,utilitiesandenergy,finance,manufacturing,,thethirdlargestautoinsurerintheUnitedStatesandtwoofthelargestreinsurersintheworld,,MedicalProtectiveCompany,AppliedUnderwriters,,CentralStatesIndemnityCompany,KansasBankersSurety,CypressInsuranceCompany,“HomestateCompanies.”MidAmericanEnergyHoldingsCompany(“MidAmerican”)isaninternationalenergyholdingcompanyowningawidevarietyofoperatingcompaniesengagedinthegeneration,’soperatingenergycompaniesareNorthernElectricandYorkshireElectricity;MidAmericanEnergyCompany;PacificPowerandRockyMountainPower;,MidAmericanownsHomeServicesofAmerica,’sfinanceandfinancialproductsbusinessesprimarilyengageinproprietaryinvestingstrategies(BHFinance),commercialandconsumerlending(BerkshireHathawayCreditCorporationandClaytonHomes)andtransportationequipmentandfurnitureleasing(XTRAandCORT).McLaneCompanyisawholesaledistributorofgroceriesandnonfooditemstoconveniencestores,wholesaleclubs,massmerchandisers,’’sothermanufacturing,,,Russell,VanityFair,Garan,Fechheimer,,,,StarFurnitureandJordan’,,othermanufacturing,serviceandretailbusinessesinclude:BuffaloNews,apublisherofadailyandSundaynewspaper;See’sCandies,amanufacturerandsellerofboxedchocolatesandotherconfectioneryproducts;ScottFetzer,adiversifiedmanufactureranddistributorofcommercialandindustrialproducts;Albecca,adesigner,manufactureranddistributorofhigh-qualitypictureframingproducts;CTBInternational,amanufacturerofequipmentforthelivestockandagriculturalindustries;InternationalDairyQueen,alicensorandserviceprovidertoabout5,700storesthatofferprepareddairytreatsandfood;ThePamperedChef,.;ForestRiver,.;BusinessWire,theleadingglobaldistributorofcorporatenews,multimediaandregulatoryfilings;IscarMetalworkingCompanies,anindustryleaderinthemetalcuttingtoolsbusiness;TTI,Inc.,aleadingdistributorofelectroniccomponentsandRichlineGroup,,’sBoardofDirectors.************
.......................................&P500...................................2Chairman’sLetter*....................................................3AcquisitionCriteria....................................................24Management’sReportonInternalControlOverFinancialReporting.............24ReportofIndependentRegisteredPublicAccountingFirm.....................25SelectedFinancialDataForThePastFiveYears.............................26ConsolidatedFinancialStatements........................................27Management’sDiscussion...............................................62Owner’sManual......................................................89CommonStockData...................................................95OperatingCompanies..................................................96DirectorsandOfficersoftheCompany.......................InsideBackCover©*
Berkshire’&P500AnnualPercentageChangeinPer-ShareinS&P500BookValueofwithDividendsRelativeBerkshireIncludedResultsYear(1)(2)(1)-(2)1965......................................................................................................()...................................................()1968......................................................................................................()............................................................................................................................................................................................................()...................................................()...................................................()1976......................................................................................................().........................................................................................................................................................()1981...................................................()...........................................................................................................................................................................................................................................................................................................................................................................................................................................................................()............................................................................................................................................................................................................................................................................................................................................................................................................................................................................()2000...................................................()...................................................()()...................................................()...................................................()2004...................................................(.4)2005............................................................................................................................................................................................................()()–1965-2008.......................%%–1964-2008..................................362,319%4,276%Notes:Dataareforcalendaryearswiththeseexceptions:1965and1966,yearended9/30;1967,15monthsended12/,accountingrulesrequiredinsurancecompaniestovaluetheequitysecuritiestheyholdatmarketratherthanatthelowerofcostormarket,,Berkshire’,&&P500andaccruedtheappropriatetaxes,itsresultswouldhavelaggedtheS&P500inyearswhenthatindexshowedapositivereturn,butwouldhaveexceededtheS&,
.:Ourdecreaseinnetworthduring2008was$,%.Overthelast44years(thatis,sincepresentmanagementtookover)bookvaluehasgrownfrom$19to$70,530,%compoundedannually.*Thetableontheprecedingpage,recordingboththe44-yearperformanceofBerkshire’sbookvalueandtheS&P500index,,,investorsofallstripeswerebloodiedandconfused,,aseriesoflife-threateningproblemswithinmanyoftheworld’:“InGodwetrust;allotherspaycash.”Bythefourthquarter,thecreditcrisis,coupledwithtumblinghomeandstockprices,,.–andmuchoftheworld–,,theTreasuryandtheFedhavegone“allin.”’sguess,,majorindustrieshavebecomedependentonFederalassistance,’,,,theinhabitantsofWallStreet,,however,,wedealtwithtwogreatwars(oneofwhichweinitiallyappearedtobelosing);adozenor1sopanicsandrecessions;virulentinflationthatledtoa21⁄2%primeratein1980;andtheGreatDepressionofthe1930s,whenunemploymentrangedbetween15%and25%,however,we’–andmanyothers–therealstandardoflivingforAmericansimprovednearlyseven-foldduringthe1900s,whiletheDowJonesIndustrialsrosefrom66to11,,ifany,,,’sbestdayslieahead.*Allper-sharefiguresusedinthisreportapplytoBerkshire’
%ofthoseyears,theS&,mypartnerinrunningBerkshire,norIcanpredictthewinningandlosingyearsinadvance.(Inourusualopinionatedview,wedon’tthinkanyoneelsecaneither.)We’recertain,forexample,thattheeconomywillbeinshamblesthroughout2009–and,forthatmatter,probablywellbeyond–,CharlieandIsimplyfocusonfourgoals:(1)maintainingBerkshire’sGibraltar-likefinancialposition,whichfeatureshugeamountsofexcessliquidity,near-termobligationsthataremodest,anddozensofsourcesofearningsandcash;(2)wideningthe“moats”aroundouroperatingbusinessesthatgivethemdurablecompetitiveadvantages;(3)acquiringanddevelopingnewandvariedstreamsofearnings;(4)expandingandnurturingthecadreofoutstandingoperatingmanagerswho,overtheyears,,,,however,ourmanufacturing,serviceandretailbusinessesearnedsubstantialsumsandmostofthem–particularlythelargerones–,wearefortunatethatBerkshire’stwomostimportantbusinesses–ourinsuranceandutilitygroups–’sreport,,$“float”–moneythatdoesn’tbelongtousbutthatweholdandinvestforourownbenefit–,wewerepaid$,mostinsurersexperienceasubstantialunderwritingloss,,,,,thecorebusinessofBerkshire,,,themanagersofthisoperation,
,,pessimismisyourfriend,,$1⁄2billionpre-taxtoBerkshire’(weown64%ofthecompanynowandwillpurchaseitsremainingstockoverthenextsixyears).Additionally,certainofoursubsidiariesmade“tuck-in”’’sanotherlesspleasantreality:,Imadesomeerrorsofomission,,,,BenGrahamtaughtmethat“Priceiswhatyoupay;valueiswhatyouget.”Whetherwe’retalkingaboutsocksorstocks,:stocks,$122billion(notcountingtheinvestmentsheldbyourfinanceandutilityoperations,whichweassigntooursecondbucketofvalue).About$’-insurancecompanies,,,ourinvestmentsfellfrom$90,343pershareofBerkshire(afterminorityinterest)to$77,793,adecreasethatwascausedbyadeclineinmarketprices,-taxearningsof$4,093perBerkshireshareto$3,921(againafterminorityinterest).,weneedtomakedecentgainsineachareaifwearetoincreaseBerkshire’,however,ourfocuswillbeontheearningssegment,,,let’,lumpingthemtogether,asisdoneinstandardfinancialstatements,’llpresentthemasfourseparatebusinesses,
%(diluted)interestinMidAmericanEnergyHoldings,(1)YorkshireElectricityandNorthernElectric,.’sthirdlargestdistributorofelectricity;(2)MidAmericanEnergy,whichserves723,000electriccustomers,primarilyinIowa;(3)PacificPowerandRockyMountainPower,;and(4)KernRiverandNorthernNaturalpipelines,whichcarryabout9%,DaveSokolandGregAbel,andmylong-timefriend,’sunimportanthowmanyvoteseachpartyhas;,GregandWalterhavereinforcedmyoriginalbelief:Berkshirecouldn’,.,-brandedfirmsthathave16,,,however,’soperations:Earnings(inmillions)............................................................$339$337Iowautility.............................................................425412Westernutilities.........................................................703692Pipelines...............................................................595473HomeServices...........................................................(45)42Other(net)..............................................................186130Operatingearningsbeforecorporateinterestandtaxes...........................2,2032,086ConstellationEnergy*.....................................................1,092–Interest,otherthantoBerkshire.............................................(332)(312)InterestonBerkshirejuniordebt.............................................(111)(108)Incometax..............................................................(1,002)(477)Netearnings.............................................................$1,850$1,189EarningsapplicabletoBerkshire**..........................................$1,704$1,114Debtowedtoothers.......................................................19,14519,002DebtowedtoBerkshire....................................................1,087821*Consistsofabreakupfeeof$175millionandaprofitonourinvestmentof$917million.**IncludesinterestearnedbyBerkshire(netofrelatedincometaxes)of$72in2008and$’’,KernRiverandNorthernNatural,,’s2009report,’,,
,MidAmerican’swind-basedfacilitieshavegrownfromzerotoalmost20%,whenwepurchasedPacifiCorpin2006,’snow794,withmorecoming.(ArrivingatPacifiCorp,wefound“wind”ofadifferentsort:,wegenerateanddeliverconsiderablymoreelectricity,doingsowith2%feweremployees.)In2008alone,MidAmericanspent$,,comparethat$$-taxearningsofPacifiCorp(showninthetableas“Western”),wespendallweearn,andthensome,,,’sagreatpartnershipforallconcerned.************Ourlong-avowedgoalistobethe“buyerofchoice”forbusinesses–;avoidleveragingupacquiredbusinesses;grantunusualautonomytoourmanagers;andholdthepurchasedcompaniesthroughthickandthin(thoughwepreferthickandthicker).,however,,acquisitionsare“merchandise.”Beforetheinkdriesontheirpurchasecontracts,theseoperatorsarecontemplating“exitstrategies.”Wehaveadecidedadvantage,therefore,“leveraged-buyoutoperators.”,,though,weretheessentialingredientsoftheirpreviousoperations,“privateequity,”anamethatturnsthefactsupside-down:Apurchaseofabusinessbythesefirmsalmostinvariablyresultsindramaticreductionsintheequityportionoftheacquiree’,purchasedonlytwotothreeyearsago,¢onthedollar,-equityfirms,itshouldbenoted,,they’,Berkshirehopestobethe“buyerofchoice”,ratherthansellingshareholders,–anddo–calltheircounterpartsinotherstateswhereyouoperateandaskhowyouhavebehavedinrespecttoallaspectsofthebusiness,
WhenMidAmericanproposeditspurchaseofPacifiCorpin2005,,,’–’,%%
Reinsuranceisabusinessoflong-termpromises,:’swhereGeneralReexcels:,“It’sdifficultforanemptysacktostandupright.”That’’sreinsurancedivision,,,Ajit’,,,:,’“bigthree,”“OtherPrimary.”Forspacereasons,wedon’,,,overall,,(inmillions)InsuranceOperations2008200720082007GeneralRe......................$342$555$21,074$23,009BHReinsurance..................1,3241,42724,22123,692GEICO.........................9161,1138,4547,768OtherPrimary...................2102794,7394,229$2,792$3,374$58,488$58,698Manufacturing,’slook,though,
EarningsStatement(inmillions)200820072006Revenues.........................................................$66,099$59,100$52,660Operatingexpenses(includingdepreciationof$1,280in2008,$955in2007and$823in2006)....................................................61,93755,02649,002Interestexpense....................................................139127132Pre-taxearnings....................................................4,023*3,947*3,526*Incometaxesandminorityinterests.....................................1,7401,5941,395Netincome........................................................$2,283$2,353$2,131*,whichsellsproductsrangingfromlollipopstomotorhomes,%’,however,atlargepremiumstonetworth–apointreflectedinthegoodwillitemshownonourbalancesheet–%.Thoughthefull-yearresultwassatisfactory,earningsofmanyofthebusinessesinthisgrouphittheskidsinlastyear’,thegroupretainsstrongearningpowerevenundertoday’,thesecompaniesimprovedtheircompetitivepositionslastyear,,manycompetitorsweretreadingwater(orsinking).ThemostnoteworthyoftheseacquisitionswasIscar’slate-NovemberpurchaseofTungaloy,–andappreciation!–attheaccomplishmentsofIscar’,’sgrowthsinceourpurchasehasexceededourexpectations–whichwerehigh–,BenjaminMoore,AcmeBrick,ForestRiver,,whichoperatesworldwideintheagricultureequipmentfield,,wepaid$-taxearningswere$,itsCEO,,,Vicwillberunningamuchlargeroperationand,moreimportant,,’,delivering27,%oftheindustry’s81,,,unitssoldhavesteadilydeclinedsincetheyhitapeakof372,
Atthattime,,Idescribeditasinvolving“borrowerswhoshouldn’thaveborrowedbeingfinancedbylenderswhoshouldn’thavelent.”Tobeginwith,.(“Thatcertainlylookslikea$2,000cattome”saysthesalesmanwhowillreceivea$3,000commissioniftheloangoesthrough.)Moreover,(“securitized”),,itshouldbeemphasized,,;,,inaneeriererunofthatdisaster,thesamemistakeswererepeatedwithconventionalhomesinthe2004-07period:Lendershappilymadeloansthatborrowerscouldn’trepayoutoftheirincomes,“house-priceappreciation”’Haraalloveragain:“I’llthinkaboutittomorrow.”’s198,888borrowers,however,havecontinuedtopaynormallythroughoutthehousingcrash,,apointprovedbyFICOscores(astandardmeasureofcreditrisk).TheirmedianFICOscoreis644,comparedtoanationalmedianof723,andabout35%arebelow620,thesegmentusuallydesignated“sub-prime.”Manydisastrouspoolsofmortgagesonconventionalhomesarepopulatedbyborrowerswithfarbettercredit,,%,%%in2004.(Inadditiontoouroriginatedloans,we’vealsoboughtbulkportfoliosofvarioustypesfromotherfinancialinstitutions.)Clayton’%%%–characteristicallypeoplewithmodestincomesandfar-from-greatcreditscores–performingsowell?Theansweriselementary,-boremortgagepaymentswouldcomparewiththeiractual–nothoped-for–,theytookoutamortgagewiththeintentionofpayingitoff,“teaser”,,butdeath,–astheysurelywillin2009–moreofClayton’sborrowerswillhavetroubles,andwewillhavelarger,thoughstillmanageable,
Commentaryaboutthecurrenthousingcrisisoftenignoresthecrucialfactthatmostforeclosuresdonotoccurbecauseahouseisworthlessthanitsmortgage(so-called“upside-down”loans).Rather,foreclosurestakeplacebecauseborrowerscan’-payment–derivedfromsavingsandnotfromotherborrowing–,theywalkwhentheycan’,,,lenders,-to-Goddownpaymentofatleast10%andmonthlypaymentsthatcanbecomfortablyhandledbytheborrower’,thoughadesirablegoal,shouldn’tbeourcountry’.************Clayton’slendingoperation,thoughnotdamagedbytheperformanceofitsborrowers,–bankswithFDIC-insureddeposits,largeentitieswithcommercialpapernowbackedbytheFederalReserve,andotherswhoareusingimaginativemethods(orlobbyingskills)tocomeunderthegovernment’sumbrella–,highly-ratedcompanies,suchasBerkshire,areexperiencingborrowingcoststhat,inrelationtoTreasuryrates,,fundsareabundantforthegovernment-guaranteedborrowerbutoftenscarceforothers,“spread”inthecostofmoneymakesitunprofitableforanylenderwhodoesn’“haves”and“have-nots.”Thatiswhycompaniesarerushingtoconverttobankholdingcompanies,’screditispristine–weareoneofonlysevenAAAcorporationsinthecountry–,’,webelievewewillfindatleastapartialsolutionthatwillallowustocontinuemuchofClayton’’searnings,however,-TaxEarnings(inmillions)20082007Netinvestmentincome.......................................$330$272Lifeandannuityoperation....................................23(60)Leasingoperations..........................................87111Manufactured-housingfinance(Clayton)........................206526Other*....................................................141157Incomebeforeinvestmentandderivativesgainsorlosses...........$787$1,006*Includes$92millionin2008and$85millionin2007offeesthatBerkshirechargesClaytonfortheuseofBerkshire’
Tax-ExemptBondInsuranceEarlyin2008,weactivatedBerkshireHathawayAssuranceCompany(“BHAC”)asaninsurerofthetax-exemptbondsissuedbystates,(primarytransactions)andlater,whenthebondsarealreadyownedbyinvestors(secondarytransactions).Byyearend2007,:“IwasSnowWhite,butIdrifted.”Themonolines(asthebondinsurersarecalled),,,,-threateningtrouble(thoughtheysaid1otherwise.)Wewouldhavechargeda1⁄2%ratetotakeovertheguaranteesonabout$,wewouldhavebeenrequiredtopayanylossessufferedbyinvestorswhoownedthesebonds–:Forreasonswewillcometolater,,,though,theturndownsprovedtobeverygoodnewsforus,,wewroteabout$’sthepunchline:About77%ofthisbusinesswasonbondsthatwerealreadyinsured,,“second-to-pay”%.That’sright;%,weactuallyagreedtobefourthtopay,nonethelessreceivingaboutthreetimesthe1%,,ofcourse,directlyhelpsus,sinceitmakesitlesslikelythatwewillhavetopay,atleastinthenearterm,,wehavealsowritten$$,ofcourse,,,,,thoughIhaveneverseenevenapassingreferencetoitbyanyfinancialanalyst,
