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Warren Buffett Remains No. 2 on Forbes List

September 23, 2010 by · Leave a Comment 

Warren Buffett

Warren Buffett

Warren Buffett, CEO of  Berkshire Hathaway Inc., a major stakeholder in the RV industry, retained the No. 2 spot on the Forbes list of richest Americans.

Bill Gates retained his top spot on the list with $54 billion, followed by Buffett with $45 billion, according to a Forbes news release.

Bershire Hathaway’s RV holdings are Forest River Inc. and the Scott Fetzer Co., parent of RV industry supplier Carefree of Colorado.

This year’s Forbes 400 reflects an uptick in wealth among America’s 400 Richest, with a total combined wealth of $1.37 trillion. In contrast to 2009, wealth was up for some 217 members of this year’s list while only 85 members saw a decline. Gainers include Facebook founder Mark Zuckerberg (No. 35), whose wealth increased 245%, the largest percentage increase of anyone on the list, and Diane Hendricks (No. 170), one of the 42 women on this year’s list.

Among the decliners are M&M moguls John, Jacqueline and Forrest Mars (No. 26), who keep a low profile in Wyoming. Sixty-four Richest had no change in net worth, including Washington Redskins owner Dan Snyder (No. 365). The Forbes 400 welcomed 16 new members in 2010, including two with ties to Facebook: Dustin Moskovitz (No. 290), (he left Facebook in 2008 but still has a stake in the social networking outfit and is now worth $1.4 billion) who at 26 is the new youngest on the list (he’s 8 days younger than Zuckerberg); and Facebook co-founder Eduardo Saverin (No. 356) with $1.15 billion. Sidney Kimmel (No. 365), who earned his fortune in the apparel business and then became a film producer, is one of the 18 returnees to the list.

RANK NAME WEALTH SOURCE $ CHANGE FROM 2009

  1. Bill Gates $54 billion, Microsoft + $4 billion
  2. Warren Buffett $45 billion, Berkshire Hathaway + $5 billion
  3. Lawrence Ellison $27 billion, Oracle $0
  4. Christy Walton & family $24 billion, Wal-Mart + $2.5 billion
  5. Charles Koch $21.5 billion, manufacturing, energy + $5.5 billion
  6. David Koch $21.5 billion, Mmanufacturing, energy +$5.5 billion
  7. Jim C. Walton $20.1 billion, Wal-Mart + $ 500 million
  8. Alice Walton $20 billion, Wal-Mart + $ 700 million
  9. S. Robson Walton $19.7 billion, Wal-Mart + $ 700 million
  10. Michael Bloomberg $18 billion, Bloomberg LP + $ 500 million
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Buffett Spared, But Others Not in Mart Suit

August 6, 2010 by · Leave a Comment 

Warren Buffett was spared from giving a deposition in the lawsuit brought by a former executive who said he was wrongly dismissed by the recreational vehicle unit of the billionaire’s Berkshire Hathaway Inc., Bloomberg reported

As first reported on Wednesday (Aug. 4) by RVBUSINESS.com, U.S. Magistrate Judge Christopher Nuechterlein in South Bend, Ind., made the ruling Aug. 2 and said Berkshire CFO Marc Hamburg may be questioned by lawyers for the plaintiff, Brad Mart.

Mart said he was fired from the Elkhart, Ind.-based Forest River Inc. after bringing allegations of fraud to executives, including to Buffett in six phone conversations. Mart had requested Buffett’s deposition to combat Omaha, Neb.-based Berkshire’s claim that it should be dropped from the lawsuit for lack of jurisdiction.

“Even Mart’s own recount of the conversations reveal that Buffett communicated that he did not get involved in personnel matters and that Mart should seek an audience elsewhere for relief,” the judge wrote.

Buffett, Berkshire’s CEO, isn’t accused of wrongdoing. His deposition was requested to help determine facts of the case. Buffett didn’t respond to an e-mailed request for comment sent to an assistant.

Berkshire, the parent company, doesn’t do business in Indiana and shouldn’t be subject to courts in that state, it said in the June 1 request for dismissal. Mart said Berkshire’s control over Forest River submits the firm to Indiana law and Buffett’s statements could help show that.

Hamburg

Hamburg’s deposition was requested by Mart “to probe the full extent of the parent-subsidiary relationship,” Nuechterlein said. “The court considers it appropriate to grant Mart’s request.”

Berkshire had previously offered a deposition with Hamburg in exchange for Mart’s renouncing his request for depositions of other executives including Buffett.

