<PAGE>   1


                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-K

(MARK ONE)

[X]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
          SECURITIES EXCHANGE ACT OF 1934


                  FOR THE FISCAL YEAR ENDED December 31, 1996

                                       OR

[ ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934


        FOR THE TRANSITION PERIOD FROM ___________________TO___________________

                COMMISSION FILE NUMBER 1-10125

                            BERKSHIRE HATHAWAY INC.
             ------------------------------------------------------
             (Exact name of Registrant as specified in its charter)

           Delaware                                      04 2254452
 ------------------------------                    ----------------------
 State or other jurisdiction of                       (I.R.S. Employer
 incorporation or organization                     Identification number)

    1440 Kiewit Plaza, Omaha, Nebraska                      68131
 ---------------------------------------                 ----------
 (Address of principal executive office)                 (Zip Code)

Registrant's telephone number, including area code       (402) 346-1400
                                                    ----------------------

Securities registered pursuant to Section 12(b) of the Act:

Title of each class                    Name of each exchange on which registered

Class A Common Stock, $5.00 Par Value          New York Stock Exchange

Class B Common Stock, $0.1667 Par Value        New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: NONE

         Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months, and (2) has been subject to the
filing requirements for the past 90 days.  Yes   X    No
                                               -----     -----

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  [ ]

State the aggregate market value of the voting stock held by non-affiliates of
the Registrant - $25,503,205,420*

Indicate number of shares outstanding of each of the Registrant's classes of
common stock:

<TABLE>
<S>                                                                         <C>
March 19, 1997 -- Class A Common Stock, $5 par value . . . . . . . . . . .  1,204,837 shares
March 19, 1997 -- Class B Common Stock, $0.1667 par value  . . . . . . . .    822,245 shares
</TABLE>

                      DOCUMENTS INCORPORATED BY REFERENCE

<TABLE>
<CAPTION>
                  Document                                       Incorporated In
                  --------                                       ---------------
<S>                                                                  <C>
Proxy Statement for Registrant's
  Annual Meeting to be held May 5, 1997                              Part III
</TABLE>

*     This aggregate value is computed at the last sale price of the common
stock on March 19, 1997.  It does not include the value of Class A Common Stock
(548,327 shares) and Class B Common Stock (73 shares) held by Directors and
Executive Officers of the Registrant and members of their immediate families,
some of whom may not constitute "affiliates" for purpose of the Securities
Exchange Act of 1934.
<PAGE>   2
                                     Part I


ITEM 1.  BUSINESS

      Berkshire Hathaway Inc. ("Berkshire", "Company" or "Registrant") 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 nationwide on a direct basis and worldwide on a reinsurance
basis through a number of subsidiaries collectively referred to in this report
as the Berkshire Hathaway Insurance Group ("Insurance Group").

      Additionally, Berkshire Hathaway Inc. publishes the Buffalo News, a daily
and Sunday newspaper in upstate New York.  Other business activities conducted
by non-insurance subsidiaries include publication and distribution of
encyclopedias and related educational and instructional material (World Book
and Childcraft products), manufacture and marketing of home cleaning systems
and related accessories (sold principally under the Kirby name), manufacture
and sale of boxed chocolates and other confectionery products (See's Candies),
retailing of home furnishings (Nebraska Furniture Mart and R.C. Willey Home
Furnishings), and manufacture, import and distribution of footwear (H. H. Brown
Shoe Company, Lowell Shoe, Inc. and Dexter Shoe Company). Berkshire also owns a
number of other businesses engaged in a variety of activities, as identified
herein.

      Operating decisions for the various Berkshire businesses are made by
managers of the business units. Investment decisions and all other capital
allocation decisions are made for Berkshire and its subsidiaries by Warren E.
Buffett, in consultation with Charles T. Munger. Mr.  Buffett is Chairman and
Mr. Munger is Vice Chairman of Berkshire's Board of Directors.

PROPERTY AND CASUALTY INSURANCE AND REINSURANCE BUSINESS

      Berkshire's insurance and reinsurance businesses are conducted through 20
separate property and casualty insurance companies. In 1996, the Insurance
Group expanded significantly as a result of the January 1996 acquisition of
GEICO Corporation ("GEICO Corp.").

      The Insurance Group maintains capital strength at unparalleled levels,
significantly higher than normal in the industry.  This strength differentiates
Insurance Group members from their competitors.  For example, the Insurance
Group's ratio of net premiums written in 1996 to year-end 1996 statutory
surplus was approximately 16%.  In each year from 1992 through 1995, the
Insurance Group's ratio was less than 10%.  Comparatively, the industry average
net premiums-to-surplus ratio from 1991 through 1995 ranged from 113% to 141%.
The Insurance Group's aggregate statutory surplus has grown from $8.7 billion
at year-end 1991 to over $26 billion at year-end 1996.  Insurance Group members
are rated AAA by Standard & Poor's Corporation with respect to their
claims-paying abilities and are rated A++ (superior) by A.M. Best with respect
to their financial condition and operating performance.  The obvious margins of
safety thus provided to clients of the Insurance Group are particularly
persuasive in marketing insurance and reinsurance contracts.

      Underwriting operations of the Insurance Group are comprised of three
sub-groups: (1) the direct insurance operations of GEICO Corp. and its
subsidiaries, (2) the reinsurance assumed business of National Indemnity Company
and certain affiliated companies ("National Indemnity"), and (3) various other
direct insurance businesses.  In direct insurance activities, Insurance Group
members assume defined portions of risk of loss from persons or organizations
that are directly subject to the risks.  In reinsurance activities, Insurance
Group members assume defined portions of similar or dissimilar risks that other
insurance or reinsurance companies have subjected themselves in their own
insuring activities.

      DIRECT INSURANCE OF GEICO CORP. -- On January 2, 1996, GEICO Corp. became
an indirect wholly-owned subsidiary of Berkshire as a result of the merger of
an indirect wholly-owned subsidiary of Berkshire with and into GEICO Corp.  The
acquisition was pursuant to an Agreement and Plan of Merger dated August 25,
1995, wherein each outstanding share of GEICO Corp., except treasury shares and
shares already held by Berkshire subsidiaries, was converted to the right to
receive $70 cash, or $2.3 billion in the aggregate.  Immediately prior to the
merger, Berkshire subsidiaries owned approximately 51% of all outstanding GEICO
Corp. common stock.





                                       1
<PAGE>   3
ITEM 1.  BUSINESS (CONTINUED)

PROPERTY AND CASUALTY INSURANCE AND REINSURANCE BUSINESS (CONTINUED)

       GEICO Corp. is headquartered in Chevy Chase, Maryland and its principal
insurance subsidiaries include: Government Employees Insurance Company
("GEICO"), GEICO General Insurance Company ("GEICO General"), GEICO Indemnity
Company ("GI"), and GEICO Casualty Company ("GEICO Casualty").  These companies
offer primarily private passenger automobile insurance to individuals in 48
states and the District of Columbia.  Collectively, GEICO Corp. companies are
currently the seventh largest auto insurer, in terms of premium volume, in the
United States.  In 1996, aggregate net premiums written totaled $3.1 billion.

      GEICO, founded in 1936, is a multiple-line property and casualty insurer
engaged primarily in writing private passenger automobile insurance for
preferred-risk government employees and military personnel.  To a lesser
extent, GEICO writes homeowners, fire and boat owners insurance (businesses
that GEICO has, since 1995, substantially reduced and plans to fully exit by
1999), and personal umbrella insurance to all qualified applicants.  GEICO
General writes private passenger automobile insurance for preferred-risk
drivers not associated with the government or military.  GI writes
standard-risk private passenger automobile and motorcycle insurance.  GEICO
Casualty writes non-standard risk private passenger automobile insurance.  Each
of these companies market their policies primarily through direct response
methods.

      Other active subsidiaries of GEICO Corp. include a variety of smaller
entities engaged in the sale of insurance and insurance related products, real
estate management, miscellaneous investment ventures, and other general
corporate activities.

      Seasonal variations in GEICO Corp.'s property and casualty insurance
businesses are not significant.  However, extraordinary weather conditions or
other factors may affect the frequency or severity of automobile or homeowners
claims.  Weather related catastrophes can severely affect periodic underwriting
results.

      GEICO Corp. companies compete most directly with companies, including
mutual (or policyholder-owned) companies, that concentrate on preferred-risk
private passenger automobile insurance.  To a lesser degree, GEICO Corp.
companies compete with companies that write private passenger automobile
insurance for standard and non-standard risks.

      Private passenger automobile insurance is stringently regulated by state
insurance departments, which makes it difficult for insurance companies to
differentiate their products.  Competition for preferred-risk private passenger
automobile insurance, which is substantial, tends to focus on price and level
of customer service provided, whereas price tends to be the primary focus for
other risks.  GEICO Corp. companies' cost efficient direct response marketing
methods and emphasis on customer satisfaction enable it to offer competitive
rates.  Some insurance companies exacerbate price competition by selling their
products for a period of time at less than adequate rates, because they
underestimate ultimate claim costs, or overestimate the amount of investment
income they will earn on premiums before the claims are paid.  Although certain
rates are subject to regulatory approval, GEICO Corp. companies' six-month
policy terms permit them to effectively manage premium rate changes.

      GEICO Corp. companies place great emphasis on customer satisfaction.
Management believes that the name and reputation of the GEICO Corp.  companies
is a material asset and protects its name and other service marks through
appropriate registrations.

      REINSURANCE ASSUMED -- The reinsurance operation of National Indemnity,
from its offices in Stamford, Connecticut, provides excess-of-loss and
quota-share reinsurance to other property and casualty insurers and reinsurers.
Generally, an excess-of-loss reinsurance contract provides indemnification to
the reinsured party against all or a portion of covered losses, subject to a
specified limit, in excess of a specified retention.  A quota-share reinsurance
contract provides indemnification to the reinsured party on a pro-rata basis
with respect to each covered loss under the contract.  A quota-share contract
may also provide for aggregate limits of indemnification.

      National Indemnity's clients and risks assumed are located throughout the
world, but are primarily within the United States.  Minimal organizational, but
huge financial resources are currently devoted to this business.  From 1992
through 1996, annual net premiums written from reinsurance activities have
ranged from $528.7 million (in 1993) to $777.0 million (in 1995).  In 1996, net
reinsurance premiums written were $715.5 million.  During the past five years,
reinsurance assumed business included considerable amounts from catastrophe
excess-of-loss contracts.





                                       2
<PAGE>   4
ITEM 1.  BUSINESS (CONTINUED)

PROPERTY AND CASUALTY INSURANCE AND REINSURANCE BUSINESS (CONTINUED)

      In the early 1990's, Berkshire management perceived that declines in
industry capacity occurred with respect to catastrophe excess-of-loss
reinsurance coverages.  Consequently, National Indemnity wrote a number of such
policies.  In recent years, management believes that National Indemnity has
been one of the leading providers in the world of such coverages.

      A catastrophe excess-of-loss policy provides protection to the
counterparty from the accumulation of primarily property losses arising from a
single loss event or series of events.  These policies may provide significant
amounts of indemnification per contract in excess of specified retentions and a
single loss event may produce losses under a number of contracts.  Generally,
National Indemnity does not cede any of the risks it has assumed under
catastrophe excess-of-loss reinsurance contracts to third-party reinsurers, due
to perceived uncertainties in recovering amounts from reinsurers that are
financially weaker.  As a result, the catastrophe excess-of-loss reinsurance
business can produce extreme volatility in periodic underwriting results.
Accounting consequences, however, do not influence decisions of Berkshire's
management with respect to this or any other business.  This factor along with
the Insurance Group's extraordinary financial strength, are believed to be the
primary reasons why National Indemnity has become a major provider of such
coverages.

      Since 1992, the amount of capital (i.e. capacity) devoted to the
catastrophe excess-of-loss reinsurance business by the industry has increased,
including additional capital raised by newly-formed entities.  In addition, new
types of catastrophe risk management products have been introduced in the
financial markets.  The effect of such increased insuring capacity has been a
reduction in opportunities to write this business at acceptable prices.
However, the occasional acceptance of catastrophe excess-of-loss reinsurance
contracts subjects National Indemnity to considerable risk of loss.

      In National Indemnity's non-catastrophe reinsurance business, the
concept of time-value-of money is an important element in establishing prices
and contract terms, since the payment of losses under the agreements are often
expected to occur over lengthy periods of time.  Under the terms of most
contracts, limits of indemnification may be subject to minimum and maximum
payment amounts.  Minimum payment requirements may originate in commutation (or
termination) clauses that specify for repayments to the reinsureds, on
specified dates, of amounts not otherwise paid as losses.  Transaction amounts
and limits of indemnification are likely to be large and contracts may span a
number of years.  This business is accepted, in large part, because of the
substantial amounts of policyholder funds ("float") that it produces.

      OTHER DIRECT INSURANCE BUSINESSES -- In Berkshire's other direct
insurance businesses, Insurance Group members underwrite various lines of
insurance coverages for primarily commercial accounts.  National Indemnity and
certain affiliates provides motor vehicle insurance to commercial truck and bus
operators, which is written nationwide primarily through insurance agents and
brokers.  This business is based in Omaha, Nebraska.

      National Indemnity and certain other affiliates also solicit and
underwrite certain unusual or especially large property and casualty risks.
This business is referred to as the "Professional Liability and Specialty Risk
Division."  In recent years, most of the insurance written by the Professional
Liability and Specialty Risk Division has been from individually negotiated
property catastrophe insurance policies issued to commercial enterprises.

      Other Insurance Group members market various commercial coverages for
standard risks to insureds in their state of domicile and an increasing number
of other states.  These operations are referred to as the "Homestate
Businesses" and are based in Colorado, Nebraska, and California with branch
operations located in several other states.

      At the end of 1992, Berkshire acquired 82% of Central States Indemnity
Company of Omaha ("CSI").  CSI, located in Omaha, Nebraska, offers credit-card
credit insurance marketed primarily through credit card issuers nationwide.
CSI insures the credit card debt of policyholders should they become unemployed
or disabled.





                                       3
<PAGE>   5
ITEM 1.  BUSINESS (CONTINUED)

PROPERTY AND CASUALTY INSURANCE AND REINSURANCE BUSINESS (CONTINUED)

      In mid-1996, Berkshire acquired, through an 80.1% owned affiliate, Kansas
Banker's Surety Company ("KBS").  KBS, based in Topeka, Kansas, provides
primarily crime, fidelity, errors and omissions, officers and directors
liability and related insurance coverages directed toward small and
medium-sized banks throughout the midwestern United States.

      INVESTMENTS -- The volume of reinsurance assumed business in recent
years, plus the acquisition of GEICO Corp. in 1996, has produced an exceptional
increase in the amount of "float" held by the Insurance Group.  "Float" is an
approximation of the amount of net policyholder funds available for investment.
That term denotes the sum of unpaid losses and loss adjustment expenses,
unearned premiums and other policyholder liabilities, less the aggregate amount
of premium balances receivable, losses recoverable from reinsurance ceded,
deferred policy acquisition costs, deferred charges re reinsurance assumed, and
related prepaid income taxes.  The amount of float has grown from about $2.1
billion at the end of 1991 to about $6.9 billion at the end of 1996.  The
increases in the amounts of float plus the earnings that it generates will
likely result in meaningful increases for several years in the levels of
investments and investment income, with some part of such increases already
evident.

      Investment portfolios of Insurance Group members include meaningful
equity ownership percentages of other publicly traded companies.  Such
investments at year-end 1996 include approximate ownership percentages of the
common or capital stock of the following companies: American Express Company
(10.5%), The Coca-Cola Company (8%), The Walt Disney Company (3.5%), Federal
Home Loan Mortgage Corporation ("Freddie Mac") (9%), The Gillette Company
(8.5%), The Washington Post Company (16%), and Wells Fargo & Company (8%).  In
addition, investments in the common and convertible preferred stock of Salomon
Inc possess approximately 18% of the total voting power of that company.  Much
information about these companies is available, including information released
from time-to-time by the companies themselves.

NON-INSURANCE BUSINESSES OF BERKSHIRE

      Registrant's six non-insurance "reportable business segments" are
described below.

      CANDY -- See's produces boxed chocolates and other confectionery products
with an emphasis on quality in two large kitchens in California.  See's
distributes its candies through its own retail stores - over 200 in number,
located in 12 western and midwestern states, including Hawaii - and by mail
order.  A meaningful volume of candy business is also recorded for direct
shipments made nationwide from its California based quantity order distribution
centers.

      Seasonality in this business is extreme.  Nearly 50% of each year's unit
sales volume is generated during the last two months of the year, when quantity
sales at reduced prices to businesses and other organizations augment the
extremely high retail store and mail order volume during December.

      ENCYCLOPEDIAS, OTHER REFERENCE MATERIALS -- World Book publishes
educational products for homes, schools, and libraries.  Its chief products
include:  The World Book Encyclopedia, the largest-selling print encyclopedia
in the United States;  Childcraft, a resource library designed for pre-school
and primary grade children; Early World of Learning, a readiness program for
preschoolers; and World Book Multimedia Encyclopedia, a CD-ROM encyclopedia
which includes audio, video and animation.  These and other educational
products are sold by independent sales representatives and distributors.
Beginning in 1997, an updated World Book Multimedia Encyclopedia will also be
sold to previous purchasers by direct mail.  Additionally, through a
contractual arrangement, IBM is selling the World Book Multimedia Encyclopedia
in retail stores.  A newly copyrighted edition of The World Book Encyclopedia
is published each year as are various annual updating publications for owners
of earlier encyclopedia editions.  An international group markets these and
other specially created educational products in Australia, the United Kingdom,
Ireland, Canada and 81 other countries through independent distributors.

      There is significant competition in the business of publishing and
marketing encyclopedias in North America, World Book's principal geographic
market.  Over the past five years, the demand for printed encyclopedias, in
general, has declined dramatically.  As a result, World Book management made
significant changes in the production and distribution of its products.  World
Book's strategy is to sell an expanded line of products that combine the
advantages of print and electronic media.  Management believes its product
quality is superior to its competitors, and that its pricing is competitive.





