Berkshire Hathaway(BRK_A) - 2024 Q4 - Annual Report

Chairman's Letter 2024 Performance and Outlook Berkshire's 2024 operating earnings reached $47.4 billion, driven by increased investment income and a major improvement in the insurance business, alongside improved railroad and utility operations, culminating in a record $26.8 billion U.S. corporate income tax payment Operating Earnings (in millions USD) | Category | 2024 | 2023 | | :--- | :--- | :--- | | Insurance-underwriting | $9,020 | $5,428 | | Insurance-investment income | $13,670 | $9,567 | | BNSF | $5,031 | $5,087 | | Berkshire Hathaway Energy | $3,730 | $2,331 | | Other controlled businesses | $13,072 | $13,362 | | Non-controlled businesses | $1,519 | $1,750 | | Other | $1,395 | $(175) | | Operating earnings | $47,437 | $37,350 | - The insurance business delivered a major increase in earnings, led by a spectacular improvement at GEICO, which has been reshaped by Todd Combs over five years to increase efficiency and update underwriting[25] - Berkshire's 2024 U.S. corporate income tax payment of $26.8 billion was the largest ever received by the U.S. government from any single company, representing about 5% of the total paid by all of corporate America[36][37] Investment Philosophy and Capital Allocation Berkshire's investment strategy balances full ownership of controlled businesses with partial stakes in large public companies, primarily deploying capital in American equities with a long-term focus - Berkshire invests in both controlled subsidiaries (189 companies) and minority stakes in large public businesses, with the value of these partial-ownership holdings at year-end being $272 billion[41][42] - The value of marketable equities decreased from $354 billion to $272 billion in the past year, while the value of non-quoted controlled equities increased and remains far greater[45] - Berkshire will always deploy a substantial majority of its money in equities, mostly American, and will never prefer cash-equivalent assets over ownership of good businesses[46] Property-Casualty Insurance Property-Casualty insurance, Berkshire's core business, generates substantial investment 'float' of $171 billion through its unique upfront premium model, emphasizing disciplined underwriting and preparedness for extreme losses - The P/C insurance business operates on a "money-up-front, loss-payments-later" model, which can be dangerous if not managed with discipline, as it can lead to reporting fictitious profits for years[58][59] - Over the past two decades, Berkshire's insurance business has generated $32 billion in after-tax underwriting profits, while its float has grown from $46 billion to $171 billion[66] - Berkshire's key advantages in the P/C business include its ability to handle extreme losses, its independence from reinsurers (a material cost advantage), and its outstanding management[65] Japanese Investments Berkshire has significantly increased long-term investments in five major Japanese companies, employing a currency-neutral strategy with yen-denominated debt to generate favorable net income from dividends - Berkshire holds long-term investments in five Japanese companies: ITOCHU, Marubeni, Mitsubishi, Mitsui, and Sumitomo, with ownership in each likely to increase somewhat over time[68][72] Japanese Investment Position (Year-End, in USD) | Metric | Value (USD) | | :--- | :--- | | Aggregate Cost | $13.8 billion | | Market Value | $23.5 billion | - The Japanese investments are expected to generate about $812 million in annual dividend income in 2025, while the interest cost on the related yen-denominated debt will be about $135 million[75] Company Performance Berkshire's Performance vs. the S&P 500 From 1965 to 2024, Berkshire Hathaway significantly outperformed the S&P 500, achieving a 19.9% compounded annual gain compared to the S&P 500's 10.4% Performance Comparison: 1965-2024 (in %) | Metric | Berkshire Hathaway | S&P 500 (with Dividends) | | :--- | :--- | :--- | | Compounded Annual Gain | 19.9% | 10.4% | | Overall Gain (1964-2024) | 5,502,284% | 39,054% | - In 2024, Berkshire's per-share market value increased by 25.5%, slightly outperforming the S&P 500's 25.0% gain[92] Shareholder Information Annual Meeting Information The annual shareholder meeting, scheduled for May 3rd in Omaha, will feature a Q&A session with key executives and various shareholder activities - The annual meeting will be held on May 3rd, with the Q&A session starting at 8:00 am, where Warren Buffett, Greg Abel, and Ajit Jain will answer questions[93][94] - A new book, "60 Years of Berkshire Hathaway," featuring stories and photos of Charlie Munger, will be available for sale at the meeting[78][79][80] Form 10-K Business Description Berkshire Hathaway operates as a holding company with a diverse portfolio of decentralized businesses, primarily in insurance, freight rail, and energy, employing approximately 392,400 people worldwide by year-end 2024 - Berkshire Hathaway is a holding company with subsidiaries in insurance, freight rail transportation, utilities, energy, manufacturing, services, and retailing[111] - The company's operating subsidiaries are managed on an unusually decentralized basis, with senior corporate management focused on capital allocation, major investments, and selecting subsidiary CEOs[112] - At the end of 2024, Berkshire and its subsidiaries employed approximately 392,400 people worldwide, with about 80% in the U.S[114] Insurance Businesses Berkshire's core insurance business, encompassing GEICO and other groups, generated approximately $171 billion in investment 'float' by year-end 2024, supported by $310 billion in U.S.