BERKSHIRE HATHAWAY INC. and Subsidiaries CONSOLIDATED BALANCE SHEETS (dollars in millions except per share amounts) December 31, ---------------------- 1997 1996 ASSETS ----------- ----------- Cash and cash equivalents ........................... $ 1,002.4 $ 1,339.8 Investments: Securities with fixed maturities .................. 10,297.8 6,446.9 Equity securities ................................. 36,247.7 27,750.6 Receivables ......................................... 1,711.5 1,523.2 Inventories ......................................... 639.0 619.6 Assets of finance businesses ........................ 1,248.8 968.8 Property, plant and equipment ....................... 1,056.5 1,034.2 Goodwill of acquired businesses ..................... 3,066.5 3,110.3 Other assets ........................................ 840.7 616.0 ---------- ---------- $ 56,110.9 $ 43,409.4 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Losses and loss adjustment expenses ................. $ 6,850.5 $ 6,274.4 Unearned premiums ................................... 1,273.7 1,183.5 Accounts payable, accruals and other liabilities .... 2,202.3 2,556.8 Income taxes, principally deferred .................. 10,538.8 6,837.6 Borrowings under investment agreements and other debt 2,266.7 1,944.4 Liabilities of finance businesses ................... 1,067.2 851.3 ---------- ---------- 24,199.2 19,648.0 ---------- ---------- Minority shareholders' interests .................... 456.5 335.1 ---------- ---------- Shareholders' equity: Common Stock: * Class A Common Stock, $5 par value, 1,366,090 and 1,376,188 shares issued; 1,197,888 and 1,206,120 shares outstanding .............. 6.8 6.9 Class B Common Stock, $0.1667 par value, 1,087,156 and 783,755 shares issued and outstanding ............................... 0.2 0.1 Capital in excess of par value .................... 2,347.1 2,274.1 Unrealized appreciation of investments ............ 18,197.9 12,143.9 Retained earnings ................................. 10,934.3 9,032.7 ---------- ---------- 31,486.3 23,457.7 Less: Cost of 168,202 and 170,068 Class A common shares in treasury ....................... 31.1 31.4 ---------- ---------- Total shareholders' equity .................... 31,455.2 23,426.3 ---------- ---------- $ 56,110.9 $ 43,409.4 ========== ========== * Class B Common Stock has economic rights equal to one-thirtieth (1/30) of the economic rights of Class A Common Stock. Accordingly, on an equivalent Class A Common Stock basis, there are 1,234,127 shares outstanding at December 31, 1997 versus 1,232,245 outstanding at December 31, 1996.See accompanying Notes to Consolidated Financial Statements
BERKSHIRE HATHAWAY INC. and Subsidiaries CONSOLIDATED STATEMENTS OF EARNINGS (dollars in millions except per share amounts) Year Ended December 31, ------------------------------- 1997 1996 1995 --------- --------- --------- Revenues: Insurance premiums earned ..................... $ 4,761.1 $ 4,117.8 $ 957.5 Sales and service revenues .................... 3,577.5 3,061.2 2,755.9 Interest, dividend and other investment income 953.3 811.9 629.2 Income from finance businesses ................ 31.8 25.3 26.6 Realized investment gain ...................... 1,106.3 2,484.1 194.1 --------- --------- --------- 10,430.0 10,500.3 4,563.3 --------- --------- --------- Cost and expenses: Insurance losses and loss adjustment expenses 3,420.1 3,089.5 612.0 Insurance underwriting expenses ............... 879.6 797.6 325.0 Cost of products and services sold ............ 2,186.9 1,884.0 1,706.7 Selling, general and administrative expenses .. 920.8 861.9 759.6 Goodwill amortization ......................... 83.1 61.7 16.3 Interest expense .............................. 111.9 99.7 59.3 --------- --------- --------- 7,602.4 6,794.4 3,478.9 --------- --------- --------- Earnings before income taxes and minority interest....................... 2,827.6 3,705.9 1,084.4 Income taxes .................................. 897.7 1,196.8 276.2 Minority interest ............................. 28.3 20.5 13.3 --------- --------- --------- Net earnings .................................... $ 1,901.6 $ 2,488.6 $ 794.9 ========= ========= ========= Average common shares outstanding * ........... 1,233,192 1,205,257 1,187,102 Net earnings per common share * ................. $ 1,542 $ 2,065 $ 670 ========= ========= ========= * Average shares outstanding for 1997 and 1996 include average Class A Common shares and average Class B Common shares determined on an equivalent Class A Common Stock basis. Net earnings per common share shown above represents net earnings per equivalent Class A Common share. Net earnings per Class B Common share is equal to one-thirtieth (1/30) of such amount or $51 per share for 1997 and $69 per share for 1996.See accompanying Notes to Consolidated Financial Statements
BERKSHIRE HATHAWAY INC. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in millions) Year Ended December 31, ------------------------------- 1997 1996 1995 --------- --------- --------- Cash flows from operating activities: Net earnings .......................................... $ 1,901.6 $ 2,488.6 $ 794.9 Adjustments to reconcile net earnings to cash flows from operating activities: Realized investment gain ............................ (1,106.3) (2,484.1) (194.1) Depreciation and amortization ....................... 227.3 151.6 75.7 Changes in assets and liabilities before effects from business acquisitions: Losses and loss adjustment expenses ............... 576.1 352.1 268.6 Deferred charges re reinsurance assumed ........... (142.3) 51.8 51.0 Unearned premiums ................................. 90.2 (8.8) 66.9 Receivables ....................................... (120.2) (127.1) (35.4) Accounts payable, accruals and other liabilities .. 547.4 558.3 228.2 Income taxes ...................................... 382.8 221.9 (29.9) Other ............................................... (21.0) 55.7 (98.0) --------- --------- --------- Net cash flows from operating activities .......... 2,335.6 1,260.0 1,127.9 --------- --------- --------- Cash flows from investing activities: Purchases of securities with fixed maturities ......... (6,837.3) (2,464.7) (273.9) Purchases of equity securities ........................ (714.3) (1,423.4) (1,459.9) Proceeds from sales of securities with fixed maturities 3,397.5 277.5 669.7 Proceeds from redemptions and maturities of securities with fixed maturities ................. 779.6 791.9 954.6 Proceeds from sales of equity securities .............. 2,015.6 1,531.0 1,352.7 Loans and investments originated in finance businesses (491.1) (577.1) (381.2) Principal collection on loans and investments originated in finance businesses .................... 276.0 351.5 363.0 Acquisitions of businesses, net of cash acquired ...... (774.9) (1,975.3) -- Other ................................................. (182.3) (19.2) (11.4) --------- --------- --------- Net cash flows from investing activities .......... (2,531.2) (3,507.8) 1,213.6 --------- --------- --------- Cash flows from financing activities: Proceeds from borrowings of finance businesses ........ 157.5 285.1 265.7 Proceeds from other borrowings ........................ 1,073.6 1,604.3 1,232.7 Repayments of borrowings of finance businesses ........ (214.1) (427.3) (232.1) Repayments of other borrowings ........................ (1,111.8) (1,170.0) (1,151.7) Net proceeds from issuance of Class B Common Stock .... -- 565.0 -- Other ................................................. (1.4) (3.5) (1.5) --------- --------- --------- Net cash flows from financing activities .......... (96.2) 853.6 113.1 --------- --------- --------- Increase (decrease) in cash and cash equivalents .. (291.8) (1,394.2) 2,454.6 Cash and cash equivalents at beginning of year .......... 1,350.3 2,744.5 289.9 --------- --------- --------- Cash and cash equivalents at end of year * .............. $ 1,058.5 $ 1,350.3 $ 2,744.5 ========= ========= ========= * Cash and cash equivalents at end of year are comprised of the following: Finance businesses .................................. $ 56.1 $ 10.5 $ 40.7 Other ............................................... 1,002.4 1,339.8 2,703.8 --------- --------- --------- $ 1,058.5 $ 1,350.3 $ 2,744.5 ========= ========= =========See accompanying Notes to Consolidated Financial Statements
