5 3 berkshire section by Omaha World-Herald

24-PAGE SPECIAL SECTION INSIDE

THE MANY FACES OF BERKSHIRE HATHAWAY

INSIDE: A look at what passing $100 billion in common stock means to BH and photos of the faces behind some of its biggest companies. ONLINE: Live coverage today at Omaha.com/ berkshire. Starts with a chat beginning by 7:30 a.m. and continues through the Q&A session with Warren Buffett and Charlie Munger.

MEET THE CEOS

For a slideshow of candid photos of these 26 Berkshire Hathaway executives, visit Omaha.com

SATURDAY, MAY 3, 2014

SUNRISE EDITION

MONEY news is on Page 5A. • Real estate, jobs and classiﬁeds are in the back of the AUTOS section on Pages 15-20MN.

INSIDE Zoo bids adieu to four familiar furry faces No more snow for most of the ﬁve lion cubs born at the Henry Doorly Zoo & Aquarium. They’re off to new homes in sunny Florida and Louisiana. Midlands

Eyes — and arms — wide open to differences

BY JOE DUGGAN WORLD-HERALD BUREAU

LINCOLN — Lynn Ballagh sees sand hills and sky when he looks out across his Nebraska cattle ranch. In a few years, he also could see a high-voltage power line cutting across his open vista north of Burwell, a prospect that makes the 62-year-old rancher unhappy. “My No. 1 concern is the Sand Hills,” he said. “The Sand Hills is the last area of the state that hasn’t been marred by a project such as this.” The Nebraska Public Power District is moving ahead with plans to build the ﬁrst 345-kilovolt line in the Sand Hills, a vast expanse of grass-covered dunes in central and northern Nebraska that’s home to more cattle than people. The roughly 220-mile line, with an estimated cost of $328 million, would represent the largest transmission project built by NPPD since the late 1970s or early 1980s.

From the gallery to the basement and back again How a Rembrandt was purchased by a connoisseur, doubted by experts and eventually saw its reputation restored by a tenacious Joslyn Art Museum.

Omaha weather

Index Advice ....................5E Comics...................6E Movies ...................5E Obituaries............. 5B Opinion ................. 4B TV ...........................8E 76 PAGES

Omaha’s Church of the Resurrection, formed from the merger of a black church and a white church, sings “every genre of music,” according to its choral director, Nola Jeanpierre. From left, Juanita Johnson, Janice Seldon and Marlene Belik are choir members.

or spiritual nourishment, the Episcopal bishop of Nebraska sometimes slips into a north Omaha church in T-shirt and jeans. “I go incognito,” said Bishop Scott Baker, even though most folks recognize him. “I’m there to be fed like any other parishioner. I’m not checking up on the church; just the opposite. “I sit in a pew, shoulder to shoulder with everybody else, and kind of

bask in the delight of a particularly warm, healthy, Christian community. And I love the diversity.” Diversity is a calling card of the aptly named Church of the Resurrection, created from the merger of two dying congregations — one black (St. Philip) and one white (St. John). The 1986 merger wasn’t easy, and some who opposed the sudden integration left. Today the church welcomes not only a diversity of

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The U.N. Security Council on Friday for the 13th time failed to take action on the growing crisis in Ukraine, with Russian Ambassador Vitaly Churkin demanding a “swift halt of all violence” and Western powers scofﬁng at his country’s indignation.

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Council members accused Moscow of equipping and funding the pro-Russia forces that have seized government buildings in 10 eastern Ukraine cities. Ukraine on Friday launched its ﬁrst major offensive against the insurgency. “Russia ... has released bands of thugs on Ukraine ... and is sudden-

DAYS TO THE PRIMARY

Nebraska’s primary election is May 13. The general election is Nov. 4.

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See Kelly: Page 2

U.N. council again fails to agree on Ukraine response HUGE DISCOUNTS!

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Power line plans divide Sand Hills

Wind energy backers say it’s needed for turbines; landowners, wildlife groups wary of impact

COMING SUNDAY

Today’s forecast High: 74 Low: 48 Full weather report: Page 6B On Omaha.com: Find the latest weather updates.

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ly discovering this mixture might escape its control,” said French Ambassador Gerard Araud. Meanwhile, Defense Secretary Chuck Hagel said Friday that NATO should reconsider its relationship with Russia in light of its Ukraine incursion, which should See Ukraine: Page 2

KIEV MOVES TO TAKE CONTROL Russia declares the Geneva deal broken after Ukraine sends troops to retake eastern cities. Page 4A

Voters will see fewer names on the ballot this year because of a new law aimed at saving space and reducing printing costs. Uncontested candidates running for county offices will not be shown on the primary ballot, because they automatically advance to the general election. In Douglas County, that will mean just four county candidates on the ballot, even though 14 are running. Republican and Libertarian voters won’t see candidates for county offices because those parties have no contested races. Democrats will only see four county candidates in the primary. Fifteen candidates are running for Sarpy County offices. But only three races are contested, all among Republicans. Democratic and Libertarian voters won’t see any county offices on their ballots.

OMAHA.COM ELECTION GUIDE

Visit Omaha.com/electionguide for candidate information and campaign coverage. — Maggie O’Brien

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SATURDAY, MAY 3, 2014

BERKSHIRE HATHAWAY SHAREHOLDERS MEETING

MADE OF MONEY

As Berkshire Hathaway streaks past a financial milestone — it now holds more than $100 billion worth of common stock — CEO Warren Buffett says that he remains simply “focused on the next day.” Story on Page 4S

BERKSHIRE HATHAWAY SHAREHOLDERS MEETING

• SATURDAY, MAY 3, 2014

OMAHA WORLD-HERALD

LIVE COVERAGE AT OMAHA.COM/BERKSHIRE Check out Omaha.com/Berkshire today, with a chat beginning by 7:30 a.m. and continuing through the Q&A session with Warren Buffett and Charlie Munger. At 5 p.m., join a post-meeting chat with WorldHerald Berkshire Hathaway reporter Steve Jordon.

WARREN, THE CEOs AND THE BENJAMINS The paper sculpture of Warren Buffett featured on the cover and inside this special section is the work of WorldHerald artist Matt Haney. The head-and-shoulders caricature is 18 inches tall, about 90 percent of life-size. The interior framework is poster board with cardboard reinforcement. Outside are layers of fake money — reproductions of new and old $100 bills that he created, all quite legally. The bills were arranged in different patterns: Old $100 fronts for the face and hand, new $100 backs applied in a diagonal pattern for the suit, and portions of darker bills to craft his glasses. His eyes are U.S. Federal Reserve seals. And layers of shredded $100 bills were used to make his unmistakable eyebrows. Another special feature of this section starts on Page 13 and covers ﬁve other pages. World-Herald photojournalist Matt Miller photographed 26 of the CEOs in the Berkshire Hathaway family, posed in front of his or her company exhibit. Miller had the OK from Warren Buffett, but had to pull it off in a limited time — about one minute per CEO. He assembled a team that leap-frogged from boss to boss, hauling backdrops and setting up each exec’s photo shoot, then moving on to the next. So when Miller ﬁnished with one, he sprinted to the next and began again.

COMING SUNDAY

Full coverage of meeting news and events.

SHAREHOLDER EVENTS IN OMAHA SATURDAY 7:30 a.m. to 4:30 p.m. Berkshire Hathaway/Brooks 5K packet pickup at Hilton Omaha; in-person registration accepted. 9:30 a.m. to 4 p.m. Annual shareholders meeting. (Doors open at 7 a.m., movie at 8:30 a.m., followed by the Q&A at 9:30 a.m. Booths representing more than 40 companies open in the Exhibition Hall throughout.) Noon to 4:30 p.m. NetJets display of aircraft at Signature Flight Support next to Eppley Airﬁeld. Stop by the NetJets booth for shuttle information. 5:30 p.m. to 8 p.m. Berkshire’s Big League Picnic for shareholders at Nebraska Furniture Mart, 700 S. 72nd St. Live entertainment from DJ’s Dugout’s Blazin’ Pianos with food from Famous Dave’s, Domino’s, Sonic or Paradise Bakery & Cafe.

SECTION CREDITS

SUNDAY 8 a.m. to 11 a.m. Berkshire Hathaway “Invest in Yourself” 5K presented by Brooks. The course starts on 10th Street across from the CenturyLink Center Omaha and ends on Riverfront Drive. In-person registration accepted.

Section editor Deb Shanahan

Cover designs Tim Parks

Warren Buffett paper sculpture Constructed by Matt Haney

CEO photos Matt Miller

Sculpture photos James R. Burnett

9 a.m. to 4 p.m. Borsheims shopping day for shareholders. Brunch begins at 9 a.m.

Designers Tim Parks Ian Lawson Tammy Yttri Copy editors Bob McDonald Pam Thomas Pam Richter

1 p.m. to 10 p.m. Private shareholder event at Gorat’s Steakhouse, 4917 Center St. Reservations required. 4 p.m. to 10 p.m. Private shareholder event at Piccolo’s Steakhouse, 2202 S. 20th St. Reservations required. SPECIAL SHAREHOLDER PRICING Through Monday: Nebraska Furniture Mart Through May 10: Borsheims Credentialed shareholders also can receive up to 20 percent off at the new Borsheims Boutique at Nebraska Crossing Outlets in Gretna.

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BERKSHIRE HATHAWAY SHAREHOLDERS MEETING

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• SATURDAY, MAY 3, 2014

BERKSHIRE HATHAWAY SHAREHOLDERS MEETING

OMAHA WORLD-HERALD

Berkshire’s stock portfolio passed a milestone in 2013, and a long-term outlook paved the way

$100 billion and counting BY STEVE JORDON • WORLD-HERALD STAFF WRITER

“I’ve never set numbers as goals on anything,” Buffett told The World-Herald. Building a $100 billion portfolio is “nice,” he said, “but I’m always focused on the next day. I’ve never had a number in mind for sales or net income or market penetration.” Buffett-watchers say Berkshire has built one of the world’s largest portfolios of stock through Buffett’s systems of raising money and investing. The growing value of the shares, including a one-third boost last year, is the result not only of the shares’ market price increases but also proﬁts from Berkshire’s 80-plus operating companies, at the rate of about $1 billion a month. More investable cash comes from premium dollars collected by Berkshire’s property insurance companies. That “ﬂoat” totaled $77 billion at the end of 2013 and can be invested until claims arise. It’s like a revolving bank account, Buffett has written. Money goes out to pay insurance claims, but even more — $3 billion more last year — arrives from insurance policy premiums. Berkshire also has $48.9 billion in cash, which could be used to buy securities as well as to acquire whole companies. “We don’t keep cash because we like

T H E A S S O C I AT E D P R E S S

S BERKSHIRE HATHAWAY shareholders settle in to the CenturyLink Center Omaha today to hear Warren Buffett talk about money, they can celebrate a financial first: owning $100 billion worth of common stock. Berkshire passed that landmark in 2013. Now totaling about $115 billion, the portfolio’s value tripled in the past decade, and it’s up 30,789 times from Berkshire’s 1967 stock holdings. And that track record is why the annual shareholders meeting is expected to draw some 35,000 people to hear hours of questions and, most important, the answers from Buffett and Berkshire Vice Chairman Charlie Munger.

“We don’t keep cash because we like it,” Berkshire Hathaway Chairman and CEO Warren Buffett said. “Nothing makes me less happy than cash, unless it’s the lack of cash at the wrong time.”

it,” Buffett said. “Nothing makes me less happy than cash, unless it’s the lack of cash at the wrong time. “Every day I come to work, I’m thinking about what makes the most sense for Berkshire. Obviously, events change from day to day, prices change from day to day, opportunities change from day to day.” Buffett said Berkshire will always hold stock in sound businesses. “You need a lot of marketable securities, just to carry out the property-casualty insurance business,” he said. He noted: “We found ways to invest quite a bit of money last year,” including stock worth $1.2 billion in IBM and $1.35 billion in Wells Fargo. Berkshire manag-

ers Ted Weschler and Todd Combs help put the cash to work by buying stock in other companies, with each managing $7 billion for Berkshire. It all belongs to Berkshire and its shareholders. In contrast, money in mutual funds belongs to investors who want steady gains and who can pull out their money at the ﬁrst whiff of a market decline. That ownership is an inherent advantage for Berkshire, said Vitaliy Katsenelson, chief investment ofﬁcer at Investment Management Associates Inc. of Denver. “It’s permanent capital,” Katsenelson said. “Buffett makes decisions that are See Billions: Page 10

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BERKSHIRE HATHAWAY SHAREHOLDERS MEETING

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“It takes 20 years to build a reputation and only 5 minutes to ruin it. If you think about that, you will do things differently.” -Warren E. Buffett

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• 5S

BERKSHIRE HATHAWAY SHAREHOLDERS MEETING

• SATURDAY, MAY 3, 2014

Warren Buffett says building a $100 billion portfolio is “nice.” What could that “nice” amount buy or build? Oh, a few things.

