Berkshire Hathaway Inc. Q1 2013 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2013. Berkshire Hathaway Inc. operates as a diversified holding company with major segments in Insurance, Railroad (BNSF), Utilities and Energy (MidAmerican), Manufacturing, Service, Retailing, and Finance. The company reported strong liquidity and significant gains in underwriting and investment activities for the quarter.
Key Financial Metrics
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Total Revenues | $43,867 million | $38,147 million |
| Net Earnings (Attributable to Berkshire) | $4,892 million | $3,245 million |
| Net Earnings Per Share (Class A equiv.) | $2,977 | $1,966 |
| Operating Cash Flow | $6,055 million | $4,650 million |
| Cash and Cash Equivalents (Total) | $49,089 million | $37,826 million |
| Total Shareholders' Equity | $202,106 million | $191,588 million |
| Total Debt (Notes Payable & Borrowings) | $63,249 million | $62,736 million |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 15% year-over-year, driven by higher premiums earned, increased sales in manufacturing/retail, and significant investment/derivative gains.
- Profitability: Net earnings attributable to Berkshire rose 51% to $4.89 billion. This was largely fueled by a $1.11 billion net gain from investments and derivatives, compared to $580 million in Q1 2012.
- Underwriting Performance: The insurance group generated a pre-tax underwriting gain of $1.39 billion, a massive improvement from the $85 million gain in Q1 2012. This was due to no significant catastrophe losses and favorable foreign currency impacts.
- Investment Portfolio: Equity securities fair value increased to $95.88 billion (from $86.47 billion), reflecting market appreciation. Unrealized gains on equity securities totaled $46.2 billion.
- Derivatives: Derivative gains were $1.21 billion, primarily from equity index put options, compared to $1.00 billion in the prior year.
Outlook, Risks, and Contingencies
- Heinz Acquisition: Berkshire and 3G Capital entered a definitive agreement to acquire H.J. Heinz Company for approximately $23.25 billion. Berkshire committed $12.12 billion ($4.12 billion common, $8 billion preferred). Closing is expected in Q2 or Q3 2013 pending regulatory approval.
- Capital Allocation: The company maintains a stock repurchase program (up to 20% premium over book value) but made no repurchases in Q1 2013. Management prioritizes maintaining cash equivalents above $20 billion.
- Derivative Risks: Significant exposure remains in equity index put options and credit default swaps. While no new contracts have been written since 2008/2009, fair value changes cause earnings volatility. Collateral posting requirements are currently minimal ($10 million) but could rise to $1.1 billion if credit ratings are downgraded below A-.
- Regulatory Environment: The Dodd-Frank Act continues to reshape financial regulations, though management does not currently expect a material impact on consolidated results.
Investor Verification Checklist
- Heinz Deal Status: Monitor regulatory approvals and closing timeline for the $23.25 billion Heinz acquisition.
- Derivative Valuation: Review the sensitivity of the $6.7 billion derivative liability to changes in equity market volatility and credit spreads.
- Insurance Reserves: Assess the stability of the $64.3 billion in unpaid loss reserves, noting that small percentage changes can materially impact earnings.
- Cash Deployment: Track the $49 billion cash balance to determine if it will be deployed for acquisitions, dividends (none currently), or share buybacks.
- OTTI Losses: Note the $85 million other-than-temporary impairment loss on Texas Competitive Electric Holdings bonds and monitor for further credit deterioration in fixed income holdings.