<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 June 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)
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 August 12, 1994.... 1,177,750
---------
<PAGE> 2
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 6/30/94
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE NO.
-----------
<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS
------- --------------------
Condensed Consolidated Balance Sheets -- 2
June 30, 1994 and December 31, 1993
Consolidated Statements of Earnings -- 3
Second Quarter and First Half, 1994 and 1993
Condensed Consolidated Statements of Cash Flows -- 4
First Half, 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
1
</TABLE>
<PAGE> 3
FORM 10-Q
BERKSHIRE HATHAWAY INC.
Q/E 6/30/94
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
------------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . $ 277,159 $ 1,838,103
Investments:
Obligations with fixed maturities:
Short-term . . . . . . . . . . . . . . . . . . . . . . . . 986,970 33,196
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,486,169 1,375,406
Marketable equity securities . . . . . . . . . . . . . . . . . 12,795,690 12,516,613
Salomon Inc . . . . . . . . . . . . . . . . . . . . . . . . . . 1,219,719 723,584
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . 807,920 525,285
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . 411,515 378,386
Properties and equipment . . . . . . . . . . . . . . . . . . . . 261,167 259,736
Assets of commercial and consumer finance businesses . . . . . . 747,273 840,744
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 994,534 1,029,416
----------- -----------
$19,988,116 $19,520,469
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Losses and loss adjustment expenses . . . . . . . . . . . . . . . $ 3,206,943 $ 3,128,809
Unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . 575,586 315,750
Accounts payable, accruals and other liabilities . . . . . . . . 798,815 738,897
Income taxes, principally deferred . . . . . . . . . . . . . . . 2,850,510 3,030,189
Borrowings under investment agreements and other debt . . . . . . 900,765 972,389
Liabilities of commercial and consumer finance businesses . . . . 668,269 723,782
------------ ------------
9,000,888 8,909,816
------------ ------------
Minority shareholders' interests . . . . . . . . . . . . . . . . 199,347 182,279
------------ ------------
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 . . . . . . . . . . 5,474,622 5,412,652
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . 4,687,912 4,390,375
------------ ------------
10,825,515 10,466,008
Less: Cost of 203,558 common shares in treasury . . . . . . . . (37,634) (37,634)
------------ ------------
Total shareholders' equity . . . . . . . . . . . . . . . . . 10,787,881 10,428,374
------------ ------------
$ 19,988,116 $ 19,520,469
============ ============
</TABLE>
See accompanying Notes to Interim Consolidated Financial Statements
2
<PAGE> 4
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 6/30/94
CONSOLIDATED STATEMENTS OF EARNINGS
(dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
Second Quarter First Half
---------------------------- ----------------------------
1994 1993 1994 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Sales and service revenues . . . . . . . . . . . . . $ 554,738 $ 466,112 $1,109,586 $ 922,164
Insurance premiums earned . . . . . . . . . . . . . . 194,913 103,716 359,983 231,864
Interest and dividend income . . . . . . . . . . . . 129,306 103,779 249,560 202,866
Income from investment in Salomon Inc . . . . . . . . 1,986 15,750 17,736 31,500
Realized investment gain . . . . . . . . . . . . . . 9,067 12,246 86,902 37,831
Sundry income . . . . . . . . . . . . . . . . . . . . 510 2,095 2,670 3,300
----------- ----------- ----------- -----------
890,520 703,698 1,826,437 1,429,525
----------- ----------- ----------- -----------
COST AND EXPENSES:
Cost of products and services sold . . . . . . . . . 349,819 290,478 689,067 563,786
Insurance losses and loss adjustment expenses . . . . 83,083 69,860 292,087 197,724
Insurance underwriting expenses . . . . . . . . . . . 57,580 39,456 87,453 71,669
Selling, general and administrative expenses . . . . 149,003 136,136 307,011 275,346
Interest expense . . . . . . . . . . . . . . . . . . 23,457 18,482 47,431 36,521
----------- ----------- ----------- -----------
662,942 554,412 1,423,049 1,145,046
----------- ----------- ----------- -----------
EARNINGS BEFORE INCOME TAXES, MINORITY INTEREST AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE . . . . . . 227,578 149,286 403,388 284,479
