Stock-Based Compensation

Predecessor

On April 15, 1999, BNSF shareholders approved the Burlington Northern Santa Fe 1999 Stock Incentive Plan and authorized 20 million shares of BNSF common stock to be issued in connection with stock options, restricted stock, restricted stock units and performance stock. On April 18, 2001, April 17, 2002, April 21, 2004 and April 19, 2006, BNSF shareholders approved the amendments to the Burlington Northern Santa Fe 1999 Stock Incentive Plan, which authorized additional awards of 9 million, 6 million, 7 million and 11 million shares, respectively, of BNSF common stock to be issued in connection with stock options, restricted stock, restricted stock units and performance stock. Additionally, on April 18, 1996, BNSF shareholders approved the non-employee directors’ stock plan and authorized 900 thousand shares of BNSF common stock to be issued in connection with this plan.

No further grants of BNSF stock will be made under the BNSF stock-based compensation plans.

Under BNSF’s Predecessor stock plans, options were granted to directors, officers and salaried employees of BNSF Railway at the fair market value of BNSF’s common stock on the date of grant. Stock option grants generally vest ratably over three years and expire within ten years after the date of grant. Shares issued upon exercise of options were issued from treasury shares or from authorized but unissued shares.

Successor

Following the Merger, each outstanding stock option or share award of BNSF common stock was converted into an option or restricted stock unit of Berkshire Class B Common Stock, in accordance with a formula to convert such awards.

Additionally, following the Merger, the Berkshire Hathaway Inc. 2010 Umbrella Plan for BNSF Equity Plans became effective, authorizing approximately 16 million shares of Berkshire Class B Common Stock to be issued in connection with the conversion of BNSF stock options, restricted stock units and performance stock. Included in this amount is approximately 300 thousand shares for certain outstanding option awards that provide for a reload feature if the eligible employee pays all or a portion of the purchase price with Berkshire stock. In that event, the employee is issued new options to purchase additional shares of Berkshire Class B Common Stock equal to the number of shares of stock surrendered in such payment. Approximately 215 thousand shares of Berkshire Class B Common Stock were available for future reload grants at December 31, 2011.

Stock Options

The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model. The following assumptions apply to the options granted for the periods presented:



	Successor						Predecessor
	Year Ended			February 13 – December 31, 2010			January 1 – February 12, 2010	Year Ended
	December 31, 2011			February 13 – December 31, 2010			January 1 – February 12, 2010	December 31, 2009
Weighted average expected life (years)	1.1			2.4			N/A	4.8
Weighted average expected volatility	26.00		%	26.00		%	N/A	29.60		%
Weighted average expected dividend yield	—		%	—		%	N/A	1.96		%
Weighted average risk free interest rate	0.23		%	0.73		%	N/A	2.15		%
Weighted average fair value per share at date of grant	$	8.08		$	13.29		N/A	$	15.09

Expected volatilities are based on historical volatility of Berkshire (Successor) and BNSF (Predecessor), implied volatilities from traded options and other factors. The Company uses historical experience with exercise and post-vesting employment termination behavior to determine the options’ expected life. The expected life represents the period of time that options granted are expected to be outstanding. The risk-free rate is based on the U.S. Treasury rate with a maturity date corresponding to the options’ expected life.

A summary of the status of stock options is presented below (options in thousands, aggregate intrinsic value in millions):



Successor	Options		Weighted Average Exercise Prices		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Balance at December 31, 2010	11,003		$	54.28	5.51	$	285
Granted	5		76.35
Exercised	(1,391	)	42.48
Cancelled	(46	)	54.70
Balance at December 31, 2011	9,571		$	56.00	4.86	$	200
Options exercisable at December 31, 2011	8,657		$	56.78	4.60	$	175

The total intrinsic value of options exercised was $55 million, $71 million, $33 million and $87 million during the year ended December 31, 2011 (Successor), the periods February 13 – December 31, 2010 (Successor) and January 1 – February 12, 2010 (Predecessor), and the year ended December 31, 2009 (Predecessor), respectively.

Other Incentive Programs

BNSF had other long-term incentive programs that utilized restricted shares/units. A summary of the status of restricted shares/units and the weighted average grant date fair values is presented below (shares in thousands):



Successor	Time Based				Performance Based Units				Performance Stock				Total
Balance at December 31, 2010	175		$	76.90	1,114		$	76.90	552		$	76.90	1,841		$	76.90
Granted	—		—		—		—		—		—		—		—
Vested	(70	)	76.90		(435	)	76.90		—		—		(505	)	76.90
Forfeited	(4	)	76.90		(23	)	76.90		(221	)	76.90		(248	)	76.90
Balance at December 31, 2011	101		$	76.90	656		$	76.90	331		$	76.90	1,088		$	76.90

A summary of the weighted average grant date fair market values of the restricted share/units as of, and for the year ended December 31, 2009 (Predecessor), is presented below. There were no grants made in 2010.



Grant Date Fair Market Value of Awards Granted	Time Based		Performance Based Units		Performance Stock
Year ended December 31, 2009	$	66.67	$	64.97	$	59.75

A summary of the fair value of the restricted share/units vested during the year ended December 31, 2011 (Successor), the periods February 13 – December 31, 2010 (Successor) and January 1 – February 12, 2010 (Predecessor), and the year ended December 31, 2009 (Predecessor), respectively, is presented below:



Total Fair Value of Shares Vested (in millions)	Time Based		Performance Based Units		Performance Stock		Total
Year Ended December 31, 2011	$	6	$	36	$	—	$	42
February 13 – December 31, 2010 (Successor)	$	15	$	2	$	—	$	17
January 1 – February 12, 2010 (Predecessor)	$	—	$	—	$	—	$	—
Year Ended December 31, 2009	$	15	$	14	$	4	$	33

Time-based awards were granted to senior managers within BNSF Railway primarily as a retention tool and to encourage ownership in BNSF. They generally vest over three years, although in some cases up to five years, and are contingent on continued salaried employment.

Performance-based units were granted to senior managers within BNSF Railway to encourage ownership in BNSF and to align management’s interest with those of its shareholders. Performance-based units generally vest over three years and are contingent on the achievement of certain predetermined corporate performance goals (e.g., return on invested capital (ROIC)) and continued salaried employment.

Additionally, eligible employees could earn performance stock contingent upon achievement of higher ROIC goals and continued salaried employment.

Shares awarded under each of the plans may not be sold or used as collateral and are generally not transferable by the holder until the shares awarded become free of restrictions. Compensation cost, net of tax, recorded under the various stock incentive plans is shown in the following table (in millions):



	Successor						Predecessor
	Year Ended			February 13 –December 31, 2010			January 1 – February 12, 2010			Year Ended
	December 31, 2011			February 13 –December 31, 2010			January 1 – February 12, 2010			December 31, 2009
Compensation cost	$	64		$	114		$	8		$	41
Income tax benefit	(24		)	(40		)	(3		)	(15		)
Total	$	40		$	74		$	5		$	26
Compensation cost capitalized	$	4		$	4		$	—		$	6

Subsequent to the completion of the Merger, the Company immediately recognized $32 million of expense related to the excess fair value of the converted vested awards at the Merger date.

At December 31, 2011, there was $20 million of total unrecognized compensation cost related to unvested share-based compensation arrangements. Substantially all of the cost is expected to be recognized in 2012.