UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SeptemberJune 30, 20222023
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
1.300% Senior Notes due 2024 0.000% Senior Notes due 2025 1.125% Senior Notes due 2027 2.150% Senior Notes due 2028 1.500% Senior Notes due 2030 2.000% Senior Notes due 2034 1.625% Senior Notes due 2035 2.375% Senior Notes due 2039 0.500% Senior Notes due 2041 2.625% Senior Notes due 2059 | BRK.A BRK.B
BRK24 BRK25 BRK27 BRK28 BRK30 BRK34 BRK35 BRK39 BRK41 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 OctoberJuly 26, 2022:2023:
Class A — |
|
Class B — |
|
BERKSHIRE HATHAWAY INC.
Page No. | ||
| ||
| ||
Consolidated Balance Sheets— |
| |
4 | ||
5 | ||
6 | ||
Consolidated Statements of Cash Flows—First | 7 | |
| ||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
Item 3. |
| |
Item 4. |
| |
| ||
Item 1. |
| |
Item 1A. |
| |
Item 2. |
| |
Item 3. |
| |
Item 4. |
| |
Item 5. |
| |
Item 6. |
| |
|
1
Part I Financial Information
Item 1. Financial Statements
BERKSHIRE HATHAWAY INC.
and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(dollars in millions)
| September 30, |
|
| December 31, |
| June 30, |
|
| December 31, |
| ||||
| (Unaudited) |
|
|
| (Unaudited) |
|
|
| ||||||
ASSETS |
|
|
|
|
|
|
|
| ||||||
Insurance and Other: |
|
|
|
|
|
|
|
| ||||||
Cash and cash equivalents* | $ | 28,869 |
|
| $ | 85,319 |
| $ | 44,611 |
|
| $ | 32,260 |
|
Short-term investments in U.S. Treasury Bills |
| 76,332 |
|
|
| 58,535 |
|
| 97,322 |
|
|
| 92,774 |
|
Investments in fixed maturity securities |
| 18,602 |
|
|
| 16,434 |
|
| 22,353 |
|
|
| 25,128 |
|
Investments in equity securities |
| 306,167 |
|
|
| 350,719 |
|
| 353,409 |
|
|
| 308,793 |
|
Equity method investments |
| 28,714 |
|
|
| 17,375 |
|
| 27,493 |
|
|
| 28,050 |
|
Loans and finance receivables |
| 22,094 |
|
|
| 20,751 |
|
| 23,530 |
|
|
| 23,208 |
|
Other receivables |
| 40,383 |
|
|
| 35,388 |
|
| 45,590 |
|
|
| 43,490 |
|
Inventories |
| 25,102 |
|
|
| 20,954 |
|
| 25,295 |
|
|
| 25,366 |
|
Property, plant and equipment |
| 20,378 |
|
|
| 20,834 |
|
| 21,413 |
|
|
| 21,113 |
|
Equipment held for lease |
| 15,139 |
|
|
| 14,918 |
|
| 16,028 |
|
|
| 15,584 |
|
Goodwill |
| 46,822 |
|
|
| 47,117 |
|
| 50,982 |
|
|
| 51,522 |
|
Other intangible assets |
| 27,738 |
|
|
| 28,486 |
|
| 29,819 |
|
|
| 29,187 |
|
Deferred charges - retroactive reinsurance |
| 9,990 |
|
|
| 10,639 |
|
| 9,454 |
|
|
| 9,870 |
|
Other |
| 16,753 |
|
|
| 15,854 |
|
| 19,917 |
|
|
| 19,657 |
|
|
| 683,083 |
|
|
| 743,323 |
|
| 787,216 |
|
|
| 726,002 |
|
Railroad, Utilities and Energy: |
|
|
|
|
|
|
|
| ||||||
Cash and cash equivalents* |
| 3,757 |
|
|
| 2,865 |
|
| 5,444 |
|
|
| 3,551 |
|
Receivables |
| 4,985 |
|
|
| 4,177 |
|
| 6,067 |
|
|
| 4,795 |
|
Property, plant and equipment |
| 157,472 |
|
|
| 155,530 |
|
| 171,747 |
|
|
| 160,268 |
|
Goodwill |
| 26,513 |
|
|
| 26,758 |
|
| 34,871 |
|
|
| 26,597 |
|
Regulatory assets |
| 4,750 |
|
|
| 3,963 |
|
| 5,452 |
|
|
| 5,062 |
|
Other |
| 21,736 |
|
|
| 22,168 |
|
| 30,776 |
|
|
| 22,190 |
|
|
| 219,213 |
|
|
| 215,461 |
|
| 254,357 |
|
|
| 222,463 |
|
| $ | 902,296 |
|
| $ | 958,784 |
| $ | 1,041,573 |
|
| $ | 948,465 |
|
——————
* Includes U.S. Treasury Bills with maturities of three months or less when purchased of $1.924.5 billion at SeptemberJune 30, 20222023 and $61.72.6 billion at December 31, 2021.2022.
See accompanying Notes to Consolidated Financial Statements
2
BERKSHIRE HATHAWAY INC.
and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(dollars in millions)
| September 30, |
|
| December 31, |
| June 30, |
|
| December 31, |
| ||||
| (Unaudited) |
|
|
| (Unaudited) |
|
|
| ||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
| ||||||
Insurance and Other: |
|
|
|
|
|
|
|
| ||||||
Unpaid losses and loss adjustment expenses | $ | 91,642 |
|
| $ | 86,664 |
| $ | 109,030 |
|
| $ | 107,472 |
|
Unpaid losses and loss adjustment expenses under retroactive reinsurance contracts |
| 36,666 |
|
|
| 38,256 |
| |||||||
Unpaid losses and loss adjustment expenses - retroactive reinsurance contracts |
| 34,421 |
|
|
| 35,415 |
| |||||||
Unearned premiums |
| 26,878 |
|
|
| 23,512 |
|
| 31,173 |
|
|
| 28,657 |
|
Life, annuity and health insurance benefits |
| 22,305 |
|
|
| 22,452 |
|
| 19,635 |
|
|
| 19,753 |
|
Other policyholder liabilities |
| 9,051 |
|
|
| 9,330 |
|
| 10,868 |
|
|
| 11,370 |
|
Accounts payable, accruals and other liabilities |
| 31,100 |
|
|
| 30,376 |
|
| 31,999 |
|
|
| 33,201 |
|
Aircraft repurchase liabilities and unearned lease revenues |
| 6,165 |
|
|
| 5,849 |
|
| 7,375 |
|
|
| 6,820 |
|
Notes payable and other borrowings |
| 41,535 |
|
|
| 39,272 |
|
| 41,389 |
|
|
| 46,538 |
|
|
| 265,342 |
|
|
| 255,711 |
|
| 285,890 |
|
|
| 289,226 |
|
Railroad, Utilities and Energy: |
|
|
|
|
|
|
|
| ||||||
Accounts payable, accruals and other liabilities |
| 16,871 |
|
|
| 15,696 |
|
| 20,234 |
|
|
| 16,615 |
|
Regulatory liabilities |
| 7,220 |
|
|
| 7,214 |
|
| 6,719 |
|
|
| 7,369 |
|
Notes payable and other borrowings |
| 74,961 |
|
|
| 74,990 |
|
| 83,958 |
|
|
| 76,206 |
|
|
| 99,052 |
|
|
| 97,900 |
|
| 110,911 |
|
|
| 100,190 |
|
Income taxes, principally deferred |
| 74,155 |
|
|
| 90,243 |
|
| 93,011 |
|
|
| 77,368 |
|
Total liabilities |
| 438,549 |
|
|
| 443,854 |
|
| 489,812 |
|
|
| 466,784 |
|
Redeemable noncontrolling interests |
| 3,210 |
|
|
| — |
| |||||||
Shareholders’ equity: |
|
|
|
|
|
|
|
| ||||||
Common stock |
| 8 |
|
|
| 8 |
|
| 8 |
|
|
| 8 |
|
Capital in excess of par value |
| 35,190 |
|
|
| 35,592 |
|
| 35,140 |
|
|
| 35,167 |
|
Accumulated other comprehensive income |
| (8,234 | ) |
|
| (4,027 | ) |
| (4,240 | ) |
|
| (5,052 | ) |
Retained earnings |
| 493,438 |
|
|
| 534,421 |
|
| 582,543 |
|
|
| 511,127 |
|
Treasury stock, at cost |
| (64,972 | ) |
|
| (59,795 | ) |
| (73,568 | ) |
|
| (67,826 | ) |
Berkshire Hathaway shareholders’ equity |
| 455,430 |
|
|
| 506,199 |
|
| 539,883 |
|
|
| 473,424 |
|
Noncontrolling interests |
| 8,317 |
|
|
| 8,731 |
|
| 8,668 |
|
|
| 8,257 |
|
Total shareholders’ equity |
| 463,747 |
|
|
| 514,930 |
|
| 548,551 |
|
|
| 481,681 |
|
| $ | 902,296 |
|
| $ | 958,784 |
| $ | 1,041,573 |
|
| $ | 948,465 |
|
See accompanying Notes to Consolidated Financial Statements
3
BERKSHIRE HATHAWAY INC.
and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(dollars in millions except per share amounts)
(Unaudited)
| Third Quarter |
| First Nine Months |
| Second Quarter |
| First Six Months |
| ||||||||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| 2023 |
| 2022 |
| 2023 |
| 2022 |
| ||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Insurance and Other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Insurance premiums earned | $ | 18,810 |
| $ | 17,727 |
| $ | 54,389 |
| $ | 51,314 |
| $ | 20,561 |
| $ | 18,081 |
| $ | 40,357 |
| $ | 35,569 |
|
Sales and service revenues |
| 39,597 |
| 36,722 |
| 117,679 |
| 107,163 |
|
| 39,126 |
| 40,220 |
| 77,514 |
| 78,082 |
| ||||||
Leasing revenues |
| 1,959 |
| 1,565 |
| 5,518 |
| 4,336 |
|
| 2,079 |
| 1,887 |
| 4,123 |
| 3,559 |
| ||||||
Interest, dividend and other investment income |
| 2,378 |
|
| 1,795 |
|
| 7,101 |
|
| 5,544 |
|
| 3,846 |
|
| 2,861 |
|
| 7,075 |
|
| 4,723 |
|
|
| 62,744 |
|
| 57,809 |
|
| 184,687 |
|
| 168,357 |
|
| 65,612 |
|
| 63,049 |
|
| 129,069 |
|
| 121,933 |
|
Railroad, Utilities and Energy: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Freight rail transportation revenues |
| 6,663 |
| 5,761 |
| 19,219 |
| 16,917 |
|
| 5,808 |
| 6,612 |
| 11,809 |
| 12,556 |
| ||||||
Energy operating revenues |
| 6,090 |
| 5,225 |
| 15,843 |
| 14,375 |
| |||||||||||||||
Utility and energy operating revenues |
| 19,593 |
| 4,935 |
| 34,510 |
| 9,753 |
| |||||||||||||||
Service revenues and other income |
| 1,437 |
|
| 1,788 |
|
| 4,175 |
|
| 4,647 |
|
| 1,490 |
|
| 1,605 |
|
| 2,508 |
|
| 2,802 |
|
|
| 14,190 |
|
| 12,774 |
|
| 39,237 |
|
| 35,939 |
|
| 26,891 |
|
| 13,152 |
|
| 48,827 |
|
| 25,111 |
|
Total revenues |
| 76,934 |
|
| 70,583 |
|
| 223,924 |
|
| 204,296 |
|
| 92,503 |
|
| 76,201 |
|
| 177,896 |
|
| 147,044 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Investment and derivative contract gains (losses) |
| (13,465 | ) |
| 4,921 |
|
| (82,362 | ) |
| 38,015 |
|
| 33,061 |
|
| (66,919 | ) |
| 67,819 |
|
| (68,897 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Insurance and Other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Insurance losses and loss adjustment expenses |
| 16,005 |
| 13,939 |
| 42,957 |
| 37,078 |
|
| 14,089 |
| 13,620 |
| 28,310 |
| 26,952 |
| ||||||
Life, annuity and health insurance benefits |
| 1,450 |
| 1,568 |
| 4,055 |
| 4,507 |
|
| 1,128 |
| 1,186 |
| 1,913 |
| 2,523 |
| ||||||
Insurance underwriting expenses |
| 2,506 |
| 3,239 |
| 7,734 |
| 9,318 |
|
| 3,729 |
| 2,377 |
| 7,316 |
| 4,981 |
| ||||||
Cost of sales and services |
| 31,292 |
| 28,984 |
| 92,710 |
| 84,275 |
|
| 30,621 |
| 31,633 |
| 60,940 |
| 61,418 |
| ||||||
Cost of leasing |
| 1,418 |
| 1,116 |
| 4,148 |
| 2,980 |
|
| 1,457 |
| 1,498 |
| 2,934 |
| 2,730 |
| ||||||
Selling, general and administrative expenses |
| 4,068 |
| 4,889 |
| 12,081 |
| 13,844 |
|
| 5,005 |
| 3,762 |
| 10,607 |
| 8,013 |
| ||||||
Interest expense |
| 297 |
|
| 286 |
|
| 863 |
|
| 860 |
|
| 314 |
|
| 302 |
|
| 642 |
|
| 566 |
|
|
| 57,036 |
|
| 54,021 |
|
| 164,548 |
|
| 152,862 |
|
| 56,343 |
|
| 54,378 |
|
| 112,662 |
|
| 107,183 |
|
Railroad, Utilities and Energy: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Freight rail transportation expenses |
| 4,581 |
| 3,527 |
| 12,766 |
| 10,625 |
|
| 4,014 |
| 4,260 |
| 8,175 |
| 8,185 |
| ||||||
Utilities and energy cost of sales and other expenses |
| 4,295 |
| 3,497 |
| 11,730 |
| 10,306 |
|
| 18,159 |
| 3,844 |
| 32,005 |
| 7,435 |
| ||||||
Other expenses |
| 1,320 |
| 1,582 |
| 4,003 |
| 4,238 |
|
| 1,189 |
| 1,527 |
| 2,060 |
| 2,683 |
| ||||||
Interest expense |
| 795 |
|
| 770 |
|
| 2,350 |
|
| 2,322 |
|
| 935 |
|
| 785 |
|
| 1,825 |
|
| 1,555 |
|
|
| 10,991 |
|
| 9,376 |
|
| 30,849 |
|
| 27,491 |
|
| 24,297 |
|
| 10,416 |
|
| 44,065 |
|
| 19,858 |
|
Total costs and expenses |
| 68,027 |
|
| 63,397 |
|
| 195,397 |
|
| 180,353 |
|
| 80,640 |
|
| 64,794 |
|
| 156,727 |
|
| 127,041 |
|
Earnings (loss) before income taxes and equity method earnings |
| (4,558 | ) |
| 12,107 |
| (53,835 | ) |
| 61,958 |
|
| 44,924 |
| (55,512 | ) |
| 88,988 |
| (48,894 | ) | |||
Equity method earnings |
| 441 |
|
| 377 |
|
| 1,048 |
|
| 775 |
|
| 511 |
|
| 204 |
|
| 1,199 |
|
| 543 |
|
Earnings (loss) before income taxes |
| (4,117 | ) |
| 12,484 |
| (52,787 | ) |
| 62,733 |
|
| 45,435 |
| (55,308 | ) |
| 90,187 |
| (48,351 | ) | |||
Income tax expense (benefit) |
| (1,529 | ) |
| 1,840 |
|
| (12,408 | ) |
| 11,824 |
|
| 9,236 |
|
| (12,066 | ) |
| 18,231 |
|
| (10,814 | ) |
Net earnings (loss) |
| (2,588 | ) |
| 10,644 |
| (40,379 | ) |
| 50,909 |
|
| 36,199 |
| (43,242 | ) |
| 71,956 |
| (37,537 | ) | |||
Earnings attributable to noncontrolling interests |
| 100 |
|
| 300 |
|
| 604 |
|
| 760 |
|
| 287 |
|
| 379 |
|
| 540 |
|
| 504 |
|
Net earnings (loss) attributable to Berkshire Hathaway shareholders | $ | (2,688 | ) | $ | 10,344 |
| $ | (40,983 | ) | $ | 50,149 |
| $ | 35,912 |
| $ | (43,621 | ) | $ | 71,416 |
| $ | (38,041 | ) |
Net earnings (loss) per average equivalent Class A share | $ | (1,832 | ) | $ | 6,882 |
| $ | (27,866 | ) | $ | 33,025 |
| $ | 24,775 |
| $ | (29,663 | ) | $ | 49,152 |
| $ | (25,832 | ) |
Net earnings (loss) per average equivalent Class B share* | $ | (1.22 | ) | $ | 4.59 |
| $ | (18.58 | ) | $ | 22.02 |
| $ | 16.52 |
| $ | (19.78 | ) | $ | 32.77 |
| $ | (17.22 | ) |
Average equivalent Class A shares outstanding |
| 1,466,946 |
| 1,503,013 |
| 1,470,714 |
| 1,518,513 |
|
| 1,449,542 |
| 1,470,577 |
| 1,452,971 |
| 1,472,628 |
| ||||||
Average equivalent Class B shares outstanding |
| 2,200,419,462 |
| 2,254,518,838 |
| 2,206,070,294 |
| 2,277,769,582 |
|
| 2,174,313,670 |
| 2,205,865,262 |
| 2,179,456,816 |
| 2,208,942,539 |
|
——————
* Class B shares are economically equivalent to one-fifteen-hundredth of a Class A share. Accordingly, net earnings (loss) per average equivalent Class B share outstanding is equal to one-fifteen-hundredth of the equivalent Class A amount. See Note 17.19.
See accompanying Notes to Consolidated Financial Statements
4
BERKSHIRE HATHAWAY INC.
and Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in millions)
(Unaudited)
|
| Third Quarter |
|
| First Nine Months |
|
| Second Quarter |
|
| First Six Months |
| ||||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||||
Net earnings (loss) |
| $ | (2,588 | ) |
| $ | 10,644 |
|
| $ | (40,379 | ) |
| $ | 50,909 |
|
| $ | 36,199 |
|
| $ | (43,242 | ) |
| $ | 71,956 |
|
| $ | (37,537 | ) |
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Unrealized appreciation of investments |
|
| (527 | ) |
|
| (89 | ) |
|
| (974 | ) |
|
| (164 | ) | ||||||||||||||||
Unrealized gains (losses) on investments |
|
| (41 | ) |
|
| (211 | ) |
|
| 206 |
|
|
| (447 | ) | ||||||||||||||||
Applicable income taxes |
|
| 113 |
|
|
| 20 |
|
|
| 208 |
|
|
| 38 |
|
|
| 21 |
|
|
| 44 |
|
|
| (32 | ) |
|
| 95 |
|
Foreign currency translation |
|
| (1,727 | ) |
|
| (643 | ) |
|
| (3,794 | ) |
|
| (616 | ) |
|
| 383 |
|
|
| (1,750 | ) |
|
| 632 |
|
|
| (2,065 | ) |
Applicable income taxes |
|
| (21 | ) |
|
| 63 |
|
|
| (15 | ) |
|
| 52 |
| ||||||||||||||||
Long-duration insurance contract discount rate changes |
|
| 487 |
|
|
| 2,734 |
|
|
| 120 |
|
|
| 5,812 |
| ||||||||||||||||
Applicable income taxes |
|
| (38 | ) |
|
| 6 |
|
|
| 14 |
|
|
| (8 | ) |
|
| (125 | ) |
|
| (587 | ) |
|
| (49 | ) |
|
| (1,246 | ) |
Defined benefit pension plans |
|
| 29 |
|
|
| 54 |
|
|
| 70 |
|
|
| 158 |
|
|
| 2 |
|
|
| 15 |
|
|
| 52 |
|
|
| 41 |
|
Applicable income taxes |
|
| (7 | ) |
|
| (13 | ) |
|
| (16 | ) |
|
| (42 | ) |
|
| (6 | ) |
|
| (4 | ) |
|
| (12 | ) |
|
| (9 | ) |
Other, net |
|
| 44 |
|
|
| 38 |
|
|
| 199 |
|
|
| 45 |
|
|
| 57 |
|
|
| 68 |
|
|
| (63 | ) |
|
| 155 |
|
Other comprehensive income, net |
|
| (2,113 | ) |
|
| (627 | ) |
|
| (4,293 | ) |
|
| (589 | ) |
|
| 757 |
|
|
| 372 |
|
|
| 839 |
|
|
| 2,388 |
|
Comprehensive income |
|
| (4,701 | ) |
|
| 10,017 |
|
|
| (44,672 | ) |
|
| 50,320 |
|
|
| 36,956 |
|
|
| (42,870 | ) |
|
| 72,795 |
|
|
| (35,149 | ) |
Comprehensive income attributable to noncontrolling interests |
|
| 46 |
|
|
| 288 |
|
|
| 518 |
|
|
| 762 |
|
|
| 308 |
|
|
| 350 |
|
|
| 567 |
|
|
| 472 |
|
Comprehensive income attributable to Berkshire Hathaway shareholders |
| $ | (4,747 | ) |
| $ | 9,729 |
|
| $ | (45,190 | ) |
| $ | 49,558 |
|
| $ | 36,648 |
|
| $ | (43,220 | ) |
| $ | 72,228 |
|
| $ | (35,621 | ) |
See accompanying Notes to Consolidated Financial Statements
5
BERKSHIRE HATHAWAY INC.
and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(dollars in millions)
(Unaudited)
|
| Berkshire Hathaway shareholders’ equity |
|
|
|
|
|
|
|
| Berkshire Hathaway shareholders’ equity |
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
|
| Common stock |
|
| Accumulated |
|
| Retained |
|
| Treasury |
|
| Non- |
|
| Total |
|
| Common stock |
|
| Accumulated |
|
| Retained |
|
| Treasury |
|
| Non- |
|
| Total |
| ||||||||||||
For the third quarter and first nine months of 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
Balance at December 31, 2021 |
| $ | 35,600 |
|
| $ | (4,027 | ) |
| $ | 534,421 |
|
| $ | (59,795 | ) |
| $ | 8,731 |
|
| $ | 514,930 |
| ||||||||||||||||||||||||
For the second quarter and first six months of 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
Balance at December 31, 2022 as previously reported |
| $ | 35,175 |
|
| $ | (6,591 | ) |
| $ | 511,602 |
|
| $ | (67,826 | ) |
| $ | 8,257 |
|
| $ | 480,617 |
| ||||||||||||||||||||||||
Adoption of ASU 2018-12 |
|
| — |
|
|
| 1,539 |
|
|
| (475 | ) |
|
| — |
|
|
| — |
|
|
| 1,064 |
| ||||||||||||||||||||||||
Balance at December 31, 2022 as revised |
|
| 35,175 |
|
|
| (5,052 | ) |
|
| 511,127 |
|
|
| (67,826 | ) |
|
| 8,257 |
|
|
| 481,681 |
| ||||||||||||||||||||||||
Net earnings |
|
| — |
|
|
| — |
|
|
| 5,460 |
|
|
| — |
|
|
| 125 |
|
|
| 5,585 |
|
|
| — |
|
|
| — |
|
|
| 35,504 |
|
|
| — |
|
|
| 253 |
|
|
| 35,757 |
|
Other comprehensive income, net |
|
| — |
|
|
| (401 | ) |
|
| — |
|
|
| — |
|
|
| (3 | ) |
|
| (404 | ) |
|
| — |
|
|
| 76 |
|
|
| — |
|
|
| — |
|
|
| 6 |
|
|
| 82 |
|
Acquisition of common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,111 | ) |
|
| — |
|
|
| (3,111 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4,439 | ) |
|
| — |
|
|
| (4,439 | ) |
Transactions with noncontrolling interests |
|
| (6 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (129 | ) |
|
| (135 | ) | ||||||||||||||||||||||||
Transactions with noncontrolling interests and other |
|
| (11 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7 |
|
|
| (4 | ) | ||||||||||||||||||||||||
Balance at March 31, 2023 |
| $ | 35,164 |
|
| $ | (4,976 | ) |
| $ | 546,631 |
|
| $ | (72,265 | ) |
| $ | 8,523 |
|
| $ | 513,077 |
| ||||||||||||||||||||||||
Net earnings |
|
| — |
|
|
| — |
|
|
| 35,912 |
|
|
| — |
|
|
| 287 |
|
|
| 36,199 |
| ||||||||||||||||||||||||
Other comprehensive income, net |
|
| — |
|
|
| 736 |
|
|
| — |
|
|
| — |
|
|
| 21 |
|
|
| 757 |
| ||||||||||||||||||||||||
Acquisition of common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,303 | ) |
|
| — |
|
|
| (1,303 | ) | ||||||||||||||||||||||||
Transactions with noncontrolling interests and other |
|
| (16 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (163 | ) |
|
| (179 | ) | ||||||||||||||||||||||||
Balance at June 30, 2023 |
| $ | 35,148 |
|
| $ | (4,240 | ) |
| $ | 582,543 |
|
| $ | (73,568 | ) |
| $ | 8,668 |
|
| $ | 548,551 |
| ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
For the second quarter and first six months of 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
Balance at December 31, 2021 as originally reported |
| $ | 35,600 |
|
| $ | (4,027 | ) |
| $ | 534,421 |
|
| $ | (59,795 | ) |
| $ | 8,731 |
|
| $ | 514,930 |
| ||||||||||||||||||||||||
Adoption of ASU 2018-12 |
|
| — |
|
|
| (4,096 | ) |
|
| (535 | ) |
|
| — |
|
|
| — |
|
|
| (4,631 | ) | ||||||||||||||||||||||||
Balance at December 31, 2021 as revised |
|
| 35,600 |
|
|
| (8,123 | ) |
|
| 533,886 |
|
|
| (59,795 | ) |
|
| 8,731 |
|
|
| 510,299 |
| ||||||||||||||||||||||||
Net earnings |
|
| — |
|
|
| — |
|
|
| 5,580 |
|
|
| — |
|
|
| 125 |
|
|
| 5,705 |
| ||||||||||||||||||||||||
Other comprehensive income, net |
|
| — |
|
|
| 2,019 |
|
|
| — |
|
|
| — |
|
|
| (3 | ) |
|
| 2,016 |
| ||||||||||||||||||||||||
Acquisition of common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,111 | ) |
|
| — |
|
|
| (3,111 | ) | ||||||||||||||||||||||||
Transactions with noncontrolling interests and other |
|
| (6 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (129 | ) |
|
| (135 | ) | ||||||||||||||||||||||||
Balance at March 31, 2022 |
| $ | 35,594 |
|
| $ | (4,428 | ) |
| $ | 539,881 |
|
| $ | (62,906 | ) |
| $ | 8,724 |
|
| $ | 516,865 |
|
| $ | 35,594 |
|
| $ | (6,104 | ) |
| $ | 539,466 |
|
| $ | (62,906 | ) |
| $ | 8,724 |
|
| $ | 514,774 |
|
Net earnings (loss) |
|
| — |
|
|
| — |
|
|
| (43,755 | ) |
|
| — |
|
|
| 379 |
|
|
| (43,376 | ) |
|
| — |
|
|
| — |
|
|
| (43,621 | ) |
|
| — |
|
|
| 379 |
|
|
| (43,242 | ) |
Other comprehensive income, net |
|
| — |
|
|
| (1,747 | ) |
|
| — |
|
|
| — |
|
|
| (29 | ) |
|
| (1,776 | ) |
|
| — |
|
|
| 401 |
|
|
| — |
|
|
| — |
|
|
| (29 | ) |
|
| 372 |
|
Acquisition of common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,028 | ) |
|
| — |
|
|
| (1,028 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,028 | ) |
|
| — |
|
|
| (1,028 | ) |
Transactions with noncontrolling interests |
|
| (382 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (650 | ) |
|
| (1,032 | ) | ||||||||||||||||||||||||
Transactions with noncontrolling interests and other |
|
| (382 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (650 | ) |
|
| (1,032 | ) | ||||||||||||||||||||||||
Balance at June 30, 2022 |
| $ | 35,212 |
|
| $ | (6,175 | ) |
| $ | 496,126 |
|
| $ | (63,934 | ) |
| $ | 8,424 |
|
| $ | 469,653 |
|
| $ | 35,212 |
|
| $ | (5,703 | ) |
| $ | 495,845 |
|
| $ | (63,934 | ) |
| $ | 8,424 |
|
| $ | 469,844 |
|
Net earnings (loss) |
|
| — |
|
|
| — |
|
|
| (2,688 | ) |
|
| — |
|
|
| 100 |
|
|
| (2,588 | ) | ||||||||||||||||||||||||
Other comprehensive income, net |
|
| — |
|
|
| (2,059 | ) |
|
| — |
|
|
| — |
|
|
| (54 | ) |
|
| (2,113 | ) | ||||||||||||||||||||||||
Acquisition of common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,038 | ) |
|
| (153 | ) |
|
| (1,191 | ) | ||||||||||||||||||||||||
Transactions with noncontrolling interests |
|
| (14 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
|
| (14 | ) | |||||||||||||||||||||||||
Balance at September 30, 2022 |
| $ | 35,198 |
|
| $ | (8,234 | ) |
| $ | 493,438 |
|
| $ | (64,972 | ) |
| $ | 8,317 |
|
| $ | 463,747 |
| ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
For the third quarter and first nine months of 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
Balance at December 31, 2020 |
| $ | 35,634 |
|
| $ | (4,243 | ) |
| $ | 444,626 |
|
| $ | (32,853 | ) |
| $ | 8,172 |
|
| $ | 451,336 |
| ||||||||||||||||||||||||
Net earnings |
|
| — |
|
|
| — |
|
|
| 11,711 |
|
|
| — |
|
|
| 129 |
|
|
| 11,840 |
| ||||||||||||||||||||||||
Other comprehensive income, net |
|
| — |
|
|
| (327 | ) |
|
| — |
|
|
| — |
|
|
| 7 |
|
|
| (320 | ) | ||||||||||||||||||||||||
Acquisition of common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (6,565 | ) |
|
| — |
|
|
| (6,565 | ) | ||||||||||||||||||||||||
Transactions with noncontrolling interests |
|
| 4 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (119 | ) |
|
| (115 | ) | ||||||||||||||||||||||||
Balance at March 31, 2021 |
| $ | 35,638 |
|
| $ | (4,570 | ) |
| $ | 456,337 |
|
| $ | (39,418 | ) |
| $ | 8,189 |
|
| $ | 456,176 |
| ||||||||||||||||||||||||
Net earnings |
|
| — |
|
|
| — |
|
|
| 28,094 |
|
|
| — |
|
|
| 331 |
|
|
| 28,425 |
| ||||||||||||||||||||||||
Other comprehensive income, net |
|
| — |
|
|
| 351 |
|
|
| — |
|
|
| — |
|
|
| 7 |
|
|
| 358 |
| ||||||||||||||||||||||||
Acquisition of common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (6,028 | ) |
|
| — |
|
|
| (6,028 | ) | ||||||||||||||||||||||||
Transactions with noncontrolling interests |
|
| 5 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (136 | ) |
|
| (131 | ) | ||||||||||||||||||||||||
Balance at June 30, 2021 |
| $ | 35,643 |
|
| $ | (4,219 | ) |
| $ | 484,431 |
|
| $ | (45,446 | ) |
| $ | 8,391 |
|
| $ | 478,800 |
| ||||||||||||||||||||||||
Net earnings |
|
| — |
|
|
| — |
|
|
| 10,344 |
|
|
| — |
|
|
| 300 |
|
|
| 10,644 |
| ||||||||||||||||||||||||
Other comprehensive income, net |
|
| — |
|
|
| (615 | ) |
|
| — |
|
|
| — |
|
|
| (12 | ) |
|
| (627 | ) | ||||||||||||||||||||||||
Acquisition of common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (7,626 | ) |
|
| — |
|
|
| (7,626 | ) | ||||||||||||||||||||||||
Transactions with noncontrolling interests |
|
| (32 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (84 | ) |
|
| (116 | ) | ||||||||||||||||||||||||
Balance at September 30, 2021 |
| $ | 35,611 |
|
| $ | (4,834 | ) |
| $ | 494,775 |
|
| $ | (53,072 | ) |
| $ | 8,595 |
|
| $ | 481,075 |
|
See accompanying Notes to Consolidated Financial Statements
6
BERKSHIRE HATHAWAY INC.
and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
(Unaudited)
|
| First Nine Months |
|
| First Six Months |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net earnings (loss) |
| $ | (40,379 | ) |
| $ | 50,909 |
|
| $ | 71,956 |
|
| $ | (37,537 | ) |
Adjustments to reconcile net earnings (loss) to operating cash flows: |
|
|
|
|
|
| ||||||||||
Adjustments to reconcile net earnings to operating cash flows: |
|
|
|
|
|
| ||||||||||
Investment (gains) losses |
|
| 82,089 |
|
|
| (37,235 | ) |
|
| (67,819 | ) |
|
| 68,589 |
|
Depreciation and amortization |
|
| 8,141 |
|
|
| 8,013 |
|
|
| 6,147 |
|
|
| 5,413 |
|
Other |
|
| (4,935 | ) |
|
| (717 | ) |
|
| (3,126 | ) |
|
| (2,592 | ) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Unpaid losses and loss adjustment expenses |
|
| 4,551 |
|
|
| 4,809 |
|
|
| 275 |
|
|
| 1,505 |
|
Deferred charges - retroactive reinsurance |
|
| 649 |
|
|
| 709 |
|
|
| 416 |
|
|
| 426 |
|
Unearned premiums |
|
| 3,632 |
|
|
| 3,958 |
|
|
| 2,492 |
|
|
| 2,384 |
|
Receivables and originated loans |
|
| (7,527 | ) |
|
| (6,810 | ) |
|
| (1,194 | ) |
|
| (6,455 | ) |
Inventories |
|
| 505 |
|
|
| (4,080 | ) | ||||||||
Other assets |
|
| (5,599 | ) |
|
| (1,558 | ) |
|
| (980 | ) |
|
| (620 | ) |
Other liabilities |
|
| 2,515 |
|
|
| 1,928 |
|
|
| (2,721 | ) |
|
| 1,247 |
|
Income taxes |
|
| (16,114 | ) |
|
| 7,620 |
|
|
| 15,176 |
|
|
| (12,923 | ) |
Net cash flows from operating activities |
|
| 27,023 |
|
|
| 31,626 |
|
|
| 21,127 |
|
|
| 15,357 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Purchases of equity securities |
|
| (66,246 | ) |
|
| (5,004 | ) |
|
| (7,442 | ) |
|
| (57,269 | ) |
Sales of equity securities |
|
| 17,343 |
|
|
| 11,975 |
|
|
| 25,833 |
|
|
| 12,044 |
|
Purchases of U.S. Treasury Bills and fixed maturity securities |
|
| (139,359 | ) |
|
| (106,399 | ) |
|
| (99,060 | ) |
|
| (100,355 | ) |
Sales of U.S. Treasury Bills and fixed maturity securities |
|
| 69,998 |
|
|
| 15,945 |
|
|
| 39,991 |
|
|
| 54,637 |
|
Redemptions and maturities of U.S. Treasury Bills and fixed maturity securities |
|
| 47,512 |
|
|
| 103,294 |
|
|
| 59,815 |
|
|
| 23,681 |
|
Purchases of loans and finance receivables |
|
| (31 | ) |
|
| (70 | ) | ||||||||
Collections of loans and finance receivables |
|
| 332 |
|
|
| 283 |
| ||||||||
Acquisitions of businesses, net of cash acquired |
|
| (183 | ) |
|
| (204 | ) |
|
| (8,516 | ) |
|
| (103 | ) |
Purchases of property, plant and equipment and equipment held for lease |
|
| (10,907 | ) |
|
| (9,244 | ) |
|
| (8,398 | ) |
|
| (6,833 | ) |
Other |
|
| 32 |
|
|
| 1,505 |
|
|
| 513 |
|
|
| 25 |
|
Net cash flows from investing activities |
|
| (81,509 | ) |
|
| 12,081 |
|
|
| 2,736 |
|
|
| (74,173 | ) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Proceeds from borrowings of insurance and other businesses |
|
| 6,981 |
|
|
| 2,952 |
|
|
| 1,225 |
|
|
| 6,972 |
|
Repayments of borrowings of insurance and other businesses |
|
| (1,468 | ) |
|
| (3,010 | ) |
|
| (5,388 | ) |
|
| (1,440 | ) |
Proceeds from borrowings of railroad, utilities and energy businesses |
|
| 3,185 |
|
|
| 2,939 |
|
|
| 2,788 |
|
|
| 3,189 |
|
Repayments of borrowings of railroad, utilities and energy businesses |
|
| (1,791 | ) |
|
| (2,609 | ) |
|
| (2,187 | ) |
|
| (1,374 | ) |
Changes in short term borrowings, net |
|
| (531 | ) |
|
| (689 | ) | ||||||||
Changes in short-term borrowings, net |
|
| 582 |
|
|
| (85 | ) | ||||||||
Acquisition of treasury stock |
|
| (5,246 | ) |
|
| (20,192 | ) |
|
| (5,850 | ) |
|
| (4,191 | ) |
Other |
|
| (1,441 | ) |
|
| (755 | ) | ||||||||
Other, principally transactions with noncontrolling interests |
|
| (803 | ) |
|
| (1,464 | ) | ||||||||
Net cash flows from financing activities |
|
| (311 | ) |
|
| (21,364 | ) |
|
| (9,633 | ) |
|
| 1,607 |
|
Effects of foreign currency exchange rate changes |
|
| (553 | ) |
|
| (98 | ) |
|
| 24 |
|
|
| (273 | ) |
Increase (decrease) in cash and cash equivalents and restricted cash |
|
| (55,350 | ) |
|
| 22,245 |
|
|
| 14,254 |
|
|
| (57,482 | ) |
Cash and cash equivalents and restricted cash at beginning of year* |
|
| 88,706 |
|
|
| 48,396 |
|
|
| 36,399 |
|
|
| 88,706 |
|
Cash and cash equivalents and restricted cash at end of third quarter* |
| $ | 33,356 |
|
| $ | 70,641 |
| ||||||||
Cash and cash equivalents and restricted cash at end of second quarter* |
| $ | 50,653 |
|
| $ | 31,224 |
| ||||||||
*Cash and cash equivalents and restricted cash are comprised of: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Beginning of year— |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Insurance and Other |
| $ | 85,319 |
|
| $ | 44,714 |
|
| $ | 32,260 |
|
| $ | 85,319 |
|
Railroad, Utilities and Energy |
|
| 2,865 |
|
|
| 3,276 |
|
|
| 3,551 |
|
|
| 2,865 |
|
Restricted cash included in other assets |
|
| 522 |
|
|
| 406 |
|
|
| 588 |
|
|
| 522 |
|
|
| $ | 88,706 |
|
| $ | 48,396 |
|
| $ | 36,399 |
|
| $ | 88,706 |
|
End of third quarter— |
|
|
|
|
|
| ||||||||||
End of second quarter— |
|
|
|
|
|
| ||||||||||
Insurance and Other |
| $ | 28,869 |
|
| $ | 65,156 |
|
| $ | 44,611 |
|
| $ | 26,534 |
|
Railroad, Utilities and Energy |
|
| 3,757 |
|
|
| 4,833 |
|
|
| 5,444 |
|
|
| 4,074 |
|
Restricted cash included in other assets |
|
| 730 |
|
|
| 652 |
|
|
| 598 |
|
|
| 616 |
|
|
| $ | 33,356 |
|
| $ | 70,641 |
|
| $ | 50,653 |
|
| $ | 31,224 |
|
See accompanying Notes to Consolidated Financial Statements
7
BERKSHIRE HATHAWAY INC.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20222023
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.
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 ofseveral 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. Given the size of our equity security investment portfolio, changes in market prices and the related changes in unrealized gains and losses on equity securities will produce significant volatility in our interim and annual earnings. In addition, the magnitude of gains and losses from the periodic revaluation of certain assets and liabilities denominated in foreign currencies and asset impairment charges may cause significant variations in periodic net earnings.
To varying degrees, the COVID-19 pandemic continues to affect our operating businesses. Significantbusinesses have been impacted by government and private sector actions have been taken since 2020 to control the spread and mitigate the adverse economic effects of the COVID-19 virus and its variants. Such actions in 2022 included temporary business closures or restrictions of business activities in various parts ofvariants as well as by the world. In addition, significant disruptions of supply chains and higher costs emerged in 2021 and have persisted in 2022. The development of geopolitical conflicts, in 2022 have contributedsupply chain disruptions and government actions to disruptions of supply chains, resulting in cost increases for commodities, goods and services in many parts of the world. In the U.S. and elsewhere, governments are implementing actions intended to slow price inflation. The economic effects from these events over longer terms cannot be reasonably estimated at this time. Accordingly, significant estimates used in the preparation of our financial statements, including those associated with evaluations of certain long-lived assets, goodwill and other intangible assets for impairment, expected credit losses on amounts owed to us and the estimations of certain losses assumed under insurance and reinsurance contracts, may be subject to significant adjustments in future periods.
