-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GE+V1SMQNSs14gvyXT4H8D1t0Jk9rY7aMcOwWjdpV7mnIPVq14uZg88PsNxJ40pv mSXtUo59W8xvv8xDEv9oHQ== 0000950150-95-000690.txt : 19951119 0000950150-95-000690.hdr.sgml : 19951119 ACCESSION NUMBER: 0000950150-95-000690 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951113 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BERKSHIRE HATHAWAY INC /DE/ CENTRAL INDEX KEY: 0000109694 STANDARD INDUSTRIAL CLASSIFICATION: BOOKS: PUBLISHING OR PUBLISHING AND PRINTING [2731] IRS NUMBER: 042254452 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10125 FILM NUMBER: 95590714 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-Q 1 FORM 10-Q FOR THE QUARTERLY PERIOD ENDED 9/30/95 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1995 -------------------------------------- OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(b) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ---------------------- ----------------------- Commission file number 1-10125 ------- BERKSHIRE HATHAWAY INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 04 2254452 ------------------------------- --------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification number) incorporation or organization) 1440 Kiewit Plaza, Omaha, Nebraska 68131 ----------------------------------------------------- (Address of principal executive office) (Zip Code) (402) 346-1400 ---------------------------------------------------- (Registrant's telephone number, including area code) --------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. X --- -- YES NO Number of shares of common stock outstanding as of November 10, 1995..................1,193,512 --------- 2 FORM 10-Q BERKSHIRE HATHAWAY INC. Q/E 9/30/95
PAGE NO. -------- PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Condensed Consolidated Balance Sheets -- 2 September 30, 1995 and December 31, 1994 Consolidated Statements of Earnings -- 3 Third Quarter and First Nine Months, 1995 and 1994 Condensed Consolidated Statements of Cash Flows -- 4 First Nine Months, 1995 and 1994 Notes to Interim Consolidated Financial Statements 5-8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 9-12 CONDITION AND RESULTS OF OPERATIONS PART II - OTHER INFORMATION 12
1 3 FORM 10-Q BERKSHIRE HATHAWAY INC. Q/E 9/30/95 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONDENSED CONSOLIDATED BALANCE SHEETS (dollars in thousands)
September 30, December 31, 1995 1994 ------------- ------------ ASSETS Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . $ 1,879,200 $ 273,881 Investments: Securities with fixed maturities . . . . . . . . . . . . . . . 883,024 1,820,733 Marketable equity securities . . . . . . . . . . . . . . . . . 20,828,857 15,236,494 Salomon Inc . . . . . . . . . . . . . . . . . . . . . . . . . . 1,034,045 1,023,418 Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . 784,525 580,600 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . 609,503 425,431 Properties and equipment . . . . . . . . . . . . . . . . . . . . 335,917 275,667 Assets of finance businesses . . . . . . . . . . . . . . . . . . 839,849 717,082 Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 1,188,260 984,876 ----------- ----------- $28,383,180 $21,338,182 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Property and casualty insurance policyholder liabilities . . . . $ 4,773,134 $ 4,200,813 Accounts payable, accruals and other liabilities . . . . . . . . 520,136 397,384 Income taxes, principally deferred . . . . . . . . . . . . . . . 5,112,756 3,292,602 Borrowings under investment agreements and other debt . . . . . . 806,607 810,719 Liabilities of finance businesses . . . . . . . . . . . . . . . . 746,677 562,443 ----------- ----------- 11,959,310 9,263,961 ----------- ----------- Minority shareholders' interests . . . . . . . . . . . . . . . . 244,633 199,339 ----------- ----------- Shareholders' equity: Common stock - par value of 1,381,308 issued shares . . . . . . 6,907 6,907 Capital in excess of par value . . . . . . . . . . . . . . . . 1,001,728 656,074 Unrealized appreciation of investments, net . . . . . . . . . . 9,847,883 6,364,362 Retained earnings . . . . . . . . . . . . . . . . . . . . . . . 5,357,438 4,885,173 ----------- ----------- 16,213,956 11,912,516 Less: Cost of common shares in treasury (September 30, 1995 - 187,796; December 31, 1994 - 203,558) 34,719 37,634 ----------- ----------- Total shareholders' equity . . . . . . . . . . . . . . . 16,179,237 11,874,882 ----------- ----------- $28,383,180 $21,338,182 =========== ===========
