FORM 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

OR

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

For the transition period from                  to

Commission file number 001-14905

BERKSHIRE HATHAWAY INC.

(Exact name of registrant as specified in its charter)

Delaware	47-0813844
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

3555 Farnam Street, Omaha, Nebraska 68131

(Address of principal executive office) (Zip Code)

(402) 346-1400

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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

Title of each class	Trading Symbols	Name of each exchange on which registered
Class A Common Stock Class B Common Stock 0.750% Senior Notes due 2023 1.125% Senior Notes due 2027 1.625% Senior Notes due 2035 0.500% Senior Notes due 2020 1.300% Senior Notes due 2024 2.150% Senior Notes due 2028 0.250% Senior Notes due 2021 0.625% Senior Notes due 2023 2.375% Senior Notes due 2039 2.625% Senior Notes due 2059	BRK.A BRK.B BRK23 BRK27 BRK35 BRK20 BRK24 BRK28 BRK21 BRK23A BRK39 BRK59	New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated  filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

Number of shares of common stock outstanding as of October 24, 2019:

Class A —	707,755
Class B —	1,383,414,987

BERKSHIRE HATHAWAY INC.

		Page No.
Part I – Financial Information
Item 1.  Financial Statements
	Consolidated Balance Sheets—September 30, 2019 and December 31, 2018	2-3
	Consolidated Statements of Earnings—Third Quarter and First Nine Months 2019 and 2018	4
	Consolidated Statements of Comprehensive Income—Third Quarter and First Nine Months 2019 and 2018	5
	Consolidated Statements of Changes in Shareholders’ Equity—Third Quarter and First Nine Months 2019 and 2018	6
	Consolidated Statements of Cash Flows—First Nine Months 2019 and 2018	7
	Notes to Consolidated Financial Statements	8-27
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28-48
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	48
Item 4.	Controls and Procedures	48
Part II – Other Information		49
Item 1.	Legal Proceedings	49
Item 1A.	Risk Factors	49
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds and Issuer Repurchases of Equity Securities	49
Item 3.	Defaults Upon Senior Securities	49
Item 4.	Mine Safety Disclosures	49
Item 5.	Other Information	49
Item 6.	Exhibits	50
Signature		50

1

Part I Financial Information

Item 1. Financial Statements

BERKSHIRE HATHAWAY INC.

and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(dollars in millions)

	September 30, 2019		December 31, 2018
	(Unaudited)
ASSETS
Insurance and Other:
Cash and cash equivalents*	$	71,064	$	27,749
Short-term investments in U.S. Treasury Bills		53,378		81,506
Investments in fixed maturity securities		19,172		19,898
Investments in equity securities		220,051		172,757
Equity method investments		17,535		17,325
Loans and finance receivables		17,135		16,280
Other receivables		34,511		31,564
Inventories		19,951		19,069
Property, plant and equipment		21,230		20,628
Equipment held for lease		14,934		14,298
Goodwill		56,478		56,323
Other intangible assets		30,788		31,499
Deferred charges under retroactive reinsurance contracts		13,359		14,104
Other		13,430		9,307
		603,016		532,307
Railroad, Utilities and Energy:
Cash and cash equivalents*		3,712		2,612
Receivables		3,756		3,666
Property, plant and equipment		135,326		131,780
Goodwill		24,750		24,702
Regulatory assets		3,007		3,067
Other		14,915		9,660
		185,466		175,487
	$	788,482	$	707,794

* Cash and cash equivalents included U.S. Treasury Bills with maturities of three months or less when purchased of $40.6 billion at September 30, 2019 and $3.9 billion at December 31, 2018.

See accompanying Notes to Consolidated Financial Statements

2

BERKSHIRE HATHAWAY INC.

and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(dollars in millions)

	September 30, 2019			December 31, 2018
	(Unaudited)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Insurance and Other:
Unpaid losses and loss adjustment expenses	$	71,997		$	68,458
Unpaid losses and loss adjustment expenses under retroactive reinsurance contracts		41,364			41,834
Unearned premiums		20,764			18,093
Life, annuity and health insurance benefits		19,422			18,632
Other policyholder liabilities		7,686			7,675
Accounts payable, accruals and other liabilities		25,880			23,696
Payable for purchases of U.S. Treasury Bills		8,123			2,080
Derivative contract liabilities		1,236			2,452
Aircraft repurchase liabilities and unearned lease revenues		5,106			4,593
Notes payable and other borrowings		37,176			34,975
		238,754			222,488
Railroad, Utilities and Energy:
Accounts payable, accruals and other liabilities		15,309			11,410
Regulatory liabilities		7,454			7,506
Notes payable and other borrowings		65,018			62,515
		87,781			81,431
Income taxes, principally deferred		60,389			51,375
Total liabilities		386,924			355,294
Shareholders’ equity:
Common stock		8			8
Capital in excess of par value		35,612			35,707
Accumulated other comprehensive income		(5,408	)		(5,015	)
Retained earnings		373,334			321,112
Treasury stock, at cost		(5,937	)		(3,109	)
Berkshire Hathaway shareholders’ equity		397,609			348,703
Noncontrolling interests		3,949			3,797
Total shareholders’ equity		401,558			352,500
	$	788,482		$	707,794

See accompanying Notes to Consolidated Financial Statements

3

BERKSHIRE HATHAWAY INC.

and Subsidiaries

CONSOLIDATED STATEMENTS OF EARNINGS

(dollars in millions except per share amounts)

	Third Quarter				First Nine Months
	2019		2018		2019		2018
	(Unaudited)				(Unaudited)
Revenues:
Insurance and Other:
Insurance premiums earned	$	15,323	$	14,333	$	44,505	$	41,855
Sales and service revenues		34,026		33,832		100,563		99,492
Leasing revenues		1,438		1,474		4,365		4,378
Interest, dividend and other investment income		2,483		1,993		6,895		5,583
		53,270		51,632		156,328		151,308
Railroad, Utilities and Energy:
Freight rail transportation revenues		5,982		6,112		17,558		17,547
Energy operating revenues		4,338		4,419		11,729		11,818
Service revenues and other income		1,382		1,287		3,633		3,450
		11,702		11,818		32,920		32,815
Total revenues		64,972		63,450		189,248		184,123
Investment and derivative contract gains (losses):
Investment gains (losses)		10,692		14,569		40,079		12,750
Derivative contract gains (losses)		234		137		1,217		303
		10,926		14,706		41,296		13,053
Costs and expenses:
Insurance and Other:
Insurance losses and loss adjustment expenses		10,858		9,932		31,701		28,296
Life, annuity and health insurance benefits		1,176		1,448		3,245		4,153
Insurance underwriting expenses		2,708		2,352		8,033		7,079
Cost of sales and services		26,950		27,084		79,764		79,254
Cost of leasing		1,010		978		3,030		2,949
Selling, general and administrative expenses		4,384		4,494		13,645		13,434
Interest expense		261		252		790		772
		47,347		46,540		140,208		135,937
Railroad, Utilities and Energy:
Freight rail transportation expenses		3,839		4,012		11,706		11,838
Utilities and energy cost of sales and other expenses		2,981		2,981		8,503		8,637
Other expenses		1,162		1,094		2,990		2,976
Interest expense		724		698		2,178		2,110
		8,706		8,785		25,377		25,561
Total costs and expenses		56,053		55,325		165,585		161,498
Earnings (loss) before income taxes and equity method earnings		19,845		22,831		64,959		35,678
Equity method earnings		644		316		936		1,044
Earnings (loss) before income taxes		20,489		23,147		65,895		36,722
Income tax expense (benefit)		3,832		4,440		13,333		7,009
Net earnings (loss)		16,657		18,707		52,562		29,713
Earnings attributable to noncontrolling interests		133		167		304		300
Net earnings (loss) attributable to Berkshire Hathaway shareholders	$	16,524	$	18,540	$	52,258	$	29,413
Net earnings (loss) per average equivalent Class A share	$	10,119	$	11,280	$	31,944	$	17,885
Net earnings (loss) per average equivalent Class B share*	$	6.75	$	7.52	$	21.30	$	11.92
Average equivalent Class A shares outstanding		1,633,002		1,643,556		1,635,903		1,644,519
Average equivalent Class B shares outstanding		2,449,502,430		2,465,333,662		2,453,854,768		2,466,777,764

* Class B shares are economically equivalent to one-fifteen-hundredth of a Class A share. Accordingly, net earnings per average equivalent Class B share outstanding is equal to one-fifteen-hundredth of the equivalent Class A amount. See Note 20.

See accompanying Notes to Consolidated Financial Statements

4

BERKSHIRE HATHAWAY INC.

and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(dollars in millions)

	Third Quarter						First Nine Months
	2019			2018			2019			2018
	(Unaudited)						(Unaudited)
Net earnings (loss)	$	16,657		$	18,707		$	52,562		$	29,713
Other comprehensive income:
Net change in unrealized appreciation of investments		18			5			232			(132	)
Applicable income taxes		(2	)		(1	)		(51	)		19
Reclassification of investment appreciation in net earnings		(57	)		(34	)		(53	)		(299	)
Applicable income taxes		12			7			11			63
Foreign currency translation		(700	)		(79	)		(534	)		(842	)
Applicable income taxes		6			9			3			46
Defined benefit pension plans		(45	)		(13	)		47			50
Applicable income taxes		7			3			(16	)		-
Other, net		10			(21	)		(35	)		(57	)
Other comprehensive income, net		(751	)		(124	)		(396	)		(1,152	)
Comprehensive income		15,906			18,583			52,166			28,561
Comprehensive income attributable to noncontrolling interests		112			162			301			271
Comprehensive income attributable to Berkshire Hathaway shareholders	$	15,794		$	18,421		$	51,865		$	28,290

See accompanying Notes to Consolidated Financial Statements

5

BERKSHIRE HATHAWAY INC.

and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

(dollars in millions)

