a50050868.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended September 30, 2011
OR
¨
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from to
Commission file number 001-14905
BERKSHIRE HATHAWAY INC.
(Exact name of registrant as specified in its charter)
Delaware
|
47-0813844 |
(State or other jurisdiction of
incorporation or organization)
|
(I.R.S. Employer Identification Number)
|
3555 Farnam Street, Omaha, Nebraska 68131
(Address of principal executive office)
(Zip Code)
(402) 346-1400
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
|
Accelerated filer ¨
|
Non-accelerated filer ¨
|
Smaller reporting company ¨
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x
Number of shares of common stock outstanding as of October 28, 2011:
Class A — 939,280
Class B — 1,067,219,118
BERKSHIRE HATHAWAY INC.
|
Page No.
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2
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3
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4
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5
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5
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6-19
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20-33
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33
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33
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34
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34
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34
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34
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34
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34-35
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35
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35
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and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(dollars in millions)
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(Unaudited) |
|
|
|
ASSETS
|
|
|
|
|
|
|
Insurance and Other:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
30,587 |
|
|
$ |
34,767 |
|
Investments:
|
|
|
|
|
|
|
|
|
Fixed maturity securities
|
|
|
33,031 |
|
|
|
33,803 |
|
Equity securities
|
|
|
67,225 |
|
|
|
59,819 |
|
Other
|
|
|
16,633 |
|
|
|
19,333 |
|
Receivables
|
|
|
19,834 |
|
|
|
20,917 |
|
Inventories
|
|
|
9,265 |
|
|
|
7,101 |
|
Property, plant and equipment
|
|
|
17,804 |
|
|
|
15,741 |
|
Goodwill
|
|
|
32,215 |
|
|
|
27,891 |
|
Other
|
|
|
18,062 |
|
|
|
13,529 |
|
|
|
|
244,656 |
|
|
|
232,901 |
|
|
|
|
|
|
|
|
|
|
Railroad, Utilities and Energy:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
2,965 |
|
|
|
2,557 |
|
Property, plant and equipment
|
|
|
80,642 |
|
|
|
77,385 |
|
Goodwill
|
|
|
20,064 |
|
|
|
20,084 |
|
Other
|
|
|
12,347 |
|
|
|
13,579 |
|
|
|
|
116,018 |
|
|
|
113,605 |
|
|
|
|
|
|
|
|
|
|
Finance and Financial Products:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
1,224 |
|
|
|
903 |
|
Investments in fixed maturity securities
|
|
|
1,017 |
|
|
|
1,080 |
|
Other investments
|
|
|
3,886 |
|
|
|
3,676 |
|
Loans and finance receivables
|
|
|
14,003 |
|
|
|
15,226 |
|
Goodwill
|
|
|
1,031 |
|
|
|
1,031 |
|
Other
|
|
|
3,659 |
|
|
|
3,807 |
|
|
|
|
24,820 |
|
|
|
25,723 |
|
|
|
$ |
385,494 |
|
|
$ |
372,229 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Insurance and Other:
|
|
|
|
|
|
|
|
|
Losses and loss adjustment expenses
|
|
$ |
63,812 |
|
|
$ |
60,075 |
|
Unearned premiums
|
|
|
9,609 |
|
|
|
7,997 |
|
Life, annuity and health insurance benefits
|
|
|
8,896 |
|
|
|
8,565 |
|
Accounts payable, accruals and other liabilities
|
|
|
17,916 |
|
|
|
15,826 |
|
Notes payable and other borrowings
|
|
|
13,748 |
|
|
|
12,471 |
|
|
|
|
113,981 |
|
|
|
104,934 |
|
|
|
|
|
|
|
|
|
|
Railroad, Utilities and Energy:
|
|
|
|
|
|
|
|
|
Accounts payable, accruals and other liabilities
|
|
|
12,196 |
|
|
|
12,367 |
|
Notes payable and other borrowings
|
|
|
32,644 |
|
|
|
31,626 |
|
|
|
|
44,840 |
|
|
|
43,993 |
|
|
|
|
|
|
|
|
|
|
Finance and Financial Products:
|
|
|
|
|
|
|
|
|
Accounts payable, accruals and other liabilities
|
|
|
1,123 |
|
|
|
1,168 |
|
Derivative contract liabilities
|
|
|
10,421 |
|
|
|
8,371 |
|
Notes payable and other borrowings
|
|
|
14,092 |
|
|
|
14,477 |
|
|
|
|
25,636 |
|
|
|
24,016 |
|
Income taxes, principally deferred
|
|
|
37,156 |
|
|
|
36,352 |
|
Total liabilities
|
|
|
221,613 |
|
|
|
209,295 |
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity:
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
8 |
|
|
|
8 |
|
Capital in excess of par value
|
|
|
37,786 |
|
|
|
37,533 |
|
Accumulated other comprehensive income
|
|
|
15,781 |
|
|
|
20,583 |
|
Retained earnings
|
|
|
106,400 |
|
|
|
99,194 |
|
Treasury stock, at cost
|
|
|
(18 |
) |
|
|
— |
|
Berkshire Hathaway shareholders’ equity
|
|
|
159,957 |
|
|
|
157,318 |
|
Noncontrolling interests
|
|
|
3,924 |
|
|
|
5,616 |
|
Total shareholders’ equity
|
|
|
163,881 |
|
|
|
162,934 |
|
|
|
$ |
385,494 |
|
|
$ |
372,229 |
|
See accompanying Notes to Consolidated Financial Statements
and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(dollars in millions except per share amounts)
|
|
Third Quarter
|
|
|
First Nine Months
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
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Insurance and Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance premiums earned
|
|
$ |
7,645 |
|
|
$ |
9,054 |
|
|
$ |
24,076 |
|
|
$ |
23,344 |
|
Sales and service revenues
|
|
|
18,573 |
|
|
|
17,408 |
|
|
|
53,681 |
|
|
|
50,149 |
|
Interest, dividend and other investment income
|
|
|
1,051 |
|
|
|
1,239 |
|
|
|
3,754 |
|
|
|
4,048 |
|
Investment gains/losses
|
|
|
100 |
|
|
|
473 |
|
|
|
1,314 |
|
|
|
2,169 |
|
Other-than-temporary impairment losses on investments
|
|
|
(8 |
) |
|
|
(15 |
) |
|
|
(514 |
) |
|
|
(15 |
) |
|
|
|
27,361 |
|
|
|
28,159 |
|
|
|
82,311 |
|
|
|
79,695 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Railroad, Utilities and Energy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
7,781 |
|
|
|
7,155 |
|
|
|
22,594 |
|
|
|
18,889 |
|
Other
|
|
|
47 |
|
|
|
60 |
|
|
|
115 |
|
|
|
142 |
|
|
|
|
7,828 |
|
|
|
7,215 |
|
|
|
22,709 |
|
|
|
19,031 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance and Financial Products:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest, dividend and other investment income
|
|
|
384 |
|
|
|
395 |
|
|
|
1,141 |
|
|
|
1,197 |
|
Investment gains/losses
|
|
|
— |
|
|
|
— |
|
|
|
174 |
|
|
|
5 |
|
Derivative gains/losses
|
|
|
(2,443 |
) |
|
|
(146 |
) |
|
|
(2,356 |
) |
|
|
(1,911 |
