3/5/2013
Financial
Berkshire Hathaway
Ticker: BRK.B
Recommendation: Buy
Current Price: $102.05
Implied Price: $115.41
Investment Thesis

Key Statistics
52 Week Price Range
79.21102.25
50-Day M oving Average
97.87


Estimated Beta
0.29
Dividend Yield
0%

248679.6

M arket Capitalization
1321%
3-Year Revenue CAGR
Berkshire Hathaway owns a vast and diversified portfolio of cash flow
efficient companies which maintain profitability throughout economic
cycles
Berkshire Hathaway’s acquisition strategy allows the company to stay
competitive and continually evolve into new markets and trends
Berkshire Hathaway’s management team has an investing strategy that has
proven successful throughout the years and has trained forthcoming
executives to implement their strategy
Berkshire Hathaway’s approach of value investing when acquiring
companies will allow the firm to maintain steady cash flows into the future
Berkshire Hathaway’s management team does not actively manage acquired
companies management which will allow for a seamless change of
management at Berkshire Hathaway
Trading Statistics
Diluted Shares Outstanding
2474 mill
Average Volume (3-M onth)
Five-Year Stock Chart
4662.34
$120.00
Institutional Ownership
N/A
Insider Ownership
N/A
400,000,000
350,000,000
EV/EBITDA (LTM )
8.83
Margins and Ratios
Gross M argin (LTM )
EBITDA M argin (LTM )
$100.00
300,000,000
$80.00
250,000,000
$60.00
20.40%
200,000,000
150,000,000
$40.00
100,000,000
19.99%
$20.00
50,000,000
7.88%
Net M argin (LTM )
Debt to Enterprise Value
0.23
$0.00
Nov-05
0
Nov-06
Nov-07
Volume
Nov-08
Nov-09
Adjusted Close
Nov-10
50-Day Avg
Nov-11
Nov-12
200-Day Avg
Covering Analysts:
Cameron Schwartz
Cameron_
Email
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University of Oregon Investment Group
Business Overview
Berkshire Hathaway Inc. is an American conglomerate holding company which
owns subsidiaries in diverse business sectors. The company is located in Omaha,
Nebraska.
In 1839 Oliver Chase established Valley Falls Company, a textile manufacturing
company, in Valley Falls, Rhode Island. Through multiple mergers the firm
became Berkshire Hathaway in 1888. In 1962 Warren Buffet began buying
shares in the company as he noticed a correlated pattern between the closing of
company mills and the price of the stock. In 1964 Seabury Stanton, president of
Berkshire Hathaway, made a verbal offer to buy Buffet’s shares back at a price
of $11.50 per share. After agreeing to the deal, Buffet received the written
tender to buy the shares at $11.375 per share. Upset by the undercutting offer
Buffet decided to buy more stock in the company and eventually fired Stanton,
putting Buffet in control of a failing textile business.
Within three years of running Berkshire Hathaway Buffet had begun to expand
into investments and the insurance industry with the acquisition of National
Indemnity Company. Eventually Buffet bought an equity stake in Government
Employees Insurance Company (GEICO) which is now at the core of
Berkshire’s insurance business. By 1985, the textile operations of the firm were
completely shut down.
Today, Berkshire Hathaway owns a vast portfolio of firms in the Insurance,
Utilities and Energy, Manufacturing, service, and retailing and Finance and
financial products businesses. Insurance and other (manufacturing, service and
retailing) accounted for over 77% of the firm’s revenues in 2011. Railroad,
Utilities and Energy and Finance and Financial Products accounted for 21.46%
and 1.46% of revenue respectively in 2011.
One-Year Stock Chart
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Strategic Positioning
“Operating decisions for the various Berkshire businesses are made by managers
of the business units. Investment decisions and all other capital allocation
decisions are made for Berkshire and its subsidiaries by Warren E. Buffet, in
consultation with Charles T. Munger. Mr. Buffet is Chairman and Mr. Munger is
Vice Chairman of Berkshire’s Board of Directors.” (Berkshire Hathaway 2011
Annual Report)
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Berkshire Hathaway’s aims to acquire cash flow efficient companies with good
management and simple business plans. Further detail into its acquisition
strategy will be discussed in the Business Growth Strategy.
Another segment of Berkshire Hathaway’s business is investments. Berkshire
Hathaway actively invests in the equities market and has significant stakes in
many recognizable firms such as; American Express Company (13%), The
Coca-Cola Company (8.8%), International Business Machines Corp. (5.5%)
and Wells Fargo & Company (7.6%) to name a few. Berkshire Hathaway’s cost
of common stock investments totaled $48,209,000 in costs and had a market
value of $76,991,000 million in market value representing over 59% of
unrealized gains.
Berkshire Hathaway’s subsidiaries conduct business in various sectors including
but not limited too; insurance, utilities, railroads, energy, manufacturing,
service, retailing, and finance and financial products.
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Insurance
Berkshire Hathaway’s most profitable business is its insurance companies. As
mentioned previously, Warren Buffet began investing in insurance companies
quickly after taking control of Berkshire Hathaway. The firm conducts its
insurance business through approximately 70 domestic and foreign based
insurance entities. Its entities provide insurance for property and casualty risk
worldwide and reinsurance of life, accident, and health risks worldwide.
Reinsurance is the assuming of portions of risk from an insurer in order for
financial compensation. Insurance companies seek reinsurance as a means of
risks management. Warren Buffet states in his annual letter to shareholders from
2011 that the firm’s insurance companies assume more risk from a single event
than any other insurer has knowingly assumed. For example, Berkshire
Hathaway Reinsurance Group has policies that cover terrorism, natural
catastrophe and aviation risks. Aforementioned policies yield large premiums
but could lead to huge payouts a single loss event. Altogether, the firm’s main
insurance companies consist of GEICO (3rd largest auto insurer in the US),
General Re and its subsidiaries (one of the largest reinsurers in the world based
on premium volume and shareholder capital), Berkshire Hathaway Reinsurance
Group, and Berkshire Hathaway Primary Group.
Through its insurance companies the firm has access to costless capital funds
called produced by insurance companies called “float”. “Float” money does not
belong to the firm but it is allowed to be used to invest for the benefit of the
firm. Float money represents the premiums insurance companies have received
but not paid out in claims. When premiums exceed the total of expenses and
eventual losses, the company earns underwriting profit. Berkshire Hathaway has
experienced underwriting profits consecutively for the past nine years. In 2012,
Berkshire had $73 billion in float that was invested into equities and has
generated revenue. Float is accounted for in full as liabilities on the balance
sheet. In 2011, gains from interest, dividend, and other investment income
totaled nearly $7 billion solely from insurance companies.
Railroad Business
In 2010 Berkshire Hathaway completed its acquisition of Burlington Northern
Santa Fe Corporation (BNSF). BNSF operates one of the largest railroad
systems in North America which serves the Midwest, pacific, northwest,
western, southwestern and southeastern regions and ports of the country as well
as regions of Canada and Mexico. BNSF owns 48% of western United States
rail traffic. BNSF transports a range of products and commodities and its
revenue is strongly influenced by overall industry, regional, and national
economic conditions. Strong relationships have led to profitable contracts that
create steady revenue growth through the troughs of economic cycles. The
breakdown of BNSF’s transports consists of 31% freight, 21% industrial, 27%
coal, and 21% agricultural. Outside of the railroads ability to create steady cash
flows, theory has it that Buffet acquired BNSF to obtain exclusive insight into
what products are being transported and to gauge overall economic conditions
based on volume and consistency of transports.
Utilities and Energy
Berkshire Hathaway’s subsidiaries compete in the Coal, Natural Gas, and Other
Wind, Hydroelectric, Nuclear Geothermal markets. Berkshire Hathaway’s
largest energy holding is an 89.8% position in MidAmerican Energy, an
international energy company. The firm owns three other energy companies and
HomeServices of America, the second largest full service residential real estate
brokerage firm in the United States.
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Manufacturing, Service and Retailing Business
Berkshire Hathaway is in the process of completing the purchase of Marmon, a
firm that consist of 130 manufacturing and service business that operate
independently within eleven diverse, standalone business sectors including but
not limited too; construction services, food and service equipment, highway
technologies, and industrial products. Berkshire Hathaway owns 90% of
Marmon’s outstanding stock and will complete its buyout of the firm by 2014.
McLane Company is another firm in this sector that focuses on providing
wholesale distribution and logistics services in all 50 states and internationally
in Brazil. Wal-Mart accounts for 30% of McLane’s revenue and 98% of the
company’s overall revenues come from grocery and foodservices.
Other manufacturing, Other Service, and Retailing Businesses
Berkshire Hathaway has subsidiaries that compete in the Apparel
Manufacturing, Building products manufacturing, other manufacturing and
services, and retailing business. Its Apparel Manufacturing Business consists
primarily of Fruit of the Loom, Russell Brands, Vanity Fair Brands, Garan and
Fechheimer Brothers, H.H. Brown Shoe Group and Justin Brands. The firms
building products manufacturing consists of Acme Building Brands which
manufactures and distributes clay bricks, concrete bricks and cut limestone, and
much more. Berkshire Hathaway also owns Dairy Queen and See’s Candy
which are two large retail businesses.
Finance and Financial Products
Berkshire Hathaway’s finance and financial products sector consists of Clayton
Homes Inc. a vertically integrated manufacture housing company, XTRA
Corporation a leading transportation equipment lessor, and CORT Business
Services which is the leading national provider of rental relocation services.
Berkshire Hathaway Finance is conducted from its corporate headquarters and
run by Warren Buffet and Charles T. Munger. Berkshire Hathaway Finance
invests in fixed income instruments and the equities market with the objective of
earning above average investment returns.
Business Growth Strategies
Berkshire Hathaway plans to grow its business through acquisitions and
investments.
Acquisitions
Berkshire Hathaway has a stringent set of criteria for business acquisitions. The
criteria are as follows:
Acquistions
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Acquistions
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Large purchases (at least $75 million of pre-tax earnings unless the business
will fit into one of our existing units),
Demonstrated consistent earning power (future expectations are of no
interest to us, nor are “turnaround” situations),
Businesses earning good returns on equity while employing little or no debt,
Management in place (we can’t supply it),
Simple businesses (if there’s lots of technology, we won’t understand it),
An offering price (we don’t want to waste our time or that of the seller by
talking, even preliminarily, about a transaction when price is unknown).
Business acquisitions must meet all the aforementioned criteria. The company is
more interested in larger acquisitions, typically in the $5-20 billion range. When
approached with an offer, the firm customarily answers the seller within five
minutes indicating whether or not they are interested. The firm prefers to buy in
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cash but will issue stock if necessary. Recently, the firm has acquired H.J. Heinz
Corporation, a U.S. processing company widely known for its Ketchup, in a
joint venture with 3G Capital.
