UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13E-3
(Amendment No. 2)
(Rule 13E-100)
RULE 13E-3 TRANSACTION STATEMENT
Under Section 13(e) of the Securities Exchange Act of 1934
J.CREW GROUP, INC.
(Name of Issuer)
J.CREW GROUP, INC.
CHINOS HOLDINGS, INC.
CHINOS ACQUISITION CORPORATION
TPG PARTNERS VI, L.P.
GREEN EQUITY INVESTORS V, L.P.
GREEN EQUITY INVESTORS SIDE V, L.P.
MILLARD S. DREXLER
(Name of Persons Filing Statement)
Common Stock, par value $0.01 per share
(Title of Class of Securities)
46612H402
(CUSIP Number of Class of Securities)
| J.Crew Group, Inc. c/o Corporate Secretary 770 Broadway New York, NY 10003 (212) 209-2500 |
Ronald Cami, Esq. General Counsel TPG Capital, L.P 345 California Street, Suite 3300 San Francisco (415) 743-1500 | |
| Michael Gennaro Chief Operating Officer Leonard Green & Partners, L.P. 11111 Santa Monica Blvd., #2000 Los Angeles, CA 90025 (310) 954-0444 |
Millard S. Drexler c/o J.Crew Group, Inc. 770 Broadway New York, NY 10003 (212) 209-2500 | |
(Name, address and telephone number of person authorized to receive
notices and communications on behalf of the persons filing statement)
With copies to:
| Scott A. Barshay, Esq. Thomas E. Dunn, Esq. Cravath, Swaine & Moore LLP Worldwide Plaza 825 Eighth Avenue New York, NY 10019 (212) 474-1000 |
Daniel S. Sternberg, Esq. Matthew P. Salerno, Esq. Cleary Gottlieb Steen & Hamilton LLP One Liberty Plaza New York, NY 10006 (212) 225-2000 |
Alfred O. Rose, Esq. Julie H. Jones, Esq. Ropes & Gray LLP Prudential Tower 800 Boylston Street Boston, MA 02119 (617) 951-7000 | ||||
| Jack H. Nusbaum, Esq. Adam M. Turteltaub, Esq. Willkie Farr & Gallagher LLP 787 Seventh Avenue New York, NY 10019 (212) 728-8000 |
Howard A. Sobel, Esq. Jason H. Silvera, Esq. Latham & Watkins LLP 885 Third Avenue New York, NY 10022 (212) 906-1200 | |||||
This statement is filed in connection with (check the appropriate box):
| x | The filing of solicitation materials on an information statement subject to Regulation 14A, Regulation 14C or Rule 13e-3(c) under the Securities Exchange Act of 1934. |
| ¨ | The filing of a registration statement under the Securities Act of 1933. |
| ¨ | A tender offer. |
| ¨ | None of the above. |
Check the following box if the soliciting materials or information statement referred to in checking box (a) are preliminary copies: x
Check the following box if the filing is a final amendment reporting the results of the transaction: ¨
CALCULATION OF FILING FEE
| Transaction Valuation* | Amount of Filing Fee** | |
| $2,991,101,723 |
$213,265.55 | |
| * | For purposes of calculating the filing fee only, the transaction value was determined based upon the sum of (A) (1) 63,934,844 shares of common stock (including restricted shares) issued and outstanding and owned by persons other than the Company, Parent and Merger Sub (each, as defined in this Schedule 13E-3) on November 19, 2010, multiplied (2) by $43.50 per share (the “Per Share Merger Consideration”) and (B) (1) 8,307,717 shares of common stock underlying outstanding options of the Company as of November 19, 2010, multiplied by (2) the excess of the Per Share Merger Consideration over the weighted average exercise price of $18.23. |
| ** | The filing fee, calculated in accordance with Rule 0-11 of the Securities Exchange Act of 1934, is calculated by multiplying the Transaction Valuation by .0000713. |
| x | Check the box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
Amount Previously Paid: $213,265.55
Form or Registration No.: Schedule 14A—Preliminary Proxy Statement
Filing Party: J.Crew Group, Inc.
Date Filed: December 6, 2010
Introduction
This Amendment No. 2 to Rule 13E-3 transaction statement on Schedule 13E-3, together with the exhibits hereto (this “Schedule 13E-3” or “Transaction Statement”) is being filed with the Securities and Exchange Commission (the “SEC”) pursuant to Section 13(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) jointly by the following persons (each, a “Filing Person,” and collectively, the “Filing Persons”): J.Crew Group, Inc., a Delaware corporation (“J.Crew,” or the “Company”), the issuer of the common stock, par value $0.01 per share (the “Company Common Stock”) that is subject to the Rule 13e-3 transaction; TPG Partners VI, L.P., a Delaware limited partnership (“TPG VI”), Green Equity Investors V, L.P., a Delaware limited partnership (“GEI V”), Green Equity Investors Side V, L.P., a Delaware limited partnership (“GEI Side V”), Chinos Holdings, Inc., a Delaware corporation (“Parent”), Chinos Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary of Parent (the “Merger Sub”) and Millard S. Drexler, Chairman and Chief Executive Officer of the Company.
On November 23, 2010, Parent, Merger Sub and the Company entered into an Agreement and Plan of Merger, subsequently amended on January 18, 2011 by Amendment No. 1 to the Agreement and Plan of Merger (as amended, the “Merger Agreement”), providing for the merger of Merger Sub with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of Parent. Parent and Merger Sub are beneficially owned by TPG VI, GEI V and GEI Side V. Concurrently with the filing of this Schedule 13E-3, the Company is filing with the SEC a revised preliminary Proxy Statement (the “Proxy Statement”) under Regulation 14A of the Exchange Act, relating to a special meeting of the stockholders of the Company at which the stockholders of the Company will consider and vote upon a proposal to adopt the Merger Agreement. The adoption of the Merger Agreement will require the affirmative vote of (i) stockholders holding at least a majority of the shares of Company common stock outstanding at the close of business on the record date for the special meeting and (ii) stockholders holding at least a majority of the outstanding shares of Company common stock at the close of business on the record date other than shares owned, directly or indirectly, by Parent, Merger Sub, the Rollover Investors, any other officers or directors of the Company or any of their respective affiliates or associates (as defined under Section 12b-2 of the Exchange Act). A copy of the revised preliminary Proxy Statement is attached hereto as Exhibit (a)(1) and copies of the Agreement and Plan of Merger and the Amendment No. 1 to the Agreement and Plan of Merger are attached as Annex A and Annex B, respectively, to the Proxy Statement.
Under the terms of the Merger Agreement, at the effective time of the Merger each outstanding share of the Company Common Stock will be converted automatically into the right to receive $43.50 in cash (the “Per Share Merger Consideration”), without interest and less any applicable withholding taxes, excluding shares owned by (i) Parent, Merger Sub or any other direct or indirect wholly owned subsidiary of Parent, including shares to be contributed to Parent by Mr. Drexler and affiliated trusts (collectively, the “Rollover Investors”) pursuant to an equity rollover agreement between Parent and the Rollover Investors (the “Rollover Agreement”) immediately prior to the effective time of the Merger and any shares contributed to Parent by any members of the Company’s management team who may have the opportunity to invest in Parent and who choose to make this investment prior to the effective time of the Merger, (ii) the Company or any direct or indirect wholly owned subsidiary of the Company or (iii) stockholders who have properly exercised, perfected and not withdrawn a demand for, or lost the right to, appraisal rights under Delaware law. The Merger remains subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, including obtaining approval of the existing stockholders of the Company.
The cross-references below are being supplied pursuant to General Instruction G to Schedule 13E-3 and show the location in the Proxy Statement of the information required to be included in response to the items of Schedule 13E-3. Pursuant to General Instruction F to Schedule 13E-3, the information contained in the Proxy Statement, including all annexes thereto, is incorporated in its entirety herein by this reference, and the responses to each item in this Schedule 13E-3 are qualified in their entirety by the information contained in the Proxy Statement and the annexes thereto. As of the date hereof, the Proxy Statement is in preliminary form and is subject to completion or amendment. Capitalized terms used but not defined in this Schedule 13E-3 shall have the meanings given to them in the Proxy Statement.
All information contained in this Schedule 13E-3 concerning each Filing Person has been supplied by such Filing Person. No Filing Person, including the Company, is responsible for the accuracy of any information supplied by any other Filing Person.
| Item 1. | Summary Term Sheet. |
The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“SUMMARY TERM SHEET”
“QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER”
| Item 2. | Subject Company Information. |
(a) Name and Address. The information contained in the section of the Proxy Statement entitled “SPECIAL FACTORS—The Parties” is incorporated herein by reference.
(b) Securities. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER”
“THE SPECIAL MEETING—Record Date; Stockholders Entitled to Vote; Quorum”
“COMMON STOCK TRANSACTION INFORMATION”
The exact title of each class of the subject equity securities is “J.Crew Group, Inc. common stock, par value $0.01 per share.”
(c) Trading Market and Price. The information set forth in the Proxy Statement under the following caption is incorporated herein by reference:
“MARKET PRICE AND DIVIDEND INFORMATION”
(d) Dividends. The information set forth in the Proxy Statement under the following caption is incorporated herein by reference:
“MARKET PRICE AND DIVIDEND INFORMATION”
(e) Prior Public Offerings. Not applicable.
(f) Prior Stock Purchases. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“COMMON STOCK TRANSACTION INFORMATION”
| Item 3. | Identity and Background of Filing Person. |
(a) Name and Address. J.Crew Group, Inc. is the subject company. The information set forth in the Proxy Statement contained in the section of the Proxy Statement entitled “SPECIAL FACTORS—The Parties” is incorporated herein by reference.
(b) Business and Background of Entities. The information set forth in the Proxy Statement contained in the section of the Proxy Statement entitled “SPECIAL FACTORS—The Parties” is incorporated herein by reference.
(c) Business and Background of Natural Persons. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“SPECIAL FACTORS—The Parties”
“SPECIAL FACTORS—Business and Background of Natural Persons Related to the Company”
“SPECIAL FACTORS—Business and Background of Natural Persons Related to TPG VI, Parent, Merger Sub and the Leonard Green Entities”
| Items 4. | Terms of the Transaction. |
| (a) | (1) Not applicable. |
| (a) | (2) The information set forth in the Proxy Statement under the following captions is incorporated herein by reference: |
“SUMMARY TERM SHEET”
“QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER”
“SPECIAL FACTORS—Background of the Merger”
“SPECIAL FACTORS—Recommendation of Our Board of Directors and Special Committee; Reasons for Recommending the Adoption of the Merger Agreement; Fairness of the Merger”
“SPECIAL FACTORS—Purposes and Reasons of TPG VI, the Leonard Green Entities, Parent, Merger Sub and the MD Parties for the Merger”
“THE SPECIAL MEETING—Record Date; Stockholders Entitled to Vote; Quorum”
“SPECIAL FACTORS—Certain Material United States Federal Income Tax Consequences”
(c) Different Terms. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“SUMMARY TERM SHEET”
“SPECIAL FACTORS—Certain Effects of the Merger”
“SPECIAL FACTORS—Financing of the Merger—Rollover Financing”
“SPECIAL FACTORS—Interests of the Company’s Directors and Executive Officers in the Merger”
“THE MERGER AGREEMENT—Treatment of Common Stock, Options, Restricted Shares and Other Equity Awards”
(d) Appraisal Rights. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“SUMMARY TERM SHEET”
“QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER”
“APPRAISAL RIGHTS”
Annex D—DELAWARE GENERAL CORPORATION LAW SECTION 262
(e) Provisions for Unaffiliated Security Holders. The information set forth in the Proxy Statement under “SPECIAL FACTORS—Recommendation of Our Board of Directors and Special Committee; Reasons for Recommending the Adoption of the Merger Agreement; Fairness of the Merger,” is incorporated herein by reference. There have been no other provisions in connection with the merger to grant unaffiliated security holders access to the corporate files of the Filing Persons or to obtain counsel or appraisal services at the expense of the Filing Persons.
(f) Eligibility for Listing or Trading. Not applicable.
| Item 5. | Past Contacts, Transactions, Negotiations and Agreements. |
(a) Transactions. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“SUMMARY TERM SHEET”
“SPECIAL FACTORS—Background of the Merger”
“SPECIAL FACTORS—Interests of the Company’s Directors and Executive Officers in the Merger”
“THE MERGER AGREEMENT”
Annex A—MERGER AGREEMENT
Annex B—AMENDMENT NO. 1 TO THE MERGER AGREEMENT
(b) Significant Corporate Events. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“SUMMARY TERM SHEET”
“SPECIAL FACTORS—Background of the Merger”
“SPECIAL FACTORS—Interests of the Company’s Directors and Executive Officers in the Merger”
“THE MERGER AGREEMENT”
Annex A—MERGER AGREEMENT
Annex B—AMENDMENT NO. 1 TO THE MERGER AGREEMENT
(c) Negotiations or Contacts. The information set forth in the Proxy Statement under “SPECIAL FACTORS—Background of the Merger” is incorporated herein by reference.
(e) Agreements Involving the Subject Company’s Securities. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“SUMMARY TERM SHEET”
“SPECIAL FACTORS—Background of the Merger”
“SPECIAL FACTORS—Interests of the Company’s Directors and Executive Officers in the Merger”
“SPECIAL FACTORS—Financing of the Merger—Rollover Financing”
“THE MERGER AGREEMENT”
Annex A—MERGER AGREEMENT
Annex B—AMENDMENT NO. 1 TO THE MERGER AGREEMENT
| Item 6. | Purposes of the Transaction and Plans or Proposals. |
(b) Use of Securities Acquired. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“SUMMARY TERM SHEET”
“SPECIAL FACTORS—Certain Effects of the Merger”
“SPECIAL FACTORS—Plans for the Company”
“THE MERGER AGREEMENT—Treatment of Common Stock, Options, Restricted Shares and Other Equity Awards”
(c)(1)-(8) Plans. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“SUMMARY TERM SHEET”
“SPECIAL FACTORS—Certain Effects of the Merger”
“SPECIAL FACTORS—Plans for the Company”
“THE MERGER AGREEMENT—Treatment of Common Stock, Options, Restricted Shares and Other Equity Awards”
“MARKET PRICE AND DIVIDEND INFORMATION”
“SPECIAL FACTORS—Delisting and Deregistration of the Company’s Common Shares”
“SPECIAL FACTORS—Financing of the Merger”
“SPECIAL FACTORS—Interests of the Company’s Directors and Executive Officers in the Merger”
“THE MERGER AGREEMENT”
Annex A—MERGER AGREEMENT
Annex B—AMENDMENT NO. 1 TO THE MERGER AGREEMENT
| Item 7. | Purposes, Alternatives, Reasons and Effects. |
(a) Purposes. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“SUMMARY TERM SHEET”
“SPECIAL FACTORS—Background of the Merger”
“SPECIAL FACTORS—Recommendation of Our Board of Directors and Special Committee; Reasons for Recommending the Adoption of the Merger Agreement; Fairness of the Merger”
“SPECIAL FACTORS—Purposes and Reasons of TPG VI, the Leonard Green Entities, Parent, Merger Sub and the MD Parties for the Merger”
“SPECIAL FACTORS—Certain Effects of the Merger”
“SPECIAL FACTORS—Plans for the Company”
“THE MERGER AGREEMENT—Treatment of Common Stock, Options, Restricted Shares and Other Equity Awards”
(b) Alternatives. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“SPECIAL FACTORS—Background of the Merger”
“SPECIAL FACTORS—Alternatives to Merger”
(c) Reasons. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“SPECIAL FACTORS—Background of the Merger”
“SPECIAL FACTORS—Recommendation of Our Board of Directors and Special Committee; Reasons for Recommending the Adoption of the Merger Agreement; Fairness of the Merger”
“SPECIAL FACTORS—Purposes and Reasons of TPG VI, the Leonard Green Entities, Parent, Merger Sub and the MD Parties for the Merger”
(d) Effects. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“SUMMARY TERM SHEET”
“SPECIAL FACTORS—Certain Effects of the Merger”
“SPECIAL FACTORS—Plans for the Company”
“SPECIAL FACTORS—Interests of the Company’s Directors and Executive Officers in the Merger”
“THE MERGER AGREEMENT—Treatment of Common Stock, Options, Restricted Shares and Other Equity Awards”
“THE MERGER AGREEMENT—Effects of the Merger; Directors and Officers; Certificate of Incorporation; Bylaws”
“SPECIAL FACTORS—Certain Material United States Federal Income Tax Consequences”
“APPRAISAL RIGHTS”
Annex D—DELAWARE GENERAL CORPORATION LAW SECTION 262
| Item 8. | Fairness of the Transaction. |
(a), (b) Fairness; Factors Considered in Determining Fairness. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“SUMMARY TERM SHEET”
“SPECIAL FACTORS—Opinion of Perella Weinberg, Financial Advisor to the Special Committee”
“SPECIAL FACTORS—Recommendation of Our Board of Directors and Special Committee; Reasons for Recommending the Adoption of the Merger Agreement; Fairness of the Merger”
“SPECIAL FACTORS—Positions of TPG VI, the Leonard Green Entities, Parent and Merger Sub Regarding the Fairness of the Merger”
“SPECIAL FACTORS—Positions of the MD Parties Regarding the Fairness of the Merger”
Annex C—FINANCIAL ADVISOR OPINION
(c) Approval of Security Holders. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“SUMMARY TERM SHEET”
“QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER”
“THE SPECIAL MEETING—Record Date; Stockholders Entitled to Vote; Quorum”
“THE MERGER AGREEMENT—Conditions to the Merger”
(d) Unaffiliated Representative. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“SUMMARY TERM SHEET”
“SPECIAL FACTORS—Background of the Merger”
“SPECIAL FACTORS—Opinion of Perella Weinberg, Financial Advisor to the Special Committee”
Annex C—FINANCIAL ADVISOR OPINION
(e) Approval of Directors. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“SUMMARY TERM SHEET”
“SPECIAL FACTORS—Background of the Merger”
“SPECIAL FACTORS—Recommendation of Our Board of Directors and Special Committee; Reasons for Recommending the Adoption of the Merger Agreement; Fairness of the Merger”
(f) Other Offers. The information set forth in the Proxy Statement under “SPECIAL FACTORS—Background of the Merger” is incorporated herein by reference.
| Item 9. | Reports, Opinions, Appraisals and Negotiations. |
(a)-(c) Report, opinion or appraisal; Preparer and summary of the report, opinion or appraisal; Availability of documents. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference.
“SUMMARY TERM SHEET”
“SPECIAL FACTORS—Background of the Merger”
“SPECIAL FACTORS—Opinion of Perella Weinberg, Financial Advisor to the Special Committee”
“SPECIAL FACTORS—Analysis of Goldman Sachs, Financial Advisor to Parent”
“WHERE YOU CAN FIND MORE INFORMATION”
Annex C—FINANCIAL ADVISOR OPINION
| Item 10. | Source and Amounts of Funds or Other Consideration. |
(a), (b) Source of Funds; Conditions. The information set forth in the Proxy Statement under the following caption is incorporated herein by reference:
“SUMMARY TERM SHEET”
“SPECIAL FACTORS—Financing of the Merger”
“THE MERGER AGREEMENT—Financing Covenant; Company Cooperation”
(c) Expenses. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“SUMMARY TERM SHEET”
“SPECIAL FACTORS—Effects on the Company if Merger is not Completed”
“SPECIAL FACTORS—Fees and Expenses”
“THE MERGER AGREEMENT—Termination”
“THE MERGER AGREEMENT—Termination Fees and Reimbursement of Expenses”
(d) Borrowed Funds. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“SUMMARY TERM SHEET”
“SPECIAL FACTORS—Financing of the Merger”
| Item 11. | Interest in Securities of the Subject Company. |
(a) Securities Ownership. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“SPECIAL FACTORS—Interests of the Company’s Directors and Executive Officers in the Merger”
“COMMON STOCK OWNERSHIP OF MANAGEMENT AND BENEFICIAL OWNERS”
(b) Securities Transactions. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“SPECIAL FACTORS—Interests of the Company’s Directors and Executive Officers in the Merger”
“SPECIAL FACTORS—Background of the Merger”
“THE MERGER AGREEMENT”
“COMMON STOCK TRANSACTION INFORMATION”
Annex A—MERGER AGREEMENT
Annex B—AMENDMENT NO. 1 TO THE MERGER AGREEMENT
| Item 12. | The Solicitation or Recommendation. |
(d) Intent to Tender or Vote in a Going-Private Transaction. The information set forth in the Proxy Statement under the following caption is incorporated herein by reference:
“SPECIAL FACTORS—Interests of the Company’s Directors and Executive Officers in the Merger”
(e) Recommendation of Others. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“SUMMARY TERM SHEET”
“QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER”
“SPECIAL FACTORS—Recommendation of Our Board of Directors and Special Committee; Reasons for Recommending the Adoption of the Merger Agreement; Fairness of the Merger”
“SPECIAL FACTORS—Positions of TPG VI, the Leonard Green Entities, Parent and Merger Sub Regarding the Fairness of the Merger”
“SPECIAL FACTORS—Positions of the MD Parties Regarding the Fairness of the Merger”
| Item 13. | Financial Statements. |
(a) Financial Information. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“SUMMARY TERM SHEET”
“SELECTED FINANCIAL INFORMATION”
“WHERE YOU CAN FIND MORE INFORMATION”
(b) Pro forma information. Not applicable.
| Item 14. | Persons/Assets, Retained, Employed, Compensated Or Used. |
(a) Solicitations or Recommendations. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“SUMMARY TERM SHEET”
“QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER”
“SPECIAL FACTORS—Background of the Merger”
“SPECIAL FACTORS—Recommendation of Our Board of Directors and Special Committee; Reasons for Recommending the Adoption of the Merger Agreement; Fairness of the Merger”
“SPECIAL FACTORS—Fees and Expenses”
“THE SPECIAL MEETING—Solicitation of Proxies”
(b) Employees and corporate assets. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“SUMMARY TERM SHEET”
“QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER”
“SPECIAL FACTORS—Background of the Merger”
“SPECIAL FACTORS—Recommendation of Our Board of Directors and Special Committee; Reasons for Recommending the Adoption of the Merger Agreement; Fairness of the Merger”
“THE SPECIAL MEETING—Solicitation of Proxies”
| Item 15. | Additional Information. |
(b) Other material information. The entirety of the Proxy Statement, including all Annexes thereto, is incorporated herein by reference.
| Item 16. | Exhibits. |
| (a)(1) | Preliminary Proxy Statement of J.Crew Group, Inc., incorporated by reference to the Schedule 14A filed with the Securities and Exchange Commission on January 20, 2011 (the “Preliminary Proxy Statement”). | |
| (a)(2)(i) | Form of Proxy Card, incorporated herein by reference to the Preliminary Proxy Statement. | |
| (a)(2)(ii) | Joint press release issued by J.Crew Group, Inc., dated November 23, 2010, incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed with the SEC on November 23, 2010. | |
| (a)(2)(iii) | M. Drexler All-Associate E-mail, dated November 23, 2010, incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K filed with the SEC on November 23, 2010. | |
| (a)(2)(iv) | M. Drexler Associate Voicemail Transcript, dated November 23, 2010, incorporated by reference to Exhibit 99.4 to the Company’s Current Report on Form 8-K filed with the SEC on November 23, 2010. | |
| (a)(2)(v) | M. Drexler Prepared Remarks for Town Hall Meeting, dated November 23, 2010, incorporated by reference to Exhibit 99.5 to the Company’s Current Report on Form 8-K filed with the SEC on November 23, 2010. | |
| (a)(2)(vi) | Associate FAQ, dated November 23, 2010, incorporated by reference to Exhibit 99.6 to the Company’s Current Report on Form 8-K filed with the SEC on November 23, 2010. | |
| (a)(2)(vii) | Investor Conference Call Script, dated November 23, 2010, incorporated by reference to Exhibit 99.7 to the Company’s Current Report on Form 8-K filed with the SEC on November 23, 2010. | |
| (a)(2)(viii) | Master Q&A, dated November 23, 2010, incorporated by reference to Exhibit 99.8 to the Company’s Current Report on Form 8-K filed with the SEC on November 23, 2010. | |
| (a)(2)(ix) | Talking Points for use with Investors/Analysts, dated November 23, 2010, incorporated by reference to Exhibit 99.9 to the Company’s Current Report on Form 8-K filed with the SEC on November 23, 2010. | |
| (a)(2)(x) | Talking Points for Senior Managers, dated November 23, 2010, incorporated by reference to Exhibit 99.10 to the Company’s Current Report on Form 8-K filed with the SEC on November 23, 2010. | |
| (a)(2)(xi) | Press release issued by J.Crew Group, Inc., dated January 18, 2011, incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the SEC on January 18, 2011. | |
| (a)(2)(xii) | M. Drexler Associate Voicemail Transcript, dated January 18, 2011, incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed with the SEC on January 18, 2011. | |
| (b)(1) | Equity Commitment Letter, dated as of November 23, 2010, by and between Parent and TPG Partners VI, L.P.* | |
| (b)(2) | Equity Commitment Letter, dated as of November 23, 2010, by and among Parent, Green Equity Investors V, L.P. and Green Equity Investors Side V, L.P.* | |
| (b)(3) | Debt Commitment Letter, dated as of November 23, 2010, by and among Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith Inc. and Merger Sub.** | |
| (c)(1) | Opinion of Perella Weinberg Partners LP, dated November 22, 2010, incorporated herein by reference to Annex C to the Preliminary Proxy Statement. | |
| (c)(2) | Financial Analysis Presentation Materials, dated November 22, 2010, of Perella Weinberg Partners LP to the Special Committee of the Board of Directors of J.Crew Group, Inc.* | |
| (c)(3) | Discussion Materials, dated October 4, 2010, of Goldman Sachs & Co. to TPG Capital, L.P.** | |
| (c)(4) | Presentation Materials, dated October 25, 2010, of Perella Weinberg Partners LP to the Special Committee of the Board of Directors of J.Crew Group, Inc.** | |
| (c)(5) | Presentation Materials, dated October 29, 2010, of Perella Weinberg Partners LP to the Special Committee of the Board of Directors of J.Crew Group, Inc.** | |
| (c)(6) | Presentation Materials, dated November 1, 2010, of Perella Weinberg Partners LP to the Special Committee of the Board of Directors of J.Crew Group, Inc.** | |
| (c)(7) | Presentation Materials, dated November 4, 2010, of Perella Weinberg Partners LP to the Special Committee of the Board of Directors of J.Crew Group, Inc.** | |
| (c)(8) | Presentation Materials, dated November 9, 2010, of Perella Weinberg Partners LP to the Special Committee of the Board of Directors of J.Crew Group, Inc.** | |
| (c)(9) | Presentation Materials (Presentation 1), dated November 21, 2010, of Perella Weinberg Partners LP to the Special Committee of the Board of Directors of J.Crew Group, Inc.** | |
| (c)(10) | Presentation Materials (Presentation 2), dated November 21, 2010, of Perella Weinberg Partners LP to the Special Committee of the Board of Directors of J.Crew Group, Inc.** | |
| (c)(11) | Presentation Materials, dated November 20, 2009, of Goldman, Sachs & Co. to Messrs. Scully and Haselden. | |
| (c)(12) | Discussion Materials, dated May 20, 2010, of Goldman, Sachs & Co. to Messrs. Scully and Haselden. | |
| (c)(13) | Presentation Materials, dated June 3, 2010, of Goldman, Sachs & Co. to Mr. Scully. | |
| (c)(14) | Discussion Materials, dated July 19, 2010, of Goldman, Sachs & Co. to Company management. | |
| (c)(15) | Discussion Materials, dated August 31, 2010, of Goldman, Sachs & Co. to Company management. | |
| (c)(16) | Discussion Materials, dated September 13, 2010, of Goldman, Sachs & Co. to Messrs. Scully and Haselden. | |
| (c)(17) | Discussion Materials, dated September 23, 2010, of Goldman, Sachs & Co. to Messrs. Scully and Haselden. | |
| (c)(18) | Discussion Materials, dated September 27, 2010, of Goldman, Sachs & Co. to TPG Capital, L.P. | |
| (d)(1) | Agreement and Plan of Merger, dated November 23, 2010, by and among J.Crew Group, Inc., Chinos Holdings, Inc. and Chinos Acquisition Corporation, incorporated herein by reference to Annex A to the Preliminary Proxy Statement. | |
| (d)(2) | Amendment No. 1 to the Agreement and Plan of Merger, dated November 23, 2010, by and among J.Crew Group, Inc., Chinos Holdings, Inc. and Chinos Acquisition Corporation, dated January 18, 2011, incorporated herein by reference to Annex B to the Preliminary Proxy Statement. | |
| (d)(3) | Rollover Commitment Letter, dated as of November 23, 2010, by and among Millard S. Drexler, the Drexler Trusts and Parent.* | |
| (d)(4) | Cooperation Agreement, dated as of November 23, 2010, by and between Company and Millard S. Drexler, incorporated by reference to Exhibit 2.2 to the Company’s Current Report on Form 8-K filed with the SEC on November 26, 2010. | |
| (d)(5) | Interim Investors Agreement, dated as of November 23, 2010, by and among TPG Capital, L.P., Millard S. Drexler and the Drexler Trusts, incorporated by reference to Amendment No. 11 to the Schedule 13D filed by Millard S. Drexler with the Securities and Exchange Commission on November 26, 2010. | |
| (d)(6) | Third Amended and Restated Employment Agreement, dated as of July 13, 2010, by and among the Company, J.Crew Operating Corp. and Millard S. Drexler, incorporated by reference to Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q filed on September 3, 2010. | |
| (f) | Section 262 of the Delaware General Corporation Law, incorporated herein by reference to Annex D to the Preliminary Proxy Statement. | |
| (g) | None. | |
| * | Previously filed on December 6, 2010. |
| ** | Previously filed on December 29, 2010. |
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.
| J.CREW GROUP, INC. | ||
| By: | /S/ JAMES S. SCULLY | |
| James S. Scully | ||
| Chief Administrative Officer and Chief Financial Officer | ||
Dated: January 20, 2011
After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.
| CHINOS HOLDINGS, INC. | ||
| By: | /S/ RONALD CAMI | |
| Ronald Cami | ||
| Vice President | ||
Dated: January 20, 2011
After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.
| CHINOS ACQUISITION CORPORATION | ||
| By: | /S/ RONALD CAMI | |
| Ronald Cami | ||
| Vice President | ||
Dated: January 20, 2011
After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.
| TPG PARTNERS VI, L.P. | ||
| By: | TPG GenPar VI, L.P., its General Partner | |
| By: | TPG GenPar VI Advisors, LLC, its General Partner | |
| By: | /S/ RONALD CAMI | |
| Ronald Cami | ||
| Vice President | ||
Dated: January 20, 2011
After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.
| GREEN EQUITY INVESTORS V, L.P. | ||
| By: | GEI Capital V, LLC, its General Partner | |
| By: | /S/ MICHAEL GENNARO | |
| Michael Gennaro | ||
| Chief Operating Officer and Secretary | ||
Dated: January 20, 2011
After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.
| GREEN EQUITY INVESTORS SIDE V, L.P. | ||
| By: | GEI Capital V, LLC, its General Partner | |
| By: | /S/ MICHAEL GENNARO | |
| Michael Gennaro | ||
| Chief Operating Officer and Secretary | ||
Dated: January 20, 2011
After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.
| MILLARD S. DREXLER |
| /S/ MILLARD S. DREXLER |
Dated: January 20, 2011
EXHIBIT INDEX
| (a)(1) | Preliminary Proxy Statement of J.Crew Group, Inc., incorporated by reference to the Schedule 14A filed with the Securities and Exchange Commission on January 20, 2011 (the “Preliminary Proxy Statement”). | |
| (a)(2)(i) | Form of Proxy Card, incorporated herein by reference to the Preliminary Proxy Statement. | |
| (a)(2)(ii) | Joint press release issued by J.Crew Group, Inc., dated November 23, 2010, incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed with the SEC on November 23, 2010. | |
| (a)(2)(iii) | M. Drexler All-Associate E-mail, dated November 23, 2010, incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K filed with the SEC on November 23, 2010. | |
| (a)(2)(iv) | M. Drexler Associate Voicemail Transcript, dated November 23, 2010, incorporated by reference to Exhibit 99.4 to the Company’s Current Report on Form 8-K filed with the SEC on November 23, 2010. | |
| (a)(2)(v) | M. Drexler Prepared Remarks for Town Hall Meeting, dated November 23, 2010, incorporated by reference to Exhibit 99.5 to the Company’s Current Report on Form 8-K filed with the SEC on November 23, 2010. | |
| (a)(2)(vi) | Associate FAQ, dated November 23, 2010, incorporated by reference to Exhibit 99.6 to the Company’s Current Report on Form 8-K filed with the SEC on November 23, 2010. | |
| (a)(2)(vii) | Investor Conference Call Script, dated November 23, 2010, incorporated by reference to Exhibit 99.7 to the Company’s Current Report on Form 8-K filed with the SEC on November 23, 2010. | |
| (a)(2)(viii) | Master Q&A, dated November 23, 2010, incorporated by reference to Exhibit 99.8 to the Company’s Current Report on Form 8-K filed with the SEC on November 23, 2010. | |
| (a)(2)(ix) | Talking Points for use with Investors/Analysts, dated November 23, 2010, incorporated by reference to Exhibit 99.9 to the Company’s Current Report on Form 8-K filed with the SEC on November 23, 2010. | |
| (a)(2)(x) | Talking Points for Senior Managers, dated November 23, 2010, incorporated by reference to Exhibit 99.10 to the Company’s Current Report on Form 8-K filed with the SEC on November 23, 2010. | |
| (a)(2)(xi) | Press release issued by J.Crew Group, Inc., dated January 18, 2011, incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the SEC on January 18, 2011. | |
| (a)(2)(xii) | M. Drexler Associate Voicemail Transcript, dated January 18, 2011, incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed with the SEC on January 18, 2011. | |
| (b)(1) | Equity Commitment Letter, dated as of November 23, 2010, by and between Parent and TPG Partners VI, L.P.* | |
| (b)(2) | Equity Commitment Letter, dated as of November 23, 2010, by and among Parent, Green Equity Investors V, L.P. and Green Equity Investors Side V, L.P.* | |
| (b)(3) | Debt Commitment Letter, dated as of November 23, 2010, by and among Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith Inc. and Merger Sub.** | |
| (c)(1) | Opinion of Perella Weinberg Partners LP, dated November 22, 2010, incorporated herein by reference to Annex C to the Preliminary Proxy Statement. | |
| (c)(2) | Financial Analysis Presentation Materials, dated November 22, 2010, of Perella Weinberg Partners LP to the Special Committee of the Board of Directors of J.Crew Group, Inc.* | |
| (c)(3) | Discussion Materials, dated October 4, 2010, of Goldman Sachs & Co. to TPG Capital, L.P.** | |
| (c)(4) | Presentation Materials, dated October 25, 2010, of Perella Weinberg Partners LP to the Special Committee of the Board of Directors of J.Crew Group, Inc.** | |
| (c)(5) | Presentation Materials, dated October 29, 2010, of Perella Weinberg Partners LP to the Special Committee of the Board of Directors of J.Crew Group, Inc.** | |
| (c)(6) | Presentation Materials, dated November 1, 2010, of Perella Weinberg Partners LP to the Special Committee of the Board of Directors of J.Crew Group, Inc.** | |
| (c)(7) | Presentation Materials, dated November 4, 2010, of Perella Weinberg Partners LP to the Special Committee of the Board of Directors of J.Crew Group, Inc.** | |
| (c)(8) | Presentation Materials, dated November 9, 2010, of Perella Weinberg Partners LP to the Special Committee of the Board of Directors of J.Crew Group, Inc.** | |
| (c)(9) | Presentation Materials (Presentation 1), dated November 21, 2010, of Perella Weinberg Partners LP to the Special Committee of the Board of Directors of J.Crew Group, Inc.** | |
| (c)(10) | Presentation Materials (Presentation 2), dated November 21, 2010, of Perella Weinberg Partners LP to the Special Committee of the Board of Directors of J.Crew Group, Inc.** | |
| (c)(11) | Presentation Materials, dated November 20, 2009, of Goldman, Sachs & Co. to Messrs. Scully and Haselden. | |
| (c)(12) | Discussion Materials, dated May 20, 2010, of Goldman, Sachs & Co. to Messrs. Scully and Haselden. | |
| (c)(13) | Presentation Materials, dated June 3, 2010, of Goldman, Sachs & Co. to Mr. Scully. | |
| (c)(14) | Discussion Materials, dated July 19, 2010, of Goldman, Sachs & Co. to Company management. | |
| (c)(15) | Discussion Materials, dated August 31, 2010, of Goldman, Sachs & Co. to Company management. | |
| (c)(16) | Discussion Materials, dated September 13, 2010, of Goldman, Sachs & Co. to Messrs. Scully and Haselden. | |
| (c)(17) | Discussion Materials, dated September 23, 2010, of Goldman, Sachs & Co. to Messrs. Scully and Haselden. | |
| (c)(18) | Discussion Materials, dated September 27, 2010, of Goldman, Sachs & Co. to TPG Capital, L.P. | |
| (d)(1) | Agreement and Plan of Merger, dated November 23, 2010, by and among J.Crew Group, Inc., Chinos Holdings, Inc. and Chinos Acquisition Corporation, incorporated herein by reference to Annex A to the Preliminary Proxy Statement. | |
| (d)(2) | Amendment No. 1 to the Agreement and Plan of Merger, dated November 23, 2010, by and among J. Crew Group, Inc., Chinos Holdings, Inc. and Chinos Acquisition Corporation, dated January 18, 2011, incorporated herein by reference to Annex B to the Preliminary Proxy Statement. | |
| (d)(3) | Rollover Commitment Letter, dated as of November 23, 2010, by and among Millard S. Drexler, the Drexler Trusts and Parent.* | |
| (d)(4) | Cooperation Agreement, dated as of November 23, 2010, by and between Company and Millard S. Drexler, incorporated by reference to Exhibit 2.2 to the Company’s Current Report on Form 8-K filed with the SEC on November 26, 2010. | |
| (d)(5) | Interim Investors Agreement, dated as of November 23, 2010, by and among TPG Capital, L.P., Millard S. Drexler and the Drexler Trusts, incorporated by reference to Amendment No. 11 to the Schedule 13D filed by Millard S. Drexler | |
| with the Securities and Exchange Commission on November 26, 2010. | ||
| (d)(6) | Third Amended and Restated Employment Agreement, dated as of July 13, 2010, by and among the Company, J.Crew Operating Corp. and Millard S. Drexler, incorporated by reference to Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q filed on September 3, 2010. | |
| (f) | Section 262 of the Delaware General Corporation Law, incorporated herein by reference to Annex D to the Preliminary Proxy Statement. | |
| (g) | None. | |
| * | Previously filed on December 6, 2010. |
| ** | Previously filed on December 29, 2010. |
Exhibit (c)(11)
|
|
Exhibit (c)(11)
Presentation to J.Crew Goldman Sachs
Goldman, Sachs & Co. November 20, 2009
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Table of Contents
Goldman Sachs
I. Market Perspectives on J.Crew and Comparison to Peers II. Capital Structure Alternatives for J.Crew Appendix A: Supplemental Materials
Goldman Sachs does not provide accounting, tax, or legal advice. Notwithstanding anything in this document to the contrary, and except as required to enable compliance with applicable securities law, you (and each of your employees, representatives, and other agents) may disclose to any and all persons the US federal income and state tax treatment and tax structure of the transaction and all materials of any kind (including tax opinions and other tax analyses) that are provided to you relating to such tax treatment and tax structure, without Goldman Sachs imposing any limitation of any kind.
