<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 September 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)
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 October 29, 1999:
Class A -- 1,341,970
Class B -- 5,342,284
<PAGE> 2
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 9/30/99
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE NO.
--------
<S> <C>
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets -- 2
September 30, 1999 and December 31, 1998
Consolidated Statements of Earnings -- 3
Third Quarter and First Nine Months 1999 and 1998
Condensed Consolidated Statements of Cash Flows -- 4
First Nine Months 1999 and 1998
Notes to Interim Consolidated Financial Statements 5 - 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 11 - 17
CONDITION AND RESULTS OF OPERATIONS
PART II - OTHER INFORMATION 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
</TABLE>
1
<PAGE> 3
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 9/30/99
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(dollars in millions except share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents .................................. $ 4,715 $ 13,582
Investments:
Securities with fixed maturities ......................... 31,251 21,246
Equity securities and other investments .................. 34,784 39,761
Receivables ................................................ 7,207 7,224
Inventories ................................................ 780 767
Assets of finance and financial products businesses ........ 23,795 16,989
Property, plant and equipment .............................. 1,782 1,509
Goodwill of acquired businesses ............................ 18,270 18,570
Other assets ............................................... 4,008 2,589
-------- --------
$126,592 $122,237
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Losses and loss adjustment expenses .................... $ 25,482 $ 23,012
Unearned premiums ...................................... 3,875 3,324
Accounts payable, accruals and other liabilities ....... 7,605 7,182
Income taxes, principally deferred ..................... 8,288 11,762
Borrowings under investment agreements and other debt .. 2,448 2,385
Liabilities of finance and financial products businesses 22,183 15,525
-------- --------
69,881 63,190
-------- --------
Minority shareholders' interests ....................... 1,406 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 25,189 25,121
Accumulated other comprehensive income 14,811 18,510
Retained earnings 15,297 13,764
-------- --------
Total shareholders' equity 55,305 57,403
-------- --------
$126,592 $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 1,520,040 shares outstanding at September 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 9/30/99
CONSOLIDATED STATEMENTS OF EARNINGS
(dollars in millions except per share amounts)
<TABLE>
<CAPTION>
Third Quarter First Nine Months
-------------------------- --------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Insurance premiums earned ........................... $ 4,603 $ 1,367 $ 10,700 $ 3,983
Sales and service revenues .......................... 1,397 1,145 4,166 3,188
Interest, dividend and other investment income ...... 614 231 1,721 736
Income from finance and financial products businesses 12 13 147 36
Realized investment gain ............................ 425 153 1,224 2,227
---------- ---------- ---------- ----------
7,051 2,909 17,958 10,170
---------- ---------- ---------- ----------
COST AND EXPENSES:
Insurance losses and loss adjustment expenses ....... 4,182 1,014 8,979 2,962
Insurance underwriting expenses ..................... 793 272 2,385 804
Cost of products and services sold .................. 986 773 2,917 2,053
Selling, general and administrative expenses ........ 267 248 805 744
Goodwill amortization ............................... 119 26 356 73
Interest expense .................................... 35 28 100 82
---------- ---------- ---------- ----------
6,382 2,361 15,542 6,718
---------- ---------- ---------- ----------
EARNINGS BEFORE INCOME TAXES AND MINORITY INTEREST ...... 669 548 2,416 3,452
Income taxes ........................................ 237 179 855 1,166
Minority interest ................................... 12 4 28 23
---------- ---------- ---------- ----------
NET EARNINGS ............................................ $ 420 $ 365 $ 1,533 $ 2,263
========== ========== ========== ==========
Average shares outstanding * ........................ 1,519,954 1,244,275 1,519,506 1,242,075
NET EARNINGS PER SHARE * ................................ $ 276 $ 293 $ 1,009 $ 1,822
========== ========== ========== ==========
</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 9/30/99
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
<TABLE>
<CAPTION>
First Nine Months
-----------------------
1999 1998
-------- --------
<S> <C> <C>
Net cash flows from operating activities ........................................... $ 1,328 $ 14
-------- --------
Cash flows from investing activities:
Purchases of investments ....................................................... (18,218) (4,615)
Proceeds on sales and maturities of investments ................................ 8,741 11,475
Loans and investments originated in finance businesses ......................... (1,433) (395)
Principal collections on loans and investments originated in finance businesses. 746 213
Acquisition of businesses ...................................................... -- (549)
Other .......................................................................... (437) (202)
-------- --------
Net cash flows from investing activities ........................................... (10,601) 5,927
-------- --------
Cash flows from financing activities:
Proceeds from borrowings of finance businesses ................................. 627 120
Proceeds from other borrowings ................................................. 1,454 897
Repayments of borrowings of finance businesses ................................. (330) (80)
Repayments of other borrowings ................................................. (1,362) (1,035)
Other .......................................................................... (41) 3
-------- --------
Net cash flows from financing activities ........................................... 348 (95)
-------- --------
