Berkshire Hathaway's 4Q profit declines 17 percent

OMAHA, Neb. — Berkshire Hathaway Inc. said Saturday that its fourth quarter profit slid 17 percent because of declines in the paper value of its investments and derivative contracts.

Berkshire's quarterly profit declined to $4.16 billion, or $2,529 per Class A share, on $48.3 billion in revenue. That's down from $4.99 billion, or $3.035 per share, on $47 billion in revenue.

The biggest factor was investment and derivative gains of $192 million this quarter compared to $1.2 billion in 2013.

Chairman and CEO Warren Buffett has said that Berkshire's operating earnings, which exclude investments and derivatives, are a better measure of its performance. Those were $3.96 billion, or $2,412 per share, which is up from $3.78 billion, or $2,297 per share.

The four analysts surveyed by FactSet expected operating earnings of $2,655.09 per share, on average.

"I thought it was a good year, but not a great year," said Andy Kilpatrick, a retired stockbroker who wrote the book, "Of Permanent Value: The Story of Warren Buffett."

Most of Berkshire's 80-odd subsidiaries performed well last year with its utility and manufacturing businesses posting the biggest gains.

Berkshire Hathaway Energy added $1.88 billion net income in 2014 after it acquired Nevada utility NV Energy, up from $1.47 billion in 2013.

Berkshire's manufacturing, service and retail businesses added $4.5 billion to the conglomerate's profits, up from $3.9 billion. Specialty chemical manufacturer Lubrizol and toolmaker Iscar both had strong years.

BNSF railroad struggled with service problems last year as a strong grain harvest combined with the surge in crude oil shipments clogged rail lines just as extreme cold weather took hold. BNSF still contributed nearly $3.9 billion to Berkshire's earnings, up from $3.8 billion in 2013.

Buffett's preferred measure of Berkshire's performance is growth in book value — its assets minus liabilities. Berkshire's book value gained 8.3 percent in 2014, but trailed the S&P 500's 13.7 percent gain. Berkshire underperformed that benchmark in five of the last six years and 11 out of the past 50 years.

Berkshire Hathaway Inc. owns roughly 80 subsidiaries, including insurance, utility, railroad, furniture and jewelry firms. The company also has major investments in Coca-Cola Co., IBM and Wells Fargo & Co.

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Follow Josh Funk on Twitter at https://twitter.com/funkwrite

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The Ticker

Rosie's Bakery closes all shops

Rosie's Bakery, an Inman Square, Cambridge, institution for 38 years, with other locations including Chestnut Hill and South Station, closed its doors yesterday, saying in a notice posted on its doors that the supplier that baked its specialty desserts had gone out of business and would be too expensive to replace.

TOMORROW

• Commerce Department releases personal income and spending for January.
• Institute for Supply Management releases its manufacturing index for February.
• Commerce Department releases construction spending for January.

WEDNESDAY

• Institute for Supply Management releases its service sector index for February.
• Federal Reserve releases Beige Book.

THURSDAY

• Labor Department releases weekly jobless claims.
• Labor Department releases fourth-quarter productivity data.
• Freddie Mac, the mortgage company, releases weekly mortgage rates.
• Commerce Department releases factory orders for January.

FRIDAY

• Labor Department releases employment data for February.
• Commerce Department releases international trade data for January.
• Federal Reserve releases consumer credit data for January.
• Cambridge-based Genocea Biosciences, Inc., a biopharmaceutical company, has announced that Michael Higgins has joined the company's board of directors.

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Loan fund OK’d for small biz hurt by storms

The Massachusetts Growth Capital Corp. has approved a $1 million loan fund for small businesses coping with lost revenue from this year's barrage of snowstorms.

The quasi-state agency will lend qualifying Massachusetts businesses $5,000 to $10,000 each, with the goal of distributing the funds within 48 hours after an application is received and approved.

"It's basically a micro-loan fund … to alleviate some of their need for working capital that's been affected by the storms," said MGCC president Lawrence Andrews. "We know this money has to go out fairly quickly because the need is so dire."