With $100 billion, you could ... 1

BUY

SATURDAY, MAY 3, 2014

PAY

$60,826

Buffett’s yearly salary of

$100,000

Per-share dividend checks, if all Berkshire stock were Class A, or $40.55 if all shares were converted to Class B, or ... (if Berkshire paid dividends)

for 1 million years, or ...

12,240,000

The number of U.S. taxpayers whose annual federal income tax payments could be paid. (That’s every resident of Nebraska, Iowa, Kansas, South Dakota, Wyoming and Arkansas.)

Boeing Company, or ...

10.2 BILLION 10-ounce boxes of See’s peanut brittle, or ...

BUILD

151,467

Houses at the taxable value of Buffett’s Omaha home, or ...

421,585

20 BILLION

Houses at $237,200 each, one for each person in Omaha, or ...

1,754 TD Ameritrade Parks, or ...

Pairs of Buffett and Munger rubber duckies, or ...

343

Sets of the British crown jewels.

CenturyLink Centers, or ...

Nebraska Furniture Mart developments like the one being built near Dallas.

Compiled by The World-Herald’s Steve Jordon • Paper sculpture by Matt Haney

@u_nebraska | #FuelingKnowledge

KNOWLEDGE PAYS DIVIDENDS. Warren Buffett Class of 1950

LINCOLN | OMAHA | KEARNEY | MEDICAL CENTER

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• SATURDAY, MAY 3, 2014

BERKSHIRE HATHAWAY SHAREHOLDERS MEETING

OMAHA WORLD-HERALD

Olive McArthur’s husband gave 37 years of his life to earn her health care.

Will Berkshire Hathaway Energy keep its promise to her? Perry McArthur worked in Utah’s Deer Creek mine for 37 years. Coal mining ning is dangerous, backbreaking work that takes kes a toll on a ar, in contract contraact miner’s body. But year after year, after contract, Deer Creek management ment continu continued ued to promise Perry that if he mined thee coal, theyy re would guarantee that he would have health car care when he retired, and his widow would uld have it after he died. But it’s unclear whether Energy West,, the Berkshire Hathaway Energy subsidiary ry that now operates the Deer Creek mine, ne, intends to keep that promise. Withoutt those beneﬁts, Olive and hundreds off other retirees and widows like her could soon oon be forced to make cruel choices betweenn ﬁlling needed prescriptions and buying food. d. The current collective bargaining agreement reement expired at the end of 2012. Despite that, the miners have continued to work in thee hope that demonstrating a reasonable approach proach to resolving differences would encourage age manage management ement to do the same. Berkshire Hathaway has a well-deserved erved reputation for fair dealing. It’s time for or its subsidiaries, Berkshire Hathaway Energy nergy and Energy West, to sit down and reach an agreement that is fair to both sides.

For Olive and others like her, it’s a matter of life and death. United Mine Workers of America www.umwa.org

OMAHA WORLD-HERALD

BERKSHIRE HATHAWAY SHAREHOLDERS MEETING

SATURDAY, MAY 3, 2014

• 9S

Q&A session: It’s still the main attraction BY STEVE JORDON • WORLD-HERALD STAFF WRITER The chance to ask and hear other shareholders’ questions and the answers is the major draw for the 35,000 or so people expected to attend Berkshire Hathaway Inc.’s annual shareholders meeting at the CenturyLink Center Omaha. The four-hour Q&A session with Buffett, chairman and CEO of Berkshire, and Vice Chairman Charlie Munger is the centerpiece of the meeting and its related events. In an effort to spend the limited time on meaty questions for those who spend thousands of dollars to come to Omaha, Buffett in 2009 began alternating Q&A time between shareholders and a panel of journalists: Carol Loomis of Fortune magazine, Becky Quick of CNBC and Andrew Ross Sorkin of the New York Times and CNBC. Each year the three solicit questions from their readers and viewers. From the 5,000 or so they each receive, they’ll each choose six to ask this year. Also in 2009, Berkshire took steps to end the footrace that occurred when speedy shareholders would dash into the meeting arena and almost ﬁght for spaces in line at one of the microphones so they could ask a question. Instead, people who want to ask a question put in their names for an 8:15 a.m. random drawing at each of 11 microphones. In 2012, Buffett started inviting analysts to pose some questions. With each journalist and analyst generally asking six questions, about 18 are left for members of the audience. If there’s time beyond those 54 questions, he’ll take more from people in the audience. This year’s session will have a similar makeup. Buffett asks shareholders to state their name and hometown, to speak loud and clear, to not bundle questions and to not ask what he’s buying or selling. Any other subjects are fair game, he wrote to his shareholders. “Our hope is that the journalists and analysts will ask questions that further educate our owners about their investment,” Buffett said.

Berkshire’s first-quarter revenue up, profits down Dip in net income tied in part to insurance underwriting BY RUSSELL HUBBARD WORLD-HERALD STAFF WRITER

Berkshire Hathaway Inc. said Friday that first-quarter profits fell 3.8 percent, and the conglomerate led by Warren Buffett disclosed in filings Thursday the $2.9 billion purchase of a Canadian electricity transmission company. The Omaha-based company said net income was $4.7 billion, or $2,862 a share, down from $4.89 billion, or $2,977 a share, a year earlier. Revenue rose 3.6 percent to $45.4 billion. Operating earnings, which strip out some investing gains and losses, fell 6.5 percent to $3.5 billion. The lower results from a year earlier were partially attributable to lower pre-tax earnings in insurance underwriting, led by an 81 percent drop at Berkshire Hathaway Reinsurance, which covers catastrophic risks. Pretax underwriting earnings at Berkshire Hathaway Reinsurance fell to $183 million, from $974 million, a year earlier. Overall, pre-tax insurance earnings, investment gains included, fell 30 percent to $1.66 billion. Pre-tax gains from underwriting at Geico rose 33 percent to $353 million. Berkshire’s operations encompass dozens of businesses employing more than 300,000 people. The newest is AltaLink, operator of 280 electric substations and about 7,500 miles of transmission lines in Alberta, Canada, where it owns half the grid and serves 85 percent of the population. Net income last year at AltaLink, bought from Canadian engineering and construction firm SNC-Lavalin, was about $147 million in U.S. dollars. Berkshire’s investment and derivatives income rose 5.6 percent, on about $1 billion of investment gains, more than triple from a year earlier. Results from derivatives alone, whose value is derived from the performance of an underlying instrument such as interest rates, fell 80 percent to $153 million. Pre-tax earnings in the major categories were: $1 billion at manufacturing businesses, up 13 percent from a year earlier; $946 million from investing cash held by insurers such as Geico, a 5 percent decrease; $1.1 billion at BNSF Railway, a drop of 9 percent; and $619 million at Berkshire’s energy holding company, an increase of 12 percent. Cash on hand fell 0.3 percent to $48.9 billion.

WHO’S ASKING THE QUESTIONS?

The analysts

The journalists

.CAROL LOOMIS.

.JONATHAN BRANDT.

She joined Fortune magazine in 1954 and is senior editor-at-large. She has been the magazine’s expert on Buffett since 1966 and has edited his letter to shareholders since 1977. Her book “Tap Dancing to Work” is a compilation of Fortune articles about Buffett.

He joined Ruane, Cunniff & Goldfarb of New York City in 1994 and is a general analyst. He is a native of New York and will ask noninsurance questions.

.BECKY QUICK.

.JAY GELB.

Quick is co-anchorwoman of CNBC’s ﬁnancial news show “Squawk Box.” Before the Texas native joined CNBC, she covered retail and e-commerce industry topics for the Wall Street Journal, helping to launch the newspaper’s website in 1996.

He analyzes the insurance industry for Barclays Capital in New York City, where he is a managing director. He formerly worked for Lehman Brothers, Prudential Equity Group and Forrester Research and is a graduate of Bentley College.

.ANDREW ROSS SORKIN.

.GREGGORY WARREN.

A ﬁnancial columnist for the New York Times and a co-anchor of CNBC’s “Squawk Box,” Sorkin ﬁrst wrote for the Times as a high school intern and worked in 1996 for BusinessWeek before returning to the Times. He wrote a best-selling book, “Too Big to Fail.”

A senior stock analyst from Chicago who follows Berkshire for Morningstar Inc. He is a graduate of Augustana College in Sioux Falls, S.D.

Buffett plug gives Vanguard fund a lift Investors poured $1 billion more than usual into the fund in one month BY BARBARA SODERLIN

VANGUARD 500 INDEX FUND ADMIRAL SHARES

WORLD-HERALD STAFF WRITER

Average annual performance as of March 31

Index fund investors in March followed Warren Buffett’s advice to the tune of about $1 billion. That’s how much more people invested in the Vanguard 500 Index Fund, compared with a typical March, after Buffett mentioned the fund by name March 1 in the Berkshire Hathaway Inc. annual report. That is 300 percent more than in a typical March. When he dies, Buffett told shareholders in his annual letter, cash will be delivered to a trustee for his wife, with the advice that the trustee put 10 percent in short-term government bonds and the remaining 90 percent in a “very low-cost S&P 500 index fund.” “I suggest Vanguard’s,” Buffett wrote. The Vanguard 500 was the first index mutual fund, introduced in 1976 by Vanguard founder John Bogle. Today the fund has $165.5 billion in assets, making it the third-largest equity fund available, according to Vanguard. The initial spike in online searches for the fund — as much as a 450 percent increase for the term “Vanguard 500 Fund” — has settled down, but the recommendation generated wide coverage among the financial press, bloggers and general-audience publications. “He’s such a legend that his advice will resonate for years. Our funds will benefit from his support for a while,” Vanguard Chief Investment Officer Tim Buckley said. He said the firm did not know in advance Buffett would mention it, but that the recommendation affirmed Vanguard’s strategy. “He’s arguably the greatest investor to walk this earth,” Buckley said. “Mr. Buffett knows how hard it is to outperform the market.” It wasn’t the first time Buffett has singled out the fund. The Vanguard 500 Index Fund is the investment he backed in a 10-year bet against New York asset manager Protege Partners, which bet on a group of five hedge funds. Buffett took the bet to demonstrate that a passively managed fund with low fees is typically a better investment in the long run than an actively managed fund where managers must not only try to beat the market, but also beat it by enough to overcome the “frictional” costs of trading incurred along the way. An index fund tracks the movement of a market index, such as the S&P 500, by holding shares in amounts proportionate to their market-cap weightings in the index, said George Morgan, finance instructor at the University of Nebraska at Omaha, who is a proponent of the funds. There are hundreds of available index portfolios. Besides tracking the S&P 500, other index funds track groups of smallcap, international or emerging markets

21.8% 21.86%

21.15% 21.16%

500 Index Fund Admiral Shares S&P 500 Index (benchmark)

14.62% 14.66%

7.41% 7.42% 4.46% 4.48%

One year

Three years

Five years

10 years

Ten largest holdings

(17.8% of total net assets) as of March 31 1. Apple Inc. 2. Exxon Mobil Corp. 3. Google Inc.

