G.research, Inc.
One Corporate Center
Rye, NY 10580-1422
Tel (914) 921-5398
May 8, 2014
Gabelli & Company
www.gabelli.com
The Band Plays On
Source:Rationalwalk.com
Reflections from the 2014 Annual Meeting
(BRK.A - $191,550 - NYSE)
(BRK.B - $127.45 " )
Macrae Sykes
©2014 Gabelli & Company
(914) 921-5398
-Please Refer To Important Disclosures On The Last Page Of This Report-
May 8, 2014
G.research, Inc.
One Corporate Center
Rye, NY 10580-1422
Tel (914) 921-5398
Gabelli & Company
www.gabelli.com
Berkshire Hathaway Inc. (BRK.A - $191,550 - NYSE)
Year
2016P
2015P
2014E
2013A
EPS
$13,300
12,000
10,900
11,850
P/E
14.3x
15.9
17.5
16.1
’14 Annual Meeting - NR
Dividend: N/A Current Return: Nil
Common Shares “A”: 0.9 billion (a)
“
“
“B”: 1.2 “
(b)
52-Week Range “A” Shares: $194,670 - $163,039
(a) One Class “A” Share can be converted into 1,500 “B” Shares. Class “A” Shares have 10,000 votes per share.
(b) Warren Buffett owns 336,000 of “A” Shares and 1,425,727 “B” Shares.
SUMMARY AND OPINION
Berkshire Hathaway Inc., based in Omaha, NE is a holding company for a diverse group of operating subsidiaries
including insurance, freight rail transportation, utilities and energy, finance, services and retailing. The
subsidiaries operate in an autonomous fashion, while investment and capital allocation decisions are managed by
Warren Buffett (83) in consultation with Vice Chairman, Charlie Munger (90). As of December 31, 2013 and
from 1965, the firm had an annual compounded gain on book value of 19.7%.
On May 3, 2014, Mr. Buffett (WB) and Mr. Munger (CM) hosted the firm’s 48th annual meeting at the
CenturyLink Center in Omaha. Speculated attendance was approximately 38,000 out of the roughly one million
Class B shareholders. True to form, the management duo, presided over an active Q&A of several distinguished
financial journalists, institutional analysts and members of the public. For the most part, the discussion focused
on the firm’s operating businesses and investment wisdom, with some questions around more recent events
including the Coke compensation plan. Not surprising, the managers showed little sign of aging over the past
year and remained as dogged as ever in communicating the virtues of the Berkshire Hathaway culture.
Takeaways:
-
At last year’s meeting in May, Buffett alluded to the early trajectory of the S&P 500 Index and suggested for
the first time in the company’s history that the increase in book value for the trailing 5-years could trail the
S&P 500 Index. (Buffett: “It will not be a happy day, but it will not totally discourage us.” Munger: “We’re
slowing down, but it will still be very pleasant. . . .I want to say to the Mungers in the audience, don’t be so
stupid as to sell these shares.”) For 2013, BRK book value increased 18.2% vs. the 32.4% for the S&P 500
and for the period the index outperformed Mr. Buffett’s metric for returns four out of five years. Going
forward, WB expects similar return attribution differences when the market has strong returns, but over time
Berkshire’s set of businesses and unique structure should outperform the passive market index. Additionally,
Mr. Munger pointed out the headwind associated with being graded on after-tax returns. “Warren Buffett
talks about returns after-tax – indices do not pay any taxes. That is a pretty high standard. If this is failure – I
want more of it.”
-
Not surprising, the shareholder proposal to initiate a dividend was voted down by roughly 97% of the Class B
holders including Mr. Buffett, who stated that he “stuffed the ballot box.”
-
Intrinsic value estimates are impacted by accounting standards which in some cases may underestimate true
net worth. For instance, the carrying value for GEICO is $1 billion over tangible assets. However, WB
stated it may be worth over $20 billion over tangible assets given its client base and market share.
Additionally, the $77 billion of insurance float is carried as a liability and subtracted from net worth, when
the long-time ability to generate investment results is clearly an asset. Net/net, BRK’s intrinsic value is much
higher than its stated book value, which Mr. Buffett uses to measure annual results. The firm uses a current
threshold of 120% of book value to repurchase shares, with the notion that this is a level desirable below
estimated intrinsic value. In terms of one aspect of financial engineering, the company has no plans to IPO
any of its units.