Increase (decrease) in cash and cash equivalents ................................... (8,925) 5,846
Cash and cash equivalents at beginning of year* .................................... 14,489 1,058
-------- --------
Cash and cash equivalents at end of first nine months* ............................. $ 5,564 $ 6,904
======== ========
Supplemental cash flow information:
Cash paid during the period for:
Income taxes ................................................................... $ 2,175 $ 1,437
Interest of finance and financial products businesses .......................... 350 17
Other interest ................................................................. 112 85
Non-cash investing activity:
Liabilities assumed in connection with acquisition of businesses ................. -- 276
Common shares issued in connection with acquisition of businesses ................ -- 675
Contingent value of Exchange Notes recognized in earnings ........................ 30 61
Value of equity securities used to redeem Exchange Notes ......................... 133 344
* 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 nine months --
Finance and financial products businesses .................................... $ 849 $ 12
Other ........................................................................ 4,715 6,892
-------- --------
$ 5,564 $ 6,904
======== ========
</TABLE>
See accompanying Notes to Interim Consolidated Financial Statements
4
<PAGE> 6
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 9/30/99
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.
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 9/30/99
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
nine months 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 .................. $ 8,419
Sales and service revenues ................. 3,699
Total revenues ............................. 16,387
Net earnings ............................... 2,854
Earnings per equivalent Class A Common Share 1,880
</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>
September 30, December 31,
------------- ------------
1999 1998
-------- --------
<S> <C> <C>
Amortized cost ........ $ 31,870 $ 21,159
Gross unrealized gains 155 94
Gross unrealized losses (774) (7)
-------- --------
Estimated fair value .. $ 31,251 $ 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>
September 30, December 31,
------------- ------------
1999 1998
-------- --------
<S> <C> <C>
Total cost ................. $ 10,904 $ 10,897
Gross unrealized gains ..... 24,088 28,902
Gross unrealized losses .... (208) (38)
-------- --------
Total fair value ........... $ 34,784 $ 39,761
======== ========
Fair value:
American Express Company $ 6,822 $ 5,180
The Coca-Cola Company .. 9,650 13,400
The Gillette Company ... 3,258 4,590
Other equity securities 13,299 14,951
Other investments ...... 1,755 1,640
-------- --------
Total ...................... $ 34,784 $ 39,761
======== ========
</TABLE>
6
<PAGE> 8
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 9/30/99
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. DEFERRED INCOME TAX LIABILITIES
The tax effects of significant items comprising Berkshire's net deferred tax
liabilities as of September 30, 1999 and December 31, 1998 are as follows (in
millions):
<TABLE>
<CAPTION>
September 30, December 31,
------------- ------------
1999 1998
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Relating to unrealized appreciation of investments $ 8,116 $ 10,149
Other ............................................ 1,353 1,615
-------- --------
9,469 11,764
Deferred tax assets .............................. (975) (1,008)
-------- --------
Net deferred tax liabilities ..................... $ 8,494 $ 10,756
======== ========
</TABLE>
NOTE 6. COMMON STOCK
The following table summarizes Berkshire's common stock activity during the
first nine months 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..... (7,198) 260,701
---------- ----------
Balance at September 30, 1999 ........... 1,342,337 5,331,080
========== ==========
</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 1,520,040
shares outstanding at September 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 third quarter and first nine months
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>
Third Quarter First Nine Months
---------------------- ----------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net earnings ........................................... $ 420 $ 365 $ 1,533 $ 2,263
-------- -------- -------- --------
Other comprehensive income:
(Decrease) in unrealized appreciation of investments (4,991) (10,360) (5,812) (5,310)
Applicable income taxes and minority interests 1,813 3,681 2,113 1,870
Foreign currency translation gains (losses) ........ 23 -- (48) --
Applicable income taxes and minority interests (11) -- 48 --
-------- -------- -------- --------
(3,166) (6,679) (3,699) (3,440)
-------- -------- -------- --------
Comprehensive income ............................... $ (2,746) $ (6,314) $ (2,166) $ (1,177)
======== ======== ======== ========
</TABLE>
7
<PAGE> 9
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 9/30/99
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>
September 30, December 31,
1999 1998
------- -------
<S> <C> <C>
ASSETS
Cash and cash equivalents ........................ $ 849 $ 907
Investments in securities with fixed maturities:
Held to maturity, at cost ................... 1,794 1,227
Trading, at fair value ...................... 11,617 5,219
Available for sale, at fair value ........... 978 743
Trading account assets ........................... 5,156 6,234
Securities purchased under agreements to resell 1,786 1,083
Other ............................................ 1,615 1,576
------- -------
$23,795 $16,989
======= =======
LIABILITIES
Annuity reserves and policyholder liabilities .... $ 842 $ 816
Securities sold under agreements to repurchase ... 10,957 4,065
Securities sold but not yet purchased ............ 1,174 1,181
Trading account liabilities ...................... 5,217 5,834
Notes payable and other borrowings ............... 1,795 1,503
Other ............................................ 2,198 2,126
------- -------
$22,183 $15,525
======= =======
</TABLE>
NOTE 9. BUSINESS SEGMENT DATA
A disaggregation of Berkshire's consolidated data for the third quarter and
first nine months of each of the two most recent years is as follows. Amounts
are in millions.
