<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 June 30, 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)
<TABLE>
<S> <C>
Delaware 47-0813844
(State or other jurisdiction of (I.R.S. Employer Identification number)
incorporation or organization)
</TABLE>
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 July 30, 1999:
Class A -- 1,342,423
Class B -- 5,321,961
<PAGE> 2
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 6/30/99
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE NO.
--------
<S> <C>
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets-- 2
June 30, 1999 and December 31, 1998
Consolidated Statements of Earnings-- 3
Second Quarter and First Half 1999 and 1998
Condensed Consolidated Statements of Cash Flows -- 4
First Half 1999 and 1998
Notes to Interim Consolidated Financial Statements 5 - 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 11 - 16
CONDITION AND RESULTS OF OPERATIONS
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 17
</TABLE>
1
<PAGE> 3
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 6/30/99
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(dollars in millions except share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents ................................ $ 4,229 $ 13,582
Investments:
Securities with fixed maturities ...................... 30,383 21,246
Equity securities and other investments ............... 38,966 39,761
Receivables .............................................. 8,058 7,224
Inventories .............................................. 752 767
Assets of finance and financial products businesses ...... 19,831 16,989
Property, plant and equipment ............................ 1,667 1,509
Goodwill of acquired businesses .......................... 18,371 18,570
Other assets ............................................. 2,909 2,589
-------- --------
$125,166 $122,237
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Losses and loss adjustment expenses ...................... $ 23,084 $ 23,012
Unearned premiums ........................................ 3,920 3,324
Accounts payable, accruals and other liabilities ......... 7,439 7,182
Income taxes, principally deferred ....................... 10,254 11,762
Borrowings under investment agreements and other debt .... 2,594 2,385
Liabilities of finance and financial products businesses . 18,327 15,525
-------- --------
65,618 63,190
-------- --------
Minority shareholders' interests ......................... 1,507 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 ........................... 25,179 25,121
Accumulated other comprehensive income ................... 17,977 18,510
Retained earnings ........................................ 14,877 13,764
-------- --------
Total shareholders' equity .......................... 58,041 57,403
-------- --------
$125,166 $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 1,519,816 shares outstanding at June 30, 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 6/30/99
CONSOLIDATED STATEMENTS OF EARNINGS
(dollars in millions except per share amounts)
<TABLE>
<CAPTION>
Second Quarter First Half
----------------------- -----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Insurance premiums earned .............................. $ 3,027 $ 1,249 $ 6,097 $ 2,616
Sales and service revenues ............................. 1,428 1,056 2,769 2,043
Interest, dividend and other investment income ......... 534 269 1,107 505
Income from finance and financial products businesses .. 76 11 135 23
Realized investment gain ............................... 396 1,351 799 2,074
---------- ---------- ---------- ----------
5,461 3,936 10,907 7,261
---------- ---------- ---------- ----------
COST AND EXPENSES:
Insurance losses and loss adjustment expenses .......... 2,356 854 4,797 1,948
Insurance underwriting expenses ........................ 823 308 1,592 532
Cost of products and services sold ..................... 997 661 1,931 1,280
Selling, general and administrative expenses ........... 269 247 538 496
Goodwill amortization .................................. 119 24 237 47
Interest expense ....................................... 32 27 65 54
---------- ---------- ---------- ----------
4,596 2,121 9,160 4,357
---------- ---------- ---------- ----------
EARNINGS BEFORE INCOME TAXES AND MINORITY INTEREST ........ 865 1,815 1,747 2,904
Income taxes ........................................... 291 624 618 987
Minority interest ...................................... 2 15 16 19
---------- ---------- ---------- ----------
NET EARNINGS .............................................. $ 572 $ 1,176 $ 1,113 $ 1,898
========== ========== ========== ==========
Average shares outstanding * ........................... 1,519,657 1,241,200 1,519,279 1,240,957
NET EARNINGS PER SHARE * .................................. $ 376 $ 947 $ 733 $ 1,529