See accompanying Notes to Interim Consolidated Financial Statements 2 4 FORM 10-Q BERKSHIRE HATHAWAY INC. Q/E 9/30/95 CONSOLIDATED STATEMENTS OF EARNINGS (dollars in thousands except per share amounts)
Third Quarter First Nine Months ------------------------- -------------------------- 1995 1994 1995 1994 ---------- ---------- ---------- ---------- REVENUES: Sales and service revenues . . . . . . . . . . . . . $ 682,671 $ 555,962 $1,871,380 $1,665,548 Insurance premiums earned . . . . . . . . . . . . . . 173,852 131,144 579,423 477,160 Interest and dividend income . . . . . . . . . . . . 120,573 101,998 337,206 315,017 Income from investment in Salomon Inc . . . . . . . . 31,113 7,789 61,062 25,525 Income from finance businesses . . . . . . . . . . . 8,327 5,290 21,529 18,354 Realized investment gain (loss) . . . . . . . . . . . 66,809 (6,683) 141,167 80,219 ---------- ---------- ---------- ----------- 1,083,345 795,500 3,011,767 2,581,823 ---------- ---------- ---------- ---------- COST AND EXPENSES: Cost of products and services sold . . . . . . . . . 442,184 357,148 1,189,534 1,046,215 Insurance losses and loss adjustment expenses . . . . 152,981 103,431 468,660 381,961 Insurance underwriting expenses . . . . . . . . . . . 49,556 36,585 157,704 123,344 Selling, general and administrative expenses . . . . 191,975 146,222 517,002 443,334 Interest expense . . . . . . . . . . . . . . . . . . 13,920 13,996 40,552 45,463 ---------- ---------- ---------- ---------- 850,616 657,382 2,373,452 2,040,317 ---------- ---------- ---------- ---------- EARNINGS BEFORE INCOME TAXES AND MINORITY INTEREST . . 232,729 138,118 638,315 541,506 Income taxes . . . . . . . . . . . . . . . . . . . . 57,469 29,674 155,648 130,631 Minority interest . . . . . . . . . . . . . . . . . . 2,791 2,624 10,402 7,518 ---------- ---------- ---------- ---------- NET EARNINGS . . . . . . . . . . . . . . . . . . . . . $ 172,469 $ 105,820 $ 472,265 $ 403,357 ========== ========== ========== ========== Average shares outstanding . . . . . . . . . . . . . 1,193,512 1,177,750 1,184,942 1,177,750 NET EARNINGS PER SHARE . . . . . . . . . . . . . . . . $145 $ 90 $399 $342 ==== ==== ==== ====
See accompanying Notes to Interim Consolidated Financial Statements 3 5 FORM 10-Q BERKSHIRE HATHAWAY INC. Q/E 9/30/95 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands)
First Nine Months ------------------------------- 1995 1994 ------------ ------------ Net cash flows from operating activities . . . . . . . . . . . . . . . $ 829,892 $ 463,764 ----------- ----------- Cash flows from investing activities: Purchases of investments . . . . . . . . . . . . . . . . . . . . . (1,576,185) (4,453,893) Proceeds on sales and maturities of investments . . . . . . . . . . 2,441,802 2,490,049 Loans and investments originated in finance businesses . . . . . . (326,253) (158,540) Principal collections on loans and investments originated in finance businesses . . . . . . . . . . . . . . . . . . . . . . 302,776 254,522 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,519) (18,527) ----------- ----------- Net cash flows from investing activities . . . . . . . . . . . . . . . 831,621 (1,886,389) ----------- ----------- Cash flows from financing activities: Proceeds from borrowings of finance businesses . . . . . . . . . . 231,274 196,619 Proceeds from other borrowings . . . . . . . . . . . . . . . . . . 