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BNSF

BNSF Furloughs Reach Great Recession Levels

(BRK.A), (BRK.B)

Nationwide unemployment in the U.S. is only five-percent, and the country has come a long way from the Great Recession, but the same can’t be said for BNSF Railway, which is laying off employees due to cratering coal and oil volumes.

BNSF is furloughing roughly ten-percent of its workforce, according to Chairman Matthew Rose, who spoke at the Montana Energy conference in Billings, Montana.

While the U.S. economy added some 215,000 jobs In March 2016, BNSF’s planned layoffs stand at roughly 4,600 personnel, some ten-percent of its workforce.

Lines of idled BNSF locomotives that are in storage on tracks in rail yards near Oklahoma City and Wichita, Kansas, are a visual reminder that 2016 car loads are down dramatically from 2015 levels.

BNSF’s total carloads for coal are down 32.86% year-to-date through March 28, 2016, for petroleum they are down 26.25%, and metallic ores carloads are down 33.44%.

Total carloads including intermodal freight are down 6.07% year-to-date from the same period in 2015.

Grain Shippers Benefit

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

For BNSF, a tough year keeps getting tougher.

© 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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Dairy Queen

Jordan the Latest Country for Dairy Queen’s Middle-East Expansion

(BRK.A), (BRK.B)

The first Dairy Queen restaurant has opened in Jordan, making it the latest Middle-East country for the popular quick-service franchisor.

The DQ Grill & Chill restaurant is located at Abdoun Circle in Amman, Jordan, and is the first of ten planned location being developed by the Nafal brothers, who run SKM Franchise Co. Ltd.

According to Dairy Queen, the DQ Grill & Chill restaurants in Jordan will feature the brand’s signature GrillBurgers, chicken strip baskets, chicken sandwiches and a variety of salads and other sandwiches along with the full menu of world-famous DQ treats, all of which will mirror the menu found in other countries in the region. The DQ Treat stores will feature the soft-serve products that have made the Dairy Queen system an icon in the industry, such as the signature Blizzard Treat which “is served upside down or it is free,” soft-serve cones with the curl on top, sundaes, Moolatté frozen coffee flavored beverages, DQ Cakes and other delicious treats.


Dairy Queen Focusing on Emerging Markets

“Our strategy is to open franchises in emerging markets,” Dairy Queen’s President and CEO John Gainor said at the 2015 Berkshire Hathaway annual meeting.

Middle East expansion has been at the top of Dairy Queen’s list over the last couple of years. Its list of countries already includes locations in Bahrain, Brunei, Egypt, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE, with Jordan in the works.

“We believe the DQ brand will be very well received in Jordan as we continue to grow our DQ fan base around the world,” said John Gainor, CEO and President of International Dairy Queen, Inc. (IDQ). “As we expand our footprint internationally, we rely on strong franchise partners like SKM Franchise Co. Ltd. to uphold our values and brand promise to a larger and more diverse customer base. Working with a knowledgeable, experienced partner with a strong team on the ground allows us the best opportunity for success in our new markets.”

The Nafal brothers have more than 20 years of retail development experience. In 2005, they opened El Rancho Supermercado, which grew into a chain of 13 supermarkets in Texas. They own La Bodega, a food distribution company based in the state as well.

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.

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BNSF

Judge Hands BNSF Major Setback Over the Southern California International Gateway Project

(BRK.A), (BRK.B)

A California superior court judge has put a halt to BNSF’s planned 153-acre intermodal rail facility, the Southern California International Gateway, siding with citizens’ groups suing over environmental concerns.

Judge Barry Good of the Contra Costa Superior Court sided with the Natural Resources Defense Council, which is the lead plaintiff in the lawsuit.

The environmental group filed the lawsuit in June 2015 in Los Angeles Superior Court on behalf of Harbor residents living near the proposed development that would be built on Port of Los Angeles property.

The Plaintiffs contend the proposed Southern California International Gateway rail yard project violates the California Environmental Quality Act and the state and federal Civil Rights Acts.

Specifically, they assert that the facility will increase cancer rates, chances of children developing asthma, and add to chronic air pollution plaguing the region.

BNSF officials were quick to respond to the ruling. “Upon initial review, we are disappointed, because the decision appears to delay a nationally and regionally significant transportation infrastructure.”

Gateway to the Nation

Some 40-percent of imported goods sold across the country are shipped through the ports of Los Angeles and Long Beach.

The intermodal rail facility would be near the ports of Los Angeles and Long Beach. The ports are located approximately 25 miles south of downtown Los Angeles. The port complex is composed of approximately 80 miles of waterfront, and 7,500 acres of land and water, with approximately 500 commercial berths.