========== ========== ========== ==========
</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 6/30/99
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
<TABLE>
<CAPTION>
First Half
--------------------
1999 1998
-------- --------
<S> <C> <C>
Net cash flows from operating activities ......................................... $ (1,060) $ (131)
-------- --------
Cash flows from investing activities:
Purchases of investments ...................................................... (13,491) (3,915)
Proceeds on sales and maturities of investments ............................... 4,851 10,607
Loans and investments originated in finance businesses ........................ (1,200) (213)
Principal collections on loans and investments originated in finance businesses 498 128
Acquisition of business ....................................................... -- (210)
Other ......................................................................... (207) (104)
-------- --------
Net cash flows from investing activities ......................................... (9,549) 6,293
-------- --------
Cash flows from financing activities:
Proceeds from borrowings of finance businesses ................................ 503 61
Proceeds from other borrowings ................................................ 971 596
Repayments of borrowings of finance businesses ................................ (53) (65)
Repayments of other borrowings ................................................ (907) (672)
Other ......................................................................... 24 --
-------- --------
Net cash flows from financing activities ......................................... 538 (80)
-------- --------
Increase (decrease) in cash and cash equivalents ................................. (10,071) 6,082
Cash and cash equivalents at beginning of year* .................................. 14,489 1,058
-------- --------
Cash and cash equivalents at end of first half* .................................. $ 4,418 $ 7,140
======== ========
Supplemental cash flow information:
Cash paid during the period for:
Income taxes ............................................................... $ 1,757 $ 832
Interest ................................................................... 137 60
Non-cash investing activity:
Liabilities assumed in connection with acquisition of business ................ -- 51
Common shares issued in connection with acquisition of business ............... -- 323
Contingent value of Exchange Notes recognized in earnings ..................... 3 17
Value of equity securities used to redeem Exchange Notes ...................... 13 106
* 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 half --
Finance and financial products businesses .................................. $ 189 $ 22
Other ...................................................................... 4,229 7,118
-------- --------
$ 4,418 $ 7,140
======== ========
</TABLE>
See accompanying Notes to Interim Consolidated Financial Statements
4
<PAGE> 6
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 6/30/99
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.
During the second quarter, the company restated its December 31, 1998
Consolidated Balance Sheet. The restatement resulted from a further review of
the opening balance sheet of General Re Corporation which was used as the basis
for recording the fair value of the assets and liabilities acquired in
connection with the acquisition of General Re Corporation which closed on
December 21, 1998. The effect of the restatement was to increase goodwill of
acquired businesses by $124 million and to increase property, plant and
equipment by $18 million with a corresponding decrease of $142 million in other
assets from the amounts previously reported. The restatement had no effect on
the previously reported earnings for the year ended December 31, 1998.
In June 1999, the Financial Accounting Standards Board ("FASB") issued
Statement of Accounting Standards No. 137 "Accounting for Derivative Instruments
and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133"
("SFAS No. 137"). FASB Statement No. 133 was discussed in Note 1 to the
Consolidated Financial Statements in Berkshire's 1998 Annual Report. SFAS No.
137 delays the effective date for implementing SFAS No. 133 and Berkshire will
adopt the requirements of SFAS No. 133 as of the beginning of 2001.
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 completed. 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".
5
<PAGE> 7
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 6/30/99
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. BUSINESS ACQUISITIONS (CONTINUED)
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.
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
half 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 amount.
