Berkshire Behind the Scenes: Part 1

Rick Casterline made his annual trek to Omaha for the Berkshire Hathaway (NYSE: BRKa  ) (NYSE: BRKb  ) annual meeting, and he took some really great notes. We'll be releasing these serially over the next few days, and we hope you find them as enlightening as we do.

This first part covers the most enjoyable part of the meeting -- a 60-minute film that Berkshire produces each year for the annual general meeting -- as well as the preamble comments from Warren Buffett regarding Berkshire's newest purchase, Israeli cutting-tool manufacturer Iscar.

NOTES FROM 2006 BERKSHIRE HATHAWAY ANNUAL MEETING

05-06-06

Qwest Center, Omaha, Neb.

Speakers: Warren E. Buffett and Charles T. Munger

Notes By: Rick Casterline

COMPANY MOVIE

PART 1: AMERICAN IDOL

The company movie opened with Omaha Idol, a cartoon take-off on American Idol. Oprah Winfrey was hosting. This cartoon was made by the same company creating the upcoming Secret Millionaires Club cartoons featuring Warren Buffett. Contestants were competing to see whose business would be bought by Berkshire Hathaway. The three Idol judges were Buffett, Munger, and Mrs. See's.

Microsoft's (Nasdaq: MSFT  ) Bill Gates came out with his "Windows" product, which was an actual window. He said, "Every house should have one of these." In the second round, he came out with his "firewall" product -- an actual section of wall lined with a fire-resistant material.

Steve Jobs appeared with his "spexPod," which is an Apple (Nasdaq: AAPL  ) iPod attached to video sunglasses, so that users can watch video while walking or driving. Munger thought he said "sex pot."

Arnold Schwarzenegger had a new voting machine from California that allows votes only for him.

Donald Trump was selling a funny-looking toupee "so everyone can look like The Donald."

Snoop Dogg won, though it was hard to know what he was selling because of his dialect. None of the judges knew, either. One of the greatest lines of the movie was after Snoop was told he won, and he declared, "Fo' shizzle, Buffettizzle." Buffett replied back, "Uh, sure, whatever you say."

This was worth the price of admission alone. Where else in the world will you witness Warren Buffett conversing with Snoop Dogg?

PART 2 -- INSURANCE COMMERCIAL

The biggest laughs of the day came from a cartoon featuring Buffett and Munger hunting with Dick Cheney, who was dressed as Elmer Fudd. Buffett asked, "Hunting with Dick Cheney? Then you need insurance NOW!" Cheney then shot Munger in the hindquarters, and Munger replied, "Any closer shave would have to be by Gillette!" (These videos are known to always be filled with cheap plugs for BRK products).

PART 3 -- BUFFETT AND BONO

This was a clip of Buffett first meeting Bono, who talked briefly about his One Campaign, which, among other things, would like to see wealthy nations commit 1% of their GDP to African aid.

PART 4 -- ELLEN DEGENERES AT SEE'S CANDY

Ellen went to the See's factory/store in L.A., I think as a segment for her TV show. It mostly featured her goofing around in the factory, stealing candy while someone was explaining the business, etc.

PART 5 -- BUFFETT AND BUFFETT SINGING

This was a clip with Tom Brokaw sitting in between Warren Buffett and Jimmy Buffett. Warren had a ukulele, and Jimmy had his acoustic guitar. Warren said something about the size of the instrument being an indication of talent. They then sang "Ain't She Sweet." This was for a conservation fundraiser in New York. Brokaw is friends with Warren and sends him mail on occasion.

PART 6 -- WARREN'S 75TH BIRTHDAY PARTY

This segment included pictures and video of Buffett's 75th birthday celebration. It featured Buffett playing table tennis against several people. A caption comes up and reads: "Everything was going along just fine. UNTIL ..." It then shows a demon-like picture of last year's junior Ping-Pong champion, who looks about 9 years old. Several clips were shown of the young champ playing Buffett and others, to the tune of "Can't Touch This" by MC Hammer.

A caption appears saying Buffett has had to resort to bribery. It then shows several clips of Buffett losing and then ends with the junior champion beating Buffett. It all finishes with the caption: "Two dollars doesn't buy much these days."

PART 7 -- BUFFETT LOVES TECH STOCKS

This skit had Buffett suddenly falling in love with tech stocks and then needing to convince Munger they should buy some. First, Buffett calls Munger, trying to persuade him to buy an Internet company. Munger asks, "Warren, have you been drinking?"

Buffett then calls Jamie Lee Curtis, who is lying in bed topless, with a sheet covering her. Buffett wants her to help persuade Munger to buy the Internet company. He says that Munger is a big fan of hers and likes to watch the strip seen from True Lies. Buffett and Curtis speak, with several sexual innuendos exchanged and Curtis always speaking in a sultry voice. At the end of the conversation, Curtis says, "I'll see what I can do" and calls Munger.

Munger was talking to his wife when his secretary says Jamie Lee Curtis is on the phone. He asks, "Is this really Jamie?" She responds, "Is this really Mr. . Hunger? ... I mean, Munger?" (This got huge laughs from the auditorium.) She persuades him to buy, and Munger ends by wondering, "Who was I talking on the phone with before this?"

PART 8 -- TIGER WOODS' CADDY

This was a video of Tiger Woods at the driving range with Buffett as his caddy. Woods has trouble with his shot, and Buffett tells Woods he's "putting too much right arm into it." Woods tries again and nails the shot. He tells Buffett, "I think you're my new coach." Buffett responds, "You learn fast, Woods."