Treasury Bill 3-Month Rates
18
16
14
12
10
8
6
4
2
12420
13547
14671
15797
16923
18050
19176
20302
21429
22555
23682
24807
25934
27061
28185
29312
30437
31564
32690
33817
34943
36069
37196
38322
39448
40575
0
Investments
Outside of acquisitions, the firm plans to grow through investments in the fixed
income and equities market. Over the 48 years that Buffet has controlled
Berkshire Hathaway the company’s annual percentage change in per-share book
value has returned 19.7% compounded annually. Relatively, through the same
time period the S&P 500 (including dividends) has returned 9.4%. This gives
Berkshire Hathaway a compounded annual alpha of 10.3% over the 48 year
period. In 2012, Berkshire Hathaway’s per share book value percentage return
was lower than the S&P 500, a feat that has happened but nine times out of the
past 48. Buffet comments that in eight of the nine years that the S&P 500 has
outperformed Berkshire Hathaway the index gained 15% or more. In
conclusion, Berkshire Hathaway may underperform the market in times of
economic prosperity but the firm will likely outperform the market in times of
economic despair. Lack of a large acquisition in 2012 may be partly responsible
for Berkshire Hathaway’s subpar performance.
Warren Buffet and Charles T. Munger are active investors in value securities.
Warren Buffet defines investing as “the transfer to others of purchasing power
now with the reasoned expectation of receiving more purchasing power – after
taxes have been paid on nominal gains – in the future.” (2011 Annual Report).
Buffet goes on to explain that he does not use beta as a risk proxy, but he uses
the reasoned probability of an investment causing its owners a loss of
purchasing period over the investment period. Warren Buffet classifies three
types of investments and explains Berkshire Hathaway’s investment strategy in
relation to each.
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Currency Based Investments
Currency based investments include money-market funds, bonds, mortgages,
bank deposits, and other instruments. In 2011, Berkshire invested $20 billion in
fixed income bonds, primarily U.S. Treasury bills given its high liquidity. The
firm will never invest less than $10 billion in fixed income bonds. Outside of
U.S. Treasury bills, Buffet claims that he is not an advocate of currency based
investments given the current rates inability to provide purchasing power to
investors because the rate of return offered is often lower than the combination
of an investors tax rate and the inflationary rate. In the pasts, Berkshire
Hathaway has only invested in currency based investments if rates are high
enough to realize substantial capital gain when interest rates fall or if a credit is
mispriced.
Nonproductive Assets
In Buffets 2011 annual Letter to Shareholders he portrays his dislike of investing
in nonproductive assets (assets that will not change over time). For example he
speaks to his disdain of gold by stating that element creates little utility outside
of industrial and decorative use. Buffet believes that people who invest in
nonproductive assets do so because they hope that an investor will desire it even
more so in the future than they do. Furthermore, when prices of nonproductive
assets increase investors use the price increase as justification for an investment
thesis. This type of investing, he believes, leads to the burst of bubbles such as
the tulip bubble of 1637, the dot-come bubble of 2000, and the housing bubble
of 2007. Berkshire Hathaway does not invest in any nonproductive assets.
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Productive Assets
Buffet’s favorite class of investments is those of productive assets such as
businesses, farms or real estate. Buffet believes productive assets will thrive in
the future due to their ability to provide goods and services that consumers are
willing to pay for. “In the future the U.S. population will move more goods,
consume more food, and require more living space than it does now. People will
forever exchange what they produce for what others produce.” (Annual Letter to
Shareholders 2011) This view is the fundamental base behind Buffets
investment theory of acquiring or investing in cash efficient simple businesses
that produce goods or services. Ideally the firm would invest in a company by
acquiring it, but if that were not possible the firm would take a large stake in its
marketable securities. Buffet believes that this investment category will be the
most profitable of the aforementioned three categories and emphasizes that more
importantly, it will be far safer. Berkshire’s “Big Four” investments consist of
American Express, Coca-Cola, IBM and Wells Fargo.
Industry
Overview
Berkshire Hathaway operates in numerous industries through its subsidiaries.
The main industries are insurance, retail, sales and manufacturing, railroad
transportation, utilities, and energy.
Insurance and Reinsurance
Insurance is the transfer of risk to a company in exchange for annual payments,
premiums, from consumers. Insurance companies cover life, health, auto, natural
disaster, and more. The more risky a consumer, the larger premium an insurance
company will charge to cover that consumer. Reinsurance exists to assume
portions of risks taken on by insurance companies. Reinsurance companies
primarily serve as a means for risk management for insurance companies. Given
the high amounts of risks reinsurance companies take on, they demand great
compensation in payment. In the insurance and reinsurance industry there are
relatively no barriers to entry outside of regulatory issues. This leads to price
competition as well as firms attempting to distinguish them based on reliability.
The insurance industry was strongly affected during the financial meltdown of
2008. Given the line of business, there will always be a need for insurance and
therefore there is always going to be growth potential. There are a plethora firms
that compete in the insurance industry.
Retail, Sales and Manufacturing
Retail, sales, and manufacturing industries exist to provide consumers with
goods and services. Buffet is a strong advocate of this line of business stating
that people will always be willing to trade what they make for what others make.
Based on this ideal there will always be growth potential in this industry as long
as firms can innovative and create/offer products or services that consumer’s
desire. This industries success and extent of growth potential is largely
dependent on economic conditions. In times of economic prosperity, this
industry will see high growth and vice versa. Input costs are dependent upon the
product sold, offered, or manufactured. Similarly, input costs are dependent on
economic conditions. Since there is vast competition throughout these industries
marketing and sales campaigns play a large role in a company’s success. CocaCola, a holding of Berkshire Hathaway, for example has historically had
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recognizable and well received campaigns which have contributed to its great
global success. Working capital requirements vary by product. There are a
plethora firms that compete in the retail, sales, and manufacturing industry.
Railroad, Utilities, and Energy
Railroad transportation business exists to transport people and goods through
the country. The railroad has large capital requirements and input costs. Large
growth potential exists but is in risk of newer cost effective and efficient
transportation means. High competition exists within the industry due to the
introduction of new means of transportation. The railroad business is constantly
trying to innovate and implement new operation efficiencies to improve
productivity. Based on the streamlining of multiple railroad companies higher
competition has increased. The utilities and energy industry exists to supply
businesses and consumers with energy. There are large working capital
requirements in this industry. There will always be growth potential based on
the constant need for energy. Competition exists in creating environmentally
efficient and cost effective m means of creating energy. Energy demand is
cyclical with the highest demand in the summer and winter months. There are a
plethora firms that compete in the railroad, utilities, and energy industry.
Management and Employee Relations
Warren E. Buffet – Chairman, President & CEO
Warren Edward Buffet, Omaha, Nebraska native, is an American business
magnate, investor and philanthropist. Buffets interest in making money dates
back to his childhood days when he would sell chewing gum, coca cola, and
deliver newspapers. At the age of 11 he bought three shares of Cities Service
Preferred for himself and three for his sister. Buffet attended the Wharton
Business School of the University of Pennsylvania for two years before
transferring to the University of Nebraska-Lincoln where he received his
Bachelor of Science in Business Administration. Soon after, he attended
Columbia University after learning that Benjamin Graham, author of “The
Intelligent Investor” (one of Buffet’s favorite books on investing) and David
Dodd were teaching there.
Today, he is widely considered one of the most successful investors of the 20 th
century. Currently, he is ranked as the third richest man in the world with a net
worth of $44 billion dollars. In 2012, Time magazine named Buffet one of the
most influential people in the world. He is constantly praised not only for his
savvy investing abilities but for his humble approach and humanitarian views.
Buffet has long been an activist of raising the taxes on those who earn the
highest income in the United States. Buffet, being 80 years old, has stated that
upon his passing he will donate 98% of his net worth to various philanthropies.
Buffet has said that he will be succeeded at Berkshire Hathaway by a team
consisting of a CEO and three or four investment managers who would each be
responsible for a significant portion of the Berkshire Hathaway portfolio.
Charles T. Munger – Vice Chairman
Charlie Munger, Vice Chairman of Berkshire Hathaway, is Omaha, Nebraska
native just like Buffet. Munger’s career began after he graduated from Harvard
Law with a Juris Dcotor magna cum laude. While he initially worked as a
lawyer, he eventually began to concentrate on investment management. Buffet
claims that Munger generated compounded annual returns of 19.8% over a 13
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year period that the Dow returned a mere 5.0%. Munger was previously the
chairman of Wesco Financial Corporation which is now a wholly owned
subsidiary of Berkshire Hathaway. Munger believes that holding a concentrated
number of stocks in companies he knows very well will produce long term
success. Munger, Tolles & Olson LLP law firm represents Berkshire Hathaway.
Munger is much more of a generalist at Berkshire Hathaway, investing being a
small part of his overall role.
Todd Combs - Investment Manager
Todd Combs is an American hedge fund manager. Combs graduated from
Florida State University before obtaining his graduate degree from Columbia
Business School. Combs launched a hedge fund called Castle Point Capital
which reportedly returned 34% return to investors. Many believe that Combs is
a potential successor of Warren Buffet as the chief investment officer of
Berkshire Hathaway. Combs’ was brought onto Berkshire Hathaway in 2011.
Ted Weschler – Investment Manager
“R. Ted Weschler, 50, has been a director of WSFS Financial Corporation since
2009. His current term expires at the 2013 Annual Meeting of Stockholders…
Since early 2012, Mr. Weschler has served as an investment manager of
Berkshire Hathaway…Prior to joining Berkshire Hathaway, Mr. Weschler
served as the Managing Partner of Peninsula Capital Advisors, LLC which he
formed in 1999. Peninsula managed a pool of capital that, on behalf of its
clients, made substantial long-term investments in publicly-traded companies
possessing both strong prospects and outstanding management teams. In 1989,
Mr. Weschler was founding partner of Quad-C, a private equity firm. Prior to
that, he spent six years with W.R. Grace & Co. holding several positions,
including Assistant to J. Peter Grace, Assistant to the Vice Chairman, as well as
several capacities within their Corporate Development Group. Mr. Weschler
received his B.S. in Economics with concentrations in finance and accounting
from The Wharton School of the University of Pennsylvania.” - Forbes
In Berkshire Hathaway’s 2012 Annual Report he proclaimed “Todd Combs and
Ted Weschler, our new investment managers, have proved to be smart, models
of integrity, helpful to Berkshire in many ways beyond portfolio management,
and a perfect cultural fit. We hit the jackpot with these two. In 2012 each
outperformed the S&P 500 by double-digit margins. They left me in the dust as
well.”
Both Combs and Weschler are believed to be potential candidates for the team
that will succeed Buffet.
