Annual Report (Form 10-K), fiscal year 1994

ITEM 1. BUSINESS
Berkshire Hathaway Inc. 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 primary or 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.
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), manufacture and distribution of uniforms (Fechheimer Brothers Company) 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 business is conducted by 13 separate subsidiaries. The largest of which is National Indemnity Company ("National Indemnity") headquartered in Omaha, Nebraska.
The Berkshire Hathaway Insurance Group maintains capital strength at unparalleled high levels, significantly higher than normal in the industry. This strength differentiates Group members from their competitors. For example, in each year since 1988 the Group's ratio of net premiums written to year-end statutory surplus was 10% or less. The industry average net premiums-to-surplus ratio from 1990 through 1993 ranged from 133% to 157%. The obvious margins of safety thus provided to insureds of the Group are particularly persuasive in marketing of individually negotiated insurance and reinsurance contracts.
On a primary or direct basis (policies issued in the name of, and to the insured party) several of the subsidiary members underwrite multiple lines of principally casualty coverages nationwide for primarily commercial accounts. The primary or direct business is written through insurance agents and brokers. The traditional business of National Indemnity has been largely in providing liability coverages for commercial truck and bus operators and related commercial transportation activities that require specialized underwriting knowledge and techniques. This business is referred to internally as the National Indemnity Primary Group. The Commercial Casualty Division and the Professional Liability and Special Risk Division, each with offices in Stamford, Connecticut, solicit and underwrite especially large or unusual risks. Other member companies market various commercial coverages for standard risks to principally residents of a single state. These operations are referred to as the "homestate" operations. Cypress Insurance Company, a specialty carrier domiciled in California, provides workers' compensation insurance to employers in that state.
Premium rates for the business peaked in 1986 and have generally decreased annually thereafter. Because of the lower rates, National Indemnity Primary Group members have written substantially less of this business since 1986. Similarly, writings by the Group's homestate operations have decreased because of lower premium rates and the disciplined underwriting practices of the members that encourage rejection of underpriced risks. The amount of primary or direct insurance premiums written in recent years by these businesses have stabilized, although currently at about 25% of the amount written in 1986.
ITEM 1. BUSINESS (CONTINUED)
PROPERTY AND CASUALTY INSURANCE AND REINSURANCE BUSINESS (CONTINUED)
Generally, no improvement in prices is foreseen for 1995. Modest increases in premium volume are expected from continuing expansion of homestate operations into additional states and existing markets. Increased amounts of premiums were written in 1993 and 1994 by the California workers' compensation unit, reflecting increased marketing efforts. However, effective January 1, 1995, the regulations which established the minimum premium rates insurers must charge for workers' compensation coverage were eliminated. As a result, the level of business that may be accepted in 1995 is expected to decline. Otherwise, primary or direct business is likely to be little changed from 1994.
At the end of 1992, Berkshire acquired 82% of Central States Indemnity Co. of Omaha ("CSI"). CSI offers credit card insurance from its offices located in Omaha, Nebraska. CSI insures the credit card debt of policyholders if the policyholders become disabled or unemployed. The credit insurance is marketed to individuals through credit card issuers nationwide.
The Reinsurance Division of National Indemnity in Stamford, Connecticut provides excess of loss and quota share treaty reinsurance to other property/casualty insurers and reinsurers. Minimal organizational resources, but huge financial resources, are currently devoted to this business. In contrast to the previously discussed trend of lower primary or direct insurance underwriting activity, the amount of business derived from reinsurance activity increased significantly. The increase in reinsurance assumed premiums began in 1985, when National Indemnity entered into a contract providing reinsurance coverage to Fireman's Fund Insurance Companies ("FFIC"), for a period of four years, for 7% of FFIC's entire book of business.
In recent years, non-traditional reinsurance products -- finite-risk contracts -- have become increasingly significant in the property/casualty insurance marketplace. Those terms refer to reinsurance agreements, whose terms provide essentially traditional coverages but also may contractually establish minimum and maximum payouts by the reinsurer. Minimum payout requirements may originate in commutation clauses that call for repayments to the reinsureds, on specified dates, of sums not otherwise paid out by the reinsurer as losses. The amount of risk transferred, while significant, is limited. The concept of time-value-of-money is an important element in the pricing and setting of terms for these contracts as the expected claim payment period can be lengthy. Transaction amounts and limits of indemnifications are likely to be large. In addition, a single contract may relate to loss occurrences in a number of lines of business that span a number of years. Significant financial strength is a need of any prospective provider of the non-traditional products and Berkshire meets that need. Several of the reinsurance arrangements the Insurance Group entered into since 1989 were through finite-risk type contracts. Increased competition for such business and new accounting standards for ceding companies have reduced the number of opportunities to write such business, particularly with respect to retroactive reinsurance coverages of past loss events.
During 1990, Berkshire's Insurance Group management perceived declines to be occurring in industry capacity and competition for catastrophe excess-of-loss type reinsurance coverages and consequently National Indemnity wrote coverages for a number of such risks. Management believes that in 1994 the Berkshire Hathaway Insurance Group was among the largest providers in the world of this type of coverage. The contracts may provide sizeable amounts (i.e., often in excess of $10 million) of indemnification per contract and a single event may result in payments under several contracts. This business can produce extreme volatility in reported periodic results. Accounting consequences, however, do not influence decisions of Berkshire's management with respect to this or any other business, and this fact plus the Insurance Group's above-normal-for-the-industry financial strength are believed to be the primary reasons why the Group has become a major provider of these coverages.
In recent years there has been a substantial increase in catastrophe reinsurance capacity for the industry. Most of the additional capacity has arisen from equity capital raised by newly-formed entities. The increased capacity did not have a significant impact on the Group's business during 1994. However, Berkshire management has evidence that, in some instances, catastrophe reinsurance prices have fallen below the amounts considered adequate. Management anticipates that a reduced level of business will be accepted in 1995, and possibly, in subsequent years as well.
ITEM 1. BUSINESS (CONTINUED)
PROPERTY AND CASUALTY INSURANCE AND REINSURANCE BUSINESS (CONTINUED)
The increases in reinsurance assumed business in recent years have produced an exceptional increase in the amount of "float", an approximation of the net investable policyholder funds, held by the Insurance Group. The term denotes the sum of unpaid losses, unpaid loss adjustment expenses, unearned premiums and other liabilities to policyholders, less the aggregate of premium balances receivable, amounts recoverable as reinsurance on paid and unpaid losses, deferred policy acquisition costs, deferred charges re reinsurance and prepaid income taxes. Given the length of the claims payment period -- or tail -- that attaches to the reinsurance business, the increased float plus the earnings it generates will result in meaningful increases for several years in the level of the Insurance Group's investments and investment income, with some part of such increases already evident.
Investment portfolios of insurance subsidiaries include equity securities valued at approximately $16.5 billion at December 31, 1994. Included are meaningful ownership percentages of other publicly traded companies (such as approximately 50% of the outstanding capital stock of GEICO Corporation, approximately 13% of the capital stock of Capital Cities/ABC, Inc., approximately 11% of the common stock of The Gillette Company, approximately 8% of the capital stock of The Coca-Cola Company, approximately 15% of the capital stock of The Washington Post Company, approximately 13% of the common stock of Wells Fargo & Company, and common and convertible preferred stock of Salomon Inc having approximately 20% of the total voting power of that company). Much information about these publicly-owned companies is available, including that released from time to time by the companies themselves.