	Berkshire Hathaway shareholders’ equity
	Common stock and capital in excess of par value			Accumulated other comprehensive income			Retained earnings			Treasury stock			Non- controlling interests			Total
Balance at December 31, 2017	$	35,702		$	58,571		$	255,786		$	(1,763	)	$	3,658		$	351,954
Adoption of new accounting pronouncements		—			(61,375	)		61,304			—			—			(71	)
Net earnings (loss)		—			—			(1,138	)		—			67			(1,071	)
Other comprehensive income, net		—			327			—			—			8			335
Issuance (acquisition) of common stock		24			—			—			—			—			24
Transactions with noncontrolling interests		(37	)		—			—			—			(82	)		(119	)
Balance at March 31, 2018		35,689			(2,477	)		315,952			(1,763	)		3,651			351,052
Net earnings (loss)		—			—			12,011			—			66			12,077
Other comprehensive income, net		—			(1,331	)		—			—			(32	)		(1,363	)
Issuance (acquisition) of common stock		8			—			—			—			—			8
Transactions with noncontrolling interests		5			—			—			—			(21	)		(16	)
Balance at June 30, 2018		35,702			(3,808	)		327,963			(1,763	)		3,664			361,758
Net earnings (loss)		—			—			18,540			—			167			18,707
Other comprehensive income, net		—			(119	)		—			—			(5	)		(124	)
Issuance (acquisition) of common stock		22			—			—			(928	)		—			(906	)
Transactions with noncontrolling interests		(3	)		—			—			—			(13	)		(16	)
Balance at September 30, 2018	$	35,721		$	(3,927	)	$	346,503		$	(2,691	)	$	3,813		$	379,419
Balance at December 31, 2018	$	35,715		$	(5,015	)	$	321,112		$	(3,109	)	$	3,797		$	352,500
Net earnings (loss)		—			—			21,661			—			71			21,732
Other comprehensive income, net		—			288			—			—			22			310
Issuance (acquisition) of common stock		13			—			—			(1,690	)		—			(1,677	)
Transactions with noncontrolling interests		(98	)		—			—			—			(176	)		(274	)
Balance at March 31, 2019		35,630			(4,727	)		342,773			(4,799	)		3,714			372,591
Net earnings (loss)		—			—			14,073			—			100			14,173
Other comprehensive income, net		—			49			—			—			(4	)		45
Issuance (acquisition) of common stock		8			—			—			(443	)		—			(435	)
Transactions with noncontrolling interests		(20	)		—			—			—			37			17
Balance at June 30, 2019		35,618			(4,678	)		356,846			(5,242	)		3,847			386,391
Net earnings (loss)		—			—			16,524			—			133			16,657
Other comprehensive income, net		—			(730	)		—			—			(21	)		(751	)
Issuance (acquisition) of common stock		—			—			—			(695	)		—			(695	)
Transactions with noncontrolling interests and other		2			—			(36	)		—			(10	)		(44	)
Balance at September 30, 2019	$	35,620		$	(5,408	)	$	373,334		$	(5,937	)	$	3,949		$	401,558

See accompanying Notes to Consolidated Financial Statements

6

BERKSHIRE HATHAWAY INC.

and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in millions)

	First Nine Months
	2019			2018
	(Unaudited)
Cash flows from operating activities:
Net earnings (loss)	$	52,562		$	29,713
Adjustments to reconcile net earnings (loss) to operating cash flows:
Investment (gains) losses		(40,079	)		(12,750	)
Depreciation and amortization		7,407			7,169
Other		(1,740	)		(677	)
Changes in operating assets and liabilities:
Losses and loss adjustment expenses		3,252			2,272
Deferred charges reinsurance assumed		745			827
Unearned premiums		2,663			2,974
Receivables and originated loans		(3,618	)		(4,781	)
Other assets		(2,419	)		(1,788	)
Other liabilities		(889	)		805
Income taxes		8,726			2,791
Net cash flows from operating activities		26,610			26,555
Cash flows from investing activities:
Purchases of U.S. Treasury Bills and fixed maturity securities		(72,189	)		(85,502	)
Purchases of equity securities		(15,090	)		(38,552	)
Sales of U.S. Treasury Bills and fixed maturity securities		13,602			26,903
Redemptions and maturities of U.S. Treasury Bills and fixed maturity securities		94,742			83,742
Sales and redemptions of equity securities		7,127			14,164
Purchases of loans and finance receivables		(57	)		(1,748	)
Collections of loans and finance receivables		259			266
Acquisitions of businesses, net of cash acquired		(732	)		(521	)
Purchases of property, plant and equipment and equipment held for lease		(11,139	)		(10,040	)
Other		(1,067	)		257
Net cash flows from investing activities		15,456			(11,031	)
Cash flows from financing activities:
Proceeds from borrowings of insurance and other businesses		8,141			2,394
Proceeds from borrowings of railroad, utilities and energy businesses		4,163			7,019
Repayments of borrowings of insurance and other businesses		(5,046	)		(7,322	)
Repayments of borrowings of railroad, utilities and energy businesses		(1,766	)		(3,658	)
Changes in short term borrowings, net		165			(2,754	)
Acquisition of treasury stock		(2,807	)		(928	)
Other		(341	)		(277	)
Net cash flows from financing activities		2,509			(5,526	)
Effects of foreign currency exchange rate changes		(95	)		(109	)
Increase in cash and cash equivalents and restricted cash		44,480			9,889
Cash and cash equivalents and restricted cash at beginning of year		30,811			32,212
Cash and cash equivalents and restricted cash at end of third quarter *	$	75,291		$	42,101
* Cash and cash equivalents and restricted cash are comprised of the following:
Beginning of year—
Insurance and Other	$	27,749		$	28,673
Railroad, Utilities and Energy		2,612			2,910
Restricted cash, included in other assets		450			629
	$	30,811		$	32,212
End of third quarter—
Insurance and Other	$	71,064		$	38,141
Railroad, Utilities and Energy		3,712			3,297
Restricted cash, included in other assets		515			663
	$	75,291		$	42,101

See accompanying Notes to Consolidated Financial Statements

7

BERKSHIRE HATHAWAY INC.

and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019

Note 1. General

The accompanying unaudited Consolidated Financial Statements include the accounts of Berkshire Hathaway Inc. (“Berkshire” or “Company”) consolidated with the accounts of all its subsidiaries and affiliates in which Berkshire holds controlling financial interests as of the financial statement date. In these notes, the terms “us,” “we” or “our” refer to Berkshire and its consolidated subsidiaries. Reference is made to Berkshire’s most recently issued Annual Report on Form 10-K (“Annual Report”), which includes information necessary or useful to understanding Berkshire’s businesses and financial statement presentations. Our significant accounting policies and practices were presented as Note 1 to the Consolidated Financial Statements included in the Annual Report. As described in the Annual Report, we modified certain presentations to our Consolidated Financial Statements. Presentations in these interim Consolidated Financial Statements conform to the presentations in the Annual Report. Changes to those policies due to the adoption of a new accounting standard are described in Note 2.

Financial information in this Quarterly Report reflects all adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary to a fair statement of results for the interim periods in accordance with accounting principles generally accepted in the United States (“GAAP”). For a number of reasons, our results for interim periods are not normally indicative of results to be expected for the year. The timing and magnitude of catastrophe losses incurred by insurance subsidiaries and the estimation error inherent to the process of determining liabilities for unpaid losses of insurance subsidiaries can be more significant to results of interim periods than to results for a full year. In light of the size of our equity security investment portfolio, changes in market prices and the related changes in unrealized gains on equity securities will produce significant volatility in our interim and annual earnings. In addition, changes in the fair values of certain derivative contract liabilities and gains and losses from the periodic revaluation of certain assets and liabilities denominated in foreign currencies can cause significant variations in periodic net earnings.

Note 2. New Accounting Pronouncements

Berkshire adopted Accounting Standards Codification (“ASC”) 842 “Leases” on January 1, 2019. Most significantly, ASC 842 requires a lessee to recognize a liability to make lease payments and an asset with respect to its right to use the underlying asset for the lease term. Upon the adoption of ASC 842, we recognized operating lease assets of approximately $6.2 billion and lease liabilities of $5.9 billion. We also reduced other assets by approximately $300 million. Consequently, our consolidated assets and liabilities increased by approximately $5.9 billion.

We are party to contracts where we lease property from others (“lessee” contracts) and where we lease property to others (“lessor” contracts). In adopting and applying ASC 842, we elected to use practical expedients, including but not limited to, not reassessing past lease and easement accounting, not separating lease components from non-lease components by class of asset and not recording assets or liabilities for leases with terms of one year or less. We adopted ASC 842 as of January 1, 2019 with regard to leases in effect as of that date and elected to not restate prior period financial statements. ASC 842 did not have a material effect on our accounting for lessor contracts or for lessee contracts classified as financing leases.

Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. In this regard, lease payments include fixed payments and variable payments that depend on an index or rate. The lease term is generally the non-cancellable lease period. Certain lease contracts contain renewal options or other terms that provide for variable payments based on performance or usage or changes in an index or interest rates. Options are not included in determining right-of-use assets or lease liabilities unless it is reasonably certain that options will be exercised. Generally, incremental borrowing rates are used in measuring lease liabilities. Right-of-use assets are subject to review for impairment.

8

Notes to Consolidated Financial Statements (Continued)

Note 2. New Accounting Pronouncements (Continued)

On January 1, 2018, we adopted Accounting Standards Update (“ASU”) 2016-01 “Financial Instruments—Recognition and Measurement of Financial Assets and Financial Liabilities,” ASU 2018-02 “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” and ASC 606 “Revenues from Contracts with Customers.” Prior year financial statements were not restated. A summary of the effects of the initial adoption of ASU 2016-01, ASU 2018-02 and ASC 606 on our shareholders’ equity follows (in millions).

	ASU 2016-01			ASU 2018-02			ASC 606			Total
Increase (decrease):
Accumulated other comprehensive income	$	(61,459	)	$	84		$	—		$	(61,375	)
Retained earnings		61,459			(84	)		(70	)		61,305
Shareholders’ equity		—			—			(70	)		(70	)

With respect to ASU 2016-01, beginning in 2018, unrealized gains and losses from the changes in the fair values of our equity securities during the period are included within investment gains (losses) in the Consolidated Statements of Earnings. As of January 1, 2018, we reclassified net after-tax unrealized gains on equity securities from accumulated other comprehensive income to retained earnings.

In adopting ASU 2018-02, we reclassified the stranded deferred income tax effects arising from the reduction in the U.S. statutory income tax rate under the U.S. Tax Cuts and Jobs Act that were included in accumulated other comprehensive income as of January 1, 2018 to retained earnings.

