<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ to __________________
Commission file number 001-14905
BERKSHIRE HATHAWAY INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 47-0813844
- ----------------------------------- --------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification number)
incorporation or organization)
1440 Kiewit Plaza, Omaha, Nebraska 68131
----------------------------------------------------
(Address of principal executive office)
(Zip Code)
(402) 346-1400
----------------------------------------------------
(Registrant's telephone number, including area code)
----------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
[X] [ ]
YES NO
Number of shares of common stock outstanding as of April 30, 1999:
Class A -- 1,342,574
Class B -- 5,305,099
<PAGE> 2
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 3/31/99
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE NO.
--------
<S> <C> <C> <C>
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets-- 2
March 31, 1999 and December 31, 1998
Consolidated Statements of Earnings -- 3
First Quarter 1999 and 1998
Condensed Consolidated Statements of Cash Flows-- 4
First Quarter 1999 and 1998
Notes to Interim Consolidated Financial Statements 5-10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 11-15
CONDITION AND RESULTS OF OPERATIONS
PART II - OTHER INFORMATION 16
</TABLE>
1
<PAGE> 3
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 3/31/99
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(dollars in millions except share amounts)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Cash and cash equivalents ................................ $ 14,207 $ 13,582
Investments:
Securities with fixed maturities ....................... 21,092 21,246
Equity securities and other investments ................ 39,675 39,761
Receivables .............................................. 7,514 7,224
Inventories .............................................. 739 767
Assets of finance and financial products businesses ...... 17,809 16,989
Property, plant and equipment ............................ 1,616 1,491
Goodwill of acquired businesses .......................... 18,326 18,446
Other assets ............................................. 2,796 2,731
-------- --------
$123,774 $122,237
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Losses and loss adjustment expenses ...................... $ 22,872 $ 23,012
Unearned premiums ........................................ 3,513 3,324
Accounts payable, accruals and other liabilities ......... 8,008 7,182
Income taxes, principally deferred ....................... 11,088 11,762
Borrowings under investment agreements and other debt .... 2,462 2,385
Liabilities of finance and financial products businesses . 16,334 15,525
-------- --------
64,277 63,190
-------- --------
Minority shareholders' interests ......................... 1,613 1,644
-------- --------
Shareholders' equity:
Common Stock: *
Class A Common Stock, $5 par value and Class B
Common Stock, $0.1667 par value ...................... 8 8
Capital in excess of par value ........................... 25,138 25,121
Accumulated other comprehensive income ................... 18,433 18,510
Retained earnings ........................................ 14,305 13,764
-------- --------
Total shareholders' equity ........................... 57,884 57,403
-------- --------
$123,774 $122,237
======== ========
</TABLE>
* Class B Common Stock has economic rights equal to one-thirtieth (1/30) of
the economic rights of Class A Common Stock. On an equivalent Class A Common
Stock basis, there are 1,519,400 shares outstanding at March 31, 1999 and
1,518,548 shares outstanding on December 31, 1998.
See accompanying Notes to Interim Consolidated Financial Statements
2
<PAGE> 4
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 3/31/99
CONSOLIDATED STATEMENTS OF EARNINGS
(dollars in millions except per share amounts)
<TABLE>
<CAPTION>
First Quarter
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
REVENUES:
Insurance premiums earned ............................ $ 3,070 $ 1,367
Sales and service revenues ........................... 1,341 987
Interest, dividend and other investment income ....... 573 236
Income from finance and financial products businesses 59 12
Realized investment gain ............................. 403 723
---------- ----------
5,446 3,325
---------- ----------
COST AND EXPENSES:
Insurance losses and loss adjustment expenses ........ 2,441 1,094
Insurance underwriting expenses ...................... 769 224
Cost of products and services sold ................... 934 619
Selling, general and administrative expenses ......... 269 249
Goodwill amortization ................................ 118 23
Interest expense ..................................... 33 27
---------- ----------
4,564 2,236
---------- ----------
EARNINGS BEFORE INCOME TAXES AND MINORITY INTEREST ..... 882 1,089
Income taxes ......................................... 327 363
Minority interest .................................... 14 4
---------- ----------
NET EARNINGS ........................................... $ 541 $ 722
========== ==========
Average shares outstanding * ......................... 1,518,897 1,240,710
NET EARNINGS PER SHARE * ............................... $ 356 $ 582
========== ==========
</TABLE>
* Average shares outstanding include average Class A Common shares and average
Class B Common shares determined on an equivalent Class A Common Stock
basis. Net earnings per share shown above represents net earnings per
equivalent Class A Common share. Net earnings per Class B Common share is
equal to one-thirtieth (1/30) of such amount.