The Ports include: automobile, container, omni, lumber, and cruise ship terminals; liquid and dry bulk terminals; and extensive transportation infrastructure for cargo movement by truck and rail.

Environmental Hazard or Asset?

While environmental groups, the City of Long Beach, and the local school district decry the project, BNSF claims the project will actually bring environmental benefits, as it will be cleaning up an existing truck yard and investing over $100 million in green technology.

The Port of LA’s draft environmental review found that SCIG will have a positive impact on traffic, both locally and regionally, by eliminating millions of truck trips from the 710, reducing congestion near the ports and along the 710 corridor.

NRDC attorneys and scientists have suggested several solutions to reduce the anticipated pollution associated with the project:

1.) Utilization of cleaner Tier 3 and Tier 4 locomotives instead of older, more polluting locomotives;

2.) Expand on-dock rail to eliminate the need for thousands of additional short-haul truck trips;

3.) Use zero-emission container movement systems.

© 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

FERC Issues Positive Order to Grid Assurance

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The need for quick recovery of the transmission grid after a disaster is often beyond the capabilities of a single utility. After a blizzard, earthquakes, flood, hurricane, or tornado there are often thousands of utility poles and transformers that need to be repaired, and miles of downed wire that needs to be restrung. And, these days, utilities also face new threats from cyberattacks that can be potentially just as devastating.

Affiliates of Berkshire Hathaway Energy, as well as affiliates of American Electric Power, Duke Energy, Edison International, Eversource Energy, Great Plains Energy, and Southern Company are pursuing the development of Grid Assurance, a limited liability company, that will offer subscribers cost-effective solutions for enhancing transmission grid resiliency.

Recovery of the transmission grid can be hampered by long lead times required to build and deliver critical replacement equipment including large transformers, circuit breakers and other specialized electrical equipment. Grid Assurance will give subscribers economical access to critical equipment faster than traditionally possible.

The Federal Energy Regulatory Commission (FERC) issued a positive order March 25 to Grid Assurance that provides regulatory clarity supporting transmission-owning entities participating in and subscribing to Grid Assurance as a way to strengthen transmission grid resiliency. Grid Assurance had requested determinations on several issues from FERC in December 2015.

The eight electric utilities and energy companies first announced Grid Assurance on June 10, 2015 as a limited liability company that expects to offer subscribers cost-effective solutions for enhancing transmission grid resiliency and protecting customers from prolonged transmission outages.

FERC initially recognized the benefits of Grid Assurance in an Aug. 7, 2015 order. The Grid Assurance consortium subsequently developed a Subscription Agreement and has received clarity from FERC in a declaratory order that enables broader transmission owner participation.

In the March 25 order, the FERC confirmed:

• the prudence of subscriber decisions to contract with Grid Assurance for sparing service and the prudence of purchasing spare equipment from Grid Assurance following a qualifying event;

• the availability of single-issue ratemaking to recover costs of purchasing sparing service and spare equipment from Grid Assurance; and

• that affiliate rules are waived for Grid Assurance, subject to certain conditions including submission of an annual information report from Grid Assurance that contains audited financial statements, information about the sparing service fee formula and information about sparing sales including cost and sale price. The annual information reporting requirement will begin a year from the start of sparing operations.

Grid Assurance continues to evaluate the order and will seek additional clarification from FERC, if necessary. Grid Assurance expects to begin marketing this service to transmission owners in the second quarter with subscriber acceptance, warehouse specification and inventory identification occurring over the next 18 months.

Grid Assurance plans to own and maintain critical, long lead-time equipment at secure, strategically located warehouses and offer logistics support to facilitate the expedited movement of equipment to the affected sites following qualifying events.

Qualifying events can include physical attacks, cyberattacks, electromagnetic pulses, catastrophic events, solar storms, earthquakes and severe weather events.

Grid Assurance services are intended to complement transmission owners’ existing programs as well as established industry initiatives.

© 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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Minority Stock Positions

BYD’s Pure-Electric Buses Hit the Streets in London

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Double-decker buses are synonymous with London, and soon they will be synonymous with clean, pollution-free transportation.

Chinese battery and vehicle manufacturer BYD Co. Ltd. has delivered the first of a fleet of five pure-electric double-decker buses that will shortly be entering service on Route 98 operated on behalf of TfL by Metroline.

BYD is working with TfL and Metroline on an introduction program, which includes driver training and the installation of fast charging equipment at Metroline’s Willesden Bus Garage in north London.

The 100% BYD designed and developed vehicle is 10.2m long, features full air conditioning, and offers seats for a total 54 passengers with a further 27 standees spaces (total passengers: 81).

The bus is powered by BYD’s Iron Phosphate batteries that deliver 345 kWh of power, and can run for up to 190 miles of typical urban driving according to the internationally recognized SORT test conditions.