Note 2. New accounting pronouncements
In August 2018, the Financial Accounting Standards Board issuedWe adopted Accounting Standards Update 2018-12 “Targeted Improvements to the Accounting for Long-Duration Contracts” (“ASU 2018-12”). as of January 1, 2023, which modifies the accounting, reporting and disclosures related to long-duration insurance contracts, including the measurement of our long-duration life, annuity and health benefit liabilities. ASU 2018-12 requires reassessmentwas applied retrospectively to contracts in-force beginning as of cash flow assumptions at least annually and revisionJanuary 1, 2021 (the “transition date”). As of discount rate assumptions each reporting period in valuing policyholder liabilitiesthe transition date, the after-tax impact of long-duration contracts. Under ASU 2018-12, the effects from changes in cash flow assumptions are reflectedwere recorded in retained earnings and the effects fromafter-tax effect of changes in discount rate assumptions were recorded in accumulated other comprehensive income. Our Consolidated Financial Statements for the years ending December 31, 2022 and 2021 and as of the January 1, 2021 transition date were revised for the effects of adopting ASU 2018-12. These effects were included in Part II, Item 5 to our Form 10-Q for the period ending March 31, 2023.
Beginning as of January 1, 2021, the cash flow assumptions used to measure benefit liabilities are reflectedreviewed at least annually, with the effects of assumption changes recorded in earnings. The discount rate assumptions used to measure benefit liabilities are revised each quarterly reporting period with the effects of changes reported in other comprehensive income. Discount rates are based on the prevailing upper-medium grade corporate bond yields (generally single A-rated credit ratings) that reflect the duration characteristics and currency attributes of the liabilities. In measuring benefit liabilities and amortizing capitalized acquisition costs under long-duration insurance contracts, we generally aggregate contracts by issuance year. See Note 16 for disclosures related to our long-duration insurance contracts.
A summary of the impacts of adopting ASU 2018-12 on our periodic payment annuity and life and health insurance benefits liabilities as of the January 1, 2021 transition date follows in millions.
Periodic payment |
|
| Life and health |
|
| Total |
| ||||
Balance at December 31, 2020, as previously reported | $ | 10,974 |
|
| $ | 10,642 |
|
| $ | 21,616 |
|
Reclassifications to other policyholder liabilities |
| (286 | ) |
|
| (929 | ) |
|
| (1,215 | ) |
Balance at December 31, 2020 after reclassifications |
| 10,688 |
|
|
| 9,713 |
|
|
| 20,401 |
|
Change in discount rate assumptions |
| 6,553 |
|
|
| 1,447 |
|
|
| 8,000 |
|
Change in cash flow assumptions |
| (117 | ) |
|
| 552 |
|
|
| 435 |
|
Balance as of January 1, 2021 | $ | 17,124 |
|
| $ | 11,712 |
|
| $ | 28,836 |
|
8
Notes to Consolidated Financial Statements (Continued)
Note 2. New accounting pronouncements (Continued)
The reclassifications to other policyholder liabilities are primarily related to certain liabilities arising under our variable annuity guarantee reinsurance contracts. These liabilities are not classified as life, annuity and health insurance benefits liabilities under ASU 2018-12.
The effects of adopting ASU 2018-12 on our Consolidated Statements of Earnings and Comprehensive Income for the second quarter and first six months of 2022 follows in millions, except per share amounts.
| Second Quarter |
|
| First Six Months |
| ||||||||||||||||||
| Previously reported |
|
| Increase (decrease) |
|
| As revised |
|
| Previously reported |
|
| Increase (decrease) |
|
| As revised |
| ||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Insurance premiums earned | $ | 18,087 |
|
| $ | (6 | ) |
| $ | 18,081 |
|
| $ | 35,579 |
|
| $ | (10 | ) |
| $ | 35,569 |
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Life, annuity and health insurance benefits |
| 1,282 |
|
|
| (96 | ) |
|
| 1,186 |
|
|
| 2,605 |
|
|
| (82 | ) |
|
| 2,523 |
|
Insurance underwriting expenses |
| 2,461 |
|
|
| (84 | ) |
|
| 2,377 |
|
|
| 5,228 |
|
|
| (247 | ) |
|
| 4,981 |
|
Earnings (loss) before income taxes |
| (55,482 | ) |
|
| 174 |
|
|
| (55,308 | ) |
|
| (48,670 | ) |
|
| 319 |
|
|
| (48,351 | ) |
Income tax expense (benefit) |
| (12,106 | ) |
|
| 40 |
|
|
| (12,066 | ) |
|
| (10,879 | ) |
|
| 65 |
|
|
| (10,814 | ) |
Net earnings (loss) |
| (43,376 | ) |
|
| 134 |
|
|
| (43,242 | ) |
|
| (37,791 | ) |
|
| 254 |
|
|
| (37,537 | ) |
Net earnings (loss) attributable to Berkshire Hathaway shareholders | $ | (43,755 | ) |
| $ | 134 |
|
| $ | (43,621 | ) |
| $ | (38,295 | ) |
| $ | 254 |
|
| $ | (38,041 | ) |
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Foreign currency translation |
| (1,751 | ) |
|
| 1 |
|
|
| (1,750 | ) |
|
| (2,067 | ) |
|
| 2 |
|
|
| (2,065 | ) |
Long-duration insurance contracts |
| — |
|
|
| 2,147 |
|
|
| 2,147 |
|
|
| — |
|
|
| 4,566 |
|
|
| 4,566 |
|
Other comprehensive income, net |
| (1,776 | ) |
|
| 2,148 |
|
|
| 372 |
|
|
| (2,180 | ) |
|
| 4,568 |
|
|
| 2,388 |
|
Comprehensive income attributable to Berkshire Hathaway shareholders | $ | (45,502 | ) |
| $ | 2,282 |
|
| $ | (43,220 | ) |
| $ | (40,443 | ) |
| $ | 4,822 |
|
| $ | (35,621 | ) |
Net earnings (loss) per average equivalent Class A share | $ | (29,754 | ) |
| $ | 91 |
|
| $ | (29,663 | ) |
| $ | (26,005 | ) |
| $ | 173 |
|
| $ | (25,832 | ) |
Net earnings (loss) per average equivalent Class B share | $ | (19.84 | ) |
| $ | 0.06 |
|
| $ | (19.78 | ) |
| $ | (17.34 | ) |
| $ | 0.12 |
|
| $ | (17.22 | ) |
In March 2023, the FASB issued Accounting Standards Update 2023-02, “Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method” (“ASU 2023-02”). ASU 2023-02 permits reporting entities to elect to account for tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. Currently, the cash flow and discount rate assumptions are set at the contract inception date and not subsequently changed, except underproportional amortization method is limited circumstances.to certain affordable housing tax credit investments. ASU 2018-12 is to be applied retrospectively to the earliest period presented in the financial statements, will require new disclosures and2023-02 is effective for fiscal years beginning after December 15, 2022, with early adoption permitted.
We will adopt ASU 2018-12 as of January 1, 2023, using the modifiedand is applied either on a retrospective method, whereby revised cash flow and discount rate assumptions as of January 1, 2021 (the transition date) are applied to contracts then in-force, with liabilities then remeasured, with the cumulative effect from discount rate changes (based on changes in prevailing interest rates) recorded in accumulated other comprehensive income and the cumulative effect from cash flow assumption changes in retained earnings. While we have not finalized our assessment and continue to evaluate the impact of the adoptionbasis beginning as of the transition date,earliest period presented or a modified retrospective basis in the period of adoption. We are evaluating the effects of this standard on our Consolidated Financial Statements.
Note 3. Significant business acquisitions
Our long-held acquisition strategy is to acquire businesses that have consistent earning power, good returns on equity and able and honest management. Financial results attributable to business acquisitions are included in our Consolidated Financial Statements beginning on their respective acquisition dates.
On January 31, 2023, we believeacquired an additional 41.4% interest in Pilot Travel Centers, LLC (“Pilot”) for approximately $8.2 billion. We previously owned a 38.6% interest in Pilot and accounted for that investment under the equity method. We now possess a controlling interest in Pilot for financial reporting purposes. We applied the equity method through the end of January 2023 and began consolidating Pilot’s financial statements in our Consolidated Financial Statements on February 1, 2023.
Pilot is headquartered in Knoxville, Tennessee and operates travel centers in North America (primarily under the names Pilot or Flying J) with more than 650 travel center locations across 43 U.S. states and six Canadian provinces. Pilot also has over 150 retail locations in the U.S. and Canada where it sells diesel fuel through various arrangements with third party travel centers. Among its business activities, Pilot operates large wholesale fuel and fuel marketing platforms in the U.S. and operates a water hauling and disposal business in the oil fields sector. As Pilot’s most significant business activities involve purchasing and selling fuel (energy) on a wholesale and retail basis, and engaging in other energy-related business activities, including oil field services, we have included Pilot within the railroad, utilities and energy sections of our Consolidated Balance Sheet and Consolidated Statement of Earnings beginning February 1, 2023.
9
Notes to Consolidated Financial Statements (Continued)
Note 3. Significant business acquisitions (Continued)
Pilot’s revenues and net earnings attributable to Berkshire shareholders included in Berkshire’s Consolidated Financial Statements for the five months ending June 30, 2023 were $24.3 billion and $197 million, respectively. Our equity method earnings from Pilot for the month of January 2023 were $105 million. In applying the acquisition method of accounting, we were required to remeasure our previously held 38.6% investment in Pilot to fair value. In the first quarter of 2023, we recognized a one-time, non-cash remeasurement gain of approximately $3.0 billion, representing the excess of the fair value of that interest over the carrying value under the equity method, as a component of investment gains (losses).
The holder of the remaining noncontrolling interest in Pilot has the option to require us to redeem for cash, all or a portion of the interest beginning in 2024. The cash consideration will be based on Pilot’s future earnings, cash and debt. We have concluded that the changes in discount rate assumptions will initially haveremaining Pilot noncontrolling interest represents a greater effect on our recordedredeemable interest under GAAP and are presenting such interests between liabilities than changes in cash flow assumptions. We preliminarily estimate the cumulative effect of adopting ASU 2018-12 will reduce our consolidatedand shareholders’ equity fromin the amount previously reportedConsolidated Balance Sheet. We valued the noncontrolling interest at fair value as of the acquisition date. Thereafter, we will increase or decrease the redeemable noncontrolling interest by approximately $the share of the earnings or losses attributable to the interest and will further adjust the balance, as appropriate, if the current estimated redemption value exceeds the carrying value.
6.5 billionThe preliminary values of Pilot’s assets acquired, liabilities assumed and redeemable noncontrolling interests as of January 1, 2021, with that reduction declining to approximately $4.7 billion31, 2023 are summarized as follows (in millions). The valuations of certain assets and liabilities, including property, plant and equipment, other intangible assets and goodwill, as of December 31, 2021. While wethe acquisition date have not determinedbeen finalized and are provisional.
| Pilot |
| |
Property, plant and equipment | $ | 8,082 |
|
Goodwill and other intangible assets |
| 13,309 |
|
Other assets |
| 6,994 |
|
Assets acquired | $ | 28,385 |
|
Notes payable | $ | 5,876 |
|
Other liabilities |
| 4,774 |
|
Liabilities assumed |
| 10,650 |
|
Noncontrolling interests, predominantly redeemable |
| 3,370 |
|
Net assets | $ | 14,365 |
|
On October 19, 2022, Berkshire acquired all of the effectoutstanding common stock of adopting ASU 2018-12Alleghany Corporation (“Alleghany”) for $11.5 billion. Alleghany operates a group of property and casualty reinsurance and insurance businesses. It also owns a portfolio of non-financial businesses. Goodwill arising from Berkshire’s acquisition is not expected to be deductible for income tax purposes. A summary of the values of the Alleghany assets acquired and liabilities assumed as of SeptemberOctober 19, 2022 follows (in millions).
| Alleghany |
| |
Cash, cash equivalents and U.S. Treasury Bills | $ | 3,762 |
|
Investments in fixed maturity and equity securities |
| 15,982 |
|
Loans and other receivables |
| 5,650 |
|
Goodwill |
| 3,900 |
|
Other intangible assets |
| 2,659 |
|
Other assets |
| 3,637 |
|
Assets acquired | $ | 35,590 |
|
Unpaid losses and loss adjustment expenses | $ | 15,080 |
|
Unearned premiums |
| 3,536 |
|
Notes payable |
| 2,169 |
|
Other liabilities |
| 3,300 |
|
Liabilities assumed |
| 24,085 |
|
Net assets | $ | 11,505 |
|
Certain unaudited pro forma revenue and consolidated earnings (loss) data for the six months ended June 30, 2022 we currently expectas if the cumulative reduction to our consolidated shareholders’ equity has declined significantly since December 31, 2021, basedAlleghany and Pilot acquisitions were consummated on the interest rate increases in 2022.same terms at the beginning of 2022 follows (in millions, except per share amounts).
| June 30, 2022 |
| |
Revenues | $ | 188,855 |
|
Net earnings (loss) attributable to Berkshire Hathaway shareholders |
| (38,169 | ) |
Net earnings (loss) per equivalent Class A common share |
| (25,919 | ) |
8
10
Notes to Consolidated Financial Statements (Continued)
Note 3.4. Investments in fixed maturity securities
Investments in fixed maturity securities as of SeptemberJune 30, 20222023 and December 31, 20212022 are summarized by type below (in millions).
|
| Amortized |
|
| Unrealized |
|
| Unrealized |
|
| Fair |
|
| Amortized |
|
| Unrealized |
|
| Unrealized |
|
| Fair |
| ||||||||
September 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
June 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
U.S. Treasury, U.S. government corporations and agencies |
| $ | 9,039 |
|
| $ | 4 |
|
| $ | (268 | ) |
| $ | 8,775 |
|
| $ | 9,242 |
|
| $ | 2 |
|
| $ | (192 | ) |
| $ | 9,052 |
|
Foreign governments |
|
| 8,701 |
|
|
| 9 |
|
|
| (205 | ) |
|
| 8,505 |
|
|
| 11,571 |
|
|
| 70 |
|
|
| (160 | ) |
|
| 11,481 |
|
Corporate bonds |
|
| 830 |
|
|
| 205 |
|
|
| (6 | ) |
|
| 1,029 |
|
|
| 1,333 |
|
|
| 228 |
|
|
| (7 | ) |
|
| 1,554 |
|
Other |
|
| 275 |
|
|
| 22 |
|
|
| (4 | ) |
|
| 293 |
|
|
| 250 |
|
|
| 20 |
|
|
| (4 | ) |
|
| 266 |
|
|
| $ | 18,845 |
|
| $ | 240 |
|
| $ | (483 | ) |
| $ | 18,602 |
|
| $ | 22,396 |
|
| $ | 320 |
|
| $ | (363 | ) |
| $ | 22,353 |
|
December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
U.S. Treasury, U.S. government corporations and agencies |
| $ | 3,286 |
|
| $ | 22 |
|
| $ | (5 | ) |
| $ | 3,303 |
|
| $ | 10,039 |
|
| $ | 12 |
|
| $ | (249 | ) |
| $ | 9,802 |
|
Foreign governments |
|
| 10,998 |
|
|
| 29 |
|
|
| (33 | ) |
|
| 10,994 |
|
|
| 10,454 |
|
|
| 50 |
|
|
| (177 | ) |
|
| 10,327 |
|
Corporate bonds |
|
| 1,363 |
|
|
| 412 |
|
|
| (1 | ) |
|
| 1,774 |
|
|
| 1,945 |
|
|
| 256 |
|
|
| (6 | ) |
|
| 2,195 |
|
Other |
|
| 317 |
|
|
| 47 |
|
|
| (1 | ) |
|
| 363 |
|
|
| 2,735 |
|
|
| 77 |
|
|
| (8 | ) |
|
| 2,804 |
|
|
| $ | 15,964 |
|
| $ | 510 |
|
| $ | (40 | ) |
| $ | 16,434 |
|
| $ | 25,173 |
|
| $ | 395 |
|
| $ | (440 | ) |
| $ | 25,128 |
|
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 SeptemberJune 30, 2022,2023, the fair value of investments in U.S. Treasury securities that mature in 2023 and 2024 was approximately $8.3 billion. As of June 30, 2023, approximately 9394% 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 SeptemberJune 30, 20222023 are summarized below by contractual maturity dates. Amounts are in millions. Actual maturities may differ from contractual maturities due to prepayment rights held by issuers.
|
| Due in one |
|
| Due after one year through |
|
| Due after five years through |
|
| Due after |
|
| Mortgage- |
|
| Total |
|
| Due in one |
|
| Due after one |
|
| Due after five |
|
| Due after |
|
| Mortgage- |
|
| Total |
| ||||||||||||
Amortized cost |
| $ | 7,904 |
|
| $ | 10,201 |
|
| $ | 460 |
|
| $ | 82 |
|
| $ | 198 |
|
| $ | 18,845 |
|
| $ | 15,632 |
|
| $ | 5,748 |
|
| $ | 708 |
|
| $ | 136 |
|
| $ | 172 |
|
| $ | 22,396 |
|
Fair value |
|
| 7,753 |
|
|
| 9,895 |
|
|
| 654 |
|
|
| 85 |
|
|
| 215 |
|
|
| 18,602 |
|
|
| 15,452 |
|
|
| 5,654 |
|
|
| 916 |
|
|
| 145 |
|
|
| 186 |
|
|
| 22,353 |
|
Note 4.5. Investments in equity securities
Investments in equity securities as of SeptemberJune 30, 20222023 and December 31, 20212022 are summarized as follows (in millions).
|
| Cost Basis |
|
| Net Unrealized Gains |
|
| Fair Value |
|
| Cost Basis |
|
| Net Unrealized |
|
| Fair Value |
| ||||||
September 30, 2022* |
|
|
|
|
|
|
|
|
| |||||||||||||||
June 30, 2023* |
|
|
|
|
|
|
|
|
| |||||||||||||||
Banks, insurance and finance |
| $ | 32,148 |
|
| $ | 36,817 |
|
| $ | 68,965 |
|
| $ | 23,547 |
|
| $ | 43,056 |
|
| $ | 66,603 |
|
Consumer products |
|
| 41,106 |
|
|
| 116,615 |
|
|
| 157,721 |
|
|
| 36,550 |
|
|
| 169,760 |
|
|
| 206,310 |
|
Commercial, industrial and other |
|
| 69,056 |
|
|
| 10,425 |
|
|
| 79,481 |
|
|
| 55,560 |
|
|
| 24,936 |
|
|
| 80,496 |
|
|
| $ | 142,310 |
|
| $ | 163,857 |
|
| $ | 306,167 |
|
| $ | 115,657 |
|
| $ | 237,752 |
|
| $ | 353,409 |
|
——————
* Approximately 7378% of the aggregate fair value was concentrated in five companies (American Express Company – $20.526.4 billion; Apple Inc. – $126.5177.6 billion; Bank of America Corporation – $31.229.6 billion; The Coca-Cola Company – $22.424.1 billion and Chevron Corporation – $24.419.4 billion).
|
| Cost Basis |
|
| Net Unrealized Gains |
|
| Fair Value |
|
| Cost Basis |
|
| Net Unrealized |
|
| Fair Value |
| ||||||
December 31, 2021* |
|
|
|
|
|
|
|
|
| |||||||||||||||
December 31, 2022* |
|
|
|
|
|
|
|
|
| |||||||||||||||
Banks, insurance and finance |
| $ | 26,822 |
|
| $ | 62,236 |
|
| $ | 89,058 |
|
| $ | 25,893 |
|
| $ | 43,663 |
|
| $ | 69,556 |
|
Consumer products |
|
| 36,076 |
|
|
| 154,945 |
|
|
| 191,021 |
|
|
| 40,508 |
|
|
| 112,384 |
|
|
| 152,892 |
|
Commercial, industrial and other |
|
| 41,707 |
|
|
| 28,933 |
|
|
| 70,640 |
|
|
| 65,209 |
|
|
| 21,136 |
|
|
| 86,345 |
|
|
| $ | 104,605 |
|
| $ | 246,114 |
|
| $ | 350,719 |
|
| $ | 131,610 |
|
| $ | 177,183 |
|
| $ | 308,793 |
|
——————
* Approximately 7375% of the aggregate fair value was concentrated in fourfive companies (American Express Company – $24.822.4 billion; Apple Inc. – $161.2119.0 billion; Bank of America Corporation – $46.034.2 billion andbillion; The Coca-Cola Company – $23.725.4 billion and Chevron Corporation – $30.0 billion).
911
Notes to Consolidated Financial Statements (Continued)
Note 4.5. Investments in equity securities (Continued)
During 2022, we began to acquire common stock of Occidental Petroleum Corporation (“Occidental”). Our aggregate voting interest in Occidental exceeded 20% on August 4, 2022 and we adopted the equity method as of that date. See Note 6. We report our investments in Occidental Cumulative Perpetual Preferred Stock and Occidental common stock warrants at fair value as equity securities in our Consolidated Balance Sheets, as such interests are not in-substance common stock under GAAP and are not eligible for the equity method.
The Occidental preferred stock accrues dividends at 8% per annum and is redeemable at the option of Occidental commencing in 2029 at a redemption price equal to 105% of the liquidation value, plus any accumulated and unpaid dividends. As of SeptemberJune 30, 2022,2023, our investment in Occidental preferred stock had an aggregate liquidation value of approximately $8.8 billion. During the first six months of 2023, Occidental issued mandatory redemption notifications at a price of 110% of the liquidation value, plus accrued and unpaid dividends for $1.2 billion of the aggregate liquidation value. The mandatory redemptions were due to excess distributions by Occidental to its common stockholders (as defined under the terms of Occidental preferred stock certificate of designations).
Our investment in Occidental warrants allows us to purchase up to 83.86 million shares of Occidental common stock at an exercise price of $59.62 per share. The warrants are exercisable in whole or in part until one year after the date the preferred stock is fully redeemed.
On June 30, 2023, we owned 151.6 million shares of American Express Company (“American Express”) common stock representing 20.320.6% of the American Express outstanding common stock. Since 1995, we have been party to an agreement with American Express whereby we agreed to vote a significant portion of our shares in accordance with the recommendations of the American Express Board of Directors and weDirectors. We have also agreed to passivity commitments as requested by the Board of Governors of the Federal Reserve System, which collectively, in our judgment, restrict our ability to exercise significant influence over the operating and financial policies of American Express. Accordingly, we havedo not applieduse the equity method of accountingwith respect to our investment in American Express common stock and we continue to record our investment at fair value.
During the first six months of 2022, we acquired approximately 17% of the outstanding common stock of Occidental Petroleum Corporation (“Occidental”) and in the third quarter of 2022, we acquired additional shares such that our aggregate voting interest exceeded 20% on August 4, 2022. We adopted the equity method with respect to our investment in Occidental common stock as of that date and included this investment in equity method investments at September 30, 2022. See Note 5. We continue to report our investments in Occidental Cumulative Perpetual Preferred Stock and Occidental common stock warrants at fair value as equity securities, as such interests are not in-substance common stock under GAAP and are not eligible for the equity method.
Our investment in Occidental preferred stock has an aggregate liquidation value of $10 billion and our investment in Occidental warrants allows us to purchase up to 83.86 million shares of Occidental common stock at an exercise price of $59.62 per share. The preferred stock accrues dividends at 8% per annum and is redeemable at the option of Occidental commencing in 2029 at a redemption price equal to 105% of the liquidation preference, plus any accumulated and unpaid dividends and is mandatorily redeemable under specified events. The warrants are exercisable in whole or in part until one year after the redemption of the preferred stock.
Note 5.6. 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 are our investments in the common stock of The Kraft Heinz Company (“Kraft Heinz”) and asOccidental. As of August 4, 2022, Occidental. We ownJune 30, 2023, we owned 26.5% of the outstanding Kraft Heinz common stock and we own 20.925.1% of the outstanding Occidental common stock, which excludes the potential effect of the exercise of the Occidental common stock warrants. See Note 4.
Kraft Heinz manufactures and markets food and beverage products, including condiments and sauces, cheese and dairy, meals, meats, refreshment beverages, coffee and other grocery products. Occidental is an international energy company, includingwhose activities include oil and natural gas exploration, development and production and chemicals manufacturing businesses. Occidental’s midstream businesses purchase, market, gather, process, transport and store various oil, natural gas, carbon dioxide and other products. We anticipate Occidental’s financial information willis not be available in time for concurrent reporting in our consolidated financial statements.Consolidated Financial Statements. Therefore, we will report the equity method effects for Occidental on a one-quarter lag. Our earnings in the fourth quarter of 2022 will include our equity method share of Occidental's third quarter earnings.
The common stock of Kraft Heinz and Occidental are publicly traded. The fair values and our carrying values of these two investments in addition to the carrying values of our other significant equity method investments are summarized as follows (in millions). We evaluated our investmentinvestments in Kraft Heinz and Occidental for other-than-temporary impairment as of SeptemberJune 30, 2022. Based2023, and based on the prevailing facts and circumstances, we concluded the recognition of an impairment losscharge in earnings was not required.
| Carrying Value |
|
| Fair Value |
| ||||||||||
| June 30, |
|
| December 31, |
|
| June 30, |
|
| December 31, |
| ||||
Kraft Heinz | $ | 13,199 |
|
| $ | 12,937 |
|
| $ | 11,553 |
|
| $ | 13,249 |
|
Occidental |
| 13,861 |
|
|
| 11,484 |
|
|
| 13,179 |
|
|
| 12,242 |
|
Other |
| 433 |
|
|
| 3,629 |
|
|
|
|
|
|
| ||
| $ | 27,493 |
|
| $ | 28,050 |
|
|
|
|
|
|
|
| Carrying Value |
|
| Fair Value |
| ||||||||||
| September 30, 2022 |
|
| December 31, 2021 |
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||||
Kraft Heinz | $ | 12,769 |
|
| $ | 13,112 |
|
| $ | 10,853 |
|
| $ | 11,683 |
|
Occidental |
| 11,180 |
|
|
| — |
|
|
| 11,943 |
|
|
| — |
|
Other |
| 4,765 |
|
|
| 4,263 |
|
|
|
|
|
|
| ||
| $ | 28,714 |
|
| $ | 17,375 |
|
|
|
|
|
|
|
1012
Notes to Consolidated Financial Statements (Continued)
Note 5.6. Equity method investments(Continued)
Our earnings and distributions received fromother significant equity method investments are summarized in the table below (in millions).
| Equity in Earnings |
|
| Distributions Received |
| ||||||||||||||||||||||||||
| Third Quarter |
|
| First Nine Months |
|
| Third Quarter |
|
| First Nine Months |
| ||||||||||||||||||||
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||
Kraft Heinz | $ | 114 |
|
| $ | 194 |
|
| $ | 391 |
|
| $ | 337 |
|
| $ | 131 |
|
| $ | 131 |
|
| $ | 391 |
|
| $ | 391 |
|
Occidental |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Other |
| 327 |
|
|
| 183 |
|
|
| 657 |
|
|
| 438 |
|
|
| 94 |
|
|
| 55 |
|
|
| 231 |
|
|
| 1,037 |
|
| $ | 441 |
|
| $ | 377 |
|
| $ | 1,048 |
|
| $ | 775 |
|
| $ | 225 |
|
| $ | 186 |
|
| $ | 622 |
|
| $ | 1,428 |
|
As previously indicated,included Pilot through January 31, 2023. Beginning February 1, 2023, we will reportceased accounting for Pilot under the equity method effectsand began consolidating Pilot for Occidental on a one-quarter lag.financial reporting purposes. Our equity method share of Occidental's earnings will be reportedinvestment in our earnings beginning in the fourth quarter of 2022. Distributions from other investees in the first nine months of 2021 included a special distribution of $849 million from Pilot Travel Centers (“Pilot”).
Summarized consolidated financial information of Kraft Heinz follows (in millions).
| September 24, |
|
| December 25, |
| ||
Assets | $ | 89,992 |
|
| $ | 93,394 |
|
Liabilities |
| 41,649 |
|
|
| 43,942 |
|
| Third Quarter |
|
| First Nine Months |
| ||||||||||
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Sales | $ | 6,505 |
|
| $ | 6,324 |
|
| $ | 19,104 |
|
| $ | 19,333 |
|
Net earnings attributable to Kraft Heinz common shareholders |
| 432 |
|
|
| 733 |
|
|
| 1,473 |
|
|
| 1,269 |
|
Summarized consolidated financial information of Occidental follows (in millions).
| June 30, |
|
| December 31, |
| ||
Assets | $ | 74,221 |
|
| $ | 75,036 |
|
Liabilities |
| 46,391 |
|
|
| 54,709 |
|
| Second Quarter |
|
| First Six Months |
| ||||||||||
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Total revenues and other income | $ | 10,735 |
|
| $ | 6,010 |
|
| $ | 19,268 |
|
| $ | 11,489 |
|
Net earnings (loss) attributable to Occidental common shareholders |
| 3,555 |
|
|
| (97 | ) |
|
| 8,231 |
|
|
| (443 | ) |
Other investments that we account for pursuant tounder the equity method includewas $3.2 billion at December 31, 2022. Other significant equity method investments also included our 50% interest in Berkadia Commercial Mortgage LLC (“Berkadia”), Pilot, Electric Transmission Texas, LLC (“ETT”) and Iroquois Gas Transmission System L.P. (“Iroquois”). 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 provides capital solutions, investment sales advisory and mortgage servicing for multifamily and commercial real estate. Berkadia’s commercial paper borrowing capacity (currently limited to $1.5 billion) 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. Berkshire Hathaway Energy (“BHE”) subsidiaries own 50% noncontrolling interests in ETT, an owner and operator of electric transmission assets in Texas, and Iroquois, an owner and operator of natural gas pipeline assets in New York and Connecticut.
We ownThe carrying values of our investments in Kraft Heinz and Berkadia approximate our share of the net equity of each of these entities. The carrying value of our investment in Occidental common stock exceeded our share of its shareholders’ equity as of March 31, 2023 by approximately $9 billion. Based upon the limited information available to us, we concluded the excess represents goodwill.
Our earnings and distributions received from equity method investments are summarized in the following table (in millions). As previously indicated, we are reporting the equity method effects for Occidental on a 38.6% interestone-quarter lag. Thus, the earnings we recorded in Pilot, headquartered in Knoxville, Tennessee. Pilot operates travel centers in North America through more than 800 retail locations across 44 U.S. states2023 related to Occidental’s earnings for the fourth quarter of 2022 andsix Canadian provinces and is a leading supplier of fuel to third parties. We have an agreement to acquire an additional 41.4% interest in Pilot in the first quarter of 2023. Equity method earnings attributable to Pilot were $105 million for the month ending January 31, 2023, $95 million for a value to be determined, based upon Pilot's adjusted earnings inthe second quarter of 2022 and its net debt at December 31,$202 million for the first six months of 2022. As a result, Berkshire will become the majority owner
| Equity in Earnings |
|
| Distributions Received |
| ||||||||||||||||||||||||||
| Second Quarter |
|
| First Six Months |
|
| Second Quarter |
|
| First Six Months |
| ||||||||||||||||||||
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||||
Kraft Heinz | $ | 265 |
|
| $ | 71 |
|
| $ | 487 |
|
| $ | 277 |
|
| $ | 130 |
|
| $ | 130 |
|
| $ | 260 |
|
| $ | 260 |
|
Occidental |
| 234 |
|
|
| — |
|
|
| 604 |
|
|
| — |
|
|
| 36 |
|
|
| — |
|
|
| 61 |
|
|
| — |
|
Other |
| 12 |
|
|
| 133 |
|
|
| 108 |
|
|
| 266 |
|
|
| 21 |
|
|
| 88 |
|
|
| 21 |
|
|
| 90 |
|
| $ | 511 |
|
| $ | 204 |
|
| $ | 1,199 |
|
| $ | 543 |
|
| $ | 187 |
|
| $ | 218 |
|
| $ | 342 |
|
| $ | 350 |
|
Summarized consolidated financial information of Pilot at that time.Kraft Heinz follows (in millions).
| July 1, |
|
| December 31, |
| ||
Assets | $ | 90,956 |
|
| $ | 90,513 |
|
Liabilities |
| 40,942 |
|
|
| 41,643 |
|
| Second Quarter |
|
| First Six Months |
| ||||||||||
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Sales | $ | 6,721 |
|
| $ | 6,554 |
|
| $ | 13,210 |
|
| $ | 12,599 |
|
Net earnings attributable to Kraft Heinz common shareholders |
| 1,000 |
|
|
| 265 |
|
|
| 1,836 |
|
|
| 1,041 |
|
11
Summarized consolidated financial information of Occidental follows (in millions).
| March 31, |
|
| December 31, |
| ||
Assets | $ | 71,600 |
|
| $ | 72,609 |
|
Liabilities |
| 42,041 |
|
|
| 42,524 |
|
| Quarter ending |
|
| Six months ending |
| ||
Total revenues and other income | $ | 7,258 |
|
| $ | 15,584 |
|
Net earnings attributable to Occidental common shareholders |
| 983 |
|
|
| 2,710 |
|
13
Notes to Consolidated Financial Statements (Continued)
Note 6.7. Investment and derivative contract gains/lossesgains (losses)
Investment and derivative contract gains/lossesgains (losses) in the thirdsecond quarter and first ninesix months of 20222023 and 20212022 are summarized as follows (in millions).
|
| Third Quarter |
|
| First Nine Months |
|
| Second Quarter |
|
| First Six Months |
| ||||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||||
Investment gains (losses): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Equity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Change in unrealized investment gains (losses) during the period on |
| $ | (12,902 | ) |
| $ | 4,759 |
|
| $ | (80,496 | ) |
| $ | 36,163 |
|
| $ | 33,046 |
|
| $ | (66,860 | ) |
| $ | 63,763 |
|
| $ | (68,548 | ) |
Investment gains (losses) on securities sold during the period |
|
| (165 | ) |
|
| 75 |
|
|
| (1,085 | ) |
|
| 889 |
| ||||||||||||||||
Investment gains on securities sold during the period |
|
| 31 |
|
|
| 32 |
|
|
| 1,001 |
|
|
| 34 |
| ||||||||||||||||
|
|
| (13,067 | ) |
|
| 4,834 |
|
|
| (81,581 | ) |
|
| 37,052 |
|
|
| 33,077 |
|
|
| (66,828 | ) |
|
| 64,764 |
|
|
| (68,514 | ) |
Fixed maturity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Gross realized gains |
|
| 6 |
|
|
| 24 |
|
|
| 18 |
|
|
| 59 |
|
|
| 8 |
|
|
| 6 |
|
|
| 132 |
|
|
| 12 |
|
Gross realized losses |
|
| (433 | ) |
|
| (7 | ) |
|
| (509 | ) |
|
| (20 | ) |
|
| (25 | ) |
|
| (27 | ) |
|
| (77 | ) |
|
| (76 | ) |
Other |
|
| (6 | ) |
|
| — |
|
|
| (17 | ) |
|
| 144 |
|
|
| 1 |
|
|
| (5 | ) |
|
| 3,000 |
|
|
| (11 | ) |
Investment gains (losses) |
|
| (13,500 | ) |
|
| 4,851 |
|
|
| (82,089 | ) |
|
| 37,235 |
|
|
| 33,061 |
|
|
| (66,854 | ) |
|
| 67,819 |
|
|
| (68,589 | ) |
Derivative contract gains (losses) |
|
| 35 |
|
|
| 70 |
|
|
| (273 | ) |
|
| 780 |
|
|
| — |
|
|
| (65 | ) |
|
| — |
|
|
| (308 | ) |
|
| $ | (13,465 | ) |
| $ | 4,921 |
|
| $ | (82,362 | ) |
| $ | 38,015 |
|
| $ | 33,061 |
|
| $ | (66,919 | ) |
| $ | 67,819 |
|
| $ | (68,897 | ) |
Equity securities gains and losses include unrealized gains and losses from changes in fair values during the period on equity securities we still own, as well as gains and losses on securities we sold during the period. As reflected in the Consolidated Statements of Cash Flows, we received proceeds from sales of equity securities of approximately $17.325.8 billion in the first ninesix months of 20222023 and $12.0 billion in the first ninesix months of 2021.2022. In the preceding table, investment gains and losses on equity securities sold during the period represent the difference between the sales proceeds and the fair value of the equity securities sold at the beginning of the applicable period or, if later, the purchase date. Taxable gains/gains and losses on equity securities sold are generally the difference between the proceeds from sales and original cost. Equity securities sold produced taxable gains of $32.4 millionbillion in the thirdsecond quarter and taxable losses of $6604.6 millionbillion in the first ninesix months of 20222023 compared to taxable gains of $94176 million in the thirdsecond quarter of 2022 and taxable losses of $2.9663 billionmillion in the first ninesix months of 2021.
Our derivative contract2022. Other investment gains and losses derivein the first six months of 2023 included approximately $3 billion from equity index put option contracts. Asthe remeasurement of September 30, 2022, we had four open contracts, which had an aggregate fair value liabilityour pre-existing 38.6% interest in Pilot through the application of less than $1 million and an aggregate notional value of $1.6 billion.acquisition accounting under GAAP.
12
Notes to Consolidated Financial Statements (Continued)
Note 7.8. Loans and finance receivables
Loans and finance receivables are summarized as follows (in millions).
| September 30, |
|
| December 31, |
| June 30, |
|
| December 31, |
| ||||
Loans and finance receivables before allowances and discounts | $ | 23,442 |
|
| $ | 22,065 |
| $ | 25,064 |
|
| $ | 24,664 |
|
Allowances for credit losses |
| (785 | ) |
|
| (765 | ) |
| (912 | ) |
|
| (856 | ) |
Unamortized acquisition discounts and points |
| (563 | ) |
|
| (549 | ) |
| (622 | ) |
|
| (600 | ) |
| $ | 22,094 |
|
| $ | 20,751 |
| $ | 23,530 |
|
| $ | 23,208 |
|
Loans and finance receivables are principally manufactured home loans, and to a lesser extent, site-built homecommercial loans and commercialsite-built home loans. Reconciliations of the allowance for credit losses on loans and finance receivables for the first ninesix months of 20222023 and 20212022 follow (in millions).
| First Six Months |
| |||||
| 2023 |
|
| 2022 |
| ||
Balance at beginning of year | $ | 856 |
|
| $ | 765 |
|
Provision for credit losses |
| 90 |
|
|
| 50 |
|
Charge-offs, net of recoveries |
| (34 | ) |
|
| (12 | ) |
Balance at June 30 | $ | 912 |
|
| $ | 803 |
|
14
| First Nine Months |
| |||||
| 2022 |
|
| 2021 |
| ||
Balance at beginning of year | $ | 765 |
|
| $ | 712 |
|
Provision for credit losses |
| 45 |
|
|
| 65 |
|
Charge-offs, net of recoveries |
| (25 | ) |
|
| (33 | ) |
Balance at September 30 | $ | 785 |
|
| $ | 744 |
|
Notes to Consolidated Financial Statements (Continued)
Note 8. Loans and finance receivables (Continued)
As of SeptemberJune 30, 2022,2023, substantially all manufactured and site-built home loans were evaluated collectively for impairment. As of SeptemberJune 30, 2022,2023, we considered approximately 97% of these loans to be current as to payment status. A summary of performing and non-performing home loans before discounts and allowances by year of loan origination as of SeptemberJune 30, 20222023 follows (in millions).
| Origination Year |
|
|
|
| Origination Year |
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||
| 2022 |
|
| 2021 |
|
| 2020 |
|
| 2019 |
|
| 2018 |
|
| Prior |
|
| Total |
| 2023 |
|
| 2022 |
|
| 2021 |
|
| 2020 |
|
| 2019 |
|
| Prior |
|
| Total |
| ||||||||||||||
Performing | $ | 4,268 |
|
| $ | 3,696 |
|
| $ | 2,883 |
|
| $ | 2,037 |
|
| $ | 1,544 |
|
| $ | 7,205 |
|
| $ | 21,633 |
| $ | 3,273 |
|
| $ | 4,568 |
|
| $ | 3,459 |
|
| $ | 2,694 |
|
| $ | 1,907 |
|
| $ | 7,933 |
|
| $ | 23,834 |
|
Non-performing |
| 4 |
|
|
| 7 |
|
|
| 9 |
|
|
| 8 |
|
|
| 7 |
|
|
| 42 |
|
|
| 77 |
|
| 7 |
|
|
| 5 |
|
|
| 10 |
|
|
| 10 |
|
|
| 6 |
|
|
| 44 |
|
|
| 82 |
|
| $ | 4,272 |
|
| $ | 3,703 |
|
| $ | 2,892 |
|
| $ | 2,045 |
|
| $ | 1,551 |
|
| $ | 7,247 |
|
| $ | 21,710 |
| $ | 3,280 |
|
| $ | 4,573 |
|
| $ | 3,469 |
|
| $ | 2,704 |
|
| $ | 1,913 |
|
| $ | 7,977 |
|
| $ | 23,916 |
|
We are also party to twoa lender under commercial loan agreements, withwhich had an aggregate carryingprincipal value of approximately $1.71.1 billion at SeptemberJune 30, 20222023 and $1.9 billion at December 31, 2021.2022. The larger of these loanslargest commercial loan is withcurrently to Seritage Growth Properties, (“Seritage”), which had a carrying valuewith an unpaid principal balance of $1.27550 billion as of Septembermillion at June 30, 2022 and $1.44 billion as of December 31, 2021. The Seritage loan is pursuant to a $2.0 billion term loan facility and the outstanding loan is2023. Our commercial loans are generally secured by mortgages on its real estate properties. The Seritage loan agreement allows optional loan prepayments without penalty and further provides the option to extend the maturity of the loan to July 31, 2025, if the outstanding principal has been reduced to $800 millionproperties or by the original expiration date of July 31, 2023. Each of these loans is current as to payment status.other assets.