In adopting ASC 606, we recorded increases to certain assets and other liabilities, with the cumulative net effect recorded to retained earnings. Prior to January 1, 2018, we recognized revenues from the sales of fractional ownership interests in aircraft over the term of the related management services agreements, as the transfers of the ownership interests were inseparable from the management services agreements. These agreements also include provisions that require us to repurchase the fractional interest at fair market value at contract termination or upon the customer’s request following the end of a minimum commitment period. ASC 606 provides that such contracts are subject to accounting guidance for lease contracts. The principal effects of this re-characterization were to increase equipment held for lease and aircraft repurchase liabilities and unearned lease revenues by approximately $3.5 billion.

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13 “Financial Instruments—Credit Losses,” which provides for the recognition and measurement at the reporting date of all expected credit losses for financial assets held at amortized cost and for available-for-sale debt securities. Currently, credit losses are recognized and measured when such losses become probable based on the prevailing facts and circumstances. ASU 2016-13 is effective for reporting periods beginning after December 15, 2019. We are evaluating the effect this standard will have on our Consolidated Financial Statements.

In January 2017, the FASB issued ASU 2017-04 “Simplifying the Test for Goodwill Impairment.” ASU 2017-04 eliminates the requirement to determine the implied value of goodwill in measuring an impairment loss. Upon adoption of ASU 2017-04, the measurement of a goodwill impairment will represent the excess of the reporting unit’s carrying value over its fair value and will be limited to the carrying value of goodwill. ASU 2017-04 is effective for goodwill impairment tests in fiscal years beginning after December 15, 2019, with early adoption permitted.

In August 2018, the FASB issued ASU 2018-12 “Targeted Improvements to the Accounting for Long-Duration Contracts.” ASU 2018-12 requires periodic reassessment of actuarial and discount rate assumptions used to value policyholder liabilities and deferred acquisition costs arising from the issuance of long-duration insurance and reinsurance contracts, with the effects of changes in cash flow assumptions reflected in earnings and the effects of changes in discount rate assumptions reflected in other comprehensive income. Currently, the actuarial and discount rate assumptions are set at the contract inception date and not subsequently changed, except under limited circumstances. ASU 2018-12 provides for new disclosures and is expected to be effective for fiscal years beginning after December 15, 2021 as a result of a recent decision by the FASB, with early adoption permitted. We are evaluating the effect this standard will have on our Consolidated Financial Statements.

9

Notes to Consolidated Financial Statements (Continued)

Note 3. Investments in fixed maturity securities

Investments in fixed maturity securities as of September 30, 2019 and December 31, 2018 are summarized by type below (in millions).

	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
September 30, 2019
U.S. Treasury, U.S. government corporations and agencies	$	3,760	$	47	$	(2	)	$	3,805
States, municipalities and political subdivisions		152		5		—			157
Foreign governments		7,962		70		(9	)		8,023
Corporate bonds		6,230		477		(3	)		6,704
Mortgage-backed securities		419		66		(2	)		483
	$	18,523	$	665	$	(16	)	$	19,172
December 31, 2018
U.S. Treasury, U.S. government corporations and agencies	$	4,223	$	22	$	(22	)	$	4,223
States, municipalities and political subdivisions		182		7		—			189
Foreign governments		7,480		50		(28	)		7,502
Corporate bonds		7,055		408		(23	)		7,440
Mortgage-backed securities		487		59		(2	)		544
	$	19,427	$	546	$	(75	)	$	19,898

Investments in foreign governments include securities issued by national and provincial government entities as well as instruments that are unconditionally guaranteed by such entities. As of September 30, 2019, approximately 88% of our foreign government holdings were rated AA or higher by at least one of the major rating agencies.

The amortized cost and estimated fair value of fixed maturity securities at September 30, 2019 are summarized below by contractual maturity dates (in millions). Actual maturities may differ from contractual maturities due to early call or prepayment rights held by issuers.

	Due in one year or less		Due after one year through five years		Due after five years through ten years		Due after ten years		Mortgage- backed securities		Total
Amortized cost	$	6,864	$	10,503	$	301	$	436	$	419	$	18,523
Fair value		6,889		10,650		351		799		483		19,172

Note 4. Investments in equity securities

Investments in equity securities as of September 30, 2019 and December 31, 2018 are summarized based on the primary industry of the investee in the table below (in millions).

	Cost Basis		Net Unrealized Gains		Fair Value
September 30, 2019*
Banks, insurance and finance	$	44,694	$	51,804	$	96,498
Consumer products		38,928		43,087		82,015
Commercial, industrial and other		28,585		12,953		41,538
	$	112,207	$	107,844	$	220,051

* Approximately 66% of the aggregate fair value was concentrated in five companies (American Express Company – $17.9 billion; Apple Inc. – $57.0 billion; Bank of America Corporation – $27.8 billion; The Coca-Cola Company – $21.8 billion and Wells Fargo & Company – $20.2 billion).

10

Notes to Consolidated Financial Statements (Continued)

Note 4. Investments in equity securities (Continued)

On April 30, 2019, Berkshire committed to invest a total of $10 billion in connection with Occidental Petroleum Corporation’s (“Occidental”) proposal to acquire Anadarko Petroleum Corporation (“Anadarko”). The Anadarko shareholders approved the acquisition by Occidental on August 8, 2019 and the acquisition and our investment in Occidental closed on August 8, 2019.

Berkshire’s investments in Occidental include newly issued Occidental Cumulative Perpetual Preferred Stock with an aggregate liquidation value of $10 billion, together with warrants to purchase up to 80 million shares of Occidental common stock at an exercise price of $62.50 per share. The preferred stock accrues dividends at 8% per annum and is redeemable at the option of Occidental commencing on the tenth anniversary of issuance at a redemption price equal to 105% of the liquidation preference plus any accumulated and unpaid dividends, or mandatorily under certain specified capital return events. Dividends on the preferred stock may be paid in cash or, at Occidental’s option, in shares of Occidental common stock. The warrants are exercisable in whole or in part until one year after the redemption of the preferred stock. Our investments in Occidental are included in the commercial, industrial and other category in the preceding table.

	Cost Basis		Net Unrealized Gains		Fair Value
December 31, 2018*
Banks, insurance and finance	$	44,332	$	38,260	$	82,592
Consumer products		38,783		22,838		61,621
Commercial, industrial and other		19,752		8,792		28,544
	$	102,867	$	69,890	$	172,757

* Approximately 68% of the aggregate fair value was concentrated in five companies (American Express Company – $14.5 billion; Apple Inc. – $40.3 billion; Bank of America Corporation – $22.6 billion; The Coca-Cola Company – $18.9 billion and Wells Fargo & Company – $20.7 billion).

Note 5. Equity method investments

Berkshire and its subsidiaries hold investments in certain businesses that are accounted for pursuant to the equity method. Currently, the most significant of these is our investment in the common stock of The Kraft Heinz Company (“Kraft Heinz”). Kraft Heinz is one of the world’s largest manufacturers and marketers of food and beverage products, including condiments and sauces, cheese and dairy, meals, meats, refreshment beverages, coffee and other grocery products.

Berkshire currently owns 325,442,152 shares of Kraft Heinz common stock representing 26.6% of the outstanding shares. Shares of Kraft Heinz common stock are publicly-traded and the fair value of our investment was approximately $9.1 billion at September 30, 2019 and $14.0 billion at December 31, 2018. The carrying value of our investment was approximately $13.8 billion at both September 30, 2019 and December 31, 2018.

As discussed in Berkshire’s first and second quarter Form 10-Qs, Kraft Heinz’s financial statements for the first and second quarters of 2019 were not available and thus we excluded our share of Kraft Heinz’s earnings and other comprehensive income from our consolidated results during those periods. On August 13, 2019, Kraft Heinz filed financial statements for the first and second quarters of 2019 with the Securities and Exchange Commission. Kraft Heinz has also made its financial results for the third quarter of 2019 available to Berkshire. Accordingly, Berkshire’s equity method earnings in the third quarter and first nine months of 2019 included $467 million attributable to Kraft Heinz’s results for the first nine months of 2019 , of which $228 million was attributable to Kraft Heinz’s results for the first six months. Equity method earnings from Kraft Heinz for the third quarter and first nine months of 2018 were $168 million and $635 million, respectively.  Dividends received from Kraft Heinz in the first nine months of 2019 and 2018 were $391 million and $610 million, respectively, which were recorded as reductions to the carrying value of our investment.

We evaluated our investment in Kraft Heinz for impairment as of September 30, 2019. Based on the available facts and information, the length of time that fair value was less than carrying value and our ability and intent to hold the investment until recovery, we concluded that recognition of an impairment loss in earnings at September 30, 2019 was not required. However, we will continue to monitor this investment and it is possible that an impairment loss will be recorded in earnings in future periods based on changes in facts and circumstances or intentions.

11

Notes to Consolidated Financial Statements (Continued)

Note 5. Equity method investments (Continued)

Summarized consolidated financial information of Kraft Heinz follows (in millions).

	September 28, 2019		December 29, 2018
Assets	$	102,822	$	103,461
Liabilities		51,016		51,683

	Third Quarter				First Nine Months
	2019		2018		2019		2018
Sales	$	6,076	$	6,383	$	18,441	$	19,377
Net earnings attributable to Kraft Heinz common shareholders		899		619		1,753		2,376

Other investments accounted for pursuant to the equity method include our investments in Berkadia Commercial Mortgage LLC (“Berkadia”), Pilot Travel Centers LLC, d/b/a Pilot Flying J (“Pilot Flying J”), and Electric Transmission Texas, LLC (“ETT”). The carrying value of our investments in these entities was approximately $3.7 billion as of September 30, 2019 and $3.5 billion as of December 31, 2018. Our equity method earnings in these entities in the first nine months were $491 million in 2019 and $409 million in 2018. Additional information concerning these investments follows.

We own a 50% interest in Berkadia, with Jefferies Financial Group Inc. (“Jefferies”) owning the other 50% interest. Berkadia is a servicer of commercial real estate loans in the U.S., performing primary, master and special servicing functions for U.S. government agency programs, commercial mortgage-backed securities transactions, banks, insurance companies and other financial institutions. A source of funding for Berkadia’s operations is through its issuance of commercial paper, which is currently limited to $1.5 billion. On September 30, 2019, Berkadia’s commercial paper outstanding was $1.47 billion. The commercial paper is supported by a surety policy issued by a Berkshire insurance subsidiary. Jefferies is obligated to indemnify us for one-half of any losses incurred under the policy. In addition, a Berkshire Hathaway Energy Company subsidiary owns a 50% interest in ETT, an owner and operator of electric transmission assets in the Electric Reliability Council of Texas footprint. American Electric Power owns the other 50% interest.

