<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 March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(b) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________________to______________________
Commission file number 1-10125
BERKSHIRE HATHAWAY INC.
(Exact name of registrant as specified in its charter)
Delaware 04 2254452
(State or other jurisdiction of (I.R.S. Employer Identification number)
incorporation or organization)
1440 Kiewit Plaza, Omaha, Nebraska 68131
(Address of principal executive office)
(Zip Code)
(402) 346-1400
(Registrant's telephone number, including area code)
__________________________________________________________________
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
X
--- ----
YES NO
Number of shares of common stock outstanding as of May 1, 1996.... 1,193,512
<PAGE> 2
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 3/31/96
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE NO.
--------
<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets -- 2
March 31, 1996 and December 31, 1995
Consolidated Statements of Earnings -- 3
First Quarter, 1996 and 1995
Condensed Consolidated Statements of Cash Flows -- 4
First Quarter, 1996 and 1995
Notes to Interim Consolidated Financial Statements 5-9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 10-12
CONDITION AND RESULTS OF OPERATIONS
PART II - OTHER INFORMATION 13
</TABLE>
1
<PAGE> 3
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 3/31/96
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in millions)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
--------------- ----------------
<S> <C> <C>
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . $ 1,438.6 $ 2,703.8
Investments:
Securities with fixed maturities . . . . . . . . . . . . . . . 5,664.5 1,423.2
Equity securities . . . . . . . . . . . . . . . . . . . . . . . 21,704.4 21,017.6
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,481.3 718.9
Assets of finance businesses . . . . . . . . . . . . . . . . . . 863.6 756.7
Goodwill of acquired businesses . . . . . . . . . . . . . . . . . 2,275.1 672.0
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 1,681.6 1,419.2
---------- ----------
$35,109.1 $28,711.4
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Losses and loss adjustment expenses . . . . . . . . . . . . . . . $ 6,031.1 $ 3,698.6
Unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . 1,487.9 374.1
Accounts payable, accruals and other liabilities . . . . . . . . 1,440.4 1,039.1
Income taxes, principally deferred . . . . . . . . . . . . . . . 5,565.5 4,849.5
Borrowings under investment agreements and other debt . . . . . . 1,436.7 1,061.7
Liabilities of finance businesses . . . . . . . . . . . . . . . . 752.6 685.2
--------- ---------
16,714.2 11,708.2
--------- ---------
Minority shareholders' interests . . . . . . . . . . . . . . . . 276.9 264.5
--------- ---------
Shareholders' equity:
Common stock - par value of 1,381,308 issued shares . . . . . . 6.9 6.9
Capital in excess of par value . . . . . . . . . . . . . . . . 1,001.7 1,001.7
Unrealized appreciation of investments, net . . . . . . . . . . 8,931.3 9,220.7
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . 8,212.8 6,544.1
--------- --------
18,152.7 16,773.4
Less: Cost of 187,796 common shares in treasury . . . . . . . . 34.7 34.7
--------- ---------
Total shareholders' equity . . . . . . . . . . . . . . . . . 18,118.0 16,738.7
--------- ---------
$35,109.1 $28,711.4
========= =========
</TABLE>
See accompanying Notes to Interim Consolidated Financial Statements
2
<PAGE> 4
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 3/31/96
CONSOLIDATED STATEMENTS OF EARNINGS
(dollars in millions except per share amounts)
<TABLE>
<CAPTION>
First Quarter
--------------------------------
1996 1995
------------ ------------
<S> <C> <C>
REVENUES:
Insurance premiums earned . . . . . . . . . . . . . . . . . . . $ 921.9 $231.4
Sales and service revenues . . . . . . . . . . . . . . . . . . 700.1 571.7
Interest, dividend and other investment income . . . . . . . . 172.2 141.9
Income from finance businesses . . . . . . . . . . . . . . . . 5.8 6.3
Realized investment gain (loss) . . . . . . . . . . . . . . . . 2,339.7 (7.3)
--------- ---------
