Berkshire Hathaway Reports Sharply Higher Operating Earnings

Berkshire Hathaway reported 2011 third quarter operating earnings that rose 37% from the corresponding quarter in 2010.  Its net income declined 24% due to noncash derivative losses from the equity index put options that it had previously sold.  These options reflect the decline in the world’s stock markets during the third quarter.  These option contracts did not require any cash payments by Berkshire during the third quarter.  The put options cannot be exercised  until  they expire in 2018 – 2026.  Warren Buffett has called the large quarterly swings in the derivatives portfolio “meaningless” and said operating earnings are the better gauge of Berkshire’s performance.

The quarterly report revealed that Berkshire invested approximately $7 billion in other companies’ shares.   The identity of these investments should be revealed in Berkshire’s 13F filing scheduled to be released after the market closes on November 15. 

The report also indicated that Berkshire repurchased $18 million of its own stock between September 26 and the end of the quarter, September 30.  Berkshire announced its stock buyback program on September 26.