-
Berkshire partnered with private equity firm 3G Capital last year to purchase H.J. Heinz Company (closed in
June). WB commented that the principals are “marvelous partners, and more than fair with us” and see more
opportunities to partner with 3G in the future. However respectful WB is of 3G in terms of running
businesses, their management techniques differ from Berkshire’s and would not “blend well.”
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Gabelli & Company
-
With $48 billion of cash “dry-powder,” (excluding significant investments in liquid investment securities) the
firm is well positioned to make new investments and acquisitions (announced a $3 billion investment in a
Canada energy firm over the weekend). Given the capital size, elephant hunting continues to be a priority,
but only at the right price. The firm now has significant internal businesses to reinvest in as well. There is no
pressure to put the capital to work. CM: “Our acquisitions were irregular in the past and they will be
irregular in the future. Our energy and train business do offer recurring demand for future capital and that is
positive for shareholders.”
-
In true humbling style and in response to a direct question, Mr. Buffett stated that the holding company has
some weak points. First, management could be more efficient with operating cash flows in terms of
sweeping cash balances from subsidiaries and trying to enhance yield (he did note that monetary effects are
less impactful in current interest rate environment). WB and CM also acknowledged that they may be slow
to make management changes and that the decentralized structure may lead to occasional negative effects
from supervision. There is no central human resources component or general counsel in the corporate office.
Despite these unique attributes, they remain confident in the culture and structure of the firm. CM: “By the
standards of the world – we over trust, but our results show it. We have a good system.”
-
Todd Combs and Ted Weschler are now managing close to $7 billion each, still less than 10% of potential
investable assets. Although both beat returns on S&P 500 Index in 2013, Mr. Buffett contends that they are
finding it more difficult with larger sums of capital. Additionally, both have contributed (no specifics) to the
organization outside of their normal investment vocations and continue to be “terrific additions to the
business.”
-
Taxes always remain a hot topic.
- According to WB corporate taxes have come down historically as a percentage of GDP and that corporate
America is doing well producing extraordinary returns on tangible assets.
- Berkshire has never considered an “inversion” (see Pfizer proposed $100 billion takeover of AstraZeneca
in Britain and then reincorporation there from the United States). Berkshire’s model wouldn’t have been
possible to create outside of the United States.
- WB: “Berkshire plans to pay its fair share of taxes, but not more than that.”
-
Berkshire may stand-out in its success relative to other conglomerates. Some of those firms were run with
the idea of rolling up assets with cheaper multiples than issued shares. One company mentioned by Mr.
Buffett was Tyco and that company had some issues several years ago. On the positive side, the Dow Jones
Index is a compilation of companies that have generated positive returns over the last fifty years with a makeup of core American businesses. Berkshire is similar with respect to many of those businesses, but with a
single owner that can strategically allocate capital, which is an important strategic aspect to the firm. CM:
“We have a couple of differences between us and other failed conglomerates. We can reinvest in the
insurance business. We are more like the Mellon Brothers – they made smart, minority investments.”
-
The strong performance of the public markets in 2013 increased Mr. Buffett’s advantage (1) over Ted Seides
of Protégé Partners as the passive vehicle of the S&P 500 Index beat the proprietary fund of hedge funds
basket. After liquidating the fixed income securities of the original wager proceeds, the investment was put
into Berkshire Hathaway shares and now that balance exceeds the original expected settlement of $1 million
(to the winner’s charity).
Table 1
Protégé Partners Wager
2008-2013
Year
2008
2009
2010
2011
2012
2013
Cumulative
(1)
Berkshire
(9.60%)
19.80
13.00
4.60
14.40
18.20
S&P 500
(36.97%)
26.50
15.10
2.10
16.00
32.30
43.80%
FoHF
(23.90%)
15.92
8.46
(1.86)
6.46
11.80
12.50%
Source: Berkshire Annual Meeting 2014.
In 2008, Protégé Partners and Warren Buffett made a $1 million wager to go to the winner’s chosen charity. Mr. Buffett bet that the 10-year
returns on the S&P 500 Index fund would eclipse those of a proprietary fund of hedge funds portfolio selected by Protégé Partners, LLC.
-2-
Gabelli & Company
ANNUAL MEETING
Following an abbreviated wait outside the CenturyLink Center, the doors opened at 7:00am. The exhibition hall
was filled with many of the Berkshire Companies including BNSF, Borsheims, and GEICO.
Exhibit 1
Source: Gabelli & Company.
