Monthly Archives: April 2016

Dallas Nebraska Furniture Mart Lives Up To Its Promise

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When Berkshire Hathaway opened its newest Nebraska Furniture Mart in The Colony in Dallas, Texas, the goal was to generate an additional $600 million a year for the furniture chain, which already has the highest per-store volume of any furniture  retailer in the United States.

Boasting a 1.9 million-square-foot facility, and featuring a 560,000-square-foot showroom, the new Dallas NFM dwarfs even the chains other megastores in Omaha, Nebraska; Kansas City, Kansas; and Des Moines, Iowa.

Now, it looks like Berkshire is meeting its goal.

The newest NFM generated roughly $500 million in revenue last year despite having only been open since March 2015.

According to Berkshire’s 2015 annual report, the new store had an immediate impact.

“Revenues of our home furnishings retailers in 2015 increased $572 million (24%) over 2014, driven by Nebraska Furniture Mart, which opened a new store in March of 2015, and from increases at R.C. Willey and Jordan’s.”

NFM’s Biggest Challenge Isn’t Amazon

Unlike many companies that see Amazon and the internet as the big hurdle these days for brick and mortar retailers, NFM says its biggest hurdle is making customers aware that it sells things besides furniture. After all, the company has furniture in its name. When customers get in the store the discover it has one of the most extensive selections of appliances of any retailer.

Flying in the face of the adage that the era of the mall is dead, with retail migrating more and more to the internet, NFM has crafted a powerful regional draw that takes up lots of actual physical space rather than just cyberspace.

The new Dallas store is part of a 400+ acres, 3.9 million square-feet mix of retail, entertainment, dining and attractions that is going by the name of Grandscape.

In addition to retail, the mixed-use real estate development, which will have a ten year build out, will include a hotel and amphitheater, office space, and ±300 multi-family units.

Also included in the development is a $45 million “boardwalk,” district that abuts an 11-acre manmade lake.

NFM is betting that 18 million visitors will come to Grandscape each year, with 8 million of those visitors hopefully shopping at Nebraska Furniture Mart.

© 2016 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

PG&E Joins Berkshire Hathaway Energy Joint Venture

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Pacific Gas and Electric Company (PG&E) has formed a strategic alliance with TransCanyon, LLC (TransCanyon), a joint venture between subsidiaries of Berkshire Hathaway Energy and Pinnacle West Capital Corporation, to jointly pursue competitive transmission opportunities solicited by the California Independent System Operator Corporation (CAISO), the operator for the majority of California’s transmission grid.

“The competitive transmission landscape is going to be one of the fundamental strategies to help energy companies like ours drive the most effective transmission projects as we continue to build the power grid of the future. We believe our partnership with TransCanyon will provide a competitive advantage for future projects,” said Gregg Lemler, Vice President, Electric Transmission Operations at PG&E.

The strategic alliance will focus on CAISO competitive transmission projects that will benefit California customers.

“This alliance brings forth the best in both our teams in terms of knowledge of the Western transmission system and our collective experience in the competitive transmission markets,” said Jason Smith, President of TransCanyon. “Our alliance builds on these capabilities and reflects the commitment of PG&E and TransCanyon to provide safe, reliable, affordable and clean energy for all CAISO electric customers.”

The alliance will pursue competitive transmission projects that will be subject to approval by the CAISO and ultimately funded by consumers of electricity on the entire CAISO controlled grid, including PG&E’s customers.

“We want to ensure that PG&E customers are getting the best deal on transmission projects. We believe this alliance will strengthen our collective competitive capabilities to provide better value projects for our customers,” said Lemler.

In 2013, when competition was first introduced to the California transmission market, PG&E, in a joint bid with BHE U.S. Transmission, was selected by CAISO to jointly build, own and operate a transmission line project located in California’s Central Valley region.

In 2014, TransCanyon was formed as an independent developer of electric transmission infrastructure with a focus on the Western United States. It is a joint venture equally held by BHE U.S. Transmission and Bright Canyon Energy. BHE U.S. Transmission is a subsidiary of Berkshire Hathaway Energy, an energy holding company based in Des Moines, Iowa. Bright Canyon Energy is a subsidiary of Pinnacle West Capital Corporation (NYSE: PNW), an energy holding company based in Phoenix, Arizona.

In 2015, PG&E was also selected by the CAISO to build, own and operate two new electric substations in California’s Central Valley and the South Bay.

Each of PG&E’s winning bids were selected in separate competitive solicitations over other qualified bidders. The CAISO approved these projects as part of its annual Transmission Planning Process, and all of the projects will be subject to future approval from the California Public Utilities Commission.