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I. Market Perspectives on J.Crew and Comparison to Peers
Goldman Sachs
Market Perspectives on J.Crew and Comparison to Peers 1
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J.Crew Stock Has Rallied Since March Lows Outperforming Specialty Softlines Peers
Goldman Sachs
Since IPO (28-Jun-2006)
250%
220%
190%
69.4%
160%
Price
Indexed 130%
100% (9.5)%
(10.9)%
70%
40%
10%
Jun-06 Jan-07 Aug-07 Mar-08 Sep-08 Apr-09 Nov-09
Daily from 28-Jun-2006 to 17-Nov-2009
J Crew Specialty Softlines Index S&P 500
YTD
380%
254.8%
340%
300%
260%
Price
220%
Indexed 87.3%
180%
140%
22.9%
100%
60%
Jan-09 Feb-09 Apr-09 Jun-09 Aug-09 Sep-09 Nov-09
Daily from 01-Jan-2009 to 17-Nov-2009
J Crew Specialty Softlines Index S&P 500
Source: Bloomberg
Note: Specialty Softlines Index includes Abercrombie, Aeropostale, American Apparel, American Eagle, Ann Taylor, Bebe Stores, Buckle, Chico’s, Coach, Coldwater Creek, Dress barn, Gap, Guess?, Hot Topic, Limited Brands, Talbots, Urban Outfitters, Wet Seal and Zumiez
Market Perspectives on J.Crew and Comparison to Peers 2
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Analysts Are Supportive of Strategy and Bullish on Growth
Goldman Sachs
Analyst Estimates1 Recommendations2
High $2.63 Sell
Median 4%
Low $2.30
$2.11 Buy
$1.98 42%
$1.91
Hold
$1.71 54%
$1.59 $1.58
$1.55
FY 2009 FY 2010 FY 2011
$2.5
$2.30
2011E
USD) $2.0
$1.91
(in
$1.5 2010E
Estimate $1.05 $1.59
EPS $1.0 2007A 2009E
Yearly $0.98 $0.85
$0.5 2006A 2008A
$0.0
Jul-06 Feb-07 Sep-07 Mar-08 Oct-08 Apr-09 Nov-09
Monthly from 31-Jul-2006 to 17-Nov-2009
2006 2007 2008 2009 2010 2011
Source: 1 Wall Street research and IBES as of 17-Nov-2009
| 2 |
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EPS FY 2009, FY 2010 and 2011. Based on 24 analysts’ recommendations. |
Research Commentary
On Strategy and Future Growth:
— “From a growth perspective, there is some opportunity to add core J.Crew stores, it has larger exposure to the faster-growing online business, and management’s history suggests a higher probability of success with new concepts than many peers” GS Research, Oct 22, 2009
— “With just 216 Full Priced Retail stores, 78 Factory locations, and a handful of Crewcuts and Madewell locations, we believe the company has a rare longer-term square footage growth story across all of its concepts and the opportunity to more than double its current store base” J.P.Morgan, August 31, 2009
— “Rather, future growth lies in the nascent women’s-only Madewell concept, whose store growth potential is expected to equal or exceed that of J.Crew’s… We think Madewell will be successful for several reasons: 1) A favorable rent environment 2) Sharper pricing 3) CEO is highly invested 4) Management expertise in building a denim business” MKM Partners, October 28, 2009
— “Longer-term, we believe strengthening momentum at Madewell (including pending eCommerce launch in 2010) could lead to reduced drag on overall company earnings. Further, we believe JCG remains one of the best-in-class retailers that possess attractive growth and solid brand positioning”
Wedbush, October 22, 2009
— “We like the Madewell concept and are encouraged by the initial interest and feedback from customers and believe this could potentially turn into a viable growth driver for JCG in a few years” Needham, October 22, 2009
On Valuation:
— “We are increasing our TP from $38 to $45 based on our DCF-based CS HOLT analysis. We assume asset growth consistent with square footage growth in our model and Cash Flow Return on Investment (CFROI) of 18% in F09 increasing to 20% in F13. Our $45 TP also represents approximately 22.5x our F10 estimate.” Credit Suisse, October 22, 2009
— “We believe a premium valuation is warranted given a stronger growth profile, fundamental momentum and upside bias to earnings… In our view, JCG is fairly valued at 22x 2010 P/E and 9x EV/EBITDA.This is a slight premium to the group average and fairly in line with the company’s three-year history” Jefferies, October 22, 2009
Market Perspectives on J.Crew and Comparison to Peers 3
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J.Crew’s Compelling Growth Profile…
Goldman Sachs
Company FY 09 – FY 11 Revenue Growth1 FY 09 – FY 11 EBITDA Growth1 LT EPS Growth
7.9 % 10.9% 17.0%
14.4 % 13.9% 20.0%
12.4 % 11.2% 17.5%
9.1 % 21.2% 20.0%
7.7 % 14.8% 14.5%
7.3 % 4.3% 14.0%
6.7 % 4.9% 15.0%
6.0 % 16.9% 15.0%
5.4 % NM Median: 12.5% 12.0%
4.5 % 30.7% 15.0%
3.6 % Median: 5.4% 27.7% 14.0%
Median: 15.0%
2.8 % -0.6% 11.0%
2.7 % 0.0% 15.0%
2.0 % 1.7% 11.0%
1.6% 7.3% 12.0%
(2.3)% NA 17.5%
NA NA 25.0%
NA NA 11.0%
NA NA 22.5%
Source: 1 Wall Street Estimates as of 17-Nov-2009 Reflects FY2009E-FY2011E CAGR.
Market Perspectives on J.Crew and Comparison to Peers 4
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…and Strong EBITDA Margin…
Goldman Sachs
FY2009E EBITDA Margin
34.7% Median: 11.8%
24.1%
21.6%
18.7% 17.7%
14.9% 16.0%
13.3% 12.5% 12.3% 11.4% 10.5% 9.5%
8.3% 7.8%
6.5% 4.7% 4.1% 3.8%
J. Crew
Coach
Buckle
Urban
Outfitters
Aeropostale
Guess?
Gap
American
Eagle
Limited Brands
Abercrombie & Fitch
Dress Barn
Chico’s
American
Apparel
Hot Topic
Zumiez
Wet Seal
AnnTaylor
Coldwater
Creek
Bebe Stores
FY2010E EBITDA Margin
35.0% Median: 13.8%
24.0% 22.9%
18.4% 18.3%
16.0% 16.4% 15.5% 15.1% 13.8% 13.7% 12.9%
10.1% 9.5% 8.4% 7.6% 7.5%
6.3%
NA
J. Crew
Coach
Buckle
Urban
Outfitters
Guess?
Aeropostale Gap
American
Eagle
Abercrombie & Fitch
Chico’s
Limited Brands
American Apparel
Zumiez
Hot Topic Wet
Seal Bebe Stores
AnnTaylor
Coldwater Creek
Dress Barn
Source: IBES and Bloomberg. Market Data as of 17-Nov-2009
Market Perspectives on J.Crew and Comparison to Peers 5
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… Are Reflected in the Premium Valuation to Specialty Softlines Peers
($ in millions, except for the ratios)
Goldman Sachs
Market Cap FY09 EV/EBITDA FY10 P/E LT EPS Growth FY10 PEG
$2,944 12.3x 22.7x 17.0% 1.3x
$15,647 6.0x 13.7x 11.0% 1.2x
$11,176 8.6x 15.3x 14.0% 1.1x
$5,834 13.4x 22.5x 20.0% 1.1x
$5,803 7.0x 15.0x 12.0% 1.3x
$3,687 9.1x 23.1x 14.5% 1.6x
$3,630 9.3x 15.4x 17.5% 0.9x
$3,207 7.0x 15.1x 12.0% 1.3x
11.8x 25.4x 15.0% 1.7x
$2,408
Median: 1.2 x
4.8x 9.6x 15.0% 0.6x
$2,231
8.7x 16.3x 11.0% 1.5x
$1,533 Median: 15.0 %
Median: $ 1,882 Median: 7.9 x
5.7x 10.4x 11.0% 0.9x
$1,383
7.8x 35.7x 14.0% 2.6x
$797
11.5x NM S&P: 14 .3 x 15.0% NM
$531
14.2x NM Median: 15.1x 17.5% NM
$485
5.5x 11.9x 22.5% 0.5x
$342
8.1x 24.6x 20.0% 1.2x
$338
3.4x 14.1x 15.0% 0.9x
$298
6.6x 8.1x 25.0% 0.3x
$236
Source: Wall Street Estimates as of 17-Nov-2009
Market Perspectives on J.Crew and Comparison to Peers 6
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Goldman Sachs
II. Capital Structure Alternatives for J.Crew
Capital Structure Alternatives for J.Crew 7
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J Crew Spectrum of Alternatives
Goldman Sachs
1 Repay Remaining Debt 2 Share Repurchase 3 Special Dividend 4 Initiate On-Going Dividend Overview Repay remaining Use excess cash (after Use excess cash (after Initiate ongoing dividend outstanding debt ($98 debt paydown) to debt paydown) to pay million) with cash on the repurchase shares special dividend to balance sheet shareholders
Discussion The Company is still in Signals management Returns cash to Long-term commitment, Points the growth mode with view that stock is shareholders which leaves less the store growth potential undervalued Company with less
Dilutive to earnings but for both J Crew and flexibility
Highly accretive to accretive to value
Madewell concepts ? May signal maturity of earnings
Does not allow for core business and
The Company
Shareholders can self- shareholders to “opt in” slowdown in growth maintains lower cash select whether to tender balance as a their share percentage of market capitalization than most of its specialty softlines peers
Capital Structure Alternatives for J.Crew 8
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Current Plan Implies Cash Balance of over $1.0 billion by 2014
($ in millions)
Goldman Sachs
CAGR CAGR
FY 2007 A FY 2008 A FY 2009 E FY 2010 E FY 2011 E FY 2012 E FY 2013 E FY 2014 E ‘07A- ‘09E ‘09E- ‘14E
Net Income $ 98 $ 54 $ 95 $ 112 $ 136 $ 166 $ 200 $ 242 (1.8)% 20.5 %
D&A 34 44 48 52 57 60 61 60
Working Capital 7 34 8 17 6 12 19 26
in Working Capital (32) (15) (39) 9 (11) 6 6 7
Capital Expenditures 81 78 51 51 54 60 60 59
Other 36 5 3 30 18 16 16 16
Free Cash Flow $ 120 $ 40 $ 135 $ 134 $ 168 $ 176 $ 211 $ 252 6.0 % 13.3 %
Share Repurchases (1) (0) (0) 0 0 0 0 0
Repurchases of Preferred stock 0 0 0 0 0 0 0 0
Dividends paid 0 0 0 0 0 0 0 0
Cash $ 132 $ 146 $ 280 $ 411 $ 576 $ 660 $ 870 $ 1,123
Total Debt 125 100 98 95 93 0 0 0
Adj. Debt (1) 501 599 637 676 734 806 885 970
Growth and Margins
Number of Stores 260 300 324 337 366 403 440 477
New Stores Growth (%) 14.5 % 15.4 % 8.1 % 4.0 % 8.6 % 10.1 % 9.2 % 8.4 %
Comp Store Sales (%) 5.6 % (4.0)% 0.2 % 1.8 % 2.7 % 3.1 % 3.7 % 3.9 %
Credit Stats
Debt / EBITDA 0.6 x 0.7 x 0.5 x 0.4 x 0.3 x 0.0 x 0.0 x 0.0 x
Adj. Debt / EBITDAR 2.4 x 4.3 x 3.0 x 2.8 x 2.6 x 2.4 x 2.2 x 2.1 x
EBITDAR / Interest + Rent 3.7 x 2.7 x 3.5 x 3.6 x 3.8 x 4.1 x 4.3 x 4.4 x
Source: Public filings, Management Projections
| (1) |
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Rent Expense adjusted based on Moody’s methodology. |
Capital Structure Alternatives for J.Crew 9
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J Crew Current Management Plan Comparison to Street
Goldman Sachs
($ in millions, except per share data)
CAGR
FY 2008 A FY 2009 E FY 2010 E FY 2011 E ‘08A- ‘11E
Store Growth and Comps
SSS (Management) (4.0)% 0.2 % 1.8 % 2.7 %
SSS (Street) (1) (4.0)% 1.5 % 3.0 % 4.0 %
Number of Stores (Management) 300 324 337 366 6.9 %
Number of Stores (Street) (1) 300 321 340 359 6.2 %
Income Statement
Revenue (Management) $ 1,428 $ 1,517 $ 1,611 $ 1,748 7.0 %
% Growth 7.0 % 6.2 % 6.2 % 8.5 %
Revenue (Street) $ 1,428 $ 1,546 $ 1,671 $ 1,800 8.0 %
% Growth 7.0 % 8.3 % 8.1 % 7.7 %
EBITDA (Management) $ 141 $ 211 $ 244 $ 288 26.9 %
% Margin 9.8 % 13.9 % 15.1 % 16.4 %
EBITDA (Street) $ 141 $ 231 $ 268 $ 314 30.8 %
% Margin 9.8 % 14.9 % 16.0 % 17.5 %
EPS (Management) $ 0.85 $ 1.48 $ 1.73 $ 2.09 35.1 %
% Growth (45.2)% 74.6 % 17.5 % 20.3 %
EPS (Street) $ 0.85 $ 1.59 $ 1.91 $ 2.30 39.6 %
% Growth (45.2)% 88.0 % 20.1 % 20.4 %
Cash Flow
Capex (Management) $ 78 $ 51 $ 51 $ 54 (11.6)%
Capex (Street) (1) $ 78 $ 55 $ 65 $ 76 (0.5)%
Source: Public filings, Management Projections and Wall Street Research
| (1) |
|
Same-store sales, number of stores and Capex are based on Goldman Sachs Research. |
Capital Structure Alternatives for J.Crew 10
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Apparel Retailers Retain a Large Portion of Cash on Their Balance Sheet
Goldman Sachs
Cash as % of Market Capitalization
Median: 15.9%
42.1% 41.4%
27.5% 26.7% 26.3% 24.3%
19.9%
16.5% 16.1% 15.7% 13.6% 11.8% 11.6% 11.0%
6.9% 9.1% 8.9%
4.9% 3.7%
Barn Gap
J. Wet Hot Fitch Urban
Crew Seal Stores Topic Bebe Limited Brands AnnTaylor Zumiez Dress American Eagle Coldwater Creek Chico’s Buckle Abercrombie & Aeropostale Guess? Coach Outfitters American Apparel
Cash $204 $144 $201 $82 $1,550 $210 $82 $305 $530 $85 $378 $2,131 $163 $426 $245 $330 $995 $289 $9
% of 14.0% 25.3% 35.5% 10.7% 18.0% 11.0% 20.5% 9.1% 18.1% 8.8% 23.6% 15.2% 19.1% 13.5% 12.1% 16.1% 30.7% 15.8% 1.6%
Revenue
Adjusted Debt to EBITDAR
Median: 3.4 x
8.0 x Median: 3.4 x
7.3 x
6.3 x
5.7 x 5.6 x
4.8 x 4.8 x 4.3 x
3.3 x 3.5 x 3.3 x 3.2 x 2.7 x
2.4 x 2.3 x 2.0 x 1.5 x 1.4 x
1.0 x
Seal Gap Barn
.
J Wet Fitch
Crew Coldwater Creek AnnTaylor Bebe Stores American Apparel Limited Brands Zumiez Chico’s Hot Topic Abercrombie & American Eagle Urban Outfitters Guess? Aeropostale Dress Buckle Coach
BB- / NA / BB / BB+ / NR /
CR NA / NA NA / NA NA / NA NA / NA NA / NA NA / NA NA / NA NA / NA NA / NA NA / NA NA / NA NA / NA NA / NA NA / NA
WR WR Ba3 WR WR
Source: Company Filings and Bloomberg. Market Data as of 17-Nov-2009
Capital Structure Alternatives for J.Crew 11
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Use of Cash Benchmarking
J.Crew vs. Peers
($ in millions except per share data)
Total Cash
Goldman Sachs
Capex % of
Operating Operating Cash Share Total Cash % of Operating
Cash Flow Capex Flow Dividends Repurchases Returned Cash Flow
J Crew $ 439 $ 229 52.1% $ 0 $ 1 $ 1 0.3 %
Abercrombie & Fitch 1,777 1,077 60.6% 184 338 522 29.4 %
Aeropostale 596 222 37.2% — 326 326 54.7 %
American Eagle 1,244 722 58.1% 242 525 766 61.6 %
AnnTaylor 571 355 62.2% — 547 547 95.7 %
Bebe Stores 187 86 46.0% 36 67 103 55.2 %
Buckle 383 131 34.3% 76 31 107 27.9 %
Chico’s 529 419 79.2% — 1 1 0.2 %
Coach 2,673 539 20.2% 24 1,790 1,814 67.9 %
Coldwater Creek 237 265 NM — 25 25 10.6 %
Dress Barn 479 194 40.4% — 54 54 11.4 %
Gap 5,115 1,521 29.7% 737 2,822 3,559 69.6 %
Guess? 619 261 42.1% 88 66 154 24.9 %
Hot Topic 160 98 61.3% — 7 7 4.5 %
Limited Brands 2,926 1,589 54.3% 634 1,961 2,595 88.7 %
Talbots 280 166 59.3% 71 2 74 26.4 %
Urban Outfitters 456 245 53.8% ——— 0.0 %
Wet Seal 154 87 56.5% — 22 22 14.6 %
Zumiez 117 81 69.3% ——— 0.0 %
Median $ 504 $ 253 54.3% $ 12 $ 60 $ 105 27.1 %
Source: Wall Street Research estimates
(1) Reflects cumulative dividend and share repurchase as a percent of average equity market capitalization since 01-Nov-2006.
Capital Structure Alternatives for J.Crew 12
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2 Illustrative Share Repurchase
Assumes Cash Balance at the end of 2009 of $280 million ($ in millions)
Goldman Sachs
Share Repo Size Status Quo $50 $75 $100 $125
Total Cash Balance (FY2009) 280 280 280 280
(-) Repayment of Debt 98 98 98 98
(-) Share Repurchases 50 75 100 125
PF Cash Balance (FY2009) $131 $106 $81 $56
Share Repurchase Price $ 43.28 $ 43.28 $ 43.28 $ 43.28
Shares Repurchased (mm) 1.16 1.73 2.31 2.89
% of Outstanding Shares Repurchased (1) 1.8% 2.7% 3.7% 4.6%
FY 2010 E Pro Forma WASO 64.6 63.5 62.9 62.3 61.7
Accretion / (Dilution) Analysis
FY 2010 E EPS (2) (3) $1.73 $1.76 $1.77 $1.78 $1.80
Accretion / (Dilution) ($) $0.03 $0.04 $0.05 $0.06
Accretion / (Dilution) (%) 1.6% 2.2% 2.9% 3.6%
FY 2009E - 2011 E EPS CAGR 18.9% 20.5% 21.3% 22.0% 22.8%
Share Price at At 24.9x (Current) P/E $ 43.28 $ 43.96 $ 44.24 $ 44.53 $ 44.83
Share Price Accretion 1.6% 2.2% 2.9% 3.6%
Additional Share Repurchases (FY2010)
Pro Forma Cash Balance 131 106 81 56
(+) FCF Generated (FY2010) 134 134 134 134
(-) Repayment of Debt-
(-) Share Repurchases 50 75 100 125
PF Cash Balance (FY2010) $216 $166 $116 $66
Share Repurchase Price $ 52.95 $ 53.31 $ 53.69 $ 54.07
FY 2011 E EPS (2) (3) $2.09 $2.14 $2.17 $2.20 $2.23
Accretion / (Dilution) ($) $0.06 $0.08 $0.11 $0.14
Accretion / (Dilution) (%) 2.8% 4.0% 5.3% 6.6%
Pro Forma Credit Statistics (FY 2009)
Total Cash 280 131 106 81 56
Total Debt 98 ——— -
Adj. Debt / EBITDAR (4) 3.0 x 2.2 x 2.2 x 2.2 x 2.2 x
Source: Public filings, Management Projections
(1) Based on 63.2 basic shares outstanding as of 17-Nov-2009. (2) Based on 2010E weighted average diluted shares of 64.6 million. (3) Assumes a tax rate of 40.2% for FY2010E.
| (4) |
|
Assumes rent expense capitalized at 8.0x and 100% of rent expense attributed to interest expense. |
Capital Structure Alternatives for J.Crew 13
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3 Illustrative Special Dividend
Assumes Cash Balance at the end of 2009 of $280 million ($ in millions)
Goldman Sachs
Special Dividend Size Status Quo $50 $75 $100 $125
Total Cash Balance (FY2009) 280 280 280 280
(-) Repayment of Debt 98 98 98 98
(-) Special Dividends 50 75 100 125
PF Cash Balance (FY2009) $131 $106 $81 $56
FY 2010 E EPS (1) (2) $1.73 $1.73 $1.73 $1.72 $1.72
Special Dividend per share (3) 0.79 1.19 1.58 1.98
Implied Share Price at 24.9x FY2 P/E Mulitple $43.28 $43.17 $43.06 $42.94 $42.83
Shareholder Value (DPS + PF EPS x P/E) $43.96 $44.24 $44.52 $44.80
Share Price Accretion 1.6% 2.2% 2.9% 3.5%
Pro Forma Credit Statistics
Total Cash 280 131 106 81 56
Total Debt 98 -
Adj. Debt / EBITDAR (4) 3.0 x 2.2 x 2.2 x 2.2 x 2.2 x
Source: Public filings, Management Projections
| (1) |
|
Based on 2010E weighted average diluted shares of 64.6 million. (2) Assumes a tax rate of 40.2% for FY2010E. |
| (3) |
|
Based on current shares outstanding of 63.2 million. |
| (4) |
|
Assumes rent expense capitalized at 8.0x and 100% of rent expense attributed to interest expense. |
Capital Structure Alternatives for J.Crew 14
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(4) On-Going Dividend Benchmarking
Goldman Sachs
Dividend Payout
64.0% 57.4%
33.0% 25.6%
0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% NM NM NM NM NM NM
Seal Barn
.
J Fitch
Crew American Eagle Abercrombie & Buckle Gap Hot Topic AnnTaylor Zumiez Coldwater Creek Chico’s Aeropostale Urban Outfitters Wet Bebe Stores Limited Brands Dress Guess? Coach American Apparel
3.3% 3.1% 2.7% 2.6%
1.7% 1.5% 1.1%
0.4%
0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Gap Topic
.
Dividend Yield
J Fitch Creek Urban Seal Barn
Crew Limited Brands Bebe Stores Buckle American Eagle Abercrombie & Guess? Coach Hot Topic AnnTaylor Zumiez Coldwater Chico’s Aeropostale Outfitters Wet Dress American Apparel
Ongoing Dividend
Dividend Payout
5.0% 15.0% 25.0% 35.0% 45.0% 55.0% 65.0%
Ongoing Dividend per share (1) 0.09 0.27 0.44 0.62 0.80 0.98 1.15
Dividend Yield 0.17% 0.51% 0.86% 1.20% 1.55% 1.90% 2.25%
Total Dividend $6 $17 $28 $39 $50 $62 $73
% of 2010E FCF 4.2% 12.5% 20.9% 29.2% 37.6% 45.9% 54.2%
% of 2010E OCF 3.0% 9.1% 15.1% 21.2% 27.2% 33.2% 39.3%
Source: Public filings, Management Projections
Note: Assumes Cost of Equity to be 11.0%. Present Value of Future Stock includes ongoing dividend
(1) Based on 2010E weighted average diluted shares of 64.6 million.
Capital Structure Alternatives for J.Crew 15
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Appendix A: Supplemental Materials
Goldman Sachs
Supplemental Materials 16
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Comparison of Selected Companies
($ in millions except per share data)
Goldman Sachs
Closing % of 52 Equity Value Multiples (2) Calendarized 5-Year 2010
Price Week Market Enterprise Sales EBITDA EBIT P/E Multiples (2) EPS PE/5-Year LTM Margins (1) Dividend
Company 17-Nov-2009 High Cap (1) Value (1) LTM LTM 2009 2010 LTM 2009 2010 CAGR (2) EPS CAGR EBITDA EBIT Yield
J. Crew $ 43.28 99 % $ 2,944 $ 2,839 2.0 x 20.3 x 12.3 x 10.6 x 32.6 x 27.2 x 22.7 x 17.0 % 1.3 x 9.6 % 6.0 % 0.0 %
U.S. Specialty Retailer
Abercrombie & Fitch $ 41.27 99 % $ 3,687 $ 3,343 1.1 x 7.5 x 9.1 x 7.0 x 15.9 x 39.7 x 23.1 x 14.5 % 1.6 x 14.1 % 6.7 % 1.7 %
Aeropostale 33.06 75 2,231 1,986 1.0 5.5 4.8 4.5 6.4 10.4 9.6 15.0 0.6 17.6 15.2 0.0
American Apparel (3) 3.32 49 236 346 0.6 7.6 6.6 4.5 17.2 NM 8.1 25.0 0.3 8.3 3.7 0.0
American Eagle 15.42 79 3,207 2,752 0.9 7.4 7.0 5.7 11.8 20.6 15.1 12.0 1.3 12.6 8.0 2.6
AnnTaylor 13.58 78 797 667 0.3 23.0 7.8 4.9 NM NM 35.7 14.0 2.6 1.5 (4.5) 0.0
Bebe Stores 5.59 60 485 284 0.5 11.1 10.0 9.5 NM NM NM 17.5 8.0 4.5 (0.4) 3.1
Buckle 29.11 80 1,383 1,220 1.4 6.0 5.7 5.3 6.7 11.0 10.4 11.0 0.9 23.9 21.2 2.7
Chico’s 13.48 98 2,408 2,031 1.3 17.9 11.8 8.5 NM 48.1 25.4 15.0 1.7 7.1 1.1 0.0
Coach 34.48 96 11,176 10,207 3.2 9.3 8.8 8.3 10.5 17.3 15.9 14.0 1.1 34.0 30.1 0.4
Coldwater Creek 5.81 67 531 458 0.5 NM 11.5 7.3 NM NM NM 15.0 NM 0.2 (5.8) 0.0
Dress Barn (4) 21.13 100 1,533 1,541 0.5 6.8 9.3 NA 11.6 18.3 16.9 11.0 1.5 6.7 4.0 0.0
Gap 22.31 96 15,647 13,516 1.0 6.2 6.0 5.8 8.9 14.8 13.7 11.0 1.2 15.5 10.9 1.5
Guess? 38.19 94 3,630 3,336 1.6 8.5 9.3 8.3 10.1 17.6 15.4 17.5 0.9 19.2 16.1 1.1
Hot Topic 6.76 51 298 216 0.3 3.1 3.4 2.9 6.5 17.8 14.1 15.0 0.9 9.1 4.3 0.0
Limited Brands 18.03 93 5,803 7,504 0.9 7.5 7.0 6.4 11.6 18.6 15.0 12.0 1.3 11.5 7.5 3.3
Urban Outfitters 33.72 98 5,834 5,545 3.0 15.2 13.4 11.0 19.9 27.9 22.5 20.0 1.1 20.0 15.2 0.0
Wet Seal 3.50 79 342 202 0.4 4.9 5.5 4.1 7.5 17.1 11.9 22.5 0.5 7.3 4.7 0.0
Zumiez 11.21 65 338 256 0.6 7.3 8.1 5.8 18.1 46.7 24.6 20.0 1.2 8.8 3.5 0.0
High 100 % $ 15,647 $ 13,516 3.2 x 23.0 x 13.4 x 11.0 x 19.9 x 48.1 x 35.7 x 25.0 % 8.0 x 34.0 % 30.1 % 3.3 %
Mean 81 3,309 3,078 1.1 9.1 8.1 6.5 11.6 23.3 17.3 15.7 1.6 12.3 7.9 0.9
Median 79 1,882 1,764 0.9 7.5 7.9 5.8 11.0 18.0 15.3 15.0 1.2 10.3 5.7 0.0
Low 49 236 202 0.3 3.1 3.4 2.9 6.4 10.4 8.1 11.0 0.3 0.2 (5.8) 0.0
| (1) |
|
Source: Latest publicly available financial statements. Equity Market Cap based on diluted shares outstanding. |
(2) Sources: LTM numbers are based on latest publicly available financial statements. Projected revenues, EBITDA, EBIT, and EPS are based on IBES median estimates and/or other Wall Street research. (3) Does not include the 7.7mm (10.8% of outstanding shares) authorized to be granted as part of the Performance Equity Plan, as no shares have currently been granted under this program.
| (4) |
|
Pro Forma for the acquisition of Tween Brands for $157mm announced on 24-Jun-2009 |
Supplemental Materials 17
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Goldman Sachs
Current Cap Structure Does Not Provide Significant Debt Repurchase Opportunities
As of 01-Aug-2009 ($ in millions)
Amount LTM LTM Leverage Interest / Tranche Current Bid /
(USD) Leverage (1) Using 8x (2) Coupon Rating Implied Yield Maturity
Cash $204
Undrawn Revolving Credit Facility (3) 194
Total Liquidity $398
Revolving Credit Facility ($200mm Capacity) - 0.0 x 2.8 L + 100-125 NA / NA May-2013
Term Loan 100 0.7 3.3 L + 175 (4) Ba2 / BB+ 93.00 / 6.2% May-2013
Total Debt $100 0.7x 3.3x
Market Equity 2,944
Total Capitalization $3,043
Corporate Rating BB- / WR Stable / NA
Source: Company Filings as of 01-Aug-2009
(1) Assumes LTM EBITDA to be $140mm as of 01-Aug-09. (2) LTM rent expense of $75mm capitalized at 8.0x. (3) Adjusts for $6mm of Letters of Credit as of 01-Aug-2009.
| (4) |
|
Interest rate is at company’s option, at base rate plus a margin of 0.75% or at L+175 bps |
Supplemental Materials 18
Exhibit (c)(12)
|
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Exhibit (C)(12)
Goldman Sachs
J.Crew Discussion Materials
Goldman, Sachs & Co.
20-May-2010
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Goldman Sachs
Table of Contents
I. Capital Allocation Trends
II. Market Perspectives on J.Crew and Comparison to Peers
III. Optimal Capital Structure and Alternatives Use of Cash Considerations Appendix A: Supplemental Materials
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Goldman Sachs
I. Capital Allocation Trends
Capital Allocation Trends 1
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Goldman Sachs
With Increasing Cash Balances, Companies Can Either Return Cash to Shareholders or Invest in M&A, Both of Which Have Lagged
Increasing Cash Balances
Cash for $Bn S&P 500 Companies
% of Mkt Value
$626.3 $633.3 $608.1 $609.7 9.9%
7.5% 7.4% 6.4% 5.9% 10.7% $654.6 $820.3
2004 2005 2006 2007 2008 2009
Cash & Equivalents Cash % of Mkt Value
Share Repurchase Authorizations
Announced ($billions)
2004 2005 2006 2007 2008 2009
$470 $371 $655 $863 $359 $121
M&A Volumes
M&A Volume ($ mm)
$777,821 $1,109,110 $1,424,075 $1,531,752 $900,838 $713,056
2004 2005 2006 2007 2008 2009
Source: CapIQ, Birinyi, Thomson Financial Securities Data
Capital Allocation Trends 2
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Goldman Sachs
Equity Investors are Supportive of Both Capital Return and M&A
In early 2010, Goldman Sachs surveyed several best-in-class investors from blue-chip mutual funds and hedge funds regarding whether or not companies should spend excess cash. The results are below:
Keep Cash on Balance Sheet
Summary: First priority should be leverage and liquidity; assuming that’s fine, maintaining high levels of cash has limited value in this yield environment Specific commentary:
“Ultimate flexibility in uncertain times.”
“I think companies, in general, are sitting on way too much cash.”
Investor Preference: 22%
Capital Return
Summary: So long as the capital structure is strong, return of capital should happen immediately Specific commentary regarding share repurchase:
“I prefer buybacks over anything else - buybacks reaffirms management’s view of the value of the stock long term, which is more important than anything else.” “…By and large, it is probably the most important sign.”
Specific commentary regarding dividends:
“Prefer regular dividends than special dividends…regular dividend demonstrates commitment to shareholders” “If the company used to pay a dividend, it should reinstate one and then buyback [stock]”
Investor Preference: 56%
M&A
Summary: Use of cash for M&A is viewed in a favorable light for companies with a strong track record of integration Specific commentary: “If a company is sitting with cash on the balance sheet, acquisitions with a high degree of synergies will help earnings growth in a sluggish environment, which the market will reward” “If you can scoop up assets that are cheap/accretive it makes sense, but oftentimes this comes with risk and it takes a while to see the fruits bear themselves in the share price” Investor Preference: 22%
Capital Allocation Trends 3
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Goldman Sachs
As The Economy Has Recovered, Record Cash Balances and Limited Price Appreciation Are Again Focusing Companies on Return of Capital to Accelerate Returns
Cash and Equivalents Have Grown to record levels
Cash & Equivalents Cash % of Mkt Value $1,000
Cash for $Bn S&P 500 Companies
$0 $250 $500 $750
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
% of Mkt Value
15% 10% 5% 0%
Expectation for Share Repurchases and Dividends to Increase
% of S&P 500 Cash Allocated to Dividends and Share Buybacks
66% 20% 15%
54% 20% 15%
60% 18% 14%
68% 15% 15%
64% 18% 17%
61% 18% 19%
1998 - 2003 Average 2004 - 2007 Average 2008 2009 2010E 2011E
Dividends Buybacks Other
Source: CapIQ, GS Research Note: Based on cash and cash equivalents as of latest quarter and market cap as of 18-Dec-2009. Includes companies with market cap greater than $500mm.
