Peninsula Capital Advisors, LLC R. Ted Wechsler Managing Partner 404B East Main Street, 2nd Floor Charlottesville, Virginia 22902 Telephone: (434) 297-0816 Telecopier: (434) 220-9321 E-mail: rtw@pencapital.com December 13, 2011 On December 15th, Peninsula will be distributing your pro-rata share of Peninsula's securities portfolio. In a separate letter, we have provided a schedule delineating the number of shares (and their associated tax basis) that you will be receiving. The purpose of this letter is to provide an overview of the companies in which you will become a direct owner effective December 15th. First off, I thought it would be helpful to repeat my rationale for distributing securities (as opposed to cash) as originally shared with you in my September 12th letter announcing the dissolution of Peninsula: "...based on my long-term perspective on the companies held in the portfolio, it is likely that the vast majority of your partnership investment will be distributed by year-end in freely-tradable securities that presently comprise the Peninsula portfolio. This method appears best for all the partners, in that it: 1. Allows you to generally maintain your pro-rata share of some of the terrific businesses we have built meaningful ownership positions in – although they will surely move up and down (sometimes significantly). I believe they are businesses whose equity will likely continue to appreciate as time goes by. While I would generally suggest that any securities distributed to you are suitable for the 'you can forget about them for five years' bucket, their liquidity and free tradability will provide flexibility should that not be your preference. 2. For those of you who are subject to U.S. taxes, it offers you the option of choosing when you trigger the tax liability associated with each position. As you know, most of Peninsula's appreciation over the years has been of the 'unrealized' variety, i.e., it has not triggered any current tax liability. By distributing primarily securities at Peninsula's termination, we allow much of this tax deferral to continue as long as you hold your stock. A necessary by-product of this is that the stock you receive will have a very low tax basis, so if and when you sell some of the stock you receive, most of your cash proceeds will be taxable at that point – though unless the tax code changes substantially, those gains will be taxed at the relatively more attractive long-term capital gains rates.
3. It avoids the need to sell shares at valuations where I would much prefer to be a buyer. My goal is to turn over to you a reasonably diversified portfolio comprised of pieces of companies that December 13, 2011 I view as having a high likelihood of out-performing most asset classes over the next five years. The fact that this portfolio will no longer be encumbered by Peninsula's not-insignificant fees should only increase the likelihood of the distributed portfolio outperforming the broad market." The fund's activity over the past three months has resulted in a portfolio containing a mix of businesses which serve a broad array of customer bases across a range of different geographies. Putting myself in your shoes, there are a few observations I think are appropriate: 1.) I have never been good at picking stocks over less than a one-year horizon – in fact, I have always guided toward measuring success or failure over a three-year period. Along these lines, the 8 individual stocks you are receiving can change in value substantially (up or down) over any given time period, but the likelihood of their value appreciating increases based on your investment horizon, i.e., the longer your expected holding period, the higher the likelihood of increased value. 2.) Many financial pundits view stocks as inherently risky, and they are. That said, they are not necessarily more risky than other "safe" assets, e.g., U.S. Treasury bonds. As an example, the U.S. government can currently borrow money for 10 years at roughly 2% annual interest rates. If you chose to lend the government $100 for 10 years at 2% and interest rates suddenly shifted (e.g., due to inflation) to 10%, the value of your $100 "safe" investment would fall by half. Companies can be adversely impacted by things like inflation as well, but businesses are generally in a much better position to evolve and adapt to outside influences (like inflation), while a Treasury security is simply a contract with no ability to adapt. 3.) One of the key roles I've played at Peninsula on your behalf over the past 12 years is resisting the temptation to sell – doing nothing can run counter to a serious work ethic, but in the world of investing it can be a very effective strategy in that it: i.) minimizes transaction costs, ii.) minimizes taxes, and iii.) respects the fact that as a practical matter, market timing is a fool's errand.
