<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
--------------------------------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(b) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------------------- -----------------------
Commission file number 1-10125
-------
BERKSHIRE HATHAWAY INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04 2254452
------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification number)
incorporation or organization)
1440 Kiewit Plaza, Omaha, Nebraska 68131
-----------------------------------------------------
(Address of principal executive office) (Zip Code)
(402) 346-1400
----------------------------------------------------
(Registrant's telephone number, including area code)
---------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
X
--- --
YES NO
Number of shares of common stock outstanding as of
November 10, 1995..................1,193,512
---------
<PAGE> 2
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 9/30/95
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets -- 2
September 30, 1995 and December 31, 1994
Consolidated Statements of Earnings -- 3
Third Quarter and First Nine Months, 1995 and 1994
Condensed Consolidated Statements of Cash Flows -- 4
First Nine Months, 1995 and 1994
Notes to Interim Consolidated Financial Statements 5-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 9-12
CONDITION AND RESULTS OF OPERATIONS
PART II - OTHER INFORMATION 12
</TABLE>
1
<PAGE> 3
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 9/30/95
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . $ 1,879,200 $ 273,881
Investments:
Securities with fixed maturities . . . . . . . . . . . . . . . 883,024 1,820,733
Marketable equity securities . . . . . . . . . . . . . . . . . 20,828,857 15,236,494
Salomon Inc . . . . . . . . . . . . . . . . . . . . . . . . . . 1,034,045 1,023,418
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . 784,525 580,600
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . 609,503 425,431
Properties and equipment . . . . . . . . . . . . . . . . . . . . 335,917 275,667
Assets of finance businesses . . . . . . . . . . . . . . . . . . 839,849 717,082
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 1,188,260 984,876
----------- -----------
$28,383,180 $21,338,182
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Property and casualty insurance policyholder liabilities . . . . $ 4,773,134 $ 4,200,813
Accounts payable, accruals and other liabilities . . . . . . . . 520,136 397,384
Income taxes, principally deferred . . . . . . . . . . . . . . . 5,112,756 3,292,602
Borrowings under investment agreements and other debt . . . . . . 806,607 810,719
Liabilities of finance businesses . . . . . . . . . . . . . . . . 746,677 562,443
----------- -----------
11,959,310 9,263,961
----------- -----------
Minority shareholders' interests . . . . . . . . . . . . . . . . 244,633 199,339
----------- -----------
Shareholders' equity:
Common stock - par value of 1,381,308 issued shares . . . . . . 6,907 6,907
Capital in excess of par value . . . . . . . . . . . . . . . . 1,001,728 656,074
Unrealized appreciation of investments, net . . . . . . . . . . 9,847,883 6,364,362
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . 5,357,438 4,885,173
----------- -----------
16,213,956 11,912,516
Less: Cost of common shares in treasury
(September 30, 1995 - 187,796; December 31, 1994 - 203,558) 34,719 37,634
----------- -----------
Total shareholders' equity . . . . . . . . . . . . . . . 16,179,237 11,874,882
----------- -----------
$28,383,180 $21,338,182
=========== ===========
</TABLE>
See accompanying Notes to Interim Consolidated Financial Statements
2
<PAGE> 4
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 9/30/95
CONSOLIDATED STATEMENTS OF EARNINGS
(dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
Third Quarter First Nine Months
------------------------- --------------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Sales and service revenues . . . . . . . . . . . . . $ 682,671 $ 555,962 $1,871,380 $1,665,548
Insurance premiums earned . . . . . . . . . . . . . . 173,852 131,144 579,423 477,160
Interest and dividend income . . . . . . . . . . . . 120,573 101,998 337,206 315,017
Income from investment in Salomon Inc . . . . . . . . 31,113 7,789 61,062 25,525
Income from finance businesses . . . . . . . . . . . 8,327 5,290 21,529 18,354
Realized investment gain (loss) . . . . . . . . . . . 66,809 (6,683) 141,167 80,219
---------- ---------- ---------- -----------
1,083,345 795,500 3,011,767 2,581,823
---------- ---------- ---------- ----------
COST AND EXPENSES:
Cost of products and services sold . . . . . . . . . 442,184 357,148 1,189,534 1,046,215
