Berkshire Hathaway(BRK_B) - 2022 Q2 - Quarterly Report

Part I – Financial Information Financial Statements The company's financial statements reflect a significant net loss driven by unrealized losses in the equity portfolio Consolidated Balance Sheets Total assets and shareholders' equity decreased, primarily driven by a reduction in the fair value of equity securities | Balance Sheet Items | June 30, 2022 (Unaudited) | December 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $30,608 million | $88,184 million | | Investments in equity securities | $327,662 million | $350,719 million | | Total Assets | $909,860 million | $958,784 million | | Liabilities & Equity | | | | Total Liabilities | $440,207 million | $443,854 million | | Total Shareholders' Equity | $469,653 million | $514,930 million | Consolidated Statements of Earnings The company reported a substantial net loss due to investment and derivative losses, despite growth in total revenues | (in millions, except per share) | Q2 2022 | Q2 2021 | First Six Months 2022 | First Six Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $76,180 | $69,114 | $146,990 | $133,713 | | Investment/Derivative Gains (Losses) | $(66,919) | $27,394 | $(68,897) | $33,094 | | Net Earnings (Loss) Attributable to BRK | $(43,755) | $28,094 | $(38,295) | $39,805 | | Net Earnings (Loss) per Class A Share | $(29,754) | $18,488 | $(26,005) | $26,078 | Consolidated Statements of Cash Flows Operating cash flow decreased while investing activities saw a large outflow due to net equity security purchases | (in millions) | First Six Months 2022 | First Six Months 2021 | | :--- | :--- | :--- | | Net cash flows from operating activities | $15,361 | $19,559 | | Net cash flows from investing activities | $(74,173) | $(11,433) | | Net cash flows from financing activities | $1,607 | $(13,578) | | Increase (decrease) in cash | $(57,482) | $(5,564) | - Significant investing activities in the first six months of 2022 included $57.3 billion in purchases of equity securities, partially offset by $12.0 billion in sales[20] - The company acquired $4.2 billion of its own treasury stock in the first half of 2022, compared to $12.6 billion in the same period of 2021[20] Notes to Consolidated Financial Statements Notes detail the high concentration in the equity portfolio and significant acquisition and repurchase activities - Approximately 73% of the aggregate fair value of the equity securities portfolio was concentrated in four companies as of June 30, 2022[29] - During the first six months of 2022, Berkshire acquired approximately 17% of the outstanding common stock of Occidental Petroleum, with a fair value of $9.3 billion as of June 30, 2022[31] - Berkshire entered into an agreement to acquire Alleghany Corporation for approximately $11.6 billion in cash, with the transaction expected to close in the fourth quarter of 2022[74] - The company's common stock repurchase program allows for repurchases when the price is below intrinsic value, provided that consolidated cash holdings do not fall below $30 billion[69] Management's Discussion and Analysis of Financial Condition and Results of Operations Management highlights strong operating earnings from diverse businesses despite the reported net loss from investments - Management emphasizes that investment and derivative gains/losses, which are the primary cause of the reported net loss, are 'generally meaningless in understanding our reported quarterly or annual results'[85] - The company's financial condition remains strong, with insurance and other businesses holding $101.3 billion in cash, cash equivalents, and U.S. Treasury Bills at June 30, 2022[155] - In the first six months of 2022, Berkshire paid $4.2 billion to repurchase its Class A and B common stock[155] | After-Tax Earnings by Segment (in millions) | Q2 2022 | Q2 2021 | First Six Months 2022 | First Six Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Insurance – underwriting | $581 | $376 | $628 | $1,140 | | Insurance – investment income | $1,906 | $1,219 | $3,076 | $2,427 | | Railroad | $1,664 | $1,516 | $3,035 | $2,767 | | Utilities and energy | $766 | $740 | $1,516 | $1,443 | | Manufacturing, service and retailing | $3,249 | $3,004 | $6,274 | $5,623 | | Investment and derivative gains (losses) | $(53,038) | $21,408 | $(54,618) | $26,101 | | Net Earnings (Loss) | $(43,755) | $28,094 | $(38,295) | $39,805 | Insurance—Underwriting Underwriting results were mixed, with a significant loss at GEICO offset by improved reinsurance earnings | Pre-tax Underwriting Earnings (Loss) (in millions) | Q2 2022 | Q2 2021 | First Six Months 2022 | First Six Months 2021 | | :--- | :--- | :--- | :--- | :--- | | GEICO | $(487) | $626 | $(665) | $1,649 | | Berkshire Hathaway Primary Group | $242 | $166 | $334 | $372 | | Berkshire Hathaway Reinsurance Group | $967 | $(327) | $1,123 | $(590) | | Total | $722 | $465 | $792 | $1,431 | - GEICO's underwriting loss was driven by increased claims severities from significant cost inflation in automobile markets[92] - BHRG's property/casualty underwriting expenses included foreign currency exchange gains of $308 million in Q2 and $389 million in H1 2022, significantly boosting results[102] - BHRG's life/health reinsurance results improved as 2021 results were negatively affected by significant, pandemic-related increases in mortality[105] Insurance—Investment Income Net investment income