Berkshire Hathaway/Shaw Have Good Year

Omaha, NE, Mar. 6--Berkshire Hathaway reported that fourth-quarter net income more than doubled, while the investor lamented in his widely anticipated annual letter that his holding company's capital is "underutilized." The earnings, and Buffett's famous annual letter to shareholders, were posted on the company's Website. The firm said net income for the quarter was $2.39 billion, or $1,553 a Class A share, up from $1.18 billion or $772 a share a year earlier. The most recent quarter's results were boosted by a "terrific year" for its insurance business. Buffett said the net worth of the company had risen by $13.6 billion, increasing Berkshire's book value per share by 21%. He also said that another key measure known as "float"--which Buffett defines as money the company holds but doesn't own--increased to $44.22 billion from $41.22 billion in 2002. Berkshire also finished the year with a pile of cash. Cash and cash equivalents more than tripled to $31.26 billion from $10.28 billion a year earlier. In his letter, Buffett, the company's chairman, said Berkshire's capital is underutilized now and that the interest the company is earning on its money is "pathetically low." But in all, the company's various businesses performed well, lead by its insurance unit. Pretax underwriting results for the company's insurance lines swung to a profit of a $1.72 billion in 2003 from a loss of $398 million. For the full year, Berkshire reported net income of $8.15 billion, or $5,309 a Class A share, up 90% from $4.29 billion or $2,795 a share in 2002. Revenue jumped 51% to $63.86 billion from $42.24. Buffett wrote that Shaw Industries pre-tax earnings for 2003 were $436 million vs $424 million in the prior year. He wrote: Shaw Industries, the world’s largest manufacturer of broadloom carpet, also had a record year. Led by Bob Shaw, who built this huge enterprise from a standing start, the company will likely set another earnings record in 2004. In November, Shaw acquired various carpet operations from Dixie Group, which should add about $240 million to sales this year, boosting Shaw’s volume to nearly $5 billion. He continued: In retailing, our furniture group earned $106 million pre-tax, our jewelers $59 million and See’s, which is both a manufacturer and retailer, $59 million. Both R.C. Willey and Nebraska Furniture Mart (“NFM”) opened hugely successful stores last year--Willey in Las Vegas and NFM in Kansas City, KS. Indeed, we believe the Kansas City store is the country’s largest-volume home-furnishings store. (Our Omaha operation, while located on a single plot of land, consists of three units.) As for Berkshire, Buffett says the company's recently expanded board still handles routine housekeeping matters. But the "real discussion" of board members continues to be a dissection of the strengths and weaknesses of the four internal candidates likely to succeed him. Berkshire's most recent proxy statement, filed last year, listed his age as 72 years old. Buffett also used his letter to return to another recurring subject--taxes. He said Berkshire will pay roughly $3.3 billion in tax on its 2003 income, a sum he said is equal to 2.5% of the total income tax paid by all U.S. corporations during fiscal 2003. But not all companies are chipping in so much. Buffett said corporate income taxes as a percentage of all federal tax receipts fell to 7.4% during fiscal 2003, down from a postwar peak of 32% in 1952. With the exception of 1983, last year marked the lowest level since 1934. Buffett said there continued to be a shortage of attractively priced stocks Berkshire would be interested in buying. The company has the same stable of big stocks it has held for years, notably Coca-Cola Co., American Express Co., and Gillette Co.

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