4,139.7 944.0
--------- ---------
COST AND EXPENSES:
Insurance losses and loss adjustment expenses . . . . . . . . . 737.9 182.9
Insurance underwriting expenses . . . . . . . . . . . . . . . . 161.5 57.7
Cost of products and services sold . . . . . . . . . . . . . . 431.5 359.4
Selling, general and administrative expenses . . . . . . . . . 210.9 151.7
Goodwill amortization . . . . . . . . . . . . . . . . . . . . . 15.1 3.2
Interest expense . . . . . . . . . . . . . . . . . . . . . . . 26.3 13.2
--------- ---------
1,583.2 768.1
--------- ---------
EARNINGS BEFORE INCOME TAXES AND MINORITY INTEREST . . . . . . . 2,556.5 175.9
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . 878.1 33.4
Minority interest . . . . . . . . . . . . . . . . . . . . . . . 9.7 3.3
--------- ---------
NET EARNINGS . . . . . . . . . . . . . . . . . . . . . . . . . . $1,668.7 $139.2
========= =========
Average shares outstanding . . . . . . . . . . . . . . . . . . 1,193,512 1,177,750
NET EARNINGS PER SHARE . . . . . . . . . . . . . . . . . . . . . $1,398 $118
========= =========
</TABLE>
See accompanying Notes to Interim Consolidated Financial Statements
3
<PAGE> 5
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 3/31/96
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
<TABLE>
<CAPTION>
First Quarter
----------------------------
1996 1995
---------- ---------
<S> <C> <C>
Net cash flows from operating activities . . . . . . . . . . . . . . . . . $ 347.7 $ 314.8
-------- --------
Cash flows from investing activities:
Purchases of investments . . . . . . . . . . . . . . . . . . . . . . (1,077.0) (1,031.7)
Proceeds on sales and maturities of investments . . . . . . . . . . . 1,512.2 703.2
Loans and investments originated in finance businesses . . . . . . . (211.5) (94.2)
Principal collections on loans and investments originated
in finance businesses . . . . . . . . . . . . . . . . . . . . . . . 98.1 77.1
Acquisition of business . . . . . . . . . . . . . . . . . . . . . . . (1,946.2) --
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8.2) (0.7)
--------- --------
Net cash flows from investing activities . . . . . . . . . . . . . . . . . (1,632.6) (346.3)
--------- -------
Cash flows from financing activities:
Proceeds from borrowings of finance businesses . . . . . . . . . . . 88.1 25.1
Proceeds from other borrowings . . . . . . . . . . . . . . . . . . . 310.5 261.3
Repayments of borrowings of finance businesses . . . . . . . . . . . (54.2) (72.2)
Repayments of other borrowings . . . . . . . . . . . . . . . . . . . (344.7) (303.6)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.2) (0.5)
--------- ---------
Net cash flows from financing activities . . . . . . . . . . . . . . . . . (0.5) (89.9)
--------- --------
Decrease in cash and cash equivalents . . . . . . . . . . . . . . . . . . . (1,285.4) (121.4)
Cash and cash equivalents at beginning of year* . . . . . . . . . . . . . . 2,744.5 289.9
-------- --------
Cash and cash equivalents at end of first quarter* . . . . . . . . . . . . $ 1,459.1 $ 168.5
======== ========
Supplemental cash flow information:
Cash paid during the period for:
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 54.7 $ 35.4
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37.9 22.7
Non-cash investing activity:
Liabilities assumed in connection with acquisition of business . . . 3,901.5 --
*Cash and cash equivalents are comprised of the following:
Beginning of year --
Finance businesses . . . . . . . . . . . . . . . . . . . . . . . . . $ 40.7 $ 16.0
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,703.8 273.9
-------- --------
$ 2,744.5 $ 289.9
======== ========
End of first quarter --
Finance businesses . . . . . . . . . . . . . . . . . . . . . . . . . $ 20.5 $ 23.3
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,438.6 145.2
-------- --------
$ 1,459.1 $ 168.5
======== ========
</TABLE>
See accompanying Notes to Interim Consolidated Financial Statements
4
<PAGE> 6
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 3/31/96
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. GENERAL
As more fully discussed in Note 2, on January 2, 1996, GEICO Corporation
("GEICO") became a wholly-owned subsidiary of Berkshire Hathaway Inc.