© 2016 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

BYD Ups Its Foothold in Australia

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BYD Company Ltd., the Chinese battery-maker and vehicle manufacturer that is roughly 10-percent owned by Berkshire Hathaway, is increasing its electric vehicle foothold in Australia.

BYD has become the first Chinese electric vehicle manufacturer to be certified by the Australian Design Rules (ADRs), the country’s stringent technical standards for emissions, vehicle safety and theft resistance.

The company is already in the Australian market, with its pure electric buses in a shuttle service tested for Sidney Airport between December 2014 and May 2015.

It has also sold its pure electric forklift in Sydney and Melbourne.

BYD’s big vehicle news is the introduction of its e6 pure electric crossover for use as taxi.

According to BYD, with the ADRs certification, the BYD e6 taxi got the green light to access the Australian market, meaning that the company’s global electrified public transportation platform now extends to yet another major market.

7+4 Strategy

BYD’s comprehensive “7+4” electrification strategy in the Australia region aims at electrification of all forms of ground transportation: urban bus, coach, taxi, passenger car, urban logistics trucks, construction trucks, and urban sanitation trucks (7), as well as vehicles for warehousing, mining, airports and ports (4).

The company now gets one step closer to fulfilling its lofty electrification plans in a country that prizes sustainable development.

Currently, the BYD e6 and K9 global footprint is present in over 190 cities in 43 countries in all continents.

BYD and Berkshire Hathaway

In 2008, Berkshire Hathaway bet on BYD’s potential, purchasing 225 million shares, and today owns roughly 9.1% of the company.

For More on BYD, read the Special Report: BYD, Berkshire’s Tesla.

© 2016 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

BNSF Fights Lower Volumes With Lower Prices

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BNSF is responding to weak demand for coal and petroleum by lowering its rates for grain and pulse crops.

BNSF is trying to encourage grain producers to move some of their surplus out of storage and into the market.

“BNSF is always evaluating market-based conditions in evaluating rates and, as a result of our recent review, made the adjustments in the northern tier states,” John Miller, group vice-president of agricultural products, was quoted in the Farm and Ranch Guide.

It’s a far cry from May 2014, when BNSF was running two months and 500 car loads behind. Back then it was the overwhelming demand for BNSF’s mobile oil pipeline that was creating rail congestion as 100-car oil trains caused backlogs for grain shippers.

BNSF has cut its price for shipping grain by $100 a carload, and cut the rates $75 per carload for shipping pulse crops, such as peas and lentils.

BNSF is facing soft demand for coal, petroleum, and metallic ores that has only worsened as the year has gone on.

BNSF’s total carloads for coal are down 35.58% year-to-date through April 16, 2016, for petroleum they are down 26.6%, and for metallic ores, carloads are down 37.61%.

Combined carloads, including intermodal freight, are down 7.7% year-to-date from the same period in 2015.

The drop in shipping volume has the railroad idling hundreds of locomotives and furloughing some 400 employees.

© 2016 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

UTLX Dramatically Scales Back Tank Car Production

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The collapse in crude oil prices that has shuttered wells in the United States, and lowered oil train traffic for BNSF Railway, is also impacting the Union Tank Car Company (UTLX).

UTLX has announced that it is cutting its production by 50-percent.

The Berkshire Hathaway-owned company will cut 230 jobs in Houston, Texas, and also plans to lay-off employees at its plant in Alexandria, Louisiana, as well.

UTLX has sent a Worker Adjustment and Retraining Notification letter to the Texas Workforce Commission notifying it that the tank car facility located on Old Beaumont Highway 90 will be the source of the Texas layoffs.

UTLX will still employ 323 people at the Houston facility after the job cuts are completed in June.

Jeremy DeLacerda, UTLX manufacturing general manager, cited the “current market conditions and the industry-wide demand outlook for railroad tank cars,” as the reason for the lay-offs and production cuts.

“When the economy rebounds and greater demand returns, I look forward to increasing our staffing levels accordingly,” DeLacerda added.

Not the First Time

This is not the first time that UTLX has had to dramatically scale back production due to soft demand.

The UTLX manufacturing facility at England Airpark in Alexandria, Louisiana, endured similar lay-offs in 2006.

“You never want to hear news like this, but it’s not a surprise,” notes Jim Clinton, president and CEO of Central Louisiana Economic Development Alliance

“We knew they would have to cut production on some level,” Clinton added. “I’m sure they were hoping it would not be to the extent this apparently is. But the market is what the market is. They’re a good company that’s responding to market conditions.”

© 2016 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Berkadia Buys Cleveland-Based Mortgage-Banking Firm

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When people talk about hot real estate markets they usually don’t talk about Cleveland, Ohio, but that may be about to change. At least Berkshire Hathaway seems to think so.

