-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, X3PnRDgrW8gaXV96ZGxtv7vZbLXKBcEEOHMBQO592qwB30uqegWnI1eZ+0oWDJO+ 5kLOBXELKlNlY1yIbjvN8A== 0000950150-94-000443.txt : 19940331 0000950150-94-000443.hdr.sgml : 19940331 ACCESSION NUMBER: 0000950150-94-000443 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BERKSHIRE HATHAWAY INC /DE/ CENTRAL INDEX KEY: 0000109694 STANDARD INDUSTRIAL CLASSIFICATION: 2731 IRS NUMBER: 042254452 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-10125 FILM NUMBER: 94519166 BUSINESS ADDRESS: STREET 1: 1440 KIEWIT PLZ CITY: OMAHA STATE: NE ZIP: 68131 BUSINESS PHONE: 4023461400 MAIL ADDRESS: STREET 1: 1440 KIEWIT PLAZA CITY: OMAHA STATE: NE ZIP: 68131 10-K 1 FORM 10-K FOR FISCAL YEAR PERIOD ENDED 12/31/93 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR PERIOD ENDED December 31, 1993 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(b) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM __________________TO__________________ COMMISSION FILE NUMBER 1-10125 BERKSHIRE HATHAWAY INC. (Exact name of registrant as specified in its charter) Delaware 04 2254452 -------- ---------- State or other jurisdiction of (I.R.S. Employer incorporation or organization Identification number) 1440 Kiewit Plaza, Omaha, Nebraska 68131 ---------------------------------- ----- (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code (402) 346-1400 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock, $5.00 Par Value New York Stock Exchange - ----------------------------- ----------------------- Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to the filing requirements for the past 90 days. Yes X No___ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] State the aggregate market value of the voting stock held by non-affiliates of the Registrant - $10,435,387,500* Indicate number of shares outstanding of each of the Registrant's classes of common stock: March 30, 1994 -- common stock, $5 par value . . . . . . . . . 1,177,750 shares DOCUMENTS INCORPORATED BY REFERENCE Document Incorporated In -------- --------------- Proxy Statement for Registrant's Annual Meeting to be held April 25, 1994 Part III * This aggregate value is computed at the last sale price of the common stock on March 21, 1994. It does not include the value of 551,000 shares held by Directors and Executive Officers of the Registrant and members of their immediate families, some of whom may not constitute "affiliates" for purpose of the Securities Exchange Act of 1934. 2 Part I ITEM 1. BUSINESS Berkshire Hathaway Inc. is a holding company owning subsidiaries engaged in a number of diverse business activities. The most important of these is the property and casualty insurance business conducted nationwide on a primary or direct basis and worldwide on a reinsurance basis through a number of subsidiaries collectively referred to in this report as the Berkshire Hathaway Insurance Group. Additionally, Berkshire Hathaway Inc. publishes the Buffalo News, a daily and Sunday newspaper in upstate New York. Other business activities conducted by non-insurance subsidiaries include publication and distribution of encyclopedias and related educational and instructional material (World Book and Childcraft products), manufacture and marketing of home cleaning systems and related accessories (sold principally under the Kirby name), manufacture and sale of boxed chocolates and other confectionery products (See's Candies), retailing of home furnishings (Nebraska Furniture Mart), manufacture and distribution of uniforms (Fechheimer Brothers Company) and manufacture, import and distribution of footwear (H. H. Brown Shoe Company, Lowell Shoe, Inc. and Dexter Shoe Company). Berkshire also owns a number of other businesses engaged in a variety of activities, as identified herein. Operating decisions for the various Berkshire businesses are made by managers of the business units. Investment decisions and all other capital allocation decisions are made for Berkshire and its subsidiaries by Warren E. Buffett, in consultation with Charles T. Munger. Mr. Buffett is Chairman and Mr. Munger is Vice Chairman of Berkshire's Board of Directors. PROPERTY AND CASUALTY INSURANCE AND REINSURANCE BUSINESS Berkshire's insurance and reinsurance business is conducted by 14 separate subsidiaries, the largest of which is National Indemnity Company ("National Indemnity") headquartered in Omaha, Nebraska. The Berkshire Hathaway Insurance Group maintains capital strength at unparalleled high levels, significantly higher than normal in the industry. This strength differentiates Group members from their competitors. For example, in each year since 1988 the Group's ratio of net premiums written to year-end statutory surplus was 10% or less. The industry average net premiums-to-surplus ratio from 1989 through 1992 was 140% or more. The obvious margins of safety thus provided to insureds of the Group are particularly persuasive in marketing of individually negotiated insurance and reinsurance contracts. On a primary or direct basis (policies issued in the name of, and to the insured party) several of the subsidiary members underwrite multiple lines of principally casualty coverages nationwide for primarily commercial accounts. The primary or direct business is written through insurance agents and brokers. The traditional business of National Indemnity has been largely in providing liability coverages for commercial truck and bus operators and related commercial transportation activities that require specialized underwriting knowledge and techniques. This business is referred to internally as the National Indemnity Primary Group. The Commercial Casualty Division and the Professional Liability and Special Risk Division, each with offices in Stamford, Connecticut, solicit and underwrite especially large or unusual risks. Other member companies market various commercial coverages for standard risks to principally residents of a single state. These operations are referred to as the "homestate" operations. Cypress Insurance Company, a specialty carrier domiciled in California, provides workers' compensation insurance to employers in that state. Premium rates for the business peaked in 1986 and have generally decreased annually thereafter. Because of the lower rates, National Indemnity Primary Group members have written substantially less of this business since 1986. Similarly, writings by the Group's homestate operations have decreased because of lower premium rates and the disciplined underwriting practices of the members that causes their rejection of underpriced risks. The aggregate amount of primary or direct insurance premiums written in recent years by these Group members has stabilized, although at less than one quarter the amount written in 1986. 1 3 ITEM 1. BUSINESS (CONTINUED) PROPERTY AND CASUALTY INSURANCE AND REINSURANCE BUSINESS (CONTINUED) Generally, no improvement in prices is foreseen for 1994. Except for modest increases in premium volume expected from continuing expansion of homestate operations into additional states and refocused marketing efforts in the California workers' compensation business, primary or direct business is likely to be little changed from 1993. At the end of 1992, Berkshire acquired 82% of Central States Indemnity Co. of Omaha ("CSI"). CSI offers credit card insurance from its offices located in Omaha, Nebraska. CSI insures the credit card debt of policyholders if the policyholders become disabled or unemployed. The credit insurance is marketed to individuals through credit card issuers nationwide. The Reinsurance Division of National Indemnity in Stamford, Connecticut provides excess of loss and quota share treaty reinsurance to other property/casualty insurers and reinsurers. Minimal organizational resources, but huge financial resources, are currently devoted to this business. In contrast to the previously discussed trend of lower primary or direct insurance underwriting activity, the amount of business derived from reinsurance activity increased significantly. The increase in reinsurance assumed premiums began in 1985, when National Indemnity entered into a contract providing reinsurance coverage to Fireman's Fund Insurance Companies ("FFIC"), for a period of four years, for 7% of FFIC's entire book of business. In recent years, non-traditional reinsurance products -- finite-risk contracts -- have become increasingly significant in the property/casualty insurance marketplace. Those terms refer to reinsurance agreements, whose terms provide essentially traditional coverages but also may contractually establish minimum and maximum payouts by the reinsurer. Minimum payout requirements may originate in commutation clauses that call for repayments to the reinsureds, on specified dates, of sums not otherwise paid out by the reinsurer as losses. The amount of risk transferred, while significant, may be more limited than in the more traditional contracts. The concept of time-value-of-money is a more important element in the pricing and setting of terms for these contracts than for more traditional contracts. Transaction amounts are likely to be larger than for traditional transactions; for example, a single contract may relate to loss occurrences in a number of lines of business that span a number of years. Significant financial strength is a need of any prospective provider of the non-traditional products and Berkshire meets that need. Several of the reinsurance arrangements under which the Berkshire Hathaway Insurance Group provided coverages since 1989 were through finite-risk type contracts. Exemplary of such business, significant reinsurance assumed premiums were earned in those years from contracts, sizeable in amounts of coverage provided, but few in number, that indemnify other insurers and reinsurers against adverse loss development of their own loss portfolios. During 1990, Berkshire's Insurance Group management perceived declines to be occurring in industry capacity and competition for catastrophe excess-of-loss type reinsurance coverages and consequently National Indemnity wrote coverages for a number of such risks. Management believes that in 1993 the Berkshire Hathaway Insurance Group was among the largest providers in the world of this type of coverage. The contracts may provide sizeable amounts (i.e., often in excess of $10 million) of indemnification per contract and a single event may result in payments under several contracts. This business can produce extreme volatility in reported periodic results. Accounting consequences, however, do not influence decisions of Berkshire's management with respect to this or any other business, and this fact plus the Insurance Group's above-normal-for-the-industry financial strength are believed to be the primary reasons why the Group has become a major provider of these coverages. Recently there has been a substantial increase in catastrophe reinsurance capacity for the industry. Most of the additional capacity has arisen from equity capital raised by newly-formed entities. The increased capacity is not likely to have an impact on the Group's business during 1994. However, Berkshire management has evidence that catastrophe reinsurance prices are beginning to deteriorate. If the price deterioration continues, it may result in a reduced volume of business being written for 1995 and possibly subsequent years. 2 4 ITEM 1. BUSINESS (CONTINUED) PROPERTY AND CASUALTY INSURANCE AND REINSURANCE BUSINESS (CONTINUED) The increases in reinsurance assumed business in recent years have produced an exceptional increase in the amount of "float", an approximation of the net investable policyholder funds, held by the Insurance Group. The term denotes the sum of unpaid losses, unpaid loss adjustment expenses and unearned premiums, less the aggregate of premium balances receivable, amounts recoverable as reinsurance on paid and unpaid losses, deferred policy acquisition costs and deferred charges re reinsurance. Given the length of the claims payment period -- or tail -- that attaches to the reinsurance business, the increased float plus the earnings it generates will result in meaningful increases for several years in the level of the Insurance Group's investments and investment income, with some part of such increases already evident. Investment portfolios of insurance subsidiaries include equity securities valued at approximately $12.3 billion at December 31, 1993. Included are meaningful ownership percentages of other publicly traded companies (such as approximately 48% of the outstanding capital stock of GEICO Corporation, approximately 13% of the capital stock of Capital Cities/ABC, Inc., approximately 11% of the common stock of The Gillette Company, approximately 7% of the capital stock of The Coca-Cola Company, approximately 15% of the capital stock of The Washington Post Company, approximately 12% of the common stock of Wells Fargo & Company, approximately 14% of the capital stock of General Dynamics Corporation and common and convertible preferred stock of Salomon Inc having approximately 15% of the total voting power of that company). Much information about these publicly-owned companies is available, including that released from time to time by the companies themselves. NON-INSURANCE BUSINESSES OF BERKSHIRE Registrant's seven non-insurance "reportable business segments" are described below. SHOES -- The size of this segment has increased dramatically since the end of 1992. In addition to H. H. Brown Shoe Company ("H. H. Brown") which was acquired in July 1991, this segment now includes Lowell Shoe, Inc. ("Lowell") acquired at the end of 1992, and Dexter Shoe Company ("Dexter"), acquired in November 1993. A description of each of these businesses follows. H. H. Brown manufactures, imports and markets work, safety, outdoor, western and casual footwear. Approximately 70% of H. H. Brown's revenues are derived from sales of a wide variety of work and safety shoes and boots. They are manufactured under the H. H. Brown, Carolina, Double-H Boot and other brand names as well as under private label. H. H. Brown is the leading domestic producer of steel toe safety work shoes and maintains a significant share of other markets in which it competes, namely the western boot and casual shoe market. In addition to manufacturing its products at three facilities located in the United States and a facility in Canada, the company sources shoes and shoe components offshore from several countries including China, Romania, India and Mexico. The company markets its products entirely within the United States and Canada through a direct sales force of just over 100. Its customer base is primarily composed of small independent retailers and wholesalers who sell to workers in a variety of industries including steel, construction, agriculture and heavy manufacturing. A significant quantity of H. H. Brown's work and military boots are sold to the United States and Canadian military, as well as to military PX's. Additionally, much of its imported footwear is sold to mass merchandisers such as K Mart, Wal Mart and Payless Shoe Co. H. H. Brown competes in the mid-priced segment of the work boot and shoe market. The consumer is typically a middle income industrial laborer who is required by OSHA to wear a specific type of footwear. The company's competitors in this market are typically small, domestic work boot manufacturers. Management believes that its products are competitive in terms of quality and pricing. On December 30, 1992, Berkshire acquired for cash all of the capital stock of Lowell and assets of certain entities formerly affiliated with Lowell (including a manufacturing facility located in Puerto Rico). Lowell manufactures and markets women's casual, service and nurses footwear. They market these products under the brand names Soft Spots, Day Lights and Nurse Mates. 3 5 ITEM 1. BUSINESS (CONTINUED) NON-INSURANCE BUSINESSES OF BERKSHIRE (CONTINUED) On November 7, 1993 Berkshire Hathaway Inc. consummated a merger with Dexter by reissuing 25,203 shares of its common stock held in treasury in exchange for 100% of the outstanding common stock of Dexter. Dexter manufactures and markets men's and women's casual footwear. All products are manufactured and sold under the trademark Dexter. The company specializes in the construction of Handsewns, Welts and Cements. The leather is purchased from domestic tanneries, and many of the other components used in the manufacturing process are made by Dexter. Dexter has four manufacturing facilities in Maine and two located in Puerto Rico. In addition to the manufacturing facilities, Dexter operates 77 factory outlet stores which are located in Maine, New Hampshire, Vermont, New York, Florida, Alabama, Georgia, Tennessee, Nevada and Puerto Rico. The customer base is composed of independent retailers and department stores throughout the United States. Dexter's major customers are large department stores, including J. C. Penney and Nordstroms, specialty retailers such as Famous Footwear and military PX's. Additionally, Dexter exports its products to numerous foreign countries. Dexter is recognized throughout the United States for both its dress and casual footwear and the customer is typically a middle income consumer. ENCYCLOPEDIAS, OTHER REFERENCE MATERIALS -- World Book publishes educational products for homes, schools, and libraries. Its chief products include: The World Book Encyclopedia, the largest-selling encyclopedia in the United States; Early World of Learning, a readiness program for preschoolers, and Information Finder, a CD-ROM (compact disc read - only format) version of the encyclopedia text. These and other educational materials are marketed in the United States and Canada by a large direct-selling force. A newly copyrighted edition of The World Book Encyclopedia is published each year. Annual products such as The World Book Year Book, Science Year and The World Book Health & Medical Annual are updating publications for owners of earlier encyclopedia editions and are sold by direct mail. An international group markets these and other specially created educational products in Australia, the United Kingdom and Ireland with a commissioned sales force, and in 41 other countries through 34 distributors. There is significant competition in the business of publishing and marketing encyclopedias in North America, World Book's principal geographic market. World Book's selling prices are generally lower than those of its principal competitor; World Book quality is thought to be superior to any other. A large portion of encyclopedia sales is made on an installment basis. Wholly-owned Berkshire subsidiaries offer financing of domestic and certain foreign consumer receivables. HOME CLEANING SYSTEMS -- This segment of Berkshire's business is principally represented by Kirby home cleaning systems and products, sold to approximately 700 independent authorized factory distributors in the United States and foreign countries. These factory distributors sell to the consumer or to independent authorized area distributors who sell to the consumer. Sales are made through in-the-home demonstrations by independent salespeople. Substantially all of Kirby's sales to distributors are for cash. A wholly-owned Berkshire subsidiary offers consumer financing to about 500 authorized distributors in the United States. The distributors independently establish the prices at which they offer Kirby products. Kirby and its distributors believe they offer a premium product, and it is believed that the prices are generally higher than those of most of its four major competitors. In 1992, Kirby completed the worldwide introduction of an improved model which incorporates a power-assisted drive. This segment also includes the Douglas Products business that manufactures specialty vacuum cleaners such as electric hand held and cordless vacuum cleaners. Channels of distribution for these products include retail discount stores, catalogue showrooms, hardware stores and department stores. Additionally, Cleveland Wood Products, a manufacturer of vacuum cleaner brushes, is included in this segment. 4 6 ITEM 1. BUSINESS (CONTINUED) NON-INSURANCE BUSINESSES OF BERKSHIRE (CONTINUED) CANDY -- See's produces boxed chocolates and other confectionery products with an emphasis on quality in two large kitchens in California. See's distributes its candies through its own retail stores - over 200 in number - located in 12 western and midwestern states, including Hawaii. A meaningful volume of candy business is also recorded for direct shipments made nationwide from a seasonally-varying number of quantity order distribution centers. Seasonality in this business is extreme. About 50% of each year's unit sales volume is generated during the last two months of the year, when quantity sales at reduced prices to businesses and other organizations augment the extremely high December shop volume. NEWSPAPER -- The Buffalo News, a division of Berkshire, publishes a Sunday edition and seven editions each weekday. It is the only metropolitan newspaper published daily within a ten county upstate New York distribution area that comprises one of the 50 largest primary market areas in the United States. Among newspapers published in those primary markets, The Buffalo News claims the highest percentage of its area household coverage, 72% on weekdays and 80% 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 1993 this percentage was 55%. RETAILING OF HOME FURNISHINGS -- The Nebraska Furniture Mart ("NFM") operates a home furnishing retail business from a very large - over 200,000 square feet - retail outlet and sizable warehouse facilities in Omaha, Nebraska. The business serves a trade area with a radius around Omaha of approximately 300 miles. An important feature of the business is its ability to control its costs and to produce a high business volume from offerings of significant value to its customers, while realizing highly satisfactory earnings. On December 31, 1992, NFM acquired a 360,000 square foot building and ten acres of land located adjacent to its existing retail store and warehouse. Along with providing additional warehousing facilities, a portion of the building is being used to operate a factory outlet store for manufacturers' closeouts and discontinued product lines. A 100,000 square foot appliance and electronics superstore, to be located adjacent to the main retail store, is planned for opening in the third quarter of 1994. The new store will add such products as music compact discs and an expanded computer software line to NFM's already large selection of electronics and appliances. UNIFORM MANUFACTURING AND DISTRIBUTION -- The Fechheimer Brothers Company manufactures its products at plants in Kentucky, Ohio, Tennessee and Texas, for marketing through about fifty company-operated retail distribution centers and by independent distributors and dealers who together serve more than 200 major metropolitan areas. OTHER NON-INSURANCE ACTIVITIES not identified with Berkshire business segments include the more than one dozen diverse manufacturing businesses acquired with the 1986 purchase of The Scott & Fetzer Company. The largest revenue producer of these businesses is Campbell Hausfeld/Scott Fetzer Company, which manufactures and markets a variety of products related to transmission of air and other fluids, such as air compressors and painting systems. In addition, Berkshire has an 85% interest in a long established, high volume retailer of fine jewelry, Borsheim's, in Omaha, Nebraska. The size of this operation, like several of the Scott Fetzer operations, currently precludes its classification as a "reportable business segment" of Berkshire. However, it contributes meaningful added diversity to Berkshire's activities. Berkshire Hathaway Inc. and subsidiaries employed approximately 22,000 persons on a full-time basis at December 31, 1993. In addition to that number of full-time employees, up to 20,000 persons may act as World Book sales representatives from time to time. ADDITIONAL INFORMATION WITH RESPECT TO BERKSHIRE'S BUSINESSES The amounts of revenue, operating profit and identifiable assets attributable to each of the eight aforementioned business segments are included in Note 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 3 and 4 to Registrant's consolidated financial statements. 5 7 ITEM 2. PROPERTIES The physical properties used by Registrant's significant business segments are summarized below:
