- What is your best estimate of the WACC for Kraft Foods, Campbell Soup Company, and Del Monte Foods? Show all values used in your calculations. How do these WACCs influence your thinking about the WACC for Heinz?
B 1 Exhibit 1 2 H. J. HEINZ: ESTIMATING THE COST OF CAPITAL IN UNCERTAIN TIMES 3 Income Statement 4. (numbers in thousands except per-share amounts; fiscal year ends in April) 5 6 2008 2009 2010 7 Revenue 9,885,556 10,011,331 10,494,983 8 Costs of goods sold 6,233,420 6,442,075 6,700,677 9 Gross profit 3,652,136 3,569,256 3,794,306 10 11 SG&A expense 2,081,801 2,066,810 2,235,078 12 Operating income 1,570,335 1,502,446 1,559,228 13 14 Interest expense 323,289 275,485 250,574 15 Other income (expense) (16,283) 92,922 (18,200) 16 Income before taxes 1,230,763 1,319,883 1,290,454 17 18 Income taxes 372,587 375,483 358,514 19 Net income after taxes 858,176 944,400 931,940 20 21 Adjustments to net income (13,251) (21,328) (67,048) 22 Net income 844,925 923,072 864,892 23 24 Diluted EPS 2.61 2.89 2.71 25 Dividends per share 1.52 1.66 1.68 26 27 Data Source: H. J. Heinz SEC filings, 2008-10. 28 1 2 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) 3 4 5 6 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 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 7 8 Cash 9 Net receivables 10 Inventories 11 Other current assets 12 Total current assets 13 14 Net fixed assets 15 Other noncurrent assets 16 Total assets 17 18 Accounts payable 19 Short-term debt 20 Current portion of long-term debt 21 Other current liabilities 22 Total current liabilities 23 24 Long-term debt 25 Other noncurrent liabilities 26 27 28 Equity 29 Total liabilities and equity 30 31 Shares outstanding (in millions of dollars) 32 33 Data source: H. J. Heinz SEC filings, 200810. 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 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 1,887,820 10,565,043 1,279,105 9,664,184 1,948,496 10,075,711 311.45 314.86 317.69 H 1 2 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) 3 4 5 2007 4.89% 4.51% 4.63% 4.89% 5.40% 6.31% 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% 8 Average Historic Yields 10 2003 2004 2005 2006 11 1-year 1.22% 1.55% 3.33% 4.98% 12 5-year 2.85% 3.63% 3.90% 4.92% 13 10-year 3.89% 4.53% 4.21% 5.07% 14 30-year 4.79% 5.31% 4.61% 5.17% 15 Moody's Aaa 5.53% 5.87% 5.21% 5.95% 16 Moody's Baa 6.65% 6.58% 5.97% 6.74% 17 3-month commercial paper 1.21% 1.08% 2.97% 4.90% 19 Heinz Capital Market Prices of Typical Issues 20 21 Heinz stock price 22 Bond price: 6.750% coupon, semiannual bond due 3/15/32 (Baa rated) 23 Bond price: 6.625% coupon, semiannual bond due 10/15/12 (Baa rated) 24 25 "The 20-year yield is used for 200305, when the 30-year was not issued. 26 Note that bond data were slightly modified for teaching purposes. 27 Data sources: Federal Reserve, Value Line, Morningstar, and case writer estimates. 2009 $34.42 91.4 2010 $46.87 116.9 113.7 116.5 1 2 3 Exhibit 4 H. J. HEINZ: ESTIMATING THE COST OF CAPITAL IN UNCERTAIN TIMES Comparable Firm Data 6 7 Del Monte 8 3,739 1,827 1,290 Campbell Kraft Soup 9 Financial Summary 10 Revenues (in millions of dollars) 40,386 7,589 11 Book value of equity (in millions of dollars) 25,972 728 12 Book value of debt (in millions of dollars) 18,990 2,624 13 14 Market Data 15 Beta 0.65 0.55 16 Shares outstanding (in millions of dollars) 1,735 363 17 Share price (dollars as of close April 30, 2010) 29.90 35.64 18 Typical Standard & Poor's bond rating BBB- A 19 Representative yield on long-term debt 5.12% 4.36% 20 21 Data sources: Value Line; H. J. Heinz SEC filings, 2008-10; case writer estimates; Morningstar. 