Berkshire Hathaway, Inc. (Berkshire) is a holding company incorporated in Delaware that owns a diverse set of subsidiary businesses. Its corporate headquarters is located in Omaha, Nebraska. As of the end of 2007, Berkshire and its subsidiaries employed about 233,000 persons. Berkshire is a unique company in two ways: (1) by its success with its investments in stocks, bonds, and cash equivalents, which are overseen by its chairman, Warren E. Buffett, and its vice chairman, Charles T. Munger; and (2) by its extraordinarily decentralized management style as evidenced by minimal involvement by its corporate headquarters in the day-to-day operations of its subsidiaries.
Berkshire has a portfolio of investment in common stocks with a market value estimated at about $74.9 billion. This group of stocks is closely followed by the financial community. Berkshire has significant holdings (valuations in excess of $4 billion) in the following companies (in descending order of investment): Coca-Cola Company, Wells Fargo & Company, American Express Company, Procter & Gamble Company, Burlington Northern Santa Fe, Johnson & Johnson, and Kraft Foods, Inc.
Berkshire looks to invest in companies that show improvements in earnings and companies that possess superiorities that “make life difficult for their competitors.” Berkshire acquires and operates companies based on the following criteria: first, large purchases generating at least $75 million in pre-tax earnings; second, companies with demonstrated consistent earnings power; third, businesses earning good returns on equity while employing little or no debt; fourth, management already in place; fifth, businesses that are simple to understand; and finally, businesses with a known offering price (and a friendly takeover). The following sections describe the business sectors and operating businesses of Berkshire.
Insurance And Reinsurance
Berkshire’s 60-some insurance businesses are its most important subsidiaries and operate in both the U.S. domestic market and foreign markets. These subsidiaries compete in both the primary insurance market and in the reinsurance market. Each of its insurance subsidiaries is rated highly for its capital strength, its financial condition, and its operating performance. The insurance operations and their subsidiaries are grouped into one of four units: GEICO, General Re, Berkshire Hathaway Reinsurance Group (BHRG), and Berkshire Hathaway Primary Group.
GEICO, headquartered in Chevy Chase, Maryland, primarily offers private passenger automobile insurance (but also insures other types of vehicles). General Re is a major international reinsurer operating in 56 cities providing insurance and reinsurance services worldwide. General Re’s property and casualty operations are headquartered in Stamford, Connecticut, with 16 branch offices serving the United States and Canada. Its large international subsidiary Cologne Re provides property/casualty reinsurance primarily through Faraday, which controls the managing agent of Syndicate 435 at Lloyds of London. The BHRG group, also headquartered in Stamford, Connecticut, primarily provides catastrophe excess of loss reinsurance policies covering property losses that result from terrorism, natural disasters, and aviation risks. The Berkshire Hathaway Primary Group, headquartered in Omaha, Nebraska, and its affiliates primarily underwrite motor vehicle and general liability insurance to commercial enterprises principally in the United States.
Energy, Utilities, And Manufacturing
Berkshire holds a majority interest in MidAmerican Energy Holdings Company, an international energy company. MidAmerican operates two regulated utility companies and two pipelines in the United States, an electricity distribution subsidiary in the United Kingdom, and a hydroelectric facility in the Philippines.
Berkshire owns Shaw Industries, the world’s largest carpet manufacturer (revenue and production). Shaw is headquartered in Dalton, Georgia, and sells its wholesale products throughout the United States, Canada, and Mexico. Shaw also sells hardwood flooring through its Anderson Family of Companies business. Berkshire owns Acme Building Products, a manufacturer and distributor of clay bricks, concrete block, and cut limestone, based in Fort Worth, Texas, that primarily serves the southwestern United States. Berkshire also owns Benjamin Moore & Company, a leading manufacturer and retailer of architectural coatings. Benjamin Moore is headquartered in Montvale, New Jersey, and primarily serves the United States and Canadian markets.
Another major building products business owned by Berkshire is Johns Manville, a manufacturer of a complete line of fiberglass building insulation products and roofing systems and components, headquartered in Denver, Colorado. Johns Manville operates manufacturing facilities in North America, Europe, and China. Berkshire owns Albecca, Inc., headquartered in Norcross, Georgia, that designs, manufactures, and distributes framing products and supplies, serving the United States, Canada, and 15 countries outside North America.
Berkshire is also the owner of Clayton Homes, headquartered near Knoxville, Tennessee, a vertically integrated manufactured housing company operating 41 manufacturing plants in 14 states. Its products are marketed in 48 states through a network of dealers and company-owned sales centers. Clayton also offers various financing and insurance programs for its products.
In addition, Berkshire holds a 90 percent interest in MiTek Inc., headquartered in Chesterfield, Missouri, which is a provider of engineered connector parts, engineering software, and computer-driven manufacturing machinery primarily serving the building components industry. It also produces light-gauge steel framing and specialized assembly line machinery. MiTek has 24 manufacturing facilities in 10 countries, 29 sales/engineering offices in 14 countries, and sales in approximately 90 countries. Berkshire owns an 80 percent interest in ISCAR Metalworking Companies, a manufacturer of consumable industrial precision cutting tools, headquartered in Tefen, Israel, with manufacturing facilities in Israel, the United States, Germany, Italy, France, Switzerland, South Korea, China, India, Japan, and Brazil.
Berkshire is involved in other types of manufacturing not directly related to building, such as the CTB International Corp., headquartered in Milford, Indiana, which designs, manufactures, and markets systems used in the production of poultry, hogs, and eggs. It also owns Forest River, Inc., headquartered in Elkhart, Indiana, a manufacturer of recreational vehicles, utility cargo and office trailers, buses, and pontoon boats for the U.S. and Canadian markets. Berkshire’s Scott Fetzer Companies are a diversified collection of businesses that manufacture and distribute a variety of products for residential, industrial, and institutional use.