<TABLE>
<CAPTION>
REVENUES
----------------------------------------------
Third Quarter First Nine Months
--------------------- ---------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
OPERATING SEGMENTS:
GEICO * .................................................. $ 1,222 $ 1,035 $ 3,491 $ 2,957
General Re * ............................................. 1,889 -- 5,054 --
Berkshire Hathaway Reinsurance Group * ................... 1,421 251 1,966 779
Berkshire Hathaway Primary Insurance Group * ............. 71 81 189 247
Buffalo News ............................................. 39 40 115 115
Flight services .......................................... 456 259 1,330 484
Home furnishings ......................................... 220 199 620 563
International Dairy Queen ................................ 124 116 369 340
Jewelry .................................................. 90 79 282 247
Scott Fetzer Companies ................................... 254 235 763 755
See's Candies ............................................ 32 29 150 143
Shoe group ............................................... 129 137 376 381
-------- -------- -------- --------
5,947 2,461 14,705 7,011
Reconciliation of segment amounts to consolidated amounts:
Other sales and service revenues ..................... 53 51 161 160
Interest, dividend and other investment income ....... 671 233 1,889 741
Income from finance and financial products businesses 12 13 147 36
Realized investment gain ............................. 425 153 1,224 2,227
Purchase-accounting-adjustments ...................... (57) (2) (168) (5)
-------- -------- -------- --------
$ 7,051 $ 2,909 $ 17,958 $ 10,170
======== ======== ======== ========
</TABLE>
* Represents insurance premiums earned
8
<PAGE> 10
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 9/30/99
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. BUSINESS SEGMENT DATA (CONTINUED)
<TABLE>
<CAPTION>
OPERATING PROFIT BEFORE TAXES
-------------------------------------------
Third Quarter First Nine Months
------------------- -------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
OPERATING SEGMENTS:
GEICO ** .......................................................... $ 32 $ 102 $ 52 $ 256
General Re ** ..................................................... (277) -- (603) --
Berkshire Hathaway Reinsurance Group ** ........................... (132) (16) (87) (29)
Berkshire Hathaway Primary Insurance Group ** ..................... 2 (5) 3 (10)
Buffalo News ...................................................... 15 13 41 38
Flight services ................................................... 51 44 163 126
Home furnishings .................................................. 20 21 55 52
International Dairy Queen ......................................... 15 17 45 46
Jewelry ........................................................... 5 3 14 8
Scott Fetzer Companies ............................................ 34 25 96 87
See's Candies ..................................................... (5) (7) 10 7
Shoe group ........................................................ 5 11 14 24
------- ------- ------- -------
(235) 208 (197) 605
Reconciliation of segment amounts to consolidated amounts:
Interest, dividend and other investment income ................ 666 225 1,872 729
Income from finance and financial products businesses ......... 12 13 147 36
Realized investment gain ...................................... 425 153 1,224 2,227
Interest expense *** .......................................... (27) (24) (83) (75)
Corporate and other ........................................... 2 3 5 14
Goodwill amortization and other purchase-accounting-adjustments (174) (30) (552) (84)
------- ------- ------- -------
$ 669 $ 548 $ 2,416 $ 3,452
======= ======= ======= =======
</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>
Sept. 30, 1999 Dec. 31, 1998
-------------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents .................................... $ 3,022 $ 8,841
Investments in marketable equity and fixed maturity securities 44,804 40,572
Assets of finance and financial products businesses .......... 13,780 5,759
Goodwill of acquired businesses .............................. 3,954 4,004
Other assets ................................................. 6,910 5,140
------- -------
$72,470 $64,316
======= =======
Liabilities and Shareholders' Equity
Losses and loss adjustment expenses .......................... $10,097 $ 7,198
Unearned premiums, accounts payable and other liabilities .... 5,714 4,483
Income taxes, principally deferred ........................... 8,171 10,426
Borrowings under investment agreements and other debt ........ 2,166 2,056
Liabilities of finance and financial products businesses ..... 12,863 4,881
------- -------
39,011 29,044
------- -------
Total shareholders' equity ................................... 33,459 35,272
------- -------
$72,470 $64,316
======= =======
</TABLE>
9
<PAGE> 11
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 9/30/99
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10. INFORMATION ABOUT CERTAIN SUBSIDIARIES (CONTINUED)
Net earnings of OBH Inc. for the third quarter and first nine months of 1999
and 1998 are summarized below (in millions).
