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Berkshire Hathaway Energy

NV Energy to Save Millions Through Energy Imbalance Market

(BRK.A), (BRK.B)

Berkshire Hathaway Energy’s NV Energy, which serves the Nevada market, will save millions a year when it enters the new Energy Imbalance Market (EIM) that debuted earlier this year.

The utility company is expected to enter the EIM on Nov. 1, 2015.

Millions in Projected Savings

NV Energy will save millions annually, with its attributed share of gross benefits estimated to range from $6 million to $10 million in 2017, and from $8 million to $12 million by 2022.

The Savings Are Real

In 2014, when Berkshire Hathaway Energy’s PacifiCorp agreed to become the first participant in the new EIM, it was touted as a way to balance electricity in-flows and out-flows on a regional basis that would bring millions of dollars in benefits to participating utilities.

The predicted benefits for PacifiCorp have proven to be true, and the California Independent Service Operator (CAISO) has been able to quantify the benefits from the April, May, and June 2015 to be $10.18 million. Annual benefits will be around $30 million.

The EIM improves the integration of renewable resources and increases reliability by sharing information between balancing authorities on electricity delivery conditions across the entire EIM region. The only real-time energy market in the Western U.S., advanced ISO market systems automatically balance supply and demand for electricity every fifteen minutes, dispatching the least-cost resources every five minutes.

In its July report, CAISO said that it, “continues to prove EIM’s ability to select the lowest cost resource across the PacifiCorp and ISO balancing authority areas to serve demand and measures benefits within the following categories, which were described in an earlier study conducted by Energy + Environmental Economics (E3)1 for PacifiCorp and the ISO.”

The report noted:

• More efficient dispatch, both inter- and intra-regional, in the Fifteen-Minute Market (FMM) and Real-Time Dispatch (RTD) by automating dispatch every fifteen minutes and every five minutes within PacifiCorp’s two BAAs and between the PacifiCorp and California ISO BAAs.

• Reduced renewable energy curtailment by allowing BAAs to export or reduce imports of renewable generation when it would otherwise need to be economically curtailed.

• Reduced flexibility reserves needed in PacifiCorp BAAs, which saves cost by aggregating the load, wind, and solar variability and forecast errors of the combined EIM footprint. This report introduces the flexibility reserve benefits for PacifiCorp but defers measurement of reduced flexibility reserve benefits for the ISO to future reports due to the need to develop additional measurement techniques.

By allowing Balancing Authorities to pool load and wind and solar resources, an EIM lowers total flexibility reserve requirements and reduce curtailment of wind and solar generation for the region as a whole, lowering costs for customers. An EIM may also help to improve compliance with Federal Energy Regulatory Commission (FERC) Order 764, which emphasizes 15‐ minute scheduling over interties but may not be implemented on an optimized basis due to the difficulty of bilateral trading on such short time intervals.

© 2015 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 Reinsurance Group Insurance

Berkshire Rises in Reinsurance Ranks Even as Business Softens

(BRK.A), (BRK.B)

Berkshire has jumped ahead of SCOR SE into fourth place among the top 50 insurers in A. M. Best’s Global Reinsurance Segment Review.

Ahead of Berkshire are Munich Reinsurance Company, Swiss Re Ltd., and Hannover Rueckversicherung AG, in that order.

Lloyd’s of London’s international casualty reinsurance market dropped from fourth place to sixth. The rankings are based on premiums written in 2014.

Berkshire’s gross written premiums rose from $12.776 billion in 2013 to $14.919 billion in 2014.

Profits Harder to Come By

Through its Berkshire Hathaway Reinsurance Group, Berkshire provides reinsurance to Suncorp and Insurance Australia Group, and in the 2nd quarter of 2015 reported $155 million in losses from April and May storm damage on Australia’s east coast.

Buffett, Munger and Jain Cool on Reinsurance

Storms or no storms, Berkshire is not generating the profits it used to from reinsurance.

“The reinsurance business not as good as it once was and is unlikely to get better,” Charlie Munger said at the 2015 Berkshire Hathaway annual meeting. “Money has come in, not because they want to be in reinsurance, but because it’s an uncorrelated asset class. We’re in it for the long haul.”

“It’s a business whose prospects have turned for the worse and there’s not much we can do about it,” Warren Buffett said.

