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Harvard Business School.
Table A
Business
Licensing
Welchs and Heatha
Flavors, packaging and other
a
59%
14
27
56%
24
20
Table B
Brand
Company
Popsicle
Klondike
Eskimo Pie
Snickers
Weight Watchers
Unilever
Empire of Carolina
Eskimo Pie
Mars
H.J. Heinz
Unit Share
7.6%
5.4
5.3
4.8
4.3
Exhibit 1
1990
$30,769
21,650
9,119
4,742
6,068
(1,691)
308
(88)
1,738
96
$171
$36,695
25,635
11,060
4,241
5,403
1,416
550
(107)
(77)
729
$1,053
$46,709
31,957
14,752
5,030
6,394
3,328
801
(88)
(108)
1,511
$2,422
$47,198
31,780
15,418
5,130
7,063
3,225
1,004
(67)
(20)
1,616
$2,526
$5,550
9,342
20,857
1,269
16,162
$8,109
11,107
23,006
1,094
17,215
$10,723
10,830
26,159
919
18,215
$13,191
$11,735
29,518
744
19,496
3,316
$0.05
-
3,316
$0.32
-
3,316
$0.73
$0.40
3,316
$0.76
$0.40
Exhibit 2
Operating activities:
Net income
Depreciation
Amortization
Deferred income taxes
Pension liability and other
Decrease (increase) in receivables
Decrease (increase) in inventories and prepaid expenses
Increase (decrease) in payables to parent
Increase (decrease) in accounts payable and accrued expenses
Net cash provided by operating activities
$2,422
1,006
175
250
(154)
1,212
(524)
2,054
143
6,595
$2,526
1,352
118
(58)
(156)
(734)
(51)
(621)
3,006
5,382
Investing activities
Capital expendituresa
Other
Net cash used in investing activities
(2,358)
(121)
(2,479)
(1,311)
(101
(1,412)
(1,327)
(175)
(1,502)
2,614
8,109
$10,723
(1,327)
(175)
(1,502)
2,468
10,723
$13,191
Financing activities
Cash dividends
Principal payments on long-term debt
Net cash used in financing activities
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Source: Eskimo Pie Prospectus, p. F-4.
Capital expenditures in 1989 are principally related to equipment acquired for use by licensees and, in 1990, an expansion of an
ingredients manufacturing facility.
a
Exhibit 3
Distribution and Market Share of Eskimo Pie, Heath, and Welchs Frozen Novelties
1987
1988
1989
1990
1991
76.3%
3.3
78.1%
3.9
91.2%
5.7
95.6%
6.8
97.9%
7.5
Exhibit 4
Year
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
Units Sold
(millions)
$590
680
770
940
1,100
1,300
1,400
1,500
1,355
1,332
1,321
N/A
N/A
457
525
577
643
681
717
637
623
590
% Change
in Sales
N/A
15.3%
13.2
22.1
17.0
18.2
7.7
7.1
-9.7
-1.7
-0.8
Average
Price
N/A
N/A
$1.69
1.79
1.90
2.02
2.06
2.09
2.13
2.19
2.24
Advertising
Spending
(millions)
$2
4
17
23
32
44
77
38
26
40
21
Exhibit 6
Net Sales
Operating expenses
Operating income
Interest income
Interest expense
Pretax income
Income taxes
Tax rate
Net income
Margin
Earning per share
Average shares outstanding
$56,655
52,610
4,045
828
52.5
4,821
1,928
40.00%
$2,893
5.10%
$0.87
3316
$59,228
54,755
4,473
890
38.5
5,324
2,130
40.00%
$3,195
5.40%
$0.96
3316
$59,961
55,337
4,624
1,058
24.5
5,657
2,263
40.00%
$3,394
5.70%
$1.02
3316
92.5%
PE=
Market Value
22.80
$0
14.00
4.52
18.52
16.00
4.52
20.52
Shares outstanding
Total
3,316
61,421
3,316
68,054
3,749
12.38
3,749
14.15
2,789
2,789
14.00
4.52
18.52
51,645
16.00
4.52
20.52
57,222
Reynolds Proceeds:
Shares owned
Per share proceeds:
Stock price
Special dividend
Total per share
Total for holdings
Source: Casewriter estimates
Exhibit 8
Company
Ben & Jerry's
Dreyer's Gra
Empire of Car
Steve's Hom
Hershey Foo
Tootsie Roll
Sales
97.0
354.9
243.1
35.1
2899.2
207.9
Cash
Flow
6.7
24.1
16.8
2.7
292.3
32.5
Operating
Incomea
Net
Income
10.2
37.0
37.4
3.9
463.0
47.2
3.7
15.9
8.8
1.8
219.5
25.5
Book Value of
Equity
26.3
113.1
45.1
11.1
1335.3
152.8
Market Value
of Equity
110.1
534.0
51.4
37.4
4002.5
728.8
Total
Debt
2.8
44.3
89.8
3.1
282.9
0.0
Beta
1.2
1.4
0.3
2.5
1.0
1.0
AVG PE
PE
29.8
33.6
5.8
20.8
18.2
28.6
22.8
Exhibit 9
I. Treasury Yields
90 day
Six months
One year
Five years
Ten years
Thirty years
II. Corporate Borrowing Rates
Long-term Bond Yields
AA
A
BBB
BB
B
Floating Rates
Prime rate
Prime commercial paper (6 months)
Source: Federal Reserve Bulletin, S&P Bond Guide.