Insurance losses and loss adjustment expenses . . . . 152,981 103,431 468,660 381,961
Insurance underwriting expenses . . . . . . . . . . . 49,556 36,585 157,704 123,344
Selling, general and administrative expenses . . . . 191,975 146,222 517,002 443,334
Interest expense . . . . . . . . . . . . . . . . . . 13,920 13,996 40,552 45,463
---------- ---------- ---------- ----------
850,616 657,382 2,373,452 2,040,317
---------- ---------- ---------- ----------
EARNINGS BEFORE INCOME TAXES AND MINORITY INTEREST . . 232,729 138,118 638,315 541,506
Income taxes . . . . . . . . . . . . . . . . . . . . 57,469 29,674 155,648 130,631
Minority interest . . . . . . . . . . . . . . . . . . 2,791 2,624 10,402 7,518
---------- ---------- ---------- ----------
NET EARNINGS . . . . . . . . . . . . . . . . . . . . . $ 172,469 $ 105,820 $ 472,265 $ 403,357
========== ========== ========== ==========
Average shares outstanding . . . . . . . . . . . . . 1,193,512 1,177,750 1,184,942 1,177,750
NET EARNINGS PER SHARE . . . . . . . . . . . . . . . . $145 $ 90 $399 $342
==== ==== ==== ====
</TABLE>
See accompanying Notes to Interim Consolidated Financial Statements
3
<PAGE> 5
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 9/30/95
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
First Nine Months
-------------------------------
1995 1994
------------ ------------
<S> <C> <C>
Net cash flows from operating activities . . . . . . . . . . . . . . . $ 829,892 $ 463,764
----------- -----------
Cash flows from investing activities:
Purchases of investments . . . . . . . . . . . . . . . . . . . . . (1,576,185) (4,453,893)
Proceeds on sales and maturities of investments . . . . . . . . . . 2,441,802 2,490,049
Loans and investments originated in finance businesses . . . . . . (326,253) (158,540)
Principal collections on loans and investments originated
in finance businesses . . . . . . . . . . . . . . . . . . . . . . 302,776 254,522
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,519) (18,527)
----------- -----------
Net cash flows from investing activities . . . . . . . . . . . . . . . 831,621 (1,886,389)
----------- -----------
Cash flows from financing activities:
Proceeds from borrowings of finance businesses . . . . . . . . . . 231,274 196,619
Proceeds from other borrowings . . . . . . . . . . . . . . . . . . 825,942 941,712
Repayments of borrowings of finance businesses . . . . . . . . . . (202,278) (273,723)
Repayments of other borrowings . . . . . . . . . . . . . . . . . . (905,488) (1,109,886)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (818) (938)
----------- -----------
Net cash flows from financing activities . . . . . . . . . . . . . . . (51,368) (246,216)
----------- -----------
Increase (decrease) in cash and cash equivalents . . . . . . . . . . . 1,610,145 (1,668,841)
Cash and cash equivalents at beginning of year* . . . . . . . . . . . . 289,857 1,854,621
----------- -----------
Cash and cash equivalents at end of first nine months* . . . . . . . . $ 1,900,002 $ 185,780
=========== ===========
Supplemental cash flow information:
Non-cash investing and financing activities:
Liabilities assumed in connection with acquisitions
of businesses . . . . . . . . . . . . . . . . . . . . . . . . . . $ 248,445 $ --
Common shares issued in connection with acquisitions
of businesses . . . . . . . . . . . . . . . . . . . . . . . . . . 348,569 --
Cash paid during the period for:
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 214,620 379,397
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,042 72,144
*Cash and cash equivalents are comprised of the following:
Beginning of year --
Finance businesses . . . . . . . . . . . . . . . . . . . . . . . . $ 15,976 $ 16,518
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273,881 1,838,103
----------- -----------
$ 289,857 $ 1,854,621
=========== ===========
End of first nine months --
Finance businesses . . . . . . . . . . . . . . . . . . . . . . . . $ 20,802 $ 21,029
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,879,200 164,751
----------- -----------
$ 1,900,002 $ 185,780
=========== ===========
</TABLE>
See accompanying Notes to Interim Consolidated Financial Statements
4
<PAGE> 6
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 9/30/95
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. GENERAL
Reference is made to Berkshire's most recently issued Annual Report that
included information necessary or useful to understanding of Berkshire's
businesses and financial statement presentations. In particular, Berkshire's
significant accounting policies and practices were presented as Note 1 to the
Consolidated Financial Statements included in that Report.
