H. J. HEINZ: ESTIMATING THE COST OF CAPITAL IN UNCERTAIN TIMES Income Statement (numbers in thousands except per-share amounts; fiscal year ends in April) 2008 2009 Revenue Costs of goods sold Gross profit 9,885,556 10,011,331 2010 10,494,983 6,233,420 6,442,075 6,700,677 3,652,136 3,569,256 3,794,306 SG&A expense Operating income 2,081,801 2,066,810 2,235,078 1,570,335 1,502,446 1,559,228 Interest expense 323,289 275,485 250,574 Other income (expense) (16,283) 92,922 (18,200) Income before taxes 1,230,763 1,319,883 1,290,454 Income taxes 372,587 375,483 358,514 Net income after taxes 858,176 944,400 931,940 Adjustments to net income (13,251) (21,328) (67,048) Net income 844,925 923,072 864,892 Growth 9.69% -6.64% Diluted EPS 2.61 2.89 2.71 Dividends per share 1.52 1.66 1.68 Data source: H. J. Heinz SEC filings, 2008-10. Exhibit 2 H. J. HEINZ: ESTIMATING THE COST OF CAPITAL IN UNCERTAIN TIMES Balance Sheet (numbers in thousands of dollars except per-share amounts; fiscal year ends in April) 2008 2009 Cash 617,687 373,145 2010 483,253 Net receivables 1,161,481 1,171,797 1,045,338 Inventories 1,378,216 1,237,613 1,249,127 Other current assets 168,182 162,466 273,407 Total current assets 3,325,566 2,945,021 3,051,125 Net fixed assets 2,104,713 1,978,302 2,091,796 Other noncurrent assets 5,134,764 4,740,861 4,932,790 Total assets 10,565,043 9,664,184 10,075,711 Accounts payable 1,247,479 1,113,307 1,129,514 Short-term debt 124,290 61,297 43,853 Current portion of long-term debt 328,418 4,341 15,167 Other current liabilities 969,873 883,901 986,825 Total current liabilities 2,670,060 2,062,846 2,175,359 Long-term debt 4,730,946 5,076,186 4,559,152 Other noncurrent liabilities 1,276,217 1,246,047 1,392,704 6,007,163 6,322,233 5,951,856 Equity 1,887,820 1,279,105 1,948,496 Total liabilities and equity 10,565,043 9,664,184 10,075,711 Shares outstanding (in millions of dollars) 311.45 314.86 317.69 Data source: H. J. Heinz SEC filings, 2008-10. Exhibit 3 H. J. HEINZ: ESTIMATING THE COST OF CAPITAL IN UNCERTAIN TIMES Capital Market Data (yields and prices as of the last trading day in April of the year indicated) Average Historic Yields 1-year 5-year 10-year 30-year(1) Moody's Aaa Moody's Baa 2003 2004 2005 2006 2007 2008 2009 2010 1.22% 1.55% 3.33% 4.98% 4.89% 1.85% 0.49% 0.41% 2.85% 3.63% 3.90% 4.92% 4.51% 3.03% 2.02% 2.43% 3.89% 4.53% 4.21% 5.07% 4.63% 3.77% 3.16% 3.69% 4.79% 5.31% 4.61% 5.17% 4.89% 4.49% 4.05% 4.53% 5.53% 5.87% 5.21% 5.95% 5.40% 5.51% 5.45% 5.13% 6.65% 6.58% 5.97% 6.74% 6.31% 6.87% 8.24% 6.07% 3-month commercial paper 1.21% 1.08% 2.97% 4.90% 5.22% 1.91% 0.22% 0.24% Heinz Capital Market Prices of Typical Issues Heinz stock price Bond price: 6.750% coupon, semiannual bond due 3/15/32 (Baa rated) Bond price: 6.625% coupon, semiannual bond due 10/15/12 (Baa rated) The 20-year yield is used for 2003-05, when the 30-year was not issued. Note that bond data were slightly modified for teaching purposes. Data sources: Federal Reserve, Value Line, Morningstar, and case writer estimates. 2009 2010 $34.42 $46.87 91.4 116.9 116.5 113.7 H. J. HEINZ: ESTIMATING THE COST OF CAPITAL IN UNCERTAIN TIMES Comparable Firm Data Campbell Del Kraft Soup Monte Financial Summary Revenues (in millions of dollars) 40,386 7,589 3,739 Book value of equity (in millions of dollars) 25,972 728 1,827 Book value of debt (in millions of dollars) 18,990 2,624 1,290 44,962 3,352 3,117 Market Data Beta 0.65 0.55 0.70 Shares outstanding (in millions of dollars) 1,735 363 182 Share price (dollars as of close April 30, 2010) 29.90 35.64 15.11 Typical Standard & Poor's bond rating BBB- A BB Representative yield on long-term debt 5.12% 4.36% 6.19% Data sources: Value Line; H. J. Heinz SEC filings, 2008-10; case writer estimates; Morningstar. 2. What was the WACC for Heinz at the start of fiscal year 2010? What was the WACC one year earlier? 3. What is your best estimate of the WACC for Kraft Foods, Campbell Soup Company, and Del Monte Foods? How do these WACCS influence your thinking about the WACC for Heinz?