10-QPeriod: Q2 FY2008

BERKSHIRE HATHAWAY INC Quarterly Report for Q2 Ended Jun 30, 2008

Filed August 8, 2008For Securities:BRK-BBRK-A

Summary

Berkshire Hathaway Inc.'s (BRK-B) 10-Q filing for the period ending June 30, 2008, reveals a robust financial position despite a challenging economic environment. The company reported a decrease in net earnings for both the second quarter and the first six months of 2008 compared to the prior year, largely influenced by significant investment and derivative losses, particularly from equity index put options and credit default contracts. Despite the decline in net earnings, Berkshire Hathaway demonstrated resilience through strong operational performance across many of its diverse businesses, including insurance underwriting (excluding catastrophe losses), utilities and energy, and manufacturing/service/retailing segments. The company also continued its strategic growth through acquisitions, notably the significant purchase of Marmon Holdings, Inc. The balance sheet remains exceptionally strong, with substantial shareholders' equity and liquid assets, positioning Berkshire Hathaway well to navigate economic headwinds and pursue future opportunities.

Key Highlights

  • 1Net earnings for the first six months of 2008 were $3.82 billion, a decrease from $5.71 billion in the same period of 2007, impacted by investment and derivative losses.
  • 2The company completed the acquisition of a 60% stake in Marmon Holdings, Inc. for $4.5 billion in March 2008, with further acquisitions planned.
  • 3Insurance underwriting results showed a net underwriting gain of $541 million for the first six months of 2008, down from $1.23 billion in 2007, with management noting increased price competition.
  • 4Investments in equity securities decreased in fair value from $74.99 billion at the end of 2007 to $69.51 billion at June 30, 2008, reflecting market conditions.
  • 5Derivative contracts, primarily credit default and equity index put options, resulted in a net loss of $952 million for the first six months of 2008, though the company expects long-term gains from these positions.
  • 6Consolidated shareholders' equity remained strong at $117.99 billion as of June 30, 2008.
  • 7Cash and cash equivalents decreased from $37.70 billion at the start of the year to $28.15 billion for the insurance and other segment, with overall cash and equivalents for the company at $31.16 billion.

Frequently Asked Questions

Berkshire Hathaway experienced a decline in net earnings for the first six months of 2008 compared to the same period in 2007, primarily due to significant losses related to investment and derivative activities. However, many of its operating businesses demonstrated solid performance.

The fair value of equity securities decreased, reflecting market downturns. Investments in fixed maturity securities saw an increase in amortized cost and fair value, driven by new purchases. Overall, investment gains/losses before taxes and minority interests were significantly lower year-over-year.

Derivative contracts, particularly credit default and equity index put options, have caused significant non-cash (unrealized) losses reflected in earnings for the first six months of 2008. While these contributed to the net earnings decline, Berkshire intends to hold these long-term and anticipates overall gains from these positions upon expiration.

The most significant event was the acquisition of a 60% interest in Marmon Holdings, Inc. for $4.5 billion in March 2008, with further acquisitions planned. This acquisition is expected to be accretive to earnings over time.