                                       4
<PAGE>   6
ITEM 1.  BUSINESS (CONTINUED)

NON-INSURANCE BUSINESSES OF BERKSHIRE (CONTINUED)

      HOME CLEANING SYSTEMS -- This segment of Berkshire's business is
principally represented by Kirby home cleaning systems and products, sold to
approximately 785 independent authorized factory distributors in the United
States and foreign countries.  These factory distributors sell to the consumer
or to independent authorized area distributors who sell to the consumer.  Sales
are made through in-the-home demonstrations by independent salespeople.
Substantially all of Kirby's sales to distributors are for cash.  A
wholly-owned Berkshire subsidiary offers financing to about 665 authorized
distributors in the United States. The distributors independently establish the
prices at which they offer Kirby products.  Kirby and its distributors believe
they offer a premium product, and it is believed that the prices are generally
higher than those of most of its major competitors.

      This segment also includes the Douglas Products business that
manufactures specialty vacuum cleaners such as electric hand held and cordless
vacuum cleaners.  Channels of distribution for these products include retail
discount stores, catalogue showrooms, hardware stores and department stores.
Additionally, Cleveland Wood Products, a manufacturer of vacuum cleaner brushes
and bags, is included in this segment.

      HOME FURNISHINGS -- The Nebraska Furniture Mart ("NFM") operates a home
furnishing retail business from a very large - approximately 400,000 square
feet - retail complex and sizable warehouse facilities in Omaha, Nebraska.
Types of merchandise offered by NFM include furniture, major appliances,
electronics, computers, floor coverings, and other home furnishings.  The
business serves a trade area with a radius around Omaha of approximately 300
miles.  An important feature of the business is its ability to control its
costs and to produce a high business volume from offerings of significant value
to its customers, while realizing highly satisfactory earnings.

      The Home Furnishings segment increased significantly in June 1995, when
Berkshire acquired 100 percent of the stock of R.C. Willey Home Furnishings
("R.C. Willey").  R.C. Willey, founded in 1932, is the dominant home
furnishings retailer in Utah.  R.C. Willey sells basically the same types of
products as NFM.  In addition, R.C. Willey provides significant levels of
customer financing which compliment its retail operations.

      Based in Salt Lake City, R.C. Willey operates six full retail stores and
multiple warehouse and clearance facilities.  These facilities -- which include
more than 585,000 square feet of retail space -- are strategically located
within a 35 mile radius of Salt Lake City and serve customers in 4 western
states.

      NEWSPAPER -- The Buffalo News, a division of Berkshire, publishes a
Sunday edition and nine editions each weekday from its headquarters in
Buffalo, New York.  It is the only metropolitan newspaper published daily
within a ten county upstate New York distribution area that comprises one of
the 50 largest primary market areas in the United States.

      Among newspapers published in those primary markets, The Buffalo News
claims the highest percentage of its area household coverage, 65% on weekdays
and 82% on Sundays.  Berkshire management believes the "newshole" percentage
(portion of the paper devoted to news) of The Buffalo News to be greater than
any other dominant newspaper of its size or larger.  During 1996 this
percentage was approximately 57%.

      SHOES --  This segment includes H. H. Brown Shoe Company ("H. H. Brown"),
which was acquired in July 1991, Lowell Shoe, Inc. ("Lowell"), acquired at the
end of 1992, and Dexter Shoe Company ("Dexter"), acquired in November 1993.  A
description of each of these businesses follows.

      H. H. Brown manufactures, imports and markets work, safety, outdoor,
western work and casual footwear.  They are distributed under the H.  H. Brown,
Born, Carolina, Double-H Boot and other brand names as well as under private
label.  H. H. Brown is the leading domestic producer of steel toe safety work
shoes. The company maintains a significant share in many niche markets in which
it competes by providing functional footwear and emphasizing comfort.  The
company's competitors in this market are typically domestic work boot
manufacturers.  Management believes that its products are competitive in terms
of quality and price.

      In addition to manufacturing its products at three facilities located in
the United States and a facility in Canada, the company sources shoes and shoe
components offshore.  The company markets its products entirely within the
United States and Canada through a direct sales force of about 85 employees.
Its customer base is primarily composed of small independent retailers and
wholesalers who sell to workers in a variety of industries including steel,
construction, heavy manufacturing and agriculture.





                                       5
<PAGE>   7
ITEM 1.  BUSINESS (CONTINUED)

NON-INSURANCE BUSINESSES OF BERKSHIRE (CONTINUED)

      Lowell manufactures and markets women's casual, service and nurses
footwear. These products are marketed primarily under the brand names Soft
Spots and Nurse Mates.

      Dexter manufactures and markets men's and women's dress, casual and
athletic footwear.  All products are manufactured and sold under the trademark
Dexter.  The company specializes in the construction of Handsewns, Welts and
Cements.  Leather is purchased from domestic tanneries, and many of the other
components used in the manufacturing process are made by Dexter.

      Dexter has four manufacturing facilities in Maine, two in Puerto Rico and
one in the Dominican Republic.  In addition to the manufacturing facilities,
Dexter operates 83 factory outlet stores located in 13 states and Puerto Rico.

      The customer base is composed of independent retailers and department
stores throughout the United States.  Dexter's major customers are large
department stores, including J. C. Penney and Nordstroms, specialty retailers
such as Famous Footwear and military PX's.  Additionally, Dexter exports its
products to numerous foreign countries.

      OTHER NON-INSURANCE ACTIVITIES not identified with Berkshire business
segments include the more than one dozen diverse manufacturing businesses
acquired with the 1986 purchase of The Scott & Fetzer Company.  The largest
revenue producer of these businesses is Campbell Hausfeld/Scott Fetzer Company,
which manufactures and markets a variety of products including air compressors,
air tools, painting systems, pressure washers, welders and generators.

      In April 1995, Berkshire acquired 100 percent of the stock of Helzberg's
Diamond Shops, Inc. ("Helzberg's").  Helzberg's -- based in North Kansas City,
Missouri -- operates a chain of over 180 retail jewelry stores in twenty-eight
states.  Most of Helzberg's stores are located in malls or power strip centers,
and operate under the names: Helzberg Diamonds and Jewelry 3. In addition, for
many years Berkshire has owned an 85% interest in a long established, high
volume retailer of fine jewelry, Borsheim's, in Omaha, Nebraska.

      On December 23, 1996 FlightSafety International, Inc. ("FSI") became a
wholly-owned subsidiary of Berkshire.  The merger was consummated pursuant to
an Agreement and Plan of Merger dated October 14, 1996 (the "FSI Agreement").
Pursuant to the FSI Agreement, aggregate consideration of $1.5 billion was paid
to FSI shareholders, consisting of approximately $769 million in cash, 17,728
shares of Berkshire Class A Common Stock and 112,655 shares of Berkshire Class
B Common Stock.

      FSI and its subsidiaries engage primarily in the business of providing
high technology training to operators of aircraft and ships.  FSI's corporate
headquarters is located at LaGuardia Airport in Flushing, New York.  FSI's
revenues for the twelve months ended December 31, 1996 were $364 million, of
which $338 million were from training services.  The remainder of FSI's revenues
derive primarily from product sales.

      FSI's training activities include: advanced pilot training in the
operation of aircraft and air traffic control procedures; aircrew training for
military and other government personnel; aircraft maintenance technician
training; ab-initio (primary) pilot training to qualify individuals for private
and commercial pilots' licenses; and shiphandling and related training
services.  FSI also develops classroom instructional systems and materials for
use in its training business and for sale to others.

      A significant element of FSI's training programs derives from the use of
simulators, which incorporate computer-based technology to replicate the
operation of particular aircraft or ocean-going vessels.  Simulators reproduce,
with a high degree of accuracy, certain sights, movements, and aircraft or
vessel control responses experienced by the operator of the aircraft or ship.
FSI owns and operates more than 170 civil aviation simulators and training
devices.  FSI's training businesses are conducted primarily in the United
States, with facilities located in 16 states.  FSI also operates training
facilities in Canada, China, France and the Netherlands.

      In addition, FSI designs and manufactures full motion flight simulators,
visual displays, and other training equipment for use in its training business
and for sale to others.  Manufacturing facilities are located in Oklahoma and
Missouri.





                                       6
<PAGE>   8
ITEM 1.  BUSINESS (CONTINUED)

NON-INSURANCE BUSINESSES OF BERKSHIRE (CONTINUED)

      In March 1997, FSI and Boeing Co., a leading airplane manufacturer,
announced plans to establish a joint venture. The joint venture will provide
pilot and aircrew training for Boeing's new airplane sales and airline
customers around the world.

      Berkshire Hathaway Inc. and subsidiaries employed approximately 34,500
persons on a full-time basis at December 31, 1996.

ADDITIONAL INFORMATION WITH RESPECT TO BERKSHIRE'S BUSINESSES

      The amounts of revenue, operating profit and identifiable assets
attributable to each of the seven aforementioned business segments are included
in Note 15 to Registrant's consolidated financial statements contained in Item
8, Financial Statements and Supplementary Data.  Additional information
regarding Registrant's investments in fixed maturity and marketable equity
securities is included in Notes 4 and 5 to Registrant's consolidated financial
statements.

ITEM 2.  PROPERTIES

      The physical properties used by Registrant's significant business
segments are summarized below:

<TABLE>
<CAPTION>
                                                                                      OWNED         APPROX.
                                                                                        OR          SQUARE
    BUSINESS                 LOCATION                     TYPE OF PROPERTY            LEASED        FOOTAGE
-----------------    ------------------------           ---------------------         ------        -------
<S>                  <C>                                <C>                           <C>          <C>
Company
Headquarters         Omaha, NE                          Offices                       Leased           4,000

Insurance            Omaha, NE, Chevy Chase,            Offices                       Owned        1,773,000
                        MD, Woodbury, NY,
                        Macon, GA, Dallas, TX,
                        & Fredricksburg, VA
                     Omaha, NE & various                Offices and                   Leased         333,000
                        locations throughout               drive-in claims
                        the United States                  facilities

Candy                Los Angeles, CA & South            Plants/Warehouses/
                        San Francisco, CA                  Offices                    Owned          274,000
                     California                         Warehouses/Offices            Leased         393,000
                     California & other                 Retail outlets and            Leased         352,000
                        locations principally              quantity order centers
                        in western states                  (211 locations)

Newspaper            Buffalo, NY                        Offices                       Owned          195,000
                     Buffalo, NY                        Printing Plant                Owned          150,000
                     New York &
                        Washington, D.C.                Offices/Warehouses            Leased          85,000

Home                 Omaha, NE                          Retail Store                  Owned          400,000
Furnishings          Omaha, NE & Lincoln, NE            Warehouses/Offices            Owned          670,000
                     Des Moines, IA                     Retail Store/Warehouse        Leased          13,000
                     Salt Lake City & other             Warehouses/Offices            Owned          484,000
                        Utah locations                  Warehouses/Offices            Leased         141,000
                     Salt Lake City & other             Retail Stores                 Owned          486,000
                        Utah locations                  Retail Stores                 Leased         100,000

Encyclopedias,       Chicago, IL & vicinity             Offices                       Leased          49,000
Other Reference      Australia                          Offices/Warehouses            Leased           7,000
Material             United Kingdom                     Offices                       Leased          19,000
</TABLE>





                                       7
<PAGE>   9
ITEM 2.  PROPERTIES (CONTINUED)
<TABLE>
<CAPTION>
                                                                                      OWNED         APPROX.
                                                                                        OR          SQUARE
    BUSINESS                 LOCATION                     TYPE OF PROPERTY            LEASED        FOOTAGE
-----------------    ------------------------           ---------------------         ------        -------
<S>                  <C>                                <C>                           <C>          <C>
Home Cleaning        Cleveland, OH,
Systems                 Andrews, TX &                   Plants/Warehouses/            Owned          465,000
                        Walnut Ridge, AR                   Offices
                     Cleveland, OH                      Warehouse/Offices             Leased          23,000
                     Canada & England                   Warehouses/Offices            Leased          22,000

Shoes                Morganton, NC, Womelsdorf,
                        PA, Martinsburg, PA,
                        Hudson, NH, Dexter, ME &        Plants/Warehouses/
                        Canada                             Offices                    Owned        1,687,000

                     Greenwich, CT, Commerce, CA,
                        Hudson, NH, Morganton, NC,
                        Skowhedgan, ME, Newton, MA,
                        Canada, Puerto Rico &           Plants/Warehouses/
                        Dominican Republic                 Offices                    Leased         733,000
                     46 U.S. locations                  Retail Stores                 Owned          316,000
                     55 U.S. & Puerto Rico locations    Retail Stores                 Leased         395,000
</TABLE>

     The physical properties utilized by FlightSafety International, Inc.'s
businesses are summarized below:

<TABLE>
<CAPTION>
                                                                                      Owned          Approx.
                                                                                        or           Square
                             Location                     Type of Property            Leased         Footage
                     ------------------------           ---------------------         ------         -------
                     <S>                                <C>                           <C>            <C>
                     16 U.S. States, Canada,            Training Facilities           Owned          393,000
                        Netherlands, France             Training Facilities           Leased         909,000
                        and China
                     Oklahoma and Missouri              Manufacturing                 Owned          165,000
</TABLE>

ITEM 3.  LEGAL PROCEEDINGS

     The Company is a defendant in litigation relating to the transactions in
which Salomon Inc ("Salomon") repurchased a significant block of its common
stock from a holder thereof and sold a new issue of preferred stock to the
Company.  Twenty-one derivative action lawsuits have been filed against
Salomon's directors challenging these transactions and seeking damages; two of
these lawsuits (Ruby Resnik v. Dwayne O. Andreas, et al., Delaware Chancery No.
9300, filed September 30, 1987 and Rodney Shields v. John H. Gutfreund, et al.,
United States District Court for the Southern District of New York, No. 88 Civ.
1058, filed February 12, 1988) named the Company as an additional defendant.
The lawsuits allege that the Salomon directors breached their fiduciary duties
to Salomon and its shareholders in connection with these transactions, and the
two lawsuits naming the Company claim, in essence, that the Company
participated in such alleged breaches of duty.  The complaints in these
lawsuits seek damages in unspecified amounts, a declaration that the sale of
preferred stock to the company is illegal, null and void, an order requiring
that the preferred stock purchased by the Company be voted in the same manner
as the majority of Salomon's shares, and rescission of the transaction between
Salomon and the Company. Management does not expect the outcome of these
lawsuits to be materially adverse to the Company.  Other litigation pending
against the Company and its subsidiaries is not considered material or is
ordinary routine litigation incidental to the business.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None





                                       8
<PAGE>   10
EXECUTIVE OFFICERS OF THE REGISTRANT

     Following is a list of the Registrant's executive officers:

<TABLE>
<CAPTION>
      Name                Age       Position with Registrant          Since
-----------------         ---      --------------------------         -----
<S>                       <C>      <C>                                 <C>
Warren E. Buffett         66       Chairman of the Board               1970
Marc D. Hamburg           47       Vice President                      1992
Charles T. Munger         73       Vice Chairman of the Board          1978
</TABLE>

     Each executive officer serves, in accordance with the by-laws of the
Registrant, until the first meeting of the Board of Directors following the
next annual meeting of shareholders and until his respective successor is
chosen and qualified or until he sooner dies, resigns, is removed or becomes
disqualified.  Mr. Buffett and Mr. Munger also serve as directors of the
Registrant.



                                    Part II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS

MARKET INFORMATION

      The Company's Class A and Class B Common Stock are listed for trading on
the New York Stock Exchange, trading symbol: BRK.A and BRK.B.  The following
table sets forth the high and low sales prices per share, as reported on the
New York Stock Exchange Composite List during the periods indicated:

<TABLE>
<CAPTION>
                           CLASS A *             CLASS B *                                         CLASS A *
                      ------------------      ---------------                                   ----------------
1996                   HIGH        LOW         HIGH     LOW         1995                         HIGH       LOW
                      -------    -------      ------   ------                                   -------   -------
<S>                   <C>        <C>          <C>      <C>          <C>                         <C>       <C>
First Quarter . . .   $38,000    $29,800         N/A      N/A       First Quarter   . . . . .   $25,200   $20,250
Second Quarter  . .    36,000     30,000      $1,220   $  990       Second Quarter  . . . . .    24,450    21,500
Third Quarter . . .    33,500     30,500       1,117    1,005       Third Quarter   . . . . .    30,600    23,400
Fourth Quarter  . .    36,500     31,000       1,175    1,036       Fourth Quarter  . . . . .    33,400    28,850
</TABLE>

*   Class B Common Stock was first issued on May 8, 1996. At that time
    Berkshire's then outstanding common stock was redesignated Class A Common
    Stock.

SHAREHOLDERS

      The Company had approximately 9,000 record holders of its Class A Common
Stock and 6,000 record holders of its Class B Common Stock at March 7, 1997.
Record owners included nominees holding at least 220,000 shares of Class A
Common Stock and 750,000 shares of Class B Common Stock on behalf of
beneficial-but-not-of-record owners.

DIVIDENDS

      Berkshire has not declared a cash dividend since 1967.





