BERKSHIRE HATHAWAY INC.
2
INTERIM REPORT
For the Quarter
Ended June 30, 1996
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in millions except per share amounts)
June 30, December 31,
1996 1995
--------- ---------
ASSETS
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . .$ 866.4 $ 2,703.8
Investments:
Securities with fixed maturities at estimated fair value:
Maturing within two years (cost: 1996-$2,761.9; 1995-$596.5) . . 2,786.8 615.7
Maturing after two years (cost: 1996-$3,293.5; 1995-$651.7). . . 3,425.9 807.5
Equity securities. . . . . . . . . . . . . . . . . . . . . . . . . 24,049.8 21,017.6
Receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,441.7 718.9
Assets of finance businesses . . . . . . . . . . . . . . . . . . . . 899.3 756.7
Goodwill of acquired businesses. . . . . . . . . . . . . . . . . . . 2,259.6 672.0
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,664.4 1,419.2
--------- ---------
$37,393.9 $28,711.4
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Losses and loss adjustment expenses. . . . . . . . . . . . . . . . .$ 6,094.3 $ 3,698.6
Unearned premiums. . . . . . . . . . . . . . . . . . . . . . . . . . 1,435.2 374.1
Accounts payable, accruals and other liabilities . . . . . . . . . . 1,463.1 1,039.1
Income taxes, principally deferred . . . . . . . . . . . . . . . . . 5,771.5 4,849.5
Borrowings under investment agreements and other debt. . . . . . . . 1,500.4 1,061.7
Liabilities of finance businesses. . . . . . . . . . . . . . . . . . 828.3 685.2
--------- ---------
17,092.8 11,708.2
--------- ---------
Minority shareholders' interests . . . . . . . . . . . . . . . . . . 290.1 264.5
--------- ---------
Shareholders' equity:
Common Stock: *
Class A Common Stock, $5 par value, 1,378,135 and 1,381,308
shares issued; 1,190,339 and 1,193,512 shares outstanding . . . .$ 6.9 $ 6.9
Class B Common Stock, $0.1667 par value, 612,690 shares issued
and outstanding in 1996 . . . . . . . . . . . . . . . . . . . . . 0.1 -0-
Capital in excess of par value . . . . . . . . . . . . . . . . . . 1,566.6 1,001.7
Unrealized appreciation of investments, net. . . . . . . . . . . . 10,068.1 9,220.7
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . 8,404.0 6,544.1
--------- ---------
20,045.7 16,773.4
Less: Cost of 187,796 Class A common shares in treasury. . . . . . 34.7 34.7
--------- ---------
Total shareholders' equity. . . . . . . . . . . . . . . . . . 20,011.0 16,738.7
--------- ---------
$37,393.9 $28,711.4
========= =========
* As more fully described in the Notes to Interim Consolidated Financial Statements, on May 8, 1996, Berkshire
issued 517,500 shares of Class B Common Stock having economic rights equal to one-thirtieth (1/30) of the
economic rights of Class A Common Stock. Accordingly, on an equivalent Class A Common Stock basis, there are
1,210,762 shares outstanding at June 30, 1996 versus 1,193,512 outstanding at December 31, 1995. Net book
value per equivalent Class A Common share is $16,528 at June 30, 1996 and $14,025 at December 31, 1995.
See accompanying Notes
BERKSHIRE HATHAWAY INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(dollars in millions except per share amounts)
Second Quarter First Half
-------------------- -------------------
1996 1995 1996 1995
--------- -------- -------- --------
Revenues:
Insurance premiums earned. . . . . . . . . . . . . . $1,011.7 $ 174.2 $1,933.6 $ 405.6
Sales and service revenues . . . . . . . . . . . . . 715.1 617.0 1,415.2 1,188.7
Interest, dividend and other investment income . . . 190.0 138.6 362.2 280.5
Income from finance businesses . . . . . . . . . . . 5.2 6.9 11.0 13.2
Realized investment gain (loss). . . . . . . . . . . (7.2) 81.7 2,332.5 74.4
-------- -------- -------- --------
1,914.8 1,018.4 6,054.5 1,962.4
-------- -------- -------- --------
Cost and expenses:
Insurance losses and loss adjustment expenses. . . . 784.1 132.8 1,522.0 315.7
Insurance underwriting expenses. . . . . . . . . . . 172.2 50.4 333.7 108.1
Cost of products and services sold . . . . . . . . . 449.0 388.0 880.5 747.4
Selling, general and administrative expenses . . . . 203.7 166.4 414.6 318.1
Goodwill amortization. . . . . . . . . . . . . . . . 15.5 3.7 30.6 6.9
Interest expense . . . . . . . . . . . . . . . . . . 26.9 13.4 53.2 26.6
-------- -------- -------- --------
1,651.4 754.7 3,234.6 1,522.8
-------- -------- -------- --------
Earnings before income taxes and minority interest . . 263.4 263.7 2,819.9 439.6
Income taxes . . . . . . . . . . . . . . . . . . . . 69.1 67.4 947.2 100.8
Minority interest. . . . . . . . . . . . . . . . . . 3.1 4.3 12.8 7.6
-------- -------- -------- --------
Net earnings . . . . . . . . . . . . . . . . . . . . . $ 191.2 $ 192.0 $1,859.9 $ 331.2
======== ======== ======== ========
Average shares outstanding * . . . . . . . . . . . .1,203,748 1,183,392 1,198,630 1,180,587
Net earnings per share * . . . . . . . . . . . . . . . $159 $162 $1,552 $281
==== ==== ====== ====
* As more fully described in the Notes to Interim Consolidated Financial Statements, on May 8, 1996, Berkshire issued 517,500
shares of Class B Common Stock having economic rights equal to one-thirtieth (1/30) of Class A Common Stock. Average
shares outstanding for the 1996 periods include average Class A Common shares and average Class B Common shares
determined on an equivalent Class A Common Stock basis. Net earnings per share shown above represents net earnings per
Class A Common share. Net earnings per Class B Common share is equal to one-thirtieth (1/30) of such amount or $5 and
$52 per share for the second quarter and first half of 1996 respectively.
See accompanying Notes
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
First Half
---------------------
1996 1995
--------- ---------
Net cash flows from operating activities . . . . . . . . . . . . . . . . .$ 346.1 $ 512.3
Cash flows from investing activities:
Purchases of investments. . . . . . . . . . . . . . . . . . . . . . . (2,430.8) (1,260.6)
Proceeds on sales and maturities of investments . . . . . . . . . . . 1,759.3 1,626.2
Loans and investments originated in finance businesses. . . . . . . . (332.5) (167.3)
Principal collections on loans and investments originated
in finance businesses . . . . . . . . . . . . . . . . . . . . . . . 189.9 163.5
Acquisition of business . . . . . . . . . . . . . . . . . . . . . . . (1,946.2) -0-
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (18.6) (8.2)
--------- ---------
Net cash flows from investing activities . . . . . . . . . . . . . . . . . (2,778.9) 353.6
--------- ---------
Cash flows from financing activities:
Proceeds from borrowings of finance businesses. . . . . . . . . . . . 115.3 74.7
Proceeds from other borrowings. . . . . . . . . . . . . . . . . . . . 610.6 513.7
Repayments of borrowings of finance businesses. . . . . . . . . . . . (129.5) (144.6)
Repayments of other borrowings. . . . . . . . . . . . . . . . . . . . (580.8) (596.1)
Net proceeds from issuance of Class B Common Stock. . . . . . . . . . 565.0 -0-
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1.2) (0.3)
--------- ---------
Net cash flows from financing activities . . . . . . . . . . . . . . . . . 579.4 (152.6)
--------- ---------
Increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . (1,853.4) 713.3
Cash and cash equivalents at beginning of year*. . . . . . . . . . . . . . 2,744.5 289.9
--------- ---------
Cash and cash equivalents at end of first half*. . . . . . . . . . . . . .$ 891.1 $ 1,003.2
========= =========
Supplemental cash flow information:
Cash paid during the period for:
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 524.6 $ 145.5
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62.8 39.8
Non-cash investing activities:
Liabilities assumed in connection with acquisitions of businesses . . . 3,901.5 248.5
Common shares issued in connection with acquisitions of businesses. . . -0- 348.6
* Cash and cash equivalents are comprised of the following:
Beginning of year:
Finance businesses. . . . . . . . . . . . . . . . . . . . . . . . . . .$ 40.7 $ 16.0
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,703.8 273.9
--------- ---------
$ 2,744.5 $ 289.9
========= =========
End of first half:
Finance businesses. . . . . . . . . . . . . . . . . . . . . . . . . . .$ 24.7 $ 26.2
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 866.4 977.0
--------- ---------
$ 891.1 $ 1,003.2
========= =========
See accompanying Notes
BERKSHIRE HATHAWAY INC.
Notes to Interim Consolidated Financial Statements
June 30, 1996
Note 1. General
As more fully discussed in Note 2, on January 2, 1996, GEICO Corporation ("GEICO") became a wholly-owned
subsidiary of Berkshire Hathaway Inc. ("Berkshire" or "Company"). Consequently, the Condensed Consolidated
Balance Sheet as of June 30, 1996 and the Consolidated Statements of Earnings for the second quarter and first
half of 1996 include the accounts of GEICO. Prior to January 2, 1996, Berkshire owned approximately 51% of the
outstanding common stock of GEICO. Previously the investment in GEICO common stock had been classified as
an available-for-sale security and was carried in Berkshire's Consolidated Balance Sheet at fair value.
Generally accepted accounting principles require that prior year financial statements be restated when control
of a business is obtained on a "step-by-step" basis. Accordingly, the Condensed Consolidated Balance Sheet as
of December 31, 1995 and the Consolidated Statements of Earnings for the second quarter and first half of 1995
have been restated to account for Berkshire's previous investment in GEICO common stock under the equity method.
Berkshire's proportionate share of GEICO's net income reduced by amortization of related goodwill is included in the
1995 Consolidated Statement of Earnings as a component of interest, dividend and other investment income. The
principal effect of the restatement was to decrease shareholders' equity as of December 31, 1995 by $478.4 million
from the amount previously reported.
Reference is made to Berkshire's most recently issued Annual Report that included information necessary or
useful to understanding of Berkshire's businesses and financial statement presentations. In particular, Berkshire's
significant accounting policies and practices were presented as Note 1 to the Consolidated Financial Statements
included in that Report.
Financial information in this Report reflects any adjustments (consisting only of normal recurring adjustments)
which are, in the opinion of management, necessary to a fair statement of results for the interim periods in
accordance with generally accepted accounting principles.
For a number of reasons, Berkshire's results for interim periods are not normally indicative of results to be
expected for the year. Most significantly, the estimation error inherent to the process of determining liabilities for
unpaid losses of insurance subsidiaries can be relatively more significant to results of interim periods than to results
for a full year. Variations in amount and timing of realized securities gains or losses cause significant variations in
periodic net earnings.
Note 2. Business acquisitions
On January 2, 1996, GEICO became a wholly-owned subsidiary as a result of the merger of an indirect wholly-
owned subsidiary of Berkshire with and into GEICO. The date of January 2, 1996 is hereafter referred to as the
"Merger Date". GEICO, through its subsidiaries, is a multiple line property and casualty insurer, the principal
business of which is underwriting private passenger automobile insurance.
The merger was consummated pursuant to an Agreement and Plan of Merger (the "Agreement") dated August
25, 1995. Pursuant to the Agreement, each issued and outstanding common share of GEICO, except shares held
by Berkshire subsidiaries and GEICO, was converted into the right to receive $70 per share, or an aggregate amount
of $2.3 billion (the "Merger Consideration"). The amount of Merger Consideration was based upon 33,284,733
outstanding shares held by the public on the Merger Date.
As of the Merger Date, subsidiaries of Berkshire owned 34,250,000 common shares of GEICO, which were
acquired in years prior to 1981 at an aggregate cost of $45.7 million. Up to the Merger Date, neither Berkshire nor
its subsidiaries had acquired any shares of GEICO common stock since 1980. However, Berkshire's ownership
percentage, due to intervening stock repurchases by GEICO, gradually increased from about 33% in 1980 to almost
51% immediately prior to the Merger Date.
The merger has been accounted for by the purchase method. The excess of the purchase cost over the fair
value of net assets acquired at the Merger Date is recorded as goodwill of acquired businesses and will subsequently
be amortized over 40 years. The following sets forth certain consolidated earnings statement information on a pro
forma basis for the first half of 1995 as if the GEICO merger had been consummated, on the same terms, at the
beginning of that year. Dollars are in millions, except per share amounts.
Insurance premiums earned . . . . .$1,753.2
Total revenues. . . . . . . . . . . 3,301.2
Net income. . . . . . . . . . . . . 323.7
Earnings per share. . . . . . . . . 274
During 1995, the Company consummated mergers with Helzberg's Diamond Shops, Inc. ("Helzberg's") and
R.C. Willey Home Furnishings ("R.C. Willey") by reissuing 15,762 shares of its common stock (subsequently
redesignated Class A Common Stock) held in treasury in exchange for 100% of the common stock of each of these
companies. Helzberg's consists of a chain of 175 jewelry stores operating in 28 states and R.C. Willey, through its
seven locations, is the dominant retailer of home furnishings in Utah.
Each of these mergers was accounted for by the purchase method and, accordingly, the operating results
of these businesses are included in the Company's consolidated results of operations from the effective dates of the
mergers (Helzberg's April 30, 1995; R.C. Willey June 29, 1995). Had the results of these businesses been
included commencing with operations at the beginning of 1995, the reported results would not have been materially
affected.
Note 3. Recapitalization
On May 6, 1996, Berkshire shareholders approved a recapitalization plan which creates a new class of
common stock, designated as Class B Common Stock. In connection therewith, Berkshire's existing common stock
was redesignated as Class A Common Stock. Each share of Class A Common Stock is convertible, at the option
of the holder, into thirty shares of Class B Common Stock.
On May 8, 1996, Berkshire completed its previously announced public offering of 517,500 shares Class B
Common Stock. Berkshire received net proceeds from the offering of $565.0 million. The Company expects that,
in time, it will use the net proceeds for acquisitions of businesses, for augmenting the capital of its insurance
subsidiaries, or for other general corporate purposes.
Since the Class B Common shares are equivalent to one-thirtieth (1/30) of the economic rights of
Class A Common shares, the issuance of the Class B Common Stock was equivalent to the issuance of 17,250
Class A Common shares or approximately 1.4% of Class A Common shares outstanding at the time of the issuance
of Class B Common shares.
Subsequent to the issuance of Class B Common Stock and as of June 30, 1996, shareholders formerly
holding 3,173 shares of Class A Common Stock elected to convert such shares into 95,190 shares of Class B
Common Stock. The following table summarizes Berkshire's common stock activity during the first six months of
1996.
Shares of Shares of
Class A Common Stock Class B Common Stock
Issued Held in Treasury Outstanding Issued and Outstanding
--------- ---------------- ----------- ----------------------
Balance at December 31, 1995 . . . . . .1,381,308 (187,796) 1,193,512 --
Issuance of Class B Common Stock . . . . -- -- -- 517,500
Conversions of Class A Common Stock
to Class B Common Stock . . . . . . . . (3,173) -- (3,173) 95,190
--------- -------- --------- -------
Balance at June 30, 1996 . . . . . . . .1,378,135 (187,796) 1,190,339 612,690
========= ======== ========= =======
Note 4. Investments in equity securities
Data with respect to investments in equity securities are shown in the tabulation below (in millions).
June 30, December 31,
1996 1995
--------- ---------
Total cost. . . . . . . . . . . . . . . . .$ 8,558.1 $ 7,176.2
Gross unrealized gains. . . . . . . . . . . 15,541.0 13,933.4
Gross unrealized losses . . . . . . . . . . (49.3) (92.0)
--------- ---------
Total carrying value. . . . . . . . . . . .$24,049.8 $21,017.6
========= =========
Carrying value:
American Express Company. . . . . . . . .$ 2,207.0 $ 2,046.3
Capital Cities/ABC, Inc. (a). . . . . . . -0- 2,467.5
The Coca-Cola Company . . . . . . . . . . 9,800.0 7,425.0
The Walt Disney Company (a) . . . . . . . 1,547.6 -0-
Federal Home Loan Mortgage Corporation. . 1,373.3 1,044.0
GEICO Corporation (b) . . . . . . . . . . -0- 1,175.8
The Gillette Company. . . . . . . . . . . 2,994.0 2,502.0
Wells Fargo & Company . . . . . . . . . . 1,743.6 1,466.9
All others. . . . . . . . . . . . . . . . 4,384.3 2,890.1
--------- ---------
Total . . . . . . . . . . . . . . . . . .$24,049.8 $21,017.6
========= =========
(a) In March 1996, The Walt Disney Company ("Disney") completed its acquisition of Capital Cities/ABC, Inc.
Subsidiaries of Berkshire received aggregate consideration of $2.5 billion, which included cash of $1.2 billion
and common shares of Disney with a value of $1.3 billion. The Consolidated Statement of Earnings for the
first half of 1996 includes a pre-tax realized investment gain of $2.2 billion from the Disney transaction.
(b) The carrying value of GEICO common stock as of December 31, 1995 has been restated from the amount
previously reported. See Notes 1 and 2.
Note 5. Deferred income tax liability
The tax effects of significant items comprising the Company's net deferred tax liability as of June 30, 1996 and
December 31, 1995 are as follows (in millions):
June 30, December 31,
1996 1995
-------- --------
Deferred tax liabilities:
Relating to unrealized appreciation of investments. . . .$5,478.0 $4,908.5
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 718.4 157.0
-------- --------
6,196.4 5,065.5
Deferred tax assets. . . . . . . . . . . . . . . . . . . . (573.2) (302.8)
-------- --------
Net deferred tax liability. . . . . . . . . . . . . . . .$5,623.2 $4,762.7
======== ========
Note 6. Finance businesses
Assets and liabilities of Berkshire's finance businesses are summarized below (in millions).
June 30, December 31,
1996 1995
Assets -------- --------
Cash and cash equivalents . . . . . . . . .$ 24.7 $ 40.7
Installment loans and other receivables . . 209.2 185.9
Fixed maturity investments. . . . . . . . . 664.9 529.4
Other . . . . . . . . . . . . . . . . . . . 0.5 0.7
-------- --------
$899.3 $756.7
======== ========
Liabilities
8.125% Notes, payable in 1996 . . . . . . .$ 120.0 $ 120.0
Borrowings under investment agreements. . . 389.3 403.6
Annuity reserves. . . . . . . . . . . . . . 264.1 116.7
Other . . . . . . . . . . . . . . . . . . . 54.9 44.9
-------- --------
$ 828.3 $ 685.2
======== ========
Note 7. 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 second quarter and first half of 1996 and 1995 (in millions):
Second Quarter First Half
--------------------- ---------------------
1996 1995 1996 1995
--------- --------- --------- ---------
Increase in unrealized appreciation . . . . .$ 1,764.8 $ 1,706.5 $ 1,349.6 $ 3,275.9
Increase in deemed applicable
income taxes. . . . . . . . . . . . . . . . (617.4) (600.1) (488.7) (1,154.1)
Increase in minority shareholders' interest . (10.6) (14.6) (13.5) (30.3)
--------- --------- --------- ---------
Net increase . . . . . . . . . . . . . . . 1,136.8 1,091.8 847.4 2,091.5
Balance at beginning of period . . . . . . . 8,931.3 6,276.6 9,220.7 5,276.9
--------- --------- --------- ---------
Balance at end of second quarter . . . . . .$10,068.1 $ 7,368.4 $10,068.1 $ 7,368.4
========= ========= ========= =========
Management's Discussion
June 30, 1996
Net earnings for the second quarter and first half of the current and prior year are disaggregated in the following
table. Amounts are in millions and each figure is income tax effected.
Second Quarter First Half
-------------------- --------------------
1996 1995 1996 1995
-------- -------- -------- --------
Insurance, except realized investment gain/loss. .$ 160.5 $ 104.0 $ 289.1 $ 210.9
Manufacturing, merchandising and services. . . . . 43.3 38.4 83.2 77.6
Unallocated income/expense, net. . . . . . . . . . 6.7 6.2 13.8 12.2
Interest expense * . . . . . . . . . . . . . . . . (16.8) (8.4) (32.2) (16.5)
-------- -------- -------- --------
Earnings before realized investment gain/loss. . 193.7 140.2 353.9 284.2
Realized investment gain (loss). . . . . . . . . . (2.5) 51.8 1,506.0 47.0
-------- -------- -------- --------
Net earnings . . . . . . . . . . . . . . . . . .$ 191.2 $ 192.0 $1,859.9 $ 331.2
======== ======== ======== ========
* For purposes of the above table, interest expense of finance businesses is netted against the directly related service activity revenues.
Insurance Group
The after tax figures shown above for Insurance Group earnings, except realized investment gain/loss, are aggregated in the following table.
Dollar amounts are in millions.
Second Quarter First Half
1996 1995 1996 1995
Premiums earned from:
Direct insurance. . . . . . . . . . . . . . .$ 823.6 $ 57.5 $1,629.4 $ 115.9
Reinsurance assumed . . . . . . . . . . . . . 188.1 116.7 304.2 289.7
-------- -------- -------- --------
$1,011.7 $ 174.2 $1,933.6 $ 405.6
======== ======== ======== ========
Underwriting gain (loss) attributable to:
Direct insurance. . . . . . . . . . . . . . .$ 50.1 $ 1.4 $ 90.2 $ 3.5
Reinsurance assumed . . . . . . . . . . . . . 5.5 (10.7) (12.3) (22.2)
-------- -------- -------- --------
Total underwriting gain (loss). . . . . . . 55.6 (9.3) 77.9 (18.7)
Net investment income. . . . . . . . . . . . . . 165.9 128.7 318.9 260.6
Goodwill amortization. . . . . . . . . . . . . . (10.6) -0- (21.4) -0-
-------- -------- -------- --------
Earnings before income taxes. . . . . . . . . 210.9 119.4 375.4 241.9
Income tax expense . . . . . . . . . . . . . . . 48.8 13.6 82.7 26.9
Minority interest. . . . . . . . . . . . . . . . 1.6 1.8 3.6 4.1
-------- -------- -------- --------
Net earnings from Insurance,
except realized investment gain/loss . . .$ 160.5 $ 104.0 $ 289.1 $ 210.9
======== ======== ======== ========
As discussed more fully in the Notes to Interim Consolidated Financial Statements, Berkshire acquired control of GEICO Corporation
("GEICO") in January, 1996. The inclusion of GEICO's accounts in Berkshire's consolidated financial statements beginning in 1996 will
have a significant impact on the revenues and operating results of Berkshire's Insurance Group.
In direct insurance activities, Insurance Group members assume risks of loss from parties who are directly subject to the risks. In
reinsurance activities, the members assume defined portions of similar or dissimilar risks to which other insurers or reinsurers have subjected
themselves in their own insuring activities.
GEICO, through its subsidiaries, provides primarily private passenger automobile coverages to insureds in 49 states and the District of
Columbia. Limited amounts of homeowners, fire and boat insurance are also offered. GEICO policies are marketed mainly by direct response
methods in which customers apply for coverage directly to the company over the telephone or through the mail. This is a significant element
in GEICO's strategy to be a low cost provider of such coverages.
GEICO's underwriting results for the second quarter and first half of 1996 are summarized below. Amounts for 1995 periods are shown
for comparative purposes, although such amounts are not included in Berkshire's Consolidated Financial Statements. Dollar amounts are in
millions.
Second Quarter First Half
------------------------------- -----------------------------------
1996 1995 1996 1995
-------------- -------------- ---------------- ----------------
Amount % Amount % Amount % Amount %
------ ----- ------ ----- -------- ----- -------- -----
Premiums earned. . . . . . .$757.4 100.0 $688.6 100.0 $1,497.6 100.0 $1,347.6 100.0
------ ----- ------ ----- -------- ----- -------- -----
Losses and loss expenses . . 605.6 80.0 577.3 83.8 1,206.8 80.6 1,110.3 82.4
Underwriting expenses. . . . 114.1 15.0 102.3 14.9 223.3 14.9 202.3 15.0
------ ----- ------ ----- -------- ----- -------- -----
719.7 95.0 679.6 98.7 1,430.1 95.5 1,312.6 97.4
------ ===== ------ ===== -------- ===== -------- =====
Underwriting gain. . . . . .$ 37.7 $ 9.0 $ 67.5 $ 35.0
====== ====== ======== ========
Intensified marketing efforts for GEICO's voluntary preferred-risk, standard and non-standard risk private passenger auto insurance have
contributed to the increases in business accepted. Such efforts have resulted in in-force policy growth over the past twelve months of 5.5% in
preferred-risk auto and 26.5% in the standard and non-standard auto lines. Recent trends indicate that growth in GEICO's voluntary auto
lines may accelerate for the remainder of 1996.
Premiums earned in 1996 by other direct insurance businesses totaled $66.2 million for the second quarter and $131.8 million for the first
half. Premiums earned in the second quarter and first half of 1995 were $57.5 million and $115.9 million, respectively. Most of the
comparative increases in premiums earned derived from a relatively small number of commercial property insurance policies written by the
Group's professional liability/specialty risk operations.
In 1996, Berkshire's other direct insurance businesses produced underwriting gains of $12.4 million for the second quarter and $22.7
million for the first half. In each period over half of these gains were produced by the professional liability/specialty risk operations. The
Group's traditional commercial motor vehicle and credit card credit insurance businesses contributed most of the other net underwriting gains.
In the comparable 1995 periods, Berkshire's other direct businesses produced underwriting gains of $1.4 million for the second quarter and
$3.5 million for the first half.
Premiums earned from reinsurance activities for the second quarter and first half of 1996 included $94.1 million and $126.9 million,
respectively, from catastrophe excess-of-loss policies. In 1995 periods, premiums earned from such policies were $39.6 million for the second
quarter and $120.3 million for the first half. Premiums earned from catastrophe excess-of-loss policies reflect the Group's practice to defer
earning such premiums until the earlier of a loss occurrence or policy expiration. Most of the other reinsurance premiums earned in both the
1996 and 1995 periods derived from a few sizable excess-of-loss policies.
Underwriting results from reinsurance activities include gains from catastrophe excess-of-loss policies of $58.3 million for the second quarter
of 1996 and $72.7 million for the first half of 1996. In 1995, gains from catastrophe excess-of-loss policies were $29.1 million for the second
quarter and $68.0 million for the first half. The magnitude of underwriting gains achieved over the past few years by this business should
not be viewed as predictive of future profitability. Depending on the timing and magnitude of catastrophe loss events, underwriting gains
achieved in one period can be easily exceeded by losses in the next period. Potential for extreme volatility in periodic underwriting results from
this business remains.
Charges related to the amortization of deferred charges re reinsurance assumed and accretion of discounted structured settlement liabilities
have been a recurring element of the underwriting results of Berkshire's reinsurance business. These charges reflect recognition of time-value-of-
money concepts. In 1996, such charges were $17.0 million for the second quarter and $36.7 million for the first half. In 1995, such charges
totaled $17.8 million for the second quarter and $34.3 million for the first half.
Other reinsurance activities produced underwriting losses for the second quarter and first half of 1996 totaling $35.8 million and $48.3
million, respectively. In 1995, such losses were $22.0 million for the second quarter and $55.8 million for the first half. Generally, time-value-
of-money concepts are important considerations in establishing premiums for non-catastrophe policies due to the anticipation of more extended
claim payment periods. Underwriting losses often occur as the estimates of losses and loss adjustment expenses are established on an
undiscounted basis, often in amounts exceeding premiums. Nevertheless, this business is accepted because of the large amounts of investable
policyholder funds ("float") generated.
The accompanying consolidated balance sheet includes liabilities of about $6.1 billion representing estimated unpaid losses and loss
adjustment expenses related to insurance and reinsurance activities. Subsequent loss payments will likely differ and further revisions of the
estimates will occur. These revisions will be reflected in earnings in the period made and may have a substantial effect on future periodic
underwriting results.
The Insurance Group continues to generate significant levels of investment income, reflecting large amounts of invested assets. Investable
policyholder funds (or "float") at June 30, 1996 approximated $6.6 billion and included over $2.5 billion added upon the acquisition of GEICO
in January 1996. Net investment income of the Insurance Group for the second quarter and first half of 1996 includes the investment results
of GEICO. Net investment income of GEICO was $53.6 million for the second quarter of 1996 and $106.0 million for the first half of 1996.
In 1995 periods, net investment income of the Insurance Group included the equity in net earnings of GEICO $22.7 million for the second
quarter and $52.4 million for the first half.
Manufacturing, Merchandising and Services
Results of operations of Berkshire's diverse non-insurance businesses are aggregated in the following table.
Dollar amounts are in millions.