Note 8.9. Other receivables
Other receivables are comprised of the following (in millions). Receivables of the railroad, utilities and energy businesses at June 30, 2023 included approximately $1.6 billion related to Pilot.
| September 30, |
|
| December 31, |
| June 30, |
|
| December 31, |
| ||||
Insurance and other: |
|
|
|
|
|
|
|
| ||||||
Insurance premiums receivable | $ | 17,815 |
|
| $ | 15,050 |
| $ | 19,700 |
|
| $ | 18,395 |
|
Reinsurance recoverables |
| 4,793 |
|
|
| 4,900 |
|
| 7,186 |
|
|
| 7,106 |
|
Trade receivables |
| 14,448 |
|
|
| 12,971 |
|
| 15,160 |
|
|
| 14,510 |
|
Other |
| 4,051 |
|
|
| 3,146 |
|
| 4,204 |
|
|
| 4,154 |
|
Allowances for credit losses |
| (724 | ) |
|
| (679 | ) |
| (660 | ) |
|
| (675 | ) |
| $ | 40,383 |
|
| $ | 35,388 |
| $ | 45,590 |
|
| $ | 43,490 |
|
Railroad, utilities and energy: |
|
|
|
|
|
|
|
| ||||||
Trade receivables | $ | 4,362 |
|
| $ | 3,678 |
| $ | 5,228 |
|
| $ | 4,182 |
|
Other |
| 765 |
|
|
| 650 |
|
| 998 |
|
|
| 754 |
|
Allowances for credit losses |
| (142 | ) |
|
| (151 | ) |
| (159 | ) |
|
| (141 | ) |
| $ | 4,985 |
|
| $ | 4,177 |
| $ | 6,067 |
|
| $ | 4,795 |
|
13Provisions for credit losses in the first six months with respect to these receivables were $278 million in 2023 and $211 million in 2022. Charge-offs, net of recoveries, in the first six months were $280 million in 2023 and $189 million in 2022.
Note 10. Inventories
Inventories of our insurance and other businesses are comprised of the following (in millions).
| June 30, |
|
| December 31, |
| ||
Raw materials | $ | 6,395 |
|
| $ | 6,381 |
|
Work in process and other |
| 3,532 |
|
|
| 3,464 |
|
Finished manufactured goods |
| 5,545 |
|
|
| 5,739 |
|
Goods acquired for resale |
| 9,823 |
|
|
| 9,782 |
|
$ | 25,295 |
|
| $ | 25,366 |
|
Inventories of our railroad, utilities and energy businesses are included in other assets and were approximately $4.3 billion at June 30, 2023, of which approximately $1.9 billion was attributable to Pilot.
15
Notes to Consolidated Financial Statements (Continued)
Note 8. Other receivables (Continued)
Provisions for credit losses in the first nine months with respect to receivables summarized above were $328 million in 2022 and $335 million in 2021. Charge-offs, net of recoveries, in the first nine months were $284 million in 2022 and $279 million in 2021.
Note 9. Inventories
Inventories are comprised of the following (in millions).
| September 30, |
|
| December 31, |
| ||
Raw materials | $ | 6,473 |
|
| $ | 5,743 |
|
Work in process and other |
| 3,750 |
|
|
| 3,192 |
|
Finished manufactured goods |
| 5,776 |
|
|
| 4,530 |
|
Goods acquired for resale |
| 9,103 |
|
|
| 7,489 |
|
| $ | 25,102 |
|
| $ | 20,954 |
|
Note 10.11. Property, plant and equipment
A summary of property, plant and equipment of our insurance and other businesses follows (in millions).
|
| September 30, |
|
| December 31, |
|
| June 30, |
|
| December 31, |
| ||||
Land, buildings and improvements |
| $ | 14,089 |
|
| $ | 14,070 |
|
| $ | 14,695 |
|
| $ | 14,761 |
|
Machinery and equipment |
|
| 26,072 |
|
|
| 26,063 |
|
|
| 27,464 |
|
|
| 26,690 |
|
Furniture, fixtures and other |
|
| 4,968 |
|
|
| 4,640 |
|
|
| 5,297 |
|
|
| 4,847 |
|
|
|
| 45,129 |
|
|
| 44,773 |
|
|
| 47,456 |
|
|
| 46,298 |
|
Accumulated depreciation |
|
| (24,751 | ) |
|
| (23,939 | ) |
|
| (26,043 | ) |
|
| (25,185 | ) |
|
| $ | 20,378 |
|
| $ | 20,834 |
|
| $ | 21,413 |
|
| $ | 21,113 |
|
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. Assets of Pilot are included in land, buildings, improvements and other within the utilities and energy section of the following table.
|
| September 30, |
|
| December 31, |
|
| June 30, |
|
| December 31, |
| ||||
Railroad: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Land, track structure and other roadway |
| $ | 66,744 |
|
| $ | 65,843 |
|
| $ | 68,885 |
|
| $ | 67,350 |
|
Locomotives, freight cars and other equipment |
|
| 15,989 |
|
|
| 13,822 |
|
|
| 16,051 |
|
|
| 16,031 |
|
Construction in progress |
|
| 1,366 |
|
|
| 1,027 |
|
|
| 2,009 |
|
|
| 1,743 |
|
|
|
| 84,099 |
|
|
| 80,692 |
|
|
| 86,945 |
|
|
| 85,124 |
|
Accumulated depreciation |
|
| (17,530 | ) |
|
| (14,978 | ) |
|
| (18,750 | ) |
|
| (17,899 | ) |
|
|
| 66,569 |
|
|
| 65,714 |
|
|
| 68,195 |
|
|
| 67,225 |
|
Utilities and energy: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Utility generation, transmission and distribution systems |
|
| 90,756 |
|
|
| 90,223 |
|
|
| 94,351 |
|
|
| 92,759 |
|
Interstate natural gas pipeline assets |
|
| 17,882 |
|
|
| 17,423 |
|
|
| 18,605 |
|
|
| 18,328 |
|
Independent power plants and other assets |
|
| 14,352 |
|
|
| 13,695 |
|
|
| 14,680 |
|
|
| 14,650 |
|
Land, buildings, improvements and other |
|
| 8,300 |
|
|
| — |
| ||||||||
Construction in progress |
|
| 5,198 |
|
|
| 4,196 |
|
|
| 7,610 |
|
|
| 5,357 |
|
|
|
| 128,188 |
|
|
| 125,537 |
|
|
| 143,546 |
|
|
| 131,094 |
|
Accumulated depreciation |
|
| (37,285 | ) |
|
| (35,721 | ) |
|
| (39,994 | ) |
|
| (38,051 | ) |
|
|
| 90,903 |
|
|
| 89,816 |
|
|
| 103,552 |
|
|
| 93,043 |
|
|
| $ | 157,472 |
|
| $ | 155,530 |
|
| $ | 171,747 |
|
| $ | 160,268 |
|
Depreciation expense for the first ninesix months of 20222023 and 20212022 is summarized below (in millions).
|
| First Nine Months |
|
| First Six Months |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||
Insurance and other |
| $ | 1,690 |
|
| $ | 1,725 |
|
| $ | 1,158 |
|
| $ | 1,127 |
|
Railroad, utilities and energy |
|
| 4,646 |
|
|
| 4,485 |
|
|
| 3,494 |
|
|
| 3,091 |
|
|
| $ | 6,336 |
|
| $ | 6,210 |
|
| $ | 4,652 |
|
| $ | 4,218 |
|
14
Notes to Consolidated Financial Statements (Continued)
Note 11.12. Equipment held for lease
Equipment held for lease includes railcars, aircraft and other equipment, including over-the-road trailers, intermodal tank containers, cranes, storage units and furniture. Equipment held for lease is summarized below (in millions).
| September 30, |
|
| December 31, |
| June 30, |
|
| December 31, |
| ||||
Railcars | $ | 9,556 |
|
| $ | 9,448 |
| $ | 9,747 |
|
| $ | 9,612 |
|
Aircraft |
| 10,089 |
|
|
| 9,234 |
|
| 11,438 |
|
|
| 10,667 |
|
Other |
| 5,120 |
|
|
| 5,053 |
|
| 5,347 |
|
|
| 5,212 |
|
|
| 24,765 |
|
|
| 23,735 |
|
| 26,532 |
|
|
| 25,491 |
|
Accumulated depreciation |
| (9,626 | ) |
|
| (8,817 | ) |
| (10,504 | ) |
|
| (9,907 | ) |
| $ | 15,139 |
|
| $ | 14,918 |
| $ | 16,028 |
|
| $ | 15,584 |
|
16
Notes to Consolidated Financial Statements (Continued)
Note 12. Equipment held for lease (Continued)
Depreciation expense for equipment held for lease in the first ninesix months was $900623 million in 20222023 and $861593 million in 2021.2022. Fixed and variable operating lease revenues for the thirdsecond quarter and first ninesix months of 20222023 and 20212022 are summarized below (in millions).
| Third Quarter |
|
| First Nine Months |
| Second Quarter |
|
| First Six Months |
| ||||||||||||||||||||
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||||
Fixed lease revenue | $ | 1,344 |
|
| $ | 1,151 |
|
| $ | 3,796 |
|
| $ | 3,318 |
| $ | 1,478 |
|
| $ | 1,264 |
|
| $ | 2,895 |
|
| $ | 2,452 |
|
Variable lease revenue |
| 615 |
|
|
| 414 |
|
|
| 1,722 |
|
|
| 1,018 |
|
| 601 |
|
|
| 623 |
|
|
| 1,228 |
|
|
| 1,107 |
|
| $ | 1,959 |
|
| $ | 1,565 |
|
| $ | 5,518 |
|
| $ | 4,336 |
| $ | 2,079 |
|
| $ | 1,887 |
|
| $ | 4,123 |
|
| $ | 3,559 |
|
Note 12.13. Goodwill and other intangible assets
Reconciliations of the changes in the carrying value of goodwill for the first ninesix months of 20222023 and for the year ended December 31, 20212022 follow (in millions).
|
| September 30, |
|
| December 31, |
|
| June 30, |
|
| December 31, |
| ||||
Balance at beginning of year |
| $ | 73,875 |
|
| $ | 73,734 |
|
| $ | 78,119 |
|
| $ | 73,875 |
|
Business acquisitions |
|
| 78 |
|
|
| 353 |
|
|
| 8,413 |
|
|
| 4,657 |
|
Other, including foreign currency translation |
|
| (618 | ) |
|
| (212 | ) | ||||||||
Other, including acquisition period remeasurements and foreign currency translation |
|
| (679 | ) |
|
| (413 | ) | ||||||||
Balance at end of period* |
| $ | 73,335 |
|
| $ | 73,875 |
|
| $ | 85,853 |
|
| $ | 78,119 |
|
——————
* Net of accumulated goodwill impairments of $11.0 billion as of SeptemberJune 30, 20222023 and December 31, 2021.2022.
The gross carrying amounts and accumulated amortization of otherOther intangible assets are summarized below (in millions). Other intangible assets of the railroad, utilities and energy businesses are included in other assets. The net carrying value of such assets at June 30, 2023 included $6.6 billion related to Pilot.
|
| September 30, 2022 |
|
| December 31, 2021 |
|
| June 30, 2023 |
|
| December 31, 2022 |
| ||||||||||||||||||||||||||||||||||||
|
| Gross |
|
| Accumulated |
|
| Net |
|
| Gross |
|
| Accumulated |
|
| Net |
|
| Gross |
|
| Accumulated |
|
| Net |
|
| Gross |
|
| Accumulated |
|
| Net |
| ||||||||||||
Insurance and other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Customer relationships |
| $ | 27,337 |
|
| $ | 6,957 |
|
| $ | 20,380 |
|
| $ | 27,335 |
|
| $ | 6,450 |
|
| $ | 20,885 |
|
| $ | 28,276 |
|
| $ | 7,558 |
|
| $ | 20,718 |
|
| $ | 27,765 |
|
| $ | 7,174 |
|
| $ | 20,591 |
|
Trademarks and trade names |
|
| 5,158 |
|
|
| 816 |
|
|
| 4,342 |
|
|
| 5,176 |
|
|
| 802 |
|
|
| 4,374 |
|
|
| 5,626 |
|
|
| 838 |
|
|
| 4,788 |
|
|
| 5,603 |
|
|
| 822 |
|
|
| 4,781 |
|
Patents and technology |
|
| 4,957 |
|
|
| 3,741 |
|
|
| 1,216 |
|
|
| 4,763 |
|
|
| 3,484 |
|
|
| 1,279 |
|
|
| 5,060 |
|
|
| 3,901 |
|
|
| 1,159 |
|
|
| 4,943 |
|
|
| 3,748 |
|
|
| 1,195 |
|
Other |
|
| 3,280 |
|
|
| 1,480 |
|
|
| 1,800 |
|
|
| 3,390 |
|
|
| 1,442 |
|
|
| 1,948 |
|
|
| 4,810 |
|
|
| 1,656 |
|
|
| 3,154 |
|
|
| 4,150 |
|
|
| 1,530 |
|
|
| 2,620 |
|
|
| $ | 40,732 |
|
| $ | 12,994 |
|
| $ | 27,738 |
|
| $ | 40,664 |
|
| $ | 12,178 |
|
| $ | 28,486 |
|
| $ | 43,772 |
|
| $ | 13,953 |
|
| $ | 29,819 |
|
| $ | 42,461 |
|
| $ | 13,274 |
|
| $ | 29,187 |
|
Railroad, utilities and energy: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Customer relationships |
| $ | 678 |
|
| $ | 421 |
|
| $ | 257 |
|
| $ | 678 |
|
| $ | 396 |
|
| $ | 282 |
| ||||||||||||||||||||||||
Trademarks, trade names and other |
|
| 1,015 |
|
|
| 182 |
|
|
| 833 |
|
|
| 1,015 |
|
|
| 146 |
|
|
| 869 |
| ||||||||||||||||||||||||
Customer relationships and contracts |
| $ | 5,334 |
|
| $ | 695 |
|
| $ | 4,639 |
|
| $ | 1,507 |
|
| $ | 541 |
|
| $ | 966 |
| ||||||||||||||||||||||||
Trademarks and trade names |
|
| 2,228 |
|
|
| 51 |
|
|
| 2,177 |
|
|
| 217 |
|
|
| 39 |
|
|
| 178 |
| ||||||||||||||||||||||||
Other |
|
| 1,093 |
|
|
| 62 |
|
|
| 1,031 |
|
|
| 190 |
|
|
| 42 |
|
|
| 148 |
| ||||||||||||||||||||||||
|
| $ | 1,693 |
|
| $ | 603 |
|
| $ | 1,090 |
|
| $ | 1,693 |
|
| $ | 542 |
|
| $ | 1,151 |
|
| $ | 8,655 |
|
| $ | 808 |
|
| $ | 7,847 |
|
| $ | 1,914 |
|
| $ | 622 |
|
| $ | 1,292 |
|
15
Notes to Consolidated Financial Statements (Continued)
Note 12. Goodwill and other intangible assets (Continued)
Intangible asset amortization expense in the first ninesix months was $905872 million in 20222023 and $942602 million in 2021.2022. Intangible assets with indefinite lives were $18.420.5 billion as of SeptemberJune 30, 20222023 and $18.518.3 billion as of December 31, 20212022 and primarily related to certain customer relationships and trademarks and trade names.
17
Notes to Consolidated Financial Statements (Continued)
Note 13.14. Unpaid losses and loss adjustment expenses
Our liabilities forA reconciliation of the changes in unpaid losses and loss adjustment expenses (also referred to as “claim(“claim liabilities”), excluding liabilities under retroactive reinsurance contracts (see Note 15), for each of the six-month periods ending June 30, 2023 and 2022 follows (in millions).
| 2023 |
|
| 2022 |
| ||
Balances at beginning of year: |
|
|
|
|
| ||
Gross liabilities | $ | 107,472 |
|
| $ | 86,664 |
|
Reinsurance recoverable on unpaid losses |
| (5,025 | ) |
|
| (2,960 | ) |
Net liabilities |
| 102,447 |
|
|
| 83,704 |
|
Incurred losses and loss adjustment expenses: |
|
|
|
|
| ||
Current accident year |
| 29,827 |
|
|
| 27,427 |
|
Prior accident years |
| (1,948 | ) |
|
| (887 | ) |
Total |
| 27,879 |
|
|
| 26,540 |
|
Paid losses and loss adjustment expenses: |
|
|
|
|
| ||
Current accident year |
| (9,968 | ) |
|
| (10,085 | ) |
Prior accident years |
| (16,664 | ) |
|
| (13,820 | ) |
Total |
| (26,632 | ) |
|
| (23,905 | ) |
Foreign currency effect |
| 267 |
|
|
| (568 | ) |
Balances at June 30: |
|
|
|
|
| ||
Net liabilities |
| 103,961 |
|
|
| 85,771 |
|
Reinsurance recoverable on unpaid losses |
| 5,069 |
|
|
| 2,789 |
|
Gross liabilities | $ | 109,030 |
|
| $ | 88,560 |
|
Our claim liabilities under property and casualty insurance and reinsurance contracts are based upon estimates of the ultimate claim costs associated with claim occurrences as of the balance sheet date and include estimates for incurred-but-not-reported (“IBNR”) claims. A reconciliation of the changes in claim liabilities, excluding liabilities under retroactive reinsurance contracts (see Note 14), for each of the nine-month periods ending September 30, 2022 and 2021 follows (in millions).
| 2022 |
|
| 2021 |
| ||
Balances at beginning of year: |
|
|
|
|
| ||
Gross liabilities | $ | 86,664 |
|
| $ | 79,854 |
|
Reinsurance recoverable on unpaid losses |
| (2,960 | ) |
|
| (2,912 | ) |
Net liabilities |
| 83,704 |
|
|
| 76,942 |
|
Incurred losses and loss adjustment expenses: |
|
|
|
|
| ||
Current accident year |
| 44,472 |
|
|
| 38,447 |
|
Prior accident years |
| (2,141 | ) |
|
| (2,151 | ) |
Total |
| 42,331 |
|
|
| 36,296 |
|
Paid losses and loss adjustment expenses: |
|
|
|
|
| ||
Current accident year |
| (17,543 | ) |
|
| (15,277 | ) |
Prior accident years |
| (18,564 | ) |
|
| (15,076 | ) |
Total |
| (36,107 | ) |
|
| (30,353 | ) |
Foreign currency effect |
| (1,044 | ) |
|
| (119 | ) |
Balances at September 30: |
|
|
|
|
| ||
Net liabilities |
| 88,884 |
|
|
| 82,766 |
|
Reinsurance recoverable on unpaid losses |
| 2,758 |
|
|
| 2,988 |
|
Gross liabilities | $ | 91,642 |
|
| $ | 85,754 |
|
Incurred losses and loss adjustment expenses shown in the preceding table were recorded in earnings and related to insured events occurring in the current year (“current accident year”) and events occurring in all prior years (“prior accident years”). Incurred and paid losses and loss adjustment expenses are net of reinsurance recoveries. Current accident year incurred losses in the first nine months of 2022 and 2021 included approximately $4.0 billion and $2.7 billion, respectively, from significant catastrophe events (losses in excess of $100 million per event). Significant catastrophe events in the first nine months included Hurricane Ian ($3.4 billion) and floods in Australia and South Africa in 2022 and Winter Storm Uri, Hurricane Ida ($1.5 billion) and floods in Europe in 2021.
In the first ninesix months, we recorded net reductions of estimated ultimate liabilities for prior accident years of $2.11.9 billion in 20222023 and $2.2887 billionmillion in 2021,2022, which produced corresponding reductions in incurred losses and loss adjustment expenses in those periods.expenses. These reductions, as percentages of the net liabilities at the beginning of each year, were 2.61.9% in 20222023 and 2.81.1% in 2021.2022.
EstimatedWe reduced estimated ultimate liabilities for prior accident years fromof primary insurance businesses in the first ninesix months were reduced by $7341.1 billion in 2023 and $313 million in 2022 and $1.6 billion in 2021. The2022. In 2023, the reductions in each period derived primarily fromwere driven by private passenger automobile,auto claims, whereas the decreases in 2022 were primarily attributable to private passenger auto, medical professional liability and workers’ compensation claims, partly offset by increases with respect to other casualty claims. EstimatedIn the first six months, estimated ultimate liabilities for prior accident years attributable toof property and casualty reinsurance in the first nine months decreasedbusinesses were reduced $1.4 billion in 2022 and $564883 million in 2021.2023 and $574 million in 2022.
1618
Notes to Consolidated Financial Statements (Continued)
Note 14.15. 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. Claims payments may commence immediately after the contract date or, when applicable, after 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 chargesincurred losses and loss adjustment expenses to the amounts recorded in the Consolidated Statements of Earnings for each of the nine-monthsix-month periods ending Septemberended June 30, 20222023 and 20212022 follow (in millions).
| 2022 |
|
| 2021 |
| |||||||||||||||||
| Unpaid losses |
|
| Deferred |
|
| Unpaid losses |
|
| Deferred |
| 2023 |
|
| 2022 |
| ||||||
Balances at beginning of year | $ | 38,256 |
|
| $ | (10,639 | ) |
| $ | 40,966 |
|
| $ | (12,441 | ) | $ | 35,415 |
|
| $ | 37,855 |
|
Incurred losses and loss adjustment expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Current year contracts |
| — |
|
|
| — |
|
|
| 82 |
|
|
| — |
|
| — |
|
|
| — |
|
Prior years’ contracts |
| (23 | ) |
|
| 649 |
|
|
| (9 | ) |
|
| 709 |
|
| 15 |
|
|
| (14 | ) |
Total |
| (23 | ) |
|
| 649 |
|
|
| 73 |
|
|
| 709 |
|
| 15 |
|
|
| (14 | ) |
Paid losses and loss adjustment expenses |
| (1,567 | ) |
|
| — |
|
|
| (1,318 | ) |
|
| — |
|
| (1,033 | ) |
|
| (1,008 | ) |
Balances at September 30 | $ | 36,666 |
|
| $ | (9,990 | ) |
| $ | 39,721 |
|
| $ | (11,732 | ) | |||||||
Incurred losses and loss adjustment expenses, net of deferred charges | $ | 626 |
|
|
|
|
| $ | 782 |
|
|
|
| |||||||||
Foreign currency effect |
| 24 |
|
|
| (157 | ) | |||||||||||||||
Balances at June 30 | $ | 34,421 |
|
| $ | 36,676 |
| |||||||||||||||
Incurred losses and loss adjustment expenses above | $ | 15 |
|
| $ | (14 | ) | |||||||||||||||
Deferred charge amortization and adjustments |
| 416 |
|
|
| 426 |
| |||||||||||||||
Incurred losses and loss adjustment expenses included in the Consolidated | $ | 431 |
|
| $ | 412 |
|
In the preceding table, classifications of incurred losses and loss adjustment expenses are based on the inception dates of the contracts, which reflect when our exposure to losses began. Claims payments may commence immediately after the contract date or, when applicable, after a contractual retention amount has been reached. Incurred losses and loss adjustment expenses in the first nine months for prior years’Consolidated Statements of Earnings include changes in estimated liabilities and related deferred charge asset amortization and adjustments arising from the changes in estimated timing and amount of future loss payments. Unamortized deferred charges related to retroactive reinsurance contracts were $626 million in 2022 and $700 million in 2021 and included recurring amortization of deferred charges and the effect of changes in the timing and amount of expected future loss payments. Currently, our largest retroactive reinsurance contract is between our subsidiary, National Indemnity Company, and certain subsidiaries of American International Group, Inc. (collectively, “AIG”). Our estimated claim liabilities with regard to the AIG contract were approximately $14.89.5 billion at SeptemberJune 30, 20222023 and $15.89.9 billion at December 31, 2021. Deferred charges related to the AIG contract were $4.14 billion at September 30, 2022 and $4.45 billion at December 31, 2021.2022.
Note 16. Long-duration insurance contracts
We write periodic payment annuity and life and health insurance contracts, which are considered long-duration insurance contracts under GAAP. A summary of our life, annuity and health insurance benefits liabilities as of June 30, 2023 and 2022, disaggregated for our two primary product categories, periodic payment annuities and life and health insurance, follows (in millions). Other liabilities primarily consist of incurred-but-not-reported claims and claims in the course of settlement.
| June 30, |
| |||||
| 2023 |
|
| 2022 |
| ||
Periodic payment annuities | $ | 10,820 |
|
| $ | 11,826 |
|
Life and health |
| 5,523 |
|
|
| 5,810 |
|
Other liabilities |
| 3,292 |
|
|
| 3,316 |
|
| $ | 19,635 |
|
| $ | 20,952 |
|
19
Notes to Consolidated Financial Statements (Continued)
Note 16. Long-duration insurance contracts (Continued)
Reconciliations of our periodic payment annuity and life and health insurance benefits liabilities for the first six months of 2023 and 2022 follow (in millions). The information reflects the changes in discounted present values of expected future policy benefits and expected future net premiums. In this context, net premiums represent the portion of expected gross premiums that are required to provide for future policy benefits and variable expenses.
| Periodic payment annuities |
|
| Life and health |
| ||||||||||
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Expected future policy benefits: |
|
|
|
|
|
|
|
|
|
|
| ||||
Balance at beginning of period | $ | 10,640 |
|
| $ | 16,153 |
|
| $ | 52,008 |
|
| $ | 63,648 |
|
Balance at beginning of period at original discount rate |
| 11,549 |
|
|
| 11,261 |
|
|
| 63,584 |
|
|
| 60,133 |
|
Impact of cash flow assumption changes |
| — |
|
|
| — |
|
|
| 10 |
|
|
| 318 |
|
Effect of actual from expected results |
| 2 |
|
|
| 3 |
|
|
| (411 | ) |
|
| 248 |
|
Change in benefits, net |
| (230 | ) |
|
| 85 |
|
|
| (1,346 | ) |
|
| (1,285 | ) |
Interest accrual |
| 266 |
|
|
| 268 |
|
|
| 852 |
|
|
| 807 |
|
Foreign currency effect |
| 83 |
|
|
| (109 | ) |
|
| 100 |
|
|
| (1,645 | ) |
Ending balance at original discount rate |
| 11,670 |
|
|
| 11,508 |
|
|
| 62,789 |
|
|
| 58,576 |
|
Effect of changes in discount rate assumptions |
| (850 | ) |
|
| 318 |
|
|
| (12,741 | ) |
|
| (8,191 | ) |
Expected future policy benefits at June 30 | $ | 10,820 |
|
| $ | 11,826 |
|
| $ | 50,048 |
|
| $ | 50,385 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Expected future net premiums: |
|
|
|
|
|
|
|
|
|
|
| ||||
Balance at beginning of period |
|
|
|
|
|
| $ | 46,129 |
|
| $ | 55,960 |
| ||
Balance at beginning of period at original discount rate |
|
|
|
|
|
|
| 56,535 |
|
|
| 53,277 |
| ||
Impact of cash flow assumption changes |
|
|
|
|
|
|
| 18 |
|
|
| 324 |
| ||
Effect of actual from expected results |
|
|
|
|
|
|
| (251 | ) |
|
| 90 |
| ||
Change in premiums, net |
|
|
|
|
|
|
| (1,222 | ) |
|
| (988 | ) | ||
Interest accrual |
|
|
|
|
|
|
| 745 |
|
|
| 701 |
| ||
Foreign currency effect |
|
|
|
|
|
|
| 83 |
|
|
| (1,550 | ) | ||
Ending balance at original discount rate |
|
|
|
|
|
|
| 55,908 |
|
|
| 51,854 |
| ||
Effect of changes in discount rate assumptions |
|
|
|
|
|
|
| (11,383 | ) |
|
| (7,279 | ) | ||
Expected future net premiums at June 30 |
|
|
|
|
|
| $ | 44,525 |
|
| $ | 44,575 |
| ||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Liability for future policy benefits at June 30 | $ | 10,820 |
|
| $ | 11,826 |
|
| $ | 5,523 |
|
| $ | 5,810 |
|
Reinsurance recoverables |
| — |
|
|
| — |
|
|
| (1,549 | ) |
|
| (1,650 | ) |
Liability for future policy benefits at June 30, | $ | 10,820 |
|
| $ | 11,826 |
|
| $ | 3,974 |
|
| $ | 4,160 |
|
The undiscounted and discounted expected future gross premiums to be collected and undiscounted expected future benefits for periodic payment annuities and life and health insurance as of June 30, 2023 and 2022 are summarized below (in millions).
| Undiscounted expected |
|
| Discounted expected |
|
| Undiscounted expected |
| |||||||||||||||
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||
Periodic payment annuities | $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 31,232 |
|
| $ | 31,084 |
|
Life and health |
| 108,089 |
|
|
| 107,647 |
|
|
| 65,599 |
|
|
| 64,832 |
|
|
| 103,012 |
|
|
| 102,305 |
|
Gross premiums earned on long-duration contracts are included in insurance premiums earned and interest expense associated with long-duration insurance contracts is included as a component of life, annuity and health benefits expenses in our Consolidated Statements of Earnings. Gross premiums earned and interest expense for the first six months of 2023 and 2022 were as follows (in millions).
| Gross Premiums |
|
| Interest Expense |
| ||||||||||
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Periodic payment annuities | $ | — |
|
| $ | 337 |
|
| $ | 266 |
|
| $ | 268 |
|
Life and health |
| 1,644 |
|
|
| 1,793 |
|
|
| 107 |
|
|
| 106 |
|
20
Notes to Consolidated Financial Statements (Continued)
Note 16. Long-duration insurance contracts (Continued)
The weighted average discount rates, interest accretion rates and the average contract durations as of June 30, 2023 and 2022 for periodic payment annuities and life and health insurance are summarized below.
| June 30, |
| |||||
| 2023 |
|
| 2022 |
| ||
Periodic payment annuities |
|
|
|
|
| ||
Weighted average discount rate |
| 5.3 | % |
|
| 4.7 | % |
Weighted average accretion rate |
| 4.8 | % |
|
| 4.9 | % |
Weighted average duration | 18 years |
|
| 18 years |
| ||
Life and health |
|
|
|
|
| ||
Weighted average discount rate |
| 5.0 | % |
|
| 4.5 | % |
Weighted average accretion rate |
| 3.3 | % |
|
| 3.3 | % |
Weighted average duration | 14 years |
|
| 14 years |
|
We also reinsure closed blocks of guaranteed minimum death and living benefits associated with variable annuity products, referred to as market risk benefits. These liabilities are included in other policyholder liabilities and are measured at estimated fair value under ASU 2018-12. Such liabilities were approximately $1.0 billion as of June 30, 2023 and $1.25 billion as of December 31, 2022. During the first six months of 2023, we reduced liability estimates by $194 million, for the effects of changes in securities markets, interest rates and other inputs used to estimate liabilities. Cash settlements during the first six months of 2023 were relatively insignificant.
Note 15.17. Notes payable and other borrowings
Notes payable and other borrowings of our insurance and other businesses 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 SeptemberJune 30, 2022.2023.
|
| Weighted |
|
| September 30, |
|
| December 31, |
|
| Weighted |
|
| June 30, |
|
| December 31, |
| ||||||
Insurance and other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Berkshire Hathaway Inc. (“Berkshire”): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
U.S. Dollar denominated due 2023-2047 |
|
| 3.3 | % |
| $ | 6,227 |
|
| $ | 6,820 |
| ||||||||||||
Euro denominated due 2023-2041 |
|
| 1.0 | % |
|
| 6,722 |
|
|
| 7,792 |
| ||||||||||||
Japanese Yen denominated due 2023-2060 |
|
| 0.6 | % |
|
| 6,289 |
|
|
| 6,797 |
| ||||||||||||
U.S. Dollar denominated due 2025-2047 |
|
| 3.5 | % |
| $ | 3,735 |
|
| $ | 6,231 |
| ||||||||||||
Euro denominated due 2024-2041 |
|
| 1.1 | % |
|
| 6,069 |
|
|
| 7,344 |
| ||||||||||||
Japanese Yen denominated due 2024-2060 |
|
| 0.7 | % |
|
| 7,850 |
|
|
| 7,818 |
| ||||||||||||
Berkshire Hathaway Finance Corporation (“BHFC”): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
U.S. Dollar denominated due 2027-2052 |
|
| 3.6 | % |
|
| 14,456 |
|
|
| 10,758 |
|
|
| 3.6 | % |
|
| 14,460 |
|
|
| 14,458 |
|
Great Britain Pound denominated due 2039-2059 |
|
| 2.5 | % |
|
| 1,920 |
|
|
| 2,325 |
|
|
| 2.5 | % |
|
| 2,186 |
|
|
| 2,078 |
|
Euro denominated due 2030-2034 |
|
| 1.8 | % |
|
| 1,219 |
|
|
| — |
|
|
| 1.8 | % |
|
| 1,358 |
|
|
| 1,332 |
|
Other subsidiary borrowings due 2022-2045 |
|
| 4.1 | % |
|
| 4,328 |
|
|
| 4,438 |
| ||||||||||||
Other subsidiary borrowings due 2023-2051 |
|
| 4.6 | % |
|
| 4,908 |
|
|
| 5,967 |
| ||||||||||||
Subsidiary short-term borrowings |
|
| 4.7 | % |
|
| 374 |
|
|
| 342 |
|
|
| 6.6 | % |
|
| 823 |
|
|
| 1,310 |
|
|
|
|
|
| $ | 41,535 |
|
| $ | 39,272 |
|
|
|
|
| $ | 41,389 |
|
| $ | 46,538 |
|
1721
Notes to Consolidated Financial Statements (Continued)
Note 15.17. Notes payable and other borrowings (Continued)
In January 2022,the first six months of 2023, Berkshire repaid approximately $6004.3 millionbillion of maturing senior notes andnotes. In April 2023, Berkshire issued ¥128.5164.4 billion (approximately $1.11.2 billion) of senior notes with maturity dates ranging from 2027 to 2052 and a weighted average interest rate of 0.5%.notes. 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. In March 2022, BHFC issuedBerkshire also guarantees certain debt of other subsidiaries, aggregating approximately $4.52.7 billion at June 30, 2023. Generally, Berkshire’s guarantee of senior notes with maturity dates ranging from 2027 to 2052 with a weighted average interest ratesubsidiary’s debt obligation is an absolute, unconditional and irrevocable guarantee for the full and prompt payment when due of 3.4% and €1.25 billion (approximately $1.4 billion) of senior notes maturing in 2030 and 2034 with a weighted average interest rate of 1.8%. In May 2022, BHFC repaid $775 million of maturing senior notes.all payment obligations.
The carrying values of Berkshire and BHFC non-U.S. Dollar denominated senior notes (€8.156.85 billion, £1.75 billion and ¥9141,137 billion par at SeptemberJune 30, 2022)2023) reflect the applicable exchange rates as of each balance sheet date. 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 inproduced pre-tax gains of $1.2555 million in the second quarter and $529 million in the first six months of 2023 as compared to pre-tax gains of $1.4 billion in the thirdsecond quarter and $3.32.1 billion in the first ninesix months of 2022 as compared to $264 million in the third quarter and $939 million in the first nine months of 2021.2022.
Berkshire also guarantees debtNotes payable and other borrowings of other subsidiaries, aggregating approximately $our railroad, utilities and energy businesses are summarized below (in millions). The weighted average interest rates and maturity date ranges are based on borrowings as of June 30, 2023.3.7 billion at September 30, 2022. 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 |
|
| September 30, |
|
| December 31, |
|
| Weighted |
|
| June 30, |
|
| December 31, |
| ||||||
Railroad, utilities and energy: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Berkshire Hathaway Energy Company (“BHE”) and subsidiaries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
BHE senior unsecured debt due 2023-2053 |
|
| 4.3 | % |
| $ | 13,992 |
|
| $ | 13,003 |
|
|
| 4.4 | % |
| $ | 13,599 |
|
| $ | 13,996 |
|
Subsidiary and other debt due 2022-2064 |
|
| 4.2 | % |
|
| 36,226 |
|
|
| 36,759 |
| ||||||||||||
Subsidiary and other debt due 2023-2064 |
|
| 4.3 | % |
|
| 38,021 |
|
|
| 37,639 |
| ||||||||||||
Short-term borrowings |
|
| 4.2 | % |
|
| 1,441 |
|
|
| 2,009 |
|
|
| 5.5 | % |
|
| 2,243 |
|
|
| 1,119 |
|
Burlington Northern Santa Fe ("BNSF") and subsidiaries due 2022-2097 |
|
| 4.5 | % |
|
| 23,302 |
|
|
| 23,219 |
| ||||||||||||
Pilot Travel Centers (“Pilot”) and subsidiaries due 2023-2028 |
|
| 7.0 | % |
|
| 5,789 |
|
|
| — |
| ||||||||||||
Burlington Northern Santa Fe (“BNSF”) and subsidiaries due 2023-2097 |
|
| 4.6 | % |
|
| 24,306 |
|
|
| 23,452 |
| ||||||||||||
|
|
|
|
| $ | 74,961 |
|
| $ | 74,990 |
|
|
|
|
| $ | 83,958 |
|
| $ | 76,206 |
|
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 such debt. These borrowing arrangements generally contain various covenants, including covenants which pertain to leverage ratios, interest coverage ratios and/or debt service coverage ratios. In April 2022,May 2023, a BHE subsidiary issued $1.01.2 billion of 4.65.5% senior notesfirst mortgage bonds due in 20532054. During the first ninesix months of 2022,2023, BHE and its subsidiaries issuedrepaid approximately $1.31.4 billion of variable and fixed rate term debt with a weighted average interest rate of debt.3.9% as of September 30 and maturity dates ranging from 2024 to 2052.
Pilot’s borrowings primarily represent secured syndicated loans. BNSF’s borrowings are primarily senior unsecured debentures. In June 2022,2023, BNSF issued $1.01.6 billion of 4.455.2% debentures due in 20532054. During the first ninesix months of 2022,2023, BNSF repaid approximately $900700 million of term debt. As of SeptemberJune 30, 2022,2023, BHE, BNSF BHEand Pilot and their subsidiaries were in compliance with all applicable debt covenants. Berkshire does not guarantee any debt, borrowings or lines of credit of BHE, BNSF, BHEPilot or their subsidiaries.
Our subsidiaries have unused lines of credit and commercial paper capacity to support short-term borrowing programs and provide additional liquidity. Unused lines of credit were approximately $10.712.0 billion at SeptemberJune 30, 2022,2023, which included approximately $9.28.6 billion related to BHE and its subsidiaries.