Capital Allocation Trends 4
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Goldman Sachs
Apparel Retailers Have Retained a Large Portion of Cash on Their Balance Sheets in the Economic Downturn…
Cash as % of Market Capitalization
Median: 16.5%
9.5% 40.9% 21.6% 21.4% 20.1% 19.2% 18.6% 16.7% 16.3% 15.8% 13.4% 13.9% 13.4% 9.8% 8.0%
J. Crew Hot Topic Limited Brands American Eagle Abercrombie & Fitch Gymboree Dress Bam Gap Chico’s AnnTaylor Guess?
Coldwater Creek
Aeropostale
Buckle
Urban Outfitters
Cash $298 $123 $1,804 $699 $712 $258 $500 $2,573 $424 $210 $502 $85 $347 $158 $502 % of Sales 18.9% 16.7% 20.9% 23.4% 24.3% 25.4% 18.5% 18.1% 24.7% 11.5% 23.6% 8.2% 15.6% 17.6% 25.9% Adjusted Debt to EBITDAR
Median: 3.0 x
2.1 x 6.6 x 4.9 x 3.9 x 3.9 x 3.7 x 3.1 x 3.1 x 2.9 x 2.5 x 2.4 x 2.2 x 1.8 x 1.5 x 0.9 x
J. Crew Coldwater Creek AnnTaylor Limited Brands Hot Topic Abercrombie & Fitch American Eagle Chico’s Gymboree Gap Guess? Urban Outfitters Aeropostale Buckle Coach
CR BB+ / WR NA / NA NA / WR BB / Ba3 NA / NA NA / NA NA / NA NA / NA NA / NA BB+ / WR NR / WR NA / NA NA / NA NA / NA NA / NA
Source: Company Filings and Bloomberg. Market Data as of 14-May-2010 Capital Allocation Trends 5
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Goldman Sachs
…But Historically Have Used Significant Portion of Operating Cash Flows for Share Buybacks 2005-2009 Cumulative ($ millions, except where noted) Percentage of Operating Cash Flow
Capex Acq. / (Div.) Share Rep. Dividends
40% 2% 77% 18% 1% 14% 73% 32% 2% 58% 55% 57% 31% 24% 51% 54% 1% 49% 35% 15% 33% 40% 32% 24% 30% 19% 69% 4% 11% 16% 58% 10% 72% 11% 7% 41% 3% 6% 106% 2% 67%
J. Crew Coach Gap AnnTaylor Aeropostale Limited Brands Gymboree American Eagle Buckle Chico’s Abercrombie Hot Topic Guess Coldwater Creek Urban Outfitters
‘05-’09 EPS CAGR NM 14.7% 6.6% (30.3)% 36.6% (4.0)% 29.3% (12.3)% 24.8% (19.7)% (26.3)% (13.3)% 16.6% NA 15.2% ‘05-09 Stock Performance 53.5%1 24.3% (13.3)% (41.6)% 77.5% (19.7)% 202.9% (6.2)% 138.6% (51.5)% (37.1)% (70.3)% 459.3% (63.2)% 50.1% Market Cap $ 3,130 $ 12,565 $ 15,421 $ 1,326 $ 2,585 $ 8,354 $ 1,344 $ 3,259 $ 1,617 $ 2,602 $ 3,547 $ 301 $ 3,612 $ 630 $ 6,235 OCF $ 674 $ 4,190 $ 8,222 $ 1,171 $ 1,029 $ 4,574 $ 659 $ 2,369 $ 579 $ 1,081 $ 2,746 $ 282 $ 906 $ 386 $ 842 (Capex) $(271) $(766) $(2,619) $(642) $(322) $(2,458) $(233) $(951) $(173) $(741) $(1,606) $(204) $(372) $(411) $(568) (Acq.) / Div. $ 0 $(35) $(142) $ 0 $ 0 $(25) $ 0 $ 0 $ 0 $(48) $ 0 $ 0 $(24) $ 0 $ 0 (Share Rep.) $(2) $(3,241) $(6,002) $(685) $(584) $(2,354) $(321) $(780) $(142) $(202) $(441) $(27) $(66) $(25) $(21) (Dividends) $ 0 $(71) $(1,173) $ 0 $ 0 $(1,101) $ 0 $(350) $(185) $ 0 $(297) $ 0 $(102) $ 0 $ 0
Source: 1 Company filings, CaplQ; Bloomberg
Indicates stock price performance since IPO to 31-Jan-2010.
Capital Allocation Trends
6
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Goldman Sachs
Pick-Up in Consumer / Retail Share Repurchase Authorizations as a Result of Economic Recovery and Improving Sentiment
Most Recent Repurchase Program % of Market Capitalization at Time of Authorization
11.5% 12.0% 3.3% 10.2% 7.6% 2.9% 2.0% 2.6% 14.7% 5.4% 7.1% 9.9%
Del Monte Kellog’s P&G Coach BJ’s Starbucks Mead Johnson Limited Brands PepsiCo Hansens Gap Dr. Pepper Snapple
Date of Program 05-May-10 29-Apr-10 29-Apr-10 20-Apr-10 29-Mar-10 23-Mar-10 17-Mar-10 15-Mar-10 15-Mar-10 12-Mar-10 25-Feb-10 25-Feb-10 Size of Program ($mm) $150 $2,500 $6,000 $1,000 $200 $375 $300 $200 $15,000 $200 $1,000 $800
Share Repurchase Authorizations
Sector Breakdown 2008
Consumer Retail 17%
Healthcare 7%
Real Estate 1%
TMT 39%
FIG 14%
INR 24%
Sector Breakdown 2009 – 2010 YTD
Consumer Retail 34%
TMT 30%
INR 4%
Heathcare 20%
FIG 10%
Source: Company filings
Capital Allocation Trends 7
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Goldman Sachs
II. Market Perspectives on J.Crew and Comparison to Peers
Market Perspectives on J.Crew and Comparison to Peers 8
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Goldman Sachs
J.Crew Stock Has Been Pressured Post Strong Q4
Since IPO (28-Jun-2006)
Indexed Price
250% 220% 190% 160% 130% 100% 70% 40% 10%
Jun-06 Apr-07 Jan-08 Oct-08 Jul-09 May-10
Daily from 28-Jun-2006 to 14-May-2010
77.9%
21.5%
(8.9)%
Performance 3-Year 1-Year 6-Month J.Crew 16.4% 147.0% 5.5% Specialty Softlines (4.9)% 47.3% 11.4% S&P 500 (24.4)% 27.2% 3.9%
YTD
Indexed Price
140% 130% 120% 110% 100% 90% 80%
Jan-10 Feb-10 Mar-10 Apr-10 May-10
16.8%
1.8% 1.6%
Daily from 01-Jan-2010 to 14-May-2010
JCrew Specialty Softlines Index S&P 500
Source: Bloomberg
Note: Specialty Softlines Index includes Abercrombie, Aeropostale, American Eagle, Ann Taylor, Buckle, Chico’s, Coach, Coldwater Creek, Gap, Guess?, Gymboree, Hot Topic, Limited Brands, and Urban Outfitters
Market Perspectives on J.Crew and Comparison to Peers 9
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Goldman Sachs
With Balance Sheet Looking Strong, The Expectation is For J.Crew to Paydown Debt or Returns Cash to Shareholders
Analyst Estimates1 Recommendations2
High Median Low
$2.50 $2.30 $2.12
$3.00
$2.67
$2.45
$3.10
$2.84 $2.80
Sell 4%
FY 2010 FY 2011 FY 2012
Hold 50%
Buy 46%
EPS Estimates
Yearly EPS Estimate (in USD)
$2.80 $2.10 $1.40 $0.70 $0.00
Jul-06 Mar-07 Nov-07 Jun-08 Feb-09 Sep-09 May-10
Monthly from 31-Jul-2006 to 14-May-2010
2006 2007 2008 2009 2010 2011
$0.98 2006A
$1.05 2007A
$0.85 2008A
$2.67 2011E
$2.30 2010E
$1.91 2009
Research Commentary
On Use of Cash:
“After witnessing the company prepay $50 million in debt last year, we wouldn’t be surprised to see the remaining balance paid off by 2010-end given the current cash balance. JCG looks poised to end 2010 with ~$6 in cash per share compared to $2 in debt per share when it came public in late 2006.” JP Morgan, March 15, 2010 “With JCG ending the year at ~$250MM in net cash (compared with only $50MM LY), we also believe this is a turning point for the company as it will now be able to return cash to shareholders (we model its first share repo in F11) vs. repaying debt. Our new dcf-based $53 TP represents 18x our F11 estimate, a premium to the group, though justified due to JCG’s long term growth potential and industry leading returns on capital.” Credit Suisse, March 10, 2010
On Strategy and Future Growth:
“We believe the company can continue to outpace competitors as the economy recovers. While we believe the company has gained many customers from high-end chains and department stores, we also believe an increasingly larger portion of market share gains is coming from more moderate apparel chains, drawn by high-quality fashions and at a reasonable price. This trend bodes well for J. Crew as the economy and consumer budgets continue to improve in 2010, in our view” MKM Partners, April 23, 2010
On Valuation:
“J. Crew is ideally positioned to drive further upside from even its current heightened projections; further, we project the return of material unit growth in FY12 as comparisons become more normalized. Our new target price of $53 translates to 20x our FY12 EPS (the same valuation level we applied before 4QFY10 results); we believe JCG remains fully worthy of a premium multiple.” Brean Murray, March 10, 2010
1 Source: Wall Street research and IBES as of 14-May-2010
2 EPS FY 2010, FY 2011 and 2012. Based on 24 analysts’ recommendations.
Market Perspectives on J.Crew and Comparison to Peers 10
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J. Crew’s Attractive Growth Profile…
Company FY 10 – FY 12 Revenue Growth1 FY 10 – FY 12 EBITDA Growth1 LT EPS Growth
9.4% 1.3% 7.0% 3.9% 13.6% 10.5% 10.5% 4.8% Median: 6.8% 7.4% 8.0% (4.1)% 10.5% 1.5% 6.5% 0.9% 10.4 % 3.6 % Median: 10.1% 7.6 % 8.4 % 16.2 % 14.0 % N 22.3 % 11.9 % 15.8 % 6.4 % (1.6)% 12.9 % 8.0 % 16.3 % 3.4 % 20.0% 11.0% 14.5% 13.0% 20.0% 15.0% 16.0% 13.0% 15.0% Median: 13.3% 12.0% 11.0% 12.0% 12.0% 15.0% 13.5%
Source: 1 Wall Street Estimates as of 14-May-2010 Reflects FY2010E-FY2012E CAGR.
Market Perspectives on J.Crew and Comparison to Peers 11
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…and Solid EBITDA Margin…
LTM EBITDA Margin
Median: 16.0% 16.7% 34.4% 25.0% 21.9% 20.1% 19.9% 19.7% 17.5% 14.5% 13.6% 13.6% 12.8% 7.8% 7.2% 1.8%
J.Crew Coach Buckle
Urban Outfitters
Guess? Gymboree Aeropostale Gap
Limited Brands
American Eagle
Abercrombie & Fitch
Chico’s Hot Topic AnnTaylor
Coldwater Creek
FY2010E EBITDA Margin
18.4% 35.4% 24.8% 23.8% 20.7% 20.4% 20.1% 17.4% 16.9% 16.4% 15.7% 14.9% 10.5% 7.5% 7.2%
J.Crew Coach Buckle
Urban Outfitters
Gymboree
Guess?
Aeropostale
Gap
American Eagle
Chico’s
Limited Brands
Abercrombie & Fitch
AnnTaylor
Hot Topic
Coldwater Creek
Source: IBES and Bloomberg. Market Data as of 14-May-2010
Market Perspectives on J.Crew and Comparison to Peers 12
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… Are Reflected in the Premium Valuation to Specialty Softlines Peers
($ in millions, except for the ratios)
Market Cap FY10 EV/EBITDA FY10 P/E LT EPS Growth FY10 PEG
$3,130 $15,421 $12,565 $8,354 $6,235 $3,612 $3,547 $3,259 Median: $2,930 $2,602 $2,585 $1,617 $1,344 $1,326 $630 $301 9.1x 5.1x 9.3x 6.5x 10.6x 6.5x 6.1x 4.8x 6.9x Median: 6.1x 4.5x 6.1x 4.7x 5.4x 7.0x 3.2x 17.0x 1.6x 16.0x 13.1x 18.3x 11.0x 15.8x 11.0x 14.5x 9.2x 10.8x 10.4x S&P: 14.5x Median: 13.8x 17.1x 35.0x 19.6x 20.0% 11.0% 14.5% 13.0% 20.0% 15.0% 16.0% 13.0% 15.0% Median: 13.3% 12.0% 11.0% 12.0% 12.0% 15.0% 13.5% 0.9x 1.1x 1.1x 1.0x 0.9x 0.7x 1.0x Median: 1.0x 0.8x 1.0x 0.8x 1.0x 0.9x 1.4x 2.3x 1.4x
Source: Wall Street Estimates as of 14-May-2010
Market Perspectives on J.Crew and Comparison to Peers 13
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Meaningful Rotation in Top J.Crew Shareholders
Source:
Top 25 Active Institutional Holders
Equity Latest Latest % Q4’09 Q3’09 Q2’09 Q1’09 Q4’08 A.U.M. Pos. Shares Pos. Pos. Pos. Pos. Pos.
# Institution Style ($mm) (Shares) Out. (Shares) (Shares) (Shares) (Shares) (Shares)
1 Fidelity Management & Research GARP $ 565,152 8,870,105 13.9 % 9,537,505 8,616,305 8,754,586 9,373,618 9,340,818
2 Baron Capital Management, Inc. Growth 15,850 5,254,486 8.2 5,494,745 5,621,508 5,815,365 5,781,125 5,305,030
3 Marsico Capital Management, L.L.C. Core Growth 55,083 3,726,042 5.8 735,802 0 0 0 3,486,119
4 Columbia Wanger Asset Management, L.P. GARP 27,845 3,229,100 5.1 3,237,700 3,235,200 2,529,050 1,172,500 400,000
5 American Century Investment Management, Inc. Core Growth 51,277 1,881,974 3.0 2,357,516 1,319,749 1,650,304 1,638,445 1,121,873
6 T. Rowe Price Associates, Inc. GARP 266,852 1,708,060 2.7 3,510,600 6,136,800 6,814,900 5,443,200 4,792,600
7 Lord, Abbett & Co. LLC Income Value 46,051 1,706,763 2.7 3,341,544 5,883,122 9,714,648 11,689,655 11,863,669
8 Janus Capital Management LLC Aggres. Gr. 81,124 1,294,812 2.0 1,294,812 2,214,260 2,192,818 0 0
9 J.P. Morgan Investment Management Inc. (New York) GARP 107,509 1,261,060 2.0 845,827 1,209,948 557,546 690,457 0
10 The Roosevelt Investment Group, Inc. Core Growth 3,945 1,256,401 2.0 1,213,411 1,148,704 0 0 0
11 TIAA-CREF GARP 161,520 1,127,601 1.8 435,320 430,468 334,736 283,027 288,928
12 Fred Alger Management, Inc. Aggres. Gr. 11,071 1,115,126 1.8 1,122,474 1,252,338 881,238 1,507,070 2,568,814
13 AllianceBernstein L.P. Core Growth 175,742 1,098,410 1.7 969,771 1,361,598 1,735,608 125,694 98,338
14 Friess Associates LLC Momentum 8,823 839,700 1.3 0 0 0 0 0
15 Waddell & Reed Investment Management Company Core Growth 49,945 700,100 1.1 686,450 729,450 766,450 944,050 911,150
16 Norges Bank Core Value 333,690 693,939 1.1 693,939 167,238 167,238 167,238 167,238
17 Westfield Capital Management Company, LP Core Growth 11,541 683,826 1.1 625,576 856,240 873,100 0 0
18 Neuberger Berman, LLC GARP 69,029 648,009 1.0 404,280 55,976 51,184 55,949 70,979
19 Wells Capital Management Inc. Core Value 36,330 590,346 0.9 590,346 0 0 0 0
20 Impala Asset Management, L.L.C. Hedge Fund 1,343 590,300 0.9 448,500 0 0 0 0
21 Buckingham Capital Management, Inc. Hedge Fund 2,075 538,893 0.8 449,604 647,084 474,500 0 1,060,590
22 Franklin Advisers, Inc. Income Value 46,722 518,092 0.8 545,083 0 0 0 0
23 Vinik Asset Management, L.P. Aggres. Gr. 4,835 508,201 0.8 508,201 67,901 1,002,201 0 0
24 FAF Advisors, Inc. Core Value 29,947 499,569 0.8 617,943 508,511 112,642 84,730 113,012
25 OppenheimerFunds, Inc. GARP 84,024 478,740 0.8 557,850 630,440 210,982 42,940 102,730
Latest Q4 ‘09 Q3 ‘09 Q2 ‘09 Q1 ‘09 Q4 ‘08
Momentum Momentum Momentum Specialty Momentum Specialty Specialty
4% 3% 2% 1% 1% 1% 1%
Value 4%
GARP 7%
Index 14%
Growth 71%
Income 3% Value 4%
GARP 7%
Index 14%
Growth 70%
Income 7% Value 4%
Index 13%
GARP 10%
Growth 65%
Value 4%
Index 12%
Income 14%
GARP 11%
Growth 58%
Value 4%
Index 12%
Income 14%
GARP 12%
Growth 56%
Value 5% GARP
9%
Index 10%
Income 17%
Growth 58%
Source: Bloomberg, Thomson Reuters; as of latest filings
Market Perspectives on J.Crew and Comparison to Peers 14
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III. Optimal Capital Structure and Alternatives Use of Cash Considerations
Optimal Capital Structure and Alternatives Use of Cash Considerations 15
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Keeping a High Cash Balance Negatively Impacts Cost of Capital
($ in millions)
Cash ($mm)
$ 50 $ 150 $ 250 $ 350 $ 450 $ 550
Weighted Average Cost of Capital
12.00% 12.50% 13.00% 13.50%
FY2009 cash balance: $298mm
12.40% 12.55% 12.71% 12.79% 12.88% 13.06% 13.16%
0.00% 5.00% 10.00% 15.00% 20.00%
Cash % of Total Capitalization
Note: Cost of capital assumes an Axioma 2-year historical levered beta of 1.26 (Unlevered and re-levered for each case), risk free rate of 4.16% (20-Yr Treasury with a 20-year duration), market premium of 6.67%, and tax rate of 40.2%. Assumes LTM
EBITDA of $263mm, rent expense of $85mm capitalized at 8.0x per Moody’s, LTM debt of $49mm and cash of $298mm per FY2009 filing
Optimal Capital Structure and Alternatives Use of Cash Considerations 16
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Illustrative Cost of Capital at Different Breakpoints
($ in millions)
Weighted Average Cost of Capital
13.50% 13.00% 12.50% 12.00% 11.50%
Current Rating: BB+ Rating: BB Rating: BB- Rating: B+ Rating: B Leverage: Leverage: Leverage: Leverage: Leverage: Leverage:
2.11x 2.75x 3.25x 3.75x 4.50x 5.25x
12.79% 12.43% 12.25% 12.12% 11.98% 11.96%
(8.6)% (0.8)% 4.6% 9.4% 15.8% 21.3%
Net Debt / Capitalization
PF Total Debt $ 49 $ 273 $ 447 $ 622 $ 883 $ 1,145 PF Net Debt $(249) $(25) $ 149 $ 324 $ 585 $ 847 Inc. Debt $ 0 $ 224 $ 398 $ 572 $ 834 $ 1,096 Pre-Tax Cost of Debt 5.0% 6.0% 7.0% 7.5% 8.0% 9.0% Cost of Equity 12.01% 12.36% 12.64% 12.91% 13.32% 13.74% WACC 12.79% 12.43% 12.25% 12.12% 11.98% 11.96%
Note: Leverage shown on adjusted basis; cost of capital assumes an Axioma 2-year historical levered beta of 1.26 (Unlevered and re-levered for each case), risk free rate of 4.16% (20-Yr Treasury with a
20-year duration), market premium of 6.67%, and tax rate of 40.2%
Note: Assumes LTM EBITDA of $263mm, rent expense of $85mm capitalized at 8.0x per Moody’s, LTM debt of $49mm and cash of $298mm per FY2009 filing
Optimal Capital Structure and Alternatives Use of Cash Considerations 17
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J.Crew Spectrum of Alternatives
Share Repurchase Special Dividend Initiate On-Going Dividend
Use excess cash (after debt Use excess cash (after debt Initiate ongoing dividend paydown) to repurchase paydown) to pay special Overview shares dividend to shareholders
Signals management view Returns cash to Long-term commitment, that stock is undervalued shareholders which leaves less the Highly accretive to earnings Dilutive to earnings but Company with less flexibility Discussion accretive to value May signal maturity of core Shareholders can self-select Points business and slowdown in whether to tender their share Does not allow for growth shareholders to “opt in”
Optimal Capital Structure and Alternatives Use of Cash Considerations 18
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Current Plan Implies Cash Balance of ~$1.5 billion by 2014
($ in millions)
CAGR CAGR FY 2007 A FY 2008 A FY 2009 A FY 2010 E FY 2011 E FY 2012 E FY 2013 E FY 2014 E ‘07A- ‘09E ‘09E- ‘14E
Net Income $ 98 $ 54 $ 123 $ 151 $ 188 $ 225 $ 269 $ 322 11.9 % 21.1 %
D&A 34 44 52 49 54 57 58 60 Working Capital 7 37 (14) (19) (20) (48) (80) (116) in Working Capital (50) (43) (36) (5) (1) (28) (32) (36) Capital Expenditures 81 78 45 52 54 59 59 58 Other 18 (24) 36 1 (12) (9) (12) (15)
Free Cash Flow $ 120 $ 40 $ 202 $ 154 $ 177 $ 242 $ 287 $ 345 29.9 % 11.2 %
Share Repurchases 0 0 0 0 0 0 0 0 Repurchases of Preferred stock 0 0 0 0 0 0 0 0 Dividends paid 0 0 0 0 0 0 0 0 Cash $ 132 $ 146 $ 298 $ 403 $ 579 $ 821 $ 1,109 $ 1,453 Total Debt 125 100 49 0 0 0 0 0 Adj. Debt (1) 626 699 735 758 836 925 1,030 1,148
Growth and Margins
Number of Stores 260 300 321 336 365 407 449 491
New Stores Growth (%) 14.5 % 15.4 % 7.0 % 4.7 % 8.6 % 11.5 % 10.3 % 9.4 % Comp Store Sales (%) 5.6 % (4.0)% 4.1 % 6.4 % 5.4 % 4.9 % 4.8 % 5.1 %
Credit Stats
Debt / EBITDA 0.6 x 0.7 x 0.2 x 0.0 x 0.0 x 0.0 x 0.0 x 0.0 x Adj. Debt / EBITDAR 2.3 x 3.2 x 2.1 x 1.9 x 1.8 x 1.7 x 1.6 x 1.5 x EBITDAR / Interest + Rent 3.7 x 2.7 x 3.8 x 4.1 x 4.5 x 4.7 x 4.9 x 5.1 x
Source: Public filings, Management Projections
(1) Rent Expense adjusted based on Moody’s methodology.
Optimal Capital Structure and Alternatives Use of Cash Considerations 19
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J.Crew Current Management Plan Comparison to Street
($ in millions, except per share data)
CAGR FY 2009 A FY 2010 E FY 2011 E ‘09A- ‘11E
Store Growth and Comps
SSS (Management) 4.1 % 6.4 % 5.4 % SSS (Street) (1) 4.0 % 4.0 %
Number of Stores (Management) 321 336 365 6.6 % Number of Stores (Street) (1) 335 360 5.9 %
Income Statement
Revenue (Management) $ 1,578 $ 1,743 $ 1,923 10.4 %
% Growth 10.5 % 10.5 % 10.3 %
Revenue (Street) $ 1,730 $ 1,885 9.3 %
% Growth 9.6 % 8.9 %
EBITDA (Management) $ 263 $ 305 $ 369 18.4 %
% Margin 16.7 % 17.5 % 19.2 %
EBITDA (Street) $ 319 $ 357 16.6 %
% Margin 18.4 % 19.0 %
EPS (Management) $ 1.91 $ 2.27 $ 2.81 21.3 %
% Growth 126.0 % 19.1 % 23.5 %
EPS (Street) $ 2.30 $ 2.67 18.2 %
% Growth 20.4 % 16.1 %
Cash Flow
Capex (Management) $ 45 $ 52 $ 54 9.7 % Capex (Street) (1) $ 55 $ 61 16.8 %
1 Source: Public filings, Management Projections and Wall Street Research
Same-store sales, number of stores and Capex are based on Goldman Sachs Research.
Optimal Capital Structure and Alternatives Use of Cash Considerations 20
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Illustrative Share Repurchase
($ in millions)
Share Repo Size Status Quo $50 $75 $100 $125
Cash Balance 298 298 298 298 298 (-) Repayment of Debt 49 49 49 49 49 (-) Share Repurchases - 50 75 100 125
PF Cash Balance 249 $199 $174 $149 $124
Share Repurchase Price $ 45.45 $ 45.45 $ 45.45 $ 45.45
% Premium 0.0% 0.0% 0.0% 0.0%
Shares Repurchased (mm) 1.10 1.65 2.20 2.75
% of Outstanding Shares Repurchased (1) 1.7% 2.6% 3.4% 4.3%
FY 2010 E Pro Forma WASO 66.5 65.4 64.8 64.3 63.7 Accretion / (Dilution) Analysis FY 2010 E EPS (2) (3) $2.27 $2.31 $2.33 $2.34 $2.36 Accretion / (Dilution) ($) $0.03 $0.05 $0.07 $0.09 Accretion / (Dilution) (%) 1.5% 2.2% 3.0% 3.8%
FY 2009E - 2011 E EPS CAGR 21.3% 22.9% 23.8% 24.6% 25.5% Share Price at At 20.0x (Current) P/E $ 45.45 $ 46.12 $ 46.47
$ 46.82 $ 47.18
Share Price Accretion 1.5% 2.2% 3.0% 3.8%
Additional Share Repurchases
Pro Forma Cash Balance 249 199 174 149 124 (+) FCF Generated 154 154 154 154 154 (-) Repayment of Debt - - - -
(-) Share Repurchases 50 75 100 125
PF Cash Balance 403 $303 $253 $203 $153
Share Repurchase Price $ 57.00 $ 57.43 $ 57.88 $ 58.33
FY 2011 E EPS (2) (3) $2.81 $2.89 $2.93 $2.97 $3.01 Accretion / (Dilution) ($) $0.08 $0.12 $0.16 $0.20 Accretion / (Dilution) (%) 2.7% 4.1% 5.6% 7.0%
Source: Public filings, Management Projections
(1) Based on 63.8 basic shares outstanding as of 14-May-2010. (2) Based on 2010E weighted average diluted shares of 66.5 million.
(3) Assumes a tax rate of 40.2% for FY2010E. Assumes interest on cash to be 1.0%.
Optimal Capital Structure and Alternatives Use of Cash Considerations
21
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Executing On-Going Share Repurchases Would Be Significantly Accretive to J.Crew’s EPS
($ in millions, except per share data)
Base Case
‘10—‘14 CAGR: 15.9%
$ 2.27 $ 2.81 $ 3.36 $ 3.99 $ 4.76
FY 2010 E FY 2011 E FY 2012 E FY 2013 E FY 2014 E
On-going Share Repurchase – 100% of Annual FCF
‘10—‘14 CAGR: 20.4%
$ 2.44 $ 3.15 $ 3.95 $ 4.93 $ 6.17
FY 2010 E FY 2011 E FY 2012 E FY 2013 E FY 2014 E
FCF $ 154 $ 177 $ 242 $ 287 $ 345 FCF $0 $0 $0 $0 $0 Sh. Repo - - - - - Sh. Repo 253 177 242 287 345 Cash $ 403 $ 579 $ 821
$ 1,109 $ 1,453 Cash 199 199 199 199 199 Adj. Lev. 1.9 x 1.8 x 1.7 x 1.6 x 1.5 x Adj. Lev. 1.9 x 1.8 x 1.7 x 1.6 x 1.5 x WASO 66 67 67 67 68 WASO 61 59 56 53 51
Source: Management Plan
Note: Rent expense held as constant percentage of sales, capitalized at 8.0x per Moody’s.
Note: Share repurchase price based on current forward P/E multiple of 20.0x; assumes interest income lost on cash of 1.0%
Optimal Capital Structure and Alternatives Use of Cash Considerations
22
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2 Illustrative Special Dividend
($ in millions)
Special Dividend Size Status Quo $50 $75 $100 $125
Cash Balance 298 298 298 298
(-) Repayment of Debt 49 49 49 49
(-) Special Dividend 50 75 100 125
PF Cash Balance $199 $174 $149 $124
FY 2010 E EPS (1) (2) $2.27 $2.27 $2.27 $2.27 $2.26
Special Dividend per share (3) 0.78 1.17 1.57 1.96
Implied Share Price at 20.0x P/E Mulitple $45.45 $45.36 $45.32 $45.27 $45.23
Shareholder Value (DPS + PF EPS x P/E) $46.14 $46.49 $46.84 $47.18
Share Price Accretion 1.5% 2.3% 3.1% 3.8%
Source: Public filings, Management Projections
(1) Based on 2010E weighted average diluted shares of 66.5 million.
(2) Assumes a tax rate of 40.2% for FY2010E. Assumes interest on cash to be 1.0%. (3) Based on current shares outstanding of 63.8 million.
(4) Assumes rent expense capitalized at 8.0x and 100% of rent expense attributed to interest expense.
Optimal Capital Structure and Alternatives Use of Cash Considerations
23
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3 On-Going Dividend Benchmarking
($ in millions, except per share data)
Dividend Payout
0.0% 61.8% 52.3% 48.9% 29.4% 24.1% 21.7% 20.6% 14.5% 9.2% 0.0% 0.0% 0.0% 0.0% 0.0%
J. Crew
Abercrombie & Fitch
American Eagle
Limited Brands
Buckle Hot Topic Gap Guess?
Coach Chico’s AnnTaylor Gymboree
Coldwater Creek
Aeropostale
Urban Outfitters
Dividend Yield
0.0% 2.6% 2.4% 2. 4% 1.7% 1.5% 1.3% 1.0% 0.7% 0.3% 0.0% 0.0% 0.0% 0.0% 0.0%
J. Crew
American Eagle
Buckle
Limited Brands
Abercrombie & Fitch
Gap
Guess?
Hot Topic Coach Chico’s Gymboree AnnTaylor
Coldwater Creek
Aeropostale
Urban Outfitters
Ongoing Dividend
Dividend Payout
5.0% 15.0% 25.0% 35.0% 45.0% 55.0% 65.0% Ongoing Dividend per share (1) 0.12 0.36 0.59 0.83 1.07 1.31 1.55
Dividend Yield 0.26% 0.79% 1.31% 1.84% 2.36% 2.89% 3.41% Total Dividend $8 $23 $38 $53 $68 $83 $98 % of 2010E FCF 4.9% 14.7% 24.6% 34.4% 44.2% 54.0% 63.8% % of 2010E OCF 3.7% 11.0% 18.3% 25.6% 33.0% 40.3% 47.6%
Source: Public filings, Management Projections
(1) Based on 2010E weighted average diluted shares of 66.5 million.
Optimal Capital Structure and Alternatives Use of Cash Considerations 24
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Appendix A: Supplemental Materials
Supplemental Materials 25
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Comparison of Selected Companies
($ in millions except per share data)
Enterprise
Closing % of 52 Equity Value Multiples (2) Calendarized 5-Year 2011
Price Week Market Enterprise Sales EBITDA EBIT P/E Multiples (2) EPS PE/5-Year LTM Margins (1) Dividend Company 14-May-2010 High Cap (1) Value (1) LTM LTM 2010 2011 LTM 2010 2011 CAGR (2) EPS CAGR EBITDA EBIT Yield
J. Crew $ 45.45 91 % $ 3,130 $ 2,881 1.8 x 11.0 x 9.0 x 8.1 x 13.6 x 19.8 x 17.0 x 20.0 % 0.9 x 16.7 % 13.4 % 0.0 %
U.S. Specialty Retailer
Abercrombie & Fitch $ 40.22 80 % $ 3,547 $ 2,946 1.0 x 7.4 x 6.1 x 5.1 x 18.5 x 22.0 x 15.5 x 16.0 % 1.0 x 13.6 % 5.4 % 1.7 % Aeropostale 27.48 86 2,585 2,238 1.0 5.1 4.5 4.2 5.8 10.0 9.2 12.0 0.8 19.7 17.4 0.0 American Apparel (3) 2.79 51 199 274 0.5 4.9 5.0 3.6 9.9 29.4 7.6 25.0 0.3 10.0 5.0 0.0 American Eagle 15.53 79 3,259 2,590 0.9 6.4 4.9 4.2 10.0 13.3 11.0 13.0 0.8 13.6 8.7 2.6 AnnTaylor 22.22 89 1,326 1,117 0.6 8.5 5.4 5.0 NM 20.2 17.1 12.0 1.4 7.2 1.5 0.0 Buckle 33.83 85 1,617 1,459 1.6 6.5 6.1 5.6 7.3 11.6 10.8 11.0 1.0 25.0 22.2 2.4 Chico’s 14.49 88 2,602 2,178 1.3 9.9 6.9 5.8 17.7 19.3 14.5 15.0 1.0 12.8 7.2 0.3 Coach 40.06 92 12,565 11,682 3.4 9.9 8.9 8.3 11.0 16.9 15.1 14.5 1.0 34.4 30.8 0.7 Coldwater Creek 6.83 78 630 557 0.5 NM 7.0 5.7 NM NM 35.0 15.0 2.3 1.8 (3.7) 0.0 Gap 22.96 88 15,421 12,848 0.9 5.2 5.1 4.8 7.0 12.5 11.6 11.0 1.1 17.5 12.9 1.5 Gymboree 45.00 81 1,344 1,086 1.1 5.4 4.7 4.2 6.6 11.6 10.4 12.0 0.9 19.9 16.2 0.0 Guess? 38.38 76 3,612 3,147 1.5 7.4 6.5 5.8 8.7 12.8 11.0 15.0 0.7 20.1 17.1 1.3 Hot Topic 6.75 79 301 177 0.2 3.1 3.2 2.9 8.8 27.0 19.6 13.5 1.4 7.8 2.7 1.0 Limited Brands 25.45 89 8,354 9,325 1.1 7.4 6.5 6.0 10.8 14.8 13.1 13.0 1.0 14.5 10.0 2.4 Urban Outfitters $ 35.88 88 6,235 5,734 3.0 13.5 10.5 9.0 16.9 21.6 18.0 20.0 0.9 21.9 17.5 0.0
High 92 % $ 15,421 $ 12,848 3.4 x 13.5 x 10.5 x 9.0 x 18.5 x 29.4 x 35.0 x 25.0 % 2.3 x 34.4 % 30.8 % 2.6 % Mean 82 4,240 3,824 1.2 7.2 6.1 5.3 10.7 17.4 14.6 14.5 1.0 16.0 11.4 0.9 Median 85 2,602 2,238 1.0 6.9 6.1 5.1 9.9 15.8 13.1 13.5 1.0 14.5 10.0 0.7 Low 51 199 177 0.2 3.1 3.2 2.9 5.8 10.0 7.6 11.0 0.3 1.8 (3.7) 0.0
(1) Source: Latest publicly available financial statements. Equity Market Cap based on diluted shares outstanding.
(2) Sources: LTM numbers are based on latest publicly available financial statements. Projected revenues, EBITDA, EBIT, and EPS are based on IBES median estimates and/or other Wall Street research. (3) Does not include the 7.7mm (10.8% of outstanding shares) authorized to be granted as part of the Performance Equity Plan, as no shares have currently been granted under this program.
Supplemental Materials 26
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Current Cap Structure
As of 30-Jan-2010 ($ in millions)
Moody’s Adj.
Amount LTM LTM Leverage Interest / Tranche Current Bid /
(USD) Leverage (1) Using 8x (2) Coupon Rating Implied Yield Maturity
Cash $298
Undrawn Revolving Credit Facility (3) 194
Total Liquidity $493
Revolving Credit Facility ($200mm Capacity) - 0.0 x 2.0 L + 100-125 NA / NA May-2013
Term Loan 49 0.2 2.1 L + 175 (4) Ba2 / BB+ 93.00 / 6.2% May-2013
Total Debt $49 0.2x 2.1x
Market Equity 3,130
Total Capitalization $3,179
Corporate Rating BB+ / WR Stable / NA
Source: Company Filings as of 30-Jan-2010
(1) Assumes LTM EBITDA to be $263mm as of 30-Jan-10. (2) LTM rent expense of $86mm capitalized at 8.0x. (3) Adjusts for $6mm of Letters of Credit as of 30-Jan-2010.
