10-QPeriod: Q1 FY2018

BERKSHIRE HATHAWAY INC Quarterly Report for Q1 Ended Mar 31, 2018

Filed May 7, 2018For Securities:BRK-BBRK-A

Summary

Berkshire Hathaway Inc. reported a net loss attributable to shareholders of $1.138 billion for the first quarter of 2018. This loss was primarily driven by a significant after-tax loss of approximately $6.4 billion from investment and derivative activities, largely due to newly recognized unrealized losses on equity securities as a result of a change in accounting standards (ASU 2016-01). Excluding these volatile investment impacts, the underlying operating businesses demonstrated resilience. Despite the reported net loss, key operating segments showed improved performance. Insurance underwriting generated a net gain of $407 million, a notable improvement from a $267 million loss in the prior year's quarter, driven by better results at GEICO and improved property/casualty reinsurance. The railroad business (BNSF) and utilities/energy (Berkshire Hathaway Energy) also saw earnings growth, benefiting from increased volumes and, importantly, the lower U.S. statutory income tax rate (21% vs. 35% previously) enacted by the Tax Cuts and Jobs Act of 2017. Manufacturing, service, and retailing businesses also contributed positively with increased earnings.

Financial Highlights

28 data points
Beta

Revenue

$58.47B

Net Income

-$1.14B

-1.9% Net Margin

Total Assets

$702.65B

Cash & Equivalents

$58.37B

Free Cash Flow

$4.97B

Financial Statements
Beta
Revenue$58.47B
Operating Expenses$52.38B
Net Income-$1.14B

Key Highlights

  • 1Reported a net loss of $1.138 billion for Q1 2018, primarily due to a $6.4 billion after-tax investment and derivative loss, influenced by new accounting for unrealized equity security gains/losses.
  • 2Insurance underwriting segment turned profitable with a $407 million net gain, a significant improvement from a $267 million loss in Q1 2017.
  • 3GEICO's underwriting results improved substantially, driven by higher premiums earned and a lower loss ratio.
  • 4BNSF railroad and Berkshire Hathaway Energy (Utilities & Energy) segments reported increased earnings, benefiting from higher volumes and the lower U.S. corporate tax rate.
  • 5Manufacturing, Service, and Retailing segments showed strong earnings growth, up 38% year-over-year, also aided by the tax rate reduction and increased pre-tax earnings.
  • 6Cash, cash equivalents, and U.S. Treasury Bills held by insurance businesses remained substantial at approximately $98.6 billion, indicating strong liquidity.
  • 7Adoption of ASU 2016-01 starting in 2018 requires unrealized gains and losses on equity securities to be included in earnings, significantly increasing earnings volatility.

Frequently Asked Questions

Berkshire Hathaway reported a net loss of $1.138 billion attributable to shareholders primarily due to a large after-tax loss of $6.4 billion related to investment and derivative activities. This significant loss was largely driven by newly recognized unrealized losses on equity securities, a change resulting from the adoption of Accounting Standards Update (ASU) 2016-01, which now requires these unrealized changes in fair value to be reported in earnings rather than other comprehensive income. Excluding these investment impacts, the company's operating businesses showed improved performance.

The Tax Cuts and Jobs Act of 2017, which reduced the U.S. federal corporate income tax rate from 35% to 21% effective January 1, 2018, had a favorable impact on Berkshire's after-tax earnings. Many of its operating businesses, including the railroad (BNSF), utilities and energy, manufacturing, and finance segments, benefited from this lower tax rate, contributing to improved net earnings for these segments compared to the prior year when the higher tax rate was in effect.

The adoption of ASU 2016-01 starting in 2018 mandates that unrealized gains and losses on equity securities be recognized in the Consolidated Statements of Earnings. Previously, these unrealized changes were reported in accumulated other comprehensive income. This change is expected to significantly increase the volatility of Berkshire's reported quarterly and annual earnings, as demonstrated by the $6.4 billion after-tax investment and derivative loss in Q1 2018, even though it does not affect total shareholders' equity or comprehensive income.

The insurance underwriting segment showed a marked improvement, reporting a net gain of $407 million in the first quarter of 2018, a substantial turnaround from a net loss of $267 million in the first quarter of 2017. This improvement was driven by strong performance at GEICO, which benefited from higher premiums and a lower loss ratio, and better results from the Berkshire Hathaway Reinsurance Group. The company's substantial insurance 'float' of approximately $116 billion remains a key financial strength.