                                       9
<PAGE>   11

                              Part II (Continued)


ITEM 6.  SELECTED FINANCIAL DATA

SELECTED FINANCIAL DATA FOR THE PAST FIVE YEARS
(dollars in millions, except per share data)

<TABLE>
<CAPTION>
                                                 1996          1995*         1994*          1993*         1992*
                                               ---------     ---------     ---------      ---------    ----------
<S>                                            <C>           <C>           <C>            <C>           <C>
REVENUES:
   Insurance premiums earned  . . . . . . .    $ 4,117.8     $   957.5     $   923.2      $   650.7     $   664.3
   Sales and service revenues . . . . . . .      3,061.2       2,755.9       2,351.9        1,962.9       1,774.4
   Interest and dividend income . . . . . .        811.9         629.2         519.0          520.7         485.5
   Income from finance businesses . . . . .         25.3          26.6          24.9           22.2          20.7
   Realized investment gain (1) . . . . . .      2,484.1(2)      194.1          91.3          546.4          89.9
                                               ---------     ---------     ---------      ---------     ---------
   Total revenues . . . . . . . . . . . . .    $10,500.3     $ 4,563.3     $ 3,910.3      $ 3,702.9     $ 3,034.8
                                               =========     =========     =========      =========     =========
EARNINGS:
   Before realized investment gain and
      cumulative effect of accounting change   $   883.4     $   669.9     $   491.9(3)   $   520.2(4)  $   400.8

   Realized investment gain (1) . . . . . .      1,605.2(2)      125.0          61.1          356.7          59.6

   Cumulative effect of change in accounting
      for income taxes  . . . . . . . . . .         --            --            --            (33.3)         --
                                               ---------     ---------     ---------      ---------     ---------
   Net earnings . . . . . . . . . . . . . .    $ 2,488.6     $   794.9     $   553.0      $   843.6     $   460.4
                                               =========     =========     =========      =========     =========
EARNINGS PER SHARE:
   Before realized investment gain and
      cumulative effect of accounting change   $  732.96       $564.31       $417.66(3)   $  449.90(4)  $  349.59

   Realized investment gain (1) . . . . . .     1,331.83(2)     105.30         51.88         308.50         51.98

   Cumulative effect of change in accounting
      for income taxes  . . . . . . . . . .         --            --            --           (28.80)         --
                                               ---------     ---------     ---------      ---------     ---------
   Net earnings . . . . . . . . . . . . . .    $2,064.79       $669.61       $469.54      $  729.60     $  401.57
                                               =========     =========     =========      =========     =========
YEAR-END DATA:
   Total assets . . . . . . . . . . . . . .    $43,409.5     $28,711.4     $20,609.6      $18,697.5     $15,721.5
   Borrowings under investment agreements
      and other debt (5)  . . . . . . . . .      1,944.4       1,061.7         810.7          972.4       1,154.7
   Shareholders' equity . . . . . . . . . .     23,426.3      16,738.7      11,651.5       10,140.2       8,132.9
   Class A equivalent common shares
      outstanding, in thousands . . . . . .        1,232         1,194         1,178          1,178         1,149
   Shareholders' equity per outstanding
      Class A equivalent share  . . . . . .    $  19,011     $  14,025     $   9,893      $   8,610     $   7,081
                                               =========     =========     =========      =========     =========

   *  Restated - See Note 1(b) to Consolidated Financial Statements.
</TABLE>

 ----------------------------

   (1) The amount of realized investment gain/loss for any given period has no
       predictive value, and variations in amount from period to period have no
       practical analytical value, particularly in view of the unrealized
       appreciation now existing in Berkshire's consolidated investment
       portfolio.

   (2) In March 1996, The Walt Disney Company completed its acquisition of
       Capital Cities/ABC, Inc. A pre-tax realized gain related to this
       transaction of $2.2 billion ($1.4 billion after-tax) is included in
       1996's results.

   (3) Includes a charge of $172.6 million representing an other-than-temporary
       decline in value of investment in USAir Group, Inc. Preferred Stock.

   (4) Includes a charge of $53.6 million representing the effect of the change
       in U.S. Federal income tax rates on deferred taxes applicable to
       unrealized appreciation.

   (5) Excludes borrowings of finance businesses.





                                       10
<PAGE>   12
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

       Net earnings for each of the past three years are disaggregated in the
table that follows. Amounts are after deducting minority interests and taxes.


<TABLE>
<CAPTION>
                                                                              (dollars in millions)
                                                                         ---------------------------------
                                                                          1996           1995       1994
                                                                         -------        ------     -------
<S>                                                                      <C>            <C>        <C>
Insurance segment, except realized gain . . . . . . . . . . . . . .      $  689.6       $496.4     $ 487.3
Non-Insurance business segments . . . . . . . . . . . . . . . . . .         163.2        139.4       159.4
Other businesses  . . . . . . . . . . . . . . . . . . . . . . . . .          63.3         52.0        42.8
Interest expense  . . . . . . . . . . . . . . . . . . . . . . . . .         (55.7)       (34.9)      (37.3)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          23.0         17.0        12.3
                                                                         --------       ------     -------
   Earnings before realized gains and non-recurring charge  . . . .         883.4        669.9       664.5
Realized gain . . . . . . . . . . . . . . . . . . . . . . . . . . .       1,605.2        125.0        61.1
Non-recurring charge  . . . . . . . . . . . . . . . . . . . . . . .          --           --        (172.6)*
                                                                         --------       ------     -------
   Net earnings   . . . . . . . . . . . . . . . . . . . . . . . . .      $2,488.6       $794.9     $ 553.0
                                                                         ========       ======     =======
</TABLE>

*  As described in Note 4 to the Consolidated Financial Statements, during 1994
   the Company recorded a pre-tax charge of $268.5 million ($172.6 million
   after-tax) as a result of recognizing an other-than-temporary decline in the
   value of its investment in USAir Group, Inc. Preferred Stock.

        The business segment data (Note 15 to Consolidated Financial
Statements) should be read in conjunction with this discussion.

   INSURANCE SEGMENT

        A summary follows of results to Berkshire from the insurance segment
for the past three years.


<TABLE>
<CAPTION>
                                                                                (dollars in millions)
                                                                        -----------------------------------
                                                                          1996           1995         1994
                                                                        --------        ------       ------
<S>                                                                     <C>             <C>          <C>
Premiums earned from:
   Direct insurance   . . . . . . . . . . . . . . . . . . . . . . .     $3,360.3        $239.9       $234.8
   Reinsurance assumed  . . . . . . . . . . . . . . . . . . . . . .        757.5         717.6        688.4
                                                                        --------        ------       ------
                                                                        $4,117.8        $957.5       $923.2
                                                                        ========        ======       ======
Underwriting gain (loss) attributable to:
   Direct insurance   . . . . . . . . . . . . . . . . . . . . . . .     $  238.5        $ 40.6       $ 48.3
   Reinsurance assumed  . . . . . . . . . . . . . . . . . . . . . .         (7.8)        (21.0)        80.7
                                                                        --------        ------       ------
                                                                           230.7          19.6        129.0
Net investment income . . . . . . . . . . . . . . . . . . . . . . .        712.1         575.8        481.0
Goodwill amortization . . . . . . . . . . . . . . . . . . . . . . .        (42.6)*        --           --
                                                                        --------        ------       ------
   Pre-tax earnings   . . . . . . . . . . . . . . . . . . . . . . .        900.2         595.4        610.0
Income taxes  . . . . . . . . . . . . . . . . . . . . . . . . . . .        203.3          92.0        117.2
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . .          7.3           7.0          5.5
                                                                        --------        ------       ------
   Net earnings from insurance, except realized gain  . . . . . . .     $  689.6        $496.4       $487.3
                                                                        ========        ======       ======
</TABLE>

*  Virtually all of the goodwill amortization relates to the amortization of
goodwill that arose in connection with the GEICO merger.

         The Berkshire Hathaway Insurance Group engages in both direct
insurance and reinsurance of property and casualty risks. In direct insurance
activities, Insurance Group members assume defined portions of the risks of
loss from persons or organizations that are directly subject to the risks. In
reinsurance assumed activities, Insurance Group members assume defined portions
of similar or dissimilar risks that other insurers or reinsurers have subjected
themselves in their own insuring activities.

         In January 1996, Berkshire acquired control of GEICO Corporation
("GEICO"). The inclusion of the accounts of GEICO dramatically affects the
operating results of the Insurance Group.

         A significant marketing strategy followed by all Insurance Group
members is the maintenance of extraordinary capital strength.  Statutory
surplus as regards policyholders of the Insurance Group increased to
approximately $26.1 billion at December 31, 1996. This superior capital
strength creates opportunities for Insurance Group members to negotiate and
enter into contracts of insurance specially designed to meet unique needs of
sophisticated insurance and reinsurance buyers.





                                       11
<PAGE>   13
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS (Continued)

INSURANCE SEGMENT (Continued)

         For purposes of this Discussion, premiums and losses and loss expenses
are stated net of reinsurance ceded.

Direct Insurance Underwriting

         A summary follows of the combined underwriting results, stated on the
basis of generally accepted accounting principles ("GAAP") of Berkshire's
direct insurance businesses.


<TABLE>
<CAPTION>
                                                                   (dollars are in millions)
                                                   ---------------------------------------------------------
                                                         1996                  1995                 1994
                                                   ----------------      ---------------      --------------
                                                   Amount       %        Amount      %        Amount     %
                                                   ------     -----      ------    -----      ------   -----
<S>                                              <C>          <C>       <C>        <C>         <C>     <C>
Premiums written  . . . . . . . . . . . . .      $3,389.7               $247.2                 $225.7
                                                 ========               ======                 ======
Premiums earned . . . . . . . . . . . . . .      $3,360.3     100.0     $239.9     100.0       $234.8   100.0
                                                 --------     -----     ------     -----       ------   -----
Losses and loss expenses  . . . . . . . . .       2,516.6      74.9       90.0      37.5         88.4    37.6
Underwriting expenses . . . . . . . . . . .         605.2      18.0      109.3      45.6         98.1    41.8
                                                 --------     -----     ------     -----       ------   -----
Total losses and expenses . . . . . . . . .       3,121.8      92.9      199.3      83.1        186.5    79.4
                                                 --------     =====     ------     =====       ------   =====
Underwriting gain -- pre-tax  . . . . . . .      $  238.5               $ 40.6                 $ 48.3
                                                 ========               ======                 ======
</TABLE>

         As previously indicated, the net underwriting results from direct
insurance in 1996 include the results of GEICO. Through its subsidiaries, GEICO
provides primarily private passenger automobile coverages to insureds in 48
states and the District of Columbia. GEICO policies are marketed mainly by
direct response methods in which customers apply for coverage directly to the
company over the telephone or through the mail. This is a significant element
in GEICO's strategy to be a low-cost provider of such coverages. In previous
years, a relatively small percentage of GEICO's insurance business derived from
homeowner's and other non-automobile insurance coverages. In 1995, GEICO
entered into an agreement with another major insurance provider that over time
will allow it to effectively exit the homeowner's insurance business.

         GEICO's underwriting results for 1996 are summarized below. Amounts
for 1995 are shown for comparative purposes, although such amounts are not
included in Berkshire's Consolidated Financial Statements.


<TABLE>
<CAPTION>
                                                                           (dollars are in millions)
                                                                     -------------------------------------
                                                                            1996                1995
                                                                     ----------------     ----------------
                                                                      Amount      %        Amount      %
                                                                     --------   -----     --------   -----
<S>                                                                  <C>        <C>       <C>        <C>
Premiums earned . . . . . . . . . . . . . . . . . . . . . . . . . .  $3,091.6   100.0     $2,787.0   100.0
                                                                     --------   -----     --------   -----
Losses and loss expenses  . . . . . . . . . . . . . . . . . . . . .   2,424.9    78.4      2,254.2    80.9
Underwriting expenses . . . . . . . . . . . . . . . . . . . . . . .     486.7    15.8        440.7    15.8
                                                                     --------   -----     --------   -----
Total losses and expenses . . . . . . . . . . . . . . . . . . . . .   2,911.6    94.2      2,694.9    96.7
                                                                     --------   =====     --------   =====
Underwriting gain -- pre-tax  . . . . . . . . . . . . . . . . . . .  $  180.0             $   92.1
                                                                     ========             ========
</TABLE>

         Premiums earned in 1996 were $3,091.6 million, up 10.9% from $2,787.0
million in 1995. Premium growth for voluntary auto business was 15.3%,
reflecting a 10.1% increase in policies-in-force during the year, changes in
the mix of business and very modest rate increases. This growth was partially
offset by declines in premiums for residual market auto (unprofitable business
assigned to insurers by state regulators that insurers normally would not
voluntarily accept) and homeowners insurance business.

         Policy growth over the last year was 7.3% in the preferred-risk auto
market and 33.5% in the standard and nonstandard auto lines as efforts have
been expanded to offer a rate quote to potential customers who do not meet
GEICO's preferred-risk underwriting guidelines.  Voluntary auto new business
sales increased 33.8% over 1995.

         Losses and loss expenses incurred increased 7.6% to $2,424.9 million
in 1996. The loss and loss expense ratio, which measures the portion of
premiums earned, paid or reserved for losses and related claims handling
expenses, was 78.4% in 1996 compared to 80.9% a year ago.  The lower ratio
reflects a flattening of average severity trends for auto liability coverages.
Underwriting expenses increased 10.4% in 1996 to $486.7 million. The increase
reflects additional advertising and other costs related to new business growth.

         Berkshire's other direct insurance businesses include National
Indemnity Company's traditional motor vehicle business and professional
liability/specialty risk operations; five companies referred to as "homestate"
operations that principally provide coverages to residents of their home states
or branch operations; Central States Indemnity Company, a provider of
credit-card credit insurance to individuals through financial institutions; and
Kansas Bankers Surety Company, which Berkshire acquired in July 1996, and which
is an insurer for primarily small and medium sized banks located in the
midwest.





                                       12
<PAGE>   14
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS (Continued)

INSURANCE SEGMENT (Continued)

Direct Insurance Underwriting (Continued)

         Collectively, these direct insurance businesses produced earned
premiums of $268.7 million in 1996, $239.9 million in 1995 and $234.8 million
in 1994. Net underwriting gains of these businesses were $58.5 million in 1996,
$40.6 million in 1995 and $48.3 million in 1994. The increases in premium
volume in recent years have been achieved primarily by the credit-card credit,
"homestate," and specialty risk insurance businesses offset by declines in the
traditional motor vehicle business. Nearly all of these direct insurance
businesses produced net underwriting gains in each of the past three years.
However, the net underwriting gains were primarily recorded by the traditional
motor vehicle, specialty risk and credit-card credit businesses.

Reinsurance Assumed

         Underwriting results for the past three years, stated on a "GAAP"
basis with respect to the reinsurance assumed business, are summarized in the
following table.


<TABLE>
<CAPTION>
                                                                             (dollars in millions)
                                                           ----------------------------------------------------------
                                                                1996                 1995                  1994
                                                           --------------       ---------------       ---------------
                                                           Amount     %          Amount     %          Amount     %
                                                           ------   -----       -------   -----       -------   -----
<S>                                                        <C>      <C>         <C>       <C>         <C>       <C>
Premiums written  . . . . . . . . . . . . . . . . . . .    $715.5               $ 777.0               $ 689.8
                                                           ======               =======               =======
Premiums earned . . . . . . . . . . . . . . . . . . . .    $757.5   100.0       $ 717.6   100.0       $ 688.4   100.0
                                                           ------   -----       -------   -----       -------   -----
Losses and loss expenses  . . . . . . . . . . . . . . .     572.9    75.6         522.0    72.7         476.9    69.3
Underwriting expenses . . . . . . . . . . . . . . . . .     192.4    25.4         216.6    30.2         130.8    19.0
                                                           ------   -----       -------   -----       -------   -----
Total losses and expenses . . . . . . . . . . . . . . .     765.3   101.0         738.6   102.9         607.7    88.3
                                                           ------   =====       -------   =====       -------   =====
Underwriting gain (loss) -- pre-tax . . . . . . . . . .    $ (7.8)              $ (21.0)              $  80.7
                                                           ======               =======               =======
</TABLE>

         Reinsurance premiums earned from catastrophe excess-of-loss policies
were $268.0 million in 1996, $260.0 million in 1995 and $447.1 million in 1994.
Net underwriting gains from catastrophe policies were $167.0 million in 1996,
$152.1 million in 1995 and $240.4 million in 1994. Over the past three years,
the only significant catastrophe loss sustained by the Insurance Group resulted
from the 1994 earthquake in Northridge, California. As of December 31, 1996,
the estimated aggregate claim losses to the Insurance Group from that event
were approximately $155 million.

         The net underwriting gains earned over the most recent three years
from this business should not be considered predictive of future results.
Insurance Group members continue to offer and accept catastrophe reinsurance
policies that subject the Insurance Group to substantial risk of loss. For
instance, in late 1996, the Insurance Group agreed to provide aggregate
reinsurance protection of about $1 billion to the newly formed California
Earthquake Authority ("CEA"). The coverage will be called upon if the CEA
incurs aggregate earthquake losses in excess of about $5 billion during the
four year period ending March 31, 2001.

         Berkshire's management believes that, eventually, a future
catastrophic event will result in a significant loss to the Insurance Group,
although the timing and magnitude of loss cannot be predicted. Thus, the
periodic underwriting results are subject to extreme volatility.  Berkshire's
management is willing to accept such volatility, provided there is a reasonable
prospect of long-term profitability.

         Premiums earned from other property and casualty excess-of-loss and
quota-share policies totaled $489.5 million in 1996, $457.6 million in 1995 and
$241.3 million in 1994. These policies produced net underwriting losses of
$101.0 million in 1996, $97.7 million in 1995 and $82.0 million in 1994.
Premiums for non-catastrophe contracts are often based, in part, on time
discounting of estimated losses because of assumptions that the reinsurer will
not be required to pay for losses under the contracts for extended periods of
time. Reserves for unpaid losses and loss expenses are established for
financial reporting purposes without recognition of such discounting, thus
producing net underwriting losses. Berkshire accepts this business,
nevertheless, because of the large amounts of investable policyholder funds (or
"float") that it produces.

         In addition, underwriting losses from retroactive reinsurance
contracts -- excess of loss coverage of past loss events -- and structured
settlement reinsurance providing periodic payments to claimants with respect to
settled claims aggregated $73.8 million in 1996, $75.4 million in 1995 and
$77.7 million in 1994. Most of these contracts were entered into several years
ago and the related losses are expected to be paid over extended time periods.
The underwriting losses reflect the recurring recognition of
time-value-of-money concepts -- accretion of discounted structured settlement
liabilities and amortization of deferred charges re reinsurance assumed. The
amortization and accretion charges are reported as losses incurred and, because
there is no related premium income, as net underwriting losses. See Notes to
the Consolidated Financial Statements for more information concerning these
charges.





                                       13
<PAGE>   15
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS (Continued)

INSURANCE SEGMENT (Continued)

Insurance Segment Investment Income

         Following is a summary of Insurance Group net investment income for the
past three years.