-based statutory surplus - Berkshire's insurance companies maintain exceptionally high capital strength, with a combined statutory surplus of U.S.-based insurers of approximately $310 billion at December 31, 2024[124] - The insurance operations generate significant 'float' (net policyholder funds held for investment), which grew from approximately $129 billion in 2019 to $171 billion at the end of 2024[159] - The insurance underwriting operations are organized into three groups: GEICO, Berkshire Hathaway Primary Group, and Berkshire Hathaway Reinsurance Group[131] Burlington Northern Santa Fe (BNSF) BNSF operates one of North America's largest railroad systems, spanning over 32,500 route miles and transporting diverse commodities, while facing intense competition and extensive regulatory oversight - BNSF operates one of North America's largest railroad systems, with over 32,500 route miles of track in 28 states and parts of Canada[160][350] - BNSF's primary rail competitor in the Western U.S. is the Union Pacific Railroad Company, also competing with motor carriers, barges, ships, and pipelines[169][168] - BNSF management has committed to a 30% reduction in GHG emissions by 2030 from its 2018 baseline, focusing on fuel efficiency and evaluating new technologies like battery-electric and hydrogen locomotives[167] Berkshire Hathaway Energy (BHE) Berkshire Hathaway Energy (BHE) operates diverse energy businesses, including regulated U.S. utilities serving 5.3 million customers and natural gas pipelines, with $35.4 billion invested in renewables and a goal of 50% GHG emission reduction by 2030 - BHE's domestic regulated utilities serve approximately 5.3 million retail customers, and its natural gas pipelines have a design capacity of about 21.5 billion cubic feet per day[170] - BHE has invested $35.4 billion in owned renewable generation and storage through December 31, 2024, and has reduced its annual GHG emissions by over 38% compared to 2005 levels[192] - BHE's non-energy business, HomeServices of America, is a major residential real estate brokerage firm with approximately 37,700 agents in nearly 820 offices[194] Manufacturing Businesses Berkshire's manufacturing operations span industrial, building, and consumer products, featuring key entities like Precision Castparts for aerospace, Clayton Homes for housing, and Forest River for recreational vehicles - Precision Castparts Corp. (PCC) is a leading manufacturer of complex metal components for aerospace and power generation, with major customers including Boeing, Airbus, GE Aerospace, and Rolls-Royce[198][202] - Clayton Homes is a vertically integrated housing company that completed approximately 51,000 off-site built homes and 10,000 site-built homes in 2024[239] - Forest River is a leading manufacturer of recreational vehicles (RVs), holding an approximate 35% market share as of September 2024[268][269] Pilot Travel Centers Berkshire gained full ownership of Pilot Travel Centers in 2024, which operates 677 travel centers and sold 11.4 billion gallons of fuel in 2024, while also developing a nationwide EV fast charging network - Berkshire acquired a controlling 80% interest in Pilot on January 31, 2023, and the remaining 20% on January 16, 2024, making it a wholly-owned subsidiary[279] - In 2024, Pilot sold approximately 11.4 billion gallons of fuel through its network of 677 travel centers and 77 fuel-only locations[280][281] McLane Company McLane provides wholesale distribution services across the U.S., with its business model relying on high sales volume and rapid inventory turnover, and major customers including Walmart, 7-Eleven, and Yum! Brands - McLane's major customers in 2024 were Walmart (17.3% of revenues), 7-Eleven (13.2%), and Yum! Brands (12.5%)[284] Service and Retailing Businesses Berkshire's Service and Retailing segment includes diverse operations such as FlightSafety and NetJets in services, and Berkshire Hathaway Automotive, a major U.S. auto retailer, alongside home furnishings and jewelry businesses - NetJets is a leader in private aviation, offering shared aircraft ownership programs designed to provide customers with guaranteed availability and predictable costs[291][292] - Berkshire Hathaway Automotive (BHA) is one of the largest U.S. auto retailers, operating 108 new vehicle franchises through 83 dealerships, primarily in Arizona and Texas[300][301] Risk Factors Berkshire faces key risks