Berkshire Hathaway 2007 Annual Report Download - page 14

Here are a few newsworthy items about companies in this sector:
• Shaw, Acme Brick, Johns Manville and MiTek were all hurt in 2007 by the sharp housing
downturn, with their pre-tax earnings declining 27%, 41%, 38%, and 9% respectively. Overall,
these companies earned $941 million pre-tax compared to $1.296 billion in 2006.
Last year, Shaw, MiTek and Acme contracted for tuck-in acquisitions that will help future
earnings. You can be sure they will be looking for more of these.
• In a tough year for retailing, our standouts were See’ s, Borsheims and Nebraska Furniture Mart.
Two years ago Brad Kinstler was made CEO of See’ s. We very seldom move managers from one
industry to another at Berkshire. But we made an exception with Brad, who had previously run
our uniform company, Fechheimer, and Cypress Insurance. The move could not have worked out
better. In his two years, profits at See’ s have increased more than 50%.
At Borsheims, sales increased 15.1%, helped by a 27% gain during Shareholder Weekend. Two
years ago, Susan Jacques suggested that we remodel and expand the store. I was skeptical, but
Susan was right.
Susan came to Borsheims 25 years ago as a $4-an-hour saleswoman. Though she lacked a
managerial background, I did not hesitate to make her CEO in 1994. She’ s smart, she loves the
business, and she loves her associates. That beats having an MBA degree any time.
(An aside: Charlie and I are not big fans of resumes. Instead, we focus on brains, passion and
integrity. Another of our great managers is Cathy Baron Tamraz, who has significantly increased
Business Wire’ s earnings since we purchased it early in 2006. She is an owner’ s dream. It is
positively dangerous to stand between Cathy and a business prospect. Cathy, it should be noted,
began her career as a cab driver.)
Finally, at Nebraska Furniture Mart, earnings hit a record as our Omaha and Kansas City stores
each had sales of about $400 million. These, by some margin, are the two top home furnishings
stores in the country. In a disastrous year for many furniture retailers, sales at Kansas City
increased 8%, while in Omaha the gain was 6%.
Credit the remarkable Blumkin brothers, Ron and Irv, for this performance. Both are close
personal friends of mine and great businessmen.
• Iscar continues its wondrous ways. Its products are small carbide cutting tools that make large and
very expensive machine tools more productive. The raw material for carbide is tungsten, mined in
China. For many decades, Iscar moved tungsten to Israel, where brains turned it into something
far more valuable. Late in 2007, Iscar opened a large plant in Dalian, China. In effect, we’ ve now
moved the brains to the tungsten. Major opportunities for growth await Iscar. Its management
team, led by Eitan Wertheimer, Jacob Harpaz, and Danny Goldman, is certain to make the most of
them.
• Flight services set a record in 2007 with pre-tax earnings increasing 49% to $547 million.
Corporate aviation had an extraordinary year worldwide, and both of our companies – as runaway
leaders in their fields – fully participated.
FlightSafety, our pilot training business, gained 14% in revenues and 20% in pre-tax earnings.
We estimate that we train about 58% of U.S. corporate pilots. Bruce Whitman, the company’ s
CEO, inherited this leadership position in 2003 from Al Ueltschi, the father of advanced flight
training, and has proved to be a worthy successor.
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