<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) 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
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State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification number)
1440 Kiewit Plaza, Omaha, Nebraska 68131
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (402) 346-1400
----------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Class A Common Stock, $5.00 Par Value New York Stock Exchange
Class B Common Stock, $0.1667 Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months, and (2) has been subject to the
filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
State the aggregate market value of the voting stock held by non-affiliates of
the Registrant - $25,503,205,420*
Indicate number of shares outstanding of each of the Registrant's classes of
common stock:
<TABLE>
<S> <C>
March 19, 1997 -- Class A Common Stock, $5 par value . . . . . . . . . . . 1,204,837 shares
March 19, 1997 -- Class B Common Stock, $0.1667 par value . . . . . . . . 822,245 shares
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<CAPTION>
Document Incorporated In
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<S> <C>
Proxy Statement for Registrant's
Annual Meeting to be held May 5, 1997 Part III
</TABLE>
* This aggregate value is computed at the last sale price of the common
stock on March 19, 1997. It does not include the value of Class A Common Stock
(548,327 shares) and Class B Common Stock (73 shares) held by Directors and
Executive Officers of the Registrant and members of their immediate families,
some of whom may not constitute "affiliates" for purpose of the Securities
Exchange Act of 1934.
<PAGE> 2
Part I
ITEM 1. BUSINESS
Berkshire Hathaway Inc. ("Berkshire", "Company" or "Registrant") is a
holding company owning subsidiaries engaged in a number of diverse business
activities. The most important of these is the property and casualty insurance
business conducted nationwide on a direct basis and worldwide on a reinsurance
basis through a number of subsidiaries collectively referred to in this report
as the Berkshire Hathaway Insurance Group ("Insurance Group").
Additionally, Berkshire Hathaway Inc. publishes the Buffalo News, a daily
and Sunday newspaper in upstate New York. Other business activities conducted
by non-insurance subsidiaries include publication and distribution of
encyclopedias and related educational and instructional material (World Book
and Childcraft products), manufacture and marketing of home cleaning systems
and related accessories (sold principally under the Kirby name), manufacture
and sale of boxed chocolates and other confectionery products (See's Candies),
retailing of home furnishings (Nebraska Furniture Mart and R.C. Willey Home
Furnishings), and manufacture, import and distribution of footwear (H. H. Brown
Shoe Company, Lowell Shoe, Inc. and Dexter Shoe Company). Berkshire also owns a
number of other businesses engaged in a variety of activities, as identified
herein.
Operating decisions for the various Berkshire businesses are made by
managers of the business units. Investment decisions and all other capital
allocation decisions are made for Berkshire and its subsidiaries by Warren E.
Buffett, in consultation with Charles T. Munger. Mr. Buffett is Chairman and
Mr. Munger is Vice Chairman of Berkshire's Board of Directors.
PROPERTY AND CASUALTY INSURANCE AND REINSURANCE BUSINESS
Berkshire's insurance and reinsurance businesses are conducted through 20
separate property and casualty insurance companies. In 1996, the Insurance
Group expanded significantly as a result of the January 1996 acquisition of
GEICO Corporation ("GEICO Corp.").
The Insurance Group maintains capital strength at unparalleled levels,
significantly higher than normal in the industry. This strength differentiates
Insurance Group members from their competitors. For example, the Insurance
Group's ratio of net premiums written in 1996 to year-end 1996 statutory
surplus was approximately 16%. In each year from 1992 through 1995, the
Insurance Group's ratio was less than 10%. Comparatively, the industry average
net premiums-to-surplus ratio from 1991 through 1995 ranged from 113% to 141%.
The Insurance Group's aggregate statutory surplus has grown from $8.7 billion
at year-end 1991 to over $26 billion at year-end 1996. Insurance Group members
are rated AAA by Standard & Poor's Corporation with respect to their
claims-paying abilities and are rated A++ (superior) by A.M. Best with respect
to their financial condition and operating performance. The obvious margins of
safety thus provided to clients of the Insurance Group are particularly
persuasive in marketing insurance and reinsurance contracts.
Underwriting operations of the Insurance Group are comprised of three
sub-groups: (1) the direct insurance operations of GEICO Corp. and its
subsidiaries, (2) the reinsurance assumed business of National Indemnity Company
and certain affiliated companies ("National Indemnity"), and (3) various other
direct insurance businesses. In direct insurance activities, Insurance Group
members assume defined portions of risk of loss from persons or organizations
that are directly subject to the risks. In reinsurance activities, Insurance
Group members assume defined portions of similar or dissimilar risks that other
insurance or reinsurance companies have subjected themselves in their own
insuring activities.
DIRECT INSURANCE OF GEICO CORP. -- On January 2, 1996, GEICO Corp. became
an indirect wholly-owned subsidiary of Berkshire as a result of the merger of
an indirect wholly-owned subsidiary of Berkshire with and into GEICO Corp. The
acquisition was pursuant to an Agreement and Plan of Merger dated August 25,
1995, wherein each outstanding share of GEICO Corp., except treasury shares and
shares already held by Berkshire subsidiaries, was converted to the right to
receive $70 cash, or $2.3 billion in the aggregate. Immediately prior to the
merger, Berkshire subsidiaries owned approximately 51% of all outstanding GEICO
Corp. common stock.
1
<PAGE> 3
ITEM 1. BUSINESS (CONTINUED)
PROPERTY AND CASUALTY INSURANCE AND REINSURANCE BUSINESS (CONTINUED)
GEICO Corp. is headquartered in Chevy Chase, Maryland and its principal
insurance subsidiaries include: Government Employees Insurance Company
("GEICO"), GEICO General Insurance Company ("GEICO General"), GEICO Indemnity
Company ("GI"), and GEICO Casualty Company ("GEICO Casualty"). These companies
offer primarily private passenger automobile insurance to individuals in 48
states and the District of Columbia. Collectively, GEICO Corp. companies are
currently the seventh largest auto insurer, in terms of premium volume, in the
United States. In 1996, aggregate net premiums written totaled $3.1 billion.
GEICO, founded in 1936, is a multiple-line property and casualty insurer
engaged primarily in writing private passenger automobile insurance for
preferred-risk government employees and military personnel. To a lesser
extent, GEICO writes homeowners, fire and boat owners insurance (businesses
that GEICO has, since 1995, substantially reduced and plans to fully exit by
1999), and personal umbrella insurance to all qualified applicants. GEICO
General writes private passenger automobile insurance for preferred-risk
drivers not associated with the government or military. GI writes
standard-risk private passenger automobile and motorcycle insurance. GEICO
Casualty writes non-standard risk private passenger automobile insurance. Each
of these companies market their policies primarily through direct response
methods.
Other active subsidiaries of GEICO Corp. include a variety of smaller
entities engaged in the sale of insurance and insurance related products, real
estate management, miscellaneous investment ventures, and other general
corporate activities.
Seasonal variations in GEICO Corp.'s property and casualty insurance
businesses are not significant. However, extraordinary weather conditions or
other factors may affect the frequency or severity of automobile or homeowners
claims. Weather related catastrophes can severely affect periodic underwriting
results.
GEICO Corp. companies compete most directly with companies, including
mutual (or policyholder-owned) companies, that concentrate on preferred-risk
private passenger automobile insurance. To a lesser degree, GEICO Corp.
companies compete with companies that write private passenger automobile
insurance for standard and non-standard risks.
Private passenger automobile insurance is stringently regulated by state
insurance departments, which makes it difficult for insurance companies to
differentiate their products. Competition for preferred-risk private passenger
automobile insurance, which is substantial, tends to focus on price and level
of customer service provided, whereas price tends to be the primary focus for
other risks. GEICO Corp. companies' cost efficient direct response marketing
methods and emphasis on customer satisfaction enable it to offer competitive
rates. Some insurance companies exacerbate price competition by selling their
products for a period of time at less than adequate rates, because they
underestimate ultimate claim costs, or overestimate the amount of investment
income they will earn on premiums before the claims are paid. Although certain
rates are subject to regulatory approval, GEICO Corp. companies' six-month
policy terms permit them to effectively manage premium rate changes.
GEICO Corp. companies place great emphasis on customer satisfaction.
Management believes that the name and reputation of the GEICO Corp. companies
is a material asset and protects its name and other service marks through
appropriate registrations.
REINSURANCE ASSUMED -- The reinsurance operation of National Indemnity,
from its offices in Stamford, Connecticut, provides excess-of-loss and
quota-share reinsurance to other property and casualty insurers and reinsurers.
Generally, an excess-of-loss reinsurance contract provides indemnification to
the reinsured party against all or a portion of covered losses, subject to a
specified limit, in excess of a specified retention. A quota-share reinsurance
contract provides indemnification to the reinsured party on a pro-rata basis
with respect to each covered loss under the contract. A quota-share contract
may also provide for aggregate limits of indemnification.
National Indemnity's clients and risks assumed are located throughout the
world, but are primarily within the United States. Minimal organizational, but
huge financial resources are currently devoted to this business. From 1992
through 1996, annual net premiums written from reinsurance activities have
ranged from $528.7 million (in 1993) to $777.0 million (in 1995). In 1996, net
reinsurance premiums written were $715.5 million. During the past five years,
reinsurance assumed business included considerable amounts from catastrophe
excess-of-loss contracts.
2
<PAGE> 4
ITEM 1. BUSINESS (CONTINUED)
PROPERTY AND CASUALTY INSURANCE AND REINSURANCE BUSINESS (CONTINUED)
In the early 1990's, Berkshire management perceived that declines in
industry capacity occurred with respect to catastrophe excess-of-loss
reinsurance coverages. Consequently, National Indemnity wrote a number of such
policies. In recent years, management believes that National Indemnity has
been one of the leading providers in the world of such coverages.
A catastrophe excess-of-loss policy provides protection to the
counterparty from the accumulation of primarily property losses arising from a
single loss event or series of events. These policies may provide significant
amounts of indemnification per contract in excess of specified retentions and a
single loss event may produce losses under a number of contracts. Generally,
National Indemnity does not cede any of the risks it has assumed under
catastrophe excess-of-loss reinsurance contracts to third-party reinsurers, due
to perceived uncertainties in recovering amounts from reinsurers that are
financially weaker. As a result, the catastrophe excess-of-loss reinsurance
business can produce extreme volatility in periodic underwriting results.
Accounting consequences, however, do not influence decisions of Berkshire's
management with respect to this or any other business. This factor along with
the Insurance Group's extraordinary financial strength, are believed to be the
primary reasons why National Indemnity has become a major provider of such
coverages.
Since 1992, the amount of capital (i.e. capacity) devoted to the
catastrophe excess-of-loss reinsurance business by the industry has increased,
including additional capital raised by newly-formed entities. In addition, new
types of catastrophe risk management products have been introduced in the
financial markets. The effect of such increased insuring capacity has been a
reduction in opportunities to write this business at acceptable prices.
However, the occasional acceptance of catastrophe excess-of-loss reinsurance
contracts subjects National Indemnity to considerable risk of loss.
In National Indemnity's non-catastrophe reinsurance business, the
concept of time-value-of money is an important element in establishing prices
and contract terms, since the payment of losses under the agreements are often
expected to occur over lengthy periods of time. Under the terms of most
contracts, limits of indemnification may be subject to minimum and maximum
payment amounts. Minimum payment requirements may originate in commutation (or
termination) clauses that specify for repayments to the reinsureds, on
specified dates, of amounts not otherwise paid as losses. Transaction amounts
and limits of indemnification are likely to be large and contracts may span a
number of years. This business is accepted, in large part, because of the
substantial amounts of policyholder funds ("float") that it produces.
OTHER DIRECT INSURANCE BUSINESSES -- In Berkshire's other direct
insurance businesses, Insurance Group members underwrite various lines of
insurance coverages for primarily commercial accounts. National Indemnity and
certain affiliates provides motor vehicle insurance to commercial truck and bus
operators, which is written nationwide primarily through insurance agents and
brokers. This business is based in Omaha, Nebraska.
National Indemnity and certain other affiliates also solicit and
underwrite certain unusual or especially large property and casualty risks.
This business is referred to as the "Professional Liability and Specialty Risk
Division." In recent years, most of the insurance written by the Professional
Liability and Specialty Risk Division has been from individually negotiated
property catastrophe insurance policies issued to commercial enterprises.
Other Insurance Group members market various commercial coverages for
standard risks to insureds in their state of domicile and an increasing number
of other states. These operations are referred to as the "Homestate
Businesses" and are based in Colorado, Nebraska, and California with branch
operations located in several other states.
At the end of 1992, Berkshire acquired 82% of Central States Indemnity
Company of Omaha ("CSI"). CSI, located in Omaha, Nebraska, offers credit-card
credit insurance marketed primarily through credit card issuers nationwide.
CSI insures the credit card debt of policyholders should they become unemployed
or disabled.
3
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ITEM 1. BUSINESS (CONTINUED)
PROPERTY AND CASUALTY INSURANCE AND REINSURANCE BUSINESS (CONTINUED)
In mid-1996, Berkshire acquired, through an 80.1% owned affiliate, Kansas
Banker's Surety Company ("KBS"). KBS, based in Topeka, Kansas, provides
primarily crime, fidelity, errors and omissions, officers and directors
liability and related insurance coverages directed toward small and
medium-sized banks throughout the midwestern United States.
INVESTMENTS -- The volume of reinsurance assumed business in recent
years, plus the acquisition of GEICO Corp. in 1996, has produced an exceptional
increase in the amount of "float" held by the Insurance Group. "Float" is an
approximation of the amount of net policyholder funds available for investment.
That term denotes the sum of unpaid losses and loss adjustment expenses,
unearned premiums and other policyholder liabilities, less the aggregate amount
of premium balances receivable, losses recoverable from reinsurance ceded,
deferred policy acquisition costs, deferred charges re reinsurance assumed, and
related prepaid income taxes. The amount of float has grown from about $2.1
billion at the end of 1991 to about $6.9 billion at the end of 1996. The
increases in the amounts of float plus the earnings that it generates will
likely result in meaningful increases for several years in the levels of
investments and investment income, with some part of such increases already
evident.
Investment portfolios of Insurance Group members include meaningful
equity ownership percentages of other publicly traded companies. Such
investments at year-end 1996 include approximate ownership percentages of the
common or capital stock of the following companies: American Express Company
(10.5%), The Coca-Cola Company (8%), The Walt Disney Company (3.5%), Federal
Home Loan Mortgage Corporation ("Freddie Mac") (9%), The Gillette Company
(8.5%), The Washington Post Company (16%), and Wells Fargo & Company (8%). In
addition, investments in the common and convertible preferred stock of Salomon
Inc possess approximately 18% of the total voting power of that company. Much
information about these companies is available, including information released
from time-to-time by the companies themselves.
NON-INSURANCE BUSINESSES OF BERKSHIRE
Registrant's six non-insurance "reportable business segments" are
described below.
CANDY -- See's produces boxed chocolates and other confectionery products
with an emphasis on quality in two large kitchens in California. See's
distributes its candies through its own retail stores - over 200 in number,
located in 12 western and midwestern states, including Hawaii - and by mail
order. A meaningful volume of candy business is also recorded for direct
shipments made nationwide from its California based quantity order distribution
centers.
Seasonality in this business is extreme. Nearly 50% of each year's unit
sales volume is generated during the last two months of the year, when quantity
sales at reduced prices to businesses and other organizations augment the
extremely high retail store and mail order volume during December.
ENCYCLOPEDIAS, OTHER REFERENCE MATERIALS -- World Book publishes
educational products for homes, schools, and libraries. Its chief products
include: The World Book Encyclopedia, the largest-selling print encyclopedia
in the United States; Childcraft, a resource library designed for pre-school
and primary grade children; Early World of Learning, a readiness program for
preschoolers; and World Book Multimedia Encyclopedia, a CD-ROM encyclopedia
which includes audio, video and animation. These and other educational
products are sold by independent sales representatives and distributors.
Beginning in 1997, an updated World Book Multimedia Encyclopedia will also be
sold to previous purchasers by direct mail. Additionally, through a
contractual arrangement, IBM is selling the World Book Multimedia Encyclopedia
in retail stores. A newly copyrighted edition of The World Book Encyclopedia
is published each year as are various annual updating publications for owners
of earlier encyclopedia editions. An international group markets these and
other specially created educational products in Australia, the United Kingdom,
Ireland, Canada and 81 other countries through independent distributors.
There is significant competition in the business of publishing and
marketing encyclopedias in North America, World Book's principal geographic
market. Over the past five years, the demand for printed encyclopedias, in
general, has declined dramatically. As a result, World Book management made
significant changes in the production and distribution of its products. World
Book's strategy is to sell an expanded line of products that combine the
advantages of print and electronic media. Management believes its product
quality is superior to its competitors, and that its pricing is competitive.
4
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ITEM 1. BUSINESS (CONTINUED)
NON-INSURANCE BUSINESSES OF BERKSHIRE (CONTINUED)
HOME CLEANING SYSTEMS -- This segment of Berkshire's business is
principally represented by Kirby home cleaning systems and products, sold to
approximately 785 independent authorized factory distributors in the United
States and foreign countries. These factory distributors sell to the consumer
or to independent authorized area distributors who sell to the consumer. Sales
are made through in-the-home demonstrations by independent salespeople.
Substantially all of Kirby's sales to distributors are for cash. A
wholly-owned Berkshire subsidiary offers financing to about 665 authorized
distributors in the United States. The distributors independently establish the
prices at which they offer Kirby products. Kirby and its distributors believe
they offer a premium product, and it is believed that the prices are generally
higher than those of most of its major competitors.
This segment also includes the Douglas Products business that
manufactures specialty vacuum cleaners such as electric hand held and cordless
vacuum cleaners. Channels of distribution for these products include retail
discount stores, catalogue showrooms, hardware stores and department stores.
Additionally, Cleveland Wood Products, a manufacturer of vacuum cleaner brushes
and bags, is included in this segment.
HOME FURNISHINGS -- The Nebraska Furniture Mart ("NFM") operates a home
furnishing retail business from a very large - approximately 400,000 square
feet - retail complex and sizable warehouse facilities in Omaha, Nebraska.
Types of merchandise offered by NFM include furniture, major appliances,
electronics, computers, floor coverings, and other home furnishings. The
business serves a trade area with a radius around Omaha of approximately 300
miles. An important feature of the business is its ability to control its
costs and to produce a high business volume from offerings of significant value
to its customers, while realizing highly satisfactory earnings.
The Home Furnishings segment increased significantly in June 1995, when
Berkshire acquired 100 percent of the stock of R.C. Willey Home Furnishings
("R.C. Willey"). R.C. Willey, founded in 1932, is the dominant home
furnishings retailer in Utah. R.C. Willey sells basically the same types of
products as NFM. In addition, R.C. Willey provides significant levels of
customer financing which compliment its retail operations.
Based in Salt Lake City, R.C. Willey operates six full retail stores and
multiple warehouse and clearance facilities. These facilities -- which include
more than 585,000 square feet of retail space -- are strategically located
within a 35 mile radius of Salt Lake City and serve customers in 4 western
states.
NEWSPAPER -- The Buffalo News, a division of Berkshire, publishes a
Sunday edition and nine editions each weekday from its headquarters in
Buffalo, New York. It is the only metropolitan newspaper published daily
within a ten county upstate New York distribution area that comprises one of
the 50 largest primary market areas in the United States.
Among newspapers published in those primary markets, The Buffalo News
claims the highest percentage of its area household coverage, 65% on weekdays
and 82% on Sundays. Berkshire management believes the "newshole" percentage
(portion of the paper devoted to news) of The Buffalo News to be greater than
any other dominant newspaper of its size or larger. During 1996 this
percentage was approximately 57%.
