<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR PERIOD ENDED December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(b) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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
incorporation or organization Identification number)
1440 Kiewit Plaza, Omaha, Nebraska 68131
--------------------------------------------- -----------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (402) 346-1400
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
registered
Common Stock, $5.00 Par Value New York Stock Exchange
-------------------------------------------- -------------------------------
Securities registered pursuant to Section 12(g) of the Act: NONE
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 the
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
State the aggregate market value of the voting stock held by non-affiliates of
the Registrant - $13,936,050,000*
Indicate number of shares outstanding of each of the Registrant's classes of
common stock:
March 30, 1995 -- common stock, $5 par value . . . . . . . . 1,177,750 shares
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<CAPTION>
Document Incorporated In
-------- ---------------
<S> <C>
Proxy Statement for Registrant's
Annual Meeting to be held May 1, 1995 Part III
</TABLE>
* This aggregate value is computed at the last sale price of the common
stock on March 17, 1995. It does not include the value of 550,000 shares held
by Directors and Executive Officers of the Registrant and members of their
immediate families, some of whom may not constitute "affiliates" for purpose of
the Securities Exchange Act of 1934.
<PAGE> 2
Part I
ITEM 1. BUSINESS
Berkshire Hathaway Inc. is a holding company owning subsidiaries engaged
in a number of diverse business activities. The most important of these is the
property and casualty insurance business conducted nationwide on a primary or
direct basis and worldwide on a reinsurance basis through a number of
subsidiaries collectively referred to in this report as the Berkshire Hathaway
Insurance Group.
Additionally, Berkshire Hathaway Inc. publishes the Buffalo News, a daily
and Sunday newspaper in upstate New York. Other business activities conducted
by non-insurance subsidiaries include publication and distribution of
encyclopedias and related educational and instructional material (World Book
and Childcraft products), manufacture and marketing of home cleaning systems
and related accessories (sold principally under the Kirby name), manufacture
and sale of boxed chocolates and other confectionery products (See's Candies),
retailing of home furnishings (Nebraska Furniture Mart), manufacture and
distribution of uniforms (Fechheimer Brothers Company) and manufacture, import
and distribution of footwear (H. H. Brown Shoe Company, Lowell Shoe, Inc. and
Dexter Shoe Company). Berkshire also owns a number of other businesses engaged
in a variety of activities, as identified herein.
Operating decisions for the various Berkshire businesses are made by
managers of the business units. Investment decisions and all other capital
allocation decisions are made for Berkshire and its subsidiaries by Warren E.
Buffett, in consultation with Charles T. Munger. Mr. Buffett is Chairman and
Mr. Munger is Vice Chairman of Berkshire's Board of Directors.
PROPERTY AND CASUALTY INSURANCE AND REINSURANCE BUSINESS
Berkshire's insurance and reinsurance business is conducted by 13
separate subsidiaries. The largest of which is National Indemnity Company
("National Indemnity") headquartered in Omaha, Nebraska.
The Berkshire Hathaway Insurance Group maintains capital strength at
unparalleled high levels, significantly higher than normal in the industry.
This strength differentiates Group members from their competitors. For example,
in each year since 1988 the Group's ratio of net premiums written to year-end
statutory surplus was 10% or less. The industry average net premiums-to-surplus
ratio from 1990 through 1993 ranged from 133% to 157%. The obvious margins of
safety thus provided to insureds of the Group are particularly persuasive in
marketing of individually negotiated insurance and reinsurance contracts.
On a primary or direct basis (policies issued in the name of, and to the
insured party) several of the subsidiary members underwrite multiple lines of
principally casualty coverages nationwide for primarily commercial accounts.
The primary or direct business is written through insurance agents and brokers.
The traditional business of National Indemnity has been largely in providing
liability coverages for commercial truck and bus operators and related
commercial transportation activities that require specialized underwriting
knowledge and techniques. This business is referred to internally as the
National Indemnity Primary Group. The Commercial Casualty Division and the
Professional Liability and Special Risk Division, each with offices in
Stamford, Connecticut, solicit and underwrite especially large or unusual
risks. Other member companies market various commercial coverages for standard
risks to principally residents of a single state. These operations are
referred to as the "homestate" operations. Cypress Insurance Company, a
specialty carrier domiciled in California, provides workers' compensation
insurance to employers in that state.
Premium rates for the business peaked in 1986 and have generally
decreased annually thereafter. Because of the lower rates, National Indemnity
Primary Group members have written substantially less of this business since
1986. Similarly, writings by the Group's homestate operations have decreased
because of lower premium rates and the disciplined underwriting practices of
the members that encourage rejection of underpriced risks. The amount of
primary or direct insurance premiums written in recent years by these
businesses have stabilized, although currently at about 25% of the amount
written in 1986.
1
<PAGE> 3
ITEM 1. BUSINESS (CONTINUED)
PROPERTY AND CASUALTY INSURANCE AND REINSURANCE BUSINESS (CONTINUED)
Generally, no improvement in prices is foreseen for 1995. Modest
increases in premium volume are expected from continuing expansion of homestate
operations into additional states and existing markets. Increased amounts of
premiums were written in 1993 and 1994 by the California workers' compensation
unit, reflecting increased marketing efforts. However, effective January 1,
1995, the regulations which established the minimum premium rates insurers must
charge for workers' compensation coverage were eliminated. As a result, the
level of business that may be accepted in 1995 is expected to decline.
Otherwise, primary or direct business is likely to be little changed from 1994.
At the end of 1992, Berkshire acquired 82% of Central States Indemnity
Co. of Omaha ("CSI"). CSI offers credit card insurance from its offices located
in Omaha, Nebraska. CSI insures the credit card debt of policyholders if the
policyholders become disabled or unemployed. The credit insurance is marketed
to individuals through credit card issuers nationwide.
The Reinsurance Division of National Indemnity in Stamford, Connecticut
provides excess of loss and quota share treaty reinsurance to other
property/casualty insurers and reinsurers. Minimal organizational resources,
but huge financial resources, are currently devoted to this business. In
contrast to the previously discussed trend of lower primary or direct insurance
underwriting activity, the amount of business derived from reinsurance activity
increased significantly. The increase in reinsurance assumed premiums began in
1985, when National Indemnity entered into a contract providing reinsurance
coverage to Fireman's Fund Insurance Companies ("FFIC"), for a period of four
years, for 7% of FFIC's entire book of business.
In recent years, non-traditional reinsurance products -- finite-risk
contracts -- have become increasingly significant in the property/casualty
insurance marketplace. Those terms refer to reinsurance agreements, whose terms
provide essentially traditional coverages but also may contractually establish
minimum and maximum payouts by the reinsurer. Minimum payout requirements may
originate in commutation clauses that call for repayments to the reinsureds, on
specified dates, of sums not otherwise paid out by the reinsurer as losses. The
amount of risk transferred, while significant, is limited. The concept of
time-value-of-money is an important element in the pricing and setting of terms
for these contracts as the expected claim payment period can be lengthy.
Transaction amounts and limits of indemnifications are likely to be large. In
addition, a single contract may relate to loss occurrences in a number of lines
of business that span a number of years. Significant financial strength is a
need of any prospective provider of the non-traditional products and Berkshire
meets that need. Several of the reinsurance arrangements the Insurance Group
entered into since 1989 were through finite-risk type contracts. Increased
competition for such business and new accounting standards for ceding companies
have reduced the number of opportunities to write such business, particularly
with respect to retroactive reinsurance coverages of past loss events.
During 1990, Berkshire's Insurance Group management perceived declines to
be occurring in industry capacity and competition for catastrophe
excess-of-loss type reinsurance coverages and consequently National Indemnity
wrote coverages for a number of such risks. Management believes that in 1994
the Berkshire Hathaway Insurance Group was among the largest providers in the
world of this type of coverage. The contracts may provide sizeable amounts
(i.e., often in excess of $10 million) of indemnification per contract and a
single event may result in payments under several contracts. This business can
produce extreme volatility in reported periodic results. Accounting
consequences, however, do not influence decisions of Berkshire's management
with respect to this or any other business, and this fact plus the Insurance
Group's above-normal-for-the-industry financial strength are believed to be the
primary reasons why the Group has become a major provider of these coverages.
In recent years there has been a substantial increase in catastrophe
reinsurance capacity for the industry. Most of the additional capacity has
arisen from equity capital raised by newly-formed entities. The increased
capacity did not have a significant impact on the Group's business during 1994.
However, Berkshire management has evidence that, in some instances, catastrophe
reinsurance prices have fallen below the amounts considered adequate.
Management anticipates that a reduced level of business will be accepted in
1995, and possibly, in subsequent years as well.
2
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ITEM 1. BUSINESS (CONTINUED)
PROPERTY AND CASUALTY INSURANCE AND REINSURANCE BUSINESS (CONTINUED)
The increases in reinsurance assumed business in recent years have
produced an exceptional increase in the amount of "float", an approximation of
the net investable policyholder funds, held by the Insurance Group. The term
denotes the sum of unpaid losses, unpaid loss adjustment expenses, unearned
premiums and other liabilities to policyholders, less the aggregate of premium
balances receivable, amounts recoverable as reinsurance on paid and unpaid
losses, deferred policy acquisition costs, deferred charges re reinsurance and
prepaid income taxes. Given the length of the claims payment period -- or tail
-- that attaches to the reinsurance business, the increased float plus the
earnings it generates will result in meaningful increases for several years in
the level of the Insurance Group's investments and investment income, with some
part of such increases already evident.
Investment portfolios of insurance subsidiaries include equity securities
valued at approximately $16.5 billion at December 31, 1994. Included are
meaningful ownership percentages of other publicly traded companies (such as
approximately 50% of the outstanding capital stock of GEICO Corporation,
approximately 13% of the capital stock of Capital Cities/ABC, Inc.,
approximately 11% of the common stock of The Gillette Company, approximately 8%
of the capital stock of The Coca-Cola Company, approximately 15% of the capital
stock of The Washington Post Company, approximately 13% of the common stock of
Wells Fargo & Company, and common and convertible preferred stock of Salomon
Inc having approximately 20% of the total voting power of that company). Much
information about these publicly-owned companies is available, including that
released from time to time by the companies themselves.
NON-INSURANCE BUSINESSES OF BERKSHIRE
Registrant's seven non-insurance "reportable business segments" are
described below.
CANDY -- See's produces boxed chocolates and other confectionery products
with an emphasis on quality in two large kitchens in California. See's
distributes its candies through its own retail stores - over 200 in number -
located in 12 western and midwestern states, including Hawaii. A meaningful
volume of candy business is also recorded for direct shipments made nationwide
from a seasonally-varying number of quantity order distribution centers.
Seasonality in this business is extreme. About 50% of each year's unit
sales volume is generated during the last two months of the year, when quantity
sales at reduced prices to businesses and other organizations augment the
extremely high December shop volume.
ENCYCLOPEDIAS, OTHER REFERENCE MATERIALS -- World Book publishes
educational products for homes, schools, and libraries. Its chief products
include: The World Book Encyclopedia, the largest-selling encyclopedia in the
United States; Early World of Learning, a readiness program for preschoolers,
and Information Finder, a CD-ROM (compact disc read - only format) version of
the encyclopedia text. In April 1995, the Windows and MacIntosh versions of
World Book's CD-ROM product will be available with the enhancements of audio,
video and animation and marketed as the World Book Multimedia Encyclopedia.
These and other educational materials are marketed in the United States and
Canada by a large direct-selling force. A newly copyrighted edition of The
World Book Encyclopedia is published each year. Annual products such as The
World Book Year Book, Science Year and The World Book Health & Medical Annual
are updating publications for owners of earlier encyclopedia editions and are
sold by direct mail. An international group markets these and other specially
created educational products in Australia, the United Kingdom and Ireland with
a commissioned sales force, and in 65 other countries through 54 distributors.
There is significant competition in the business of publishing and
marketing encyclopedias in North America, World Book's principal geographic
market. World Book's selling prices are generally lower than those of its
principal competitor; World Book quality is thought to be superior to any
other.
A large portion of encyclopedia sales is made on an installment basis.
Wholly-owned Berkshire subsidiaries offer financing of domestic and certain
foreign consumer receivables.
3
<PAGE> 5
ITEM 1. BUSINESS (CONTINUED)
NON-INSURANCE BUSINESSES OF BERKSHIRE (CONTINUED)
HOME CLEANING SYSTEMS -- This segment of Berkshire's business is
principally represented by Kirby home cleaning systems and products, sold to
approximately 700 independent authorized factory distributors in the United
States and foreign countries. These factory distributors sell to the consumer
or to independent authorized area distributors who sell to the consumer. Sales
are made through in-the-home demonstrations by independent salespeople.
Substantially all of Kirby's sales to distributors are for cash. A
wholly-owned Berkshire subsidiary offers consumer financing to about 500
authorized distributors in the United States. The distributors independently
establish the prices at which they offer Kirby products. Kirby and its
distributors believe they offer a premium product, and it is believed that the
prices are generally higher than those of most of its four major competitors.
This segment also includes the Douglas Products business that
manufactures specialty vacuum cleaners such as electric hand held and cordless
vacuum cleaners. Channels of distribution for these products include retail
discount stores, catalogue showrooms, hardware stores and department stores.
Additionally, Cleveland Wood Products, a manufacturer of vacuum cleaner
brushes, is included in this segment.
HOME FURNISHINGS -- The Nebraska Furniture Mart ("NFM") operates a home
furnishing retail business from a very large - over 200,000 square feet -
retail outlet and sizable warehouse facilities in Omaha, Nebraska. The business
serves a trade area with a radius around Omaha of approximately 300 miles. An
important feature of the business is its ability to control its costs and to
produce a high business volume from offerings of significant value to its
customers, while realizing highly satisfactory earnings. At the end of 1992,
NFM acquired a 360,000 square foot building and ten acres of land located
adjacent to its existing retail store and warehouse. Along with providing
additional warehousing facilities, a portion of the building is being used to
operate a factory outlet store for manufacturers' closeouts and discontinued
product lines. During November 1994, a 102,000 square foot appliance and
electronics superstore, located adjacent to the main retail store, was opened.
The superstore known as the "Mega Mart" added such products as music compact
discs and an expanded computer software line to NFM's already large selection
of electronics and appliances.
NEWSPAPER -- The Buffalo News, a division of Berkshire, publishes a
Sunday edition and seven editions each weekday. It is the only metropolitan
newspaper published daily within a ten county upstate New York distribution
area that comprises one of the 50 largest primary market areas in the United
States.
Among newspapers published in those primary markets, The Buffalo News
claims the highest percentage of its area household coverage, 68% on weekdays
and 77% on Sundays. Berkshire management believes the "newshole" percentage
(portion of the paper devoted to news) of The Buffalo News to be greater than
any other dominant newspaper of its size or larger. During 1994 this
percentage was 54%.
SHOES -- The size of this segment has increased dramatically since 1991.
In addition to H. H. Brown Shoe Company ("H. H. Brown") which was acquired in
July 1991, this segment now includes Lowell Shoe, Inc. ("Lowell") acquired at
the end of 1992, and Dexter Shoe Company ("Dexter"), acquired in November 1993.
A description of each of these businesses follows.
H. H. Brown manufactures, imports and markets work, safety, outdoor,
western and casual footwear. Approximately 70% of H. H. Brown's revenues are
derived from sales of a wide variety of work and safety shoes and boots. They
are manufactured under the H. H. Brown, Carolina, Double-H Boot and other brand
names as well as under private label. H. H. Brown is the leading domestic
producer of steel toe safety work shoes and maintains a significant share of
other markets in which it competes, namely the western boot and casual shoe
market.
In addition to manufacturing its products at three facilities located in
the United States and a facility in Canada, the company sources shoes and shoe
components offshore from several countries including China, Romania, India and
Mexico. The Company markets its products entirely within the United States and
Canada through a direct sales force of just over 100. Its customer base is
primarily composed of small independent retailers and wholesalers who sell to
workers in a variety of industries including steel, construction, agriculture
and heavy manufacturing. A significant quantity of H. H. Brown's work and
military boots are sold to the United States and Canadian military, as well as
to military PX's. Additionally, much of its imported footwear is sold to mass
merchandisers such as K Mart, Wal Mart and Payless Shoe Co.
4
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ITEM 1. BUSINESS (CONTINUED)
NON-INSURANCE BUSINESSES OF BERKSHIRE (CONTINUED)
H. H. Brown competes in the mid-priced segment of the work boot and shoe
market. The consumer is typically a middle income industrial laborer who is
required by OSHA to wear a specific type of footwear. The Company's
competitors in this market are typically small, domestic work boot
manufacturers. Management believes that its products are competitive in terms
of quality and pricing.
At the end of 1992, Berkshire acquired for cash all of the capital stock
of Lowell and assets of certain entities formerly affiliated with Lowell
(including a manufacturing facility located in Puerto Rico). Lowell
manufactures and markets women's casual, service and nurses footwear. They
market these products under the brand names Soft Spots, Day Lights and Nurse
Mates.