<TABLE>
<CAPTION>
                                                                      (dollars in millions)
                                                               -----------------------------------
                                                                1996          1995           1994
                                                               ------        ------         ------
     <S>                                                       <C>           <C>            <C>
     Investment income before taxes   . . . . . . . . .        $712.1        $575.8         $481.0
     Applicable income taxes  . . . . . . . . . . . . .         122.6          84.8           68.9
     Applicable minority interest   . . . . . . . . . .           5.7           5.0            4.7
                                                               ------        ------         ------
     Investment income after taxes and minority interest       $583.8        $486.0         $407.4
                                                               ======        ======         ======
</TABLE>

         Investment income of the Insurance Group for 1995 and 1994 has been
restated to account for the Group's investment in GEICO under the equity
method. (See Notes 1 and 2 to the Consolidated Financial Statements.)
Accordingly, restated investment income before taxes of the Insurance Group for
1995 and 1994 includes $112.6 million and $97.1 million, respectively,
reflecting the Group's equity in the net income of GEICO less a charge for
related goodwill amortization. In addition, the Insurance Group's investment
income before taxes for 1995 and 1994 includes its share of the net earnings or
losses with respect to its investment in common stock of Salomon Inc. For 1995,
the Group's equity in net earnings of Salomon was $16.9 million compared to a
loss of $32.9 million for 1994. During 1995 when Berkshire's ownership of
Salomon dropped below 20 percent of the total voting rights of that company,
the Group discontinued applying the equity method.

         Investment income excluding the aforementioned equity method amounts
was $712.1 million in 1996, $446.3 million in 1995 and $416.8 million in 1994.
Investment income in 1996 includes $227.2 million from the consolidation of the
investment results of GEICO. The Insurance Group members continue to generate
significant levels of investment income, reflecting large amounts of invested
assets. Increases in invested assets derive from reinvested earnings and
additional capital contributed to the Insurance Group -- approximately $3.3
billion over the past three years and increases in the amount of "float," an
approximation of the net policyholder funds held. "Float" represents the sum of
unpaid losses and loss adjustment expenses, unearned premiums and other
liabilities to policyholders less the aggregate of premiums receivable,
reinsurance balances receivable, deferred acquisition costs, deferred charges
re reinsurance assumed and prepaid income taxes. The acquisition of GEICO
increased float by $2.6 billion and at December 31, 1996, total float
approximated $6.9 billion.

         Income tax expense related to investment income, as a percentage of
investment income before taxes was 17.2% in 1996, 14.7% in 1995 and 14.3% in
1994. Investment income in each of these years includes substantial amounts of
interest on municipal obligations and dividends from equity investments that
are effectively taxed at rates below the full statutory federal rate.

NON-INSURANCE BUSINESS SEGMENTS

         A summary follows of results to Berkshire from these identified
business segments for the past three years.


<TABLE>
<CAPTION>
                                                                           (dollars in millions)
                                                        ------------------------------------------------------------
                                                             1996                  1995                   1994
                                                        ---------------       ---------------        ---------------
                                                         Amount     %          Amount     %           Amount     %
                                                        --------  -----       --------  -----        --------  -----
<S>                                                     <C>       <C>         <C>       <C>          <C>       <C>
Revenues  . . . . . . . . . . . . . . . . . . . . .     $1,922.9  100.0       $1,775.1  100.0        $1,620.7  100.0
Cost and expenses . . . . . . . . . . . . . . . . .      1,655.7   86.1        1,541.9   86.9         1,358.8   83.9
                                                        --------  -----       --------  -----        --------  -----
Operating profit  . . . . . . . . . . . . . . . . .        267.2   13.9          233.2   13.1           261.9   16.1
Income taxes  . . . . . . . . . . . . . . . . . . .        101.6    5.3           91.8    5.2           100.3    6.2
Minority Interest . . . . . . . . . . . . . . . . .          2.4    0.1            2.0    0.1             2.2    0.1
                                                        --------   ----       --------  -----        --------  -----
Contribution to net earnings  . . . . . . . . . . .     $  163.2    8.5       $  139.4    7.8        $  159.4    9.8
                                                        ========   ====       ========  =====        ========  =====
</TABLE>





                                       14
<PAGE>   16
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS (Continued)

NON-INSURANCE BUSINESS SEGMENTS (Continued)

         A comparison of revenues and operating profits between 1996, 1995 and
1994 for each of the six identifiable non-insurance business segments follows.


<TABLE>
<CAPTION>
                                                      (dollars in millions)
                                     ------------------------------------------------------       Operating Profit
                                              Revenues                 Operating Profits         as a % of Revenues
                                     ----------------------------   -----------------------     ---------------------
Segment                                1996      1995      1994      1996    1995    1994       1996    1995     1994
-------                              --------  --------  --------   ------  ------  -------     ----    ----     ----
<S>                                  <C>       <C>       <C>        <C>
Candy . . . . . . . . . . . . . . .  $  248.9  $  233.6  $  216.1   $ 50.9  $ 49.3  $  46.6     20.4    21.1     21.6
Encyclopedias, other reference
  materials . . . . . . . . . . . .     119.0     157.9     191.3     10.3     7.4     24.4      8.7     4.7     12.8
Home cleaning systems . . . . . . .     253.7     235.6     207.6     62.5    52.6     43.9     24.6    22.3     21.1
Home furnishings  . . . . . . . . .     586.6     428.1     245.4     41.0    28.1     16.9      7.0     6.6      6.9
Newspaper . . . . . . . . . . . . .     154.2     154.8     150.9     49.8    46.3     53.7     32.3    29.9     35.6
Shoes . . . . . . . . . . . . . . .     560.5     565.1     609.4     52.7    49.5     76.4      9.4     8.8     12.5
                                     --------  --------  --------   ------  ------   ------
                                     $1,922.9  $1,775.1  $1,620.7   $267.2  $233.2   $261.9
                                     ========  ========  ========   ======  ======   ======
</TABLE>


1996 compared to 1995

         Revenues from the six identifiable non-insurance business segments of
$1,922.9 million increased $147.8 million (8.3%) from the prior year. The
overall operating profit from these business segments of $267.2 million
increased $34.0 million (14.6%). The following is a discussion of significant
matters impacting comparative results for each of the non-insurance business
segments.

         Candy

         Revenues of the candy segment increased $15.3 million (6.5%) over
comparable prior year amounts. Total pounds of candy sold increased about 4.3%.
Substantially all of the volume increase arose from See's quantity order, mail
order and licensee programs. Pounds sold during 1996 from quantity order and
mail order programs increased about 10% over 1995's volume. Operating profits
increased $1.6 million (3.3%) over comparable prior year amounts. Somewhat
offsetting the favorable impact on profits of increased volume were increased
raw material and payroll costs.

         Encyclopedias, Other Reference Materials

         Revenues of this segment declined $38.9 million (24.6%) from 1995. The
decline continues the trend of reduced sales of printed encyclopedias (World
Book and Childcraft) that began in 1989 when this segment's revenues were in
excess of $300 million. Operating profits increased $2.9 million (39.2%) over
the comparable prior year amount. During 1996, World Book incurred about $5
million of costs in connection with the development of a new CD-ROM product
which was introduced in association with IBM in early 1997. In spite of the
reduced volume of printed encyclopedia sales and the costs incurred in
connection with the new CD-ROM product, operating profits increased in 1996.
This achievement was directly related to World Book revamping its distribution
methods and the successful implementation of cost cutting measures that have
significantly reduced fixed costs. While it's too early to assess the impact of
the new CD-ROM product, management believes it is taking appropriate measures
to assure that World Book remains a viable business in both the print and
electronic marketplace.

         Home Cleaning Systems

         Revenues of the home cleaning systems segment (which consists of
products sold principally under the Kirby name) increased $18.1 million (7.7%)
and operating profits increased $9.9 million (18.8%) over comparable prior year
amounts. Unit sales volume in foreign markets, which comprise about 27% of
total volume, increased about 28%. The significant growth in foreign sales
resulted from entering new markets and increased penetration in existing
markets. Kirby will be introducing a new model both domestically and in foreign
markets in 1997. Management expects continued successful results from this
segment's businesses.

         Home Furnishings

         Revenues from this segment increased in 1996 by $158.5 million (37.0%)
over the prior year. Substantially all of the revenue increase related to the
acquisition on June 29, 1995 of R.C. Willey Home Furnishings ("R.C. Willey").
R.C. Willey, through its seven retail locations, is the dominant retailer of
home furnishings in Utah. Operating profits of $41.0 million were $12.9 million
(45.9%) greater in 1996 than in the prior year. R.C. Willey's inclusion in this
segment's results for a full year in 1996 versus six months in 1995 accounts
for about two-thirds of the comparative increase. The remainder of the increase
arose primarily from improved margins at Nebraska Furniture Mart.





                                       15
<PAGE>   17
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS (Continued)

NON-INSURANCE BUSINESS SEGMENTS (continued)

1996 compared to 1995 (continued)

         Newspaper

         Operating profits during 1996 of $49.8 million increased $3.5 million
(7.6%) over the comparable 1995 amount. These results were obtained in spite of
total revenues being slightly lower. In 1995, the cost of newsprint increased
dramatically and negatively impacted results. While newsprint costs continued
to rise early in 1996, during the second half of 1996 this trend reversed
sharply and there were significant price reductions. As a result, 1996's full
year newsprint costs were slightly less than comparable 1995 costs. Also
favorably impacting the improved comparative results was that during 1995
special one-time charges were recorded to accrue the costs of buying out the
contracts of a number of composing room employees, and adjustments were
recorded reflecting changes in the periods over which certain data handling and
electronic equipment were being depreciated. Excluding 1995's special charges,
operating profits were relatively unchanged in 1996 as compared to 1995.

         Shoes

         Revenues for this segment were down slightly in 1996 as compared to
1995. Operating profits of $52.7 million increased $3.2 million (6.5%). This
segment includes H. H. Brown Shoe Company, Inc., Lowell Shoe, Inc. and Dexter
Shoe Companies. These businesses, acquired by Berkshire between 1991 and 1993,
manufacture and distribute work, dress, casual and athletic footwear. In
addition, over 90 retail shoe stores are included in this segment. Management
was successful during 1996 in capitalizing on opportunities to more
successfully market and distribute the functional footwear products
manufactured and distributed by these businesses. Additionally, measures were
undertaken that resulted in lowering production and administrative costs.
Accordingly, management anticipates further operating profit increases during
1997.

         1995 compared to 1994

         Revenues from the non-insurance business segments increased $154.4
million (9.5%) in 1995 as compared to 1994. The most significant revenue
increase arose in the "home furnishings" segment where revenues increased
$182.7 million (74.4%) over the comparable prior year figures. The acquisition
of R.C. Willey in mid-1995 accounts for a substantial portion of the
comparative revenue increase for this segment.  Offsetting this increase were
declines in the "encyclopedia, other reference materials" segment and the
"shoes" segment. The decline in the "encyclopedias, other reference material"
segment was a result of the continuation of a reduction in printed encyclopedia
sales. The unfavorable results of the "shoe" segment was consistent with
results reported for the entire footwear industry (except for athletic
footwear).  Operating profits of $233.2 million during 1995 declined $28.7
million (10.9%) from the comparable 1994 amount. Declines from the
"encyclopedia, other reference material" and "shoes" segment more than account
for the comparative decline.

BUSINESS OTHER THAN IDENTIFIED SEGMENTS

<TABLE>
<CAPTION>
                                                                                (dollars in millions)
                                                                          ---------------------------------
                                                                            1996        1995         1994
                                                                          --------    --------       ------
<S>                                                                       <C>         <C>            <C>
Revenues  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       $1,195.6    $1,021.7       $758.5
                                                                          ========    ========       ======
Operating profits . . . . . . . . . . . . . . . . . . . . . . . . .         $108.5      $ 93.8       $ 72.7
  Income taxes  . . . . . . . . . . . . . . . . . . . . . . . . . .           43.2        39.5         28.0
  Minority interest . . . . . . . . . . . . . . . . . . . . . . . .            2.0         2.3          1.9
                                                                            ------      ------       ------
Contribution to net earnings  . . . . . . . . . . . . . . . . . . .         $ 63.3      $ 52.0       $ 42.8
                                                                            ======      ======       ======
</TABLE>

         The above represent aggregate data for businesses that numbered 26 in
1996. Revenues from businesses not identified with specific business segments
increased by $173.9 million (17.0%) in 1996 as compared to the prior year.
Operating profits from this group of businesses increased by $14.7 million
(15.7%) in 1996 versus the prior year. The increase in revenues was due
primarily to the inclusion of Helzberg's Diamond Shops for a full year in 1996
versus eight months in 1995. Also, several of Scott Fetzer's diversified
manufacturing businesses (including Campbell Hausfeld products and Wayne pumps)
had significant comparative revenue increases.





                                       16
<PAGE>   18
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS (Continued)

INTEREST EXPENSE AND OTHER

         As previously discussed, effective January 2, 1996, the results of
GEICO are included in Berkshire's consolidated results. Berkshire's investment
in GEICO for years prior to 1996 has been accounted for under the equity
method. After-tax interest expense for 1996 includes about $18.5 million of
interest costs related to GEICO borrowings that were outstanding at the time of
the GEICO merger. Excluding costs related to these borrowings, interest costs
were relatively unchanged between years.

         Other earnings consist primarily of investment income of Berkshire and
its non-insurance subsidiaries offset by Berkshire's corporate costs (including
charges related to Berkshire's shareholder designated contribution program).
The increase in 1996 as compared to 1995 primarily relates to an increase in
interest income earned by Berkshire.

REALIZED INVESTMENT GAIN

         Realized investment gain has been a recurring element in Berkshire's
net earnings for many years. The amount -- 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 -- may fluctuate significantly from period to period, with
a meaningful effect upon Berkshire's consolidated net earnings. However, the
amount of realized investment gain or loss for any given period has no
predictive value, and variations in amount from period to period have no
practical analytical value, particularly in view of the net unrealized price
appreciation now existing in Berkshire's consolidated investment portfolio.

         The Consolidated Statement of Earnings for 1996 reflects a pre-tax
realized investment gain of $2.5 billion ($1.6 billion after tax).  Most of
this gain resulted from The Walt Disney Company's ("Disney") acquisition of
Capital Cities/ABC, Inc. ("Capital Cities"). Prior to the acquisition,
subsidiaries of Berkshire owned common stock of Capital Cities that had been
acquired in 1986 for an aggregate cost of $345.0 million. In exchange for the
Capital Cities common stock, Berkshire subsidiaries received cash and Disney
common stock having an aggregate value of $2.5 billion.

         While the effect of this transaction is material to the Consolidated
Statement of Earnings, the completion of the acquisition had a minimal impact
on Berkshire's shareholders' equity. This is due to the fact that Berkshire's
investment in Capital Cities had been carried in the prior periods'
consolidated financial statements at market value with unrealized gains, net of
tax, reported as a separate component of shareholders' equity. As of December
31, 1995, the pre-tax unrealized gain related to Berkshire's investment in
Capital Cities was approximately $2.1 billion.

LIQUIDITY AND CAPITAL RESOURCES

         Berkshire's Consolidated Balance Sheet as of December 31, 1996,
reflects continuing capital strength. In the past three years, Berkshire
shareholders' equity has increased from approximately $10.1 billion at December
31, 1993, to approximately $23.4 billion at December 31, 1996. In that
three-year period, realized and unrealized securities gains increased equity
capital by approximately $9.6 billion, and reinvested earnings, other than
realized securities gains, were about $2.0 billion.





                                       17
<PAGE>   19

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA




                          INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Shareholders
Berkshire Hathaway Inc.

      We have audited the accompanying consolidated balance sheets of Berkshire
Hathaway Inc. and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of earnings and cash flows for each of the
three years in the period ended December 31, 1996.  These financial statements
are the responsibility of the Company's management.  Our responsibility is to
express an opinion on these financial statements based on our audits.

      We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.  An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.  We believe that our audits provide a reasonable basis
for our opinion.

      In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Berkshire Hathaway Inc. and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.





DELOITTE & TOUCHE LLP
Omaha, Nebraska
March 7, 1997





                                       18
<PAGE>   20
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

                            BERKSHIRE HATHAWAY INC.

                                AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

                 (dollars in millions except per share amounts)


<TABLE>
<CAPTION>
                                                                                    DECEMBER 31,
                                                                           -------------------------------
                                                                             1996                  1995*
                                                                           ---------             ---------
<S>                                                                        <C>                   <C>
                             ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . .    $ 1,339.8             $ 2,703.8
Investments:
  Securities with fixed maturities  . . . . . . . . . . . . . . . . . .      6,446.9               1,423.2
  Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . .     27,750.6              21,017.6
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      1,523.2                 718.9
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        619.6                 601.1
Assets of finance businesses  . . . . . . . . . . . . . . . . . . . . .        968.9                 756.7
Property, plant and equipment . . . . . . . . . . . . . . . . . . . . .      1,034.2                 333.3
Goodwill of acquired businesses . . . . . . . . . . . . . . . . . . . .      3,110.3                 672.0
Other assets  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        616.0                 484.8
                                                                           ---------             ---------
                                                                           $43,409.5             $28,711.4
                                                                           =========             =========
           LIABILITIES AND SHAREHOLDERS' EQUITY

Losses and loss adjustment expenses . . . . . . . . . . . . . . . . . .    $ 6,274.4             $ 3,698.6
Unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . .      1,183.5                 374.1
Accounts payable, accruals and other liabilities  . . . . . . . . . . .      2,556.8               1,039.1
Income taxes, principally deferred  . . . . . . . . . . . . . . . . . .      6,837.6               4,849.5
Borrowings under investment agreements and other debt . . . . . . . . .      1,944.4               1,061.7
Liabilities of finance businesses . . . . . . . . . . . . . . . . . . .        851.4                 685.2
                                                                           ---------             ---------
                                                                            19,648.1              11,708.2
                                                                           ---------             ---------
Minority shareholders' interests  . . . . . . . . . . . . . . . . . . .        335.1                 264.5
                                                                           ---------             ---------
Shareholders' equity:
  Common Stock: **
    Class A Common Stock, $5 par value, 1,376,188 and 1,381,308
      shares issued; 1,206,120 and 1,193,512 shares outstanding . . . .          6.9                   6.9
    Class B Common Stock, $0.1667 par value, 783,755 shares issued
      and outstanding in 1996 . . . . . . . . . . . . . . . . . . . . .          0.1                  --
  Capital in excess of par value  . . . . . . . . . . . . . . . . . . .      2,274.1               1,001.7
  Unrealized appreciation of investments, net . . . . . . . . . . . . .     12,143.9               9,220.7
  Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . .      9,032.7               6,544.1
                                                                           ---------             ---------
                                                                            23,457.7              16,773.4
  Less: Cost of 170,068 and 187,796 Class A common shares in
    treasury  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         31.4                  34.7
                                                                           ---------             ---------
        Total shareholders' equity  . . . . . . . . . . . . . . . . . .     23,426.3              16,738.7
                                                                           ---------             ---------
                                                                           $43,409.5             $28,711.4
                                                                           =========             =========
</TABLE>

 * Restated - See Notes to Consolidated Financial Statements.

