10-QPeriod: Q2 FY2010

BERKSHIRE HATHAWAY INC Quarterly Report for Q2 Ended Jun 30, 2010

Filed August 6, 2010For Securities:BRK-BBRK-A

Summary

Berkshire Hathaway Inc. reported its second quarter and first six months results for 2010, marked by significant strategic developments and a recovery in many of its diverse business segments. The most impactful event was the completion of the acquisition of Burlington Northern Santa Fe Corporation (BNSF) in February 2010. This transaction substantially increased Berkshire's railroad, utilities, and energy segment assets and liabilities, contributing significantly to reported revenues and operating expenses. While the integration of BNSF presents opportunities for long-term growth and operational efficiencies, it also led to a notable increase in debt levels. Financially, the company demonstrated resilience. Net earnings attributable to Berkshire Hathaway shareholders for the first six months of 2010 were $5.6 billion, a substantial increase from $1.8 billion in the prior year, largely driven by a one-time holding gain from the BNSF acquisition and improved performance across many operating businesses recovering from the 2009 economic downturn. Investment income remained stable, while underwriting results showed a notable improvement, particularly at GEICO. Derivative losses, however, did impact short-term earnings, primarily due to changes in the valuation of equity index put options.

Financial Highlights

27 data points
Beta

Revenue

$31.71B

Net Income

$1.97B

6.2% Net Margin

EPS (Diluted)

$1195.00

Total Assets

$349.19B

Cash & Equivalents

$27.95B

Free Cash Flow

$2.00B

Financial Statements
Beta
Revenue$31.71B
Operating Expenses$28.77B
Operating Income$4.87B
Net Income$1.97B
EPS (Basic)$1195.00
Shares Outstanding (Basic)1647.17B

Key Highlights

  • 1Completion of the acquisition of Burlington Northern Santa Fe (BNSF) for $26.5 billion, integrating its operations into Berkshire's consolidated financial statements.
  • 2Net earnings attributable to Berkshire Hathaway shareholders increased significantly to $5.601 billion for the first six months of 2010, up from $1.761 billion in the same period of 2009.
  • 3A one-time holding gain of $979 million related to the BNSF acquisition significantly boosted investment gains in the first half of 2010.
  • 4Insurance underwriting results showed strong improvement, with GEICO's pre-tax underwriting gain more than doubling to $628 million for the first six months of 2010.
  • 5Total revenues for the first six months of 2010 increased to $63.746 billion from $52.391 billion in 2009, largely driven by the inclusion of BNSF.
  • 6Total shareholders' equity grew to $142.763 billion as of June 30, 2010, up from $131.102 billion at December 31, 2009, aided by stock issuance for the BNSF acquisition.
  • 7Significant volatility in earnings due to derivative contract valuations, with a pre-tax loss of $1.765 billion in the first six months of 2010 for derivative gains/losses.

Frequently Asked Questions

The most significant event was the completion of the acquisition of Burlington Northern Santa Fe Corporation (BNSF) on February 12, 2010. This was a transformative acquisition that significantly expanded Berkshire's presence in the railroad, utilities, and energy sectors, and it had a substantial impact on the company's consolidated financial statements, including assets, liabilities, revenues, and debt.

The BNSF acquisition led to a significant increase in revenues and operating expenses due to the consolidation of BNSF's operations. It also resulted in a one-time holding gain of approximately $979 million recognized in the first quarter of 2010. The transaction was financed through a combination of cash and Berkshire common stock, leading to an increase in debt and shareholders' equity.

Berkshire's management noted that many of its manufacturing, service, and retailing businesses, which were adversely impacted by the 2009 recession, showed signs of improvement in 2010, reflecting some stabilization in economic conditions. Insurance businesses, particularly GEICO, demonstrated strong underwriting performance. The railroad and utilities segments are expected to be stable, while the finance and financial products segment continues to navigate challenges related to the credit crisis and interest rate subsidies.

Derivative contracts, particularly equity index put options and credit default obligations, are causing significant volatility in Berkshire's earnings. In the first six months of 2010, the company reported a pre-tax loss of $1.765 billion from derivative activities. While these fluctuations are substantial, Berkshire's management notes that the ultimate payment obligations on many of these contracts, like the equity index put options, will not be determined for many years, and they do not consider short-term gains or losses to be meaningful indicators of long-term outcomes.