Berkshire Hathaway

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Berkshire Hathaway

Type	Public (NYSE: BRKA, NYSE: BRKB)
Founded	1965 (since current management took over) 1888 (when Hathaway Manufacturing was founded)
Headquarters	Omaha, Nebraska
Key people	Warren Buffett, CEO & Chairman Charlie Munger, Vice Chairman
Industry	Property and casualty insurance, Diversified investments
Products	Conglomerate focused on insurance
Revenue	US $81.663 billion (2005)
Net income	US $8.528 billion (2005)
Employees	180,000, mostly in subsidaries
Website	www.berkshirehathaway.com

Berkshire Hathaway (NYSE: BRKA, NYSE: BRKB) is a large holding company headquartered in Omaha, Nebraska, USA, that oversees and manages a number of subsidiary companies. Berkshire Hathaway's core business is insurance, including property and casualty insurance, reinsurance and specialty nonstandard insurance. The Company averaged a phenomenal 25%+ annual return to its shareholders for the last 25 years while employing large amounts of capital and minimal debt.

The company is controlled by Warren Buffett, who is one of the most celebrated investors in history and the second-richest man in the world according to Forbes magazine. Buffett has used the "float" provided by Berkshire Hathaway's insurance operations (a policyholder's money which it holds temporarily until claims are paid out) to finance his investments. In the early part of his career at Berkshire, he focused on long-term investments in publicly quoted stocks, but more recently he has turned to buying whole companies. Berkshire now owns a diverse range of businesses including candy production; retail, home furnishings, encyclopedias, vacuum cleaners, jewelry sales; newspaper publishing; manufacture of and distribution of uniforms; and manufacture, import and distribution of footwear.

1 History
2 Berkshire facts
3 Corporate governance
4 Financials
5 Holdings
- 5.1 Insurance and finance subsidiaries
- 5.2 Other subsidiaries
6 Berkshire Hathaway businesses
7 External links
8 References

[edit] History

The Hathaway Manufacturing Company was founded in 1888 in New Bedford, Massachusetts by Horatio Hathaway as a cotton milling business. The company was successful in its first decades, but it suffered during a general decline in the textile industry after World War I. At this time, the company was run by Seabury Stanton, whose investment efforts were rewarded with renewed profitability after the Depression.

In 1955, Hathaway merged with Berkshire Fine Spinning Associates, another textile company that was founded in Valley Falls, Rhode Island (and earlier called the Valley Falls Company) by members of the Chace family in the early nineteenth century. After the merger, Berkshire Hathaway had 15 plants employing over 12,000 workers with over $120 million in revenue and was headquartered in New Bedford, Massachusetts. However, seven of those locations were closed by the end of the decade, accompanied by large layoffs.

In 1962, Warren Buffett, convinced that Hathaway was trading at less than its real value, began buying stock in Berkshire Hathaway. After some clashes with the Stanton family, he bought up enough shares to change the management and soon controlled the company.

Buffett initially maintained Hathaway's core business of textile milling, but by 1967, he was expanding into the insurance industry and other investments. Berkshire first ventured into the insurance business with the purchase of National Indemnity Company. In the late 1970s, Berkshire acquired an equity stake in the Government Employees Insurance Company (GEICO), which forms the core of its insurance operations today (and is a major source of capital for Hathaway's other investments). In 1985, the last textile operations (Hathaway's historic core) were shut down.

[edit] Berkshire facts

Berkshire's Class A shares sell for over $100,000 a piece, making them the highest-priced shares on the New York Stock Exchange. This is because they have never had a stock split. On October 23, 2006 shares closed at $100,000 for the first time. ^[1]

The Intrinsivaluator site, calculates four valuation metrics for Berkshire, giving estimates from a liquidation value of $93,893 per A share ($3,130 per B share) to an optimistic intrinsic value of $182,805 per A share ($6,069 per B share). All figures are accurate as of December 31, 2006.

Berkshire's CEO, Warren Buffett, is respected for his investment prowess and his deep understanding of a wide spectrum of businesses. His annual chairman letters are read and quoted widely.

As of 2005, Buffett owns 38% of Berkshire Hathaway. Berkshire's Vice-Chairman Charlie Munger also holds a stake big enough to make him a billionaire, and early investments in Berkshire by David Gottesman and Franklin Otis Booth resulted in their becoming billionaires as well.

Berkshire Hathaway is notable in that it has never split its shares, which not only contributed to their high per-share price but also significantly reduced the liquidity of the stock. But despite its size, it is not included in broad stock market indexes such as the S&P 500. However, Berkshire Hathaway has created a Class B stock, with an ownership value of 1/30th of that of the original shares (now Class A) and 1/200th of the per-share voting rights. Holders of Class A stock are allowed to convert their stock to Class B, though not vice versa.