) |
Other
|
|
|
609 |
|
|
|
651 |
|
|
|
1,754 |
|
|
|
2,003 |
|
|
|
|
(1,450 |
) |
|
|
900 |
|
|
|
713 |
|
|
|
1,294 |
|
|
|
|
33,739 |
|
|
|
36,274 |
|
|
|
105,733 |
|
|
|
100,020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance and Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance losses and loss adjustment expenses
|
|
|
3,827 |
|
|
|
6,254 |
|
|
|
16,107 |
|
|
|
14,357 |
|
Life, annuity and health insurance benefits
|
|
|
1,041 |
|
|
|
861 |
|
|
|
3,032 |
|
|
|
3,240 |
|
Insurance underwriting expenses
|
|
|
1,082 |
|
|
|
1,634 |
|
|
|
4,527 |
|
|
|
4,381 |
|
Cost of sales and services
|
|
|
15,281 |
|
|
|
14,439 |
|
|
|
44,095 |
|
|
|
41,537 |
|
Selling, general and administrative expenses
|
|
|
2,105 |
|
|
|
1,896 |
|
|
|
6,262 |
|
|
|
5,650 |
|
Interest expense
|
|
|
79 |
|
|
|
71 |
|
|
|
216 |
|
|
|
206 |
|
|
|
|
23,415 |
|
|
|
25,155 |
|
|
|
74,239 |
|
|
|
69,371 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Railroad, Utilities and Energy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales and operating expenses
|
|
|
5,675 |
|
|
|
5,251 |
|
|
|
16,898 |
|
|
|
14,143 |
|
Interest expense
|
|
|
428 |
|
|
|
421 |
|
|
|
1,280 |
|
|
|
1,162 |
|
|
|
|
6,103 |
|
|
|
5,672 |
|
|
|
18,178 |
|
|
|
15,305 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance and Financial Products:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
162 |
|
|
|
176 |
|
|
|
493 |
|
|
|
530 |
|
Other
|
|
|
696 |
|
|
|
737 |
|
|
|
1,961 |
|
|
|
2,244 |
|
|
|
|
858 |
|
|
|
913 |
|
|
|
2,454 |
|
|
|
2,774 |
|
|
|
|
30,376 |
|
|
|
31,740 |
|
|
|
94,871 |
|
|
|
87,450 |
|
Earnings before income taxes
|
|
|
3,363 |
|
|
|
4,534 |
|
|
|
10,862 |
|
|
|
12,570 |
|
Income tax expense
|
|
|
953 |
|
|
|
1,415 |
|
|
|
3,307 |
|
|
|
3,599 |
|
Earnings from equity method investment
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
50 |
|
Net earnings
|
|
|
2,410 |
|
|
|
3,119 |
|
|
|
7,555 |
|
|
|
9,021 |
|
Less: Earnings attributable to noncontrolling interests
|
|
|
132 |
|
|
|
130 |
|
|
|
349 |
|
|
|
431 |
|
Net earnings attributable to Berkshire Hathaway
|
|
$ |
2,278 |
|
|
$ |
2,989 |
|
|
$ |
7,206 |
|
|
$ |
8,590 |
|
Average common shares outstanding *
|
|
|
1,651,290 |
|
|
|
1,647,593 |
|
|
|
1,649,585 |
|
|
|
1,631,489 |
|
Net earnings per share attributable to Berkshire Hathaway shareholders *
|
|
$ |
1,380 |
|
|
$ |
1,814 |
|
|
$ |
4,368 |
|
|
$ |
5,265 |
|
*
|
Average shares outstanding include average Class A common shares and average Class B common shares determined on an equivalent Class A common stock basis. Net earnings per common share attributable to Berkshire Hathaway shown above represents net earnings per equivalent Class A common share. Net earnings per Class B common share is equal to one-fifteen-hundredth (1/1,500) of such amount.
|
See accompanying Notes to Consolidated Financial Statements
and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
|
|
First Nine Months
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(Unaudited)
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net earnings
|
|
$ |
7,555 |
|
|
$ |
9,021 |
|
Adjustments to reconcile net earnings to operating cash flows:
|
|
|
|
|
|
|
|
|
Investment (gains) losses and other-than-temporary impairment losses
|
|
|
(974 |
) |
|
|
(2,159 |
) |
Depreciation
|
|
|
3,418 |
|
|
|
3,109 |
|
Other
|
|
|
374 |
|
|
|
203 |
|
Changes in operating assets and liabilities before business acquisitions:
|
|
|
|
|
|
|
|
|
Losses and loss adjustment expenses
|
|
|
3,478 |
|
|
|
1,974 |
|
Deferred charges reinsurance assumed
|
|
|
(525 |
) |
|
|
150 |
|
Unearned premiums
|
|
|
1,599 |
|
|
|
1,168 |
|
Receivables and originated loans
|
|
|
(1,847 |
) |
|
|
(3,295 |
) |
Derivative contract assets and liabilities
|
|
|
2,222 |
|
|
|
1,732 |
|
Income taxes
|
|
|
1,024 |
|
|
|
757 |
|
Other assets
|
|
|
(1,427 |
) |
|
|
(1,102 |
) |
Other liabilities
|
|
|
1,085 |
|
|
|
2,273 |
|
Net cash flows from operating activities
|
|
|
15,982 |
|
|
|
13,831 |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases of fixed maturity securities
|
|
|
(6,122 |
) |
|
|
(7,039 |
) |
Purchases of equity securities
|
|
|
(11,351 |
) |
|
|
(3,893 |
) |
Purchases of other investments
|
|
|
(5,000 |
) |
|
|
— |
|
Sales of fixed maturity securities
|
|
|
1,612 |
|
|
|
3,646 |
|
Redemptions and maturities of fixed maturity securities
|
|
|
5,419 |
|
|
|
4,882 |
|
Sales of equity securities
|
|
|
885 |
|
|
|
4,532 |
|
Redemptions of other investments
|
|
|
9,345 |
|
|
|
— |
|
Purchases of loans and finance receivables
|
|
|
(1,615 |
) |
|
|
(2,063 |
) |
Principal collections on loans and finance receivables
|
|
|
2,683 |
|
|
|
2,255 |
|
Acquisitions of businesses, net of cash acquired
|
|
|
(7,984 |
) |
|
|
(15,376 |
) |
Purchases of property, plant and equipment
|
|
|
(5,673 |
) |
|
|
(4,291 |
) |
Other
|
|
|
15 |
|
|
|
(803 |
) |
Net cash flows from investing activities
|
|
|
(17,786 |
) |
|
|
(18,150 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from borrowings of insurance and other businesses
|
|
|
2,063 |
|
|
|
8,164 |
|
Proceeds from borrowings of railroad, utilities and energy businesses
|
|
|
2,290 |
|
|
|
1,731 |
|
Proceeds from borrowings of finance businesses
|
|
|
1,528 |
|
|
|
1,039 |
|
Repayments of borrowings of insurance and other businesses
|
|
|
(2,272 |
) |
|
|
(380 |
) |
Repayments of borrowings of railroad, utilities and energy businesses
|
|
|
(1,158 |
) |
|
|
(382 |
) |
Repayments of borrowings of finance businesses
|
|
|
(1,847 |
) |
|
|
(1,823 |
) |
Change in short term borrowings, net
|
|
|
(552 |
) |
|
|
(59 |
) |
Acquisitions of noncontrolling interests and other
|
|
|
(1,810 |
) |
|
|
(49 |
) |
Net cash flows from financing activities
|
|
|
(1,758 |
) |
|
|
8,241 |
|
Effects of foreign currency exchange rate changes
|
|
|
111 |
|
|
|
(19 |
) |
Increase (decrease) in cash and cash equivalents
|
|
|
(3,451 |
) |
|
|
3,903 |
|
Cash and cash equivalents at beginning of year *
|
|
|
38,227 |
|
|
|
30,558 |
|
Cash and cash equivalents at end of first nine months *
|
|
$ |
34,776 |
|
|
$ |
34,461 |
|
|
|
|
|
|
|
|
|
|
* Cash and cash equivalents are comprised of the following:
|
|
|
|
|
|
|
|
|
Beginning of year—
|
|
|
|
|
|
|
|
|
Insurance and Other
|
|
$ |
34,767 |
|
|
$ |
28,223 |
|
Railroad, Utilities and Energy
|
|
|
2,557 |
|
|
|
429 |
|
Finance and Financial Products
|
|
|
903 |
|
|
|
1,906 |
|
|
|
$ |
38,227 |
|
|
$ |
30,558 |
|
End of first nine months—
|
|
|
|
|
|
|
|
|
Insurance and Other
|
|
$ |
30,587 |
|
|
$ |
30,772 |
|
Railroad, Utilities and Energy
|
|
|
2,965 |
|
|
|
2,646 |
|
Finance and Financial Products
|
|
|