825,942 941,712 Repayments of borrowings of finance businesses . . . . . . . . . . (202,278) (273,723) Repayments of other borrowings . . . . . . . . . . . . . . . . . . (905,488) (1,109,886) Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (818) (938) ----------- ----------- Net cash flows from financing activities . . . . . . . . . . . . . . . (51,368) (246,216) ----------- ----------- Increase (decrease) in cash and cash equivalents . . . . . . . . . . . 1,610,145 (1,668,841) Cash and cash equivalents at beginning of year* . . . . . . . . . . . . 289,857 1,854,621 ----------- ----------- Cash and cash equivalents at end of first nine months* . . . . . . . . $ 1,900,002 $ 185,780 =========== =========== Supplemental cash flow information: Non-cash investing and financing activities: Liabilities assumed in connection with acquisitions of businesses . . . . . . . . . . . . . . . . . . . . . . . . . . $ 248,445 $ -- Common shares issued in connection with acquisitions of businesses . . . . . . . . . . . . . . . . . . . . . . . . . . 348,569 -- Cash paid during the period for: Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 214,620 379,397 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,042 72,144 *Cash and cash equivalents are comprised of the following: Beginning of year -- Finance businesses . . . . . . . . . . . . . . . . . . . . . . . . $ 15,976 $ 16,518 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273,881 1,838,103 ----------- ----------- $ 289,857 $ 1,854,621 =========== =========== End of first nine months -- Finance businesses . . . . . . . . . . . . . . . . . . . . . . . . $ 20,802 $ 21,029 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,879,200 164,751 ----------- ----------- $ 1,900,002 $ 185,780 =========== ===========
See accompanying Notes to Interim Consolidated Financial Statements 4 6 FORM 10-Q BERKSHIRE HATHAWAY INC. Q/E 9/30/95 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. GENERAL Reference is made to Berkshire's most recently issued Annual Report that included information necessary or useful to understanding of Berkshire's businesses and financial statement presentations. In particular, Berkshire's significant accounting policies and practices were presented as Note 1 to the Consolidated Financial Statements included in that Report. Financial information in this Report reflects any adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary to a fair statement of results for the interim periods in accordance with generally accepted accounting principles. For a number of reasons, Berkshire's results for interim periods are not normally indicative of results to be expected for the year. Most significantly, the estimation error inherent to the process of determining liabilities for unpaid losses of insurance subsidiaries can be relatively more significant to results of interim periods than to results for a full year. Variations in amount and timing of realized securities gains or losses cause significant variations in periodic net earnings. NOTE 2. BUSINESS ACQUISITIONS During 1995's second quarter, the Company consummated mergers with Helzberg's Diamond Shops, Inc. ("Helzberg's") and with R.C. Willey Home Furnishings ("R.C. Willey") by reissuing 15,762 shares of its common stock held in treasury in exchange for 100% of the outstanding common stock of each of these companies. Helzberg's operates a chain of 150 jewelry stores operating in 26 states and R.C. Willey, through its seven locations, is the dominant retailer of home furnishings in Utah. Both mergers were accounted for by the purchase method of accounting and, accordingly, the operating results of each of these businesses are included in the Company's consolidated statement of earnings from the effective dates of each of the mergers (Helzberg's -- April 30, 1995; R.C. Willey -- June 29, 1995). NOTE 3. INVESTMENTS IN SECURITIES WITH FIXED MATURITIES Data with respect to investments in securities with fixed maturities (other than Salomon Inc Cumulative Convertible Preferred Stock and securities with fixed maturities held by finance businesses -- See Notes 4 and 10) are shown in the tabulation below.
