Berkshire Hathaway(BRK_A) - 2024 Q4 - Annual Report

Business Overview Berkshire Hathaway's diverse business portfolio spans insurance, freight rail, energy, and a wide array of manufacturing, service, and retailing operations Insurance Businesses Berkshire's decentralized insurance operations, conducted globally through numerous subsidiaries, are characterized by high capital strength and significant 'float' generation for investment - The insurance businesses are organized into three main groups: GEICO, Berkshire Hathaway Primary Group, and Berkshire Hathaway Reinsurance Group. The acquisition of Alleghany in October 2022 integrated its insurance and reinsurance businesses into the latter two groups[31] - Berkshire's insurance companies maintain exceptionally high capital strength, with a combined statutory surplus of approximately $310 billion for U.S.-based insurers at year-end 2024. Major subsidiaries hold high financial strength ratings of AA+ from S&P and A++ from A.M. Best[24] - The company's insurance operations generate significant "float" (net policyholder funds held for investment), which grew from approximately $129 billion at the end of 2019 to about $171 billion at the end of 2024[60] GEICO GEICO is a leading direct-to-consumer private passenger automobile insurer in the U.S - GEICO's principal business is private passenger automobile insurance, marketed directly to customers. It is the third-largest auto insurer in the U.S. with a market share of approximately 12.3% in 2023[33][34] Berkshire Hathaway Primary Group BH Primary comprises independently managed insurers offering diverse commercial coverages - The Berkshire Hathaway Primary Group (BH Primary) is a collection of independently managed insurers providing a wide variety of commercial insurance coverages, including commercial auto, workers' compensation, property, and specialty lines through entities like BHSI, BHHC, and MedPro Group[37][39][40] Berkshire Hathaway Reinsurance Group BHRG provides global reinsurance across property, casualty, life, and health risks, generating significant investment float - The Berkshire Hathaway Reinsurance Group (BHRG) offers global reinsurance for property, casualty, life, and health risks through the NICO Group, General Re Group, and TransRe Group. It also writes retroactive reinsurance and periodic payment annuity products, which generate significant float for investment[45][55][58] Burlington Northern Santa Fe (BNSF) BNSF operates a vast North American freight rail system, facing intense competition and regulation, while actively pursuing greenhouse gas emission reductions - BNSF operates a vast network of over 32,500 route miles of track across 28 states and three Canadian provinces, serving as a critical transportation link for manufacturing, agricultural, and natural resource industries[61][251] - The company faces intense competition from other transportation modes, particularly motor carriers, and other major railroads like its primary competitor, the Union Pacific Railroad Company[69][70] - BNSF has committed to a 30% reduction in its greenhouse gas (GHG) emissions by 2030 from its 2018 baseline, primarily by improving fuel efficiency and increasing the use of renewable diesel[68] Berkshire Hathaway Energy (BHE) BHE is a global energy holding company with regulated utilities, pipelines, and renewable projects, serving 5.3 million U.S. customers and committed to significant GHG emission reductions - BHE's domestic operations include four regulated U.S. utilities (PacifiCorp, MEC, NV Energy) serving 5.3 million retail customers and five interstate natural gas pipeline companies[71][72] - BHE has made cumulative investments of $35.4 billion in owned renewable generation and storage through December 31, 2024. The company has reduced its annual GHG emissions by over 38% compared to 2005 levels and aims for a 50% reduction by 2030[93] - BHE's operations are subject to comprehensive regulation by federal, state, and local agencies (such as FERC), which affects rates, operations, and construction[83][84] Manufacturing, Service and Retailing Businesses Berkshire's diverse non-insurance portfolio spans manufacturing (industrial, building, consumer), services (aviation, distribution), and retailing (automotive, home furnishings), including Pilot Travel Centers - The manufacturing businesses are grouped into three categories: industrial products (e.g., Precision Castparts, Lubrizol, IMC), building products (e.g., Clayton Homes, Shaw), and consumer products (e.g., Forest River, Duracell)[98] - The service businesses include aviation services (FlightSafety, NetJets), electronic components distribution (TTI), and restaurant franchising (Dairy Queen)[189] - The retailing businesses include one of the largest U.S. automotive