Recent Annual Report - Gabelli

also agreed to make an investment in United Spirits, the leading spirits producer in India, which if completed
will provide the company with the leading position in another fast-growing emerging market. Over the medium
term, Diageo expects organic top line growth of 6% and 200 bps of margin improvement, leading to double digit
earnings per share growth.
DISH Network Corp. (1.2%) (DISH - $36.40 - NYSE) is the third largest pay TV provider in the U.S., with
approximately 14 million subscribers. As a satellite operator unburdened by local franchising requirements and
wired plant, DISH can market and deliver video extremely efficiently across the entire country. Founder Charlie
Ergen owns approximately 54% of company shares and lends his strategic vision. DISH has accumulated a
significant spectrum position at attractive prices and may enter the mobility market through acquisition or
partnership. Ultimately, we believe DISH could make an attractive acquisition target for a traditional telecom
operator.
Honeywell International, Inc. (2.8%) (HON - $63.47 - NYSE) is a leading producer of avionics, power, and
electronic systems for the aerospace market, process automation, and security products for the industrial,
residential, and commercial building markets. The company also makes turbochargers for the automotive industry
and provides technologies to the energy market. HON has excellent products, a strong balance sheet, and
generates substantial free cash flow that could be used for internal growth, acquisitions, and stock repurchases.
In addition, the company is executing on its long-term strategy to expand in less costly regions of the world, while
reducing costs in more costly countries by closing plants, consolidating facilities, and implementing six sigma and
lean manufacturing. These dynamics should position HON for bigger profitability gains in the future.
Internap Network Services (0.2%) (INAP - $6.94 - Nasdaq) provides IT infrastructure services through twelve
owned and twenty-eight partner data centers in the U.S. The company enables corporate, government and
institutional customers to outsource their computer processing needs in a secure, monitored setting. Internap
has recently expanded its offerings to include a “cloud” solution in which customers can purchase computing
power in a flexible, scalable manner. We believe the strong secular trend toward IT outsourcing underlies the
recent consolidation of data center competitors by large telecommunications providers such as Verizon, Time
Warner Cable, CenturyLink, and Cogeco. We think Internap will benefit from these trends as well as continued
improvement in its own execution.
Xylem Inc. (0.6%) (XYL - $27.10 - NYSE), is a global leader in the design, manufacturing, and application of
highly engineered technologies for the transportation, treatment, and testing of water. The company is
expected to benefit from favorable long term fundamentals in the water industry, driven by scarcity, population
growth, aging of the infrastructure, and the need to improve water quality. Further, with a large installed base
of pumps and systems, the company is well positioned to increase aftermarket revenue, which currently
represents roughly forty percent of total revenues. Xylem’s attractive business mix also generates strong cash
flow, which is expected to support acquisitions, debt service, and dividend growth. While current concerns
regarding weakness in Europe and municipal spending levels in the U.S. are placing downward pressure on
shares, we believe the long-term fundamentals outweigh these concerns.
Investment Scorecard
AMC Networks (+14%) was the largest contributor to returns in the fourth quarter as the company
benefited from a favorable legal settlement with DISH Network and strong ratings for the third season of The
Walking Dead. Likewise, DISH Network (+22%) rose as a result of the AMC legal settlement, FCC approval of
its wireless spectrum purchase, and the announcement of a healthy 2013 price increase. Madison Square
Garden (2.4% of net assets as of December 31, 2012) (+10%) continued to appreciate as the company
completed the second of its three phase MSG arena “Transformation” and the NY Knicks began the year with
the best record in the NBA. Other notable gainers included Intermec (+58%) which announced a long
anticipated acquisition by Honeywell, Ford Motor (0.4%) (+32%), and Tenneco (0.2%) (+15%) which benefited
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