EX-99.(C)(3) 3 d68409_ex99c3.htm MATERIALS DATED JANUARY 27, 2006

Draft dated January 27, 2006

A Presentation of Initial Findings to:

The Special Committee of Project PICTURE

CONFIDENTIAL

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This preliminary presentation was not made in the context of rendering an opinion as to the
fairness of the transaction consideration and is not to be considered a fairness opinion.

Exhibit (c)(3)

Important Information

The following pages contain material that was provided to the Special Committee of the Board of Directors (“ Special
Committee”) of PICTURE (the “Company”) in the context of a meeting held to consider a proposed transaction by which
a purchaser group which includes Joseph J. Saker, Richard J. Saker and other members of the Saker family (the “Saker
Family Group”), directly or through Saker Holdings Corp. or another entity or entities formed for the purpose (“Saker
Holdings”), will acquire all or substantially all of the outstanding  common stock of the Company owned by shareholders
other than members of the Saker Family Group (the “Public Shareholders”) (“Possible Transaction”).  The accompanying
material was compiled or prepared on a confidential basis for use by the Special Committee and not with a view toward
public disclosure.  The information utilized in preparing this presentation was obtained from the Company and public
sources.  Any estimates and projections for the Company contained herein have been prepared by senior management of the
Company or are publicly available, or based upon such estimates and projections, and involve numerous and significant
subjective determinations, which may or may not prove to be correct.  No representation or warranty, express or implied, is
made as to the accuracy or completeness of such information and nothing contained herein is, or shall be relied upon as, a
representation, whether as to the past or the future.  Because this material was prepared for use in the context of an oral
presentation to the Special Committee, which is familiar with the business and affairs of the Company, neither the
Company nor William Blair & Company, L.L.C. (“Blair”) nor any of their respective legal or financial advisors or
accountants take any responsibility for the accuracy or completeness of any of the material if used by persons other than the
Special Committee of the Company.  Neither the Company nor Blair undertakes any obligation to update or otherwise
revise the accompanying materials, except in the case that the financial terms of the Possible Transaction are modified in a
manner which is beneficial to the Public Shareholders within 30 days after the date on which the fairness opinion fee is due
to Blair and the Special Committee requests the opinion from Blair based on the modified Possible Transaction.

Confidential Material Presented to the Special Committee of PICTURE

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Table of Contents

Executive Summary

II.

PICTURE Overview

Trading History and Ownership

Financial Performance

III.

Preliminary Valuation Analysis

Comparable Company Analysis

Comparable Transaction Analysis

Discounted Cash Flow Analysis

Leveraged Transaction Analysis

M&A Premiums Analysis

IV.

Appendix

Discounted Cash Flow Analysis

WACC Analysis

Leveraged Transaction Analysis

Current Debt Calculation

Valuation Analyses Based on April 2005 Management Projections

Competing Pathmark Stores

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Executive Summary

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Blair’s Observations

Executive Summary

Operational Observations

PICTURE competes directly with a number of national and regional supermarket chains, including
A&P, Pathmark, Wegmans, Acme, Stop & Shop and Foodtown, as well as warehouse club stores and
discount general merchandise stores

There are 18 Pathmark stores within three miles of a PICTURE store

While there are currently many competing Wal-Mart stores in PICTURE’s market, there are
currently no Wal-Mart SuperCenters

The Company’s stores have average annual per store sales volume of approximately $46.2 million as
of October 30, 2005

During fiscal 2005, the Company’s same store sales declined 1.2%

Below average EBITDAR margins of 4.0% versus comparable companies’ median EBITDAR
margin of 4.5%

Three of PICTURE’s 27 stores, or 11%, have negative 4-Wall EBITDA

In fiscal 2004, the Company recorded a non-cash impairment charge of $1.2 million to reduce the
carrying value of leasehold improvements relating to one store. During fiscal 2005, the Company
recorded a non-cash impairment of $163 thousand

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Blair’s Observations

Executive Summary

Financial and Trading Observations

Blair’s prior DCF and LBO valuation analyses were based on management’s projections as of April
2005 (updated based on management’s input)

More recently, management has compiled a set of Revised projections that reflect lower capital
expenditures and slower growth due to leverage limitations per management’s discussions with
GMAC

The Revised projections generate higher DCF and LBO valuations, excluding any potential
impact of reduced store quality, related higher threat of competition associated with reduced
store level expenditures and reduced growth

The preliminary valuation data herein presents the DCF and LBO analyses based on the Revised
projections