0.70 182 15.11 BB 6.19% 22 B 1 Exhibit 1 2 H. J. HEINZ: ESTIMATING THE COST OF CAPITAL IN UNCERTAIN TIMES 3 Income Statement 4. (numbers in thousands except per-share amounts; fiscal year ends in April) 5 6 2008 2009 2010 7 Revenue 9,885,556 10,011,331 10,494,983 8 Costs of goods sold 6,233,420 6,442,075 6,700,677 9 Gross profit 3,652,136 3,569,256 3,794,306 10 11 SG&A expense 2,081,801 2,066,810 2,235,078 12 Operating income 1,570,335 1,502,446 1,559,228 13 14 Interest expense 323,289 275,485 250,574 15 Other income (expense) (16,283) 92,922 (18,200) 16 Income before taxes 1,230,763 1,319,883 1,290,454 17 18 Income taxes 372,587 375,483 358,514 19 Net income after taxes 858,176 944,400 931,940 20 21 Adjustments to net income (13,251) (21,328) (67,048) 22 Net income 844,925 923,072 864,892 23 24 Diluted EPS 2.61 2.89 2.71 25 Dividends per share 1.52 1.66 1.68 26 27 Data Source: H. J. Heinz SEC filings, 2008-10. 28 1 2 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) 3 4 5 6 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 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 7 8 Cash 9 Net receivables 10 Inventories 11 Other current assets 12 Total current assets 13 14 Net fixed assets 15 Other noncurrent assets 16 Total assets 17 18 Accounts payable 19 Short-term debt 20 Current portion of long-term debt 21 Other current liabilities 22 Total current liabilities 23 24 Long-term debt 25 Other noncurrent liabilities 26 27 28 Equity 29 Total liabilities and equity 30 31 Shares outstanding (in millions of dollars) 32 33 Data source: H. J. Heinz SEC filings, 200810. 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 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 1,887,820 10,565,043 1,279,105 9,664,184 1,948,496 10,075,711 311.45 314.86 317.69 H 1 2 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) 3 4 5 2007 4.89% 4.51% 4.63% 4.89% 5.40% 6.31% 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% 8 Average Historic Yields 10 2003 2004 2005 2006 11 1-year 1.22% 1.55% 3.33% 4.98% 12 5-year 2.85% 3.63% 3.90% 4.92% 13 10-year 3.89% 4.53% 4.21% 5.07% 14 30-year 4.79% 5.31% 4.61% 5.17% 15 Moody's Aaa 5.53% 5.87% 5.21% 5.95% 16 Moody's Baa 6.65% 6.58% 5.97% 6.74% 17 3-month commercial paper 1.21% 1.08% 2.97% 4.90% 19 Heinz Capital Market Prices of Typical Issues 20 21 Heinz stock price 22 Bond price: 6.750% coupon, semiannual bond due 3/15/32 (Baa rated) 23 Bond price: 6.625% coupon, semiannual bond due 10/15/12 (Baa rated) 24 25 "The 20-year yield is used for 200305, when the 30-year was not issued. 26 Note that bond data were slightly modified for teaching purposes. 27 Data sources: Federal Reserve, Value Line, Morningstar, and case writer estimates. 2009 $34.42 91.4 2010 $46.87 116.9 113.7 116.5 1 2 3 Exhibit 4 H. J. HEINZ: ESTIMATING THE COST OF CAPITAL IN UNCERTAIN TIMES Comparable Firm Data 6 7 Del Monte 8 3,739 1,827 1,290 Campbell Kraft Soup 9 Financial Summary 10 Revenues (in millions of dollars) 40,386 7,589 11 Book value of equity (in millions of dollars) 25,972 728 12 Book value of debt (in millions of dollars) 18,990 2,624 13 14 Market Data 15 Beta 0.65 0.55 16 Shares outstanding (in millions of dollars) 1,735 363 17 Share price (dollars as of close April 30, 2010) 29.90 35.64 18 Typical Standard & Poor's bond rating BBB- A 19 Representative yield on long-term debt 5.12% 4.36% 20 21 Data sources: Value Line; H. J. Heinz SEC filings, 2008-10; case writer estimates; Morningstar. 0.70 182 15.11 BB 6.19% 22