The three-year loans will have a 5 percent interest rate, and recipients must start paying back principal and interest after six months. There are no prepayment penalties or fees.

Businesses applying for the loans must submit a one-year financial statement, personal financial statement and the reasons for the need as part of the application process. The program is expected to run through May.

MGCC was established by the Legislature in 2010 and funded with $35 million in capital under the consolidation of the Massachusetts Community Development Finance Corp. and the Economic Stabilization Trust to help small business create jobs. It lends to small Massachusetts businesses that need capital but haven't been able to access traditional sources such as banks, and it provides technical assistance.

MGCC will use community development corporations, chambers of commerce and economic development offices of state Legislature-designated Gateway Cities to help facilitate the process.

The storm-related loan fund is a first for MGCC.

"The good thing is we've never had storms like this before," Lawrence said. "(The idea) really came from the businesses themselves, and we asked Gov. (Charlie) Baker basically if this was something that would be beneficial."

"As small businesses throughout Massachusetts continue to recover from extreme winter weather conditions that have restricted business, we are pleased to announce this low-interest loan program is available to help them regain their financial stability," Gov. Baker said in a statement. "While our local economies continue to bounce back, we encourage everyone to continue shopping at their local retailers, restaurants and small businesses."

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Hyundai recalls 263,000 cars due to power-steering problem

NEW YORK — Hyundai is recalling about 263,000 cars in the U.S. and Canada because a sensor problem could cause drivers to lose power-assisted steering.

The company has not reported any injuries or accidents. A representative for Hyundai Motor America wasn't immediately available for comment.

The National Highway Traffic Safety Administration says a sensor in the affected cars could detect a discrepancy in the steering input and signals and disable power-assisted steering as a result. Cars would revert to manual steering and require greater effort to steer at low speeds, raising the risk of a crash.

Hyundai Motor America says it plans to notify owners and that dealers will fix the control unit of the electronic power steering at no cost.

The affected cars include model years 2008 to 2010 of Elantras made between June 1, 2008 and April 30, 2010 and Elantra Touring vehicles made between Nov. 1, 2008 and April 30.

The recall includes nearly 205,000 cars in the U.S. and about another 58,000 in Canada.

Owners can contact Hyundai's customer service at 1-855-671-3059.

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Annual report offers new clues about Buffett's successor

OMAHA, Neb. — Billionaire Warren Buffett is proud of what he's built as Berkshire Hathaway's CEO over the past 50 years, but he's also willing to admit making a few costly mistakes along the way.

Buffett used his annual shareholder letter released Saturday to make the case for his conglomerate's future while also offering investing advice. Buffett dropped a few hints about his eventual successor, and though he didn't name names, another key executive did single out two people as strong executives who could lead the company well.

But no, the 84-year-old Buffett isn't retiring.

Here are some key themes from his annual report:

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REPLACING BUFFETT

Buffett said his eventual successor will need to be calm, rational and decisive, and he hopes that person will be young enough to lead the company for at least a decade.

"My successor will need one other particular strength: the ability to fight off the ABCs of business decay, which are arrogance, bureaucracy and complacency," Buffett said. "When these corporate cancers metastasize, even the strongest of companies can falter."

Vice Chairman Charlie Munger added his own letter this year, and predicted that Berkshire will be fine once he and Buffett are gone because of the management talent it already has.

Munger singled out reinsurance executive Ajit Jain and Berkshire Hathaway Energy CEO Greg Abel as two Berkshire executives who could succeed Buffett one day. Both have been noted on short lists made by investors and the media.

"In some important ways, each is a better business executive than Buffett," Munger said.

The company having mentioned specific names will only add to speculation about which Berkshire executives are on the short list to be the next CEO.

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INVESTING INSIGHT

One of the best ways to build wealth over time is to own stocks, but Buffett said investors must avoid the common mistakes of trading too often and paying high investment fees.

"Most advisers, however, are far better at generating high fees than they are at generating high returns," he said.