See accompanying Notes to Interim Consolidated Financial Statements
3
<PAGE> 5
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 3/31/99
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
<TABLE>
<CAPTION>
First Quarter
--------------------
1999 1998
-------- --------
<S> <C> <C>
Net cash flows from operating activities .............................. $ (165) $ (31)
-------- --------
Cash flows from investing activities:
Purchases of investments ........................................... (1,323) (1,610)
Proceeds on sales and maturities of investments .................... 2,648 2,077
Loans and investments originated in finance businesses ............. (149) (93)
Principal collections on loans and investments originated
in finance businesses ............................................ 228 61
Acquisition of business ............................................ -- (210)
Other .............................................................. (100) (45)
-------- --------
Net cash flows from investing activities .............................. 1,304 180
-------- --------
Cash flows from financing activities:
Proceeds from borrowings of finance businesses ..................... 94 --
Proceeds from other borrowings ..................................... 563 309
Repayments of borrowings of finance businesses ..................... (12) (42)
Repayments of other borrowings ..................................... (575) (409)
Other .............................................................. (192) --
-------- --------
Net cash flows from financing activities .............................. (122) (142)
-------- --------
Increase in cash and cash equivalents ................................. 1,017 7
Cash and cash equivalents at beginning of year* ....................... 14,489 1,058
-------- --------
Cash and cash equivalents at end of first quarter* .................... $ 15,506 $ 1,065
======== ========
Supplemental cash flow information:
Cash paid during the period for:
Income taxes .................................................... $ 974 $ 139
Interest ........................................................ 75 30
Non-cash investing activity:
Liabilities assumed in connection with acquisition of business ..... -- 51
Common shares issued in connection with acquisition of business .... -- 323
* Cash and cash equivalents are comprised of the following:
Beginning of year --
Finance and financial products businesses ....................... $ 907 $ 56
Other ........................................................... 13,582 1,002
-------- --------
$ 14,489 $ 1,058
======== ========
End of first quarter --
Finance and financial products businesses ....................... $ 1,299 $ 33
Other ........................................................... 14,207 1,032
-------- --------
$ 15,506 $ 1,065
======== ========
</TABLE>
See accompanying Notes to Interim Consolidated Financial Statements
4
<PAGE> 6
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 3/31/99
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. GENERAL
The accompanying unaudited consolidated financial statements include the
accounts of Berkshire consolidated with the accounts of all its subsidiaries.
Reference is made to Berkshire's most recently issued Annual Report that
included information necessary or useful to understanding of Berkshire's
businesses and financial statement presentations. In particular, Berkshire's
significant accounting policies and practices were presented as Note 1 to the
Consolidated Financial Statements included in that Report.
Financial information in this Report reflects any adjustments (consisting
only of normal recurring adjustments) that are, in the opinion of management,
necessary to a fair statement of results for the interim periods in accordance
with generally accepted accounting principles.
For a number of reasons, Berkshire's results for interim periods are not
normally indicative of results to be expected for the year. The timing and
magnitude of catastrophe losses incurred by insurance subsidiaries and the
estimation error inherent to the process of determining liabilities for unpaid
losses of insurance subsidiaries can be relatively more significant to results
of interim periods than to results for a full year. Realized investment
gains/losses are recorded when investments are sold, other-than-temporarily
impaired or in certain situations, as required by GAAP, when investments are
marked-to-market with the corresponding gain or loss included in earnings.
Variations in amount and timing of realized investment gains/losses can cause
significant variations in periodic net earnings.
NOTE 2. BUSINESS ACQUISITIONS
On July 23, 1998, Berkshire signed a merger agreement with Executive Jet,
Inc. ("Executive Jet") and on August 7, 1998, the merger was consummated. Under
the terms of the Executive Jet agreement, shareholders of Executive Jet received
total consideration of approximately $725 million, consisting of $350 million in
cash and the remainder in Class A and Class B Common Stock.
Executive Jet is the world's leading provider of fractional ownership
programs for general aviation aircraft. Executive Jet currently operates its
NetJets(R) fractional ownership programs in the United States and Europe. In
addition, Executive Jet is pursuing other international activities. The
fractional ownership concept was first introduced in 1986. Since then the
NetJets program has grown to include nine aircraft types with plans to introduce
several more models in the next two years.
On June 19, 1998, Berkshire signed a merger agreement with General Re
Corporation ("General Re") and on December 21, 1998, the merger was completed.
Under the terms of the merger agreement, General Re shareholders received at
their election either 0.0035 shares of Berkshire Class A Common Stock or 0.105
shares of Berkshire Class B Common Stock for each share of General Re common
stock they owned. Berkshire issued approximately 272,200 Class A equivalent
shares in exchange for the General Re shares outstanding as of December 21,
1998. The total consideration for the transaction, based upon the closing prices
of Berkshire Class A Common Stock for the 10-day period ending June 26, 1998,
was approximately $22 billion.
General Re is a holding company for global reinsurance and related risk
management operations. It owns General Reinsurance Corporation and National
Reinsurance Corporation, the largest professional property and casualty
reinsurance group domiciled in the United States. General Re also owns a
controlling interest in Kolnische Ruckversicherungs-Gesellschaft AG (Cologne
Re), a major international reinsurer. Together, General Re and Cologne Re
transact reinsurance business as "General & Cologne Re".
In addition, General Re writes excess and surplus lines insurance through
General Star Management Company, provides alternative risk solutions through
Genesis Underwriting Management Company, provides reinsurance, real estate, and
investment management and brokerage services through a number of affiliated
companies. General Re also operates as a dealer in the swap and derivatives
market through General Re Financial Products Corporation.
5
<PAGE> 7
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 3/31/99
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. BUSINESS ACQUISITIONS (CONTINUED)
Each of the business acquisitions described above was accounted for under
the purchase method. The excess of the purchase cost of the business over the
fair value of net assets acquired was recorded as goodwill of acquired
businesses.
The results of operations for each of these entities are included in
Berkshire's consolidated results of operations from the dates of each merger.
The following table sets forth certain consolidated earnings data for the first
quarter of 1998, as if the Executive Jet and General Re acquisitions had been
consummated on the same terms at the beginning of 1998. Dollars in millions
except per share amounts.