Recharging the bus takes just four hours and can be completed overnight using low-cost off-peak electricity. The single charge cycle is expected to be more than enough to handle most daily duty cycles.

“The Mayor of London challenged us saying that he did not believe an electric double decker was technically feasible but we took up the challenge and in less than two years created the bus Londoners can see today,” said Isbrand Ho, Managing Director of BYD Europe. “This is not a hybrid bus but a totally emissions free product which will give London a world leading position in its efforts to improve air quality.”

Leon Daniels, TfL’s Managing Director for Surface Transport, said: “BYD are a brilliant supplier. They lead the world in electric bus technology and we thank them for their efforts to make this new double decker a reality.”

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.

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Berkadia

Berkadia Provides $44 Million in Financing for Multifamily Property in Chicago Suburb

(BRK.A), (BRK.B)

Berkadia has announced the financing of York Brook Apartments, a multifamily property located at 100 E. George Street in Bensenville, Illinois.

Managing Directors Len Deering and Paul Matusiak of the Chicago office negotiated the 35-year, fixed-rate refinancing loan for the borrower, YB Partners.

The $44.08 million loan was originated through Berkadia’s HUD/Federal Housing Administration program. The loan features an 80 percent loan-to-value ratio and a 35 year amortization schedule.

“Our team was quite familiar with this repeat client and carefully worked to obtain attractive terms that met their needs,” said Deering. “An uptick market-wide occupancy coupled with rising asking rent prices makes Chicago an attractive market, one that is expected to see more upside for the duration of 2016.”

The 571-unit property sits on nearly 28 acres of land and was 98 percent occupied at the time the loan was secured. Located approximately eight miles southwest of Chicago O’Hare International Airport, York Brook Apartments offers one- and two-bedroom floorplans and unit amenities such as open kitchen plans, individually controlled heat and air conditioning, private patios and balconies, dishwashers, garbage disposals and furnished rental options. The community, set in a park-like area that includes a lake, offers tennis courts, pools, storage lockers, fitness centers, a laundry facility, free aerobics classes and 24-hour maintenance.

About Berkadia

Founded in 2009 as a 50/50 joint venture between Berkshire Hathaway and Leucadia National Corporation, Berkadia is a third-party commercial mortgage servicer, as well as an approved lender for Fannie Mae, Freddie Mac, and HUD/FHA. The company was among the top Freddie Mac and Fannie Mae multifamily lenders for 2013.

Berkadia owes its origins to GMAC Commercial Mortgage Corporation, which was acquired in 2009 by Kohlberg Kravis Roberts & Co., Five Mile Capital Partners LLC, and Goldman Sachs Capital Partners. Christened Capmark Financial, the company had $10 billion of originations in 2008 and a servicing portfolio of more than $360 billion before running into bankruptcy in October 2009.

In a deal approved by the bankruptcy court, Capmark sold its mortgage loan and servicing to the newly formed Berkadia in a deal worth $515 million.

The deal brought Berkshire into the heart of the commercial loan serving business, and the company has one of the largest commercial real estate servicing portfolios.

© 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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Minority Stock Positions

India Latest Country for BYD’s Pure-Electric Buses

(BRK.A), (BRK.B)

Bangalore has been dubbed the “Silicon Valley of India,” but it’s also a city choked by air pollution that on some days is twice as bad as Delhi’s notorious pollution.  And as much as 20% of the city’s total exhaust is produced by diesel buses.

Those skies took the first tiny step to becoming cleaner, as Chinese battery and vehicle manufacturer BYD Co. Ltd. has sold its first pure-electric bus to the Bangalore Metropolitan Transport Corporation.

“Operating electric buses not only to initialize and support new technologies, shows our respect to the city and urban residents with our social and environmental responsibility,” stated the Transportation Minister.

Although the electric bus comes with a higher initial price tag, officials expressed confidence that the total cost of ownership for the vehicle would make initial investments well-worth the price.

“The list of vehicle benefits is long; including the fact that it is quiet, does not pollute, and has low operational and maintenance costs. The bus has been operating successfully in various European countries besides China,” officials said.

Lower Cost of Fuel

Given the difference of the electricity price and diesel price, the BYD electric bus is not only zero emission but also has higher economic value.

Traditional diesel buses consume 0.55 L of diesel per kilometer in India, but by comparison, BYD’s 40 foot all-electric bus only consumes about 1 Kwh electric per kilometer (with no HVAC). The results are that millions in cost savings can be realized in Bangalore.

Last year, the Indian government reviewed the “national electric vehicle plan (2020)” and announced that India planned to put in place as many as 6-7 million new energy vehicles by 2020. The national heavy industry ministry is responsible for implementing the plan.

