The accompanying unaudited consolidated financial statements include the accounts of Berkshire consolidated with the accounts of all its subsidiaries. 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) that 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. The timing and magnitude of catastrophe losses incurred by insurance subsidiaries and 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. Realized investment gains/losses are recorded when investments are sold, other-than-temporarily impaired or in certain situations, as required by GAAP, when investments are marked-to-market with the corresponding gain or loss included in earnings. Variations in amount and timing of realized investment gains/losses can cause significant variations in periodic net earnings.

In 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 was discussed in Note 1 to the Consolidated Financial Statements in Berkshire’s 1999 Annual Report. In June 1999, the FASB issued SFAS No. 137, which delayed the effective date for implementing SFAS No. 133 until the beginning of 2001. In June 2000, the FASB issued SFAS No. 138, which amended certain provisions of SFAS No. 133 with the objective of easing the implementation difficulties expected to arise. Berkshire will adopt SFAS No. 133 as amended by SFAS No. 138 as of the beginning of 2001 and does not anticipate that the adoption of these new standards will have a material effect on its financial position or results of operations.

On October 24, 1999, Berkshire entered into an agreement along with Walter Scott, Jr. and David L. Sokol, to acquire MidAmerican Energy Holdings Company ("MidAmerican"). On January 27, 2000, the transaction was approved by the shareholders of MidAmerican. All regulatory approvals were subsequently received and the transaction closed March 14, 2000. Pursuant to the terms of the agreement, Berkshire invested approximately $1.24 billion in common stock and a non-dividend paying convertible preferred stock of a newly formed entity that merged with and into MidAmerican, with MidAmerican continuing as the surviving corporation. Such investment gives Berkshire about a 9.7% voting interest and a 76% economic interest in MidAmerican on a fully-diluted basis. Berkshire subsidiaries also acquired approximately $455 million of an 11% non-transferable trust preferred security. Under certain conditions, for a period of up to seven years subsequent to the transaction, Berkshire may be required to purchase up to $345 million of additional trust preferred securities. Mr. Scott, a member of Berkshire’s Board of Directors, controls approximately 86% of the voting interest in MidAmerican. Mr. Sokol is the CEO of MidAmerican.

Through its retail utility subsidiaries, MidAmerican Energy in the U.S. and Northern Electric in the U.K., MidAmerican provides electric service to approximately 2.0 million customers and natural gas service to 1.2 million customers worldwide. MidAmerican manages, owns interests in and has under contract approximately 9,700 net megawatts of diversified power generation facilities in operation, construction and development.

Berkshire’s investments in MidAmerican common and non-dividend paying convertible preferred stock are included in the accompanying Consolidated Balance Sheet as a component of other investments. Berkshire is accounting for these investments pursuant to the equity method. Accordingly, Berkshire’s proportionate share of MidAmerican’s net income is included in the Consolidated Statement of Earnings as a component of interest, dividend and other investment income.

The investments in MidAmerican’s 11% trust preferred securities are reflected in the Consolidated Balance Sheet as a component of investments in securities with fixed maturities. Income derived from these investments is included in the Consolidated Statement of Earnings as a component of interest, dividend and other investment income.

Data with respect to investments in securities with fixed maturities (other than securities with fixed maturities held by finance and financial products businesses — See Note 8) are shown in the tabulation below (in millions).

The global life/health operations produced unsatisfactory underwriting results for the first six months of 2000 and 1999. Second quarter and first half 2000 results were adversely affected by weak results in the international life segments and losses in the U.S. group health segment.

Premiums earned by the Berkshire Hathaway Reinsurance Group ("BHRG") include amounts earned from retroactive reinsurance contracts. Such contracts, generally, indemnify ceding companies for losses in excess of specified amounts retained by the ceding company with respect to past loss events. Losses assumed are subject to aggregate limits that are often sizable in amount. Premiums earned from retroactive contracts for the first half aggregated $25 million in 2000 and $280 million in 1999. In each year, nearly all of such premiums were earned in the first quarter. In July 2000, the BHRG entered into a new retroactive reinsurance agreement that generated additional premiums of $337 million.

