<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, 2000
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 November 7, 2000:
Class A -- 1,344,060
Class B -- 5,449,785
<PAGE> 2
FORM 10-Q
BERKSHIRE HATHAWAY INC.
<TABLE>
<CAPTION>
PAGE NO.
---------
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets --
September 30, 2000 and December 31, 1999 2
Consolidated Statements of Earnings --
Third Quarter and First Nine Months 2000 and 1999 3
Condensed Consolidated Statements of Cash Flows --
First Nine Months 2000 and 1999 4
Notes to Interim Consolidated Financial Statements 5 - 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 11 - 17
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 17
</TABLE>
1
<PAGE> 3
FORM 10-Q
BERKSHIRE HATHAWAY INC.
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(dollars in millions except share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 2,770 $ 3,835
Investments:
Securities with fixed maturities 32,293 30,222
Equity securities 36,588 37,772
Other 1,737 1,736
Receivables 9,238 8,558
Inventories 1,444 844
Investments in MidAmerican Energy Holdings Company 1,685 --
Assets of finance and financial products businesses 19,051 24,229
Property, plant and equipment 2,406 1,903
Goodwill of acquired businesses 18,526 18,281
Other assets 4,744 4,036
-------- --------
$130,482 $131,416
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Losses and loss adjustment expenses $ 29,484 $ 26,802
Unearned premiums 4,273 3,718
Accounts payable, accruals and other liabilities 7,443 7,458
Income taxes, principally deferred 9,201 9,566
Borrowings under investment agreements and other debt 2,634 2,465
Liabilities of finance and financial products businesses 16,735 22,223
-------- --------
69,770 72,232
-------- --------
Minority shareholders' interests 1,321 1,423
-------- --------
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 25,483 25,209
Accumulated other comprehensive income 16,335 17,223
Retained earnings 17,565 15,321
-------- --------
Total shareholders' equity 59,391 57,761
-------- --------
$130,482 $131,416
======== ========
</TABLE>
* 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 1,525,418 shares outstanding at
September 30, 2000 and 1,520,562 shares outstanding at December 31, 1999.
See accompanying Notes to Interim Consolidated Financial Statements.
2
<PAGE> 4
FORM 10-Q
BERKSHIRE HATHAWAY INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(dollars in millions except per share amounts)
<TABLE>
<CAPTION>
Third Quarter First Nine Months
--------------------------- --------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Insurance premiums earned $ 4,872 $ 4,603 $ 11,500 $ 10,700
Sales and service revenues 1,848 1,397 5,135 4,166
Interest, dividend and other investment income 648 614 1,904 1,721
Income from investments in MidAmerican Energy 40 -- 67 --
Income from finance and financial products businesses 110 12 486 147
Realized investment gain 908 425 2,361 1,224
---------- ---------- ---------- ----------
8,426 7,051 21,453 17,958
---------- ---------- ---------- ----------
COST AND EXPENSES:
Insurance losses and loss adjustment expenses 4,378 4,182 10,030 8,979
Insurance underwriting expenses 841 793 2,508 2,385
Cost of products and services sold 1,256 986 3,477 2,917
Selling, general and administrative expenses 413 267 1,169 805
Goodwill amortization 124 119 369 356
Interest expense 38 35 105 100
---------- ---------- ---------- ----------
7,050 6,382 17,658 15,542
---------- ---------- ---------- ----------
EARNINGS BEFORE INCOME TAXES AND MINORITY INTEREST 1,376 669 3,795 2,416
Income taxes 479 237 1,338 855
Minority interest 100 12 213 28
---------- ---------- ---------- ----------
NET EARNINGS $ 797 $ 420 $ 2,244 $ 1,533
========== ========== ========== ==========
Average shares outstanding * 1,524,170 1,519,954 1,521,977 1,519,506
NET EARNINGS PER SHARE * $ 523 $ 276 $ 1,474 $ 1,009
========== ========== ========== ==========
</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.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
<TABLE>
<CAPTION>
First Nine Months
----------------------
2000 1999
-------- --------
<S> <C> <C>
Net cash flows from operating activities $ 1,883 $ 1,328
-------- --------
Cash flows from investing activities:
Purchases of investments (20,096) (18,218)
Proceeds on sales and maturities of investments 18,434 8,741
Loans and investments originated in finance businesses (429) (1,433)
Principal collections on loans and investments originated in finance
businesses 984 746
Acquisitions of businesses (1,123) --
Other (310) (437)
-------- --------
Net cash flows from investing activities (2,540) (10,601)
-------- --------
Cash flows from financing activities:
Proceeds from borrowings of finance businesses 57 627
Proceeds from other borrowings 2,405 1,454
Repayments of borrowings of finance businesses (229) (330)
Repayments of other borrowings (2,251) (1,362)
Other (110) (41)
-------- --------
Net cash flows from financing activities (128) 348
-------- --------
Decrease in cash and cash equivalents (785) (8,925)
Cash and cash equivalents at beginning of year* 4,458 14,489
-------- --------
Cash and cash equivalents at end of first nine months* $ 3,673 $ 5,564
======== ========
Supplemental cash flow information:
Cash paid during the period for:
Income taxes $ 1,037 $ 2,175
Interest of finance and financial products businesses 655 350
Other interest 124 112
Non-cash investing activity:
Liabilities assumed in connection with acquisitions of businesses 713 --
Common Stock issued in connection with acquisitions of businesses 223 --
Contingent value of Exchange Notes recognized in earnings 108 30
Value of equity securities used to redeem Exchange Notes 259 133
* Cash and cash equivalents are comprised of the following:
Beginning of year --
Finance and financial products businesses $ 623 $ 907
Other 3,835 13,582
-------- --------
$ 4,458 $ 14,489
======== ========
End of first nine months --
Finance and financial products businesses $ 903 $ 849
Other 2,770 4,715
-------- --------
$ 3,673 $ 5,564
======== ========
</TABLE>
See accompanying Notes to Interim Consolidated Financial Statements.
