Khakis 'R US Pitch Book (Merger and Acquisition Valuation)

Khakis R UsAcquisition Analysis

Rajesh PudotaMark Webster

Tyler MillerRyan Price

March 26th, 2014

Executive Summary

• Recommendation– Acquire About Boots using $60 million in financing from UAB– Offer package deal to NYC at $405 million– Shareholders receive $27.30 per share

• Benefits To Associated Parties• Industry Analysis• Khakis ‘R Us Valuation• Alternatives For Growth

– Direct acquisition of About Boots– Direct sale to NYC

• Organic Growth Considerations• Potential Risks

2

Recommendation

3

• Acquire About Boots using $60 million in financing from UAB

• Offer package deal to NYC at $405 million– KRU Shareholders receive $27.30

per share– Current share price is $12.00

• Minimum offer of $390 million

$249

$121

$35

KRU AB NYC

See Appendix 7e for details

Enterprise Value $ 405M

Advantages of Offer

4

• Shareholders receive premium on equity― More than double current market price

• Management― Cost-saving synergies between product lines

― Suppliers, distributors, retail outlets, customer base

• NAFTA― Predictable expenses for Canadian acquisition

Industry Analysis

5

• Strong profitability in comparable companies for LTM— Average EBITDA margin: 7.7%— KRU: 5.5%

• Industry expects sales growth to be modestly positive next year

— NFY sales growth: 5.8%— KRU: -3.0%

• Forecasts for next year show continuing profit growth within the industry

— NFY EBITDA margin: 8.1%— KRU: 4.1%

Valuation Models

6

• Comparable Public Companies– Estimated value based on selected companies

• Comparable Transactions – Valuation based on past transactions with control premium applied

• Discounted Free Cash Flows– Valuation derived from forecasted free cash flows

• Residual Earnings– Valuation derived from abnormal earnings

Comparable Companies Valuation Appendix: 2b Comparable Transactions Valuation Appendix: 2e DFCF Valuation Appendix: 3Residual Earnings Valuation Appendix: 4b

Comparable Public Companies

7

EBITDA Margin

D/EP/E

1

1

13

Enterprise Value

$ 197.79M

Appendix 2b shows detailed calculations

Comparable Transactions

8

Enterprise Value

$ 205.43M

Year

EBITDARevenue

3

1

11

Appendix 2e shows detailed calculations

Optimistic(20%)

Expected(40%)

Conservative(40%)

0

50

100

150

200

250

300

350

287

257

222

Discounted Free Cash Flows

9

Enterprise Value

$ 249.35M

Ente

rpris

e Va

lue

($M

)

Appendices 3a,b,c show detailed calculations

Khakis ‘R Us Valuation

10

Comparable Companies

DFCF

Comparable Transactions

Series1

130 150 170 190 210 230 250 270 290 310

222

152

157

Enterprise Value ($M)

Enterprise Value$ 249

Enterprise Value to NYC$ 294

259

217

287

Comparable Companies Valuation Appendix: 2a Comparable Transactions Valuation Appendix: 2e DFCF Valuation Appendix: 3

Khakis ‘R Us (KRU)

KRU Value

Alternatives for Growth

11

KRU + AB Value to NYC

KRU Value to NYC

NYC Synergies

KRU With About Boots (AB)

Acquisition of AB Equity Value

Appendix 7e shows detailed calculations

Organic Growth Considerations

12

• Succession Development― Restructuring of current management

― Offer Albert Foote stock-based compensation plan

― If staying the course, consider Beano Counter as interim CEO

― Pursue key person insurance policy

• Management Buyout

Potential Risks

13

• NYC and/or About Boots rejects the deal― Complicated structure

― Time lag

― Default risk on debt

• Management succession failure

• Continued languishing growth

Summary

• Recommendation– $405 million for package deal to NYC

• Good deal for KRU, AB, and NYC

• Consider other growth opportunities– Acquire About Boots– Sell to NYC – Succession development

14

Appendices

15

Appendix 1 – Pro Forma Financial Statementsa) KRU Optimistic Income Statement (p. 18)b) KRU Expected Income Statement (p. 19)c) KRU Conservative Income Statement (p. 20)d) KRU Balance Sheet (p. 21)e) KRU WACC Calculation (p. 22)

Appendix 2 – KRU Valuation – Comparable Companies & Transactionsa) Comparable Public Companies Selection (p. 23)b) Comparable Public Companies Valuation (p. 24)c) Comparable Public Companies WACC (p. 25)d) Comparable Transactions Metrics (p. 26)e) Comparable Transactions Valuation (p. 27)

