Berkshire News Briefs - 3/18/17

7 Enlightening Lessons From Berkshire Hathaway’s 2016 Annual Report

Just the lesson headings:

Lesson #1 - Book Value is an Imperfect Measure of Intrinsic Value
Lesson #2 – Dilution Destroys Shareholder Value
Lesson #3 – Buffett is Bullish on the American Economy
Lesson #4 – Bargain Hunting Combined with Long Holding Periods Create Substantial Value
Lesson #5 – Share Repurchases Build Value, Regardless of What the Skeptics Say
Lesson #6 – Cheap Leverage is an Incredible Advantage
Lesson #7 – Berkshire Has an Invisible Stake in Bank of America

BNSF agrees to clean up coal, petcoke emitted from rail cars

BNSF Railway Co. will clean up coal and petroleum coke in waterways, fund a study of rail-car covers and pay $1 million for environmental projects in Washington state, according to consent decree filed in U.S. District Court. [...]

Under the decree, BNSF will pay for the cleanup of Pacific Northwest waterways that were polluted by coal or petroleum coke that spilled from open-topped rail cars.

In addition, BNSF will pay $1 million for environmental projects in the Bellingham, Puget Sound, Columbia River and Spokane River areas. The Class I also will clean up areas of the Columbia River and its tributaries that have been littered with coal and petroleum coke from BNSF trains.

Moreover, the decree requires the railroad to fund a study about covers for rail cars carrying coal and petroleum coke. [...]

Additionally, BNSF denies any violations of the Clean Water Act, and the U.S. District Court judge did not find any specific violations. [...]

NV Energy seeks approval for rooftop solar alternative with Apple ties

Recall Berkshire Hathaway Energy subsidiary NV Energy's feud with Solar City over net metering in Nevada from last year...

NV Energy is seeking approval from state regulators for a renewable energy program that is aimed at providing an alternative to rooftop solar via energy sources based in the state, including one in conjunction with Apple. [...]

The Subscription Solar program allows NV Energy customers to subscribe each month to at least 100-kilowatt hour blocks of solar energy generated from within the state. The energy will be provided by the company’s Boulder Solar I facility, which has set aside 10 megawatts for the program, as well as the Techren II facility, which is a joint venture with Apple. The latter has set aside 5 megawatts for the program and will be online by 2019. [...]

The program will allow residential customers and, eventually, small to mid-size businesses to meet as much as 100 percent of their energy needs with renewable energy. NV Energy cited rooftop solar as a key factor in the creation of the program. [...]

KITCO Fiber Optics Joins Marmon Aerospace & Defense LLC

Marmon Aerospace & Defense LLC, a Marmon/Berkshire Hathaway company, today announced the acquisition of KITCO Fiber Optics of Virginia Beach, VA, a highly-respected leader in the specialty, military, and aerospace fiber optic industries. Terms were not disclosed.

While KITCO will continue to operate as an independent business, its products complement those of Marmon Aerospace & Defense. Together, the two businesses will offer defense industry customers unique, focused product and service capabilities for electrical, electronic, fiber optic, and communication solutions. Their collective resources will enable continued growth and innovation for both Marmon and KITCO in service to the U.S. defense industry. [...]

Dairy Queen Celebrates First Day of Spring With Free Cone Day on March 20

Drones have delivered products and pizzas. Now drones are delivering cones – for a good cause. To kick off Free Cone Day on March 20th, which is also the first day of Spring, DQ® enlisted the help of a drone to deliver cones to a few lucky fans. It was the first time the Berkshire Hathaway company has delivered cones by drone. For the rest of us, we can get our free cone at DQ all day on Monday, March 20th. Participating locations also will be collecting donations for Children’s Miracle Network Hospitals, which raises funds to help save and improve the lives of kids treated at 170 children’s hospitals across the U.S. and Canada. [...]

Buffett's pay rises; Berkshire urges rejection of shareholder proposals

Warren Buffett's compensation for running Berkshire Hathaway Inc. edged up 4.0 percent last year to $487,881 reflecting the higher cost of keeping the world's second-richest person safe. [...]

