<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, 1994
--------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(b) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------------------- ----------------------
Commission file number 1-10125
BERKSHIRE HATHAWAY INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 04 2254452
------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification number)
incorporation or organization)
</TABLE>
1440 Kiewit Plaza, Omaha, Nebraska 68131
------------------------------------------
(Address of principal executive office)
(Zip Code)
(402) 346-1400
----------------------------------------------------
(Registrant's telephone number, including area code)
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
X
----- ------
YES NO
Number of shares of common stock outstanding as of November 10, 1994...1,177,750
---------
<PAGE> 2
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 9/30/94
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE NO.
<S> <C>
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets -- 2
September 30, 1994 and December 31, 1993
Consolidated Statements of Earnings -- 3
Third Quarter and First Nine Months, 1994 and 1993
Condensed Consolidated Statements of Cash Flows -- 4
First Nine Months, 1994 and 1993
Notes to Interim Consolidated Financial Statements 5-9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 10-13
CONDITION AND RESULTS OF OPERATIONS
PART II - OTHER INFORMATION 13
</TABLE>
1
<PAGE> 3
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 9/30/94
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
------------- ------------
ASSETS
<S> <C> <C>
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . $ 164,751 $ 1,838,103
Investments:
Obligations with fixed maturities:
Short-term . . . . . . . . . . . . . . . . . . . . . . . . . 1,157,829 33,196
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,386,724 1,375,406
Marketable equity securities . . . . . . . . . . . . . . . . . 13,952,314 12,516,613
Salomon Inc . . . . . . . . . . . . . . . . . . . . . . . . . . 1,035,697 723,584
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . 655,372 525,285
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . 420,414 378,386
Properties and equipment . . . . . . . . . . . . . . . . . . . . 269,500 259,736
Assets of commercial and consumer finance businesses . . . . . . 700,231 840,744
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 982,451 1,029,416
----------- -----------
$20,725,283 $19,520,469
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Losses and loss adjustment expenses . . . . . . . . . . . . . . . $ 3,211,376 $ 3,128,809
Unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . 553,084 315,750
Accounts payable, accruals and other liabilities . . . . . . . . 832,159 738,897
Income taxes, principally deferred . . . . . . . . . . . . . . . 3,092,564 3,030,189
Borrowings under investment agreements and other debt . . . . . . 804,268 972,389
Liabilities of commercial and consumer finance businesses . . . . 626,807 723,782
----------- -----------
9,120,258 8,909,816
----------- -----------
Minority shareholders' interests . . . . . . . . . . . . . . . . 197,572 182,279
----------- -----------
Shareholders' equity:
Common stock - par value of 1,381,308 issued shares . . . . . . 6,907 6,907
Capital in excess of par value . . . . . . . . . . . . . . . . 656,074 656,074
Unrealized appreciation of investments, net . . . . . . . . . . 5,988,374 5,412,652
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . 4,793,732 4,390,375
----------- -----------
11,445,087 10,466,008
Less: Cost of 203,558 common shares in treasury . . . . . . . . (37,634) (37,634)
----------- -----------
Total shareholders' equity . . . . . . . . . . . . . . . . 11,407,453 10,428,374
----------- -----------
$20,725,283 $19,520,469
=========== ===========
</TABLE>
See accompanying Notes to Interim Consolidated Financial Statements
2
<PAGE> 4
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 9/30/94
CONSOLIDATED STATEMENTS OF EARNINGS
(dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
Third Quarter First Nine Months
--------------------------- --------------------------
1994 1993 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Sales and service revenues . . . . . . . . . . . . . $ 555,962 $ 455,850 $1,665,548 $1,378,014
Insurance premiums earned . . . . . . . . . . . . . . 142,947 150,453 502,930 382,317
Interest and dividend income . . . . . . . . . . . . 119,938 103,573 369,498 306,439
Income from investment in Salomon Inc . . . . . . . . 7,789 15,750 25,525 47,250
Realized investment gain (loss) . . . . . . . . . . . (7,166) 16,833 79,736 54,664
Sundry income . . . . . . . . . . . . . . . . . . . . 1,365 1,668 4,035 4,968
---------- ---------- ---------- ----------
820,835 744,127 2,647,272 2,173,652
---------- ---------- ---------- ----------
COST AND EXPENSES:
Cost of products and services sold . . . . . . . . . 357,148 290,387 1,046,215 854,173
Insurance losses and loss adjustment expenses . . . . 115,488 149,829 407,575 347,553
Insurance underwriting expenses . . . . . . . . . . . 37,150 29,464 124,603 101,133