<TABLE>
<CAPTION>
Third Quarter First Nine Months
------------------- -------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues ......................................... $ 4,830 $ 2,909 $11,895 $10,170
Cost and expenses ................................ 4,120 2,361 9,560 6,718
------- ------- ------- -------
Earnings before income taxes and minority interest 710 548 2,335 3,452
Income taxes and minority interest ............... 240 183 786 1,189
------- ------- ------- -------
Net earnings ..................................... $ 470 $ 365 $ 1,549 $ 2,263
======= ======= ======= =======
</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>
Sept. 30, 1999 Dec. 31, 1998
-------------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents ........................................... $ 257 $ 98
Mortgage-backed securities, installment loans and other receivables.. 155 371
Trading securities, at market ....................................... 10,182 3,488
Securities purchased under agreements to resell ..................... 1,334 192
------- -------
$11,928 $ 4,149
======= =======
LIABILITIES
6-3/4% Notes, due 2001 and borrowings under investment agreements ... $ 142 $ 152
Securities sold under agreements to repurchase ...................... 10,636 3,469
Securities sold but not yet purchased ............................... 701 177
Other* .............................................................. 346 208
------- -------
$11,825 $ 4,006
======= =======
</TABLE>
* Other liabilities include payables to affiliates of $ 133 at September 30,
1999 and $105 at December 31, 1998.
Net earnings of SFFG for the third quarter and first nine months are summarized
below (in millions).
<TABLE>
<CAPTION>
Third Quarter First Nine Months
---------------- ----------------
1999 1998 1999 1998
----- ----- ----- -----
<S> <C> <C> <C> <C>
Revenues ........................... $ 139 $ 12 $ 246 $ 32
Cost and expenses .................. 170 9 296 19
----- ----- ----- -----
Earnings(loss) before income taxes.. (31) 3 (50) 13
Income taxes ....................... (10) 1 (17) 5
----- ----- ----- -----
Net earnings ....................... $ (21) $ 2 $ (33) $ 8
===== ===== ===== =====
</TABLE>
NOTE 11. SUBSEQUENT EVENT
On October 24, 1999, Berkshire entered into an agreement along with two
other investors to acquire MidAmerican Energy Holdings Company ("MidAmerican").
Pursuant to the terms of the agreement, Berkshire expects to invest
approximately $1.25 billion in common stock and a non-dividend paying
convertible preferred stock of a newly formed entity which will merge with and
into MidAmerican, with MidAmerican continuing as the surviving corporation. Such
investment will give Berkshire about a 75% economic interest in MidAmerican on a
fully-diluted basis. Berkshire will also acquire an $800 million issue of
non-transferable trust preferred stock. The merger and related investments by
Berkshire and the other investors are subject to terms and conditions including
approval by shareholders of MidAmerican and certain regulatory approvals. It is
currently anticipated that the transaction will close during the first half of
2000.
Through its retail utility subsidiaries, MidAmerican Energy in the U.S. and
Northern Electric in the U.K., MidAmerican provides electric service to 2.2
million customers and natural gas service to 1.2 million customers worldwide.
MidAmerican manages and owns interests in approximately 8,300 net megawatts of
diversified power generation facilities in operation, construction and
development.
10
<PAGE> 12
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 9/30/99
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Net earnings for the third quarter and first nine months 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) --
Third Quarter First Nine Months
-------------------- --------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Insurance segments - net underwriting gain (loss) ............... $ (245) $ 52 $ (407) $ 140
Insurance segments - investment income .......................... 467 162 1,320 531
Non-insurance business segments ................................. 85 79 265 238
Interest expense ................................................ (16) (14) (52) (46)
Goodwill amortization and other purchase-accounting-adjustments.. (147) (28) (482) (79)
Other ........................................................... 12 13 105 44
------- ------- ------- -------
Earnings before realized investment gain .................... 156 264 749 828
Realized investment gain .................................... 264 101 784 1,435
------- ------- ------- -------
Net earnings ................................................ $ 420 $ 365 $ 1,533 $ 2,263
======= ======= ======= =======
</TABLE>
INSURANCE SEGMENTS -- UNDERWRITING
A summary follows of underwriting results from Berkshire's insurance
segments for the third quarter and first nine months of 1999 and 1998. Dollar
amounts are in millions.