("Berkshire" or "Company"). Consequently, the Condensed Consolidated Balance
Sheet as of March 31, 1996 and the Consolidated Statements of Earnings for the
first quarter of 1996 include the accounts of GEICO. Prior to January 2, 1996,
Berkshire owned approximately 50% of the outstanding common stock of GEICO.
Previously the investment in GEICO common stock had been classified as an
available-for-sale security and was carried in Berkshire's Consolidated Balance
Sheet at fair value.
Generally accepted accounting principles currently require that prior year
financial statements be restated when control of a business is obtained on a
"step-by-step" basis. Accordingly, the Condensed Consolidated Balance Sheet as
of December 31, 1995 and the Consolidated Statement of Earnings for the first
quarter of 1995 have been restated to account for Berkshire's previous
investment in GEICO common stock under the equity method. Berkshire's
proportionate share of GEICO's net income reduced by amortization of related
goodwill is included in the 1995 Consolidated Statement of Earnings as a
component of interest, dividends and other investment income. The effect of
the restatement was to decrease shareholders' equity as of December 31, 1995 by
about $478 million from the amount previously reported.
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
On January 2, 1996, GEICO became a wholly-owned subsidiary as a result of
the merger of an indirect wholly-owned subsidiary of Berkshire with and into
GEICO. The date of January 2, 1996 is hereafter referred to as the "Merger
Date". GEICO, through its subsidiaries, is a multiple line property and
casualty insurer, the principal business of which is underwriting private
passenger automobile insurance.
The merger was consummated pursuant to an Agreement and Plan of Merger (the
"Agreement") dated August 25, 1995. Pursuant to the Agreement, each issued and
outstanding common share of GEICO was converted into the right to receive $70
per share, or an aggregate amount of $2.3 billion (the "Merger Consideration").
The amount of Merger Consideration was based upon 33,284,733 outstanding shares
held by the public on the Merger Date.
As of the Merger Date, subsidiaries of Berkshire owned 34,250,000 common
shares of GEICO, which were acquired in years prior to 1981 at an aggregate
cost of $45.7 million. Up to the Merger Date, neither Berkshire nor its
subsidiaries had acquired any shares of GEICO common stock since 1980.
However, Berkshire's ownership percentage, due to intervening stock repurchases
by GEICO, gradually increased from about 33% in 1980 to almost 51% immediately
prior to the Merger Date.
5
<PAGE> 7
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 3/31/96
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. BUSINESS ACQUISITIONS (CONTINUED)
The merger has been accounted for by the purchase method. The excess of
the purchase cost over the fair value of net assets acquired at the Merger Date
is recorded as goodwill of acquired businesses and will subsequently be
amortized over 40 years. The following sets forth certain consolidated
earnings statement information on a pro forma basis for the first quarter of
1995 as if the GEICO merger had been consummated, on the same terms, at the
beginning of that year. Dollars are in millions, except per share amounts.
<TABLE>
<S> <C>
Insurance premiums earned . . . . . . . $ 890.4
Total revenues . . . . . . . . . . . . 1,601.0
Net income . . . . . . . . . . . . . . 139.4
Earnings per share . . . . . . . . . . 118
</TABLE>
During 1995, the Company consummated mergers with Helzberg's Diamond
Shops, Inc. ("Helzberg's") and 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 common stock of each of these companies. Helzberg's consists of a
chain of 173 jewelry stores operating in 28 states and R.C. Willey, through its
seven locations, is the dominant retailer of home furnishings in Utah.