** 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 1,232,245 shares outstanding at December 31,
   1996 versus 1,193,512 outstanding at December 31, 1995.



          See accompanying Notes to Consolidated Financial Statements





                                       19
<PAGE>   21
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)


                            BERKSHIRE HATHAWAY INC.
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF EARNINGS
                 (dollars in millions except per share amounts)

<TABLE>
<CAPTION>
                                                                                YEAR ENDED DECEMBER 31,
                                                                       -----------------------------------------
                                                                         1996             1995*          1994*
                                                                       ---------        ---------      ---------
   <S>                                                                 <C>              <C>            <C>
   REVENUES:
     Insurance premiums earned  . . . . . . . . . . . . . . . .        $ 4,117.8        $   957.5      $   923.2
     Sales and service revenues . . . . . . . . . . . . . . . .          3,061.2          2,755.9        2,351.9
     Interest, dividend and other investment income . . . . . .            811.9            629.2          519.0
     Income from finance businesses . . . . . . . . . . . . . .             25.3             26.6           24.9
     Realized investment gain . . . . . . . . . . . . . . . . .          2,484.1            194.1           91.3
                                                                       ---------        ---------      ---------
                                                                        10,500.3          4,563.3        3,910.3
                                                                       ---------        ---------      ---------
   COST AND EXPENSES:
     Insurance losses and loss adjustment expenses  . . . . . .          3,089.5            612.0          565.3
     Insurance underwriting expenses  . . . . . . . . . . . . .            797.6            325.0          228.0
     Cost of products and services sold . . . . . . . . . . . .          1,884.0          1,706.7        1,450.0
     Selling, general and administrative expenses . . . . . . .            861.9            759.6          599.6
     Goodwill amortization  . . . . . . . . . . . . . . . . . .             61.7             16.3           13.8
     Interest expense . . . . . . . . . . . . . . . . . . . . .             99.7             59.3           60.1
     Other-than-temporary decline in value of investment in
      USAir Group, Inc. Preferred Stock . . . . . . . . . . . .             --               --            268.5
                                                                       ---------        ---------      ---------
                                                                         6,794.4          3,478.9        3,185.3
                                                                       ---------        ---------      ---------

   EARNINGS BEFORE INCOME TAXES AND MINORITY INTEREST . . . . .          3,705.9          1,084.4          725.0
     Income taxes . . . . . . . . . . . . . . . . . . . . . . .          1,196.8            276.2          163.3
     Minority interest  . . . . . . . . . . . . . . . . . . . .             20.5             13.3            8.7
                                                                       ---------        ---------      ---------
   NET EARNINGS                                                        $ 2,488.6        $   794.9      $   553.0
                                                                       =========        =========      =========


     Average shares outstanding **  . . . . . . . . . . . . . .        1,205,257        1,187,102      1,177,750

   NET EARNINGS PER SHARE **  . . . . . . . . . . . . . . . . .           $2,065             $670           $470
                                                                          ======             ====           ====
</TABLE>


    *    Restated - See Notes to Consolidated Financial Statements.

   **    Average shares outstanding for 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 share shown above
         represents net earnings per Class A Common share. Net earnings per
         Class B Common share is equal to one-thirtieth (1/30) of such amount
         or $69 per share for 1996.





          See accompanying Notes to Consolidated Financial Statements





                                       20
<PAGE>   22
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

                            BERKSHIRE HATHAWAY INC.
                                AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (dollars in millions)

<TABLE>
<CAPTION>
                                                                                 YEAR ENDED DECEMBER 31,
                                                                        ----------------------------------------
                                                                          1996            1995           1994
                                                                        ---------       ---------      ---------
<S>                                                                     <C>             <C>            <C>
Cash flows from operating activities:
   Net income . . . . . . . . . . . . . . . . . . . . . . . . .         $ 2,488.6       $   794.9      $   553.0
   Adjustments to reconcile net income to cash flows
   from operating activities:
      Realized investment gain  . . . . . . . . . . . . . . . .          (2,484.1)         (194.1)         (91.3)
      Other-than-temporary decline in value of investment
           in USAir Group, Inc. Preferred Stock   . . . . . . .              --               --           268.5
      Depreciation and amortization   . . . . . . . . . . . . .             151.6            75.7           62.5
      Changes in assets and liabilities before effects from
           business acquisitions:
         Losses and loss adjustment expenses  . . . . . . . . .             352.1           268.6          274.1
         Deferred charges re reinsurance assumed  . . . . . . .              51.8            51.0           25.3
         Unearned premiums  . . . . . . . . . . . . . . . . . .              (8.8)           66.9           (8.5)
         Receivables  . . . . . . . . . . . . . . . . . . . . .            (127.1)          (35.4)         (49.8)
         Accounts payable, accruals and other liabilities . . .             558.3           228.2          210.5
         Income taxes . . . . . . . . . . . . . . . . . . . . .             221.9           (29.9)        (252.4)
      Other . . . . . . . . . . . . . . . . . . . . . . . . . .              55.7           (98.0)         (62.8)
                                                                        ---------       ---------      ---------
           Net cash flows from operating activities . . . . . .           1,260.0         1,127.9          929.1
                                                                        ---------       ---------      ---------
Cash flows from investing activities:
   Purchases of securities with fixed maturities  . . . . . . .          (2,464.7)         (273.9)      (2,485.8)
   Purchases of equity securities . . . . . . . . . . . . . . .          (1,423.4)       (1,459.9)      (3,050.0)
   Proceeds from sales of securities with fixed maturities  . .             277.5           669.7        1,772.1
   Proceeds from redemptions and maturities of securities
      with fixed maturities . . . . . . . . . . . . . . . . . .             791.9           954.6           85.9
   Proceeds from sales of equity securities . . . . . . . . . .           1,531.0         1,352.7        1,466.8
   Loans and investments originated in finance businesses . . .            (577.1)         (381.2)        (246.8)
   Principal collection on loans and investments
      originated in finance businesses  . . . . . . . . . . . .             351.5           363.0          332.4
   Acquisitions of businesses, net of cash acquired . . . . . .          (1,975.3)            --             --
   Other  . . . . . . . . . . . . . . . . . . . . . . . . . . .             (19.2)          (11.4)         (23.2)
                                                                        ---------       ---------      ---------
           Net cash flows from investing activities . . . . . .          (3,507.8)        1,213.6       (2,148.6)
                                                                        ---------       ---------      ---------
Cash flows from financing activities:
   Proceeds from borrowings of finance businesses . . . . . . .             285.1           265.7          208.6
   Proceeds from other borrowings . . . . . . . . . . . . . . .           1,604.3         1,232.7        1,225.3
   Repayments of borrowings of finance businesses . . . . . . .            (427.3)         (232.1)        (390.5)
   Repayments of other borrowings . . . . . . . . . . . . . . .          (1,170.0)       (1,151.7)      (1,387.7)
   Net proceeds from issuance of Class B Common Stock . . . . .             565.0             --             --
   Other  . . . . . . . . . . . . . . . . . . . . . . . . . . .              (3.5)           (1.5)          (0.9)
                                                                        ---------       ---------      ---------
           Net cash flows from financing activities . . . . . .             853.6           113.1         (345.2)
                                                                        ---------       ---------      ---------
           Increase (decrease) in cash and cash equivalents . .          (1,394.2)        2,454.6       (1,564.7)
Cash and cash equivalents at beginning of year  . . . . . . . .           2,744.5           289.9        1,854.6
                                                                        ---------       ---------      ---------
Cash and cash equivalents at end of year *  . . . . . . . . . .         $ 1,350.3       $ 2,744.5      $   289.9
                                                                        =========       =========      =========
*Cash and cash equivalents at end of year are comprised
  of the following:
         Finance businesses . . . . . . . . . . . . . . . . . .         $    10.5       $    40.7      $    16.0
         Other  . . . . . . . . . . . . . . . . . . . . . . . .           1,339.8         2,703.8          273.9
                                                                        ---------       ---------      ---------
                                                                        $ 1,350.3       $ 2,744.5      $   289.9
                                                                        =========       =========      =========
</TABLE>


          See accompanying Notes to Consolidated Financial Statements





                                       21
<PAGE>   23
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

                            BERKSHIRE HATHAWAY INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 1996


(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. The accompanying prior year financial statements have
              been restated from the amounts previously reported in the
              Company's Consolidated Financial Statements included in its
              Annual Report for the year ended December 31, 1995. See 1(b)
              below for further information.

      (b)  Restatement

           As more fully discussed in Note 2, on January 2, 1996, GEICO
              Corporation ("GEICO") became a wholly-owned subsidiary of
              Berkshire. Prior to January 2, 1996, Berkshire owned
              approximately 51% of the outstanding common stock of GEICO.
              Previously the investment in GEICO common stock had been
              classified as an available-for-sale security and was carried in
              Berkshire's Consolidated Balance Sheet at fair value.

           Generally accepted accounting principles require that prior year
              financial statements be restated when control of a business is
              obtained on a "step-by-step" basis. Accordingly, the accompanying
              Consolidated Financial Statements for 1995 and 1994 have been
              restated to account for Berkshire's previous investment in GEICO
              common stock under the equity method. Berkshire's proportionate
              share of GEICO's net income reduced by amortization of related
              goodwill is included in the Consolidated Statements of Earnings
              as a component of interest, dividends and other investment
              income. The principal effect of the restatement was to decrease
              shareholders' equity as of December 31, 1995, by $478.4 million
              from the amount reported in Berkshire's Consolidated Financial
              Statements included in its Annual Report for the year ended
              December 31, 1995.

      (c)  Use of estimates in preparation of financial statements

           The preparation of the consolidated financial  statements in
              conformity with generally  accepted  accounting principles
              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.

      (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 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. Investments in equity securities are
              classified as available-for-sale. 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.

           Held-to-maturity securities are carried at amortized cost.
              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. 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.





                                       22
<PAGE>   24
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

                            BERKSHIRE HATHAWAY INC.
                                AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(1)   SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (Continued)

      (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 continually reviews the recoverability
              of the carrying value of goodwill of acquired businesses using
              the methodology prescribed by Statement of Financial Accounting
              Standards No. 121 "Accounting for the Impairment of Long-Lived
              Assets and for Long-Lived Assets to be Disposed Of."

      (g)  Insurance premium acquisition costs

           For financial reporting purposes, certain costs of acquiring
              insurance premiums are deferred, subject to ultimate
              recoverability, and charged to income as the premiums are earned.
              Generally, 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 $337.9
              million at December 31, 1996 and $389.7 million at December 31,
              1995.

      (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 the liabilities of finance
              businesses.

      (k)  Insurance premiums

           Insurance premiums for prospective insurance and non-property
              catastrophe reinsurance policies are recognized as revenues
              ratably over their terms with unearned premiums computed on a
              monthly or daily pro rata basis. Premiums for catastrophe excess
              of loss reinsurance coverages are deferred until the earlier of a
              loss occurrence or policy expiration.  Consideration received for
              structured settlements 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 estimates of amounts that will be recoverable under
              reinsurance contracts. Such recoverables totalled $47 million,
              $14 million, and $61 million for 1996, 1995 and 1994,
              respectively. Reinsurance contracts do not relieve the Insurance
              Group Members of their obligations to indemnify policyholders
              with respect to the underlying insurance and reinsurance
              contracts. Losses and loss adjustment expenses recoverable under
              reinsurance contracts are included in receivables.





                                       23
<PAGE>   25
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

                            BERKSHIRE HATHAWAY INC.
                                AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(2)   BUSINESS ACQUISITIONS -- 1996

      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 the
respective merger dates is recorded as goodwill of acquired businesses and will
subsequently be 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 (the "GEICO Agreement") dated August 25, 1995. 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.  The amount of the merger
              consideration was based upon 33,284,733 outstanding shares held
              by the public on the merger date.

           As of the merger date, subsidiaries of Berkshire owned 34,250,000
              common shares of GEICO, which were acquired in years prior to
              1981 at an aggregate cost of $45.7 million. Up to the merger
              date, neither Berkshire nor its subsidiaries had acquired any
              shares of GEICO common stock since 1980. However, Berkshire's
              ownership percentage, due to intervening stock repurchases by
              GEICO, gradually increased from about 33% in 1980 to almost 51%
              immediately prior to the merger date.

      (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")
              between Berkshire and FlightSafety. 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 included in
Berkshire's consolidated results of operations from the effective dates of each
of the mergers (GEICO -- January 2, 1996 and FlightSafety -- December 23,
1996). The following table sets forth certain consolidated statement of
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.

<TABLE>
<CAPTION>
                                                          1996         1995
                                                        ---------    --------
  <S>                                                   <C>          <C>
  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 income  . . . . . . . . . . . . . . . . . . . .     2,515.0       833.8
  Earnings per equivalent Class A common share  . . .       2,051         690
</TABLE>

(3)   BUSINESS ACQUISITIONS -- 1995

      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 186 jewelry stores
operating in 28 states and R.C. Willey, through its seven locations, is the
dominant retailer of home furnishings in Utah.

      Each of these mergers was accounted for by the purchase method and,
accordingly, the operating results of these businesses are included in the
Company's consolidated results of operations from the effective dates of the
mergers (Helzberg's -- April 30, 1995; R.C. Willey -- June 29, 1995). Had the
results of these businesses been included commencing with operations at the
beginning of 1994, the reported results would not have been materially
affected.





                                       24
<PAGE>   26
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

                            BERKSHIRE HATHAWAY INC.
                                AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(4)   INVESTMENTS IN SECURITIES WITH FIXED MATURITIES

      The amortized cost and estimated fair values as of December 31, 1996 and
1995, of investments in securities with fixed maturities are as follows (in
millions):

<TABLE>
<CAPTION>
                     December 31, 1996                                         Gross        Gross      Estimated
                                                               Amortized     Unrealized   Unrealized     Fair
                                                                 Cost          Gains        Losses       Value
                                                               ---------     ----------   ----------   ---------
      <S>                                                       <C>             <C>          <C>         <C>
      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
                                                                ========        ======       ======     ========
</TABLE>

<TABLE>
<CAPTION>
                     December 31, 1995                                       Gross        Gross       Estimated
                                                              Amortized    Unrealized   Unrealized      Fair
                                                                Cost          Gains        Losses       Value
                                                              ---------    ----------   ----------    ---------
      <S>                                                     <C>             <C>           <C>       <C>
      Bonds:
        U.S. Treasury securities and obligations of
          U.S. government corporations and agencies . . .     $   80.9        $  2.2        $  --     $   83.1
        Obligations of states, municipalities
          and political subdivisions  . . . . . . . . . .        346.4          17.2          (0.5)      363.1
      Redeemable preferred stocks . . . . . . . . . . . .        682.5         153.4          (2.9)      833.0
      Mortgage-backed securities  . . . . . . . . . . . .        138.3           5.9          (0.2)      144.0
                                                              --------        ------        ------    --------
                                                              $1,248.1        $178.7        $ (3.6)   $1,423.2
                                                              ========        ======        ======    ========
</TABLE>

      Amounts above exclude securities with fixed maturities held by finance
businesses. See note 7.

      Redeemable preferred stocks include 358,000 shares of USAir Group, Inc.
Series A Cumulative Convertible Preferred Stock ("USAir Preferred Shares"). The
USAir Preferred Shares were acquired in 1989 for $358 million. If not called or
converted prior to August 7, 1999, the USAir Preferred Shares are mandatorily
redeemable by USAir Group, Inc. ("USAir") at $1,000 per share ($358 million in
the aggregate), plus accrued dividends.

      During the five years ended December 31, 1994, USAir reported aggregate
losses of approximately $2.4 billion. In 1994, USAir announced it was
suspending the payment of dividends. Consequently, prior to the end of 1994,
Berkshire management concluded that an other-than-temporary decline in the
value of USAir Preferred shares had arisen. The 1994 Consolidated Statement of
Earnings includes a pre-tax charge of $268.5 million to reflect the decline.

      While USAir returned to profitability during 1995, it continued the
suspension of dividends until the second half of 1996 when dividend payments of
$47 million were received. Such amount is included in the 1996 Consolidated
Statement of Earnings under the caption "Interest, dividend and other
investment income."  An additional dividend payment of $30 million was received
in January, 1997 and dividends of approximately $17 million remain in arrears.

      Berkshire management has estimated the fair value of USAir Preferred
shares to be $322.2 million at December 31, 1996. The increase of $232.7
million in the estimated fair value over the amount recorded at December 31,
1994, is included as a component of the increases during 1995 and 1996 in
unrealized appreciation of investments.

      Shown below are the amortized cost and estimated fair values of the above
securities at December 31, 1996, 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.

