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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) January 2, 1996
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Berkshire Hathaway Inc.
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(Exact name of registrant as specified in its charter)
Delaware 1-10125 04 2254452
- ---------------------------- ------------ -------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
1440 Kiewit Plaza, Omaha, NE 68131
- ---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (402) 346-1400
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(Former name or former address, if changed since last report.)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On January 2, 1996, GEICO Corporation ("GEICO") became an indirect
wholly-owned subsidiary of Berkshire Hathaway Inc. (the "Registrant") as a
result of the merger of an indirect wholly-owned subsidiary ("Merger Sub") of
Registrant with and into GEICO which shall continue as the surviving
corporation. (The date of January 2, 1996 is hereafter referred to as the
"Merger Date".) The merger was consummated pursuant to a previously reported
Agreement and Plan of Merger (the "Agreement") dated August 25, 1995. Pursuant
to the Agreement, each issued and outstanding common share of GEICO on the
Merger Date, except shares held by Registrant's subsidiaries and GEICO, was
converted into the right to receive $70.00 per share, or an aggregate amount of
$2.33 billion (the "Merger Consideration"). The amount of the Merger
Consideration was determined based upon 33,284,733 outstanding common shares
held by the public on the Merger Date.
The Merger Consideration was provided from Registrant's own funds
through Merger Sub. No borrowed funds were involved. As of the Merger Date,
subsidiaries of Registrant owned 34,250,000 common shares of GEICO which were
acquired in 1980 and earlier years for an aggregate cost of $45.7 million. Up
to the Merger Date, neither Registrant nor its subsidiaries had acquired any
shares of GEICO's common stock since 1980. However, Registrant's ownership
percentage, due to intervening stock repurchases by GEICO, gradually increased
from 33.2% in 1980 to 50.72% immediately prior to the Merger Date.
GEICO was organized as a Delaware corporation in 1978. In 1979, GEICO
became the parent of Government Employees Insurance Company ("GEICO Sub"), its
principal subsidiary, and is also the parent corporation of the other GEICO Sub
Companies, all of which are in the business of providing insurance and
financial services and which, except as otherwise noted below, Registrant
intends to continue.
GEICO Sub was founded in 1936 and has been continuously engaged in the
insurance business. GEICO Sub is a multiple line property and casualty
insurer, the principal business of which is writing private passenger
automobile insurance primarily for preferred-risk government employees and
military personnel. To a lesser extent it also writes homeowners insurance and
fire insurance (businesses that GEICO Sub plans to have exited in three years),
personal umbrella liability and boat owners insurance for all qualified
applicants. GEICO General Insurance Company is a subsidiary of GEICO Sub
which, in 1987, began writing private passenger automobile insurance for
preferred-risk drivers not associated with the government or the military.
GEICO Indemnity Company ("GI"), a subsidiary of GEICO, writes standard-risk
private passenger automobile and motorcycle insurance. GEICO Casualty Company
(the name of which was changed from Criterion Casualty Company effective
January 6, 1994), a subsidiary of GI, writes nonstandard-risk private passenger
automobile insurance. The insurance companies market their policies primarily
through direct response methods.
Criterion Life Insurance Company ("Criterion Life") was formed by
GEICO Sub in 1991 to offer structured settlement single premium annuities to
claimants of its property/casualty company affiliates. On December 31, 1991,
Criterion Life assumed all the structured settlement annuity business in force
from Garden State Life Insurance Company which was also wholly-owned by GEICO
Sub until it was sold in June 1992.
Other active subsidiaries of GEICO and GEICO Sub involved in the sale
of insurance and insurance related products include: International Insurance
Underwriters, Inc., which provides various insurance services to military
personnel as they are transferred overseas or back to the United States; The
Top Five Club, Inc., which offers travel-related benefits to military personnel
in the top five military enlisted pay grades; GEICO Financial Services, GMbH,
which sells automobile policies to American military personnel through offices
in Germany and through agents in England, Germany, Italy, Portugal and Turkey;
Insurance Counselors, Inc., Insurance Counselors of Texas, Inc. and Insurance
Counselors of Kentucky, Inc., formed primarily to facilitate the marketing of
insurance products; and Safe Driver Motor Club, Inc., which offers motor club
services to customers of subsidiaries of GEICO and sponsors of motor clubs.