1822
Notes to Consolidated Financial Statements (Continued)
Note 16.18. Fair value measurements
Our financial assets and liabilities are summarized below as of SeptemberJune 30, 20222023 and December 31, 2021,2022, with fair values shown according to the fair value hierarchy (in millions). The carrying values of cash and cash equivalents, U.S. Treasury Bills, other receivables and accounts payable, accruals and other liabilities are considered to be reasonable estimates of theiror otherwise approximate the fair values.
|
| Carrying |
|
| Fair Value |
|
| Quoted |
|
| Significant |
|
| Significant |
|
| Carrying |
|
| Fair Value |
|
| Quoted |
|
| Significant |
|
| Significant |
| ||||||||||
September 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
June 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Investments in fixed maturity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
U.S. Treasury, U.S. government corporations |
| $ | 8,775 |
|
| $ | 8,775 |
|
| $ | 8,740 |
|
| $ | 35 |
|
| $ | — |
|
| $ | 9,052 |
|
| $ | 9,052 |
|
| $ | 9,017 |
|
| $ | 35 |
|
| $ | — |
|
Foreign governments |
|
| 8,505 |
|
|
| 8,505 |
|
|
| 8,207 |
|
|
| 298 |
|
|
| — |
|
|
| 11,481 |
|
|
| 11,481 |
|
|
| 11,170 |
|
|
| 311 |
|
|
| — |
|
Corporate bonds |
|
| 1,029 |
|
|
| 1,029 |
|
|
| — |
|
|
| 1,029 |
|
|
| — |
|
|
| 1,554 |
|
|
| 1,554 |
|
|
| — |
|
|
| 908 |
|
|
| 646 |
|
Other |
|
| 293 |
|
|
| 293 |
|
|
| — |
|
|
| 293 |
|
|
| — |
|
|
| 266 |
|
|
| 266 |
|
|
| — |
|
|
| 266 |
|
|
| — |
|
Investments in equity securities |
|
| 306,167 |
|
|
| 306,167 |
|
|
| 294,094 |
|
|
| 7 |
|
|
| 12,066 |
|
|
| 353,409 |
|
|
| 353,409 |
|
|
| 342,596 |
|
|
| 11 |
|
|
| 10,802 |
|
Investment in Kraft Heinz & Occidental common stock |
|
| 23,949 |
|
|
| 22,796 |
|
|
| 22,796 |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||
Investments in Kraft Heinz & Occidental common stock |
|
| 27,060 |
|
|
| 24,732 |
|
|
| 24,732 |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||
Loans and finance receivables |
|
| 23,530 |
|
|
| 24,020 |
|
|
| — |
|
|
| 1,097 |
|
|
| 22,923 |
| ||||||||||||||||||||
Derivative contract assets (1) |
|
| 355 |
|
|
| 355 |
|
|
| 74 |
|
|
| 256 |
|
|
| 25 |
| ||||||||||||||||||||
Derivative contract liabilities (1) |
|
| 309 |
|
|
| 309 |
|
|
| 48 |
|
|
| 73 |
|
|
| 188 |
| ||||||||||||||||||||
Notes payable and other borrowings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Insurance and other |
|
| 41,389 |
|
|
| 36,100 |
|
|
| — |
|
|
| 36,071 |
|
|
| 29 |
| ||||||||||||||||||||
Railroad, utilities and energy |
|
| 83,958 |
|
|
| 77,040 |
|
|
| — |
|
|
| 77,040 |
|
|
| — |
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Investments in fixed maturity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
U.S. Treasury, U.S. government corporations |
| $ | 9,802 |
|
| $ | 9,802 |
|
| $ | 9,733 |
|
| $ | 69 |
|
| $ | — |
| ||||||||||||||||||||
Foreign governments |
|
| 10,327 |
|
|
| 10,327 |
|
|
| 9,854 |
|
|
| 473 |
|
|
| — |
| ||||||||||||||||||||
Corporate bonds |
|
| 2,195 |
|
|
| 2,195 |
|
|
| — |
|
|
| 1,546 |
|
|
| 649 |
| ||||||||||||||||||||
Other |
|
| 2,804 |
|
|
| 2,804 |
|
|
| — |
|
|
| 2,804 |
|
|
| — |
| ||||||||||||||||||||
Investments in equity securities |
|
| 308,793 |
|
|
| 308,793 |
|
|
| 296,610 |
|
|
| 9 |
|
|
| 12,174 |
| ||||||||||||||||||||
Investments in Kraft Heinz & Occidental common stock |
|
| 24,421 |
|
|
| 25,491 |
|
|
| 25,491 |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||
Loans and finance receivables |
|
| 22,094 |
|
|
| 22,659 |
|
|
| — |
|
|
| 1,744 |
|
|
| 20,915 |
|
|
| 23,208 |
|
|
| 23,428 |
|
|
| — |
|
|
| 1,513 |
|
|
| 21,915 |
|
Derivative contract assets (1) |
|
| 731 |
|
|
| 731 |
|
|
| 68 |
|
|
| 593 |
|
|
| 70 |
|
|
| 589 |
|
|
| 589 |
|
|
| 56 |
|
|
| 474 |
|
|
| 59 |
|
Derivative contract liabilities (1) |
|
| 261 |
|
|
| 261 |
|
|
| 2 |
|
|
| 133 |
|
|
| 126 |
|
|
| 242 |
|
|
| 242 |
|
|
| 8 |
|
|
| 122 |
|
|
| 112 |
|
Notes payable and other borrowings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Insurance and other |
|
| 41,535 |
|
|
| 36,362 |
|
|
| — |
|
|
| 36,314 |
|
|
| 48 |
|
|
| 46,538 |
|
|
| 41,961 |
|
|
| — |
|
|
| 41,061 |
|
|
| 900 |
|
Railroad, utilities and energy |
|
| 74,961 |
|
|
| 66,991 |
|
|
| — |
|
|
| 66,991 |
|
|
| — |
|
|
| 76,206 |
|
|
| 67,651 |
|
|
| — |
|
|
| 67,651 |
|
|
| — |
|
December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Investments in fixed maturity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
U.S. Treasury, U.S. government corporations |
| $ | 3,303 |
|
| $ | 3,303 |
|
| $ | 3,261 |
|
| $ | 42 |
|
| $ | — |
| ||||||||||||||||||||
Foreign governments |
|
| 10,994 |
|
|
| 10,994 |
|
|
| 10,286 |
|
|
| 708 |
|
|
| — |
| ||||||||||||||||||||
Corporate bonds |
|
| 1,774 |
|
|
| 1,774 |
|
|
| — |
|
|
| 1,774 |
|
|
| — |
| ||||||||||||||||||||
Other |
|
| 363 |
|
|
| 363 |
|
|
| — |
|
|
| 363 |
|
|
| — |
| ||||||||||||||||||||
Investments in equity securities |
|
| 350,719 |
|
|
| 350,719 |
|
|
| 339,225 |
|
|
| 8 |
|
|
| 11,486 |
| ||||||||||||||||||||
Investment in Kraft Heinz common stock |
|
| 13,112 |
|
|
| 11,683 |
|
|
| 11,683 |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||
Loans and finance receivables |
|
| 20,751 |
|
|
| 22,174 |
|
|
| — |
|
|
| 2,178 |
|
|
| 19,996 |
| ||||||||||||||||||||
Derivative contract assets (1) |
|
| 329 |
|
|
| 329 |
|
|
| 6 |
|
|
| 230 |
|
|
| 93 |
| ||||||||||||||||||||
Derivative contract liabilities (1) |
|
| 376 |
|
|
| 376 |
|
|
| 2 |
|
|
| 150 |
|
|
| 224 |
| ||||||||||||||||||||
Notes payable and other borrowings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Insurance and other |
|
| 39,272 |
|
|
| 42,339 |
|
|
| — |
|
|
| 42,292 |
|
|
| 47 |
| ||||||||||||||||||||
Railroad, utilities and energy |
|
| 74,990 |
|
|
| 87,065 |
|
|
| — |
|
|
| 87,065 |
|
|
| — |
|
——————
1923
Notes to Consolidated Financial Statements (Continued)
Note 16.18. 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 ninesix months ended SeptemberJune 30, 20222023 and 20212022 follow (in millions).
| Balance at |
|
| Gains included in earnings |
|
| Acquisitions, |
|
| Transfers out of Level 3 |
|
| Balance at September 30 |
| |||||
Investments in equity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
2022 | $ | 11,480 |
|
| $ | 581 |
|
| $ | — |
|
| $ | — |
|
| $ | 12,061 |
|
2021 |
| 8,978 |
|
|
| 1,713 |
|
|
| 1,100 |
|
|
| — |
|
|
| 11,791 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Equity index put option contract liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
2021 |
| (1,065 | ) |
|
| 780 |
|
|
| (1 | ) |
|
| — |
|
|
| (286 | ) |
| Balance at |
|
| Gains (losses) |
|
| Acquisitions, |
|
| Transfers out of |
|
| Balance at |
| |||||
Investments in equity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
2023 | $ | 12,169 |
|
| $ | (86 | ) |
| $ | (1,286 | ) |
| $ | — |
|
| $ | 10,797 |
|
2022 |
| 11,480 |
|
|
| 455 |
|
|
| — |
|
|
| — |
|
|
| 11,935 |
|
Quantitative information as of SeptemberJune 30, 2022 with respect to2023 for the significant assets and liabilities measured and carried at fair value on a recurring basis with the use of significant unobservable inputs (Level 3) follows (dollars in millions).
|
| Fair |
|
| Principal Valuation |
| Unobservable |
| Weighted |
| Fair |
|
| Principal Valuation |
| Unobservable |
| Weighted | ||
Investments in equity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Preferred stock |
| $ | 9,956 |
|
| Discounted cash flow |
| Expected duration |
| 7 years |
| $ | 8,994 |
|
| Discounted cash flow |
| Expected duration |
| 6 years |
|
|
|
|
|
|
| Discount for transferability |
| 372 bps |
|
|
|
|
|
| Discounts for liquidity |
| 372 bps | ||
Common stock warrants |
|
| 2,105 |
|
| Warrant pricing model |
| Expected duration |
| 7 years |
|
| 1,803 |
|
| Warrant pricing model |
| Expected duration |
| 6 years |
|
|
|
|
|
|
| Volatility |
| 39% |
|
|
|
|
|
| Volatility |
| 40% |
Investments in equity securities in the preceding table include our investments in certain preferred stocksstock and common stock warrants that do not have readily determinable market values as defined under GAAP. These investments are subject toprivate placements with contractual restrictions on transferabilityterms that restrict transfers and may contain provisions thatcurrently prevent us from economically hedging our investments. We applied discounted cash flow techniques in valuing the preferred stock and we made assumptions regarding the expected duration of the investment and the effects of liquidity and subordination in liquidation. 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 and volatility of the warrants.
2024
Notes to Consolidated Financial Statements (Continued)
Note 17.19. Common stock
Changes in Berkshire’s issued, treasury and outstanding common stock during the first ninesix months of 20222023 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 |
|
| Class B, $0.0033 Par Value |
| Class A, $5 Par Value |
|
| Class B, $0.0033 Par Value |
| ||||||||||||||||||||||||||||
| Issued |
| Treasury |
| Outstanding |
|
| Issued |
| Treasury |
| Outstanding |
| Issued |
| Treasury |
| Outstanding |
|
| Issued |
| Treasury |
| Outstanding |
| ||||||||||||
Balances at December 31, 2021 |
| 665,901 |
| (48,788 | ) |
| 617,113 |
|
|
| 1,488,292,852 |
| (197,818,349 | ) |
| 1,290,474,503 |
| |||||||||||||||||||||
Balances at December 31, 2022 |
| 651,450 |
| (59,886 | ) |
| 591,564 |
|
|
| 1,509,969,352 |
| (207,715,276 | ) |
| 1,302,254,076 |
| |||||||||||||||||||||
Conversions of Class A to |
| (12,093 | ) |
| — |
| (12,093 | ) |
|
| 18,139,500 |
| — |
| 18,139,500 |
|
| (9,871 | ) |
| — |
| (9,871 | ) |
|
| 14,806,500 |
| — |
| 14,806,500 |
| ||||||
Treasury stock acquired |
| — |
|
| (6,818 | ) |
| (6,818 | ) |
|
| — |
|
| (6,850,133 | ) |
| (6,850,133 | ) |
| — |
|
| (6,145 | ) |
| (6,145 | ) |
|
| — |
|
| (9,071,308 | ) |
| (9,071,308 | ) |
Balances at September 30, 2022 |
| 653,808 |
|
| (55,606 | ) |
| 598,202 |
|
|
| 1,506,432,352 |
|
| (204,668,482 | ) |
| 1,301,763,870 |
| |||||||||||||||||||
Balances at June 30, 2023 |
| 641,579 |
|
| (66,031 | ) |
| 575,548 |
|
|
| 1,524,775,852 |
|
| (216,786,584 | ) |
| 1,307,989,268 |
|
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 equal 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 1,466,0451,447,541 shares outstanding as of SeptemberJune 30, 20222023 and 1,477,4291,459,733 shares outstanding as of December 31, 2021.2022.
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 the average Class A shares outstanding.
Berkshire’s common stock repurchase program permits Berkshire to repurchase its Class A and Class B 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 BillsBill holdings below $30 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.
Note 18.20. Income taxes
Our consolidated effective income tax rates were 37.120.3% in the thirdsecond quarter and 23.520.2% in the first ninesix months of 20222023 compared to 14.721.8% in the thirdsecond quarter and 18.822.4% in the first ninesix months of 2021.2022. Our effective income tax rate normally reflects recurring benefits from dividends-received deductions applicable to investments in certain 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, including investment gains or losses with respect to our investments in equity securities, the amount of non-deductible goodwill impairment charges and other expenses and the underlying income tax rates applicable in the various taxing jurisdictions.jurisdictions, and enacted changes thereto.
2125
Notes to Consolidated Financial Statements (Continued)
Note 19.21. Accumulated other comprehensive income
A summary of the net changes in after-tax accumulated other comprehensive income attributable to Berkshire Hathaway shareholders for the ninesix months ending SeptemberJune 30, 20222023 and 20212022 follows (in millions).
|
| Unrealized |
|
| Foreign |
|
| Defined benefit |
|
| Other |
|
| Accumulated |
| |||||
First nine months of 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Balance at beginning of year |
| $ | 369 |
|
| $ | (4,092 | ) |
| $ | (347 | ) |
| $ | 43 |
|
| $ | (4,027 | ) |
Other comprehensive income, net |
|
| (767 | ) |
|
| (3,676 | ) |
|
| 47 |
|
|
| 189 |
|
|
| (4,207 | ) |
Balance at end of period |
| $ | (398 | ) |
| $ | (7,768 | ) |
| $ | (300 | ) |
| $ | 232 |
|
| $ | (8,234 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
First nine months of 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Balance at beginning of year |
| $ | 536 |
|
| $ | (3,082 | ) |
| $ | (1,645 | ) |
| $ | (52 | ) |
| $ | (4,243 | ) |
Other comprehensive income, net |
|
| (126 | ) |
|
| (619 | ) |
|
| 112 |
|
|
| 42 |
|
|
| (591 | ) |
Balance at end of period |
| $ | 410 |
|
| $ | (3,701 | ) |
| $ | (1,533 | ) |
| $ | (10 | ) |
| $ | (4,834 | ) |
|
| Unrealized |
|
| Foreign currency translation |
|
| Long-duration insurance contracts |
|
| Defined benefit pension plans |
|
| Other |
|
| Total |
| ||||||
First six months of 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Beginning of year as previously reported |
| $ | (187 | ) |
| $ | (6,140 | ) |
| $ | — |
|
| $ | (552 | ) |
| $ | 288 |
|
| $ | (6,591 | ) |
Adoption of ASU 2018-12 |
|
| — |
|
|
| (2 | ) |
|
| 1,541 |
|
|
| — |
|
|
| — |
|
|
| 1,539 |
|
Beginning balance as revised |
|
| (187 | ) |
|
| (6,142 | ) |
|
| 1,541 |
|
|
| (552 | ) |
|
| 288 |
|
|
| (5,052 | ) |
Other comprehensive income |
|
| 174 |
|
|
| 592 |
|
|
| 71 |
|
|
| 41 |
|
|
| (66 | ) |
|
| 812 |
|
Balance at end of period |
| $ | (13 | ) |
| $ | (5,550 | ) |
| $ | 1,612 |
|
| $ | (511 | ) |
| $ | 222 |
|
| $ | (4,240 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
First six months of 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Beginning of year as previously reported |
| $ | 369 |
|
| $ | (4,092 | ) |
| $ | — |
|
| $ | (347 | ) |
| $ | 43 |
|
| $ | (4,027 | ) |
Adoption of ASU 2018-12 |
|
| — |
|
|
| — |
|
|
| (4,096 | ) |
|
| — |
|
|
| — |
|
|
| (4,096 | ) |
Beginning balance as revised |
|
| 369 |
|
|
| (4,092 | ) |
|
| (4,096 | ) |
|
| (347 | ) |
|
| 43 |
|
|
| (8,123 | ) |
Other comprehensive income |
|
| (352 | ) |
|
| (1,969 | ) |
|
| 4,566 |
|
|
| 27 |
|
|
| 148 |
|
|
| 2,420 |
|
Balance at end of period |
| $ | 17 |
|
| $ | (6,061 | ) |
| $ | 470 |
|
| $ | (320 | ) |
| $ | 191 |
|
| $ | (5,703 | ) |
Note 20.22. Supplemental cash flow information
A summary of supplemental cash flow information is presented in the following table (in millions).
|
| First Nine Months |
|
| First Six Months |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||
Cash paid during the period for: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Income taxes |
| $ | 3,474 |
|
| $ | 4,002 |
|
| $ | 2,962 |
|
| $ | 1,951 |
|
Interest: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Insurance and other |
|
| 917 |
|
|
| 1,040 |
|
|
| 725 |
|
|
| 567 |
|
Railroad, utilities and energy |
|
| 2,323 |
|
|
| 2,335 |
|
|
| 1,857 |
|
|
| 1,564 |
|
Non-cash investing and financing activities: |
|
|
|
|
|
| ||||||||||
Liabilities assumed in connection with business acquisitions |
|
| 10,815 |
|
|
| 21 |
|
Note 21.23. 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. WeGenerally, 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 currently believe that any liability that may arise as a result of other pending legal actions will not have a material effect on our consolidated financial condition or results of operations.
OnPacifiCorp, a wholly owned subsidiary of Berkshire’s March 20, 202292% owned subsidiary, Berkshire Hathaway Energy Company (“BHE”), Berkshire entered intooperates as a definitive agreementregulated electric utility in Oregon and plan of merger with Alleghany Corporation (“Alleghany”)other Western states. In September 2020, a severe weather event resulting in high winds, low humidity and warm temperatures contributed to acquire all of Alleghany’s outstanding common stock for cash consideration of approximately $11.6 billion. Following the receipt of Alleghany shareholder approval on June 9, 2022several major wildfires (the “2020 Wildfires”), which resulted in real and all required regulatory approvals, the acquisition was completed on October 19, 2022. The consideration paid was funded by existing cash balances. Alleghany operates a group ofpersonal property and casualty reinsurancenatural resource damage, personal injuries and insurance businesses. It also owns a portfolioloss of non-financial businesses.life and widespread power outages in Oregon and Northern California. The wildfires spread across certain parts of PacifiCorp’s service territory and surrounding areas across multiple counties in Oregon and California, including Siskiyou County, California; Jackson County, Oregon; Douglas County, Oregon; Marion County, Oregon; Lincoln County, Oregon; and Klamath County, Oregon, burning over 500,000 acres in aggregate. Third-party reports for these wildfires indicate over 2,000 structures destroyed, including residences; several structures damaged; multiple individuals injured; and several fatalities.
Given the proximity of the Alleghany acquisition date26
Notes to the date these interim Consolidated Financial Statements were issued, it(Continued)
Note 23. Contingencies and commitments (Continued)
Investigations into the cause and origin of each wildfire are complex and ongoing and being conducted by various entities, including the U.S. Forest Service, the California Public Utilities Commission, the Oregon Department of Forestry, the Oregon Department of Justice, PacifiCorp and various experts engaged by PacifiCorp.
Numerous lawsuits on behalf of plaintiffs related to the 2020 Wildfires have been filed in Oregon and California, including a class action complaint against PacifiCorp that was impracticablefiled in 2020, captioned Jeanyne James et al. v. PacifiCorp et al., in Multnomah County Circuit Court, Oregon (the “James case”). Amounts sought in the lawsuits, complaints and demands filed in Oregon total over $7 billion, excluding any doubling or trebling of damages included in the complaints. Generally, the complaints filed in California do not specify damages sought and are not included in this amount. Final determinations of liability will only be made following the completion of comprehensive investigations, litigation and similar processes.
Several insurance carriers have filed subrogation complaints in Oregon and California with allegations similar to provide an initial estimatethose made in the aforementioned lawsuits. Additionally, certain governmental agencies have informed PacifiCorp that they are contemplating filing actions in connection with certain of the fair values of identifiable assets acquired, liabilities assumed and residual goodwill or proforma information. We expect to provide disclosures of preliminary values of identifiable assets acquired and liabilities assumed as of the acquisition date as well as proforma information, if material, in our Consolidated Financial Statements for the year ending December 31, 2022. Alleghany’s most recently available historical consolidated financial statements are as of September 30, 2022. As of that date, Alleghany’s total assets and liabilities were $31.2 billion and $23.4 billion, respectively.Oregon 2020 Wildfires.
In June 2022, BHE acquired2023, a jury issued a verdict for the BHE common stock held by Greg Abel, Berkshire’s Vice Chairman - non-insurance operations,17 named plaintiffs in the James case. The plaintiffs seek damages for $economic losses, non-economic losses, including mental suffering, emotional distress, personal injury and loss of life, punitive damages, other damages and attorneys’ fees. PacifiCorp intends to vigorously appeal the jury’s findings and damage awards, including whether the case can proceed as a class action. The appeals process and further actions could take several years.870
million. The purchase was pursuantBased on the facts and circumstances available to us as of the date of this filing, which includes the status of the verdict in the James case with respect to the terms of a shareholders agreement between Berkshire, BHE17 named plaintiffs, other litigation and BHE’s non-controlling shareholders. Berkshire recorded a chargerecent settlements, PacifiCorp has accrued cumulative estimated pre-tax probable losses associated with the 2020 Wildfires of $3621,018 million through June 30, 2023, or $608 million net of probable insurance recoveries. PacifiCorp’s cumulative accrual includes estimates of probable losses for fire suppression costs, real and personal property damages, natural resource damages for certain areas and non-economic damages such as personal injury damages and loss of life damages that are considered probable of being incurred and that it is reasonably able to capital in excess of par value for the excessestimate at this time. For certain aspects of the consideration paid over2020 Wildfires for which loss is considered probable, information necessary to reasonably estimate the carrying valuepotential losses, such as those related to certain areas of natural resource damages, is not currently available.
It is reasonably possible PacifiCorp will incur significant additional losses beyond the acquired noncontrolling interest.amounts currently accrued; however, we are currently unable to reasonably estimate the range of possible additional losses that could be incurred due to the number of properties and parties involved, including claimants in the class to the James case, the variation in those types of properties and lack of available details and the ultimate outcome of legal actions.
On July 10, 2023, BHE announced that it had executed an agreement to acquire an additional 50% interest in Cove Point LNG, LP, which would increase its interest to 75%. The transaction is valued at $3.3 billion and is subject to applicable regulatory approvals.
2227
Notes to Consolidated Financial Statements (Continued)
Note 22.24. Revenues from contracts with customers
We recognize revenue 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 thirdsecond quarter and first ninesix months of 20222023 and 20212022 (in millions). Revenues from Pilot in 2023 are for the five months ending June 30, 2023. Other revenues, which are not considered to be revenues from contracts with customers under GAAP, are primarily insurance premiums earned, interest, dividend and other investment income and leasing revenues.
|
| Manufacturing |
|
| McLane |
|
| Service |
|
| BNSF |
|
| Berkshire |
|
| Insurance, |
|
| Total |
|
| Manufacturing |
|
| McLane |
|
| Service |
|
| BNSF |
|
| Berkshire |
|
| Pilot |
|
| Insurance, |
|
| Total |
| |||||||||||||||
Three months ending September 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||
Three months ending June 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Manufactured products: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Industrial and commercial products |
| $ | 6,145 |
|
| $ | — |
|
| $ | 51 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 6,196 |
|
| $ | 7,221 |
|
| $ | — |
|
| $ | 54 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 7,275 |
|
Building products |
|
| 5,928 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,928 |
|
|
| 5,178 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,178 |
|
Consumer products |
|
| 4,753 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,753 |
|
|
| 4,343 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,343 |
|
Grocery and convenience store distribution |
|
| — |
|
|
| 8,315 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8,315 |
|
|
| — |
|
|
| 7,535 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7,535 |
|
Food and beverage distribution |
|
| — |
|
|
| 4,946 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,946 |
|
|
| — |
|
|
| 4,902 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,902 |
|
Auto sales |
|
| — |
|
|
| — |
|
|
| 2,686 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,686 |
|
|
| — |
|
|
| — |
|
|
| 2,789 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,789 |
|
Other retail and wholesale distribution |
|
| 803 |
|
|
| — |
|
|
| 4,189 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,992 |
|
|
| 814 |
|
|
| — |
|
|
| 4,138 |
|
|
| — |
|
|
| — |
|
|
| 681 |
|
|
| — |
|
|
| 5,633 |
|
Service |
|
| 328 |
|
|
| 277 |
|
|
| 1,006 |
|
|
| 6,646 |
|
|
| 1,328 |
|
|
| — |
|
|
| 9,585 |
|
|
| 347 |
|
|
| 213 |
|
|
| 1,390 |
|
|
| 5,791 |
|
|
| 1,217 |
|
|
| 88 |
|
|
| — |
|
|
| 9,046 |
|
Electricity and natural gas |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,905 |
|
|
| — |
|
|
| 5,905 |
| ||||||||||||||||||||||||||||||||
Electricity, natural gas and fuel |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,779 |
|
|
| 13,903 |
|
|
| — |
|
|
| 18,682 |
| ||||||||||||||||||||||||||||
Total |
|
| 17,957 |
|
|
| 13,538 |
|
|
| 7,932 |
|
|
| 6,646 |
|
|
| 7,233 |
|
|
| — |
|
|
| 53,306 |
|
|
| 17,903 |
|
|
| 12,650 |
|
|
| 8,371 |
|
|
| 5,791 |
|
|
| 5,996 |
|
|
| 14,672 |
|
|
| — |
|
|
| 65,383 |
|
Other revenues |
|
| 1,012 |
|
|
| 32 |
|
|
| 1,609 |
|
|
| 17 |
|
|
| 294 |
|
|
| 20,664 |
|
|
| 23,628 |
|
|
| 1,171 |
|
|
| 47 |
|
|
| 1,738 |
|
|
| 17 |
|
|
| 354 |
|
|
| 61 |
|
|
| 23,732 |
|
|
| 27,120 |
|
|
| $ | 18,969 |
|
| $ | 13,570 |
|
| $ | 9,541 |
|
| $ | 6,663 |
|
| $ | 7,527 |
|
| $ | 20,664 |
|
| $ | 76,934 |
|
| $ | 19,074 |
|
| $ | 12,697 |
|
| $ | 10,109 |
|
| $ | 5,808 |
|
| $ | 6,350 |
|
| $ | 14,733 |
|
| $ | 23,732 |
|
| $ | 92,503 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Nine months ending September 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||
Six months ending June 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Manufactured products: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Industrial and commercial products |
| $ | 18,219 |
|
| $ | — |
|
| $ | 148 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 18,367 |
|
| $ | 14,450 |
|
| $ | — |
|
| $ | 119 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 14,569 |
|
Building products |
|
| 17,317 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 17,317 |
|
|
| 9,936 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 9,936 |
|
Consumer products |
|
| 15,355 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 15,355 |
|
|
| 8,378 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8,378 |
|
Grocery and convenience store distribution |
|
| — |
|
|
| 24,000 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 24,000 |
|
|
| — |
|
|
| 15,328 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 15,328 |
|
Food and beverage distribution |
|
| — |
|
|
| 14,510 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 14,510 |
|
|
| — |
|
|
| 9,664 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 9,664 |
|
Auto sales |
|
| — |
|
|
| — |
|
|
| 7,888 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7,888 |
|
|
| — |
|
|
| — |
|
|
| 5,354 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,354 |
|
Other retail and wholesale distribution |
|
| 2,343 |
|
|
| — |
|
|
| 12,629 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 14,972 |
|
|
| 1,613 |
|
|
| — |
|
|
| 8,368 |
|
|
| — |
|
|
| — |
|
|
| 1,103 |
|
|
| — |
|
|
| 11,084 |
|
Service |
|
| 894 |
|
|
| 739 |
|
|
| 3,090 |
|
|
| 19,173 |
|
|
| 4,001 |
|
|
| — |
|
|
| 27,897 |
|
|
| 701 |
|
|
| 497 |
|
|
| 2,716 |
|
|
| 11,776 |
|
|
| 2,028 |
|
|
| 109 |
|
|
| — |
|
|
| 17,827 |
|
Electricity and natural gas |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 15,359 |
|
|
| — |
|
|
| 15,359 |
| ||||||||||||||||||||||||||||||||
Electricity, natural gas and fuel |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 10,070 |
|
|
| 22,918 |
|
|
| — |
|
|
| 32,988 |
| ||||||||||||||||||||||||||||
Total |
|
| 54,128 |
|
|
| 39,249 |
|
|
| 23,755 |
|
|
| 19,173 |
|
|
| 19,360 |
|
|
| — |
|
|
| 155,665 |
|
|
| 35,078 |
|
|
| 25,489 |
|
|
| 16,557 |
|
|
| 11,776 |
|
|
| 12,098 |
|
|
| 24,130 |
|
|
| — |
|
|
| 125,128 |
|
Other revenues |
|
| 2,962 |
|
|
| 97 |
|
|
| 4,470 |
|
|
| 46 |
|
|
| 658 |
|
|
| 60,026 |
|
|
| 68,259 |
|
|
| 2,261 |
|
|
| 89 |
|
|
| 3,454 |
|
|
| 33 |
|
|
| 691 |
|
|
| 99 |
|
|
| 46,141 |
|
|
| 52,768 |
|
|
| $ | 57,090 |
|
| $ | 39,346 |
|
| $ | 28,225 |
|
| $ | 19,219 |
|
| $ | 20,018 |
|
| $ | 60,026 |
|
| $ | 223,924 |
|
| $ | 37,339 |
|
| $ | 25,578 |
|
| $ | 20,011 |
|
| $ | 11,809 |
|
| $ | 12,789 |
|
| $ | 24,229 |
|
| $ | 46,141 |
|
| $ | 177,896 |
|
2328
Notes to Consolidated Financial Statements (Continued)
Note 22.24. Revenues from contracts with customers (Continued)
|
| Manufacturing |
|
| McLane |
|
| Service |
|
| BNSF |
|
| Berkshire |
|
| Insurance, |
|
| Total |
| |||||||
Three months ending September 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Manufactured products: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Industrial and commercial products |
| $ | 5,600 |
|
| $ | — |
|
| $ | 43 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 5,643 |
|
Building products |
|
| 5,005 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,005 |
|
Consumer products |
|
| 4,758 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,758 |
|
Grocery and convenience store distribution |
|
| — |
|
|
| 7,933 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7,933 |
|
Food and beverage distribution |
|
| — |
|
|
| 4,478 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,478 |
|
Auto sales |
|
| — |
|
|
| — |
|
|
| 2,423 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,423 |
|
Other retail and wholesale distribution |
|
| 742 |
|
|
| — |
|
|
| 3,913 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,655 |
|
Service |
|
| 400 |
|
|
| 175 |
|
|
| 1,073 |
|
|
| 5,747 |
|
|
| 1,586 |
|
|
| — |
|
|
| 8,981 |
|
Electricity and natural gas |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,138 |
|
|
| — |
|
|
| 5,138 |
|
Total |
|
| 16,505 |
|
|
| 12,586 |
|
|
| 7,452 |
|
|
| 5,747 |
|
|
| 6,724 |
|
|
| — |
|
|
| 49,014 |
|
Other revenues |
|
| 951 |
|
|
| 26 |
|
|
| 1,202 |
|
|
| 14 |
|
|
| 289 |
|
|
| 19,087 |
|
|
| 21,569 |
|
|
| $ | 17,456 |
|
| $ | 12,612 |
|
| $ | 8,654 |
|
| $ | 5,761 |
|
| $ | 7,013 |
|
| $ | 19,087 |
|
| $ | 70,583 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Nine months ending September 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Manufactured products: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Industrial and commercial products |
| $ | 16,549 |
|
| $ | — |
|
| $ | 142 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 16,691 |
|
Building products |
|
| 14,518 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 14,518 |
|
Consumer products |
|
| 13,525 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 13,525 |
|
Grocery and convenience store distribution |
|
| — |
|
|
| 23,104 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 23,104 |
|
Food and beverage distribution |
|
| — |
|
|
| 12,838 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 12,838 |
|
Auto sales |
|
| — |
|
|
| — |
|
|
| 7,485 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7,485 |
|
Other retail and wholesale distribution |
|
| 2,199 |
|
|
| — |
|
|
| 11,577 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 13,776 |
|
Service |
|
| 1,099 |
|
|
| 509 |
|
|
| 3,060 |
|
|
| 16,875 |
|
|
| 4,219 |
|
|
| — |
|
|
| 25,762 |
|
Electricity and natural gas |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 14,048 |
|
|
| — |
|
|
| 14,048 |
|
Total |
|
| 47,890 |
|
|
| 36,451 |
|
|
| 22,264 |
|
|
| 16,875 |
|
|
| 18,267 |
|
|
| — |
|
|
| 141,747 |
|
Other revenues |
|
| 2,821 |
|
|
| 78 |
|
|
| 3,287 |
|
|
| 42 |
|
|
| 755 |
|
|
| 55,566 |
|
|
| 62,549 |
|
|
| $ | 50,711 |
|
| $ | 36,529 |
|
| $ | 25,551 |
|
| $ | 16,917 |
|
| $ | 19,022 |
|
| $ | 55,566 |
|
| $ | 204,296 |
|
|
| Manufacturing |
|
| McLane |
|
| Service |
|
| BNSF |
|
| Berkshire |
|
| Pilot |
|
| Insurance, |
|
| Total |
| ||||||||
Three months ending June 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Manufactured products: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Industrial and commercial products |
| $ | 6,142 |
|
| $ | — |
|
| $ | 48 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 6,190 |
|
Building products |
|
| 5,970 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,970 |
|
Consumer products |
|
| 5,509 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,509 |
|
Grocery and convenience store distribution |
|
| — |
|
|
| 7,979 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7,979 |
|
Food and beverage distribution |
|
| — |
|
|
| 5,002 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,002 |
|
Auto sales |
|
| — |
|
|
| — |
|
|
| 2,675 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,675 |
|
Other retail and wholesale distribution |
|
| 818 |
|
|
| — |
|
|
| 4,265 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,083 |
|
Service |
|
| 302 |
|
|
| 248 |
|
|
| 1,078 |
|
|
| 6,596 |
|
|
| 1,561 |
|
|
| — |
|
|
| — |
|
|
| 9,785 |
|
Electricity and natural gas |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,740 |
|
|
| — |
|
|
| — |
|
|
| 4,740 |
|
Total |
|
| 18,741 |
|
|
| 13,229 |
|
|
| 8,066 |
|
|
| 6,596 |
|
|
| 6,301 |
|
|
| — |
|
|
| — |
|
|
| 52,933 |
|
Other revenues |
|
| 995 |
|
|
| 33 |
|
|
| 1,527 |
|
|
| 16 |
|
|
| 239 |
|
|
| — |
|
|
| 20,458 |
|
|
| 23,268 |
|
| $ | 19,736 |
|
| $ | 13,262 |
|
| $ | 9,593 |
|
| $ | 6,612 |
|
| $ | 6,540 |
|
| $ | — |
|
| $ | 20,458 |
|
| $ | 76,201 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Six months ending June 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Manufactured products: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Industrial and commercial products |
| $ | 12,074 |
|
| $ | — |
|
| $ | 97 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 12,171 |
|
Building products |
|
| 11,389 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 11,389 |
|
Consumer products |
|
| 10,602 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 10,602 |
|
Grocery and convenience store distribution |
|
| — |
|
|
| 15,685 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 15,685 |
|
Food and beverage distribution |
|
| — |
|
|
| 9,564 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 9,564 |
|
Auto sales |
|
| — |
|
|
| — |
|
|
| 5,202 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,202 |
|
Other retail and wholesale distribution |
|
| 1,540 |
|
|
| — |
|
|
| 8,440 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 9,980 |
|
Service |
|
| 566 |
|
|
| 462 |
|
|
| 2,084 |
|
|
| 12,527 |
|
|
| 2,673 |
|
|
| — |
|
|
| — |
|
|
| 18,312 |
|
Electricity and natural gas |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 9,454 |
|
|
| — |
|
|
| — |
|
|
| 9,454 |
|
Total |
|
| 36,171 |
|
|
| 25,711 |
|
|
| 15,823 |
|
|
| 12,527 |
|
|
| 12,127 |
|
|
| — |
|
|
| — |
|
|
| 102,359 |
|
Other revenues |
|
| 1,950 |
|
|
| 65 |
|
|
| 2,861 |
|
|
| 29 |
|
|
| 428 |
|
|
| — |
|
|
| 39,352 |
|
|
| 44,685 |
|
| $ | 38,121 |
|
| $ | 25,776 |
|
| $ | 18,684 |
|
| $ | 12,556 |
|
| $ | 12,555 |
|
| $ | — |
|
| $ | 39,352 |
|
| $ | 147,044 |
|
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 SeptemberJune 30, 20222023 and the timing of when the performance obligations are expected to be satisfied follows (in millions).
|
| Less than |
|
| Greater than |
|
| Total |
|
| Less than |
|
| Greater than |
|
| Total |
| ||||||
Electricity and natural gas |
| $ | 3,619 |
|
| $ | 21,586 |
|
| $ | 25,205 |
| ||||||||||||
Electricity, natural gas and fuel |
| $ | 3,390 |
|
| $ | 20,764 |
|
| $ | 24,154 |
| ||||||||||||
Other sales and service contracts |
|
| 1,588 |
|
|
| 3,039 |
|
|
| 4,627 |
|
|
| 3,377 |
|
|
| 5,258 |
|
|
| 8,635 |
|
2429
Notes to Consolidated Financial Statements (Continued)
Note 23.25. 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 and marketing, selling and distribution characteristics, even though those business units are operated under separate local management. We acquired control of Pilot Travel Centers (“Pilot”) on January 31, 2023. Pilot’s revenues, costs and earnings are included in our Consolidated Financial Statements, and Pilot is considered a reportable segment beginning February 1, 2023. In this presentation, the revenues and pre-tax earnings of the Pilot segment are for the five months ending June 30, 2023. Previously, our earnings from Pilot were determined under the equity method and are included in earnings from equity method investments. Revenues and earnings (loss) before income taxes by segment for the thirdsecond quarter and first ninesix months of 20222023 and 20212022 were as follows (in millions).