<TABLE>
<CAPTION>
1998
----
<S> <C>
Insurance premiums earned ............................................. $2,841
Sales and service revenues ............................................ 1,183
Total revenues ........................................................ 5,345
Net earnings .......................................................... 879
Earnings per equivalent Class A Common Share .......................... 579
</TABLE>
NOTE 3. INVESTMENTS IN SECURITIES WITH FIXED MATURITIES
Data with respect to investments in securities with fixed maturities (other
than securities with fixed maturities held by finance and financial products
businesses -- See Note 8) are shown in the tabulation below (in millions).
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- ------------
<S> <C> <C>
Amortized cost ..................................... $20,937 $21,159
Gross unrealized gains ............................. 230 94
Gross unrealized losses ............................ (75) (7)
------- -------
Estimated fair value ............................... $21,092 $21,246
======= =======
</TABLE>
NOTE 4. INVESTMENTS IN EQUITY SECURITIES AND OTHER INVESTMENTS
Data with respect to investments in equity securities and other investments
are shown in the tabulation below (in millions).
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------ ------
<S> <C> <C>
Total cost .......................................... $10,866 $10,897
Gross unrealized gains............................... 28,933 28,902
Gross unrealized losses.............................. (124) (38)
------- -------
Total fair value .................................... $39,675 $39,761
======= =======
Fair value:
American Express Company........................... $ 5,951 $ 5,180
The Coca-Cola Company.............................. 12,275 13,400
The Gillette Company............................... 5,706 4,590
Other equity securities............................ 14,072 14,951
Other investments ................................. 1,671 1,640
------- -------
Total $39,675 $39,761
======= =======
</TABLE>
6
<PAGE> 8
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 3/31/99
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. DEFERRED INCOME TAX LIABILITIES
The tax effects of significant items comprising the Company's net deferred
tax liabilities as of March 31, 1999 and December 31, 1998 are as follows (in
millions):
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------- -------
<S> <C> <C>
Deferred tax liabilities:
Relating to unrealized appreciation of investments ..... $10,123 $10,149
Other .................................................. 1,529 1,615
------- -------
11,652 11,764
Deferred tax assets....................................... (1,059) (1,008)
------- -------
Net deferred tax liabilities ........................... $10,593 $10,756
======= =======
</TABLE>
NOTE 6. COMMON STOCK
The following table summarizes Berkshire's common stock activity during
the first quarter of 1999.
<TABLE>
<CAPTION>
Class A Common Stock Class B Common Stock
(1,650,000 shares authorized) (55,000,000 shares authorized)
Issued and Outstanding Issued and Outstanding
---------------------- ----------------------
<S> <C> <C>
Balance at December 31, 1998 ................... 1,349,535 5,070,379
Conversions of Class A Common Stock
to Class B Common Stock and other ........... (6,701) 226,588
--------- ---------
Balance at March 31, 1999 ...................... 1,342,834 5,296,967
========= =========
</TABLE>
Each share of Class A Common Stock is convertible, at the option of the
holder, into thirty shares of Class B Common Stock. Class B Common Stock is not
convertible into Class A Common Stock. Class B Common Stock has economic rights
equal to one-thirtieth (1/30) of the economic rights of Class A Common Stock.
Accordingly, on an equivalent Class A Common Stock basis, there are 1,519,400
shares outstanding at March 31, 1999 and 1,518,548 shares outstanding on
December 31, 1998.
Each Class A Common share is entitled to one vote per share. Each Class B
Common share possesses the voting rights of one-two-hundredth (1/200) of the
voting rights of a Class A share. Class A and Class B Common shares vote
together as a single class.
NOTE 7. COMPREHENSIVE INCOME
Berkshire's comprehensive income for the first quarter of 1999 and 1998 is
shown in the table below (in millions). Other comprehensive income consists of
unrealized gains and losses on investments and foreign currency translation
adjustments associated with international business operations.
<TABLE>
<CAPTION>
First Quarter
-----------------
1999 1998
------ ------
<S> <C> <C>
Net earnings ......................................................... $ 541 $ 722
------ ------
Other comprehensive income:
Increase(decrease) in unrealized appreciation of investments ......... (106) 3,573
Applicable income taxes and minority interests ....................... 45 (1,295)
Foreign currency translation losses .................................. (21) --
Applicable income taxes and minority interests ....................... 5 --
------ ------
(77) 2,278
------ ------
Comprehensive income.................................................. $ 464 $3,000
====== ======
</TABLE>
7
<PAGE> 9
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 3/31/99
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. FINANCE AND FINANCIAL PRODUCTS BUSINESSES
Assets and liabilities of Berkshire's finance and financial products
businesses are summarized below (in millions).
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents .................................. $ 1,299 $ 907
Investments in securities with fixed maturities:
Held to maturity, at cost ............................ 1,254 1,227
Trading, at fair value ............................... 6,836 5,219
Available for sale, at fair value .................... 652 743
Trading account assets .................................... 5,331 6,234
Securities purchased under agreements to resell ........... 1,159 1,083
Other ..................................................... 1,278 1,576
------- -------
$17,809 $16,989
======= =======
LIABILITIES
Annuity reserves and policyholder liabilities ............. $ 822 $ 816
Securities sold under agreements to repurchase ............ 5,819 4,065
Securities sold but not yet purchased ..................... 975 1,181
Trading account liabilities ............................... 5,208 5,834
Notes payable and other borrowings ........................ 1,588 1,503
Other ..................................................... 1,922 2,126
------- -------
$16,334 $15,525
======= =======
</TABLE>
NOTE 9. BUSINESS SEGMENT DATA
A disaggregation of Berkshire's consolidated data for the first quarter of
each of the two most recent years is as follows. Amounts are in millions.