4. Microsoft Corp. 5. Johnson & Johnson 6. General Electric Co.

SOURCE: The Vanguard Group

funds, or bond indexes. Some funds combine two or more index funds for more diversified investment. Advantages include little active trading, resulting in low fees and little capital gains to pay taxes on, Morgan said. As Buffett said in his annual letter, “The ‘know-nothing’ investor who both diversifies and keeps his costs minimal is virtually certain to get satisfactory results.” How is the bet working out? While the hedge funds took an early lead in the 2008 wager, six years in, at the end of 2013, the index fund was up 43.8 percent, while the Protege funds were up an estimated 12.5 percent, Buffett’s friend Carol Loomis reported in February in Forbes. But there are many index funds that track the S&P 500, so why name Vanguard’s? “Its reputation among people who accept passive invest approaches is huge,” Morgan said, for its low expense ratio and its record of how closely it tracks the market. Investors who want to follow Buffett’s advice have a few choices for how they buy into the Vanguard S&P 500 fund. They can buy “investor shares,” which require a minimum investment of $3,000 and have an expense ratio of 0.17 percent. If they have at least $10,000 to invest, they qualify to buy Admiral Shares, which have an even lower expense ratio, 0.05 percent. Or they can buy and sell any amount of shares in the Vanguard S&P 500 exchange-traded fund at market price through a brokerage firm. Shares in an exchange-traded index fund also mirror the larger index but can be bought and sold like a single stock. Vanguard said the index approach initially was called “un-American” and

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330 1133

“He’s such a legend that his advice will resonate for years. Our funds will benefit from his support for a while.” Vanguard Chief Investment Officer Tim Buckley

people said it “guaranteed mediocrity.” Enthusiasm for index funds grew in the 1990s among retirement plan managers and do-it-yourself investors and, since the Great Recession, among financial advisers, Buckley said. William Callahan, a fee-only financial adviser in Omaha, said the fund is a “common security” for his firm to recommend amid a larger conversation with clients about “just how valuable an index fund can be.” Beyond interest generated as a result of Buffett’s letter, Callahan has seen a growing trend of more interest in index investments among his established clients and among new clients. But Callahan and other advisers cautioned that the typical investor not put all her eggs in this one basket of funds — or even 90 percent of those eggs, as Buffett will for his wife, Astrid — especially once they reach retirement age. “You still need to follow other rules of investing, like diversifying among different sizes of stocks,” Callahan said. The S&P 500 fund, like the index itself, has gone up and down like a roller coaster in recent years, said Brad Grubb, managing director and securities principal at Manarin Investment Counsel. He said many investors are not willing to take that ride and may prefer working with an adviser who can give them direction during market disruptions. Ten thousand dollars invested in the Vanguard 500 Index Fund in 2004 would have been worth about $7,200 in late 2008, but would be worth more than $20,000 today, Vanguard said. Indexing works, Grubb said, only “so long as investors remain fully invested and are prepared to weather significant swings in the market,” and not sell when things look rough. Astrid Buffett likely would have a portfolio sizable enough that even a big market plunge would leave her with plenty to live on, said Ron Carson, founder of Carson Wealth Management Group in Omaha. But putting 90 percent in a single fund is bad advice for the typical investor, who “should have a variety of strategies,” Carson said. Still, Carson said that he is a “huge admirer” of Buffett’s and that his clients might be surprised to hear him say that for many investors, indexing is a good strategy, helping them to avoid financial services representatives who sell products “laden with a lot of nontransparent fees.” While Carson said his firm invests in a variety of strategies to balance risk, he said, “Odds are slim that you’re going to find one that has put (in) the time and the research to give you a real chance at outperforming the market.” Contact the writer: 402-444-1336, barbara.soderlin@owh.com

10S

• SATURDAY, MAY 3, 2014

BERKSHIRE HATHAWAY SHAREHOLDERS MEETING

OMAHA WORLD-HERALD

Billions: Berkshire portfolio of

companies ‘unusually concentrated’

ISS

Continued from Page 4

Jeffrey D. Stacey: He says a market “correction” could prompt Berkshire to invest more in company stocks.

Vitaliy N. Katsenelson: Berkshire’s “permanent capital,” he says, means decisions can be made for the long term.

stock prices, Tilson said. Shares owned by Berkshire dropped in value, as did nearly every other stock. “Buffett at no time was under any pressure to liquidate those stocks,” Tilson said, “whereas pretty much every other money manager on the planet was either liquidating or worried about having to liquidate.” For the future, the chances of Buffett buying significant amounts of company stocks would be greatest if the stock market declines, a price “correction” that many people expect, said Jeffrey D. Stacey, founder of Stacey Muirhead Capital Management Ltd. of Waterloo, Ontario, Canada. “He’s sitting on a lot of cash he could deploy for more securities,” Stacey said. Although Buffett prefers to own entire companies, “if the market corrected, that would tilt the balance in favor of increasing marketable securities.” Tilson said he expects Buffett, 83, to run Berkshire for at least five more years. When he’s gone, Berkshire won’t perform as well, even if his successor managers are just as good picking stocks, Tilson said. “His successors just simply won’t be able to do the deals that Buffett is able to do on the terms that Buffett is able to get, even if they are just as good at valuing deals and knowing which ones to say yes or no to,” Tilson said. Last year’s 50-50 percent purchase of H.J. Heinz Co. with Berkshire and 3G Capital of Brazil is an example of Buffett’s unique value to Berkshire, Tilson said. The deal grew out of his longtime relationsip with Jorge Paulo Lemann. Bank of America, General Electric, Goldman Sachs and others called during the 2009 financial crisis and were willing to give Buffett better terms than they would have gotten elsewhere because they wanted his “stamp of approval,” Tilson said. “I think Buffett gets a lot of phone calls for two reasons: Personal relationships over a lifetime, and because of his brand name. ... Those things are irreplaceable.” The Omaha World-Herald Co. is owned by Berkshire Hathaway Inc. Contact the writer: 402-444-1080, steve.jordon@owh.com

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going to be good for Berkshire in the long run. Even if in the short run they’re not working out, that money is not going to leave them. A lot of good investment decisions in the long run come with short-term pain.” Mutual fund managers, on the other hand, must keep short-term consequences in mind because they are required to pay back investors’ money upon request. “They are forced to have short-term time horizons,” Katsenelson said. “They need to have good performance in three months, six months, a year. That’s how they get compensated because that’s how the money flows in and out of the funds.” Buffett, on the other hand, can make decisions with decades in mind, Katsenelson said. “If he doesn’t perform as well in the short run, nobody’s going to pull the money away from him. ” In an interview, Buffett said Berkshire’s strong financial position means he can’t be pressured into buying or selling something. “We might do some dumb things, but it won’t be because we’ve been forced into it,” he said. That long-term view fits with Buffett’s philosophy of buying relatively few stocks but investing heavily when he spots a potential winner. In 2003, Berkshire owned $30 billion worth of stock in 10 companies: American Express, Coca-Cola, Gillette, H&R Block, health care provider HCA Inc., M&T Bank, Moody’s, PetroChina, the Washington Post and Wells Fargo. An additional $5 billion was invested in a few dozen businesses. Now, 15 companies account for about $100 billion in Berkshire-owned stock. American Express, Coca-Cola, Moody’s and Wells Fargo are still on the list, joined by DirecTV, Exxon Mobil, Goldman Sachs, IBM, Munich Re, Phillips 66, Procter & Gamble, Sanofi, Tesco, U.S. Bancorp and Walmart. The remaining $20 billion is split among about 30 other companies, a list that includes M&T Bank and some former holdings of the Washington Post. That’s an “unusually concentrated” number of companies for a portfolio that size, said Whitney Tilson, founder and manager of Kase Capital Management in New York City. “It’s hard for me to think of any portfolio of money even remotely that size that’s concentrated in that fashion,” Tilson said. “But that’s what he’s done most of his career. He moves infrequently, only when he has high conviction, and he bets big. Obviously, that only works if you know what you’re doing, and he does.” Berkshire’s “permanent capital” advantage showed during the 2008-09 downturn in

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ION

BERKSHIRE HATHAWAY SHAREHOLDERS MEETING

OMAHA WORLD-HERALD

SATURDAY, MAY 3, 2014

• 11S

Buffett says — and some analysts agree — the company’s intrinsic value ‘far exceeds’ book value

Berkshire stock might be undervalued BY STEVE JORDON

$300,000

WORLD-HERALD STAFF WRITER

Statements by Warren Buffett in his most recent annual letter to shareholders have some observers wondering if Berkshire Hathaway Inc.’s stock price, even though it has been setting records lately, is still cheap in relation to the company’s true value. And if so, how cheap? As Berkshire’s stock price sets records around $193,000 for each Class A share and $129 for each Class B share, some estimates put its “intrinsic value” as high as $270,000 or $180, respectively. Of the three ways to calculate the value of an investment, Buffett says intrinsic value is “all-important.” It’s important to Berkshire shareholders, too, including the thousands attending their annual meeting in Omaha today, in deciding whether to sell or hold onto their Berkshire stock, or to buy more. The Berkshire chairman and CEO views intrinsic value as the only logical way to evaluate whether one investment opportunity is better than another, because it reflects the cash that a business can yield during its lifetime. An investor who can estimate intrinsic values can compare the returns of various investment choices, he said. Although he won’t disclose his estimate of Berkshire’s intrinsic value, Buffett said his annual report has figures that people can use to calculate their own estimates to compare with other potential investments. Buffett has a plan in place to spend billions of Berkshire’s cash to buy up some of its own stock if its market price falls too close to its book value — its assets minus its liabilities, with other accounting adjustments. That stock buyback may be getting more likely. Buffett said Berkshire’s intrinsic value “far exceeds” its book value and the gap is widening, partly because book value doesn’t reflect the true value of the businesses that Berkshire owns. Some analysts agree. “I just think the value of those owned businesses is just enormous,” said Paul Lountzis of Lountzis Asset Management of Wyomissing, Pa., a Berkshire shareholder who estimated intrinsic value could be as high as $270,000 per share. Whitney Tilson, owner of Kase Capital Management in New York City, estimates the intrinsic value at $226,253, based on Berkshire’s year-end figures. “That doesn’t factor in Warren Buffett doing anything smart, any more deals,” he said.

250,000

200,000

BERKSHIRE HATHAWAY VALUES

$270,000

(per Class A share)

Intrinsic value (range of estimates)

Book value

$216,000

$192,255

Market value

150,000

100,000

$32,100

$141,700 (est.)

50,000

0 ’95

$14,426 ’97

’99

’01

SOURCES: Berkshire Hathaway Inc., Yahoo Finance

Whitney Tilson: The owner of Kase Capital Management estimates the intrinsic value of Berkshire at $226,253.

Paul Lountzis: The shareholder says, “I just think the value of those owned businesses is just enormous.”

’03

’05

’07

’09

’11

’13

D AV E C R O Y / T H E W O R L D - H E R A L D

Why is Berkshire’s market price onethird less than its intrinsic value? To find out, consider the three basic ways of measuring a publicly traded company’s value: book value, market value and intrinsic value. For Berkshire, we’ll express each in dollars per Class A share. >> Book value at the end of 2013 was $134,973, a figure that has gone up an average of 14 percent annually for the past five years. Year-to-year percentage changes in Berkshire’s book value are “reasonably close” to percentage changes in its intrinsic value, Buffett said. >> Market value is easy to figure, too. Multiply 1.65 million times the price that buyers are willing to pay and sellers are willing to accept on the New York Stock Exchange, or about $190,000 per share. You’ll notice that market value is about 40 percent higher than book value. That’s because investors are willing to pay more when they consider nonaccounting factors that add value to a company such as its management, its track record, its brands and its outlook. >> Intrinsic value — the one Buffett says is so important — is an estimate that includes factors that don’t show up in book value. For example, Buffett said Geico, the auto insurer owned by Berkshire, has goodwill worth nearly $20 billion, an amount not included in book value. And Berkshire’s right to purchase discounted shares of Bank of America was worth $10.9 billion at the end of 2013 and doesn’t show up in book value, either. Tilson said Buffett’s definition of a “meaningful amount” greater than book value may be 1.6 to 1.8 times as high, or

in the range of $216,000 to $243,000 per share. Tilson’s estimate is within that range, at about 1.7 times book value. Here’s Tilson’s math: Investments: $129,253 Owned businesses: $97,000 Total: $226,253 The owned-businesses value figure is 10 times the companies’ latest earnings. The closest Buffett came to giving his estimate of intrinsic value was to say in the shareholder letter that it is a “meaningful amount” higher than 1.2 times book value, currently $162,000. That 1.2-times-book figure is the level where Berkshire would buy back its own shares, as it did when it bought $1.2 billion worth of its shares in December 2012. So far, the market price is well ahead of the 1.2-times-book price. Buffett would buy Berkshire shares only if it slips lower. Buffett’s 1.2-times-book buyback plan essentially puts a “floor” on Berkshire’s price of about $165,000 a share based on the year-end figures. That number has been rising, day by day, in recent months as Berkshire’s profits contribute to its value, so precise figures are not available. If he does buy shares, Buffett said he would be “aggressive.” That could mean buying as much as $20 billion worth of Berkshire stock, Tilson said, given Berkshire’s $48 billion cash supply. Some companies sell new shares of their stock to raise money for acquisitions or other purposes, but Buffett has tried to avoid issuing new shares. He said he and Berkshire Vice Chairman Charlie Munger “enjoy issuing Berkshire stock about as much as we relish prepping for a colonoscopy.” That’s because he believes Berkshire stock will be worth much more in the future than the dollars it would receive for issuing the shares — essentially, selling a piece of Berkshire at a price he believes is below its true value. He last issued new shares in 2010 when Berkshire bought BNSF Railway. Those 95,000 shares were worth $10.35 billion and added 6.1 percent to the number of Berkshire shares issued at the time. Today those shares are worth $18.1 billion, so a $20 billion repurchase would erase that BNSF stock sale. Lountzis said he has bought shares of Berkshire for his investors in the past few weeks and believes the price will continue climbing. He said book value may reach $164,000 in 2015, which could put intrinsic value higher than $300,000. Berkshire’s market value is lower than its intrinsic value partly because of a “conglomerate discount” due to being owned by Berkshire rather than being priced in-