Berkshire said Buffett's salary in 2016 was $100,000, the same amount he has received for more than a quarter century, while the cost of providing him with home and personal security services rose to $387,881 last year from $370,244. [...]

Barack Obama Grabs Lunch with Billionaire Warren Buffett at Omaha Country Club

Former president Barack Obama made a quick stop in Omaha, Nebraska, Sunday afternoon to grab lunch with billionaire investor Warren Buffett, the Omaha World-Herald reported. The two were joined by Buffett’s daughter Susie Buffett for lunch in a private room at the Happy Hollow country club, where Warren Buffett is a member. [...]

While Susie Buffett remained quiet about the topics of conversation at the lunch meeting, some sources speculated the Obama visit was an effort to raise funds from the elder Buffett for his presidential library or other charities. [...]

Berkshire News Briefs - Annual Report Edition - 3/2/17

The 2016 Berkshire Hathaway Annual Report came out last Saturday, so naturally most of the news this week is about it.

Berkshire Hathaway's Operating Earnings Slip 6%

Berkshire Hathaway reported that its fourth-quarter net income grew about 15% compared with the year-ago period, helped by gains on its investments and derivatives portfolio. However, operating earnings, the metric Warren Buffett has long explained is the most important for understanding the company's true earnings power, declined about 6% to $4.4 billion, from $4.7 billion in the fourth quarter last year. [...]

Highlights From Warren Buffett’s 2016 Annual Letter

What we can take away from this brief discussion is that the gap between Berkshire’s book value and intrinsic value has grown over time and, with additional successful acquisitions, should continue to grow in the future. To be clear, important aspects of Berkshire’s results will show up in book value in the future. Berkshire’s retained earnings are fully reflected in book value. Additionally, changes in the value of marketable securities (with few exceptions) are also reflected in book value, net of deferred taxes. However, to the extent that the economic goodwill of Berkshire’s wholly owned subsidiaries continue to increase, the gap between book value and intrinsic value will continue to grow. [...]

Mixed Year at Berkshire Doesn’t Change Our View

There was little in wide-moat-rated Berkshire Hathaway's fourth-quarter and full-year results that would alter our long-term view of the firm. We do not expect to make any changes to our $255,000 ($170) per Class A (B) share fair value estimate or to our wide-moat rating. [...]

We remain impressed with Berkshire's ability to increase its book value per Class A equivalent share, which rose 10.7% year over year to $172,108 (higher than our own estimate of $167,878). This was aided by much stronger performance from its investment portfolio during 2016. The company closed out the year with $86.4 billion in cash on its books, up from $84.8 billion at the end of September and $71.7 billion at the end of 2015. [...]

Full transcript of billionaire investor Warren Buffett's interview with CNBC

"I absolutely look at individual stocks. It has nothing to do what the Federal Reserve, it has nothing to do with the election. As it does have, it would have something to do with interest rates if they did something extraordinary. It hasn't had, because they haven't been, they haven't changed that much. But there just were a couple of things I wanted 'em to do and we had the money. And I like investing. And I would much rather have that $20 billion in these companies that I don't look at it as being in stocks, I look at it as being in businesses. It's just small pieces of businesses. [...]"

Warren Buffett's Shareholder Letter: 5 Lessons for All Investors

There are few things more valuable for serious investors to read each year than Warren Buffett's annual letter to the shareholders of Berkshire Hathaway.

His letter for 2016, released early Saturday morning, is no exception. In it, Buffett covers his usual range of subjects, from the performance of Berkshire Hathaway and its operating units, to the future prospects of the United States, to advice for corporate executives and individual investors.

The whole letter is worth reading -- it is, after all, less than 30 pages long. But for those of you who want to view the highlight reel, here are my five favorite takeaways from Buffett's latest shareholder letter. [...]

Warren Buffett’s Berkshire Hathaway Bought 72 Million Shares of Apple in One Month

On Monday, Buffett told CNBC his insurance and investing conglomerate had bought 72 million of Apple's shares in the first month of January alone. He also owned up to the fact that Apple is one of the legendary investor's own stock picks, and not one chosen by his lieutenants. [...]