Berkadia Commercial Mortgage, Berkshire Hathaway’s joint venture with Leukadia, has acquired Cleveland-based mortgage-banking firm RiverCore Capital.

RiverCore Capital is headed by managing partner Mark J. Vogel.

Among the company’s major transactions were $84,000,000 in non-recourse bridge financing for the One Cleveland Center Penton Media building, and $92,000,000 in senior debt financing for the Flats East Bank.

“Obviously Cleveland’s an interesting market, and it’s one that doesn’t have a lot of national players,” said Justin Wheeler, chief executive officer at Berkadia.

It does now.

© 2016 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Lubrizol to Close Latexo Plant in 2017

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Lubrizol, a wholly-owned company of Berkshire Hathaway, has decided to close its Latexo, Texas manufacturing facility. The plant was acquired by Lubrizol in December 2014 when it purchased the oilfield chemicals business from Weatherford International PLC.

At the time, the acquisition was valued somewhere in the realm $750-$825 million.

The Latexo facility produces chemical treatments for oil and gas production and produces waters, as well as additives for drilling, work-over and stimulation operations. The facility currently has 40 employees.

Lubrizol anticipates shuttering the Latexo facility in the first quarter of 2017, after it has finished transitioning production to other facilities.

Lubrizol says that everything possible will be done to ensure that the employees are treated with respect and compassion as the transition takes place, and employees affected by the plant closure will be offered severance packages.

© 2016 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Commentary: Is a Vote Against Bill Gates’s Berkshire Board Membership Getting Closer?

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Having Bill Gates on your board of directors would seem to be a plum thing for any corporation, and for Berkshire Hathaway it’s something they have enjoyed for the last twelve years since he was elected to the board in 2004.

However, according to a report in the Financial Times, UK-based asset management companies Legal & General Investment Management and Aberdeen Asset Management have announced they will vote against board members that have been serving more than fifteen years.

The move is no threat to Bill Gates at this time, but would impact three of Berkshire’s board members that have been serving for more than fifteen years.

Paul Lee, head of corporate governance at Aberdeen, feels that board members “go a bit stale” if they serve for an extended period.

The view that long-term board membership makes a board of directors to compliant and lacking in independence is at the heart of the move to create more turnover. Another issue that often cited is to foster more board diversity, which at most U.S. corporations is overwhelmingly male and white.

Berkshire Hathaway’s thirteen member board has three women, with the most recent one to join being Meryl Witmer, an investment fund manager for Eagle Capital Partners.

So, should you toss Bill Gates off your board after fifteen or twenty years because you have an arbitrary policy on the length of board membership?

Doesn’t make much sense to me.

Corporations should be looking for board members that provides the best advice and oversight. Berkshire’s board will play a key role in the selection and oversight of Warren Buffett’s successor. A deep knowledge and belief in Berkshire Hathaway’s corporate culture is one of the key things they can contribute. They also need to weigh the value of having stability, and in the case of Bill Gates, having a high-profile board member that gets listened to every time he comments, whether it is in the boardroom, or in the press.

© 2016 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Dairy Queen Plans Major Northern California Expansion

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It seems just about every week now Dairy Queen announces a major expansion. Recently it announced that it would be opening hundreds of new locations in Massachusetts and South Carolina.

Now, the frozen treat and “fan food” purveyor is planning to triple its northern California locations, adding another 200 locations to its existing 98 locations.

Dairy Queen hasn’t been a common sight in the Bay area, with only 12 locations currently open.

In all, Dairy Queen, which has moved from a summer treats business to a year-round food and ice cream business model, plans to add 400 locations in California.

New locations will begin opening in 2017.

For more information read a Mazor’sEdge special report on Dairy Queen.

© 2016 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Berkshire All-In on Wind Power

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Berkshire Hathaway, which is already one of the world-leaders in utility-scale solar and wind power electricity generation, has announced plans for a $3.6 billion, 2,000 megawatt wind farm in Iowa.

The plant, which will feature 1,000 wind turbines, will be owned by MidAmerican Energy Company, a unit of Berkshire Hathaway Energy.

The announcement comes as MidAmerican puts the finishing touches on its just constructed 51 turbine, 119.6 megawatt wind farm located east of the town of Macksburg.

When the Wind XI wind farm is completed, MidAmerican will generate 85 percent of its energy in Iowa from wind.

“We have a dream to deliver 100 percent renewable energy to our customers,” MidAmerican CEO Bill Fehrman said. “For customers, the benefits are clear: clean energy produced right here in Iowa using an abundant natural resource,” Fehrman added. “Unlike coal or natural gas, renewable energy has no fuel costs associated with it. Harnessing the wind is free.”

The Wind XI wind farm will be built utilizing federal 10-year tax incentives, which will enable its construction without the costs being passed on the ratepayers.

© 2016 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.