Buffett was reluctant to create the Class B shares, but did so to thwart the creation of unit trusts that would have marketed themselves as Berkshire look-alikes. As Buffett said in his 1995 shareholder letter:

"The unit trusts that have recently surfaced fly in the face of these goals. They would be sold by brokers working for big commissions, would impose other burdensome costs on their shareholders, and would be marketed en masse to unsophisticated buyers, apt to be seduced by our past record and beguiled by the publicity Berkshire and I have received in recent years. The sure outcome: a multitude of investors destined to be disappointed."

Berkshire's annual shareholders' meetings, taking place in the Qwest Center in Omaha, Nebraska, are routinely visited by 20,000 people.[1] The meetings, known for their humor and light-heartedness, typically start with a movie made for Berkshire shareholders. The 2004 movie featured Arnold Schwarzenegger in the role of 'The Warrenator' who travels through time to stop Buffett and Munger's attempt to save the world from a "mega" corporation formed by Microsoft-Starbucks-Wal-Mart. Schwarzenegger is later shown arguing in a gym with Buffett regarding Proposition 13.[2] The 2006 movie depicted actresses Jamie Lee Curtis and Nicollette Sheridan lusting after Munger.[3]

[edit] Corporate governance

Current members of the board of directors of Berkshire Hathaway are: Howard Graham Buffett, Warren Buffett, Susan Decker, Bill Gates, David Gottesman, Charlotte Guyman, Donald Keough, Charlie Munger, Thomas S. Murphy, Ronald Olson, and Walter Scott Jr.

[edit] Financials

Cash and cash equivalents at December 31, 2006: $43.743 billion USD
Equity investments at December 31, 2006: $61.533 billion USD
Total shareholders’ equity at December 31, 2006: $108.419 billion USD
Revenue for 2006: $98.539 billion USD
Net earnings for 2006: $11.015 billion USD
Income taxes for 2006: $5.505 billion USD

Source: Berkshire Hathaway 2006 Annual Report

[edit] Holdings

Main article: List of assets owned by Berkshire Hathaway

[edit] Insurance and finance subsidiaries

[edit] Other subsidiaries

[edit] Berkshire Hathaway businesses

Source: SEC filings

[edit] Insurance and reinsurance businesses

Insurance and reinsurance business activities are conducted through more than 50 domestic and foreign-based insurance companies. Berkshire’s insurance businesses provide insurance and reinsurance of property and casualty risks primarily in the United States. In addition, as a result of the General Re acquisition in December 1998, Berkshire’s insurance businesses also include life, accident and health reinsurers, as well as internationally-based property and casualty reinsurers.

Berkshire’s insurance companies maintain capital strength at exceptionally high levels. This strength differentiates Berkshire’s insurance companies from their competitors. Collectively, the aggregate statutory surplus of Berkshire’s U.S. based insurers was approximately $48 billion at December 31, 2004. All of Berkshire’s major insurance subsidiaries are rated AAA by Standard & Poor’s Corporation, the highest Financial Strength Rating assigned by Standard & Poor’s, and are rated A++ (superior) by A.M. Best with respect to their financial condition and operating performance. This Triple-A status is the result of Buffett's astuteness in the management of capital, people and business.

GEICO — Berkshire acquired GEICO in January 1996. GEICO is headquartered in Chevy Chase, Maryland and its principal insurance subsidiaries include: Government Employees Insurance Company, GEICO General Insurance Company, GEICO Indemnity Company, and GEICO Casualty Company. Over the past five years, these companies have offered primarily private passenger automobile insurance to individuals in 49 states and the District of Columbia. The subsidiaries market their policies primarily through direct response methods, in which applications for insurance are submitted directly to the companies by telephone, through the mail, or via the Internet.

General Re — Berkshire acquired General Re in December 1998. General Re held a 91% ownership interest in Cologne Re as of December 31, 2004. General Re subsidiaries currently conduct global reinsurance business in approximately 72 cities and provide reinsurance coverage worldwide. General Re operates the following reinsurance businesses: North American property/casualty, international property/casualty, which principally consists of Cologne Re and the Faraday operations, and life/health reinsurance. General Re’s reinsurance operations are primarily based in Stamford, Connecticut and Cologne, Germany. General Re is one of the largest reinsurers in the world based on net premiums written and capital.

