HERSHEY CASE STUDY

I AM LOOKING FOR THE EQUATIONS ON HOW TO CALCULATE BOX B4. FCF, AND THE NUMBERS IN BOX B5 - THE FINANCIALS FOR HERSHEY ARE PROVIDED BELOW - I HAVE EVERYTHING ELSE CALCULATED. THANKS!

$1,050.00 $2,584.90 -$260.00 $894 $2,681 $25 $813 $2,630 $88 $753 $2,510 $128 $738 $2,477 $207 $775 $2,601 $217 B4. Free Cash Flows Net operating working capital Total net operating capital FCF = NOPAT - A net op capital B5. Estimated Intrinsic Value Target WACC OP ratio: NOPAT/Sales CR ratio: (Total op. cap.)/Sales ROIC: NOPAT/(Total op. cap.) Growth in FCF 6.00% 61.00% 9.80% 10.97% 10.97% 6.00% 6.00% 61.00% 61.00% 9.80% 9.80% 0.00% 252.00% 10.97% 6.00% 61.00% 9.80% 45.10% 10.97% 6.00% 61.00% 9.80% 61.70% 10.97% 6.00% 61.00% 9.80% 5.00% Value of Operations (12/31/2021) HV2021 = FCF2021(1+gl) (WACC-g!) = $1,977.12 Estimated intrinsic stock price (12/31/201 Value of operations + ST Investements Estimated total intrinsic value - All debt - Preferred stock Estimated intrinsic value of equity + Number of shares Estimate intrinsic stock price $1,628 $0 $1,628 $1,480 $100 -$33,372.04 10864 -$3.07 Value of Operations (12/31/2016) Present Value of HV + Present Value of FCF Value of operations = $1,174.91 $453.05 $1,627.96 Bidding Companies' Financial Data Beta Credit rating Stock price 9/17/2002 Shares outstanding (millions) Book value of debt (5 millions) Hershey 0.55 A+ 73.8 134.2 884.9 Wrigley 0.70 N/A 49.5 225.0 0.0 Nestle 0.70 AAA 51.9 1550.6 19500.0 Cadbury Schwepes 0.60 BBB 28.5 502.5 3543.0 US Treasuries Historical Yield Curve 5 year 10 year 30 year 8/19/2002 3.38% 4.28% 5.05% 9/17/2002) 2.90% 3.82% 4.73% Corporate Bonds Hershey Maturity 8/15/2012 2/15/2021 2/15/2027 Price 117.71 137.07 119.37 Yield 4.691 5.557 5.730 Wrigley No debt Nestle Maturity 6/15/2025 Price 125.39 Yield 5.835 Cadbury Scweppest Maturity Price 12/15/2005 100.569 Yield 4.306 Cadbury Schweppes bonds in British Sterling. All other bonds denominated in US dollars. Hershey Foods Corp. Industry Comparables Book Common Value of Shares Stock Market Enterprise debt Outstanding Price Cap Debt/ EBIT Value/EBIT Company Name Exchange (Smillion) (millions) (9/17/02) (Smillion) Equity (Smillion) Multiple Cadbury Schweppes PLC -ADS INYSE 3,543 503 28.5 14,296 0.25 1,501 11.9 Hershey Foods Corp NYSE 885 134 73.8 9,905 0.09 413 26.1 Jm Smucker Co NYSE 150 50 37.6 1,862 0.08 59 33.9 Nestle SA -Spon ADR OTC 19,500 1,551 51.9 80,399 0.24 3,007 33.2 Sanfilippo John B & Son NSDO 52 9 6.7 61 0.85 18 6.1 Sherwood Brands Inc AMEX 1 4.5 17 0.07 1 17.2 Tootsie Roll Industries Inc NYSE 8 52 31.0 1,610 0.00 101 16.1 Wrigley (Wm) Jr Co NYSE 0 225 49.5 11,135 0.00 583 19.1 4 Hershey Foods Corp. Forecasted Financial Statements as a Standalone (5 millions) Income Statement Sales Cost of sales Selling, general, & administrative Operating income (EBIT) Taxes Net operating profit after tax (NOPAT) 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 $4,343.9 $4,561.0 $4,789.1 $5,028.5 $5,280.0 $5,544.0 $5,821.2 $6,112.2 $6,417.8 $6,738.7 $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 $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 $638.5 $716.1 $799.8 $839.8 $881.8 $925.8 $972.1 $1,020.7 $1,071.8 $1,125.4 $252.2 $282.9 $315.9 $331.7 $348.3 $365.7 $384.0 $403.2 $423.4 $444.5 $386.3 $433.2 $483.9 $508.1 $533.5 $560.1 $588.1 $617.5 $648.4 $680.8 Sales Growth EBIT/Sales 5.0% 14.7% 5.0% 15.7% 5.0% 16.7% 5.0% 16.7% 5.0% 16.7% 5.0% 16.7% 5.0% 16.7% 5.0% 16.7% 5.0% 16.7% 5.0% 16.7% Balance Sheet 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 Goodwill $388.7 $388.7 $388.7 $388.7 $388.7 $388.7 $388.7 $388.7 $388.7 $388.7 Net property, plant, equipment and other $1,737.5 $1,824.4 $1,915.6 $2,011.4 $2,112.0 $2,217.6 $2,328.5 $2,444.9 $2,567.1 $2,695.5 Non-interest bearing current liabilities $543.0 $570.1 $598.6 $628.6 $660.0 $693.0 $727.6 $764.0 $802.2 $842.3 Curr assets/Sales 27.5% 27.5% 27.5% 27.5% 27.5% 27.5% 27.5% 27.5% 27.5% 27.5% NIBCL/Sales 12.5% 12.5% 12.5% 12.5% 12.5% 12.5% 12.5% 12.5% 12.5% 12.5% NPPE, other/Sales 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% Hershey Foods Corp. Historical Financial Statements Income Statement ($ millions) Sales Cost of sales Gross profit Gross margin 1996 1997 1998 1999 2000 2001 $3,989.3 $4,302.2 $4,435.6 $3,970.9 $4,221.0 $4,137.2 2,302.1 2,488.9 2,625.1 2,354.7 2,471.2 2,668.5 1,6872 1,813.3 1,810.6 1,616.2 1,749.8 1,468.7 42.29% 42.15% 40.82% 40.70% 41.46% 35.50% 1,124.1 563.1 14.12% 1,183.1 630.2 14.65% 1,167.8 642.8 14.49% 1,057.8 558.4 14.06% 1,127.2 622.7 14.75% 1,056.1 412.6 9.97% Selling, marketing, and administrative Operating income Operating margin Gain (loss) on sale of business Earnings before interest and tax (35.4) 527.8 243.8 802.1 630.2 642.8 622.7 412.6 Interest expense Pretax income 48.0 479.7 76.3 554.0 85.7 557.1 74.3 727.9 76.0 546.6 69.1 343.5 Income taxes Net income 206.6 217.7 216.1 267.6 212.1 136.4 $ 273.2 $ 336.3 $ 341.0 $ 460.3 $ 334.5 $ 207.1 Balance Sheet Cash and cash equivalents Accounts receivable trade Inventories Other current assets Total current assets Property, plant, and equipment, net Goodwill Other tangible assets Total assets 1996 1997 1998 1999 2000 2001 $ 61.4 $ 54.2 $ 39.0 $ 118.1 $ 32.0 $ 134.1 294.6 360.8 451.3 352.8 379.7 361.7 475.0 505.5 493.2 6022 605.2 512.1 155.2 114.2 150.4 207.0 278.5 159.5 986.2 1,034.8 1,134.0 1,280.0 1,295.3 1,167.5 1,601.9 1,648.2 1,648.1 1,510.5 1,585.4 1,534.9 566.0 551.8 530.5 450.2 474.4 388.7 30.7 56.3 91.6 106.0 92.6 156.3 $3,184.8 $3,291.2 $3,404.1 $3,346.7 $3,447.8 $3,247.4 Accounts payable Accrued liabilities Short-term debt Total current liabilities Long-term debt Other long-term liabilities Deferred income taxes Total liabilities Stockholders' equity Total liabilities and equity $ 134.2 $ 146.9 $ 156.9 $ 136.6 $ 149.2 $ 133.0 368.1 391.2 311.9 364.7 359.5 465.5 315.0 257.5 346.0 211.6 258.1 7.9 817.3 795.7 814.8 712.8 766.9 606.4 655.3 1,029.1 879.1 878.2 877.7 877.0 3272 346.5 346.8 330.9 327.7 361.0 224.0 267.1 321.1 326.0 300.5 255.8 2,023.8 2,438.4 2,361.8 2,248.0 2,272.7 2,100.2 1,161.0 852.8 1,042.3 1,098.6 1,175.0 1,147.2 $3,184.8 $3,291.2 $3,404.1 $3,346.7 $3,447.8 $3,247.4 $1,050.00 $2,584.90 -$260.00 $894 $2,681 $25 $813 $2,630 $88 $753 $2,510 $128 $738 $2,477 $207 $775 $2,601 $217 B4. Free Cash Flows Net operating working capital Total net operating capital FCF = NOPAT - A net op capital B5. Estimated Intrinsic Value Target WACC OP ratio: NOPAT/Sales CR ratio: (Total op. cap.)