Berkshire started buying shares of Apple in mid-2016, and had 61 million shares by the end of the year. Buffett said Berkshire's Apple stake is now more than double that, and worth about $17 billion and amounts to 133 million shares. Buffett bought his most recent stake between Jan. 1 and Jan. 31—the day Apple reported that its sales rose $2.5 billion, or 3%, in the last three months of 2016, which was higher than expected. [...]

Berkshire Hathaway's Lubrizol takes $365 million loss on oilfield business

The company disclosed in its annual report Saturday that results at its chemical unit, Wickliffe-based Lubrizol, included pretax losses of $365 million last year related to the “disposition in the fourth quarter of an underperforming business.” No other details were provided in the document.

The business? Lubrizol’s Oilfield Solutions unit, according to Julie Young, a spokeswoman for the company. The division was created in late 2014 to house businesses purchased from Weatherford International Plc and Phillips 66, as well as some legacy operations. [...]

Proudly Permabullish

Buffett’s the Permabull-in-Chief. This is not the same as saying that he always believes it’s a great time to buy every stock or that he believes he has some edge on where stock prices will be this year or next. Because neither is true.

One of the hallmarks of Berkshire’s success has been its willingness to raise or lower its formidable cash hoard in response to the presence (or lack thereof) of viable investing opportunities. One of the other hallmarks of Buffett’s approach has been to tune out forecasts and de-emphasize the importance of them in general. [...]

Charlie Munger on Getting Rich, Wisdom, Focus, Fake Knowledge and More

"In the chronicles of American financial history," writes David Clark [...] "Charlie Munger will be seen as the proverbial enigma wrapped in a paradox— he is both a mystery and a contradiction at the same time."

On one hand, Munger received an elite education and it shows: He went to Cal Tech to train as a meteorologist for the Second World War and then attended Harvard Law School and eventually opened his own law firm. That part of his success makes sense.

Yet here's a man who never took a single course in economics, business, marketing, finance, psychology or accounting, and managed to become one of the greatest, most admired, and most honorable businessmen of our age, noted by essentially all observers for the originality of his thoughts, especially about business and human behavior. [...]

Berkshire News Briefs - 2015 Yearly and Q4 Earnings plus Buffett's Letter

Berkshire Hathaway's 4th Quarter and Full Year earnings are out, along with its annual report and Warren Buffett's Annual Letter to Shareholders.

4th Quarter News Release

2015 Annual Report

Buffett's Letter

No time to read all that today? Here are some shorter analysis stories to get you up to speed: Berkshire Profit Climbs 32%, Capping Record Year for Buffett (Bloomberg)

Berkshire Hathaway Inc., the conglomerate controlled by billionaire Warren Buffett, said fourth-quarter profit climbed 32 percent on investments and earnings from the company’s expanding stable of operating businesses.

Net income rose to $5.48 billion, or $3,333 a share, from $4.16 billion, or $2,529, a year earlier, the company said Saturday in a statement. Operating earnings, which exclude some investment results, were $2,843 a share, beating the average $2,814 estimate of three analysts surveyed by Bloomberg. [...]

Buffett Says Politicians ‘Dead Wrong’ With Negative U.S. Outlook (Bloomberg)

Billionaire investor Warren Buffett, long an optimist about the nation where he made his fortune, rejected the economic pessimism dominating the 2016 U.S. presidential campaign and forcefully made the case for a bright future.

“As a result of this negative drumbeat, many Americans now believe that their children will not live as well as they themselves do,” Buffett wrote in a letter to shareholders of his Berkshire Hathaway Inc. posted online on Saturday. “That view is dead wrong: The babies being born in America today are the luckiest crop in history.” [...]

Want to ask Warren Buffett your own question? You can tweet questions for his Monday appearance on CNBC:

Legendary Investor Warren Buffett to Join CNBC’s Becky Quick for a Special Edition of “Squawk Box” on Monday, February 29 6AM-9AM ET

On Monday, February 29th, billionaire investor Warren Buffett joins CNBC's Becky Quick for his ninth annual "Ask Warren" appearance in a special edition of CNBC's signature morning program "Squawk Box" (M-F, 6AM-9AM ET). Throughout "Squawk Box," the Berkshire Hathaway Chairman will answer questions submitted by viewers via Twitter, Facebook, Instagram and The List App about Berkshire's 2015 annual report, including Buffett's letter to shareholders, among other topics.