4.56%
4.61
4.64
6.62
7.42
7.92
8.74%
9.27
9.56
11.44
14.68
7.50%
4.76
Exhibit 8
Company
Ben & Jerry's
Dreyer's Grand Ice Cream
Empire of Carolina, Inc.
Steve's Homemade Ice Cream
Hershey Foods Corp.
Tootsie Roll Inds.
Sales
2.8
44.3
89.8
3.1
282.9
0.0
Cash Flow
97.0
354.9
243.1
35.1
2899.2
207.9
6.7
24.1
16.8
2.7
292.3
32.5
Company
Ben & Jerry's
Dreyer's Grand Ice Cream
Empire of Carolina, Inc.
Steve's Homemade Ice Cream
Hershey Foods Corp.
Tootsie Roll Inds.
Average
MV/BV
4.19
4.72
1.14
3.37
3.00
4.77
3.53
Exhibit 1
23.50
$
$
$
83.0
13.0
96.0
1987
Income Statement Data (in thousands):
Net salesa
Cost of goods sold
Gross profita
Advertising and sales promotion
General and administrative
Operating income (loss)
Interest income
Interest expense
Other income (expense) - netb
Income taxes
30,769
21,650
9,119
4,742
6,068
(1,691)
308
(88)
1,738
96
Net income
171
5,550
9,342
20,857
1,269
16,162
3,316
$
0.05
-
Operating
Incomea
$
$
$
10.2
37.0
37.4
3.9
463.0
47.2
3.7
15.9
8.8
1.8
219.5
25.5
26.3
113.1
45.1
11.1
1335.3
152.8
PE
29.76
33.58
5.84
20.78
18.23
28.58
22.80
MV/S
1.16
1.63
0.58
1.15
1.48
3.51
1.59
TV/CF
16.85
24.00
8.40
15.00
14.66
22.42
16.89
61
3.6
91.2
13.0
104.2
$
$
$
96.7
13.0
109.7
$
$
Company
Ben & Jerry's
Dreyer's Grand Ice Cream
Empire of Carolina, Inc.
Steve's Homemade Ice Cream
Hershey Foods Corp.
Tootsie Roll Inds.
Exhibit 6
36,695
25,635
11,060
1.2
1.4
0.3
2.5
1.0
1.0
Equity
Total Debt
110.1
2.8
534.0
44.3
51.4
89.8
37.4
3.1
4002.5
282.9
728.8
0.0
Average
E/TMV
0.98
0.92
0.36
0.92
0.93
1.00
0.85
60.8
###
73.8
Beta
1990
46,709
31,957
14,752
4,241
5,403
1,416
5,030
6,394
3,328
550
(107)
(77)
801
(88)
(108)
729
1,511
5,130
7,063 JKD Operating Income
3,225 Operating income
Margin
1,004 Interest income
(67) Interest expense
(20)
Pretax income
2,362 Income taxes
$ 56,655
52,610
38,978
14636
3,041
4,045
828
53
4,821
1,928
59,228
54,755
$ 59,961
55,337
4,473
4,624
890
39
5,325
2,130
1058
25
5,658
2,263
1,053
2,422
8,109
11,107
23,006
1,094
17,215
10,723
10,830
26,159
919
18,215
$
$
$ 13,191
Tax rate
11,735
Margin
29,518
744
19,496 Average shares outstanding
2,892
2.18
$
$
3,195
2.41
$
$
3,395
2.58
40.00%
5.1%
40.00%
5.4%
40.00%
5.7%
1326.6
1326.6
1326.6
12%
14%
207.2
138.1
103.6
82.9
-421.8
210.9
140.6
3,316
$
3,316
0.32
0.73
0.40
Valuation Matrix
Growth =
Discount Rate
14%
15%
16%
17%
10%
$
$
$
$
101.8
81.4
67.8
58.1
$
$
$
$
Equity Beta
1.2
1.4
0.3
2.5
1.0
1.0
1.23
Asset Beta
1.17
1.29
0.11
2.31
0.93
1.00
1.14
d Income Statements
92
63.8
43.9
93
64.6
44.4
SG&A
Op. Profit
Free Cash Flow
Net Income
Growth '90-91
FCF + TV
PV @ 15.5%
Cash
Total Value
15.8
$3.8
$2.7
$2.3
29.2%
$2.7
$36.5
$13.0
$49.5
16.5
16.7
$3.4
$3.5
$2.5
$2.5
$2.1 $
2.1
4.5%
1.2%
$2.5
$49.87
Exhibit 8
Company
Sales
97.0
354.9
243.1
35.1
2899.2
207.9
Cash Flow
Operating
Incomea
6.7
24.1
16.8
2.7
292.3
32.5
10.2
37.0
37.4
3.9
463.0
47.2
Net Income
3.7
15.9
8.8
1.8
219.5
25.5
Company
Ben & Jerry's
Dreyer's Grand Ice Cream
Empire of Carolina, Inc.
