Wild Wood Case Study

Wild Wood Cola & Munchies Company
Exhibit 1 - Selected Financial Information for Wild Wood Cola & Munchies Company, 2006 to 2011
(millions of dollars, except for per share data and financial ratios)
2006 2007 2008 2009 2010 2011

Sales $1,027.0 $1,059.9 $1,099.5 $1,180.4 $1,261.7 $1,364.6
Operating income (EBIT) $97.4 $79.1 $82.8 $108.2 $126.7 $151.3
Net income $64.6 $52.6 $53.8 $68.1 $79.9 $97.6
Earnings per share $1.91 $1.56 $1.59 $2.01 $2.36 $2.88
Dividends per share $0.45 $0.45 $0.45 $0.60 $0.70 $0.85
Cash & cash equivalents $108.1 $107.6 $106.4 $139.8 $164.8 $181.1
Total assets $668.5 $727.3 $770.4 $824.9 $894.7 $979.9
Debt $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Owners' equity (book value) $529.7 $567.4 $606.3 $654.6 $710.9 $780.1
Common shares outstanding (in millions) 33.7865 33.8076 33.8278 33.8581 33.8633 33.8834
Annual growth rate of sales n/a 3.2% 3.7% 7.4% 6.9% 8.2%
Annual growth rate of E.P.S. n/a -18.3% 1.9% 26.4% 17.4% 22.0%
Dividend payout ratio 23.6% 28.8% 28.3% 29.9% 29.7% 29.5%
Net profit margin 6.3% 5.0% 4.9% 5.8% 6.3% 7.2%

a
Return on assets 9.7% 7.2% 7.0% 8.3% 8.9% 10.0%
Return on equitya 12.2% 9.3% 8.9% 10.4% 11.2% 12.5%
a
Return on assets and return on equity are calculated as net income divided by end of year total assets, and end of year
owners' equity, respectively.
Exhibit 2 - Comparison Financial Information for Wild Wood and Competitors, 2011
Wild Wood Snyder's-

Snack Foods Lance, Inc. PepsiCo, Inc.
Sales $1,364.6 $1,635.0 $66,504.0
5-year compounded annual growth rate 5.8% 17.5% 13.6%
Net income $97.6 $38.3 $6,443.0
% of sales 7.2% 2.3% 9.7%
Cash and cash equivalents $181.1 $20.8 $4,067.0

Accounts receivable $127.4 $143.2 $6,912.0
Inventory $93.2 $106.3 $3,827.0
Property, plant & equipment, net of depreciation $281.9 $313.0 $19,698.0
Goodwill & other intangibles $222.6 $743.9 $33,245.0
Other assets $73.7 $139.6 $5,133.0
Total assets $979.9 $1,466.8 $72,882.0
Debt $0.0 $258.2 $20,568.0

% of capital 0.0% 23.5% 49.6%
Owners' equity (book value) $780.1 $838.6 $20,899.0
% of capital 100.0% 76.5% 50.4%
Common shares outstanding (in millions) 33.8834 67.4000 1,576.0000
Earnings per share $2.88 $0.57 $4.08

5-year compounded annual growth rate 8.6% -0.4% 3.6%
Dividends per share $0.85 $0.64 $2.03
Stock price at the end of 2011 $41.67 $22.50 $66.35
P/E ratio 14.47 39.47 16.26
Net profit margin 7.2% 2.3% 9.7%

Return on assets 10.0% 2.6% 8.8%
Return on equity 12.5% 4.6% 30.8%
Interest coverage (times) n/a 6.67 11.25

Ratio of debt to total capital (book value) n/a 23.5% 49.6%
a
Bond rating (Moody's/Standard & Poor's) n/a n/a Aa/A
a
The debt issued by Snyder's-Lance consists of bank loans, private placement notes, and a revolving
equipment credit facility. This debt is not rated by any credit agency.
Exhibit 3 - Current Interest Rates and Bond Ratings Information
Interest rates on U.S. Treasury bondsa

Yield to maturity on 10-year maturities 1.8%
Bond Rating
Interest rates on corporate bondsa AAA AA A BBB BB B
Yield to maturity on 10-year maturities 2.5% 3.2% 3.8% 4.4% 6.1% 7.7%
Bond Rating
Standard & Poor's medians for 2011 AAA AA A BBB BB B
Debt-to-capital ratio (book value) 13.8% 29.6% 33.8% 40.4% 47.0% 62.3%
Interest coverage (times) 64.7 15.8 9.6 4.1 2.4 1.3
a
Market interest rates during January of 2012
Sources: Standard & Poor's, Compustat, Datastream, and U.S. Department of Treasury
Exhibit 4 - Pro Forma 2011 Financial Information for Alternative Capital Structures
Pro Forma 2011 for