NON-INSURANCE BUSINESSES OF BERKSHIRE
Registrant's seven 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. A meaningful volume of candy business is also recorded for direct shipments made nationwide from a seasonally-varying number of quantity order distribution centers.
Seasonality in this business is extreme. About 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 December shop volume.
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 encyclopedia in the United States; Early World of Learning, a readiness program for preschoolers, and Information Finder, a CD-ROM (compact disc read - only format) version of the encyclopedia text. In April 1995, the Windows and MacIntosh versions of World Book's CD-ROM product will be available with the enhancements of audio, video and animation and marketed as the World Book Multimedia Encyclopedia. These and other educational materials are marketed in the United States and Canada by a large direct-selling force. A newly copyrighted edition of The World Book Encyclopedia is published each year. Annual products such as The World Book Year Book, Science Year and The World Book Health & Medical Annual are updating publications for owners of earlier encyclopedia editions and are sold by direct mail. An international group markets these and other specially created educational products in Australia, the United Kingdom and Ireland with a commissioned sales force, and in 65 other countries through 54 distributors.
There is significant competition in the business of publishing and marketing encyclopedias in North America, World Book's principal geographic market. World Book's selling prices are generally lower than those of its principal competitor; World Book quality is thought to be superior to any other.
A large portion of encyclopedia sales is made on an installment basis. Wholly-owned Berkshire subsidiaries offer financing of domestic and certain foreign consumer receivables.
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 700 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 consumer financing to about 500 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 four 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, is included in this segment.
HOME FURNISHINGS -- The Nebraska Furniture Mart ("NFM") operates a home furnishing retail business from a very large - over 200,000 square feet - retail outlet and sizable warehouse facilities in Omaha, Nebraska. 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. At the end of 1992, NFM acquired a 360,000 square foot building and ten acres of land located adjacent to its existing retail store and warehouse. Along with providing additional warehousing facilities, a portion of the building is being used to operate a factory outlet store for manufacturers' closeouts and discontinued product lines. During November 1994, a 102,000 square foot appliance and electronics superstore, located adjacent to the main retail store, was opened. The superstore known as the "Mega Mart" added such products as music compact discs and an expanded computer software line to NFM's already large selection of electronics and appliances.
NEWSPAPER -- The Buffalo News, a division of Berkshire, publishes a Sunday edition and seven editions each weekday. 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, 68% on weekdays and 77% 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 1994 this percentage was 54%.
SHOES -- The size of this segment has increased dramatically since 1991. In addition to H. H. Brown Shoe Company ("H. H. Brown") which was acquired in July 1991, this segment now includes 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 and casual footwear. Approximately 70% of H. H. Brown's revenues are derived from sales of a wide variety of work and safety shoes and boots. They are manufactured under the H. H. Brown, 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 and maintains a significant share of other markets in which it competes, namely the western boot and casual shoe market.
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 from several countries including China, Romania, India and Mexico. The Company markets its products entirely within the United States and Canada through a direct sales force of just over 100. Its customer base is primarily composed of small independent retailers and wholesalers who sell to workers in a variety of industries including steel, construction, agriculture and heavy manufacturing. A significant quantity of H. H. Brown's work and military boots are sold to the United States and Canadian military, as well as to military PX's. Additionally, much of its imported footwear is sold to mass merchandisers such as K Mart, Wal Mart and Payless Shoe Co.
ITEM 1. BUSINESS (CONTINUED)
NON-INSURANCE BUSINESSES OF BERKSHIRE (CONTINUED)
H. H. Brown competes in the mid-priced segment of the work boot and shoe market. The consumer is typically a middle income industrial laborer who is required by OSHA to wear a specific type of footwear. The Company's competitors in this market are typically small, domestic work boot manufacturers. Management believes that its products are competitive in terms of quality and pricing.
At the end of 1992, Berkshire acquired for cash all of the capital stock of Lowell and assets of certain entities formerly affiliated with Lowell (including a manufacturing facility located in Puerto Rico). Lowell manufactures and markets women's casual, service and nurses footwear. They market these products under the brand names Soft Spots, Day Lights and Nurse Mates.
On November 7, 1993 Berkshire Hathaway Inc. consummated a merger with Dexter by reissuing 25,203 shares of its common stock held in treasury in exchange for 100% of the outstanding common stock of Dexter. Dexter manufactures and markets men's and women's casual footwear. All products are manufactured and sold under the trademark Dexter. The Company specializes in the construction of Handsewns, Welts and Cements. The 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 and two located in Puerto Rico. In addition to the manufacturing facilities, Dexter operates 77 factory outlet stores which are located in Maine, New Hampshire, Vermont, New York, Florida, Alabama, Georgia, Tennessee, Nevada 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. Dexter is recognized throughout the United States for both its dress and casual footwear and the customer is typically a middle income consumer.
UNIFORMS -- The Fechheimer Brothers Company manufactures its products at plants in Kentucky, Ohio, Tennessee and Texas, for marketing through about fifty company-operated retail distribution centers and by independent distributors and dealers who together serve more than 200 major metropolitan areas.
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 related to transmission of air and other fluids, such as air compressors, air tools, painting systems and pressure washers. In addition, Berkshire has an 85% interest in a long established, high volume retailer of fine jewelry, Borsheim's, in Omaha, Nebraska. Most recently, on March 10, 1995, it was announced that an agreement was entered into to acquire Helzberg's Diamond Shops, Inc. ("Helzberg's"). Helzberg's is a national retail specialty business operating 148 fine jewelry stores in 23 states. The final consummation of the acquisition is expected to take place during 1995's second quarter.
Berkshire Hathaway Inc. and subsidiaries employed approximately 22,000 persons on a full-time basis at December 31, 1994. In addition to that number of full-time employees, up to 20,000 persons may act as World Book sales representatives from time to time.
ADDITIONAL INFORMATION WITH RESPECT TO BERKSHIRE'S BUSINESSES
The amounts of revenue, operating profit and identifiable assets attributable to each of the eight aforementioned business segments are included in Note 17 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 3, 4, 5 and 6 to Registrant's consolidated financial statements.
ITEM 2.



ITEM 2. PROPERTIES
The physical properties used by Registrant's significant business segments are summarized below:
ITEM 2. PROPERTIES (CONTINUED)
ITEM 3.

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.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
EXECUTIVE OFFICERS OF THE REGISTRANT
Following is a list of the Registrant's executive officers:
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.

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
MARKET INFORMATION
The Company's Common Stock is listed for trading on the New York Stock Exchange, trading symbol: BRK. 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:
SHAREHOLDERS
The Company had approximately 8,400 record holders of its common stock at March 7, 1995. Record owners included nominees holding at least 190,000 shares on behalf of beneficial-but-not-of-record owners. Management believes that the Company has more than 20,000 beneficial owners.
DIVIDENDS
Berkshire has not declared a cash dividend since 1967.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA FOR THE PAST FIVE YEARS (dollars in thousands, except per share data)
(1) Includes a charge of $172,579 ($146.53/share) representing an other than temporary decline in value of investment in USAir Group, Inc. Preferred Stock.