DIFFERENT MEASUREMENTS OF VALUE

Intrinsic value The actual value of a company or an asset based on an underlying perception of its true value including all aspects of the business, in terms of both tangible and intangible factors. — Investopedia

BERKSHIRE HATHAWAY INC.’S CLASS A SHARES .MARKET VALUE. $192,255 on Friday. .BOOK VALUE. $134,973 on Dec. 31. .INTRINSIC VALUE. » Berkshire’s intrinsic value could be as high as $270,000, depending on the true value of the companies it owns. — Paul Lountzis of Lountzis Asset Management, Wyomissing, Pa. » Berkshire’s 2013 ﬁgures indicate an intrinsic value of $226,253, although estimates could range between $216,000 and $243,000. — Whitney Tilson of Kase Capital Management, New York City

dividually, Lountzis said. If Berkshire sold off the businesses it owns, it would receive much more than the amount that counts toward Berkshire’s value. “If it ever breaks up, the numbers are through the roof,” he said. Buffett’s age, 83, also may play a part in keeping Berkshire’s market price down because of investor fears that the company wouldn’t fare as well without him, Lountzis said. Buffett has a succession plan in place intended to keep the business on track without him. “He’s doing everything he possibly can to assure that the company can continue and prosper when he’s gone,” Lountzis said. Jeffrey Stacey, founder of Stacey Muirhead Capital Management Ltd. of Waterloo, Ontario, said as fuzzy as estimates of intrinsic value are, one factor remains steady: “That value continues to increase.” The Omaha World-Herald Co. is owned by Berkshire Hathaway Inc. Contact the writer: 402-444-1080, steve.jordon@owh.com

Another big name added to portfolio: Exxon Mobil BY RUSSELL HUBBARD WORLD-HERALD STAFF WRITER

The market value of Berkshire Hathaway’s stock investments rose 34 percent in 2013, up from a 14 percent gain in 2012, as the company’s portfolio of bluechip investments anchored by familiar names such as Coca-Cola Co. and American Express Co. remained little altered from previous years. The performance of the stock portfolio outpaced that of the Standard & Poor’s 500 last year, with the benchmark index gaining 32 percent for 2013. Two stocks fell from the list of largest holdings, those of South Korean steelmaker POSCO and oil producer ConocoPhillips. There were two additions, including New York-based investment bank Goldman Sachs Group, whose shares were acquired by dint of options issued in conjunction with a large Berkshire cash infusion made during the 2008 banking crisis. The other newcomer that is sure to be a conversation starter for the thousands of people in town for this year’s annual meeting in Omaha today: oil giant Exxon Mobil Corp. Berkshire owned 41 million shares at year’s end, bought at a cost of $3.7 billion; the stake is now worth about $4.2 billion. Analysts say it is likely that Berkshire bought most of the Exxon stake in 2013’s third quarter, when prices hovered around $85 a share. They are now at about $100 a share. The purchase of shares in the world’s most proﬁtable company, said University of Maryland business professor and Berkshire shareholder David Kass, illustrates the stock-picking method that has made Berkshire Chairman and Chief Executive Warren Buffett a legend in the ﬁeld. Kass, like many who follow Buffett’s stock picks, believes the Oracle of Omaha has a mental list of companies he admires and whose shares he would like

to own, if only they were a little cheaper or if their underlying economics changed a little for the better. “Warren Buffett closely follows hundreds of stocks over many years by carefully reading their annual reports along with other ﬁnancial reports,” said Kass, a regular annual meeting attendee who brings business school students along. “He is very patient, and when circumstances change, such as an attractive price and an improved outlook for earnings over a ﬁve-year time frame or longer, he is ready to make a sizable investment.” Berkshire last year also made sizable investments by adding to existing holdings: >> 27.3 million additional shares of San Francisco-based Wells Fargo & Co., the nation’s fourth-largest bank. With a total of 483.47 million shares, Wells Fargo is Berkshire’s largest equity holding, a stake with a market value of about $24 billion, more than double what it has cost. >> An additional 18 million shares of U.S. Bancorp, the Minneapolis-based bank that is the 10th-largest in the country. Berkshire now owns 96.1 million shares, worth $3.9 billion, or about 30 percent more than they cost to purchase. >> Walmart Stores Inc., another Buffett favorite for many years, also attracted investment in an additional 1.9 million shares, for a total stake of 56.8 million shares worth about $4.4 billion, or about 50 percent more than it has cost to amass. There were also four stock holdings that still rank among the largest in the portfolio that Berkshire pared during 2013: >> DirecTV shares, an investment made by deputy stock pickers Ted Weschler and Todd Combs, were reduced by 760,000 shares to 22.2 million. The stake cost $1 billion and is now worth about 70 percent more, or $1.7 billion. >> There were 3.7 million fewer shares of Moody’s Corp., the New York-based

TOP BERKSHIRE HOLDINGS Shares

Company

151.6 million American Express 400 million

Coca-Cola

%Owned

Cost Market value

14.2

$1.3 billion

$13.8B

9.1

$1.3 billion

$16.5B

22.2 million

DirecTV

4.2

$1 billion

$1.7B

41.1 million

Exxon Mobil

0.9

$3.7 billion

$4.2B

13 million

Goldman Sachs

2.8

$750 million

$2B

68.1 million

IBM

6.3

$11.7 billion

$12.8B

24.7 million

Moody’s

11.5

$248 million

$1.9B

20 million

Munich Re

11.2

$2.9 billion

$4.4B

20.6 million

Phillips 66

3.4

$660 million

$1.6B

52.5 million

Procter & Gamble

1.9

$336 million

$4.3B

22.1 million

Sanoﬁ

1.7

$1.7 billion

$2.4B

301 million

Tesco PLC

3.7

$1.7 billion

$1.6B

96.1 million

U.S. Bancorp

5.3

$3 billion

$3.9B

56.8 million Walmart Stores

1.8

$2.9 billion

$4.4B

483.5 million Wells Fargo

9.2

$11.8 billion

$24B

Source: Berkshire Hathaway 2013 annual report Share figures rounded as of Dec. 31. Excludes shares held in Berkshire subsidiary pension funds. Cost reflects actual purchase price and tax basis and is not reflective of GAAP adjustments.

firm supplying credit ratings and financial research. Berkshire now lists 24.7 million shares, worth about $1.9 billion, or an increase of more than sevenfold over the $248 million they have cost. >> Shares of Sanofi, a French drugmaker, were pared by 3.6 million shares, to 22.1 million. The stake is worth about $2.4 billion, or 41 percent more than its purchase price. >> The biggest reduction came among the shares of Tesco PLC, the U.K.’s largest supermarket chain, and the world’s second-largest retailer after Walmart. Berkshire last year shed 114.5 million shares of Tesco. The stake of 301 million shares was worth about $1.6 billion at the end of 2013,

David Kass: The business professor and Berkshire shareholder says Buffett is “very patient” in picking stocks.

or slightly less than what it cost. Another new entrant on the list of top holdings, New York-based investment bank Goldman Sachs, is also one likely to remain unchanged for years. Buffett is a longtime admirer of the company; the shares were amassed as a result of Buffett investing $5 billion with Goldman in 2008, as the nation’s banks teetered on insolvency. In addition to earning 10 percent interest on the $5 billion, Berkshire got the right to buy common shares in the future at a set price. The 13 million shares of Goldman now owned by Berkshire cost $750 million and are now worth about $2 billion. Berkshire has a similar agreement with Bank of America. The company has the right to buy 700 million shares of the Charlotte, N.C.-based bank for $5 billion before September 2021. Those purchase rights were worth about $11 billion at year’s end. “We are likely to purchase the shares just before expiration of our option,” Buffett wrote in his annual letter to shareholders. “In the meantime, it is important for you to realize that Bank of America is, in effect, our ﬁfth-largest equity investment and one we value highly.” Stock-market investments are just one part of Berskhire’s value equation. The company owns whole companies that make products from lollipops to railroad tank cars. Overall, Berkshire’s book value has lagged the Standard & Poor’s 500 in four of the past ﬁve years. It is not a common occurrence. Berkshire Hathaway’s book value has trailed the S&P 500 only 10 times since Buffett took over in 1965. And cumulatively, Berkshire has delivered compounded annual gains of 19.7 percent to the S&P 500’s 9.8 percent. Contact the writer: 402-444-3133, russell.hubbard@owh.com

WANT TO PURCHASE A GLOSSY PRINT OF A PAGE FROM PREVIOUS BERKSHIRE HATHAWAY COVERAGE? OR A PRINT OF A PHOTO FROM THIS SECTION? VISIT OWHSTORE.COM OR CALL 402-444-1014

12S

• SATURDAY, MAY 3, 2014

BERKSHIRE HATHAWAY SHAREHOLDERS MEETING

OMAHA WORLD-HERALD

BNSF’s Carl Ice, left, and Matt Rose pose at the company’s display in the CenturyLink Center. The exhibit features a train that circles a mythical city — one with buildings that bear the names of companies in the Berkshire Hathaway family.

RAILROAD CEOs Carl Ice (CEO) and Matt Rose (executive chairman) Founded 1849; BNSF name created 1995 Bought Employees 2010 43,500 Headquarters Fort Worth, Texas

BNSF

More than 80 companies are under the Berkshire Hathaway ownership umbrella. We caught up with 26 of the CEOs, who arrived early for the annual Warren-fest. See the rest of the photos on Pages 16S-20S and full frames of all on Omaha.com

MEET THE CEOS

BERKSHIRE HATHAWAY SHAREHOLDERS MEETING

SATURDAY, MAY 3, 2014

14S

BERKSHIRE HATHAWAY SHAREHOLDERS MEETING

• SATURDAY, MAY 3, 2014

OMAHA WORLD-HERALD

Partnership lets Buffett ‘look at more fish in the sea’ Teaming with equity group expands the pool of potential Berkshire acquisitions BY STEVE JORDON WORLD-HERALD STAFF WRITER

Businesses with problems used to be off the acquisition radar of Berkshire Hathaway Inc. That was before last year’s purchase of H.J. Heinz Co. by Berkshire and a Brazilian investment firm, 3G Capital. That new brand of partnership gives Berkshire Chairman and CEO Warren Buffett a wider range of businesses he can think about buying. And that’s an advantage at a time when Berkshire is so big — a market value approaching $320 billion — that only huge acquisitions make significant differences in the company’s finances. “By partnering with someone like 3G, that allows him to look at more fish in the sea,” said Jim Zipursky, who manages the Omaha office of investment bank Corporate Finance Associates. It’s been a goal for at least 30 years that wholly owned companies like BNSF Railway and Geico become an increasingly important part of Berkshire, Buffett told The World-Herald. “We hope to keep going in that direction,” he said. In the past, Buffett has shunned companies that required cost-cutting, new management or other big changes. He pitched Berkshire as a long-term home for excellent companies, not a problem-solver for companies that needed an overhaul to reach their potential. Berkshire’s 25-person Omaha corporate staff, although nominally in charge of the 330,000 people employed by Berkshire-owned companies, delegates virtually all that responsibility to company managers. But with 3G, Berkshire supplied half the money and 3G’s executives supplied the rest and took over the “heavy lifting” at H.J. Heinz, naming a new CEO, closing production plants it considered excess and taking other cost-trimming steps typical of equity investment funds. Buffett said the 3G partnership is a “template” for future Berkshire acquisitions, either with 3G or with other investment funds. The template explands Berkshire’s options. “The privately held companies that he can acquire for billions of dollars, you just don’t have that many,” Zipursky said. “With that template, if he can find a good partner he trusts as far as running the business, that does allow him to look at some really good companies. “If he has a scorecard with 10 things, and a company has eight of them but 3G can run the other two, that does create more opportunities for him.” Michael Hupp, an attorney who works on acquisitions for Omaha’s Koley Jessen law firm, said Buffett is relying on 3G Capital’s leaders to manage Heinz correctly. “He must have a lot of faith in their ability to really lead the strategic charge for the company, including making senior management replacements that are necessary,” Hupp said. “He can just invest and doesn’t really have to be active.” Buffett said in his latest letter to Berkshire shareholders that 3G Capital’s leader is a friend, Jorge Paulo Lemann. Two of Lemann’s associates, Bernardo Hees and Alex Behring, are now Heinz’s CEO and chairman, respectively. In the past, Buffett has objected to private equity groups that buy companies, trim costs and then quickly sell. His practice is to buy good companies and keep them. With the 3G transaction, he said he intends to keep his Heinz stake and hopes to buy a bigger share as 3G winds down its ownership. That’s a “crucial difference” from the typical private equity transaction, Buffett said. Private equity groups typically raise money from investors and promise to return a profit within 10 years, regardless of the economic changes during that time. “Berkshire’s investment horizon is not constrained by timing,” Zipursky said. And because of its cash supply, Berkshire doesn’t have to borrow money to make purchases, he said. “A business may struggle, but it’s not crushed under the debt load of acquisition financing.” Berkshire’s plan to hold onto Heinz is not typical in the world of private equity firms, which make most of their profit when they resell a business. “We call it flipping the business. Berkshire’s businesses don’t flip.” Contact the writer: 402-444-1080, steve.jordon@owh.com