On November 7, 1993 Berkshire Hathaway Inc. consummated a merger with
Dexter by reissuing 25,203 shares of its common stock held in treasury in
exchange for 100% of the outstanding common stock of Dexter. Dexter
manufactures and markets men's and women's casual footwear. All products are
manufactured and sold under the trademark Dexter. The Company specializes in
the construction of Handsewns, Welts and Cements. The leather is purchased
from domestic tanneries, and many of the other components used in the
manufacturing process are made by Dexter.
Dexter has four manufacturing facilities in Maine and two located in
Puerto Rico. In addition to the manufacturing facilities, Dexter operates 77
factory outlet stores which are located in Maine, New Hampshire, Vermont, New
York, Florida, Alabama, Georgia, Tennessee, Nevada and Puerto Rico.
The customer base is composed of independent retailers and department
stores throughout the United States. Dexter's major customers are large
department stores, including J. C. Penney and Nordstroms, specialty retailers
such as Famous Footwear and military PX's. Additionally, Dexter exports its
products to numerous foreign countries. Dexter is recognized throughout the
United States for both its dress and casual footwear and the customer is
typically a middle income consumer.
UNIFORMS -- The Fechheimer Brothers Company manufactures its products at
plants in Kentucky, Ohio, Tennessee and Texas, for marketing through about
fifty company-operated retail distribution centers and by independent
distributors and dealers who together serve more than 200 major metropolitan
areas.
OTHER NON-INSURANCE ACTIVITIES not identified with Berkshire business
segments include the more than one dozen diverse manufacturing businesses
acquired with the 1986 purchase of The Scott & Fetzer Company. The largest
revenue producer of these businesses is Campbell Hausfeld/Scott Fetzer Company,
which manufactures and markets a variety of products related to transmission of
air and other fluids, such as air compressors, air tools, painting systems and
pressure washers. In addition, Berkshire has an 85% interest in a long
established, high volume retailer of fine jewelry, Borsheim's, in Omaha,
Nebraska. Most recently, on March 10, 1995, it was announced that an agreement
was entered into to acquire Helzberg's Diamond Shops, Inc. ("Helzberg's").
Helzberg's is a national retail specialty business operating 148 fine jewelry
stores in 23 states. The final consummation of the acquisition is expected to
take place during 1995's second quarter.
Berkshire Hathaway Inc. and subsidiaries employed approximately 22,000
persons on a full-time basis at December 31, 1994. In addition to that number
of full-time employees, up to 20,000 persons may act as World Book sales
representatives from time to time.
ADDITIONAL INFORMATION WITH RESPECT TO BERKSHIRE'S BUSINESSES
The amounts of revenue, operating profit and identifiable assets
attributable to each of the eight aforementioned business segments are included
in Note 17 to Registrant's consolidated financial statements contained in Item
8, Financial Statements and Supplementary Data. Additional information
regarding Registrant's investments in fixed maturity and marketable equity
securities is included in Notes 3, 4, 5 and 6 to Registrant's consolidated
financial statements.
5
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ITEM 2. PROPERTIES
The physical properties used by Registrant's significant business
segments are summarized below:
<TABLE>
<CAPTION>
Owned Approx.
or Square
Business Location Type of Property Leased Footage
----------------- ------------------------ --------------------- ------ -------
<S> <C> <C> <C> <C>
Company
Headquarters Omaha, NE Offices Leased 4,000
Insurance Omaha, NE Offices Owned 73,000
Omaha, NE & other locations
in Arizona, California,
Colorado, Kansas
& Connecticut Offices Leased 78,000
Candy Los Angeles, CA & South Plants/Warehouses/
San Francisco, CA Offices Owned 274,000
California Warehouses/Offices Leased 303,000
California & other Retail outlets and Leased 331,000
locations principally quantity order centers
in western states (209 locations)
Newspaper Buffalo, NY Offices Owned 195,000
Buffalo, NY Printing Plant Owned 150,000
New York &
Washington, D.C. Offices/Warehouses Leased 69,000
Home Omaha, NE Retail Store Owned 400,000
Furnishings Omaha, NE & Lincoln, NE Warehouses/Offices Owned 650,000
Encyclopedias, Elk Grove Village, IL &
Other Reference Addison, IL Offices/Warehouse Owned 100,000
Material Chicago, IL & vicinity Offices Leased 70,000
Australia Offices/Warehouses Leased 7,000
United Kingdom Offices Leased 18,000
Home Cleaning Cleveland, OH,
Systems Andrews, TX & Plants/Warehouses/ Owned 397,000
Walnut Ridge, AR Offices
Cleveland, OH Warehouse/Offices Leased 21,000
Canada & England Warehouses/Offices Leased 31,000
Uniforms Cincinnati, OH &
various other U.S. Plants/Warehouses/
locations Offices Owned 228,000
Hodgenville, KY & Plants/Warehouses/
various other U.S. locations Offices Leased 239,000
9 U.S. locations Retail Stores Owned 75,000
44 U.S. locations Retail Stores Leased 331,000
</TABLE>
6
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ITEM 2. PROPERTIES (CONTINUED)
<TABLE>
<CAPTION>
Owned Approx.
or Square
Business Location Type of Property Leased Footage
----------------- ------------------------ --------------------- ------ -------
<S> <C> <C> <C> <C>
Shoes Morganton, NC, Womelsdorf,
PA, Martinsburg, PA,
Hudson, NH, Dexter, ME & Plants/Warehouses/
Canada Offices Owned 1,633,000
Greenwich, CT, Commerce, CA,
Morganton, NC, Skowhegan,
ME, Newton, MA, Canada,
Puerto Rico & Plants/Warehouses/
Dominican Republic Offices Leased 699,000
50 U.S. locations Retail Stores Owned 337,000
37 U.S. & Puerto Rico locations Retail Stores Leased 274,000
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in litigation relating to the transactions in
which Salomon Inc ("Salomon") repurchased a significant block of its common
stock from a holder thereof and sold a new issue of preferred stock to the
Company. Twenty-one derivative action lawsuits have been filed against
Salomon's directors challenging these transactions and seeking damages; two of
these lawsuits (Ruby Resnik v. Dwayne O. Andreas, et al., Delaware Chancery No.
9300, filed September 30, 1987 and Rodney Shields v. John H. Gutfreund, et al.,
United States District Court for the Southern District of New York, No. 88 Civ.
1058, filed February 12, 1988) named the Company as an additional defendant.
The lawsuits allege that the Salomon directors breached their fiduciary duties
to Salomon and its shareholders in connection with these transactions, and the
two lawsuits naming the Company claim, in essence, that the Company
participated in such alleged breaches of duty. The complaints in these
lawsuits seek damages in unspecified amounts, a declaration that the sale of
preferred stock to the company is illegal, null and void, an order requiring
that the preferred stock purchased by the Company be voted in the same manner
as the majority of Salomon's shares, and rescission of the transaction between
Salomon and the Company. Management does not expect the outcome of these
lawsuits to be materially adverse to the Company. Other litigation pending
against the Company and its subsidiaries is not considered material or is
ordinary routine litigation incidental to the business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
EXECUTIVE OFFICERS OF THE REGISTRANT
Following is a list of the Registrant's executive officers:
<TABLE>
<CAPTION>
Name Age Position with Registrant Since
-------------------- --- ---------------------------- -----------
<S> <C> <C> <C>
Warren E. Buffett 64 Chairman of the Board 1970
Marc D. Hamburg 45 Vice President 1992
Charles T. Munger 71 Vice Chairman of the Board 1978
</TABLE>
Each executive officer serves, in accordance with the by-laws of the
Registrant, until the first meeting of the Board of Directors following the
next annual meeting of shareholders and until his respective successor is
chosen and qualified or until he sooner dies, resigns, is removed or becomes
disqualified. Mr. Buffett and Mr. Munger also serve as directors of the
Registrant.
7
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Part II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
MARKET INFORMATION
The Company's Common Stock is listed for trading on the New York Stock
Exchange, trading symbol: BRK. The following table sets forth the high and low
sales prices per share, as reported on the New York Stock Exchange Composite
List during the periods indicated:
<TABLE>
<CAPTION>
1994 High Low 1993 High Low
---- --- ---- ---
<S> <C> <C> <C> <C> <C>
First Quarter . . . . . . . . $16,900 $15,150 First Quarter . . . . . . . . . $13,200 $11,350
Second Quarter . . . . . . . 16,700 15,400 Second Quarter . . . . . . . . 16,200 11,800
Third Quarter . . . . . . . . 19,750 16,425 Third Quarter . . . . . . . . . 17,800 15,100
Fourth Quarter . . . . . . . 20,800 19,200 Fourth Quarter . . . . . . . . 17,800 16,200
</TABLE>
SHAREHOLDERS
The Company had approximately 8,400 record holders of its common stock at
March 7, 1995. Record owners included nominees holding at least 190,000 shares
on behalf of beneficial-but-not-of-record owners. Management believes that the
Company has more than 20,000 beneficial owners.
DIVIDENDS
Berkshire has not declared a cash dividend since 1967.
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA FOR THE PAST FIVE YEARS
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
REVENUES:
Sales and service revenues . . . . . . . $ 2,351,918 $ 1,962,862 $ 1,774,436 $ 1,651,134 $ 1,580,074
Insurance premiums earned . . . . . . . 923,180 650,726 664,293 776,413 591,540
Interest and dividend income . . . . . . 426,094 354,028 364,895 347,293 317,095
Income from investment in Salomon Inc . 30,058 63,000 63,000 63,000 63,000
Income from finance businesses . . . . . 24,885 22,226 20,696 19,475 13,498
Realized investment gain . . . . . . . . 91,332 546,422 89,937 192,478 33,989
----------- ----------- ----------- ----------- -----------
Total revenues . . . . . . . . . . . . . $ 3,847,467 $ 3,599,264 $ 2,977,257 $ 3,049,793 $ 2,599,196
=========== =========== =========== =========== ===========
EARNINGS:
Before realized investment gain and
cumulative effect of accounting change $ 433,659(1) $ 402,403(2) $ 347,726 $ 315,753 $ 370,745
Realized investment gain . . . . . . . . 61,139 356,702 59,559 124,155 23,348
Cumulative effect of change in accounting
for income taxes . . . . . . . . . . -- (70,984) -- -- --
----------- ----------- ----------- ----------- -----------
Net earnings . . . . . . . . . . . . . . $ 494,798 $ 688,121 $ 407,285 $ 439,908 $ 394,093
=========== =========== =========== =========== ===========
EARNINGS PER SHARE:
Before realized investment gain and
cumulative effect of accounting
change . . . . . . . . . . . . . . . $368.21(1) $348.03(2) $303.29 $275.42 $323.39
Realized investment gain . . . . . . . . 51.91 308.50 51.95 108.30 20.36
Cumulative effect of change in accounting
for income taxes . . . . . . . . . . -- (61.39) -- -- --
------- ------- ------- ------- -------
Net earnings . . . . . . . . . . . . . . $420.12 $595.14 $355.24 $383.72 $343.75
======= ======= ======= ======= =======
YEAR-END DATA:
Total assets . . . . . . . . . . . . . . $21,338,182 $19,520,469 $17,131,998 $14,461,902 $10,670,423
Borrowings under investment agreements
and other debt (3) . . . . . . . . . 810,719 972,389 1,154,697 1,100,464 1,082,265
Shareholders' equity . . . . . . . . . . 11,874,882 10,428,374 8,896,331 7,379,918 5,287,454
Common shares outstanding,
in thousands . . . . . . . . . . . . 1,178 1,178 1,149 1,146 1,146
Shareholders' equity per
outstanding share . . . . . . . . . . $ 10,083 $ 8,854 $ 7,745 $ 6,437 $ 4,612
=========== =========== =========== =========== ===========
</TABLE>
(1) Includes a charge of $172,579 ($146.53/share) representing an other than
temporary decline in value of investment in USAir Group, Inc. Preferred
Stock.
(2) Includes a charge of $75,348 ($65.38/share) representing the effect of
the change in federal income tax rates on deferred taxes applicable to
unrealized appreciation.
(3) Excludes borrowings of finance businesses.
8
<PAGE> 10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net earnings for each of the past three years are
disaggregated in the table that follows. Amounts are after deducting minority
interests and taxes.
<TABLE>
<CAPTION>
(dollars in millions)
------ ------
1994 1993 1992
------ ------- ------
<S> <C> <C> <C>
Property and Casualty Insurance Segment:
Underwriting . . . . . . . . . . . . . . . . . . . . . . . . . $ 79.9 $ 19.2 $(71.1)
Investment income . . . . . . . . . . . . . . . . . . . . . . . 349.2 320.9 305.8
Realized investment gain . . . . . . . . . . . . . . . . . . . 61.6 362.7 36.1
------ ------ ------
Total - Property and Casualty Insurance Segment . . . . . 490.7 702.8 270.8
Non-Insurance business segments . . . . . . . . . . . . . . . . . . 165.8 133.3 123.4
Other businesses . . . . . . . . . . . . . . . . . . . . . . . . . 36.4 33.2 30.7
Realized investment gain (loss) not included above . . . . . . . . (0.5) (6.1) 23.4
All other except interest expense . . . . . . . . . . . . . . . . . 12.3 6.8 21.9
Interest expense * . . . . . . . . . . . . . . . . . . . . . . . . (37.3) (35.6) (62.9)
------ ------ ------
Earnings before nonrecurring charges
and effect of accounting change . . . . . . . . . . . . . . . 667.4 834.4 407.3
Nonrecurring charges and effect of accounting change . . . . . . . (172.6) (146.3) --
------- ------- ------
Net earnings . . . . . . . . . . . . . . . . . . . . . . . $ 494.8 $ 688.1 $407.3
======= ======= ======
</TABLE>
* Interest expense incurred by finance businesses is not reflected as
"Interest expense" but instead is reflected in amounts shown for "Other
businesses".
The business segment data (Note 17 to the Consolidated Financial
Statements) should be read in conjunction with this discussion.
PROPERTY AND CASUALTY INSURANCE UNDERWRITING
The after-tax figures shown above for Property and Casualty Insurance
underwriting derive from the following:
<TABLE>
<CAPTION>
(dollars in millions)
------ -------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Underwriting gain (loss):
Primary or direct insurance . . . . . . . . . . . . . . . . . . $ 48.3 $ 12.7 $ 8.0
Reinsurance assumed . . . . . . . . . . . . . . . . . . . . . . 80.7 17.3 (117.0)
------ ------- -------
Underwriting gain (loss) -- pre-tax . . . . . . . . . . . . 129.0 30.0 (109.0)
Applicable income taxes . . . . . . . . . . . . . . . . . . . . 48.3 10.2 (37.7)
Applicable minority interest . . . . . . . . . . . . . . . . . 0.8 0.6 (0.2)
------ ------- -------
After-tax underwriting gain (loss) . . . . . . . . . . . . . . . . $ 79.9 $ 19.2 $ (71.1)
====== ======= =======
</TABLE>
The Berkshire Hathaway Insurance Group engages in both
insurance and reinsurance of property/casualty risks. In its insurance
activities, as distinguished from its reinsurance activities, its members
assume risks of loss from persons primarily and directly subject to the risks.
In its reinsurance activities, the members assume defined portions of similar
or dissimilar risks to which other insurers and reinsurers have subjected
themselves in their own insuring activities. Over the past three years,
reinsurance assumed activities have produced about 75% of the aggregate
premiums earned by the property and casualty insurance group.
A significant marketing strategy followed by all Insurance
Group members is the maintenance of above average capital strength. Statutory
surplus as regards policyholders of the Insurance Group increased to
approximately $13.4 billion at year-end 1994. This extraordinary capital
strength creates opportunities for Insurance Group members to negotiate and
enter into contracts of insurance specially designed to meet unique needs of
sophisticated insurance and reinsurance buyers.
9
<PAGE> 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
PROPERTY AND CASUALTY INSURANCE UNDERWRITING (CONTINUED)
For purposes of this Discussion, premiums and losses and loss
expenses amounts are stated net of reinsurance ceded.
Reinsurance Assumed
Underwriting results, stated on the basis of generally
accepted accounting principles ("GAAP"), with respect to the reinsurance
assumed business for the past three years are summarized in the following
table.
<TABLE>
<CAPTION>
(dollars in millions)
------------------- -------------------
1994 1993 1992
-------------- -------------- --------------
Amount % Amount % Amount %
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Premiums written . . . . . . . . . . . . . . $ 689.8 $ 528.7 $ 607.2
======= ======= =======
Premiums earned . . . . . . . . . . . . . . . $ 688.4 100.0 $ 442.4 100.0 $ 511.5 100.0
------- ----- ------- ----- ------- -----
Losses and loss expenses . . . . . . . . . . 476.9 69.3 350.9 79.3 589.7 115.3
Underwriting expenses . . . . . . . . . . . . 130.8 19.0 74.2 16.7 38.8 7.6
------- ----- ------- ------ ------- ------
Total losses and expenses . . . . . . . . . . 607.7 88.3 425.1 96.0 628.5 122.9
------- ===== ------- ===== ------- =====
Underwriting gain (loss) -- pre-tax . . . . . $ 80.7 $ 17.3 $(117.0)
======= ======= =======
</TABLE>
Reinsurance assumed operations are conducted from National
Indemnity Company's offices in Stamford, Connecticut. The Insurance Group
enters into a variety of types of reinsurance contracts, including excess of
loss and quota share contracts. Excess of loss contracts provide
indemnification to ceding companies for all or part of covered losses in excess
of specified retentions (or deductibles). Such retentions may apply to either
an individual loss occurrence or an aggregation of occurrences. Quota share
contracts provide indemnification to ceding companies in specified proportion
of the ceding companies' own losses. Each type of contract specifies a maximum
aggregate amount of indemnification.
