Month: March 2016

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BNSF Marmon Group UTLX

New UTLX Plant Retrofits DOT-111 and CPC-1232 Tank Cars

(BRK.A), (BRK.B)

Tank Car manufacturer and servicer Union Tank Car (UTLX), which is owned by Berkshire Hathaway, has opened a remanufacturing facility in Marion, Ohio, to retrofit DOT-111 and CPC-1232 specification railroad tank cars.

Under the Enhanced Standards for New and Existing Tank Cars for use in an HHFT— existing tank cars must be retrofitted in accordance with the DOT-prescribed retrofit design or performance standard for use in an HHFT.

An HHFT is defined as a train carrying 20 or more tank carloads of flammable liquids (including crude oil and ethanol).

The need for replacement and retrofitted tank cars impacts shippers that ship by rail, including shippers of LPG, oil producers and refiners, and ethanol producers that own their own tank cars or lease them from leasing companies, and Berkshire’s BNSF Railway’s own fleet of tank cars, which includes a portion of the 25,000 tank cars it acquired in September 2015 from GE Railcar Services.

The retrofitting adds top fittings protection, thermal insulation, an 11-gauge steel jacket, full ½-inch thick head shields, and a bottom outlet valve handle that disengages from the valve when the car is in transit. In addition, DOT-117R cars also have their trucks and brakes reconditioned.

Retrofitting existing tank cars is an important bridge to safer shipping of flammable liquids, as the current backlog of new tank car orders sits at a record 52,000 units.

The new facility currently can retrofit two tank cars a day using a specially designed drum welder that fabricates the tank jackets, and the plant will rewrap 60 tank cars a week when it reaches full capacity.

The Ohio Tax Credit Authority granted a 55-percent, 5-year tax credit to UTLX for the creation of $8,272,000 in new annual payroll, provided that the company maintains operations at the facility for 11 years.

UTLX also received a $75,000 grant from the Ohio Rail Development Commission to cover the cost of on-site rail improvements.

Under the corporate umbrella of Berkshire’s Marmon Group, UTLX owns and manages a total of 120,000 railroad cars.

© 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.

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Lubrizol

Lubrizol Debuts Self-Healing Thermoplastic

(BRK.A), (BRK.B)

The human body has had one clear advantage over plastic, get a scratch and you heal, scratch your glasses and you are out of luck. Until now.

The Lubrizol Corporation’s Engineered Polymers business, showcased several new and differentiated polymer solutions at Plastimagen 2016 in Mexico City, Mexico, on March 8-11, 2016.

Among the products it debuted was Estane® VSN 9000 Thermoplastic Polyurethane (TPU), which has unique self-healing properties and other highly desirable functional benefits such as dimensional stability and chemical resistance.

Estane VSN 9000 improves product performance and operational outcomes for designers, brands and producers of high-end eyewear frames.

The product is being marketed for eyeglasses stems and frames material, and its self-healing properties can remove scratches made during production or shipping.

With Estane VSN 9000 scratches disappear in less than a minute when placed in water that is heated to 90 degrees Celsius.

Now, if someone can just help you find your glasses when you forget where you put them.

About Lubrizol

Based in Wickliffe, Ohio, Lubrizol owns and operates manufacturing facilities in 17 countries, as well as sales and technical offices around the world. Founded in 1928, Lubrizol has approximately 9,000 employees worldwide. It sells its specialty chemical products in over 100 countries.

Berkshire Hathaway acquired Lubrizol in 2011 for $9 billion in cash. Revenues for 2015 were $7 billion.

© 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.

Categories
Minority Stock Positions Stock Portfolio

BYD’s B-Box Takes on Tesla’s Powerwall

(BRK.A), (BRK.B)

Tesla gained a lot of attention in May of 2015 when it announced its Powerwall home battery, a rechargeable 7-10 kwh lithium-ion battery that could be used by solar panel owners to store power when the sun doesn’t shine. For some, it pointed the way towards living completing off the grid. Tesla is not the only company eyeing the home electric power storage market.

