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H.J. Heinz 2009 2010 Comparable firms, 2010 Kraft Campbell Del Monte Source Weighted Average cost of Capital Source Component Weights EQUITY Shares outstanding (in millions) Exhibit 12.2 Share price Exhibit 12.3 Market Value of Equity Calculate Equity as % of total capital (row 17) Calculate Exhibit 12.4 Exhibit 12.4 Calculate Calculate DEBT Short-term debt Current portion of LTD Long-term debt Book value of debt Debt as % of total capital (row 17) Exhibit 12.2 Exhibit 12.2 Exhibit 12.2 Total Calculate Exhibit 12.4 Calculate TOTAL CAPITAL (BV DEBT + MV EQUI Total Total Component Costs COST OF EQUITY Beta Market Risk Premium (Rm - Rf) Risk-free rate (RF) Cost of Equity p. 192ote 5 Case, p. 192 Exhibit 12.3 Calculate Exhibit 12.4 Exhibit 12.4 Exhibit 12.4 Calculate Baa Baa BBB- COST OF DEBT Standard & Poor's bond rating Yield on long-term debt Tax rate Exhibit 12.3 Exhibit 12.3 Given BB Exhibit 12.4 Exhibit 12.4 30.00% Given 30.00% 30.00% 30.00% 30.00% WACC Calculate Calculate Exhibit 1 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) Revenue Costs of goods sold Gross profit 2008 9,885,556 6,233,420 3,652,136 2009 10,011,331 6,442,075 3,569,256 2010 10,494,983 6,700,677 3,794,306 SG&A expense Operating income 2,081,801 1,570,335 2,066,810 1,502,446 2,235,078 1,559,228 Interest expense Other income (expense) Income before taxes 323,289 (16,283) 1,230,763 275,485 92,922 1,319,883 250,574 (18,200) 1,290,454 Income taxes Net income after taxes 372,587 858,176 375,483 944,400 358,514 931,940 Adjustments to net income Net income (13,251) 844,925 (21,328) 923,072 (67,048) 864,892 2.89 2.71 Diluted EPS Dividends per share 2.61 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) Cash Net receivables Inventories Other current assets Total current assets 2008 617,687 1,161,481 1,378,216 168,182 3,325,566 2009 373,145 1,171,797 1,237,613 162,466 2,945,021 2010 483,253 1,045,338 1,249,127 273,407 3,051,125 Net fixed assets Other noncurrent assets Total assets 2,104,713 5,134,764 10,565,043 1,978,302 4,740,861 9,664,184 2,091,796 4,932,790 10,075,711 Accounts payable Short-term debt Current portion of long-term debt Other current liabilities Total current liabilities 1,247,479 124,290 328,418 969,873 2,670,060 1,113,307 61,297 4,341 883,901 2,062,846 1,129,514 43,853 15,167 986,825 2,175,359 Long-term debt Other noncurrent liabilities 4,730,946 1,276,217 6,007,163 5,076,186 1,246,047 6,322,233 4,559,152 1,392,704 5,951,856 Equity Total liabilities and equity 1,887,820 10,565,043 1,279,105 9,664,184 1,948,496 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 2003 2004 1-year 1.22% 1.55% 5-year 2.85% 3.63% 10-year 3.89% 4.53% 30-year) 4.79% 5.31% Moody's Aaa 5.53% 5.87% Moody's Baa 6.65% 6.58% 3-month commercial paper 1.21% 1.08% Heinz Capital Market Prices of Typical Issues 2005 2006 2007 3.33% 4.98% 4.89% 3.90% 4.92% 4.51% 4.21% 5.07% 4.63% 4.61% 5.17% 4.89% 5.21% 5.95% 5.40% 5.97% 6.74% 6.31% 2.97% 4.90% 5.22% 2008 1.85% 3.03% 3.77% 4.49% 5.51% 6.87% 1.91% 2009 0.49% 2.02% 3.16% 4.05% 5.45% 8.24% 0.22% 2010 0.41% 2.43% 3.69% 4.53% 5.13% 6.07% 0.24% 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) 2009 2010 $34.42 $46.87 91.4 116.9 116.5 113.7 (1) 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. Exhibit 4 H. J. HEINZ: ESTIMATING THE COST OF CAPITAL IN UNCERTAIN TIMES Comparable Firm Data Campbell Soup Del Monte Kraft Financial Summary Revenues (in millions of dollars) Book value of equity (in millions of dollars) Book value of debt (in millions of dollars) 40,386 25,972 18,990 7,589 728 3,739 1,827 1,290 2,624 0.65 0.55 363 Market Data Beta shares outstanding (in millions of dollars) Share price (dollars as of close April 30, 2010) Typical Standard & Poor's bond rating Representative yield on long-term debt 0.70 182 15.11 35.64 1,735 29.90 BBB- 5.12% A BB 4.36% 6.19% Data sources: Value Line; H. J. Heinz SEC filings, 2008-10; case writer estimates; Morningstar. 