On October 3, 2017, we entered into an investment agreement and an equity purchase agreement whereby we acquired a 38.6% interest in Pilot Flying J, headquartered in Knoxville, Tennessee. Pilot Flying J is one of the largest operators of travel centers in North America, with more than 28,000 team members, 750 locations across the U.S. and Canada, and nearly $30 billion in annual revenues. The Haslam family currently owns a 50.1% interest in Pilot Flying J and a third party owns the remaining 11.3% interest. We also entered into an agreement to acquire in 2023 an additional 41.4% interest in Pilot Flying J with the Haslam family retaining a 20% interest. As a result, Berkshire will become the majority owner of Pilot Flying J in 2023.

Note 6. Investment gains/losses

Investment gains/losses in the third quarter and first nine months of 2019 and 2018 are summarized as follows (in millions).

`	Third Quarter						First Nine Months
	2019			2018			2019			2018
Equity securities:
Unrealized investment gains (losses) on securities    held at the end of the period	$	10,489		$	14,294		$	39,546		$	12,126
Investment gains (losses) during the period		135			244			464			307
		10,624			14,538			40,010			12,433
Fixed maturity securities:
Gross realized gains		59			44			71			451
Gross realized losses		(2	)		(10	)		(18	)		(152	)
Other		11			(3	)		16			18
	$	10,692		$	14,569		$	40,079		$	12,750

12

Notes to Consolidated Financial Statements (Continued)

Note 6. Investment gains/losses (Continued)

Prior to 2018, we recognized investment gains and losses in earnings when we sold equity securities based on the difference between the sale proceeds and the cost of the securities and also when we recognized other-than-temporary impairment losses. Beginning in 2018, equity securities gains and losses include unrealized gains and losses from changes in fair values during the period on equity securities we still own. Prior to 2018, we recorded the changes in unrealized gains and losses on our investments in equity securities in other comprehensive income.

In the first nine months of 2019 and 2018, as reflected in the Consolidated Statements of Cash Flows, we received proceeds of approximately $7.1 billion and $14.2 billion, respectively, from sales of equity securities. In the preceding table, investment gains/losses on equity securities sold in each period reflect the difference between proceeds from sales and the fair value of the equity security sold at the beginning of the period or the purchase date, if later. Our taxable gains on equity securities sold are generally the difference between the proceeds from sales and original cost. Taxable gains in the third quarter and first nine months of 2019 were $609 million and $1,959 million, respectively, and in the third quarter and first nine months of 2018 were $1,329 million and $2,688 million, respectively.

Note 7. Loans and finance receivables

Loans and finance receivables are summarized as follows (in millions).

	September 30, 2019			December 31, 2018
Loans and finance receivables before allowances and discounts	$	17,462		$	16,622
Allowances for uncollectible loans		(183	)		(177	)
Unamortized acquisition discounts		(144	)		(165	)
	$	17,135		$	16,280

Loans and finance receivables are principally installment loans originated or acquired by our manufactured housing business. Provisions for loan losses for the first nine months were $109 million in both 2019 and 2018. Loan charge-offs, net of recoveries in the first nine months, were $103 million in 2019 and $106 million in 2018. At September 30, 2019, approximately 98% of the manufactured housing loan balances were evaluated collectively for impairment, with the remainder evaluated individually. As part of the evaluation process, credit quality indicators are reviewed and loans are designated as performing or non-performing. At September 30, 2019, we considered approximately 99% of the loan balances to be performing and approximately 96% of the loan balances to be current as to payment status.

Additionally, during 2018, an insurance subsidiary entered into an agreement with Seritage Growth Properties to provide a $2.0 billion term loan facility, which matures on July 31, 2023. As of September 30, 2019 and December 31, 2018, the outstanding loans under the facility were approximately $1.6 billion.

Note 8. Other receivables

Other receivables of insurance and other businesses are comprised of the following (in millions).

	September 30, 2019			December 31, 2018
Insurance premiums receivable	$	13,906		$	12,452
Reinsurance recoverable on unpaid losses		3,105			3,060
Trade receivables		12,852			12,617
Other		5,035			3,823
Allowances for uncollectible accounts		(387	)		(388	)
	$	34,511		$	31,564

Receivables of railroad and utilities and energy businesses are comprised of the following (in millions).  

	September 30, 2019			December 31, 2018
Trade receivables	$	3,551		$	3,433
Other		342			362
Allowances for uncollectible accounts		(137	)		(129	)
	$	3,756		$	3,666

13

Notes to Consolidated Financial Statements (Continued)

Note 8. Other receivables (Continued)

Trade receivables include unbilled revenue of $657 million and $554 million as of September 30, 2019 and December 31, 2018, respectively, attributable to the regulated utility businesses.

Note 9. Inventories

Inventories are comprised of the following (in millions).

	September 30, 2019		December 31, 2018
Raw materials	$	4,430	$	4,182
Work in process and other		2,695		2,625
Finished manufactured goods		4,737		4,541
Goods acquired for resale		8,089		7,721
	$	19,951	$	19,069

Note 10. Property, plant and equipment

A summary of property, plant and equipment of our insurance and other businesses follows (in millions).

	September 30, 2019			December 31, 2018
Land	$	2,557		$	2,536
Buildings and improvements		10,530			9,959
Machinery and equipment		23,409			22,574
Furniture, fixtures and other		5,064			4,758
		41,560			39,827
Accumulated depreciation		(20,330	)		(19,199	)
	$	21,230		$	20,628

A summary of property, plant and equipment of railroad and utilities and energy businesses follows (in millions). The utility generation, transmission and distribution systems and interstate natural gas pipeline assets are owned by regulated public utility and natural gas pipeline subsidiaries.

	September 30, 2019			December 31, 2018
Railroad:
Land, track structure and other roadway	$	61,345		$	59,509
Locomotives, freight cars and other equipment		13,381			13,016
Construction in progress		788			664
		75,514			73,189
Accumulated depreciation		(11,512	)		(10,004	)
		64,002			63,185
Utilities and energy:
Utility generation, transmission and distribution systems		78,596			77,288
Interstate natural gas pipeline assets		7,637			7,524
Independent power plants and other assets		8,572			8,324
Construction in progress		5,313			3,110
		100,118			96,246
Accumulated depreciation		(28,794	)		(27,651	)
		71,324			68,595
	$	135,326		$	131,780

14

Notes to Consolidated Financial Statements (Continued)

Note 10. Property, plant and equipment (Continued)

Depreciation expense for the first nine months of 2019 and 2018 is summarized below (in millions).

	First Nine Months
	2019		2018
Insurance and other	$	1,660	$	1,622
Railroad, utilities and energy		3,881		3,678
	$	5,541	$	5,300

Note 11. Equipment held for lease

Equipment held for lease includes railcars, aircraft, over-the-road trailers, intermodal tank containers, cranes, storage units and furniture. Equipment held for lease is summarized below (in millions).

	September 30, 2019			December 31, 2018
Railcars	$	9,211		$	8,862
Aircraft		7,907			7,376
Other equipment held for lease		4,802			4,379
		21,920			20,617
Accumulated depreciation		(6,986	)		(6,319	)
	$	14,934		$	14,298

Depreciation expense for equipment held for lease in the first nine months was $880 million in 2019 and $817 million in 2018. Operating lease revenues by type for the third quarter and first nine months of 2019 were as follows (in millions).

	Fixed lease revenue		Variable lease revenue		Total
Third quarter	$	1,097	$	341	$	1,438
First nine months		3,289		1,076		4,365

Future operating lease rentals to be received on assets we lease to others at September 30, 2019 are as follows (in millions).

2019		2020		2021		2022		2023		Thereafter		Total
$	674	$	2,245	$	1,659	$	1,134	$	726	$	590	$	7,028

Note 12. Leases

We are party to contracts where we lease property from others. As a lessee, we primarily lease office and operating facilities, locomotives, freight cars, energy generation facilities and transmission assets. Operating lease right-of-use assets and lease liabilities as of September 30, 2019 were $5,996 million and $5,852 million, respectively, and were included in other assets and accounts payable, accruals and other liabilities in our Consolidated Balance Sheet. The weighted average term of these leases was approximately 7.5 years and the weighted average discount rate used to measure lease liabilities was approximately 3.9%. A summary of our remaining operating lease payments as of September 30, 2019 and December 31, 2018 follows (in millions).

	2019		2020		2021		2022		2023		Thereafter		Total lease payments		Amount representing interest			Lease liabilities
September 30, 2019	$	296	$	1,363	$	1,140	$	915	$	732	$	2,423	$	6,869	$	(1,017	)	$	5,852
December 31, 2018		1,310		1,268		1,048		820		658		2,079		7,183

Components of operating lease costs for the third quarter and first nine months of 2019 by type were as follows (in millions).

	Operating lease cost		Short-term lease cost		Variable lease cost		Sublease income			Total lease cost
Third quarter	$	355	$	39	$	63	$	(6	)	$	451
First nine months		1,083		118		202		(18	)		1,385

15

Notes to Consolidated Financial Statements (Continued)

Note 13. Goodwill and other intangible assets

Reconciliations of the changes in the carrying value of goodwill for the first nine months of 2019 and for the year ended December 31, 2018 follows (in millions).

	September 30, 2019			December 31, 2018
Balance at beginning of year	$	81,025		$	81,258
Acquisitions of businesses		279			376
Other, including foreign currency translation		(76	)		(609	)
Balance at end of period	$	81,228		$	81,025

Other intangible assets and related accumulated amortization are summarized as follows (in millions).

	September 30, 2019				December 31, 2018
	Gross carrying amount		Accumulated amortization		Gross carrying amount		Accumulated amortization
Insurance and other:
Trademarks and trade names	$	5,145	$	743	$	5,152	$	727
Patents and technology		4,524		2,973		4,446		2,790
Customer relationships		27,786		4,874		27,697		4,287
Other		3,169		1,246		3,198		1,190
	$	40,624	$	9,836	$	40,493	$	8,994
Railroad, utilities and energy:
Trademarks and trade names	$	216	$	27	$	216	$	23
Customer relationships		678		315		678		286
Other		117		56		117		53
	$	1,011	$	398	$	1,011	$	362

Intangible asset amortization expense in the first nine months was $986 million in 2019 and $1,052 million in 2018. Intangible assets with indefinite lives were $18.8 billion as of September 30, 2019 and $18.9 billion as of December 31, 2018 and primarily related to certain customer relationships and trademarks and trade names.