We will continue to work with management to assess which are the appropriate projections for
PICTURE

We can only base our fairness opinion on projections provided by management

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Blair’s Observations

Executive Summary

Financial and Trading Observations (continued)

The Company’s Revised projections estimate compound annual sales growth of 2.8% from 2005-
2010

Average EBITDA margins during this time are projected to be 0.9%

The Company spends approximately $692,000 annually associated with remaining a public company

PICTURE maintains two under-funded defined benefit pension plans covering administrative
personnel and members of a union. The minimum pension liability for these plans is recorded in
“other long-term liabilities” and the related unrealized loss, net of income tax benefit, is included in
accumulated other comprehensive income and represented $2.8 million at October 30, 2005

As of October 30, 2005, the Company was contingently liable under leases assumed by third parties
for $1.8 million

PICTURE participates in a multi-employer plan, but has no intention of withdrawing [need to
diligence amount]

Low stock liquidity and trading volume

PICTURE’s average trading volume over the last 90 days was 568 shares, or $24,500, compared
to the median of the comparable companies of 35,072 shares, or $568,500.

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Wakefern Relationship Overview

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PICTURE’s membership in the Wakefern cooperative enables it to benefit from group purchasing pricing that it
would not enjoy independently

Receives annual dividend ($15.4 million in 2005) as a distribution of Wakefern profits

The Company’s relationship with Wakefern also places constraints on its operations and financial flexibility

Wakefern has the right of first refusal in a change of control or similar transaction

PICTURE must pay Wakefern a fee for all new stores (maximum $650,000 per store)

If any co-op member decides to withdraw from the cooperative, it must reimburse Wakefern for 10 years of
profits (estimated at $330 million for PICTURE)

In Re: Big V Holding Corp. reinforces the validity of this provision

All cooperative members must invest in and own interests in Wakefern

This is not a liquid investment and can only be sold to Wakefern for approximately the same amount
for which the purchaser bought the stock

Any purchaser of PICTURE planning to withdraw from Wakefern (or not allowed by Wakefern to join the coop)
would owe Wakefern approximately $335 million (see next page for calculation details)

Adjusting any potential purchase price for this potential withdrawal liability would increase the purchase
multiple paid by approximately 7.6x based on fiscal 2005 EBITDA of $43.8 million

The Wakefern agreement requires personal guarantees of the potential withdrawal liability and other obligations

Executive Summary

Calculation of Potential Withdrawal Liability

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If PICTURE withdraws from Wakefern, it is liable to Wakefern for 10 years of lost profits on its
minimum purchase participation

PICTURE is obligated to purchase 85% of its goods from Wakefern

85% of fiscal 2005 COGS is approximately $764 million

In fiscal 2005, PICTURE purchased $801 million in goods from Wakefern

PICTURE management estimates that Wakefern’s profits on these purchases are
approximately 6.2%

Discounting a range of potential minimum purchase participation levels at assumed profits of
5.9% to 6.5% over 10 years at the current prime rate of 7.25% (discount factor from Wakefern
agreement) provides a range of potential withdrawal liabilities of $311 million to $366 million

Saker letter estimated this liability at approximately $271 million

Executive Summary

Break-Up Fee Analysis

Break-up fees for transactions with equity values between $25 and $100 million since
January 1, 2003

Source: M&A Desk

As of January 23, 2006

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Executive Summary

Blair’s Observations

Executive Summary

Limited Potential Buyer Universe

Absent some material factors affecting the practical and financial aspects of an outright sale of
PICTURE (discussed herein), we believe there would be several interested and capable buyers for
PICTURE

However, the Wakefern agreement practically limits potential buyers:

Significant withdrawal liability

Approval rights to join co-op and regarding changes of control

Requires personal guarantees

Only a Wakefern cooperative member would avoid, in theory, these structural limits imposed by the
Wakefern agreement

Only one co-op member seems to have the potential financial ability to purchase PICTURE

Village Super Markets, Inc. has almost $1 billion in revenue, operates 23 stores and has an
equity market capitalization of $184.5 million and enterprise value of $219.8 million

Village has not expressed an interest in PICTURE

If a third party purchaser bought PICTURE and planned to withdraw from Wakefern, it would have
to pay Wakefern approximately $330 million, or an incremental purchase price of 7.6x EBITDA

[Sakers have stated that they will not sell to a third party. Low likelihood of third party buying
minority stake]

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Process

Executive Summary

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[To be expanded verbally during January 30 Special Committee call; need to jointly draft with Pitney Hardin the
Background section of definitive documents]

Executive Summary

Transaction Summary

(1) Assumes cash and cash equivalents do not represent excess cash.