The billionaire investor said there's every reason to expect stocks to perform well in the long term, even if prices are volatile.

But no one can predict the stock market.

"Market forecasters will fill your ear but will never fill your wallet," he said

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CONGLOMERATION CELEBRATION

Buffett says Berkshire is built to stand the test of time because of the more than 80 companies it owns and its diverse investments.

Plus, its structure allows Buffett to shift money within Berkshire to generate the best return, and the company has $63.3 billion cash.

"I believe the chance of any event causing Berkshire to experience financial problems is essentially zero," Buffett said. "We will always be prepared for the thousand-year flood: in fact, if it occurs we will be selling life jackets to the unprepared."

But Buffett reiterated that Berkshire's huge size will keep it from achieving gains nearly as strong as it has in the past.

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UNFORCED ERROR

Buffett has long said that buying the Berkshire Hathaway textile mill in New England in 1965 was the worst investment he'd ever made. The textile business continued to struggle for 20 more years before Buffett shut it down.

But the worst part — that Buffett estimates cost him $100 billion or so — came after he took control of Berkshire.

Buffett said he still doesn't know why he used Berkshire to acquire National Indemnity for $8.6 million in 1967 instead of buying it with his private investment partnership. That insurance company served as the foundation for everything Buffett bought later.

"I've had 48 years to think about that question, and I've yet to come up with a good answer. I simply made a colossal mistake."

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DOUBLE FAULT

Buying Berkshire wasn't Buffett's only textile mistake.

Buffett said he bought Waumbec Mills in 1975 because it was selling for a bargain price, only to have to close it down in a few years.

"And now some good news: The northern textile industry is finally extinct. You need no longer panic if you hear that I've been spotted wandering around New England."

Buffett's helped Berkshire beat the S&P 500 in 39 of the past 50 years, but his errors didn't stop in the 1970s.

He told shareholders the company lost $444 million on its investment in British retailer Tesco, largely because he was slow to sell the $2.3 billion stake after spotting problems in 2013.

"I made a big mistake with this investment by dawdling," Buffett said.

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Follow Josh Funk on Twitter at https://twitter.com/funkwrite

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Berkshire Hathaway Inc.: www.berkshirehathaway.com

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BookBub reads E-buyers well

Every day, more than 5 million people in three countries get an email about discounted e-books from Boston-based startup BookBub — emails that drove more than 10 million ebook sales last year.

"They're the biggest success story that no one knows about," said David Beisel, a partner at NextView Ventures, an early stage venture capital firm in Boston and an investor in the company.

Founded three years ago, BookBub hit the 5 million member mark last week, up from 4 million in late December.

"Readers need great ways to discover books and have curation among those books," said Josh Schanker, BookBub president and co-founder. "There are so many options out there, and I think that's why this is really resonating. It's been a great way for both readers to discover books and for publishers to get their books discovered."

Bookbub's editorial team sifts through hundreds of books a day to find the best ones for the best price, Schanker said.

Roughly 20 percent of members click on a deal every day, he said.

To keep pace with that growth, BookBub has doubled its staff since April, and plans to add another 10 to 20 employees this year.

"Ten years ago, you walked into Borders or Barnes and Noble and they had the table out front, and that helped you discover books. You could do this browsing in a physical setting, and of course those books seemed curated to you," Beisel said. "Even though it's a simple email newsletter ... it's replacing that function of that table in the bookstore that is no longer there."

A seemingly simple business, a lot goes on behind the scenes, Schanker said. Nearly every member gets a personalized list of deals every day, based on location, book tastes and
e-bookstore preferences.

The company is also using the data it has collected from book sales to better curate books in the future.

"We know books about World War II do incredibly well, and that our audience really likes that even across our categories," Schanker said. "And having a dog on the cover of a book actually seems to send sales even higher."

The company raised
$3.8 million in venture financing in April, money that is being used to expand its content and make the website a destination for booklovers, not just for those looking for a deal.

Schanker said the core business — e-book deals — is profitable.

