01—Abstract
Summary
Summary of the 10-K filed February 27, 2012. Cited figures are marked; the original filing is the authoritative source.
Berkshire Hathaway's 2011 annual report highlights a strong financial position characterized by diversified operations across insurance, railroads, utilities, manufacturing, service, and retailing sectors.
The company demonstrated robust revenue growth driven by its insurance businesses, particularly GEICO and its reinsurance operations, alongside the significant contribution from the recently acquired BNSF railroad. Despite facing challenging economic conditions and a notable increase in catastrophe losses affecting underwriting results, Berkshire Hathaway maintained its commitment to financial strength and long-term value creation. The report emphasizes the company's decentralized management structure, its substantial capital base, and its focus on disciplined capital allocation.
Key financial metrics indicate solid performance, with significant investment income generated from the "float" provided by its insurance operations. The company also initiated a share repurchase program, signaling confidence in its intrinsic value and commitment to returning capital to shareholders when opportunities arise at attractive valuations. Investors can take comfort in Berkshire Hathaway's enduring financial strength, diversified business model, and consistent management philosophy under Warren Buffett.
The company's ability to generate substantial investment income from its insurance "float" and to deploy capital effectively across its various subsidiaries positions it well for continued long-term success. However, potential investors should remain aware of the inherent risks in the insurance and derivative businesses, as well as the concentration of key management personnel.
02—Key points
Key Highlights
- Berkshire Hathaway reported strong overall financial performance with diversified revenue streams from its insurance, railroad, utilities, manufacturing, service, and retailing segments.
- Insurance underwriting results were impacted by significant catastrophe losses, but "float" from insurance operations continued to generate substantial investment income.
- The acquisition of BNSF in early 2010 significantly contributed to the company's revenue and earnings in 2011, solidifying its position in the railroad sector.
- The company maintains exceptional capital strength in its insurance subsidiaries, with Standard & Poor's rating of AA+ and A.M. Best rating of A++ (Superior).
- Berkshire Hathaway initiated a common stock repurchase program in September 2011, allowing repurchases at prices up to a 10% premium over book value, demonstrating management's confidence in the company's intrinsic value.
- Significant investments were made in The Lubrizol Corporation in 2011, a specialty chemical company, further diversifying the company's manufacturing and service portfolio.
- The company continues to manage its derivative contracts, including equity index put options and credit default contracts, recognizing the potential for significant future gains or losses.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2011filed February 27, 2012Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Revenue | $143.69B$136.19B | +5.5% |
| Operating Expenses | $128.37B$117.13B | +9.6% |
| Operating Income | $17.18B$17.27B | −0.5% |
| Net Income | $10.25B$12.97B | −20.9% |
| Shares Outstanding (Basic) | 1.65M1.64M | +0.9% |
05—Questions
Frequently Asked Questions
What was Berkshire Hathaway's overall financial performance in 2011?
Berkshire Hathaway reported net earnings attributable to Berkshire Hathaway of $10.25 billion in 2011, a decrease from $12.97 billion in 2010. This decrease was primarily due to significant catastrophe losses in the insurance underwriting segment and substantial non-cash losses from equity index put option derivative contracts, partially offset by strong performance from BNSF and other manufacturing and service businesses.
How did the BNSF acquisition impact Berkshire Hathaway's financial results?
The acquisition of Burlington Northern Santa Fe (BNSF) Corporation, completed in February 2010, had a significant positive impact on Berkshire Hathaway's 2011 results. BNSF's revenues and operating earnings were fully consolidated, contributing substantially to the company's overall revenue and earnings, particularly in the Railroad, Utilities and Energy segment.
What is the significance of "float" for Berkshire Hathaway's insurance businesses?
"Float" refers to the net liabilities of Berkshire's insurance businesses that are available for investment. In 2011, this float approximated $70 billion. Berkshire generates investment income from these funds, and the company aims to achieve a net underwriting gain or loss that is either positive or minimal, effectively making the cost of this float very low or even negative, which benefits overall investment returns.
What are the key risks identified by Berkshire Hathaway for 2011?
Berkshire Hathaway identified several key risks, including the potential for significant underwriting losses due to its high tolerance for risk in its insurance businesses, estimation errors in property and casualty loss reserves, concentration and fair value fluctuations in its equity investments, potential losses from derivative contracts, and dependency on key personnel (Warren Buffett and Charles Munger) for major investment and capital allocation decisions.
Has Berkshire Hathaway repurchased its own stock?
Yes, Berkshire Hathaway announced a common stock repurchase program in September 2011, authorizing the repurchase of Class A and Class B shares at prices no higher than a 10% premium over book value. Share repurchases were considered insignificant during the period reported, with the program expected to continue indefinitely based on cash availability and valuation attractiveness.
06—Continue