BERKSHIRE HATHAWAY INC. and Subsidiaries CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (dollars in millions) Unrealized Par Value Capital in Appreciation Class A Common Stock Excess of of Retained Treasury Class A Class B Par Value Investments Earnings Stock ------- ------- ---------- ------------ ---------- -------- Balance December 31, 1994 ........ $ 6.9 $ -- $ 656.1 $ 5,276.9 $ 5,749.2 $ 37.6 Net earnings ..................... -- -- -- -- 794.9 -- Increase in unrealized appreciation included in carrying value of investments .................... -- -- -- 6,177.1 -- -- Increase in deemed applicable deferred income taxes .......... -- -- -- (2,176.2) -- -- Increase in minority interest in unrealized appreciation ........ -- -- -- (57.1) -- -- Common stock issued in connection with acquisitions of businesses -- -- 345.6 -- -- (2.9) ------- ------- ---------- ------------ ---------- -------- Balance December 31, 1995 ........ 6.9 -- 1,001.7 9,220.7 6,544.1 34.7 Net earnings ..................... -- -- -- -- 2,488.6 -- Increase in unrealized appreciation included in carrying value of investments .................... -- -- -- 4,604.0 -- -- Increase in deemed applicable deferred income taxes .......... -- -- -- (1,629.1) -- -- Increase in minority interest in unrealized appreciation ........ -- -- -- (51.7) -- -- Common stock issued in connection with acquisition of business ... -- -- 707.5 -- -- (3.3) Issuance of Class B Common stock -- 0.1 564.9 -- -- -- ------- ------- ---------- ------------ ---------- -------- Balance December 31, 1996 ........ 6.9 0.1 2,274.1 12,143.9 9,032.7 31.4 Net earnings ..................... -- -- -- -- 1,901.6 -- Increase in unrealized appreciation included in carrying value of investments .................... -- -- -- 9,468.2 -- -- Increase in deemed applicable deferred income taxes .......... -- -- -- (3,318.9) -- -- Increase in minority interest in unrealized appreciation ....... -- -- -- (95.3) -- -- Common stock issued in connection with acquisition of business ... -- -- 72.7 -- -- (0.3) Other ............................ (0.1) 0.1 0.3 -- -- -- ------- ------- ---------- ------------ ---------- -------- Balance December 31, 1997 ........ $ 6.8 $ 0.2 $2,347.1 $ 18,197.9 $ 10,934.3 $ 31.1 ======= ======= ========== ============ ========== ========See accompanying Notes to Consolidated Financial Statements
BERKSHIRE HATHAWAY INC.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(1) Significant accounting policies and practices
(a) Nature of operations and basis of consolidation
Berkshire Hathaway Inc. ("Berkshire" or "Company") is a holding company owning
subsidiaries engaged in a number of diverse business activities.
The most important of these is the property and casualty insurance business
conducted on both a direct and reinsurance basis. Further information
regarding this business and Berkshire's other reportable business segments
is contained in Note 15. The accompanying consolidated financial statements
include the accounts of Berkshire consolidated with accounts of all its
subsidiaries. Intercompany accounts and transactions have been eliminated.
(b) Use of estimates in preparation of financial statements
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles ("GAAP") requires management
to make estimates and assumptions that affect the reported amount of assets
and liabilities at the date of the financial statements and the reported
amount of revenues and expenses during the period. Actual results may differ
from the estimates and assumptions used in preparing the consolidated
financial statements.
(c) Accounting pronouncements to be adopted in 1998
During 1997, the Financial Accounting Standards Board issued the following
Statements of Financial Accounting Standards ("SFAS") that are effective
for periods beginning after December 15, 1997 and will be adopted by the
Company during 1998. The Company does not expect that adoption of these
Standards will have a material effect on its financial position, results
of operations or on disclosures within the financial statements.
(1) SFAS No. 130 -- "Reporting Comprehensive Income", which establishes
standards for the reporting and display of comprehensive income and its
components.
(2) SFAS No. 131 -- "Disclosures about Segments of an Enterprise and Related
Information", which establishes new standards for reporting information
about operating segments in interim and annual financial statements.
(d) Cash equivalents
Cash equivalents consist of funds invested in money market accounts and in
investments with a maturity of three months or less when purchased.
(e) Investments
Management determines the appropriate classifications of investments in
securities with fixed maturities and equity securities at the time of
purchase and reevaluates such designations as of each balance sheet date.
Investments in equity securities are classified as available-for-sale.
Investments in securities with fixed maturities, except for such securities
held by finance businesses, are classified as available-for-sale.
Securities with fixed maturities held by finance businesses are classified
as held-to-maturity. Securities with fixed maturities are deemed to be
held-to-maturity securities when the Company has the ability and positive
intent to hold them to maturity.
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. Held-to-maturity securities are carried at amortized cost. Realized
gains and losses, which arise when investments are sold (as determined on
a specific identification basis), other-than-temporarily impaired or in
certain situations when investments are marked-to-market, are included in
the Consolidated Statements of Earnings.
(f) Goodwill of acquired businesses
Goodwill of acquired businesses represents the difference between purchase
cost and the fair value of the net assets of acquired businesses and is
being amortized on a straight line basis over forty years. The Company
periodically reviews the recoverability of the carrying value of goodwill
of acquired businesses using the methodology prescribed by SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of."
(g) Insurance premium acquisition costs
Certain costs of acquiring insurance premiums are deferred, subject to ultimate
recoverability, and charged to income as the premiums are earned. The
ultimate recoverability of premium acquisition costs is determined without
regard to investment income. The unamortized balance of deferred premium
acquisition costs is included in other assets.
(h) Deferred charges re reinsurance assumed
The excess of estimated liabilities for claims and claim costs ultimately
payable by the Insurance Group over consideration received with respect
to retroactive property/casualty reinsurance contracts that provide
for indemnification of insurance risk, other than structured settlements,
is established as a deferred charge at inception of such contracts. The
deferred charges are subsequently amortized using the interest method over
the expected settlement periods of the claim liabilities. The unamortized
balance is included in other assets and was $480.2 million at December 31,
1997 and $337.9 million at December 31, 1996.
