Question: Prepare a statement analyzing whether UST will be able to make the P&I (principal & interest) payments Use Exhibit 8 to determine USTs credit rating

Adjusted Key Industrial Financial Ratios-Senior Debt Ratings Industrial Long-Term Debt Three-Years Pretax return on capital = Operating income/Sales = Long-term debt/Capitalization = Total debt/Capitalization

Prepare a statement analyzing whether UST will be able to make the P&I (principal & interest) payments
1. Use Exhibit 8 to determine UST’s credit rating and interest rate and your (dis)approval of the loan. State your assumptions clearly.

Adjusted Key Industrial Financial Ratios-Senior Debt Ratings Industrial Long-Term Debt Three-Years (1996-1998) Medians EBIT interest coverage (x) Investment Grade Noninvestment Grade/Speculative AAA AA A BBB BB B CCC 12.9 9.2 7.2 4.1 2.5 1.2 (0.9) EBITDA interest coverage (x) Fund flow/total debt (%) Free operating cash flow/total debt (%) Return on capital (%) Operating income/sales (%) 18.7 14.0 10.0 6.3 3.9 2.3 0.2 89.7 67.0 49.5 32.2 20.1 10.5 7.4 40.5 21.6 17.4 6.3 1.0 (4.0) (25.4) 30.6 25.1 19.6 15.4 12.6 9.2 (8.8) 30.9 25.2 17.9 15.8 14.4 11.2 5.0 Long-term debt/capital (%) 21.4 29.3 33.3 40.8 55.3 68.8 71.5 Total debt/capital (including ST debt) (%) 31.8 37.0 39.2 46.4 58.5 71.4 79.4 Corporate Bond Yields Debt Yields-December 22, 1998 10-Year (%) 20-Year (%) Formulas for Adjusted Key Industrial Financial Ratios EBIT Interest coverage = EBITDA interest coverage = U.S. Treasury AAA AA A BBB BB+ BB/BB- BB 4.70 5.60 5.84 6.12 6.84 7.70 8.72 11.19 5.45 6.47 6.76 7.05 7.82 Funds from operations/Total debt = Free operating cash flow/Total debt = Earnings from continuing operations before interest and taxes/ Gross interest incurred before subtracting capitalized interest and interest income Earnings from continuing operations before interest, taxes, depreciation and amortization/ Gross interest incurred before subtracting capitalized interest and interest income Net income from continuing operations + depreciation, amortization, deferred income taxes, and other noncash/ Long-term debt + current maturities, commercial paper, and other short-term borrowings Activate Windows Go to Settings to activate Window Funds from operations - capital expenditures-(+) the increase (decrease) in working capital (excluding changes in cash, marketable securities and ST debt/ Long-term debt + current maturities, commercial paper, and other short-term borrowings

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