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Disasters Slice Berkshire Hathaway Q1 Profits

May 9, 2011 by · Leave a Comment 

Warren Buffet (center) addresses a business gathering last week.

Warren Buffet (center) addresses a business gathering last week in Arizona.

Warren Buffett’s Berkshire Hathaway Inc. said Friday (May 6) that its first-quarter profit tumbled 58% from a year ago due to insurance losses from major disasters in Japan, New Zealand and Australia.

The sharp drop is in line with preliminary results outlined by Buffett at the Omaha, Neb.-based company’s annual shareholders’ meeting, the Associated Press reported.

Berkshire, parent company of Forest River Inc.,  the nation’s second largest RV manufacturer, reported net income of $1.5 billion, or $917 per Class A share, for the three months ended March 31. That’s down from net income of $3.6 billion, or $2,272 per Class A share, a year ago.

Revenue rose to $33.7 billion, up from $32 billion last year.

The biggest drag on Berkshire’s quarter was $1.7 billion in insurance losses related to the March 11 earthquake and tsunami in Japan, the Feb. 22 New Zealand earthquake, as well as cyclones and floods in Australia, among other disasters.

“We had probably the second-worst quarter for the insurance industry in terms of disasters around the globe,” Buffett told shareholders.

Given the magnitude of the catastrophe insurance losses in the first quarter, as well as the potential for additional losses from hurricanes in the U.S. between June and December, Berkshire said it is unlikely that its combined insurance operations will achieve an underwriting profit this year.

Reinsurance companies, like Berkshire’s General Re and National Indemnity, sell backup insurance to primary insurers so the industry can cover big losses.

The $1.7 billion in losses is an estimate of Berkshire’s insurance and reinsurance claims that will be settled and paid over time, though that figure could change, the company said.

Berkshire reported an $821 million underwriting loss for the quarter because of the catastrophes. That compares with a $226 million underwriting gain in last year’s first quarter.

Still, the company’s insurance businesses overall, which include auto and home insurer Geico, contributed $131 million to Berkshire’s net income in the first quarter, because of investment gains. That’s considerably less than a year ago when they added $1.2 billion to net income.

Berkshire owns roughly 80 subsidiaries, including clothing, furniture and jewelry firms. Its insurance and utility businesses typically account for more than half of the company’s net income. It also has major investments in such companies as Coca-Cola Co. and Wells Fargo & Co.

The company’s results were buoyed by a strong performance from Burlington Northern Santa Fe railroad, which the company acquired a year ago.

The railroad segment contributed $607 million to net income, up from $282 million a year earlier, although the prior-year results did not covered the entire quarter.

Revenues for the segment increased 17% to $4.53 billion, reflecting higher average revenue per railcar. Higher fuel prices contributed to the increase in the form of larger fuel surcharges, the company said.

Berkshire’s manufacturing, service and retailing segment generated income of $558 million, up from $477 million a year earlier.

Most of the improvement in that sector came from manufacturing businesses like building products maker Acme Building Brands and Benjamin Moore, apparel companies like Fruit of the Loom, and leisure product makers like Forest River and Iscar Metalworking Cos.

Berkshire noted that many of its manufacturers were hit by higher commodity costs for certain raw materials, including cotton, steel and petrochemicals, in addition to higher energy costs.

As a result, the companies have hiked prices in recent months for certain products — something that’ll likely be necessary if costs remain elevated or go higher, the company said.

Berkshire’s utilities and energy division, which includes MidAmerican Energy, added $301 million to Berkshire’s net income in the quarter, up from $223 million last year.

Elsewhere on its balance sheet, Berkshire recorded a paper loss of $82 million on its derivative contracts and investments. Last year, Berkshire posted a $1.4 billion gain.

The true value of the derivatives won’t be clear for at least several years, because they don’t mature until at least a decade from now on average. But Berkshire is required to estimate their value every time the company reports earnings. Buffett has told investors he believes the contracts will ultimately be profitable because the premiums are being invested.

Berkshire executives say the company’s operating earnings are a better measure of how the company is performing in any given period because those figures exclude its derivatives and investment gains or losses.

The company’s operating earnings fell to $1.6 billion for the quarter, down from $2.2 billion a year ago.