(000s omitted) September 30, December 31, 1995 1994 ------------ ------------ Amortized cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 774,367 $1,805,515 Gross unrealized gains . . . . . . . . . . . . . . . . . . . . . . . . . 111,790 39,766 Gross unrealized losses . . . . . . . . . . . . . . . . . . . . . . . . . (3,133) (24,548) ---------- ---------- Estimated fair value . . . . . . . . . . . . . . . . . . . . . . . . . . $ 883,024 $1,820,733 ========== ==========
5 7 FORM 10-Q BERKSHIRE HATHAWAY INC. Q/E 9/30/95 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 4. INVESTMENT IN SALOMON INC The Company's investment in Salomon Inc consists of the following:
(000s omitted) September 30, 1995 December 31, 1994 --------------------------------------- --------------------------------------- Fair Market Carrying Fair Market Carrying Cost Value Value Cost Value Value ------------ ------------- ----------- ------------ ------------- ----------- Cumulative Convertible Preferred Stock . . . . . . . . . . $ 700,000 $ 735,000 $ 735,000 $ 700,000 $ 735,000 $ 735,000 Common Stock . . . . . . . . . . . . 324,445 255,394 299,045 324,445 248,760 288,418 ---------- ---------- ---------- ---------- ---------- ---------- $1,024,445 $ 990,394 $1,034,045 $1,024,445 $ 983,760 $1,023,418 ========== ========== ========== ========== ========== ==========
The carrying value of the Salomon Inc common stock is determined in accordance with the provisions of Accounting Principles Board Opinion No. 18 "The Equity Method of Accounting for Investments in Common Stock". That pronouncement specifies that the equity method be applied only to investments in common stock. Accordingly, the Cumulative Convertible Preferred Stock is carried at fair value. At September 30, 1995, Berkshire subsidiaries possessed slightly in excess of 20% of the total voting rights in Salomon Inc. On October 31, 1995, in accordance with the terms of the Cumulative Convertible Preferred Stock, Salomon Inc redeemed 20% of the preferred shares owned by Berkshire for $140 million. After the redemption, Berkshire subsidiaries possessed 17.6% of the total voting rights in Salomon Inc. NOTE 5. INVESTMENTS IN MARKETABLE EQUITY SECURITIES Data with respect to investments in marketable equity securities are shown in the tabulation below.
(000s omitted) September 30, December 31, 1995 1994 ------------- ------------ Total cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,847,856 $ 5,583,111 Gross unrealized gains . . . . . . . . . . . . . . . . . . . . . . . . . 15,007,438 9,789,589 Gross unrealized losses . . . . . . . . . . . . . . . . . . . . . . . . . (26,437) (136,206) ------------ ----------- Total approximate market value . . . . . . . . . . . . . . . . . . . . . $20,828,857 $15,236,494 =========== =========== Carrying value: American Express Company . . . . . . . . . . . . . . . . . . . . . . . $ 2,194,650 $ 818,918 Capital Cities/ABC, Inc. . . . . . . . . . . . . . . . . . . . . . . . 2,352,500 1,705,000 The Coca-Cola Company . . . . . . . . . . . . . . . . . . . . . . . . . 6,900,000 5,150,000 GEICO Corporation (See Note 6) . . . . . . . . . . . . . . . . . . . . 2,337,562 1,678,250 The Gillette Company . . . . . . . . . . . . . . . . . . . . . . . . . 2,286,000 1,797,000 Wells Fargo & Company . . . . . . . . . . . . . . . . . . . . . . . . . 1,260,620 984,727 All others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,497,525 3,102,599 ----------- ----------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $20,828,857 $15,236,494 =========== ===========
6 8 FORM 10-Q BERKSHIRE HATHAWAY INC. Q/E 9/30/95 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 6. ACQUISITION OF GEICO CORPORATION COMMON STOCK On August 25, 1995, Berkshire and GEICO Corporation ("GEICO") announced that Berkshire would acquire all the GEICO shares it does not currently own for $70 per share or approximately $2.3 billion. GEICO is a multiple line property and casualty insurer, the principal business of which is writing private passenger automobile insurance. The transaction is subject to the required approval of state insurance regulators and to the approval of holders of 80% of GEICO's shares. Since Berkshire currently owns about 51% of GEICO's outstanding shares, the holders of about 60% of GEICO's shares not owned by Berkshire must also vote in favor of the transaction. Pursuant to an order of the insurance regulatory authorities issued in connection with Berkshire's purchase of GEICO stock in 1976, Berkshire has granted a proxy to an independent bank which in voting such shares is guided solely by its judgement as to the best interests of Berkshire. It is expected that the transaction will be consummated during January, 1996, at which time GEICO will become a wholly owned subsidiary of Berkshire and at which time the aforementioned proxy will be vacated. Accordingly, upon consummation of the transaction and termination of the proxy, Berkshire will begin including GEICO's accounts in its consolidated financial statements. NOTE 7. OTHER ASSETS Other assets are summarized below:
(000s omitted) September 30, December 31, 1995 1994 ------------ ------------ Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 687,977 $454,633 Deferred charges re reinsurance assumed . . . . . . . . . . . . . . . . . 402,430 440,664 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97,853 89,579 ---------- -------- $1,188,260 $984,876 ========== ========
NOTE 8. PROPERTY AND CASUALTY INSURANCE POLICYHOLDER LIABILITIES Property and casualty insurance policyholder liabilities are summarized below:
(000s omitted) September 30, December 31, 1995 1994 ------------- ------------ Unpaid losses and loss adjustment expenses . . . . . . . . . . . . . . . $3,656,046 $3,430,028 Unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . 612,909 307,232 Funds held under reinsurance assumed . . . . . . . . . . . . . . . . . . 359,425 307,287 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144,754 156,266 ---------- ---------- $4,773,134 $4,200,813 ========== ==========
7 9 FORM 10-Q BERKSHIRE HATHAWAY INC. Q/E 9/30/95 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 9. DEFERRED INCOME TAX LIABILITY The tax effects of significant items comprising the Company's net deferred tax liability as of September 30, 1995 and December 31, 1994 are as follows:
(000s omitted) September 30, December 31, 1995 1994 ------------- ------------ Deferred tax liabilities: Relating to unrealized appreciation of investments . . . . . . . . . . . . $5,280,892 $3,381,328 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64,624 71,883 ----------- ----------- 5,345,516 3,453,211 Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (281,391) (223,010) ---------- ---------- Net deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . $5,064,125 $3,230,201 ========== ==========
NOTE 10. FINANCE BUSINESSES Assets and liabilities of Berkshire's finance businesses are summarized below.
(000s omitted) September 30, December 31, 1995 1994 ------------- ------------ Assets ------ Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . $ 20,802 $ 15,976 Installment loans and other receivables . . . . . . . . . . . . . . . . . 272,476 157,985 Fixed maturity investments . . . . . . . . . . . . . . . . . . . . . . . 542,123 538,866 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,448 4,255 -------- -------- $839,849 $717,082 ======== ======== Liabilities ----------- 8.125% Notes, payable in 1996 . . . . . . . . . . . . . . . . . . . . . . $120,000 $120,000 Borrowings under investment agreements and other debt . . . . . . . . . . 493,678 369,964 Annuity reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101,733 41,021 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,266 31,458 -------- -------- $746,677 $562,443 ======== ========
NOTE 11. UNREALIZED APPRECIATION OF INVESTMENTS Changes in "Unrealized appreciation of investments, net", the balance of which is carried in shareholders' equity, were as follows during the third quarter and first nine months of 1995 and 1994:
(000s omitted) Third Quarter First Nine Months -------------------------- -------------------------- 1995 1994 1995 1994 ---------- ---------- ----------- ---------- Increase in unrealized appreciation . . . . . $2,020,101 $ 783,555 $ 5,421,056 $ 900,245 Increase in deemed applicable income taxes . . (707,919) (273,902) (1,899,564) (315,758) (Increase) decrease in minority shareholders' interest . . . . . . . . . . . . . . . . . (7,683) 4,099 (37,971) (8,765) ---------- ---------- ----------- ---------- Net increase . . . . . . . . . . . . . . . . 1,304,499 513,752 3,483,521 575,722 Balance at beginning of period . . . . . . . . 8,543,384 5,474,622 6,364,362 5,412,652 ---------- ---------- ----------- ---------- Balance at end of third quarter . . . . . . . $9,847,883 $5,988,374 $ 9,847,883 $5,988,374 ========== ========== =========== ==========
8 10 FORM 10-Q BERKSHIRE HATHAWAY INC. Q/E 9/30/95 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Net earnings for the third quarter and first nine months of the current and prior year are disaggregated in the following table. Amounts are in thousands and each figure is income tax effected.