Management Guidance
As far as earnings go, management does not provide forward looking
predictions. In Buffet’s Annual Report he recaps the happenings of its
subsidiaries over the previous year ended. Often, when commenting on the past
year results Buffet will make estimates on forward estimates on sales increases.
As far as 2013 goes, the firm expects to increase its insurance float yet again,
make huge investments in BNSF and capital expenditures, acquire another large
company, close the H.J. Heinz deal in the 3rd quarter, increase Brooks shoes
sales by 23%, and make a decision on whether or not to exercise 43,478,260
shares of Goldman Sach’s common stock warrants and 134,831,460 shares of
General Electric common share warrants which expire in October 2013.
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Portfolio History
We do not hold and have not held BRK-B in any portfolio.
Recent News
“Buffet: $24 Billion Gain ‘Subpar’
- 3/1/2013, Wall Street Journal
“Warren Buffett bemoaned Berkshire Hathaway Inc.'s BRKB( -0.11%) failure to
land a major acquisition during 2012 to use its swelling cash hoard, and in his
annual letter to shareholders called his company's performance "subpar" despite
a $24 billion increase in its net worth.”
In Warren Buffet’s most recent annual letter to shareholders he proclaimed that
this year’s performance was subpar due to the firm’s inability to outperform the
S&P 500 return based on per-share book value percentage gain. This is only the
ninth time out of 48 years that the firm has underperformed the S&P 500, but it
is the third time in five years. Buffet proclaims that beating the market when the
market rallies is a tough feat to due and that Berkshire Hathaway’s relative
performance thrives when the market is down or flat. In the annual letter, Buffet
also commented on the firm’s inability to close a large acquisition.
“Berkshire Hathaway buys more shares of DaVita”
- 2/27/2013, CBS News
“Billionaire Warren Buffett's company continues buying stock in kidney dialysis
firm DaVita (DVA) and now controls nearly 16 percent of the company.”
Berkshire Hathaway has begun to invest largely in the kidney dialysis firm that
runs numerous outpatients dialysis clinics. This investment is believed to be
made by, not Warren Buffet, but one of his new investment managers. This is
interesting because it gives us insight into what we may expect to see from
Berkshire Hathaway in the future.
“Berkshire Hathaway, 3G Capital to buy Heinz for $28 bln”
- 2/14/2013, Wall Street Journal
“Heinz, a brand in virtually every American kitchen, is selling itself for $23
billion to another household name— Warren Buffett—and a Brazilian privateequity firm that is anything but.”
Berkshire Hathaway’s most recent acquisition Berkshire Hathaway
uncharacteristically teamed up with Brazilian private-equity firm 3G Capital to
buyout Heinz. Heinz is most widely known for its ketchup and sauces but also
sells numerous other branded goods such as frozen foods and infant nutrition.
Heinz has been seeing large growth in Europe. This is not Buffets first foray into
the food processing industry, Berkshire Hathaway also owns See’s Candy and
Dairy Queen and holds a large stake in Coca-Cola.
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Catalysts
Upside
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Large acquisitions that boost revenue and investor faith in return to
shareholders
Further success and confidence from Todd Combs and Ted Weschler in
order to instill confidence in investors about potential successors of the
“Sage of Omaha” (Warren Buffet)
Success of Coca-Cola, American Express, Wels-Fargo, and IBM
Downside
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Poor health or the leave of Warren Buffet could cause adverse price
movements in Berkshire Hathaway’s stock
Lack of acquisitions that will generate cash flows
SEC regulation of acquisitions given Berkshire Hathaway’s wide spread
influence in many industries
Economic prosperity is both a boon in the terms that Berkshire Hathaway’s
subsidiaries will bring in large revenues. It is a curse in the sense that the firm’s
per-share book value percentage return has relatively struggled during times that
the markets have rallied.
Comparable Analysis – 50%
Given Berkshire Hathaway’s uniqueness in regards to business structure finding
comparable companies was very difficult. When screening for comparable I
attempted to find mature companies with similar product offerings and risks as
Berkshire Hathaway. In the end I decided to use four comparable companies;
General Electric Company, Wall-Mart Stores Inc., Allstate Corp. and Hartford
Financial Services Group. I believe these four companies enrapture the future
growth and risk that Berkshire Hathaway faces. Through the combination of
comparable companies I was able to create a similar business model as
Berkshire Hathaway. General Electric covers the finance and financial products
and the manufacturing of industrial goods, Wal-Mart covers the retail sales
sector, Allstate and Hartford cover the insurance industry.
General Electric Company – 30%
“General Electric Company operates as a technology and financial services
company worldwide.” (Yahoo Finance) The firm’s four main segments are
energy, technology infrastructure, capital finance, and consumer and industrial.
The firm is in the conglomerate industry which was a main reason I choose them
as a comparable for Berkshire Hathaway. The firm is the third largest company
in the world according to the Forbes Global 2000. The company has made large
acquisitions and investments into companies it believes will be profitable to
their business.
Although General Electric Company is more focused on the technology side of
business, I choose the firm as a comparable company given their similar market
capitalization and diverse business offerings.
UOIG 10
3/5/2103
University of Oregon Investment Group
Wal-Mart Stores Inc. – 30%
“Wal-Mart Stores, Inc. operates retail stores in various formats worldwide. It
operates retail stores, restaurants, discount stores, supermarkets, supercenters,
hypermarkets, warehouse clubs, apparel stores, Sam’s Clubs, and neighborhood
markets, as well as walmart.com; and samsclub.com.” (Yahoo Finance) WalMart Stores is the largest private employer in the world. It is the largest grocery
store in the United States, generating 51% of revenue from grocery retailing in
2009. The firm has 8,500 stores in 15 countries under 55 different names. WalMart offers low costs groceries and consumer goods, often in bulk.
Wal-Mart was chosen as a comparable company because a large amount of the
goods produced by Berkshire Hathaway subsidiaries are sold at Wal-Mart.
Furthermore, the company’s sales are also affected by economic conditions just
like Berkshire Hathaway. Furthermore, the firm is mature and has a large market
capitalization.
Allstate Corporation – 20%
“The Allstate Corporation, through its subsidiaries, engages in the provision of
personal property and casualty insurance, life insurance, and retirement and
investment products primarily in the United States. The company’s Allstate
Protection segment sells private auto and homeowner’s insurance products
under the Allstate and Encompass brand names, as well as auto insurance
products under the Esurance brand through agencies and directly through call
centers and the Internet.” (Yahoo Finance). Allstate is the second largest
personal liners insurer in the United States and the largest that is publicly held.
The company has multiple marketing campaigns for its auto insurance and is a
large competitor of GEICO. For this reason, I choose Allstate Corporation as a
comparable company. Given that the firm is an insurance company it faces
similar risks going into the future.
Hartford Financial Services Group – 20%
“The Hartford Financial Services Group, Inc., together with its subsidiaries,
provides insurance and financial services primarily in the United States and
Japan.” (Yahoo Finance) Hartford Financial Services Group is one of
America’s largest investment and insurance companies. The company operates
a diverse business of insurance and investments which is similar to Berkshire
Hathaway.
Hartford Financial Services Group was chosen as a comparable company
because it business focuses on insurance and investments which is a large
segment of Berkshire Hathaway’s business. The firm faces similar risk in the
future because of the insurance business.
Discounted Cash Flow Analysis – 50%
As far as revenue goes, I made projections of based on percentage of sales as
well as what I thought was reasonable for industries such as insurance, retail and
sales, and the railroad business. Net Working Capital projections were also
made using percentage of sales. Given the high complexity of Berkshire
Hathaway’s business I used a percentage of sales method to make future
projections for Discounted Cash Flow Analysis.
Revenue Model
I broke down Berkshire Hathaway’s revenue model into six segments; Insurance
Premiums Earned, Sales and service revenues, Revenues of railroad, utilities,
and energy businesses, Interest, dividend and other investment income, interest
and other revenues of finance and financial products, and investment derivative
gains/losses. I added Heinz to the revenue model in order to accurately predict
UOIG 11
University of Oregon Investment Group
3/5/2103
future sales given that the company’s sales were not included in past financial
statements and Heinz’s revenue is significant.
% Of Revenue 2012
Insurance Premium Earned
2.53% 2.11%
2.79%
4%
Sales and service revenues
21.26%
Insurance Premium Earned
Insurance Premium Earned consists of premium payments paid by customers of
Berkshire Hathaway’s multiple insurance companies in return for insurance
coverage should a covered event occur. In order to predict the firm’s revenues of
Insurance Premiums Earned in the future I applied a percentage of revenue
method based on historical trends. Over time I projected that Insurance Premium
Earned would decrease as percentage of revenue given that I believe the firm
will acquire more retail, manufacturing, and service firms moving forward than
insurance firms.
Revenues of railroad, utilities and energy
businesses
20.06%
Interest, dividend and other investment
income
Interest and other revenues of finance and
financial products
Investment derivative gains/losses
51.25%
Heinz*
1.70%
2.00%
% Revenue 2017
3.00%
Insurance Premium Earned
19.82%
Sales and service revenues
Revenues of railroad, utilities
and energy businesses
21.20%
Interest, dividend and other
investment income
52.50%
Interest and other revenues of
finance and financial products
Heinz*
Sales and Service Revenues
Sales and service revenues consists of sales of consumer and industrial goods
and services through Berkshire Hathaway’s many subsidiaries including but not
limited to Marmon, McLane, Fruit of the Loom, See’s Candy, Dairy Queen, and
Heinz. Moving forward I projected sales and services revenues to increase as a
percentage of revenue because I believe the firm will continue to acquire
businesses that create sales and service in a more rapid pace. I base this
assumption off of recent acquisitions by the firm such as Heinz and multiple
media companies.
Revenues of railroad, utilities, and energy businesses
Revenues of railroad, utilities, and energy businesses were projected using a
percentage of sales method, historical trends, and my personal beliefs of future
economic growth. Given that revenues of railroad business is largely dependent
on the current economic situation I believe that revenues will increase in the
future as the United States economy begins to revitalize and strengthen.
Furthermore, I believe that utilities and energy businesses will continue to
increase in the future based on the same economic assumptions. As the economy
strengthens more goods will be shipped, more buildings will be built, and more
energy will be needed. All of these will lead to increased revenues in railroad,
utilities, and energy businesses.
Interest, Dividend and other income investment
This line item comes from investment, dividend, and other income investment
gain from the investment of Berkshire Hathaway’s various insurance
companies’ float. In order to project future earnings for this line item I used a
percent of revenue approach based on historical movements of the line item.
Although the company does generate exceptional returns from this line item I
decreased this revenue driver into the future as a percent of revenue given
historical trends and the company’s ever-growing business structure.