"We've heard from members that they're looking for ways to discover great books," Schanker said, "whether they're through deals or otherwise, so we're building a lot of things."

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Cape Wind proponents take to Common, vow to continue fight

Proponents of the Cape Wind project are powering full-speed ahead to try to bring the proposed wind farm to fruition, despite the termination of power contracts last month that effectively sounded the project's death knell.

"We are not giving up — we have just begun to fight," Cape Wind President Jim Gordon said at a rally on Boston Common yesterday. "We have a very dedicated group of individuals that have put their hearts and souls into developing this program over the last 14 years."

About 300 wind power enthusiasts took to the Common yesterday with signs, music, chants and colorful pinwheels in a Hail Mary attempt to resurrect the project, imploring National Grid to reinstate the contract to buy 50 percent of the power generated by Cape Wind that it terminated in January.

"Wind power could be the poster child for the new paradigm," said Jeff Brooks, 53, of Salem. "For a carbon-free future, we need to start investing in wind. We're going to run out of fossil fuels. Then what?"

The $2.5 million project would install 130 wind turbines in Nantucket Sound.

"The momentum we've built over the last two months really has been heartening," said Emily Kirkland, communications coordinator for advocacy group Better Future Project, which organized the rally.

She said 93,000 people signed a CREDO Action petition calling on the utility to get back on board, and more than 3,000 people signed a petition from Better Future Project.

The petitions were delivered to National Grid Thursday, she said.

But National Grid has given no indication that a contract is still under consideration.

"Cape Wind had an opportunity to extend the contract, which, for whatever reason, they declined to do," the utility said in a statement. "Any new contract, could one be negotiated, would require an extensive and lengthy review by the Department of Public Utilities."

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Germany trusts Greece to fulfill bailout terms

BERLIN — Germany's finance minister said Sunday that he trusts Greece's current government to fulfill the conditions for the bailout deal, but also made clear the country would not receive any further money if it didn't.

Finance Minister Wolfgang Schaeuble told German newspaper Bild am Sonntag that "I trust them to implement the needed measures ... and to ultimately fulfill its obligations."

At the same time, Schaeuble warned that if Greece did not fulfill the demands laid out by the eurozone finance ministers in a four-month bailout plan, "there will be no more aid."

He also said it remains to be seen whether Greece needs more aid after the end of the current bailout plan, adding that "no matter what's going to happen, we will set very strict standards."

In a different interview Sunday afternoon with German public TV ARD, Schaeuble rejected the notion that Germany is at fault for the "problems from which the people in Greece have to suffer."

"Those who are at fault are those who were responsible for decades in Greece," Schauble said.

Germany's Parliament overwhelmingly approved the four-month extension of Greece's financial bailout on Friday, despite unease over the new government in Athens.

Last week, Greece won a four-month extension to its 240 billion-euro ($270 billion) international loan agreement earlier this month in a deal with the other members of the 19-nation eurozone. In return, Athens has pledged a series of budget reforms, which for now contain no details but will have to be turned into concrete measures by April.

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Astronauts take 3rd spacewalk to complete tricky cable job

CAPE CANAVERAL, Fla. — Spacewalking astronauts ventured out for the third time in just over a week Sunday to complete an extensive, tricky cable job at the International Space Station.

The advance work — involving nearly 800 feet of cable over three spacewalks — is needed for new crew capsules commissioned by NASA. A pair of docking ports will fly up later this year, followed by the capsules themselves, with astronauts aboard, in 2017.

American astronauts Terry Virts and Butch Wilmore had 400 more feet of power and data cable to install Sunday, as well as two sets of antennas. They successfully routed 364 feet on their first two excursions, on Feb. 21 and last Wednesday.

NASA hasn't conducted such a quick succession of spacewalks since its former shuttle days, and the amount of cable work is unprecedented. Even more spacewalks will be needed once new docking ports start arriving in June.

"Good luck, guys," Italian astronaut Samantha Cristoforetti said from inside as the spacewalk got underway early.

