<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 quarter period ended March 31, 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)
Delaware 04 2254452
- - -------------------------------- ---------------------------------------
(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 May 13, 1994.... 1,177,750
<PAGE> 2
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 3/31/94
PAGE NO.
--------
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets -- 2
March 31, 1994 and December 31, 1993
Consolidated Statements of Earnings -- 3
First Quarter, 1994 and 1993
Condensed Consolidated Statements of Cash Flows -- 4
First Quarter, 1994 and 1993
Notes to Interim Consolidated Financial Statements 5-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 9-11
CONDITION AND RESULTS OF OPERATIONS
PART II - OTHER INFORMATION 12
1
<PAGE> 3
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 3/31/94
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
----------- ------------
ASSETS
<S> <C> <C>
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . $ 1,298,711 $ 1,838,103
Investments:
Obligations with fixed maturities . . . . . . . . . . . . . . . 2,179,806 2,108,602
Marketable equity securities . . . . . . . . . . . . . . . . . 12,705,217 12,540,197
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . 926,763 525,285
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . 391,890 378,386
Properties and equipment . . . . . . . . . . . . . . . . . . . . 257,850 259,736
Assets of commercial and consumer finance businesses . . . . . . 800,752 840,744
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 1,018,591 1,029,416
----------- -----------
$19,579,580 $19,520,469
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Losses and loss adjustment expenses . . . . . . . . . . . . . . . $ 3,268,171 $ 3,128,809
Unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . 647,698 315,750
Accounts payable, accruals and other liabilities . . . . . . . . 683,519 738,897
Income taxes, principally deferred . . . . . . . . . . . . . . . 2,759,351 3,030,189
Borrowings under investment agreements and other debt . . . . . . 904,136 972,389
Liabilities of commercial and consumer finance businesses . . . . 684,415 723,782
----------- -----------
8,947,290 8,909,816
----------- -----------
Minority shareholders' interests . . . . . . . . . . . . . . . . 186,996 182,279
----------- -----------
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 . . . . . . . . . . 5,296,682 5,412,652
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . 4,523,265 4,390,375
----------- -----------
10,482,928 10,466,008
Less: Cost of 203,558 common shares in treasury . . . . . . . . (37,634) (37,634)
----------- -----------
Total shareholders' equity . . . 10,445,294 10,428,374
----------- -----------
$19,579,580 $19,520,469
=========== ===========
</TABLE>
See accompanying Notes to Interim Consolidated Financial Statements
2
<PAGE> 4
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 3/31/94
CONSOLIDATED STATEMENTS OF EARNINGS
(dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
First Quarter
----------------------------
1994 1993
---------- ----------
<S> <C> <C>
REVENUES:
Sales and service revenues . . . . . . . . . . . . . . . . . . . . . $ 554,848 $ 456,052
Insurance premiums earned . . . . . . . . . . . . . . . . . . . . . . 165,070 128,148
Interest and dividend income . . . . . . . . . . . . . . . . . . . . 136,004 114,837
Realized investment gain . . . . . . . . . . . . . . . . . . . . . . 77,835 25,585
Sundry income . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,160 1,205
---------- ----------
935,917 725,827
---------- ----------
COST AND EXPENSES:
Cost of products and services sold . . . . . . . . . . . . . . . . . 339,248 273,308
Insurance losses and loss adjustment expenses . . . . . . . . . . . . 209,004 127,864
Insurance underwriting expenses . . . . . . . . . . . . . . . . . . . 29,873 32,213
Selling, general and administrative expenses . . . . . . . . . . . . 158,008 139,210
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . 23,974 18,039
---------- ----------
760,107 590,634
---------- ----------
EARNINGS BEFORE INCOME TAXES, MINORITY INTEREST AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE . . . . . . . . . . . . . . 175,810 135,193