Income taxes . . . . . . . . . . . . . . . . . . . . 60,305 35,336 100,957 67,322
Minority interest . . . . . . . . . . . . . . . . . . 2,626 1,987 4,894 4,459
----------- ----------- ------------ ------------
EARNINGS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 164,647 111,963 297,537 212,698
Cumulative effect of change in accounting for income
taxes . . . . . . . . . . . . . . . . . . . . . . -- -- -- (70,984)
----------- ----------- ----------- ------------
NET EARNINGS . . . . . . . . . . . . . . . . . . . . . $ 164,647 $ 111,963 $ 297,537 $ 141,714
=========== =========== =========== ============
Average shares outstanding . . . . . . . . . . . . . 1,177,750 1,152,547 1,177,750 1,152,547
EARNINGS PER SHARE:
Before cumulative effect of accounting change . . . . $ 139.80 $ 97.14 $ 252.63 $ 184.55
Cumulative effect of change in accounting for income
taxes . . . . . . . . . . . . . . . . . . . . . . -- -- -- (61.59)
----------- ----------- ----------- -----------
Net earnings . . . . . . . . . . . . . . . . . . . . $ 139.80 $ 97.14 $ 252.63 $ 122.96
=========== =========== =========== ===========
</TABLE>
See accompanying Notes to Interim Consolidated Financial Statements
3
<PAGE> 5
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 6/30/94
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
First Half
------------------------------
1994 1993
----------- ----------
<S> <C> <C>
Net cash flows from operating activities . . . . . . . . . . . . . . . $ 199,614 $ 215,595
----------- ----------
Cash flows from investing activities:
Purchases of investments . . . . . . . . . . . . . . . . . . . . (2,451,740) (541,811)
Proceeds on sales and maturities of investments . . . . . . . . . 758,005 432,468
Loans and investments originated in finance businesses. . . . . . (123,815) (166,460)
Principal collections on loans and investments originated
in finance businesses. . . . . . . . . . . . . . . . . . . . . . 176,604 97,673
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,100) (1,367)
----------- ----------
Net cash flows from investing activities . . . . . . . . . . . . . . . (1,647,046) (179,497)
----------- ----------
Cash flows from financing activities:
Proceeds from borrowings of finance businesses . . . . . . . . . 150,216 138,002
Proceeds from other borrowings. . . . . . . . . . . . . . . . . . 651,503 589,407
Repayments of borrowings of finance businesses. . . . . . . . . . (188,566) (22,672)
Repayments of other borrowings. . . . . . . . . . . . . . . . . . (723,133) (882,316)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (686) (1,181)
----------- ----------
Net cash flows from financing activities . . . . . . . . . . . . . . . (110,666) (178,760)
----------- ----------
Decrease in cash and cash equivalents . . . . . . . . . . . . . . . . . (1,558,098) (142,662)
Cash and cash equivalents at beginning of year* . . . . . . . . . . . . 1,854,621 1,192,363
----------- ----------
Cash and cash equivalents at end of first half* . . . . . . . . . . . . $ 296,523 $1,049,701
=========== ==========
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 . . . . . . . . . . . . . . . . . . . . . . . . . . 312,823 104,275
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,624 34,314
* 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 half --
Commercial and consumer finance businesses . . . . . . . . . . . $ 19,364 $ 158,752
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 277,159 890,949
----------- ----------
$ 296,523 $1,049,701
=========== ==========
</TABLE>
See accompanying Notes to Interim Consolidated Financial Statements
4
<PAGE> 6
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 6/30/94
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.
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 Salomon Inc Cumulative Convertible Preferred Stock and mortgages
and mortgage-backed securities held by commercial and consumer finance
businesses -- See Notes 5 and 6) are shown in the tabulation below.
<TABLE>
<CAPTION>
(000s omitted)
June 30, 1994 December 31, 1993
---------------------------- ----------------------------
Short-term* Other Short-term* Other
----------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Amortized cost . . . . . . . . . . . . . . $983,380 $1,632,812 $33,196 $1,375,406
Gross unrealized gains . . . . . . . . . . 3,782 43,688 595 66,913
Gross unrealized losses . . . . . . . . . . (192) (190,331) (2) (90,881)
-------- ---------- ------- ----------
Estimated fair value . . . . . . . . . . . $986,970 $1,486,169 $33,789 $1,351,438
======== ========== ======= ==========
</TABLE>
* Obligations maturing within one year.