To submit questions, use the hashtag #AskWarren on Twitter, Facebook, Instagram or The List App. Viewers can also submit video questions by tweeting their clips to @CNBC or sharing videos on Instagram and using the #AskWarren hashtag.

Berkshire Hathaway 2014 Annual Report & Letter Roundup

The Berkshire Hathaway 2014 Annual Report and Warren Buffett's Letter to Shareholders was released today. This year's letter, celebrating the company's 50th anniversary of Buffett's ownership, also includes a special letter from Vice Chairman Charlie Munger.

• Buffett and Munger's Letters.
• The Annual Financial Report. This PDF also includes the letters, so if you download this one, you don't need the first link.

Don't have time to read the 148 page annual report? Here are some good articles I have found around the internet today that summarize and highlight.

Warren Buffett, Charlie Munger say their eventual departures won't slow Berkshire Hathaway (Omaha World Herald)

In an essay on the company’s past and future, Chairman and CEO Warren Buffett, 84, said it’s likely to keep growing but not as rapidly as in the past, and he said the company might pay its first dividend sometime in the next 10 or 20 years. Vice Chairman Charlie Munger, 91, writing directly to Berkshire shareholders for the first time, said that his and Buffett’s eventual departures won’t slow down the company and that Berkshire already has executives qualified to be CEO.

Warren Buffett vows never to spin off Berkshire Hathaway subsidiaries (Financial Times)

Warren Buffett has vowed never to spin off any of Berkshire Hathaway’s subsidiaries, in a full-throated defence of the “sprawling conglomerate” he has assembled over the past 50 years. [...] “Berkshire is now a sprawling conglomerate, constantly trying to sprawl further,” he said.

Warren Buffett knows who next Berkshire CEO is (CNN Money)

"The board and I believe we now have the right person to succeed me as CEO -- a successor ready to assume the job the day after I die or step down," he wrote in his latest annual letter to investors. Buffett added that the next Berkshire CEO would be someone that already works at Berkshire and is "relatively young." And while Buffett chose to be coy, Berkshire's vice chairman and long-time Buffett friend Charlie Munger seemed to suggest that it's a two-man race to succeed Buffett. Munger, in his own remarks in Buffett's letter, specifically named Berkshire reinsurance head Ajit Jain and Berkshire Energy CEO Greg Abel as "proven performers who would probably be under-described as 'world-class.'"

If you want a summary of the actual financials reported, there's this one:

Berkshire Hathaway net falls, operating profit rises (Reuters)

Net income fell to $4.16 billion, or $2,529 per Class A share, from $4.99 billion, or $3,035 per share, a year earlier. Quarterly operating profit rose 5 percent to $3.96 billion, or $2,412 per share, from $3.78 billion, or $2,297 per share. [...] Book value per share, which Buffett considers a good measure of Berkshire's worth, rose 8.3 percent from a year earlier to $146,186. For all of 2014, profit rose 2 percent to $19.87 billion, or $12,092 per share, while operating profit rose 9 percent to $16.55 billion, or $10,071 per share.

And finally, a really long one where Wall Street Journal writers live-blogged as they read the letter this morning. It's almost shorter to just read the letter than read their notes. But some of their commentary is interesting:

Analysis: Warren Buffett’s Annual Berkshire Letter (WSJ MoneyBeat)

We’ve read everything through a few times now, and one thing about this year’s letter stands out above all else: Mr. Buffett isn’t writing solely for the people who will read the letter this weekend. He’s clearly hoping this document will be one Berkshire’s leaders will look back on for decades to come. Scattered throughout are instructions to the men and women who will oversee Berkshire after he’s gone, even if they’re not always couched that way. For example, when he writes on page 9 that underwriting profitability “is a religion” at Berkshire’s insurance units, it’s a reminder to guard against a slippage in standards in that part of the company. And when he writes on page 28 that Berkshire’s CEO and board will be very careful before using stock to fund a future acquisition, it’ll later serve as a warning for those executives if they ever consider such a maneuver. And lest the board forget, he says that for a Berkshire CEO, “character is crucial.” He also says that “neither ego nor avarice” should drive him to earn as much as other CEOs of big-name companies. Other parts of the letter use far loftier rhetoric to rally the troops and look to the future. Berkshire rests on “a rock-solid formation” of the company’s existing big operating units. “Looking ahead, Charlie and I see a world made to order for Berkshire,” he says. “Our ambitions have no finish line.”