Appendices

16

Appendix 3 – KRU Valuation – DFCF Methoda) DFCF – KRU Valuation – Optimistic (p. 28)b) DFCF – KRU Valuation – Expected (p. 29)c) DFCF – KRU Valuation – Conservative (p. 30)d) DFCF – Sensitivity Analysis – Optimistic (p. 31)e) DFCF – Sensitivity Analysis – Expected (p. 32)f) DFCF – Sensitivity Analysis – Conservative (p. 33)

Appendix 4 – KRU Valuation – Residual Earnings Methoda) Residual Earnings Model - Setup (p. 34)b) Residual Earnings Valuation (p. 35)

Appendix 5 – KRU Value to NYCa) DFCF – KRU Value to NYC (p. 36)b) DFCF – KRU Value to NYC – Optimistic (p. 37)c) DFCF – KRU Value to NYC – Expected (p. 38)d) DFCF – KRU Value to NYC – Conservative (p. 39)e) RE – KRU Value to NYC (p. 40)f) RE – KRU To NYC – Optimistic (p. 41)g) RE – KRU To NYC – Expected (p. 42)h) RE – KRU To NYC – Conservative (p. 43)

Appendices

17

Appendix 6 – KRU + AB Valuationa) DFCF – KRU + AB Valuation (p. 44)b) DFCF – KRU + AB – Optimistic (p. 45)c) DFCF – KRU + AB – Expected (p. 46)d) DFCF – KRU + AB – Conservative (p. 47)

Appendix 7 – KRU + AB to NYC Valuationa) DFCF – KRU + AB to NYC Valuation (p. 48)b) DFCF – KRU + AB to NYC – Optimistic (p. 49)c) DFCF – KRU + AB to NYC – Expected (p. 50)d) DFCF – KRU + AB to NYC – Conservative (p. 51)e) Returns to Shareholders (p. 52)

1a) KRU Optimistic P&L Statement

18

$ in Millions, Year Ending Dec 31 Actual Projected 2011 2012 2013 2014 2015 2016 2017 2018 Sales $ 635.8 585.2 557.4 540.6 621.4 658.7 698.3 726.2

% Change -7.9% -4.7% -3.0% 15.0% 6.0% 6.0% 4.0%Cost of Sales $ 501.5 475.0 449.5 442.3 488.7 508.8 540.5 561.9Gross Profit $ 134.3 110.2 108.0 98.344 132.747 149.922 157.712 164.297

% of Sales 21.1% 18.8% 19.4% 18.2% 21.4% 22.8% 22.6% 22.6%Personnel Expenses $ 68.3 59.6 57.8 55.9 61.434 69.1 72.5 72.2Depreciation and Amortization $ 14.6 16.4 15.9 12.3 10.989 8.1 9.1 9.1Other Operating Expenses $ 23.9 23.6 21.2 20.2 26.347 27.4 24.4 30.6Total Operating Expenses $ 106.8 99.7 94.9 88.5 98.770 104.6 106.0 111.9

% of Sales 16.8% 17.0% 17.0% 16.4% 15.9% 15.9% 15.2% 15.4%SG&A % of Sales 14.5% 14.2% 14.2% 14.1% 14.1% 14.7% 13.9% 14.2%

Operating Income $ 27.5 10.6 13.1 9.9 33.977 45.4 51.7 52.4% of Sales 4.3% 1.8% 2.4% 1.8% 5.5% 6.9% 7.4% 7.2%

Interest Expenses (income) $ 3.9 3.7 3.3 3.1 2.5 2.6 2.6 2.5Income before Tax $ 23.6 6.9 9.8 6.8 31.433 42.7 49.1 49.9

% of Sales 3.7% 1.2% 1.8% 1.3% 5.1% 6.5% 7.0% 6.9%Income Tax Expense $ 9.5 2.8 3.9 2.7 12.573 17.1 19.6 20.0

Tax Percent 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0%Net Income $ 14.2 4.1 5.9 4.1 18.9 25.645 29.467 29.941

% of Sales 2.2% 0.7% 1.1% 0.8% 3.0% 3.9% 4.2% 4.1%Capital Expenditures $ 4.2 4.4 4.7 4.9 5.0 5.2 5.3 5.5Stock Based Compensations $ 2.2 2.4 1.9 1.9 2.0 2.1 2.1 2.2

