BERKSHIRE HATHAWAY INC.
COMBINED FINANCIAL STATEMENTS
BUSINESS GROUPS
Berkshire's consolidated data is rearranged in the presentations on the following six pages into four categories, corresponding to the way Mr. Buffett and Mr. Munger think about Berkshire's businesses. The presentations may be helpful to readers in making estimates of Berkshire's intrinsic value.
The presentations in this section do not conform in all respects to generally accepted accounting principles. Principal departures from GAAP relate to accounting treatment for assets acquired in business acquisitions, although students and practitioners of accounting will recognize others.
Opinions of Berkshire's independent auditors were not solicited for this data. The four-category presentations in no way fell within their purview.
BERKSHIRE HATHAWAY INC.
INSURANCE GROUP
Berkshire's insurance businesses are comprised of three operating groups of subsidiaries. The largest group (in terms of premium volume) is GEICO Corporation ("GEICO") whose business was merged with another Berkshire subsidiary at the beginning of 1996. Prior to that date, Berkshire subsidiaries owned approximately 51% of the then outstanding capital stock of GEICO. GEICO, through its subsidiaries, is a multiple line property and casualty insurer the principal business of which is writing private passenger automobile insurance. Currently the seventh largest auto insurer in the U.S., GEICO's voluntary auto policy count grew 16% during the twelve months ended December 31, 1997. At the same time, outstanding underwriting results continued to be generated.
The Berkshire Hathaway Reinsurance Division provides treaty and limited facultative reinsurance to other property/casualty insurers and reinsurers. Berkshire is one of the world's leading providers of catastrophe excess of loss reinsurance. Berkshire's unparalled capital strength has enabled it to offer dollar coverages of a magnitude far in excess of its competitors.
Berkshire's third group of businesses underwrite miscellaneous forms of direct insurance. National Indemnity Company and other affiliated entities underwrite multiple lines of traditional insurance for primarily commercial accounts. The "Homestate Group" companies underwrite various commercial coverages for risks in an increasing number of selected states. Cypress Insurance Company provides workers' compensation insurance to employers in California and other states. Central States Indemnity Company issues credit insurance distributed through credit card issuers nationwide and Kansas Bankers Surety Company is an insurer for primarily small and medium sized banks located in the midwest.
The Berkshire Hathaway Insurance Group maintains capital strength at unparalleled high levels. Statutory surplus as regards policyholders of the Insurance Group increased to about $37 billion at December 31, 1997. The obvious margins of safety thus provided to insureds of the Group are particularly persuasive in marketing of individually negotiated insurance and reinsurance contracts.
Combined financial statements of the Insurance Group -- unaudited and not fully adjusted to conform to Generally Accepted Accounting Principles -- are presented on the following page.
BERKSHIRE HATHAWAY INC.
INSURANCE GROUP
Balance Sheets
(dollars in millions)
December 31,
----------------------
1997 1996
---------- ----------
Assets
Investments:
Fixed maturities at market ................... $10,028.2 $ 5,462.4
Equity securities at market:
American Express Company ................... 4,315.2 2,731.8
The Coca-Cola Company ...................... 13,305.5 10,499.7
The Walt Disney Company .................... 2,082.8 1,680.2
Freddie Mac ................................ 2,683.1 1,772.8
The Gillette Company ....................... 4,821.0 3,732.0
Wells Fargo & Company ...................... 2,207.9 1,916.8
Other ...................................... 6,525.6 5,218.3
---------- ----------
45,969.3 33,014.0
Cash and cash equivalents ...................... 515.6 513.7
Deferred costs ................................. 607.7 437.5
Other .......................................... 1,287.0 1,022.0
---------- ----------
$48,379.6 $34,987.2
========== ==========
Liabilities
Losses and loss adjustment expenses ............ $ 6,850.5 $ 6,274.4
Unearned premiums .............................. 1,273.7 1,183.5
Funds held under reinsurance assumed ........... 396.9 449.6