| Third Quarter |
|
| First Nine Months |
| Second Quarter |
|
| First Six Months |
| ||||||||||||||||||||
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||||
Revenues of Operating Businesses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Insurance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Underwriting: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
GEICO | $ | 9,808 |
|
| $ | 9,604 |
|
| $ | 29,169 |
|
| $ | 28,073 |
| $ | 9,714 |
|
| $ | 9,807 |
|
| $ | 19,340 |
|
| $ | 19,361 |
|
Berkshire Hathaway Primary Group |
| 3,485 |
|
|
| 2,964 |
|
|
| 9,916 |
|
|
| 8,373 |
|
| 4,233 |
|
|
| 3,313 |
|
|
| 8,194 |
|
|
| 6,431 |
|
Berkshire Hathaway Reinsurance Group |
| 5,517 |
|
|
| 5,159 |
|
|
| 15,304 |
|
|
| 14,868 |
|
| 6,614 |
|
|
| 4,961 |
|
|
| 12,823 |
|
|
| 9,777 |
|
Investment income |
| 1,683 |
|
|
| 1,339 |
|
|
| 5,331 |
|
|
| 4,212 |
|
| 2,918 |
|
|
| 2,284 |
|
|
| 5,310 |
|
|
| 3,648 |
|
Total insurance |
| 20,493 |
|
|
| 19,066 |
|
|
| 59,720 |
|
|
| 55,526 |
|
| 23,479 |
|
|
| 20,365 |
|
|
| 45,667 |
|
|
| 39,217 |
|
BNSF |
| 6,693 |
|
|
| 5,790 |
|
|
| 19,301 |
|
|
| 17,000 |
|
| 5,828 |
|
|
| 6,640 |
|
|
| 11,847 |
|
|
| 12,608 |
|
BHE |
| 7,531 |
|
|
| 7,013 |
|
|
| 20,032 |
|
|
| 19,022 |
| |||||||||||||||
Berkshire Hathaway Energy (“BHE”) |
| 6,362 |
|
|
| 6,545 |
|
|
| 12,813 |
|
|
| 12,565 |
| |||||||||||||||
Pilot Travel Centers (“Pilot”) |
| 14,754 |
|
|
| — |
|
|
| 24,262 |
|
|
| — |
| |||||||||||||||
Manufacturing |
| 19,000 |
|
|
| 17,496 |
|
|
| 57,193 |
|
|
| 50,821 |
|
| 19,102 |
|
|
| 19,772 |
|
|
| 37,391 |
|
|
| 38,193 |
|
McLane |
| 13,569 |
|
|
| 12,612 |
|
|
| 39,346 |
|
|
| 36,529 |
|
| 12,883 |
|
|
| 13,262 |
|
|
| 25,942 |
|
|
| 25,777 |
|
Service and retailing |
| 9,567 |
|
|
| 8,679 |
|
|
| 28,299 |
|
|
| 25,614 |
|
| 10,141 |
|
|
| 9,617 |
|
|
| 20,072 |
|
|
| 18,732 |
|
|
| 76,853 |
|
|
| 70,656 |
|
|
| 223,891 |
|
|
| 204,512 |
|
| 92,549 |
|
|
| 76,201 |
|
|
| 177,994 |
|
|
| 147,092 |
|
Reconciliation of segments to consolidated amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Corporate, eliminations and other |
| 81 |
|
|
| (73 | ) |
|
| 33 |
|
|
| (216 | ) |
| (46 | ) |
|
| — |
|
|
| (98 | ) |
|
| (48 | ) |
| $ | 76,934 |
|
| $ | 70,583 |
|
| $ | 223,924 |
|
| $ | 204,296 |
| $ | 92,503 |
|
| $ | 76,201 |
|
| $ | 177,896 |
|
| $ | 147,044 |
|
| Third Quarter |
|
| First Nine Months |
| Second Quarter |
|
| First Six Months |
| ||||||||||||||||||||
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||||
Earnings (Loss) Before Income Taxes of Operating Businesses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Insurance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Underwriting: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
GEICO | $ | (759 | ) |
| $ | (289 | ) |
| $ | (1,424 | ) |
| $ | 1,360 |
| $ | 514 |
|
| $ | (487 | ) |
| $ | 1,217 |
|
| $ | (665 | ) |
Berkshire Hathaway Primary Group |
| (281 | ) |
|
| (23 | ) |
|
| 53 |
|
|
| 349 |
|
| 272 |
|
|
| 242 |
|
|
| 540 |
|
|
| 334 |
|
Berkshire Hathaway Reinsurance Group |
| (110 | ) |
|
| (708 | ) |
|
| 1,013 |
|
|
| (1,298 | ) |
| 827 |
|
|
| 1,141 |
|
|
| 1,058 |
|
|
| 1,442 |
|
Investment income |
| 1,678 |
|
|
| 1,337 |
|
|
| 5,322 |
|
|
| 4,205 |
|
| 2,912 |
|
|
| 2,283 |
|
|
| 5,297 |
|
|
| 3,644 |
|
Total insurance |
| 528 |
|
|
| 317 |
|
|
| 4,964 |
|
|
| 4,616 |
|
| 4,525 |
|
|
| 3,179 |
|
|
| 8,112 |
|
|
| 4,755 |
|
BNSF |
| 1,884 |
|
|
| 2,029 |
|
|
| 5,844 |
|
|
| 5,667 |
|
| 1,615 |
|
|
| 2,151 |
|
|
| 3,264 |
|
|
| 3,960 |
|
BHE |
| 1,321 |
|
|
| 1,375 |
|
|
| 2,561 |
|
|
| 2,797 |
|
| 624 |
|
|
| 591 |
|
|
| 847 |
|
|
| 1,304 |
|
Pilot |
| 186 |
|
|
| — |
|
|
| 322 |
|
|
| — |
| |||||||||||||||
Manufacturing |
| 2,883 |
|
|
| 2,445 |
|
|
| 8,735 |
|
|
| 7,595 |
|
| 3,103 |
|
|
| 3,028 |
|
|
| 5,714 |
|
|
| 5,852 |
|
McLane |
| 112 |
|
|
| (8 | ) |
|
| 270 |
|
|
| 179 |
|
| 129 |
|
|
| 76 |
|
|
| 242 |
|
|
| 158 |
|
Service and retailing |
| 1,202 |
|
|
| 1,110 |
|
|
| 3,536 |
|
|
| 3,234 |
|
| 1,262 |
|
|
| 1,199 |
|
|
| 2,483 |
|
|
| 2,334 |
|
|
| 7,930 |
|
|
| 7,268 |
|
|
| 25,910 |
|
|
| 24,088 |
|
| 11,444 |
|
|
| 10,224 |
|
|
| 20,984 |
|
|
| 18,363 |
|
Reconciliation of segments to consolidated amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Investment and derivative gains (losses) |
| (13,465 | ) |
|
| 4,921 |
|
|
| (82,362 | ) |
|
| 38,015 |
|
| 33,061 |
|
|
| (66,919 | ) |
|
| 67,819 |
|
|
| (68,897 | ) |
Interest expense, not allocated to segments |
| (99 | ) |
|
| (128 | ) |
|
| (303 | ) |
|
| (386 | ) |
| (103 | ) |
|
| (100 | ) |
|
| (217 | ) |
|
| (204 | ) |
Equity method investments |
| 441 |
|
|
| 377 |
|
|
| 1,048 |
|
|
| 775 |
|
| 511 |
|
|
| 204 |
|
|
| 1,199 |
|
|
| 543 |
|
Corporate, eliminations and other |
| 1,076 |
|
|
| 46 |
|
|
| 2,920 |
|
|
| 241 |
|
| 522 |
|
|
| 1,283 |
|
|
| 402 |
|
|
| 1,844 |
|
| $ | (4,117 | ) |
| $ | 12,484 |
|
| $ | (52,787 | ) |
| $ | 62,733 |
| $ | 45,435 |
|
| $ | (55,308 | ) |
| $ | 90,187 |
|
| $ | (48,351 | ) |
2530
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
Net earnings/lossearnings (loss) 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 |
| Second Quarter |
|
| First Six Months |
| ||||||||||||||||||||
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||||
Insurance – underwriting | $ | (962 | ) |
| $ | (784 | ) |
| $ | (334 | ) |
| $ | 356 |
| $ | 1,247 |
|
| $ | 715 |
|
| $ | 2,158 |
|
| $ | 882 |
|
Insurance – investment income |
| 1,408 |
|
|
| 1,161 |
|
|
| 4,484 |
|
|
| 3,588 |
|
| 2,369 |
|
|
| 1,906 |
|
|
| 4,338 |
|
|
| 3,076 |
|
Railroad |
| 1,442 |
|
|
| 1,538 |
|
|
| 4,477 |
|
|
| 4,305 |
| |||||||||||||||
Utilities and energy |
| 1,585 |
|
|
| 1,496 |
|
|
| 3,101 |
|
|
| 2,939 |
| |||||||||||||||
BNSF |
| 1,264 |
|
|
| 1,664 |
|
|
| 2,511 |
|
|
| 3,035 |
| |||||||||||||||
Berkshire Hathaway Energy (“BHE”) |
| 785 |
|
|
| 789 |
|
|
| 1,201 |
|
|
| 1,564 |
| |||||||||||||||
Pilot Travel Centers (“Pilot”) |
| 114 |
|
|
| — |
|
|
| 197 |
|
|
| — |
| |||||||||||||||
Manufacturing, service and retailing |
| 3,247 |
|
|
| 2,706 |
|
|
| 9,521 |
|
|
| 8,329 |
|
| 3,389 |
|
|
| 3,249 |
|
|
| 6,371 |
|
|
| 6,274 |
|
Non-controlled businesses* |
| 535 |
|
|
| 182 |
|
|
| 1,103 |
|
|
| 464 |
| |||||||||||||||
Investment and derivative contract gains (losses) |
| (10,449 | ) |
|
| 3,878 |
|
|
| (65,067 | ) |
|
| 29,979 |
|
| 25,869 |
|
|
| (53,038 | ) |
|
| 53,308 |
|
|
| (54,618 | ) |
Other |
| 1,041 |
|
|
| 349 |
|
|
| 2,835 |
|
|
| 653 |
|
| 340 |
|
|
| 912 |
|
|
| 229 |
|
|
| 1,282 |
|
Net earnings (loss) attributable to Berkshire Hathaway shareholders | $ | (2,688 | ) |
| $ | 10,344 |
|
| $ | (40,983 | ) |
| $ | 50,149 |
| $ | 35,912 |
|
| $ | (43,621 | ) |
| $ | 71,416 |
|
| $ | (38,041 | ) |
——————
* Includes certain businesses in which Berkshire had between a 20% and 50% ownership interest.
Through our subsidiaries, we engage in numerous diverse business activities. We manage our operating businesses on an unusually decentralized basis. There are few centralized or integrated business functions. 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 2325 to the accompanying Consolidated Financial Statements) should be read in conjunction with this discussion.
InTo varying degrees, our operating businesses have been impacted by government and private sector actions taken to mitigate the adverse economic effects of the COVID-19 pandemic has affected our operating businesses. In addition, significant disruptionsvirus and its variants as well as by the development of supply chains and higher costs emerged in 2021 and have persisted in 2022. Further,global geopolitical conflicts, including the Russia-Ukraine conflict, have developed in 2022.supply chain disruptions and government actions to slow inflation. We cannot reliably predict the future economic effects of these events on our businesses or when our operations will normalize. Nor can we reliably predict how these events will alter the future consumption patterns of consumers and businesses we serve.businesses.
Insurance underwriting after-taxgenerated earnings decreased $178of $1.25 billion in the second quarter and $2.16 billion in the first six months of 2023 versus $715 million in the thirdsecond quarter and $690$882 million in the first ninesix months of 2022. Earnings in 2022 versus 2021. After-tax incurred lossesreflect increases of $134 million in the second quarter and $254 million in the first six months from the previously reported amounts attributable to significant catastrophe occurrences in the third quarter were approximately $2.7 billion from Hurricane Ian in 2022 and $1.7 billion from Hurricane Ida and floods in Europe in 2021. Underwriting results in 2022 were also negatively impacted by increases in private passenger automobile claims frequencies and severities, and favorably impacted by higher foreign currency exchange rate gains arising from the remeasurementadoption of non-U.S. Dollar denominated liabilities of our U.S. insurance subsidiaries and improved life and health reinsurance results. After-tax earningsASU 2018-12 on January 1, 2023. Earnings from insurance investment income increased $247$463 million in the thirdsecond quarter and $896 million$1.3 billion in the first ninesix months of 20222023 compared to 2021, attributable2022. The increases were primarily due to increasedhigher short-term interest rates, partly offset by lower dividend income and higher interest rates.income.
After-tax earningsEarnings of our railroad, BNSF declined 6.2%24.0% in the thirdsecond quarter and increased 4.0%17.3% in the first ninesix months of 20222023 compared to 2021.2022. The comparative changes in earnings in 2022 reflected higher revenue per car/unit,decreases were primarily attributable to lower overall freight volumes and higher non-fuel operating costs, offset by lower fuel and other operating costs. After-tax earnings of our utilities and energy business increased 5.9%BHE were essentially unchanged in the thirdsecond quarter and 5.5%declined 23.2% in the first ninesix months of 20222023 compared to 2021.2022. The increasesearnings decline in the first six months reflected higher earnings from tax equity investments and from the natural gas pipeline and Northern Powergrid businesses, partly offset by lower earnings from the U.S. regulated utilities, other energy businesses and real estate brokerage businesses. After-tax
As disclosed in Note 3 to the accompanying Consolidated Financial Statements, we increased our ownership in Pilot from 38.6% to 80% on January 31, 2023 and we are consolidating Pilot’s results beginning February 1, 2023. In 2022 and through January 31, 2023, earnings from Pilot on our 38.6% interest were determined under the equity method and are included in earnings from non-controlled businesses in the preceding table.
Earnings from our manufacturing, service and retailing businesses increased 20.0%4.3% in the thirdsecond quarter and 14.3%1.5% in the first ninesix months of 2023 versus 2022. While earnings for certain industrial products manufacturers and services businesses improved versus 2022, versus 2021. Results were mixed amongearnings of several of our various businesses. While customer demand forbuilding products, consumer products and services was relatively good in 2022, demand began to weaken in the third quarter at certain of our businesses. We continue to experience the negative effects of higher materials, freight, labor and other input costs.retailing businesses deteriorated.
Investment and derivative contract gains (losses) in each period of 2023 and losses in 2022 and 2021 predominantly derived from our investments in equity securities and includesincluded significant net unrealized gains and losses from market price changes during the period.changes. We believe that investment gains and derivative gains/losses on investments in equity securities, whether realized from dispositions or unrealized from changes in market prices, of equity securities, are generally meaningless in understanding our reported quarterly or annual results or in evaluating the economic performance of our operating businesses. These gains and losses have caused and will continue to cause significant volatility in our periodic earnings. Other earningsInvestment and derivative contract gains (losses) also included an after-tax foreign currency exchange gains related to non-U.S. Dollar denominated debtnon-cash remeasurement gain of $858 million in the third quarter and $2.4 billion in the first nine monthsquarter of 2022, compared2023 related to $196 million and $676 millionour previously held 38.6% interest in Pilot through the third quarter and first nine monthsapplication of 2021, respectively.the acquisition accounting method.
2631
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations(Continued)
Other earnings included after-tax foreign exchange rate gains of $465 million in the second quarter and $448 million in the first six months of 2023 and $1.1 billion in the second quarter and $1.6 billion in the first six months of 2022. These gains related to the non-U.S. Dollar denominated debt issued by Berkshire and its U.S.-based finance subsidiary, Berkshire Hathaway Finance Corporation (“BHFC”).
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 the economic performance of underwriting operations without any allocation of investment income or investment gains and losses. We consider investment income as an integral component of our aggregate insurance operating results. However, we consider investment gains and losses, whether realized or unrealized, as non-operating. We believe that such gains and losses are not meaningful in understanding the quarterly or annual operating results of our insurance businesses.
The timing and magnitude of catastrophe losses can produce significant volatility in our periodic underwriting results, particularly with respect to our reinsurance businesses. Generally, weWe currently consider pre-tax incurred losses exceeding $100$150 million from a current year catastrophic event to be significant. Significant catastrophe events in 2022 included Hurricane Ianthe first six months of 2023 were a cyclone and floods in the third quarterNew Zealand and floods in Australia and South Africa during the first six months, while significantin 2022. Each of these events in 2021 included Hurricane Ida and floods in Europe in the third quarter and Winter Storm Urioccurred in the first quarter. We recorded estimated pre-tax losses of $3.4 billion from Hurricane Ian in the third quarter of 2022 and $2.2 billion from Hurricane Ida and European floods in the third quarter of 2021.year.
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 approximately $128$143 billion as of SeptemberJune 30, 2022.2023. 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 liabilities of our U.S. based insuranceU.S.-based subsidiaries fromdue to foreign currency exchange rate changes.
Underwriting results of certain of our commercial insurance and reinsurance businesses have been affected by estimated losses and costs associated with the COVID-19 pandemic. While pandemic-related losses in the first nine months of 2022 were insignificant, results in future periods may be affected by legal and regulatory actions pertaining to insurance coverage, which we cannot reasonably estimate at this time.fluctuations.
We provide primary insurance and reinsurance products covering property and casualty risks, as well as life and health risks. On October 19, 2022, Berkshire acquired Alleghany Corporation ("Alleghany"), which operates property and casualty insurance and reinsurance businesses. These businesses will be incorporated into our reinsurance and primary insurance results beginning as of the acquisition date. Our insurance and reinsurance businesses are GEICO, Berkshire Hathaway Primary Group (“BH Primary”) and Berkshire Hathaway Reinsurance Group. Group (“BHRG”). Berkshire acquired Alleghany Corporation (“Alleghany”) on October 19, 2022. Alleghany operates a property and casualty insurance business through its subsidiaries, RSUI Group Inc. and CapSpecialty, Inc. (“RSUI and CapSpecialty” or “Alleghany Insurance”), and a reinsurance business through Transatlantic Reinsurance Company and affiliates (“TransRe Group”). Underwriting results of Alleghany Insurance are included in BH Primary and underwriting results of TransRe Group are included in BHRG.
We strive to produce pre-tax underwriting earnings (premiums earned less insurance losses/benefits incurred and underwriting expenses) over the long term in all business categories, except for BHRG’s retroactive reinsurance and periodic payment annuity contracts businesses. Time-value-of-money is an important element in establishing prices for policies written by these businesses. We normally receive all premiums at the contract inception date, which are immediately available for investment. Ultimate claim payments can extend for decades and are expected to exceed premiums, producing underwriting losses over the claim settlement periods, primarily through deferred charge asset amortization and discounted liability accretion charges.
Underwriting results of our insurance businesses are summarized below (dollars in millions). BHRG’s pre-tax underwriting earnings for the second quarter and first six months of 2022 increased $174 million and $319 million, respectively, from pre-tax earnings previously reported due to the adoption of ASU 2018-12.
| Third Quarter |
|
| First Nine Months |
| Second Quarter |
|
| First Six Months |
| ||||||||||||||||||||
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||||
Pre-tax underwriting earnings (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
GEICO | $ | (759 | ) |
| $ | (289 | ) |
| $ | (1,424 | ) |
| $ | 1,360 |
| $ | 514 |
|
| $ | (487 | ) |
| $ | 1,217 |
|
| $ | (665 | ) |
Berkshire Hathaway Primary Group |
| (281 | ) |
|
| (23 | ) |
|
| 53 |
|
|
| 349 |
|
| 272 |
|
|
| 242 |
|
|
| 540 |
|
|
| 334 |
|
Berkshire Hathaway Reinsurance Group |
| (110 | ) |
|
| (708 | ) |
|
| 1,013 |
|
|
| (1,298 | ) |
| 827 |
|
|
| 1,141 |
|
|
| 1,058 |
|
|
| 1,442 |
|
Pre-tax underwriting earnings |
| (1,150 | ) |
|
| (1,020 | ) |
|
| (358 | ) |
|
| 411 |
|
| 1,613 |
|
|
| 896 |
|
|
| 2,815 |
|
|
| 1,111 |
|
Income taxes and noncontrolling interests |
| (188 | ) |
|
| (236 | ) |
|
| (24 | ) |
|
| 55 |
|
| 366 |
|
|
| 181 |
|
|
| 657 |
|
|
| 229 |
|
Net underwriting earnings (loss) | $ | (962 | ) |
| $ | (784 | ) |
| $ | (334 | ) |
| $ | 356 |
| |||||||||||||||
Net underwriting earnings | $ | 1,247 |
|
| $ | 715 |
|
| $ | 2,158 |
|
| $ | 882 |
| |||||||||||||||
Effective income tax rate |
| 16.3 | % |
|
| 23.0 | % |
|
| 6.6 | % |
|
| 13.6 | % |
| 22.6 | % |
|
| 20.1 | % |
|
| 23.4 | % |
|
| 20.6 | % |
32
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Insurance—Underwriting (Continued)
GEICO
GEICO primarily 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 |
| ||||||||||||||||||||||||||
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||||||||||||||
| Amount |
|
| % |
|
| Amount |
|
| % |
|
| Amount |
|
| % |
|
| Amount |
|
| % |
| ||||||||
Premiums written | $ | 10,137 |
|
|
|
|
| $ | 10,097 |
|
|
|
|
| $ | 29,818 |
|
|
|
|
| $ | 29,333 |
|
|
|
| ||||
Premiums earned | $ | 9,808 |
|
|
| 100.0 |
|
| $ | 9,604 |
|
|
| 100.0 |
|
| $ | 29,169 |
|
|
| 100.0 |
|
| $ | 28,073 |
|
|
| 100.0 |
|
Losses and loss adjustment expenses |
| 9,515 |
|
|
| 97.0 |
|
|
| 8,486 |
|
|
| 88.4 |
|
|
| 27,164 |
|
|
| 93.1 |
|
|
| 22,566 |
|
|
| 80.4 |
|
Underwriting expenses |
| 1,052 |
|
|
| 10.7 |
|
|
| 1,407 |
|
|
| 14.6 |
|
|
| 3,429 |
|
|
| 11.8 |
|
|
| 4,147 |
|
|
| 14.8 |
|
Total losses and expenses |
| 10,567 |
|
|
| 107.7 |
|
|
| 9,893 |
|
|
| 103.0 |
|
|
| 30,593 |
|
|
| 104.9 |
|
|
| 26,713 |
|
|
| 95.2 |
|
Pre-tax underwriting earnings (loss) | $ | (759 | ) |
|
|
|
| $ | (289 | ) |
|
|
|
| $ | (1,424 | ) |
|
|
|
| $ | 1,360 |
|
|
|
|
27
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Insurance—Underwriting (Continued)
GEICO (Continued)
| Second Quarter |
|
| First Six Months |
| ||||||||||||||||||||||||||
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||||||||||||||||
| Amount |
|
| % |
|
| Amount |
|
| % |
|
| Amount |
|
| % |
|
| Amount |
|
| % |
| ||||||||
Premiums written | $ | 9,449 |
|
|
|
|
| $ | 9,416 |
|
|
|
|
| $ | 19,509 |
|
|
|
|
| $ | 19,681 |
|
|
|
| ||||
Premiums earned | $ | 9,714 |
|
|
| 100.0 |
|
| $ | 9,807 |
|
|
| 100.0 |
|
| $ | 19,340 |
|
|
| 100.0 |
|
| $ | 19,361 |
|
|
| 100.0 |
|
Losses and loss adjustment expenses |
| 8,192 |
|
|
| 84.3 |
|
|
| 9,105 |
|
|
| 92.8 |
|
|
| 16,184 |
|
|
| 83.7 |
|
|
| 17,649 |
|
|
| 91.2 |
|
Underwriting expenses |
| 1,008 |
|
|
| 10.4 |
|
|
| 1,189 |
|
|
| 12.2 |
|
|
| 1,939 |
|
|
| 10.0 |
|
|
| 2,377 |
|
|
| 12.2 |
|
Total losses and expenses |
| 9,200 |
|
|
| 94.7 |
|
|
| 10,294 |
|
|
| 105.0 |
|
|
| 18,123 |
|
|
| 93.7 |
|
|
| 20,026 |
|
|
| 103.4 |
|
Pre-tax underwriting earnings (loss) | $ | 514 |
|
|
|
| $ | (487 | ) |
|
|
| $ | 1,217 |
|
|
|
| $ | (665 | ) |
|
|
GEICO’s pre-tax underwriting losses in 2022 reflected increased claims severities, primarily due to significant cost inflation in property and physical damage claims, which began to accelerateearnings in the second half of 2021 and have continued through 2022. Increases in used car prices are producing increased claims severities on total losses and shortages of car parts are contributing to elevated claims severities on partial losses. In addition, injury claims severities continue to trend higher.
Premiums written were relatively unchanged in the third quarter and the first ninesix months of 2022 compared to 2021, reflecting increases in2023 reflected higher average premiums per auto policy, duea reduction in advertising costs, as well as reductions in prior accident years’ claims estimates. Premiums written and earned were substantially unchanged in the second quarter and first six months of 2023 compared to 2022. Premiums in 2023 reflected rate increases which were substantially offset by a decrease in policies-in-force. Voluntary auto policies-in-force declined 4.6% overduring the first ninepast 12 months of 2022 whilethat produced higher average premiums per voluntary auto policy increased by approximately 5.4%. Premiums earned increased $204(16.3%), as well as a 2.7 million (2.1%decrease (14.4%) in the third quarterpolicies-in-force over that period. GEICO significantly reduced advertising in 2022 and $1.1 billion (3.9%) in the first nine months of 2022 compared to 2021. Premiums earned in the first nine months of 2021 included a reduction of approximately $475 million attributable2023, which contributed to the remaining impact of the GEICO Giveback program that provided a 15% premium credit to new and renewing voluntary auto and motorcycle policies written between April 8, 2020 and October 7, 2020.reduction in policies-in-force.
Losses and loss adjustment expenses increased $1.0 billion (12.1%declined $913 million (10.0%) in the thirdsecond quarter and $4.6$1.5 billion (20.4%(8.3%) in the first ninesix months of 20222023 compared to 2021.2022. GEICO’s loss ratio of losses(losses and loss adjustment expenses to premiums earnedearned) was 97.0%84.3% in the thirdsecond quarter and 93.1%83.7% in the first ninesix months of 2022, increases2023, decreases of 8.68.5 percentage points and 12.77.5 percentage points, respectively, compared to the same periods in 2021. The increases were primarily attributable to2022. These decreases reflected the impact of higher average premiums per auto policy, additional reductions in prior accident years’ claims estimates, the reduction in policies-in-force and lower claims frequencies, and severities, as well as lower reductions of loss estimates for prior years’ loss events and an increasepartially offset by increases in significant catastrophe losses.average claims severities.
Claims frequencies in the first nine months of 2022 were higher for all coverages, including property damage (one to two percent range), bodily injury and personal injury (four to five percent range) and collision (six to seven percent range). Average claims severities in the first nine months of 2022 were higher for property damage and collision coverages (seventeen to nineteen percent range) and bodily injury coverage (nine to eleven percent range). Losses and loss adjustment expenses reflectedin the first six months of 2023 included reductions in the ultimate loss estimates for prior accident years’ loss eventsclaims of $386$888 million compared to $207 million in the first nine months of 2022 compared to $1.2 billion2022. The reduction in 2021. The reductions in 20222023 reflected decreases in all major coverages except collision and property damagedecreased estimates across several coverages, while the reductions in 20212022 were across all majorprimarily attributable to bodily and personal injury coverages, partially offset by increases for collision and property damage coverages. Losses and loss adjustment expenses
Claims frequencies in the third quarterfirst six months of 2023 were approximately $600 million from Hurricane Ianlower for property damage (seven to eight percent range) and collision (seven to eight percent range) coverages, while claims frequencies increased for bodily injury (three to four percent range) and personal injury (one to two percent range) coverages. Average claims severities in 2022the first six months of 2023 were higher for property damage (twenty-one to twenty-three percent range), collision (seven to nine percent range) and $400 million from Hurricane Ida in 2021.bodily injury (seven to nine percent range) coverages.
Underwriting expenses decreased $355declined $181 million (25.2%(15.2%) in the thirdsecond quarter and $718$438 million (17.3%(18.4%) in the first ninesix months of 20222023 compared to 2021, primarily due to significant reductions in advertising costs in both periods and lower employee-related costs in the first nine months.2022. GEICO’s expense ratio (underwriting expense to premiums earned) was 10.7%10.4% in the thirdsecond quarter and 11.8%10.0% in the first ninesix months of 2022,2023, decreases of 3.91.8 percentage points and 3.02.2 percentage points, respectively, compared to the same periods in 2021, attributable to both2022. These decreases were driven by the decreasesreduction in expenses as well as the increases in earned premiums.advertising expenses.
Berkshire Hathaway Primary Group
The Berkshire Hathaway Primary Group (“BH Primary”) providesconsists of several independently managed businesses that provide a variety of primarily commercial insurance solutions, including healthcare professional liability, workers’ compensation, automobile, general liability, property and specialty coverages for small, medium and large clients. BH Primary’s larger insurers include Berkshire Hathaway Specialty Insurance (“BH Specialty”), Berkshire Hathaway Homestate Companies (“BHHC”), MedPro Group, Berkshire Hathaway GUARD Insurance Companies (“GUARD”), National Indemnity Company (“NICO Primary”), Berkshire Hathaway Direct Insurance Company (“BH Direct”) and U.S. Liability Insurance Company (“USLI”). A summary of BH Primary underwriting results follows (dollars in millions).
| Third Quarter |
|
| First Nine Months |
| ||||||||||||||||||||||||||
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||||||||||||||
| Amount |
|
| % |
|
| Amount |
|
| % |
|
| Amount |
|
| % |
|
| Amount |
|
| % |
| ||||||||
Premiums written | $ | 3,895 |
|
|
|
|
| $ | 3,506 |
|
|
|
|
| $ | 10,791 |
|
|
|
|
| $ | 9,357 |
|
|
|
| ||||
Premiums earned | $ | 3,485 |
|
|
| 100.0 |
|
| $ | 2,964 |
|
|
| 100.0 |
|
| $ | 9,916 |
|
|
| 100.0 |
|
| $ | 8,373 |
|
|
| 100.0 |
|
Losses and loss adjustment expenses |
| 2,825 |
|
|
| 81.1 |
|
|
| 2,240 |
|
|
| 75.6 |
|
|
| 7,342 |
|
|
| 74.0 |
|
|
| 6,044 |
|
|
| 72.2 |
|
Underwriting expenses |
| 941 |
|
|
| 27.0 |
|
|
| 747 |
|
|
| 25.2 |
|
|
| 2,521 |
|
|
| 25.5 |
|
|
| 1,980 |
|
|
| 23.6 |
|
Total losses and expenses |
| 3,766 |
|
|
| 108.1 |
|
|
| 2,987 |
|
|
| 100.8 |
|
|
| 9,863 |
|
|
| 99.5 |
|
|
| 8,024 |
|
|
| 95.8 |
|
Pre-tax underwriting earnings (loss) | $ | (281 | ) |
|
|
|
| $ | (23 | ) |
|
|
|
| $ | 53 |
|
|
|
|
| $ | 349 |
|
|
|
|
Premiums written increased $389 million (11.1%) in the third quarter and $1.4 billion (15.3%) in the first nine months of 2022 compared to 2021, reflecting year-to-date increases at BH Specialty (20%), USLI (17%) and BHHC (15%). The increases were across a variety of property and casualty coverages and across several markets.This group also includes Alleghany Insurance beginning October 19, 2022.
2833
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Insurance—Underwriting (Continued)
Berkshire Hathaway Primary Group (Continued)
A summary of BH Primary’s loss ratio was 81.1%underwriting results follows (dollars in millions).
| Second Quarter |
|
| First Six Months |
| ||||||||||||||||||||||||||
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||||||||||||||||
| Amount |
|
| % |
|
| Amount |
|
| % |
|
| Amount |
|
| % |
|
| Amount |
|
| % |
| ||||||||
Premiums written | $ | 4,757 |
|
|
|
|
| $ | 3,504 |
|
|
|
|
| $ | 8,915 |
|
|
|
|
| $ | 6,896 |
|
|
|
| ||||
Premiums earned | $ | 4,233 |
|
|
| 100.0 |
|
| $ | 3,313 |
|
|
| 100.0 |
|
| $ | 8,194 |
|
|
| 100.0 |
|
| $ | 6,431 |
|
|
| 100.0 |
|
Losses and loss adjustment expenses |
| 2,861 |
|
|
| 67.6 |
|
|
| 2,243 |
|
|
| 67.7 |
|
|
| 5,517 |
|
|
| 67.3 |
|
|
| 4,517 |
|
|
| 70.2 |
|
Underwriting expenses |
| 1,100 |
|
|
| 26.0 |
|
|
| 828 |
|
|
| 25.0 |
|
|
| 2,137 |
|
|
| 26.1 |
|
|
| 1,580 |
|
|
| 24.6 |
|
Total losses and expenses |
| 3,961 |
|
|
| 93.6 |
|
|
| 3,071 |
|
|
| 92.7 |
|
|
| 7,654 |
|
|
| 93.4 |
|
|
| 6,097 |
|
|
| 94.8 |
|
Pre-tax underwriting earnings | $ | 272 |
|
|
|
|
| $ | 242 |
|
|
|
|
| $ | 540 |
|
|
|
|
| $ | 334 |
|
|
|
|
Premiums written increased $1.3 billion (35.8%) in the thirdsecond quarter and 74.0%$2.0 billion (29.3%) in the first ninesix months of 2022, an increase2023 compared to 2022. The increases were primarily due to the inclusion of 5.5Alleghany Insurance ($746 million in the second quarter and $1.3 billion in the first six months), as well as comparative increases from BH Specialty and BH Direct.
Losses and loss adjustment expenses increased $618 million (27.6%) in the second quarter and $1.0 billion (22.1%) in the first six months of 2023 compared to 2022. The loss ratio decreased 0.1 percentage points in the thirdsecond quarter and 1.82.9 percentage points in the first ninesix months of 2023 compared to 2021. Losses2022, reflecting changes in business mix (including the impact of Alleghany Insurance), lower incurred losses from catastrophe eventscurrent year catastrophes and increased reductions in 2022 were approximately $660 million in the third quarter (Hurricane Ian) and $740 millionloss estimates for prior years’ events.
Incurred losses from significant catastrophes occurring in the first nine months. Losses from catastrophe events in 2021six months were approximately $260$36 million in the third quarter (largely Hurricane Ida)2023 and $420$75 million in the first nine months. Losses2022. Incurred losses and loss adjustment expenses also includedin the first six months reflected net reductions in estimated ultimate liabilities for prior accident years’ loss events in the first nine monthsclaims of $348$177 million in 20222023 and $420$106 million in 2021.2022. BH Primary insurers write significant levels of workers’ compensation, commercial and professional liability insurance and the related claim costs may be subject to high severity and long claim-tails. ClaimsUltimate claims liabilities could be greater than anticipated due to a variety of factors.factors, including from adverse legal and judicial rulings.
Underwriting expenses increased $194$272 million (26.0%(32.9%) in the thirdsecond quarter and $541$557 million (27.3%(35.3%) in the first ninesix months of 20222023 compared to the same periods in 2021.2022. The expense ratio increased 1.81.0 percentage points in the thirdsecond quarter and 1.91.5 percentage points in the first ninesix months of 20222023 compared to 2021. These2022. The increases reflected costs associated with new business development programs andwere primarily attributable to changes in business mix.mix, including the effects of the Alleghany Insurance acquisition.
Berkshire Hathaway Reinsurance Group
The Berkshire Hathaway Reinsurance Group (“BHRG”) offers excess-of-loss and quota-share reinsurance coverages on property and casualty risks to insurers and reinsurers worldwide through several subsidiaries, led by National Indemnity Company (“NICO”), General Reinsurance Corporation, and General Reinsurance AG.AG and, beginning October 19, 2022, TransRe Group. We also write life and health reinsurance coverages through General Re Life Corporation, General Reinsurance AG and Berkshire Hathaway Life Insurance Company of Nebraska (“BHLN”). We periodically assume property and casualty risks under retroactive reinsurance contracts written through NICO. In addition,NICO and we write periodic payment annuity contracts through BHLN.
Generally, we strive to generate underwriting profits. However, time-value-of-money concepts are important elements in establishing prices for retroactive reinsurance and periodic payment annuity business due to the expected long durations of the claim liabilities. We expect to incur pre-tax underwriting losses from such business, primarily through deferred charge amortization and discount accretion charges. We receive premiums at the inception of these contracts, which are then available for investment. A summary of BHRG’s premiums and pre-tax underwriting results follows (in millions). The retrospective adoption of ASU 2018-12 resulted in increases in pre-tax earnings of $174 million in the second quarter and $319 million in the first six months of 2022 from the previously reported amounts. These increases derived primarily from reductions in certain variable annuity guarantee liabilities.
| Third Quarter |
|
| First Nine Months |
| Second Quarter |
|
| First Six Months |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Premiums earned |
|
| Pre-tax underwriting |
|
| Premiums earned |
|
| Pre-tax underwriting |
| Premiums earned |
|
| Pre-tax underwriting |
|
| Premiums earned |
|
| Pre-tax underwriting |
| ||||||||||||||||||||||||||||||||||||||||
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||||||||||||
Property/casualty | $ | 4,013 |
|
| $ | 3,637 |
|
| $ | 23 |
|
| $ | (247 | ) |
| $ | 10,943 |
|
| $ | 10,385 |
|
| $ | 1,404 |
|
| $ | 121 |
| $ | 5,325 |
|
| $ | 3,531 |
|
| $ | 1,124 |
|
| $ | 976 |
|
| $ | 10,474 |
|
| $ | 6,930 |
|
| $ | 1,514 |
|
| $ | 1,381 |
|
Life/health |
| 1,309 |
|
|
| 1,328 |
|
|
| 67 |
|
|
| (181 | ) |
|
| 3,822 |
|
|
| 3,932 |
|
|
| 130 |
|
|
| (522 | ) |
| 1,289 |
|
|
| 1,262 |
|
|
| 47 |
|
|
| 124 |
|
|
| 2,349 |
|
|
| 2,510 |
|
|
| 184 |
|
|
| 98 |
|
Retroactive reinsurance |
| — |
|
|
| — |
|
|
| (83 | ) |
|
| (158 | ) |
|
| — |
|
|
| 82 |
|
|
| (325 | ) |
|
| (620 | ) |
| — |
|
|
| — |
|
|
| (263 | ) |
|
| (52 | ) |
|
| — |
|
|
| — |
|
|
| (458 | ) |
|
| (242 | ) |
Periodic payment annuity |
| 192 |
|
|
| 191 |
|
|
| (149 | ) |
|
| (94 | ) |
|
| 529 |
|
|
| 458 |
|
|
| (279 | ) |
|
| (374 | ) |
| — |
|
|
| 168 |
|
|
| (211 | ) |
|
| (54 | ) |
|
| — |
|
|
| 337 |
|
|
| (375 | ) |
|
| (173 | ) |
Variable annuity |
| 3 |
|
|
| 3 |
|
|
| 32 |
|
|
| (28 | ) |
|
| 10 |
|
|
| 11 |
|
|
| 83 |
|
|
| 97 |
|
| — |
|
|
| — |
|
|
| 130 |
|
|
| 147 |
|
|
| — |
|
|
| — |
|
|
| 193 |
|
|
| 378 |
|
| $ | 5,517 |
|
| $ | 5,159 |
|
| $ | (110 | ) |
| $ | (708 | ) |
| $ | 15,304 |
|
| $ | 14,868 |
|
| $ | 1,013 |
|
| $ | (1,298 | ) | $ | 6,614 |
|
| $ | 4,961 |
|
| $ | 827 |
|
| $ | 1,141 |
|
| $ | 12,823 |
|
| $ | 9,777 |
|
| $ | 1,058 |
|
| $ | 1,442 |
|
Property/casualty
A summary of property/casualty reinsurance underwriting results follows (dollars in millions).
| Third Quarter |
|
| First Nine Months |
| ||||||||||||||||||||||||||
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||||||||||||||
| Amount |
|
| % |
|
| Amount |
|
| % |
|
| Amount |
|
| % |
|
| Amount |
|
| % |
| ||||||||
Premiums written | $ | 4,574 |
|
|
|
|
| $ | 4,115 |
|
|
|
|
| $ | 13,119 |
|
|
|
|
| $ | 11,924 |
|
|
|
| ||||
Premiums earned | $ | 4,013 |
|
|
| 100.0 |
|
| $ | 3,637 |
|
|
| 100.0 |
|
| $ | 10,943 |
|
|
| 100.0 |
|
| $ | 10,385 |
|
|
| 100.0 |
|
Losses and loss adjustment expenses |
| 3,451 |
|
|
| 86.0 |
|
|
| 2,986 |
|
|
| 82.1 |
|
|
| 7,825 |
|
|
| 71.5 |
|
|
| 7,689 |
|
|
| 74.0 |
|
Underwriting expenses |
| 539 |
|
|
| 13.4 |
|
|
| 898 |
|
|
| 24.7 |
|
|
| 1,714 |
|
|
| 15.7 |
|
|
| 2,575 |
|
|
| 24.8 |
|
Total losses and expenses |
| 3,990 |
|
|
| 99.4 |
|
|
| 3,884 |
|
|
| 106.8 |
|
|
| 9,539 |
|
|
| 87.2 |
|
|
| 10,264 |
|
|
| 98.8 |
|
Pre-tax underwriting earnings (loss) | $ | 23 |
|
|
|
|
| $ | (247 | ) |
|
|
|
| $ | 1,404 |
|
|
|
|
| $ | 121 |
|
|
|
|
2934
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Insurance—Underwriting (Continued)
Berkshire Hathaway Reinsurance Group (Continued)
Property/casualty (Continued)
A summary of property/casualty reinsurance underwriting results follows (dollars in millions).
| Second Quarter |
|
| First Six Months |
| ||||||||||||||||||||||||||
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||||||||||||||||
| Amount |
|
| % |
|
| Amount |
|
| % |
|
| Amount |
|
| % |
|
| Amount |
|
| % |
| ||||||||
Premiums written | $ | 5,866 |
|
|
|
|
| $ | 4,159 |
|
|
|
|
| $ | 12,134 |
|
|
|
|
| $ | 8,545 |
|
|
|
| ||||
Premiums earned | $ | 5,325 |
|
|
| 100.0 |
|
| $ | 3,531 |
|
|
| 100.0 |
|
| $ | 10,474 |
|
|
| 100.0 |
|
| $ | 6,930 |
|
|
| 100.0 |
|
Losses and loss adjustment expenses |
| 2,793 |
|
|
| 52.5 |
|
|
| 2,067 |
|
|
| 58.5 |
|
|
| 6,180 |
|
|
| 59.0 |
|
|
| 4,374 |
|
|
| 63.1 |
|
Underwriting expenses |
| 1,408 |
|
|
| 26.4 |
|
|
| 488 |
|
|
| 13.9 |
|
|
| 2,780 |
|
|
| 26.5 |
|
|
| 1,175 |
|
|
| 17.0 |
|
Total losses and expenses |
| 4,201 |
|
|
| 78.9 |
|
|
| 2,555 |
|
|
| 72.4 |
|
|
| 8,960 |
|
|
| 85.5 |
|
|
| 5,549 |
|
|
| 80.1 |
|
Pre-tax underwriting earnings | $ | 1,124 |
|
|
|
|
| $ | 976 |
|
|
|
|
| $ | 1,514 |
|
|
|
|
| $ | 1,381 |
|
|
|
|
Premiums written increased $459 million (11.2%) in the thirdsecond quarter and first six months of 2023 included $1.2 billion (10.0%)and $2.6 billion, respectively, by TransRe Group. Otherwise, premiums written in the first ninesix months of 20222023 increased $1.0 billion (11.9%) compared to the same periods in 2021,2022, primarily due to net increases in new property business and higher rates, partially offset by unfavorable foreign currency translation effects. rates. Given the levels of property lines written and that we generally do not retrocede the risks we assume, our periodic underwriting earnings are subject to considerable volatility from significant catastrophe events.