4
<PAGE> 6
FORM 10-Q
BERKSHIRE HATHAWAY INC.
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 ("GAAP").
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.
In 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 was discussed in Note 1 to the
Consolidated Financial Statements in Berkshire's 1999 Annual Report. In June
1999, the FASB issued SFAS No. 137, which delayed the effective date for
implementing SFAS No. 133 until the beginning of 2001. In June 2000, the FASB
issued SFAS No. 138, which amended certain provisions of SFAS No. 133 with the
objective of easing the implementation difficulties expected to arise. Berkshire
will adopt SFAS No. 133 as amended by SFAS No. 138 as of the beginning of 2001
and does not anticipate that the adoption of these new standards will have a
material effect on its financial position or results of operations.
NOTE 2. INVESTMENT IN MIDAMERICAN ENERGY HOLDINGS COMPANY
On October 24, 1999, Berkshire entered into an agreement along with Walter
Scott, Jr. and David L. Sokol, to acquire MidAmerican Energy Holdings Company
("MidAmerican"). Upon obtaining MidAmerican shareholder approval and required
regulatory approvals, the transaction closed on March 14, 2000. Pursuant to the
terms of the agreement, Berkshire invested approximately $1.24 billion in common
stock and a non-dividend paying convertible preferred stock of a newly formed
entity that merged with and into MidAmerican, with MidAmerican continuing as the
surviving corporation. Such investment gives Berkshire about a 9.7% voting
interest and a 76% economic interest in MidAmerican on a fully-diluted basis.
Berkshire subsidiaries also acquired approximately $455 million of an 11%
non-transferable trust preferred security. Under certain conditions, for a
period of up to seven years subsequent to the closing, Berkshire may be required
to purchase up to $345 million of additional trust preferred securities. Mr.
Scott, a member of Berkshire's Board of Directors, controls approximately 86% of
the voting interest in MidAmerican. Mr. Sokol is the CEO of MidAmerican.
Through its retail utility subsidiaries, MidAmerican Energy in the U.S. and
Northern Electric in the U.K., MidAmerican provides electric service to
approximately 2.0 million customers and natural gas service to 1.2 million
customers worldwide. MidAmerican manages, owns interests in and has under
contract approximately 9,700 net megawatts of diversified power generation
facilities in operation, construction and development.
Berkshire's aggregate investments in MidAmerican are included in the
Consolidated Balance Sheet as Investments in MidAmerican Energy Holdings
Company. Berkshire is accounting for the common and non-dividend paying
convertible preferred stock pursuant to the equity method. The carrying value of
these equity method investments totaled $1,230 million at September 30, 2000.
The Consolidated Statements of Earnings reflect, as income from investments
in MidAmerican Energy, Berkshire's proportionate share of MidAmerican's net
income with respect to the investments accounted for pursuant to the equity
method as well as interest earned on the 11% trust preferred security. Income
derived from equity method investments totaled $40 million for the period from
March 14, 2000 through September 30, 2000.
5
<PAGE> 7
FORM 10-Q
BERKSHIRE HATHAWAY INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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,
2000 1999
------------- -----------
<S> <C> <C>
Amortized cost $ 32,748 $ 31,429
Gross unrealized gains 180 51
Gross unrealized losses (635) (1,258)
-------- --------
Estimated fair value $ 32,293 $ 30,222
======== ========
</TABLE>
NOTE 4. INVESTMENTS IN EQUITY SECURITIES
Data with respect to investments in equity securities are shown in the
tabulation below (in millions):
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
Total cost $ 10,620 $ 9,674
Gross unrealized gains 26,210 28,229
Gross unrealized losses (242) (131)
-------- --------
Total fair value $ 36,588 $ 37,772
======== ========
Fair value:
American Express Company $ 9,210 $ 8,402
The Coca-Cola Company 11,026 11,650
The Gillette Company 2,964 3,954
Other equity securities 13,388 13,766
-------- --------
Total $ 36,588 $ 37,772
======== ========
</TABLE>
NOTE 5. DEFERRED INCOME TAX LIABILITIES
The tax effects of significant items comprising Berkshire's net deferred
tax liabilities as of September 30, 2000 and December 31, 1999 are as follows
(in millions):
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
Deferred tax liabilities:
Relating to unrealized appreciation of investments $ 8,905 $ 9,383
Other 1,327 1,252
-------- --------
10,232 10,635
Deferred tax assets (1,200) (1,042)
-------- --------
Net deferred tax liabilities $ 9,032 $ 9,593
======== ========
</TABLE>
NOTE 6. COMMON STOCK
The following table summarizes Berkshire's common stock activity during the
first nine months of 2000.
<TABLE>
<CAPTION>
Class A Common Stock Class B Common Stock
(1,650,000 shares (55,000,000 shares
authorized) authorized)
Issued and Outstanding Issued and Outstanding
---------------------- ----------------------
<S> <C> <C>
Balance at December 31, 1999 1,341,663 5,366,955
Issued for acquisitions of businesses 3,572 1,626
Conversions of Class A Common Stock
to Class B Common Stock and other (1,131) 70,846
--------- ---------
Balance at September 30, 2000 1,344,104 5,439,427
========= =========
</TABLE>
6
<PAGE> 8
FORM 10-Q
BERKSHIRE HATHAWAY INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. COMMON STOCK (CONTINUED)
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 1,525,418
shares outstanding at September 30, 2000 and 1,520,562 shares outstanding at
December 31, 1999.