Uncorrelated (also called non-correlated) asset classes are assets that move in the opposite direction of a particular asset class, thus helping investors reduce risk in exchange for lower upside performance.

Buffett’s and Munger’s words were echoed by Ajit Jain, who is the head of Berkshire Hathaway Reinsurance.

“What was a very lucrative business is no longer a very lucrative business going forward,” Jain was quoted in early July in The Wall Street Journal.

Remaining Disciplined

Traditionally Berkshire has been a disciplined underwriter. Warren Buffett has always stressed that it is better to write fewer premiums in a given year than to give in to chasing short-term revenues that lead to long-term losses.

A recent survey of the Lloyd’s Market Association’s reinsurers found that 95% of survey respondents indicated a relaxation of reinsurance contract terms and conditions in the international casualty market. Additionally, 39% felt the loosening of contract terms was having a material impact on the amount of underwriter’s exposure.

Hopefully, Berkshire will remain disciplined and not fall into that trap.

© 2015 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 Energy

Berkshire Battling Over Rooftop Solar Fees

(BRK.A), (BRK.B)

Even as Berkshire Hathaway Energy becomes one of the biggest players in utility scale renewable energy, including owning one of the world’s largest solar farms located in San Luis Obispo County, California, Berkshire continues to battle residential rooftop solar.

Berkshire’s utility, NV Energy, which it purchased in 2013, has been trying to slow the growth of residential solar in Nevada, a state with an average of 294 annual days of sunshine.

NV Energy has been trying to hold the line on the state’s net energy metering (NEM) cap of 235 megawatts, which rooftop solar companies claim means the loss of thousands of jobs now that the cap for 2015 has been reached.

Proof of their fears have come true. Vivint Solar, the nation’s number two U.S. rooftop solar installer, has already left Nevada, after only opening for business in July 2015.

A 3-Tiered Rate Structure

NV Energy, which serves 1.3 million customers throughout Nevada, has been pushing for a new 3-tiered rate structure.

In its application before the Public Utilities Commission of Nevada, Nevada Power, a wholly-owned subsidiary of NV Energy, notes that “Nevada Power’s data demonstrates that customers who install renewable distributed generation have unique load and cost characteristics. Net metering customers are partial requirements customers requiring a standby aspect to their electrical service, have different metering and customer service and customer accounting requirements, and have different load factors and load levels.”

The company also says that rates must be “just, reasonable and fair to all customers and reduce the shifting of costs from customer-generators to other customers…”

Buy Solar, Pay More?

One of the areas of dispute with rooftop solar owners is on fees that NV Energy wants to add, including a demand charge. The charge is particularly unpopular and solar advocates assert that it could actually make rooftop solar unviable, as the costs could actually be higher than the electricity purchased from the utility.

The utility acknowledges that situation, noting:

“To be clear, those who choose to install renewable distributed generation (“DG”) can reduce their Nevada Power bill under the NEM2 rules and rates, even though a customer who installs renewable DG might end up paying more for energy when the cost of buying or leasing the DG system, or purchasing the output of the DG system is taken into consideration.”

In addition to the demand charge, NV Energy has proposed a monthly basic service charge and an energy charge.

In NV Power’s application the utility is asking for “four new standard net metering schedules, four new optional net metering schedules, a new net metering rider, seven modified schedules and modifications to Rule 9 and 15…”

The utility asserts the demand charge and other proposed fees are necessary, as many customers are paying little or no electric bill, even as they continue to utilize the existing grid structure to sell back electricity generated by rooftop solar and to draw on utility generated electricity at night.

Not So Fast

During its hearing on August 26, the Public Utilities Commission of Nevada was in no hurry to implement the proposed demand charge and put off any decision. NV Power had pushed for an interim order to make the new charges effective on September 15, 2015. The lack of approval represented a setback for NV Energy, and an at least temporary victory for rooftop solar companies and their customers.

Opposition from Senator Reid

Senator Harry Reid of Nevada has very publicly opposed NV Energy’s position.

“This challenge should begin by properly valuing rooftop solar, properly valuing energy efficiency and properly valuing other distributed sources of clean energy,” Reid said at his eighth annual National Clean Energy Summit. “Ignoring these resources or treating them as a burden makes as much sense as the Washington Nationals benching Bryce Harper. Rather than fighting change, utilities should be integrating new technologies into their business models.”