(j) Losses and loss adjustment expenses
Liability for unpaid losses and loss adjustment expenses represents the aggregate
of such obligations of members of the Insurance Group with respect to: (i)
prospective property/casualty insurance and reinsurance contracts, (ii)
retroactive property/casualty reinsurance contracts that provide for
indemnification of insurance risk, other than structured settlements, and
(iii) reinsurance contracts providing for periodic payments with respect to
settled claims ("structured settlements"). Except for structured settlement
liabilities which are stated at discounted present values, the liability for
unpaid losses and loss adjustment expenses is at the aggregate of estimated
ultimate payment amounts.
Ultimate payment amounts with respect to prospective contracts are determined
from: (i) individual case estimates, (ii) estimates of incurred but not
reported losses, based on past experience, and (iii) reports of losses from
ceding insurers.
Ultimate payment amounts with respect to retroactive reinsurance contracts that
provide for indemnification of insurance risk, other than structured
settlements, are established for financial reporting purposes at maximum
limits of indemnification under the contracts. (See also 1(h)
above related to deferred charges re reinsurance assumed.)
Liabilities under structured settlement contracts are established when the
contracts are entered into, at the then present value of the actuarially
determined ultimate payment amount discounted at the prevailing market
interest rate. Annual accretions to the liabilities are charged to losses
incurred. This accounting policy also applies to annuity reserves and
policyholder liabilities which are included in liabilities of finance
businesses.
(k) Insurance premiums
Insurance premiums for prospective insurance and reinsurance policies are earned
in proportion to the level of insurance protection provided. In most cases,
premiums are recognized as revenues ratably over their terms with unearned
premiums computed on a monthly or daily pro rata basis. Consideration
received for retroactive reinsurance policies is accounted for as premiums
earned at the inception of the contracts. Premiums earned are stated net of
amounts ceded to reinsurers.
(m) Reinsurance
Provisions for losses and loss adjustment expenses are reported in the
accompanying Consolidated Statements of Earnings after deducting amounts
recovered and estimates of amounts that will be ultimately recoverable under
reinsurance contracts. Reinsurance contracts do not relieve the Insurance
Group members of their obligations to indemnify policyholders with respect
to the underlying insurance and reinsurance contracts. Estimated losses and
loss adjustment expenses recoverable under reinsurance contracts are included
in receivables.
(2) Business acquisitions
During 1996, Berkshire consummated mergers with GEICO Corporation ("GEICO") and
FlightSafety International, Inc. ("FlightSafety"). Each of these mergers was accounted for
by the purchase method. The excess of the purchase cost of each business over the fair
value of net assets acquired as of each merger date was recorded as goodwill of acquired
businesses and is being amortized over forty years. The aggregate amount of goodwill
applicable to these acquisitions was approximately $2.5 billion. Additional information
concerning each merger is provided below.
(a) GEICO
On January 2, 1996, GEICO became a wholly-owned subsidiary as a result of the
merger of an indirect wholly-owned subsidiary of Berkshire with and into GEICO.
GEICO, through its subsidiaries, is a multiple line property and casualty
insurer, the principal business of which is underwriting private passenger
automobile insurance.
The merger was consummated pursuant to an Agreement and Plan of Merger dated
August 25, 1995 (the "GEICO Agreement"). Pursuant to the GEICO Agreement,
each issued and outstanding common share of GEICO, except shares held by
Berkshire subsidiaries and GEICO, was converted into the right to receive
$70 per share, or an aggregate amount of $2.3 billion.
As of the merger date, subsidiaries of Berkshire owned 34,250,000 common shares
of GEICO, which were acquired prior to 1981 at an aggregate cost of $45.7
million. Up to the merger date, neither Berkshire nor its subsidiaries had
acquired any shares of GEICO common stock since 1980. However, Berkshire's
ownership percentage,due to intervening stock repurchases by GEICO, gradually
increased from about 33% in 1980 to almost 51% immediately prior to the merger
date.
(b) FlightSafety
On December 23, 1996, FlightSafety became a wholly-owned subsidiary as a result
of the merger of FlightSafety with and into a subsidiary of Berkshire.
FlightSafety provides high technology training to operators of aircraft and
ships throughout the world.
The merger was consummated pursuant to an Agreement and Plan of Merger dated
October 14, 1996 (the "FlightSafety Agreement"). Pursuant to the FlightSafety
Agreement, aggregate consideration of approximately $1.5 billion was paid to
FlightSafety shareholders consisting of $769.0 million in cash, 17,728 shares
of Berkshire's Class A common stock and 112,655 shares of Berkshire's Class B
common stock.
The results of operations for each of these entities are fully included in
Berkshire's Consolidated Statements of Earnings beginning on the effective dates of
each of the mergers (GEICO -- January 2, 1996 and FlightSafety -- December 23, 1996).
In the accompanying Consolidated Statement of Earnings for 1995, Berkshire's previous
investment in GEICO was accounted for under the equity method. Berkshire's
proportionate share of GEICO's net earnings, reduced by amortization of goodwill,
is included as a component of interest, dividends, and other investment income.
The following table sets forth certain unaudited condensed consolidated earnings
data for the years ended December 31, 1996 and 1995, as if the GEICO and FlightSafety
mergers had been consummated on the same terms at the beginning of 1995. Dollar amounts
are in millions, except per share amounts.
1996 1995
Insurance premiums earned . . . . . . . . . . . .$ 4,117.8 $3,744.5
Sales and service revenues. . . . . . . . . . . . 3,416.5 3,081.6
Total revenues. . . . . . . . . . . . . . . . . . 10,823.5 7,640.9
Net earnings. . . . . . . . . . . . . . . . . . . 2,515.0 833.8
Earnings per equivalent Class A common share. . . 2,051 690
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 over 180 jewelry stores operating in 28 states and
R.C. Willey, through its several 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 Statements of Earnings from the effective dates of the mergers
(Helzberg's -- April 30, 1995; R.C. Willey -- June 29, 1995).
On October 21, 1997, Berkshire and International Dairy Queen, Inc. ("Dairy Queen")
executed a definitive Merger Agreement pursuant to which Berkshire would acquire Dairy
Queen through the merger of Dairy Queen with and into a wholly-owned subsidiary of
Berkshire. The Merger Agreement provided that, subject to certain limitations and
conditions, the holders of Dairy Queen Class A and Class B common stock could receive
either $27.00 cash or $26.00 of Berkshire Class A or Class B common stock for each Dairy
Queen share. The total merger consideration was approximately $587.8 million consisting
of $264.5 million in cash and the remainder in Class A and Class B common stock. The
merger was completed on January 7, 1998.
Dairy Queen develops, licenses and services a system of approximately 5,800 Dairy
Queen stores located throughout the United States, Canada and other foreign countries,
which feature hamburgers, hot dogs, various dairy desserts and beverages. Dairy Queen
also develops, licenses and services other stores and shops operating under the names
of Orange Julius and Karmelkorn, which feature blended fruit drinks, popcorn and other
snacks.