(4) Interest rate is at company’s option, at base rate plus a margin of 0.75% or at L+175 bps
Supplemental Materials 27
Exhibit (c)(13)
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Exhibit (c)(13)
Goldman Sachs
Presentation to J.Crew
Goldman, Sachs & Co.
03-Jun-2010
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Goldman Sachs
Table of Contents
I. Market Perspectives on J.Crew
II. Valuation Perspective
III. Perspective on Potential Buyers
IV. Process Considerations
Appendix A: Supplemental Materials
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Goldman Sachs
I. Market Perspectives on J.Crew
Market Perspectives on J.Crew 1
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J.Crew Stock Price Performance
Since IPO
Current Share Price ($)
$70.00 $60.00 $50.00 $40.00 $30.00 $20.00 $10.00 $0.00
22-Nov-2006
Announced Q3 2006 EPS of $0.27 vs. consensus estimate of $0.20
01-Jun-2007
Announced Q1 2007 EPS of $0.22 per share. Revenues increased by 24%. Stock price rose by 12%
29-Nov-2007
Announced Q3 2007 EPS of $0.40 per share. Comp Store sales increased by 5%
28-May-2009
Reported Q12009 EPS of $0.34 vs. consensus estimate fo $0.10
09-Mar-2010
Provided EPS guidance of $2.20 to $2.30 for FY 2010 vs. actual EPS of $1.91 for FY2009
52-Week High $50.00
52-Week Low 20.46
52-Week Avg. 38.40 All-Time High 56.63 All-Time Low 8.77 All-Time Avg. 34.54
30-May-2008
Announced Q1 2008 results.
Comps increased by 8%. Reported EPS of $0.48
27-Feb-2009
Reduced workforce by approximately 95 positions
25,000
20,000
$45.64
15,000 10,000 5,000 0
Volume (‘000s)
Jun-2006 Apr-2007 Jan-2008 Nov-2008 Aug-2009 May-2010
Daily from 28-Jun-2006 to 28-May-2010
Volume Price
Source:
Market Perspectives on J.Crew 2
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Goldman Sachs
J.Crew Stock Has Been Pressured Post Strong Q4
Since IPO (28-Jun-2006)
Indexed Price
250% 220% 190% 160% 130% 100% 70% 40% 10%
3-Year 1-Year 6-Month
J.Crew 9.7% 123.1% 5.8%
Specialty Softlines (9.1)% 36.0% 13.8%
S&P 500 (28.2)% 20.1% (0.2)%
78.6%
18.8% (12.6)%
Jun-2006 Jun-2007 Jun-2008 May-2009 May-2010
Daily from 28-Jun-2006 to 28-May-2010
JCrew
Specialty Softlines Index
YTD
Indexed Price
150% 140% 130% 120% 110% 100% 90% 80%
Since Q4 Ann. Since Q1 Ann.
J.Crew (2.0)% 4.1%
Specialty Softlines (8.4)% (1.0)%
S&P 500 (7.1)% (1.2)%
11.0%
2.0%
(2.3)%
01-Jan-10 06-Feb-10 14-Mar-10 19-Apr-10 25-May-10
Daily from 01-Jan-2010 to 28-May-2010
S&P 500
Source: Bloomberg
Note: Specialty Softlines Index includes Abercrombie, Aeropostale, American Eagle, Ann Taylor, Buckle, Chico’s, Coach, Coldwater Creek, Gap, Guess?, Gymboree, Hot Topic, Limited Brands, and Urban Outfitters
Market Perspectives on J.Crew 3
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J.Crew Has Historically Traded Above Peers
Since IPO (28-Jun-2006)
1-Year Forward P/E
FY1 P/E Multiple
80x 64x 48x 32x 16x 0x
Average
Since
28-Jun-06 3-Year 1-Year 6-Month
J.Crew 27.9 x 25.6 x 28.4 x 23.0 x
Specialty Softlines 16.1 14.9 16.7 17.0
S&P 500 15.3 15.1 16.7 16.3
18.6x 13.9x 13.4x
Jun-2006 Jun-2007 Jun-2008 May-2009 May-2010
Daily from 28-Jun-2006 to 28-May-2010
JCrew
Specialty Softlines Index
1-Year Forward EBITDA
24x 18x 12x 6x 0x
FY1 EBITDA Multiple
Average
Since
28-Jun-06 3-Year 1-Year 6-Month
J.Crew 11.1 x 10.3 x 11.0 x 9.7 x
Specialty Softlines 6.9 6.5 6.9 6.8
8.7x
5.6x
Jun-2006 Jun-2007 Jun-2008 May-2009 May-2010
Daily from 28-Jun-2006 to 28-May-2010
S&P 500
Source: Bloomberg
Note: Specialty Softlines Index includes Abercrombie, Aeropostale, American Eagle, Ann Taylor, Buckle, Chico’s, Coach, Coldwater Creek, Gap, Guess?, Gymboree, Hot Topic, Limited Brands, and Urban Outfitters
Market Perspectives on J.Crew 4
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J.Crew Financial Summary
Management Plan
($ in millions, except per share data)
IBES Estimates
FY2010 FY2011
Revenue $ 1,755 $ 1,929
% Growth 11.2 % 10.0 %
EBITDA $ 334 $ 378
% Margin 19.0 % 19.6 %
EPS $ 2.45 $ 2.75
% Growth 27.7 % 12.2 %
CAGR CAGR
FY 2007 A FY 2008 A FY 2009 A FY 2010 E FY 2011 E FY 2012 E FY 2013 E FY 2014 E ‘07A- ‘09E ‘09E- ‘14E
Total Revenue $ 1,335 $ 1,428 $ 1,578 $ 1,818 $ 2,055 $ 2,361 $ 2,705 $ 3,081 8.7 % 14.3 %
% Growth 15.9 % 7.0 % 10.5 % 15.2 % 13.0 % 14.9 % 14.6 % 13.9 %
EBITDA $ 210 $ 141 $ 264 $ 341 $ 407 $ 498 $ 608 $ 738 11.9 % 22.9 %
% Growth 32.2 % (33.2)% 87.4 % 29.4 % 19.4 % 22.2 % 22.2 % 21.3 %
% Margin 15.8 % 9.8 % 16.7 % 18.8 % 19.8 % 21.1 % 22.5 % 24.0 %
Net Income $ 100 $ 54 $ 124 $ 173 $ 210 $ 263 $ 328 $ 403 11.6 % 26.6 %
Diluted Shares Outstanding 64 64 65 66 67 67 67 68
EPS $ 1.56 $ 0.85 $ 1.92 $ 2.60 $ 3.15 $ 3.92 $ 4.86 $ 5.96 10.9 % 25.4 %
% Growth 49.0 % (45.8)% 126.9 % 35.6 % 21.1 % 24.4 % 24.1 % 22.5 %
Free Cash Flow $ 122 $ 40 $ 203 $ 176 $ 200 $ 281 $ 348 $ 430 29.2 % 16.2 %
Cash $ 132 $ 146 $ 298 $ 403 $ 580 $ 824 $ 1,114 $ 1,462
Total Debt 125 100 49 0 0 0 0 0
Adj. Debt (1) 626 699 735 791 893 1,027 1,176 1,340
Pro Forma for Share Repo
EPS 1.56 0.85 1.92 2.81 3.58 4.70 6.17 8.00
Cash Balance 132 146 298 150 150 150 150 150
Growth and Margins
Number of Stores 260 300 321 336 371 420 467 514
New Stores Growth (%) 14.5 % 15.4 % 7.0 % 4.7 % 10.4 % 13.2 % 11.2 % 10.1 %
Comp Store Sales (%) 5.6 % (4.0)% 4.1 % 10.6 % 6.1 % 5.7 % 5.7 % 5.9 %
Credit Stats
Debt / EBITDA 0.6 x 0.7 x 0.2 x 0.0 x 0.0 x 0.0 x 0.0 x 0.0 x
Adj. Debt / EBITDAR 2.3 x 3.2 x 2.1 x 1.8 x 1.7 x 1.6 x 1.6 x 1.5 x
EBITDAR / Interest + Rent 3.7 x 2.7 x 3.8 x 4.3 x 4.6 x 4.8 x 5.1 x 5.4 x
Source: Public filings, Management Projections
(1) Rent Expense adjusted based on Moody’s methodology.
Market Perspectives on J.Crew 5
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II. Valuation Perspective
Valuation Perspective 6
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Analysis at Various Prices
($ in millions, except per share data)
Purchase Price Per Share ($) $ 45.64 $ 55.00 $ 65.00 $ 75.00 $ 85.00
Premium to Market Price 0.0% 20.5% 42.4% 64.3% 86.2%
Equity Consideration - Diluted ($) (1) (2) $ 3,144 $ 3,816 $ 4,534 $ 5,252 $ 5,970
Enterprise Value (3) 2,895 3,567 4,285 5,003 5,721
Management Estimates
Enterprise Value / Sales (4)
LTM $1,578 1.8 x 2.3 x 2.7 x 3.2 x 3.6 x
2010E 1,818 1.6 2.0 2.4 2.8 3.1
2011E 2,055 1.4 1.7 2.1 2.4 2.8
Enterprise Value / EBITDA (4)
LTM $263 11.0 x 13.6 x 16.3 x 19.0 x 21.8 x
2010E 341 8.5 10.5 12.6 14.7 16.8
2011E 407 7.1 8.8 10.5 12.3 14.0
Price / Earnings (4)
2010E $2.60 17.6 x 21.2 x 25.0 x 28.8 x 32.7 x
2011E 3.15 14.5 17.5 20.6 23.8 27.0
IBES Estimates
Enterprise Value / EBITDA
2010E $334 8.7 x 10.7 x 12.8 x 15.0 x 17.1 x
2011E 378 7.7 9.4 11.3 13.2 15.1
Price / Earnings
2010E $2.45 18.6 x 22.4 x 26.5 x 30.6 x 34.7 x
2011E 2.75 16.6 20.0 23.6 27.3 30.9
(1) Assumes 63.8 million basic shares outstanding as of 28 May 2010.
(2) Assumes options outstanding are not tax-deductible.
(3) Assumes net debt of ($ 249) million as of 30-Jan-2010 as per publicly available financials.
(4) Estimates as per Management dated 28 May 2010.
Valuation Perspective 7
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Present Value of Future Stock Price
With and Without Share Repo ($ in millions, except per share data)
Future Stock Price - Base Case
‘09 - ‘14 CAGR: 25.4%
$ 148.90
$ 121.57
$ 119.12
$ 97.93 $ 97.25
$ 78.74 $ 78.35 $ 104.54
$ 65.01 $ 62.99 $ 85.34
$ 52.01 $ 68.75
$ 45.64 $ 55.27
FY 2010 E FY 2011 E FY 2012 E FY 2013 E FY 2014 E
Present Value of Future Stock Price - Base Case
Future Stock Price - Share Repurchase
‘09 - ‘14 CAGR: 33.1% $ 199.99
$ 154.33 $ 159.99
$ 117.56 $ 123.47
$ 140.40
$ 89.39 $ 94.05
$ 71.51 $ 108.35
$ 70.28 $ 82.53
$ 56.22
$ 49.34 $ 62.75
FY 2010 E FY 2011 E FY 2012 E FY 2013 E FY 2014 E
Present Value of Future Stock Price - Share Repurchase
$ 86.53 $ 94.63
$ 78.07
$ 70.30 $ 75.71
$ 69.22
$ 65.01 $ 62.46
$ 56.24 $ 66.43
$ 52.01 $ 60.75
$ 45.64 $ 49.35 $ 54.81
FY 2010 E FY 2011 E FY 2012 E FY 2013 E FY 2014 E
FCF $ 176 $ 200 $ 281 $ 348 $ 430
Sh. Repo ———— -
Cash $ 424 $ 624 $ 906 $ 1,254 $ 1,683
EPS $ 2.60 $ 3.15 $ 3.92 $ 4.86 $ 5.96
Current P/E: 17.6 x At 20.0x P/E Multiple
$ 127.10
$ 109.85
$ 93.72 $ 101.68
$ 79.81 $ 87.88
$ 74.97 $ 89.23
$ 70.28 $ 63.85 $ 77.12
$ 56.22
$ 49.34 $ 56.03 $ 65.79
FY 2010 E FY 2011 E FY 2012 E FY 2013 E FY 2014 E
FCF $0 $0 $0 $0 $0
Sh. Repo 274 200 281 348 430
Cash 150 150 150 150 150
EPS $ 2.81 $ 3.58 $ 4.70 $ 6.17 $ 8.00
Source: Management Plan
Note: Assumes interest income lost on cash of 1.0%. Assumes cost of Equity to be 12.0%
At 25.0x P/E Multiple
Valuation Perspective 8
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Illustrative Discounted Cash Flow Analysis
($ in millions, except per share data)
Financial Sensitivity
Equity Value Per Share
Terminal EBITDA Multiple
Discount Rate 8.00 x 9.00 x 10.00 x 11.00 x 12.00 x
12.0% $ 69.15 $ 75.27 $ 81.38 $ 87.49 $ 93.61
12.5% 68.00 73.99 79.98 85.97 91.96
13.0% 66.87 72.74 78.61 84.48 90.35
13.5% 65.77 71.52 77.27 83.03 88.78
14.0% 64.69 70.33 75.97 81.61 87.24
Business Sensitivity @ 10.0x Terminal EBITDA Multiple and 12.0% Discount Rate
Equity Value Per Share
FY2009 - FY2014 Sales CAGR
10.3% 11.3% 12.3% 13.3% 14.3%
FY’14E EBITDA Per Year Change in Annual Sales Growth vs. Plan
Margin vs. Plan (4.00)% (3.00)% (2.00)% (1.00)% 0.00%
24.0% 0.00% $ 69.65 $ 72.43 $ 75.31 $ 78.29 $ 81.38
23.0% (1.00)% 66.88 69.54 72.30 75.16 78.11
22.0% (2.00)% 64.10 66.65 69.29 72.02 74.85
21.0% (3.00)% 61.33 63.76 66.28 68.89 71.58
20.0% (4.00)% 58.56 60.87 63.27 65.75 68.32
Source: Management projections
Note: Projections discounted to 01-Jul-2010
For business sensitivity capital expenditures and working capital swings are assumed to grow relative to sales.
Valuation Perspective 9
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III. Perspective on Potential Buyers
Perspective on Potential Buyers 10
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Selected Potential Strategic Buyers
($ in billions)
Potential Buyer
Market Cap Debt Cash EV
Cur. Credit Rating
Current Pro Forma
Lev.
Adj. Lev.
Lev.
Adj. Lev.
Strategic Fit
Finance-biality
Comments
Historically not acquisitive although may
consider acquisitions going forward given
slowdown in domestic organic growth
$12.8 $0.0 0.9 12.0 NR 0.0x 0.9x 2.9x 3.6x Acquisition of an apparel player could be
complementary to existing accessory /
handbag core competency
Similar price points / “accessible luxury”
positioning to J.Crew
Expanding outside of Japan and looking to
enter the US market
14.2² 0.3 3.0 11.7 A 0.2x 2.2x 2.2x 3.7x Has looked both at luxury and mass
concepts in the US; primary focus on teen
retailers with established retail platform
Very acquisitive
50.7² 7.1 3.3 55.3 A- 1.4x 2.8x 2.2x 3.4x US remains a key geographies for growth
Primarily interested in global luxury brands
with a mix of wholesale / retail
Very acquisitive and focused on increasing
presence in the US
Still significantly levered from Puma
acquisition
15.1² 6.9 1.2 22.2 BBB- 3.1x 4.6x 4.5x 5.6x Stated that plans to sell some of the
heritage businesses (Conformala, Recats,
and FNAC) and use proceeds to acquire
fashion brands
Rumored to be focusing on mid-market
brands to complement its brand portfolio
Unlikely to do an acquisition of J.Crew’s
6.3 0.0 0.5 5.8 NR 0.0x 1.9x 6.1x 6.6x size; focused on small, tuck in deals
Very acquisitive
8.6 1.2 0.7 9.1 A- 1.1x 2.1x 4.0x 4.6x Primary focus remains on outdoor segment
(secondary focus on lifestyle brands)
Prefers small, tuck-in acquisitions
Source: CapIQ and public filings
Note: Assumes Moody’s 8x rent methodology for adjusted leverage calculations
¹ Purchase price reflects 40% premium to current share price (EV of $4.2bn) in all cash transaction.
² Reflects exchange rate of 90.74JPY/USD and 0.81EUR/USD as of May, 28 2010.
Perspective on Potential Buyers 11
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Ability to Pay
($ in millions, except per share data)
Purchase Price Per Share $45.64 $55.00 $65.00 $75.00 $85.00
Premium to:
Current Price (28-May-2010) $45.64 0.0% 20.5% 42.4% 64.3% 86.2%
52-week High 50.00 (8.7%) 10.0% 30.0% 50.0% 70.0%
Diluted Shares Outstanding 68.9 69.4 69.8 70.0 70.2
Equity Value $3,144 $3,816 $4,534 $5,252 $5,970
Net Cash (249) (249) (249) (249) (249)
Enterprise Value $2,895 $3,567 $4,285 $5,003 $5,721
(+) Fees and Expenses (1) 58 71 86 100 114
Total Transaction Value $2,953 $3,638 $4,371 $5,103 $5,836
FY2011E Net Income Impact to Acquiror (Based on Management Projections)
FY2011E Net Income $ 210 $ 210 $ 210 $ 210 $ 210
(-) Cost of New Debt (after tax) (2) (106) (131) (157) (183) (209)
(-) Transaction D&A (3) (25) (31) (37) (44) (50)
Pro Forma Net Income Accretion $79 $49 $16 ($17) ($49)
Cost of Debt Pro Forma Net Income Accretion / (Dilution)
5.5% $88 $60 $29 ($1) ($32)
6.0% 79 49 16 (17) (49)
6.5% 71 38 3 (32) (67)
7.0% 62 27 (10) (47) (84)
7.5% 53 16 (23) (62) (102)
Source: Management Projections Note: Does not include synergies
(1) Assumes transaction costs to be 2.0%
(2) Assumes cost of debt to be 6.0%. Assumes tax rate to be 40.2%.
(3) Assumes 15.0% of the excess purchase price is allocated to tangible and intangible assets and amortized over 10 years.
Perspective on Potential Buyers 12
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IV. Process Considerations
Process Considerations 13
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Process Considerations
Public vs. Private
Number of parties to contact
Strategic vs. Financial
Key Steps
Initial Discussion
High Level Presentation
Initial Proposals
Detailed Due Diligence
Go Shop vs. No Shop
Process Considerations 14
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Selected Transactions with Go-Shop Provisions
Reverse Go Shop
Reverse Break-Up Break-Up Go Shop Termination Go Shop Matching
Date Enterprise Break-Up Break-Up Fee as % of Fee as % of Termination Fee as % of Window Offer Period
Announced Target Name Acquiror Name Value ($mm) Fee ($mm) Fee ($mm) Mkt Cap Mkt Cap Go Shop Fee ($mm) Mkt. Cap (Days) (Days)
12-Apr-2010 DynCorp International Inc. Cerberus Capital Mgmt $ 1,473 $ 30 $ 100 3.0% 10.1% Yes $ 30 3.0% 28 4
29-Mar-2010 BWAY Holding Company Madison Dearborn Partners L 829 13 28 2.8% 6.1% Yes 5 1.1% 30 3
08-Mar-2010 Infogroup Inc. CCMP Capital Advisors, LLC 639 16 25 3.4% 5.5% Yes 16 3.4% 21 5
05-Mar-2010 RCN Corporation ABRY Partners LLC 1,235 18 30 3.3% 5.6% Yes 10 1.9% 40 5
26-Feb-2010 CKE Restaurants, Inc. Thomas H. Lee Partners L.P. 928 15 31 2.5% 5.0% Yes 9 1.5% 40 4
16-Dec-2009 Cedar Fair, L.P. Apollo Management, L.P. 2,179 20 50 3.1% 7.9% Yes 11 1.8% 40 4
13-Nov-2009 Silicon Storage Technology, In Prophet Equity LP 126 7 7 3.5% 3.5% Yes 4 2.0% 45 3
05-Nov-2009 IMS Health Incorporated Investment Group 5,057 115 275 2.9% 6.9% Yes 80 2.0% 46 3
28-Sep-2009 GenTek Inc. American Securities Capital P 539 10 12 2.6% 3.1% Yes 10 2.6% 45 2
21-Jul-2008 Foundry Networks, Inc. Brocade Communications Sys 2,133 85 125 3.6% 5.2% Yes 85 3.6% 5 5
19-Jun-2008 Apria Healthcare Group Inc. The Blackstone Group 1,571 28 38 3.1% 4.1% Yes 19 2.1% 35 4
16-Jun-2008 Greenfield Online, Inc. Quadrangle Group LLC 377 10 13 2.5% 3.1% Yes 5 1.2% 50 3
25-Feb-2008 Getty Images, Inc. Hellman & Friedman LLC 2,067 52 78 2.6% 3.9% Yes 31 1.5% 40 3
30-Jan-2008 NuCo2 Inc. Aurora Capital Group 476 20 15 4.5% 3.4% Yes 15 3.4% 45 N/A
18-Jan-2008 Performance Food Group Com Investment Group 1,136 40 40 3.3% 3.3% Yes 20 1.6% 50 2
15-Jan-2008 Lifecore Biomedical, Inc. Warburg Pincus Partners LLC 191 3 9 1.3% 3.9% Yes 2 0.7% 30 3
14-Jan-2008 Bright Horizons Family Solutio Bain Capital 1,275 39 39 3.1% 3.1% Yes 20 1.5% 60 N/A
26-Oct-2007 Puget Energy, Inc. Investment Group 3,964 40 130 1.1% 3.7% Yes 30 0.9% 45 5
05-Sep-2007 MarkWest Hydrocarbon, Inc. MarkWest Energy Partners, L 1,223 15 15 2.0% 2.0% Yes 8 1.0% 30 N/A
25-Jul-2007 PRA International Genstar Capital, LLC 703 24 24 3.7% 3.7% Yes 8 1.2% 50 N/A
24-Jul-2007 Ryerson Inc. Platinum Equity LLC 1,888 25 25 2.7% 2.7% Yes 15 1.6% 25 3
23-Jul-2007 Neoware, Inc. Hewlett-Packard Company 252 10 N/A 3.0% N/A Yes 10 3.0% 26 5
23-Jul-2007 Cumulus Media Inc. Management Led Buyout 1,248 15 15 3.2% 3.2% Yes 8 1.6% 45 3
23-Jul-2007 United Rentals, Inc. Cerberus Capital Managemen 5,429 100 100 3.5% 3.5% Yes 40 1.4% 40 3
19-Jul-2007 Williams Scotsman Internation TDR Capital LLP 2,159 40 N/A 3.3% N/A Yes 25 2.0% 30 3
16-Jul-2007 DJO Incorporated The Blackstone Group 1,503 37 37 3.2% 3.2% Yes 19 1.6% 50 5
09-Jul-2007 Sequa Corporation The Carlyle Group LLC 2,648 61 61 3.0% 3.0% Yes 30 1.5% 45 N/A
02-Jul-2007 Reddy Ice Holdings, Inc. GSO Capital Partners LP 678 21 21 3.1% 3.1% Yes 7 1.0% 45 5
20-Jun-2007 Nuveen Investments, Inc. Investment Group 5,652 200 200 3.9% 3.9% Yes 100 1.9% 30 3
15-Jun-2007 Penn National Gaming, Inc. Investment Group 8,355 200 200 3.5% 3.5% Yes 100 1.7% 45 N/A
11-Jun-2007 James River Group, Inc. The D. E. Shaw Group 547 11 11 2.2% 2.2% Yes 7 1.4% 55 3
11-Jun-2007 Horizon Offshore, Inc. Cal Dive International, Inc. 665 19 N/A 3.0% N/A Yes 9 1.5% 45 N/A
Median $ 22 $ 31 3.1% 3.5% $ 15 1.6% 43 3
Mean 42 60 3.0% 4.2% 25 1.8% 39 4
Source: Reflects U.S.-based transactions over $200mm of enterprise value
Process Considerations 15
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Appendix A: Supplemental Materials
Supplemental Materials 16
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Comparison of Selected Competitors
($ in millions, except per share data)
Enterprise
Closing % of 52 Equity Value Multiples (2) Calendarized 5-Year 2011
Price Week Market Enterprise Sales EBITDA EBIT P/E Multiples (2) EPS PE/5-Year LTM Margins (1) Dividend
Company 28-May-2010 High Cap (1) Value (1) LTM LTM 2010 2011 LTM 2010 2011 CAGR (2) EPS CAGR EBITDA EBIT Yield
J. Crew (IBES) $ 45.64 91 % $ 3,144 $ 2,895 1.8 x 11.0 x 8.7 x 7.7 x 13.7 x 18.6 x 16.6 x 19.5 % 0.9 x 16.7 % 13.4 % 0.0 %
J. Crew (Management) 45.64 91 % $ 3,144 $ 2,895 1.8 x 11.0 x 8.5 x 7.1 x 13.7 x 17.6 x 14.5 x 19.5 % 0.7 x 16.7 % 13.4 % 0.0 %
U.S. Specialty Retailer
Abercrombie & Fitch $ 35.83 72 % $ 3,160 $ 2,559 0.9 x 6.4 x 5.3 x 4.3 x 16.1 x 20.1 x 13.9 x 16.0 % 0.9 x 13.6 % 5.4 % 2.0 %
Aeropostale 27.71 86 2,607 2,260 1.0 5.2 4.5 4.3 5.8 9.9 9.1 13.5 0.7 19.7 17.4 0.0
American Apparel (3) 1.58 38 113 187 0.3 3.3 6.1 3.6 6.7 NM 7.7 25.0 0.3 10.0 5.0 0.0
American Eagle 13.10 67 2,742 2,074 0.7 5.1 4.2 3.8 8.0 12.5 10.6 12.0 0.9 13.6 8.7 3.1
AnnTaylor 21.65 87 1,292 1,081 0.6 6.3 5.0 4.9 NM 19.3 15.1 15.0 1.0 9.1 3.7 0.0
Buckle 35.55 89 1,702 1,544 1.7 6.9 6.3 5.8 7.7 12.1 11.2 11.0 1.0 25.0 22.2 2.3
Chico’s 12.23 74 2,186 1,762 1.0 8.0 5.9 4.7 14.3 16.6 12.5 15.0 0.8 12.8 7.2 0.3
Coach 41.11 94 12,840 11,957 3.5 10.1 9.1 8.5 11.3 17.3 15.5 14.5 1.1 34.4 30.8 0.7
Coldwater Creek 6.24 72 575 502 0.5 NM 6.3 5.1 NM NM 32.0 15.0 2.1 1.8 (3.7) 0.0
Gap 21.80 83 14,611 12,038 0.8 4.8 4.7 4.5 6.6 11.8 10.9 10.5 1.0 17.5 12.9 1.6
Gymboree 44.58 81 1,331 1,073 1.1 5.3 4.7 4.2 6.5 11.6 10.4 12.0 0.9 19.9 16.2 0.0
Guess? 37.99 76 3,591 3,125 1.5 7.3 6.7 5.8 8.6 12.7 11.0 15.0 0.7 20.1 17.1 1.3
Hot Topic 5.56 65 247 179 0.2 3.4 3.4 3.1 11.7 27.8 17.9 15.0 1.2 7.3 2.1 1.3
Limited Brands 24.86 87 8,154 9,125 1.1 7.3 6.2 5.7 10.6 13.9 12.4 13.0 1.0 14.5 10.0 2.4
Urban Outfitters $ 36.30 89 6,311 5,810 3.0 13.7 10.6 8.9 17.1 21.9 18.2 20.0 0.9 21.9 17.5 0.0
High 94 % $ 14,611 $ 12,038 3.5 x 13.7 x 10.6 x 8.9 x 17.1 x 27.8 x 32.0 x 25.0 % 2.1 x 34.4 % 30.8 % 3.1 %
Mean 77 4,098 3,685 1.2 6.7 5.9 5.2 10.1 16.0 13.9 14.8 1.0 16.1 11.5 1.0
Median 81 2,607 2,074 1.0 6.4 5.9 4.7 8.6 13.9 12.4 15.0 0.9 14.5 10.0 0.7
Low 38 113 179 0.2 3.3 3.4 3.1 5.8 9.9 7.7 10.5 0.3 1.8 (3.7) 0.0
(1) Source: Latest publicly available financial statements. Equity Market Cap based on diluted shares outstanding.
(2) Sources: LTM numbers are based on latest publicly available financial statements. Projected revenues, EBITDA, EBIT, and EPS are based on IBES median estimates and/or other Wall Street research. (3) Does not include the 7.7mm (10.8% of outstanding shares) authorized to be granted as part of the Performance Equity Plan, as no shares have currently been granted under this program.
Supplemental Materials 17
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Goldman Sachs
Comparison of Selected Companies
Potential Buyers
($ in millions, except per share data)
Enterprise
Closing % of 52 Equity Value Multiples (2) Calendarized 5-Year 2011
Price Week Market Enterprise Sales EBITDA EBIT P/E Multiples (2) EPS PE/5-Year LTM Margins (1) Dividend
Company 28-May-2010 High Cap (1) Value (1) LTM LTM 2010 2011 LTM 2010 2011 CAGR (2) EPS CAGR EBITDA EBIT Yield
J. Crew (IBES) $ 45.64 91 % $ 3,144 $ 2,895 1.8 x 11.0 x 8.7 x 7.7 x 13.7 x 18.6 x 16.6 x 19.5 % 0.9 x 16.7 % 13.4 % 0.0 %
J. Crew (Management) 45.64 91 % $ 3,144 $ 2,895 1.8 x 11.0 x 8.5 x 7.1 x 13.7 x 17.6 x 14.5 x 19.5 % 0.7 x 16.7 % 13.4 % 0.0 %
U.S. Specialty Retailer
Coach $ 41.11 94 % $ 12,840 $ 11,957 3.5 x 10.1 x 9.1 x 8.5 x 11.3 x 17.3 x 15.5 x 14.5 % 1.1 x 34.4 % 30.8 % 0.7 %
Fast Retailing ¥ 12,670.00 70 14,200 11,470 1.3 6.6 6.7 6.1 7.5 17.5 15.6 20.9 0.7 19.8 17.4 2.2
LVMH € 85.92 93 50,671 55,739 2.7 11.2 10.1 9.1 13.6 19.1 16.7 9.9 1.7 23.6 19.5 1.9
PPR 96.83 87 15,104 22,174 1.1 10.0 9.3 8.5 13.0 13.9 12.2 6.3 1.9 10.8 8.4 3.4
Urban Outfitters $ 36.30 89 6,311 5,810 3.0 13.7 10.6 8.9 17.1 21.9 18.2 20.0 0.9 21.9 17.5 0.0
VF Corp 77.35 87 8,642 9,110 1.3 8.3 8.0 7.4 9.9 12.9 11.7 10.0 1.2 15.2 12.7 3.1
High 94 % $ 50,671 $ 55,739 3.5 x 13.7 x 10.6 x 9.1 x 17.1 x 21.9 x 18.2 x 20.9 % 1.9 x 34.4 % 30.8 % 3.4 %
Mean 87 17,961 19,377 2.1 10.0 9.0 8.1 12.1 17.1 15.0 13.6 1.3 21.0 17.7 1.9
Median 88 13,520 11,714 2.0 10.1 9.2 8.5 12.1 17.4 15.5 12.3 1.1 20.9 17.4 2.0
Low 70 6,311 5,810 1.1 6.6 6.7 6.1 7.5 12.9 11.7 6.3 0.7 10.8 8.4 0.0
(1) Source: Latest publicly available financial statements. Equity Market Cap based on diluted shares outstanding.
(2) Sources: LTM numbers are based on latest publicly available financial statements. Projected revenues, EBITDA, EBIT, and EPS are based on IBES median estimates and/or other Wall Street research.
Supplemental Materials 18
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Goldman Sachs
Illustrative Cost of Capital at Different Breakpoints
($ in millions)
Weighted Average Cost of Capital
13.50% 13.00% 12.50% 12.00% 11.50%
(8.6)% (0.8)% 4.5% 9.3% 15.7% 21.2%
Current Leverage: 2.11x
Rating: BB+ Leverage: 2.75x
Rating: BB Leverage: 3.25x
Rating: BB- Leverage: 3.75x
Rating: B+ Leverage: 4.50x
Rating: B Leverage: 5.25x
12.47%
12.13%
11.96%
11.84%
11.71%
11.69%
Net Debt / Capitalization
PF Total Debt $ 49 $ 273 $ 447 $ 622 $ 883 $ 1,145
PF Net Debt $(249) $(25) $ 149 $ 324 $ 585 $ 847
Inc. Debt $ 0 $ 224 $ 398 $ 572 $ 834 $ 1,096
Pre-Tax Cost of Debt 5.0% 6.0% 7.0% 7.5% 8.0% 9.0%
Cost of Equity 11.72% 12.06% 12.33% 12.59% 12.99% 13.39%
WACC 12.47% 12.13% 11.96% 11.84% 11.71% 11.69%
Note: Leverage shown on adjusted basis; cost of capital assumes an Axioma 2-year historical levered beta of 1.20 (Unlevered and re-levered for each case), risk free rate of 4.07% (20-Yr Treasury with a
20-year duration), market premium of 6.67%, and tax rate of 40.2%
Note: Assumes LTM EBITDA of $263mm, rent expense of $85mm capitalized at 8.0x per Moody’s, LTM debt of $49mm and cash of $298mm per FY2009 filing
Supplemental Materials 19
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Goldman Sachs
Retail M&A Activity Since 2005
Goldman Sachs’ Value EV / LTM Goldman Sachs’ Value EV / LTM
Date Asset Buyer M&A Role (mm) EBITDA Date Asset Buyer M&A Role (mm) EBITDA
Transaction involving Strategics
Apr-2010 Casey’s Couche-Tad Anti Raid Advisor 1,875 7.0x Jan-2008 Bright Horizons Bain Capital Lead Sellside Advisor 1,322 13.1
Feb-2010 Duane Reade Walgreens Exclusive Sellside Advisor 1,075 11.4x Aug-2007 Barneys (Jones) Istithmar Lead Sellside Advisor $942 –
Aug-2009 B&N College Booksellers Barnes & Noble $596 – Aug-2007 Home Depot Supply Bain, CD&R, Carlyle Sellside Advisor 8,500 –
Oct-2008 GameStop SFMI Micromania SA 700 – Jun-2007 Guitar Center Bain Lead Sellside Advisor 2,083 11.5
Aug-2008 Longs Drug Stores CVS Caremark Advised Another Buyer 2,900 10.5 May-2007 Limited Brands Inc-ExpresGolden Gate Capital Advised Another Buyer 822 –
May-2008 Carphone Warehouse Best Buy Buyside Advisor 4,200 8.1 Mar-2007 RGIS Blackstone Lead Sellside Advisor – –
Apr-2008 FTD Group United Online Exclusive Sellside Advisor 715 7.4 Mar-2007 Claire’s Stores Apollo Lead Sellside Advisor 2,750 8.5
Feb-2008 CSK Auto O’Reilly Automotive 1,002 9.5 Mar-2007 Dollar General KKR Lead Buyside Advisor 7,324 11.0
Jul-2007 7 for All Mankind VF Corp. 775 – Feb-2007 Smart & Final Apollo Lead Sellside Advisor 806 9.7
Jun-2007 Oakley Luxottica Lead Sellside Advisor 2,265 18.3 Feb-2007 GNC Ares, Ontario Teachers Sellside Advisor 1,563 10.6
Jun-2007 Genesco¹ Finish Line Lead Sellside Advisor 1,530 9.7 Jan-2007 Laureate Education KKR, Investor Consortium Lead Sellside Advisor 3,769 17.3
May-2007 Stride Rite Payless Shoesource Lead Sellside Advisor 841 11.4 Nov-2006 Caremark CVS Advised Another Buyer 24,936 13.1
Apr-2007 Genesco Foot Locker Anti Raid Advisor – – Nov-2006 Sbarro MidOcean Partners 628 11.1
Feb-2007 Pathmark The Great A&P Tea Co. 1,279 9.2 Nov-2006 OSI Restaurant Partners Bain 3,430 10.4
Feb-2007 Wild Oats Whole Foods 691 13.6 Nov-2006 David’s Bridal Leonard Green Advised Another Buyer ~750 –
Jan-2007 Fila (Sports Brand Int’l) Fila Korea Sellside Advisor – – Nov-2006 Eddie Bauer¹ Sun Capital, Golden Gate Sellside Advisor 610 9.5
Dec-2006 Logan’s Roadhouse Black Canyon Capital 653 13.7 Oct-2006 Yankee Candle Madison Dearborn $1,682 9.9x
Nov-2006 La Senza Limited Brands 654 9.3 Aug-2006 Real Mex Restaurants Sun Capital Partners 646 11.4
Sep-2006 TravelCenters of America Hopitality Properties Trust 2,560 15.5 Jul-2006 Petco TPG, Leonard Green, GS PIA Buyside Advisor 1,795 8.2
Aug-2006 Eckerd (Jean Coutu US) Rite Aid 3,470 ~8.5 Jun-2006 Michaels Stores Bain/Blackstone Special Committee 5,605 11.5
Jan-2006 Hughes Home Depot 3,395 11.8 Jun-2006 Lord & Taylor NRDC Equity Partners Sellside Advisor 1,083 –
Jan-2006 Regis Sally Beauty Co. Lead Sellside Advisor 2,600 9.6 Jun-2006 Acosta AEA Investors Lead Sellside Advisor 1,500 –
Oct-2005 NDSG (Saks) Bon-Ton Sellside Advisor 1,185 – Jun-2006 Sally Beauty Co. Clayton Dubilier & Rice Lead Sellside Advisor 3,100 10.7
Aug-2005 Reebok International Adidas—Solomon 3,851 11.0 Mar-2006 Quiznos JP Morgan Partners Lead Sellside Advisor ~1,450 ~10.3
Aug-2005 A&P Canada Metro Inc Advised Another Buyer 1,400 – Jan-2006 Albertson’s Supervalu, CVS, Cerberus Sellside Advisor 16,037 6.5
Apr-2005 Proffitt’s/McRae (Saks) Belk Sellside Advisor 622 – Jan-2006 Sports Authority Leonard Green Advised Another Buyer 1,396 8.1
Apr-2005 Electronics Boutique Gamestop 1,512 12.8 Jan-2006 Hudson’s Bay Maple Leaf Investments Lead Sellside Advisor 1,916 7.7
Feb-2005 May Federated Lead Buyside Advisor 17,052 8.6 Jan-2006 Burlington Coat Factory Bain Lead Sellside Advisor 1,865 6.8
Transactions Involving Financial Sponsors Dec-2005 Tommy Hilfiger Apax Partners 1,667 8.3
Apr-2010 CKE Restaurants Apollo Management Equity Investments 694 – Dec-2005 Dunkin Brands Bain, Carlyle, TH Lee Advised Another Buyer 2,425 12.8
Oct-2009 Grocery Outlets Berkshire Partners Equity Investments – – Nov-2005 Linens ‘n Things Apollo Advised Another Buyer 1,263 8.4
Jun-2009 Office Depot BC Partners PIPE 350 6.0x Oct-2005 Shopko Sun Capital Partners 1,168 6.0
Nov-2008 Whole Foods Leonard Green PIPE 425 5.7 May-2005 Neiman Marcus TPG, Warburg Pincus Lead Sellside Advisor 5,008 9.8
Feb-2008 Kellwood Sun Capital 926 7.6 Mar-2005 Toys “R” Us KKR, Bain, Vornado Advised Another Buyer 6,193 9.4
Jan-2008 Performance Food Group Blackstone / Vistar Buyside Advisor 1,156 10.2 Feb-2005 Circuit City Highfields Capital Mangement Anti Raid Advisor 3,119 –
\
Note: 1 Consists of U.S. transactions greater than ~$600mm since 2005. Yellow shading indicates Goldman Sachs advised on the transaction or advised another buyer in the transaction, as indicated Transaction not consummated.