Owned Approx. or Square Business Location Type of Property Leased Footage - ----------------- ------------------------ --------------------- ------ ------- Company Headquarters Omaha, NE Offices Leased 4,000 Insurance Omaha, NE Offices Owned 73,000 Omaha, NE & other locations in Arizona, California, Colorado, Kansas & Connecticut Offices Leased 78,000 Candy Los Angeles, CA & South Plants/Warehouses/ San Francisco, CA Offices Owned 274,000 California Warehouses/Offices Leased 275,000 California & other Retail outlets and Leased 321,000 locations principally quantity order centers in western states (216 locations) Newspaper Buffalo, NY Offices Owned 195,000 Buffalo, NY Printing Plant Owned 150,000 New York & Washington, D.C. Offices/Warehouses Leased 69,000 Home Omaha, NE Retail Store Owned 319,000 Furnishings Omaha, NE & Lincoln, NE Warehouses/Offices Owned 708,000 Encyclopedias, Elk Grove Village, IL & Other Reference Addison, IL Offices/Warehouse Owned 100,000 Material Chicago, IL & vicinity Offices Leased 70,000 Australia Offices/Warehouses Leased 7,000 United Kingdom Offices Leased 18,000 Home Cleaning Cleveland, OH, Systems Andrews, TX & Plants/Warehouses/ Owned 397,000 Walnut Ridge, AR Offices Cleveland, OH Warehouse/Offices Leased 21,000 Canada & England Warehouses/Offices Leased 31,000 Uniforms Cincinnati, OH & various other U.S. Plants/Warehouses/ locations Offices Owned 223,000 Hodgenville, KY & Plants/Warehouses/ various other U.S. locations Offices Leased 295,000 9 U.S. locations Retail Stores Owned 75,000 44 U.S. locations Retail Stores Leased 320,000
6 8 ITEM 2. PROPERTIES (CONTINUED)
Owned Approx. or Square Business Location Type of Property Leased Footage - ----------------- ------------------------ --------------------- ------ ------- Shoes Morganton, NC, Womelsdorf, PA, Martinsburg, PA, Hudson, NH, Dexter, ME & Plants/Warehouses/ Canada Offices Owned 1,503,000 Greenwich, CT, Commerce, CA, Morganton, NC, Skowhegan, ME, Newton, MA, Canada, Puerto Rico & Plants/Warehouses/ Dominican Republic Offices Leased 887,000 50 U.S. locations Retail Stores Owned 337,000 25 U.S. & Puerto Rico locations Retail Stores Leased 90,000
ITEM 3. LEGAL PROCEEDINGS The Company is a defendant in litigation relating to the transactions in which Salomon Inc ("Salomon") repurchased a significant block of its common stock from a holder thereof and sold a new issue of preferred stock to the Company. Twenty-one derivative action lawsuits have been filed against Salomon's directors challenging these transactions and seeking damages; two of these lawsuits (Ruby Resnik v. Dwayne O. Andreas, et al., Delaware Chancery No. 9300, filed September 30, 1987 and Rodney Shields v. John H. Gutfreund, et al., United States District Court for the Southern District of New York, No. 88 Civ. 1058, filed February 12, 1988) named the Company as an additional defendant. The lawsuits allege that the Salomon directors breached their fiduciary duties to Salomon and its shareholders in connection with these transactions, and the two lawsuits naming the Company claim, in essence, that the Company participated in such alleged breaches of duty. The complaints in these lawsuits seek damages in unspecified amounts, a declaration that the sale of preferred stock to the Company is illegal, null and void, an order requiring that the preferred stock purchased by the Company be voted in the same manner as the majority of Salomon's shares, and rescission of the transaction between Salomon and the Company. Management does not expect the outcome of these lawsuits to be materially adverse to the Company. Other litigation pending against the Company and its subsidiaries is not considered material or is ordinary routine litigation incidental to the business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None EXECUTIVE OFFICERS OF THE REGISTRANT Following is a list of the Registrant's executive officers:
Name Age Position with Registrant Since - -------------------- --- ---------------------------- ----------- Warren E. Buffett 63 Chairman of the Board 1970 Marc D. Hamburg 44 Vice President 1992 Charles T. Munger 70 Vice Chairman of the Board 1978
Each executive officer serves, in accordance with the by-laws of the Registrant, until the first meeting of the Board of Directors following the next annual meeting of shareholders and until his respective successor is chosen and qualified or until he sooner dies, resigns, is removed or becomes disqualified. Mr. Buffett and Mr. Munger also serve as directors of the Registrant. 7 9 Part II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS MARKET INFORMATION The Company's Common Stock is listed for trading on the New York Stock Exchange, trading symbol: BRK. The following table sets forth the high and low sales prices per share, as reported on the New York Stock Exchange Composite List during the periods indicated:
1993 High Low 1992 High Low ---- --- ---- --- First Quarter . . . . . . . . $13,200 $11,350 First Quarter . . . . . . . . . $9,000 $8,575 Second Quarter . . . . . . . 16,200 11,800 Second Quarter . . . . . . . . 9,300 8,850 Third Quarter . . . . . . . . 17,800 15,100 Third Quarter . . . . . . . . . 9,950 9,050 Fourth Quarter . . . . . . . 17,800 16,200 Fourth Quarter . . . . . . . . 11,750 9,150
SHAREHOLDERS The Company had approximately 7,600 record holders of its common stock at March 8, 1994. Record owners included nominees holding at least 180,000 shares on behalf of beneficial-but-not-of-record owners. Management believes that the Company has more than 16,000 beneficial owners. DIVIDENDS Berkshire has not declared a cash dividend since 1967. ITEM 6. SELECTED FINANCIAL DATA SELECTED FINANCIAL DATA FOR THE PAST FIVE YEARS (dollars in thousands, except per share data)
1993 1992 1991 1990 1989 ---------- ---------- ---------- ---------- ---------- REVENUES: Sales and service revenues . . . . . . . $1,962,862 $1,774,436 $1,651,134 $1,580,074 $1,526,459 Insurance premiums earned . . . . . . . 656,341 664,293 776,413 591,540 394,279 Interest and dividend income . . . . . . 479,806 495,409 481,793 450,295 331,452 Realized investment gain . . . . . . . . 546,422 89,937 192,478 33,989 223,810 Sundry . . . . . . . . . . . . . . . . . 8,052 5,265 4,178 3,574 7,892 ---------- ----------- ----------- ---------- ---------- Total revenues . . . . . . . . . . . . . $3,653,483 $3,029,340 $3,105,996 $2,659,472 $2,483,892 ========== ========== ========== ========== ========== EARNINGS: Before realized investment gain and cumulative effect of accounting change $ 402,403(1) $ 347,726 $ 315,753 $ 370,745 $ 299,902 Realized investment gain . . . . . . . . 356,702 59,559 124,155 23,348 147,575 Cumulative effect of change in accounting for income taxes . . . . . . . . . . (70,984) -- -- -- -- ---------- ----------- ----------- ------------ ----------- Net earnings . . . . . . . . . . . . . . $ 688,121 $ 407,285 $ 439,908 $ 394,093 $ 447,477 ========== ========== ========== =========== ========== EARNINGS PER SHARE: Before realized investment gain and cumulative effect of accounting change $348.03 $303.29 $275.42 $323.39 $262.46 Realized investment gain . . . . . . . . 308.50 51.95 108.30 20.36 127.55 Cumulative effect of change in accounting for income taxes . . . . . . . . . . (61.39) -- -- -- -- ------- -------- -------- -------- -------- Net earnings . . . . . . . . . . . . . . $595.14 $355.24 $383.72 $343.75 $390.01 ======= ======= ======= ======= ======= YEAR-END DATA: Total assets . . . . . . . . . . . . . . $19,520,469 $17,131,998 $14,461,902 $10,670,423 $9,459,594 Borrowings under investment agreements and other debt (2) . . . . . . . . . 972,389 1,154,697 1,100,464 1,082,265 847,923 Shareholders' equity . . . . . . . . . . 10,428,374 8,896,331 7,379,918 5,287,454 4,925,126 Common shares outstanding, in thousands . . . . . . . . . . . . 1,178 1,149 1,146 1,146 1,146 Shareholders' equity per outstanding share . . . . . . . . . . $ 8,854 $ 7,745 $ 6,437 $ 4,612 $ 4,296 =========== =========== =========== =========== ==========
(1) Includes a charge of $75,348 representing the effect of the change in federal income tax rates on deferred taxes applicable to unrealized appreciation. (2) Excludes borrowings of commercial and consumer finance businesses. 8 10 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Net earnings for each of the past three years are disaggregated in the table that follows. Amounts are after deducting minority interests and taxes.
(dollars in millions) ---------------------------------- 1993 1992 1991 ------- ------- ------- Insurance Segment: Underwriting . . . . . . . . . . . . . . . . . . . . . . . . . $ 19.2 $(71.1) $(77.2) Investment income . . . . . . . . . . . . . . . . . . . . . . . 321.3 305.8 285.1 Realized investment gain . . . . . . . . . . . . . . . . . . . 362.7 36.1 73.8 ------ ------ ------ Total - Insurance Segment . . . . . . . . . . . . . . . . 703.2 270.8 281.7 Non-Insurance business segments . . . . . . . . . . . . . . . . . . 133.3 123.4 104.2 Other businesses . . . . . . . . . . . . . . . . . . . . . . . . . 32.8 30.7 27.6 Realized investment gain (loss) not included above . . . . . . . . (6.1) 23.4 50.3 All other except interest expense . . . . . . . . . . . . . . . . . 6.8 21.9 33.3 Interest expense * . . . . . . . . . . . . . . . . . . . . . . . . (35.6) (62.9) (57.2) ------ ------ ------ Earnings before effect of change in income tax rate and cumulative effect of accounting change . . . . . . . . . 834.4 407.3 439.9 Effect of change in income tax rate on deferred taxes applicable to unrealized appreciation ** . . . . . . . . . . (75.3) -- -- Cumulative effect of change in accounting for income taxes ** . . . (71.0) -- -- ------- ------- ------- Net earnings . . . . . . . . . . . . . . . . . . . . . . . $688.1 $407.3 $439.9 ====== ====== ======
* Interest expense incurred by commercial and consumer finance businesses is not reflected as "Interest expense" but instead is reflected in amounts shown for "Other businesses". ** For a discussion regarding these items refer to Notes 1(b) and 6 to the Consolidated Financial Statements. The business segment data (Note 15 to the Consolidated Financial Statements) should be read in conjunction with this discussion. INSURANCE UNDERWRITING The after-tax figures shown above for Insurance underwriting derive from the following:
(dollars in millions) --------------------------------- 1993 1992 1991 ------- ------- ------- Underwriting gain (loss): Primary or direct insurance . . . . . . . . . . . . . . . . . . $ 12.7 $ 8.0 $ (2.5) Reinsurance assumed . . . . . . . . . . . . . . . . . . . . . . 17.3 (117.0) (117.1) ------- ------- ------- Underwriting gain (loss) -- pre-tax . . . . . . . . . . . . 30.0 (109.0) (119.6) Applicable income taxes . . . . . . . . . . . . . . . . . . . . (10.2) 37.7 42.2 Applicable minority interest . . . . . . . . . . . . . . . . . (0.6) 0.2 0.2 ------- ------- ------- After-tax underwriting gain (loss) . . . . . . . . . . . . . . . . $ 19.2 $ (71.1) $ (77.2) ======= ======= =======
The Berkshire Hathaway Insurance Group engages in both insurance and reinsurance of property/casualty risks. In its insurance activities, as distinguished from its reinsurance activities, its members assume risks of loss from persons primarily and directly subject to the risks. In its reinsurance activities, the members assume defined portions of similar or dissimilar risks to which other insurers and reinsurers have subjected themselves in their own insuring activities. A significant marketing strategy followed by all Insurance Group members is the maintenance of above average capital strength. Statutory surplus as regards policyholders of the Berkshire Hathaway Insurance Group increased to approximately $11.5 billion at year-end 1993. This extraordinary capital strength creates opportunities for Berkshire Group members to negotiate and enter into contracts of insurance specially designed to meet unique needs of sophisticated insurance and reinsurance buyers. 9 11 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INSURANCE UNDERWRITING (CONTINUED) For purposes of this Discussion, premiums and losses and loss expenses amounts are stated net of reinsurance ceded. Reinsurance Assumed Underwriting results, stated on the basis of generally accepted accounting principles ("GAAP"), with respect to the reinsurance assumed business for the past three years are summarized in the following table.
(dollars in millions) ----------------------------------------------------------- 1993 1992 1991 -------------- -------------- -------------- Amount % Amount % Amount % ------ ----- ------ ----- ------ ----- Premiums written . . . . . . . . . . . . . . . . . . . $ 534.3 $ 607.2 $ 667.0 ======= ======= ======= Premiums earned . . . . . . . . . . . . . . . . . . . . $ 448.0 100.0 $ 511.5 100.0 $ 635.4 100.0 ------- ----- ------- ----- ------- ----- Losses and loss expenses . . . . . . . . . . . . . . . 356.3 79.5 589.7 115.3 731.9 115.2 Underwriting expenses . . . . . . . . . . . . . . . . . 74.4 16.6 38.8 7.6 20.6 3.2 ------- ------ ------- ------ ------- ----- Total losses and expenses . . . . . . . . . . . . . . . 430.7 96.1 628.5 122.9 752.5 118.4 ------- ===== ------- ===== ------- ===== Underwriting gain (loss) -- pre-tax . . . . . . . . . . $ 17.3 $(117.0) $(117.1) ======= ======= =======
Disaggregated data follows for these activities.
(dollars in millions) --------------------------------------------------------------------------------- Premiums Earned Underwriting Gain (Loss) Year-End Reserves* ---------------------- ------------------------- -------------------------- 1993 1992 1991 1993 1992 1991 1993 1992 1991 ------ ------ ------ ------- ------- ------ ------ ------ ------ Retroactive reinsurance and structured settlements . . . . . $ 43.8 $145.5 $363.2 $(64.3) $ (66.0) $ (49.0) $1,441.0 $1,498.0 $1,573.9 Other reinsurance . . . . . . . . 404.2 366.0 272.2 81.6 (51.0) (68.1) 1,026.7 917.2 708.3 ------ ------ ------ ------ ------- ------- -------- -------- -------- $448.0 $511.5 $635.4 $ 17.3 $(117.0) $(117.1) $2,467.7 $2,415.2 $2,282.2 ====== ====== ====== ====== ======= ======== ======== ======== ========
* Net unpaid losses and loss adjustment expenses Premiums Earned Premiums earned from retroactive reinsurance -- coverages of past loss events -- amounted to $21 million in 1993, $144 million in 1992 and $362 million in 1991. These contracts were few in number but produced sizable premiums. Increasing competition in the retroactive reinsurance markets resulted in fewer opportunities to write such business during 1993 and 1992. In 1993, premiums earned from structured settlement contracts totalled about $22 million, reflecting increased marketing efforts which began early in the year. Premiums earned from other reinsurance activities are principally derived from excess of loss contracts, including catastrophe policies, and quota share contracts. The increase in premiums earned in 1992 over 1991 was largely attributed to increased amounts earned under catastrophe excess of loss contracts. The increase in premiums earned in 1993 over 1992 was primarily attributed to amounts earned under quota share treaties. Underwriting Gain/Loss The underwriting loss from retroactive reinsurance coverages amounted to $41 million for 1993, $44 million for 1992 and $26 million for 1991, reflecting principally the amortization of deferred charges re reinsurance assumed. See Note 1(g) to the Consolidated Financial Statements for information with respect to these charges. Underwriting losses from structured settlement activities were between $22 and $23 million for each of the past three years. These losses reflect accounting procedures which employ time-value-of-money concepts -- amortization of deferred charges re reinsurance assumed and accretion of discounted structured settlement liabilities. The amortization and accretion are reported as losses incurred, and thus, because there is no related premium income, as underwriting losses. Amortization and accretion charges of about $65 million are expected in 1994. 10 12 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INSURANCE UNDERWRITING (CONTINUED) Reinsurance Assumed (continued) In each of the past three years, the net underwriting results from other reinsurance activities were significantly influenced by the magnitude of losses incurred under catastrophe excess of loss contracts. In 1993, catastrophe losses incurred totalled about $14 million (deriving from a variety of loss events occurring in prior years). In 1992 and 1991, catastrophe losses incurred were about $125 million (Hurricane Andrew) and about $38 million (Typhoon Mireille), respectively. As a result, this business generated an underwriting gain of about $110 million during 1993 as compared to nearly breakeven results in the prior two years. Little comfort should be gained from either (a) the lack of catastrophe losses in 1993 as compared with 1992 or 1991 or (b) the current expectation that the January 1994 Los Angeles earthquake will only produce a nominal loss. The underwriting gains produced by this business in any given year can be easily exceeded by losses in the next. Thus periodic underwriting results were and are expected to be subject to substantial volatility. Berkshire's management, however, is willing to accept such volatility, provided that the prospect of long term profitability is favorable. The non-catastrophe reinsurance business produced an underwriting loss of about $28 million for 1993. In 1992 and 1991, the preponderance of net underwriting losses reported as "other reinsurance" derived from non-catastrophe contracts. Underwriting results from other reinsurance for 1991 are net of credits for favorable development totalling about $30 million with respect to liabilities under pre-1990 quota share reinsurance contracts. Underwriting results in 1993 and 1992 reflect relatively minor amounts of loss development. In pricing most non-catastrophe reinsurance contracts, the concept of the time-value-of-money is an important consideration due to the anticipated extended claim payment period -- or "tail". This is especially true with respect to pricing reinsurance of certain casualty or liability coverages, the premiums for which are based in significant part on time discounting of expected losses. Losses and loss expenses are established for these contracts on an undiscounted basis, thus resulting in underwriting losses for financial reporting purposes. This business is accepted, nonetheless, because of the large amounts of investable policyholder funds (or "float") that it produces. The estimated liability for unpaid losses and loss expenses from reinsurance assumed businesses, as shown in the preceding table, totalled about $2.5 billion at the end of 1993, an increase of about $1.0 billion since the end of 1990. Subsequent loss development with respect to a liability of this magnitude is another factor which may cause substantial volatility in future periodic earnings. Primary or Direct Insurance Underwriting A summary follows of the combined underwriting results, stated on a GAAP basis, of the Berkshire Hathaway Insurance Group's primary or direct insurance operations.