<TABLE>
<CAPTION>
Third Quarter First Nine Months
---------------- ----------------
1999 1998 1999 1998
----- ----- ----- -----
<S> <C> <C> <C> <C>
Underwriting gain (loss) attributable to:
GEICO ...................................... $ 32 $ 102 $ 52 $ 256
General Re ................................. (277) -- (603) --
Berkshire Hathaway Reinsurance Group ....... (132) (16) (87) (29)
Berkshire Hathaway Primary Insurance Group.. 2 (5) 3 (10)
----- ----- ----- -----
Pre-tax underwriting gain (loss) ........... (375) 81 (635) 217
Income taxes and minority interest ......... (130) 29 (228) 77
----- ----- ----- -----
Net underwriting gain (loss) ............... $(245) $ 52 $(407) $ 140
===== ===== ===== =====
</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 ("BHRG") 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, through the mail or via the Internet. This is a significant element
in GEICO's strategy to be a low cost insurer and, yet, provide high value to
policyholders.
11
<PAGE> 13
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 9/30/99
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
INSURANCE SEGMENTS - UNDERWRITING (CONTINUED)
GEICO's pre-tax underwriting results for the third quarter and first nine
months of 1999 and 1998 are summarized in the table below. Dollar amounts are in
millions.
<TABLE>
<CAPTION>
Third Quarter First Nine Months
----------------- -----------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Premiums earned .......... $1,222 $1,035 $3,491 $2,957
Losses and loss expenses.. 963 740 2,779 2,159
Underwriting expenses .... 227 193 660 542
------ ------ ------ ------
Underwriting gain ........ $ 32 $ 102 $ 52 $ 256
====== ====== ====== ======
</TABLE>
The amounts of premium earned by GEICO in 1999 periods exceeded amounts in
1998 periods by 18.1% reflecting a 22.8% increase in voluntary auto policies in
force over the past year, partially offset by lower average premium rates. Over
the past twelve months, the number of preferred auto policies in-force grew
18.5% and the number of standard and non-standard policies in-force grew 43.4%.
Although competition for private-passenger auto insurance business is intense,
GEICO expects that its in-force policies will continue to grow during the
remainder of 1999 and into 2000 as a result of its on-going marketing efforts
and competitive premium rates. During 1999, inquiries produced per dollar of
marketing expenditures have decreased, but the percentage of sales to inquiries
has increased.
GEICO's net underwriting profits for the third quarter and first nine months
of 1999 declined considerably from the profits generated during the
corresponding 1998 periods due primarily to rate reductions, higher levels of
losses and loss expenses and, also to higher marketing expenditures. The ratios
of losses and loss expenses to earned premiums ("loss ratio") during 1999
periods were 78.8% for the third quarter and 79.6% for the first nine months.
For 1998, the loss ratios were 71.5% for the third quarter and 73.0% for the
first nine months. As anticipated, significant premium rate reductions taken in
certain states over the past two years have caused claim costs, as a percentage
of premiums, to increase in 1999. In addition, GEICO has experienced higher
frequencies of physical damage and bodily injury claims in 1999 than in 1998.
GEICO's underwriting expenses incurred during the third quarter and first
nine months of 1999 exceeded amounts incurred during the corresponding 1998
periods by 17.6% for the third quarter and 21.8% for the first nine months. The
increased expense amounts in 1999 resulted from the aforementioned marketing
costs associated with in-force policy growth, offset slightly by the effect of
the deferral of certain costs associated with the development of computer
software for internal use, as prescribed by new accounting rules effective in
1999.
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. 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. The international property/casualty and global life/health
operations are conducted primarily through Germany-based Cologne Re and its
subsidiaries. At September 30,1999, General Re had an 87% economic ownership
interest in Cologne Re.
For the third quarter and first nine months of 1999, General Re's
consolidated premiums earned were $1,889 million and $5,054 million,
respectively. General Re's consolidated underwriting activities produced pre-tax
net underwriting losses in 1999 totaling $277 million for the third quarter and
$603 million for the first nine months. While the poor underwriting results were
slightly related to certain catastrophes occurring during the third quarter, the
primary cause for the underwriting loss is that premium rates for both the
reinsurance industry and General Re are currently inadequate. The discussion
that follows provides comparative results for 1998 although such results are not
included in Berkshire's 1998 third quarter and first nine months consolidated
results.