Reid added:

“If NV Energy continues on the path they’re on, they’re going to lose.”

© 2015 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 in

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NetJets Warren Buffett

Pilots’ Union Set to Resume Picket of NetJets

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Sometimes a familiar face is not enough to bridge a labor contract dispute.

The NetJets Association of Shared Aircraft Pilots (NJASAP) has set September 10 as the date to resume picketing NetJets at seven airports. The resumption of picketing reflects the union’s frustration with its lack of progress in getting a new contract.

NetJets pilots have been working without a contract since the prior agreement expired in 2013.

A Familiar Face Returns

On June 1, Berkshire Hathaway, the owner of NetJets, fired NetJets’s chief executive and chairman Jordan Hansell. Hansell was replaced with Adam Johnson, who had spent 22 years at NetJets.

At the time, NJASAP was positive in the change in NetJets’s leadership.

“Newly appointed CEO Adam Johnson and COO Bill Noe bring much needed experience in both operational and labor relations to their respective positions. Union Leadership looks forward to engaging the new team: We hope they share our goal of rebuilding a once progressive labor management relationship. Similarly, Union Negotiators remain ready and willing to work with senior management to bring contract negotiations to a successful conclusion on behalf of our pilots.”

Unfortunately, after a 90-day summer ceasefire, the union is ready to resume its picketing, noting that the union and management are still far apart.

Johnson has pointed to the “remarkable” progress the two parties have made, but notes, “due to the parties’ views about the economics of this business — and thus how much additional cost we can take on over the next decade — as well as different expectations concerning the demand for the services we provide.”

NJASAP is seeking a 35% pay increase over three to five years. Currently, its captains with 10 years of experience earn $131,179 a year.

Words of Wisdom from Warren

“It’s human nature to sometimes have differences about how people get paid,” Berkshire chairman Warren Buffett said, when questioned about the dispute at the 2015 Berkshire Hathaway annual meeting.

Unfortunately, those differences don’t look any closer to being resolved.

© 2015 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
Lubrizol

Lubrizol Strikes Agreement with Daelim for PIBs Technology

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Berkshire Hathaway’s wholly-owned specialty chemical maker Lubrizol has signed a deal with South Korean petrochemical company Daelim Industrial to use Daelim’s polyisobutylenes (PIBs) production technology.

PIBs are used in dispersants manufactured by Lubrizol., and Lubrizol will use Daelim’s technology in its Deer Park facility in Texas.

The U.S. is the largest market for PIBs, with applications as diverse as medicine and solar energy.

One important use of PIB is as a sealing substance for photovoltaic panel systems, and another is in the manufacture of transdermal patches for delivery of medicines. Automobile fluid suppliers also use PIBs for high-performance additives.

Daelim notes that its technology can be used to produce a range of PIBs, from the conventional to the highly reactive (HR-PIB).

“Through this agreement Lubrizol will ensure its access to process technology that offers the company multiple benefits,” states Lubrizol Additives president Dan Sheets. “It provides Lubrizol formulating flexibility to meet the evolving performance needs of the global lubricant and fuel additives markets over time.”

Lubrizol’s agreement with Daelim will enable it to move into the initial engineering phase of the manufacturing project, with commercial production expected in three years.

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 7,500 employees worldwide. It sells its specialty chemical products in over 100 countries.

Lubrizol makes a wide-range of lubricant additives for engine oils, driveline and other transportation-related fluids, industrial lubricants, and additives for gasoline and diesel fuel.

© 2015 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 Minority Stock Positions

Berkshire Reveals Major Stake in Phillips 66

(BRK.A), (BRK.B)

Berkshire Hathaway has revealed that it now owns more than ten-percent of refiner Phillips 66 (PSX).

In early 2014, Berkshire swapped a large portion of its previous Phillips 66 position for the Houston-based company’s chemical business unit, which was added to Berkshire’s specialty chemical maker Lubrizol.

“We were able to do that on a tax-advantage basis. We didn’t trade them because we didn’t like the stock,” Warren Buffett said on CNBC’s Squawk Alley.

“I had always intended on coming back in, assuming that the price was right.”

A Surprise Revealed

In its SEC Form 13F filing on July 31, 2015, Berkshire stated that “confidential information has been omitted from the public Form 13F report and filed separately with the U.S. Securities and Exchange Commission,” which implied that the company was amassing shares in a company that it would reveal at a later date.

