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Exhibit 17(b)(3)
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VALUATION MATERIALS PREPARED FOR:
SKYLINE CHILI, INC.
NOVEMBER 20, 1997
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THE FOLLOWING INFORMATION IS CONFIDENTIAL AND PROPRIETARY TO EQUITABLE
SECURITIES CORPORATION. THE INFORMATION HAS BEEN PREPARED SOLELY FOR THE BENEFIT
OF SKYLINE CHILI, INC. AND IS PROVIDED UPON THE UNDERSTANDING THAT ANY PERSON
ACCEPTING IT WILL NOT, WITHOUT THE PRIOR PERMISSION OF EQUITABLE SECURITIES,
UTILIZE THE INFORMATION FOR ANY PURPOSE OTHER THAN AS DESCRIBED HEREIN.
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TABLE OF CONTENTS
TAB PAGE
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1. EXECUTIVE SUMMARY
TRANSACTION DESCRIPTION........................................................................................1
SCOPE OF ENGAGEMENT............................................................................................4
VALUATION CONSIDERATIONS.......................................................................................7
2. PROFILE OF SKYLINE CHILI, INC.
HISTORY OF THE COMPANY........................................................................................11
DESCRIPTION OF THE COMPANY....................................................................................12
HISTORICAL FINANCIAL STATEMENTS...............................................................................13
3. VALUATION ANALYSIS
TRANSACTION PRICING MATRIX....................................................................................18
ANALYSIS OF COMPARABLE PUBLICLY-TRADED COMPANIES..............................................................19
PRECEDENT TRANSACTIONS FOR CONTROL ACQUISITIONS IN THE RESTAURANT INDUSTRY....................................33
PRECEDENT TRANSACTIONS FOR CONTROL ACQUISITIONS IN THE FOOD MANUFACTURING INDUSTRY............................37
DISCOUNTED CASH FLOW ANALYSIS.................................................................................40
LEVERAGED BUYOUT ANALYSIS ....................................................................................41
LEVERAGED RECAPITALIZATION ANALYSIS...........................................................................43
VALUATION SUMMARY AND CONCLUSION..............................................................................44
EXHIBITS
A. COMPANY STOCK PERFORMANCE CHARTS
B. COMPANY'S RELATIVE STOCK PRICE PERFORMANCE
C. WEIGHTED AVERAGE COST OF CAPITAL ANALYSIS
D. DETAILED LEVERAGED BUYOUT ANALYSIS
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\ EXECUTIVE SUMMARY
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EXECUTIVE SUMMARY
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TRANSACTION DESCRIPTION
- Equitable Securities Corporation ("Equitable") was retained by Skyline
Chili, Inc. ("Skyline" or the "Company") to serve as financial advisor
to the Special Committee of the Board of Directors of the Company (the
"Special Committee") with regard to (i) a proposed offer by Meritage
Hospitality Group Inc. ("Meritage") to purchase some or all of the
outstanding common stock of Skyline, (ii) a review of other potential
strategic alternatives, and (iii) negotiation, structuring and
implementation of any transaction endorsed by the Special Committee.
- On February 28, 1997, the Company publicly announced that it had hired
Equitable to advise the Board of Directors regarding the Meritage offer
and to evaluate alternatives and financing opportunities. After review
of the transactions proposed by Meritage and consideration of other
strategic alternatives, Equitable was directed by the Special Committee
to pursue a sale of the Company to potential strategic and financial
buyers (the "Controlled Auction").
- In connection with the Controlled Auction, Equitable contacted a broad
range of strategic and financial buyers, domestically and
internationally. Approximately, forty-two percent of the potential
buyers signed a confidentiality agreement and received a confidential
memorandum, prepared by Equitable, describing the Company and its
business.
- Based on preliminary non-binding indications of interest, the Special
Committee authorized approximately one half-dozen potential buyers to
visit the Company and to conduct preliminary due diligence.
- Through subsequent discussions with potential buyers and following
deliberations of the Special Committee and the entire Board of
Directors, various buyers were eliminated and the field narrowed to
several bidders who submitted proposals following extensive due
diligence.
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EXECUTIVE SUMMARY
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TRANSACTION DESCRIPTION (CONTINUED)
- On September 26, 1997, the Company announced that an investor group
which includes Fleet Equity Partners ("Fleet") and members of
management (collectively, the "Affiliated Shareholders"), which
together control 5.6% of the total fully-diluted shares outstanding,
has offered to pay $6.75 in cash for each share of Skyline that it does
not already own (the "Proposed Transaction").
- We have been informed that a newly-formed company to be known as
Skyline Acquisition Corporation ("SAC" or "Newco") will acquire all of
the outstanding capital stock of the Company for cash through a reverse
merger of SAC with and into the Company with Skyline emerging as the
surviving entity.
- Based upon the discussions with ▇▇▇▇▇ and other potential strategic and
financial acquirors, we are doubtful Fleet or other potential acquirors
could have agreed to the Proposed Transaction without management's
willingness to participate with a potential buyer.
- Since the announcement of the Proposed Transaction, we have not
received any other inquiries or alternative proposals to acquire the
Company. Based on the broad audience included in the Controlled
Auction, the public disclosure in February of the Company's intent to
review strategic alternatives and public announcement of the Proposed
Transaction in September, we are doubtful there are other potential
acquirors who are currently willing to offer a similar or better
transaction than the Proposed Transaction.
- As part of its broader engagement, Equitable has been requested by the
Company to render an opinion as investment bankers (the "Opinion") as
to the fairness, from a financial point of view, of the consideration
to be paid to the Company's shareholders other than those shareholders
affiliated with the acquiring entity (the "Non-Affiliated
Shareholders") under the terms of the Proposed Transaction.
- For purposes of our analysis, we have assumed, with guidance from
Company management and the Company's auditors that the transaction will
be accounted for under the purchase method of accounting for business
combinations and that the transaction will be taxable to the selling
shareholders.
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EXECUTIVE SUMMARY
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TRANSACTION DESCRIPTION (CONTINUED)
- Furthermore, we understand that the Affiliated Shareholders and certain
other stockholders, including ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇ (collectively, the "Consenting
Shareholders"), have expressed their intention to vote their shares in
favor of the Proposed Transaction only if the holders of a majority of
the shares held by the Non-Affiliated Shareholders that are voted at
the special stockholder's meeting, vote to approve the Proposed
Transaction. The Affiliated Shareholders and Consenting Shareholders
collectively own approximately 54.4% of the total fully-diluted shares
outstanding.
TERMS AND CONDITIONS
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Proposal - Newco will acquire, through a cash merger, all of the issued
and outstanding shares of Skyline that it does not already own
in a taxable transaction which will be accounted for under the
purchase method of accounting for business combinations
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Conditions to Closing - Negotiation of a definitive merger agreement
- Approval of the Proposed Transaction or the expiration of
waiting periods under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust
- Improvements Act of 1976
- Receipt of financing proceeds by Newco
- Receipt of shareholder approvals
- The holders of not more than 3% of Skyline's common shares
exercise their dissenters' rights with respect to the Proposed
Transaction
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Date of Closing - To be determined, although anticipated January 1998
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EXECUTIVE SUMMARY
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SCOPE OF ENGAGEMENT
- In connection with our Opinion, Equitable has reviewed, among other
things:
- Draft of the Agreement and Plan of Merger between Skyline
Acquisition Corporation, Skyline Chili, Inc. and certain
stockholders of the Company;
- Certain audited historical financial data for the Company for
the fiscal years ended October 27, 1996; October 29, 1995;
October 30, 1994 and October 31, 1993;
- Certain unaudited historical financial data for the Company
for the fiscal year ended October 26, 1997 and various interim
periods;
- Certain historical budgets of the Company and its operating
divisions;
- Certain projected financial information for the Company for
the fiscal years 1998 through 2005;
- The Franchise Offering Circular of the Company;
- Certain historical stock price and volume trading information
on the Company's shares.
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EXECUTIVE SUMMARY
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SCOPE OF ENGAGEMENT (CONTINUED)
- We held discussions with senior management of the Company and its
various divisions concerning the historical and current operations of
the business, its financial condition and prospects, as well as the
present strategic and operating issues facing the Company.
- We conducted on-site visits to select facilities of the Company to
inspect the physical characteristics of the properties, to assess the
quality and range of the products and services offered at these
properties and to meet with on-site management of the facilities.
- We have assumed (i) the accuracy of the Company's audited historical
financial statements as prepared by ▇▇▇▇▇▇▇'s management and subject to
audit by ▇▇▇▇▇ & Young LLP, (ii) the accuracy of the Company's
unaudited historical financial statements as prepared by ▇▇▇▇▇▇▇'s
management and (iii) the financial forecasts which we examined were
reasonably prepared on bases reflecting the best currently available
estimates and good faith judgments of the management of Skyline.
- We have also assumed that:
- All material liabilities (contingent or otherwise) of the
Company are as set forth in the financial statements of the
Company or as otherwise disclosed by Skyline.
- As audited financial results have not yet been released for
the most recent fiscal year, the Opinion is based upon
unaudited financial statements for the fiscal year ended
October 26, 1997.
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EXECUTIVE SUMMARY
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SCOPE OF ENGAGEMENT (CONTINUED)
- Based upon our review of the Company's historical and projected
operating performance and certain other qualitative factors associated
with the Company, we utilized a broad variety of valuation techniques
to determine a range of fair value for the common equity interest in
the Company.
- Our methodologies included:
- A review and comparison of trading multiples for comparable
publicly-traded companies including restaurant operators, food
manufacturers and integrated companies with both food
manufacturing and restaurant operations;
- A review of recently completed and announced precedent
transaction multiples for control acquisitions in the
restaurant industry (i.e., multiples of revenues, book value,
EBITDA, EBIT, net income and prices paid per store);
- A review of recently completed and announced precedent
transaction multiples for control acquisitions in the food
manufacturing industry (i.e., multiples of revenues, book
value, EBITDA, EBIT and net income);
- Performing a discounted cash flow analysis of the Company
including sensitivity analyses utilizing a range of
assumptions;
- Performing a stand-alone leveraged buyout analysis of the
Company, utilizing operating projections provided by
management of the Company and capitalization assumptions
consistent with the Proposed Transaction and financing terms
available under current financial market conditions;
- Performing a leveraged recapitalization analysis of the
Company, including an assessment of the likely tax
implications of such a transaction; and Assessing the
likelihood that an unaffiliated third party would offer a
superior transaction to the Unaffiliated Shareholders.
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EXECUTIVE SUMMARY
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VALUATION CONSIDERATIONS
BUSINESS ISSUES
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STRENGTHS RISKS
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Platform for future growth Increasingly severe competition and pricing pressure
Relatively predictable cash flow characteristics/ Increasing labor costs due to federal minimum wage
unlevered balance sheet legislation and labor scarcity
Substantial operating leverage in commissary Recent negative publicity regarding the safety and
cleanliness of QSR food
Attractiveness of unique concept and simple execution to
franchisees Uncertain price behavior for beef, paper and other essential
commodities
Attractive demographics in core market
Unproven ability to attract large area franchisees
Success of new prototype units
Core market is nearly fully-developed
Continued positive consumer perception of food / service
offering Unproven ability to transport concept beyond core market
Positioned as premium brand Increased difficulty of identifying cost effective real
estate locations
Seasoned management team and sound operating infrastructure
Concentration of grocery sales through limited number of
retailers
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EXECUTIVE SUMMARY
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VALUATION CONSIDERATIONS (CONTINUED)
TRADING ISSUES
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Skyline's stock price performance has historically exceeded, but has
recently lagged behind, the returns posted by the broader indices:
CUMULATIVE RETURN
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1 YEAR (1) 2 YEARS (1) 3 YEARS (1)
----------------- ---------------- -------------------
SKYLINE CHILI, INC. 12.8% 82.8% 112.0%
S&P 500 Index 37.7% 59.5% 105.6%
Dow ▇▇▇▇▇ Industrials 34.9% 62.7% 106.8%
Food Manufacturer Index(2) 37.6% 17.8% 22.6%
Integrated Restaurant Index(2) 37.2% 4.9% (7.1%)
Restaurant Index(2) (8.2%) 3.5% (4.7%)
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SOURCE: ILX SYSTEMS
(1) Closing price of Skyline Common shares one day prior to announcement
of the Proposed Transaction.
(2) Indexes are comprised of comparable publicly-traded companies as
described herein.
The indicated deal price exceeds the average trading price of the
Company's common shares since 1993:
HIGH LOW AVERAGE
------------ ------------ ------------
1993 $3.13 $2.13 $2.74
1994 3.50 2.88 3.17
1995 4.38 3.13 3.69
1996 6.56 3.50 4.57
1997 YTD 9.13 5.50 6.62
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EXECUTIVE SUMMARY
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VALUATION CONSIDERATIONS (CONTINUED)
TRADING ISSUES (CONTINUED)
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- The recent disappointing trading performance of ▇▇▇▇▇▇▇'s shares is
likely attributable to a variety of factors including:
- Absence of equity research coverage;
- Limited float due to heavily concentrated insider ownership;
- Liquidity concerns and low trading volume; and
- Limited geographic diversification of operations.
- The relatively low trading volume of Skyline and the resulting
perceived illiquidity has severely reduced potential institutional
interest in the shares of the Company.