(dollars are in millions) ---------------------------------------------------------- 1993 1992 1991 ---------------- -------------- --------------- Amount % Amount % Amount % ------ ----- ------ ----- ------ ----- Premiums written . . . . . . . . . . . . . $208.4 $132.4 $135.5 ====== ====== ====== Premiums earned . . . . . . . . . . . . . . $208.3 100.0 $152.8 100.0 $141.0 100.0 ------ ----- ------ ----- ------ ----- Losses and loss expenses . . . . . . . . . 99.8 47.9 98.0 64.1 95.2 67.5 Underwriting expenses . . . . . . . . . . . 95.8 46.0 46.8 30.7 48.3 34.3 ------ ----- ------- ----- ------ ----- Total losses and expenses . . . . . . . . . 195.6 93.9 144.8 94.8 143.5 101.8 ------ ===== ------ ===== ------ ===== Underwriting gain (loss) -- pre-tax . . . . $ 12.7 $ 8.0 $ (2.5) ====== ====== ======
Favorable loss development, discussed on the following pages, of beginning-of-the-year loss reserves represented respectively, 20.0%, 23.8% and 16.9% of premiums earned in 1993, 1992 and 1991. Without such credits, total losses and expenses as a percentage of premiums earned were: 1993 -- 113.9%, 1992 -- 118.6%, and 1991 -- 118.7%. 11 13 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INSURANCE UNDERWRITING (CONTINUED) Primary or Direct Insurance Underwriting (continued) Primary or direct insurance underwriting results for 1993 include Central States Indemnity Co. of Omaha ("CSI"). Berkshire acquired 82% of CSI at the end of 1992. CSI, which underwrites credit card credit insurance for individuals, produced premiums earned of $68.5 million and a net underwriting gain of $4.9 million for 1993. CSI's business differs substantially from the insurance business underwritten by the other members of the Insurance Group. CSI's premiums derive from a high volume of small dollar premium transactions generated through credit card issuers. CSI's underwriting expenses are normally much greater than underwriting expenses of the other Insurance Group members. On the other hand, CSI's losses and loss expenses incurred, as percentages of premiums earned are substantially lower than for the other primary or direct underwriting units. Overall, periodic underwriting results from this business are anticipated to be less volatile than the other primary or direct insurance operations. Premiums earned by Berkshire's other primary or direct insurance businesses totalled $140 million, $153 million and $141 million for 1993, 1992 and 1991, respectively. Those businesses produced net underwriting gains of about $8 million for 1993 and 1992 compared to a loss of $2.5 million in 1991. The other primary or direct insurance activities include the "traditional" business, directed from National Indemnity Company's Omaha offices. This business represents principally casualty coverages for commercial accounts. The commercial casualty/professional liability/specialty risk operations located in Stamford, Connecticut, enter into "tailored" insurance contracts for insureds presenting risks unusual in nature and/or especially large in amount. The homestate companies underwrite various commercial coverages for standard risks located predominantly in their home states -- Nebraska, Kansas and Colorado. In 1992, the homestate units began to expand their operations by underwriting similar risks located outside their home states. Additional expansion of the homestate business is planned in 1994. Cypress Insurance Company, a specialty carrier, underwrites workers' compensation risks in a highly competitive market environment in California. Each of the units employ disciplined underwriting approaches. Members are encouraged to reject underpriced risks without regard to volume considerations. As a result of this strategy, during periods of abundant industry insuring capacity, as has prevailed since 1986, competitors write increasing amounts of primary or direct insurance by charging lower prices than those of the Group. Historically, these lower prices have led competitors to exit the markets as a result of incurring unacceptable losses. Management believes this situation will recur at an unpredictable future time, leading to increases of primary or direct insurance offerings to the Group. However, management does not foresee any significant changes in current market conditions which would soon reverse the current trend of lower premium volume. Summarized below is loss and loss expense data from primary or direct insurance underwriting:
(dollars in millions) ------------------------------- 1993 1992 1991 ------ ------ ------ Unpaid losses and loss expenses at beginning of year . . . . $563.2 $566.9 $586.6 ------ ------ ------ Incurred losses recorded: Current year occurrences . . . . . . . . . . . . . . . . . 141.4 134.4 119.0 All prior years' occurrences . . . . . . . . . . . . . . . (41.6) (36.4) (23.8) ------ ------ ------ 99.8 98.0 95.2 ------ ------ ------ Payments with respect to: Current year occurrences . . . . . . . . . . . . . . . . . 32.6 42.1 23.3 All prior years' occurrences . . . . . . . . . . . . . . . 101.2 86.1 91.6 ------ ------ ------ 133.8 128.2 114.9 ------ ------ ------ Unpaid losses and loss expenses at end of year . . . . . . . $529.2 $536.7* $566.9 ====== ====== ======
* Excludes unpaid losses and loss expenses of Central States Indemnity Co. of Omaha -- acquired by Berkshire at the end of 1992. 12 14 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INSURANCE UNDERWRITING (CONTINUED) Primary or Direct Insurance Underwriting (continued) Credits against incurred losses were recorded in each of the last three years for "all prior year occurrences." They are corrections of estimation error that are credited or charged to earnings in the year made. Relating these credits for each year to the related estimated unpaid amounts at the beginning of the respective year, the "savings" were: 1993 -- 7.4%, 1992 -- 6.4%, and 1991 -- 4.1%. The favorable development recorded in each of the most recent three years related principally to the traditional commercial automobile business of the National Indemnity Primary Group. While the trend of favorable development recognized in recent years is encouraging, the nature of estimating losses is inherently imprecise, particularly with respect to losses which are reported and settled over lengthy periods of time. In the future, additional information will be revealed, including reports of additional cases of an unknown number and magnitude for pre-1994 losses. A provision for late reported cases is included in the 1993 year-end estimates of unpaid losses and loss expenses which in the aggregate is subject to favorable or unfavorable development recognizable in future years. INSURANCE SEGMENT INVESTMENT INCOME Following is a summary of Insurance Group net investment income for the past three years.
(dollars in millions) ---------------------------------------- 1993 1992 1991 -------- ------- ------- Investment income before taxes . . . . . . . . . $375.9 $355.1 $331.8 Applicable income taxes . . . . . . . . . . . . . 51.3 46.5 43.8 Applicable minority interest . . . . . . . . . . 3.3 2.8 2.9 ------ ------ ------ Investment income after taxes and minority interest $321.3 $305.8 $285.1 ====== ====== ======
Invested assets increased in each of the past three years. In the three year period, Berkshire contributed over $200 million additional capital to the Group. Reinvested earnings of the Group for that period amounted to approximately $1 billion. That figure excludes charges related to changes in accounting for income taxes. See Note 6 to Consolidated Financial Statements for additional information about the nature of these charges. Contributing to a further increase in invested assets was about a $1.1 billion increase during the past three year period in the amount of "float" from policyholder funds. That term denotes the sum of unpaid losses, unpaid loss adjustment expenses and unearned premiums, less the aggregate of agents' balances receivable, amounts recoverable as reinsurance on paid and unpaid losses, deferred policy acquisition costs and deferred charges re reinsurance assumed. The net amount of float was approximately $1.63 billion at the end of 1990, $2.07 billion at the end of 1991, $2.51 billion at the end of 1992 and $2.76 billion at the end of 1993. A factor which offsets the increase in amounts of invested assets was the disposal of certain high yield bond investments during 1993 and 1992. 13 15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NON-INSURANCE BUSINESS SEGMENTS A summary follows of results to Berkshire from these identified business segments for the past three years.
(dollars in millions) ------------------------------------------------------------ 1993 1992 1991 -------------- -------------- --------------- Amount % Amount % Amount % -------- ----- -------- ----- -------- ----- Revenues . . . . . . . . . . . . . . . . . . . . . $1,443.1 100.0 $1,284.5 100.0 $1,204.8 100.0 Cost and expenses . . . . . . . . . . . . . . . . . 1,218.3 84.4 1,074.6 83.7 1,028.7 85.4 -------- ----- -------- ----- -------- ----- Operating profit . . . . . . . . . . . . . . . . . 224.8 15.6 209.9 16.3 176.1 14.6 Income taxes . . . . . . . . . . . . . . . . . . . 87.8 6.1 83.2 6.5 69.0 5.7 Minority Interest . . . . . . . . . . . . . . . . . 3.7 0.3 3.3 0.2 2.9 0.2 --------- ----- --------- ----- --------- ----- Contribution to net earnings . . . . . . . . . . . $ 133.3 9.2 $ 123.4 9.6 $ 104.2 8.7 ======== ===== ======== ===== ======== =====
A comparison of revenues and operating profits between 1993, 1992 and 1991 for each of the seven identifiable non-insurance business segments follows.
(dollars in millions) ------------------------------------------------------ Operating Profit Revenues Operating Profits as a % of Revenues ---------------------------- ----------------------- ---------------------- Segment 1993 1992 1991 1993 1992 1991 1993 1992 1991 - ------- -------- ------ ------- ------ ------- ------- ----- ----- ----- Candy . . . . . . . . . . . . . . . $ 201.2 $ 197.2 $ 196.0 $ 40.3 $ 41.4 $ 41.4 20.0 21.0 21.1 Encyclopedias, other reference material 198.8 246.1 311.5 19.4 28.2 22.2 9.8 11.5 7.1 Home cleaning systems . . . . . . . . . 193.9 190.1 192.0 40.9 37.7 37.3 21.1 19.8 19.4 Home furnishings . . . . . . . . . . . 209.1 186.1 171.0 21.1 16.7 13.9 10.1 9.0 8.2 Newspaper . . . . . . . . . . . . . . . 145.5 139.7 130.3 50.4 47.3 36.6 34.6 33.8 28.0 Shoes . . . . . . . . . . . . . . . . . 372.1 215.0 104.0 40.0 25.6 12.5 10.7 11.9 12.0 Uniforms . . . . . . . . . . . . . . . 122.5 110.3 100.0 12.7 13.0 12.2 10.4 11.8 12.2 -------- -------- -------- ------ ------ ------ $1,443.1 $1,284.5 $1,204.8 $224.8 $209.9 $176.1 ======== ======== ======== ====== ====== ======
1993 compared to 1992 Revenues from the seven identifiable non-insurance business segments of $1,443.1 million increased $158.6 million (12.3%) from the prior year. The overall operating profit from these business segments of $224.8 million increased $14.9 million (7.1%). The "shoes" segment and the "encyclopedias, other reference material" segment experienced the most significant variations in comparative results between 1993 and 1992. The following discussion will focus primarily on those segments comparative results. Shoes As reflected in the preceding table, the most significant revenue increase occurred within this segment. Much of the increase arose as a result of two significant acquisitions. Just prior to the end of 1992 this segment was comprised solely of H. H. Brown Shoe Company, Inc. ("H. H. Brown"), a manufacturer and distributor of work, safety and casual footwear. In December 1992, the acquisition for cash of Lowell Shoe, Inc. ("Lowell") was completed. Lowell manufactures and markets women's casual, service and nurses' footwear. Lowell accounted for almost $90 million of the revenue increase between years. A second, larger acquisition was completed on November 7, 1993, when Berkshire consummated a merger with the Dexter Shoe Companies ("Dexter"). Dexter is a manufacturer of men's and women's dress, casual and athletic footwear. In addition, Dexter operates seventy-seven retail outlet stores located primarily in the northeastern United States. Dexter's shoes are produced at five production facilities in Maine as well as two plants located in Puerto Rico. The merger was accounted for as a purchase and Dexter's results of operations have been included from the date of the merger, accounting for approximately $30 million of the increase in comparative revenues. H. H. Brown accounted for the remainder of the increase in the shoe segment revenues. Revenues increased approximately 17% as compared to the prior year. Much of the increase can be attributed to the popularity of work shoes, as this business continues to benefit from reduced demand for athletic shoes. In 1994, it is expected that the combined revenues from the three businesses now comprising this segment will exceed $550 million. 14 16 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NON-INSURANCE BUSINESS SEGMENTS (continued) 1993 compared to 1992 (continued) Shoes (continued) Operating profit as a percentage of sales declined between years. This decline resulted from non-recurring charges recorded by Lowell, primarily in connection with the implementation of more stringent inventory control procedures. Excluding these charges of approximately $3.8 million, operating profit as a percentage of revenues was relatively unchanged between years. Encyclopedias, Other Reference Material During 1993, revenues from the "encyclopedias, other reference material" segment declined $47.3 million (19.2%). The decline is primarily a result of the continuation of a reduction, which began in 1989, in World Book and Childcraft unit sales. Since 1989, unit sales of these products have declined almost 50%. Management cannot predict whether or not unit sales will rebound. Management is dealing with the causes that they believe have contributed to the decline. The entire printed encyclopedia industry has experienced substantial reductions in unit sales during this period. However, it has been widely reported that CD-ROM technology has contributed to the reduced demand for printed encyclopedias. Over the last few years the number of home computers equipped with CD-ROM hardware has increased dramatically and this increase is expected to continue. At the same time, several CD-ROM versions of encyclopedias have been introduced. A CD-ROM version of World Book was developed in 1989 and has since been marketed on a limited basis. It is expected that an enhanced version of this product will be marketed, beginning in April 1994, both in conjunction with printed World Book products as well as on a stand alone basis. What impact this new product will have on future business cannot be stated with any degree of certainty. This segment's 1993 operating profits are net of a non-recurring charge of approximately $3.3 million related to a decision to vacate space currently under lease by the encyclopedia publishing group. This group will relocate to available space in a building currently utilized by the encyclopedia sales division. Excluding this charge, operating profits in 1993 declined 19.5%. Such decline is largely attributable to the aforementioned decline in unit sales of encyclopedias. Other Non-Insurance Business Segments Revenues from the home furnishings segment increased in 1993 by $23.0 million (12.4%) over the prior year. Increases were achieved in all major product categories. Revenues during the last eight months of 1993 also benefitted from the opening of a factory outlet store adjacent to the Nebraska Furniture Mart ("NFM") for manufacturers' closeouts and discontinued product lines. A 100,000 square foot appliance and electronics superstore, also to be located adjacent to the NFM, is planned for opening during the third quarter of 1994. The new store will add such products as music compact discs and an expanded computer software line to NFM's already large selection of electronics and appliances. It is expected that NFM's revenues will increase rather significantly beginning in the fourth quarter of 1994 as a result of this addition. However, it is also anticipated that this lower margin business will cause future overall operating profits as a percentage of sales to decline somewhat as NFM plans to dramatically increase its market share through aggressive pricing. The newspaper segment's 1993 revenues of $145.5 million increased $5.8 million (4.1%) over the prior year. Both advertising and circulation revenues increased modestly between years. Operating profits increased $3.1 million (6.6%) when compared to the prior year. The favorable comparative results arose largely because in 1992 a special charge of $2.9 million was recorded relating to the buy out of employees with lifetime job guarantees. During 1993, the Buffalo News began to derive benefits from the buy outs which had taken place during each of the past two years. However, somewhat offsetting this favorable development were increased costs per employee for health care and other employee benefits. The Buffalo News results also continued to be favorably impacted by newsprint costs which for the past several years have declined or remained relatively unchanged. 15 17 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 1993 compared to 1992 (continued) Other Non-Insurance Business Segments (continued) Revenues from the home cleaning systems segment were $3.8 million (2.0%) above the prior year. Domestic unit sales of Kirby home cleaning systems increased 5% as compared to the prior year while foreign unit sales declined about 14%. Offsetting the effect on revenues of the decline in foreign unit sales was the fact that the Generation III model system, with its added features and higher price, accounted for all foreign sales in 1993 whereas during 1992 the model was not available in all foreign markets for the full year. The candy segment experienced a slight decrease in volume during 1993 as pounds of candy sold decreased 1% from the prior year. A 3% price increase at the beginning of the year more than offset the effect of reduced volume on revenues. During 1993, See's intensified its marketing efforts in its mail order and quantity order programs. The expanded distribution of its competitive mail order catalog and other marketing efforts resulted in an improvement in mail orders and quantity order sales during 1993. The uniform segment's revenue increased $12.2 million (11.1%) in 1993. The increased revenues are largely attributable to acquisitions during the second half of 1992 of ten additional retail locations and a manufacturer of specialty uniforms. Thus, results for 1993 reflect a full year for these businesses as compared to a partial year in 1992. 1992 compared to 1991 Revenues from the non-insurance business segments increased $79.7 million (6.6%) in 1992 as compared to 1991. The acquisition of H. H. Brown in July 1991, more than accounts for the increase as full year 1992 results are being compared to six month results for 1991. H. H. Brown's 1992 revenues of $215.0 million exceeded 1991 half year revenues by $111.0 million. Offsetting this increase was a reduction in World Book revenues of $65.4 million (21.0%). World Book's reduced revenues resulted in part from a significant decline in unit sales. (See preceding section regarding comparative 1993 vs 1992 results for a discussion regarding the decline in World Book unit sales.) Reduced revenues of the "encyclopedias, other reference material" segment also arose from the discontinuance during December 1991 of the syndication business. This business consisted of direct mail marketing of primarily non-educational products. Revenues from Berkshire's other five reportable segments were $823.4 million during 1992 compared to $789.3 million during 1991. None of the five segments had revenue increases in excess of 10.5% and only the home cleaning systems segment with a decline of 1% had lower revenues in 1992 as compared to 1991. Operating profits of $209.9 million during 1992 were $33.8 million (19.2%) greater than in 1991. The inclusion of H. H. Brown results for a full year in 1992 vs only six months of 1991 accounts for almost 40% of the change between years. Favorable comparative operating profit results were also achieved by all of the other reportable segments except for See's where comparative operating profits were roughly unchanged between years. BUSINESS OTHER THAN IDENTIFIED SEGMENTS
(dollars in millions) ------------------------------- 1993 1992 1991 ------ ------ ------ Revenues . . . . . . . . . . . . . . $595.5 $567.7 $524.4 ====== ====== ====== Operating profit . . . . . . . . . . $ 54.8 $ 54.3 $ 49.3 Income taxes . . . . . . . . . . . 20.8 21.8 19.3 Minority interest . . . . . . . . . 1.2 1.8 2.4 ------ ------ ------ Contribution to net earnings . . . . $ 32.8 $ 30.7 $ 27.6 ====== ====== ======