GEICO formerly offered additional financial services through its
subsidiary, Government Employees Financial Corporation ("GEFCO"), which,
directly or through one or more of its own subsidiaries, is in the business of
consumer and business lending and loan servicing. GEICO is in the process of
winding down the business of GEFCO.
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Other subsidiaries of GEICO include Plaza Resources Company, which is
engaged in various investment ventures, Maryland Ventures, Inc., a real
estate/property company, and several other companies which serve various
corporate purposes.
Resolute Reinsurance Company ("Resolute"), a subsidiary of Resolute
Group, Inc., in turn a subsidiary of GEICO, wrote property and casualty
reinsurance in the domestic and international markets until late 1987 when it
suspended writing new and renewal reinsurance. Resolute is in the process of
running off its claims obligations. Effective December 31, 1993, GEICO sold
Merastar Insurance Company and Southern Heritage Insurance Company, two small
property casualty insurance companies which had been purchased in 1991.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Businesses Acquired
The financial statements of GEICO Corporation required to be filed
herewith are incorporated by reference. See exhibits 99.1 and 99.2
below.
(b) Pro Forma Financial Information
The required pro forma financial information is included below as
exhibit 99.3.
(c) Exhibits
2 Agreement and Plan of Merger dated as of August 25, 1995,
between the Registrant and GEICO Corporation.
Incorporated by reference to Exhibit 1 to
Registrant's Form 8-K dated August 25, 1995.
23 Consent of Coopers & Lybrand L.L.P.
99.1 Consolidated Balance Sheets of GEICO Corporation as of
December 31, 1994 and 1993, and the related Consolidated
Statements of Income, Shareholders' Equity and Cash Flows for
each of the three years in the period ended December 31, 1994,
together with the Notes to Consolidated Financial Statements
and the related report of Independent Accountants.
Incorporated by reference to pages 27 through 43 of
GEICO Corporation's 1994 Annual Report to
Shareholders which is incorporated by reference to
Item 8 of GEICO Corporation's Form 10-K (Commission
File Number 1-8012) dated March 31, 1995.
99.2 Consolidated Balance Sheets of GEICO Corporation as of
September 30, 1995 (unaudited) and December 31, 1994, and the
related Consolidated Statements of Income for the three month
and nine month periods ended September 30, 1995 and 1994
(unaudited) and the Consolidated Statements of Cash Flows for
the nine months ended September 30, 1995 and 1994 (unaudited)
and Notes to Consolidated Financial Statements.
Incorporated by reference to pages 2 through 5 of
GEICO Corporation Form 10-Q (Commission File Number
1-8012) dated November 14, 1995.
99.3 Unaudited Pro Forma Combined Condensed Balance Sheet as of
September 30, 1995 and Unaudited Pro Forma Combined Condensed
Statements of Earnings for the nine months ended September 30,
1995 and for the year ended December 31, 1994.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
BERKSHIRE HATHAWAY INC.
Date: January 16, 1996 \s\ Marc D. Hamburg
-------------------------------------
Marc D. Hamburg
Vice President & Chief Financial
Officer
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EXHIBIT 23
CONSENT OF COOPERS & LYBRAND L.L.P.
We consent to the incorporation by reference in the registration statements of
Berkshire Hathaway Inc. on Form S-3 (File No. 33-50989), Form S-3 (File No.
33-58983) and Form S-3 (File No. 60855) of our report dated February 17, 1995,
on the consolidated financial statements of GEICO Corporation and subsidiaries
("GEICO") as of December 31, 1994 and 1993, and for the years ended December
31, 1994, 1993, and 1992, which report is included on page 27 of GEICO's 1994
Annual Report to Shareholders, which is incorporated by reference in Berkshire
Hathaway Inc.'s Form 8-K dated January 16, 1996.