-exemptbondsdidn’texistbefore1971,-exemptsfullycoveredbyinsurancewouldbecertaintohaveasomewhatdifferentlossexperiencefromagroupofuninsured,butotherwisesimilarbonds,,let’–virtuallyalluninsured–wereheavilyheldbythecity’’,,itwasapparenttoallthatNewYork’,imaginethatallofthecity’-tightening,taxincreases,laborconcessions,
-soundingpriesthoodusingesoterictermssuchasbeta,gamma,sigmaandthelike,,though,:Bewareofgeeksbearingformulas.************Afinalpost-scriptonBHAC:Who,youmaywonder,runsthisoperation?WhileIhelpsetpolicy,,theywerealreadygenerating$-persongroup?CharlieandIdecideditwashightimeforthemtostartdoingafullday’,,presentingthefirstcategory,itemizesinvestmentsthatarecarriedonourbalancesheetatmarketvalueandthathadayearendvalueofmorethan$
Unlessfactsorruleschange,youwillseetheseholdingsreflectedinourbalancesheetat“equityaccounting”values,(lessapplicabletaxes)(andmaybemore;thisonesticksout).WithouturgingfromCharlieoranyoneelse,$40-$,moreover,,,Ispent$:$27million,foran89%,“unforcederrors.”Ontheplussidelastyear,wemadepurchasestotaling$-incomesecuritiesissuedbyWrigley,,whichcarryhighcurrentyieldsthat,inthemselves,,,IhadtosellportionsofsomeholdingsthatIwouldhavepreferredtokeep(primarilyJohnson&Johnson,Procter&GambleandConocoPhillips).However,Ihavepledged–toyou,theratingagenciesandmyself–’,Iwillnottradeevenanight’;,itwouldhaveseemedunthinkablethatyieldsliketoday’,,ofcourse,havefeltincreasinglycomfortable–infact,almostsmug–“cashisking,”,though,,;,OFHEO,whosemorethan100employeeshadnojobexcepttheoversightofthesetwoinstitutions,
Indeed,recenteventsdemonstratethatcertainbig-nameCEOs(orformerCEOs)atmajorfinancialinstitutionsweresimplyincapableofmanagingabusinesswithahuge,:WhenBerkshirepurchasedGeneralRein1998,weknewwecouldnotgetourmindsarounditsbookof23,218derivativescontracts,madewith884counterparties(manyofwhichwehadneverheardof).,ittookusfiveyearsandmorethan$,ourfeelingsaboutthebusinessmirroredalineinacountrysong:“IlikedyoubetterbeforeIgottoknowyousowell.”Improved“transparency”–afavoriteremedyofpoliticians,commentatorsandfinancialregulatorsforavertingfuturetrainwrecks–won’’tauditthesecontracts,andregulatorscan’“disclosure”in10-Ksofcompaniesthatareentangledwiththeseinstruments,allIendupknowingisthatIdon’tknowwhatisgoingonintheirportfolios(andthenIreachforsomeaspirin).Foracasestudyonregulatoryeffectiveness,let’,whichretainedcontroloverthem,,CongresscreatedOFHEOin1992,,FannieandFreddiebecamethemostintensely-regulatedcompaniesofwhichIamaware,,2003,OFHEO(whoseannualreportsareavailableontheInternet)sentits2002reporttoCongress–specificallytoitsfourbossesintheSenateandHouse,’s127pagesincludedaself-congratulatorycover-line:“Celebrating10YearsofExcellence.”,evenwhilethereportconcluded,asitalwaysdid,that“BothEnterpriseswerefinanciallysoundandwellmanaged.”Intruth,,in2006,OFHEOissueda340-pagescathingchronicleofthesinsofFanniethat,moreorless,blamedthefiascooneverypartybut–youguessedit–,atimebombIfirstdiscussedinBerkshire’,2008,TimGeithner,thentheablepresidentoftheNewYorkFed,explainedtheneedforarescue:“ThesuddendiscoverybyBear’’scounterpartiestoliquidatethecollateraltheyheldagainstthosepositionsandtoattempttoreplicatethosepositionsinalreadyveryfragilemarkets.”ThisisFedspeakfor“Westeppedintoavoidafinancialchainreactionofunpredictablemagnitude.”Inmyopinion,,,whichmeanscreditproblemscan’,infact,,incontrast,oftengounsettledforyears,orevendecades,withcounterpartiesbuildinguphugeclaimsagainsteachother.“Paper”assetsandliabilities–oftenhardtoquantify–,:It’snotjustwhomyousleepwith,
Sleepingaround,tocontinueourmetaphor,,onlycompanieshavingproblemsthatcaninfecttheentireneighborhood–Iwon’tmentionnames–arecertaintobecomeaconcernofthestate(anoutcome,I’msadtosay,thatisproper).FromthisirritatingrealitycomesTheFirstLawofCorporateSurvivalforambitiousCEOswhopileonleverageandrunlargeandunfathomablederivativesbooks:Modestincompetencesimplywon’tdo;it’’vepictured,youmaywonderwhyBerkshireisapartyto251derivativescontracts(otherthanthoseusedforoperationalpurposesatMidAmericanandthefewleftoveratGenRe).Theanswerissimple:Ibelieveeachcontractweownwasmispricedatinception,,,,,thepaymentsmadetouslesslosseswehavepaid–ourderivatives“float,”sotospeak–totaled$:Ifwebreakevenonanunderlyingtransaction,,thoughitisfarfromasurething,’sfourthquarter,wehadtopostlessthan1%ofoursecuritiesportfolio.(Whenwepostcollateral,wedeposititwiththirdparties,meanwhileretainingtheinvestmentearningsonthedepositedsecurities.)Inour2002annualreport,wewarnedofthelethalthreatthatpostingrequirementscreate,real-lifeillustrationsofwhichwewitnessedlastyearatavarietyoffinancialinstitutions(and,forthatmatter,atConstellationEnergy,whichwaswithinhoursofbankruptcywhenMidAmericanarrivedtoeffectarescue).,Iwillexplaintheminexcruciatingdetail.•Wehaveaddedmodestlytothe“equityput”portfolioIdescribedinlastyear’,;it’,wemightsella$1billion15-yearputcontractontheS&P500whenthatindexisat,say,–down10%–onthedayofmaturity,wewouldpay$,$1billion,,thesaleoftheputwouldhavedeliveredusapremium–perhaps$100millionto$150million–$(atcurrentexchangerates)andarespreadamongfourmajorindices:theS&.,.,theEuroStoxx50inEurope,,2019andourlastonJanuary24,$,,meanwhile,havepaidnothing,,wehaveusedBlack-Scholesvaluationmethodstorecordayearendliabilityof$10billion,–thisestimatedlossof$10billionminusthe$–meansthatwehavesofarreportedamark-to-marketlossof$
,however,whyIbelievetheBlack-Scholesformula,eventhoughitisthestandardforestablishingthedollarliabilityforoptions,:Forustolosethefull$,,however–asanexample–allindicesfell25%fromtheirvalueattheinceptionofeachcontract,andforeign-exchangeratesremainedastheyaretoday,wewouldoweabout$9billion,,wewouldhaveheldthe$.•Thesecondcategorywedescribedinlastyear’,ofcourse,,ourcontractsnowhaveanaveragelifeof2⁄3years,withthefirstexpirationduetooccuronSeptember20,2009andthelastonDecember20,$$-to-marketprinciples,wealsosetupaliabilityforfuturelossesthatatyearendtotaled$$100million,derivedfromour$$,however,theamountofgainorlosshasswungwildlyfromaprofitof$327millioninthesecondquarterof2008toalossof$,wemadepaymentsonthesecontractsofonly$97millionlastyear,,however,’sletter,,withtherecessiondeepeningatarapidrate,,Iwillkeepyouposted.•In2008webegantowrite“creditdefaultswaps”,similartowhatwewriteinBHAC,,say,theXYZcompanygoesbankrupt,andwehavewrittena$100millioncontract,weareobligatedtopayanamountthatreflectstheshrinkageinvalueofacomparableamountofXYZ’sdebt.(If,forexample,thecompany’sbondsaresellingfor30afterdefault,wewouldowe$70million.)Forthetypicalcontract,wereceivequarterlypaymentsforfiveyears,$4billionofcontractscovering42corporations,forwhichwereceiveannualpremiumsof$;,andwewillnotenterintosuchanarrangement.•Attherequestofourcustomers,wewriteafewtax-exemptbondinsurancecontractsthataresimilartothosewrittenatBHAC,
–ineffect,insured–bythesederivativesarelargelygeneralobligationsofstates,,however,mark-to-marketaccountingrequiredustorecordalossof$,andusedtheaccrualaccountingrequiredatinsurancecompanies,,however,,subjectastheyaretomark-to-marketaccounting,,the“downs”.************TheBlack-Scholesformulahasapproachedthestatusofholywritinfinance,’smaturityandstrikeprice,aswellastheanalyst’sexpectationsforvolatility,,however,,’’spostulatethatwesella100-year$1billionputoptionontheS&P500atastrikepriceof903(theindex’slevelon12/31/08).Usingtheimpliedvolatilityassumptionforlong-datedcontractsthatwedo,andcombiningthatwithappropriateinterestanddividendassumptions,wewouldfindthe“proper”Black-Scholespremiumforthiscontracttobe$,weneedtoassesswhethertheS&(atonly2%inflationitwillbeworthroughly14¢).,however,,theDow-JonesIndustrialAverageincreasedbyabout175-fold,,Ibelievetheprobabilityofadeclineintheindexoveraone-hundred-yearperiodtobefarlessthan1%.Butlet’susethatfigureandalsoassumethatthemostlikelydecline–shouldoneoccur–is50%.Undertheseassumptions,themathematicalexpectationoflossonourcontractwouldbe$5million($1billionX1%X50%).Butifwehadreceivedourtheoreticalpremiumof$,%%rate?Let’%%ofpossibilities–thatis,oneassumingatotallossof$1billion–%.Clearly,
TheridiculouspremiumthatBlack-Scholesdictatesinmyextremeexampleiscausedbytheinclusionofvolatilityintheformulaandbythefactthatvolatilityisdeterminedbyhowmuchstockshavemovedaroundinsomepastperiodofdays,-weightedrangeofvaluesofAmericanbusiness100yearsfromnow.(Imagine,ifyouwill,gettingaquoteeverydayonafarmfromamanic-depressiveneighborandthenusingthevolatilitycalculatedfromthesechangingquotesasanimportantingredientinanequationthatpredictsaprobability-weightedrangeofvaluesforthefarmacenturyfromnow.)Thoughhistoricalvolatilityisauseful–butfarfromfoolproof–conceptinvaluingshort-termoptions,,thevaluationsthattheBlack-Scholesformulanowplaceonourlong-termputoptionsoverstateourliability,,:,,.,andanewBerkshiremoviewillbeshownat8::30wewillgodirectlytothequestion-and-answerperiod,which(withabreakforlunchattheQwest’sstands)willlastuntil3:,afterashortrecess,CharlieandIwillconvenetheannualmeetingat3:’squestionperiods,,ofcourse,,,the31,000peoplewhocametothemeetingdidtheirpart,.(Afriendlywarning:IfIfindsalesarelagging,Ilocktheexits.)ThisyearClaytonwillshowcaseitsnewi-housethatincludesShawflooring,“green”home,featuringsolarpanelsandnumerousotherenergy-savingproducts,$-house,,,GEICOwillbeabletogiveyouashareholderdiscount(usually8%).Thisspecialofferispermittedby44ofthe50jurisdictionsinwhichweoperate.(Onesupplementalpoint:Thediscountisnotadditiveifyouqualifyforanother,suchasthatgivencertaingroups.)%ofyou,,attheOmahaairport,;–withnofearofastripsearch–theGinsuknivesthatyou’,ifyouhaveanymoneyleft,visittheBookworm,
Finally,wewillhavethreefascinatingcarsontheexhibitionfloor,,CEOofoursubsidiary,TTI,willbringhis1935Duesenberg,,Sr.,-inelectriccardevelopedbyBYD,anamazingChinesecompanyinwhichwehavea10%,hotelandcarreservations,wehaveagainsignedupAmericanExpress(800-799-6634),whohandlesthesematters,doesaterrificjobforuseachyear,,,locatedona77-acresiteon72StreetbetweenDodgeandPacific,wewillagainbehaving“BerkshireWeekend”,andsalesduringthe“Weekend”grewfrom$$,wealsosetasingledayrecordof$,youmustmakeyourpurchasesbetweenThursday,April30thandthMonday,May4inclusive,’sspecialpricingwillevenapplytotheproductsofseveralprestigiousmanufacturersthatnormallyhaveironcladrulesagainstdiscountingbutwhich,inthespiritofourshareholderweekend,,,from5:.,,,,themaingala,willbeheldonSunday,May3,,,therefore,ththshareholderpriceswillbeavailablefromMonday,April27throughSaturday,,,inthemalloutsideofBorsheims,ablindfoldedPatrickWolff,,willtakeonallcomers–whowillhavetheireyeswideopen–,NormanBeck,aremarkablemagicianfromDallas,,wewillhaveBobHammanandSharonOsberg,twooftheworld’stopbridgeexperts,’swillagainbeopenexclusivelyforBerkshireshareholdersonSunday,May3,’s,whichseats240,-daytotalwas2,448including702T-bonesteaks,theentré’:TocometoGorat’sonthatday,,call402-551-3733onApril1(butnotbefore).,.************22
Thisyearwewillbemakingimportantchangesinhowwehandlethemeeting’,’,.,,nordowebelievethatsprintingabilityshouldbethedeterminantofwhogetstoposequestions.(Atage78,I’veconcludedthatspeedafootisaridiculouslyoverratedtalent.)Again,,severalfinancialjournalistsfromorganizationsrepresentingnewspapers,magazinesandtelevisionwillparticipateinthequestion-and-answerperiod,-mailaddressesare:CarolLoomis,ofFortune,whomaybeemailedatcloomis@;BeckyQuick,ofCNBC,atBerkshireQuestions@,andAndrewRossSorkin,ofTheNewYorkTimes,atarsorkin@,eachjournalistwillchoosethedozenorsoheorshedecidesarethemostinterestingandimportant.(Inyoure-mail,letthejournalistknowifyouwouldlikeyournamementionedifyourquestionisselected.)’,wewillhaveadrawingat8:,–thoseselectedbythepanelfromyoursubmissions––andperhapsentertaining–,
:(1)Largepurchases(atleast$75millionofpre-taxearningsunlessthebusinesswillfitintooneofourexistingunits),(2)Demonstratedconsistentearningpower(futureprojectionsareofnointeresttous,norare“turnaround”situations),(3)Businessesearninggoodreturnsonequitywhileemployinglittleornodebt,(4)Managementinplace(wecan’tsupplyit),(5)Simplebusinesses(ifthere’slotsoftechnology,wewon’tunderstandit),(6)Anofferingprice(wedon’twanttowasteourtimeorthatofthesellerbytalking,evenpreliminarily,aboutatransactionwhenpriceisunknown).Thelargerthecompany,thegreaterwillbeourinterest:Wewouldliketomakeanacquisitioninthe$,however,—customarilywithinfiveminutes—astowhetherwe’,’’tcomeclosetomeetingourtests:We’vefoundthatifyouadvertiseaninterestinbuyingcollies,,turnarounds,orauction-likesales:“Whenthephonedon’tring,you’llknowit’sme.”NEWYORKSTOCKEXCHANGECORPORATEGOVERNANCEMATTERSAsalistedCompanywiththeNewYorkStockExchange(“NYSE”),BerkshireissubjecttocertainCorporateGovernancestandardsasrequiredbytheNYSEand/ortheSecuritiesandExchangeCommission(“SEC”).Amongotherrequirements,Berkshire’sCEO,(a)oftheNYSEListingCompanyManual,,2007,Berkshire’,,2008,’,assuchtermisdefinedintheSecuritiesExchangeActof1934Rule13a-15(f).Underthesupervisionandwiththeparticipationofourmanagement,includingourprincipalexecutiveofficerandprincipalfinancialofficer,weconductedanevaluationoftheeffectivenessoftheCompany’sinternalcontroloverfinancialreportingasofDecember31,2008asrequiredbytheSecuritiesExchangeActof1934Rule13a-15(c).Inmakingthisassessment,weusedthecriteriasetforthintheframeworkinInternalControl——IntegratedFramework,ourmanagementconcludedthatourinternalcontroloverfinancialreportingwaseffectiveasofDecember31,,2008hasbeenauditedbyDeloitte&ToucheLLP,anindependentregisteredpublicaccountingfirm,,200924
(the“Company”)asofDecember31,2008and2007,andtherelatedconsolidatedstatementsofearnings,cashflowsandchangesinshareholders’equityandcomprehensiveincomeforeachofthethreeyearsintheperiodendedDecember31,’sinternalcontroloverfinancialreportingasofDecember31,2008,basedoncriteriaestablishedinInternalControl—’smanagementisresponsibleforthesefinancialstatements,formaintainingeffectiveinternalcontroloverfinancialreporting,andforitsassessmentoftheeffectivenessofinternalcontroloverfinancialreporting,includedintheaccompanyingManagement’’(UnitedStates).,onatestbasis,evidencesupportingtheamountsanddisclosuresinthefinancialstatements,assessingtheaccountingprinciplesusedandsignificantestimatesmadebymanagement,,assessingtheriskthatamaterialweaknessexists,’sinternalcontroloverfinancialreportingisaprocessdesignedby,orunderthesupervisionof,thecompany’sprincipalexecutiveandprincipalfinancialofficers,orpersonsperformingsimilarfunctions,andeffectedbythecompany’sboardofdirectors,management,’sinternalcontroloverfinancialreportingincludesthosepoliciesandproceduresthat(1)pertaintothemaintenanceofrecordsthat,inreasonabledetail,accuratelyandfairlyreflectthetransactionsanddispositionsoftheassetsofthecompany;(2)providereasonableassurancethattransactionsarerecordedasnecessarytopermitpreparationoffinancialstatementsinaccordancewithgenerallyacceptedaccountingprinciples,andthatreceiptsandexpendituresofthecompanyarebeingmadeonlyinaccordancewithauthorizationsofmanagementanddirectorsofthecompany;and(3)providereasonableassuranceregardingpreventionortimelydetectionofunauthorizedacquisition,use,ordispositionofthecompany’,includingthepossibilityofcollusionorimpropermanagementoverrideofcontrols,,projectionsofanyevaluationoftheeffectivenessoftheinternalcontroloverfinancialreportingtofutureperiodsaresubjecttotheriskthatthecontrolsmaybecomeinadequatebecauseofchangesinconditions,,theconsolidatedfinancialstatementsreferredtoabovepresentfairly,inallmaterialrespects,,2008and2007,andtheresultsoftheiroperationsandtheircashflowsforeachofthethreeyearsintheperiodendedDecember31,2008,,inouropinion,theCompanymaintained,inallmaterialrespects,effectiveinternalcontroloverfinancialreportingasofDecember31,2008,basedonthecriteriaestablishedinInternalControl—&TOUCHELLPOmaha,NebraskaFebruary27,200925
(dollarsinmillionsexceptpersharedata)20082007200620052004Revenues:(1)Insurancepremiumsearned...........................$25,525$31,783$23,964$21,997$21,085Salesandservicerevenues..............................65,85458,24351,80346,13843,222(2)Revenuesofutilitiesandenergybusinesses..............13,97112,62810,644——Interest,dividendandotherinvestmentincome.............4,9664,9794,3823,4872,816Interestandotherrevenuesoffinanceandfinancialproductsbusinesses.........................................4,9315,1035,1114,6333,788(3)Investmentandderivativegains/losses..................(7,461)5,5092,6355,4083,471Totalrevenues.......................................$107,786$118,245$98,539$81,663$74,382Earnings:(3)(4)Netearnings.....................................$4,994$13,213$11,015$8,528$7,308Netearningspershare.................................$3,224$8,548$7,144$5,538$4,753Year-enddata:Totalassets..........................................$267,399$273,160$248,437$198,325$188,874Notespayableandotherborrowings:Insuranceandothernon-financebusinesses............4,3492,6803,6983,5833,450(2)Utilitiesandenergybusinesses....................19,14519,00216,946——Financeandfinancialproductsbusinesses..............13,38812,14411,96110,8685,387Shareholders’equity...................................109,267120,733108,41991,48485,900ClassAequivalentcommonsharesoutstanding,inthousands..1,5491,5481,5431,5411,539Shareholders’equityperoutstandingClassAequivalentcommonshare.....................................$70,530$78,008$70,281$59,377$55,824(1)Insurancepremiumsearnedin2007included$.(2)OnFebruary9,2006,BerkshireHathawayconverteditsnon-votingpreferredstockofMidAmericanEnergyHoldingsCompany(“MidAmerican”)tocommonstockanduponconversion,%(%diluted),’sinvestmentinMidAmericanwasaccountedforpursuanttotheequitymethodin2004and2005.(3)Theamountofinvestmentandderivativegainsandlossesforanygivenperiodhasnopredictivevalue,-taxinvestmentandderivativegains/losseswere$()billionin2008,$,$,$$