Float as a % of Average Daily Average Daily Trading Volume
Shares Outstanding Trading Volume as a % of Total Shares Outstanding
----------------------------- ------------------------- ------------------------------------
SKYLINE CHILI 32.7% 1,296 0.04%
▇▇▇▇▇▇▇▇ Foods of Distinction 82.9% 31,538 0.07%
Bridgford Foods 34.3% 8,097 0.07%
J & J Snack Foods 66.2% 21,665 0.66%
▇▇▇ ▇▇▇▇▇ 93.6% 132,880 0.31%
Uno Restaurant 50.1% 12,711 0.12%
WSMP 52.3% 13,748 0.42%
Blimpie International 39.2% 27,502 0.29%
Luby's Cafeterias 95.4% 64,835 0.28%
Max & Erma's 58.6% 7,016 0.17%
▇▇▇▇▇▇▇ Family Restaurant. 41.7% 21,726 0.21%
Sbarro 63.1% 31,985 0.16%
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Average 59.2% 31,250 0.23%
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1 Source - Bloomberg L.P. - Data sampled over one year time
period.
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EXECUTIVE SUMMARY
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VALUATION CONSIDERATIONS (CONTINUED)
TRADING ISSUES (CONTINUED)
--------------------------
- These factors have in turn contributed to a lack of published equity
research on the stock and generally poor visibility for the issue:
Number of Equity
Analysts Covering Reports Published
the Stock in 1997
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SKYLINE CHILI 0 0
▇▇▇▇▇▇▇▇ Foods of Distinction 2 6
Bridgford Foods 0 0
J & J Snack Foods 4 0
▇▇▇ ▇▇▇▇▇ 13 17
Uno Restaurant 1 0
WSMP 2 2
Blimpie International 0 0
Luby's Cafeterias 12 10
Max & ▇▇▇▇'s 3 8
▇▇▇▇▇▇▇ Family Restaurant. 0 0
Sbarro 4 9
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AVERAGE 4 5
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Source - Bloomberg L.P.
- Given these Company-specific issues and the market dynamics for trading
in Skyline's stock, we believe it is unlikely that all shareholders who
sought liquidity could sell their Skyline common stock into the open
market for a price equal to the consideration offered in the Proposed
Transaction.
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PROFILE OF SKYLINE CHILI, INC.
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PROFILE OF SKYLINE CHILI, INC.
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HISTORY OF THE COMPANY
- In 1949, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ opened the first Skyline Chili restaurant
in Cincinnati, Ohio.
- By 1956, the Lambrinides brothers initiated the sales of their
restaurant products through supermarkets as frozen entrees. Through the
mid-eighties and early nineties the products experienced rapid growth
until they became and remain the leading frozen entrees sold in grocery
stores in the Cincinnati, Ohio marketing area.
- In 1957, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇, sons of the
founder, saw the potential for developing the chain through franchising
with high quality owner-operators. Their first franchised operation
opened that year in downtown Cincinnati.
- Skyline Chili completed its initial public offering of common stock in
1986. The Company sought access to public capital in order to fund
further development.
- In 1991, the Company built a new commissary to replace its old facility
which it had outgrown and which had become inefficient with respect to
contemporary manufacturing techniques and equipment. The Company
developed the new facility with substantial extra capacity as a
commitment to long-term growth.
- In 1993, the Company acquired the trademarked Cincinnati Recipe brand
of chili spice mixes and canned chili to complement its frozen product
lines. Skyline upgraded packaging and promotional activity and the
brand maintains a leadership position within its categories despite
aggressive competition.
- In 1994, the Lambrinides brothers officially stepped down from their
day-to-day duties. They remain majority shareholders and continue to be
active as consultants to the Company as well as serving on the
Company's Board of Directors.
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PROFILE OF SKYLINE CHILI, INC.
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DESCRIPTION OF THE COMPANY
- Skyline Chili, Inc. manufactures and sells high-quality
"Cincinnati-style" chili and chili-related food products. The Company
has three distribution channels for its chili products, (i)
Company-owned restaurants, (ii) franchised restaurants, and (iii)
retail outlets such as supermarkets and grocery store chains. As of
October 26, 1997, there were 101 Skyline restaurants in operation in 4
states, 36 owned and operated by the Company and 65 owned and operated
by the Company's franchisees. Historically, the Company's restaurant
and grocery sales have been concentrated in greater Cincinnati, Ohio
and Northern Kentucky. Other areas of Skyline development include (i)
other Ohio areas such as Columbus, Cleveland and Dayton, (ii)
Indianapolis and other areas in Indiana, and (iii) selected areas of
franchisee development in Florida.
- The Company produces its secret recipe chili at its Fairfield, Ohio
commissary. The secret recipe chili is sold to the Company's
franchisees and is served exclusively in all franchised and
Company-owned Skyline Chili restaurants. In addition, the Company
manufactures and sells frozen grocery and canned products under its
"Skyline" trademark, which it distributes through retail outlets such
as supermarkets and grocery store chains. The Company sells additional
grocery products manufactured by third parties under its "Cincinnati
Recipe" trademarks through the same retail outlets. The Company also
licenses the use of its "Skyline" trademark on branded products, such
as oyster crackers, which are manufactured and sold by third parties.
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HISTORICAL FINANCIAL STATEMENTS
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INCOME STATEMENT
FISCAL YEARS ENDED
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OCTOBER 31, OCTOBER 30, OCTOBER 29, OCTOBER 27, OCTOBER 26,
(in 000's) 1993 1994 1995 1996 1997
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REVENUES:
Commissary sales $9,809 $10,817 $10,331 $12,341 $14,096
Restaurant sales 10,646 12,507 14,231 15,471 17,433
Franchise fees & royalties 1,171 1,172 1,210 1,411 1,539
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Total revenues 21,626 24,496 25,772 29,223 33,068
OPERATING EXPENSES:
Cost of sales - commissary 7,610 8,211 7,497 8,634 9,467
Restaurant operating costs:
Cost of food & paper 3,220 3,569 3,945 4,355 4,736
Payroll costs 2,942 3,629 4,266 4,693 5,249
Occupancy and other exp. 2,292 2,690 3,078 3,229 3,693
Selling, general and admin. 4,371 5,051 5,000 5,727 6,861
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Total operating expenses 20,435 23,150 23,786 26,638 30,006
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INCOME FROM OPERATIONS 1,191 1,346 1,986 2,585 3,062
OTHER INCOME (EXPENSE):
Interest income 96 93 92 76 85
Interest expense (607) (583) (541) (367) (357)
Other expense 21 (24) (7) (6) (8)
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INCOME BEFORE INCOME TAXES 701 832 1,530 2,288 2,782
PROVISION FOR INCOME TAXES 270 300 550 873 1,087
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NET INCOME $431 $532 $980 $1,415 $1,695
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HISTORICAL FINANCIAL STATEMENTS
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BALANCE SHEET -- ASSETS
FISCAL YEARS ENDED
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OCTOBER 31, OCTOBER 30, OCTOBER 29, OCTOBER 27, OCTOBER 26,
(in 000's) 1993 1994 1995 1996 1997
------------- ------------- ------------- ------------- -------------
ASSETS
CURRENT ASSETS:
Cash $1,048 $2,709 $1,910 $1,140 $2,150
Accounts receivable 1,129 726 1,074 1,692 1,873
Inventories 539 1,043 1,224 1,804 1,412
Prepaid expenses 254 213 121 129 145
Deferred income taxes 205 198 206 253 222
------------- ------------- ------------- ------------- -------------
Total current assets 3,175 4,889 4,535 5,018 5,802
NET PROPERTY AND EQUIPMENT 13,056 12,876 13,825 15,540 16,340
NET INTANGIBLE ASSETS 269 534 501 455 571
OTHER ASSETS 402 124 152 149 181
------------- ------------- ------------- ------------- -------------
TOTAL ASSETS $16,902 $18,423 $19,013 $21,162 $22,894
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HISTORICAL FINANCIAL STATEMENTS
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BALANCE SHEET -- LIABILITIES AND STOCKHOLDERS' EQUITY
FISCAL YEARS ENDED
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OCTOBER 31, OCTOBER 30, OCTOBER 29, OCTOBER 27, OCTOBER 26,
(in 000's) 1993 1994 1995 1996 1997
------------- ------------- ------------- ------------- -------------
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $870 $1,406 $1,505 $1,787 $1,495
Accrued liabilities 1,005 1,547 1,109 1,531 2,049
Income taxes - - 101 146 209
Current portion of LT debt 315 340 360 385 410
------------- ------------- ------------- ------------- -------------
Total current liabilities 2,190 3,293 3,075 3,849 4,164
DEFERRED INCOME TAXES 271 387 469 689 680
OTHER LIABILITIES - - 105 117 292
LONG-TERM DEBT 6,799 6,459 6,100 5,715 5,305
SHAREHOLDERS' EQUITY:
Common stock 5,176 5,286 5,286 5,399 5,433
Retained earnings 2,466 2,998 3,978 5,393 7,020
------------- ------------- ------------- ------------- -------------
Total stockholders' equity 7,642 8,284 9,264 10,792 12,453
------------- ------------- ------------- ------------- -------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $16,902 $18,423 $19,013 $21,162 $22,894
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HISTORICAL FINANCIAL STATEMENTS
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CASH FLOW STATEMENT
FISCAL YEARS ENDED
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OCTOBER 31, OCTOBER 30, OCTOBER 29, OCTOBER 27, OCTOBER 26,
(in 000's) 1993 1994 1995 1996 1997
------------- ------------- ------------- -------------- -------------
OPERATING ACTIVITIES:
Net income $431 $532 $980 $1,415 $1,695
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,399 1,373 1,553 1,705 1,994
Deferred income taxes 52 101 74 173 22
Amortization of stock award compensation 84 - - - -
Decrease (increase) in:
Accounts receivable 11 403 (348) (618) (181)
Inventories 3 (504) (181) (580) 392
Prepaid expenses (37) 41 92 (8) (16)
Increase (decrease) in:
Accounts payable 99 536 99 282 (292)
Income taxes payable - - 101 45 63
Accrued liabilities 40 542 (333) 422 620
Other-net (1) (66) (27) 24 54
------------- ------------- ------------- -------------- -------------
Net cash provided by operating activities $2,081 $2,958 $2,010 $2,860 $4,351
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HISTORICAL FINANCIAL STATEMENTS
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CASH FLOW STATEMENT (CONTINUED)
FISCAL YEARS ENDED
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OCTOBER 31, OCTOBER 30, OCTOBER 29, OCTOBER 27, OCTOBER 26,
(in 000's) 1993 1994 1995 1996 1997
------------- ------------- ------------- -------------- -------------
INVESTING ACTIVITIES:
Capital expenditures ($1,845) ($1,537) ($2,484) ($3,987) ($2,758)
Payments for businesses acquired (295) (301) - - -
Proceeds from sale of property and equip. 3 903 54 609 2
Decrease in unexpended bond proceeds 173 - - - -
Additions to intangible assets (19) (47) (39) (5) (166)
------------- ------------- ------------- -------------- -------------
Net cash used by investing activities (1,983) (982) (2,469) (3,383) (2,922)
FINANCING ACTIVITIES:
Proceeds from exercise of stock options - - - 113 34
Repayments of debt (300) (315) (340) (360) (385)
Cash dividends paid - - - - (68)
------------- ------------- ------------- -------------- -------------
Net cash used by financing activities (300) (315) (340) (247) (419)
Net increase (decrease) in cash (202) 1,661 (799) (770) 1,010
Cash at beginning of year 1,250 1,048 2,709 1,910 1,140
------------- ------------- ------------- -------------- -------------
Cash at end of year $1,048 $2,709 $1,910 $1,140 $2,150
============= ============= ============= ============== =============
--------------------------------------------------------------------------------
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--------------------------------------------------------------------------------
================================================================================
--------------------------------------------------------------------
VALUATION ANALYSIS
--------------------------------------------------------------------
--------------------------------------------------------------------------------
================================================================================
23
PROJECT TRI VIA CONFIDENTIAL
--------------------------------------------------------------------------------
================================================================================
TRANSACTION PRICING MATRIX
--------------------------------------------------------------------------------
================================================================================
-----------------------------------------------------------------------------------------------------------------------------------
PRICE PER SHARE $4.75 $5.25 $5.75 $6.25 $6.75
-----------------------------------------------------------------------------------------------------------------------------------
(000S) EXCEPT PER SHARE DATA
-----------------------------------------------------------------
SHARES OUTSTANDING 3,397.773 $16,139 $17,838 $19,537 $21,236 $22,935
WARRANTS - $0 $0 $0 $0 $0
OPTIONS 472.017 $595 $831 $1,067 $1,303 $1,539
AVERAGE EXERCISE PRICE $3.488
EQUITY PURCHASE PRICE $16,735 $18,670 $20,605 $22,540 $24,474
DEBT ASSUMED
LT Debt $5,715 $5,715 $5,715 $5,715 $5,715
-----------------------------------------------------------------------------------------------------------------------------------
IMPLIED FIRM VALUE $22,450 $24,385 $26,320 $28,255 $30,189
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
FIRM VALUE : EBITDA
1996 $4,290 5.2 x 5.7 x 6.1 x 6.6 x 7.0 x
1997 (1) $5,056 4.4 4.8 5.2 5.6 6.0
Projected 1998 (2) $5,793 3.9 4.2 4.5 4.9 5.2
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
FIRM VALUE : EBIT
1996 $2,585 8.7 x 9.4 x 10.2 x 10.9 x 11.7 x
1997 (1) $3,062 7.3 8.0 8.6 9.2 9.9
Projected 1998 (2) $3,474 6.5 7.0 7.6 8.1 8.7
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
FIRM VALUE : REVENUES
1996 $29,224 0.8 x 0.8 x 0.9 x 1.0 x 1.0 x
1997 (1) $33,067 0.7 0.7 0.8 0.9 0.9
Projected 1998 (2) $35,948 0.6 0.7 0.7 0.8 0.8
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
FIRM VALUE : COMPANY STORES
1996 33 $680.3 $738.9 $797.6 $856.2 $914.8
1997 36 623.6 677.4 731.1 784.8 838.6
Projected 1998 (2) 40 561.2 609.6 658.0 706.4 754.7
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
EQUITY PRICE : EPS / NET INCOME
1996 $0.41 / $1,417 11.6 x 12.8 x 14.0 x 15.2 x 16.5 x
1997 (1) (3) $0.47 / $1,695 10.1 11.2 12.2 13.3 14.4
Projected 1998 (2) (3) $0.54 / $1,989 8.7 9.7 10.6 11.5 12.4
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
EQUITY VALUE : BOOK EQUITY
1996 $10,792 1.6 x 1.7 x 1.9 x 2.1 x 2.3 x
1997 (1) $12,453 1.3 1.5 1.7 1.8 2.0
Projected 1998 (2) N/A N/A N/A N/A N/A N/A
-----------
-----------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
PRICE PER SHARE $7.25 $7.75 $8.25 $8.75
--------------------------------------------------------------------------------------------
SHARES OUTSTANDING $24,634 $26,333 $28,032 $29,731
WARRANTS $0 $0 $0 $0
OPTIONS $1,776 $2,012 $2,248 $2,484
EQUITY PURCHASE PRICE $26,409 $28,344 $30,279 $32,214
DEBT ASSUMED
$5,715 $5,715 $5,715 $5,715
--------------------------------------------------------------------------------------------
IMPLIED FIRM VALUE $32,124 $34,059 $35,994 $37,929
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
FIRM VALUE : EBITDA
1996 7.5 x 7.9 x 8.4 x 8.8 x
1997 (1) 6.4 6.7 7.1 7.5
Projected 1998 (2) 5.5 5.9 6.2 6.5
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
FIRM VALUE : EBIT
1996 12.4 x 13.2 x 13.9 x 14.7 x
1997 (1) 10.5 11.1 11.8 12.4
Projected 1998 (2) 9.2 9.8 10.4 10.9
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
FIRM VALUE : REVENUES
1996 1.1 x 1.2 x 1.2 x 1.3 x
1997 (1) 1.0 1.0 1.1 1.1
Projected 1998 (2) 0.9 0.9 1.0 1.1
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
FIRM VALUE : COMPANY STORES
1996 $973.5 $1,032.1 $1,090.7 $1,149.4
1997 892.3 946.1 999.8 1,053.6
Projected 1998 (2) 803.1 851.5 899.9 948.2
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
EQUITY PRICE : EPS / NET INCOME
1996 17.7 x 18.9 x 20.1 x 21.3 x
1997 (1) (3) 15.4 16.5 17.6 18.6
Projected 1998 (2) (3) 13.3 14.3 15.2 16.1
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
EQUITY VALUE : BOOK EQUITY
1996 2.4 x 2.6 x 2.8 x 3.0 x
1997 (1) 2.1 2.3 2.4 2.6
Projected 1998 (2) N/A N/A N/A N/A
--------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
Equity purchase price calculated as: Shares outstanding times the offered price
+ Options outstanding times the offered price net of the average exercise cost.