[edit] Non-insurance businesses

[edit] Apparel

Berkshire’s apparel businesses include manufacturers and distributors of a variety of clothing and footwear. Businesses engaged in the manufacture and distribution of clothing include Fruit of the Loom, Garan, Fechheimer Brothers and Russell Corporation. Berkshire’s footwear businesses include H.H. Brown Shoe Group, Acme Boots and Justin Brands.

Berkshire acquired Fruit of the Loom on April 29, 2002 for $835 million in cash. Fruit of the Loom, headquartered in Bowling Green, Kentucky, is a vertically integrated manufacturer of basic apparel.

Berkshire acquired Russell Corporation on August 2, 2006 for $600 million or $18.00 per share.

[edit] Building products

In August 2000, Berkshire entered the building products business with the acquisition of Acme Building Brands. Acme, headquartered in Fort Worth, Texas, manufactures and distributes clay bricks (Acme Brick), concrete block (Featherlite) and cut limestone (Texas Quarries).

Berkshire acquired Benjamin Moore & Co. in December of 2000. Benjamin Moore, headquartered in Montvale, New Jersey, is a formulator, manufacturer and retailer of primarily architectural coatings, available principally in the United States and Canada.

Berkshire acquired Johns Manville in February of 2001. JM has been serving the building products industry for nearly 150 years^{[citation needed]} and is a manufacturer of fiber glass wool insulation products for walls, attics and floors in homes and commercial buildings, as well as pipe, duct and equipment insulation products.

Berkshire acquired a 90% equity interest in MiTek Inc. in July 2001. MiTek is headquartered in Chesterfield, Missouri and makes engineered connector products, engineering software and services, and manufacturing machinery for the truss fabrication segment of the building components industry.

On August 7, 2003, Berkshire acquired Clayton Homes, Inc. Clayton, headquartered near Knoxville, Tennessee, is a vertically integrated manufactured housing company. At year-end 2004, Clayton operated 32 manufacturing plants in 12 states. Clayton’s homes are marketed in 48 states through a network of 1,540 retailers, 391 of which are company-owned sales centers.

[edit] Flight services

In 1996, Berkshire acquired FlightSafety International Inc. FSI’s corporate headquarters is located at LaGuardia Airport in Flushing, New York. FSI engages primarily in the business of providing high technology training to operators of aircraft and ships. FlightSafety is the world's leading provider of professional aviation training services.

Berkshire acquired NetJets Inc. in 1998. NJ is the world’s leading provider of fractional ownership programs for general aviation aircraft. In 1986, NJ created the fractional ownership of aircraft concept and introduced its NetJets® program in the United States with one aircraft type. In 2004, the NetJets® program operated 15 aircraft types. In late 1996, NJ expanded its fractional ownership programs to Europe via a joint venture arrangement which is now 100% owned by NJ. The fractional ownership of aircraft concept permits customers to acquire a specific percentage of a certain aircraft type and allows them to utilize the aircraft for a specified number of flight hours per annum.

[edit] Retail businesses

The home furnishings businesses are the Nebraska Furniture Mart, R.C. Willey Home Furnishings, Star Furniture Company, and Jordan’s Furniture, Inc.

Berkshire acquired Shaw Industries, Inc. in 2001. Shaw, headquartered in Dalton, Georgia, is the world’s second largest carpet manufacturer based on both revenue and volume of production. Shaw designs and manufactures over 3,000 styles of tufted and woven carpet and laminate flooring for residential and commercial use under about 30 brand and trade names and under certain private labels.

CORT Business Services Corporation was acquired in 2000 by an 80.1% owned subsidiary of Berkshire and is the leading national provider of rental furniture, accessories and related services in the “rent-to-rent” segment of the furniture rental industry.

[edit] Other non-insurance businesses

Berkshire acquired McLane Company, Inc. in May 2003 from Wal-Mart Stores, Inc. McLane provides wholesale distribution and logistics services in all 50 states and internationally in Brazil to customers that include discount retailers, convenience stores, quick service restaurants, drug stores and movie theatre complexes.

Scott Fetzer Companies — The Scott Fetzer Companies are a diversified group of 21 businesses that manufacture and distribute a wide variety of products for residential, industrial and institutional use. The two most significant of these businesses are Kirby home cleaning systems and Campbell Hausfeld products. Scott Fetzer also manufacturs Ginsu Knives.

The Buffalo News publishes three editions on Saturday and Sunday and eight editions each weekday from its headquarters in Buffalo, New York.