<TABLE>
<CAPTION>
1998
-------
<S> <C>
Insurance premiums earned .......................................... $ 5,562
Sales and service revenues ......................................... 2,479
Total revenues ..................................................... 11,276
Net earnings ....................................................... 2,177
Earnings per equivalent Class A Common Share ....................... 1,434
</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>
June 30, December 31,
1999 1998
-------- ------------
<S> <C> <C>
Amortized cost ................................... $ 30,642 $ 21,159
Gross unrealized gains ........................... 208 94
Gross unrealized losses .......................... (467) (7)
-------- --------
Estimated fair value ............................. $ 30,383 $ 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>
June 30, December 31,
1999 1998
-------- ------------
<S> <C> <C>
Total cost ......................................... $ 10,380 $ 10,897
Gross unrealized gains ............................. 28,676 28,902
Gross unrealized losses ............................ (90) (38)
-------- --------
Total fair value ................................... $ 38,966 $ 39,761
======== ========
Fair value:
American Express Company ........................ $ 6,576 $ 5,180
The Coca-Cola Company ........................... 12,400 13,400
The Gillette Company ............................ 3,936 4,590
Other equity securities ......................... 14,379 14,951
Other investments ............................... 1,675 1,640
-------- --------
Total .............................................. $ 38,966 $ 39,761
======== ========
</TABLE>
6
<PAGE> 8
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 6/30/99
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 June 30, 1999 and December 31, 1998 are as follows (in
millions):
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Relating to unrealized appreciation of investments ... $ 9,874 $ 10,149
Other ................................................ 1,437 1,615
-------- --------
11,311 11,764
Deferred tax assets ..................................... (1,150) (1,008)
-------- --------
Net deferred tax liabilities ......................... $ 10,161 $ 10,756
======== ========
</TABLE>
NOTE 6. COMMON STOCK
The following table summarizes Berkshire's common stock activity during the
first half 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 ........ (7,065) 250,004
--------- ---------
Balance at June 30, 1999 .................... 1,342,470 5,320,383
========= =========
</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 1,519,816
shares outstanding at June 30, 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 second quarter and first half 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 foreign-based business
operations.
<TABLE>
<CAPTION>
Second Quarter First Half
------------------- -------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net earnings ...................................................... $ 572 $ 1,176 $ 1,113 $ 1,898
Other comprehensive income:
Increase(decrease) in unrealized appreciation of investments ... (715) 1,477 (821) 5,050
Applicable income taxes and minority interests ................. 255 (516) 300 (1,811)
Foreign currency translation losses ............................ (50) -- (71) --
Applicable income taxes and minority interests ................. 54 -- 59 --
------- ------- ------- -------
(456) 961 (533) 3,239
------- ------- ------- -------
Comprehensive income .............................................. $ 116 $ 2,137 $ 580 $ 5,137
======= ======= ======= =======
</TABLE>
7
<PAGE> 9
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 6/30/99
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>
June 30, December 31,
1999 1998
------- -------
<S> <C> <C>
ASSETS
Cash and cash equivalents ............................... $ 189 $ 907
Investments in securities with fixed maturities:
Held to maturity, at cost .......................... 1,905 1,227
Trading, at fair value ............................. 9,178 5,219
Available for sale, at fair value .................. 873 743
Trading account assets .................................. 5,190 6,234
Securities purchased under agreements to resell ......... 1,020 1,083
Other ................................................... 1,476 1,576
------- -------
$19,831 $16,989
======= =======
LIABILITIES
Annuity reserves and policyholder liabilities ........... $ 830 $ 816
Securities sold under agreements to repurchase .......... 8,158 4,065
Securities sold but not yet purchased ................... 1,300 1,181
Trading account liabilities ............................. 4,290 5,834
Notes payable and other borrowings ...................... 1,937 1,503
Other ................................................... 1,812 2,126
------- -------
$18,327 $15,525
======= =======
</TABLE>
NOTE 9. BUSINESS SEGMENT DATA
A disaggregation of Berkshire's consolidated data for the second quarter
and first half of each of the two most recent years is as follows. Amounts are
in millions.