Alternatives AppendixRecommendation

1b) KRU Expected P&L Statement

19


% Change -7.9% -4.7% -3.0% 2.0% 6.0% 6.0% 4.0%Cost of Sales $ 501.5 475.0 449.5 442.3 433.4 451.2 479.5 498.7Gross Profit $ 134.3 110.2 108.0 98.344 118.003 133.266 140.023 145.624









1c) KRU Conservative P&L Statement

20


% Change -7.9% -4.7% -3.0% -4.7% -1.0% 2.0% 4.0%Cost of Sales $ 501.5 475.0 449.5 442.3 404.9 393.8 402.7 418.8Gross Profit $ 134.3 110.2 108.0 98.344 110.252 116.290 117.575 122.278









1d) Khakis ‘R Us Balance Sheet

21

$ in Millions, Year Ending Dec 31 Actual Estimated 2011 2012 2013

Assets

Cash and Cash Equivalents $ 5.2 8.5 19.8Accounts Receivables $ 22.2 24.9 28.3Inventories $ 23.0 26.6 32.6Other Current Assets $ 12.4 12.8 13.0

Total Current Assets $ 62.8 72.8 93.6PP&E, Net $ 14.2 14.0 13.4Goodwill $ 11.9 11.9 11.9Other Assets $ 4.0 4.0 4.1

Total long-term Assets $ 30.2 30.0 29.4 Total Assets $ 93.0 102.8 123.1

Liabilities and Stockholders' Equity

Current Maturities $ 10.4 7.4 7.6Accounts Payable and accrued expenses $ 18.9 20.8 26.7Other Current Liabilities $ 2.6 11.1 11.5

Total Current Liabilities $ 32.0 39.2 45.9Long-Term Debt $ 48.5 45.6 42.9Other Long-Term Liabilities $ 3.1 1.2 2.4

Total Long-Term Liabilities $ 83.6 86.0 91.2

Stockholders' Equity $ 9.4 16.8 31.9 Total Liabilities and Stockholders' Equity $ 93.0 102.8 123.1


1e) Weighted Average Cost Of Capital

22

Market risk premium

6.05% 6.20% 6.35% 6.50% 6.65% 6.80%

Beta

1.35 11.24% 11.35% 11.47% 11.58% 11.70% 11.81% 1.40 11.41% 11.53% 11.65% 11.77% 11.89% 12.01% 1.45 11.58% 11.71% 11.83% 11.95% 12.08% 12.20% 1.50 11.75% 11.88% 12.01% 12.14% 12.27% 12.39% 1.55 11.93% 12.06% 12.19% 12.32% 12.45% 12.59% 1.60 12.10% 12.23% 12.37% 12.51% 12.64% 12.78% 1.65 12.27% 12.41% 12.55% 12.69% 12.83% 12.97% 1.70 12.44% 12.59% 12.73% 12.88% 13.02% 13.17% 1.75 12.61% 12.76% 12.91% 13.06% 13.21% 13.36% 1.80 12.79% 12.94% 13.09% 13.25% 13.40% 13.55%

Percentage of capital ($M):

Total debt $91.2 43.18%

Market value of equity 120.0 56.82%

Total capital $211.2 100.00%

Cost of debt:

Cost of debt 6.32%

Marginal tax rate 40.00%

After-tax cost of debt 3.79%

Weighted Cost of Debt 1.64%

Cost of equity:

Risk free rate 2.70%

Beta 1.55

Market risk premium 6.35%

Size Premium 6.03%

Cost of equity 18.57%

Weighted Cost of Equity 10.55%

Weighted average cost of capital: 12.19%


2a) Comparable Companies Selection

23

Company EBITDA/Sales D/E P/E

CC1 6.00% 36.79% 16.54

CC2 4.10% 21.18% 17.26

CC3 6.10% 115.01% -26.40

CC4 6.70% 5.77% 19.09

CC5 6.80% 1.76% 21.97

CC6 14.40% 14.20% 16.96

CC7 10.40% 16.97% 15.51

CC8 6.90% 3.09% 16.31

CC9 8.30% 57.85% 11.66

Khakis 'R Us 5.30% 6.00% 44.10


2b) Comparable Companies Valuation

24

(figures in thousands except per share amount) Comparable Companies Khakis 'R Us

Company Revenue Stock Price

Shares Out standing

LTM Net Income P/E Debt Cash Minority

InterestEnterprise

ValueLTM

Adjusted EBITDA

LTM Adjusted EBITDA Margin

Earnings Multiple

(EV/EBITDA)

