10-Q 1 a6492698.htm BERKSHIRE HATHAWAY INC. 10-Q a6492698.htm
 
   
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2010
 
OR
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                      to                     
 
Commission file number 001-14905
 
BERKSHIRE HATHAWAY INC.
(Exact name of registrant as specified in its charter)
 
Delaware
47-0813844
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification Number)
 
3555 Farnam Street, Omaha, Nebraska 68131
(Address of principal executive office)
(Zip Code)
 
(402) 346-1400
(Registrant’s telephone number, including area code)
 
 
(Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes  x    No  ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer  x
Accelerated filer  ¨
Non-accelerated filer  ¨
Smaller reporting company  ¨
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).     Yes  ¨    No  x
 
Number of shares of common stock outstanding as of October 29, 2010:
 
  Class A —           956,153
  Class B —  1,037,798,904
 
   
 
 
 
 
 
 
BERKSHIRE HATHAWAY INC.
 
 
Page No.
 
     
 
 
            2
 
3
 
4
 
5
 
5
 
6-20
21-34
34
34
   
 
     
35
35
35
35
35
35
36
   
36
 
 
 
and Subsidiaries
 
CONSOLIDATED BALANCE SHEETS
(dollars in millions)

   
September 30,
   
December 31,
 
 
2010
   
2009
 
   
(Unaudited)
       
ASSETS
           
Insurance and Other:
           
Cash and cash equivalents
  $ 30,772     $ 28,223  
Investments:
               
Fixed maturity securities
    35,160       35,729  
Equity securities
    55,320       56,562  
Other
    22,351       29,440  
Receivables
    18,079       14,792  
Inventories
    6,924       6,147  
Property, plant and equipment
    15,396       15,720  
Goodwill
    28,069       27,614  
Other
    13,020       13,070  
      225,091       227,297  
                 
Railroad, Utilities and Energy:
               
Cash and cash equivalents
    2,646       429  
Property, plant and equipment
    76,628       30,936  
Goodwill
    20,096       5,334  
Other
    14,109       8,072  
      113,479       44,771  
                 
Finance and Financial Products:
               
Cash and cash equivalents
    1,043       1,906  
Investments in fixed maturity securities
    1,193       1,402  
Other investments
    3,053       3,160  
Loans and finance receivables
    15,406       13,989  
Goodwill
    1,031       1,024  
Other
    3,683       3,570  
      25,409       25,051  
    $ 363,979     $ 297,119  
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
Insurance and Other:
               
Losses and loss adjustment expenses
  $ 61,173     $ 59,416  
Unearned premiums
    9,063       7,925  
Life, annuity and health insurance benefits
    7,460       5,228  
Accounts payable, accruals and other liabilities
    15,798       15,530  
Notes payable and other borrowings
    12,151       4,561  
      105,645       92,660  
                 
Railroad, Utilities and Energy:
               
Accounts payable, accruals and other liabilities
    12,446       5,895  
Notes payable and other borrowings
    31,965       19,579  
      44,411       25,474  
                 
Finance and Financial Products:
               
Accounts payable, accruals and other liabilities
    1,121       937  
Derivative contract liabilities
    11,052       9,269  
Notes payable and other borrowings
    14,547       13,769  
      26,720       23,975  
Income taxes, principally deferred
    32,606       19,225  
Total liabilities
    209,382       161,334  
                 
Shareholders’ equity:
               
Common stock
    8       8  
Capital in excess of par value
    38,123       27,074  
Accumulated other comprehensive income
    16,723       17,793  
Retained earnings
    94,817       86,227  
Berkshire Hathaway shareholders’ equity
    149,671       131,102  
Noncontrolling interests
    4,926       4,683  
Total shareholders’ equity
    154,597       135,785  
    $ 363,979     $ 297,119  
 
See accompanying Notes to Consolidated Financial Statements
 
 
2

 
and Subsidiaries
 
CONSOLIDATED STATEMENTS OF EARNINGS
(dollars in millions except per share amounts)
 
   
Third Quarter
   
First Nine Months
 
   
2010
   
2009
   
2010
   
2009
 
   
(Unaudited)
   
(Unaudited)
 
Revenues:
                       
Insurance and Other:
                       
Insurance premiums earned
  $ 9,054     $ 6,595     $ 23,344     $ 21,263  
Sales and service revenues
    17,408       16,178       50,149       46,075  
Interest, dividend and other investment income
    1,239       1,425       4,048       4,313  
Investment gains/losses
    473       123       2,169       (214 )
Other-than-temporary impairment losses on investments
    (15 )     (25 )     (15 )     (3,151 )
      28,159       24,296       79,695       68,286  
                                 
Railroad, Utilities and Energy:
                               
Operating revenues
    7,155       2,741       18,889       8,212  
Other
    60       71       142       204  
      7,215       2,812       19,031       8,416  
                                 
Finance and Financial Products:
                               
Interest, dividend and other investment income
    395       356       1,197       1,077  
Investment gains/losses
          (13 )     5       (43 )
Derivative gains/losses
    (146 )     1,732       (1,911 )     2,572  
Other
    651       721       2,003       1,987  
      900       2,796       1,294       5,593  
      36,274       29,904       100,020       82,295  
                                 
Costs and expenses:
                               
Insurance and Other:
                               
Insurance losses and loss adjustment expenses
    6,254       4,125       14,357       14,211  
Life, annuity and health insurance benefits
    861       461       3,240       1,399  
Insurance underwriting expenses
    1,634       1,475       4,381       4,708  
Cost of sales and services
    14,439       13,614       41,537       38,700  
Selling, general and administrative expenses
    1,896       2,015       5,650       6,051  
Interest expense
    71       44       206       144  
      25,155       21,734       69,371       65,213  
                                 