(dollarsinmillionsexceptpershareamounts)December31,20082007ASSETSInsuranceandOther:Cashandcashequivalents......................................................................$24,302$37,703Investments:Fixedmaturitysecurities...................................................................27,11528,515Equitysecurities.........................................................................49,07374,999Other..................................................................................21,535—Loansandreceivables.........................................................................14,92513,157Inventories..................................................................................7,5005,793Property,plant,equipmentandassetsheldforlease..................................................16,7039,969Goodwill...................................................................................27,47726,306Deferredchargesreinsuranceassumed............................................................3,9233,987Other......................................................................................9,3347,797201,887208,226UtilitiesandEnergy:Cashandcashequivalents......................................................................2801,178Property,plantandequipment...................................................................28,45426,221Goodwill...................................................................................5,2805,543Other......................................................................................7,5566,24641,57039,188FinanceandFinancialProducts:Cashandcashequivalents......................................................................9575,448Investmentsinfixedmaturitysecurities...........................................................4,5173,056Loansandfinancereceivables...................................................................13,94212,359Goodwill...................................................................................1,0241,013Other......................................................................................3,5023,87023,94225,746$267,399$273,160LIABILITIESANDSHAREHOLDERS’EQUITYInsuranceandOther:Lossesandlossadjustmentexpenses.............................................................$56,620$56,002Unearnedpremiums..........................................................................7,8616,680Lifeandhealthinsurancebenefits................................................................3,6193,804Otherpolicyholderliabilities....................................................................3,2434,089Accountspayable,accrualsandotherliabilities.....................................................11,74410,672Notespayableandotherborrowings..............................................................4,3492,68087,43683,927UtilitiesandEnergy:Accountspayable,accrualsandotherliabilities.....................................................6,3036,043Notespayableandotherborrowings..............................................................19,14519,00225,44825,045FinanceandFinancialProducts:Accountspayable,accrualsandotherliabilities.....................................................2,6562,931Derivativecontractliabilities...................................................................14,6126,887Notespayableandotherborrowings..............................................................13,38812,14430,65621,962Incometaxes,principallydeferred...................................................................10,28018,825Totalliabilities.......................................................................153,820149,759Minorityshareholders’interests.....................................................................4,3122,668Shareholders’equity:Commonstock:ClassA,$5parvalue;ClassB,$......................................88Capitalinexcessofparvalue...................................................................27,13326,952Accumulatedothercomprehensiveincome........................................................3,95421,620Retainedearnings............................................................................78,17272,153Totalshareholders’equity..............................................................109,267120,733$267,399$273,160SeeaccompanyingNotestoConsolidatedFinancialStatements27
(dollarsinmillionsexceptpershareamounts)YearEndedDecember31,200820072006Revenues:InsuranceandOther:Insurancepremiumsearned............................................$25,525$31,783$23,964Salesandservicerevenues............................................65,85458,24351,803Interest,dividendandotherinvestmentincome............................4,9664,9794,382Investmentgains/losses...............................................(647)5,4051,69795,698100,41081,846UtilitiesandEnergy:Operatingrevenues..................................................12,66812,37610,301Other.............................................................1,30325234313,97112,62810,644FinanceandFinancialProducts:Interestincome.....................................................1,7901,7171,610Investmentgains/losses...............................................7193114Derivativegains/losses...............................................(6,821)(89)824Other.............................................................3,1413,3863,501(1,883)5,2076,049107,786118,24598,539Costsandexpenses:InsuranceandOther:Insurancelossesandlossadjustmentexpenses.............................16,25921,01013,068Lifeandhealthinsurancebenefits.......................................1,8401,7861,618Insuranceunderwritingexpenses.......................................4,6345,6135,440Costofsalesandservices.............................................54,10347,47742,416Selling,generalandadministrativeexpenses..............................8,0527,0985,932Interestexpense.....................................................15616419585,04483,14868,669UtilitiesandEnergy:Costofsalesandoperatingexpenses....................................9,8409,6968,189Interestexpense.....................................................1,1681,15897911,00810,8549,168FinanceandFinancialProducts:Interestexpense.....................................................639588550Other.............................................................3,5213,4943,3744,1604,0823,924100,21298,08481,761Earningsbeforeincometaxesandminorityinterests.........................7,57420,16116,778Incometaxes.......................................................1,9786,5945,505Minorityshareholders’interests........................................602354258Netearnings...........................................................$4,994$13,213$11,015Averagecommonsharesoutstanding*...................................1,548,9601,545,7511,541,807Netearningspercommonshare*.........................................$3,224$8,548$7,144*-thirtieth(1/30)ofsuchamountor$107persharefor2008,$285persharefor2007and$
(dollarsinmillions)YearEndedDecember31,200820072006Cashflowsfromoperatingactivities:Netearnings.............................................................$4,994$13,213$11,015Adjustmentstoreconcilenetearningstooperatingcashflows:Investment(gains)losses...............................................640(5,598)(1,811)Depreciation.........................................................2,8102,4072,066Minorityinterests.....................................................602354258Other...............................................................(1,248)(268)(627)Changesinoperatingassetsandliabilitiesbeforebusinessacquisitions:Lossesandlossadjustmentexpenses......................................1,466(1,164)(2,704)Deferredchargesreinsuranceassumed....................................64196424Unearnedpremiums...................................................1,311(713)637Receivablesandoriginatedloans.........................................(2,222)(977)(59)Derivativecontractassetsandliabilities...................................7,8272,938(563)Incometaxes.........................................................(2,057)553303Otherassetsandliabilities..............................................(2,935)1,6091,256Netcashflowsfromoperatingactivities.......................................11,25212,55010,195Cashflowsfrominvestingactivities:Purchasesoffixedmaturitysecurities.........................................(35,615)(13,394)(7,747)Purchasesofequitysecurities...............................................(10,140)(19,111)(9,173)Purchasesofotherinvestments..............................................(14,452)——Salesoffixedmaturitysecurities.............................................14,7967,8211,818Redemptionsandmaturitiesoffixedmaturitysecurities...........................18,5509,15810,313Salesofequitysecurities...................................................6,8408,0543,778Purchasesofloansandfinancereceivables.....................................(1,446)(1,008)(365)Principalcollectionsonloansandfinancereceivables............................7401,229985Acquisitionsofbusinesses,netofcashacquired.................................(6,050)(1,602)(10,132)Purchasesofproperty,plantandequipmentandassetsheldforlease................(6,138)(5,373)(4,571)Other...................................................................8497981,017Netcashflowsfrominvestingactivities.......................................(32,066)(13,428)(14,077)Cashflowsfromfinancingactivities:Proceedsfromborrowingsoffinancebusinesses................................5,1951,1531,280Proceedsfromborrowingsofutilitiesandenergybusinesses.......................2,1473,5382,417Proceedsfromotherborrowings.............................................134121215Repaymentsofborrowingsoffinancebusinesses................................(3,861)(1,093)(244)Repaymentsofborrowingsofutilitiesandenergybusinesses.......................(2,147)(1,149)(516)Repaymentsofotherborrowings.............................................(233)(995)(991)Changesinshorttermborrowings............................................1,183(596)245Other...................................................................(132)38784Netcashflowsfromfinancingactivities.......................................2,2861,3662,490Effectsofforeigncurrencyexchangeratechanges...............................(262)98117Increase(decrease)incashandcashequivalents.................................(18,790)586(1,275)Cashandcashequivalentsatbeginningofyear......................................44,32943,74345,018Cashandcashequivalentsatendofyear*.......................................$25,539$44,329$43,743*Cashandcashequivalentsatendofyeararecomprisedofthefollowing:InsuranceandOther.......................................................$24,302$37,703$37,977UtilitiesandEnergy.......................................................2801,178343FinanceandFinancialProducts.............................................9575,4485,423$25,539$44,329$43,743SeeaccompanyingNotestoConsolidatedFinancialStatements29
’EQUITYANDCOMPREHENSIVEINCOME(dollarsinmillions)YearEndedDecember31,200820072006ClassA&BCommonStockBalanceatbeginningandendofyear...........................................$8$8$8CapitalinExcessofParValueBalanceatbeginningofyear..................................................$26,952$26,522$26,399IssuanceofClassAandBshares..............................................181430123Balanceatendofyear.......................................................$27,133$26,952$26,522RetainedEarningsBalanceatbeginningofyear..................................................$72,153$58,912$47,717Adoptionofnewaccountingpronouncements....................................—28180Netearnings..............................................................4,99413,21311,01577,14772,15358,912Adoptionofequitymethod...................................................1,025——Balanceatendofyear.......................................................$78,172$72,153$58,912AccumulatedOtherComprehensiveIncomeUnrealizedappreciationofinvestments.........................................$(23,342)$2,523$9,278Applicableincometaxes.................................................8,257(872)(3,246)Reclassificationadjustmentofinvestmentappreciationincludedinnetearnings.........895(5,494)(1,646)Applicableincometaxes.................................................(313)1,923576Foreigncurrencytranslationadjustments........................................(2,140)456603Applicableincometaxes.................................................118(26)1Priorservicecostandactuarialgains/lossesofdefinedbenefitplans..................(1,071)257563Applicableincometaxes.................................................389(102)(196)Other,includingminorityinterests.............................................(60)(22)(13)Othercomprehensiveincome.................................................(17,267)(1,357)5,920Accumulatedothercomprehensiveincomeatbeginningofyear......................21,62022,97717,360Adoptionofequitymethod...................................................(399)——AdoptionofSFAS158......................................................——(303)Accumulatedothercomprehensiveincomeatendofyear...........................$3,954$21,620$22,977ComprehensiveIncomeNetearnings..............................................................$4,994$13,213$11,015Othercomprehensiveincome.................................................(17,267)(1,357)5,920Totalcomprehensiveincome.................................................$(12,273)$11,856$16,935SeeaccompanyingNotestoConsolidatedFinancialStatements30
,2008(1)Significantaccountingpoliciesandpractices(a)NatureofoperationsandbasisofconsolidationBerkshireHathawayInc.(“Berkshire”or“Company”)isaholdingcompanyowningsubsidiariesengagedinanumberofdiversebusinessactivities,includingpropertyandcasualtyinsuranceandreinsurance,utilitiesandenergy,finance,manufacturing,’’.(b)UseofestimatesinpreparationoffinancialstatementsThepreparationoftheConsolidatedFinancialStatementsinconformitywithaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmerica(“GAAP”),,estimatesandassumptionsassociatedwiththeamortizationofdeferredchargesreinsuranceassumed,.(c),.(d)InvestmentsBerkshire’-to-maturityinvestmentsarecarriedatamortizedcost,(asdeterminedonaspecificidentificationbasis)’sjudgmentadeclineinthevalueofaninvestmentbelowcostisotherthantemporary,:thefinancialcondition,businessprospectsandcreditworthinessoftheissuer,thelengthoftimethatfairvaluehasbeenlessthancost,therelativeamountofthedeclineandBerkshire’,butnotcontrol,
NotestoConsolidatedFinancialStatements(Continued)(1)Significantaccountingpoliciesandpractices(Continued)(d)Investments(Continued)significantinfluenceispresumedwhenaninvestorpossessesmorethan20%,,,additionalnetlossesmayberecordedifotherinvestmentsintheinvesteeareat-risk,,ifany,arebaseduponthechangeinBerkshire’sclaimontheinvestee’sbookvalue.(e)’,plusorminusoriginationandcommitmentcostspaidorfeesreceived,,.(f)
NotestoConsolidatedFinancialStatements(Continued)(1)Significantaccountingpoliciesandpractices(Continued)(h)Inventories(Continued),2008,approximately40%ofthetotalinventorycostwasdeterminedusingthelast-in-first-out(“LIFO”)method,35%usingthefirst-in-first-out(“FIFO”)method,,theaggregatedifferenceinvaluebetweenLIFOcostandcostdeterminedunderFIFOmethodswas$607millionand$331millionasofDecember31,2008and2007,respectively.(i)Property,plantandequipmentandassetsheldforleaseAdditionstoproperty,,whilereplacements,,,“AccountingfortheEffectsofCertainTypesofRegulation”(“SFAS71”)(o).,,,,exceptwithrespecttoimpairmentsofassetsofcertaindomesticregulatedutilityandenergysubsidiarieswherelossesareoffsetbytheestablishmentofaregulatoryassettotheextentrecoveryinfutureratesisprobable.(j),includinggoodwill,exceedstheestimatedfairvalue,,theidentifiableassets,includingidentifiableintangibleassets,.(k)RevenuerecognitionInsurancepremiumsforprospectiveproperty/,
NotestoConsolidatedFinancialStatements(Continued)(1)Significantaccountingpoliciesandpractices(Continued)(k)Revenuerecognition(Continued)-backedsecurities,,certainrevenuecollectedmaybesubjecttorefundandaliabilityforestimatedrefundsisaccrued.(l)LossesandlossadjustmentexpensesLiabilitiesforunpaidlossesandlossadjustmentexpensesrepresentestimatedclaimandclaimsettlementcostsofproperty/,exceptthatamountsarisingfromcertainworkers’(1)individualcaseestimates,(2)reportsoflossesfrompolicyholdersand(3)’%forclaimsarisingpriorto2003and1%forclaimsarisingafter2002,.(m).(n)InsurancepremiumacquisitioncostsCoststhatvarywithandarerelatedtotheissuanceofinsurancepoliciesaredeferred,subjecttoultimaterecoverability,,premiumtaxes,$1,698millionand$1,519millionatDecember31,2008and2007,
NotestoConsolidatedFinancialStatements(Continued)(1)Significantaccountingpoliciesandpractices(Continued)(o)RegulatedutilitiesandenergybusinessesCertaindomesticenergysubsidiariespreparetheirfinancialstatementsinaccordancewithSFAS71,,,2008,theConsolidatedBalanceSheetincludes$2,156millioninregulatoryassetsand$1,,2007,theConsolidatedBalanceSheetincludes$1,503millioninregulatoryassetsand$1,,,theamountnolongerprobableofrecoveryischargedtoearnings.(p)-basedoperationsareincludedinshareholders’-for-salesecuritiesareincludedasacomponentofothercomprehensiveincome.(q),Berkshireandsubsidiariesalsofileincometaxreturnsinstate,,“more-likely-than-not”.(r)Accountingpronouncementsadoptedin2008and2007EffectiveJanuary1,2008,,-3,“DeterminingtheFairValueofaFinancialAssetWhentheMarketforThatAssetIsNotActive”(“FSPFAS157-3”),’,2008,,“TheFairValueOptionforFinancialAssetsandFinancialLiabilities—”(“SFAS159”).