The above represent aggregate data for businesses that numbered 23 in 1993. Berkshire management believes that narrative discussion of the results of the constituent businesses would not yield significant benefit to investors or others, particularly in view of the relative consistency of the year-to-year aggregate data. 16 18 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTEREST EXPENSE In January 1993, the redemption of Berkshire's Zero Coupon Convertible Subordinated Notes was completed. Including redemptions of other term debt which occurred during 1992, outstanding term debt has been reduced by about $650 million from the level which existed at December 31, 1991. Somewhat offsetting these reductions are increases in outstanding borrowings under investment agreements which have increased approximately $520 million during the same period. The resulting lower interest costs from reduced levels of borrowings along with the fact that interest expense for 1992 includes premiums paid to redeem term debt of $16.2 million and a charge of $6.3 million representing the writeoff of deferred financing costs related to the aforementioned Zero Coupon Convertible Subordinated Notes account for the decline in 1993 interest expense as compared to the prior year. REALIZED INVESTMENT GAIN During the fourth quarter of 1993, an insurance subsidiary of the Company sold one million common shares of its investment in Capital Cities/ABC, Inc. ("Capital Cities") in connection with that Company's offer to buy from its shareholders up to two million of its common shares. Prior to the sale and since 1986, Berkshire subsidiaries owned three million shares of Capital Cities or approximately 18% of that Company's outstanding stock. Berkshire's pre-tax gain from this transaction was $457.5 million. Realized investment gain has been a recurring element in Berkshire's net earnings for many years. The amount -- recorded when appreciated securities are sold -- tends to fluctuate significantly from period to period, with a meaningful effect upon Berkshire's consolidated net earnings. But, the amount of realized investment gain for any given period has no predictive value, and variations in amount from period to period have no practical analytical value, particularly in view of the unrealized price appreciation now existing in Berkshire's consolidated investment portfolio. LIQUIDITY AND CAPITAL RESOURCES Berkshire's Consolidated Balance Sheet as of December 31, 1993, reflects continuing capital strength. In the past three years, Berkshire shareholders' equity has increased from approximately $5.3 billion at December 31, 1990 to approximately $10.4 billion at December 31, 1993. In that three-year period, realized and unrealized securities gains increased equity capital by approximately $3.6 billion, and reinvested earnings, other than realized securities gains, were about $1.0 billion. 17 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, 1993 and 1992, and the related consolidated statements of earnings, and cash flows for each of the three years in the period ended December 31, 1993. 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, 1993 and 1992, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1993 in conformity with generally accepted accounting principles. As discussed in Note 1 to the consolidated financial statements, in 1993 the Company changed its method of accounting for income taxes and investments to conform with recent pronouncements of the Financial Accounting Standards Board. DELOITTE & TOUCHE Omaha, Nebraska March 7, 1994 18 20 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) BERKSHIRE HATHAWAY INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollars in thousands except per share amounts)
DECEMBER 31, ------------------------------ 1993 1992 ---------- ---------- ASSETS Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,838,103 $ 1,127,996 Investments: Obligations with fixed maturities . . . . . . . . . . . . . . . . . . . . 2,108,602 2,033,681 Marketable equity securities . . . . . . . . . . . . . . . . . . . . . . 12,540,197 11,652,654 Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 525,285 608,352 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 378,386 282,141 Properties and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . 259,736 224,510 Assets of commercial and consumer finance businesses . . . . . . . . . . . . . 840,744 442,671 Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,029,416 759,993 ----------- ----------- $19,520,469 $17,131,998 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Losses and loss adjustment expenses . . . . . . . . . . . . . . . . . . . . . . $ 3,128,809 $ 3,151,607 Unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315,750 231,813 Accounts payable, accruals and other liabilities . . . . . . . . . . . . . . . 738,897 627,296 Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,030,189 2,517,186 Borrowings under investment agreements and other debt . . . . . . . . . . . . . 972,389 1,154,697 Liabilities of commercial and consumer finance businesses . . . . . . . . . . . 723,782 423,545 ----------- ----------- 8,909,816 8,106,144 ----------- ----------- Minority shareholders' interests . . . . . . . . . . . . . . . . . . . . . . . 182,279 129,523 ----------- ----------- Shareholders' equity: Common stock of $5 par value. Authorized 1,500,000 shares; Issued 1,381,308 shares in 1993; 1,377,364 shares in 1992 . . . . . . . . 6,907 6,887 Capital in excess of par value . . . . . . . . . . . . . . . . . . . . . . . 656,074 182,264 Unrealized appreciation of marketable equity securities, net . . . . . . . . 5,412,652 5,047,219 Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,390,375 3,702,254 ----------- ----------- 10,466,008 8,938,624 Less common stock in treasury, at cost (203,558 shares in 1993; 228,761 shares in 1992) . . . . . . . . . . . . . . 37,634 42,293 ----------- ----------- Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . 10,428,374 8,896,331 ----------- ----------- $19,520,469 $17,131,998 =========== ===========
See accompanying Notes to Consolidated Financial Statements 19 21 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) BERKSHIRE HATHAWAY INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (dollars in thousands except per share amounts)
YEAR ENDED DECEMBER 31, ------------------------------------------ 1993 1992 1991 ---------- ---------- ---------- REVENUES: Sales and service revenues . . . . . . . . . . . . . . . . . $1,962,862 $1,774,436 $1,651,134 Insurance premiums earned . . . . . . . . . . . . . . . . . 656,341 664,293 776,413 Interest and dividend income . . . . . . . . . . . . . . . . 479,806 495,409 481,793 Realized investment gain . . . . . . . . . . . . . . . . . . 546,422 89,937 192,478 Sundry income . . . . . . . . . . . . . . . . . . . . . . . 8,052 5,265 4,178 ---------- ---------- ---------- 3,653,483 3,029,340 3,105,996 ---------- ---------- ---------- COST AND EXPENSES: Cost of products and services sold . . . . . . . . . . . . . 1,180,642 1,049,721 939,011 Insurance losses and loss adjustment expenses . . . . . . . 456,098 687,625 827,169 Insurance underwriting expenses . . . . . . . . . . . . . . 169,367 85,628 68,837 Selling, general and administrative expenses . . . . . . . . 576,909 531,253 556,146 Interest expense . . . . . . . . . . . . . . . . . . . . . . 80,749 124,496 121,847 ---------- ---------- ---------- 2,463,765 2,478,723 2,513,010 ---------- ---------- ---------- EARNINGS BEFORE INCOME TAXES, MINORITY INTEREST AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE . . . . . . . . . 1,189,718 550,617 592,986 Income taxes - Other than effect of change in income tax rate on deferred taxes applicable to unrealized appreciation . . . . . . . . . . . . . . . . . . . . . 345,302 138,089 142,058 Effect of change in income tax rate on deferred taxes applicable to unrealized appreciation . . . . . . 75,348 -- -- Minority interest . . . . . . . . . . . . . . . . . . . . . . 9,963 5,243 11,020 ----------- ----------- ---------- EARNINGS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE . . . . 759,105 407,285 439,908 Cumulative effect of change in accounting for income taxes . . . . . . . . . . . . . . . . . . . . . . . . (70,984) -- -- ---------- ---------- ---------- NET EARNINGS . . . . . . . . . . . . . . . . . . . . . . . . . $ 688,121 $ 407,285 $ 439,908 ========== ========== ========== Average shares outstanding . . . . . . . . . . . . . . . . . 1,156,243 1,146,492 1,146,441 ========= ========== ========== EARNINGS PER SHARE: Before cumulative effect of accounting change . . . . . . . . $656 $355 $384 Cumulative effect of change in accounting for income taxes . . . . . . . . . . . . . . . . . . . . . . . (61) -- -- ---- ----- ----- Net earnings . . . . . . . . . . . . . . . . . . . . . . . . $595 $355 $384 ==== ==== ====
See accompanying Notes to Consolidated Financial Statements 20 22 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) BERKSHIRE HATHAWAY INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands)
YEAR ENDED DECEMBER 31, ----------------------------------------- 1993 1992 1991 ---------- ----------- ---------- Cash flows from operating activities: Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 688,121 $ 407,285 $ 439,908 Adjustments to reconcile net income to cash flows from operating activities: Cumulative effect of accounting change . . . . . . . . . 70,984 -- -- Effect of change in income tax rate on deferred taxes applicable to unrealized appreciation . . . . . . . 75,348 -- -- Depreciation and amortization . . . . . . . . . . . . . 50,180 41,074 37,175 Realized investment gain . . . . . . . . . . . . . . . . (546,422) (89,937) (192,478) Minority interests . . . . . . . . . . . . . . . . . . . 9,963 5,243 11,020 Changes in assets and liabilities before effects from business acquisitions: Losses and loss adjustment expenses . . . . . . . . . (22,798) 102,789 798,784 Deferred charges re reinsurance assumed . . . . . . . 16,171 46,931 (178,328) Unearned premiums . . . . . . . . . . . . . . . . . . 83,937 75,274 26,109 Receivables . . . . . . . . . . . . . . . . . . . . . 134,077 239,428 (177,043) Accounts payable, accruals and other liabilities . . . 34,996 150,615 (6,067) Income taxes . . . . . . . . . . . . . . . . . . . . . 107,931 29,004 (41,039) Other . . . . . . . . . . . . . . . . . . . . . . . . . . 23,681 (10,521) (8,868) ---------- ---------- --------- Net cash flows from operating activities . . . . . . 726,169 997,185 709,173 ---------- ---------- --------- Cash flows from investing activities: Purchases of fixed maturity investments . . . . . . . . . . (272,249) (258,617) (377,332) Purchases of marketable equity securities . . . . . . . . . (858,879) (913,037) (809,633) Proceeds from sales of fixed maturity investments . . . . . -- 284,301 292,010 Proceeds from redemptions and maturities of fixed maturity investments . . . . . . . . . . . . . . . . . . 318,881 371,514 399,120 Proceeds from sales of marketable equity securities . . . . 1,188,510 100,270 522,701 Acquisition of businesses . . . . . . . . . . . . . . . . . -- (119,948) (161,043) Loans and investments originated in finance businesses . . . (866,843) (160,261) (163,803) Principal collection on loans and investments originated in finance businesses . . . . . . . . . . . . 269,345 127,913 124,760 Other . . . . . . . . . . . . . . . . . . . . . . . . . 19,578 (5,294) (11,266) ---------- ---------- --------- Net cash flows from investing activities . . . . . . (201,657) (573,159) (184,486) ---------- ---------- --------- Cash flows from financing activities: Proceeds from borrowings of finance businesses . . . . . . . 591,853 38,862 811 Proceeds from other borrowings . . . . . . . . . . . . . . . 1,264,972 961,565 455,972 Repayments of borrowings of finance businesses . . . . . . . (316,318) (84,792) (2,625) Repayments of other borrowings . . . . . . . . . . . . . . . (1,399,901) (906,964) (462,288) Other . . . . . . . . . . . . . . . . . . . . . . . . . (2,860) (2,334) (1,581) ---------- ---------- -------- Net cash flows from financing activities . . . . . . 137,746 6,337 (9,711) ---------- ---------- -------- Increase in cash and cash equivalents . . . . . . . 662,258 430,363 514,976 Cash and cash equivalents at beginning of year . . . . . . . . 1,192,363 762,000 247,024 ---------- ---------- --------- Cash and cash equivalents at end of year* . . . . . . . . . . $1,854,621 $1,192,363 $ 762,000 ========== ========== ========== * Cash and cash equivalents at end of year are comprised of the following: Commercial and consumer finance businesses . . . . . . $ 16,518 $ 64,367 $ 32,658 Other . . . . . . . . . . . . . . . . . . . . . . . . 1,838,103 1,127,996 729,342 ---------- ---------- ----------- $1,854,621 $1,192,363 $ 762,000 ========== ========== ===========
See accompanying Notes to Consolidated Financial Statements 21 23 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) BERKSHIRE HATHAWAY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1993 (1) SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (a) Basis of consolidation The accompanying Consolidated Financial Statements include the accounts of Berkshire Hathaway Inc. (the "Company" or "Berkshire") consolidated with accounts of all its subsidiaries. Intercompany accounts and transactions have been eliminated. (b) Accounting changes and reclassifications In the accompanying Consolidated Balance Sheet as of December 31, 1992, reclassifications have been made when required to conform to current year presentation. In particular, individual assets and individual liabilities of commercial and consumer finance businesses have been reclassified for presentation in aggregate totals. Other reclassifications relate to provisions of Statement of Financial Accounting Standards No. 113 "Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts" which was adopted by the Company effective January 1, 1993. Effective January 1, 1993, the Company adopted the provisions of Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" ("SFAS 109"). The adoption of SFAS 109 changes the Company's method of accounting for income taxes from the "deferred method" to the "asset and liability method". Previously the Company deferred the past tax effects of timing differences between financial reporting and taxable income. Under the asset and liability method of SFAS 109, deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The provisions of SFAS 109 require that the effect on deferred taxes of a change in tax rates be recognized in income in the period that includes the enactment date. See note 6. In May 1993, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115"). As permitted under the statement, the Company has elected to adopt the statement's provisions as of December 31, 1993. Among its provisions, the statement requires a change in the accounting for marketable equity securities held by non-insurance entities. Prior to the adoption of SFAS 115, such securities were carried at the lower of aggregate cost or market. Under the provisions of SFAS 115, these securities are now carried at market and accounted for in the same manner as marketable equity securities held by the Company's insurance subsidiaries. See notes 1(d), 4 and 8. (c) 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. (d) Investments Management determines the appropriate classifications of investments in obligations with fixed maturities and marketable equity securities at the time of purchase and reevaluates such designations as of each balance sheet date. At December 31, 1993, all investments in obligations with fixed maturities are classified as held-to-maturity. Obligations 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. Marketable equity securities are classified as available- for-sale. Available-for-sale securities are stated at fair value, with unrealized gains and losses, net of tax, reported in a separate component of shareholders' equity. Realized gains and losses on sales of investments, as determined on a specific identification basis, are included in the Consolidated Statements of Earnings. (e) Goodwill and negative goodwill of acquired businesses The difference between purchase cost and the fair value of the net assets of acquired businesses is amortized on a straight line basis over forty years. The net unamortized balance is carried in other assets. (f) 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. 22 24 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) BERKSHIRE HATHAWAY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (1) SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (Continued) (g) 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. At December 31, 1993 and 1992, deferred charges re reinsurance assumed in the amounts of $466.0 million and $482.2 million respectively are included in other assets. (h) Losses and loss adjustment expenses Liability for 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 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. This liability at December 31, 1993 was $1.181 billion and at December 31, 1992 was $1.232 billion. (See also 1(g) above for amounts related to deferred charges re reinsurance assumed.) For statutory reporting purposes, liabilities under these contracts are established, not at worst-case maximum loss limits, but at best estimates of claims and claim costs ultimately payable thereunder. These "best estimates" yielded respectively as of December 31, 1993 and December 31, 1992 liabilities of $919.8 million and $939.6 million. Underwriting losses reported with respect to these contracts in the accompanying financial statements were $41 million for 1993, $44 million for 1992 and $26 million for 1991, whereas for statutory reporting purposes the corresponding figures were a $10 million gain in 1993, and losses of $89 million and $184 million in 1992 and 1991, respectively. Liabilities under structured settlement contracts are established when the contracts are entered into, at the then present value of the actuarially determined ultimate payment amount discounted at the prevailing market interest rate. Thereafter, annual accretions to the liabilities are charged to losses incurred. The aggregate of these liabilities for financial reporting purposes at December 31, 1993 was $259.8 million. For statutory reporting purposes, where the liabilities are determined using discount rates mandated by Insurance Regulatory authorities (5% for contracts incepting after 1986 and 7% with respect to contracts dated prior to 1987), the aggregate of structured settlement liabilities was $343.4 million. (j) 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 contracts are deferred until the earlier of a loss occurrence or policy expiration. Consideration received for indemnification of risk under retroactive reinsurance contracts and structured settlements is accounted for as premiums earned at the inception of the contracts. Premiums earned are stated net of amounts ceded to reinsurers. See note 15. (k) Reinsurance Provisions for losses and loss adjustment expenses are reported in the accompanying Consolidated Statements of Earnings after deducting estimates of recoveries under reinsurance contracts. Such recoveries totalled $34 million, $90 million and $26 million for 1993, 1992 and 1991, respectively. Reinsurance contracts do not relieve the Insurance Group Members of their obligations to indemnify policyholders with respect to the underlying insurance and reinsurance contracts. Estimates of losses and loss expenses recoverable under reinsurance contracts are included in receivables. 23 25 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) BERKSHIRE HATHAWAY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (2) DEXTER SHOE COMPANIES MERGER On November 7, 1993, the Company consummated a merger with the privately held Dexter Shoe Companies ("Dexter") by reissuing 25,203 shares of its common stock held in treasury in exchange for 100% of the outstanding common stock of Dexter. Dexter manufactures and distributes men's and women's dress, casual and athletic shoes. The merger was accounted for by the purchase method of accounting and, accordingly, Dexter's operating results are included in the Company's consolidated results of operations from the effective date of the merger. Had the results of Dexter been included commencing with operations in 1992, the reported results would not have been materially affected. (3) INVESTMENTS IN OBLIGATIONS WITH FIXED MATURITIES The amortized cost and estimated market values as of December 31, 1993 and 1992, of investments in obligations with fixed maturities are as follows (in thousands):
December 31, 1993 Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value ----------- ----------- ----------- ----------- Bonds: U.S. Treasury securities and obligations of U.S. government corporations and agencies . . . $ 9,286 $ 131 $ (4) $ 9,413 Obligations of states, municipalities and political subdivisions . . . . . . . . . . 653,884 50,552 (810) 703,626 Redeemable preferred stocks . . . . . . . . . . . . 1,381,882 190,188 (90,060) 1,482,010 Mortgage-backed securities* . . . . . . . . . . . . 63,550 1,635 (7) 65,178 ---------- ---------- ---------- ---------- $2,108,602 $ 242,506 $ (90,881) $2,260,227 ========== ========== ========== ========== December 31, 1992 Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value ------------ ----------- ----------- ------------ Bonds: U.S. Treasury securities and obligations of U.S. government corporations and agencies . . . $ 39,084 $ 887 $ (30) $ 39,941 Obligations of states, municipalities and political subdivisions . . . . . . . . . . 453,277 56,432 (350) 509,359 Corporate bonds . . . . . . . . . . . . . . . . . 133,566 30,317 -- 163,883 Redeemable preferred stocks . . . . . . . . . . . . 1,368,648 65,357 (89,701) 1,344,304 Mortgage-backed securities* . . . . . . . . . . . . 39,106 1,624 (34) 40,696 ---------- ---------- ---------- ---------- $2,033,681 $ 154,617 $ (90,115) $2,098,183 ========== ========== ========== ==========
* Excludes mortgage-backed securities held by commercial and consumer finance businesses. See note 5. Shown below are the amortized cost and estimated market values of the above obligations at December 31, 1993, by contractual maturity dates. Actual maturities will differ from contractual maturities because issuers of certain of the obligations retain early call or prepayment rights. Amounts are in thousands.
