1. Assume that you are a member of the Hershey Trust board. To whom (or what) do you owe your fiduciary responsibility? How does the legacy of Milton S. Hershey affect your thinking as a member of the board? Discuss the unique challenges presented by the ownership structure of Hershey.

1. Based on your valuation of HFC, do you believe the company was fairly valued by the market before the announcement of the sale? Calculate the WACC for HFC using the data provided in the exhibits; assume a Market Risk Premium of 5.5%. Estimate the stand-alone value of HFC using the free-cash-flow projections provided in case Exhibit 10.

1. Discus the non-price considerations of the offers. Which, if any, bid would you vote to accept for the purchase of Hershey Foods Corporation? Is your decision primarily based on the economics of the bids or the desire to honor the legacy of Milton S. Hershey?

1. If you decided to reject both bids and not sell HFC, what will you do to achieve the diversification objective? If you decided to accept one of the bids, what (if anything) would you want to communicate to the constituents who opposed the sale?

Excel File Edit View Insert Format Tools Data Window Help 4 2) 100% 27). Tue Dec 10 11:22 PM Sammy Sosa Q = *Spreadsheet Hershey Foods_F1409X (2) Q . Search Sheet Home Insert Page Layout Formulas Data Review View '+ Share ~ do Cut Arial 10 A- A Wrap Text General 14#1 AutoSum Copy Fill Paste -00 Format A Merge & Center $ ~ % 2 00 Conditional Format Cell Insert Delete Format Clear Sort & Formatting as Table Styles Filter Q29 X V fx B C DE F G H K L M N 0 P Q R S T U V W X Y Z W N Hershey Foods Corp. Forecasted Financial Statements as a Standalone ($ millions) 4 Income Statement 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 5 Sales $4,343.9 $4,561.0 $4,789.1 1 $5,028.5 $5,280.0 $5,544.0 $5,821.2 $6, 112.2 $6,417.8 $6,738.7 Cost of sales $2,541.2 $2,622.6 $2,705.8 $2,841.1 $2,983.2 $3,132.3 $3,289.0 $3,453.4 $3,626.1 $3,807.4 Selling, general, & administrative $1,164.2 $1,222.4 $1,283.5 $1,347.7 $1,415.0 $1,485.8 $1,560.1 $1,638.1 $1,720.0 $1,806.0 Operating income (EBIT $638.5 $716.1 $799.8 $839.8 $881.8 $925.8 $972.1 $1,020.7 $1,071.8 $1, 125.4 Taxes $252.2 $282.9 $315.9 $331.7 $348.3 $365.7 $384.0 $403.2 $423.4 $444.5 Net operating profit after tax (NOPAT) $386.3 $433.2 $483.9 $508.1 $533.5 $560.1 $588.1 $617.5 $648.4 $680.8 Sales Growth 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% EBIT/Sales 14.7% 15.7% 16.7% 16.7% 16.7% 16.7% 16.7% 16.7% 16.7% 16.7% 15 Balance Sheet 16 Total current assets $1,194.6 $1,254.3 $1,317.0 $1,382.9 $1,452.0 $1,524.6 $1,600.8 $1,680.9 $1,764.9 $1,853.2 17 Goodwill $388.7 $388.7 $388.7 $388.7 $388.7 $388.7 $388.7 $388.7 $388.7 $388.7 18 Net property, plant, equipment and other 19 $1,737.5 $1,824.4 $1,915.6 6 $2,011.4 $2,112.0 $2,217.6 $2,328.5 $2,444.9 $2,567.1 $2,695.5 20 Non-interest bearing current liabilities $543.0 $570.1 $598.6 $628.6 $660.0 $693.0 $727.6 $764.0 $802.2 $842.3 Curr assets/Sales 27.5% 27.5% 27.5% 27.5% 27.5% 27.5% 27.5% 27.5% 27.5% 27.5% NIBCL/Sales 12.5% 12.5% 12.5% 12.5% 12.5% 12.5% 12.5% 12.5% 12.5% 12.5% NPPE, other/Sales 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 25 40.0% 40.0% 40.0% 39 D Exhibit 5 Exhibit 6 Exhibit 8 Exhibit 9 Exhibit 10 Exhibit 11 + Ready Average: 1180.579529 Count: 180 Sum: 190073.3042 - O + 100% Spreadsheet_...xIsx Hershey Que..docx Show All 10 W XP_ LA WExcel File Edit View Insert Format Tools Data Window Help 4 2) 100% 27. Tue Dec 10 11:23 PM Sammy Sosa Q = Spreadsheet_Hershey Foods_F1409X (2) Q. Search Sheet Home Insert Page Layout Formulas Data Review View Locked Up do Cut Lil Durk - Love Songs 4 the Streets 2 Arial 10 A- A Wrap Text General Copy Paste A + Merge & Center $ % ) 70 -00 Conditional Format Cell Insert Delete Format Clear Sort & Format Formatting as Table