This spreadsheet supports INSTRUCTOR analysis of the case “Warren E. Buffett, 2015” (UVA-F-1769).

This spreadsheet was prepared by Robert F. Bruner, University Professor, Distinguished Professor of Business Administration, and Dean Emeritus. Copyright © 2017 by the University
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Rev. Nov. 8, 2017
 Exhibit TN1
Warren E. Buffett, 2015
Supplemental Historical Financial Results for Precision Castparts

Income Statement
(In millions, except per share data, unless otherwise
specified) 12 months ending March 31
2013 2014
Revenue $8,347 $9,533
Operating expenses 6,188 6,874
Income from operations 2,159 2,659
Net interest expense 31 71
Income before income tax expense 2,128 2,588
Income tax expense 695 830
Consolidated net income from continuing
operations
$1,433 $1,758

Balance Sheet 12 months ending March 31

(In millions, except per share data, unless otherwise
specified) 2014
Assets:
Current assets $5,507
Net property, plant and equipment 2,300
Other assets 10,779
Total assets $18,586

Liabilities & Shareholder Equity:

Current liabilities $1,608
Long-term debt 3,569
Pension obligation 442
Other long-term liabilities 1,554
Total liabilities 7,173
Shareholders' equity 11,413
Total liabilities and stockholders’ equity $18,586

*Note: Fiscal year ends March 31. Period listed as 2015 represents March 31, 2014, to March 31, 2015.
12 months ending March 31
2013 2014
Supplemental:
Depreciation & amortization $215 $293
Capital expenditures $323 $355

Net working capital $3,368 $3,899

Increase in net working capital (decrease) $653 $531
Data source: SEC filings by Precision Castparts.
recision Castparts

ng March 31
2015
$10,005
7,393
2,612
65
2,547
816

$1,731

ng March 31
2015

$5,972
2,474
10,982
$19,428

$2,827
3,493
678
1,473
8,471
10,957
$19,428

h 31, 2014, to March 31, 2015.

ng March 31
2015

$325
$457

$3,145
($754)
 Exhibit TN3
Breakdown of Equity Portfolio Gain by Company
(dollar values in millions)

Cost Market Gain

American Express Company $ 1,287 $ 14,106 $ 12,819
The Coca-Cola Company 1,299 16,888 15,589
DaVita HealthCare Partners Inc. 843 1,402 559
Deere & Company 1,253 1,365 112
DIRECTV 1,454 2,134 680
The Goldman Sachs Group, Inc. 750 2,532 1,782
International Business Machines Corp. 13,157 12,349 (808)
Moody's Corporation 248 2,364 2,116
Munich Re 2,990 4,023 1,033
The Procter & Gamble Company 336 4,683 4,347
Sanofi 1,721 2,032 311
U.S. Bancorp 3,033 4,355 1,322
USG Corporation 836 1,214 378
Wal-Mart Stores, Inc. 3,798 5,815 2,017
Wells Fargo & Company 11,871 26,504 14,633
Others 10,180 15,704 5,524
Total Common Stocks $ 55,056 $ 117,470 $ 62,414
Percent Gain of Market over Cost 113%

Data source: Case Exhibit 5.

% of Gain
21%
25%
1%
0%
1%
3%
-1%
3%
2%
7%
0%
2%
1%
3%
23%
9%
100%
 Exhibit TN4
Estimation of Weighted Average Cost of Capital

Cost of Equity
Description PCP View BRK View Source
Market return 9.90% 9.90% Footnotes 6 and 15
Risk free rate 2.89% 2.89% Footnote 15
Market risk premium 7.01% 7.01%
Beta 0.38 0.90 Footnote 15
Cost of equity 5.55% 9.20%

Weighted-average cost of capital (WACC)

Description PCP View BRK View Source

AA-rated corporate bond yield 3.95% 3.95% Footnote 15
Long-term debt ($ millions) $4,900 $71,930 Footnote 1 and Exhibit 2
MV equity ($ millions) $31,208 $353,721 Footnote 15

% Debt 13.6% 16.9% calculated

% Equity 86.4% 83.1% calculated

Cost of Equity 5.55% 9.20% calculated

Pre-tax cost of debt 3.95% 3.95% above

Expected marginal tax rate 39.0% 39.0% Footnote 15
After-tax cost of debt 2.4% 2.4% calculated

WACC 5.1% 8.1% calculated

Source: Authors’ analysis.

