 

Bravo Weighted Cost of Capital Calculation

($ in millions)

 

Assumptions

 

Risk Free Rate (1)

    4.2 %   Marginal Tax Rate    38.8 %

Market Risk Premium (2)

    5.1 %   Cost of Target Debt    6.5 %

Equity Size Premium (3)

    4.2 %           

 

Company

    Levered
Beta (4)
    Mkt. Val.
Equity
    Book Val.
Debt
    Book Val.
Preferred
    BV Debt/
MV Equity
     BV Pref.
MV Equity
     Unlevered
Beta

Borders Group

    1.10    $ 1,834.2    $ 8.8    $ 0.0    0.5 %   0.0 %   1.10

Cost Plus Inc.

    1.29      535.8      53.0      0.0    9.9 %   0.0 %   1.22

Electronics Boutique

    1.35      1,686.7      0.0      0.0    0.0 %   0.0 %   1.35

Finlay Enterprises Inc.

    0.95      118.5      200.0      0.0    168.8 %   0.0 %   0.47

Kirkland’s Inc.

    0.90      163.5      0.0      0.0    0.0 %   0.0 %   0.90

Pier 1 Imports Inc.

    1.06      1,257.3      19.0      0.0    1.5 %   0.0 %   1.05

Radioshack Corp.

    1.08      3,801.9      562.5      0.0    14.8 %   0.0 %   0.99

Restoration Hardware Inc.

    1.64      301.2      33.8      0.0    11.2 %   0.0 %   1.53

Sharper Image Corp.

    0.99      199.2      0.0      0.0    0.0 %   0.0 %   0.99

Williams-Sonoma Inc.

    1.19      5,082.1      42.6      0.0    0.8 %   0.0 %   1.18

Zale Corp.

    1.18      1,708.6      135.8      0.0    7.9 %   0.0 %   1.13
                                     Mean     1.14
                                          

Bravo

    0.93    $ 421.5    $ 9.4    $ 0.0    2.2 %   0.0 %   0.92

 

Cost of Equity Estimate (5)

 

Unlevered Beta

    1.14  

Target BV Debt/MV Equity

    4.7 %

Target BV Preferred/MV Equity

    0.0 %

Levered Beta

    1.18  

Risk Free Rate

    4.2 %

Market Risk Premium

    5.1 %

Equity Size Premium

    4.2 %
    

Cost of Equity

    14.4 %
    

 

WACC Estimate (5)

 

Target BV Debt/MV Equity

    4.7 %

Target BV Preferred/MV Equity

    4.7 %

Target MV Equity/Total Market Capitalization

    95.3 %

After-Tax Cost of Debt

    4.0 %

Cost of Equity

    14.4 %
    

WACC

    13.9 %
    
1 Based on 10-year U.S. Treasury bond rate.

 

2 Source: Ibbotson Associates, SBBI 2004 Yearbook, Market Results for 1960 through 2004. Intermediate-horizon expected equity risk premium. Large company stock total returns minus intermediate-term government bond income returns.

 

3 Source: Ibbotson Associates, SBBI 2004 Yearbook, Market Results for 1960 through 2004. Equals 4.2%, 2.7% and 1.6% for market capitalization ranges of $0.0 to $441.0 million, $441.0 to $1,167.0 million and $1,167.0 to $4,794.0 million, respectively.

 

4 Source: Bloomberg.

 

5 Mean unlevered Beta excludes outlier (Finlay Enterprises, Inc.). Assumes industry average capital structure, excluding Finlay Enterprises, Inc., is optimal capital structure.

 

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PRESENTATION TO THE SPECIAL COMMITTEE / July 15, 2005

 

   

22