Effective March 31, 1994 investments in obligations with fixed maturities,
other than mortgages and 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" ("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 6/30/94
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)
June 30, December 31,
1994 1993
----------- -------------
<S> <C> <C>
Total cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,523,509 $ 4,296,122
Gross unrealized gains . . . . . . . . . . . . . . . . . . . . . . . . . 8,375,214 8,313,283
Gross unrealized losses . . . . . . . . . . . . . . . . . . . . . . . . . (103,033) (92,792)
----------- -----------
Total approximate market value . . . . . . . . . . . . . . . . . . . . . $12,795,690 $12,516,613
=========== ===========
Carrying value:
Capital Cities/ABC, Inc. . . . . . . . . . . . . . . . . . . . . . . . $ 1,422,500 $ 1,239,000
The Coca-Cola Company . . . . . . . . . . . . . . . . . . . . . . . . . 3,858,164 4,167,975
GEICO Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,751,031 1,759,594
The Gillette Company . . . . . . . . . . . . . . . . . . . . . . . . . 1,563,000 1,431,000
Wells Fargo & Company . . . . . . . . . . . . . . . . . . . . . . . . . 1,021,229 878,614
All others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,179,766 3,040,430
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $12,795,690 $12,516,613
=========== ===========
</TABLE>
NOTE 5. INVESTMENT IN SALOMON INC
The Company's investment in Salomon Inc consists of the following:
<TABLE>
<CAPTION>
(000s omitted)
June 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 $ 910,000 $ 910,000 $ 700,000 $ 875,000 $ 700,000
Common Stock . . . . . . . . . . . . 324,445 316,754 309,719 21,636 23,584 23,584
---------- ---------- ---------- ---------- ---------- ----------
$1,024,445 $1,226,754 $1,219,719 $ 721,636 $ 898,584 $ 723,584
========== ========== ========== ========== ========== ==========
</TABLE>
At both June 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 June 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 3, the Preferred Shares are carried at fair value at June 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 June 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.
6
<PAGE> 8
FORM 10-Q
BERKSHIRE HATHAWAY INC.
Q/E 6/30/94
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. INVESTMENT IN SALOMON INC (CONTINUED)
Income from the investment in Salomon Inc consists of the following:
<TABLE>
<CAPTION>
(000s omitted)
Second Quarter First Half
-------------------------- -------------------------
1994 1993 1994 1993
---------- --------- -------- --------
<S> <C> <C> <C> <C>
Dividends on Preferred Shares . . . . . . . . . $15,750 $15,750 $ 31,500 $31,500
Equity in net loss of Salomon attributable to
common stock holdings * . . . . . . . . . . (13,764) -- (13,764) --
------- ------- -------- -------
$ 1,986 $15,750 $ 17,736 $31,500
======= ======= ======== =======
</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. 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)
June 30, December 31,
1994 1993
--------- ------------
<S> <C> <C>
Assets
------
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . $ 19,364 $ 16,518
Installment loans receivable . . . . . . . . . . . . . . . . . . . . . . 154,319 163,827
Mortgages and mortgage-backed securities . . . . . . . . . . . . . . . . 569,467 656,311
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,123 4,088
-------- --------
$747,273 $840,744
======== ========
Liabilities
-----------
8.125% Notes, payable in 1996 . . . . . . . . . . . . . . . . . . . . . . $120,000 $120,000
Borrowings under investment agreements . . . . . . . . . . . . . . . . . 513,749 551,909
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,520 51,873
-------- --------
$668,269 $723,782
======== ========
</TABLE>
NOTE 7. DEFERRED INCOME TAX LIABILITY
