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Berkshire 2022 Annual Report


gfp

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Report is here, happy reading

https://berkshirehathaway.com/2022ar/2022ar.pdf

 

Q4 earnings release PR here:

https://berkshirehathaway.com/news/feb2523.pdf

 

"

Approximately $2.6 billion was used to repurchase Berkshire shares during the fourth quarter bringing the total for the year to approximately $7.9 billion. On December 31, 2022 there were 1,459,733 Class A equivalent shares outstanding. At December 31, 2022, insurance float (the net liabilities we assume under insurance contracts) was approximately $164 billion, an increase of $17 billion since yearend 2021. The increase in float includes $14 billion related to Berkshire’s acquisition of Alleghany Corporation."

 

February 13, 2023 share count:  1,458,235 A-share equivalents, or 2.187353 Billion B-share equivalents.  ($665 Billion dollars on Friday) 

Edited by gfp
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This line from page 8 jumped out at me. 
 

“In addition, Berkshire’s insurance operation, though conducted through many individually-managed subsidiaries, has a value comparable to BNSF or BHE.”

 

I would have considered the insurance operation to be much more valuable than BNSF and BHE. In the past he has said he wouldn’t trade the insurance operation for the value of the float. Now they have 160B in float and he thinks the operation is worth around $100B? I’ll be interested to hear what others think about that. 
 

 

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1 hour ago, yesman182 said:

This line from page 8 jumped out at me. 
 

“In addition, Berkshire’s insurance operation, though conducted through many individually-managed subsidiaries, has a value comparable to BNSF or BHE.”

 

I would have considered the insurance operation to be much more valuable than BNSF and BHE. In the past he has said he wouldn’t trade the insurance operation for the value of the float. Now they have 160B in float and he thinks the operation is worth around $100B? I’ll be interested to hear what others think about that. 
 

 

 

It's hard to untangle because many of the operating subsidiaries, including BNSF, are entirely owned by the Insurance Companies - is BNSF's equity funded by float liabilities or the substantial positive net worth of National Indemnity?  Same with so many other subsidiaries.  It's hard to know what he is valuing when he says the Insurance group is worth $90-100 billion or whatever is being implied there.  I wouldn't worry too much about the specific number.

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Berkshire paid $8.2 Billion cash on 1/31/2023 for the additional 41.4% of Pilot .  The original 38.6% interest was carried at $3.2 Billion on Berkshire's books and will be subject to a remeasurement gain in Q1 2023.

Valuation of 100% of Pilot based on the original 38.6% carrying value of $3.2 Billion is $8.29 Billion

Valuation of 100% of Pilot based on the Jan. 2023 deal is $19.81 Billion.

Berkshire's 80% would make Pilot a $15.85 Billion subsidiary.

 

-----

 

Another interesting bit from the 10-K is what they are doing with Alleghany Capital (the non-insurance businesses acquired with Alleghany). The larger companies, like W&W/AFCO Steel [builder of the MSGE Sphere in Las Vegas] are operated independently as part of the Manufacturing, Service and Retail group - I assume reporting to Greg Abel. The smaller manufacturing companies acquired with Alleghany "primarily became part of Marmon." - page K-48

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3 hours ago, ValueMaven said:

Letter was unusually short and lacking detail ... even compared to the prior years...honestly, I was a little disappointed!

Hope there are a bunch of negative headlines and it trades below $300 - which has always been a buy range for me.  

 

The yearly shareholder letters have become shorter and shorter during the last few years for each year passing, yes.

 

However, I think Mr. Buffett has served his service, and has done it very well over time [, like in : over now many years].

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Quote

On August 16, 2022, the Inflation Reduction Act of 2022 (“the 2022 act”) was signed into law. The 2022 act contains numerous provisions, including a 15% corporate alternative minimum income tax on “adjusted financial statement income”, expanded tax credits for clean energy incentives and a 1% excise tax on corporate stock repurchases. The provisions of the 2022 act become effective for tax years beginning after December 31, 2022. On December 27, 2022, the IRS and Department of Treasury issued initial guidance for taxpayers subject to the corporate alternative minimum tax. The guidance addresses several, but not all, issues that needed clarification. The IRS and Department of Treasury intend to release additional guidance in the future. We will continue to evaluate the impact of the Act as more guidance becomes available. We currently do not expect a material impact on our consolidated financial statements.

 

 

This is the PDF of that guidance for those that want to delve in deeper:

https://www.irs.gov/pub/irs-drop/n-23-07.pdf

Edited by gfp
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I've been slowly rereading Buffett's Letters to Shareholders 1965-2012, which I've had for quite awhile.  I'm only on 1983 this time, but it's sort of fascinating to read the letters as inflation takes its inevitable toll even on Berkshire and especially the insurance businesses.  He talks about both the financial and social inflation - social inflation being litigiousness.

 

Interesting to see the historical context as Buffett, for example, is talking about the ravages of inflation in the 1980 letter.  For perspective, Google says inflation hit a high of 14.8% in 1980 and by 1981 Volcker had the interest rate at 20%.  Obviously, this is very high inflation, not like today, but I thought it would be interesting to see what Buffett was saying as inflation soared.

 

Buffett says, (1980 report) "As we said last year, Berkshire has no corporate solution to the problem. (Well say it again next year, too).  Inflation does not improve our return on equity."

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I was disappointed in the letter as well, either Buffett doesn’t have the energy now due to his age (certainly I don’t blame him at 92) or he feels as he has already written about every topic and has nothing new to say.

this letter is still better than anything Charlie wrote at Wesco, I don’t think Munger has ever written anything for the Daily Journal shareholders so at least he writes a letter (Buffett).