Steve's Homemade Ice Cream
Hershey Foods Corp.
Tootsie Roll Inds.
Average
Median
P/B
4.19
4.72
1.14
3.37
3.00
4.77
3.53
3.78
P/E
29.76
33.58
5.84
20.78
18.23
28.58
22.80
24.68
P/S
1.16
1.63
0.58
1.15
1.48
3.51
1.59
1.32
21.80
2.30
61
$ 77.0
$ 13.0
$ 90.0
$
$
$
52.5
13.0
65.5
$76.97
$13.00
Applying average $89.97
Applying Median $95.40
$
$
$
$
52.51
13.00
65.51
69.85
96.7
###
109.7
96.70
###
$ 109.70
$ 93.52
Company
Ben & Jerry's
Dreyer's Grand Ice Cream
Empire of Carolina, Inc.
Steve's Homemade Ice Cream
Hershey Foods Corp.
Tootsie Roll Inds.
Market
Value of
Equity
26.3
113.1
45.1
11.1
1335.3
152.8
110.1
534.0
51.4
37.4
4002.5
728.8
110.1
534.0
51.4
37.4
4002.5
728.8
Total Debt
2.8
44.3
89.8
3.1
282.9
0.0
Average
Equity
Total Debt
2.8
44.3
89.8
3.1
282.9
0.0
Beta
1.2
1.4
0.3
2.5
1.0
1.0
E/TMV
Equity Asset Beta
0.98
1.2
1.17
0.92
1.4
1.29
0.36
0.3
0.11
0.92
2.5
2.31
0.93
1.0
0.93
1.00
1.0
1.00
1.14
Market Return
Beta
Risk free rate
Required rate of return
13.76%
1.14
7.42%
14.62%
Growth rate
29.24%
Market Value
1986
1987
18.50%
5.20%
1988
1989
1990
16.80%
31.50%
-3.20%
13.76%
$30,769
21,650
9,119
4,742
6,068
(1,691)
308
(88)
1,738
96
$171
$36,695
25,635
11,060
4,241
5,403
1,416
550
(107)
(77)
729
$1,053
$46,709
31,957
14,752
5,030
6,394
3,328
801
(88)
(108)
1,511
$2,422
$5,550
9,342
20,857
1,269
16,162
$8,109
11,107
23,006
1,094
17,215
$10,723
10,830
26,159
919
18,215
3,316
$0.05
-
3,316
$0.32
-
3,316
$0.73
$0.40
Estimate
1990
$47,198
31,780
15,418
5,130
7,063
3,225
1,004
(67)
(20)
1,616
$2,526
1991E
$61,000
$42,086
$18,914
7,413
9,623
$1,879
$1,127
-55.37%
NPV $22,249.68
$13,191
$11,735
29,518
744
19,496
3,316
$0.76
$0.40
Estimate
1992E
1993E
1994E
1995E
1996E
1997E
1998E
1999E
2000E
$63,770
$43,779
$19,991
7,229
9,430
$3,332
$64,560
$44,126
$20,434
7,283
9,557
$3,593
$65,359
$44,661
$20,698
7,457
9,858
$3,383
$66,167
$45,378
$20,789
7,639
10,000
$3,151
$66,986
$45,871
$21,115
7,632
10,012
$3,471
$67,815
$46,409
$21,406
7,736
10,163
$3,507
$68,655
$46,998
$21,656
7,853
10,320
$3,483
$69,504
$47,602
$21,902
7,956
10,439
$3,508
$70,364
$48,174
$22,190
8,037
10,552
$3,601
$1,999
77.31%
$35,249.68
$2,156
7.85%
$2,030
-5.85%
$1,890
-6.87%
$2,083
10.17%
$2,104
1.03%
$2,090
-0.69%
$59,228
54,755
4,473
890
38.5
5,324
2,130
40.00%
$3,195
5.40%
$0.96
$59,961
55,337
4,624
1,058
24.5
5,657
2,263
40.00%
$3,394
5.70%
$1.02
$2,105 $51,417
0.72% 2343.08%
Average shar
3316
3316
3316
Exhibit 8
Company
Ben & Jerry's
Dreyer's Grand Ice Cream
Empire of Carolina, Inc.