KENT SIEVERS/THE WORLD-HERALD

“It’s a great way to create value for Berkshire Hathaway,” Oriental Trading Co. CEO Sam Taylor said of the “bolt-on” acquisition concept. “These companies don’t take any extra management time” for Berkshire’s headquarters ofﬁce.

Feeding an appetite for acquisitions Buffett remains open to more ‘bolt-on’ purchases and urges managers of Berkshire companies to propose good buys

BY STEVE JORDON • WORLD-HERALD STAFF WRITER

Quiz: What Omaha Fortune 500 company acquired 27 other businesses in 2013? • Not a trick question. It’s Berkshire Hathaway Inc., which is hosting its annual shareholders meeting in Omaha today. • The only trick is that few people have heard of most of the deals. Berkshire’s purchases of NV Energy and roughly half of H.J. Heinz Co. made the news because they were big enough (about $32 billion altogether) to require disclosure under federal securities rules. The 25 others, from $1.9 million to $1.1 billion, are in a category Chairman and CEO Warren Buffett calls “bolt-on” acquisitions by “platform” companies Berkshire already owns. How valuable are the new acquisitions? Last year’s purchases brought in $800 million in cash and added about $300 million to the company’s annual pretax earning power. Buffett told The World-Herald that bolt-ons will increase because Berkshire owns more companies every year and company managers are charged with proposing good acquisitions, even if it takes extra money from Berkshire to complete the deals. “Our companies don’t worry about cash,” Buffett said. “I worry about cash. They don’t have to have it on their own. If they have no cash and there’s a good idea, they’ll get it from me that day.” Although the purchase prices for the 25 companies totaled $3.1 billion, most were too small to require formal disclosure by the corporation. But some were reported anyway because of news interest. Buffett wrote in his shareholder letter that Berkshire also bought the remaining shares of industrial companies Iscar Ltd. and Marmon Group, for $3.5 billion, and BH Media’s purchases of four midsize daily newspapers generated newspaper stories during the year. Future such deals, he said, in aggregate, “will be meaningful.” Berkshire’s appetite for acquisitions, small and large, is growing, to the point where Buffett said he’s willing to sell any of the company’s stock holdings to buy more operating companies. Buffett has discussed “forever” investments in the past. In 1989, when Berkshire first became a major owner of Coca-Cola shares, Buffett said, “Our favorite holding period is forever.” Berkshire is still Coke’s largest shareholder, with 9.1 percent. “Forever” might be “favorite,” but apparently no stock position is “forever.” “None of the stocks are forever, but they’re for very long terms,” Buffett said recently on CNBC. His willingness to sell the shares shows his increasing preference for wholly owned companies as opposed to partial ownership through common stock. It’s still important to own the right stocks, he said in his annual letter to shareholders. “We much prefer owning a noncontrolling but substantial portion of a wonderful company to owning 100 percent of a so-so business; it’s better to have a partial interest in the Hope Diamond than to own all of a rhinestone.” But if the right business comes along, even at a high price, selling shares in a top investment can be part of Buffett’s financial calculation. Berkshire has $48.9 billion in cash on hand and will hold onto at least $20 billion to keep its finances solid. That

leaves nearly $30 billion in cash to buy businesses, a figure growing by about $1 billion a month generated by Berkshire’s businesses. Worldwide, there are hundreds of businesses valued at more than $30 billion. If Buffett wanted to buy a company that cost a lot more than that, he has at least four options: 1. Sell new shares of Berkshire Hathaway, as he did in 2010 when he bought BNSF Railway. 2. Issue bonds, essentially IOUs to investors. 3. Sell some of the $115 billion worth of common stocks that he owns. 4. Share the cost with a partner, as he did with 3G Capital of Brazil for the Heinz purchase. Buffett doesn’t like No. 1, which would mean splitting Berkshire’s ownership among more shares of stock, or No. 2, which would carry interest costs. Apparently he would prefer No. 4, finding a partner, to No. 3, which would mean parting with shares of companies he considers in the “diamond” category. Michael Hupp, an attorney who works in acquisitions for the Omaha law firm Koley Jessen, said Berkshire’s stock holdings aren’t necessarily “instant liquidity” that Buffett could use to purchase whole companies. “The second he starts liquidating stock in some of these entities, the market’s going to react,” Hupp said. “Unfortunately for him, he could move the market. If he sells a meaningful amount, essentially he’s telling the market that it’s overpriced.” That could reduce the amount of money that selling the stock would yield, he said, and reduce the market value of the rest of the stock Berkshire owns in the same company. Not necessarily, Buffett said in an interview. “That certainly would be true if, in a declining market, we were selling billions and billions worth of a company’s stock,” he said. “But we’ll never be in a position where we have to sell anything at declining prices. When it’s sold, it will be at advancing prices, not declining prices, because we can always deal from a position of strength.” One bolt-on acquisition last year was close to home: Berkshire’s Oriental Trading Co. of Omaha bought MindWare Holdings, an educational games company, for an undisclosed amount of money last June. Oriental Trading shifted MindWare’s warehouse and call center work to more efficient operations in Omaha and left its corporate staff, marketing, creative and other executive functions in a Minneapolis suburb. MindWare is an “adjacent” business, selling a line of educational games via catalogs and online that are new to Oriental Trading, which focuses more on toys, party supplies and novelties. Oriental Trading also closed the purchase of SmileMakers on Friday. The Spartanburg, South Carolina, company sells patient-cheering trinkets to doctors and dentists and brings its medical market dominance to Oriental Trading.

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Jim Zipursky: The investment bank manager said he has met CEOs whose goal is to sell their business to Warren Buffett.

Michael Hupp: The Koley Jessen attorney cautions that the stock market could react if Berkshire sells some of its stock holdings.

“It’s a great way to create value for Berkshire Hathaway,” said Oriental Trading CEO Sam Taylor. “These companies don’t take any extra management time” for Berkshire’s headquarters office. That means Buffett and Berkshire Vice Chairman Charlie Munger, with some help from money managers Ted Weschler and Todd Combs and financial assistant Tracy Britt Cool, can concentrate on bigger acquisitions. Taylor and other CEOs at Berkshire let Buffett know what they’re planning, and he can offer his counsel. But they handle the details of integrating acquired businesses into their operations. Taylor is looking for more smaller-scale acquisitions that meet Berkshire’s standards. “We take a similar approach,” he said. “We don’t overpay. We pay a fair value. We’re looking for strong companies with good management teams and strong brands and a good business model.” Berkshire’s 80-plus companies contain a wide range of what Buffett calls “core competencies,” from managing aircraft to marketing zircons. That gives it a wide range of potential acquisitions, and the list grows every time Berkshire gains a large company. While some businesses might resist being purchased, others seek it out. Jim Zipursky, who manages the Omaha office of investment bank Corporate Finance Associates, said he has met CEOs whose goal is to sell their business to Warren Buffett. “We’re speaking with a company now that says, ‘Gee, if you can get us in to see them, we’d really like to because that’s who we’d like to sell our business to,’ ” Zipursky said. Buffett’s style of buying a company and leaving the current management in place to run the business is well-known, and is evident locally: He bought the Nebraska Furniture Mart in 1983 from the Blumkin family, which is still running the store. “The Berkshire Hathaway growth strategy of acquiring well-run, well-managed, privately held businesses is excellent,” Zipursky said. “It’s a good lesson for any business owner of a privately held business who’s thinking of selling his or her business.” Buffett didn’t invent the management-in-place requirement for acquisitions, Zipursky said. “What he’s done is perfecting his razor focus on the type of business he’s interested in.” Nor did Buffett invent the “platform and bolt-on” strategy, which Hupp said enables a company to leverage its expertise and its back room and administrative help while exposing it to new markets and new ideas. “Banks have done it for years, growing by buying smaller banks and eliminating some of the overhead.” Companies may buy competitors and try to “roll up the industry,” he said. That’s why restrictions on monopolies sometimes come into play. But Berkshire’s large scale makes the strategy effective, Hupp said. “What Berkshire likes to do is get into different products that complement the products they have. Then they can get access to a whole new customer base and cross-sell as well.” The Omaha World-Herald Co. is owned by Berkshire Hathaway Inc.

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Vendors appeal to the serious and silly sides of shareholders BY JANICE PODSADA • WORLD-HERALD STAFF WRITER

“Dream Big” by Cris Correa, new; “Forty Chances: Finding Hope in a Hungry World” by Howard G. Buffett, new; “Of Permanent Value” by Andrew Kilpatrick, new edition; “Secret Millionaires Club” by Andy and Amy Heyward, new; “Security Analysis” by Benjamin Graham, sixth edition; “Strategic Value Investing” by Stephen Horan, Robert Johnson and Thomas Robinson, new; “Tap Dancing to Work” by Carol Loomis, new edition; “Warren Buffett on Business” by Richard Connors, new edition; “Warren Buffett Way” by Robert Hagstrom, new edition; “Warren Buffett: An Illustrated Biography” by Ayano Morio, new price. Howard G. Buffett, a son of Warren’s, is expected to sign copies of “Finding Hope in a Hungry World,” sometime during the morning at the Bookworm’s booth. The Bookworm sells thousands of books at the event.“It’s like Christmas in one day,” Black said. “So many investors want to know what he and Charlie (Munger) are reading.” » Brooks running shoe and apparel company: Only a couple thousand pairs of limited edition Berkshire Hathaway Transcend commemorative running shoes will be sold at the meeting. The company also is presenting the Berkshire Hathaway Invest in Yourself 5K on Sunday, offering prizes for the largest and fastest company teams and a special ﬁnisher medal. » Business Wire will sell commemorative pennants to raise money for a local charity that beneﬁts abused and neglected children within the court system. This year’s 2014 Berkshire Hathaway Sluggers baseball pennant sells for $7, or two for $10. All proceeds go to Court Appointed Special Advocates for Douglas County. » Fruit of the Loom: The 2014 “Berky Boxer” commemorative uni-

Among the lighthearted products for purchase are “Warren & Charlie Fiesta Ducks” offered by Oriental Trading.

Fruit of the Loom offers “Berky Boxer” commemorative unisex shorts.

Items for sale include a Berkshire Hathaway limited edition of MindWare’s board game Qwirkle.