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 2000 and 1999 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
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net earnings $ 797 $ 420 $ 2,244 $ 1,533
Other comprehensive income:
Increase (decrease) in unrealized appreciation of
investments 1,132 (4,991) (1,429) (5,812)
Applicable income taxes and minority interests (317) 1,813 646 2,113
Foreign currency translation gains (losses) (50) 23 (141) (48)
Applicable income taxes and minority interests 1 (11) 36 48
------- ------- ------- -------
766 (3,166) (888) (3,699)
------- ------- ------- -------
Comprehensive income (loss) $ 1,563 $(2,746) $ 1,356 $(2,166)
======= ======= ======= =======
</TABLE>
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,
2000 1999
------------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 903 $ 623
Investments in securities with fixed maturities:
Held to maturity, at cost 1,664 2,002
Trading, at fair value 6,048 11,277
Available for sale, at fair value 735 999
Trading account assets 5,444 5,881
Securities purchased under agreements to resell 1,955 1,171
Other 2,302 2,276
------- -------
$19,051 $24,229
======= =======
LIABILITIES
Securities sold under agreements to repurchase $ 6,501 $10,216
Securities sold but not yet purchased 593 1,174
Trading account liabilities 5,822 5,930
Notes payable and other borrowings 1,554 1,998
Annuity reserves and policyholder liabilities 861 843
Other 1,404 2,062
------- -------
$16,735 $22,223
======= =======
</TABLE>
7
<PAGE> 9
FORM 10-Q
BERKSHIRE HATHAWAY INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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>
Third Quarter First Nine Months
----------------------- -----------------------
REVENUES 2000 1999 2000 1999
-------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
OPERATING SEGMENTS:
Insurance:
GEICO * $ 1,446 $ 1,222 $ 4,137 $ 3,491
General Re * 2,044 1,889 5,539 5,054
Berkshire Hathaway Reinsurance Group * 1,291 1,421 1,596 1,966
Berkshire Hathaway Direct Insurance Group * 91 71 228 189
Interest, dividend and other investment income 677 664 1,990 1,865
-------- -------- -------- --------
Total insurance revenues 5,549 5,267 13,490 12,565
Flight services 593 456 1,640 1,330
Furniture 415 220 1,146 620
Scott Fetzer Companies 231 254 733 763
Other businesses 719 479 2,102 1,600
-------- -------- -------- --------
7,507 6,676 19,111 16,878
Reconciliation of segments to consolidated amounts:
Other revenues 41 7 79 24
Realized investment gain 908 425 2,361 1,224
Purchase-accounting-adjustments (30) (57) (98) (168)
-------- -------- -------- --------
$ 8,426 $ 7,051 $ 21,453 $ 17,958
======== ======== ======== ========
* Represents insurance premiums earned
</TABLE>
<TABLE>
<CAPTION>
OPERATING PROFIT BEFORE TAXES Third Quarter First Nine Months
----------------------------- ----------------------- -----------------------
OPERATING SEGMENTS: 2000 1999 2000 1999
------------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Insurance:
GEICO ** $ (43) $ 32 $ (194) $ 52
General Re ** (328) (277) (832) (603)
Berkshire Hathaway Reinsurance Group ** 21 (132) (15) (87)
Berkshire Hathaway Direct Insurance Group ** 3 2 4 3
Interest, dividend and other investment income 673 661 1,977 1,852
-------- -------- -------- --------
Total insurance operating profit 326 286 940 1,217
Flight services 53 51 167 163
Furniture 43 20 112 55
Scott Fetzer Companies 26 34 87 96
Other businesses 158 50 595 278
-------- -------- -------- --------
606 441 1,901 1,809
Reconciliation of segments to consolidated amounts:
Realized investment gain 908 425 2,361 1,224
Interest expense *** (22) (27) (69) (83)
Corporate and other 38 4 70 18
Goodwill amortization and other
purchase-accounting-adjustments (154) (174) (468) (552)
-------- -------- -------- --------
$ 1,376 $ 669 $ 3,795 $ 2,416
======== ======== ======== ========
</TABLE>
** Represents underwriting gain (loss)
*** Excludes interest expense allocated to finance businesses and certain
identifiable segments
8
<PAGE> 10
FORM 10-Q
BERKSHIRE HATHAWAY INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10. BUSINESS ACQUISITIONS
During the third quarter of 2000, Berkshire consummated three business
acquisitions - Ben Bridge Jeweler ("Ben Bridge"), effective July 3, 2000; Justin
Industries, Inc. ("Justin"), effective August 1, 2000; and U.S. Investment
Corporation ("USIC"), effective August 8, 2000. Shareholders of these three
entities received aggregate consideration of approximately $1 billion,
consisting of $775 million in cash and the remainder in Class A and Class B
Common Stock.
Ben Bridge is the leading operator of upscale jewelry stores based in major
shopping malls in the Western United States. Justin includes Acme Building
Brands - Acme Brick Company, a leading manufacturer of face brick; Featherlite
Building Products Corporation, the leading Southwest producer of concrete
masonry products; and American Tile Supply Company, a major Texas distributor of
ceramic and marble floor and wall tile, and Justin Brands - Justin Boot
Company(R), Nocona Boot Company(R), Tony Lama Company(R) and Chippewa Shoe
Company(R). USIC is the parent of the United States Liability Insurance Group,
one of the premier U.S. writers of specialty insurance products distributed
exclusively through the wholesale insurance network.