SHOES -- This segment includes H. H. Brown Shoe Company ("H. H. Brown"),
which was acquired in July 1991, Lowell Shoe, Inc. ("Lowell"), acquired at the
end of 1992, and Dexter Shoe Company ("Dexter"), acquired in November 1993. A
description of each of these businesses follows.
H. H. Brown manufactures, imports and markets work, safety, outdoor,
western work and casual footwear. They are distributed under the H. H. Brown,
Born, Carolina, Double-H Boot and other brand names as well as under private
label. H. H. Brown is the leading domestic producer of steel toe safety work
shoes. The company maintains a significant share in many niche markets in which
it competes by providing functional footwear and emphasizing comfort. The
company's competitors in this market are typically domestic work boot
manufacturers. Management believes that its products are competitive in terms
of quality and price.
In addition to manufacturing its products at three facilities located in
the United States and a facility in Canada, the company sources shoes and shoe
components offshore. The company markets its products entirely within the
United States and Canada through a direct sales force of about 85 employees.
Its customer base is primarily composed of small independent retailers and
wholesalers who sell to workers in a variety of industries including steel,
construction, heavy manufacturing and agriculture.
5
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ITEM 1. BUSINESS (CONTINUED)
NON-INSURANCE BUSINESSES OF BERKSHIRE (CONTINUED)
Lowell manufactures and markets women's casual, service and nurses
footwear. These products are marketed primarily under the brand names Soft
Spots and Nurse Mates.
Dexter manufactures and markets men's and women's dress, casual and
athletic footwear. All products are manufactured and sold under the trademark
Dexter. The company specializes in the construction of Handsewns, Welts and
Cements. Leather is purchased from domestic tanneries, and many of the other
components used in the manufacturing process are made by Dexter.
Dexter has four manufacturing facilities in Maine, two in Puerto Rico and
one in the Dominican Republic. In addition to the manufacturing facilities,
Dexter operates 83 factory outlet stores located in 13 states and Puerto Rico.
The customer base is composed of independent retailers and department
stores throughout the United States. Dexter's major customers are large
department stores, including J. C. Penney and Nordstroms, specialty retailers
such as Famous Footwear and military PX's. Additionally, Dexter exports its
products to numerous foreign countries.
OTHER NON-INSURANCE ACTIVITIES not identified with Berkshire business
segments include the more than one dozen diverse manufacturing businesses
acquired with the 1986 purchase of The Scott & Fetzer Company. The largest
revenue producer of these businesses is Campbell Hausfeld/Scott Fetzer Company,
which manufactures and markets a variety of products including air compressors,
air tools, painting systems, pressure washers, welders and generators.
In April 1995, Berkshire acquired 100 percent of the stock of Helzberg's
Diamond Shops, Inc. ("Helzberg's"). Helzberg's -- based in North Kansas City,
Missouri -- operates a chain of over 180 retail jewelry stores in twenty-eight
states. Most of Helzberg's stores are located in malls or power strip centers,
and operate under the names: Helzberg Diamonds and Jewelry 3. In addition, for
many years Berkshire has owned an 85% interest in a long established, high
volume retailer of fine jewelry, Borsheim's, in Omaha, Nebraska.
On December 23, 1996 FlightSafety International, Inc. ("FSI") became a
wholly-owned subsidiary of Berkshire. The merger was consummated pursuant to
an Agreement and Plan of Merger dated October 14, 1996 (the "FSI Agreement").
Pursuant to the FSI Agreement, aggregate consideration of $1.5 billion was paid
to FSI shareholders, consisting of approximately $769 million in cash, 17,728
shares of Berkshire Class A Common Stock and 112,655 shares of Berkshire Class
B Common Stock.
FSI and its subsidiaries engage primarily in the business of providing
high technology training to operators of aircraft and ships. FSI's corporate
headquarters is located at LaGuardia Airport in Flushing, New York. FSI's
revenues for the twelve months ended December 31, 1996 were $364 million, of
which $338 million were from training services. The remainder of FSI's revenues
derive primarily from product sales.
FSI's training activities include: advanced pilot training in the
operation of aircraft and air traffic control procedures; aircrew training for
military and other government personnel; aircraft maintenance technician
training; ab-initio (primary) pilot training to qualify individuals for private
and commercial pilots' licenses; and shiphandling and related training
services. FSI also develops classroom instructional systems and materials for
use in its training business and for sale to others.
A significant element of FSI's training programs derives from the use of
simulators, which incorporate computer-based technology to replicate the
operation of particular aircraft or ocean-going vessels. Simulators reproduce,
with a high degree of accuracy, certain sights, movements, and aircraft or
vessel control responses experienced by the operator of the aircraft or ship.
FSI owns and operates more than 170 civil aviation simulators and training
devices. FSI's training businesses are conducted primarily in the United
States, with facilities located in 16 states. FSI also operates training
facilities in Canada, China, France and the Netherlands.
In addition, FSI designs and manufactures full motion flight simulators,
visual displays, and other training equipment for use in its training business
and for sale to others. Manufacturing facilities are located in Oklahoma and
Missouri.
6
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ITEM 1. BUSINESS (CONTINUED)
NON-INSURANCE BUSINESSES OF BERKSHIRE (CONTINUED)
In March 1997, FSI and Boeing Co., a leading airplane manufacturer,
announced plans to establish a joint venture. The joint venture will provide
pilot and aircrew training for Boeing's new airplane sales and airline
customers around the world.
Berkshire Hathaway Inc. and subsidiaries employed approximately 34,500
persons on a full-time basis at December 31, 1996.
ADDITIONAL INFORMATION WITH RESPECT TO BERKSHIRE'S BUSINESSES
The amounts of revenue, operating profit and identifiable assets
attributable to each of the seven aforementioned business segments are included
in Note 15 to Registrant's consolidated financial statements contained in Item
8, Financial Statements and Supplementary Data. Additional information
regarding Registrant's investments in fixed maturity and marketable equity
securities is included in Notes 4 and 5 to Registrant's consolidated financial
statements.
ITEM 2. PROPERTIES
The physical properties used by Registrant's significant business
segments are summarized below:
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<CAPTION>
OWNED APPROX.
OR SQUARE
BUSINESS LOCATION TYPE OF PROPERTY LEASED FOOTAGE
- ----------------- ------------------------ --------------------- ------ -------
<S> <C> <C> <C> <C>
Company
Headquarters Omaha, NE Offices Leased 4,000
Insurance Omaha, NE, Chevy Chase, Offices Owned 1,773,000
MD, Woodbury, NY,
Macon, GA, Dallas, TX,
& Fredricksburg, VA
Omaha, NE & various Offices and Leased 333,000
locations throughout drive-in claims
the United States facilities
Candy Los Angeles, CA & South Plants/Warehouses/
San Francisco, CA Offices Owned 274,000
California Warehouses/Offices Leased 393,000
California & other Retail outlets and Leased 352,000
locations principally quantity order centers
in western states (211 locations)
Newspaper Buffalo, NY Offices Owned 195,000
Buffalo, NY Printing Plant Owned 150,000
New York &
Washington, D.C. Offices/Warehouses Leased 85,000
Home Omaha, NE Retail Store Owned 400,000
Furnishings Omaha, NE & Lincoln, NE Warehouses/Offices Owned 670,000
Des Moines, IA Retail Store/Warehouse Leased 13,000
Salt Lake City & other Warehouses/Offices Owned 484,000
Utah locations Warehouses/Offices Leased 141,000
Salt Lake City & other Retail Stores Owned 486,000
Utah locations Retail Stores Leased 100,000
Encyclopedias, Chicago, IL & vicinity Offices Leased 49,000
Other Reference Australia Offices/Warehouses Leased 7,000
Material United Kingdom Offices Leased 19,000
</TABLE>
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ITEM 2. PROPERTIES (CONTINUED)
<TABLE>
<CAPTION>
OWNED APPROX.
OR SQUARE
BUSINESS LOCATION TYPE OF PROPERTY LEASED FOOTAGE
- ----------------- ------------------------ --------------------- ------ -------
<S> <C> <C> <C> <C>
Home Cleaning Cleveland, OH,
Systems Andrews, TX & Plants/Warehouses/ Owned 465,000
Walnut Ridge, AR Offices
Cleveland, OH Warehouse/Offices Leased 23,000
Canada & England Warehouses/Offices Leased 22,000
Shoes Morganton, NC, Womelsdorf,
PA, Martinsburg, PA,
Hudson, NH, Dexter, ME & Plants/Warehouses/
Canada Offices Owned 1,687,000
Greenwich, CT, Commerce, CA,
Hudson, NH, Morganton, NC,
Skowhedgan, ME, Newton, MA,
Canada, Puerto Rico & Plants/Warehouses/
Dominican Republic Offices Leased 733,000
46 U.S. locations Retail Stores Owned 316,000
55 U.S. & Puerto Rico locations Retail Stores Leased 395,000
</TABLE>
The physical properties utilized by FlightSafety International, Inc.'s
businesses are summarized below:
<TABLE>
<CAPTION>
Owned Approx.
or Square
Location Type of Property Leased Footage
------------------------ --------------------- ------ -------
<S> <C> <C> <C>
16 U.S. States, Canada, Training Facilities Owned 393,000
Netherlands, France Training Facilities Leased 909,000
and China
Oklahoma and Missouri Manufacturing Owned 165,000
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in litigation relating to the transactions in
which Salomon Inc ("Salomon") repurchased a significant block of its common
stock from a holder thereof and sold a new issue of preferred stock to the
Company. Twenty-one derivative action lawsuits have been filed against
Salomon's directors challenging these transactions and seeking damages; two of
these lawsuits (Ruby Resnik v. Dwayne O. Andreas, et al., Delaware Chancery No.
9300, filed September 30, 1987 and Rodney Shields v. John H. Gutfreund, et al.,
United States District Court for the Southern District of New York, No. 88 Civ.
1058, filed February 12, 1988) named the Company as an additional defendant.
The lawsuits allege that the Salomon directors breached their fiduciary duties
to Salomon and its shareholders in connection with these transactions, and the
two lawsuits naming the Company claim, in essence, that the Company
participated in such alleged breaches of duty. The complaints in these
lawsuits seek damages in unspecified amounts, a declaration that the sale of
preferred stock to the company is illegal, null and void, an order requiring
that the preferred stock purchased by the Company be voted in the same manner
as the majority of Salomon's shares, and rescission of the transaction between
Salomon and the Company. Management does not expect the outcome of these
lawsuits to be materially adverse to the Company. Other litigation pending
against the Company and its subsidiaries is not considered material or is
ordinary routine litigation incidental to the business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
8
<PAGE> 10
EXECUTIVE OFFICERS OF THE REGISTRANT
Following is a list of the Registrant's executive officers:
<TABLE>
<CAPTION>
Name Age Position with Registrant Since
- ----------------- --- -------------------------- -----
<S> <C> <C> <C>
Warren E. Buffett 66 Chairman of the Board 1970
Marc D. Hamburg 47 Vice President 1992
Charles T. Munger 73 Vice Chairman of the Board 1978
</TABLE>
Each executive officer serves, in accordance with the by-laws of the
Registrant, until the first meeting of the Board of Directors following the
next annual meeting of shareholders and until his respective successor is
chosen and qualified or until he sooner dies, resigns, is removed or becomes
disqualified. Mr. Buffett and Mr. Munger also serve as directors of the
Registrant.
Part II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
MARKET INFORMATION
The Company's Class A and Class B Common Stock are listed for trading on
the New York Stock Exchange, trading symbol: BRK.A and BRK.B. The following
table sets forth the high and low sales prices per share, as reported on the
New York Stock Exchange Composite List during the periods indicated:
<TABLE>
<CAPTION>
CLASS A * CLASS B * CLASS A *
------------------ --------------- ----------------
1996 HIGH LOW HIGH LOW 1995 HIGH LOW
------- ------- ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
First Quarter . . . $38,000 $29,800 N/A N/A First Quarter . . . . . $25,200 $20,250
Second Quarter . . 36,000 30,000 $1,220 $ 990 Second Quarter . . . . . 24,450 21,500
Third Quarter . . . 33,500 30,500 1,117 1,005 Third Quarter . . . . . 30,600 23,400
Fourth Quarter . . 36,500 31,000 1,175 1,036 Fourth Quarter . . . . . 33,400 28,850
</TABLE>
* Class B Common Stock was first issued on May 8, 1996. At that time
Berkshire's then outstanding common stock was redesignated Class A Common
Stock.
SHAREHOLDERS
The Company had approximately 9,000 record holders of its Class A Common
Stock and 6,000 record holders of its Class B Common Stock at March 7, 1997.
Record owners included nominees holding at least 220,000 shares of Class A
Common Stock and 750,000 shares of Class B Common Stock on behalf of
beneficial-but-not-of-record owners.
DIVIDENDS
Berkshire has not declared a cash dividend since 1967.
9
<PAGE> 11
Part II (Continued)
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA FOR THE PAST FIVE YEARS
(dollars in millions, except per share data)
<TABLE>
<CAPTION>
1996 1995* 1994* 1993* 1992*
--------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
REVENUES:
Insurance premiums earned . . . . . . . $ 4,117.8 $ 957.5 $ 923.2 $ 650.7 $ 664.3
Sales and service revenues . . . . . . . 3,061.2 2,755.9 2,351.9 1,962.9 1,774.4
Interest and dividend income . . . . . . 811.9 629.2 519.0 520.7 485.5
Income from finance businesses . . . . . 25.3 26.6 24.9 22.2 20.7
Realized investment gain (1) . . . . . . 2,484.1(2) 194.1 91.3 546.4 89.9
--------- --------- --------- --------- ---------
Total revenues . . . . . . . . . . . . . $10,500.3 $ 4,563.3 $ 3,910.3 $ 3,702.9 $ 3,034.8
========= ========= ========= ========= =========
EARNINGS:
Before realized investment gain and
cumulative effect of accounting change $ 883.4 $ 669.9 $ 491.9(3) $ 520.2(4) $ 400.8
Realized investment gain (1) . . . . . . 1,605.2(2) 125.0 61.1 356.7 59.6
Cumulative effect of change in accounting
for income taxes . . . . . . . . . . -- -- -- (33.3) --
--------- --------- --------- --------- ---------
Net earnings . . . . . . . . . . . . . . $ 2,488.6 $ 794.9 $ 553.0 $ 843.6 $ 460.4
========= ========= ========= ========= =========
EARNINGS PER SHARE:
Before realized investment gain and
cumulative effect of accounting change $ 732.96 $564.31 $417.66(3) $ 449.90(4) $ 349.59
Realized investment gain (1) . . . . . . 1,331.83(2) 105.30 51.88 308.50 51.98
Cumulative effect of change in accounting
for income taxes . . . . . . . . . . -- -- -- (28.80) --
--------- --------- --------- --------- ---------
Net earnings . . . . . . . . . . . . . . $2,064.79 $669.61 $469.54 $ 729.60 $ 401.57
========= ========= ========= ========= =========
YEAR-END DATA:
Total assets . . . . . . . . . . . . . . $43,409.5 $28,711.4 $20,609.6 $18,697.5 $15,721.5
Borrowings under investment agreements
and other debt (5) . . . . . . . . . 1,944.4 1,061.7 810.7 972.4 1,154.7
Shareholders' equity . . . . . . . . . . 23,426.3 16,738.7 11,651.5 10,140.2 8,132.9
Class A equivalent common shares
outstanding, in thousands . . . . . . 1,232 1,194 1,178 1,178 1,149
Shareholders' equity per outstanding
Class A equivalent share . . . . . . $ 19,011 $ 14,025 $ 9,893 $ 8,610 $ 7,081
========= ========= ========= ========= =========
* Restated - See Note 1(b) to Consolidated Financial Statements.
</TABLE>
----------------------------
(1) The amount of realized investment gain/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 unrealized
appreciation now existing in Berkshire's consolidated investment
portfolio.
(2) In March 1996, The Walt Disney Company completed its acquisition of
Capital Cities/ABC, Inc. A pre-tax realized gain related to this
transaction of $2.2 billion ($1.4 billion after-tax) is included in
1996's results.
(3) Includes a charge of $172.6 million representing an other-than-temporary
decline in value of investment in USAir Group, Inc. Preferred Stock.
(4) Includes a charge of $53.6 million representing the effect of the change
in U.S. Federal income tax rates on deferred taxes applicable to
unrealized appreciation.
(5) Excludes borrowings of finance businesses.
10
<PAGE> 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net earnings for each of the past three years are disaggregated in the
table that follows. Amounts are after deducting minority interests and taxes.
<TABLE>
<CAPTION>
(dollars in millions)
---------------------------------
1996 1995 1994
------- ------ -------
<S> <C> <C> <C>
Insurance segment, except realized gain . . . . . . . . . . . . . . $ 689.6 $496.4 $ 487.3
Non-Insurance business segments . . . . . . . . . . . . . . . . . . 163.2 139.4 159.4
Other businesses . . . . . . . . . . . . . . . . . . . . . . . . . 63.3 52.0 42.8
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . (55.7) (34.9) (37.3)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.0 17.0 12.3
-------- ------ -------
Earnings before realized gains and non-recurring charge . . . . 883.4 669.9 664.5
Realized gain . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,605.2 125.0 61.1
Non-recurring charge . . . . . . . . . . . . . . . . . . . . . . . -- -- (172.6)*
-------- ------ -------
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . $2,488.6 $794.9 $ 553.0
======== ====== =======
</TABLE>
* As described in Note 4 to the Consolidated Financial Statements, during 1994
the Company recorded a pre-tax charge of $268.5 million ($172.6 million
after-tax) as a result of recognizing an other-than-temporary decline in the
value of its investment in USAir Group, Inc. Preferred Stock.
The business segment data (Note 15 to Consolidated Financial
Statements) should be read in conjunction with this discussion.
INSURANCE SEGMENT
A summary follows of results to Berkshire from the insurance segment
for the past three years.
<TABLE>
<CAPTION>
(dollars in millions)
-----------------------------------
1996 1995 1994
-------- ------ ------
<S> <C> <C> <C>
Premiums earned from:
Direct insurance . . . . . . . . . . . . . . . . . . . . . . . $3,360.3 $239.9 $234.8
Reinsurance assumed . . . . . . . . . . . . . . . . . . . . . . 757.5 717.6 688.4
-------- ------ ------
$4,117.8 $957.5 $923.2
======== ====== ======
Underwriting gain (loss) attributable to:
Direct insurance . . . . . . . . . . . . . . . . . . . . . . . $ 238.5 $ 40.6 $ 48.3
Reinsurance assumed . . . . . . . . . . . . . . . . . . . . . . (7.8) (21.0) 80.7
-------- ------ ------
230.7 19.6 129.0
Net investment income . . . . . . . . . . . . . . . . . . . . . . . 712.1 575.8 481.0
Goodwill amortization . . . . . . . . . . . . . . . . . . . . . . . (42.6)* -- --
-------- ------ ------
Pre-tax earnings . . . . . . . . . . . . . . . . . . . . . . . 900.2 595.4 610.0
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 203.3 92.0 117.2
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . 7.3 7.0 5.5
-------- ------ ------
Net earnings from insurance, except realized gain . . . . . . . $ 689.6 $496.4 $487.3
======== ====== ======
</TABLE>
* Virtually all of the goodwill amortization relates to the amortization of
goodwill that arose in connection with the GEICO merger.
The Berkshire Hathaway Insurance Group engages in both direct
insurance and reinsurance of property and casualty risks. In direct insurance
activities, Insurance Group members assume defined portions of the risks of
loss from persons or organizations that are directly subject to the risks. In
reinsurance assumed activities, Insurance Group members assume defined portions
of similar or dissimilar risks that other insurers or reinsurers have subjected
themselves in their own insuring activities.