Selling, general and administrative expenses . . . . 150,826 127,659 457,837 403,005
Interest expense . . . . . . . . . . . . . . . . . . 22,105 21,025 69,536 57,546
---------- ---------- ---------- ----------
682,717 618,364 2,105,766 1,763,410
---------- ---------- ---------- ----------
EARNINGS BEFORE INCOME TAXES, MINORITY INTEREST AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE . . . . . . . 138,118 125,763 541,506 410,242
Income taxes -
Other than effect of change in income tax rate
on deferred taxes applicable to unrealized
appreciation . . . . . . . . . . . . . . . . . . . 29,674 25,799 130,631 93,121
Effect of change in income tax rate on deferred
taxes applicable to unrealized appreciation . . . -- 75,348 -- 75,348
Minority interest . . . . . . . . . . . . . . . . . . 2,624 1,822 7,518 6,281
---------- ---------- ---------- ----------
EARNINGS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE . 105,820 22,794 403,357 235,492
Cumulative effect of change in accounting for income
taxes . . . . . . . . . . . . . . . . . . . . . . . -- -- -- (70,984)
---------- ---------- ---------- ----------
NET EARNINGS . . . . . . . . . . . . . . . . . . . . . . $ 105,820 $ 22,794 $ 403,357 $ 164,508
========== ========== ========== ==========
Average shares outstanding . . . . . . . . . . . . . 1,177,750 1,152,547 1,177,750 1,152,547
EARNINGS PER SHARE:
Before cumulative effect of accounting change . . . . $ 89.85 $ 19.78 $ 342.48 $ 204.32
Cumulative effect of change in accounting for income
taxes . . . . . . . . . . . . . . . . . . . . . . . -- -- -- (61.59)
---------- ---------- ---------- ----------
Net earnings . . . . . . . . . . . . . . . . . . . . $ 89.85 $ 19.78 $ 342.48 $ 142.73
========== =========== ========== ==========
</TABLE>
See accompanying Notes to Interim Consolidated Financial Statements
3
<PAGE> 5
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 9/30/94
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
First Nine Months
------------------------------
1994 1993
----------- -----------
<S> <C> <C>
Net cash flows from operating activities . . . . . . . . . . . . . . . . $ 463,764 $ 488,477
----------- -----------
Cash flows from investing activities:
Purchases of investments . . . . . . . . . . . . . . . . . . . . . . (4,453,893) (654,590)
Proceeds on sales and maturities of investments . . . . . . . . . . . 2,490,049 706,836
Loans and investments originated in finance businesses . . . . . . . (158,540) (525,924)
Principal collections on loans and investments originated
in finance businesses . . . . . . . . . . . . . . . . . . . . . . . 254,522 148,772
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (18,527) 4,447
----------- -----------
Net cash flows from investing activities . . . . . . . . . . . . . . . . (1,886,389) (320,459)
----------- -----------
Cash flows from financing activities:
Proceeds from borrowings of finance businesses . . . . . . . . . . . 196,619 337,003
Proceeds from other borrowings . . . . . . . . . . . . . . . . . . . 941,712 900,857
Repayments of borrowings of finance businesses . . . . . . . . . . . (273,723) (58,433)
Repayments of other borrowings . . . . . . . . . . . . . . . . . . . (1,109,886) (1,153,630)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (938) (2,361)
------------ -----------
Net cash flows from financing activities . . . . . . . . . . . . . . . (246,216) 23,436
----------- ------------
Increase (decrease) in cash and cash equivalents . . . . . . . . . . . (1,668,841) 191,454
Cash and cash equivalents at beginning of year* . . . . . . . . . . . . 1,854,621 1,192,363
----------- -----------
Cash and cash equivalents at end of first nine months* . . . . . . . . $ 185,780 $ 1,383,817
=========== ===========
Supplemental cash flow information:
Non-cash investing and financing activities:
Common shares issued upon conversions of Zero Coupon
Convertible Subordinated Notes . . . . . . . . . . . . . . . . . . $ -- $ 45,477
Cash paid during the period for:
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 379,397 165,351
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67,994 56,489
*Cash and cash equivalents are comprised of the following:
Beginning of year --
Commercial and consumer finance businesses . . . . . . . . . . . . . $ 16,518 $ 64,367
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,838,103 1,127,996
----------- -----------
$ 1,854,621 $ 1,192,363
=========== ===========
End of first nine months --
Commercial and consumer finance businesses . . . . . . . . . . . . . $ 21,029 $ 89,533
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164,751 1,294,284
----------- -----------
$ 185,780 $ 1,383,817
=========== ===========
</TABLE>
See accompanying Notes to Interim Consolidated Financial Statements
4
<PAGE> 6
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 9/30/94
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. GENERAL
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) which 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. Most
significantly, 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.