<TABLE>
<CAPTION>
REVENUES
-----------------------------------------------
Second Quarter First Half
--------------------- ---------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
OPERATING SEGMENTS:
GEICO Corporation * ......................................... $ 1,168 $ 985 $ 2,269 $ 1,922
Berkshire Hathaway Reinsurance Group * ...................... 178 179 545 528
Berkshire Hathaway Primary Insurance Group * ................ 67 85 118 166
General Re * ................................................ 1,614 -- 3,165 --
Buffalo News ................................................ 39 39 76 75
Flight services ............................................. 443 120 874 225
Home furnishings ............................................ 209 184 400 364
International Dairy Queen ................................... 144 126 245 224
Jewelry ..................................................... 106 88 192 168
Scott Fetzer Companies ...................................... 256 259 509 520
See's Candies ............................................... 53 57 118 114
Shoe group .................................................. 122 122 247 244
-------- -------- -------- --------
4,399 2,244 8,758 4,550
Reconciliation of segment amounts to consolidated amounts:
Other sales and service revenues ......................... 56 60 108 109
Interest, dividend and other investment income ........... 608 271 1,218 508
Income from finance and financial products businesses .... 76 11 135 23
Realized investment gain ................................. 396 1,351 799 2,074
Purchase-accounting-adjustments .......................... (74) (1) (111) (3)
-------- -------- -------- --------
$ 5,461 $ 3,936 $ 10,907 $ 7,261
======== ======== ======== ========
</TABLE>
* Represents insurance premiums earned
8
<PAGE> 10
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 6/30/99
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. BUSINESS SEGMENT DATA (CONTINUED)
<TABLE>
<CAPTION>
OPERATING PROFIT BEFORE TAXES
-------------------------------------------
Second Quarter First Half
------------------- -------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
OPERATING SEGMENTS:
GEICO Corporation ** ................................................ $ 20 $ 93 $ 20 $ 154
Berkshire Hathaway Reinsurance Group ** ............................. 38 (4) 45 (13)
Berkshire Hathaway Primary Insurance Group ** ....................... (1) (2) 1 (5)
General Re ** ....................................................... (190) -- (326) --
Buffalo News ........................................................ 14 14 26 25
Flight services ..................................................... 60 48 112 82
Home furnishings .................................................... 20 16 35 31
International Dairy Queen ........................................... 21 19 30 29
Jewelry ............................................................. 7 4 9 5
Scott Fetzer Companies .............................................. 30 29 62 62
See's Candies ....................................................... 6 8 15 14
Shoe group .......................................................... 3 6 9 13
------- ------- ------- -------
28 231 38 397
Reconciliation of segment amounts to consolidated amounts:
Interest, dividend and other investment income ................... 599 269 1,206 504
Income from finance and financial products businesses ............ 76 11 135 23
Realized investment gain ......................................... 396 1,351 799 2,074
Interest expense *** ............................................. (28) (25) (56) (51)
Corporate and other .............................................. 7 5 3 11
Goodwill amortization and other purchase-accounting-adjustments .. (213) (27) (378) (54)
------- ------- ------- -------
$ 865 $ 1,815 $ 1,747 $ 2,904
======= ======= ======= =======
</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>
June 30, 1999 Dec. 31, 1998
------------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents ......................................... $ 2,385 $ 8,841
Investments in marketable equity and fixed maturity securities..... 47,899 40,572
Assets of finance and financial products businesses ............... 10,196 5,759
Goodwill of acquired businesses ................................... 3,979 4,004
Other assets ...................................................... 5,865 5,140
------- -------
$70,324 $64,316
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Losses and loss adjustment expenses ............................... $ 7,698 $ 7,198
Unearned premiums, accounts payable and other liabilities ......... 4,908 4,483
Income taxes, principally deferred ................................ 10,006 10,426
Borrowings under investment agreements and other debt ............. 2,311 2,056
Liabilities of finance and financial products businesses .......... 9,366 4,881
------- -------
34,289 29,044
------- -------
Total shareholders' equity ........................................ 36,035 35,272
------- -------
$70,324 $64,316
======= =======
</TABLE>
9
<PAGE> 11
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 6/30/99
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10. INFORMATION ABOUT CERTAIN SUBSIDIARIES (CONTINUED)
Net earnings of OBH Inc. for the second quarter and first half of 1999 and
1998 are summarized below (in millions).