<TABLE>
<CAPTION>
                                                                                                       Estimated
                                                                                      Amortized          Fair
                                                                                        Cost             Value
                                                                                      ---------        ---------
      <S>                                                                              <C>              <C>
      Due in one year or less . . . . . . . . . . . . . . . . . . . . . . . .          $2,073.2         $2,085.0
      Due after one year through five years . . . . . . . . . . . . . . . . .           2,481.9          2,750.5
      Due after five years through ten years  . . . . . . . . . . . . . . . .           1,022.8          1,039.8
      Due after ten years . . . . . . . . . . . . . . . . . . . . . . . . . .             149.2            152.3
                                                                                       --------         --------
                                                                                        5,727.1          6,027.6
      Mortgage-backed securities  . . . . . . . . . . . . . . . . . . . . . .             415.2            419.3
                                                                                       --------         --------
                                                                                       $6,142.3         $6,446.9
                                                                                       ========         ========
</TABLE>





                                       25
<PAGE>   27
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

                            BERKSHIRE HATHAWAY INC.
                                AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(5)   INVESTMENTS IN EQUITY SECURITIES

      Aggregate data with respect to the consolidated investment in equity
securities are shown below (in millions):

<TABLE>
<CAPTION>
                 December 31, 1996
                                                                                      Unrealized       Carrying
                                                                            Cost          Gains         Value***
                                                                          --------    ----------       ---------
           <S>                                                            <C>          <C>             <C>
           Common stock of:
              American Express Company (a)  . . . . . . . . . . . .       $1,392.7     $ 1,401.6       $ 2,794.3
              The Coca-Cola Company   . . . . . . . . . . . . . . .        1,298.9       9,226.1        10,525.0
              The Walt Disney Company   . . . . . . . . . . . . . .        1,533.2         183.6         1,716.8
              Federal Home Loan Mortgage Corporation  . . . . . . .          449.7       1,323.1         1,772.8
              The Gillette Company    . . . . . . . . . . . . . . .          600.0       3,132.0         3,732.0
              McDonald's Corporation  . . . . . . . . . . . . . . .        1,265.3         103.1         1,368.4
              Wells Fargo & Company   . . . . . . . . . . . . . . .          553.9       1,413.0         1,966.9
           All other equity securities  . . . . . . . . . . . . . .        2,058.3       1,816.1*        3,874.4
                                                                          --------     ---------       ---------
                                                                          $9,152.0     $18,598.6       $27,750.6
                                                                          ========     =========       =========
</TABLE>

<TABLE>
<CAPTION>
                 December 31, 1995
                                                                                      Unrealized       Carrying
                                                                            Cost        Gains          Value ***
                                                                          --------    ----------       ---------
           <S>                                                            <C>          <C>             <C>
           Common stock of:
              American Express Company (a)  . . . . . . . . . . . .       $1,392.7     $   653.6       $ 2,046.3
              Capital Cities/ABC, Inc. (b)  . . . . . . . . . . . .          345.0       2,122.5         2,467.5
              The Coca-Cola Company   . . . . . . . . . . . . . . .        1,298.9       6,126.1         7,425.0
              Federal Home Loan Mortgage Corporation  . . . . . . .          260.1         783.9         1,044.0
              GEICO Corporation (c)   . . . . . . . . . . . . . . .        1,175.8          --           1,175.8
              The Gillette Company    . . . . . . . . . . . . . . .          600.0       1,902.0         2,502.0
              Wells Fargo & Company   . . . . . . . . . . . . . . .          423.7       1,043.2         1,466.9
           All other equity securities  . . . . . . . . . . . . . .        1,680.0       1,210.1**       2,890.1
                                                                          --------     ---------       ---------
                                                                          $7,176.2     $13,841.4       $21,017.6
                                                                          ========     =========       =========
</TABLE>

             *   Represents gross unrealized gains $1,838.5 less gross
                 unrealized losses $22.4.
            **   Represents gross unrealized gains $1,302.1 less gross
                 unrealized losses $92.0.
           ***   Represents market value for all investments in equity
                 securities except for GEICO Corporation.  See footnote (c)
                 which follows.

      (a)  American Express Company

           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, 1996. 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.

      (b)  Capital Cities/ABC, Inc.

           On January 4, 1996, shareholders of Capital Cities/ABC, Inc.
              ("Capital Cities") and The Walt Disney Company ("Disney")
              approved an agreement and plan of merger by and between Disney
              and Capital Cities. In March 1996, Berkshire received
              approximately 21 million shares of Disney common stock and $1.2
              billion in cash in exchange for the common shares of Capital
              Cities.

      (c)  GEICO Corporation

           The cost and carrying value of the investment in GEICO common stock
              as of December 31, 1995 represents Berkshire's cost plus its
              share of GEICO's undistributed accumulated earnings and
              unrealized appreciation on investments. See Notes 1(b) and 2 for
              additional information.





                                       26
<PAGE>   28
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

                            BERKSHIRE HATHAWAY INC.
                                AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(6)   REALIZED INVESTMENT GAINS (LOSSES)

      Realized gains (losses) from sales and redemptions of investments are
summarized below (in millions):

<TABLE>
<CAPTION>
                                                                            1996           1995           1994
                                                                          --------        ------         ------
      <S>                                                                 <C>             <C>            <C>
      Equity securities --
        Gross realized gains  . . . . . . . . . . . . . . . . . . . .     $2,379.1 *      $109.9         $185.7
        Gross realized losses . . . . . . . . . . . . . . . . . . . .        (36.4)        (14.2)         (96.9)
      Securities with fixed maturities and other investments --
        Gross realized gains  . . . . . . . . . . . . . . . . . . . .        144.6         100.8            6.8
        Gross realized losses . . . . . . . . . . . . . . . . . . . .         (3.2)         (2.4)          (4.3)
                                                                          --------        ------         ------
                                                                          $2,484.1        $194.1         $ 91.3
                                                                          ========        ======         ======
</TABLE>

*  In March 1996 Disney completed its acquisition of 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
   includes a gain of $2.2 billion relating to Disney's acquisition of Capital
   Cities.

(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):

<TABLE>
<CAPTION>
                                                                                  Dec. 31,       Dec. 31,
                                                                                    1996           1995
                                                                                  --------       --------
      <S>                                                                          <C>           <C>
      ASSETS
      Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . .          $ 10.5        $ 40.7
      Installment loans and other receivables . . . . . . . . . . . . . .           215.9         185.9
      Fixed maturity investments (a)  . . . . . . . . . . . . . . . . . .           742.4         529.4
      Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .             0.1           0.7
                                                                                   ------        ------
                                                                                   $968.9        $756.7
                                                                                   ======        ======
      LIABILITIES
      Borrowings under investment agreements (b)  . . . . . . . . . . . .          $281.8        $403.6
      6  3/4% Notes, due 2001 . . . . . . . . . . . . . . . . . . . . . .            99.5           --
      8  1/8% Notes, payable in 1996  . . . . . . . . . . . . . . . . . .              --         120.0
      Annuity reserves and policyholder liabilities . . . . . . . . . . .           434.8         116.7
      Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .            35.3          44.9
                                                                                  -------       -------
                                                                                   $851.4        $685.2
                                                                                   ======        ======
</TABLE>

      (a)  At December 31, 1996 and 1995, mortgage-backed securities of $601.6
           and $336.0 respectively were included in this caption. Estimated
           fair values and gross unrealized gains and losses as of December 31,
           1996 and 1995, are as follows (in millions):

<TABLE>
<CAPTION>
                                                             Gross          Gross             Estimated
                                                           Unrealized     Unrealized            Fair
                                     Amortized Cost           Gains         Losses              Value
                                     --------------        ----------     ----------        --------------
         <S>                            <C>                  <C>            <C>                <C>
         1996 . . . . . . . . .         $742.4               $ 25.2         $ (4.8)            $762.8
         1995 . . . . . . . . .          529.4                 29.0           (1.0)             557.4
</TABLE>

      (b)  Borrowings under investment agreements are made pursuant to
           contracts with terms generally ranging from six months to thirty
           years and at fixed interest rates ranging from 4% to 7%. Payments of
           amounts outstanding at December 31, 1996, are expected to be
           required no earlier than as follows (in millions):

<TABLE>
<CAPTION>
                  1997           1998           1999           2000          2001        After 2001
                 ------          ----           ----           ----          ----        ----------
                 <S>             <C>            <C>           <C>            <C>         <C>
                 $211.9          $2.0           $3.3            --            --            $64.6
</TABLE>





                                       27
<PAGE>   29
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

                            BERKSHIRE HATHAWAY INC.
                                AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(7)   FINANCE BUSINESSES (Continued)

         Income from finance businesses for each of the past three years is
summarized below (in millions):

<TABLE>
<CAPTION>
                                                                           1996          1995             1994
                                                                          ------        -------          ------
      <S>                                                                 <C>           <C>              <C>
      REVENUES
      Interest on loans . . . . . . . . . . . . . . . . . . . . .         $ 38.8        $  38.4          $ 37.4
      Interest and dividend income  . . . . . . . . . . . . . . .           54.4           39.2            34.8
      Annuity premiums earned . . . . . . . . . . . . . . . . . .          259.5           75.2            36.0
                                                                          ------        -------          ------
                                                                           352.7          152.8           108.2
                                                                          ------        -------          ------
      COST AND EXPENSES
      Interest expense  . . . . . . . . . . . . . . . . . . . . .           30.3           28.9            31.7
      Annuity benefits and expenses . . . . . . . . . . . . . . .          276.7           80.8            37.6
      General and administrative expenses . . . . . . . . . . . .           20.4           16.5            14.0
                                                                          ------        -------          ------
                                                                           327.4          126.2            83.3
                                                                          ------        -------          ------
                                                                          $ 25.3        $  26.6          $ 24.9
                                                                          ======        =======          ======
</TABLE>

      The preceding summarized financial data includes the commercial and
consumer finance activities conducted by the Scott Fetzer Financial Group and
its subsidiaries.  Assets and liabilities of these businesses are summarized
below (in millions).

<TABLE>
<CAPTION>
                                                                                 Dec. 31,       Dec. 31,
                                                                                   1996           1995
                                                                                 --------       --------
      <S>                                                                         <C>            <C>
      ASSETS
      Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . .         $  6.4         $ 40.5
      Installment loans and other receivables **  . . . . . . . . . . . .          233.0          334.9
      Mortgage-backed securities, at cost
         (Fair value: 1996 -- $146.1; 1995 -- $211.6) . . . . . . . . . .          145.5          211.7
      Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .            0.1            0.7
                                                                                  ------         ------
                                                                                  $385.0         $587.8
                                                                                  ======         ======
      LIABILITIES
      6  3/4% Notes, due 2001 . . . . . . . . . . . . . . . . . . . . . .         $ 99.5         $ --
      8  1/8% Notes, payable in 1996  . . . . . . . . . . . . . . . . . .           --            120.0
      Borrowings under investment agreements  . . . . . . . . . . . . . .          221.3          403.6
      Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           29.8           32.8
                                                                                  ------         ------
                                                                                  $350.6         $556.4
                                                                                  ======         ======
</TABLE>

**    Includes receivables from affiliated companies of $85.1 and $182.8 at
      December 31, 1996 and 1995, respectively.

         Net income from Scott Fetzer Financial Group businesses for each of
the past three years is summarized below (in millions).

<TABLE>
<CAPTION>
                                                                          1996            1995            1994
                                                                         ------           -----           -----
      <S>                                                                <C>              <C>             <C>
      REVENUES
      Interest on installment loans and other receivables *** . .        $ 45.7           $43.4           $41.4
      Other interest  . . . . . . . . . . . . . . . . . . . . . .          13.2            15.0            21.3
                                                                         ------           -----           -----
                                                                           58.9            58.4            62.7
                                                                         ------           -----           -----
      COST AND EXPENSES
      Interest expense  . . . . . . . . . . . . . . . . . . . . .          27.8            28.9            31.7
      General and administrative expenses . . . . . . . . . . . .          20.1            16.2            13.2
                                                                         ------           -----           -----
                                                                           47.9            45.1            44.9
                                                                         ------           -----           -----
      Income before taxes . . . . . . . . . . . . . . . . . . . .          11.0            13.3            17.8
      Income taxes  . . . . . . . . . . . . . . . . . . . . . . .           3.6             4.6             6.3
                                                                         ------           -----           -----
      Net income  . . . . . . . . . . . . . . . . . . . . . . . .        $  7.4           $ 8.7           $11.5
                                                                         ======           =====           =====
</TABLE>

***   Includes interest on loans and receivables from affiliated companies of
      $6.9, $5.0 and $4.0 in 1996, 1995 and 1994, respectively.





                                       28
<PAGE>   30

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)

                            BERKSHIRE HATHAWAY INC.
                                AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(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):

<TABLE>
<CAPTION>
                                                                    1996            1995               1994
                                                                  --------        --------           --------
        <S>                                                       <C>             <C>                <C>
        Unpaid losses and loss adjustment expenses:
         Balance at beginning of year   . . . . . . . . . . .     $5,923.9*       $3,430.0           $3,155.9
         Less ceded liabilities and deferred charges  . . . .        645.0*          573.9              597.9
                                                                  --------        --------           --------
         Net balance  . . . . . . . . . . . . . . . . . . . .      5,278.9*        2,856.1            2,558.0
                                                                  --------        --------           --------
        Incurred losses recorded:
         Current accident year  . . . . . . . . . . . . . . .      3,179.7           556.5              505.1
         All prior accident years   . . . . . . . . . . . . .        (90.2)           55.5               60.2
                                                                  --------        --------           --------
         Total incurred losses  . . . . . . . . . . . . . . .      3,089.5           612.0              565.3
                                                                  --------        --------           --------
        Payments with respect to:
         Current accident year  . . . . . . . . . . . . . . .      1,484.9            43.6               50.9
         All prior accident years   . . . . . . . . . . . . .      1,194.9           246.2              216.3
                                                                  --------        --------           --------
         Total payments   . . . . . . . . . . . . . . . . . .      2,679.8           289.8              267.2
                                                                  --------        --------           --------
        Unpaid losses and loss adjustment expenses:
         Net balance at end of year   . . . . . . . . . . . .      5,688.6         3,178.3            2,856.1
         Plus ceded liabilities and deferred charges  . . . .        585.8           520.3              573.9
                                                                  --------        --------           --------
        Balance at end of year ** . . . . . . . . . . . . . .     $6,274.4        $3,698.6           $3,430.0
                                                                  ========        ========           ========
</TABLE>

    *  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 $1,263.6, $1,283.5, and $1,296.0 at December 31, 1996, 1995
       and 1994 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 $217.2,
       $221.7, and $231.3 at December 31, 1996, 1995 and 1994 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):

<TABLE>
<CAPTION>
                                                                                   Dec. 31,             Dec. 31,
                                                                                     1996                 1995
                                                                                   --------             --------
    <S>                                                                            <C>                  <C>
      Borrowings under investment agreements  . . . . . . . . . . . . . . . .      $  865.3             $  878.9
      1% Senior Exchangeable Notes Due 2001 . . . . . . . . . . . . . . . . .         454.6                 --
      Other debt  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         624.5                182.8
                                                                                   --------             --------
                                                                                   $1,944.4             $1,061.7
                                                                                   ========             ========
</TABLE>

      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 convertible
at the option of the holder into 17.65 shares of Salomon Inc common stock
("Salomon Stock"). Upon such conversion, Berkshire, at its option, may elect to
redeem the Exchange Notes for an equivalent cash value of the Salomon Stock.
Beginning on December 2, 1999, under certain conditions, the Exchange Notes are
convertible into 17.65 shares of Salomon Stock at the option of the Company.
Upon conversion, Berkshire may elect to redeem the Exchange Notes for an
equivalent cash value of the Salomon Stock. In all other circumstances,
Berkshire will pay the principal amount at maturity. At December 31, 1996,
Berkshire subsidiaries owned common and preferred stock of Salomon possessing
about 18% of the total voting power of that company.





                                       29
<PAGE>   31
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

                            BERKSHIRE HATHAWAY INC.
                                AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(9)   BORROWINGS UNDER INVESTMENT AGREEMENTS AND OTHER DEBT (Continued)

      No materially restrictive covenants are included in any of the various
debt agreements. Payments of amounts outstanding at December 31, 1996, are
expected to be required no earlier than as follows (in millions):

<TABLE>
<CAPTION>
           1997           1998           1999           2000          2001        After 2001
          ------         ------         ------         ------        ------       ----------
          <S>            <C>            <C>            <C>           <C>           <C>
          $130.8         $125.1         $ 54.3         $ 15.8        $474.0        $1,144.4
</TABLE>

(10)  INCOME TAXES

      The liability for income taxes as reflected in the accompanying
Consolidated Balance Sheets represent estimates of liabilities as follows (in
millions):

<TABLE>
<CAPTION>
                                                                                Dec. 31,         Dec. 31,
                                                                                  1996             1995
                                                                                --------         --------
              <S>                                                               <C>              <C>
              Payable currently   . . . . . . . . . . . . . . . . . . . .       $  (41.1)        $   86.8
              Deferred    . . . . . . . . . . . . . . . . . . . . . . . .        6,878.7          4,762.7
                                                                                --------         --------
                                                                                $6,837.6         $4,849.5
                                                                                ========         ========
</TABLE>

      The Consolidated Statements of Earnings reflect charges for income taxes
as shown below (in millions):

<TABLE>
<CAPTION>
                                                                           1996            1995          1994
                                                                         --------         ------        ------
      <S>                                                                <C>              <C>           <C>
      Federal . . . . . . . . . . . . . . . . . . . . . . . . . .        $1,169.9         $252.3        $138.1
      State . . . . . . . . . . . . . . . . . . . . . . . . . . .            26.1           22.6          22.1
      Foreign . . . . . . . . . . . . . . . . . . . . . . . . . .             0.8            1.3           3.1
                                                                         --------         ------        ------
                                                                         $1,196.8         $276.2        $163.3
                                                                         ========         ======        ======
      Current . . . . . . . . . . . . . . . . . . . . . . . . . .        $  818.9         $331.0        $188.5
      Deferred  . . . . . . . . . . . . . . . . . . . . . . . . .           377.9          (54.8)        (25.2)
                                                                         --------         ------        ------
                                                                         $1,196.8         $276.2        $163.3
                                                                         ========         ======        ======
</TABLE>

         The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities at December 31,
1996 and 1995, are shown below (in millions):

<TABLE>
<CAPTION>
                                                                                   1996            1995
                                                                                 --------        --------
      <S>                                                                        <C>             <C>
      Deferred tax liabilities:
         Relating to unrealized appreciation of investments . . . . . . .        $6,620.6        $4,908.5
         Other  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           860.9           157.0
                                                                                 --------        --------
                                                                                  7,481.5         5,065.5
      Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . .          (602.8)         (302.8)
                                                                                 --------        --------
      Net deferred tax liability  . . . . . . . . . . . . . . . . . . . .        $6,878.7        $4,762.7
                                                                                 ========        ========
</TABLE>

      Charges for income taxes are reconciled to hypothetical amounts computed
at the federal statutory rate in the table shown below (in millions):

<TABLE>
<CAPTION>
                                                                           1996            1995           1994
                                                                         --------        --------       --------
      <S>                                                                <C>             <C>            <C>
      Net earnings before income taxes  . . . . . . . . . . . . .        $3,705.9        $1,084.4       $  725.0
                                                                         ========        ========       ========
      Hypothetical amounts applicable to above
         computed at the federal statutory rate . . . . . . . . .        $1,297.1        $  379.5       $  253.8
      Decreases, resulting from:
         Tax-exempt interest income . . . . . . . . . . . . . . .           (41.7)          (10.6)         (14.6)
         Dividends received deduction . . . . . . . . . . . . . .           (90.3)          (86.3)         (81.2)
      Goodwill amortization . . . . . . . . . . . . . . . . . . .            21.6             5.7            4.8
      State income taxes, less federal income tax benefit . . . .            17.0            14.7           14.4
      Other differences, net  . . . . . . . . . . . . . . . . . .            (6.9)          (26.8)         (13.9)
                                                                         --------        --------       --------
      Total income taxes  . . . . . . . . . . . . . . . . . . . .        $1,196.8        $  276.2       $  163.3
                                                                         ========        ========       ========
</TABLE>





                                       30
<PAGE>   32
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

                            BERKSHIRE HATHAWAY INC.
                                AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(11)  SHAREHOLDERS' EQUITY ACCOUNTS

      Changes in capital accounts of the Company during the two years ended
December 31, 1996, are shown in the table below. Dollar amounts are in
millions, except per share amounts.