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,652 31,986
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . 2,268 2,472
---------- ----------
EARNINGS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE . . . . . . . . 132,890 100,735
Cumulative effect of change in accounting for income taxes . . . . . -- (70,984)
---------- ----------
NET EARNINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 132,890 $ 29,751
========== ==========
Average shares outstanding . . . . . . . . . . . . . . . . . . . . . 1,177,750 1,152,547
EARNINGS PER SHARE:
Before cumulative effect of accounting change . . . . . . . . . . . . $ 112.83 $ 87.40
Cumulative effect of change in accounting for income taxes . . . . . -- (61.59)
---------- ----------
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 112.83 $ 25.81
========== ==========
</TABLE>
See accompanying Notes to Interim Consolidated Financial Statements
3
<PAGE> 5
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 3/31/94
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
First Quarter
----------------------------
1994 1993
----------- ----------
<S> <C> <C>
Net cash flows from operating activities . . . . . . . . . . . . . . . $ 5,000 $ 64,217
----------- ----------
Cash flows from investing activities:
Purchases of investments . . . . . . . . . . . . . . . . . . . . (1,082,945) (459,856)
Proceeds on sales and maturities of investments . . . . . . . . . 621,088 203,863
Loans and investments originated in finance businesses. . . . . . (84,761) (35,603)
Principal collections on loans and investments originated in
finance businesses . . . . . . . . . . . . . . . . . . . . . . 94,377 52,848
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (608) (768)
----------- ----------
Net cash flows from investing activities . . . . . . . . . . . . . . . (452,849) (239,516)
----------- ----------
Cash flows from financing activities:
Proceeds from borrowings of finance businesses. . . . . . . . . . 74,088 4,226
Proceeds from other borrowings. . . . . . . . . . . . . . . . . . 352,016 245,148
Repayments of borrowings of finance businesses. . . . . . . . . . (93,750) (13,368)
Repayments of other borrowings (420,304) (674,564)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (296) (1,181)
----------- -----------
Net cash flows from financing activities . . . . . . . . . . . . . . . (88,246) (439,739)
----------- ----------
Decrease in cash and cash equivalents . . . . . . . . . . . . . . . . . (536,095) (615,038)
Cash and cash equivalents at beginning of year* . . . . . . . . . . . . 1,854,621 1,192,363
----------- ----------
Cash and cash equivalents at end of first quarter* . . . . . . . . . . $ 1,318,526 $ 577,325
=========== ==========
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. . . . . . . . . . . . . . . . . . . . . . . . . . 249,482 63,380
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,813 22,397
* 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 quarter --
Commercial and consumer finance businesses. . . . . . . . . . . . . $ 19,815 $ 91,072
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,298,711 486,253
----------- ----------
$ 1,318,526 $ 577,325
=========== ==========
</TABLE>
See accompanying Notes to Interim Consolidated Financial Statements
4
<PAGE> 6
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 3/31/94
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.
NOTE 2. 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".
Under the asset and liability method of SFAS 109, deferred tax assets and
liabilities are recognized for future tax consequences attributable to
differences between financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. The provisions of SFAS 109
require that the effect on deferred taxes of a change in tax rates be
recognized in income in the period that includes the enactment date.
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.
NOTE 3. INVESTMENTS IN OBLIGATIONS WITH FIXED MATURITIES
Data with respect to investments in obligations with fixed maturities
(other than mortgage-backed securities held by commercial and consumer finance
businesses -- See Note 5) are shown in the tabulation below.