Financial information in this Report reflects any adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
management, necessary to a fair statement of results for the interim periods in
accordance with generally accepted accounting principles.
For a number of reasons, Berkshire's results for interim periods are not
normally indicative of results to be expected for the year. Most
significantly, the estimation error inherent to the process of determining
liabilities for unpaid losses of insurance subsidiaries can be relatively more
significant to results of interim periods than to results for a full year.
Variations in amount and timing of realized securities gains or losses cause
significant variations in periodic net earnings.
NOTE 2. BUSINESS ACQUISITIONS
During 1995's second quarter, the Company consummated mergers with
Helzberg's Diamond Shops, Inc. ("Helzberg's") and with R.C. Willey Home
Furnishings ("R.C. Willey") by reissuing 15,762 shares of its common stock held
in treasury in exchange for 100% of the outstanding common stock of each of
these companies. Helzberg's operates a chain of 150 jewelry stores operating
in 26 states and R.C. Willey, through its seven locations, is the dominant
retailer of home furnishings in Utah. Both mergers were accounted for by the
purchase method of accounting and, accordingly, the operating results of each
of these businesses are included in the Company's consolidated statement of
earnings from the effective dates of each of the mergers (Helzberg's -- April
30, 1995; R.C. Willey -- June 29, 1995).
NOTE 3. INVESTMENTS IN SECURITIES WITH FIXED MATURITIES
Data with respect to investments in securities with fixed maturities
(other than Salomon Inc Cumulative Convertible Preferred Stock and securities
with fixed maturities held by finance businesses -- See Notes 4 and 10) are
shown in the tabulation below.
<TABLE>
<CAPTION>
(000s omitted)
September 30, December 31,
1995 1994
------------ ------------
<S> <C> <C>
Amortized cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 774,367 $1,805,515
Gross unrealized gains . . . . . . . . . . . . . . . . . . . . . . . . . 111,790 39,766
Gross unrealized losses . . . . . . . . . . . . . . . . . . . . . . . . . (3,133) (24,548)
---------- ----------
Estimated fair value . . . . . . . . . . . . . . . . . . . . . . . . . . $ 883,024 $1,820,733
========== ==========
</TABLE>
5
<PAGE> 7
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 9/30/95
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4. INVESTMENT IN SALOMON INC
The Company's investment in Salomon Inc consists of the following:
<TABLE>
<CAPTION>
(000s omitted)
September 30, 1995 December 31, 1994
--------------------------------------- ---------------------------------------
Fair Market Carrying Fair Market Carrying
Cost Value Value Cost Value Value
------------ ------------- ----------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Cumulative Convertible
Preferred Stock . . . . . . . . . . $ 700,000 $ 735,000 $ 735,000 $ 700,000 $ 735,000 $ 735,000
Common Stock . . . . . . . . . . . . 324,445 255,394 299,045 324,445 248,760 288,418
---------- ---------- ---------- ---------- ---------- ----------
$1,024,445 $ 990,394 $1,034,045 $1,024,445 $ 983,760 $1,023,418
========== ========== ========== ========== ========== ==========
</TABLE>
The carrying value of the Salomon Inc common stock is determined in
accordance with the provisions of Accounting Principles Board Opinion No. 18
"The Equity Method of Accounting for Investments in Common Stock". That
pronouncement specifies that the equity method be applied only to investments
in common stock. Accordingly, the Cumulative Convertible Preferred Stock is
carried at fair value.