Premiums earned from reinsurance assumed activities in 1994
exceeded amounts earned in 1993 by $246.0 million (55.6%). This increase was
due to higher amounts earned from catastrophe excess of loss reinsurance
policies, offset somewhat by declines in premiums earned under quota share,
structured settlement, and retroactive reinsurance contracts. (Amounts earned
from catastrophe excess of loss policies totalled about $447 million in 1994 vs
$152 million in 1993). Management believes that increased levels of capital
devoted to the catastrophe reinsurance market by the insurance industry in
recent years may put pressure on competitors to lower prices below the levels
considered adequate. Therefore, management anticipates a reduction in the
level of catastrophe reinsurance business that may be accepted in 1995.
Reinsurance premiums earned in 1993 declined by $69.1 million
(13.5%) from amounts earned in 1992. The decline was primarily attributed to
lesser amounts earned from retroactive reinsurance contracts. Increasing
competition in retroactive reinsurance markets and the effects of new
accounting standards for ceding companies have drastically reduced the
opportunities to write such business. Minimal amounts of structured settlement
reinsurance was written in 1994 as a similar type of annuity contract was more
heavily marketed through a non-property/casualty insurance affiliate.
Underwriting gains of approximately $240 million and $110
million in 1994 and 1993 respectively, resulted from the Insurance Group's
catastrophe reinsurance business. The considerable amounts of premiums earned
from this business, coupled with the fact that only the 1994 Northridge
earthquake produced a significant catastrophe loss during the period,
contributed to the underwriting gains for 1994 and 1993. In 1992, catastrophe
losses incurred were about $125 million (primarily related to Hurricane Andrew)
which caused a small underwriting loss for that year.
Little comfort should be gained from either (a) the magnitude
of underwriting gains recorded in 1994 and 1993 or (b) the current expectation
that the early 1995 Kobe, Japan earthquake will not result in a significant
loss to the Insurance Group. The underwriting gains produced by this business
in any given year can be easily exceeded by losses in the next. Thus periodic
underwriting results were and are expected to be subject to substantial
volatility. Berkshire's management, however, is willing to accept such
volatility, provided that there is a reasonable prospect of long term
profitability.
10
<PAGE> 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
PROPERTY AND CASUALTY INSURANCE UNDERWRITING (CONTINUED)
Reinsurance Assumed (continued)
Underwriting losses with respect to retroactive and structured
settlement coverages amounted to $78 million for 1994, $64 million for 1993 and
$66 million for 1992, reflecting principally the amortization of deferred
charges re reinsurance assumed and accretion of discounted structured
settlement liabilities. See Notes 1(f) and (g) to the Consolidated Financial
Statements for information with respect to such charges and liabilities. The
amortization and accretion are reported as losses incurred, and thus, because
there is no related premium income, as underwriting losses. Amortization and
accretion charges of about $70 million are expected in 1995.
Other non-catastrophe reinsurance business produced
underwriting losses of about $80 million, $28 million and $48 million during
1994, 1993 and 1992 respectively. In most non-catastrophe reinsurance
contracts, the concept of the time-value-of-money is an important consideration
due to the anticipated extended claim payment period --or "tail". This is
especially true with respect to reinsurance of certain casualty or liability
coverages, for which the premiums are based in significant part on time
discounting of expected losses. Losses and loss expenses are established for
these contracts on an undiscounted basis, thus resulting in underwriting losses
for financial reporting purposes. This business is accepted, nonetheless,
because of the large amounts of investable policyholder funds (or "float") that
it produces. Underwriting losses in 1994 include charges of about $37 million
for adverse development of pre-1994 loss occurrences. Underwriting results in
1993 and 1992 reflect relatively minor amounts of loss development.
Primary or Direct Insurance Underwriting
A summary follows of the combined underwriting results, stated
on a GAAP basis, of the Berkshire Hathaway Insurance Group's primary or direct
insurance operations.
<TABLE>
<CAPTION>
(dollars are in millions)
---------------- ---------------
1994 1993 1992
---------------- --------------- --------------
Amount % Amount % Amount %
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Premiums written . . . . . . . . . . . . . $225.7 $208.4 $132.4
====== ====== ======
Premiums earned . . . . . . . . . . . . . . $234.8 100.0 $208.3 100.0 $152.8 100.0
------ ----- ------ ----- ------ -----
Losses and loss expenses . . . . . . . . . 88.4 37.6 99.8 47.9 98.0 64.1
Underwriting expenses . . . . . . . . . . . 98.1 41.8 95.8 46.0 46.8 30.7
------ ----- ------ ----- ------- -----
Total losses and expenses . . . . . . . . . 186.5 79.4* 195.6 93.9* 144.8 94.8*
------ ===== ------ ===== ------- =====
Underwriting gain -- pre-tax . . . . . . . $ 48.3 $ 12.7 $ 8.0
====== ====== ======
</TABLE>
* Includes favorable loss development credits. Without such credits,
total losses and expenses as a percentage of premiums earned were:
1994 -- 102.4%, 1993 -- 113.9%, and 1992 -- 118.6%.
Primary or direct insurance activities include the
"traditional" business, directed from National Indemnity Company's Omaha
offices. This business represents principally casualty coverages for commercial
accounts. The commercial casualty/professional liability/specialty risk
operations located in Stamford, Connecticut, enter into insurance contracts
with insureds presenting risks unusual in nature and/or especially large in
amount. The homestate companies underwrite various commercial coverages for
standard risks located predominantly in their home states -- Nebraska and
Colorado. Cypress Insurance Company, a specialty carrier, underwrites workers'
compensation risks in a highly competitive market environment in California.
Additionally, since 1993 these activities include the underwriting of credit
card credit insurance as a result of Berkshire's 1992 yearend acquisition of
Central States Indemnity Co. of Omaha ("CSI").
CSI's business differs substantially from the insurance
business underwritten by the other members of the Insurance Group. CSI's
premiums derive from a high volume of small dollar premium transactions
generated through credit card issuers. CSI's underwriting expenses as a
percentage of premiums earned are roughly twice as great as that of the other
Insurance Group members. On the other hand, CSI's losses and loss expenses
incurred, as percentages of premiums earned are substantially lower than for
the other primary or direct underwriting units. Overall, periodic underwriting
results from this business are anticipated to be less volatile than the other
primary or direct insurance operations. CSI produced premiums earned of $72
million and $69 million for 1994 and 1993, respectively. CSI's net underwriting
gain was about $4 million for 1994 and $5 million for 1993.
11
<PAGE> 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
PROPERTY AND CASUALTY INSURANCE UNDERWRITING (CONTINUED)
Primary or Direct Insurance Underwriting (continued)
Premiums earned by Berkshire's other primary or direct
insurance businesses totalled $163 million, $140 million and $153 million for
1994, 1993 and 1992, respectively. Each of these business units, described on
the preceding page, reported higher premiums earned in 1994 as compared with
1993. The Group's commercial casualty/professional liability/specialty risks
businesses accounted for about half of the increase in premiums earned in 1994
over 1993. This increase was due to adjustments on a small number of
"retrospectively rated" policies written in prior years. Under the terms of
those policies, premium amounts may be adjusted upward or downward after policy
expiration based upon changes to losses incurred under the policies. Thus the
additional premiums earned in 1994 were largely in response to additional
amounts of losses incurred. In addition, premiums earned in 1994 by the
worker's compensation insurance unit exceeded 1993 by about $5 million
reflecting increased marketing efforts of that business. However, that business
operates in a highly competitive market which has recently undergone
substantial regulatory changes and such revenue gains may be difficult to
sustain in 1995.
Other primary or direct businesses produced a net underwriting
gain of about $44 million for 1994 compared to gains of about $8 million for
both 1993 and 1992. In 1994, all of the other primary or direct insurance
operations had significant net underwriting gains, reflecting increased amounts
of credits against losses incurred from the reestimation of loss reserves for
prior year loss occurrences. Favorable loss development credits were recorded
in each of the last three years. Loss development represents corrections of
estimation error and is credited or charged to earnings in the year made. The
favorable development recorded in 1994 related principally to the traditional
commercial automobile business and to the commercial casualty/professional
liability/specialty risks operations. In 1993 and 1992, the favorable
development credits related primarily to the traditional commercial automobile
business. While the trend of favorable development recognized in recent years
is encouraging, there is no certainty that it will continue into future
periods. The nature of estimating losses is inherently imprecise, particularly
with respect to losses which are reported and settled over lengthy periods of
time. In the future, additional information will be revealed, including reports
of additional cases of an unknown number and magnitude for pre-1995 losses.
Soft market conditions for most primary or direct casualty
insurance coverages continued during 1994, as have prevailed for the past
several years. Group members follow disciplined underwriting approaches which
encourage rejection of underpriced risks without regard to volume
considerations. Management does not foresee any significant changes in market
conditions which would soon reverse the current trend of low premium volume.
INSURANCE SEGMENT INVESTMENT INCOME
Following is a summary of Insurance Group net investment
income for the past three years.
<TABLE>
<CAPTION>
(dollars in millions)
------ -------
1994 1993 1992
------ ------- -------
<S> <C> <C> <C>
Investment income before taxes . . . . . . . . . $418.2 $375.4 $355.1
Applicable income taxes . . . . . . . . . . . . . 64.3 51.2 46.5
Applicable minority interest . . . . . . . . . . 4.7 3.3 2.8
------ ------ ------
Investment income after taxes and minority interest $349.2 $320.9 $305.8
====== ====== ======
</TABLE>
Invested assets increased in each of the past three years. In
the three year period, Berkshire contributed approximately $420 million
additional capital to the Insurance Group. Reinvested earnings of the Insurance
Group for that period amounted to approximately $1.0 billion. Contributing to a
further increase in invested assets was about a $1.2 billion increase during
the past three year period in the amount of "float" from policyholder funds.
That term denotes the sum of unpaid losses, unpaid loss adjustment expenses and
unearned premiums, and other liabilities to policyholders less the aggregate of
agents' balances receivable, amounts recoverable as reinsurance on paid and
unpaid losses, deferred policy acquisition costs, deferred charges re
reinsurance assumed and prepaid income taxes. The net amount of float was
approximately $3.4 billion at the end of 1994. In addition, increased
investment income in 1994 was partially attributed to higher dividend rates
paid by several of the Insurance Group's major equity investees. The amount of
pre-tax net investment income for 1994 shown in the table above reflects a
charge of $32.9 million which represents the equity in net loss from the
Insurance Group's investment in common stock of Salomon Inc. See Note 5 to the
Consolidated Financial Statements for additional information regarding the
investment in Salomon Inc.
12
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
NON-INSURANCE BUSINESS SEGMENTS
A summary follows of results to Berkshire from these
identified business segments for the past three years.
<TABLE>
<CAPTION>
(dollars in millions)
------------------ ---------------------
1994 1993 1992
-------------- -------------- ---------------
Amount % Amount % Amount %
-------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . $1,771.9 100.0 $1,440.1 100.0 $1,283.2 100.0
Cost and expenses . . . . . . . . . . . . . . . . . 1,496.5 84.5 1,215.3 84.4 1,073.3 83.6
-------- ----- -------- ----- -------- -----
Operating profit . . . . . . . . . . . . . . . . . 275.4 15.5 224.8 15.6 209.9 16.4
Income taxes . . . . . . . . . . . . . . . . . . . 106.2 6.0 87.8 6.1 83.2 6.5
Minority Interest . . . . . . . . . . . . . . . . . 3.4 0.2 3.7 0.3 3.3 0.3
--------- ----- --------- ----- --------- -----
Contribution to net earnings . . . . . . . . . . . $ 165.8 9.3 $ 133.3 9.2 $ 123.4 9.6
======== ===== ======== ===== ======== =====
</TABLE>
A comparison of revenues and operating profits between 1994, 1993 and
1992 for each of the seven identifiable non-insurance business segments
follows.
<TABLE>
<CAPTION>
(dollars in millions)
------------------ ----------------- Operating Profit
Revenues Operating Profits as a % of Revenues
----------------------------- ------------------------ ------------------
Segment 1994 1993 1992 1994 1993 1992 1994 1993 1992
------- -------- -------- -------- ------ ------ ------ ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Candy . . . . . . . . . . . . $ 216.1 $ 201.0 $ 197.0 $ 46.6 $ 40.3 $ 41.4 21.6 20.0 21.0
Encyclopedias, other
reference material . . . . 191.3 198.8 246.1 24.4 19.4 28.2 12.8 9.8 11.5
Home cleaning systems . . . . 207.6 193.9 190.1 43.9 40.9 37.7 21.1 21.1 19.8
Home furnishings . . . . . . 245.4 208.6 185.6 16.9 21.1 16.7 6.9 10.1 9.0
Newspaper . . . . . . . . . . 150.9 145.5 139.7 53.7 50.4 47.3 35.6 34.6 33.9
Shoes . . . . . . . . . . . . 609.4 370.2 214.9 76.4 40.0 25.6 12.5 10.8 11.9
Uniforms . . . . . . . . . . 151.2 122.1 109.8 13.5 12.7 13.0 8.9 10.4 11.8
-------- -------- -------- ------ ------ ------
$1,771.9 $1,440.1 $1,283.2 $275.4 $224.8 $209.9
======== ======== ======== ====== ====== ======
</TABLE>
1994 compared to 1993
Revenues from the seven identifiable non-insurance business
segments of $1,771.9 million increased $331.8 million (23.0%) from the prior
year. The overall operating profit from these business segments of $275.4
million increased $50.6 million (22.5%). The following is a discussion of
significant matters impacting comparative results for each of the non-insurance
business segments.
Candy
Revenues of the candy segment increased $15.1 million (7.5%)
and operating profits increased $6.3 million (15.6%) over comparable prior year
amounts. The comparative increases in revenues and operating profits are
primarily due to increased volume. Total pounds of candy sold increased about
5.3%. Much of the increase arose from See's mail order and quantity order
programs. Beginning in 1993 See's intensified its marketing efforts relative to
these programs. Such efforts continued during 1994 and as a result total pounds
sold during 1994 resulting from quantity order and mail order programs
increased about 15%.
Encyclopedias, Other Reference Materials
Revenues of this segment declined $7.5 million (3.8%) from
1993. This decline continues the trend of reduced unit sales of printed
encyclopedias (World Book and Childcraft) which began in 1989. Somewhat
offsetting the decline in World Book and Childcraft sales were sales increases
of World Book's current CD-ROM product, Infofinder.
13
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
NON-INSURANCE BUSINESS SEGMENTS (CONTINUED)
1994 compared to 1993 (continued)
Encyclopedias, Other Reference Material (continued)
In April 1995, the Windows and MacIntosh versions of World
Book's CD-ROM product will be available with the enhancements of audio, video
and animation and marketed as the World Book Multimedia Encyclopedia.
Management cannot predict the impact on sales or income that the upgraded
CD-ROM product will have. However, it is anticipated that the industry trend
away from printed material and toward electronic media will continue. While
management believes that there will continue to be a profitable market for its
core printed product, the quantity of the printed products which can be sold
may, in the future, be limited due to the continued increase in the number of
home computers equipped with CD-ROMs, increased computer literacy of the
general population, and the lower price of CD-ROM products in comparison to
encyclopedia sets. Additionally, the decline in the unit volume of printed
sets has and will continue to reduce significantly the volume of Annual sales
if printed set sales do not return to prior levels. However, the World Book
Multimedia Encyclopedia will be offered in annual upgrades to purchasers.
Therefore, it is anticipated that reductions in printed Annual sales will be
somewhat offset by sales of CD-ROM upgrades.
Home Cleaning Systems
Revenue of the home cleaning systems segment increased $13.7
million (7.0%) and operating profits increased $3.0 million (7.3%). This
comparative increase can be attributed primarily to an increase in the average
number of distributors over 1993 and improvements in the structure of the sales
organization in foreign markets. Unit sales of Kirbys increased slightly in
domestic markets and were up by 14% in foreign markets. Foreign Kirby sales
represent approximately 22% of total unit volume. Management anticipates
continued significant growth in its foreign business and combined with more
modest growth in domestic markets expects continued successful results from
this segment.
Home Furnishings
Revenues from the home furnishings segment increased in 1994
by $36.8 million (17.6%) over the prior year. Increases were achieved in all
major product categories. In November 1994, a 102,000 square foot appliance and
electronics superstore was opened adjacent to the Nebraska Furniture Mart
("NFM"). This superstore known as the "Mega Mart" has added new products such
as music compact discs and an expanded computer software line to NFM's
previously large selection of electronics and appliances.