Interest and other revenues of finance and financial products
This consists of revenues from the interest gained on investments as well as
revenues from finance and financial products offered by Berkshire Hathaway’s
subsidiaries. My projections are based off of historical trends in percent of
revenue. This line item has been steadily decreasing over the past four years and
I projected it to keep a similar pace decreasing by 100 basis points by 2017E.
Investment derivative gains/losses
Given these line items extremely volatility I did not project it into the future.
Rarely does it account for a large portion of revenue and its return is largely
dependent on Buffets decision to exercise options. I treated this line item like
interest income by not projecting it.
Heinz*
UOIG 12
University of Oregon Investment Group
3/5/2103
Heinz revenue was not included into Berkshire Hathaway’s overall revenue until
3/31/2013E. I used a historical percent of revenue approach to project earnings
in the future. Included in this category are total sales for H.J. Heinz as an entire
company.
Discounted Free Cash Flow Assumptions
Tax Rate
29.00% Terminal Growth Rate
3.00%
Risk Free Rate (10-Year)
1.97% Terminal Value
540,438
Risk Free Rate (30-Year)
3.08% PV of Terminal Value
285,195
Beta
Market Risk Premium
0.89 Sum of PV Free Cash Flows
61,996
5.67% Firm Value
347,191
% Equity
66.94% Total Debt
60,384
% Debt
33.06% Cash & Cash Equivalents
37,626
Cost of Debt
4.30% Market Capitalization
CAPM 10 Yr
6.99% Fully Diluted Shares
WACC 10 Yr
5.69% Implied Price
CAPM 30 Yr
8.10% Current Price
102.05
WACC 30 Yr
6.43% Undervalued
13.56%
Beta
286,807
2,475
115.89
SD
Weighting
5 Year Monthly
0.59
0.12
11.11%
3 Year Daily
0.96
0.02
11.11%
1 Year Weekly
0.79
0.08
11.11%
Vasicek Beta 5 Year Monthly
0.81
0.13
11.11%
Vasicek Beta 3 Year Weekly
0.96
0.04
11.11%
Vasicek Beta 1 Year Weekly
0.84
0.10
11.11%
Hamada Beta 5 Year Monthly
1.04
0.10
11.11%
Hamada Beta 3 Year Weekly
1.07
0.02
11.11%
Hamada Beta 1 Year Weekly
0.92
0.09
11.11%
Berkshire Hathaway Inc. Cl B Beta
0.89
Net Working Capital Model
In order to project net working capital I used a historical trends based on
percentage of revenue. In order to project acquisitions and capital expenditure I
took a weighted average of each categories percentage of revenue over the past
four years and applied it going forward. Capital Expenditures were projected to
be 4.5% of Considerations
revenue annually and acquisitions were projected to be 5% annually.
There is a good chance that acquisitions and capital expenditures will end up
varying greatly from my projections. Any differences would also affect revenue
growth which will cause for an offset in the effects. I am confident that
Berkshire Hathaway will be able to maintain the margins I have projected
although actual capital expenditures and acquisitions may vary.
Discounted Cash Flow Analysis
All line items in the Discounted Cash Flow were projected using historical
trends in percentage of revenue.
Costs of Goods sold decreases in years 2104-2017 as revenue growth begins to
slow and economies of scale are reached within its many subsidiaries. Selling,
general, and administrative is projected solely using historical trends in
percentage of revenues changes. Depreciation and amortization were projected
using a straight-line 10 year depreciation model. All expenses and interest
expenses were projected based off of weighted average percentage of revenue
over the past four years. I projected the tax rate to be 29% and reached this tax
rate by taking a weighted average of the tax rate in the past four years. Given
that the firm had high free cash flow growth, 15%, in 2017E I used intermediate
growth rates in a step down method. From 2018E – 2022E free cash flow
growth rates of 13%, 11%, 9%, 7%, and 5% were used to create a smooth
transition into the 3% terminal growth rate.
DCF Assumptions
My DCF assumptions include a terminal tax rate of 29%. This is the average tax
rate that Berkshire Hathaway has been able to maintain over the past four years.
I included a 10 year risk free rate of 1.97% and a 30 year risk free rate of 3.08%
to be used in calculating the 10 year and 30 year CAPM. Also included in the
calculation of CAMP is the market risk premium which we used Professor
Damodaran’s (NYU) recommended 5.67%. I used an implied Beta of 0.89
which is composed of a weighted average of 1, 3 and 5 year Vasicek Beta’s,
Hamada Beta’s and Beta’s. I believe this is an appropriate beta for the firm
given that it is vastly diversified and mature. Using the aforementioned inputs I
calculated the 10 year CAPM to be 6.99% and the 30 year CAPM to be 8.10%.
Both CAPM’s were used to further calculate the weighted average cost of
capital (WACC) for 10 and 30 years respectively. In calculating the 10 and 30
year WACC’s I used the firm’s current 33.06% debt and 66.94% equity capital
structure. Furthermore, I estimated cost of debt to be 4.30% based off a current
weighted average of coupons on the firms outstanding bonds. I am confident
that this is a good estimate of the firms future cost of debt because of its AAA
rating and strong balance sheet. The 10 year WACC of 5.69% was used to
discount the cash flows in the next ten years and the 30 year WACC of 8.10%
was applied to the terminal value of the firm. A terminal growth rate of 3% was
applied because as a group the University of Oregon Investment Group predicts
this to be the rate the U.S. economy will continue to grow at.
UOIG 13
3/5/2103
University of Oregon Investment Group
Recommendation
I recommend a BUY for both the Tall Firs and Svigals portfolio. Based on my
valuation the company is undervalued by 13.56% and will be a benefit to both
portfolios. Berkshire Hathaway is an established firm that will continue to grow
through strategic acquisitions and investments in fundamental cash efficient
companies. Warren Buffet and Charlie Munger have proven their ability to
manage the company and I am confident they will bring in and train an excellent
group of successors, such as Todd Combs and Ted Weschler. The firm’s diverse
portfolio of subsidiaries will allow for steady cash flows that will continue to
return cash to shareholders well into the future. Berkshire Hathaway will be an
excellent addition to both Tall Firs and Svigals given their value investment
strategy.
Final Implied Price
Method
Implied Price
Weight
DCF Analysis
$ 115.89
50%
LTM Comps
$ 118.19
25%
Forward Comps
$ 114.33
25%
Price Target
$ 116.07
Current Price
$ 102.05
Overvalued
13.74%
UOIG 14
3/5/2103
University of Oregon Investment Group
Appendix 1 – Comparable Analysis (Forward)
Comparables Analysis
Berkshire
BRK.B
GE
WMT
Hathaway Inc. Cl General Electric Wal-Mart Stores
B
Co.
Inc.
($ in millions)
Stock Characteristics
Current Price
Beta
Max
$98.72
2.10
Min
$23.05
0.39
Size
Short-Term Debt
Long-Term Debt
Cash and Cash Equivalent
Preferred Stock
Diluted Basic Shares
Market Capitalization
Enterprise Value
12,719.0
414,100.0
125,700.0
0.0
10,564.0
245,274.6
540,892.0
0.0
6,057.0
0.0
0.0
486.8
10,510.5
17,149.0
0.0
24,352.0
3,890.5
0.0
1,941.0
128,910.3
159,574.2
Growth Expectations
% Revenue Growth 2013E
% Revenue Growth 2014E
% EBITDA Growth 2013E
% EBITDA Growth 2014E
% EPS Growth 2013E
% EPS Growth 2014E
11.0%
8.5%
24.0%
27.9%
12.3%
10.5%
-36.1%
2.3%
-0.1%
2.2%
5.1%
5.9%
45.98%
19.99%
20.45%
11.30%
Profitability Margins
Gross Margin
EBIT Margin
EBITDA Margin
Net Margin
Credit Metrics
Interest Expense
Debt/EV
Leverage Ratio
Interest Coverage Ratio
Operating Results
Revenue
EBIT
EBITDA
Net Income
Multiples
EV/Revenue
EV/EBIT
EV/EBITDA
Market Cap/Net Income = P/E
Median
Weight Avg.
$36.96
$43.03
1.22
1.17
ALL
Allstate Corp.
Hartford
HIG
Financial
Services Group
$98.72
0.89
30.00%
$23.05
1.45
30.00%
$71.11
0.39
20.00%
$45.56
0.99
20.00%
$28.35
2.10
3,815.7
139,323.9
40,044.3
0.0
4,381.9
150,799.1
258,612.5
9,112.0
51,272.0
37,626.0
0.0
2,474.8
245,013.9
245,013.9
0.0
414,100.0
125,700.0
0.0
10,564.0
245,274.6
540,892.0
12,719.0
41,417.0
7,781.0
0.0
3,389.0
235,504.7
290,854.6
0.0
6,057.0
0.0
0.0
493.0
22,315.8
28,293.8
0.0
7,287.0
0.0
0.0
486.8
10,510.5
17,149.0
2.7%
3.5%
3.2%
6.5%
6.6%
10.0%
-4.3%
3.7%
6.7%
6.5%
7.4%
10.0%
11.0%
8.5%
8.6%
27.9%
12.3%
5.9%
1.7%
4.6%
1.0%
9.6%
10.2%
10.0%
5.5%
4.4%
5.4%
5.7%
6.6%
9.9%
3.8%
2.6%
-0.1%
2.2%
6.7%
9.7%
-36.1%
2.3%
24.0%
7.2%
5.1%
10.5%
20.40%
5.99%
7.78%
3.58%
35.20%
9.80%
12.32%
8.00%
21.12%
10.24%
13.40%
7.67%
20.40%
19.99%
19.99%
7.88%
45.98%
15.07%
20.45%
11.30%
24.41%
5.99%
7.78%
3.58%
9.70%
12.69%
7.86%
9.91%
11.95%
8.15%
$2,687.00
0.77
13.51
52.11
$0.00
0.19
1.42
0.00
$431.00
0.32
2.67
6.78
$392.60
0.41
5.54
18.35
$2,687.00
0.25
2.00
10.06
$0.00
0.77
13.51
0.00
$734.00
0.19
1.42
52.11
$373.00
0.21
1.72
9.44
$489.00
0.42
3.61
4.13
$491,794.1
$29472.8
$38248.2
$45709.9
$16,881.2
$1672.1
$2017.2
$1375.5
$88,810.9
$12635.5
$17085.7
$9561.7
$201,426.6
$16488.4
$21777.1
$11079.7
$180,333.9
$22479.8
$27025.0
$45709.9
$149,877.60
$22,579.35
$30,649.66
$16,943.15
$491,794.10
$29,472.80
$38,248.24
$17,618.66
$27,744.29
$2,691.56
$3,521.67
$2,180.17
$16,881.20
$1,672.09
$2,017.18
$1,375.46
3.61x
23.96x
17.65x
14.48x
0.59x
9.87x
7.60x
5.36x
1.02x
10.38x
8.27x
11.80x
1.67x
14.30x
10.88x
11.93x
1.36
10.90
9.07
5.36
3.61
23.96
17.65
14.48
0.59
9.87
7.60
13.37
1.02
10.51
8.03
10.24
1.02
10.26
8.50
7.64
Multiple
EV/Revenue
EV/EBIT
EV/EBITDA
Market Cap/Net Income = P/E
Price Target
Current Price
Undervalued
Implied Price
Weight
112.29
10.00%
120.70
40.00%
109.64
50.00%
220.32
0.00%
$114.33
98.72
15.81%
UOIG 15
3/5/2103
University of Oregon Investment Group
Appendix 1 – Comparable Analysis (LTM)
Comparables Analysis
BRK.B
Berkshire
Hathaway
($ in millions)
Stock Characteristics
Current Price
Beta
Max
$148,480.00
1.94
Min
$23.05
0.44
Size
Short-Term Debt
Long-Term Debt
Cash and Cash Equivalent
Preferred Stock
Diluted Basic Shares
Market Capitalization
Enterprise Value
12,719.0
414,100.0
125,700.0
0.0
10,564.0
248,679.6
540,892.0
0.0
6,057.0
0.0
0.0
486.8
10,510.5
17,149.0
0.0
24,352.0
3,890.5
0.0
1,941.0
128,910.3
159,574.2
Growth Expectations
% Revenue Growth 2013E
% Revenue Growth 2014E
% EBITDA Growth 2013E
% EBITDA Growth 2014E
% EPS Growth 2013E
% EPS Growth 2014E
11.00%
8.50%
23.98%
27.90%
12.30%
10.49%
-36.09%
2.30%
-0.12%
2.22%
5.08%
5.90%
Profitability Margins
Gross Margin
EBIT Margin
EBITDA Margin
Net Margin
45.98%
41.90%
41.90%
9.62%
Credit Metrics
Interest Expense
Debt/EV
Leverage Ratio
Interest Coverage Ratio
Operating Results
Revenue
EBIT
EBITDA
Net Income
Multiples
EV/Revenue
EV/EBIT
EV/EBITDA
Market Cap/Net Income = P/E
Median
Weight Avg.