North American property/casualty
General Re's North American property/casualty pre-tax underwriting results
for the third quarter and first nine months of 1999 and 1998 are shown below.
Dollar amounts are in millions.
<TABLE>
<CAPTION>
Third Quarter First Nine Months
-------------------- --------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Premiums earned .............. $ 793 $ 682 $ 2,060 $ 1,978
Losses and loss expenses ..... 753 489 1,611 1,343
Underwriting expenses ........ 198 200 680 618
------- ------- ------- -------
Net underwriting gain (loss).. $ (158) $ (7) $ (231) $ 17
======= ======= ======= =======
</TABLE>
12
<PAGE> 14
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 9/30/99
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
INSURANCE SEGMENTS - UNDERWRITING (CONTINUED)
North American property/casualty (continued)
General Re's North American property/casualty operations underwrite
predominantly excess reinsurance across multiple lines of business. For the
third quarter and first nine months of 1999, North American property/casualty
earned premiums exceeded 1998 amounts by 16.3% and 4.1%, respectively. Premiums
earned during the third quarter of 1999 included earned premiums of $128 million
related to a new stop-loss reinsurance contract. Premiums earned in 1999 periods
related to other North American property/casualty businesses declined slightly
from amounts earned in 1998. Declines in premiums earned from national account
reinsurance and General Re's excess and surplus lines insurance business
exceeded increases in premiums earned from regional, specialty, and facultative
reinsurance businesses.
Underwriting results from North American property/casualty businesses for
the third quarter and first nine months of 1999 deteriorated significantly when
compared to the results for the corresponding 1998 periods. North American
property/casualty loss ratios for the first nine months of 1999 were 78.2%
compared to 67.9% for the first nine months of 1998. For the third quarter, the
loss ratios were 95.0% in 1999 and 71.7% in 1998. The loss ratios in 1999
periods include significantly less favorable development of loss reserves
established for previous years' casualty claims than in 1998. In addition, the
1999 periods include increased net underwriting losses related to higher current
accident year losses on casualty claims and large property losses.
International property/casualty
General Re's International property/casualty pre-tax underwriting results
for the third quarter and first nine months of 1999 and 1998 are shown below.
Dollar amounts are in millions.
<TABLE>
<CAPTION>
Third Quarter First Nine Months
-------------------- --------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Premiums earned .......... $ 587 $ 487 $ 1,701 $ 1,543
Losses and loss expenses.. 497 343 1,391 1,065
Underwriting expenses .... 195 150 569 492
------- ------- ------- -------
Net underwriting (loss)... $ (105) $ (6) $ (259) $ (14)
======= ======= ======= =======
</TABLE>
The international property/casualty operations write quota-share and excess
reinsurance on risks around the world. The growth in earned premiums in 1999
periods was due primarily to (1) new business produced by wholly-owned
subsidiaries, which includes the business generated by newly acquired Lloyd's
underwriting manager, DP Mann and (2) reduced levels of premiums ceded,
including amounts ceded to General Re's North American reinsurance operations.
Underwriting results of General Re's international property/casualty
business for the third quarter and first nine months of 1999 were poor. Loss and
loss expense ratios for the third quarter and first nine months of 1999 were
84.7% and 81.8%, respectively. Comparatively, loss ratios for the third quarter
and first nine months of 1998 were 70.4% and 69.0%, respectively. The increase
in the loss ratios during 1999 periods is due to higher levels of property
losses, which include increased amounts related to catastrophes, and
deteriorating results in excess liability, motor and Australian professional
indemnity lines of business.
Global life/health
General Re's Global life/health pre-tax underwriting results for the third
quarter and first nine months of 1999 and 1998 are shown below. Dollar amounts
are in millions.
<TABLE>
<CAPTION>
Third Quarter First Nine Months
-------------------- --------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Premiums earned .......... $ 509 $ 321 $ 1,293 $ 915
Losses and loss expenses.. 406 246 1,087 675
Underwriting expenses .... 117 77 319 246
------- ------- ------- -------
Net underwriting (loss)... $ (14) $ (2) $ (113) $ (6)
======= ======= ======= =======
</TABLE>
General Re's Global life/health affiliates reinsure such risks world-wide.
Global life/health premiums earned in 1999 periods exceeded amounts earned in
1998 by 58.6% for the third quarter and 41.3% for the first nine months. The
increases in premiums in 1999 periods resulted primarily from run off business
written by the former London agent of Cologne Re's U.S. subsidiary ("GCL",
formerly "CLR") and growth from several new contracts written in the U.S.
individual and group health markets.