grew significantly, driven by higher dividend income and rising short-term interest rates | (in millions) | Q2 2022 | Q2 2021 | First Six Months 2022 | First Six Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Dividend income | $2,055 | $1,298 | $3,252 | $2,551 | | Interest and other | $228 | $158 | $392 | $317 | | Pre-tax net investment income | $2,283 | $1,456 | $3,644 | $2,868 | - The increase in dividend income was due to an overall increase in equity security investments during the first half of 2022[111] - The increase in interest income was primarily due to increases in short-term interest rates[111] - The float of the insurance businesses was approximately $147 billion at both June 30, 2022, and December 31, 2021[113] Railroad (BNSF) BNSF's net earnings grew due to higher revenue per car, which offset a decline in total freight volumes | BNSF Performance (in millions) | Q2 2022 | Q2 2021 | First Six Months 2022 | First Six Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Railroad operating revenues | $6,640 | $5,609 | $12,231 | $10,830 | | Railroad operating earnings | $2,564 | $2,220 | $4,421 | $4,115 | | Net earnings | $1,664 | $1,516 | $3,035 | $2,767 | - Revenue growth was primarily due to a 17.9% year-to-date increase in average revenue per car/unit, driven by higher fuel surcharge revenue[119] - Total freight volumes decreased by 4.5% in the first six months of 2022, with consumer products volumes seeing the largest decline[118][119] - Fuel expenses increased by 71.9% in the first six months of 2022 due to higher fuel prices[119] Utilities and Energy (BHE) BHE's net earnings increased slightly, with growth in some segments offsetting declines in others like PacifiCorp | BHE Net Earnings Attributable to BHE (in millions) | Q2 2022 | Q2 2021 | First Six Months 2022 | First Six Months 2021 | | :--- | :--- | :--- | :--- | :--- | | PacifiCorp | $83 | $226 | $213 | $395 | | MidAmerican Energy Company | $204 | $211 | $445 | $355 | | Natural gas pipelines | $188 | $100 | $497 | $483 | | Real estate brokerage | $84 | $135 | $105 | $219 | | Total BHE Net Earnings | $865 | $849 | $1,715 | $1,658 | - PacifiCorp's earnings decreased significantly, reflecting higher operating expenses related to wildfires and plant maintenance, and lower production tax credits[125] - Real estate brokerage earnings decreased sharply due to lower mortgage volumes, reduced refinancing activity, and a decrease in closed units[125] Manufacturing, Service and Retailing This diverse group reported increased pre-tax earnings, led by strong performance in the Building Products segment | Pre-tax Earnings (in millions) | Q2 2022 | Q2 2021 | First Six Months 2022 | First Six Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Manufacturing | $3,028 | $2,714 | $5,852 | $5,150 | | Service and retailing | $1,275 | $1,270 | $2,492 | $2,311 | | Total | $4,303 | $3,984 | $8,344 | $7,461 | - The Building Products group's pre-tax earnings increased 40.6% in the first six months, driven by strong residential construction[136] - The Consumer Products group's pre-tax earnings declined 10.6% in the first six months, as apparel businesses were negatively impacted by lower sales volumes and higher input costs[138] - McLane's foodservice and grocery distribution business saw revenues increase but earnings decline due to higher costs and supply chain constraints[147] Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes in market risks from those described in its 2021 Annual Report - There were no material changes in the market risks described in Berkshire's Annual Report on Form 10-K for the year ended December 31, 2021[164] Controls and Procedures Management concluded that disclosure controls and procedures were effective with no significant changes noted - Based on an evaluation, the CEO and CFO concluded that the Company's disclosure controls and procedures are effective[165] - No significant changes in the Company's internal control over financial reporting occurred during the quarter[165] Part II – Other Information Legal Proceedings The company does not expect pending legal actions from normal business operations to have a material financial effect - The company states its belief that pending legal actions arising from the normal course of business will not have a material effect on its financial condition or operations[166] Risk Factors The report references the significant business risks previously described in the annual Form 10-K filing - The report references the risk factors disclosed in the Form 10-K for the year ended December 31, 2021, without adding new ones[167] Issuer Repurchases of Equity Securities The company repurchased both Class A and Class B common stock during the second quarter of 2022 | Period (2022) | Class | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | :--- | | April | A & B | 0 | N/A | | May | A & B | 0 | N/A | | June | A | 2,397 | $425,870.54 | | June | B | 25,462 | $276.75 | - The repurchase program does not specify a maximum number of shares and has no expiration date, but repurchases will not be made if they reduce consolidated cash holdings below $30 billion[170] Exhibits This section lists all exhibits filed with the Form 10-Q, including certifications and iXBRL data - The exhibits filed include certifications under Rule 13a-14(a)/15d-14(a) and Section 1350, as well as Mine Safety Disclosures and iXBRL data files[172][173][176]