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March 31, 2015
Investment Style: Multi-Cap Alternative

Top Quarterly Contributors

Martin Marietta Materials is a producer of granite, limestone, sand, gravel and aggregates products for the construction industry. In February, management reported strong aggregates volume growth and price increases across each of its geographic markets and issued robust 2015 guidance. In addition, Martin increased its synergy target for the Texas Industries acquisition from $70 million to $100 million annually and announced a new share buyback plan. If the plan is completed it would represent approximately 30% of the company’s outstanding shares.
Interval Leisure Group is a provider of non-traditional lodging, encompassing a portfolio of leisure businesses from exchange and vacation rental to vacation ownership. Interval’s stock rebounded after the company posted solid quarterly results and issued encouraging 2015 guidance. Revenue per member is rising again as the company anniversaries the four large contract re-pricings from early last year. Management also better articulated plans for its recent timeshare acquisition, raised the dividend and increased its share repurchase authorization.

Top Quarterly Detractors

Cumulus Media is a radio broadcasting company. Cumulus reported lower than expected revenue and earnings, as political advertising revenues were weaker than the company’s expectation. Sales of non-core real estate appear to be taking longer to close than anticipated, though the company believes they remain on track. Furthermore, Cumulus declined to offer first quarter 2015 guidance, adding additional uncertainty to the mix.
Berkshire Hathaway is a conglomerate holding company owning subsidiaries engaged in a number of business activities. Troubles at Berkshire’s BNSF Railroad subsidiary which has been plagued with congestion, confusion and delay caused some disappointment despite continued strong results in Berkshire’s Insurance units. BNSF is spending aggressively to fix its problems and remains a premier railroad in an excellent industry.

Top Fiscal Year Contributors

Valeant Pharmaceuticals International is a specialty pharmaceutical and medical device company that develops, manufactures, and markets a range of generic and branded generic pharmaceuticals, over-the-counter products and medical devices. During an eventful fiscal year, Valeant’s strong underlying business performance carried the day as the company battled Allergan’s aggressive negative public relations campaign. Valeant’s dermatology business performed well ahead of our expectations, driven by broad-based strength across its portfolio as well as the successful launch of fungal treatment Jublia. In February, Valeant announced a definitive agreement to acquire Salix Pharmaceuticals for slightly over $15 billion. We anticipate Salix earning attractive high teens returns for Valeant over time. The combination of healthy double-digit organic sales growth and falling acquisition-related cash restructuring expenditures drove a noticeable increase in excess cash generation, creating the capacity for the company’s transaction with Salix.
TransDigm Group is a designer, producer and supplier of engineered aircraft components for use on commercial and military aircraft in service. TransDigm enjoyed a strong year, capped by the acquisition of Telair Cargo Group from AAR Corp. The company’s core commercial aftermarket business generated healthy double-digit organic sales growth, fueling the cash flow engine that has proven to be a valuable shareholder wealth creator over time. The Telair deal looks tailor made for TransDigm, boasting a high percentage of proprietary, sole source aerospace components and systems with significant and reliable replacement demand.
Liberty Global through its subsidiaries provides video, broadband internet, fixed-line telephone and mobile services across 14 countries. Liberty Global announced solid operational results in the Big 5 geographies: UK, Germany, Switzerland, Belgium and The Netherlands; and successfully closed the acquisition of their largest cable competitor in Holland, Ziggo. Additionally, Virgin Media in the UK (a subsidiary of Liberty Global as of June 2013) announced “Project Lightning.” Virgin intends to invest 3 billion pounds to connect four million additional homes to its network resulting in broadband speeds substantially faster than telco-based competitors. We believe the project represents a very good use of capital and should generate attractive future returns.

Top Fiscal Year Detractors

Cumulus Media In addition to the political advertising challenges, Cumulus has seen declining ratings in four of its larger markets as these stations undergo generational transitions in on air talent. Such transitions are inevitable and management has successfully handled such changes in the past. Additionally, as advertisers have flocked toward digital and online platforms, investors fear that radio will disproportionately lose wallet share. Overall listening hours, however, have remained stable and we believe radio will continue to be a cost effective advertising medium, particularly for local businesses.
Avon Products is a manufacturer and marketer of beauty and related products. Last year, investors became quite concerned by worse-than-expected results in the company’s North American business as well as missteps in Brazil, which is Avon’s top market. Later in the year Avon demonstrated some progress in its long turnaround, but worries over the transactional impact of the rapid rise of the U.S. dollar against the Brazilian Real and the Russian Ruble erased the positives from the operational improvement.
Range Resources is a Texas-based independent natural gas, natural liquids, and oil company engaged in the exploration, development and acquisition of primarily gas properties. Falling domestic natural gas and natural gas liquids (NGL) prices in addition to regional oversupply in the northeast portion of the United States continue to be stiff headwinds for Range Resources in the near-term. Absent a demand shock from a worsening U.S. economy, we expect the present supply/demand imbalance will work itself out over the next 18-24 months. In the interim, we believe Range will continue to grow per share production and reserves in a highly capital efficient manner.

New Positions This Quarter

No new positions were added in the first quarter of 2015.

Positions Eliminated This Quarter

Allison Transmission We sold Allison at a gain as we were not able to build a meaningful position during October’s decline, and the stock rebounded quickly.
Motorola Solutions We sold our modest holdings in Motorola Solutions as portfolio manager conviction was not strong enough to build a core position.
As of 3/31/2015: Martin Marietta Materials comprised 3.0% of the Weitz Partners III Opportunity Fund's net assets; Interval Leisure Group 2.5%; Cumulus Media 0.5%; Berkshire Hathaway 7.6%; Valeant Pharmaceuticals International 4.6%; TransDigm Group 5.0%; Liberty Global 6.9%; Avon Products 2.4%; Range Resources 1.4%; Allison Transmission 0.0%; Motorola Solutions 0.0%.
Investors should consider carefully the investment objectives, risks, and charges and expenses of the Fund before investing. The Fund's Prospectus contains this and other information about the Fund and should be read carefully before investing. Portfolio composition is subject to change at any time and references to specific securities, industries, and sectors referenced in this letter are not recommendations to purchase or sell any particular security. Current and future portfolio holdings are subject to risk.
Weitz Securities, Inc. is the distributor of the Weitz Funds.