1,224 |
|
|
|
1,043 |
|
|
|
$ |
34,776 |
|
|
$ |
34,461 |
|
See accompanying Notes to Consolidated Financial Statements
and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)
(dollars in millions)
|
|
|
|
|
Berkshire Hathaway shareholders’ equity
|
|
|
|
|
|
|
Common stock
and capital in
excess of par
value
|
|
|
Accumulated
other
comprehensive
income
|
|
|
Retained
earnings
|
|
|
Treasury
stock
|
|
|
Total
|
|
|
Non-
controlling
interests
|
|
Balance at December 31, 2009
|
|
$ |
27,082 |
|
|
$ |
17,793 |
|
|
$ |
86,227 |
|
|
$ |
— |
|
|
$ |
131,102 |
|
|
$ |
4,683 |
|
Net earnings
|
|
|
— |
|
|
|
— |
|
|
|
8,590 |
|
|
|
— |
|
|
|
8,590 |
|
|
|
431 |
|
Other comprehensive income, net
|
|
|
— |
|
|
|
(1,070 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1,070 |
) |
|
|
(17 |
) |
Issuance of common stock and other transactions
|
|
|
11,067 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
11,067 |
|
|
|
— |
|
Changes in noncontrolling interests:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interests acquired and other transactions
|
|
|
(18 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(18 |
) |
|
|
(171 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2010
|
|
$ |
38,131 |
|
|
$ |
16,723 |
|
|
$ |
94,817 |
|
|
$ |
— |
|
|
$ |
149,671 |
|
|
$ |
4,926 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
$ |
37,541 |
|
|
$ |
20,583 |
|
|
$ |
99,194 |
|
|
$ |
— |
|
|
$ |
157,318 |
|
|
$ |
5,616 |
|
Net earnings
|
|
|
— |
|
|
|
— |
|
|
|
7,206 |
|
|
|
— |
|
|
|
7,206 |
|
|
|
349 |
|
Other comprehensive income, net
|
|
|
— |
|
|
|
(4,878 |
) |
|
|
— |
|
|
|
— |
|
|
|
(4,878 |
) |
|
|
(110 |
) |
Issuance of common stock and other transactions
|
|
|
392 |
|
|
|
— |
|
|
|
— |
|
|
|
(18 |
) |
|
|
374 |
|
|
|
— |
|
Changes in noncontrolling interests:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interests acquired and other transactions
|
|
|
(139 |
) |
|
|
76 |
|
|
|
— |
|
|
|
— |
|
|
|
(63 |
) |
|
|
(1,931 |
) |
Balance at September 30, 2011
|
|
$ |
37,794 |
|
|
$ |
15,781 |
|
|
$ |
106,400 |
|
|
$ |
(18 |
) |
|
$ |
159,957 |
|
|
$ |
3,924 |
|
(Unaudited)
(dollars in millions)
|
|
Third Quarter
|
|
|
First Nine Months
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Comprehensive income attributable to Berkshire Hathaway:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$ |
2,278 |
|
|
$ |
2,989 |
|
|
$ |
7,206 |
|
|
$ |
8,590 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized appreciation of investments
|
|
|
(7,318 |
) |
|
|
5,422 |
|
|
|
(6,720 |
) |
|
|
(480 |
) |
Applicable income taxes
|
|
|
2,575 |
|
|
|
(1,901 |
) |
|
|
2,398 |
|
|
|
168 |
|
Reclassification of investment appreciation in earnings
|
|
|
(57 |
) |
|
|
(441 |
) |
|
|
(977 |
) |
|
|
(1,152 |
) |
Applicable income taxes
|
|
|
20 |
|
|
|
154 |
|
|
|
342 |
|
|
|
403 |
|
Foreign currency translation
|
|
|
(610 |
) |
|
|
726 |
|
|
|
34 |
|
|
|
(175 |
) |
Applicable income taxes
|
|
|
29 |
|
|
|
(30 |
) |
|
|
(6 |
) |
|
|
(6 |
) |
Prior service cost and actuarial gains/losses of defined benefit plans
|
|
|
34 |
|
|
|
(22 |
) |
|
|
45 |
|
|
|
41 |
|
Applicable income taxes
|
|
|
(14 |
) |
|
|
1 |
|
|
|
(18 |
) |
|
|
(13 |
) |
Other, net
|
|
|
16 |
|
|
|
(35 |
) |
|
|
24 |
|
|
|
144 |
|
Other comprehensive income, net
|
|
|
(5,325 |
) |
|
|
3,874 |
|
|
|
(4,878 |
) |
|
|
(1,070 |
) |
Comprehensive income attributable to Berkshire Hathaway
|
|
$ |
(3,047 |
) |
|
$ |
6,863 |
|
|
$ |
2,328 |
|
|
$ |
7,520 |
|
Comprehensive income of noncontrolling interests
|
|
$ |
2 |
|
|
$ |
170 |
|
|
$ |
239 |
|
|
$ |
414 |
|
See accompanying Notes to Consolidated Financial Statements
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011
Note 1. General
The accompanying unaudited Consolidated Financial Statements include the accounts of Berkshire Hathaway Inc. (“Berkshire” or “Company”) consolidated with the accounts of all its subsidiaries and affiliates in which Berkshire holds controlling financial interests as of the financial statement date. In these notes the terms “us,” “we,” or “our” refer to Berkshire and its consolidated subsidiaries. Reference is made to Berkshire’s most recently issued Annual Report on Form 10-K (“Annual Report”) that included information necessary or useful to understanding Berkshire’s businesses and financial statement presentations. Our significant accounting policies and practices were presented as Note 1 to the Consolidated Financial Statements included in the Annual Report. Certain immaterial amounts in 2010 have been reclassified to conform to the current year presentation. Financial information in this Report reflects any adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary to a fair statement of results for the interim periods in accordance with accounting principles generally accepted in the United States (“GAAP”).
For a number of reasons, our results for interim periods are not normally indicative of results to be expected for the year. The timing and magnitude of catastrophe losses incurred by insurance subsidiaries and the estimation error inherent to the process of determining liabilities for unpaid losses of insurance subsidiaries can be relatively more significant to results of interim periods than to results for a full year. Variations in the amount and timing of investment gains/losses can cause significant variations in periodic net earnings. Investment gains/losses are recorded when investments are disposed or are other-than-temporarily impaired. In addition, changes in the fair value of derivative assets/liabilities associated with derivative contracts that are not accounted for as hedging instruments can cause significant variations in periodic net earnings.
Note 2. New accounting pronouncements
In October 2010, the FASB issued Accounting Standards Update (“ASU”) 2010-26, “Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts.” ASU 2010-26 modifies the types of costs incurred by insurance entities that may be deferred in the acquiring or renewing of insurance contracts. ASU 2010-26 requires that only direct incremental costs related to successful efforts are capitalized. Capitalized costs may include certain advertising costs which are allowed to be capitalized if the primary purpose of the advertising is to elicit sales to customers who could be shown to have responded directly to the advertising and the probable future revenues generated from the advertising are in excess of expected future costs to be incurred in realizing those revenues. ASU 2010-26 is effective for Berkshire beginning January 1, 2012 and may be applied on a prospective or retrospective basis.