Losses and loss adjustment expenses increased $465$726 million (15.6%(35.1%) in the thirdsecond quarter and $136 million (1.8%$1.8 billion (41.3%) in the first ninesix months of 20222023 compared to 2021. Losses incurred2022, primarily from catastrophe events were $1.9 billionthe inclusion of TransRe Group ($785 million in the thirdsecond quarter (primarily Hurricane Ian) and $2.6$1.5 billion in the first ninesix months of 2022 and were $1.5 billion in2023). Overall, the third quarter and $1.9 billionloss ratio decreased 4.1 percentage points in the first ninesix months of 2021. Reductions2023 compared to 2022. Losses incurred from significant catastrophes in the first six months were $528 million in 2023 and $629 million in 2022. Losses and loss adjustment expenses incurred reflected reductions in estimated ultimate liabilities for losses occurring in prior years were $833accident years’ claims of $883 million in the thirdfirst six months of 2023 and $574 million in the first six months of 2022.
Underwriting expenses in 2023 increased $920 million in the second quarter and $1.4$1.6 billion in the first ninesix months of 2022 and were $599 million in the third quarter and $564 million in the first nine months of 2021.
Underwriting expenses as percentages of premiums earned decreased 11.3compared to 2022. The expense ratio increased 12.5 percentage points in the thirdsecond quarter and 9.19.5 percentage points in the first ninesix months of 20222023 compared to 2021,2022. The increases were primarily attributable to changes in foreign currency exchange rate effectsrates and changes in business mix. Underwriting expenses included foreignmix, including the impact of TransRe Group. Foreign currency exchange gains of $315losses were $118 million in the thirdsecond quarter and $704$192 million in the first ninesix months of 2023 compared to gains of $308 million in the second quarter and $389 million in the first six months of 2022 primarilyand related to a third quarter 2021 intercompany reinsurance agreement in which a non-U.S. based Berkshire subsidiary cededthe remeasurement of certain non-U.S. Dollar denominated liabilities to aof our U.S. based Berkshire subsidiary. The foreign currency exchange gainssubsidiaries. Underwriting expenses included $385 million in the thirdsecond quarter and $770 million in the first six months of 2021 were not significant. Under U.S. GAAP, the effects of exchange rate changes from the remeasurement of liabilities assumed by the U.S. subsidiary are reflected in earnings as its functional currency is the U.S. Dollar. The net foreign currency exchange rate effects from translating the financial statements of the non-U.S. subsidiary2023 related to the U.S. Dollar are included in other comprehensive income.TransRe Group.
Life/health
A summary of our life/health reinsurance underwriting results follows (dollars in millions).
| Third Quarter |
|
| First Nine Months |
| Second Quarter |
|
| First Six Months |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||||||||||||||||||||||||||||||||||||
| Amount |
|
| % |
|
| Amount |
|
| % |
|
| Amount |
|
| % |
|
| Amount |
|
| % |
| Amount |
|
| % |
|
| Amount |
|
| % |
|
| Amount |
|
| % |
|
| Amount |
|
| % |
| ||||||||||||||||
Premiums written | $ | 1,251 |
|
|
|
|
| $ | 1,332 |
|
|
|
|
| $ | 3,743 |
|
|
|
|
| $ | 3,929 |
|
|
|
| $ | 1,292 |
|
|
|
|
| $ | 1,249 |
|
|
|
|
| $ | 2,353 |
|
|
|
|
| $ | 2,492 |
|
|
|
| ||||||||
Premiums earned | $ | 1,309 |
|
|
| 100.0 |
|
| $ | 1,328 |
|
|
| 100.0 |
|
| $ | 3,822 |
|
|
| 100.0 |
|
| $ | 3,932 |
|
|
| 100.0 |
| $ | 1,289 |
|
|
| 100.0 |
|
| $ | 1,262 |
|
|
| 100.0 |
|
| $ | 2,349 |
|
|
| 100.0 |
|
| $ | 2,510 |
|
|
| 100.0 |
|
Life and health insurance benefits |
| 1,013 |
|
|
| 77.4 |
|
|
| 1,247 |
|
|
| 93.9 |
|
|
| 3,028 |
|
|
| 79.2 |
|
|
| 3,733 |
|
|
| 94.9 |
|
| 1,020 |
|
|
| 79.1 |
|
|
| 912 |
|
|
| 72.3 |
|
|
| 1,698 |
|
|
| 72.3 |
|
|
| 1,973 |
|
|
| 78.6 |
|
Underwriting expenses |
| 229 |
|
|
| 17.5 |
|
|
| 262 |
|
|
| 19.7 |
|
|
| 664 |
|
|
| 17.4 |
|
|
| 721 |
|
|
| 18.4 |
|
| 222 |
|
|
| 17.3 |
|
|
| 226 |
|
|
| 17.9 |
|
|
| 467 |
|
|
| 19.9 |
|
|
| 439 |
|
|
| 17.5 |
|
Total benefits and expenses |
| 1,242 |
|
|
| 94.9 |
|
|
| 1,509 |
|
|
| 113.6 |
|
|
| 3,692 |
|
|
| 96.6 |
|
|
| 4,454 |
|
|
| 113.3 |
|
| 1,242 |
|
|
| 96.4 |
|
|
| 1,138 |
|
|
| 90.2 |
|
|
| 2,165 |
|
|
| 92.2 |
|
|
| 2,412 |
|
|
| 96.1 |
|
Pre-tax underwriting earnings (loss) | $ | 67 |
|
|
|
|
| $ | (181 | ) |
|
|
|
| $ | 130 |
|
|
|
|
| $ | (522 | ) |
|
|
| |||||||||||||||||||||||||||||||||||
Pre-tax underwriting earnings | $ | 47 |
|
|
|
| $ | 124 |
|
|
|
| $ | 184 |
|
|
|
| $ | 98 |
|
|
|
Life/health premiums written decreased $81Premiums earned increased $27 million (6.1%(2.1%) in the thirdsecond quarter and $186decreased $161 million (4.7%(6.4%) in the first ninesix months of 20222023 compared to 2022. In the same periods in 2021, primarily due to unfavorable foreign currency translation effects. Lifefirst quarter of 2023, several of General Re’s life reinsurance contracts were commuted, which reduced premiums earned by $161 million and healthlife benefits declined $234 million (18.8%)incurred by $304 million. Excluding these effects, premiums earned increased slightly in the thirdsecond quarter and $705 million (18.9%)were substantially unchanged in the first ninesix months of 2022 compared to 2021, primarily due to relatively high pandemic-related mortality claims2023, and life benefits incurred increased 11.8% in the U.S., South Africa, Indiasecond quarter and Latin America1.5% in 2021.the first six months of 2023 versus 2022. The increase in the expense ratio in the first six months of 2023 versus 2022 was primarily attributable to the impact of the life reinsurance contract commutations and increased underwriting expenses.
35
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Insurance—Underwriting (Continued)
Berkshire Hathaway Reinsurance Group (Continued)
Retroactive reinsurance
Pre-tax underwriting losses from retroactive reinsurance in each period derived from the amortization of deferred charges and the effects of changes in the estimated timing and amounts of future claim payments. Underwriting results also include foreign currency exchange gains and losses from the effects of changes in foreign currency exchange rates on non-U.S. Dollar denominated liabilities of our U.S. subsidiaries. ForeignPre-tax foreign currency exchange gainslosses were $130$18 million in the thirdsecond quarter and $287$24 million in the first ninesix months of 20222023 compared to $70pre-tax gains of $152 million in the second quarter and $157 million in the first ninesix months of 2021, substantially all of which was in the third quarter. Pre-tax underwriting losses before2022. Before foreign currency exchange effects, pre-tax underwriting losses were $213$245 million in the thirdsecond quarter and $612$434 million in the first ninesix months of 2022 compared to $2272023 and $204 million in the thirdsecond quarter and $690$399 million in the first ninesix months of 2021.2022.
UnpaidGross unpaid losses assumed under retroactive reinsurance contracts declined $1.6 billion in the first nine months of 2022 to $36.7were $34.4 billion at SeptemberJune 30, 2023, a decline of $1.0 billion since December 31, 2022, primarily dueattributable to lossclaim payments. Unamortized deferred charges related to retroactive reinsurance contracts declined $649 million in the first nine months of 2022 to $10.0were $9.5 billion at SeptemberJune 30, 2022, primarily attributable to periodic amortization.2023, a decline of $416 million since December 31, 2022. Deferred charge amortization will be included in underwriting earnings over the expected remaining claims settlement periods.
30
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Insurance—Underwriting (Continued)
Berkshire Hathaway Reinsurance Group (Continued)
Periodic payment annuity
Periodic payment annuity premiums earned were relatively unchanged in the third quarter and increased 15.5% in the first nine months of 2022 compared to the same periods in 2021. Periodic payment annuity business is both price and demand sensitive and the supply of available business is affected by the timing of underlying legal claim settlements. Our volumes written may change rapidly due to changes in prices, which are affected by prevailing interest rates, the perceived risks and durations associated with the expected annuity payments, as well as the level of competition. Beginning in the latter part of 2022, prices for new business have declined to unacceptable levels and we have restricted writing new business.
Our periodic payment annuity contracts normally produce pre-tax underwriting losses deriving from the recurring accretion of time-value discounted annuity liabilities, which includes discount accrual on liabilities offor contracts without life contingencies. Underwriting results also include gains or losses from foreign currency exchange rate changes on non-U.S. Dollar denominated liabilities of our U.S. subsidiaries. Pre-tax underwriting results included foreign currency gainsexchange losses of $119$64 million in the thirdsecond quarter and $279$83 million in the first ninesix months of 20222023 compared to $45gains of $86 million in the thirdsecond quarter and $25$109 million in the first ninesix months of 2021.2022.
Pre-tax underwriting losses before foreign currency exchange effects were $268$147 million in the thirdsecond quarter and $558$292 million in the first ninesix months of 20222023 and $139$140 million in the thirdsecond quarter and $399$282 million in the first ninesix months of 2021. Pre-tax losses in the third quarter of 2022 included approximately $130 million attributable to an agreement to terminate an existing reinsurance contract, in which the settlement payable exceeded the carrying value of the liabilities.2022. Discounted annuity liabilities were $15.2$14.8 billion at SeptemberJune 30, 2022,2023, which included $3.9$4.0 billion for contracts without life contingencies, and had a weighted average discount rate of approximately 3.9%. Upon the adoption ofcontingencies. We adopted ASU 2018-12 inon January 1, 2023, which requires that the discount rates willon contracts with life-contingent liabilities be adjusted quarterly based upon prevailing interest rates which could have a significant effect on our recorded annuity liabilities. The periodic effect fromwith the effects of discount rate changes will be largely reflectedincluded in other comprehensive income.
Variable annuity
VariableOur variable annuity guarantee reinsurance contracts produced pre-tax gains of $32$130 million in the thirdsecond quarter and $83$193 million in the first ninesix months of 2022 compared to pre-tax losses of $282023 and $147 million in the thirdsecond quarter and gains of $97$378 million in the first ninesix months of 2021.2022. The results from these contracts are affected by changes in securities markets, interest rates and foreign currency exchange rates, which can be volatile, and from the periodic amortizationvolatile. Our estimated liabilities associated with these contracts, which are in run-off, were approximately $1.0 billion as of expected profit margins. Underwriting earnings in the first nine months of 2022 and 2021 were primarily attributable to the net effects of interest rate increases and changes in securities markets which were unfavorable in 2022 and favorable in 2021. Underwriting results in the third quarter of 2021 included losses from lower underlying lapse rate assumptions.June 30, 2023.
Insurance—Investment Income
A summary of net investment income attributable to our insurance operations follows (dollars in millions).
| Third Quarter |
|
| First Nine Months |
|
| Percentage Change |
| Second Quarter |
|
| First Six Months |
|
| Percentage Change |
| ||||||||||||||||||||||||||||||
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| Third Quarter |
|
| First Nine Months |
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| Second |
|
| First Six |
| ||||||||||||
Dividend income | $ | 1,281 |
|
| $ | 1,196 |
|
| $ | 4,533 |
|
| $ | 3,747 |
|
|
| 7.1 | % |
|
| 21.0 | % | $ | 1,522 |
|
| $ | 2,055 |
|
| $ | 2,766 |
|
| $ | 3,252 |
|
|
| (25.9 | )% |
|
| (14.9 | )% |
Interest and other investment income |
| 397 |
|
|
| 141 |
|
|
| 789 |
|
|
| 458 |
|
|
| 181.6 |
|
|
| 72.3 |
|
| 1,390 |
|
|
| 228 |
|
|
| 2,531 |
|
|
| 392 |
|
|
| 509.6 |
|
|
| 545.7 |
|
Pre-tax net investment income |
| 1,678 |
|
|
| 1,337 |
|
|
| 5,322 |
|
|
| 4,205 |
|
|
| 25.5 |
|
|
| 26.6 |
|
| 2,912 |
|
|
| 2,283 |
|
|
| 5,297 |
|
|
| 3,644 |
|
|
| 27.6 |
|
|
| 45.4 |
|
Income taxes and noncontrolling interests |
| 270 |
|
|
| 176 |
|
|
| 838 |
|
|
| 617 |
|
|
|
|
|
|
| 543 |
|
|
| 377 |
|
|
| 959 |
|
|
| 568 |
|
|
|
|
|
| ||||||
Net investment income | $ | 1,408 |
|
| $ | 1,161 |
|
| $ | 4,484 |
|
| $ | 3,588 |
|
|
|
|
|
| $ | 2,369 |
|
| $ | 1,906 |
|
| $ | 4,338 |
|
| $ | 3,076 |
|
|
|
|
|
| ||||||
Effective income tax rate |
| 16.1 | % |
|
| 13.1 | % |
|
| 15.7 | % |
|
| 14.7 | % |
|
|
|
|
|
| 18.6 | % |
|
| 16.5 | % |
|
| 18.1 | % |
|
| 15.6 | % |
|
|
|
|
|
36
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Insurance—Investment Income (Continued)
Dividend income increased 7.1%declined 25.9% in the thirdsecond quarter and 21.0%14.9% in the first ninesix months of 20222023 compared to 2021. The increases2022. These reductions reflected net dispositions of investments since the end of the second quarter of 2022. Income in the first six months included $17 million in 2023 and $29 million in 2022 reflected an overall increase in equity security investments during 2022.from BHE preferred stock. Such amounts were deducted from earnings of the BHE segment. Dividend income also varies from period to period due to changes in the investment portfolio and the frequency and timing of dividends from certain investees. Dividend income included $8 million in the third quarter and $37 million in the first nine months of 2022 and $26 million in the third quarter and $101 million in the first nine months of 2021 from investments in preferred stock of Berkshire Hathaway Energy. Such amounts are deducted from earnings of the utilities and energy segment.
Interest and other investment income increased $256 million (181.6%)$1.2 billion in the thirdsecond quarter and $331 million (72.3%)$2.1 billion in the first ninesix months of 20222023 compared to the same periods in 2021.2022. The increases were primarily due to increases in short-term interest rates. We continue to hold substantial balances of cash, cash equivalents and short-term U.S. Treasury Bills. While exceptionally low interest rates prevailed in recent years, interest rates increased significantly over the first nine months of 2022. We continue to believe that maintaining ample liquidity is paramount and we insist on safety over yield with respect to short-term investments.
31
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Insurance—Investment Income (Continued)
Invested assets of our insurance businesses derive from shareholder capital and from net liabilities under insurance and reinsurance contracts or “float.” The major components of float are unpaid losses and loss adjustment expenses, including liabilities under retroactive reinsurance contracts, life, annuity and health benefit liabilities, unearned premiums and other liabilities due to policyholders, which are reduced by insurance premiums receivable, reinsurance receivables, deferred charges assumed under retroactive reinsurance contracts and deferred policy acquisition costs. Float approximated $150$166 billion at SeptemberJune 30, 20222023 and $147$164 billion at December 31, 2021.2022. Our combined insurance operations generated pre-tax underwriting losses of $358 milliongains in the first ninesix months of 20222023 and, consequently, the average cost of float for that period was 0.24%. In October 2022, Berkshire acquired Alleghany, which operates insurance and reinsurance businesses. Estimated float of Alleghany’s businesses approximated $13.5 billion based on its historical balance sheet at September 30, 2022.negative. A summary of cash and investments held in our insurance businesses as of SeptemberJune 30, 20222023 and December 31, 20212022 follows (in millions).
|
| September 30, |
|
| December 31, |
|
| June 30, |
|
| December 31, |
| ||||
Cash, cash equivalents and U.S. Treasury Bills |
| $ | 59,699 |
|
| $ | 90,688 |
|
| $ | 105,747 |
|
| $ | 86,816 |
|
Equity securities |
|
| 295,387 |
|
|
| 334,907 |
|
|
| 344,821 |
|
|
| 298,934 |
|
Fixed maturity securities |
|
| 18,476 |
|
|
| 16,386 |
|
|
| 22,223 |
|
|
| 24,998 |
|
Other |
|
| 3,252 |
|
|
| 4,296 |
|
|
| 2,214 |
|
|
| 3,417 |
|
|
| $ | 376,814 |
|
| $ | 446,277 |
|
| $ | 475,005 |
|
| $ | 414,165 |
|
Fixed maturity securities as of SeptemberJune 30, 20222023 were as follows (in millions).
|
| Amortized |
|
| Unrealized |
|
| Carrying |
|
| Amortized |
|
| Unrealized |
|
| Carrying |
| ||||||
U.S. Treasury, U.S. government corporations and agencies |
| $ | 9,023 |
|
| $ | (264 | ) |
| $ | 8,759 |
|
| $ | 9,233 |
|
| $ | (190 | ) |
| $ | 9,043 |
|
Foreign governments |
|
| 8,630 |
|
|
| (196 | ) |
|
| 8,434 |
|
|
| 11,495 |
|
|
| (91 | ) |
|
| 11,404 |
|
Corporate bonds |
|
| 821 |
|
|
| 200 |
|
|
| 1,021 |
|
|
| 1,322 |
|
|
| 222 |
|
|
| 1,544 |
|
Other |
|
| 244 |
|
|
| 18 |
|
|
| 262 |
|
|
| 218 |
|
|
| 14 |
|
|
| 232 |
|
|
| $ | 18,718 |
|
| $ | (242 | ) |
| $ | 18,476 |
|
| $ | 22,268 |
|
| $ | (45 | ) |
| $ | 22,223 |
|
U.S. government obligations are rated AA+ or Aaa by the major rating agencies. Approximately 93%94% of all foreign government obligations were rated AA or higher by at least one of the major rating agencies as of SeptemberJune 30, 2022. Foreign government securities include obligations issued or unconditionally guaranteed by national or provincial government entities.2023.
37
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
RailroadBNSF
Burlington Northern Santa Fe, LLC (“BNSF”) operates one of the largest railroad systems in North America, with over 32,500 route miles of track in 28 states. BNSF also operates in three Canadian provinces. BNSF classifies its major business groups by type of product shipped including consumer products, industrial products, agricultural products and coal. A summary of BNSF’s earnings follows (dollars in millions).
|
| Third Quarter |
|
| First Nine Months |
|
| Second Quarter |
|
| First Six Months |
| ||||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||||
Railroad operating revenues |
| $ | 6,530 |
|
| $ | 5,591 |
|
| $ | 18,761 |
|
| $ | 16,421 |
|
| $ | 5,704 |
|
| $ | 6,454 |
|
| $ | 11,592 |
|
| $ | 12,231 |
|
Railroad operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Compensation and benefits |
|
| 1,479 |
|
|
| 1,168 |
|
|
| 3,916 |
|
|
| 3,477 |
|
|
| 1,378 |
|
|
| 1,213 |
|
|
| 2,691 |
|
|
| 2,437 |
|
Fuel |
|
| 1,272 |
|
|
| 705 |
|
|
| 3,409 |
|
|
| 1,948 |
|
|
| 833 |
|
|
| 1,276 |
|
|
| 1,797 |
|
|
| 2,137 |
|
Purchased services |
|
| 530 |
|
|
| 510 |
|
|
| 1,538 |
|
|
| 1,525 |
|
|
| 489 |
|
|
| 509 |
|
|
| 1,000 |
|
|
| 1,008 |
|
Depreciation and amortization |
|
| 633 |
|
|
| 608 |
|
|
| 1,875 |
|
|
| 1,832 |
|
|
| 650 |
|
|
| 618 |
|
|
| 1,295 |
|
|
| 1,242 |
|
Equipment rents, materials and other |
|
| 508 |
|
|
| 338 |
|
|
| 1,494 |
|
|
| 1,262 |
|
|
| 540 |
|
|
| 460 |
|
|
| 1,133 |
|
|
| 986 |
|
Total |
|
| 4,422 |
|
|
| 3,329 |
|
|
| 12,232 |
|
|
| 10,044 |
|
|
| 3,890 |
|
|
| 4,076 |
|
|
| 7,916 |
|
|
| 7,810 |
|
Railroad operating earnings |
|
| 2,108 |
|
|
| 2,262 |
|
|
| 6,529 |
|
|
| 6,377 |
|
|
| 1,814 |
|
|
| 2,378 |
|
|
| 3,676 |
|
|
| 4,421 |
|
Other revenues (expenses): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Other revenues |
|
| 163 |
|
|
| 199 |
|
|
| 540 |
|
|
| 579 |
|
|
| 124 |
|
|
| 186 |
|
|
| 255 |
|
|
| 377 |
|
Other expenses, net |
|
| (129 | ) |
|
| (176 | ) |
|
| (458 | ) |
|
| (514 | ) |
|
| (67 | ) |
|
| (159 | ) |
|
| (154 | ) |
|
| (329 | ) |
Interest expense |
|
| (258 | ) |
|
| (256 | ) |
|
| (767 | ) |
|
| (775 | ) |
|
| (256 | ) |
|
| (254 | ) |
|
| (513 | ) |
|
| (509 | ) |
Pre-tax earnings |
|
| 1,884 |
|
|
| 2,029 |
|
|
| 5,844 |
|
|
| 5,667 |
|
|
| 1,615 |
|
|
| 2,151 |
|
|
| 3,264 |
|
|
| 3,960 |
|
Income taxes |
|
| 442 |
|
|
| 491 |
|
|
| 1,367 |
|
|
| 1,362 |
|
|
| 351 |
|
|
| 487 |
|
|
| 753 |
|
|
| 925 |
|
Net earnings |
| $ | 1,442 |
|
| $ | 1,538 |
|
| $ | 4,477 |
|
| $ | 4,305 |
|
| $ | 1,264 |
|
| $ | 1,664 |
|
| $ | 2,511 |
|
| $ | 3,035 |
|
Effective income tax rate |
|
| 23.5 | % |
|
| 24.2 | % |
|
| 23.4 | % |
|
| 24.0 | % |
|
| 21.7 | % |
|
| 22.6 | % |
|
| 23.1 | % |
|
| 23.4 | % |
32The following table summarizes BNSF’s railroad freight volumes by business group (cars/units in thousands).
|
| Cars/Units |
|
| Percentage Change |
| ||||||||||||||||||
|
| Second Quarter |
|
| First Six Months |
|
| Second |
|
| First Six |
| ||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| Quarter |
|
| Months |
| ||||||
Consumer products |
|
| 1,157 |
|
|
| 1,379 |
|
|
| 2,223 |
|
|
| 2,654 |
|
|
| (16.1 | )% |
|
| (16.2 | )% |
Industrial products |
|
| 407 |
|
|
| 421 |
|
|
| 796 |
|
|
| 824 |
|
|
| (3.3 | ) |
|
| (3.4 | ) |
Agricultural products |
|
| 278 |
|
|
| 303 |
|
|
| 578 |
|
|
| 608 |
|
|
| (8.3 | ) |
|
| (4.9 | ) |
Coal |
|
| 360 |
|
|
| 373 |
|
|
| 729 |
|
|
| 759 |
|
|
| (3.5 | ) |
|
| (4.0 | ) |
|
|
| 2,202 |
|
|
| 2,476 |
|
|
| 4,326 |
|
|
| 4,845 |
|
|
| (11.1 | ) |
|
| (10.7 | ) |
Railroad operating revenues declined 11.6% in the second quarter and 5.2% in the first six months of 2023 compared to 2022, reflecting lower volumes of 11.1% in the second quarter and 10.7% in the first six months of 2023 compared to 2022. Average revenue per car/unit decreased slightly in the second quarter, while average revenue per car/unit increased 6.4% in the first six months of 2023 resulting from higher yield. BNSF’s pre-tax earnings were $1.6 billion in the second quarter and $3.3 billion the first six months of 2023, declines of 24.9% and 17.6%, respectively, compared to 2022.
Operating revenues from consumer products were $1.9 billion in the second quarter and $3.8 billion in the first six months of 2023, decreases of 22.7% and 17.0%, respectively, from 2022. The revenue declines were attributable to volume decreases of 16.1% in the second quarter and 16.2% in the first six months of 2023 compared to 2022 and lower average revenue per car/unit. The volume decreases were primarily due to lower intermodal shipments resulting from lower west coast imports, the loss of an intermodal customer and competition from lower spot rates in the trucking market which has impacted our domestic intermodal demand. These decreases were partially offset by an increase in automotive volume from higher vehicle production.
Operating revenues from industrial products were $1.4 billion in the second quarter and $2.8 billion in the first six months of 2023, a decrease of 0.8% and an increase of 2.6%, respectively, from 2022. The decline in the second quarter was primarily due to a volume decrease of 3.3%, partially offset by higher average revenue per car/unit. The increase in the first six months was primarily due to higher average revenue per car/unit, partially offset by a 3.4% volume decline. The volume declines were primarily due to lower demand for chemicals, plastics and lumber, as well as lower shipments of petroleum products resulting from refinery outages.
38
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
RailroadBNSF (Continued)
The following table summarizes BNSF’s railroad freight volumes by business group (cars/units in thousands).
|
| Cars/Units |
|
| Percentage Change |
| |||||||||||||||||
|
| Third Quarter |
|
| First Nine Months |
|
| Third |
| First Nine |
| ||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| Quarter |
| Months |
| ||||||
Consumer products |
|
| 1,323 |
|
|
| 1,425 |
|
|
| 3,977 |
|
|
| 4,307 |
|
|
| (7.2 | )% |
| (7.7 | )% |
Industrial products |
|
| 413 |
|
|
| 443 |
|
|
| 1,237 |
|
|
| 1,280 |
|
|
| (6.8 | ) |
| (3.4 | ) |
Agricultural products |
|
| 276 |
|
|
| 265 |
|
|
| 884 |
|
|
| 896 |
|
|
| 4.2 |
|
| (1.3 | ) |
Coal |
|
| 399 |
|
|
| 404 |
|
|
| 1,158 |
|
|
| 1,127 |
|
|
| (1.2 | ) |
| 2.8 |
|
|
|
| 2,411 |
|
|
| 2,537 |
|
|
| 7,256 |
|
|
| 7,610 |
|
|
| (5.0 | ) |
| (4.7 | ) |
Railroad operating revenues increased 16.8% in the third quarter and 14.3% in the first nine months of 2022 compared to 2021, attributable to increases in average revenue per car/unit resulting from higher fuel surcharge revenue driven by higher fuel prices, along with increased rates per car/unit, partially offset by lower volumes. BNSF’s pre-tax earnings decreased 7.1% in the third quarter and increased 3.1% in the first nine months of 2022 compared to 2021. Results for the third quarter were impacted by lower freight volumes and higher fuel and other operating costs, partially offset by higher revenue per car.
Operating revenues from consumer products were $2.4 billion in the third quarter and $7.0 billion in the first nine months of 2022, increases of 15.3% and 14.5%, respectively, from 2021. The increases reflected higher average revenue per car/unit, partially offset by volume decreases of 7.2% in the third quarter and 7.7% in the first nine months of 2022 compared to 2021. The volume decreases were primarily due to lower international intermodal shipments resulting from supply chain disruptions. Operating revenues from industrial products were $1.5 billion in the third quarter and $4.2 billion in the first nine months of 2022, increases of 7.1% and 6.9%, respectively, from 2021. The increases reflected higher average revenue per car/unit, partially offset by volume decreases of 6.8% in the third quarter and 3.4% in the first nine months of 2022 compared to 2021. The volume decreases in both the third quarter and first nine months were primarily due to lower petroleum and building products shipments.
Operating revenues from agricultural products were $1.3 billion in the thirdsecond quarter and $4.1$2.8 billion in the first ninesix months of 2022, increases2023, a decrease of 25.7%6.9% in the second quarter and 12.0%, respectively,an increase of 0.8% in the first six months compared to 2021.2022. The increases weresecond quarter revenue change was attributable to an 8.3% decline in volume, partially offset by higher average revenue per car/unit. The revenue increase in the first six months was primarily attributabledue to higher average revenue per car/unit. Volumes increased 4.2% in the third quarter due to higher domestic grain shipments and increased renewable diesel and oil feedstock shipments, while volumes decreased 1.3% in the first nine monthsunit, partially offset by a volume decrease of 2022, primarily4.9%. The volume decreases were mainly due to lower grain exports, partially offset by higher volumes of domestic grains, renewable diesel and oil feedstocks.
Operating revenues from coal were $1.1 billion$936 million in the thirdsecond quarter and $3.0$2.0 billion in the first ninesix months of 2022, increases2023, a decrease of 27.0%6.3% in the second quarter and 28.8%, respectively, from 2021.an increase of 4.1% in the first six months versus 2022. The increases were primarilyrevenue decline in the second quarter was attributable to lower volumes of 3.5% and lower average revenue per car/unit. The revenue increase in the first six months was driven by higher average revenue per car/unit. Volumes decreased 1.2% in the third quarter primarily dueunit, partially offset by a volume decrease of 4.0%. The volume decreases derived from moderating demand attributable to network challenges, while volumes increased 2.8% in the first nine months of 2022 due to increased electricity generation, higherlower natural gas prices and improved export demand.weather related impacts.
Railroad operating expenses were $4.4$3.9 billion in the thirdsecond quarter and $12.2$7.9 billion in the first ninesix months of 2022, increases2023, a decrease of $1.1 billion (32.8%$186 million (4.6%) in the second quarter and $2.2 billion (21.8%an increase of $106 million (1.4%), respectively, in the first six months compared to 2021.2022. The increases were primarily due to significant increasesdecline in the costsecond quarter of 2023 reflected lower fuel as well ascosts, partially offset by higher compensation and benefits expenses. Ourexpenses and general inflation. The increase during the first six months of 2023 reflected increases in all operating expenses, with the exception of fuel costs and purchased services. The ratio of railroad operating expenses to railroad operating revenues increased 8.25.0 percentage points to 67.7%68.2% in the thirdsecond quarter and 4.04.4 percentage points to 65.2%68.3% in the first ninesix months of 20222023 versus the comparable 20212022 periods.
Compensation and benefits expenses increased $311$165 million (26.6%(13.6%) in the thirdsecond quarter and $439$254 million (12.6%(10.4%) in the first ninesix months of 20222023 compared to 2021,2022, primarily due to increased headcount, wage inflation including the impact from tentative or ratified union labor agreements, higher health and welfare costs and lower productivity. Fuel expenses increased $567decreased $443 million (80.4%(34.7%) in the thirdsecond quarter and $1.5 billion (75.0%$340 million (15.9%) in the first ninesix months of 20222023 compared to 2021,2022, primarily due to lower average fuel prices and lower volumes, as well as improved efficiency. Depreciation expense increased $32 million (5.2%) in the second quarter and $53 million (4.3%) in the first six months of 2023 compared to 2022, primarily due to higher fuel prices, partially offset by lower volumes.capital expenditures. Equipment rents, materials and other expenses increased $170$80 million (50.3%(17.4%) in the thirdsecond quarter and $232$147 million (18.4%(14.9%) in the first ninesix months of 20222023 compared to 2021,2022. The increases were primarily due to general inflation, increased casualty and litigation costs, higher property and other taxes and lower gains from land and easement sales and higher casualty costs.
Approximately 30,500 of BNSF’s employees are members of a labor union. The U.S. Class I railroads and rail labor unions were engaged in negotiations from January 2020 through June 2022. Federal mediation was included in that timeframe, followed by a release from the National Mediation Board for a Presidential Emergency Board (PEB). In accordance with the Railway Labor Act (RLA), the PEB issued its report and recommendations to settle the bargaining disputes on August 16, 2022. Tentative agreements based on these recommendations were reached with all labor unions in September 2022. To date, six unions have ratified those agreements. Two labor unions did not ratify their tentative agreement, and the parties have agreed to maintain the status quo as discussions continue. Ratification results for the remaining unions are scheduled to be announced through November 2022. Where settlements have not been successful following the RLA process, Congress may act by extending the status quo period or passing a law imposing a resolution on the parties.
33
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operationssales.
Utilities and EnergyBHE
We currently own 92% of Berkshire Hathaway Energy Company (“BHE”), which operates a global energy business. BHE’s domestic regulated utility interests include PacifiCorp, MidAmerican Energy Company (“MEC”) and NV Energy. BHE subsidiaries also operate two regulated electricity distribution businesses referred to as Northern Powergrid in Great Britain. BHE’s natural gas pipelines consist of five domestic regulated interstate natural gas pipeline systems and a 25% interest in a liquefied natural gas export, import and storage facility (“LNG interest”), which BHE operates and consolidates for financial reporting purposes. Other energy businesses include two regulated electricity distribution businesses operated by BHE subsidiaries (referred to as Northern Powergrid) in Great Britain, a regulated electricity transmission-only business in Alberta, Canada (“AltaLink, L.P.”) and, a diversified portfolio of mostly renewable independent power projects and investments.investments and an unregulated retail energy services company. BHE also operates a residential real estate brokerage business and a large network of residential real estate brokerage franchises in the United States.
39
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
BHE (Continued)
The rates our regulated businesses charge customers for energy and services are largely based on the costs of business operations, including income taxes and a return on capital, and are subject to regulatory approval. To the extent such costs are not allowed in the approved rates, operating results will be adversely affected. A summary of BHE’s net earnings follows (dollars in millions).
|
| Third Quarter |
|
| First Nine Months |
|
| Second Quarter |
|
| First Six Months |
| ||||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Energy operating revenue |
| $ | 6,095 |
|
| $ | 5,225 |
|
| $ | 15,858 |
|
| $ | 14,375 |
|
| $ | 4,933 |
|
| $ | 4,940 |
|
| $ | 10,404 |
|
| $ | 9,763 |
|
Real estate operating revenue |
|
| 1,405 |
|
|
| 1,743 |
|
|
| 4,284 |
|
|
| 4,738 |
|
|
| 1,296 |
|
|
| 1,672 |
|
|
| 2,171 |
|
|
| 2,879 |
|
Other income (loss) |
|
| 31 |
|
|
| 45 |
|
|
| (110 | ) |
|
| (91 | ) |
|
| 133 |
|
|
| (67 | ) |
|
| 238 |
|
|
| (77 | ) |
Total revenue |
|
| 7,531 |
|
|
| 7,013 |
|
|
| 20,032 |
|
|
| 19,022 |
|
|
| 6,362 |
|
|
| 6,545 |
|
|
| 12,813 |
|
|
| 12,565 |
|
Costs and expense: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Energy cost of sales |
|
| 1,959 |
|
|
| 1,385 |
|
|
| 4,944 |
|
|
| 4,064 |
|
|
| 1,566 |
|
|
| 1,525 |
|
|
| 3,521 |
|
|
| 2,985 |
|
Energy operating expense |
|
| 2,362 |
|
|
| 2,132 |
|
|
| 6,858 |
|
|
| 6,302 |
| ||||||||||||||||
Real estate operating costs and expense |
|
| 1,352 |
|
|
| 1,608 |
|
|
| 4,086 |
|
|
| 4,312 |
| ||||||||||||||||
Energy operating expenses |
|
| 2,357 |
|
|
| 2,343 |
|
|
| 5,147 |
|
|
| 4,496 |
| ||||||||||||||||
Real estate operating costs and expenses |
|
| 1,250 |
|
|
| 1,555 |
|
|
| 2,170 |
|
|
| 2,734 |
| ||||||||||||||||
Interest expense |
|
| 537 |
|
|
| 513 |
|
|
| 1,583 |
|
|
| 1,547 |
|
|
| 565 |
|
|
| 531 |
|
|
| 1,128 |
|
|
| 1,046 |
|
Total costs and expense |
|
| 6,210 |
|
|
| 5,638 |
|
|
| 17,471 |
|
|
| 16,225 |
| ||||||||||||||||
Total costs and expenses |
|
| 5,738 |
|
|
| 5,954 |
|
|
| 11,966 |
|
|
| 11,261 |
| ||||||||||||||||
Pre-tax earnings |
|
| 1,321 |
|
|
| 1,375 |
|
|
| 2,561 |
|
|
| 2,797 |
|
|
| 624 |
|
|
| 591 |
|
|
| 847 |
|
|
| 1,304 |
|
Income tax expense (benefit)* |
|
| (570 | ) |
|
| (398 | ) |
|
| (1,274 | ) |
|
| (842 | ) |
|
| (379 | ) |
|
| (420 | ) |
|
| (742 | ) |
|
| (693 | ) |
Net earnings after income taxes |
|
| 1,891 |
|
|
| 1,773 |
|
|
| 3,835 |
|
|
| 3,639 |
|
|
| 1,003 |
|
|
| 1,011 |
|
|
| 1,589 |
|
|
| 1,997 |
|
Noncontrolling interests of BHE subsidiaries |
|
| 147 |
|
|
| 103 |
|
|
| 376 |
|
|
| 311 |
|
|
| 130 |
|
|
| 120 |
|
|
| 244 |
|
|
| 229 |
|
Net earnings attributable to BHE |
|
| 1,744 |
|
|
| 1,670 |
|
|
| 3,459 |
|
|
| 3,328 |
|
|
| 873 |
|
|
| 891 |
|
|
| 1,345 |
|
|
| 1,768 |
|
Noncontrolling interests and preferred stock dividends |
|
| 159 |
|
|
| 174 |
|
|
| 358 |
|
|
| 389 |
|
|
| 88 |
|
|
| 102 |
|
|
| 144 |
|
|
| 204 |
|
Net earnings attributable to Berkshire Hathaway shareholders |
| $ | 1,585 |
|
| $ | 1,496 |
|
| $ | 3,101 |
|
| $ | 2,939 |
|
| $ | 785 |
|
| $ | 789 |
|
| $ | 1,201 |
|
| $ | 1,564 |
|
Effective income tax rate |
|
| (43.1 | )% |
|
| (28.9 | )% |
|
| (49.7 | )% |
|
| (30.1 | )% |
|
| (60.7 | )% |
|
| (71.1 | )% |
|
| (87.6 | )% |
|
| (53.1 | )% |
* Includes significant production tax credits from wind-powered electricity generation.
