10-QPeriod: Q2 FY2005

BERKSHIRE HATHAWAY INC Quarterly Report for Q2 Ended Jun 30, 2005

Filed August 5, 2005For Securities:BRK-BBRK-A

Summary

Berkshire Hathaway Inc. reported solid financial results for the second quarter and first half of 2005, demonstrating continued strength across its diverse business segments. The company maintained a robust balance sheet with increasing cash and investments, indicating strong liquidity and financial flexibility. Overall revenue saw a modest increase, driven by growth in insurance and non-insurance operations, though net earnings experienced a slight decline in the first half compared to the prior year, primarily due to significant foreign currency forward contract losses. Despite these fluctuations, the underlying operational performance across its subsidiaries, including GEICO and various manufacturing and service businesses, remained strong. Management highlighted strategic acquisitions and ongoing investments as key drivers of future growth. The company successfully integrated Medical Protective Corporation and made progress towards acquiring Forest River, Inc., further diversifying its holdings. Berkshire Hathaway continued to prioritize capital allocation, focusing on acquisitions and maintaining a strong capital base to capitalize on future opportunities. The company also provided updates on ongoing legal and regulatory matters, emphasizing cooperation and transparency.

Key Highlights

  • 1Total revenues for the first half of 2005 reached $35.76 billion, a slight increase from $35.18 billion in the same period of 2004.
  • 2Net earnings for the first half of 2005 were $2.81 billion, a marginal decrease from $2.83 billion in the first half of 2004, impacted by substantial foreign currency forward contract losses.
  • 3Cash and cash equivalents across the company's businesses increased significantly, reaching $47.76 billion by the end of the first half of 2005, up from $40.20 billion at the end of the first half of 2004, underscoring strong liquidity.
  • 4The insurance group's underwriting segment reported a pre-tax gain of $1.07 billion for the first half of 2005, an improvement from $0.95 billion in the prior year, driven by strong performance at GEICO.
  • 5Acquisitions during the period included Medical Protective Corporation for $825 million, and an agreement to acquire Forest River, Inc., demonstrating continued M&A activity.
  • 6Investments in equity securities saw a significant increase in fair value, reaching $41.32 billion as of June 30, 2005, up from $37.72 billion at the end of 2004, reflecting strong market performance of key holdings.
  • 7The company is actively cooperating with ongoing governmental investigations related to General Reinsurance, providing updates on civil litigation and regulatory inquiries.

Frequently Asked Questions

The primary driver for the slight decrease in net earnings for the first half of 2005 compared to 2004 was significant losses from foreign currency forward contracts, which amounted to $926 million for the first half of 2005. While operational performance remained strong, these derivative losses substantially impacted the overall net earnings.

Berkshire Hathaway's cash and cash equivalents position saw a substantial increase, rising to $47.76 billion by the end of the first half of 2005, up from $40.20 billion in the prior year. This robust liquidity provides the company with significant financial flexibility to pursue strategic acquisitions, invest in its businesses, and weather economic uncertainties.

During the period, Berkshire Hathaway acquired Medical Protective Corporation for $825 million and agreed to acquire Forest River, Inc., a manufacturer of recreational vehicles. These acquisitions align with Berkshire's strategy of acquiring businesses with consistent earnings power and strong market positions. The filing also notes the potential for a significant gain upon the closing of Procter & Gamble's acquisition of Gillette, where Berkshire holds a substantial investment.

Berkshire Hathaway continues to cooperate fully with ongoing governmental investigations, including those involving General Reinsurance Corporation related to Reciprocal of America (ROA) and non-traditional insurance products. Several civil litigations are also noted, particularly those related to ROA and American International Group (AIG). While specific outcomes cannot be predicted, the company is actively engaged with regulatory authorities and committed to transparency.