Railroad, Utilities and Energy:
                               
Cost of sales and operating expenses
    5,251       2,080       14,143       6,390  
Interest expense
    421       291       1,162       880  
      5,672       2,371       15,305       7,270  
                                 
Finance and Financial Products:
                               
Interest expense
    176       159       530       468  
Other
    737       801       2,244       2,257  
      913       960       2,774       2,725  
      31,740       25,065       87,450       75,208  
                                 
Earnings before income taxes and equity method earnings
    4,534       4,839       12,570       7,087  
Income tax expense
    1,415       1,601       3,599       2,107  
Earnings from equity method investments
          111       50       307  
Net earnings
    3,119       3,349       9,021       5,287  
Less: Earnings attributable to noncontrolling interests
    130       111       431       288  
Net earnings attributable to Berkshire Hathaway
  $ 2,989     $ 3,238     $ 8,590     $ 4,999  
Average common shares outstanding *
    1,647,593       1,551,727       1,631,489       1,550,986  
Net earnings per share attributable to Berkshire Hathaway shareholders *
  $ 1,814     $ 2,087     $ 5,265     $ 3,223  
 

*
Average shares outstanding include average Class A common shares and average Class B common shares determined on an equivalent Class A common stock basis. Net earnings per common share attributable to Berkshire Hathaway shown above represents net earnings per equivalent Class A common share. Net earnings per Class B common share is equal to one-fifteen-hundredth (1/1,500) of such amount.
 
See accompanying Notes to Consolidated Financial Statements
 
 
3

 
and Subsidiaries
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
 
   
First Nine Months
 
   
2010
   
2009
 
   
(Unaudited)
 
Cash flows from operating activities:
           
Net earnings
  $ 9,021     $ 5,287  
Adjustments to reconcile net earnings to operating cash flows:
               
Investment (gains) losses and other-than-temporary impairment losses
    (2,159 )     3,408  
Depreciation
    3,109       2,315  
Other
    203       (101 )
Changes in operating assets and liabilities before business acquisitions:
               
Losses and loss adjustment expenses
    1,974       2,244  
Deferred charges reinsurance assumed
    150       (8 )
Unearned premiums
    1,168       802  
Receivables and originated loans
    (3,295 )     (252 )
Derivative contract assets and liabilities
    1,732       (4,315 )
Income taxes
    757       693  
Other assets and liabilities
    1,171       1,953  
Net cash flows from operating activities
    13,831       12,026  
                 
Cash flows from investing activities:
               
Purchases of fixed maturity securities
    (7,039 )     (8,939 )
Purchases of equity securities
    (3,893 )     (3,204 )
Purchases of other investments
          (6,068 )
Sales of fixed maturity securities
    3,646       3,222  
Redemptions and maturities of fixed maturity securities
    4,882       4,003  
Sales of equity securities
    4,532       2,126  
Purchases of loans and finance receivables
    (2,063 )     (227 )
Principal collections on loans and finance receivables
    2,255       618  
Acquisitions of businesses, net of cash acquired
    (15,376 )     (75 )
Purchases of property, plant and equipment
    (4,291 )     (3,803 )
Other
    (803 )     1,218  
Net cash flows from investing activities
    (18,150 )     (11,129 )
                 
Cash flows from financing activities:
               
Proceeds from borrowings of insurance and other businesses
    8,164       79  
Proceeds from borrowings of railroad, utilities and energy businesses
    1,731       1,241  
Proceeds from borrowings of finance businesses
    1,039       1,550  
Repayments of borrowings of insurance and other businesses
    (380 )     (680 )
Repayments of borrowings of railroad, utilities and energy businesses
    (382 )     (383 )
Repayments of borrowings of finance businesses
    (1,823 )     (322 )
Change in short term borrowings, net
    (59 )     (721 )
Acquisitions of noncontrolling interests and other
    (49 )     (377 )
Net cash flows from financing activities
    8,241       387  
Effects of foreign currency exchange rate changes
    (19 )     96  
Increase/decrease in cash and cash equivalents
    3,903       1,380  
Cash and cash equivalents at beginning of year *
    30,558       25,539  
Cash and cash equivalents at end of first nine months *
  $ 34,461     $ 26,919  
                 
* Cash and cash equivalents are comprised of the following:
               
Beginning of year—
               
Insurance and Other
  $ 28,223     $ 24,356  
Railroad, Utilities and Energy
    429       280  
Finance and Financial Products
    1,906       903  
    $ 30,558     $ 25,539  
End of first nine months—
               
Insurance and Other
  $ 30,772     $ 23,956  
Railroad, Utilities and Energy
    2,646       744  
Finance and Financial Products
    1,043       2,219  
    $ 34,461     $ 26,919  
 
See accompanying Notes to Consolidated Financial Statements
 
 
4

 
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
   
Total
   
Non-
controlling
interests
 
Balance at December 31, 2008
  $ 27,141     $ 3,954     $ 78,172     $ 109,267     $ 4,440  
Net earnings
                4,999       4,999       288  
Other comprehensive income, net
          11,753             11,753       183  
Issuance of common stock and other transactions
    172                   172        
Changes in noncontrolling interests:
                                       
Interests acquired and other transactions
    (227 )     109             (118 )     (302 )
Balance at September 30, 2009
  $ 27,086     $ 15,816     $ 83,171     $ 126,073     $ 4,609  
                                         