-----------------------------------------------------------------------------------------------------------------------------------
(1) 1997 financials reflect unaudited results.
(2) Projection Source: Company projections.
(3) Estimated based upon weighted average common and common equivalent shares
outstanding of 3,658,000.
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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================================================================================
ANALYSIS OF COMPARABLE PUBLICY-TRADED COMPANIES
--------------------------------------------------------------------------------
================================================================================
DESCRIPTION OF COMPARABLE PUBLICLY-TRADED COMPANIES
FOOD MANUFACTURING COMPANIES
▇▇▇▇▇▇▇▇ FOODS OF DISTINCTION, INC. - produces and markets specialty food
products. The Company's products include primarily frozen pesto and other
Italian-style frozen sauces, frozen stuffed and flat pasta products, frozen
focaccia and frozen meatballs. ▇▇▇▇▇▇▇▇ markets its food to retail, foodservice,
club stores and institutional food industries.
BRIDGFORD FOODS CORP. - manufactures and/or distributes refrigerated, frozen and
snack food products. Bridgford markets its products through its own sales force,
brokers, cooperatives, wholesalers and independent distributors to retail and
wholesale outlets, restaurants and institutions throughout the United States.
J & J SNACK FOODS CORP. - manufactures soft pretzels, frozen carbonated
beverages, juice treats and desserts, churros, baked goods and health foods. The
Company distributes to food service and retail supermarket industries through
snackbars and food stands in chain and department stores. Brand names include
Tio Pepe, Superpretzel, Icee, Superchurros and Funnel Cake Factory.
INTEGRATED RESTAURANT COMPANIES
▇▇▇ ▇▇▇▇▇ FARMS - owns and operates 399 restaurants principally in the
midwestern, mid-Atlantic and southeastern United States, as well as Texas. The
Company also produces a variety of pork sausage products under the brand names
of "▇▇▇ ▇▇▇▇▇" and "▇▇▇▇▇ Country Sausage". ▇▇▇ ▇▇▇▇▇ Farms other operations
include "▇▇▇. ▇▇▇▇'▇ Country Kitchens" and "Hickory Specialties".
UNO RESTAURANT CORPORATION - currently operates 93 "Pizzeria Uno" and "Chicago
Bar & Grill" casual dining, full-service restaurants primarily from New England
to Virginia, as well as Florida, Chicago and Denver. The company also franchises
66 units in 19 states, the District of Columbia, Puerto Rico and Seoul, Korea.
The company also operates a consumer food division which supplies American
Airlines, movie theaters, hotels and supermarkets in the Northeast with frozen
Pizzeria Uno brand products.
WSMP INC. - operates through two food processing divisions and a restaurant
division. The Company's restaurant operations include 33 company-owned
restaurants in six states and 53 franchised restaurants in eight states
including "Western Steer", "Prime Sirloin", "Mom `n' Pop's" and "▇▇▇▇▇▇▇'▇".
WSMP also has a ham curing division and a bakery division.
--------------------------------------------------------------------------------
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================================================================================
ANALYSIS OF COMPARABLE PUBLICY-TRADED COMPANIES
--------------------------------------------------------------------------------
================================================================================
DESCRIPTION OF COMPARABLE PUBLICLY-TRADED COMPANIES (CONTINUED)
RESTAURANT COMPANIES
BLIMPIE INC. - franchises, subfranchises and master licenses over 1,600
non-cooking, quick service sandwich outlets known as "Blimpie" outlets. The main
products sold in a Blimpie outlet are submarine sandwiches and salads. The
Company has outlets across the United States, Spain, Sweden, Argentina, the
United Kingdom and Canada.
LUBY'S CAFETERIAS INC. - owns and operates over 229 cafeterias in Texas,
Arizona, Oklahoma, Tennessee, Florida, New Mexico, Arkansas, Missouri,
Louisiana, Mississippi and Kansas. The restaurants, located primarily in
shopping malls, are open for lunch and dinner and cater to shoppers, office
worker and families.
MAX & ERMA'S RESTAURANTS, INC. - owns and operates 44 restaurants under the name
"Max & ▇▇▇▇'s Neighborhood Gathering Place". The restaurants are located in
Ohio, Pennsylvania, Indiana, Michigan, Illinois, North Carolina and Kentucky and
offer popular American food and alcoholic and non-alcoholic beverages.
▇▇▇▇▇▇▇ FAMILY RESTAURANTS - owns and franchises family-style restaurants which
serve a wide variety of high quality, moderately-priced breakfast, lunch and
dinner entrees. ▇▇▇▇▇▇▇ Family Restaurants provide table service and many are
open 24 hours a day. The company has over 466 operations in 32 states and
Canada.
SBARRO INC. - develops and operates a chain of family-style, cafeteria-type
Italian restaurants under the "Sbarro" and "Sbarro The Italian Eatery" names.
The Company currently owns 820 and franchises 214 restaurants in the United
States and abroad.
--------------------------------------------------------------------------------
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--------------------------------------------------------------------------------
================================================================================
ANALYSIS OF COMPARABLE PUBLICY-TRADED COMPANIES
--------------------------------------------------------------------------------
================================================================================
(Dollar amounts in thousands except per share)
SUMMARY OF FINANCIAL AND STATISTICAL DATA
TOTAL FIRM VALUE AS A 1998 P/E
MULTIPLE OF TR12: EQUITY VALUE AS A MULTIPLE OF: AS A % OF
---------------------------------- ----------------------------------------- -----------
NET TR12 CY1997 CY1998 BOOK 1997 EPS
COMPANY NAME REVENUES EBITDA EBIT P/E P/E P/E VALUE GROWTH
-------------------------------------- ---------- ---------- ---------- --------- --------- --------- -------- -----------
SKYLINE CHILI 0.8 X 5.5 X 9.1 X 13.8 X 13.5 X 11.7 X 1.8 X 68.9%
FOOD MANUFACTURING COMPANIES 0.9 X 7.6 X 12.5 X 18.6 X 13.5 X 13.7 X 1.6 X 99.4%
INTEGRATED RESTAURANT COMPANIES 0.9 X 7.7 X 12.7 X 18.6 X 16.8 X 15.4 X 1.9 X 76.3%
RESTAURANT COMPANIES 1.0 X 6.1 X 9.7 X 13.0 X 12.4 X 11.7 X 2.1 X 76.6%
---------------------------------------------------------------------------------------------------------------------------------
AVERAGE MULTIPLE 0.9 X 6.7 X 11.0 X 16.0 X 14.0 X 13.1 X 1.8 X 80.3%
AVERAGE MULTIPLE EXCLUDING HIGH & LOW 0.9 X 6.9 X 11.1 X 16.2 X 13.5 X 12.7 X 1.8 X 76.4%
---------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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--------------------------------------------------------------------------------
================================================================================
ANALYSIS OF COMPARABLE PUBLICY-TRADED COMPANIES
--------------------------------------------------------------------------------
================================================================================
(Dollar amounts in thousands except per share)
COMPARABLE FOOD MANUFACTURING COMPANIES
SUMMARY OF FINANCIAL AND STATISTICAL DATA
TOTAL FIRM VALUE AS A MULTIPLE OF TR12:
11/14/97 TOTAL EQUITY ---------------------------------------
CLOSING FIRM MARKET NET
COMPANY NAME PRICE VALUE VALUE REVENUES EBITDA EBIT
------------------------- ------------ ------------- ------------- ------------- ----------- -----------
SKYLINE CHILI $6.50 $27,802 $22,087 $33,068 $5,056 $3,062
0.8 X 5.5 X 9.1 X
▇▇▇▇▇▇▇▇ FOODS 1.25 14,153 14,094 15,494 1,531 1,098
0.9 X 9.2 X 12.9 X
BRIDGFORD FOODS 13.00 122,160 122,160 124,246 12,770 10,108
1.0 X 9.6 X 12.1 X
J & J SNACK FOODS CORP. 16.88 154,944 147,930 194,923 25,637 7,711
0.8 X 6.0 X 20.1 X
----------------------------------------------------------------------------------------------------------------
AVERAGE MULTIPLE 0.9 X 7.6 X 13.5 X
AVERAGE MULTIPLE EXCLUDING HIGH & LOW 0.9 X 7.6 X 12.5 X
----------------------------------------------------------------------------------------------------------------
EQUITY VALUE AS A MULTIPLE OF: 1998 P/E
---------------------------------------------- AS A % OF
TR12 CY1997 CY1998 BOOK TRENDLINE
COMPANY NAME P/E P/E P/E VALUE GROWTH
----------------------------- ----------- -------- ---------- ----------- ---------
SKYLINE CHILI $0.47 $0.48 $0.56 12,453 17.0%
13.8 X 3.5 X 11.7 X 1.8 X 68.9%
▇▇▇▇▇▇▇▇ FOODS 0.07 0.14 N/M 10,478 N/M
17.9 X 8.9 X N/M 1.3 X N/A
BRIDGFORD FOODS 0.67 N/M N/M 42,971 N/M
19.4 X N/A N/A 2.8 X N/A
J & J SNACK FOODS CORP. 0.60 0.92 1.08 97,943 12.0%
28.1 X 8.4 X 15.6 X 1.5 X 130.0%
--------------------------------------------------------------------------------------------------
AVERAGE MULTIPLE 19.8 X 3.6 X 13.7 X 1.9 X 99.4%
AVERAGE MULTIPLE EXCLUDING HIGH & LOW 18.6 X 3.5 X 13.7 X 1.6 X 99.4%
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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--------------------------------------------------------------------------------
================================================================================
ANALYSIS OF COMPARABLE PUBLICY-TRADED COMPANIES
--------------------------------------------------------------------------------
================================================================================
(Dollar amounts in thousands except per share)
COMPARABLE INTEGRATED RESTAURANT COMPANIES
SUMMARY OF FINANCIAL AND STATISTICAL DATA
TOTAL FIRM VALUE AS A
MULTIPLE OF TR12:
14-11-97 TOTAL EQUITY ---------------------------------
CLOSING FIRM MARKET NET
COMPANY NAME PRICE VALUE VALUE REVENUES EBITDA EBIT
-------------------------------------------- ------------- ------------ ------------- ----------- --------- ---------
SKYLINE CHILI $6.50 $27,802 $22,087 $33,068 $5,056 $3,062
0.8 X 5.5 X 9.1 X
▇▇▇ ▇▇▇▇▇ 19.44 899,545 828,778 831,140 90,927 60,686
1.1 X 9.9 X 14.8 X
UNO RESTAURANT CORP. 6.88 114,331 75,377 176,862 23,661 10,905
0.6 X 4.8 X 10.5 X
WSMP 22.31 89,214 72,985 100,789 5,362 2,504
0.9 X 16.6 X 35.6 X
-----------------------------------------------------------------------------------------------------------------------------
AVERAGE MULTIPLE 0.9 X 9.2 X 17.5 X
AVERAGE MULTIPLE EXCLUDING HIGH & LOW 0.9 X 7.7 X 12.7 X
-----------------------------------------------------------------------------------------------------------------------------
EQUITY VALUE AS A MULTIPLE OF: 1998 P/E
------------------------------------------- AS A % OF
TR12 CY1997 CY1998 BOOK TRENDLINE
COMPANY NAME P/E P/E P/E VALUE GROWTH
----------------------------------------- ------- ------- ---------- ----------- -------------
SKYLINE CHILI $0.47 $0.48 $0.56 $12,453 17.0%
13.8 X 13.5 X 11.7 X 1.8 X 68.9%
▇▇▇ ▇▇▇▇▇ 0.90 0.99 1.27 429,629 11.1%