Estimated Amortized Market Cost Value ------------- ------------ Due in one year or less . . . . . . . . . . . . . . . . . . . . . . . . $ 33,196 $ 33,789 Due after one year through five years . . . . . . . . . . . . . . . . . 1,126,710 1,305,057 Due after five years through ten years . . . . . . . . . . . . . . . . 878,094 848,527 Due after ten years . . . . . . . . . . . . . . . . . . . . . . . . . . 7,052 7,676 ------------ ------------ 2,045,052 2,195,049 Mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . . 63,550 65,178 ----------- ----------- $2,108,602 $2,260,227 ========== ==========
Gross gains and gross losses realized on sales and redemptions of obligations with fixed maturities were as follows (in thousands):
1993 1992 1991 ------------ ------------ ------------ Gross realized gains . . . . . . . . . . . . . . . . . . . $40,109 $80,076 $139,700 Gross realized losses . . . . . . . . . . . . . . . . . . . (174) (563) --
24 26 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) BERKSHIRE HATHAWAY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (4) INVESTMENTS IN MARKETABLE EQUITY SECURITIES Aggregate data with respect to the consolidated investment in marketable equity securities are shown below (in thousands): December 31, 1993
Unrealized Carrying (a) Cost Gain Market Value ---------- ---------- ----------- ----------- Common stock of: Capital Cities/ABC, Inc. (b) . . . . . . . $ 345,000 $ 894,000 $ 1,239,000 $ 1,239,000 The Coca-Cola Company . . . . . . . . . . 1,023,920 3,144,055 4,167,975 4,167,975 GEICO Corporation (c) . . . . . . . . . . 45,713 1,713,881 1,759,594 1,759,594 The Gillette Company . . . . . . . . . . 600,000 831,000 1,431,000 1,431,000 All other marketable equity securities . . . 2,303,125 1,639,503(d) 3,942,628 3,942,628 ---------- ---------- ----------- ----------- $4,317,758 $8,222,439 $12,540,197 $12,540,197 ========== ========== =========== ===========
December 31, 1992
Unrealized Carrying Cost Gain Market Value ---------- ---------- ----------- ----------- Common stock of: Capital Cities/ABC, Inc. (b) . . . . . . . $ 517,500 $1,005,750 $ 1,523,250 $ 1,506,487 The Coca-Cola Company . . . . . . . . . . 1,023,920 2,887,205 3,911,125 3,903,918 GEICO Corporation (c) . . . . . . . . . . 45,713 2,180,537 2,226,250 2,226,250 The Gillette Company . . . . . . . . . . 600,000 765,000 1,365,000 1,365,000 All other marketable equity securities . . . 1,893,162 1,040,410(e) 2,933,572 2,650,999 ---------- ---------- ----------- ----------- $4,080,295 $7,878,902 $11,959,197 $11,652,654 ========== ========== =========== ===========
(a) As discussed in Note 1(b), the Company adopted SFAS 115 as of December 31, 1993. Therefore, all marketable equity securities are carried at market value as of December 31, 1993. The cumulative effect of adopting this statement as of December 31, 1993, was to increase the ending balance in shareholders' equity by $171,775 to reflect the unrealized appreciation of marketable equity securities held by the Company and by its non-insurance subsidiaries, net of related income taxes and minority interest. Prior year financial statements have not been restated. (b) Common shares of Capital Cities/ABC, Inc. ("Capital Cities") owned by Berkshire subsidiaries possessed approximately 13% of the voting rights of all Capital Cities shares outstanding at December 31, 1993. The shares are held subject to an Agreement, the terms of which grant to Capital Cities a right of first refusal to purchase the shares and otherwise govern until January 3, 1997, the manner by which the shares may be sold or transferred. Also, Berkshire and its subsidiaries have delivered to Capital Cities irrevocable proxies with respect to these shares in favor of Thomas S. Murphy or Daniel B. Burke, so long as either shall be the chief executive officer of Capital Cities, to vote the shares at any and all meetings of shareholders of Capital Cities. The proxies expire on January 2, 1997, or at the earlier date when neither of such persons is chief executive officer of Capital Cities. (c) Subsidiaries of Berkshire owned shares of common stock of GEICO Corporation that possessed approximately 48% of the voting rights of all GEICO shares outstanding at December 31, 1993. Berkshire maintains an independent proxy arrangement for voting of the shares as required by Order of GEICO's domiciliary insurance supervisory authority. The Order, dating from Berkshire subsidiaries' major purchase of the shares in 1976, prohibits Berkshire from seeking or causing to change the independent proxy. Also, under the Order, no officer or director of Berkshire or of any affiliate or subsidiary of Berkshire is permitted to serve as a director of GEICO. Because the Order divests Berkshire of its voting rights with respect to the shares, Berkshire does not use the equity method of accounting for its investment in GEICO. (d) Represents gross unrealized gains $1,732,295, less gross unrealized losses $92,792. (e) Represents gross unrealized gains $1,101,039, less gross unrealized losses $60,629. Gross realized gains and losses on sales of marketable equity securities were as follows (dollars in thousands):
1993 1992 1991 ---------- ---------- ---------- Gross realized gains . . . . . . . . . . . . . . . . . . . . . . . . $518,347 * $ 10,595 $ 62,050 Gross realized losses . . . . . . . . . . . . . . . . . . . . . . . . (11,860) (171) (9,272)
* During the fourth quarter of 1993, a subsidiary of the Company sold 1,000,000 common shares of its investment in Capital Cities in connection with that Company's offer to buy from its shareholders up to 2,000,000 of its common shares. Prior to the sale and since 1986, Berkshire subsidiaries owned 3,000,000 shares of Capital Cities or approximately 18% of that Company's outstanding stock. Berkshire's gross realized gain from this transaction was $457.5 million. 25 27 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) BERKSHIRE HATHAWAY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (5) ASSETS AND LIABILITIES OF COMMERCIAL AND CONSUMER FINANCE BUSINESSES Assets and liabilities of Berkshire's commercial and consumer finance businesses are summarized below (in thousands):
Dec. 31, Dec. 31, 1993 1992 ------------ ------------ ASSETS Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . $ 16,518 $ 64,367 Installment loans receivable . . . . . . . . . . . . . . . . . . . 163,827 167,609 Real estate loans (a) . . . . . . . . . . . . . . . . . . . . . . . -- 101,887 Mortgages and mortgage-backed securities (b) . . . . . . . . . . . 656,311 68,933 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,088 39,875 ---------- --------- $840,744 $442,671 ======== ======== LIABILITIES 8.125% Notes, payable in 1996 . . . . . . . . . . . . . . . . . . . $120,000 $120,000 Borrowings under investment agreements (c) . . . . . . . . . . . . 551,909 8,862 Savings accounts (a) . . . . . . . . . . . . . . . . . . . . . . . -- 250,612 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51,873 44,071 --------- --------- $723,782 $423,545 ======== ========
(a) During 1993, a federal savings bank assumed Mutual Savings and Loan Association's savings account liabilities, offset substantially by real estate loans, cash and certain other assets of Mutual. (b) At December 31, 1993, mortgage-backed securities of $534,352 were included in this caption. Such securities consist of obligations of U. S. government corporations and agencies and corporate obligations collateralized by mortgages and other financial instruments. Each of these securities has received the highest rating from at least two rating agencies. At December 31, 1993, these securities had an average reported maturity, taking into account estimates for early repayments, of less than two years. The purchases of these securities were financed from proceeds of short-term borrowings under investment agreements with corresponding maturities. Estimated market values and gross unrealized gains and losses as of December 31, 1993 and 1992, are as follows (in thousands):
Gross Gross Unrealized Unrealized Amortized Cost Gain Loss Market -------------- ---------- ---------- --------------- 1993 . . . . . . . . . $656,311 $1,375 $(1,660) $656,026 1992 . . . . . . . . . 68,933 1,197 (46) 70,084
(c) Borrowings under investment agreements are made pursuant to contracts with terms generally ranging from six months to twenty years calling for interest payable, normally semiannually, at fixed rates ranging from 2.5% to 6.0% per annum. Payments of amounts outstanding at December 31, 1993, are expected to be required no earlier than as follows (in thousands): 1994 . . . . . . . . . . . . . .$422,003 1995 . . . . . . . . . . . . . . 62,994 1996 . . . . . . . . . . . . . . 26,210 1997 . . . . . . . . . . . . . . 345 1998 . . . . . . . . . . . . . . 484 After 1998 . . . . . . . . . . . 39,873
26 28 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) BERKSHIRE HATHAWAY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (6) INCOME TAXES The liability for income taxes as reflected in the accompanying Consolidated Balance Sheets represent estimates of liabilities as follows (in thousands):
Dec. 31, Dec. 31, 1993 1992 ----------- ----------- Payable currently . . . . . . . . . . . . . . . . . . . . $ 289,686 $ 92,534 Deferred . . . . . . . . . . . . . . . . . . . . . . . . 2,740,503 2,424,652 ----------- ----------- $3,030,189 $2,517,186 ========== ==========
As discussed in Note 1(b), the Company adopted SFAS 109 as of January 1, 1993. The cumulative effect of adopting SFAS 109 on the Company's financial statements was to decrease 1993 net income by about $71 million. This amount is reflected in the 1993 Consolidated Statement of Earnings as the cumulative effect of change in accounting principle. It primarily represents the impact of adjusting deferred taxes related to unrealized appreciation of marketable equity securities which arose prior to 1987 to reflect the then current capital gain tax rate of 34% as opposed to the 28% rate which was in effect when the deferred taxes originated. The effect of the accounting change on 1993 earnings before income taxes and cumulative effect adjustment was not material. Prior year financial statements have not been restated. During 1993, the federal corporate income and capital gain tax rate was increased from 34% to 35% retroactive to January 1, 1993. Accordingly, as required under SFAS 109, the Company recorded a charge to 1993 earnings of approximately $75 million. Most of this charge relates to the impact of adjusting deferred taxes applicable to unrealized appreciation of marketable equity securities. The Consolidated Statements of Earnings reflect charges for income taxes as shown below (in thousands):
1993* 1992 1991 -------- -------- -------- Federal . . . . . . . . . . . . . . . . . . . . . . . . . . $320,419 $110,276 $120,121 State . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,857 24,430 20,281 Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . 4,026 3,383 1,656 -------- -------- -------- $345,302 $138,089 $142,058 ======== ======== ======== Current . . . . . . . . . . . . . . . . . . . . . . . . . . $400,762 $183,248 $152,563 Deferred . . . . . . . . . . . . . . . . . . . . . . . . . (55,460) (45,159) (10,505) -------- -------- -------- $345,302 $138,089 $142,058 ======== ======== ========
* Excludes the cumulative effect of change in accounting for income taxes ($70,984) and the effect of the change in federal income tax rate on deferred taxes applicable to unrealized appreciation of marketable equity securities ($75,348). The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities at December 31, 1993 are shown below (in thousands):
1993 ---------- Deferred tax liabilities: Relating to unrealized appreciation of marketable equity securities . . . . . . . . . . . . . . $2,848,681 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 73,638 ---------- 2,922,319 Deferred tax assets . . . . . . . . . . . . . . . . . . . . . (181,816) ---------- Net deferred tax liability . . . . . . . . . . . . . . . . . . $2,740,503 ==========
For the years ended December 31, 1992 and 1991, deferred income tax benefit results from the timing differences in the recognition of income and expense for income tax and financial reporting purposes. The sources and effects of those timing differences are presented below (in thousands):
Applicable to: 1992 1991 ----------- ----------- Deferred insurance premium acquisition costs . . . . . . . . . . . . . . . . $ 7,371 $ 3,392 Losses and loss adjustment expenses, net . . . . . . . . . . . . . . . . . . (61,522) (4,940) Unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,309) (5,414) Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,301 (3,543) --------- -------- $(45,159) $(10,505) ======== ========
27 29 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) BERKSHIRE HATHAWAY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (6) INCOME TAXES (Continued) Charges for income taxes are reconciled to hypothetical amounts computed at the federal statutory rate in the table shown below (in thousands):
1993 1992 1991 ---------- -------- -------- Net earnings before income taxes . . . . . . . . . . . . . $1,189,718 $550,617 $592,986 ========== ======== ======== Hypothetical amounts applicable to above computed at the federal statutory rate . . . . . . . . . $ 416,401 $187,210 $201,615 Decreases, resulting from: Tax-exempt interest income . . . . . . . . . . . . . . . (15,020) (14,727) (18,637) Dividends received deduction . . . . . . . . . . . . . . (68,333) (62,085) (54,923) State income taxes, less federal income tax benefit . . . . 13,557 16,128 13,385 Net other differences . . . . . . . . . . . . . . . . . . . (1,303) 11,563 618 ---------- -------- -------- Total income taxes . . . . . . . . . . . . . . . . . . . . $ 345,302* $138,089 $142,058 ========== ======== ========
* Excludes the cumulative effect of change in accounting for income taxes and the effect of the change in federal income tax rates on deferred taxes applicable to unrealized appreciation of marketable equity securities. (7) BORROWINGS UNDER INVESTMENT AGREEMENTS AND OTHER DEBT Liabilities reflected for this balance sheet caption are as follows (in thousands):
Dec. 31, Dec. 31, 1993 1992 ----------- ---------- Borrowings under investment agreements . . . . . . . . . . . . . . . . $ 915,079 $ 640,483 Zero Coupon Convertible Subordinated Notes . . . . . . . . . . . . . . -- 451,945 Other debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,310 62,269 ---------- ---------- $ 972,389 $1,154,697 =========== ==========
Borrowings under investment agreements are made pursuant to contracts with terms generally ranging from three months to forty years and calling for interest payable, normally semiannually, at fixed rates ranging from 3.0% to 9.0% per annum. The borrowings are senior unsecured debt obligations of the Company. The Zero Coupon Convertible Subordinated Notes, originally issued in 1989, were redeemed in 1993. Each note was convertible at any time prior to redemption into 0.4515 shares of common stock. Prior to the redemption, certain note holders exercised their right to convert their notes into shares of Berkshire common stock. The Company issued 2,162 shares to holders electing to convert during 1992 and an additional 3,944 shares to holders electing conversion subsequent to December 31, 1992. On January 4, 1993, holders not electing to convert received $404.75 million in redemption proceeds for all remaining outstanding notes. No materially restrictive covenants are included in any of the various debt agreements. Payments of amounts outstanding at December 31, 1993, are expected to be required no earlier than as follows (in thousands): 1994 . . . . . . . . . . . . . .$106,264 1995 . . . . . . . . . . . . . . 25,602 1996 . . . . . . . . . . . . . . 26,528 1997 . . . . . . . . . . . . . . 31,882 1998 . . . . . . . . . . . . . . 29,216 After 1998 . . . . . . . . . . . 752,897
28 30 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) BERKSHIRE HATHAWAY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (8) SHAREHOLDERS' EQUITY ACCOUNTS Changes in Shareholders' Equity accounts during the most recent three years were as follows (dollars in thousands except per share amounts):
Common Capital Stock of $5 in excess Net Unrealized Retained Treasury Par Value of par value Appreciation Earnings Stock ----------- ------------ -------------- ---------- -------- Balance December 31, 1990 . . . . . . . . . . . . . $6,876 $157,377 $2,310,433 $2,855,061 $42,293 Increase during 1991 in unrealized appreciation included in carrying value of marketable equity securities . . . . . . . . . . . . . . . . . . . 2,526,248 Change during 1991 in deemed applicable income taxes . . . . . . . . . . . . . . . . . . . . . (858,969) Increase in minority shareholders' interest in unrealized appreciation . . . . . . . . . . . . (14,723) Net earnings 1991 . . . . . . . . . . . . . . . . . 439,908 ------ -------- ---------- ---------- ------- Balance December 31, 1991 . . . . . . . . . . . . . 6,876 157,377 3,962,989 3,294,969 42,293 Increase during 1992 in unrealized appreciation included in carrying value of marketable equity securities . . . . . . . . . . . . . . . . . . . 1,644,810 Change during 1992 in deemed applicable income taxes . . . . . . . . . . . . . . . . . . . . . (559,235) Increase in minority shareholders' interest in unrealized appreciation . . . . . . . . . . . . (1,345) Common stock (2,162 shares) issued upon conversion of Zero Coupon Convertible Subordinated Notes. . 11 24,887 Net earnings 1992 . . . . . . . . . . . . . . . . . 407,285 ------ -------- ---------- ---------- ------- Balance December 31, 1992 . . . . . . . . . . . . . 6,887 182,264 5,047,219 3,702,254 42,293 Common stock (3,944 shares) issued upon conversion of Zero Coupon Convertible Subordinated Notes 20 45,457 Common stock (25,203 shares) issued in connection with acquisition of Dexter Shoe Companies . . . 428,353 (4,659) Increase during 1993 in unrealized appreciation included in carrying value of marketable equity securities . . . . . . . . . . . . . . . . . . . 316,002 Change during 1993 in deemed applicable income taxes . . . . . . . . . . . . . . . . . . . . . (119,843) Increase in minority shareholders' interest in unrealized appreciation . . . . . . . . . . . . (2,501) Net earnings 1993 . . . . . . . . . . . . . . . . . 688,121 Cumulative effect of adoption on December 31, 1993, of SFAS 115 (See notes 1[b] and 4) . . . . 171,775 ------ -------- ---------- ---------- ------- Balance December 31, 1993 . . . . . . . . . . . . . $6,907 $656,074 $5,412,652 $4,390,375 $37,634 ====== ======== ========== ========== =======
(9) INTEREST AND DIVIDEND INCOME Interest and dividend income for each of the past three years were comprised of the following (in thousands):
1993 1992 1991 -------- -------- -------- Interest earned by: Commercial and consumer finance businesses . . . . . . $ 55,958 $ 62,042 $ 62,839 Insurance businesses . . . . . . . . . . . . . . . . . 78,394 74,053 98,740 Other . . . . . . . . . . . . . . . . . . . . . . . . 22,597 56,898 59,713 Dividends earned by: Insurance businesses . . . . . . . . . . . . . . . . . 306,725 287,464 244,702 Other . . . . . . . . . . . . . . . . . . . . . . . . 16,132 14,952 15,799 -------- -------- -------- Interest and dividend income . . . . . . . . . . . . . $479,806 $495,409 $481,793 ======== ======== ========
29 31 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) BERKSHIRE HATHAWAY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (10) INTEREST EXPENSE Interest expense for 1992 and 1991 includes premiums paid and related costs to permit redemption prior to maturity date of certain term debt. Premiums paid and related costs for such redemptions were $22.5 million for 1992 and $5.7 million for 1991. Interest expense is comprised of interest on debt, including the aforementioned early redemption premiums and related costs, plus interest on savings accounts of Mutual Savings and Loan Association ("Mutual") as follows (in thousands):
1993 1992 1991 -------- -------- --------- Debt of commercial and consumer finance businesses . . . $ 18,412 $ 13,867 $ 14,286 Other debt and borrowings . . . . . . . . . . . . . . . . 56,545 98,643 89,250 Savings accounts of Mutual* . . . . . . . . . . . . . . . 5,792 11,986 18,311 -------- -------- -------- $ 80,749 $124,496 $121,847 ======== ======== ========
* See note 5(a). (11) DIVIDEND RESTRICTIONS - INSURANCE SUBSIDIARIES Payments of dividends by Insurance Group members are restricted by insurance statutes and regulations. Without prior regulatory approval in 1994, Berkshire can receive up to approximately $223 million as dividends from insurance subsidiaries. Combined shareholders' equity of insurance subsidiaries determined pursuant to statutory accounting rules (Statutory Surplus as Regards Policyholders) was approximately $11.5 billion at December 31, 1993. This amount exceeded by approximately $2.1 billion the corresponding amount determined on the basis of generally accepted accounting principles; the difference principally represents deferred income tax assets and liabilities recognized for financial reporting purposes but not for statutory reporting purposes. (12) 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 the Company's liabilities for unpaid losses and loss 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, 1993 and 1992, are as follows (in thousands):
Carrying Value Estimated Fair Value -------------- -------------------- 1993 1992 1993 1992 -------------- -------------- -------------- -------------- Investments in obligations with fixed maturities . . . . . . . . . . . . . . $ 2,108,602 $ 2,033,681 $ 2,260,227 $ 2,098,133 Investments in marketable equity securities . . . . . . . . . . . . . . 12,540,197 11,652,654 12,540,197 11,959,197 Assets of commercial and consumer finance businesses . . . . . . . . . . 840,744 442,671 859,199 463,998 Borrowings under investment agreements and other debt . . . . . . . . . . . . . . 972,389 1,154,697 1,048,623 1,180,518 Liabilities of commercial and consumer finance businesses . . . . . . . . . . 723,782 423,545 730,426 423,637
30 32 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) BERKSHIRE HATHAWAY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (13) SUPPLEMENTAL CASH FLOW INFORMATION A summary of supplemental cash flow information is presented in the following table (in thousands):
1993 1992 1991 --------- --------- -------- Non-cash investing and financing activities: Liabilities assumed in connection with acquisition of businesses $ 26,093 $ 45,735 $ 11,390 Common shares issued upon conversions of Zero Coupon Convertible Subordinated Notes . . . . . . . . . . . . . 45,477 24,898 -- Common shares issued in connection with acquisition of Dexter Shoe Companies . . . . . . . . . . . . . . . . . . 433,012 -- -- Cash paid during the year for: Income taxes . . . . . . . . . . . . . . . . . . . . . . . . 235,015 121,027 183,097 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . 70,629 95,730 93,951
(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 thousands, except per share amounts.
1st 2nd 3rd 4th 1993 Quarter Quarter Quarter Quarter ------- ------- ------- ------- Revenues . . . . . . . . . . . . . . . . . . . . . . . . $725,827 $703,698 $744,127 $1,479,831 -------- -------- -------- ---------- Earnings: Excluding realized investment gain and cumulative effect of accounting change . . . . . . $ 84,105 $103,836 $ 12,389* $ 202,073 Realized investment gain . . . . . . . . . . . . . . 16,630 8,127 10,405 321,540** Cumulative effect of change in accounting for income taxes . . . . . . . . . . . . . . . . . (70,984) -- -- -- --------- ---------- ---------- ----------- Net earnings . . . . . . . . . . . . . . . . . . . . $ 29,751 $111,963 $ 22,794 $ 523,613 ======== ======== ======== ========== Earnings per share: Before realized investment gain and cumulative effect of accounting change . . . . . . $72.97 $90.09 $10.75 $173.10 Realized investment gain . . . . . . . . . . . . . . 14.43 7.05 9.03 275.45 Cumulative effect of change in accounting for income taxes . . . . . . . . . . . . . . . . . (61.59) -- -- -- ------ ------ ------ ------- Net earnings . . . . . . . . . . . . . . . . . . . . $25.81 $97.14 $19.78 $448.55 ====== ====== ====== =======
* Includes a non-recurring charge of $75,348 ($65.38/share) representing the effect of the change in federal income tax rates on deferred taxes applicable to unrealized appreciation. See note 6. ** Includes $297,375 ($254.75/share), net of taxes, related to sale of 1,000,000 shares of Capital Cities/ABC, Inc. common stock. See note 4.