Third Quarter First Nine Months ----------------------- ----------------------- 1995 1994 1995 1994 -------- -------- -------- -------- Insurance, except realized investment gain/loss . . $ 98,418 $ 73,615 $277,938 $237,063 Manufacturing, merchandising and services . . . . . 33,894 40,074 111,529 128,778 Unallocated income/expense, net . . . . . . . . . . 5,659 6,013 17,863 14,989 Interest expense* . . . . . . . . . . . . . . . . . (8,689) (9,236) (25,234) (29,268) -------- -------- -------- -------- Earnings before realized investment gain/loss . 129,282 110,466 382,096 351,562 Realized investment gain (loss) . . . . . . . . . . 43,187 (4,646) 90,169 51,795 -------- -------- -------- -------- Net earnings . . . . . . . . . . . . . . . . . $172,469 $105,820 $472,265 $403,357 ======== ======== ======== ========
* For purposes of the above table, interest expense of finance businesses is netted against the directly related service activity revenues. INSURANCE GROUP The after tax figures shown above for Insurance Group earnings, except realized investment gain/loss, are aggregated in the following table. Dollar amounts are in thousands.
Third Quarter First Nine Months ------------------------ ------------------------- 1995 1994 1995 1994 --------- --------- -------- ---------- Premiums earned from: Primary or direct insurance . . . . . . . . . . $ 60,497 $ 59,182 $176,354 $163,998 Reinsurance assumed . . . . . . . . . . . . . . 113,355 71,962 403,069 313,162 -------- -------- -------- -------- $173,852 $131,144 $579,423 $477,160 ======== ======== ======== ======== Underwriting gain (loss) attributable to: Primary or direct insurance . . . . . . . . . . $ 6,944 $ 17,229 $ 10,438 $ 22,232 Reinsurance assumed . . . . . . . . . . . . . . (35,860) (26,332) (58,067) (51,066) -------- -------- -------- -------- Total underwriting loss . . . . . . . . . . . (28,916) (9,103) (47,629) (28,834) Net investment income . . . . . . . . . . . . . . . 142,142 94,736 368,809 303,768 -------- -------- -------- -------- Earnings before income taxes . . . . . . . . 113,226 85,633 321,180 274,934 Income tax expense . . . . . . . . . . . . . . . . 13,378 10,540 37,686 33,916 Minority interest . . . . . . . . . . . . . . . . . 1,430 1,478 5,556 3,955 -------- -------- -------- -------- Net earnings from Insurance, except realized investment gain/loss . . . $ 98,418 $ 73,615 $277,938 $237,063 ======== ======== ======== ========
Premiums earned during the third quarter and first nine months of 1995 by the Group's primary or direct insurance operations exceeded amounts earned in the corresponding prior year periods by $1.3 million (2.2%) and $12.4 million (7.5%), respectively. These comparative increases derived from increased amounts earned by the homestate and credit card credit insurance businesses, offset by lower amounts earned by the traditional commercial motor vehicle and California worker's compensation insurance businesses. Despite the comparative increases in the credit insurance and homestate operations, premium volume continues to be constrained by management's perception of inadequate prices for many commercial insurance coverages. 9 11 FORM 10-Q BERKSHIRE HATHAWAY INC. Q/E 9/30/95 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (CONTINUED) INSURANCE GROUP (Continued) Underwriting results of the Group's primary or direct insurance operations for the third quarter and first nine months of 1994 included credits of about $11 million and $22 million, respectively, from reductions of loss reserves established for pre-1994 loss occurrences with respect to the professional/specialty risk operations. There were no similar credits in 1995 periods. Excluding the benefit of the credits in 1994 periods, underwriting gains in 1995 from the primary or direct insurance businesses exceeded gains in 1994 periods by $1 million for the third quarter and $10 million for the first nine months. Reinsurance premiums earned during the third quarter and first nine months of 1995 exceeded amounts earned during the corresponding prior year periods by $41.4 million (57.5%) and $89.9 million (28.7%), respectively. Increased amounts earned in 1995 periods were attributed to a small number of quota-share and non-catastrophe excess of loss treaties. Premiums earned from such policies during the third quarter were $96 million in 1995 and $48 million in 1994. For the first nine months premiums earned from quota share and non- catastrophe