(3) Investments in securities with fixed maturities
The amortized cost and estimated fair values of investments in securities with
fixed maturities as of December 31, 1997 and 1996 are as follows (in millions):
December 31, 1997 Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
Bonds:
U.S. Treasury securities and obligations of
U.S. government corporations and agencies. . .$ 5,890.4 $ 600.8 $ (0.6) $ 6,490.6
Obligations of states, municipalities
and political subdivisions . . . . . . . . . . 2,151.0 58.3 (0.2) 2,209.1
Corporate bonds. . . . . . . . . . . . . . . . . 34.7 -- -- 34.7
Redeemable preferred stocks. . . . . . . . . . . . 764.3 515.4 -- 1,279.7
Mortgage-backed securities . . . . . . . . . . . . 272.8 10.9 -- 283.7
--------- ---------- ---------- ---------
$ 9,113.2 $ 1,185.4 $ (0.8) $10,297.8
========= ========== ========== =========
December 31, 1996 Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
Bonds:
U.S. Treasury securities and obligations of
U.S. government corporations and agencies. . .$ 2,618.8 $ 4.0 $ (5.7) $ 2,617.1
Obligations of states, municipalities
and political subdivisions . . . . . . . . . . 2,502.0 32.4 (1.8) 2,532.6
Corporate bonds. . . . . . . . . . . . . . . . . 22.0 -- -- 22.0
Redeemable preferred stocks. . . . . . . . . . . . 584.3 275.9 (4.3) 855.9
Mortgage-backed securities . . . . . . . . . . . . 415.2 6.1 (2.0) 419.3
--------- ---------- ---------- ---------
$ 6,142.3 $ 318.4 $ (13.8) $ 6,446.9
========= ========== ========== =========
Amounts above exclude securities with fixed maturities held by finance businesses.
See Note 7.
Shown below are the amortized cost and estimated fair values of the above
securities at December 31, 1997, by contractual maturity dates. Actual maturities will
differ from contractual maturities because issuers of certain of the securities retain
early call or prepayment rights. Amounts are in millions.
Estimated
Amortized Fair
Cost Value
--------- ---------
Due in one year or less . . . . . . . . . . . . . $ 1,278.7 $ 1,785.0
Due after one year through five years . . . . . . 2,151.6 2,183.1
Due after five years through ten years. . . . . . 781.4 818.4
Due after ten years . . . . . . . . . . . . . . . 4,628.7 5,227.6
--------- ---------
8,840.4 10,014.1
--------- ---------
Mortgage-backed securities. . . . . . . . . . . . 272.8 283.7
--------- ---------
$ 9,113.2 $10,297.8
========= =========
(4) Investments in equity securities
Data with respect to the consolidated investment in equity securities
are shown below. Individual investments whose fair values exceed ten percent
of consolidated shareholders' equity at December 31, 1997 and 1996 are listed
separately. Amounts are in millions.
December 31, 1997
Unrealized Fair
Cost Gains Value
---------- ---------- ----------
Common stock of:
American Express Company . . . $ 1,392.7 $ 3,021.3 $ 4,414.0
The Coca-Cola Company. . . . . 1,298.9 12,038.6 13,337.5
The Gillette Company . . . . . 600.0 4,221.0 4,821.0
All other equity securities. . . 5,725.1 7,950.1* 13,675.2
---------- ---------- ----------
$ 9,016.7 $27,231.0 $36,247.7
========== ========== ==========
December 31, 1996
Unrealized Fair
Cost Gains Value
---------- ---------- ----------
Common stock of:
American Express Company . . . $ 1,392.7 $ 1,401.6 $ 2,794.3
The Coca-Cola Company. . . . . 1,298.9 9,226.1 10,525.0
The Gillette Company . . . . . 600.0 3,132.0 3,732.0
All other equity securities. . . 5,860.4 4,838.9** 10,699.3
---------- ---------- ----------
$ 9,152.0 $18,598.6 $27,750.6
========== ========== ==========
* Represents gross unrealized gains $7,995.9 less gross unrealized
losses $45.8.
** Represents gross unrealized gains $4,861.3 less gross unrealized
losses $22.4.
Common shares of American Express Company ("AXP") owned by Berkshire and its
subsidiaries possessed approximately 10.5% of the voting rights of all AXP shares
outstanding at December 31, 1997. The shares are held subject to various agreements
with certain insurance and banking regulators which, among other things, prohibit
Berkshire from (i) seeking representation on the Board of Directors of AXP
(Berkshire may agree, if it so desires, at the request of management or the Board
of Directors of AXP to have no more than one representative stand for election to
the Board of Directors of AXP) and (ii) acquiring or retaining shares that would
cause its ownership of AXP voting securities to equal or exceed 17% of the amount
outstanding (should Berkshire have a representative on the Board of Directors, such
amount is limited to 15%). In connection therewith, Berkshire has entered into an
agreement with AXP which became effective when Berkshire's ownership interest in AXP
voting securities reached 10% and will remain effective so long as Berkshire owns 5%
or more of AXP's voting securities. The agreement obligates Berkshire, so long as
Harvey Golub is chief executive officer of AXP, to vote its shares in accordance
with the recommendations of AXP's Board of Directors. Additionally, subject to
certain exceptions, Berkshire has agreed not to sell AXP common shares to any person
who owns 5% or more of AXP voting securities or seeks to control AXP, without the
consent of AXP.
(5) Realized investment gains (losses)
Realized gains (losses) from sales and redemptions of investments are summarized
below (in millions):
1997 1996 1995
-------- -------- -------
Equity securities --
Gross realized gains . . . . . . . . . . . . . . . . . . . .$ 739.2 $2,379.1 $ 109.9
Gross realized losses. . . . . . . . . . . . . . . . . . . . (23.3) (36.4) (14.2)
Securities with fixed maturities and other investments --
Gross realized gains . . . . . . . . . . . . . . . . . . . . 395.9 144.6 100.8
Gross realized losses. . . . . . . . . . . . . . . . . . . . (5.5) (3.2) (2.4)
-------- -------- -------
$1,106.3 $2,484.1 $ 194.1
======== ======== =======
In November 1997, the merger of Salomon Inc ("Salomon") with and into a subsidiary
of Travelers Group Inc. ("Travelers") was completed. Berkshire subsidiaries received
common and preferred stock of Travelers in exchange for common and preferred shares of
Salomon then owned. The value of the Travelers shares received was approximately $1.8
billion. Realized investment gains for 1997 include $677.9 million with respect to the
transaction. The gain is net of a charge of $298.4 million for the contingent value
associated with Berkshire's Exchange Notes. See Note 9 for additional information
regarding the Exchange Notes.
In March 1996, The Walt Disney Company ("Disney") completed its acquisition of
Capital Cities/ABC, Inc. ("Capital Cities"). Subsidiaries of Berkshire received aggregate
consideration of $2.5 billion, which included cash of $1.2 billion and common shares of
Disney with a value of $1.3 billion. Gross realized gains from sales of equity securities
include a gain of $2.2 billion relating to Disney's acquisition of Capital Cities.