13
<PAGE> 15
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 9/30/99
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
INSURANCE SEGMENTS - UNDERWRITING (CONTINUED)
Global life/health (continued)
The net underwriting losses for the first nine months of 1999 were due
primarily to unsatisfactory underwriting experience in the individual and group
health businesses, increases in GCL's health claim reserves and unfavorable
mortality experience in the individual life business.
The estimated loss provision of $275 million, which was established in 1998
prior to the merger with General Re on business written by GCL's former
London-based managing underwriter, remained unchanged at the end of the third
quarter. The provision may be adjusted in the fourth quarter of 1999 based on an
actuarial study expected to be completed in that period.
BERKSHIRE HATHAWAY REINSURANCE GROUP
In recent years, BHRG has written significant amounts of catastrophe excess
reinsurance, which indemnifies policyholders against primarily property losses
arising from catastrophic events. In addition, BHRG has generated large amounts
of premiums through the occasional acceptance of retroactive reinsurance, which
indemnifies policyholders with respect to losses arising from past loss events
or provides periodic payments with respect to settled liability claims.
Premiums earned during the third quarter and the first nine months of 1999
include $1,250 million with respect to a retroactive reinsurance agreement
entered into with an affiliate of a major U.S. property/casualty insurer. Under
the agreement, BHRG indemnifies the counterparty for losses in excess of a
specified retention with respect to past loss events insured by the
counterparty. BHRG anticipates that a significant number of asbestos and
environmental claims will arise under the contract and that the aggregate claims
ultimately paid will exceed the premiums received by a significant margin.
However, this contract does not have an important effect on Berkshire's 1999
earnings. Consistent with the company's accounting policy for retroactive
reinsurance contracts, a deferred charge was established with respect to the
excess of the estimated ultimate claims over the premiums received. This
deferred charge will subsequently be amortized against income over the claim
settlement period.
The retroactive reinsurance business is expected to produce aggregate
underwriting losses. The premiums charged for this business are based in part on
time-value-of-money concepts, because claims payments are often expected to
occur over long time periods. Underwriting losses occur through the recurring
amortization of deferred charges and accretion of discounted structured
settlement liabilities. Nevertheless, this business is accepted because of the
large amounts of investable funds that is produced. During the third quarter,
underwriting losses from retroactive reinsurance were $43 million in 1999 and
$22 million in 1998. For the first nine months, underwriting losses from these
contracts were $88 million in 1999 and $68 million in 1998.
BHRG catastrophe reinsurance business produced earned premiums of $222
million and $215 million for the first nine months of 1999 and 1998. The net
underwriting profits during the first nine months from catastrophe reinsurance
were $132 million in 1999 and $116 million in 1998. Although BHRG's catastrophe
reinsurance activities were profitable in both 1999 and 1998, the potential for
significant underwriting losses remains. Periodic underwriting results of the
catastrophe reinsurance business can be extremely volatile.
BHRG's other reinsurance activities generated earned premiums in the third
quarter of $107 million in 1999 and $119 million in 1998. For the first nine
months, other reinsurance premiums earned were $236 million in 1999 and $228
million in 1998. Other reinsurance derives primarily from some sizable excess
contracts, as well as a few reinsurance agreements with General Re's North
American operations.
BHRG's other reinsurance activities produced third quarter net underwriting
losses of $158 million in 1999 and $46 million in 1998. For the first nine
months, net underwriting losses from this business were $131 million in 1999 and
$77 million in 1998. Underwriting losses in 1999 include net losses assumed from
contracts with General Re of $107 million for the third quarter and $73 million
for the first nine months. These losses are therefore not included in the net
underwriting results of General Re's North American property/casualty businesses
discussed previously.
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>
Third Quarter First Nine Months
----------------- -----------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net investment income before taxes and minority interests.. $ 661 $ 218 $1,852 $ 706
Taxes and minority interests .............................. 194 56 532 175
------ ------ ------ ------
Investment income ......................................... $ 467 $ 162 $1,320 $ 531
====== ====== ====== ======
</TABLE>
14
<PAGE> 16
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 9/30/99
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
INSURANCE SEGMENTS - INVESTMENT INCOME (CONTINUED)
For the 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 third quarter and first nine months of
1999 totaled $343 million and $1,015 million, respectively. Invested assets of
Berkshire's combined insurance operations increased by approximately $25 billion
as a result of the acquisition of General Re.