Supplemental Materials 20
Exhibit (c)(14)
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Exhibit (C)(14)
Goldman
Sachs
J.Crew Discussion Materials
Goldman, Sachs & Co. July 2010
[19-July-2010]
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Goldman
Sachs
I. Analysis of J.Crew Recent Performance
1
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Goldman
Sachs
J.Crew Stock Has Recently Underperformed Despite Strong and Consistent Performance
Closing Price ($)
$60.00
$50.00
$40.00 $30.00 $20.00
$10.00
$0.00
Jul-2007 Jan-2008 Jul-2008 Jan-2009 Jul-2009 Jan-2010 Jul-2010
Daily from 13-Jul-2007 to 13-Jul-2010
5-Sep-2007 Reported 2Q07 earnings of $0.32 above analyst estimates of $0.29
20-Feb-2008 Opened first Madewell store
29-May-2008 Reported 1Q08 earnings of $0.48 above analyst estimates of $0.47
29-Nov-2007 Reported 3Q07 earnings of $0.42 above analyst estimates of $0.37
11-Mar-2008 Reported FY2007 earnings of $1.54 above analyst estimates of $1.52
22-Jan-2008 President Jeffrey Pfeifle announced his resignation effective on Feb 1, 2008
26-Aug-2008 Reported 2Q08 earnings of $0.28 missing analyst estimates of $0.33 and guidance of $0.31-$0.33
9-Mar-2010 Reported FY2009 earnings of $1.91 above analyst estimates of $1.75
13-Jul-2010 Tracy Gardner announced her resignation effective Sept 13, 2010
27-Aug-2009 Reported 2Q09 earnings of $0.29 above analyst estimates of $0.14
25-Nov-2008 Reported 3Q08 earnings of $0.30 meeting analyst estimates of $0.30
10-Mar-2009 Reported FY2008 earnings of $0.85 above analyst estimates of $0.80
8-Jan-2009 Management lowered FY2008 guidance to $0.77-$0.82 from $1.11-$1.16
24-Nov-2009 Reported 3Q09 earnings of $0.67 above analyst estimates of $0.59
27-May-2010 Reported 1Q10 earnings of $0.68 above analyst estimates of $0.56
22-Oct-2009 Management raised 3Q09 guidance to $0.54-$0.59 from $0.30-$0.33
28-May-2009 Reported 1Q09 earnings of $0.32 above analyst estimates of $0.10
Current Price $ 36.38
52 Wk High 50.00
52 Wk Low 27.10
52 Wk Avg. 40.32
3 Months Avg. 43.24
Since 1-May-10 Avg. 42.07
Source: Bloomberg
2
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Goldman
Sachs
J.Crew’s Stock Price Traded Down with Specialty Softlines in May While EPS Estimates Continue to Increase
$4.00
$3.25
$ ) (
Estimate $2.50 EPS
Yearly $1.75
$1.00
$0.25
Jul-2007 Nov-2007 Mar-2008 Jul-2008 Nov-2008 Mar-2009 Jul-2009 Nov-2009 Mar-2010 Jul-2010
Monthly from 13-Jul-2007 to 13-Jul-2010
FY 2009 FY 2010 FY 2011 J.Crew Stock Price
$1.91 FY 2009A
$60.00
$50.00
$2.80 FY 2011E
$40.00
$2.45 ) FY 2010E ( $ $36.38 Price $30.00 Closing $20.00
$10.00
$0.00
Source: Bloomberg
3
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Goldman
Sachs
Despite Strong Same Store Sales Performance J. Crew’s
Stock Has Declined
$60.00
$50.00
$40.00
$ ) (
Price $30.00
Closing $20.00
$10.00
$0.00
Jul-2007 Jan-2008 Jul-2008 Jan-2009 Jul-2009 Jan-2010 Jul-2010
Daily from 13-Jul-2007 to 13-Jul-2010
Stock Price Same Store Sales
20.0%
15.0%
10.0%
$36.38
5.0% Sales Store
0.0% Same (5.0%)
(10.0%)
(15.0%)
Q3 2007: 5.0% Est: 5.0%
Q4 2007: 4.0% Est: 4.0%
Q1 2008: 2.4% Est: 4.0%
Q2 2008: (0.4)% Est: (1.0)%
Q3 2008: (2.9)% Est: (3.0)%
Q4 2009: 16.6% Est: 9.0%
Q1 2010: 15.1% Est: 12.0%
Q3 2009: 8.4% Est: 8.0%
Q2 2010 Est: 10.0%
Q2 2009: (5.1)% Est: (5.0)% Q1 2009: (5.1)% Est: (5.0)%
Q4 2008: (13.1)% Est: (17.0)%
Source: Bloomberg, Press relases
Note: Comp Store Sales beat vs. analyst estimates are highlighted in GREEN, miss vs. analyst estimates are highlighted in RED and inline with analyst estimates are highlighted in BLACK.
4
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Goldman
Sachs
Specialty Retail Stocks Have Traded Down Significantly
Since May…
J.Crew
AEROPOSTALE
Lululemon athletica
Rule21
Limitedbrands
Urban outfitters
COACH
Abercrombie & Fitch
AnnTaylor
Buckle
Guess
GAP
AMERICAN EAGLE OUTFITTERS
S&P 500
Since May-10 YTD A Year Ago Market Trough – May-10
(25)%
(2)% (6)% (11)% (12)% (12)% (14)% (16)% (19)% (24)% (24)% (26)% (26)% (30)%
Median = (16)% (9)%
(18)%
29% 27% 7% 32% (3)% 2% (5)% 3% 34% (4)% (20)% (8)% (30)% (3)% Median = 2%
42%
29%
211%
NA
125% 67% 56% 52% 51% 139% (6)% 42% 24% (9)% 22% Median = 52%
420%
96%
825%
NA
353% 165% 267% 189% 161%
703% 72% 254% 160% 95% 62% Median = 177%
Source: Bloomberg Note: As of 13-Jul-2010
5
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Goldman
Sachs
…Leading to Multiple Contraction Across the Board
2010E P/E Multiple
J.Crew
AEROPOSTALE
Lululemon athletica
Rule21
Limitedbrands
Urban outfitters
Coach
Abercrombie & Fitch
AnnTaylor
Buckle
Guess
GAP
AMERICAN EAGLE OUTFITTERS
S&P 500
Current 01-May-10 A Year Ago Market Trough
14.8x
34.0x 25.2x 20.3x 20.1x 16.4x 15.6x 15.0x 13.7x 12.0x
11.9x
10.4x
10.4x
9.8x
Median = 15.0x
13.5x
21.1x
38.8x 29.2x 23.6x 25.1x 19.6x 21.8x 29.0x 16.5x 14.8x 15.5x 11.0x 14.3x
12.8x
Median = 19.6x
15.4x
21.3x 20.3x NA
15.7x 14.9x 13.0x 13.4x NM
11.5x
13.6x
10.9x 11.3x 11.4x
10.3x
Median = 12.2x
12.3 x
16.1x
9.4x NA
12.0x
7.7x
6.7x
9.1x NA
7.1x
6.4x
12.5x
10.7x
8.3x
9.7x
Median = 8.7x
8.5x
Source: Bloomberg Note: As of 13-Jul-2010
6
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Goldman
Sachs
Growth Expectations for J.Crew Still Robust
Company FY 10 – FY 12 Revenue Growth FY 10 – FY 12 Margin Expansion LT EPS Growth
J.Crew
AEROPOSTALE
Lululemon athletica
Rue21
Limitedbrands
Urban outfitters
Coach
Abercrombie & Fitch
AnnTaylor
Buckle
Guess
GAP
AMERICAN EAGLE OUTFIITERS
S&P 500
8.9%
21.5% 18.5% 13.6% 11.7%
8.2%
8.0%
7.9%
7.3%
4.3%
Median: 7.9%
3.6%
3.3%
1.5% (3.0)%
1.2 %
1.0 %
1.4 %
1.1 %
3.0 %
0.5 %
Median: 1.1%
(0.2)%
2.0 %
1.3 %
1.2 %
1.1 %
2.0 %
0.4 %
1.0 %
20.0%
25.0% 23.8% 20.0%
15.0%
Median: 14.5%
14.5% 15.0% 15.0% 11.0% 13.0% 13.0% 13.5% 10.0% 11.0%
Source: Wall Street Estimates as of 13-Jul-2010
7
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Goldman
Sachs
Research Analysts’ Have Some Concerns Over Tough 2H
SSS Comparisons and Near Term Margin Expansion…
Analyst Recommendations
Strong Buy Underperform (5) (1) 23% 5%
Hold (12) Buy 55% (4) 18%
Target Price
Broker Price Target
Goldman Sachs $36.00
Atlantic Equities 40.00
Barclays Capital 50.00
Bmo Capital 38.00
Markets
Bofa Merrill Lynch 49.00
Breen Murray 53.00
Credit Suisse 53.00
Jefferies 40.00
JP Morgan 46.00
Miller Tabak 50.00
Mkm Partners 56.00
Morningstar 34.00
Oppenheimer 50.00
Piper Jeffray 57.00
Robert W. Beird 56.00
UBS (US) 47.00
Wedbush 57.00
Securities Inc.
Weeden 56.00
Median $50.00
“Though JCG has longer-term store growth potential in Madewell, it is still somewhat unproven and for now EPS growth is much more dependent on comp sales and margin leverage at the core business. Concerns over inventory planned up mid to high-single digits at 2Q end, coupled with fear of sector-wide sales deceleration and tough compares for JCG, will likely be an overhang until these risks are either validated or refuted this Fall. Goldman Sachs, July 13, 2010
“Primary downside a slowdown risks in sales and a general sector pullback.” Goldman Sachs, July 13, 2010
“…the stock seems likely to have a high $40s ceiling on it in the near term until the company proves that it can profitably lap last year’s robust 2H results (comps up low-double digits and margins up ~1,500bps!). As the growht trajectory should slow throughout the year (JPM estimates: Q2 65%, Q3 6%, and Q4 3%) and operating margins push above 16%, we believe that shares should remain range-bound in the near term.” JPMorgan, June 02, 2010
“…given our current view that future square footage expansion that will be modest and margin trends will begin to tail off in 2H into 2011, we believe that additional multiple expansion from the midteens is becoming less likely as fears continue to build regarding the company’s difficult holiday comparison.” JP Morgan, June 02, 2010
“While we think that J. Crew has ample oppurtunity for growth, the firm faces intense competition from retailers such as Banana Republic, Ann Taylor Ann, and Anthropologie URBN. Additionally, when economic conditions recover, J. Crew is at risk of losing its existing customers as they trade up to expensive designer labels and other luxury brands. Therefore, we believe J. Crew will have to fight hard to keep its customers by staying ahead of the game with the latest fashion trends. “Morningstar, May 28, 2010
Source: IBES estimates, Wall Street Research
8
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Goldman
Sachs
But Are Bullish on J. Crew’s Long Term Growth Prospects and Strategy
Analyst
Recommendations
Strong Buy Underperform
(5)(1)
23% 5%
Hold
(12)
Buy 55%
(4)
18%
Target Price
Broker Price Target
Goldman Sachs $36.00
Atlantic Equities 40.00
Barclays Capital 50.00
Bmo Capital 38.00
Markets
Bofa Merrill Lynch 49.00
Breen Murray 53.00
Credit Suisse 53.00
Jefferies 40.00
JP Morgan 46.00
Miller Tabak 50.00
Mkm Partners 56.00
Morningstar 34.00
Oppenheimer 50.00
Piper Jeffray 57.00
Robert W. Beird 56.00
UBS (US) 47.00
Wedbush 57.00
Securities Inc.
Weeden 56.00
Median $50.00
“Another longer-term positive we see is as 70 million gen Y’ers start filling the 21-35 age group in the next five years, JCG seems very well positioned to capture them (recent closings of ANF’s Ruehl and AEO’s Martin & Osa demonstrate it is not easy to build a new brand to capture this audience).” JPMorgan, June 02, 2010
“We believe the right call is to be buying the stock at current levels, as earnings upside will continue, and the longer term growth story and return on capital profile is one of the most exciting in retail.” Credit Suisse, May 28, 2010
“Given the greater consistency greater in their business, we believe mgmt is likely to feel more comfortable about sq ft growth prospects next yr. After growing sq ft at ~3% in F10, we believe growth could increase to 6-8% in F11. Part of the increase will likely be driven by a ramp-up in Madewell (where we believe sales have exceeded plan) openings, to 10-15 in F11 and potentially an even greater number in F12. We also hope to hear more from mgmt about the possibility of opening stores in Canada and London.” Credit Suisse, May 25, 2010
“Given the company’s attractive long-term growth opportunity (including Madewell store openings as the concept reduces operating losses, launch of wedding shop, and potential international expansion) and highly differentiated assortments,… we believe the current entry point presents a compelling opportunity for investors to own one of the highest quality multi-channel specialty retailers.” Wedbush, May 25, 2010
Source: IBES estimates, Wall Street Research
9
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Goldman
Sachs
J.Crew’s Stock Price Has Traded Down With Specialty Softlines Since May While EPS Estimates Have Increased
J.Crew (Curent) Stock Price: $36.38 2010E EPS: $2.45
2010 Stock 2010 Price / 2010 EPS P/E Change Price Change EPS Change Jul-10 May-10 Jul-09 May-10 Jul-09 May-10 Jul-09 May-10 Jul-09
J.Crew 14.8 x 21.1 x 21.3 x(29.8)%(30.3)%(25.2)% 42.3 % 6.5 % 104.2%
Abercrombie 20.1 x 25.1 x 14.9 x(19.8)% 35.4 %(18.9)% 51.4% 1.1% 11.8%
Aeropostale 10.4 x 11.0 x 11.3 x(5.3)(7.8)(1.8) 29.2 3.7 40.1
American Eagle 12.0 x 14.8 x 13.6 x(18.6)(11.3)(29.8)(9.5)(13.8) 2.0
Ann Taylor 15.0 x 29.0 x NA(48.3) NM(23.8) 138.7 47.4 NM
Buckle 9.8 x 12.8 x 10.3 x(23.7)(5.4)(24.4)(6.4)(1.0)(1.0)
Coach 16.5 x 19.6 x 13.0 x(15.9) 27.4(13.6) 55.8 2.7 22.3
Gap 10.4 x 14.3 x 11.4 x(27.3)(9.0)(26.5) 23.5 1.1 35.8
Guess? 11.9 x 15.5 x 10.9 x(23.4) 9.5(26.0) 42.4(3.3) 30.0
Limited 13.7 x 16.5 x 11.5 x(17.0) 19.4(11.5) 125.0 6.5 88.4
lululemon 34.0 x 38.8 x 20.3 x(12.4) 67.6(5.8) 210.8 7.5 85.5
Polo 16.4 x 21.8 x 13.4 x(25.1) 21.9(15.9) 52.0 12.3 24.7
rue21 24.9 x 29.2 x NM(14.9) NM(11.1) NM 4.4 NM
Urban Outfitters 20.3 x 23.6 x 15.7 x(14.0) 29.7(11.9) 66.6 2.5 28.5
Specialty Median 15.0 x 19.6 x 13.0 x(18.6)% 19.4 %(15.9)% 51.7 % 2.7 % 28.5 %
Source: Bloomberg
10
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Goldman
Sachs
II. Illustrative LBO and Recap Analysis
11
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Goldman
Sachs
Recapitalization Analysis
Sources and Uses and Debt Paydown ($ in millions, except per share data)
Sources of Funds
Cost of % of Total x 2010E x 2010E
Amount Debt Sources EBITDA EBITDAR
Target Existing Cash $ 403 0.5% 33.3%
Bank Debt (1) 680 L + 425 56.1% 2.0 x 3.2 x
Sr. Notes 128 9.0% 10.6% 2.4 x 3.5 x
Total Debt $ 808 66.7% 2.4 x 3.5 x
Total Sources of Funds $ 1,211 100.0%
Projected Free Cash Flow
PF 2010 2011E 2012E 2013E 2014E 2015E
Revenue $ 1,818 $ 2,055 $ 2,361 $ 2,705 $ 3,081 $ 3,510
Growth 27.3 % 13.0 % 14.9 % 14.6 % 13.9 % 13.9 %
EBITDA 341 407 498 608 738 841
Margin % 18.8 % 19.8 % 21.1 % 22.5 % 24.0 % 24.0 %
Net Income 0 182 242 315 394 451
(+) D&A 52 55 57 60 63 72
(+) Fin. Fees Amort. 3 3 3 3 3 3
(-) Capital Expenditure 52 54 59 59 58 66
(-) Change in OWC(52)(6)(38)(42)(46)(20)
FCF For Debt Paydown $ 54 $ 191 $ 281 $ 360 $ 448 $ 480
Cumulative FCF $ 191 $ 472 $ 832 $ 1,280 $ 1,760
Uses of Funds
Amount
Total Special Dividends / Share Repurchases $ 981
Special Dividends per share $ 15.38
Shares Repurchased (mm) - at 20.0% premium 22.48
Minimum Operating Cash 200
Financing and Other Fees (1) 29
Total Uses of Funds $ 1,211
De-leveraging Profile
PF 2010 2011E 2012E 2013E 2014E 2015E
Bank Debt (2) $ 680 $ 489 $ 208 $ 0 $ 0 $ 0
Senior Notes 128 128 128 128 128 128
Total Debt $ 808 $ 617 $ 336 $ 128 $ 128 $ 128
Total Cash $ 200 $ 200 $ 200 $ 352 $ 801 $ 1,281
Credit Statistics
PF 2010 2011E 2012E 2013E 2014E 2015E
Total Debt / EBITDA 2.4 x 1.5 x 0.7 x 0.2 x 0.2 x 0.2 x
Adj. Debt / EBITDAR 3.5 x 2.9 x 2.2 x 1.7 x 1.6 x 1.6 x
EBITDA / Int. 6.4 x 8.5 x 14.5 x 29.9 x 51.4 x 58.6 x
EBITDA-Capex / Int. 5.4 x 7.4 x 12.8 x 27.0 x 47.4 x 54.0 x
Source: Company Management for the years 2010E through 2014E; Extrapolated based on constant growth and margins for 2015E Note: Assumes 63.8 million of diluted shares outstanding.
(1) Assumes LIBOR floor of 1.50%. Assumes financing fees of 2.5% and OID on bank debt to be 1.0%. Also assumes advisory fees of $1.0 million.
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Recapitalization: One-Time Special Dividend
PF EPS Impact
($ in millions, except per share data)
One-Time Special Dividend Size Status Quo $600 $800 $981 $1,200 $1,400
Special Dividends per share (1) $9.40 $12.53 $15.38 $18.80 $21.94
Cash Used 203 203 203 203 203
New Debt 413 620 808 1,034 1,242
FY 2011E Net Income (2) (3) $210 $204 $192 $182 $169 $157
FY 2011E Shares Outstanding 66.8 66.8 66.8 66.8 66.8 66.8
FY 2011 E EPS (2) (3) (4) $3.15 $3.06 $2.88 $2.72 $2.53 $2.35
Accretion / Dilution (%)(3.0)%(8.6)%(13.6)%(19.8)%(25.4)%
Implied Share Price at 11.6x 2011 P/E Multiple $36.38 $35.30 $33.27 $31.42 $29.19 $27.
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Implied Share Price at 10.6x 2011 P/E Multiple $32.25 $30.39 $28.70 $26.66 $24.80
Implied Share Price at 9.6x 2011 P/E Multiple $29.19 $27.51 $25.98 $24.14 $22.45
Shareholder Value @ 11.6x 2011 P/E Multiple (5) $44.70 $45.80 $46.79 $47.99 $49.09
Accretion in Value over current price 22.9% 25.9% 28.6% 31.9% 34.9%
Shareholder Value @10.6x 2011 P/E Multiple (5) $41.65 $42.92 $44.
07 $45.47 $46.74
Accretion in Value over current prize 14.5% 18.0% 21.1% 25.0% 28.5%
Shareholder Value @9.6x 2011 P/E Multiple (5) $38.59 $40.04 $41.35 $42.9 $44.39
Accretion in Value over current prize 6.1% 10.1% 13.7% 18.0% 22.0%
Pro Forma Credit Statistics (2010)
Total Debt $0 $413 $620 $808 $1,034 $1,242
Debt / EBITDA 0.0x 1.2x 1.8x 2.4x 3.0x 3.6x
Adj. Debt / EBITDA (6) 1.6x 2.6x 3.1x 3.5x 4.0x 4.5x
Source: Public filings, Management Projections
(1) Based on current basic shares outstanding of 63.8 million
(2) Assumes a tax rate of 40.2% for FY2011E
(3) Assumes interest rate on bank debt $679.7 millions be L+425. Assumes LIBOR floor of 1.5%. Assumes coupon on Sr. Notes to be 9.0%. Also assumes interest on cash to be 0.5%
(4) Based on 2011E weight average diluted shares of 66.8 million.
(5)Defined as Dividend per share plus Pro Forma EPS times P/E Multiple (DPS + PF EPS x P/E). Accretion calculated based on current price of $36.38.
(6) Assumed rent expense capitalized at 8.0x and 100% of rent expense attributed to interest expense.
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Goldman
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Recapitalization: One-Time Special Dividend
Value Creation to Shareholders
One-Time Special Dividend of $981 mm (3.5x Adj. Leverage)
11.6 x 13.0 x 14.0 x 15.0 x 16.0 x
Implied Share Price $ 36.38 $ 40.94 $ 44.09 $ 47.24 $ 50.39
Implied Share Price
-Same Multiple $ 31.42 $ 35.36 $ 38.08 $ 40.80 $ 43.52
- 1.0x Multiple less $ 28.70 $ 32.64 $ 35.36 $ 38.08 $ 40.80
- 2.0x Multiple less $ 25.98 $ 29.92 $ 32.64 $ 35.36 $ 38.08
- 3.0x Multiple less $ 23.26 $ 27.20 $ 29.92 $ 32.64 $ 35.36
Special Dividends per share $ 15.38 $ 15.38 $ 15.38 $ 15.38 $ 15.38
Value to Shareholders
-Same Multiple $ 46.79 $ 50.73 $ 53.45 $ 56.17 $ 58.89
Value Accretion to Implied Price 28.6% 23.9% 21.2% 18.9% 16.9%
- 1.0x Multiple less $ 44.07 $ 48.01 $ 50.73 $ 53.45 $ 56.17
Value Accretion to Implied Price 21.1% 17.3% 15.1% 13.2% 11.5%
- 2.0x Multiple less $ 41.35 $ 45.29 $ 48.01 $ 50.73 $ 53.45
Value Accretion to Implied Price 13.7% 10.6% 8.9% 7.4% 6.1%
- 3.0x Multiple less $ 38.63 $ 42.57 $ 45.29 $ 48.01 $ 50.73
Value Accretion to Implied Price 6.2% 4.0% 2.7% 1.6% 0.7%
Source: Public filings, Management Projections
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Recapitalization: One-Time Share Repurchases
($ in millions, except per share data)
One-Time Share Repo Size Status Quo $ 600 $ 800 $ 981 $ 1,200 $ 1,400
% of Market Cap 24.2% 32.3% 39.6% 48.4% 56.5%
Cash Used 203 203 203 203 203
New Debt 413 620 808 1,034 1,242
Share Repurchase Price $ 40.93 $ 43.66 $ 43.66 $ 45.48 $ 45.48
% Premium to Current 12.5% 20.0% 20.0% 25.0% 25.0%
Shares Repurchased (mm) 14.7 18.3 22.5 26.4 30.8
% of Outstanding Shares Repurchased (1) 23.0% 28.7% 35.2% 41.3% 48.2%
Accretion / (Dilution) Analysis
FY 2011E Net Income (2) (3) $ 210 $ 204 $ 192 $ 182 $ 169 $ 157
FY 2011E Shares Outstanding 66.8 52.1 48.4 44.3 40.4 36.0
FY 2011 E EPS (2) (3) (4) $ 3.15 $ 3.92 $ 3.97 $ 4.10 $ 4.18 $ 4.36
Accretion / (Dilution) (%) 24.3% 26.0% 30.2% 32.7% 38.5%
FY 2011E - 2013 E EPS CAGR 24.3% 28.0% 29.5% 30.9% 32.9% 34.9%
Implied Share Price at 11.6x 2011 P/E Mulitple $ 36.38 $ 45.24 $ 45.85 $ 47.37 $ 48.27 $ 50.39
Share Price Accretion over current price (5) 24.3% 26.0% 30.2% 32.7% 38.5%
Implied Share Price at 10.6x 2011 P/E Mulitple $ 41.32 $ 41.88 $ 43.27 $ 44.09 $ 46.03
Share Price Accretion over current price (5) 13.6% 15.1% 18.9% 21.2% 26.5%
Implied Share Price at 9.6x 2011 P/E Mulitple $ 37.40 $ 37.91 $ 39.17 $ 39.91 $ 41.66
Share Price Accretion over current price (5) 2.8% 4.2% 7.7% 9.7% 14.5%
Pro Forma Credit Statistics (2010)
Total Debt $ 0 $ 413 $ 620 $ 808 $ 1,034 $ 1,242
Debt / EBITDA 0.0 x 1.2 x 1.8 x 2.4 x 3.0 x 3.6 x
Adj. Debt / EBITDAR (6) 1.6 x 2.6 x 3.1 x 3.5 x 4.0 x 4.5 x
Source: Public filings, Management Projections
(1) Based on 63.8 million basic shares outstanding as of 13-Jul-2010. (2) Assumes a tax rate of 40.2% for FY2011E.
(3) Assumes Interest rate on bank debt of $679.7 million to be L+425. Assumes LIBOR floor of 1.5%. Assumes coupon on Sr. Notes to be 9.0%. Also assumes interest on cash to be 0.5% (4) Based on 2011E weighted average diluted shares of 66.8 million.
(5) Accretion calculated based on current price of $36.38.
(6) Assumes rent expense capitalized at 8.0x and 100% of rent expense attributed to interest expense.
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Illustrative LBO Analysis
Assumes Stock Price of $45.48 per share (25.0% Premium) or 8.0x EV / 2010E EBITDA ($ in millions)
Sources of Funds Uses of Funds
Cost of % of Total x 2010E x 2010E
Amount Debt Sources EBITDA EBITDAR Amount
Target Existing Cash $ 403 0.5% 12.1% Total Equity Purchased ($45.48 per share) 3,132
Bank Debt (1) 680 L + 450 20.5% 2.0 x 3.2 x Existing Target Debt Retired 0
Sr. Notes 768 10.0% 23.2% 4.2 x 5.0 x Total Purchase Price $ 3,132
Total Debt $ 1,448 43.7% 4.2 x 5.0 x EV / 2010E EBITDA (Adj. Cash) 8.0 x
Equity rolled over 394 Minimum Operating Cash 100
Sponsor Equity $ 1,072 32.3% Financing and Other Fees (1) 85
Total Sources of Funds $ 3,317 100.0% Total Uses of Funds $ 3,317
Projected Free Cash Flow Illustrative Returns to Sponsor
PF 2010 2011E 2012E 2013E 2014E 2015E Purchase Price $ 45.00 $ 50.00 $ 55.00 $ 60.00 $ 65.00
Revenue $ 1,818 $ 2,055 $ 2,361 $ 2,705 $ 3,081 $ 3,510
Growth 27.3 % 13.0 % 14.9 % 14.6 % 13.9 % 13.9 % Premium to Current 23.7% 37.4% 51.2% 64.9% 78.7%
EBITDA 341 407 498 608 738 841
Margin % 18.8 % 19.8 % 21.1 % 22.5 % 24.0 % 24.0 % Implied EV / 2010E EBITDA
Net Income 98 138 197 272 353 409 7.9 x 9.0 x 10.0 x 11.1 x 12.1 x
(+) D&A 52 55 57 60 63 72 8.0 x 35.2% 29.7% 25.4% 21.8% 18.7%
(+) Fin. Fees Amort. 7 7 7 7 7 7 8.5 x 36.8% 31.3% 26.8% 23.2% 20.1%
(-) Capital Expenditure 52 54 59 59 58 66 9.0 x 38.3% 32.7% 28.2% 24.5% 21.4%
(-) Change in OWC(52)(6)(38)(42)(46)(20) Exit EBITDA Multiple 9.5 x 39.7% 34.1% 29.6% 25.8% 22.7%
FCF For Debt Paydown $ 57 $ 151 $ 240 $ 321 $ 411 $ 442 10.0 x 41.1% 35.4% 30.8% 27.1% 23.9%
De-leveraging Profile Returns to Sponsor exit in 2014 @ 9.0x EBITDA
PF 2009 2010E 2011E 2012E 2013E 2014E
Bank Debt 680 529 289 0 0 0 Implied EV / 2010E EBITDA
Senior Notes 768 768 768 768 768 768 7.9 x 9.0 x 10.0 x 11.1 x 12.1 x
Total Debt $ 1,448 $ 1,297 $ 1,057 $ 768 $ 768 $ 768 3.0 x 30.5% 26.9% 23.8% 21.2% 18.8%
Total Debt / EBITDA 4.2 x 3.2 x 2.1 x 1.3 x 1.0 x 0.9 x 3.5 x 32.1% 28.1% 24.8% 21.9% 19.3%
Adj. Debt / EBITDAR 5.0 x 4.2 x 3.3 x 2.6 x 2.3 x 2.2 x
EBITDA / Int. Exp. 2.7 x 3.4 x 4.6 x 6.6 x 8.9 x 10.1 x
EBITDA-Capex / Int. Exp. 2.3 x 2.9 x 4.0 x 5.9 x 8.2 x 9.3 x
4.0 x 33.8% 29.4% 25.8% 22.7% 20.0%
Adj. Leverage 4.5 x 35.9% 30.9% 26.9% 23.6% 20.7%
5.0 x 38.3% 32.7% 28.2% 24.5% 21.4%
Source: Company Management for the years 2010E through 2014E; Extrapolated based on constant growth and margins for 2015E Note: Assumes 63.8 million of diluted shares outstanding.
(1) Assumes LIBOR floor of 1.75%. Assumes financing fees of 2.5% and OID on bank debt to be 2.0%. Also assumes advisory fees of $20.0 million.