$36.96
$43.03
1.11
1.08
GE
WMT
General Electric Wal-Mart Stores
Co.
Inc.
ALL
Allstate Corp.
HIG
Hartford Financial
Services Group
$148,480.00
0.89
30.00%
$23.05
1.17
30.00%
$71.11
0.44
20.00%
$45.56
1.05
3,815.7
139,323.9
40,044.3
0.0
4,381.9
150,799.1
258,612.5
9,112.0
51,272.0
37,626.0
0.0
2,474.8
248,679.6
266,462.6
0.0
414,100.0
125,700.0
0.0
10,564.0
245,274.6
540,892.0
12,719.0
41,417.0
7,781.0
0.0
3,389.0
235,504.7
290,854.6
0.0
6,057.0
0.0
0.0
493.0
22,315.8
28,293.8
0.0
7,287.0
0.0
0.0
486.8
10,510.5
17,149.0
2.74%
3.49%
3.17%
6.47%
6.63%
9.98%
-4.30%
3.68%
6.68%
6.47%
7.39%
10.03%
11.00%
8.50%
8.57%
27.90%
12.30%
5.90%
1.7%
4.6%
1.0%
9.6%
10.2%
10.0%
5.5%
4.4%
5.4%
5.7%
6.6%
9.9%
3.8%
2.6%
-0.1%
2.2%
6.7%
9.7%
-36.1%
2.3%
24.0%
7.2%
5.1%
10.5%
20.40%
6.14%
6.14%
3.71%
35.20%
11.76%
23.21%
5.70%
21.12%
19.12%
23.69%
6.28%
20.40%
19.99%
19.99%
7.88%
45.98%
41.90%
41.90%
9.62%
24.41%
6.14%
6.14%
3.71%
14.94%
26.60%
6.92%
8.58%
19.82%
4.47%
$2,687.00
0.77
6.67
23.76
$0.00
0.19
0.68
0.00
$431.00
0.32
2.63
14.73
$392.60
0.41
3.56
12.63
$2,687.00
0.23
2.00
11.23
$0.00
0.77
6.67
0.00
$734.00
0.19
3.72
19.83
$373.00
0.21
0.68
23.76
$489.00
0.42
1.55
9.64
$237,098.0
$62,128.0
$62,128.0
$14,268.0
$23,781.0
$2,041.0
$4,714.0
$1,063.0
$90,798.5
$9,765.0
$11,707.0
$5,552.0
$127,033.2
$24,407.9
$25,719.3
$7,593.6
$150,999.0
$30,180.0
$30,180.0
$11,896.0
$148,282.0
$62,128.0
$62,128.0
$14,268.0
$237,098.0
$14,553.0
$14,553.0
$8,798.0
$33,315.0
$4,977.0
$8,861.0
$2,306.0
$23,781.0
$2,041.0
$4,714.0
$1,063.0
3.65x
19.99x
19.99x
26.77x
0.72x
5.68x
3.19x
9.68x
1.04x
8.55x
6.17x
13.54x
1.78x
11.43x
9.97x
17.10x
1.76
8.83
8.83
20.90
3.65
8.71
8.71
17.19
1.23
19.99
19.99
26.77
0.85
5.68
3.19
9.68
0.72
8.40
3.64
9.89
Multiple
EV/Revenue
EV/EBIT
EV/EBITDA
Market Cap/Net Income = P/E
Price Target
Current Price
Undervalued
20.00%
$28.35
1.94
Implied Price
Weight
99.19
10.00%
130.13
40.00%
112.43
50.00%
82.20
0.00%
$118.19
98.72
19.72%
UOIG 16
3/5/2103
University of Oregon Investment Group
Appendix 2 – Discounted Cash Flows Analysis
Discounted Cash Flow Analysis
Q2
Q3
Q4
09/30/2012A
12/31/2012E
Q1
Q3
Q4
09/30/2013E
12/31/2013E
$143,688.0
$38,147.0
$38,546.0
$41,050.0
$44,720.0
$162,463.0
$43,280.1
$46,436.0
$44,632.6
$45,985.2
$180,333.9
$195,662.3
$209,358.7
$221,920.2
% YoY Growth
-8.85%
4.37%
21.06%
5.51%
13.13%
0.71%
21.67%
17.82%
13.07%
13.46%
20.47%
8.73%
2.83%
11.00%
8.50%
7.00%
6.00%
5.00%
$61,133.0
$58,259.0
$70,943.0
$77,892.0
$20,213.0
$20,070.0
$22,281.0
$28,054.0
$91,352.0
$24,128.7
$25,888.1
$24,882.7
$25,866.6
$100,536.2
$104,160.8
$111,378.8
$116,951.9
$116,997.4
% Revenue
Heinz*
56.72%
51.79%
52.09%
54.21%
52.99%
52.07%
54.28%
62.73%
56.23%
55.75%
55.75%
55.75%
56.25%
55.75%
53.24%
53.20%
52.70%
50.21%
Gross Profit
$46,653.0
$54,234.0
$65,242.0
$65,796.0
$17,934.0
$18,476.0
$18,769.0
$16,666.0
$71,111.0
$19,151.5
$20,547.9
$19,749.9
$20,118.5
$79,797.8
$91,501.5
$97,979.9
$104,968.3
$116,018.8
Depreciation and Amortization
% Revenue
Insurance losses and loss adjustment expenses
% Revenue
Life, annuity and health insurance benefits
% Revenue
Insurance underwritting expenses
% Revenue
Other
% Revenue
03/31/2013E
Q2
$136,185.0
% Revenue
2012E
06/30/2013E
$112,493.0
Selling General and Administrative Expense
2011A
06/30/2012A
$107,786.0
Gross Margin
2010A
Q1
2008A
Total Revenue
Cost of Goods Sold
2009A
03/31/2012A
($ in millions)
2013E
2014E
2015E
2016E
2017E
$233,016.2
43.28%
48.21%
47.91%
45.79%
47.01%
47.93%
45.72%
37.27%
43.77%
44.25%
44.25%
44.25%
43.75%
44.25%
46.77%
46.80%
47.30%
49.79%
$8,052.0
$8,117.0
$7,704.0
$8,670.0
$2,428.0
$2,476.0
$2,573.0
$3,026.0
$10,503.0
$2,705.0
$2,911.5
$2,811.9
$2,989.0
$11,417.4
$12,307.2
$13,147.7
$13,870.0
$14,505.3
7.47%
7.22%
5.66%
6.03%
6.36%
6.42%
6.27%
6.77%
6.46%
6.25%
6.27%
6.30%
6.50%
6.33%
6.29%
6.28%
6.25%
6.23%
$2,810.0
$3,127.0
$4,279.0
$4,683.0
$1,253.0
$2,518.0
$641.0
$734.0
$5,146.0
$3,453.7
$3,688.5
$4,116.8
$4,545.1
$4,545.1
$20,039.3
$22,028.2
$24,136.4
$26,862.7
2.61%
2.78%
3.14%
3.26%
3.28%
6.53%
1.56%
1.64%
3.17%
7.98%
7.94%
9.22%
9.88%
2.52%
10.24%
10.52%
10.88%
11.53%
$16,259.0
$18,251.0
$18,087.0
$20,829.0
$4,771.0
$4,586.0
$5,016.0
$5,740.0
$20,113.0
$5,401.8
$5,781.3
$5,489.8
$5,663.1
$22,336.0
$24,164.3
$25,855.8
$27,407.1
$28,777.5
15.08%
16.22%
13.28%
14.50%
12.51%
11.90%
12.22%
12.84%
12.38%
12.48%
12.45%
12.30%
12.32%
12.39%
12.35%
12.35%
12.35%
12.35%
$1,840.0
$1,937.0
$4,453.0
$4,879.0
$1,092.0
$1,351.0
$1,284.0
$1,387.0
$5,114.0
$1,449.5
$1,555.1
$1,494.7
$1,540.0
$6,039.4
$6,574.3
$7,055.4
$7,467.6
$7,829.3
1.71%
1.72%
3.27%
3.40%
2.86%
3.50%
3.13%
3.10%
3.15%
3.35%
3.35%
3.35%
3.35%
3.35%
3.36%
3.37%
3.37%
3.36%
$4,634.0
$6,236.0
$6,196.0
$6,119.0
$2,117.0
$1,534.0
$1,943.0
$2,099.0
$7,693.0
$2,047.2
$2,205.7
$2,106.7
$2,184.3
$8,543.8
$9,196.1
$9,871.3
$10,408.1
$10,998.4
4.30%
5.54%
4.55%
4.26%
5.55%
3.98%
4.73%
4.69%
4.74%
4.73%
4.75%
4.72%
4.75%
4.74%
4.70%
4.72%
4.69%
4.72%
$3,521.0
$3,022.0
$2,914.0
$2,638.0
$651.0
$700.0
$684.0
$760.2
$2,795.2
$748.7
$803.3
$772.1
$795.5
$3,119.8
$3,326.3
$3,590.5
$3,794.8
$4,007.9
3.27%
2.69%
2.14%
1.84%
1.71%
1.82%
1.67%
1.70%
1.72%
1.73%
1.73%
1.73%
1.73%
1.73%
1.70%
1.72%
1.71%
1.72%
$1,040.9
$1,033.4
$1,117.5
$1,152.2
$309.1
$295.8
$310.9
$310.9
$1,226.7
$315.9
$339.0
$325.8
$335.7
$1,316.4
$1,369.6
$1,423.6
$1,498.0
$1,561.2
Heinz*
Selling General and Administrative Expense
% Revenue
Earnings Before Interest & Taxes
% Revenue
Interest Expense (Insurance)
% Revenue
Interest Expense (Finance and Finacial Products)
% Revenue
Interest Income
% Revenue
Earnings Before Taxes
% Revenue
Less Taxes (Benefits)
Tax Rate
.97%
.92%
.82%
.80%
.81%
.77%
.76%
.70%
.76%
.73%
0.00%
.73%
.73%
.73%
.70%
.68%
.68%
.67%
$9,537.0
$13,544.0
$21,609.0
$17,978.0
$5,622.0
$5,311.0
$6,628.0
$2,919.8
$19,746.8
$3,029.7
$3,263.4
$2,632.1
$2,065.7
$22,479.8
$14,524.5
$15,007.4
$16,386.2
$21,476.5
8.85%
12.04%
15.87%
12.51%
14.74%
13.78%
16.15%
6.53%
12.15%
4.49%
12.47%
7.00%
7.03%
5.90%
7.42%
7.17%