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In ketchup competition, we’ll see who cuts the mustard

There are items to play and items to ride — and something to wear and read both The Berkshire Hathaway annual meeting just wouldn’t be the same without lots of things to buy, so bring your credentials and your wallet. The 194,300-square-foot hall that adjoins the meeting area will be, as always, filled with booths displaying or offering products from dozens of Berkshire Hathaway companies, including shoes, candy, toys, jewelry and boxer shorts. Shareholders last year snapped up 1,062 pairs of Justin boots, 12,792 pounds of See’s candy, 11,162 Quikut knives and 6,344 pairs of Wells Lamont gloves in just nine hours, according to the 2013 Berkshire Hathaway annual report. Among the offerings this year: » Berkshire Chairman and CEO Warren Buffett will toss things before the official meeting starts: Newspapers at the front porch of a Clayton Homes house, and baseballs between the Justin Brands and H.H. Brown booths, where he will try to out-pitch members of the Omaha Storm Chasers AAA baseball team. » Among the boots at Justin’s: Exclusive black cherry caiman leather boots with black cowhide uppers. » The Bookworm, an Omaha bookstore at 87th and Pacific Streets: It isn’t owned by Berkshire Hathaway, but it’s had a presence at the shareholders meetings since 1986. This year, as in previous years, the bookstore will offer shareholders a 20 percent discount on most items. And anything sold at the meeting “has to be OK’d by Mr. Buffett,” said Beth Black, who coowns the store with husband Phillip. “We try to get him a list of titles in January and he crosses off what he doesn’t want us to carry.” Here’s what’s new this year: “Berkshire Hathaway Letters to Shareholders” by Max Olson, new edition; “Buffett’s Bites” by L.J. Rittenhouse, new edition; “Damn Right!” by Janet Lowe, new price;

SATURDAY, MAY 3, 2014

sex shorts. Pair it with the $6 2014 Berky Tee, featuring the wisdom of Warren and Charlie. » Geico: In most cases shareholders will be eligible for an 8 percent discount. Bring details of existing insurance and the staff will check for discounts. » NetJets: If you’re searching for a new set of wings and wheels, visit Signature Flight Support on the east side of Eppley Airfield between noon and 5 p.m. Saturday to look at a fleet of NetJets aircraft. A shuttle will run from the CenturyLink Center Omaha. » Oriental Trading will offer limited-edition “Warren & Charlie Fiesta Ducks” for $5 a pair and a Berkshire Hathaway limited edition of MindWare’s board game Qwirkle for $20. » See’s Candies’ goodies will include a limited-edition, 8-ounce box of candy made just for the annual meeting. For those interested in something heavier, the company will display a 7-foot-tall, 7,003-pound lollipop — a replica of the world’s largest-ever, as certified by Guinness World Records in 2012.

Images of Warren Buffett and Charlie Munger have graced M&Ms, running shoes, money clips, bobblehead dolls and $100 bills. Today the chairman and vice chairman, respectively, of Berkshire Hathaway Inc. will face off on 10-ounce ketchup bottles, 20,000 of them, at H.J. Heinz’s booth in the CenturyLink Center Omaha. Heinz is a new exhibitor at the Berkshire shareholders annual meeting, by virtue of its purchase last year by Berkshire and 3G Capital, a Brazilian investment company. For its booth, Heinz set up a competition between Buffett and Munger, said spokesman Michael Mullen: Whose image will sell the most bottles? Buffett gave Munger an advantage by pricing his bottle at $2 and Charlie’s bottle at $1.50. Both are discounts from the regular price of about $2.50. Proceeds from the sales will go to the Heinz Micronutrient Campaign, which aims at reducing irondeﬁciency anemia in children around the world. Heinz distributes a powdered mixture of vitamins, minerals and iron around the world to mix with children’s food. Mullen said Buffett expects to sell more bottles, leaving Munger to “ketch up” as best he can. Really. — Steve Jordon

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OMAHA WORLD-HERALD

View of event changes for new Borsheims CEO BY JANICE PODSADA WORLD-HERALD STAFF WRITER

The new chief executive at Borsheims Fine Jewelry stepped into the role Jan. 1. For many retailers, the post-holiday season is a chance to scale back activities — a good time for a new CEO to ease into position. But that’s not the case at Borsheims, the Berkshire Hathaway-owned jewelry retailer. When the holiday shopping season ends, Borsheims begins gearing up for the first week of May, Berkshire Hathaway weekend, when thousands of shareholders will shop or participate in store events. “We have to place all of our orders for Berkshire by the end of January,” said Karen Goracke (gohr-ACK-ee), Borsheims’ new president and chief executive. That means she hit the ground running. The countdown to Berkshire week had Goracke and the entire staff picking up the pace: training employees, creating new merchandise displays, making sure the store sparkles and supervising the installation of new artwork in the store’s soaring atelier. Borsheims events bookend each side of the annual meeting, with a Friday night cocktail reception and a Sunday brunch and shopping day. During the Saturday meeting, Borsheims, of course, has one of the booths in the exhibit hall offering Berkshire-specific wares and other items to shareholders. This will be the first year Goracke will be at the helm during the shareholders meeting. “I’m nervous. ... I will be seeing it from a different aspect,” she said, but then added, “It’s fun to be steering the ship.” Everyone, including Borsheims’ executive team, has been supportive, Goracke said. “It isn’t like I feel like I’m doing this all myself.” Goracke said she doesn’t plan to change up this year’s Borsheims Berkshire events. Sunday, for the fourth year in a row, Buffett will step behind the counter and sell jewelry. It’s a once-a-year gig and a treat for customers and staff, even though the chairman’s “Crazy Warren” prices “make me cringe a bit sometimes,” Goracke said, smiling. At shareholder events, Goracke plans to be out front, greeting new and returning shareholders and customers. Expect a smile and a relaxed demeanor, said Terry Kroeger, president and chief executive of BH Media Group, a Berkshire Hathaway subsidiary, and publisher of The World-Herald. Kroeger recently met with Goracke, offering her any help she might need.

As the new president and CEO of Borsheims Fine Jewelry, a Berkshire Hathaway company, Karen Goracke plans to be out front at Berkshire shareholder events this weekend, greeting shareholders and customers. M AT T M I L L E R THE WORLDHERALD

“It’s almost infectious working here. It’s really fun. You get to work with wonderful people and look at pretty things all day.” Karen Goracke, Borsheims CEO

“She’s down-to-earth and so easy to talk to. She’s very Omaha,” Kroeger said. Other executives at Borsheims’ sister companies have welcomed Goracke with open arms, including Ronald Blumkin, president and chief operating ofﬁcer of Nebraska Furniture Mart. She said he told her he was ready to “help her with anything.” Goracke is the fourth Borsheims CEO since the Friedman family bought the business in 1947. Warren Buffett tapped Goracke to lead the jewelry company owned by Berkshire Hathaway Inc. last October after then-CEO Susan Jacques announced her retirement. Jacques, who now heads the Gemological Institute of America, had been CEO for 21 of the 31 years she worked at Borsheims. From October to December last year, Goracke worked alongside Jacques. As director of merchandising at Borsheims Fine Jewelry, Goracke never shied away from toting boxes from the stockroom to the showroom. Now, four months into her new position, her focus is on the “whole store,” not just what’s displayed in the cases. “It’s different than running just the buying team,” Goracke said. “Now I’m thinking about all the different departments.” A typical week includes meeting with

Business insurance unit adds to ‘lifeblood’ of Berkshire BY RUSSELL HUBBARD WORLD-HERALD STAFF WRITER

Don’t expect to see Warren Buffett’s latest insurance idea on the convention floor, competing this weekend for shareholder shopping dollars with fellow subsidiaries such as Brooks running shoes, Geico auto insurance and Justin Boots. Berkshire Hathaway Specialty Insurance, about one year old, is more of a business-to-business setup, selling coverage for large and complex risks, such as policies that pay the legal bills of corporate officers and directors embroiled in shareholder lawsuits. “Our business is a little bit different,” conceded President Peter Eastwood, who leads the 289-employee company from its Boston headquarters and plans to attend his first Berkshire annual meeting today with fellow executives of BHSI. Berkshire Hathaway, long enamored of the investable cash provided by insurance companies, is making a deeper investment in business insurance via BHSI, as some of the risks faced by U.S. firms appear to be rising. Shareholder lawsuits objecting to actions authorized by the directors and officers of publicly traded companies are one example: There were 234 such suits seeking class-action status filed in federal courts last year, the most since 2008. “Insurance companies are the lifeblood of Berkshire Hathaway,” said Andy Kilpatrick, whose “Of Permanent Value” bio of Buffett runs 1,300 pages in the 2014 updated edition. Coverage for the legal liabilities arising from serving as a director or officer of a publicly traded corporation is one area of concentration for BHSI. Eastwood said directors and officers face enormous responsibility, making decisions that affect

Peter Eastwood

David Fields

shareholders, employees and customers. Laws such as last decade’s Sarbanes-Oxley Act, which criminalized some public company offenses, have made directors and officers coverage more important than ever, as few people would agree to serve in such a position without company-paid insurance against the legal liabilities. “There is definitely a heightened awareness of regulations and corporate governance,” said Eastwood, who noted that many of the company’s customers are American companies easily recognized by most people. Eastwood is an alum of New York-based insurance giant AIG, the world’s largest insurer. He and three other top BHSI executives — David Bresnahan, David Fields and Sanjay Godhwani — left AIG to form BHSI. The idea of branching into the commercial property and casualty field was proposed by Buffett insurance chief Ajit Jain, after he was contacted by the former AIG executives, who wanted to play for a new team. The idea of forming a new one with them as the nucleus was then greenlighted by Buffett, who said he expects the business to soon “generate volume in the billions” for Berkshire shareholders. “We’ve got the right people now,” Buffett said in an interview with The World-Herald. “That certainly was a big part of it. Maybe we should have gone into it a long time ago, but I don’t think we had exactly the right people.” The property and casualty

Sanjay Godhwani coverage offered by BHSI is a big ﬁeld. Property insurance protects against the loss of assets or the loss of their income-producing abilities. Casualty insurance protects against legal liability stemming from injury to other people or damage to their assets. All told, U.S. property and casualty insurers wrote about $515 billion worth of premiums in 2012, with auto and home coverage accounting for about $275 billion. BHSI, which also has ofﬁces in New York and other U.S. cities, also sells coverage for institutions such as banks, hospitals and public utilities; medical malpractice insurance for doctors and hospitals; professional liability coverage for lawyers, architects and engineers; and other business-oriented policies. Already, there have been two acquisitions: Insure America, which insures travel agents for professional liabilities, and MyAssist, a live-agent personal concierge service for motorists. BHSI plans this year to expand internationally. Dave Fields, a BHSI executive vice president, said such efforts are easy to accomplish, as he has found the legendary “handsoff” management policy at Berkshire to be true. ““That is how we have been able to move so quickly to date. I haven’t had to do a PowerPoint presentation in the past 12 months.” The Omaha World-Herald Co. is owned by Berkshire Hathaway Inc. Contact the writer: 402-444-3133, russell.hubbard@owh.com

the company’s chief financial officer, the director of sales, the director of marketing and other department heads. Fridays she drives to Gretna to visit Borsheims Boutique at Nebraska Crossing Outlets, the company’s first foray into an outlet store format. Borsheims Boutique has allowed the company to touch a different client base. “It’s been a great way to introduce ourselves to people that might be intimidated to come here,” she said, referring to the flagship store at Regency Court. A native of Omaha, Goracke earned a bachelor’s degree in business administration from the University of Nebraska at Kearney. She began her career at Borsheims in 1988 as a saleswoman in the gifts department and was promoted to inventory supervisor in 1989, when Berkshire Hathaway purchased Borsheims, developing a “controlled inventory system” along the way. Goracke took advantage of a Borsheims culture — 85 percent of its employees are women —- that supports “family first.” From 1998 to 2004, Goracke, the mother of three boys, took a break from working to raise her children. Like other Borsheims employees, she came back, and at the CEO’s request. Part

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time soon became full time. “I was just going to work school hours,” Goracke said. “It’s almost infectious working here. It’s really fun. You get to work with wonderful people and look at pretty things all day.” Chief executives aren’t supposed to double as stockers, but Goracke admits she still gets the urge to carry boxes or open cartons of new merchandise should they cross her path. Knowing that, the store’s maintenance staff gave her her own box cutter and a hook to hang it on. “It’s what I love to do. They can’t stop me now,” she said, laughing. “I’ve deﬁnitely been a worker. I have worked with every department from shipping to gift wrapping.” Borsheims continues to allow employees to strike a balance between work and family, Goracke said. In fact, on a recent afternoon, the new chief executive planned to leave the store at 5:15 p.m. to catch her son’s 5:30 p.m. soccer game. “I bring my jeans with me and throw them on in the ofﬁce. My staff sees that and knows ‘Oh, you’re going off to a soccer game.’ Yup, here I go!” Contact the writer: 402-444-1142, janice.podsada@owh.com

■ BOOK SIGNING TODAY

Author Steve Jordon will sign copies of his book “The Oracle & Omaha” at the Bookworm booth during today’s Berkshire Hathaway meeting

■ LIVE CHAT 5-6 PM ON OMAHA.COM

Listen to a live chat with Steve Jordon following the meeting

HOW WARREN BUFFE

E & OMAHA

ND HIS HOMETOWN SHAPED EACH OTHER

distractions. In return, Omaha

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& OMAHA O HOW W HIS HOMETOWN SHAPED EACH OTHER

STEVE JORDON

that came his way and from the generosity of his early investors. It turned out relationship for

& Omaha. Author Steve Jordon, who writes the Warren Watch column for the Omaha World-Herald, tells the story

Steve Jordon has reported business news for 35 years for the Omaha World-Herald. His work has been recognized by the University of Nebraska at Omaha, the Associated Press, the Society of American Business Editors & Writers and the American Society of Newspaper Editors.