including dependence on critical personnel like Warren Buffett, high concentration in equity investments, potential for catastrophic underwriting losses, cybersecurity threats, and regulatory changes impacting core businesses - The company is dependent on a few key people, particularly Warren E. Buffett, for major investment and capital allocation decisions, with Gregory E. Abel designated as his replacement if needed[323][324] - A high concentration of equity investments in a few companies means a significant decline in their fair value could materially reduce Berkshire's consolidated shareholders' equity and earnings[326] - The company's tolerance for underwriting risk could lead to significant losses from a single natural or man-made catastrophe, with efforts to limit pre-tax losses to under $15 billion, though losses could exceed this[335] - Regulatory changes pose a significant risk, particularly for the insurance, railroad (BNSF), and utilities/energy (BHE) businesses, which are subject to complex and dynamic laws affecting rates, operations, and capital allocation[338][339][341] Management's Discussion and Analysis (MD&A) This section analyzes Berkshire Hathaway's financial performance from 2022-2024, detailing net earnings of $89.0 billion in 2024, influenced by investment gains, and strong operating earnings driven by the insurance segment Results of Operations Net earnings attributable to Berkshire shareholders were $89.0 billion in 2024, significantly influenced by investment gains/losses, with strong operational performance in insurance underwriting and investment income Net Earnings (Loss) Attributable to Berkshire Shareholders (in millions USD) | Category | 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 Pre-tax underwriting earnings surged to $11.4 billion in 2024, primarily due to a dramatic turnaround at GEICO, despite declines in the Primary Group and mixed results in Reinsurance Pre-tax Underwriting Earnings (Loss) by Group (in millions USD) | 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 Pre-tax Underwriting Earnings | $11,405 | $6,913 | $(22) | - GEICO's 2024 earnings increase was driven by higher average auto policy premiums, lower claims frequencies, and improved operating efficiencies, which offset higher claims severities[398] - BHRG's property/casualty underwriting expenses in 2024 included a $490 million pre-tax charge related to a settlement agreement for certain non-insurance affiliates in bankruptcy[421] Insurance—Investment Income Pre-tax net investment income from insurance operations increased by 44.6% to $16.7 billion in 2024, primarily driven by a substantial rise in interest income from higher Treasury Bill yields Net Investment Income (in millions USD) | Category | 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 insurance operations' float increased from approximately $164 billion at the end of 2022 to $171 billion at the end of 2024[438] Burlington Northern Santa Fe (BNSF) BNSF's pre-tax earnings remained stable at $6.6 billion in 2024, as a 6.5% increase in freight volume was offset by lower average revenue per unit and impacts from a $290 million labor agreement charge BNSF Earnings Summary (in millions USD) | Category | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Railroad operating revenues | $23,355 | $23,474 | $25,203 | | Railroad operating expenses | $15,886 | $16,059 | $16,600 | | Pre-tax earnings | $6,648 | $6,614 | $7,708 | BNSF Freight Volumes (cars/units in thousands) | Category | 2024 | 2023 | Change | | :--- | :--- | :--- | :--- | | Consumer products | 5,537 | 4,765 | +16.2% | | Industrial products | 1,596 | 1,605 | -0.6% | | Agricultural products | 1,251 | 1,165 | +7.4% | | Coal | 1,205 | 1,468 | -17.9% | | Total | 9,589 | 9,003 | +6.5% | Berkshire Hathaway Energy (BHE) BHE's net earnings attributable to Berkshire shareholders increased to $3.7 billion in 2024, primarily due to a significant reduction in wildfire loss accruals at its U.S. utilities BHE Net Earnings Attributable to BHE (in millions USD) | Category | 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 | | Corporate interest and other | $(394) | $(412) | $(439) | | Total | $4,026 | $2,610 | $4,352 | - The increase in U.S. utilities' earnings was primarily due to lower pre-tax loss accruals for wildfires, which were $346 million in 2024 compared to $1.7 billion in 2023[465] - The real estate brokerage business incurred a loss in 2024, primarily due to charges related to ongoing industry litigation matters[470] Manufacturing, Service and Retailing Pre-tax earnings for Manufacturing, Service, and Retailing segments decreased 4.2% to $16.8 billion in 2024, with manufacturing growth offset by declines in service and retailing due to inventory destocking and lower margins Revenues and Pre-tax Earnings (in millions USD) | Category | Revenues 2024 | Pre-tax Earnings 2024 | Pre-tax Earnings 2023 | % Change (Earnings) | | :--- | :--- | :--- | :--- | :--- | | Manufacturing | $77,231 | $11,895 | $11,445 | +3.9% | | Service and retailing | $138,672 | $4,948 | $6,144 | -19.5% | | Total | $215,903 | $16,843 | $17,589 | -4.2% | - PCC's revenues increased 12.0% and pre-tax earnings grew 24.4% in 2024, driven by higher demand for aerospace products[484] - TTI's revenues declined 10.0% and its pre-tax earnings fell 51.0% in 2024 due to excess inventory in supply chains, leading to lower sales volumes and pricing pressures[517][518] Financial Condition Berkshire's financial condition remains exceptionally strong, with shareholders' equity increasing to $649.4 billion and cash, cash equivalents, and U.S. Treasury Bills totaling $318.0 billion by year-end 2024 - Shareholders' equity grew to $649.4 billion at Dec 31, 2024, an increase of $88.1 billion from year-end 2023[549] - At year-end 2024, cash, cash equivalents, and U.S. Treasury Bills totaled $318.0 billion[551] - Berkshire repurchased $2.9 billion of its common stock in 2024[550] Critical Accounting Estimates Critical accounting estimates involve significant judgment, particularly for $147.6 billion in property and casualty insurance unpaid losses, and the annual impairment testing of $83.9 billion in goodwill and $18.9 billion in indefinite-lived intangible assets - Consolidated claim liabilities for property and casualty insurance were approximately $147.6 billion as of December 31, 2024[564] - Goodwill of acquired businesses was $83.9 billion and indefinite-lived intangible assets were $18.9 billion at year-end 2024, which are evaluated annually for impairment[595] - During the 2024 impairment review, the estimated fair values of seven reporting units, including PCC and Pilot, did not exceed their carrying values by at least 20%, indicating a higher risk of future impairment if conditions worsen[601] Financial Statements and Supplementary Data This section provides audited consolidated financial statements for 2022-2024, including Balance Sheets, Statements of Earnings, Comprehensive Income, Changes in Shareholders' Equity, and Cash Flows, along with explanatory notes Consolidated Balance Sheets As of December 31, 2024, Berkshire's total assets reached $1.154 trillion, with $330.8 billion in cash and equivalents, and total shareholders' equity at $651.7 billion Consolidated Balance Sheet Summary (in millions USD) | Category | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash, equivalents & T-Bills | $330,805 | $163,887 | | Investments in equity securities | $271,588 | $353,842 | | Property, plant and equipment | $205,101 | $199,646 | | Goodwill | $83,880 | $84,626 | | Total Assets | $1,153,881 | $1,069,978 | | Liabilities & Equity | | | | Insurance-related liabilities | $196,721 | $206,994 | | Notes payable and other borrowings | $124,762 | $128,271 | | Total Liabilities | $502,226 | $499,208 | | Total Shareholders' Equity | $651,655 | $567,509 | Consolidated Statements of Earnings For 2024, Berkshire reported total revenues of $371.4 billion and net earnings attributable to shareholders of $89.0 billion, or $61,900 per equivalent Class A share Consolidated Earnings Summary (in millions USD, except per share) | Category | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Total revenues | $371,433 | $364,482 | $302,020 | | Investment gains (losses) | $52,799 | $74,855 | $(67,899) | | Total costs and expenses | $315,697 | $321,144 | $266,484 | | Net earnings (loss) attributable to Berkshire shareholders | $88,995 | $96,223 | $(22,759) | | Net earnings (loss) per avg. equivalent Class A share | $61,900 | $66,412 | $(15,494) | Consolidated Statements of Cash Flows In 2024, Berkshire generated $30.6 billion in cash from operating activities, with investing activities resulting in a $10.3 billion net outflow and financing activities using $10.4 billion, including $2.9 billion for stock repurchases Consolidated Cash Flow Summary (in millions USD) | Category | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Net cash flows from operating activities | $30,592 | $49,196 | $37,350 | | Net cash flows from investing activities | $(10,287) | $(32,663) | $(87,601) | | Net cash flows from financing activities | $(10,360) | $(14,405) | $(1,662) | | Increase (decrease) in cash | $9,733 | $2,244 | $(52,307) | Notes to Consolidated Financial Statements Notes to financial statements detail the full acquisition of Pilot Travel Centers, the $271.6 billion equity portfolio's concentration in five companies, and significant contingencies including $2.75 billion in estimated wildfire losses for PacifiCorp - Berkshire acquired an additional 41.4% of Pilot for ~$8.2 billion on Jan 31, 2023, gaining control, and acquired the remaining 20% for $2.6 billion in Jan 2024[708][711] - As of Dec 31, 2024, 71% of the equity securities portfolio's fair value was concentrated in five companies: American Express, Apple, Bank of America, Coca-Cola, and Chevron[724] - PacifiCorp has recorded cumulative estimated probable losses of approximately $2.75 billion related to the 2020 and 2022 Wildfires and faces ongoing litigation and potential for significant additional losses[916][917]