retailers (Berkshire Hathaway Automotive), home furnishings stores (Nebraska Furniture Mart), and other specialty retailers[200][201] - Berkshire acquired a controlling interest in Pilot Travel Centers in January 2023 and it became a wholly-owned subsidiary in January 2024. Pilot operates 677 travel centers and sold approximately 11.4 billion gallons of fuel in 2024[180][181][182] Risk Factors Berkshire Hathaway faces a range of general business and investment risks, alongside unique challenges inherent to its regulated insurance, rail, and energy operations General Business and Investment Risks General risks include geopolitical events, cybersecurity threats, reliance on key personnel like Warren Buffett, and market volatility from a concentrated equity portfolio - The company is dependent on a few key individuals for major investment and capital allocation decisions, particularly Chairman and CEO Warren E. Buffett. The Board has a succession plan where Gregory Abel would replace Mr. Buffett if needed[224][225] - A high concentration of equity investments in a small number of issuers creates significant risk. A material decline in the fair value of these investments could substantially reduce consolidated shareholders' equity and earnings[227] - Cybersecurity risks are a significant concern, with potential for economic losses and reputational damage from attacks on the company's widespread and decentralized technology systems[220][221] Risks Unique to Regulated Businesses Regulated businesses face unique risks including high catastrophe exposure and imprecise liability estimates in insurance, extensive regulation and capital needs for rail and utilities, and wildfire losses for BHE - The insurance business is willing to assume more risk from a single event than any other insurer, with a potential pre-tax loss tolerance of up to $15 billion from a single catastrophe[236] - Estimating property and casualty insurance liabilities is inherently imprecise, with unpaid losses totaling $147.6 billion at year-end 2024. Small percentage changes to these estimates can materially impact earnings[238] - BNSF's revenue is significantly dependent on transporting energy commodities like coal, which is at risk from policy changes favoring alternative fuels. It is also exposed to significant liability from transporting hazardous materials[241] - BHE's regulated energy subsidiaries are exposed to losses from wildfires and related litigation. Changes in environmental regulations, particularly around climate change and emissions, could also have a significant adverse impact[242] Management's Discussion and Analysis (MD&A) MD&A provides an in-depth analysis of Berkshire's financial condition, liquidity, and results of operations, highlighting key performance drivers and critical accounting estimates Results of Operations Berkshire's 2024 net earnings were influenced by improved insurance underwriting, stable BNSF, increased BHE earnings due to lower wildfire accruals, slight declines in manufacturing/service/retailing, and volatile investment gains - Net Earnings (Loss) Attributable to Berkshire Shareholders (in millions) | | 2024 | 2023 | 2022 | |:---|---:|---:|---:| | Insurance – underwriting | $9,020 | $5,428 | $(30) | | Insurance – investment income | $13,670 | $9,567 | $6,484 | | BNSF | $5,031 | $5,087 | $5,946 | | Berkshire Hathaway Energy ("BHE") | $3,730 | $2,331 | $3,904 | | Manufacturing, service and retailing | $13,072 | $13,362 | $12,512 | | Investment gains (losses) | $41,558 | $58,873 | $(53,612) | | Net earnings (loss) | $88,995 | $96,223 | $(22,759) | - Insurance underwriting earnings rose to $9.0 billion in 2024 from $5.4 billion in 2023, largely due to significantly improved results at GEICO. 2024 results included $1.2 billion in after-tax losses from Hurricanes Helene and Milton[280] - BHE's after-tax earnings increased by $1.4 billion in 2024, primarily due to lower estimated wildfire loss accruals at PacifiCorp[282] - Management emphasizes that investment gains and losses, driven by market fluctuations, are generally meaningless for understanding periodic results and cause significant earnings volatility[285][440] Insurance - Underwriting Results Insurance underwriting earnings significantly improved in 2024, driven by GEICO's strong performance despite some declines in BH Primary - Pre-tax Underwriting Earnings by Group (in millions) | Group | 2024 | 2023 | 2022 | |:---|---:|---:|---:| | GEICO | $7,813 | $3,635 | $(1,880) | | Berkshire Hathaway Primary Group | $855 | $1,374 | $393 | | Berkshire Hathaway Reinsurance Group | $2,737 | $1,904 | $1,465 | | Total | $11,405 | $6,913 | $(22) | - GEICO's underwriting earnings surged in 2024 due to higher average premiums, lower claims frequencies, and improved operating efficiencies, which