Second Quarter First Half
----------------------------- ---------------------------------
1996 1995 1996 1995
------------- ------------- --------------- ---------------
Amount % Amount % Amount % Amount %
------ ----- ------ ----- -------- ----- -------- -----
Revenues . . . . . . . . . . . .$721.8 100.0 $622.5 100.0 $1,428.7 100.0 $1,202.1 100.0
Costs and expenses . . . . . . . 648.0 89.8 555.9 89.3 1,286.9 90.1 1,070.9 89.1
------ ----- ------ ----- -------- ----- -------- -----
Earnings before income taxes . . 73.8 10.2 66.6 10.7 141.8 9.9 131.2 10.9
Applicable income taxes. . . . . 29.3 4.0 27.2 4.4 56.6 4.0 51.7 4.3
Applicable minority interest . . 1.2 0.2 1.0 0.1 2.0 0.1 1.9 0.1
------ ----- ------ ----- -------- ----- -------- -----
Net earnings . . . . . . . . . .$ 43.3 6.0 $ 38.4 6.2 $ 83.2 5.8 $ 77.6 6.5
====== ===== ====== ===== ======== ===== ======== =====
Revenues from these several and diverse business activities during 1996's second quarter and first half were
greater by $99.3 million (16.0%) and $226.6 million (18.9%) than revenues recorded during the corresponding 1995
periods. The comparative increases are primarily due to the acquisitions during 1995's second quarter of Helzberg's
Diamond Shops, Inc. ("Helzberg's") and R.C. Willey Home Furnishings ("R.C. Willey"). Helzberg's operates a chain
of 175 jewelry stores and R.C. Willey is the dominant retailer of home furnishings in Utah. (See Notes to Interim
Consolidated Financial Statements for additional information regarding these acquisitions).
Net earnings from this group of businesses increased $4.9 million (12.8%) during 1996's second quarter and $5.6
million (7.2%) during 1996's first half as compared to the prior year. The inclusion of Helzberg's and R.C. Willey for
the entire first half of 1996 had a favorable impact on comparative results as did improved comparative results for
Berkshire's home cleaning systems segment. However, somewhat offsetting these increases were comparative
declines in the second quarter and first half in Berkshire's shoe and newspaper segments.
Realized Investment Gain/Loss
Realized investment gain/loss has been a recurring element in Berkshire's net earnings for many years. The
amount -- recorded when securities are sold or other than temporarily impaired may fluctuate significantly from
period to period, with a meaningful effect upon Berkshire's consolidated net earnings. However, the amount of
realized investment gain or loss for any given period has no predictive value, and variations in amount from period
to period have no practical analytical value, particularly in view of the net unrealized price appreciation now existing
in Berkshire's consolidated investment portfolio.
The Consolidated Statement of Earnings for the first half of 1996 reflects a pre-tax realized investment gain of
$2.3 billion ($1.5 billion after tax). Most of this gain resulted from The Walt Disney Company's ("Disney") acquisition
of Capital Cities/ABC, Inc. ("Capital Cities"). Prior to the acquisition, subsidiaries of Berkshire owned common stock
of Capital Cities which had been acquired in 1986 for an aggregate cost of $345.0 million. In exchange for the
Capital Cities common stock, Berkshire subsidiaries received cash and Disney common stock having an aggregate
value of $2.5 billion.
While the effect of this transaction is material to the Consolidated Statement of Earnings, the completion of the
acquisition had a minimal impact on Berkshire's shareholders' equity. This is due to the fact that Berkshire's
investment in Capital Cities had been carried in the prior periods' consolidated financial statements at market value
with unrealized gains, net of tax, reported as a separate component of shareholders' equity. As of December 31,
1995, the pre-tax unrealized gain related to Berkshire's investment in Capital Cities was approximately $2.1 billion.
Financial Condition
As discussed in the Notes to Interim Consolidated Financial Statements, on May 8, 1996, Berkshire completed
a public offering of a new class of common stock. The net proceeds from the offering were approximately $565.0
million. The Company expects that in time it will use the net proceeds for acquisitions of businesses, for augmenting
the capital of its insurance subsidiaries, or for other general corporate purposes. At this time, Berkshire has no
immediate or specific plan for the use of the net proceeds from the offering.
Berkshire's balance sheet continues to reflect significant liquidity and above average capital strength.
Shareholders' equity at June 30, 1996, was $20.0 billion or $16,528 per Class A Common share.
* * * * *
CONTACT: Marc Hamburg, 402-346-1400