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Goldman
Sachs
Illustrative Ability To Pay Analysis
Share Price Required to Achieve Target Returns Assuming 2014E Exit Assumes 5.0x Adjusted Leverage
Assumes 20% IRR with 5 Year exit in 2014 @ 9.0x EBITDA
Equity Value Per Share Implied Premium Over Current Stock Price
2009 - 2014 Sales CAGR 2009 - 2014 Sales CAGR
15.3% 16.3% 17.3% 18.4% 19.4% 15.3% 16.3% 17.3% 18.4% 19.4%
‘14E EBITDA Per Year Change in Annual Sales Growth vs. Plan ‘14E EBITDA Per Year Change in Annual Sales Growth vs. Plan
Margin vs. Plan(2.0)%(1.0)% 0.0% 1.0% 2.0% Margin vs. Plan(2.0)%(1.0)% 0.0% 1.0% 2.0%
22.0%(2.0)% $ 60.61 $ 62.26 $ 63.98 $ 65.75 $ 67.59 22.0%(2.0)% 66.6% 71.1% 75.9% 80.7% 85.8%
23.0%(1.0)% 62.22 63.95 65.74 67.60 69.52 23.0%(1.0)% 71.0% 75.8% 80.7% 85.8% 91.1%
24.0% 0.0% 63.84 65.65 67.51 69.45 71.45 24.0% 0.0% 75.5% 80.4% 85.6% 90.9% 96.4%
25.0% 1.0% 65.46 67.34 69.28 71.29 73.38 25.0% 1.0% 79.9% 85.1% 90.4% 96.0% 101.7%
26.0% 2.0% 67.08 69.03 71.05 73.14 75.31 26.0% 2.0% 84.4% 89.7% 95.3% 101.0% 107.0%
Assumes 25% IRR with 5 Year exit in 2014 @ 9.0x EBITDA
Equity Value Per Share Implied Premium Over Current Stock Price
2009 - 2014 Sales CAGR 2009 - 2014 Sales CAGR
15.3% 16.3% 17.3% 18.4% 19.4% 15.3% 16.3% 17.3% 18.4% 19.4%
‘14E EBITDA Per Year Change in Annual Sales Growth vs. Plan ‘14E EBITDA Per Year Change in Annual Sales Growth vs. Plan
Margin vs. Plan(2.0)%(1.0)% 0.0% 1.0% 2.0% Margin vs. Plan(2.0)%(1.0)% 0.0% 1.0% 2.0%
22.0%(2.0)% $ 53.70 $ 55.05 $ 56.45 $ 57.89 $ 59.39 22.0%(2.0)% 47.6% 51.3% 55.2% 59.1% 63.3%
23.0%(1.0)% 55.02 56.43 57.89 59.40 60.97 23.0%(1.0)% 51.2% 55.1% 59.1% 63.3% 67.6%
24.0% 0.0% 56.34 57.81 59.33 60.91 62.54 24.0% 0.0% 54.9% 58.9% 63.1% 67.4% 71.9%
25.0% 1.0% 57.66 59.19 60.77 62.41 64.11 25.0% 1.0% 58.5% 62.7% 67.0% 71.6% 76.2%
26.0% 2.0% 58.98 60.57 62.21 63.92 65.69 26.0% 2.0% 62.1% 66.5% 71.0% 75.7% 80.6%
Source: Company Management
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Appendix A: Supplemental Materials
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Summary Financials
J.Crew ($ in millions)
CAGR CAGR
FY 2007 A FY 2008 A FY 2009 A FY 2010 E FY 2011 E FY 2012 E FY 2013 E FY 2014 E FY 2015 E ‘07A- ‘09E ‘09E- ‘14E
Total Revenue $ 1,335 $ 1,428 $ 1,578 $ 1,818 $ 2,055 $ 2,361 $ 2,705 $ 3,081 $ 3,510 8.7 % 14.3 %
% Growth 15.9 % 7.0 % 10.5 % 15.2 % 13.0 % 14.9 % 14.6 % 13.9 % 13.9 %
EBITDA $ 210 $ 141 $ 264 $ 341 $ 407 $ 498 $ 608 $ 738 $ 841 11.9 % 22.9 %
% Growth 32.2 %(33.2)% 87.4 % 29.4 % 19.4 % 22.2 % 22.2 % 21.3 % 13.9 %
% Margin 15.8 % 9.8 % 16.7 % 18.8 % 19.8 % 21.1 % 22.5 % 24.0 % 24.0 %
Net Income $ 100 $ 54 $ 124 $ 173 $ 210 $ 263 $ 328 $ 403 $ 459 11.6 % 26.6 %
Diluted Shares Outstanding 64 64 65 66 67 67 67 68 68
EPS $ 1.56 $ 0.85 $ 1.92 $ 2.60 $ 3.15 $ 3.92 $ 4.86 $ 5.96 $ 6.79 10.9 % 25.4 %
% Growth 49.0 % (45.8)% 126.9 % 35.6 % 21.1 % 24.4 % 24.1 % 22.5 % 13.9 %
Free Cash Flow
Net Income $ 100 $ 54 $ 124 $ 173 $ 210 $ 263 $ 328 $ 403 $ 459 11.6 % 26.6 %
D&A 34 44 52 49 55 57 60 63 72
Working Capital 7 37 (14) (19) (20) (58) (100) (145) (165)
in Working Capital (50) (43) (36) (5) (1) (38) (42) (46) (20)
Capital Expenditures 81 78 45 52 54 59 59 58 66
Other 19 (24) 36 1 (12) (18) (21) (25)
Free Cash Flow $ 122 $ 40 $ 203 $ 176 $ 200 $ 281 $ 348 $ 430 $ 486 29.2 % 16.2 %
Cash $ 132 $ 146 $ 298 $ 403 $ 580 $ 824 $ 1,114 $ 1,462 $ 1,948
Total Debt 125 100 49 0 0 0 0 0 0
Adj. Debt (1) 626 699 735 791 893 1,027 1,176 1,340 1,526
Growth and Margins
Number of Stores 260 300 321 336 371 420 467 514 566
New Stores Growth (%) 14.5 % 15.4 % 7.0 % 4.7 % 10.4 % 13.2 % 11.2 % 10.1 % 10.1 %
Comp Store Sales (%) 5.6 % (4.0)% 4.1 % 10.6 % 6.1 % 5.7 % 5.7 % 5.9 % 5.9 %
Credit Stats
Debt / EBITDA 0.6 x 0.7 x 0.2 x 0.0 x 0.0 x 0.0 x 0.0 x 0.0 x 0.0 x
Adj. Debt / EBITDAR 2.3 x 3.2 x 2.1 x 1.8 x 1.7 x 1.6 x 1.6 x 1.5 x 1.5 x
EBITDAR / Interest + Rent 3.7 x 2.7 x 3.8 x 4.3 x 4.6 x 4.8 x 5.1 x 5.4 x 5.4 x
Source: Public filings, Management Projections
(1) Rent Expense adjusted based on Moody’s methodology.
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Current Cap Structure
J.Crew ($ in millions)
Moody’s Adj.
Amount LTM LTM Leverage Interest / Tranche Current Bid /
(USD) Leverage (1) Using 8x (2) Coupon Rating Implied Yield Maturity
Cash $332
Undrawn Revolving Credit Facility (3) 195
Total Liquidity $528
Revolving Credit Facility ($200mm Capacity) - 0.0 x 1.8 L + 100-125 NA / NA May-2013
Term Loan 49 0.2 1.9 L + 175 (4) Ba2 / BB+ 93.00 / 6.2% May-2013
Total Debt $49 0.2x 1.9x
Market Equity (13-Jul-2010) 2,479
Total Capitalization $2,528
Corporate Rating BB+ / WR Stable / NA
Source: Company Filings as of 01-May-2010
(1) Assumes LTM EBITDA to be $299mm as of 01-May-10. (2) LTM rent expense of $86mm capitalized at 8.0x.
(3) Adjusts for $6mm of Letters of Credit as of 01-May-2010.
(4) Interest rate is at company’s option, at base rate plus a margin of 0.75% or at L+175 bps
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Common Stock Comparison
($ in millions, except per share data)
Enterprise
Closing % of 52 Equity Value Multiples (2) Calendarized 5-Year 2011
Price Week Market Enterprise Sales EBITDA EBIT P/E Multiples (2) EPS PE/5-Year LTM Margins (1) Dividend
Company 13-Jul-2010 High Cap (1) Value (1) LTM LTM 2010 2011 LTM 2010 2011 CAGR (2) EPS CAGR EBITDA EBIT Yield
J. Crew (IBES) $ 36.38 73 % $ 2,479 $ 2,196 1.3 x 7.3 x 6.6 x 5.8 x 8.9 x 14.8 x 13.0 x 20.0 % 0.7 x 18.2 % 15.1 % 0.0 %
J. Crew (Management) 36.38 73 % $ 2,479 $ 2,196 1.3 x 7.3 x 6.4 x 5.4 x 8.9 x 14.0 x 11.6 x 20.0 % 0.6 x 18.2 % 15.1 % 0.0 %
U.S. Specialty Retailer
Abercrombie & Fitch $ 36.23 72 % $ 3,196 $ 2,672 0.9 x 6.5 x 5.5 x 4.6 x 15.4 x 20.1 x 14.5 x 15.0 % 1.0 x 13.6 % 5.8 % 1.9 %
Aeropostale 29.53 92 2,774 2,461 1.1 5.3 4.9 4.7 6.0 10.4 9.7 15.0 0.6 20.2 18.0 0.0
American Eagle $ 12.02 61 2,469 1,942 0.6 4.5 4.2 3.6 7.0 12.0 10.0 13.0 0.8 14.1 9.1 3.4
AnnTaylor 17.26 69 1,015 804 0.4 4.7 3.7 3.4 NM 15.0 12.3 13.5 0.9 9.1 3.7 0.0
Buckle 28.33 71 1,353 1,199 1.3 5.2 5.0 4.6 5.9 9.8 9.2 11.0 0.8 25.2 22.3 3.5
Coach $ 37.16 84 11,522 10,639 3.1 9.0 8.0 7.4 10.1 15.6 13.8 14.5 1.0 34.4 30.8 1.0
Gap $ 18.89 72 12,290 9,809 0.7 3.8 3.9 3.7 5.0 10.4 9.6 10.0 1.0 18.1 13.5 2.0
Guess? $ 34.51 69 3,252 2,770 1.2 6.0 6.0 5.3 7.1 11.9 10.4 15.0 0.7 20.6 17.6 1.7
Limited Brands $ 24.59 86 8,107 9,489 1.1 6.6 6.4 5.9 9.2 13.7 12.3 13.0 0.9 16.1 11.7 2.4
Lululemon Athletica 39.13 86 2,820 2,647 5.2 20.1 16.1 13.1 24.2 34.0 27.6 25.0 1.1 25.8 21.5 0.0
Polo 77.68 82 7,783 6,957 1.4 7.7 7.7 7.0 9.7 16.4 14.8 11.0 1.3 18.1 14.4 0.5
rue21 29.60 79 742 714 1.3 11.5 10.0 8.1 16.3 24.9 20.4 23.8 0.9 11.2 7.9 0.0
Urban Outfitters 33.91 84 5,873 5,290 2.6 11.4 9.6 8.1 14.1 20.3 17.0 20.0 0.8 22.8 18.4 0.0
High 92 % $ 12,290 $ 10,639 5.2 x 20.1 x 16.1 x 13.1 x 24.2 x 34.0 x 27.6 x 25.0 % 1.3 x 34.4 % 30.8 % 3.5 %
Mean 77 4,861 4,415 1.6 7.9 7.0 6.1 10.8 16.5 14.0 15.4 0.9 19.2 15.0 1.3
Median 79 3,196 2,672 1.2 6.5 6.0 5.3 9.4 15.0 12.3 14.5 0.9 18.1 14.4 1.0
Low 61 742 714 0.4 3.8 3.7 3.4 5.0 9.8 9.2 10.0 0.6 9.1 3.7 0.0
(1) Source: Latest publicly available financial statements. Equity Market Cap based on diluted shares outstanding.
(2) Sources: LTM numbers are based on latest publicly available financial statements. Projected revenues, EBITDA, EBIT, and EPS are based on IBES median estimates and/or other Wall Street research.
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Exhibit (c)(15)
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Exhibit (C)(15)
J.Crew Discussion Materials
Goldman, Sachs & Co. August 2010
[31-August-2010]
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Goldman
Sachs
Table of Contents
I. Analysis of J.Crew Recent Performance
II. Share Repurchase Considerations
Appendix A: Supplemental Materials
Goldman Sachs does not provide accounting, tax, or legal advice. Notwithstanding anything in this document to the contrary, and except as required to enable compliance with applicable securities law, you (and each of your employees, representatives, and other agents) may disclose to any and all persons the US federal income and state tax treatment and tax structure of the transaction and all materials of any kind (including tax opinions and other tax analyses) that are provided to you relating to such tax treatment and tax structure, without Goldman Sachs imposing any limitation of any kind.
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I. Analysis of J.Crew’s Recent Performance
Analysis of J.Crew’s Recent Performance 3
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J.Crew Stock Has Been Weighed Down By FY2010 Earnings Guidance Revisions
Goldman
Sachs
EPS Guidance
27-May 28-Aug
FY 10 $2.35—$2.25 -
2.45 2.35
Q2 10 $0.40—$0.50
0.45(Actuals)
Q3 10—$0.55 –
0.60
Closing Price ($)
$60.00 $50.00 $40.00 $30.00 $20.00 $10.00 $0.00
Aug-2007 Feb-2008 Aug-2008 Feb-2009 Aug-2009 Feb-2010 Aug-2010
29-Nov-2007
Reported 3Q07 earnings of $0.42 above analyst estimates of $0.37
20-Feb-2008
Opened first Madewell store
29-May-2008
Reported 1Q08 earnings of $0.48 above analyst estimates of $0.47
5-Sep-2007
Reported 2Q07 earnings of $0.32 above analyst estimates of $0.29
11-Mar-2008
Reported FY2007 earnings of $1.54 above analyst estimates of $1.52
22-Jan-2008
President Jeffrey Pfeifle announced his resignation effective on Feb 1, 2008
26-Aug-2008
Reported 2Q08 earnings of $0.28 missing analyst estimates of $0.33 and guidance of $0.31-$0.33
8-Jan-2009
Management lowered FY2008 guidance to $0.77-$0.82 from $1.11-$1.16
25-Nov-2008
Reported 3Q08 earnings of $0.30 meeting analyst estimates of $0.30
27-Aug-2009
Reported 2Q09 earnings of $0.29 above analyst estimates of $0.14
28-May-2009
Reported 1Q09 earnings of $0.32 above analyst estimates of $0.10
22-Oct-2009
Management raised 3Q09 guidance to $0.54-$0.59 from $0.30-$0.33
24-Nov-2009
Reported 3Q09 earnings of $0.67 above analyst estimates of $0.59
27-May-2010
Reported 1Q10 earnings of $0.68 above analyst estimates of $0.56
26-Aug-2010
Reported 2Q10 earnings of $0.50 ex non-recurring items above analyst estimates of $0.46
26-Aug-2010
Management lowered FY2010 guidance to $2.25-$2.35 from $2.35-$2.45
$30.23
13-Jul-2010
Tracy Gardner announced her resignation effective Sept 13, 2010
9-Mar-2010
Reported FY2009 earnings of $1.91 above analyst estimates of $1.75
Current Price $ 30.23
52 Wk High 50.00
52 Wk Low 30.23
52 Wk Avg. 40.94
3 Months Avg. 37.13
Since 1-May-10 Avg 39.07
Daily from 30-Aug-2007 to 30-Aug-2010
Source: Bloomberg
Analysis of J.Crew’s Recent Performance 4
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Goldman
Sachs
J.Crew’s Stock Has Mostly Tracked the EPS Estimate Trend
Yearly EPS Estimate ($)
$4.00 $3.25 $2.50 $1.75 $1.00 $0.25
Aug-2007 Dec-2007 Apr-2008 Aug-2008 Dec-2008 Apr-2009 Aug-2009 Dec-2009 Apr-2010 Aug-2010
$1.91 FY 2009A
$60.00
$50.00
$2.60 FY 2011E
$40.00
$2.31 FY 2010E
$30.23 $30.00
$20.00
$10.00
$0.00
Closing Price ($)
Monthly from 30-Aug-2007 to 13-Aug-2010
FY 2009 FY 2010 FY 2011 J.Crew Stock Price
Source: Bloomberg
Analysis of J.Crew’s Recent Performance 5
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Goldman
Sachs
Despite Strong Same Store Sales Performance, J.Crew’s Stock Has Declined Recently
Closing Price ($)
$60.00 $50.00 $40.00 $30.00 $20.00 $10.00 $0.00
Aug-2007 Feb-2008 Aug-2008 Feb-2009 Aug-2009 Feb-2010
Q3 2007: 5.0% Est: 5.0%
Q4 2007: 4.0% Est: 4.0%
Q1 2008: 2.4% Est: 4.0%
Q2 2008: (0.4)% Est: (1.0)%
Q3 2008: (2.9)% Est: (3.0)%
Q4 2008: (13.1)% Est: (17.0)%
Q2 2009: (5.1)% Est: (5.0)% Q1 2009: (5.1)% Est: (5.0)%
Q3 2009: 8.4% Est: 8.0%
Q4 2009: 16.6% Est: 9.0%
Q1 2010: 15.1% Est: 12.0%
Q2 2010: 11.0% Est: 10.0%
20.0% 15.0% 10.0%
5.0% $30.23 0.0% (5.0%)
(10.0%)
(15.0%)
Same Store Sales
Daily from 30-Aug-2007 to 30-Aug-2010
Stock Price
Same Store Sales
Source: Bloomberg, Press releases
Note: Comp Store Sales beat vs. analyst estimates are highlighted in GREEN, miss vs. analyst estimates are highlighted in RED and inline with analyst estimates are highlighted in BLACK.
Analysis of J.Crew’s Recent Performance 6
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Goldman
Sachs
Specialty Retail Stocks Have Traded Down Significantly Since May…
S&P 500
Since May-10
(38)% (13)% (17)% (18)% (20)% (22)% (23)% (24)% (26)% (29)% (33)% (34)% (35)% (38)%
Median = (24)% (13)%
YTD
(32)%
25% (1)% (7)% (12)% (0)% 3% (23)% (3)% (23)% 17% (18)% (18)% (25)%
(7)% Median = (7)%
One Year
(13)%
60% 22% 10% 7% 4% 59% (6)% (16)% (7)% 8% (15)% (10)%
NA
Median = 4%
2%
Market Trough (Mar 09 –May 10)
420% 353% 267% 189% 165% 161% 825% 95% 96% 254% 703% 160% 72% NA
62% Median = 177%
Source: Bloomberg Note: As of 30-Aug-2010
Analysis of J.Crew’s Recent Performance 7
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Goldman
Sachs
…Leading to Multiple Contraction Across the Board
2010E P/E Multiple
Current
13.1x
27.7x
19.9x
18.1x
17.7x
15.5x
14.4x
13.5x
13.3x
13.2x
11.4x
9.4x
9.4x
8.4x
Median = 13.4x
12.9x 01-May-10 21.1x 38.8x 29.2x 23.6x 25.1x 19.6x 21.8x 29.0x 16.5x 14.8x 15.5x 11.0x 14.3x 12.8x
Median = 19.6x 15.4x A Year Ago 28.0x 32.3x 21.9x 20.6x NA 16.8x 14.9x
13.9x 15.4x NA
15.8x 14.2x
9.2x 12.4x
Median = 15.2x
13.8 x
Market Trough (Mar 09)
16.1x
9.4x
7.7x
12.0x NA
6.7x
9.1x
6.4x
7.1x NA
12.5x
8.3x
9.7x
10.7x
Median = 8.7x
8.5x
Source: Bloomberg Note: As of 30-Aug-2010
Analysis of J.Crew’s Recent Performance 8
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Goldman
Sachs
Market Capitalization Evolution Over The Last Twelve Months
($ in billions)
1-Yr.
Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Change (%)
$ 2.3 $ 2.3 $ 2.6 $ 2.7 $ 2.8 $ 2.5 $ 2.7 $ 2.9 $ 3.0 $ 2.9 $ 2.3 $ 2.3 $ 2.0(12.2)%
3.0 2.9 2.9 3.5 3.1 2.8 3.2 4.0 3.9 3.2 2.7 3.3 3.1 4.3%
2.7 2.9 2.5 2.1 2.2 2.2 2.2 2.7 2.7 2.6 2.7 2.7 2.1(22.4)%
2.9 3.5 3.6 3.2 3.5 3.3 3.5 3.9 3.5 2.7 2.4 2.5 2.6(11.1)%
0.8 0.9 0.8 0.8 0.8 0.7 1.0 1.2 1.3 1.3 1.0 1.0 0.9 8.2%
1.2 1.6 1.4 1.3 1.4 1.4 1.4 1.7 1.7 1.7 1.5 1.3 1.2(4.5)%
9.3 10.5 10.5 11.1 11.7 11.1 11.4 12.4 13.1 12.5 11.2 11.3 10.6 14.3%
13.9 14.9 14.9 14.9 14.5 13.2 14.8 15.4 16.5 14.5 12.7 11.8 11.0(20.9)%
3.3 3.4 3.4 3.4 3.9 3.7 3.8 4.4 4.3 3.5 2.9 3.3 3.1(5.7)%
4.7 5.5 5.7 5.3 6.2 6.1 7.1 8.0 8.7 8.0 7.2 8.3 8.0 70.6%
1.4 1.6 1.8 1.8 2.1 2.0 2.0 2.9 2.7 2.9 2.6 2.9 2.2 58.3%
7.1 7.6 7.4 7.6 8.0 8.1 7.9 8.4 8.9 8.6 7.0 7.6 7.6 6.1%
NM NM NM 0.6 0.7 0.7 0.7 0.8 0.8 0.8 0.7 0.7 0.5 NM
4.9 5.1 5.3 5.3 5.9 5.3 5.4 6.4 6.3 6.1 5.8 5.4 5.3 7.3%
Source: CapIQ
Analysis of J.Crew’s Recent Performance 9
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Goldman
Sachs
Growth Expectations for J.Crew Still Robust
Company
FY 10 – FY 12 Revenue Growth
8.9%
21.8%
19.6%
15.9%
10.1%
9.2%
8.8%
8.1%
6.8%
3.4%
Median: 8.1%
1.9%
3.2%
1.3%
(2.5)%
FY 10 – FY 12 Margin Expansion
1.0 %
1.7 %
0.9 %
Median: 0.9%
(0.2)%
5.2 %
0.6 %
1.9 %
0.0 %
1.1 %
0.6 %
1.0 %
0.6 %
(0.9)%
1.4 %
LT EPS Growth
20.0%
25.0%
25.0%
20.0%
16.5%
15.0%
Median: 14.5%
15.0%
13.3%
11.0%
14.0%
13.0%
14.5%
10.0%
10.0%
Source: Wall Street Estimates as of 30-Aug-2010
Analysis of J.Crew’s Recent Performance 10
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Goldman
Sachs
Research Analysts’ Have Some Concerns Over Tough 2H SSS Comparisons and Near Term Margin Expansion…
Analyst Recommendations
Underperform (1) 5%
Strong Buy (7) 33%
Hold (10) 48%
Buy (3) 14%
Target Price
Broker Price Target
Goldman Sachs $33.00
Atlantic Equities 28.00
Bmo Capital 31.00
Markets
Bofa Merrill Lynch 35.00
Breen Murray 42.00
Jefferies 35.00
JP Morgan 37.00
Miller Tabak 50.00
Mkm Partners 41.00
Morningstar 34.00
Oppenheimer 50.00
Piper Jeffray 38.00
Robert W. Beird 49.00
UBS (US) 35.00
Wedbush 40.00
Securities Inc.
Weeden 40.00
Median $37.50
“The outlook for shares over the next 6-12 months comes down to what happens to the earnings base of the core business. If the environment remains weak but stable, inventory should be realigned by 1H11 resulting in less margin pressure on the core business and potential for leverage on other growth initiatives through the balance of the year. However if trends deteriorate further we could see some additional markdown pressure in 4Q and there is substantial risk to record margins earned in the first half of this year.” Goldman Sachs, August 26, 2010
“Though JCG has longer-term store growth potential in Madewell, it is still somewhat unproven and for now EPS growth is much more dependent on comp sales and margin leverage at the core business. Concerns over inventory planned up mid to high-single digits at 2Q end, coupled with fear of sector-wide sales deceleration and tough compares for JCG, will likely be an overhang until these risks are either validated or refuted this Fall.”
Goldman Sachs, July 13, 2010
“Primary downside risks are a slowdown in sales and a general sector pullback.” Goldman Sachs, July 13, 2010
“…the stock seems likely to have a high $40s ceiling on it in the near term until the company proves that it can profitably lap last year’s robust 2H results (comps up low-double digits and margins up ~1,500bps!). As the growth trajectory should slow throughout the year (JPM estimates: Q2 65%, Q3 6%, and Q4 3%) and operating margins push above 16%, we believe that shares should remain range-bound in the near term.”
JPMorgan, June 02, 2010
“…given our current view that future square footage expansion will be modest and margin trends will begin to tail off in 2H into 2011, we believe that additional multiple expansion from the midteens is becoming less likely as fears continue to build regarding the company’s difficult holiday comparison.” JPMorgan, June 02, 2010
Source: IBES estimates, Wall Street Research
Analysis of J.Crew’s Recent Performance 11
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Goldman
Sachs
But Are Bullish on J.Crew’s Long Term Growth Propects and Strategy
Analyst Recommendations
Underperform (1) 5%
Strong Buy Hold (7) (10) 33% 48% Buy (3) 14%
Target Price
Broker Price Target
Goldman Sachs $33.00
Atlantic Equities 28.00
Bmo Capital 31.00
Markets
Bofa Merrill Lynch 35.00
Breen Murray 42.00
Jefferies 35.00
JP Morgan 37.00
Miller Tabak 50.00
Mkm Partners 41.00
Morningstar 34.00
Oppenheimer 50.00
Piper Jeffray 38.00
Robert W. Beird 49.00
UBS (US) 35.00
Wedbush 40.00
Securities Inc.
Weeden 40.00
Median $37.50
“JCG has one of the strongest brands in our coverage, with compelling initiatives to drive gradual long-term growth (wedding, men’s madewell, etc.).” Goldman Sachs, August 26, 2010.
“Another longer-term positive we see is as 70 million gen Y’ers start filling the 21-35 age group in the next five years, JCG seems very well positioned to capture them (recent closings of ANF’s Ruehl and AEO’s Martin & Osa demonstrate it is not easy to build a new brand to capture this audience).” JPMorgan, June 02, 2010
“We believe the right call is to be buying the stock at current levels, as earnings upside will continue, and the longer term growth story and return on capital profile is one of the most exciting in retail.” Credit Suisse, May 28, 2010
“Given the greater consistency in their business, we believe mgmt is likely to feel more comfortable about sq ft growth prospects next yr. After growing sq ft at ~3% in F10, we believe growth could increase to 6-8% in F11. Part of the increase will likely be driven by a ramp-up in Madewell (where we believe sales have exceeded plan) openings, to 10-15 in F11 and potentially an even greater number in F12. We also hope to hear more from mgmt about the possibility of opening stores in Canada and London.” Credit Suisse, May 25, 2010
“Given the company’s attractive long-term growth opportunity (including Madewell store openings as the concept reduces operating losses, launch of wedding shop, and potential international expansion) and highly differentiated assortments,…we believe the current entry point presents a compelling opportunity for investors to own one of the highest quality multi-channel specialty retailers.” Wedbush, May 25, 2010
Source: IBES estimates, Wall Street Research
Analysis of J.Crew’s Recent Performance 12
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Sachs
J.Crew’s Stock Price Has Traded Down With Specialty Softlines Since May While EPS Estimates Have Increased
J.Crew (Curent) Stock Price: $30.23 FY2010E EPS: $2.31
2010 Stock 2010
Price / 2010 EPS P/E Change Price Change EPS Change
Aug-10 May-10 Aug-09 May-10 Aug-09 May-10 Aug-09 May-10 Aug-09
J.Crew 13.1 x 21.1 x 28.0 x(38.1)%(53.3)%(37.8)%(13.0)% 0.4 % 86.3 %
Abercrombie 19.9 x 25.1 x 21.9 x(20.7)%(9.1)%(21.6)% 3.9 %(1.1)% 14.3 %
Aeropostale 8.4 x 11.0 x 12.4 x(23.5)(31.9)(26.0)(15.9)(3.3) 23.4
American Eagle 13.5 x 14.8 x 13.9 x(8.9)(3.1)(23.8)(6.0)(16.4)(3.0)
Ann Taylor 13.2 x 29.0 x NA(54.6) NM(33.0) 7.6 47.4 NM
Buckle 9.4 x 12.8 x 9.7 x(26.7)(3.0)(35.1)(10.1)(11.4)(7.3)
Coach 13.5 x 19.6 x 14.4 x(31.3)(6.4)(16.9) 22.2 21.0 30.5
Gap 9.4 x 14.3 x 14.2 x(34.2)(34.0)(34.2)(15.2) 0.0 28.6
Guess? 11.4 x 15.5 x 15.8 x(26.3)(27.4)(29.0)(6.7)(3.7) 28.4
Limited 13.3 x 16.5 x 16.0 x(19.4)(16.9)(13.2) 60.1 7.7 92.6
lululemon 27.7 x 38.8 x 32.3 x(28.6)(14.1)(23.2) 59.3 7.5 85.5
Polo 15.4 x 21.8 x 16.4 x(29.5)(6.0)(18.3) 9.8 16.0 16.8
rue21 17.4 x 29.2 x NM(40.3) NM(37.7) NM 4.4 NM
Urban Outfitters 18.1 x 23.6 x 20.6 x(23.5)(12.5)(20.2) 7.0 4.3 22.3
Specialty Median 13.5 x 19.6 x 15.8 x(26.7)%(12.5)%(23.8)% 5.4 % 4.3 % 23.4 %
Source: Bloomberg
Analysis of J.Crew’s Recent Performance 13
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II. Share Repurchase Considerations
Share Repurchase Considerations 14
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Goldman
Sachs
Comparison of Repurchase Strategies
Open Market Repurchase Accelerated Stock Buyback
Time Required to ~ 1 day ~ 1 -2 weeks; Includes hedge period
Implement
Key Documentation Engagement letter Master and Supplemental Confirmations
Cash Outlay Over time Upfront
Share Retirement Over time Upfront
Flexible; Company can dictate the pace of the Once ASB is executed, Company is committed to the
Commitment repurchase at its own discretion (so long as it is in an program
open window)
Muted; market will learn about actual buyback activity Strong; ASB announcement is made upfront upon
Signaling Impact in next quarterly filing or earnings call execution
At Company’s discretion of volume and price but not Guaranteed repurchase size, uncertainty of price per
Execution Certainty size share
Price can be managed through limit orders or pricing Prices can be managed through limit orders or pricing
Management of Price grid, albeit no guarantee of share retirement grid like open market repurchase or through more
Exposure formulaic mechanic such as a collar
Ability to Buy at a No Yes Discount to Market Price
Share Repurchase Considerations 15
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Sachs
Sizing Considerations for a J.Crew’s Share Repurchase
J.Crew Can Repurchase $150mm in Stock in Less Than 2 Months
Consolidated Volume: 1,955,505 10b-18 Volume Limit: 488,876
Repurchase Size ($mm): $50 $100 $150 Repurchase Size (Shares mm): 1.7 3.3 5.0
% Daily Consolidated # Shares Purchased
Volume Purchased Daily Time to Completion (Days)
5.00% 97,775 17 34 51
10.00% 195,551 9 17 26
15.00% 293,326 6 12 17
20.00% 391,101 5 9 13
% of Market Cap
8% 7% 6% 5% 4% 3% 2% 1% 0%
7.6%
5.1% 5.5%
4.3%
2.5%
$50 $100 $150 ASB Median ASB Average JCG JCG JCG
Days Trading Volume
8 7 6 5 4 3 2 1 0
6.9
5.8
2.5
1.7
0.8
$50 $100 $150 ASB Median ASB Average JCG JCG JCG
1 Volume observations taken from last 6 months with spot price of $30.23.
Share Repurchase Considerations 16
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Goldman
Sachs
Accelerated Stock Buyback
Basic Overview
Mechanics
GS borrows and sells a fixed number of shares to JCG in a single private transaction GS and JCG enter into a “make-up” contract with a predetermined maturity
The average price during the make-up contract is used to determine the economic repurchase price for the shares. JCG will either pay or receive the difference between the average price and initial price
Pros/Cons
+ Immediate reduction in share count for EPS purposes
+ Averaging period need not exclude blackout periods
+ Can be structured with a cap to limit upside exposure
– Reduced flexibility (difficult to suspend)
– Exposed to stock price appreciation
– Requires upfront cash outlay
Schematic
Cash J.CREW
Goldman
Sachs
Shares
Make Up Contract
Tax/Accounting/Legal
Upon the initial sale of stock to JCG the number of shares outstanding will be reduced If written to be EITF 00-19 compliant, there are no accounting entries on JCG’s balance sheet during the term of the contract The effective repurchase price for the shares repurchased upon the initial sale to JCG is based on 10b-18 VWAP during the “make-up” period
Share Repurchase Considerations 17
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Goldman
Sachs
Applications of An Accelerated Stock Buyback
Strategic
More defined message for existing programs
Signaling impact for first time repurchase
Improved valuation metrics
Response to vocal shareholder
Quick use of excess cash on balance sheet
Tactical
Hedge upside exposure in price
Buy stock at a discount
More efficient way to buy shares that are already anticipated to be purchased during the fiscal year
Offset expected share dilution from option exercises or convertibles
Repurchase through blackout
Share Repurchase Considerations 18
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Goldman
Sachs
ASB Structural Options
Structural Components
Sizing
Maturity
Price Participation
Alternatives
Fixed Dollar Notional
Fixed Share Amount
Fixed
Variable Capped Collar
Grid-Based
No collar
Benefits
Cost of repurchase known at inception Typically maximizes discount to VWAP
Maximize number of shares retired upfront
Certainty of maturity
Ability to achieve sub-VWAP pricing
Limit exposure to potential increase in repurchase price
Limit exposure to potential increase in repurchase price
Allows exclusion of days with high prices and to overweight lower price days
Participate in all stock price moves
Concerns
Retire fewer shares upfront than fixed share
May require additional payment in shares or cash at maturity
Typically does not include a discount to VWAP
Exact maturity of the program is not known upfront
Purchase of cap without sale of floor may result in reduced (or no) discount
Potentially forgo a payment from GS by fixing a “floor” price for the “make-up” contract – benefit from stock price declines only to floor price
Does not guarantee maximum price
Discount dependant on structure
Share Repurchase Considerations 19
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Goldman
Sachs
Illustrative Share Repurchase Economics
Transaction Size: $100 million Minimum Maturity: 2 weeks Maximum Maturity: 2 months
Cap Price (%): 107.5% of Hedge Period Reference Price
Floor Price (%): 95% of Hedge Period Reference Price
Discount to VWAP: 1.00%
Share Repurchase Considerations 20
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Goldman
Sachs
Structuring an Open Market Repurchase Program
Issues to Consider
Sizing
Timing
Price Sensitivity
Action Items and Mechanics
Documentation
Daily Trading Execution
10b-18 volume restriction Percent of daily volume
Program duration Blackout periods
Predetermined price limits
Volume Weighted Average Price (intraday vs. period) Impact of volume on repurchase price
Account Opening Documents Engagement Letter
Board Resolution authorizing Share Repurchase Program W-9
Transfer Agent Contacts, Instructions, and Settlement Arrangements
Daily or Periodic Placement of Orders
Scheduled Debriefings of Market Conditions and Trading Color
Share Repurchase Considerations 21
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Goldman
Sachs
Next Steps for ASB Execution
Business
Agree on structure for Accelerated Repurchase
— Size
— Price Protection
— Length of Program
— Fixed or Variable Maturity Work to craft disclosure and messaging
— Press release
Legal
Set up call with J. Crew Counsel and GS External Counsel, to introduce the ASB document J. Crew Counsel and GS Counsel to negotiate ASB confirmation and discuss disclosure J. Crew Internal Counsel/Treasury to complete standard brokerage account documents in order to receive/deliver payments and shares
Accounting
Set up call with J. Crew Accounting and GS Internal Accounting, to update perspectives on accounting treatment of ASB
J. Crew accounting to review transaction in relation to compliance with ASC 480-10-25 (FAS 150), ASC 815-40-25 (EITF 00-19) and other accounting standards
Key Participants
J. Crew Core Team, GS capital markets team J. Crew Counsel
Key Participants
J. Crew Counsel, GS Counsel
Key Participants
J. Crew Accounting, GS Internal Accounting
Share Repurchase Considerations 22
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Sachs
One-Time Share Repurchase Results In Meaningful EPS Accretion
($ in millions, except per share data)
One-Time Share Repo Size Status Quo $ 50 $ 100 $ 150 $ 200 $ 250
% of Market Cap 2.4% 4.9% 7.3% 9.8% 12.2%
Cash Used 50 100 150 200 250
Share Repurchase Price $ 30.23 $ 30.23 $ 30.23 $ 30.23 $ 30.23
Shares Repurchased (mm) 1.6 3.3 5.0 6.6 8.3
% of Outstanding Shares Repurchased (1) 2.6% 5.2% 7.8% 10.4% 12.9%
Accretion / (Dilution) Analysis
FY 2011E Net Income (2) (3) $ 173 $ 173 $ 173 $ 173 $ 173 $ 173
FY 2011E Shares Outstanding 66.5 64.9 63.2 61.6 59.9 58.3
FY 2011 E EPS (2) (3) (3) $ 2.60 $ 2.67 $ 2.74 $ 2.81 $ 2.89 $ 2.97
Accretion / (Dilution) (%) 2.5% 5.2% 8.0% 11.0% 14.2%
FY 2011E - 2013 E EPS CAGR 14.5% 14.4% 14.4% 14.3% 14.2% 14.1%
Pro Forma Cash Balance (2010) $ 340 $ 291 $ 241 $ 191 $ 141 $ 91
Source: Public filings, IBES Estimates
Note: Share repurchases are funded with existing cash balance. Assumes interest on cash to be 1.0% (1) Based on 63.8 million basic shares outstanding as of 30-Aug-2010.
| (2) |
|
Assumes a tax rate of 40.2% for FY2011E. |
(3) Based on 2011E weighted average diluted shares of 66.5 million. (4) Accretion calculated based on current price of $30.23.
Share Repurchase Considerations 23
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Sachs
Appendix A: Supplemental Materials
Supplemental Materials 24
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Sachs
Current Cap Structure
J.Crew ($ in millions)
Moody’s Adj.
Amount LTM LTM Leverage Interest / Tranche Current Bid /
(USD) Leverage (1) Using 8x (2) Coupon Rating Implied Yield Maturity
Cash $340
Undrawn Revolving Credit Facility (3) 195
Total Liquidity $536
Revolving Credit Facility ($200mm Capacity) - 0.0 x 1.9 L + 100-125 NA / NA May-2013
Term Loan (5) 49 0.2 2.0 L + 175 (4) Ba2 / BB+ 93.00 / 6.2% May-2013
Total Debt $49 0.2x 2.0x
Market Equity (30-Aug-2010) 2,043
Total Capitalization $2,092
Corporate Rating BB+ / WR Stable / NA
Source: Company Filings as of 31-Jul-2010
(1) Assumes LTM EBITDA to be $277mm as of 31-Jul-10. (2) LTM rent expense of $86mm capitalized at 8.0x. (3) Adjusts for $6mm of Letters of Credit as of 31-Jul-2010.
(4) Interest rate is at company’s option, at base rate plus a margin of 0.75% or at L+175 bps
(5) On August 24, 2010, the Company notified its lenders that it would make a voluntary prepayment of the remaining outstanding balance on its credit agreement on August 31, 2010.
