Berkshire Hathaway Inc. 10-Q Summary: Q3 2013
Business Context and Reporting Period
This filing covers the quarterly period ended September 30, 2013. Berkshire Hathaway Inc. operates through three primary segments: Insurance and Other, Railroad, Utilities and Energy, and Finance and Financial Products. The company reported strong liquidity with consolidated cash and cash equivalents of approximately $42.1 billion.
Key Financial Metrics
| Metric | Q3 2013 | Q3 2012 | 9 Months 2013 | 9 Months 2012 |
|---|---|---|---|---|
| Total Revenues | $46,541 million | $41,050 million | $135,101 million | $117,743 million |
| Net Earnings (Attributable to Berkshire) | $5,053 million | $3,920 million | $14,486 million | $10,273 million |
| Net Earnings Per Share (Class A equiv.) | $3,074 | $2,373 | $8,814 | $6,220 |
| Operating Cash Flows (9 Months) | $20,737 million | $16,160 million | $20,737 million | $16,160 million |
| Shareholders' Equity | $208,382 million | $187,647 million | $208,382 million | $187,647 million |
| Total Debt (Notes Payable) | $65,749 million | $62,736 million | $65,749 million | $62,736 million |
Note: Debt figures represent the sum of notes payable across all segments. Margins are not explicitly stated as a single consolidated percentage due to the conglomerate structure, but operating earnings before taxes were $7,378 million for Q3 2013.
Material Changes vs. Prior Period
- Investment Gains: Net earnings were significantly boosted by investment and derivative gains. Q3 2013 saw pre-tax investment gains of $1.86 billion and derivative gains of $427 million, compared to $917 million and a $118 million loss in Q3 2012, respectively.
- Insurance Underwriting: The insurance group generated a pre-tax underwriting gain of $263 million in Q3 2013, down from $608 million in Q3 2012. This decline was partially due to catastrophe losses (floods and hail in Europe) totaling approximately $425 million pre-tax in the first nine months of 2013.
- Operating Businesses: Manufacturing, service, and retailing earnings increased 17.3% in Q3 2013 compared to the prior year. BNSF (Railroad) revenues increased 5.8% year-over-year, driven by higher volumes in industrial and consumer products.
- Derivatives: Equity index put option contracts generated a pre-tax gain of $519 million in Q3 2013, reversing a loss of $534 million in the same period in 2012.
Guidance, Outlook, and Risks
- Capital Allocation: Management maintains a policy of holding at least $20 billion in cash equivalents. No share repurchases were made in the first nine months of 2013 as the market price exceeded the book value threshold.
- Acquisitions:
- Heinz Holding: Completed a $12.25 billion investment in June 2013 (50% stake).
- NV Energy: MidAmerican announced an agreement to acquire NV Energy for approximately $5.6 billion, expected to close in Q1 2014.
- IMI plc: Marmon announced an acquisition of beverage dispensing operations for approximately $1.1 billion, expected to close in early 2014.
- Risks and Contingencies:
- Derivative Liabilities: Significant exposure remains in equity index put options (liability of $5.36 billion) and credit default contracts. These are not collateralized and values fluctuate with market indices.
- Catastrophe Losses: Insurance results remain volatile due to potential natural disasters.
- Regulatory: Ongoing rulemaking under the Dodd-Frank Act may impact financial operations, though no material impact is currently expected.
Key Facts for Investor Verification
- Investment Portfolio Concentration: Approximately 55% of the fair value of equity securities is concentrated in four companies.
- Wrigley Repurchase: A $5.08 billion receivable from the repurchase of Wrigley subordinated notes was collected in full on October 1, 2013, shortly after the reporting period.
- Warrant Exercises: Goldman Sachs and GE warrants were exercised in October 2013 on a cashless basis, resulting in the receipt of common stock valued at approximately $2.4 billion.
- Float Cost: The cost of float was negative in the first nine months of 2013 due to net underwriting gains, indicating the insurance business generated profit on premiums before investment income.
- Debt Maturities: BNSF and MidAmerican have aggregate debt maturities of approximately $760 million remaining in 2013.