Actual 20% 40% 60%
2011 Debt-to-Capital Debt-to-Capital Debt-to-Capital
Sales $1,364.6 $1,364.6 $1,364.6 $1,364.6
Operating income (EBIT) $151.3 $151.3 $151.3 $151.3
Interest expense $0.0 $4.1 $12.8 $33.5
Income before income taxes $151.3 $147.2 $138.5 $117.8
Income taxes $53.7 $52.3 $49.2 $41.8
Net income $97.6 $94.9 $89.3 $76.0
Dividends paid to common stockholders $28.8 $28.5 $26.8 $22.8

Common shares outstanding 33,883,400 29,709,777 26,983,400 24,476,604
Earnings per share $2.88 $3.19 $3.31 $3.11 2.880467E-06 3.194E-06 3.309E-06 3.105E-06
Dividends per share $0.85 $0.96 $0.99 $0.93
Interest coverage ratio (times) n/a 36.90 11.82 4.52 3.3298245614 3.3320896 3.333333
Debt $0.0 $145.0 $290.0 $435.0
Owners' equity (book value) $780.1 $580.1 $435.1 $290.1
Exhibit 5 - Details and Assumptions of the Pro Forma Recapitalizations Presented in Exhibit 4
1. Debt is issued and added to the capital structure and the proceeds are used to repurchase common
stock. All debt is issued and shares are repurchased at the end of January 2012.
2. Common stock is repurchased at a premium to the market price of $41.67 per share. This premium
increases as the size of the recapitalization and repurchase increases. The recapitalization that
increases the debt-to-capital ratio to 20% is assumed to require a 15% premium to repurchase the
required shares; the 40% debt-to-capital ratio is assumed to require a 20% premium; and the 60%
debt-to-capital ratio is assumed to require a 25% premium. Supply curves are upward sloping, so
increasing the size of the stock repurchase implies higher premiums.
3. The minimum cash balance is assumed to be $126.1 million, equal to 9.2% of sales, which is 1.5
times the cash to sales ratio of PepsiCo. Wild Wood does not have the large and sophisticated
treasury operation of PepsiCo, so a higher cash to sales ratio is appropriate.
4. The corporate income tax rate is 35.5%.
5. The dividend payout ratio is 30%.
6. The quality of the debt issued by Wild Wood decreases and the interest rate on this debt increases
as the amount of debt issued and the size of the recapitalization increases. At 20% debt-to-capital
the assumed bond rating is AAA/AA and the interest rate is 2.85%, at 40% debt-to-capital the
assumed bond rating is BBB and the interest rate is 4.4%, and at 60% debt-to-capital the assumed
bond rating is B and the interest rate is 7.7%. The debt issued has a maturity of 10 years.
7. Short-term interest rates in January of 2012 were at historically low levels, for example, 0.17% on
one-month CD's. Consequently, although Wild Wood holds significant cash and equivalents,
interest income earned on invested cash balances is assumed not to be material, and will not change
when cash is used to repurchase shares.
8. The details of the 3 recapitalizations are ($ in millions except per share information):
20% 40% 60%

Debt-to-Capital Debt-to-Capital Debt-to-Capital
Ratio Ratio Ratio
Excess cash $55.0 $55.0 $55.0
Debt issued $145.0 $290.0 $435.0
Total stock repurchase $200.0 $345.0 $490.0
Price per share repurchased $47.92 $50.00 $52.09
Shares of common stock repurchased 4,173,623 6,900,000 9,406,796
Owners' equity (book Value) $580.1 $435.1 $290.1
35.90243902

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Wild Wood Cola & Munchies Company

2006 2007 2008 2009 2010 2011

Net profit margin 6.3% 5.0% 4.9% 5.8% 6.3% 7.2%

Wild Wood Snyder's-

Cash and cash equivalents $181.1 $20.8 $4,067.0

Debt $0.0 $258.2 $20,568.0

Earnings per share $2.88 $0.57 $4.08

Net profit margin 7.2% 2.3% 9.7%

Interest coverage (times) n/a 6.67 11.25

Exhibit 3 - Current Interest Rates and Bond Ratings Information

Interest rates on U.S. Treasury bondsa

Pro Forma 2011 for

Dividends paid to common stockholders $28.8 $28.5 $26.8 $22.8

4. The corporate income tax rate is 35.5%.

5. The dividend payout ratio is 30%.

20% 40% 60%

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