7.38%
9.22%
$156.0
$189.0
$278.0
$308.0
$103.0
$106.0
$105.0
$83.0
$397.0
$115.6
$124.0
$119.2
$122.8
$481.5
$528.3
$586.2
$632.5
$675.7
.1447%
.1680%
.2041%
.2144%
.2700%
.2750%
.2558%
.1856%
.2444%
.2670%
.2670%
.2670%
.2670%
.2670%
.2700%
.2800%
.2850%
.2900%
$639.0
$627.0
$703.0
$653.0
$160.0
$151.0
$148.0
$143.0
$838.9
$602.0
$168.8
$181.1
$174.1
$179.3
$703.3
$743.5
$774.6
$798.9
.59%
.56%
.52%
.45%
.42%
.39%
.36%
.32%
.37%
.39%
.39%
.39%
.39%
.39%
.38%
.37%
.36%
$602.0
$386.0
$527.0
$492.0
$121.0
$123.0
$134.0
$110.0
$488.0
$0.0
$0.0
$0.0
$0.0
$0.0
$0.0
$0.0
$0.0
$0.0
.56%
.34%
.39%
.34%
.32%
.32%
.33%
.25%
.30%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
$8,176.0
$11,938.0
$19,578.0
$15,806.0
$5,052.0
$4,738.0
$6,070.0
$2,311.8
$17,437.8
$2,429.4
$2,619.3
$2,013.0
$1,427.9
$19,978.6
$11,824.3
$12,118.2
$13,334.8
$18,260.9
5.61%
5.64%
4.51%
.36%
7.59%
10.61%
14.38%
11.00%
13.24%
12.29%
14.79%
5.17%
10.73%
3.11%
11.08%
6.04%
5.79%
6.01%
7.84%
$1,978.0
$3,538.0
$5,607.0
$4,568.0
$1,565.0
$1,384.0
$1,882.0
$670.4
$5,501.4
$704.5
$759.6
$583.8
$414.1
$2,462.0
$3,429.1
$3,514.3
$3,867.1
$5,295.6
24.19%
29.64%
28.64%
28.90%
30.98%
29.21%
31.00%
29.00%
29.00%
29.00%
29.00%
29.00%
29.00%
29.00%
29.00%
29.00%
29.00%
29.00%
Heinz*
Interest Income
% Revenue
Interest expense
% Revenue
Other (expense)/ Income
$20.8
$32.1
$22.6
$11.3
$3.4
$4.2
$4.2
$3.9
$15.6
.02%
.03%
.02%
.01%
.01%
.01%
.01%
.01%
.01%
$182.4
$169.8
$147.9
$137.7
$36.4
$36.7
$36.7
$35.0
$144.7
.17%
.15%
.11%
.10%
.10%
.10%
.09%
.08%
.09%
$8.7
$9.3
$8.9
$9.2
$36.1
.02%
.02%
.02%
.02%
.02%
$77.9
$83.6
$80.3
$82.8
$324.6
$352.2
$39.1
$376.8
$41.9
$399.5
$44.4
$419.4
$46.6
.18%
.18%
.18%
.18%
.18%
($8.1)
$46.5
($9.1)
($10.6)
($1.4)
($1.1)
$1.1
($3.1)
($4.5)
($13.0)
($13.9)
($13.4)
($13.8)
($54.1)
($58.7)
($62.8)
($66.6)
($69.9)
Net Income
Net Margin
$6,198.0
$8,400.0
$13,971.0
$11,238.0
$3,487.0
$3,354.0
$4,188.0
$1,641.4
$11,922.2
$1,733.5
$1,869.0
$1,438.2
$1,023.0
$17,552.7
$8,434.4
$8,645.8
$9,512.1
$13,011.8
Add Back: Depreciation and Amortization
$2,810.0
$4,683.0
$1,253.0
$2,518.0
$5,146.0
$3,453.7
$3,688.5
$4,116.8
$4,545.1
$4,545.1
$20,039.3
$22,028.2
$24,136.4
$26,862.7
Add Back: Interest Expense*(1-Tax Rate)
Operating Cash Flow
% Revenue
Current Assets
% Revenue
Current Liabilities
% Revenue
Net Working Capital
% Revenue
% Revenue
Acquisitions
% Revenue
Unlevered Free Cash Flow
$4,279.0
$641.0
$198.4
$219.0
$71.1
$75.0
$72.4
$58.9
$281.9
$82.0
$88.0
$84.6
$87.2
$341.9
$375.1
$416.2
$449.1
$479.8
$18,448.4
$16,140.0
$4,811.1
$5,947.0
$4,901.4
$2,434.3
$17,350.0
$5,269.2
$5,645.6
$5,639.6
$5,655.3
$22,439.6
$28,848.8
$31,090.2
$34,097.6
$40,354.3
8.47%
10.37%
13.55%
11.23%
12.61%
15.43%
11.94%
5.44%
10.68%
12.44%
14.74%
14.85%
15.36%
17.32%
$61,907.0
$65,884.0
$81,681.0
$79,445.0
$82,372.0
$82,931.0
$85,086.0
$91,229.0
$92,674.3
$102,662.9
$107,448.0
$113,482.9
$119,379.8
$122,811.2
EBITDA Margin
EBITDA Growth
$90,022.7
$95,365.6
$94,563.2
$102,662.9
57.44%
58.57%
59.98%
55.29%
215.93%
215.15%
207.27%
204.00%
57.04%
208.00%
205.37%
211.87%
223.25%
56.93%
54.92%
54.21%
53.79%
52.71%
$24,627.0
$28,425.0
$37,469.0
$41,818.0
$33,511.0
$33,851.0
$32,465.0
$45,957.9
$47,092.9
$44,784.1
$48,746.2
$47,745.8
$56,953.0
$56,953.0
$63,778.1
$68,278.7
$72,261.7
$75,689.5
22.85%
25.27%
27.51%
29.10%
87.85%
87.82%
79.09%
102.77%
28.99%
103.48%
104.98%
106.98%
123.85%
31.58%
32.60%
32.61%
32.56%
32.48%
$37,280.0
$37,459.0
$44,212.0
$37,627.0
$48,861.0
$49,080.0
$52,621.0
$45,271.1
$45,581.4
$45,238.6
$46,619.4
$46,817.4
$45,709.9
$45,709.9
$43,669.8
$45,204.2
$47,118.1
$47,121.7
35%
33%
32%
26%
128%
127%
128%
101%
28%
105%
100%
105%
99%
25%
22.32%
21.59%
21.23%
$179.0
$6,753.0
($6,585.0)
$11,234.0
$219.0
$3,541.0
($7,349.9)
$7,954.4
($342.8)
$1,380.8
$198.0
($1,107.5)
$128.6
($2,040.1)
$1,534.3
$1,913.9
$3.6
$6,138.0
$4,937.0
$5,980.0
$8,191.0
$2,160.0
$4,579.0
$7,193.0
$9,775.0
$9,775.0
$3,372.4
$4,057.5
$7,141.2
$8,115.0
$8,115.0
$8,804.8
$9,421.1
$9,986.4
$13,981.0
5.69%
4.39%
4.39%
5.70%
5.66%
11.88%
17.52%
21.86%
6.02%
7.79%
8.74%
16.00%
17.65%
4.50%
4.50%
4.50%
4.50%
6.00%
$15,924.0
$8,685.0
$339.0
$469.0
$9,016.7
$9,016.7
$9,783.1
$10,467.9
$11,096.0
$13,281.9
$6,050.0
$108.0
$1,831.0
$549.0
$3,188.0
$12,000.0
$2,254.2
$2,254.2
20.22%
5.61%
.10%
11.69%
6.04%
.89%
1.22%
4.46%
1.23%
1.96%
27.73%
4.85%
5.05%
19.61%
5.00%
5.00%
5.00%
5.00%
5.70%
($3,061.7)
$6,436.0
($10,208.6)
$5,849.0
($8,921.9)
$680.0
($7,663.6)
($539.7)
($3,567.3)
($9,760.4)
($2,047.0)
($3,953.8)
($10,368.9)
$5,179.4
$12,300.9
$9,666.8
$11,101.2
$13,087.8
-532.3
-9494.1
-1963.7
-3740.9
-9675.9
10860.9
8075.6
8774.7
9788.1
0.25
0.50
0.75
1.00
1.25
2.25
3.25
4.25
5.25
6483.4
6951.9
6748.9
6610.8
34563.7
37035.5
40522.6
48339.2
Discounted Free Cash Flow
EBITDA
$734.0
$133.0
$11,660.0
Change in Working Capital
Capital Expenditures
$3,127.0
$118.3
$9,126.3
12347.0
0.11
16671.0
25888.0
22661.0
6875.0
7829.0
7269.0
3653.8
24892.8
27025.0
0.15
0.19
0.16
0.18
0.20
0.18
0.08
0.15
0.15
0.15
0.15
0.14
0.15
0.18
0.18
0.18
0.21
35.02%
55.29%
-12.47%
-69.66%
13.88%
-7.15%
-49.74%
9.85%
-73.95%
7.23%
-2.92%
-2.05%
8.57%
27.90%
7.15%
9.42%
19.29%
UOIG 17
Intermediate Growth Rate:
$0.1
2018E
2019E
2020E
2021E
2022E
$13,258.0
$14,716.3
$16,040.8
$17,163.7
$18,021.8
9,381.5
6.25
9,852.9
7.25
10,161.5
8.25
10,287.5
9.25
10,220.3
10.25
3/5/2103
University of Oregon Investment Group
Appendix 3 – Revenue Model
Revenue Model
($ in millions)
Insurance Premium Earned
2008A
2009A
2010A
2011A
Q1
Q2
Q3
Q4
03/31/2012A
06/30/2012A
09/30/2012A
12/31/2012E
2012E
Q1
Q2
Q3
Q4
03/31/2013E
06/30/2013E
09/30/2013E
12/31/2013E
2013E
2014E
2015E
2016E
2017E
25,525.0
27,884.0
30,749.0
32,075.0
8,065.0
8,428.0
8,851.0
9,201.0
34,545.0
8,656.0
9,542.6
8,926.5
9,197.0
36,322.2
38,574.8
41,348.3
44,339.7
46,183.8
% Revenue
23.68%
24.79%
22.58%
22.32%
21.14%
21.86%
21.56%
20.57%
21.26%
20.00%
20.55%
20.00%
20.00%
20.14%
19.72%
19.75%
19.98%
19.82%
YoY Growth
(19.69%)
9.24%
10.27%
4.31%
7.79%
(5.82%)
