(BRK.A), (BRK.B)
Earnings of Berkshire Hathaway Inc. and its consolidated subsidiaries for the second quarter and first six months of 2020 and 2019 are summarized below. Earnings are stated on an after-tax basis. (Dollar amounts are in millions, except for per share amounts).
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Second Quarter |
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First Six Months |
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2020 |
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2019 |
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2020 |
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2019 |
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Net earnings (loss) attributable to Berkshire shareholders |
$ |
26,295 |
|
$ |
14,073 |
|
$ |
(23,451 |
) |
$ |
35,734 |
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Net earnings (loss) includes: |
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Investment and derivative gains/losses – |
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Investments(1) |
|
31,017 |
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|
7,766 |
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|
(23,500 |
) |
|
23,264 |
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Derivatives |
|
628 |
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|
168 |
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(472 |
) |
|
776 |
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|
|
31,645 |
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|
7,934 |
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(23,972 |
) |
|
24,040 |
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Impairments of intangible assets(2) |
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(10,863 |
) |
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— |
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|
(10,902 |
) |
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— |
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Operating earnings |
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5,513 |
|
|
6,139 |
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|
11,423 |
|
|
11,694 |
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|
Net earnings (loss) attributable to Berkshire shareholders |
$ |
26,295 |
|
$ |
14,073 |
|
$ |
(23,451 |
) |
$ |
35,734 |
|
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Net earnings (loss) per average equivalent Class A Share |
$ |
16,314 |
|
$ |
8,608 |
|
$ |
(14,500 |
) |
$ |
21,824 |
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Net earnings (loss) per average equivalent Class B Share. |
$ |
10.88 |
|
$ |
5.74 |
|
$ |
(9.67 |
) |
$ |
14.55 |
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Average equivalent Class A shares outstanding |
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1,611,760 |
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|
1,634,962 |
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1,617,325 |
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|
1,637,378 |
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Average equivalent Class B shares outstanding |
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2,417,640,311 |
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2,452,442,401 |
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2,425,986,839 |
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2,456,067,007 |
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Note: Per share amounts for the Class B shares are 1/1,500th of those shown for the Class A. |
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(1) Generally Accepted Accounting Principles (“GAAP”) require that we include the changes in unrealized gains/losses of our equity security investments as a component of investment gains/losses in our earnings statements. In the table above, investment gains/losses in 2020 include a gain of $34.5 billion in the second quarter and a loss of $19.7 billion in the first six months and in 2019 include a gain of $7.1 billion in the second quarter and $22.2 billion in the first six months due to changes during the second quarter and the first six months in the unrealized gains that existed in our equity security investment holdings. Investment gains/losses in 2020 also include after-tax realized losses on sales of investments of $3.5 billion during the second quarter and $2.6 billion during the first six months. In 2019, investment gains/losses include after-tax realized gains of $662 million during the second quarter and $1.1 billion during the first six months. |
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The amount of investment gains/losses in any given quarter is usually meaningless and delivers figures for net earnings per share that can be extremely misleading to investors who have little or no knowledge of accounting rules. |
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(2) Includes $9.8 billion attributable to impairments of goodwill and certain identifiable intangible assets recorded in connection with Berkshire’s acquisition of Precision Castparts Corp. in 2016. |
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An analysis of Berkshire’s operating earnings follows (dollar amounts are in millions). |
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Second Quarter |
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First Six Months |
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2020 |
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2019 |
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2020 |
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2019 |
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Insurance-underwriting* |
$ |
806 |
|
$ |
353 |
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$ |
1,169 |
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$ |
742 |
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Insurance-investment income |
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1,368 |
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|
1,366 |
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|
2,754 |
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|
2,603 |
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Railroad, utilities and energy |
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1,764 |
|
|
1,945 |
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|
3,515 |
|
|
3,803 |
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Other businesses |
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1,449 |
|
|
2,487 |
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|
3,487 |
|
|
4,687 |
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Other |
|
126 |
|
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(12 |
) |
|
498 |
|
|
(141 |
) |
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Operating earnings |
$ |
5,513 |
|
$ |
6,139 |
|
$ |
11,423 |
|
$ |
11,694 |
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* One unusual item to note occurred during the second quarter: On April 8, 2020, GEICO initiated a $2.5 billion “give-back” to policyholders with respect to policies renewed and newly issued policies during the six month period beginning on April 8, 2020. For accounting purposes, the “give-back” will be spread over the twelve month period beginning on April 8, 2020. The effect was to increase GEICO’s underwriting profits during the second quarter that will lead to less favorable results – even perhaps underwriting losses – in the third and fourth quarters. Further details are set forth in our 10-Q.
Approximately $5.1 billion was used to repurchase Berkshire shares during the second quarter bringing the six month total to $6.7 billion. At June 30, 2020, insurance float (the net liabilities we assume under insurance contracts) was approximately $131 billion, an increase of $2 billion since yearend 2019.
Use of Non-GAAP Financial Measures
This press release includes certain non-GAAP financial measures. The reconciliations of such measures to the most comparable GAAP figures in accordance with Regulation G are included herein.
Berkshire presents its results in the way it believes will be most meaningful and useful, as well as most transparent, to the investing public and others who use Berkshire’s financial information. That presentation includes the use of certain non-GAAP financial measures. In addition to the GAAP presentations of net earnings, Berkshire shows operating earnings defined as net earnings exclusive of investment and derivative gains/losses and impairments of goodwill and intangible assets.
Although the investment of insurance and reinsurance premiums to generate investment income and investment gains or losses is an integral part of Berkshire’s operations, the generation of investment gains or losses is independent of the insurance underwriting process. Moreover, as previously described, under applicable GAAP accounting requirements, we are required to include the changes in unrealized gains/losses of our equity security investments as a component of investment gains/losses in our periodic earnings statements. In sum, investment gains/losses for any particular period are not indicative of quarterly business performance.
Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell a stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.