<TABLE>
<CAPTION>
Second Quarter First Half
------------------ ------------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues ......................................... $3,531 $3,936 $7,065 $7,261
Cost and expenses ................................ 2,672 2,121 5,440 4,357
------ ------ ------ ------
Earnings before income taxes and minority interest 859 1,815 1,625 2,904
Income taxes and minority interest ............... 288 639 546 1,006
------ ------ ------ ------
Net earnings ..................................... $ 571 $1,176 $1,079 $1,898
====== ====== ====== ======
</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>
June 30, 1999 Dec. 31, 1998
------------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents ............................................ $ 126 $ 98
Mortgage-backed securities, installment loans and other receivables .. 155 371
Trading securities, at market ........................................ 7,714 3,488
Securities purchased under agreements to resell ...................... 508 192
------ ------
$8,503 $4,149
====== ======
LIABILITIES
6 3/4% Notes, due 2001 and borrowings under investment agreements .... $ 144 $ 152
Securities sold under agreements to repurchase ....................... 7,602 3,469
Securities sold but not yet purchased ................................ 495 177
Other* ............................................................... 138 208
------ ------
$8,379 $4,006
====== ======
</TABLE>
* Other liabilities include payables to affiliates of $133 at June 30, 1999 and
$105 at December 31, 1998.
Net earnings of SFFG for the second quarter and first half are summarized below
(in millions).
<TABLE>
<CAPTION>
Second Quarter First Half
---------------- -----------------
1999 1998 1999 1998
----- ----- ----- -----
<S> <C> <C> <C> <C>
Revenues ............................ $ 92 $ 10 $ 107 $ 21
Cost and expenses ................... 72 7 126 13
----- ----- ----- -----
Earnings(loss) before income taxes .. 20 3 (19) 8
Income taxes ........................ 7 1 (7) 3
----- ----- ----- -----
Net earnings ........................ $ 13 $ 2 $ (12) $ 5
===== ===== ===== =====
</TABLE>
10
<PAGE> 12
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 6/30/99
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Net earnings for the second quarter and first half 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)
Second Quarter First Half
--------------------- ---------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Insurance segments - underwriting ................................ $ (76) $ 57 $ (162) $ 88
Insurance segments - investment income ........................... 426 196 853 369
Non-insurance business segments .................................. 96 86 180 159
Interest expense ................................................. (18) (16) (36) (32)
Goodwill amortization and other purchase-accounting-adjustments .. (186) (25) (335) (51)
Other ............................................................ 57 14 93 31
------- ------- ------- -------
Earnings before realized investment gain ...................... 299 312 593 564
Realized investment gain ......................................... 273 864 520 1,334
------- ------- ------- -------
Net earnings ..................................................... $ 572 $ 1,176 $ 1,113 $ 1,898
======= ======= ======= =======
</TABLE>
INSURANCE SEGMENTS -- UNDERWRITING
A summary follows of underwriting results from Berkshire's insurance
segments for the second quarter and first half of 1999 and 1998. Dollar amounts
are in millions.
<TABLE>
<CAPTION>
Second Quarter First Half
---------------- ----------------
1999 1998 1999 1998
----- ----- ----- -----
<S> <C> <C> <C> <C>
Underwriting gain (loss) attributable to:
GEICO ........................................... $ 20 $ 93 $ 20 $ 154
General Re ...................................... (190) -- (326) --
Berkshire Hathaway Reinsurance Group ............ 38 (4) 45 (13)
Berkshire Hathaway Primary Insurance Group ...... (1) (2) 1 (5)
----- ----- ----- -----
Pre-tax underwriting gain (loss) ................... (133) 87 (260) 136
Income taxes and minority interest ................. (57) 30 (98) 48
----- ----- ----- -----
Net underwriting gain (loss) .................... $ (76) $ 57 $(162) $ 88
===== ===== ===== =====
</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) Berkshire Hathaway Reinsurance Group (3)
General Re, one of the four largest reinsurers in the world 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 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.
11
<PAGE> 13
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 6/30/99
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
INSURANCE SEGMENTS - UNDERWRITING (CONTINUED)
GEICO's underwriting results for the second quarter and first half of 1999
and 1998 are summarized in the table below. Dollar amounts are in millions.
<TABLE>
<CAPTION>
Second Quarter First Half
----------------- -----------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Premiums earned ..................... $1,168 $ 985 $2,269 $1,922
Losses and loss expenses ............ 921 716 1,816 1,419
Underwriting expenses ............... 227 176 433 349
------ ------ ------ ------
Underwriting gain ................... $ 20 $ 93 $ 20 $ 154
====== ====== ====== ======
</TABLE>
The increased premium volume in 1999 was attributed to the continuing
growth of voluntary automobile policies in-force, offset by the effects of
premium rate reductions taken over the past two years in certain states. Over
the past twelve months, the total number of policies in-force has grown 23.3%,
reflecting increases of 18.9% in the preferred-risk market and 44.6% in the
standard and non-standard markets. Competitive premium rates and ongoing
marketing efforts are expected to produce additional growth during the remainder
of 1999.