(2) Includes a charge of $75,348 ($65.38/share) representing the effect of the change in federal income tax rates on deferred taxes applicable to unrealized appreciation.
(3) Excludes borrowings of finance businesses.
ITEM 7.

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.
* Interest expense incurred by finance businesses is not reflected as "Interest expense" but instead is reflected in amounts shown for "Other businesses".
The business segment data (Note 17 to the Consolidated Financial Statements) should be read in conjunction with this discussion.
PROPERTY AND CASUALTY INSURANCE UNDERWRITING
The after-tax figures shown above for Property and Casualty Insurance underwriting derive from the following:
The Berkshire Hathaway Insurance Group engages in both insurance and reinsurance of property/casualty risks. In its insurance activities, as distinguished from its reinsurance activities, its members assume risks of loss from persons primarily and directly subject to the risks. In its reinsurance activities, the members assume defined portions of similar or dissimilar risks to which other insurers and reinsurers have subjected themselves in their own insuring activities. Over the past three years, reinsurance assumed activities have produced about 75% of the aggregate premiums earned by the property and casualty insurance group.
A significant marketing strategy followed by all Insurance Group members is the maintenance of above average capital strength. Statutory surplus as regards policyholders of the Insurance Group increased to approximately $13.4 billion at year-end 1994. This extraordinary 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.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
PROPERTY AND CASUALTY INSURANCE UNDERWRITING (CONTINUED)
For purposes of this Discussion, premiums and losses and loss expenses amounts are stated net of reinsurance ceded.
Reinsurance Assumed
Underwriting results, stated on the basis of generally accepted accounting principles ("GAAP"), with respect to the reinsurance assumed business for the past three years are summarized in the following table.
Reinsurance assumed operations are conducted from National Indemnity Company's offices in Stamford, Connecticut. The Insurance Group enters into a variety of types of reinsurance contracts, including excess of loss and quota share contracts. Excess of loss contracts provide indemnification to ceding companies for all or part of covered losses in excess of specified retentions (or deductibles). Such retentions may apply to either an individual loss occurrence or an aggregation of occurrences. Quota share contracts provide indemnification to ceding companies in specified proportion of the ceding companies' own losses. Each type of contract specifies a maximum aggregate amount of indemnification.
Premiums earned from reinsurance assumed activities in 1994 exceeded amounts earned in 1993 by $246.0 million (55.6%). This increase was due to higher amounts earned from catastrophe excess of loss reinsurance policies, offset somewhat by declines in premiums earned under quota share, structured settlement, and retroactive reinsurance contracts. (Amounts earned from catastrophe excess of loss policies totalled about $447 million in 1994 vs $152 million in 1993). Management believes that increased levels of capital devoted to the catastrophe reinsurance market by the insurance industry in recent years may put pressure on competitors to lower prices below the levels considered adequate. Therefore, management anticipates a reduction in the level of catastrophe reinsurance business that may be accepted in 1995.
Reinsurance premiums earned in 1993 declined by $69.1 million (13.5%) from amounts earned in 1992. The decline was primarily attributed to lesser amounts earned from retroactive reinsurance contracts. Increasing competition in retroactive reinsurance markets and the effects of new accounting standards for ceding companies have drastically reduced the opportunities to write such business. Minimal amounts of structured settlement reinsurance was written in 1994 as a similar type of annuity contract was more heavily marketed through a non-property/casualty insurance affiliate.
Underwriting gains of approximately $240 million and $110 million in 1994 and 1993 respectively, resulted from the Insurance Group's catastrophe reinsurance business. The considerable amounts of premiums earned from this business, coupled with the fact that only the 1994 Northridge earthquake produced a significant catastrophe loss during the period, contributed to the underwriting gains for 1994 and 1993. In 1992, catastrophe losses incurred were about $125 million (primarily related to Hurricane Andrew) which caused a small underwriting loss for that year.
Little comfort should be gained from either (a) the magnitude of underwriting gains recorded in 1994 and 1993 or (b) the current expectation that the early 1995 Kobe, Japan earthquake will not result in a significant loss to the Insurance Group. The underwriting gains produced by this business in any given year can be easily exceeded by losses in the next. Thus periodic underwriting results were and are expected to be subject to substantial volatility. Berkshire's management, however, is willing to accept such volatility, provided that there is a reasonable prospect of long term profitability.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
PROPERTY AND CASUALTY INSURANCE UNDERWRITING (CONTINUED)
Reinsurance Assumed (continued)
Underwriting losses with respect to retroactive and structured settlement coverages amounted to $78 million for 1994, $64 million for 1993 and $66 million for 1992, reflecting principally the amortization of deferred charges re reinsurance assumed and accretion of discounted structured settlement liabilities. See Notes 1(f) and (g) to the Consolidated Financial Statements for information with respect to such charges and liabilities. The amortization and accretion are reported as losses incurred, and thus, because there is no related premium income, as underwriting losses. Amortization and accretion charges of about $70 million are expected in 1995.
Other non-catastrophe reinsurance business produced underwriting losses of about $80 million, $28 million and $48 million during 1994, 1993 and 1992 respectively. In most non-catastrophe reinsurance contracts, the concept of the time-value-of-money is an important consideration due to the anticipated extended claim payment period --or "tail". This is especially true with respect to reinsurance of certain casualty or liability coverages, for which the premiums are based in significant part on time discounting of expected losses. Losses and loss expenses are established for these contracts on an undiscounted basis, thus resulting in underwriting losses for financial reporting purposes. This business is accepted, nonetheless, because of the large amounts of investable policyholder funds (or "float") that it produces. Underwriting losses in 1994 include charges of about $37 million for adverse development of pre-1994 loss occurrences. Underwriting results in 1993 and 1992 reflect relatively minor amounts of loss development.
Primary or Direct Insurance Underwriting
A summary follows of the combined underwriting results, stated on a GAAP basis, of the Berkshire Hathaway Insurance Group's primary or direct insurance operations.
* Includes favorable loss development credits. Without such credits, total losses and expenses as a percentage of premiums earned were: 1994 -- 102.4%, 1993 -- 113.9%, and 1992 -- 118.6%.
Primary or direct insurance activities include the "traditional" business, directed from National Indemnity Company's Omaha offices. This business represents principally casualty coverages for commercial accounts. The commercial casualty/professional liability/specialty risk operations located in Stamford, Connecticut, enter into insurance contracts with insureds presenting risks unusual in nature and/or especially large in amount. The homestate companies underwrite various commercial coverages for standard risks located predominantly in their home states -- Nebraska and Colorado. Cypress Insurance Company, a specialty carrier, underwrites workers' compensation risks in a highly competitive market environment in California. Additionally, since 1993 these activities include the underwriting of credit card credit insurance as a result of Berkshire's 1992 yearend acquisition of Central States Indemnity Co. of Omaha ("CSI").
