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Berkshire Annual Report 2012 March 4, 2013

Posted by shaferfinancial in Uncategorized.
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My largest holding remains Berkshire Hathaway. It sets the base for my investing portfolio, so I watch it very closely. Of course, I am always amused at how the media react to it.

As reported by the media, net income for the year was up 45% from the previous year. However, much of that was on increases in the derivative values. Income from operations was up 17% year to year. That is a healthy number. As I have mentioned over the last 4 years, Berkshire is a cash flowing machine. On top of that 17% increase is an increase in the float to $73 Billion. Float is money that can be used to invest today that will be paid out in the future for the insurance policies.

Buffet breaks out the business into 4 parts:

Insurance

For the 10th straight year there was an underwriting profit. This profit was $18.6 Billion pre-tax from $2.48B the year before. The aforementioned float was up to $73B. So in short, the insurance business at Berkshire is uniquely profitable and generating that free capital for expansion/investment of $73B. Really couldn’t ask for more.

Regulated Businesses

This is mainly BNSF and MidAmerican Energy. MidAmerican’s earnings rose to $1.32B from $1.2B, while the railroad [BNSF] earnings rose to $3.3B from $2.9B year on year. Solid increases for both.

Retail, Manufacturing, Service

Income rose in this category from $3.0B to $3.7B. They represent $22.6B of assets which earned 16.3% after tax. I will take that too.

Finance and Financial Products

This includes Clayton homes which services mortgages and several other companies. Net income rose to $848M from $774M.

Investments

This area gets the lion share of attention. But it has become a smaller part of the Berkshire picture over the last 20 years. The year end value was $86B up from $77B the year before. The much maligned derivatives have become worth more and more as the indexes they are based on have gone up. If they had to pay out at the end of last year [they actually won’t be settling up until 2018-2024]. it would have cost Berkshire $3.9B, less than the $4.2B they received for them originally.

Buffett increased ownership in what he calls the big 4. Berkshire now owns 8.7% of Wells Fargo, 6% of IBM, 8.9% of Coca Cola [Through stock repurchases] and 13.7% of American Express. Buffett points out that Berkshire received $1.1B in dividends from these 4 companies, yet the share of income was $3.9B.

Total cash at the end of the year was $47B. $12B of that was recently invested in a partnership that will own Heinz Co.

Stock Price

Berkshire’s stock price rose 23% in 2012. It closed today at $152,995 another 9% increase since the first of the year. I will be keeping this stock and perhaps adding on to my ownership in the near future.

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