Berkshire Hathaway 2007 Annual Report Download - page 59

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Management’s Discussion (Continued)
Manufacturing, Service and Retailing (Continued)
Other manufacturing (Continued)
Companies (“IMC”), an industry leader in the metal cutting tools business with operations worldwide that was acquired in July
2006. In July 2007, Berkshire acquired two leading jewelry manufacturing and distribution companies (“Richline”) that design,
manufacture and distribute karat gold, silver and gem set jewelry to mass merchandisers, large jewelry chains, department stores
and home shopping networks. There are numerous other manufacturers of consumer and commercial products in this diverse
group.
Revenues in 2007 from other manufacturing activities were $14,459 million, an increase of $2,471 million (21%) over
2006. The comparative increase was primarily attributable to the businesses acquired since mid-2006 as well as a significant
increase from CTB, a manufacturer of equipment for the livestock and agricultural industries. Revenues from the building
products businesses declined $292 million in 2007 as demand for their products was negatively affected by the general
slowdown in housing construction activity.
Pre-tax earnings of the other manufacturing businesses were $2,037 million in 2007, an increase of $281 million (16%)
over 2006. The increases were primarily due to full-year inclusion in 2007 of IMC and increased earnings of CTB, partially
offset by a 22% decline in earnings of the building products businesses. Revenues and earnings from the building products
businesses will likely decline further in 2008 as a result of the continued weakness in residential housing construction.
Additionally, pre-tax earnings of Fruit of the Loom declined in 2007 as a result of operating losses from the newly acquired
women’ s intimate apparel operations.
Revenues of the other manufacturing businesses in 2006 increased $2,728 million (29%) and pre-tax earnings
increased $421 million (32%) as compared to 2005. The acquisitions of Forest River (acquired August 2005), IMC and Russell
Corporation account for a substantial portion of these increases. Additionally, the building products group of businesses reported
increases in revenues and pre-tax earnings in 2006 as compared to the prior year.
Other service
Berkshire’ s other service businesses include NetJets, the world’ s leading provider of fractional ownership programs for
general aviation aircraft and FlightSafety, a provider of high technology training to operators of aircraft and ships. Among other
businesses included in this group are: TTI, a leading electronic components distributor (acquired March 2007); Business Wire, a
leading distributor of corporate news, multimedia and regulatory filings (acquired February 2006); The Pampered Chef, a direct
seller of high quality kitchen tools; International Dairy Queen, a licensor and service provider to about 6,000 stores that offer
prepared dairy treats and food; The Buffalo News, a publisher of a daily and Sunday newspaper; and businesses that provide
management and other services to insurance companies.
Revenues from the other service businesses in 2007 increased $1,981 million (34%) and pre-tax earnings increased
$310 million (47%) as compared to 2006. The increase in revenues and pre-tax earnings in 2007 versus 2006 was attributable to
the impact of business acquisitions (primarily TTI and Business Wire) as well as increased revenues and pre-tax earnings from
FlightSafety and NetJets. Both of these businesses benefited in 2007 from higher equipment (simulators and aircraft) utilization
rates and from increased customer demand.
Revenues from the other service businesses in 2006 increased $1,083 million (23%) and pre-tax earnings increased
$329 million (100%) as compared to 2005. These increases derived from significantly improved operating results of NetJets, as
well as increases in revenues and earnings for FlightSafety and the inclusion of the results of Business Wire. NetJets’ revenues
in 2006 increased $759 million as compared to 2005 and pre-tax earnings in 2006 were $143 million compared to a pre-tax loss
of $80 million in 2005. In 2006, occupied flight hours increased 19% and average hourly rates increased as well. The
improvement in operating results at NetJets also reflected a substantial decline in the cost of subcontracted flights that were
necessary to meet peak customer demand.
Retailing
Berkshire’ s retailing operations consist of several home furnishings (Nebraska Furniture Mart, R.C. Willey, Star
Furniture and Jordan’ s) and jewelry (Borsheims, Helzberg and Ben Bridge) retailers. Also included in this group is See’ s
Candies. Revenues of $3.4 billion in 2007 increased $63 million (2%) versus 2006. Pre-tax earnings in 2007 of the retailing
businesses decreased $15 million (5%) compared to 2006 and was primarily attributable to lower revenues and earnings from
jewelry stores.
Revenues of the retail group in 2006 were $3.3 billion, an increase of $223 million (7%) versus 2005. Pre-tax earnings
in 2006 were $289 million, an increase of $32 million (12%) over 2005. Home furnishings revenues in 2006 included sales from
two new R.C. Willey stores of $77 million. In addition, same store home furnishings sales in 2006 increased approximately 6%
compared to 2005. A significant portion of the increase in pre-tax earnings was due to a $27 million increase at See’ s Candies.