CSI's business differs substantially from the insurance business underwritten by the other members of the Insurance Group. CSI's premiums derive from a high volume of small dollar premium transactions generated through credit card issuers. CSI's underwriting expenses as a percentage of premiums earned are roughly twice as great as that of the other Insurance Group members. On the other hand, CSI's losses and loss expenses incurred, as percentages of premiums earned are substantially lower than for the other primary or direct underwriting units. Overall, periodic underwriting results from this business are anticipated to be less volatile than the other primary or direct insurance operations. CSI produced premiums earned of $72 million and $69 million for 1994 and 1993, respectively. CSI's net underwriting gain was about $4 million for 1994 and $5 million for 1993.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
PROPERTY AND CASUALTY INSURANCE UNDERWRITING (CONTINUED)
Primary or Direct Insurance Underwriting (continued)
Premiums earned by Berkshire's other primary or direct insurance businesses totalled $163 million, $140 million and $153 million for 1994, 1993 and 1992, respectively. Each of these business units, described on the preceding page, reported higher premiums earned in 1994 as compared with 1993. The Group's commercial casualty/professional liability/specialty risks businesses accounted for about half of the increase in premiums earned in 1994 over 1993. This increase was due to adjustments on a small number of "retrospectively rated" policies written in prior years. Under the terms of those policies, premium amounts may be adjusted upward or downward after policy expiration based upon changes to losses incurred under the policies. Thus the additional premiums earned in 1994 were largely in response to additional amounts of losses incurred. In addition, premiums earned in 1994 by the worker's compensation insurance unit exceeded 1993 by about $5 million reflecting increased marketing efforts of that business. However, that business operates in a highly competitive market which has recently undergone substantial regulatory changes and such revenue gains may be difficult to sustain in 1995.
Other primary or direct businesses produced a net underwriting gain of about $44 million for 1994 compared to gains of about $8 million for both 1993 and 1992. In 1994, all of the other primary or direct insurance operations had significant net underwriting gains, reflecting increased amounts of credits against losses incurred from the reestimation of loss reserves for prior year loss occurrences. Favorable loss development credits were recorded in each of the last three years. Loss development represents corrections of estimation error and is credited or charged to earnings in the year made. The favorable development recorded in 1994 related principally to the traditional commercial automobile business and to the commercial casualty/professional liability/specialty risks operations. In 1993 and 1992, the favorable development credits related primarily to the traditional commercial automobile business. While the trend of favorable development recognized in recent years is encouraging, there is no certainty that it will continue into future periods. The nature of estimating losses is inherently imprecise, particularly with respect to losses which are reported and settled over lengthy periods of time. In the future, additional information will be revealed, including reports of additional cases of an unknown number and magnitude for pre-1995 losses.
Soft market conditions for most primary or direct casualty insurance coverages continued during 1994, as have prevailed for the past several years. Group members follow disciplined underwriting approaches which encourage rejection of underpriced risks without regard to volume considerations. Management does not foresee any significant changes in market conditions which would soon reverse the current trend of low premium volume.
INSURANCE SEGMENT INVESTMENT INCOME
Following is a summary of Insurance Group net investment income for the past three years.
Invested assets increased in each of the past three years. In the three year period, Berkshire contributed approximately $420 million additional capital to the Insurance Group. Reinvested earnings of the Insurance Group for that period amounted to approximately $1.0 billion. Contributing to a further increase in invested assets was about a $1.2 billion increase during the past three year period in the amount of "float" from policyholder funds. That term denotes the sum of unpaid losses, unpaid loss adjustment expenses and unearned premiums, and other liabilities to policyholders less the aggregate of agents' balances receivable, amounts recoverable as reinsurance on paid and unpaid losses, deferred policy acquisition costs, deferred charges re reinsurance assumed and prepaid income taxes. The net amount of float was approximately $3.4 billion at the end of 1994. In addition, increased investment income in 1994 was partially attributed to higher dividend rates paid by several of the Insurance Group's major equity investees. The amount of pre-tax net investment income for 1994 shown in the table above reflects a charge of $32.9 million which represents the equity in net loss from the Insurance Group's investment in common stock of Salomon Inc. See Note 5 to the Consolidated Financial Statements for additional information regarding the investment in Salomon Inc.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
NON-INSURANCE BUSINESS SEGMENTS
A summary follows of results to Berkshire from these identified business segments for the past three years.
A comparison of revenues and operating profits between 1994, 1993 and 1992 for each of the seven identifiable non-insurance business segments follows.
1994 compared to 1993
Revenues from the seven identifiable non-insurance business segments of $1,771.9 million increased $331.8 million (23.0%) from the prior year. The overall operating profit from these business segments of $275.4 million increased $50.6 million (22.5%). 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 $15.1 million (7.5%) and operating profits increased $6.3 million (15.6%) over comparable prior year amounts. The comparative increases in revenues and operating profits are primarily due to increased volume. Total pounds of candy sold increased about 5.3%. Much of the increase arose from See's mail order and quantity order programs. Beginning in 1993 See's intensified its marketing efforts relative to these programs. Such efforts continued during 1994 and as a result total pounds sold during 1994 resulting from quantity order and mail order programs increased about 15%.
Encyclopedias, Other Reference Materials
Revenues of this segment declined $7.5 million (3.8%) from 1993. This decline continues the trend of reduced unit sales of printed encyclopedias (World Book and Childcraft) which began in 1989. Somewhat offsetting the decline in World Book and Childcraft sales were sales increases of World Book's current CD-ROM product, Infofinder.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
NON-INSURANCE BUSINESS SEGMENTS (CONTINUED)
1994 compared to 1993 (continued)
Encyclopedias, Other Reference Material (continued)
In April 1995, the Windows and MacIntosh versions of World Book's CD-ROM product will be available with the enhancements of audio, video and animation and marketed as the World Book Multimedia Encyclopedia. Management cannot predict the impact on sales or income that the upgraded CD-ROM product will have. However, it is anticipated that the industry trend away from printed material and toward electronic media will continue. While management believes that there will continue to be a profitable market for its core printed product, the quantity of the printed products which can be sold may, in the future, be limited due to the continued increase in the number of home computers equipped with CD-ROMs, increased computer literacy of the general population, and the lower price of CD-ROM products in comparison to encyclopedia sets. Additionally, the decline in the unit volume of printed sets has and will continue to reduce significantly the volume of Annual sales if printed set sales do not return to prior levels. However, the World Book Multimedia Encyclopedia will be offered in annual upgrades to purchasers. Therefore, it is anticipated that reductions in printed Annual sales will be somewhat offset by sales of CD-ROM upgrades.
Home Cleaning Systems
Revenue of the home cleaning systems segment increased $13.7 million (7.0%) and operating profits increased $3.0 million (7.3%). This comparative increase can be attributed primarily to an increase in the average number of distributors over 1993 and improvements in the structure of the sales organization in foreign markets. Unit sales of Kirbys increased slightly in domestic markets and were up by 14% in foreign markets. Foreign Kirby sales represent approximately 22% of total unit volume. Management anticipates continued significant growth in its foreign business and combined with more modest growth in domestic markets expects continued successful results from this segment.
Home Furnishings
Revenues from the home furnishings segment increased in 1994 by $36.8 million (17.6%) over the prior year. Increases were achieved in all major product categories. In November 1994, a 102,000 square foot appliance and electronics superstore was opened adjacent to the Nebraska Furniture Mart ("NFM"). This superstore known as the "Mega Mart" has added new products such as music compact discs and an expanded computer software line to NFM's previously large selection of electronics and appliances.