Styles Filter A1 X V fx A B C D E F G H 1 J K L M N P Q R S T U V w Hershey Foods Corp. Historical Financial Statements Income Statement ($ millions) 1996 1997 1998 1999 2000 2001 Sale 3,989.3 $ 4,302.2 $ 4,435.6 $ 3,970.9 $ 4,221.0 $ 4,137.2 8 Cost of sales 2,302.1 2,488.9 2.625.1 2,354.7 2,471.2 2,668.5 Gross profit 1,687.2 1,813.3 1,810.6 1,616.2 1,749.8 .468.7 10 Gross margin 42 29% 42 156 40.82% 40.70% 41.46% 35.50%% 11 12 Selling, marketing, and administrative 1,124.1 1, 183.1 1,167.8 1,057.8 1,127.2 1,056.1 13 Operating income 563.1 630.2 642.8 558.4 622.7 $12.6 14 Operating margin 14. 12% 14.65% 14.49% 14.06% 14.75%% 9.97% 15 16 Gain (loss) on sale of business (35.4 243.8 17 Earnings before interest and tax 527.8 630.2 342.8 802.1 622.7 412.6 18 19 Interest expense 48.0 76. 85. 74.3 76.0 69.1 Pretax income 654.0 557.1 727.9 546.6 343.5 21 22 Income taxes 206.6 217.7 216.1 267.6 212.1 136.4 23 5 273.2 $ 336.3 $ 341.0 $ 460.3 $ 334.5 $ 207.1 24 25 26 27 Balance Sheet 30 1997 1998 1999 2000 2001 31 Cash and cash equivalents 61.4 54.2 39.0 $ 118.1 32.0 134.1 32 Accounts receivable trade 294.6 360.8 451.3 352.8 379.7 361.7 33 Inventories 475.0 505.5 493.2 302.2 605.2 512. 34 Other current assets 155.2 114.2 150.4 207.0 278.5 159.5 35 Total current assets 986.2 1,034.8 1,134.0 1,280.0 1,295.3 1,167.5 36 Property, plant, and equipment, net ,601.9 1,648.2 1,648.1 1,510.5 1,585.4 1,534.9 37 Goodwill 566.0 551.8 530.5 450.2 474.4 388.7 38 Other tangible assets 30.7 56.3 91.6 106.0 92.6 156.3 Exhibit 5 Exhibit 6 Exhibit 8 Exhibit 9 Exhibit 10 Exhibit 11 + Ready - O + 100% Spreadsheet_...xIsx Hershey Que...docx Show All 10 W X P_ LA WExcel File Edit View Insert Format Tools Data Window Help 4 2) 100% 27 Tue Dec 10 11:23 PM Sammy Sosa Q = Spreadsheet Hershey Foods_F1409X (2) Q . Search Sheet Home Insert Page Layout Formulas Data Review View '+ Share ~ To Cut General 14#1 AutoSum Arial 10 A- A Wrap Text Copy Fill Paste Merge & Center . $ % ) 38 -00 Conditional Format Cell Insert Delete Format Format Formatting as Table Clear Sort & Styles Filter J49 X V fx B C D E F G H I J K L M N P Q R S T U V w Earnings before interest and tax 527.8 630.2 642.B 802.1 622.7 412.6 18 19 Interest expense 48.0 76. 85. 74.3 76. 69.1 20 Pretax income 479.7 654.0 557.1 27.9 546.6 343.5 21 22 Income taxes 206.6 217. 216.1 267.6 212.1 136.4 Net income $ 273.2 $ 336.3 $ 341.0 $ 460.3 $ 334.5 $ 207.1 24 25 26 27 Balance Sheet 28 29 30 1996 1997 1998 1999 2000 2001 31 Cash and cash equivalents 61.4 $ $ 39.0 $ 118.1 $ 32.0 $ 134.1 32 Accounts receivable trade 294.6 360.8 451.3 352.8 379.7 361.7 Inventories 475.0 505.5 493.2 602.2 605.2 512.1 34 Other current assets 155.2 114.2 150.4 207.0 278.5 159.5 35 Total current assets 986.2 1,034.8 1,134.0 1,280.0 1,295.3 ,167.5 36 Property, plant, and equipment, net 1,601.9 .648.2 1,648.1 1,510.5 1,585.4 1,534.9 37 Goodwill 566.0 551.8 530.5 450.2 474.4 388.7 38 Other tangible assets 30.7 56.3 91.6 106.0 92.6 156.3 39 Total assets $3,184.8 $ 3,291.2 $ 3,404.1 $ 3,346.7 $ 3,447.8 $ 3,247.4 40 41 Accounts payable $ 134.2 $ 146.9 $ 156.9 $ 136.6 $ 149.2 $ 133.0 42 Accrued liabilities 368.1 391.2 311.9 364.7 359.5 165.5 43 Short-term debt 315.0 346.0 211.6 258.1 7.9 44 Total current liabilities 817.3 795.7 B14.8 712.8 766.9 606.4 45 Long-term debt 655.3 1,029.1 879.1 878.2 877.7 877.0 46 Other long-term liabilities 327.2 346.5 346.8 330.9 327.7 361.0 47 Deferred income taxes 224.0 267 .1 321.1 326.0 300.5 255.8 48 Total liabilities 2,023.8 2,438.4 2,361.8 2,248.0 2,272.7 2,100.2 49 | Stockholders' equity 1,161.0 852.8 1,042.3 1,098.6 1,175.0 1,147.2 50 Total liabilities and equity $3,184.8 $ 3,291.2 $ 3,404.1 $ 3,346.7 $ 3,447.8 $ 3,247.4 51 52 53 54 55 Exhibit 5 Exhibit 6 Exhibit 8 Exhibit 9 Exhibit 10 Exhibit 11 + Ready - O + 100% Hershey Que..docx Show All Spreadsheet_...xIsx 10 W X P_ LA W