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, which will
ultimately be paid to policyholders, that is currently available for investment
by Berkshire's insurance operations. As of September 30, 1999, consolidated
float totaled approximately $24.5 billion, an increase of about $1.8 billion
since December 31, 1998. Float attributable to BHRG and GEICO increased, while
amounts attributable to General Re declined. The previously discussed
significant retroactive reinsurance contract entered into during the third
quarter of 1999 accounted for most of the increase in float attributable to
BHRG.
Income taxes and minority interests as percentages of pre-tax investment
income were 29.3% and 25.7% for the third quarter of 1999 and 1998,
respectively, and 28.7% and 24.8% for the first nine months of 1999 and 1998,
respectively. The comparative increases in these percentages in 1999 periods are
due primarily to minority interest charges applicable to investment income of
Cologne Re and to relatively higher levels of taxable interest income.
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>
Third Quarter First Nine Months
----------------------------------- -----------------------------------
1999 1998 1999 1998
---------------- ---------------- ---------------- ----------------
Amount % Amount % Amount % Amount %
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues ...................................... $1,344 100.0 $1,094 100.0 $4,005 100.0 $3,028 100.0
Costs and expenses ............................ 1,204 89.6 966 88.3 3,567 89.1 2,640 87.2
------ ----- ------ ----- ------ ----- ------ -----
Earnings before income taxes and minority ..... 140 10.4 128 11.7 438 10.9 388 12.8
interest
Applicable income taxes and minority interest.. 55 4.1 49 4.5 173 4.3 150 4.9
------ ----- ------ ----- ------ ----- ------ -----
Net earnings .................................. $ 85 6.3 $ 79 7.2 $ 265 6.6 $ 238 7.9
====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
Revenues from these several and diverse business activities during 1999's
third quarter and first nine months were greater by $250 million (22.9%) and
$977 million (32.3%), respectively, than revenues during the corresponding 1998
periods. 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.
Net earnings from this group of businesses were greater by $6 million (7.6%)
and $27 million (11.3%), 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 third quarter and first nine months of 1999 as compared to 1998
periods is primarily due to the acquisition of General Re on December 21, 1998.
15
<PAGE> 17
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 9/30/99
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
REALIZED INVESTMENT GAIN/LOSS
Realized investment gain/loss has been a recurring element in Berkshire's
net earnings for many years. Such amounts -- recorded (1) when investments are
sold; (2) other than temporarily impaired; and (3) 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 $264 million and $101 million for the third quarter of 1999 and 1998,
respectively. For the first nine months, after-tax realized investment gains
were $784 million in 1999 and $1,435 million in 1998.
FINANCIAL CONDITION
Berkshire's balance sheet continues to reflect significant liquidity and
above average capital strength. Shareholders' equity at September 30, 1999, was
$55.3 billion, or $36,384 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, 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 are likely to 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 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. 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 remedy 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 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. Berkshire believes that all
significant IT and non-IT systems are now Year 2000 compliant. In addition,
nearly all of those systems have been tested or are being tested. Over the
remainder of 1999 and into 2000, Berkshire and affiliates intend to continue
testing and monitoring compliant IT and non-IT systems and remediating remaining
non-critical systems.
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
unaware 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 certain of its
business partners.
16
<PAGE> 18
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 9/30/99
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS. (CONTINUED)
YEAR 2000 ISSUE (CONTINUED)
Berkshire and its subsidiaries expect to ultimately incur about $60 million
in identification, remediation and testing of Year 2000 issues. Approximately
$56 million of this amount was incurred as of September 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.
Contingency plans are being developed and refined, as considered practical,
to address situations in which critical functions may fail. Such plans, may
include assuring adequate availability of personnel at the end of 1999, backing
up of critical data bases before year end, and identification of alternative
means for processing transactions, including arranging for back-up data
processing facilities. There can be no assurance that the contingency plans will
prove effective, especially in response to failure of basic critical
telecommunications, utilities, or government provided services.
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.
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 November 12, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 4,715
<SECURITIES> 66,035
<RECEIVABLES> 7,207
<ALLOWANCES> 0
<INVENTORY> 780
<CURRENT-ASSETS> 0
<PP&E> 1,782
<DEPRECIATION> 0
<TOTAL-ASSETS> 126,592
<CURRENT-LIABILITIES> 0
<BONDS> 2,448
0
0
<COMMON> 8
<OTHER-SE> 55,297
<TOTAL-LIABILITY-AND-EQUITY> 126,592
<SALES> 4,166
<TOTAL-REVENUES> 15,013
<CGS> 2,917
<TOTAL-COSTS> 14,281
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 100
<INCOME-PRETAX> 2,416
<INCOME-TAX> 855
<INCOME-CONTINUING> 1,533
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,533
<EPS-BASIC> 1,009
<EPS-DILUTED> 1,009
</TABLE>