Operating profits of $16.9 million were $4.2 million (19.9%) less than in 1993. Much of the decline resulted from store opening costs in connection with the grand opening of the Mega Mart. In addition, unusual charges of approximately $2.3 million were recorded in 1994 relating to the write-off of certain fixed assets no longer in use. Management is optimistic that absent the store opening costs and unusual charges, an improvement in operating profit will be experienced in 1995. It is expected that operating profits as a percentage of revenues will improve during 1995 as compared to 1994. However, due to the fact that the lower margin Mega Mart business will account for much of the anticipated revenue growth, the percentage levels attained will likely be less than experienced by NFM in years prior to the opening of the Mega Mart.
Newspaper
Operating profits during 1994 of $53.7 million were $3.3 million (6.5%) greater than in 1993. While the comparative results are impressive and have been for several recent years, the outlook for 1995 and beyond is not as encouraging. During 1994, the Buffalo News experienced a decline in circulation. Part of the decline was caused by an increase during 1994 in the newsstand price of the daily newspaper from 35 cents to 50 cents. Also an aggressive new subscriber discount program which had been in place a number of years was phased out in 1994, and many subscribers used to a large discount did not resubscribe. From a dollar volume standpoint, the price increase offset the decline in circulation.
Earnings are expected to decline in 1995. For the past several years the cost of newsprint has either been stable or has declined. This trend has now sharply reversed. New higher costs per metric ton, as well as increased prices expected during the remainder of 1995, are expected to increase newsprint costs by $7 million or nearly 40% over 1994 costs.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
NON-INSURANCE BUSINESS SEGMENTS (CONTINUED)
1994 compared to 1993 (continued)
Newspaper (continued)
Overall, the newspaper segment faces some significant challenges during the next year. However, the Buffalo News' ability to control its other operating costs should help mitigate the impact of the decline in circulation and the steep rise in newsprint costs.
Shoes
This segment includes H. H. Brown Shoe Company, Inc. ("H. H. Brown"), Lowell Shoe, Inc. ("Lowell") and Dexter Shoe Companies ("Dexter"). These businesses were acquired by Berkshire during the period between June 1991 and November 1993. H. H. Brown, acquired in 1991, is a manufacturer and distributor of work, safety and casual footwear. Lowell, acquired at the end of 1992, manufactures and markets women's casual, service and nurses' footwear. The acquisition of Dexter occurred in late 1993. Dexter is a manufacturer of men's and women's dress, casual and athletic footwear. Additionally, Dexter operates 77 retail outlet stores.
Revenues during 1994 of $609.4 million were greater than the prior year by $239.2 million (64.6%). This substantial increase was largely due to the inclusion of Dexter's results for the full year in 1994 as compared to just under two months during 1993. Dexter's 1994 operating profits account for most of this segments $36.4 million (91.0%) increase in comparative operating profits. Management was pleased with Dexter's 1994 performance and better results are anticipated during 1995. This optimism results from the fact that recent wholesale price adjustments should help mitigate the effects of prior years' increases in Dexter's costs. Additionally, operating efficiencies are anticipated in connection with the start-up of Dexter's new computerized distribution center and from advanced manufacturing technologies.
H. H. Brown accounts for most of the remaining comparative revenue increase for this segment. A portion of such increase is related to the acquisition during the second half of 1994 of a chain of 11 retail stores. The retail stores, located in Maryland, Pennsylvania and Virginia, carry H. H. Brown manufactured products as well as those of other shoe manufacturers. H. H. Brown's manufacturing and distribution business results reflect a modest increase in revenues and a slight decline in operating profits. The decline is largely a result of slightly lower gross margins on sales and an increased comparative LIFO charge being somewhat offset by the modest revenue increase.
Lowell's revenues were slightly lower in 1994 as compared to 1993. However, comparative operating profits were greater in 1994 than during 1993. The improvement largely arises from the fact that during 1993, unusual charges of $3.8 million were recorded in connection with the implementation of more stringent inventory control procedures.
Uniforms
The uniform segment's revenues increased $29.1 million (23.8%) in 1994 as compared to 1993. Almost 60% of the increase arose as a result of a special program begun during 1994 whereby an agreement was entered into with the New York City Fire Department to supply fire fighters with safety uniforms and related accessories. The initial contractual arrangement is for a period of three years. The remainder of the comparative revenue increase resulted from increases in this segment's core uniform manufacturing operations.
Operating profits for 1994 of $13.5 million were slightly above comparable 1993 operating profits. The additional margin resulting from the aforementioned revenue increases was substantially offset by a) the incurrence of certain unplanned start-up costs relative to the implementation of the New York City Fire Department program; b) costs incurred in connection with the scheduled installation of a new computer system; and c) problems which have arisen related to certain recent retail store acquisitions.
Management expects that the program with the New York City Fire Department will be successful in the long-term. The problems being encountered in connection with the retail store acquisitions are being addressed and will hopefully be resolved during 1995. Overall, management is cautiously optimistic that 1995's operating profit will exceed the results of the prior two years both in absolute terms and as a percentage of revenues.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
NON-INSURANCE BUSINESS SEGMENTS (CONTINUED)
1993 compared to 1992
Revenues from the non-insurance business segments increased $156.9 million (12.2%) in 1993 as compared to 1992. The most significant revenue increase arose in the "shoes" segment where revenues increased $155.3 million (72.3%) over the comparable prior year figures. As more fully described in the preceding section of this discussion, the acquisition of Lowell (in late 1992) and Dexter (in late 1993) account for a substantial portion of the comparative increase in revenues. With the exception of the "encyclopedias, other reference material" segment, all other reportable non-insurance business segments experienced increases in comparative revenues in 1993 vs. 1992. Revenues from these five segments in 1993 were $871.1 million vs. $822.2 in 1992. Offsetting the increases attributable to the other non-insurance business segments was a reduction in revenues of $47.3 million (19.2%) from the "encyclopedias, other reference material" segment. This decline was a result of the continuation of a reduction which began in 1989 in printed encyclopedia sales. (See preceding section regarding comparative 1994 vs. 1993 results for a discussion regarding the decline in World Book unit sales.)
Operating profits of $224.8 million during 1993 were $14.9 million (7.1%) greater than in 1992. The "shoes" segment with a comparative increase of $14.4 million (56.3%) was the major contributor to the comparative increase. In addition to the impact that the acquisitions of Lowell and Dexter had on comparative operating profits, H. H. Brown was able to achieve comparative increases largely resulting from the popularity of work shoes and reduced demand for athletic shoes. The operating profits of the other reportable segments in the aggregate were relatively unchanged.
BUSINESS OTHER THAN IDENTIFIED SEGMENTS
The above represent aggregate data for businesses that numbered 23 in 1994. Berkshire management believes that narrative discussion of the results of the constituent businesses would not yield significant benefit to investors or others, particularly in view of the relative consistency of the year-to-year aggregate data.
INTEREST EXPENSE
The small increase in interest expense in 1994 as compared to 1993 primarily results from the fact that average outstanding borrowings under investment agreements increased by approximately $82 million during 1994 as compared to 1993. Somewhat offsetting the effect on interest expense of the increased average level of borrowings was a reduction in the average interest rate on such borrowings from approximately 6.9% in 1993 to 6.6% in 1994. Interest expense for 1992 includes premiums paid of $16.2 million to redeem term debt and a charge of $6.3 million representing the write-off of deferred financing costs related to an issue of Convertible Subordinated Debentures which was called for redemption in December 1992.