Consistent with previous years, shareholders sat down at 8:30am to witness the creative efforts of management in
several short movies as well as some commercials around notable brands including Coke and GEICO. This year
included a Olympic Hockey parody of “Team Berkshire” with Bill Gates, Charlie Munger and Tony Nicely
among others. The message reflected the self-deprecating humor of its leader and demonstrated the confidence
in the firm’s execution as the unique bunch from Omaha outplaying the larger, more experienced Russian
national team. Following that cartoon was a vignette with the Chairman and two characters from the cable hit,
Entourage. Last, Mr. Buffett performed a duet with notable singer, Paul Anka which was much less satirical and
actually a touch emotional as almost alluding to a last call.
At 9:30am, the formal program began. WB&CM provided some brief comments, introduced the Directors and
then commenced the Q&A session, which lasted until 3:30pm. In addition, to the three financial journalists,
Carol Loomis, Becky Quick and Andrew Sorkin, other panelists included research analysts Jonathan Brandt, Jay
Gelb and Greg Warren.
Quotes from the Meeting:
In addition to the financial and economic commentary that is standard for the annual meeting, the two leaders are
known for their quick-witted and inspirational comments. This year was no different.
Warren Buffett:
- “American business is doing very well.”
- “If Charlie and I wrote down our estimate of value for Berkshire, we would be within 5% of each other, but
never say as close as 1%.”
- “Not a good use of capital to buy back options that you have just issued.”
- “I have been on a compensation committee just once. They don’t want Dobermans – they look for
Chihuahuas with their tails wagging.”
- On cost of capital – “The real test – does the capital we retain make more than the value we put in – we will
keep doing it. We think we can evaluate businesses and we have capital. We are consistently evaluating our
opportunity cost.”
- On his personal holdings. “Every share that I have will go to five different charities. They will be
distributed over ten years – I have told the trustees to not sell those shares until they have to.”
- “Charlie is my canary in the coal mine. He just turned 90 and I am impressed by how he is handling middle
age.”
- On what stock to put 100% of your net worth into – “Great question, but I am not going to give you an
answer.” (Charlie: “I think you have given the right answer.”)
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Gabelli & Company
-
“We are very disciplined by some standards and sloppy by some standards. I am slow to make personnel
changes.”
“We want to try to add earnings power every day.”
“Bernanke did a terrific job. Most of the Fed didn’t really understand just how serious things were.”
“If you read about either one of us buying a sports team, it may be time to talk about a successor.”
“My life would be worse with 6 or 8 homes.”
On 3G Capital – “They’re very smart, they’re very focused. They’re very determined. They’re never
satisfied. And as I said earlier, when you make a deal with them, you make a deal with them.”
Charlie Munger:
- “We never have had a policy that loved over-staffing. The love of great businesses – they don’t want to be
fanatic – don’t need the last nickel out of staffing costs.”
- “WB talks about returns after-tax – indices do not pay any taxes. That is a pretty high standard. If this is
failure – I want more of it.”
- On the subject of taxes and President Obama. “I am going to avoid this one.”
- “We don’t ever want to get the stock over intrinsic value to issue stock. We are not in the game of
ballooning our stock. Over the long-term our stock will work pretty well.”
- On being consistent with acquisitions – “We behave the way we do because we like it. We are not likely to
change.”
- With respect to questions about Warren and Howard (Buffett) on the Coke compensation plan. “Warren was
totally voted down at Solomon. They were like what does he know about Wall Street. Knowing both
Howard and Warren – they won’t go soft, just because they don’t shout all the time. If we all did that we
couldn’t hear each other. I offend more people than you (Warren) and I am comfortable with your level.”
- “The phrase ‘cost of capital’ means silly things. Especially those that teach it in business school.”
- “Warren is peculiar about how he gives money to his family and he is entitled to do so in any way he wants
to. WB is really a meritocrat – he wants his money to go back to the civilization from which it was earned. I
like being associated with him.”
- “I wish the main problems in life were fears about the succession issues at Berkshire – we are in good
shape.”
- “Well, you (Warren) once called me the Abominable No Man.”
- “You still have to keep trying. We have a lot of ignorance left at Berkshire.”
- On copying Berkshire Hathaway – “I think it is too hard to do. . . .It means you’ll be dead before you’re
finished.”
- “It’s not a tragedy to have so much success that future returns go down.”
- “We took a man from the executive chair directly to the Alzheimer’s home.”