NotestoConsolidatedFinancialStatements(Continued)(1)Significantaccountingpoliciesandpractices(Continued)(r)Accountingpronouncementsadoptedin2008and2007(Continued)159,,theFASBissuedFSPFAS133-1andFIN45-4“DisclosuresaboutDerivativesandCertainGuarantees”(“FSPFAS133-1”),whichrequiressellersofcreditderivativestodiscloseadditionalinformationaboutcreditderivativesandiseffectiveforperiodsendingafterNovember15,-1hadnomaterialimpactonBerkshire’,2007,“”(“FIN48”).UnderFIN48,ataxpositiontakenisrecognizedifitisdeterminedthatthepositionwill“more-likely-than-not”$,2007,-1“AccountingforPlannedMajorMaintenanceActivities”(“AUGAIR-1”).,$52millionwasrecordedasanincreaseinretainedearnings.(s)AccountingpronouncementstobeadoptedinthefutureInDecember2007,(revised2007),“BusinessCombinations”(“SFAS141R”).SFAS141Rchangestheaccountingmodelforbusinesscombinationsfromacostallocationstandardtoastandardthatprovides,withlimitedexceptions,fortherecognitionatfairvalueofallidentifiableassetsandliabilities(includingcontingentassetsandliabilities)ofthebusinessacquired,regardlessofwhether100%(generallytheclosingdateoftheacquisition).,,,“”(“SFAS160”).SFAS160establishesaccountingandreportingstandardsfornon-controllinginterestsinconsolidatedsubsidiaries(formerly“minorityinterests”).,non-controllinginterestsarereportedintheconsolidatedbalancesheetasaseparatecomponentofshareholders’’,suchtransactionswerereportedasadditionalinvestmentpurchases(potentiallyresultinginrecognitionofadditionalassets)orassales(potentiallyresultinginrealizedgainsorlosses).SFAS160iseffectiveforBerkshireasofJanuary1,,,,“DisclosuresaboutDerivativeInstrumentsandHedgingActivities—”(“SFAS161”).SFAS161requiresenhanceddisclosuresabout(a)howandwhyderivativeinstrumentsareused,(b)howderivativeinstrumentsandrelatedhedgeditemsareaccountedforand(c)howderivativeinstrumentsandrelatedhedgeditemsaffectanentity’sfinancialposition,,,,“AccountingforFinancialGuaranteeInsuranceContracts”(“SFAS163”).,2008,exceptcertaindisclosureswereeffectiveforperiodsbeginningafterJune30,
NotestoConsolidatedFinancialStatements(Continued)(2)SignificantbusinessacquisitionsBerkshire’slong-heldacquisitionstrategyistopurchasebusinesseswithconsistentearningpower,,,2006,BerkshireacquiredBusinessWire,aleadingglobaldistributorofcorporatenews,,2006,PacifiCorp,aregulatedelectricutilityprovidingservicetocustomersinsixWesternstates,wasacquiredforapproximately$,BerkshireacquiredadditionalcommonstockofMidAmericanfor$,whichincreaseditsownershipinterestinMidAmericanfromapproximately83%toapproximately88%.OnMay19,2006,Berkshireacquired85%ofAppliedUnderwriters,anindustryleaderinintegratedworkers’,2006,Berkshireacquired80%oftheIscarMetalworkingCompanies(“IMC”)forcashinatransactionthatvaluedIMCat$,headquarteredinIsrael,’sproductsaremanufacturedthroughaglobalnetworkofworld-class,,2006,BerkshireacquiredRussellCorporation,$,2007,BerkshireacquiredTTI,Inc.,aprivatelyheldelectroniccomponentsdistributorheadquarteredinFortWorth,,,,2007,$,2008,Berkshireacquired60%ofMarmonHoldings,Inc.(“Marmon”),aprivatecompanyownedbytrustsforthebenefitofmembersofthePritzkerFamilyofChicago,for$,%,$:EngineeredWire&Cable,servingenergyrelatedmarkets,residentialandnon-residentialconstructionandotherindustries;BuildingWire,producingcopperelectricalwiringforresidential,commercialandindustrialbuildings;TransportationServices&EngineeredProducts,includingrailroadtankcarsandintermodaltankcontainers;HighwayTechnologies,primarilyservingtheheavy-dutyhighwaytransportationindustry;DistributionServicesforspecialtypipeandsteeltubing;FlowProducts,producingavarietyofmetalproductsandmaterialsfortheplumbing,HVAC/R,constructionandindustrialmarkets;IndustrialProducts,includingmetalfasteners,safetyproductsandmetalfabrication;ConstructionServices,providingtheleasingandoperationofmobilecranesprimarilytotheenergy,miningandpetrochemicalmarkets;WaterTreatmentequipmentforresidential,commercialandindustrialapplications;RetailStoreFixtures,providingstorefixturesandaccessoriesformajorretailersworldwide;andFoodServiceEquipment,,distributionandservicefacilities,primarilyinNorthAmerica,(inmillions).Assets:Liabilitiesandnetassetsacquired:Cashandcashequivalents.....................$217Accountspayableandotherliabilities..........$1,040Accountsreceivable..........................970Notespayableandotherborrowings...........1,071Inventories.................................855Incometaxes,principallydeferred............1,733Property,plantandequipmentandleasedassets....6,280Minorityshareholders’interest...............1,568Other,primarilygoodwillandintangibleassets....1,875Netassetsacquired........................4,785$10,197$10,19737
NotestoConsolidatedFinancialStatements(Continued)(2)Significantbusinessacquisitions(Continued)TheresultsofoperationsforeachofthesebusinessesareincludedinBerkshire’,,..............................................................$109,180$125,904Netearnings................................................................5,09813,326EarningsperequivalentClassAcommonshare....................................3,2918,621(3)InvestmentsinfixedmaturitysecuritiesInvestmentsinsecuritieswithfixedmaturitiesasofDecember31,2008and2007areshownbelow(inmillions).AmortizedUnrealizedUnrealizedFairCostGainsLosses*Value2008Insuranceandother:,...................$2,100$123$(2)$2,221States,municipalitiesandpoliticalsubdivisions............................3,192242(5)3,429Foreigngovernments.................................................9,106343(59)9,390Corporatebondsandredeemablepreferredstocks..........................10,230373(1,500)9,103Mortgage-backedsecurities............................................2,99070(88)2,972$27,618$1,151$(1,654)$27,115Financeandfinancialproducts:,...................$7$—$—$7States,municipalitiesandpoliticalsubdivisions............................1,312——1,312Corporatebonds.....................................................56821(68)521Mortgage-backedsecurities............................................2,410268(1)2,677$4,297$289$(69)$4,5172007Insuranceandother:,...................$3,487$59$—$3,546States,municipalitiesandpoliticalsubdivisions............................2,120107(3)2,224Foreigngovernments.................................................9,52976(47)9,558Corporatebondsandredeemablepreferredstocks..........................8,4001,187(48)9,539Mortgage-backedsecurities............................................3,59762(11)3,648$27,133$1,491$(109)$28,515Financeandfinancialproducts:Corporatebonds.....................................................$420$63$—$483Mortgage-backedsecurities............................................2,521228(1)2,748$2,941$291$(1)$3,231*Includesgrossunrealizedlossesof$176millionatDecember31,2008and$60millionatDecember31,,2008,fixedmaturityinvestmentsincludedapproximately$(Insuranceandother—$—$),acquisitionswerelimitedtosecuritieswhereBerkshireconcludedthattheunderlyingcreditoftheissuerswasgoodwithoutthebenefitofaninsurer’
NotestoConsolidatedFinancialStatements(Continued)(3)Investmentsinfixedmaturitysecurities(Continued)Approximately65%ofthesesecuritieswereratedAorhigherwithoutthebenefitofaninsurerguarantee(andapproximately54%oftheremainingsecuritieswerenotratedonanunderlyingbasis).BerkshireheldnoinvestmentsinthesesecuritiesasofDecember31,,-backedDue2009Due2010–2013Due2014–2018Dueafter2018securitiesTotalAmortizedcost.....................$4,027$13,239$4,808$4,441$5,400$31,915Fairvalue.........................4,09113,3733,8224,6975,64931,632(4)InvestmentsinequitysecuritiesInvestmentsinequitysecuritiesaresummarizedbelow(inmillions).20082007Cost..................................................................................$40,140$44,695Grossunrealizedgains...................................................................14,78231,289Grossunrealizedlosses*.................................................................(5,849)(985)Fairvalue..............................................................................$49,073$74,999*Substantiallyallofthegrossunrealizedlossespertaintosecuritypositionsthathavebeenheldforlessthan12months.(5)OtherInvestmentsAsummaryofotherinvestmentsasofDecember31,2008follows(inmillions).UnrealizedFairCarryingCostGainValueValueOtherfixedmaturityandequityinvestments................................$14,452$36$14,488$14,675Equitymethodinvestments..............................................5,9193526,2716,860$20,371$388$20,759$21,535During2008,(“Wrigley”),TheGoldmanSachsGroup,Inc.(“GS”)andTheGeneralElectricCompany(“GE”).,BerkshireadoptedtheequitymethodwithrespecttoitsinvestmentsinBurlingtonNorthernSantaFeCorporation(“BNSF”)andMoody’sCorporation(“Moody’s”).OnOctober6,2008,Berkshireacquired$%subordinatednotesdue2018ofWrigley(“WrigleyNotes”)and$(“WrigleyPreferred”).TheWrigleyNotesandWrigleyPreferredwereacquiredinconnectionwithMars,Incorporated’,“held-to-maturity”%,2008,Berkshireacquired50,000sharesof10%CumulativePerpetualPreferredStockofGS(“GSPreferred”)andWarrantstopurchase43,478,260sharesofcommonstockofGS(“GSWarrants”)foranaggregatecostof$$110,000pershare($).TheGSWarrantsexpirein2013andcanbeexercisedforanaggregatecostof$5billion($115/share).39
NotestoConsolidatedFinancialStatements(Continued)(5)OtherInvestments(Continued)OnOctober16,2008,Berkshireacquired30,000sharesof10%CumulativePerpetualPreferredStockofGE(“GEPreferred”)andWarrantstopurchase134,831,460sharesofcommonstockofGE(“GEWarrants”)foranaggregatecostof$$110,000pershare($).TheGEWarrantsexpirein2013andcanbeexercisedforanaggregatecostof$3billion($
NotestoConsolidatedFinancialStatements(Continued)(7)LoansandreceivablesLoansandreceivablesofinsuranceandotherbusinessesarecomprisedofthefollowing(inmillions).20082007Insurancepremiumsreceivable.............................................................$4,961$4,215Reinsurancerecoverables.................................................................3,2353,171Tradeandotherreceivables................................................................7,1416,179Allowancesforuncollectibleaccounts.......................................................(412)(408)$14,925$13,157Loansandfinancereceivablesoffinanceandfinancialproductsbusinessesarecomprisedofthefollowing(inmillions).20082007Consumerinstallmentloansandfinancereceivables............................................$13,190$11,506Commercialloansandfinancereceivables....................................................1,0501,003Allowancesforuncollectibleloans..........................................................(298)(150)$13,942$12,$305millionin2008and$-offswere$215millionin2008and$$684millionatDecember31,2008and$452millionatDecember31,2007.(8)InventoriesInventoriesarecomprisedofthefollowing(inmillions).20082007Rawmaterials............................................................................$1,161$897Workinprocessandother...................................................................607479Finishedmanufacturedgoods................................................................2,5801,781Purchasedgoods..........................................................................3,1522,636$7,500$5,793(9)GoodwillAreconciliationofthechangeinthecarryingvalueofgoodwillfor2008and2007isasfollows(inmillions).20082007Balanceatbeginningofyear...............................................................$32,862$32,238Acquisitionsofbusinessesandother........................................................919624Balanceatendofyear....................................................................$33,781$32,86241
NotestoConsolidatedFinancialStatements(Continued)(10)Property,plant,equipmentandassetsheldforleaseProperty,plant,equipmentandassetsheldforleaseofinsuranceandotherbusinessesiscomprisedofthefollowing(inmillions).Rangesofestimatedusefullife20082007Land..................................................................—$751$607Buildingsandimprovements...............................................3–40years4,3513,611Machineryandequipment.................................................3–25years11,0099,507Furniture,fixturesandother................................................3–20years1,8561,670Assetsheldforlease......................................................12–30years5,311—23,27815,395Accumulateddepreciation.................................................(6,575)(5,426)$16,703$9,969Assetsheldforleaseconsistprimarilyofrailroadtankcars,intermodaltankcontainersandotherequipmentinthetransportationandequipmentservicesbusinessesofMarmon,,2008,theminimumfutureleaserentalstobereceivedontheequipmentleasefleet(includingrailcarsleasedfromothers)wereasfollows(inmillions):2009–$660;2010–$528;2011–$392;2012–$281;2013–$181;andthereafter–$,plantandequipmentofutilitiesandenergybusinessesiscomprisedofthefollowing(inmillions).Rangesofestimatedusefullife20082007Utilitygeneration,distributionandtransmissionsystem........................5–85years$32,795$30,369Interstatepipelineassets.................................................3–67years5,6495,484Independentpowerplantsandotherassets...................................3–30years1,2281,330Constructioninprogress.................................................—1,6681,74541,34038,928Accumulateddepreciation...............................................(12,886)(12,707)$28,454$26,221Theutilitygeneration,,2008andDecember31,2007,accumulateddepreciationandamortizationrelatedtoregulatedassetswas$$,,
NotestoConsolidatedFinancialStatements(Continued)(11)DerivativesDerivativecontractsofBerkshire’sfinanceandfinancialproductsbusinesses,withlimitedexceptions,
NotestoConsolidatedFinancialStatements(Continued)(11)Derivatives(Continued)Premiumsonthehighyieldindexandstate/’,,,notwithstandingthe“fairvalue”’sequityindexputoptionandcreditdefaultcontractscontainnocollateralpostingrequirementswithrespecttochangesineitherthefairvalueorintrinsicvalueofthecontractsand/oradowngradeofBerkshire’,,2008,Berkshirehadpostedcollateralofapproximately$550millionwithcounterparties,,includingforwardpurchasesandsales,futures,$324millionand$397millionasofDecember31,2008and2007,,accrualsandotherliabilitiesofutilitiesandenergybusinesseswere$729millionand$765millionasofDecember31,2008and2007,respectively.(12)SupplementalcashflowinformationAsummaryofsupplementalcashflowinformationforeachofthethreeyearsendingDecember31,2008ispresentedinthefollowingtable(inmillions).200820072006Cashpaidduringtheyearfor:Incometaxes.................................................................$3,530$5,895$4,959Interestoffinanceandfinancialproductsbusinesses.................................537569514Interestofutilitiesandenergybusinesses..........................................1,1721,118937Interestofinsuranceandotherbusinesses..........................................182182195Non-cashinvestingandfinancingactivities:InvestmentsreceivedinconnectionwiththeEquitasreinsurancetransaction..............—6,529—Liabilitiesassumedinconnectionwithacquisitionsofbusinesses.......................4,76361212,727Fixedmaturitysecuritiessoldorredeemedoffsetbydecreaseindirectlyrelatedrepurchaseagreements................................................................—599460Equity/fixedmaturitysecuritiesexchangedforothersecurities/investments...............2,329258—44
NotestoConsolidatedFinancialStatements(Continued)(13)UnpaidlossesandlossadjustmentexpensesThebalancesofunpaidlossesandlossadjustmentexpensesarebaseduponestimatesoftheultimateclaimcostsassociatedwithpropertyandcasualtyclaimoccurrencesasofthebalancesheetdatesincludingestimatesforincurredbutnotreported(“IBNR”)
NotestoConsolidatedFinancialStatements(Continued)(13)Unpaidlossesandlossadjustmentexpenses(Continued)Theliabilitiesforenvironmental,asbestosandlatentinjuryclaimsandclaimsexpensesnetofreinsurancerecoverableswereapproximately$,2008and$,$,2008and$,,Berkshire’sexposuretoenvironmentalandlatentinjuryclaimsunderthesecontractsis,likewise,,newlyidentifiedtoxins,newlyreportedclaims,newtheoriesofliability,’,theBerkshireHathawayReinsuranceGroup’sleadinsuranceentity,NationalIndemnityCompany(“NICO”)andEquitas,aLondonbasedentityestablishedtoreinsureandmanagethe1992andprioryears’non-lifeinsuranceandreinsuranceliabilitiesoftheNamesorUnderwritersatLloyd’sofLondon,enteredintoanagreementforNICOtoinitiallyprovideupto$$,,,,theaggregatelimitofindemnification,whichdoesnotincludeunallocatedlossadjustmentexpenses,was$,’$$“AccountingandReportingforReinsuranceofShort-DurationandLong-DurationContracts.”Accordingly,premiumsearnedof$$$$.(14)NotespayableandotherborrowingsNotespayableandotherborrowingsofBerkshireanditssubsidiariesaresummarizedbelow(inmillions).20082007Insuranceandother:IssuedorguaranteedbyBerkshiredue2009-2035............................................$2,275$1,682IssuedbysubsidiariesandnotguaranteedbyBerkshiredue2009-2041...........................2,074*998$4,349$2,680*Includes$:IssuedbyMidAmericanEnergyHoldingsCompany(“MidAmerican”)anditssubsidiariesandnotguaranteedbyBerkshire:MidAmericanseniorunsecureddebtdue2009-2037....................................$5,121$5,471Subsidiarydebtdue2009-2038.....................................................13,57313,227Other.........................................................................451304$19,145$19,00246
