Berkshire Hathaway 2005 Annual Report Download - page 10

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The Public Utility Holding Company Act (“PUHCA”) was repealed on August 8, 2005, a
milestone that allowed Berkshire to convert its MidAmerican preferred stock into voting common shares on
February 9, 2006. This conversion ended a convoluted corporate arrangement that PUHCA had forced
upon us. Now we have 83.4% of both the common stock and the votes at MidAmerican, which allows us
to consolidate the company’ s income for financial accounting and tax purposes. Our true economic
interest, however, is the aforementioned 80.5%, since there are options outstanding that are sure to be
exercised within a few years and that upon exercise will dilute our ownership.
Though our voting power has increased dramatically, the dynamics of our four-party ownership
have not changed at all. We view MidAmerican as a partnership among Berkshire, Walter Scott, and two
terrific managers, Dave Sokol and Greg Abel. It’ s unimportant how many votes each party has; we will
make major moves only when we are unanimous in thinking them wise. Five years of working with Dave,
Greg and Walter have underscored my original belief: Berkshire couldn’ t have better partners.
You will notice that this year we have provided you with two balance sheets, one representing our
actual figures per GAAP on December 31, 2005 (which does not consolidate MidAmerican) and one that
reflects the subsequent conversion of our preferred. All future financial reports of Berkshire will include
MidAmerican’ s figures.
Somewhat incongruously, MidAmerican owns the second largest real estate brokerage firm in the
U.S. And it’ s a gem. The parent company’ s name is HomeServices of America, but our 19,200 agents
operate through 18 locally-branded firms. Aided by three small acquisitions, we participated in $64 billion
of transactions last year, up 6.5% from 2004.
Currently, the white-hot market in residential real estate of recent years is cooling down, and that
should lead to additional acquisition possibilities for us. Both we and Ron Peltier, the company’ s CEO,
expect HomeServices to be far larger a decade from now.
Here are some key figures on MidAmerican’ s operations:
Earnings (in $ millions)
2005 2004
U.K. utilities ....................................................................................................... $ 308 $ 326
Iowa utility ......................................................................................................... 288 268
Pipelines ............................................................................................................. 309 288
HomeServices..................................................................................................... 148 130
Other (net) .......................................................................................................... 107 172
Income (loss) from discontinued zinc project .................................................... 8 (579)
Earnings before corporate interest and taxes ...................................................... 1,168 605
Interest, other than to Berkshire ......................................................................... (200) (212)
Interest on Berkshire junior debt ........................................................................ (157) (170)
Income tax .......................................................................................................... (248) (53)
Net earnings........................................................................................................ $ 563 $ 170
Earnings applicable to Berkshire*...................................................................... $ 523 $ 237
Debt owed to others............................................................................................ 10,296 10,528
Debt owed to Berkshire...................................................................................... 1,289 1,478
*Includes interest earned by Berkshire (net of related income taxes) of $102 in 2005 and $110 in 2004.
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