- “We are very lucky to have these businesses to employ capital at such nice returns – we are way better off
now. It is a blessing. We love the opportunity to invest in our businesses.”
-4-
Gabelli & Company
COMPANY OVERVIEW
Berkshire Hathaway Inc., based in Omaha, NE is a holding company for a diverse group of operating subsidiaries
including insurance, freight rail transportation, utilities and energy, finance, services and retailing. The
subsidiaries operate in an autonomous fashion, while investment and capital allocation decisions are managed by
Warren Buffett in consultation with Charlie Munger. As of December 31, 2013 and from 1965, the firm had an
annual compounded gain on book value of 19.7%.
In 2013, Berkshire completed two large acquisitions and purchased additional shares in two businesses already
controlled by the holding company, spending almost $21 billion.
- Purchased $8 billion of Heinz preferred stock that carries a 9% coupon and $4.25 billion of the common
stock (the same amount as 3G Capital). Berkshire intends to increase its position in the company over
time when certain 3G investors decide to sell.
- MidAmerican Energy (now Berkshire Hathaway Energy) purchased NV Energy for $5.6 billion.
- Invested $3.5 billion to bring the ownership up to 100% of both Marmon (original investment in 2008)
and Iscar (first investment in 2006).
Insurance
Exhibit 2
Berkshire operates several insurance ($77 billion of insurance float as of March
31, 2014 and up from $39 million as of 1970) subsidiaries including, but not
limited to Berkshire Hathaway Primary Group, Berkshire Hathaway
Reinsurance Group, GEICO and General Re. The collection of businesses
generated an underwriting profit in 2013 for the 11th year in a row. GEICO is
perhaps the most public identifiable brand with its charming and comedic
commercials featuring the “Gekko.” Through persistent share gains, GEICO,
has grown to the second-largest (#7 in 1996) private passenger auto insurer in
Source: Geiconow.com.
the United States passing Allstate recently.
Exhibit 3
Railroad
Following the acquisition of Burlington Northern in February 2010 for
approximately $26.5 billion in cash and stock, Berkshire became one of
the largest operators of railroad systems in the United States with
approximately 32,500 miles of track in 28 states (~15% of all inter-city
freight) and two Canadian provinces. In serving primarily the Midwest,
Pacific Northwest and Western and Southwestern parts of the United
States, the company transports a range of products and commodities
related to manufacturing, agricultural and natural resources industries.
Source: Specialhappens.com.
Utilities
MidAmerican Energy Holdings Company (now Berkshire Hathaway Enerrgy) represents Berkshire Hathaway’s
main utility holding company. The firm’s many operating subsidiaries including MidAmerican Energy
Company, Pacific Energy and Rocky Mountain Power provide power transmission and energy services. In
addition, the Holdco. owns HomeServices of America, a real estate brokerage firm.
Other Businesses
Berkshire has many other operating businesses. Notable companies include:
- Acme Brick – industrial manufacturer of bricks and masonary products
- IMC International Metalworking Companies (Iscar) – metal cutting and tools business
- McLane Company – wholesale distributor of groceries and nonfood items to discount retailers
- Shaw Industries – largest manufacturer of tufted broadloom carpet
- The Lubrizol Company – speciality chemicals
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Gabelli & Company
Table 2
Berkshire Operating Businesses
2011-2013
($, millions)
2013
Operating Businesses:
Insurance group:
Underwriting:
GEICO
General Re
Berkshire Hathaway Reinsurance Group
Berkshire Hathaway Primary Group
Investment income
Total insurance group
BNSF
Finance and financial products
Marmon
McLane Company
MidAmerican
Other businesses
Reconciliation of segments to consolidated amount
Investment and derivative gains/losses
Interest expense, not allocated to segments
Eliminations and other
Revenues
2012
2011
2013
EBIT
2012
2011
$18,572
5,984
8,786
3,342
4,735
$41,419
$16,740
5,870
9,672
2,263
4,474
$39,019
$15,363
5,816
9,147
1,749
4,746
$36,821
$1,127
283
1,294
385
4,713
$7,802
$680
355
304
286
4,454
$6,079
$576
144
(714)
242
4,725
$4,973
22,014
4,291
6,979
45,930
12,743
42,382
$175,758
20,835
4,110
7,171
37,437
11,747
38,647
$158,966
19,548
4,014
6,925
33,279
11,291
32,202
$144,080
5,928
985
1,176
486
1,806
5,080
$23,263
5,377
848
1,137
403
1,644
4,591
$20,079
4,741
774
992
370
1,659
3,675
$17,184
6,673
3,425
(830)
(281)
72
438
6,673
(303)
(837)
3,425
(271)
(997)
(830)
(221)
(819)
$182,150
$162,463
$143,688
$28,796
$22,236
$15,314
Source: Company data.
