NEW YORK: Warren Buffett's ice-cream-to-insurance conglomerate Berkshire Hathaway reported a smaller profit for the second quarter as losses on derivatives dragged down results, though operating income set the new records Buffett predicted.

Buffett eschews derivatives for the most part, but he does have one outstanding - and large - derivative bet tied to stock market performance. While he has said repeatedly he expects that position to be profitable over time, it generated nearly $700 million in losses in the last quarter.

Berkshire earned $3.11 billion, or $1,882 per Class A share, compared with a profit of $3.42bn, or $2,072 per Class A share a year earlier. Book value, Buffett's preferred measure of Berkshire's worth, rose to $107,377 per Class A share. The company's ongoing share buyback is capped at prices no higher than 110 per cent of that book value.

Berkshire's cash pile as of the end of the quarter ballooned to $40.66bn, up more than $3bn since the year began.

Buffett has been itching to make a major acquisition; a deal of more than $20bn fell through earlier this year, and he has said a deal larger than $30bn could be possible next year if he does nothing substantial in 2012.

Operating income rose at almost all of Berkshire's key business lines, with the exception of distribution services company McLane.

Earlier this year, he predicted the non-insurance businesses would set income records in 2012. Operating income was nearly $1bn higher in the insurance group, as the reinsurance operations recovered from last year's massive disaster losses. Within the group, income dropped slightly at car insurer Geico on higher loss costs for bodily injury and damage to vehicles.

Berkshire's railroad BNSF reported higher revenue and income, as increased volumes for consumer and industrial products transported offset sharp declines in volume for both coal and agricultural products.

McLane's income fell, Berkshire said, because the year-ago quarter benefited from manufacturer price increases on a number of products. That benefit was absent in the most recent quarter.