Operating profits of $16.9 million were $4.2 million (19.9%)
less than in 1993. Much of the decline resulted from store opening costs in
connection with the grand opening of the Mega Mart. In addition, unusual
charges of approximately $2.3 million were recorded in 1994 relating to the
write-off of certain fixed assets no longer in use. Management is optimistic
that absent the store opening costs and unusual charges, an improvement in
operating profit will be experienced in 1995. It is expected that operating
profits as a percentage of revenues will improve during 1995 as compared to
1994. However, due to the fact that the lower margin Mega Mart business will
account for much of the anticipated revenue growth, the percentage levels
attained will likely be less than experienced by NFM in years prior to the
opening of the Mega Mart.
Newspaper
Operating profits during 1994 of $53.7 million were $3.3
million (6.5%) greater than in 1993. While the comparative results are
impressive and have been for several recent years, the outlook for 1995 and
beyond is not as encouraging. During 1994, the Buffalo News experienced a
decline in circulation. Part of the decline was caused by an increase during
1994 in the newsstand price of the daily newspaper from 35 cents to 50 cents.
Also an aggressive new subscriber discount program which had been in place a
number of years was phased out in 1994, and many subscribers used to a large
discount did not resubscribe. From a dollar volume standpoint, the price
increase offset the decline in circulation.
Earnings are expected to decline in 1995. For the past several
years the cost of newsprint has either been stable or has declined. This trend
has now sharply reversed. New higher costs per metric ton, as well as increased
prices expected during the remainder of 1995, are expected to increase
newsprint costs by $7 million or nearly 40% over 1994 costs.
14
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
NON-INSURANCE BUSINESS SEGMENTS (CONTINUED)
1994 compared to 1993 (continued)
Newspaper (continued)
Overall, the newspaper segment faces some significant
challenges during the next year. However, the Buffalo News' ability to control
its other operating costs should help mitigate the impact of the decline in
circulation and the steep rise in newsprint costs.
Shoes
This segment includes H. H. Brown Shoe Company, Inc. ("H. H.
Brown"), Lowell Shoe, Inc. ("Lowell") and Dexter Shoe Companies ("Dexter").
These businesses were acquired by Berkshire during the period between June 1991
and November 1993. H. H. Brown, acquired in 1991, is a manufacturer and
distributor of work, safety and casual footwear. Lowell, acquired at the end of
1992, manufactures and markets women's casual, service and nurses' footwear.
The acquisition of Dexter occurred in late 1993. Dexter is a manufacturer of
men's and women's dress, casual and athletic footwear. Additionally, Dexter
operates 77 retail outlet stores.
Revenues during 1994 of $609.4 million were greater than the
prior year by $239.2 million (64.6%). This substantial increase was largely due
to the inclusion of Dexter's results for the full year in 1994 as compared to
just under two months during 1993. Dexter's 1994 operating profits account for
most of this segments $36.4 million (91.0%) increase in comparative operating
profits. Management was pleased with Dexter's 1994 performance and better
results are anticipated during 1995. This optimism results from the fact that
recent wholesale price adjustments should help mitigate the effects of prior
years' increases in Dexter's costs. Additionally, operating efficiencies are
anticipated in connection with the start-up of Dexter's new computerized
distribution center and from advanced manufacturing technologies.
H. H. Brown accounts for most of the remaining comparative
revenue increase for this segment. A portion of such increase is related to the
acquisition during the second half of 1994 of a chain of 11 retail stores. The
retail stores, located in Maryland, Pennsylvania and Virginia, carry H. H.
Brown manufactured products as well as those of other shoe manufacturers. H. H.
Brown's manufacturing and distribution business results reflect a modest
increase in revenues and a slight decline in operating profits. The decline is
largely a result of slightly lower gross margins on sales and an increased
comparative LIFO charge being somewhat offset by the modest revenue increase.
Lowell's revenues were slightly lower in 1994 as compared to
1993. However, comparative operating profits were greater in 1994 than during
1993. The improvement largely arises from the fact that during 1993, unusual
charges of $3.8 million were recorded in connection with the implementation of
more stringent inventory control procedures.
Uniforms
The uniform segment's revenues increased $29.1 million (23.8%)
in 1994 as compared to 1993. Almost 60% of the increase arose as a result of a
special program begun during 1994 whereby an agreement was entered into with
the New York City Fire Department to supply fire fighters with safety uniforms
and related accessories. The initial contractual arrangement is for a period of
three years. The remainder of the comparative revenue increase resulted from
increases in this segment's core uniform manufacturing operations.
Operating profits for 1994 of $13.5 million were slightly
above comparable 1993 operating profits. The additional margin resulting from
the aforementioned revenue increases was substantially offset by a) the
incurrence of certain unplanned start-up costs relative to the implementation
of the New York City Fire Department program; b) costs incurred in connection
with the scheduled installation of a new computer system; and c) problems which
have arisen related to certain recent retail store acquisitions.
Management expects that the program with the New York City
Fire Department will be successful in the long-term. The problems being
encountered in connection with the retail store acquisitions are being
addressed and will hopefully be resolved during 1995. Overall, management is
cautiously optimistic that 1995's operating profit will exceed the results of
the prior two years both in absolute terms and as a percentage of revenues.
15
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
NON-INSURANCE BUSINESS SEGMENTS (CONTINUED)
1993 compared to 1992
Revenues from the non-insurance business segments increased
$156.9 million (12.2%) in 1993 as compared to 1992. The most significant
revenue increase arose in the "shoes" segment where revenues increased $155.3
million (72.3%) over the comparable prior year figures. As more fully described
in the preceding section of this discussion, the acquisition of Lowell (in late
1992) and Dexter (in late 1993) account for a substantial portion of the
comparative increase in revenues. With the exception of the "encyclopedias,
other reference material" segment, all other reportable non-insurance business
segments experienced increases in comparative revenues in 1993 vs. 1992.
Revenues from these five segments in 1993 were $871.1 million vs. $822.2 in
1992. Offsetting the increases attributable to the other non-insurance
business segments was a reduction in revenues of $47.3 million (19.2%) from the
"encyclopedias, other reference material" segment. This decline was a result
of the continuation of a reduction which began in 1989 in printed encyclopedia
sales. (See preceding section regarding comparative 1994 vs. 1993 results for a
discussion regarding the decline in World Book unit sales.)
Operating profits of $224.8 million during 1993 were $14.9
million (7.1%) greater than in 1992. The "shoes" segment with a comparative
increase of $14.4 million (56.3%) was the major contributor to the comparative
increase. In addition to the impact that the acquisitions of Lowell and Dexter
had on comparative operating profits, H. H. Brown was able to achieve
comparative increases largely resulting from the popularity of work shoes and
reduced demand for athletic shoes. The operating profits of the other
reportable segments in the aggregate were relatively unchanged.
BUSINESS OTHER THAN IDENTIFIED SEGMENTS
<TABLE>
<CAPTION>
(dollars in millions)
------ ------
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . $607.4 $550.8 $517.3
====== ====== ======
Operating profit . . . . . . . . . . . . . $ 59.2 $ 55.2 $ 54.3
Income taxes . . . . . . . . . . . . . . 22.1 20.8 21.8
Minority interest . . . . . . . . . . . . 0.7 1.2 1.8
------ ------ ------
Contribution to net earnings . . . . . . . $ 36.4 $ 33.2 $ 30.7
====== ====== ======
</TABLE>
The above represent aggregate data for businesses that
numbered 23 in 1994. Berkshire management believes that narrative discussion of
the results of the constituent businesses would not yield significant benefit
to investors or others, particularly in view of the relative consistency of the
year-to-year aggregate data.
INTEREST EXPENSE
The small increase in interest expense in 1994 as compared to
1993 primarily results from the fact that average outstanding borrowings under
investment agreements increased by approximately $82 million during 1994 as
compared to 1993. Somewhat offsetting the effect on interest expense of the
increased average level of borrowings was a reduction in the average interest
rate on such borrowings from approximately 6.9% in 1993 to 6.6% in 1994.
Interest expense for 1992 includes premiums paid of $16.2 million to redeem
term debt and a charge of $6.3 million representing the write-off of deferred
financing costs related to an issue of Convertible Subordinated Debentures
which was called for redemption in December 1992.
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.
During the fourth quarter of 1993, an insurance subsidiary of
Berkshire sold ten million common shares of its investment in Capital
Cities/ABC, Inc. ("Capital Cities") in connection with that Company's offer to
buy from its shareholders up to twenty million of its common shares. Prior to
the sale and since 1986, Berkshire subsidiaries owned thirty million shares of
Capital Cities or approximately 18% of that Company's outstanding stock.
Berkshire's after-tax gain from this transaction was $297.4 million.
16
<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
NONRECURRING CHARGES AND ACCOUNTING CHANGES
As more fully described in Note 6 to the Consolidated
Financial Statements, the Company recorded a pre-tax charge of $268.5 million
($172.6 million after-taxes and minority interests) as result of recognizing an
other than temporary decline in the value of its investment in USAir Group,
Inc. Preferred Stock. While the charge to earnings was recorded in the fourth
quarter of 1994, the charge to shareholders' equity had been recorded in
earlier 1994 reporting periods.
Effective January 1, 1993, the Company adopted the provisions
of Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" ("SFAS 109"). The cumulative effect of adopting SFAS 109 on the
Company's 1993 results was to decrease net earnings by about $71 million.
Additionally, during 1993 a charge of $75.3 million was recorded as a result of
the increase in the Federal corporate income tax rate from 34% to 35%. For a
further description of the accounting change and the charge to earnings
resulting from the change in Federal income tax rates, see Notes 1(k) and 10 to
the Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Berkshire's Consolidated Balance Sheet as of December 31,
1994, reflects continuing capital strength. In the past three years, Berkshire
shareholders' equity has increased from approximately $7.4 billion at December
31, 1991 to approximately $11.9 billion at December 31, 1994. In that
three-year period, realized and unrealized securities gains increased equity
capital by approximately $2.9 billion, and reinvested earnings, other than
realized securities gains, were about $1.1 billion.
17
<PAGE> 19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Berkshire Hathaway Inc.
We have audited the accompanying consolidated balance sheets of Berkshire
Hathaway Inc. and subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of earnings, and cash flows for each of the
three years in the period ended December 31, 1994. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Berkshire Hathaway Inc. and
subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994 in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 1993
the Company changed its method of accounting for income taxes and investments
to conform with recent pronouncements of the Financial Accounting Standards
Board.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
March 9, 1995
18
<PAGE> 20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
BERKSHIRE HATHAWAY INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1994 1993
---------- ----------
<S> <C> <C>
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 273,881 $ 1,817,558
Investments:
Securities with fixed maturities . . . . . . . . . . . . . . . . . . . . 1,820,733 1,397,812
Marketable equity securities . . . . . . . . . . . . . . . . . . . . . . 15,236,494 12,516,613
Salomon Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,023,418 723,584
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 580,600 524,963
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 425,431 378,386
Properties and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . 275,667 259,736
Assets of finance businesses . . . . . . . . . . . . . . . . . . . . . . . . . 717,082 872,401
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 984,876 1,029,416
----------- -----------
$21,338,182 $19,520,469
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Property and casualty insurance policyholder liabilities . . . . . . . . . . . $ 4,200,813 $ 3,807,188
Accounts payable, accruals and other liabilities . . . . . . . . . . . . . . . 397,384 370,684
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,292,602 3,030,189
Borrowings under investment agreements and other debt . . . . . . . . . . . . . 810,719 972,389
Liabilities of finance businesses . . . . . . . . . . . . . . . . . . . . . . . 562,443 729,366
----------- -----------
9,263,961 8,909,816
----------- -----------
Minority shareholders' interests . . . . . . . . . . . . . . . . . . . . . . . 199,339 182,279
----------- -----------
Shareholders' equity:
Common stock of $5 par value. Authorized 1,500,000 shares;
Issued 1,381,308 shares . . . . . . . . . . . . . . . . . . . . . . . . . 6,907 6,907
Capital in excess of par value . . . . . . . . . . . . . . . . . . . . . . . 656,074 656,074
Unrealized appreciation of investments, net . . . . . . . . . . . . . . . . 6,364,362 5,412,652
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,885,173 4,390,375
------------ ------------
11,912,516 10,466,008
Less common stock in treasury, at cost (203,558 shares) . . . . . . . . . . . . 37,634 37,634
------------ ------------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . 11,874,882 10,428,374
----------- -----------
$21,338,182 $19,520,469
=========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
19
<PAGE> 21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
BERKSHIRE HATHAWAY INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES:
Sales and service revenues . . . . . . . . . . . . . . . . . $2,351,918 $1,962,862 $1,774,436
Insurance premiums earned . . . . . . . . . . . . . . . . . 923,180 650,726 664,293
Interest and dividend income . . . . . . . . . . . . . . . . 426,094 354,028 364,895
Income from investment in Salomon Inc . . . . . . . . . . . 30,058 63,000 63,000
Income from finance businesses . . . . . . . . . . . . . . . 24,885 22,226 20,696
Realized investment gain . . . . . . . . . . . . . . . . . . 91,332 546,422 89,937
---------- ---------- ----------
3,847,467 3,599,264 2,977,257
---------- ---------- ----------
COST AND EXPENSES:
Cost of products and services sold . . . . . . . . . . . . . 1,449,999 1,180,642 1,049,721
Insurance losses and loss adjustment expenses . . . . . . . 565,257 450,659 687,625
Insurance underwriting expenses . . . . . . . . . . . . . . 227,997 169,082 85,628
Selling, general and administrative expenses . . . . . . . . 613,406 552,618 505,023
Interest expense . . . . . . . . . . . . . . . . . . . . . . 60,111 56,545 98,643
Other than temporary decline in value of investment in
USAir Group, Inc. Preferred Stock . . . . . . . . . . . . 268,500 -- --
---------- ---------- ----------
3,185,270 2,409,546 2,426,640
---------- ---------- ----------
EARNINGS BEFORE INCOME TAXES, MINORITY INTEREST AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE . . . . . . . . . 662,197 1,189,718 550,617
Income taxes -
Other than effect of change in income tax rate
on deferred taxes applicable to unrealized
appreciation . . . . . . . . . . . . . . . . . . . . . 158,666 345,302 138,089
Effect of change in income tax rate on deferred
taxes applicable to unrealized appreciation . . . . . . -- 75,348 --
Minority interest . . . . . . . . . . . . . . . . . . . . . 8,733 9,963 5,243
---------- ---------- ----------
EARNINGS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE . . . . 494,798 759,105 407,285
Cumulative effect of change in accounting for income
taxes . . . . . . . . . . . . . . . . . . . . . . . . -- (70,984) --
---------- ---------- ----------
NET EARNINGS . . . . . . . . . . . . . . . . . . . . . . . . . $ 494,798 $ 688,121 $ 407,285
========== ========== ==========
Average shares outstanding . . . . . . . . . . . . . . . . . 1,177,750 1,156,243 1,146,492
========= ========= =========
EARNINGS PER SHARE:
Before cumulative effect of accounting change . . . . . . . $420 $656 $355
Cumulative effect of change in accounting for income
taxes . . . . . . . . . . . . . . . . . . . . . . . -- (61) --
---- ---- ----
Net earnings . . . . . . . . . . . . . . . . . . . . $420 $595 $355
==== ==== ====
</TABLE>
See accompanying Notes to Consolidated Financial Statements
20
<PAGE> 22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
BERKSHIRE HATHAWAY INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 494,798 $ 688,121 $ 407,285
Adjustments to reconcile net income to cash flows
from operating activities:
Realized investment gain . . . . . . . . . . . . . . . . (91,332) (546,422) (89,937)
Other than temporary decline in value of investment
in USAir Group, Inc. Preferred Stock . . . . . . . 268,500 -- --
Depreciation and amortization . . . . . . . . . . . . . 62,547 50,180 41,074
Effect of change in income tax rate on deferred taxes . . -- 75,348 --
Cumulative effect of accounting change . . . . . . . . . -- 70,984 --
Changes in assets and liabilities before effects from
business acquisitions:
Losses and loss adjustment expenses . . . . . . . . . 274,123 (22,798) 102,789
Deferred charges re reinsurance assumed . . . . . . . 25,349 16,171 46,931
Unearned premiums . . . . . . . . . . . . . . . . . . (8,518) 83,937 75,274
Receivables . . . . . . . . . . . . . . . . . . . . . (49,829) 134,077 239,428
Accounts payable, accruals and other liabilities . . . 210,495 34,996 150,615
Income taxes . . . . . . . . . . . . . . . . . . . . . (257,102) 107,931 29,004
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 77 33,644 (5,278)
----------- ---------- ----------
Net cash flows from operating activities . . . . . . 929,108 726,169 997,185
----------- ---------- ----------
Cash flows from investing activities:
Purchases of fixed maturity investments . . . . . . . . . . (2,485,768) (272,249) (258,617)
Purchases of marketable equity securities . . . . . . . . . (3,050,025) (858,879) (913,037)
Proceeds from sales of fixed maturity investments . . . . . 1,772,050 -- 284,301
Proceeds from redemptions and maturities of fixed
maturity investments . . . . . . . . . . . . . . . . . . 85,881 318,881 371,514
Proceeds from sales of marketable equity securities . . . . 1,466,775 1,188,510 100,270
Acquisition of businesses . . . . . . . . . . . . . . . . . -- -- (119,948)
Loans and investments originated in finance businesses . . . (246,797) (866,843) (160,261)
Principal collection on loans and investments
originated in finance businesses . . . . . . . . . . . . 332,398 269,345 127,913
Other . . . . . . . . . . . . . . . . . . . . . . . . . (23,160) 19,578 (5,294)
----------- ---------- ----------
Net cash flows from investing activities . . . . . . (2,148,646) (201,657) (573,159)
----------- ---------- ----------
Cash flows from financing activities:
Proceeds from borrowings of finance businesses . . . . . . . 208,561 591,853 38,862
Proceeds from other borrowings . . . . . . . . . . . . . . . 1,225,301 1,264,972 961,565
Repayments of borrowings of finance businesses . . . . . . . (390,506) (316,318) (84,792)
Repayments of other borrowings . . . . . . . . . . . . . . . (1,387,674) (1,399,901) (906,964)
Other . . . . . . . . . . . . . . . . . . . . . . . . . (908) (2,860) (2,334)
----------- ---------- ----------
Net cash flows from financing activities . . . . . . (345,226) 137,746 6,337
----------- ---------- ----------
Increase (decrease) in cash and cash equivalents . . (1,564,764) 662,258 430,363
Cash and cash equivalents at beginning of year . . . . . . . . 1,854,621 1,192,363 762,000
---------- ---------- ----------
Cash and cash equivalents at end of year * . . . . . . . . . . $ 289,857 $1,854,621 $1,192,363
============ ========== ==========
* Cash and cash equivalents at end of year are comprised of
the following:
Finance businesses . . . . . . . . . . . . . . . . . . $ 15,976 $ 37,063 $ 64,367
Other . . . . . . . . . . . . . . . . . . . . . . . . 273,881 1,817,558 1,127,996
---------- ---------- ----------
$ 289,857 $1,854,621 $1,192,363
========== ========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
21
<PAGE> 23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
BERKSHIRE HATHAWAY INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
(1) SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
(a) Basis of consolidation
The accompanying Consolidated Financial Statements include the
accounts of Berkshire Hathaway Inc. (the "Company" or
"Berkshire") consolidated with accounts of all its subsidiaries.