The discussion of BHE’s operating results that follows is based on after-tax earnings, reflecting how the energy businesses are managed and evaluated. A summary of net earnings attributable to BHE follows (dollars in millions).
|
| Third Quarter |
|
| First Nine Months |
|
| Percentage Change |
|
| Second Quarter |
|
| First Six Months |
|
| Percentage Change |
| |||||||||||||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| Third |
| First Nine Months |
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| Second Quarter |
|
| First Six Months |
| ||||||||||||
PacifiCorp |
| $ | 409 |
|
| $ | 333 |
|
| $ | 622 |
|
| $ | 728 |
|
|
| 22.8 | % |
| (14.6 | )% | ||||||||||||||||||||||||
MidAmerican Energy Company |
|
| 300 |
|
|
| 373 |
|
|
| 745 |
|
|
| 728 |
|
|
| (19.6 | ) |
| 2.3 |
| ||||||||||||||||||||||||
NV Energy |
|
| 270 |
|
|
| 282 |
|
|
| 392 |
|
|
| 416 |
|
|
| (4.3 | ) |
| (5.8 | ) | ||||||||||||||||||||||||
Northern Powergrid |
|
| 100 |
|
|
| 83 |
|
|
| 282 |
|
|
| 162 |
|
|
| 20.5 |
| 74.1 |
| |||||||||||||||||||||||||
U.S. utilities |
| $ | 430 |
|
| $ | 380 |
|
| $ | 593 |
|
| $ | 780 |
|
|
| 13.2 | % |
|
| (24.0 | )% | |||||||||||||||||||||||
Natural gas pipelines |
|
| 232 |
|
|
| 144 |
|
|
| 729 |
|
|
| 627 |
|
|
| 61.1 |
| 16.3 |
|
|
| 187 |
|
|
| 199 |
|
|
| 556 |
|
|
| 521 |
|
|
| (6.0 | ) |
|
| 6.7 |
| |
Other energy businesses |
|
| 243 |
|
|
| 230 |
|
|
| 726 |
|
|
| 521 |
|
|
| 5.7 |
| 39.3 |
|
|
| 389 |
|
|
| 411 |
|
|
| 572 |
|
|
| 750 |
|
|
| (5.4 | ) |
|
| (23.7 | ) | |
Real estate brokerage |
|
| 29 |
|
|
| 102 |
|
|
| 134 |
|
|
| 321 |
|
|
| (71.6 | ) |
| (58.3 | ) |
|
| 34 |
|
|
| 84 |
|
|
| — |
|
|
| 105 |
|
|
| (59.5 | ) |
|
| (100.0 | ) |
Corporate interest and other |
|
| 161 |
|
|
| 123 |
|
|
| (171 | ) |
|
| (175 | ) |
|
| 30.9 |
| (2.3 | ) |
|
| (167 | ) |
|
| (183 | ) |
|
| (376 | ) |
|
| (388 | ) |
|
| (8.7 | ) |
|
| (3.1 | ) | |
|
| $ | 1,744 |
|
| $ | 1,670 |
|
| $ | 3,459 |
|
| $ | 3,328 |
|
|
| 4.4 |
| 3.9 |
|
| $ | 873 |
|
| $ | 891 |
|
| $ | 1,345 |
|
| $ | 1,768 |
|
|
| (2.0 | ) |
|
| (23.9 | ) |
Our U.S. utilities operate in several states, including Utah, Oregon and Wyoming (PacifiCorp), Iowa and Illinois (MEC) and Nevada (NV Energy). After-tax earnings increased $50 million (13.2%) in the second quarter and declined $187 million (24.0%) in the first six months of 2023 compared to 2022. The earnings increase for the second quarter was primarily attributable to higher interest and other income, lower depreciation and amortization expense and increased income tax benefits, partly offset by increases in operations and maintenance expense and interest expense. The earnings decrease in the first six months reflected an increase in operations and maintenance expense of $519 million, including a pre-tax increase in loss accruals, net of expected insurance recoveries, of $344 million associated with the 2020 wildfires, and an increase in interest expense. These items were partially offset by increases in interest and other income, lower depreciation and amortization expense and higher electric utility margin (operating revenue less cost of sales), as well as higher income tax benefits.
34The U.S. utilities’ electric utility margin was $1.8 billion in the second quarter of 2023, relatively unchanged from 2022. Electric utility margin was $3.5 billion in the first six months of 2023, an increase of $60 million (1.7%) versus 2022. The year-to-date increase reflected a variety of changes in operating revenues attributable to rates and volumes and in power generation and purchased costs. Electric retail customer volumes increased 0.1% (up 0.6% at PacifiCorp and 1.3% at MEC and down 1.7% at NV Energy) in the first six months of 2023 compared to 2022, primarily due to an overall increase in customer usage and in the average number of customers, partially offset by the unfavorable impact of weather at MEC and NV Energy.
40
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Utilities and EnergyBHE (Continued)
PacifiCorp operates a regulated electric utility in portions of several Western states, including Utah, Oregon and Wyoming. After-tax earnings of natural gas pipelines decreased $12 million (6.0%) in the second quarter and increased $76$35 million (6.7%) in the first six months of 2023 compared to 2022. The increase in earnings for the first six months reflected higher regulated transportation and storage services revenues from certain general rate cases and favorable interest and other income, partially offset by higher operations and maintenance expenses and the impact of state income tax reductions in the second quarter of 2022.
After-tax earnings of other energy businesses decreased $22 million (5.4%) in the second quarter and $178 million (23.7%) in the first six months of 2023 compared to 2022. The declines in earnings reflected lower earnings from renewable energy and retail services businesses, primarily attributable to lower income tax benefits and higher operating expenses and the impact of unfavorable changes in valuations of derivatives contracts, partially offset by debt extinguishment gains. Earnings in the first six months of 2023 also included a deferred income tax charge of $82 million recognized in the first quarter related to the enactment of the new Energy Profits Levy income tax in the United Kingdom.
After-tax earnings of real estate brokerage decreased $50 million in the thirdsecond quarter and decreased $106$105 million in the first ninesix months of 20222023 compared to 2021.2022. The changesdecreases reflected increaseslower brokerage services revenues and margins, primarily due to a 26% year-to-date reduction in utility margin (operating revenue less costclosed brokerage transaction volumes, as well as lower mortgage services revenues and margins from a 38% year-to-date decrease in closed transaction volumes. These declines were attributable to the impact of sales)rising interest rates, including lower existing home sales and higher production tax credits recognizedmortgage refinancing demand.
Corporate interest and other after-tax losses decreased $16 million in the thirdsecond quarter and higher operating expenses. The increases in operating expenses reflected higher accruals$12 million in the first ninesix months of 2022 associated with wildfires in 2020, higher general and plant maintenance costs and incremental costs from additional assets placed in-service.
PacifiCorp’s utility margin was $1.1 billion in the third quarter and $2.7 billion in the first nine months of 2022, increases of $68 million and $88 million, respectively, from the comparable periods in 2021. The increases reflected higher operating revenue from favorable retail and wholesale pricing and increases in retail customer volumes, partially offset by higher purchased power and thermal generation costs. Retail customer volumes increased 3.5% in the third quarter and 0.8% in the first nine months of 20222023 compared to 2021, primarily due to an increase in the average number of customers and the favorable impact of weather,2022, reflecting higher other income, partially offset by lower customer usage.federal income tax credits recognized and higher BHE corporate interest expense from an April 2022 debt issuance.
MECPilot
Pilot is headquartered in Knoxville, Tennessee and operates a regulated electrictravel centers in North America (primarily under the names Pilot or Flying J) with more than 650 travel center locations across the U.S. and natural gas utility primarily in Iowa and Illinois. After-tax earnings decreased $73 millionsix Canadian provinces. Pilot also has over 150 retail locations in the U.S. and Canada where it sells diesel fuel through various arrangements with third quarterparty travel centers. A substantial portion of Pilot’s revenues and increased $17 millionearnings derive from marketing fuel on a wholesale and retail basis and from other energy-related activities.
Through January 31, 2023, we owned a 38.6% interest in Pilot, which we accounted for under the equity method. Our proportionate share of Pilot’s net earnings for the month ending January 31, 2023 and first ninesix months of 2022 compared to 2021. The changes reflected increasesare included in electric utility margin offset by higher operating expenses and lower other income. Additionally, comparative income tax benefits were lowerequity method earnings in the thirdaccompanying Consolidated Statements of Earnings. On January 31, 2023, we acquired an additional 41.4% interest in Pilot, and we currently own an 80% controlling interest. Thus, we began consolidating Pilot’s results of operations in our Consolidated Statements of Earnings on February 1, 2023. Pilot’s earnings for the second quarter of 2023 and higher in the first ninefive months of 2022, as higher production tax credits recognized on new wind-powered and solar-powered generating facilities placed in-service ($14 million in the third quarter and $106 million in the first nine months) were offset by the impacts of ratemaking. The increase in operating expenses included higher costs associated with certain regulatory mechanisms.ending June 30, 2023 are summarized below (in millions).
|
| Second Quarter |
|
| Five Months Ending |
| ||
|
| 2023 |
|
| June 30, 2023 |
| ||
Revenues |
| $ | 14,754 |
|
| $ | 24,262 |
|
Cost of sales |
|
| 13,600 |
|
|
| 22,405 |
|
Operating and other expenses |
|
| 855 |
|
|
| 1,351 |
|
Interest expense |
|
| 113 |
|
|
| 184 |
|
Pre-tax earnings |
|
| 186 |
|
|
| 322 |
|
Income taxes and noncontrolling interests |
|
| 72 |
|
|
| 125 |
|
Net earnings attributable to Berkshire Hathaway shareholders |
| $ | 114 |
|
| $ | 197 |
|
MEC’s electric utility margin was $774 million in the third quarter and $1.8 billion in the first nine months of 2022, increases of 12% and 15%, respectively, versus 2021. The increases were attributable to higher operating revenue from increased retail and wholesale customer volumes and favorable wholesale pricing, partially offset by higher purchased power costs. Electric retail customer volumes increased 3.1% in the third quarter and 4.0% in the first nine months of 2022 compared to 2021, primarily due to higher customer usage.
NV Energy operates regulated electric and natural gas utilities in Nevada. After-tax earnings decreased $12 million in the third quarter and $24 million in the first nine months of 2022 compared to 2021. The decreases reflected higher operating expenses from increased plant operations and maintenance expenses, higher accruals for earnings sharing and incremental costs from additional assets placed in-service, partially offset by higher interest income from carrying charges on regulatory balances.
NV Energy’s electric utility margin was $622 million in the third quarter and $1.3 billion in the first nine months of 2022, relatively unchanged compared to 2021. Electric retail customer volumes increased 0.3% in the third quarter and 1.3% in the first nine months of 2022 compared to 2021, primarily due to an increase in the average number of customers, partially offset by the unfavorable impact of weather.
Northern Powergrid’s after-tax earnings increased $17 million in the third quarter and $120 million in the first nine months of 2022 compared to 2021. Earnings in the first nine months of 2021 included deferred income tax expense of $109 million related to the enactment in June 2021 of an increase in the United Kingdom income tax rate from 19% to 25%, effective April 1, 2023. In addition, earnings increased at CE Gas from new projects placed in-service in March and July 2022 and improved distribution business results largely from higher tariff rates, which were partially offset by unfavorable foreign currency translation effects in 2022.
Natural gas pipelines’ after-tax earnings increased $88 million in the third quarter and $102 million in the first nine months of 2022 compared to 2021. The increases were primarily due to higher earnings at BHE GT&S, largely from the impacts of a general rate case, favorable income tax adjustments and lower operating expenses. The year-to-date increase was partially offset by reduced margins in 2022 due to higher natural gas sales and higher transportation revenue in 2021, attributable to an increase in demand as a result of the February 2021 winter storms.
Other energy businesses’ after-tax earnings increased $13 million in the third quarter and $205 million in the first nine months of 2022 compared to 2021. The increases in earnings were primarily due to increased wind tax equity investment earnings of $24 million in the third quarter and $182 million in the first nine months of 2022 as well as from higher operating revenue from owned renewable energy projects, partly offset by lower earnings from natural gas generating facilities. The increases in wind tax equity investment earnings reflected increased income tax benefits from projects reaching commercial operation over the past twelve months. The comparative increase in year-to-date earnings also reflected the impact of losses in 2021 on pre-existing tax equity investments due to the February 2021 winter storms.
3541
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Utilities and EnergyPilot (Continued)
Real estate brokerage after-taxPilot’s revenues and earnings decreased $73are highly dependent on fuel volumes, prices and margins. Revenues for the second quarter of 2023 and the five months ending June 30, 2023 were $14.8 billion and $24.3 billion, respectively.
Pilot’s pre-tax earnings for the second quarter of 2023 and the five months ending June 30, 2023 were $186 million and $322 million, respectively. Operating and other expenses include depreciation and amortization expense of $243 million in the thirdsecond quarter of 2023 and $411 million in the five months ending June 30, 2023, a significant portion of which derives from property, plant and equipment and finite-lived intangible asset fair value remeasurements in connection with our application of the acquisition accounting method in 2023.
Pilot’s consolidated pre-tax earnings for the second quarter and $187the first six months of 2023 and 2022 are summarized below. Revenues, costs and expenses for the first six months of 2022 and first month of 2023 are based on Pilot’s historical accounting and are not included in our Consolidated Financial Statements, whereas such information for the five months ending June 30, 2023 was included in our Consolidated Financial Statements (dollars in millions).
|
| Second Quarter |
|
| First Six Months |
|
| Percentage Change |
| |||||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| Second Quarter |
|
| First Six Months |
| ||||||
Revenues |
| $ | 14,754 |
|
| $ | 21,534 |
|
| $ | 29,282 |
|
| $ | 36,001 |
|
|
| (31.5 | )% |
|
| (18.7 | )% |
Cost of sales |
|
| 13,600 |
|
|
| 20,609 |
|
|
| 27,099 |
|
|
| 34,128 |
|
|
| (34.0 | ) |
|
| (20.6 | ) |
Operating and other expenses |
|
| 855 |
|
|
| 633 |
|
|
| 1,564 |
|
|
| 1,238 |
|
|
| 35.1 |
|
|
| 26.3 |
|
Interest expense |
|
| 113 |
|
|
| 51 |
|
|
| 208 |
|
|
| 93 |
|
|
| 121.6 |
|
|
| 123.7 |
|
Pre-tax earnings |
| $ | 186 |
|
| $ | 241 |
|
| $ | 411 |
|
| $ | 542 |
|
|
| (22.8 | ) |
|
| (24.2 | ) |
Revenues for the first six months of 2023 and 2022 were approximately $29.3 billion and $36.0 billion, respectively. For the first six months of 2023, Pilot sold approximately 9.25 billion gallons of diesel fuel, gasoline and other fuel-related products. Revenues during the first six months of 2023 have been lower than in the corresponding 2022 periods, primarily due to significantly lower fuel prices, as well as from lower fuel sales volumes. Cost of sales in 2022 included significantly higher LIFO inventory charges than in 2023, attributable to the significant increases in fuel prices during the first half of 2022. Interest expense increased $62 million in the second quarter and $115 million in the first ninesix months of 20222023 compared to 2021. The decreases in earnings were primarily attributable to lower earnings from mortgage services2022, due to a decrease in funded volume primarily from a decline in refinancing activity and lower earnings from brokerage and settlement services from a decrease in closed units, partially offset by lower operating expenses.
Corporate interest and other after-tax earnings increased $38 million in the third quarter and was relatively unchanged for the first nine months of 2022 compared to 2021, reflecting higher federal income tax credits recognized, partially offset by higher interest expense and lower earnings from non-regulated energy services in the first nine months.rates.
Manufacturing, Service and Retailing
A summary of revenues and earnings of our manufacturing, service and retailing businesses follows (dollars in millions).
| Third Quarter |
|
| First Nine Months |
|
| Percentage Change |
| Second Quarter |
|
| First Six Months |
|
| Percentage Change |
| |||||||||||||||||||||||||||
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| Third Quarter |
|
| First Nine Months |
| 2023 |
| 2022 |
|
| 2023 |
| 2022 |
|
| Second Quarter |
| First Six Months |
| ||||||||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Manufacturing | $ | 19,000 |
|
| $ | 17,496 |
|
| $ | 57,193 |
|
| $ | 50,821 |
|
|
| 8.6 | % |
|
| 12.5 | % | $ | 19,102 |
| $ | 19,772 |
|
| $ | 37,391 |
| $ | 38,193 |
|
|
| (3.4 | )% |
| (2.1 | )% |
Service and retailing |
| 23,136 |
|
|
| 21,291 |
|
|
| 67,645 |
|
|
| 62,143 |
|
|
| 8.7 |
|
|
| 8.9 |
|
| 23,024 |
|
| 22,879 |
|
|
| 46,014 |
|
| 44,509 |
|
|
| 0.6 |
| 3.4 |
| |
| $ | 42,136 |
|
| $ | 38,787 |
|
| $ | 124,838 |
|
| $ | 112,964 |
|
|
|
|
|
| $ | 42,126 |
| $ | 42,651 |
|
| $ | 83,405 |
| $ | 82,702 |
|
|
|
|
|
| |||||
Pre-tax earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Manufacturing | $ | 2,883 |
|
| $ | 2,445 |
|
| $ | 8,735 |
|
| $ | 7,595 |
|
|
| 17.9 | % |
|
| 15.0 | % | $ | 3,103 |
| $ | 3,028 |
|
| $ | 5,714 |
| $ | 5,852 |
|
|
| 2.5 | % |
| (2.4 | )% |
Service and retailing |
| 1,314 |
|
|
| 1,102 |
|
|
| 3,806 |
|
|
| 3,413 |
|
|
| 19.2 |
|
|
| 11.5 |
|
| 1,391 |
|
| 1,275 |
|
|
| 2,725 |
|
| 2,492 |
|
|
| 9.1 |
| 9.3 |
| |
|
| 4,197 |
|
|
| 3,547 |
|
|
| 12,541 |
|
|
| 11,008 |
|
|
|
|
|
|
| 4,494 |
| 4,303 |
|
|
| 8,439 |
| 8,344 |
|
|
|
|
|
| |||||||
Income taxes and noncontrolling interests |
| 950 |
|
|
| 841 |
|
|
| 3,020 |
|
|
| 2,679 |
|
|
|
|
|
|
| 1,105 |
|
| 1,054 |
|
|
| 2,068 |
|
| 2,070 |
|
|
|
|
|
| |||||
Net earnings* | $ | 3,247 |
|
| $ | 2,706 |
|
| $ | 9,521 |
|
| $ | 8,329 |
|
|
|
|
|
| $ | 3,389 |
| $ | 3,249 |
|
| $ | 6,371 |
| $ | 6,274 |
|
|
|
|
|
| |||||
Effective income tax rate |
| 22.1 | % |
|
| 22.9 | % |
|
| 23.6 | % |
|
| 23.7 | % |
|
|
|
|
|
| 23.9 | % |
| 24.0 | % |
|
| 23.8 | % |
| 24.3 | % |
|
|
|
|
| |||||
Pre-tax earnings as a percentage of revenues |
| 10.0 | % |
|
| 9.1 | % |
|
| 10.0 | % |
|
| 9.7 | % |
|
|
|
|
|
| 10.7 | % |
| 10.1 | % |
|
| 10.1 | % |
| 10.1 | % |
|
|
|
|
|
* Excludes certain acquisition accounting expenses, primarily related to the amortization of identifiable intangible assets recorded in connection with our business acquisitions. The after-tax acquisition accounting expenses excluded from earnings were $161$174 million in the thirdsecond quarter and $484$352 million in the first ninesix months of 20222023 and $169$162 million in the thirdsecond quarter and $532$323 million in the first ninesix months of 2021.2022. These expenses are included in “Other” in the summary of earnings on page 2631 and in the “Other” earnings section on page 42.48.
42
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Manufacturing, Service and Retailing(Continued)
Manufacturing
Our manufacturing group includes a variety of industrial, building and consumer products businesses. A summary of revenues and pre-tax earnings of these operations follows (dollars in millions).
| Third Quarter |
|
| First Nine Months |
| ||||||||||
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Revenues |
|
|
|
|
|
|
|
|
|
|
| ||||
Industrial products | $ | 7,723 |
|
| $ | 7,192 |
|
| $ | 22,912 |
|
| $ | 21,050 |
|
Building products |
| 7,589 |
|
|
| 6,374 |
|
|
| 22,011 |
|
|
| 18,404 |
|
Consumer products |
| 3,688 |
|
|
| 3,930 |
|
|
| 12,270 |
|
|
| 11,367 |
|
| $ | 19,000 |
|
| $ | 17,496 |
|
| $ | 57,193 |
|
| $ | 50,821 |
|
Pre-tax earnings |
|
|
|
|
|
|
|
|
|
|
| ||||
Industrial products | $ | 1,375 |
|
| $ | 1,124 |
|
| $ | 3,861 |
|
| $ | 3,508 |
|
Building products |
| 1,236 |
|
|
| 833 |
|
|
| 3,687 |
|
|
| 2,576 |
|
Consumer products |
| 272 |
|
|
| 488 |
|
|
| 1,187 |
|
|
| 1,511 |
|
| $ | 2,883 |
|
| $ | 2,445 |
|
| $ | 8,735 |
|
| $ | 7,595 |
|
Pre-tax earnings as a percentage of revenues |
|
|
|
|
|
|
|
|
|
|
| ||||
Industrial products |
| 17.8 | % |
|
| 15.6 | % |
|
| 16.9 | % |
|
| 16.7 | % |
Building products |
| 16.3 | % |
|
| 13.1 | % |
|
| 16.8 | % |
|
| 14.0 | % |
Consumer products |
| 7.4 | % |
|
| 12.4 | % |
|
| 9.7 | % |
|
| 13.3 | % |
36
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Manufacturing, Service and Retailing (Continued)
| Second Quarter |
|
| First Six Months |
| ||||||||||
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Revenues |
|
|
|
|
|
|
|
|
|
|
| ||||
Industrial products | $ | 8,876 |
|
| $ | 7,714 |
|
| $ | 17,739 |
|
| $ | 15,189 |
|
Building products |
| 6,693 |
|
|
| 7,710 |
|
|
| 12,703 |
|
|
| 14,422 |
|
Consumer products |
| 3,533 |
|
|
| 4,348 |
|
|
| 6,949 |
|
|
| 8,582 |
|
$ | 19,102 |
|
| $ | 19,772 |
|
| $ | 37,391 |
|
| $ | 38,193 |
| |
Pre-tax earnings |
|
|
|
|
|
|
|
|
|
|
| ||||
Industrial products | $ | 1,520 |
|
| $ | 1,270 |
|
| $ | 2,961 |
|
| $ | 2,486 |
|
Building products |
| 1,227 |
|
|
| 1,307 |
|
|
| 2,122 |
|
|
| 2,451 |
|
Consumer products |
| 356 |
|
|
| 451 |
|
|
| 631 |
|
|
| 915 |
|
| $ | 3,103 |
|
| $ | 3,028 |
|
| $ | 5,714 |
|
| $ | 5,852 |
|
Pre-tax earnings as a percentage of revenues |
|
|
|
|
|
|
|
|
|
|
| ||||
Industrial products |
| 17.1 | % |
|
| 16.5 | % |
|
| 16.7 | % |
|
| 16.4 | % |
Building products |
| 18.3 | % |
|
| 17.0 | % |
|
| 16.7 | % |
|
| 17.0 | % |
Consumer products |
| 10.1 | % |
|
| 10.4 | % |
|
| 9.1 | % |
|
| 10.7 | % |
Industrial products
The industrial products group includes metal products for aerospace, power and general industrial markets (Precision Castparts Corp. (“PCC”)), specialty chemicals (The Lubrizol Corporation (“Lubrizol”)), metal cutting tools/systems (IMC International Metalworking Companies (“IMC”)) and Marmon, which consists of more than 100 autonomous manufacturing and service businesses, internally aggregated into eleven groups, and includes leasing for the rail, intermodal tank container and mobile crane industries. The industrial products group also includes equipment and systems for the livestock and agricultural industries (CTB International) and a variety of industrial products for diverse markets (Scott Fetzer and LiquidPower Specialty Products). Beginning October 19, 2022, this group also includes certain of Alleghany’s businesses consisting of W&W|AFCO Steel, a structural steel fabrication products business, as well as other businesses that were combined into Marmon.
Revenues of the industrial products group increased $531 million (7.4%$1.2 billion (15.1%) in the thirdsecond quarter and $1.9$2.6 billion (8.8%(16.8%) in the first ninesix months of 20222023 compared to 2021.2022. Pre-tax earnings increased $251$250 million (22.3%(19.7%) in the thirdsecond quarter and $353$475 million (10.1%(19.1%) in the first ninesix months of 2022 compared to 2021.2023. Pre-tax earnings as a percentage of revenues for the group were 16.9%16.7% for the first ninesix months of 2022,2023, an increase of 0.2 percentage points0.3% compared to 2021.the first six months of 2022. Operating results of the group in the first six months of 2023 reflected the impact of business acquisitions and overall improved operating results at our pre-existing businesses. Operating results in 2022 were negatively affected by a combination of higher materials and energy costs, manufacturing inefficiencies attributable to supply chain disruptions and labor shortages and asset impairment charges, which largely offset the impacts of increased average selling prices and increased demand for certain product categories. Operating results of this group’s international businesses were also negatively impacted in 2022 by the stronger U.S. Dollar.
PCC’s revenues were $1.9$2.3 billion in the thirdsecond quarter and $5.5$4.6 billion in the first ninesix months of 2022,2023, increases of 17.5%28.7% in the thirdsecond quarter and 14.5%28.4% in the first ninesix months compared to 2021.2022. PCC derives significant revenues and earnings from sales of aerospace products. The revenue increases in 20222023 were primarily attributable to higher demand for aerospace products.
While commercial air travel increased in both the U.S.products, while power/energy and international markets, traffic remains below pre-COVID-19 pandemic levels, especially for international routes. Further recovery likely will be uneven, attributable in part to travel restrictions imposed from time-to-time to control the spread of variants of COVID-19, as well as from the changes in supply chain conditions, including the availability of workers. Commercial aircraft delivery rates by original equipment manufacturers (“OEMs”) of narrow-body aircraft have rebounded since the onset of the pandemic. However, deliveries of wide-body aircraft remain relatively low, in part attributablegeneral and industrial products also contributed to the pause in the Boeing 787 program, which resumed deliveries in the third quarter of 2022.overall revenue increases. Long-term industry forecasts continue to show growth and strong demand for air travel and aerospace products.
PCC’s pre-tax earnings declined $37 millionincreased 31.5% in the thirdsecond quarter and $13 million27.3% in the first ninesix months of 20222023 compared to 2021, reflecting2022. The improved results in 2023 reflect the impacts of a year-to-date reductionincreases in pension plan income of $43 million, as well as increased costs relatedsales and improving manufacturing and operating efficiencies. We continue to labor, materials and utilities and supply chain disruptions. PCC management continues to take actionsstrive to improve operations,manufacturing efficiencies, maintain safety and prepare for increasedincreasing demand for PCC’s products. GrowthContinued growth in PCC’s revenues and earnings will be predicated on the ability to successfully increase production levels to match the expected growth in aerospace demand, including managing through the current supply chain and employment environments.products demand.
Lubrizol’s revenues were approximately $1.7$1.6 billion in the thirdsecond quarter and $5.1$3.4 billion in the first ninesix months of 2022, increases2023, a decrease of 6.5%5.5% in the thirdsecond quarter and 2.4%unchanged in the first ninesix months compared to 2021. The revenue increases2022. Revenues in the first six months of 2023 reflected higher average selling prices, partially offset by lower volumes and adverseunfavorable foreign currency translation effects from the stronger U.S. Dollar.Dollar, offset by higher average selling prices. Lower sales volumes in 2023 were attributable to general market weakness in the global economy, resulting in lower demand in certain product lines. Sales volumes through the first nine monthshalf of 2022 were restricted by raw material supply constraints and unplanned temporary maintenance shutdowns, and raw material supply constraints, which limited Lubrizol’s production capabilities. The increase in average selling prices was driven by escalating prices for raw materials, including oil feedstocks, as well as for utilities, packaging, shipping and freight costs.
Lubrizol’s pre-tax earnings increased $251 million in the third quarter and $249 million in the first nine months of 2022 compared to 2021. The increase in earnings was driven by fire-related insurance recoveries in 2022, while earnings in 2021 were negatively impacted by significant losses related to a fire in June 2021 at a facility located in Rockton, Illinois and impairment charges in the third quarter of 2021 related to an underperforming business in the Advanced Materials product lines. Insurance recoveries related to a fire in 2019 at the Rouen, France facility and the Rockton, Illinois facility fire were $142 million in the third quarter and $242 million in the first nine months of 2022 compared to $10 million of insurance recoveries in the third quarter and $55 million in the first nine months of 2021. The fire losses related to the Rockton, Illinois fire and impairment charges in 2021 aggregated $73 million in the third quarter and $229 million in the first nine months of 2021. Earnings in 2022 were also negatively impacted by rising raw material costs, lower sales volumes, higher expenses from the unplanned temporary maintenance shutdowns and unfavorable foreign currency translation effects, partially offset by higher selling prices. Earnings in 2021 were also negatively impacted by the weather-related temporary shut-down of Additives facilities in the U.S. in the first quarter, which resulted in lost sales and various incremental and non-recurring manufacturing and other operating costs.
3743
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Manufacturing, Service and Retailing (Continued)
Industrial products (Continued)
Lubrizol’s pre-tax earnings declined 24.6% in the second quarter and 2.8% in the first six months of 2023 compared to 2022. Earnings in the second quarter and first six months of 2023 reflect lower insurance recoveries ($89 million) in connection with fires at certain production facilities in 2021 and 2020. Excluding insurance recoveries, earnings were higher due to the favorable impacts of higher selling prices and changes in product mix, partially offset by lower sales volumes, higher raw material costs (primarily in the first quarter), higher operating expenses and unfavorable foreign currency translation effects.
Marmon’s revenues were $2.7$3.1 billion in the thirdsecond quarter and $8.1$6.2 billion in the first ninesix months of 2022,2023, increases of 4.3%12.2% in the thirdsecond quarter and 12.8%14.3% in the first ninesix months compared to 2021. Nearly all2022. Business acquisitions, including AP Emissions Technologies and three former Alleghany businesses: Kentucky Trailer, Wilbert Funeral Services, Inc. and Wilbert Plastics Services, accounted for $301 million and $595 million of Marmon’s businesscomparative revenue increases in the second quarter and first six months of 2023, respectively. In addition, the Rail & Leasing and Crane Services groups generated higher revenues in the first nine months of 2022, led by significant increases in the Transportation,2023, due to higher volumes and pricing improvements. The Electrical, Metal Services Industrial and Electrical products groups, which contributed approximately 76% of the increase. These increases generally reflected favorable volumePlumbing & Refrigeration group revenues in 2023 were negatively impacted by lower steel and sales mix and higher metals prices, partially offset by unfavorable foreign currency translation effects. Metals prices in the third quarter of 2022 began to moderate and in certain instances declined. Revenues of the Rail & Leasing group in the third quarter and first nine months of 2022 declined versus 2021, due primarily to low product sales volumes and declining lease rates.copper prices.
Marmon’s pre-tax earnings increased 13.3%30.6% in the thirdsecond quarter and 14.1%21.8% in the first ninesix months of 20222023 compared to 2021.2022. Earnings increases attributable to business acquisitions were $26 million in the second quarter and $42 million in the first six months of 2023. Earnings in the first nine monthssecond quarter of 2022 included losses of approximately $90 million in the Rail & Leasing group related to the shutdown in the second quarter of its business in Russia. In the first nine months of 2022,Otherwise, comparative earnings from Marmon’s other business groups in 2023 were mixed, reflecting earnings increases in the Transportation, MetalWater Technologies, and Crane Services Plumbing,groups, which were primarily attributable to revenue growth, and lower earnings in the Electrical Retail and Industrial Products groups contributed meaningful increases in earnings, due to a combination of higher sales volumes and margins. These increases were partially offsetgroup, driven by lower earnings frommargins in the Rail & Leasing group.building wire business.
IMC’s revenues were $905 million$1.0 billion in the thirdsecond quarter and $2.8$2.0 billion in the first ninesix months of 2022,2023, increases of 5.0%10.2% in the second quarter and 7.7% in the first six months compared to the same periods2022. The revenue increases in 2021. Revenues in 2022 reflected2023 reflect increased organic sales in several geographic regions,North America, the impact of business acquisitions and higher interest income, partially offset by lower revenues in Asia, and effects fromunfavorable foreign currency translation from a stronger U.S. Dollar and the impact of the Russia-Ukraine conflict. IMC’s pre-tax earnings decreased 1.3%increased 15.1% in the second quarter and 9.0% in the first ninesix months of 20222023 compared to 2021, as2022. In 2023, the impact of revenue increases were more thanwas partially offset by higher raw material costs, changes in sales mix and unfavorablethe adverse effects of foreign currency translation and the Russia-Ukraine conflict.
Building products
The building products group includes manufactured and site-built home construction and related lending and financial services (Clayton Homes), flooring (Shaw), insulation, roofing and engineered products (Johns Manville), bricks and masonry products (Acme Building Brands), paint and coatings (Benjamin Moore) and residential and commercial construction and engineering products and systems (MiTek).
Revenues of the building products group increased $1.2decreased $1.0 billion (19.1%(13.2%) in the thirdsecond quarter and $3.6$1.7 billion (19.6%(11.9%) in the first ninesix months of 2022 and pre-tax2023 compared to 2022. Pre-tax earnings increased $403decreased $80 million (48.4%(6.1%) in the thirdsecond quarter and $1.1 billion (43.1%$329 million (13.4%) in the first ninesix months of 20222023 compared to 2021.2022. Our building products businesses have benefited in recent years from the low interest rate environment. However,environment and strong residential and commercial construction markets. The effects of significant increases in home mortgage interest rates in the U.S. increased significantly over the first nine months of 2022. As a result, the significant increase in home mortgage interest ratespast year has slowed demand for our home building businesses and our other building products businesses. Such effects have been partially mitigated by new home construction. As such,construction activity, resulting from low supplies of pre-existing homes for sale. We continue to anticipate some of our businesses will experience comparative declines in revenues and earnings inover the near term will likely decline from current levels.remainder of 2023.
Clayton Homes’ revenues increased 24.8%declined 16.3% to $3.3$2.9 billion in the thirdsecond quarter and 24.9%13.8% to $9.5$5.4 billion in the first ninesix months of 20222023 compared to 2021.2022. Revenues from home sales increased $1.8 billion (30.2%decreased $971 million (19.0%) in the first ninesix months of 2022, primarily due to2023, reflecting lower unit sales, partially offset by slightly higher average selling prices and increased volume.prices. New home unit sales increased 9.5%declined 19.5% in the first ninesix months of 2022,2023, reflecting a 10.5% increase in factory-built manufactured homelower unit sales for factory-built homes (19.2%) and a 5.4% increase in site-built home unit sales.homes (21.1%). We expect unit sales will likely decline inover the near term, as a consequenceremainder of higher interest rates.2023 to be below 2022 levels. Financial services revenues, which include mortgage origination and services, insurance and interest income from lending activities, increased 4.1%9.9% in the first ninesix months of 20222023 compared to 2021.2022, primarily due to increased interest income on higher average loan balances. Loan balances, net of allowances for credit losses, were approximately $20.4$22.5 billion as of SeptemberJune 30, 2022,2023, an increase of approximately $1.6 billion from December 31, 2021.12.4% since June 30, 2022.
Pre-tax earnings of Clayton Homes increased $249 million (63.8%) in the third quarter and $512 million (41.3%) in the first nine months of 2022 compared to 2021. Earnings in 2022 reflected higher home sales, gross margin rates and net interest income, as well as relatively low credit losses.
Aggregate revenues of our other building products businesses were approximately $4.3 billion in the third quarter and $12.5 billion in the first nine months of 2022, increases of $565 million (15.1%) in the third quarter and $1.7 billion (15.9%) in the first nine months versus 2021. The increases were primarily due to higher average selling prices, and to a lesser extent, from higher unit volumes in certain product lines and product mix changes.
Pre-tax earnings of our other building products businesses increased $154 million (34.9%) in the third quarter and $600 million (44.9%) in the first nine months of 2022 compared to 2021. Earnings as a percentage of revenues in the first nine months of 2022 increased 3.1 percentage points versus 2021. Earnings in 2022 benefitted from higher selling prices and strong demand in certain product categories, as well as a comparative increase in pre-tax gains from business divestitures and asset sales of $58 million in the third quarter and $169 million in the first nine months. The increase in earnings in 2022 also reflected the negative impact of severe winter storms in the first quarter of 2021, which reduced sales and increased production and other operating costs.
3844
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Manufacturing, Service and Retailing (Continued)
Building products (Continued)
Pre-tax earnings of Clayton Homes declined $72 million (11.5%) in the second quarter and $150 million (13.5%) in the first six months of 2023 compared to 2022, primarily attributable to lower earnings from the home building businesses. Earnings from financial services also declined in the first six months of 2023 versus 2022, which were negatively affected by increased expected loan loss provisions and higher insurance claims, partially offset by higher net interest income.
Aggregate revenues of our other building products businesses were approximately $3.8 billion in the second quarter and $7.3 billion in the first six months of 2023, decreases of $459 million (10.7%) in the second quarter and $860 million (10.5%) in the first six months versus 2022. Comparative revenues were lower at all of our other building products businesses, generally due to lower sales volumes and changes in product mix, partly offset by higher average selling prices.
Pre-tax earnings of our other building products businesses declined slightly (1.2%) in the second quarter and $179 million (13.3%) in the first six months of 2023 compared to 2022. Earnings as a percentage of revenues in the second quarter increased 1.7 percentage points and in the first six months of 2023 decreased 0.5 percentage points versus 2022. The earnings of our other building products businesses in 2023 were negatively impacted by lower sales volumes and reduced manufacturing efficiencies and benefited from lower average prices for certain raw materials and energy, as well as reduced freight and shipping expenses. The earnings in 2022 benefited from higher selling prices and strong demand in certain product categories and an increase in the gains from a business divestiture and asset sales of $111 million.
Consumer products
The consumer products group includes recreational vehicles (Forest River), several apparel and footwear operations (including Fruit of the Loom, Garan, Fechheimer, H.H. Brown Shoe Group and Brooks Sports) and high-performance batteries (Duracell). This group also includes custom picture framing products (Larson-Juhl) and, jewelry products (Richline). and beginning October 19, 2022, Jazwares, LLC (Jazwares), a global toy company acquired in connection with the Alleghany acquisition.
Consumer products group revenues decreased $242$815 million (6.2%(18.7%) in the thirdsecond quarter and increased $903 million (7.9%$1.6 billion (19.0%) in the first ninesix months of 20222023 compared to 2021. 2022. The declines reflected lower revenues at Forest River and nearly all of our other consumer products operations, partially offset by the impact of the Jazwares acquisition, which contributed revenues of $378 million in the first six months of 2023.
Forest River’s revenues declined 7.2%34.2% in the thirdsecond quarter and increased 22.1%36.4% in the first ninesix months of 20222023 compared to 2021. Forest River’s2022, reflecting an overall 40.1% decline in unit sales declined 27.9% in the third quarter and 5.3% in the first ninesix months of 2022 versus 2021. The comparative declineand changes in sales mix. Forest River experienced strong recreational vehicle unit volumesales in the third quarter was attributable to reduced consumer demand. Overrecent years and through the first nine monthshalf of 2022, Forest River’s revenues reflected higher average selling prices, resulting from higher material prices2022. Since then, volumes have declined significantly, attributable in part to the impact of rising interest rates, inflation and supply chain costs.other macroeconomic conditions. The sales volume declines for recreational vehicles in 2023 were partially offset by increased bus and commercial business.
Revenues of our apparel and footwear businesses declined $27$155 million (2.0%(12.8%) in the thirdsecond quarter and $165$222 million (4.2%(9.2%) in the first ninesix months of 20222023 compared to 2021, reflecting lower2022. Revenues from apparel for the first six months of 2023 declined 13.5% from 2022, while revenues from footwear declined 1.8%. The decline in apparel (5.6% in the third quarter and 8.5% in the first nine months), partlyrevenue was attributable to continuing sluggish customer demand, partially offset by higher revenues from footwear. The declines in apparel revenues were driven by lower volumes, as retailers reduced orders in response to rising inventories.average selling prices and sales mix changes. Duracell’s revenues in first ninesix months of 20222023 declined 6.9%7.8% versus 2021,2022, primarily due to lower volumessales volume and unfavorable foreign currency translation effects of the stronger U.S. Dollar.
Pre-tax earnings of our consumer products group declined $216$95 million (44.3%(21.1%) in the thirdsecond quarter and $324$284 million (21.4%(31.0%) in the first ninesix months of 2023 versus 2022, versus 2021.primarily attributable to lower earnings from Forest River and Duracell. Pre-tax earnings as a percentage of revenues for the group decreased 3.61.6 percentage points in the first ninesix months of 20222023 compared to 2021. The declines in earnings in 2022 reflected lower aggregate earnings from the apparel and footwear businesses and from Duracell. The comparative decline in earnings in the first nine months was partially offset by higher earnings from Forest River.
Apparel and footwear earnings declined about 75% in the third quarter and 58% in the first nine months of 2022 compared to 2021. Our apparel businesses continue to be negatively affected by lower sales volumes, reduced manufacturing efficiencies and higher input costs, including raw materials, freight, labor and other operating costs. We expect that the comparative operating earnings will likely be lower in the fourth quarter, due to low customer demand and high costs. Duracell’s earnings in 2022 declined, primarily due to lower sales, cost inflation and foreign currency translation effects.2022.