Note 14. Derivative contracts

We are party to derivative contracts through certain of our subsidiaries. Currently, the most significant derivative contracts consist of equity index put option contracts. The liabilities and related notional values of these contracts follows (in millions).

	Liabilities		Notional Value
September 30, 2019	$	1,236	$	23,042
December 31, 2018		2,452		26,759

Notional value represents the aggregate undiscounted amounts payable assuming the value of each index is zero at each contract’s expiration date. Certain contracts are denominated in foreign currencies and the related notional amounts are based on the foreign currency exchange rates as of the balance sheet date. Pre-tax gains from equity index put option contracts were $234  million and $1,217 million in the third quarter and first nine months of 2019, respectively, and $137 million and $303 million in the third quarter and first nine months of 2018, respectively.

16

Notes to Consolidated Financial Statements (Continued)

Note 14. Derivative contracts (Continued)

The equity index put option contracts are European style options written prior to March 2008 on four major equity indexes. The remaining contracts expire between October 2019 and October 2025. The weighted average life of unexpired contracts at September 30, 2019 was approximately 1.3 years. Contracts with notional values of $9.0  billion will expire in the fourth quarter of 2019. Future payments, if any, under any given contract will be required if the prevailing index value is below the contract strike price at the expiration date. We received aggregate premiums of $3.6 billion on the contract inception dates with respect to unexpired contracts at September 30, 2019 and we have no counterparty credit risk. The aggregate intrinsic value (the undiscounted liability assuming the contracts are settled based on the index values and foreign currency exchange rates as of the balance sheet date) was $626 million at September 30, 2019 and $1,653 million at December 31, 2018. These contracts may not be unilaterally terminated or fully settled before the expiration dates and the ultimate amount of cash basis gains or losses on these contracts will not be determined until the contract expiration dates.

A limited number of our equity index put option contracts contain collateral posting requirements with respect to changes in the fair value or intrinsic value of the contracts and/or a downgrade of Berkshire’s credit ratings. As of September 30, 2019, we did not have any collateral posting requirements. If Berkshire’s credit ratings (currently AA from Standard & Poor’s and Aa2 from Moody’s) are downgraded below either A- by Standard & Poor’s or A3 by Moody’s, collateral of up to $1.1 billion could be required to be posted.

Our regulated utility subsidiaries are exposed to variations in the prices of fuel required to generate electricity, wholesale electricity purchased and sold and natural gas supplied for customers. We may use forward purchases and sales, futures, swaps and options to manage a portion of these price risks. Most of the net derivative contract assets or liabilities of our regulated utilities are probable of recovery through rates and are offset by regulatory liabilities or assets. Derivative contract assets are included in other assets and were $144 million as of September 30, 2019 and $172 million as of December 31, 2018. Derivative contract liabilities are included in accounts payable, accruals and other liabilities and were $96 million as of September 30, 2019 and $111 million as of December 31, 2018.

Note 15. Supplemental cash flow information

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

	First Nine Months
	2019		2018
Cash paid during the period for:
Income taxes	$	4,395	$	3,977
Interest:
Insurance and other		879		934
Railroad, utilities and energy		2,149		2,129
Non-cash investing and financing activities:
Liabilities assumed in connection with business acquisitions		147		93
Right-of-use assets obtained in exchange for new operating lease liabilities		526		—

17

Notes to Consolidated Financial Statements (Continued)

Note 16. Unpaid losses and loss adjustment expenses

Our liabilities for unpaid losses and loss adjustment expenses (also referred to as “claim liabilities”) under short-duration property and casualty insurance and reinsurance contracts are based upon estimates of the ultimate claim costs associated with claim occurrences on or before the balance sheet date and include estimates for incurred-but-not-reported (“IBNR”) claims. Reconciliations of the changes in claim liabilities, excluding liabilities under retroactive reinsurance contracts (see Note 17), for each of the nine months ending September 30, 2019 and 2018 follow (in millions).

	2019			2018
Balances – beginning of year:
Gross liabilities	$	68,458		$	61,122
Reinsurance recoverable on unpaid losses		(3,060	)		(3,201	)
Net liabilities		65,398			57,921
Incurred losses and loss adjustment expenses:
Current accident year events		31,179			29,071
Prior accident years’ events		(396	)		(1,566	)
Total incurred losses and loss adjustment expenses		30,783			27,505
Paid losses and loss adjustment expenses:
Current accident year events		(13,144	)		(12,474	)
Prior accident years’ events		(13,967	)		(11,516	)
Total payments		(27,111	)		(23,990	)
Foreign currency translation adjustment		(178	)		(117	)
Balances – September 30:
Net liabilities		68,892			61,319
Reinsurance recoverable on unpaid losses		3,105			2,944
Gross liabilities	$	71,997		$	64,263

Incurred losses and loss adjustment expenses in the first nine months of 2019 and 2018 included net decreases of estimated ultimate liabilities for prior accident years of $396 million and $1,566 million, respectively. Increases and decreases in estimated ultimate liabilities produce corresponding decreases and increases to pre-tax earnings. The reductions in incurred losses for prior accident years’ events for the first nine months as percentages of net liabilities at the beginning of the respective year were 0.6% in 2019 and 2.7% in 2018.

In the first nine months of 2019, we lowered estimated ultimate liabilities of primary insurance for prior years’ events by $321 million, compared to $985 million in 2018. Reductions of estimated liabilities in the first nine months of 2019 were lower than the first nine months of 2018 with respect to private passenger automobile and medical malpractice insurance. In addition, we increased estimated liabilities in the first nine months of 2019 for legacy casualty exposures and other commercial insurance business.

In the first nine months of 2019, we decreased estimated ultimate property and casualty reinsurance liabilities for prior years’ events by $75 million, compared to $581 million in the first nine months of 2018. The decreases in prior years’ incurred losses in each year derived primarily from property claims.

18

Notes to Consolidated Financial Statements (Continued)

Note 17. Retroactive reinsurance contracts

Retroactive reinsurance policies provide indemnification of losses and loss adjustment expenses of short-duration insurance contracts with respect to underlying loss events that occurred prior to the contract inception date. Depending on the contract terms, claims payments may commence immediately after the contract date or once a contractual retention amount has been reached. Reconciliations of the changes in estimated liabilities for retroactive reinsurance unpaid losses and loss adjustment expenses (“claim liabilities”) and related deferred charge reinsurance assumed assets for each of the nine months ending September 30, 2019 and 2018 follows (in millions).

	2019						2018
	Unpaid losses and loss adjustment expenses			Deferred charges reinsurance assumed			Unpaid losses and loss adjustment expenses			Deferred charges reinsurance assumed
Balances – beginning of year:	$	41,834		$	(14,104	)	$	42,937		$	(15,278	)
Incurred losses and loss adjustment expenses
Current year contracts		175			(82	)		—			—
Prior years’ contracts		(2	)		827			(36	)		827
Total		173			745			(36	)		827
Paid losses and loss adjustment expenses		(643	)		—			(966	)		—
Balances – September 30:	$	41,364		$	(13,359	)	$	41,935		$	(14,451	)
Incurred losses and loss adjustment expenses, net of deferred charges	$	918					$	791

In the preceding table, classifications of incurred losses and loss adjustment expenses are based on the inception dates of the contracts. Incurred losses and loss adjustment expenses in the first nine months related to contracts written in prior years were $825 million in 2019 and $791 million in 2018. Such losses reflected the periodic amortization of deferred charge assets and the effects of changes in the timing and amount of ultimate claim liabilities.

In 2017, National Indemnity Company (“NICO”) entered into a contract with various subsidiaries of American International Group, Inc. (collectively, “AIG”). Our estimated ultimate claim liabilities with respect to the AIG contract at both September 30, 2019 and December 31, 2018 were $18.2 billion. Deferred charge assets related to the AIG contract were approximately $6.4 billion at September 30, 2019 and $6.9 billion at December 31, 2018.

Note 18. Notes payable and other borrowings

Notes payable and other borrowings are summarized below (in millions). The weighted average interest rates and maturity date ranges shown in the following tables are based on borrowings as of September 30, 2019.

	Weighted Average Interest Rate			September 30, 2019		December 31, 2018
Insurance and other:
Berkshire Hathaway Inc. (“Berkshire”):
U.S. Dollar denominated due 2019-2047		3.2	%	$	8,321	$	9,065
Euro denominated due 2020-2035		1.1	%		7,422		7,806
Japanese Yen denominated due 2024-2049		0.5	%		3,962		—
Berkshire Hathaway Finance Corporation (“BHFC”):
U.S. Dollar denominated due 2020-2049		4.1	%		8,679		10,650
Great Britain Pound denominated due 2039-2059		2.5	%		2,108		—
Other subsidiary borrowings due 2019-2045		4.0	%		5,304		5,597
Subsidiary short-term borrowings		4.1	%		1,380		1,857
				$	37,176	$	34,975

19

Notes to Consolidated Financial Statements (Continued)

Note 18. Notes payable and other borrowings (Continued)

In September 2019, Berkshire issued ¥430.0 billion of senior notes consisting of ¥108.5 billion of 0.17% senior notes due in 2024, ¥61.0 billion of 0.27% senior notes due in 2026, ¥146.5 billion of 0.44% senior notes due in 2029, ¥19.0 billion of 0.787% senior notes due in 2034, ¥59.0 billion of 0.965% senior notes due in 2039 and ¥36.0 billion of 1.108% senior notes due in 2049.

Borrowings of BHFC, a wholly owned finance subsidiary of Berkshire, consist of senior unsecured notes used to fund manufactured housing loans originated or acquired and equipment held for lease of certain subsidiaries. BHFC borrowings are fully and unconditionally guaranteed by Berkshire. BHFC repaid $3.95 billion of maturing senior notes in the first nine months of 2019. In January 2019, BHFC issued $2.0 billion of 4.25% senior notes due in 2049. In June 2019, BHFC also issued £1.75 billion of senior notes consisting of £1.0 billion of 2.375% senior notes due in 2039 and £750 million of 2.625% senior notes due in 2059.