Berkshire, in its SEC Form 3 filing on August 25, stated it had accumulated 54,800,415 shares of Phillips 66 common stock. The position is worth aproximately $4.5 billion, and including shares owned prior to July 31, Berkshire owns 58 million shares.

51,873,456 of the total reported securities are owned by National Indemnity Company, a subsidiary of Berkshire Hathaway, and no price for those shares was reported.

However, 6,102,000 of the total reported securities are owned by the following pension plans of Berkshire’s subsidiaries: FlightSafety International Inc. Retirement Income Plan (350,000), Fruit of the Loom Pension Trust (921,300), GEICO Corporation Pension Plan Trust (2,499,700), Johns Manville Corporation Master Pension Trust (2,187,000), and General Re Corp. Employee Retirement Trust (144,000). The purchase price of those shares ranged from $71.56-$77.26.

About Phillips 66

Phillips 66 was spun-off of ConocoPhillips in May 2012, and its refining and petrochemical business has been mostly immune to the downward pressure on oil prices, as the demand for refined products, including gasoline, diesel and aviation fuel remains strong. Phillips 66 also transports crude oil, refined products, natural gas and natural gas liquids (NGL). It gathers, processes and markets natural gas and NGL to power businesses, heat homes and provide feedstock to the petrochemical industry.

The company’s 52-week share price high was $87.98, and it currently pays an annual dividend of 56 cents, yielding 2.9%.

Buffett, Combs or Weschler

Berkshire does not normally announce which transactions are the work of Warren Buffett, and which transactions are the work of his two portfolio managers Todd Combs and Ted Weschler. While Warren Buffett has acquired most of Berkshire’s portfolio, Todd Combs and Ted Weschler each manage a portfolio that is roughly $9 billion in assets. The two investment managers are widely assumed to be the future managers of the entire portfolio.

The total portfolio slipped to a market value of $107.182 Billion at the end of second quarter from $110.776 billion at the end of the 1st quarter 2015.

(This article contains updated information from when it was first published.)

© 2015 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

Denver the Latest City for BYD’s Pure-Electric Buses

(BRK.A), (BRK.B)

There was a time when cities were very pleased with adding hybrid buses to reduce emissions from smoky diesel buses. These days, the mantra is zero-emissions, as cities work to meet tougher pollution and climate change goals. These goals benefit BYD Co. Ltd, the Chinese company that is a world-leader in rechargeable batteries, and maker of pure-electric and traditional fuel vehicles.

The company, which is partially-owned by Berkshire Hathaway, continues to make inroads in the U.S. market with its all-electric buses.

In Denver, Colorado, the Regional Transportation District (RTD) has approved the purchase of 36 of BYD’s 45-foot pure-electric buses for its 16th Street Mall shuttle, which is the RTD’s busiest bus route.

The buses replace a more than decade-old fleet of hybrid buses, which are aging out of service. The new buses will eliminate emissions on the heavily travelled route.

The RTS is spending $27.1 million to purchase the buses, which will have a 12-year lifespan.

BYD has been begun assembling its buses for the U.S. market in a plant it opened in Long Beach, California. The company is already making pure-electric buses for Long Beach’s transportation system.

In 2008, Berkshire Hathaway bet on BYD’s potential and purchased 225 million shares, and today owns roughly 10% of the company.

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

© 2015 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 Energy

Berkshire’s PacifiCorp Gets Tens of Millions in Benefits from Energy Imbalance Market

(BRK.A), (BRK.B)

$30 million in annual savings would make most investors wobbly, but in Berkshire Hathaway’s case it is making them more balanced.

In 2014, when Berkshire Hathaway Energy’s PacifiCorp agreed to become the first participant in a new Energy Imbalance Market (EIM), the market was touted as a way to balance electricity in-flows and out-flows on a regional basis that would bring millions of dollars in benefits to participating utilities.

The EIM began financially-binding operation on November 1, 2014, by optimizing resources across the ISO and PacifiCorp’s balancing authority areas (BAAs), which includes California, Oregon, Washington, Utah, Idaho and Wyoming.

The EIM improves the integration of renewable resources and increases reliability by sharing information between balancing authorities on electricity delivery conditions across the entire EIM region.