The above is effectively a long-winded response to a question I've received many times: What are you doing with the securities you are receiving? As implied by the above, I intend to do nothing, as I am comfortable with the long-term prospects of each of Peninsula's positions – no guarantee of success and certainly a guarantee of lumpy returns, but a strategy that in my view is likely to deliver the best outcome over a 5-plus-year horizon. That said, you need to determine the best course for your own holdings based on your own situation, and for that matter my intentions may change depending on future facts and circumstances. To help you evaluate the securities you will be receiving, we have attempted in this letter to pull together some high-level background information on each of the companies. We have also attached some brief statistical information on each of these companies, and will make further information, including Wall Street research and company presentations, available to you if so desired. The attached company profiles do a nice job of describing the business of each portfolio company, as well as laying out their historical financial information. My comments in this letter will be limited to describing why I believe the individual companies will outperform the broad market over the long-term. December 13, 2011 W. R. Grace & Co. (GRA) – 49% of Portfolio: I have been involved with Grace for over 28 years, having started my career there right after college in 1983. Peninsula first began accumulating a position in the company in October 2000. At the time, Grace was a profitable business but was encumbered by over 100,000 claims associated with alleged injury caused by exposure to asbestos in some of its previously-manufactured products. We built our position with a view that the market was excessively penalizing the company for its asbestos exposure. In April 2001, Grace filed for bankruptcy protection. The bankruptcy proceeding provided a common venue for litigating Grace's asbestos liability, i.e., instead of fighting asbestos cases in dozens of venues, bankruptcy provided a basis to estimate the asbestos liability in the Delaware bankruptcy court. As part of the bankruptcy, we petitioned the U.S. Trustee to name an Equity Committee in the Grace bankruptcy. Generally there is a presumption that the equity is worthless when a company files for bankruptcy, but in this case we argued, with the support of the company, that in order to determine whether Grace's equity was worthless or not, a determination had to be made as to the estimated value of the asbestos liability.
The U.S. Trustee agreed that formally recognizing an Equity Committee (and having its legal bills paid by the Grace estate) was appropriate, and the undersigned was elected Chairman of that committee. Over the last 10 years, dozens of issues have been litigated in the Grace bankruptcy, and ultimately an estimate of Grace's asbestos liability was agreed to and stipulated in a plan of reorganization. While the company worked its way through bankruptcy court, its business continued to grow both organically and through two dozen bolt-on acquisitions executed by the company during the bankruptcy. The company's earnings before interest, taxes, depreciation and amortization (EBITDA) grew from roughly $300 million in 2000 to roughly $600 million for the current calendar year. In January of this year, the bankruptcy court approved Grace's plan of reorganization, but due to several pending appeals, the company has yet to formally emerge from bankruptcy. All appeals to the plan of reorganization were briefed and tried this summer, and we are presently awaiting the District Court judge's ruling in the case. The company is guardedly optimistic that it can emerge from bankruptcy in 2012. The plan of reorganization provides for the company's common stock, i.e., the securities Peninsula owns, to be unaffected by the bankruptcy. Details of the bankruptcy plan and potential impacts on the common stock are nicely detailed in the attached analyst report issued by Jefferies & Co. in June 2011. The long-term prospects for Grace's businesses are very good. Grace's largest business sells cracking catalysts used to break crude oil into its highest and best uses through the refining process. This business benefits from two significant long-term trends: ever-increasing global oil consumption (more oil refined drives more catalyst demand) and an increasing proportion of "dirtier" crude oil being processed ("dirtier," or higher-sulfur, crudes consume more catalyst per barrel than their "sweet" counterparts). December 13, 2011 As part of accepting my new assignment with Berkshire Hathaway, it was agreed that I will remain active as Chairman of the Grace Equity Committee as long as it takes for Grace to fully emerge from bankruptcy. DaVita (DVA) – 15% of Portfolio: DaVita is the second-largest provider of dialysis services in the United States, with a roughly 30% market share. Dialysis is a three-times-weekly cleansing of the blood for individuals who have lost kidney function. Peninsula began to build its position in DaVita in February 2000, almost 12 years ago.