The carrying values of our non-U.S. Dollar denominated senior notes (€6.85 billion, £1.75 billion and ¥430 billion par) reflect the applicable exchange rates as of the balance sheet dates. The effects of changes in foreign currency exchange rates during the period are recorded in earnings as a component of selling, general and administrative expenses. Changes in the exchange rates resulted in pre-tax gains of $447 million in the first nine months of 2019 and $273 million in the first nine months of 2018.

In addition to BHFC borrowings, Berkshire guaranteed approximately $1.3 billion of other subsidiary borrowings at September 30, 2019. Generally, Berkshire’s guarantee of a subsidiary’s debt obligation is an absolute, unconditional and irrevocable guarantee for the full and prompt payment when due of all payment obligations.

	Weighted Average Interest Rate			September 30, 2019		December 31, 2018
Railroad, utilities and energy:
Berkshire Hathaway Energy Company (“BHE”) and subsidiaries:
BHE senior unsecured debt due 2020-2049		4.6	%	$	8,580	$	8,577
Subsidiary and other debt due 2019-2064		4.5	%		29,329		28,196
Short-term borrowings		2.8	%		3,119		2,516
Burlington Northern Santa Fe and subsidiaries due 2019-2097		4.6	%		23,990		23,226
				$	65,018	$	62,515

BHE subsidiary debt represents amounts issued pursuant to separate financing agreements. Substantially all of the assets of certain BHE subsidiaries are, or may be, pledged or encumbered to support or otherwise secure debt. These borrowing arrangements generally contain various covenants, including covenants which pertain to leverage ratios, interest coverage ratios and/or debt service coverage ratios. During the first nine months of 2019, BHE and its subsidiaries issued approximately $3.4 billion of long-term debt. The debt issued in 2019 has maturity dates ranging from 2029 to 2050 and a weighted average interest rate of 3.9%. Proceeds from these debt issuances were used to repay debt, to fund capital expenditures and for general corporate purposes.

BNSF’s borrowings are primarily senior unsecured debentures. In July 2019, BNSF issued $825 million of 3.55% senior unsecured debentures due in 2050. As of September 30, 2019, BNSF, BHE and their subsidiaries were in compliance with all applicable debt covenants. Berkshire does not guarantee any debt, borrowings or lines of credit of BNSF, BHE or their subsidiaries.

As of September 30, 2019, our subsidiaries had unused lines of credit and commercial paper capacity aggregating approximately $7.2 billion to support short-term borrowing programs and provide additional liquidity. Such unused lines of credit included approximately $5.7 billion related to BHE and its subsidiaries.

20

Notes to Consolidated Financial Statements (Continued)

Note 19. Fair value measurements

Our financial assets and liabilities are summarized below as of September 30, 2019 and December 31, 2018, with fair values shown according to the fair value hierarchy (in millions). The carrying values of cash and cash equivalents, U.S. Treasury Bills, receivables and accounts payable, accruals and other liabilities are considered to be reasonable estimates of their fair values.

	Carrying Value		Fair Value		Quoted Prices (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
September 30, 2019
Investments in fixed maturity securities:
U.S. Treasury, U.S. government corporations    and agencies	$	3,805	$	3,805	$	2,833	$	972	$	—
States, municipalities and political subdivisions		157		157		—		157		—
Foreign governments		8,023		8,023		5,752		2,271		—
Corporate bonds		6,704		6,704		—		6,701		3
Mortgage-backed securities		483		483		—		483		—
Investments in equity securities		220,051		220,051		209,195		51		10,805
Investment in Kraft Heinz common stock		13,770		9,091		9,091		—		—
Loans and finance receivables		17,135		17,367		—		1,758		15,609
Derivative contract assets (1)		144		144		—		18		126
Derivative contract liabilities:
Railroad, utilities and energy (1)		96		96		6		62		28
Equity index put options		1,236		1,236		—		—		1,236
Notes payable and other borrowings:
Insurance and other		37,176		40,409		—		40,381		28
Railroad, utilities and energy		65,018		76,008		—		76,008		—
December 31, 2018
Investments in fixed maturity securities:
U.S. Treasury, U.S. government corporations    and agencies	$	4,223	$	4,223	$	2,933	$	1,290	$	—
States, municipalities and political subdivisions		189		189		—		189		—
Foreign governments		7,502		7,502		5,417		2,085		—
Corporate bonds		7,440		7,440		—		7,434		6
Mortgage-backed securities		544		544		—		544		—
Investments in equity securities		172,757		172,757		172,253		203		301
Investment in Kraft Heinz common stock		13,813		14,007		14,007		—		—
Loans and finance receivables		16,280		16,377		—		1,531		14,846
Derivative contract assets (1)		172		172		2		52		118
Derivative contract liabilities:
Railroad, utilities and energy (1)		111		111		1		101		9
Equity index put options		2,452		2,452		—		—		2,452
Notes payable and other borrowings:
Insurance and other		34,975		35,361		—		35,335		26
Railroad, utilities and energy		62,515		66,422		—		66,422		—

⁽¹⁾ Assets are included in other assets and liabilities are included in accounts payable, accruals and other liabilities.

21

Notes to Consolidated Financial Statements (Continued)

Note 19. Fair value measurements (Continued)

The fair values of substantially all of our financial instruments were measured using market or income approaches. The hierarchy for measuring fair value consists of Levels 1 through 3, which are described below.

Level 1 – Inputs represent unadjusted quoted prices for identical assets or liabilities exchanged in active markets.

Level 2 – Inputs include directly or indirectly observable inputs (other than Level 1 inputs) such as quoted prices for similar assets or liabilities exchanged in active or inactive markets; quoted prices for identical assets or liabilities exchanged in inactive markets; other inputs that may be considered in fair value determinations of the assets or liabilities, such as interest rates and yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates; and inputs that are derived principally from or corroborated by observable market data by correlation or other means. Pricing evaluations generally reflect discounted expected future cash flows, which incorporate yield curves for instruments with similar characteristics, such as credit ratings, estimated durations and yields for other instruments of the issuer or entities in the same industry sector.

Level 3 – Inputs include unobservable inputs used in the measurement of assets and liabilities. Management is required to use its own assumptions regarding unobservable inputs because there is little, if any, market activity in the assets or liabilities and it may be unable to corroborate the related observable inputs. Unobservable inputs require management to make certain projections and assumptions about the information that would be used by market participants in valuing assets or liabilities.

Reconciliations of significant assets and liabilities measured and carried at fair value on a recurring basis with the use of significant unobservable inputs (Level 3) for the nine months ended September 30, 2019 and 2018 follow (in millions).

				Gains (losses) included in:
	Balance – beginning of year			Earnings		Other comprehensive income			Regulatory assets and liabilities			Acquisitions, dispositions and settlements			Balance – September 30
Investments in fixed maturity and equity securities:
2019	$	307		$	499	$	—		$	—		$	10,002		$	10,808
2018		6			—		—			—			(1	)		5
Net derivative contract assets (liabilities):
2019		(2,343	)		1,528		(1	)		(40	)		(282	)		(1,138	)
2018		(2,069	)		446		—			(11	)		(141	)		(1,775	)

Quantitative information as of September 30, 2019, with respect to assets and liabilities measured and carried at fair value on a recurring basis with the use of significant unobservable inputs (Level 3) follows (in millions).

	Fair Value		Principal Valuation Techniques	Unobservable Inputs	Weighted Average
Investments in equity securities:
Preferred stocks	$	10,363	Discounted cash flow	Expected duration	10 years
				Discount for transferability restrictions and subordination	375 basis points
Common stock warrants		136	Warrant pricing model	Expected duration	10 years
Derivative contract liabilities		1,236	Option pricing model	Volatility	16%

Investments in equity securities at September 30, 2019 included our investments in Occidental preferred stock and common stock warrants (see Note 4). These investments are subject to contractual restrictions on transferability and may contain provisions that prevent us from economically hedging our investments. In applying discounted cash flow techniques in valuing the perpetual preferred stock, we made assumptions regarding the expected duration of the investment, as the issuer may have the right to redeem or convert the stock. We also made estimates regarding the impact of subordination, as the preferred stock has a lower priority in liquidation than debt instruments of the issuer. In valuing the common stock warrants, we used a warrant valuation model. While most of the inputs to the model are observable, we made assumptions regarding the expected duration of the investment. Increases or decreases to these inputs would result in decreases or increases to the fair value of the investments.

22

Notes to Consolidated Financial Statements (Continued)

Note 19. Fair value measurements (Continued)

Our equity index put option derivative contracts are illiquid and contain contract terms that are not standard in derivatives markets. For example, we are not required to post collateral under most of our contracts and certain of the contracts have relatively long durations. For these and other reasons, we classified these contracts as Level 3 measurements. The methods we use to value these contracts are those that we believe market participants would use in determining exchange prices with respect to our contracts.

We value equity index put option contracts based on the Black-Scholes option valuation model. Inputs to this model include index price, contract duration and dividend and interest rate inputs (including a Berkshire non-performance input) which are observable. However, we believe that the valuation of long-duration options using any model is inherently subjective and, given the lack of observable transactions and prices, acceptable values may be subject to wide ranges. Volatility inputs represent our expectations, which consider the remaining duration of each contract and assume that the contracts will remain outstanding until the expiration dates. Increases or decreases in the volatility inputs will produce increases or decreases in the fair values of the liabilities.

Note 20. Common stock

Changes in Berkshire’s issued, treasury and outstanding common stock during the first nine months of 2019 are shown in the table below. In addition to our common stock, 1,000,000 shares of preferred stock are authorized, but none are issued.