At September 30, 1995, Berkshire subsidiaries possessed slightly in
excess of 20% of the total voting rights in Salomon Inc. On October 31, 1995,
in accordance with the terms of the Cumulative Convertible Preferred Stock,
Salomon Inc redeemed 20% of the preferred shares owned by Berkshire for $140
million. After the redemption, Berkshire subsidiaries possessed 17.6% of the
total voting rights in Salomon Inc.
NOTE 5. INVESTMENTS IN MARKETABLE EQUITY SECURITIES
Data with respect to investments in marketable equity securities are
shown in the tabulation below.
<TABLE>
<CAPTION>
(000s omitted)
September 30, December 31,
1995 1994
------------- ------------
<S> <C> <C>
Total cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,847,856 $ 5,583,111
Gross unrealized gains . . . . . . . . . . . . . . . . . . . . . . . . . 15,007,438 9,789,589
Gross unrealized losses . . . . . . . . . . . . . . . . . . . . . . . . . (26,437) (136,206)
------------ -----------
Total approximate market value . . . . . . . . . . . . . . . . . . . . . $20,828,857 $15,236,494
=========== ===========
Carrying value:
American Express Company . . . . . . . . . . . . . . . . . . . . . . . $ 2,194,650 $ 818,918
Capital Cities/ABC, Inc. . . . . . . . . . . . . . . . . . . . . . . . 2,352,500 1,705,000
The Coca-Cola Company . . . . . . . . . . . . . . . . . . . . . . . . . 6,900,000 5,150,000
GEICO Corporation (See Note 6) . . . . . . . . . . . . . . . . . . . . 2,337,562 1,678,250
The Gillette Company . . . . . . . . . . . . . . . . . . . . . . . . . 2,286,000 1,797,000
Wells Fargo & Company . . . . . . . . . . . . . . . . . . . . . . . . . 1,260,620 984,727
All others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,497,525 3,102,599
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $20,828,857 $15,236,494
=========== ===========
</TABLE>
6
<PAGE> 8
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 9/30/95
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. ACQUISITION OF GEICO CORPORATION COMMON STOCK
On August 25, 1995, Berkshire and GEICO Corporation ("GEICO") announced
that Berkshire would acquire all the GEICO shares it does not currently own for
$70 per share or approximately $2.3 billion. GEICO is a multiple line property
and casualty insurer, the principal business of which is writing private
passenger automobile insurance. The transaction is subject to the required
approval of state insurance regulators and to the approval of holders of 80% of
GEICO's shares. Since Berkshire currently owns about 51% of GEICO's
outstanding shares, the holders of about 60% of GEICO's shares not owned by
Berkshire must also vote in favor of the transaction. Pursuant to an order of
the insurance regulatory authorities issued in connection with Berkshire's
purchase of GEICO stock in 1976, Berkshire has granted a proxy to an
independent bank which in voting such shares is guided solely by its judgement
as to the best interests of Berkshire.
It is expected that the transaction will be consummated during January,
1996, at which time GEICO will become a wholly owned subsidiary of Berkshire
and at which time the aforementioned proxy will be vacated. Accordingly, upon
consummation of the transaction and termination of the proxy, Berkshire will
begin including GEICO's accounts in its consolidated financial statements.
