Berkshire Hathaway Inc. 10-Q Summary: Period Ended September 30, 2001
Business Context and Reporting Period
This Quarterly Report (Form 10-Q) covers the period ended September 30, 2001. Berkshire Hathaway Inc. operates a diversified portfolio including insurance (GEICO, General Re, BHRG), manufacturing (Shaw Industries, Johns Manville), retail, and finance businesses. The reporting period was significantly impacted by the September 11, 2001 terrorist attacks, which resulted in substantial estimated losses for the company's reinsurance subsidiaries.
Key Financial Metrics
| Metric | Q3 2001 | Q3 2000 | 9 Months 2001 | 9 Months 2000 |
|---|---|---|---|---|
| Revenues | $9,310M | $8,434M | $28,108M | $21,477M |
| Net Earnings (Loss) | $(679M) | $797M | $700M | $2,244M |
| EPS (Class A equiv.) | $(445) | $523 | $458 | $1,474 |
| Operating Cash Flow (9mo) | $4,354M (vs $1,883M prior year) | |||
| Cash & Equivalents | $4,981M (Excl. finance businesses) | |||
| Total Debt | $3,586M | |||
| Shareholders' Equity | $57,108M |
Material Changes vs. Prior Period
- Net Loss in Q3: The company reported a net loss of $679 million in Q3 2001, a reversal from a $797 million profit in Q3 2000. This was primarily driven by a pre-tax charge of approximately $2.275 billion related to the September 11 terrorist attacks.
- Underwriting Losses: The insurance group recorded a net underwriting loss of $1,550 million in Q3 2001 compared to a loss of $223 million in Q3 2000. General Re and BHRG were the primary contributors to the 9/11 losses.
- Acquisitions: Revenues and earnings in the first nine months of 2001 were bolstered by four major acquisitions: Shaw Industries, Johns Manville, MiTek Inc., and XTRA Corporation. Aggregate cash consideration for these was $4.8 billion.
- Investment Portfolio: Equity securities fair value declined to $27.2 billion from $37.6 billion at year-end 2000, reflecting broader market declines. Realized investment gains were $326 million in Q3 2001 compared to $908 million in Q3 2000.
Outlook, Risks, and Management Commentary
- 9/11 Loss Estimation: Management states that the $2.275 billion loss estimate is subject to considerable error and will likely take years to resolve due to complex coverage issues. Future earnings may be adjusted as claims are settled.
- Accounting Changes: New FASB standards (SFAS 141 and 142) will eliminate goodwill amortization effective January 1, 2002. This is expected to significantly increase reported earnings in 2002 compared to prior years, though goodwill will still be tested for impairment.
- Non-Insurance Performance: Despite the economic slowdown and 9/11 disruptions, non-insurance businesses (including flight services and retail) performed well, with pre-tax earnings increasing 53.5% in Q3 2001 year-over-year.
- Liquidity: The company maintains a strong capital base with $57 billion in shareholders' equity and significant cash reserves. Acquisitions were funded internally.
- Risks: Key risks include the finalization of 9/11 loss estimates, volatility in investment markets, and the impact of new accounting standards on future earnings reporting.
Investor Verification Checklist
- Verify the finality of the $2.275 billion 9/11 loss estimate and potential for future reserve adjustments.
- Monitor the impact of SFAS 142 on 2002 earnings, specifically the removal of goodwill amortization charges.
- Review the integration and performance of recent acquisitions (Shaw, Johns Manville, MiTek, XTRA) in subsequent quarters.
- Assess the stability of the insurance float and the cost of float given the high underwriting losses in 2001.
- Track the status of the pending acquisition of Fruit of the Loom's apparel business ($835 million), subject to bankruptcy court approval.