Berkshire Hathaway 2006 Annual Report Download - page 6

Year Pre-Tax Earnings Per Share*
1965 ..................................................................... $ 4
1975 ..................................................................... 4
1985 ..................................................................... 52
1995 ..................................................................... 175
2006 ..................................................................... $3,625
Compound Growth Rate 1965-2006 .................... 17.9%
Compound Growth Rate 1995-2006 .................... 31.7%
*Excluding purchase-accounting adjustments and net of minority interests
Last year we had a good increase in non-insurance earnings – 38%. Large gains from here on in,
though, will come only if we are able to make major, and sensible, acquisitions. That will not be easy. We
do, however, have one advantage: More and more, Berkshire has become “the buyer of choice” for
business owners and managers. Initially, we were viewed that way only in the U.S. (and more often than
not by private companies). We’ ve long wanted, nonetheless, to extend Berkshire’ s appeal beyond U.S.
borders. And last year, our globe-trotting finally got underway.
Acquisitions
We began 2006 by completing the three acquisitions pending at yearend 2005, spending about $6
billion for PacifiCorp, Business Wire and Applied Underwriters. All are performing very well.
The highlight of the year, however, was our July 5th acquisition of most of ISCAR, an Israeli
company, and our new association with its chairman, Eitan Wertheimer, and CEO, Jacob Harpaz. The
story here began on October 25, 2005, when I received a 1¼-page letter from Eitan, of whom I then knew
nothing. The letter began, “I am writing to introduce you to ISCAR,” and proceeded to describe a cutting-
tool business carried on in 61 countries. Then Eitan wrote, “We have for some time considered the issues
of generational transfer and ownership that are typical for large family enterprises, and have given much
thought to ISCAR’ s future. Our conclusion is that Berkshire Hathaway would be the ideal home for
ISCAR. We believe that ISCAR would continue to thrive as a part of your portfolio of businesses.”
Overall, Eitan’ s letter made the quality of the company and the character of its management leap
off the page. It also made me want to learn more, and in November, Eitan, Jacob and ISCAR’ s CFO,
Danny Goldman, came to Omaha. A few hours with them convinced me that if we were to make a deal, we
would be teaming up with extraordinarily talented managers who could be trusted to run the business after
a sale with all of the energy and dedication that they had exhibited previously. However, having never
bought a business based outside of the U.S. (though I had bought a number of foreign stocks), I needed to
get educated on some tax and jurisdictional matters. With that task completed, Berkshire purchased 80% of
ISCAR for $4 billion. The remaining 20% stays in the hands of the Wertheimer family, making it our
valued partner.
ISCAR’ s products are small, consumable cutting tools that are used in conjunction with large and
expensive machine tools. It’ s a business without magic except for that imparted by the people who run it.
But Eitan, Jacob and their associates are true managerial magicians who constantly develop tools that make
their customers’ machines more productive. The result: ISCAR makes money because it enables its
customers to make more money. There is no better recipe for continued success.
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