1st 2nd 3rd 4th 1992 Quarter Quarter Quarter Quarter ------- ------- ------- ------- Revenues . . . . . . . . . . . . . . . . . . . . . . . . $640,778 $655,876 $827,734 $904,952 -------- -------- -------- -------- Earnings: Excluding realized investment gain . . . . . . . . . $ 66,682 $ 98,619 $ 26,247 $156,178 Realized investment gain . . . . . . . . . . . . . . 747 (575) 12,086 47,301 --------- -------- -------- -------- Net earnings . . . . . . . . . . . . . . . . . . . . $ 67,429 $ 98,044 $ 38,333 $203,479 ======== ======== ======== ======== Earnings per share: Before realized investment gain . . . . . . . . . . . $58.17 $86.02 $22.90 $136.20 Realized investment gain . . . . . . . . . . . . . . 0.65 (0.50) 10.54 41.25 ------ ------ ------ ------- Net earnings . . . . . . . . . . . . . . . . . . . . $58.82 $85.52 $33.44 $177.45 ====== ====== ====== =======
See's Candies' sales peak at Easter and more notably so in the fourth quarter when more than one-half of annual revenues for that business are normally recorded. A non-seasonal factor that may influence Berkshire's interim consolidated financial statements is that estimation error, inherent to the process of determining liabilities for unpaid losses of insurance subsidiaries, can be relatively more significant to results of interim periods than to results for a full year. Variations in amount and timing of realized securities gains or losses cause significant variations in periodic net earnings. 31 33 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 eight business segments for purposes of 1993 reporting pursuant to Statement of Financial Accounting Standards No. 14. These include the property and casualty insurance and reinsurance business (The Insurance Segment) plus seven separately conducted non- insurance businesses as follows:
Business identity and headquarters Product Activity ------------------------- ------- -------- See's Candies Candy Manufacture and distribution at retail South San Francisco, CA and by catalog solicitation World Book Encyclopedias and Publication and marketing, Chicago, IL other reference materials principally by the direct sales method Kirby, Douglas and Cleveland Wood Divisions of The Scott Fetzer Company Home cleaning systems Manufacture and sale principally to distributors Cleveland, OH Nebraska Furniture Mart Home furnishings Retailing Omaha, NE Buffalo News Newspaper Publication of a daily and Sunday newspaper Buffalo, NY H. H. Brown Shoe Co., Lowell Shoe, Inc. and Dexter Shoe Companies Shoes Manufacture, importing and distribution at wholesale Greenwich, CT, Hudson, and retail NH and Dexter, ME Fechheimer Bros. Co. Uniforms Manufacture and distribution at wholesale and retail Cincinnati, OH
The business segments identified above were responsible in 1993 for 83% of Berkshire's consolidated revenues. Other businesses activities that contributed for 1993, in the aggregate, 16% of Berkshire's consolidated revenues, were as follows:
Business identity Product/Service/Activity ------------------ ------------------------ Adalet Conduit fittings, explosion proof junction boxes, couplings and terminators BHR Real estate management Berkshire Hathaway Credit Corporation Commercial financing Blue Chip Stamps Marketing motivational services Borsheim's Retailing fine jewelry Campbell Hausfeld Air compressors, air tools and painting systems Carefree Sun and shade control products and accessories for RVs France Appliance controls, ignition and sign transformers Halex Zinc die cast electrical fittings K&W Products Automotive compounds Meriam Pressure and flow measurement devices Northland Fractional horsepower motors Powerwinch Boat winches, windlasses Precision Steel service center Quikut Cutlery ScottCare Cardiopulmonary rehabilitation and monitoring equipment Scott Fetzer Financial Group Commercial and consumer finance companies Scot Labs Cleaning and maintenance chemicals Stahl Custom steel service bodies and tool boxes for trucks Wayne Furnace burners; sump, utility and sewage pumps Wesco Financial Real estate management Western Enterprises Compressed gas fittings and regulators Western Plastics Molded plastic components
32 34 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 thousands.
REVENUES OPERATING PROFIT BEFORE TAXES 1993 1992 1991 1993 1992 1991 ---------- ---------- ---------- --------- --------- -------- Identified Segments: Insurance . . . . . . . . . . . . $1,597,328 $1,078,419 $1,230,608 $ 961,774 $298,715 $323,006 Non-insurance businesses . . . . 1,443,079 1,284,523 1,204,755 224,795 209,871 176,134 ---------- --------- ---------- ---------- -------- -------- 3,040,407 2,362,942 2,435,363 1,186,569 508,586 499,140 Other than identified segments . . . 613,076 666,398 670,633 59,694 140,674 183,096 Interest expense * . . . . . . . . . (56,545) (98,643) (89,250) ---------- -------- -------- Aggregate consolidated total $3,653,483 $3,029,340 $3,105,996 $1,189,718 $550,617 $592,986 ========== ========== ========== ========== ======== ========
* Amounts of interest expense represent those for borrowings under investment agreements and other debt exclusive of that of commercial and consumer finance businesses. See note 10.
INSURANCE SEGMENT REVENUES OPERATING PROFIT BEFORE TAXES ----------------- 1993 1992 1991 1993 1992 1991 ---------- ---------- ---------- ---------- ---------- ---------- Premiums earned: * Primary or direct . . . . . . . . $ 249,585 $ 179,441 $ 175,882 Reinsurance assumed . . . . . . . 448,040 530,525 637,512 Reinsurance ceded . . . . . . . . (41,284) (45,673) (36,981) ---------- ---------- ---------- 656,341 664,293 776,413 Underwriting . . . . . . . . . . . . $ 29,960 $(108,961) $(119,593) Investment income . . . . . . . . . 385,119 361,517 343,442 375,946 355,067 331,846 Realized investment gain . . . . . . 555,868 52,609 110,753 555,868 52,609 110,753 ---------- ---------- ---------- -------- --------- --------- $1,597,328 $1,078,419 $1,230,608 $961,774 $298,715 $323,006 ========== ========== ========== ======== ======== ========
* Premiums written were as follows:
1993 1992 1991 ---------- ---------- ---------- Primary or direct . . . . . . . . $247,173 $153,177 $169,120 Reinsurance assumed . . . . . . . 534,383 626,159 669,148 Reinsurance ceded . . . . . . . . (38,854) (39,769) (35,746) --------- --------- --------- $742,702 $739,567 $802,522 ======== ======== ========
NON-INSURANCE BUSINESS SEGMENTS REVENUES OPERATING PROFIT BEFORE TAXES ------------------------------- 1993 1992 1991 1993 1992 1991 ---------- ---------- --------- -------- -------- -------- Candy . . . . . . . . . . . . . . . . . $ 201,243 $ 197,186 $ 195,978 $ 40,270 $ 41,382 $ 41,416 Encyclopedias, other reference material 198,807 246,107 311,509 19,375 28,228 22,232 Home cleaning systems . . . . . . . . . 193,891 190,072 192,001 40,944 37,744 37,332 Home furnishings . . . . . . . . . . . . 209,134 186,096 171,002 21,094 16,665 13,939 Newspaper . . . . . . . . . . . . . . . 145,470 139,764 130,259 50,390 47,291 36,527 Shoes . . . . . . . . . . . . . . . . . 372,064 215,006 104,045 40,003 25,586 12,464 Uniforms . . . . . . . . . . . . . . . . 122,470 110,292 99,961 12,719 12,975 12,224 ---------- ---------- ---------- -------- -------- -------- $1,443,079 $1,284,523 $1,204,755 $224,795 $209,871 $176,134 ========== ========== ========== ======== ======== ========
33 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)
OTHER THAN IDENTIFIED SEGMENTS REVENUES OPERATING PROFIT BEFORE TAXES ------------------------------ 1993 1992 1991 1993 1992 1991 -------- -------- -------- -------- -------- -------- Other businesses . . . . . . . . . . . . $595,513 $567,719 $524,395 $ 54,808 $ 54,321 $ 49,355 Not identified with specific businesses: Interest and dividend income . . . . 26,608 61,011 63,686 26,608 61,011 63,686 Realized investment gain (loss) . . . (9,444) 37,328 81,725 (9,444) 37,328 81,725 All other except interest expense . . 399 340 827 (12,278) (11,986) (11,670) -------- --------- --------- -------- -------- -------- $613,076 $666,398 $670,633 $ 59,694 $140,674 $183,096 ======== ======== ======== ======== ======== ========
DEPREC. & AMORT. CAPITAL EXPENDITURES * OF TANGIBLE ASSETS 1993 1992 1991 1993 1992 1991 -------- -------- -------- -------- -------- -------- Insurance . . . . . . . . . . . . . . . $ 1,207 $ 1,071 $ 1,437 $ 812 $ 840 $ 992 Candy . . . . . . . . . . . . . . . . . 6,531 4,167 4,687 4,116 4,061 3,882 Encyclopedias, other reference material 736 184 3,107 1,449 1,379 1,449 Home cleaning systems . . . . . . . . . 1,470 769 1,104 5,259 4,942 5,092 Home furnishings . . . . . . . . . . . . 5,254 8,528 2,552 2,663 2,210 1,613 Newspaper . . . . . . . . . . . . . . . 3,602 3,370 817 1,855 2,373 2,949 Shoes . . . . . . . . . . . . . . . . . 4,407 2,171 1,050 5,201 3,027 1,580 Uniforms . . . . . . . . . . . . . . . . 1,041 2,660 1,482 1,836 1,833 1,411 Other . . . . . . . . . . . . . . . . . 12,962 8,881 13,648 17,321 14,692 14,094 ------- ------- ------- ------- ------- ------- $37,210 $31,801 $29,884 $40,512 $35,357 $33,062 ======= ======= ======= ======= ======= =======
* Expenditures which were part of business acquisitions are excluded.
IDENTIFIABLE ASSETS AT YEAR-END -------------------------------------------- 1993 1992 1991 ------------ ------------ ------------ Insurance . . . . . . . . . . . . . . . . . . . . . . . $16,163,378 $14,788,237 $12,406,654 Candy . . . . . . . . . . . . . . . . . . . . . . . . . 70,201 65,880 68,300 Encyclopedias, other reference material . . . . . . . . 74,676 83,778 94,927 Home cleaning systems . . . . . . . . . . . . . . . . . 48,703 50,692 51,929 Home furnishings . . . . . . . . . . . . . . . . . . . . 101,147 88,331 76,396 Newspaper . . . . . . . . . . . . . . . . . . . . . . . 45,402 43,751 44,061 Shoes . . . . . . . . . . . . . . . . . . . . . . . . . 641,548 208,218 157,902 Uniforms . . . . . . . . . . . . . . . . . . . . . . . . 87,546 85,392 74,190 Other . . . . . . . . . . . . . . . . . . . . . . . . . 2,287,868 1,717,719 1,487,543 ---------- ----------- ----------- $19,520,469 $17,131,998 $14,461,902 =========== =========== ===========
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 April 25, 1994, which meeting will involve the election of directors. 34 36 Part IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. Financial Statements -------------------- The following consolidated financial statements, as well as the Independent Auditors' Report, are included in Part II Item 8 of this report:
PAGE ---- Independent Auditors' Report 18 Consolidated Balance Sheets at December 31, 1993 and 1992 19 Consolidated Statements of Earnings for the years ended 1993, 1992 and 1991 20 Consolidated Statements of Cash Flows for the years ended 1993, 1992 and 1991 21 Notes to Consolidated Financial Statements 22
(a) 2. Financial Statement Schedules PAGE ----------------------------- ---- Independent Auditors' Report on Schedules 37 Schedule I -- Summary of Investments 38 - Other than Affiliates, at December 31, 1993 Schedule III -- Parent Company 39 Condensed Balance Sheets as of December 31, 1993 and 1992 and Condensed Statements of Earnings and Cash Flows for the years ended 1993, 1992, and 1991. Schedule X -- Supplementary Income Statement Information, 41 for the years ended 1993, 1992, and 1991
Other schedules are omitted because they are not required, information required therein is not applicable, or is reflected in the Financial Statements or notes thereto. (a) 3. Exhibits -------- See the "Exhibit Index" at page 42. (b) Reports on Form 8-K -------------------- None 35 37 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BERKSHIRE HATHAWAY INC. Date: March 30, 1994 /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. /s/ Warren E. Buffett Chairman of the Board March 30, 1994 - -------------------------- of Directors - Chief -------------- Warren E. Buffett Executive Officer Date /s/ Charles T. Munger Vice Chairman of the March 30, 1994 - -------------------------- Board of Directors -------------- Charles T. Munger Date /s/ Malcolm G. Chace, III Director March 30, 1994 - -------------------------- -------------- Malcolm G. Chace, III Date /s/ Walter Scott, Jr. Director March 30, 1994 - -------------------------- -------------- Walter Scott, Jr. Date /s/ Marc D. Hamburg Vice President - March 30, 1994 - -------------------------- Principal Financial -------------- Marc D. Hamburg Officer Date /s/ Daniel J. Jaksich Controller March 30, 1994 - -------------------------- -------------- Daniel J. Jaksich Date 36 38 INDEPENDENT AUDITORS' REPORT ON SCHEDULES To the Board of Directors and Shareholders Berkshire Hathaway Inc. We have audited the consolidated financial statements of Berkshire Hathaway Inc. and subsidiaries as of December 31, 1993 and 1992, and for each of the three years in the period ended December 31, 1993, and have issued our report thereon dated March 7, 1994, which report includes an explanatory paragraph regarding changes in accounting methods for income taxes and investments; such report is included elsewhere in this Form 10-K. Our audits also included the consolidated financial statement schedules of Berkshire Hathaway Inc. and subsidiaries, listed in Item 14. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. DELOITTE & TOUCHE Omaha, Nebraska March 7, 1994 37 39 Berkshire Hathaway Inc. and Subsidiaries Summary of Investments December 31, 1993 Schedule I
000's Omitted Number of Cost Balance shares or or Sheet par value Adjusted Market Carrying of bonds Cost Value Value --------- -------- ------- -------- Obligations with Fixed Maturities: Bonds: U.S. Government and U.S. Government agencies . . . . . . . . . . . . . . . . . . . 9,180 $ 9,286 $ 9,413 $ 9,286 States, municipalities and political subdivisions . . . . . . . . . . . . . . . . . 654,366 653,884 703,626 653,884 Mortgage backed securities various issuers **** . . . . . . . . . . . . . 63,900 63,550 65,178 63,550 Redeemable preferred stocks - Salomon Inc* . . . . . . . . . . . . . . . . . . 700 700,000 875,000** 700,000 Various issuers . . . . . . . . . . . . . . . . *** 681,882 607,010 681,882 ---------- ---------- ---------- Total Obligations with Fixed Maturities . . . $2,108,602 $2,260,227 $2,108,602 ========== ========== ========== Marketable Equity Securities: Common Stocks: Banks and insurance companies: GEICO Corporation* . . . . . . . . . . . . . . 34,250 $ 45,713 $ 1,759,594 $ 1,759,594 Wells Fargo & Company* . . . . . . . . . . . . 6,791 423,680 878,614 878,614 Others . . . . . . . . . . . . . . . . . . . . *** 171,631 222,078 222,078 Industrial and miscellaneous: Capital Cities/ABC, Inc.* . . . . . . . . . . 2,000 345,000 1,239,000 1,239,000 The Coca-Cola Company* . . . . . . . . . . . . 93,400 1,023,920 4,167,975 4,167,975 Federal Home Loan Mortgage Assn.* . . . . . . 13,655 307,505 681,023 681,023 General Dynamics Corporation* . . . . . . . . 4,350 94,938 401,287 401,287 The Gillette Company* . . . . . . . . . . . . 24,000 600,000 1,431,000 1,431,000 The Washington Post Company* . . . . . . . . . 1,728 9,731 440,148 440,148 Others . . . . . . . . . . . . . . . . . . . . *** 953,647 864,779 864,779 Nonredeemable preferred stocks - Various issuers . . . . . . . . . . . . . . . . *** 341,993 454,699 454,699 ---------- ----------- ----------- Total Marketable Equity Securities . . . . . . $4,317,758 $12,540,197 $12,540,197 ========== =========== ===========
* These issues are stated separately in accordance with note 2(ii)(1) to Rule 12-02 of Regulation S-X. ** There is no regular trading market for this security. The market value is based upon fair value as determined by the valuation committee of Registrant's Board of Directors. *** Not meaningful **** Excludes mortgage backed securities of various issuers held by commercial and consumer finance businesses. At December 31, 1993, the aggregate cost and carrying value of such securities was $534,352 and the aggregate market value was $533,010. 38 40 BERKSHIRE HATHAWAY INC. (Parent Company) Condensed Financial Information (Dollars in thousands) Schedule III 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
December 31, 1993 1992 ---------- ---------- Assets: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . $ 359,938 $ 595,255 Investments in consolidated subsidiaries . . . . . . . . . . . . . . . . 11,074,971 9,310,343 Investments - other than consolidated subsidiaries . . . . . . . . . . . 144,102 127,087 Other assets (includes identifiable assets of the Buffalo News Division of $45,402 and $43,751 at December 31, 1993 and 1992 respectively) . . . . . . . . . . . . . . 52,735 54,938 ----------- ----------- $11,631,746 $10,087,623 =========== =========== Liabilities and Shareholders' Equity: Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . $ 28,905 $ 26,286 Borrowings under investment agreements and other debt . . . . . . . . . 925,079 1,103,205 Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249,388 61,801 ----------- ----------- 1,203,372 1,191,292 Shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . 10,428,374 8,896,331 ----------- ----------- $11,631,746 $10,087,623 =========== ===========
STATEMENTS OF EARNINGS 1993 1992 1991 -------- -------- -------- Income items: From consolidated subsidiaries: Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 735 $ 499 $ 163 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . 169,664 313,398 168,109 Undistributed earnings . . . . . . . . . . . . . . . . . . . . 528,535 79,926 231,300 -------- -------- -------- 698,934 393,823 399,572 Interest and dividends - other investments . . . . . . . . . . . . 14,832 48,907 50,877 Realized investment gain (loss) . . . . . . . . . . . . . . . . . (9,446) 37,328 67,816 Revenues of Buffalo News Division . . . . . . . . . . . . . . . . 145,470 139,764 130,259 Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . 399 254 544 --------- --------- --------- 850,189 620,076 649,068 -------- -------- -------- Cost and expense items: Costs and expenses of Buffalo News Division . . . . . . . . . . . 95,080 92,473 93,732 General and administrative . . . . . . . . . . . . . . . . . . . . 5,566 5,784 6,783 Interest and finance charges . . . . . . . . . . . . . . . . . . . 50,611 90,613 81,310 Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . 10,811 23,921 27,335 --------- --------- --------- 162,068 212,791 209,160 -------- -------- -------- Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . $688,121 $407,285 $439,908 ======== ======== ========
See Note to Condensed Financial Information on following page. 39 41 BERKSHIRE HATHAWAY INC. (Parent Company) Condensed Financial Information (Dollars in thousands) Schedule III (continued) See headnote on preceding page. STATEMENTS OF CASH FLOWS
1993 1992 1991 -------- -------- -------- Cash flows from operating activities: Net income . . . . . . . . . . . . . . . . . . . . . . . . $688,121 $407,285 $439,908 Adjustments to reconcile net income to cash flows from operating activities: Undistributed current earnings of subsidiaries . . . . . (528,535) (79,926) (231,300) Realized investment (gain) loss . . . . . . . . . . . . 9,446 (37,328) (67,816) Increase (decrease) in income taxes payable . . . . . . 187,587 57,896 (28,772) Other . . . . . . . . . . . . . . . . . . . . . . . . . (1,216) 45,856 3,016 -------- -------- -------- Net cash flows from operating activities . . . . . . . . . 355,403 393,783 115,036 -------- -------- -------- Cash flows from investing activities: Investments in and advances to consolidated subsidiaries . . . . . . . . . . . . . . . . . . . . . . (298,575) (197,212) (128,496) Purchases of investments . . . . . . . . . . . . . . . . . (162,789) (39,146) (139,865) Proceeds on sales of investments . . . . . . . . . . . . . 2,757 160,264 330,024 --------- -------- -------- Net cash flows from investing activities . . . . . . . . . (458,607) (76,094) 61,663 -------- -------- -------- Cash flows from financing activities: Proceeds from borrowings . . . . . . . . . . . . . . . . . 1,259,798 952,901 434,688 Repayment of borrowings . . . . . . . . . . . . . . . . . . (1,391,911) (879,109) (439,495) ---------- -------- -------- Net cash flows from financing activities . . . . . . . . . (132,113) 73,792 (4,807) ---------- -------- -------- Increase (decrease) in cash and cash equivalents . . . . . . . (235,317) 391,481 171,892 Cash and cash equivalents at beginning of year . . . . . . . . 595,255 203,774 31,882 --------- -------- -------- Cash and cash equivalents at end of year . . . . . . . . . . . $ 359,938 $595,255 $203,774 ========== ======== ======== Other cash flow information: Income taxes paid . . . . . . . . . . . . . . . . . . . . . $ 212,313 $105,592 $168,438 Interest paid . . . . . . . . . . . . . . . . . . . . . . . 47,007 63,659 55,573
NOTE TO CONDENSED FINANCIAL INFORMATION Principal repayments of the Registrant's borrowings under investment agreements and other debt outstanding at December 31, 1993 are expected to be required no earlier than as follows: 1994 . . . . . . . . . . . . . . . . . . . . . . . $102,013 1995 . . . . . . . . . . . . . . . . . . . . . . . 24,793 1996 . . . . . . . . . . . . . . . . . . . . . . . 25,775 1997 . . . . . . . . . . . . . . . . . . . . . . . 31,087 1998 . . . . . . . . . . . . . . . . . . . . . . . 27,418 After 1998 . . . . . . . . . . . . . . . . . . . . 713,993
For additional information regarding Registrant's borrowings under investment agreements and other debt, see Note 7 to the Consolidated Financial Statements on page 28. 40 42 Berkshire Hathaway Inc. and Subsidiaries Supplementary Income Statement Information (Dollars in thousands) Schedule X Certain items of expense that exceeded 1% of revenues in the Consolidated Statement of Earnings were as follows:
1993 1992 1991 -------- -------- -------- Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . * * $31,686
* Item did not exceed 1% of revenues 41 43 EXHIBIT INDEX