In January 1996, Berkshire acquired control of GEICO Corporation
("GEICO"). The inclusion of the accounts of GEICO dramatically affects the
operating results of the Insurance Group.
A significant marketing strategy followed by all Insurance Group
members is the maintenance of extraordinary capital strength. Statutory
surplus as regards policyholders of the Insurance Group increased to
approximately $26.1 billion at December 31, 1996. This superior capital
strength creates opportunities for Insurance Group members to negotiate and
enter into contracts of insurance specially designed to meet unique needs of
sophisticated insurance and reinsurance buyers.
11
<PAGE> 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
INSURANCE SEGMENT (Continued)
For purposes of this Discussion, premiums and losses and loss expenses
are stated net of reinsurance ceded.
Direct Insurance Underwriting
A summary follows of the combined underwriting results, stated on the
basis of generally accepted accounting principles ("GAAP") of Berkshire's
direct insurance businesses.
<TABLE>
<CAPTION>
(dollars are in millions)
---------------------------------------------------------
1996 1995 1994
---------------- --------------- --------------
Amount % Amount % Amount %
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Premiums written . . . . . . . . . . . . . $3,389.7 $247.2 $225.7
======== ====== ======
Premiums earned . . . . . . . . . . . . . . $3,360.3 100.0 $239.9 100.0 $234.8 100.0
-------- ----- ------ ----- ------ -----
Losses and loss expenses . . . . . . . . . 2,516.6 74.9 90.0 37.5 88.4 37.6
Underwriting expenses . . . . . . . . . . . 605.2 18.0 109.3 45.6 98.1 41.8
-------- ----- ------ ----- ------ -----
Total losses and expenses . . . . . . . . . 3,121.8 92.9 199.3 83.1 186.5 79.4
-------- ===== ------ ===== ------ =====
Underwriting gain -- pre-tax . . . . . . . $ 238.5 $ 40.6 $ 48.3
======== ====== ======
</TABLE>
As previously indicated, the net underwriting results from direct
insurance in 1996 include the results of GEICO. Through its subsidiaries, GEICO
provides primarily private passenger automobile coverages to insureds in 48
states and the District of Columbia. 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. In previous
years, a relatively small percentage of GEICO's insurance business derived from
homeowner's and other non-automobile insurance coverages. In 1995, GEICO
entered into an agreement with another major insurance provider that over time
will allow it to effectively exit the homeowner's insurance business.
GEICO's underwriting results for 1996 are summarized below. Amounts
for 1995 are shown for comparative purposes, although such amounts are not
included in Berkshire's Consolidated Financial Statements.
<TABLE>
<CAPTION>
(dollars are in millions)
-------------------------------------
1996 1995
---------------- ----------------
Amount % Amount %
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Premiums earned . . . . . . . . . . . . . . . . . . . . . . . . . . $3,091.6 100.0 $2,787.0 100.0
-------- ----- -------- -----
Losses and loss expenses . . . . . . . . . . . . . . . . . . . . . 2,424.9 78.4 2,254.2 80.9
Underwriting expenses . . . . . . . . . . . . . . . . . . . . . . . 486.7 15.8 440.7 15.8
-------- ----- -------- -----
Total losses and expenses . . . . . . . . . . . . . . . . . . . . . 2,911.6 94.2 2,694.9 96.7
-------- ===== -------- =====
Underwriting gain -- pre-tax . . . . . . . . . . . . . . . . . . . $ 180.0 $ 92.1
======== ========
</TABLE>
Premiums earned in 1996 were $3,091.6 million, up 10.9% from $2,787.0
million in 1995. Premium growth for voluntary auto business was 15.3%,
reflecting a 10.1% increase in policies-in-force during the year, changes in
the mix of business and very modest rate increases. This growth was partially
offset by declines in premiums for residual market auto (unprofitable business
assigned to insurers by state regulators that insurers normally would not
voluntarily accept) and homeowners insurance business.
Policy growth over the last year was 7.3% in the preferred-risk auto
market and 33.5% in the standard and nonstandard auto lines as efforts have
been expanded to offer a rate quote to potential customers who do not meet
GEICO's preferred-risk underwriting guidelines. Voluntary auto new business
sales increased 33.8% over 1995.
Losses and loss expenses incurred increased 7.6% to $2,424.9 million
in 1996. The loss and loss expense ratio, which measures the portion of
premiums earned, paid or reserved for losses and related claims handling
expenses, was 78.4% in 1996 compared to 80.9% a year ago. The lower ratio
reflects a flattening of average severity trends for auto liability coverages.
Underwriting expenses increased 10.4% in 1996 to $486.7 million. The increase
reflects additional advertising and other costs related to new business growth.
Berkshire's other direct insurance businesses include National
Indemnity Company's traditional motor vehicle business and professional
liability/specialty risk operations; five companies referred to as "homestate"
operations that principally provide coverages to residents of their home states
or branch operations; Central States Indemnity Company, a provider of
credit-card credit insurance to individuals through financial institutions; and
Kansas Bankers Surety Company, which Berkshire acquired in July 1996, and which
is an insurer for primarily small and medium sized banks located in the
midwest.
12
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
INSURANCE SEGMENT (Continued)
Direct Insurance Underwriting (Continued)
Collectively, these direct insurance businesses produced earned
premiums of $268.7 million in 1996, $239.9 million in 1995 and $234.8 million
in 1994. Net underwriting gains of these businesses were $58.5 million in 1996,
$40.6 million in 1995 and $48.3 million in 1994. The increases in premium
volume in recent years have been achieved primarily by the credit-card credit,
"homestate," and specialty risk insurance businesses offset by declines in the
traditional motor vehicle business. Nearly all of these direct insurance
businesses produced net underwriting gains in each of the past three years.
However, the net underwriting gains were primarily recorded by the traditional
motor vehicle, specialty risk and credit-card credit businesses.
Reinsurance Assumed
Underwriting results for the past three years, stated on a "GAAP"
basis with respect to the reinsurance assumed business, are summarized in the
following table.
<TABLE>
<CAPTION>
(dollars in millions)
----------------------------------------------------------
1996 1995 1994
-------------- --------------- ---------------
Amount % Amount % Amount %
------ ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Premiums written . . . . . . . . . . . . . . . . . . . $715.5 $ 777.0 $ 689.8
====== ======= =======
Premiums earned . . . . . . . . . . . . . . . . . . . . $757.5 100.0 $ 717.6 100.0 $ 688.4 100.0
------ ----- ------- ----- ------- -----
Losses and loss expenses . . . . . . . . . . . . . . . 572.9 75.6 522.0 72.7 476.9 69.3
Underwriting expenses . . . . . . . . . . . . . . . . . 192.4 25.4 216.6 30.2 130.8 19.0
------ ----- ------- ----- ------- -----
Total losses and expenses . . . . . . . . . . . . . . . 765.3 101.0 738.6 102.9 607.7 88.3
------ ===== ------- ===== ------- =====
Underwriting gain (loss) -- pre-tax . . . . . . . . . . $ (7.8) $ (21.0) $ 80.7
====== ======= =======
</TABLE>
Reinsurance premiums earned from catastrophe excess-of-loss policies
were $268.0 million in 1996, $260.0 million in 1995 and $447.1 million in 1994.
Net underwriting gains from catastrophe policies were $167.0 million in 1996,
$152.1 million in 1995 and $240.4 million in 1994. Over the past three years,
the only significant catastrophe loss sustained by the Insurance Group resulted
from the 1994 earthquake in Northridge, California. As of December 31, 1996,
the estimated aggregate claim losses to the Insurance Group from that event
were approximately $155 million.
The net underwriting gains earned over the most recent three years
from this business should not be considered predictive of future results.
Insurance Group members continue to offer and accept catastrophe reinsurance
policies that subject the Insurance Group to substantial risk of loss. For
instance, in late 1996, the Insurance Group agreed to provide aggregate
reinsurance protection of about $1 billion to the newly formed California
Earthquake Authority ("CEA"). The coverage will be called upon if the CEA
incurs aggregate earthquake losses in excess of about $5 billion during the
four year period ending March 31, 2001.
Berkshire's management believes that, eventually, a future
catastrophic event will result in a significant loss to the Insurance Group,
although the timing and magnitude of loss cannot be predicted. Thus, the
periodic underwriting results are subject to extreme volatility. Berkshire's
management is willing to accept such volatility, provided there is a reasonable
prospect of long-term profitability.
Premiums earned from other property and casualty excess-of-loss and
quota-share policies totaled $489.5 million in 1996, $457.6 million in 1995 and
$241.3 million in 1994. These policies produced net underwriting losses of
$101.0 million in 1996, $97.7 million in 1995 and $82.0 million in 1994.
Premiums for non-catastrophe contracts are often based, in part, on time
discounting of estimated losses because of assumptions that the reinsurer will
not be required to pay for losses under the contracts for extended periods of
time. Reserves for unpaid losses and loss expenses are established for
financial reporting purposes without recognition of such discounting, thus
producing net underwriting losses. Berkshire accepts this business,
nevertheless, because of the large amounts of investable policyholder funds (or
"float") that it produces.
In addition, underwriting losses from retroactive reinsurance
contracts -- excess of loss coverage of past loss events -- and structured
settlement reinsurance providing periodic payments to claimants with respect to
settled claims aggregated $73.8 million in 1996, $75.4 million in 1995 and
$77.7 million in 1994. Most of these contracts were entered into several years
ago and the related losses are expected to be paid over extended time periods.
The underwriting losses reflect the recurring recognition of
time-value-of-money concepts -- accretion of discounted structured settlement
liabilities and amortization of deferred charges re reinsurance assumed. The
amortization and accretion charges are reported as losses incurred and, because
there is no related premium income, as net underwriting losses. See Notes to
the Consolidated Financial Statements for more information concerning these
charges.
13
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
INSURANCE SEGMENT (Continued)
Insurance Segment Investment Income
Following is a summary of Insurance Group net investment income for the
past three years.
<TABLE>
<CAPTION>
(dollars in millions)
-----------------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Investment income before taxes . . . . . . . . . $712.1 $575.8 $481.0
Applicable income taxes . . . . . . . . . . . . . 122.6 84.8 68.9
Applicable minority interest . . . . . . . . . . 5.7 5.0 4.7
------ ------ ------
Investment income after taxes and minority interest $583.8 $486.0 $407.4
====== ====== ======
</TABLE>
Investment income of the Insurance Group for 1995 and 1994 has been
restated to account for the Group's investment in GEICO under the equity
method. (See Notes 1 and 2 to the Consolidated Financial Statements.)
Accordingly, restated investment income before taxes of the Insurance Group for
1995 and 1994 includes $112.6 million and $97.1 million, respectively,
reflecting the Group's equity in the net income of GEICO less a charge for
related goodwill amortization. In addition, the Insurance Group's investment
income before taxes for 1995 and 1994 includes its share of the net earnings or
losses with respect to its investment in common stock of Salomon Inc. For 1995,
the Group's equity in net earnings of Salomon was $16.9 million compared to a
loss of $32.9 million for 1994. During 1995 when Berkshire's ownership of
Salomon dropped below 20 percent of the total voting rights of that company,
the Group discontinued applying the equity method.
Investment income excluding the aforementioned equity method amounts
was $712.1 million in 1996, $446.3 million in 1995 and $416.8 million in 1994.
Investment income in 1996 includes $227.2 million from the consolidation of the
investment results of GEICO. The Insurance Group members continue to generate
significant levels of investment income, reflecting large amounts of invested
assets. Increases in invested assets derive from reinvested earnings and
additional capital contributed to the Insurance Group -- approximately $3.3
billion over the past three years and increases in the amount of "float," an
approximation of the net policyholder funds held. "Float" represents the sum of
unpaid losses and loss adjustment expenses, unearned premiums and other
liabilities to policyholders less the aggregate of premiums receivable,
reinsurance balances receivable, deferred acquisition costs, deferred charges
re reinsurance assumed and prepaid income taxes. The acquisition of GEICO
increased float by $2.6 billion and at December 31, 1996, total float
approximated $6.9 billion.
Income tax expense related to investment income, as a percentage of
investment income before taxes was 17.2% in 1996, 14.7% in 1995 and 14.3% in
1994. Investment income in each of these years includes substantial amounts of
interest on municipal obligations and dividends from equity investments that
are effectively taxed at rates below the full statutory federal rate.
NON-INSURANCE BUSINESS SEGMENTS
A summary follows of results to Berkshire from these identified
business segments for the past three years.
<TABLE>
<CAPTION>
(dollars in millions)
------------------------------------------------------------
1996 1995 1994
--------------- --------------- ---------------
Amount % Amount % Amount %
-------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . $1,922.9 100.0 $1,775.1 100.0 $1,620.7 100.0
Cost and expenses . . . . . . . . . . . . . . . . . 1,655.7 86.1 1,541.9 86.9 1,358.8 83.9
-------- ----- -------- ----- -------- -----
Operating profit . . . . . . . . . . . . . . . . . 267.2 13.9 233.2 13.1 261.9 16.1
Income taxes . . . . . . . . . . . . . . . . . . . 101.6 5.3 91.8 5.2 100.3 6.2
Minority Interest . . . . . . . . . . . . . . . . . 2.4 0.1 2.0 0.1 2.2 0.1
-------- ---- -------- ----- -------- -----
Contribution to net earnings . . . . . . . . . . . $ 163.2 8.5 $ 139.4 7.8 $ 159.4 9.8
======== ==== ======== ===== ======== =====
</TABLE>
14
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
NON-INSURANCE BUSINESS SEGMENTS (Continued)
A comparison of revenues and operating profits between 1996, 1995 and
1994 for each of the six identifiable non-insurance business segments follows.
<TABLE>
<CAPTION>
(dollars in millions)
------------------------------------------------------ Operating Profit
Revenues Operating Profits as a % of Revenues
---------------------------- ----------------------- ---------------------
Segment 1996 1995 1994 1996 1995 1994 1996 1995 1994
- ------- -------- -------- -------- ------ ------ ------- ---- ---- ----
<S> <C> <C> <C> <C>
Candy . . . . . . . . . . . . . . . $ 248.9 $ 233.6 $ 216.1 $ 50.9 $ 49.3 $ 46.6 20.4 21.1 21.6
Encyclopedias, other reference
materials . . . . . . . . . . . . 119.0 157.9 191.3 10.3 7.4 24.4 8.7 4.7 12.8
Home cleaning systems . . . . . . . 253.7 235.6 207.6 62.5 52.6 43.9 24.6 22.3 21.1
Home furnishings . . . . . . . . . 586.6 428.1 245.4 41.0 28.1 16.9 7.0 6.6 6.9
Newspaper . . . . . . . . . . . . . 154.2 154.8 150.9 49.8 46.3 53.7 32.3 29.9 35.6
Shoes . . . . . . . . . . . . . . . 560.5 565.1 609.4 52.7 49.5 76.4 9.4 8.8 12.5
-------- -------- -------- ------ ------ ------
$1,922.9 $1,775.1 $1,620.7 $267.2 $233.2 $261.9
======== ======== ======== ====== ====== ======
</TABLE>
1996 compared to 1995
Revenues from the six identifiable non-insurance business segments of
$1,922.9 million increased $147.8 million (8.3%) from the prior year. The
overall operating profit from these business segments of $267.2 million
increased $34.0 million (14.6%). The following is a discussion of significant
matters impacting comparative results for each of the non-insurance business
segments.
Candy
Revenues of the candy segment increased $15.3 million (6.5%) over
comparable prior year amounts. Total pounds of candy sold increased about 4.3%.
Substantially all of the volume increase arose from See's quantity order, mail
order and licensee programs. Pounds sold during 1996 from quantity order and
mail order programs increased about 10% over 1995's volume. Operating profits
increased $1.6 million (3.3%) over comparable prior year amounts. Somewhat
offsetting the favorable impact on profits of increased volume were increased
raw material and payroll costs.
Encyclopedias, Other Reference Materials
Revenues of this segment declined $38.9 million (24.6%) from 1995. The
decline continues the trend of reduced sales of printed encyclopedias (World
Book and Childcraft) that began in 1989 when this segment's revenues were in
excess of $300 million. Operating profits increased $2.9 million (39.2%) over
the comparable prior year amount. During 1996, World Book incurred about $5
million of costs in connection with the development of a new CD-ROM product
which was introduced in association with IBM in early 1997. In spite of the
reduced volume of printed encyclopedia sales and the costs incurred in
connection with the new CD-ROM product, operating profits increased in 1996.
This achievement was directly related to World Book revamping its distribution
methods and the successful implementation of cost cutting measures that have
significantly reduced fixed costs. While it's too early to assess the impact of
the new CD-ROM product, management believes it is taking appropriate measures
to assure that World Book remains a viable business in both the print and
electronic marketplace.
Home Cleaning Systems
Revenues of the home cleaning systems segment (which consists of
products sold principally under the Kirby name) increased $18.1 million (7.7%)
and operating profits increased $9.9 million (18.8%) over comparable prior year
amounts. Unit sales volume in foreign markets, which comprise about 27% of
total volume, increased about 28%. The significant growth in foreign sales
resulted from entering new markets and increased penetration in existing
markets. Kirby will be introducing a new model both domestically and in foreign
markets in 1997. Management expects continued successful results from this
segment's businesses.
Home Furnishings
Revenues from this segment increased in 1996 by $158.5 million (37.0%)
over the prior year. Substantially all of the revenue increase related to the
acquisition on June 29, 1995 of R.C. Willey Home Furnishings ("R.C. Willey").
R.C. Willey, through its seven retail locations, is the dominant retailer of
home furnishings in Utah. Operating profits of $41.0 million were $12.9 million
(45.9%) greater in 1996 than in the prior year. R.C. Willey's inclusion in this
segment's results for a full year in 1996 versus six months in 1995 accounts
for about two-thirds of the comparative increase. The remainder of the increase
arose primarily from improved margins at Nebraska Furniture Mart.
15
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
NON-INSURANCE BUSINESS SEGMENTS (continued)
1996 compared to 1995 (continued)
Newspaper
Operating profits during 1996 of $49.8 million increased $3.5 million
(7.6%) over the comparable 1995 amount. These results were obtained in spite of
total revenues being slightly lower. In 1995, the cost of newsprint increased
dramatically and negatively impacted results. While newsprint costs continued
to rise early in 1996, during the second half of 1996 this trend reversed
sharply and there were significant price reductions. As a result, 1996's full
year newsprint costs were slightly less than comparable 1995 costs. Also
favorably impacting the improved comparative results was that during 1995
special one-time charges were recorded to accrue the costs of buying out the
contracts of a number of composing room employees, and adjustments were
recorded reflecting changes in the periods over which certain data handling and
electronic equipment were being depreciated. Excluding 1995's special charges,
operating profits were relatively unchanged in 1996 as compared to 1995.
Shoes
Revenues for this segment were down slightly in 1996 as compared to
1995. Operating profits of $52.7 million increased $3.2 million (6.5%). This
segment includes H. H. Brown Shoe Company, Inc., Lowell Shoe, Inc. and Dexter
Shoe Companies. These businesses, acquired by Berkshire between 1991 and 1993,
manufacture and distribute work, dress, casual and athletic footwear. In
addition, over 90 retail shoe stores are included in this segment. Management
was successful during 1996 in capitalizing on opportunities to more
successfully market and distribute the functional footwear products
manufactured and distributed by these businesses. Additionally, measures were
undertaken that resulted in lowering production and administrative costs.
Accordingly, management anticipates further operating profit increases during
1997.