The tax effects of significant items comprising the Company's net deferred
tax liability as of June 30, 1994 and December 31, 1993 are as follows:
<TABLE>
<CAPTION>
(000s omitted)
June 30, December 31,
1994 1993
----------- ------------
<S> <C> <C>
Deferred tax liabilities:
Relating to unrealized appreciation of investments . . . . . . . . . . . . $ 2,897,959 $ 2,848,681
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78,950 73,638
----------- -----------
2,976,909 2,922,319
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (179,263) (181,816)
----------- -----------
Net deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . $ 2,797,646 $ 2,740,503
=========== ===========
</TABLE>
7
<PAGE> 9
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 6/30/94
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. INTEREST AND DIVIDEND INCOME
Interest and dividend income for the second quarter and first half of 1994
and 1993 was comprised of the following:
<TABLE>
<CAPTION>
(000s omitted)
Second Quarter First Half
-------------------------- -------------------------
1994 1993 1994 1993
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Interest earned by:
Commercial and consumer finance businesses $ 17,723 $ 12,752 $ 35,567 $ 25,803
Insurance businesses . . . . . . . . . . 22,246 20,153 42,977 35,074
Other . . . . . . . . . . . . . . . . . . 6,485 3,684 11,372 12,598
Dividends earned by:
Insurance businesses . . . . . . . . . . 81,436 64,313 156,920 123,749
Other . . . . . . . . . . . . . . . . . . 1,416 2,877 2,724 5,642
-------- -------- -------- --------
Interest and dividend income . . . . . . $129,306 $103,779 $249,560 $202,866
======== ======== ======== ========
</TABLE>
NOTE 9. INTEREST EXPENSE
Interest expense for the second quarter and first half of 1994 and 1993 was
comprised of the following:
<TABLE>
<CAPTION>
(000s omitted)
Second Quarter First Half
------------------------- -----------------------
1994 1993 1994 1993
------- ------- ------- --------
<S> <C> <C> <C> <C>
Debt of commercial and consumer finance
businesses . . . . . . . . . . . . . . . . $ 7,966 $ 3,397 $15,964 $ 6,521
Other debt . . . . . . . . . . . . . . . . . 15,491 13,230 31,467 26,070
Savings accounts of Mutual Savings
and Loan Association . . . . . . . . . . . -- 1,855 -- 3,930
------- ------- ------- -------
$23,457 $18,482 $47,431 $36,521
======= ======= ======= =======
</TABLE>
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 second
quarter and first half of 1994 and 1993:
<TABLE>
<CAPTION>
(000s omitted)
Second Quarter First Half
-------------------------- ------------------------
1994 1993 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Increase (decrease) in unrealized appreciation $ 289,614 $ (397,902) $ 116,690 $ 16,347
(Increase) decrease in deemed applicable income
taxes . . . . . . . . . . . . . . . . . . . (101,590) 135,287 (41,856) (5,558)
(Increase) decrease in minority shareholders'
interest . . . . . . . . . . . . . . . . . (10,084) 918 (12,864) (525)
---------- ---------- ---------- ----------
Net increase (decrease) . . . . . . . . . . 177,940 (261,697) 61,970 10,264
Balance at beginning of period . . . . . . . . 5,296,682 5,319,180 5,412,652 5,047,219
---------- ---------- ---------- ----------
Balance at end of second quarter . . . . . . . $5,474,622 $5,057,483 $5,474,622 $5,057,483
========== ========== ========== ==========
</TABLE>
8
<PAGE> 10
FORM 10-Q
BERKSHIRE HATHAWAY INC.
Q/E 6/30/94
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11. 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.
9
<PAGE> 11
FORM 10-Q
BERKSHIRE HATHAWAY INC.
Q/E 6/30/94
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Net earnings for the second quarter and first half of the current and prior
year are disaggregated in the following table. Amounts are in thousands, and
each figure is income tax effected.