BYD Co. Ltd. – the world’s largest supplier of rechargeable batteries – and GoodWe Power Supply Technology Co. Ltd. have announced the full compatibility of BYD’s B-Box Modular Energy Storage System with GoodWe’s ES and BP Series Inverters to provide households with efficiency in home energy storage.

Unlike Tesla, which uses lithium-ion batteries, BYD’s B-Box uses BYD’s fire-safe, completely recyclable and long-cycle Iron-Phosphate battery, which it notes features high thermal stability.

According to BYD, the B-Box features a wide range of output power to meet heavy load applications, high discharge currency, free and flexible utilization for off-grid and on-grid usage, as well as worldwide applicability.

As a modular energy storage system, the BYD B-Box features additional usage freedom and flexibility with the key advantage of easy expansion. In the B-BOX 10.0, each module has a 2.5KWh storage capacity, and the box can house up to four modules, for a maximum of 10KWh capacity. The B-Box10.0 can also be laid out in parallel, reaching a maximum capacity of 80KWh. BYD has also launched the B-BOX 12.8, which can reach a maximum capacity of 409kwh when paralleled with multiple boxes.

The BYD B-BOX is already on sale in many European countries including Germany, UK, Italy, Spain, as well as in Australia and Africa.

As BYD moves forward, Tesla has scaled its highly-touted home power storage plans, dropping it previously announced but never marketed 10 kwh Powerwall. Tesla instead will market only the 7 kwh Daily Powerwall.

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.

Categories
NetJets

Teamsters Next in Queue for NetJets Labor Troubles

(BRK.A), (BRK.B)

Berkshire Hathaway’s NetJets can’t seem to escape its labor troubles, even after finally reaching agreement with its flight attendants and pilots.

In December 2015, NetJets put its two-year battle over wages with its approximately 2,700 pilots firmly behind it when it agreed to raises that brought the pilots $575 million spread over five years.

Now, it’s the NetJets technicians and flight dispatchers that are preparing for a strike authorization vote, as Teamsters Local 284 complains of “cost-cutting demands and proposals that they say undermine the ability to perform their jobs.”

“NetJets demands the right to replace human flight dispatchers with automation and software programs,” said Paul Suffoletto, President of Local 284 in Columbus, Ohio. “Management is also telling our aviation technicians that they have to compete against lower cost mechanics if they want to perform necessary maintenance work on NetJets aircraft. These actions raise serious questions about cost-cutting at the expense of employees responsible for the safety of flights.”

Local 284 states that its members at NetJets that work in fueling, catering, dispatching, stock clerk, aircraft cleaning and maintenance control operations also could be impacted by the latest round of labor unrest.

They note that the affected workers have been in contract negotiations for more than five years.

Berkshire Hathaway acquired NetJets in 1998, and has struggled with labor troubles. In June 2015, Berkshire canned NetJets’s chairman and CEO Jordan Hansell, who was unable to resolve the pilots’ dispute. The replacement CEO, Adam Johnson, has had better luck.

© 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.

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Berkshire Hathaway Automotive Special Report

Special Report: Berkshire’s Acquisition of Auto Group Sparks Soaring Dealership Valuations

(BRK.A), (BRK.B)

In March of 2015, Berkshire Hathaway acquired the 80-dealership The Van Tuyl Group for $4.1 billion, moving the conglomerate into the auto retailing market. The move also set off a dramatic rise in auto dealership valuations that has rippled throughout the industry.

According to the Kerrigan Advisors’ Blue Sky Report, U.S. dealership buy/sell activity soared to record highs in 2015. The Report also identifies the types of players involved with “activity by new entrants outpacing public company acquisitions by over four to one.”

Kerrigan Advisors is a national dealership buy/sell advisory firm that publishes a quarterly report that tracks the multiples and analysis for each franchise in the luxury and non-luxury segments.

When Berkshire acquired Van Tuyl, Warren Buffett trumpeted the growth potential of the newly renamed Berkshire Hathaway Automotive.