1995 compared to 1994
Revenues from the non-insurance business segments increased $154.4
million (9.5%) in 1995 as compared to 1994. The most significant revenue
increase arose in the "home furnishings" segment where revenues increased
$182.7 million (74.4%) over the comparable prior year figures. The acquisition
of R.C. Willey in mid-1995 accounts for a substantial portion of the
comparative revenue increase for this segment. Offsetting this increase were
declines in the "encyclopedia, other reference materials" segment and the
"shoes" segment. The decline in the "encyclopedias, other reference material"
segment was a result of the continuation of a reduction in printed encyclopedia
sales. The unfavorable results of the "shoe" segment was consistent with
results reported for the entire footwear industry (except for athletic
footwear). Operating profits of $233.2 million during 1995 declined $28.7
million (10.9%) from the comparable 1994 amount. Declines from the
"encyclopedia, other reference material" and "shoes" segment more than account
for the comparative decline.
BUSINESS OTHER THAN IDENTIFIED SEGMENTS
<TABLE>
<CAPTION>
(dollars in millions)
---------------------------------
1996 1995 1994
-------- -------- ------
<S> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,195.6 $1,021.7 $758.5
======== ======== ======
Operating profits . . . . . . . . . . . . . . . . . . . . . . . . . $108.5 $ 93.8 $ 72.7
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 43.2 39.5 28.0
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . 2.0 2.3 1.9
------ ------ ------
Contribution to net earnings . . . . . . . . . . . . . . . . . . . $ 63.3 $ 52.0 $ 42.8
====== ====== ======
</TABLE>
The above represent aggregate data for businesses that numbered 26 in
1996. Revenues from businesses not identified with specific business segments
increased by $173.9 million (17.0%) in 1996 as compared to the prior year.
Operating profits from this group of businesses increased by $14.7 million
(15.7%) in 1996 versus the prior year. The increase in revenues was due
primarily to the inclusion of Helzberg's Diamond Shops for a full year in 1996
versus eight months in 1995. Also, several of Scott Fetzer's diversified
manufacturing businesses (including Campbell Hausfeld products and Wayne pumps)
had significant comparative revenue increases.
16
<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
INTEREST EXPENSE AND OTHER
As previously discussed, effective January 2, 1996, the results of
GEICO are included in Berkshire's consolidated results. Berkshire's investment
in GEICO for years prior to 1996 has been accounted for under the equity
method. After-tax interest expense for 1996 includes about $18.5 million of
interest costs related to GEICO borrowings that were outstanding at the time of
the GEICO merger. Excluding costs related to these borrowings, interest costs
were relatively unchanged between years.
Other earnings consist primarily of investment income of Berkshire and
its non-insurance subsidiaries offset by Berkshire's corporate costs (including
charges related to Berkshire's shareholder designated contribution program).
The increase in 1996 as compared to 1995 primarily relates to an increase in
interest income earned by Berkshire.
REALIZED INVESTMENT GAIN
Realized investment gain has been a recurring element in Berkshire's
net earnings for many years. The amount -- recorded when investments are sold,
other-than-temporarily impaired or in certain situations, as required by GAAP,
when investments are marked-to-market with the corresponding gain or loss
included in earnings -- may fluctuate significantly from period to period, with
a meaningful effect upon Berkshire's consolidated net earnings. However, 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 Consolidated Statement of Earnings for 1996 reflects a pre-tax
realized investment gain of $2.5 billion ($1.6 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 that 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.
LIQUIDITY AND CAPITAL RESOURCES
Berkshire's Consolidated Balance Sheet as of December 31, 1996,
reflects continuing capital strength. In the past three years, Berkshire
shareholders' equity has increased from approximately $10.1 billion at December
31, 1993, to approximately $23.4 billion at December 31, 1996. In that
three-year period, realized and unrealized securities gains increased equity
capital by approximately $9.6 billion, and reinvested earnings, other than
realized securities gains, were about $2.0 billion.
17
<PAGE> 19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Berkshire Hathaway Inc.
We have audited the accompanying consolidated balance sheets of Berkshire
Hathaway Inc. and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of earnings and cash flows for each of the
three years in the period ended December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Berkshire Hathaway Inc. and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
March 7, 1997
18
<PAGE> 20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
BERKSHIRE HATHAWAY INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in millions except per share amounts)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1996 1995*
--------- ---------
<S> <C> <C>
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . $ 1,339.8 $ 2,703.8
Investments:
Securities with fixed maturities . . . . . . . . . . . . . . . . . . 6,446.9 1,423.2
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . 27,750.6 21,017.6
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,523.2 718.9
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 619.6 601.1
Assets of finance businesses . . . . . . . . . . . . . . . . . . . . . 968.9 756.7
Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . 1,034.2 333.3
Goodwill of acquired businesses . . . . . . . . . . . . . . . . . . . . 3,110.3 672.0
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 616.0 484.8
--------- ---------
$43,409.5 $28,711.4
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Losses and loss adjustment expenses . . . . . . . . . . . . . . . . . . $ 6,274.4 $ 3,698.6
Unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,183.5 374.1
Accounts payable, accruals and other liabilities . . . . . . . . . . . 2,556.8 1,039.1
Income taxes, principally deferred . . . . . . . . . . . . . . . . . . 6,837.6 4,849.5
Borrowings under investment agreements and other debt . . . . . . . . . 1,944.4 1,061.7
Liabilities of finance businesses . . . . . . . . . . . . . . . . . . . 851.4 685.2
--------- ---------
19,648.1 11,708.2
--------- ---------
Minority shareholders' interests . . . . . . . . . . . . . . . . . . . 335.1 264.5
--------- ---------
Shareholders' equity:
Common Stock: **
Class A Common Stock, $5 par value, 1,376,188 and 1,381,308
shares issued; 1,206,120 and 1,193,512 shares outstanding . . . . 6.9 6.9
Class B Common Stock, $0.1667 par value, 783,755 shares issued
and outstanding in 1996 . . . . . . . . . . . . . . . . . . . . . 0.1 --
Capital in excess of par value . . . . . . . . . . . . . . . . . . . 2,274.1 1,001.7
Unrealized appreciation of investments, net . . . . . . . . . . . . . 12,143.9 9,220.7
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . 9,032.7 6,544.1
--------- ---------
23,457.7 16,773.4
Less: Cost of 170,068 and 187,796 Class A common shares in
treasury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31.4 34.7
--------- ---------
Total shareholders' equity . . . . . . . . . . . . . . . . . . 23,426.3 16,738.7
--------- ---------
$43,409.5 $28,711.4
========= =========
</TABLE>
* Restated - See Notes to Consolidated Financial Statements.
** Class B Common Stock has economic rights equal to one-thirtieth (1/30) of the
economic rights of Class A Common Stock. Accordingly, on an equivalent Class
A Common Stock basis, there are 1,232,245 shares outstanding at December 31,
1996 versus 1,193,512 outstanding at December 31, 1995.
See accompanying Notes to Consolidated Financial Statements
19
<PAGE> 21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
BERKSHIRE HATHAWAY INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(dollars in millions except per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1996 1995* 1994*
--------- --------- ---------
<S> <C> <C> <C>
REVENUES:
Insurance premiums earned . . . . . . . . . . . . . . . . $ 4,117.8 $ 957.5 $ 923.2
Sales and service revenues . . . . . . . . . . . . . . . . 3,061.2 2,755.9 2,351.9
Interest, dividend and other investment income . . . . . . 811.9 629.2 519.0
Income from finance businesses . . . . . . . . . . . . . . 25.3 26.6 24.9
Realized investment gain . . . . . . . . . . . . . . . . . 2,484.1 194.1 91.3
--------- --------- ---------
10,500.3 4,563.3 3,910.3
--------- --------- ---------
COST AND EXPENSES:
Insurance losses and loss adjustment expenses . . . . . . 3,089.5 612.0 565.3
Insurance underwriting expenses . . . . . . . . . . . . . 797.6 325.0 228.0
Cost of products and services sold . . . . . . . . . . . . 1,884.0 1,706.7 1,450.0
Selling, general and administrative expenses . . . . . . . 861.9 759.6 599.6
Goodwill amortization . . . . . . . . . . . . . . . . . . 61.7 16.3 13.8
Interest expense . . . . . . . . . . . . . . . . . . . . . 99.7 59.3 60.1
Other-than-temporary decline in value of investment in
USAir Group, Inc. Preferred Stock . . . . . . . . . . . . -- -- 268.5
--------- --------- ---------
6,794.4 3,478.9 3,185.3
--------- --------- ---------
EARNINGS BEFORE INCOME TAXES AND MINORITY INTEREST . . . . . 3,705.9 1,084.4 725.0
Income taxes . . . . . . . . . . . . . . . . . . . . . . . 1,196.8 276.2 163.3
Minority interest . . . . . . . . . . . . . . . . . . . . 20.5 13.3 8.7
--------- --------- ---------
NET EARNINGS $ 2,488.6 $ 794.9 $ 553.0
========= ========= =========
Average shares outstanding ** . . . . . . . . . . . . . . 1,205,257 1,187,102 1,177,750
NET EARNINGS PER SHARE ** . . . . . . . . . . . . . . . . . $2,065 $670 $470
====== ==== ====
</TABLE>
* Restated - See Notes to Consolidated Financial Statements.
** Average shares outstanding for 1996 include average Class A Common
shares and average Class B Common shares determined on an equivalent
Class A Common Stock basis. Net earnings per share shown above
represents net earnings per Class A Common share. Net earnings per
Class B Common share is equal to one-thirtieth (1/30) of such amount
or $69 per share for 1996.
See accompanying Notes to Consolidated Financial Statements
20
<PAGE> 22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
BERKSHIRE HATHAWAY INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,488.6 $ 794.9 $ 553.0
Adjustments to reconcile net income to cash flows
from operating activities:
Realized investment gain . . . . . . . . . . . . . . . . (2,484.1) (194.1) (91.3)
Other-than-temporary decline in value of investment
in USAir Group, Inc. Preferred Stock . . . . . . . -- -- 268.5
Depreciation and amortization . . . . . . . . . . . . . 151.6 75.7 62.5
Changes in assets and liabilities before effects from
business acquisitions:
Losses and loss adjustment expenses . . . . . . . . . 352.1 268.6 274.1
Deferred charges re reinsurance assumed . . . . . . . 51.8 51.0 25.3
Unearned premiums . . . . . . . . . . . . . . . . . . (8.8) 66.9 (8.5)
Receivables . . . . . . . . . . . . . . . . . . . . . (127.1) (35.4) (49.8)
Accounts payable, accruals and other liabilities . . . 558.3 228.2 210.5
Income taxes . . . . . . . . . . . . . . . . . . . . . 221.9 (29.9) (252.4)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 55.7 (98.0) (62.8)
--------- --------- ---------
Net cash flows from operating activities . . . . . . 1,260.0 1,127.9 929.1
--------- --------- ---------
Cash flows from investing activities:
Purchases of securities with fixed maturities . . . . . . . (2,464.7) (273.9) (2,485.8)
Purchases of equity securities . . . . . . . . . . . . . . . (1,423.4) (1,459.9) (3,050.0)
Proceeds from sales of securities with fixed maturities . . 277.5 669.7 1,772.1
Proceeds from redemptions and maturities of securities
with fixed maturities . . . . . . . . . . . . . . . . . . 791.9 954.6 85.9
Proceeds from sales of equity securities . . . . . . . . . . 1,531.0 1,352.7 1,466.8
Loans and investments originated in finance businesses . . . (577.1) (381.2) (246.8)
Principal collection on loans and investments
originated in finance businesses . . . . . . . . . . . . 351.5 363.0 332.4
Acquisitions of businesses, net of cash acquired . . . . . . (1,975.3) -- --
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . (19.2) (11.4) (23.2)
--------- --------- ---------
Net cash flows from investing activities . . . . . . (3,507.8) 1,213.6 (2,148.6)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from borrowings of finance businesses . . . . . . . 285.1 265.7 208.6
Proceeds from other borrowings . . . . . . . . . . . . . . . 1,604.3 1,232.7 1,225.3
Repayments of borrowings of finance businesses . . . . . . . (427.3) (232.1) (390.5)
Repayments of other borrowings . . . . . . . . . . . . . . . (1,170.0) (1,151.7) (1,387.7)
Net proceeds from issuance of Class B Common Stock . . . . . 565.0 -- --
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . (3.5) (1.5) (0.9)
--------- --------- ---------
Net cash flows from financing activities . . . . . . 853.6 113.1 (345.2)
--------- --------- ---------
Increase (decrease) in cash and cash equivalents . . (1,394.2) 2,454.6 (1,564.7)
Cash and cash equivalents at beginning of year . . . . . . . . 2,744.5 289.9 1,854.6
--------- --------- ---------
Cash and cash equivalents at end of year * . . . . . . . . . . $ 1,350.3 $ 2,744.5 $ 289.9
========= ========= =========
*Cash and cash equivalents at end of year are comprised
of the following:
Finance businesses . . . . . . . . . . . . . . . . . . $ 10.5 $ 40.7 $ 16.0
Other . . . . . . . . . . . . . . . . . . . . . . . . 1,339.8 2,703.8 273.9
--------- --------- ---------
$ 1,350.3 $ 2,744.5 $ 289.9
========= ========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
21
<PAGE> 23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
BERKSHIRE HATHAWAY INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
(a) Nature of operations and basis of consolidation
Berkshire Hathaway Inc. ("Berkshire" or "Company") is a holding
company owning subsidiaries engaged in a number of diverse
business activities. The most important of these is the property
and casualty insurance business conducted on both a direct and
reinsurance basis. Further information regarding this business
and Berkshire's other reportable business segments is contained
in Note 15.
The accompanying Consolidated Financial Statements include the
accounts of Berkshire consolidated with accounts of all its
subsidiaries. Intercompany accounts and transactions have been
eliminated. The accompanying prior year financial statements have
been restated from the amounts previously reported in the
Company's Consolidated Financial Statements included in its
Annual Report for the year ended December 31, 1995. See 1(b)
below for further information.
(b) Restatement
As more fully discussed in Note 2, on January 2, 1996, GEICO
Corporation ("GEICO") became a wholly-owned subsidiary of
Berkshire. Prior to January 2, 1996, Berkshire owned
approximately 51% 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 require that prior year
financial statements be restated when control of a business is
obtained on a "step-by-step" basis. Accordingly, the accompanying
Consolidated Financial Statements for 1995 and 1994 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 Consolidated Statements of Earnings
as a component of interest, dividends and other investment
income. The principal effect of the restatement was to decrease
shareholders' equity as of December 31, 1995, by $478.4 million
from the amount reported in Berkshire's Consolidated Financial
Statements included in its Annual Report for the year ended
December 31, 1995.
(c) Use of estimates in preparation of financial statements
The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect
the reported amount of assets and liabilities at the date of the
financial statements and the reported amount of revenues and
expenses during the period. Actual results may differ from the
estimates and assumptions used in preparing the consolidated
financial statements.
(d) Cash equivalents
Cash equivalents consist of funds invested in money market accounts
and in investments with a maturity of three months or less when
purchased.
(e) Investments
Management determines the appropriate classifications of investments
in securities with fixed maturities and equity securities at the
time of purchase and reevaluates such designations as of each
balance sheet date. Investments in securities with fixed
maturities, except for such securities held by finance
businesses, are classified as available-for-sale. Securities
with fixed maturities held by finance businesses are classified
as held-to-maturity. Investments in equity securities are
classified as available-for-sale. Securities with fixed
maturities are deemed to be held-to-maturity securities when the
Company has the ability and positive intent to hold them to
maturity.
Held-to-maturity securities are carried at amortized cost.
Available-for-sale securities are stated at fair value, with
unrealized gains and losses, net of tax, reported in a separate
component of shareholders' equity. Realized gains and losses,
which arise when investments are sold (as determined on a
specific identification basis), other-than-temporarily impaired
or in certain situations when investments are marked-to-market,
are included in the Consolidated Statements of Earnings.
22
<PAGE> 24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
BERKSHIRE HATHAWAY INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(1) SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (Continued)
(f) Goodwill of acquired businesses
Goodwill of acquired businesses represents the difference between
purchase cost and the fair value of the net assets of acquired
businesses and is being amortized on a straight line basis over
forty years. The Company continually reviews the recoverability
of the carrying value of goodwill of acquired businesses using
the methodology prescribed by Statement of Financial Accounting
Standards No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of."
(g) Insurance premium acquisition costs
For financial reporting purposes, certain costs of acquiring
insurance premiums are deferred, subject to ultimate
recoverability, and charged to income as the premiums are earned.
Generally, the ultimate recoverability of premium acquisition
costs is determined without regard to investment income. The
unamortized balance of deferred premium acquisition costs is
included in other assets.
(h) Deferred charges re reinsurance assumed
The excess of estimated liabilities for claims and claim costs
ultimately payable by the Insurance Group over consideration
received with respect to retroactive property/casualty
reinsurance contracts that provide for indemnification of
insurance risk, other than structured settlements, is established
as a deferred charge at inception of such contracts. The deferred
charges are subsequently amortized using the interest method over
the expected settlement periods of the claim liabilities. The
unamortized balance is included in other assets and was $337.9
million at December 31, 1996 and $389.7 million at December 31,
1995.
(j) Losses and loss adjustment expenses
Liability for unpaid losses and loss adjustment expenses represents
the aggregate of such obligations of members of the Insurance
Group with respect to: (i) prospective property/casualty
insurance and reinsurance contracts, (ii) retroactive
property/casualty reinsurance contracts that provide for
indemnification of insurance risk, other than structured
settlements, and (iii) reinsurance contracts providing for
periodic payments with respect to settled claims ("structured
settlements"). Except for structured settlement liabilities which
are stated at discounted present values, the liability for unpaid
losses and loss adjustment expenses is at the aggregate of
estimated ultimate payment amounts.
Ultimate payment amounts with respect to prospective contracts are
determined from (i) individual case estimates, (ii) estimates of
incurred but not reported losses, based on past experience, and
(iii) reports of losses from ceding insurers.
Ultimate payment amounts with respect to retroactive reinsurance
contracts that provide for indemnification of insurance risk,
other than structured settlements, are established for financial
reporting purposes at maximum limits of indemnification under the
contracts. (See also 1(h) above related to deferred charges re
reinsurance assumed.)
Liabilities under structured settlement contracts are established
when the contracts are entered into, at the then present value of
the actuarially determined ultimate payment amount discounted at
the prevailing market interest rate. Annual accretions to the
liabilities are charged to losses incurred. This accounting
policy also applies to annuity reserves and policyholder
liabilities which are included in the liabilities of finance
businesses.
(k) Insurance premiums
Insurance premiums for prospective insurance and non-property
catastrophe reinsurance policies are recognized as revenues
ratably over their terms with unearned premiums computed on a
monthly or daily pro rata basis. Premiums for catastrophe excess
of loss reinsurance coverages are deferred until the earlier of a
loss occurrence or policy expiration. Consideration received for
structured settlements is accounted for as premiums earned at the
inception of the contracts. Premiums earned are stated net of
amounts ceded to reinsurers.
(m) Reinsurance
Provisions for losses and loss adjustment expenses are reported in
the accompanying consolidated statements of earnings after
deducting estimates of amounts that will be recoverable under
reinsurance contracts. Such recoverables totalled $47 million,
$14 million, and $61 million for 1996, 1995 and 1994,
respectively. Reinsurance contracts do not relieve the Insurance
Group Members of their obligations to indemnify policyholders
with respect to the underlying insurance and reinsurance
contracts. Losses and loss adjustment expenses recoverable under
reinsurance contracts are included in receivables.
23
<PAGE> 25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
BERKSHIRE HATHAWAY INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(2) BUSINESS ACQUISITIONS -- 1996
During 1996, Berkshire consummated mergers with GEICO Corporation
("GEICO") and FlightSafety International, Inc. ("FlightSafety"). Each of these
mergers was accounted for by the purchase method. The excess of the purchase
cost of each business over the fair value of net assets acquired as of the
respective merger dates is recorded as goodwill of acquired businesses and will
subsequently be amortized over forty years. The aggregate amount of goodwill
applicable to these acquisitions was approximately $2.5 billion. Additional
information concerning each merger is provided below.