(6) Commitment to purchase silver
During 1997, the Company entered into several forward contracts to purchase silver
during the first quarter of 1998. As of December 31, 1997, the Company had committed to
purchase 111.2 million ounces of silver which had an estimated fair value of about
$665 million. Subsequent to year end, the Company committed to purchase an additional
18.5 million ounces of silver. The Consolidated Statement of Earnings for 1997 includes
a pre-tax gain of $97.4 million representing the excess of fair value over net cost of
the commitments.
(7) Finance businesses
Berkshire's finance businesses are comprised of commercial and consumer finance
companies and an annuity business. Assets and liabilities of Berkshire's finance
businesses are summarized below (in millions):
Dec. 31, Dec. 31,
1997 1996
Assets --------- --------
Cash and cash equivalents. . . . . . . . . . . . .$ 56.1 $ 10.5
Installment loans and other receivables. . . . . . 221.8 215.9
Fixed maturity investments(a). . . . . . . . . . . 970.9 742.4
--------- --------
$ 1,248.8 $ 968.8
========= ========
Liabilities
Borrowings under investment agreements and
other debt(b) . . . . . . . . . . . . . . . . .$ 225.9 $ 281.8
6.75% Notes, due 2001. . . . . . . . . . . . . . . 99.6 99.5
Annuity reserves and policyholder liabilities. . . 697.4 434.8
Other. . . . . . . . . . . . . . . . . . . . . . . 44.3 35.2
--------- --------
$ 1,067.2 $ 851.3
========= ========
(a) At December 31, 1997 and 1996, mortgage-backed securities of $857.3 and
$601.6 respectively were included in this caption. Estimated fair values
and gross unrealized gains and losses as of December 31, 1997 and 1996,
are as follows (in millions):
Gross Gross Estimated
Unrealized Unrealized Fair
Amortized Cost Gains Losses Value
-------------- ---------- ---------- ---------
1997. . . $970.9 $111.7 $ (0.2) $ 1,082.4
1996. . . 742.4 25.2 (4.8) 762.8
(b) Borrowings under investment agreements and other debt are made pursuant
to contracts with terms generally ranging from six months to thirty years
and at fixed interest rates ranging from 5.0% to 7.2%. Payments of
principal amounts expected during the next five years are as follows
(in millions):
1998 1999 2000 2001 2002
------ ------ ------ ------ ------
$ 76.9 $ 3.3 -- -- --
Income from finance businesses for each of the past three years is
summarized below (in millions):
1997 1996 1995
------ ------ ------
Revenues
Interest on loans. . . . . . . . . . . .$ 36.9 $ 38.8 $ 38.4
Interest income. . . . . . . . . . . . . 74.4 54.4 39.2
Annuity premiums earned. . . . . . . . . 248.0 259.5 75.2
------ ------ ------
359.3 352.7 152.8
------ ------ ------
Cost and expenses
Interest expense . . . . . . . . . . . . 19.9 30.3 28.9
Annuity benefits and expenses. . . . . . 286.6 276.7 80.8
General and administrative expenses. . . 21.0 20.4 16.5
------ ------ ------
327.5 327.4 126.2
------ ------ ------
$ 31.8 $ 25.3 $ 26.6
====== ====== ======
(8) Unpaid losses and loss adjustment expenses
Supplemental data with respect to unpaid losses and loss adjustment expenses of
property/casualty insurance subsidiaries (in millions):
1997 1996 1995
-------- -------- --------
Unpaid losses and loss adjustment expenses:
Balance at beginning of year . . . . . . . . . .$6,274.4 $5,923.9* $3,430.0
Less ceded liabilities and deferred charges. . . 585.8 645.0* 573.9
-------- -------- --------
Net balance . . . . . . . . . . . . . . . . . . . 5,688.6 5,278.9* 2,856.1
-------- -------- --------
Incurred losses recorded:
Current accident year. . . . . . . . . . . . . . 3,551.4 3,179.7 556.5
All prior accident years . . . . . . . . . . . . (131.3) (90.2) 55.5
-------- -------- --------
Total incurred losses. . . . . . . . . . . . . . 3,420.1 3,089.5 612.0
-------- -------- --------
Payments with respect to:
Current accident year. . . . . . . . . . . . . . 1,602.1 1,484.9 43.6
All prior accident years . . . . . . . . . . . . 1,410.3 1,194.9 246.2
-------- -------- --------
Total payments . . . . . . . . . . . . . . . . . 3,012.4 2,679.8 289.8
-------- -------- --------
Unpaid losses and loss adjustment expenses:
Net balance at end of year . . . . . . . . . . . 6,096.3 5,688.6 3,178.3
Plus ceded liabilities and deferred charges. . . 754.2 585.8 520.3
-------- -------- --------
Balance at end of year ** . . . . . . . . . . . .$6,850.5 $6,274.4 $3,698.6
======== ======== ========
* Includes GEICO balances as of the acquisition date.
** Unpaid losses and loss adjustment expenses include liabilities established
with respect to retroactive reinsurance contracts that provide for indemnification
of insurance risk. These liabilities aggregated $1,398.1, $1,263.6, and $1,283.5
at December 31, 1997, 1996 and 1995 respectively. Related deferred charges were
established with respect to these contracts and are reported as other assets. Also
included in unpaid losses and loss adjustment expenses are discounted structured
settlement reinsurance liabilities, which totalled $212.3, $217.2, and $221.7 at
December 31, 1997, 1996 and 1995 respectively.
Incurred losses "all prior accident years" reflects the amount of estimation error
charged or credited to earnings in each year. In addition, this amount includes
amortization of deferred charges re reinsurance assumed and accretion of discounted
structured settlement liabilities. The use of estimates is inherent in the process of
establishing unpaid losses and loss expenses. Additional information will be revealed
over time and those estimates and assumptions will be revised resulting in gains or
losses in the period made.
(9) Borrowings under investment agreements and other debt
Liabilities reflected for this balance sheet caption are as follows (in millions):
Dec. 31, Dec. 31,
1997 1996
-------- --------
Borrowings under investment agreements. . .$ 816.2 $ 865.3
1% Senior Exchangeable Notes Due 2001 . . . 805.9 454.6
Other debt. . . . . . . . . . . . . . . . . 644.6 624.5
-------- --------
$2,266.7 $1,944.4
======== ========
Borrowings under investment agreements are made pursuant to contracts with terms
generally ranging from three months to forty years and calling for interest payable,
normally semiannually, at fixed rates ranging from 3% to 9% per annum. The borrowings
are senior unsecured debt obligations of the Company.
On December 2, 1996, Berkshire received net proceeds of $447.1 million from
the issuance of $500 million principal amount of 1% Senior Exchangeable Notes, due
December 2, 2001 (the "Exchange Notes"). Under certain conditions, on the last trading
day of January, April, July and October from January 1997 through July 2001, each
$1,000 principal amount Exchange Note is exchangeable at the option of the holder into
29.92 shares of Travelers Group Inc. common stock ("Travelers Stock"). (Prior to
November 28, 1997, each Exchange Note was exchangeable into 17.65 shares of Salomon
Inc common stock.) Beginning on December 2, 1999, under certain conditions, the
Exchange Notes are exchangeable into 29.92 shares of Travelers Stock at the option of
the Company. Upon such exchange, Berkshire may elect to redeem the Exchange Notes
for the equivalent cash value of the underlying Travelers Stock. In all other
circumstances, Berkshire will pay the principal amount at maturity.