On October 20, 2000, Berkshire announced that it had formally entered into
a merger agreement whereby it will acquire approximately 87.3% of Shaw
Industries, Inc. common shares for $19 per share, or approximately $2 billion in
the aggregate. The closing of the transaction is subject to approval by the
shareholders of Shaw Industries and satisfaction of certain regulatory
conditions. An investment group consisting, among others, of Robert E. Shaw,
Chairman and CEO of Shaw Industries, Julian D. Saul, President of Shaw
Industries, certain of Mr. Shaw's family members and related family interests of
Messrs. Shaw and Saul, and certain other directors and members of management
will acquire the remaining 12.7% of Shaw Industries by contributing common
shares of Shaw Industries representing approximately 12.7% of Shaw's current
outstanding common stock. Berkshire currently anticipates that the merger
transaction will be completed early in January 2001.
Shaw is the world's largest manufacturer of tufted broadloom carpet.
Headquartered in Dalton, Georgia, Shaw sells carpeting and rugs for residential
and commercial applications throughout the United States and exports to most
markets worldwide. Shaw markets its residential products under such brand names
and trademarks as Cabin Crafts, Couture by Sutton, Cumberland, Expressive
Designs, Home Foundations, Philadelphia, Queen, ShawMark, Sutton, TrustMark,
Evans & Black, Salem, Tuftex, and Shaw Rugs. Shaw markets its commercial
products under the names Shaw Contract, Designweave, Patcraft, and Queen
Commercial. Through its network of commercial dealers known as Shaw Contract
Flooring Services, Shaw also sells commercial flooring products directly and
provides installation and project management services. Shaw also offers laminate
flooring through the Decades brand and ceramic tile through Shaw Ceramics.
On November 8, 2000, Berkshire entered into an agreement and plan of
merger with Benjamin Moore & Co. ("Moore") whereby it will acquire 100% of the
outstanding common shares of Moore for $37.82 per share, or approximately $1
billion in the aggregate. The shares will be acquired via a cash tender offer
for all of Moore's outstanding stock and is scheduled to commence no later than
November 17, 2000. Upon successful completion of the tender offer, the agreement
and plan of merger calls for a merger pursuant to which any remaining
shareholders will receive cash in the same amount as paid in the tender offer.
The tender offer is subject to certain conditions, including the tender of not
less than 2/3 of Moore's outstanding common stock on a fully diluted basis, and
the obtaining of all necessary government approvals. Moore is a formulator,
manufacturer and retailer of a broad range of architectural and industrial
coatings, available principally in the United States and Canada.
NOTE 11. 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, Dec. 31,
2000 1999
--------- ---------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 2,265 $ 2,661
Investments in equity and fixed maturity securities 48,061 48,635
Assets of finance and financial products businesses 9,505 13,369
Goodwill of acquired businesses 4,053 3,926
Other assets 9,450 7,382
------- -------
$73,334 $75,973
======= =======
</TABLE>
9
<PAGE> 11
FORM 10-Q
BERKSHIRE HATHAWAY INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11. INFORMATION ABOUT CERTAIN SUBSIDIARIES (CONTINUED)
<TABLE>
<CAPTION>
Sept. 30, Dec. 31,
2000 1999
--------- --------
<S> <C> <C>
LIABILITIES AND SHAREHOLDER'S EQUITY
Losses and loss adjustment expenses $12,887 $10,637
Unearned premiums, accounts payable and other liabilities 5,086 4,743
Income taxes, principally deferred 9,308 9,689
Borrowings under investment agreements and other debt 2,188 2,156
Liabilities of finance and financial products businesses 7,656 12,094
------- -------
37,125 39,319
------- -------
Total shareholder's equity 36,209 36,654
------- -------
$73,334 $75,973
======= =======
</TABLE>
Net earnings of OBH Inc. for the third quarter and first nine months of
2000 and 1999 are summarized below (in millions):
<TABLE>
<CAPTION>
First Nine
Third Quarter Months
-------------------- --------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 5,872 $ 4,830 $14,469 $11,895
Cost and expenses 4,366 4,120 10,660 9,560
------- ------- ------- -------
Earnings before income taxes and minority interest 1,506 710 3,809 2,335
Income taxes and minority interest 603 240 1,476 786
------- ------- ------- -------
Net earnings $ 903 $ 470 $ 2,333 $ 1,549
======= ======= ======= =======
</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, Dec. 31,
2000 1999
--------- --------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 6 $ 1
Mortgage-backed securities, installment loans and other receivables* 193 196
---- ----
$199 $197
==== ====
LIABILITIES
6 3/4% Notes, due 2001 and borrowings under investment agreements $137 $137
Other 25 27
---- ----
$162 $164
==== ====
</TABLE>
* Includes receivables from affiliates of $ 41 million at September 30, 2000
and $40 million at December 31, 1999.
Net earnings of SFFG for the third quarter and first nine months are summarized
below (in millions):
<TABLE>
<CAPTION>
First Nine
Third Quarter Months
---------------- ----------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 10 $ 139 $ 30 $ 246
Cost and expenses 6 170 17 296
----- ----- ----- -----
Earnings(loss) before income taxes 4 (31) 13 (50)
Income taxes 2 (10) 5 (17)
----- ----- ----- -----
Net earnings(loss) $ 2 $ (21) $ 8 $ (33)
===== ===== ===== =====
</TABLE>
10
<PAGE> 12
FORM 10-Q
BERKSHIRE HATHAWAY INC.