2013 Estimated

EBITDAEnterprise

Value

CC1 $ 8,185 $ 33.58 104.50 $ 212 16.54 $ 1,291 $ 628 $ 56.60 $ 4,229 $ 493 6.00% 8.58 $ 22.22 $ 190.57

CC2 6,206 58.40 30.20 102 17.26 374 354 14.70 1,798 254 4.10% 7.07 22.22 $ 157.08

CC3 441 2.79 38.80 (4) -26.40 125 16 13.80 231 27 6.10% 8.56 22.22 $ 190.15

CC4 11,154 58.99 132.40 409 19.09 451 1,166 42.50 7,137 752 6.70% 9.50 22.22 $ 211.01

CC5 7,713 32.08 149.00 218 21.97 84 800 0.20 4,064 528 6.80% 7.70 22.22 $ 171.03

CC6 1,566 44.12 46.50 121 16.96 291 25 0.10 2,318 225 14.40% 10.31 22.22 $ 229.13

CC7 2,071 23.80 65.80 101 15.51 266 160 0.90 1,673 216 10.40% 7.76 22.22 $ 172.52

CC8 313 8.51 29.70 16 16.31 8 10 0.30 251 22 6.90% 11.67 22.22 $ 259.25

CC9 11,414 47.18 76.40 309 11.66 2,085 249 140.20 5,581 952 8.30% 5.87 22.22 $ 130.34

Weighted Average Value Minimum Value Maximum Value

$197.79 $157.08 $259.25


2c) Comparable Companies WACC

25

Company Revenue Levered Beta Unlevered Beta

Equity Risk Premium

Size Premium

Risk Free Rate

Cost of Equity

Cost of Debt

Preferred Stock WACC

CC1 $ 8,185 1.37 1.12 5.75% 1.14% 3.3% 12.3% 2.5% 0.0% 9.40%

CC2 6,206 1.58 1.21 5.75% 1.72% 3.3% 14.1% 1.9% 0.0% 11.80%

CC3 441 2.20 1.29 5.75% 6.03% 3.3% 22.0% 7.5% 0.0% 12.70%

CC4 11,154 1.38 1.33 5.75% 0.76% 3.3% 12.0% 1.2% 0.0% 11.40%

CC5 7,713 1.79 1.77 5.75% 0.92% 3.3% 14.5% 4.1% 0.0% 14.30%

CC6 1,566 1.00 0.92 5.75% 1.70% 3.3% 10.7% 3.4% 0.0% 9.70%

CC7 2,071 1.17 1.06 5.75% 1.72% 3.3% 11.8% 2.0% 0.0% 10.20%

CC8 313 2.27 2.22 5.75% 6.03% 3.3% 22.4% 3.8% 0.0% 21.80%

CC9 11,414 1.36 1.01 5.75% 1.14% 3.3% 12.3% 3.8% 0.0% 8.60%

Derived values for Khakis 'R Us

Risk Free Rate = 2.7%

Market Risk Premium = 6.35%

Size Premium = 6.03%

Unlevered Beta = 1.23

Levered Beta = 1.55


2d) Comparable Transactions Metrics

26

Ranges

Year 2011 - 2013

EBITDA $10 - $35

Revenue $400 - $700

Transaction Announced Transaction Value Revenue Multiple EBITDA Multiple Transaction Value

w/o Ctrl Prem Comp's True EBITDA Comp's Revenue

1 2013 $ 150.00 0.65 6.3 $ 109.65 $ 17.40 $ 168.69 2 2012 70.00 0.97 7.1 51.17 7.21 52.75 3 2012 555.00 0.5 8.1 405.71 50.09 811.41 4 2012 290.00 0.52 5.4 211.99 39.26 407.67 5 2012 106.00 0.81 6.6 77.49 11.74 95.66 6 2011 61.40 0.59 9.3 44.88 4.83 76.07 7 2011 262.90 0.37 7.7 192.18 24.96 519.41 8 2011 280.00 0.68 7.2 204.68 28.43 301.00 9 2011 28.50 0.57 8.4 20.83 2.48 36.55

10 2010 324.00 0.75 5.4 236.84 43.86 315.79 11 2010 355.00 1.45 7.2 259.51 36.04 178.97 12 2010 294.90 0.41 12.9 215.57 16.71 525.79 13 2010 335.40 0.68 6.5 245.18 37.72 360.56 14 2010 62.70 0.66 6 45.83 7.64 69.45 15 2010 746.20 1.25 4.2 545.47 129.87 436.38 16 2009 47.90 0.22 11.8 35.01 2.97 159.16 17 2009 155.00 1.41 7.9 113.31 14.34 80.36 18 2009 220.00 0.75 6.4 160.82 25.13 214.43 19 2009 118.70 0.99 8.2 86.77 10.58 87.65

