Hill Country Snack Foods Company

Exhibit 2 - Comparison Financial Information for Hill Country and Competitors, 2011
(millions of dollars, except for per share data and financial ratios)

Sales
5-year compounded annual growth rate

Hill Country

Snyder's-

Snack Foods

Lance, Inc.

PepsiCo, Inc.

$1,364.6
5.8%

$1,635.0
17.5%

$66,504.0
13.6%

Net income

$97.6

$38.3

$6,443.0

% of sales

7.2%

2.3%

9.7%

5-year compounded annual growth rate

8.6%

16.6%

2.7%

Cash and cash equivalents

$181.1

$20.8

$4,067.0

Accounts receivable

$127.4

$143.2

$6,912.0

Inventory
Property, plant & equipment, net of depreciation
Goodwill & other intangibles
Other assets
Total assets

$93.2
$281.9
$222.6
$73.7
$979.9

$106.3
$313.0
$743.9
$139.6
$1,466.8

$19,698.0
$33,245.0
$5,133.0
$72,882.0

Debt
% of capital
Owners' equity (book value)
% of capital
Common shares outstanding (in millions)

$0.0
0.0%
$780.1
100.0%
33.8834

$258.2
23.5%
$838.6
76.5%
67.4000

$20,568.0
49.6%
$20,899.0
50.4%
1,576.0000

Earnings per share

5-year compounded annual growth rate
Dividends per share
5-year compounded annual growth rate
Stock price at the end of 2011
P/E ratio

$2.88
8.6%
$0.85
13.6%
$41.67
14.47

$0.57
-0.4%
$0.64
0.0%
$22.50
39.47

$4.08
3.6%
$2.03
11.8%
$66.35
16.26

Net profit margin

Return on assets
Return on equity

7.2%
10.0%
12.5%

2.3%
2.6%
4.6%

9.7%
8.8%
30.8%

Interest coverage (times)

Ratio of debt to total capital (book value)

n/a
n/a

6.67
23.5%

11.25
49.6%

Bond rating (Moody's/Standard & Poor's)

n/a

n/a a

Aa/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.

$3,827.0

Hill Country Snack Foods Company

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

Yield to maturity on 10-year maturities

Standard & Poor's medians for 2011

Debt-to-capital ratio (book value)
Interest coverage (times)

AAA
2.5%

AAA
13.8%
64.7

AA
3.2%

A
3.8%

BBB
4.4%

AA
29.6%
15.8

Bond Rating
A
33.8%
9.6

BBB
40.4%
4.1

Market interest rates during January of 2012

Sources: Standard & Poor's, Compustat, Datastream, and U.S. Department of Treasury
a

BB
6.1%

B
7.7%

BB
47.0%
2.4

B
62.3%
1.3

Sales
Operating income (EBIT)
Interest expense
Income before income taxes
Income taxes
Net income
Dividends paid to common stockholders
Common shares outstanding
Earnings per share
Dividends per share
Interest coverage ratio (times)
Debt
Owners' equity (book value)
Total Assets
Assumed Repurchase Stock Prices
Exhibit 5
Excess cash