/Sales ROIC: NOPAT/(Total op. cap.) Growth in FCF 6.00% 61.00% 9.80% 10.97% 10.97% 6.00% 6.00% 61.00% 61.00% 9.80% 9.80% 0.00% 252.00% 10.97% 6.00% 61.00% 9.80% 45.10% 10.97% 6.00% 61.00% 9.80% 61.70% 10.97% 6.00% 61.00% 9.80% 5.00% Value of Operations (12/31/2021) HV2021 = FCF2021(1+gl) (WACC-g!) = $1,977.12 Estimated intrinsic stock price (12/31/201 Value of operations + ST Investements Estimated total intrinsic value - All debt - Preferred stock Estimated intrinsic value of equity + Number of shares Estimate intrinsic stock price $1,628 $0 $1,628 $1,480 $100 -$33,372.04 10864 -$3.07 Value of Operations (12/31/2016) Present Value of HV + Present Value of FCF Value of operations = $1,174.91 $453.05 $1,627.96 Bidding Companies' Financial Data Beta Credit rating Stock price 9/17/2002 Shares outstanding (millions) Book value of debt (5 millions) Hershey 0.55 A+ 73.8 134.2 884.9 Wrigley 0.70 N/A 49.5 225.0 0.0 Nestle 0.70 AAA 51.9 1550.6 19500.0 Cadbury Schwepes 0.60 BBB 28.5 502.5 3543.0 US Treasuries Historical Yield Curve 5 year 10 year 30 year 8/19/2002 3.38% 4.28% 5.05% 9/17/2002) 2.90% 3.82% 4.73% Corporate Bonds Hershey Maturity 8/15/2012 2/15/2021 2/15/2027 Price 117.71 137.07 119.37 Yield 4.691 5.557 5.730 Wrigley No debt Nestle Maturity 6/15/2025 Price 125.39 Yield 5.835 Cadbury Scweppest Maturity Price 12/15/2005 100.569 Yield 4.306 Cadbury Schweppes bonds in British Sterling. All other bonds denominated in US dollars. Hershey Foods Corp. Industry Comparables Book Common Value of Shares Stock Market Enterprise debt Outstanding Price Cap Debt/ EBIT Value/EBIT Company Name Exchange (Smillion) (millions) (9/17/02) (Smillion) Equity (Smillion) Multiple Cadbury Schweppes PLC -ADS INYSE 3,543 503 28.5 14,296 0.25 1,501 11.9 Hershey Foods Corp NYSE 885 134 73.8 9,905 0.09 413 26.1 Jm Smucker Co NYSE 150 50 37.6 1,862 0.08 59 33.9 Nestle SA -Spon ADR OTC 19,500 1,551 51.9 80,399 0.24 3,007 33.2 Sanfilippo John B & Son NSDO 52 9 6.7 61 0.85 18 6.1 Sherwood Brands Inc AMEX 1 4.5 17 0.07 1 17.2 Tootsie Roll Industries Inc NYSE 8 52 31.0 1,610 0.00 101 16.1 Wrigley (Wm) Jr Co NYSE 0 225 49.5 11,135 0.00 583 19.1 4 Hershey Foods Corp. Forecasted Financial Statements as a Standalone (5 millions) Income Statement Sales Cost of sales Selling, general, & administrative Operating income (EBIT) Taxes Net operating profit after tax (NOPAT) 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 $4,343.9 $4,561.0 $4,789.1 $5,028.5 $5,280.0 $5,544.0 $5,821.2 $6,112.2 $6,417.8 $6,738.7 $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 $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 $638.5 $716.1 $799.8 $839.8 $881.8 $925.8 $972.1 $1,020.7 $1,071.8 $1,125.4 $252.2 $282.9 $315.9 $331.7 $348.3 $365.7 $384.0 $403.2 $423.4 $444.5 $386.3 $433.2 $483.9 $508.1 $533.5 $560.1 $588.1 $617.5 $648.4 $680.8 Sales Growth EBIT/Sales 5.0% 14.7% 5.0% 15.7% 5.0% 16.7% 5.0% 16.7% 5.0% 16.7% 5.0% 16.7% 5.0% 16.7% 5.0% 16.7% 5.0% 16.7% 5.0% 16.7% Balance Sheet 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 Goodwill $388.7 $388.7 $388.7 $388.7 $388.7 $388.7 $388.7 $388.7 $388.7 $388.7 Net property, plant, equipment and other $1,737.5 $1,824.4 $1,915.6 $2,011.4 $2,112.0 $2,217.6 $2,328.5 $2,444.9 $2,567.1 $2,695.5 Non-interest bearing current liabilities $543.0 $570.1 $598.6 $628.6 $660.0 $693.0 $727.6 $764.0 $802.2 $842.3 Curr assets/Sales 27.5% 27.5% 27.5% 27.5% 27.5% 27.5% 27.5% 27.5% 27.5% 27.5% NIBCL/Sales 12.5% 12.5% 12.5% 12.5% 12.5% 12.5% 12.5% 12.5% 12.5% 12.5% NPPE, other/Sales 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% Hershey Foods Corp. Historical Financial Statements Income Statement ($ millions) Sales Cost of sales Gross profit Gross margin 1996 1997 1998 1999 2000 2001 $3,989.3 $4,302.2 $4,435.6 $3,970.9 $4,221.0 $4,137.2 2,302.1 2,488.9 2,625.1 2,354.7 2,471.2 2,668.5 1,6872 1,813.3 1,810.6 1,616.2 1,749.8 1,468.7 42.29% 42.15% 40.82% 40.70% 41.46% 35.50% 1,124.1 563.1 14.12% 1,183.1 630.2 14.65% 1,167.8 642.8 14.49% 1,057.8 558.4 14.06% 1,127.2 622.7 14.75% 1,056.1 412.6 9.97% Selling, marketing, and administrative Operating income Operating margin Gain (loss) on sale of business Earnings before interest and tax (35.4) 527.8 243.8 802.1 630.2 642.8 622.7 412.6 Interest expense Pretax income 48.0 479.7 76.3 554.0 85.7 557.1 74.3 727.9 76.0 546.6 69.1 343.5 Income taxes Net income 206.6 217.7 216.1 267.6 212.1 136.4 $ 273.2 $ 336.3 $ 341.0 $ 460.3 $ 334.5 $ 207.1 Balance Sheet Cash and cash equivalents Accounts receivable trade Inventories Other current assets Total current assets Property, plant, and equipment, net Goodwill Other tangible assets Total assets 1996 1997 1998 1999 2000 2001 $ 61.4 $ 54.2 $ 39.0 $ 118.1 $ 32.0 $ 134.1 294.6 360.8 451.3 352.8 379.7 361.7 475.0 505.5 493.2 6022 605.2 512.1 155.2 114.2 150.4 207.0 278.5 159.5 986.2 1,034.8 1,134.0 1,280.0 1,295.3 1,167.5 1,601.9 1,648.2 1,648.1 1,510.5 1,585.4 1,534.9 566.0 551.8 530.5 450.2 474.4 388.7 30.7 56.3 91.6 106.0 92.6 156.3 $3,184.8 $3,291.2 $3,404.1 $3,346.7 $3,447.8 $3,247.4 Accounts payable Accrued liabilities Short-term debt Total current liabilities Long-term debt Other long-term liabilities Deferred income taxes Total liabilities Stockholders' equity Total liabilities and equity $ 134.2 $ 146.9 $ 156.9 $ 136.6 $ 149.2 $ 133.0 368.1 391.2 311.9 364.7 359.5 465.5 315.0 257.5 346.0 211.6 258.1 7.9 817.3 795.7 814.8 712.8 766.9 606.4 655.3 1,029.1 879.1 878.2 877.7 877.0 3272 346.5 346.8 330.9 327.7 361.0 224.0 267.1 321.1 326.0 300.5 255.8 2,023.8 2,438.4 2,361.8 2,248.0 2,272.7 2,100.2 1,161.0 852.8 1,042.3 1,098.6 1,175.0 1,147.2 $3,184.8 $3,291.2 $3,404.1 $3,346.7 $3,447.8 $3,247.4