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Item

Transaction Terms

Transaction Structure:

Purchase of the remaining

shares not owned by the Saker

family

PICTURE’s

stock

via a

tender offer

Equity Purchase Price:

52.00

per share

Implied Equity Value:

Approximately $

million

Net Debt:

(1)

bligations Under

Capital

eases

million

Long

Term Debt, related party

4.1

Long

Term Debt

8.3

Underfunded Pension

Liability

$2.8

million

mplied Enterprise Value:

Approximately $

61.8

million

Type of Consideration:

Cash, funded through

ebt

with

GMAC

Transaction Structure:

Tender offer

Other Primary

Terms:

To come after definitive agreement negotiations

Will require

inancing

Min

imum condition

Need to discuss breakup fee and expense reimbursement

amo

unt and the timing of granting

Implied Transaction Multiples

Executive Summary

Offer Value

Implied Multiples

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PICTURE Overview

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Trading History and Ownership

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PICTURE Stock Price Performance

Trading History and Ownership

PICTURE 5 Year Performance

As of January 26, 2006.

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PICTURE Stock Price Performance

Price

Volume (000s)

Last Twelve Months

Trading History and Ownership

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As of January 26, 2006.

PICTURE Indexed Stock Price Performance

Last Twelve Months

Comparable Companies Index includes: ARDNA, FRSH, IMTKA, MARSA, NAFC, PTMK, RDK, SPTN and VLGEA.

Retail Index is the S&P Small-Cap Retailing Index.

Source: FACTSET Research Systems as of January 26, 2006.

Comparable
Companies

Retail Index

PICTURE

Trading History and Ownership

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Average Daily Trading Volume Vs. Comps

Last 90 Days

Trading History and Ownership

($ in thousands)

Source: FactSet Research Systems as of January 27, 2006.

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Historical Trading Activity

Price Per Share

Last Three Months

Total of 46,600 shares traded (average volume
of 696 shares; zero shares traded 56.7% of the
days)

Approximately 90% of those shares traded at
an average price of $52.00 or below

Only 4,520 shares have traded above $52.00

Trading History and Ownership

Source: FactSet Research Systems as of January 26, 2006.

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Historical Trading Activity

Price Per Share

Total of 91,100 shares traded (average volume of
346)

Approximately 98% of those shares traded at an
average price $52.00 or below

Last Twelve Months

Trading History and Ownership

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Source: FactSet Research Systems as of January 26, 2006.

Saker Holdings Ownership

Trading History and Ownership

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Source:: Schedule 13D dated December 1, 2005 and PICTURE management

PICTURE Common Stock Ownership

Fully Diluted

Preliminary Shares

Trading History and Ownership

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Financial Performance

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PICTURE Summary Revenue Performance (Revised Projections)

($ in millions)

Financial Performance

Projected results are based on PICTURE management projections.

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23 25 27 27 27 28 28 28

Number of

Stores

PICTURE Summary EBITDA Performance (Revised Projections)

($ in millions)

Financial Performance

Projected results are based on PICTURE management projections. EBITDA calculated as operating income plus depreciation, non-cash amortization (intangibles, deferred financing costs, deferred rent escalation, and
deferred compensation) and provision to value inventory at LIFO.

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Store Level Financial Performance

Financial Performance

Average Weekly Volume

Sales Growth 2004-2005

Excluding stores 500, 533, 572 & 613 due to minimal store age

Based on 2005 data provided by PICTURE management

4 Wall EBITDA

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Based on 2005 data provided by PICTURE management

Valuation Analysis

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Summary of Valuation Analyses

Comparable Public Company Analysis

Trading multiple analysis based on 9 companies that Blair considered comparable to PICTURE based on the selected
companies’ operations and market capitalizations.

Comparable M&A Transactions Analysis

Evaluation of potential transactions that Blair might consider comparable to the proposed transaction based on the targets’
operations and the transaction values.

Discounted Cash Flow Analysis

Utilized PICTURE’s fiscal year 2006-2010 projections to derive free cash flows for PICTURE and discounted those cash
flows, along with a terminal value based on a multiple of 2010 EBITDA. Discounted all cash flows at discount rates ranging
from 10% - 14%, back to the current period.

Leveraged Transaction Analysis

Utilized PICTURE’s fiscal year 2006-2010 projections. Assumed ability to finance an acquisition of PICTURE utilizing
term debt, rolled existing debt and equity. Assumed PICTURE would be purchased at the end of 2010 by an independent
third party. Values were derived based upon a range of expected equity returns by a financial investor.