Supplemental Materials 25
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Goldman
Sachs
Common Stock Comparison
($ in millions, except per share data)
Enterprise
Closing % of 52 Equity Value Multiples (2) Calendarized 5-Year 2011
Price Week Market Enterprise Sales EBITDA EBIT P/E Multiples (2) EPS PE/5-Year LTM Margins (1) Dividend
Company 30-Aug-2010 High Cap (1) Value (1) LTM LTM 2010 2011 LTM 2010 2011 CAGR (2) EPS CAGR EBITDA EBIT Yield
J.Crew $ 30.23 60 % $ 2,043 $ 1,751 1.0 x 6.3 x 5.5 x 5.1 x 6.3 x 13.1 x 11.6 x 20.0 % 0.6 x 16.3 % 16.3 % 0.0 %
U.S. Specialty Retailer
Abercrombie & Fitch $ 35.04 70 % $ 3,092 $ 2,568 0.9 x 6.3 x 5.3 x 4.5 x 14.8 x 19.9 x 14.4 x 16.5 % 0.9 x 13.6 % 5.8 % 2.0 %
Aeropostale 22.25 69 2,087 1,774 0.8 3.8 3.8 3.5 4.3 8.4 7.8 13.3 0.6 20.2 18.0 0.0
American Eagle $ 13.05 67 2,552 2,121 0.7 5.2 4.7 4.3 8.4 13.5 11.7 13.0 0.9 13.3 8.3 3.1
AnnTaylor 15.17 61 896 635 0.3 3.3 3.0 2.7 NM 13.2 11.1 14.5 0.8 10.2 4.9 0.0
Buckle 24.33 61 1,163 1,008 1.1 4.4 4.6 4.4 4.9 9.4 8.9 10.0 0.9 25.2 22.3 3.3
Coach $ 35.77 81 10,638 9,967 2.8 7.8 NA 6.9 8.7 14.4 12.8 15.0 0.9 35.4 31.9 1.0
Gap $ 16.90 64 10,995 8,514 0.6 3.3 3.5 3.4 4.4 9.4 8.9 10.0 0.9 18.1 13.5 2.2
Guess? $ 33.07 66 3,113 2,632 1.2 5.7 5.8 5.1 6.7 11.4 10.0 15.0 0.7 20.6 17.6 1.7
Limited Brands $ 24.14 84 7,954 9,336 1.1 6.5 6.2 5.7 9.1 13.3 12.1 14.0 0.9 16.1 11.7 2.5
Lululemon Athletica 31.90 70 2,239 2,066 4.1 15.7 12.6 10.1 18.9 27.7 22.6 25.0 0.9 25.8 21.5 0.0
Polo 75.46 79 7,555 6,826 1.3 7.1 7.4 6.7 8.8 15.5 13.7 11.0 1.2 18.7 15.2 0.5
rue21 20.76 55 514 486 0.9 7.8 6.9 5.7 11.1 17.7 14.5 25.0 0.6 11.2 7.9 0.0
Urban Outfitters 30.70 76 5,264 4,681 2.3 10.1 8.5 7.2 12.5 18.1 15.3 20.0 0.8 22.8 18.4 0.0
High 84 % $ 10,995 $ 9,967 4.1 x 15.7 x 12.6 x 10.1 x 18.9 x 27.7 x 22.6 x 25.0 % 1.2 x 35.4 % 31.9 % 3.3 %
Mean 70 4,466 4,047 1.4 6.7 6.0 5.4 9.4 14.8 12.6 15.6 0.8 19.3 15.2 1.3
Median 69 3,092 2,568 1.1 6.3 5.6 5.1 8.7 13.5 12.1 14.5 0.9 18.7 15.2 1.0
Low 55 514 486 0.3 3.3 3.0 2.7 4.3 8.4 7.8 10.0 0.6 10.2 4.9 0.0
(1) Source: Latest publicly available financial statements. Equity Market Cap based on diluted shares outstanding.
(2) Sources: LTM numbers are based on latest publicly available financial statements. Projected revenues, EBITDA, EBIT, and EPS are based on IBES median estimates and/or other Wall Street research.
Supplemental Materials 26
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Goldman
Sachs
Disclosure
© Goldman, Sachs & Co. and/or its affiliates (“Goldman Sachs”). All rights reserved. This information may be confidential. It is intended solely for the use of the intended recipient and should not be reproduced, disclosed or distributed without the prior written consent of Goldman Sachs. If you are not the intended recipient of this material please delete and destroy all copies immediately.
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Note: Options involve risk and are not suitable for all investors. Please ensure that you have read and understood the current options disclosure document before entering into any options transactions.
Supplemental Materials 27
Exhibit (c)(16)
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Exhibit (c)(16)
Goldman
Sachs
J.Crew Discussion Materials
Goldman, Sachs & Co.
September 2010
[13-September-2010]
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Goldman
Sachs
Recapitalization Analysis
Sources and Uses and Debt Paydown ($ in millions, except per share data)
Sources of Funds
Cost of % of Total x 2010E x 2010E
Amount Debt Sources EBITDA EBITDAR
Target Existing Cash $ 403 0.5% 34.5%
Bank Debt (1) 766 L + 425 65.5% 2.3 x 3.5 x
Total Debt $ 766 65.5% 2.3 x 3.5 x
Total Sources of Funds $ 1,169 100.0%
Projected Free Cash Flow
PF 2010 2011E 2012E 2013E 2014E 2015E
Revenue $ 1,805 $ 2,034 $ 2,356 $ 2,709 $ 3,087 $ 3,481
Growth 14.4 % 12.7 % 15.8 % 15.0 % 14.0 % 12.7 %
EBITDA 329 394 474 567 672 793
Margin % 18.2 % 19.4 % 20.1 % 20.9 % 21.8 % 22.8 %
Net Income 0 175 226 289 357 430
(+) D&A 49 56 62 66 69 70
(+) Fin. Fees Amort. 3 3 3 3 3 3
(-) Capital Expenditure 52 54 59 59 58 65
(-) Change in OWC 0 19(5)(5)(5)(1)
FCF For Debt Paydown $(0) $ 161 $ 237 $ 304 $ 376 $ 439
Cumulative FCF $ 161 $ 398 $ 702 $ 1,078 $ 1,517
Uses of Funds
Amount
Total Special Dividends / Share Repurchases $ 933
Special Dividends per share $ 14.63
Shares Repurchased (mm) - at 20.0% premium 22.75
Minimum Operating Cash 200
Financing and Other Fees (1) 36
Total Uses of Funds $ 1,169
De-leveraging Profile
PF 2010 2011E 2012E 2013E 2014E 2015E
Bank Debt (2) $ 766 $ 605 $ 368 $ 64 $ 0 $ 0
Senior Notes 0 0 0 0 0 0
Total Debt $ 766 $ 605 $ 368 $ 64 $ 0 $ 0
Total Cash $ 200 $ 200 $ 200 $ 200 $ 512 $ 951
Credit Statistics
PF 2010 2011E 2012E 2013E 2014E 2015E
Total Debt / EBITDA 2.3 x 1.5 x 0.8 x 0.1 x 0.0 x 0.0 x
Adj. Debt / EBITDAR 3.5 x 2.8 x 2.2 x 1.6 x 1.4 x 1.4 x
EBITDA / Int. 6.7 x 8.8 x 14.5 x 34.5 x N.M. N.M.
EBITDA-Capex / Int. 5.6 x 7.6 x 12.7 x 30.9 x N.M. N.M.
Source: Company Management for the years 2010E through 2014E; Extrapolated based on constant growth and margins for 2015E Note: Assumes 63.7 million of diluted shares outstanding.
(1) Assumes LIBOR floor of 1.75%. Assumes financing fees of 2.5% and OID on bank debt to be 2.0%. Also assumes advisory fees of $2.0 million.
| 1 |
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Goldman
Sachs
Recapitalization: One-Time Special Dividend
PF EPS Impact
($ in millions, except per share data)
One-Time Special Dividend Size Status Quo $ 600 $ 700 $ 800 $ 933 $ 1,000 $ 1,100
Special Dividends per share (1) $ 9.41 $ 10.98 $ 12.55 $ 14.63 $ 15.69 $ 17.25
Cash Used 203 203 203 203 203 203
New Debt 425 528 630 766 835 938
FY 2011E Net Income (2) (3) $ 202 $ 197 $ 191 $ 184 $ 175 $ 170 $ 164
FY 2011E Shares Outstanding 66.8 66.8 66.8 66.8 66.8 66.8 66.8
FY 2011 E EPS (2) (3) (4) $ 3.02 $ 2.96 $ 2.85 $ 2.75 $ 2.62 $ 2.55 $ 2.45
Accretion / (Dilution) (%)(2.2)%(5.5)%(8.8)%(13.2)%(15.5)%(18.8)%
Implied Share Price at 11.3x 2011 P/E Mulitple $ 34.17 $ 33.43 $ 32.30 $ 31.16 $ 29.65 $ 28.89 $ 27.75
Implied Share Price at 10.3x 2011 P/E Mulitple $ 30.48 $ 29.44 $ 28.41 $ 27.03 $ 26.33 $ 25.30
Implied Share Price at 9.3x 2011 P/E Mulitple $ 27.52 $ 26.59 $ 25.65 $ 24.41 $ 23.78 $ 22.85
Shareholder Value @11.3x 2011 P/E Mulitple (5) $ 42.85 $ 43.28 $ 43.71 $ 44.28 $ 44.57 $ 45.01
Accretion in Value over current price 25.4% 26.7% 27.9% 29.6% 30.4% 31.7%
Shareholder Value @10.3x 2011 P/E Mulitple (5) $ 39.89 $ 40.42 $ 40.96 $ 41.66 $ 42.02 $ 42.55
Accretion in Value over current price 16.7% 18.3% 19.9% 21.9% 23.0% 24.5%
Shareholder Value @9.3x 2011 P/E Mulitple (5) $ 36.94 $ 37.57 $ 38.20 $ 39.04 $ 39.47 $ 40.10
Accretion in Value over current price 8.1% 9.9% 11.8% 14.3% 15.5% 17.4%
Pro Forma Credit Statistics (2010)
Total Debt $ 0 $ 425 $ 528 $ 630 $ 766 $ 835 $ 938
Debt / EBITDA 0.0 x 1.3 x 1.6 x 1.9 x 2.3 x 2.5 x 2.8 x
Adj. Debt / EBITDAR (6) 1.7 x 2.7 x 2.9 x 3.2 x 3.5 x 3.7 x 3.9 x
Source: Public filings, Management Projections
| (1) |
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Based on current basic shares outstanding of 63.7 million. (2) Assumes a tax rate of 40.2% for FY2011E. |
(3) Assumes Interest rate on bank debt of $766.4 million to be L+425. Assumes LIBOR floor of 1.8%. Also assumes interest on cash to be 0.5% (4) Based on 2011E weighted average diluted shares of 66.8 million.
(5) Defined as Dividend per share plus Pro Forma EPS times P/E Multiple (DPS + PF EPS x P/E). Accretion calculated based on current price of $34.17. (6) Assumes rent expense capitalized at 8.0x and 100% of rent expense attributed to interest expense.
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Goldman
Sachs
Recapitalization: One-Time Special Dividend
Value Creation to Shareholders
One-Time Special Dividend of $933 mm (3.5x Adj. Leverage)
| 11.3 |
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x 12.0 x 13.0 x 14.0 x 15.0 x |
Implied Share Price $ 34.17 $ 36.25 $ 39.27 $ 42.29 $ 45.31
Implied Share Price
- Same Multiple $ 29.65 $ 31.45 $ 34.07 $ 36.70 $ 39.32
- 1.0x Multiple less $ 27.03 $ 28.83 $ 31.45 $ 34.07 $ 36.70
- 2.0x Multiple less $ 24.41 $ 26.21 $ 28.83 $ 31.45 $ 34.07
- 3.0x Multiple less $ 21.79 $ 23.59 $ 26.21 $ 28.83 $ 31.45
Special Dividends per share $ 14.63 $ 14.63 $ 14.63 $ 14.63 $ 14.63
Value to Shareholders
- Same Multiple $ 44.28 $ 46.09 $ 48.71 $ 51.33 $ 53.95
Value Accretion to Implied Price 29.6% 27.1% 24.0% 21.4% 19.1%
- 1.0x Multiple less $ 41.66 $ 43.46 $ 46.09 $ 48.71 $ 51.33
Value Accretion to Implied Price 21.9% 19.9% 17.4% 15.2% 13.3%
- 2.0x Multiple less $ 39.04 $ 40.84 $ 43.46 $ 46.09 $ 48.71
Value Accretion to Implied Price 14.3% 12.7% 10.7% 9.0% 7.5%
- 3.0x Multiple less $ 36.42 $ 38.22 $ 40.84 $ 43.46 $ 46.09
Value Accretion to Implied Price 6.6% 5.5% 4.0% 2.8% 1.7%
Source: Public filings, Management Projections
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Goldman
Sachs
Recapitalization: One-Time Share Repurchases
($ in millions, except per share data)
One-Time Share Repo Size Status Quo $ 600 $ 700 $ 800 $ 933 $ 1,000 $ 1,100
% of Market Cap 25.9% 30.2% 34.5% 40.3% 43.2% 47.5%
Cash Used 203 203 203 203 203 203
New Debt 425 528 630 766 835 938
Share Repurchase Price $ 41.00 $ 41.00 $ 41.00 $ 41.00 $ 41.00 $ 42.71
% Premium to Current 20.0% 20.0% 20.0% 20.0% 20.0% 25.0%
Shares Repurchased (mm) 14.6 17.1 19.5 22.7 24.4 25.7
% of Outstanding Shares Repurchased (1) 23.0% 26.8% 30.6% 35.7% 38.3% 40.4%
Accretion / (Dilution) Analysis
FY 2011E Net Income (2) (3) $ 202 $ 197 $ 191 $ 184 $ 175 $ 170 $ 164
FY 2011E Shares Outstanding 66.8 52.1 49.7 47.3 44.0 42.4 41.0
FY 2011 E EPS (2) (3) (4) $ 3.02 $ 3.79 $ 3.84 $ 3.89 $ 3.98 $ 4.02 $ 3.99
Accretion / (Dilution) (%) 25.3% 27.0% 28.8% 31.6% 33.2% 32.2%
FY 2011E - 2013 E EPS CAGR 21.2% 25.2% 25.9% 26.6% 27.7% 28.2% 29.1%
Implied Share Price at 11.3x 2011 P/E Mulitple $ 34.17 $ 42.82 $ 43.39 $ 44.03 $ 44.97 $ 45.51 $ 45.17
Share Price Accretion (5) 25.3% 27.0% 28.8% 31.6% 33.2% 32.2%
Implied Share Price at 10.3x 2011 P/E Mulitple $ 39.03 $ 39.56 $ 40.13 $ 41.00 $ 41.49 $ 41.18
Share Price Accretion (5) 14.2% 15.8% 17.5% 20.0% 21.4% 20.5%
Implied Share Price at 9.3x 2011 P/E Mulitple $ 35.25 $ 35.72 $ 36.24 $ 37.02 $ 37.46 $ 37.19
Share Price Accretion (5) 3.2% 4.5% 6.1% 8.4% 9.6% 8.8%
Pro Forma Credit Statistics (2010)
Total Debt $ 0 $ 425 $ 528 $ 630 $ 766 $ 835 $ 938
Debt / EBITDA 0.0 x 1.3 x 1.6 x 1.9 x 2.3 x 2.5 x 2.8 x
Adj. Debt / EBITDAR (6) 1.7 x 2.7 x 2.9 x 3.2 x 3.5 x 3.7 x 3.9 x
Source: Public filings, Management Projections
(1) Based on 63.7 million basic shares outstanding as of 09-Sep-2010.
(2) Assumes a tax rate of 40.2% for FY2011E.
(3) Assumes Interest rate on bank debt of $766.4 million to be L+425. Assumes LIBOR floor of 1.8%. Also assumes interest on cash to be 0.5%
(4) Based on 2011E weighted average diluted shares of 66.8 million.
(5) Accretion calculated based on current price of $34.17.
(6) Assumes rent expense capitalized at 8.0x and 100% of rent expense attributed to interest expense.
4
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Goldman
Sachs
Illustrative LBO Analysis
Assumes Stock Price of $50.0 per share (46.3% Premium) or 9.3x EV / 2010E EBITDA ($ in millions)
Sources of Funds
Cost of % of Total % of Total x 2010E x 2010E
Amount Debt Sources Cap. EBITDA EBITDAR
Target Existing Cash $ 403 0.5% 11.1%
Bank Debt (1) 1,000 L + 475 27.5% 31.0% 3.0 x 4.1 x
Sr. Notes 615 10.0% 16.9% 19.0% 4.9 x 5.5 x
Total Debt $ 1,615 44.5% 50.0% 4.9 x 5.5 x
Equity rolled over 223 6.1% 6.9%
Sponsor Equity (2) $ 1,392 38.3% 43.1%
Total Sources of Funds $ 3,633 100.0% 100.0%
Projected Free Cash Flow
PF 2010 2011E 2012E 2013E 2014E 2015E
Revenue $ 1,805 $ 2,034 $ 2,356 $ 2,709 $ 3,087 $ 3,481
Growth 14.4 % 12.7 % 15.8 % 15.0 % 14.0 % 12.7 %
EBITDA 329 394 474 567 672 793
Margin % 18.2 % 19.4 % 20.1 % 20.9 % 21.8 % 22.8 %
Net Income 87 124 174 236 308 389
(+) D&A 49 56 62 66 69 70
(+) Fin. Fees Amort. 6 6 6 6 6 6
(-) Capital Expenditure 52 54 59 59 58 65
(-) Change in OWC 0 19 (5) (5) (5) (1)
FCF For Debt Paydown $ 2 $ 114 $ 188 $ 253 $ 331 $ 401
De-leveraging Profile
PF 2009 2010E 2011E 2012E 2013E 2014E
Bank Debt 1,000 886 699 445 114 0
Senior Notes 615 615 615 615 615 615
Total Debt $ 1,615 $ 1,501 $ 1,314 $ 1,060 $ 729 $ 615
Total Debt / EBITDA 4.9 x 3.8 x 2.8 x 1.9 x 1.1 x 0.8 x
Adj. Debt / EBITDAR 5.5 x 4.6 x 3.8 x 3.0 x 2.3 x 2.0 x
EBITDA / Int. Exp. 2.5 x 3.1 x 4.0 x 5.4 x 7.8 x 11.1 x
EBITDA-Capex / Int. Exp. 2.1 x 2.6 x 3.5 x 4.8 x 7.2 x 10.2 x
Uses of Funds
Amount
Total Equity Purchased ($50.00 per share) 3,452
Existing Target Debt Retired 0
Total Purchase Price $ 3,452
EV / 2010E EBITDA (Adj. Cash) 9.3 x
Minimum Operating Cash 100
Financing and Other Fees (1) 80
Total Uses of Funds $ 3,633
Illustrative Returns to Sponsor
Purchase Price $ 45.00 $ 50.00 $ 55.00 $ 60.00 $ 65.00
Premium to Current 31.7% 46.3% 61.0% 75.6% 90.2%
Implied EV / 2010E EBITDA
Exit EBITDA Multiple
| 8.2 |
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x 9.3 x 10.4 x 11.4 x 12.5 x |
| 7.0 |
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x 32.4% 26.2% 21.4% 17.6% 14.3% |
| 7.5 |
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x 34.3% 28.0% 23.2% 19.3% 16.0% |
| 8.0 |
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x 36.1% 29.8% 24.8% 20.9% 17.5% |
| 8.5 |
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x 37.8% 31.4% 26.4% 22.4% 19.0% |
| 9.0 |
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x 39.5% 32.9% 27.9% 23.8% 20.4% |
Returns to Sponsor exit in 2015 @ 8.0x EBITDA
Equity Implied EV / 2010E EBITDA
Adj Leverage
Check 8.2 x 9.3 x 10.4 x 11.4 x
| 4.5 |
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x 63.3% 31.1% 26.3% 22.4% 19.1% |
| 5.0 |
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x 56.9% 33.2% 27.8% 23.5% 19.9% |
| 5.5 |
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x 50.6% 35.9% 29.6% 24.7% 20.8% |
| 6.0 |
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x 44.2% 39.1% 31.7% 26.2% 21.8% |
| 6.5 |
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x 37.9% 43.3% 34.3% 27.9% 23.0% |
Source: Company Management for the years 2010E through 2014E; Extrapolated based on constant growth and margins for 2015E Note: Assumes 63.7 million of diluted shares outstanding.
(1) Assumes LIBOR floor of 1.75%. Assumes financing fees of 2.5% and OID on bank debt to be 2.0%. Also assumes advisory fees of $20.0 million. (2) Equity Rollover assumes rollover of 1.8 million basic shares and 4.0 million options at a strike price of $16.7
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Goldman
Sachs
Illustrative Ability To Pay Analysis
Share Price Required to Achieve Target Returns Assuming 2015E Exit Assumes 6.0x Adjusted Leverage
Assumes 25% IRR with 5 Year exit in 2015@ 8.0x EBITDA
Equity Value Per Share Implied Premium Over Current Stock Price
2009 - 2014 Sales CAGR 2009 - 2014 Sales CAGR
10.0% 11.0% 12.0% 13.0% 14.0% 10.0% 11.0% 12.0% 13.0% 14.0%
15E EBITDA Per Year Change in Annual Sales Growth vs. Plan 15E EBITDA Per Year Change in Annual Sales Growth vs. Plan
Margin vs. Plan (4.0)% (3.0)% (2.0)% (1.0)% (0.0)%
18.8% (4.0)% $ 45.79 $ 46.72 $ 47.68 $ 48.68 $ 49.72 18.8% (4.0)% 34.0% 36.7% 39.5% 42.5% 45.5%
19.8% (3.0)% 46.85 47.83 48.85 49.90 50.99 19.8% (3.0)% 37.1% 40.0% 43.0% 46.0% 49.2%
20.8% (2.0)% 47.92 48.94 50.01 51.12 52.26 20.8% (2.0)% 40.2% 43.2% 46.4% 49.6% 52.9%
21.8% (1.0)% 48.98 50.06 51.18 52.33 53.54 21.8% (1.0)% 43.3% 46.5% 49.8% 53.2% 56.7%
22.8% 0.0% 50.04 51.17 52.34 53.55 54.81 22.8% 0.0% 46.5% 49.8% 53.2% 56.7% 60.4%
Source: Company Management
6
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Goldman
Sachs
Illustrative Timeline
Week One
Week Four
Week Six
Week Eight
Week Ten
Week Twelve
Week Fourteen
Week Sixteen
Week Eighteen
Week Twenty
Week Twenty-Two
Week Twenty-Six
Week Twenty-Eight
Week Thirty
Post-Signing Market Check Transaction1
Prepare/Approach Board (4 weeks)
Special Committee Formed (if necessary Due Diligence/ Negotiate (4 weeks)
Board Meetings/Execute Merger Agreement (2 weeks)
Issue press Release; Prepare Proxy (2 weeks)
File Proxy and Receive Comments (4 weeks)
Definitive Proxy Statement Mailed to Shareholders (4 weeks)
Share-holder Vote
If subject to 13(e)-3
File Proxy and Schedule 13E-3 and Receive Comments (8-12 weeks)
Definitive Proxy Statement Mailed to Shareholders (4 weeks)
Share-holder Vote
1 The post-announcement period is likely to be appreciably longer if competing bidders emerge.
Exhibit 1
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Goldman Sachs
J.Crew Back Up Pages
Goldman, Sachs & Co. September 2010
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Rent Adjusted Debt
Adjusted Debt = Debt +
8XRent EBITDAR = EBITDA + Rent
2010
Adjusted Debt = $1,611 + 8*86= $2297 EBITDAR= $329+$86=$415
Rent Adjusted Leverage = $2297/$415 = 5.5x
Goldman Sachs
Income Statement
($ in millions, except per share data)
Pro Forma Fiscal Year Ending December (1)
2010 LTM 2011E 2012E 2013E 2014E 2015E
Revenue $ 1,805.1 $ 1,805.1 $ 2,034.1 $ 2,355.6 $ 2,709.3 $ 3,087.4 $ 3,480.7
Growth % 14% 12.7% 15.8% 15.0% 14.0% 12.7%
Incremental Growth % 0.0% 0.0% 0.0% 0.0% 0.0%
Total Growth % 12.7% 15.8% 15.0% 14.0% 12.7%
EBITDAR 415.0 415.0 491.0 585.9 695.4 818.3 958.6
Rent 86 85.8 96.7 111.9 128.7 146.7 165.4
Sales % 4.8% 4.8% 4.8% 4.8% 4.8% 4.8%
EBITDA 329.2 329.2 394.4 474.0 566.7 671.6 793.2
Margin % 18.2% 19.4% 20.1% 20.9% 21.8% 22.8%
Incremental Margin % 0.0% 0.0% 0.0% 0.0% 0.0%
Total Margin % 19.4% 20.1% 20.9% 21.8% 22.8%
Depreciation of Existing Tangible Assets 49.0 49.0 56.1 62.0 65.8 68.6 69.6
D&A as a % of Sales 2.8% 2.6% 2.4% 2.2% 2.0%
Depreciation of Tangible Asset Write-Ups(2) 0.0 0.0 0.0 0.0 0.0 0.0
Amortization of Existing Intangibles 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Amortization of Intangible Asset Write-Ups (2) 0.0 0.0 0.0 0.0 0.0 0.0
EBIT 280.3 280.3 338.2 412.0 500.9 603.0 723.6
Interest Expense:
Amortization of Financing Fees (3) 6.0 6.0 6.0 6.0 6.0 6.0
Revolver 0.0 0.0 0.0 0.0 0.0 0.0
Bank Debt 65.0 61.3 51.5 37.1 18.1 3.7
Target Debt Assumed - Secured 0.0 0.0 0.0 0.0 0.0 0.0
Senior Interest Expense 71.0 67.3 57.5 43.2 24.2 9.7
Target Debt Assumed - Unsecured 0.0 0.0 0.0 0.0 0.0 0.0
Sr. Unsecured Notes 61.1 61.1 61.1 61.1 61.1 61.1
PIK Debt (4) 0.0 0.0 0.0 0.0 0.0 0.0
Total Interest Expense 132.1 128.4 118.6 104.3 85.2 70.8
Interest Income(1.5)(1.5)(1.5)(1.5)(1.5)(1.5)
Net Interest Expense 0.0 133.6 129.9 120.1 105.8 86.8 72.3
Pre-tax Income 280.3 146.6 208.3 291.9 395.1 516.2 651.3
Pre-tax Income (book tax calc.) (5) 146.6 208.3 291.9 395.1 516.2 651.3
Taxes / (Book Tax Benefit) (5) 58.9 83.7 117.3 158.8 207.5 261.8
Net Income / (Loss) 280.3 87.7 124.6 174.6 236.3 308.7 389.5
PIK Preferred (6) 0.0 0.0 0.0 0.0 0.0 0.0
Net Income / (Loss) to Common 280.3 87.7 124.6 174.6 236.3 308.7 389.5
1
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Goldman Sachs
Cash Flow
($ in millions, except per share data)
Pro Forma Fiscal Year Ending December (1)
2010 LTM 2011E 2012E 2013E 2014E 2015E
Net Income / (Loss) to Common $ 280.3 $ 87.7 $ 124.9 $ 174.9 $ 236.6 $ 309.0 $ 389.8
Additions
Depreciation of Existing Tangible Assets 49.0 49.0 56.1 62.0 65.8 68.6 69.6
Depreciation of Tangible Asset Write-Ups(2) 0.0 0.0 0.0 0.0 0.0 0.0
Amortization of Existing Intangibles 0.0 0.0 0.0 0.0 0.0 0.0
Amortization of Intangible Asset Write-Ups (2) 0.0 0.0 0.0 0.0 0.0
Amortization of Financing Fees (3) 6.0 6.0 6.0 6.0 6.0 6.0
PIK Interest (4) 0.0 0.0 0.0 0.0 0.0 0.0
PIK Dividends (5) 0.0 0.0 0.0 0.0 0.0 0.0
Deferred Taxes (from transaction purchase accounting) (2) (6) 0.0 0.0 0.0 0.0 0.0
Cash Tax Benefit from Loss Carryforwards (6) 0.0 0.0 0.0 0.0 0.0
Other Deferred Taxes 0.0 0.0 0.0 0.0 0.0 0.0
Other Non-Cash Expenses 0.0 0.0 0.0 0.0 0.0 0.0
Total Additions 49.0 55.0 62.2 68.0 71.8 74.6 75.6
Subtractions
Increase / (Decrease) in Working Capital 0.4 0.4 19.3 (4.5) (4.8) (5.1) (1.1)
Reversal of Book Tax Benefit (7) 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Mandatory Capital Expenditures 52.5 52.5 53.9 59.4 59.5 57.7 65.0
Capex as % of Sales 2.6% 2.5% 2.2% 1.9% 1.9%
Discretionary Capital Expenditures 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Total Capital Expenditures 52.5 52.5 53.9 59.4 59.5 57.7 65.0
Total Subtractions 52.9 52.9 73.1 54.9 54.6 52.6 63.9
Free Cash Flow Available for Debt Service 276.4 89.8 113.9 188.0 253.7 331.0 401.5
Cumulative Free Cash Flow 113.9 301.9 555.6 886.7 1,288.2
0.0 0.0 0.0 0.0 0.0
Cash Taxes
Pre-tax Income (book tax calc.) $ 146.6 $ 208.3 $ 291.9 $ 395.1 $ 516.2 $ 651.3
Plus: Reversal of Asset Write-Up D&A for Tax (2) (6) 0.0 0.0 0.0 0.0 0.0 0.0
Less: Goodwill Amortization for Tax (2) (6) 0.0 0.0 0.0 0.0 0.0 0.0
Pre-tax Income before Loss Carryforward (cash tax calc.) $ 146.6 $ 208.3 $ 291.9 $ 395.1 $ 516.2 $ 651.3
Pre-tax Income after Loss Carryforward (cash tax calc.) $ 0.0 $ 208.3 $ 291.9 $ 395.1 $ 516.2 $ 651.3
Tax Loss Carryforward—End of Year $ 0.0 0.0 0.0 0.0 0.0 0.0
2
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Goldman Sachs
Capital Structure and Debt Paydown
Pro Forma Fiscal Year End December (1)
2010 2010 2011E 2012E 2013E 2014E 2015E
Free Cash Flow Available for Debt Service $ 276.4 $ 2.1 $ 113.9 $ 188.0 $ 253.7 $ 331.0 $ 401.5
Cumulative Free Cash Flow 113.9 301.9 555.6 886.7 1,288.2
Free Cash Flow After Revolver Repayment / Drawdown 113.9 188.0 253.7 331.0 401.5
Free Cash Flow After Bank Debt Repayment (0.0) 0.0 (0.0) 0.0 288.2
Total Cash 402.8 $ 100.0 100.0 100.0 100.0 100.0 388.2
Revolver 0.0 0.0 0.0 0.0 0.0 0.0
Bank Debt 1,000.0 886.2 698.2 444.4 113.4 0.0
Target Debt Assumed - Secured 0.0 0.0 0.0 0.0 0.0 0.0
Total Senior Debt 1,000.0 886.2 698.2 444.4 113.4 0.0
Target Debt Assumed - Unsecured 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Sr. Unsecured Notes 610.9 610.9 610.9 610.9 610.9 610.9
PIK Debt (2) 0.0 0.0 0.0 0.0 0.0 0.0
Total Debt 0.0 1,611.0 1,497.1 1,309.1 1,055.3 724.3 610.9
PIK Preferred (3) 0.0 0.0 0.0 0.0 0.0 0.0
Total Debt and Preferred 0.0 1,611.0 1,497.1 1,309.1 1,055.3 724.3 610.9
Common Equity (4) 630.1(1,223.3)(1,098.8)(924.2)(687.9)(379.3) 10.2
Total Capitalization 630.1 387.6 398.3 384.8 367.4 345.0 621.1
Net Debt (402.8) 1,511.0 1,397.1 1,209.1 955.3 624.3 222.7
Net Debt and Preferred (402.8) 1,511.0 1,397.1 1,209.1 955.3 624.3 222.7
Net Capitalization 227.3 287.6 298.3 284.8 267.4 245.0 232.9
Credit Statistics LTM
EBITDA / Tot. Int. Exp.+Pref. Div. N.M. 2.5 x 3.1 x N.M. N.M. N.M. 11.2 x
EBITDA / Tot. Int. Exp. N.M. 2.5 x 3.1 x 4.0 x 5.4 x 7.9 x 11.2 x
EBITDA / Cash Int. Exp. N.M. 2.6 x 3.2 x 4.2 x 5.8 x 8.5 x 12.2 x
EBITDA-Capex / Tot. Int. Exp.+Pref. Div. N.M. 2.1 x 2.7 x 3.5 x 4.9 x 7.2 x 10.3 x
EBITDA-Capex / Tot. Int. Exp. N.M. 2.1 x 2.7 x 3.5 x 4.9 x 7.2 x 10.3 x
EBITDA-Capex / Cash Int. Exp. N.M. 2.2 x 2.8 x 3.7 x 5.2 x 7.7 x 11.2 x
Adj. Debtj / EBITDAR 1.7 x 5.5 x 4.6 x 3.8 x 3.0 x 2.3 x 2.0 x
Total Debt+Pref. / EBITDA 0.0 x 4.9 x 3.8 x 2.8 x 1.9 x 1.1 x 0.8 x
Total Debt / EBITDA 0.0 x 4.9 x 3.8 x 2.8 x 1.9 x 1.1 x 0.8 x
Senior Debt / EBITDA N.M. 3.0 x 2.2 x 1.5 x 0.8 x 0.2 x N.M.
| 3 |
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Exhibit (c)(17)
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Exhibit (C) (17)
Goldman Sachs
J.Crew Discussion Materials
Goldman, Sachs & Co.
September 2010
[23-September-2010]
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Goldman Sachs
Recapitalization Analysis
Sources and Uses and Debt Paydown
($ in millions, except per share data)
Sources of Funds
Cost of % of Total x 2010E x 2010E
Amount Debt Sources EBITDA EBITDAR
Target Existing Cash $ 403 0.5% 44.6%
Bank Debt (1) 500 L + 425 55.4% 1.5 x 2.9 x
Total Sources of Funds $ 903 100.0%
Projected Free Cash Flow
PF 2010 2011E 2012E 2013E 2014E 2015E
Revenue $ 1,805 $ 2,034 $ 2,356 $ 2,709 $ 3,087 $ 3,481
Growth 14.4 % 12.7 % 15.8 % 15.0 % 14.0 % 12.7 %
EBITDA 329 394 474 567 672 793
Margin % 18.2 % 19.4 % 20.1 % 20.9 % 21.8 % 22.8 %
Net Income 148 185 236 295 358 430
(+) D&A 49 56 62 66 69 70
(+) Fin. Fees Amort. 2 2 2 2 2 2
(-) Capital Expenditure 52 54 59 59 58 65
(-) Change in OWC 0 19 (5) (5) (5) (1)
FCF For Debt Paydown $ 146 $ 170 $ 246 $ 309 $ 376 $ 438
Cumulative FCF $ 170 $ 416 $ 724 $ 1,100 $ 1,538
Uses of Funds
Amount
Total Special Dividends / Share Repurchases $ 723
Special Dividends per share $ 11.33
Shares Repurchased (mm) - at 20.0% premium 20.07
Shares Repurchased (mm) - at 15.0% premium 20.94
Shares Repurchased (mm) - at 10.0% premium 21.89
Minimum Operating Cash 153
Financing and Other Fees (1) 28
Total Uses of Funds $ 903
De-leveraging Profile
PF 2010 2011E 2012E 2013E 2014E 2015E
Bank Debt (1) $ 500 $ 330 $ 84 $ 0 $ 0 $ 0
Senior Notes 0 0 0 0 0 0
Total Debt $ 500 $ 330 $ 84 $ 0 $ 0 $ 0
Total Cash $ 153 $ 153 $ 153 $ 377 $ 753 $ 1,191
Credit Statistics
PF 2010 2011E 2012E 2013E 2014E 2015E
Total Debt / EBITDA 1.5 x 0.8 x 0.2 x 0.0 x 0.0 x 0.0 x
Adj. Debt / EBITDAR 2.9 x 2.2 x 1.7 x 1.5 x 1.4 x 1.4 x
EBITDA / Int. 10.2 x 14.5 x 32.3 x N.M. N.M. N.M.
EBITDA-Capex / Int. 8.6 x 12.5 x 28.2 x N.M. N.M. N.M.
Source: Company Management for the years 2010E through 2014E; Extrapolated based on constant growth and margins for 2015E
Note: Assumes 63.7 million of basic shares outstanding.