Buffett, 79, bought Forest River in 2005 and left its CEO, Peter Liegl, in charge of the unit. Mart, who helped arrange the $800 million sale to Berkshire, was fired last year after he went to Buffett and accused Liegl of fraud, according to the April complaint. Liegl’s lawyer, Jeanine Gozdecki of Barnes & Thornburg LLP, denied the charges and is seeking a dismissal.

Liegl required Forest River to buy parts at inflated prices from a company he owned and appropriated cash from factory vending machines, Mart said. Liegl also reneged on a promise to make Mart CEO, according to the complaint. Mart alleged in the suit that Liegl threatened his life.

Allegations

“There is no legitimate basis to the allegations of the threats or the fraud,” Gozdecki said last month. “We will vigorously defend these claims on behalf of the company and on behalf of Pete Liegl.”

Mart’s request to depose Jeff Rowe, Forest River’s director of human resources, was granted by the judge. An application to question Forrest Krutter, Berkshire’s secretary, was denied.

“It appears that this request is more likely to lead to an impermissible fishing expedition than targeted, jurisdictional discovery,” Nuechterlein said of the request to depose Krutter.

Krutter had no comment. Stephen Kennedy, a lawyer for Mart, declined through an assistant to comment.

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Buffett Won’t Testify in Forest River Suit?

August 4, 2010 by · Leave a Comment 

Warren Buffett

Warren Buffett

Judge Christopher Nuechterlein has sided with management in a preliminary ruling in the suit against Forest River Inc.

In a decision announced this afternoon (Aug. 4), the judge ruled that plaintiff Brad Mart, former president of Forest River, cannot order billionaire Warren Buffett, CEO of Berskshire Hathaway Inc., Forest River’s parent company, to be disposed in the suit.

Ron Lipinski

Ron Lipinski

Ron Lipinski, attorney with Seyfarth & Shaw LLP, Chicago, representing Forest River and its current CEO, Pete Liegl, told RVBUSINESS.com the judge’s ruling was “consistent with our position” which he argued during an hour-long hearing on July 26.

Mart’s attorney had argued for extensive discovery, but today’s ruling came down on the side of limited discovery.

But Lipinski stopped short of putting too much weight on the decision.

“It’s a preliminary discovery ruling. I don’t know that you can classify it as a victory or a loss. If the case proceeds, it (the request for Buffett’s deposition) may be raised again,” he said.

The judge further ruled that Mart can take some limited discovery and file his briefs. Preliminary discovery is to be completed by Oct. 1.

Mart petitioned for a deposition of Buffett to demonstrate the parent company’s role in his firing, according to a June 17 motion in the court. Omaha, Neb.-based Berkshire, one of the defendants named in Mart’s lawsuit, has said it wasn’t involved in the dismissal. In a July 6 brief, Berkshire asked the court to protect Buffett from questioning, Businessweek first reported.

Mart’s lawyer is Stephen Kennedy, of Kennedy Clark & Williams PC in Dallas, who made the deposition request and argued his client’s position in court. Kennedy spoke first, followed by Cary Lerman, of Munger Tolles & Olson LLP, Los Angeles, attorney for Berkshire Hathaway.

The request to depose Buffett, the world’s third-richest person, escalated a conflict that already included Mart’s allegations of fraud and threats of violence at Forest River, the Elkhart, Ind.-based recreational vehicle maker. Mart’s chance of winning a settlement may improve if the judge orders the deposition.

Buffett isn’t accused of wrongdoing. His deposition could help determine facts of the case, and may lead to his testimony at trial.

Mart requested Buffett’s deposition to combat Berkshire’s claim that the firm should be dropped from the lawsuit for lack of jurisdiction.

Berkshire, the parent company, doesn’t do business in Indiana and shouldn’t be subject to courts in that state, the company said in a June 1 request to dismiss the case. Mart said Berkshire’s control over Forest River submits the firm to Indiana law and Buffett’s statements can help show that.

Buffett, 79, bought Forest River in 2005 and left its founder and CEO, Liegl, in charge of the unit. Mart, who helped arrange the $800 million sale to Berkshire, was fired last year after he went to Buffett and accused Liegl of fraud, according to the April complaint.

Liegl required Forest River to buy parts at inflated prices from a company he owned and appropriated cash from factory vending machines, Mart said. Liegl also reneged on a promise to make Mart CEO, according to the complaint. Mart alleged in the suit that Liegl threatened his life.

“There is no legitimate basis to the allegations of the threats or the fraud,” said Jeanine Gozdecki, lead attorney for Liegl and Forest River. “We will vigorously defend these claims on behalf of the company and on behalf of Pete Liegl.” Gozdecki, of Barnes & Thornburg LLP, is seeking a dismissal.