Coopers & Lybrand L.L.P.
Washington, D.C.
January 16, 1996
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EXHIBIT 99.3
UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial
statements are based upon the consolidated financial statements of Berkshire
Hathaway Inc. ("Registrant") and GEICO Corporation ("GEICO"), combined and
adjusted to give effect to the merger on January 2, 1996 ("Merger Date"), of an
indirect wholly-owned subsidiary of Registrant with and into GEICO. The merger
was consummated pursuant to an Agreement and Plan of Merger dated August 25,
1995 (the "Agreement"). Pursuant to the Agreement each issued and outstanding
common share of GEICO, except shares held by Registrant's subsidiaries and
GEICO, was converted into the right to receive $70.00 per share or an aggregate
amount of $2.33 billion ("Merger Consideration"). The amount of the Merger
Consideration was determined based upon the 33,284,733 common shares held by
the public on the Merger Date. As of the Merger Date, subsidiaries of
Registrant owned 34,250,000 common shares of GEICO, acquired in 1980 and
earlier years for an aggregate cost of $45.7 million.
The following unaudited pro forma combined condensed balance sheet at
September 30, 1995 gives effect to the merger as if it had occurred on such
date. The following unaudited pro forma combined condensed statements of
income for the nine months ended September 30, 1995 and for the year ended
December 31, 1994 give effect to the merger as if it had occurred as of the
beginning of each period presented. The unaudited pro forma balance sheet and
statements of earnings are not necessarily indicative of the financial position
or results of operations of Registrant had the acquisition been consummated on
the dates indicated.
The merger will be accounted for by the purchase method and,
therefore, assets and liabilities of GEICO will be recorded in Registrant's
consolidated financial statements at their fair values. The excess of the
purchase cost over the fair value of net assets acquired at the Merger Date
will be recorded as goodwill. Registrant has not completed its study of fair
values of assets and liabilities of GEICO, so the final allocations may be
different than as shown in the pro forma financial statements.
The accompanying unaudited pro forma combined condensed financial
statements include adjustments which result in consolidation of previously
owned investments in GEICO on a "step-by-step" basis, in accordance with the
provisions of Accounting Research Bulletin 51 "Consolidated Financial
Statements," ("ARB 51"). Accordingly, as of the Merger Date, Registrant will
change its method of accounting with respect to its previously owned investment
of 34,250,000 shares of GEICO common stock. Prior to the Merger Date the
investment was classified as an available-for-sale security and carried at fair
value in accordance with the provisions of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("FAS 115"). As disclosed in the following pro forma combined
condensed balance sheet, the change in accounting results in a decrease in
shareholders' equity of $499 million.
On October 16, 1995, the Financial Accounting Standards Board issued a
proposed statement of financial accounting standards entitled "Consolidated
Financial Statements: Policy and Procedures" ("Exposure Draft") which would
change certain financial statement consolidation procedures. The Exposure
Draft, if adopted by the FASB, would supersede ARB 51 and, among its
provisions, require recognition in earnings of unrealized gains or losses of
such earlier GEICO investments previously carried at fair value and classified
as available-for-sale securities. Registrant believes that adoption of the
provisions of the Exposure Draft, would increase pro forma consolidated
shareholders' equity and goodwill related to this acquisition by at least $500
million from amounts recorded under the provisions of ARB 51.
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EXHIBIT 99.3
BERKSHIRE HATHAWAY INC.