“This is the beginning of a journey that will have no end,” Buffett noted upon completion of the acquisition of The Van Tuyl Group. “Cecil and Larry have given us the ideal platform with which to build an auto dealership business that will be thriving and growing 50 and 100 years from now. The fun has just started.”

The fun may have just started, but since then Berkshire has been relatively quiet in the acquisition market, with the April 2015 purchase of Frank Kent Honda in Fort Worth, Texas, one of the few additions.

The Blue Sky Report reveals that while the competition for auto dealerships was fierce in 2015, it did not favor the public companies, which in addition to Berkshire also includes CarMax and Penske Automotive Group.

“A number of iconic multi-dealership groups came to market in 2015 and were acquired by both established consolidators and new entrants. Faced with this stiffer competition, the publics found it more difficult to compete for larger group transactions, and represented just 7% of the buy/sell market in 2015. Meanwhile new dealership buyers, including family offices, private equity firms, and public conglomerates, acquired 29% of the franchises sold, a stunning accomplishment,” said Erin Kerrigan, Managing Director of Kerrigan Advisors. “We believe new entrants will increasingly shape dealership consolidation and meaningfully impact the future of auto retail.”

The Blue Sky Report goes on to note that while the market for auto dealerships is still very active, the market may be peaking.

“In 2015, dealership valuations rose to historically high levels, new entrants made sizable acquisitions, manufacturers approved numerous multi-dealership transactions, and real estate prices returned to pre-recession levels,” continued Kerrigan. “In summary, it was a year that is hard to beat. While the 2016 buy/sell market is expected to be as active as 2015, we anticipate the proportion of sellers completing a successful sale could decline as industry growth plateaus and dealership earnings come under pressure.”

Buffett Says Subtract a Billion

At Berkshire Hathaway’s 2016 annual meeting, Warren Buffett noted that the price for his Van Tuyl Group acquisition also included a billion dollars in securities. Van Tuyl also had a large extended warranty program that was acquired by Berkshire.

Buffett noted that people should “take a billion off the purchase price,” as the reported price has given other dealership groups an inflated sense of their market value.

Is there still a major auto dealership that’s just ripe for a Berkshire acquisition? Read this Mazor’s Edge Special Report.

(This article has been updated since it was first published.)

© 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.

Categories
Dairy Queen

Dairy Queen Targets South Carolina for Major Expansion

(BRK.A), (BRK.B)

The state of South Carolina, and the Myrtle Beach area in particular, is about to become Dairy Queen territory, as the quick-service restaurant chain owned by Berkshire Hathaway looks to build some 75 new Dairy Queen Grill & Chill restaurants in South Carolina in 2016.

Dairy Queen opened 84 new outlets in the United States in 2015, and its goal of 85 new stores in 2016 means that the vast majority of them will be in South Carolina.

Eight of the locations are planned for the popular Grand Strand beach area that runs from North Myrtle Beach to Georgetown.

Why South Carolina? The company cites its “state-of-the-art analytics” for its interest in expanding the state, and the new stores will mean Dairy Queen will have over 90 locations including existing stores.

As a corporate strategy, Dairy Queen shuns company owned stores, instead focusing on its franchise business, and it is looking for franchise owners that want to run multiple stores.

In recent years, new franchises have popped all over Florida, and overseas in places such as Bahrain, Brunei, Dubai, Egypt, Oman, Qatar, and Saudi Arabia.

DQ a Winner for Berkshire

With 6,700+ locations worldwide, Dairy Queen is far smaller than McDonald’s or Burger King, but to its advantage it has only three company owned stores. The cost of the bricks and mortar are born by the franchisees, and Dairy Queen makes its money from franchise fees and a percentage of the sales.

Each franchise pays a $35,000 franchise fee, a royalty fee of 4%, and a marketing fee of 5% – 6%.

In the aggregate the franchises net Berkshire Hathaway hundreds of millions a year on its investment of only $585 million. Increasingly Dairy Queen is making that money year-round as its stronger focus on its food business, including its new DQ® Bakes! line-up, has customers seeing it as more than just a summer treats purveyor.

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.

