On Nebraska Furniture Mart
The Omaha-based store that is 80 percent owned by Berkshire set an earnings record in 2011. But that's not the big news. More important was NFM's acquisition of a 433-acre tract north of Dallas on which we will build what is almost certain to be the highest-volume home-furnishings store in the country. Currently, that title is shared by our two stores in Omaha and Kansas City, each of which had record-setting sales of more than $400 million in 2011. It will be several years before the Texas store is completed, but I look forward to cutting the ribbon at the opening. (At Berkshire, the managers do the work; I take the bows.)
On the annual meeting
This year's meeting — May 5 at CenturyLink Omaha — will feature a new activity: the Newspaper Tossing Challenge. Late last year, Berkshire purchased the Omaha World-Herald and, in my meeting with its shareholder-employees, I told of the folding and throwing skills I developed while delivering 500,000 papers as a teenager. I immediately saw skepticism in the eyes of the audience. That was no surprise to me. After all, the reporters' mantra is: "If your mother says she loves you, check it out." So now I have to back up my claim. At the meeting, I will take on all comers in making 35-foot tosses of the World-Herald to a Clayton Homes porch. Any challenger whose paper lands closer to the doorstep than mine will receive a Dilly bar. I've asked Dairy Queen to supply several for the contest, though I doubt any will be needed. We will have a large stack of papers. Grab one. Fold it (no rubber bands). Take your best shot. Make my day.
On capital investments
In total, our entire string of operating companies spent $8.2 billion for property, plant and equipment in 2011, smashing our previous record by more than $2 billion. About 95 percent of these outlays were made in the U.S., a fact that may surprise those who believe our company lacks investment opportunities. We welcome projects abroad, but expect the overwhelming majority of Berkshire's future capital commitments to be in America. In 2012, these expenditures will again set a record. ... Two large Berkshire businesses — BNSF and MidAmerican Energy — place a huge responsibility on Berkshire to invest in maintaining and improving infrastructure.
On insurance
Property-casualty insurers receive premiums upfront and pay claims later. ... This collect-now, pay-later model leaves us holding large sums — money we call "float" — that will eventually go to others. Meanwhile, we get to invest this float for Berkshire's benefit. ... The amount of float we hold remains remarkably stable in relation to premium volume. ... We have now operated at an underwriting profit for nine consecutive years, our gain for the period having totaled $17 billion. I believe it likely that we will continue to underwrite profitably in most — though certainly not all — future years. If we accomplish that, our float will be better than cost-free. We will profit just as if some party deposited $70.6 billion with us, paid us a fee for holding the money and then let us invest its funds for our own benefit.
On energy
MidAmerican, 89.8 percent owned by Berkshire, supplies 2.5 million customers in the U.S. with electricity. ... MidAmerican will have 3,316 megawatts of wind generation in operation by the end of 2012, far more than any other regulated electric utility in the country. The total amount that we have invested or committed to wind is a staggering $6 billion. We can make this sort of investment because MidAmerican retains all of its earnings, unlike other utilities that generally pay out most of what they earn. In addition, late last year we took on two solar projects — one 100 percent owned in California and the other 49 percent owned in Arizona — that will cost about $3 billion to construct. Many more wind and solar projects will almost certainly follow.
On derivatives
The rules have changed for new positions. Consequently, we will not be initiating any major derivatives positions. We shun contracts ... that could require the instant posting of collateral. ... Our insurance-like derivatives contracts, whereby we pay if various issues included in a high-yield bond indices default, are coming to a close. We are almost certain to realize a final "underwriting profit" on this portfolio because the premiums we received were $3.4 billion and our future losses are apt to be minor. In addition, we have averaged about $2 billion of float over the five-year life of these contracts.
On mistakes
Berkshire's newer shareholders may be puzzled over our decision to hold on to my mistakes. After all, their earnings can never be consequential to Berkshire's valuation, and problem companies require more managerial time than winners. Any management consultant or Wall Street adviser would look at our laggards and say "dump them." That won't happen. For 29 years, we have regularly laid out Berkshire's economic principles. ... Our approach is far from Darwinian. ... We have made — and continue to make — a commitment to the sellers of businesses we buy that we will retain those businesses through thick and thin. So far, the dollar cost of that commitment has not been substantial and well may be offset by the goodwill it builds among prospective sellers looking for the right permanent home for their treasured business.
Copyright ©2012 Omaha World-Herald®. All rights reserved. This material may not be published, broadcast, rewritten, displayed or redistributed for any purpose without permission from the Omaha World-Herald.
