Great article from finance yahoo.com
By Josh Funk, AP Business Writer , On Saturday February 27, 2010, 2:49 pm
OMAHA, Neb. (AP) — Berkshire Hathaway Inc.’s fourth-quarter profit bounced back sharply, thanks largely to an unrealized $1 billion gain on derivative contracts and investments.
Warren Buffett’s company said Saturday that its insurance and utility divisions performed well enough to help offset weakness in subsidiaries hurt most by the weak economy, such as NetJets, Acme Brick and other manufacturing and retail businesses.
Berkshire generated $3.056 billion in net income, or $1,969 per Class A share, during the quarter. That’s up from $117 million net income, or $76 per share, a year ago.
The three analysts surveyed by Thomson Reuters had expected Berkshire to report fourth-quarter earnings per share of $1,208.33 on average.
Berkshire said it generated $30.2 billion revenue in the fourth quarter. That is nearly 23 percent higher than last year’s fourth quarter revenue of $24.6 billion.
A year ago, largely unrealized losses of $3.3 billion from Berkshire’s investments and long-term derivative contracts weighed heavily on the Omaha-based company’s fourth quarter profit. But the value of the company’s investments and derivatives, some of which are tied to the value of stock market indexes, was significantly higher at the end of 2009 and added a $1.03 billion gain.
Buffett reiterated Saturday that he believes the derivatives will be profitable over their lifetime, partly because Berkshire held about $6.3 billion in derivative premiums at year end that it can invest.
Berkshire released its annual report along with Buffett’s letter to shareholders Saturday. The company describes the performance of its subsidiaries throughout 2009 in those reports, but doesn’t break out detailed information about the fourth quarter alone.
Buffett said Berkshire’s insurance unit, which includes Geico and reinsurance giant General Re, remains the “engine behind Berkshire’s growth” because the insurance companies give the company money to invest at little or no cost from premiums it holds until claims must be paid. That money, called float, grew to $62 billion at the end of 2009.
Buffett said Geico had 8.1 percent of the auto insurance market in 2009, but the company’s growth may slow this year because of slumping vehicle sales and high unemployment.
Berkshire’s insurance businesses generated $1.01 billion in net income from underwriting in 2009, down from $1.7 billion last year. But the investment income in the insurance division grew to $4.1 billion in 2009 from last year’s $3.5 billion.
Berkshire’s utility division, which includes MidAmerican Energy Holdings Co. and PacifiCorp, added $1.07 billion net income during 2009, down from $1.7 billion in 2008.
In future quarters, Berkshire’s utility division will include its newest subsidiary, Burlington Northern Santa Fe railroad. Buffett said the railroad’s results and capital-intensive business are similar to a utility, so it made sense to put BNSF with Berkshire’s utilities.
The manufacturing, service and retail unit at Berkshire generated less than half the profit it did the previous year. Those businesses generated $1.1 billion in net income in 2009, down from $2.3 billion the year before.
Those businesses suffered because of the recession last year, and many of them, such as Acme Brick and Shaw Carpet, are tied to construction.
“These businesses continue to bump along the bottom, though their competitive positions remain undented,” Buffett said.
Berkshire owns roughly 80 subsidiaries, including clothing, furniture, jewelry and corporate jet firms, but its insurance and utility businesses typically account for more than half of the company’s revenue. It also has major investments in such companies as Coca-Cola Co. and Wells Fargo & Co.
Berkshire Hathaway Inc.: http://www.berkshirehathaway.com
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