REALIZED INVESTMENT GAIN
Realized investment gain has been a recurring element in Berkshire's net earnings for many years. The amount -- recorded when appreciated securities are sold -- tends to fluctuate significantly from period to period, with a meaningful effect upon Berkshire's consolidated net earnings. But, the amount of realized investment gain 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 price appreciation now existing in Berkshire's consolidated investment portfolio.
During the fourth quarter of 1993, an insurance subsidiary of Berkshire sold ten million common shares of its investment in Capital Cities/ABC, Inc. ("Capital Cities") in connection with that Company's offer to buy from its shareholders up to twenty million of its common shares. Prior to the sale and since 1986, Berkshire subsidiaries owned thirty million shares of Capital Cities or approximately 18% of that Company's outstanding stock. Berkshire's after-tax gain from this transaction was $297.4 million.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
NONRECURRING CHARGES AND ACCOUNTING CHANGES
As more fully described in Note 6 to the Consolidated Financial Statements, the Company recorded a pre-tax charge of $268.5 million ($172.6 million after-taxes and minority interests) as result of recognizing an other than temporary decline in the value of its investment in USAir Group, Inc. Preferred Stock. While the charge to earnings was recorded in the fourth quarter of 1994, the charge to shareholders' equity had been recorded in earlier 1994 reporting periods.
Effective January 1, 1993, the Company adopted the provisions of Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" ("SFAS 109"). The cumulative effect of adopting SFAS 109 on the Company's 1993 results was to decrease net earnings by about $71 million. Additionally, during 1993 a charge of $75.3 million was recorded as a result of the increase in the Federal corporate income tax rate from 34% to 35%. For a further description of the accounting change and the charge to earnings resulting from the change in Federal income tax rates, see Notes 1(k) and 10 to the Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Berkshire's Consolidated Balance Sheet as of December 31, 1994, reflects continuing capital strength. In the past three years, Berkshire shareholders' equity has increased from approximately $7.4 billion at December 31, 1991 to approximately $11.9 billion at December 31, 1994. In that three-year period, realized and unrealized securities gains increased equity capital by approximately $2.9 billion, and reinvested earnings, other than realized securities gains, were about $1.1 billion.
ITEM 8.


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, 1994 and 1993, and the related consolidated statements of earnings, and cash flows for each of the three years in the period ended December 31, 1994. 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, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994 in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 1993 the Company changed its method of accounting for income taxes and investments to conform with recent pronouncements of the Financial Accounting Standards Board.
DELOITTE & TOUCHE LLP Omaha, Nebraska March 9, 1995
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
BERKSHIRE HATHAWAY INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollars in thousands except per share amounts)
See accompanying Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
BERKSHIRE HATHAWAY INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (dollars in thousands except per share amounts)
See accompanying Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
BERKSHIRE HATHAWAY INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands)
See accompanying Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
BERKSHIRE HATHAWAY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
(1) SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
(a) Basis of consolidation
The accompanying Consolidated Financial Statements include the accounts of Berkshire Hathaway Inc. (the "Company" or "Berkshire") consolidated with accounts of all its subsidiaries. Intercompany accounts and transactions have been eliminated. In the accompanying financial statements for 1993 and 1992, reclassifications have been made when required to conform to the current year presentation.
(b) 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.
(c) Investments
Management determines the appropriate classifications of investments in securities with fixed maturities and marketable equity securities at the time of purchase and reevaluates such designations as of each balance sheet date. At December 31, 1994, investments in securities with fixed maturities (except for such securities held by finance businesses) and marketable equity securities, are classified as available-for-sale. Securities with fixed maturities held by finance businesses are classified as held-to-maturity. At December 31, 1993, all fixed maturity securities were classified as held-to-maturity. Securities with fixed maturities are deemed to be held-to-maturity securities when the Company has the ability and positive intent to hold them to maturity. 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 on sales of investments, as determined on a specific identification basis, are included in the Consolidated Statements of Earnings.
(d) Goodwill of acquired businesses
The difference between purchase cost and the fair value of the net assets of acquired businesses is amortized on a straight line basis over forty years. The net unamortized balance is carried in other assets.
(e) 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.
(f) 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 of deferred charges is included in other assets.
(g) Property and casualty insurance policyholder liabilities
Property and casualty insurance policyholder liabilities are comprised primarily of (i) unpaid losses and loss adjustment expenses, (ii) unearned premiums, and (iii) funds held under reinsurance assumed.
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.
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)
(g) Property and casualty insurance policyholder liabilities (Continued)
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(f) 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. Thereafter, annual accretions to the liabilities are charged to losses incurred.
Funds held under reinsurance assumed treaties primarily consist of deposit balances refundable to insureds for coverages which the Company believes do not indemnify the ceding company against insurance risk, as defined by Statement of Financial Accounting Standards No. 113, "Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts".
(h) 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 indemnification of risk under retroactive reinsurance contracts and structured settlements is accounted for as premiums earned at the inception of the contracts. Premiums earned are stated net of amounts ceded to reinsurers.
(j) Reinsurance
Provisions for losses and loss adjustment expenses are reported in the accompanying Consolidated Statements of Earnings after deducting estimates of recoveries under reinsurance contracts. Such recoveries totalled $61 million, $34 million, and $90 million for 1994, 1993 and 1992, 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. Estimates of losses and loss expenses recoverable under reinsurance contracts are included in receivables.
(k) Accounting changes
Effective January 1, 1993, the Company adopted the provisions of Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" ("SFAS 109"). The adoption of SFAS 109 changed the Company's method of accounting for income taxes from the "deferred method" to the "asset and liability method". Previously the Company deferred the past tax effects of timing differences between financial reporting and taxable income. Under the asset and liability method of SFAS 109, deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The provisions of SFAS 109 require that the effect on deferred taxes of a change in tax rates be recognized in income in the period that includes the enactment date.
In May 1993, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115"). As permitted under the statement, the Company elected to adopt the statement's provisions as of December 31, 1993. Among its provisions, the statement requires a change in the accounting for marketable equity securities held by non-insurance entities. Prior to the adoption of SFAS 115, such securities were carried at the lower of aggregate cost or market. Under the provisions of SFAS 115, these securities are now carried at market and accounted for in the same manner as marketable equity securities held by the Company's insurance subsidiaries.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
BERKSHIRE HATHAWAY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(2) DEXTER SHOE COMPANIES MERGER
On November 7, 1993, the Company consummated a merger with the privately held Dexter Shoe Companies ("Dexter") by reissuing 25,203 shares of its common stock held in treasury in exchange for 100% of the outstanding common stock of Dexter. Dexter manufactures and distributes men's and women's dress, casual and athletic shoes. The merger was accounted for by the purchase method of accounting and, accordingly, Dexter's operating results are included in the Company's consolidated results of operations from the effective date of the merger. Had the results of Dexter been included commencing with operations in 1992, the reported results would not have been materially affected.
(3) INVESTMENTS IN SECURITIES WITH FIXED MATURITIES
The amortized cost and estimated fair values as of December 31, 1994 and 1993, of investments in securities with fixed maturities are as follows (in thousands):
Amounts above exclude securities with fixed maturities held by finance businesses. See note 7.