Within the first hour, the spacewalkers had hooked up both antenna booms and got started on the cable work. There were wires everywhere, and the men had to move their bodies in different positions to access one especially cramped work site.

This month, meanwhile, marks the 50th anniversary of the world's first spacewalk. Soviet cosmonaut Alexei Leonov floated out into the vacuum of space on March 18, 1965, beating America's first spacewalker, Gemini 4's Edward White II, by just 2 1/2 months.

Before approving Sunday's spacewalk, NASA spent two days analyzing a water leak in Virts' helmet that occurred at the end of Wednesday's outing.

A small amount of water got into Virts' helmet once he was back in the air lock and the chamber was being repressurized. Engineers concluded it was the result of condensation, and a safe and well understood circumstance that had occurred several times before with the same spacesuit. Virts was never in danger, according to NASA.

Wilmore's suit functioned perfectly during the first two spacewalks, but on Sunday morning, a pressure sensor briefly malfunctioned before he floated out. A mechanical gauge, however, was operating fine. Mission Control told Wilmore that he would need to pay extra attention to how his suit was feeling throughout the seven-hour excursion.

Wilmore is due to return to Earth next week following a 5 1/2-month mission. Virts is midway through his expedition. Russian Soyuz spacecraft carried them both up, with NASA paying for the multimillion-dollar tickets.

To save money and stop being so reliant on the Russian Space Agency, NASA has hired Boeing and SpaceX to develop spacecraft capable of transporting astronauts to the space station. The two contracts are worth nearly $7 billion. SpaceX already is delivering cargo under a separate agreement with NASA.

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Online:

NASA: http://www.nasa.gov/mission_pages/station/main/index.html

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HTC, Valve to launch virtual reality headset Vive in 2015

HTC is ready to give its smartphone rival Samsung some competition in the virtual reality space, and already has lined up content from Lionsgate, HBO and Google for when its new Vive headset launches later this year.

The company is developing Vive with Valve Software, a major player in the videogame industry through Steam, its online gaming platform, which has 125 million active accounts. Valve's Steam Machine gaming console also is expected to play a significant role in powering Vive.

Both HTC and Valve see Vive as a new distribution platform for entertainment -- which could help Hollywood promote its films and TV shows but also find other ways to monetize those productions.

Given Valve's involvement, the new Vive headset will enable users to play games, but HTC is promoting it as more of a mass market device that will let users interact with movies, TV shows and other entertainment content.

Both Lionsgate and HBO have been experimenting with VR through experiences designed around "Insurgent" and "Game of Thrones."

"Virtual reality will totally transform the way we interact with the world, and will become a mainstream experience for the consumer," said HTC chief Peter Chou. "Attending real time concerts, learning history, watching an incredible movie, reliving memories through photos or shopping experiences will be transformed."

It's a similar promise companies like Oculus, Sony and Samsung are making with their own devices as VR looks to go mainstream this year.

Microsoft introduced HoloLens as its own foray into the VR space, but in a more augmented reality way with computer-generated imagery that interacts with what's in a user's space -- like digital screens that appear on a wall in a person's livingroom, for example.

Vive will be a mix of both, according to individuals that have used the headset.

The headset uses 70 sensors to bring virtual reality experiences to life with 360-degree views and use real-world settings like the living room.

"It's also really light, so you can wear it for a long time without feeling weighed down," said Jeff Gatis, HTC's executive director, global marketing.

HTC revealed Vive during a press event at the Mobile World Congress in Barcelona on Sunday, where it also showcased its new flagship smartphone, the HTC One M9, which runs on Google's Android operating system, and the HTC Grip fitness tracker, a collaboration with Under Armour. The presentation can be viewed here.

Details of actual VR experiences were not detailed during the event, nor was the price of the headset revealed.

The Mobile World Congress event is the first phase of the launch of Vive, with Valve also set to promote the VR headset during this week's Game Developers Conference in San Francisco.

© 2015 Variety Media, LLC, a subsidiary of Penske Business Media; Distributed by Tribune Content Agency, LLC

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