Variations in amount and timing of realized securities gains or losses cause
significant variations in periodic net earnings.
NOTE 2. INVESTMENTS IN OBLIGATIONS WITH FIXED MATURITIES
Data with respect to investments in obligations with fixed maturities
(other than Salomon Inc Cumulative Convertible Preferred Stock and
mortgage-backed securities held by commercial and consumer finance businesses
- -- See Notes 5 and 7) are shown in the tabulation below.
<TABLE>
<CAPTION>
(000s omitted)
September 30, 1994 December 31, 1993
---------------------------- ----------------------------
Short-term* Other Short-term* Other
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Amortized cost . . . . . . . . . . . . . . $1,159,744 $1,615,981 $ 33,196 $1,375,406
Gross unrealized gains . . . . . . . . . . 1,152 53,039 595 66,913
Gross unrealized losses . . . . . . . . . . (3,067) (283,829) (2) (90,881)
----------- ---------- ---------- -----------
Estimated fair value . . . . . . . . . . . $1,157,829 $1,385,191 $ 33,789 $1,351,438
========== ========== ========== ==========
</TABLE>
* Obligations maturing within one year.
Effective March 31, 1994 investments in obligations with fixed maturities,
other than mortgage-backed securities, were classified as "available for sale".
In accordance with the provisions of Statement of Financial Accounting
Standards No. 115 "Accounting For Certain Investments in Debt and Equity
Securities" ("SFAS 115"), which the Company adopted as of December 31, 1993,
investments so classified are carried at fair value, with the net after-tax
unrealized gain or loss reported as a component of shareholders' equity. Such
investments were classified as "held to maturity" at December 31, 1993, and
accordingly, carried at amortized cost. The change in classification with
respect to these investments results in consistent financial reporting with the
Company's investments in marketable equity securities. Had the change been
reflected as of December 31, 1993, the Company's reported financial condition
would not have been materially affected.
5
<PAGE> 7
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 9/30/94
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. INVESTMENT IN USAIR GROUP, INC. PREFERRED STOCK
Investments in other obligations with fixed maturities include 358,000
shares of USAir Group, Inc. Series A Cumulative Convertible Preferred Stock
("USAir Preferred Shares"). The USAir Preferred Shares were acquired in 1989
for $358 million. If not called or converted prior to August 7, 1999, the
USAir Preferred Shares are mandatorily redeemable by USAir Group, Inc.
("USAir") at $1,000 per share ($358 million in the aggregate), plus accrued
dividends.
For the past five years USAir has incurred very significant losses. On
September 29, 1994, USAir announced that it was deferring the quarterly
dividend payment due September 30, 1994 on the USAir Preferred Shares. USAir
has publicly stated that its ability to survive in the low fare competitive
environment is contingent upon USAir's ability permanently to reduce its
operating costs through reductions in personnel costs and other cost saving
initiatives. USAir management is currently engaged in discussions with the
leadership of its unionized employees to achieve its goal of reducing personnel
costs. While USAir's management has stated they are committed to reaching an
agreement with the labor groups, both the timing and the outcome of the
negotiations are uncertain.
Berkshire's chairman, Warren E. Buffett, and vice chairman, Charles T.
Munger, currently serve as members of USAir's Board of Directors. They have
stated that they support USAir management's cost reduction programs, which
include employee concessions as well as other initiatives. On June 15, 1994,
they also stated that their continued service as directors of USAir is
dependent on USAir successfully reaching a timely agreement with organized
labor groups that, in their opinion, provides USAir with sufficient labor cost
savings which, when combined with other cost reduction programs being
implemented, would afford USAir a reasonable opportunity to achieve
profitability in a low fare competitive environment. At this time Mr. Buffett
and Mr. Munger continue to serve as directors. However, they expect to
determine whether to continue as directors prior to Berkshire's public release
of its 1994 annual earnings. Therefore, if the cost reduction initiatives are
not successfully negotiated by that time, Berkshire will make an appropriate
charge to earnings reflecting the decline in the value of Berkshire's
investment in the fourth quarter as required by SFAS 115. If such a charge is
made there will, however, be little or no impact on shareholders' equity as
Berkshire's investment in USAir Preferred Shares is currently carried at fair
value, with the net after-tax unrealized loss reported as a component of
shareholders' equity (see Note 2).