As shown in the table above, GEICO's net underwriting gains in 1999 periods
were considerably lower than the corresponding periods in 1998. Rate reductions
caused losses and loss expenses to grow relative to premiums. Additionally,
claim costs in 1999 periods also include the effects of higher frequency of
physical damage claims and higher numbers of new bodily injury cases.
GEICO's underwriting expenses incurred during the second quarter and first
half of 1999 exceeded corresponding prior year amounts by 29.0% and 24.1%,
respectively. The increased expenses were caused by higher promotional and other
costs associated with the generation of policy growth.
BERKSHIRE HATHAWAY REINSURANCE GROUP
Berkshire Hathaway Reinsurance Group ("BHRG") provides principally excess
reinsurance of property and casualty risks located throughout the world. In
recent years 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 during the second quarter of 1999 of $178 million by BHRG
were essentially unchanged from the second quarter of 1998. For the first half,
premiums earned in 1999 of $545 million exceeded 1998 by 3.2%. Premiums earned
during the first half of both 1999 and 1998 include approximately $280 million
from retroactive reinsurance contracts, which indemnify ceding companies with
respect to past loss occurrences.
In July 1999, BHRG entered into a significant retroactive reinsurance
agreement with an affiliate of a major property/casualty insurer. The agreement
provides that BHRG indemnify the reinsured for losses in excess of a fixed
amount retained by the reinsured. BHRG anticipates that a significant level of
asbestos and environmental claims will arise under this agreement. Premiums
earned during the third quarter 1999 will include approximately $1.2 billion
from this agreement but there will be little effect on earnings. A deferred
charge representing the excess of loss reserves established over the premiums
received will be recorded and subsequently amortized against income over the
estimated claim settlement period.
The retroactive reinsurance business, which includes contracts that
indemnify reinsureds with respect to past loss events or that provide periodic
payments with respect to settled claims, is normally expected to produce net
underwriting losses. Premiums for this business are based in part on
time-value-of-money concepts, especially when lengthy claim settlement periods
are anticipated. Underwriting losses are recognized over time through the
recurring amortization of deferred charges and accretion of discounted
structured settlement liabilities. During the first half of both 1999 and 1998,
underwriting losses totaled approximately $45 million. The level of underwriting
losses attributed to retroactive reinsurance is expected to increase in future
periods as a result of the amortization of deferred charges established in
connection with contracts recently written, in particular the July transaction
referenced above. Nevertheless, this business is accepted because of the large
levels of investable policyholder funds produced.
12
<PAGE> 14
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 6/30/99
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
INSURANCE SEGMENTS - UNDERWRITING (CONTINUED)
Premiums earned with respect to catastrophe reinsurance contracts during
1999 were $152 million in the second quarter and $173 million in the first half.
This compares to premiums earned of $110 million and $133 million in the
comparable 1998 periods. Catastrophe losses incurred during each period were
relatively minor. During the first half of 1999, BHRG's catastrophe business
produced net underwriting gains of about $101 million as compared to a net
underwriting gain of $64 million for the first half of 1998. While BHRG has not
suffered a truly large loss during the first half of 1999, very significant
exposure to catastrophe losses remains. BHRG's greatest catastrophe exposures
currently pertain to a major earthquake in California or hurricane affecting the
United States.
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 second quarter
and first half 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 Germany-based Cologne Re and its
subsidiaries. At June 30,1999, General Re had an 83% economic ownership
interest in Cologne Re, subsequently increased to 87%.
General Re's consolidated premiums earned during the second quarter totaled
$1,614 million in 1999 and $1,472 million in 1998. For the first half of 1999,
consolidated premiums earned were $3,165 million as compared to $2,946 million
in 1998. General Re produced a consolidated net underwriting loss for the second
quarter and first half of 1999 of $190 million and $326 million, respectively,
compared with a consolidated net underwriting loss of $5 million in the second
quarter and a net underwriting gain of $12 million in the first half of 1998.