“The ambitious plan will promote the development of new energy automobile industry, the industry enterprises with large scale operating experience and strong technical strength, such as BYD will benefit the most,” a Hong Kong based observer said.

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
BNSF

BNSF Drops Grain & Pulse Crops Shipping Prices

(BRK.A), (BRK.B)

With low crude oil prices putting a major dent in BNSF Railway’s shipping demand, the freight railroad has cut its price for shipping grain by $100 a carload.

BNSF also cut the rates $75 per carload for shipping pulse crops, such as peas and lentils.

BNSF’s total carloads for coal are down 32.2% year-to-date through March 21, 2016, for petroleum they are down 26.57%, and for metallic ores, carloads are down 32.53%. The drop in shipping volume has the railroad idling hundreds of locomotives.

BNSF’s drop in rates has especially benefits Montana’s farmers. Lola Raska, the Executive  Vice President of the Montana Grain Growers Association, noted that the cut in shipping costs helps the farmers that held on to their wheat in the hopes that demand would firm up.

Approximately 80-percent of Montana’s wheat is moved by rail for export.

In November 2015, Combined U.S. rail grain shipments hit their highest levels in five years, and the number of days behind schedule dropped dramatically.

At its low point in June of 2014, the average delay for grain shipping for BNSF was a whopping 32 days, but that delay has now evaporated due to the drop in carloads of coal, petroleum, and metallic ores, and through improvements in track and signalling that the railroad made in 2015.

© 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

SolTrans Orders Pure-Electric Buses From BYD

(BRK.A), (BRK.B)

Chinese battery and vehicle manufacturer BYD Co. Ltd. continues to make advances in the U.S. bus market, picking up its first pure-electric bus orders for the public transit system serving the southern California cities of Vallejo and Benicia.

The Solano County Transit (SolTrans) in Vallejo, California, has ordered two forty-foot zero emission electric buses from BYD’s U.S. division, BYD Coach & Bus. The buses will go into service in the summer of 2016.

BYD notes its K9 40-foot bus is the most popular electric bus platform in the world, with more than 6,000 now running in revenue service in cities from Los Angeles, to London and Hong Kong.

Public transit systems are increasingly turning to pure-electric buses as they work to meet stricter carbon emission goals. The prior generation of hybrid buses are now aging out of service, and BYD’s pure-electric buses are ready replacements.

“This is a historic moment for Solano County,” said Mona Babauta, Executive Director of SolTrans. “This decision, supported by the SolTrans board of directors, is an excellent example of the forward-thinking attitude towards technology and transportation that contributes to making Solano County a great place to live. ”Our decision to go electric includes taking positive steps towards reducing greenhouse gas emissions, reducing our dependence on petroleum, and cleaner air,” continued Babauta. In addition “these buses are whisper-quiet, and will drastically reduce noise pollution along their daily routes.”

BYD’s Battery Electric bus employs many advanced technologies developed in-house by a staff of more than 15,000 R&D engineers, and includes the BYD Iron-Phosphate battery which boasts the only 12-year-battery warranty in the industry. Combined with BYD’s proprietary in-wheel hub motors and regenerative braking system, the BYD battery electric bus offers the lowest life cycle cost of ownership. The BYD electric bus delivers a host of operational and environmental benefits for public transit riders, bus operators and residents of the community — it is very quiet and ensures a comfortable ride without vibrations, jerks or the noise associated with the conventional buses and combustion engines. The bus can also drive for more than 155 miles, even in heavy city traffic, on a single charge.

As of April 1st, 2015, BYD bus fleets had completed greater than 100 million miles in revenue service, and have been evaluated by more than 150 cities in 36 countries around the world.

To date, BYD has built over 7,000 electric buses globally, making it by far the most popular electric transit vehicle on the planet.

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.

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Dairy Queen

Dairy Queen Looks to Conquer Massachusetts

(BRK.A), (BRK.B)

The cone with the curl on top will become a much more common sight in Massachusetts when Dairy Queen goes forward with a major planned expansion across the Bay State.

Massachusetts does love its ice cream. The Bay State ranks in the top ten of most ice cream consuming states.

Dairy Queen has announced plans to rollout 60 new stores with potential locations including the towns of Taughton, Peabody, Burlington, Plymouth, and the city of Worcester.

While there is already a modest number of locations in Massachusetts, there is currently only one location that sits in the western half of the state. The location is a “Grill & Chill” restaurant in Chicopee, Massachusetts.

In keeping with Dairy Queen’s strategy, the restaurants would all be franchises, and would be built over the next five years.

Dairy Queen has been focusing on state-wide expansion as of late, and is in the midst of building 75 new Dairy Queen Grill & Chill restaurants in South Carolina in 2016.

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.