Berkshire acquired XTRA in September 2001. XTRA, headquartered in St. Louis, Missouri, is a leading transportation equipment lessor. XTRA manages a diverse fleet of approximately 105,000 units, constituting a net investment of approximately $1 billion as of December 31, 2004. The fleet includes over-the-road and storage trailers, chassis, intermodal piggyback trailers and domestic containers.

See's Candies produces boxed chocolates and other confectionery products with an emphasis on quality and distinctiveness in two large kitchens in California. See’s revenues are highly seasonal with approximately 50% of total annual revenues being earned in the months of November and December.

International Dairy Queen services a system of approximately 6,000 stores operating under the names Dairy Queen, Orange Julius and Karmelkorn that offer various dairy desserts, beverages, prepared foods, blended fruit drinks, popcorn and other snack foods.

In 2002, Berkshire acquired Albecca Inc. Albecca is headquartered in Norcross, Georgia, and primarily does business under the Larson-Juhl name. Albecca designs, manufactures and distributes a complete line of high quality branded custom framing products, including wood and metal moulding, matboard, foamboard, glass, equipment and other framing supplies.

Berkshire acquired CTB International Corp. in 2002. CTB, headquartered in Milford, Indiana, is a leading designer, manufacturer and marketer of systems used in the grain industry and in the production of poultry, hogs, and eggs. Products are produced in the United States and Europe and are sold primarily through a global network of independent dealers and distributors, with peak sales occurring in the second and third quarters.

In 2002 Berkshire acquired The Pampered Chef, LTD, the largest direct seller of high quality kitchen tools in the United States. Products are researched, designed and tested by TPC, and manufactured by third party suppliers. From its Addison, Illinois headquarters, TPC utilizes a network of more than 65,000 independent sales representatives to sell its products through home-based party demonstrations, principally in the United States.

Berkshire currently holds 83.7% (80.5% on a fully-diluted basis) of the MidAmerican Energy Holdings Company. At the time of purchase, Berkshire's voting interest was limited to 10% of the company's shares, but this restriction ended when the Public Utility Holding Company Act of 1935 was repealed in 2005.

[edit] Common stock holdings

This includes outstanding stock as reported in the last SEC EDGAR filing (Form 13F), and the latest annual report.

[edit] Companies with a "beneficial owner" relationship

This includes some of the companies where a Berkshire Hathaway stake is 5% or more of the outstanding stock, as reported in the last proxy statement SEC filing, and the latest annual report.

In order of percentage stake:

[edit] External links

Berkshire Hathaway Official Website - Source for annual reports, which include Berkshire Hathaway Shareholder Letters by Warren Buffett.
Yahoo! - Berkshire Hathaway Inc. Company Profile
List of Berkshire Hathaway holdings as of the latest quarter
Chronicle of SEC Filings for Berkshire Hathaway

[edit] References

^ Berkshire Hathaway A-class share price at finance.yahoo.com

Chairman's Letter of 1990 Appendix B discusses Buffett's hands-off management style.↑
Krantz, Matt. "As company priorities shift, fewer get AAA debt rating", USA Today, Mar 15, 2005.

v • d • e Berkshire Hathaway
Insurance	Applied Underwriters Inc. • Central States Indemnity Company • GEICO • General Re • Kansas Bankers Surety Company • Medical Protective • National Indemnity Company • United States Liability Insurance Group • Wesco Financial
Materials and Construction	Acme Brick • Benjamin Moore & Co. • Clayton Homes • ISCAR Metalworking • Johns-Manville • MiTek • Precision Steel Warehouse, Inc. • Shaw Industries
Furniture	CORT Business Services • Jordan's Furniture • Larson-Juhl • Nebraska Furniture Mart • RC Willey Home Furnishings • Star Furniture
Apparel	Fruit of the Loom • Russell • Garan • Fechheimer Brothers • Acme Boots • H.H. Brown Shoe Group • Justin Brands
Transportation	NetJets • FlightSafety International • Forest River • McLane Company • XTRA Corporation
Food	Dairy Queen • The Pampered Chef • See's Candies
Other	Ben Bridge Jeweler • Blue Chip Stamps • Borsheim's Fine Jewelry • The Buffalo News • Business Wire • CTB Inc. • MidAmerican Energy Holdings Company • World Book Encyclopedia
Board of Directors	Warren Buffett • Charlie Munger • Howard Graham Buffett • Malcolm Chace • Bill Gates • David Gottesman • Charlotte Guyman • Donald Keough • Thomas S. Murphy • Ronald Olson • Walter Scott, Jr.
Annual Revenue: $81.663 billion USD • Employees: 180,000 • Stock Symbol: NYSE: BRKA, NYSE: BRKB • Web site: www.berkshirehathaway.com

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