OMAHA, Neb. -- Investor Warren Buffett says last year was "subpar" for his company because Berkshire Hathaway's value trailed the overall market, but shareholders will likely be pleased with the 45 percent increase in profit Buffett delivered.
Buffett sounded optimistic in his annual letter that was released Friday even though 2012 was only the ninth time in the past 48 years that Berkshire's book value per share failed to outpace the S&P 500.
The legendary investor also confessed that the two investment managers he hired over the last few years left Buffett in their dust largely, because he didn't make a big acquisition last year.
Berkshire's chairman and CEO had considerably more good news than bad to offer, and Buffett offered more explanation about the company's recent newspaper purchases and its opposition to paying derivatives.
Berkshire's net income soared in 2012 to $14.8 billion, up from $10.3 billion the previous year, but most of the increase came from paper gains on its investments and derivative contracts.
Without those gains, Berkshire's operating earnings advanced 17 percent to $12.6 billion, up from the previous year's $10.8 billion. Nearly all of its major business groups performed well in 2012, with the insurance units that include Geico and General Reinsurance leading the way because of significantly fewer natural disasters in the year.
Buffett said Berkshire's acquisition luck turned last month when he agreed to work with the 3G Capital investment fund to buy the H.J. Heinz Co. for $23.3 billion.
Berkshire will own half the company, receive 9 percent dividends on $8 billion, and get warrants to buy another 5 percent of Heinz. But Buffett and his business partner Charlie Munger won't be satisfied by the ketchup deal.
"We still have plenty of cash and are generating more at a good clip," Buffett wrote. "So it's back to work; Charlie and I have again donned our safari outfits and resumed our search for elephants."
Andy Kilpatrick, who wrote "Of Permanent Value: The Story of Warren Buffett," said the warrants make it likely that Heinz will one day be entirely owned by Berkshire.
And Buffett said Berkshire finished 2012 with nearly $47 billion on hand, so he does have plenty to work with even if he insists on keeping about $20 billion around in case of emergencies.
Many of the companies Berkshire owns outright -- including MidAmerican Energy, Lubrizol chemicals and HomeServices of America -- together made 26 smaller acquisitions for $2.3 billion last year.
Kilpatrick said he was impressed with the report because for the first time in several years, it looks like all parts of Berkshire are performing well, and it looks like the 82-year-old Buffett is doing well after a prostate cancer scare last year.
"He looks to be in terrific health, and the company looks to be in terrific health," Kilpatrick said.
Buffett did not offer any new details in the letter on the plan to eventually replace him. He has said Berkshire's board plans to split Buffett's job into three roles: CEO, chairman and investment management. The board knows who it would choose immediately to succeed him as CEO.
The investment piece seems set with the recent hiring of hedge fund managers, Todd Combs and Ted Weschler. They manage portfolios worth about $5 billion while Buffett continues to make most of Berkshire's investment decisions. Buffett praised both on Friday.
"Todd Combs and Ted Weschler, our new investment managers, have proved to be smart, models of integrity, helpful to Berkshire in many ways beyond portfolio management, and a perfect cultural fit. We hit the jackpot with these two," Buffett said.
Berkshire owns roughly 80 subsidiaries, including railroad, clothing, furniture and jewelry firms, but its insurance and utility businesses typically account for more than half of the company's net income. The Omaha, Neb., company employs more than 288,000 and holds major investments in such companies as Coca-Cola Co., IBM and Wells Fargo & Co.