more than offset higher claims severities and catastrophe losses[294] - BH Primary's earnings decreased in 2024, mainly due to significantly less favorable development of prior years' loss estimates, particularly at GUARD, and catastrophe losses of approximately $350 million[307] - BHRG's property/casualty earnings improved, despite a $490 million pre-tax charge for a non-insurance affiliate settlement, due to lower catastrophe losses compared to 2023 and favorable development of prior years' property losses[316][317] Insurance - Investment Income Results Insurance investment income significantly increased due to higher interest rates and short-term investment balances - Insurance Net Investment Income (in millions) | Component | 2024 | 2023 | 2022 | |:---|---:|---:|---:| | Interest and other investment income | $11,550 | $6,081 | $1,685 | | Dividend income | $5,198 | $5,500 | $6,039 | | Pre-tax net investment income | $16,748 | $11,581 | $7,724 | - The significant increase in interest income in 2024 and 2023 was driven by higher balances in U.S. Treasury Bills and other short-term investments, coupled with higher interest rates[331] - Dividend income decreased in 2024 and 2023, reflecting net reductions in the company's equity security holdings[332] BNSF Results BNSF's 2024 earnings remained relatively flat, impacted by labor charges and litigation accruals despite volume growth - BNSF Earnings Summary (in millions) | | 2024 | 2023 | 2022 | |:---|---:|---:|---:| | Railroad operating revenues | $23,355 | $23,474 | $25,203 | | Railroad operating earnings | $7,469 | $7,415 | $8,603 | | Net earnings | $5,031 | $5,087 | $5,946 | - BNSF's 2024 earnings were relatively flat as a 6.5% increase in unit volume (led by consumer products) and improved productivity were offset by a $290 million labor agreement charge and increased litigation accruals[341][342] - Coal revenue fell 22.5% in 2024 due to a 17.9% volume decrease, driven by lower natural gas prices making coal less competitive for electricity generation[347] BHE Results BHE's net earnings significantly increased in 2024, primarily due to lower wildfire loss accruals at U.S. utilities - BHE Net Earnings by Sub-segment (in millions) | Sub-segment | 2024 | 2023 | 2022 | |:---|---:|---:|---:| | U.S. utilities | $1,961 | $906 | $2,295 | | Natural gas pipelines | $1,232 | $1,079 | $1,040 | | Other energy businesses | $1,334 | $1,024 | $1,356 | | Real estate brokerage | $(107) | $13 | $100 | | Total Net Earnings Attributable to BHE | $4,026 | $2,610 | $4,352 | - The sharp increase in U.S. utilities' earnings in 2024 was primarily due to significantly lower pre-tax loss accruals for wildfires ($346 million in 2024 vs. $1.7 billion in 2023)[361] - The real estate brokerage business recorded a net loss in 2024, mainly due to charges related to the settlement of industry-wide antitrust litigation[366] Manufacturing, Service and Retailing Results Manufacturing earnings saw growth, particularly in industrial products, while service and retailing earnings declined due to various factors including lower fuel margins at Pilot - Manufacturing, Service and Retailing Pre-tax Earnings (in millions) | Group | 2024 | 2023 | 2022 | |:---|---:|---:|---:| | Manufacturing | $11,895 | $11,445 | $11,177 | | Service and retailing | $4,948 | $6,144 | $5,042 | | Total | $16,843 | $17,589 | $16,219 | - Industrial products earnings grew 5.8% in 2024, led by a 24.4% earnings increase at PCC due to higher demand for aerospace products[379][380] - Building products earnings were down slightly in 2024. Clayton Homes' earnings fell 5.6% due to lower financial services margins and higher home building costs, despite an 11.5% increase in new home unit sales[392][393][394] - Service group earnings fell 23.0% in 2024, driven by a 51.0% decline at electronics distributor TTI due to excess industry inventory and pricing pressure[414] - Pilot's pre-tax earnings declined 41.9% in 2024 compared to full-year 2023, driven by lower diesel fuel margins and higher operating expenses[430] Financial Condition and Liquidity Berkshire maintains a robust financial position with $649.4 billion in shareholders' equity, $318.0 billion in cash and equivalents, and $124.8 billion in borrowings, alongside ongoing stock repurchases - Key Financial Condition Metrics (as of Dec 31, 2024) | Metric | Value (billions) | |:---|---:| | Shareholders' Equity | $649.4 | | Cash, Cash Equivalents & U.S. Treasury Bills | $318.0 | | Investments (Equity & Fixed Maturity) | $287.0 | | Total Borrowings | $124.8 | | Parent Company Debt | $21.1 | - In 2024, Berkshire paid $2.9 billion to repurchase its common stock under its authorized program[445] - The company completed its acquisition of Pilot, acquiring the remaining 20% noncontrolling interest for $2.6 