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I was hoping for much more given all that took place in 2022. That said I enjoyed it. 
 

My take is that Buffett letters will continue to be short and less detailed going forward. 

 

Simply put as the rate of change of the Berkshire canvas drops so will rate of the change on the letters year over year.
 

This tells me that he is happy with his canvas and how it looks. So boring does it. 
 

When Fairfax letters get to be 10 pages (and very high level) as well, you know that Prem Watsa has done it !

Edited by Xerxes
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1 hour ago, aws said:

I was hoping there would be another Greg Abel letter in this year's report. I guess last year was a one off.

Buffett also made mention that future CEO’s will have a significant amount of net worth in company. Is that directed at Greg, are these issues related? 

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7 hours ago, gfp said:

Berkshire paid $8.2 Billion cash on 1/31/2023 for the additional 41.4% of Pilot .  The original 38.6% interest was carried at $3.2 Billion on Berkshire's books and will be subject to a remeasurement gain in Q1 2023.

Valuation of 100% of Pilot based on the original 38.6% carrying value of $3.2 Billion is $8.29 Billion

Valuation of 100% of Pilot based on the Jan. 2023 deal is $19.81 Billion.

Berkshire's 80% would make Pilot a $15.85 Billion subsidiary.

 

 GFP - any insight here?  I'm quite surprised at the increase in value of Pilot. At the time, it seemed like a "smallish" acquisition of a boring no growth business - but this is quite substantial.

Edited by cubsfan
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36 minutes ago, cubsfan said:

 GFP - any insight here?  I'm quite surprised at the increase in value of Pilot. At the time, it seemed like a "smallish" acquisition of a boring no growth business - but this is quite substantial.

 

I am not GFP, but here is your answer: "This amount is based on a contractual agreement that is dependent on Pilot’s earnings for 2022 and its net debt at the end of 2022, and is subject to postclosing adjustments following the completion of Pilot’s independent public accountant’s audit of its 2022 financial statements."

 

The price was based on a formula that was agreed to beforehand. 

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Pilot company has grown a ton since 2017.  They are doing a lot more business than just the truck stops.  Since they took over control, Berkshire has shut down a portion of their oil trading operation and let some employees go.  I would link to their subsidiaries but they have removed the list from the website as far as I can tell.  Moody's will probably do an update soon to reflect the credit rating bump from being a consolidated Berkshire subsidiary and they may spell out more detail in that report.

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I have worked directly for Pilot. They are an excellent business to work for and communicate with. No big company BS even though they have 800 travel centres and as far as I know a big energy trading unit.

 

To the guys who are asking more of the letter. Come off it. Please read all of the past letters to date and Mr B has covered every type of cycle, business environment and political situation. What we have today in the world is nothing new and I would imagine Buffett is in the same opinion. He didn't mention the Vietnam war in his early letters and I dont expect him to mention the ones ongoing now. 

 

If you want more information on the business its there in detail in 144 pages of pretty damn interesting reading.

 

I had no idea Clayton was such a BSD  70,000 home sites on the books?

Ben Moore making paint for Ace, miniscule but nice to see them alive and well. Still the best house paint around IMO

Geico is obviously having some pains

The energy unit is doing 15% growth y/y

Every business unit had a mention of environmental governance to it. That tells me pressure is on them.

 

Berkshire is basically an Russel 3000 etf at this point with all the business units and holdings. As my largest holding I am so for it.

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57 minutes ago, Jaygo said:

I have worked directly for Pilot. They are an excellent business to work for and communicate with. No big company BS even though they have 800 travel centres and as far as I know a big energy trading unit.

 

To the guys who are asking more of the letter. Come off it. Please read all of the past letters to date and Mr B has covered every type of cycle, business environment and political situation. What we have today in the world is nothing new and I would imagine Buffett is in the same opinion. He didn't mention the Vietnam war in his early letters and I dont expect him to mention the ones ongoing now. 

 

If you want more information on the business its there in detail in 144 pages of pretty damn interesting reading.

 

I had no idea Clayton was such a BSD  70,000 home sites on the books?

Ben Moore making paint for Ace, miniscule but nice to see them alive and well. Still the best house paint around IMO

Geico is obviously having some pains

The energy unit is doing 15% growth y/y

Every business unit had a mention of environmental governance to it. That tells me pressure is on them.

 

Berkshire is basically an Russel 3000 etf at this point with all the business units and holdings. As my largest holding I am so for it.

 

Great summation and I totally agree. Nothings missing for anyone who's been following the businesses. WEB is old. Writing one of these reports demands a lot of time. I'm amazed he continues to do it with such originality.

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11 minutes ago, DooDiligence said:

 

Great summation and I totally agree. Nothings missing for anyone who's been following the businesses. WEB is old. Writing one of these reports demands a lot of time. I'm amazed he continues to do it with such originality.

Not only that but we have literally hours of open discussion coming at the annual meeting.  

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2 hours ago, gfp said:

Pilot company has grown a ton since 2017.  They are doing a lot more business than just the truck stops.  Since they took over control, Berkshire has shut down a portion of their oil trading operation and let some employees go.  I would link to their subsidiaries but they have removed the list from the website as far as I can tell.  Moody's will probably do an update soon to reflect the credit rating bump from being a consolidated Berkshire subsidiary and they may spell out more detail in that report.

Pilot may also have been overearning in 2022 like other gas station operators, given the owners one nice valuation bump for the exit.

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