Shown below are the amortized cost and estimated fair values of the above securities at December 31, 1994, 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 thousands.
Gross realized gains and losses on sales and redemptions of securities with fixed maturities were as follows (in thousands):
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
BERKSHIRE HATHAWAY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(4) INVESTMENTS IN MARKETABLE EQUITY SECURITIES
Aggregate data with respect to the consolidated investment in marketable equity securities are shown below (in thousands):
(a) Common shares of Capital Cities/ABC, Inc. ("Capital Cities") owned by Berkshire subsidiaries possessed approximately 13% of the voting rights of all Capital Cities shares outstanding at December 31, 1994. The shares are held subject to an Agreement, the terms of which grant to Capital Cities a right of first refusal to purchase the shares and otherwise govern until January 3, 1997, the manner by which the shares may be sold or transferred. Also, Berkshire and its subsidiaries have delivered to Capital Cities irrevocable proxies with respect to these shares in favor of Thomas S. Murphy or Daniel B. Burke, so long as either shall be the chief executive officer of Capital Cities, to vote the shares at any and all meetings of shareholders of Capital Cities. The proxies expire on January 2, 1997, or at the earlier date when neither of such persons is chief executive officer of Capital Cities.
(b) Subsidiaries of Berkshire owned shares of common stock of GEICO Corporation that possessed approximately 50% of the voting rights of all GEICO shares outstanding at December 31, 1994. Berkshire maintains an independent proxy arrangement for voting of the shares as required by Order of GEICO's domiciliary insurance supervisory authority. The Order, dating from Berkshire subsidiaries' major purchase of the shares in 1976, prohibits Berkshire from seeking or causing to change the independent proxy. Also, under the Order, no officer or director of Berkshire or of any affiliate or subsidiary of Berkshire is permitted to serve as a director of GEICO. Because the Order divests Berkshire of its voting rights with respect to the shares, Berkshire does not use the equity method of accounting for its investment in GEICO.
(c) Subsidiaries of Berkshire owned common shares of Wells Fargo & Company ("Wells Fargo") that possessed approximately 13% of the voting rights of all Wells Fargo shares outstanding at December 31, 1994. The shares are held subject to a Passivity Agreement, the terms of which among other things prohibit Berkshire, without prior approval from the Federal Reserve Board of San Francisco, from seeking representation on the Board of Directors of Wells Fargo and from disposing of more than 5% of the Wells Fargo securities in any single transaction. In connection therewith, Berkshire has granted a proxy to the Secretary of Wells Fargo, with respect to all Wells Fargo stock presently owned and with respect to such additional shares of Wells Fargo stock as Berkshire may purchase and hold in the future.
(d) Represents gross unrealized gains $1,187,893, less gross unrealized losses $136,206.
(e) Represents gross unrealized gains $1,275,413, less gross unrealized losses $92,792.
Gross realized gains and losses on sales of marketable equity securities were as follows (in thousands):
* During the fourth quarter of 1993, a subsidiary of Berkshire sold 10,000,000 common shares of its investment in Capital Cities in connection with that company's offer to buy from its shareholders up to 20,000,000 of its common shares. Prior to the sale and since 1986, Berkshire subsidiaries owned 30,000,000 shares of Capital Cities or approximately 18% of that company's outstanding stock. Berkshire's gross realized gain from this transaction was $457.5 million.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
BERKSHIRE HATHAWAY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(5) INVESTMENT IN SALOMON INC
The Company's investment in Salomon Inc consists of the following (in thousands):
At both December 31, 1994 and 1993, Berkshire subsidiaries owned 700,000 shares of Cumulative Convertible Preferred Stock ("Preferred Shares"). The Preferred Shares have a redemption value of $1,000 per share and are entitled to receive quarterly dividends at the annual rate of $90 per share. The Preferred Shares can be converted into shares of Salomon Inc common stock at $38 per share and are entitled to one vote per share of common stock into which such shares are convertible (18,421,053 at December 31, 1994). Annually on each October 31, commencing in 1995, Salomon Inc will redeem, at cost, 140,000 of the Preferred Shares or such fewer number as are then outstanding. As discussed in Note 1(c), the Preferred Shares are carried at fair value at December 31, 1994, whereas they were carried at cost at December 31, 1993.
Berkshire subsidiaries possess slightly in excess of 20% of the total voting rights in Salomon. (Such rights consisting of rights attaching to the aforementioned Preferred Shares plus 6,633,600 common shares held at December 31, 1994.) Effective April 1, 1994, the Company adopted the equity method of accounting with respect to its investment in Salomon Inc common stock. The provisions of Accounting Principles Board Opinion No. 18 "The Equity Method of Accounting for Investments in Common Stock" require that the equity method be applied only to investments in common stock. Accordingly, as previously discussed, the Preferred Shares continue to be carried at fair value in accordance with SFAS 115.
Income from the investment in Salomon Inc consists of the following (in thousands):
* After giving effect to amortization, over forty years, of the excess of the cost of Salomon common stock over its related book value.
(6) INVESTMENT IN USAIR GROUP, INC. PREFERRED STOCK
Investments in securities with fixed maturities 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.
For the past five years USAir has incurred very significant losses. On September 29, 1994, USAir announced that it was deferring the quarterly dividend payment due September 30, 1994, on the USAir Preferred Shares. As of March 7, 1995 neither the quarterly dividend due September 30, 1994 or December 31, 1994, had been received. USAir has publicly stated that its ability to survive in the low fare competitive environment is contingent upon USAir's ability permanently to reduce its operating costs through reductions in personnel costs and other cost saving initiatives. USAir management is currently engaged in discussions with the leadership of its unionized employees to achieve its goal of reducing personnel costs. While USAir's management has stated they are committed to reaching an agreement with the labor groups, both the timing and the outcome of the negotiations are uncertain.
As a result of the extended period of losses and the uncertainty surrounding the outcome of the labor negotiations, Berkshire management has concluded that an other than temporary decline in the value of the USAir Preferred Shares has arisen. Accordingly, the 1994 Consolidated Statement of Earnings includes a charge of $268.5 million to reflect the decline. While the aforementioned charge to earnings was recorded in the fourth quarter of 1994; the charge to shareholders' equity, however, had been recorded in earlier 1994 reporting periods. Effective March 31, 1994, investments in securities with fixed maturities were classified as available-for-sale and carried at fair value with the net after-tax unrealized gain or loss reported as a component of shareholders' equity. Accordingly, at March 31, 1994, the carrying value of the USAir Preferred Shares was adjusted to reflect its then estimated fair value of $179.0 million. At September 30, 1994, the estimate was adjusted downward to $89.5 million which also represents the estimated fair value as of December 31, 1994.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
BERKSHIRE HATHAWAY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(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 thousands):
(a) At December 31, 1994 and 1993, mortgage-backed securities of $396,033 and $534,352 respectively were included in this caption. Each of these securities has received the highest rating from at least two rating agencies. Estimated fair values and gross unrealized gains and losses as of December 31, 1994 and 1993, are as follows (in thousands):
(b) Borrowings under investment agreements are made pursuant to contracts with terms generally ranging from six months to thirty years calling for interest payable, normally semiannually, at fixed rates ranging from 2.5% to 7.3% per annum. Payments of amounts outstanding at December 31, 1994, are expected to be required no earlier than as follows (in thousands):
Income from finance businesses for each of the past three years is summarized below (in thousands):
* Until October 1993, a savings and loan business was also included in this group of businesses. Income from finance businesses includes earnings of $5,857 and $4,547 in 1993 and 1992 respectively from this business.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
BERKSHIRE HATHAWAY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(8) OTHER ASSETS
Other assets are summarized below (in thousands):
(9) PROPERTY AND CASUALTY INSURANCE POLICYHOLDER LIABILITIES
Property and casualty insurance policyholder liabilities are summarized below (in thousands):
* 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 $1,295,991 and $1,181,235 at December 31, 1994 and 1993, 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 $231,255 and $254,325 at December 31, 1994 and 1993, respectively.