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 2000 and 1999
are disaggregated in the table that follows. Amounts are after deducting
minority interests and income taxes. Dollar amounts are in millions.
<TABLE>
<CAPTION>
Third Quarter First Nine Months
---------------------- ---------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Insurance underwriting $ (218) $ (245) $ (680) $ (407)
Insurance investment income 475 467 1,398 1,320
Non-insurance businesses 169 93 602 360
Interest expense (13) (16) (44) (52)
Goodwill amortization and other (141) (147) (426) (482)
purchase-accounting-adjustments
Other 29 4 50 10
------- ------- ------- -------
Earnings before realized investment gain 301 156 900 749
Realized investment gain 496 264 1,344 784
------- ------- ------- -------
Net earnings $ 797 $ 420 $ 2,244 $ 1,533
======= ======= ======= =======
</TABLE>
INSURANCE UNDERWRITING
A summary follows of underwriting results from Berkshire's insurance
businesses for the third quarter and first nine months of 2000 and 1999. Dollar
amounts are in millions.
<TABLE>
<CAPTION>
Third Quarter First Nine Months
------------------ ------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Underwriting gain (loss) attributable to:
GEICO $ (43) $ 32 $ (194) $ 52
General Re (328) (277) (832) (603)
Berkshire Hathaway Reinsurance Group 21 (132) (15) (87)
Berkshire Hathaway Direct Insurance Group 3 2 4 3
------- ------- ------- -------
Pre-tax underwriting loss (347) (375) (1,037) (635)
Income taxes and minority interest (129) (130) (357) (228)
------- ------- ------- -------
Net underwriting loss $ (218) $ (245) $ (680) $ (407)
======= ======= ======= =======
</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 Direct Insurance Group.
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 provide high value to
policyholders.
11
<PAGE> 13
FORM 10-Q
BERKSHIRE HATHAWAY INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INSURANCE UNDERWRITING (CONTINUED)
GEICO's pre-tax underwriting results for the third quarter and first nine
months of 2000 and 1999 are summarized in the table below. Dollar amounts are in
millions.
<TABLE>
<CAPTION>
Third Quarter First Nine Months
------------- -----------------
2000 1999 2000 1999
--------------- ---------------- ---------------- ----------------
Amount % Amount % Amount % Amount %
------ --- ------ --- ------ --- ------ ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Premiums earned $1,446 100.0 $1,222 100.0 $4,137 100.0 $3,491 100.0
------ ----- ------ ----- ------ ----- ------ -----
Losses and loss expenses 1,225 84.7 963 78.8 3,548 85.8 2,779 79.6
Underwriting expenses 264 18.3 227 18.6 783 18.9 660 18.9
------ ----- ------ ----- ------ ----- ------ -----
Total losses and expenses 1,489 103.0 1,190 97.4 4,331 104.7 3,439 98.5
------ ===== ------ ===== ------ ===== ------ =====
Underwriting gain (loss) $ (43) $ 32 $ (194) $ 52
====== ====== ====== ======
</TABLE>
For the third quarter and first nine months of 2000, premiums earned by
GEICO exceeded amounts earned in corresponding 1999 periods by 18.3% and 18.5%,
respectively. In response to increased claim costs, GEICO has applied for
premium rate increases in many states, some of which were implemented over the
past two quarters. As a result of decreased response from advertising, rate
increases and tightened underwriting standards, new business sales in the first
nine months of 2000 declined from new business written in 1999, and during the
third quarter the decline was significant.
The increase in earned premiums in 2000 reflects greater numbers of
voluntary auto policies in-force. Voluntary auto policies in-force have
increased by approximately 13.2% over the past twelve months, as preferred-risk
policies in-force grew 11.0% and standard and non-standard risk policies
in-force grew 22.0%. As a result of the factors mentioned above,
policies-in-force are not expected to grow during the remainder of 2000.
GEICO's net underwriting results for the third quarter and first nine
months of 2000 deteriorated in comparison with the results for the corresponding
1999 periods. The decline in comparative underwriting results was largely due to
increased claim losses in 2000 periods. The loss ratio, which represents the
ratio of claim and claim handling costs paid or reserved as a percentage of
premiums earned was 84.7% for the third quarter and 85.8% for the first nine
months of 2000. In 1999, the loss ratio was 78.8% for the third quarter and
79.6% for the first nine months. The increase in the loss ratio during 2000
periods was due primarily to higher frequency and significantly higher severity
for personal injury protection and to increasing cost trends for medical
payments and automobile repair costs.
It takes from six to twelve months for increased rates and tighter
underwriting standards to become fully reflected in earned premiums and
underwriting results. Absent a significant adverse change in claim patterns or
costs, GEICO's underwriting results are expected to improve in 2001.
GENERAL RE
General Re and its affiliates conduct a global reinsurance business with
operations in the United States and 125 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, 2000, General Re had an 88% economic ownership
interest in Cologne Re.
Underwriting conditions within the reinsurance industry during 2000 remain
difficult, although there are signs of improvement in certain markets. General
Re's overall underwriting results during 2000 and 1999 were unsatisfactory in
both the property and casualty and life and health businesses. The substandard
results reflected the effects of inadequate rates charged in recent years on
many lines of business. General Re management continues to take underwriting
actions to address these matters with the objective of returning underwriting
results to acceptable levels.
Due to the inherent time lag between when underwriting (including pricing)
decisions are made and when the effects of such decisions are evident in the
financial statements, General Re's overall underwriting results are likely to
remain unsatisfactory over the remainder of 2000. However, absent a
mega-catastrophe or the significant adverse development of reserves established
for claims, Berkshire expects that General Re's underwriting results will
improve over the next few quarters. The underwriting results of each General Re
business segment follow. Dollar amounts are in millions.