NOTE 7. OTHER ASSETS
Other assets are summarized below:
<TABLE>
<CAPTION>
(000s omitted)
September 30, December 31,
1995 1994
------------ ------------
<S> <C> <C>
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 687,977 $454,633
Deferred charges re reinsurance assumed . . . . . . . . . . . . . . . . . 402,430 440,664
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97,853 89,579
---------- --------
$1,188,260 $984,876
========== ========
</TABLE>
NOTE 8. PROPERTY AND CASUALTY INSURANCE POLICYHOLDER LIABILITIES
Property and casualty insurance policyholder liabilities are summarized
below:
<TABLE>
<CAPTION>
(000s omitted)
September 30, December 31,
1995 1994
------------- ------------
<S> <C> <C>
Unpaid losses and loss adjustment expenses . . . . . . . . . . . . . . . $3,656,046 $3,430,028
Unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . 612,909 307,232
Funds held under reinsurance assumed . . . . . . . . . . . . . . . . . . 359,425 307,287
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144,754 156,266
---------- ----------
$4,773,134 $4,200,813
========== ==========
</TABLE>
7
<PAGE> 9
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 9/30/95
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. DEFERRED INCOME TAX LIABILITY
The tax effects of significant items comprising the Company's net
deferred tax liability as of September 30, 1995 and December 31, 1994 are as
follows:
<TABLE>
<CAPTION>
(000s omitted)
September 30, December 31,
1995 1994
------------- ------------
<S> <C> <C>
Deferred tax liabilities:
Relating to unrealized appreciation of investments . . . . . . . . . . . . $5,280,892 $3,381,328
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64,624 71,883
----------- -----------
5,345,516 3,453,211
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (281,391) (223,010)
---------- ----------
Net deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . $5,064,125 $3,230,201
========== ==========
</TABLE>
NOTE 10. FINANCE BUSINESSES
Assets and liabilities of Berkshire's finance businesses are summarized
below.
<TABLE>
<CAPTION>
(000s omitted)
September 30, December 31,
1995 1994
------------- ------------
<S> <C> <C>
Assets
------
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . $ 20,802 $ 15,976
Installment loans and other receivables . . . . . . . . . . . . . . . . . 272,476 157,985
Fixed maturity investments . . . . . . . . . . . . . . . . . . . . . . . 542,123 538,866
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,448 4,255
-------- --------
$839,849 $717,082
======== ========
Liabilities
-----------
8.125% Notes, payable in 1996 . . . . . . . . . . . . . . . . . . . . . . $120,000 $120,000
Borrowings under investment agreements and other debt . . . . . . . . . . 493,678 369,964
Annuity reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101,733 41,021
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,266 31,458
-------- --------
$746,677 $562,443
======== ========
</TABLE>
NOTE 11. UNREALIZED APPRECIATION OF INVESTMENTS
Changes in "Unrealized appreciation of investments, net", the balance
of which is carried in shareholders' equity, were as follows during the third
quarter and first nine months of 1995 and 1994:
<TABLE>
<CAPTION>
(000s omitted)
Third Quarter First Nine Months
-------------------------- --------------------------
1995 1994 1995 1994
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Increase in unrealized appreciation . . . . . $2,020,101 $ 783,555 $ 5,421,056 $ 900,245
Increase in deemed applicable income taxes . . (707,919) (273,902) (1,899,564) (315,758)
(Increase) decrease in minority shareholders'
interest . . . . . . . . . . . . . . . . . (7,683) 4,099 (37,971) (8,765)
---------- ---------- ----------- ----------
Net increase . . . . . . . . . . . . . . . . 1,304,499 513,752 3,483,521 575,722
Balance at beginning of period . . . . . . . . 8,543,384 5,474,622 6,364,362 5,412,652
---------- ---------- ----------- ----------
Balance at end of third quarter . . . . . . . $9,847,883 $5,988,374 $ 9,847,883 $5,988,374
========== ========== =========== ==========
</TABLE>
8
<PAGE> 10
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 9/30/95
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net earnings for the third quarter and first nine months of the current
and prior year are disaggregated in the following table. Amounts are in
thousands and each figure is income tax effected.
<TABLE>
<CAPTION>
Third Quarter First Nine Months
----------------------- -----------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Insurance, except realized investment gain/loss . . $ 98,418 $ 73,615 $277,938 $237,063
Manufacturing, merchandising and services . . . . . 33,894 40,074 111,529 128,778
Unallocated income/expense, net . . . . . . . . . . 5,659 6,013 17,863 14,989
Interest expense* . . . . . . . . . . . . . . . . . (8,689) (9,236) (25,234) (29,268)
-------- -------- -------- --------
Earnings before realized investment gain/loss . 129,282 110,466 382,096 351,562
Realized investment gain (loss) . . . . . . . . . . 43,187 (4,646) 90,169 51,795
-------- -------- -------- --------
Net earnings . . . . . . . . . . . . . . . . . $172,469 $105,820 $472,265 $403,357
======== ======== ======== ========
</TABLE>
* For purposes of the above table, interest expense of finance businesses is
netted against the directly related service activity revenues.