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Berkshire Hathaway Inc. Stock Falls 2% Today

March 31, 2011 by · Leave a Comment 

Berkshire Hathaway Inc. stock fell about 2% or more than $2,660 per share in trading today (March 31) on Wall Street following Wednesday’s suprise announcement that David Sokol was resigning.

Sokol, long considered by outsiders to be the most likely candidate to replace Warren Buffett, resigned after purchasing shares of a company he suggested Buffett buy, the Wall Street Journal reported.

Berkshire owns roughly 80 subsidiaries, including No. 2 RV manufacturer Forest River Inc.

Its insurance and utility businesses typically account for more than half of the company’s net income. It also has major investments in such companies as Coca-Cola Co. and Wells Fargo & Co. Berkshire has more than 260,000 employees worldwide but only 21 at its headquarters in Omaha, Neb.

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Sokol Resigns, Ending Buffett Successor Talk

March 30, 2011 by · Leave a Comment 

David Sokol

David Sokol

A top executive of Berkshire Hathaway Inc., who was believed to have had the inside track to one day succeed billionaire Warren Buffett as CEO, has suddenly resigned.

Buffett said today (March 30) that David Sokol’s resignation letter, delivered by his assistant late Monday, came as a “total surprise,” the Associated Press reported.

Buffett said Sokol, who had been serving as chairman of Berkshire’s MidAmerican Energy, NetJets and Johns Manville units, indicated that he wants to spend more time on philanthropy.

Berkshire Hathaway is the parent company of Forest River Inc., the nation’s second largest RV manufacturer. It reported 2010 sales of nearly $2 billion.

“As I have mentioned to you in the past, it is my goal to utilize the time remaining in my career to invest my family’s resources in such a way as to create enduring equity value and hopefully an enterprise which will provide opportunity for my descendents and funding for my philanthropic interests,” Sokol wrote. Buffett said twice before, most recently about two years ago, Sokol had spoken to him of resigning for similar reasons but Buffett and other board members convinced him to stay with the company. He has accepted Sokol’s resignation this time.

Buffett did said that he learned earlier this month that Sokol bought nearly 100,000 shares of Lubrizol stock before recommending that Berkshire buy the chemical company. Buffett said he doesn’t believe those stock purchases were illegal, and didn’t ask Sokol to resign.

Buffett has regularly praised Sokol’s work, and many investors have speculated that Sokol was on the short list to succeed Buffett at the Omaha, Neb.-based company.

Due to Sokol’s departure, Buffett said Greg Abel, current president and CEO of MidAmerican Holding Co., will become its chairman; Todd Raba, president and CEO of Johns Manville, will become its chairman; and Jordan Hansell, President of NetJets, will become that unit’s chairman and CEO.

Buffett declined to comment beyond his statement. Sokol did not immediately respond to a message left Wednesday.

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Warren Buffett Applauds Liegl & Forest River

March 3, 2011 by · Leave a Comment 

Warren Buffett

Warren Buffett

Warren Buffett, chairman of Berkshire Hathaway Inc., had brief but warm words for the company’s Forest River Inc. holdings in his annual letter to shareholders issued recently.

Pete Liegl

Pete Liegl

On page 13 of the 26-page document, Buffett had this to say:

Forest River, our RV and boat manufacturer, had record sales of nearly $2 billion and record earnings as well. Forest River has 82 plants, and I have yet to visit one (or the home office, for that matter). There’s no need; Pete Liegl, the company’s CEO, runs a terrific operation. Come view his products at the annual meeting. Better yet, buy one.

Forest River is categorized in Berkshire Hathaway’s “Manufacturing, Service and Retailing Operations” segemnt, which reported 2010 sales of $66.6 billion and net earnings of $2.46 billion.

Other record-setters in 2010 were TTI, CTB and H.H. Brown.

For a look at the entire Buffett letter to shareholders click here.

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Priority One: Use All 3 Credit Bureau Reports

February 16, 2011 by · Leave a Comment 

Priority One Financial Services logoEditor’s Note: The following article was provided by Heather Mariscal of Priority One Financial Services Inc., a subsidiary of Forest River Inc.

Credit scores are not what they used to be. Just a few years ago, many considered a good credit score 680 and above, but today that same 680 score would be an automatic decline from most recreational lenders. You owe it to your customer, as well as to your dealership, to obtain the most complete credit information available before submitting the loan to your lender partners. This means your F&I department needs to have available all three major credit bureaus’ reports.