21.6 X 19.7 X 15.4 X 1.9 X 138.7%
UNO RESTAURANT CORP. 0.44 0.50 N/A 77,697 15.0%
15.6 X 13.8 X N/A 1.0 X N/A
WSMP 0.39 0.52 0.72 22,194 40.5%
57.2 X 43.3 X 30.8 X 3.3 X 76.3%
------------------------------------------------------------------------------------------------------
AVERAGE MULTIPLE 27.1 X 22.6 X 19.3 X 2.0 X 94.6%
AVERAGE MULTIPLE EXCLUDING HIGH & LOW 18.6 X 16.8 X 15.4 X 1.9 X 76.3%
------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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--------------------------------------------------------------------------------
================================================================================
ANALYSIS OF COMPARABLE PUBLICY-TRADED COMPANIES
--------------------------------------------------------------------------------
================================================================================
(Dollar amounts in thousands except per share)
COMPARABLE RESTAURANT COMPANIES
SUMMARY OF FINANCIAL AND STATISTICAL DATA
TOTAL FIRM VALUE AS A MULTIPLE OF TR12:
14-11-97 TOTAL EQUITY ---------------------------------------------------
CLOSING FIRM MARKET NET
COMPANY NAME PRICE VALUE VALUE REVENUES EBITDA EBIT
-------------------------- ------------ ---------- ------------ -------------- ---------------- ---------------
SKYLINE CHILI $6.50 $27,801 $22,086 $33,068 $5,056 $3,062
0.8 X 5.5 X 9.1 X
BLIMPIE INTERNATIONAL 4.50 46,452 42,939 38,127 4,844 4,403
1.2 X 9.6 X 10.5 X
LUBY'S CAFETERIAS 19.31 539,332 449,332 484,571 76,884 57,485
1.1 X 7.0 X 9.4 X
MAX & ▇▇▇▇'S 6.00 61,352 24,967 88,961 11,645 5,981
0.7 X 5.3 X 10.3 X
PERKINS FAMILY RESTAURANTS 13.69 192,621 143,541 262,759 35,229 19,331
0.7 X 5.5 X 10.0 X
SBARRO 26.13 534,006 534,006 340,968 85,191 61,778
1.6 X 6.3 X 8.6 X
----------------------------------------------------------------------------------------------------------------------------------
AVERAGE MULTIPLE 1.0 X 6.5 X 9.6 X
AVERAGE MULTIPLE EXCLUDING HIGH & LOW 1.0 X 6.1 X 9.7 X
----------------------------------------------------------------------------------------------------------------------------------
EQUITY VALUE AS A MULTIPLE OF: 1998 P/E
---------------------------------------------------------------------------- AS A % OF
TR12 CY1997 CY1998 BOOK TRENDLINE
COMPANY NAME P/E P/E P/E VALUE GROWTH
-------------------------- ------------------ ---------------- ----------------- ----------------- ----------------
SKYLINE CHILI $0.47 $0.48 $0.56 $12,453 15.3%
13.8 X 13.5 X 11.7 X 1.8 X 76.6%
BLIMPIE INTERNATIONAL $0.34 N/M N/M 18,865 N/M
13.2 X N/M N/M 2.3 X N/M
LUBY'S CAFETERIAS $1.72 1.68 1.66 221,199 N/M
11.2 X 11.5 X 11.7 X 2.0 X N/M
MAX & ▇▇▇▇'S $0.54 0.59 0.69 19,158 15.3%
11.1 X 10.2 X 8.7 X 1.3 X 57.1%
PERKINS FAMILY RESTAURANTS $0.86 N/M N/M 63,542 N/M
15.9 X N/A N/A 2.3 X N/M
SBARRO $1.89 1.97 2.17 209,866 12.8%
13.8 X 13.3 X 12.0 X 2.5 X 94.4%
----------------------------------------------------------------------------------------------------------------------------------
AVERAGE MULTIPLE 13.2 X 12.1 X 11.0 X 2.0 X 76.0%
AVERAGE MULTIPLE EXCLUDING HIGH & LOW 13.0 X 12.4 X 11.7 X 2.1 X 76.6%
----------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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PAGE 24 EQUITABLE SECURITIES CORPORATION
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PROJECT TRI VIA CONFIDENTIAL
--------------------------------------------------------------------------------
================================================================================
ANALYSIS OF COMPARABLE PUBLICY-TRADED COMPANIES
--------------------------------------------------------------------------------
================================================================================
(Dollar amounts in thousands except per share)
COMPARABLE FOOD MANUFACTURING COMPANIES
SUMMARY OPERATIONAL RESULTS
NET REVENUES EBITDA NET INCOME EBITDA MARGINS
-------------------------- ---------------------------- ------------------------ -------------------------
TR12 CAGR (1) TR12 CAGR (1) TR12 CAGR (1) TR12 AVG.(2)
------------- ----------- ------------ -------------- ---------- ----------- --------- -----------
Skyline Chili $33,068 13.3% $5,056 19.5% $1,695 31.5% 15.3% 14.7%
▇▇▇▇▇▇▇▇ Foods 15,494 21.0% 1,531 46.9% 775 49.8% 9.9% 11.4%
Bridgford Foods 124,246 4.2% 12,770 (0.7%) 6,267 (4.1%) 10.3% 10.5%
J & J Snack Foods Corp. 194,923 3.3% 25,637 (4.5%) 5,408 (17.2%) 13.2% 13.6%
-----------------------------------------------------------------------------------------------------------------------------------
AVERAGE $91,933 10.4% $11,248 15.3% $3,536 15.0% 12.1% 12.6%
-----------------------------------------------------------------------------------------------------------------------------------
NET MARGINS EBIT/INTEREST COVERAGE DEBT TO RETURN ON AVG. EQUITY
------------------------- ------------------------ TOTAL BOOK -----------------------
TR12 AVG. (2) TR12 AVG. (2) CAPITALIZATION TR12 AVG. (2)
------------ ---------- ---------- ------------ --------------- ---------- -----------
Skyline Chili 5.1% 5.1% 11.3 x 10.5 x 31.5% 13.6% 14.1%
▇▇▇▇▇▇▇▇ Foods 5.0% 6.9% 0.1 x 0.2 x 0.6% 7.3% 10.7%
Bridgford Foods 5.0% 5.4% N/M N/M 0.0% 15.1% 16.2%
J & J Snack Foods Corp. 2.8% 3.5% 19.8 x 21.7 x 6.7% 5.6% 5.9%
------------------------------------------------------------------------------------------------------------------------
AVERAGE 4.5% 5.2% 10.4 X 10.8 X 9.7% 10.4% 11.7%
------------------------------------------------------------------------------------------------------------------------
-------------------------------
(1) Computed from the three most recent fiscal years.
(2) Average for trailing twelve months and three most recent fiscal years.
--------------------------------------------------------------------------------
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PAGE 25 EQUITABLE SECURITIES CORPORATION
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--------------------------------------------------------------------------------
================================================================================
ANALYSIS OF COMPARABLE PUBLICY-TRADED COMPANIES
--------------------------------------------------------------------------------
================================================================================
(Dollar amounts in thousands except per share)
COMPARABLE INTEGRATED RESTAURANT COMPANIES
SUMMARY OPERATIONAL RESULTS
NET REVENUES EBITDA NET INCOME EBITDA MARGINS
---------------------------- ------------------------ --------------------- --------------------
TR12 CAGR (1) TR12 CAGR (1) TR12 CAGR (1) TR12 AVG. (2)
----------- ------------- ---------- ----------- --------- ---------- -------- ----------
Skyline Chili $33,068 13.3% $5,056 19.5% $1,695 31.5% 15.3% 14.7%
▇▇▇ ▇▇▇▇▇ 831,140 3.5% 90,927 (12.3%) 37,536 (17.9%) 10.9% 12.1%
Uno Restaurant Corp. 176,862 17.8% 23,661 0.0% 5,543 (16.1%) 13.4% 14.0%
WSMP 100,789 (3.4%) 5,362 (8.9%) 1,355 (19.8%) 5.3% 4.5%
-----------------------------------------------------------------------------------------------------------------------------------
AVERAGE $285,465 7.8% $31,251 (0.4%) $11,532 (5.6%) 11.2% 11.3%
-----------------------------------------------------------------------------------------------------------------------------------
NET MARGINS EBIT/INTEREST COVERAGE DEBT TO RETURN ON AVG. EQUITY
------------------------ ------------------------ TOTAL BOOK ----------------------
TR12 AVG. (2) TR12 AVG. (2) CAPITALIZATION TR12 AVG. (2)
----------- --------- ---------- ----------- ----------------- ----------- ---------
Skyline Chili 5.1% 5.1% 11.3 x 10.5 x 31.5% 13.6% 14.1%
▇▇▇ ▇▇▇▇▇ 4.5% 5.4% 41.5 x 56.5 x 14.1% 8.8% 9.3%
Uno Restaurant Corp. 3.1% 4.0% 4.9 x 6.2 x 33.4% 7.2% 7.5%
WSMP 1.3% 0.5% 1.4 x 0.8 x 42.2% 6.7% 0.7%
-----------------------------------------------------------------------------------------------------------------------------
AVERAGE 3.5% 3.7% 14.8 X 18.5 X 30.3% 9.1% 7.9%
-----------------------------------------------------------------------------------------------------------------------------
-------------------------------
(1) Computed from the three most recent fiscal years.
(2) Average for trailing twelve months and three most recent fiscal years.
--------------------------------------------------------------------------------
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--------------------------------------------------------------------------------
================================================================================
ANALYSIS OF COMPARABLE PUBLICY-TRADED COMPANIES
--------------------------------------------------------------------------------
================================================================================
(Dollar amounts in thousands except per share)
COMPARABLE RESTAURANT COMPANIES
SUMMARY OPERATIONAL RESULTS
NET REVENUES EBITDA NET INCOME EBITDA MARGINS
------------------------- ---------------------- ---------------------- -----------------------
TR12 CAGR (1) TR12 CAGR (1) TR12 CAGR (1) TR12 AVG. (2)
----------- ----------- --------- ---------- ---------- --------- --------- -----------
Skyline Chili $33,068 13.3% $5,056 19.5% $1,695 31.5% 15.3% 14.7%
Blimpie 38,127 20.2% 4,844 17.8% 3,278 18.4% 12.7% 13.8%
International
Luby's Cafeterias 484,571 7.3% 76,884 3.9% 36,510 1.9% 15.9% 17.7%
Max & ▇▇▇▇'s 88,961 19.3% 11,645 21.5% 2,273 3.9% 13.1% 13.3%
Perkins Family 262,759 6.7% 35,229 8.3% 8,876 (1.3%) 13.4% 13.0%
Restaurants
Sbarro 340,968 5.5% 85,191 5.4% 38,391 6.4% 25.0% 24.7%
--------------------------------------------------------------------------------------------------------------------------
AVERAGE $208,076 12.1% $36,475 12.7% $15,170 10.1% 15.9% 16.2%
--------------------------------------------------------------------------------------------------------------------------
DEBT TO
NET MARGINS EBIT/INTEREST COVERAGE TOTAL BOOK RETURN ON AVG. EQUITY
------------------------ --------------------- -------------------------------
TR12 AVG. (2) TR12 AVG. (2) CAPITALIZATION TR12 AVG. (2)
--------- ------------ ------- ------------ -------------- ------------- --------------
Skyline Chili 5.1% 5.1% 11.3 x 10.5 x 31.5% 13.6% 14.1%
Blimpie 8.6% 9.4% N/M N/M 15.7% 17.4% 20.7%
International
Luby's Cafeterias 7.5% 8.7% 18.2 x 27.1 x 28.9% 16.3% 18.1%
Max & Erma's 2.6% 3.0% 2.3 x 3.2 x 65.4% 12.3% 13.0%
Perkins Family 3.4% 3.3% 4.0 x 4.0 x 0.0% 14.2% 13.1%
Restaurants
Sbarro 11.3% 10.9% N/M N/M 0.0% 18.5% 18.1%
-----------------------------------------------------------------------------------------------------------------------
AVERAGE 6.4% 6.7% 9.0 X 11.2 X 23.6% 15.4% 16.2%
-----------------------------------------------------------------------------------------------------------------------
------------------------------------
(1) Computed from the three most recent fiscal years.
