BERKSHIRE HATHAWAY INC.
COMBINED FINANCIAL STATEMENTS
BUSINESS GROUPS
Berkshire's consolidated data is rearranged in the presentations on the following six pages into four categories, corresponding to the way Mr. Buffett and Mr. Munger think about Berkshire's businesses. The presentations may be helpful to readers in making estimates of Berkshire's intrinsic value. The presentations in this section do not conform in all respects to generally accepted accounting principles. Principal departures from GAAP relate to accounting treatment for assets acquired in business acquisitions, although students and practitioners of accounting will recognize others. Opinions of Berkshire's independent auditors were not solicited for this data. The four-category presentations in no way fell within their purview.
BERKSHIRE HATHAWAY INC.
INSURANCE GROUP
Berkshire's insurance businesses are comprised of three operating
groups of subsidiaries. The largest group (in terms of premium volume) is
GEICO Corporation ("GEICO") whose business was merged with another
Berkshire subsidiary at the beginning of 1996. Prior to that date,
Berkshire subsidiaries owned approximately 51% of the then outstanding
capital stock of GEICO. GEICO, through its subsidiaries, is a multiple
line property and casualty insurer the principal business of which is
writing private passenger automobile insurance. Currently the seventh
largest auto insurer in the U.S., GEICO's voluntary auto policy count
grew 10% during the twelve months ended December 31, 1996. At the same
time, outstanding underwriting results continued to be generated.
The Berkshire Hathaway Reinsurance Division provides treaty and
limited facultative reinsurance to other property/casualty insurers and
reinsurers. Berkshire is one of the world's leading providers of
catastrophe excess of loss reinsurance. Berkshire's unparalled capital
strength has enabled it to offer dollar coverages of a magnitude far in
excess of its competitors.
Berkshire's third group of businesses underwrite miscellaneous forms
of direct insurance. National Indemnity Company and other affiliated
entities underwrite multiple lines of traditional insurance for primarily
commercial accounts. The "Homestate Group" companies underwrite various
commercial coverages for risks in an increasing number of selected
states. Cypress Insurance Company provides workers' compensation
insurance to employers in California and more recently in six other
states. Central States Indemnity Company issues credit insurance
distributed through credit card issuers nationwide In addition, in mid-
1996, Kansas Bankers Surety Company, an insurer for primarily small and
medium sized banks located in the midwest, was acquired by a Berkshire
subsidiary.
The Berkshire Hathaway Insurance Group maintains capital strength at
unparalleled high levels. Statutory surplus as regards policyholders of
the Insurance Group increased to about $26 billion at December 31, 1996.
The obvious margins of safety thus provided to insureds of the Group are
particularly persuasive in marketing of individually negotiated insurance
and reinsurance contracts.
Combined financial statements of the Insurance Group - unaudited and
not fully adjusted to conform to Generally Accepted Accounting Principles -
are presented on the following page.
BERKSHIRE HATHAWAY INC.
INSURANCE GROUP
Balance Sheets
(dollars in millions)
December 31,
------------------------
1996 1995
---------- ----------
Assets
Investments:
Fixed maturities at market . . . . . . . . $ 5,462.4 $ 1,368.5
Equity securities at market:
American Express Company . . . . . . . . 2,731.8 2,000.5
Capital Cities/ABC, Inc. . . . . . . . . -- 2,405.8
The Coca-Cola Company. . . . . . . . . . 10,499.7 7,407.2
The Walt Disney Company. . . . . . . . . 1,680.2 --
Federal Home Loan Mortgage Corporation . 1,772.8 1,044.0
GEICO Corporation. . . . . . . . . . . . -- 2,393.2
The Gillette Company . . . . . . . . . . 3,732.0 2,502.0
McDonalds Corporation. . . . . . . . . . 1,356.2 504.9
Wells Fargo & Company. . . . . . . . . . 1,916.8 1,426.8
Other. . . . . . . . . . . . . . . . . . 3,862.1 2,363.4
--------- ---------
33,014.0 23,416.3
Cash and cash equivalents. . . . . . . . . . 513.7 2,328.9
Deferred costs . . . . . . . . . . . . . . . 437.5 410.6
Other. . . . . . . . . . . . . . . . . . . . 1,022.0 314.5
--------- ---------
$34,987.2 $26,470.3
========= =========
Liabilities