(1) Assumes LIBOR floor of 1.75%. Assumes financing fees of 2.5%. Assumes OID on bank debt to be 2.0% or $10.0 million. Also assumes advisory fees of $5.0 million.
1
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Goldman Sachs
Recapitalization: One-Time Share Repurchases
Assumes 20.0% Premium To Stock Price Of $30.00
($ in millions, except per share data)
One-Time Share Repo Size Status Quo $ 500 $ 600 $ 700 $ 723 $ 800 $ 900
% of Market Cap 24.8% 29.7% 34.7% 35.8% 39.6% 44.6%
Cash Used 250 250 250 250 250 250
New Debt 267 372 476 500 581 686
Share Repurchase Price $ 36.00 $ 36.00 $ 36.00 $ 36.00 $ 36.00 $ 36.00
% Premium to Current 20.0% 20.0% 20.0% 20.0% 20.0% 20.0%
Shares Repurchased (mm) 13.9 16.7 19.4 20.1 22.2 25.0
% of Outstanding Shares Repurchased (1) 21.8% 26.1% 30.5% 31.5% 34.9% 39.2%
Accretion / (Dilution) Analysis
FY 2011E Net Income (2) (3) $ 202 $ 194 $ 190 $ 186 $ 185 $ 181 $ 177
FY 2011E Shares Outstanding 66.8 52.9 50.1 47.3 46.7 44.5 41.8
FY 2011 E EPS (2) (3) (4) $ 3.02 $ 3.67 $ 3.79 $ 3.92 $ 3.95 $ 4.07 $ 4.25
Accretion / (Dilution) (%) 21.4% 25.4% 29.9% 30.9% 34.9% 40.6%
FY 2011E - 2013 E EPS CAGR 21.2% 23.2% 24.4% 25.5% 25.7% 26.3% 27.2%
Implied Share Price at 9.9x 2011 P/E Mulitple $ 30.00 $ 36.41 $ 37.61 $ 38.96 $ 39.28 $ 40.47 $ 42.19
Share Price Accretion (5) 21.4% 25.4% 29.9% 30.9% 34.9% 40.6%
Implied Share Price at 8.9x 2011 P/E Mulitple $ 32.74 $ 33.82 $ 35.03 $ 35.33 $ 36.40 $ 37.94
Share Price Accretion (5) 9.1% 12.7% 16.8% 17.8% 21.3% 26.5%
Implied Share Price at 7.9x 2011 P/E Mulitple $ 29.07 $ 30.04 $ 31.11 $ 31.37 $ 32.32 $ 33.69
Share Price Accretion (5) (3.1)% 0.1% 3.7% 4.6% 7.7% 12.3%
Pro Forma Credit Statistics (2010)
Total Debt $ 0 $ 267 $ 372 $ 476 $ 500 $ 581 $ 686
Debt / EBITDA 0.0 x 0.8 x 1.1 x 1.4 x 1.5 x 1.8 x 2.1 x
Adj. Debt / EBITDAR (6) 1.7 x 2.3 x 2.5 x 2.8 x 2.9 x 3.1 x 3.3 x
Source: Public filings, Management Projections
(1) Based on 63.7 million basic shares outstanding as of 22-Sep-2010.
(2) Assumes a tax rate of 40.2% for FY2011E.
(3) Assumes Interest rate on bank debt to be L + 425. Assumes LIBOR floor of 1.75%. Also assumes interest on cash to be 0.5%
(4) Based on 2011E weighted average diluted shares of 66.8 million.
(5) Accretion calculated based on current price of $30.00.
(6) Assumes rent expense capitalized at 8.0x and 100% of rent expense attributed to interest expense.
2
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Goldman Sachs
Recapitalization: One-Time Share Repurchases
Assumes 15.0% Premium To Stock Price Of $30.00
($ in millions, except per share data)
One-Time Share Repo Size Status Quo $ 500 $ 600 $ 700 $ 723 $ 800 $ 900
% of Market Cap 24.8% 29.7% 34.7% 35.8% 39.6% 44.6%
Cash Used 250 250 250 250 250 250
New Debt 267 372 476 500 581 686
Share Repurchase Price $ 34.50 $ 34.50 $ 34.50 $ 34.50 $ 34.50 $ 34.50
% Premium to Current 15.0% 15.0% 15.0% 15.0% 15.0% 15.0%
Shares Repurchased (mm) 14.5 17.4 20.3 20.9 23.2 26.1
% of Outstanding Shares Repurchased (1) 22.7% 27.3% 31.8% 32.9% 36.4% 40.9%
Accretion / (Dilution) Analysis
FY 2011E Net Income (2) (3) $ 202 $ 194 $ 190 $ 186 $ 185 $ 181 $ 177
FY 2011E Shares Outstanding 66.8 52.3 49.4 46.5 45.8 43.6 40.7
FY 2011 E EPS (2) (3) (4) $ 3.02 $ 3.71 $ 3.84 $ 3.99 $ 4.03 $ 4.17 $ 4.36
Accretion / (Dilution) (%) 22.8% 27.2% 32.2% 33.4% 37.9% 44.4%
FY 2011E - 2013 E EPS CAGR 21.2% 23.2% 24.4% 25.4% 25.6% 26.3% 27.2%
Implied Share Price at 9.9x 2011 P/E Mulitple $ 30.00 $ 36.83 $ 38.16 $ 39.67 $ 40.03 $ 41.37 $ 43.31
Share Price Accretion (5) 22.8% 27.2% 32.2% 33.4% 37.9% 44.4%
Implied Share Price at 8.9x 2011 P/E Mulitple $ 33.12 $ 34.32 $ 35.67 $ 36.00 $ 37.20 $ 38.95
Share Price Accretion (5) 10.4% 14.4% 18.9% 20.0% 24.0% 29.8%
Implied Share Price at 7.9x 2011 P/E Mulitple $ 29.41 $ 30.48 $ 31.68 $ 31.97 $ 33.04 $ 34.59
Share Price Accretion (5) (2.0)% 1.6% 5.6% 6.6% 10.1% 15.3%
Pro Forma Credit Statistics (2010)
Total Debt $ 0 $ 267 $ 372 $ 476 $ 500 $ 581 $ 686
Debt / EBITDA 0.0 x 0.8 x 1.1 x 1.4 x 1.5 x 1.8 x 2.1 x
Adj. Debt / EBITDAR (6) 1.7 x 2.3 x 2.5 x 2.8 x 2.9 x 3.1 x 3.3 x
Source: Public filings, Management Projections
(1) Based on 63.7 million basic shares outstanding as of 22-Sep-2010.
(2) Assumes a tax rate of 40.2% for FY2011E.
(3) Assumes Interest rate on bank debt to be L + 425. Assumes LIBOR floor of 1.75%. Also assumes interest on cash to be 0.5%
(4) Based on 2011E weighted average diluted shares of 66.8 million.
(5) Accretion calculated based on current price of $30.00.
(6) Assumes rent expense capitalized at 8.0x and 100% of rent expense attributed to interest expense.
3
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Goldman Sachs
Recapitalization: One-Time Share Repurchases
Assumes 10.0% Premium To Stock Price Of $30.00
($ in millions, except per share data)
One-Time Share Repo Size Status Quo $ 500 $ 600 $ 700 $ 723 $ 800 $ 900
% of Market Cap 24.8% 29.7% 34.7% 35.8% 39.6% 44.6%
Cash Used 250 250 250 250 250 250
New Debt 267 372 476 500 581 686
Share Repurchase Price $ 33.00 $ 33.00 $ 33.00 $ 33.00 $ 33.00 $ 33.00
% Premium to Current 10.0% 10.0% 10.0% 10.0% 10.0% 10.0%
Shares Repurchased (mm) 15.2 18.2 21.2 21.9 24.2 27.3
% of Outstanding Shares Repurchased (1) 23.8% 28.5% 33.3% 34.3% 38.0% 42.8%
Accretion / (Dilution) Analysis
FY 2011E Net Income (2) (3) $ 202 $ 194 $ 190 $ 186 $ 185 $ 181 $ 177
FY 2011E Shares Outstanding 66.8 51.6 48.6 45.5 44.9 42.5 39.5
FY 2011 E EPS (2) (3) (4) $ 3.02 $ 3.76 $ 3.90 $ 4.07 $ 4.12 $ 4.27 $ 4.49
Accretion / (Dilution) (%) 24.3% 29.3% 34.9% 36.3% 41.3% 48.7%
FY 2011E - 2013 E EPS CAGR 21.2% 23.2% 24.4% 25.4% 25.6% 26.3% 27.2%
Implied Share Price at 9.9x 2011 P/E Mulitple $ 30.00 $ 37.30 $ 38.78 $ 40.47 $ 40.88 $ 42.39 $ 44.61
Share Price Accretion (5) 24.3% 29.3% 34.9% 36.3% 41.3% 48.7%
Implied Share Price at 8.9x 2011 P/E Mulitple $ 33.54 $ 34.88 $ 36.39 $ 36.76 $ 38.13 $ 40.12
Share Price Accretion (5) 11.8% 16.3% 21.3% 22.5% 27.1% 33.7%
Implied Share Price at 7.9x 2011 P/E Mulitple $ 29.79 $ 30.97 $ 32.32 $ 32.65 $ 33.86 $ 35.63
Share Price Accretion (5) (0.7)% 3.2% 7.7% 8.8% 12.9% 18.8%
Pro Forma Credit Statistics (2010)
Total Debt $ 0 $ 267 $ 372 $ 476 $ 500 $ 581 $ 686
Debt / EBITDA 0.0 x 0.8 x 1.1 x 1.4 x 1.5 x 1.8 x 2.1 x
Adj. Debt / EBITDAR (6) 1.7 x 2.3 x 2.5 x 2.8 x 2.9 x 3.1 x 3.3 x
Source: Public filings, Management Projections
(1) Based on 63.7 million basic shares outstanding as of 22-Sep-2010.
(2) Assumes a tax rate of 40.2% for FY2011E.
(3) Assumes Interest rate on bank debt to be L + 425. Assumes LIBOR floor of 1.75%. Also assumes interest on cash to be 0.5%
(4) Based on 2011E weighted average diluted shares of 66.8 million.
(5) Accretion calculated based on current price of $30.00.
(6) Assumes rent expense capitalized at 8.0x and 100% of rent expense attributed to interest expense.
4
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Goldman Sachs
Recapitalization: One-Time Special Dividend
PF EPS Impact
($ in millions, except per share data)
One-Time Special Dividend Size Status Quo $ 500 $ 600 $ 700 $ 723 $ 800 $ 900
Special Dividends per share (1) $ 7.84 $ 9.41 $ 10.98 $ 11.33 $ 12.55 $ 14.12
Cash Used 250 250 250 250 250 250
New Debt 267 372 476 500 581 686
FY 2011E Net Income (2) (3) $ 202 $ 194 $ 190 $ 186 $ 185 $ 181 $ 177
FY 2011E Shares Outstanding 66.8 66.8 66.8 66.8 66.8 66.8 66.8
FY 2011 E EPS (2) (3) (4) $ 3.02 $ 2.90 $ 2.84 $ 2.78 $ 2.77 $ 2.72 $ 2.66
Accretion / (Dilution) (%) (3.9)% (5.9)% (8.0)% (8.4)% (10.0)% (12.0)%
Implied Share Price at 9.9x 2011 P/E Mulitple $ 30.00 $ 28.83 $ 28.22 $ 27.61 $ 27.47 $ 27.00 $ 26.39
Implied Share Price at 8.9x 2011 P/E Mulitple $ 25.93 $ 25.38 $ 24.83 $ 24.71 $ 24.28 $ 23.73
Implied Share Price at 7.9x 2011 P/E Mulitple $ 23.03 $ 22.54 $ 22.05 $ 21.94 $ 21.56 $ 21.08
Shareholder Value @9.9x 2011 P/E Mulitple (5) $ 36.68 $ 37.63 $ 38.59 $ 38.81 $ 39.55 $ 40.51
Accretion in Value over current price 22.3% 25.4% 28.6% 29.4% 31.8% 35.0%
Shareholder Value @8.9x 2011 P/E Mulitple (5) $ 33.77 $ 34.79 $ 35.81 $ 36.04 $ 36.83 $ 37.85
Accretion in Value over current price 12.6% 16.0% 19.4% 20.1% 22.8% 26.2%
Shareholder Value @7.9x 2011 P/E Mulitple (5) $ 30.87 $ 31.95 $ 33.03 $ 33.28 $ 34.11 $ 35.20
Accretion in Value over current price 2.9% 6.5% 10.1% 10.9% 13.7% 17.3%
Pro Forma Credit Statistics (2010)
Total Debt $ 0 $ 267 $ 372 $ 476 $ 500 $ 581 $ 686
Debt / EBITDA 0.0 x 0.8 x 1.1 x 1.4 x 1.5 x 1.8 x 2.1 x
Adj. Debt / EBITDAR (6) 1.7 x 2.3 x 2.5 x 2.8 x 2.9 x 3.1 x 3.3 x
Source: Public filings, Management Projections
(1) Based on current basic shares outstanding of 63.7 million.
(2) Assumes a tax rate of 40.2% for FY2011E.
(3) Assumes Interest rate on bank debt to be L + 425. Assumes LIBOR floor of 1.75%. Also assumes interest on cash to be 0.5%
(4) Based on 2011E weighted average diluted shares of 66.8 million.
(5) Defined as Dividend per share plus Pro Forma EPS times P/E Multiple (DPS + PF EPS x P/E). Accretion calculated based on current price of $30.00.
(6) Assumes rent expense capitalized at 8.0x and 100% of rent expense attributed to interest expense.
5
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Goldman Sachs
Recapitalization: One-Time Special Dividend
Value Creation to Shareholders
One-Time Special Dividend of $723 mm (2.9x Adj. Leverage)
9.9 x 11.0 x 12.0 x 13.0 x 14.0 x
Implied Share Price $ 30.00 $33.23 $36.25 $39.27 $42.29
Implied Share Price
- Same Multiple $ 27.47 $ 30.43 $ 33.19 $ 35.96 $ 38.72
- 1.0x Multiple less $ 24.71 $ 27.66 $ 30.43 $ 33.19 $ 35.96
- 2.0x Multiple less $ 21.94 $ 24.89 $ 27.66 $ 30.43 $ 33.19
- 3.0x Multiple less $ 19.17 $ 22.13 $ 24.89 $ 27.66 $ 30.43
Special Dividends per share $ 11.33 $ 11.33 $ 11.33 $ 11.33 $ 11.33
Value to Shareholders
- Same Multiple $ 38.81 $ 41.76 $ 44.53 $ 47.29 $ 50.06
Value Accretion to Implied Price 29.4% 25.7% 22.8% 20.4% 18.4%
- 1.0x Multiple less $ 36.04 $ 39.00 $ 41.76 $ 44.53 $ 47.29
Value Accretion to Implied Price 20.1% 17.4% 15.2% 13.4% 11.8%
- 2.0x Multiple less $ 33.28 $ 36.23 $ 39.00 $ 41.76 $ 44.53
Value Accretion to Implied Price 10.9% 9.0% 7.6% 6.4% 5.3%
- 3.0x Multiple less $ 30.51 $ 33.46 $ 36.23 $ 39.00 $ 41.76
Value Accretion to Implied Price 1.7% 0.7% (0.0)% (0.7)% (1.2)%
Source: Public filings, Management Projections
6
| Exhibit (c)(18)
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Exhibit (c)(18)
Discussion Materials on Project Tweed
Goldman, Sachs & Co.
September, 2010
[27-September-2010]
1
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I. Take Private and Recapitalization Analysis
2
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Summary of Take Private and Recap Scenarios
1
Take Private
2
Sponsor Recap with Debt
3
Buyout of 50% of MD’s Stake
4
Buyout of 50% of MD’s Stake and buying from Market
Structure
Leverage buyout of Paid assuming a purchase price of $45 per share (32% premium to current stock price)
— EV/2010E EBITDA: 8.2X
— Implied new equity check of $1,029 million or 34.5%
Assumes 50% basic equity and options of MD are rolled-over or 4.9% of the equity
Cash used in deal: $200 mm
Tweed’s total investment of $500mm
Buys 50% of MD’s stake at $40.00 per share (17.6% premium) for $130 mm
Purchase Convertible Debt for $370mm. Underlying 8.7 mm shares
Plaid raises Bank Debt of $300mm
Total share repurchases of $848mm with proceeds of $300 mm from Bank Debt, $370 mm Convertible Debt and uses $200mm of cash in hand
Repurchase price of $40.00 per share (17.6% premium)
Pro Forma Ownership
Tweed: 21.6%
MD: 5.5%
Company can “defease” convert by buying call options from MD
Tweed’s total investment of $130mm
Buys 50% of MD’s stake at $40.00 per share (17.6% premium)
Pro Forma Ownership of Tweed: 4.8%
Pro Forma Ownership of MD: 4.5%
Tweed’s total investment of $300mm
Buys 50% of MD’s stake at $40.00 per share (17.6% premium) for $130mm
Buys 4.8 mm shares from the market with the remaining $170mm
Pro Forma Ownership of Tweed: 11.8%
Pro Forma Ownership of MD: 4.5%
Key Terms
2010 Leverage Metrics:
— Total Adj. Debt / EBITDAR: 6.0x
Total Debt / EBITDA: 5.5x
Bank Debt: $1,140mm @ L+475 and OID of 98 (LIBOR Floor of 1.75%)
Senior Notes: $665mm @ 10.0% area
2010 Leverage Metrics:
Total Adj. Debt / EBITDAR: 3.3x
Total Debt / EBITDA: 2.0x
Bank Debt: $300mm @ L+400 and OID of 99 (No LIBOR floor)
Convertible Debt: $373mm @ 3.5% and a conversion premium of 25% ($42.53)
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1 Illustrative LBO Analysis
Assumes Stock Price of $45.00 per share (32.3% Premium) or 8.2x EV / 2010E EBITDA ($ in millions)
Sources of Funds
Cost of % of Total % of Total x 2010E x 2010E
Amount Debt Sources Cap. EBITDA EBITDAR
Target Existing Cash$ 403 0.5% 11.9%
Bank Debt (1) 1,140 L + 475 33.7% 38.2% 3.5x 4.4x
Sr. Notes 665 10.0% 19.6% 22.3% 5.5x 6.0x
Total Debt $ 1,805 53.3% 60.5% 5.5 x 6.0 x
Basic equity rolled$over 77 (2) 2.3% 2.6%
Stock options equity rolled over 2.1%(2) 2.4
Sponsor Equity 1,029 30.4% 34.5%
Total Sources of Funds $ 3,385 100.0% 100.0%
Projected Free Cash Flow
PF 2010 2011E 2012E 2013E 2014E 2015E
Revenues 1,805 2,034 2,356 2,709 3,087 3,481
Growth % 14.4 % 12.7 % 15.8 % 15.0 % 14.0% 12.7%
EBITDA 329 394 474 567 672 793
Margin % 18.2 % 19.4 % 20.1 % 20.9 % 21.8% 22.8%
Net Income 79 116 165 227 299 383
(+) &AD 49 56 62 66 69 70
(+) in. F ees. F mort A . 7 7 7 7 7 7
(-) Capital Expenditure52 54 59 59 58 65
(-) Change in OWC 0 19 (5) (5) (5) (1)
FCF For Debt Paydown $ 82 $ 105 $ 179 $ 245 $ 321 $ 395
De-leveraging Profile
PF 2009 2010E 2011E 2012E 2013E 2014E
Bank Debt 1,140 1,035 856 611 290 0
Senior Notes 665 665 665 665 665 665 665
Total Debt $ 1,805 $ 1,700 $ 1,521 $ 1,276 $ 955 $ 665
Total Debt / EBITDA5.5 x 4.3 x 3.2 x 2.3 x 1.4x 0.8x
Adj. Debt / EBITDAR6.0 x 5.0 x 4.1 x 3.3 x 2.6x 2.1x
EBITDA / Int. Exp. 2.2 x 2.7 x 3.5 x 4.7 x 6.5x 9.6x
EBITDA-Capex / Int. 1.Exp 9 x . 2.4 x 3.1 x 4.2 x 6.0x 8.8x
Source: Company Management for the years 2010E through 2015E
Note: Assumes 63.7 million of basic shares outstanding.
(1) Assumes LIBOR floor of 1.75%. Assumes financing fees of 2.5% and OID on bank debt to be 2.0%
(2) Equity Rollover assumes rollover of 50.0% of MD’s stake, of 1.7 million basic shares and 2.0 million Options at a strike price of $9.35
Uses of Funds
Amount
Equity Purchased - Basic ($45.00 per share ) 2,868
Equity Purchased - Stock Options ($45.00 per share) 225
Existing Target Debt Retired 0
. Total Purchase Price $ 3,094
EV / 2010E EBITDA (Adj. Cash) 8.2 x
Minimum Operating Cash 203
Financing and Other Fees (1) 88
Total Uses of Funds $ 3,385
Illustrative Returns to Sponsor
Purchase Price $ 45.00 $ 47.50 $ 50.00 $ 52.50 $ 55.00
Premium to Current 32.3% 39.6% 47.0% 54. 3% 61.7%
Implied EV / 2010E EBITDA
8.2 x 8.7 x 9.3 x 9.8 x 10.4 x
Exit EBITDA Multiple
7.0 x 34.3% 30.6% 27.4% 24 .6% 22.2%
7.5 x 36.2% 32.5% 29.3% 26.5% 24.0%
8.0 x 38.1% 34.3% 31.1% 28.2% 25.7%
8.5 x 39.9% 36.0% 32.7% 29.9% 27.3%
9.0 x 41.6% 37.7% 34.3% 31.4% 28.9%
Returns to Sponsor exit in 2015 @ 8.0x EBITDA
Implied EV / 2010E EBITDA
Equity Check
AdjLeverage
8.2 x 8.7 x 9.3 x 9.8 x 10.4 x
4.5 x 55.3% 30.5% 28.1% 25.9% 23.9% 22.1%
5.0 x 48.3% 32.6% 29.8% 27.3% 25.1% 23.1%
5.5 x 41.5% 35.0% 31.8% 29.0% 26.5% 24.3%
6.0 x 34.5% 38.1% 34.3% 31.1% 28.2% 25.7%
6.5 x 27.8% 42.0% 37.3% 33.5% 30.2% 27.4%
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Goldman 1 Illustrative Ability To Pay Analysis
Sachs Share Price Required to Achieve Target Returns Assuming 2015E Exit
Assumes 6.0x Adjusted Leverage
Assumes 25% IRR with 5 Year exit in 2015@ 8.0x EBITDA
Equity Value Per Share Implied Premium Over Current Stock Price
2010 – 2015 Sales CAGR 2009 – 2014 Sales CAGR
10.0% 11.0% 12.0% 13.0% 14.0% 10.0% 11.0% 12.0% 13.0% 14.0%
15E EBITDA Per Year Change in Annual Sales Growth vs. Plan 15E EBITDA Per Year Change in Annual Sales Growth vs.Plan
Margin vs.Plan (4.0)% (3.0)% (2.0)% (1.0)% 0.0% Margin vs.Plan (4.0)% (3.0)% (2.0)% (1.0)% 0.0%
22.8% 0.0% $51.02 $52.15 $53.32 $54.53 $55.78 22.8% 0.0% 50.0% 53.3% 56.7% 60.3%50.0% 64.0%
21.8% (1.0%) $49.95 $51.03 $52.15 $53.31 $54.51 21.8% (1.0%) 46.8% 50.0% 53.3% 56.7% 60.2%
20.8% (2.0%) $48.89 $49.92 $50.99 $52.09 $53.24 20.8% (2.0%) 43.7% 46.7% 49.9% 53.1% 56.5%
19.8% (3.0%) $47.83 $48.81 $49.82 $50.87 $51.97 19.8% (3.0%) 40.6% 43.5% 46.4% 49.5% 52.7%
18.8% (4.0%) $46.76 $47.69 $48.66 $49.66 $50.69 18.8% (4.0%) 37.5% 40.2% 43.0% 46.0% 49.0%
Source: Company Management
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Goldman 2 Illustrative Recapitalization Analysis
Sachs Sources and Uses; Assumes $40.00 Stock Price (17.6% Premium)
($ in millions, except per share data)
Sources of Funds Uses of Funds
Amount Shares (mm) Amount
Total Investment by Tweed $500 Shares Purchased from MD (1) 3.3 $130
Convertibles Issued to Tweed (21.6%
Post-Recap Own.) 8.7 $370
Total Sources of Funds $500 Total Uses of Funds 12.0 $500
Plaid Sources and Uses
Sources of Funds Uses of Funds
Cost of % of Total x 2010E x2010E
Amount Debt Sources EBITDA EBITDAR Amount
Target Existing Cash $403 0.5% 37.5% Total Share Repurchases $848
Shares Repurchased (mm) – at
17.6% premium 21.20
Bank Dept (2) 300 L+400 28.0% 0.9x 2.4x
Convertible Debt (3) 370 3.5% 34.5% 2.0x 3.3x Minimum Operating Cash 203
Total Debt $670 62.5% 2.0x 3.3x Financing and Other Fees (1) 22
Total Sources of Funds$1,073 100% Total Uses of Funds $1,073
Source: Company Management for the years 2010E through 2015E
Note: Assumes 63.7 million of basic shares outstanding
Assumes Tweed purchases 50.0% current MD ownership of 6.3 million shares (comprising of 3.4 million basic shares and 2.9 million shares exercisable options) at $40.00 (17.6% premium to the current stock price).
Assumes no LIBOR floor. Assumes financing fees of 2.5% and OID on bank debt to be 1.0%.
Assumes convertibles are accounted under the TSM method of accounting. Assumes coupon on the convertible debt of $370 million to be 3.5%. Assumes the base conversion price to be 25.0%. Assumes the comparable straight debt rate to be 6.0%.
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2 Illustrative Recap Analysis
Debt Paydown and Implied Stock Price at 2015E
($ in millions)
Projected Free Cash Flow
PF 2010
2011E
2012E
Revenue
$1,805
$2,034
$2,356
Growth
14.4%
12.7%
15.8%
EBITDA
329
394
474
Margin %
18.2%
19.4%
20.1%
Net Income
146
182
230
(+) &A D
49
56
62
(+) mortization of in. FeesF
2
2
2
(+) Amort. f cc. Exp.A
7
7
7
(-) Capital Expenditure
52
54
59
(-) Change in OWC
0
19
(5)
FCF For Debt Paydown
$151
$174
$247
Projected Free Cash Flow
2013E
2014E
2015E
Revenue
$2,709
$3,087
$3,481
Growth
15.0%
14.0%
12.7%
EBITDA
567
672
793
Margin %
20.9%
21.8%
22.8%
Net Income
285
345
417
(+) &A D
66
69
70
(+) mortization of in. FeesF
2
2
2
(+) Amort. f cc. Exp.A
8
8
9
(-) Capital Expenditure
59
58
65
(-) Change in OWC
(5)
(5)
(1)
FCF For Debt Paydown
$306
$372
$434
Cumulative FCF
$174
$421
$727
$ 1,098
$1,532
Cumulative FCF
$174
$421
De-leveraging Profile
PF 2010
2011E
2012E
2013E
2014E
2015E
Bank Debt (1)
$300
$126
$0
$0
$0
$0
Convertible Debt (2)
370
370
370
370
370
370
Total Debt
$670
$496
$370
$370
$370
$370
Total Cash
$203
$203
$324
$630
$1,001
$1,435
Credit Statistics
PF 2010
2011E
2012E
2013E
2014E
2015E
Total Debt / EBITDA
2.0x
1.3x
0.8x
0.7x
0.6x
0.5x
Adj. Debt / EBITDAR
3.3x
2.6x
2.2x
2.0x
1.9x
1.8x
EBITDA / Int.
9.5x
12.7x
19.0x
25.0x
29.0x
33.5x
EBITDA-Capex / Int.
8.0x
11.0x
16.6x
22.4x
26.5x
30.8x
Tweed’s Invst.
$350
$400
$450
$500
$550
Size of Conv.
$220
$270
$320
$370
$420
Pre-Recap Own (3)
11.5%
12.9%
14.3%
15.6%
16.9%
Assumes $300.0 mm of Plaid’s Debt and 8.0x exit in 2015E
Post Recap Own (3)
Returns to Tweed
Implied Stock Price
16.3%
27.90%
$134.39
18.1%
27.94%
$134.37
19.9%
27.96%
$134.35
21.6%
27.98%
$134.33
23.2%
28.00%
$134.31
Source: Company Management for the years 2010E through 2015
Note: Assumes 55.3 million of shares outstanding pro forma for the issue of convertible debt, share repurchases and shares from the exercisable stock options owned by MD
(1) Assumes no LIBOR floor. Assumes financing fees of 2.5% and OID on bank debt to be 1.0%.
(2) Assumes Convertibles are accounted under the TSM method of accounting. Assumes coupon on the convertible debt of $370 million to be 3.5%. Assumes the base conversion price to be 25.0%.
(3) Assumes Tweed buys 50.0% of MD’s current ownership at a premium of 17.6% to the current price and uses the remaining amount to invest in Plaid’s new convertible debt. Post Recap and Pre Recap ownership are calculated based 67.8mm and 55.3mm diluted shares outstanding, assuming $300mm of debt and $500 of Tweed’s investment.
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3 Buyout of 50% of MD’s Stake
Sources and Uses and Returns to Tweed; Assumes $40 per share (17.6% Premium) ($ in millions)
Tweed Sources and Uses
Sources of Funds
Total Investment Tweed
Amount
$ 130
Total Sources of Funds $130
Uses of Funds
Shares Purchased from MD (1)
Shares (mm) Amount
3.3 $130
3.3 $130
Value of Tweed’ s Stake with Exit in 2015E ($ mm)
Premium to Current
Amt. of Invst.
% of Own.
17.6% 20.0% 25.0% 30.0% 35.0% 40.0%
$ 130 $ 133 $ 139 $ 146 $ 152 $ 158
4.80% 4.81% 4.84% 4.86% 4.89% 4.91%
EV / EBITDA Multiple
7.0 x 7.5 x 8.0 x 8.5 x 9.0 x
22.4%
21.4%
20.4%
19.5%
18.6%
17.7%
23.7%
22.6%
21.6%
20.7%
19.8%
18.9%
24.9%
23.8%
22.8%
21.9%
21.0%
20.1%
26.1%
25.0%
24.0%
23.0%
22.1%
21.2%
27.2%
26.1%
25.1%
24.1%
23.2%
22.3%
Source: Company Management for the years 2010E through 2015E
Note: Assumes 63.7 million of basic shares outstanding
Assumes Tweed purchases 50.0% current MD ownership of 6.3 million shares (comprising of 3.4 million basic shares and 2.9 million shares from exercisable options) at $40.00 (17.6% premium to the current stock price).
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4 Buyout of 50% of MD’s Stake and Buying From Market
Assumes $40 (17.6% Premium) and 5% Premium on Shares Bought From MD and Market
($ in millions)
Sources and Uses
Sources of Funds
Amount
Total Investment by Tweed
$ 300
Total Sources of Funds
$ 300
Uses of Funds
Shares (mm) Amount
Shares Purchased from MD (1) 3.3 $130
Shares Purchased in the Open Market (2) 4.8 $170
Total Uses of Funds 8.0 $300
Value of the Investment to Tweed at Exit in 2015E ($ mm)
Tweed’s Invst.
Amt. of
Invst. % Own.
$ 200 7.7%
$ 250 9.7%
$ 300 11.8%
$ 350 13.9%
$ 400 15.9%
EV / EBITDA Multiple
7.0 x 7.5 x 8.0 x 8.5 x 9.0 x
22.9%
23.3%
23.5%
23.7%
23.8%
24.2%
24.5%
24.8%
24.9%
25.1%
25.4%
25.8%
26.0%
26.2%
26.3%
26.6%
26.9%
27.2%
27.4%
27.5%
27.7%
28.1%
28.3%
28.5%
28.6%
Source: Company Management for the years 2010E through 2015E
Note: Assumes 63.7 million of basic shares outstanding and
(1) Assumes Tweed purchases 50.0% current MD ownership of 6.3 million shares (comprising of 3.4 million basic shares and 2.9 million shares from exercisable options) at $40.00 (17.6% premium to the current stock price).
(2) Assumes Tweed purchases 4.8mm shares from market at $35.72 (5.0% premium to the current stock price).
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II. Merger Analysis - [Potential Buyer] and Plaid
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Illustrative Merger Analysis
[Potential Acquires Buyer] Plaid
($ in millions, except per share data)
Potential Buyer
Pro forma for the Acquisition of Plaid
Purchase Price Per Share ($)(1)(2) $ 144.28 $ 40.00 $ 42.50 $ 45.00 $ 47.50 $ 50.00 $ 52.50
Premium to Market Price 24.2 % 32.0 % 39.8 % 47.5 % 55.3 % 63.0 %
Price / 2011E EPS 17.3x 16.2x 17.2x 18.2x 19.2x 20.2x 21.2x
Equity Value ($) $14,685 $2,735 $2,915 $3,094 $3,273 $3,452 $3,632
Enterprise Value ($) 12,560 2,444 2,623 2,803 2,982 3,161 3,340
100% Cash
Acquiror’s Cash Used (50.0%)
$1,230 $1,230 $1,230 $1,230 $1,230 $1,230
Target’s Cash Used (75.0%) 255 255 255 255 255 255
Total Cash Used $1,486 $1,486 $1,486 $1,486 $1,486 $1,486
Cash used as % of Equity Consideration 54.3% 51.0% 48.0% 45.4% 43.0% 40.9%
New Debt ($)(3) 1,285 1,468 1,651 1,834 2,017 2,200
Pro Forma Net Income
2011E Net Income $965 $959 $953 $948 $942 $936
2012E Net Income $1,093 $1,088 $ 1,082 $1,077 $1,071 $1,065
Pro Forma EPS
2011E EPS $9.42 $9.36 $9.31 $9.25 $9.20 $9.14
2012E EPS $10.58 $10.52 $10.47 $10.41 $10.36 $10.31
2011E EPS Accretion / (Dilution) (4) (5) (6) $ 8.33 13.0 % 12.4 % 11.7 % 11.1 % 10.4 % 9.7 %
2012E EPS Accretion / (Dilution) (4) (5) (6) $ 9.28 14.0 % 13.4 % 12.8 % 12.2 % 11.6 % 11.1 %
P/E to Maintain Share Price
Total Debt / LTM EBITDA 0.2x 0.8x 0.8x 0.9x 1.0x 1.1x 1.2x
Adjusted Debt / LTM EBITDAR 2.2 2.6 2.7 2.7 2.8 2.9 2.9
(1) Market data as of 22-Sep-2010. Estimates per IBES.
(2) Assumes excess purchase price over book value is allocated 15.0% to net asset write-ups and the residual to goodwill.
(3) Assumes up to 50.0% of [Potential Buyer] existing cash and up to 75.0% of Plaid existing cash used to finance transaction.
(4) Assumes a pre-tax cost of debt of 3.50%.
(5) Assumes an opportunity cost of cash of 0.50% and a marginal tax rate of 40.5%.
(6) Assumes tax-deductible financina fees of 2.0% of incremental debt raised which are capitalized and amortized over 10 years.
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[Potential Pre And Buyer] Post Transaction Capital Structure
Potential [ ] Acquires Buyer Plaid
($ in millions, except per share data)
Pre-Acquisition
Adjusted Debt / LTM
Amount Debt / LTM EBITDA(1) EBITDAR (2)
Cash $ 2,461 -
Short Term borrowings 98 0.1x 2.2x
Long Term Debt and capital leases 206 0.2 2.2
Total Debt $304 0.2x 2.2x
Net Debt (2,157)
Corporate Rating A (Positive)
Post-Acquisition (47.5% Premium)
Adjusted Debt / LTM
Amount Debt / LTM EBITDA(1) EBITDAR (2)
Cash (3) $ 1,316 -
Short Term Debt 98 0.0x 2.1x
Long Term Debt 206 0.1 2.2
Debt carried over from J.Crew 49 0.2 2.2
Acquisition Debt (4) 1,834 1.0 2.8
Total Debt $2,188 1.0x 2.8x
Net Debt 872
(1) Assumes []’s and Plaid’s LTM EBITDA of $1,828 and $333 mm respectively. (1) Assumes []’s and Plaid’s LTM Rent Expense of $657 and $86 mm respectively.
(3) Cash Balance includes Plaid’s cash Potential in hand ] ‘s Buyer of cash$340mm balance. Assumes of $2,461mm 50 s i. used 0% of and for [75 the.0% of $340mm the transaction
(4) Assumes total equity ration conside of $3,273 mm at a premium of 47.5%.
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[Potential Buyer] Acquisition and Global Expansion Talks
[Potential recent transaction and commentary]
Source: Public Filings, Earnings Release
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