NotestoConsolidatedFinancialStatements(Continued)(14)Notespayableandotherborrowings(Continued),butnotlimitedto,leverageratios,,2008,,MidAmericananditssubsidiariesissued$:IssuedbyBerkshireHathawayFinanceCorporation(“BHFC”)andguaranteedbyBerkshire........$10,778$8,886IssuedbyothersubsidiariesandguaranteedbyBerkshiredue2009-2027.......................706804IssuedbyothersubsidiariesandnotguaranteedbyBerkshire2009-2030........................1,9042,454$13,388$12,,BHFCissued$,andrepaid$$,Berkshire’sguaranteeofasubsidiary’sdebtobligationisanabsolute,(inmillions).20092010201120122013Insuranceandother.................................................$2,365$240$110$98$101Utilitiesandenergy.................................................1,2581211,1341,457633Financeandfinancialproducts.........................................3012,1501,6321,6333,557$3,924$2,511$2,876$3,188$4,291(15)IncometaxesTheliabilityforincometaxesasofDecember31,2008and2007asreflectedintheaccompanyingConsolidatedBalanceSheetsisasfollows(inmillions).20082007Payablecurrently..............................................................$161$(182)Deferred.....................................................................9,31618,156Other.......................................................................803851$10,280$18,82547
NotestoConsolidatedFinancialStatements(Continued)(15)Incometaxes(Continued)ThetaxeffectsoftemporarydifferencesthatgiverisetosignificantportionsofdeferredtaxassetsanddeferredtaxliabilitiesatDecember31,2008and2007areshownbelow(inmillions).20082007Deferredtaxliabilities:Investments–unrealizedappreciationandcostbasisdifferences......................$4,805$13,501Deferredchargesreinsuranceassumed...........................................1,3731,395Property,plantandequipmentandassetsheldforlease..............................7,0044,890Other.....................................................................4,0242,74317,20622,529Deferredtaxassets:Unpaidlossesandlossadjustmentexpenses......................................(896)(756)Unearnedpremiums.........................................................(495)(425)Accruedliabilities...........................................................(1,698)(1,259)Derivativecontractliabilities..................................................(2,144)—Other.....................................................................(2,657)(1,933)(7,890)(4,373)Netdeferredtaxliability........................................................$9,316$18,$3,430millionasofDecember31,,,,inwholeorinpart,(inmillions).200820072006Federal...............................................................$915$5,740$4,752State.................................................................249234153Foreign..............................................................814620600$1,978$6,594$5,505Current..............................................................$3,811$5,708$5,030Deferred.............................................................(1,833)886475$1,978$6,594$5,50548
NotestoConsolidatedFinancialStatements(Continued)(15)Incometaxes(Continued)(inmillions).200820072006Earningsbeforeincometaxes......................................................$7,574$20,161$16,778HypotheticalamountsapplicabletoabovecomputedattheFederalstatutoryrate..............$2,651$7,056$5,872Tax-exemptinterestincome........................................................(88)(33)(44)Dividendsreceiveddeduction......................................................(415)(306)(224)Stateincometaxes,lessFederalincometaxbenefit.....................................16215299Foreigntaxratedifferences........................................................(59)(36)(45)Effectofincometaxratechangesondeferredincometaxes*.............................—(90)—Non-taxableexchangeofinvestment.................................................(154)——Otherdifferences,net.............................................................(119)(149)(153)Totalincometaxes...............................................................$1,978$6,594$5,505*,,,state,local,,(“IRS”),predominantlyrelatedtotimingofdeductionsforinsurancesubsidiaries,,,2008and2007netunrecognizedtaxbenefitswere$803millionand$851million,,2008,areapproximately$650millionoftaxpositionsthat,ifrecognized,,otherthaninterestandpenalties,,2008,managementdoesnotexpectanymaterialchangestotheestimatedamountofunrecognizedtaxbenefitsinthenexttwelvemonths.(16)Dividendrestrictions–,insurancesubsidiariesmaydeclareuptoapproximately$’
NotestoConsolidatedFinancialStatements(Continued)(17)FairvaluemeasurementsTheestimatedfairvaluesofBerkshire’sfinancialinstrumentsasofDecember31,2008and2007areshowninthefollowingtable(inmillions).Thecarryingvaluesofcashandcashequivalents,accountsreceivableandaccountspayable,:Investmentsinfixedmaturitysecurities.................................$27,115$28,515$27,115$28,515Investmentsinequitysecurities.......................................49,07374,99949,07374,999Otherinvestments..................................................21,535—20,759—Notespayableandotherborrowings....................................4,3492,6804,3002,709Financeandfinancialproducts:Investmentsinfixedmaturitysecurities.................................4,5173,0564,5173,231(1)Derivativecontractassets..........................................208699208699Loansandfinancereceivables.........................................13,94212,35914,01612,612Notespayableandotherborrowings....................................13,38812,14413,82012,317Derivativecontractliabilities.........................................14,6126,88714,6126,887Utilitiesandenergy:(1)Derivativecontractassets..........................................324397324397Notespayableandotherborrowings....................................19,14519,00219,14419,834(2)Derivativecontractliabilities.......................................729765729765(1)IncludedinOtherassets(2)IncludedinAccountspayable,;theexchangeisintheprincipalmarketforthatassetorliability(orinthemostadvantageousmarketwhennoprincipalmarketexists);andthemarketparticipantsareindependent,knowledgeable,(creditrisk)’,
NotestoConsolidatedFinancialStatements(Continued)(17)Fairvaluemeasurements(Continued)Level3–,ifany,-exchangetradedderivativecontractsandcertainotherinvestmentscarriedatfairvaluearebasedprimarilyonvaluationmodels,’,,,2008aresummarizedinthefollowingtablebythetypeofinputsapplicabletothefairvaluemeasurements(inmillions).QuotedSignificantOtherSignificantTotalPricesObservableInputsUnobservableInputsFairValue(Level1)(Level2)(Level3)Insuranceandother:Investmentsinfixedmaturitysecurities..................$27,115$4,961$21,650$504Investmentsinequitysecurities.........................49,07348,66679328Otherinvestments...................................8,223——8,223Financeandfinancialproducts:Investmentsinfixedmaturitysecurities..................4,517—4,382135Netderivativecontractliabilities........................14,404—28814,116Utilitiesandenergy:Netderivativecontractliabilities........................405—2403Areconciliationofassetsandliabilitiesmeasuredatfairvalueonarecurringbasiswiththeuseofsignificantunobservableinputs(Level3)fromJanuary1,2008toDecember31,2008follows(inmillions).InvestmentsNetinfixedInvestmentsderivativematurityinequityOthercontractsecuritiessecuritiesinvestmentsliabilitiesBalanceatJanuary1,2008.........................................$393$356$—$(6,784)Gains(losses)includedin:Earnings*..................................................3——(6,765)Othercomprehensiveincome...................................(16)(29)2231Regulatoryassetsandliabilities..................................———(110)Purchases,sales,issuancesandsettlements.............................259—8,000(874)Transfersinto(outof)Level3.......................................—1—13BalanceatDecember31,2008......................................$639$328$8,223$(14,519)*GainsandlossesrelatedtochangesinvaluationsareincludedintheConsolidatedStatementsofEarningsasacomponentofinvestmentgains/losses,derivativegains/,
NotestoConsolidatedFinancialStatements(Continued)(18)CommonstockChangesinissuedandoutstandingBerkshirecommonstockduringthethreeyearsendedDecember31,,$5ParValueClassB,$(1,650,000sharesauthorized)(55,000,000sharesauthorized)SharesIssuedandOutstandingSharesIssuedandOutstandingBalanceDecember31,2005.................................1,260,9208,394,083ConversionsofClassAcommonstocktoClassBcommonstockandother..................................................(143,352)4,358,348BalanceDecember31,2006.................................1,117,56812,752,431ConversionsofClassAcommonstocktoClassBcommonstockandother..................................................(36,544)1,247,649BalanceDecember31,2007.................................1,081,02414,000,080ConversionsofClassAcommonstocktoClassBcommonstockandother..................................................(22,023)706,916BalanceDecember31,2008.................................1,059,00114,706,996EachshareofClassBcommonstockhasdividendanddistributionrightsequaltoone-thirtieth(1/30),onanequivalentClassAcommonstockbasisthereare1,549,234sharesoutstandingasofDecember31,2008and1,547,693sharesasofDecember31,,attheoptionoftheholder,,2006,Berkshire’sChairmanandCEO,,998sharesofClassAcommonstockinto3,749,-two-hundredth(1/200).(19),,2008areasfollows(inmillions).200820072006Servicecost.........................................................................$176$202$199Interestcost.........................................................................452439390Expectedreturnonplanassets..........................................................(463)(444)(393)Other..............................................................................206567Netpensionexpense..................................................................$185$262$26352
NotestoConsolidatedFinancialStatements(Continued)(19)Pensionplans(Continued),2008and2007,theaccumulatedbenefitobligationwas$6,693millionand$6,990million,,ifapplicable,(inmillions).20082007Projectedbenefitobligation,beginningofyear..................................................$7,683$7,926Servicecost..............................................................................176202Interestcost..............................................................................452439Benefitspaid.............................................................................(455)(476)Businessacquisitions.......................................................................249—Actuarial(gain)orlossandother.............................................................(518)(408)Projectedbenefitobligation,endofyear.......................................................$7,587$7,’,2008,$,2008and2007ispresentedinthetablethatfollows(inmillions).2008200720082007Planassetsatbeginningofyear..........$7,063$6,792Cashandequivalents.................$517$427Employercontributions...........................121186Benefitspaid.........................(455)(476)Mortgage-backedsecurities............282390Actualreturnonplanassets..............(1,244)447Corporateobligations................9421,005Businessacquisitions...................188—Equitysecurities....................2,8644,169Otherandexpenses....................(509)38Other.............................596886Planassetsatendofyear................$5,322$7,063$5,322$7,063Pensionplanassetsaregenerallyinvestedwiththelong-termobjectiveofearningsufficientamountstocoverexpectedbenefitobligations,’,reflectingexpectedfutureserviceasappropriate,asfollows(inmillions):2009–$405;2010–$398;2011–$413;2012–$431;2013–$446;and2014to2018-$2,$,2008and2007,thenetfundedstatusoftheplansissummarizedinthetablethatfollows(inmillions).20082007AmountsrecognizedintheConsolidatedBalanceSheets:Otherliabilities........................................................................$2,357$981Otherassets...........................................................................(92)(361)$2,265$62053
NotestoConsolidatedFinancialStatements(Continued)(19)Pensionplans(Continued)AreconciliationofamountsnotyetrecognizedinnetperiodicbenefitexpensefortheyearsendingDecember31,2008and2007follows(inmillions).20082007Netamountincludedinaccumulatedothercomprehensiveincome,beginningofyear....................$(164)$(303)Amountincludedinnetperiodicpensionexpense...............................................1025Gains/lossescurrentperiod.................................................................(699)114*Netamountincludedinaccumulatedothercomprehensiveincome,endofyear.........................$(853)$(164)*Includes$..................................................................................%%Expectedlong-termrateofreturnonplanassets..........................................................................................................................,suchas401(k)$519million,$506millionand$498millionfortheyearsendedDecember31,2008,2007and2006,respectively.(20),suchlegalactionsaffectBerkshire’,)GovernmentalInvestigationsBerkshire,GeneralReCorporation(“GeneralRe”)andcertainofBerkshire’sinsurancesubsidiaries,includingGeneralReinsuranceCorporation(“GeneralReinsurance”)andNationalIndemnityCompany(“NICO”)(“SEC”),,(“NYAG”),GeneralRe,GeneralReinsuranceandNICOhavebeenprovidinginformationtothegovernmentrelatingtotransactionsbetweenGeneralReinsuranceorNICO(ortheirrespectivesubsidiariesoraffiliates)andotherinsurersinresponsetotheJanuary2005subpoenasandrelatedrequestsand,inthecaseofGeneralReinsurance(oritssubsidiariesoraffiliates),,BerkshireandGeneralRehavebeenrespondingtorequestsfromthegovernmentforinformationrelatingtocertaintransactionsthatmayhavebeenaccountedforincorrectlybycounterpartiesofGeneralReinsurance(oritssubsidiariesoraffiliates).ThegovernmenthasinterviewedanumberofcurrentandformerofficersandemployeesofGeneralReandGeneralReinsuranceaswellasBerkshire’sChairmanandCEO,,,atransactioninitiallyeffectedwithAmericanInternationalGroup(“AIG”)inlate2000(the“AIGTransaction”),AIGhascorrecteditsprioraccountingforthetransactiononthegrounds,asstatedinAIG’s200410-K,,governmentalauthoritieshavealsoinquiredabouttheaccountingbycertainofBerkshire’
NotestoConsolidatedFinancialStatements(Continued)(20)ContingenciesandCommitments(Continued)InJune2005,JohnHouldsworth,theformerChiefExecutiveOfficerofCologneReinsuranceCompany(Dublin)Limited(“CRD”),asubsidiaryofGeneralRe,andRichardNapier,aformerSeniorVicePresidentofGeneralRewhohadservedasanaccountrepresentativefortheAIGaccount,,2008,RonaldFerguson,GeneralRe’sformerChiefExecutiveOfficer,ElizabethMonrad,GeneralRe’sformerChiefFinancialOfficer,ChristopherGarand,aformerGeneralReinsuranceSeniorVicePresidentandRobertGraham,aformerGeneralReinsuranceSeniorVicePresidentandAssistantGeneralCounsel,,mailfraud,,eachoftheseindividualsagreedtoajudgmentofaforfeitureallegationwhichrequiredthemtobejointlyandseverallyliableforapaymentof$$5millionamount,whichrepresentedthefeereceivedbyGeneralReinsuranceinconnectionwiththeAIGTransaction,,whohadpreviouslyreceiveda“Wells”noticein2005fromtheSEC,isalsothesubjectofanSECenforcementactionforallegedlyaidingandabettingAIG’,whoresignedastheChiefExecutiveOfficerofGeneralReeffectiveonApril14,2008,alsoreceiveda“Wells”,aswellasthoseoftheircounterparties,,,,inparticular,’)CivilLitigationLitigationRelatedtoROAGeneralReinsuranceandseveralcurrentandformeremployees,alongwithnumerousotherdefendants,havebeensuedinthirteenfederallawsuitsinvolvingReciprocalofAmerica(“ROA”)-basedreciprocalinsurerandreinsurerofphysician,,,treble,,asDeputyReceiverofROA,theTennesseeCommissionerofInsurance,asReceiverforpurposesofliquidatingthreeTennesseeriskretentiongroups,,theCommissionerassertsinseveralofitsclaimsthattheallegeddamagesarebelievedtoexceed$
NotestoConsolidatedFinancialStatements(Continued)(20)ContingenciesandCommitments(Continued),inJune2006,thecourtgrantedGeneralReinsurance’,andtheTennesseereceiverfiledheramendedcomplaintonAugust7,,,,,,,’,-CV-8141-(LTS),UnitedStatesDistrictCourt,SouthernDistrictofNewYork,aputativeclassaction(the“AIGSecuritiesLitigation”),originallyfiledinApril2005,assertsvariousclaimsagainstAIGandcertainofitsofficers,directors,investmentbanksandotherparties,,NapierandHouldsworth(whomtheComplaintdefines,togetherwithGeneralReinsurance,asthe“GeneralReDefendants”).TheComplaintallegesthattheGeneralReDefendantsviolatedSection10(b),,withacurrentdiscoverycut-offofDecember1,,,includingGeneralReinsurance,,2008,,$,,etal.,-CV-3967,UnitedStatesDistrictCourt,,,asimilaractionfiledbythesameplaintiffagainstAIGandothers,theclassactiondescribedintheprecedingparagraph,,2005,GeneralReinsurancereceivedaSummonsandaVerifiedandAmendedShareholderDerivativeComplaintinInreAmericanInternationalGroup,,-CV-08406,UnitedStatesDistrict56
NotestoConsolidatedFinancialStatements(Continued)(20)ContingenciesandCommitments(Continued)Court,,broughtbyseveralallegedshareholdersofAIG,seeksdamages,injunctiveanddeclaratoryreliefagainstvariousofficersanddirectorsofAIGaswellasavarietyofindividualsandentitieswithwhomAIGdidbusiness,,andthecomplaintpurportstoassertcausesofactioninconnectionwiththattransactionforaidingandabettingotherdefendants’,,GeneralReinsurancereceivedaSummonsandFirstAmendedConsolidatedShareholders’DerivativeComplaintinInreAmericanInternationalGroup,,-N,,AIGfiledanAmendedComplaintintheDelawareDerivativeLitigationassertingclaimsagainsttwoofitsformerofficers,,2007,AIGandtheshareholderplaintiffsfiledaSecondCombinedAmendedComplaint,inwhichAIGassertedclaimsagainstcertainofitsformerofficersandtheshareholderplaintiffsassertedclaimsagainstanumberofotherdefendants,,,