M&A Premiums Paid Analysis

Premium analyses based on 210 domestic public transactions announced since January 1, 2003 with implied equity values
between $25 million and $100 million. Also analyzed subgroups of that set (1) in which less than 50% of the target was
acquired; (2) in which the target company was taken private; and (3) in which an existing shareholder acquired the
remaining minority interest.

Valuation Analysis

Blair performed several analyses to assist in the development of its draft valuation

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Comparable Company Analysis

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Comparable Public Company Analysis

Methodology & Assumptions

In utilizing the Comparable Public Company valuation methodology, Blair reviewed the public
equity markets to identify companies that we deemed relevant

Identified regional supermarket operators

These companies face similar competitive and strategic issues as PICTURE

Blair considered but excluded the following companies due to their size of operations and
other company-specific factors

Great Atlantic & Pacific Tea Company (GAP)

SuperValu (SVU)

Winn-Dixie Stores (WIN)

Arden Group (ARDNA)

Ingles Supermarkets (IMKTA)

Nash Finch Company (NAFC)

Ruddick (RDK)

Village Supermarket (VLGEA)

Comparable Public Companies

Comparable Company Analysis

Fresh Brands (FRSH)

Marsh Supermarkets (MARSA)

Pathmark Stores (PTMK)

Spartan (SPTN)

Albertson’s

Kroger

Safeway

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Comparable Public Company Trading Analysis

Comparable Company Analysis

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Comparable Public Company Financial Metrics

Comparable Company Analysis

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3 Year Net Sales CAGR

Source: Public filings, PICTURE management and FactSet Research Systems as of January 26, 2006

Median 2.8%

LTM Gross Profit Margin

Median 26.1%

LTM EBITDA Margin

Median 3.4%

LTM EBITDAR Margin

Median 4.7%

Comparable Public Company Analysis

($ in thousands)

(1)

Adjusted Enterprise Value = Enterprise Value + Debt Equivalent of Operating Leases. Debt Equivalent of Operating Leases estimated at 8.0x annual net rent expense.

(2)

LTM October 2005 Net Income excludes impact of $163k impairment charge, tax affected at 40.0%

Comparable Company Analysis

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Comparable Transaction Analysis

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Comparable M&A Transactions

Comparable Transaction Analysis

We do not believe that any recent M&A transaction in the food retailing industry is truly comparable to PICTURE
due to the following factors:

Different margins

Different growth rates

Different competitive forces

Lack of relevant disclosed valuation metrics

For instance, Shaw’s turnover of approximately $5 billion and EBITDA margin of approximately 8% are
significantly higher than the Company’s

Yucaipa’s acquisition of Pathmark showed a transaction value of $150MM for a 40% equity stake. Implied
transaction multiples were 0.23x LTM Revenue and 5.6x LTM EBITDA

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Selected Transactions Analysis

($ in thousands)

Comparable Transaction Analysis

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(1)

Adjusted Enterprise Value = Enterprise Value + Debt Equivalent of Operating Leases. Debt Equivalent of Operating Leases estimated at 8.0x annual net rent expense.

(2)

LTM October 2005 Net Income excludes impact of $163k impairment charge, tax affected at 40.0%

Discounted Cash Flow Analysis

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Methodology and Assumptions

In order to provide an additional estimate of the enterprise value of PICTURE, Blair performed a
discounted cash flow analysis of PICTURE’s projected results

The concept of a discounted cash flow analysis is to calculate the present value of a company
based upon its future earnings stream and corresponding cash flows

To account for the value of PICTURE beyond 2010 (“terminal value”), Blair assumed the
Company would be purchased by an independent party for a multiple of EBITDA

Blair calculated the weighted average cost of capital (“WACC”) for PICTURE by analyzing the
cost of capital for a group of public companies in the industry as well as evaluating the Company-
specific risk of PICTURE (see Appendix B)

Discounted Cash Flow Considerations:

Methodology is most appropriate for companies that exhibit relatively steady or somewhat
predictable streams of future cash flow

For a company with limited intermediate and long-term cash flow visibility the preponderance
of the value can be in the terminal value, which is extremely sensitive to assumptions about
the sustainable long-term growth of the company

Discounted Cash Flow Analysis

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DCF Valuation Summary

Projections for 2006 – 2010 based
on information provided by
PICTURE management

Cash flows discounted to January 1,
2006 at discount rates ranging from
10% to 14%

Net debt of $207.4 million, including
capital leases and underfunded
pension liability

Parameters

Results

Equity valuation per share range of $25.88 to $92.01

Discounted Cash Flow Analysis

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Leveraged Transaction Analysis

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Leveraged Transaction Analysis - Methodology and Assumptions

In order to provide an additional estimate of the enterprise value of the Company, Blair
performed a leveraged transaction, or buyout, analysis of the Company.