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SATURDAY, MAY 3, 2014

• 17S

The CEOs of Berkshire Hathaway H.J. HEINZ CO.

BUSINESS WIRE

FOOD MANUFACTURER CEO Bernardo Hees Founded 1869, Pennsylvania Bought 2013 (investment consortium with 3G Capital) Headquarters Pittsburgh Employees 29,000

H.H. BROWN SHOE GROUP SHOES CEO Jim Issler Founded 1883 Bought 1991 Headquarters Greenwich, Conn. Employees 1,128

PRESS RELEASE DISTRIBUTION CEO Cathy Baron Tamraz Founded 1961 Bought 2006 Headquarters San Francisco and New York Employees 488

FECHHEIMER UNIFORMS CEO Bob Getto Founded 1842 Bought 1986 Headquarters Cincinnati Employees 426

JUSTIN BRANDS WESTERN BOOTS AND FOOTWEAR CEO Randy Watson Founded 1879 Bought 2000 Headquarters Fort Worth, Texas Employees 1,109

GEICO

INSURANCE CEO: Tony Nicely Founded: 1936 Bought: 1996 Headquarters: Chevy Chase, Md. Employees: 29,057

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BERKSHIRE HATHAWAY SHAREHOLDERS MEETING

• SATURDAY, MAY 3, 2014

SATURDAY, MAY 3, 2014

BERKSHIRE HATHAWAY ENERGY Formerly MidAmerican Energy Holdings ENERGY PROVIDERS CEO Greg Abel Founded 1995 (merger of existing energy companies) Bought 1999 Headquarters Des Moines Employees 3,863

SCOTT FETZER COS. INCLUDES ALTAQUIP POWER AND LAWN EQUIPMENT REPAIRS, KIRBY VACUUMS, WORLD BOOK CEO: Bob McBride Founded 1914 Bought 1985 Headquarters Westlake, Ohio Employees 691

LARSON-JUHL CUSTOM FRAMING PRODUCTS CEO Drew Van Pelt Founded 1893 Bought 2002 Headquarters Norcross, Ga. Employees 1,430

ORIENTAL TRADING DIRECT RETAILER OF PARTY SUPPLIES, NOVELTIES CEO Sam Taylor Founded 1932 Bought 2012 Headquarters Omaha Employees 1,461

NETJETS PRIVATE AVIATION SERVICES CEO Jordan Hansell Founded 1986 Bought 1995-1998 Headquarters Columbus, Ohio Employees 6,157

SEE’S CANDIES CANDIES AND CHOCOLATES CEO: Brad Kinstler Founded: 1921 Bought: 1972 Headquarters: South San Francisco, Calif. Employees: 3,000 PRECISION STEEL WAREHOUSE

JOHNS MANVILLE BUILDING MATERIALS MANUFACTURER CEO Mary Rhinehart Founded 1858 Bought 2001 Headquarters Denver Employees 6,855

STEEL SERVICE CENTER CEO Terry Piper Founded 1940 Bought| 1979 Headquarters Franklin Park, Ill. Employees 157

BENJAMIN MOORE CO.

PAINTS AND DECOR CEO: Mike Searles Founded: 1883 Bought: 2001 Headquarters: Montvale, New Jersey Employees: 2,102

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DAIRY QUEEN RESTAURANT FRANCHISER CEO John Gainor Founded 1940 Bought 1998 Headquarters Edina, Minn. Employees 483

BH MEDIA GROUP NEWSPAPER GROUP CEO Terry Kroeger (also World-Herald publisher) Founded 1850 (Richmond Times-Dispatch) Bought 2011 purchase of The World-Herald, added newspapers in 2012 and 2013 Headquarters Omaha Employees 4,825

BROOKS SPORTS INC. RUNNING SHOES AND APPAREL CEO Jim Weber Founded 1914 Bought by Russell Corp. in 2004, Berkshire in 2006 Headquarters Seattle Employees 576

BOATUS INSURER CEO Brian Wesselman Founded 1966 Bought 2007 Headquarters Alexandria, Va. Employees 436

CLAYTON HOMES MANUFACTURED HOMES CEO Kevin Clayton Founded 1966 Bought 2003 Headquarters Maryville, Tenn. Employees 11,850

CORT FURNITURE RENTALS CEO Jeff Pederson Founded 1972 Bought 2000 Headquarters Chantilly, Va. Employees 2,197

MARMON GROUP 150 INDEPENDENT MANUFACTURING AND SERVICE BUSINESSES CEO Frank Ptak Founded 1953 Bought 2008-2013 Headquarters Chicago Employees 16,961

NEBRASKA FURNITURE MART FURNITURE, ELECTRONICS AND APPLIANCES RETAILER CEO Irv Blumkin Founded 1937 Bought 1983; bought 90% with a handshake Headquarters Omaha Employees 2,773

THEY COME TO OMAHA FROM ALL OVER, AS IF DRAWN BY SOME POWERFUL FORCE. Berkshire Hathaway shareholders? Well, sure, them too. But we’re talking about the brightest minds in science and medicine, streaming in to join equally talented colleagues already here at UNMC. At the University of Nebraska Medical Center, we’ve bolstered our internationally renowned faculty with an influx of recent hires from the likes of Harvard Medical School, Johns Hopkins and Mayo Clinic. Why are so many of academic medicine’s rising stars coming here? Education programs ranked in the top 10 by U.S.News & World Report. Strong, strategic partnerships in China and beyond. The state-of-the-art Fred & Pamela Buffett Cancer Center, going up as we speak. And, just ask the Oracle how he likes living in Omaha. UNMC. Breakthroughs for Life.®

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THE PAMPERED CHEF KITCHENWARE CEO Doris Christopher Founded 1980 Bought 2002 Headquarters Addison, Ill. Employees 676

BERKSHIRE HATHAWAY SHAREHOLDERS MEETING

OMAHA WORLD-HERALD

SATURDAY, MAY 3, 2014

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JAMES R. BURNETT/THE WORLD-HERALD

What a difference a year makes

Visitors to Omaha can enjoy the improvements at Gene Leahy Mall, including better walking trails around the lagoon. The park area is within walking distance of downtown hotels.

Since the last shareholders meeting, the Omaha area has seen remarkable changes BY CINDY GONZALEZ • WORLD-HERALD STAFF WRITER

ew entertainment spots, new hotel rooms, a massive new outlet mall. The return of a landmark lagoon meandering through the city’s core. • Omaha has these and other different sights, sounds and tastes since Berkshire Hathaway shareholders converged here last May. Take a look at some of the changes: » For the ﬁrst time in years, perhaps 15, all the water features in downtown’s two main parks are operational. “Everything is rockin’ and rollin’,” said City Parks Director Brook Bench. At Gene Leahy Mall, the lagoon was dredged and water has returned. Around the lagoon is new lighting and either new or repaired segments of limestone wall and walking trails. At Heartland of America Park, two fountains and a cascading waterfall are repaired and running; visitors now can watch the light show at the big fountain. » A 350,000-square-foot, $112 million Nebraska Crossing Outlets shopping center opened in the suburb of Gretna — featuring new-to-Nebraska brands such as Michael Kors and Kate Spade New York. The area’s ﬁrst fully digital mall has interactive, touch-screen kiosks; and customers can use a QR code scanner on mobile devices to download information. The center also offers a second place to shop for Borsheims jewels. The Berkshire Hathaway company in November launched a 5,500-square-foot Borsheims Boutique outlet targeting younger, value-conscious shoppers.

» A few high-profile downtown Omaha restaurant spots have different tenants. Those who remember the storied French Café, which operated for four decades at 1013 Howard St., now will find there a modern French bistro called Le Bouillon. Storz Trophy Room Grill & Brewery has moved into the former Rick’s Cafe Boatyard on Omaha’s riverfront. The Storz opening relaunched the Storz beer brand in Omaha after a 40-year hiatus. » New breweries — such as Borgata Brewery and Distillery downtown, and the Benson Brewery and Infusion Brewing Co. in Benson — have joined veterans like downtown’s Upstream Brewing Co. and La Vista’s Lucky Bucket. (Note also that Krug Park and Crescent Moon were named recently as two of the best beer bars in the country by Draft Magazine.) » New options on the downtown hotel front include Nebraska’s first Hyatt and a Residence Inn by Marriott that used to be a historic federal office building. The 159-room Hyatt Place stands 10 stories at 12th and Jackson Streets. The 152room Residence Inn at 15th and Dodge Streets blends modern amenities with historical elements, including a 1930s FBI

MIKE HEIDENREICH/FOR THE WORLD-HERALD

The fountains and a cascading waterfall are all working at Heartland of America Park. One of the fountains features a light show at night.

most-wanted poster (with mobster faces of Pretty Boy Floyd, Ma Barker and others) unearthed during renovation. » Gavilon’s new global headquarters was erected at 14th Street and Capitol Avenue, on a city block that used to be green space known as the World-Herald Square Plaza. The $44 million, roughly 130,000-square-foot glass office building contains a state-of-the-art trading floor. The company in July was sold for $2.8 billion to Japanese general trading firm Marubeni. » Aksarben Village in midtown, near 67th and Center Streets, has grown. The new corporate headquarters for retailer Gordmans just opened. A Marriott Residence Inn is being constructed, along with a new office building. Across Center Street to the south visitors will see the start of a new $87.9 million University of Nebraska at Omaha sports arena. » Lots of apartment buildings have sprung up, from the five-story Jones13 Apartments in downtown to the three-story Spaces Apartments in midtown to Springs at Legacy Commons in west Omaha (to mention just a few). Other apartments, including the Highline, the Wire and the Slate in downtown, were converted from old office structures. » At the Midtown Crossing campus near 31st Street and Turner Boulevard, a permanent outdoor stage and dancing area called the Pavilion at Turner Park has been built. A few new stores also opened, including the Ugly Sister Boutique and Me & Me.

Clayton’s display home to showcase ‘smart’ features BY CINDY GONZALEZ WORLD-HERALD STAFF WRITER

There’s something young and hip about octogenarian Warren Buffett’s annual newspaper toss event at this year’s Berkshire Hathaway gathering. The porch Buffett is pitching at is part of the new “concept house” that Clayton Homes has created to capture 19- to 37-year-olds — an emerging market the Berkshire homebuilder refers to as Generation Now. Unlike past years when Clayton’s modular display home was available to buy after the annual meeting, this home won’t be for sale. It will be disassembled, packed up and moved on to another show. The goal is to showcase its features and technologies — dubbed “smart points” — that can be customized into other homes that Clayton offers. “It’s not really about the house this year,” said company spokesman Carl Hill. “It’s about Generation Now and demonstrating smart points. We wanted to show our ﬂexibility and imagination and research that went into that.” Clayton’s prefabricated home has become a popular draw at the stockholders meeting, as for the past three years it’s been the site of Buffett’s 35-foot paper tossing contest. The Oracle of Omaha challenges any willing participant to land a World-Herald newspaper (which Berkshire also owns) closer to the model’s doorstep than he does. The prize: a Dilly Bar. While this year’s “concept house” has a traditional porch to aim at, shareholders will see less traditional

Above left, the new “concept house” that Clayton Homes has created has a traditional porch. Above right, inside are ﬂexible rooms and modern design elements.

features such as splashes of flamboyant color on trim and newer amenities. Inside will be trendy design elements such as sliding barn doors to maximize space and a recharging station and wall mount for electronic gadgets. According to Clayton’s researchers, the housing market by 2020 will consist of more first-time homeowners than ever before, as 92 million Gen Now consumers enter the market. The concept home is based on extensive research on that generation, which Clayton says “fights the

norm, embraces individuality and perceives the home as a personal reﬂection.” Clayton says that Gen Now wants in a home things like ﬂexible rooms, built-in storage, modern design elements and convenience. “Our designers have put careful thought and attention into supplementing this generation’s lifestyle throughout the home,” CEO Kevin Clayton said. “We constantly focus on innovation, and we wanted to create a home that would meet the needs of this impactful generation.”