	Class A, $5 Par Value (1,650,000 shares authorized)									Class B, $0.0033 Par Value (3,225,000,000 shares authorized)
	Issued			Treasury			Outstanding			Issued		Treasury			Outstanding
Balance December 31, 2018		742,213			(12,897	)		729,316			1,373,558,983		(6,138,909	)		1,367,420,074
Conversions of Class A common stock to Class B    common stock and exercises of replacement    stock options		(18,581	)		—			(18,581	)		28,137,369		—			28,137,369
Treasury stock acquired		—			(1,752	)		(1,752	)		—		(11,454,833	)		(11,454,833	)
Balance at September 30, 2019		723,632			(14,649	)		708,983			1,401,696,352		(17,593,742	)		1,384,102,610

Each Class A common share is entitled to one vote per share. Class B common stock possesses dividend and distribution rights equal to one-fifteen-hundredth (1/1,500) of such rights of Class A common stock. Each Class B common share possesses voting rights equivalent to one-ten-thousandth (1/10,000) of the voting rights of a Class A share. Unless otherwise required under Delaware General Corporation Law, Class A and Class B common shares vote as a single class. Each share of Class A common stock is convertible, at the option of the holder, into 1,500 shares of Class B common stock. Class B common stock is not convertible into Class A common stock. On an equivalent Class A common stock basis, there were 1,631,718 shares outstanding as of September 30, 2019 and 1,640,929 shares outstanding as of December 31, 2018.

Since we have two classes of common stock, we provide earnings per share data on the Consolidated Statements of Earnings for average equivalent Class A shares outstanding and average equivalent Class B shares outstanding. Class B shares are economically equivalent to one-fifteen-hundredth (1/1,500) of a Class A share. Average equivalent Class A shares outstanding represents average Class A shares outstanding plus one-fifteen-hundredth (1/1,500) of the average Class B shares outstanding. Average equivalent Class B shares outstanding represents average Class B shares outstanding plus 1,500 times average Class A shares outstanding.

For several years, Berkshire had a common stock repurchase program that permitted Berkshire to repurchase its Class A and Class B shares at prices no higher than a 20% premium over the book value of the shares. On July 17, 2018, Berkshire’s Board of Directors authorized an amendment to the program, permitting Berkshire to repurchase shares any time that Warren Buffett, Berkshire’s Chairman of the Board and Chief Executive Officer, and Charlie Munger, Vice Chairman of the Board, believe that the repurchase price is below Berkshire’s intrinsic value, conservatively determined. The program continues to allow share repurchases in the open market or through privately negotiated transactions and does not specify a maximum number of shares to be repurchased. However, repurchases will not be made if they would reduce the total value of Berkshire’s consolidated cash, cash equivalents and U.S. Treasury Bills holdings below $20 billion. The repurchase program does not obligate Berkshire to repurchase any specific dollar amount or number of Class A or Class B shares and there is no expiration date to the program.

23

Notes to Consolidated Financial Statements (Continued)

Note 21. Income taxes

Our consolidated effective income tax rates for the third quarter and first nine months of 2019 were 18.7% and 20.2%, respectively. Our effective income tax rates were 19.2% and 19.1% in the third quarter and first nine months of 2018, respectively. Our effective income tax rate normally reflects recurring benefits from dividends-received deductions applicable to investments in equity securities and production tax credits related to wind-powered electricity generation placed in service in the U.S. Our periodic effective income tax rate will also vary due to the changes in mix of pre-tax earnings and underlying income tax rates applicable in the various taxing jurisdictions. In the first quarter of 2019, we recorded income tax expense of $377 million for uncertain tax positions related to investments in certain tax equity investment funds that generated income tax benefits from 2015 through 2018. We now believe that it is more likely than not those income tax benefits are not valid.

Note 22. Accumulated other comprehensive income

A summary of the net changes in after-tax accumulated other comprehensive income attributable to Berkshire Hathaway shareholders and amounts reclassified out of accumulated other comprehensive income for the nine months ending September 30, 2019 and 2018 follows (in millions).

	Unrealized appreciation of investments, net			Foreign currency translation			Defined benefit pension plans			Other			Accumulated other comprehensive income
First nine months of 2019:
Balance at December 31, 2018	$	370		$	(4,603	)	$	(816	)	$	34		$	(5,015	)
Other comprehensive income, net before reclassifications		95			(534	)		(18	)		(32	)		(489	)
Reclassifications into net earnings:
Reclassifications before income taxes		53			—			68			6			127
Applicable income taxes		(11	)		—			(17	)		(3	)		(31	)
Balance at September 30, 2019	$	507		$	(5,137	)	$	(783	)	$	5		$	(5,408	)
First nine months of 2018:
Balance at December 31, 2017	$	62,093		$	(3,114	)	$	(420	)	$	12		$	58,571
Reclassifications to retained earnings upon adoption of new accounting standards		(61,340	)		(65	)		36			(6	)		(61,375	)
Other comprehensive income, net before reclassifications		(142	)		(776	)		(33	)		(19	)		(970	)
Reclassifications into net earnings:
Reclassifications before income taxes		(299	)		—			101			10			(188	)
Applicable income taxes		63			—			(25	)		(3	)		35
Balance at September 30, 2018	$	375		$	(3,955	)	$	(341	)	$	(6	)	$	(3,927	)

Note 23. Contingencies and Commitments

We are parties in a variety of legal actions that routinely arise out of the normal course of business, including legal actions seeking to establish liability directly through insurance contracts or indirectly through reinsurance contracts issued by Berkshire subsidiaries. Plaintiffs occasionally seek punitive or exemplary damages. We do not believe that such normal and routine litigation will have a material effect on our financial condition or results of operations. Berkshire and certain of its subsidiaries are also involved in other kinds of legal actions, some of which assert or may assert claims or seek to impose fines and penalties. We believe that any liability that may arise from other pending legal actions will not have a material effect on our consolidated financial condition or results of operations.

24

Notes to Consolidated Financial Statements (Continued)

Note 24. Revenues from contracts with customers

On January 1, 2018, we adopted ASC 606 “Revenues from Contracts with Customers.” Under ASC 606, revenues are recognized when a good or service is transferred to a customer. A good or service is transferred when or as the customer obtains control of that good or service. Revenues are based on the consideration we expect to receive in connection with our promises to deliver goods and services to our customers.

The following tables summarize customer contract revenues disaggregated by reportable segment and the source of the revenue for the third quarter and first nine months of 2019 and 2018 (in millions). Other revenues included in consolidated revenues were primarily insurance premiums earned, interest, dividend and other investment income and leasing revenues which are not within the scope of ASC 606.

	Manufacturing		McLane Company		Service and Retail		BNSF		Berkshire Hathaway Energy		Insurance, Corporate and other		Total
Three months ending September 30, 2019
Manufactured products:
Industrial and commercial products	$	6,346	$	—	$	44	$	—	$	—	$	—	$	6,390
Building products		4,101		—		—		—		—		—		4,101
Consumer products		3,528		—		—		—		—		—		3,528
Grocery and convenience store distribution		—		8,298		—		—		—		—		8,298
Food and beverage distribution		—		4,202		—		—		—		—		4,202
Auto sales		—		—		2,250		—		—		—		2,250
Other retail and wholesale distribution		524		—		2,946		—		—		—		3,470
Service		445		80		1,034		5,967		1,191		—		8,717
Electricity and natural gas		—		—		—		—		4,213		—		4,213
Total		14,944		12,580		6,274		5,967		5,404		—		45,169
Other revenue		937		24		1,080		15		316		17,431		19,803
	$	15,881	$	12,604	$	7,354	$	5,982	$	5,720	$	17,431	$	64,972
Nine months ending September 30, 2019
Manufactured products:
Industrial and commercial products	$	19,308	$	—	$	136	$	—	$	—	$	—	$	19,444
Building products		11,796		—		—		—		—		—		11,796
Consumer products		10,487		—		—		—		—		—		10,487
Grocery and convenience store distribution		—		24,375		—		—		—		—		24,375
Food and beverage distribution		—		12,648		—		—		—		—		12,648
Auto sales		—		—		6,312		—		—		—		6,312
Other retail and wholesale distribution		1,602		—		8,959		—		—		—		10,561
Service		1,222		123		3,068		17,517		3,139		—		25,069
Electricity and natural gas		—		—		—		—		11,329		—		11,329
Total		44,415		37,146		18,475		17,517		14,468		—		132,021
Other revenue		2,715		68		3,323		41		894		50,186		57,227
	$	47,130	$	37,214	$	21,798	$	17,558	$	15,362	$	50,186	$	189,248

25

Notes to Consolidated Financial Statements (Continued)

Note 24. Revenues from contracts with customers (Continued)

	Manufacturing		McLane Company		Service and Retail		BNSF		Berkshire Hathaway Energy		Insurance, Corporate and other		Total
Three months ending September 30, 2018
Manufactured products:
Industrial and commercial products	$	6,466	$	—	$	47	$	—	$	—	$	—	$	6,513
Building products		3,477		—		—		—		—		—		3,477
Consumer products		4,008		—		—		—		—		—		4,008
Grocery and convenience store distribution		—		8,709		—		—		—		—		8,709
Food and beverage distribution		—		4,079		—		—		—		—		4,079
Auto sales		—		—		2,083		—		—		—		2,083
Other retail and wholesale distribution		524		—		3,137		—		—		—		3,661
Service		395		16		980		6,099		1,140		—		8,630
Electricity and natural gas		—		—		—		—		4,267		—		4,267
Total		14,870		12,804		6,247		6,099		5,407		—		45,427
Other revenue		795		18		964		13		299		15,934		18,023
	$	15,665	$	12,822	$	7,211	$	6,112	$	5,706	$	15,934	$	63,450
Nine months ending September 30, 2018
Manufactured products:
Industrial and commercial products	$	19,809	$	—	$	155	$	—	$	—	$	—	$	19,964
Building products		9,828		—		—		—		—		—		9,828
Consumer products		11,858		—		—		—		—		—		11,858
Grocery and convenience store distribution		—		25,128		—		—		—		—		25,128
Food and beverage distribution		—		12,203		—		—		—		—		12,203
Auto sales		—		—		6,087		—		—		—		6,087
Other retail and wholesale distribution		1,541		—		8,791		—		—		—		10,332
Service		892		53		2,953		17,510		3,026		—		24,434
Electricity and natural gas		—		—		—		—		11,357		—		11,357
Total		43,928		37,384		17,986		17,510		14,383		—		131,191
Other revenue		2,346		54		3,298		37		885		46,312		52,932
	$	46,274	$	37,438	$	21,284	$	17,547	$	15,268	$	46,312	$	184,123

A summary of the transaction price allocated to the significant unsatisfied remaining performance obligations relating to contracts with expected durations in excess of one year as of September 30, 2019 follows (in millions).