coverages totalled $265 million in 1995 and $145 million in 1994. Premiums earned from catastrophe excess of loss coverages during the third quarter were $13 million in 1995 and $24 million in 1994. Amounts earned from such coverages for the first nine months were $133 million in 1995 and $167 million in 1994. In recent years, significant amounts of industry capital has been devoted to the catastrophe excess of loss business and prices for these coverages have declined in many instances to levels considered inadequate by management. Premiums earned from catastrophe coverages may decline in the future. Underwriting losses from quota share and non-catastrophe reinsurance coverages totalled $23 million and $6 million for the third quarter of 1995 and 1994, respectively. For the first nine months, underwriting losses derived from these coverages totalled about $79 million in 1995 and $42 million in 1994. The catastrophe excess of loss business produced a small gain in the third quarter of 1995 compared to a small loss in 1994. Underwriting gains from the catastrophe business totalled $74 million and $40 million for the first nine months of 1995 and 1994, respectively. Reinsurance underwriting results also include charges related to accretion of discounted structured settlement liabilities and amortization of deferred charges established with respect to retroactive reinsurance contracts. These recurring charges, with no offsetting premium income, totalled $19 million and $17 million for the third quarter of 1995 and 1994, respectively. For the first nine months, such charges aggregated $53 million in 1995 and $49 million in 1994. During the fourth quarter of 1995, many catastrophe policies will expire and the related premiums will be earned reflecting the Group's practice to defer earning catastrophe premiums until the earlier of a loss occurrence or policy expiration. In the absence of any fourth quarter catastrophe occurrences, this business could produce a pre-tax net underwriting gain of about $85 million. This compares to 1994's fourth quarter pre-tax gain of about $200 million. Net investment income of the Insurance Group for the third quarter and first nine months of 1995 and 1994 included the Group's equity in net earnings of Salomon Inc with respect to the Group's investment in common stock of that company. For the third quarter, the equity in net earnings was $15 million in 1995 compared to a loss of $8 million in 1994. For the first nine months of 1995, the Group's equity in net earnings of Salomon Inc was $14 million compared to a loss of $22 million for the first nine months of 1994. The Group continues to employ substantial amounts of investable policyholder funds, or "float", about $3.8 billion at September 30, 1995. 10 12 FORM 10-Q BERKSHIRE HATHAWAY INC. Q/E 9/30/95 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (CONTINUED) MANUFACTURING, MERCHANDISING AND SERVICES Results of operations of Berkshire's diverse non-insurance businesses are aggregated in the following table. Dollar amounts are in thousands.
Third Quarter First Nine Months ------------------------------------ ------------------------------------- 1995 1994 1995 1994 ---------------- ---------------- ---------------- ----------------- Amount % Amount % Amount % Amount % -------- ----- -------- ----- ---------- ----- ---------- ----- Revenues . . . . . . . . . . . $688,173 100.0 $561,669 100.0 $1,890,275 100.0 $1,686,153 100.0 Costs and expenses . . . . . . 629,120 91.4 496,206 88.3 1,700,054 89.9 1,474,911 87.5 -------- ----- -------- ----- ---------- ----- ---------- ----- Earnings before income taxes . 59,053 8.6 65,463 11.7 190,221 10.1 211,242 12.5 Applicable income taxes . . . . 23,999 3.5 24,486 4.4 75,658 4.0 79,798 4.7 Applicable minority interest . 1,160 0.2 903 0.2 3,034 0.2 2,666 0.2 -------- ----- -------- ----- ---------- ----- ---------- ----- Net earnings . . . . . . . . . $ 33,894 4.9 $ 40,074 7.1 $ 111,529 5.9 $ 128,778 7.6 ======== ===== ======== ===== ========== ===== ========== =====
