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 four operating groups of subsidiaries. GEICO Corporation ("GEICO"), currently the sixth largest auto insurer in the U.S., 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. GEICO's voluntary auto policy count grew 21% during the twelve months ended December 31, 1998. 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.

On December 21, 1998, Berkshire completed its acquisition of General Re Corporation. General Re is a holding company for global reinsurance and related risk management operations. General Re, through its domestic subsidiaries, General Reinsurance Corporation and National Reinsurance Corporation, is one of the largest professional property/casualty reinsurance group domiciled in the United States. General Re also owns a controlling interest in Cologne Re, a major international reinsurer.

Berkshire Hathaway's insurance businesses maintains capital strength at unparalleled high levels. Statutory surplus as regards policyholders of these businesses increased to about $45 billion at December 31, 1998.

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. These combined financial statements include the assets and liabilities of General Re's insurance operations as of December 31, 1998 but exclude the operating results of General Re from 1998's Statement of Earnings.

 


  

BERKSHIRE HATHAWAY INC.
INSURANCE GROUP

Balance Sheets
(dollars in millions)

 

December 31,

 

1998

 

1997

Assets

 

 

 

  Investments:

 

 

 

    Fixed maturities at market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$21,216

 

$10,028

    Equity securities and other investments at market:

 

 

 

      American Express Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5,067

 

4,315

      The Coca-Cola Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

13,368

 

13,305

      The Walt Disney Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,489

 

2,083

      Freddie Mac. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3,885

 

2,683

      The Gillette Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4,590

 

4,821

      Wells Fargo & Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,466

 

2,208

      Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

   8,629

 

   6,526

 

60,710

 

45,969

  Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

13,081

 

516

  Deferred costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,226

 

608

  Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

   7,745

 

   1,287

 

$82,762

 

$48,380

 

======

 

======

Liabilities

 

 

 

  Losses and loss adjustment expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$23,012

 

$6,850

  Unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3,324

 

1,274

  Policyholder liabilities and other accruals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6,419

 

1,654

  Income taxes, principally deferred. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

11,432

 

10,372

 

44,187

 

20,150

Equity

 

 

 

  Minority shareholders' . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,554

 

359

  Berkshire shareholders'. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

37,021

 

27,871

 

38,575

 

28,230

 

$82,762

 

$48,380

 

======

 

======

Statements of Earnings
(dollars in millions)

 

1998

 

1997

 

1996

Premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$5,476

 

$4,852

 

$4,105

 

=====

 

=====

 

=====

Premiums earned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$5,300

 

$4,761

 

$4,118

Losses and loss expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3,904

 

3,420

 

3,090

Underwriting expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,131

 

   880

 

   806

  Total losses and expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5,035

 

4,300

 

3,896

Underwriting gain - pre-tax. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

265

 

461

 

222

Net investment income* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

974

 

882

 

726

Realized investment gain. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,462

 

1,059

 

2,290

Earnings before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3,701

 

2,402

 

3,238

Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,186

 

   704

 

1,007

 

2,515

 

1,698

 

2,231

Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

      17

 

      15

 

        7

Net earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$2,498

 

$1,683

 

$2,224

 

=====

 

=====

 

=====

* Net investment income is summarized below:

 

 

 

 

 

    Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$363

 

$457

 

$418

    Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

621

 

430

 

322

    Investment expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

  (10)

 

    (5)

 

  (14)

 

$974

 

$882

 

$726

 

====

 

====

 

====

These statements do not conform to GAAP in all respects
These statements are unaudited


BERKSHIRE HATHAWAY INC.

MANUFACTURING, RETAILING AND SERVICES BUSINESSES

Combined financial statements of Berkshire's Manufacturing, Retailing and Services 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

 

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

Executive Jet

 

Fractional ownership programs for general aviation aircraft

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

International Dairy Queen

 

Licensing and servicing Dairy Queen Stores

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 compounds and solutions

See's Candies

 

Boxed chocolates and other confectionery products

Stahl

 

Truck equipment including service bodies, flatbed bodies, cranes, tool boxes, hoists 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, RETAILING AND SERVICES BUSINESSES

Balance Sheets
(dollars in millions)

 

December 31,

 

1998

 

1997

Assets

 

 

 

   Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 281

 

$ 103

   Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

823

 

624

   Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

727

 

599

   Properties and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,190

 

892

   Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

    331

 

    156

 

$3,352

 

$2,374

 

=====

 

=====

Liabilities

 

 

 

   Accounts payable, accruals and other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 761

 

$ 532

   Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

166

 

157

   Term debt and other borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

   442

 

   216

 

1,369

 

   905

Equity

 

 

 

   Minority shareholders' . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

75

 

52

   Berkshire shareholders' . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,908

 

1,417

 

1,983

 

1,469

 

$3,352

 

$2,374

 

=====

 

=====

Statements of Earnings
(dollars in millions)

 

1998

 

1997

 

1996

Revenues:

 

 

 

 

 

   Sales and service revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$4,675

 

$3,615

 

$3,095

   Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

       8

 

       7

 

       6

 

4,683

 

3,622

 

3,101

Cost and expenses:

 

 

 

 

 

   Cost of products and services sold . . . . . . . . . . . . . . . . . . . . . . . .

3,010

 

2,179

 

1,876

   Selling, general and administrative expenses . . . . . . . . . . . . . . . . .