Capital allocation and Investments
Berkshire benefits from strong cash flows and significant long-term float from the insurance businesses. These
cash flows have been invested in a wide variety of financial instruments including derivatives, equities and fixed
income. The investment companies reflect similar traits to the firm’s collection of operating companies in terms
of strength of brands, strong competitive industry positions and significant cash flow generation. Todd Combs
joined the corporate investment team in October 2010, with Ted Weschler coming on board in September 2011.
Both managers have been assuming larger investment responsibilies ($7 billion each as of May 2014) and have
recorded positive results relative to the S&P 500 index.
Table 3
Major Investments
as of 12/2013
($, millions)
Shares
151,610,700
400,000,000
22,238,900
41,129,643
13,062,594
68,121,984
24,669,778
20,060,390
20,668,118
52,477,678
22,169,930
301,046,076
96,117,069
56,805,984
483,470,853
Company
American Express Company
The Coca-Cola Company
DIRECTV
Exxon Mobil Corp.
The Goldman Sachs Group, Inc.
International Business Machines Corp.
Moody's Corporation
Munich Re
Phillips 66
The Procter & Gamble Company
Sanofi
Tesco plc
U.S. Bancorp
Wal-Mart Stores, Inc.
Wells Fargo & Company
Others
Total Common Stocks Carried at Market
Percentage of
Company Owned
14.2 %
9.1
4.2
0.9
2.8
6.3
11.5
11.2
3.4
1.9
1.7
3.7
5.3
1.8
9.2
Source: Company data.
Cost
Market
$1,287 $13,756
1,299
16,524
1,017
1,536
3,737
4,162
750
2,315
11,681
12,778
248
1,936
2,990
4,415
660
1,594
336
4,272
1,747
2,354
1,699
1,666
3,002
3,883
2,976
4,470
11,871
21,950
19,894
11,281
$56,581 $117,505
Exhibit 3
Source: American Express.
Exhibit 4
Source: Coca-Cola.
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Gabelli & Company
PERFORMANCE
Since taking over Berkshire Hathaway in 1965, Warren Buffett has built the company into the eighth largest in
the United States based on market capitalization. Cumuluative return of book value has been 693,518% vs. just
9.841% for the S&P 500. The long-term success has been built on several distinct advantages. Warren Buffett’s
investment record and timing have really been unmatched during this time frame. As a holding company,
Berkshire is also able to reallocate its significant capital generation to highest return opportunities. As a master
of tax strategy, WB has more than demonstrated his ability to “pay less, pay later” philosophy to successfully
structure transactions.
Table 4
Year
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
Berkshire Corporate Performance
1965-2013
Annual Percentage Change
in Per-Share
in S&P 500
Book Value of with Dividends
Berkshire
Included
23.8%
10.0%
20.3
(11.7)
11.0
30.9
19.0
11.0
16.2
(8.4)
12.0
3.9
16.4
14.6
21.7
18.9
4.7
(14.8)
5.5
(26.4)
21.9
37.2
59.3
23.6
31.9
(7.4)
24.0
6.4
35.7
18.2
19.3
32.3
31.4
(5.0)
40.0
21.4
32.3
22.4
13.6
6.1
48.2
31.6
26.1
18.6
19.5
5.1
20.1
16.6
44.4
31.7
Relative
Results
13.8%
32.0
(19.9)
8.0
24.6
8.1
1.8
2.8
19.5
31.9
(15.3)
35.7
39.3
17.6
17.5
(13.0)
36.4
18.6
9.9
7.5
16.6
7.5
14.4
3.5
12.7
Annual Percentage Change
in Per-Share
in S&P 500
Book Value of with Dividends
Berkshire
Included
7.4
(3.1)
39.6
30.5
20.3
7.6
14.3
10.1
13.9
1.3
43.1
37.6
31.8
23.0
34.1
33.4
48.3
28.6
0.5
21.0
6.5
(9.1)
(6.2)
(11.9)
10.0
(22.1)
21.0
28.7
10.5
10.9
6.4
4.9
18.4
15.8
11.0
5.5
(9.6)
(37.0)
19.8
26.5
13.0
15.1
4.6
2.1
14.4
16.0
18.2
32.4
Year
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
CAGR 1965-2013
Overall Gain - 1964-2013
19.7%
693518%
9.8%
9841%
Relative
Results
10.5
9.1
12.7
4.2
12.6
5.5
8.8
0.7
19.7
(20.5)
15.6
5.7
32.1
(7.7)
(0.4)
1.5
2.6
5.5
27.4
(6.7)
(2.1)
2.5
(1.6)
(14.2)
9.9
Source: Company data.