Service Businesses
Berkshire owns Flight Safety International (FSI) which provides training to operators of aircraft and ships. FSI is headquartered at LaGuardia Airport in Flushing, New York, operates training facilities in 20 states and in Australia, Brazil, Canada, France, and the United Kingdom. FSI also manufactures simulators, visual displays, and other training equipment at facilities in Oklahoma and Missouri. Berkshire owns NetJets, a leading provider of fractional ownership programs for general aviation worldwide with a fleet of some 622 aircraft. NetJets is headquartered in Woodbridge, New Jersey, with its flight operations based in Columbus, Ohio, and its European flight operations based in Lisbon, Portugal. Berkshire owns XTRA Corporation, headquartered in St. Louis, Missouri, a transportation equipment lessor with a diverse fleet of 120,000 units (over-the-road and storage trailers, chassis, temperature-controlled vans, and flatbed trailers) located at 75 facilities in the United States and five facilities in Canada.
Berkshire owns McLane Company, a provider of wholesale distribution and logistics services to discount retailers, convenience stores, quick-service restaurants, drug stores, and movie theaters throughout the United States and in Brazil. Its grocery distribution division is headquartered in Temple, Texas, and operates 22 facilities in 18 states. Its food-service operations are headquartered in Carrollton, Texas, and operate 18 facilities in 16 states.
Other service businesses owned by Berkshire include the following: Business Wire, a San Francisco–based electronic disseminator of full-text news serving 150 countries in 45 languages; Pampered Chef, the largest direct seller of kitchen tools in the United States; Buffalo News, the daily newspaper in Buffalo, New York; International Dairy Queen, a system of about 6,000 stores offering various dairy desserts, foods, and beverages; TTI, an electronic component distributor headquartered in Fort Worth, Texas, operating in more than 50 locations throughout North America, Europe, and Asia. Berkshire also has an 80.1 percent interest in CORT Business Services Corporation, a nationwide provider of rental furniture and accessories.
Apparel, Footwear, And Jewelry
Berkshire owns a variety of apparel and footwear manufacturing companies. Its clothing businesses include Fruit of the Loom (FOL) and Vanity Fair Brands (VFB), a combined business that is a vertically integrated manufacturer and distributor of basic apparel, underwear, and bras, headquartered in Bowling Green, Kentucky. FOL and VFB have labor-intensive manufacturing operations in Central America, the Caribbean, and Morocco, and also contract some third-party manufacturing in Europe and Asia.
Berkshire owns Garan, headquartered in New York, which designs, manufactures, and sells children’s apparel in the United States through national chain stores (Wal-Mart represents 90 percent of its business), department stores, and specialty stores. Garan’s production facilities are primarily in Central America. Berkshire also owns Fechheimer Brothers headquartered in Cincinnati, Ohio, a firm that manufactures, distributes, and sells uniforms targeted toward the police, fire, postal, and military markets.
Berkshire’s footwear businesses, Justin Brands and H. H. Brown Shoe Group, purchase, manufacture, and distribute work shoes, outdoor and casual shoes, and western-style footwear sold principally in the United States but primarily sourced overseas. Berkshire merged two of its acquisitions to create the Richline Group, Inc., a jewelry manufacturing (gold, silver, and gem set) and distribution company selling to mass market merchandisers.
Retailing
Berkshire’s retailing businesses primarily consist of several independent home furnishings operations, three jewelry retailers, and a confectionery operation. Berkshire’s home furnishings businesses are an 80 percent ownership of the Nebraska Furniture Mart (NFM) in Omaha, Nebraska, and Kansas City, Missouri, and NFM’s Homemakers Furniture in Des Moines, Iowa. Berkshire also owns R. C. Wiley, headquartered in Salt Lake City, Utah, operating 11 retail stores in four states. Berkshire owns Star Furniture Company, with 11 locations in Texas, and Jordan’s Furniture, Inc., with four locations in Massachusetts and New Hampshire.
Berkshire owns a 93 percent interest in the single store Borsheim Jewelry Company, Inc., located in Omaha, Nebraska. It also owns Helzberg’s Diamond Shops, headquartered in North Kansas City, Missouri, with a chain of 269 stores in 38 states. Its third jewelry operation is Ben Bridge Jeweler, headquartered in Seattle, Washington, with 77 stores in 12 states. Berkshire’s confectionery operation, See’s Candies, consists of two large kitchens, one in Los Angeles and the other in San Francisco, that produce boxed chocolates and other candies.
For its fiscal year ending December 31, 2007, Berkshire Hathaway reported total revenues of $118.3 billion and valued its total assets at $273.2 billion. Its 2007 net earnings per share was reported at $8,548. As of February 15, 2008, Berkshire Hathaway had approximately 4,600 record holders of its Class A Common Stock that traded in a range from a low $103,800 per share to a high of $151,650 in 2007. Also as of February 15, 2008, Berkshire Hathaway had approximately 13,900 record holders of its Class B Common Stock which traded in a range from a low $3,460 per share to a high of $5,059 in 2007. Since the present management took over Berkshire Hathaway, the company’s book value (Class A shares) has grown at a rate of 21.1 percent compounded annually. Berkshire Hathaway has not declared a cash dividend since 1967.
Bibliography:
- Berkshire Hathaway, Inc., www.berkshirehathaway.com (cited March 2009);
- SEC-EDGAR, www.sec.gov (cited March 2009).
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