2013 Annual Report: a Quick Look

As you probably know by now, the Berkshire Hathaway Annual Report came out on Saturday. The whole thing is 144 pages, though only 115 pages if you exclude the historical Nebraska Furniture Mart documents at the end.

Buffett's Annual Letter to Shareholders is only the first 24 pages, and I'd encourage everyone who is a shareholder to read that part in your spare time this week. You can stop reading when you get to the picture of the Berkshire Hathaway office staff having lunch. (A photograph in a BRK Annual Report? Is that a first?)

If you're in a hurry to get a quick summary of what's in there, here is an excellent review by Carol Loomis at Fortune, who also happens to edit the annual letters for Warren Buffett:

In a first, Buffett gets beat by the S&P 500 over five years. (But wins over six.) (Fortune)

Announcing Berkshire's 2013 results this morning, Buffett said in his annual letter to shareholders that book value per share -- Buffett's standard yardstick in this competition -- rose by 18.2% to $134,973. That's a very solid performance. But the S&P 500 index (SPX), having its best year since 1997, had a huge total return of 32.4%. [...]

Buffett uses book value as a yardstick because it includes all capital gains -- including those unrealized, which the more popular indicator of earnings does not. Even so, many press accounts of Berkshire's 2013 record will surely report the earnings figures that the company released today, and these will be excellent. For the company's A shares, earnings per share were up 32% to $11,850. [...]

Berkshire's increase in pretax profits from $22.2 billion in 2012 to $28.8 billion in 2013 reflected $3.9 billion in realized investment gains (emanating from both equities and fixed-income securities) and generally favorable operating results throughout this hugely complex company.

Berkshire News Briefs - 2/18/14

Berkshire Hathaway released its quarterly stock holdings report (the 13F filing with the SEC). No huge surprises this time around. Here's the list of BRK's holdings showing summary of the changes (green for additions, red for subtractions).

If you have some sort of fetish for page after page of tables of raw numbers, here's the actual SEC filing. Buffett's Berkshire trims some stock stakes (CNBC)

Warren Buffett's Berkshire Hathaway eliminated its holdings of Dish Network and GlaxoSmithKline during the fourth quarter of 2013 and pared its holdings of several other companies. The moves are all relatively small, however, especially by Berkshire standards. The Dish shares were worth about $31 million at the current price, and the Glaxo stake totaled only $19.3 million, indicating that they were handled by one of Berkshire's portfolio managers rather than by Buffett himself. Another move appears to be the work of a portfolio manager. Berkshire added 2,948,285 shares of Liberty Global, John Malone's London-based international cable company. That stake was worth about $245 million as of Friday's close. There were no other major additions to the portfolio, other than previously disclosed new or additional shares of Goldman Sachs, General Electric, USG and DaVita Healthcare Partners.

Warren Buffett Portfolio Grows By $12 Billion as He Makes 3 Big Buys (Fool)

Once again, Berkshire held the public stock of 43 companies, but the total value of the holdings grew from $92 billion at the end of September to $104 billion at the end of 2013. The top of the portfolio stayed relatively unchanged, but thanks to the growth in price the stock at American Express, it and IBM swapped places, with American Express now being the third largest holding of Buffett at $13.8 billion, and IBM coming in fourth at $12.7 billion. Wells Fargo still remained at the top of the portfolio, with a value eclipsing $21 billion, and Berkshire still owned 400 million shares of Coca-Cola, now worth more than $16.5 billion.