In May 2011, the FASB issued ASU 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” ASU 2011-04 attempts to improve the comparability of fair value measurements disclosed in financial statements prepared in accordance with U.S. GAAP and IFRS. The amendments in ASU 2011-04 clarify the intent of the application of existing fair value measurement and disclosure requirements, as well as change certain measurement requirements and disclosures. ASU 2011-04 is effective for Berkshire beginning January 1, 2012 and will be applied on a prospective basis.
In June 2011, the FASB issued ASU 2011-05, “Presentation of Comprehensive Income.” ASU 2011-05 changes the way other comprehensive income (“OCI”) is presented within the financial statements. Financial statements will be required to reflect net income, OCI and total comprehensive income in one continuous statement or in two separate but consecutive statements. Components of OCI may no longer be presented solely in the statement of changes in shareholders’ equity. Reclassification between OCI and net earnings will be presented on the face of the financial statements. ASU 2011-05 is effective for Berkshire beginning January 1, 2012.
In September 2011, the FASB issued ASU 2011-08, “Testing Goodwill for Impairment.” ASU 2011-08 allows an entity to first assess qualitative factors in determining whether it is necessary to perform the two-step quantitative goodwill impairment test. Only if an entity determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount based on qualitative factors, would it be required to then perform the first step of the two-step quantitative goodwill impairment test. ASU 2011-08 is effective for Berkshire beginning January 1, 2012, with early adoption permitted.
In September 2011, the FASB issued ASU 2011-09, “Disclosures about and Employer’s Participation in a Multiemployer Plan.” ASU 2011-09 requires additional disclosures for multiemployer pension plans and multiemployer other postretirement benefit plans. ASU 2011-09 is effective for Berkshire beginning January 1, 2012, with early adoption permitted.
We do not believe that the adoption of these new pronouncements will have a material effect on our Consolidated Financial Statements.
Notes To Consolidated Financial Statements (Continued)
Note 3. Significant business acquisitions
Our long-held acquisition strategy is to purchase businesses with consistent earning power, good returns on equity and able and honest management at sensible prices.
On February 12, 2010, we acquired all of the outstanding common stock of the Burlington Northern Santa Fe Corporation that we did not already own (about 264.5 million shares or 77.5% of the outstanding shares) for aggregate consideration of $26.5 billion that consisted of cash of approximately $15.9 billion with the remainder in Berkshire common stock (80,931 Class A shares and 20,976,621 Class B shares). Approximately 50% of the cash component was funded with existing cash balances with the remainder funded by proceeds from debt issued by Berkshire. The acquisition was completed through the merger of a wholly-owned merger subsidiary (a Delaware limited liability company) and Burlington Northern Santa Fe Corporation. The merger subsidiary was the surviving entity and was renamed Burlington Northern Santa Fe, LLC (“BNSF”). BNSF is based in Fort Worth, Texas, and through its wholly owned subsidiary, BNSF Railway Company, operates one of the largest railroad systems in North America with approximately 32,000 route miles (including 23,000 route miles of track owned by BNSF) of track in 28 states and two Canadian provinces.
Prior to February 12, 2010, we owned 76.8 million shares of BNSF (22.5% of the outstanding shares), which were acquired between August 2006 and January 2009. We accounted for those shares pursuant to the equity method and as of February 12, 2010, our investment had a carrying value of approximately $6.6 billion. Upon completion of the acquisition of the remaining BNSF shares, we re-measured our previously owned investment in BNSF at fair value as of the acquisition date. In the first quarter of 2010, we recognized a one-time holding gain of approximately $1 billion representing the difference between the fair value of the BNSF shares that we acquired prior to February 12, 2010 and our carrying value under the equity method. BNSF’s financial statements are included in our Consolidated Financial Statements beginning as of February 13, 2010.
On March 13, 2011, Berkshire and The Lubrizol Corporation (“Lubrizol”) entered into a merger agreement, whereby Berkshire would acquire all of the outstanding shares of Lubrizol common stock for cash of $135 per share (approximately $8.7 billion in the aggregate). The merger was completed on September 16, 2011. Lubrizol, based in Cleveland, Ohio, is an innovative specialty chemical company that produces and supplies technologies to customers in the global transportation, industrial and consumer markets. These technologies include lubricant additives for engine oils, other transportation-related fluids and industrial lubricants, as well as additives for gasoline and diesel fuel. In addition, Lubrizol makes ingredients and additives for personal care products and pharmaceuticals; specialty materials, including plastics technology; and performance coatings in the form of specialty resins and additives. Lubrizol’s industry-leading technologies in additives, ingredients and compounds enhance the quality, performance and value of customers’ products, while reducing their environmental impact.
A preliminary allocation of the purchase price to Lubrizol’s assets and liabilities is summarized below (in millions):
Assets:
|
|
|
|
|
Liabilities, noncontrolling interests and net assets acquired:
|
|
|
|
Cash and cash equivalents
|
$ |
893 |
|
|
Accounts payable and other liabilities
|
|
$ |
1,684 |
|
Inventory |
|
1,598 |
|
|
Notes payable and other borrowings
|
|
|
1,607 |
|
Property, plant and equipment
|
|
2,303 |
|
|
Income taxes, principally deferred
|
|
|
1,669 |
|
Intangible assets
|
|
3,710 |
|
|
|
|
|
78 |
|
Goodwill
|
|
4,210 |
|
|
|
|
|
5,038 |
|
Other
|
|
|
1,028 |
|
|
Net assets acquired
|
|
|
8,704 |
|
|
|
$ |
13,742 |
|
|
|
|
$ |
13,742 |
|
Lubrizol’s financial statements are included in our Consolidated Financial Statements beginning as of September 16, 2011. The following table sets forth certain unaudited pro forma consolidated earnings data for the nine months ended September 30, 2011 and 2010, as if the acquisition was consummated on the same terms at the beginning of 2010. Amounts are in millions, except earnings per share.
|
|
First Nine Months
|
|
|
|
2011
|
|
|
2010
|
|
Total revenues
|
|
$ |
110,205 |
|
|
$ |
104,115 |
|
Net earnings attributable to Berkshire Hathaway shareholders
|
|
|
7,608 |
|
|
|
8,818 |
|
Earnings per equivalent Class A common share attributable to Berkshire Hathaway shareholders
|
|
|
4,612 |
|
|
|
5,405 |
|
In the first quarter of 2011, we acquired 16.5% of the outstanding common stock of Marmon Holdings, Inc. (“Marmon”) for approximately $1.5 billion in cash, thus increasing our ownership to 80.2%. We have owned a controlling interest in Marmon since 2008. We increased our interests in the underlying assets and liabilities of Marmon; however, under current GAAP, the excess of the purchase price over the carrying value of the noncontrolling interests acquired is not allocable to assets or liabilities. We recorded a charge of approximately $600 million to capital in excess of par value in our consolidated shareholders’ equity as of December 31, 2010 to reflect this difference as such amount was fixed and determinable at that date.
In June 2011, we acquired the noncontrolling interests in Wesco Financial Corporation (“Wesco”) for aggregate consideration of $543 million consisting of cash of approximately $298 million and 3.25 million shares of Berkshire Class B common stock. Wesco is now an indirect wholly owned subsidiary of Berkshire.