12
<PAGE> 14
FORM 10-Q
BERKSHIRE HATHAWAY INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
INSURANCE UNDERWRITING (CONTINUED)
North American property/casualty
<TABLE>
<CAPTION>
Third Quarter First Nine Months
------------- -----------------
2000 1999 2000 1999
--------------- --------------- --------------- ---------------
Amount % Amount % Amount % Amount %
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Premiums earned $ 991 100.0 $ 793 100.0 $2,399 100.0 $2,060 100.0
------ ----- ------ ----- ------ ----- ------ -----
Losses and loss expenses 1,013 102.2 753 94.9 2,195 91.5 1,611 78.2
Underwriting expenses 216 21.8 198 25.0 599 25.0 680 33.0
------ ----- ------ ----- ------ ----- ------ -----
Total losses and expenses 1,229 124.0 951 119.9 2,794 116.5 2,291 111.2
------ ===== ------ ===== ------ ===== ------ =====
Underwriting loss $ (238) $ (158) $ (395) $ (231)
====== ====== ====== ======
</TABLE>
North American property/casualty operations underwrite predominantly excess
reinsurance across multiple lines of business. For the third quarter and first
nine months of 2000, premiums earned from North American reinsurance businesses
exceeded amounts earned during the 1999 periods by $198 million (25.0%) and $339
million (16.5%), respectively. The most significant increases in premium volume
occurred in the national multi-line, excess and surplus reinsurance lines and
individual risk businesses. This growth resulted from a combination of new
business and the effects of rate increases. In addition, a significant increase
in premiums earned in 2000 periods was generated from a single aggregate excess
treaty. Finally, the increases in premiums earned in 2000, in part, reflected
reductions in reinsurance premiums ceded to members of the Berkshire Hathaway
Reinsurance Group.
The North American property/casualty operations produced net underwriting
losses of $238 million and $395 million for the third quarter and first nine
months of 2000, respectively. Underwriting results for the third quarter and
first nine months of 2000 included a $135 million net underwriting loss in
connection with the aforementioned aggregate excess treaty. The treaty, while
producing a current-year underwriting loss, is accepted because of the large
investable funds generated, which, in turn, are expected to produce a meaningful
increase in future investment income.
In addition, during the first nine months of 2000, adverse development
(reserve increases) of prior years' claim estimates emerged, primarily in the
medical malpractice, commercial umbrella and property individual risk
reinsurance lines. Whereas, in 1999, underwriting results benefited from modest
reductions (or favorable development) of loss reserves established for previous
years.
Partially offsetting these unfavorable underwriting results were improved
current accident year results for property lines, which benefited from lower
amounts of catastrophe and large property losses, and the initial effects of
underwriting actions on both property and casualty lines. Losses arising from
catastrophic events and other large property losses added 4.1 points to the
North American property/casualty loss and loss expense ratio for the first nine
months of 2000, as compared to 7.2 points for the same period of 1999. While the
potential for catastrophe and large property losses are factors normally
considered in underwriting decisions, the timing and magnitude of such losses
can cause significant volatility in periodic underwriting results, particularly
quarterly results.
International property/casualty
<TABLE>
<CAPTION>
Third Quarter First Nine Months
------------- -----------------
2000 1999 2000 1999
--------------- --------------- ---------------- ----------------
Amount % Amount % Amount % Amount %
----- ----- ----- ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Premiums earned $ 653 100.0 $ 587 100.0 $1,881 100.0 $1,701 100.0
----- ----- ----- ----- ------ ----- ------ -----
Losses and loss expenses 521 79.8 497 84.7 1,631 86.7 1,391 81.8
Underwriting expenses 202 30.9 195 33.2 611 32.5 569 33.4
----- ----- ----- ----- ------ ----- ------ -----
Total losses and expenses 723 110.7 692 117.9 2,242 119.2 1,960 115.2
----- ===== ----- ===== ------ ===== ------ =====
Underwriting loss $ (70) $(105) $ (361) $ (259)
===== ===== ====== ======
</TABLE>
The international property/casualty operations write primarily quota-share
and, to a lesser degree, excess reinsurance on risks around the world. In recent
years, the largest international markets have been in Germany and Western
Europe. International reinsurance business includes a significant level of
property reinsurance. Premiums earned in the third quarter and first nine months
of 2000 increased over 1999 levels by 11.2% and 10.6%, respectively. Adjusting
for the effects of overall declining foreign exchange rates, earned premiums in
local currencies grew 21.3% during the third quarter and 21.4% for first nine
months of 2000, respectively. The growth in earned premiums was primarily due to
increased premiums in European markets outside Germany, premiums due from
cedants to reinstate coverage as a result of fourth quarter 1999 European winter
storm losses, new business in South America, and from DP Mann's Syndicate 435 at
Lloyd's of London.
13
<PAGE> 15
FORM 10-Q
BERKSHIRE HATHAWAY INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
INSURANCE UNDERWRITING (CONTINUED)
International property/casualty (continued)
Underwriting results of the international property/casualty segment for the
first nine months of 2000 remained very poor, despite the fact that the third
quarter 2000's results improved considerably in comparison with 1999's third
quarter and the first half of 2000 due primarily to lower levels of catastrophe
losses. The increase in the loss ratio for the first nine months of 2000 was
primarily due to adverse development in the first half of 2000 from the December
1999 European winter storms and inadequate premium rates in many international
property/casualty markets. The effect of catastrophes, including development
from 1999 events, and other large property losses represented 8.1 points of the
loss and loss expense ratio for the first nine months of 2000, compared to 4.9
points for the same period of 1999. Consequently, periodic underwriting results
for the international property/casualty business can be volatile, given the
significant level of property business written.