Actual
2011
$1,364.6

20%
Debt-to-Capital
$1,364.6

Pro Forma 2011 for

40%
Debt-to-Capital
$1,364.6

60%
Debt-to-Capital
$1,364.6

$151.3
$0.0
$151.3
$53.7

$151.3
$4.1
$147.2
$52.3

$151.3
$12.8
$138.5
$49.2

$151.3
$33.5
$117.8
$41.8

$97.6
$28.8
33,883,400
$2.88
$0.85

$94.9
$28.5
29,709,777
$3.19
$0.96

$89.3
$26.8
26,983,400
$3.31
$0.99

$76.0
$22.8
24,476,604
$3.11
$0.93

n/a
$0.0
$780.1
979.9

36.90
$145.0
$580.1
924.9
47.92

11.82
$290.0
$435.1
924.9
50

4.52
$435.0
$290.1
924.9
52

$55.0

$55.0

$55.0

$145.0
$200.0
$47.92
4,173,623
$580.1

$290.0
$345.0
$50.00
6,900,000
$435.1

$435.0
$490.0
$52.09
9,406,796
$290.1

$3.19
$0.96
19.53
11%
16%

$3.31
$0.99
16.12
11%
21%

$3.11
$0.93
11.85
12%
26%

36
20%
9%
16%
9%
AA
2.85%
2.85%
$3.19
$0.96
47.92
2.00%
6.67%
6.95%
1.99%
6.22%
6.48%

11
40%
18%
27%
17%
BBB
4.40%
4.40%
$3.31
$0.99
50
1.99%
6.62%
7.57%
2.14%
5.95%
6.73%

4
60%
25%
36%
24%
B
7.70%
7.70%
$3.11
$0.93
52.09
1.79%
5.96%
8.59%
2.60%
5.71%
7.67%

16%
13%
3%
12%
-0.35%

21%
13%
8%
11%
-1.06%

26%
13%
13%
10%
-2.77%

Debt issued
Total stock repurchase
Price per share repurchased
Shares of common stock repurchased
Owners' equity (book Value)
Financial Ratios
EPS
DPS
Book Value Per Shares
Return on Assets
Return on Equity
Debt Structure & WACC
Interest coverage (EBIT interest expense)
Debt to Capital Ratio (with Recapitalization in Book Value)
Debt to Capital Ratio (with Recapitalization in Market Value)
Debt to Capital (without recapitalization in Book Value)
Debt to Capital (without recapitalization in Market Value)
Credit Rating
YTM of 10 Year Corporate Bond with Rating above
Cost of Debt
EPS
DPS
Buyback Price per Share
Cost of Equity DDM
Cost of Equity ECM
Cost of Equity FCF
WACC (DDM Model)
WACC (ECM Model)
WACC (FCF Model)
ROE Analysis
ROE without Cash
Value Destroyed by Excess Cash in ROE Term
ROE with Leverage & Buyback
ROE without Leverage & Buyback
ROE Because of Leverage & Buyback
ROE with Leverage and No Buyback
ROE because of Leverage and No Buyback
Leverage Analysis
Degree of Financial Leverage

$2.88
$0.85
23.02
10%
13%

0
0
0
0
AAA

$2.88
$0.85
41.67
2.04%
6.91%
6.91%
2.04%
6.91%
6.91%

15.26%
2.75%
13%
13%
0%
13%

1.00

1.03

1.09

1.28

2.88
97.6
97.6
2.88
2.88

3.19
79.77
64.64
2.68
1.91
-7%
-34%

3.31
74.17
59.04
2.75
1.74
-5%
-40%

3.11
60.87
45.74
2.49
1.35
-14%
-53%

Equity Value & Firm Value

Debt Value
Tax Rate
Tax Shield on Debt
Equity Value
Post Debt Equity Value
Price per Share including Tax Shield

$0.0
35.50%
0
1412
1412
41.67

$145.0
35.50%
51.475
1424
1475
49.7

$290.0
35.50%
102.95
1349
1452
53.8

$435.0
35.50%
154.425
1275
1429
58.4

Equity Value in Multiple Terms

PE Ratio
Price at a PE Ratio of 14.47
Dividend Yield
Price at a Dividend Yield of 2.04%

14.47
41.67
2.04%
41.67

15.0
46.22
2.00%
47.02

15.1
47.89
1.99%
48.69

16.8
44.93
1.79%
45.66

$53.7

$52.3
-3%

$49.2
-8%

$41.8
-22%

30%
70%
8.76%

30%
70%
11.45%

30%
70%
14.37%

30%
70%
18.34%

Change in Risk Profile of Firm (EBIT EPS Analysis)

EPS
EAT If EBIT Decreases by 10%
EAT if EBIT Decreases by 20%
EPS if EBIT Decreases by 10%
EPS if EBIT Decreases by 20%
EPS If EBIT Decreases by 10% in Percentage
EPS if EBIT Decreases by 20% in Percentage

Tax Effeciency Analysis

Tax Amount
Decrease in Tax Amount (Percentage)
Effective Tax Rate will Reduce??
Financial Distress Cost?
Internal Growth Rate
Payout Ratio
Retention Rate
Internal Growth Rate if Borrowing and Buyback

2006
$1,027.0

2007
$1,059.9

2008
$1,099.5

2009
$1,180.4

2010
$1,261.7

2011
$1,364.6

$97.4
$64.6
$1.91
$0.45

$79.1
$52.6
$1.56
$0.45

$82.8
$53.8
$1.59
$0.45

$108.2
$68.1
$2.01
$0.60

$126.7
$79.9
$2.36
$0.70

$151.3
$97.6
$2.88
$0.85

5-year compounded annual growth rate

Net income
% of sales
5-year compounded annual growth rate

$108.1
$668.5
$0.0
$529.7
33.7865

$107.6
$727.3
$0.0
$567.4
33.8076

$106.4
$770.4
$0.0
$606.3
33.8278

$139.8
$824.9
$0.0
$654.6
33.8581

$164.8
$894.7
$0.0
$710.9
33.8633

$181.1
$979.9
$0.0
$780.1
33.8834

Annual growth rate of sales

Annual growth rate of E.P.S.
Dividend payout ratio

n/a
n/a
23.6%

3.2%
-18.3%
28.8%

3.7%
1.9%
28.3%

7.4%
26.4%
29.9%

6.9%
17.4%
29.7%

8.2%
22.0%
29.5%

Cash and cash equivalents

Accounts receivable
Inventory
Property, plant & equipment, net of depreciation
Goodwill & other intangibles
Other assets
Total assets