<TABLE>
<CAPTION>
                                                                                     Capital in
                                              Class A Common       Class B Common   in Excess of    Class A Common
                                               $5 Par Value       $0.1667 Par Value   Par Value      in Treasury
                                           --------------------   -----------------   ---------    -----------------
                                            Shares      Dollars   Shares    Dollars   Dollars      Shares    Dollars
                                           ---------    -------   -------   -------   --------     -------   -------
   <S>                                     <C>           <C>      <C>       <C>      <C>          <C>        <C>
   Balance December 31, 1994 *  . . . . .  1,381,308     $6.9       --         --     $  656.1     203,558    $37.6

   Common stock issued in connection
      with acquisitions of businesses . .                                                345.6     (15,762)    (2.9)
                                           ---------     ----     -------     ---     --------     -------    -----
   Balance December 31, 1995  . . . . . .  1,381,308      6.9       --         --      1,001.7     187,796     34.7

   Common stock issued in connection
      with acquisitions of businesses . .                         112,655      --        707.5     (17,728)    (3.3)
   Common stock issued for cash . . . . .                         517,500     $0.1       564.9
   Conversions of Class A Common
      to Class B Common . . . . . . . . .     (5,120)     --      153,600      --
                                           ---------     ----     -------     ----    --------     -------    -----
   Balance December 31, 1996  . . . . . .  1,376,188     $6.9     783,755     $0.1    $2,274.1     170,068    $31.4
                                           =========     ====     =======     ====    ========     =======    =====
</TABLE>
      *  There were no changes in the Company's capital accounts during 1994.

      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.

      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.

      Changes in unrealized appreciation of investments, net during the three
years ended December 31, 1996 were as follows, in millions:

<TABLE>
<CAPTION>
                                                                                Year ending December 31,
                                                                        ----------------------------------------
                                                                          1996            1995            1994
                                                                        ---------       ---------       --------
   <S>                                                                  <C>             <C>             <C>
   Balance at beginning of year . . . . . . . . . . . . . . . . .       $ 9,220.7       $ 5,276.9       $4,318.6
   Increase in unrealized appreciation included in carrying
      value of investments  . . . . . . . . . . . . . . . . . . .         4,604.0         6,177.1        1,486.5
   Increase in deemed applicable deferred income taxes  . . . . .        (1,629.1)       (2,176.2)        (518.3)
   Increase in minority interest in unrealized appreciation . . .           (51.7)          (57.1)          (9.9)
                                                                        ---------       ---------       --------
   Balance at end of year . . . . . . . . . . . . . . . . . . . .       $12,143.9       $ 9,220.7       $5,276.9
                                                                        =========       =========       ========
</TABLE>

      Changes in retained earnings during the three years ended December 31,
1996 were as follows, in millions:

<TABLE>
<CAPTION>
                                                                                 Year ending December 31,
                                                                          ---------------------------------------
                                                                            1996            1995           1994
                                                                          --------        --------       --------
<S>                                                                       <C>             <C>            <C>
Balance at beginning of year  . . . . . . . . . . . . . . . . . .         $6,544.1        $5,749.2       $5,196.2
Net earnings  . . . . . . . . . . . . . . . . . . . . . . . . . .          2,488.6           794.9          553.0
                                                                          --------        --------       --------
Balance at end of year  . . . . . . . . . . . . . . . . . . . . .         $9,032.7        $6,544.1       $5,749.2
                                                                          ========        ========       ========
</TABLE>

(12)  DIVIDEND RESTRICTIONS - INSURANCE SUBSIDIARIES

      Payments of dividends by Insurance Group members are restricted by
insurance statutes and regulations. Without prior regulatory approval in 1997,
Berkshire can receive up to approximately $2.5 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 $26.1 billion at December 31, 1996. This
amount exceeded by approximately $5.2 billion the corresponding amount
determined on the basis of generally accepted accounting principles; the
difference principally represents deferred income tax assets and liabilities
and deferred charges re reinsurance assumed recognized for financial reporting
purposes but not for statutory reporting purposes.





                                       31
<PAGE>   33
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

                            BERKSHIRE HATHAWAY INC.
                                AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(13)  FAIR VALUES OF FINANCIAL INSTRUMENTS

      Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments" ("SFAS 107"), 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, were 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 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, 1996 and 1995, are as follows
(in millions):

<TABLE>
<CAPTION>
                                                      Carrying Value                   Estimated Fair Value
                                                      --------------                   --------------------
                                                   1996               1995             1996              1995
                                                 ---------         ----------       ---------         ----------
<S>                                              <C>               <C>              <C>               <C>
Investments in securities with fixed
   maturities . . . . . . . . . . . . . .        $ 6,446.9         $  1,423.2       $ 6,446.9         $  1,423.2
Investments in equity securities  . . . .         27,750.6           21,017.6        27,750.6           22,235.0
Assets of finance businesses  . . . . . .            968.9              756.7           997.8              792.3
Borrowings under investment agreements and
   other debt . . . . . . . . . . . . . .          1,944.4            1,061.7         1,937.9            1,095.0
Liabilities of finance businesses . . . .            851.4              685.2           852.0              704.4
</TABLE>

(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.

<TABLE>
<CAPTION>
                                                                1st           2nd          3rd           4th
           1996                                               Quarter       Quarter      Quarter       Quarter
                                                              -------       -------      -------       -------
<S>                                                          <C>            <C>          <C>           <C>
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
                                                             =========      ========     ========      ========
</TABLE>

*  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 Notes 5 and 6.

<TABLE>
<CAPTION>
                                                                 1st           2nd          3rd         4th
          1995                                                 Quarter       Quarter      Quarter     Quarter
                                                               -------       -------      -------     -------
<S>                                                            <C>          <C>          <C>         <C>
Revenues  . . . . . . . . . . . . . . . . . . . . . . . .       $944.0      $1,018.4     $1,107.2    $1,493.7
                                                                ------      --------     --------    --------
Earnings:
   Excluding realized investment gain   . . . . . . . . .       $143.9        $140.3       $151.3      $234.4
   Realized investment gain (loss)  . . . . . . . . . . .         (4.7)         51.7         43.2        34.8
                                                                ------        ------       ------      ------
   Net earnings   . . . . . . . . . . . . . . . . . . . .       $139.2        $192.0       $194.5      $269.2
                                                                ======        ======       ======      ======
Earnings per equivalent Class A common share:
   Excluding realized investment gain   . . . . . . . . .      $122.22       $118.54      $126.78      $196.56
   Realized investment gain (loss)  . . . . . . . . . . .        (4.03)        43.71        36.18        29.16
                                                               -------       -------      -------      -------
   Net earnings   . . . . . . . . . . . . . . . . . . . .      $118.19       $162.25      $162.96      $225.72
                                                               =======       =======      =======      =======
</TABLE>





                                       32
<PAGE>   34
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

                            BERKSHIRE HATHAWAY INC.
                                AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(15)  BUSINESS SEGMENT DATA

      Berkshire identified seven business segments for purposes of 1996
reporting pursuant to Statement of Financial Accounting Standards 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:

<TABLE>
<CAPTION>
       Business
  identity and headquarters      Segment                        Activity
  -------------------------      -------                        --------
  <S>                            <C>                               <C>
  See's Candies                  Candy                          Manufacture and distribution at retail
   South San Francisco, CA                                      and by catalog solicitation

  World Book                     Encyclopedias and              Publication and marketing,
   Chicago, IL                    other reference materials      principally by the direct sales method

  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
   Omaha, NE and Salt Lake
   City, UT

  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
</TABLE>

      The business segments identified above were responsible in 1996 for 86%
of Berkshire's consolidated revenues. Other businesses activities that
contributed for 1996, in the aggregate, 11% of Berkshire's consolidated
revenues, were as follows:

<TABLE>
   Business identity            Product/Service/Activity
   ------------------           ------------------------
   <S>                          <C>
   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
   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
   FlightSafety International   High technology training to operators of aircraft and ships
   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
   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                        Furnace burners; 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
</TABLE>





                                       33
<PAGE>   35
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

                            BERKSHIRE HATHAWAY INC.
                                AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(15) BUSINESS SEGMENT DATA (Continued)

      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.

<TABLE>
<CAPTION>
                                                        REVENUES                OPERATING PROFIT BEFORE TAXES
                                               1996       1995       1994        1996        1995       1994
                                             ---------  --------   --------    --------    --------   --------
   <S>                                       <C>        <C>        <C>         <C>         <C>        <C>
   Identified Segments:
      Insurance . . . . . . . . . . . . . .  $ 7,133.1  $1,715.7   $1,499.8    $3,189.6    $  776.5   $  702.0
      Non-insurance businesses  . . . . . .    1,922.9   1,775.1    1,620.7       267.2       233.2      261.9
                                             ---------  --------   --------    --------    --------   --------
                                               9,056.0   3,490.8    3,120.5     3,456.8     1,009.7      963.9
   Other than identified segments . . . . .    1,444.3   1,072.5      789.8       342.1       130.7     (178.8)**
   Interest expense * . . . . . . . . . . .                                       (93.0)      (56.0)     (60.1)
                                             ---------  --------   --------    --------    --------   --------
      Aggregate consolidated total           $10,500.3  $4,563.3   $3,910.3    $3,705.9    $1,084.4   $  725.0
                                             =========  ========   ========    ========    ========   ========
</TABLE>

   *  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.

  **  Includes pre-tax charge of $268.5 million representing an
      other-than-temporary decline in value of investment in USAir Group, Inc.
      Preferred Stock.

<TABLE>
<CAPTION>
   INSURANCE SEGMENT                                   REVENUES                 OPERATING PROFIT BEFORE TAXES
   -----------------
                                               1996      1995       1994         1996         1995       1994
                                             --------  --------   --------     --------      ------      ------
   <S>                                       <C>       <C>        <C>          <C>           <C>         <C>
   Premiums earned: *
      Direct  . . . . . . . . . . . . . . .  $3,432.9  $  287.3   $  281.1
      Reinsurance assumed . . . . . . . . .     764.0     718.4      688.5
      Reinsurance ceded . . . . . . . . . .     (79.1)    (48.2)     (46.4)
                                             --------  --------   --------
                                              4,117.8     957.5      923.2
   Underwriting . . . . . . . . . . . . . .                                    $  230.7      $ 19.6      $129.0
   Goodwill amortization  . . . . . . . . .                                       (42.6)       --          --
   Investment income  . . . . . . . . . . .     725.9     577.1      484.6        712.1       575.8       481.0
   Realized investment gain . . . . . . . .   2,289.4     181.1       92.0      2,289.4       181.1        92.0
                                             --------  --------   --------     --------      ------      ------
                                             $7,133.1  $1,715.7   $1,499.8     $3,189.6      $776.5      $702.0
                                             ========  ========   ========     ========      ======      ======
</TABLE>

   *  Premiums written were as follows:

<TABLE>
<CAPTION>
                                               1996      1995        1994
                                             --------  --------     ------
      <S>                                    <C>       <C>           <C>
      Direct  . . . . . . . . . . . . . . .  $3,465.4  $  294.8     $271.2
      Reinsurance assumed . . . . . . . . .     722.7     777.9      689.9
      Reinsurance ceded . . . . . . . . . .     (82.9)    (48.5)     (45.6)
                                             --------  --------     ------
                                             $4,105.2  $1,024.2     $915.5
                                             ========  ========     ======
</TABLE>


<TABLE>
<CAPTION>
   NON-INSURANCE BUSINESS SEGMENTS                      REVENUES               OPERATING PROFIT BEFORE TAXES
   -------------------------------
                                                1996      1995       1994            1996      1995      1994
                                              --------  --------   --------         ------    ------    ------
   <S>                                        <C>       <C>        <C>              <C>       <C>       <C>
   Candy  . . . . . . . . . . . . . . . . .   $  248.9  $  233.6   $  216.1         $ 50.9    $ 49.3    $ 46.6
   Encyclopedias, other reference material       119.0     157.9      191.3           10.3       7.4      24.4
   Home cleaning systems  . . . . . . . . .      253.7     235.6      207.6           62.5      52.6      43.9
   Home furnishings . . . . . . . . . . . .      586.6     428.1      245.4           41.0      28.1      16.9
   Newspaper  . . . . . . . . . . . . . . .      154.2     154.8      150.9           49.8      46.3      53.7
   Shoes  . . . . . . . . . . . . . . . . .      560.5     565.1      609.4           52.7      49.5      76.4
                                              --------  --------   --------         ------    ------    ------
                                              $1,922.9  $1,775.1   $1,620.7         $267.2    $233.2    $261.9
                                              ========  ========   ========         ======    ======    ======
</TABLE>





                                       34
<PAGE>   36
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

                            BERKSHIRE HATHAWAY INC.
                                AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(15)  BUSINESS SEGMENT DATA (Continued)

<TABLE>
<CAPTION>
   OTHER THAN IDENTIFIED SEGMENTS                       REVENUES                  OPERATING PROFIT BEFORE TAXES
   ------------------------------
                                                1996      1995        1994           1996      1995     1994
                                              --------  --------     ------         ------    ------   -------
   <S>                                        <C>       <C>          <C>            <C>       <C>      <C>
   Other businesses . . . . . . . . . . . .   $1,195.6  $1,021.7     $758.5         $108.5    $ 93.8   $  72.7
   Not identified with specific businesses:
      Interest and dividend income  . . . .       54.0      37.8       32.0           54.0      37.8      32.0
      Realized investment gain (loss) . . .      194.7      13.0       (0.7)         194.7      13.0      (0.7)
      All other except interest expense . .                                          (15.1)    (13.9)   (282.8)*
                                              --------  --------     ------         ------   -------   -------
                                              $1,444.3  $1,072.5     $789.8         $342.1    $130.7   $(178.8)
                                              ========  ========     ======         ======    ======   =======
</TABLE>
   *  Includes pre-tax charge of $268.5 million representing an
      other-than-temporary decline in value of investment in USAir Group, Inc.
      Preferred Stock.


<TABLE>
<CAPTION>
                                                                                         DEPREC. & AMORT.
                                                   CAPITAL EXPENDITURES *               OF TANGIBLE ASSETS
                                                 1996      1995       1994           1996      1995       1994
                                                 -----     -----      -----          -----     -----      -----
   <S>                                           <C>       <C>        <C>            <C>       <C>        <C>
   Insurance  . . . . . . . . . . . . . . .      $12.2     $ 1.2      $ 0.9          $26.3     $ 0.9      $ 0.9
   Candy  . . . . . . . . . . . . . . . . .        5.3       5.1        4.1            4.5       4.1        4.1
   Encyclopedias, other reference material         --        --         0.1            0.4       1.0        1.4
   Home cleaning systems  . . . . . . . . .        2.0       0.3        1.0            2.7       3.0        4.2
   Home furnishings . . . . . . . . . . . .       21.6       9.2       22.6           10.0       9.7        6.2
   Newspaper  . . . . . . . . . . . . . . .        1.0       1.8        5.2            2.8       4.9        2.2
   Shoes  . . . . . . . . . . . . . . . . .       12.8      13.7       17.9           13.4      12.0       10.2
   Other  . . . . . . . . . . . . . . . . .       26.9      22.9       15.3           27.6      24.7       20.4
                                                 -----     -----      -----          -----     -----      -----
                                                 $81.8     $54.2      $67.1          $87.7     $60.3      $49.6
                                                 =====     =====      =====          =====     =====      =====
</TABLE>

   *  Excludes expenditures which were part of business acquisitions.