                                         
Balance at December 31, 2009
  $ 27,082     $ 17,793     $ 86,227     $ 131,102     $ 4,683  
Net earnings
                8,590       8,590       431  
Other comprehensive income, net
          (1,070 )           (1,070 )     (17 )
Issuance of common stock and other transactions
    11,067                   11,067        
Changes in noncontrolling interests:
                                       
Interests acquired and other transactions
    (18 )                 (18 )     (171 )
Balance at September 30, 2010
  $ 38,131     $ 16,723     $ 94,817     $ 149,671     $ 4,926  
                                         

(Unaudited)
(dollars in millions)

   
Third Quarter
   
First Nine Months
 
   
2010
   
2009
   
2010
   
2009
 
Comprehensive income attributable to Berkshire:
                       
Net earnings
  $ 2,989     $ 3,238     $ 8,590     $ 4,999  
Other comprehensive income:
                               
Net change in unrealized appreciation of investments
    5,422       12,821       (480 )     13,954  
Applicable income taxes
    (1,901 )     (4,568 )     168       (4,971 )
Reclassification of investment appreciation in earnings
    (441 )     (98 )     (1,152 )     3,329  
Applicable income taxes
    154       34       403       (1,165 )
Foreign currency translation
    726       294       (175 )     871  
Applicable income taxes
    (30 )     (78 )     (6 )     (18 )
Prior service cost and actuarial gains/losses of defined benefit plans
    (22 )     30       41       (135 )
Applicable income taxes
    1       (10 )     (13 )     11  
Other, net
    (35 )     (114 )     144       (123 )
Other comprehensive income, net
    3,874       8,311       (1,070 )     11,753  
Comprehensive income attributable to Berkshire
  $ 6,863     $ 11,549     $ 7,520     $ 16,752  
Comprehensive income of noncontrolling interests
  $ 170     $ 272     $ 414     $ 471  
 
 
See accompanying Notes to Consolidated Financial Statements
 
 
5

 
and Subsidiaries
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2010
 
 
The accompanying unaudited Consolidated Financial Statements include the accounts of Berkshire Hathaway Inc. (“Berkshire” or “Company”) consolidated with the accounts of all its subsidiaries and affiliates in which Berkshire holds controlling financial interests as of the financial statement date. In these notes the terms “us,” “we,” or “our” refer to Berkshire and its consolidated subsidiaries.  Reference is made to Berkshire’s most recently issued Annual Report on Form 10-K (“Annual Report”) that included information necessary or useful to understanding Berkshire’s businesses and financial statement presentations. Our significant accounting policies and practices were presented as Note 1 to the Consolidated Financial Statements included in the Annual Report. Certain immaterial amounts in 2009 have been reclassified to conform with the current year presentation. Financial information in this Report reflects any adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary to a fair statement of results for the interim periods in accordance with accounting principles generally accepted in the United States (“GAAP”).
 
For a number of reasons, our results for interim periods are not normally indicative of results to be expected for the year. The timing and magnitude of catastrophe losses incurred by insurance subsidiaries and the estimation error inherent to the process of determining liabilities for unpaid losses of insurance subsidiaries can be relatively more significant to results of interim periods than to results for a full year. Variations in the amounts and timing of investment gains/losses and other-than-temporary impairment losses on investments can cause significant variations in periodic net earnings. Investment gains/losses are recorded when investments are sold or in instances when investments are required to be marked-to-market. In addition, changes in the fair value of derivative assets/liabilities associated with derivative contracts that do not qualify for hedge accounting treatment can cause significant variations in periodic net earnings.
 
 
We adopted FASB Accounting Standards Update (“ASU”) 2009-16 and ASU 2009-17 as of January 1, 2010. ASU 2009-16 eliminated the concept of a qualifying special-purpose entity (“QSPE”) and the exemption of QSPEs from previous consolidation guidance and also modified the criteria for derecognizing financial assets by transferors. ASU 2009-17 amended the standards related to consolidation of variable interest entities. ASU 2009-17 included new criteria for determining the primary beneficiary of variable interest entities and increased the frequency in which reassessments must be made to determine the primary beneficiary of variable interest entities. See Note 14 for a description of the effect on our Consolidated Financial Statements from adopting this guidance.
 
In January 2010, the FASB issued ASU 2010-06, “Improving Disclosures About Fair Value Measurements.” ASU 2010-06 requires the separate disclosure of significant transfers into and out of the Level 1 and Level 2 categories; requires fair value measurement disclosures for each class of assets and liabilities; and requires disclosures about valuation techniques and inputs used in Level 2 and Level 3 fair value measurements. These disclosure requirements became effective at the beginning of 2010. In addition, effective in fiscal years beginning after December 31, 2010, ASU 2010-06 also requires Level 3 disclosures of activity on a gross rather than a net basis. We do not anticipate that the remaining disclosures under ASU 2010-06 will have a material impact on our Consolidated Financial Statements.
 
In July 2010, the FASB issued ASU 2010-20, “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.”  ASU 2010-20 requires increased disclosures about the credit quality of financing receivables and allowances for credit losses, including disclosure about credit quality indicators, past due information and modifications of finance receivables.  The guidance is generally effective for reporting periods ending after December 15, 2010.  We do not anticipate the adoption of ASU 2010-20 will have a material impact on our Consolidated Financial Statements.
 
In October 2010, the FASB issued ASU 2010-26, “Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts.”  ASU 2010-26 modifies the types of costs incurred by insurance entities that are deferred in the acquiring or renewing of insurance contracts.  ASU 2010-26 requires that only direct incremental costs related to successful efforts are capitalized. Capitalized  costs may include certain advertising costs which are allowed to be capitalized if the primary purpose of the advertising is to elicit sales to customers proven to have responded directly to the advertising and the probable future revenues generated from the advertising are proven to be in excess of expected future costs to be incurred in realizing those revenues.  ASU 2010-26 is effective for fiscal years and interim periods beginning after December 15, 2011 and may be applied on a prospective or retrospective basis.  We are evaluating the effect of ASU 2010-26 on our Consolidated Financial Statements.
 