<TABLE>
<CAPTION>
(000s omitted)
March 31, December 31,
1994 1993
----------- -----------
<S> <C> <C>
Amortized cost . . . . . . . . . . . . . $2,108,502 $2,108,602
Gross unrealized gains . . . . . . . . . 255,615 242,506
Gross unrealized losses . . . . . . . . . (184,311) (90,881)
---------- ----------
Estimated fair value . . . . . . . . . . $2,179,806 $2,260,227
========== ==========
</TABLE>
As of March 31, 1994, investments in obligations with fixed maturities,
other than mortgage-backed securities held by commercial and consumer finance
businesses, have been 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", 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 3/31/94
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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)
March 31, December 31,
1994 1993
----------- -----------
<S> <C> <C>
Total cost . . . . . . . . . . . . . . . . . $ 4,727,007 $ 4,317,758
Gross unrealized gains . . . . . . . . . . . 8,130,202 8,315,231
Gross unrealized losses . . . . . . . . . . . (151,992) (92,792)
----------- -----------
Total approximate market value . . . . . . . $12,705,217 $12,540,197
=========== ===========
Carrying value:
Capital Cities/ABC, Inc. . . . . . . . . . $ 1,368,000 $ 1,239,000
The Coca-Cola Company . . . . . . . . . . . 3,794,375 4,167,975
GEICO Corporation . . . . . . . . . . . . . 1,840,938 1,759,594
The Gillette Company . . . . . . . . . . . 1,518,000 1,431,000
All others . . . . . . . . . . . . . . . . 4,183,904 3,942,628
----------- -----------
Total . . . . . . . . . . . . . . . . . . . $12,705,217 $12,540,197
=========== ===========
</TABLE>
NOTE 5. 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)
March 31, December 31,
1994 1993
--------- -----------
<S> <C> <C>
Assets
------
Cash and cash equivalents . . . . . . . . . . $ 19,815 $ 16,518
Installment loans receivable . . . . . . . . 156,038 163,827
Mortgages and mortgage backed securities . . 620,301 656,311
Other . . . . . . . . . . . . . . . . . . . . 4,598 4,088
-------- --------
$800,752 $840,744
======== ========
Liabilities
-----------
8.125% Notes, payable in 1996 . . . . . . . . $120,000 $120,000
Borrowings under investment agreements . . . 532,247 551,909
Other . . . . . . . . . . . . . . . . . . . . 32,168 51,873
-------- --------
$684,415 $723,782
======== ========
</TABLE>
6
<PAGE> 8
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 3/31/94
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. DEFERRED INCOME TAX LIABILITY
The tax effect of significant items comprising the Company's net deferred
tax liability as of March 31, 1994 and December 31, 1993 are as follows:
<TABLE>
<CAPTION>
(000s omitted)
March 31, December 31,
1994 1993
---------- ------------
<S> <C> <C>
Deferred tax liabilities:
Relating to unrealized appreciation of investments . . . . $2,795,418 $2,848,681
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,724 73,638
---------- ----------
2,868,142 2,922,319
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . (171,766) (181,816)
---------- ----------
Net deferred tax liability . . . . . . . . . . . . . . . . $2,696,376 $2,740,503
========== ==========
</TABLE>
NOTE 7. INTEREST AND DIVIDEND INCOME
Interest and dividend income for the first quarter of 1994 and 1993 was
comprised of the following:
<TABLE>
<CAPTION>
(000s omitted)
First Quarter
----------------------
1994 1993
-------- ---------
<S> <C> <C>
Interest earned by:
Commercial and consumer finance businesses . . . . . . . $ 17,844 $ 12,833
Insurance businesses . . . . . . . . . . . . . . . . . . 20,731 14,921
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 4,887 9,132
Dividends earned by:
Insurance businesses . . . . . . . . . . . . . . . . . . 90,109 74,061
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 2,433 3,890
-------- --------
Interest and dividend income . . . . . . . . . . . . . . $136,004 $114,837
======== ========
</TABLE>
NOTE 8. INTEREST EXPENSE
Interest expense for the first quarter of 1994 and 1993 was comprised of
the following:
<TABLE>
<CAPTION>
(000s omitted)
First Quarter
--------------------
1994 1993
------- -------
<S> <C> <C>
Debt of commercial and consumer finance businesses . . . . $ 7,998 $ 3,124
Other debt . . . . . . . . . . . . . . . . . . . . . . . . 15,976 12,840
Savings accounts of Mutual Savings and Loan Association . . -- 2,075
------- -------
$23,974 $18,039
======= =======
</TABLE>
7
<PAGE> 9
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 3/31/94
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. 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 first
quarter of 1994 and 1993:
<TABLE>
<CAPTION>
(000s omitted)
First Quarter
------------------------
1994 1993
----------- -----------
<S> <C> <C>
Increase (decrease) in unrealized appreciation . . . . . . . $ (172,924) $ 414,249
(Increase) decrease in deemed applicable income taxes . . . 59,734 (140,845)*
Increase in minority shareholders' interest . . . . . . . . (2,780) (1,443)
---------- ----------
Net increase (decrease) . . . . . . . . . . . . . . . . . (115,970) 271,961
Balance at beginning of period . . . . . . . . . . . . . . . 5,412,652 5,047,219
---------- ----------
Balance at end of first quarter . . . . . . . . . . . . . . $5,296,682 $5,319,180
========== ==========
</TABLE>
* Other than relating to cumulative effect of change in accounting for income
taxes. See Note 2.