1,014

 

899

 

832

   Interest on debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

     19

 

     20

 

     16

 

4,043

 

3,098

 

2,724

   Earnings from operations before income taxes . . . . . . . . . . . . . . . .

640

 

524

 

377

   Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

   234

 

   200

 

   138

 

406

 

324

 

239

   Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

       5

 

       6

 

       5

   Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 401

 

$ 318

 

$ 234

 

====

 

====

 

====

This presentation reflects the results of operations of FlightSafety International, Star Furniture Company, International Dairy Queen and Executive Jet from their respective dates of acquisition; (FlightSafety - December 23, 1996; Star Furniture - July 1, 1997; International Dairy Queen - January 7, 1998; Executive Jet - August 7, 1998).

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 71.

  

These statements do not conform to GAAP in all respects
These statements are unaudited

 


 

BERKSHIRE HATHAWAY INC.

FINANCE AND FINANCIAL PRODUCTS BUSINESSES

Scott Fetzer Financial Group, Inc., Berkshire Hathaway Life Insurance Co. of Nebraska and General Re Financial Products make up Berkshire's finance and financial products businesses.

Balance Sheets
(dollars in millions)

 

1998

 

1997

Assets

 

 

 

Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 907

 

$ 56

Investment in securities with fixed maturities:

  Held to maturity, at cost (fair value $1,366 in 1998; $1,082 in 1997). . . . . . .

1,227

 

971

  Trading, at fair value (cost $5,643) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5,219

 

-

  Available for sale, at fair value (cost $745) . . . . . . . . . . . . . . . . . . . . . . . . . .

743

 

-

Trading account assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6,234

 

-

Securities purchased under agreements to resell. . . . . . . . . . . . . . . . . . . . . . . .

1,083

 

-

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

    1,576

 

      244

 

$16,989

 

$1,271

 

======

 

=====

Liabilities

 

 

 

Annuity reserves and policyholder liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 816

 

$ 697

Securities sold under agreements to repurchase . . . . . . . . . . . . . . . . . . . . . . . .

4,065

 

-

Securities sold but not yet purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,181

 

-

Trading account liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5,834

 

-

Notes payable and other borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,503

 

326

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

    2,428

 

     126

 

$15,827

 

$1,149

Equity

 

 

 

  Berkshire shareholders' . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

    1,162

 

     122

 

$16,989

 

$1,271

 

======

 

=====

Statements of Earnings
(dollars in millions)

 

1998

 

1997

 

1996

Revenues:

 

 

 

 

 

  Annuity premiums earned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$   95

 

$ 248

 

$ 259

  Other revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

293

 

112

 

   94

 

388

 

360

 

353

Expenses:

 

 

 

 

 

  Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

27

 

24

 

32

  Annuity benefits and underwriting expenses . . . . . . . . . . . . . . . . .

146

 

287

 

277

  General and administrative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

  16

 

  21

 

  21

 

189

 

332

 

330

  Earnings from operations before income taxes. . . . . . . . . . . . . . .

199

 

28

 

23

  Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

    70

 

    10

 

      8

  Net earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 129

 

$   18

 

$   15

 

====

 

====

 

====

This presentation includes the assets and liabilities as of December 31, 1998 of General Re Financial Products, acquired in connection with the acquisition of General Re Corporation on December 21, 1998. It does not include the operating results of this business.

 

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 65 to 70).

Statements of Net Assets
(dollars in millions)

 

December 31,

 

1998

 

1997

Assets

 

 

 

  Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 220

 

$ 383

  Investments:

 

 

 

     Fixed maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

30

 

269

     Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

267

 

307

  Unamortized goodwill and other purchase accounting adjustments * . . . . . . . .

18,613

 

3,099

  Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

130

 

136

  Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

       128

 

     104

 

$19,388

 

$4,298

 

======

 

=====

Liabilities

 

 

 

  Accounts payable, accruals and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 40

 

$ 40

  Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

158

 

152

  Borrowings under investment agreements and other debt . . . . . . . . . . . . . . . .

1,863

 

2,016

 

2,061

 

2,208

Equity

 

 

 

  Minority shareholders'. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

15

 

45

  Berkshire shareholders'. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

17,312

 

2,045

 

17,327

 

2,090

 

$19,388

 

$4,298

 

======

 

=====

Statements of Earnings
(dollars in millions)

 

1998

 

1997

 

1996

Revenues:

 

 

 

 

 

  Interest, dividend and other income . . . . . . . . . . . . . . . . . . . . . . . . .

$   63

 

$   41

 

$   55

  Realized investment gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

    40

 

   53

 

  194

 

  103

 

   94

 

  249

Expenses:

 

 

 

 

 

  Corporate administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6

 

7

 

5

  Shareholder-designated contributions . . . . . . . . . . . . . . . . . . . . . . .

17

 

15

 

13

  Amortization of goodwill and purchase accounting adjustments *

210

 

105

 

76

  Interest on debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

96

 

101

 

91

  Other income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

     --

 

    (7)

 

    (3)

 

  329

 

  221

 

  182

  Income (loss) before income taxes . . . . . . . . . . . . . . . . . . . . . . . . .

(226)

 

(127)

 

67

  Income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

   (33)

 

   (17)

 

    44

 

(193)

 

(110)

 

23

  Minority interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

        5

 

        8

 

       7

  Net earnings (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(198)

 

$(118)

 

$   16

 

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* 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