OMAHA, Neb. (AP) — A drop in the paper value of the financialinstruments known as derivatives hurt profits at Berkshire HathawayInc., the conglomerate run by billionaire investor WarrenBuffett.

Some of its subsidiaries performed well enough to offset some ofthe losses. Buffett detailed the company's 2011 performanceSaturday in his annual letter to shareholders.

Berkshire reported fourth-quarter net income of $3.05 billion,or $1,846 per Class A share. That was down from $4.4 billion netincome, or $2,656 per share, a year ago.

Berkshire's profit fell short of the $1,875 per share expectedby the four analysts surveyed by FactSet, a provider of financialdata. Quarterly revenue grew 5 percent to $37.96 billion from lastyear's $36.17 billion.

The biggest difference in the quarter was the change inestimated value of Berkshire's investments and derivativecontracts. That fell to $382 million this year from last year's$1.4 billion.

Derivatives are complex investments that have been blamed inpart for the 2008 financial crisis and the recession. Berkshire'sderivatives are designed to operate like insurance policies, withsome covering the risk of bond defaults by certain companies andsome covering whether certain stock market indexes will be lower 15or 20 years in the future.

Buffett reiterated Saturday that he believes Berkshire'sderivative contracts will ultimately prove profitable, but he saidthe company doesn't plan to write any more major derivativecontracts. Buffett said he does not want Berkshire to deal with newrequirements for how much collateral companies must post when theyhold derivatives.

For 2011, Berkshire generated $10.3 billion in net income, or$6,215 per Class A share, down from nearly $13 billion, or $7,928per share, in 2010.

Strength in the Burlington Northern Santa Fe railroad,MidAmerican Energy, and the Marmon Group helped offset insuranceunderwriting losses related to catastrophes like the Japan tsunami.Newly acquired chemical maker Lubrizol added $1.7 billion inrevenues to Berkshire since September.

Stockbroker Andy Kilpatrick, who wrote “Of Permanent Value: TheStory of Warren Buffett,” said Buffett managed to outperform theoverall market in a tough year for Berkshire's insurance andhousing-related subsidiaries.

“It was not a great year, but he still beat the S&P. It'sstill an incredible moneymaking machine,” Kilpatrick said.

Buffett's preferred measure of Berkshire's performance is thegrowth in its book value, which is a calculation of the company'sassets minus its liabilities. Buffett said Berkshire's book valuegrew 4.6 percent to $99,860 per share in 2011. The S&P 500,which Berkshire is part of, gained 2.1 percent last year whendividends were factored in.

Berkshire owns roughly 80 subsidiaries, including clothing,furniture and jewelry companies, but its insurance and utilitybusinesses typically account for more than half the company's netincome. It also has major investments in such companies asCoca-Cola, IBM and Wells Fargo.