Losses and loss adjustment expenses. . . . . $ 6,274.4 $ 3,698.6
Unearned premiums. . . . . . . . . . . . . . 1,183.5 374.1
Funds held under reinsurance assumed . . . . 449.6 379.0
Policyholder liabilities and other accruals 802.0 238.9
Income taxes, principally deferred . . . . . 6,611.8 5,483.3
--------- ---------
15,321.3 10,173.9
--------- ---------
Equity
Minority shareholders' . . . . . . . . . . . 258.1 196.4
Berkshire shareholders'. . . . . . . . . . . 19,407.8 16,100.0
--------- ---------
19,665.9 16,296.4
--------- ---------
$34,987.2 $26,470.3
========= =========
Statements of Earnings
(dollars in millions)
1996 1995 1994
-------- -------- --------
Premiums written . . . . . . . . . . . $4,105.2 $1,024.2 $ 915.5
======== ======== ========
Premiums earned. . . . . . . . . . . . $4,117.8 $ 957.5 $ 923.2
-------- -------- --------
Losses and loss expenses . . . . . . . 3,089.5 612.0 565.3
Underwriting expenses. . . . . . . . . 806.2 325.0 228.0
-------- -------- --------
Total losses and expenses. . . . . . 3,895.7 937.0 793.3
-------- -------- --------
Underwriting gain - pre-tax. . . . . 222.1 20.5 129.9
Net investment income* . . . . . . . . 726.2 501.6 419.4
Realized investment gain . . . . . . . 2,289.8 181.1 92.0
Other-than-temporary decline
in value of investment in
USAir Group, Inc. Preferred Stock. . -- -- (261.0)
-------- -------- --------
Earnings before income taxes . . . . . 3,238.1 703.2 380.3
Income tax expense . . . . . . . . . . 1,006.6 149.0 51.7
-------- -------- --------
2,231.5 554.2 328.6
Minority interest. . . . . . . . . . . 7.6 7.5 4.3
-------- -------- --------
Net earnings . . . . . . . . . . . . . $2,223.9 $ 546.7 $ 324.3
======== ======== ========
*Net investment income is summarized below:
Dividends . . . . . . . . . . . . . $418.4 $385.0 $362.4
Interest. . . . . . . . . . . . . . 321.9 99.6 92.2
Equity in unremitted net
earnings (loss) of Salomon Inc. . -- 18.3 (31.7)
Investment expenses . . . . . . . . (14.1) (1.3) (3.5)
-------- -------- --------
$726.2 $501.6 $419.4
======== ======== ========
These statements do not conform to GAAP in all respects
These statements are unaudited
BERKSHIRE HATHAWAY INC.
MANUFACTURING, PUBLISHING AND RETAILING BUSINESSES
Combined financial statements of Berkshire's Manufacturing, Publishing
and Retailing businesses - unaudited and not fully adjusted to conform to
Generally Accepted Accounting Principles - are presented on the following
page. The operations whose data have been combined in these presentations
include the following:
Operation Product/Service/Activity
Adalet - PLM Explosion proof electrical enclosures,
cable couplers and terminations
Blue Chip Stamps Marketing motivational services
Borsheim's Retailing fine jewelry
Buffalo News Daily and Sunday newspaper
Campbell Hausfeld Air compressors, air tools, painting
systems, pressure washers, welders and
generators
Carefree Comfort and convenience products for the
recreational vehicle industry
Cleveland Wood Products Vacuum cleaner brushes and bags
Dexter Shoe Companies Dress, casual and athletic shoes
Douglas Products Specialty and cordless vacuum cleaners
Fechheimer Bros. Co. Uniforms and accessories
FlightSafety High technology training to operators of
aircraft and ships
France Appliance controls; ignition and sign
transformers
H. H. Brown Shoe Co. Work shoes, boots and casual footwear
Halex Zinc die cast conduit fittings and other
electrical construction materials
Helzberg's Diamond Shops Retailing fine jewelry
Kirby Home cleaning systems
Lowell Shoe, Inc. Women's and nurses' shoes
Meriam Pressure and flow measurement devices
Nebraska Furniture Mart Retailing home furnishings
Northland Fractional horsepower electric motors
Powerwinch Marine and general purpose winches,
windlasses, and hoists
Precision Steel Products Steel service center
Quikut Cutlery for the home and sporting goods
markets
ScottCare Cardiopulmonary rehabilitation and
monitoring equipment
Scot Labs Cleaning and maintenance chemicals
See's Candies Boxed chocolates and other confectionery
products
Stahl Custom steel service bodies, flatbed
bodies, cranes and tool boxes for trucks
Wayne Furnace burners; sump, utility and sewage
pumps
Western Enterprises Medical and industrial compressed gas
fittings and regulators
Western Plastics Molded plastic components
R.C. Willey Home Furnishings Retailing home furnishings
World Book Printed and multimedia encyclopedias and
other reference materials
BERKSHIRE HATHAWAY INC.
MANUFACTURING, PUBLISHING AND RETAILING BUSINESSES
Balance Sheets
(dollars in millions)
December 31,
--------------------
1996 1995
-------- --------
Assets
Cash and cash equivalents. . . . . . . . . . . $ 61.1 $ 124.5
Accounts receivable. . . . . . . . . . . . . . 563.1 454.7
Inventories. . . . . . . . . . . . . . . . . . 578.7 556.0
Properties and equipment . . . . . . . . . . . 863.2 285.5
Other. . . . . . . . . . . . . . . . . . . . . 97.9 34.3
-------- --------
$2,164.0 $1,455.0
======== ========
Liabilities
Accounts payable, accruals and other . . . . . $ 523.3 $ 398.3
Income taxes . . . . . . . . . . . . . . . . . 126.9 20.1
Term debt and other borrowings . . . . . . . . 193.3 150.6
-------- --------
843.5 569.0
-------- --------
Equity
Minority shareholders' . . . . . . . . . . . . 51.6 39.5
Berkshire shareholders'. . . . . . . . . . . . 1,268.9 846.5
-------- --------
1,320.5 886.0
-------- --------
$2,164.0 $1,455.0
======== ========
Statements of Earnings
(dollars in millions)
1996 1995 1994
-------- -------- --------
Revenues:
Sales and service revenues. . . . . . . . $3,061.9 $2,755.9 $2,351.9
Interest income . . . . . . . . . . . . . 38.8 25.1 9.1
-------- -------- --------
3,100.7 2,781.0 2,361.0
-------- -------- --------
Cost and expenses:
Cost of products and services sold . . . 1,875.7 1,698.4 1,442.9
Selling, general and administrative expenses 832.1 741.4 578.5
Interest on debt. . . . . . . . . . . . . 15.3 9.1 3.7
-------- -------- --------
2,723.1 2,448.9 2,025.1
-------- -------- --------
Earnings from operations before income taxes 377.6 332.1 335.9
Income tax expense. . . . . . . . . . . . 138.3 126.4 122.3
-------- -------- --------
239.3 205.7 213.6
Minority interest . . . . . . . . . . . . 5.1 4.5 4.9
-------- -------- --------
Net earnings. . . . . . . . . . . . . . . $ 234.2 $ 201.2 $ 208.7
======== ======== ========
This presentation reflects the results of operations of Helzberg's
Diamond Shops, R.C. Willey Home Furnishings and FlightSafety
International from their respective dates of acquisition (Helzberg's -
April 30, 1995; Willey - June 29, 1995; FlightSafety - December 23,
1996). Accordingly, while the 1996 balance sheet includes the assets and
liabilities of FlightSafety as of December 31, 1996, the statement of
earnings for 1996 includes FlightSafety's operating results for only the
last eight days of the year.
Purchase accounting adjustments, including goodwill, arising from
Berkshire's business acquisitions are not reflected in these statements,
but instead are reflected in the statements of non-operating activities
at page 57.
These statements do not conform to GAAP in all respects
These statements are unaudited
BERKSHIRE HATHAWAY INC.
FINANCE BUSINESSES
Scott Fetzer Financial Group, Inc., Berkshire Hathaway Credit Corporation and Berkshire Hathaway Life Insurance Co. of Nebraska make up Berkshire's finance businesses.