(a) GEICO
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. 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 "GEICO Agreement") dated August 25, 1995. Pursuant to
the GEICO Agreement, each issued and outstanding common share of
GEICO, except shares held by Berkshire subsidiaries and GEICO,
was converted into the right to receive $70 per share, or an
aggregate amount of $2.3 billion. The amount of the 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.
(b) FlightSafety
On December 23, 1996, FlightSafety became a wholly-owned subsidiary
as a result of the merger of FlightSafety with and into a
subsidiary of Berkshire. FlightSafety provides high technology
training to operators of aircraft and ships throughout the world.
The merger was consummated pursuant to an Agreement and Plan of
Merger dated October 14, 1996 (the "FlightSafety Agreement")
between Berkshire and FlightSafety. Pursuant to the FlightSafety
Agreement, aggregate consideration of approximately $1.5 billion
was paid to FlightSafety shareholders consisting of $769.0
million in cash, 17,728 shares of Berkshire's Class A common
stock and 112,655 shares of Berkshire's Class B common stock.
The results of operations for each of these entities are included in
Berkshire's consolidated results of operations from the effective dates of each
of the mergers (GEICO -- January 2, 1996 and FlightSafety -- December 23,
1996). The following table sets forth certain consolidated statement of
earnings data for the years ended December 31, 1996 and 1995, as if the GEICO
and FlightSafety mergers had been consummated on the same terms at the
beginning of 1995. Dollar amounts are in millions, except per share amounts.
<TABLE>
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
Insurance premiums earned . . . . . . . . . . . . . $ 4,117.8 $3,744.5
Sales and service revenues . . . . . . . . . . . . 3,416.5 3,081.6
Total revenues . . . . . . . . . . . . . . . . . . 10,823.5 7,640.9
Net income . . . . . . . . . . . . . . . . . . . . 2,515.0 833.8
Earnings per equivalent Class A common share . . . 2,051 690
</TABLE>
(3) BUSINESS ACQUISITIONS -- 1995
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 (subsequently redesignated Class A
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 186 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 1994, the reported results would not have been materially
affected.
24
<PAGE> 26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
BERKSHIRE HATHAWAY INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(4) INVESTMENTS IN SECURITIES WITH FIXED MATURITIES
The amortized cost and estimated fair values as of December 31, 1996 and
1995, of investments in securities with fixed maturities are as follows (in
millions):
<TABLE>
<CAPTION>
December 31, 1996 Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Bonds:
U.S. Treasury securities and obligations of
U.S. government corporations and agencies . . . $2,618.8 $ 4.0 $ (5.7) $2,617.1
Obligations of states, municipalities
and political subdivisions . . . . . . . . . . 2,502.0 32.4 (1.8) 2,532.6
Corporate bonds . . . . . . . . . . . . . . . . . 22.0 -- -- 22.0
Redeemable preferred stocks . . . . . . . . . . . . 584.3 275.9 (4.3) 855.9
Mortgage-backed securities . . . . . . . . . . . . 415.2 6.1 (2.0) 419.3
-------- ------ ------ --------
$6,142.3 $318.4 $(13.8) $6,446.9
======== ====== ====== ========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995 Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Bonds:
U.S. Treasury securities and obligations of
U.S. government corporations and agencies . . . $ 80.9 $ 2.2 $ -- $ 83.1
Obligations of states, municipalities
and political subdivisions . . . . . . . . . . 346.4 17.2 (0.5) 363.1
Redeemable preferred stocks . . . . . . . . . . . . 682.5 153.4 (2.9) 833.0
Mortgage-backed securities . . . . . . . . . . . . 138.3 5.9 (0.2) 144.0
-------- ------ ------ --------
$1,248.1 $178.7 $ (3.6) $1,423.2
======== ====== ====== ========
</TABLE>
Amounts above exclude securities with fixed maturities held by finance
businesses. See note 7.
Redeemable preferred stocks include 358,000 shares of USAir Group, Inc.
Series A Cumulative Convertible Preferred Stock ("USAir Preferred Shares"). The
USAir Preferred Shares were acquired in 1989 for $358 million. If not called or
converted prior to August 7, 1999, the USAir Preferred Shares are mandatorily
redeemable by USAir Group, Inc. ("USAir") at $1,000 per share ($358 million in
the aggregate), plus accrued dividends.
During the five years ended December 31, 1994, USAir reported aggregate
losses of approximately $2.4 billion. In 1994, USAir announced it was
suspending the payment of dividends. Consequently, prior to the end of 1994,
Berkshire management concluded that an other-than-temporary decline in the
value of USAir Preferred shares had arisen. The 1994 Consolidated Statement of
Earnings includes a pre-tax charge of $268.5 million to reflect the decline.
While USAir returned to profitability during 1995, it continued the
suspension of dividends until the second half of 1996 when dividend payments of
$47 million were received. Such amount is included in the 1996 Consolidated
Statement of Earnings under the caption "Interest, dividend and other
investment income." An additional dividend payment of $30 million was received
in January, 1997 and dividends of approximately $17 million remain in arrears.
Berkshire management has estimated the fair value of USAir Preferred
shares to be $322.2 million at December 31, 1996. The increase of $232.7
million in the estimated fair value over the amount recorded at December 31,
1994, is included as a component of the increases during 1995 and 1996 in
unrealized appreciation of investments.
Shown below are the amortized cost and estimated fair values of the above
securities at December 31, 1996, by contractual maturity dates. Actual
maturities will differ from contractual maturities because issuers of certain
of the securities retain early call or prepayment rights. Amounts are in
millions.
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
--------- ---------
<S> <C> <C>
Due in one year or less . . . . . . . . . . . . . . . . . . . . . . . . $2,073.2 $2,085.0
Due after one year through five years . . . . . . . . . . . . . . . . . 2,481.9 2,750.5
Due after five years through ten years . . . . . . . . . . . . . . . . 1,022.8 1,039.8
Due after ten years . . . . . . . . . . . . . . . . . . . . . . . . . . 149.2 152.3
-------- --------
5,727.1 6,027.6
Mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . . 415.2 419.3
-------- --------
$6,142.3 $6,446.9
======== ========
</TABLE>
25
<PAGE> 27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
BERKSHIRE HATHAWAY INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(5) INVESTMENTS IN EQUITY SECURITIES
Aggregate data with respect to the consolidated investment in equity
securities are shown below (in millions):
<TABLE>
<CAPTION>
December 31, 1996
Unrealized Carrying
Cost Gains Value***
-------- ---------- ---------
<S> <C> <C> <C>
Common stock of:
American Express Company (a) . . . . . . . . . . . . $1,392.7 $ 1,401.6 $ 2,794.3
The Coca-Cola Company . . . . . . . . . . . . . . . 1,298.9 9,226.1 10,525.0
The Walt Disney Company . . . . . . . . . . . . . . 1,533.2 183.6 1,716.8
Federal Home Loan Mortgage Corporation . . . . . . . 449.7 1,323.1 1,772.8
The Gillette Company . . . . . . . . . . . . . . . 600.0 3,132.0 3,732.0
McDonald's Corporation . . . . . . . . . . . . . . . 1,265.3 103.1 1,368.4
Wells Fargo & Company . . . . . . . . . . . . . . . 553.9 1,413.0 1,966.9
All other equity securities . . . . . . . . . . . . . . 2,058.3 1,816.1* 3,874.4
-------- --------- ---------
$9,152.0 $18,598.6 $27,750.6
======== ========= =========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
Unrealized Carrying
Cost Gains Value ***
-------- ---------- ---------
<S> <C> <C> <C>
Common stock of:
American Express Company (a) . . . . . . . . . . . . $1,392.7 $ 653.6 $ 2,046.3
Capital Cities/ABC, Inc. (b) . . . . . . . . . . . . 345.0 2,122.5 2,467.5
The Coca-Cola Company . . . . . . . . . . . . . . . 1,298.9 6,126.1 7,425.0
Federal Home Loan Mortgage Corporation . . . . . . . 260.1 783.9 1,044.0
GEICO Corporation (c) . . . . . . . . . . . . . . . 1,175.8 -- 1,175.8
The Gillette Company . . . . . . . . . . . . . . . 600.0 1,902.0 2,502.0
Wells Fargo & Company . . . . . . . . . . . . . . . 423.7 1,043.2 1,466.9
All other equity securities . . . . . . . . . . . . . . 1,680.0 1,210.1** 2,890.1
-------- --------- ---------
$7,176.2 $13,841.4 $21,017.6
======== ========= =========
</TABLE>
* Represents gross unrealized gains $1,838.5 less gross
unrealized losses $22.4.
** Represents gross unrealized gains $1,302.1 less gross
unrealized losses $92.0.
*** Represents market value for all investments in equity
securities except for GEICO Corporation. See footnote (c)
which follows.
(a) American Express Company
Common shares of American Express Company ("AXP") owned by Berkshire
and its subsidiaries possessed approximately 10.5% of the voting
rights of all AXP shares outstanding at December 31, 1996. The
shares are held subject to various agreements with certain
insurance and banking regulators which, among other things,
prohibit Berkshire from (i) seeking representation on the Board
of Directors of AXP (Berkshire may agree, if it so desires, at
the request of management or the Board of Directors of AXP to
have no more than one representative stand for election to the
Board of Directors of AXP) and (ii) acquiring or retaining shares
that would cause its ownership of AXP voting securities to equal
or exceed 17% of the amount outstanding (should Berkshire have a
representative on the board of directors, such amount is limited
to 15%). In connection therewith, Berkshire has entered into an
agreement with AXP which became effective when Berkshire's
ownership interest in AXP voting securities reached 10% and will
remain effective so long as Berkshire owns 5% or more of AXP's
voting securities. The agreement obligates Berkshire, so long as
Harvey Golub is chief executive officer of AXP, to vote its
shares in accordance with the recommendations of AXP's Board of
Directors. Additionally, subject to certain exceptions, Berkshire
has agreed not to sell AXP common shares to any person who owns
5% or more of AXP voting securities or seeks to control AXP,
without the consent of AXP.
(b) Capital Cities/ABC, Inc.
On January 4, 1996, shareholders of Capital Cities/ABC, Inc.
("Capital Cities") and The Walt Disney Company ("Disney")
approved an agreement and plan of merger by and between Disney
and Capital Cities. In March 1996, Berkshire received
approximately 21 million shares of Disney common stock and $1.2
billion in cash in exchange for the common shares of Capital
Cities.
(c) GEICO Corporation
The cost and carrying value of the investment in GEICO common stock
as of December 31, 1995 represents Berkshire's cost plus its
share of GEICO's undistributed accumulated earnings and
unrealized appreciation on investments. See Notes 1(b) and 2 for
additional information.
26
<PAGE> 28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
BERKSHIRE HATHAWAY INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(6) REALIZED INVESTMENT GAINS (LOSSES)
Realized gains (losses) from sales and redemptions of investments are
summarized below (in millions):
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------ ------
<S> <C> <C> <C>
Equity securities --
Gross realized gains . . . . . . . . . . . . . . . . . . . . $2,379.1 * $109.9 $185.7
Gross realized losses . . . . . . . . . . . . . . . . . . . . (36.4) (14.2) (96.9)
Securities with fixed maturities and other investments --
Gross realized gains . . . . . . . . . . . . . . . . . . . . 144.6 100.8 6.8
Gross realized losses . . . . . . . . . . . . . . . . . . . . (3.2) (2.4) (4.3)
-------- ------ ------
$2,484.1 $194.1 $ 91.3
======== ====== ======
</TABLE>
* In March 1996 Disney completed its acquisition of 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. Gross realized gains from sales of equity securities
includes a gain of $2.2 billion relating to Disney's acquisition of Capital
Cities.
(7) FINANCE BUSINESSES
Berkshire's finance businesses are comprised of commercial and consumer
finance companies and an annuity business. Assets and liabilities of
Berkshire's finance businesses are summarized below (in millions):
<TABLE>
<CAPTION>
Dec. 31, Dec. 31,
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . $ 10.5 $ 40.7
Installment loans and other receivables . . . . . . . . . . . . . . 215.9 185.9
Fixed maturity investments (a) . . . . . . . . . . . . . . . . . . 742.4 529.4
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.1 0.7
------ ------
$968.9 $756.7
====== ======
LIABILITIES
Borrowings under investment agreements (b) . . . . . . . . . . . . $281.8 $403.6
6 3/4% Notes, due 2001 . . . . . . . . . . . . . . . . . . . . . . 99.5 --
8 1/8% Notes, payable in 1996 . . . . . . . . . . . . . . . . . . -- 120.0
Annuity reserves and policyholder liabilities . . . . . . . . . . . 434.8 116.7
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35.3 44.9
------- -------
$851.4 $685.2
====== ======
</TABLE>
(a) At December 31, 1996 and 1995, mortgage-backed securities of $601.6
and $336.0 respectively were included in this caption. Estimated
fair values and gross unrealized gains and losses as of December 31,
1996 and 1995, are as follows (in millions):
<TABLE>
<CAPTION>
Gross Gross Estimated
Unrealized Unrealized Fair
Amortized Cost Gains Losses Value
-------------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
1996 . . . . . . . . . $742.4 $ 25.2 $ (4.8) $762.8
1995 . . . . . . . . . 529.4 29.0 (1.0) 557.4
</TABLE>
(b) Borrowings under investment agreements are made pursuant to
contracts with terms generally ranging from six months to thirty
years and at fixed interest rates ranging from 4% to 7%. Payments of
amounts outstanding at December 31, 1996, are expected to be
required no earlier than as follows (in millions):
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001 After 2001
------ ---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C>
$211.9 $2.0 $3.3 -- -- $64.6
</TABLE>
27
<PAGE> 29
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
BERKSHIRE HATHAWAY INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(7) FINANCE BUSINESSES (Continued)
Income from finance businesses for each of the past three years is
summarized below (in millions):
<TABLE>
<CAPTION>
1996 1995 1994
------ ------- ------
<S> <C> <C> <C>
REVENUES
Interest on loans . . . . . . . . . . . . . . . . . . . . . $ 38.8 $ 38.4 $ 37.4
Interest and dividend income . . . . . . . . . . . . . . . 54.4 39.2 34.8
Annuity premiums earned . . . . . . . . . . . . . . . . . . 259.5 75.2 36.0
------ ------- ------
352.7 152.8 108.2
------ ------- ------
COST AND EXPENSES
Interest expense . . . . . . . . . . . . . . . . . . . . . 30.3 28.9 31.7
Annuity benefits and expenses . . . . . . . . . . . . . . . 276.7 80.8 37.6
General and administrative expenses . . . . . . . . . . . . 20.4 16.5 14.0
------ ------- ------
327.4 126.2 83.3
------ ------- ------
$ 25.3 $ 26.6 $ 24.9
====== ======= ======
</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>
Dec. 31, Dec. 31,
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . $ 6.4 $ 40.5
Installment loans and other receivables ** . . . . . . . . . . . . 233.0 334.9
Mortgage-backed securities, at cost
(Fair value: 1996 -- $146.1; 1995 -- $211.6) . . . . . . . . . . 145.5 211.7
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.1 0.7
------ ------
$385.0 $587.8
====== ======
LIABILITIES
6 3/4% Notes, due 2001 . . . . . . . . . . . . . . . . . . . . . . $ 99.5 $ --
8 1/8% Notes, payable in 1996 . . . . . . . . . . . . . . . . . . -- 120.0
Borrowings under investment agreements . . . . . . . . . . . . . . 221.3 403.6
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29.8 32.8
------ ------
$350.6 $556.4
====== ======
</TABLE>
** Includes receivables from affiliated companies of $85.1 and $182.8 at
December 31, 1996 and 1995, respectively.
Net income from Scott Fetzer Financial Group businesses for each of
the past three years is summarized below (in millions).
<TABLE>
<CAPTION>
1996 1995 1994
------ ----- -----
<S> <C> <C> <C>
REVENUES
Interest on installment loans and other receivables *** . . $ 45.7 $43.4 $41.4
Other interest . . . . . . . . . . . . . . . . . . . . . . 13.2 15.0 21.3
------ ----- -----
58.9 58.4 62.7
------ ----- -----
COST AND EXPENSES
Interest expense . . . . . . . . . . . . . . . . . . . . . 27.8 28.9 31.7
General and administrative expenses . . . . . . . . . . . . 20.1 16.2 13.2
------ ----- -----
47.9 45.1 44.9
------ ----- -----
Income before taxes . . . . . . . . . . . . . . . . . . . . 11.0 13.3 17.8
Income taxes . . . . . . . . . . . . . . . . . . . . . . . 3.6 4.6 6.3
------ ----- -----
Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 7.4 $ 8.7 $11.5
====== ===== =====
</TABLE>
*** Includes interest on loans and receivables from affiliated companies of
$6.9, $5.0 and $4.0 in 1996, 1995 and 1994, respectively.
28
<PAGE> 30
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
BERKSHIRE HATHAWAY INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(8) UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES
Supplemental data with respect to unpaid losses and loss adjustment
expenses of property/casualty insurance subsidiaries (in millions):
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Unpaid losses and loss adjustment expenses:
Balance at beginning of year . . . . . . . . . . . $5,923.9* $3,430.0 $3,155.9
Less ceded liabilities and deferred charges . . . . 645.0* 573.9 597.9
-------- -------- --------
Net balance . . . . . . . . . . . . . . . . . . . . 5,278.9* 2,856.1 2,558.0
-------- -------- --------
Incurred losses recorded:
Current accident year . . . . . . . . . . . . . . . 3,179.7 556.5 505.1
All prior accident years . . . . . . . . . . . . . (90.2) 55.5 60.2
-------- -------- --------
Total incurred losses . . . . . . . . . . . . . . . 3,089.5 612.0 565.3
-------- -------- --------
Payments with respect to:
Current accident year . . . . . . . . . . . . . . . 1,484.9 43.6 50.9
All prior accident years . . . . . . . . . . . . . 1,194.9 246.2 216.3
-------- -------- --------
Total payments . . . . . . . . . . . . . . . . . . 2,679.8 289.8 267.2
-------- -------- --------
Unpaid losses and loss adjustment expenses:
Net balance at end of year . . . . . . . . . . . . 5,688.6 3,178.3 2,856.1
Plus ceded liabilities and deferred charges . . . . 585.8 520.3 573.9
-------- -------- --------
Balance at end of year ** . . . . . . . . . . . . . . $6,274.4 $3,698.6 $3,430.0
======== ======== ========
</TABLE>
* Includes GEICO balances as of the acquisition date.
** Unpaid losses and loss adjustment expenses include liabilities
established with respect to retroactive reinsurance contracts that
provide for indemnification of insurance risk. These liabilities
aggregated $1,263.6, $1,283.5, and $1,296.0 at December 31, 1996, 1995
and 1994 respectively. Related deferred charges were established with
respect to these contracts and are reported as other assets. Also
included in unpaid losses and loss adjustment expenses are discounted
structured settlement reinsurance liabilities, which totalled $217.2,
$221.7, and $231.3 at December 31, 1996, 1995 and 1994 respectively.
Incurred losses "all prior accident years" reflects the amount of
estimation error charged or credited to earnings in each year. In addition,
this amount includes amortization of deferred charges re reinsurance assumed
and accretion of discounted structured settlement liabilities. The use of
estimates is inherent in the process of establishing unpaid losses and loss
expenses. Additional information will be revealed over time and those estimates
and assumptions will be revised resulting in gains or losses in the period
made.