billion in January 2024. BHE also became a wholly-owned subsidiary after repurchasing remaining noncontrolling interests[447][608][609] Critical Accounting Estimates Critical accounting estimates include property and casualty insurance unpaid losses ($147.6 billion) and goodwill impairment, with several units showing fair values less than 20% above carrying values - The most significant accounting estimates involve property and casualty insurance unpaid losses and loss adjustment expenses, which are subject to considerable uncertainty[457][458] - Consolidated claim liabilities were approximately $147.6 billion as of December 31, 2024. Casualty claims are particularly susceptible to litigation and changing legal interpretations, leading to long and uncertain claim-tails[459][460] - Goodwill and indefinite-lived intangible assets totaled $83.9 billion and $18.9 billion, respectively. During the 2024 impairment review, seven reporting units, including PCC and Pilot, had estimated fair values that exceeded carrying values by less than 20%, indicating a higher risk of future impairment if performance deteriorates[489][495] Market Risk Disclosures Berkshire faces significant market risks, primarily equity price risk from its concentrated portfolio (71% in top five holdings), interest rate risk, and foreign currency risk - The equity portfolio is highly concentrated, with the top five holdings (American Express, Apple, Bank of America, Coca-Cola, Chevron) representing 71% of the total fair value at year-end 2024[497][616] - Hypothetical 30% Equity Price Change Impact on Net Earnings (After-tax, in millions) | Date | 30% Increase | 30% Decrease | |:---|---:|---:| | Dec 31, 2024 | $62,615 | $(62,483) | | Dec 31, 2023 | $82,281 | $(82,129) | - The company has significant foreign currency risk, primarily from its Euro, British Pound, and Japanese Yen denominated debt. In 2024, a strengthening U.S. Dollar resulted in after-tax gains of $1.15 billion on this debt[506][507] Financial Statements and Supplementary Data This section provides Berkshire Hathaway's consolidated financial statements, including balance sheets, earnings, and cash flows, along with detailed notes on accounting policies and contingencies Consolidated Financial Statements Consolidated financial statements show total assets exceeding $1.15 trillion, shareholders' equity at $651.7 billion, 2024 net earnings of $89.0 billion, and operating cash flow of $30.6 billion - Consolidated Balance Sheet Highlights (in millions) | | Dec 31, 2024 | Dec 31, 2023 | |:---|---:|---:| | Total Assets | $1,153,881 | $1,069,978 | | Total Liabilities | $502,226 | $499,208 | | Total Shareholders' Equity | $651,655 | $567,509 | - Consolidated Earnings Highlights (in millions, except per share) | | 2024 | 2023 | 2022 | |:---|---:|---:|---:| | Total Revenues | $371,433 | $364,482 | $302,020 | | Net Earnings (loss) | $88,995 | $96,223 | $(22,759) | | Net Earnings (loss) per Class A Share | $61,900 | $66,412 | $(15,494) | - Consolidated Cash Flow Highlights (in millions) | | 2024 | 2023 | 2022 | |:---|---:|---:|---:| | Net cash from operating activities | $30,592 | $49,196 | $37,350 | | Net cash from investing activities | $(10,287) | $(32,663) | $(87,601) | | Net cash from financing activities | $(10,360) | $(14,405) | $(1,662) | Notes to Consolidated Financial Statements Notes detail accounting policies, business acquisitions (Pilot, Alleghany), investment portfolio concentration (71% in top five equities), insurance liabilities, debt, and significant legal contingencies including wildfire and antitrust litigation - Business Acquisitions (Note 2): The company acquired a controlling 80% interest in Pilot Travel Centers on Jan 31, 2023, for $8.2 billion, and the remaining 20% in Jan 2024 for $2.6 billion. The initial acquisition resulted in a $3.0 billion non-cash remeasurement gain[600][602][603] - Investments (Note 4): The equity portfolio remains highly concentrated. The top five holdings (American Express, Apple, Bank of America, Coca-Cola, Chevron) accounted for 71% of the total equity portfolio's fair value at year-end 2024[616] - Insurance Liabilities (Note 16): Net reductions in estimated ultimate liabilities for prior accident years were $2.3 billion in 2024, favorably impacting earnings. These reductions were primarily from lower-than-expected private passenger auto, medical professional liability, and property losses[667][668] - Contingencies (Note 27): PacifiCorp has recorded cumulative estimated probable wildfire losses of $2.75 billion (before taxes and insurance) through Dec 31, 2024, and it is reasonably possible it will incur significant additional losses. HomeServices reached a $250 million nationwide settlement agreement in its antitrust litigation, which is pending appeal[807][811]