VALUATION
Management often refers to Berkshire’s change in
book value as a proxy for evaluating the progress
at Berkshire Hathaway especially against the
returns of the S&P 500 Index. Book value at the
end of December 2013 was $134,973 per Class A
Share or approximately 1.4x at the current price.
Since 1990, price-to-book value has fluctuated
between 1 and 2.6x.
Exhibit 5
Berkshire Class A Price-To-Book Ratio
March 31, 1990 - May 2014
Source: Bloomberg.
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Gabelli & Company
CONCLUSION
The 48th annual meeting marked another year of absolute progress for the company, while demonstrating again
the important attributes that make Berkshire Hathaway a unique entity. In spite of all the generic worries that
come up each year including management succession, sourcing large acquisitions, and generating above average
growth, we believe several subtle positives emerged providing more clarity this year. First, newer investment
managers, Mr. Combs and Mr. Weschler have further cemented an ability to generate alpha while handling larger
allocations of capital. Second, by teaming with 3G Capital on Heinz, Berkshire showed the ability to increase its
deal network, while gaining exposure to private equity financial engineering not core to its normal acquisition
culture. Additionally, the relationship may provide a larger ability to find new candidates in the international
community something that was noted as a challenge by Mr. Buffett. (“I am a little disappointed that we haven’t
had as much luck outside the country.”) The firm’s timely acquisition of BNSF (2010) and increasing scale in its
energy operations have helped create more opportunities for “internal” investment on businesses that are already
well known as a core competency. For instance, capital expenditures in its train operations are expected to
exceed almost $5 billion in 2014, further increasing the firm’s competitive advantages (#1 in spend among major
competitors). Net/net these ongoing capital opportunities should assuage investor concerns around the efficient
allocation of the significant cash flow generation by the holding company.
Of note this meeting was the focus on the trailing 5-year record which for the first time in the company’s history
did not exceed the stated performance benchmark of the S&P 500 Index. Mr. Buffett alluded to this potential at
last year’s meeting and made essentially no defense this year stating that it will be difficult to eclipse the market
that has been as strong as the previous five years. Mr. Munger did point out Berkshire’s embedded challenge of
using after-tax gains for comparisons, while Mr. Buffett previously highlighted in the firm’s annual report that
some gains in the insurance business would not be fairly depicted given the nature of GAAP accounting.
Regardless, the duo seemed unfazed by the near-term performance (similar to the late 90s) cosmetics and
undeterred in its outlook to reward shareholders with superior returns. We are reminded by Mr. Buffett’s
comments about 3G Capital, which seem introspective. “They’re (3G Capital) very smart, they’re very focused.
They’re very determined. They’re never satisfied.”
With the 50th meeting in sight and another year behind them, both Mr. Buffett and Mr. Munger showed no signs
of changing intensity (or considering perhaps more healthier foods than Cherry Coke and See’s Peanut Butter
Brittle!). Clearly their spirit remains extraordinary and yet unflappable in spite of the many challenges identified
during the weekend. If history is any guide to future operating execution, than investors should continue to look
to partner (through their share ownership) with this unique and entrepreneurial organization.
-8-
Gabelli & Company
Other Companies Mentioned:
Allstate Corp.
American Express Company
AstraZeneca PLC
The Coca-Cola Company
DirecTV
Exxon Mobile Corp.
Goldman Sachs Group
International Business Machines
Moody’s Corp.
Munich Re
(ALL
(AXP
(AZN
(KO
(DTV
(XOM
(GS
(IBM
(MCO
(MUV2
-
NYSE)
" )
" )
" )
NASDAQ)
NYSE)
" )
" )
" )
MU)
Pfizer Inc.
Phillips 66
Procter & Gamble Co.
Sanofi
Tesco PLC
Tyco International
US Bancorp.
Wal-Mart Stores Inc.