(9) BORROWINGS UNDER INVESTMENT AGREEMENTS AND OTHER DEBT
Liabilities reflected for this balance sheet caption are as follows (in
millions):
<TABLE>
<CAPTION>
Dec. 31, Dec. 31,
1996 1995
-------- --------
<S> <C> <C>
Borrowings under investment agreements . . . . . . . . . . . . . . . . $ 865.3 $ 878.9
1% Senior Exchangeable Notes Due 2001 . . . . . . . . . . . . . . . . . 454.6 --
Other debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 624.5 182.8
-------- --------
$1,944.4 $1,061.7
======== ========
</TABLE>
Borrowings under investment agreements are made pursuant to contracts
with terms generally ranging from three months to forty years and calling for
interest payable, normally semiannually, at fixed rates ranging from 3% to 9%
per annum. The borrowings are senior unsecured debt obligations of the Company.
On December 2, 1996, Berkshire received net proceeds of $447.1 million
from the issuance of $500 million principal amount of 1% Senior Exchangeable
Notes, due December 2, 2001 (the "Exchange Notes"). Under certain conditions,
on the last trading day of January, April, July and October from January 1997
through July 2001, each $1,000 principal amount Exchange Note, is convertible
at the option of the holder into 17.65 shares of Salomon Inc common stock
("Salomon Stock"). Upon such conversion, Berkshire, at its option, may elect to
redeem the Exchange Notes for an equivalent cash value of the Salomon Stock.
Beginning on December 2, 1999, under certain conditions, the Exchange Notes are
convertible into 17.65 shares of Salomon Stock at the option of the Company.
Upon conversion, Berkshire may elect to redeem the Exchange Notes for an
equivalent cash value of the Salomon Stock. In all other circumstances,
Berkshire will pay the principal amount at maturity. At December 31, 1996,
Berkshire subsidiaries owned common and preferred stock of Salomon possessing
about 18% of the total voting power of that company.
29
<PAGE> 31
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
BERKSHIRE HATHAWAY INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(9) BORROWINGS UNDER INVESTMENT AGREEMENTS AND OTHER DEBT (Continued)
No materially restrictive covenants are included in any of the various
debt agreements. Payments of amounts outstanding at December 31, 1996, are
expected to be required no earlier than as follows (in millions):
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001 After 2001
------ ------ ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C>
$130.8 $125.1 $ 54.3 $ 15.8 $474.0 $1,144.4
</TABLE>
(10) INCOME TAXES
The liability for income taxes as reflected in the accompanying
Consolidated Balance Sheets represent estimates of liabilities as follows (in
millions):
<TABLE>
<CAPTION>
Dec. 31, Dec. 31,
1996 1995
-------- --------
<S> <C> <C>
Payable currently . . . . . . . . . . . . . . . . . . . . $ (41.1) $ 86.8
Deferred . . . . . . . . . . . . . . . . . . . . . . . . 6,878.7 4,762.7
-------- --------
$6,837.6 $4,849.5
======== ========
</TABLE>
The Consolidated Statements of Earnings reflect charges for income taxes
as shown below (in millions):
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------ ------
<S> <C> <C> <C>
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . $1,169.9 $252.3 $138.1
State . . . . . . . . . . . . . . . . . . . . . . . . . . . 26.1 22.6 22.1
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . 0.8 1.3 3.1
-------- ------ ------
$1,196.8 $276.2 $163.3
======== ====== ======
Current . . . . . . . . . . . . . . . . . . . . . . . . . . $ 818.9 $331.0 $188.5
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . 377.9 (54.8) (25.2)
-------- ------ ------
$1,196.8 $276.2 $163.3
======== ====== ======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities at December 31,
1996 and 1995, are shown below (in millions):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Relating to unrealized appreciation of investments . . . . . . . $6,620.6 $4,908.5
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 860.9 157.0
-------- --------
7,481.5 5,065.5
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . (602.8) (302.8)
-------- --------
Net deferred tax liability . . . . . . . . . . . . . . . . . . . . $6,878.7 $4,762.7
======== ========
</TABLE>
Charges for income taxes are reconciled to hypothetical amounts computed
at the federal statutory rate in the table shown below (in millions):
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Net earnings before income taxes . . . . . . . . . . . . . $3,705.9 $1,084.4 $ 725.0
======== ======== ========
Hypothetical amounts applicable to above
computed at the federal statutory rate . . . . . . . . . $1,297.1 $ 379.5 $ 253.8
Decreases, resulting from:
Tax-exempt interest income . . . . . . . . . . . . . . . (41.7) (10.6) (14.6)
Dividends received deduction . . . . . . . . . . . . . . (90.3) (86.3) (81.2)
Goodwill amortization . . . . . . . . . . . . . . . . . . . 21.6 5.7 4.8
State income taxes, less federal income tax benefit . . . . 17.0 14.7 14.4
Other differences, net . . . . . . . . . . . . . . . . . . (6.9) (26.8) (13.9)
-------- -------- --------
Total income taxes . . . . . . . . . . . . . . . . . . . . $1,196.8 $ 276.2 $ 163.3
======== ======== ========
</TABLE>
30
<PAGE> 32
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
BERKSHIRE HATHAWAY INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(11) SHAREHOLDERS' EQUITY ACCOUNTS
Changes in capital accounts of the Company during the two years ended
December 31, 1996, are shown in the table below. Dollar amounts are in
millions, except per share amounts.
<TABLE>
<CAPTION>
Capital in
Class A Common Class B Common in Excess of Class A Common
$5 Par Value $0.1667 Par Value Par Value in Treasury
-------------------- ----------------- --------- -----------------
Shares Dollars Shares Dollars Dollars Shares Dollars
--------- ------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1994 * . . . . . 1,381,308 $6.9 -- -- $ 656.1 203,558 $37.6
Common stock issued in connection
with acquisitions of businesses . . 345.6 (15,762) (2.9)
--------- ---- ------- --- -------- ------- -----
Balance December 31, 1995 . . . . . . 1,381,308 6.9 -- -- 1,001.7 187,796 34.7
Common stock issued in connection
with acquisitions of businesses . . 112,655 -- 707.5 (17,728) (3.3)
Common stock issued for cash . . . . . 517,500 $0.1 564.9
Conversions of Class A Common
to Class B Common . . . . . . . . . (5,120) -- 153,600 --
--------- ---- ------- ---- -------- ------- -----
Balance December 31, 1996 . . . . . . 1,376,188 $6.9 783,755 $0.1 $2,274.1 170,068 $31.4
========= ==== ======= ==== ======== ======= =====
</TABLE>
* There were no changes in the Company's capital accounts during 1994.
On May 6, 1996, Berkshire shareholders approved a recapitalization plan
which created a new class of common stock, designated as Class B Common Stock.
In connection therewith, Berkshire's then 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. Class B Common Stock is not convertible into Class A Common Stock.
On May 8, 1996, Berkshire completed an initial public offering of 517,500
shares of Class B Common Stock. Berkshire received net proceeds from the
offering of $565.0 million. Since the Class B Common shares are equivalent to
one-thirtieth (1/30) of the economic rights of Class A Common shares, the
issuance of the Class B Common Stock was equivalent to the issuance of 17,250
Class A Common shares or approximately 1.4% of Class A Common shares
outstanding at the time of the issuance of Class B Common shares.
Changes in unrealized appreciation of investments, net during the three
years ended December 31, 1996 were as follows, in millions:
<TABLE>
<CAPTION>
Year ending December 31,
----------------------------------------
1996 1995 1994
--------- --------- --------
<S> <C> <C> <C>
Balance at beginning of year . . . . . . . . . . . . . . . . . $ 9,220.7 $ 5,276.9 $4,318.6
Increase in unrealized appreciation included in carrying
value of investments . . . . . . . . . . . . . . . . . . . 4,604.0 6,177.1 1,486.5
Increase in deemed applicable deferred income taxes . . . . . (1,629.1) (2,176.2) (518.3)
Increase in minority interest in unrealized appreciation . . . (51.7) (57.1) (9.9)
--------- --------- --------
Balance at end of year . . . . . . . . . . . . . . . . . . . . $12,143.9 $ 9,220.7 $5,276.9
========= ========= ========
</TABLE>
Changes in retained earnings during the three years ended December 31,
1996 were as follows, in millions:
<TABLE>
<CAPTION>
Year ending December 31,
---------------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning of year . . . . . . . . . . . . . . . . . . $6,544.1 $5,749.2 $5,196.2
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . 2,488.6 794.9 553.0
-------- -------- --------
Balance at end of year . . . . . . . . . . . . . . . . . . . . . $9,032.7 $6,544.1 $5,749.2
======== ======== ========
</TABLE>
(12) DIVIDEND RESTRICTIONS - INSURANCE SUBSIDIARIES
Payments of dividends by Insurance Group members are restricted by
insurance statutes and regulations. Without prior regulatory approval in 1997,
Berkshire can receive up to approximately $2.5 billion as dividends from
insurance subsidiaries.
Combined shareholders' equity of insurance subsidiaries determined
pursuant to statutory accounting rules (Statutory Surplus as Regards
Policyholders) was approximately $26.1 billion at December 31, 1996. This
amount exceeded by approximately $5.2 billion the corresponding amount
determined on the basis of generally accepted accounting principles; the
difference principally represents deferred income tax assets and liabilities
and deferred charges re reinsurance assumed recognized for financial reporting
purposes but not for statutory reporting purposes.
31
<PAGE> 33
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
BERKSHIRE HATHAWAY INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(13) FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments" ("SFAS 107"), requires certain fair value
disclosures. Fair value disclosures are required for most investment securities
as well as other contractual assets and liabilities. Certain financial
instruments, including insurance contracts, were excluded from SFAS 107
disclosure requirements due to perceived difficulties in measuring fair value.
Accordingly, an estimation of fair value was not made with respect to unpaid
losses and loss adjustment expenses.
In determining fair value, the Company used quoted market prices when
available. For instruments where quoted market prices were not available, the
Company used independent pricing services or appraisals by the Company's
management. Those services and appraisals reflected the estimated present
values utilizing current risk adjusted market rates of similar instruments.
Considerable judgement is necessarily required in interpreting market
data to develop the estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts the Company
could realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value.
The carrying values of cash and cash equivalents, receivables and
accounts payable, accruals and other liabilities are deemed to be reasonable
estimates of their fair values. The estimated fair values of the Company's
other financial instruments as of December 31, 1996 and 1995, are as follows
(in millions):
<TABLE>
<CAPTION>
Carrying Value Estimated Fair Value
-------------- --------------------
1996 1995 1996 1995
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Investments in securities with fixed
maturities . . . . . . . . . . . . . . $ 6,446.9 $ 1,423.2 $ 6,446.9 $ 1,423.2
Investments in equity securities . . . . 27,750.6 21,017.6 27,750.6 22,235.0
Assets of finance businesses . . . . . . 968.9 756.7 997.8 792.3
Borrowings under investment agreements and
other debt . . . . . . . . . . . . . . 1,944.4 1,061.7 1,937.9 1,095.0
Liabilities of finance businesses . . . . 851.4 685.2 852.0 704.4
</TABLE>
(14) QUARTERLY DATA
A summary of revenues and earnings by quarter for each of the last two
years is presented in the following table. This information is unaudited.
Dollars are in millions, except per share amounts.
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
1996 Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . $ 4,139.7 $1,914.8 $2,015.3 $2,430.5
--------- -------- -------- --------
Earnings:
Excluding realized investment gain . . . . . . . . . $ 160.2 $ 193.7 $ 201.4 $ 328.1
Realized investment gain (loss) . . . . . . . . . . . 1,508.5* (2.5) 62.6 36.6
--------- -------- -------- --------
Net earnings . . . . . . . . . . . . . . . . . . . . $ 1,668.7 $ 191.2 $ 264.0 $ 364.7
========= ======== ======== ========
Earnings per equivalent Class A common share:
Excluding realized investment gain . . . . . . . . . $ 134.23 $ 160.91 $ 166.34 $ 270.52
Realized investment gain (loss) . . . . . . . . . . . 1,263.92* (2.08) 51.70 30.17
--------- -------- -------- --------
Net earnings . . . . . . . . . . . . . . . . . . . . $1,398.15 $ 158.83 $ 218.04 $ 300.69
========= ======== ======== ========
</TABLE>
* Includes $1.4 billion ($1,143.68/share), net of taxes, related to gain
arising from The Walt Disney Company's acquisition of Capital Cities/ABC,
Inc. See Notes 5 and 6.
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
1995 Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . $944.0 $1,018.4 $1,107.2 $1,493.7
------ -------- -------- --------
Earnings:
Excluding realized investment gain . . . . . . . . . $143.9 $140.3 $151.3 $234.4
Realized investment gain (loss) . . . . . . . . . . . (4.7) 51.7 43.2 34.8
------ ------ ------ ------
Net earnings . . . . . . . . . . . . . . . . . . . . $139.2 $192.0 $194.5 $269.2
====== ====== ====== ======
Earnings per equivalent Class A common share:
Excluding realized investment gain . . . . . . . . . $122.22 $118.54 $126.78 $196.56
Realized investment gain (loss) . . . . . . . . . . . (4.03) 43.71 36.18 29.16
------- ------- ------- -------
Net earnings . . . . . . . . . . . . . . . . . . . . $118.19 $162.25 $162.96 $225.72
======= ======= ======= =======
</TABLE>
32
<PAGE> 34
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
BERKSHIRE HATHAWAY INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(15) BUSINESS SEGMENT DATA
Berkshire identified seven business segments for purposes of 1996
reporting pursuant to Statement of Financial Accounting Standards No. 14.
These include the property and casualty insurance business (The Insurance
Segment) conducted on both a direct and reinsurance basis through a number of
subsidiaries. Included in this segment is GEICO Corporation, the seventh
largest auto insurer in the United States and National Indemnity Company, one
of the world's leading providers of catastrophe excess of loss reinsurance.
Berkshire's six separately conducted non- insurance business segments are as
follows:
<TABLE>
<CAPTION>
Business
identity and headquarters Segment Activity
------------------------- ------- --------
<S> <C> <C>
See's Candies Candy Manufacture and distribution at retail
South San Francisco, CA and by catalog solicitation
World Book Encyclopedias and Publication and marketing,
Chicago, IL other reference materials principally by the direct sales method
Kirby, Douglas and
Cleveland Wood Divisions
of The Scott Fetzer Company Home cleaning systems Manufacture and sale principally to distributors
Cleveland, OH
Nebraska Furniture Mart and Home furnishings Retailing
R.C. Willey Home Furnishings
Omaha, NE and Salt Lake
City, UT
Buffalo News Newspaper Publication of a daily and Sunday newspaper
Buffalo, NY
H. H. Brown Shoe Co.,
Lowell Shoe, Inc. and
Dexter Shoe Companies Shoes Manufacture, importing and distribution at wholesale
Greenwich, CT, Hudson, and retail
NH and Dexter, ME
</TABLE>
The business segments identified above were responsible in 1996 for 86%
of Berkshire's consolidated revenues. Other businesses activities that
contributed for 1996, in the aggregate, 11% of Berkshire's consolidated
revenues, were as follows:
<TABLE>
Business identity Product/Service/Activity
------------------ ------------------------
<S> <C>
Adalet - PLM Explosion proof electrical enclosures, cable couplers and terminations
BHR Real estate management
Berkshire Hathaway
Credit Corporation Commercial financing
Berkshire Hathaway Life
Insurance Co. Annuities
Blue Chip Stamps Marketing motivational services
Borsheim's Retailing fine jewelry
Campbell Hausfeld Air compressors, air tools, painting systems, pressure washers, welders and generators
Carefree Comfort and convenience products for the recreational vehicle industry
Fechheimer Bros. Co. Uniforms and accessories
FlightSafety International High technology training to operators of aircraft and ships
France Appliance controls; ignition and sign transformers
Halex Zinc die cast conduit fittings and other electrical construction materials
Helzberg's Diamond Shops Retailing fine jewelry
Meriam Pressure and flow measurement devices
Northland Fractional horsepower electric motors
Powerwinch Marine and general purpose winches, windlasses, and hoists
Precision Steel Products Steel service center
Quikut Cutlery for home and sporting goods markets
ScottCare Cardiopulmonary rehabilitation and monitoring equipment
Scott Fetzer Financial Group Commercial and consumer finance companies
Scot Labs Cleaning and maintenance chemicals
Stahl Custom service bodies, flatbed bodies, cranes and tool boxes for trucks
Wayne Furnace burners; sump, utility and sewage pumps
Wesco Financial Real estate management
Western Enterprises Medical and industrial compressed gas fittings and regulators
Western Plastics Molded plastic components
</TABLE>
33
<PAGE> 35
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
BERKSHIRE HATHAWAY INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(15) BUSINESS SEGMENT DATA (Continued)
A disaggregation of Berkshire's consolidated data for each of the three
most recent years is presented in the tables which follow on this and the
following page. Amounts are in millions.
<TABLE>
<CAPTION>
REVENUES OPERATING PROFIT BEFORE TAXES
1996 1995 1994 1996 1995 1994
--------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Identified Segments:
Insurance . . . . . . . . . . . . . . $ 7,133.1 $1,715.7 $1,499.8 $3,189.6 $ 776.5 $ 702.0
Non-insurance businesses . . . . . . 1,922.9 1,775.1 1,620.7 267.2 233.2 261.9
--------- -------- -------- -------- -------- --------
9,056.0 3,490.8 3,120.5 3,456.8 1,009.7 963.9
Other than identified segments . . . . . 1,444.3 1,072.5 789.8 342.1 130.7 (178.8)**
Interest expense * . . . . . . . . . . . (93.0) (56.0) (60.1)
--------- -------- -------- -------- -------- --------
Aggregate consolidated total $10,500.3 $4,563.3 $3,910.3 $3,705.9 $1,084.4 $ 725.0
========= ======== ======== ======== ======== ========
</TABLE>
* Amounts of interest expense represent those for borrowings under
investment agreements and other debt exclusive of that of finance
businesses and interest allocated to certain identified segments.
** Includes pre-tax charge of $268.5 million representing an
other-than-temporary decline in value of investment in USAir Group, Inc.
Preferred Stock.