Intercompany accounts and transactions have been eliminated. In
the accompanying financial statements for 1993 and 1992,
reclassifications have been made when required to conform to the
current year presentation.
(b) Cash equivalents
Cash equivalents consist of funds invested in money market accounts
and in investments with a maturity of three months or less when
purchased.
(c) Investments
Management determines the appropriate classifications of investments
in securities with fixed maturities and marketable equity
securities at the time of purchase and reevaluates such
designations as of each balance sheet date. At December 31, 1994,
investments in securities with fixed maturities (except for such
securities held by finance businesses) and marketable equity
securities, are classified as available-for-sale. Securities with
fixed maturities held by finance businesses are classified as
held-to-maturity. At December 31, 1993, all fixed maturity
securities were classified as held-to-maturity. Securities with
fixed maturities are deemed to be held-to-maturity securities
when the Company has the ability and positive intent to hold them
to maturity. Held-to-maturity securities are carried at amortized
cost. Available-for-sale securities are stated at fair value,
with unrealized gains and losses, net of tax, reported in a
separate component of shareholders' equity. Realized gains and
losses on sales of investments, as determined on a specific
identification basis, are included in the Consolidated Statements
of Earnings.
(d) Goodwill of acquired businesses
The difference between purchase cost and the fair value of the net
assets of acquired businesses is amortized on a straight line
basis over forty years. The net unamortized balance is carried in
other assets.
(e) Insurance premium acquisition costs
For financial reporting purposes, certain costs of acquiring
insurance premiums are deferred, subject to ultimate
recoverability, and charged to income as the premiums are earned.
Generally, the ultimate recoverability of premium acquisition
costs is determined without regard to investment income.
(f) Deferred charges re reinsurance assumed
The excess of estimated liabilities for claims and claim costs
ultimately payable by the Insurance Group over consideration
received with respect to retroactive property/casualty
reinsurance contracts that provide for indemnification of
insurance risk, other than structured settlements, is established
as a deferred charge at inception of such contracts. The deferred
charges are subsequently amortized using the interest method over
the expected settlement periods of the claim liabilities. The
unamortized balance of deferred charges is included in other
assets.
(g) Property and casualty insurance policyholder liabilities
Property and casualty insurance policyholder liabilities are
comprised primarily of (i) unpaid losses and loss adjustment
expenses, (ii) unearned premiums, and (iii) funds held under
reinsurance assumed.
Liability for unpaid losses and loss adjustment expenses represents
the aggregate of such obligations of members of the Insurance
Group with respect to: (i) prospective property/casualty
insurance and reinsurance contracts, (ii) retroactive
property/casualty reinsurance contracts that provide for
indemnification of insurance risk, other than structured
settlements, and (iii) reinsurance contracts providing for
periodic payments with respect to settled claims ("structured
settlements"). Except for structured settlement liabilities which
are stated at discounted present values, the liability for unpaid
losses and loss adjustment expenses is at the aggregate of
estimated ultimate payment amounts.
22
<PAGE> 24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
BERKSHIRE HATHAWAY INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(1) SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (Continued)
(g) Property and casualty insurance policyholder liabilities (Continued)
Ultimate payment amounts with respect to prospective contracts are
determined from (i) individual case estimates, (ii) estimates of
incurred but not reported losses, based on past experience, and
(iii) reports of losses from ceding insurers.
Ultimate payment amounts with respect to retroactive reinsurance
contracts that provide for indemnification of insurance risk,
other than structured settlements, are established for financial
reporting purposes at maximum limits of indemnification under the
contracts. (See also 1(f) above related to deferred charges re
reinsurance assumed.)
Liabilities under structured settlement contracts are established
when the contracts are entered into, at the then present value of
the actuarially determined ultimate payment amount discounted at
the prevailing market interest rate. Thereafter, annual
accretions to the liabilities are charged to losses incurred.
Funds held under reinsurance assumed treaties primarily consist of
deposit balances refundable to insureds for coverages which the
Company believes do not indemnify the ceding company against
insurance risk, as defined by Statement of Financial Accounting
Standards No. 113, "Accounting and Reporting for Reinsurance of
Short-Duration and Long-Duration Contracts".
(h) Insurance premiums
Insurance premiums for prospective insurance and non-property
catastrophe reinsurance policies are recognized as revenues
ratably over their terms with unearned premiums computed on a
monthly or daily pro rata basis. Premiums for catastrophe excess
of loss reinsurance coverages are deferred until the earlier of a
loss occurrence or policy expiration. Consideration received for
indemnification of risk under retroactive reinsurance contracts
and structured settlements is accounted for as premiums earned at
the inception of the contracts. Premiums earned are stated net of
amounts ceded to reinsurers.
(j) Reinsurance
Provisions for losses and loss adjustment expenses are reported in
the accompanying Consolidated Statements of Earnings after
deducting estimates of recoveries under reinsurance contracts.
Such recoveries totalled $61 million, $34 million, and $90
million for 1994, 1993 and 1992, respectively. Reinsurance
contracts do not relieve the Insurance Group Members of their
obligations to indemnify policyholders with respect to the
underlying insurance and reinsurance contracts. Estimates of
losses and loss expenses recoverable under reinsurance contracts
are included in receivables.
(k) Accounting changes
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". Previously
the Company deferred the past tax effects of timing differences
between financial reporting and taxable income. 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.
In May 1993, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 115 "Accounting
for Certain Investments in Debt and Equity Securities" ("SFAS
115"). As permitted under the statement, the Company elected to
adopt the statement's provisions as of December 31, 1993. Among
its provisions, the statement requires a change in the accounting
for marketable equity securities held by non-insurance entities.
Prior to the adoption of SFAS 115, such securities were carried
at the lower of aggregate cost or market. Under the provisions of
SFAS 115, these securities are now carried at market and
accounted for in the same manner as marketable equity securities
held by the Company's insurance subsidiaries.
23
<PAGE> 25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
BERKSHIRE HATHAWAY INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(2) DEXTER SHOE COMPANIES MERGER
On November 7, 1993, the Company consummated a merger with the privately
held Dexter Shoe Companies ("Dexter") by reissuing 25,203 shares of its common
stock held in treasury in exchange for 100% of the outstanding common stock of
Dexter. Dexter manufactures and distributes men's and women's dress, casual and
athletic shoes. The merger was accounted for by the purchase method of
accounting and, accordingly, Dexter's operating results are included in the
Company's consolidated results of operations from the effective date of the
merger. Had the results of Dexter been included commencing with operations in
1992, the reported results would not have been materially affected.
(3) INVESTMENTS IN SECURITIES WITH FIXED MATURITIES
The amortized cost and estimated fair values as of December 31, 1994 and
1993, of investments in securities with fixed maturities are as follows (in
thousands):
<TABLE>
<CAPTION>
December 31, 1994 Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Bonds:
U.S. Treasury securities and obligations of
U.S. government corporations and agencies . . . $ 733,543 $ -- $ (16,721) $ 716,822
Obligations of states, municipalities
and political subdivisions . . . . . . . . . . 601,009 22,266 (3,453) 619,822
Corporate bonds . . . . . . . . . . . . . . . . . 8,030 2,463 (2) 10,491
Redeemable preferred stocks . . . . . . . . . . . . 422,923 15,002 (2,971) 434,954
Mortgage-backed securities . . . . . . . . . . . . 40,010 35 (1,401) 38,644
---------- ---------- --------- ----------
$1,805,515 $ 39,766 $ (24,548) $1,820,733
========== ========== ========= ==========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1993 Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Bonds:
U.S. Treasury securities and obligations of
U.S. government corporations and agencies . . . $ 9,286 $ 131 $ (4) $ 9,413
Obligations of states, municipalities
and political subdivisions . . . . . . . . . . 643,094 49,903 (810) 692,187
Redeemable preferred stocks . . . . . . . . . . . . 681,882 15,188 (90,060) 607,010
Mortgage-backed securities . . . . . . . . . . . . 63,550 1,635 (7) 65,178
---------- ---------- ---------- ----------
$1,397,812 $ 66,857 $ (90,881) $1,373,788
========== ========== ========== ==========
</TABLE>
Amounts above exclude securities with fixed maturities held by finance
businesses. See note 7.
Shown below are the amortized cost and estimated fair values of the above
securities at December 31, 1994, by contractual maturity dates. Actual
maturities will differ from contractual maturities because issuers of certain
of the securities retain early call or prepayment rights. Amounts are in
thousands.
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
------------- ------------
<S> <C> <C>
Due in one year or less . . . . . . . . . . . . . . . . . . . . . . . . $ 647,401 $ 647,054
Due after one year through five years . . . . . . . . . . . . . . . . . 904,129 920,960
Due after five years through ten years . . . . . . . . . . . . . . . . 199,551 196,918
Due after ten years . . . . . . . . . . . . . . . . . . . . . . . . . . 14,424 17,157
---------- ----------
$1,765,505 $1,782,089
Mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . . 40,010 38,644
---------- ----------
$1,805,515 $1,820,733
========== ==========
</TABLE>
Gross realized gains and losses on sales and redemptions of securities
with fixed maturities were as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Gross realized gains . . . . . . . . . . . . . . . . . . . $ 6,808 $40,109 $80,076
Gross realized losses . . . . . . . . . . . . . . . . . . . (4,268) (174) (563)
</TABLE>
24
<PAGE> 26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
BERKSHIRE HATHAWAY INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(4) INVESTMENTS IN MARKETABLE EQUITY SECURITIES
Aggregate data with respect to the consolidated investment in marketable
equity securities are shown below (in thousands):
<TABLE>
<CAPTION>
December 31, 1994
Unrealized
Cost Gains Market
------------ ------------ ------------
<S> <C> <C> <C>
Common stock of:
Capital Cities/ABC, Inc. (a) . . . . . . . . . . . . $ 345,000 $1,360,000 $ 1,705,000
The Coca-Cola Company . . . . . . . . . . . . . . . 1,298,888 3,851,112 5,150,000
GEICO Corporation (b) . . . . . . . . . . . . . . . 45,713 1,632,537 1,678,250
The Gillette Company . . . . . . . . . . . . . . . 600,000 1,197,000 1,797,000
Wells Fargo & Company (c) . . . . . . . . . . . . . 423,680 561,047 984,727
All other marketable equity securities . . . . . . . . 2,869,830 1,051,687(d) 3,921,517
---------- ---------- -----------
$5,583,111 $9,653,383 $15,236,494
========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1993
Unrealized
Cost Gains Market
------------ ------------ ------------
<S> <C> <C> <C>
Common stock of:
Capital Cities/ABC, Inc. (a) . . . . . . . . . . . . $ 345,000 $ 894,000 $ 1,239,000
The Coca-Cola Company . . . . . . . . . . . . . . . 1,023,920 3,144,055 4,167,975
GEICO Corporation (b) . . . . . . . . . . . . . . . 45,713 1,713,881 1,759,594
The Gillette Company . . . . . . . . . . . . . . . 600,000 831,000 1,431,000
Wells Fargo & Company (c) . . . . . . . . . . . . . 423,680 454,934 878,614
All other marketable equity securities . . . . . . . . 1,857,809 1,182,621(e) 3,040,430
---------- ---------- -----------
$4,296,122 $8,220,491 $12,516,613
========== ========== ===========
</TABLE>
(a) Common shares of Capital Cities/ABC, Inc. ("Capital Cities") owned by
Berkshire subsidiaries possessed approximately 13% of the voting
rights of all Capital Cities shares outstanding at December 31, 1994.
The shares are held subject to an Agreement, the terms of which grant
to Capital Cities a right of first refusal to purchase the shares and
otherwise govern until January 3, 1997, the manner by which the shares
may be sold or transferred. Also, Berkshire and its subsidiaries have
delivered to Capital Cities irrevocable proxies with respect to these
shares in favor of Thomas S. Murphy or Daniel B. Burke, so long as
either shall be the chief executive officer of Capital Cities, to vote
the shares at any and all meetings of shareholders of Capital Cities.
The proxies expire on January 2, 1997, or at the earlier date when
neither of such persons is chief executive officer of Capital Cities.
(b) Subsidiaries of Berkshire owned shares of common stock of GEICO
Corporation that possessed approximately 50% of the voting rights of
all GEICO shares outstanding at December 31, 1994. Berkshire maintains
an independent proxy arrangement for voting of the shares as required
by Order of GEICO's domiciliary insurance supervisory authority. The
Order, dating from Berkshire subsidiaries' major purchase of the
shares in 1976, prohibits Berkshire from seeking or causing to change
the independent proxy. Also, under the Order, no officer or director
of Berkshire or of any affiliate or subsidiary of Berkshire is
permitted to serve as a director of GEICO. Because the Order divests
Berkshire of its voting rights with respect to the shares, Berkshire
does not use the equity method of accounting for its investment in
GEICO.
(c) Subsidiaries of Berkshire owned common shares of Wells Fargo & Company
("Wells Fargo") that possessed approximately 13% of the voting rights
of all Wells Fargo shares outstanding at December 31, 1994. The shares
are held subject to a Passivity Agreement, the terms of which among
other things prohibit Berkshire, without prior approval from the
Federal Reserve Board of San Francisco, from seeking representation on
the Board of Directors of Wells Fargo and from disposing of more than
5% of the Wells Fargo securities in any single transaction. In
connection therewith, Berkshire has granted a proxy to the Secretary
of Wells Fargo, with respect to all Wells Fargo stock presently owned
and with respect to such additional shares of Wells Fargo stock as
Berkshire may purchase and hold in the future.
(d) Represents gross unrealized gains $1,187,893, less gross unrealized
losses $136,206.
(e) Represents gross unrealized gains $1,275,413, less gross unrealized
losses $92,792.
Gross realized gains and losses on sales of marketable equity securities
were as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Gross realized gains . . . . . . . . . . . . . . . . . . . . . $185,702 $518,347 * $ 10,595
Gross realized losses . . . . . . . . . . . . . . . . . . . . . (96,910) (11,860) (171)
</TABLE>
* During the fourth quarter of 1993, a subsidiary of Berkshire sold
10,000,000 common shares of its investment in Capital Cities in
connection with that company's offer to buy from its shareholders up to
20,000,000 of its common shares. Prior to the sale and since 1986,
Berkshire subsidiaries owned 30,000,000 shares of Capital Cities or
approximately 18% of that company's outstanding stock. Berkshire's gross
realized gain from this transaction was $457.5 million.