Global life/health
<TABLE>
<CAPTION>
Third Quarter First Nine Months
------------- -----------------
2000 1999 2000 1999
-------------- --------------- --------------- -----------------
Amount % Amount % Amount % Amount %
---- ----- ---- ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Premiums earned $400 100.0 $509 100.0 $1,259 100.0 $1,293 100.0
---- ----- ---- ----- ------ ----- ------ -----
Losses and loss expenses 311 77.8 406 79.8 1,041 82.7 1,087 84.0
Underwriting expenses 109 27.2 117 23.0 294 23.3 319 24.7
---- ----- ---- ----- ------ ----- ------ -----
Total losses and expenses 420 105.0 523 102.8 1,335 106.0 1,406 108.7
---- ===== ---- ===== ------ ===== ------ =====
Underwriting loss $(20) $(14) $ (76) $ (113)
==== ==== ====== ======
</TABLE>
Global life/health net earned premiums decreased 21.4% for the third
quarter and 2.6% in the first nine months of 2000. The decreases in premiums in
2000 periods resulted primarily from reduced premiums on run-off business
written by GCL's former London-based managing underwriter. Adjusting for the
effects of the run-off business, global life/health earned premiums increased
2.3% for the third quarter and 6.0% for the first nine months of 2000.
The global life/health operations produced improved but still
unsatisfactory underwriting results for the first nine months of 2000 and 1999.
Underwriting results weakened in the international life/health business, while
the U.S. life/health operations have continued to show improvement during the
third quarter and year-to-date 2000.
BERKSHIRE HATHAWAY REINSURANCE GROUP
Premiums earned of $1,291 million and $1,596 million during the third
quarter and first nine months of 2000 declined from the third quarter and first
nine months of 1999 by 9.1% and 18.8% respectively. Much of the premium volume
generated in the past two years by BHRG derived from retroactive reinsurance and
property catastrophe excess-of loss policies. Retroactive reinsurance refers to
policies that indemnify ceding companies for losses arising under contracts
written in the past by the ceding companies. It is often anticipated that a
significant level of environmental and latent injury claims will arise under
these contracts. Catastrophe policies indemnify ceding companies against
specific losses or the accumulation of losses arising out of specified
catastrophic events.
For the first nine months, premiums earned from retroactive coverage
totaled $1,227 million in 2000 and $1,508 million in 1999. Of such amount $1,201
million and $1,227 million were earned during the third quarters of 2000 and
1999 respectively. BHRG is actively negotiating additional retroactive
reinsurance contracts, which, if such transactions are consummated, will produce
additional premiums in excess of $3 billion. It is not anticipated that these
contracts will be finalized until 2001.
Premiums earned from catastrophe policies for the third quarter and first
nine months of 2000 were $61 million and $263 million. For the third quarter and
first nine months of 1999, premiums earned from catastrophe policies were $87
million and $222 million.
Premiums earned from BHRG's other non-catastrophe reinsurance businesses
were $106 million and $236 million for the first nine months of 2000 and 1999
respectively. The decline in premiums earned was attributed to the expiration
and non-renewal in 1999 of a large excess-casualty reinsurance agreement and to
a comparative decline in business assumed from General Re's North American
Reinsurance operation.
14
<PAGE> 16
FORM 10-Q
BERKSHIRE HATHAWAY INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
INSURANCE UNDERWRITING (CONTINUED)
BERKSHIRE HATHAWAY REINSURANCE GROUP (CONTINUED)
For the third quarter and first nine months of 2000, BHRG's catastrophe
reinsurance produced net underwriting gains of $73 million and $120 million. For
comparative prior year periods, this business generated net underwriting gains
of $69 million for the third quarter and $132 million for the first nine months.
Although Berkshire's catastrophe reinsurance business has generated meaningful
underwriting gains in recent years, considerable potential for future
underwriting losses currently remains. Significant exposure to catastrophe
losses exists with respect to hurricane risks in the eastern U.S. and earthquake
risks in California. Consequently, underwriting results for the catastrophe
business are subject to exceptional volatility.
Net underwriting losses for the first nine months from other
non-catastrophe reinsurance activities were $5 million in 2000 and $130 million
in 1999. The improvement in net underwriting results in 2000 compared to 1999
was primarily attributed to a decline in losses assumed under the previously
mentioned large casualty excess treaty and reduced losses from General Re's
North American property/casualty business.
INSURANCE SEGMENTS - INVESTMENT INCOME
After-tax net investment income produced by Berkshire's insurance and
reinsurance businesses for the third quarter and first nine months of 2000 and
1999 is summarized in the table below. Dollars are in millions.
<TABLE>
<CAPTION>
First Nine
Third Quarter Months
------------------ ------------------
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net investment income before taxes and minority interests $ 673 $ 661 $1,977 $1,852
Income taxes and minority interests 198 194 579 532
------ ------ ------ ------
Net investment income $ 475 $ 467 $1,398 $1,320
====== ====== ====== ======
</TABLE>
Pre-tax net investment income earned by Berkshire's insurance and
reinsurance businesses during the third quarter and first nine months of 2000
exceeded amounts earned during the corresponding 1999 periods by 1.8% and 6.7%,
respectively.
Berkshire's insurance and reinsurance businesses maintain significant
levels of invested assets, approximately $73 billion at September 30, 2000.