Each of these mergers was accounted for by the purchase method and,
accordingly, the operating results of these businesses are included in the
Company's consolidated results of operations from the effective dates of the
mergers (Helzberg's -- April 30, 1995; R.C. Willey -- June 29, 1995). Had the
results of these businesses been included commencing with operations at the
beginning of 1995, the reported results would not have been materially
affected.
NOTE 3. RECAPITALIZATION
On May 6, 1996, Berkshire shareholders approved a recapitalization
plan which creates a new class of common stock, designated as Class B Common
Stock. In connection therewith, Berkshire's existing common stock was
redesignated as Class A Common Stock. Each share of Class A Common Stock is
convertible, at the option of the holder, into thirty shares of Class B Common
Stock.
On May 8, 1996, Berkshire completed its previously announced public
offering of 450,000 shares (517,500 shares if Salomon Brothers, Inc, the
underwriter of the offering, exercises its over-allotment option in full) of
Class B Common Stock. Berkshire will receive proceeds from the offering of
approximately $492.0 million ($565.8 million if Salomon Brothers, Inc exercises
its over-allotment option in full). The Company expects that, in time, it will
use the net proceeds for acquisitions of businesses, for augmenting the capital
of its insurance subsidiaries, or for other general corporate purposes. At
this time, Berkshire has no immediate or specific plan for the use of the net
proceeds from the offering.
NOTE 4. INVESTMENTS IN SECURITIES WITH FIXED MATURITIES
Data with respect to investments in securities with fixed maturities
(other than securities with fixed maturities held by finance businesses -- See
Note 7) are shown in the tabulation below (in millions).
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
-------------- --------------
<S> <C> <C>
Amortized cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,465.4 $1,248.1
Gross unrealized gains . . . . . . . . . . . . . . . . . . . . . . . . . 218.6 178.7
Gross unrealized losses . . . . . . . . . . . . . . . . . . . . . . . . . (19.5) (3.6)
--------- ---------
Estimated fair value . . . . . . . . . . . . . . . . . . . . . . . . . . $5,664.5 $1,423.2
========= ========
</TABLE>
6
<PAGE> 8
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 3/31/96
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. INVESTMENTS IN EQUITY SECURITIES
Data with respect to investments in equity securities are shown in the
tabulation below (in millions).
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
-------------- --------------
<S> <C> <C>
Total cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,019.5 $ 7,176.2
Gross unrealized gains . . . . . . . . . . . . . . . . . . . . . . . . . 13,770.6 13,933.4
Gross unrealized losses . . . . . . . . . . . . . . . . . . . . . . . . . (85.7) (92.0)
--------- ---------
Total carrying value . . . . . . . . . . . . . . . . . . . . . . . . . . $21,704.4 $21,017.6
========= =========
Carrying value:
American Express Company . . . . . . . . . . . . . . . . . . . . . . . $ 2,441.9 $ 2,046.3
Capital Cities/ABC, Inc. (a) . . . . . . . . . . . . . . . . . . . . . -- 2,467.5
The Coca-Cola Company . . . . . . . . . . . . . . . . . . . . . . . . . 8,275.0 7,425.0
The Walt Disney Company (a) . . . . . . . . . . . . . . . . . . . . . . 1,572.2 --
Federal Home Loan Mortgage Corporation . . . . . . . . . . . . . . . . 1,343.9 1,044.0
GEICO Corporation (b) . . . . . . . . . . . . . . . . . . . . . . . . . -- 1,175.8
The Gillette Company . . . . . . . . . . . . . . . . . . . . . . . . . 2,484.0 2,502.0
Wells Fargo & Company . . . . . . . . . . . . . . . . . . . . . . . . . 1,904.4 1,466.9
All others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,683.0 2,890.1
--------- ---------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $21,704.4 $21,017.6
========= =========
</TABLE>
(a) In March 1996, The Walt Disney Company ("Disney") completed its
acquisition of Capital Cities/ABC, Inc. ("Capital Cities").