Policyholder liabilities and other accruals .... 1,256.4 802.0
Income taxes, principally deferred ............. 10,372.0 6,611.8
---------- ----------
20,149.5 15,321.3
---------- ----------
Equity
Minority shareholders' ......................... 359.4 258.1
Berkshire shareholders' ........................ 27,870.7 19,407.8
---------- ----------
28,230.1 19,665.9
---------- ----------
$48,379.6 $34,987.2
========== ==========
Statements of Earnings
(dollars in millions)
1997 1996 1995
--------- --------- ---------
Premiums written ....................... $ 4,852.3 $ 4,105.2 $ 1,024.2
========= ========= =========
Premiums earned ........................ $ 4,761.1 $ 4,117.8 $ 957.5
--------- --------- ---------
Losses and loss expenses ............... 3,420.1 3,089.5 612.0
Underwriting expenses .................. 879.6 806.2 325.0
--------- --------- ---------
Total losses and expenses ............ 4,299.7 3,895.7 937.0
--------- --------- ---------
Underwriting gain -- pre-tax ......... 461.4 222.1 20.5
Net investment income* ................. 882.3 726.2 501.6
Realized investment gain ............... 1,059.1 2,289.8 181.1
--------- --------- ---------
Earnings before income taxes ........... 2,402.8 3,238.1 703.2
Income tax expense ..................... 704.5 1,006.6 149.0
--------- --------- ---------
1,698.3 2,231.5 554.2
Minority interest ...................... 15.0 7.6 7.5
--------- --------- ---------
Net earnings ........................... $ 1,683.3 $ 2,223.9 $ 546.7
========= ========= =========
* Net investment income is summarized below:
Dividends ......................... $ 457.5 $ 418.4 $ 385.0
Interest .......................... 430.7 321.9 99.6
Equity in unremitted net earnings
of Salomon Inc .................. -- -- 18.3
Investment expenses ............... (5.9) (14.1) (1.3)
------- ------- -------
$ 882.3 $ 726.2 $ 501.6
======= ======= =======
These statements do not conform to GAAP in all respects
These statements are unaudited
BERKSHIRE HATHAWAY INC.
MANUFACTURING, PUBLISHING AND RETAILING BUSINESSES
Combined financial statements of Berkshire's Manufacturing, Publishing
and Retailing businesses - unaudited and not fully adjusted to conform to
Generally Accepted Accounting Principles - are presented on the following
page. The operations whose data have been combined in these presentations
include the following:
Operation Product/Service/Activity
Adalet - PLM Electrical enclosure systems and
cable accessories
Blue Chip Stamps Marketing motivational services
Borsheim's Retailing fine jewelry
Buffalo News Daily and Sunday newspaper
Campbell Hausfeld Air compressors, air tools, painting
systems, pressure washers, welders and
generators
Carefree Comfort and convenience products for the
recreational vehicle industry
Cleveland Wood Products Vacuum cleaner brushes and bags
Dexter Shoe Companies Dress, casual and athletic shoes
Douglas Products Specialty and cordless vacuum cleaners
Fechheimer Bros. Co. Uniforms and accessories
FlightSafety High technology training to operators of
aircraft and ships
France Ignition and sign transformers and
components
H. H. Brown Shoe Co. Work shoes, boots and casual footwear
Halex Zinc die cast conduit fittings and other
electrical construction materials
Helzberg's Diamond Shops Retailing fine jewelry
Kingston Appliance controls
Kirby Home cleaning systems
Lowell Shoe, Inc. Women's and nurses' shoes
Meriam Pressure and flow measurement devices
Nebraska Furniture Mart Retailing home furnishings
Northland Fractional horsepower electric motors
Powerwinch Marine and general purpose winches,
windlasses, and hoists
Precision Steel Products Steel service center
Quikut Cutlery for the home and sporting goods
markets
ScottCare Cardiopulmonary rehabilitation and
monitoring equipment
Scot Labs Cleaning and maintenance chemicals
See's Candies Boxed chocolates and other confectionery
products
Stahl Truck equipment including service bodies,
flatbed bodies, cranes, tool boxes and
dump bodies
Star Furniture Company Retailing home furnishings
Wayne Combustion Systems Oil and gas burners for residential and
commercial furnaces and water heaters
Wayne Pumps Sump, utility and sewage pumps
Western Enterprises Medical and industrial compressed gas
fittings and regulators
Western Plastics Molded plastic components
R.C. Willey Home Furnishings Retailing home furnishings
World Book Printed and multimedia encyclopedias and
other reference materials
BERKSHIRE HATHAWAY INC.