	Performance obligations expected to be satisfied:
	Less than 12 months		Greater than 12 months		Total
Electricity and natural gas	$	922	$	5,309	$	6,231
Other sales and service contracts		1,196		2,540		3,736

26

Notes to Consolidated Financial Statements (Continued)

Note 25. Business segment data

Our operating businesses include a large and diverse group of insurance, manufacturing, service and retailing businesses. We organize our reportable business segments in a manner that reflects how management views those business activities. Certain businesses are grouped together for segment reporting based upon similar products or product lines, marketing, selling and distribution characteristics, even though those business units are operated under separate local management. The accompanying business segment information for the 2018 periods reflects certain reclassifications to conform to presentations as of December 31, 2018. Specifically, business units that previously were reported as the finance and financial products segment in the 2018 periods were reclassified to manufacturing (Clayton Homes and UTLX), services and retailing (CORT and XTRA leasing) and corporate and other (principally investment income). Revenues and earnings before income taxes by segment for the third quarter and first nine months of 2019 and 2018 were as follows (in millions).

	Third Quarter				First Nine Months
	2019		2018		2019		2018
Revenues of Operating Businesses:
Insurance:
Underwriting:
GEICO	$	8,996	$	8,506	$	26,487	$	24,705
Berkshire Hathaway Reinsurance Group		3,940		3,777		11,193		11,229
Berkshire Hathaway Primary Group		2,387		2,050		6,825		5,921
Investment income		1,789		1,446		4,930		4,058
Total insurance		17,112		15,779		49,435		45,913
BNSF		6,021		6,147		17,676		17,649
Berkshire Hathaway Energy		5,720		5,706		15,362		15,268
Manufacturing		15,897		15,686		47,173		46,335
McLane Company		12,604		12,822		37,214		37,438
Service and retailing		7,378		7,230		21,865		21,352
		64,732		63,370		188,725		183,955
Reconciliation of segments to consolidated amount:
Corporate, eliminations and other		240		80		523		168
	$	64,972	$	63,450	$	189,248	$	184,123

	Third Quarter						First Nine Months
	2019			2018			2019			2018
Earnings Before Income Taxes of Operating Businesses:
Insurance:
Underwriting:
GEICO	$	376		$	627		$	1,539		$	1,977
Berkshire Hathaway Reinsurance Group		52			(163	)		(305	)		(124	)
Berkshire Hathaway Primary Group		153			135			290			468
Investment income		1,782			1,455			4,916			4,052
Total insurance		2,363			2,054			6,440			6,373
BNSF		1,941			1,879			5,379			5,047
Berkshire Hathaway Energy		1,061			1,165			2,194			2,238
Manufacturing		2,484			2,369			7,205			7,105
McLane Company		50			44			220			171
Service and retailing		639			701			2,005			2,037
		8,538			8,212			23,443			22,971
Reconciliation of segments to consolidated amount:
Investment and derivative gains (losses)		10,926			14,706			41,296			13,053
Interest expense, not allocated to segments		(96	)		(115	)		(312	)		(350	)
Equity method investments		644			316			936			1,044
Corporate, eliminations and other		477			28			532			4
	$	20,489		$	23,147		$	65,895		$	36,722

27

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

Net earnings attributable to Berkshire Hathaway shareholders are disaggregated in the table that follows. Amounts are after deducting income taxes and exclude earnings attributable to noncontrolling interests (in millions).

	Third Quarter				First Nine Months
	2019		2018		2019		2018
Insurance – underwriting	$	440	$	441	$	1,182	$	1,791
Insurance – investment income		1,484		1,239		4,087		3,393
Railroad		1,466		1,393		4,057		3,847
Utilities and energy		1,178		1,091		2,390		2,257
Manufacturing, service and retailing		2,455		2,411		7,142		7,024
Investment and derivative gains (losses)		8,666		11,660		32,706		10,352
Other		835		305		694		749
Net earnings attributable to Berkshire Hathaway shareholders	$	16,524	$	18,540	$	52,258	$	29,413

Through our subsidiaries, we engage in a number of diverse business activities. We manage our operating businesses on an unusually decentralized basis. There are essentially no centralized or integrated business functions and there is minimal involvement by our corporate headquarters in the day-to-day business activities of the operating businesses. Our senior corporate management team participates in and is ultimately responsible for significant capital allocation decisions, investment activities and the selection of the Chief Executive to head each of the operating businesses. The business segment data (Note 25 to the accompanying Consolidated Financial Statements) should be read in conjunction with this discussion.

Our insurance businesses generated after-tax earnings from underwriting of $440 million in the third quarter and $1,182 million in the first nine months of 2019. Insurance underwriting results in the first nine months of 2019 include earnings from primary insurance and losses from reinsurance, reflecting lower gains from reductions of claim liability estimates for prior years’ property/casualty loss events and lower gains from foreign currency remeasurement applicable to certain reinsurance liabilities than in 2018. After-tax earnings from insurance investment income increased 19.8% in the third quarter and 20.5% in the first nine months of 2019 over the same periods in 2018. These increases reflect higher short-term interest income and dividend income.

After-tax earnings of our railroad business increased 5.2% in the third quarter and 5.5% in the first nine months of 2019 compared to 2018. Earnings in 2019 were negatively affected by persistent flooding conditions and severe winter weather, which negatively affected operating costs and freight volumes. During the third quarter, the company placed back into service all key routes impacted by flooding. Earnings in 2019 benefited from higher rates per car/unit, a curtailment gain related to an amendment to defined benefit retirement plans and ongoing operating cost control initiatives.

After-tax earnings of our utilities and energy business increased 8.0% in the third quarter and 5.9% in the first nine months of 2019 compared to the corresponding 2018 periods. Earnings from our manufacturing, service and retailing businesses increased approximately 2% in both the third quarter and first nine months over the same periods in 2018. Operating results of our manufacturing, service and retailing businesses in 2019 were mixed, with several of these businesses experiencing lower earnings in 2019. Revenues and pre-tax earnings in 2019 of certain of these businesses were negatively affected by the unfavorable effects of foreign currency translation attributable to a stronger U.S. Dollar, international trade tensions and U.S. trade tariffs.

Investment and derivative gains/losses in 2019 and 2018 included significant unrealized gains from market price changes on our holdings of equity securities. After-tax unrealized gains on equity securities were approximately $8.0 billion in the third quarter and $30.1 billion in the first nine months of 2019 and were approximately $10.2 billion in the third quarter and $7.5 billion in the first nine months of 2018. After-tax investment gains in 2019 also included after-tax realized gains on sales of equity and fixed maturity securities of $513 million in the third quarter and $1.6 billion in the first nine months. After-tax realized gains on sales of equity and fixed maturity securities in 2018 were $995 million in the third quarter and $2.3 billion in the first nine months.

We believe that investment and derivative gains/losses, whether realized from dispositions or settlements or unrealized from changes in market prices of equity securities, are generally meaningless in understanding our reported results or evaluating our economic performance. These gains and losses have caused and will continue to cause significant volatility in our periodic earnings.

28

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Insurance—Underwriting

Our management views our insurance businesses as possessing two distinct activities – underwriting and investing. Underwriting decisions are the responsibility of the unit managers, while investing decisions are the responsibility of Berkshire’s Chairman and CEO, Warren E. Buffett and Berkshire’s corporate investment managers. Accordingly, we evaluate performance of underwriting operations without any allocation of investment income or investment gains/losses. We consider investment income as a component of our aggregate insurance operating results. However, we consider investment gains and losses, whether realized or unrealized as non-operating, based on our long-held philosophy of acquiring securities and holding those securities for long periods. Accordingly, we believe that such gains and losses are not necessarily meaningful in understanding the operating results of our insurance operations.

The timing and amount of catastrophe losses can produce significant volatility in our periodic underwriting results, particularly with respect to our reinsurance businesses. Generally, we consider pre-tax losses in excess of $100 million from a current year event as significant. Changes in estimates for unpaid losses and loss adjustment expenses, including amounts established for occurrences in prior years, can also significantly affect our periodic underwriting results. Unpaid loss estimates, including estimates under retroactive reinsurance contracts, were $113.4 billion as of September 30, 2019. Our periodic underwriting results may also include significant foreign currency transaction gains and losses arising from the changes in the valuation of non-U.S. Dollar denominated reinsurance liabilities of our U.S. based insurance subsidiaries due to foreign currency exchange rate fluctuations.

We engage in both primary insurance and reinsurance of property/casualty, life and health risks. In primary insurance activities, we assume defined portions of the risks of loss from persons or organizations that are directly subject to the risks. In reinsurance activities, we assume defined portions of similar or dissimilar risks that other insurers or reinsurers have subjected themselves to in their own insuring activities. Our insurance and reinsurance businesses are GEICO, Berkshire Hathaway Reinsurance Group (“BHRG”) and Berkshire Hathaway Primary Group.

Underwriting results of our insurance businesses are summarized below (dollars in millions).

	Third Quarter						First Nine Months
	2019			2018			2019			2018
Pre-tax underwriting earnings (loss):
GEICO	$	376		$	627		$	1,539		$	1,977
Berkshire Hathaway Reinsurance Group		52			(163	)		(305	)		(124	)
Berkshire Hathaway Primary Group		153			135			290			468
Pre-tax underwriting earnings		581			599			1,524			2,321
Income taxes and noncontrolling interests		141			158			342			530
Net underwriting earnings	$	440		$	441		$	1,182		$	1,791
Effective income tax rate		24.1	%		25.9	%		23.0	%		22.6	%

GEICO

GEICO writes private passenger automobile insurance, offering coverages to insureds in all 50 states and the District of Columbia. GEICO markets its policies mainly by direct response methods where most customers apply for coverage directly to the company via the Internet or over the telephone. A summary of GEICO’s underwriting results follows (dollars in millions).

	Third Quarter								First Nine Months
	2019				2018				2019				2018
	Amount		%		Amount		%		Amount		%		Amount		%
Premiums written	$	9,412			$	8,952			$	27,378			$	25,878
Premiums earned	$	8,996		100.0	$	8,506		100.0	$	26,487		100.0	$	24,705		100.0
Losses and loss adjustment expenses		7,344		81.6		6,725		79.1		21,176		80.0		19,305		78.1
Underwriting expenses		1,276		14.2		1,154		13.5		3,772		14.2		3,423		13.9
Total losses and expenses		8,620		95.8		7,879		92.6		24,948		94.2		22,728		92.0
Pre-tax underwriting earnings	$	376			$	627			$	1,539			$	1,977