NotestoConsolidatedFinancialStatements(Continued)(20)ContingenciesandCommitments(Continued)MidAmerican’scommitmentstopurchasecoal,,2008,commitmentsunderallsuchsubsidiaryarrangementswereapproximately$,$,$,$,$$’interestsofMarmon(%),thecosttoBerkshireoftheminorityshareholders’interestwouldbeapproximately$,theconsiderationpayablefortheminorityshareholders’,butnotwholly-ownedsubsidiaries,,2008,thecosttoBerkshirewouldhavebeenapproximately$,thetimingandtheamountofanysuchfuturepaymentsthatmightberequiredarecontingentonfutureactionsoftheminorityownersandfutureoperatingresultsoftherelatedsubsidiaries.(21)BusinesssegmentdataBerkshire’,marketing,sellinganddistributioncharacteristics,,Berkshiremanagementdoesnotconsiderinvestmentandderivativegains/,-of-loss,quota-shareandfacultativereinsuranceworldwideBerkshireHathawayReinsuranceGroupUnderwritingexcess-of-lossandquota-sharereinsuranceforpropertyandcasualtyinsurersandreinsurersBerkshireHathawayPrimaryGroupUnderwritingmultiplelinesofpropertyandcasualtyinsurancepoliciesforprimarilycommercialaccountsBHFinance,ClaytonHomes,XTRA,CORTandotherfinancialProprietaryinvesting,manufacturedhousingandrelatedservices(“Financeandfinancialproducts”)consumerfinancing,transportationequipmentleasing,furnitureleasing,lifeannuitiesandriskmanagementproductsMarmonAnassociationofapproximately130manufacturingandservicebusinessesthatoperatewithin11diversebusinesssectorsMcLaneCompanyWholesaledistributionofgroceriesandnon-fooditemsMidAmericanRegulatedelectricandgasutility,;domesticrealestatebrokerageShawIndustriesManufacturinganddistributionofcarpetandfloorcoveringsunderavarietyofbrandnames58
NotestoConsolidatedFinancialStatements(Continued)(21)Businesssegmentdata(Continued)Otherbusinessesnotspecificallyidentifiedwithreportablebusinesssegmentsconsistofalarge,diversegroupofmanufacturing,,BenjaminMoore,,CTB,FechheimerBrothers,ForestRiver,FruitoftheLoom,Garan,IMC,JohnsManville,JustinBrands,Larson-Juhl,MiTek,Richline,RussellandScottFetzerServiceBuffaloNews,BusinessWire,FlightSafety,InternationalDairyQueen,PamperedChef,NetJetsandTTIRetailingBenBridgeJeweler,Borsheims,HelzbergDiamondShops,Jordan’sFurniture,NebraskaFurnitureMart,See’s,’sconsolidateddataforeachofthethreemostrecentyearsispresentedinthetableswhichfollowonthisandthefollowingtwopages(inmillions).Earnings(loss)beforetaxesRevenuesandminorityinterests200820072006200820072006OperatingBusinesses:Insurancegroup:Premiumsearned:GEICO........................................$12,479$11,806$11,055$916$1,113$1,314GeneralRe.....................................6,0146,0766,075342555526BerkshireHathawayReinsuranceGroup..............5,08211,9024,9761,3241,4271,658BerkshireHathawayPrimaryGroup..................1,9501,9991,858210279340Investmentincome...................................4,7594,7914,3474,7224,7584,316Totalinsurancegroup.....................................30,28436,57428,3117,5148,1328,154Financeandfinancialproducts..............................4,9475,1195,1247871,0061,157Marmon*..............................................5,529——73——McLaneCompany........................................29,85228,07925,693276232229MidAmerican...........................................13,97112,62810,6442,9631,7741,476ShawIndustries..........................................5,0525,3735,834205436594Otherbusinesses.........................................25,66625,64821,1332,8093,2792,703115,301113,42196,73915,28714,85914,313Reconciliationofsegmentstoconsolidatedamount:Investmentandderivativegains/losses....................(7,461)5,5092,635(7,461)5,5092,635Interestexpense,notallocatedtosegments................———(35)(52)(76)Eliminationsandother................................(54)(685)(835)(217)(155)(94)$107,786$118,245$98,539$7,574$20,161$16,778*IncludesresultsfromtheacquisitiondateofMarch18,
NotestoConsolidatedFinancialStatements(Continued)(21)Businesssegmentdata(Continued)DepreciationCapitalexpenditures**oftangibleassets200820072006200820072006OperatingBusinesses:Insurancegroup.............................................$72$52$65$70$69$64Financeandfinancialproducts.................................185322334228226230Marmon...................................................553——361——McLaneCompany...........................................18017519310910094MidAmerican..............................................3,9363,5132,4231,1281,157949ShawIndustries.............................................173144189150144134Otherbusinesses............................................1,0391,1671,367764711595$6,138$5,373$4,571$2,810$2,407$2,066**-endatyear-end2008200720082007OperatingBusinesses:Insurancegroup:GEICO.........................................................$1,372$1,372$18,699$18,988GeneralRe......................................................13,53213,53228,95332,571BerkshireHathawayReinsuranceandPrimaryGroups...................57854685,58495,379Totalinsurancegroup.................................................15,48215,450133,236146,938Financeandfinancialproducts..........................................1,0241,01322,91824,733Marmon............................................................682—9,757—McLaneCompany....................................................1541493,4773,329MidAmerican.......................................................5,2805,54336,29033,645ShawIndustries......................................................2,2582,3392,9242,922Otherbusinesses.....................................................8,9018,36821,32320,579$33,781$32,862229,925232,146Reconciliationofsegmentstoconsolidatedamount:Corporateandother...............................................3,6938,152Goodwill.......................................................33,78132,862$267,399$273,160Insurancepremiumswrittenbygeographicregion(baseduponthedomicileoftheinsuredorreinsured)
NotestoConsolidatedFinancialStatements(Continued)(21)Businesssegmentdata(Continued)Premiumswrittenandearnedbytheproperty/casualtyandlife/healthinsurancebusinessesaresummarizedbelow(inmillions).Property/CasualtyLife/Health200820072006200820072006PremiumsWritten:Direct..............................................$16,953$16,056$15,729Assumed...........................................7,96013,3167,224$2,690$2,579$2,476Ceded..............................................(704)(554)(544)(102)(100)(108)$24,209$28,818$22,409$2,588$2,479$2,368PremiumsEarned:Direct..............................................$16,269$16,076$15,453Assumed...........................................7,33213,7446,746$2,682$2,564$2,471Ceded..............................................(656)(499)(599)(102)(102)(107)$22,945$29,321$21,600$2,580$2,462$2,364(22),.............................................................$25,175$30,093$27,926$24,592Netearnings*.........................................................9402,8801,057117NetearningsperequivalentClassAcommonshare............................6071,859682762007Revenues.............................................................$32,918$27,347$29,937$28,043Netearnings*.........................................................2,5953,1184,5532,947NetearningsperequivalentClassAcommonshare............................1,6822,0182,9421,904*Includesinvestmentgains/lossesandderivativegains/losses,which,
’–underwriting.........................................................$1,805$2,184$2,485Insurance–investmentincome.....................................................3,4973,5103,120Utilitiesandenergy..............................................................1,7041,114885Manufacturing,serviceandretailing................................................2,2832,3532,131Financeandfinancialproducts.....................................................479632732Other.........................................................................(129)(159)(47)Investmentandderivativegains/losses...............................................(4,645)3,5791,709Netearnings...............................................................$4,994$13,213$11,015Berkshire’(suchassales,marketing,purchasing,legalorhumanresources)andthereisminimalinvolvementbyBerkshire’’scorporateofficemanagementparticipatesinandisultimatelyresponsibleforsignificantcapitalallocationdecisions,(Note21totheConsolidatedFinancialStatements),,,asevidencedbydecliningconsumerconfidence,lowerconsumerspending,,whichhavenegativelyimpactedthefairvalueofBerkshire’,thenetafter-taxunrealizedgainsinBerkshire’sequityinvestmentportfoliodeclinedbyapproximately$,during2008,after-taxinvestmentandderivativelossesof$’sinsurance,manufacturing,service,’smanufacturing,’soperatingcompanieshavetakenandwillcontinuetotakecostreductionactionsinresponsetothecurrenteconomicsituation,includingcurtailingproduction,reducingcapitalexpenditures,’—,,’sprincipalinsuranceandreinsurancebusinessesare:(1)GEICO,(2)GeneralRe,(3)BerkshireHathawayReinsuranceGroupand(4),’smanagementviewsinsurancebusinessesaspossessingtwodistinctoperations–;investing,withlimitedexceptions,istheresponsibilityof62
Management’sDiscussion(Continued)Insurance—Underwriting(Continued)Berkshire’sChairmanandCEO,,,,’,Berkshire’sunderwritingresultsincludeestimatedlossesofapproximately$’sinsurancebusinesseswasapproximately$51billionatDecember31,,especiallywithrespecttoreinsuranceactivities,’’:GEICO......................................................................$916$1,113$1,314GeneralRe...................................................................342555526BerkshireHathawayReinsuranceGroup............................................1,3241,4271,658BerkshireHathawayPrimaryGroup...............................................210279340Pre-taxunderwritinggain............................................................2,7923,3743,838Incometaxesandminorityinterests....................................................9871,1901,353Netunderwritinggain.......................................................$1,805$2,184$2,,’,GEICOstrivestoprovideexcellentservicetocustomers,’%Amount%Amount%Premiumswritten...........................................$12,741$11,931$11,303Premiumsearned............................................$12,$11,$11,............................9,,,.......................................2,,,.....................................11,,,-taxunderwritinggain.....................................$916$1,113$1,31463
Management’sDiscussion(Continued)Insurance—Underwriting(Continued)GEICO(Continued)%over2007,%%%%-in-forceatDecember31,2008were665,000higherthanatDecember31,%%%$87millioncomparedto$,theincreaseinthelossratioreflectedhigheraverageclaimseveritiesandloweraveragepremiumsperpolicy,$61million(%)%in2008to$1,508million,,%over2006,duetohighernumbersofpolicies-in-force,%over2006,,(basedinGermany)’-taxunderwritingPremiumswrittenPremiumsearnedgain200820072006200820072006200820072006Property/casualty..........................$3,383$3,478$3,581$3,434$3,614$3,711$163$475$373Life/health...............................2,5882,4792,3682,5802,4622,36417980153$5,971$5,957$5,949$6,014$6,076$6,075$342$555$52664
Management’sDiscussion(Continued)Insurance—Underwriting(Continued)GeneralRe(Continued)Property/%from2007,%$205millionwithrespecttoareinsurance-to-closetransactionthatincreasedGeneralRe’seconomicinterestintherunoffofLloyd’sSyndicate435’s2000yearofaccountfrom39%to100%.Asimilartransactionin2007generated$114millionofpremiumswrittenandincreasedGeneralRe’seconomicinterestintherunoffofLloyd’sSyndicate435’s2001yearofaccountfrom60%to100%.%from2007,%-to-closetransactionsandexchangerates,%%-taxunderwritingresultsin2008included$275millioninunderwritinggainsfrompropertybusinesspartiallyoffsetby$112millioninunderwritinglossesfromcasualty/workers’$120millionforthe2008accidentyear,offsetby$395millionofgainsfromfavorablerun-offofprioryears’$174millionofcatastrophelossesfromHurricanesGustavandIkeand$-taxunderwritinglossesfromcasualty/workers’compensationbusinessin2008included$117millionofworkers’compensationlossreservediscountaccretionandretroactivereinsurancedeferredchargeamortization,-taxunderwritingresultsin2007included$519millioninunderwritinggainsfrompropertybusiness,partiallyoffsetby$44millioninunderwritinglossesfromcasualty/workers’$90millionforthe2007accidentyearand$429millionfromfavorablerun-offofprioryears’-taxunderwritinglossesfromcasualtybusinessin2007included$120millionoflossreservediscountaccretionanddeferredchargeamortization,-taxunderwritingresultsin2006included$708millioninunderwritinggainsfrompropertybusiness,partiallyoffsetby$335millioninunderwritinglossesfromcasualty/workers’compensationbusiness,’$137millioninreservediscountaccretionanddeferredchargeamortization,increasesinprioryears’workers’compensationreservesof$
Management’sDiscussion(Continued)Insurance—Underwriting(Continued)BerkshireHathawayReinsuranceGroupTheBerkshireHathawayReinsuranceGroup(“BHRG”)’-linereferstootherbusinesswrittenonbothaquota-shareandexcessbasis,participationsinandcontractswithLloyd’ssyndicatesaswellasproperty,aviationandworkers’’-taxunderwritinggain/loss200820072006200820072006Catastropheandindividualrisk................................$955$1,577$2,196$776$1,477$1,588Retroactivereinsurance......................................2047,708146(414)(375)(173)Othermulti-line............................................3,9232,6172,634962325243$5,082$11,902$4,976$1,324$1,427$1,658Catastropheandindividualriskcontractsmayprovideexceptionallylargelimitsofindemnification,oftenseveralhundredmilliondollarsandoccasionallyinexcessof$1billion,andcovercatastropherisks(suchashurricanes,earthquakesorothernaturaldisasters)orotherpropertyrisks(suchasaviationandaerospace,commercialmulti-perilorterrorism).ThetimingandmagnitudeoflossesproduceextraordinaryvolatilityinperiodicunderwritingresultsofBHRG’%from2007,whichdecreased28%$,$$,’,Berkshireenteredintoacontractunderwhichitreceivedapaymentof$224millionandagreedtopurchase,undercertainconditions,upto$’sobligationwasconditionedupon,amongotherthings,theoccurrenceofaspecifiedamountofhurricanelossesinFloridaduringaperiodthatexpiredonDecember31,’sacquisitionofthebondswasnotmetandtheconsiderationreceivedwasearnedasofDecember31,$,BHRGincurredlossesofapproximately$200millionattributabletoprioryears’events,,,$,,66
Management’sDiscussion(Continued)Insurance—Underwriting(Continued)BerkshireHathawayReinsuranceGroup(Continued)’sretroactivecontracts(includingtheEquitascontract)were$,2008and$,$,2008and$,$156milliononcontractswrittenin2007(primarilytheEquitascontract).Underwritinglossesfromretroactivereinsurancein2006werenetofgainsofapproximately$-linepremiumsearnedin2008increased$(50%)$
Management’sDiscussion(Continued)Insurance—Underwriting(Continued)BerkshireHathawayPrimaryGroupBerkshire’:MedicalProtectiveCorporation(“MedPro”),aproviderofprofessionalliabilityinsurancetophysicians,dentistsandotherhealthcareproviders;NationalIndemnityCompany’sprimarygroupoperation(“NICOPrimaryGroup”),awriterofcommercialmotorvehicleandgeneralliabilitycoverages;,whosesubsidiariesunderwritespecialtyinsurancecoverages;agroupofcompaniesreferredtointernallyas“Homestate”operations,providersofstandardcommercialmulti-lineinsurance;CentralStatesIndemnityCompany,aproviderofcreditanddisabilityinsurancetoindividualsnationwidethroughfinancialinstitutions;AppliedUnderwriters,aproviderofintegratedworkers’compensationsolutions;.,(acquiredinAugust2007)$1,950millionin2008,$1,999millionin2007and$1,%,premiumsearnedbytheNICOPrimaryGroupdeclinedbyapproximately30%,-taxunderwritinggainsaspercentagesofpremiumsearnedwereapproximately11%in2008,14%in2007and18%,whichwereprimarilyduetolessfavorablelossreservedevelopmentofprioryears’—InvestmentIncomeAsummaryofthenetinvestmentincomeofBerkshire’..............................$4,722$4,758$4,316Incometaxesandminorityinterests....................................................1,2251,2481,196Investmentincomeafterincometaxesandminorityinterests................................$3,497$3,510$3,$442million(10%),,dividendincomeincreased$534million,,,BerkshiresubsidiariesacquiredtheWrigley,GoldmanSachsandGeneralElectricsecuritiesforanaggregatecostof$$,
Management’sDiscussion(Continued)Insurance—InvestmentIncome(Continued)AsummaryofinvestmentsheldinBerkshire’.....................................................$18,845$28,257$34,590Equitysecurities.............................................................48,89274,681*61,168*Fixedmaturitysecurities......................................................26,93227,92225,272Other......................................................................21,535*——$116,204$130,860$121,030*OtherinvestmentsincludetheinvestmentsinWrigley,GoldmanSachsandGeneralElectricaswellasinvestmentsinBurlingtonNorthernandMoody’s,whichasofDecember31,,investmentsinBurlingtonNorthernandMoody’,
Management’sDiscussion(Continued)UtilitiesandEnergy(“MidAmerican”)..........................$4,742$4,325$3,519$425$412$348PacifiCorp...........................................4,5584,3192,971703692356Naturalgaspipelines...................................1,2211,.........................................1,0011,114961339337338Realestatebrokerage..................................1,1471,5111,724(45)4274Other...............................................1,3022714971,278130245$13,971$12,628$10,644Earningsbeforecorporateinterestandtaxes................3,2952,0861,737Interest,otherthantoBerkshire..........................(332)(312)(261)InterestonBerkshirejuniordebt..........................(111)(108)(134)Incometaxesandminorityinterests**.....................(1,002)(477)(426)Netearnings......................................$1,850$1,189$916EarningsapplicabletoBerkshire*........................$1,704$1,114$885DebtowedtoothersatDecember31......................19,14519,00216,946DebtowedtoBerkshireatDecember31...................1,0878211,055*IncludesinterestearnedbyBerkshire(netofrelatedincometaxes).**Netof$58milliondeferredincometaxbenefitin2007asaresultofthereductionintheUnitedKingdomcorporateincometaxratefrom30%to28%%(%diluted)interestinMidAmericanEnergyHoldingsCompany(“MidAmerican”),’sdomesticregulatedenergyinterestsarecomprisedoftworegulatedutilitycompanies(MidAmericanEnergyCompany(“MEC”)andPacifiCorp)servingover3millionretailcustomersandtwointerstatenaturalgaspipelinecompanies(NorthernNaturalGasandKernRiver)withapproximately17,(“.”),’sutilities,,,,MidAmerican’’srevenuesin2008increased$417million(10%)(1)increasedregulatednaturalgasrevenuesfromcostbasedpriceincreasesthatarelargelypassedontocustomers,(2)increasednon-regulatedgasrevenuesdueprimarilytohigherpricesand,toalesserdegree,increasedvolumeand(3)(“EBIT”)ofMECin2008increased$13million(3%)versus2007,resultingprimarilyfromhigheroperatingmarginsonwholesaleregulatedelectricityandslightlyhighermarginsfromregulatedgassales,’srevenuesin2008increased$239million(6%)’sEBITin2008increased$11million(2%)versus2007,