$ Millions


2e) Comparable Transaction Valuation

27

$ in Millions

Transaction Value

Weighted Value $ 204.79

Minimum Value $ 152.26

Maximum Value $ 217.12

Transaction EBITDA EBITDA Multiple Control Premium Value Weightage Enterprise Value

7 $ 22.22 7.7 27.30% $ 217.80 0.67

$ 205.43

1 $ 22.22 6.3 27.30% $ 178.20

0.334 $ 22.22 5.4 27.30% $ 152.74

5 $ 22.22 6.6 27.30% $ 186.69

8 $ 22.22 7.2 27.30% $ 203.66


3a) DFCF – KRU Valuation – Optimistic

28

$ in Millions, Year Ending Dec 31 Actual Estimated Projected 2011 2012 2013 2014 2015 2016 2017 2018

Sales $ 635.8 585.2 557.4 540.7 621.8 659.1 698.7 726.6

Cost of Sales $ 501.5 475.0 449.4 442.3 488.7 508.8 540.8 562.4

Gross Profit $ 134.3 110.2 108.0 98.4 133.1 150.3 157.9 164.2

SG&A $ 92.2 83.3 80.0 76.2 87.8 96.6 97.0 102.9

EBITDA $ 42.1 27.0 28.0 22.2 45.2 53.7 60.9 61.3

Less: Depreciation and Amortization $ (14.6) (16.4) (15.9) (12.3) (11.0) (8.1) (9.1) (9.1)

EBIT $ 27.6 10.6 12.2 9.9 34.3 45.7 51.9 52.3

Less: Taxes @ 40.0% $ (11.0) (4.3) (4.9) (4.0) (13.7) (18.3) (20.8) (20.9)

Tax-effected EBIT $ 16.5 6.4 7.3 5.9 20.6 27.4 31.1 31.4

Plus: Depreciation and amortization 16.4 15.9 12.3 11.0 8.1 9.1 9.1

Less: Capital expenditures (4.4) (4.7) (4.9) (5.0) (5.2) (5.3) (5.5)

(Increase)/decrease in working capital 3.6 (3.2) 1.0 (4.9) (2.3) (2.5) (1.8)

Unlevered Free Cash Flow 22.0 15.4 14.4 21.6 28.1 32.3 33.2

Weighted Average Cost Of Capital 12.2% 12.2% 12.2% 12.2% 12.2% 12.2% 12.2%

Present Value of Free Cash Flows 15.4 12.8 17.2 19.9 20.4 18.7

WACC 12.2%

Terminal growth rate 2.5%

Enterprise value $286.3


3b) DFCF – KRU Valuation – Expected

29


Sales $ 635.8 585.2 557.4 540.7 551.5 584.6 619.7 644.5

Cost of Sales $ 501.5 475.0 449.4 442.3 433.5 451.3 479.6 498.8

Gross Profit $ 134.3 110.2 108.0 98.4 118.0 133.3 140.0 145.7

SG&A $ 92.2 83.3 80.0 76.2 77.9 85.7 86.1 91.3

EBITDA $ 42.1 27.0 28.0 22.2 40.1 47.6 54.0 54.4


EBIT $ 27.6 10.6 12.2 9.9 29.2 39.7 45.0 45.4

Less: Taxes @ 40.0% $ (11.0) (4.3) (4.9) (4.0) (11.7) (15.9) (18.0) (18.2)




(Increase)/decrease in working capital 3.6 (3.2) 1.0 (0.5) (2.0) (2.2) (1.6)




WACC 12.2%




3c) DFCF – KRU Valuation – Conservative

30


Sales $ 635.8 585.2 557.4 540.7 515.3 510.1 520.3 541.2

Cost of Sales $ 501.5 475.0 449.4 442.3 405.0 393.8 402.7 418.9

Gross Profit $ 134.3 110.2 108.0 98.4 110.3 116.3 117.6 122.3

SG&A $ 92.2 83.3 80.0 76.2 72.8 74.7 72.3 76.6

EBITDA $ 42.1 27.0 28.0 22.2 37.5 41.6 45.3 45.7


EBIT $ 27.6 10.6 12.2 9.9 26.6 33.6 36.4 36.7

Less: Taxes @ 40.0% $ (11.0) (4.3) (4.9) (4.0) (10.6) (13.4) (14.5) (14.7)




(Increase)/decrease in working capital 3.6 (3.2) 1.0 1.8 0.4 (0.7) (1.3)