Interestingly, Buffett really did serve as Woods' caddy during a charity event, with the fourth spot being auctioned off. I believe the winning bid was around $200,000.

PART 9 -- BUFFETT AND GATES: BACK TO SCHOOL

A clip was shown from the new Buffett/Gates Back to School DVD, in which college students interview the duo. This is the sequel to the last Buffett/Gates DVD, both of which can be purchased from the Berkie Bookstore.

PART 10 -- DESPERATE HOUSEWIVES

Probably the most popular part of the entire video, this was a Desperate Housewives skit, with the actual actresses. One of them talks about meeting "some old rich guy," referring to Buffett. One of them speculates on his sexual prowess and the size of . his brain. The ladies sit around playing poker, discussing the merits of old, rich men.

PART 11 -- SALOMON TESTIMONY

The clip of Buffett giving congressional testimony on the Salomon scandal is included, as it is every year. "I'd like to start by apologizing for the acts that brought us here," he says. The most pressing line from this video is Buffett explaining what he told his new employees: "Lose money for the firm, and I will be understanding; lose a shred of reputation for this firm, and I will be ruthless."

PART 12 -- GATES' VIDEO FOR BUFFETT'S BIRTHDAY

It starts with Gates on the phone with Buffett. While they are talking, Gates' wife walks by, and Gates tells her that Buffett wants a check for $10 billion so he can be No. 1 (on the list of the world's richest people) for his birthday. This is followed by interviews with many longtime famous friends of Buffett telling a joke or two, from Tom Brokaw to Coca-Cola's (NYSE: KO  ) Don Keough, who said Buffett wanted him to invest $10,000. Keough finally called Buffett back and said, "OK, I'll invest that $10,000," to which he says Buffett responded, "Don, that offer was 40 years ago."

Editor's note: Don Keough used to live across the street from Buffett when he first bought his house on Farnam Street in Omaha. Buffett really did come over and try to get Don to invest $10,000 as one of the very first partners in the Buffett partnership. Don never did it. Buffett was once heard to mention that the $10,000 from Don would be worth more than $400 million today.

Another manager said that for Buffett's birthday, he gave him a few shares of his family's stocks "just so he'd get a feel for stocks that went up."

PART 13 -- DESPERATE HOUSEWIVES PART TWO

The woman who had talked about finding the "rich old guy" goes out to get him and bring him back. She goes out to get Buffett but comes back with Munger instead. She likes him better. Munger sits down at the table where they are playing poker and says, "Deal me in." One of them asks, "Did you bring any money?"

------------

ANNUAL MEETING BEGINS AT 9:31 A.M.

Warren Buffett: I'm Warren; he's Charlie. You may wonder why Charlie always gets the girls in these things. It has to do with what I call the Anna Nicole Smith rule. When choosing between two old, rich guys, pick the older one.

QUARTERLY EARNINGS

[Slide showing YOY Q1 earnings]

WB: I would caution you that in insurance, the worst quarter will customarily be the third quarter and, to a lesser extent, the fourth quarter. The first quarter is not normalized. Earthquakes aren't seasonal, but hurricanes are. If we write a one-year policy with a $1 million premium, we recognize $250,000 each quarter, which, in our view, is not proper accounting, but we're required to do it this way, so you can't take our insurance results in a benign quarter [as the first quarter usually is] and extrapolate them.

[GEICO saw huge growth in the first quarter.]

ISCAR AQUISITION

WB: I did not know about it, or its extraordinary management, but I got a page-and-a-half letter from Eitan in Israel. He expressed interest, then I met them, and then they met Charlie. It came to fruition yesterday when we signed the deal. Charlie?

Charlie Munger: Well, this is a company that came from very modest beginnings and rose to be the best in its field. It is not yet the biggest, but that gives it something to do. It is off the chart, and the beauty of this is that [those at the company] are all young. Of course, we are enthusiastic about the company.

WB: Charlie is even more enthusiastic than I am

Editor's note: Iscar management was at the meeting. Jacob Harpaz is president and CEO; Danny Goldman is CFO. Chairman Eitan Wertheimer spoke to the shareholders.

Eitan Wertheimer: I'm standing before you representing 5,689 people, their families, their past, and their future. Someone came to us and asked, "Have you heard about Berkshire and Buffett?" "Yes we have, but we hadn't thought about it. It is the right combination for us . a family company with a strong culture." The real job [of running Iscar] is done by Jacob. We had an interesting lesson from Warren, and then Charlie, and we survived.

We have prepared a film, 61 Days Around the World. We definitely have to fulfill a lot of expectations.

ISCAR VIDEO

Iscar has subsidiaries in 61 countries. Wertheimer: "When you see cars driving, be aware that at least one part in each of those cars is made by an [Iscar] company."

WB: We paid $4 billion for 80% of the company; the family retains 20%. It is the first business that we have purchased outside the U.S., and I think you will look back on this as a very significant event in Berkshire's history.

Editor's note: Buffett likes not buying businesses on auction, and that there is a benefit to screening people who care enough about their business that they "don't put it up at auction like a piece of meat ... because the people are important, the customers are important, the employees are important."

There's much more to come in the days to follow. Be looking for Part 2 of the Berkshire meeting tomorrow on Fool.com.

It's a safe bet that Berkshire Hathaway will never grace the pages ofMotley Fool Inside Value. But Microsoft and Coke already do! Find out which other top-shelf companies are trading at bargain-bin prices by taking a free, 30-day trial to Inside Value today.

Fool contributor Rick Casterline doesn't own shares of Berkshire Hathaway, or of any other company mentioned. The Motley Fool has a disclosure policy.


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