Premiums earned from other reinsurance activities during the second quarter were $115 million in 2000 and $182 million in 1999. For the first half, other reinsurance premiums earned totaled $280 million in 2000 and $265 million in 1999. For the first half, an increase in premiums earned from catastrophe policies was offset by a decline in other reinsurance premiums, which included lower amounts assumed from contracts with General Re’s North American property and casualty reinsurance businesses.

Underwriting results of the BHRG include amortization of deferred charges on retroactive reinsurance contracts and accretion of discounted structured settlement liabilities. These recurring charges recognize time-value-of-money concepts that are inherent in the pricing of such contracts. It is normally anticipated that claims ultimately paid will exceed premiums received at inception. Deferred charges and discounts related to structured settlement liabilities are established at inception and subsequently charged to losses incurred over the expected claims settlement periods. Underwriting losses from structured settlement and retroactive reinsurance contracts totaled $38 million in the second quarter of 2000 and $27 million in 1999. Underwriting losses from these contracts for the first half were $79 million in 2000 and $46 million in 1999. It is expected that underwriting losses from this business over the remainder of 2000 will exceed underwriting losses in 1999 periods by a considerable margin. Nevertheless, this business is accepted because of the large amounts of policyholder float generated for investment.

Other reinsurance activities produced a second quarter underwriting loss of $30 million in 2000 compared to an underwriting gain of $65 million in 1999. For the first half, underwriting gains from other reinsurance were $ 43 million in 2000 compared to $91 million in 1999. The catastrophe reinsurance business produced lower net underwriting gains due primarily to increased amounts of catastrophe losses. Underwriting gains from this business were $24 million in the second quarter and $47 million in the first half of 2000 as compared to $49 million and $63 million in the comparable 1999 periods. Other non-catastrophe reinsurance activities produced underwriting losses of $54 million for the second quarter and $4 million for the first half of 2000 compared to underwriting gains of $16 million and $28 million during the comparable 1999 periods due to lower premiums and increased losses related to contracts assumed from General Re’s North American property and casualty operation. Most of the losses associated with the other non-catastrophe reinsurance activities derived from contracts that generated significant amounts of very long-term float.

After-tax net investment income produced by Berkshire’s insurance and reinsurance businesses for the second quarter and first half of 2000 and 1999 is summarized in the table below. Dollars are in millions.

Pre-tax net investment income earned by Berkshire’s insurance and reinsurance businesses during the second quarter and first half of 2000 exceeded amounts earned during the corresponding 1999 periods by $62 million (10.5%) and $113 million (9.5%).

Berkshire’s insurance and reinsurance businesses maintain considerable levels of invested assets, approximately $70 billion as of June 30, 2000. Invested assets derive from shareholder capital, including reinvested earnings from the business, as well as policyholder "float". Float represents an estimate of the net balance of funds held by the insurance group, that does not belong to shareholders. Float includes unpaid losses and loss adjustment expenses, unearned premiums and reinsurance balances held less premiums receivable, deferred acquisition costs, deferred charges related to retroactive reinsurance, reinsurance receivables and related prepaid income taxes. The aggregate amount of float at June 30, 2000 was approximately $25.8 billion, an increase of about $0.5 billion since year-end 1999. A much greater increase in float is expected during the second half of 2000. The annualized cost of float for the first half of 2000 was approximately 5.4%, down slightly from 1999’s full year cost of 5.8%. Absent a mega-catastrophe, the cost of float should fall moderately during the second half.

Results of operations of Berkshire's diverse non-insurance business segments for the second quarter and first half of 2000 and 1999 are shown in the following table. Dollar amounts are in millions.