25
<PAGE> 27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
BERKSHIRE HATHAWAY INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(5) INVESTMENT IN SALOMON INC
The Company's investment in Salomon Inc consists of the following (in
thousands):
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1993
-------------------------------------- -------------------------------------
Fair Carrying Fair 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 . . . . . . . . . . . . 324,445 248,760 288,418 21,636 23,584 23,584
---------- ---------- ---------- ---------- ---------- ----------
$1,024,445 $ 983,760 $1,023,418 $ 721,636 $ 898,584 $ 723,584
========== ========== ========== ========== ========== ==========
</TABLE>
At both December 31, 1994 and 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 December 31, 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 1(c),
the Preferred Shares are carried at fair value at December 31, 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 December
31, 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 Investments in 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
(in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Dividends on Preferred Shares . . . . . . . . . . . . . . . . $63,000 $63,000 $63,000
Equity in net loss of Salomon attributable
to common stock holdings* . . . . . . . . . . . . . . . . . (32,942) -- --
------- ------- -------
$30,058 $63,000 $63,000
======= ======= =======
</TABLE>
* After giving effect to amortization, over forty years, of the excess of the
cost of Salomon common stock over its related book value.
(6) INVESTMENT IN USAIR GROUP, INC. PREFERRED STOCK
Investments in securities 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. As of
March 7, 1995 neither the quarterly dividend due September 30, 1994 or December
31, 1994, had been received. 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.
As a result of the extended period of losses and the uncertainty
surrounding the outcome of the labor negotiations, Berkshire management has
concluded that an other than temporary decline in the value of the USAir
Preferred Shares has arisen. Accordingly, the 1994 Consolidated Statement of
Earnings includes a charge of $268.5 million to reflect the decline. While the
aforementioned charge to earnings was recorded in the fourth quarter of 1994;
the charge to shareholders' equity, however, had been recorded in earlier 1994
reporting periods. Effective March 31, 1994, investments in securities with
fixed maturities were classified as available-for-sale and carried at fair
value with the net after-tax unrealized gain or loss reported as a component
of shareholders' equity. Accordingly, at March 31, 1994, the carrying value of
the USAir Preferred Shares was adjusted to reflect its then estimated fair
value of $179.0 million. At September 30, 1994, the estimate was adjusted
downward to $89.5 million which also represents the estimated fair value as of
December 31, 1994.
26
<PAGE> 28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
BERKSHIRE HATHAWAY INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(7) FINANCE BUSINESSES
Berkshire's finance businesses are comprised of commercial and consumer
finance companies and an annuity business. Assets and liabilities of
Berkshire's finance businesses are summarized below (in thousands):
<TABLE>
<CAPTION>
Dec. 31, Dec. 31,
1994 1993
-------- --------
<S> <C> <C>
ASSETS
Cash and cash equivalents . . . . . . . . . . . $ 15,976 $ 37,063
Installment loans receivable . . . . . . . . . 157,985 163,827
Fixed maturity investments(a) . . . . . . . . . 538,866 667,101
Other . . . . . . . . . . . . . . . . . . . . . 4,255 4,410
-------- --------
$717,082 $872,401
======== ========
LIABILITIES
8.125% Notes, payable in 1996 . . . . . . . . . $120,000 $120,000
Borrowings under investment agreements(b) . . . 369,964 551,909
Annuity reserves . . . . . . . . . . . . . . . 41,021 5,435
Other . . . . . . . . . . . . . . . . . . . . . 31,458 52,022
-------- --------
$562,443 $729,366
======== ========
</TABLE>
(a) At December 31, 1994 and 1993, mortgage-backed securities of $396,033
and $534,352 respectively were included in this caption. Each of these
securities has received the highest rating from at least two rating
agencies. Estimated fair values and gross unrealized gains and losses
as of December 31, 1994 and 1993, are as follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross Estimated
Unrealized Unrealized Fair
Amortized Cost Gains Losses Value
-------------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
1994 . . . $538,866 $ 655 $(21,091) $518,430
1993 . . . 667,101 2,025 (1,660) 667,466
</TABLE>
(b) Borrowings under investment agreements are made pursuant to contracts
with terms generally ranging from six months to thirty years calling
for interest payable, normally semiannually, at fixed rates ranging
from 2.5% to 7.3% per annum. Payments of amounts outstanding at
December 31, 1994, are expected to be required no earlier than as
follows (in thousands):
<TABLE>
<S> <C>
1995 . . . . . . . . . . . . . .$256,270
1996 . . . . . . . . . . . . . . 35,717
1997 . . . . . . . . . . . . . . 3,998
1998 . . . . . . . . . . . . . . 254
1999 . . . . . . . . . . . . . . 1,868
After 1999 . . . . . . . . . . . 71,857
</TABLE>
Income from finance businesses for each of the past three years is
summarized below (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
-------- ------- -------
<S> <C> <C> <C>
REVENUES
Interest on loans . . . . . . . . . . . . . . . . $37,407 $42,671 $51,564
Interest and dividend income . . . . . . . . . . 34,749 20,107 15,950
Annuity premiums earned . . . . . . . . . . . . . 35,998 5,615 --
------- ------- -------
108,154 68,393 67,514
------- ------- -------
COST AND EXPENSES
Interest expense . . . . . . . . . . . . . . . . 31,665 24,204 25,854
Annuity benefits and underwriting expenses . . . 37,664 5,724 --
General and administrative expenses . . . . . . . 13,940 16,239 20,964
------- ------- -------
83,269 46,167 46,818
------- ------- -------
$24,885 $22,226* $20,696*
======= ======= =======
</TABLE>
* Until October 1993, a savings and loan business was also included in this
group of businesses. Income from finance businesses includes earnings of
$5,857 and $4,547 in 1993 and 1992 respectively from this business.
27
<PAGE> 29
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
BERKSHIRE HATHAWAY INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(8) OTHER ASSETS
Other assets are summarized below (in thousands):
<TABLE>
<CAPTION>
Dec. 31, Dec. 31,
1994 1993
------------ ------------
<S> <C> <C>
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . $454,633 $ 467,544
Deferred charges re reinsurance assumed . . . . . . . . . 440,664 466,013
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 89,579 95,859
-------- ----------
$984,876 $1,029,416
======== ==========
</TABLE>
(9) PROPERTY AND CASUALTY INSURANCE POLICYHOLDER LIABILITIES
Property and casualty insurance policyholder liabilities are summarized
below (in thousands):
<TABLE>
<CAPTION>
Dec. 31, Dec. 31,
1994 1993
------------- -------------
<S> <C> <C>
Unpaid losses and loss adjustment expenses* . . . . . . . $3,430,028 $3,155,905
Unearned premiums . . . . . . . . . . . . . . . . . . . . 307,232 315,750
Funds held under reinsurance assumed . . . . . . . . . . . 307,287 215,773
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 156,266 119,760
---------- ----------
$4,200,813 $3,807,188
========== ==========
</TABLE>
* Unpaid losses and loss adjustment expenses include liabilities
established with respect to retroactive reinsurance contracts that
provide for indemnification of insurance risk. These liabilities
aggregated $1,295,991 and $1,181,235 at December 31, 1994 and 1993,
respectively. Related deferred charges were established with respect to
these contracts and are reported as other assets. Also included in unpaid
losses and loss adjustment expenses are discounted structured settlement
reinsurance liabilities, which totalled $231,255 and $254,325 at December
31, 1994 and 1993, respectively.
Supplemental data with respect to unpaid losses and loss adjustment
expenses of property/casualty insurance subsidiaries (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------------ ----------- -----------
<S> <C> <C> <C>
Unpaid losses and loss adjustment expenses:
Balance at beginning of year . . . . . . . . . . . $3,155,905 $3,219,441 $2,978,837
Less ceded liabilities and deferred charges . . . . 597,860 655,309 652,041
---------- ---------- ----------
Net balance . . . . . . . . . . . . . . . . . . . . 2,558,045 2,564,132 2,326,796
---------- ---------- ----------
Incurred losses recorded:
Current accident year . . . . . . . . . . . . . . . 505,058 439,404 658,484
All prior accident years * . . . . . . . . . . . . 60,199 11,255 29,141
---------- ----------- -----------
Total incurred losses . . . . . . . . . . . . . . . 565,257 450,659 687,625
---------- ----------- -----------
Payments with respect to:
Current accident year . . . . . . . . . . . . . . . 50,859 47,029 53,845
All prior accident years . . . . . . . . . . . . . 216,346 409,717 422,905
---------- ----------- -----------
Total payments . . . . . . . . . . . . . . . . . . 267,205 456,746 476,750
---------- ----------- -----------
Unpaid losses and loss adjustment expenses:
Net balance at end of year . . . . . . . . . . . . 2,856,097 2,558,045 2,537,671
Plus ceded liabilities and deferred charges . . . . 573,931 597,860 652,865
---------- ---------- ----------
Balance at end of year . . . . . . . . . . . . . . . $3,430,028 $3,155,905 $3,190,536**
========== ========== ==========
</TABLE>
* Incurred losses "all prior years" reflects the amount of estimation error
charged or credited to earnings in each year. In addition, this amount
includes amortization of deferred charges re reinsurance assumed and
accretion of discounted structured settlement liabilities.
** Excludes unpaid liabilities of Central States Indemnity Company of Omaha
-- acquired by the Company at the end of 1992.
28
<PAGE> 30
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
BERKSHIRE HATHAWAY INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(10) INCOME TAXES
The liability for income taxes as reflected in the accompanying
Consolidated Balance Sheets represent estimates of liabilities as follows (in
thousands):
<TABLE>
<CAPTION>
Dec. 31, Dec. 31,
1994 1993
---------- ----------
<S> <C> <C>
Payable currently . . . $ 62,401 $ 289,686
Deferred . . . . . . . 3,230,201 2,740,503
---------- ----------
$3,292,602 $3,030,189
========== ==========
</TABLE>
As discussed in Note 1(k), the Company adopted SFAS 109 as of January 1,
1993. 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 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. Prior
year financial statements have not been restated.
During 1993, the federal corporate income and capital gain tax rate was
increased from 34% to 35% retroactive to January 1, 1993. Accordingly, as
required under SFAS 109, the Company recorded a charge to 1993 earnings of
approximately $75 million. Most of this charge relates to the impact of
adjusting deferred taxes applicable to unrealized appreciation of marketable
equity securities.
The Consolidated Statements of Earnings reflect charges for income taxes
as shown below (in thousands):
<TABLE>
<CAPTION>
1994 1993* 1992
-------- -------- --------
<S> <C> <C> <C>
Federal . . . . . . . . $133,443 $320,419 $110,276
State . . . . . . . . . 22,101 20,857 24,430
Foreign . . . . . . . . 3,122 4,026 3,383
-------- -------- --------
$158,666 $345,302 $138,089
======== ======== ========
Current . . . . . . . . $188,482 $400,762 $183,248
Deferred . . . . . . . (29,816) (55,460) (45,159)
-------- -------- --------
$158,666 $345,302 $138,089
======== ======== ========
</TABLE>
* Excludes the cumulative effect of change in accounting for income taxes
($70,984) and the effect of the change in federal income tax rate on
deferred taxes applicable to unrealized appreciation of marketable equity
securities ($75,348).
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities at December 31,
1994 and 1993, are shown below (in thousands):
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Deferred tax liabilities:
Relating to unrealized appreciation of
marketable equity securities . . . . . . $3,381,328 $2,848,681
Other . . . . . . . . . . . . . . . . . . 71,883 73,638
---------- ----------
3,453,211 2,922,319
Deferred tax assets . . . . . . . . . . . . . (223,010) (181,816)
---------- ----------
Net deferred tax liability . . . . . . . . . $3,230,201 $2,740,503
========== ==========
</TABLE>
Charges for income taxes are reconciled to hypothetical amounts computed
at the federal statutory rate in the table shown below (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
-------- ---------- --------
<S> <C> <C> <C>
Net earnings before income taxes . . . . . . . $662,197 $1,189,718 $550,617
======== ========== ========
Hypothetical amounts applicable to above
computed at the federal statutory rate . . . $231,769 $ 416,401 $187,210
Decreases, resulting from:
Tax-exempt interest income . . . . . . . . . (14,548) (15,020) (14,727)
Dividends received deduction . . . . . . . . (81,235) (68,333) (62,085)
State income taxes, less federal income
tax benefit . . . . . . . . . . . . . . . 14,366 13,557 16,128
Net other differences . . . . . . . . . . . . . 8,314 (1,303) 11,563
-------- ---------- --------
Total income taxes . . . . . . . . . . . . . . $158,666 $ 345,302* $138,089
======== ========== ========
</TABLE>
* Excludes the cumulative effect of change in accounting for income taxes
and the effect of the change in federal income tax rate on deferred taxes
applicable to unrealized appreciation of marketable equity securities.
29
<PAGE> 31
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
BERKSHIRE HATHAWAY INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(11) BORROWINGS UNDER INVESTMENT AGREEMENTS AND OTHER DEBT
Liabilities reflected for this balance sheet caption are as follows (in
thousands):
<TABLE>
<CAPTION>
Dec. 31, Dec. 31,
1994 1993
-------- --------
<S> <C> <C>
Borrowings under investment agreements . . . . . $754,079 $915,079
Other debt . . . . . . . . . . . . . . . . . . . 56,640 57,310
-------- --------
$810,719 $972,389
======== ========
</TABLE>
Borrowings under investment agreements are made pursuant to contracts
with terms generally ranging from three months to forty years and calling for
interest payable, normally semiannually, at fixed rates ranging from 3.0% to
9.0% per annum. The borrowings are senior unsecured debt obligations of the
Company. No materially restrictive covenants are included in any of the various
debt agreements.
Payments of amounts outstanding at December 31, 1994, are expected to be
required no earlier than as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999 After 1999
-------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
$36,148 $15,381 $20,090 $17,018 $44,054 $678,028
</TABLE>
(12) SHAREHOLDERS' EQUITY ACCOUNTS
Changes in Shareholders' Equity accounts during the most recent three
years were as follows (dollars in thousands except per share amounts):
<TABLE>
<CAPTION>
Common Capital
Stock of $5 in excess Net Unrealized Retained Treasury
Par Value of par value Appreciation Earnings Stock
----------- ------------ -------------- ---------- --------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1991 . . . . . . . . . . . . . $6,876 $157,377 $3,962,989 $3,294,969 $42,293
Increase during 1992 in unrealized appreciation
included in carrying value of marketable equity
securities . . . . . . . . . . . . . . . . . . . 1,644,810
Change during 1992 in deemed applicable income
taxes . . . . . . . . . . . . . . . . . . . . . (559,235)
Increase in minority shareholders' interest in
unrealized appreciation . . . . . . . . . . . . (1,345)
Common stock (2,162 shares) issued upon conversion
of Zero Coupon Convertible Subordinated Notes 11 24,887
Net earnings 1992 . . . . . . . . . . . . . . . . . 407,285
------ -------- ---------- ---------- -------
Balance December 31, 1992 . . . . . . . . . . . . . 6,887 182,264 5,047,219 3,702,254 42,293
Common stock (3,944 shares) issued upon conversion
of Zero Coupon Convertible Subordinated Notes 20 45,457
Common stock (25,203 shares) issued in connection
with acquisition of Dexter Shoe Companies . . . 428,353 (4,659)
Increase during 1993 in unrealized appreciation
included in carrying value of marketable equity
securities . . . . . . . . . . . . . . . . . . . 316,002
Change during 1993 in deemed applicable income
taxes . . . . . . . . . . . . . . . . . . . . . (119,843)
Increase in minority shareholders' interest in
unrealized appreciation . . . . . . . . . . . . (2,501)
Net earnings 1993 . . . . . . . . . . . . . . . . . 688,121
Cumulative effect of adoption on December 31, 1993,
of SFAS 115 (See note 1[k]) . . . . . . . . . . 171,775
------ -------- ---------- ---------- -------
Balance December 31, 1993 . . . . . . . . . . . . . $6,907 $656,074 $5,412,652 $4,390,375 $37,634
Increase during 1994 in unrealized appreciation
included in carrying value of investments . . . 1,481,162
Change during 1994 in deemed applicable income
taxes . . . . . . . . . . . . . . . . . . . . . (519,514)
Increase in minority shareholders' interest in
unrealized appreciation . . . . . . . . . . . . (9,938)
Net earnings 1994 . . . . . . . . . . . . . . . . . 494,798
------ -------- ---------- ---------- -------
Balance December 31, 1994 . . . . . . . . . . . . . $6,907 $656,074 $6,364,362 $4,885,173 $37,634
====== ======== ========== ========== =======
</TABLE>
30
<PAGE> 32
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
BERKSHIRE HATHAWAY INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(13) DIVIDEND RESTRICTIONS - INSURANCE SUBSIDIARIES
Payments of dividends by Insurance Group members are restricted by
insurance statutes and regulations. Without prior regulatory approval in 1995,
Berkshire can receive up to approximately $488 million as dividends from
insurance subsidiaries.
Combined shareholders' equity of insurance subsidiaries determined
pursuant to statutory accounting rules (Statutory Surplus as Regards
Policyholders) was approximately $13.4 billion at December 31, 1994. This
amount exceeded by approximately $2.4 billion the corresponding amount
determined on the basis of generally accepted accounting principles; the
difference principally represents deferred income tax assets and liabilities
and deferred charges re reinsurance assumed recognized for financial reporting
purposes but not for statutory reporting purposes.