NOTE 4. INVESTMENTS IN MARKETABLE EQUITY SECURITIES
Data with respect to investments in marketable equity securities are shown
in the tabulation below.
<TABLE>
<CAPTION>
(000s omitted)
September 30, December 31,
1994 1993
------------ ------------
<S> <C> <C>
Total cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,633,458 $ 4,296,122
Gross unrealized gains . . . . . . . . . . . . . . . . . . . . . . . . . 9,373,007 8,313,283
Gross unrealized losses . . . . . . . . . . . . . . . . . . . . . . . . . (54,151) (92,792)
------------ ------------
Total approximate market value . . . . . . . . . . . . . . . . . . . . . $13,952,314 $12,516,613
=========== ===========
Carrying value:
Capital Cities/ABC, Inc. . . . . . . . . . . . . . . . . . . . . . . . $ 1,640,000 $ 1,239,000
The Coca-Cola Company . . . . . . . . . . . . . . . . . . . . . . . . . 4,862,500 4,167,975
GEICO Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,673,969 1,759,594
The Gillette Company . . . . . . . . . . . . . . . . . . . . . . . . . 1,698,000 1,431,000
Wells Fargo & Company . . . . . . . . . . . . . . . . . . . . . . . . . 985,576 878,614
All others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,092,269 3,040,430
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $13,952,314 $12,516,613
=========== ===========
</TABLE>
6
<PAGE> 8
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 9/30/94
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. INVESTMENT IN SALOMON INC
The Company's investment in Salomon Inc consists of the following:
<TABLE>
<CAPTION>
(000s omitted)
September 30, 1994 December 31, 1993
---------------------------------------- ---------------------------------------
Fair Market Carrying Fair Market Carrying
Cost Value Value Cost Value Value
------------ ------------- ----------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Cumulative Convertible Preferred Stock $ 700,000 $ 735,000 $ 735,000 $ 700,000 $ 875,000 $ 700,000
Common Stock . . . . . . . . . . . . 324,445 262,027 300,697 21,636 23,584 23,584
---------- ---------- ---------- ---------- ---------- ----------
$1,024,445 $ 997,027 $1,035,697 $ 721,636 $ 898,584 $ 723,584
========== ========== ========== ========== ========== ==========
</TABLE>
At both September 30, 1994 and December 31, 1993, Berkshire subsidiaries
owned 700,000 shares of Cumulative Convertible Preferred Stock ("Preferred
Shares"). The Preferred Shares have a redemption value of $1,000 per share and
are entitled to receive quarterly dividends at the annual rate of $90 per
share. The Preferred Shares can be converted into shares of Salomon Inc common
stock at $38 per share and are entitled to one vote per share of common stock
into which such shares are convertible (18,421,053 at September 30, 1994).
Annually on each October 31, commencing in 1995, Salomon Inc will redeem, at
cost, 140,000 of the Preferred Shares or such fewer number as are then
outstanding. As discussed in Note 2, the Preferred Shares are carried at fair
value at September 30, 1994 whereas they were carried at cost at December 31,
1993.
Berkshire subsidiaries possess slightly in excess of 20% of the total
voting rights in Salomon. (Such rights consisting of rights attaching to the
aforementioned Preferred Shares plus 6,633,600 common shares held at September
30, 1994.) Effective April 1, 1994, the Company adopted the equity method of
accounting with respect to its investment in Salomon Inc common stock. The
provisions of Accounting Principles Board Opinion No. 18 "The Equity Method of
Accounting For Common Stock" require that the equity method be applied only to
investments in common stock. Accordingly, as previously discussed, the
Preferred Shares continue to be carried at fair value in accordance with SFAS
115.
Income from the investment in Salomon Inc consists of the following:
<TABLE>
<CAPTION>
(000s omitted)
Third Quarter First Nine Months
------------------------ ------------------------
1994 1993 1994 1993
------- ------- ------- -------
<S> <C> <C> <C> <C>
Dividends on Preferred Shares . . . . . . . . . $15,750 $15,750 $47,250 $47,250
Equity in net loss of Salomon attributable to
common stock holdings * . . . . . . . . . . (7,961) -- (21,725) --
------- ------- ------- -------
$ 7,789 $15,750 $25,525 $47,250
======= ======= ======= =======
</TABLE>
* After giving effect to amortization, over forty years, of the excess of the
cost of Salomon common stock over its related book value.