 
6

 
Notes To Consolidated Financial Statements (Continued)
 
 
Our long-held acquisition strategy is to purchase businesses with consistent earnings power, good returns on equity and able and honest management at sensible prices.
 
On February 12, 2010, we acquired all of the outstanding common stock of the Burlington Northern Santa Fe Corporation that we did not already own (about 264.5 million shares or 77.5%) for aggregate consideration of $26.5 billion that consisted of cash of approximately $15.9 billion with the remainder in Berkshire common stock (80,931 Class A shares and 20,976,621 Class B shares). Approximately 50% of the cash component was funded with existing cash balances and the remaining 50% was funded with proceeds from debt issued by Berkshire. The acquisition was completed through the merger of a wholly-owned merger subsidiary (a Delaware limited liability company) and Burlington Northern Santa Fe Corporation. The merger subsidiary was the surviving entity and was renamed Burlington Northern Santa Fe, LLC (“BNSF”). BNSF is based in Fort Worth, Texas, and through BNSF Railway Company operates one of the largest railroad systems in North America with approximately 32,000 route miles of track in 28 states and two Canadian provinces.
 
Prior to February 12, 2010, we owned 76.8 million shares of BNSF (22.5% of the outstanding shares), which were acquired between August 2006 and January 2009. We accounted for those shares pursuant to the equity method and as of February 12, 2010, our investment had a carrying value of $6.6 billion. We are accounting for the acquisition of BNSF pursuant to the acquisition method under Accounting Standards Codification Section 805 Business Combinations (“ASC 805”). Upon completion of the acquisition of the remaining BNSF shares, we were required under ASC 805 to re-measure our previously owned investment in BNSF at fair value as of the acquisition date. In the first quarter of 2010, we recognized a one-time holding gain of approximately $1.0 billion for the difference between the fair value of the BNSF shares and our carrying value under the equity method.
 
The purchase price allocation at September 30, 2010 is substantially complete; however, additional analysis could result in a change in the total amount of goodwill.  The allocation of the aggregate $34.5 billion purchase price (including the fair value of the previously owned shares of BNSF and the value of certain BNSF outstanding equity awards that were converted into Berkshire Class B equity awards on the acquisition date) to BNSF’s assets and liabilities is summarized below (in millions):

Assets:
     
Liabilities and Net assets acquired:
     
Cash and cash equivalents
  $ 971  
Accounts payable and other liabilities
  $ 6,623  
Property, plant and equipment
    43,987  
Notes payable and other borrowings
    11,142  
Goodwill
    14,803  
Income taxes, principally deferred
    13,203  
Other
    5,702         30,968  
    $ 65,463  
Net assets acquired
    34,495  
              $ 65,463  
 
BNSF’s financial statements are included in our Consolidated Financial Statements beginning as of February 12, 2010. The following table sets forth certain unaudited pro forma consolidated earnings data for the first nine months of 2010 and 2009, as if the BNSF acquisition was consummated on the same terms at the beginning of 2010 and 2009. Amounts are in millions, except earnings per share.

   
2010
   
2009
 
Total revenues
  $ 101,838     $ 92,807  
Net earnings attributable to Berkshire Hathaway shareholders
    8,836       6,021  
Earnings per equivalent Class A common share attributable to Berkshire Hathaway shareholders
    5,367       3,658  

 
7

 
Notes To Consolidated Financial Statements (Continued)
 
 
Investments in securities with fixed maturities as of September 30, 2010 and December 31, 2009 are summarized below (in millions).
 
   
Amortized
Cost
   
Unrealized
Gains
   
Unrealized
Losses *
   
Fair
Value
 
September 30, 2010
                       
U.S. Treasury, U.S. government corporations and agencies
  $ 2,182     $ 68     $     $ 2,250  
States, municipalities and political subdivisions
    3,440       263             3,703  
Foreign governments
    11,705       349       (29 )     12,025  
Corporate bonds
    13,146       2,587       (813 )     14,920  
Mortgage-backed securities
    3,104       365       (14 )     3,455  
    $ 33,577     $ 3,632     $ (856 )   $ 36,353  
                                 
Insurance and other
  $ 32,505     $ 3,511     $ (856 )   $ 35,160  
Finance and financial products
    1,072       121             1,193  
    $ 33,577     $ 3,632     $ (856 )   $ 36,353  
                                 
December 31, 2009
                               
U.S. Treasury, U.S. government corporations and agencies
  $ 2,362     $ 46     $ (1 )   $ 2,407  
States, municipalities and political subdivisions
    3,689       275       (1 )     3,963  
Foreign governments
    11,518       368       (42 )     11,844  
Corporate bonds
    13,094       2,080       (502 )     14,672  
Mortgage-backed securities
    3,961       310       (26 )     4,245  
    $ 34,624     $ 3,079     $ (572 )   $ 37,131  
                                 
Insurance and other
  $ 33,317     $ 2,984     $ (572 )   $ 35,729  
Finance and financial products
    1,307       95             1,402  
    $ 34,624     $ 3,079     $ (572 )   $ 37,131  

*
Includes $774 million at September 30, 2010 and $471 million at December 31, 2009, related to securities that have been in an unrealized loss position for 12 months or more.
 