<TABLE>
<CAPTION>
REVENUES
-----------------
1999 1998
------- -------
<S> <C> <C>
OPERATING SEGMENTS:
GEICO Corporation * ........................................ $ 1,101 $ 937
Berkshire Hathaway Reinsurance Group * ..................... 367 349
Berkshire Hathaway Primary Insurance Group * ............... 51 81
General Re * ............................................... 1,551 --
Buffalo News ............................................... 37 36
Flight services ............................................ 431 105
Home furnishings ........................................... 191 180
International Dairy Queen .................................. 101 98
Jewelry .................................................... 86 80
Scott Fetzer Companies ..................................... 253 261
See's Candies .............................................. 65 57
Shoe group ................................................. 125 122
------- -------
4,359 2,306
Reconciliation of segment amounts to consolidated amount:
Other sales and service revenues ........................... 52 49
Interest, dividend and other investment income ............. 610 237
Income from finance and financial products businesses ...... 59 12
Realized investment gain ................................... 403 723
Purchase-accounting-adjustments ............................ (37) (2)
------- -------
$ 5,446 $ 3,325
======= =======
</TABLE>
* Represents insurance premiums earned
8
<PAGE> 10
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 3/31/99
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. BUSINESS SEGMENT DATA (CONTINUED)
<TABLE>
<CAPTION>
OPERATING PROFIT BEFORE TAXES
-----------------------------
1999 1998
------- -------
<S> <C> <C>
OPERATING SEGMENTS:
GEICO Corporation ** .......................................... $ -0- $ 61
Berkshire Hathaway Reinsurance Group ** ....................... 7 (9)
Berkshire Hathaway Primary Insurance Group ** ................. 2 (3)
General Re ** ................................................. (136) --
Buffalo News .................................................. 12 11
Flight services ............................................... 52 34
Home furnishings .............................................. 15 15
International Dairy Queen ..................................... 9 10
Jewelry ....................................................... 2 1
Scott Fetzer Companies ........................................ 32 33
See's Candies ................................................. 9 6
Shoe group .................................................... 6 7
------- -------
10 166
Reconciliation of segment amounts to consolidated amount:
Interest, dividend and other investment income ................ 607 235
Income from finance and financial products businesses ......... 59 12
Realized investment gain ...................................... 403 723
Interest expense *** .......................................... (28) (26)
Corporate and other ........................................... (4) 6
Goodwill amortization and other purchase-accounting-adjustments (165) (27)
------- -------
$ 882 $ 1,089
======= =======
</TABLE>
** Represents underwriting profit (loss)
*** Excludes interest expense allocated to finance businesses and certain
identifiable segments.
NOTE 10. INFORMATION ABOUT CERTAIN SUBSIDIARIES
The accompanying consolidated financial statements include the accounts of
OBH Inc. (formerly Berkshire Hathaway Inc.), which became a wholly-owned
subsidiary of Berkshire upon completion of the General Re merger. Condensed
consolidated balance sheets of OBH Inc. are as follows (dollars in millions):
<TABLE>
<CAPTION>
Mar. 31, 1999 Dec. 31, 1998
------------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents ................................... $10,083 $ 8,841
Investments, primarily equity securities .................... 40,851 40,572
Assets of finance and financial products businesses ......... 7,213 5,759
Goodwill of acquired businesses ............................. 3,985 4,004
Other assets ................................................ 5,676 5,140
------- -------
$67,808 $64,316
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Losses and loss adjustment expenses ......................... $ 7,585 $ 7,198
Unearned premiums, accounts payable and other liabilities ... 5,407 4,483
Income taxes, principally deferred .......................... 10,556 10,426
Borrowings under investment agreements and other debt ....... 2,178 2,056
Liabilities of finance and financial products businesses .... 6,346 4,881
------- -------
32,072 29,044
------- -------
Total shareholders' equity. ................................. 35,736 35,272
------- -------
$67,808 $64,316
======= =======
</TABLE>
9
<PAGE> 11
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 3/31/99
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10. INFORMATION ABOUT CERTAIN SUBSIDIARIES (CONTINUED)
Net earnings of OBH Inc. for the first quarter of 1999 and 1998 are
summarized below (in millions).
<TABLE>
<CAPTION>
1999 1998
----- ----
<S> <C> <C>
Revenues .................................................. $3,534 $3,325
Cost and expenses ......................................... 2,768 2,236
------ ------
Earnings before income taxes and minority interest ........ 766 1,089
Income taxes and minority interest ........................ 258 367
------ ------
Net earnings .............................................. $ 508 $ 722
====== ======
</TABLE>
The summarized financial data of the finance and financial products
businesses (See Note 8) includes the activities conducted by the Scott Fetzer
Financial Group and its subsidiaries ("SFFG"). Assets and liabilities of SFFG
are summarized below (in millions).