FORM 8-K
Pro Forma Combined Condensed Balance Sheet
Historical and Pro Forma
(Unaudited)
As of September 30, 1995
<TABLE>
<CAPTION>
(Dollars in millions)
Historical
-------------------------- Pro Forma
Berkshire GEICO Adjustments Pro Forma
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . $ 1,879 $ 211 $(1,800)(a) $ 290
Investments:
Securities with fixed maturities . . . . . . . . . . . . 883 3,742 4,625
Marketable equity securities . . . . . . . . . . . . . . 20,829 915 (2,338)(b) 19,406
Salomon Inc . . . . . . . . . . . . . . . . . . . . . . 1,034 1,034
Receivables . . . . . . . . . . . . . . . . . . . . . . . 785 483 1,268
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . 688 1,664 (c) 2,352
Other assets . . . . . . . . . . . . . . . . . . . . . . . 2,285 243 2,528
------- ------ ------- -------
$28,383 $5,594 $(2,474) $31,503
======= ====== ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Property and casualty insurance
policyholder liabilities . . . . . . . . . . . . . . $ 4,773 $2,990 $ 7,763
Accounts payable, accruals and
other liabilities . . . . . . . . . . . . . . . . . . 1,267 412 $ 30 (d) 1,709
Income taxes, principally deferred . . . . . . . . . . . . 5,113 20 (731)(g) 4,402
Borrowings under investment
agreements and other debt . . . . . . . . . . . . . . 806 433 530 (a) 1,704
(65)(d)
------- ------ ------- -------
11,959 3,855 (236) 15,578
------- ------ ------- -------
Minority shareholders' interests . . . . . . . . . . . . . 245 245
------- ------ ------- -------
Total shareholders' equity . . . . . . . . . . . . . . . . 16,179 1,739 (1,739)(e) 15,680
(499)(f)
------- ------ ------- -------
$28,383 $5,594 $(2,474) $31,503
======= ====== ======= =======
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
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EXHIBIT 99.3
BERKSHIRE HATHAWAY INC.
FORM 8-K
Pro Forma Combined Condensed Statement of Earnings
Historical and Pro Forma
(Unaudited)
For the nine months ended September 30, 1995
<TABLE>
<CAPTION>
(Dollars in millions, except per share amounts)
Historical
---------------------------- Pro Forma
Berkshire GEICO Adjustments Pro Forma
----------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Sales and service revenues . . . . . . . . . . . . . . . $ 1,871 $1,871
Insurance premiums earned . . . . . . . . . . . . . . . 580 $ 2,058 2,638
Interest and dividend income . . . . . . . . . . . . . . 337 179 $(105)(h) 378
(28)(i)
(5)(j)
Income from investment in Salomon Inc . . . . . . . . . 61 61
Income from finance businesses . . . . . . . . . . . . . 22 22
Realized investment gain . . . . . . . . . . . . . . . . 141 4 145
------- ------- ----- -------
3,012 2,241 (138) 5,115
------- ------- ----- ------
COST AND EXPENSES:
Cost of products and services sold . . . . . . . . . . . 1,190 1,190
Insurance losses and loss adjustment expenses . . . . . 469 1,668 2,137
Insurance underwriting expenses . . . . . . . . . . . . 158 325 483
Selling, general and administrative expenses . . . . . . 517 33 (k) 550
Interest expense . . . . . . . . . . . . . . . . . . . . 40 26 66
------- ------- ----- ------
2,374 2,019 33 4,426
------- ------- ----- ------
EARNINGS BEFORE INCOME TAXES AND MINORITY INTEREST . . . . 638 222 (171) 689
Income taxes . . . . . . . . . . . . . . . . . . . . . . 156 43 (41)(l) 158
Minority interest . . . . . . . . . . . . . . . . . . . 10 10
------- ------ ----- ------
NET EARNINGS . . . . . . . . . . . . . . . . . . . . . . . $ 472 $ 179 $(130) $ 521
======= ====== ===== ======
Average shares outstanding . . . . . . . . . . . . . . . 1,184,942 1,184,942
========= =========
NET EARNINGS PER SHARE . . . . . . . . . . . . . . . . . . $399 $440
==== ====
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.
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EXHIBIT 99.3
BERKSHIRE HATHAWAY INC.