The amortized cost and estimated fair value of securities with fixed maturities at September 30, 2010 are summarized below by contractual maturity dates. Actual maturities will differ from contractual maturities because issuers of certain of the securities retain early call or prepayment rights. Amounts are in millions.
 
   
Due in one
year or less
   
Due after one
year through
five years
   
Due after five
years through
ten years
   
Due after
ten years
   
Mortgage-backed
securities
   
Total
 
Amortized cost
  $ 7,067     $ 14,310     $ 6,126     $ 2,970     $ 3,104     $ 33,577  
Fair value
    7,249       15,875       6,141       3,633       3,455       36,353  
 
 
8

 
Notes To Consolidated Financial Statements (Continued)
 
 
Investments in equity securities as of September 30, 2010 and December 31, 2009 are summarized below (in millions).
 
   
Cost Basis
   
Unrealized
Gains
   
Unrealized
Losses
   
Fair
Value
 
September 30, 2010
                       
American Express Company
  $ 1,287     $ 5,085     $     $ 6,372  
The Coca-Cola Company
    1,299       10,405             11,704  
The Procter & Gamble Company
    4,321       20             4,341  
Wells Fargo & Company
    7,856       2,487       (1,484 )     8,859  
Other
    22,293       6,025       (2,000 )     26,318  
    $ 37,056     $ 24,022     $ (3,484 )   $ 57,594  
                                 
Insurance and other
  $ 36,387     $ 22,412     $ (3,479 )   $ 55,320  
Railroad, utilities and energy *
    232       1,576             1,808  
Finance and financial products *
    437       34       (5 )     466  
    $ 37,056     $ 24,022     $ (3,484 )   $ 57,594  
                                 
December 31, 2009
                               
American Express Company
  $ 1,287     $ 4,856     $     $ 6,143  
The Coca-Cola Company
    1,299       10,101             11,400  
The Procter & Gamble Company
    4,962       78             5,040  
Wells Fargo & Company
    7,394       2,721       (1,094 )     9,021  
Other
    22,265       7,118       (1,953 )     27,430  
    $ 37,207     $ 24,874     $ (3,047 )   $ 59,034  
                                 
Insurance and other
  $ 36,538     $ 23,070     $ (3,046 )   $ 56,562  
Railroad, utilities and energy *
    232       1,754             1,986  
Finance and financial products *
    437       50       (1 )     486  
    $ 37,207     $ 24,874     $ (3,047 )   $ 59,034  

*
Included in Other assets.
 
Unrealized losses of other equity investments at September 30, 2010 included $1,587 million related to securities that have been in an unrealized loss position for 12 months or more. Approximately 97% of these losses at September 30, 2010 were concentrated in four issuers. In addition, although our investment in Wells Fargo & Company is in a net unrealized gain position of $1,003 million, certain of the shares with aggregate unrealized losses of $920 million have been in an unrealized loss position for greater than 12 months. We use no bright-line test in determining whether impairments are temporary or other than temporary. We consider several factors in determining other-than-temporary impairment losses including the current and expected long-term business prospects of the issuer, the length of time and relative magnitude of the price decline and our ability and intent to hold the investment until the price recovers. In our judgment, the future earnings potential and underlying business economics of these companies are favorable and we possess the ability and intent to hold these securities until their prices recover. Changes in market conditions and other facts and circumstances may change the business prospects of these issuers as well as our ability and intent to hold these securities until the prices recover.
 
 
9

 
Notes To Consolidated Financial Statements (Continued)
 
 
A summary of other investments follows (in millions).
 
   
Cost
   
Unrealized
Gains
   
Fair
Value
   
Carrying
Value
 
September 30, 2010
                       
Fixed maturity securities
  $ 5,400     $ 1,230     $ 6,630     $ 5,400  
Equity securities
    15,689       4,315       20,004       20,004  
    $ 21,089     $ 5,545     $ 26,634     $ 25,404  
                                 
Insurance and other
  $ 18,347     $ 5,220     $ 23,567     $ 22,351  
Finance and financial products
    2,742       325       3,067       3,053  
    $ 21,089     $ 5,545     $ 26,634     $ 25,404  
                                 
December 31, 2009
                               
Fixed maturity and equity securities
  $ 21,089     $ 5,879     $ 26,968     $ 26,014  
Equity method
    5,851       1,721       7,572       6,586  
    $ 26,940     $ 7,600     $ 34,540     $ 32,600  
                                 
Insurance and other
  $ 24,198     $ 7,172     $ 31,370     $ 29,440  
Finance and financial products
    2,742       428       3,170       3,160  
    $ 26,940     $ 7,600     $ 34,540     $ 32,600  
 
Fixed maturity and equity investments in the preceding table include our investments in The Goldman Sachs Group, Inc. (“GS”) and The General Electric Company (“GE”) that we made in 2008 and investments in Swiss Reinsurance Company Ltd. (“Swiss Re”) and The Dow Chemical Company (“Dow”) that we made in 2009. In addition, fixed maturity and equity investments include investments in Wm. Wrigley Jr. Company (“Wrigley”) that we made in both 2008 and 2009. Additional information regarding these investments follows.
 
We own 50,000 shares of 10% Cumulative Perpetual Preferred Stock of GS (“GS Preferred”) and Warrants to purchase 43,478,260 shares of common stock of GS (“GS Warrants”) which were acquired for a combined cost of $5 billion. The GS Preferred may be redeemed at any time by GS at a price of $110,000 per share ($5.5 billion in aggregate). The GS Warrants expire in 2013 and can be exercised for an additional aggregate cost of $5 billion ($115/share). We also own 30,000 shares of 10% Cumulative Perpetual Preferred Stock of GE (“GE Preferred”) and Warrants to purchase 134,831,460 shares of common stock of GE (“GE Warrants”) which were acquired for a combined cost of $3 billion. The GE Preferred may be redeemed by GE beginning in October 2011 at a price of $110,000 per share ($3.3 billion in aggregate). The GE Warrants expire in 2013 and can be exercised for an additional aggregate cost of $3 billion ($22.25/share).
 