<TABLE>
<CAPTION>
Mar. 31, 1999 Dec. 31, 1998
------------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents ...................................................... $ 347 $ 98
Mortgage-backed securities, installment loans and other receivables ............ 163 371
Trading securities, at market .................................................. 4,928 3,488
Securities purchased under agreements to resell ................................ 73 192
------ ------
$5,511 $4,149
====== ======
LIABILITIES
6 3/4% Notes, due 2001 and borrowings under investment agreements .............. $ 148 $ 152
Securities sold under agreements to repurchase ................................. 5,117 3,469
Securities sold but not yet purchased .......................................... -- 177
Other* ......................................................................... 128 208
------ ------
$5,393 $4,006
====== ======
</TABLE>
* Other liabilities include payables to affiliates of $86 at March 31, 1999 and
$105 at December 31, 1998.
Net earnings of SFFG for the first quarter are summarized below (in millions).
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Revenues ..................................................... $ 15 $ 11
Cost and expenses ............................................ 54 6
----- ----
Income(loss) before income taxes ............................. (39) 5
Income taxes ................................................. (14) 2
--- ----
Net earnings ................................................. $(25) $ 3
==== ====
</TABLE>
<PAGE> 12
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 3/31/99
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Net earnings for the first quarter of 1999 and 1998 are disaggregated in the
table that follows. Amounts are after deducting minority interests and income
taxes.
<TABLE>
<CAPTION>
-- (dollars in millions) --
1999 1998
------ -----
<S> <C> <C>
Insurance segments - underwriting ........................................... $ (86) $ 31
Insurance segments - investment income ...................................... 427 173
Non-Insurance business segments ............................................. 84 73
Interest expense ............................................................ (18) (16)
Goodwill amortization and other purchase-accounting-adjustments ............. (149) (26)
Other ....................................................................... 36 17
------ -----
Earnings before realized investment gain .................................... 294 252
Realized investment gain .................................................... 247 470
------ -----
Net earnings ................................................................ $ 541 $ 722
====== =====
</TABLE>
INSURANCE SEGMENTS -- UNDERWRITING
A summary follows of underwriting results from Berkshire's insurance
segments for the first quarter of 1999 and 1998.
<TABLE>
<CAPTION>
-- (dollars in millions) --
1999 1998
------ -----
<S> <C> <C>
Underwriting gain (loss) attributable to:
GEICO ................................................................. $- 0 - $ 61
General Re ............................................................ (136) --
Berkshire Hathaway Reinsurance Group .................................. 7 (9)
Berkshire Hathaway Primary Insurance Group ............................ 2 (3)
------ ------
Pre-tax underwriting gain (loss) ........................................... (127) 49
Income taxes and minority interest ......................................... (41) 18
------ ------
Net underwriting gain (loss) ............................................... $ (86) $ 31
====== ======
</TABLE>
Berkshire engages in both primary insurance and reinsurance of property and
casualty risks. Through General Re, Berkshire also reinsures life and health
risks. In primary insurance activities, Berkshire subsidiaries assume defined
portions of the risks of loss from persons or organizations that are directly
subject to the risks. In reinsurance activities, Berkshire subsidiaries assume
defined portions of similar or dissimilar risks that other insurers or
reinsurers have subjected themselves to in their own insuring activities.
Berkshire's principal insurance businesses are: (1) GEICO, the sixth largest
auto insurer in the United States (2) General Re, one of the four largest
reinsurers in the world (3) Berkshire Hathaway Reinsurance Group and (4)
Berkshire Hathaway Primary Insurance Group. See Note 2 to the Interim
Consolidated Financial Statements for information regarding the General Re
acquisition.
GEICO CORPORATION
GEICO Corporation through its affiliates ("GEICO") provides predominantly
private passenger auto insurance to customers in 48 states and the District of
Columbia. GEICO policies are marketed mainly through direct response methods, in
which insureds apply directly to the company for insurance coverage over the
telephone or through the mail. This is a significant element in GEICO's strategy
to be a low cost insurer and still provide high value to customers.
Premiums earned by GEICO during the first quarter of 1999 exceeded amounts
earned during the first quarter of 1998 by 17.5%, reflecting continued growth of
voluntary auto policies-in-force, partially offset by the effects of premium
rate reductions taken over the past two years. In-force policy growth of 22.5%
during the past year is attributed to accelerated levels of advertising and
competitive premium rates. It is expected that the numbers of voluntary policies
in-force will continue to grow at a substantial rate over the remainder of 1999.
11
<PAGE> 13
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 3/31/99
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
INSURANCE SEGMENTS - UNDERWRITING (CONTINUED)
GEICO's first quarter net underwriting results were breakeven in 1999
compared to a net underwriting gain of $61 million in 1998. The level of claim
costs incurred, including loss adjustment expenses, during the first quarter of
1999 exceeded 1998 by 27.2 %. During the previous two years, GEICO's claim
experience was better than expected, precipitating the aforementioned premium
rate reductions. Consequently, claim costs are expected to rise faster than
earned premiums over the near term future. Claim costs incurred in the first
quarter of 1999 include higher than expected bodily injury claim reserves. As
with all property and casualty insurance and reinsurance activities, the
practices of estimating claim reserves are inherently imprecise. Cases will be
settled and additional information will be revealed in the future with respect
to the remaining cases resulting in changes to the estimated liabilities, which
will be reflected in underwriting results in the periods made.
Underwriting expenses incurred during the first quarter of 1999 exceeded
1998 by 19.2%, reflecting higher levels of promotional and personnel costs
incurred to increase the production of new business. Promotional expenses will
continue at a high level.