Notes To Consolidated Financial Statements (Continued)
Note 4. Investments in fixed maturity securities
Investments in securities with fixed maturities as of September 30, 2011 and December 31, 2010 are summarized by type below (in millions).
|
|
Amortized
Cost
|
|
|
Unrealized
Gains
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
September 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury, U.S. government corporations and agencies
|
|
$ |
2,245 |
|
|
$ |
47 |
|
|
$ |
— |
|
|
$ |
2,292 |
|
States, municipalities and political subdivisions
|
|
|
2,938 |
|
|
|
216 |
|
|
|
— |
|
|
|
3,154 |
|
Foreign governments
|
|
|
12,972 |
|
|
|
286 |
|
|
|
(62 |
) |
|
|
13,196 |
|
Corporate bonds
|
|
|
11,142 |
|
|
|
1,804 |
|
|
|
(345 |
) |
|
|
12,601 |
|
Mortgage-backed securities
|
|
|
2,464 |
|
|
|
357 |
|
|
|
(16 |
) |
|
|
2,805 |
|
|
|
$ |
31,761 |
|
|
$ |
2,710 |
|
|
$ |
(423 |
) |
|
$ |
34,048 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury, U.S. government corporations and agencies
|
|
$ |
2,151 |
|
|
$ |
48 |
|
|
$ |
(2 |
) |
|
$ |
2,197 |
|
States, municipalities and political subdivisions
|
|
|
3,356 |
|
|
|
225 |
|
|
|
— |
|
|
|
3,581 |
|
Foreign governments
|
|
|
11,721 |
|
|
|
242 |
|
|
|
(51 |
) |
|
|
11,912 |
|
Corporate bonds
|
|
|
11,773 |
|
|
|
2,304 |
|
|
|
(23 |
) |
|
|
14,054 |
|
Mortgage-backed securities
|
|
|
2,838 |
|
|
|
312 |
|
|
|
(11 |
) |
|
|
3,139 |
|
|
|
$ |
31,839 |
|
|
$ |
3,131 |
|
|
$ |
(87 |
) |
|
$ |
34,883 |
|
Investments in fixed maturity securities are reflected in the Consolidated Balance Sheets as follows (in millions).
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
Insurance and other
|
|
$ |
33,031 |
|
|
$ |
33,803 |
|
Finance and financial products
|
|
|
1,017 |
|
|
|
1,080 |
|
|
|
$ |
34,048 |
|
|
$ |
34,883 |
|
As of September 30, 2011, fixed maturity investments that were in a continuous unrealized loss position for more than 12 months had unrealized losses of $16 million. As of December 31, 2010, fixed maturity investments that were in a continuous unrealized loss position for more than 12 months had unrealized losses of $24 million.
The amortized cost and estimated fair value of securities with fixed maturities at September 30, 2011 are summarized below by contractual maturity dates. Actual maturities will differ from contractual maturities because issuers of certain of the securities retain early call or prepayment rights. Amounts are in millions.
|
|
Due in one
year or less
|
|
|
Due after one
year through
five years
|
|
|
Due after five
years through
ten years
|
|
|
Due after
ten years
|
|
|
Mortgage-backed
securities
|
|
|
Total
|
|
Amortized cost
|
|
$ |
8,466 |
|
|
$ |
13,848 |
|
|
$ |
4,503 |
|
|
$ |
2,480 |
|
|
$ |
2,464 |
|
|
$ |
31,761 |
|
Fair value
|
|
|
8,591 |
|
|
|
14,672 |
|
|
|
4,946 |
|
|
|
3,034 |
|
|
|
2,805 |
|
|
|
34,048 |
|
Note 5. Investments in equity securities
Investments in equity securities as of September 30, 2011 and December 31, 2010 are summarized based on the primary industry of the investee in the table below (in millions).
|
|
Cost Basis
|
|
|
Unrealized
Gains
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
September 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
Banks, insurance and finance
|
|
$ |
15,985 |
|
|
$ |
8,370 |
|
|
$ |
(2,308 |
) |
|
$ |
22,047 |
|
Consumer products
|
|
|
12,564 |
|
|
|
12,986 |
|
|
|
(18 |
) |
|
|
25,532 |
|
Commercial, industrial and other
|
|
|
17,411 |
|
|
|
3,290 |
|
|
|
(218 |
) |
|
|
20,483 |
|
|
|
$ |
45,960 |
|
|
$ |
24,646 |
|
|
$ |
(2,544 |
) |
|
$ |
68,062 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banks, insurance and finance
|
|
$ |
15,519 |
|
|
$ |
9,549 |
|
|
$ |
(454 |
) |
|
$ |
24,614 |
|
Consumer products
|
|
|
13,551 |
|
|
|
12,410 |
|
|
|
(212 |
) |
|
|
25,749 |
|
Commercial, industrial and other
|
|
|
6,474 |
|
|
|
4,682 |
|
|
|
(6 |
) |
|
|
11,150 |
|
|
|
$ |
35,544 |
|
|
$ |
26,641 |
|
|
$ |
(672 |
) |
|
$ |
61,513 |
|
Notes To Consolidated Financial Statements (Continued)
Note 5. Investments in equity securities (Continued)
Investments in equity securities are reflected in the Consolidated Balance Sheets as follows (in millions).
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
Insurance and other
|
|
$ |
67,225 |
|
|
$ |
59,819 |
|
Railroad, utilities and energy *
|
|
|
381 |
|
|
|
1,182 |
|
Finance and financial products *
|
|
|
456 |
|
|
|
512 |
|
|
|
$ |
68,062 |
|
|
$ |
61,513 |
|
*
|
Included in Other assets.
|
As of September 30, 2011, there were no equity security investments that were in a continuous unrealized loss position for more than twelve months where other-than-temporary impairment (“OTTI”) losses were not recorded. As of December 31, 2010 such unrealized losses were $531 million.
In the first quarter of 2011, we recorded OTTI losses of $506 million related to certain of our investments in equity securities. The OTTI losses recorded in earnings were offset by a reduction in unrealized losses recorded in other comprehensive income resulting in no impact on our consolidated shareholders’ equity. The OTTI losses included $337 million with respect to 103.6 million shares of our investment in Wells Fargo & Company common stock. These shares had an aggregate original cost of $3,621 million. We also held an additional 255.4 million shares of Wells Fargo which were acquired at an aggregate cost of $4,394 million. These shares had an unrealized gain of $3,704 million as of March 31, 2011. Due to the length of time that certain of our Wells Fargo shares were in a continuous unrealized loss position and because we account for gains and losses on a specific identification basis, accounting regulations required us to record the unrealized losses in earnings. However, the unrealized gains were not reflected in earnings but were instead recorded directly in shareholders’ equity as a component of accumulated other comprehensive income.
Note 6. Other investments
Other investments include fixed maturity and equity securities of The Goldman Sachs Group, Inc. (“GS”), General Electric Company (“GE”), Wm. Wrigley Jr. Company (“Wrigley”), The Dow Chemical Company (“Dow”) and Bank of America Corporation (“BAC”). A summary of other investments follows (in millions).
|
|
Cost
|
|
|
Net Unrealized
Gains
|
|
|
Fair
Value
|
|
|
Carrying
Value
|
|
September 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
Other fixed maturity and equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance and other
|
|
$ |
15,817 |
|
|
$ |
1,841 |
|
|
$ |
17,658 |
|
|
$ |
16,633 |
|
Finance and financial products
|
|
|
3,198 |
|
|
|
699 |
|
|
|
3,897 |
|
|
|
3,886 |
|
|
|
$ |
19,015 |
|
|
$ |
2,540 |
|
|
$ |
21,555 |
|
|
$ |
20,519 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other fixed maturity and equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance and other
|
|
$ |
15,700 |
|
|
$ |
4,758 |
|
|
$ |
20,458 |
|
|
$ |
19,333 |
|
Finance and financial products
|
|
|
2,742 |
|
|
|
947 |
|
|
|
3,689 |
|
|
|
3,676 |
|
|
|
$ |
18,442 |
|
|
$ |
5,705 |
|
|
$ |
24,147 |
|
|
$ |
23,009 |
|
In 2008, we acquired 50,000 shares of 10% Cumulative Perpetual Preferred Stock of GS (“GS Preferred”) and warrants to purchase 43,478,260 shares of common stock of GS (“GS Warrants”) for a combined cost of $5 billion. Under its terms, the GS Preferred was redeemable at any time by GS at a price of $110,000 per share ($5.5 billion in aggregate). On April 18, 2011, GS fully redeemed our GS Preferred investment and we received aggregate redemption proceeds of $5.5 billion. The GS Warrants remain outstanding and expire in 2013. The GS Warrants are exercisable for an aggregate cost of $5 billion ($115/share).