As every good F&I manager knows, in order to present a credit application to a lender in the best possible light, you must thoroughly review the customer’s credit report first and not just submit the application based on score alone. It’s critical to understand and determine the strengths of the loan request as well as the challenges. While it’s only necessary to use one credit bureau, it is to your advantage to have access to reports from the top three credit bureaus, Equifax, Experian and TransUnion, because scores and credit information can differ greatly among the three.

Credit scores differ for a variety of reasons:

  • Lenders might not report to all three bureaus.
  • Public records including collections, judgments, liens and bankruptcies might not be reported.
  • Closed accounts might not be reported closed.
  • The last reported date of a trade line might not be identical.

Because of these differences it is beneficial to receive reports from the top three bureaus to compare credit reports, and see what the lenders are going to see. To help secure approvals, review all three credit bureaus’ reports to ensure you don’t miss any key information the lenders may be basing their loan decision on. Since it is not unusual to see a wide range of credit scores on the same customer, your F&I department should work with all available information, not a piece of the picture portrayed by a single bureau. Keep in mind lenders typically do not pull all three bureaus, as a rule, which could ultimately influence the credit decision negatively.

F&I managers that use only one bureau’s information and don’t receive all of the customer’s credit information, gathered from all three bureaus, could receive a less than desirable approval from lenders who use risk based pricing. With risk-based pricing, lenders estimate the probability that the borrower will default on the loan which means that different borrowers can receive different rates and terms on the same amount to finance. Additional factors that can alter the terms of the approval include: the number of trade lines, debt to income ratios, length of time in bureau and overall revolving usage. All of which could be different from one bureau to another. For example, depth-of-credit file on one bureau might be five years, however, another bureau it might be 10 years; therefore, the lender might deem that customer to have more risk because they evaluated five years of history versus ten.

It’s up to your F&I manager to pull all three credit bureaus, thoroughly review, and point out to the lender any credit bureau discrepancies which might help secure a better approval.

More deals will be approved when the F&I manager highlights the strengths your lenders look for to overcome any weaknesses that might exist in the deal. F&I managers must avoid mistakenly qualifying a deal as better or worse than it actually is. It’s better to have all of the information, than to be surprised with something that could mean losing the deal, or harming your credibility. To ensure this can be accomplished, review credit information from all 3 major credit bureaus. By doing so, the F&I manager will have all of the information necessary to do the best work for your customer.

Priority One has been serving the marine and RV industry since 1987. Acquired in 2007 by Forest River Inc., a Berkshire Hathaway Inc. company, Priority One serves as the F&I managed services provider for hundreds of dealers nationwide. For more information, visit www.P1FS.com.

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Liegl Expects Few Changes at Dynamax Corp.

February 1, 2011 by · Leave a Comment 

Pete Liegl

Pete Liegl

Monday’s (Jan. 31) surprise news that Berkshire Hathaway Inc.’s Forest River Inc. had acquired Super C motorhome builder Dynamax Corp. seems to have been well received by both buyers and sellers. In fact, spokesmen for both Elkhart, Ind.-based companies tell RVBUSINESS.com that the two firms’ cultures and products should complement each other.

“We’re excited about what the relationship with Forest River can do for Dynamax, the doors that it can open,” said Dewayne Creighton, president of 14-year-old Dynamax, the principal owner and chairman of which was Elkhart businessman Richard Strefling.Dynamax logo

“They (Forest River) seem impressed with the product, with a lot of innovations we’ve done here, and I think we can add to their product line,” he added. “There wouldn’t be any overlap in my mind between what we do and what they’ve already done.”

Alluding to the “relatively brief” negotiations that preceded the sale, Forest River Chairman Pete Liegl says he anticipates few changes at 50-employee Dynamax. Liegl said Creighton would remain at the helm of the company, which markets the Grand Sport GT, DynaQuest and Isata motorhome lines as well as an upscale DynaAire fifth-wheel.

”We need everybody there, basically,” said Liegl, who reported that Dynamax will operate as a stand-alone Forest River division. ”We might do a little consolidation on the accounting and payables and receivables, but I’m sure those same people will be able to be utilized someplace else.”

The sale price was not announced.

”We paid more than we wanted, but not as much as Dick (Strefling) wanted,” Liegl said. ”He’s always treated me fairly, so I’m sure he’s treated me fair here.

”Dynamax makes a beautiful product. It will fit well,” he added. “In fact, no one else is out there to compete with Dynamax.”