Subsidiaries of Berkshire received aggregate consideration of $2.5
billion, which included cash of $1.2 billion and common shares of
Disney with a value of $1.3 billion. The Consolidated Statement of
Earnings for the first quarter of 1996 includes a pre-tax realized
investment gain of $2.2 billion from the Disney transaction.
(b) The carrying value of GEICO common stock as of December 31, 1995 has
been restated from the amount previously reported. See Notes 1 and 2.
NOTE 6. DEFERRED INCOME TAX LIABILITY
The tax effects of significant items comprising the Company's net deferred
tax liability as of March 31, 1996 and December 31, 1995 are as follows (in
millions):
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
-------------- ----------------
<S> <C> <C>
Deferred tax liabilities:
Relating to unrealized appreciation of investments . . . . . . . . . . . . $4,862.0 $4,908.5
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 695.5 157.0
-------- --------
5,557.5 5,065.5
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (570.4) (302.8)
-------- --------
Net deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . $4,987.1 $4,762.7
======== ========
</TABLE>
7
<PAGE> 9
Form 10-Q
BERKSHIRE HATHAWAY INC. Q/E 3/31/96
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. FINANCE BUSINESSES
Assets and liabilities of Berkshire's finance businesses are summarized
below (in millions).
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
-------------- --------------
<S> <C> <C>
Assets
------
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . $ 20.5 $ 40.7
Installment loans and other receivables . . . . . . . . . . . . . . . . . 205.3 185.9
Fixed maturity investments . . . . . . . . . . . . . . . . . . . . . . . 637.0 529.4
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.8 0.7
--------- ---------
$863.6 $756.7
========= =========
Liabilities
-----------
8.125% Notes, payable in 1996 . . . . . . . . . . . . . . . . . . . . . . $120.0 $120.0
Borrowings under investment agreements . . . . . . . . . . . . . . . . . 437.5 403.6
Annuity reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151.1 116.7
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44.0 44.9
--------- ---------
$752.6 $685.2
========= =========
</TABLE>
The preceding summarized financial data includes the commercial and
consumer finance activities conducted by the Scott Fetzer Financial Group and
its subsidiaries. Assets and liabilities of these businesses are summarized
below (in millions).
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------ ---------------
<S> <C> <C>
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . $ 20.4 $ 40.5
Installment loans and other receivables * . . . . . . . . . . . . . . . . 286.4 334.9
Mortgage-backed securities, at cost . . . . . . . . . . . . . . . . . . 288.8 211.7
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.6 0.7
--------- --------
$596.2 $587.8
========= ========
LIABILITIES
8.125% Notes, payable in 1996 . . . . . . . . . . . . . . . . . . . . . . $120.0 $120.0
Borrowings under investment agreements . . . . . . . . . . . . . . . . . 412.7 403.6
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30.5 32.8
--------- --------
$563.2 $556.4
========= ========
</TABLE>
* Includes receivables from affiliated companies of $128.0 and $182.8 at March
31, 1996 and December 31, 1995, respectively.
Net income from Scott Fetzer Financial Group businesses for the first
quarter of 1996 and 1995 is summarized below (in millions).