In a leveraged acquisition, an entity finances the purchase of a company using a significant
portion of debt with the remainder of the purchase price being financed through equity
capital.

By using the projected results for the Company and determining the likely constraints that
would be placed on an entity attempting to complete a leveraged acquisition, it is possible to
estimate a range of value for the Company.

Key forecast assumptions are the same as those used in the DCF model except that public
company costs of $692,000 per year are eliminated.

Leveraged Transaction Analysis

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Leveraged Transaction Analysis

Leveraged Acquisition Analysis

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Current analysis based on GMAC financing committed to Saker Holdings

Scenario presented is highly unlikely for a third party to pursue due to liquidity issues

We should continue to work with management to confirm comfort with these projections

Capitalization:

Equity investment comprises 9.6% of invested capital including rolled capital leases, or 21.0% excluding rolled
capital leases

20% - 30% targeted returns for equity investors

EBITDA interest coverage at 1.8x and total debt/EBITDA at 5.4x based on pro forma 2005 results

Maximum leverage determined based on eligible assets

Assumes exit multiples of 5.5x to 6.5x EBITDA

Parameters

M&A Premiums Analysis

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M&A Premiums Paid Analysis

Premiums for transactions with equity values between $25 and $100 million since
January 1, 2003

(1)

Includes Cash, Stock, Cash & Stock, Cash or Stock, and Assumption of Liability transactions

(2)

Prices based on December 2, 2005 announcement.

M&A Premiums Paid Analysis

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M&A Premiums Paid Analysis (continued)

Premiums for transactions with equity values between $25 and $100 million since
January 1, 2003

(1)

Includes Cash, Stock, Cash & Stock, Cash or Stock, and Assumption of Liability transactions

(2)

Prices based on December 2, 2005 announcement.

M&A Premiums Paid Analysis

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Appendix

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Discounted Cash Flow Analysis

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DCF Model (Terminal Multiple & Revised Projections)

Discounted Cash Flow Analysis

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WACC Analysis

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Weighted Average Cost of Capital

WACC Analysis

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Leveraged Transaction Analysis

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Leveraged Transaction Analysis

Leveraged Transaction Analysis

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Current Debt Calculation

Current Debt Calculation

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Valuation Analyses Based on April 2005
Management Projections

PICTURE Summary Revenue Performance

($ in millions)

Projected results are based on PICTURE management projections.

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23 25 27 27 28 30 30 30

Number of

Stores

Valuation Analyses Based on April 2005 Management Projections

PICTURE Summary EBITDA Performance

($ in millions)

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Valuation Analyses Based on April 2005 Management Projections

DCF Valuation Summary

Projections for 2006 – 2010 based
on information provided by
PICTURE management

Cash flows discounted to January 1,
2006 at discount rates ranging from
10% to 14%

Net debt of $207.4 million, including
capital leases and underfunded
pension liability

Parameters

Results

Equity valuation per share range of $9.37 to $80.97

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Valuation Analyses Based on April 2005 Management Projections

Leveraged Transaction Analysis

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Current analysis based on GMAC financing committed to Saker Holdings

Scenario presented is highly unlikely for a third party to pursue due to liquidity issues

We should continue to work with management to confirm comfort with these projections

Capitalization:

Equity investment comprises 6.5% of invested capital including rolled capital leases, or 14.8% excluding rolled
capital leases

20% - 30% targeted returns for equity investors

EBITDA interest coverage at 1.8x and total debt/EBITDA at 5.3x based on pro forma 2005 results

Maximum leverage determined based on eligible assets

Assumes exit multiples of 5.5x to 6.5x EBITDA

Parameters

Valuation Analyses Based on April 2005 Management Projections

Competing Pathmark Stores

PICTURE vs. Pathmark

Pathmark Stores within 3 Mile Radius of PICTURE Stores

PICTURE (26 Stores)

Pathmark (18 Stores)

Based on data provided on
the Pathmark website, we
assessed which Pathmark
stores were within a 3-mile
radius of each PICTURE
store

Cumulatively, 18 Pathmark
stores are within 3 miles of a
PICTURE store

Competing Pathmark Stores