(2) Average for trailing twelve months and three most recent fiscal years.
--------------------------------------------------------------------------------
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PROJECT TRI VIA CONFIDENTIAL
--------------------------------------------------------------------------------
================================================================================
ANALYSIS OF COMPARABLE PUBLICY-TRADED COMPANIES
--------------------------------------------------------------------------------
================================================================================
HISTORICAL STOCK PRICE PERFORMANCE
CLOSING STOCK PRICE
--------------------------------- AVERAGE DAILY DOLLAR PERCENTAGE
COMPANY TICKER 11-14-96 11-14-97 VOLUME VARIANCE VARIANCE
------------------------------ ----------------- ---------------- -------------- ------------- --------- -----------
------------------------------------------------------------------------------------------------------------------------------------
SKYLINE CHILI SKC/AMEX $5.13 $6.50 1,296 $1.38 26.8%
------------------------------------------------------------------------------------------------------------------------------------
------------------------------
FOOD MANUFACTURERS
------------------------------
▇▇▇▇▇▇▇▇ FOODS ARMF/Nasdaq 1.50 1.25 31,538 (0.25) (16.7%)
BRIDGFORD FOODS BRID/Nasdaq 8.13 13.00 8,097 4.88 60.0%
J & J SNACK FOODS CORP. JJSF/Nasdaq 11.00 16.88 21,665 5.88 53.4%
------------------------------
INTEGRATED RESTAURANTS
------------------------------
▇▇▇ ▇▇▇▇▇ ▇▇▇▇/Nasdaq 13.19 19.44 132,880 6.25 47.4%
UNO RESTAURANT CORP. UNO/NYSE 7.00 6.88 12,711 (0.13) (1.8%)
WSMP WSMP/Nasdaq 6.50 22.31 13,748 15.81 243.3%
------------------------------
RESTAURANTS
------------------------------
BLIMPIE INTERNATIONAL BMPE/Nasdaq 10.75 4.50 27,502 (6.25) (58.1%)
LUBY'S CAFETERIAS LUB/NYSE 22.25 19.31 64,835 (2.94) (13.2%)
MAX & ERMA'S MAXE/Nasdaq 6.75 6.00 7,016 (0.75) (11.1%)
PERKINS FAMILY RESTAURANTS PFR/NYSE 12.88 13.69 21,726 0.81 6.3%
SBARRO SBA/NYSE 26.88 26.13 31,985 (0.75) (2.8%)
------------------------------------------------------------------------------------------------------------------------------------
MINIMUM - GREATEST DECREASE 1,296 (58.1%)
AVERAGE 31,250 27.8%
MAXIMUM - GREATEST INCREASE 132,880 243.3%
------------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
================================================================================
PAGE 28 EQUITABLE SECURITIES CORPORATION
34
PROJECT TRI VIA CONFIDENTIAL
--------------------------------------------------------------------------------
================================================================================
ANALYSIS OF COMPARABLE PUBLICY-TRADED COMPANIES
--------------------------------------------------------------------------------
================================================================================
HISTORICAL MARKET VALUE
MARKET VALUE (000'S)
CLOSING STOCK PRICE ------------------------------------------------
--------------------------- DOLLAR PERCENTAGE
COMPANY TICKER 11-14-96 11-14-97 11-14-96 11-14-97 VARIANCE VARIANCE
---------------------------- -------------- --------------- ----------- ---------- ---------- ----------- ----------
---------------------------------------------------------------------------------------------------------------------------------
SKYLINE CHILI SKC/AMEX $5.13 $6.50 $17,353 $22,087 $4,734 27.3%
---------------------------------------------------------------------------------------------------------------------------------
----------------------------
FOOD MANUFACTURERS
----------------------------
▇▇▇▇▇▇▇▇ FOODS ARMF/Nasdaq 1.50 1.25 17,925 14,094 (3,831) (21.4%)
BRIDGFORD FOODS BRID/Nasdaq 8.13 13.00 76,350 122,160 45,810 60.0%
J & J SNACK FOODS CORP. JJSF/Nasdaq 11.00 16.88 97,119 147,930 50,812 52.3%
----------------------------
INTEGRATED RESTAURANTS
----------------------------
▇▇▇ ▇▇▇▇▇ ▇▇▇▇/Nasdaq 13.19 19.44 562,290 828,778 266,488 47.4%
UNO RESTAURANT CORP. UNO/NYSE 7.00 6.88 86,631 75,377 (11,255) (13.0%)
WSMP WSMP/Nasdaq 6.50 22.31 17,942 72,985 55,043 306.8%
----------------------------
RESTAURANTS
----------------------------
BLIMPIE INTERNATIONAL BMPE/Nasdaq 10.75 4.50 102,360 42,939 (59,422) (58.1%)
LUBY'S CAFETERIAS LUB/NYSE 22.25 19.31 517,793 449,332 (68,461) (13.2%)
MAX & ▇▇▇▇'S MAXE/Nasdaq 6.75 6.00 27,958 24,967 (2,991) (10.7%)
PERKINS FAMILY RESTAURANTS PFR/NYSE 12.88 13.69 132,471 143,541 11,070 8.4%
SBARRO SBA/NYSE 26.88 26.13 548,042 534,006 (14,036) (2.6%)
---------------------------------------------------------------------------------------------------------------------------------
AVERAGE 198,807 223,283 24,475 32.4%
---------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
================================================================================
PAGE 29 EQUITABLE SECURITIES CORPORATION
35
PROJECT TRI VIA CONFIDENTIAL
===============================================================================
ANALYSIS OF COMPARABLE PUBLICLY-TRADED COMPANIES
================================================================================
FOOD MANUFACTURING COMPANIES
---------------------------------------------------------------
Net Revenues Value
------------ -----
Industry Multiples 0.9x
---------------------------------------------------------------
Skyline Financial Results (1) Implied Equity Value(2)
-------------------------
1997 $33,067 $23,289 $6.85
---------------------------------------------------------------
---------------------------------------------------------------
EBIT Value
---- -----
Industry Multiples 12.5x
---------------------------------------------------------------
Skyline Financial Results (1) Implied Equity Value(2)
-------------------------
1997 $3,062 $32,516 $9.57
---------------------------------------------------------------
---------------------------------------------------------------
EBITDA Value
------ -----
Industry Multiples 7.6x
---------------------------------------------------------------
Skyline Financial Results (1) Implied Equity Value(2)
-------------------------
1997 $5,056 $32,938 $9.69
---------------------------------------------------------------
---------------------------------------------------------------
Net Income Value
---------- -----
Industry Multiples 18.6x
---------------------------------------------------------------
Skyline Financial Results (1) Implied Equity Value
-------------------------
1997 $1,695 $31,578 $9.29
---------------------------------------------------------------
---------------------------------------------------------------
Book Value Value
---------- -----
Industry Multiples 1.6x
---------------------------------------------------------------
Skyline Financial Results (1) Implied Equity Value
-------------------------
1997 $12,453 $20,448 $6.02
---------------------------------------------------------------
---------------------------------------------------------------
AVERAGE IMPLIED VALUE PER SHARE $8.29
---------------------------------------------------------------
-------------------
(1) 1997 unaudited financial results.
(2) Assumes that there is $5,715 outstanding debt.
-------------------------------------------------------------------------------
GENERAL COMMENTS
-------------------------------------------------------------------------------
Skyline has historically traded at a significant discount to the food
manufacturing comparables for a variety of reasons, including the absence of a
"pure play" premium and its significant geographic concentration.
In addition, Skyline suffers from a lack of liquidity and limited
research coverage that limits its trading in the marketplace. Based on
historical trading data, the Company has traded at a discount ranging from 15.4%
to 17.3% to the food manufacturing comparables.
-------------------------------------------------------------------------------
-----------------------------------
IMPLIED VALUATION RANGE
-----------------------------------
$6.75 - $7.00
per share
-----------------------------------
===============================================================================
PAGE 30 EQUITABLE SECURITIES CORPORATION
36
PROJECT TRI VIA CONFIDENTIAL
===============================================================================
ANALYSIS OF COMPARABLE PUBLICLY-TRADED COMPANIES
================================================================================
INTEGRATED RESTAURANT COMPANIES
---------------------------------------------------------------
Net Revenues Value
------------ -----
Industry Multiples 0.9x
---------------------------------------------------------------
Skyline Financial Results (1) Implied Equity Value(2)
-------------------------
1997 $33,067 $22,820 $6.72
---------------------------------------------------------------
---------------------------------------------------------------
EBIT Value
---- -----
Industry Multiples 12.7x
---------------------------------------------------------------
Skyline Financial Results (1) Implied Equity Value(2)
-------------------------
1997 $3,062 $33,030 $9.72
---------------------------------------------------------------
---------------------------------------------------------------
EBITDA Value
------ -----
Industry Multiples 7.7x
---------------------------------------------------------------
Skyline Financial Results (1) Implied Equity Value(2)
-------------------------
1997 $5,056 $33,196 $9.77
---------------------------------------------------------------
---------------------------------------------------------------
Net Income Value
---------- -----
Industry Multiples 18.6x
---------------------------------------------------------------
Skyline Financial Results (1) Implied Equity Value
-------------------------
1997 $1,695 $31,546 $9.28
---------------------------------------------------------------
---------------------------------------------------------------
Book Value Value
---------- -----
Industry Multiples 1.9x
---------------------------------------------------------------
Skyline Financial Results (1) Implied Equity Value
-------------------------
1997 $12,453 $23,055 $6.79
---------------------------------------------------------------
---------------------------------------------------------------
AVERAGE IMPLIED VALUE PER SHARE $8.46
---------------------------------------------------------------
-------------------
(1) 1997 unaudited financial results.
(2) Assumes that there is $5,715 outstanding debt.
-------------------------------------------------------------------------------
GENERAL COMMENTS
-------------------------------------------------------------------------------
Skyline has also traded at a significant discount to the integrated restaurant
comparables. In comparison to the reference group, the Company has limited
geographical scope and a heavy saturation of its core market relative to other
concepts. Relative illiquidity and limited equity coverage are also a
significant factor. Based on historical trading data, the Company has traded at
a discount ranging from 17.9% to 19.6% versus integrated restaurant comparables.
-------------------------------------------------------------------------------
-----------------------------------
IMPLIED VALUATION RANGE
-----------------------------------
-----------------------------------
$6.75 - $7.00
per share
-----------------------------------
===============================================================================
PAGE 31 EQUITABLE SECURITIES CORPORATION
37
PROJECT TRI VIA CONFIDENTIAL
===============================================================================
ANALYSIS OF COMPARABLE PUBLICLY-TRADED COMPANIES
================================================================================
FOOD MANUFACTURING COMPANIES
---------------------------------------------------------------
Net Revenues Value
------------ -----
Industry Multiples 1.0x
---------------------------------------------------------------
Skyline Financial Results (1) Implied Equity Value(2)
-------------------------
1997 $33,067 $26,568 $7.82
---------------------------------------------------------------
---------------------------------------------------------------
EBIT Value
---- -----
Industry Multiples 9.7x
---------------------------------------------------------------
Skyline Financial Results (1) Implied Equity Value(2)
-------------------------
1997 $3,062 $23,897 $7.03
---------------------------------------------------------------
---------------------------------------------------------------
EBITDA Value
------ -----
Industry Multiples 6.1x
---------------------------------------------------------------
Skyline Financial Results (1) Implied Equity Value(2)
-------------------------
1997 $5,056 $24,936 $7.34
---------------------------------------------------------------
---------------------------------------------------------------
Net Income Value
---------- -----
Industry Multiples 13.0x
---------------------------------------------------------------
Skyline Financial Results (1) Implied Equity Value
-------------------------
1997 $1,695 $22,084 $6.50
---------------------------------------------------------------
---------------------------------------------------------------
Book Value Value
---------- -----
Industry Multiples 2.1x
---------------------------------------------------------------
Skyline Financial Results (1) Implied Equity Value
-------------------------
1997 $12,453 $25,964 $7.64
---------------------------------------------------------------
---------------------------------------------------------------
AVERAGE IMPLIED VALUE PER SHARE $7.27
---------------------------------------------------------------
-------------------
(1) 1997 unaudited financial results.
(2) Assumes that there is $5,715 outstanding debt.