BERKSHIRE HATHAWAY REINSURANCE GROUP
The Berkshire Hathaway Reinsurance Group ("BHRG") provides principally
excess reinsurance of property and casualty risks located throughout the world.
In recent years the BHRG has written significant levels of catastrophe excess
reinsurance which indemnify policyholders against primarily property losses
arising from single catastrophic events such as an earthquake or hurricane.
Premiums earned by the BHRG during the first quarter of 1999 and 1998 were
$367 million and $349 million, respectively. In each period, premiums earned
included approximately $285 million from retroactive reinsurance contracts.
These contracts indemnify policyholders against yet unknown losses deriving from
past events or provide periodic payments associated with settled claims. Loss
payments are expected to occur over lengthy time periods. This business is
expected to produce underwriting losses, reflected through periodic deferred
charge amortization and reserve discount accretions. The business is accepted,
in part, because of the large amounts of policyholder float generated. It is
currently expected that new retroactive contracts will be accepted over the
remainder of 1999 producing large amounts of additional premiums and float.
Premiums earned from the catastrophe reinsurance business were $21 million
during 1999 as compared to $24 million in 1998. Premium rates for catastrophe
reinsurance have declined in recent years due to increased competition and,
consequently, fewer contracts have been accepted by the BHRG. However, the BHRG
remains subject to considerable risk of loss from catastrophe losses,
particularly with respect to a major earthquake in California or hurricane in
the United States. The periodic underwriting results of the BHRG, therefore,
remain subject to extreme volatility.
Net underwriting results of the BHRG include net gains from catastrophe
reinsurance policies of $13 million in 1999 and $23 million in 1998. Structured
settlement and retroactive reinsurance policies generated first quarter
underwriting losses of $18 million in 1999 and $25 million in 1998 and other
reinsurance business generated an underwriting gain of $12 million in 1999 as
compared to a loss of $7 million in 1998.
GENERAL RE
On December 21,1998 General Re became a wholly-owned subsidiary of Berkshire
upon completion of the merger of the two companies. General Re's results of
operations are included in Berkshire's consolidated results beginning as of that
date. The discussion that follows provides comparative results for 1998 although
such results are not included in Berkshire's 1998 first quarter consolidated
results.
General Re and its affiliates conduct a global reinsurance business with
operations in the United States and 124 other countries around the world.
General Re's principal reinsurance operations are: (1) North American
property/casualty, (2) International property/casualty, and (3) Global
life/health.
North American property/casualty operations underwrite predominantly excess
reinsurance across various lines of business. The international
property/casualty operations write quota-share and excess reinsurance on risks
around the world. The global life/ health operations reinsure such risks
world-wide. The international property/casualty and global life/health
operations are conducted primarily through German-based Cologne Re and its
subsidiaries. At March 31,1999, General Re maintained an 83% economic ownership
interest in Cologne Re.
12
<PAGE> 14
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 3/31/99
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
INSURANCE SEGMENTS - UNDERWRITING (CONTINUED)
General Re's consolidated premiums earned totaled $1,551 million for the
first quarter of 1999 compared to $1,474 million for the first quarter of 1998.
For the first quarter of 1999, General Re produced a consolidated net
underwriting loss of $136 million compared to a net underwriting gain of $17
million in 1998.
Premiums earned from General Re's North American property/casualty
operations were $632 million during the first quarter of 1999 compared to $647
million in 1998. Decreases in the national account reinsurance business exceeded
growth in the regional account, specialty and facultative reinsurance
businesses. In addition, a comparative decline in premium volume occurred in
General Re's excess, surplus and specialty insurance operations due primarily to
reductions in umbrella, excess liability and workers compensation business. The
North American property/casualty operations produced a first quarter 1999 net
underwriting loss of $29 million compared to a net underwriting profit of $14
million during the first quarter of 1998. The comparative decline in
underwriting results primarily derives from additional expense accruals
associated with General Re's new long-term incentive plan and higher commission
expenses.
Premiums earned from General Re's international property/casualty
reinsurance businesses were $543 million during the first quarter of 1999
compared to $520 million in 1998. Virtually all of the increase in premiums
earned was due to changes in foreign currency exchange rates. These businesses
produced net underwriting losses of $57 million for the first quarter of 1999
compared to a small profit in 1998. First quarter 1999 underwriting results were
adversely affected by higher levels of property losses, less favorable
experience in excess liability and motor business and lower premium rates,
especially for property catastrophe risks. Underwriting conditions
internationally have generally deteriorated due to increased price competition.
Premiums earned from General Re's global life/health reinsurance businesses
were $376 million during the first quarter of 1999 compared to $307 million in
1998. The increase in reinsurance premiums earned was primarily attributed to
growth in the health reinsurance business written in London and the Medicare
Supplemental business written by the individual health division. General Re's
global life/health businesses produced net underwriting losses of $50 million
for the first quarter of 1999 compared to a small loss in 1998. The underwriting
losses that occurred during 1999 were primarily attributable to continuing
unfavorable results of Cologne Life Re's ("CLR") group health sector. The
estimated loss provision of $275 million, which was recorded in 1998 on business
written by a London-based managing underwriter for CLR's life/health operation,
was unchanged during the first quarter of 1999.