Earnings from Forest River were essentially unchanged in the third quarter and higherdeclined 39.2% in the first ninesix months of 2023 compared to 2022, primarily due to the increasedecrease in unit sales, which reduced manufacturing efficiencies, partially offset by lower selling, general and administrative expenses. Apparel and footwear earnings declined 10.7% in the first halfsix months of 2023 compared to 2022. Our apparel businesses were negatively affected by lower sales volumes and reduced manufacturing efficiencies. Earnings from Duracell declined in the yearsecond quarter and higher average selling prices, partly offset by higher materials costs. We currently expect demand for recreational vehicles will continuefirst six months of 2023 compared to slow2022, due to reduced consumer consumption and Forest River’s comparative revenuesmarket share losses in North America to lower priced brands and earnings to decline over the remaindernon-recurring cost and expense reductions in the second quarter of 20222022.
45
Item 2. Management’s Discussion and into 2023.Analysis of Financial Condition and Results of Operations
Manufacturing, Service and Retailing (Continued)
Service and retailing
A summary of revenues and pre-tax earnings of our service and retailing businesses follows (dollars in millions).
| Third Quarter |
|
| First Nine Months |
| ||||||||
| 2022 |
| 2021 |
|
| 2022 |
| 2021 |
| ||||
Revenues |
|
|
|
|
|
|
|
|
| ||||
Service | $ | 4,771 |
| $ | 4,131 |
|
| $ | 14,031 |
| $ | 11,718 |
|
Retailing |
| 4,796 |
|
| 4,548 |
|
|
| 14,268 |
|
| 13,896 |
|
McLane |
| 13,569 |
|
| 12,612 |
|
|
| 39,346 |
|
| 36,529 |
|
| $ | 23,136 |
| $ | 21,291 |
|
| $ | 67,645 |
| $ | 62,143 |
|
Pre-tax earnings |
|
|
|
|
|
|
|
|
| ||||
Service | $ | 806 |
| $ | 696 |
|
| $ | 2,286 |
| $ | 2,013 |
|
Retailing |
| 396 |
|
| 414 |
|
|
| 1,250 |
|
| 1,221 |
|
McLane |
| 112 |
|
| (8 | ) |
|
| 270 |
|
| 179 |
|
| $ | 1,314 |
| $ | 1,102 |
|
| $ | 3,806 |
| $ | 3,413 |
|
Pre-tax earnings as a percentage of revenues |
|
|
|
|
|
|
|
|
| ||||
Service |
| 16.9 | % |
| 16.8 | % |
|
| 16.3 | % |
| 17.2 | % |
Retailing |
| 8.3 | % |
| 9.1 | % |
|
| 8.8 | % |
| 8.8 | % |
McLane |
| 0.8 | % |
| (0.1 | )% |
|
| 0.7 | % |
| 0.5 | % |
39
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Manufacturing, Service and Retailing (Continued)
| Second Quarter |
|
| First Six Months |
| ||||||||
| 2023 |
| 2022 |
|
| 2023 |
| 2022 |
| ||||
Revenues |
|
|
|
|
|
|
|
|
| ||||
Service | $ | 5,181 |
| $ | 4,737 |
|
| $ | 10,500 |
| $ | 9,260 |
|
Retailing |
| 4,960 |
|
| 4,880 |
|
|
| 9,572 |
|
| 9,472 |
|
McLane |
| 12,883 |
|
| 13,262 |
|
|
| 25,942 |
|
| 25,777 |
|
| $ | 23,024 |
| $ | 22,879 |
|
| $ | 46,014 |
| $ | 44,509 |
|
Pre-tax earnings |
|
|
|
|
|
|
|
|
| ||||
Service | $ | 824 |
| $ | 756 |
|
| $ | 1,661 |
| $ | 1,480 |
|
Retailing |
| 438 |
|
| 443 |
|
|
| 822 |
|
| 854 |
|
McLane |
| 129 |
|
| 76 |
|
|
| 242 |
|
| 158 |
|
| $ | 1,391 |
| $ | 1,275 |
|
| $ | 2,725 |
| $ | 2,492 |
|
Pre-tax earnings as a percentage of revenues |
|
|
|
|
|
|
|
|
| ||||
Service |
| 15.9 | % |
| 16.0 | % |
|
| 15.8 | % |
| 16.0 | % |
Retailing |
| 8.8 | % |
| 9.1 | % |
|
| 8.6 | % |
| 9.0 | % |
McLane |
| 1.0 | % |
| 0.6 | % |
|
| 0.9 | % |
| 0.6 | % |
Service
Our service group consists of several businesses. The largest of these businesses are NetJets and FlightSafety (aviation services), which offer shared ownership programs for general aviation aircraft and high technology training productsservices and servicesproducts to operators of aircraft, and TTI, a distributor of electronics components. Our other service businesses franchise and service a network of quick service restaurants (Dairy Queen), lease transportation equipment (XTRA) and furniture (CORT), provide third party logistics services that primarily serve the petroleum and chemical industries (Charter Brokerage), distribute electronic news, multimedia and regulatory filings (Business Wire) and operate a television station in Miami, Florida (WPLG). Beginning October 19, 2022, this group includes IPS-Integrated Project Services, LLC (IPS), a provider of various services in facilities construction management.
Service group revenues increased $640$444 million (15.5%(9.4%) in the thirdsecond quarter and $2.3$1.2 billion (19.7%(13.4%) in the first ninesix months of 20222023 compared to 2021. 2022. IPS had revenues of $302 million in the second quarter and $604 million in the first six months of 2023. Revenues from aviation services increased 8.2% in the second quarter and 13.2% in the first six months of 2023 compared to 2022. The revenue increases were primarily due to increases in the number of aircraft in shared aircraft ownership programs and in-flight hours across NetJets’ various programs, as well as higher average rates.
Revenues from TTI increased 16.6%declined 1.0% in the thirdsecond quarter and 20.3%increased 2.4% in the first ninesix months of 2023 compared to 2022. Excluding the effects of business acquisitions in 2022 and 2023 and the unfavorable foreign currency translation effects, year-to-date revenues increased 1.0% in 2023 versus 2022. TTI experienced significant revenue growth in 2021 reflecting strong demand in nearly all significant markets. However, duringand much of 2022. Since the third quarter of 2022, new orders have slowed in certainseveral regions and markets, in part attributable to elevated customer inventory levels withinlevels. These conditions are expected to continue and TTI may experience comparative revenue declines over the supply chain. Revenues from aviation services (NetJets and FlightSafety) increased 14.2% in the third quarter and 19.9% in the first nine monthsremainder of 2022 compared to 2021. The revenue increases reflected year-to-date increases in training hours (17%), customer flight hours (14%), most of which occurred in the first half of the year, and fuel surcharges to customers due to the increase in customer flight hours and significant increases in fuel prices. These increases were partially offset by the effects from changes in sales mix.2023.
Pre-tax earnings of the service group increased $110$68 million (15.8%(9.0%) in the thirdsecond quarter and $273$181 million (13.6%(12.2%) in the first ninesix months of 20222023 compared to 2021.2022. Pre-tax earnings as a percentage of revenues decreased 0.9declined 0.2 percentage points in the first ninesix months of 20222023 compared to 2021.2022. The earnings increase in the third quarter of 2022 wasincreases were primarily attributable to higher overall margin rates in aviation services reflecting a significant comparative decline in subcontract aircraft utilization, andbusinesses, primarily due to a lesser extent, increased earnings from several of our other businesses. The comparative17% year-to-date increase in earningsaverage aircraft in the first nine months reflected higherNetJets programs, changes in business mix and the impact of the IPS acquisition. These increases were partially offset by lower earnings from TTI primarily(6.4% year-to-date), attributable to the increases in saleslower gross margin rates, higher operating expenses and improved operating cost leverage, partially offset by unfavorable foreign currency effects in 2022 and a favorable legal settlement in 2021. Earnings from aviation services for the first nine months of 2022 decreased compared to 2021, attributable to a significant increase in subcontracted aircraft utilization due to the increase in customer flight hours in the first half of the year, and from higher equipment maintenance and other operating costs, which more than offset the increase in revenues.effects.
Retailing
Our largest retailing business is Berkshire Hathaway Automotive, Inc. (“BHA”), representing 66%67.6% of our combined retailing revenue in the first ninesix months of 2022.2023. BHA consists of over 80 auto dealerships that sell new and pre-owned automobiles and offer repair services and related products. BHA also offers vehicle service contracts and operates two insurance businesses. Our retailing businesses also include four home furnishings retailing businesses (Nebraska Furniture Mart, R.C. Willey, Star Furniture and Jordan’s), which sell furniture, appliances, flooring and electronics. The home furnishings group represented 20%18.3% of the combined retailing revenues in the first ninesix months of 2022.2023.
46
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Manufacturing, Service and Retailing(Continued)
Retailing (Continued)
Other retailing businesses include three jewelry retailing businessesretailers (Borsheims, Helzberg and Ben Bridge), See’s Candies (confectionary(confectionery products), Pampered Chef (high quality(high-quality kitchen tools), Oriental Trading Company (party supplies, school supplies and toys and novelties) and Detlev Louis Motorrad (“Louis”), a retailer of motorcycle accessories based in Germany.
Retailing group revenues increased $248 million (5.5%)1.6% in the thirdsecond quarter and $372 million (2.7%)1.1% in the first ninesix months of 20222023 compared to 20212022, reflecting increases at BHA, partially offset by combined lower revenues from our other retailers. BHA’s revenues in the thirdsecond quarter and first ninesix months of 20222023 increased 11.3%5.3% and 6.3%4.5%, respectively, compared to the same periods in 2021.2022. Revenues from new and used vehicle sales increased 10.9%12.8% in the third quarter andfirst six months of 2023 compared to 2022 while revenues from pre-owned vehicle retail sales declined 8.4%. Unit sales in the first six months of 2023 increased 1.5%, reflecting an 8.9% increase in new vehicle sales, partly offset by lower pre-owned vehicles sold. While new vehicle inventory levels remain well below historical levels, vehicle supply continues to gradually rise. Revenues from BHA’s parts/service/repair operations in the first six months of 2023 increased 8.8% versus 2022. Other retailing revenues in the aggregate declined 5.4% in the first ninesix months of 2023 versus 2022, comparedprimarily due to 2021. Revenues from vehiclelower sales reflected higher average vehicle transaction prices, partly offset by lower unit sales on a year-to-date comparative basis. Unit sales continue to be constrained by low new vehicle production by OEMs, attributable to the ongoing global computer chip shortages and other supply chain disruptions. Revenues from service and repair and finance and service contract revenues each increased versus 2021.at our home furnishings businesses.
Retailing group pre-tax earnings decreased $18declined $5 million (4.3%(1.1%) in the thirdsecond quarter and increased $29$32 million (2.4%(3.7%) in the first ninesix months of 20222023 compared to 2021.2022. BHA’s pre-tax earnings increased 24.7%12.7% in the thirdsecond quarter and 22.7%21.1% in the first ninesix months of 20222023 compared to 2021, primarily due to increases in2022. BHA’s earnings increase reflects higher earnings from parts/service/repair and finance/service contract operations and lower operating expenses, partially offset by lower vehicle gross profitsales margins and finance and service contract earnings per vehicle sold and from operating cost control efforts.higher floor plan interest expense. BHA’s comparative new vehicle gross profit margin rates, began to accelerate duringbefore the secondeffects of LIFO, peaked in the first half of 2021, as a consequence of low available inventory attributable2022 and have since been reverting to supply chain constraints impacting the OEMs.historical levels. Aggregate pre-tax earnings for the remainder of our retailing group decreased $68declined $36 million (32.2%(18.2%) in the thirdsecond quarter and $103$127 million (15.9%(31.8%) in the first ninesix months of 20222023 compared to 2021,2022, primarily due to declininga 33.8% decrease in the first six months earnings from the furniture retailershome furnishings businesses, and Pampered Chef.
40
Item 2. Management’s Discussion and Analysisthe impact of Financial Condition and Resultsa gain in the first quarter of Operations
Manufacturing, Service and Retailing(Continued)2022 related to the divestiture of certain jewelry stores.
McLane Company
McLane operates a wholesale distribution business that provides grocery and non-food consumer products to retailers and convenience stores (“grocery”) and to restaurants (“foodservice”). McLane also operates businesses that are wholesale distributors of distilled spirits, wine and beer (“beverage”). The grocery and foodservice distribution businesses generate high sales and very low profit margins.margins and operate in a highly competitive environment. These businesses have several significant customers, including Walmart, 7-Eleven, Yum! Brands and others. Grocery sales comprised 61% of McLane’s consolidated sales in the first nine months of 2022, with foodservice representing most of the remainder. A curtailment of purchasing by any of its significant customers could have an adverse impact on McLane’s periodic revenues and earnings.
Revenues declined 2.9% in the second quarter and increased $9570.6% in the first six months of 2023 compared to 2022. Revenues in 2023 of the grocery and the foodservice businesses were negatively affected by lower unit volumes. Grocery sales comprised 61% of McLane’s consolidated sales in the first six months of 2023, with foodservice representing most of the remainder. Pre-tax earnings increased $53 million (7.6%(69.7%) in the thirdsecond quarter and $2.8 billion (7.7%$84 million (53.2%) in the first ninesix months of 20222023 compared to 2021, reflecting year-to-date increases of 3.9% from the grocery business and 15.2% from the foodservice business. Pre-tax earnings increased $120 million in the third quarter and $91 million (50.8%) in the first nine months of 2022 compared to 2021.2022. The increases in earnings reflected slightly higherreflects increases in the gross margin rates in the grocery and foodservice businesses,lower fuel expenses, partly offset by higher personnel costs, fuel expenseexpenses.
Non-Controlled Businesses
After-tax earnings of our non-controlled businesses include our proportionate share of earnings attributable to our investments in Kraft Heinz, Occidental Petroleum, Pilot (through January 31, 2023) and insurance costs. McLane’s groceryBerkadia. After-tax earnings attributable to these businesses increased $353 million in the second quarter and food service operating results continue$639 million in the first six months of 2023 versus 2022, primarily due to be adversely affected by supply chain constraints, includingearnings from Occidental Petroleum and increases in earnings attributable to Kraft Heinz. We adopted the effectsequity method of laboraccounting for our investment in Occidental Petroleum common stock as of August 4, 2022. As of January 31, 2023, Berkshire acquired a controlling interest in Pilot. We applied the equity method through the end of January 2023 on our pre-existing 38.6% interest and truck driver shortagesbegan consolidating Pilot’s financial statements in our Consolidated Financial Statements on February 1, 2023. See Notes 3 and higher inventory costs. We expect6 to the current difficult operating environment to continue for the remainderConsolidated Financial Statements.
47
Item 2. Management’s Discussion and Analysis of 2022.Financial Condition and Results of Operations
Investment and Derivative Contract Gains/LossesGains (Losses)
A summary of investment and derivative contract gains/lossesgains (losses) follows (dollars in millions).
|
| Third Quarter |
|
| First Nine Months |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Investment gains (losses) |
| $ | (13,500 | ) |
| $ | 4,851 |
|
| $ | (82,089 | ) |
| $ | 37,235 |
|
Derivative contract gains (losses) |
|
| 35 |
|
|
| 70 |
|
|
| (273 | ) |
|
| 780 |
|
Gains (losses) before income taxes and noncontrolling interests |
|
| (13,465 | ) |
|
| 4,921 |
|
|
| (82,362 | ) |
|
| 38,015 |
|
Income taxes and noncontrolling interests |
|
| (3,016 | ) |
|
| 1,043 |
|
|
| (17,295 | ) |
|
| 8,036 |
|
Net earnings (loss) |
| $ | (10,449 | ) |
| $ | 3,878 |
|
| $ | (65,067 | ) |
| $ | 29,979 |
|
Effective income tax rate |
|
| 20.9 | % |
|
| 20.7 | % |
|
| 20.8 | % |
|
| 20.9 | % |
Investment gains/losses
|
| Second Quarter |
|
| First Six Months |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Investment gains (losses) |
| $ | 33,061 |
|
| $ | (66,854 | ) |
| $ | 67,819 |
|
| $ | (68,589 | ) |
Derivative contract gains (losses) |
|
| — |
|
|
| (65 | ) |
|
| — |
|
|
| (308 | ) |
Gains (losses) before income taxes and noncontrolling interests |
|
| 33,061 |
|
|
| (66,919 | ) |
|
| 67,819 |
|
|
| (68,897 | ) |
Income taxes and noncontrolling interests |
|
| 7,192 |
|
|
| (13,881 | ) |
|
| 14,511 |
|
|
| (14,279 | ) |
Net earnings (loss) |
| $ | 25,869 |
|
| $ | (53,038 | ) |
| $ | 53,308 |
|
| $ | (54,618 | ) |
Effective income tax rate |
|
| 21.7 | % |
|
| 21.0 | % |
|
| 21.3 | % |
|
| 20.8 | % |
Unrealized gains and losses arising from changes in market prices of investments in equity securities are included in our reported earnings, which significantly increases the volatility of our periodic net earnings due to the magnitude of our equity securities portfolio and the inherent volatility of equity securities prices. Unrealized gains and losses recorded in earnings also include the effects of changes in foreign currency exchange rates on investments in equity securities of non-U.S. issuers that are held by our U.S. basedU.S.-based subsidiaries.
Pre-tax investment gains/gains and losses included net unrealized lossesgains of $12.9$33.0 billion in the thirdsecond quarter and $80.5$63.8 billion in the first ninesix months of 2022 compared to2023 and net unrealized gainslosses of $4.8$66.9 billion in the thirdsecond quarter and $36.2$68.5 billion in the first ninesix months of 20212022 on securities we held at the end of the applicable period. Taxable investment gains/gains and losses on equity securities sold is generally represents the difference between sales proceeds and the original cost of the securities sold. Sales of equity securities produced taxable gains of $3 million$2.4 billion in the thirdsecond quarter and taxable losses of $660 million$4.6 billion in the first ninesix months of 20222023 compared to taxable gains of $0.9 billion$76 million in the thirdsecond quarter and $2.9 billionlosses of $663 million in the first ninesix months of 2021.2022. Pre-tax investment gains in the first six months of 2023 included a non-cash gain of approximately $3 billion related to the remeasurement of our pre-existing interest in Pilot to fair value through the application of acquisition accounting upon attaining control of Pilot for financial reporting purposes on January 31.
We believe that investment gains/gains and losses, whether realized from sales or unrealized from changes in market prices, are often meaningless in terms of understanding our reported consolidated earnings or evaluating our periodic economic performance. We also continue to believe the investment gains/gains and losses recorded in earnings in any given period has little analytical or predictive value.
Derivative contract gains/losses
Derivative contract gains/losses include the changes in fair value of our few remaining equity index put option contract liabilities. The gains and losses from the changes in the fair values of these liabilities are recorded in earnings. As of September 30, 2022, our recorded liability at fair value was less than $1 million. Our ultimate payment obligations, if any, under these contracts will be determined as of the contract expiration dates based on the intrinsic value as defined in the contracts.
41
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Other
A summary of after-tax other earnings/losses follows (in millions).
| Third Quarter |
|
| First Nine Months |
| ||||||||||
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Equity method earnings | $ | 362 |
|
| $ | 310 |
|
| $ | 874 |
|
| $ | 665 |
|
Acquisition accounting expenses |
| (161 | ) |
|
| (169 | ) |
|
| (484 | ) |
|
| (532 | ) |
Corporate interest expense, before foreign currency effects |
| (66 | ) |
|
| (75 | ) |
|
| (203 | ) |
|
| (232 | ) |
Foreign currency exchange rate gains on Berkshire and BHFC |
| 858 |
|
|
| 196 |
|
|
| 2,441 |
|
|
| 676 |
|
Other |
| 48 |
|
|
| 87 |
|
|
| 207 |
|
|
| 76 |
|
| $ | 1,041 |
|
| $ | 349 |
|
| $ | 2,835 |
|
| $ | 653 |
|
| Second Quarter |
|
| First Six Months |
| ||||||||||
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Acquisition accounting expenses | $ | (200 | ) |
| $ | (162 | ) |
| $ | (402 | ) |
| $ | (323 | ) |
Corporate interest expense, before foreign currency effects |
| (54 | ) |
|
| (67 | ) |
|
| (118 | ) |
|
| (137 | ) |
Foreign currency exchange rate gains on Berkshire |
| 465 |
|
|
| 1,061 |
|
|
| 448 |
|
|
| 1,583 |
|
Other earnings |
| 129 |
|
|
| 80 |
|
|
| 301 |
|
|
| 159 |
|
| $ | 340 |
|
| $ | 912 |
|
| $ | 229 |
|
| $ | 1,282 |
|
After-tax equity method earnings include our proportionate share of earnings attributable to our investments in Kraft Heinz, Pilot, Berkadia, Electric Transmission of Texas and Iroquois Gas Transmission Systems. Equity method earnings increased $209 million in the first nine months of 2022 versus 2021, primarily due to higher earnings from Kraft Heinz and Pilot. Beginning in the fourth quarter of 2022, equity method earnings will also include Occidental Petroleum. See Note 5 to the Consolidated Financial Statements.
After-tax acquisition accounting expenses include charges arising from the application of the acquisition method in connection with certain of Berkshire’s past business acquisitions. Such charges arise primarily from the amortization of intangible assets recorded in connection with those business acquisitions.
Foreign currency exchange rate gains and losses pertain to Berkshire’s and BHFC’s Euro, Great Britain Pound and Japanese Yen denominated debt and BHFC’s Euro and Great Britain Pound denominated debt. Changes in foreign currency exchange rates produce unrealized gains and losses from the periodic revaluation of these liabilities into U.S. Dollars. In 2023 and 2022, we recorded significant foreign currency exchange rate gains on these debt issues due to strengthening of the U.S. Dollar, which reduced the U.S Dollar carrying value of the debt. These gains were largely offset by losses included in investment gains/losses, pertaining to non-U.S. Dollar denominated investments held by our U.S. based subsidiaries. The gains and losses recorded in any given period can be significant due to the magnitude of the borrowings and the inherent volatility in foreign currency exchange rates. Other earnings/lossesearnings consist primarily of Berkshire parent company investment income and corporate expenses, other intercompany interest income where the interest expense is included in earnings of the operating businesses and unallocated income taxes.
48
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Financial Condition
Our Consolidated Balance Sheet continues to reflect very significant liquidity and a very strong capital base. Our Consolidated shareholders’ equity attributable to Berkshire shareholders at SeptemberJune 30, 20222023 was $455.4$539.9 billion, a decreasean increase of $50.8$66.5 billion since December 31, 2021.2022. Net lossearnings attributable to Berkshire shareholders was $41.0$71.4 billion in the first ninesix months of 2022,2023, which included after-tax lossesgains on our investments of $64.9$53.3 billion. Investment gains and losses from changes in the market prices of our investments in equity securities will produce significant volatility in our earnings.
Berkshire’s common stock repurchase program, as amended, permits Berkshire to repurchase its Class A and Class B shares at prices below Berkshire’s intrinsic value, as conservatively determined by Warren Buffett, Berkshire’s Chairman of the Board and Chief Executive Officer, and Charlie Munger, Vice Chairman of the Board. The program does not specify a maximum number of shares to be repurchased and does not require any specified repurchase amount. The program is expected to continue indefinitely. We will not repurchase our stock if it reduces the total amount of Berkshire’s consolidated cash, cash equivalents and U.S. Treasury Bills holdings below $30 billion. Financial strength and redundant liquidity will always be of paramount importance at Berkshire. Berkshire paid $5.2$5.8 billion in the first ninesix months of 20222023 to repurchase shares of its Class A and B common stock.
At SeptemberJune 30, 2022,2023, our insurance and other businesses held cash, cash equivalents and U.S. Treasury Bills of $105.2$141.9 billion, which included $77.9$120.4 billion invested in U.S. Treasury Bills. Investments in equity and fixed maturity securities (excluding our investments in Kraft Heinz and Occidental common stock) were $324.8$375.8 billion. During the first ninesix months of 2022,2023, we paid cash of $66.2$7.4 billion to acquire equitiesequity securities and we received proceeds of $17.3$25.8 billion from sales of equity securities. On October 19, 2022,January 31, 2023, we acquired Alleghany Corporationan additional 41.4% interest in Pilot for cash consideration of $11.6 billion, which was funded by existing cash balances.approximately $8.2 billion.
Our consolidated borrowings at SeptemberJune 30, 20222023 were $116.5$125.3 billion, of which over 95% were by the Berkshire parent company, BHFC, BNSF, and BHE and its subsidiaries. Insubsidiaries and Pilot. During the first ninesix months of 2022, Berkshire and certain of its subsidiaries2023, we issued new term debt of approximately $10.2$4.0 billion in the aggregate and paid approximately $3.3repaid $7.6 billion on maturing term debt.
42
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Financial Condition (Continued)
Berkshire parent company outstanding debt at SeptemberJune 30, 20222023 was $19.2$17.7 billion, a decrease of $2.2$3.7 billion since December 31, 2021. In January 2022,2022. Berkshire repaid $600 million$4.3 billion of maturing senior notes and issued ¥128.5 billion (approximately $1.1 billion) of senior notes with maturity dates ranging from 2027 to 2052 and a weighted average interest rate of 0.5%. Berkshire’s borrowings decreased $2.7 billion in the first nine months of 2022 from changes in foreign currency exchange rates on its non-U.S. Dollar denominated debt. Berkshire parent company debt maturities over the next twelve months approximate $4.2 billion, all of which is in the first six months of 2023. In April 2023, Berkshire issued ¥164.4 billion (approximately $1.2 billion) of senior notes.
Berkshire’s insurance and other subsidiary outstanding borrowings were $22.3 billion at September 30, 2022, which included seniorSenior note borrowings of BHFC, a wholly-owned financing subsidiary, ofwere approximately $17.6 billion.$18.0 billion at June 30, 2023, substantially unchanged from December 31, 2022. BHFC’s borrowings are used to fund a portion of loans originated and acquired by Clayton Homes and equipment held for lease by our railcar leasing business. In March 2022, BHFC issued $4.5 billion of senior notes with maturity dates ranging from 2027 to 2052 and a weighted average interest rate of 3.4% and issued €1.25 billion of senior notes maturing in 2030 and 2034 with a weighted average interest rate of 1.8%. Aggregate maturities of BHFC debt in the first nine months of 2022 were $775 million. Berkshire guarantees BHFC’s senior notes for the full and timely payment of principal and interest.
BNSF’s outstanding debt was $23.3$24.3 billion as of SeptemberJune 30, 2022,2023, an increase of $83$854 million from December 31, 2021.2022. In June 2022,2023, BNSF issued $1.0$1.6 billion of 4.45%5.2% debentures due in 2053.2054. During the first ninesix months of 2022,2023, BNSF repaid approximately $900$700 million of term debt. Outstanding borrowings of BHE and its subsidiaries were $51.7$53.9 billion at SeptemberJune 30, 2022, a decrease2023, an increase of $112 million$1.1 billion from December 31, 2021.2022. In April 2022,May 2023, a BHE subsidiary issued $1.0$1.2 billion of 4.6% senior notes5.5% first mortgage bonds due in 2053, and during2054. During the first ninesix months of 2022,2023, BHE and its subsidiaries issuedrepaid approximately $1.3$1.4 billion of fixed and variable rate term debt with a weighted average interest rate of 3.9% as of September 30, 2022 and maturity dates ranging from 2024 to 2052.debt. Aggregate debt maturities for BHE and BNSF over the next twelve months approximate $3.6$4.5 billion. Borrowings of Pilot were $5.9 billion as of the January 31, 2023 acquisition date and were $5.8 billion at June 30, 2023. Berkshire does not guarantee the repayment of debt or other borrowings issued by BNSF, BHE, Pilot or any of their subsidiaries.subsidiaries or affiliates.
In the first ninesix months of 2022,2023, our diverse group of businesses generated net operating cash flows of approximately $27.0$21.1 billion. Our consolidated capital expenditures for property, plant and equipment and equipment held for lease were $10.9$8.4 billion in the first ninesix months of 2022,2023, which included capital expenditures by our railroad, utilitiesBNSF and energy businesses (BNSF and BHE)BHE of $7.9$5.7 billion. BNSF and BHE maintain very large investments in capital assets (property, plant and equipment) and will regularly make significant capital expenditures in the normal course of business. ForecastedWe forecast capital expenditures for BHE and BNSF over the remainder of 20222023 will approximate $3.7$8.3 billion.
On August 16, 2022, the Inflation Reduction Act of 2022 (“the 2022 act”) was signed into law. The 2022 act contains numerous provisions, including a 15% corporate alternative minimum income tax on “adjusted financial statement income”, expanded tax credits for clean energy incentives and a 1% excise tax on corporate stock repurchases. The provisions of the 2022 act becomeare effective for tax years beginning after December 31, 2022. We currently doOn December 27, 2022, the IRS and Department of Treasury issued initial guidance for taxpayers subject to the corporate alternative minimum tax addressing certain, but not expect a material impact on our consolidated financial statements. However, we expect futureall, issues that need clarification. The IRS and Department of Treasury may release additional guidance fromin the Treasury Department andfuture. We will continue to evaluate the impact of the Act2022 act as more guidance becomes available. We currently do not expect that compliance with the provisions of the 2022 act will have a material impact on our Consolidated Financial Statements.
49
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Financial Condition (Continued)
On July 10, 2023, BHE announced that it had executed an agreement to acquire an additional 50% interest in Cove Point LNG, LP, which would increase its ownership interest to 75%. The transaction is valued at $3.3 billion and is subject to applicable regulatory approvals. BHE expects to fund the acquisition with cash on hand.
Contractual Obligations
We are party to other contracts associated with ongoing business activities, which will result in cash payments to counterparties in future periods. Certain obligations are included in our Consolidated Balance Sheets, such as operating lease liabilities and shared aircraft repurchase liabilities of NetJets.
We are also obligated to pay claims arising from property and casualty insurance companies. Such liabilities, including amounts from retroactive reinsurance, were $128.3$143.5 billion at SeptemberJune 30, 2022.2023. However, the timing and amount of the payments under insurance and reinsurance contracts are contingent upon the outcome of future events. Actual payments will likely vary, perhaps materially, from any forecasted payments, as well as from the liabilities currently recorded in our Consolidated Balance Sheet. We anticipate that these payments will be funded by operating cash flows.
Other obligations pertaining to the acquisition of goods or services in the future, such as certain purchase obligations, are not currently reflected in the Consolidated Financial Statements and will be recognized in future periods as the goods are delivered or services are provided. As of SeptemberJune 30, 2022,2023, the largest categories of our long-term contractual obligations primarily related to fuel, capacity, transmission and maintenance contracts and capital expenditure commitments of BHE and BNSF, and aircraft purchase commitments of NetJets.
43
Item 2. Management’s DiscussionNetJets and Analysis of Financial Condition and Results of Operations
Contractual Obligations (Continued)
On March 20, 2022, we agreed to acquire all of the outstanding shares of Alleghany common stock for cash consideration of approximately $11.6 billion. On October 19, 2022, the acquisition of Alleghany closed. We also have an agreement to acquire an additional 41.4% of Pilot in 2023 and agreements to acquire certain non-controlling interests of consolidated subsidiaries as described in Note 26 to the Consolidated Financial Statements included in Item 8 of Berkshire’s Annual Report on Form 10-K for the year ended December 31, 2021.raw materials purchase commitments.
Except as otherwise disclosed in this Quarterly Report, our contractual obligations as of SeptemberJune 30, 20222023 were, in the aggregate, not materially different from those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Berkshire’s Annual Report on Form 10-K for the year ended December 31, 2021.2022.
Critical Accounting Policies
Certain accounting policies require us to make estimates and judgments that affect the amounts reflected in the Consolidated Financial Statements. Such estimates and judgments necessarily involve varying, and possibly significant, degrees of uncertainty. Accordingly, certain amounts recorded in the financial statements will likely be adjusted in the future based on new available information and changes in other facts and circumstances. Reference is made to “Critical Accounting Policies” discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Berkshire’s Annual Report on Form 10-K for the year ended December 31, 2021.2022.
Our Consolidated Balance Sheet as of SeptemberJune 30, 20222023 includes estimated liabilities of $128.3$143.5 billion for unpaid losses and loss adjustment expenses from property and casualty insurance and reinsurance contracts. Due to the inherent uncertainties in the processes of establishing these liabilities, the actual ultimate claim amounts will likely differ from the currently recorded amounts. A very small percentage change in estimates of this magnitude can result in a material effect on periodic earnings. The effects from changes in these estimates are recorded as a component of insurance losses and loss adjustment expenses in the period of the change.
Our Consolidated Balance Sheet as of SeptemberJune 30, 20222023 included goodwill of acquired businesses of $73.3approximately $85.9 billion, which included $10.6 billion of goodwill associated with the Alleghany and Pilot acquisitions, and indefinite-lived intangible assets of $18.4$20.5 billion. We evaluate these assets for impairment at least annually and we conducted our most recent annual review during the fourth quarter of 2021.2022. In connection with thatthe annual goodwill impairment review in the fourth quarter of 2022, the estimated fair values of fivesix reporting units did not exceed our carrying values by at least 20%. The most significant of these reporting units was Precision Castparts Corp. (“PCC”). TheOur estimated fair value of PCC was approximately $34.5$31.5 billion, exceeding our carrying value of approximately $31.1$30.3 billion by 10.7%4.0%. Our carrying value of PCC included goodwill of approximately $7.5 billion. For the fourfive other reporting units, our aggregate estimated fair value was approximately $2.5$4.5 billion, which exceeded our aggregate carrying value of approximately $2.3$4.1 billion by 9.2%9.9%. Our carrying value of these units included goodwill of approximately $1.2$1.4 billion.
50
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Critical Accounting Policies (Continued)
Goodwill and indefinite-lived intangible asset impairment reviews include determining the estimated fair values of our reporting units and assets. The key assumptions and inputs used in such determinations may include forecasting revenues and expenses, cash flows and capital expenditures, as well as an appropriate discount rate and other inputs. Significant judgment by management is required in estimating the fair value of a reporting unit and in performing impairment tests. Due to the inherent subjectivity and uncertainty in forecasting future cash flows and earnings over long periods of time, actual results may vary materially from the forecasts.
As of SeptemberJune 30, 2022,2023, we concluded it is more likely than not that goodwill recorded in our Consolidated Balance Sheet was not impaired. The long-term adverse consequences of the COVID-19 pandemic, geopolitical conflicts and general changes in business conditions, as well as other unanticipated events, on certain of our reporting units may prove to be worse than we currently anticipate, and we may need to record goodwill or indefinite-lived intangible asset impairment charges in future periods. Making estimates of the fair value of reporting units and judgments on goodwill impairments at this time are inherently subjective and will likely continue to be significantly affected by assumptions on the severity, duration or long-term effects of adverse events on a reporting unit’s business, which we cannot reliably predict. Consequently, any fair value estimates in such instances can be subject to wide variations.
Information concerning new accounting pronouncements is included in Note 2 to the accompanying Consolidated Financial Statements.
44
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
Investors are cautioned that certain statements contained in this document as well as some statements in periodic press releases and some oral statements of Berkshire officials during presentations about Berkshire or its subsidiaries are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”). Forward-looking statements include statements which are predictive in nature, which depend upon or refer to future events or conditions, or which include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates” or similar expressions. In addition, any statements concerning future financial performance (including future revenues, earnings or growth rates), ongoing business strategies or prospects and possible future Berkshire actions, which may be provided by management, are also forward-looking statements as defined by the Act. Forward-looking statements are based on current expectations and projections about future events and are subject to risks, uncertainties and assumptions about Berkshire and its subsidiaries, economic and market factors and the industries in which we do business, among other things. These statements are not guarantees of future performance and we have no specific intention to update these statements.
Actual events and results may differ materially from those expressed or forecasted in forward-looking statements due to a number of factors. The principal risk factors that could cause our actual performance and future events and actions to differ materially from such forward-looking statements include, but are not limited to, changes in market prices of our investments in fixed maturity and equity securities; losses realized from derivative contracts; the occurrence of one or more catastrophic events, such as an earthquake, hurricane, act of terrorism or cyber-attack that causes losses insured by our insurance subsidiaries and/or losses to our business operations; the frequency and severity of epidemics, pandemics or other outbreaks, including COVID-19, that negatively affect our operating results and restrict our access to borrowed funds through the capital markets at reasonable rates; the adverse impacts from geopolitical events; changes in laws or regulations affecting our insurance, railroad, utilities and energy and finance subsidiaries; changes in federal income tax laws; and changes in general economic and market factors that affect the prices of securities or the industries in which we do business.
51
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Reference is made to Berkshire’s most recently issued Annual Report on Form 10-K for the year ended December 31, 2022 and in particular the “Market Risk Disclosures” included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” As of SeptemberJune 30, 2022,2023, there were no material changes in the market risks described in Berkshire’s Annual Report on Form 10-K for the year ended December 31, 2021.Report.
Item 4. Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Chairman (Chief Executive Officer) and the Senior Vice President (Chief Financial Officer), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Chairman (Chief Executive Officer) and the Senior Vice President (Chief Financial Officer) concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s periodic SEC filings. During the quarter, there have been no significant changes in the Company’s internal control over financial reporting or in other factors that could significantly affect internal control over financial reporting.
Part II Other Information
Item 1. Legal Proceedings
Berkshire and its subsidiaries 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 consolidated 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 currently believe that any liability that may arise as a result of other pending legal actions will not have a material effect on our consolidated financial condition or results of operations.
Item 1A. Risk Factors
Our significant business risks are described in Item 1A to Form 10-K for the year ended December 31, 2021,2022, to which reference is made herein. The risks and uncertainties we describe are not the only ones facing us. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business or operations. Any adverse effect on our business, financial condition or operating results could result in a decline in the value of our securities and the loss of all or part of your investment.
4552
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds and Issuer Repurchases of Equity Securities
Berkshire’s common stock repurchase program permits Berkshire to repurchase its Class A and Class B 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. Repurchases may be in the open market or through privately negotiated transactions. Information with respect to Berkshire’s Class A and Class B common stock repurchased during the thirdsecond quarter of 20222023 follows.
Period | Total number of |
|
| Average price |
|
| Total number of |
|
| Maximum number or | Total number of |
|
| Average price |
|
| Total number of |
|
| Maximum number or | ||||||
July |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
April |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Class A common stock |
| 1,302 |
|
| $ | 424,974.96 |
|
|
| 1,302 |
|
| * |
| 177 |
|
| $ | 472,004.70 |
|
|
| 177 |
|
| * |
Class B common stock |
| — |
|
| $ | — |
|
|
| — |
|
| * |
| 220,351 |
|
| $ | 308.57 |
|
|
| 220,351 |
|
| * |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
August |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
May |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Class A common stock |
| 595 |
|
| $ | 444,401.28 |
|
|
| 595 |
|
| * |
| 238 |
|
| $ | 493,507.36 |
|
|
| 238 |
|
| * |
Class B common stock |
| — |
|
| $ | — |
|
|
| — |
|
| * |
| — |
|
| $ | — |
|
|
| — |
|
| * |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
September |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
June |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Class A common stock |
| 519 |
|
| $ | 424,972.62 |
|
|
| 519 |
|
| * |
| 627 |
|
| $ | 506,476.84 |
|
|
| 627 |
|
| * |
Class B common stock |
| — |
|
| $ | — |
|
|
| — |
|
| * |
| 2,134,093 |
|
| $ | 335.55 |
|
|
| 2,134,093 |
|
| * |
* The program does not specify a maximum number of shares to be repurchased or 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 repurchase program. Berkshire will not repurchase its common stock if the repurchases reduce the total value of Berkshire’s consolidated cash, cash equivalents and U.S. Treasury Bills holdings to less than $30 billion.
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
Information regarding the Company’s mine safety violations and other legal matters disclosed in accordance with Section 1503(a) of the Dodd-Frank Reform Act is included in Exhibit 95 to this Form 10-Q.
Item 5. Other Information
Berkshire has never adopted a Rule 10b5-1 trading arrangement (as that term is defined in Item 408(a)(1)(i) of Regulation S-K). None of our directors or executive officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement (as defined in Item 408(c) of Regulation S-K) during the second quarter of 2023.
4653
Item 6. Exhibits
a. Exhibits | |
3(i) | Restated Certificate of Incorporation Incorporated by reference to Exhibit 3(i) to Form 10-K filed on March 2, 2015. |
3(ii) | Amended and Restated By-Laws Incorporated by reference to Exhibit 3(ii) to Form 8-K filed on May |
31.1 | |
31.2 | |
32.1 | |
32.2 | |
95 | |
101 | The following financial information from Berkshire Hathaway Inc.’s Quarterly Report on Form 10-Q for the quarter ended |
104 | Cover Page Interactive Data File (formatted as iXBRL and contained in Exhibit 101) |
SIGNATURE
Pursuant to the requirement of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
BERKSHIRE HATHAWAY INC. | ||
(Registrant) | ||
Date: | /S/ MARC D. HAMBURG | |
(Signature) | ||
Marc D. Hamburg, | ||
Senior Vice President and | ||
Principal Financial Officer |
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