Michael Coffey Alex Doumas Tyler Greene Alexa Marantette Stephanie Yonce

1. Michael Coffey Alex Doumas Tyler Greene AlexaMarantette Stephanie Yonce

2. 74 Locations in 65 cities Current Stock Price = $12.85 Opened in 1978 in Chicago Went public February 14, 2006. Average Check $88.00 in the formal dining room $103 in the Boardrooms Morton’s Steakhouse: Key Facts Back to Contents

3. Domain Definition • Morton’s Restaurant Group, Inc. is classified in the fine dining industry of restaurant services. • Their target market is described by them as catering mainly to “high-end, business oriented clientele” • Morton’s corporate goal for their guests is to “provide its guests high quality cuisine, an extensive selection of wines and exceptional service in an enjoyable dining environment,” which classifies them in the upscale industry (10-K). Back to Contents

4. How it gives Morton’s a competitive advantage Steady growth Standardized restaurants Landlord Contributions and Allowances $1.2 million - $1.8 million per restaurant Senior Revolving Credit Facility Stable loan to pay landlord Site Selection Process Based on research of restaurant’s demand Strong training for new locations Morton’s Average Initial Capital Investment = 2.3 Million Ruth’s Chris Average Initial Capital Investment = 2.5 – 4.5 Million The Leasing Competitive Method Back to Contents

5. Demand Curve • “High-end, business oriented clientele” • Total Target Market: 21,465,000 people • Citizens, AOIC, earning $100K+ that live in Metro Statistical Areas in the U.S. • 67% outside principle city and 33% inside • Local Demand Drivers • 86% are in age range 35-54 • Social trend – Younger customers • “Haves & Have Nots” • Approx. 95% of properties in the U.S. Four properties outside the U.S. Back to Contents

6. Cash Flow Analysis: LeasingCompetitive Method Back to Contents

7. Changes in Revenues Growth Rate • First, broke the states down into growth segments. (3.0-3.9; 4.0-4.9; 5.0-5.9; 6.0-6.9; 7.0-8.5). • Then the weighted average of those states within the growth segment with Morton’s locations was taken to get an weighted average growth rate for that segment. • Then an expected value analysis was conducted using the weighted average growth rates for each segment and the percentage of locations in that segment relative to total locations. Back to Cash Flow

8. Growth Rate continued… • The same analysis was conducted for 2005. • The percent change from 2005 to 2006 was found to be 0.01529. Therefore the final rate used was the 2006 rate plus the percent change. (5.330986 + 0.01529 = 5.412495) Back to Cash Flow

9. Operating Expenses • Operating expenses have been increasing over the past 3 years at an average rate of 6.5%. • We then took the difference between each year’s operating expenses to find the change in operating expenses. • The changes in operating expenses were then divided by the total number of restaurants opened that year to get the amount of operating expenses for one store. • Multiply the operating expense for one store by 4 to get thetotalchange in operating expenseseach forecasted year. Back to Cash Flow

10. Depreciation & Amortization • Only Furniture, Fixtures, and Equipment (FFE) are related to depreciation for leasing. • So we found what % FFE makes up net property and equipment. • Then we took that percent out of Accumulated D&A to get D&A from FFE. • The difference between Accumulated D&A and D&A from FFE gives us the change in D&A from FFE. • D&A for one location was found by dividing the change in D&A from FFE by 74 locations. • Then to get the amount for 4 Restaurants, simply multiply by 4. • For the forecasted years: 2007 has the D&A for 4 restaurants alone. • Each corresponding year has the previous year’s D&A plus another four restaurants to account for the forecasted newly opened restaurants. Back to Cash Flow

11. Interest Expense • We calculated change in interest expense by determining the total amount to be spent on opening new locations each year (2.3 million/restaurant * 4 restaurants = 9.2 million). • We then applied the Senior Revolving Credit Facility interest rate to the overall total to get a change in interest expense of $563,960/year. Back to Cash Flow

12. Working Capital • To find our change in working capital, we looked at our overall current assets (minus cash & cash equivilants) and current liabilities and determined the rate at which the resulting working capital had been changing each year. • We forecasted the working capital to continue to grow (or decrease) at a rate of -34.95%. • After finding the overall change in working capital for each year, this number was divided by the number of restaurants forecasted to be open in each given year. • This results in the working capital for a single restaurant; this value was then multiplied by 4 since this is the forecasted number of restaurants to be opened each year, to get the Change in WC used on the Cash Flow. Back to Cash Flow

13. Discount Rate for Project • 14.01% = (WACC) 9.01% + (Risk Premium) 5% • Every restaurant Morton’s opens is considered a major risk by investors, due to the capital required to open and operate a new restaurant. • Since Morton’s is completely company owned, if Morton’s fails to successfully assess the forces driving change in the remote environment the restaurant may not be successful. • This could be detrimental to Morton’s future cash flows because their leasing strategy contractually obligates them to pay a negotiated minimum annual rent for the duration of their leases, regardless of whether or not a restaurant is successful. • The leasing contracts are non-voidable even in the event of a restaurant closing. • Therefore, a 5% risk premium was added to the calculated cost of capital (9.01% + 5% = 14.01%) to help satiate investors concerns over the risk of opening a forecasted 4 new restaurants per year, based on customer demand. Back to Cash Flow

14. Weighted Average Cost of Capital% Equity * Cost of Equity + % Debt * Cost of Debt * (1 – Corporate Tax Rate) • Cost of Equity = 12.1331 • CAPM (rfr + β(market return – rfr) was used to find the cost of equity • 12.1331% = 4.9 + .857 ( 13.34 – 4.9) • rfr = 4.9% (based on 10 year U.S. treasury bond • β = .857 • Market return = 13.34 • Cost of Debt = 6.14% • 95% of Morton’s debt is from the Senior Revolving Credit Facility which has a weighted average cost of debt • % Equity = 61.68% • % Debt = 38.32% • Corporate Tax Rate = 35% Back to Contents

15. Beta Justification • Average Beta’s and D/E Ratios for the five above competitors were found. Back to Contents

16. Beta Justification continued… 2. Then the unlevered beta is calculated using the following formula and variables: 3. Once the unlevered beta has been found, the last step is applying Morton’s capital structure to the unlevered beta. Back to Contents

17. Three Forces Driving Change • Changes in the Labor Market • Energy Sources • Going Green Back to Contents

18. Industry Critical Success Factors • Food Quality • Service Quality • Location • Full Service Bar w/ a Large Wine Selection • Menu Variety • Reservations and Online Presence Back to Contents

19. Industry Value Drivers • Food Costs • Labor Costs • Disposable Income • Revenue Generated through Corporate Expenditures Back to Contents

20. Contents • Beta Explanation • Cost of Capital (WACC) • Demand Curve • Domain Definition • Industry Critical Success Factors • Industry Value Drivers • Leasing Cash Flow Statement • Leasing Competitive Method • Forces Driving Change • Morton’s Steakhouse: Key Facts • Title Page • THE END!

21. Thank you -The Morton’s Team- (remotely ballin’)