Revenues from these several and diverse business activities during 1995's third quarter and first nine months were greater by $126.5 million (22.5%) and $204.1 million (12.1%). Much of the increase during the third quarter and for the first nine months resulted from the acquisitions of Helzberg's Diamond Shops, Inc. ("Helzberg's") and R.C. Willey Home Furnishings ("R.C. Willey"). Helzberg's operates a chain of 150 jewelry stores and R. C. Willey is the dominant retailer of home furnishings in Utah. As discussed in the Notes to the Interim Consolidated Financial Statements, these businesses were acquired during 1995's second quarter and their results are included in the statement of earnings from the effective dates of the acquisitions. It is anticipated that Helzberg's and R.C. Willey will generate combined annual revenues of about $600 million. Also contributing to the aforementioned revenue increases were comparative increases recorded for both the third quarter and first nine months by Berkshire's home furnishings (Nebraska Furniture Mart) and home cleaning systems (Kirby brand products) segments. Somewhat offsetting these increases were declines in comparative revenues for both the third quarter and first nine months by Berkshire's encyclopedia (World Book products) and shoe (H. H. Brown Shoe Company, Lowell Shoe, Inc. and Dexter Shoe Company) segments. Net earnings from this group of businesses declined $6.2 million (15.4%) during 1995's third quarter and $17.2 million (13.4%) during 1995's first nine months as compared to the prior year. The inclusion of Helzberg's and R.C. Willey in 1995's third quarter and first nine months had a favorable impact on comparative results. However, more than offsetting the favorable impact of these acquisitions were declines in 1995 net earnings as compared to 1994 in the third quarter and first nine months from Berkshire's encyclopedia and shoe segments. UNALLOCATED INCOME/EXPENSE, NET Unallocated income/expense represents principally investment income of the parent company and non-insurance subsidiaries, reduced by parent company administrative costs. INTEREST EXPENSE Average outstanding borrowings under investment agreements during the first nine months of 1995 were approximately $105 million less than the average amount outstanding during the first nine months of 1994. The decline in borrowings accounted for most of the reduction in interest expense in 1995 as compared to 1994. 11 13 FORM 10-Q BERKSHIRE HATHAWAY INC. Q/E 9/30/95 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (CONTINUED) REALIZED INVESTMENT GAIN/LOSS Realized investment gain/loss has been a recurring element in Berkshire's net earnings for many years. The amount -- recorded when securities are sold or other than temporarily impaired -- may fluctuate significantly from period to period, with a meaningful effect upon Berkshire's consolidated net earnings. But, the amount of realized investment gain or loss for any given period has no predictive value, and variations in amount from period to period have no practical analytical value, particularly in view of the net unrealized price appreciation now existing in Berkshire's consolidated investment portfolio. FINANCIAL CONDITION Berkshire's balance sheet continues to reflect significant liquidity and above average capital strength. Shareholders' equity at September 30, 1995, was $16.2 billion or $13,556 per share. Over the past twelve months, net book value per share has grown by 40.0%. It is anticipated that the closing of the transaction whereby Berkshire will acquire all of the GEICO shares it does not currently own will occur during early 1996. The total cash consideration required at the closing of approximately $2.3 billion will be obtained from internally generated funds. PART II OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits Exhibit 27 -- Financial Data Schedule b. Reports on Form 8-K Form 8-K Filed August 25, 1995 - Item 5 Other Events SIGNATURE Pursuant to the requirement of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. BERKSHIRE HATHAWAY INC. ----------------------- (Registrant) Date November 10, 1995 /s/ Marc D. Hamburg ----------------- ------------------------------- (Signature) Marc D. Hamburg, Vice President and Principal Financial Officer
12 EX-27 2 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Registrant's financial statements and related notes contained in Form 10-Q as filed herewith, and is qualified in its entirety by reference to such financial statements and related notes. 1,000 U.S. DOLLARS 9-MOS DEC-31-1995 JAN-01-1995 SEP-30-1995 1 1,879,200 22,745,926 784,525 0 609,503 0 335,917 0 28,383,180 0 806,607 6,907 0 0 16,172,330 28,383,180 1,871,380 2,472,332 1,189,534 1,815,898 0 0 40,552 638,315 155,648 472,265 0 0 0 472,265 399 399
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