Premiums earned from General Re's North American property/casualty
operations were $635 million during the second quarter of 1999, compared with
$649 million in the second quarter of 1998. For the first half, premiums earned
from the North American property/casualty operations totaled $1,267 million in
1999 and $1,296 million in 1998. For the first half of 1999, decreases in the
national account reinsurance and affiliate 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 facilities,
excess property, excess liability and workers compensation business.
The North American property/casualty operations produced a second quarter
1999 net underwriting loss of $44 million compared to a net underwriting profit
of $10 million during the second quarter of 1998. For the first half of 1999,
the North American property/casualty operations produced a net underwriting loss
of $73 million, compared with an underwriting profit of $24 million in the same
period of 1998. The decline in underwriting results primarily derives from
underwriting losses in 1999 related to property lines of business, reduced
amounts of favorable development recognized with respect to prior year loss
estimates and expense accruals associated with General Re's new long-term
incentive plan. Underwriting results of property lines of business were
adversely affected by two large loss events in 1999.
Premiums earned from General Re's International property/casualty
reinsurance businesses were $571 million in the second quarter of 1999 compared
with $536 million in the same period in 1998. International property/casualty
premiums earned for the first half were $1,114 million in 1999 and $1,056
million in 1998. The growth in earned premiums was due primarily to (1)
inclusion for the first time of General Re's participation in a Lloyd's
syndicate, which is managed by General Re's recently acquired underwriting
manager, DP Mann, (2) stronger foreign currency rates and (3) elimination of
certain retrocessional agreements with General Re's North American
property/casualty operations.
13
<PAGE> 15
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 6/30/99
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
INSURANCE SEGMENTS - UNDERWRITING (CONTINUED)
The International property/casualty operations produced a net underwriting
loss of $97 million during the second quarter and $154 million during the first
half of 1999, compared to losses of $12 million and $8 million in the respective
periods of 1998. Underwriting results for the International property/casualty
segment have been adversely affected by higher levels of property losses, which
included the effects of a major hailstorm in Australia, and poor experience in
excess liability and motor business.
Premiums earned from General Re's Global life/health reinsurance businesses
were $408 million and $287 million for the second quarter of 1999 and 1998,
respectively. For the first six months, Global life/health premiums earned were
$784 million in 1999 and $594 million in 1998. The growth in premiums earned was
primarily attributable to increased business written by Cologne Re's U.S.
life/health subsidiary ("CLR") and higher international health premiums.
The Global life/health businesses produced a net underwriting loss of $49
million for the second quarter of 1999, compared to a loss of $3 million in the
same period of 1998. For the first six months, these businesses produced net
underwriting losses of $99 million and $4 million in 1999 and 1998,
respectively. The net underwriting losses were primarily attributable to
strengthening of CLR's group health reserves as a result of a thorough review of
its claim reserves over the first half of 1999. In addition, CLR had unfavorable
claims experience in its individual life and health business. The estimated loss
provision of $275 million, which was established in 1998 on business
underwritten by a London-based managing underwriter for CLR's life/health
operation, remained unchanged.
INSURANCE SEGMENTS - INVESTMENT INCOME
After-tax net investment income produced by Berkshire's insurance and
reinsurance businesses is summarized in the table below. Dollars are in
millions.
<TABLE>
<CAPTION>
Second Quarter First Half
---------------- ---------------
1999 1998 1999 1998
---- ---- ------- ----
<S> <C> <C> <C> <C>
Net Investment income before taxes and minority interests ....... $591 $262 $1,191 $488
Taxes and minority interests .................................... 165 66 338 119
---- ---- ------- ----
Investment income ............................................... $426 $196 $ 853 $369
==== ==== ======= ====
</TABLE>
For 1999 periods, net investment income from Berkshire's insurance and
reinsurance operations includes the investment income of General Re. Pre-tax net
investment income of General Re for the second quarter and first half of 1999
totaled $327 million and $672 million, respectively. Invested assets of
insurance operations increased by approximately $25 billion as a result of the
acquisition of General Re in December 1998.