<TABLE>
<CAPTION>
Second Quarter First Half
------------------------ -----------------------
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Insurance, except realized investment gain . . . . $120,245 $ 76,344 $164,058 $130,584
Manufacturing, merchandising and services . . . . . 42,709 32,857 88,094 67,678
Unallocated income/expense, net . . . . . . . . . . 5,500 3,210 8,976 6,427
Interest expense * . . . . . . . . . . . . . . . . (9,670) (8,575) (20,032) (16,748)
-------- -------- -------- --------
Earnings before realized investment gain and
cumulative effect of accounting change . . . 158,784 103,836 241,096 187,941
Realized investment gain . . . . . . . . . . . . . 5,863 8,127 56,441 24,757
-------- -------- -------- --------
Earnings before cumulative effect of
accounting change . . . . . . . . . . . . . . 164,647 111,963 297,537 212,698
Cumulative effect of change in accounting for income
taxes** . . . . . . . . . . . . . . . . . . . . -- -- -- (70,984)
-------- -------- -------- --------
Net earnings . . . . . . . . . . . . . . . . . $164,647 $111,963 $297,537 $141,714
======== ======== ======== ========
</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>
<CAPTION>
(000s Omitted)
Second Quarter First Half
----------------------- -----------------------
1994 1993 1994 1993
-------- --------- -------- --------
<S> <C> <C> <C> <C>
Premiums earned from:
Primary or direct insurance . . . . . . . . . . $ 53,721 $ 47,153 $104,816 $105,317
Reinsurance assumed . . . . . . . . . . . . . . 141,192 56,563 255,167 126,547
-------- -------- -------- --------
$194,913 $103,716 $359,983 $231,864
======== ======== ======== ========
Underwriting gain (loss) attributable to:
Primary or direct insurance . . . . . . . . . . $ 12,201 $ (117) $ 5,003 $ (5,307)
Reinsurance assumed . . . . . . . . . . . . . . 41,820 (5,942) (25,018) (32,681)
-------- -------- -------- --------
Total underwriting gain (loss) . . . . . . . 54,021 (6,059) (20,015) (37,988)
Net investment income . . . . . . . . . . . . . . . 102,050 97,432 210,066 184,462
-------- -------- -------- --------
Earnings before income taxes . . . . . . . . 156,071 91,373 190,051 146,474
Income tax expense . . . . . . . . . . . . . . . . (34,560) (14,147) (23,516) (13,943)
Minority interest . . . . . . . . . . . . . . . . . (1,266) (882) (2,477) (1,947)
-------- -------- -------- --------
Net earnings from Insurance,
except realized investment gain . . . . . . $120,245 $ 76,344 $164,058 $130,584
======== ======== ======== ========
</TABLE>
10
<PAGE> 12
FORM 10-Q
BERKSHIRE HATHAWAY INC.
Q/E 6/30/94
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. (Continued)
INSURANCE GROUP (Continued)
Premiums earned from catastrophe excess of loss reinsurance contracts during
1994's second quarter and first half were greater by $75 million and $127
million, respectively, than premiums earned from catastrophe policies during
the corresponding 1993 periods. The comparatively higher amounts 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. These results reflect the Group's practice of
not earning catastrophe premiums until the earlier of policy expiration or the
occurrence of a loss event.
Underwriting results from reinsurance assumed for the second quarter and
first half of 1994 include gains of about $78 million and $43 million,
respectively, from the Group's catastrophe reinsurance business. This business
produced a net gain of $10 million during the second quarter and first half of
1993. Partially offsetting the favorable comparative underwriting results from
catastrophe reinsurance were increased underwriting losses from other non
catastrophe reinsurance contracts. Net underwriting losses from these
contracts totalled about $21 million and $36 million for the second quarter and
first half of 1994, respectively, compared to near break-even results for the
comparable 1993 periods. Reinsurance underwriting results also include charges
with respect to the accretion of discounted structured settlement liabilities
and amortization of deferred charges re reinsurance assumed. These charges
aggregated about $15 million in the second quarter and $32 million for the
first half of 1994 compared to about $19 million per quarter in 1993.
Premiums earned during the second quarter of 1994 by several of the Group's
primary or direct insurance businesses exceeded the amounts earned during the
corresponding 1993 period. For the first half of 1994, previously mentioned
increases were offset by decreased premiums earned by the Group's
professional/specialty risk operation. Underwriting results of the Group's
primary or direct insurance businesses for the second quarter and first half of
1994 include credits of about $11 million from reductions of loss reserves
established for pre-1994 loss occurrences with respect to the
professional/specialty risk operations. Without the benefit of such credits in
1994, the net underwriting results of the primary or direct insurance
businesses were relatively unchanged from 1993.