Wells Fargo Company
(PFE
(PSX
(PG
(SNY
(TLSO
(TYC
(UB5
(WMT
(WFC
-
NYSE)
" )
" )
" )
LSE)
NYSE)
HM)
NYSE)
" )
I, Macrae Sykes, the Research Analyst who prepared this report, hereby certify that the views expressed in this report
accurately reflect the analyst’s personal views about the subject companies and their securities. The Research Analyst has
not been, is not and will not be receiving direct or indirect compensation for expressing the specific recommendation or view
in this report.
Gabelli & Company 2014
Macrae Sykes (914) 921-5398
Important Disclosures
ONE CORPORATE CENTER RYE, NY 10580
GABELLI & COMPANY
TEL (914) 921-5130
FAX (914) 921-5098
Gabelli & Company is the marketing name for the registered broker dealer G.research, Inc., which was formerly known as Gabelli & Company, Inc. Gabelli
& Company ("we or "us") attempts to provide timely, value-added insights into companies or industry dynamics for institutional investors. Our research
reports generally contain a recommendation of "buy," "hold," "sell" or "non-rated.” We do not undertake to "upgrade" or "downgrade" ratings after publishing
a report. We currently have reports on 578 companies, of which 47%, 37%, 3% and 14% have a recommendation of buy, hold, sell or non-rated, respectively.
The percentage of companies so rated for which we provided investment banking services within the past 12 months is 0%, 0%, 0% and less than 1%.
Ratings
Analysts’ ratings are largely (but not always) determined by our “private market value,” or PMV methodology. Our basic goal is to understand in absolute
terms what a rational, strategic buyer would pay for an asset in an open, arms-length transaction. At the same time, analysts also look for underlying catalysts
that could encourage those private market values to surface.
A Buy rated stock is one that in our view is trading at a meaningful discount to our estimated PMV. We could expect a more modest private market value to
increase at an accelerated pace, the discount of the public stock price to PMV to narrow through the emergence of a catalyst, or some combination of the two
to occur.
A Hold is a stock that may be trading at or near our estimated private market value. We may not anticipate a large increase in the PMV, or see some other
factors at work.
A Sell is a stock that may be trading at or above our estimated PMV. There may be little upside to the value, or limited opportunity to realize the value.
Economic or sector risk could also be increasing.
We prepared this report as a matter of general information. We do not intend for this report to be a complete description of any security or company and it is
not an offer or solicitation to buy or sell any security. All facts and statistics are from sources we believe to be reliable, but we do not guarantee their
accuracy. We do not undertake to advise you of changes in our opinion or information. Unless otherwise noted, all stock prices reflect the closing price on
the business day immediately prior to the date of this report. We do not use "price targets" predicting future stock performance. We do refer to "private
market value" or PMV, which is the price that we believe an informed buyer would pay to acquire 100% of a company. There is no assurance that there are
any willing buyers of a company at this price and we do not intend to suggest that any acquisition is likely. Additional information is available on request.
As of March 31, 2013 our affiliates beneficially own on behalf of their investment advisory clients or otherwise approximately 1.25% of DirecTV and less
than 1% of American Express, AstraZeneca PLC, Berkshire Hathaway Class A, Berkshire Hathaway Class B, The Coca-Cola Company, Exxon Mobile Corp.,
Goldman Sachs Group, International Business Machines, Moody’s Corp., Pfizer Inc., Phillips 66, Procter & Gamble Co., Sanofi, Tesco plc, Tyco
International, US Bancorp, Wal-Mart Stores and Wells Fargo Company. Because the portfolio managers at our affiliates make individual investment
decisions with respect to the client accounts they manage, these accounts may have transactions inconsistent with the recommendations in this report. These
portfolio managers may know the substance of our research reports prior to their publication as a result of joint participation in research meetings or
otherwise. The analyst who wrote this report may receive commissions from our customers' transactions in the securities mentioned in this report. Our
affiliates may receive compensation from the companies referred to in this report for non-investment banking securities-related services, or may be soliciting
these companies as clients for non-investment banking securities-related services. The analyst who wrote this report, or members of his household, owns 100
shares of BRK’B and 6 shares of IBM.