NOTE 10. SEASONALITY AND OTHER FACTORS AFFECTING INTERIM STATEMENTS
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.
8
<PAGE> 10
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 3/31/94
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net earnings for the first quarter 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>
First Quarter
---------------------
1994 1993
-------- --------
<S> <C> <C>
Insurance, except realized investment gain . . . . . . . . . . . . $ 43,813 $ 54,240
Manufacturing, merchandising and services . . . . . . . . . . . . . 45,385 34,821
Unallocated income/expense, net . . . . . . . . . . . . . . . . . . 3,476 3,217
Interest expense * . . . . . . . . . . . . . . . . . . . . . . . . (10,362) (8,173)
-------- --------
Earnings before realized investment gain
and cumulative effect of accounting change . . . . . . . . . 82,312 84,105
Realized investment gain . . . . . . . . . . . . . . . . . . . . . 50,578 16,630
-------- --------
Earnings before cumulative effect of accounting change . . . . 132,890 100,735
Cumulative effect of change in accounting for income taxes ** . . . -- (70,984)
-------- --------
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . $132,890 $ 29,751
======== ========
</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 2 to the accompanying interim consolidated financial statements.
INSURANCE GROUP
The after tax figures shown above for Insurance Group earnings, except
realized investment gain, derive from the following table. Dollar amounts are
in thousands.
<TABLE>
<CAPTION>
First Quarter
---------------------
1994 1993
-------- --------
<S> <C> <C>
Premiums earned from:
Primary or direct insurance . . . . . . . . . . . . . . . . . . $ 51,095 $ 58,164
Reinsurance assumed . . . . . . . . . . . . . . . . . . . . . . 113,975 69,984
-------- --------
$165,070 $128,148
======== ========
Underwriting loss attributable to:
Primary or direct insurance . . . . . . . . . . . . . . . . . . $ (7,198) $ (5,190)
Reinsurance assumed . . . . . . . . . . . . . . . . . . . . . . (66,838) (26,739)
-------- --------
Total underwriting loss . . . . . . . . . . . . . . . . . . . (74,036) (31,929)
Net investment income . . . . . . . . . . . . . . . . . . . . . . . 108,016 87,030
-------- --------
Earnings before income taxes . . . . . . . . . . . . . . . . 33,980 55,101
Income tax benefit * . . . . . . . . . . . . . . . . . . . . . . . 11,044 204
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . (1,211) (1,065)
-------- --------
Net earnings from Insurance, except realized
investment gain . . . . . . . . . . . . . . . . . . . . . . $ 43,813 $ 54,240
======== ========
</TABLE>
* Income tax benefits from the Group's underwriting losses are proportionate
to such losses at the full statutory income tax rates. For both periods
reflected above, such benefits exceeded the income tax costs assignable at
a lower effective tax rate to the Group's net investment income. The latter
category of income includes tax-free interest income and tax-favored
dividend income.
9
<PAGE> 11
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 3/31/94
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
INSURANCE GROUP (Continued)
As shown in the preceding table, reinsurance premiums earned during the
first quarter of 1994 exceeded 1993's first quarter by about $44 million.
Essentially all of the comparative increase was attributed to amounts earned
from catastrophe excess of loss policies. Premiums earned from reinsurance
assumed activities during the first quarter of 1994 included approximately $60
million from catastrophe excess of loss contracts. This business produced
premiums earned of about $7 million for the first quarter of 1993.
Catastrophe losses incurred during the first quarter of 1994 derived
mainly from the January 1994 earthquake in Los Angeles but also included losses
from winter storms and other isolated loss events, and aggregated about $92
million. Consequently, the catastrophe excess of loss reinsurance business
produced a net underwriting loss of about $34 million for the first quarter of
1994 compared to breakeven results for the first quarter of 1993. Also
included in first quarter net underwriting losses from reinsurance activities
were charges of $17 million for 1994 and $19 million for 1993 representing
accretion of structured settlement liabilities and amortization of deferred
charges re reinsurance assumed.