<TABLE>
<CAPTION>
First Quarter
------------------------------
1996 1995
------------- ------------
<S> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15.9 $13.9
Costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.1 10.6
------- --------
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . 2.8 3.3
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.9 1.2
------- --------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.9 $ 2.1
========= ========
</TABLE>
8
<PAGE> 10
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 3/31/96
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. UNREALIZED APPRECIATION OF INVESTMENTS
Changes in "Unrealized appreciation of investments, net", the balance of
which is carried in shareholders' equity, were as follows during the first
quarter of 1996 and 1995 (in millions):
<TABLE>
<CAPTION>
First Quarter
----------------------
1996 1995
-------------- --------------
<S> <C> <C>
Increase (decrease) in unrealized appreciation . . . . . . . . . . . . . . $ (415.2) $1,569.4
(Increase) decrease in deemed applicable income taxes . . . . . . . . . . . 128.7 (554.0)
Increase in minority shareholders' interest . . . . . . . . . . . . . . . . (2.9) (15.7)
--------- --------
Net increase (decrease) . . . . . . . . . . . . . . . . . . . . . . . . (289.4) 999.7
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . 9,220.7 5,276.9
-------- --------
Balance at end of first quarter . . . . . . . . . . . . . . . . . . . . . $8,931.3 $6,276.6
======== ========
</TABLE>
9
<PAGE> 11
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 3/31/96
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net earnings for the first quarter of the current and prior year are
disaggregated in the following table. Amounts are in millions and each figure
is income tax effected.
<TABLE>
<CAPTION>
First Quarter
-----------------------------
1996 1995
------------ -------------
<S> <C> <C>
Insurance, except realized investment gain/loss . . . . . . . . . . . . . . . . $ 128.6 $ 106.9
Manufacturing, merchandising and services . . . . . . . . . . . . . . . . . . . 39.9 39.2
Unallocated income/expense, net . . . . . . . . . . . . . . . . . . . . . . . . 7.1 6.0
Interest expense * . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15.4) (8.1)
-------- --------
Earnings before realized investment gain/loss . . . . . . . . . . . . . . . 160.2 144.0
Realized investment gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . 1,508.5 (4.8)
-------- -------
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,668.7 $ 139.2
======== =======
</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 millions.
<TABLE>
<CAPTION>
First Quarter
-----------------------------
1996 1995
------------ -------------
<S> <C> <C>
Premiums earned from:
Direct insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $805.8 $ 58.3
Reinsurance assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116.1 173.1
-------- -------
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $921.9 $231.4
======= =======
Underwriting gain (loss) attributable to:
Direct insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 40.1 $ 2.1
Reinsurance assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . (17.8) (11.5)
------- -------
Total underwriting gain (loss) . . . . . . . . . . . . . . . . . . . . . 22.3 (9.4)
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153.0 131.9
Goodwill amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10.8) --
------- -------
Earnings before income taxes . . . . . . . . . . . . . . . . . . . . . . 164.5 122.5
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33.9 13.3
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.0 2.3
------- -------
Net earnings from Insurance,
except realized investment gain/loss . . . . . . . . . . . . . . . . . $128.6 $106.9
======= =======
</TABLE>
As discussed more fully in the Notes to the Interim Consolidated Financial
Statements, Berkshire acquired control of GEICO Corporation ("GEICO") in
January, 1996. The inclusion of GEICO's accounts in Berkshire's consolidated
financial statements beginning in 1996 will have a significant impact on the
revenues and operating results of Berkshire's Insurance Group.
In direct insurance activities, Insurance Group members assume risks of
loss from parties who are directly subject to the risks. In reinsurance
activities, the members assume defined portions of similar or dissimilar risks
to which other insurers or reinsurers have subjected themselves in their own
insuring activities.
GEICO, through its subsidiaries, provides primarily private passenger
automobile coverages to insureds in 49 states and the District of Columbia.
Limited amounts of homeowners, fire and boat insurance are also offered. GEICO
policies are marketed mainly by direct response methods, in which customers
apply for coverage directly to the company over the telephone or through the
mail. This is a significant element in GEICO's strategy to be a low cost
provider of such coverages.
10
<PAGE> 12
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 3/31/96
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. (CONTINUED)
INSURANCE GROUP (Continued)
Other direct insurance is provided through several Berkshire
subsidiaries. These businesses offer primarily casualty coverages for
commercial accounts and credit card credit insurance and is written through
agents, brokers, and financial institutions.