We own $4.4 billion par amount of 11.45% subordinated notes due in 2018 of Wrigley and $2.1 billion of 5% preferred stock of Wrigley that we acquired in 2008. During 2009, we also acquired $1.0 billion par amount of Wrigley senior notes due in 2013 and 2014. The Wrigley subordinated and senior notes are classified as held-to-maturity and accordingly we are carrying these investments at cost.
 
In 2009, we acquired a 12% convertible perpetual capital instrument issued by Swiss Re at a cost of $2.7 billion. The instrument has a face amount of 3 billion Swiss Francs (“CHF”) and has no maturity or mandatory redemption date but can be redeemed under certain conditions at the option of Swiss Re at 140% of the face amount until March 23, 2011 and thereafter at 120% of the face amount. The instrument possesses no voting rights and is subordinated to senior securities of Swiss Re as defined in the agreement. Beginning on March 23, 2012, the instrument can be converted at our option into 120,000,000 common shares of Swiss Re (a rate of 25 CHF per share of Swiss Re common stock). On November 3, 2010, we entered into an agreement with Swiss Re providing for the redemption of the capital instrument in exchange for aggregate consideration of approximately 3.9 billion CHF to be paid in installments of 180 million CHF on November 25, 2010 and approximately 3.7 billion CHF on January 10, 2011.
 
 
10

 
Notes To Consolidated Financial Statements (Continued)
 
Note 6.    Other Investments (Continued)
 
In 2009, we acquired 3,000,000 shares of Series A Cumulative Convertible Perpetual Preferred Stock of Dow (“Dow Preferred”) for a cost of $3 billion.  Under certain conditions, each share of the Dow Preferred is convertible into 24.201 shares of Dow common stock. Beginning in April 2014, if Dow’s common stock price exceeds $53.72 per share for any 20 trading days in a consecutive 30-day window, Dow, at its option, at any time, in whole or in part, may convert the Dow Preferred into Dow common stock at the then applicable conversion rate. The Dow Preferred is entitled to dividends at a rate of 8.5% per annum.
 
As of December 31, 2009, we owned 22.5% of BNSF’s outstanding common stock. As of December 31, 2009, our equity in net assets of BNSF was $2,884 million and the excess of our carrying value over our equity in net assets of BNSF was $3,702 million. Prior to February 12, 2010, we accounted for our investment in BNSF pursuant to the equity method.  Upon completion of the acquisition of the remaining outstanding shares of BNSF, we discontinued the use of the equity method.  See Note 3.
 
 
Investment gains/losses are summarized below (in millions).
 
   
Third Quarter
   
First Nine Months
 
   
2010
   
2009
   
2010
   
2009
 
Fixed maturity securities —
                       
Gross gains from sales and other disposals
  $ 19     $ 44     $ 587     $ 216  
Gross losses from sales and other disposals
    (9 )     (8 )     (12 )     (17 )
Equity securities —
                               
Gross gains from sales and other disposals
    522       94       857       189  
Gross losses from sales
    (76 )     (7 )     (265 )     (566 )
Other *
    17       (13 )     1,007       (79 )
    $ 473     $ 110     $ 2,174     $ (257 )
 
Net investment gains/losses are reflected in the Consolidated Statements of Earnings as follows.
 
Insurance and other *
  $ 473     $ 123     $ 2,169     $ (214 )
Finance and financial products
          (13 )     5       (43 )
    $ 473     $ 110     $ 2,174     $ (257 )

*
The first nine months of 2010 includes a one-time holding gain of $979 million related to the BNSF acquisition.  See Note 3.
 
 
Receivables of insurance and other businesses are comprised of the following (in millions).
 
   
September 30,
   
December 31,
 
   
2010
   
2009
 
Insurance premiums receivable
  $ 6,953     $ 5,295  
Reinsurance recoverable on unpaid losses
    2,974       2,922  
Trade and other receivables
    8,559       6,977  
Allowances for uncollectible accounts
    (407 )     (402 )
    $ 18,079     $ 14,792  
 
Loans and finance receivables of finance and financial products businesses are comprised of the following (in millions).
 
   
September 30,
   
December 31,
 
   
2010
   
2009
 
Consumer installment loans and finance receivables
  $ 14,141     $ 12,779  
Commercial loans and finance receivables
    1,635       1,558  
Allowances for uncollectible loans
    (370 )     (348 )
    $ 15,406     $ 13,989  
 
 
11

 
Notes To Consolidated Financial Statements (Continued)
 
 
Inventories are comprised of the following (in millions).
 
   
September 30,
   
December 31,
 
   
2010
   
2009
 
Raw materials
  $ 1,043     $ 924  
Work in process and other
    518       438  
Finished manufactured goods
    2,099       1,959  
Purchased goods
    3,264       2,826  
    $ 6,924     $ 6,147  
                 
 
A reconciliation of the change in the carrying value of goodwill is as follows (in millions).
             
   
September 30,
   
December 31,
 
   
2010
   
2009
 
Balance at beginning of year
  $ 33,972     $ 33,781  
Acquisition of BNSF
    14,803        
Other 
    421       191  
Ending balance
  $ 49,196     $ 33,972  
 
 
Property, plant and equipment of insurance and other businesses is comprised of the following (in millions).
 