Dynamax operates out of a 200,000-square-foot plant on 27 acres on the north side of Elkhart, builds its coaches on big Freightliner Class 8 and smaller M-2 truck chassis, as well as Ford F-550 and E-450 Super Duty platforms. Retail prices range from $150,000 to $500,000.

Strefling is best known for building the Glaval van and bus brands which Forest River previously purchased along with a group of office buildings and manufacturing facilities. Strefling still operates two substantial industry suppliers in northern Indiana — Lexington Corp., which makes seating, and Charleston Corp., a manufacturer of plastic automotive parts.

Liegl said he originally became interested in Dynamax products while on a camping trip in one of Dynamax’ coaches. ”I was fascinated with how beautiful it was and how it functioned, and I guess that’s what’s been going through my head,” he said.

Creighton, meanwhile, acknowledged that the Great Recession has been tough on all motorhome makers, Dynamax included. And that, most agree, was an obvious factor in the sale.

”Yes it was, mainly because of the banking (tight national credit availability),” he said. ”The banks got extremely tough. Financing was something that was affecting us (but) that will not be the case with Forest River involved, and that’s the exciting thing. They bring so much to the table.”

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Forest River Buys Dynamax: Details to Follow

January 31, 2011 by · 2 Comments 

Forest River Inc. logo Forest River Inc. spokesmen confirmed this morning (Jan. 31) that the Elkhart, Ind.-based Berkshire Hathaway Inc.  subsidiary has acquired Dynamax Corp., a 14-year-old motorhome manufacturer specializing in high-end Super C-style  motorhomes and upscale fifth-wheel travel trailers located on the north side of Elkhart.logo

“Forest River has purchased Dynamax,” a spokesman for Forest River, who preferred anonymity, told RVBUSINESS.com. “Details to follow.”

Dynamax President Dewayne Creighton was unavailable for comment.

“We’re pumped up about it,” said the Forest River source. “We think there’s a lot of sectors inside that Super C category, everything from the RVer to getting a lot bigger and heavier into the command centers – the units that law enforcement, SWAT teams and the governmental units and insurance companies utilize during big storms and disasters.

“They’ve (Dynamax) already built some of those, and we’ve got some staff people who know this market, so we think we can do a lot of business in the command center specialty vehicles. We’re excited about that.”

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Sierra Joins Priority One’s New Department

January 21, 2011 by · Leave a Comment 

Ruben Sierra

Ruben Sierra

Priority One Financial Services, the recreational industry’s oldest and largest F&I outsourcing provider, has added Ruben Sierra Jr. as a business manager in its new specialty finance department.

The new department was formed to help dealers move additional units by securing recreational loans for a higher percentage of credit-challenged consumers, according to a news release. Sierra’s 30 years in the automotive industry as a sales, finance and closing manager makes him a perfect fit at Priority One and for this department, the release stated. In addition to his work experience, he is Association of Finance & Insurance Professional certified and has JM&A training, which is one of the largest providers of F&I products in the automotive industry.

“We really lucked out with Ruben,” commented Rina Aponte, operations manager. “He is experienced, knowledgeable, customer service oriented and can even speak Spanish fluently, which will be helpful for certain dealerships we work with.”

A native of Tampa, Fla., Sierra has been married for 43 years to his high school sweetheart, has two children and five grandchildren. When he is not working, he enjoys the Florida lifestyle of boating and fishing.

Priority One has been serving the marine and RV industry since 1987. Acquired in 2007 by Forest River Inc., a Berkshire Hathaway Inc. company, Priority One serves as the F&I managed services provider for hundreds of dealers nationwide. For more information, visit www.P1FS.com.

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Winnebago Takeover Latest RV Consolidation

October 19, 2010 by · Leave a Comment 

Winnebago Industries Inc., the biggest U.S. maker of motorhomes, may make its first acquisition in more than 20 years, signaling the recreational vehicle market sees a sustained economic recovery, Bloomberg reported.

Winnebago may acquire SunnyBrook Manufacturing Inc., the privately held maker of towable recreational vehicles, by the end of the year, according to a statement Monday (Oct. 18). Winnebago, which didn’t disclose financial details, said it has signed a letter of intent and is still studying the potential deal.