INSURANCE SEGMENTS - INVESTMENT INCOME
Berkshire's insurance and reinsurance businesses generated pre-tax net
investment income of $597 million for the first quarter of 1999 compared to $224
million for the first quarter of 1998. Pre-tax net investment income produced by
General Re reinsurance businesses totaled $346 million for the first quarter of
1999. Invested assets held during the first quarter of 1999 include
approximately $25 billion in assets added through the acquisition of General Re.
Berkshire's various insurance businesses produce considerable amounts of
investment income derived from shareholder capital as well as large amounts of
policyholder float. "Float" represents an estimate of the net balance of funds
payable to policyholders that is available for investment. Such funds are
invested until they are paid to policyholders, often years into the future.
Approximately $14.9 billion in float was added in December 1998 upon the
acquisition of General Re. Total float as of March 31,1999 was approximately
$22.9 billion compared to about $22.8 billion at December 31,1998. Increased
float was generated by GEICO and the BHRG, offset by a decline in float at
General Re.
NON-INSURANCE BUSINESS SEGMENTS
Results of operations of Berkshire's diverse non-insurance business segments
are shown in the following table. Dollar amounts are in millions.
<TABLE>
<CAPTION>
First Quarter
---------------------------------
1999 1998
--------------- --------------
Amount % Amount %
------ --- ------ ---
<S> <C> <C> <C> <C>
Revenues .................................................. $1,289 100.0 $939 100.0
Costs and expenses......................................... 1,152 89.4 822 87.5
----- ----- ---- -----
Earnings before income taxes and minority interest ........ 137 10.6 117 12.5
Applicable income taxes and minority interest ............. 53 4.1 44 4.7
------ ----- ---- -----
Net earnings .............................................. $ 84 6.5 $ 73 7.8
====== ===== ==== =====
</TABLE>
13
<PAGE> 15
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 3/31/99
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS. (CONTINUED)
NON-INSURANCE BUSINESS SEGMENTS (CONTINUED)
Revenues from these several and diverse business activities during 1999's
first quarter were greater by $350 million (37.3%) than revenues during the
corresponding 1998 period. A significant portion of the increase relates to the
acquisition of Executive Jet, Inc. ("Executive Jet") which was completed on
August 7, 1998. Executive Jet is the world's leading provider of fractional
ownership programs for general aviation aircraft. Executive Jet currently
operates its NetJets(R) fractional ownership programs in the United States and
Europe. In addition, Executive Jet is pursuing other international activities.
The fractional ownership concept was first introduced in 1986. Since then the
NetJets program has grown to include nine aircraft types with plans to introduce
several more models in the next two years.
Net earnings from this group of businesses were greater by $11 million
(15.1%) than net earnings reported in the corresponding prior year period. The
flight services segment which is comprised of Executive Jet and FlightSafety
accounts for most of the comparative increase.
GOODWILL AMORTIZATION AND OTHER PURCHASE-ACCOUNTING-ADJUSTMENTS
Goodwill amortization and other purchase-accounting-adjustments reflect the
after-tax effect on net earnings with respect to the amortization of goodwill of
acquired businesses and the amortization of fair value adjustments to certain
assets and liabilities which were recorded at the acquisition dates of certain
businesses (principally General Re and GEICO). The increase in such charges
during the first quarter of 1999 as compared to 1998 is primarily due to the
acquisition of General Re on December 21, 1998.
REALIZED INVESTMENT GAIN/LOSS
Realized investment gain/loss has been a recurring element in Berkshire's
net earnings for many years. Such amounts -- recorded when investments are sold,
other than temporarily impaired or in certain situations, as required under
GAAP, when investments are marked-to-market with a corresponding gain or loss
included in earnings -- may fluctuate significantly from period to period,
resulting in a meaningful effect on reported net earnings. The Consolidated
Statements of Earnings include after-tax realized investment gains of $247
million and $470 million for the first quarter of 1999 and 1998, respectively.
FINANCIAL CONDITION
Berkshire's balance sheet continues to reflect significant liquidity and
above average capital strength. Shareholders' equity at March 31, 1999, was
$57.9 billion, or $38,097 per equivalent share of Class A Common Stock.
YEAR 2000 ISSUE
Many computer systems in use today may be unable to correctly process data
or may not operate at all after December 31, 1999 because those systems
recognize the year within a date only by the last two digits. Some computer
programs may interpret the year "00" as 1900, instead of as 2000, causing errors
in calculations or the value "00" may be considered invalid by the computer
program, causing the system to fail. Year 2000 issues affect: (1) Information
Technology (IT) utilized in Berkshire's widely diversified business information
systems, (2) non-IT systems utilized by the Company, such as communications,
facilities management, and manufacturing and service equipment containing
embedded computer chips, and (3) IT and non-IT systems of significant customers,
suppliers, business partners and equity investees.
Berkshire and its subsidiaries could be adversely affected if Year 2000
issues are not resolved by Berkshire or its significant customers, suppliers,
business partners or equity investees before the Year 2000. Possible adverse
consequences include but are not limited to: (1) the inability to obtain
products or services used in business operations, (2) the inability to transact
business with key customers, (3) the inability to execute transactions through
the financial markets, (4) the inability to manufacture or deliver goods or
services sold to customers, (5) the decline in economic value of one or more of
Berkshire's significant equity investees and (6) the occurrence of Year 2000
related losses under property and casualty insurance and reinsurance contracts
entered into by subsidiaries. Berkshire's management believes that at least some
minor disruptions due to Year 2000 issues will occur. On a worst case basis, if
Berkshire, one or more of its significant business partners, equity investees or
key governmental bodies are unable to implement timely and effective solutions
to the Year 2000 issues, Berkshire could suffer material adverse effects. The
financial impact of such effects cannot currently be estimated.