   
Ranges of
estimated useful life
   
September 30,
2010
   
December 31,
2009
 
Land
      $ 751     $ 740  
Buildings and improvements
 
3 – 40  years
      4,704       4,606  
Machinery and equipment
 
3 – 25  years
      11,105       10,845  
Furniture, fixtures and other
 
3 – 20  years
      1,625       1,595  
Assets held for lease
 
12 – 30  years
      5,772       5,706  
              23,957       23,492  
Accumulated depreciation
            (8,561 )     (7,772 )
            $ 15,396     $ 15,720  
 
Depreciation expense of insurance and other businesses for the first nine months of 2010 and 2009 was $1,145 million and $1,218 million, respectively.
 
Property, plant and equipment of railroad, utilities and energy businesses is comprised of the following (in millions).
 
   
Ranges of
estimated useful life
   
September 30,
2010
   
December 31,
2009
 
Railroad:
                 
Land
      $ 5,901     $  
Track structure and other roadway
 
5 – 100  years
      35,113        
Locomotives, freight cars and other equipment
 
1 – 37  years
      4,090        
Construction in progress
        631        
                         
Utilities and Energy:
                       
Utility generation, distribution and transmission system
 
5 – 85 years
      36,322       35,616  
Interstate pipeline assets
 
3 – 67 years
      5,880       5,809  
Independent power plants and other assets
 
3 – 30 years
      1,095       1,157  
Construction in progress
        2,233       2,152  
              91,265       44,734  
Accumulated depreciation
            (14,637 )     (13,798 )
            $ 76,628     $ 30,936  
 
 
12

 
Notes To Consolidated Financial Statements (Continued)
 
Note 11.    Property, plant and equipment (Continued)
 
Railroad property, plant and equipment includes the land, other roadway, track structure and rolling stock (primarily locomotives and freight cars) of BNSF, which we acquired on February 12, 2010. See Note 3. The cost of these assets includes the fair value adjustments made through the application of ASC 805 as of the acquisition date. Through BNSF Railway Company, BNSF operates one of the largest railroad systems in North America with approximately 32,000 route miles of track in 28 states and two Canadian provinces.
 
Railroad property, plant and equipment is depreciated and amortized on a straight-line basis over the estimated useful lives. Depreciation is determined under the group method in which a single depreciation rate is applied to the gross investment in a particular class of property. BNSF conducts studies of depreciation rates and the required accumulated depreciation balance as required by the Surface Transportation Board, which is generally every three years for equipment property and every six years for track structure and other roadway property. The effect of changes in the estimated service lives of these assets is recorded on a prospective basis. Upon normal sale or retirement of most depreciable railroad property, no gain or loss is recognized. The disposals of land and non-rail property as well as significant premature retirements are recorded as gains or losses at the time of their occurrence.
 
The utility generation, distribution and transmission system and interstate pipeline assets are the regulated assets of public utility and natural gas pipeline subsidiaries. At September 30, 2010 and December 31, 2009, accumulated depreciation and amortization related to regulated assets was approximately $13.6 billion and $13.3 billion, respectively. Substantially all of the construction in progress at September 30, 2010 and December 31, 2009 related to the construction of regulated assets.
 
Depreciation expense of the railroad, utilities and energy businesses for the first nine months of 2010 and 2009 was $1,810 million and $925 million, respectively.
 
 
Derivative contracts are used primarily by our finance and financial products businesses and our railroad, utilities and energy businesses. As of September 30, 2010, substantially all of the derivative contracts in-force of our finance and financial products businesses are not designated as hedges for financial reporting purposes. These contracts were initially entered into with the expectation that the premiums received would exceed the amounts ultimately paid to counterparties. Changes in the fair values of such contracts are reported in earnings as derivative gains/losses. A summary of derivative contracts of our finance and financial products businesses follows (in millions).
   
September 30, 2010
   
December 31, 2009
 
   
Assets  (3)
   
Liabilities
   
Notional
Value
   
Assets (3)
   
Liabilities
   
Notional
Value
 
Equity index put options
  $     $ 9,628     $ 38,211 (1)   $     $ 7,309     $ 37,990 (1)
Credit default obligations:
                                               
High yield indexes
          317       4,985 (2)           781       5,533 (2)
States/municipalities
          820       16,042 (2)           853       16,042 (2)
Individual corporate
    72             3,565 (2)     81             3,565 (2)
Other
    345       325               378       360          
Counterparty netting and funds held as collateral
    (102 )     (38 )             (193 )     (34 )        
    $ 315     $ 11,052             $ 266     $ 9,269          

(1)
Represents the aggregate undiscounted amount payable at the contract expiration dates assuming that the value of each index is zero at the contract expiration date. Variations in notional value during 2010 are attributable to changes in foreign currency exchange rates. There were no new contracts written in 2010.
 
(2)
Represents the maximum undiscounted future value of losses payable under the contracts. The number of losses required to exhaust contract limits under substantially all of the contracts is dependent on the loss recovery rate related to the specific obligor at the time of a default.
 
(3)
Included in Other assets of finance and financial products businesses.
 
 
13

 
Notes To Consolidated Financial Statements (Continued)
 
Note 12.    Derivative contracts (Continued)
 
A summary of derivative gains/losses of our finance and financial products businesses included in the Consolidated Statements of Earnings are as follows (in millions).
 