The Exchange Notes are carried at accreted value plus an additional amount
(the "contingent value") representing the excess, if any, of the value of the
underlying Travelers Stock over the accreted value of the Notes. The contingent
value of the Exchange Notes is initially charged to unrealized appreciation of
investments. The contingent value amount is subsequently recognized in the
Consolidated Statements of Earnings as a charge against realized investment gains
on the earliest of the (i) dates that the Exchange Notes mature or are exchanged
or otherwise redeemed or (ii) the date the related underlying stock is otherwise
no longer owned by the Company. As of December 31, 1997, the contingent value
component of the aggregate carrying value of the Exchange Notes was $342.6
million. There was no contingent value associated with the Exchange Notes at
year end 1996.
No materially restrictive covenants are included in any of the various
debt agreements. Payments of principal amounts expected during the next five
years are as follows (in millions):
1998 1999 2000 2001 2002
------ ------ ------ ------ ------
$200.4 $ 61.7 $ 13.4 $829.6 $ 24.6
(10) Income taxes
The liability for income taxes as reflected in the accompanying Consolidated
Balance Sheets is as follows (in millions):
Dec. 31, Dec. 31,
1997 1996
--------- ---------
Payable currently. . . .$ 138.5 $ (41.1)
Deferred . . . . . . . . 10,400.3 6,878.7
--------- ---------
$10,538.8 $ 6,837.6
========= =========
The Consolidated Statements of Earnings reflect charges for income taxes as
shown below (in millions):
1997 1996 1995
-------- -------- --------
Federal. . . . . .$ 864.8 $1,169.9 $ 252.3
State. . . . . . . 32.1 26.1 22.6
Foreign. . . . . . 0.8 0.8 1.3
-------- -------- --------
$ 897.7 $1,196.8 $ 276.2
======== ======== ========
Current. . . . . .$ 691.4 $ 818.9 $ 331.0
Deferred . . . . . 206.3 377.9 (54.8
-------- -------- --------
$ 897.7 $1,196.8 $ 276.2
======== ======== ========
The tax effects of temporary differences that give rise to significant portions
of deferred tax assets and deferred tax liabilities at December 31, 1997 and 1996,
are shown below (in millions):
1997 1996
--------- --------
Deferred tax liabilities:
Relating to unrealized appreciation of investments. . .$ 9,940.5 $6,620.6
Other . . . . . . . . . . . . . . . . . . . . . . . . . 1,168.1 860.9
--------- --------
11,108.6 7,481.5
Deferred tax assets . . . . . . . . . . . . . . . . . . . (708.3) (602.8)
--------- --------
Net deferred tax liability. . . . . . . . . . . . . . . .$10,400.3 $6,878.7
========= ========
Charges for income taxes are reconciled to hypothetical amounts computed at the
federal statutory rate in the table shown below (in millions):
1997 1996 1995
-------- -------- --------
Earnings before income taxes . . . . . . . . . . . . . .$2,827.6 $3,705.9 $1,084.4
======== ======== ========
Hypothetical amounts applicable to above
computed at the federal statutory rate . . . . . . . .$ 989.7 $1,297.1 $ 379.5
Decreases, resulting from:
Tax-exempt interest income . . . . . . . . . . . . . . (35.8) (41.7) (10.6)
Dividends received deduction . . . . . . . . . . . . . (104.4) (90.3) (86.3)
Goodwill amortization. . . . . . . . . . . . . . . . . . 29.1 21.6 5.7
State income taxes, less federal income tax benefit. . . 20.8 17.0 14.7
Other differences, net . . . . . . . . . . . . . . . . . (1.7) (6.9) (26.8)
-------- -------- --------
Total income taxes . . . . . . . . . . . . . . . . . . .$ 897.7 $1,196.8 $ 276.2
======== ======== ========
(11) Common stock
Changes in issued and outstanding common stock of the Company during the three
years ended December 31, 1997, are shown in the table below.
Class A Common, $5 Par Value Class B Common
--------------------------------- $0.1667 Par Value
Shares Treasury Shares Shares Issued and
Issued Shares Outstanding Outstanding
--------- -------- ----------- -----------------
Balance December 31, 1994 . . . . . . . 1,381,308 203,558 1,177,750 --
Common stock issued in connection
with acquisitions of businesses. . . -- (15,762) 15,762 --
--------- -------- ----------- -----------------
Balance December 31, 1995 . . . . . . . 1,381,308 187,796 1,193,512 --
Issuance of Class B common stock. . . . -- -- -- 517,500
Common stock issued in connection
with acquisition of business . . . . -- (17,728) 17,728 112,655
Conversions of Class A common stock
to Class B common stock. . . . . . . (5,120) -- (5,120) 153,600
--------- -------- ----------- -----------------
Balance December 31, 1996 . . . . . . . 1,376,188 170,068 1,206,120 783,755
Common stock issued in connection
with acquisition of business . . . . -- (1,866) 1,866 165
Conversions of Class A common stock
to Class B common stock and other. . (10,098) -- (10,098) 303,236
--------- -------- ----------- -----------------
Balance December 31, 1997 . . . . . . . 1,366,090 168,202 1,197,888 1,087,156
========= ======== =========== =================
On May 6, 1996, Berkshire shareholders approved a recapitalization plan which
created a new class of common stock, designated as Class B Common Stock. In connection
therewith, Berkshire's then existing common stock was redesignated as Class A Common
Stock. Each share of Class A Common Stock is convertible, at the option of the holder,
into thirty shares of Class B Common Stock. Class B Common Stock is not convertible
into Class A Common Stock. Each share of Class B Common Stock possesses voting rights
equivalent to one-two-hundredth (1/200) of the voting rights of a share of Class A
Common Stock.
On May 8, 1996, Berkshire completed an initial public offering of 517,500 shares
of Class B Common Stock. Berkshire received net proceeds from the offering of $565.0
million. Since the Class B Common shares are equivalent to one-thirtieth (1/30) of the
economic rights of Class A Common shares, the issuance of the Class B Common Stock was
equivalent to the issuance of 17,250 Class A Common shares or approximately 1.4% of
Class A Common shares outstanding at the time of the issuance of Class B Common
shares.
(12) Dividend restrictions - Insurance subsidiaries
Payments of dividends by Insurance Group members are restricted by insurance
statutes and regulations. Without prior regulatory approval in 1998, Berkshire can
receive up to approximately $3.5 billion as dividends from insurance subsidiaries.
Combined shareholders' equity of insurance subsidiaries determined pursuant
to statutory accounting rules (Statutory Surplus as Regards Policyholders) was
approximately $37.2 billion at December 31, 1997. This amount exceeded by approximately
$7.8 billion the corresponding amount determined on the basis of GAAP. The major
differences between statutory basis accounting and GAAP are that deferred income tax
assets and liabilities, deferred charges re reinsurance assumed, and unrealized gains
and losses on investments in securities with fixed maturities are recognized under
GAAP but not for statutory reporting purposes. In addition, goodwill of acquired
businesses is subject to a shorter amortization period under statutory accounting rules
than is permitted under GAAP.