Warren Buffett's Latest Moves to Invade Your Living Room (Fool)

Yet as it turns out, although most people do not think of Buffett as being active in the media industry, the ninth largest holding of Berkshire Hathaway is DirecTV, which is valued at $2.5 billion. In September of 2011, Buffett and team "only" had a $200 million position of the popular satellite company, but over the course of the next year, his position grew by $1.5 billion and was worth more than $1.7 billion by the end of 2012. Berkshire also has a $775 million stake in Liberty Media, which itself is a media company with equity interests in a variety of other entertainment firms, including a 53% stake in SiriusXM and even the Atlanta Braves. Buffett first amassed the position in Liberty Media in the first quarter of 2013 and has held onto it ever since. Berkshire also has a $660 million stake in cable giant Viacom.

Berkshire Hathaway also added to its position in Liberty Global, and sold part of its stake in Starz and all of its stake in Dish Network.

Warren Buffett's annual letter to Berkshire Hathaway shareholders to be released on March 1 (AP)

Billionaire Warren Buffett's annual letter to Berkshire Hathaway shareholders will be released on March 1. Buffett will again be able to release his letter on a Saturday this year, as he prefers. Buffett's shareholder letter is one of the most-quoted and best-read business documents because of skill at explaining complicated subjects and sense of humor. Buffett, who is Berkshire's chairman and chief executive, also addresses other topics besides the company's financial results.

Buffett in Talks to Exit Stake in Ex-Washington Post Owner (SF Gate / Bloomberg)

Warren Buffett is in talks to exit his $1.1 billion investment in Graham Holdings Co., the former publisher of the Washington Post, after owning the stock for more than four decades. Graham may swap assets including a business, and possibly shares it holds in Buffett’s Berkshire Hathaway Inc., according to a regulatory filing today. Omaha, Nebraska-based Berkshire would turn over its Graham stake, if a deal is signed. [...] Buffett’s company owns 1.73 million shares of Graham, a stake of about 28 percent. The stock closed today $654.90. Graham’s businesses include the Kaplan education unit as well as television stations and a cable network.

ConAgra, Berkshire – some of Uncle Sam's biggest clients – have their own IRS teams (Omaha World-Herald)

It's a nondescript door on the second floor of a downtown Omaha office building, but the work that goes on there is worth billions to the federal government. The office houses Internal Revenue Service agents charged with monitoring taxes owed by Berkshire Hathaway Inc., the Midlands' largest business and one of the IRS's biggest clients. [...] The IRS audits Berkshire's annual tax returns, working out settlements and adjustments years after they are filed — the standard auditing system used for nearly all corporate taxpayers. [...] In Berkshire's case, the nearby IRS agents reflect the company's size and the amount of work it takes to determine the federal taxes that the Omaha-­based conglomerate owes from its estimated $30 billion in pre-tax profit in 2013, plus audits for past tax years. Last year Berkshire reported that the IRS had settled audits of its pre-2005 returns, had tentatively resolved “proposed adjustments” to its 2005-2009 returns and, in 2012, began auditing its 2010 and 2011 tax returns.

Why Warren Buffett Changed His Big Oil Bet (24/7 Wall St.)

Friday’s SEC filings showed investors which stocks Warren Buffett and his portfolio managers have been buying and selling. [...] Perhaps the most unusual and surprising change seen was Buffett’s smaller stake in Suncor Energy Inc. Perhaps the huge stake in Exxon Mobil Corp. is the blame here. It was only in August 2013 that it became known that Berkshire Hathaway had invested in Suncor Energy. What was so unusual about this position is that Suncor is a Canadian oil giant. Suncor is big into Canadian oil sands.

Say “I Do” at DQ® (Business Wire / Marketwatch)

Sorry I'm late with this news. Hope nobody here had to hold their wedding at an inferior establishment last week...

In celebration of Valentine’s Day and the launch of the new Red Velvet Blizzard® Treat, the featured Blizzard of the month, the Dairy Queen system, part of Berkshire Hathaway , is inviting all fans to get married and celebrate with a reception at their local DQ® restaurant on Friday, February 14. [...] “Not only are participating locations offering the venue where the happy couple can say their vows, but we’ll also provide the food for the reception and a signature Red Velvet Blizzard Cake at the restaurant. What better way to start off a sweet marriage than then to do it at a DQ restaurant?”