10-QPeriod: Q3 FY2006

BERKSHIRE HATHAWAY INC Quarterly Report for Q3 Ended Sep 30, 2006

Filed November 3, 2006For Securities:BRK-BBRK-A

Summary

Berkshire Hathaway Inc. reported a significant increase in net earnings for the first nine months of 2006, reaching $7.43 billion, a substantial jump from $3.40 billion in the same period of 2005. This growth was driven by strong performance across its diverse business segments, including insurance, manufacturing, services, and energy. The company's balance sheet remains robust, with total shareholders' equity growing to $102.2 billion as of September 30, 2006. The acquisition of MidAmerican Energy Holdings Company in early 2006 and subsequent investments in PacifiCorp, Iscar Metalworking Companies, and Russell Corporation have expanded Berkshire's operational footprint and diversified its revenue streams. Despite significant acquisitions and capital expenditures, Berkshire maintained strong liquidity and a solid capital base.

Key Highlights

  • 1Net earnings for the first nine months of 2006 surged to $7.43 billion, more than double the $3.40 billion reported in the same period of 2005.
  • 2Shareholders' equity increased to $102.2 billion as of September 30, 2006, up from $91.5 billion at the end of 2005.
  • 3Significant business acquisitions were completed in 2006, including PacifiCorp ($5.1 billion), Iscar Metalworking Companies ($5 billion), and Russell Corporation ($600 million), diversifying the company's revenue base.
  • 4The consolidation of MidAmerican Energy Holdings Company in 2006 significantly impacted reported revenues and assets, contributing to the utilities and energy segment's growth.
  • 5The insurance underwriting segment showed a strong recovery, with net underwriting gains of $1.62 billion in the first nine months of 2006, a significant improvement from a net underwriting loss of $475 million in the prior year.
  • 6Investments in fixed maturity securities and equity securities continue to form a substantial portion of Berkshire's assets, with equity securities growing significantly in fair value.
  • 7The company reported substantial cash and cash equivalents, indicating strong liquidity, though a portion of this was deployed in acquisitions during the period.

Frequently Asked Questions

The significant increase in net earnings to $7.43 billion was driven by strong performance across Berkshire Hathaway's diverse business segments, including insurance (particularly the recovery in underwriting results), manufacturing, services, and the contribution from newly acquired businesses, most notably the consolidated utilities and energy operations.

The acquisitions of PacifiCorp, Iscar Metalworking Companies, and Russell Corporation in 2006 significantly expanded Berkshire's asset base and diversified its revenue streams. The consolidation of MidAmerican Energy Holdings Company, which began in 2006, also substantially increased reported revenues and assets, particularly in the utilities and energy segment.

Berkshire Hathaway and its subsidiaries, particularly General Reinsurance, are cooperating with ongoing investigations by various governmental authorities (SEC, DOJ, state attorneys general) related to non-traditional insurance products and past transactions, notably involving AIG and ROA. While some individuals involved have faced charges or settled, Berkshire states it cannot predict the outcome or estimate potential losses, but does not believe these will have a material adverse effect on its overall business or results.

The insurance segment showed a significant improvement. The underwriting operations moved from a net loss of $475 million in the first nine months of 2005 to a net gain of $1.62 billion in the same period of 2006. GEICO, in particular, demonstrated strong underwriting gains. Investment income also increased due to higher interest rates and dividends.