(13) Fair values of financial instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments" 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, are excluded from SFAS 107
disclosure requirements due to perceived difficulties in measuring fair value.
Accordingly, an estimation of fair value was not made with respect to unpaid losses
and loss adjustment expenses.
In determining fair value, the Company used quoted market prices when available.
For instruments where quoted market prices were not available, the Company used
independent pricing services or appraisals by the Company's management. Those services
and appraisals reflected the estimated present values utilizing current risk adjusted
market rates of similar instruments.
Considerable judgement is necessarily required in interpreting market data
used 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, 1997 and 1996, are as follows (in millions):
Carrying Value Estimated Fair Value
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
Investments in securities with fixed
maturities . . . . . . . . . . . . . . .$10,297.8 $ 6,446.9 $10,297.8 $ 6,446.9
Investments in equity securities. . . . . . 36,247.7 27,750.6 36,247.7 27,750.6
Assets of finance businesses. . . . . . . . 1,248.8 968.8 1,367.3 997.7
Borrowings under investment agreements
and other debt. . . . . . . . . . . . . . 2,266.7 1,944.4 2,262.0 1,937.9
Liabilities of finance businesses . . . . . 1,067.2 851.3 1,149.4 851.9
(14) Quarterly data
A summary of revenues and earnings by quarter for each of the last two years
is presented in the following table. This information is unaudited. Dollars are in
millions, except per share amounts.
1st 2nd 3rd 4th
1997 Quarter Quarter Quarter Quarter
-------- -------- -------- --------
Revenues . . . . . . . . . . . . . . . . . . . . .$2,074.8 $2,338.2 $2,372.7 $3,644.3
-------- -------- -------- --------
Earnings:
Excluding realized investment gain. . . . . . .$ 263.1 $ 254.9 $ 248.1 $ 432.0
Realized investment gain. . . . . . . . . . . . 21.3 22.9 118.5 540.8*
-------- -------- -------- --------
Net earnings. . . . . . . . . . . . . . . . . .$ 284.4 $ 277.8 $ 366.6 $ 972.8
======== ======== ======== ========
Earnings per equivalent Class A common share:
Excluding realized investment gain. . . . . . .$ 213.51 $ 206.86 $ 201.03 $ 350.05
Realized investment gain. . . . . . . . . . . . 17.29 18.58 96.02 438.20*
-------- -------- -------- --------
Net earnings. . . . . . . . . . . . . . . . . .$ 230.80 $ 225.44 $ 297.05 $ 788.25
======== ======== ======== ========
* Includes $427.3 million ($346.47/share), net of taxes, related to gain arising
from Travelers Group Inc.'s acquisition of Salomon Inc. See Note 5.
1st 2nd 3rd 4th
1996 Quarter Quarter Quarter Quarter
--------- -------- -------- --------
Revenues . . . . . . . . . . . . . . . . . . . . .$ 4,139.7 $1,914.8 $2,015.3 $2,430.5
--------- -------- -------- --------
Earnings:
Excluding realized investment gain. . . . . . .$ 160.2 $ 193.7 $ 201.4 $ 328.1
Realized investment gain (loss) . . . . . . . . 1,508.5* (2.5) 62.6 36.6
--------- -------- -------- --------
Net earnings. . . . . . . . . . . . . . . . . .$ 1,668.7 $ 191.2 $ 264.0 $ 364.7
========= ======== ======== ========
Earnings per equivalent Class A common share:
Excluding realized investment gain. . . . . . .$ 134.23 $ 160.91 $ 166.34 $ 270.52
Realized investment gain (loss) . . . . . . . . 1,263.92* (2.08) 51.70 30.17
--------- -------- -------- --------
Net earnings. . . . . . . . . . . . . . . . . .$1,398.15 $ 158.83 $ 218.04 $ 300.69
========= ======== ======== ========
* Includes $1.4 billion ($1,143.68/share), net of taxes, related to gain arising
from The Walt Disney Company's acquisition of Capital Cities/ABC, Inc. See Note 5.
(15) Business Segment Data
Berkshire identified seven business segments for purposes of 1997 reporting
pursuant to SFAS No. 14. These include the property and casualty insurance business
(The Insurance Segment) conducted on both a direct and reinsurance basis through a
number of subsidiaries. Included in this segment is GEICO Corporation, the seventh
largest auto insurer in the United States and National Indemnity Company, one of the
world's leading providers of catastrophe excess of loss reinsurance. Berkshire's six
separately conducted non-insurance business segments are as follows:
Business identity
and headquarters Segment Activity
FlightSafety International Aviation training High technology training to operators of
Flushing, NY aircraft and ships
See's Candies Candy Manufacture and distribution at retail
South San Francisco, CA and by catalog solicitation
Kirby, Douglas and
Cleveland Wood Divisions
of The Scott Fetzer Company Home cleaning systems Manufacture and sale principally to distributors
Cleveland, OH
Nebraska Furniture Mart and Home furnishings Retailing
R.C. Willey Home Furnishings
and Star Furniture Company
Omaha, NE, Salt Lake
City, UT and Houston, TX
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
The business segments identified above were responsible in 1997 for 86% of
Berkshire's consolidated revenues. Other businesses activities that contributed
for 1997, in the aggregate, 13% of Berkshire's consolidated revenues, were as follows:
Business identity Product/Service/Activity
Adalet - PLM Explosion proof electrical enclosures, cable couplers and terminations
BHR Real estate management
Berkshire Hathaway
Credit Corporation Commercial financing
Berkshire Hathaway Life
Insurance Co. Annuities and other financial products
Blue Chip Stamps Marketing motivational services
Borsheim's Retailing fine jewelry
Campbell Hausfeld Air compressors, air tools, painting systems, pressure washers, welders and generators
Carefree Comfort and convenience products for the recreational vehicle industry
Fechheimer Bros. Co. Uniforms and accessories
France Appliance controls; ignition and sign transformers
Halex Zinc die cast conduit fittings and other electrical construction materials
Helzberg's Diamond Shops Retailing fine jewelry
Kingston Appliance controls
Meriam Pressure and flow measurement devices
Northland Fractional horsepower electric motors
Powerwinch Marine and general purpose winches, windlasses, and hoists
Precision Steel Products Steel service center
Quikut Cutlery for home and sporting goods markets
ScottCare Cardiopulmonary rehabilitation and monitoring equipment
Scott Fetzer Financial Group Commercial and consumer finance companies
Scot Labs Cleaning and maintenance chemicals
Stahl Custom service bodies, flatbed bodies, cranes and tool boxes for trucks
Wayne Combustion Systems Oil and gas burners for residential and commercial furnaces and water heaters
Wayne Pumps Sump, utility and sewage pumps
Wesco Financial Real estate management
Western Enterprises Medical and industrial compressed gas fittings and regulators
Western Plastics Molded plastic components
World Book Printed and multimedia encyclopedias and other reference materials
A disaggregation of Berkshire's consolidated data for each of the three most
recent years is presented in the tables which follow on this and the following page.