While the current year's underwriting profitability within the Group's
insurance and reinsurance operations might be viewed as encouraging, there is
potential for future losses. Considerable amounts of catastrophe reinsurance
premiums remained in force at June 30, 1994. Aggregate unearned premiums from
this business were approximately $350 million as of June 30, 1994. 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.
Net investment income of the Insurance Group for the second quarter and first
half of 1994 includes the Group's equity in the net loss of Salomon Inc with
respect to its investment in the common stock of that company. (See Note 5 to
the accompanying Financial Statements.) Exclusive of the effects of this $14
million loss, net investment income of the Group in 1994 exceeded 1993 by 19%
for the second quarter and 21% for the first half. During the second quarter
of 1994, the Group continued to benefit from increased dividend rates on
several of its significant equity investments. Additionally, the Insurance
Group continues to maintain considerable amounts of policyholder float, about
$2.9 billion at June 30, 1994.
11
<PAGE> 13
FORM 10-Q
BERKSHIRE HATHAWAY INC.
Q/E 6/30/94
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>
Second Quarter First Half
------------------------------------ -------------------------------------
1994 1993 1994 1993
---------------- ---------------- ------------------ ---------------
Amount % Amount % Amount % Amount %
-------- ----- -------- ----- ---------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues . . . . . . . . . . . $572,693 100.0 $482,632 100.0 $1,149,239 100.0 $955,693 100.0
Costs and expenses . . . . . . 502,699 87.8 427,952 88.7 1,004,211 87.4 843,250 88.2
-------- ----- -------- ----- ---------- ----- -------- -----
Earnings before income taxes . 69,994 12.2 54,680 11.3 145,028 12.6 112,443 11.8
Applicable income taxes . . . . 26,247 4.6 20,854 4.3 55,172 4.8 42,936 4.5
Applicable minority interest . 1,038 0.2 969 0.2 1,762 0.1 1,829 0.2
-------- ----- -------- ----- ---------- ----- -------- -----
Net earnings . . . . . . . . . $ 42,709 7.4 $ 32,857 6.8 $ 88,094 7.7 $ 67,678 7.1
======== ===== ======== ===== ========== ===== ======== =====
</TABLE>
Revenues from these several and diverse business activities during 1994's
second quarter and first half were greater by $90.1 million (18.7%) and $193.5
million (20.2%) 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 $61 million during 1994's second
quarter and approximately $127 million during the first half. Berkshire's home
furnishings (Nebraska Furniture Mart), uniforms (Fechheimers) and home cleaning
systems (Kirby products) segments also recorded significant revenue increases
in 1994's second quarter and first half 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) and Wayne pumps gave rise to these favorable comparable results.
Net earnings from this group of businesses increased $9.9 million (30.0%)
during 1994's second quarter and $20.4 million (30.1%) during 1994's first half
as compared to the corresponding prior year periods. The shoe segment accounts
for approximately 50% of the comparative increase during both 1994's second
quarter and first half. Other businesses described in the preceding paragraph
accounted for much of the remaining favorable comparative second quarter and
first half 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 $200 million during the first half 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 7.0% 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.
12
<PAGE> 14
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 6/30/94
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 June 30, 1994, was
$10.79 billion or $9,160 per share. Over the past twelve months, net book
value per share has grown by 16.1%.
PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of shareholders of Berkshire Hathaway Inc.
("Berkshire"), held April 25, 1994, Berkshire's shareholders reelected
Berkshire's Directors in an uncontested election. Proxies for the meeting had
previously been solicited pursuant to Regulation 14A under the Securities
Exchange Act of 1934.
Following are the votes cast in favor and against each Director. There were
no votes withheld, abstentions or broker non-votes.
<TABLE>
<CAPTION>
Votes Cast Votes Cast
Directors For Against
--------- ------------ -----------
<S> <C> <C>
Warren E. Buffett 1,054,227 217
Howard G. Buffett 1,053,907 537
Susan T. Buffett 1,053,899 545
Malcolm G. Chace III 1,054,225 219
Charles T. Munger 1,054,230 214
Walter Scott, Jr. 1,054,169 275
</TABLE>
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 August 12, 1994 /s/ Marc D. Hamburg
-------------------------------
(Signature)
Marc D. Hamburg, Vice President
and Principal Financial Officer
13