I have closely followed the dialysis industry since 1984, when I was an analyst at Grace working on the acquisition of National Medical Care. National Medical Care was spun-off by Grace in 1996 and simultaneously renamed Fresenius Medical Care – both then and now, it is the biggest dialysis provider in the U.S. with approximately 35% market share. DaVita benefits from several positive attributes: - An outstanding management team headed by the same CEO for the past 12 years. - A very efficient delivery model. - It provides a life-sustaining therapy: DaVita's patient customers cannot live without the therapy the company provides, creating a very stable, recession-resistant business model. - 4 to 5% average annual increases in patient count, driven by increasing life expectancy for those already on dialysis and supplemented by incremental patients requiring dialysis services: As the incidence of obesity increases in the United States, so does the incidence of hypertension, a leading driver of diabetes, which in turn is a major driver of end-stage renal disease, the disease state requiring dialysis. - A pricing umbrella created by smaller, less-efficient providers: Many of the smaller dialysis providers operate at or near breakeven, so any major reductions in reimbursement by the Federal government or private insurers could have the effect of forcing smaller providers out of the market – a very unachievable and therefore unlikely outcome from a policy standpoint. - Thoughtful and active capital management: The company has reduced its shares outstanding from 128 million to 95 million over the past 12 years through timely repurchases of its equity. - Significant growth opportunities through both international expansion (started in 2011), as well as providing a higher percentage of the healthcare needs of its patient base. When I was in the leveraged buyout (LBO) business, when we explained buyouts to prospective management teams, we told them there were three ways to increase the value of their equity stakes: i.) increase EBITDA, ii.) pay down debt, and iii.) get the market to apply a higher multiple of the company's EBITDA than paid initially in the LBO transaction. With public companies, the above three value-creating methodologies still apply, with the addition of an important fourth: Through active capital management, repurchase shares at less than their intrinsic value. I expect all four of these methodologies to be working in our favor at DaVita over the foreseeable future.
DirectTV (DTV) – 8% of Portfolio: December 13, 2011 DirectTV provides satellite-delivered multi-channel video to over 30 million households throughout the United States and Latin America (including via an unconsolidated joint venture in Mexico). Unlike its cable competitors, DirecTV benefits from being able to broadcast television signals to the entire U.S. from one satellite (although it operates several), eliminating the need to lay and maintain thousands of miles of cable plant. This model delivers high capital efficiency and very high after-tax returns on capital relative to its cable counterparts, generating cash flows substantially in excess of its internal operating needs. In the United States, DirecTV is a relatively mature business, and many market prognosticators view it as a sub-optimal business because its only product is video, i.e., DirecTV cannot provide the high-speed data service that its cable competitors can. That said, DirecTV has taken its U.S. subscriber base from 16.8 million in 2007 to 19.8 million today in a relatively stagnant overall market for pay television, i.e., DirecTV has been taking market share. The long-term appeal of DirecTV lies in the combination of its Latin American franchise and its active capital management. Unlike the United States, countries like Brazil do not have a robust cable plant. With the strong economic growth of the last several years in Latin America, the demand for pay television has grown tremendously and DirecTV has taken more than its fair share – in the last 12 months, DirecTV has added 2.9 million subscribers, or roughly 40% of all incremental pay TV subscribers in Latin America (including Mexico) over that time period. With pay television penetrating approximately 20% of households in Brazil, compared to 70% in Argentina and over 90% in the U.S., the growth trajectory in Brazil and other lesser-developed countries in the region is expected to continue through the end of this decade. The company is led by an exceptionally able management team, including its CEO Mike White who was both CFO of Pepsi and CEO of Pepsi's international operations – a rare executive who has strong finance, operational and branding experience. Given the excess cash flow the company generates (in 2012, it is expected to throw off more than $3.0 billion of cash in excess of its capital needs), it has been an aggressive purchaser of its own stock, having reduced its share count from 1.39 billion shares at year-end 2005 to less than 700 million today. The company trades at a 10.3x multiple of 2012 free cash yield, implying a 9.7% cash yield, while it borrows in the public marketplace at less than a 3% after-tax cost. The company's capital management strategy is very straightforward: it will just barely maintain an investment grade rating on its debt, levering its EBITDA 2.5-to-1 and utilizing excess cash from operations and incremental debt capacity from its growing EBITDA to continue to repurchase stock at a rate of $100 million a week for the next several years. If the company meets Wall Street's growth expectations (which I consider highly likely given the Latin America exposure) and continues its capital management program, it will either run out of shares in the next 5 years (admittedly an impossibility) or its stock price will begin to reflect the cash-generating potential of the business.