-------------------------------------------------------------------------------
GENERAL COMMENTS
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Skyline has historically traded at a discount to the restaurant comparables
group. Nonetheless, we believe that the operations and financial performance of
the restaurant comparables most closely resemble the business and financial
characteristics of Skyline and therefore this category serves as the most useful
reference group of comparable companies. While Skyline has outperformed the
group on many operating measures, its low visibility, limited liquidity and
regional concentration have prevented the shares from trading at a premium to
the group. Based on historical trading data, the Company has traded at a
discount ranging from 7.6% to 9.7% to the restaurant comparables.
-------------------------------------------------------------------------------
-----------------------------------
IMPLIED VALUATION RANGE
$6.50 - $6.75
per share
-----------------------------------
===============================================================================
PAGE 32 EQUITABLE SECURITIES CORPORATION
38
PROJECT TRI VIA CONFIDENTIAL
===================================================================================================================================
PRECEDENT TRANSACTIONS FOR CONTROL ACQUISITIONS IN THE RESTAURANT INDUSTRY
===================================================================================================================================
EQUITY VALUE AS A
VALUE OF MULTIPLE OF:
-------------------
DATE DATE TRANSACTION BOOK NET
ANNOUNCED EFFECTIVE TARGET NAME ACQUIROR NAME ($ in millions) VALUE INCOME
----------- --------- ------------------------------- ------------------------------ ------------- --------- --------
4/27/94 6/17/94 * Canteen Corp. (TW Services Inc.) Compass Group PLC $450.0 N/A N/A
Synopsis: Compass Group acquired Canteen, a unit of the
Flagstar subsidiary of Gollust ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, for
$450 million. In January 1994, Flagstar announced it was
seeking a buyer for 270 restaurants as part of the
company's restructuring.
8/23/94 (1)Ground Round Restaurants Citicorp Venture Capital 157.0 N/A 27.3 x
Synopsis: An investor group led by 399 Ventures, Citicorp
Venture Capital subsidiary, and management, terminated
its definitive agreement to acquire Ground Round for
$157.02 million in a leveraged buyout due to financing
difficulties.
9/26/94 Southern Hospitality DavCo Restaurants 25.3 N/A N/A
Synopsis: DavCo purchased the tock of Southern for
approximately $16.0 mil, which included $2.0 mil in
employment contracts. Southern was a 33 unit ▇▇▇▇▇'s
franchisee based in Nashville, TN.
8/1/95 * WestSphere Capital Chase Manhattan 32.5 N/A N/A
Synopsis: A company formed by Chase Manhattan and management
purchased the stock of Southern California Food Services
from WestSphere for $32.5 mil. Southern was a 62 unit
▇▇▇▇▇'s franchisee based in Knoxville, TN.
4/21/95 4/2/96 * Denwest Restaurant Corp. American Family Restaurants ▇▇▇.▇ ▇/▇ ▇/M
Synopsis: American Family merged with Denwest in a reverse
stock swap valued at $52.0 mil. The consideration consisted
of 6.9 mil common shares in the new company, DenAmerica,
valued at $27.8 mil and $24.3 mil in notes and warrants.
9/5/95 9/9/96 (1)TPI Enterprises Inc. Shoney's Inc. 160.1 1.6 x N/A
Synopsis: ▇▇▇▇▇▇'s acquired TPI in a stock swap valued at
$160.1 mil, which included the assumption of $95.0 mil
in liabilities. TPI common shareholders received .28 SH
common share and .32 SH warrant for each TPI share held.
11/6/95 (1)NPC International Inc. Investor Group, CEO Gene 166.3 2.6 x N/A
▇▇▇▇▇▇▇▇
Synopsis: A management led investor group, including CEO
▇▇▇▇ ▇▇▇▇▇▇▇▇, withdrew its offer to acquire the
remaining 38% interest, or 9.12 mil common shares which
it did not already own in a leveraged buyout
transaction.
7/10/96 11/22/96(1)Volunteer Capital Corp. Wendy's International Inc. 30.8 N/A N/A
Synopsis: Volunteer sold its ▇▇▇▇▇'s franchised restaurant
division to ▇▇▇▇▇'s Int'l for approximately $30.8 mil. The
division included 52 units in four states.
FIRM
FIRM VALUE AS A MULTIPLE OF: VALUE
----------------------------
DATE DATE PER STORES
ANNOUNCED EFFECTIVE TARGET NAME ACQUIROR NAME SALES EBIT EBITDA ($ IN 000'S)
----------- --------- ------------------------------- ------------------------------ ---------- --------- -------- --------
4/27/94 6/17/94 * Canteen Corp. (TW Services Inc.) Compass Group PLC 0.4 x 11.8 x N/A $281.3
Synopsis: Compass Group acquired Canteen, a unit of the
Flagstar subsidiary of Gollust ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, for
$450 million. In January 1994, Flagstar announced it was
seeking a buyer for 270 restaurants as part of the
company's restructuring.
8/23/94 (1)Ground Round Restaurants Citicorp Venture Capital 0.7 x 12.7 x 6.3 x 776.7
Synopsis: An investor group led by 399 Ventures, Citicorp
Venture Capital subsidiary, and management, terminated
its definitive agreement to acquire Ground Round for
$157.02 million in a leveraged buyout due to financing
difficulties.
9/26/94 Southern Hospitality DavCo Restaurants 0.8 x N/A 5.7 x 766.7
Synopsis: DavCo purchased the stock of Southern for
approximately $16.0 mil, which included $2.0 mil in
employment contracts. Southern was a 33 unit ▇▇▇▇▇'s
franchisee based in Nashville, TN.
8/1/95 * WestSphere Capital Chase Manhattan 0.5 x 5.7 x N/A 524.0
Synopsis: A company formed by Chase Manhattan and management
purchased the stock of Southern California Food Services
from WestSphere for $32.5 mil. Southern was a 62 unit
▇▇▇▇▇'s franchisee based in Knoxville, TN.
4/21/95 4/2/96 * Denwest Restaurant Corp. American Family Restaurants 1.8 x 15.4 x 11.5 x 638.8
Synopsis: American Family merged with Denwest in a reverse
stock swap valued at $52.0 mil. The consideration consisted
of 6.9 mil common shares in the new company, DenAmerica,
valued at $27.8 mil and $24.3 mil in notes and warrants.
9/5/95 9/9/96 (1)TPI Enterprises Inc. Shoney's Inc. 0.6 x N/M 7.5 x 423.7
Synopsis: ▇▇▇▇▇▇'s acquired TPI in a stock swap valued at
$160.1 mil, which included the assumption of $95.0 mil
in liabilities. TPI common shareholders received .28 SH
common share and .32 SH warrant for each TPI share held.
11/6/95 (1)NPC International Inc. Investor Group, CEO Gene 0.5 x 4.7 x 3.1 x 336.0
▇▇▇▇▇▇▇▇
Synopsis: A management led investor group, including CEO
▇▇▇▇ ▇▇▇▇▇▇▇▇, withdrew its offer to acquire the
remaining 38% interest, or 9.12 mil common shares which
it did not already own in a leveraged buyout
transaction.
7/10/96 11/22/96(1)Volunteer Capital Corp. Wendy's International Inc. 0.6 x 4.3 x 3.7 x 592.0
Synopsis: Volunteer sold its ▇▇▇▇▇'s franchised restaurant
division to ▇▇▇▇▇'s Int'l for approximately $30.8 mil. The
division included 52 units in four states.
--------------------------
*SOURCE: SECURITIES DATA CORP.
(1) Transaction values have been adjusted to reflect assumption of debt
including capitalized leases where applicable.
================================================================================
PAGE 33 EQUITABLE SECURITIES CORPORATION
39
PROJECT TRI VIA CONFIDENTIAL
===================================================================================================================================
PRECEDENT TRANSACTIONS FOR CONTROL ACQUISITIONS IN THE RESTAURANT INDUSTRY
===================================================================================================================================
EQUITY VALUE AS A
VALUE OF MULTIPLE OF:
-------------------
DATE DATE TRANSACTION BOOK NET
ANNOUNCED EFFECTIVE TARGET NAME ACQUIROR NAME ($ in millions) VALUE INCOME
----------- --------- ------------------------------- ------------------------------ ------------- --------- --------
8/28/96 10/2/96 * Casa ▇▇▇▇▇▇ CKE Restaurants Inc. $42.0 N/A N/A
Synopsis: CKE acquired Casa ▇▇▇▇▇▇, a unit of Unigate, for
$42.0 mil in cash. The transaction included CB's 109 Taco
Bueno restaurants, 2 CB theme restaurants and 3 Crystal's
pizzerias.
2/13/97 5/16/97 * ▇▇▇▇'s Inc. Restaurants RTM Restaurant Group 71.0 N/A N/A
Synopsis: RTM acquired 355 restaurants of Arby's, a unit of
Triarc, for approximately $71.0 mil. The consideration
included the assumption of liabilities and an option for
Triarc to acquire a 20% stake in RTM.
3/25/97 (1)Rally's Hamburgers Inc. Checker's Drive-In Restaurants 178.5 6.0 x N/M
Synopsis: ▇▇▇▇▇▇▇'s terminated its signed letter of intent
to merge with Rally's in a stock swap transaction. RH
shareholders were to receive 3 CKD shares for each RH share
held.
4/27/97 7/15/97 (1)Hardees Food Systems, Inc. CKE Restaurants Inc. 327.0 1.0 x N/M
Synopsis: CKE Restaurants completed the acquisition of
Hardees Food Systems, Inc from Imasco Holdings, Inc. in July
1997 for $327.0 in cash.
7/3/97 9/29/97 (1)Krystal Company (2) Port Royal Holdings Inc. 145.4 2.4 x N/M
Synopsis: Port Royal Holdings agreed to acquire all the
outstanding common stock of Krystal for $14.50 in
cash per share, or a total value of $145.4 mil,
including the assumption of $37.0 mil in liabilities.
8/4/97 (1)▇▇▇▇▇▇▇ Family Restaurants LP Restaurant Company 130.9 2.2 x 9.7 x
Synopsis: Restaurant Company offered to acquire the
remaining 52% interest, or 5.4 mil common shares that
it did not already own, for $13.00 per share.
9/23/97 * 30 Burger King Restaurants AmeriKing Corp. 25.0 N/A N/A
Synopsis: AmeriKing announced the acquisition of 30 Burger
King restaurants in the Charlotte, NC market for $25.0 mil in
cash.
9/23/97 (1)El Chico Restaurants Inc. Investor Group 65.0 1.7 x 16.3 x
Synopsis: An investor group led by Cracken ▇▇▇▇▇▇ & Company,
agreed to acquire all the outstanding common stock of
El Chico for $12.75 per share, or a total value of
$47.3 mil.
FIRM
FIRM VALUE AS A MULTIPLE OF: VALUE
----------------------------
DATE DATE PER STORES
ANNOUNCED EFFECTIVE TARGET NAME ACQUIROR NAME SALES EBIT EBITDA ($ IN 000'S)
----------- --------- ------------------------------- ------------------------------ -------- --------- -------- ----------
8/28/96 10/2/96 * Casa ▇▇▇▇▇▇ CKE Restaurants Inc. 0.5 x N/A N/A $568.8
Synopsis: CKE acquired Casa ▇▇▇▇▇▇, a unit of Unigate, for
$42.0 mil in cash. The transaction included CB's 109 Taco
Bueno restaurants, 2 CB theme restaurants and 3 Crystal's
pizzerias.
2/13/97 5/16/97 * ▇▇▇▇'s Inc. Restaurants RTM Restaurant Group 0.3 x N/A N/A 200.0
Synopsis: RTM acquired 355 restaurants of Arby's, a unit of
Triarc, for approximately $71.0 mil. The consideration
included the assumption of liabilities and an option for
Triarc to acquire a 20% stake in RTM.
3/25/97 (1)Rally's Hamburgers Inc. Checker's Drive-In Restaurants 1.2 x N/M 9.3 x 373.4
Synopsis: ▇▇▇▇▇▇▇'s terminated its signed letter of intent
to merge with Rally's in a stock swap transaction. RH
shareholders were to receive 3 CKD shares for each RH share
held.
4/27/97 7/15/97 (1)Hardees Food Systems, Inc. CKE Restaurants Inc. 0.4 x N/M 11.4 x 103.7
Synopsis: CKE Restaurants completed the acquisition of
Hardees Food Systems, Inc from Imasco Holdings, Inc. in July
1997 for $327.0 in cash.
7/3/97 9/29/97 (1)▇▇▇▇▇▇▇ Company (2) Port Royal Holdings Inc. 0.6 x N/M 5.2 x 582.3
Synopsis: Port Royal Holdings agreed to acquire all the
outstanding common stock of Krystal for $14.50 in
cash per share, or a total value of $145.4 mil,
including the assumption of $37.0 mil in liabilities.
8/4/97 (1)▇▇▇▇▇▇▇ Family Restaurants LP Restaurant Company 0.5 x 6.9 x 3.7 x 151.7
Synopsis: Restaurant Company offered to acquire the
remaining 52% interest, or 5.4 mil common shares that
it did not already own, for $13.00 per share.
9/23/97 * 30 Burger King Restaurants AmeriKing Corp. 0.7 x N/A N/A 833.3
Synopsis: AmeriKing announced the acquisition of 30 Burger
King restaurants in the Charlotte, NC market for $25.0 mil in
cash.
9/23/97 (1)El Chico Restaurants Inc. Investor Group 0.6 x 13.9 x 6.7 x 677.1
Synopsis: An investor group led by Cracken ▇▇▇▇▇▇ & Company,
agreed to acquire all the outstanding common stock of
El Chico for $12.75 per share, or a total value of
$47.3 mil.
