Buffett's Berkshire Reluctantly Writes Down $506 Million in Stock 'Losses'

Warren Buffett
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Warren Buffett

The basic headlines from tonight's quarterly earnings report by Berkshire Hathaway weren't a surprise. Warren Buffett previewed the numbersat last weekend's annual meeting.

There is, however, an interesting revelation we didn't know.

After discussions with the SECon the subject, Berkshire Hathaway is recording $506 million in "other-than-temporary impairment losses" on two stock holdings: $169 million for Kraft Foods and $337 million for a portion of its Wells Fargo stake .

That's not because Berkshire sold the shares at a loss. It's due to accounting rules that require write-downs for unrealized losses when they've been around for awhile. The rules, however, do not include a clear, unambiguous definition of "temporary."

In its 10-Q report, Berkshire acknowledges that most of the unrealized losses were more than two years old.

Berkshire, however, notes it has the "ability and intent" to keep those stock positions until they become profitable, or longer. And the company "strongly believes" that will indeed happen eventually. "The recognition of such losses ... does not necessarily indicate that sales are imminent or planned and sales ultimately may not occur for numerous years or even decades."

The 10-Q also notes that Berkshire is writing down a third of a billion dollars in unrealized losses for 104 million shares of Wells Fargo, even though it holds another 255 million shares with an unrealized gain of $3.7 billion. That "gain" is not included in Berkshire's quarterly report.

"This odd result occurs because existing accounting rules require that impairments be evaluated as to whether or not they are other than temporary on an individual purchase lot basis since that is how we determine realized investment gains/losses on sales of investments."

Changes in market value for stocks and other holdings are included in Berkshire's shareholders' equity, a metric Buffett values much more than net earnings.

As of March 31, shareholders' equity totaled $160 billion, an increase of 8.8 percent from $147 billion three months earlier.

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