NOTE 6. DEFERRED INCOME TAX LIABILITY
The tax effects of significant items comprising the Company's net deferred
tax liability as of September 30, 1994 and December 31, 1993 are as follows:
<TABLE>
<CAPTION>
(000s omitted)
September 30, December 31,
1994 1993
---------- ----------
<S> <C> <C>
Deferred tax liabilities:
Relating to unrealized appreciation of investments . . . . . . . . . . . . $3,175,784 $2,848,681
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,924 73,638
---------- ----------
3,256,708 2,922,319
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (192,831) (181,816)
---------- ----------
Net deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . $3,063,877 $2,740,503
========== ==========
</TABLE>
7
<PAGE> 9
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 9/30/94
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. ASSETS AND LIABILITIES OF COMMERCIAL AND CONSUMER FINANCE BUSINESSES
Assets and liabilities of Berkshire's commercial and consumer finance
businesses are summarized below.
<TABLE>
<CAPTION>
(000s omitted)
September 30, December 31,
1994 1993
------------- ------------
<S> <C> <C>
Assets
------
Cash and cash equivalents . . . . . . . . . . . . . . . $ 21,029 $ 16,518
Installment loans receivable . . . . . . . . . . . . . 153,504 163,827
Mortgages and mortgage-backed securities . . . . . . . 521,631 656,311
Other . . . . . . . . . . . . . . . . . . . . . . . . . 4,067 4,088
-------- --------
$700,231 $840,744
======== ========
Liabilities
-----------
8.125% Notes, payable in 1996 . . . . . . . . . . . . . $120,000 $120,000
Borrowings under investment agreements . . . . . . . . 474,805 551,909
Other . . . . . . . . . . . . . . . . . . . . . . . . . 32,002 51,873
-------- --------
$626,807 $723,782
======== ========
</TABLE>
NOTE 8. INTEREST AND DIVIDEND INCOME
Interest and dividend income for the third quarter and first nine months of
1994 and 1993 was comprised of the following:
<TABLE>
<CAPTION>
(000s omitted)
Third Quarter First Nine Months
------------------------- -------------------------
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest earned by:
Commercial and consumer finance businesses $ 17,087 $ 15,036 $ 52,654 $ 40,839
Insurance businesses . . . . . . . . . . 23,674 22,598 66,651 57,672
Other . . . . . . . . . . . . . . . . . . 9,143 3,992 20,515 16,590
Dividends earned by:
Insurance businesses . . . . . . . . . . 69,032 59,111 225,952 182,860
Other . . . . . . . . . . . . . . . . . . 1,002 2,836 3,726 8,478
-------- -------- -------- --------
Interest and dividend income . . . . . . $119,938 $103,573 $369,498 $306,439
======== ======== ======== ========
</TABLE>
NOTE 9. INTEREST EXPENSE
Interest expense for the third quarter and first nine months of 1994 and
1993 was comprised of the following:
<TABLE>
<CAPTION>
(000s omitted)
Third Quarter First Nine Months
------------------- -------------------
1994 1993 1994 1993
------- ------- ------- -------
<S> <C> <C> <C> <C>
Debt of commercial and consumer finance
businesses . . . . . . . . . . . . . . . . $ 8,109 $ 4,669 $24,073 $11,190
Other debt . . . . . . . . . . . . . . . . . 13,996 14,656 45,463 40,726
Savings accounts of Mutual Savings
and Loan Association . . . . . . . . . . . -- 1,700 -- 5,630
------- ------- ------- -------
$22,105 $21,025 $69,536 $57,546
======= ======= ======= =======
</TABLE>
8
<PAGE> 10
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 9/30/94
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10. UNREALIZED APPRECIATION OF INVESTMENTS
Changes in "Unrealized appreciation of investments, net", the balance of
which is carried in shareholders' equity, were as follows during the third
quarter and first nine months of 1994 and 1993:
<TABLE>
<CAPTION>
(000s omitted)
Third Quarter First Nine Months
-------------------------- --------------------------
1994 1993 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Increase in unrealized appreciation . . . . . $ 783,555 $ 370,807 $ 900,245 $ 387,154
Increase in deemed applicable income taxes . . (273,902) (130,098) (315,758) (135,656)
(Increase) decrease in minority
shareholders' interest . . . . . . . . . . . 4,099 (368) (8,765) (893)
---------- ---------- ---------- ----------
Net increase . . . . . . . . . . . . . . . . 513,752 240,341 575,722 250,605
Balance at beginning of period . . . . . . . . 5,474,622 5,057,483 5,412,652 5,047,219
---------- ---------- ---------- ----------
Balance at end of third quarter . . . . . . . $5,988,374 $5,297,824 $5,988,374 $5,297,824
========== ========== ========== ==========
</TABLE>
NOTE 11. CHANGE IN ACCOUNTING FOR INCOME TAXES
Effective January 1, 1993, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 109 "Accounting for Income Taxes" ("SFAS
109"). The adoption of SFAS 109 changed the Company's method of accounting for
income taxes from the "deferred method" to the "asset and liability method".