Consumers can buy a Clayton home at centers in 48 states — the closest to the Omaha area are in Norfolk, Neb.; Sioux City, Iowa; and Ida Grove, Iowa. Smart point features that can be incorporated include: pop-up outlets that can be pushed out of sight when not needed; remote-control blinds and security systems that operate with a click of a smartphone; built-ins like a knife block in a drawer; and waterfall shower heads and a back-lit bathroom mirror that create a tranquil, spa-like feel.

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BERKSHIRE HATHAWAY SHAREHOLDERS MEETING

• SATURDAY, MAY 3, 2014

OMAHA WORLD-HERALD

Beyond Berkshire: No shortage of other events in Omaha area A number of events are coinciding with this year’s Berkshire Hathaway shareholders meeting. Check out this calendar:

Omaha Storm Chasers vs. Oklahoma City 7:05 p.m. Saturday Werner Park, 12356 Ballpark Way • Papillion Saturday’s game will be “Husker night” featuring Nebraska football alumni. Other games on Sunday at 2:05 p.m. and Monday at 11:05 a.m.

Classical musician Itzhak Perlman

Lewis and Clark Kite Flying Festival

Omaha Farmers Markets

8 p.m. Saturday Holland Performing Arts Center, 1200 Douglas St. Tickets start at $35 and are available at TicketOmaha.com or 402-345-0606.

2 p.m. to 5 p.m. Saturday Bob Kerrey Pedestrian Bridge Includes activity booths, kite ﬂying, food, music by the Rivertown String Band and professional kite ﬂiers.

Saturday and Sunday Featuring fresh produce and handmade products kick off Saturday in the Old Market from 8 a.m. to 12:30 p.m. and Sunday at Aksarben Village, 67th and Center Streets, from 9 a.m. to 1 p.m.

Cinco de Mayo Omaha festival Saturday and Sunday Parade begins at 10 a.m. on Saturday and runs from 24th and D Streets to 24th and L. A ﬁesta will follow; more than 80 restaurants offering food, margaritas and live music will be on hand from noon to 10:30 p.m. Sunday: 10 a.m. Mariachi Mass on Plaza del Raza at 25th and N Streets, followed by a health fair from noon to 3 p.m. The carnival, food and vendor booths and live entertainment festivities will continue from noon to 8 p.m.

The Toast Nebraska Wine Festival Saturday and Sunday from 11 a.m. to 8 p.m. Mahoney State Park, 28500 W. Park Highway • Ashland, Neb. Admission is $25 to $65 to sample vintages from 17 Nebraska wineries. The weekend includes live music, unlimited wine sampling, an amateur wine-making competition, unique food pairings, art and jewelry vendors and trolley tours through the park.

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OMAHA WORLD-HERALD

BERKSHIRE HATHAWAY SHAREHOLDERS MEETING

SATURDAY, MAY 3, 2014

Don’t stop at steak: Other culinary treats await When it comes to eating on Berkshire weekend, there are Warren’s favorite steak spots — and then there’s World-Herald food writer Sarah Baker Hansen’s favorites. For the record, her steak picks are the classic Johnny’s Cafe, 4702 S. 27th St., or Brother Sebastian’s, 1350 S. 119th St., the winner of our Food Prowl for the city’s best red meat. That said, there’s a lot more to Omaha than simply steak. Here are Baker Hansen’s top five spots for those who want to turn Berkshire weekend into a culinary adventure.

Le Bouillon

Stuffed quail at Le Bouillon, which focuses on French comfort food.

1017 Howard St. • 402-502-6816 Chef Paul Kulik, known for his ﬁrst restaurant, the Boiler Room, has opened a thoroughly modern French bistro in the Old Market, in the same space where the now-closed French Café operated for more than 40 years. The restaurant is moderately priced, with an atmosphere mostly chic. Focused on French comfort food, Kulik and his chef de cuisine, Ben Jordan, invite diners to explore beyond the traditional appetizer-entree-dessert triumvirate into sections named “a cote” or “fruits de mer” or “petits plats.” It’s unusual. It’s also intentional. The small plates are where Le Bouillon truly excels. They are where it becomes more than just another French bistro — it becomes a place to have an experience. If you feel like being adventurous, skip entrees entirely and order across the menu, choosing whatever sounds best. I recommend anything under the “toasts” heading, especially the Florida rock shrimp toast; the melt-in-your-mouth house lardo paired with the meaty, red lyon, both on the charcuterie menu; or the frisee salad with smoked rabbit loin, green lentils and soft cooked egg on top. If you just want to stop in, do it early: from 3 p.m. to 5 p.m. every day the raw bar serves a daily oyster for $1 a shuck.

Kitchen Table

The Whole Bird is the star of the sandwich menu at Kitchen Table.

1415 Farnam St. • 402-933-2810 Midwestern food — solid, affordable, dependable — is at the heart of what this small downtown lunch and dinner spot does. Owner and chef Colin Duggan, who runs the space with his wife, Jessica, focuses on local and seasonal ingredients and makes them into sandwiches and specials worth remembering. The star of the sandwich menu is the Whole Bird, Colin’s twist on the sometimes-ﬂavorless grilled chicken on a bun. Tender seared chicken breast, conﬁt chicken leg cooked in its own juices and crispy chicken skin make the sandwich juicy and crunchy at once. The yolk of a fried egg binds things together and acts as a sauce, and a pile of greens lightens the load. Toasted bread holds it together. It’s salty, savory and rather decadent. My husband described it as “damn tasty”; I couldn’t think of anything more to say. Seasonal soups, texturally interesting salads, vegan and vegetarian specials made with care and a notable brunch menu mean that I’ll be back soon, saddled up at Kitchen Table for the restaurant’s brand of thoughtful, locally focused comfort food.

Avoli Avoli’s grilliata mista features a rotating selection of meats served with roasted vegetables.

5013 Underwood Ave. • 402-933-7400 Chef-owner Dario Schicke and chef Ben Maides know what they are doing at this northern Italian restaurant in Dundee, and the homemade pastas, thoughtful entrees and welcoming atmosphere land Avoli ﬁrmly in line with the city’s new favorites. The burrata, an appetizer that gets a makeover as the seasons change, has just been retooled. Last fall, the fresh cheese shell ﬁlled with mozzarella curd and cream was served next to a seasonally spicy and cinnamony round of roasted butternut squash and a drizzle of sweet quince sauce. For the spring, the dish comes served with guanciale, English peas, mint and pickled shallot. I also love Avoli’s grilliata mista, a daily rotating selection of three meats served with roasted vegetables and potatoes. Think sausage, fresh seafood, chicken, beef or whatever else strikes the fancy of the chef that day, all cooked to perfection and sized to share, if you’re so inclined.

The bar menu at the Grey Plume

The Grey Plume’s highend burger is available at the bar.

220 S. 31st Ave. • 402-763-4447 I’d wager a guess that most Berkshire shareholders who call themselves “foodies” have already dined at the Grey Plume in Midtown Crossing. But there’s unexplored territory at the Plume if you have yet to dine at the bar, which has its own separate, less-serious menu. Chef Clayton Chapman serves hot dogs and burgers — my favorite high-end burger in the city, in fact — at the bar. He serves big bowls of popcorn and duck fat doughnuts for $4 each. A ﬂatbread is topped with an ever-changing list of seasonal ingredients, and there’s both a vegetarian and salami sandwich selection that have never disappointed. A daily happy hour runs every day from 5 p.m. to 7 p.m. and includes a $5 wine and beer selection and classic cocktails mixed for $7 each. If you want a high-end experience for a more than reasonable price, this is your ticket. No credentials necessary.

Dante Ristorante

Pappardelle bolognese with pork, beef, red wine and spring herbs at Dante Ristorante.

16901 Wright Plaza • 402-932-3078 I called Dante’s bolognese our favorite pasta in the city, and I called its Margharita pizza one of my three favorite pies. And that doesn’t even take into account the restaurant’s excellent, all-Italian wine list, its incredible list of rotating specials and its vibrant, fun atmosphere. This west Omaha spot is definitely worth the drive if you’re in the mood for robust, authentic Italian that’s not too serious but seriously good. Chef Nick Strawhecker knows his stuff — the man has traveled all over Italy and brought the best of the country to the Midwest. Whatever the house special is the night you visit is sure to be impressive; if you’re not in the mood for wood-fired pizza (the Monterosso, with fingerling potato, rosemary, garlic, crisp prosciutto and mozzarella is a favorite of mine), the list of entrees is ripe for exploration. Try the aforementioned bolognese, or the rich carbonara, both worth the calories and even better paired with a glass of robust red. Contact the writer: 402-444-1069, sarah.bakerhansen@owh.com, twitter.com/SBHOWH

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• SATURDAY, MAY 3, 2014

TOP OMAHA-AREA TOURIST ATTRACTIONS (By number of visitors) 1. Henry Doorly Zoo & Aquarium, 3701 S. 10th St.

2. Wehrspann Lake at Chalco Hills Recreation Area, 8901 S. 154th St.

3. Omaha Children’s Museum, 500 S. 20th St.

4. Durham Museum, 801 S. 10th St.

5. Lauritzen Gardens and Keneﬁck Park, 100 Bancroft St.

6. Joslyn Art Museum, 2200 Dodge St.

7. DeSoto National Wildlife Refuge, Blair

8. Papio Bay Aquatic Center, Papillion

CHRIS MACHIAN/THE WORLD HERALD

9. Mormon Trail Center at Historic Winter Quarters, 3215 State St.

Source: State Tourism Commission, 2012 attendance ﬁgures

10. Papio Fun Park, Papillion

Dear ‘not rich’: You can do a lot here, spend only a little BY CINDY GONZALEZ AND NANCY GAARDER WORLD-HERALD STAFF WRITERS

For those who missed it, Warren Buffett recently voiced concern about possible hotel price gouging during the shareholders gathering. He said at least half the shareholders have less than $15,000 worth of Berkshire Hathaway shares. So for the shareholders Buffett called “not rich” — or just the plain price-conscious — here are some free or low-cost things to do around Buffett’s hometown: » Take a scenic walk. Here are a few downtown strolling options: the Old Market’s 80-plus shops and 30 pubs and eateries; the downtown Heartland of America Park that features a 300-foot fountain and evening light show; the Bob Kerrey Pedestrian Bridge, which is the longest pedestrian bridge linking two states (with a light show at night); the riverfront where you can also see a monument to labor sculpture at Lewis & Clark Landing. » Rent a B-cycle at an Omaha station (402-882-2221 or info@omahabcycle.com) and ride trails around downtown and across the river into Iowa, to the casinos, museums, to a barbecue and ice cream joint at the start of the Wabash Trace trail. Bike or walk parts of the Wabash in Council Bluffs, a top-rated rails-to-trail project: www.wabashtrace.org.

» View art, architecture and more for free at: Kaneko, 1111 Jones St., open Saturday; Joslyn Art Museum, 2200 Dodge St., open Saturday and Sunday; Joslyn Art Museum’s Kent Bellows mentoring program young artist exhibition, 3303 Leavenworth St., open Saturday and Sunday; Bemis Center for Contemporary Arts, 724 S. 12th St., open Saturday and Sunday. Hot Shops Art Center, which houses artists’ studios, has an open house Saturday at 1301 Nicholas St. » Visit the Inﬁeld at the Zoo, a memorial to Rosenblatt Stadium, which until recently served as the longtime home of the College World Series. » Enjoy a slice of Omaha’s vibrant multicultural life on 24th Street near N Street for Cinco de Mayo festivities and Latino foods this weekend. » Visit Boys Town at 139th Street and West Dodge Road and its Hall of History, visitors center and Father Flanagan House, also home to the world’s largest ball of stamps. » The Mormon Trail Center, 3215 State St., offers state-of-the-art displays of the Mormon trek from Illinois to Utah in 1800s, open Saturday and Sunday. » Free museum and interesting walk area: Western Historic Trails Center, south of Exit 1B, Interstates 80/29 in Council Bluffs. » Love’s Jazz & Arts Center, 2510 N. 24th St., open Saturday.

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