-9-
Gabelli & Company
GLOBAL INSTITUTIONAL EQUITY RESEARCH
EQUITY RESEARCH
NAME
PHONE
EMAIL
Automotive Brian Sponheimer
(914) 921‐8336
bsponheimer@gabelli.com
Automotive Colin Daddino
(914) 834‐7717
cdaddino@gabelli.com
Basic Materials (Specialty Chemicals)
Rosemarie Morbelli, CFA
(914) 921‐7757
rmorbelli@gabelli.com
Business Services
Ashish Sinha, CFA
011‐44‐220‐3206‐2108
asinha@gabelli.co.uk
Consumer Discretionary (Gaming & Lodging) Amit Kapoor
(914) 921‐7786
akapoor@gabelli.com
Consumer Staples (Beverages, Supermarkets, & Health & Wellness)
Damian Witkowski
(914) 921‐5022
dwitkowski@gabelli.com
Consumer Staples (Food, Beverage & Household Products)
Joseph Gabelli
(914) 921‐8331
josephg@gabelli.com
Consumer Staples (Food & Household Products)
Sarah Donnelly
(914) 921‐5197
sdonnelly@gabelli.com
Energy Services
Simon Wong, CFA
(914) 921‐5125
swong@gabelli.com
Financials Macrae Sykes
(914) 921‐5398
msykes@gabelli.com
Healthcare (Biotech & Pharmaceutical)
Kevin Kedra
(914) 921‐7721
kkedra@gabelli.com
Industrials (Aerospace & Pump, Valve, Motor)
James Foung, CFA
(914) 921‐5027
jfoung@gabelli.com
Industrials (Electrical, Building Products, Transports)
Justin Bergner, CFA
(914) 921‐8326
jbergner@gabelli.com
Industrials (Water, Industrial Gases, Analytical Instruments)
Jose Garza
(914) 921‐7788
jgarza@gabelli.com
Media (Entertainment)
Brett Harriss
(914) 921‐8335
bharriss@gabelli.com
Media (Broadcasting, Publishing, Education & Motor Sports) Barry Lucas
(914) 921‐5015
blucas@gabelli.com
Technology Hendi Susanto
(914) 921‐7735
hsusanto@gabelli.com
Telecommunications
Sergey Dluzhevskiy, CFA
(914) 921‐8355
sdluzhevskiy@gabelli.com
Global Telecommunications
Evan Miller, CFA
011‐44‐203‐206‐2104
emiller@gabelli.com
Utilities
Timothy Winter, CFA
(314) 238‐1314
twinter@gabelli.com
Utilities
Nick Yuelys
(914) 921‐8329
nyuelys@gabelli.com
Utilities
Heartie Dunnan
(914) 921‐5216
hdunnan@gabelli.com
Waste Services
Tony Bancroft
(914) 921‐5083
tbancroft@gabelli.com
GLOBAL INSTITUTIONAL EQUITY SALES & TRADING
SALES
AIM NAME
PHONE
EMAIL
Jessica Craw
GabelliJessica
(914) 921‐8325
jcraw@gabelli.com
Lizzie Fleishman
GabelliLizzie
(914) 921‐5294
Lfleishman@gabelli.com
Eddie Friedmann
GabelliEddie
(914) 921‐7783
efriedmann@gabelli.com
MaryBeth Healy
GabelliMaryBeth
(914) 921‐7726
mhealy@gabelli.com
Lauren Lundgren
GabelliLauren
(914) 921‐7745
llundgren@gabelli.com
C.V. McGinity
GabelliCV
(914) 921‐7732
cmcginity@gabelli.com
Dan Miller
GabelliDan
(914) 921‐5193
dmiller@gabelli.com
Gustavo Pifano
GabelliGustavo
011‐44‐203‐206‐2109
gpifano@gabelli.com
Scott Sadowski
GabelliScott
(914) 921‐7758
ssadowski@gabelli.com
Michael Wenner
GabelliMWenner
(914) 921‐7731
mwenner@gabelli.com TRADING
AIM NAME
PHONE
EMAIL
Vince Amabile
GabelliVince
(914) 921‐5151
vamabile@gabelli.com
Robert Cullen
GabelliBob
(914) 921‐5151
rcullen@gabelli.com
Alberto Dominguez
GabelliBert
(914) 921‐5154
adominguez@gabelli.com
Armond Forcella
GabelliArmond
(914) 921‐5155
aforcella@gabelli.com
C.V. McGinity
GabelliCV
(914) 921‐5150
cmcginity@gabelli.com
John Riccio
GabelliJRiccio
(914) 921‐5155
jriccio@gabelli.com
Earl Thorpe
GabelliEarl
(914) 921‐5153
ethorpe@gabelli.com
Louis Venturelli
GabelliLou
(914) 921‐5154
lventurelli@gabelli.com
-10-