The cumulative effect of adopting SFAS 109 on the Company's financial
statements was to decrease 1993 net income by about $71 million. This amount
is reflected in the 1993 Consolidated Statement of Earnings as the cumulative
effect of a change in accounting principle. It primarily represents the impact
of adjusting deferred taxes related to unrealized appreciation of marketable
equity securities which arose prior to 1987 to reflect the then current capital
gain tax rate of 34% as opposed to the 28% rate which was in effect when the
deferred taxes originated. The effect of the accounting change on 1993
earnings before income taxes and cumulative effect adjustment was not material.
During 1993's third quarter, the Omnibus Budget Reconciliation Act of 1993
was enacted. Among its provisions, the Act increased the federal corporate
ordinary income and capital gain tax rates from 34% to 35% retroactive to
January 1, 1993. Accordingly, the Company recorded a charge to 1993's third
quarter earnings of approximately $75 million. Most of this charge relates to
the impact of adjusting deferred taxes related to unrealized appreciation of
marketable equity securities.
9
<PAGE> 11
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 9/30/94
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 the current and
prior year are disaggregated in the following table. Amounts are in thousands
and each figure is income tax effected.
<TABLE>
<CAPTION>
Third Quarter First Nine Months
--------------------- ---------------------
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Insurance, except realized investment gain/loss . . $ 73,717 $ 63,902 $237,775 $194,486
Manufacturing, merchandising and services . . . . . 39,972 29,589 128,066 97,267
Unallocated income/expense, net . . . . . . . . . . 6,013 2,932 14,989 9,359
Interest expense * . . . . . . . . . . . . . . . . (9,236) (8,810) (29,268) (25,558)
-------- -------- -------- --------
Earnings before realized investment gain/loss,
effect of change in income tax rate and
cumulative effect of accounting change . . . 110,466 87,613 351,562 275,554
Realized investment gain (loss) . . . . . . . . . . (4,646) 10,405 51,795 35,162
-------- -------- -------- --------
Earnings before effect of change in income tax rate
and cumulative effect of accounting change . 105,820 98,018 403,357 310,716
Effect of change in income tax rate on deferred taxes
applicable to unrealized appreciation ** . . -- (75,224) -- (75,224)
Cumulative effect of change in accounting for
income taxes ** . . . . . . . . . . . . . . . -- -- -- (70,984)
-------- -------- -------- --------
Net earnings . . . . . . . . . . . . . . . . . $105,820 $ 22,794 $403,357 $164,508
======== ======== ======== ========
</TABLE>
- -------------
* For purposes of the above table, interest expense of commercial and
consumer finance businesses is netted against the directly related service
activity revenues.
** See Note 11 to the accompanying interim consolidated financial statements.
INSURANCE GROUP
The after tax figures shown above for Insurance Group earnings, except
realized investment gain/loss, are aggregated in the following table. Dollar
amounts are in thousands.
<TABLE>
<CAPTION>
Third Quarter First Nine Months
--------------------- ---------------------
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Premiums earned from:
Primary or direct insurance . . . . . . . . . . $ 59,182 $ 51,023 $163,998 $156,340
Reinsurance assumed . . . . . . . . . . . . . . 83,765 99,430 338,932 225,977
-------- -------- -------- --------
$142,947 $150,453 $502,930 $382,317
======== ======== ======== ========
Underwriting gain (loss) attributable to:
Primary or direct insurance . . . . . . . . . . $ 17,229 $ 4,746 $ 22,232 $ (561)
Reinsurance assumed . . . . . . . . . . . . . . (27,149) (33,815) (52,167) (66,496)
-------- -------- -------- --------
Total underwriting loss . . . . . . . . . . . (9,920) (29,069) (29,935) (67,057)
Net investment income . . . . . . . . . . . . . . . 95,617 94,676 305,683 279,138
-------- -------- -------- --------
Earnings before income taxes . . . . . . . . 85,697 65,607 275,748 212,081
Income tax expense . . . . . . . . . . . . . . . . (10,502) (892) (34,018) (14,835)
Minority interest . . . . . . . . . . . . . . . . . (1,478) (813) (3,955) (2,760)
-------- -------- -------- --------
Net earnings from Insurance,
except realized investment gain/loss . . . . . $ 73,717 $ 63,902 $237,775 $194,486
======== ======== ======== ========
</TABLE>
10
<PAGE> 12
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 9/30/94
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. (Continued)
INSURANCE GROUP (Continued)
Reinsurance premiums earned during the third quarter and first nine
months of 1994 from catastrophe excess of loss contracts were $24 million and
$167 million, respectively. Amounts earned from such contracts during 1993
totalled $5 million for the third quarter and $21 million for the first nine
months. The comparatively higher amount of reinsurance premiums earned during
the 1994 periods stemmed from higher levels of policy expirations during 1994
as well as the recognition in the first quarter of 1994 of premium income in
connection with catastrophic events occurring during that period. Other
reinsurance premiums earned during both 1994 and 1993 derived from certain
sizable excess of loss and quota share reinsurance contracts as well as
structured settlement and retroactive reinsurance contracts.