(14) FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments" ("SFAS 107"), requires certain fair value
disclosures. Fair value disclosures are required for most investment securities
as well as other contractual assets and liabilities. Certain financial
instruments, including insurance contracts, were excluded from SFAS 107
disclosure requirements due to perceived difficulties in measuring fair value.
Accordingly, an estimation of fair value was not made with respect to unpaid
losses and loss adjustment expenses.
In determining fair value, the Company used quoted market prices when
available. For instruments where quoted market prices were not available, the
Company used independent pricing services or appraisals by the Company's
management. Those services and appraisals reflected the estimated present
values utilizing current risk adjusted market rates of similar instruments.
Considerable judgement is necessarily required in interpreting market
data to develop the estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts the Company
could realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value.
The carrying values of cash and cash equivalents, receivables and
accounts payable, accruals and other liabilities are deemed to be reasonable
estimates of their fair values. The estimated fair values of the Company's
other financial instruments as of December 31, 1994 and 1993, are as follows
(in thousands):
<TABLE>
<CAPTION>
Carrying Value Estimated Fair Value
-------------- --------------------
1994 1993 1994 1993
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Investments in securities with fixed
maturities . . . . . . . . . . . . . . $ 1,820,733 $ 1,397,812 $ 1,820,733 $ 1,373,788
Investments in marketable equity securities 15,236,494 12,516,613 15,236,494 12,516,613
Investment in Salomon Inc . . . . . . . . 1,023,418 723,584 983,760 898,584
Assets of finance businesses . . . . . . 717,082 872,401 702,858 891,505
Borrowings under investment agreements and
other debt . . . . . . . . . . . . . . 810,719 972,389 768,595 1,048,623
Liabilities of finance businesses . . . . 562,443 729,366 546,667 735,521
</TABLE>
(15) SUPPLEMENTAL CASH FLOW INFORMATION
A summary of supplemental cash flow information is presented in the
following table (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Cash paid during the year for:
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . $ 411,092 $ 235,015 $ 121,027
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . 90,596 70,629 95,730
Non-cash investing and financing activities:
Liabilities assumed in connection with acquisition of businesses -- 26,093 45,735
Common shares issued upon conversions of Zero Coupon
Convertible Subordinated Notes . . . . . . . . . . . . . -- 45,477 24,898
Common shares issued in connection with acquisition of
Dexter Shoe Companies . . . . . . . . . . . . . . . . . . -- 433,012 --
</TABLE>
31
<PAGE> 33
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
BERKSHIRE HATHAWAY INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(16) QUARTERLY DATA
A summary of revenues and earnings by quarter for each of the last two
years is presented in the following table. This information is unaudited.
Dollars are in thousands, except per share amounts.
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
1994 Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . $917,963 $868,360 $795,500 $1,265,644
-------- -------- -------- ----------
Earnings:
Excluding realized investment gain . . . . . . . . . $ 82,312 $158,784 $110,466 $ 82,097*
Realized investment gain (loss) . . . . . . . . . . . 50,578 5,863 (4,646) 9,344
-------- --------- -------- --------
Net earnings . . . . . . . . . . . . . . . . . . . . $132,890 $164,647 $105,820 $ 91,441
======== ======== ======== ==========
Earnings per share:
Before realized investment gain . . . . . . . . . . . $ 69.89 $134.82 $ 93.79 $69.71*
Realized investment gain (loss) . . . . . . . . . . . 42.94 4.98 (3.94) 7.93
------- ------- ------- ------
Net earnings . . . . . . . . . . . . . . . . . . . . $112.83 $139.80 $ 89.85 $77.64
======= ======= ======= ======
</TABLE>
* Includes a nonrecurring charge of $172,579 ($146.53/share) representing
an other than temporary decline in value of investment in USAir Group,
Inc. Preferred Stock. See note 6.
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
1993 Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . $725,827 $703,698 $744,127 $1,425,612
-------- -------- -------- ----------
Earnings:
Excluding realized investment gain and
cumulative effect of accounting change . . . . . . $ 84,105 $103,836 $ 12,389* $ 202,073
Realized investment gain . . . . . . . . . . . . . . 16,630 8,127 10,405 321,540**
Cumulative effect of change in accounting
for income taxes . . . . . . . . . . . . . . . . . (70,984) -- -- --
--------- ---------- ---------- -----------
Net earnings . . . . . . . . . . . . . . . . . . . . $ 29,751 $111,963 $ 22,794 $ 523,613
======== ======== ======== ==========
Earnings per share:
Before realized investment gain and
cumulative effect of accounting change . . . . . . $72.97 $90.09 $10.75* $173.10
Realized investment gain . . . . . . . . . . . . . . 14.43 7.05 9.03 275.45**
Cumulative effect of change in accounting
for income taxes . . . . . . . . . . . . . . . . . (61.59) -- -- --
------ ------- ------- --------
Net earnings . . . . . . . . . . . . . . . . . . . . $25.81 $97.14 $19.78 $448.55
====== ====== ====== =======
</TABLE>
* Includes a nonrecurring charge of $75,348 ($65.38/share) representing
the effect of the change in federal income tax rates on deferred taxes
applicable to unrealized appreciation. See note 10.
** Includes $297,375 ($254.75/share), net of taxes, related to sale of
10,000,000 shares of Capital Cities/ABC, Inc. common stock. See note 4.
32
<PAGE> 34
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
BERKSHIRE HATHAWAY INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(17) BUSINESS SEGMENT DATA
Berkshire identified eight business segments for purposes of 1994
reporting pursuant to Statement of Financial Accounting Standards No. 14.
These include the property and casualty insurance and reinsurance business (The
Insurance Segment) plus seven separately conducted non-insurance businesses as
follows:
<TABLE>
<CAPTION>
Business
identity and headquarters Product Activity
------------------------- ------- --------
<S> <C> <C>
See's Candies Candy Manufacture and distribution at retail
South San Francisco, CA and by catalog solicitation
World Book Encyclopedias and Publication and marketing,
Chicago, IL other reference materials principally by the direct sales method
Kirby, Douglas and
Cleveland Wood Divisions
of The Scott Fetzer Company Home cleaning systems Manufacture and sale principally to distributors
Cleveland, OH
Nebraska Furniture Mart Home furnishings Retailing
Omaha, NE
Buffalo News Newspaper Publication of a daily and Sunday newspaper
Buffalo, NY
H. H. Brown Shoe Co.,
Lowell Shoe, Inc. and
Dexter Shoe Companies Shoes Manufacture, importing and distribution at wholesale
Greenwich, CT, Hudson, and retail
NH and Dexter, ME
Fechheimer Bros. Co. Uniforms Manufacture and distribution at wholesale and retail
Cincinnati, OH
</TABLE>
The business segments identified above were responsible in 1994 for 83%
of Berkshire's consolidated revenues. Other businesses activities that
contributed for 1994, in the aggregate, 16% of Berkshire's consolidated
revenues, were as follows:
<TABLE>
<CAPTION>
Business identity Product/Service/Activity
------------------ ------------------------
<S> <C>
Adalet Conduit fittings, explosion proof junction boxes, couplings and terminations
BHR Real estate management
Berkshire Hathaway
Credit Corporation Commercial financing
Berkshire Hathaway Life
Insurance Co. Annuities
Blue Chip Stamps Marketing motivational services
Borsheim's Retailing fine jewelry
Campbell Hausfeld Air compressors, air tools, painting systems and pressure washers
Carefree Sun and shade control products and accessories for RVs
France Appliance controls, ignition and sign transformers
Halex Zinc die cast electrical fittings
K&W Products Automotive compounds
Meriam Pressure and flow measurement devices
Northland Fractional horsepower motors
Powerwinch Boat winches, windlasses and hoists
Precision Steel service center
Quikut Cutlery
ScottCare Cardiopulmonary rehabilitation and monitoring equipment
Scott Fetzer Financial Group Commercial and consumer finance companies
Scot Labs Cleaning and maintenance chemicals
Stahl Custom steel service bodies and tool boxes for trucks
Wayne Furnace burners; sump, utility and sewage pumps
Wesco Financial Real estate management
Western Enterprises Compressed gas fittings and regulators
Western Plastics Molded plastic components
</TABLE>
33
<PAGE> 35
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
BERKSHIRE HATHAWAY INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(17) BUSINESS SEGMENT DATA (Continued)
A disaggregation of Berkshire's consolidated data for each of the three
most recent years is presented in the tables which follow on this and the
following page. Amounts are in thousands.
<TABLE>
<CAPTION>
REVENUES OPERATING PROFIT BEFORE TAXES
1994 1993 1992 1994 1993 1992
---------- ---------- ---------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Identified Segments:
Insurance . . . . . . . . . . . . . . $1,436,966 $1,591,226 $1,078,419 $ 639,218 $ 961,397 $298,715
Non-insurance businesses . . . . . . 1,771,870 1,440,120 1,283,240 275,399 224,795 209,871
---------- ---------- ---------- --------- ---------- --------
3,208,836 3,031,346 2,361,659 914,617 1,186,192 508,586
Other than identified segments . . . . . 638,631 567,918 615,598 (192,309)** 60,071 140,674
Interest expense * . . . . . . . . . . . (60,111) (56,545) (98,643)
---------- ---------- ---------- --------- ---------- --------
Aggregate consolidated total . . . . $3,847,467 $3,599,264 $2,977,257 $ 662,197 $1,189,718 $550,617
========== ========== ========== ========= ========== ========
</TABLE>
* Amounts of interest expense represent those for borrowings under
investment agreements and other debt exclusive of that of finance
businesses.
** Includes pre-tax charge of $268,500 representing an other than temporary
decline in value of investment in USAir Group, Inc. Preferred Stock.
<TABLE>
<CAPTION>
INSURANCE SEGMENT
----------------- REVENUES OPERATING PROFIT BEFORE TAXES
1994 1993 1992 1994 1993 1992
---------- ---------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Premiums earned: *
Primary or direct . . . . . . . . . . $ 281,074 $ 249,585 $ 179,441
Reinsurance assumed . . . . . . . . . 688,537 442,425 530,525
Reinsurance ceded . . . . . . . . . . (46,431) (41,284) (45,673)
---------- ---------- ---------
923,180 650,726 664,293
Underwriting . . . . . . . . . . . . . . $129,010 $ 30,070 $(108,961)
Investment income . . . . . . . . . . . 421,753 384,632 361,517 418,175 375,459 355,067
Realized investment gain . . . . . . . . 92,033 555,868 52,609 92,033 555,868 52,609
---------- ---------- ---------- -------- -------- ---------
$1,436,966 $1,591,226 $1,078,419 $639,218 $961,397 $ 298,715
========== ========== ========== ======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
* Premiums written were as follows:
1994 1993 1992
--------- --------- --------
<S> <C> <C> <C>
Primary or direct . . . . . . . . . . $271,151 $247,173 $153,177
Reinsurance assumed . . . . . . . . . 689,932 528,768 626,159
Reinsurance ceded . . . . . . . . . . (45,562) (38,854) (39,769)
-------- -------- --------
$915,521 $737,087 $739,567
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
NON-INSURANCE BUSINESS SEGMENTS
------------------------------- REVENUES OPERATING PROFIT BEFORE TAXES
1994 1993 1992 1994 1993 1992
---------- ---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Candy . . . . . . . . . . . . . . . . . $ 216,060 $ 200,979 $ 197,017 $ 46,564 $ 40,270 $ 41,382
Encyclopedias, other reference material 191,297 198,807 246,107 24,375 19,375 28,228
Home cleaning systems . . . . . . . . . 207,567 193,891 190,072 43,938 40,944 37,744
Home furnishings . . . . . . . . . . . . 245,395 208,598 185,596 16,902 21,094 16,665
Newspaper . . . . . . . . . . . . . . . 150,915 145,470 139,764 53,666 50,390 47,291
Shoes . . . . . . . . . . . . . . . . . 609,398 370,211 214,873 76,416 40,003 25,586
Uniforms . . . . . . . . . . . . . . . . 151,238 122,164 109,811 13,538 12,719 12,975
---------- ---------- ---------- -------- --------- ---------
$1,771,870 $1,440,120 $1,283,240 $275,399 $224,795 $209,871
========== ========== ========== ======== ======== ========
</TABLE>
34
<PAGE> 36
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
BERKSHIRE HATHAWAY INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(17) BUSINESS SEGMENT DATA (Continued)
<TABLE>
<CAPTION>
OTHER THAN IDENTIFIED SEGMENTS REVENUES OPERATING PROFIT BEFORE TAXES
------------------------------
1994 1993 1992 1994 1993 1992
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Other businesses . . . . . . . . . . . . $607,350 $550,754 $517,259 $ 59,209 $ 55,185 $ 54,321
Not identified with specific businesses:
Interest and dividend income . . . . 31,982 26,608 61,011 31,982 26,608 61,011
Realized investment gain (loss) . . . (701) (9,444) 37,328 (701) (9,444) 37,328
All other except interest expense . . (282,799)* (12,278) (11,986)
-------- --------- --------- --------- -------- --------
$638,631 $567,918 $615,598 $(192,309) $ 60,071 $140,674
======== ======== ======== ========= ======== ========
</TABLE>
* Includes pre-tax charge of $268,500 representing an other than temporary
decline in value of investment in USAir Group, Inc. Preferred Stock.
<TABLE>
<CAPTION>
DEPREC. & AMORT.
CAPITAL EXPENDITURES * OF TANGIBLE ASSETS
1994 1993 1992 1994 1993 1992
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Insurance . . . . . . . . . . . . . . . $ 935 $ 1,207 $ 1,071 $ 908 $ 812 $ 840
Candy . . . . . . . . . . . . . . . . . 4,111 4,287 4,167 4,095 4,116 4,061
Encyclopedias, other reference material 130 736 184 1,366 1,449 1,379
Home cleaning systems . . . . . . . . . 959 1,470 769 4,208 5,259 4,942
Home furnishings . . . . . . . . . . . . 22,633 5,254 8,528 6,226 2,663 2,210
Newspaper . . . . . . . . . . . . . . . 5,156 3,602 3,370 2,181 1,855 2,373
Shoes . . . . . . . . . . . . . . . . . 17,912 4,407 2,171 10,218 5,201 3,027
Uniforms . . . . . . . . . . . . . . . . 4,594 1,041 2,660 2,491 1,836 1,833
Other . . . . . . . . . . . . . . . . . 10,698 12,962 8,881 17,943 17,321 14,692
------- ------- ------- ------- ------- -------
$67,128 $34,966 $31,801 $49,636 $40,512 $35,357
======= ======= ======= ======= ======= =======
</TABLE>
* Expenditures which were part of business acquisitions are excluded.
<TABLE>
<CAPTION>
IDENTIFIABLE ASSETS
AT YEAR END
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Insurance . . . . . . . . . . . . . . . . . . . . . . . $18,494,195 $16,126,933 $14,788,237
Candy . . . . . . . . . . . . . . . . . . . . . . . . . 69,442 70,201 65,880
Encyclopedias, other reference material . . . . . . . . 75,856 74,676 83,778
Home cleaning systems . . . . . . . . . . . . . . . . . 42,114 48,703 50,692
Home furnishings . . . . . . . . . . . . . . . . . . . . 128,389 101,147 88,331
Newspaper . . . . . . . . . . . . . . . . . . . . . . . 48,443 45,402 43,751
Shoes . . . . . . . . . . . . . . . . . . . . . . . . . 672,704 641,548 208,218
Uniforms . . . . . . . . . . . . . . . . . . . . . . . . 94,904 87,546 85,392
Other . . . . . . . . . . . . . . . . . . . . . . . . . 1,712,135 2,324,313 1,717,719
---------- ----------- -----------
$21,338,182 $19,520,469 $17,131,998
=========== =========== ===========
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
Part III
Except for the information set forth under the caption "Executive Officers
of the Registrant" in Part I hereof, information required by this Part (Items
10, 11, 12, and 13) is incorporated by reference from the Registrant's
definitive proxy statement, filed pursuant to Regulation 14A, for the Annual
Meeting of Shareholders of the Registrant to be held on May 1, 1995, which
meeting will involve the election of directors.
35
<PAGE> 37
Part IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The following consolidated financial statements, as well as the
Independent Auditors' Report, are included in Part II Item 8 of
this report:
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Independent Auditors' Report 18
Consolidated Balance Sheets at December 31, 1994 and 1993 19
Consolidated Statements of Earnings for the years ended
1994, 1993 and 1992 20
Consolidated Statements of Cash Flows for the years ended
1994, 1993 and 1992 21
Notes to Consolidated Financial Statements 22
(a) 2. Financial Statement Schedule PAGE
---------------------------- ----
Independent Auditors' Report on Schedule 38
Schedule I -- Parent Company 39
Condensed Balance Sheets as of December 31, 1994
and 1993 and Condensed Statements of Earnings and
Cash Flows for the years ended 1994, 1993, and 1992.
Other schedules are omitted because they are not required,
information therein is not applicable, or is reflected in
the Consolidated Financial Statements or notes thereto.
(a) 3. Exhibits
--------
See the "Exhibit Index" at page 41.