In 2008, we also acquired 30,000 shares of 10% Cumulative Perpetual Preferred Stock of GE (“GE Preferred”) and warrants to purchase 134,831,460 shares of common stock of GE (“GE Warrants”) for a combined cost of $3 billion. Under its terms, the GE Preferred was redeemable by GE beginning in October 2011 at a price of $110,000 per share ($3.3 billion in aggregate). On October 17, 2011, GE fully redeemed our GE Preferred investment and we received aggregate redemption proceeds of $3.3 billion. The GE Warrants remain outstanding and expire in 2013. The GE Warrants are exercisable for an aggregate cost of $3 billion ($22.25/share).
Notes To Consolidated Financial Statements (Continued)
Note 6. Other investments (Continued)
In 2008, we acquired $4.4 billion par amount of 11.45% Wrigley subordinated notes due in 2018 and $2.1 billion of 5% Wrigley preferred stock. In 2009, we also acquired $1.0 billion par amount of Wrigley senior notes due in 2013 and 2014. We currently own $800 million of the Wrigley senior notes and a joint venture in which we have a 50% economic interest owns $200 million of the Wrigley senior notes. The Wrigley subordinated and senior notes are classified as held-to-maturity and we carry these investments at cost, adjusted for foreign currency exchange rate changes that apply to certain of the senior notes. We carry the Wrigley preferred stock at fair value classified as available-for-sale.
In 2009, we acquired 3,000,000 shares of Series A Cumulative Convertible Perpetual Preferred Stock of Dow (“Dow Preferred”) for a cost of $3 billion. Under certain conditions, we can convert each share of the Dow Preferred into 24.201 shares (equivalent to a conversion price of $41.32 per share) of Dow common stock. Beginning in April 2014, if Dow’s common stock price exceeds $53.72 per share for any 20 trading days in a consecutive 30-day window, Dow, at its option, at any time, in whole or in part, may convert the Dow Preferred into Dow common stock at the then applicable conversion rate. The Dow Preferred is entitled to dividends at a rate of 8.5% per annum.
On September 1, 2011, we acquired 50,000 shares of 6% Cumulative Perpetual Preferred Stock of BAC (“BAC Preferred”) and warrants to purchase 700,000,000 shares of common stock of BAC (“BAC Warrants”) for a combined cost of $5 billion. Under its terms, the BAC Preferred is redeemable at any time by BAC at a price of $105,000 per share ($5.25 billion in aggregate). The BAC Warrants expire in 2021 and are exercisable for an additional aggregate cost of $5 billion ($7.142857/share).
Note 7. Investment gains/losses
Investment gains/losses are summarized below (in millions).
|
|
Third Quarter
|
|
|
First Nine Months
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Fixed maturity securities —
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross gains from sales and other disposals
|
|
$ |
31 |
|
|
$ |
19 |
|
|
$ |
207 |
|
|
$ |
587 |
|
Gross losses from sales and other disposals
|
|
|
(1 |
) |
|
|
(9 |
) |
|
|
(5 |
) |
|
|
(12 |
) |
Equity securities and other investments —
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross gains from sales and other disposals
|
|
|
40 |
|
|
|
522 |
|
|
|
1,308 |
|
|
|
857 |
|
Gross losses from sales and other disposals
|
|
|
(5 |
) |
|
|
(76 |
) |
|
|
(19 |
) |
|
|
(265 |
) |
Other
|
|
|
35 |
|
|
|
17 |
|
|
|
(3 |
) |
|
|
1,007 |
|
|
|
$ |
100 |
|
|
$ |
473 |
|
|
$ |
1,488 |
|
|
$ |
2,174 |
|
Investment gains from equity securities and other investments in the first nine months of 2011 included $1.25 billion with respect to the redemption of our GS Preferred investment. For the first nine months of 2010, other gains included a one-time holding gain of $979 million related to our BNSF acquisition in February.
Net investment gains/losses are reflected in the Consolidated Statements of Earnings as follows.
Insurance and other
|
|
$ |
100 |
|
|
$ |
473 |
|
|
$ |
1,314 |
|
|
$ |
2,169 |
|
Finance and financial products
|
|
|
— |
|
|
|
— |
|
|
|
174 |
|
|
|
5 |
|
|
|
$ |
100 |
|
|
$ |
473 |
|
|
$ |
1,488 |
|
|
$ |
2,174 |
|
Receivables of insurance and other businesses are comprised of the following (in millions).
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
Insurance premiums receivable
|
|
$ |
7,158 |
|
|
$ |
6,342 |
|
Reinsurance recoverable on unpaid losses
|
|
|
2,917 |
|
|
|
2,735 |
|
Trade and other receivables
|
|
|
10,136 |
|
|
|
12,223 |
|
Allowances for uncollectible accounts
|
|
|
(377 |
) |
|
|
(383 |
) |
|
|
$ |
19,834 |
|
|
$ |
20,917 |
|
As of December 31, 2010, trade and other receivables included approximately $3.9 billion related to the redemption of an investment. The redemption proceeds were received on January 10, 2011.
Notes To Consolidated Financial Statements (Continued)
Note 8. Receivables (Continued)
Loans and finance receivables of finance and financial products businesses are comprised of the following (in millions).
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
Consumer installment loans and finance receivables
|
|
$ |
13,564 |
|
|
$ |
14,042 |
|
Commercial loans and finance receivables
|
|
|
828 |
|
|
|
1,557 |
|
Allowances for uncollectible loans
|
|
|
(389 |
) |
|
|
(373 |
) |
|
|
$ |
14,003 |
|
|
$ |
15,226 |
|
Allowances for uncollectible loans primarily relate to consumer installment loans. Provisions for consumer loan losses were $255 million in the first nine months of 2011 and $266 million for the first nine months of 2010. Loan charge-offs, net of recoveries, were $239 million in the first nine months of 2011 and $265 million for the first nine months of 2010. Consumer loan amounts are net of unamortized acquisition discounts of $545 million at September 30, 2011 and $580 million at December 31, 2010. At September 30, 2011, approximately 96% of consumer installment loan balances were evaluated collectively for impairment whereas about 84% of commercial loan balances were evaluated individually for impairment. As a part of the evaluation process, credit quality indicators are reviewed and loans are designated as performing or non-performing. At September 30, 2011, approximately 98% of consumer installment and commercial loan balances were determined to be performing and approximately 93% of those balances were current as to payment status.
Note 9. Inventories
Inventories are comprised of the following (in millions).
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
Raw materials
|
|
$ |
1,609 |
|
|
$ |
1,066 |
|
Work in process and other
|
|
|
974 |
|
|
|
509 |
|
Finished manufactured goods
|
|
|
3,316 |
|
|
|
2,180 |
|
Goods acquired for resale
|
|
|
3,366 |
|
|
|
3,346 |
|
|
|
$ |
9,265 |
|
|
$ |
7,101 |
|
Note 10. Goodwill and other intangible assets
A reconciliation of the change in the carrying value of goodwill is as follows (in millions).