WACC 12.2%




Beta1.35 - 1.75

Terminal Growth Rate2% - 3%

Risk Premium5.85% - 6.85%

Size Premium2.2% - 3.2%

240

250

260

270

280

290

300

310

320

255

276273

286

Sensitivity Analysis on Enterprise Value

3d) DFCF – Sensitivity Analysis – Optimistic

31

311

298 301296

Ente

rpris

e Va

lue

($M

)

Average Max Value Average Min Value$301 $273

Enterprise Value$287

All $ in millions


Beta1.35 - 1.75




230

240

250

260

270

280

290

238

248245

249


3e) DFCF – Sensitivity Analysis – Expected

32

279

267270

265



All $ in millions

Ente

rpris

e Va

lue

($M

)


Beta1.35 - 1.75




200

205

210

215

220

225

230

235

240

245

206

214212

215


3f) DFCF – Sensitivity Analysis – Conservative

33

240

230233

229



All $ in millions

Ente

rpris

e Va

lue

($M

)


4a) Residual Earnings Model - Setup

34

($ in Millions except per share amounts) 2011 2012 2013

Total Book Value of Equity $ 9.42 16.75 31.86

Net (comprehensive) Income $ 14.19 4.14 6.18

# of shares outstanding (in millions) 10 10 10

Comprehensive Earnings Per Share $ 1.42 0.41 0.62

Dividends Declared Per Common Share $ 0.00 0.00 0.12

Book value per share $ 0.94 1.68 3.19

Basic Assumptions:

1) The comprehensive income will grow at differing rates for the next five years

2) The Residual Earnings will grow at a constant rate after this five year horizon

3) The dividends will grow by 5% each year

4) The long-term required rate is 12.2%


4b) Residual Earnings Valuation

35

($ in Millions except per share values)

2013 2014 2015 2016 2017 2018

Earnings Growth Rate -1.0% 0.0% 1.0% 2.0% 3.0%

EPS $ 0.59 0.58 0.58 0.59 0.60 0.62

DPS $ 0.12 0.13 0.13 0.14 0.15 0.15

BPS $ 3.19 3.64 4.09 4.53 4.98 5.45

Residual Earnings $ 0.19 0.14 0.09 0.04 0.01

Period 1 2 3 4 5

Discount Factor 1.12 1.26 1.41 1.58 1.78

PV of Residual Earnings $ 0.17 0.11 0.06 0.03 0.004

Total PV of RE $ 0.04

Continuing value $ 0.08

PV of CV $ 0.04

VPS $ 0.41

# shares outstanding (millions) 10

BV at t=0 $ 31.86

Net Debt $ 33.13

Enterprise Value $ 69.13


Optimistic(20%)

Expected(40%)

Conservative(40%)

0

50

100

150

200

250

300

350320

309

266

5a) DFCF – KRU Value to NYC

36

Enterprise Value

$ 294M

Ente

rpris

e Va

lue

($M

)


5b) DFCF – KRU TO NYC – Optimistic

37


Sales $ 635.8 585.2 557.4 657.8 697.2 739.1 783.4 814.7

Cost of Sales $ 501.5 475.0 449.4 538.1 548.0 570.6 606.4 630.6

Gross Profit $ 134.3 110.2 108.0 119.7 149.2 168.5 177.1 184.1

SG&A $ 92.2 83.3 80.0 92.7 98.5 108.3 108.8 115.4

EBITDA $ 42.1 27.0 28.0 27.0 50.7 60.2 68.2 68.7


EBIT $ 27.6 10.6 12.2 14.7 39.8 52.3 59.3 59.8

Less: Taxes @ 40.0% $ (11.0) (4.3) (4.9) (5.9) (15.9) (20.9) (23.7) (23.9)




(Increase)/decrease in working capital 3.6 (3.2) (6.5) (2.2) (2.5) (2.8) (2.0)




WACC 12.2%




5c) DFCF – KRU TO NYC – Expected

38


Sales $ 635.8 585.2 557.4 657.8 670.9 711.2 753.8 784.0

Cost of Sales $ 501.5 475.0 449.4 538.1 527.3 549.0 583.5 606.8

Gross Profit $ 134.3 110.2 108.0 119.7 143.6 162.1 170.4 177.2

SG&A $ 92.2 83.3 80.0 92.7 94.8 104.2 104.7 111.0

EBITDA $ 42.1 27.0 28.0 27.0 48.8 58.0 65.7 66.2


EBIT $ 27.6 10.6 12.2 14.7 37.9 50.0 56.7 57.2

Less: Taxes @ 40.0% $ (11.0) (4.3) (4.9) (5.9) (15.2) (20.0) (22.7) (22.9)