Supplemental data with respect to unpaid losses and loss adjustment expenses of property/casualty insurance subsidiaries (in thousands):
* Incurred losses "all prior 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.
** Excludes unpaid liabilities of Central States Indemnity Company of Omaha -- acquired by the Company at the end of 1992.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
BERKSHIRE HATHAWAY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(10) INCOME TAXES
The liability for income taxes as reflected in the accompanying Consolidated Balance Sheets represent estimates of liabilities as follows (in thousands):
As discussed in Note 1(k), the Company adopted SFAS 109 as of January 1, 1993. The cumulative effect of adopting SFAS 109 on the Company's financial statements was to decrease 1993 net income by about $71 million. This amount is reflected in the 1993 Consolidated Statement of Earnings as the cumulative effect of change in accounting principle. It primarily represents the impact of adjusting deferred taxes related to unrealized appreciation of marketable equity securities which arose prior to 1987 to reflect the then current capital gain tax rate of 34% as opposed to the 28% rate which was in effect when the deferred taxes originated. The effect of the accounting change on 1993 earnings before income taxes and cumulative effect adjustment was not material. Prior year financial statements have not been restated.
During 1993, the federal corporate income and capital gain tax rate was increased from 34% to 35% retroactive to January 1, 1993. Accordingly, as required under SFAS 109, the Company recorded a charge to 1993 earnings of approximately $75 million. Most of this charge relates to the impact of adjusting deferred taxes applicable to unrealized appreciation of marketable equity securities.
The Consolidated Statements of Earnings reflect charges for income taxes as shown below (in thousands):
* Excludes the cumulative effect of change in accounting for income taxes ($70,984) and the effect of the change in federal income tax rate on deferred taxes applicable to unrealized appreciation of marketable equity securities ($75,348).
The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities at December 31, 1994 and 1993, are shown below (in thousands):
Charges for income taxes are reconciled to hypothetical amounts computed at the federal statutory rate in the table shown below (in thousands):
* Excludes the cumulative effect of change in accounting for income taxes and the effect of the change in federal income tax rate on deferred taxes applicable to unrealized appreciation of marketable equity securities.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
BERKSHIRE HATHAWAY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(11) BORROWINGS UNDER INVESTMENT AGREEMENTS AND OTHER DEBT
Liabilities reflected for this balance sheet caption are as follows (in thousands):
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 3.0% to 9.0% 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.
Payments of amounts outstanding at December 31, 1994, are expected to be required no earlier than as follows (in thousands):
(12) SHAREHOLDERS' EQUITY ACCOUNTS
Changes in Shareholders' Equity accounts during the most recent three years were as follows (dollars in thousands except per share amounts):
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
BERKSHIRE HATHAWAY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(13) DIVIDEND RESTRICTIONS - INSURANCE SUBSIDIARIES
Payments of dividends by Insurance Group members are restricted by insurance statutes and regulations. Without prior regulatory approval in 1995, Berkshire can receive up to approximately $488 million as dividends from insurance subsidiaries.
Combined shareholders' equity of insurance subsidiaries determined pursuant to statutory accounting rules (Statutory Surplus as Regards Policyholders) was approximately $13.4 billion at December 31, 1994. This amount exceeded by approximately $2.4 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.
(14) 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, 1994 and 1993, are as follows (in thousands):
(15) SUPPLEMENTAL CASH FLOW INFORMATION
A summary of supplemental cash flow information is presented in the following table (in thousands):
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
BERKSHIRE HATHAWAY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(16) 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 thousands, except per share amounts.
* Includes a nonrecurring charge of $172,579 ($146.53/share) representing an other than temporary decline in value of investment in USAir Group, Inc. Preferred Stock. See note 6.
* Includes a nonrecurring charge of $75,348 ($65.38/share) representing the effect of the change in federal income tax rates on deferred taxes applicable to unrealized appreciation. See note 10.
** Includes $297,375 ($254.75/share), net of taxes, related to sale of 10,000,000 shares of Capital Cities/ABC, Inc. common stock. See note 4.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
BERKSHIRE HATHAWAY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(17) BUSINESS SEGMENT DATA
Berkshire identified eight business segments for purposes of 1994 reporting pursuant to Statement of Financial Accounting Standards No. 14. These include the property and casualty insurance and reinsurance business (The Insurance Segment) plus seven separately conducted non-insurance businesses as follows:
The business segments identified above were responsible in 1994 for 83% of Berkshire's consolidated revenues. Other businesses activities that contributed for 1994, in the aggregate, 16% of Berkshire's consolidated revenues, were as follows:
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
BERKSHIRE HATHAWAY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(17) 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 thousands.
* Amounts of interest expense represent those for borrowings under investment agreements and other debt exclusive of that of finance businesses.
** Includes pre-tax charge of $268,500 representing an other than temporary decline in value of investment in USAir Group, Inc. Preferred Stock.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)
BERKSHIRE HATHAWAY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(17) BUSINESS SEGMENT DATA (Continued)
* Includes pre-tax charge of $268,500 representing an other than temporary decline in value of investment in USAir Group, Inc. Preferred Stock.
* Expenditures which were part of business acquisitions are excluded.
ITEM 9.

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 1, 1995, which meeting will involve the election of directors.
Part IV
ITEM 14.







ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, 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:
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 30, 1995 /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.
INDEPENDENT AUDITORS' REPORT ON SCHEDULES
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, 1994 and 1993, and for each of the three years in the period ended December 31, 1994, and have issued our report thereon dated March 9, 1995; 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. Our report referred to above includes an explanatory paragraph regarding changes in accounting methods as described in Note 1 to the consolidated financial statements.
DELOITTE & TOUCHE LLP Omaha, Nebraska March 9, 1995
BERKSHIRE HATHAWAY INC. (Parent Company) Condensed Financial Information (Dollars in thousands)
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
STATEMENTS OF EARNINGS
See Note to Condensed Financial Information on following page.
BERKSHIRE HATHAWAY INC. (Parent Company) Condensed Financial Information (Dollars in thousands) Schedule I (continued)
See headnote on preceding page.
STATEMENTS OF CASH FLOWS
NOTE TO CONDENSED FINANCIAL INFORMATION
Principal repayments of the Registrant's borrowings under investment agreements and other debt outstanding at December 31, 1994 are expected to be required no earlier than as follows:
For additional information regarding Registrant's borrowings under investment agreements and other debt, see Note 11 to the Consolidated Financial Statements on page 30.
EXHIBIT INDEX