Tens of Millions in Benefits a Year

The predicted benefits have proven to be true, and the California Independent Service Operator (CAISO) has been able to quantify the benefits from the April, May, and June 2015 to be $10.18 million.

In its July report, CAISO said that it, “continues to prove EIM’s ability to select the lowest cost resource across the PacifiCorp and ISO balancing authority areas to serve demand and measures benefits within the following categories, which were described in an earlier study conducted by Energy + Environmental Economics (E3)1 for PacifiCorp and the ISO.”

The report noted:

• More efficient dispatch, both inter- and intra-regional, in the Fifteen-Minute Market (FMM) and Real-Time Dispatch (RTD) by automating dispatch every fifteen minutes and every five minutes within PacifiCorp’s two BAAs and between the PacifiCorp and California ISO BAAs.

• Reduced renewable energy curtailment by allowing BAAs to export or reduce imports of renewable generation when it would otherwise need to be economically curtailed.

• Reduced flexibility reserves needed in PacifiCorp BAAs, which saves cost by aggregating the load, wind, and solar variability and forecast errors of the combined EIM footprint. This report introduces the flexibility reserve benefits for PacifiCorp but defers measurement of reduced flexibility reserve benefits for the ISO to future reports due to the need to develop additional measurement techniques.

© 2015 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
Berkadia

Berkadia Expands Its Sales Force in the Midwest

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Berkshire Hathaway’s joint venture Berkadia Commercial Mortgage is expanding its multifamily investment sales team with 12 new hires across the Midwest.

The new additions, all joining from Marcus & Millichap, include nine multifamily investment sales advisors and three supporting team members, who will be located in Berkadia’s Chicago, St. Louis and Kansas City, Missouri offices.

In the last 12 months, the team has closed 31 transactions totaling more than $300 million.

Eight of the new hires will join the Chicago office, expanding the existing office by nearly one-third of its original size, and bringing the total number of mortgage banking and investment sales professionals to 36.

The investment sales team joins the already established Berkadia mortgage banking team, making it a fully integrated regional office.

Senior Directors David Gaines and Alex Blagojevich, along with Director Michael Sullivan, are the leaders of the coordinated team.

In total, the group has brokered more than $1 billion in the sale of over 17,000 units across the Midwest.

Across Berkadia’s 70 offices, multifamily investment sales and mortgage banking production exceeded $17 billion in 2014.

Sales and finance volumes are on pace to surpass this number for the current calendar year.

About Berkadia

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 was founded in 2009 as a 50/50 joint venture between Berkshire Hathaway and Leucadia National Corporation.

© 2015 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
Acquisitions Kraft Heinz Warren Buffett

No More Elephants For Buffett’s Famed “Elephant Gun,” For Now

(BRK.A), (BRK.B)

Warren Buffett likes to refer to his hunting for big companies, such as his acquisition of BNSF Railway, and the recently announced Precision Castparts Corp., as hunting for elephants with his “elephant gun.”

While each year Berkshire does on average $3 billion of bolt-on acquisitions for its various companies, it takes something really elephant-sized to move the needle on a conglomerate with a market value of a third of a trillion dollars.

Those kinds of deals, be they BNSF, Kraft Heinz, or Precision Castparts, also mean that the Buffett’s elephant gun will be quiet while he refills the cash coffers. Berkshire is spending down its $66 billion in cash by $20 billion, and Buffet likes to maintain at least $20 billion in cash as a reserve in the case of economic downturns.

Buffett Reloads the Cash

“This takes us out of the market for an elephant but we will probably be buying a few small things in the next 6 months,” Buffett recently remarked, explaining the deal for Precision Castparts. “We are in negotiations on a couple but in terms of a deal of similar size it pretty much takes us out. What we will probably do on this one, we will probably borrow about $10 billion and use about $23 billion of our own cash on that order. We’ll be left with over $40 billion probably in cash when we get all through. But I like to have a lot of cash at all times, so this means we have to reload over the next 12 months or so, but it doesn’t preclude doing smaller deals, but we will be doing a few probably.”

That’s The Way The Cookie Crumbles

So, despite the recent excitement around activist investor Bill Ackman of Pershing Square having taken a $5.5 billion stake in snack food company Mondelez, perhaps with the goal of seeing it sold to a buyer like Berkshire, don’t look for it to merge into either Berkshire or Kraft Heinz any time soon.

© 2015 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.