Balance Sheets
(dollars in millions)
December 31,
--------------------
1996 1995
-------- --------
Assets
Cash and cash equivalents. . . . . . . . . . . $ 10.5 $ 40.7
Fixed maturity investments . . . . . . . . . . 742.4 529.4
Installment and other receivables. . . . . . . 228.4 195.7
Deferred tax assets. . . . . . . . . . . . . . 22.5 14.2
Other. . . . . . . . . . . . . . . . . . . . . 0.1 0.7
-------- --------
$1,003.9 $ 780.7
======== ========
Liabilities
Borrowings under investment agreements
and other debt. . . . . . . . . . . . . . . . $ 381.3 $ 523.6
Annuity reserves and policyholder liabilities 434.8 116.7
Accounts payable, accruals and other. . . . . . 123.9 76.5
-------- --------
940.0 716.8
-------- --------
Equity
Berkshire shareholders' . . . . . . . . . . . . 63.9 63.9
-------- --------
$1,003.9 $ 780.7
======== ========
Statements of Earnings
(dollars in millions)
1996 1995 1994
------ ------ ------
Revenues:
Interest and fees on loans
and financed receivables. . . . . . . . . . $ 38.8 $ 37.9 $ 37.8
Interest and dividends on investment securities 54.9 43.7 35.4
Annuity premiums earned . . . . . . . . . . . 259.5 75.2 36.0
------ ------ ------
353.2 156.8 109.2
------ ------ ------
Expenses:
Interest expense. . . . . . . . . . . . . . . 32.6 38.7 35.5
Annuity benefits and underwriting expenses. . 276.7 80.8 37.7
General and administrative. . . . . . . . . . 20.8 16.5 13.9
------ ------ ------
330.1 136.0 87.1
------ ------ ------
Earnings from operations before income taxes 23.1 20.8 22.1
Income tax expense. . . . . . . . . . . . . . 8.2 8.2 7.5
------ ------ ------
Net earnings. . . . . . . . . . . . . . . . . $ 14.9 $ 12.6 $ 14.6
====== ====== ======
These statements do not conform to GAAP in all respects
These statements are unaudited
BERKSHIRE HATHAWAY INC.
NON-OPERATING ACTIVITIES
These statements reflect the consolidated financial statement values for assets, liabilities, shareholders' equity, revenues and expenses that were not assigned to any Berkshire operating group in the unaudited, and not fully GAAP - adjusted group financial statements heretofore presented (pages 51 to 56).
Statements of Net Assets
(dollars in millions)
December 31,
--------------------
1996 1995
-------- --------
Assets
Cash and cash equivalents . . . . . . . . . . . $ 765.0 $ 250.4
Investments:
Fixed maturities:
Bonds . . . . . . . . . . . . . . . . . . . 942.5 8.2
Preferred stocks. . . . . . . . . . . . . . 42.0 46.6
Equity securities . . . . . . . . . . . . . . 199.0 187.1
Unamortized goodwill and
other purchase accounting adjustments * . . . 3,149.8 747.6
Deferred tax assets . . . . . . . . . . . . . . 31.3 2.4
Other . . . . . . . . . . . . . . . . . . . . . 258.8 56.6
-------- --------
$5,388.4 $1,298.9
======== ========
Liabilities
Accounts payable, accruals and other. . . . . . $ 816.4 $ 50.6
Income taxes. . . . . . . . . . . . . . . . . . 142.7 94.4
Borrowings under investment agreements
and other debt. . . . . . . . . . . . . . . . 1,718.2 918.6
-------- --------
2,677.3 1,063.6
-------- --------
Equity
Minority shareholders'. . . . . . . . . . . . . 25.4 28.6
Berkshire shareholders' . . . . . . . . . . . . 2,685.7 206.7
-------- --------
2,711.1 235.3
-------- --------
$5,388.4 $1,298.9
======== ========
Statements of Earnings
(dollars in millions)
1996 1995 1994
------ ------ ------
Revenues:
Interest and dividend income. . . . . . . . . $ 54.6 $ 37.5 $ 31.1
Realized investment gain (loss) . . . . . . . 194.7 13.0 (0.7)
------ ------ ------
249.3 50.5 30.4
------ ------ ------
Expenses:
Corporate administration. . . . . . . . . . . 5.1 5.3 5.0
Shareholder-designated contributions. . . . . 13.3 11.6 10.4
Amortization of goodwill
and purchase accounting adjustments * . . . 75.7 27.0 22.5
Interest on debt. . . . . . . . . . . . . . . 90.9 55.3 59.4
Other (income) expense. . . . . . . . . . . . (2.8) (1.4) 1.7
Other-than-temporary decline
in value of investment in
USAir Group, Inc. Preferred Stock . . . . . -- -- 7.5
------ ------ ------
182.2 97.8 106.5
------ ------ ------
Income (loss) before income taxes . . . . . . 67.1 (47.3) (76.1)
Income tax expense (benefit). . . . . . . . . 43.7 (13.3) (22.8)
------ ------ ------
23.4 (34.0) (53.3)
Minority interest . . . . . . . . . . . . . . 7.8 1.3 (0.5)
------ ------ ------
Net loss. . . . . . . . . . . . . . . . . . . $ 15.6 $(35.3) $(52.8)
* Purchase accounting adjustments and goodwill arose in accounting for
business acquisitions.
These statements do not conform to GAAP in all respects
These statements are unaudited