Invested assets derive from significant amounts of shareholder capital,
including reinvested earnings as well as large amounts of policyholder float.
"Float" represents the approximate aggregate amount of funds available for
investment that is temporarily held by an insurance business for the benefit of
its policyholders.
The level of float at September 30, 2000 was approximately $27.1 billion,
compared to $25.3 billion at December 31, 1999. The increase in float during
2000 was largely attributed to new float generated by BHRG's, retroactive
reinsurance activities. Berkshire's average cost of float, as measured by the
pre-tax underwriting losses to average float, for the first nine months of 2000
was approximately 5.3%.
As discussed previously, BHRG is currently negotiating additional new
retroactive reinsurance arrangements. If and when such transactions are
consummated, the level of float could rise substantially.
NON-INSURANCE BUSINESSES
Results of operations of Berkshire's diverse non-insurance businesses for
the third quarter and first nine months of 2000 and 1999 are shown in the
following table. Dollar amounts are in millions.
<TABLE>
<CAPTION>
Third Quarter First Nine Months
------------- -----------------
2000 1999 2000 1999
---- ---- ---- ----
Amount % Amount % Amount % Amount %
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $1,958 100.0 $1,409 100.0 $5,621 100.0 $4,313 100.0
Costs and expenses 1,678 85.7 1,254 89.0 4,660 82.9 3,721 86.3
------ ----- ------ ----- ------ ----- ------ -----
Earnings before taxes/minority 280 14.3 155 11.0 961 17.1 592 13.7
interest
Income taxes and minority interest 111 5.7 62 4.4 359 6.4 232 5.4
------ ----- ------ ----- ------ ----- ------ -----
Net earnings $ 169 8.6 $ 93 6.6 $ 602 10.7 $ 360 8.3
====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
15
<PAGE> 17
FORM 10-Q
BERKSHIRE HATHAWAY INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
NON-INSURANCE BUSINESSES (CONTINUED)
As shown in the preceding table, revenues and net earnings of Berkshire's
numerous and diverse non-insurance businesses for 2000 periods exceeded revenues
and net earnings for 1999 periods by a considerable margin. Combined revenues
for the third quarter and first nine months of 2000 exceeded 1999 amounts by
$549 million (39.0%) and $1,308 million (30.3%), respectively. Net earnings for
the third quarter and first nine months of 2000 exceeded 1999 amounts by $76
million (81.7%) and $242 million (67.2%), respectively.
The inclusion of the results from four business acquisitions, which closed
during the period between November 1999 and August 2000, account for a
significant portion of the comparative increases in revenues and net earnings
during the 2000 periods. Jordan's Furniture, Inc., acquired in November 1999,
CORT Business Services, acquired in February 2000, Ben Bridge Jeweler, acquired
July 2000 and Justin Industries (Acme Building Brands and Justin Brands),
acquired August 2000 is each included in Berkshire's non insurance business
results from its respective date of acquisition. In the aggregate, these
businesses accounted for $314 million and $583 million of the revenue increase
during the third quarter and first nine months of 2000, respectively. Such
businesses were responsible for $20 million and $36 million of the additional
net earnings generated by the non-insurance businesses during the third quarter
and first nine months of 2000, respectively.
Included in this diverse group of businesses are Berkshire's finance
businesses. Net earnings from these businesses increased $61 million during the
third quarter of 2000 and $226 million during the first nine months of 2000 over
amounts recorded in the comparable 1999 periods. Much of the increase was
attributable to the recognition of gains on a large portfolio of trading
securities. Such securities have been sold and/or matured and there can be no
guarantee that similar results will be reported in future periods.
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).
Other purchase-accounting-adjustments pertain primarily to the amortization
of the excess of market value over historical cost of General Re's fixed
maturity investments that existed at the date of the merger. Such excess is
included in Berkshire's cost of the investments and is being amortized over the
remaining lives of the investments. The unamortized excess remaining in the cost
of fixed maturity investments totaled $778 million at September 30, 2000,
compared to $988 million at September 30, 1999.
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 $1,344 million and $784 million for the first nine months of 2000 and 1999,
respectively.
FINANCIAL CONDITION
Berkshire's balance sheet continues to reflect significant liquidity and a
strong capital base. Consolidated shareholders' equity at September 30, 2000
totaled $59.4 billion. Consolidated cash and invested assets, excluding assets
of finance and financial products businesses totaled approximately $75 billion
at September 30, 2000. During 2000, Berkshire has deployed approximately $2.8
billion in cash for business acquisitions and investments in MidAmerican. In
addition, during the remainder of 2000 and in early 2001, Berkshire expects to
employ approximately $3 billion in cash to consummate the Shaw Industries and
Benjamin Moore acquisitions. It is expected that the cash for these acquisitions
will be derived from internally generated funds. The net amount of borrowings
under investment agreements and other debt increased $169 million during the
first nine months of 2000. The increase was due to the inclusion of debt of
subsidiaries assumed in connection with business acquisitions during 2000 and an
increase in debt employed by certain Berkshire subsidiaries in their business
operations, partially offset by a decline in corporate debt.
16
<PAGE> 18
FORM 10-Q
BERKSHIRE HATHAWAY INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
FORWARD-LOOKING STATEMENTS
Investors are cautioned that certain statements contained in this document
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 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
a. Exhibits
Exhibit 27 -- Financial Data Schedule
b. Reports on Form 8-K
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 13, 2000 /s/ Marc D. Hamburg
----------------- -------------------------------
(Signature)
Marc D. Hamburg, Vice President
and Principal Financial Officer
17