<TABLE>
<CAPTION>
INSURANCE SEGMENT REVENUES OPERATING PROFIT BEFORE TAXES
-----------------
1996 1995 1994 1996 1995 1994
-------- -------- -------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Premiums earned: *
Direct . . . . . . . . . . . . . . . $3,432.9 $ 287.3 $ 281.1
Reinsurance assumed . . . . . . . . . 764.0 718.4 688.5
Reinsurance ceded . . . . . . . . . . (79.1) (48.2) (46.4)
-------- -------- --------
4,117.8 957.5 923.2
Underwriting . . . . . . . . . . . . . . $ 230.7 $ 19.6 $129.0
Goodwill amortization . . . . . . . . . (42.6) -- --
Investment income . . . . . . . . . . . 725.9 577.1 484.6 712.1 575.8 481.0
Realized investment gain . . . . . . . . 2,289.4 181.1 92.0 2,289.4 181.1 92.0
-------- -------- -------- -------- ------ ------
$7,133.1 $1,715.7 $1,499.8 $3,189.6 $776.5 $702.0
======== ======== ======== ======== ====== ======
</TABLE>
* Premiums written were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- ------
<S> <C> <C> <C>
Direct . . . . . . . . . . . . . . . $3,465.4 $ 294.8 $271.2
Reinsurance assumed . . . . . . . . . 722.7 777.9 689.9
Reinsurance ceded . . . . . . . . . . (82.9) (48.5) (45.6)
-------- -------- ------
$4,105.2 $1,024.2 $915.5
======== ======== ======
</TABLE>
<TABLE>
<CAPTION>
NON-INSURANCE BUSINESS SEGMENTS REVENUES OPERATING PROFIT BEFORE TAXES
-------------------------------
1996 1995 1994 1996 1995 1994
-------- -------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Candy . . . . . . . . . . . . . . . . . $ 248.9 $ 233.6 $ 216.1 $ 50.9 $ 49.3 $ 46.6
Encyclopedias, other reference material 119.0 157.9 191.3 10.3 7.4 24.4
Home cleaning systems . . . . . . . . . 253.7 235.6 207.6 62.5 52.6 43.9
Home furnishings . . . . . . . . . . . . 586.6 428.1 245.4 41.0 28.1 16.9
Newspaper . . . . . . . . . . . . . . . 154.2 154.8 150.9 49.8 46.3 53.7
Shoes . . . . . . . . . . . . . . . . . 560.5 565.1 609.4 52.7 49.5 76.4
-------- -------- -------- ------ ------ ------
$1,922.9 $1,775.1 $1,620.7 $267.2 $233.2 $261.9
======== ======== ======== ====== ====== ======
</TABLE>
34
<PAGE> 36
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
BERKSHIRE HATHAWAY INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(15) BUSINESS SEGMENT DATA (Continued)
<TABLE>
<CAPTION>
OTHER THAN IDENTIFIED SEGMENTS REVENUES OPERATING PROFIT BEFORE TAXES
------------------------------
1996 1995 1994 1996 1995 1994
-------- -------- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Other businesses . . . . . . . . . . . . $1,195.6 $1,021.7 $758.5 $108.5 $ 93.8 $ 72.7
Not identified with specific businesses:
Interest and dividend income . . . . 54.0 37.8 32.0 54.0 37.8 32.0
Realized investment gain (loss) . . . 194.7 13.0 (0.7) 194.7 13.0 (0.7)
All other except interest expense . . (15.1) (13.9) (282.8)*
-------- -------- ------ ------ ------- -------
$1,444.3 $1,072.5 $789.8 $342.1 $130.7 $(178.8)
======== ======== ====== ====== ====== =======
</TABLE>
* Includes pre-tax charge of $268.5 million representing an
other-than-temporary decline in value of investment in USAir Group, Inc.
Preferred Stock.
<TABLE>
<CAPTION>
DEPREC. & AMORT.
CAPITAL EXPENDITURES * OF TANGIBLE ASSETS
1996 1995 1994 1996 1995 1994
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Insurance . . . . . . . . . . . . . . . $12.2 $ 1.2 $ 0.9 $26.3 $ 0.9 $ 0.9
Candy . . . . . . . . . . . . . . . . . 5.3 5.1 4.1 4.5 4.1 4.1
Encyclopedias, other reference material -- -- 0.1 0.4 1.0 1.4
Home cleaning systems . . . . . . . . . 2.0 0.3 1.0 2.7 3.0 4.2
Home furnishings . . . . . . . . . . . . 21.6 9.2 22.6 10.0 9.7 6.2
Newspaper . . . . . . . . . . . . . . . 1.0 1.8 5.2 2.8 4.9 2.2
Shoes . . . . . . . . . . . . . . . . . 12.8 13.7 17.9 13.4 12.0 10.2
Other . . . . . . . . . . . . . . . . . 26.9 22.9 15.3 27.6 24.7 20.4
----- ----- ----- ----- ----- -----
$81.8 $54.2 $67.1 $87.7 $60.3 $49.6
===== ===== ===== ===== ===== =====
</TABLE>
* Excludes expenditures which were part of business acquisitions.
<TABLE>
<CAPTION>
IDENTIFIABLE ASSETS
AT YEAR END
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Insurance . . . . . . . . . . . . . . . . . . . . . . . $36,597.8 $25,280.0 $17,765.6
Candy . . . . . . . . . . . . . . . . . . . . . . . . . 74.1 74.5 69.4
Encyclopedias, other reference material . . . . . . . . 69.8 71.8 75.9
Home cleaning systems . . . . . . . . . . . . . . . . . 44.3 42.9 42.1
Home furnishings . . . . . . . . . . . . . . . . . . . . 445.8 427.7 128.4
Newspaper . . . . . . . . . . . . . . . . . . . . . . . 42.0 45.0 48.4
Shoes . . . . . . . . . . . . . . . . . . . . . . . . . 624.4 656.7 672.7
Other . . . . . . . . . . . . . . . . . . . . . . . . . 5,511.3 2,112.8 1,807.1
--------- --------- ---------
$43,409.5 $28,711.4 $20,609.6
========= ========= =========
</TABLE>
(16) SUPPLEMENTAL CASH FLOW INFORMATION
A summary of supplemental cash flow information is presented in the
following table (in millions):
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
Cash paid during the year for:
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . $ 965.9 $ 294.6 $ 411.1
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . 129.4 83.9 90.6
Non-cash investing and financing activities:
Liabilities assumed in connection with acquisitions of businesses 4,172.1 248.0 --
Common shares issued in connection with acquisitions of
businesses . . . . . . . . . . . . . . . . . . . . . . . 710.8 348.5 --
Fair value of investments acquired as part of exchanges
and conversions . . . . . . . . . . . . . . . . . . . . . 1,618.6 -- --
</TABLE>
35
<PAGE> 37
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
Part III
Except for the information set forth under the caption "Executive Officers
of the Registrant" in Part I hereof, information required by this Part (Items
10, 11, 12, and 13) is incorporated by reference from the Registrant's
definitive proxy statement, filed pursuant to Regulation 14A, for the Annual
Meeting of Shareholders of the Registrant to be held on May 5, 1997, which
meeting will involve the election of directors.
Part IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The following consolidated financial statements, as well as the
Independent Auditors' Report, are included in Part II Item 8 of
this report:
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
Independent Auditors' Report 18
Consolidated Balance Sheets at December 31, 1996 and 1995 19
Consolidated Statements of Earnings for the years ended
1996, 1995 and 1994 20
Consolidated Statements of Cash Flows for the years ended
1996, 1995 and 1994 21
Notes to Consolidated Financial Statements 22-35
(a) 2. Financial Statement Schedule PAGE
---------------------------- ----
Independent Auditors' Report on Schedule 38
Schedule I -- Parent Company 39-41
Condensed Balance Sheets as of December 31, 1996
and 1995 and Condensed Statements of Earnings and
Cash Flows for the years ended 1996, 1995, and 1994.
Other schedules are omitted because they are not required,
information therein is not applicable, or is reflected in
the Consolidated Financial Statements or notes thereto.
</TABLE>
(a) 3. Exhibits
See the "Exhibit Index" at page 42.
(b) Reports on Form 8-K
Form 8-K filed October 16, 1996 -- Item 5 - Other Events.
Reports on Agreement and Plan of Merger dated as of October 14,
1996 between the Registrant and FlightSafety International, Inc.
Form 8-K filed November 29, 1996 -- Items 5 and 7 - Other Events
and Financial Statements and Exhibits.
Reports on Registrant's issuance of $500 million face amount of 1%
Senior Exchangeable Notes due December 2, 2001.
36
<PAGE> 38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
BERKSHIRE HATHAWAY INC.
Date: March 27, 1997 /s/ Marc D. Hamburg
---------------------------------
Marc D. Hamburg
Vice President and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ Warren E. Buffett Chairman of the Board March 27, 1997
- ----------------------------- of Directors - Chief --------------
Warren E. Buffett Executive Officer Date
/s/ Howard G. Buffett Director March 27, 1997
- ----------------------------- --------------
Howard G. Buffett Date
/s/ Susan T. Buffett Director March 27, 1997
- ----------------------------- --------------
Susan T. Buffett Date
/s/ Charles T. Munger Vice Chairman of the March 27, 1997
- ----------------------------- Board of Directors --------------
Charles T. Munger Date
/s/ Malcolm G. Chace, III Director March 27, 1997
- ----------------------------- --------------
Malcolm G. Chace, III Date
/s/ Walter Scott, Jr. Director March 27, 1997
- ----------------------------- --------------
Walter Scott, Jr. Date
/s/ Marc D. Hamburg Vice President - March 27, 1997
- ----------------------------- Principal Financial --------------
Marc D. Hamburg Officer Date
/s/ Daniel J. Jaksich Controller March 27, 1997
- ----------------------------- --------------
Daniel J. Jaksich Date
</TABLE>
37
<PAGE> 39
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
To the Board of Directors and Shareholders
Berkshire Hathaway Inc.
We have audited the consolidated financial statements of Berkshire
Hathaway Inc. and subsidiaries as of December 31, 1996 and 1995, and for each
of the three years in the period ended December 31, 1996, and have issued our
report thereon dated March 7, 1997; such consolidated financial statements and
report are included elsewhere in this Form 10-K. Our audits also included the
financial statement schedule of Berkshire Hathaway Inc., listed in Item 14.
The financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
March 7, 1997
38
<PAGE> 40
BERKSHIRE HATHAWAY INC.
(Parent Company)
Condensed Financial Information
(Dollars in millions)
Schedule I
This Schedule includes the accounts of the Buffalo News Division, an
autonomous division of Registrant. Its business is the publishing of a daily
and Sunday newspaper in Buffalo, New York.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1996 1995*
--------- ----------
<S> <C> <C>
Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . $ 718.9 $ 250.0
Investments in consolidated subsidiaries . . . . . . . . . . . . . . . . 23,846.2 17,386.5
Investments - other than consolidated subsidiaries . . . . . . . . . . . 900.9 23.2
Other assets (includes identifiable assets of the
Buffalo News Division of $42.0 and $45.0 at
December 31, 1996 and 1995 respectively) . . . . . . . . . . . . . . 64.3 51.4
--------- ---------
$25,530.3 $17,711.1
========= =========
Liabilities and Shareholders' Equity:
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . $ 798.5 $ 32.1
Borrowings under investment agreements and other debt . . . . . . . . . 1,324.9 883.9
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (19.4) 56.4
--------- ---------
2,104.0 972.4
Shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . 23,426.3 16,738.7
--------- ---------
$25,530.3 $17,711.1
========= =========
</TABLE>
STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Year ending December 31,
Income items: 1996 1995* 1994*
-------- ------ ------
<S> <C> <C> <C>
From consolidated subsidiaries:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7.1 $ 6.8 $ 4.5
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . 304.4 341.1 219.8
Undistributed earnings . . . . . . . . . . . . . . . . . . . . 2,080.7 441.7 328.6
-------- ------ ------
2,392.2 789.6 552.9
Interest and dividends - other investments . . . . . . . . . . . . 34.6 21.1 16.8
Realized investment gain (loss) . . . . . . . . . . . . . . . . . 137.4 5.8 (0.8)
Revenues of Buffalo News Division . . . . . . . . . . . . . . . . 154.3 154.8 150.9
-------- ------ ------
2,718.5 971.3 719.8
-------- ------ ------
Cost and expense items:
Costs and expenses of Buffalo News Division . . . . . . . . . . . 104.5 108.5 97.2
General and administrative . . . . . . . . . . . . . . . . . . . . 6.8 7.5 6.6
Interest and finance charges . . . . . . . . . . . . . . . . . . . 57.5 48.9 54.9
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . 61.1 11.5 8.1
-------- ------ ------
229.9 176.4 166.8
-------- ------ ------
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . $2,488.6 $794.9 $553.0
======== ====== ======
</TABLE>
* Restated - See Note to Condensed Consolidated Financial Information
See Note to Condensed Financial Information on following page.
39
<PAGE> 41
BERKSHIRE HATHAWAY INC.
(Parent Company)
Condensed Financial Information
(Dollars in millions)
Schedule I (continued)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ending December 31,
1996 1995* 1994*
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 2,488.6 $ 794.9 $ 553.0
Adjustments to reconcile net income to
cash flows from operating activities:
Undistributed current earnings of subsidiaries . . . . . (2,080.7) (441.7) (328.6)
Realized investment (gain) loss . . . . . . . . . . . . (137.4) (5.8) 0.8
Increase (decrease) in income taxes payable . . . . . . (122.4) 21.5 (217.0)
Other . . . . . . . . . . . . . . . . . . . . . . . . . (27.5) 2.0 (60.3)
--------- --------- ---------
Net cash flows from operating activities . . . . . . . . . 120.6 370.9 (52.1)
--------- --------- ---------
Cash flows from investing activities:
Investments in and advances to consolidated
subsidiaries . . . . . . . . . . . . . . . . . . . . . . 24.2 (546.8) 207.4
Purchases of investments . . . . . . . . . . . . . . . . . (717.6) (81.8) (302.9)
Proceeds on sales and maturities of investments . . . . . . 36.4 279.8 56.8
--------- --------- ---------
Net cash flows from investing activities . . . . . . . . . (657.0) (348.8) (38.7)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from borrowings . . . . . . . . . . . . . . . . . 1,525.7 1,196.5 1,221.1
Repayment of borrowings . . . . . . . . . . . . . . . . . . (1,085.4) (1,076.7) (1,382.1)
Net proceeds from issuance of Class B Common Stock . . . . 565.0 -- --
--------- --------- ---------
Net cash flows from financing activities . . . . . . . . . 1,005.3 119.8 (161.0)
--------- --------- ---------
Increase (decrease) in cash and cash equivalents . . . . . . . 468.9 141.9 (251.8)
Cash and cash equivalents at beginning of year . . . . . . . . 250.0 108.1 359.9
--------- --------- ---------
Cash and cash equivalents at end of year . . . . . . . . . . . $ 718.9 $ 250.0 $ 108.1
========= ========= =========
Other cash flow information:
Income taxes paid . . . . . . . . . . . . . . . . . . . . . 887.3 273.3 386.8
Interest paid . . . . . . . . . . . . . . . . . . . . . . . 55.2 47.6 55.0
</TABLE>
* Restated - See Note to Condensed Financial Information
NOTE TO CONDENSED FINANCIAL INFORMATION
The accompanying prior year Condensed Financial Information has been
restated from the amounts previously reported in the Company's Condensed
Financial Information included in its Form 10-K for the year ended December 31,
1995.
As more fully discussed in Note 2, to the Consolidated Financial Statements
included in Item 8, on January 2, 1996, GEICO Corporation ("GEICO") became an
indirect wholly-owned subsidiary of Berkshire. Prior to January 2, 1996, certain
Berkshire subsidiaries owned approximately 51% 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 at fair value.
Generally accepted accounting principles require that prior year financial
statements be restated when control of a business is obtained on a
"step-by-step" basis. Accordingly, the accompanying Condensed Financial
Information for 1995 and 1994 has been restated to account for the previous
investment in GEICO common stock under the equity method. The proportionate
share of GEICO's net income reduced by amortization of related goodwill is
included in the Condensed Statements of Earnings as a component of
40
<PAGE> 42
BERKSHIRE HATHAWAY INC.
(Parent Company)
Condensed Financial Information
(Dollars in millions)
Schedule I (continued)
NOTE TO CONDENSED FINANCIAL INFORMATION (Continued)
undistributed earnings from consolidated subsidiaries. The principal effect of
the restatement was to decrease shareholders' equity as of December 31, 1995,
by $478.4 million from the amount reported in Berkshire's Condensed Financial
Information included in its Form 10-K for the year ended December 31, 1995.
Borrowings under investment agreements are made pursuant to contracts with
terms generally ranging from three months to forty years and calling for
interest payable, normally semiannually, at fixed rates ranging from 3% to 9%
per annum. The borrowings are senior unsecured debt obligations of the Company.
No materially restrictive covenants are included in any of the various debt
agreements.
Principal payments of the Registrant's borrowings under investment
agreements and other debt outstanding at December 31, 1996, are expected to be
required no earlier than as follows (in millions): 1997 -$103.1; 1998 - $18.9;
1999 - $15.4; 2000 - $15.1; 2001 - $470.1; and after 2001 - $702.3.
41
<PAGE> 43
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No.
- -----------
<S> <C>
2.1 Agreement and Plan of Merger dated as of August 25, 1995, between the Registrant and GEICO Corporation.
Incorporated by reference to Exhibit 1 to the Registrant's Form 8-K dated August 25, 1995.
2.2 Agreement and Plan of Merger dated as of October 14, 1996 between the Registrant and
FlightSafety International, Inc.
Incorporated by reference to Exhibit 1 to the Registrant's Form 8-K filed on October 16, 1996.
3 Restated Certificate of Incorporation
3.1 By-Laws
Incorporated by reference to Exhibit 3.1 to the Registrant's 1993 Annual Report on Form 10-K.
4.1 Form of Indenture dated as of December 1, 1987 between Berkshire Hathaway Inc. and
State Street Bank and Trust Company (as successor trustee to The First National Bank of
Boston), trustee with respect to 9 3/4% Debentures due January 15, 2018
Incorporated by reference to Exhibit 4 to Registration Statement No. 33-19000 filed on Form S-3.
4.2 Form of Indenture dated as of December 1, 1987 between berkshire Hathaway Inc. and
State Street Bank and Trust Company (as successor trustee to The First National Bank of
Boston), trustee with respect to 1% Senior Exchangeable Notes due December 2, 2001.
Incorporated by reference to Exhibit 4 to Registration Statement No. 33-30570 filed on Form S-3.
OTHER INSTRUMENTS DEFINING THE RIGHTS OF HOLDERS OF LONG-TERM DEBT OF REGISTRANT AND ITS
SUBSIDIARIES ARE NOT BEING FILED SINCE THE TOTAL AMOUNT OF SECURITIES AUTHORIZED BY ALL OTHER
SUCH INSTRUMENTS DOES NOT EXCEED 10% OF THE TOTAL ASSETS OF THE REGISTRANT AND ITS
SUBSIDIARIES ON A CONSOLIDATED BASIS AS OF DECEMBER 31, 1996. THE REGISTRANT HEREBY
AGREES TO FURNISH TO THE COMMISSION UPON REQUEST A COPY OF ANY SUCH DEBT INSTRUMENT TO
WHICH IT IS A PARTY.
10.1 Letter Agreements between Berkshire Hathaway Inc. and Salomon Inc dated September 27,
1987 and September 28, 1987 relating to the purchase by Registrant of an Issue of
Series A Cumulative Convertible Preferred Stock of Salomon Inc and Certificate
of Designation of said Preferred Stock
Incorporated by reference to Exhibit 10.3 to Registrant's 1992 Annual Report on Form 10-K.
12 Statement of computation of ratio of earnings to fixed charges
21 Subsidiaries of the Registrant
23 Independent Auditors' Consent
27 Financial Data Schedule
(Submitted as an Exhibit pursuant to the requirements of Item 601(b)(27) of Reg. S-K and
not deemed filed for purposes of Section 11 of the Securities Act of 1933 or Section 18 of
the Securities Exchange Act of 1934.)
</TABLE>
42
<PAGE> 1
REG. S-K
ITEM 601
EXHIBIT 3
RESTATED CERTIFICATE OF INCORPORATION
OF
BERKSHIRE HATHAWAY INC.
Berkshire Hathaway Inc., a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), hereby certifies as
follows:
1. The name of the Corporation is Berkshire Hathaway Inc.
Berkshire Hathaway Inc. was originally incorporated under the name of Hathdel
Inc., and the original Certificate of Incorporation was filed with the
Secretary of State of the State of Delaware on March 12, 1973.
2. This Restated Certificate of Incorporation has been duly
adopted in accordance with the provisions of Section 245 of the General
Corporation Law of the State of Delaware by the Board of Directors of the
Corporation without a vote of the stockholders of the Corporation. This
Restated Certificate of Incorporation only restates and integrates and does not
further amend the provisions of the Corporation's Certificate of Incorporation
as heretofore amended or supplemented, and there is no discrepancy between
those provisions and this Restated Certificate of Incorporation except that
provisions whose omission is not deemed a further amendment under Section
245(c) of the General Corporation Law of the State of Delaware have been
omitted.