WACC 12.2%




5d) DFCF – KRU TO NYC – Conservative

39


Sales $ 635.8 585.2 557.4 657.8 626.9 620.6 633.0 658.3

Cost of Sales $ 501.5 475.0 449.4 538.1 492.7 479.1 489.9 509.5

Gross Profit $ 134.3 110.2 108.0 119.7 134.1 141.5 143.1 148.8

SG&A $ 92.2 83.3 80.0 92.7 88.5 90.9 87.9 93.2

EBITDA $ 42.1 27.0 28.0 27.0 45.6 50.6 55.1 55.5


EBIT $ 27.6 10.6 12.2 14.7 34.7 42.6 46.2 46.6

Less: Taxes @ 40.0% $ (11.0) (4.3) (4.9) (5.9) (13.9) (17.0) (18.5) (18.6)




(Increase)/decrease in working capital 3.6 (3.2) (6.5) 2.2 0.5 (0.8) (1.6)




WACC 12.2%




5e) RE – KRU Value to NYC

40

$ in Millions Conservative Expected Optimistic

Long-term R/E growth rate

2% $126 $172 $201

3% $131 $181 $213

4% $137 $193 $228


5f) RE – KRU to NYC – Optimistic

41


2013 2014 2015 2016 2017 2018

Earnings Growth Rate 45.0% 40.0% 35.0% 35.0% 30.0%

EPS $ 0.59 0.85 1.19 1.60 2.17 2.82

DPS $ 0.12 0.13 0.13 0.14 0.15 0.15

BPS $ 3.19 3.91 4.96 6.43 8.45 11.11


Period 1 2 3 4 5

Discount Factor 1.12 1.26 1.41 1.58 1.78




PV of CV $ 12.73

VPS $ 16.28


BV at t=0 $ 31.86

Net Debt $ 33.13



5g) RE – KRU to NYC – Expected

42


2013 2014 2015 2016 2017 2018


EPS $ 0.59 0.82 1.11 1.44 1.87 2.34

DPS $ 0.12 0.13 0.13 0.14 0.15 0.15

BPS $ 3.19 3.88 4.85 6.15 7.88 10.06


Period 1 2 3 4 5

Discount Factor 1.12 1.26 1.41 1.58 1.78




PV of CV $ 8.66

VPS $ 11.63


BV at t=0 $ 31.86

Net Debt $ 33.13



5h) RE – KRU to NYC – Conservative

43


2013 2014 2015 2016 2017 2018


EPS $ 0.59 0.76 0.95 1.14 1.37 1.58

DPS $ 0.12 0.13 0.13 0.14 0.15 0.15

BPS $ 3.19 3.82 4.64 5.64 6.87 8.29


Period 1 2 3 4 5

Discount Factor 1.12 1.26 1.41 1.58 1.78




PV of CV $ 4.15

VPS $ 6.12


BV at t=0 $ 31.86

Net Debt $ 33.13



Optimistic(20%)

Expected(40%)

Conservative(40%)

0

50

100

150

200

250

300

350

400

450409

388

332

6a) DFCF – KRU + AB Valuation

44

Enterprise Value

$ 370M

Enterprise Value

in Millions


6b) DFCF – KRU + AB – Optimistic

45


Sales $ 635.8 585.2 557.4 668.9 709.0 751.6 796.7 828.6

Cost of Sales $ 501.5 475.0 449.4 547.2 557.3 580.2 616.6 641.3

Gross Profit $ 134.3 110.2 108.0 121.7 151.7 171.4 180.1 187.3

SG&A $ 92.2 83.3 80.0 94.3 100.2 110.1 110.7 117.3

EBITDA $ 42.1 27.0 28.0 27.4 51.6 61.2 69.4 69.9


EBIT $ 27.6 10.6 12.2 15.1 40.7 53.3 60.4 60.9

Less: Taxes @ 40.0% $ (11.0) (4.3) (4.9) (6.1) (16.3) (21.3) (24.2) (24.4)