Net profit margin

Return on assetsa

6.3%
9.7%

5.0%
7.2%

4.9%
7.0%

5.8%
8.3%

6.3%
8.9%

7.2%
10.0%

Return on equitya

12.2%

9.3%

8.9%

10.4%

11.2%

12.5%

Sales
Operating income (EBIT)
Net income
Earnings per share
Dividends per share
Cash & cash equivalents
Total assets
Debt
Owners' equity (book value)
Common shares outstanding (in millions)

Tax Benefits gets reflected in ROA

Sales

Hill Country
Snyder'sSnack Foods
Lance, Inc.
PepsiCo, Inc.
$1,364.6
$1,635.0
$66,504.0
5.8%
$97.6
7.2%
8.6%

17.5%
$38.3
2.3%
16.6%

13.6%
$6,443.0
9.7%
2.7%

$181.1
$127.4
$93.2
$281.9
$222.6
$73.7
$979.9

$20.8
$143.2
$106.3
$313.0
$743.9
$139.6
$1,466.8

$4,067.0
$6,912.0
$3,827.0
$19,698.0
$33,245.0
$5,133.0
$72,882.0

Debt
% of capital
Owners' equity (book value)
% of capital

$0.0
0.0%
$780.1
100.0%

$258.2
23.5%
$838.6
76.5%

$20,568.0
49.6%
$20,899.0
50.4%

Common shares outstanding (in millions)

33.8834

67.4000

1,576.0000

Earnings per share

5-year compounded annual growth rate
Dividends per share
5-year compounded annual growth rate
Stock price at the end of 2011
P/E ratio

$2.88
8.6%
$0.85
13.6%
$41.67
14.47

$0.57
-0.4%
$0.64
0.0%
$22.50
39.47

$4.08
3.6%
$2.03
11.8%
$66.35
16.26

Net profit margin

Return on assets
Return on equity

7.2%
10.0%
12.5%

2.3%
2.6%
4.6%

9.7%
8.8%
30.8%

Interest rates on U.S. Treasury bonds a

Yield to maturity on 10-year maturities

1.8%

Interest rates on corporate bondsa

Yield to maturity on 10-year maturities

AAA
2.5%

AA
3.2%

Standard & Poor's medians for 2011

Debt-to-capital ratio (book value)
Interest coverage (times)

AAA
13.8%
64.7

AA
29.6%
15.8

Bond Rating

Market interest rates during January of 2012

Sources: Standard & Poor's, Compustat, Datastream, and U.S. Department of Treasury
a

A
3.8%
Bond Rating
A
33.8%
9.6

BBB
4.4%

BB
6.1%

B
7.7%

BBB
40.4%
4.1

BB
47.0%
2.4

B
62.3%
1.3

Hill Country Snack Foods Company

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 $126.1 million, equal to 9.2% of sales, which is 1.5
times the cash to sales ratio of PepsiCo. Hill Country does not have the large and sophisticated
treasury operation of PepsiCo, so a higher cash to sales ratio is appropriate.
4. The corporate income tax rate is 35.5%.
5. The dividend payout ratio is 30%.
6. The quality of the debt issued by Hill Country decreases and the interest rate on this debt increases
as the amount of debt issued and the size of the recapitalization increases. At 20% debt-to-capital
the assumed bond rating is AAA/AA and the interest rate is 2.85%, at 40% debt-to-capital the
assumed bond rating is BBB and the interest rate is 4.4%, and at 60% debt-to-capital the assumed
bond rating is B and the interest rate is 7.7%. The debt issued has a maturity of 10 years.
7. Short-term interest rates in January of 2012 were at historically low levels, for example, 0.17% on
one-month CD's. Consequently, although Hill Country holds significant cash and equivalents,
interest income earned on invested cash balances is assumed not to be material, and will not change
when cash is used to repurchase shares.
8. The details of the 3 recapitalizations are ($ in millions except per share information):
20%

40%

Debt-to-Capital

Debt-to-Capital

Ratio

Ratio

Excess cash

$55.0

$55.0

Debt issued

$145.0

$290.0

Total stock repurchase

$200.0

$345.0

Price per share repurchased

$47.92

$50.00

4,173,623

6,900,000

Shares of common stock repurchased

Owners' equity (book Value)

$580.1

$435.1

60%
Debt-to-Capital
Ratio
$55.0
$435.0
$490.0
$52.09
9,406,796

$290.1