Direct insurance premiums earned during the first quarter 1996 include
$740 million from GEICO's businesses. In 1995's first quarter, GEICO's earned
premiums were approximately $659 million. (See Notes to Interim Consolidated
Financial Statements for a discussion of the 1995 accounting treatment of
Berkshire's then approximately 50% ownership of GEICO.) Ongoing marketing
efforts for GEICO's preferred-risk, standard and non-standard risk private
passenger auto insurance business are expected to produce continued premium
growth.
Direct insurance results for the first quarter of 1996 include a net
underwriting gain from GEICO operations of approximately $30 million. The
comparable 1995 amount was approximately $26 million. For the first quarter of
1996, claim and claim settlement costs were 81.3% of premiums earned and
underwriting costs were 14.7% of premiums earned. The comparable prior year
ratios were 80.9% and 15.2% respectively.
Berkshire's other direct insurance businesses produced first quarter
underwriting gains of about $10.5 million in 1996 and $2.1 million in 1995.
Most of the increase in comparative first quarter underwriting gains was
produced by the Group's traditional commercial motor vehicle/general liability
business and by the professional liability/specialty risk operations.
Reinsurance premiums of $116 million earned in the first quarter of
1996 were $57 million less than amounts earned during the first quarter of
1995. Most of the comparative decrease in premiums earned related to
catastrophe excess-of-loss coverages. As reported in previous discussions,
increased levels of industry capital devoted to this type of business has
resulted in decreased acceptances by the Group. However, significant exposure
to loss remains with respect to catastrophe reinsurance coverages. Thus, the
potential remains for extreme volatility in periodic underwriting results from
this business.
First quarter underwriting results reflect gains from catastrophe
excess-of-loss coverages of $14 million in 1996 and $39 million in 1995. The
underwriting gains in both periods reflect relatively minor amounts of
catastrophe losses. The comparative decline in underwriting gains from
catastrophe coverages was offset by decreased comparative underwriting losses
from quota-share and non-catastrophe excess-of-loss reinsurance contracts.
Net investment income earned in 1996's first quarter from insurance
operations included about $52 million from consolidation of the investment
results of GEICO. Net investment income earned during the first quarter of
1995 included the equity in net earnings of GEICO. Such earnings were
approximately $30 million. The Insurance Group continues to generate
significant levels of investment income, reflecting large amounts of invested
assets. Investable policyholder funds (or "float") at March 31, 1996
approximated $6.5 billion and included over $2.5 billion added upon the
acquisition of GEICO in January 1996.
MANUFACTURING, MERCHANDISING AND SERVICES
Results of operations of Berkshire's diverse non-insurance businesses
are aggregated in the following table. Dollar amounts are in millions.
<TABLE>
<CAPTION>
First Quarter
------------------------------------
1996 1995
----------------- ----------------
Amount % Amount %
--------- ----- --------- -----
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . $706.9 100.0 $579.6 100.0
Costs and expenses . . . . . . . . . . . . . . . . . . . . . . 638.9 90.4 515.0 88.8
--------- ----- --------- -----
Earnings before income taxes . . . . . . . . . . . . . . . . . 68.0 9.6 64.6 11.2
Applicable income taxes . . . . . . . . . . . . . . . . . . . . 27.3 3.9 24.5 4.2
Applicable minority interest . . . . . . . . . . . . . . . . . 0.8 0.1 0.9 0.2
--------- ----- --------- -----
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . $ 39.9 5.6 $ 39.2 6.8
========= ===== ========= =====
</TABLE>
11
<PAGE> 13
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 3/31/96
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. (CONTINUED)
MANUFACTURING, MERCHANDISING AND SERVICES (Continued)
Revenues from these several and diverse business activities during
1996's first quarter were greater by $127.3 million (22.0%) than revenues
recorded during the corresponding 1995 period. The comparative increase is
primarily due to the acquisitions during 1995's second quarter of Helzberg's
Diamond Shops, Inc. ("Helzberg's") and R.C. Willey Home Furnishings ("R.C.