Income Statement
(In millions, except per share data, unless otherwise
specified) 12 months ending March 31
2013 2014 2015
Revenue $8,347 $9,533 $10,005
Operating expenses1 6,188 6,874 7,393
Income from operations 2,159 2,659 2,612
Net interest expense 31 71 65
Income before income tax expense 2,128 2,588 2,547
Income tax expense 695 830 816
Consolidated net income from continuing
operations2
$1,433 $1,758 $1,731

Balance Sheet 12 months ending March 31

(In millions, except per share data, unless otherwise
specified) 2014 2015
Assets:
Current assets $5,507 $5,972
Net property, plant and equipment 2,300 2,474
Other assets 10,779 10,982
Total assets $18,586 $19,428

Liabilities & Shareholder Equity:

Current liabilities $1,608 $2,827
Long-term debt 3,569 3,493 Debt/Capital
Pension obligation 442 678 2015
Other long-term liabilities 1,554 1,473 13.6%
Total liabilities 7,173 8,471 Long Term Debt + Pension $ 4,900 Footnote 1
Shareholders' equity3 11,413 10,957 Market Value of Equity 31,208 Exhibit 9
Total liabilities and stockholders’ equity $18,586 $19,428 Total Capital $ 36,108

*Note: Fiscal year ends March 31. Period listed as 2015 represents March 31, 2014, to March 31, 2015.
12 months ending March 31
2013 2014 2015
Supplemental:
Depreciation & amortization $215 $293 $325
Capital expenditures1 $323 $355 $457

Net working capital2 $3,368 $3,899 $3,145

Increase in net working capital (decrease) $653 $531 ($754)
NPV and IRR

Assumptions Source
FCF Growth Estimate ’16–’18 2.5% Footnote 15
Terminal Growth Rate 2.5% Footnote 15
WACC (calculated in “WACC” tab) 5.1% Exhibit TN3
WACC (calculated in “WACC” tab) 8.1% Exhibit TN3
Revenue Growth Estimate ’16–’18 5.0% Assumed extension of growth rate in 2015
EBT Margin Estinate ’16–’18 25.5% Assumed continuation of margin in 2015
Tax Rate ’16–’18 39.0% Footnote 15
Depr and Amort as a % of Sales 3.25% Assumed extension of 2015 ratio.
Cap Ex as a % of Sales 4.57% Assumed extension of 2015 ratio.
Working Capital as a % of Sales 31.40% Assumed extension of 2015 ratio.

12 months ending March 31

2013 2014 2015 2016E 2017E 2018E
Revenue $8,347.0 $9,533.0 $10,005.0 $10,505.3 $11,030.5 $11,582.0
- Cost of sales and operating expenses¹ $6,188.0 $6,874.0 $7,393.0 $7,826.4 $8,217.7 $8,628.6

Profit before Tax $2,159.0 $2,659.0 $2,612.0 $2,678.8 $2,812.8 $2,953.4

- Taxes at 39% $842.0 $1,037.0 $1,018.7 $1,044.7 $1,097.0 $1,151.8

Profit after Tax $1,317.0 $1,622.0 $1,593.3 $1,634.1 $1,715.8 $1,801.6

+ Depreciation & amortization $214.9 $293.0 $325.0 $341.4 $358.5 $376.4
- Capital expenditures ($323.0) ($886.0) $297.0 ($480.1) ($504.1) ($529.3)
- Increase net working capital ($653.0) ($531.0) $754.0 ($153.6) ($164.9) ($173.2)

Free Cash Flow from Operations $555.9 $498.0 $2,969.3 $1,341.8 $1,405.3 $1,475.5
+ Terminal value at WACC of 5.1%² $58,169.7
+ Terminal value at WACC of 8.0%² $27,242.6

Supplemental:
Working capital $3,368 $3,899 $3,145 $3,299 $3,464 $3,637

IRR to Berkshire (WACC = 5.1%)

Total Free Cash Flow $1,341.8 $1,405.3 $59,645.2
Berkshire Hathaway investment ($37,200)
IRR to Berkshire Hathaway (WACC = 5.1%) 19.3% ($37,200) $1,341.8 $1,405.3 $59,645.2
Net present value (discounted at WACC = 5.1%) $15,914

IRR to Berkshire Hathaway (WACC = 8.0%)

Total Free Cash Flow ($37,200)
IRR to Berkshire Hathaway (WACC = 8.0%) -5.7% ($37,200) $1,341.8 $1,405.3 $28,718.1
Net present value (discounted at WACC = 8.0%) ($11,096)

Note the following adjustments made to Income Statement to identify “recurring income”:
1. Excluded restructuring charges.
2. Excluded equity in unconsolidated investments.
3. Excluded NCI (<1% ownership).
4. Fiscal year ends March 31, 2015.

¹ Includes depreciation and amortization expenses of $214.9, $293.0, and $325.0 for years 2013, 2014, and 2015, respectively.
² Terminal value = free cash flow * (1 + g)/(WACC − g); assumes terminal growth rate of 2.5% and WACC is estimated as appropriate.

Source: Author analysis.