<TABLE>
<CAPTION>
                                                                        IDENTIFIABLE ASSETS
                                                                            AT YEAR END
                                                               1996             1995            1994
                                                             ---------        ---------       ---------
   <S>                                                       <C>              <C>             <C>
   Insurance  . . . . . . . . . . . . . . . . . . . . . . .  $36,597.8        $25,280.0       $17,765.6
   Candy  . . . . . . . . . . . . . . . . . . . . . . . . .       74.1             74.5            69.4
   Encyclopedias, other reference material  . . . . . . . .       69.8             71.8            75.9
   Home cleaning systems  . . . . . . . . . . . . . . . . .       44.3             42.9            42.1
   Home furnishings . . . . . . . . . . . . . . . . . . . .      445.8            427.7           128.4
   Newspaper  . . . . . . . . . . . . . . . . . . . . . . .       42.0             45.0            48.4
   Shoes  . . . . . . . . . . . . . . . . . . . . . . . . .      624.4            656.7           672.7
   Other  . . . . . . . . . . . . . . . . . . . . . . . . .    5,511.3          2,112.8         1,807.1
                                                             ---------        ---------       ---------
                                                             $43,409.5        $28,711.4       $20,609.6
                                                             =========        =========       =========
</TABLE>

(16)  SUPPLEMENTAL CASH FLOW INFORMATION

      A summary of supplemental cash flow information is presented in the
following table (in millions):

<TABLE>
<CAPTION>
                                                                          1996             1995           1994
                                                                        --------         --------        -------
<S>                                                                     <C>              <C>             <C>
Cash paid during the year for:
   Income taxes . . . . . . . . . . . . . . . . . . . . . . . .         $  965.9         $  294.6        $ 411.1
   Interest . . . . . . . . . . . . . . . . . . . . . . . . . .            129.4             83.9           90.6
Non-cash investing and financing activities:
   Liabilities assumed in connection with acquisitions of businesses     4,172.1            248.0           --
   Common shares issued in connection with acquisitions of
      businesses  . . . . . . . . . . . . . . . . . . . . . . .            710.8            348.5           --
   Fair value of investments acquired as part of exchanges
      and conversions . . . . . . . . . . . . . . . . . . . . .          1,618.6             --             --
</TABLE>





                                       35
<PAGE>   37
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

   None
                                    Part III

   Except for the information set forth under the caption "Executive Officers
of the Registrant" in Part I hereof, information required by this Part (Items
10, 11, 12, and 13) is incorporated by reference from the Registrant's
definitive proxy statement, filed pursuant to Regulation 14A, for the Annual
Meeting of Shareholders of the Registrant to be held on May 5, 1997, which
meeting will involve the election of directors.

                                    Part IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K

(a)   1.    Financial Statements

            The following consolidated financial statements, as well as the
            Independent Auditors' Report, are included in Part II Item 8 of
            this report:

<TABLE>
<CAPTION>
                                                                                                PAGE
                                                                                                ----
<S>   <C>   <C>                                                                                 <C>
              Independent Auditors' Report                                                        18

              Consolidated Balance Sheets at December 31, 1996 and 1995                           19

              Consolidated Statements of Earnings for the years ended
                1996, 1995 and 1994                                                               20

              Consolidated Statements of Cash Flows for the years ended
                1996, 1995 and 1994                                                               21

              Notes to Consolidated Financial Statements                                          22-35

(a)   2.    Financial Statement Schedule                                                        PAGE
            ----------------------------                                                        ----

              Independent Auditors' Report on Schedule                                            38
              Schedule I -- Parent Company                                                        39-41
                Condensed Balance Sheets as of December 31, 1996
                and 1995 and Condensed Statements of Earnings and
                Cash Flows for the years ended 1996, 1995, and 1994.

              Other schedules are omitted because they are not required,
              information therein is not applicable, or is reflected in
              the Consolidated Financial Statements or notes thereto.
</TABLE>

(a)   3.    Exhibits

              See the "Exhibit Index" at page 42.

(b)         Reports on Form 8-K

              Form 8-K filed October 16, 1996 -- Item 5 - Other Events.
              Reports on Agreement and Plan of Merger dated as of October 14,
              1996 between the Registrant and FlightSafety International, Inc.

              Form 8-K filed November 29, 1996 -- Items 5 and 7 - Other Events
              and Financial Statements and Exhibits.
              Reports on Registrant's issuance of $500 million face amount of 1%
              Senior Exchangeable Notes due December 2, 2001.





                                       36
<PAGE>   38


                                   SIGNATURES



      Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

BERKSHIRE HATHAWAY INC.


Date:  March 27, 1997              /s/  Marc D. Hamburg
                                   ---------------------------------
                                        Marc D. Hamburg
                                        Vice President and Treasurer



      Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.


<TABLE>
<S>                                           <C>                                    <C>
/s/   Warren E. Buffett                       Chairman of the Board                  March 27, 1997
-----------------------------                 of Directors - Chief                   --------------
   Warren E. Buffett                          Executive Officer                           Date


/s/   Howard G. Buffett                       Director                               March 27, 1997
-----------------------------                                                        --------------
  Howard G. Buffett                                                                       Date


/s/   Susan T. Buffett                        Director                               March 27, 1997
-----------------------------                                                        --------------
  Susan T. Buffett                                                                        Date


/s/  Charles T. Munger                        Vice Chairman of the                   March 27, 1997
-----------------------------                 Board of Directors                     --------------
  Charles T. Munger                                                                       Date


/s/  Malcolm G. Chace, III                    Director                               March 27, 1997
-----------------------------                                                        --------------
  Malcolm G. Chace, III                                                                   Date


/s/  Walter Scott, Jr.                        Director                               March 27, 1997
-----------------------------                                                        --------------
  Walter Scott, Jr.                                                                       Date


/s/  Marc D. Hamburg                          Vice President -                       March 27, 1997
-----------------------------                 Principal Financial                    --------------
   Marc D. Hamburg                            Officer                                     Date


/s/  Daniel J. Jaksich                        Controller                             March 27, 1997
-----------------------------                                                        --------------
   Daniel J. Jaksich                                                                       Date
</TABLE>





                                       37
<PAGE>   39




                    INDEPENDENT AUDITORS' REPORT ON SCHEDULE




To the Board of Directors and Shareholders
Berkshire Hathaway Inc.




     We have audited the consolidated financial statements of Berkshire
Hathaway Inc. and subsidiaries as of December 31, 1996 and 1995, and for each
of the three years in the period ended December 31, 1996, and have issued our
report thereon dated March 7, 1997; such consolidated financial statements and
report are included elsewhere in this Form 10-K.  Our audits also included the
financial statement schedule of Berkshire Hathaway Inc., listed in Item 14.
The financial statement schedule is the responsibility of the Company's
management.  Our responsibility is to express an opinion based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly in all material respects the information set forth therein.





DELOITTE & TOUCHE LLP
Omaha, Nebraska
March 7, 1997





                                       38
<PAGE>   40
                            BERKSHIRE HATHAWAY INC.
                                (Parent Company)
                        Condensed Financial Information
                             (Dollars in millions)

                                   Schedule I

     This Schedule includes the accounts of the Buffalo News Division, an
autonomous division of Registrant.  Its business is the publishing of a daily
and Sunday newspaper in Buffalo, New York.


                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                         December 31,
                                                                                      1996           1995*
                                                                                    ---------      ----------
<S>                                                                                 <C>             <C>
Assets:
    Cash and cash equivalents   . . . . . . . . . . . . . . . . . . . . . . .       $   718.9       $   250.0
    Investments in consolidated subsidiaries  . . . . . . . . . . . . . . . .        23,846.2        17,386.5
    Investments - other than consolidated subsidiaries  . . . . . . . . . . .           900.9            23.2
    Other assets (includes identifiable assets of the
        Buffalo News Division of $42.0 and $45.0 at
        December 31, 1996 and 1995 respectively)  . . . . . . . . . . . . . .            64.3            51.4
                                                                                    ---------       ---------
                                                                                    $25,530.3       $17,711.1
                                                                                    =========       =========
Liabilities and Shareholders' Equity:
    Accounts payable and accrued expenses   . . . . . . . . . . . . . . . . .       $   798.5       $    32.1
    Borrowings under investment agreements and other debt   . . . . . . . . .         1,324.9           883.9
    Income taxes  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           (19.4)           56.4
                                                                                    ---------       ---------
                                                                                      2,104.0           972.4
    Shareholders' equity  . . . . . . . . . . . . . . . . . . . . . . . . . .        23,426.3        16,738.7
                                                                                    ---------       ---------
                                                                                    $25,530.3       $17,711.1
                                                                                    =========       =========
</TABLE>

                             STATEMENTS OF EARNINGS

<TABLE>
<CAPTION>
                                                                                 Year ending December 31,
Income items:                                                               1996          1995*        1994*
                                                                          --------        ------       ------
<S>                                                                       <C>             <C>          <C>
    From consolidated subsidiaries:
        Interest  . . . . . . . . . . . . . . . . . . . . . . . . . . .   $    7.1        $  6.8       $  4.5
        Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . .      304.4         341.1        219.8
        Undistributed earnings  . . . . . . . . . . . . . . . . . . . .    2,080.7         441.7        328.6
                                                                          --------        ------       ------
                                                                           2,392.2         789.6        552.9
    Interest and dividends - other investments  . . . . . . . . . . . .       34.6          21.1         16.8
    Realized investment gain (loss)   . . . . . . . . . . . . . . . . .      137.4           5.8         (0.8)
    Revenues of Buffalo News Division   . . . . . . . . . . . . . . . .      154.3         154.8        150.9
                                                                          --------        ------       ------
                                                                           2,718.5         971.3        719.8
                                                                          --------        ------       ------
Cost and expense items:
    Costs and expenses of Buffalo News Division   . . . . . . . . . . .      104.5         108.5         97.2
    General and administrative  . . . . . . . . . . . . . . . . . . . .        6.8           7.5          6.6
    Interest and finance charges  . . . . . . . . . . . . . . . . . . .       57.5          48.9         54.9
    Income tax expense  . . . . . . . . . . . . . . . . . . . . . . . .       61.1          11.5          8.1
                                                                          --------        ------       ------
                                                                             229.9         176.4        166.8
                                                                          --------        ------       ------
        Net earnings  . . . . . . . . . . . . . . . . . . . . . . . . .   $2,488.6        $794.9       $553.0
                                                                          ========        ======       ======
</TABLE>

*   Restated - See Note to Condensed Consolidated Financial Information



         See Note to Condensed Financial Information on following page.





                                       39
<PAGE>   41
                            BERKSHIRE HATHAWAY INC.
                                (Parent Company)
                        Condensed Financial Information
                             (Dollars in millions)

                             Schedule I (continued)

                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                              Year ending December 31,
                                                                      1996            1995*           1994*
                                                                    ---------       ---------       ---------
<S>                                                                 <C>             <C>             <C>
Cash flows from operating activities:
   Net income   . . . . . . . . . . . . . . . . . . . . . . . .     $ 2,488.6       $   794.9       $   553.0
   Adjustments to reconcile net income to
    cash flows from operating activities:
      Undistributed current earnings of subsidiaries  . . . . .      (2,080.7)         (441.7)         (328.6)
      Realized investment (gain) loss   . . . . . . . . . . . .        (137.4)           (5.8)            0.8
      Increase (decrease) in income taxes payable   . . . . . .        (122.4)           21.5          (217.0)
      Other   . . . . . . . . . . . . . . . . . . . . . . . . .         (27.5)            2.0           (60.3)
                                                                    ---------       ---------       ---------
   Net cash flows from operating activities   . . . . . . . . .         120.6           370.9           (52.1)
                                                                    ---------       ---------       ---------

Cash flows from investing activities:
   Investments in and advances to consolidated
      subsidiaries  . . . . . . . . . . . . . . . . . . . . . .          24.2          (546.8)          207.4
   Purchases of investments   . . . . . . . . . . . . . . . . .        (717.6)          (81.8)         (302.9)
   Proceeds on sales and maturities of investments  . . . . . .          36.4           279.8            56.8
                                                                    ---------       ---------       ---------
   Net cash flows from investing activities   . . . . . . . . .        (657.0)         (348.8)          (38.7)
                                                                    ---------       ---------       ---------

Cash flows from financing activities:
   Proceeds from borrowings   . . . . . . . . . . . . . . . . .       1,525.7         1,196.5         1,221.1
   Repayment of borrowings  . . . . . . . . . . . . . . . . . .      (1,085.4)       (1,076.7)       (1,382.1)
   Net proceeds from issuance of Class B Common Stock   . . . .         565.0           --              --
                                                                    ---------       ---------       ---------
   Net cash flows from financing activities   . . . . . . . . .       1,005.3           119.8          (161.0)
                                                                    ---------       ---------       ---------

Increase (decrease) in cash and cash equivalents  . . . . . . .         468.9           141.9          (251.8)
Cash and cash equivalents at beginning of year  . . . . . . . .         250.0           108.1           359.9
                                                                    ---------       ---------       ---------
Cash and cash equivalents at end of year  . . . . . . . . . . .     $   718.9       $   250.0       $   108.1
                                                                    =========       =========       =========
Other cash flow information:
   Income taxes paid  . . . . . . . . . . . . . . . . . . . . .         887.3           273.3           386.8
   Interest paid  . . . . . . . . . . . . . . . . . . . . . . .          55.2            47.6            55.0
</TABLE>

*  Restated - See Note to Condensed Financial Information

                    NOTE TO CONDENSED FINANCIAL INFORMATION

     The accompanying prior year Condensed Financial Information has been
restated from the amounts previously reported in the Company's Condensed
Financial Information included in its Form 10-K for the year ended December 31,
1995.

     As more fully discussed in Note 2, to the Consolidated Financial Statements
included in Item 8, on January 2, 1996, GEICO Corporation ("GEICO") became an
indirect wholly-owned subsidiary of Berkshire. Prior to January 2, 1996, certain
Berkshire subsidiaries owned approximately 51% of the outstanding common stock
of GEICO. Previously the investment in GEICO common stock had been classified as
an available-for-sale security and was carried at fair value.

     Generally accepted accounting principles require that prior year financial
statements be restated when control of a business is obtained on a
"step-by-step" basis. Accordingly, the accompanying Condensed Financial
Information for 1995 and 1994 has been restated to account for the previous
investment in GEICO common stock under the equity method. The proportionate
share of GEICO's net income reduced by amortization of related goodwill is
included in the Condensed Statements of Earnings as a component of





                                       40
<PAGE>   42
                            BERKSHIRE HATHAWAY INC.
                                (Parent Company)
                        Condensed Financial Information
                             (Dollars in millions)

                             Schedule I (continued)

              NOTE TO CONDENSED FINANCIAL INFORMATION (Continued)

undistributed earnings from consolidated subsidiaries.  The principal effect of
the restatement was to decrease shareholders' equity as of December 31, 1995,
by $478.4 million from the amount reported in Berkshire's Condensed Financial
Information included in its Form 10-K for the year ended December 31, 1995.

     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.
No materially restrictive covenants are included in any of the various debt
agreements.

     Principal payments of the Registrant's borrowings under investment
agreements and other debt outstanding at December 31, 1996, are expected to be
required no earlier than as follows (in millions): 1997 -$103.1; 1998 - $18.9;
1999 - $15.4; 2000 - $15.1; 2001 - $470.1; and after 2001 - $702.3.





                                       41
<PAGE>   43
                                 EXHIBIT INDEX


<TABLE>
<CAPTION>
Exhibit No.
-----------
    <S>            <C>
    2.1            Agreement and Plan of Merger dated as of August 25, 1995, between the Registrant and GEICO Corporation.
                        Incorporated by reference to Exhibit 1 to the Registrant's Form 8-K dated August 25, 1995.

    2.2            Agreement and Plan of Merger dated as of October 14, 1996 between the Registrant and
                   FlightSafety International, Inc.
                        Incorporated by reference to Exhibit 1 to the Registrant's Form 8-K filed on October 16, 1996.

    3              Restated Certificate of Incorporation

    3.1            By-Laws
                        Incorporated by reference to Exhibit 3.1 to the Registrant's 1993 Annual Report on Form 10-K.

    4.1            Form of Indenture dated as of December 1, 1987 between Berkshire Hathaway Inc. and
                   State Street Bank and Trust Company (as successor trustee to The First National Bank of
                   Boston), trustee with respect to 9 3/4% Debentures due January 15, 2018
                        Incorporated by reference to Exhibit 4 to Registration Statement No. 33-19000 filed on Form S-3.

    4.2            Form of Indenture dated as of December 1, 1987 between berkshire Hathaway Inc. and
                   State Street Bank and Trust Company (as successor trustee to The First National Bank of
                   Boston), trustee with respect to 1% Senior Exchangeable Notes due December 2, 2001.
                        Incorporated by reference to Exhibit 4 to Registration Statement No. 33-30570 filed on Form S-3.

                   OTHER INSTRUMENTS DEFINING THE RIGHTS OF HOLDERS OF LONG-TERM DEBT OF REGISTRANT AND ITS
                   SUBSIDIARIES ARE NOT BEING FILED SINCE THE TOTAL AMOUNT OF SECURITIES AUTHORIZED BY ALL OTHER
                   SUCH INSTRUMENTS DOES NOT EXCEED 10% OF THE TOTAL ASSETS OF THE REGISTRANT AND ITS
                   SUBSIDIARIES ON A CONSOLIDATED BASIS AS OF DECEMBER 31, 1996.  THE REGISTRANT HEREBY
                   AGREES TO FURNISH TO THE COMMISSION UPON REQUEST A COPY OF ANY SUCH DEBT INSTRUMENT TO
                   WHICH IT IS A PARTY.

    10.1           Letter Agreements between Berkshire Hathaway Inc. and Salomon Inc dated September 27,
                   1987 and September 28, 1987 relating to the purchase by Registrant of an Issue of
                   Series A Cumulative Convertible Preferred Stock of Salomon Inc and Certificate
                   of Designation of said Preferred Stock
                        Incorporated by reference to Exhibit 10.3 to Registrant's 1992 Annual Report on Form 10-K.

    12             Statement of computation of ratio of earnings to fixed charges

    21             Subsidiaries of the Registrant

    23             Independent Auditors' Consent

    27             Financial Data Schedule
                   (Submitted as an Exhibit pursuant to the requirements of Item 601(b)(27) of Reg. S-K and
                   not deemed filed for purposes of Section 11 of the Securities Act of 1933 or Section 18 of
                   the Securities Exchange Act of 1934.)
</TABLE>





                                       42