Categories
Berkshire Hathaway Specialty Insurance Insurance

Berkshire Hathaway Specialty Insurance Launches Medical Stop Loss Division

(BRK.A), (BRK.B)

Berkshire Hathaway Specialty Insurance Company (BHSI) has established a dedicated Medical Stop Loss Division and appointed John Snyder to lead the effort.

BHSI also named David Friedly as Head of Underwriting and Glenn Funk as Actuary for Medical Stop Loss.

“We are pleased to have the talent and experience of John, David and Glenn fueling our move into medical stop loss and building out our team for this product line,” said Sanjay Godhwani, Executive Vice President, BHSI. “Their deep expertise, coupled with BHSI’s strong balance sheet, will allow buyers to make their medical stop loss choice with confidence.”

BHSI notes that John Snyder comes to the company with nearly four decades of experience specializing in employer self-funded medical plans. During the course of his career, he served as a Third Party Administrator (TPA), an employee benefits broker and a Managing General Underwriter (MGU) of stop loss business. He retired from AIG in 2013 after more than a decade as President and Chief Executive Officer of Medical Excess, LLC.

David Friedly has more than 40 years of life and health insurance experience with major commercial insurers and benefits organizations. His career has included leadership roles in operations, compliance, claims and underwriting, with a focus on medical stop loss. David holds a bachelor’s degree in Political Science from the University of Southern California.

Glenn Funk joins BHSI with more than 40 years of industry experience, most recently serving as Vice President and Actuary at AIG Benefits Solutions. Previously, Glen was Executive Vice President and Chief Actuary at Medical Excess, LLC, and served as Chief Actuary at American Health & Life Insurance Company, General Reassurance Corporation and Anthem Insurance Companies. Glenn is a Fellow of the Society of Actuaries. He holds a bachelor’s degree in Mathematics from Yale University and a master’s degree in Actuarial Science from Northeastern University.

All three executives are based in BHSI’s office in Irvine, California.

© 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.

Categories
Nebraska Furniture Mart

Berkshire’s Furniture Retailing Revenues Soar in 2015

(BRK.A), (BRK.B)

Berkshire Hathaway’s furniture retailing companies, which include Jordan’s, Nebraska Furniture Mart, R.C. Willey, and Star Furniture, delivered stellar results in 2015, with Berkshire’s revenues from retail rocketing up 64% to $564 million.

Much of the increase was due to the opening of the massive new Nebraska Furniture Mart in Dallas, Texas.

Proving that everything’s bigger in Texas, the mega-store boasts a 560,000-square-foot retail showroom and 58 acres of parking. The store’s massive loading area can load 120 cars simultaneously.

Before the new store opened, Berkshire was predicting that it would have annual revenues of $600 million, which is $200 million more than Nebraska Furniture Mart’s Kansas City store generates.

Shareholders Generate Spectacular Furniture Sales

Some of Berkshire’s millions in furniture sales come from the more than 40,000 shareholders that descend on Omaha every May for the conglomerate’s annual meeting.

In his 2015 annual letter to shareholders, Warren Buffett encouraged the shareholders to use their Berkshire Hathaway shareholder discount, which is good for the week of the annual meeting.

“Last year in the week encompassing the meeting, the store did a record $44,239,493 of business,” Buffett explained. “If you repeat that figure to a retailer, he is not going to believe you.”

Buffett went on to say that an average week for the store was roughly $9 million in sales, a figure that by itself would have any other furniture retailer in the stratosphere.

© 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.

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Berkshire Hathaway Energy

Berkshire Acquires Second Solar Portfolio from Geronimo Energy

(BRK.A), (BRK.B)

Berkshire Hathaway Energy has acquired the Minnesota Community Solar Garden developments from Geronimo Energy, LLC.

The portfolio of solar projects was acquired by BHE Renewables, LLC, which is a subsidiary of Berkshire Hathaway Energy.

The acquisition will give BHE an additional of 66 megawatts of solar garden projects spread across 21 locations and 16 Minnesota counties when construction is completed at the end of 2017.

