Berkshire Hathaway(BRK_B) - 2019 Q2 - Quarterly Report

Part I – Financial Information Item 1. Financial Statements This section presents Berkshire Hathaway Inc.'s unaudited consolidated financial statements, showing significant asset growth and net earnings driven by investment gains Consolidated Balance Sheet Highlights (in millions) | Account | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Total Assets | $760,108 | $707,794 | | Cash and cash equivalents | $44,634 | $30,361 | | Investments in equity securities | $200,516 | $172,757 | | Total Liabilities | $373,717 | $355,294 | | Total Shareholders' Equity | $386,391 | $352,500 | Consolidated Earnings Highlights (in millions, except per share) | Metric | H1 2019 | H1 2018 | | :--- | :--- | :--- | | Total Revenues | $124,276 | $120,673 | | Investment Gains (Losses) | $29,387 | $(1,819) | | Net Earnings Attributable to BRK | $35,734 | $10,873 | | Net Earnings per Avg. Class A Share | $21,824 | $6,610 | Consolidated Cash Flow Highlights - First Six Months (in millions) | Metric | 2019 | 2018 | | :--- | :--- | :--- | | Net cash flows from operating activities | $16,762 | $16,091 | | Net cash flows from investing activities | $(2,908) | $22,430 | | Net cash flows from financing activities | $411 | $(5,516) | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial results, distinguishing operating earnings from volatile investment gains/losses, highlighting segment performance, liquidity, and stock repurchases - Management states that investment and derivative gains/losses, whether realized or unrealized, are generally meaningless in understanding reported results or evaluating economic performance, as they cause significant volatility in periodic earnings[109] After-Tax Earnings by Segment (in millions) | Segment | H1 2019 | H1 2018 | | :--- | :--- | :--- | | Insurance – underwriting | $742 | $1,350 | | Insurance – investment income | $2,603 | $2,154 | | Railroad | $2,591 | $2,454 | | Utilities and energy | $1,212 | $1,166 | | Manufacturing, service and retailing | $4,687 | $4,613 | | Investment and derivative gains (losses) | $24,040 | $(1,308) | | Total Net Earnings | $35,734 | $10,873 | - The company's consolidated shareholders' equity increased by $33.8 billion since year-end 2018 to $382.5 billion at June 30, 2019[179] - Berkshire repurchased $2.1 billion of its Class A and B common stock in the first six months of 2019 under its amended repurchase program[181] Insurance Operations Insurance operations saw lower underwriting profits due to reduced prior-year loss estimates and reinsurance losses, offset by a 20.8% increase in investment income and growing float Net Underwriting Gain by Insurance Group (in millions) | Group | H1 2019 | H1 2018 | | :--- | :--- | :--- | | GEICO | $1,163 | $1,350 | | Berkshire Hathaway Reinsurance Group | $(357) | $39 | | Berkshire Hathaway Primary Group | $137 | $333 | | Total Pre-tax Underwriting Gain | $943 | $1,722 | - GEICO's loss ratio for H1 2019 increased to 79.1% from 77.7% in H1 2018, driven by smaller reductions in prior years' loss estimates ($54 million in 2019 vs. $430 million in 2018) and higher claims severities[114][116] - Insurance investment income for H1 2019 increased 20.8% year-over-year to $2.6 billion, benefiting from higher interest rates on short-term investments and increased dividend income[109][132][134] - The total insurance float was approximately $125 billion at June 30, 2019, an increase from $123 billion at December 31, 2018[134] Railroad (Burlington Northern Santa Fe) BNSF's net earnings increased by 5.6% despite volume challenges from weather and trade policy, benefiting from higher rates, cost control, and an improved operating ratio BNSF Financial Summary - First Six Months (in millions) | Metric | 2019 | 2018 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $11,655 | $11,502 | +1.3% | | Total operating expenses | $7,682 | $7,822 | -1.8% | | Net Earnings | $2,591 | $2,454 | +5.6% | - Freight volumes for H1 2019 decreased by 4.5% compared to H1 2018, negatively impacted by severe weather and flooding[139] - The operating ratio (operating expenses to revenues) improved to 65.9% in H1 2019 from 68.0% in H1 2018, reflecting cost controls and a retirement plan curtailment gain[141] Utilities and Energy (Berkshire Hathaway Energy Company) Berkshire Hathaway Energy's net earnings grew 3.9% driven by improved performance at PacifiCorp and MidAmerican Energy, despite flat revenues and a decline in real estate brokerage earnings BHE Net Earnings Attributable to BRK - First Six Months (in millions) | Metric | 2019 | 2018 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $9,642 | $9,562 | +0.8% | | Net Earnings | $1,212 | $1,166 | +3.9% | - MidAmerican Energy Company's after-tax earnings for H1 2019 increased 67% year-over-year, primarily due to higher production tax credits from wind-powered generation[146] - The real estate brokerage business experienced a 6% decrease in pre-tax earnings in H1 2019, as contributions from acquisitions were offset by lower earnings at existing businesses and higher interest expense[152] Manufacturing, Service and Retailing The Manufacturing, Service, and Retailing segments collectively reported a 1.6% increase in after-tax earnings, with varied performance across sub-segments Pre-Tax Earnings by Sub-Segment - First Six Months (in millions) | Segment | 2019 | 2018 | % Change | | :--- | :--- | :--- | :--- | | Manufacturing | $4,721 | $4,736 | -0.3% | | Service | $974 | $948 | +2.7% | | Retailing | $392 | $388 | +1.0% | | McLane Company | $170 | $127 | +33.9% | - Building products revenues grew 11.2% in H1 2019, driven by a 25% revenue increase at Clayton Homes from higher site-built home sales via acquisitions[162] - Consumer products pre-tax earnings fell 12.8% in H1 2019, primarily due to lower unit sales at Forest River (leisure vehicles) and shipping delays at Brooks Sports[163] - McLane Company's pre-tax earnings increased 34% in H1 2019, benefiting from changes in LIFO inventory valuation and improved gross margins, despite a highly competitive environment[170] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes in market risks since its 2018 Annual Report on Form 10-K - There were no material changes in market risks since the 2018 year-end report[187] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no significant changes to internal controls over financial reporting during the quarter - The company's management, including the CEO and CFO, concluded that disclosure controls and procedures are effective[188] - No significant changes in internal control over financial reporting occurred during the quarter[188] Part II – Other Information Item 1. Legal Proceedings The company is involved in routine legal actions, none of which are expected to materially affect its consolidated financial condition or results of operations - Berkshire and its subsidiaries are party to routine legal actions but do not expect them to have a material financial impact[190] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds and Issuer Repurchases of Equity Securities This section details the company's stock repurchases during Q2 2019 under its amended program, allowing repurchases when the price is below intrinsic value - The stock repurchase program was amended in July 2018 to allow repurchases when the price is below Berkshire's intrinsic value, as determined by Warren Buffett and Charlie Munger[192] Share Repurchases in Q2 2019 | Stock Class | Total Shares Purchased | Average Price Paid | | :--- | :--- | :--- | | Class A | 281 | $307,154.98 | | Class B | 1,766,140 | $201.88 | Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications by the CEO and CFO, mine safety disclosures, and iXBRL formatted financial statements - Exhibits filed include Rule 13a-14(a)/15d-14(a) and Section 1350 certifications, Mine Safety Disclosures, and iXBRL formatted financial data[196]