0 10 20 30 40 50 60 7/2/2005 5/2/2005 Plot Area Price ---- Normalized Index 9/2/2005 11/2/2005 1/2/2006 3/2/2006 5/2/2006 7/2/2006 9/2/2006 11/2/2006 1/2/2007 3/2/2007 5/2/2007 7/2/2007 9/2/2007 11/2/2007 1/2/2008 3/2/2008 5/2/2008 7/2/2008 9/2/2008 11/2/2008 1/2/2009 3/2/2009 5/2/2009 7/2/2009 9/2/2009 11/2/2009 Heinz Stock Price and Normalized S&P 500 Index Tanahon 1/2/2010 hasan httler 3/2/2010 wahy H.J. Heinz 2009 2010 Comparable firms, 2010 Kraft Campbell Del Monte Source Weighted Average cost of Capital Source Component Weights EQUITY Shares outstanding (in millions) Exhibit 12.2 Share price Exhibit 12.3 Market Value of Equity Calculate Equity as % of total capital (row 17) Calculate Exhibit 12.4 Exhibit 12.4 Calculate Calculate DEBT Short-term debt Current portion of LTD Long-term debt Book value of debt Debt as % of total capital (row 17) Exhibit 12.2 Exhibit 12.2 Exhibit 12.2 Total Calculate Exhibit 12.4 Calculate TOTAL CAPITAL (BV DEBT + MV EQUI Total Total Component Costs COST OF EQUITY Beta Market Risk Premium (Rm - Rf) Risk-free rate (RF) Cost of Equity p. 192ote 5 Case, p. 192 Exhibit 12.3 Calculate Exhibit 12.4 Exhibit 12.4 Exhibit 12.4 Calculate Baa Baa BBB- COST OF DEBT Standard & Poor's bond rating Yield on long-term debt Tax rate Exhibit 12.3 Exhibit 12.3 Given BB Exhibit 12.4 Exhibit 12.4 30.00% Given 30.00% 30.00% 30.00% 30.00% WACC Calculate Calculate Exhibit 1 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) Revenue Costs of goods sold Gross profit 2008 9,885,556 6,233,420 3,652,136 2009 10,011,331 6,442,075 3,569,256 2010 10,494,983 6,700,677 3,794,306 SG&A expense Operating income 2,081,801 1,570,335 2,066,810 1,502,446 2,235,078 1,559,228 Interest expense Other income (expense) Income before taxes 323,289 (16,283) 1,230,763 275,485 92,922 1,319,883 250,574 (18,200) 1,290,454 Income taxes Net income after taxes 372,587 858,176 375,483 944,400 358,514 931,940 Adjustments to net income Net income (13,251) 844,925 (21,328) 923,072 (67,048) 864,892 2.89 2.71 Diluted EPS Dividends per share 2.61 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) Cash Net receivables Inventories Other current assets Total current assets 2008 617,687 1,161,481 1,378,216 168,182 3,325,566 2009 373,145 1,171,797 1,237,613 162,466 2,945,021 2010 483,253 1,045,338 1,249,127 273,407 3,051,125 Net fixed assets Other noncurrent assets Total assets 2,104,713 5,134,764 10,565,043 1,978,302 4,740,861 9,664,184 2,091,796 4,932,790 10,075,711 Accounts payable Short-term debt Current portion of long-term debt Other current liabilities Total current liabilities 1,247,479 124,290 328,418 969,873 2,670,060 1,113,307 61,297 4,341 883,901 2,062,846 1,129,514 43,853 15,167 986,825 2,175,359 Long-term debt Other noncurrent liabilities 4,730,946 1,276,217 6,007,163 5,076,186 1,246,047 6,322,233 4,559,152 1,392,704 5,951,856 Equity Total liabilities and equity 1,887,820 10,565,043 1,279,105 9,664,184 1,948,496 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 2003 2004 1-year 1.22% 1.55% 5-year 2.85% 3.63% 10-year 3.89% 4.53% 30-year) 4.79% 5.31% Moody's Aaa 5.53% 5.87% Moody's Baa 6.65% 6.58% 3-month commercial paper 1.21% 1.08% Heinz Capital Market Prices of Typical Issues 2005 2006 2007 3.33% 4.98% 4.89% 3.90% 4.92% 4.51% 4.21% 5.07% 4.63% 4.61% 5.17% 4.89% 5.21% 5.95% 5.40% 5.97% 6.74% 6.31% 2.97% 4.90% 5.22% 2008 1.85% 3.03% 3.77% 4.49% 5.51% 6.87% 1.91% 2009 0.49% 2.02% 3.16% 4.05% 5.45% 8.24% 0.22% 2010 0.41% 2.43% 3.69% 4.53% 5.13% 6.07% 0.24% 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) 2009 2010 $34.42 $46.87 91.4 116.9 116.5 113.7 (1) 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. Exhibit 4 H. J. HEINZ: ESTIMATING THE COST OF CAPITAL IN UNCERTAIN TIMES Comparable Firm Data Campbell Soup Del Monte Kraft Financial Summary Revenues (in millions of dollars) Book value of equity (in millions of dollars) Book value of debt (in millions of dollars) 40,386 25,972 18,990 7,589 728 3,739 1,827 1,290 2,624 0.65 0.55 363 Market Data Beta shares outstanding (in millions of dollars) Share price (dollars as of close April 30, 2010) Typical Standard & Poor's bond rating Representative yield on long-term debt 0.70 182 15.11 35.64 1,735 29.90 BBB- 5.12% A BB 4.36% 6.19% Data sources: Value Line; H. J. Heinz SEC filings, 2008-10; case writer estimates; Morningstar. 0 10 20 30 40 50 60 7/2/2005 5/2/2005 Plot Area Price ---- Normalized Index 9/2/2005 11/2/2005 1/2/2006 3/2/2006 5/2/2006 7/2/2006 9/2/2006 11/2/2006 1/2/2007 3/2/2007 5/2/2007 7/2/2007 9/2/2007 11/2/2007 1/2/2008 3/2/2008 5/2/2008 7/2/2008 9/2/2008 11/2/2008 1/2/2009 3/2/2009 5/2/2009 7/2/2009 9/2/2009 11/2/2009 Heinz Stock Price and Normalized S&P 500 Index Tanahon 1/2/2010 hasan httler 3/2/2010 wahy