INSURANCE GROUP
The after tax figures shown above for Insurance Group earnings, except
realized investment gain/loss, are aggregated in the following table. Dollar
amounts are in thousands.
<TABLE>
<CAPTION>
Third Quarter First Nine Months
------------------------ -------------------------
1995 1994 1995 1994
--------- --------- -------- ----------
<S> <C> <C> <C> <C>
Premiums earned from:
Primary or direct insurance . . . . . . . . . . $ 60,497 $ 59,182 $176,354 $163,998
Reinsurance assumed . . . . . . . . . . . . . . 113,355 71,962 403,069 313,162
-------- -------- -------- --------
$173,852 $131,144 $579,423 $477,160
======== ======== ======== ========
Underwriting gain (loss) attributable to:
Primary or direct insurance . . . . . . . . . . $ 6,944 $ 17,229 $ 10,438 $ 22,232
Reinsurance assumed . . . . . . . . . . . . . . (35,860) (26,332) (58,067) (51,066)
-------- -------- -------- --------
Total underwriting loss . . . . . . . . . . . (28,916) (9,103) (47,629) (28,834)
Net investment income . . . . . . . . . . . . . . . 142,142 94,736 368,809 303,768
-------- -------- -------- --------
Earnings before income taxes . . . . . . . . 113,226 85,633 321,180 274,934
Income tax expense . . . . . . . . . . . . . . . . 13,378 10,540 37,686 33,916
Minority interest . . . . . . . . . . . . . . . . . 1,430 1,478 5,556 3,955
-------- -------- -------- --------
Net earnings from Insurance,
except realized investment gain/loss . . . $ 98,418 $ 73,615 $277,938 $237,063
======== ======== ======== ========
</TABLE>
Premiums earned during the third quarter and first nine months of 1995
by the Group's primary or direct insurance operations exceeded amounts earned in
the corresponding prior year periods by $1.3 million (2.2%) and $12.4 million
(7.5%), respectively. These comparative increases derived from increased
amounts earned by the homestate and credit card credit insurance businesses,
offset by lower amounts earned by the traditional commercial motor vehicle and
California worker's compensation insurance businesses. Despite the comparative
increases in the credit insurance and homestate operations, premium volume
continues to be constrained by management's perception of inadequate prices for
many commercial insurance coverages.
9
<PAGE> 11
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 9/30/95
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. (CONTINUED)
INSURANCE GROUP (Continued)
Underwriting results of the Group's primary or direct insurance
operations for the third quarter and first nine months of 1994 included credits
of about $11 million and $22 million, respectively, from reductions of loss
reserves established for pre-1994 loss occurrences with respect to the
professional/specialty risk operations. There were no similar credits in 1995
periods. Excluding the benefit of the credits in 1994 periods, underwriting
gains in 1995 from the primary or direct insurance businesses exceeded gains in
1994 periods by $1 million for the third quarter and $10 million for the first
nine months.
Reinsurance premiums earned during the third quarter and first nine
months of 1995 exceeded amounts earned during the corresponding prior year
periods by $41.4 million (57.5%) and $89.9 million (28.7%), respectively.
Increased amounts earned in 1995 periods were attributed to a small number of
quota-share and non-catastrophe excess of loss treaties. Premiums earned from
such policies during the third quarter were $96 million in 1995 and $48 million
in 1994. For the first nine months premiums earned from quota share and non-
catastrophe coverages totalled $265 million in 1995 and $145 million in 1994.
Premiums earned from catastrophe excess of loss coverages during the third
quarter were $13 million in 1995 and $24 million in 1994. Amounts earned from
such coverages for the first nine months were $133 million in 1995 and $167
million in 1994. In recent years, significant amounts of industry capital has
been devoted to the catastrophe excess of loss business and prices for these
coverages have declined in many instances to levels considered inadequate by
management. Premiums earned from catastrophe coverages may decline in the
future.