Management’sDiscussion(Continued)UtilitiesandEnergy(“MidAmerican”)(Continued)Naturalgaspipelinesrevenuesin2008increased$133million(12%),$122million(26%)$113million(10%)$364million(24%)$45millionin2008versusEBITof$,EBITfromotheractivitiesincludedagainof$917millionfromMidAmerican’sinvestmentsinConstellationEnergyaswellasafeeof$$’srevenuesin2007increased$806million(23%)’snon-regulatedenergysalesin2007exceeded2006by$’sregulatedwholesaleandretailelectricitysalesin2007exceeded2006by$155million,$64million(18%),reflectingthemarginsontheincreasesinregulatedandnon-regulatedenergysales,’srevenuesin2007increased$1,348million(45%)andEBITincreased$336million(94%)(March21,2006).In2007,PacifiCorp’srevenuesandEBITwerefavorablyimpactedbyregulatory-approvedrateincreasesandhighercustomerusageinretailmarkets,aswellasincreasedmarginsonwholesaleelectricitysales,$116million(12%)$97million(26%)%and43%,respectively,comparedto2006,
Management’sDiscussion(Continued)Manufacturing,ServiceandRetailingAsummaryofrevenuesandearningsofBerkshire’smanufacturing,................................................$5,529$—$—$733$—$—McLaneCompany........................................29,85228,07925,693276232229ShawIndustries..........................................5,0525,3735,834205436594Othermanufacturing......................................14,12714,45911,9881,6752,0371,756Otherservice*..........................................8,4357,7925,811971968658Retailing...............................................3,1043,3973,334163274289$66,099$59,100$52,660Pre-taxearnings..........................................$4,023$3,947$3,526Incometaxesandminorityinterests..........................1,7401,5941,395$2,283$2,353$2,131*’sConsolidatedFinancialStatementsby$130millionin2008,$709millionin2007and$-taxearningsinthistableexceeded(waslessthan)theamountsincludedintheConsolidatedFinancialStatementsby($4million)in2008,$48millionin2007and$%interestinMarmonHoldings,Inc.(“Marmon”)onMarch18,,%’soperatingresultsareincludedinBerkshire’’,2008,Marmon’sconsolidatedrevenuesandoperatingincomewere$6,960millionand$977million,respectively,comparedto$6,934millionand$946million,,Inc.,(“McLane”)isawholesaledistributorofgroceryandnon-foodproductstoretailers,’’srevenuesof$29,852millionin2008increased$1,773million(6%)comparedto2007whichincreased$2,386million(9%)-taxearningsin2008increased$44millionover2007,%%-thirdofMcLane’-MartcouldhaveamaterialadverseimpactonMcLane’(“Shaw”)istheworld’$5,052millionin2008declined$321million(6%)-to-dateresidentialcarpetsalesvolume,partiallyoffsetbyhigheraveragesellingpricesand72
Management’sDiscussion(Continued)Manufacturing,ServiceandRetailing(Continued)ShawIndustries(Continued),pre-taxearningsdeclined$231million(53%)to$-taxearningsin2008alsoincluded$,,asaresult,Shaw’$5,373millionin2007declined$461million(8%),carpetvolumedecreased10%versus2006duetolowersalesinresidentialmarkets,,pre-taxearningsdecreased$158million(27%)%,generalandadministrativecostsin2007declinedapproximately6%comparedwith2006,’(AcmeBuildingBrands,BenjaminMoore,JohnsManvilleandMiTek)andapparel(ledbyFruitoftheLoomwhichincludestheRussellathleticapparelandsportinggoodsbusinessandtheVanityFairBrandswomen’sintimateapparelbusiness).AlsoincludedinthisgroupareForestRiver,aleadingmanufacturerofleisurevehicles,CTBInternational(“CTB”),amanufacturerofequipmentforthelivestockandagriculturalindustriesandISCARMetalworkingCompanies(“IMC”),$14,127milliondeclined$332million(2%),,-taxearningsofothermanufacturingbusinessesof$1,675millionin2008,declined$362million(18%)-taxearningsdeclinedorwereflatinnearlyallofBerkshire’-taxearningsfromForestRiverdeclined56%,-taxearningsfromappareldeclined34%,-taxearningsfrombuildingproductsdeclined28%,$14,459million,anincreaseof$2,471million(21%)$-taxearningswere$2,037millionin2007,anincreaseof$281million(16%)-yearinclusionin2007ofIMCandincreasedearningsofCTB,partiallyoffsetbya22%’sotherservicebusinessesincludeNetJets,theworld’sleadingprovideroffractionalownershipprogramsforgeneralaviationaircraft,andFlightSafety,:TTI,aleadingelectroniccomponentsdistributor(acquiredMarch2007);BusinessWire,aleadingdistributorofcorporatenews,multimediaandregulatoryfilings;ThePamperedChef,adirectsellerofhighqualitykitchentools;InternationalDairyQueen,alicensorandserviceprovidertoabout5,700storesthatofferprepareddairytreatsandfood;TheBuffaloNews,apublisherofadailyandSundaynewspaper;
Management’sDiscussion(Continued)Manufacturing,ServiceandRetailing(Continued)Otherservice(Continued)In2008,revenuesofthegroupwere$8,435million,anincreaseof$643million(8%)%,otherservicerevenuesin2008increased2%-taxearningsof$971millionin2008,,NetJets,andtoalesserdegreePamperedChef,,NetJetsincurredchargesof$$1,981million(34%)andpre-taxearningsincreased$310million(47%)-taxearningsin2007versus2006wasattributabletotheimpactofbusinessacquisitions(primarilyTTIandBusinessWire)(simulatorsandaircraft)’sretailingoperationsconsistoffourhomefurnishings(NebraskaFurnitureMart,,StarFurnitureandJordan’s)andthreejewelry(Borsheims,HelzbergandBenBridge)’$3,104millionin2008,adecreaseof$293million(9%)-taxearningsof$163millionin2008declined$111million(41%),,,-taxearningsofBerkshire’sretailersdeclined17%and33%,respectively,’...............................$3,560$3,665$3,570$206$526$513Furniture/transportationequipmentleasing.........................77381088087111182Other.......................................................614644674494369462$4,947$5,119$5,124Pre-taxearnings..............................................7871,0061,157Incometaxesandminorityinterests...............................308374425$479$632$732Revenuesfrommanufacturedhousingandfinanceactivities(ClaytonHomes)in2008decreased$105million(3%)%declinefromhomesales,,revenuesin2007includedapproximately$$,2008,anincreaseofapproximately$,-taxearningsofClaytonHomesin2008declined$320million(61%)-taxearningsin2008includeda$125millionincreaseintheprovisionforestimatedloanlossesduetochangesinloancollectionandrecoveryassumptions,74
Management’sDiscussion(Continued)FinanceandFinancialProducts(Continued)$25millionoflossesarisingfromHurricanesGustavandIkeand$$-taxearningsfromfurnitureandtransportationequipmentleasingactivitiesin2008declined$37million(5%)and$24million(22%),respectively,-the-roadtrailerandstorageunits,(depreciationandfacilityexpenses),-taxearningsfor2007decreased$70million(8%)and$71million(39%),respectively,ascomparedto2006,-taxearningsin2007reflectedachargeofapproximately$,pre-taxearningsincludedincomeof$
Management’sDiscussion(Continued)InvestmentandDerivativeGains/Losses(Continued),2008was$,anincreaseof$,-to-dateincreaseincludedfairvaluepre-taxlossesof$$633million,partiallyoffsetbylosspaymentsof$,$,2008was$,anincreaseofapproximately$,2007andanincreaseof$,-to-dateincreaseincludedpre-taxlossesof$’slossesfromequityindexputoptioncontractsin2008reflectedindexvaluedeclinesofbetween30%and45%%and22%.’,excludingassetsofutilitiesandenergyandfinanceandfinancialproductsbusinesses,wasapproximately$,2008(includingcashandcashequivalentsof$)and$,2007(includingcashandcashequivalentsof$).Berkshire’%interestinMarmonHoldings,Inc.(“Marmon”)for$,,%’interestsinMarmonbetween2011and2014forconsiderationbasedonMarmon’,Berkshireinvested$,,Incorporated’,Berkshireinvested$5billioninGoldmanSachsperpetualpreferredstockandcommonstockwarrantsand$$(includesabout$.)atDecember31,2008,anincreaseof$,2007,primarilyduetoincreasesinshort-termborrowings(principallyNetJets)anddebtofbusinessesacquiredin2008,(principallyMarmon).MidAmerican’scapitalexpenditureswere$$$$,2011toprovideupto$’,2008and2007consistedprimarilyofloansandfinancereceivables,$,2008and$,$(seeNote11totheConsolidatedFinancialStatementsandtheprecedingsectionofManagement’s76
Management’sDiscussion(Continued)FinancialCondition(Continued)Discussionforadditionalinformation).AsofDecember31,2008,notespayableandotherborrowingsof$$,BHFCissueddebtof$$,,theavailabilityofcredittocorporationshasdeclinedsignificantlyandinterestratesfornewissuesincreasedrelativetogovernmentobligations,,restrictedaccesstocreditmarketsoverlongerperiodscouldhaveasignificantnegativeimpactonoperations,,Berkshire’sconsolidatedshareholders’equitydeclinedfrom$$,’sequityinvestmentsandanincreaseinthefairvalueoftheliabilitiesarisingfromBerkshire’’’equityhasbeenreducedbyapproximately$,whicharereflectedintheConsolidatedFinancialStatementsandotherlong-termcontractstoacquiregoodsorservicesinthefuture,,includingfutureminimumrentalsunderoperatingleases,’,,-20112012-2013After2013(1)Notespayableandotherborrowings...........................$59,865$5,733$8,590$10,131$35,411Operatingleases............................................3,1155838895871,056(2)Purchaseobligations.......................................25,2826,5526,8854,6737,172(3)Unpaidlossesandlossexpenses..............................59,23612,83114,3178,17923,909Other.....................................................32,5124,4733,1962,70022,143Total.....................................................$180,010$30,172$33,877$26,270$89,691(1)Includesinterest.(2)Principallyrelatestofutureaircraft,coal,electricityandnaturalgaspurchases.(3)Beforereservediscountsof$2,
Management’sDiscussion(Continued),’’compensationreserves,liabilitiesforunpaidpropertyandcasualtylosses(referredtointhissectionas“grossunpaidlosses”)arereflectedintheConsolidatedBalanceSheetswithoutdiscountingfortimevalue,*,,,,2007GEICO.....................................................$7,336$6,642$7,012$6,341GeneralRe..................................................18,24119,83117,23517,651BHRG.....................................................26,17924,89421,38620,223BerkshireHathawayPrimaryGroup..............................4,8644,6354,4704,127Total.......................................................$56,620$56,002$50,103$48,342*,amongotherthings,,,,(referredtoas“casereserves”)andforclaimsthathavenotbeenreported(referredtoasincurredbutnotyetreported(“IBNR”)reserves).Thetimeperiodbetweenthelossoccurrencedateandsettlementpaymentdateisreferredtoasthe“claim-tail.”Propertyclaimsusuallyhavefairlyshortclaim-tailsand,absentlitigation,-tails,,’(GEICO,GeneralReandBHRG)’sgrossunpaidlossesandlossadjustmentexpensereservesasofDecember31,2008were$7,,2008,grossreservesincluded$5,265millionofreportedaverage,caseandcasedevelopmentreservesand$2,
Management’sDiscussion(Continued)Propertyandcasualtylosses(Continued)GEICO(Continued)’sreservesincludeprojectionsofultimateclaimcounts(“frequency”)andaveragelossperclaim(“severity”),’sreservingmethodologiesproducereserveestimatesbasedupontheindividualclaims(ora“ground-up”approach),(andpercentageofgrossreserves)are:(1)averagereserves(20%),(2)caseandcasedevelopmentreserves(55%)and(3)IBNRreserves(25%).,ratedstate,reportingdateandoccurrencedate,,,casereservesaloneareaninsufficientmeasureoftheultimatecostdueinparttothelongerclaim-tail,,additionalcasedevelopmentreserveestimatesareestablished,,2008,casedevelopmentreservesaveragedapproximately20%,,IBNRreserveestimatesarecalculatedbyfirstprojectingtheultimatenumberofclaimsexpected(reportedandunreported),suchastonewlegalprecedents,,supplementalIBNRreservesforthesetypesofeventsmaybeestablishedthroughthecollaborativeeffortofactuarial,,GEICOteststheadequacyofthetotallossreservesusingoneormoreactuarialprojectionsbasedonclaimclosuremodels,$205millionwhenreevaluatedatDecember31,%ofearnedpremiumsin2008andapproximately3%,,%ofGEICO’sreservesasofDecember31,2008wereforautomobileliability,ofwhichbodily79
Management’sDiscussion(Continued)Propertyandcasualtylosses(Continued)GEICO(Continued)injury(“BI”)coverageaccountedforapproximately55%.,thereserveswoulddevelopupordownbyapproximately$’’stotalreserves(approximately2%)’sandBHRG’,extent,timingandperceivedreliabilityofinformationreceivedfromcedingcompaniesvarieswidelydependingonthetypeofcoverage,thecontractualreportingterms(whichareaffectedbymarketconditionsandpractices),thewidevariabilityofcoverageneedsofindividualclientsandthetendencyforthoseneedstochangerapidlyinresponsetomarketconditions,theongoingeconomicimpactofsuchuncertainties,inandofthemselves,,-of-losscontracts,includingcatastrophelossesandquota-sharetreaties,’,forexample,,,,,cedingcompaniesmaynotreportclaimstothereinsureruntiltheybelieveitisreasonablypossiblethatthereinsurerwillbeaffected,,,,,,clientsreportannually,
Management’sDiscussion(Continued)Propertyandcasualtylosses(Continued)GeneralReandBHRG(Continued)Premiumandlossdataisprovidedthroughatleastoneintermediary(theprimaryinsurer),sothereisariskthatthelossdataprovidedisincomplete,’sreinsurancesubsidiariestohaveaccesstothecedant’,’,contractsgenerallyspecifywhetherarbitration,litigation,’,thescope,’sgrossandnetunpaidlossesandlossadjustmentexpensesandgrossreservesbymajorlineofbusinessasofDecember31,(1)Reportedcasereserves........................$9,959Workers’compensation...................$3,108(2)IBNRreserves...............................8,282Professionalliability......................1,450Grossreserves...............................18,241Masstort–asbestos/environmental.............1,810Cededreservesanddeferredcharges.............(1,006)Autoliability..............................2,871(3)Netreserves.................................$17,235Othercasualty...........................3,399Othergeneralliability.......................2,908Property..................................2,695Total....................................$18,241(1)Netofdiscountsof$2,616million.(2)Includesdirectorsandofficersanderrorsandomissionscoverage.(3)’sprocessofestablishinglossreserveestimatesisbaseduponaground-upapproach,beginningwithcaseestimatesandsupplementedbyadditionalcasereserves(“ACRs”),“tailrisk”,,,examiners’’estimatesaresignificantlygreaterthanthecedingcompany’sestimates,,,2008,ACRsaggregated$’compensationreserves,,
Management’sDiscussion(Continued)Propertyandcasualtylosses(Continued)GeneralRe(Continued)Actuariesclassifyalllossandpremiumdataintosegments(“reservecells”)primarilybasedonproduct(.,treaty,facultativeandprogram)andlineofbusiness(.,autoliability,property,etc.).Foreachreservecell,premiumsandlossesareaggregatedbyaccidentyear,policyyearorunderwritingyear(dependingonclientreportingpractices),inconjunctionwithexpectedlossratiosbyaccidentyear,,:changesinclientclaimspractices,changesinclaimexaminers’useofACRsorthefrequencyofclientcompanyclaimreviews,changesinpolicytermsandcoverage(suchasclientlossretentionlevelsandoccurrenceandaggregatepolicylimits),changesinlosstrendsandchangesinlegaltrendsthatresultinunanticipatedlosses,,byaccidentyear,,,,,byaccidentyear,,,forprioryears’workers’compensationlosses,reportedclaimswerelessthanexpectedclaimsbyabout$,furtheranalysisoftheworkers’$$117millionforthechangeinnetreservediscountsduringtheyear,workers’compensationlossesfromprioryearsreducedpre-taxearningsin2008by$’ssignificantexcess-of-lossworkers’compensationreservecells,anincreaseoftenpointsinthetailoftheexpectedemergencepatternandanincreaseoftenpercentintheexpectedlossratioswouldproduceanetincreaseinnominalIBNRreservesofapproximately$623millionand$339milliononadiscountedbasisasofDecember31,(excludingmasstortlosses)’ssignificantothercasualtyandgeneralliabilityreservecells(includingmedicalmalpractice,umbrella,autoandgeneralliability),anincreaseoffivepointsinthetailsoftheexpectedemergencepatternsandanincreaseoffivepercentinexpectedlossratios(onepercentforlargeinternationalproportionalreservecells)wouldproduceanetincreaseinnominalIBNRreservesandacorrespondingreductioninpre-taxearningsofapproximately$,giventhediversificationinworldwidebusiness,morelikelyoutcomesarebelievedtobelessthan$
Management’sDiscussion(Continued)Propertyandcasualtylosses(Continued)GeneralRe(Continued),estimatedremainingWorldTradeCenterlosseswerereducedby$(“D&OandE&O”)coverages,’slargeD&OandE&Oreservecellsanincreaseoftenpointsinthetailoftheexpectedemergencepattern(forthosecellswhereemergencepatternsareconsidered)andanincreaseoftenpercentintheexpectedlossratioswouldproduceanetincreaseinnominalIBNRreservesandacorrespondingreductioninpre-taxearningsofapproximately$-widelossexperiencedataandinformedjudgmentareusedwheninternallossdataisoflimitedreliability,suchasinsettingtheestimatesformasstort,asbestosandhazardouswaste(collectively,“masstort”),2008wereapproximately$$$$,$,ultimatelossestimatesforasbestosandenvironmentalclaimswereincreasedby$,GeneralReconsiders“survivalratios”,’,significantreserveincreasesmayberequiredinthefutureifnewexposuresorclaimantsareidentified,’sunpaidlossesandlossadjustmentexpensesasofDecember31,...........................................................$1,836$2,426$4,262IBNRreserves..................................................................1,8213,4665,287Retroactive....................................................................—16,63016,630Grossreserves..................................................................$3,657$22,52226,179Deferredchargesandcededreserves................................................(4,793)Netreserves....................................................................$21,386Ingeneral,,,2008,BHRG’-of-losscontracts,inwhichlosses(relatingtolosseventsoccurringbeforeaspecifieddateonorbeforethecontractdate)$“reportedcasereserves”hasnopracticalanalyticalvaluewithrespecttoretroactivepoliciessincetheamountisoftenderivedfromreportsinbulkfromcedingcompanies,whomayhaveinconsistentdefinitionsof“casereserves.”