MANUFACTURING, PUBLISHING AND RETAILING BUSINESSES
Balance Sheets
(dollars in millions)
December 31,
--------------------
1997 1996
-------- --------
Assets
Cash and cash equivalents ...................... $ 103.4 $ 61.1
Accounts receivable ............................ 624.4 563.1
Inventories .................................... 598.6 578.7
Properties and equipment ....................... 892.4 863.2
Other .......................................... 156.3 97.9
-------- --------
$2,375.1 $2,164.0
======== ========
Liabilities
Accounts payable, accruals and other ........... $ 531.7 $ 523.3
Income taxes ................................... 157.3 126.9
Term debt and other borrowings ................. 216.6 193.3
-------- --------
905.6 843.5
-------- --------
Equity
Minority shareholders' ......................... 52.1 51.6
Berkshire shareholders' ........................ 1,417.4 1,268.9
-------- --------
1,469.5 1,320.5
-------- --------
$2,375.1 $2,164.0
======== ========
Statements of Earnings
(dollars in millions)
1997 1996 1995
-------- -------- --------
Revenues:
Sales and service revenues ................ $3,577.5 $3,061.9 $2,755.9
Interest income ........................... 44.9 38.8 25.1
-------- -------- --------
3,622.4 3,100.7 2,781.0
-------- -------- --------
Cost and expenses:
Cost of products and services sold ........ 2,179.3 1,875.7 1,698.4
Selling, general and administrative expenses 899.2 832.1 741.4
Interest on debt .......................... 19.5 15.3 9.1
-------- -------- --------
3,098.0 2,723.1 2,448.9
-------- -------- --------
Earnings from operations before income taxes 524.4 377.6 332.1
Income tax expense ........................ 199.9 138.3 126.4
-------- -------- --------
324.5 239.3 205.7
Minority interest ......................... 5.6 5.1 4.5
-------- -------- --------
Net earnings .............................. $ 318.9 $ 234.2 $ 201.2
======== ======== ========
This presentation reflects the results of operations of Helzberg's
Diamond Shops, R.C. Willey Home Furnishings, FlightSafety International
and Star Furniture Company from their respective dates of acquisition
(Helzberg's -- April 30, 1995; Willey -- June 29, 1995; FlightSafety --
December 23, 1996; Star Furniture -- July 1, 1997). Accordingly, while the
1996 balance sheet includes the assets and liabilities of FlightSafety as
of December 31, 1996, the statement of earnings for 1996 includes
FlightSafety's operating results for only the last eight days of the
year.
Purchase accounting adjustments, including goodwill, arising from
Berkshire's business acquisitions are not reflected in these statements,
but instead are reflected in the statements of non-operating activities
at page 61.
These statements do not conform to GAAP in all respects
These statements are unaudited
BERKSHIRE HATHAWAY INC.
FINANCE BUSINESSES
Scott Fetzer Financial Group, Inc., Berkshire Hathaway Credit
Corporation and Berkshire Hathaway Life Insurance Co. of Nebraska make up
Berkshire's finance businesses.