Underwriting losses from quota share and non-catastrophe reinsurance
coverages totalled $23 million and $6 million for the third quarter of 1995 and
1994, respectively. For the first nine months, underwriting losses derived
from these coverages totalled about $79 million in 1995 and $42 million in
1994. The catastrophe excess of loss business produced a small gain in the
third quarter of 1995 compared to a small loss in 1994. Underwriting gains
from the catastrophe business totalled $74 million and $40 million for the
first nine months of 1995 and 1994, respectively. Reinsurance underwriting
results also include charges related to accretion of discounted structured
settlement liabilities and amortization of deferred charges established with
respect to retroactive reinsurance contracts. These recurring charges, with no
offsetting premium income, totalled $19 million and $17 million for the third
quarter of 1995 and 1994, respectively. For the first nine months, such
charges aggregated $53 million in 1995 and $49 million in 1994.
During the fourth quarter of 1995, many catastrophe policies will
expire and the related premiums will be earned reflecting the Group's practice
to defer earning catastrophe premiums until the earlier of a loss occurrence or
policy expiration. In the absence of any fourth quarter catastrophe
occurrences, this business could produce a pre-tax net underwriting gain of
about $85 million. This compares to 1994's fourth quarter pre-tax gain of
about $200 million.
Net investment income of the Insurance Group for the third quarter and
first nine months of 1995 and 1994 included the Group's equity in net earnings
of Salomon Inc with respect to the Group's investment in common stock of that
company. For the third quarter, the equity in net earnings was $15 million in
1995 compared to a loss of $8 million in 1994. For the first nine months of
1995, the Group's equity in net earnings of Salomon Inc was $14 million
compared to a loss of $22 million for the first nine months of 1994. The Group
continues to employ substantial amounts of investable policyholder funds, or
"float", about $3.8 billion at September 30, 1995.
10
<PAGE> 12
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 9/30/95
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. (CONTINUED)
MANUFACTURING, MERCHANDISING AND SERVICES
Results of operations of Berkshire's diverse non-insurance businesses
are aggregated in the following table. Dollar amounts are in thousands.
<TABLE>
<CAPTION>
Third Quarter First Nine Months
------------------------------------ -------------------------------------
1995 1994 1995 1994
---------------- ---------------- ---------------- -----------------
Amount % Amount % Amount % Amount %
-------- ----- -------- ----- ---------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues . . . . . . . . . . . $688,173 100.0 $561,669 100.0 $1,890,275 100.0 $1,686,153 100.0
Costs and expenses . . . . . . 629,120 91.4 496,206 88.3 1,700,054 89.9 1,474,911 87.5
-------- ----- -------- ----- ---------- ----- ---------- -----
Earnings before income taxes . 59,053 8.6 65,463 11.7 190,221 10.1 211,242 12.5
Applicable income taxes . . . . 23,999 3.5 24,486 4.4 75,658 4.0 79,798 4.7
Applicable minority interest . 1,160 0.2 903 0.2 3,034 0.2 2,666 0.2
-------- ----- -------- ----- ---------- ----- ---------- -----
Net earnings . . . . . . . . . $ 33,894 4.9 $ 40,074 7.1 $ 111,529 5.9 $ 128,778 7.6
======== ===== ======== ===== ========== ===== ========== =====
</TABLE>
Revenues from these several and diverse business activities during
1995's third quarter and first nine months were greater by $126.5 million
(22.5%) and $204.1 million (12.1%). Much of the increase during the third
quarter and for the first nine months resulted from the acquisitions of
Helzberg's Diamond Shops, Inc. ("Helzberg's") and R.C. Willey Home Furnishings
("R.C. Willey"). Helzberg's operates a chain of 150 jewelry stores and R. C.
Willey is the dominant retailer of home furnishings in Utah. As discussed in
the Notes to the Interim Consolidated Financial Statements, these businesses
were acquired during 1995's second quarter and their results are included in the
statement of earnings from the effective dates of the acquisitions. It is
anticipated that Helzberg's and R.C. Willey will generate combined annual
revenues of about $600 million.