------------------------
SOURCE: SECURITIES DATA CORP.
(1) Transaction values have been adjusted to reflect the assumption of debt
including capitalized leases where applicable.
(2) Adjusted for non-recurring items as well as excess cash, pension surplus
and certain other adjustments for liquid assets.
===================================================================================================================================
PAGE 34 EQUITABLE SECURITIES CORPORATION
40
PROJECT TRI VIA CONFIDENTIAL
===================================================================================================================================
PRECEDENT TRANSACTIONS FOR CONTROL ACQUISITIONS IN THE RESTAURANT INDUSTRY
===================================================================================================================================
EQUITY VALUE AS A
VALUE OF MULTIPLE OF:
-------------------
DATE DATE TRANSACTION BOOK NET
ANNOUNCED EFFECTIVE TARGET NAME ACQUIROR NAME ($ in millions) VALUE INCOME
----------- --------- ------------------------------- ------------------------------ ------------- --------- --------
9/26/97 (1)Sagebrush, Inc. WSMP, Inc $43.7 2.9 x 15.4
Synopsis: WSMP signed a letter of intent to acquire
Sagebrush for $43.7 mil in a stock swap.
9/26/97 (1)Skyline Chili Inc. Fleet Equity Partners 30.2 2.0 x 14.4 x
Synopsis: ▇▇▇▇▇▇▇ reached an agreement with Fleet
Equity Partners to be acquired for $6.75 per share,
for a total value of $30.2 mil.
9/5/97 (1)DavCo Restaurants Management led Investor
Group 195.9 2.9 x 19.2 x
Synopsis: A management led investor group plans to
acquire all the remaining shares that it does not
already own for $20.00 in a leveraged buyout
transaction.
----------------------------------------------------------------------------------------------------------------------------------
AVERAGE MULTIPLE 2.5 X 17.0 X
AVERAGE MULTIPLE EXCLUDING HIGH & LOW 2.3 16.3
----------------------------------------------------------------------------------------------------------------------------------
FIRM
FIRM VALUE AS A MULTIPLE OF: VALUE
----------------------------
DATE DATE PER STORES
ANNOUNCED EFFECTIVE TARGET NAME ACQUIROR NAME SALES EBIT EBITDA ($ IN 000'S)
----------- --------- ------------------------------- ------------------------------ -------- --------- -------- --------
9/26/97 (1)Sagebrush, Inc. WSMP, Inc
Synopsis: WSMP signed a letter of intent to acquire 0.9 x 9.9 x 7.0 x 1,280.0
Sagebrush for $43.7 mil in a stock swap.
9/26/97 (1)Skyline Chili Inc. Fleet Equity Partners 0.9 x 9.9 x 6.0 x $838.6
Synopsis: Skyline reached an agreement with Fleet
Equity Partners to be acquired for $6.75 per share,
for a total value of $30.2 mil.
9/5/97 (1)DavCo Restaurants Management led Investor
Group 0.9 x 11.2 x 7.4 x 744.8
Synopsis: A management led investor group plans to
acquire all the remaining shares that it does not
already own for $20.00 in a leveraged buyout
transaction.
-----------------------------------------------------------------------------------------------------------------------------------
AVERAGE MULTIPLE 0.7 X 9.7 X 6.8 X $607.1
AVERAGE MULTIPLE EXCLUDING HIGH & LOW 0.7 9.6 6.7 586.7
----------------------------------------------------------------------------------------------------------------------------------
-----------------------------
SOURCE: SECURITIES DATA CORP.
(1) Transaction values have been adjusted to reflect the assumption of debt
including capitalized leases where applicable.
================================================================================
PAGE 35 EQUITABLE SECURITIES COPORATION
41
PROJECT TRI VIA CONFIDENTIAL
===============================================================================
PRECEDENT TRANSACTIONS FOR CONTROL ACQUISITIONS IN THE RESTAURANT INDUSTRY
================================================================================
PRECEDENT TRANSACTIONS FOR THE RESTAURANT INDUSTRY
---------------------------------------------------------------
Net Revenues Value
------------ -----
Industry Multiples 0.7x
---------------------------------------------------------------
Skyline Financial Results (1) Implied Equity Value (2)
-------------------------
1997 $33,067 $16,236 $4.20
---------------------------------------------------------------
---------------------------------------------------------------
EBIT Value
---- -----
Industry Multiples 9.6x
---------------------------------------------------------------
Skyline Financial Results (1) Implied Equity Value (2)
-------------------------
1997 $3,062 $23,782 $6.15
---------------------------------------------------------------
---------------------------------------------------------------
EBITDA Value
------ -----
Industry Multiples 6.7x
---------------------------------------------------------------
Skyline Financial Results (1) Implied Equity Value (2)
-------------------------
1997 $5,056 $27,956 $7.22
---------------------------------------------------------------
---------------------------------------------------------------
Net Income Value
---------- -----
Industry Multiples 16.3x
---------------------------------------------------------------
Skyline Financial Results (1) Implied Equity Value
-------------------------
1997 $1,695 $27,671 $7.15
---------------------------------------------------------------
---------------------------------------------------------------
Book Value Value
---------- -----
Industry Multiples 2.3x
---------------------------------------------------------------
Skyline Financial Results (1) Implied Equity Value
-------------------------
1997 $12,453 $28,639 $7.40
---------------------------------------------------------------
---------------------------------------------------------------
AVERAGE VALUE PER SHARE Value
-------------------------------- -----
Industry Average $586.7
---------------------------------------------------------------
Skyline Financial Results (1) Implied Equity Value
-------------------------
Stores
------
1997 36 $21,122 $5.46
---------------------------------------------------------------
---------------------------------------------------------------
AVERAGE IMPLIED VALUE $6.26
---------------------------------------------------------------
AVERAGE WITHOUT STORE VALUE $6.42
---------------------------------------------------------------
-------------------
(1) 1997 unaudited financial results.
(2) Assumes that there is $5,715 outstanding debt.
-------------------------------------------------------------------------------
GENERAL COMMENTS
-------------------------------------------------------------------------------
The multiples offered in the Proposed Transaction largely fall within the range
of multiples observed in the marketplace. The valuation measures offered in the
Proposed Transaction expressed as a multiple of sales, EBIT and price per store,
exceed those observed in precedent restaurant transactions. The valuation
measures expressed as a multiple of book value, net income and EBITDA fall below
those observed in precedent restaurant transactions. We believe any discount to
precedent transactions is attributable to ▇▇▇▇▇▇▇'s uncertain ability to grow
outside of its saturated core market. In addition, due to the extensive
Controlled Auction process, we believe that multiples offered in the Proposed
Transaction reflect the full realizable value of the Company which could be
achieved in a competitive marketplace for private transactions.
-------------------------------------------------------------------------------
-----------------------------------
IMPLIED VALUATION RANGE
-----------------------------------
$4.25 - $7.50
per share
--------------------------------
================================================================================
PAGE 36 EQUITABLE SECURITIES CORPORATION
42
PROJECT TRI VIA CONFIDENTIAL
--------------------------------------------------------------------------------------------------------------------------------
PRECEDENT TRANSACTIONS FOR CONTROL ACQUISITIONS IN THE FOOD MANUFACTURING INDUSTRY
================================================================================================================================
EQUITY VALUE AS A
VALUE OF MULTIPLE OF:
------------------
DATE DATE TRANSACTION BOOK NET
ANNOUNCED/ EFFECTIVE TARGET NAME/ ACQUIROR NAME/ ($ IN MILLIONS) VALUE INCOME
-------------- ------------- -------------------------------- ----------------------------- ------------- -------- --------
1/24/94 WLR Foods Inc. Tyson Foods, Inc. $328.3 2.3 x 23.1 x
Synopsis: Tyson Foods terminated its hostile tender offer to
acquire all the outstanding shares of WLR Foods
for $30 per share in cash, or a total value of
$328.3 million. Tyson terminated the offer due
to WLR's agreement to acquire the turkey
processing and production assets of Cuddy Farms
in exchange for cash and common shares.
4/20/94 11/30/94 Arden International Kitchens ▇▇▇▇▇▇▇▇▇ Foods Inc. 11.8 2.8 x 17.6 x
Synopsis: ▇▇▇▇▇▇▇▇▇ Foods (SF) acquired Arden International
Kitchens (AIK) for an amended $11.8 million in
cash, or $3.90 per common share. SF had
originally agreed to acquire AIK for $4 per
share, or a total value of $12.1 million.
8/29/94 11/29/94 Marine Harvest International ▇▇▇▇▇▇ PLC 120.4 2.2 x 12.2 x
Synopsis: ▇▇▇▇▇▇ (BK) merged with Marine Harvest
International (MH) for $10.20 in cash per share,
or a total of $120. million. Earlier, BK
completed its cash tender offer for all the
outstanding common stock of MH for $10.20 per
share, by accepting 11,256,076 shares . The
offer had been conditioned upon a majority of
MH's shares being tendered.
1/6/95 7/12/95 American Maize-Products Co. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇-Say 434.0 1.9 x 21.7 x
Synopsis: ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇-Say (EBS), a subsidiary of
Ferruzzi Agricola's Montedison unit, acquired
all the outstanding shares of American
Maize-Products (AMP), including GIH's 13% stake
and 47% stake in Class A and B shares
respectively, for $40 per share, or a total
value of $434.0 million. Earlier, EBS bid $37
per share, amended from an initial offer of $32
per share.
10/17/95 KPR Holdings Foodbrands America Inc. 93.0 N/A 6.9x
Synopsis: Foodbrands acquired the closely held KPR for $75
million in cash and the assumption of $18
million in debt. In addition, KPR shareholders
may receive a contingent purchase price based
upon the achievement of earnings over 3 years.
11/27/95 TNT Crust Foodbrands America Inc. 55.1 N/A 15.9x
Synopsis: Foodbrands acquired TNT, a privately held
manufacturer of pizza crust, for $33.4 million in cash and
the assumption of $21.7 million in debt.
7/29/96 (1)Target Strategic Acquiror 14.5 N/A N/A
Synopsis: A strategic acquiror purchased the pie
manufacturing division of a public company for
$14.5 million in cash. In addition, the parties
entered a long-term supply agreement.
FIRM VALUE AS A
MULTIPLE OF:
--------------------------
DATE DATE CASH
ANNOUNCED/ EFFECTIVE TARGET NAME/ ACQUIROR NAME/ SALES EBIT FLOW
-------------- ------------- -------------------------------- ----------------------------- ------- ------- --------
1/24/94 WLR Foods Inc. Tyson Foods, Inc. 0.5 x 12.6 x 7.2 x
Synopsis: Tyson Foods terminated its hostile tender offer to
acquire all the outstanding shares of WLR Foods
for $30 per share in cash, or a total value of
$328.3 million. Tyson terminated the offer due
to WLR's agreement to acquire the turkey
processing and production assets of Cuddy Farms
in exchange for cash and common shares.
4/20/94 11/30/94 Arden International Kitchens ▇▇▇▇▇▇▇▇▇ Foods Inc. 0.6 x 10.7 x 5.7 x
Synopsis: ▇▇▇▇▇▇▇▇▇ Foods (SF) acquired Arden International
Kitchens (AIK) for an amended $11.8 million in
cash, or $3.90 per common share. SF had
originally agreed to acquire AIK for $4 per
share, or a total value of $12.1 million.
8/29/94 11/29/94 Marine Harvest International ▇▇▇▇▇▇ PLC 0.1 x 7.3 x 5.8 x
Synopsis: ▇▇▇▇▇▇ (BK) merged with Marine Harvest
International (MH) for $10.20 in cash per share,
or a total of $120. million. Earlier, BK
completed its cash tender offer for all the
outstanding common stock of MH for $10.20 per
share, by accepting 11,256,076 shares . The
offer had been conditioned upon a majority of
MH's shares being tendered.
1/6/95 7/12/95 American Maize-Products Co. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇-Say 0.7 x 9.6 x 5.6 x
Synopsis: ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇-Say (EBS), a subsidiary of
Ferruzzi Agricola's Montedison unit, acquired
all the outstanding shares of American
Maize-Products (AMP), including GIH's 13% stake
and 47% stake in Class A and B shares
respectively, for $40 per share, or a total
value of $434.0 million. Earlier, EBS bid $37
per share, amended from an initial offer of $32
per share.
10/17/95 KPR Holdings Foodbrands America Inc. 0.9x 7.4x 6.5x
Synopsis: Foodbrands acquired the closely held KPR for $75
million in cash and the assumption of $18
million in debt. In addition, KPR shareholders
may receive a contingent purchase price based
upon the achievement of earnings over 3 years.
11/27/95 TNT Crust Foodbrands America Inc. 2.2x 11.1x 7.4x
Synopsis: Foodbrands acquired TNT, a privately held
manufacturer of pizza crust, for $33.4 million in cash and
the assumption of $21.7 million in debt.
7/29/96 (1)Target Strategic Acquiror 1.1x 8.1x 6.6x
Synopsis: A strategic acquiror purchased the pie
manufacturing division of a public company for
$14.5 million in cash. In addition, the parties
entered a long-term supply agreement.
-----------------------------
SOURCE: SECURITIES DATA CORP.
(1) Equitable has executed a confidentiality agreement restricting it from
disseminating information regarding the Target.