Exhibit No. - ----------- 3 Restated Certificate of Incorporation 3.1 By-Laws 4 Form of Indenture dated as of December 1, 1987 between Berkshire Hathaway Inc. and The First National Bank of Boston, as trustee, with respect to 9 3/4% Debentures due January 15, 2018. Incorporated by reference to Exhibit 4 to Registration Statement No. 33-19000 filed on Form S-3 OTHER INSTRUMENTS DEFINING THE RIGHTS OF HOLDERS OF LONG-TERM DEBT OF REGISTRANT AND ITS SUBSIDIARIES ARE NOT BEING FILED SINCE THE TOTAL AMOUNT OF SECURITIES AUTHORIZED BY ALL OTHER SUCH INSTRUMENTS DOES NOT EXCEED 10% OF THE TOTAL ASSETS OF THE REGISTRANT AND ITS SUBSIDIARIES ON A CONSOLIDATED BASIS AS OF DECEMBER 31, 1993. THE REGISTRANT HEREBY AGREES TO FURNISH TO THE COMMISSION UPON REQUEST A COPY OF ANY SUCH DEBT INSTRUMENT TO WHICH IT IS A PARTY. 10.1 Agreement with Capital Cities Communications, Inc. dated January 2, 1986. Incorporated by reference to Exhibit 10.1 to the Registrant's 1990 Annual Report on Form 10-K. 10.15 Letter Agreement between Berkshire Hathaway Inc. and Capital Cities/ABC, Inc. dated October 29, 1993 relating to Capital Cities/ABC, Inc.'s offer to purchase from its shareholders up to 2,000,000 shares of Common Stock. 10.2 Written Description of Agreement with Michael A. Goldberg re Annual Bonus Compensation dated March 25, 1991. Incorporated by reference to Exhibit 10.2 to the Registrant's 1990 Annual Report on Form 10-K. 10.3 Letter Agreements between Berkshire Hathaway Inc. and Salomon Inc dated September 27, 1987 and September 28, 1987 relating to the purchase by Registrant of an Issue of Series A Cumulative Convertible Preferred Stock of Salomon Inc and Certificate of Designation of said Preferred Stock. Incorporated by reference to Exhibit 10.3 to Registrant's 1992 Annual Report on Form 10-K. 10.4 Letter Agreement dated September 1, 1986 between Berkshire Hathaway Inc. and Trustee under indenture covering debt securities issued by Scott Fetzer Financial Group, Inc., formerly World Book Finance, Inc. Incorporated by reference to Exhibit 10.4 to the Registrant's 1991 Annual Report on Form 10-K. 10.5 Investment Agreement dated July 1, 1986, between Berkshire Hathaway Inc. and Scott Fetzer Financial Group, Inc., formerly World Book Finance, Inc. and Amendment thereto dated August 31, 1986. Incorporated by reference to Exhibit 10.5 to the Registrant's 1991 Annual Report on Form 10-K. 12 Statement of computation of ratio of earnings to fixed charges 22 Subsidiaries of the Registrant 23 Independent Auditors' Consent
42 EX-3 2 ARTICLES OF INCORPORATION 1 Reg S-K Item 601 Exhibit 3 Page 1 of 4 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 which the Corporation shall have authorized is one million five 2 Page 2 of 4 hundred thousand (1,500,000) shares of Common Stock, each of which shall have a par value of Five Dollars ($5.00). The shares of 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 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. Each holder of Common stock shall be entitled to one vote for each share of Common Stock standing in his name on the books 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. 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. 3 Page 3 of 4 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 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. 4 Page 4 of 4 IN WITNESS WHEREOF, this Restated Certificate of Incorporation has been signed by the Company this 21st day of December, 1993. Berkshire Hathaway Inc. By: /s/ Marc D. Hamburg -------------------------- Marc D. Hamburg Vice President Attest: /s/ Forrest N. Krutter - --------------------------- Forrest N. Krutter Secretary EX-3.1 3 BY-LAWS 1 Reg S-K Item 601 Exhibit 3.1 Page 1 of 16 BY-LAWS OF BERKSHIRE HATHAWAY INC. (as amended through April 29, 1991) SECTION 1 Certification of Incorporation 1.1. The nature of the business or purposes of the corpo- ration shall be as set forth in its certificate of incorporation. These by-laws, the powers of the corporation and of its directors and stockholders, and all matters concerning the management of the business and conduct of the affairs of the corporation shall be subject to such provisions in regard thereto, if any, as are set forth in the certificate of incorporation; and the certifi- cate of incorporation is hereby made a part of these by-laws. In these by-laws, references to the certificate of incorporation mean the provisions of the certificate of incorporation (as that term is defined in the General Corporation Law of Delaware) of the corporation as from time to time in effect, and references to these by-laws or to any requirement or provision of law mean these by-laws or such requirement or provision of law as from time to time in effect. SECTION 2 Offices 2.1. Registered Office. The registered office of the corporation shall be in the City of Wilmington, County of New Castle, Delaware. 2.2. Other Offices. The corporation may also have an office or offices at such other place or places, either within or without the State of Delaware, as the Board of Directors of the corporation from time to time may determine or as the business of the corporation may require. 2 Page 2 of 16 SECTION 3 Stockholders 3.1. Annual Meeting. The annual meeting of the stockhold- ers shall be held at nine-thirty o'clock in the forenoon on the last Monday in April in each year, unless that day be a legal holiday at the place where the meeting is to be held, in which case the meeting shall be held at the same hour on the next succeeding day not a legal holiday, or at such other date and time as shall be designated from time to time by the board of directors and stated in the notice of the meeting, at which they shall elect a board of directors and transact such other business as may be required by law or these by-laws or as may be specified by the chairman of the board or by a majority of the directors then in office or by vote of the board of directors and of which notice was given in the notice of the meeting. Notwithstanding the foregoing, the first annual meeting of the corporation shall be held in the year 1974. 3.2. Special Meeting in Place of Annual Meeting. If the election for directors shall not be held on the day designated by these by-laws, the directors shall cause the election to be held as soon thereafter as convenient, and to that end, if the annual meeting is omitted on the day herein provided therefor or if the election of directors shall not be held thereat, a special meeting of the stockholders may be held in place of such omitted meeting or election, and any business transacted or election held at such special meeting shall have the same effect as if trans- acted or held at the annual meeting, and in such case all refer- ences in these by-laws to the annual meeting of the stockholders, or to the annual election of directors, shall be deemed to refer to or include such special meeting. Any such special meeting shall be called, and the purposes thereof shall be specified in the call, as provided in Section 3.3. 3.3. Special Meetings. A special meeting of the stock- holders may be called at any time by the chairman of the board or by the board of directors. A special meeting of the stockhold- ers shall be called by the secretary, or in the case of the death, absence, incapacity or refusal of the secretary, by an assistant secretary or some other officer, upon application of a majority of the directors or of one or more stockholders who are entitled to vote and who hold at least fifty percent of the capital stock issued and outstanding. Any such application shall state the purpose or purposes of the proposed meeting. Any such call shall state the place, date, hour, and purposes of the meeting. 3 Page 3 of 16 3.4. Place of Meeting. All meetings of the stockholders for the election of directors or for any other purpose shall be held at such place within or without the State of Delaware as may be determined from time to time by the chairman of the board or the board of directors. Any adjourned session of any meeting of the stockholders shall be held at the place designated in the vote of adjournment. 3.5. Notice of Meetings. Except as otherwise provided by law, a written notice of each meeting of stockholders stating the place, day and hour thereof and, in the case of a special meet- ing, the purposes for which the meeting is called, shall be given not less than ten nor more than sixty days before the meeting, to each stockholder entitled to vote thereat; and to each stockhold- er who, by law, by the certificate of incorporation or by these by-laws, is entitled to notice, by leaving such notice with him or at his residence or usual place of business, or by depositing it in the United States mail, postage prepaid, and addressed to such stockholder at his address as it appears in the records of the corporation. Such notice shall be given by the secretary, or by an officer or person designated by the board of directors, or in the case of a special meeting by the officer calling the meeting. As to any adjourned session of any meeting of stock- holders, notice of the adjourned meeting need not be given if the time and place thereof are announced at the meeting at which the adjournment was taken except that if the adjournment is for more than thirty days or if after the adjournment a new record date is set for the adjourned session, notice of any such adjourned session of the meeting shall be given in the manner heretofore described. No notice of any meeting of stockholders or any adjourned session thereof need be given to a stockholder if a written waiver of notice, executed before or after the meeting or such adjournment session by such stockholder is filed with the records of the meeting or if the stockholder attends such meeting without objecting at the beginning of the meeting to the transac- tion of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any meeting of the stockholders or any adjourned session thereof need be specified in any written waiver of notice. 3.6. Quorum of Stockholders. At any meeting of the stockholders, whether the same be an original or an adjourned session, a quorum shall consist of a majority in interest of all stock issued and outstanding and entitled to vote at the meeting, except in any case where a larger quorum is required by law, by the certificate of incorporation or by these by-laws. Any meeting may be adjourned from time to time by a majority of the votes properly cast upon the question, whether or not a quorum is present. 4 Page 4 of 16 3.7. Action by Vote. When a quorum is present at any meeting, whether the same be an original or an adjourned session, a plurality of the votes properly cast for election to any office shall elect to such office and a majority of the votes properly cast upon any question other than an election to an office shall decide the question, except when a larger vote is required by law, by the certificate of incorporation or by these by-laws. No ballot shall be required for any election unless requested by a stockholder present or represented at the meeting and entitled to vote in the election. 3.8. Action without Meetings. Unless otherwise provided in the certificate of incorporation, any action required or permitted to be taken by stockholders for or in connection with any corporate action may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. If action is taken by unanimous consent of stockholders, the writing or writings comprising such unanimous consent shall be filed with the records of the meetings of stockholders. If action is taken by less than unanimous consent of stock- holders and in accordance with the foregoing, there shall be filed with the records of the meetings of stockholders the writing or writings comprising such less than unanimous consent and a certificate signed and attested to by the secretary that prompt notice was given to all stockholders of the taking of such action without a meeting and by less than unanimous written consent. In the event that the action which is consented to is such as would have required the filing of a certificate under any of the provisions of the General Corporation Law of Delaware, if such action had been voted upon by the stockholders at a meeting thereof, the certificate filed under such provision shall state that written consent has been given under Section 228 of said General Corporation Law, in lieu of stating that the stockholders have voted upon the corporate action in question, if such last mentioned statement is required thereby. 3.9. Proxy Representation. Every stockholder may autho- rize another person or persons to act for him by proxy in all matters in which a stockholder is entitled to participate, whether by waiving notice of any meeting, objecting to or voting or participating at a meeting, or expressing consent or dissent without a meeting. Every proxy must be signed by the stockholder or by his attorney-in-fact or be authorized by such other means as is provided in 5 Page 5 of 16 Section 212 of the Delaware General Corporation Law. No proxy shall be voted or acted upon after three years from its date unless such proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the corporation generally. The authorization of a proxy may but need not be limited to specified action, provided, however, that if a proxy limits its authorization to a meeting or meetings of stockholders, unless otherwise specifically provided such proxy shall entitle the holder thereof to vote at any adjourned session but shall not be valid after the final adjourn- ment thereof. 3.10. Votes Per Share. Unless otherwise provided in the certificate of incorporation, each stockholder shall be entitled to one vote for each share of capital stock having voting power held by such stockholder. 3.11. List of Stockholders. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at such meeting, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in his name. Such list shall be open to examination by any stockholder, for any purpose germane to the meeting, during ordinary business hours, for at least ten days prior to the meeting either at the place within the city where the meeting is to be held, which place should be specified in the notice of such meeting, or at the place where such meeting is to be held, and shall also be produced at the time and place of the meeting during the whole time thereof and subject to the inspection of any stockholder who may be present. The stock ledger shall be the only evidence as to who are stockholders entitled to examine such list or to vote in person or by proxy at such meeting. SECTION 4 Board of Directors 4.1. Number. The Board of Directors shall consist of one or more members, the number thereof to be determined from time to time by resolution of the Board of Directors. Directors need not be stockholders. 4.2. Tenure. Except as otherwise provided by law, by the certificate of incorporation or by these by-laws, each director shall hold office until his successor is elected and qualified, or until he sooner dies, resigns, is removed or becomes disquali- fied. 6 Page 6 of 16 4.3. Powers. The business of the corporation shall be managed by the board of directors who shall have and may exercise all the power of the corporation and do all such lawful acts and things as are not by law, the certificate of incorporation or these by-laws directed or required to be exercised or done by the stockholders. 4.4. Vacancies. Vacancies and any newly created directorships resulting from any increase in the number of directors may be filled by vote of the stockholders at a meeting called for the purpose, or by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. When one or more directors shall resign from the board, effective at a future date, a majority of the directors then in office, including those who have resigned, shall have power to fill such vacancy or vacancies, the vote or action by writing thereon to take effect when such resignation or resignations shall become effective. The directors shall have and may exercise all their powers notwithstanding the existence of one or more vacancies in their number, subject to any requirements of law or of the certificate of incorporation or of these by-laws as to the number of directors required for a quorum or for any vote or other action. 4.5. Committees. The board of directors may, by vote of a majority of the whole board, (a) designate, change the membership of or terminate the existence of any committee or committees, each committee to consist of one or more of the directors; (b) designate one or more directors as alternate members of any such committee who may replace any absent or disqualified member at any meeting of the committee; and (c) determine the extent to which each such committee shall have and may exercise the powers of the board of directors in the management of the business and affairs of the corporation, including the power to authorize the seal of the corporation to be affixed to all papers which require it and the power and authority to declare dividends, to authorize the issuance of stock, or to adopt a certificate of ownership and merger pursuant to Section 253 of the General Corporation Law of Delaware; excepting, however, such powers which by law, by the certificate of incorporation or by these by-laws they are prohibited from so delegating. In the absence or disqualification of any member of such committee and his alternate, if any, the member or members thereof present at any meeting and not disqualified from voting, whether or not constituting a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. Except as the board of directors may otherwise determine, any committee may make rules for the conduct of its business, but unless otherwise provided by the board or such rules, its business shall be conducted as nearly as may be in the same manner as is provided by these by-laws for the conduct of the business by the board of 7 Page 7 of 16 directors. Each committee shall keep regular minutes of its meetings and report the same to the board of directors upon request. 4.6. Regular Meetings. Regular meetings of the board of directors may be held without call or notice at such place within or without the State of Delaware and at such times the board may from time to time determine, provided that notice of the first regular meeting following any such determination shall be given to absent directors. A regular meeting of the directors may be held without call or notice immediately after and at the same place as the annual meeting of the stockholders. 4.7. Special Meetings. Special meetings of the board of directors may be held at any time and at any place within or without the State of Delaware designated in the notice of the meeting, when called by the chairman of the board, or by one- third or more in number of the directors, reasonable notice thereof being given to each director by the secretary or by the chairman of the board or any one of the directors calling the meeting. 4.8. Notice. It shall be reasonable and sufficient notice to a director to send notice by mail at least forty-eight hours or by telegram at least twenty-four hours before the meeting addressed to him at his usual or last known business or residence address or to give notice to him in person or by telephone at least twenty-four hours before the meeting. Notice of a meeting need not be given to any director if a written waiver of notice, executed by him before or after the meeting, is filed with the records of the meeting, or to any director who attends the meeting without protesting prior thereto or at its commencement the lack of notice to him. Neither notice of a meeting nor a waiver of a notice need specify the purposes of the meeting. 4.9. Quorum. Except as may be otherwise provided by law, by the certificate of incorporation or by these by-laws, at any meeting of the directors a majority of the directors then in office shall constitute a quorum; a quorum shall not in any case be less than one-third of the total number of directors consti- tuting the whole board. Any meeting may be adjourned from time to time by a majority of the votes cast upon the question, whether or not a quorum is present, and the meeting may be held as adjourned without further notice. 4.10. Action by Vote. Except as may be otherwise provided by law, by the certificate of incorporation or by these by-laws, when a quorum is present at any meeting the vote of a majority of the directors present shall be the act of the board of directors. 8 Page 8 of 16 4.11. Action Without a Meeting. Any action required or permitted to be taken at any meeting of the board of directors or a committee thereof may be taken without a meeting if all the members of the board or of such committee, as the case may be, consent thereto in writing, and such writing or writings are filed with the records of the meeting of the board or of such committee. Such consent shall be treated for all purposes as the act of the board or of such committee, as the case may be. 4.12. Compensation. In the discretion of the board of directors, each director may be paid such fees for his services as director and be reimbursed for his reasonable expenses in- curred in the performance of his duties as director as the board of directors from time to time may determine. Nothing contained in this Section shall be construed to preclude any director from serving the corporation in any other capacity and receiving reasonable compensation therefor. 4.13. Interested Directors and Officers. (a) No contract or transaction between the corporation and one or more of its directors or officers, or between the corporation and any other corporation, partnership, association, or other organization in which one or more of the corporation's directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the board or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose, if: (1) The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the board of directors or the committee, and the board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (2) The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (3) The contract or transaction is fair as to the corporation as of the time it is authorized, approved or ratified, by the board of directors, a committee thereof, or the stockholders. 9 Page 9 of 16 (b) Common or interested directors may be counted in determining the presence of a quorum at a meeting of the board of directors or of a committee which authorizes the contract or transaction. SECTION 5 Officers and Agents 5.1. Enumeration; Qualification. The officers of the corporation shall be a chairman of the board, a treasurer, a secretary and such other officers, if any, as the board of directors from time to time may in its discretion elect or appoint including without limitation a vice-chairman of the board, one or more vice presidents and a controller. The corpo- ration may also have such agents, if any, as the board of direc- tors from time to time may in its discretion choose. Any officer may be, but none except the chairman and any vice-chairman of the board need be, a director or stockholder. Any two or more offices may be held by the same person. Any officer may be required by the board of directors to secure the faithful perfor- mance of his duties to the corporation by giving bond in such amount and with sureties or otherwise as the board of directors may determine. 5.2. Powers. Subject to law, to the certificate of incorporation and to the other provisions of these by-laws, each officer shall have, in addition to the duties and power herein set forth, such duties and powers as are commonly incident to his office and such additional duties and powers as the board of directors may from time to time designate. 