Berkshire Hathaway 2002 Annual Report Download - page 61

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60
Management's Discussion (Continued)
Non-Insurance Businesses (Continued)
The largest new segment in terms of revenue is Shaw Industries ("Shaw"), in which Berkshire acquired an
87.3% interest on January 8, 2001. In January 2002, Berkshire acquired the remaining interest in Shaw. The
building products segment consists of four recently acquired businesses (MiTek Inc., acquired in July 2001; Johns
Manville, acquired in February 2001; Benjamin Moore, acquired in December 2000; and Acme Building Brands,
acquired in August 2000). The third new segment, apparel, consists of several businesses, including Fruit of the
Loom (acquired in April 2002), Garan (acquired in September 2002), Justin Brands (acquired in August 2000) and
several other businesses that have been owned by Berkshire for many years but were previously not part of a
reportable segment (H.H. Brown Shoe Group and Fechheimer).
Berkshire's finance and financial products businesses segment grew in 2001 with the September acquisition
of XTRA Corporation. Berkshire also acquired Ben Bridge Jeweler in July 2000, which is included as part of
Berkshire's retail segment. Other businesses acquired during the last three years include CORT Business Services
(February 2000), MidAmerican Energy Holdings Company (March 2000), Albecca (February 2002), CTB (October
2002) and The Pampered Chef (October 2002). The results of each of the aforementioned businesses are reflected
in Berkshire's earnings from their respective acquisition dates.
2002 compared to 2001
Apparel
Berkshire’ s apparel businesses grew significantly during 2002 as a result of the Fruit of the Loom and
Garan acquisitions. From their acquisition dates, these two businesses generated combined revenues of $957
million and pre-tax earnings of $190 million. Revenues from Berkshire’ s other apparel businesses declined $64
million in 2002 as compared to 2001 primarily due to lower revenues from the Dexter shoe business. Pre-tax
earnings in 2002 from the other apparel businesses totaled $39 million compared to a pre-tax loss of $33 million in
2001 which included significant operating losses and a restructuring charge at Dexter.
Building products
Each of Berkshire’ s building products businesses manufactures and distributes products and services for
the residential and commercial construction and home improvement markets. Revenues of the building products
group in 2002 totaled $3.7 billion compared to $3.3 billion in 2001. Pre-tax earnings of these businesses in 2002
were $516 million compared to $461 million in 2001.
On a comparative full year basis, building products revenues in 2002 were roughly unchanged from 2001.
In 2002, a volume decline of 12% in insulation and roofing systems (Johns Manville) was offset by 5% growth in
paint and coatings volume (Benjamin Moore), higher sales of connector plates and related products (MiTek) and
increased brick and block unit sales (Acme). Full year pre-tax earnings of $516 million were relatively unchanged
from 2001. A decline in pre-tax earnings occurred at Johns Manville where comparative results were negatively
affected by the weakness in U.S. commercial construction and roofing markets. The other units benefited from
relatively good conditions in the residential markets.
Finance and financial products
Several finance and financial products businesses are included in this segment. Generally, these businesses
invest in various types of fixed-income securities, loans, leases and other financial instruments, often utilizing
leverage in the process. The most significant of these businesses are BH Finance, a business engaged in proprietary
trading strategies, General Re Securities ("GRS"), a dealer in derivative contracts, Berkadia LLC, a special purpose
commercial lender, and XTRA Corporation, a transportation equipment leasing business.
Pre-tax earnings of the finance and financial products group in 2002 increased $497 million (95.8%) to
$1,016 million. Pre-tax earnings of BH Finance in 2002 increased $425 million from 2001, due primarily to lower
interest expense as a result of declining short-term rates as well as an increase of $152 million in realized investment
gains. Under the current market conditions, BH Finance is expected to continue to produce significant earnings in
2003.