Liegl said in a sworn statement that he runs Forest River independently of Berkshire and the parent company didn’t play a role in his decision to fire Mart. Liegl, who is also a defendant in the case, didn’t mention the allegations of fraud in a statement in support of his motion for a dismissal.

Mart has also asked to depose Berkshire CFO Mark Hamburg and Secretary Forrest Krutter. The company offered Hamburg in exchange for Mart’s renouncing his request for depositions of other executives including Buffett, according to court filings. Mart rejected that offer. Berkshire’s Krutter declined to comment.

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Buffett: Economy Out of ER and on Path to Recovery

August 19, 2009 by · Leave a Comment 

Warren Buffett

Warren Buffett

Editor’s Note: Warren Buffett, chairman and CEO of Berkshire Hathaway Inc., whose diverse holdings include Forest River Inc., penned this commentary published in the New York Times.

In nature, every action has consequences, a phenomenon called the butterfly effect. These consequences, moreover, are not necessarily proportional. For example, doubling the carbon dioxide we belch into the atmosphere may far more than double the subsequent problems for society. Realizing this, the world properly worries about greenhouse emissions.

The butterfly effect reaches into the financial world as well. Here, the United States is spewing a potentially damaging substance into our economy – greenback emissions.

To be sure, we’ve been doing this for a reason I resoundingly applaud. Last fall, our financial system stood on the brink of a collapse that threatened a depression. The crisis required our government to display wisdom, courage and decisiveness. Fortunately, the Federal Reserve and key economic officials in both the Bush and Obama administrations responded more than ably to the need.

They made mistakes, of course. How could it have been otherwise when supposedly indestructible pillars of our economic structure were tumbling all around them? A meltdown, though, was avoided, with a gusher of federal money playing an essential role in the rescue.

The United States economy is now out of the emergency room and appears to be on a slow path to recovery. But enormous dosages of monetary medicine continue to be administered and, before long, we will need to deal with their side effects. For now, most of those effects are invisible and could indeed remain latent for a long time. Still, their threat may be as ominous as that posed by the financial crisis itself.

To understand this threat, we need to look at where we stand historically. If we leave aside the war-impacted years of 1942 to 1946, the largest annual deficit the United States has incurred since 1920 was 6% of gross domestic product. This fiscal year, though, the deficit will rise to about 13 percent of G.D.P., more than twice the non-wartime record. In dollars, that equates to a staggering $1.8 trillion. Fiscally, we are in uncharted territory.

Because of this gigantic deficit, our country’s “net debt” (that is, the amount held publicly) is mushrooming. During this fiscal year, it will increase more than one percentage point per month, climbing to about 56% of G.D.P. from 41 percent. Admittedly, other countries, like Japan and Italy, have far higher ratios and no one can know the precise level of net debt to G.D.P. at which the United States will lose its reputation for financial integrity. But a few more years like this one and we will find out.

An increase in federal debt can be financed in three ways: borrowing from foreigners, borrowing from our own citizens or, through a roundabout process, printing money. Let’s look at the prospects for each individually – and in combination.

The current account deficit – dollars that we force-feed to the rest of the world and that must then be invested – will be $400 billion or so this year. Assume, in a relatively benign scenario, that all of this is directed by the recipients – China leads the list – to purchases of United States debt. Never mind that this all-Treasuries allocation is no sure thing: some countries may decide that purchasing American stocks, real estate or entire companies makes more sense than soaking up dollar-denominated bonds. Rumblings to that effect have recently increased.

Then take the second element of the scenario – borrowing from our own citizens. Assume that Americans save $500 billion, far above what they’ve saved recently but perhaps consistent with the changing national mood. Finally, assume that these citizens opt to put all their savings into United States Treasuries (partly through intermediaries like banks).

Even with these heroic assumptions, the Treasury will be obliged to find another $900 billion to finance the remainder of the $1.8 trillion of debt it is issuing. Washington’s printing presses will need to work overtime.

Slowing them down will require extraordinary political will. With government expenditures now running 185% of receipts, truly major changes in both taxes and outlays will be required. A revived economy can’t come close to bridging that sort of gap.

Legislators will correctly perceive that either raising taxes or cutting expenditures will threaten their re-election. To avoid this fate, they can opt for high rates of inflation, which never require a recorded vote and cannot be attributed to a specific action that any elected official takes. In fact, John Maynard Keynes long ago laid out a road map for political survival amid an economic disaster of just this sort: “By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens…. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”

I want to emphasize that there is nothing evil or destructive in an increase in debt that is proportional to an increase in income or assets. As the resources of individuals, corporations and countries grow, each can handle more debt. The United States remains by far the most prosperous country on earth, and its debt-carrying capacity will grow in the future just as it has in the past.