Considerable amounts of catastrophe reinsurance premiums remained in force
at March 31, 1994. Aggregate unearned premiums from this business were
approximately $395 million as of March 31, 1994 reflecting the Group's practice
to defer earning such premiums until the earlier of policy expiration or the
reporting of a loss event. The timing and magnitude of catastrophe loss
occurrences, if any, could have a significant effect on the periodic
underwriting results from reinsurance activities for the remainder of 1994.
Volatility in periodic underwriting results may also derive from subsequent
development of substantial reserves already established for pre-1994 loss
occurrences.
Premiums earned by the Insurance Group's primary or direct insurance units
during the first quarter of 1994 decreased by about 12% from amounts earned in
1993's first quarter. Decreased amounts earned from the credit insurance and
professional/specialty risk operations more than offset modest increases in
premiums earned by the traditional motor vehicle and California workers'
compensation units. Lower net underwriting gains from the credit insurance
business accounted for most of the increase in comparative first quarter
underwriting losses recorded from primary or direct insurance activities.
Investment income earned during the first quarter of 1994 by Insurance
Group members exceeded amounts earned during 1993's first quarter by about $21
million. Nearly half of that increase derived from increased dividend rates on
several of the significant equity investments. Additionally, the Insurance
Group continues to employ substantial amounts of policyholder float, about $2.9
billion at March 31, 1994.
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>
First Quarter
-----------------------------------------
1994 1993
------------------ -------------------
Amount % Amount %
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . $576,546 100.0 $473,061 100.0
Costs and expenses . . . . . . . . . . . . . 501,512 87.0 415,298 87.8
-------- ----- -------- -----
Earnings before income taxes . . . . . . . . 75,034 13.0 57,763 12.2
Applicable income taxes . . . . . . . . . . . 28,925 5.0 22,082 4.6
Applicable minority interest . . . . . . . . 724 0.1 860 0.2
-------- ----- -------- -----
Net earnings . . . . . . . . . . . . . . . . $ 45,385 7.9 $ 34,821 7.4
======== ===== ======== =====
</TABLE>
10
<PAGE> 12
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 3/31/94
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
MANUFACTURING, MERCHANDISING AND SERVICES (Continued)
Revenues from these several and diverse business activities during 1994's
first quarter were greater by $103.5 million (21.9%) than revenues recorded
during the corresponding 1993 period. 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
on November 7, 1993, recorded first quarter 1994 revenues of approximately $66
million and accounts for substantially all of the comparative revenue increase
recorded by the shoe segment. Berkshire's home furnishings (Nebraska Furniture
Mart), candy (See's Candies) and home cleaning systems segments also recorded
significant revenue increases in 1994's first quarter as compared to the
comparable 1993 period. 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) and Wayne pumps gave rise to these favorable comparative results.
Net earnings from this group of businesses increased $10.6 million (30.3%)
during 1994's first quarter. The shoe segment accounts for just over 50% of
the comparative net earnings increase. Other businesses described in the
preceding paragraph accounted for much of the remaining favorable comparative
first quarter results. Additionally, favorable comparative net earnings from
the encyclopedia, other reference material segment (World Book) were reported
in 1994's first quarter as a result of successful cost cutting measures.
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 $250 million during the first quarter 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 7.2% in 1993 to about 6.7% in 1994.
REALIZED INVESTMENT GAIN
Realized investment gain has been a recurring element in Berkshire's net
earnings for many years. The amount -- recorded when appreciated securities
are sold -- tends to fluctuate significantly from period to period, with a
meaningful effect upon Berkshire's consolidated net earnings. But, the amount
of realized investment gain 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 unrealized price appreciation now existing in
Berkshire's consolidated investment portfolio.
FINANCIAL CONDITION
Berkshire's balance sheet continues to reflect significant liquidity and
above average capital strength.
11
<PAGE> 13
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 3/31/94
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
SIGNATURE
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
BERKSHIRE HATHAWAY INC.
(Registrant)
Date May 13, 1994
/s/ Marc D. Hamburg
-------------------------------
(Signature)
Marc D. Hamburg, Vice President
and Principal Financial Officer
12