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
Balance at beginning of year
|
|
$ |
49,006 |
|
|
$ |
33,972 |
|
Acquisition of businesses
|
|
|
4,325 |
|
|
|
15,069 |
|
Other
|
|
|
(21 |
) |
|
|
(35 |
) |
Balance at end of period
|
|
$ |
53,310 |
|
|
$ |
49,006 |
|
Intangible assets other than goodwill are included in other assets in the Consolidated Balance Sheets and are summarized by type as follows (in millions).
|
|
September 30, 2011
|
|
|
December 31, 2010
|
|
|
|
Gross carrying
amount
|
|
|
Accumulated
amortization
|
|
|
Gross carrying
amount
|
|
|
Accumulated
amortization
|
|
Insurance and other
|
|
$ |
10,699 |
|
|
$ |
2,126 |
|
|
$ |
6,944 |
|
|
$ |
1,816 |
|
Railroad, utilities and energy
|
|
|
2,089 |
|
|
|
549 |
|
|
|
2,082 |
|
|
|
306 |
|
|
|
$ |
12,788 |
|
|
$ |
2,675 |
|
|
$ |
9,026 |
|
|
$ |
2,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks and trade names
|
|
$ |
2,566 |
|
|
$ |
205 |
|
|
$ |
2,027 |
|
|
$ |
166 |
|
Patents and technology
|
|
|
4,971 |
|
|
|
1,323 |
|
|
|
2,922 |
|
|
|
1,013 |
|
Customer relationships
|
|
|
3,831 |
|
|
|
753 |
|
|
|
2,676 |
|
|
|
612 |
|
Other
|
|
|
1,420 |
|
|
|
394 |
|
|
|
1,401 |
|
|
|
331 |
|
|
|
$ |
12,788 |
|
|
$ |
2,675 |
|
|
$ |
9,026 |
|
|
$ |
2,122 |
|
Notes To Consolidated Financial Statements (Continued)
Note 10. Goodwill and other intangible assets (Continued)
Amortization expense was $565 million for the first nine months of 2011 and $521 million for the first nine months of 2010. Intangible assets with indefinite lives as of September 30, 2011 and December 31, 2010 were $2,040 million and $1,635 million, respectively.
Note 11. Property, plant and equipment
Property, plant and equipment of our insurance and other businesses is comprised of the following (in millions).
|
|
Ranges of
estimated useful life
|
|
|
September 30,
2011
|
|
|
December 31,
2010
|
|
Land
|
|
— |
|
|
$ |
872 |
|
|
$ |
744 |
|
Buildings and improvements
|
|
3 – 40 years
|
|
|
|
5,263 |
|
|
|
4,661 |
|
Machinery and equipment
|
|
3 – 25 years
|
|
|
|
13,110 |
|
|
|
11,573 |
|
Furniture, fixtures and other
|
|
3 – 20 years
|
|
|
|
2,412 |
|
|
|
1,932 |
|
Assets held for lease
|
|
12 –30 years
|
|
|
|
5,886 |
|
|
|
5,832 |
|
|
|
|
|
|
|
|
27,543 |
|
|
|
24,742 |
|
Accumulated depreciation
|
|
|
|
|
|
|
(9,739 |
) |
|
|
(9,001 |
) |
|
|
|
|
|
|
$ |
17,804 |
|
|
$ |
15,741 |
|
Depreciation expense of insurance and other businesses for the first nine months of 2011 and 2010 was $1,191 million and $1,145 million, respectively.
Property, plant and equipment of our railroad and our utilities and energy businesses is comprised of the following (in millions).
|
|
Ranges of
estimated useful life
|
|
|
September 30,
2011
|
|
|
December 31,
2010
|
|
Railroad:
|
|
|
|
|
|
|
|
|
|
Land
|
|
— |
|
|
$ |
5,925 |
|
|
$ |
5,901 |
|
Track structure and other roadway
|
|
5 – 100 years
|
|
|
|
36,301 |
|
|
|
35,463 |
|
Locomotives, freight cars and other equipment
|
|
5 – 37 years
|
|
|
|
5,134 |
|
|
|
4,329 |
|
Construction in progress
|
|
— |
|
|
|
856 |
|
|
|
453 |
|
Utilities and energy:
|
|
|
|
|
|
|
|
|
|
|
|
|
Utility generation, distribution and transmission system
|
|
5 – 85 years
|
|
|
|
38,907 |
|
|
|
37,643 |
|
Interstate pipeline assets
|
|
3 – 67 years
|
|
|
|
5,962 |
|
|
|
5,906 |
|
Independent power plants and other assets
|
|
3 – 30 years
|
|
|
|
1,102 |
|
|
|
1,097 |
|
Construction in progress
|
|
— |
|
|
|
2,145 |
|
|
|
1,456 |
|
|
|
|
|
|
|
|
96,332 |
|
|
|
92,248 |
|
Accumulated depreciation
|
|
|
|
|
|
|
(15,690 |
) |
|
|
(14,863 |
) |
|
|
|
|
|
|
$ |
80,642 |
|
|
$ |
77,385 |
|
Depreciation expense of the railroad and the utilities and energy businesses for the first nine months of 2011 was $2,093 million. Depreciation expense for the first nine months of 2010 was $1,810 million, which includes depreciation expense of BNSF from February 13, 2010 through September 30, 2010.
Notes To Consolidated Financial Statements (Continued)
Note 12. Derivative contracts
Derivative contracts are used primarily by our finance and financial products, railroad and utilities and energy businesses. As of September 30, 2011 and December 31, 2010, substantially all of the derivative contracts of our finance and financial products businesses were not designated as hedges for financial reporting purposes. These contracts were initially entered into with the expectation that the premiums received would exceed the amounts ultimately paid to counterparties. Changes in the fair values of such contracts are reported in earnings as derivative gains/losses. A summary of derivative contracts of our finance and financial products businesses follows (in millions).
|
|
September 30, 2011
|
|
|
December 31, 2010
|
|
|
|
Assets (3)
|
|
|
Liabilities
|
|
|
Notional
Value
|
|
|
Assets (3)
|
|
|
Liabilities
|
|
|
Notional
Value
|
|
Equity index put options
|
|
$ |
— |
|
|
$ |
8,849 |
|
|
$ |
34,378 |
(1) |
|
$ |
— |
|
|
$ |
6,712 |
|
|
$ |
33,891 |
(1) |
Credit default contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High yield indexes
|
|
|
— |
|
|
|
247 |
|
|
|
4,841 |
(2) |
|
|
— |
|
|
|
159 |
|
|
|
4,893 |
(2) |
States/municipalities
|
|
|
— |
|
|
|
1,091 |
|
|
|
16,042 |
(2) |
|
|
— |
|
|
|
1,164 |
|
|
|
16,042 |
(2) |
Individual corporate
|
|
|
52 |
|
|
|
38 |
|
|
|
3,565 |
(2) |
|
|
84 |
|
|
|
— |
|
|
|
3,565 |
(2) |
Other
|
|
|
240 |
|
|
|
237 |
|
|
|
|
|
|
|
341 |
|
|
|
375 |
|
|
|
|
|
Counterparty netting
|
|
|
(93 |
) |
|
|
(41 |
) |
|
|
|
|
|
|
(82 |
) |
|
|
(39 |
) |
|
|
|
|
|
|
$ |
199 |
|
|
$ |
10,421 |
|
|
|
|
|
|
$ |
343 |
|
|
$ |
8,371 |
|
|
|
|
|
(1)
|
Represents the aggregate undiscounted amount payable at the contract expiration dates assuming that the value of each index is zero at the contract expiration date.
|
(2)
|
Represents the maximum undiscounted future value of losses payable under the contracts. The number of losses required to exhaust contract limits under substantially all of the contracts is dependent on the loss recovery rate related to the specific obligor at the time of a default.
|
(3)
|
Included in Other assets of finance and financial products businesses.
|
A summary of derivative gains/losses of our finance and financial products businesses included in the Consolidated Statements of Earnings is as follows (in millions).
|
|
Third Quarter
|
|
|
First Nine Months
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Equity index put options
|
|
$ |
(2,089 |
) |
|
$ |
(700 |
) |
|
$ |
(2,137 |
) |
|
$ |
(2,319 |
) |
Credit default contracts
|
|
|
(247 |
) |
|
|
519 |
|
|
|
(35 |
) |
|
|
407 |
|
Other
|
|
|
(107 |
) |
|
|
35 |
|
|
|
(184 |
) |
|
|
1 |
|
|
|
$ |
(2,443 |
) |
|
$ |
(146 |
) |
|
$ |
(2,356 |
) |
|
$ |
(1,911 |
) |
The equity index put option contracts are European style options written on four major equity indexes. Future payments, if any, under these contracts will be required if the underlying index value is below the strike price at the contract expiration dates which occur between June 2018 and January 2026. We received the premiums on these contracts in full at the contract inception dates and therefore we have no counterparty credit risk. We entered into no new contracts in 2010 or 2011.