The catastrophe excess of loss business produced a small net
underwriting loss in the third quarter of 1994 compared to a small gain in
1993. For the first nine months, underwriting gains from this business were
$40 million in 1994 and $10 million in 1993. The net underwriting gain for the
first nine months of 1994 is net of provisions for estimated losses arising out
of the January, 1994 earthquake in Northridge, California. Underwriting
results from reinsurance assumed activities also include charges with respect
to accretion of discounted structured settlement liabilities and amortization
of deferred charges established with respect to retroactive reinsurance
contracts. These charges, with no offsetting premium income, totalled $18
million and $19 million for the third quarter of 1994 and 1993, respectively.
For the first nine months, such charges aggregated $50 million in 1994 and $58
million in 1993.
During the fourth quarter of 1994 many catastrophe excess of loss
reinsurance contracts will expire and premiums will be earned in accordance
with the Group's policy to defer earning such premiums until the earlier of a
loss occurrence or policy expiration. In the absence of any fourth quarter
covered catastrophic loss occurrences or revisions in current estimates of
losses related to the earthquake discussed above, this business could produce a
fourth quarter pre-tax net underwriting gain of approximately $200 million
which would compare to 1993's fourth quarter pre-tax net underwriting gain from
this business of about $100 million. However, if the aggregate industry-wide
insured losses from the earthquake rise above management's current
expectations, considerable amounts of additional losses could be recorded in
subsequent periods. Thus considerable potential for volatility in periodic net
underwriting results remains.
Premiums earned in the third quarter and first nine months of 1994 for
several primary or direct underwriting units including the credit insurance,
California workers' compensation, and homestate operations exceeded amounts
earned in corresponding 1993 periods. Underwriting results for the third
quarter and first nine months of 1994 include credits of about $11 million and
$22 million, respectively, from reductions of loss reserves established for
pre-1994 loss occurrences with respect to the professional liability/specialty
risk operations. Without the benefit of such credits in 1994 periods, the net
underwriting results of the primary or direct insurance businesses were
relatively unchanged from 1993 periods.
Net investment income of the Insurance Group for the third quarter and
first nine months of 1994 included the Group's equity in net losses of Salomon
Inc deriving from the Group's investment in common stock of Salomon Inc. (See
Notes to the Interim Consolidated Financial Statements.) Exclusive of these
losses, which approximated $8 million in the third quarter and $22 million in
the first nine months, net investment income earned by the Insurance Group in
1994 exceeded 1993 by 9.4% for the third quarter and 17.3% for the first nine
months. The Insurance Group continues to maintain considerable amounts of
policyholder float, about $3.1 billion at September 30, 1994.
11
<PAGE> 13
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 9/30/94
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. (Continued)
MANUFACTURING, MERCHANDISING AND SERVICES
Results of operations of Berkshire's diverse non-insurance businesses
are aggregated in the following table. Dollar amounts are in thousands.