15.78%
15.03%
7.70%
7.33%
13.22%
.85%
(.04%)
5.14%
6.20%
7.19%
7.23%
4.16%
Sales and service revenues
65,854.0
62,555.0
67,225.0
72,803.0
19,264.0
20,814.0
20,982.0
22,208.0
83,268.0
22,375.8
23,682.4
23,052.8
23,797.3
92,908.3
102,722.7
109,494.6
116,175.2
122,333.5
% Revenue
YoY Growth
Revenues of railroad, utilities and energy businesses
61.10%
55.61%
49.36%
50.67%
50.50%
54.00%
51.11%
49.66%
51.25%
51.70%
51.00%
51.65%
51.75%
51.52%
52.50%
52.30%
52.35%
52.50%
13.07%
(5.01%)
7.47%
8.30%
14.86%
13.51%
12.97%
16.14%
14.37%
16.15%
13.78%
9.87%
7.16%
11.58%
10.56%
6.59%
6.10%
5.30%
13,971.0
11,443.0
26,364.0
30,839.0
7,896.0
7,810.0
8,419.0
8,457.0
32,582.0
8,742.6
9,496.2
9,149.7
9,335.0
36,723.4
39,915.1
43,776.9
46,237.1
49,399.4
21.20%
% Revenue
12.96%
10.17%
19.36%
21.46%
20.70%
20.26%
20.51%
18.91%
20.06%
20.20%
20.45%
20.50%
20.30%
20.36%
20.40%
20.91%
20.84%
YoY Growth
10.64%
(18.09%)
130.39%
16.97%
6.52%
4.58%
8.20%
4.02%
5.65%
10.72%
21.59%
8.68%
10.38%
12.71%
8.69%
9.67%
5.62%
6.84%
Interest, dividend and other investment income
5,140.0
5,531.0
5,215.0
4,792.0
1,067.0
1,420.0
994.0
1,053.0
4,534.0
1,082.0
1,160.9
1,115.8
1,149.6
4,508.3
4,466.0
4,501.2
4,593.7
4,660.3
% Revenue
4.77%
4.92%
3.83%
3.34%
2.80%
3.68%
2.42%
2.35%
2.79%
2.50%
2.50%
2.50%
2.50%
2.50%
2.28%
2.15%
2.07%
2.00%
YoY Growth
(.41%)
7.61%
(5.71%)
(8.11%)
(16.44%)
(.42%)
(5.42%)
1.46%
(5.38%)
1.41%
(18.25%)
12.26%
9.18%
(.57%)
(.94%)
.79%
2.06%
1.45%
Interest and other revenues of finance and financial products
4,757.0
4,293.0
4,286.0
4,009.0
959.0
1,017.0
1,005.0
1,128.0
4,109.0
930.5
998.4
959.6
988.7
3,877.2
3,722.5
3,747.5
3,883.6
3,961.3
% Revenue
4.41%
3.82%
3.15%
2.79%
2.51%
2.64%
2.45%
2.52%
2.53%
2.15%
2.15%
2.15%
2.15%
2.15%
1.90%
1.79%
1.75%
1.70%
YoY Growth
(3.33%)
(9.75%)
(.16%)
(6.46%)
5.15%
2.73%
1.21%
39.43%
2.49%
(2.97%)
(1.83%)
(4.52%)
(12.35%)
(5.64%)
(3.99%)
.67%
3.63%
2.00%
(7,461.0)
787.0
2,346.0
(830.0)
896.0
(943.0)
799.0
2,673.0
3,425.0
-
-
-
(6.92%)
.70%
1.72%
(.58%)
2.35%
(2.45%)
1.95%
5.98%
2.11%
-
-
-
-
-
-
-
-
(235.43%)
110.55%
198.09%
(135.38%)
543.16%
(185.34%)
133.99%
-
512.65%
-
-
-
-
-
-
-
-
-
5,247.4
5,046.9
5,251.0
5,648.3
1,458.3
1,523.6
1,394.7
1,412.4
5,789.0
1,493.2
1,555.6
1,428.2
1,517.5
5,994.5
6,261.2
6,490.1
6,690.9
6,990.5
Investment derivative gains/losses
% Revenue
YoY Growth
Heinz*
% Revenue
YoY Growth
Total
% Growth
-
-
-
-
-
-
-
0%
84.51%
0%
(3.82%)
0%
4.04%
0%
7.57%
0%
78.56%
0%
75.80%
0%
63.03%
3%
66.13%
4%
2.49%
3.45%
2.39%
3.35%
2.10%
3.20%
2.40%
3.30%
7.44%
3.32%
3.55%
3.20%
4.45%
3.10%
3.66%
3.02%
3.09%
3.00%
4.48%
107,786.0
112,493.0
136,185.0
143,688.0
38,147.0
38,546.0
41,050.0
44,720.0
162,463.0
43,280.1
46,436.0
44,632.6
45,985.2
180,333.9
195,662.3
209,358.7
221,920.2
233,016.2
(8.85%)
4.37%
21.06%
5.51%
13.13%
.71%
21.67%
17.82%
13.07%
13.46%
20.47%
8.73%
2.83%
11.00%
8.50%
7.00%
6.00%
5.00%
*Heinz revenue was not included until 03/31/2013E
UOIG 18
3/5/2103
University of Oregon Investment Group
Appendix 4 – Working Capital Model
Working Capital Model
($ in millions)
Total Revenue
Current Assets
Cash
2008A
2009A
107,786.0
25,540.0
2010A
112,493.0
136,185.0
2011A
143,688.0
% of Revenue
Accounts Receivable
Days Sales Outstanding A/R
% of Revenue
Inventory
23.70%
28,867.0
98.02
26.78%
7,500.0
30,560.0
27.17%
29,177.0
94.67
25.94%
6,147.0
Days Inventory Outstanding
44.90
38.51
36.53
42.06
6.96%
5.46%
5.21%
6.25%
% of Revenue
Q1
Q2
Q3
Q4
03/31/2012A
06/30/2012A
09/30/2012A
12/31/2012E
38,147.0
38,546.0
41,050.0
44,720.0
38,230.0
28.07%
36,350.0
97.42
26.69%
7,101.0
37,300.0
25.96%
33,170.0
84.26
23.08%
8,975.0
38,120.0
99.93%
35,170.0
83.90
40,660.0
105.48%
34,860.0
82.30
47,780.0
116.39%
34,560.0
77.45
46,992.0
105.08%
34,562.0
71.10
9,055.0
9,525.0
9,476.0
9,675.0
40.77
43.19
39.13
31.73
2012E
Q1
Q2
Q3
Q4
03/31/2013E
06/30/2013E
09/30/2013E
12/31/2013E
43,280.1
46,436.0
44,632.6
45,985.2
41,116.1
95.00%
38,952.1
81.00
90.00%
9,954.4
42,721.1
92.00%
40,863.7
80.08
88.00%
10,215.9
41,731.5
93.50%
40,838.9
84.18
91.50%
10,488.7
48,690.2
105.88%
40,007.1
80.04
87.00%
12,416.0
162,463.0
46,992.0
28.92%
34,562.0
77.65
21.27%
9,675.0
% Revenue
Total Current Assets (BRK.B)
2014E
180,333.9
2015E
195,662.3
48,690.2
27.00%
40,007.1
80.98
22.19%
12,416.0
2016E
209,358.7
48,915.6
25.00%
42,556.6
79.39
21.75%
13,011.5
2017E
221,920.2
51,921.0
24.80%
44,593.4
77.96
21.30%
13,817.7
233,016.2
55,036.2
24.80%
46,603.2
76.65
21.00%
14,424.8
57,788.0
24.80%
46,836.3
73.37
20.10%
14,819.8
38.66
37.13
35.91
38.78
44.16
45.08
45.60
45.41
45.02
46.23
5.96%
23.00%
22.00%
23.50%
27.00%
6.89%
6.65%
6.60%
6.50%
6.36%
0.00
0.00
0.00
0.00
Heinz*
Accounts Receivable
% of Revenue
Days Outstanding A/R
Inventories
% Revenue
Other Current Assets
2013E
613.0
0.57%
570.0
0.51%
519.5
0.38%
528.5
0.37%
555.5
1.46%
497.0
1.29%
503.0
1.23%
552.0
1.23%
552.0
0.34%
575.6
1.33%
617.6
1.33%
593.6
1.33%
611.6
1.33%
611.6
0.34%
655.5
0.34%
690.9
0.33%
721.2
0.33%
745.7
0.32%
762.5
0.71%
99.8
751.5
0.67%
83.9
679.5
0.50%
119.8
811.0
0.56%
129.8
758.0
1.99%
121.1
664.5
1.72%
114.5
681.0
1.66%
141.0
770.5
1.72%
122.8
770.5
0.47%
122.8
750.9
1.74%
132.0
805.7
1.74%
141.6
774.4
1.74%
136.1
797.8
1.74%
140.3
797.8
0.44%
140.3
782.6
0.40%
1,526.2
827.0
0.40%
1,633.0
865.5
0.39%
1,728.8
815.6
0.35%
1,805.9
0.09%
0.07%
0.09%
0.09%
0.32%
0.30%
0.34%
0.27%
0.08%
0.31%
0.31%
0.31%
0.31%
0.08%
0.78%
0.78%
0.78%
0.78%
61,907.0
65,884.0
81,681.0
79,445.0
82,372.0
82,931.0
85,086.0
91,229.0
92,674.3
90,022.7
95,365.6
94,563.2
102,662.9
102,662.9
107,448.0
113,482.9
119,379.8
122,811.2
57.44%
58.57%
59.98%
55.29%
215.93%
215.15%
207.27%
204.00%
57.04%
208.00%
205.37%
211.87%
223.25%
56.93%
54.92%
54.21%
53.79%
52.71%
1,988.8
62.11
58.125
1,051.0
1,058.0
2,254.2
48.09
0.154
1,195.5
1,106.9
2,323.0
61.05
0
1,257.0
1,127.0
2,577.5
87.59
0
1,375.5
1,289.6
2,590.0
137.2
0.975
1,385.6
1,342.6
2,572.2
42.1
0
1,392.0
1,222.4
2,641.7
87.8
0
1,420.5
1,309.0
2,659.7
129.6
0
1,445.6
1,343.7
2,659.7
129.6
0
1,445.6
1,343.7