At September 30, 2011, the aggregate intrinsic value (the undiscounted liability assuming the contracts are settled on their future expiration dates based on the September 30, 2011 index values and foreign currency exchange rates) was approximately $6.7 billion. However, these contracts may not be unilaterally terminated or fully settled before the expiration dates and therefore the ultimate amount of cash basis gains or losses on these contracts may not be determined for many years. The remaining weighted average life of all contracts was approximately 9.25 years at September 30, 2011.
Our credit default contracts pertain to various indexes of non-investment grade (or “high yield”) corporate issuers, as well as investment grade state/municipal and individual corporate debt issuers. These contracts cover the loss in value of specified debt obligations of the issuers arising from default events, which are usually from their failure to make payments or bankruptcy. Loss amounts are subject to aggregate contract limits. We entered into no new contracts in 2010 or 2011.
Notes To Consolidated Financial Statements (Continued)
Note 12. Derivative contracts (Continued)
The high yield index contracts are comprised of specified North American corporate issuers (usually 100 in number at inception) whose obligations are rated below investment grade. High yield contracts remaining in-force at September 30, 2011 expire in 2012 and 2013. State and municipality contracts are comprised of over 500 state and municipality issuers and had a weighted average contract life at September 30, 2011 of approximately 9.5 years. Potential obligations related to approximately 50% of the notional value of the state and municipality contracts cannot be settled before the maturity dates of the underlying obligations, which range from 2019 to 2054.
Premiums on the high yield index and state/municipality contracts were received in full at the inception dates of the contracts and, as a result, we have no counterparty credit risk. Our payment obligations under certain of these contracts are on a first loss basis. Losses under other contracts are subject to aggregate deductibles that must be satisfied before we have any payment obligations.
Individual corporate credit default contracts primarily relate to issuers of investment grade obligations. In most instances, premiums are due from counterparties on a quarterly basis over the terms of the contracts. As of September 30, 2011, all of the remaining contracts in-force will expire in 2013.
With limited exceptions, our equity index put option and credit default contracts contain no collateral posting requirements with respect to changes in either the fair value or intrinsic value of the contracts and/or a downgrade of Berkshire’s credit ratings. As of September 30, 2011, our collateral posting requirement under contracts with collateral provisions was $443 million compared to $31 million at December 31, 2010. If Berkshire’s credit ratings (currently AA+ from Standard & Poor’s and Aa2 from Moody’s) are downgraded below either A- by Standard & Poor’s or A3 by Moody’s, additional collateral of up to $1.1 billion could be required to be posted.
Our regulated utility subsidiaries and our railroad are exposed to variations in the market prices in the purchases and sales of natural gas and electricity and in the purchases of fuel. Derivative instruments, including forward purchases and sales, futures, swaps and options, are used to manage these price risks. Unrealized gains and losses under the contracts of our regulated utilities that are probable of recovery through rates are recorded as a regulatory net asset or liability. Unrealized gains or losses on contracts accounted for as cash flow or fair value hedges are recorded in accumulated other comprehensive income or in net earnings, as appropriate. Derivative contract assets included in other assets of railroad, utilities and energy businesses were $79 million and $231 million as of September 30, 2011 and December 31, 2010, respectively. Derivative contract liabilities included in accounts payable, accruals and other liabilities of railroad, utilities and energy businesses were $492 million as of September 30, 2011 and $621 million as of December 31, 2010.
Note 13. Supplemental cash flow information
A summary of supplemental cash flow information for the first nine months of 2011 and 2010 is presented in the following table (in millions).
|
|
First Nine Months
|
|
|
|
2011
|
|
|
2010
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
Income taxes
|
|
$ |
1,352 |
|
|
$ |
3,030 |
|
Interest:
|
|
|
|
|
|
|
|
|
Insurance and other businesses
|
|
|
173 |
|
|
|
146 |
|
Railroad, utilities and energy businesses
|
|
|
1,390 |
|
|
|
1,255 |
|
Finance and financial products businesses
|
|
|
475 |
|
|
|
543 |
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Liabilities assumed in connection with acquisitions
|
|
|
4,991 |
|
|
|
31,160 |
|
Common stock issued in connection with acquisition of BNSF
|
|
|
— |
|
|
|
10,577 |
|
Common stock issued in connection with acquisition of noncontrolling interests in Wesco Financial Corporation
|
|
|
245 |
|
|
|
— |
|
Notes To Consolidated Financial Statements (Continued)
Note 14. Notes payable and other borrowings
Notes payable and other borrowings are summarized below (in millions). The average interest rates shown in the following tables are the weighted average interest rates on outstanding debt as of September 30, 2011. Maturity date ranges are based on borrowings as of September 30, 2011.
|
|
Average
Interest Rate
|
|
September 30,
2011
|
|
|
December 31,
2010
|
|
Insurance and other:
|
|
|
|
|
|
|
|
|
|
Issued by Berkshire parent company due 2012-2047
|
|
|
1.9 |
% |
|
$ |
8,287 |
|
|
$ |
8,360 |
|
Short-term subsidiary borrowings
|
|
|
0.2 |
% |
|
|
1,525 |
|
|
|
1,682 |
|
Other subsidiary borrowings due 2011-2036
|
|
|
5.9 |
% |
|
|
3,936 |
|
|
|
2,429 |
|
|
|
|
|
|
|
$ |
13,748 |
|
|
$ |
12,471 |
|
In connection with the BNSF acquisition, the Berkshire parent company issued $8.0 billion aggregate par amount of senior unsecured notes, including $2.0 billion par amount of floating rate notes that matured in February 2011. In August 2011, the Berkshire parent company issued $2.0 billion of debentures consisting of $750 million of 2.2% senior notes due in 2016, $500 million of 3.75% senior notes due in 2021 and $750 million of floating rate senior notes due in 2014. Other subsidiary borrowings as of September 30, 2011 included $1,607 million in pre-acquisition debt issued by Lubrizol.
|
|
Average
Interest Rate
|
|
September 30,
2011
|
|
|
December 31,
2010
|
|
Railroad, utilities and energy:
|
|
|
|
|
|
|
|
|
|
Issued by MidAmerican Energy Holdings Company (“MidAmerican”) and its subsidiaries:
|
|
|
|
|
|
|
|
|
|
MidAmerican senior unsecured debt due 2012-2037
|
|
|
6.1 |
% |
|
$ |
5,363 |
|
|
$ |
5,371 |
|
Subsidiary and other debt due 2011-2039
|
|
|
5.6 |
% |
|
|
14,509 |
|
|
|
14,275 |
|
Issued by BNSF due 2011-2097
|
|
|
5.9 |
% |
|
|
12,772 |
|
|
|
11,980 |
|
|
|
|
|
|
|
$ |
32,644 |
|
|
$ |
31,626 |
|
MidAmerican subsidiary debt represents amounts issued pursuant to separate financing agreements. All or substantially all of the assets of certain MidAmerican subsidiaries are or may be pledged or encumbered to support or otherwise secure the debt. These borrowing arrangements generally contain various covenants including,