Steve's Homemade Ice Cream
Hershey Foods Corp.
Tootsie Roll Inds.
Sales
2.8
44.3
89.8
3.1
282.9
0.0
Cash Flow
97.0
354.9
243.1
35.1
2899.2
207.9
6.7
24.1
16.8
2.7
292.3
32.5
Company
Ben & Jerry's
Dreyer's Grand Ice Cream
Empire of Carolina, Inc.
Steve's Homemade Ice Cream
Hershey Foods Corp.
Tootsie Roll Inds.
Average
MV/BV
4.19
4.72
1.14
3.37
3.00
4.77
3.53
Exhibit 1
23.50
$
$
$
83.0
13.0
96.0
1987
Income Statement Data (in thousands):
Net salesa
Cost of goods sold
Gross profita
Advertising and sales promotion
General and administrative
Operating income (loss)
Interest income
Interest expense
Other income (expense) - netb
Income taxes
30,769
21,650
9,119
4,742
6,068
(1,691)
308
(88)
1,738
96
Net income
171
5,550
9,342
20,857
1,269
16,162
3,316
$
0.05
-
Operating
Incomea
$
$
$
10.2
37.0
37.4
3.9
463.0
47.2
3.7
15.9
8.8
1.8
219.5
25.5
26.3
113.1
45.1
11.1
1335.3
152.8
PE
29.76
33.58
5.84
20.78
18.23
28.58
22.80
MV/S
1.16
1.63
0.58
1.15
1.48
3.51
1.59
TV/CF
16.85
24.00
8.40
15.00
14.66
22.42
16.89
61
3.6
91.2
13.0
104.2
$
$
$
96.7
13.0
109.7
$
$
Company
Ben & Jerry's
Dreyer's Grand Ice Cream
Empire of Carolina, Inc.
Steve's Homemade Ice Cream
Hershey Foods Corp.
Tootsie Roll Inds.
Exhibit 6
36,695
25,635
11,060
1.2
1.4
0.3
2.5
1.0
1.0
Equity
Total Debt
110.1
2.8
534.0
44.3
51.4
89.8
37.4
3.1
4002.5
282.9
728.8
0.0
Average
E/TMV
0.98
0.92
0.36
0.92
0.93
1.00
0.85
60.8
###
73.8
Beta
1990
46,709
31,957
14,752
4,241
5,403
1,416
5,030
6,394
3,328
550
(107)
(77)
801
(88)
(108)
729
1,511
5,130
7,063 JKD Operating Income
3,225 Operating income
Margin
1,004 Interest income
(67) Interest expense
(20)
Pretax income
2,362 Income taxes
$ 55,655
52,610
38,290
14378
2,987
3,045
828
53
3,821
1,528
59,228
54,755
$ 59,961
55,337
4,473
4,624
890
39
5,325
2,130
1058
25
5,658
2,263
1,053
2,422
8,109
11,107
23,006
1,094
17,215
10,723
10,830
26,159
919
18,215
$
$
$ 13,191
Tax rate
11,735
Margin
29,518
744
19,496 Average shares outstanding
2,292
2.18
$
$
3,195
2.41
$
$
3,395
2.58
40.00%
5.1%
40.00%
5.4%
40.00%
5.7%
1326.6
1326.6
1326.6
12%
14%
207.2
138.1
103.6
82.9
-421.8
210.9
140.6
3,316
$
3,316
0.32
0.73
0.40
Valuation Matrix
Growth =
Discount Rate
14%
15%
16%
17%
10%
$
$
$
$
101.8
81.4
67.8
58.1
$
$
$
$
Equity Beta
1.2
1.4
0.3
2.5
1.0
1.0
1.23
Asset Beta
1.17
1.29
0.11
2.31
0.93
1.00
1.14
d Income Statements
92
64.9
44.7
93
65.7
45.2
SG&A
Op. Profit
Free Cash Flow
Net Income
Growth '90-91
FCF + TV
PV @ 15.5%
Cash
Total Value
15.8
$3.8
$2.7
$2.3
29.2%
$2.7
$37.2
$13.0
$50.2
16.8
17.0
$3.5
$3.5
$2.5
$2.5
$2.1 $
2.1
6.4%
1.2%
$2.5
$50.76