3. The text of the Restated Certificate of Incorporation as
heretofore amended or supplemented is hereby restated to read in its entirety
as follows:
FIRST: The name of the Corporation is Berkshire Hathaway Inc.
SECOND: The registered office of the Corporation in the State of
Delaware is located at No. 1209 Orange Street in the City of Wilmington, County
of New Castle. The name and address of its registered agent is The Corporation
Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington,
Delaware 19801.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH: The total number of shares of all classes of stock that the
Corporation is authorized to issue is 52,500,000, of which 1,500,000 shares
shall be Class A Common Stock, 50,000,000 shares shall be Class B Common Stock,
and 1,000,000 shares shall be Preferred Stock. Shares of Preferred Stock shall
have no par value. Each share of Class A Common Stock shall have a par value
of $5.00. Each share of Class B Common Stock shall have a par value of
$0.1667. The Class A Common Stock and the Class B Common Stock shall sometimes
hereinafter be referred to collectively as the "Common Stock."
1. Preferred Stock. The Board of Directors is authorized,
subject to limitations prescribed by law and the limitation on authorized
Preferred Stock stated above in this Article FOURTH, to provide for the
issuance of shares of Preferred Stock in one or more series, and, by filing a
certificate pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in any series,
and to fix the designation, powers, preferences and rights of the shares of
each such series and the qualifications, limitations or restrictions thereof.
The authority of the Board of Directors with respect to each series of
Preferred Stock shall include, but not be limited to, determination of the
following:
(a) The number of shares constituting that series and the
distinctive designation of that series;
(b) The dividend rate on the shares of that series,
whether dividends shall be cumulative, and, if so, from which date or
dates and the relative rights of priority, if any, of payment of
dividends on shares of that series;
(c) Whether that series shall have voting rights, in
addition to the class voting rights provided by law, and, if so, the
terms of such voting rights;
(d) Whether that series shall have conversion privileges,
and, if so, the terms and conditions of
<PAGE> 2
REG. S-K
ITEM 601
EXHIBIT 3
such conversion, including provision for adjustment of the conversion
rate in such events as the Board of Directors shall determine;
(e) Whether or not the shares of that series shall be
redeemable, and, if so, the terms and conditions of such redemption,
including the date or dates upon or after which they shall be
redeemable, and the amount per share payable in case of redemption,
which amount may vary under different conditions and at different
redemption dates;
(f) Whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and, if so, the terms
and amount of such sinking fund;
(g) The rights of the shares of that series in the event
of voluntary or involuntary liquidation, dissolution or winding up of
the Corporation, and the relative rights of priority, if any, of
payment of shares of that series; and
(h) Any other absolute or relative rights, preferences or
limitations of that series.
Dividends on outstanding shares of Preferred Stock shall be paid or
declared and set apart for payment before any dividends shall be paid or
declared and set apart for payment on shares of Common Stock with respect to
the same dividend period.
The Preferred Stock shall be preferred over the Common Stock as to
assets, and in the event of any liquidation or dissolution or winding up of the
Corporation (whether voluntary or involuntary), the holders of the Preferred
Stock shall be entitled to receive out of the assets of the Corporation
available for distribution to its shareholders, whether from capital, surplus
or earnings, the amount specified for each particular series, together with any
dividends accrued or in arrears, for every share of their holdings of Preferred
Stock before any distribution of the assets shall be made to the holders of
Common Stock, and shall be entitled to no other or further distribution. If
upon any voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, the assets available for distribution to holders of shares of
Preferred Stock of all series shall be insufficient to pay such holders the
full preferential amount to which they are entitled, then such assets shall be
distributed ratably among the shares of all series of Preferred Stock in
accordance with the respective preferential amounts (including unpaid
cumulative dividends, if any, as provided by the Board of Directors) payable
with respect thereto.
<PAGE> 3
REG. S-K
ITEM 601
EXHIBIT 3
Neither the consolidation nor merger of the Corporation with or into
any other corporation, nor any sale, lease, exchange or conveyance of all or
any part of the property, assets or business of the Corporation shall be deemed
to be a liquidation, dissolution or winding up of the Corporation within the
meaning of this Article FOURTH.
2. Class A Common Stock and Class B Common Stock. The powers,
preferences, and rights of the Class A Common Stock and Class B Common Stock,
and the qualifications, limitations and restrictions thereof, are fixed as
follows:
A. Issuance; Payment and Assessability. The shares of
Class A Common Stock and Class B Common Stock may be issued by the
Corporation from time to time for such consideration, having a value
not less than par value, as may be fixed from time to time by the Board
of Directors of the Corporation. Any and all shares of Class A Common
Stock and Class B Common Stock so issued for which the consideration so
fixed has been paid or delivered to the Corporation shall be deemed
fully paid stock and shall not be liable to any further call or
assessment thereon, and the holders of said shares shall not be liable
for any further payments in respect of such shares.
B. Dividends; Distributions; Stock Splits. Holders of
Class A Common Stock shall be entitled to such dividends or other
distributions (including liquidating distributions) per share, whether
in cash, in kind, in stock (including a stock split) or by any other
means, when and as may be declared by the Board of Directors of the
Corporation out of assets or funds of the Corporation legally available
therefor. Holders of Class B Common Stock shall be entitled to
dividends or other distributions (including liquidating distributions)
per share, whether in cash, in kind, in stock (including a stock
split), or by any other means, equal to one-thirtieth (1/30th) of the
amount per share declared by the Board of Directors of the Corporation
for each share of Class A Common Stock, and such dividends or
distributions with respect to the Class B Common Stock shall be paid in
the same form and at the same time as dividends or distributions with
respect to the Class A Common Stock; provided, however, that, in the
event of a stock split or stock dividend, holders of Class A Common
Stock shall receive shares of Class A Common Stock and holders of Class
B Common Stock shall receive shares of Class B Common Stock, unless
otherwise specifically designated by resolution of the Board of
Directors.
C. Voting. Each holder of Class A Common Stock shall be
entitled to one (1) vote for each share of Class A Common Stock
standing in his name on the books
<PAGE> 4
REG. S-K
ITEM 601
EXHIBIT 3
of the Corporation. Each holder of Class B Common Stock shall be
entitled to one-two-hundredth (1/200th) of one vote for each share of
Class B Common Stock standing in his name on the books of the
Corporation. Unless otherwise required by the Delaware General
Corporation Law, the Class A Common Stock and the Class B Common Stock
shall vote as a single class with respect to all matters submitted to a
vote of shareholders of the Corporation.
D. Conversion. Commencing on the fifth (5th) trading day
after the day on which Class B shares are first sold to the public
pursuant to an effective registration statement filed with the
Securities and Exchange Commission, each share of Class A Common Stock
may, at the option of the holder of record thereof and without payment
of any consideration, be converted into thirty (30) fully paid and
nonassessable shares of Class B Common Stock. Any such conversion may
be effected by any holder of Class A Common Stock surrendering such
holder's certificate or certificates for the Class A Common Stock to be
converted, duly endorsed, at the office of the Corporation or any
transfer agent for the Class A Common Stock, together with a written
notice to the Corporation that such holder elects to convert all or a
specified whole number of shares of Class A Common Stock and stating
the name or names in which such holder desires the certificate or
certificates for the Class B Common Stock to be issued. If so required
by the Corporation, any certificate for shares surrendered for
conversion shall be accompanied by instruments of transfer, in form
satisfactory to the Corporation, duly executed by the holder of such
shares or the duly authorized representative of such holder. Promptly
thereafter, the Corporation shall issue and deliver or cause to be
issued and delivered to such holder or such holder's nominee or
nominees, a certificate or certificates for the number of shares of
Class B Common Stock to which such holder shall be entitled as herein
provided. Such conversion shall be deemed to have been made at the
close of business on the date of receipt by the Corporation or any such
transfer agent of such certificate or certificates for Class A Common
Stock and such notice, and the person or persons entitled to receive
the Class B Common Stock issuable on such conversion shall be treated
for all purposes as the record holder or holders of such Class B Common
Stock on that date.
The issuance of certificates for shares of Class B Common Stock
issuable upon the conversion of shares of Class A Common Stock shall be
made without charge to the converting holder; provided, however, that
if any certificate is to be issued in a name other than that
<PAGE> 5
REG. S-K
ITEM 601
EXHIBIT 3
of the record holder of the shares being converted, the Corporation
shall not be required to issue or deliver any such certificate unless
and until the person requesting the issuance thereof shall have paid to
the Corporation the amount of any tax that may be payable with respect
to any transfer involved in the issuance and delivery of such
certificate or has established to the satisfaction of the Corporation
that such tax has been paid.
The Corporation covenants that it will at all times reserve and
keep available, solely for the purpose of issuance upon conversion of
the outstanding shares of Class A Common Stock, a number of shares of
Class B Common Stock equal to thirty (30) times the number of shares of
Class A Common Stock then outstanding, in addition to the number of
shares of Class B Common Stock then outstanding; provided, however,
that nothing herein shall be construed to preclude the Corporation from
satisfying its obligation to issue shares of Class B Common Stock upon
conversion of Class A Common Stock by delivery of purchased or redeemed
shares of Class B Common Stock which are held in the treasury of the
Corporation.
FIFTH: Omitted.
SIXTH: The following additional provisions are in furtherance and not
limitation of any power, privilege or purpose conferred or permitted by law,
this certificate or the by-laws:
1. Except as may be otherwise expressly required by law, or the
provisions of this Certificate or the by-laws, the Board of
Directors of the Corporation shall have and may exercise,
transact, manage, promote and carry on all of the powers,
authorities, businesses, objectives and purposes of the
Corporation.
<PAGE> 6
REG. S-K
ITEM 601
EXHIBIT 3
2. The election of directors need not be by ballot unless the
by-laws so require.
3. The Board of Directors of the Corporation is authorized and
empowered to make, alter, amend and repeal the By-laws of the
Corporation in any manner not inconsistent with the laws of
the State of Delaware.
4. The Board of Directors may fix from time to time the
compensation of its members.
5. The Corporation may indemnify or insure or both indemnify and
insure any person who is or was a director, officer, employee
or agent of the Corporation or, at its request, of another
corporation, partnership, joint venture, trust or other
enterprise, to the full extent provided or permitted by its
by-laws, as from time to time amended, and to the full extent
to which those indemnified may now or hereafter be entitled
under any law, agreement, vote of stockholders or
disinterested directors or otherwise.
SEVENTH: No contract or other transaction between the
Corporation and any other corporation, and no act of the Corporation shall in
any way be affected or invalidated by the fact that any of the directors of the
Corporation are pecuniarily or otherwise interested in or are directors or
officers of such other corporation. Any director individually, or any firm of
which such director may be a member, may be a party to or may be pecuniarily or
otherwise interested in any contract or transaction of the Corporation,
provided that the fact that he or such firm is so interested shall be disclosed
or shall have been known to the Board of Directors, or a majority thereof; and
any director of the Corporation, who is also a director or officer of such
other corporation, or is so interested, may be counted in determining the
existence of a quorum at any meeting of the Board of Directors of the
Corporation which shall authorize such contract or transaction, and may vote
thereat to authorize any such contract or transaction, with like force and
effect, as if he were not such director or officer of such other corporation or
not so interested,
EIGHTH: Any action which would otherwise be required or permitted to
be taken by the vote of stockholders at a meeting thereof may instead be taken
by the written consent of stockholders who would be entitled to vote upon such
action if such a meeting were held having not less than the percentage of the
total number of votes which would have been required to take such action at
such a meeting.
NINTH: Omitted.
TENTH: No director of this Corporation shall have personal liability
to the Corporation or any of its stockholders for monetary damages for breach
of fiduciary duty as a director. The foregoing provision shall not eliminate
or limit the
<PAGE> 7
REG. S-K
ITEM 601
EXHIBIT 3
liability of a director (i) for any breach of the director's duty of loyalty to
the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the General Corporation Law of the State of Delaware
or (iv) for any transaction from which the director derived an improper
personal benefit. In the event that the General Corporation Law of the State
of Delaware is amended after approval of this Article by the stockholders so as
to authorize corporate action further eliminating or limiting the liability of
directors, the liability of a director of this Corporation shall thereupon be
eliminated or limited to the fullest extent permitted by the General
Corporation Law of the State of Delaware, as so amended from time to time. The
provisions of this Article shall not be deemed to limit or preclude
indemnification of a director by the Corporation for any liability of a
director which has not been eliminated by the provisions of this Article.
IN WITNESS WHEREOF, this Restated Certificate of Incorporation has
been signed by the Company this 6th day of May, 1996.
Berkshire Hathaway Inc.
By: /s/ Marc D. Hamburg
---------------------------
Marc D. Hamburg
Vice President
Attest:
/s/ Forrest N. Krutter
- -------------------------------
Forrest N. Krutter
Secretary
<PAGE> 1
Reg S-K
Item 601
Exhibit 12
BERKSHIRE HATHAWAY INC.
Calculation of Ratio of Consolidated Earnings to Consolidated Fixed Charges
(Dollars in millions)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- ------ -------- ------
<S> <C> <C> <C> <C> <C>
Net earnings . . . . . . . . . . . . . . . $2,488.6 $ 794.9 $553.0 $ 843.6 $460.4
Income tax expense . . . . . . . . . . . 1,196.8 276.2 163.3 439.7*** 142.5
Minority interest in earnings . . . . . . . 20.5 13.3 8.7 10.0 5.2
Equity in the net income of investees
accounted for under the equity method . -- (92.5) (29.9) (103.6) (57.5)
Fixed charges* . . . . . . . . . . . . . . 124.0 75.5 70.2 65.7 85.6
-------- -------- ------ -------- ------
Earnings available for fixed charges . . . $3,829.9 $1,067.4 $765.3 $1,255.4 $636.2
======== ======== ====== ======== ======
Realized investment gain, pretax, included in
earnings available for fixed charges . . $2,484.1 $ 194.1 $ 91.3 $ 546.4 $ 89.9
======== ======== ====== ======== ======
Fixed charges*
Interest on indebtedness (including amorti-
zation of debt discount and expense) $ 99.7 $ 59.3 $ 60.1 $ 56.6 $76.1
Rentals representing interest . . . . . 24.3 16.2 10.1 9.1 9.5
------ ------ ------ -------- ------
$124.0 $ 75.5 $ 70.2 $ 65.7 $ 85.6
====== ====== ====== ======== ======
Ratio of earnings to fixed charges* . . . . 30.89x 14.14x 10.90x 19.11x 7.44x
===== ===== ===== ===== ====
Ratio of earnings, excluding realized invest-
ment gain, to fixed charges* . . . . . . 10.85x 11.57x 9.60x 10.79x 6.38x
===== ===== ==== ===== ====
</TABLE>
___________
* Excludes fixed charges of finance businesses which consist of interest on
indebtedness and, in years prior to 1994, interest on savings deposits.
Fixed charges of finance businesses were as follows:
1996 1995 1994 1993 1992
----- ----- ----- ----- -----
$30.4 $29.1 $31.8 $24.4 $26.1
Including fixed charges of finance businesses the ratios of earnings to
fixed charges were as follows:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------ ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
Including realized investment gain 25.00x 10.48x 7.81x 14.20x 5.93x
Excluding realized investment gain 8.91x 8.63x 6.92x 8.14x 5.13x
</TABLE>
** Excludes optional prepayment premiums of $22.5, related to redemptions
prior to maturity of certain term debt obligations.
*** Includes charge of $71.0 representing the cumulative effect of change in
accounting for income taxes.
<PAGE> 1
Reg. S-K
Item 601
Exhibit 21
BERKSHIRE HATHAWAY INC.
Subsidiaries of Registrant (1)
December 31, 1996
<TABLE>
<CAPTION>
State of
Company Name Incorporation
------------ -------------
<S> <C>
Berkshire Hathaway Credit Corporation Nebraska
Berkshire Hathaway Life Insurance Company of Nebraska Nebraska
BHG Life Insurance Company Nebraska
BHSF Inc. Delaware
BH Shoe Holdings, Inc. Delaware
Blue Chip Stamps California
Borsheim Jewelry Company, Inc. Nebraska
Campbell Hausfeld/Scott Fetzer Company Delaware
Central States Indemnity Co. of Omaha Nebraska
Central States of Omaha Companies, Inc. Nebraska
Columbia Insurance Company Nebraska
Continental Divide Insurance Company Colorado
Cornhusker Casualty Company Nebraska
Cypress Insurance Company California
Dexter Shoe Company Maine
The Fechheimer Brothers Company (2) Delaware
FlightSafety International, Inc. New York
GEICO Casualty Company Maryland
GEICO Corporation Delaware
GEICO General Insurance Company Maryland
GEICO Indemnity Company Maryland
Government Employees Insurance Company Maryland
Helzberg's Diamond Shops, Inc. Missouri
H. H. Brown Shoe Company, Inc. Delaware
Isabela Shoe Corporation Delaware
Kansas Bankers Surety Company Kansas
Lowell Shoe, Inc. New Hampshire
National Fire & Marine Insurance Company Nebraska
National Indemnity Company Nebraska
National Indemnity Company of the South Florida
National Indemnity Company of Mid-America Minnesota
National Liability and Fire Insurance Company Connecticut
Nebraska Furniture Mart, Inc. Nebraska
Oak River Insurance Company Nebraska
OCSAP, Ltd Maine
R.C. Willey Home Furnishings Utah
Redwood Fire and Casualty Insurance Company Nebraska
Resolute Reinsurance Company New York
The Scott Fetzer Company Delaware
Scott Fetzer Financial Group, Inc. Delaware
</TABLE>
<PAGE> 2
Reg. S-K
Item 601
Exhibit 21
BERKSHIRE HATHAWAY INC.
Subsidiaries of Registrant (1) (Continued)
December 31, 1996
<TABLE>
<CAPTION>
State of
Company Name Incorporation
------------ -------------
<S> <C>
See's Candies, Inc. California
See's Candy Shops, Incorporated California
Wesco Financial Corporation Delaware
Wesco-Financial Insurance Company Nebraska
Wesco Holdings Midwest, Inc. Nebraska
World Book/Scott Fetzer Company Nebraska
</TABLE>
(1) Each of the named subsidiaries is not necessarily a "significant
subsidiary" as defined in Rule 1-02(w) of Regulation S-X, and Berkshire has
several additional subsidiaries not named above. The unnamed subsidiaries,
considered in the aggregate as a single subsidiary, would not constitute a
"significant subsidiary" at the end of the year covered by this report.
(2) The names have been omitted of 29 wholly-owned U.S. subsidiaries of
The Fechheimer Brothers Company, each of whom operated in the business of
uniform manufacturing and/or distribution.
<PAGE> 1
Reg S-K
Item 601
Exhibit 23
Page 1 of 1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration 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. 33-60855) of our reports dated March 7, 1997,
appearing in this Annual Report on Form 10-K of Berkshire Hathaway Inc. for the
year ended December 31, 1996.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
March 27, 1997
<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-K 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> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,340
<SECURITIES> 34,198
<RECEIVABLES> 1,523
<ALLOWANCES> 0
<INVENTORY> 620
<CURRENT-ASSETS> 0
<PP&E> 1,034
<DEPRECIATION> 0
<TOTAL-ASSETS> 43,410
<CURRENT-LIABILITIES> 0
<BONDS> 1,944
0
0
<COMMON> 7
<OTHER-SE> 23,419
<TOTAL-LIABILITY-AND-EQUITY> 43,410
<SALES> 3,061
<TOTAL-REVENUES> 7,204
<CGS> 1,884
<TOTAL-COSTS> 5,771
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 100
<INCOME-PRETAX> 3,706
<INCOME-TAX> 1,197
<INCOME-CONTINUING> 2,489
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,489
<EPS-PRIMARY> 2,065
<EPS-DILUTED> 2,065
</TABLE>