Valassis Communications, Inc. (VCI) – 7% of Portfolio: Valassis is a marketing services company with historic roots as a leader in the free-standing insert (FSI) business – the annoying (but highly read) supplements that fall out of the Sunday paper. A little over 3 years ago, Valassis acquired a company called ADVO, a leader in direct mail marketing. Between the FSI December 13, 2011 and direct mail businesses, VCI is the largest distributor of manufacturer coupons in the U.S. I view VCI as a business with very attractive cash production qualities – it will generate roughly $315 million of EBITDA in 2011 with less than $90 million of capital expenditures. The current market value of the company is roughly $950 million and net debt is a little less than $500 million, for a total enterprise value (the sum of the equity plus net debt) of $1.45 billion – yielding a total enterprise to EBITDA multiple of 4.6x. Further, after accounting for taxes, interest and capital expenditures, Valassis expects to generate approximately $4/share of free cash flow in 2012, implying a free cash flow yield on the stock of over 18%. VCI is perceived as a dying business, declining alongside the newspaper industry. Although the FSI business is declining as newspaper circulations decline (and the company generates no EBITDA from this business, as best as I can tell), the direct mail business is actually getting stronger. One of the themes that has played out over the past 30 years is "fragmentation of media." Thirty years ago, if you were a packaged goods company and wanted to launch a new product, you could pretty much assure yourself of getting in front of the vast majority of Americans simply by buying advertising on the three leading television networks, supplemented by print advertising in the local paper. Fast forward to today, and the three legacy television networks only control 27.5% of the television viewing, competing with dozens of cable channels as well as the internet. Newspaper readership has declined, and advertising in the packaged goods company is just as hard to arrange an advertising purchase that gives you "reach," i.e., covers most homes. Because of this fragmentation, events that do deliver reach (like the Super Bowl) have seen their advertising rates increase faster than the rates for other advertising mediums. As the largest provider of direct mail in the U.S. possessing a database that covers virtually every housing unit in the United States, VCI is in a unique position to deliver reach – if you want to advertise to every home in a given zip code, VCI is the company for you. Data from the company shows that there is actually a strong correlation between declining newspaper circulations and increased demand for the direct mail product, i.e., the lower the household penetration of the local newspaper, the higher the demand for the direct mail product. Better yet, the gross margin associated with VCI's direct mail product is roughly 3x the gross margin of the declining FSI business.
From a capital management standpoint, VCI has been and continues to be an aggressive repurchaser of its stock, having retired 10% of its shares over the last 12 months. Attractively valued businesses (read: cheap) can stay attractively valued for a long time, but if the management of these businesses takes advantage of the attractive valuations by shrinking the share base, the upside will all the greater for the smaller share base remaining once the market wakes up to the inherent value of the business. I believe this will be the case with Valassis. Liberty Media Corporation (LMCA, was LCAPA prior to 11/29/11) – 6% of Portfolio: Liberty Media represents a diverse collection of excellent, appreciating media assets, run by a top-notch management team, under the direction of Gregory Maffei, who is adept at proactive, tax-efficient capital management. The mix of assets includes a 40% ownership of Sirius XM Radio, the only satellite-delivered radio product in the U.S., serving over 20 million listeners and growing; Starz, a distributor and producer of pay television content; a mix of publicly-traded securities accumulated from various tax-efficient transactions over the past decade, as well as strategic positions acquired more recently; a mix of private company assets (including full ownership of the Atlanta Braves baseball team); and approximately $2.3 billion of cash (net of debt) on its balance sheet. December 13, 2011 LMCA closed on Friday, December 9th at $75.24/share. We value the assets of the business as follows: Valuation Method $ per LMCA share Sirius XM Market 35.72 Other Public Securities Market 16.67 Starz 5x EBITDA 25.38 Other Private Assets various 6.83 Net Cash Par 15.07 TOTAL: 99.67 As you can see above, the assets comprising LMCA have an estimated market value of $99.67, or 32% higher than the current stock price. Some of this difference can be explained by potential tax liabilities associated with some of the underlying assets, as well as potential share count dilution emanating from stock option plans or potential value migration to Class B stock held by the management team (we own Class A shares). That said, the discount is too large in my view and the stock delivers a very attractive way to invest in a well-managed media fund at a sizeable discount to the fund's current net asset value. Specific positive attributes of LMCA include:
- A particularly attractive central asset in the form of an effective controlling stake in Sirius XM, a business that resulted from the merger of Sirius and XM Radio over three years ago. Given the combination of two previous competitors, the new company offers the uncommon combination of increasing customers, increasing revenues per customer (they have not raised their prices in roughly 10 years and have been precluded from doing so by the FCC since their merger – a precluding which ends on January 1, 2012), declining content costs, and declining ongoing capital expenditures. Additionally, Sirius is in a good position to benefit from a rebound in new car sales. Even as more than 40% of people who sample Sirius product in new cars become subscribers. Lastly, Sirius accumulated an $8 billion net operating loss for tax purposes during its start-up phase, guaranteeing very low tax payments for the foreseeable future. - A well-connected, nimble management team that has the balance sheet of LMCA behind it – this combination effectively ensures that virtually every potential deal in the media investment space is shown to them. - Excellent capital allocation – all incremental investments are weighed against the potential to repurchase LMCA shares. Given the discount to Net Asset Value at which LMCA trades, this provides an appropriately high bar for new portfolio investments. The company has repurchased over 40% of its shares over the period March 2008 through September 2011. - Although the stock is volatile, I view it as particularly defensive when considered over a multi-year horizon, i.e., given the substantial liquidity the company possesses, a severe stock shock like 2008 can prove very attractive to long-term shareholders as that kind of shock typically delivers the best investment opportunities for a company and management team like LMCA. As a result, LMCA December 13, 2011 would get hit like everything else, but would also stand a higher likelihood of coming out the other side of the shock in better shape than it went in. WSFS Financial Corp. (WSFS) – 6% of Portfolio: WSFS is a 179-year-old bank headquartered in Wilmington, Delaware. In 1992, the company came very close to being closed by regulators, but a combination of proactive management, shareholders, directors and regulators allowed the company to raise additional capital and earn its way into regulatory compliance in the 1990s. I got to know the company and management team in 1992 when I was approached about a potentially investing in a rights offering for the bank. The firm I was with at the time, Quad-C, became a 24.9% shareholder, and I became a director of the institution. I have been on the Board for 17 of the past 19 years, having exited the board in 2007 after Peninsula sold its previous position in the bank, but rejoining in 2009 when Peninsula made a negotiated investment of $25 million into the bank to buttress its capital position in the dark days of the 2008/2009 banking crisis.
WSFS is the largest independent bank headquartered in its home state of Delaware. Its long-time, larger Delaware rival, Wilmington Trust, was acquired by M&T Bank of Buffalo, NY (and rebranded in the Delaware market as M&T) after substantial problems in Wilmington Trust's commercial lending operation came into focus in 2010. The dislocations created by Wilmington Trust's difficulties have delivered a meaningful opportunity for WSFS to take market share. The company possesses a truly outstanding management team and corporate culture as evidenced by its being chosen three years running as the "#1 Top Workplace in Delaware" by the local newspaper, The News Journal. WSFS has a little more than $4 billion in assets, a size that I consider particularly attractive for the next decade: it is large enough to benefit from economies of scale, yet small enough to maintain a local feel, and perhaps most significantly, well below the arbitrary $10 billion asset size that appears to be attracting incremental regulations and incremental capital requirements. Well-managed banks with deep local focus and knowledge have the ability to compound capital at attractive rates for decades to come, and WSFS fits this mold. Cogent Communications (CCOI) – 5% of Portfolio: Peninsula has held a position in Cogent since 2008, although it is a company I have followed closely since 2001. Curiously enough, we got to know Cogent by being on the opposite side of the table in bondholder litigation from Cogent's founder and CEO, Dave Schaefer. Peninsula had been an investor in the bonds of a company called Allied Riser Corporation – we had invested in the bonds at 50 cents on the dollar when the company had roughly 75 cents on the dollar of unencumbered cash on its books and appeared to be heading toward a negotiated liquidation – a "can't lose" bet. Dave Schaefer had other ideas. He saw an opportunity to acquire the equity of Allied Riser in such a way that he could keep our bonds outstanding while accessing Allied's substantial cash to build and acquire other businesses for Cogent. The bondholders of Allied (Peninsula included) challenged Dave's view in Federal Court, and suffice it to say Dave killed us in a methodical, thoughtful and respectful way. I took two lessons away: 1.) there's no such thing as a "can't lose" (unfortunately, I've learned this more than once), and 2.) I made a mental note that I wanted to invest alongside Dave Schaefer some day.
