2009: Buffett summarizes Q1 earnings
WARREN BUFFETT: I can tell you some preliminary figures, which then we have to file an 8-K on, because then the information I give you has to be in the public domain before the market opens.
But our — what I call our operating earnings, which would be the earnings before any gains or losses from securities or derivatives or any other transactions of that sort, the operating earnings will be about, after-tax, about 1.7 billion against 1.9 billion last year.
And — as I told you, we’re lucky to be — in this particular period — we’re lucky to be in the insurance and utility business. They’re relatively unaffected by the recession. Whereas most of our other businesses are anywhere from significantly to drastically affected by the recession.
We had an underwriting profit, in our insurance business. It was a little larger than last year.
Our float increased a couple of billion. That was primarily due to a transaction that was announced with Swiss Re, which occurred in March, in which they bought what’s known as an “adverse loss development cover” — and gave us 2 billion Swiss francs for that.
Now, that’s very, very long float. And the probability is that we will not pay out on that, probably, for at least 15 years and maybe quite a bit longer. So that’s long-duration float. And that’s what accounts for the 2 billion— roughly — $2 billion gain in float.
The utility business — earnings are reported down somewhat. But there were two items that account for that. One is that, on our Constellation Energy deal, which blew up last year, and we reported a significant gain on it, we got a bunch of Constellation stock.
And that is a mark-to-market and goes through our income account, every day, in theory, but certainly every quarter. And Constellation was down somewhat during the quarter. So that got charged against the utility earnings.
And then a larger item was a payment, and the final payment, in terms of options that were issued 10 years ago, which had the effect of increasing Berkshire’s interest in MidAmerican, which we like.
But we wrote a check, a significant check, with MidAmerican to buy out the option. So — and that got recorded as an expense in the first quarter.
But the utility earnings are more than satisfactory with those two items in it.
Then when you get into all of our other businesses, with just a couple of exceptions — those businesses are basically down. I mean, they’re all getting hit to varying degrees by the recession. So — that’s basically the operating earnings story.
Our book value per share went down about 6 percent in the first quarter, which is a combination of security markets, and the fact that the credit default swaps, which — I’m the one responsible for writing them — that experience has turned worse, even since I wrote the annual report, in terms of bankruptcy.
So that loss — or potential loss — we’re actually still funds ahead by a substantial margin — but that potential loss — and, I would say, expectable loss — is reflected in the first quarter figures. And of course, there’s been some bounce-back since March 31st. But that’s pretty much the story of the first quarter.
We ended the quarter with cash equivalence of about 22.7 billion, excluding any cash at the utility or at the finance company operation.
But we spent 3 billion of that the next day on a Dow Chemical preferred. So we actually ended, effectively, one day later, the quarter with a little less than 20 billion in cash.
We always keep a significant amount of cash at the parent company, not at the regulated subsidiaries, so that — whatever comes along, we’re prepared for.
And that’s pretty much the story of the first quarter. And I wouldn’t be surprised — I mean, I guess I would almost be surprised if the opposite happened, if the world changed much — over the remainder of the year.
I think that we will continue, barring some huge natural catastrophe, we will do quite well on insurance. And we will do in the utility operation. And we won’t do well in most of the other operations.
But we will have significant operating earnings, which I mentioned is about a billion-seven the first quarter.
If you look at our operating earnings, a billion, or a little more, that comes from MidAmerican — from our energy business, basically — we’re going to leave in that business. I mean, there’s all kinds of opportunities to do things even within our present subsidiaries. There’s lots of projects that promise decent returns.
So you should not think of that billion or so as being available to us at the parent. It would be, if we wanted it to be. But as a practical matter, we’re going to leave it all in.
The rest of the earnings are available to us in cash, plus or minus any change in the float, to do anything interesting that comes along.
So that’s an abbreviated summation of the first quarter. We will put out the 10-Q next Friday after the close. And we’ll continue to follow that policy.