FORM 8-K
Pro Forma Combined Condensed Statement of Earnings
Historical and Pro Forma
(Unaudited)
For the year ended December 31, 1994
<TABLE>
<CAPTION>
(Dollars in millions, except per share amounts)
Historical
-------------------------- Pro Forma
Berkshire GEICO Adjustments Pro Forma
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Sales and service revenues . . . . . . . . . . . . . . . $2,352 $2,352
Insurance premiums earned . . . . . . . . . . . . . . . 923 $2,476 3,399
Interest and dividend income . . . . . . . . . . . . . . 426 222 $(140)(h) 467
(34)(i)
(7)(j)
Income from investment in Salomon Inc . . . . . . . . . 30 30
Income from finance businesses . . . . . . . . . . . . . 25 25
Realized investment gain . . . . . . . . . . . . . . . . 91 13 104
----- ------ ----- ------
3,847 2,711 (181) 6,377
------ ------ ----- ------
COST AND EXPENSES:
Cost of products and services sold . . . . . . . . . . . 1,450 1,450
Insurance losses and loss adjustment expenses . . . . . 565 2,005 2,570
Insurance underwriting expenses . . . . . . . . . . . . 228 427 655
Selling, general and administrative expenses . . . . . . 613 43 (k) 656
Interest expense . . . . . . . . . . . . . . . . . . . . 60 28 88
Other than temporary decline in value of
investment in USAir Group, Inc. Preferred Stock . . . 269 269
------ ------ ----- ------
3,185 2,460 43 5,688
------ ------ ----- ------
EARNINGS BEFORE INCOME TAXES AND MINORITY INTEREST . . . . 662 251 (224) 689
Income taxes . . . . . . . . . . . . . . . . . . . . . . 158 42 (53)(l) 147
Minority interest . . . . . . . . . . . . . . . . . . . 9 9
------ ------ ----- ------
NET EARNINGS . . . . . . . . . . . . . . . . . . . . . . . $ 495 $ 209 $(171) $ 533
====== ====== ===== ======
Average shares outstanding . . . . . . . . . . . . . . . 1,177,750 1,177,750
========= =========
NET EARNINGS PER SHARE . . . . . . . . . . . . . . . . . . $420 $453
==== ====
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
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EXHIBIT 99.3
BERKSHIRE HATHAWAY INC.
FORM 8-K
Notes To Unaudited Pro Forma
Combined Condensed Financial Statements
(Dollars in millions)
Pro forma adjustments giving effect to the Merger in the
unaudited pro forma combined condensed balance sheet reflect
the following:
(a) Assumes liquidation of certain cash balances and
incurrence of additional borrowings to fund the payment
of the Merger Consideration.
(b) Elimination of the Registrant's investment in common
stock of GEICO which was previously carried at fair
value in accordance with FAS 115.
(c) Excess of Merger Consideration and the cost of
previously owned common stock accounted for on a
step-by- step basis over the fair value of GEICO's net
assets.
(d) Elimination of certain GEICO borrowings resulting from
the termination of GEICO's Employee Stock Ownership Plan
and recognition of liabilities for merger related costs.
(e) Elimination of GEICO's shareholders' equity.
(f) Reduction of shareholders' equity for the net unrealized
gain related to the investment in GEICO common stock
previously carried at fair value in accordance with FAS
115 ($1,489) partially offset by an increase in
shareholders' equity for the Registrant's share of
undistributed earnings and net unrealized investment
gain of GEICO pursuant to the step-by-step acquisition
accounting method ($990).
(g) Adjustment of income tax liability related to
adjustments (b), (d) and (f) above.
Pro forma adjustments giving effect to the merger in the
unaudited pro forma combined condensed statements of income
reflect the following:
(h) Reduction in interest income to recognize estimated cost
of funds used for the Merger Consideration.
(i) Reduction in dividend income to reflect elimination of
dividends earned from previously owned investments in
GEICO common stock.
(j) Reduction in interest income due to purchase accounting
adjustments related to GEICO's investments in securities
with fixed maturities.
(k) Amortization of goodwill arising from the merger
computed on a straight line basis over 40 years.
(l) Income tax effects of pro forma adjustments.
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