Dave went on to use the Allied Riser acquisition to help drive further acquisitions of telecommunication network assets, and ultimately acquired assets with an original cost in excess of $4 billion for roughly a penny on the dollar. He has since integrated these assets into an all-fiber-optic network comprised of December 13, 2011 54,500 miles of inter-city fiber and 16,600 miles of Metro (in-city) fiber, and has interconnect agreements with other global networks that have allowed Cogent to become a leading provider of internet connectivity in the world – in fact, 17% of all internet traffic is carried over Cogent's network, quite a feat, for a company with a total enterprise value of less than $1 billion. Cogent's business model is simple: it sells a commodity – connectivity to the internet – and its competitive advantage is price – it won't be undersold. Given that the marginal cost of the product is selling is very close to zero, this strategy has proven quite successful, with the company experiencing 26 consecutive quarters of sequential organic revenue growth and ever-increasing operating margins. Cogent has publicly stated it believes it can continue to grow its EBITDA by 10 to 20% per year for the foreseeable future, while expanding its EBITDA margin from 34% presently to over 50% at maturity. The company's stock closed on Friday at $17.13, implying a 10.1x multiple of trailing EBITDA, and although not cheap, that is a reasonable multiple for a company with its likely growth trajectory. Further, Dave Schaefer has proven to be an outstanding capital allocator, raising debt capital when it has been abundant and cheap, and repurchasing both bonds and stock when market opportunities have presented themselves. Cincinnati Bell, Inc. (CBB) – 3% of Portfolio: CBB is the incumbent local exchange carrier (ILEC) serving Cincinnati and other smaller Ohio markets. CBB offers customers traditional wireline telephone access, wireless communications, high-speed data and video services. In the past two years, CBB has begun to allocate its prodigious excess cash flow to the data center business, where CBB aims to be the destination for large enterprise clients that want to outsource their data needs, i.e., instead of having dedicated computer storage and access at corporate headquarters, more and more companies are opting to use shared facilities for this mission-critical operation.
I characterize CBB as a publicly traded leveraged buyout – it has a stable but declining core wireline business, and an underappreciated, high return on capital, high-growth emerging business. The stable core business and its long-term positive reputation in the capital markets have allowed the company ready access to reasonably-priced public debt. As of September 30, 2011, the company had debt of excess to reasonably-priced public debt. As of September 30, 2011, the company had debt of approximately $2.5 billion against trailing EBITDA of $520 million, or 4.8x leverage. Although a heavy debt load, the amortization schedule is quite attractive with over 80% of the debt maturing in 2017 or later. The stock closed Friday, December 9th at $3.07, implying an equity value of $600 million and total enterprise value of $3.17 billion, or 6.1x EBITDA. Unlike most ILECs, CBB has chosen not to pay a dividend but rather to use its excess cash flow (approximately $180 million annually before growth capital expenditures) to invest in expansion initiatives like the data center business and to selectively repurchase stock – a strategy I find attractive from a tax- efficiency aspect, in that one of the adverse effects of dividend payments is that they force tax liability on their recipients, while more thoughtful redeployment of capital can add growth and defer capital gains. Adding to the tax efficiency of the business is a $1.1 billion net operating loss carry-forward, which will shield the company's income from taxes for several years to come. My view on CBB is that the business, coupled with a capable management team, has the ability to transform itself from a slow-growth/declining telephone company (typically valued by the market at 5 to 6x EBITDA) to a growing data center company (typically valued by the market at 9x EBITDA or higher). Although leverage is a double-edged sword, its use here, coupled with valuable tax attributes, set the stage for LBO-like returns (again, with risk), with the potential in my view to deliver 3 to 5x the current stock price over the next 3 to 5 years. December 13, 2011 As Will Rogers once said, "If the world comes to an end, I want to be in Cincinnati – everything comes there 10 years later." Let's hope the world is not coming to an end any time soon, but just in case, we have our little piece of CBB working for us. In addition to the above and the attached information, we have collected company presentations and selected analyst reports that you may find of interest – this package runs a bit over 500 pages in total for the 8 companies, and given its heft, we are happy to provide it upon request – just let Kirsten (at kls@pencapital.com), Bill (wjb@pencapital.com) or I know and we'll gladly ship them off to you. We also have electronic versions of the documents, and if this format is desirable, we will forward them to you in a series of e-mails (one per company) – again, just say the word.
In closing, I want to express my appreciation for your interest and patience over the years. Peninsula worked because we had a commonality of investment horizon – you as investors soldiered through some pretty ugly markets with nary a whimper (and virtually no requests for liquidation). Managing a concentrated portfolio of securities is a logical way to manage money (why put a dollar in your 11th pick when you could put more in pick number 1, 2 or 3?), but very few people have the benefit of patient capital to make it happen – thank you for that. As always, if you have any comments or questions, please feel free to give me a call. With gratitude,