A takeover by Forest City, Iowa-based Winnebago would mark an entry into the faster-growing towable RV market, Craig Kennison, an analyst at Robert W. Baird, wrote in a research note. The acquisition also reflects confidence among RV makers, which have foreshadowed economic declines and rebounds.

“There won’t be a double dip in the RV industry,” Mac Bryan, vice president of administration at the Recreation Vehicle Industry Association (RVIA), said Monday in a telephone interview. “This is a marketplace that is in recovery.”

The acquisition would be Winnebago’s first in more than 20 years, Sheila Davis, a spokeswoman, said in a telephone interview. Davis said the company, which announced in November 2009 that it was studying “potential diversification strategies,” may consider additional acquisitions.

Winnebago leads the motorhome industry with a 19% market share, according to Robert W. Baird’s Kennison, who is based in Milwaukee. SunnyBrook sold 1,700 towable RVs last year, making it the  13th largest manufacturer in that market, Kennison wrote in a research note.

‘Like the Concept’

“We like the concept,” he wrote. “Winnebago has the most recognizable brand in RVs, but has yet to leverage it in the faster-growing towable market. SunnyBrook would represent a small but strategic step in that direction.”

Kennison estimates Middlebury, Indiana-based SunnyBrook’s annual revenue at $30 million to $40 million.

Wholesale deliveries by U.S. RV manufacturers surged 71% to 177,300 units through the first eight months of 2010, according to the RVIA. Shipments in all of 2009 were 165,700, the lowest since 1991, according to RVIA data, as consumers deferred discretionary purchases during the economic slump.

Shipments may rise to 239,900 in 2010, a gain of 45% from 2009, according to Richard Curtin, an RV industry analyst and director of consumer surveys at the University of Michigan. Industry shipments may increase 8% to 259,600 in 2011, according to Curtin, who analyzes data for the RVIA, the industry’s Reston, Virginia-based trade group.

The RV industry includes more than 80 manufacturers, RVIA’s Bryan said.

Consolidation Time

“This is the time in the business cycle where consolidation tends to occur,” Bryan said. “While we’re still seeing some problems continuing related to consumer confidence and the availability of credit, we’re finding that primary demand is very strong. Consumers want to be in RVs and in the outdoors.”

Among the investors reaping gains from the industry is Warren Buffett’s Berkshire Hathaway Inc. Berkshire’s Forest River Inc. RV unit helped the holding company’s manufacturing, service and retailing businesses more than double earnings to $1.15 billion in the six months through June 30, according to a regulatory filing.

Winnebago and Jackson Center, Ohio-based Thor Industries Inc. are the largest, publicly traded RV makers.

Shares of Winnebago have lost 20% this year after more than doubling in 2009. Thor has declined 1.6% this year.

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Prime Time Mfg. Unveils 2011 Tracer Micro

October 4, 2010 by · 1 Comment 

Prime Time's Tracer Micro

Prime Time's Tracer Micro

Prime Time Manufacturing has expanded its product offering with the introduction of the all-new Tracer Micro series travel trailer targeted toward minivan and small crossover tow vehicles. Industry insiders got their first look at the new Tracer Micro during the just completed Forest River Inc. dealer open house in Elkhart, Ind., according to a news release.

“The thinking behind the new Micro is simple,” according to Jeff Rank, president for the Wakarusa, Ind.-based manufacturer. “Prime Time wanted a travel trailer that can easily be towed by a minivan with 3,500 pounds of towing capacity. Unfortunately, most of the units in this weight range really compromise livability and function. With Micro we’ve combined great looks, the right features, and many of today’s lightweight composite materials to create a perfect balance between weight, price, features and eye appeal.”

Three floorplans, all with slideouts, are being offered in the Tracer Micro series with shipping weights starting at 2,550 pounds fully loaded. Standard interior equipment includes cherry cabinets and cherry hardwood cabinet doors, automotive styled leather wrapped dinettes, microwave, air conditioner and CD player. On the outside, a full-sized awning, stabilizer jacks, spare tire, stereo speakers, television hook-up and aluminum wheels are  included as standard equipment.

The MSRPs for the new Tracer Micro series start at $14,900.

Prime Time Manufacturing is a division of Forest River Inc, a Berkshire Hathaway Inc. company. Prime Time offers towable recreational vehicles under the brand names of LaCrosse, Tracer, and Crusader.

For information regarding the Tracer Micro, consult www.primetimerv.com or call (574) 862-3001.

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