WACC 10.3%




6c) DFCF – KRU + AB – Expected

46


Sales $ 635.8 585.2 557.4 657.8 670.9 711.2 753.8 784.0

Cost of Sales $ 501.5 475.0 449.4 538.1 527.3 549.0 583.5 606.8

Gross Profit $ 134.3 110.2 108.0 119.7 143.6 162.1 170.4 177.2

SG&A $ 92.2 83.3 80.0 92.7 94.8 104.2 104.7 111.0

EBITDA $ 42.1 27.0 28.0 27.0 48.8 58.0 65.7 66.2


EBIT $ 27.6 10.6 12.2 14.7 37.9 50.0 56.7 57.2

Less: Taxes @ 40.0% $ (11.0) (4.3) (4.9) (5.9) (15.2) (20.0) (22.7) (22.9)








WACC 10.3%




6d) DFCF – KRU + AB – Conservative

47


Sales $ 635.8 585.2 557.4 657.8 626.9 620.6 633.0 658.3

Cost of Sales $ 501.5 475.0 449.4 538.1 492.7 479.1 489.9 509.5

Gross Profit $ 134.3 110.2 108.0 119.7 134.1 141.5 143.1 148.8

SG&A $ 92.2 83.3 80.0 92.7 88.5 90.9 87.9 93.2

EBITDA $ 42.1 27.0 28.0 27.0 45.6 50.6 55.1 55.5


EBIT $ 27.6 10.6 12.2 14.7 34.7 42.6 46.2 46.6

Less: Taxes @ 40.0% $ (11.0) (4.3) (4.9) (5.9) (13.9) (17.0) (18.5) (18.6)








WACC 10.3%




Optimistic(20%)

Expected(40%)

Pessimistic(40%)

0

50

100

150

200

250

300

350

400

450

500 475

430

345

7a) DFCF – KRU + AB to NYC Valuation

48

Enterprise Value

$ 405M

Enterprise Value

in Millions


7b) DFCF – KRU + AB to NYC – Optimistic

49


Sales $ 635.8 585.2 557.4 780.5 827.3 877.0 929.6 966.8

Cost of Sales $ 501.5 475.0 449.4 638.4 650.3 677.0 719.5 748.3

Gross Profit $ 134.3 110.2 108.0 142.0 177.0 199.9 210.1 218.5

SG&A $ 92.2 83.3 80.0 110.0 116.9 128.5 129.1 136.9

EBITDA $ 42.1 27.0 28.0 32.0 60.2 71.5 81.0 81.6


EBIT $ 27.6 10.6 12.2 19.7 49.3 63.5 72.0 72.6

Less: Taxes @ 40.0% $ (11.0) (4.3) (4.9) (7.9) (19.7) (25.4) (28.8) (29.0)








WACC 10.3%




7c) DFCF – KRU + AB to NYC – Expected

50


Sales $ 635.8 585.2 557.4 731.7 746.3 791.1 838.6 872.1

Cost of Sales $ 501.5 475.0 449.4 598.5 586.6 610.7 649.1 675.0

Gross Profit $ 134.3 110.2 108.0 133.2 159.7 180.4 189.5 197.1

SG&A $ 92.2 83.3 80.0 103.2 105.4 115.9 116.5 123.5

EBITDA $ 42.1 27.0 28.0 30.0 54.3 64.5 73.0 73.6


EBIT $ 27.6 10.6 12.2 17.7 43.4 56.5 64.1 64.6

Less: Taxes @ 40.0% $ (11.0) (4.3) (4.9) (7.1) (17.4) (22.6) (25.6) (25.8)








WACC 10.3%




7d) DFCF – KRU + AB to NYC – Conservative

51


Sales $ 635.8 585.2 557.4 682.9 650.8 644.3 657.2 683.5

Cost of Sales $ 501.5 475.0 449.4 558.6 511.6 497.4 508.7 529.0

Gross Profit $ 134.3 110.2 108.0 124.3 139.3 146.9 148.5 154.5

SG&A $ 92.2 83.3 80.0 96.3 91.9 94.4 91.3 96.8

EBITDA $ 42.1 27.0 28.0 28.0 47.3 52.5 57.2 57.7


EBIT $ 27.6 10.6 12.2 15.7 36.4 44.5 48.3 48.7

Less: Taxes @ 40.0% $ (11.0) (4.3) (4.9) (6.3) (14.6) (17.8) (19.3) (19.5)








WACC 10.3%




7e) Return to Shareholders for Alternatives for Growth

52

($ in millions) KRU KRU to NYC KRU + AB KRU + AB to NYC

Enterprise Value 249 294 370 405

Total Debt 91 91 151 151

Cash & Cash Eqv. 20 20 20 20

Net Equity $178 $223 $238 $273


Khakis 'R US Pitch Book (Merger and Acquisition Valuation)

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Transcript of Khakis 'R US Pitch Book (Merger and Acquisition Valuation)