Berkshire Hathaway 2007 Annual Report Download - page 13

We agreed to purchase 35,464,337 shares of MidAmerican at $35.05 per share in 1999, a year in
which its per-share earnings were $2.59. Why the odd figure of $35.05? I originally decided the business
was worth $35.00 per share to Berkshire. Now, I’ m a “one-price” guy (remember See’ s?) and for several
days the investment bankers representing MidAmerican had no luck in getting me to increase Berkshire’ s
offer. But, finally, they caught me in a moment of weakness, and I caved, telling them I would go to
$35.05. With that, I explained, they could tell their client they had wrung the last nickel out of me. At the
time, it hurt.
Later on, in 2002, Berkshire purchased 6,700,000 shares at $60 to help finance the acquisition of
one of our pipelines. Lastly, in 2006, when MidAmerican bought PacifiCorp, we purchased 23,268,793
shares at $145 per share.
In 2007, MidAmerican earned $15.78 per share. However, 77¢ of that was non-recurring – a
reduction in deferred tax at our British utility, resulting from a lowering of the U.K. corporate tax rate. So
call normalized earnings $15.01 per share. And yes, I’ m glad I wilted and offered the extra nickel.
Manufacturing, Service and Retailing Operations
Our activities in this part of Berkshire cover the waterfront. Let’ s look, though, at a summary
balance sheet and earnings statement for the entire group.
Balance Sheet 12/31/07 (in millions)
Assets Liabilities and Equity
Cash and equivalents .............................. $ 2,080 Notes payable ............................ $ 1,278
Accounts and notes receivable ............... 4,488 Other current liabilities.............. 7,652
Inventory ................................................ 5,793 Total current liabilities .............. 8,930
Other current assets ................................ 470
Total current assets................................. 12,831
Goodwill and other intangibles............... 14,201 Deferred taxes............................ 828
Fixed assets............................................. 9,605 Term debt and other liabilities... 3,079
Other assets............................................. 1,685 Equity ........................................ 25,485
$38,322 $38,322
Earnings Statement (in millions)
2007 2006 2005
Revenues .................................................................................... $59,100 $52,660 $46,896
Operating expenses (including depreciation of $955 in 2007,
$823 in 2006 and $699 in 2005).......................................... 55,026 49,002 44,190
Interest expense .......................................................................... 127 132 83
Pre-tax earnings.......................................................................... 3,947* 3,526* 2,623*
Income taxes and minority interests ........................................... 1,594 1,395 977
Net income ................................................................................. $ 2,353 $ 2,131 $ 1,646
*Does not include purchase-accounting adjustments.
This motley group, which sells products ranging from lollipops to motor homes, earned a pleasing
23% on average tangible net worth last year. It’ s noteworthy also that these operations used only minor
financial leverage in achieving that return. Clearly we own some terrific businesses. We purchased many
of them, however, at large premiums to net worth – a point reflected in the goodwill item shown on the
balance sheet – and that fact reduces the earnings on our average carrying value to 9.8%.
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