The deal is the second between BHE and Geronimo in the last twelve months.

In May 2015, BHE acquired Geronimo’s Grande Prairie Wind Farm in Holt County, Nebraska; the to be developed Walnut Ridge Wind Farm in Bureau County, Illinois; and a portfolio of future Minnesota solar projects.

The total combined solar power portfolio will produce nearly 100 MW of electricity.

Working with Utility-Scale Developers

Berkshire has a strategy of purchasing solar projects from outside developers, including the 579 megawatt Solar Star Projects (formerly Antelope Valley Solar Projects), which are two co-located solar installations in Kern and Los Angeles Counties in California, that were purchased from SunPower in 2013

This latest deal will not be the last between Berkshire and Geronimo, a utility-scale wind and solar energy developer based in Edina, Minnesota.

“We are pleased to expand our partnership with BHE Renewables,” says Geronimo Energy President, Blake Nixon. “Geronimo looks forward to continuing to grow our relationship with BHE Renewables through our work in Community Solar Garden programs and deliver on our promise to positively impact rural economies, specifically here in our home state of Minnesota.”

© 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.

Categories
Minority Stock Positions

BYD Receives Big Pure-Electric Bus Order from AVTA

(BRK.A), (BRK.B)

The Antelope Valley Transit Authority (AVTA), which serves some 450,000 residents of the cities of Lancaster and Palmdale, California, and the unincorporated portions of northern Los Angeles County, has ordered up to 85 pure-electric buses from China’s BYD Company Limited.

The buses will be built at BYD’s manufacturing facility in Lancaster, California.

Berkshire Hathaway owns roughly 9.1% of the company, and Berkshire’s stake is worth roughly $12.3 billion.

“BYD Coach and Bus is proud to partner with AVTA on its groundbreaking decision to completely electrify its fleet,” said Stella Li, president of BYD Motors. “With more than 6,000 electric buses deployed world wide and 90 million miles of dependable service already accumulated, we know that our technology will help AVTA save money and improve local air quality. Pure-electric powered transportation is no longer in the future – it’s here now. I hope other transit agencies in California and across the country take note and follow the example AVTA has set today.”

AVTA notes that it is anticipating a cost savings as a result of electrifying its fleet. Over the lifetime of the new electric bus fleet, the transit agency forecasts it could save more than $46 million compared to an all diesel bus fleet, equivalent to $46,000 per bus per year in savings. And, by reducing dependence on foreign oil imports, AVTA will no longer be subject to oil price volatility for its bus fleet. This will help create greater stability for budget forecasting for the fleet manager – an important factor for a public agency.

The AVTA expects to take delivery of 29 electric buses within the next 12 months and is working to secure additional grant funding from the Air Resources Board to purchase another 17 buses.

“This is a historic day for AVTA which has been working diligently to secure grant funding to purchase these state-of-the- art zero-emission vehicles,” said Len Engel, executive director of AVTA. “We are proud to be the first transit system to adopt a goal of ‘100% Green in 2018’ and we look forward to leading the nation toward a new alternative in public transportation.”

Additional benefits AVTA will see as a result of electrifying its entire fleet include:

• Noise Pollution Reduction: noise pollution will be reduced by 50 percent, making it a more pleasant ride for bus operators and transit passengers.

• Emissions Reductions: AVTA’s all-electric fleet will provide elimination of CO2, NOx, PM10 and PM2.5, thereby improving air quality and positively impacting human health.

• Safer Work Environment for Technicians: The electric batteries are safe, thermal runaway proof, non-toxic, and maintenance free. There are no diesel or diesel emission fluids needed for bus maintenance, providing a safer and healthier working environment for vehicle technicians.

BYD’s Pure-Electric Buses Around the Globe

BYD’s electric buses have been hot sellers not only in China, but around the world, with orders from the U.S, Brazil, Columbia, England, Malaysia and Thailand.

In September 2015, BYD scored a massive order in the U. S. from the state of Washington. BYD won a contract from the Washington State Department of Transportation (WSDOT) for up to 800 pure electric buses.

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.