================================================================================
PAGE 37 EQUITABLE SECURITIES CORPORATION
43
PROJECT TRI VIA CONFIDENTIAL
===================================================================================================================================
PRECEDENT TRANSACTIONS FOR CONTROL ACQUISITIONS IN THE FOOD MANUFACTURING INDUSTRY
===================================================================================================================================
-----------------------------------------------------------------------------------------------------------------------------------
EQUITY VALUE AS A
VALUE OF MULTIPLE OF:
------------------
DATE DATE TRANSACTION BOOK NET
ANNOUNCED/ EFFECTIVE TARGET NAME/ ACQUIROR NAME/ ($ IN MILLIONS) VALUE INCOME
-------------- ------------- -------------------------------- ----------------------------- ------------- -------- --------
9/30/96 (1)Target Investor Group $55.0 2.9x N/A
Synopsis: A private investor group purchased the captive food
processing unit of a public company in a
controlled auction for $55.0 million in cash. In
addition, the parent signed a long-term
agreement to continue purchasing products.
3/25/97 5/7/97 Foodbrands America Inc. IBC Inc. 657.5 6.0 x 19.1 x
Synopsis: IBP merged with Foodbrands America (FA) for $23.40
in cash per share, or a total of $657.5 million, including
the assumption of approximately $350 million in liabilities.
Earlier, IBP completed its tender offer by accepting 11.582
million shares, or 83.5% of FA's fully diluted shares.
---------------------------------------------------------------------------------------------------------------------------------
AVERAGE MULTIPLE 3.0 X 16.6 X
AVERAGE MULTIPLE EXCLUDING HIGH & LOW 2.5 X 17.3 X
---------------------------------------------------------------------------------------------------------------------------------
FIRM VALUE AS A
MULTIPLE OF:
--------------------------
DATE DATE CASH
ANNOUNCED/ EFFECTIVE TARGET NAME/ ACQUIROR NAME/ SALES EBIT FLOW
-------------- ------------- -------------------------------- ----------------------------- ------- ------- --------
9/30/96 (1)Target Investor Group 0.5x 4.4x 3.9x
Synopsis: A private investor group purchased the captive food
processing unit of a public company in a
controlled auction for $55.0 million in cash. In
addition, the parent signed a long-term
agreement to continue purchasing products.
3/25/97 5/7/97 Foodbrands America Inc. IBC Inc. 0.8 x 14.4 x 9.4 x
Synopsis: IBP merged with Foodbrands America (FA) for $23.40
in cash per share, or a total of $657.5 million, including
the assumption of approximately $350 million in liabilities.
Earlier, IBP completed its tender offer by accepting 11.582
million shares, or 83.5% of FA's fully diluted shares.
-
----------------------------------------------------------------------------------------------------------------------------
AVERAGE MULTIPLE 0.8 X 9.5 X 6.5 X
AVERAGE MULTIPLE EXCLUDING HIGH & LOW 0.7 X 9.5 X 6.4 X
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------
SOURCE: SECURITIES DATA CORP.
(1) Equitable has executed a confidentiality agreement restricting it from
disseminating information regarding the Target.
================================================================================
PAGE 38 EQUITABLE SECURITIES CORPORATION
44
PROJECT TRI VIA CONFIDENTIAL
===============================================================================
PRECEDENT TRANSACTIONS FOR CONTROL ACQUISITIONS IN THE FOOD MANUFACTURING INDUSTRY
===============================================================================
PRECEDENT TRANSACTIONS FOR THE FOOD MANUFACTURING INDUSTRY
---------------------------------------------------------------
Net Revenues Value
------------ -----
Industry Multiples 0.7x
---------------------------------------------------------------
Skyline Financial Results (1) Implied Equity Value(2)
-------------------------
1997 $33,067 $18,849 $4.87
---------------------------------------------------------------
---------------------------------------------------------------
EBIT Value
---- -----
Industry Multiples 9.5x
---------------------------------------------------------------
Skyline Financial Results (1) Implied Equity Value(2)
-------------------------
1997 $3,062 $23,505 $6.07
---------------------------------------------------------------
---------------------------------------------------------------
EBITDA Value
------ -----
Industry Multiples 6.4x
---------------------------------------------------------------
Skyline Financial Results (1) Implied Equity Value(2)
-------------------------
1997 $5,056 $26,660 $6.89
---------------------------------------------------------------
---------------------------------------------------------------
Net Income Value
---------- -----
Industry Multiples 17.3x
---------------------------------------------------------------
Skyline Financial Results (1) Implied Equity Value
-------------------------
1997 $1,695 $29,301 $7.57
---------------------------------------------------------------
---------------------------------------------------------------
Book Value Value
---------- -----
Industry Multiples 2.5x
---------------------------------------------------------------
Skyline Financial Results (1) Implied Equity Value
-------------------------
1997 $12,453 $31,652 $8.18
---------------------------------------------------------------
---------------------------------------------------------------
AVERAGE IMPLIED VALUE PER SHARE $6.72
---------------------------------------------------------------
-------------------
(1) 1997 unaudited financial results.
(2) Assumes that there is $5,715 outstanding debt.
-------------------------------------------------------------------------------
GENERAL COMMENTS
--------------------------------------------------------------------------------
The multiples in the Proposed Transaction are also a small discount to the
multiples observed in acquisitions in the food manufacturing industry for
reasons including: the absence of a "pure play" pricing premium, the regional
dependence of Skyline's operations and its undemonstrated ability to grow
outside of its core market.
-------------------------------------------------------------------------------
-----------------------------------
IMPLIED VALUATION RANGE
----------------------------------
$5.00 - $7.75
per share
-----------------------------------
===============================================================================
PAGE 39 EQUITABLE SECURITIES CORPORATION
45
PROJECT TRI VIA CONFIDENTIAL
==============================================================================
DISCOUNTED CASH FLOW ANALYSIS
===============================================================================
(Dollar amounts in thousands)
1998 1999 2000 2001 2002
----------- ------------------------- ------------ ------------
Earnings Before Taxes $ 3,100 $ 4,020 $ 4,994 $ 5,882 $ 7,345
Income Tax Effect 39.0% 39.0% 39.0% 39.0% 39.0%
----------- ------------------------- ------------ ------------
Net Income 1,891 2,452 3,046 3,588 4,480
Plus Depreciation/Amortization 2,282 2,003 1,996 2,172 1,828
----------- ------------------------- ------------ ------------
Cash Flow From Operations 4,173 4,455 5,042 5,760 6,308
Change in Net Working Capital (1,119) (109) (105) (211) (171)
Capital Expenditures (1,111) (1,146) (1,335) (1,374) (1,413)
Repayments of Debt (410) (435) (465) (495) (525)
----------- ------------------------- ------------ ------------
Free Cash Flow $ 1,533 $ 2,765 $ 3,137 $ 3,680 $ 4,199
=========== ========================= ============ =============
TERMINAL VALUE AS A MULTIPLE OF EBITDA (1)
--------------------------------------
4.0 X 4.5 X 5.0 X 5.5 X 6.0 X
-------------- ----------------- -------------- --------------- --------------
$ 31,454 $ 35,386 $ 39,318 $ 43,249 $ 47,181
Outstanding Obligations (2) $ 3,385
----------------------------------------------------------------------------
PRESENT VALUE OF EQUITY (3)
-----------------------
DISCOUNT TERMINAL VALUE MULTIPLE
----------------------------------------------------------------
RATE 4.0 X 4.5 X 5.0 X 5.5 X 6.0 X
----------- ----------------------------------------------------------------
15.0% $5.86 $6.33 $6.81 $7.28 $7.75
16.0% 5.64 6.09 6.54 6.99 7.44
17.0% 5.43 5.86 6.28 6.71 7.14
18.0% 5.23 5.63 6.04 6.45 6.86
----------------------------------------------------------------------------
----------------------------------------------------------------
EXAMPLE OF DCF CALCULATION
----------------------------------------------------------------
FREE CASH FLOW
--------------
1998 $ 1,533
1999 2,765
2000 3,137
2001 3,680
2002 4,199
Terminal Value (4) (5.5 x) 39,864
Discount Rate (3) 16.0%
DISCOUNTED VALUE $27,041
===============
FULLY-DILUTED SHARES O/S 3,870
NET VALUE PER SHARE $ 6.99
===============
-----------------------------------------
(1) Based on multiples of EBITDA observed in restaurant transactions with
financial buyers. Range of multiples was 3.1 x to 7.4 x, with an average of
5.5 x. All EBITDA values are net of capital expenditures in the terminal
year (2002) of $1,413 and estimated transaction costs of 2%.
(2) Includes estimated long-term debt from year 2002.
(3) See detailed Weighted Average Cost of Capital Analysis.
(4) Net of outstanding obligations.
==============================================================================
PAGE 40 EQUITABLE SECURITIES CORPORATION
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PROJECT TRI VIA CONFIDENTIAL
===============================================================================
LEVERAGED BUYOUT ANALYSIS
===============================================================================
LBO MODEL ASSUMPTIONS AND OUTCOMES
- The Leveraged Buyout Model is based on Skyline's projections combined with
the capital assumptions and management incentive option plan of the
Proposed Transaction.
- Equity returns are consistent with the returns a third-party financial
buyer expects to earn in a competitive environment. The projections
contemplate an exit in years three through six with equity returns in the
following ranges based upon the allocation of the eligible employee
incentive option plan of the Proposed Transaction.
Equity Investors Pre-tax IRR 25% to 44%, with an expected
return of 29-34%
- The anticipated exit in year five meets the following conditions:
Exit Year: 2002
Exit EBITDA Multiple: 5.5x
Exit P/E: 13.7x
Exit Book Multiple: 2.5x
- It is our conclusion that the pricing of the transaction and financing
structure appear reasonable as they result in adequate coverage ratios and
sufficient cash generation for anticipated capital expenditures and debt
amortization.
==============================================================================
PAGE 41 EQUITABLE SECURITIES CORPORATION
47
PROJECT TRI VIA CONFIDENTIAL
==============================================================================
LEVERAGED BUYOUT ANALYSIS
==============================================================================
ESTIMATED INTERNAL RATES OF RETURN
- Estimated internal rates of return for equity investors net of options
granted to employees under an incentive plan in the Proposed Transaction.
----------------------------------------------------------------------------
Equity
Investors EBITDA Multiple 2000 2001 2002 2003
============================================================================
4.5 x 25.0% 27.3% 27.6% 27.1%
5.0 x 30.0% 30.6% 30.0% 29.2%
5.5 x 34.5% 33.4% 32.3% 30.6%
6.0 x 39.9% 36.7% 34.0% 32.4%
6.5 x 43.6% 40.0% 36.2% 33.4%
-----------------------------------------------------------------------------
==============================================================================
PAGE 42 EQUITABLE SECURITIES CORPORATION
48
PROJECT TRI VIA CONFIDENTIAL
==============================================================================
LEVERAGED RECAPITALIZATION ANALYSIS
===============================================================================
- Equitable has modeled a variety of potential leveraged recapitalization
analyses using various assumptions.
- In general, these analyses show that ▇▇▇▇▇▇▇ is capable of sustaining
leverage sufficient to pay out a dividend to all shareholders of up to
$3.50 to $4.50 per share.
- However, a portion of this payment would likely be taxed at marginal,
ordinary income rates of approximately 40%.
- In addition, the stub equity shares would be expected to trade in the $2.00
to $3.00 per share range or lower, reflecting the Company's heavy debt
burden and limited earnings capability.
- Given the negative tax implications of the leveraged recapitalization,
Equitable does not believe that this alternative transaction delivers
superior value for shareholders relative to the Proposed Transaction.
- Additionally, the estimated trading range of the shares would likely
further reduce the stock's liquidity and visibility.
- For these reasons, Equitable has chosen not to focus on a leveraged
recapitalization as a viable means for delivering value to shareholders.
==============================================================================
PAGE 43 EQUITABLE SECURITIES CORPORATION
49
PROJECT TRI VIA CONFIDENTIAL
==============================================================================
VALUATION SUMMARY AND CONCLUSION
==============================================================================
SKYLINE CHILI, INC.
The following valuation ranges were derived from the data that was studied in
connection with the Proposed Transaction.
------------------------------------------------------------------------------------------------------------
METHODOLOGY EMPLOYED VALUATION RANGES
------------------------------------------------------------------------------------------------------------
ANALYSIS OF COMPARABLE PUBLICLY-TRADED COMPANIES
Food Manufacturing Companies $6.75 to $7.00
Integrated Restaurant Companies $6.75 to $7.00
Restaurant Companies $6.50 to $6.75
PRECEDENT TRANSACTIONS FOR CONTROL ACQUISITIONS IN THE RESTAURANT INDUSTRY $4.25 to $7.50
PRECEDENT TRANSACTIONS FOR CONTROL ACQUISITIONS IN THE FOOD MANUFACTURING INDUSTRY $5.00 to $7.75
DISCOUNTED CASH FLOW ANALYSIS $6.25 to $7.00
LEVERAGED BUYOUT ANALYSIS $6.00 to $7.00
LEVERAGED RECAPITALIZATION ANALYSIS Not Applicable
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
REFERENCE VALUE RANGE $5.50 - $7.25
------------------------------------------------------------------------------------------------------------
==============================================================================
PAGE 43 EQUITABLE SECURITIES CORPORATION