Balance Sheets
(dollars in millions)
December 31,
----------------------
1997 1996
---------- ----------
Assets
Cash and cash equivalents ..................... $ 56.1 $ 10.5
Fixed maturity investments .................... 970.9 742.4
Installment and other receivables ............. 226.2 228.4
Deferred tax assets ........................... 17.8 22.5
---------- ----------
$ 1,271.0 $ 1,003.8
Liabilities
Borrowings under investment agreements
and other debt .............................. $ 325.5 $ 381.3
Annuity reserves and policyholder liabilities 697.4 434.8
Accounts payable, accruals and other .......... 126.4 123.8
---------- ----------
1,149.3 939.9
---------- ----------
Equity
Berkshire shareholders' ....................... 121.7 63.9
---------- ----------
$ 1,271.0 $ 1,003.8
Statements of Earnings
(dollars in millions)
1997 1996 1995
------ ------ ------
Revenues:
Interest and fees on loans
and financed receivables ................... $ 37.5 $ 38.8 $ 37.9
Interest and dividends on investment securities 74.5 54.9 43.7
Annuity premiums earned ...................... 248.0 259.5 75.2
------ ------ ------
360.0 353.2 156.8
------ ------ ------
Expenses:
Interest expense ............................. 24.3 32.6 38.7
Annuity benefits and underwriting expenses ... 286.6 276.7 80.8
General and administrative ................... 21.0 20.8 16.5
------ ------ ------
331.9 330.1 136.0
------ ------ ------
Earnings from operations before income taxes 28.1 23.1 20.8
Income tax expense ........................... 10.1 8.2 8.2
------ ------ ------
Net earnings ................................. $ 18.0 $ 14.9 $ 12.6
====== ====== ======
These statements do not conform to GAAP in all respects
These statements are unaudited
BERKSHIRE HATHAWAY INC.
NON-OPERATING ACTIVITIES
These statements reflect the consolidated financial statement values
for assets, liabilities, shareholders' equity, revenues and expenses that
were not assigned to any Berkshire operating group in the unaudited, and
not fully GAAP - adjusted group financial statements heretofore presented
(pages 55 to 60).
Statements of Net Assets
(dollars in millions)
December 31,
----------------------
1997 1996
---------- ----------
Assets
Cash and cash equivalents ...................... $ 383.4 $ 765.0
Investments:
Fixed maturities:
Bonds ...................................... 205.6 942.5
Preferred stocks ........................... 64.0 42.0
Equity securities ............................ 306.6 199.0
Unamortized goodwill and
other purchase accounting adjustments * ...... 3,098.6 3,149.8
Deferred tax assets ............................ 135.6 31.3
Other .......................................... 104.5 258.8
---------- ----------
$ 4,298.3 $ 5,388.4
========== ==========
Liabilities
Accounts payable, accruals and other ........... $ 39.4 $ 816.4
Income taxes ................................... 152.3 142.7
Borrowings under investment agreements
and other debt ............................... 2,016.2 1,718.2
---------- ----------
2,207.9 2,677.3
---------- ----------
Equity
Minority shareholders' ......................... 45.0 25.4
Berkshire shareholders' ........................ 2,045.4 2,685.7
---------- ----------
2,090.4 2,711.1
---------- ----------
$ 4,298.3 $ 5,388.4
========== ==========
Statements of Earnings
(dollars in millions)
1997 1996 1995
-------- -------- --------
Revenues:
Interest and dividend income ............. $ 41.0 $ 54.6 $ 37.5
Realized investment gain ................. 52.8 194.7 13.0
-------- -------- --------
93.8 249.3 50.5
-------- -------- --------
Expenses:
Corporate administration ................. 6.6 5.1 5.3
Shareholder-designated contributions ..... 15.4 13.3 11.6
Amortization of goodwill
and purchase accounting adjustments * .. 104.9 75.7 27.0
Interest on debt ......................... 101.1 90.9 55.3
Other (income) ........................... (6.5) (2.8) (1.4)
-------- -------- --------
221.5 182.2 97.8
-------- -------- --------
Income (loss) before income taxes ........ (127.7) 67.1 (47.3)
Income tax expense (benefit) ............. (16.8) 43.7 (13.3)
-------- -------- --------
(110.9) 23.4 (34.0)
Minority interest ........................ 7.7 7.8 1.3
-------- -------- --------
Net earnings (loss) ...................... $(118.6) $ 15.6 $ (35.3)
======== ======== ========
* Purchase accounting adjustments and goodwill arose in accounting for
business acquisitions.
These statements do not conform to GAAP in all respects
These statements are unaudited