Berkshire's 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 by Berkshire's insurance
operations. As of June 30,1999, float was approximately $22.8 billion,
essentially unchanged from December 31,1998. During the first half of 1999,
float attributable to GEICO and BHRG increased slightly and was offset by a
decline in float of General Re. Float is expected to increase in the third
quarter of 1999 due to the previously discussed significant retroactive
reinsurance contract entered into by BHRG in July.
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>
Second Quarter First Half
---------------------------------- ----------------------------------
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
Amount % Amount % Amount % Amount %
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues ......................................... $1,372 100.0 $ 995 100.0 $2,661 100.0 $1,934 100.0
Costs and expenses ............................... 1,211 88.3 852 85.6 2,363 88.8 1,674 86.6
------ ----- ------ ----- ------ ----- ------ -----
Earnings before income taxes and minority interest 161 11.7 143 14.4 298 11.2 260 13.4
Applicable income taxes and minority interest .... 65 4.7 57 5.7 118 4.4 101 5.2
------ ----- ------ ----- ------ ----- ------ -----
Net earnings ............................ $ 96 7.0 $ 86 8.7 $ 180 6.8 $ 159 8.2
====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
14
<PAGE> 16
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 6/30/99
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
second quarter and first half were greater by $377 million (37.9%) and $727
million (37.6%), respectively, 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. 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 $10 million
(11.6%) and $21 million (13.2%), respectively, than net earnings reported in the
corresponding prior year periods. 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 second quarter and first half of 1999 as compared to 1998 periods 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 provided 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 $273
million and $864 million for the second quarter of 1999 and 1998, respectively.
For the first half, after-tax realized investment gains were $520 million in
1999 and $1,334 million in 1998.
FINANCIAL CONDITION
Berkshire's balance sheet continues to reflect significant liquidity and
above average capital strength. Shareholders' equity at June 30, 1999, was $58.0
billion, or $38,189 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.
15
<PAGE> 17
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 6/30/99
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 has 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
$51 million of this amount was incurred as of June 30, 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 to develop 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.
16
<PAGE> 18
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 6/30/99
PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of shareholders of Berkshire Hathaway Inc.
("Berkshire"), held May 3, 1999, Berkshire's shareholders reelected Berkshire's
Directors in an uncontested election. Proxies for the meeting had previously
been solicited pursuant to Regulation 14A under the Securities Exchange Act of
1934.
Following are the votes cast in favor and against each Director. There were
no votes withheld, abstentions or broker non-votes.
<TABLE>
<CAPTION>
Directors For Against
--------- --------- -------
<S> <C> <C>
Warren E. Buffett 1,184,814 897
Howard G. Buffett 1,179,031 6,680
Susan T. Buffett 1,179,030 6,681
Malcolm G. Chace 1,184,916 795
Charles T. Munger 1,184,829 882
Ronald L. Olson 1,179,089 6,621
Walter Scott, Jr. 1,184,828 883
</TABLE>
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 August 13, 1999 /s/ Marc D. Hamburg
---------------------------------
(Signature)
Marc D. Hamburg, Vice President
and Principal Financial Officer
17
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 4,229
<SECURITIES> 69,349
<RECEIVABLES> 8,058
<ALLOWANCES> 0
<INVENTORY> 752
<CURRENT-ASSETS> 0
<PP&E> 1,667
<DEPRECIATION> 0
<TOTAL-ASSETS> 125,166
<CURRENT-LIABILITIES> 0
<BONDS> 2,594
0
0
<COMMON> 8
<OTHER-SE> 58,033
<TOTAL-LIABILITY-AND-EQUITY> 125,166
<SALES> 2,769
<TOTAL-REVENUES> 9,001
<CGS> 1,931
<TOTAL-COSTS> 8,320
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 65
<INCOME-PRETAX> 1,747
<INCOME-TAX> 618
<INCOME-CONTINUING> 1,113
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,113
<EPS-BASIC> 733
<EPS-DILUTED> 733
</TABLE>