<TABLE>
<CAPTION>
Third Quarter First Nine Months
------------------------------------ ----------------------------------------
1994 1993 1994 1993
---------------- ---------------- ------------------ ------------------
Amount % Amount % Amount % Amount %
-------- ----- -------- ----- ---------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues . . . . . . . . . . . $576,407 100.0 $473,203 100.0 $1,725,646 100.0 $1,428,896 100.0
Costs and expenses . . . . . . 511,006 88.7 420,129 88.8 1,515,217 87.8 1,263,379 88.4
-------- ----- -------- ----- ---------- ----- ---------- -----
Earnings before income taxes . 65,401 11.3 53,074 11.2 210,429 12.2 165,517 11.6
Applicable income taxes . . . . 24,525 4.3 22,626 4.8 79,697 4.6 65,562 4.6
Applicable minority interest . 904 0.1 859 0.2 2,666 0.2 2,688 0.2
-------- ----- -------- ----- ---------- ----- ---------- -----
Net earnings . . . . . . . . . $ 39,972 6.9 $ 29,589 6.2 $ 128,066 7.4 $ 97,267 6.8
======== ===== ======== ===== ========== ===== ========== =====
</TABLE>
Revenues from these several and diverse business activities during
1994's third quarter and first nine months were greater by $103.2 million
(21.8%) and $296.7 million (20.8%) respectively than revenues recorded during
the corresponding 1993 periods. Much of the change resulted from increased
revenues from the shoe segment (H. H. Brown Shoe Company, Lowell Shoe, Inc. and
Dexter Shoe Company ["Dexter"]). Dexter, acquired by Berkshire during the
fourth quarter of 1993, recorded revenues of approximately $70 million during
1994's third quarter and approximately $197 million during the first nine
months. Berkshire's home furnishings (Nebraska Furniture Mart), uniforms
(Fechheimers) and home cleaning systems (Kirby products) segments also recorded
significant revenue increases in 1994's third quarter and first nine months as
compared to the corresponding 1993 periods. Comparative revenue increases were
also recorded by certain of Berkshire's diversified manufacturing businesses.
Increased unit sales of Campbell Hausfeld products (air compressors, air
painting systems and air tools) accounted for most of the revenue increases
arising from Berkshire's diversified manufacturing businesses.
Net earnings from this group of businesses increased $10.4 million
(35.1%) during 1994's third quarter and $30.8 million (31.7%) during 1994's
first nine months as compared to the corresponding prior year periods. The shoe
segment accounts for approximately 60% of the comparative increase during 1994's
third quarter and 55% of the comparative increase for the first nine months.
Other businesses described in the preceding paragraph accounted for much of the
remaining favorable comparative third quarter and first nine month results.
UNALLOCATED INCOME/EXPENSE, NET
Unallocated income/expense represents principally investment income of
the parent company and non-insurance subsidiaries, reduced by parent company
administrative costs.
INTEREST EXPENSE
Average outstanding borrowings under investment agreements were greater
by approximately $138 million during the first nine months of 1994 as compared
to 1993. Somewhat offsetting the effect on interest expense of the increased
borrowings was a reduction in the average interest rate on such borrowings from
approximately 6.9% in 1993 to about 6.6% in 1994.
REALIZED INVESTMENT GAIN/LOSS
Realized investment gain/loss has been a recurring element in
Berkshire's net earnings for many years. The amount -- recorded when
securities are sold or other than temporarily impaired (see Note 3 to the
Interim Consolidated Financial Statements) -- may fluctuate significantly from
period to period, with a meaningful effect upon Berkshire's consolidated net
earnings. But, the amount of realized investment gain or loss for any given
period has no predictive value, and variations in amount from period to period
have no practical analytical value, particularly in view of the net unrealized
price appreciation now existing in Berkshire's consolidated investment
portfolio.
12
<PAGE> 14
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 9/30/94
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. (Continued)
FINANCIAL CONDITION
Berkshire's balance sheet continues to reflect significant liquidity and
above average capital strength. Shareholders' equity at September 30, 1994,
was $11.41 billion or $9,686 per share. Over the past twelve months, net book
value per share has grown by 19.3%.
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 10, 1994 /s/ Marc D. Hamburg
------------------------------------
(Signature)
Marc D. Hamburg, Vice President and
Principal Financial Officer
13
<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 10Q as
filed herewith, and is qualified in its entirety by reference to such financial
statements and related notes.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<EXCHANGE-RATE> 1
<CASH> 164,751
<SECURITIES> 17,532,564
<RECEIVABLES> 655,372
<ALLOWANCES> 0
<INVENTORY> 420,414
<CURRENT-ASSETS> 0
<PP&E> 269,500
<DEPRECIATION> 0
<TOTAL-ASSETS> 20,725,283
<CURRENT-LIABILITIES> 0
<BONDS> 804,268
<COMMON> 6,907
0
0
<OTHER-SE> 11,400,546
<TOTAL-LIABILITY-AND-EQUITY> 20,725,283
<SALES> 1,665,548
<TOTAL-REVENUES> 2,168,478
<CGS> 1,046,215
<TOTAL-COSTS> 1,578,393
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 69,536
<INCOME-PRETAX> 541,506
<INCOME-TAX> 130,631
<INCOME-CONTINUING> 403,357
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 403,357
<EPS-PRIMARY> 342.48
<EPS-DILUTED> 342.48
</TABLE>