Willey"). Helzberg's operates a chain of 173 jewelry stores and R.C. Willey is
the dominant retailer of home furnishings in Utah. (See Notes to Interim
Consolidated Financial Statements for additional information regarding these
acquisitions).
Net earnings from this group of businesses was relatively unchanged in
1996 as compared to 1995. The inclusion of Helzberg's and R.C. Willey had a
favorable impact on comparative results as did improved comparative results for
Berkshire's encyclopedia and home cleaning systems segments. However,
offsetting these increases were comparative declines in Berkshire's shoe and
newspaper segments.
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.
The 1996 Consolidated Statement of Earnings reflects a pre-tax realized
investment gain of $2.3 billion ($1.5 billion after tax). Most of this gain
resulted from The Walt Disney Company's ("Disney") acquisition of Capital
Cities/ABC, Inc. ("Capital Cities"). Prior to the acquisition, subsidiaries of
Berkshire owned common stock of Capital Cities which had been acquired in 1986
for an aggregate cost of $345.0 million. In exchange for the Capital Cities
common stock, Berkshire subsidiaries received cash and Disney common stock
having an aggregate value of $2.5 billion.
While the effect of this transaction is material to the Consolidated
Statement of Earnings, the completion of the acquisition had a minimal impact on
Berkshire's shareholders' equity. This is due to the fact that Berkshire's
investment in Capital Cities had been carried in the prior periods' consolidated
financial statements at market value with unrealized gains, net of tax, reported
as a separate component of shareholders' equity. As of December 31, 1995, the
pre-tax unrealized gain related to Berkshire's investment in Capital Cities was
approximately $2.1 billion.
FINANCIAL CONDITION
As discussed in the Notes to Interim Consolidated Financial Statements,
on May 8, 1996, Berkshire completed a public offering of a new class of common
stock. The net proceeds from the offering will range between $492.0 million and
$565.8 million. The Company expects that in time it will use the net proceeds
for acquisitions of businesses, for augmenting the capital of its insurance
subsidiaries, or for other general corporate purposes. At this time, Berkshire
has no immediate or specific plan for the use of the net proceeds from the
offering.
Berkshire's balance sheet continues to reflect significant liquidity
and above average capital strength. Shareholders' equity at March 31, 1996, was
$18.1 billion or $15,180 per share. Over the past twelve months, net book value
per share has grown by 39.8%.
12
<PAGE> 14
FORM 10-Q
BERKSHIRE HATHAWAY INC. Q/E 3/31/96
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 27 -- Financial Data Schedule
SIGNATURE
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
BERKSHIRE HATHAWAY INC.
(Registrant)
Date May 13, 1996 /s/ Marc D. Hamburg
-------------------------------
(Signature)
Marc D. Hamburg, Vice President
and Principal Financial Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE REGISTRANT'S
FINANCIAL STATEMENTS AND RELATED NOTES CONTAINED IN FORM 10Q AS FILED HEREWITH,
AND IS QUAlIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND
RELATED NOTES
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,439
<SECURITIES> 27,369
<RECEIVABLES> 1,481
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 35,109
<CURRENT-LIABILITIES> 0
<BONDS> 1,437
0
0
<COMMON> 7
<OTHER-SE> 18,111
<TOTAL-LIABILITY-AND-EQUITY> 35,109
<SALES> 700
<TOTAL-REVENUES> 1,628
<CGS> 432
<TOTAL-COSTS> 1,331
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26
<INCOME-PRETAX> 2,557
<INCOME-TAX> 878
<INCOME-CONTINUING> 1,669
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,669
<EPS-PRIMARY> 1,398
<EPS-DILUTED> 1,398
</TABLE>