Amounts are in millions.
Revenues Operating profit before taxes
1997 1996 1995 1997 1996 1995
--------- --------- --------- --------- --------- ---------
Identified Segments:
Insurance. . . . . . . . . . . . .$ 6,695.4 $ 7,133.1 $ 1,715.7 $ 2,346.7 $ 3,189.6 $ 776.5
Non-insurance businesses . . . . . 2,297.8 1,812.3 1,617.2 391.9 259.6 225.8
--------- --------- --------- --------- --------- ---------
8,993.2 8,945.4 3,332.9 2,738.6 3,449.2 1,002.3
Other than identified segments . . . 1,436.8 1,554.9 1,230.4 194.2 349.7 138.1
Interest expense * . . . . . . . . . (105.2) (93.0) (56.0)
--------- --------- --------- --------- --------- ---------
Aggregate consolidated total $10,430.0 $10,500.3 $ 4,563.3 $ 2,827.6 $ 3,705.9 $ 1,084.4
========= ========= ========= ========= ========= =========
* Amounts of interest expense represent those for borrowings under investment
agreements and other debt exclusive of that of finance businesses and interest
allocated to certain identified segments.
Insurance Segment
Revenues Operating profit before taxes
1997 1996 1995 1997 1996 1995
-------- -------- -------- -------- -------- --------
Premiums earned: *
Direct . . . . . . . . . .$3,878.5 $3,432.9 $ 287.3
Reinsurance assumed. . . . 968.4 764.0 718.4
Reinsurance ceded. . . . . (85.8) (79.1) (48.2)
-------- -------- --------
4,761.1 4,117.8 957.5
Underwriting. . . . . . . . .$ 461.4 $ 230.7 $ 19.6
Goodwill amortization . . . . (42.9) (42.6)
Investment income . . . . . . 879.0 725.9 577.1 872.9 712.1 575.8
Realized investment gain. . . 1,055.3 2,289.4 181.1 1,055.3 2,289.4 181.1
-------- -------- -------- -------- -------- --------
$6,695.4 $7,133.1 $1,715.7 $2,346.7 $3,189.6 $ 776.5
======== ======== ======== ======== ======== ========
* Premiums written were as follows:
1997 1996 1995
-------- -------- --------
Direct . . . . . . . . .$3,980.4 $3,465.4 $ 294.8
Reinsurance assumed. . . 956.5 722.7 777.9
Reinsurance ceded. . . . (84.6) (82.9) (48.5)
-------- -------- --------
$4,852.3 $4,105.2 $1,024.2
======== ======== ========
Non-Insurance Business Segments
Revenues Operating profit before taxes
1997 1996 1995 1997 1996 1995
--------- --------- --------- --------- --------- ---------
Aviation training. . . . .$ 410.9 $ 8.4 $ -- $ 118.6 $ 2.7 $ --
Candy. . . . . . . . . . . 269.2 248.9 233.6 57.6 50.9 49.3
Home cleaning systems. . . 253.5 253.7 235.6 66.5 62.5 52.6
Home furnishings . . . . . 667.1 586.6 428.1 53.7 41.0 28.1
Newspaper. . . . . . . . . 155.5 154.2 154.8 55.4 49.8 46.3
Shoes. . . . . . . . . . . 541.6 560.5 565.1 40.1 52.7 49.5
--------- --------- --------- --------- --------- ---------
$ 2,297.8 $ 1,812.3 $ 1,617.2 $ 391.9 $ 259.6 $ 225.8
========= ========= ========= ========= ========= =========
Other Than Identified Segments
Revenues Operating profit before taxes
1997 1996 1995 1997 1996 1995
-------- -------- -------- -------- -------- --------
Other businesses. . . . . . . . . . . . .$1,349.4 $1,306.2 $1,179.6 $ 123.4 $ 116.1 $ 101.2
Not identified with specific businesses:
Interest and dividend income . . . . . 36.4 54.0 37.8 36.4 54.0 37.8
Realized investment gain . . . . . . . 51.0 194.7 13.0 51.0 194.7 13.0
All other except interest expense. . . (16.6) (15.1) (13.9)
-------- -------- -------- -------- -------- --------
$1,436.8 $1,554.9 $1,230.4 $ 194.2 $ 349.7 $ 138.1
======== ======== ======== ======== ======== ========
Deprec.& amort.
Capital expenditures * of tangible assets
1997 1996 1995 1997 1996 1995
------- ------- ------- ------- ------- ------
Insurance. . . . . . . . .$ 28.7 $ 12.2 $ 1.2 $ 27.2 $ 26.3 $ 0.9
Aviation training. . . . . 118.9 -- -- 54.9 -- --
Candy. . . . . . . . . . . 20.1 5.3 5.1 4.5 4.5 4.1
Home cleaning systems. . . 0.6 2.0 0.3 2.8 2.7 3.0
Home furnishings . . . . . 43.3 21.6 9.2 10.5 10.0 9.7
Newspaper. . . . . . . . . 2.9 1.0 1.8 2.4 2.8 4.9
Shoes. . . . . . . . . . . 10.8 12.8 13.7 13.2 13.4 12.0
Other. . . . . . . . . . . 16.9 26.9 22.9 28.6 28.0 25.7
------- ------- ------- ------- ------- ------
$ 242.2 $ 81.8 $ 54.2 $ 144.1 $ 87.7 $ 60.3
======= ======= ======= ======= ======= =======
* Excludes expenditures which were part of business acquisitions.
Identifiable assets
at year-end
1997 1996 1995
--------- --------- ---------
Insurance. . . . . . . . .$49,962.5 $36,597.8 $25,280.0
Aviation training. . . . . 1,679.2 1,683.7 --
Candy. . . . . . . . . . . 88.1 74.1 74.5
Home cleaning systems. . . 43.2 44.3 42.9
Home furnishings . . . . . 593.9 445.8 427.7
Newspaper. . . . . . . . . 42.1 42.0 45.0
Shoes. . . . . . . . . . . 634.7 624.4 656.7
Other. . . . . . . . . . . 3,067.2 3,897.3 2,184.6
--------- --------- ---------
$56,110.9 $43,409.4 $28,711.4
========= ========= =========
(16) Supplemental cash flow information
A summary of supplemental cash flow information is presented in the following
table (in millions):
1997 1996 1995
-------- -------- --------
Cash paid during the year for:
Income taxes . . . . . . . . . . . . . . .$ 498.5 $ 965.9 $ 294.6
Interest . . . . . . . . . . . . . . . . . 123.1 129.4 83.9
Non-cash investing and financing activities:
Liabilities assumed in connection
with acquisitions of businesses. . . . . 25.4 4,172.1 248.0
Common shares issued in connection
with acquisitions of businesses. . . . . 73.0 710.8 348.5
Fair value of investments acquired as
part of exchanges and conversions. . . . 1,837.4 1,618.6 --
Contingent value of Exchange Notes
recognized in earnings . . . . . . . . . 298.4 -- --