But it was a wise man who said, “All I want to know is where I’m going to die so I’ll never go there.” We don’t want our country to evolve into the banana-republic economy described by Keynes.

Our immediate problem is to get our country back on its feet and flourishing – “whatever it takes” still makes sense. Once recovery is gained, however, Congress must end the rise in the debt-to-G.D.P. ratio and keep our growth in obligations in line with our growth in resources.

Unchecked carbon emissions will likely cause icebergs to melt. Unchecked greenback emissions will certainly cause the purchasing power of currency to melt. The dollar’s destiny lies with Congress.

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Moody’s Lowers Rating for Forest River Parent

April 9, 2009 by · Leave a Comment 

Billionaire Warren Buffett ‘s company lost its pristine triple-A rating from Moody’s  on Wednesday (April 7) because the recession has diminished Berkshire Hathaway Inc.’s financial strength, according to the Associated Press.

Ratings agency Moody’s downgraded the credit rating for Berkshire and several of the company’s insurance subsidiaries. Moody’s says Berkshire and its insurance companies, including National Indemnity and Geico, aren’t as strong financially because the market value of their investments has fallen.

Berkshire Hathaway is the parent company of Forest River Inc., maker of RVs, boats and shuttle buses. 

Also, Moody’s says the recession hurt Berkshire’s non-insurance businesses. “These extraordinary market pressures have reduced the excess cushion available from National Indemnity and the other affected operations to support potential funding needs of the parent company,” Moody’s analyst Bruce Ballentine said in a statement. Moody’s also said Berkshire’s earnings and capital base are volatile because of fluctuations in the value of its portfolio of equity derivatives.

So Moody’s Investors Service lowered Omaha-based Berkshire’s rating to “Aa2″ from “Aaa.”

The rating for National Indemnity and most of Berkshire’s insurers was cut to “Aa1″ from “Aaa.”

The ratings for Geico and General Re fell to “Aa3″ from “Aa1.” All the ratings are still well into investment grade.

Berkshire officials did not immediately respond to a message left late Wednesday. Berkshire owns 48 million shares of Moody’s, which is more than 20% of the ratings agency. Buffett likes to refer to Berkshire’s financial strength as “Gibraltar-like” with little debt and huge amounts of excess liquidity. Berkshire finished 2008 with $24.3 billion cash on hand.”

“However, I have pledged – to you, the rating agencies and myself – to always run Berkshire with more than ample cash. We never want to count on the kindness of strangers in order to meet tomorrow’s obligations,” Buffett said in late February in his annual letter to shareholders.

Analyst Justin Fuller, who works with Midway Capital Research & Management in Chicago, said Moody’s action wasn’t a surprise, but it didn’t make much sense to him because Berkshire’s financial position hasn’t seen recent significant change.

“I think the ratings agencies are in a mode of being overly conservative,” Fuller said. Moody’s downgrade of Berkshire follows action by two other ratings agencies last month. Standard & Poor’s announced it has a “negative” outlook on Berkshire’s “AAA” credit rating and is considering downgrading the company. And Fitch Ratings downgraded Berkshire one notch, from “AAA” to “AA+.”

Fuller said he doesn’t think the downgrades will have much practical effect on Berkshire because it is still one of the strongest U.S companies.

Andy Kilpatrick, the stockbroker-author of  “Of Permanent Value, the Story of Warren Buffett,” said Berkshire’s assets haven’t changed enough to warrant the downgrade. “I don’t see that the assets are a whole lot different than when Berkshire had a triple-A rating,” Kilpatrick said.

Moody’s Ballentine said Berkshire’s long-term rating is based on the strength of its insurance businesses and the cash generated by its non-insurance businesses. Berkshire owns a diverse mix of more than 60 companies, including insurance, furniture, carpet, jewelry, restaurants and utility businesses. It has major investments in such companies as Wells Fargo & Co. and Coca-Cola Co.

Several of its subsidiaries, including Shaw carpet and Acme Brick, rely on housing construction, so those business have suffered because of turmoil in the housing market nationwide.

Moody’s said Berkshire’s primary reinsurance company, National Indemnity, has an investment portfolio that’s heavy on the stock of a relatively small number of companies. The value of National Indemnity’s required capital fell 22% to $27.6 billion at the end of 2008 and continued to fall through early March. But Moody’s said that Berkshire’s insurance businesses continue to produce a healthy underwriting profit on average, and its utility unit, MidAmerican Energy Holdings, continues to perform well.

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