5.3. Election. The officers may be elected to the board of directors at their first meeting following the annual meeting of the stockholders or at any other time. At any time or from time to time the directors may delegate to any officer their power to elect or appoint any other officer or any agents. 5.4. Tenure. Each officer shall hold office until the first meeting of the board of directors following the next annual meeting of the stockholders and until his respective successor is chosen and qualified unless a shorter period shall have been specified by the terms of his election or appointment, or in each case until he sooner dies, resigns, is removed or becomes dis- qualified. Each agent shall retain his authority at the pleasure of the directors, or the officer by whom he was appointed or the officer who then holds agent appointive power. 5.5. Chairman and Vice-Chairman of the Board of Directors. Except as otherwise voted by the directors, the chairman of the board shall be the chief executive officer of the corporation, he 10 Page 10 of 16 shall preside at all meetings of the stockholders and directors at which he is present and shall have such other powers and duties as the board of directors, executive committee or any other duly authorized committee shall from time to time desig- nate. Except as otherwise voted by the directors, the vice-chair- man of the board, if any is elected or appointed, shall assume the duties and powers of the chairman of the board in his absence and shall otherwise have such duties and powers as shall be designated from time to time by the board of directors. 5.6. Vice Presidents. Any vice presidents shall have such duties and powers as shall be designated from time to time by the board of directors or by the chairman of the board. 5.7. Treasurer and Assistant Treasurers. Except as otherwise voted by the directors, the treasurer shall be the chief financial officer of the corporation and shall be in charge of its funds and valuable papers, and shall have such other duties and powers as may be designated from time to time by the board of directors or by the chairman of the board. If no controller is elected, the treasurer shall also have the duties and powers of the controller. Any assistant treasurers shall have such duties and powers as shall be designated from time to time by the board of direc- tors, the chairman of the board or the treasurer. 5.8. Controller and Assistant Controllers. If a control- ler is elected, he shall be the chief accounting officer of the corporation and shall be in charge of its books of account and accounting records, and of its accounting procedures. He shall have such other duties and powers as may be designated from time to time by the board of directors, the chairman of the board or the treasurer. Any assistant controller shall have such duties and powers as shall be designated from time to time by the board of direc- tors, the chairman of the board, the treasurer or the controller. 5.9. Secretary and Assistant Secretaries. The secretary shall record all proceedings of the stockholders, of the board of directors and of committees of the board of directors in a book or series of books to be kept therefor and shall file therein all writings of, or related to action by stockholder or director consent. In the absence of the secretary from any meeting, an assistant secretary, or if there be none or he is absent, a temporary secretary chosen at the meeting, shall record the proceedings thereof. Unless a transfer agent has been appointed the secretary shall keep or cause to be kept the stock and transfer 11 Page 11 of 16 records of the corporation, which shall contain the names and record addresses of all stockholders and the number of shares registered in the name of each stockholder. He shall have such other duties and powers as may from time to time be desig- nated by the board of directors or the chairman of the board. Any assistant secretaries shall have such duties and powers as shall be designated from time to time by the board of direc- tors, the chairman of the board or the secretary. SECTION 6 Resignations and Removals 6.1. Any director or officer may resign at any time by delivering his resignation in writing to the chairman of the board or the secretary or to a meeting of the board of directors. Such resignation shall be effective upon receipt unless specified to be effective at some other time, and without in either case the necessity of its being accepted unless the resignation shall so state. A director (including persons elected by directors to fill vacancies in the board) may be removed from office with or without cause by the vote of the holders of a majority of the shares issued and outstanding and entitled to vote in the elec- tion of directors. The board of directors may at any time remove any officer either with or without cause. The board of directors may at any time terminate or modify the authority of any agent. No director or officer resigning and (except where a right to receive compensation shall be expressly provided in a duly authorized written agreement with the corporation) no director or officer removed, shall have any right to any compensation as such director or officer for any period following his resignation or removal, or any right to damages on account of such removal, whether his compensation be by the month or by the year or otherwise; unless in the case of a resignation, the directors, or in the case of a removal, the body acting on the removal, shall in their or its discretion provide for compensation. SECTION 7 Vacancies 7.1 If the office of the chairman of the board or the treasurer or the secretary becomes vacant, the directors may elect a successor by vote of a majority of the directors then in office. If the office of any other officer becomes vacant, any person or body empowered to elect or appoint that officer may choose a successor. Each such successor shall hold office for the unexpired term, and in the case of the chairman of the board, the treasurer and the secretary until his successor is chosen and qualified, or 12 Page 12 of 16 in each case until he sooner dies, resigns, is removed or becomes dis- qualified. Any vacancy of a directorship shall be filled as specified in Section 4.4 of these by-laws. SECTION 8 Capital Stock 8.1. Stock Certificates. Each stockholder shall be entitled to a certificate stating the number and the class and the designation of the series, if any, of the shares held by him, in such form as shall, in conformity to law, the certificate of incorporation and the by-laws, be prescribed from time to time by the board of directors. Such certificates shall be signed by the chairman or vice chairman of the board of directors, or a vice president and by the treasurer or an assistant treasurer or by the secretary or an assistant secretary. Any of or all the signatures on the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed on such certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent, or registrar at the time of its issue. 8.2. Loss of Certificates. In the case of the alleged theft, loss, destruction or mutilation of a certificate of stock, a duplicate certificate may be issued in place thereof, upon such terms, including receipt of a bond sufficient to indemnify the corporation against any claim or account thereof, as the board of directors may prescribe. SECTION 9 Transfer of Shares of Stock 9.1. Transfer on Books. Subject to the restrictions, if any, stated or noted on the stock certificate, shares of stock may be transferred on the books of the corporation by the surrender to the corporation or its transfer agent of the certificate therefor properly endorsed or accompanied by a written assignment and power of attorney properly executed, with necessary transfer stamps affixed, and with such proof of the authenticity of signature as the board of directors or the transfer agent of the corporation may reasonably require. Except as may be otherwise required by law, by the certificate of incorporation or by these by-laws, the corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including 13 Page 13 of 16 the payment of dividends and the right to receive notice and to vote or to give any consent with respect thereto and to be held liable for such calls and assessments, if any, as may lawfully be made thereon, regardless of any transfer, pledge or other disposition of such stock until the shares have been properly transferred on the books of the corporation. It shall be the duty of each stockholder to notify the corporation of his post office address. 9.2. Record Date and Closing Transfer Books. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distributions or allotment of any rights, or entitled to exercise any rights in respect of any change, conver- sion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days (or such longer period as may be required by law) before the date of such meeting, nor more than sixty days prior to any other action. If no record date is fixed: (a) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of busi- ness on the day next preceding the day on which the meeting is held. (b) The record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the board of directors is necessary, shall be the day on which the first written consent is expressed. (c) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. 14 Page 14 of 16 SECTION 10 Indemnification of Directors and Officers 10.1. Right to Indemnification. Each director or officer of the corporation who was or is a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (herein- after a "proceeding"), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the corporation to the fullest extent permitted by the laws of Delaware, as the same exist or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the corporation to provide broader indemnification rights than said law permitted the corporation to provide prior to such amendment), against all costs, charges, expenses, liabilities and losses (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of his or her heirs, executors and administrators: provided however, that except for any proceeding seeking to enforce or obtain payment under any right to indemnification by the corporation, the corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if the corporation has joined in or consented to the initiation of such proceeding (or part thereof). The corporation may, by action of its Board of Directors, either on a general basis or as designated by the Board of Directors, provide indemnification to employees and agents of the corporation, and to directors, officers, employees and agents of the Company's subsidiaries, with the same scope and effect as the foregoing indemnification of directors and offi- cers. Notwithstanding anything in this Section 10 to the con- trary, no person shall be entitled to indemnification pursuant to this Section on account of any suit in which judgment is rendered against such person for an accounting of profits made from the purchase and sale by such person of securities of the corporation pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934. 15 Page 15 of 16 10.2. Non-Exclusivity of Rights. The right to indemnifica- tion and the payment of expenses incurred in defending a proceed- ing in advance of its final disposition conferred in this Section 10 shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the certificate of incorporation, by-law, agreement, vote of stock- holders or disinterested directors or otherwise. Each person who is or becomes a director or officer of the corporation shall be deemed to have served or to have continued to serve in such capacity in reliance upon the indemnity provided in this Sec- tion 10. 10.3. Insurance. The corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the corporation would have the power to indemnify such person against such expense, liability or loss under the General Corporation Law of Delaware. 10.4. Expenses as a Witness. To the extent that any director, officer, employee or agent of the corporation is by reason of such position, or a position with another entity at the request of the corporation, a witness in any action, suit or proceeding, he or she shall be indemnified against all costs and expenses actually and reasonably incurred by him or her on his or her behalf in connection therewith. 10.5. Indemnity Agreements. The corporation may enter into indemnity agreements with the persons who are members of its board of directors from time to time, and with such officers, employees and agents of the corporation and with such officers, directors, employees and agents of subsidiaries as the board may designate, such indemnity agreements to provide in substance that the corporation will indemnify such persons as contemplated by this Section 10, and to include any other substantive or proce- dural provisions regarding indemnification as are not inconsis- tent with the General Corporation Law of Delaware. The provi- sions of such indemnity agreements shall prevail to the extent that they limit or condition or differ from the provisions of this Section 10. 10.6. Definition of Corporation. For purposes of this Section 10 reference to "the corporation" includes all constitu- ent corporations absorbed in a consolidation or merger as well as the resulting or surviving corporation so that any person who is or was a director or officer of such a constituent corporation shall stand in the same position under the provisions of this Section with respect to the resulting or surviving corporation as he would if he had served the resulting or surviving corporation in the same capacity. 16 Page 16 of 16 SECTION 11 Corporate Seal 11.1. The seal of the corporation shall, subject to alter- ation by the directors, consist of a flat-faced circular die with the word "Delaware" together with the name of the corporation and the year of its organization, cut or engraved thereon. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. SECTION 12 Execution of Papers 12.1. Except as the board of directors may generally or in some particular cases authorize the execution thereof in some other manner, all deeds, leases, transfers, contracts, bonds, notes, checks, drafts and other obligations made, accepted or endorsed by the corporation shall be signed by the chairman of the board or by one of the vice presidents or by the treasurer. SECTION 13 Fiscal Year 13.1. Except as from time to time otherwise provided by the board of directors, the fiscal year of the corporation shall end on the 31st day of December of each year. SECTION 14 Amendments 14.1. These by-laws may be made, altered, amended or repealed by vote of a majority of the directors in office or by vote of a majority of the stock outstanding and entitled to vote. Any by-law, whether made, altered, amended or repealed by the stockholders or directors, may be altered, amended or reinstated, as the case may be, by either the stockholders or by the direc- tors as hereinbefore provided. EX-10.15 4 LETTER AGREEMENT 1 Reg S-K Item 601 Exhibit 10.15 Page 1 of 2 AGREEMENT This Agreement is entered into this 29th day of October, 1993, among Berkshire Hathaway Inc., a Delaware corporation ("Berkshire"), National Indemnity Company, Columbia Insurance Company, Nebraska Furniture Mart, Inc., National Fire and Marine Insurance Company and Cornhusker Casualty Company (collectively, "Berkshire Subsidiaries") and Capital Cities/ABC, Inc., a New York corporation ("Capital Cities"). WHEREAS, Berkshire, the Berkshire Subsidiaries and Capital Cities entered into an agreement (the "Stock Purchase Agreement") dated January 2, 1986, pursuant to which the Berkshire Subsidiaries purchased 3,000,000 shares of the common stock, par value $1.00 per share, of Capital Cities (the "Common Stock") and Berkshire and the Berkshire Subsidiaries agreed not to sell, transfer, assign, hypothecate, encumber or dispose of all or any part of the shares of Common Stock they acquired except pursuant to certain procedures set forth in the Stock Purchase Agreement. WHEREAS, the Board of Directors of Capital Cities determined on October 29, 1993 to offer to purchase from its shareholders up to 2,000,000 shares of Common Stock pursuant to an offer to purchase to commence on or about November 2, 1993 (the "Offer to Purchase"). WHEREAS, Berkshire and the Berkshire Subsidiaries have advised Capital Cities that the Berkshire Subsidiaries desire to tender 1,000,000 shares in response to the Offer to Purchase on certain terms and conditions. In consideration of the foregoing and the respective covenants and agreements set forth in this Agreement, the parties agree as follows: 1. Capital Cities agrees that notwithstanding any restriction contained in the Stock Purchase Agreement, Berkshire and the Berkshire Subsidiaries may tender up to 1,000,000 shares of Common Stock in response to the Offer to Purchase. 2. Berkshire and the Berkshire Subsidiaries agree that they will tender and not withdraw 1,000,000 shares in response to the Offer to Purchase, subject to the condition that all such shares be purchased. 3. Except as modified by this Agreement, all of the other terms and provisions of the Stock Purchase Agreement shall remain in full force and effect. 2 Page 2 of 2 IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date set forth in the first paragraph of this Agreement. CAPITAL CITIES/ABC, INC. By:_____________________________________ Senior Vice President and Chief Financial Officer BERKSHIRE HATHAWAY INC. By:_____________________________________ (Name and Title) NATIONAL INDEMNITY COMPANY By:_____________________________________ (Name and Title) COLUMBIA INSURANCE COMPANY By:_____________________________________ (Name and Title) NEBRASKA FURNITURE MART, INC. By:_____________________________________ (Name and Title) NATIONAL FIRE AND MARINE INSURANCE COMPANY By:_____________________________________ (Name and Title) CORNHUSKER CASUALTY COMPANY By:_____________________________________ (Name and Title) EX-12 5 STATEMENT OF COMPUTATION OF RATIO OF EARNINGS 1 Reg S-K Item 601 Exhibit 12 BERKSHIRE HATHAWAY INC. Calculation of Ratio of Consolidated Earnings to Consolidated Fixed Charges (Dollars in Thousands)
Years Ended December 31, ----------------------------------------------------------------- 1993 1992 1991 1990 1989 ---------- ---------- ---------- ---------- ---------- Net earnings . . . . . . . . . . . . . . . $ 688,121 $407,285 $439,908 $394,093 $447,477 Income tax expense . . . . . . . . . . . 491,634** 138,089 142,058 112,047 159,287 Minority interest in earnings . . . . . 9,963 5,243 11,020 10,326 10,460 Equity in the undistributed earnings of a less than 50% owned investee . . . -- -- -- 1,195 (319) Fixed charges . . . . . . . . . . . . . 90,099 111,660 125,827 122,431 86,831 ---------- -------- -------- -------- -------- Earnings available for fixed charges . . . $1,279,817 $662,277 $718,813 $640,092 $703,736 ========== ======== ======== ======== ======== Realized investment gain, pretax, included in earnings available for fixed charges . $ 546,422 $ 89,937 $192,478 $ 33,989 $223,810 ========== ======== ======== ======== ======== Fixed charges Interest on indebtedness (including amortization of debt discount and expense) . . . . . . . . . . . . . . . . $ 74,957 $ 89,985* $ 97,875* $ 90,717 $ 56,313 Interest on savings deposits . . . . . . 5,792 11,986 18,311 21,975 21,261 Rentals representing interest . . . . . 9,350 9,689 9,641 9,739 9,257 ---------- -------- -------- -------- -------- $ 90,099 $111,660 $125,827 $122,431 $ 86,831 ========== ======== ======== ======== ======== Ratio of earnings to fixed charges . . . . 14.20x 5.93x 5.71x 5.23x 8.10x ========== ========= ========= ========= ========= Ratio of earnings, excluding realized investment gain, to fixed charges . . . 8.14x 5.13x 4.18x 4.95x 5.53x ========== ========= ========= ========= =========
___________ * Excludes optional prepayment premiums of $22,525 and $5,661 in 1992 and 1991 respectively, related to redemptions prior to maturity of certain term debt obligations. ** Includes charge of $70,984 representing the cumulative effect of change in accounting for income taxes. EX-22 6 SUBSIDIARIES OF THE REGISTRANT 1 Reg S-K Item 601 Exhibit 22 BERKSHIRE HATHAWAY INC. Subsidiaries of Registrant (1) December 31, 1993
State of Company Name Incorporation ------------ ------------- Berkshire Hathaway Credit Corporation Nebraska BHSF, Inc. Delaware BH Shoe Holdings, Inc. Delaware Blue Chip Stamps California Borsheim's Jewelry Company, Inc. Nebraska Campbell Hausfeld/Scott Fetzer Company Delaware Central States Indemnity Co. of Omaha Nebraska Central States of Omaha Companies, Inc. Nebraska Columbia Insurance Company Nebraska Continental Divide Insurance Company Colorado Cornhusker Casualty Company Nebraska Cypress Insurance Company California Dexter Shoe Company Maine The Fechheimer Brothers Company (2) Delaware H. H. Brown Shoe Company, Inc. Delaware Isabela Shoe Corporation Delaware Lowell Shoe, Inc. New Hampshire MSMLMIC California National Fire & Marine Insurance Company Nebraska National Indemnity Company Nebraska National Indemnity Company of the South Florida National Indemnity Company of Mid-America Minnesota National Liability and Fire Insurance Company Illinois Nebraska Furniture Mart, Inc. Nebraska Oak River Insurance Company Nebraska OCSAP, Ltd Maine Redwood Fire and Casualty Insurance Company Nebraska The Scott Fetzer Company Delaware Scott Fetzer Financial Group, Inc. Delaware See's Candies, Inc. California See's Candy Shops, Incorporated California Wesco Financial Corporation Delaware Wesco-Financial Insurance Company Nebraska Wesco Holdings Midwest, Inc. Nebraska World Book/Scott Fetzer Company Nebraska
(1) Each of the named subsidiaries is not necessarily a "significant subsidiary" as defined in Rule 1-02(v) of Regulation S-X, and Berkshire has several additional subsidiaries not named above. The unnamed subsidiaries, considered in the aggregate as a single subsidiary, would not constitute a "significant subsidiary" at the end of the year covered by this report. (2) The names have been omitted of 30 wholly-owned U.S. subsidiaries of The Fechheimer Brothers Company, each of whom operated in the business of uniform manufacturing and/or distribution. EX-23 7 INDEPENDENT AUDITORS' CONSENT 1 Reg S-K Item 601 Exhibit 23 Page 1 of 1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement No. 33-50989 of Berkshire Hathaway Inc. on Form S-3 of our reports dated March 7, 1994, appearing in this Annual Report on Form 10-K of Berkshire Hathaway Inc. for the year ended December 31, 1993. DELOITTE & TOUCHE Omaha, Nebraska March 30, 1994 -----END PRIVACY-ENHANCED MESSAGE-----