Although Berkshire's business operations are diverse, they all rely on
computers to conduct daily business activities. Because of the diversity of
those operations, Year 2000 issues are independently managed at each of
Berkshire's operating units. Berkshire and its subsidiaries have been working on
Year 2000 readiness issues in varying degrees for several years and considerable
progress has been achieved.
14
<PAGE> 16
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 3/31/99
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS. (CONTINUED)
YEAR 2000 ISSUE (CONTINUED)
Generally, the stages involved in managing Year 2000 issues include (a)
identifying the IT and non-IT systems that are non-compliant, (b) formulating
strategies to remedying the problems, (c) making the changes necessary through
purchasing compliant systems or fixing existing systems, (d) testing the changes
and (e) developing contingency plans. The identification and formulation stages
are essentially complete. Many systems have been purchased, upgraded or
corrected to make them Year 2000 compliant. In certain instances the
certifications of Year 2000 compliance have been obtained from the manufacturers
of systems in use. Management continues to believe that by the end of 1999, all
critical systems that are not currently Year 2000 compliant will be corrected or
replaced.
Testing of systems that are believed to be Year 2000 compliant have been
completed in many instances. Significant levels of testing will continue
throughout 1999. Berkshire has contacted a large number of its business partners
to obtain information regarding their own progress on Year 2000 issues. While
all business partners have not fully completed their own Year 2000 projects,
Berkshire is currently not aware of any significant business partner whose Year
2000 issues will not be resolved in a timely manner. However, there is no
assurance that significant Year 2000 related problems will not ultimately arise
with its business partners.
Berkshire and its subsidiaries expect to ultimately incur about $60 million
in identification, remediation and testing of Year 2000 issues. Approximately
$42 million of this amount was incurred as of March 31, 1999. Year 2000 related
costs are expensed as incurred. Berkshire management does not believe that any
significant IT projects have been delayed due to Year 2000 efforts.
Berkshire and its subsidiaries have begun consideration of contingency plans
to deal with certain Year 2000 issues in the event that remediation efforts are
unsuccessful. Such plans will be more fully developed in 1999 to address
specific areas of need.
FORWARD-LOOKING STATEMENTS
Investors are cautioned that certain statements contained in this document,
including but not limited to those under the caption Year 2000 Issues as well as
some statements in periodic press releases and some oral statements of Berkshire
officials during presentations about Berkshire, are "forward-looking" statements
within the meaning of the Private Securities Litigation Reform Act of 1995 (the
"Act"). Forward-looking statements include statements which are predictive in
nature, which depend upon or refer to future events or conditions, which include
words such as "expects", "anticipates", "intends", "plans", "believes",
"estimates", or similar expressions. In addition, any statements concerning
future financial performance (including future revenues, earnings or growth
rates), ongoing business strategies or prospects, and possible future Berkshire
actions, which may be provided by management are also forward-looking statements
as defined by the Act. Forward-looking statements are based on current
expectations and projections about future events and are subject to risks,
uncertainties, and assumptions about Berkshire, economic and market factors and
the industries in which Berkshire does business, among other things. These
statements are not guaranties of future performance and Berkshire has no
specific intention to update these statements.
Actual events and results may differ materially from those expressed or
forecasted in forward-looking statements due to a number of factors. The
principal important risk factors that could cause Berkshire's actual performance
and future events and actions to differ materially from such forward-looking
statements, include, but are not limited to, changes in market prices of
Berkshire's significant equity investees, the ability of Berkshire and its
significant business partners and equity investees to successfully implement
timely Year 2000 solutions, the occurrence of one or more catastrophic events,
such as an earthquake or hurricane that causes losses insured by Berkshire's
insurance subsidiaries, changes in insurance laws or regulations, changes in
Federal income tax laws, and changes in general economic and market factors that
affect the prices of securities or the industries in which Berkshire and its
affiliates do business, especially those affecting the property and casualty
insurance industry.
15
<PAGE> 17
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 3/31/99
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 27 -- Financial Data Schedule
SIGNATURE
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
BERKSHIRE HATHAWAY INC.
(Registrant)
Date May 14, 1999 /s/ Marc D. Hamburg
---------------------------------
(Signature)
Marc D. Hamburg, Vice President
and Principal Financial Officer
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FINANCIAL STATEMENTS AND RELATED NOTES CONTAINED IN FORM 10-Q AS
FILED HEREWITH, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS AND RELATED NOTES.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 14,207
<SECURITIES> 60,767
<RECEIVABLES> 7,514
<ALLOWANCES> 0
<INVENTORY> 739
<CURRENT-ASSETS> 0
<PP&E> 1,616
<DEPRECIATION> 0
<TOTAL-ASSETS> 123,774
<CURRENT-LIABILITIES> 0
<BONDS> 2,462
0
0
<COMMON> 8
<OTHER-SE> 57,876
<TOTAL-LIABILITY-AND-EQUITY> 123,774
<SALES> 1,341
<TOTAL-REVENUES> 4,470
<CGS> 934
<TOTAL-COSTS> 4,144
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33
<INCOME-PRETAX> 882
<INCOME-TAX> 327
<INCOME-CONTINUING> 541
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 541
<EPS-PRIMARY> 356
<EPS-DILUTED> 356
</TABLE>