Management’sDiscussion(Continued)Propertyandcasualtylosses(Continued)BHRG(Continued)Inestablishingretroactivereinsurancereserves,-tailisexpectedtobeverylongforsuchcontracts,,retroactivereservesdevelopedupwardbyapproximately$’sliabilitiesforenvironmental,asbestos,$,2008and$,$,asareinsurer,doesnotregularlyreceivereliableinformationregardingasbestos,environmentalandlatentinjuryclaimsfromallcedingcompaniesonaconsistentbasis,,,$,,environmentalorlatentinjuryexposures,managementcurrentlybelievesitunlikelythatunpaidlossesasofDecember31,2008($)willdevelopupwardtothemaximumlosspayableordownwardbymorethan15%.,$,2008,,lossreservesforprioryears’eventsdeclinedbyapproximately$,,supplementedbymanagement’’sjudgmentconsideringthetypeofbusinesscovered,analysisofeachcedingcompany’slosshistoryandevaluationofthatportionoftheunderlyingcontractsunderwrittenbyeachcedingcompany,’,,thevaluesoftheseliabilitiesareprimarilybasedonvaluationmodels,,
Management’sDiscussion(Continued)Derivativecontractliabilities(Continued),includingtheselectionofinterestrates,,Berkshireusedbid/,,thevariationsinpricingdatacanwiden,,theimpactofsuchvariationsispartiallymitigatedbyshorterremainingdurationsandbytheavailabilityofdataonnewercontracts,,strikeprice,discountorinterestrate,,2008wereeachapproximately4%.,seeBerkshire’,2008wasapproximately22%.TheimpactonfairvalueasofDecember31,2008($)(percentagepoints)HypotheticalfairvalueIncrease2percentagepoints..............................................................$10,451Increase4percentagepoints..............................................................10,882Decrease2percentagepoints..............................................................9,598Decrease4percentagepoints..............................................................9,,$,’sConsolidatedBalanceSheetasofDecember31,2008includesgoodwillofacquiredbusinessesofapproximately$’’sfairvalue,includingmarketquotations,assetandliabilityfairvaluesandothervaluationtechniques,,includinggoodwill,exceedstheestimatedfairvalue,thenindividualassets(includingidentifiableintangibleassets)
Management’sDiscussion(Continued)MarketRiskDisclosuresBerkshire’’ssignificantmarketrisksareprimarilyassociatedwithinterestrates,equityprices,,,’sinvestmentportfoliosanditsequityindexputoptioncontractsremainsubjecttoconsiderablevolatility,’’sregularlyinvestsinbonds,’,suchasinterestrateswaps,’,fairvaluesofinterestratesensitiveinstrumentsmaybeaffectedbythecreditworthinessoftheissuer,prepaymentoptions,relativevaluesofalternativeinvestments,,,(bp=basispoints)100bp100bp200bp300bpFairValuedecreaseincreaseincreaseincreaseDecember31,2008Insuranceandotherbusinesses:Investmentsinfixedmaturitysecurities........................$27,115$27,847$26,382$25,685$25,064Notespayableandotherborrowings..........................4,3004,3704,2344,1734,117Financeandfinancialproductsbusinesses:Investmentsinfixedmaturitysecuritiesandloansandfinancereceivables............................................18,53319,25717,66416,87416,155Notespayableandotherborrowings..........................13,86914,42513,35612,88212,441Utilitiesandenergybusinesses:Notespayableandotherborrowings..........................19,14420,86417,67316,41515,328December31,2007Insuranceandotherbusinesses:Investmentsinfixedmaturitysecurities........................$28,515$29,179$27,689$26,967$26,318Notespayableandotherborrowings..........................2,7092,7572,6662,6282,593Financeandfinancialproductsbusinesses:Investmentsinfixedmaturitysecuritiesandloansandfinancereceivables............................................15,84316,86014,76613,80612,934Notespayableandotherborrowings..........................12,32112,72511,92111,56311,229Utilitiesandenergybusinesses:Notespayableandotherborrowings..........................19,83421,64018,30517,00615,89086
Management’sDiscussion(Continued)EquityPriceRiskHistorically,,Berkshirestrivestoinvestinbusinessesthatpossessexcellenteconomics,,,2008,57%-termequitypricevolatilitywithrespecttoitsinvestmentsprovidedthattheunderlyingbusiness,,’sultimatepotentiallosswithrespecttothesecontractsisdeterminedfromthemovementoftheunderlyingstockindexbetweencontractinceptiondateandexpiration,thechangeinfairvalueresultingfromcurrentchangesintheindexvaluesarealsoaffectedbychangesinotherfactorssuchasinterestrates,’sequityinvestmentsandderivativecontractliabilitieswithequitypriceriskasofDecember31,%increaseanda30%%,resultscouldbefarworseduebothtothenatureofequitymarketsandtheaforementionedconcentrationsexistinginBerkshire’(Decrease)inFairValuePriceChangeChangeinPricesShareholders’EquityDecember31,2008Equitysecurities...............................$49,07330%increase$63,%decrease34,351()Equityindexputoptions.........................(10,022)30%increase(7,952)%decrease(12,799)()December31,2007Equitysecurities...............................$74,99930%increase$97,%decrease52,499()Equityindexputoptions.........................(4,610)30%increase(3,282)%decrease(6,900)(),Berkshireholdsinvestmentsinmajormultinationalcompaniesthathavesignificantforeignbusinessandforeigncurrencyriskoftheirown,
Management’sDiscussion(Continued)ForeignCurrencyRisk(Continued)Berkshire’snetassetssubjecttotranslationareprimarilyintheinsuranceandutilitiesandenergybusinesses,,throughitsownershipofMidAmerican,,,amongmanyotheritems,changingweather,limitedstorage,transmissionandtransportationconstraints,,MidAmericanusesderivativeinstruments,includingforwards,futures,options,swapsandotherover-the-counteragreements,,,,’scommoditypriceriskonenergyderivativecontractsofMidAmericanasofDecember31,2008and2007andshowstheeffectsofahypothetical10%increaseanda10%(liabilities)HypotheticalPriceChangePriceDecember31,2008.....................................$(528)10%increase$(474)10%decrease(582)December31,2007.....................................$(263)10%increase$(208)10%decrease(318)FORWARD-LOOKINGSTATEMENTSInvestorsarecautionedthatcertainstatementscontainedinthisdocument,aswellassomestatementsinperiodicpressreleasesandsomeoralstatementsofBerkshireofficialsduringpresentationsaboutBerkshire,are“forward-looking”statementswithinthemeaningofthePrivateSecuritiesLitigationReformActof1995(the“Act”).Forward-lookingstatementsincludestatementsthatarepredictiveinnature,thatdependuponorrefertofutureeventsorconditions,thatincludewordssuchas“expects,”“anticipates,”“intends,”“plans,”“believes,”“estimates,”,anystatementsconcerningfuturefinancialperformance(includingfuturerevenues,earningsorgrowthrates),ongoingbusinessstrategiesorprospects,andpossiblefutureBerkshireactions,-lookingstatementsarebasedoncurrentexpectationsandprojectionsaboutfutureeventsandaresubjecttorisks,uncertainties,andassumptionsaboutBerkshire,economicandmarketfactorsandtheindustriesinwhichBerkshiredoesbusiness,’sactualperformanceandfutureeventsandactionstodiffermateriallyfromsuchforward-lookingstatements,include,butarenotlimitedto,changesinmarketpricesofBerkshire’sinvestmentsinfixedmaturityandequitysecurities,lossesrealizedfromderivativecontracts,theoccurrenceofoneormorecatastrophicevents,suchasanearthquake,hurricaneoranactofterrorismthatcauseslossesinsuredbyBerkshire’sinsurancesubsidiaries,changesininsurancelawsorregulations,changesinFederalincometaxlaws,
InJune1996,Berkshire’sChairman,,issuedabookletentitled“AnOwner’sManual*”toBerkshire’’-RELATEDBUSINESSPRINCIPLESAtthetimeoftheBlueChipmergerin1983,“principles,”all13remainaliveandwelltoday,,-partners,andofourselvesasmanagingpartners.(Becauseofthesizeofourshareholdingswearealso,forbetterorworse,controllingpartners.),,wedonotviewBerkshireshareholdersasfacelessmembersofanever-shiftingcrowd,’ssharesisasmallfractionofthatoccurringinthestocksofothermajorAmericancorporations,,,say,Coca-ColaorAmericanExpressshares,wethinkofBerkshireasbeinganon-managingpartnerintwoextraordinarybusinesses,,wewouldnotcareintheleastifseveralyearswentbyinwhichtherewasnotrading,orquotationofprices,-termexpectations,’sowner-orientation,’sfamilyhas90%ormoreofitsnetworthinBerkshireshares;Ihaveabout99%.Inaddition,manyofmyrelatives—mysistersandcousins,forexample—,“edge”,whenIdosomethingdumb,-termeconomicgoal(subjecttosomequalificationsmentionedlater)istomaximizeBerkshire’;-shareprogresswilldiminishinthefuture—,attainedprimarily©*
’,weexpecttomakemanymoreinthedecadestocome,,,,,adepressedmarketmakesiteasierforourinsurancecompaniestobuysmallpiecesofwonderfulbusinesses—includingadditionalpiecesofbusinesseswealreadyown—,someofthosesamewonderfulbusinesses,suchasCoca-Cola,areconsistentbuyersoftheirownshares,whichmeansthatthey,andwe,,—asitwillfromtimetotime—’-prongedapproachtobusinessownershipandbecauseofthelimitationsofconventionalaccounting,,bothasownersandmanagers,,wewillalsoreporttoyoutheearningsofeachmajorbusinesswecontrol,,alongwithotherinformationwewillsupplyabouttheindividualbusinesses,,,,isoneofourbusinessesenjoyinganindustrytailwindorisitfacingaheadwind?,,—forinstance,youwillbereadinginourannualreportsaboutinsurance“float”—,webelieveintellingyouhowwethinksothatyoucanevaluatenotonlyBerkshire’,wemuchprefertopurchase$2ofearningsthatisnotreportablebyusunderstandardaccountingprinciplesthantopurchase$(whoseearningswillbefullyreportable)frequentlysellfordoublethepro-ratapriceofsmallportions(whoseearningswillbelargelyunreportable).Inaggregateandovertime,,inaggregate,havebeenfullyasbeneficialtoBerkshireasiftheyhadbeendistributedtous(andthereforehadbeenincludedintheearningsweofficiallyreport).Thispleasantresulthasoccurredbecausemostofourinvesteesareengagedintrulyoutstandingbusinessesthatcanoftenemployincrementalcapitaltogreatadvantage,,everycapitaldecisionthatourinvesteeshavemadehasnotbenefittedusasshareholders,,whenwedoborrow,,consideringourfiduciaryobligationstopolicyholders,lendersandthemanyequityholderswhohavecommittedunusuallylargeportionsoftheirnetworthtoourcare.(AsoneoftheIndianapolis“500”winnerssaid:“Tofinishfirst,youmustfirstfinish.”)ThefinancialcalculusthatCharlieandIemploywouldneverpermitourtradingagoodnight’’veneverbelievedinriskingwhatmyfamilyandfriendshaveandneedinordertopursuewhattheydon’thaveanddon’
Besides,Berkshirehasaccesstotwolow-cost,non-periloussourcesofleveragethatallowustosafelyownfarmoreassetsthanourequitycapitalalonewouldpermit:deferredtaxesand“float,”$,,ofcourse,isequity;,theygiveusthebenefitofdebt—anabilitytohavemoreassetsworkingforus—,(despiteanumberofimportantmistakesbyyourChairman),our1996acquisitionofGEICO,“wishlist”,-shareintrinsicvalueofBerkshire’’,overtime,deliversshareholdersatleast$1ofmarketvalueforeach$,,,’tcreateextravaluebyretainingearnings,—notonlymergersorpublicstockofferings,butstock-for-debtswaps,stockoptions,—andthatiswhattheissuanceofsharesamountsto—,westatedthatBerkshirestockwasnotundervalued—’money:Ownersunfairlyloseiftheirmanagersdeliberatelysellassetsfor80¢thatinfactareworth$’tcommitthatkindofcrimeinourofferingofClassBsharesandweneverwill.(Wedidnot,however,sayatthetimeofthesalethatourstockwasovervalued,thoughmanymediahavereportedthatwedid.):Regardlessofprice,.(Theprojectionswillbedazzlingandtheadvocatessincere,but,intheend,majoradditionalinvestmentinaterribleindustryusuallyisaboutasrewardingasstrugglinginquicksand.)Nevertheless,ginrummymanagerialbehavior(discardyourleastpromisingbusinessateachturn),weclosedourtextilebusinessinthemid-1980’safter20yearsofstrugglingwithit,,however,giventhoughttosellingoperationsthatwouldcommandveryfancypricesnorhavewedumpedourlaggards,,,asacompanywithamajorcommunicationsbusiness,itwouldbeinexcusableforustoapplylesserstandardsofaccuracy,balanceandincisivenesswhenreportingonourselvesthanwewouldexpectournewspeopletoapplywhenreporting91
:“bigbath”accountingmaneuversorrestructuringsnorany“smoothing”“guesstimate,”astheynecessarilymustbeininsurancereserving,,,thoughIdon’twritethose(onerecitalayearisenough).StillanotherimportantoccasionforcommunicationisourAnnualMeeting,’tcommunicate:’tfeasiblegivenBerkshire’,wetrytomakesurethatnosingleshareholdergetsanedge:Wedonotfollowtheusualpracticeofgivingearnings“guidance”,,(becausewemaypurchasethemagain)“nocomment”onotheroccasions,,,thegreatestteacherinthehistoryoffinance,andIbelieveitappropriatetopassalongwhatIlearnedfromhim,evenifthatcreatesnewandableinvestmentcompetitorsforBerkshirejustasBen’,,therelationshipbetweentheintrinsicvalueandthemarketpriceofaBerkshiresharewouldneedtoremainconstant,,wewouldratherseeBerkshire’,CharlieandIcan’tcontrolBerkshire’,wecanencourageinformed,rationalbehaviorbyownersthat,inturn,’,however,’sper-sharebookvaluetotheperformanceoftheS&,,whydoourinvestorsneedus?Themeasurement,however,,,whosevaluetendstomovewiththeS&P500,,gainsintheS&Pstocksarecountedinfullincalculatingthatindex,whereasgainsinBerkshire’sequityholdingsarecountedat65%,therefore,expecttooutperformtheS&’:,though,,intrinsicvalueisanestimateratherthanaprecisefigure,anditisadditionallyanestimatethatmustbechangedifinterestratesmoveorforecastsoffuturecashflowsare92
,moreover—andthiswouldapplyeventoCharlieandme—,though,,weregularlyreportourper-sharebookvalue,aneasilycalculablenumber,,,,in1964wecouldstatewithcertitudethatBerkshire’sper-sharebookvaluewas$,thatfigureconsiderablyoverstatedthecompany’sintrinsicvalue,sinceallofthecompany’,however,Berkshire’ssituationisreversed:Now,ourbookvaluefarunderstatesBerkshire’sintrinsicvalue,,wegiveyouBerkshire’sbook-valuefiguresbecausetheytodayserveasarough,albeitsignificantlyunderstated,trackingmeasureforBerkshire’,thepercentagechangeinbookvalueinanygivenyearislikelytobereasonablyclosetothatyear’,’scostasits“bookvalue.”Ifthiscostistobeaccurate,,,,whichmustthenbediscounted,atanappropriateinterestrate,,whichmeansthatwhoeverpaidfortheeducationdidn’tgethismoney’,theintrinsicvalueofaneducationwillfarexceeditsbookvalue,,’sappropriatethatIconcludewithadiscussionofBerkshire’smanagement,-relatedprincipletellsyou,,wedelegatealmosttothepointofabdication:ThoughBerkshirehasabout246,000employees,,,theydon’,,andit’,that’,greyhairdoesn’thurtonthisplayingfield:Youdon’tneedgoodhand-eyecoordinationorwell-tonedmusclestopushmoneyaround(thankheavens).Aslongasourmindscontinuetofunctioneffectively,,Berkshire’sownershippicturewillchangebutnotinadisruptiveway:
Atmydeath,theBuffettfamilywillnotbeinvolvedinmanagingthebusinessbut,asverysubstantialshareholders,,ofcourse,:,theseexecutiveswillcooperateinmakingthedecisionsneeded,subject,ofcourse,-mindedboard,,,,,andifenjoyinglifepromoteslongevity,Methuselah’$100investedinBerkshirecommonstockonDecember31,2003withasimilarinvestmentintheStandardandPoor’s500StockIndexandintheStandardandPoor’sProperty—CasualtyInsuranceIndex.**ComparisonofFiveYearCumulativeReturn*Berkshire Hathaway &P 500 IndexE180S&P 500 Property & Casualty Insurance IndexBH168160143B142E140135EHB127131123B120111E116HEB115110HH105100EHB10490100EB878060200320042005200620072008*CumulativereturnfortheStandardandPoor’sindicesbasedonreinvestmentofdividends.**,accordingly,managementhasusedtheStandardandPoor’sProperty—
,attheoptionoftheholder,,.,,,MN55164-0854servesasTransferAgentandRegistrarfortheCompany’
.....627GeneralReCorporation....................2,574BerkshireHathawayReinsuranceGroup........593KansasBankersSuretyCompany............18BoatAmericaCorporation....................377MedicalProtectiveCorporation.............422CentralStatesIndemnityCo...................431NationalIndemnityPrimaryGroup..........384GEICO....................................22,249UnitedStatesLiabilityInsuranceGroup......513Insurancetotal............................28,188NON-INSURANCEBUSINESSESCompanyEmployeesCompanyEmployees(1)AcmeBuildingBrands.......................2,307Kirby..................................648(1)Adalet...................................266Larson-Juhl..............................1,810(1)(4)Altaquip.................................310TheMarmonGroup.....................18,000AppliedUnderwriters,Inc.....................455McLaneCompany.........................16,078(2)BenBridgeJeweler..........................778MidAmericanEnergyCompany...........3,150(2)BenjaminMoore............................2,467MidAmericanEnergyHoldingsCompany..654Borsheim’sJewelry..........................204MiTekInc................................1,818TheBuffaloNews............................846NebraskaFurnitureMart...................2,712BusinessWire...............................520NetJets..................................7,945(2)(2)CalEnergy................................329NorthernNaturalGas....................864(1)(2)CampbellHausfeld........................579NorthernandYorkshireElectric..........2,444(1)(1)CarefreeofColorado......................211Northland..............................107(2)ClaytonHomes,Inc..........................11,998PacifiCorp.............................3,192(1)(2)ClevelandWoodProducts..................79PacificPower...........................1,224CORTBusinessServices......................2,773ThePamperedChef........................814CTBInternational...........................1,079PrecisionSteelWarehouse..................194DairyQueen................................2,362RichlineGroup...........................2,337(1)(2)Douglas/Quikut...........................70RockyMountainPower..................2,180(3)FechheimerBrothers.........................715RussellCorporation.....................4,239(1)FlightSafetyInternational....................4,482OtherScottFetzerCompanies............147ForestRiver,Inc.............................4,461See’sCandies.............................3,000(1)France..................................104ShawIndustries..........................28,974(3)(1)FruitoftheLoom.........................34,896Stahl..................................167Garan.....................................4,563StarFurniture.................................................1,182TTI,Inc..................................2,782(1)(1)Halex...................................126UnitedConsumerFinanceCompany.......202(3)Helzberg’sDiamondShops...................2,009VanityFairBrands,Inc...................4,819(2)(1)HomeServicesofAmerica...................2,602WayneWaterSystems...................153Iscar......................................10,413WescoFinancialCorp......................13(1)JohnsManville..............................7,280WesternEnterprises.....................360Jordan’sFurniture..........................1,..............2,486(1)JustinBrands...............................911WorldBook............................190(2)KernRiverGasTransmissionCompany......164XTRA...................................595(1)Kingston.................................162Non-insurancetotal........................217,876CorporateOffice..........................19246,083(1)AScottFetzerCompany(2)AMidAmericanEnergyHoldingsCompany(3)AFruitoftheLoom,(4)
,,,,,,,VicePresident,,,,,SecretaryPresidentofYahoo!Inc.,,ChairmanoftheBoardofDirectorsofMicrosoftCorp,,,SeniorManagingDirectorofFirstManhattanCompany,,ViceChairmanoftheBoardofDirectorsofUWMedicine,,ChairmanofAllenandCompanyIncorporated,,FormerChairmanoftheBoardandCEOofCapitalCities/,PartnerofthelawfirmofMunger,Tolles&OlsonLLPWALTERSCOTT,JR.,ChairmanofLevel3Communications,asuccessortocertainbusinessesofPeterKiewitSons’(1977through2008),quarterlyreports,.
—3555FarnamStreet,Omaha,Nebraska68131
