10-QPeriod: Q3 FY2010

BERKSHIRE HATHAWAY INC Quarterly Report for Q3 Ended Sep 30, 2010

Filed November 5, 2010For Securities:BRK-BBRK-A

Summary

Berkshire Hathaway Inc. (BRK-B) reported its third-quarter and nine-month financial results for the period ending September 30, 2010. The company demonstrated robust growth, largely driven by the significant acquisition of Burlington Northern Santa Fe (BNSF) in February 2010. This acquisition notably boosted revenues and operating assets within the Railroad, Utilities, and Energy segment. Overall, net earnings attributable to Berkshire Hathaway shareholders showed a substantial increase compared to the prior year, fueled by a combination of strong operational performance across its diverse business segments and a one-time holding gain related to the BNSF acquisition. The company's insurance operations continued to perform well, with solid underwriting gains and investment income. While market volatility impacted derivative gains/losses, the company maintained a strong financial position with increased shareholders' equity and substantial cash reserves.

Financial Highlights

27 data points
Beta

Revenue

$36.27B

Net Income

$2.99B

8.2% Net Margin

EPS (Diluted)

$1814.00

Total Assets

$363.98B

Cash & Equivalents

$34.46B

Free Cash Flow

$5.40B

Financial Statements
Beta
Revenue$36.27B
Operating Expenses$31.74B
Operating Income$4.36B
Net Income$2.99B
EPS (Basic)$1814.00
Shares Outstanding (Basic)1647.59B

Key Highlights

  • 1Acquisition of Burlington Northern Santa Fe (BNSF) completed in February 2010, significantly expanding the Railroad, Utilities, and Energy segment.
  • 2Net earnings attributable to Berkshire Hathaway shareholders increased significantly to $2.99 billion for the third quarter and $8.59 billion for the first nine months of 2010, up from $3.24 billion and $5.00 billion in the respective prior-year periods.
  • 3Total revenues grew to $36.27 billion in Q3 2010 and $100.02 billion for the first nine months of 2010, a substantial increase driven by the BNSF acquisition and improved performance in manufacturing and service businesses.
  • 4Insurance underwriting generated a pre-tax gain of $305 million in Q3 2010 and $1.37 billion for the first nine months, demonstrating continued profitability.
  • 5Shareholders' equity increased to $149.7 billion at September 30, 2010, up from $131.1 billion at December 31, 2009, reflecting strong earnings and stock issuance for the BNSF acquisition.
  • 6Cash and cash equivalents remained strong, totaling $34.5 billion across all segments, providing significant liquidity.
  • 7Investment portfolio shows unrealized gains of $3.63 billion in fixed maturity securities and $24.02 billion in equity securities as of September 30, 2010.

Frequently Asked Questions

The most significant event was the acquisition of the remaining 77.5% of Burlington Northern Santa Fe Corporation (BNSF) on February 12, 2010. This acquisition substantially increased the size of Berkshire's Railroad, Utilities, and Energy segment, contributing significantly to revenue growth and providing a substantial one-time holding gain recognized in the first quarter.

Berkshire's insurance businesses continued to demonstrate strong performance. Underwriting operations generated pre-tax gains, with GEICO showing consistent premium growth and improved loss ratios. General Re and the Berkshire Hathaway Reinsurance Group also reported underwriting gains, though the Reinsurance Group experienced some volatility due to large catastrophe losses and significant retroactive reinsurance contracts. Investment income from insurance operations remained substantial.

Management believes that the economic franchises of its operating businesses remain intact, and they are hopeful that recent economic improvements will continue. The company maintains a strong balance sheet with substantial shareholders' equity and significant cash reserves, providing resilience. However, management acknowledges potential future impacts from credit market access limitations and the implementation of the Dodd-Frank Act, although they do not expect a material impact on consolidated results from the latter.

Derivative contracts, primarily credit default obligations and equity index put options, caused significant volatility in earnings. In the third quarter of 2010, these contracts resulted in a net pre-tax loss of $146 million due to increased liabilities for equity index put options, partly offset by gains from credit default contracts. For the first nine months of 2010, derivative contracts generated a pre-tax loss of $1.91 billion. This volatility is expected given the long-dated nature of many of these contracts.