% of Revenue
Long Term Assets
Heinz*
Net PP&E Beginning
Capital Expenditures
Acquisitions
Depreciation and Amortization
Net PP&E Ending
BRK.B
Net PP&E Beginning
45,157.0
46,656.0
93,126.0
100,391.0
101,727.0
102,831.0
104,847.0
106,872.0
106,872.0
114,689.0
126,607.8
129,230.9
134,509.5
134,509.5
147,096.1
145,644.7
143,505.6
140,451.6
Capital Expenditures
Acquisitions
Depreciation and Amortization
6,138.0
6,050.0
2,810.0
4,937.0
108.0
3,127.0
5,980.0
15,924.0
4,279.0
8,191.0
8,685.0
4,683.0
2,160.0
339.0
1,253.0
4,579.0
469.0
2,518.0
7,193.0
1,831.0
641.0
9,775.0
549.0
734.0
9,775.0
3,188.0
5,146.0
3,372.4
12,000.0
3,453.7
4,057.5
2,254.2
3,688.5
7,141.2
2,254.2
4,116.8
8,115.0
9,016.7
4,545.1
8,115.0
9,016.7
4,545.1
8,804.8
9,783.1
20,039.3
9,421.1
10,467.9
22,028.2
9,986.4
11,096.0
24,136.4
13,981.0
13,281.9
26,862.7
Net PP&E Ending
Total Current Assets & Net PP&E
% of Revenue
Current Liabilities
ST Debt and Current Portion LT Debt
% of Revenue
-
-
-
-
-
-
-
-
-
54,535.0
48,574.0
110,751.0
112,584.0
102,973.0
105,361.0
113,230.0
116,462.0
114,689.0
126,607.8
129,230.9
134,509.5
147,096.1
147,096.1
145,644.7
143,505.6
140,451.6
140,851.8
116,442.0
108.03%
114,458.0
101.75%
192,432.0
141.30%
192,029.0
133.64%
185,345.0
485.87%
188,292.0
488.49%
198,316.0
483.11%
207,691.0
464.43%
207,363.3
127.64%
216,630.5
500.53%
224,596.5
483.67%
229,072.7
513.24%
249,759.0
543.13%
249,759.0
138.50%
253,092.7
129.35%
256,988.5
122.75%
259,831.3
117.08%
263,662.9
113.15%
3,924.0
3.64%
4,637.0
4.12%
8,108.0
5.95%
9,112.0
6.34%
1,870.0
4.90%
2,010.0
5.21%
1,230.0
3.00%
10,596.9
23.70%
10,596.9
6.52%
5,410.0
12.50%
4,179.2
9.00%
4,909.6
11.00%
12,413.0
26.99%
12,413.0
6.88%
14,363.6
7.34%
15,363.3
7.34%
16,311.1
7.35%
17,010.2
7.30%
11,744.0
15,379.0
15,826.0
18,466.0
18,214.0
17,750.0
17,916.0
21,149.0
21,149.0
21,640.1
25,539.8
24,548.0
25,066.4
25,066.4
27,490.6
29,519.6
31,290.7
32,855.3
Insurance and Other
Accounts Payable
Days Payable Outstanding
% of Revenue
Utilities and Energy
Accounts Payable, accruals and other Liabs
% of Revenue
Days Payable Outstanding
Finance and Financial Products
Accounts Payable, accruals and other Liabs
% of Revenue
70.31
10.90%
96.35
13.67%
81.42
11.62%
86.53
12.85%
82.00
80.48
73.98
69.36
84.50
13.02%
80.72
89.78
90.76
89.15
96.33
14.05%
97.00
14.10%
97.66
14.10%
102.50
14.10%
16,266.1
35.37%
91.00
13.90%
0.00
16,266.1
9.02%
6,303.0
5.85%
5,895.0
5.24%
12,367.0
9.08%
13,016.0
9.06%
12,798.0
33.55%
12,877.0
33.41%
12,196.0
29.71%
13,113.0
29.32%
13,113.0
8.07%
14,715.2
34.00%
15,788.2
34.00%
15,175.1
34.00%
18,000.9
9.20%
19,198.2
9.17%
20,239.1
9.12%
21,204.5
9.10%
2,656.0
2.46%
2,514.0
2.23%
1,168.0
0.86%
1,224.0
0.85%
1,269.0
3.33%
1,214.0
3.15%
1,123.0
2.74%
1,099.0
2.46%
1,099.0
0.68%
1,298.4
3.00%
1,393.1
3.00%
1,339.0
3.00%
1,379.6
3.00%
1,379.6
0.77%
1,956.6
1.00%
2,093.6
1.00%
2,219.2
1.00%
2,330.2
1.00%
Days Payable Outstanding
Heinz*
ST Debt and Current Portion LT Debt
% Revenue
Accounts Payable
% Revenue
Income Tax Payable
725.1
25.1
449.0
435.0
423.4
123.4
460.3
457.9
457.9
476.1
510.8
491.0
505.8
505.8
547.9
586.2
621.4
629.1
0.67%
0.02%
0.33%
0.30%
1.11%
0.32%
1.12%
1.02%
0.28%
1.10%
1.10%
1.10%
1.10%
0.28%
0.28%
0.28%
0.28%
0.27%
615.5
578.0
519.5
609.5
548.5
601.0
572.5
639.0
639.0
614.6
659.4
633.8
653.0
653.0
704.4
769.4
792.3
850.5
0.57%
0.51%
0.38%
0.42%
1.44%
1.56%
1.39%
1.43%
0.39%
1.42%
1.42%
1.42%
1.42%
0.36%
0.36%
0.37%
0.36%
0.37%
41.8
43.6
32.6
66.6
63.8
50.8
48.4
38.2
38.2
54.1
58.0
55.8
57.5
57.5
58.7
57.6
55.5
52.4
0.04%
0.04%
0.02%
0.05%
0.17%
0.13%
0.12%
0.09%
0.02%
0.13%
0.13%
0.13%
0.13%
0.03%
0.03%
0.03%
0.03%
0.02%
Other Current Liabilities
340.5
419.3
505.0
520.9
523.9
548.7
490.6
-
575.6
617.6
593.6
611.6
611.6
655.5
690.9
732.3
757.3
% Revenue
Total Current Liabilities
% of Revenue
0.32%
24,627.0
22.85%
0.37%
28,425.0
25.27%
0.37%
37,469.0
27.51%
0.36%
41,818.0
29.10%
1.37%
33,511.0
87.85%
1.42%
33,851.0
87.82%
1.20%
32,465.0
79.09%
0.00%
45,957.9
102.77%
0.00%
47,092.9
28.99%
1.33%
44,784.1
103.48%
1.33%
48,746.2
104.98%
1.33%
47,745.8
106.98%
1.33%
56,953.0
123.85%
0.34%
56,953.0
31.58%
0.34%
63,778.1
32.60%
0.33%
68,278.7
32.61%
0.33%
72,261.7
32.56%
0.33%
75,689.5
32.48%
2.317818821
2.179962102
1.899779999
2.458058548
2.449883312
2.620853227
1.985053944
1.967901986
2.010147379
1.956370564
1.980556205
1.80258957
1.80258957
1.684714894
1.662053294
1.6520484
1.622565997
% Revenue
% of Accounts Receivable Quick
85%
% of Inventory Quick
65%
Current Ratio
2.513785682
UOIG 19
3/5/2103
University of Oregon Investment Group
Appendix 5 – Discounted Cash Flows Analysis Assumptions
Discounted Free Cash Flow Assumptions
Tax Rate
29.00% Terminal Growth Rate
Considerations
3.00%
Risk Free Rate (10-Year)
1.97% Terminal Value
536,970
Risk Free Rate (30-Year)
3.08% PV of Terminal Value
283,365
Beta
Market Risk Premium
0.89 Sum of PV Free Cash Flows
61,992
5.67% Firm Value
345,357
% Equity
66.94% Total Debt
60,384
% Debt
33.06% Cash & Cash Equivalents
37,626
Cost of Debt
4.30% Market Capitalization
CAPM 10 Yr
6.99% Fully Diluted Shares
284,973
WACC 10 Yr
5.69% Implied Price
115.15
CAPM 30 Yr
8.10% Current Price
102.05
WACC 30 Yr
6.43% Undervalued
12.83%
2,475
UOIG 20
3/5/2103
University of Oregon Investment Group
Appendix 6 –Sensitivity Analysis
Implied Price
Undervalued/(Ov
Adjusted Beta
Terminal Growth Rate
Ter
116
2.0%
2.5%
3.0%
3.5%
4.0%
0.69
$117.00
$135.72
$161.43
$198.97
$258.91
0.79
$101.70
$116.36
$135.82
$162.90
$203.15
0.89
$89.04
$100.76
$115.89
$136.18
$164.80
0.99
$78.39
$87.92
$99.95
$115.60
$136.81
1.09
$69.32
$77.18
$86.91
$99.27
$115.50
UOIG 21
University of Oregon Investment Group
3/5/2103
Appendix 8 – Sources
SEC Filings (BRK.B, GE, HNZ, WMT, ALL, HIG)
BerkshireHathaway.com
WallStreetJournal.Com
FactSet
Press releases
IBIS World
S&P Net Advantage
Yahoo Finance
Forbes
http://aswathdamodaran.blogspot.com/
http://www.measuringworth.com/datasets/gold/result.php
Berkshire Hathaway Annual Letter to Shareholders 2011 & 2012
CNBC
UOIG 22