Also contributing to the aforementioned revenue increases were
comparative increases recorded for both the third quarter and first nine months
by Berkshire's home furnishings (Nebraska Furniture Mart) and home cleaning
systems (Kirby brand products) segments. Somewhat offsetting these increases
were declines in comparative revenues for both the third quarter and first nine
months by Berkshire's encyclopedia (World Book products) and shoe (H. H. Brown
Shoe Company, Lowell Shoe, Inc. and Dexter Shoe Company) segments.
Net earnings from this group of businesses declined $6.2 million (15.4%)
during 1995's third quarter and $17.2 million (13.4%) during 1995's first nine
months as compared to the prior year. The inclusion of Helzberg's and R.C.
Willey in 1995's third quarter and first nine months had a favorable
impact on comparative results. However, more than offsetting the favorable
impact of these acquisitions were declines in 1995 net earnings as compared to
1994 in the third quarter and first nine months from Berkshire's encyclopedia
and shoe segments.
UNALLOCATED INCOME/EXPENSE, NET
Unallocated income/expense represents principally investment income of
the parent company and non-insurance subsidiaries, reduced by parent company
administrative costs.
INTEREST EXPENSE
Average outstanding borrowings under investment agreements during the
first nine months of 1995 were approximately $105 million less than the average
amount outstanding during the first nine months of 1994. The decline in
borrowings accounted for most of the reduction in interest expense in 1995 as
compared to 1994.
11
<PAGE> 13
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 9/30/95
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. (CONTINUED)
REALIZED INVESTMENT GAIN/LOSS
Realized investment gain/loss has been a recurring element in
Berkshire's net earnings for many years. The amount -- recorded when
securities are sold or other than temporarily impaired -- may fluctuate
significantly from period to period, with a meaningful effect upon Berkshire's
consolidated net earnings. But, the amount of realized investment gain or loss
for any given period has no predictive value, and variations in amount from
period to period have no practical analytical value, particularly in view of
the net unrealized price appreciation now existing in Berkshire's consolidated
investment portfolio.
FINANCIAL CONDITION
Berkshire's balance sheet continues to reflect significant liquidity
and above average capital strength. Shareholders' equity at September 30,
1995, was $16.2 billion or $13,556 per share. Over the past twelve months, net
book value per share has grown by 40.0%.
It is anticipated that the closing of the transaction whereby
Berkshire will acquire all of the GEICO shares it does not currently own will
occur during early 1996. The total cash consideration required at the closing
of approximately $2.3 billion will be obtained from internally generated funds.
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit 27 -- Financial Data Schedule
b. Reports on Form 8-K
Form 8-K Filed August 25, 1995 - Item 5 Other Events
SIGNATURE
Pursuant to the requirement of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C>
BERKSHIRE HATHAWAY INC.
-----------------------
(Registrant)
Date November 10, 1995 /s/ Marc D. Hamburg
----------------- -------------------------------
(Signature)
Marc D. Hamburg, Vice President
and Principal Financial Officer
</TABLE>
12
<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 10-Q as
filed herewith, and is qualified in its entirety by reference to such financial
statements and related notes.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<EXCHANGE-RATE> 1
<CASH> 1,879,200
<SECURITIES> 22,745,926
<RECEIVABLES> 784,525
<ALLOWANCES> 0
<INVENTORY> 609,503
<CURRENT-ASSETS> 0
<PP&E> 335,917
<DEPRECIATION> 0
<TOTAL-ASSETS> 28,383,180
<CURRENT-LIABILITIES> 0
<BONDS> 806,607
<COMMON> 6,907
0
0
<OTHER-SE> 16,172,330
<TOTAL-LIABILITY-AND-EQUITY> 28,383,180
<SALES> 1,871,380
<TOTAL-REVENUES> 2,472,332
<CGS> 1,189,534
<TOTAL-COSTS> 1,815,898
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40,552
<INCOME-PRETAX> 638,315
<INCOME-TAX> 155,648
<INCOME-CONTINUING> 472,265
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 472,265
<EPS-PRIMARY> 399
<EPS-DILUTED> 399
</TABLE>