    Third Quarter     First Nine Months  
   
2010
   
2009
   
2010
   
2009
 
Equity index put options
  $ (700 )   $ 220     $ (2,319 )   $ 2,010  
Credit default obligations
    519       1,443       407       483  
Other
    35       69       1       79  
    $ (146 )   $ 1,732     $ (1,911 )   $ 2,572  
 
The equity index put option contracts are European style options written on four major equity indexes. Future payments, if any, under these contracts will be required if the underlying index value is below the strike price at the contract expiration dates which occur between June 2018 and January 2028. We received the premiums on these contracts in full at the contract inception dates and therefore we have no counterparty credit risk.
 
At September 30, 2010, the aggregate intrinsic value (the undiscounted liability assuming the contracts are settled on their future expiration dates based on the September 30, 2010 index values and foreign currency exchange rates) was approximately $5.8 billion. However, these contracts may not be terminated or fully settled before the expiration dates and therefore the ultimate amount of cash basis gains or losses on these contracts will not be determined for many years. The remaining weighted average life of all contracts was approximately 10.7 years at September 30, 2010.
 
Our credit default contracts pertain to various indexes of non-investment grade (or “high yield”) corporate issuers, state/municipal debt issuers and individual corporate issuers. These contracts cover the loss in value of specified debt obligations of the issuers arising from default events, which are usually for non-payment or bankruptcy. Loss amounts are subject to contract limits.
 
The high yield index contracts are comprised of specified North American corporate issuers (usually 100 in number at inception) whose obligations are rated below investment grade. High yield contracts remaining in-force at September 30, 2010 expire from 2010 through 2013. State and municipality contracts are comprised of over 500 state and municipality issuers and had a weighted average contract life at September 30, 2010 of approximately 10.3 years. Potential obligations related to approximately 50% of the notional value of the state and municipality contracts cannot be settled before the maturity dates of the underlying obligations, which range from 2019 to 2054.
 
Premiums on the high yield index and state/municipality contracts are received in full at the inception dates of the contracts and, as a result, we have no counterparty credit risk. Our payment obligations under certain of these contracts are on a first loss basis. Losses under other contracts are subject to aggregate deductibles that must be satisfied before we have any payment obligations.
 
Individual corporate credit default contracts primarily relate to issuers of investment grade obligations. In most instances, premiums are due from counterparties on a quarterly basis over the terms of the contracts. As of September 30, 2010, all of the remaining in-force individual corporate issuer contracts expire in 2013.
 
With limited exceptions, our equity index put option and credit default contracts contain no collateral posting requirements with respect to changes in either the fair value or intrinsic value of the contracts and/or a downgrade of Berkshire’s credit ratings. As of September 30, 2010, our collateral posting requirement under contracts with collateral provisions was $69 million compared to about $35 million at December 31, 2009. As of September 30, 2010, had Berkshire’s credit ratings (currently AA+ from Standard & Poor’s and Aa2 from Moody’s) been downgraded below either A- by Standard & Poor’s or A3 by Moody’s an additional $1.1 billion would have been required to be posted as collateral.
 
Our railroad and regulated utility subsidiaries are exposed to variations in the market prices in the purchases and sales of natural gas and electricity and in commodity fuel costs. Derivative instruments, including forward purchases and sales, futures, swaps and options, are used to manage these price risks. Unrealized gains and losses under these contracts that are probable of recovery through rates are recorded as a regulatory net asset or liability. Unrealized gains or losses on contracts accounted for as cash flow or fair value hedges are recorded in accumulated other comprehensive income or in net earnings, as appropriate. Derivative contract assets included in other assets of railroad, utilities and energy businesses were $250 million and $188 million as of September 30, 2010 and December 31, 2009, respectively. Derivative contract liabilities included in accounts payable, accruals and other liabilities of railroad, utilities and energy businesses were $694 million as of September 30, 2010 and $581 million as of December 31, 2009.
 
 
14

 
Notes To Consolidated Financial Statements (Continued)
 
 
A summary of supplemental cash flow information for the first nine months of 2010 and 2009 is presented in the following table (in millions).
 
   
First Nine Months
 
   
2010
   
2009
 
Cash paid during the period for:
           
Income taxes
  $ 3,030     $ 1,861  
Interest of insurance and other businesses
    146       106  
Interest of railroad, utilities and energy businesses
    1,255       850  
Interest of finance and financial products businesses
    543       462  
                 
Non-cash investing and financing activities:
               
Liabilities assumed in connection with acquisition of BNSF
    30,968        
Common stock issued in connection with acquisition of BNSF
    10,577        
 
 
Notes payable and other borrowings are summarized below (in millions). The average interest rates shown in the following tables are the weighted average interest rates on outstanding debt as of September 30, 2010.
 
   
Average
Interest Rate
   
September 30,
2010
   
December 31,
2009
 
Insurance and other:
                 
Issued by Berkshire parent company due 2010-2047
  1.5%     $ 8,353     $ 340  
Short-term subsidiary borrowings
  0.3%       1,364       1,607  
Other subsidiary borrowings due 2010-2036
  5.2%       2,434       2,614  
          $ 12,151     $ 4,561  
 
In February 2010, Berkshire issued $8.0 billion aggregate par amount of senior unsecured notes consisting of $2.0 billion par amount of floating rate notes due in 2011; $1.1 billion par amount of floating rate notes due in 2012; $1.2 billion par amount of floating rate notes due in 2013; $600 million par amount of 1.4% notes due in 2012; $1.4 billion par amount of 2.125% notes due in 2013; and $1.7 billion par amount of 3.2% notes due in 2015. These notes were issued in connection with the BNSF acquisition.
 
   
Average
Interest Rate
   
September 30,
2010
   
December 31,
2009
 
Railroad, utilities and energy:
                 
Issued by MidAmerican Energy Holdings Company (“MidAmerican”) and its subsidiaries: