For years, chemical maker Lubrizol filed annual reports with securities regulators that ran 80 pages or more, detailing everything from its inventory to pension obligations.
Today, investors would have to do math to figure out the company's earnings in public filings. The difference is that Warren Buffett's Berkshire Hathaway Inc. (BRK/A) bought Lubrizol in 2011 for about $9 billion and now lumps together the results with those of several other manufacturing businesses.
Mr. Buffett, 83, has long highlighted his candor and desire to give shareholders equal access to information about the company. The billionaire Berkshire chairman and chief executive officer often includes self-critiques in letters to investors and takes hours of questions at an annual meeting in Omaha, Neb. Yet the company, which is poised to post record full-year profit next week, has become more opaque during his five-decade-long acquisition spree.
“It's a critical issue,” said Meyer Shields, an analyst at Keefe Bruyette & Woods, who has the equivalent of a hold rating on the stock. As the company gets bigger, investors increasingly have to rely on Mr. Buffett's reputation rather than data, he said. “You don't really know what you're getting within Berkshire Hathaway.”
The billionaire's track record of generating market-beating returns has persuaded many investors that they know enough, said Mr. Shields. Mr. Buffett took over Berkshire in 1965 and transformed it from a textile maker into a $280 billion holding company with operations spanning the retail, transportation, manufacturing, energy and insurance industries. Along the way, he made himself and many of his early backers rich.
Investors' confidence could fade once Mr. Buffett is no longer leading the company. Many of the largest shareholders have personal ties to the billionaire, and the CEO himself owns about 20% of the stock. Mr. Buffett has pledged almost all his wealth to charities that divest the shares to fund their work.
The disclosure is “sufficient for his shareholder base at the moment,” said Jeff Matthews, a Berkshire investor and author of books about the company. “Once he's gone, people are going to say, 'What's here? What do I really own?'”
Mr. Buffett strives to make the company's annual report readable, counting on Fortune magazine's Carol Loomis to help edit his letter that's included in the document. The remarks, which are usually about 20 to 25 pages, are written for people like his sisters, who aren't professional investors.
“They've got a lot of their money in Berkshire,” the CEO told PBS's Charlie Rose in a 2012 interview. “I want to tell them what I think is important to them, what I would want them to tell me if our positions were reversed.”
In recent years, that's meant covering topics such as capital spending, an investment of more than $10 billion in International Business Machines Corp. and when it might make sense to begin paying a dividend. He's also given updates about the board's work in selecting his eventual replacement as CEO.
The letter is followed by 70-or-so pages of data and discussion of Berkshire's investments and dozens of operating units. Some of the larger ones, like railroad Burlington Northern Santa Fe and auto insurer Geico, have their own sections. Others, like Fruit of the Loom, with more than 26,000 employees at the end of 2012, are hardly mentioned.
Lately, regulators have pushed for more disclosure. The Securities and Exchange Commission last year asked that Berkshire provide more information about claims from natural disasters at insurance and reinsurance units, which account for about 30% of profit. Such claims data is routinely provided by competitors, and Berkshire now breaks out the information in its filings.
“The fact that they wouldn't on their own reflects an attitude of very, very limited disclosure,” said KBW's Mr. Shields.
The SEC has also pushed Berkshire to explain more about derivative contracts in which Mr. Buffett bet on long-term gains in stocks and the creditworthiness of borrowers. Liabilities on the deals ballooned during the 2008 financial crisis and have caused swings in the company's profit since.
In 2011, regulators requested that Berkshire identify the securities tied to a $1.02 billion impairment. Berkshire responded that the writedown was related to bonds from a unit of Energy Future Holdings Corp., a Texas power company. Mr. Buffett later accepted responsibility for the loss, calling it a “major unforced error.”
The CEO has said he limits disclosure about stock and bond holdings to prevent competitors from stealing ideas. For other matters, the company aims to provide as much “value-defining information as can be conveyed in a document kept to reasonable length,” according to principles he laid out in annual reports. Mr. Buffett didn't respond to a message seeking comment.
Berkshire stands alone among the 50 largest companies in the Standard & Poor's 500 Index in not holding quarterly calls to discuss results. Instead, Mr. Buffett and Vice Chairman Charles Munger, 90, host a five-hour question-and-answer session at an annual meeting in Omaha, which typically attracts tens of thousands of attendees.
Discussion at the event strayed from Berkshire in recent years. To refocus the gathering, Mr. Buffett invited panels of journalists and analysts and instructed them to submit tough questions. The company prohibits the use of recording devices and doesn't publish a transcript.
Mr. Buffett has said he tries to level the playing field between large, institutional shareholders and those who own a much smaller amount. In the 1990s, after the company's shareholder base expanded, Mr. Buffett said he hoped new investors could gain more insight about Berkshire from its reports than they could from companies with investor-relations departments.
“If it is 'earnings guidance' or the like that shareholders or analysts seek, we will simply guide them to our public documents,” Mr. Buffett wrote in a 1999 letter.
Part of the challenge for investors is that companies have discretion with their disclosure. There's no bright line in the law about what qualifies as material information, said David B.H. Martin, a partner at Covington & Burling who led the SEC's division that oversees corporate disclosure from 1999 to 2002. Instead, there are rules of thumb, such as whether a unit contributes more than 10% of total revenue, he said.
For Berkshire, that threshold would be more than $16 billion, based on 2012 results. That year Lubrizol posted $6.1 billion in revenue, according to its website. Mr. Shields said he'd like to see earnings statements and a balance sheet for all subsidiaries that contribute 5% or more of revenue.
The last annual report omitted a tally of Lubrizol earnings. Instead, it stated how much profit rose at a group of manufacturing companies and what the increase would have been without the chemical maker's contribution.
“There's a lot of self-policing here,” Mr. Martin said of corporate filings in general. “The good news is there's a fair amount of litigation in the securities world, and getting it wrong has some prices.”
In the annual report for 1996, a year when net income was $2.49 billion, Mr. Buffett broke out profit for an investment in the Buffalo News, one of the company's main holdings at the time. The 2012 report listed more than 25 daily newspapers and their circulation, without outlining their financial results. Berkshire's net income for 2013 was probably $18 billion, Mr. Shields estimates.
Additional information may not always be more helpful. Richard Cook, co-founder of Cook & Bynum Capital Management, said he'd like to know more about subsidiaries such as toolmaker Iscar, which Berkshire bought for about $6 billion. Still, he said he has enough data to value the company and thinks that Mr. Buffett is telling shareholders what they need to know.
“He deserves that trust,” said Mr. Cook, who helps manage about $290 million including shares of Mr. Buffett's company. “With Berkshire, you have a long history of conservative accounting.”