Net earnings of these businesses were relatively unchanged both in the second quarter and first half as compared to the 1999 periods. During the second quarter, increased earnings of the Furniture segment were largely offset by reductions in the Shoe, Scott Fetzer and Flight services segments. For the first half, increased earnings of the Furniture segment were largely offset by a decline in the earnings of Dairy Queen. Dairy Queen’s first half 2000 results include non-recurring pre-tax charges of approximately $27 million associated with the estimated amount to be incurred in connection with the settlement of litigation (that pre-dated Berkshire’s acquisition of Dairy Queen) by certain franchisees and provisions for losses in connection with the bankruptcy of a major distributor.

Goodwill amortization and other purchase-accounting-adjustments reflect the after-tax effect on net earnings with respect to the amortization of goodwill of acquired businesses and the amortization of fair value adjustments to certain assets and liabilities which were recorded at the acquisition dates of certain businesses (principally General Re and GEICO).

Other purchase-accounting-adjustments pertain primarily to the amortization of the excess of market value over historical cost of General Re’s fixed maturity investments that existed at the date of the merger. Such excess is included in Berkshire’s cost of the investments and is being amortized over the remaining lives of the investments. The unamortized excess remaining in the cost of fixed maturity investments totaled $824 million at June 30, 2000, compared to $1,032 million at June 30, 1999.

Other activities not identified with business segments include a number of finance businesses conducted through several subsidiaries. Pre-tax income in the first half from finance and financial products businesses was $376 million in 2000 versus $135 million in 1999. The increased income of these businesses during 2000 as compared to 1999 was primarily attributed to net realized and unrealized gains of investments classified as held for trading purposes. The net realized and unrealized gains of these securities are included as a component of Income from finance and financial products businesses in the accompanying Consolidated Statements of Earnings. Accordingly, the level of income earned in a given period is subject to considerable volatility.

Realized investment gain/loss has been a recurring element in Berkshire's net earnings for many years. Such amounts ¾ recorded (1) when investments are sold; (2) other than temporarily impaired; and (3) in certain situations, as provided under GAAP, when investments are marked-to-market with a corresponding gain or loss included in earnings ¾ may fluctuate significantly from period to period, resulting in a meaningful effect on reported net earnings. The Consolidated Statements of Earnings include after-tax realized investment gains of $848 million and $520 million for the first half of 2000 and 1999, respectively.

Berkshire's balance sheet continues to reflect significant liquidity and above average capital strength. Shareholders' equity at June 30, 2000, was $57.6 billion, or $37,853 per equivalent share of Class A Common Stock.

Investors are cautioned that certain statements contained in this document as well as some statements in periodic press releases and some oral statements of Berkshire officials during presentations about Berkshire, are "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Act"). Forward-looking statements include statements which are predictive in nature, which depend upon or refer to future events or conditions, which include words such as "expects", "anticipates", "intends", "plans", "believes", "estimates", or similar expressions. In addition, any statements concerning future financial performance (including future revenues, earnings or growth rates), ongoing business strategies or prospects, and possible future Berkshire actions, which may be provided by management are also forward-looking statements as defined by the Act. Forward-looking statements are based on current expectations and projections about future events and are subject to risks, uncertainties, and assumptions about Berkshire, economic and market factors and the industries in which Berkshire does business, among other things. These statements are not guaranties of future performance and Berkshire has no specific intention to update these statements.

Actual events and results may differ materially from those expressed or forecasted in forward-looking statements due to a number of factors. The principal important risk factors that could cause Berkshire’s actual performance and future events and actions to differ materially from such forward-looking statements, include, but are not limited to, changes in market prices of Berkshire's significant equity investees, the occurrence of one or more catastrophic events, such as an earthquake or hurricane that causes losses insured by Berkshire's insurance subsidiaries, changes in insurance laws or regulations, changes in Federal income tax laws, and changes in general economic and market factors that affect the prices of securities or the industries in which Berkshire and its affiliates do business, especially those affecting the property and casualty insurance industry.