(b) Reports on Form 8-K
-------------------
None
</TABLE>
36
<PAGE> 38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 30, 1995 /s/ Marc D. Hamburg
-------------- ----------------------------
Marc D. Hamburg
Vice President and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ Warren E. Buffett Chairman of the Board March 30, 1995
--------------------------- of Directors - Chief --------------
Warren E. Buffett Executive Officer Date
/s/ Charles T. Munger Vice Chairman of the March 30, 1995
-------------------------- Board of Directors --------------
Charles T. Munger Date
/s/ Malcolm G. Chace, III Director March 30, 1995
--------------------------- --------------
Malcolm G. Chace, III Date
/s/ Walter Scott, Jr. Director March 30, 1995
----------------------------- --------------
Walter Scott, Jr. Date
/s/ Marc D. Hamburg Vice President - March 30, 1995
-------------------------- Principal Financial --------------
Marc D. Hamburg Officer Date
/s/ Daniel J. Jaksich Controller March 30, 1995
------------------------- --------------
Daniel J. Jaksich Date
</TABLE>
37
<PAGE> 39
INDEPENDENT AUDITORS' REPORT ON SCHEDULES
To the Board of Directors and Shareholders
Berkshire Hathaway Inc.
We have audited the consolidated financial statements of Berkshire
Hathaway Inc. and subsidiaries as of December 31, 1994 and 1993, and for each
of the three years in the period ended December 31, 1994, and have issued our
report thereon dated March 9, 1995; such consolidated financial statements and
report are included elsewhere in this Form 10-K. Our audits also included the
financial statement schedule of Berkshire Hathaway Inc., listed in Item 14.
The financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly in all material respects the information set forth therein. Our report
referred to above includes an explanatory paragraph regarding changes in
accounting methods as described in Note 1 to the consolidated financial
statements.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
March 9, 1995
38
<PAGE> 40
BERKSHIRE HATHAWAY INC.
(Parent Company)
Condensed Financial Information
(Dollars in thousands)
Schedule I
This Schedule includes the accounts of the Buffalo News Division, an
autonomous division of Registrant. Its business is the publishing of a daily
and Sunday newspaper in Buffalo, New York.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1994 1993
------------ ------------
<S> <C> <C>
Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . $ 108,072 $ 359,938
Investments in consolidated subsidiaries . . . . . . . . . . . . . . . . 12,242,142 11,074,971
Investments - other than consolidated subsidiaries . . . . . . . . . . . 284,965 144,102
Other assets (includes identifiable assets of the
Buffalo News Division of $48,443 and $45,402 at
December 31, 1994 and 1993 respectively) . . . . . . . . . . . . . . 59,455 52,735
------------- ------------
$12,694,634 $11,631,746
=========== ===========
Liabilities and Shareholders' Equity:
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . $ 25,914 $ 28,905
Borrowings under investment agreements and other debt . . . . . . . . . 764,079 925,079
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,759 249,388
------------- ------------
819,752 1,203,372
Shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . 11,874,882 10,428,374
----------- -----------
$12,694,634 $11,631,746
=========== ===========
</TABLE>
STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Income items: 1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
From consolidated subsidiaries:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,560 $ 735 $ 499
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . 219,773 169,664 313,398
Undistributed earnings . . . . . . . . . . . . . . . . . . . . 270,359 529,016 79,926
-------- -------- --------
494,692 699,415 393,823
Interest and dividends - other investments . . . . . . . . . . . . 16,805 14,832 48,907
Realized investment gain (loss) . . . . . . . . . . . . . . . . . (773) (9,446) 37,328
Revenues of Buffalo News Division . . . . . . . . . . . . . . . . 150,916 145,470 139,764
-------- -------- --------
661,640 850,271 619,822
-------- -------- --------
Cost and expense items:
Costs and expenses of Buffalo News Division . . . . . . . . . . . 97,250 95,080 92,473
General and administrative . . . . . . . . . . . . . . . . . . . . 6,595 6,048 5,530
Interest and finance charges . . . . . . . . . . . . . . . . . . . 54,851 50,611 90,613
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . 8,146 10,411 23,921
--------- --------- ---------
166,842 162,150 212,537
-------- -------- --------
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . $494,798 $688,121 $407,285
======== ======== ========
</TABLE>
See Note to Condensed Financial Information on following page.
39
<PAGE> 41
BERKSHIRE HATHAWAY INC.
(Parent Company)
Condensed Financial Information
(Dollars in thousands)
Schedule I (continued)
See headnote on preceding page.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . $494,798 $688,121 $407,285
Adjustments to reconcile net income to
cash flows from operating activities:
Undistributed current earnings of subsidiaries . . . . . (270,359) (529,016) (79,926)
Realized investment (gain) loss . . . . . . . . . . . . 773 9,446 (37,328)
Increase (decrease) in income taxes payable . . . . . . (216,972) 187,587 57,896
Other . . . . . . . . . . . . . . . . . . . . . . . . . (60,360) (735) 45,856
--------- --------- --------
Net cash flows from operating activities . . . . . . . . . (52,120) 355,403 393,783
--------- -------- --------
Cash flows from investing activities:
Investments in and advances to consolidated
subsidiaries . . . . . . . . . . . . . . . . . . . . . . 207,421 (298,575) (197,212)
Purchases of investments . . . . . . . . . . . . . . . . . (302,910) (162,789) (39,146)
Proceeds on sales of investments . . . . . . . . . . . . . 56,743 2,757 160,264
--------- --------- --------
Net cash flows from investing activities . . . . . . . . . (38,746) (458,607) (76,094)
--------- -------- --------
Cash flows from financing activities:
Proceeds from borrowings . . . . . . . . . . . . . . . . . 1,221,108 1,259,798 952,901
Repayment of borrowings . . . . . . . . . . . . . . . . . . (1,382,108) (1,391,911) (879,109)
---------- ---------- --------
Net cash flows from financing activities . . . . . . . . . (161,000) (132,113) 73,792
---------- ---------- --------
Increase (decrease) in cash and cash equivalents . . . . . . . (251,866) (235,317) 391,481
Cash and cash equivalents at beginning of year . . . . . . . . 359,938 595,255 203,774
--------- --------- --------
Cash and cash equivalents at end of year . . . . . . . . . . . $ 108,072 $ 359,938 $595,255
========= ========== ========
Other cash flow information:
Income taxes paid . . . . . . . . . . . . . . . . . . . . . 386,768 212,313 105,592
Interest paid . . . . . . . . . . . . . . . . . . . . . . . 54,998 47,007 63,659
</TABLE>
NOTE TO CONDENSED FINANCIAL INFORMATION
Principal repayments of the Registrant's borrowings under investment
agreements and other debt outstanding at December 31, 1994 are expected to be
required no earlier than as follows:
<TABLE>
<S> <C>
1995 . . . . . . . . . . . . . . . . . . . . . . . $30,443
1996 . . . . . . . . . . . . . . . . . . . . . . . 14,671
1997 . . . . . . . . . . . . . . . . . . . . . . . 19,325
1998 . . . . . . . . . . . . . . . . . . . . . . . 15,296
1999 . . . . . . . . . . . . . . . . . . . . . . . 13,348
After 1999 . . . . . . . . . . . . . . . . . . . . 670,996
</TABLE>
For additional information regarding Registrant's borrowings under
investment agreements and other debt, see Note 11 to the Consolidated Financial
Statements on page 30.
40
<PAGE> 42
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No.
-----------
<S> <C>
3 Articles of Incorporation
Incorporated by reference to Exhibit 3 to the
Registrant's 1993 Annual Report on Form 10-K.
3.1 By-Laws
Incorporated by reference to Exhibit 3.1 to the
Registrant's 1993 Annual Report on Form 10-K.
4 Form of Indenture dated as of December 1, 1987 between
Berkshire Hathaway Inc. and The First National Bank of
Boston, as trustee, with respect to 9 3/4% Debentures due
January 15, 2018
Incorporated by reference to Exhibit 4 to
Registration Statement No. 33-19000 filed on Form S-3.
OTHER INSTRUMENTS DEFINING THE RIGHTS OF HOLDERS OF LONG-TERM
DEBT OF REGISTRANT AND ITS SUBSIDIARIES ARE NOT BEING FILED
SINCE THE TOTAL AMOUNT OF SECURITIES AUTHORIZED BY ALL OTHER
SUCH INSTRUMENTS DOES NOT EXCEED 10% OF THE TOTAL ASSETS OF
THE REGISTRANT AND ITS SUBSIDIARIES ON A CONSOLIDATED BASIS
AS OF DECEMBER 31, 1994. THE REGISTRANT HEREBY AGREES TO
FURNISH TO THE COMMISSION UPON REQUEST A COPY OF ANY SUCH
DEBT INSTRUMENT TO WHICH IT IS A PARTY.
10.1 Agreement with Capital Cities Communications, Inc. dated
January 2, 1986
Incorporated by reference to Exhibit 10.1 to the
Registrant's 1990 Annual Report on Form 10-K.
10.15 Letter Agreement between Berkshire Hathaway Inc. and
Capital/ABC, Inc. dated October 29, 1993 relating to
Capital Cities/ABC, Inc.'s offer to purchase from its
shareholders up to 2,000,000 shares of Common Stock
Incorporated by reference to Exhibit 10.15 to the
Registrant's 1993 Annual Report on Form 10-K.
10.2 Written Description of Agreement with Michael A. Goldberg
re Annual Bonus Compensation dated March 25, 1991
Incorporated by reference to Exhibit 10.2 to the
Registrant's 1990 Annual Report on Form 10-K.
10.3 Letter Agreements between Berkshire Hathaway Inc. and Salomon
Inc dated September 27, 1987 and September 28, 1987 relating
to the purchase by Registrant of an Issue of Series A
Cumulative Convertible Preferred Stock of Salomon Inc and
Certificate of Designation of said Preferred Stock
Incorporated by reference to Exhibit 10.3 to
Registrant's 1992 Annual Report on Form 10-K.
10.4 Letter Agreement dated September 1, 1986 between Berkshire
Hathaway Inc. and Trustee under indenture covering debt
securities issued by Scott Fetzer Financial Group, Inc.,
formerly World Book Finance, Inc.
Incorporated by reference to Exhibit 10.4 to the
Registrant's 1991 Annual Report on Form 10-K.
10.5 Investment Agreement dated July 1, 1986, between Berkshire
Hathaway Inc. and Scott Fetzer Financial Group, Inc.,
formerly World Book Finance, Inc. and Amendment thereto
dated August 31, 1986
Incorporated by reference to Exhibit 10.5 to the
Registrant's 1991 Annual Report on Form 10-K.
12 Statement of computation of ratio of earnings to fixed
charges
22 Subsidiaries of the Registrant
23 Independent Auditors' Consent
27 Financial Data Schedule
</TABLE>
41
<PAGE> 1
Reg S-K
Item 601
Exhibit 12
BERKSHIRE HATHAWAY INC.
Calculation of Ratio of Consolidated Earnings to Consolidated Fixed Charges
(Dollars in Thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------------
1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net earnings . . . . . . . . . . . . . . . . . . . . $494,798 $ 688,121 $407,285 $439,908 $394,093
Income tax expense . . . . . . . . . . . . . . . . 158,666 491,634*** 138,089 142,058 112,047
Minority interest in earnings . . . . . . . . . . 8,733 9,963 5,243 11,020 10,326
Equity in the loss of a less than
50% owned investee . . . . . . . . . . . . . . 32,942 -- -- -- 1,195
Fixed charges* . . . . . . . . . . . . . . . . . . 70,224 65,691 85,554 92,944 85,788
-------- ---------- -------- -------- --------
Earnings available for fixed charges . . . . . . . . $765,363 $1,255,409 $636,171 $685,930 $603,449
======== ========== ======== ======== ========
Realized investment gain, pretax, included in
earnings available for fixed charges . . . . . . . $ 91,332 $ 546,422 $ 89,937 $192,478 $ 33,989
======== ========== ======== ======== ========
Fixed charges*
Interest on indebtedness (including amorti-
zation of debt discount and expense). . . . . . $ 60,111 $ 56,545 $ 76,118** $83,589** $ 76,374
Rentals representing interest . . . . . . . . . . 10,113 9,146 9,436 9,355 9,414
-------- ---------- -------- -------- --------
$ 70,224 $ 65,691 $ 85,554 $ 92,944 $ 85,788
======== ========== ======== ======== ========
Ratio of earnings to fixed charges* . . . . . . . . . 10.90x 19.11x 7.44x 7.38x 7.03x
===== ===== ==== ==== ====
Ratio of earnings, excluding realized invest-
ment gain, to fixed charges* . . . . . . . . . . . 9.60x 10.79x 6.38x 5.31x 6.64x
==== ===== ==== ==== ====
</TABLE>
___________
* Excludes fixed charges of finance businesses which consist of interest on
indebtedness and, in years prior to 1994, interest on savings deposits.
Fixed charges of finance businesses were as follows:
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
$31,796 $24,408 $26,107 $32,883 $36,643
</TABLE>
Including fixed charges of finance businesses the ratios of earnings to
fixed charges were as follows:
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Including realized investment gain 7.81x 14.20x 5.93x 5.71x 5.23x
Excluding realized investment gain 6.92x 8.14x 5.13x 4.18x 4.95x
</TABLE>
** Excludes optional prepayment premiums of $22,525 and $5,661 in 1992 and
1991 respectively, related to redemptions prior to maturity of certain
term debt obligations.
*** Includes charge of $70,984 representing the cumulative effect of change
in accounting for income taxes.
<PAGE> 1
Reg. S-K
Item 601
Exhibit 22
BERKSHIRE HATHAWAY INC.
Subsidiaries of Registrant (1)
December 31, 1994
<TABLE>
<CAPTION>
State of
Company Name Incorporation
------------ -------------
<S> <C>
Berkshire Hathaway Credit Corporation Nebraska
BHSF Inc. Delaware
BH Shoe Holdings, Inc. Delaware
Blue Chip Stamps California
Borsheim Jewelry Company, Inc. Nebraska
Campbell Hausfeld/Scott Fetzer Company Delaware
Central States Indemnity Co. of Omaha Nebraska
Central States of Omaha Companies, Inc. Nebraska
Columbia Insurance Company Nebraska
Continental Divide Insurance Company Colorado
Cornhusker Casualty Company Nebraska
Cypress Insurance Company California
Dexter Shoe Company Maine
The Fechheimer Brothers Company (2) Delaware
H. H. Brown Shoe Company, Inc. Delaware
Isabela Shoe Corporation Delaware
Lowell Shoe, Inc. New Hampshire
National Fire & Marine Insurance Company Nebraska
National Indemnity Company Nebraska
National Indemnity Company of the South Florida
National Indemnity Company of Mid-America Minnesota
National Liability and Fire Insurance Company Illinois
Nebraska Furniture Mart, Inc. Nebraska
Oak River Insurance Company Nebraska
OCSAP, Ltd Maine
Redwood Fire and Casualty Insurance Company Nebraska
The Scott Fetzer Company Delaware
Scott Fetzer Financial Group, Inc. Delaware
See's Candies, Inc. California
See's Candy Shops, Incorporated California
Wesco Financial Corporation Delaware
Wesco-Financial Insurance Company Nebraska
Wesco Holdings Midwest Inc. Nebraska
World Book/Scott Fetzer Company Nebraska
</TABLE>
(1) Each of the named subsidiaries is not necessarily a "significant
subsidiary" as defined in Rule 1-02(v) of Regulation S-X, and Berkshire has
several additional subsidiaries not named above. The unnamed subsidiaries,
considered in the aggregate as a single subsidiary, would not constitute a
"significant subsidiary" at the end of the year covered by this report.
(2) The names have been omitted of 30 wholly-owned U.S. subsidiaries of
The Fechheimer Brothers Company, each of whom operated in the business of
uniform manufacturing and/or distribution.
<PAGE> 1
Reg S-K
Item 601
Exhibit 23
Page 1 of 1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-50989 of Berkshire Hathaway Inc. on Form S-3 of our reports dated March 9,
1995, appearing in this Annual Report on Form 10-K of Berkshire Hathaway Inc.
for the year ended December 31, 1994.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
March 30, 1995
<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 10K AS
FILED HEREWITH, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS AND RELATED NOTES.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<EXCHANGE-RATE> 1
<CASH> 273,881
<SECURITIES> 18,080,645
<RECEIVABLES> 580,600
<ALLOWANCES> 0
<INVENTORY> 425,431
<CURRENT-ASSETS> 0
<PP&E> 275,667
<DEPRECIATION> 0
<TOTAL-ASSETS> 21,338,182
<CURRENT-LIABILITIES> 0
<BONDS> 810,719
<COMMON> 6,907
0
0
<OTHER-SE> 11,867,975
<TOTAL-LIABILITY-AND-EQUITY> 21,338,192
<SALES> 2,351,918
<TOTAL-REVENUES> 3,299,983
<CGS> 1,449,999
<TOTAL-COSTS> 2,243,253
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 60,111
<INCOME-PRETAX> 662,197
<INCOME-TAX> 158,666
<INCOME-CONTINUING> 494,798
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 494,798
<EPS-PRIMARY> 420
<EPS-DILUTED> 420
</TABLE>
